- --------------------------------------------------------------------------------
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: March 25, 1998
(Date of earliest event reported)
MERRILL LYNCH MORTGAGE INVESTORS, INC. (as depositor under the Trust Agreement,
dated as of March 1, 1998, and pursuant to which an Indenture was entered into,
providing for, inter alia, the issuance of PacificAmerica Home-Equity Loan
Asset-Backed Notes, Series 1998-1)
Merrill Lynch Mortgage Investors, Inc.
(Exact name of registrant as specified in its charter)
Delaware 333-24327 33-3416059
- -------- --------- ----------
(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 March 1, 1998 among
PacificAmerica Money Center, Inc., as master servicer, the PacificAmerica Home
Equity Loan Trust Series 1998-1, as issuer and Bankers Trust Company of
California, N.A., as indenture trustee.
4.4 Amended and Restated Trust Agreement dated as of March 1,
1998 between Merrill Lynch Mortgage Investors Inc., as depositor and Wilmington
Trust Company, as owner trustee.
4.5 Indenture dated as of March 1, 1998 between Home Equity Loan
Trust Series 1998-1, as issuer and Bankers Trust Company of California, N.A., as
indenture trustee.
10.1 Home Equity Loan Purchase Agreement dated as of March 19,
1998 by and among Merrill Lynch Mortgage Investors Inc., PacificAmerica Money
Center, Inc., the PacificAmerica Home Equity Loan Trust Series 1998-1 and
Bankers Trust Company of California, N.A.
<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: March 25, 1998
================================================================================
PACIFICAMERICA MONEY CENTER, INC.,
as Master Servicer,
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
as Indenture Trustee,
and
PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-1,
as Issuer
----------------------
SERVICING AGREEMENT
Dated as of March 1, 1998
----------------------
Fixed and Adjustable-Rate Home Equity Loans
PacificAmerica Home Equity Loan Asset-Backed Notes, Series 1998-1
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
1
Section 1.01. DEFINITIONS..................................................1
Section 1.02. OTHER DEFINITIONAL PROVISIONS................................1
Section 1.03. INTEREST CALCULATIONS........................................2
ARTICLE II
Representations and Warranties
3
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE MASTER
SERVICER.....................................................3
Section 2.02. EXISTENCE....................................................4
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES................4
ARTICLE III
Administration and Servicing of Mortgage Loans
6
Section 3.01. SERVICER TO ASSURE SERVICING.................................6
Section 3.02. SUBSERVICING AGREEMENTS BETWEEN MASTER SERVICER
AND SUBSERVICERS.............................................7
Section 3.03. SUCCESSOR SUBSERVICERS.......................................8
Section 3.04. LIABILITY OF THE MASTER 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.....................12
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. RESERVED....................................................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...19
Section 3.15. SERVICING COMPENSATION......................................20
Section 3.16. ANNUAL STATEMENTS OF COMPLIANCE.............................21
Section 3.17. ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT.....21
Section 3.18. OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS...............22
i
<PAGE>
PAGE
Section 3.19. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE
GENERALLY AND REPORTS OF FORECLOSURES AND ABANDONMENTS
OF MORTGAGED PROPERTY.......................................22
Section 3.20. MASTER SERVICER TO ACT AS AGENT AND BAILEE OF THE
INDENTURE TRUSTEE...........................................22
ARTICLE IV
Remittance Reports
23
Section 4.01. REMITTANCE REPORTS..........................................23
Section 4.02. ADVANCES....................................................23
Section 4.03. COMPENSATING INTEREST PAYMENTS..............................23
ARTICLE V
The Master Servicer
24
Section 5.01. LIABILITY OF THE MASTER SERVICER............................24
Section 5.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE MASTER SERVICER.........................24
Section 5.03. LIMITATION ON LIABILITY OF THE MASTER SERVICER AND OTHERS...24
Section 5.04. MASTER SERVICER NOT TO RESIGN...............................25
Section 5.05. DELEGATION OF DUTIES........................................26
Section 5.06. MASTER SERVICER TO PAY INDENTURE TRUSTEE'S AND OWNER
TRUSTEE'S EXPENSES; INDEMNIFICATION.........................26
Section 5.07. ASSIGNMENT OF SERVICING AGREEMENT...........................27
ARTICLE VI
Default
27
Section 6.01. SERVICING DEFAULT...........................................27
Section 6.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR..........30
Section 6.03. NOTIFICATION TO NOTEHOLDERS.................................31
Section 6.04. WAIVER OF DEFAULTS..........................................32
ARTICLE VII
Miscellaneous Provisions
33
Section 7.01. AMENDMENT...................................................33
Section 7.02. GOVERNING LAW...............................................33
Section 7.03. NOTICES.....................................................33
Section 7.04. SEVERABILITY OF PROVISIONS..................................35
ii
<PAGE>
PAGE
Section 7.05. THIRD-PARTY BENEFICIARIES...................................35
Section 7.06. COUNTERPARTS................................................35
Section 7.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS....................35
Section 7.08. TERMINATION UPON PURCHASE BY THE MASTER SERVICER............35
Section 7.09. NO PETITION.................................................35
Section 7.10. NO RECOURSE.................................................35
ARTICLE VIII
ADMINISTRATIVE DUTIES OF THE MASTER SERVICER
36
Section 8.01. ADMINISTRATIVE DUTIES.......................................36
Section 8.02. RECORDS.....................................................37
Section 8.03. ADDITIONAL INFORMATION TO BE FURNISHED......................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 March 1, 1998, among
PacificAmerica Money Center, Inc., as Master Servicer (in such capacity, the
"Master Servicer"), Bankers Trust Company of California, N.A., as Indenture
Trustee, and PacificAmerica Home Equity Loan Trust Series 1998-1, 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
Company on the Closing Date and (ii) the Subsequent Mortgage Loans to the Issuer
on each Subsequent Transfer Date ;
WHEREAS, the Company will sell the Initial Mortgage Loans and
transfer all of its rights under 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 the Certificates;
WHEREAS, pursuant to the terms of the Indenture, the Issuer
will issue and transfer to or at the direction of the Company, the Notes; and
WHEREAS, pursuant to the terms of this Servicing Agreement,
the Master 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 March 1, 1998 (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.
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
<PAGE>
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 MASTER
SERVICER. The Master Servicer represents and warrants to the Issuer and for the
benefit of the Indenture Trustee, as pledgee of the Mortgage Loans, the Note
Insurer and the Noteholders, as of the Closing Date, that:
(i) The Master Servicer is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power to own its assets and to
transact the business in which it is currently engaged. The Master
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 Master Servicer or the validity
or enforceability of the Mortgage Loans; provided that the Master
Servicer is not qualified as a servicer in any jurisdiction as of the
date hereof;
(ii) The Master 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 Master Servicer
enforceable in accordance with its terms, except as enforcement of such
terms may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect, affecting the
enforcement of creditors' rights generally and by the availability of
equitable remedies (whether at law or in equity);
(iii) The Master 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 Master Servicer will not violate any provision of any existing
law or regulation or any order or decree of any court applicable to the
Master Servicer or any provision of the certificate of incorporation or
bylaws of the Master Servicer, or constitute a material breach of any
mortgage, indenture, contract or other agreement to which the Master
Servicer is a party or by which the Master Servicer may be bound, nor,
to the Master Servicer's knowledge, will any such mortgage,
-3-
<PAGE>
indenture, contract or other agreement materially affect in the future
the ability of the Master Servicer to perform its obligations under
this Agreement or its business, properties, assets, or condition
(financial or other); 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 Master Servicer threatened, against the
Master Servicer or any of its properties or with respect to this
Servicing Agreement or the Notes or the Certificates which, to the
knowledge of the Master Servicer, has 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 Master 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 Master
Servicer, on behalf of and subject to the direction of the Note Insurer or, if a
Note Insurer Default exists, the Indenture Trustee, as pledgee of the Mortgage
Loans, or the Note 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 notice of breach of such representations and
warranties from the Indenture Trustee, the Issuer, the Owner Trustee, the
Seller, the Note Insurer or the Company. Upon the discovery by the Seller, the
Master Servicer, the Indenture Trustee, the Issuer, the Owner Trustee, the Note
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 Noteholders or the Certificateholders or the Note Insurer,
the party discovering such breach shall give prompt written notice to the other
parties. The Note Insurer or the Indenture Trustee may, and the Master Servicer
shall, request that (or if the Seller is the Master Servicer, the Seller shall)
pursuant to the terms of the Home Equity Loan Purchase Agreement, 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 Master Servicer and remitted by the Master 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 Master Servicer shall amend or cause
to be amended the Mortgage Loan Schedule to reflect the removal of such Mortgage
Loan
-4-
<PAGE>
and the substitution of the Eligible Substitute Mortgage Loans and the Master
Servicer shall promptly deliver the amended Mortgage Loan Schedule to the
related Subservicer, if any, the Note 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 Master 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 to the Master Servicer and
the Master 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. 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
Master Servicer shall notify the Indenture Trustee by delivering a request for
Release in the form of Exhibit B hereto, and then the Indenture Trustee shall
deliver the Mortgage Files relating to such Mortgage Loan to the Master
Servicer, together with all relevant endorsements and assignments prepared by
the Master 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 Master 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 Accepted Servicing Procedures, 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 Master 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 Master Servicer, in its capacity as Master 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) direct 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 Master
Servicer shall include, in addition, the power on behalf of the Noteholders, the
Indenture Trustee, the Note 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 (pursuant to the provisions of this
Servicing Agreement) and (iii) collect any Insurance Proceeds and Liquidation
Proceeds. Without limiting the generality of the foregoing, the Master Servicer
and any Subservicer acting on its behalf may, and is hereby authorized, and
empowered by the Indenture Trustee when the Master 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 Noteholders,
the Indenture Trustee, the Note 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 Master Servicer may exercise this power in its own name or
through the appointment of a Subservicer.
The Master Servicer, in such capacity, may not consent to the placing
of a lien senior to that of the Mortgage on the related Mortgaged Property.
The relationship of the Master Servicer (and of any successor to the
Master Servicer as Master 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.
-6-
<PAGE>
(b) Notwithstanding the provisions of Subsection 3.01(a), the Master
Servicer shall not take any action inconsistent with the interests of the
Indenture Trustee, the Note Insurer or the Noteholders or with the rights and
interests of the Indenture Trustee, the Note Insurer or the Noteholders under
this Servicing Agreement; provided, however, that in the event the interests of
the parties conflict, the Master Servicer shall act to maximize the value to the
Trust Estate.
(c) The Indenture Trustee shall furnish the Master Servicer with any
powers of attorney and other documents in form as provided to it necessary or
appropriate to enable the Master 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 Master Servicer or any Subservicers
under such powers of attorney.
Section 3.02. SUBSERVICING AGREEMENTS BETWEEN MASTER SERVICER AND
SUBSERVICERS. (a) With the consent of the Note Insurer, the Master 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 Master 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 Master Servicer shall include the provision that such Agreement may be
immediately terminated (i) (x) with cause and without any termination fee by the
Note Insurer or the Master Servicer hereunder and/or (y) without cause by the
Master Servicer (with the consent of the Note Insurer, which consent shall not
be unreasonably withheld), in which case the Master Servicer shall be solely
responsible for any termination fee or penalty resulting therefrom (which shall
not be the responsibility of the Indenture Trustee) and (ii) at the option of
the Note Insurer upon the termination or resignation of the Master Servicer
hereunder, in which case the Master 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 and shall provide, in the event of termination
or resignation of the Master Servicer, that (i) the Subservicer thereunder may
become the successor Master Servicer, with the approval of the Note Insurer, and
(ii) if the Subservicer does not elect to become the Master Servicer or is not
approved as the successor Master Servicer by the Note Insurer, the Note Insurer
may terminate the Subservicer without any termination fee; provided, however,
the Master Servicer shall be responsible for any such termination fee. With the
consent of the Note Insurer, the Master 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 Master Servicer to a Subservicer of
additional duties regarding the administration of the Mortgage Loans.
As of the date hereof, the Master Servicer has entered into the
Sub-Servicing Agreement with the Sub-Servicer for the servicing and
administration of the Mortgage Loans and, with the consent of the Note Insurer,
may enter into additional subservicing agreements with subservicers
-7-
<PAGE>
acceptable to the Indenture Trustee and the Note Insurer for the servicing and
administration of certain of the Mortgage Loans.
(b) As part of its servicing activities hereunder, the Master Servicer,
for the benefit of the Indenture Trustee, the Note Insurer and the Noteholders,
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 Master Servicer, in its good faith business
judgment, would require were it the owner of the related Mortgage Loans. The
Master 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 Master 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, but only with the written
consent of the Note Insurer; PROVIDED, HOWEVER, that upon termination, the
Master Servicer shall either act as Master Servicer of the related Mortgage
Loans or enter into an appropriate contract with a successor Subservicer
reasonably acceptable to the Indenture Trustee and the Note 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, which Subservicing Agreement shall be acceptable to and acknowledged by
the Note Insurer and acknowledged by the Indenture Trustee.
Section 3.04. LIABILITY OF THE MASTER SERVICER. (a) Notwithstanding any
Subservicing Agreement, any of the provisions of this Servicing Agreement
relating to agreements or arrangements between the Master Servicer and a
Subservicer or reference to actions taken through a Subservicer or otherwise,
the Master Servicer shall under all circumstances remain obligated and primarily
liable to the Indenture Trustee, the Noteholders and the Note 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
Master Servicer shall not be diminished by virtue of Subservicing Agreements or
by virtue of indemnification of the Master Servicer by any Subservicer, or any
other Person. The obligations and liability of the Master Servicer shall remain
of the same nature and under the same terms and conditions as if the Master
Servicer alone were servicing and administering the related Mortgage Loans. The
Master 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 Master 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 Master Servicer; PROVIDED, FURTHER, however,
that the foregoing provision shall not affect the obligation of the Master
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 Master Servicer alone, and the Indenture Trustee, the
Note Insurer and the Noteholders 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 Sections 3.05 and 7.05.
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 Master 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 Master Servicer
under each of the Subservicing Agreements and each Subservicing Agreement shall
provide for such successor. In such event, the Indenture Trustee or its designee
as the successor Master Servicer shall be deemed to have assumed all of the
Master Servicer's rights and obligations therein and to have replaced the Master
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 Master Servicer, except that the Indenture Trustee or
its designee as a successor Master Servicer shall not be deemed to have assumed
any obligations or liabilities of the Master Servicer arising prior to such
assumption and the Master Servicer shall not thereby be relieved of any
liability or obligations under such Subservicing Agreements arising prior to
such assumption; provided, however, that if the Master Servicer resigns or is
terminated due to an Event of Default not caused by the Subservicer, the
Subservicer shall have the option if it so chooses, with the consent of the Note
Insurer, to become the successor Master Servicer in which event the Indenture
Trustee shall name the Subservicer as the successor Master Servicer. Nothing in
the foregoing shall be deemed to entitle the Indenture Trustee or its designee
as a successor Master Servicer at any time to receive any portion of the
servicing compensation provided under Section 3.17 except for such portion as
the Master Servicer would be entitled to receive.
(b) In the event that the Indenture Trustee or its designee as
successor Master Servicer for the Indenture Trustee assumes the servicing
obligations of the Master Servicer under Section 6.02, upon the request of the
Indenture Trustee or such designee as successor Master Servicer, the Master
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 Master Servicer.
Section 3.06. COLLECTION OF MORTGAGE LOAN PAYMENTS; COLLECTION ACCOUNT.
(a) The Master Servicer will coordinate and monitor remittances by Subservicers
with respect to the Mortgage Loans in accordance with this Servicing Agreement.
-9-
<PAGE>
(b) The Master 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 Master Servicer or the
related Subservicer may in its discretion (i) waive or permit to be waived any
late payment charge or assumption fee, 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 Master Servicer or the
related Subservicer may permit the foregoing only if it believes, in its good
faith business judgment, that recoveries of Monthly Payments will be maximized
as a result of such actions; provided further, however, that the Master Servicer
shall not 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
after to the final maturity date on the Notes; provided, however, that the
Master Servicer may approve (a) through (d) if it believes it is in the best
interests of the Noteholders and the Note Insurer. In the event the Master
Servicer or related Subservicer shall consent to the deferment of the due dates
for payments due on a Mortgage Note, the Master 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 Master Servicer or the related Subservicer to make an
Advance shall apply only to the extent that the Master Servicer believes, in its
good faith business judgment, that such advances are not Nonrecoverable
Advances.
(c) Promptly after the Master 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, the Master 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 Note
Insurer and the Indenture Trustee a Liquidation Report in the form attached
hereto as Exhibit C.
(d) The Master 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 Master 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 described in the proviso immediately following
item (vii) of this subsection (d)) within two Business Days following receipt
thereof, including the following payments and collec tions received or made by
it (without duplication):
(i) all payments of principal of or interest on the
Mortgage Loans received by the Master Servicer after the Cut-off Date
or the Subsequent Cut-off Date directly from Mortgagors or from the
respective Subservicer;
-10-
<PAGE>
(ii) the aggregate Repurchase Price of the Mortgage
Loans purchased by the Master Servicer pursuant to Section 3.18;
(iii) Net Liquidation Proceeds;
(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 Master Servicer,
including 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 Master 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
Master 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 Master Servicer may at any time (prior to being terminated under
this Agreement) withdraw such amount from the Collection Account, any provision
herein to the contrary notwithstanding. The Master 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 Noteholders and the Note Insurer, as their interests
may appear.
(e) Funds in the Collection Account may be invested in Eligible
Investments, but shall not be commingled with the Master Servicer's own funds or
general assets or with funds respecting payments on mortgage loans or with any
other funds not related to the Notes. Income earned on such Eligible Investments
shall be for the account of the Master Servicer.
(f) Payments in the nature of prepayment penalties received on the
Mortgage Loans or Foreclosure Profits shall not be deposited in the Collection
Account, but rather shall be received and held by the Master Servicer (or the
Subservicer) solely for the benefit of and at the direction of the Seller. Such
amounts shall not be applied or made available by the Master Servicer (or the
Subservicer) for any other purpose.
-11-
<PAGE>
(g) The Master Servicer will require each Subservicer to hold all funds
constituting collections on the Mortgage Loans, pending remittance thereof to
the Master Servicer, in one or more accounts in the name of the Indenture
Trustee meeting the requirements of an Eligible Account. 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 Master Servicer no
later than one Business Day following receipt thereof and the Master Servicer
shall deposit any such remittances received from any Subservicer within two
Business Days following receipt by the Master Servicer.
Section 3.07. WITHDRAWALS FROM THE COLLECTION ACCOUNT. (a) The Master
Servicer shall, from time to time as provided herein, make withdrawals from the
Collection Account of amounts on 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 fifth
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 Servicing Advances, 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), net of any amount retained by the
Subservicer in respect of the Subservicing Fee pursuant to Section
3.07(b);
(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 Master Servicer or other entity, all
amounts received thereon and not required to be distributed to
Noteholders as of the date on which the related Repurchase Price is
determined;
(v) to reimburse the Master 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 Master
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;
-12-
<PAGE>
(vi) to reimburse the Master Servicer or any Subservicer
from Insurance Proceeds or Liquidation Proceeds relating to a
particular Mortgage Loan for amounts expended by the Master 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 Master Servicer or any Subservicer
for any unreimbursed Nonrecoverable Advance previously made, and
otherwise not reimbursed pursuant to this Subsection 3.07(a);
(viii) to withdraw any other amount deposited in the
Collection Account that was not required to be deposited therein
pursuant to Section 3.06;
(ix) to reimburse the Master Servicer for costs
associated with any environmental report specified in Section 3.13(c);
(x) to clear and terminate the Collection Account upon
a termination pursuant to Section 7.08; and
(xi) to pay to the Master Servicer or any Subservicer
income earned on Eligible Investments in the Collection Account.
In connection with withdrawals pursuant to clauses (ii), (iii), (iv), (v) and
(vi), the Master Servicer's entitlement thereto is limited to collections or
other recoveries on the related Mortgage Loan, and the Master Servicer shall
keep or cause the Subservicer to 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 Master
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,
Servicing Advances and Nonrecoverable Advances made by such Subservicers or the
Sub- Servicing Fee; PROVIDED THAT any amount so retained in respect of the
Subservicing Fee shall be deemed to have been received by the Master Servicer in
respect of the Servicing Fee.
Section 3.08. COLLECTION OF TAXES, ASSESSMENTS AND SIMILAR ITEMS;
SERVICING ACCOUNTS.
(a) The Master Servicer shall establish and maintain or cause the
related Subservicer to establish and maintain, one or more Servicing Accounts.
The Master 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.
-13-
<PAGE>
(b) The deposits in the Servicing Accounts shall be held in trust by
the Master 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 Master 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; 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 Master
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
Master Servicer within two days of receipt. The Master Servicer shall advance
from its own funds amounts needed to pay items payable from the Servicing
Accounts if the Master Servicer reasonably believes that such amounts are
recoverable from the related Mortgagor. The Master Servicer shall comply with
all laws relating to the Servicing Accounts, including laws relating to payment
of interest on the Servicing Accounts. The Master Servicer agrees to abide by
applicable law with respect to the payment of interest on escrow accounts to
Mortgagors. The Servicing Accounts shall not be the property of the Issuer, the
Note Insurer or the Noteholders.
Section 3.09. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
THE MORTGAGE LOANS. The Master Servicer or the Seller shall provide, and shall
cause any Subservicer to provide, to the Indenture Trustee and the Note Insurer
access to the documentation regarding the related Mortgage Loans and REO
Property and to the Noteholders, 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 Master Servicer
or the Subservicers that are designated by these entities; PROVIDED, HOWEVER,
that, unless otherwise required by law, the Master Servicer, the Seller 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 and the Note Insurer
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 Master Servicer, the Seller or any Subservicer. The Master Servicer, the
Seller and the Subservicers 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. RESERVED.
Section 3.11. MAINTENANCE OF HAZARD INSURANCE AND FIDELITY COVERAGE.
(a) The Master 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
-14-
<PAGE>
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. If the
Master Servicer shall obtain and maintain a blanket policy consistent with its
general mortgage servicing activities from an 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 Master 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 Master 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 Master Servicer of the Mortgage Loans, the Master
Servicer agrees to present, on behalf of itself, the Issuer, the Note Insurer
and the Indenture Trustee, claims under any such blanket policy.
(b) Any amounts collected by the Master 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 Master 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 Master 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 Noteholders, notwithstanding that the terms of the Mortgage
Loan so permit. Such costs of maintaining individual hazard insurance policies
shall be recoverable by the Master Servicer or a Subservicer out of related late
payments by the Mortgagor or out of Insurance Proceeds or Liquidation Proceeds
or by the Master 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 Master 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 amount of such
insurance available for the related Mortgaged Property under either the regular
-15-
<PAGE>
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).
(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 Master Servicer shall pay, or
cause the related Subservicer to pay, for any necessary repairs without any
right of reimbursement.
(f) The Master Servicer shall present, or cause the related Subservicer
to present, claims under any related hazard insurance or flood insurance policy.
(g) The Master 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 Master 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. The Master Servicer shall
promptly notify the Indenture Trustee and the Note Insurer of any material
change in the terms of such bond or policy. To the extent requested, the Master
Servicer shall provide to the Indenture Trustee and the Note 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 Master Servicer shall, to the extent
possible, give the Indenture Trustee and the Note 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 Master 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 Master 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 Master Servicer or the related
Subservicer may repurchase a Mortgage Loan at the Repurchase Price when the
Master Servicer requires acceleration of the Mortgage Loan, but only if the
Master Servicer is satisfied, as evidenced by an Officer's Certificate delivered
to the Indenture Trustee and the Note Insurer, that such Mortgage Loan is in
default or default is reasonably foreseeable. If the Master Servicer reasonably
believes that such due-on-sale clause cannot be enforced under applicable law,
that enforcement thereof is not in the best interests of the Noteholders and the
Note Insurer or, if a Note Insurer Default exists, of the Noteholders or if the
Mortgage Loan does not contain a due-on-sale clause, the Master 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 be covered by a hazard policy. In connection with any such
assumption, no material
-16-
<PAGE>
term of the related Mortgage Note may be changed. The Master Servicer shall
notify the Indenture Trustee and the Note 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. Upon the
instruction of the Master Servicer, the Indenture Trustee shall execute all
agreements relating to the foregoing.
(b) Notwithstanding the foregoing paragraph or any other provision of
this Servicing Agreement, the Master Servicer shall not be deemed to be in
default, breach or any other violation of its obligations hereunder by reason of
any assumption of a Mortgage Loan by operation of law or any conveyance by the
Mortgagor of the related Mortgaged Property or assumption of a Mortgage Loan
which the Master 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 Master
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 Master 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 Master Servicer follows the procedures in Subsection
(c) below. In connection with such foreclosure or other conversion, the Master
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 Noteholders, 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 Master 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 Noteholders 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 Master 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 Master Servicer may take
-17-
<PAGE>
into 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 Master Servicer shall not acquire any real property (or any
personal property incident to such real property) on behalf of the Issuer except
in connection with a default or reasonably foreseeable default of a Mortgage
Loan. In the event that the Master 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 Master Servicer on behalf of the Issuer
within two years after its acquisition on behalf of the Trust Estate.
(c) With respect to any Mortgage Loan as to which the Master 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
Master Servicer shall promptly notify the Indenture Trustee, the Owner Trustee
and the Note Insurer and shall act in accordance with any such directions and
instructions provided by the Note Insurer, or if a Note Insurer Default exists,
by the Issuer. Notwithstanding the preceding sentence of this Section 3.13(c),
with respect to any Mortgage Loan described by such sentence, the Master
Servicer shall, if requested by the Note Insurer, obtain and deliver to the
Issuer, the Indenture Trustee and the Note Insurer an environmental audit report
prepared by a Person who regularly conducts environmental audits using customary
industry standards. The Master Servicer shall be entitled to reimbursement for
such report pursuant to Section 3.07. If the Note Insurer has not provided
directions and instructions to the Master Servicer in connection with any such
Mortgage Loan within 30 days of a request by the Master Servicer for such
directions and instructions, then the Master 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 Master 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 or the Indenture
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 or the Indenture Trustee has been
indemnified by the Trust Fund 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 or the realization of all
amounts expected to be collected
-18-
<PAGE>
thereon (including the repurchase or liquidation through foreclosure or
otherwise), the Master Servicer will immediately deliver to the Indenture
Trustee a Request for Release in the form of Exhibit B hereto signed by a
Servicing Officer (which certification shall include a statement to 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 Master 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 Master Servicer
or Subservicer and execute and deliver to the Master 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 Master Servicer), together with the Mortgage Note with written
evidence of cancellation thereon.
(b) Each Request for Release may be delivered to the Indenture Trustee
(i) via mail or courier, (ii) via facsimile or (iii) by such other means,
including, without limitation, electronic or computer readable medium, as the
Master Servicer and the Indenture Trustee shall mutually agree. The Indenture
Trustee shall promptly release the related Mortgage File(s) within seven (7)
Business Days of receipt of a properly completed Request for Release pursuant to
clause (i), (ii) or (iii) above, which shall be authorization to the Indenture
Trustee to release such Mortgage Files, provided the Indenture Trustee has
determined that such Request for Release has been executed, with respect to
clause (i) or (ii) above, or approved, with respect to clause (iii) above, by an
authorized Servicing Officer of the Master Servicer, and so long as the
Indenture Trustee complies with its duties and obligations under this Agreement.
If the Indenture Trustee is unable to release the Mortgage Files within the time
frames previously specified, the Indenture Trustee shall immediately notify the
Master Servicer indicating the reason for such delay, but in no event shall such
notification be later than five Business Days after receipt of a Request for
Release. If the Master Servicer is required to pay penalties or damages due the
Indenture Trustee's negligent failure to release the related Mortgage File or
the Indenture Trustee's negligent failure to execute and release documents in a
timely manner, the Indenture Trustee shall be liable for such penalties or
damages.
On each day that the Master Servicer remits to the Indenture Trustee
Requests for Releases pursuant to clauses (ii) or (iii) above, the Master
Servicer shall also submit to the Indenture Trustee a summary of the total
amount of such Requests for Releases requested on such day by the same method as
described in such clauses (ii) and (iii) above.
(c) From time to time as is appropriate, for the servicing or
foreclosure of any Mortgage Loan or collection under an insurance policy, the
Master Servicer may deliver to the Indenture Trustee a Request for Release
signed by a Servicing Officer on behalf of the Master 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 Master Servicer or Subservicer, as the case may be, as bailee for the
Indenture Trustee.
(d) The Master Servicer shall cause each Mortgage File or any document
therein released pursuant to Subsection 3.14(c) to be returned to the Indenture
Trustee when the need therefor no longer exists, unless the Mortgage Loan has
become a Liquidated Mortgage Loan and
-19-
<PAGE>
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 Master 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 Master 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 a copy of the Request for Release with respect thereto to the Master
Servicer upon deposit of the related Liquidation Proceeds in the Collection
Account.
(e) The Indenture Trustee shall execute and deliver to the Master
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 Master 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 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 Master Servicer shall be entitled to receive the
Servicing Fee from payments of accrued interest on each Mortgage Loan. The
Master 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 Master Servicer may retain additional servicing compensation in
the form of late payment charges, release fees, bad check charges, assumption
fees and any other servicing- related fees, to the extent such charges are
collected from the related Mortgagors, and investment earnings on the Collection
Account. The Master 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 Master Servicer without reimbursement under this
Subsection 3.15(b) shall include payment of the expenses of the accountants
retained pursuant to Section 3.17.
-20-
<PAGE>
Section 3.16. ANNUAL STATEMENTS OF COMPLIANCE. Within 120 days after
December 31 of each year, beginning with December 31, 1998, the Master Servicer
at its own expense shall deliver to the Indenture Trustee, with a copy to the
Note Insurer and the Rating Agencies, an Officer's Certificate stating, as to
the signer thereof, that (i) a review of the activities of the Master 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 Master 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 Master 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 Master Servicer to the Noteholders upon request or by the
Indenture Trustee at the expense of the Master Servicer should the Master
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, beginning with December 31,
1998, the Master Servicer, at its expense, shall cause a firm of Independent
nationally-recognized certified public accountants who are members of the
American Institute of Certified Public Accountants and who are acceptable to the
Note Insurer to furnish a statement to the Master Servicer, which will be
provided to the Indenture Trustee, the Note Insurer and the Rating Agencies, to
the effect that, in connection with the firm's examination of the Master
Servicer's financial statements as of the end of such calendar year, nothing
came to their attention that indicated that the Master 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; provided, however, that for purposes of complying with
this Section such a statement furnished to a Subservicer otherwise satisfying
the requirements of this Section shall be deemed to satisfy the obligations of
the Master Servicer.
(b) Within 120 days after December 31 of each year, beginning
with December 31, 1998, the Master 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 Master 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
Master Servicer or such Subservicer, as the case may be, which includes an
assertion that the Master 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
-21-
<PAGE>
lien 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 Master Servicer shall
or shall cause each Subservicer to furnish a copy of such report to the
Indenture Trustee, the Rating Agencies and the Note Insurer.
Section 3.18. OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS. The Master
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; PROVIDED, HOWEVER,
that whenever the Master Servicer repurchases any such Mortgage Loan on the
basis of delinquency it shall purchase the most delinquent Mortgage Loan first
(unless otherwise agreed to by the Note Insurer). Prior to such repurchase the
Master Servicer shall deliver a notice to the Note Insurer (a) indicating its
intent to repurchase a Mortgage Loan (b) specifying the date of such repurchase,
and (c) confirming that such Mortgage Loan is the greatest number of days
delinquent of all delinquent Mortgage Loans. 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 Master
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 Master 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 Master Servicer or Subservicer shall make reports of
foreclosures and abandonments of any mortgaged property for each year beginning
in 1998, the Master Servicer or Subservicer shall file reports relating to each
instance occurring during the previous calendar year in which the Master
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 Master 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).
Section 3.20. MASTER SERVICER TO ACT AS AGENT AND BAILEE OF THE
INDENTURE TRUSTEE. The Master Servicer hereby agrees to act as agent and bailee
of the Indenture Trustee for the purposes set forth in Section 3.14 of the
Indenture.
-22-
<PAGE>
ARTICLE IV
Remittance Reports
Section 4.01. REMITTANCE REPORTS. On the second Business Day following
each Determination Date, the Master Servicer shall deliver or cause the
Subservicer to deliver to the Indenture Trustee a report, prepared as of the
close of business on such 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 Master
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 and agreed to by the Master Servicer. 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. The
Master 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. The Master Servicer shall deliver the
Determination Date Report to the Note Insurer.
The determination by the Master 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 portion of a Monthly Payment relating to
interest payments (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 Master Servicer will deposit or cause the Subservicer to
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 Master Servicer determines any such advance to be a
Nonrecoverable Advance. Subject to the foregoing and in the absence of such a
determination, the Master Servicer shall continue to make such advances through
the date that the related Mortgaged Property has, in the judgment of the Master
Servicer, been completely liquidated. If applicable, on the fourth Business Day
immediately preceding the related Payment Date, the Master Servicer shall
present an Officer's Certificate to the Indenture Trustee and the Note Insurer
(i) stating that the Master Servicer elects not to make an Advance in a stated
amount and (ii) detailing the reason it deems the advance to be a Nonrecoverable
Advance. Such advances may be made in whole or in part from funds in the
Collection Account being held for future distributions or withdrawal on or in
connection with Payment Dates in subsequent months. Any funds being held for
future distributions shall be replaced by the Master Servicer from its own funds
by deposit in the Collection Account on or before the fifth Business Day
preceding any Payment Date on which there would otherwise be insufficient funds
in the Collection Account, for
-23-
<PAGE>
transfer to the Payment Account, to permit payment of all amounts required to be
paid pursuant to Section 3.05 of the Indenture.
Section 4.03. COMPENSATING INTEREST PAYMENTS. The Master Servicer shall
deposit or cause the Subservicer to deposit in the Collection Account not later
than the fourth Business Day immediately preceding the Payment Date an amount
equal to the Compensating Interest related to the related Determination Date.
The Master Servicer shall not be entitled to any reimbursement of any
Compensating Interest payment.
-24-
<PAGE>
ARTICLE V
The Master Servicer
Section 5.01. LIABILITY OF THE MASTER SERVICER. The Master Servicer
shall be liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken by the Master Servicer herein.
Section 5.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE MASTER SERVICER. Any corporation into which the Master
Servicer may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Master Servicer shall be a party, or any corporation succeeding to the business
of the Master Servicer, shall be, with the consent of the Note Insurer, the
successor of the Master Servicer, hereunder, without the execution or filing of
any paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
The Master 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) and the
Company and satisfactory to the Note 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 Note 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
Master Servicer under this Servicing Agreement; PROVIDED, FURTHER, that each
Rating Agency's rating of the Notes that would be in effect immediately prior to
such assignment and delegation, without taking into account the Note Insurance
Policy, would 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).
Section 5.03. LIMITATION ON LIABILITY OF THE MASTER SERVICER AND
OTHERS. Neither the Master Servicer nor any of the directors or officers or
employees or agents of the Master Servicer shall be under any liability to the
Issuer, the Owner Trustee, the Indenture Trustee, the Note Insurer or the
Noteholders 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 Master 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 Master
Servicer and any director or officer or employee or agent of the Master Servicer
may rely in good faith on any document of any kind PRIMA FACIE properly executed
and submitted by any Person respecting any matters arising hereunder. The Master
Servicer and any director or officer or employee or agent of the Master 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 Notes, 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
-25-
<PAGE>
any specific Mortgage Loan or Mortgage Loans (except as any such loss, liability
or expense shall be otherwise reimbursable pursuant to this Servicing Agreement)
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 Master 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
Master 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 Noteholders
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 Master Servicer shall be entitled to be reimbursed
therefor. The Master Servicer's right to indemnity or reimbursement pursuant to
this Section 5.03 shall survive any resignation or termination of the Master
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 Master 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. MASTER SERVICER NOT TO RESIGN. Subject to the provisions
of Section 5.02, the Master 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
Master Servicer has proposed a successor Master Servicer to the Issuer, the Note
Insurer and the Indenture Trustee in writing and such proposed successor Master
Servicer is reasonably acceptable to the Issuer and the Indenture Trustee; (b)
each Rating Agency shall have delivered a letter to the Issuer, the Note Insurer
and the Indenture Trustee prior to the appointment of the successor Master
Servicer stating that the proposed appointment of such successor Master Servicer
as Master Servicer hereunder will not result in the reduction or withdrawal of
the then current rating of the Notes or the rating of the Notes that would be in
effect without taking into account the Note Insurance Policy; and (c) such
proposed successor Master Servicer is acceptable to the Note Insurer, as
evidenced by a letter to the Issuer, the Master Servicer and the Indenture
Trustee; PROVIDED, HOWEVER, that no such resignation by the Master Servicer
shall become effective until such successor Master Servicer or, in the case of
(i) above, the Indenture Trustee, as pledgee of the Mortgage Loans, shall have
assumed the Master Servicer's responsibilities and obligations hereunder or the
Indenture Trustee, as pledgee of the Mortgage Loans, shall have designated a
successor Master Servicer in accordance with Section 6.02; provided, however, if
the Master Servicer resigns, Advanta Mortgage Corp. USA ("Advanta"), if it so
chooses and it is acceptable to the Note Insurer, shall be the successor Master
Servicer. Any such resignation shall not relieve the Master 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 Master Servicer.
The Master Servicer shall have no claim (whether by subrogation or otherwise) or
other action against any Noteholder or the Note Insurer for any amounts paid by
the Master Servicer pursuant to any provision of this Servicing Agreement. Any
such determination permitting the resignation of the
-26-
<PAGE>
Master Servicer shall be evidenced by an Opinion of Counsel to such effect
delivered to the Indenture Trustee and the Note Insurer.
Section 5.05. DELEGATION OF DUTIES. In the ordinary course of business,
the Master Servicer at any time may, with the consent of the Note Insurer,
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 Master Servicer complies pursuant to Section 3.01. Such
delegation shall not relieve the Master Servicer of its liabilities and
responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 5.04.
Section 5.06. MASTER SERVICER TO PAY INDENTURE TRUSTEE'S AND OWNER
TRUSTEE'S EXPENSES; INDEMNIFICATION. (a) The Master Servicer covenants and
agrees to pay to the Owner Trustee and the Indenture Trustee 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) in connection with the exercise
and performance of any of the powers and duties pursuant to Section 7.02 of the
Trust Agreement or Section 6.07 of the Indenture, as the case may be.
(b) The Master 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 gross negligence on the part of the Owner Trustee) or willful mis conduct on
its part, arising out of, or in connection with, the failure by the Master
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
Master 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
Master Servicer in preparing such defense; and
(iii) notwithstanding anything in this Servicing
Agreement to the contrary, the Master 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 Master Servicer.
No termination of this Servicing Agreement shall affect the obligations created
by this Section 5.06 of the Master 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 or assignment
-27-
<PAGE>
of this Servicing Agreement and the resignation or removal of the Indenture
Trustee. Any amounts to be paid by the Master Servicer pursuant to this
Subsection may not be paid from the Trust Estate.
Notwithstanding the foregoing, the indemnification provided by the
Master 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.
Section 5.07. ASSIGNMENT OF SERVICING AGREEMENT. This Agreement shall
bind and inure to the benefit of and be enforceable by the Master Servicer, the
Issuer and the Indenture Trustee and their respective successors and assigns.
The obligations of the Master Servicer may be assigned or delegated only to
affiliates of the Master Servicer.
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 Master 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 (other than Servicing Advances) and Compensating Interest,
which continues unremedied for a period of two Business Days after the
date upon which such payment was required; or
(ii) Failure on the part of the Master Servicer duly to
observe or perform in any material respect any other covenants or
agreements of the Master Servicer set forth in this Servicing
Agreement, which failure, in each case, materially and adversely
affects the interests of Noteholders or the Note Insurer or the breach
of any representation or warranty of the Master Servicer in this
Servicing Agreement or in the Insurance Agreement which materially and
adversely affects the interests of the Noteholders or the Note Insurer,
and which in either case continues unremedied for a period of 60 days
after the date on which written notice of such failure, requiring the
same to be remedied, and stating that such notice is a "Notice of
Default" hereunder, shall have been given to the Master Servicer by the
Company, the Issuer or the Indenture Trustee, with a copy to the Note
Insurer, or to the Master Servicer, the Company, the Issuer and the
Indenture Trustee by the Note Insurer; or
(iii) The entry against the Master Servicer of a decree
or order by a court or agency or supervisory authority having
jurisdiction in the premises for the appointment
-28-
<PAGE>
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 Master 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 Master 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 Master
Servicer and such decree or order shall have remained in force
undischarged, unbonded or unstayed for a period of 60 days; or the
Master Servicer shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for
the benefit of its creditors or voluntarily suspend payment of its
obligations; or
(v) Any "Event of Default" under Section 5.01 of the
Insurance Agreement;
(vi) So long as the Seller is the Master Servicer or is
an affiliate, the parent of or under the common control with, the
Master Servicer, any failure of the Seller to repurchase any Mortgage
Loan required to be repurchased, or to pay any amount due,
pursuant to the Home Equity Loan Purchase Agreement; or
(vii) The occurrence of a Performance Test Violation;
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
Master Servicer, either the Issuer, subject to the direction of the Indenture
Trustee as pledgee of the Mortgage Loans, with the consent of the Note Insurer,
or the Note Insurer, or if a Note Insurer Default exists, the holders of at
least 51% of the aggregate Note Principal Balance of the Notes, by notice then
given in writing to the Master Servicer (and to the Indenture Trustee and the
Issuer if given by the Note Insurer or the Noteholders in the case of a Note
Insurer Default) or (b) in the case of the events set forth in (v) or (vi)
hereof, the Note Insurer or, if a Note Insurer Default exists, the holders of at
least 51% of the aggregate Note Principal Balance of the Notes, may, by notice
to the Master Servicer, terminate all of the rights and obligations of the
Master Servicer as Master 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 Note Insurer, or the Note Insurer may
exercise any and all other remedies available at law or equity. Any such notice
to the Master Servicer shall also be given to each Rating Agency, the Note
Insurer, the Indenture Trustee and the Issuer. On or after the receipt
-29-
<PAGE>
by the Master Servicer of such written notice, all authority and power of the
Master Servicer under this Servicing Agreement, whether with respect to the
Notes or the Mortgage Loans or otherwise, shall pass to and be vested in the
Indenture Trustee, pursuant to and under this Section 6.01; and, without
limitation, the Indenture Trustee is hereby authorized and empowered to execute
and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise,
any and all documents and other instruments, and to do or accomplish all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorse ment of each Mortgage
Loan and related documents, or otherwise. The Master Servicer agrees to
cooperate with the Indenture Trustee in effecting the termination of the
responsibilities and rights of the Master Servicer hereunder, including, without
limitation, the transfer 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 Master Servicer and to be deposited by it in
the Collection Account, or that have been deposited by the Master Servicer in
the Collection Account or thereafter received by the Master Servicer with
respect to the Mortgage Loans. In addition, the Master Servicer agrees promptly
to provide the Indenture Trustee with all documents and records requested by it
to enable it to assume the Master 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 Master Servicer pursuant to this Section 6.01 shall be paid by the
predecessor Master Servicer (or if the predecessor Master Servicer is the
Indenture Trustee, the Master Servicer succeeded by the Indenture Trustee) upon
presentation of reasonable 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 Master 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 Servicing Default is received by the Indenture Trustee
and such notice references the Notes or this Agreement.
Notwithstanding any termination of the activities of the Master
Servicer hereunder, the Master 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 Master Servicer's rights and obligations hereunder and
received after such notice, that portion to which the Master 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 the Master Servicer hereunder
the entitlement to which arose prior to the termination of its activities
hereunder.
Upon the occurrence of a Servicing Default, if not terminated pursuant
to this Section 6.01, the Master Servicer shall continue to act as Master
Servicer under this Agreement, subject to the continuing right of removal
pursuant to this Section 6.01, for an initial term, commencing on the date which
such Servicing Default occurred and ending on the last day of the calendar
quarter in which such Servicing Default occurred, which period may be extended
by the Note Insurer, in its sole discretion, for successive terms of three
calendar months thereafter, until the satisfaction and discharge of the
Indenture under Section 4.10 thereof. Each such notice of extension (a "Master
Servicer Extension Notice") shall be delivered by the Note Insurer to the
Indenture Trustee and the Master Servicer. The Master Servicer hereby agrees
that, upon its receipt of any such Master Servicer Extension Notice, the Master
Servicer shall become bound for the duration of the term
-30-
<PAGE>
covered by such Master Servicer Extension Notice to continue as the Master
Servicer subject to and in accordance with the other provisions of this
Agreement; PROVIDED, that nothing herein shall prohibit the Note Insurer or the
Indenture Trustee from thereafter removing the Master Servicer pursuant to this
Section 6.01 or any other provision of this Agreement. The Indenture Trustee
agrees that if as of the fifteenth (15) day prior to the last day of any term of
the Master Servicer the Indenture Trustee shall not have received any Master
Servicer Extension Notice from the Note Insurer, the Indenture Trustee will
within five (5) days thereafter, give written notice of such non- receipt to the
Note Insurer and the Master Servicer. The failure of the Note Insurer to deliver
a Master Servicer Extension Notice by the end of a calendar term shall result in
the termination of the Master Servicer. The foregoing provisions of this
paragraph shall not apply to the Indenture Trustee in the event the Indenture
Trustee succeeds to the rights and obligations of the Master Servicer and the
Indenture Trustee shall continue in such capacity until the earlier of the
termination of this Agreement pursuant to Section 7.08 or the appointment of a
successor master servicer.
The Master Servicer shall immediately notify the Indenture Trustee, the
Note 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 Master Servicer receives a notice of termination
pursuant to Section 6.01, sends a notice pursuant to Section 5.04, or its term
expires and is not renewed pursuant to the penultimate paragraph of Section
6.01, the Indenture Trustee on behalf of the Noteholders and the Note Insurer
shall be the successor in all respects to the Master Servicer in its capacity as
Master 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 Master 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 Master Servicer prior to the issuance of a notice of termination
hereunder, (ii) require or obligate the Indenture Trustee, in its capacity as
successor Master Servicer, to purchase, repurchase or substitute any Mortgage
Loan, (iii) fund any losses on any Eligible Investment directed by any other
Master Servicer, or (iv) be responsible for the representations and warranties
of the Master Servicer; PROVIDED, HOWEVER, that the Indenture Trustee, as
successor Master Servicer, shall be required to make any required Advances to
the extent that the Master Servicer failed to make such Advances. As
compensation therefor, the Indenture Trustee shall be entitled to such
compensation as the Master 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 Master Servicer, or (ii) if
the Indenture Trustee is legally unable so to act, the Indenture Trustee shall
so notify the Note Insurer, and the Note Insurer may appoint a successor Master
Servicer if no Note Insurer Default exists and, if it does not do so within 30
days after receipt of such notice, 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
housing and home finance institution, bank or other mortgage loan Master
Servicer having a net worth of not less than $10,000,000 as the successor to the
Master Servicer hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Master Servicer hereunder;
PROVIDED, that
-31-
<PAGE>
any such successor Master Servicer shall be acceptable to the Note Insurer, as
evidenced by the Note Insurer's prior written consent (which consent shall not
be unreasonably withheld) and pro vided further that the appointment of any such
successor Master Servicer will not result in the qualification, reduction or
withdrawal of the ratings assigned to the Notes by the Rating Agencies or the
ratings assigned to the Notes without taking into account the Note Insurance
Policy; provided, however, Advanta shall become the successor Master Servicer if
the Master Servicer was terminated for reasons other than due to any action or
inaction on the part of Advanta. Pending appointment of a successor to the
Master Servicer hereunder, unless the Indenture Trustee is prohibited by law
from so acting, the Indenture Trustee shall act in such capacity 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 compensa tion which the Master 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 Master Servicer shall not affect any liability of the predecessor
Master Servicer which may have arisen under this Servicing Agreement prior to
its termination as Master 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 Master
Servicer be liable for any acts or omissions of the predecessor Master Servicer
or for any breach by such Master Servicer of any of its 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
Noteholders, to the Master Servicer as Master Servicer shall during the term of
its service as Master Servicer (i) continue to service and administer the
Mortgage Loans for the benefit of the Noteholders and the Note Insurer, (ii)
maintain in force a policy or policies of insurance covering errors and
omissions in the performance of its obligations as Master Servicer hereunder and
a fidelity bond in respect of its officers, employees and agents to the same
extent as the Master Servicer is so required pursuant to Section 3.11.
(c) Any successor Master Servicer, including the Indenture Trustee on
behalf of the Noteholders and the Note Insurer, shall not be deemed to be in
default or to have breached its duties hereunder if the predecessor Master
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 NOTEHOLDERS. Upon any termination or
appointment of a successor to the Master Servicer pursuant to this Article VI or
Section 5.04, the Indenture Trustee shall give prompt written notice thereof to
the Noteholders, the Note 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 Noteholders and the Note 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
-32-
<PAGE>
each such Servicing Default hereunder known to the Indenture Trustee. The Note
Insurer or, if a Note Insurer Default exists, the holders of at least 51% of the
aggregate Note Principal Balance of the Notes may waive any default by the
Master 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 Notes or, in the case of Noteholders,
payment of the Note Insurance Premium. 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 Master Servicer shall give notice of any such
waiver to the Rating Agencies.
-33-
<PAGE>
ARTICLE VII
Miscellaneous Provisions
Section 7.01. AMENDMENT. This Servicing Agreement may be amended from
time to time by the parties hereto with the prior written consent of the Note
Insurer, and of the Subservicer (which consent of the Subservicer shall not be
unreasonably withheld), 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 Notes or the rating
that would then be assigned to the Notes without taking into account the Note
Insurance Policy.
Section 7.02. 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 7.03. 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 Master Servicer: PacificAmerica Money Center, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364-2210
Attention: Chief Financial Officer
(b) in the case of the Note Insurer: Financial Security Assurance
350 Park Avenue
New York, New York 10022
Attention: Surveillance Department
Re: (PacificAmerica Home Equity
Loan
Asset-Backed Notes, Series 1998-1)
Telecopy: (212) 339-3518
(212) 339-3529
In each case in which a notice or other communication to the Note Insurer
refers to a Master Servicer Event of Default or a claim on the Note Insurance
Policy or with respect to which failure on the part of the Note Insurer to
respond be deemed to constitute consent or acceptance, then a copy of such
notice or other communication should also be sent to the attention of the
General Counsel and the Head Financial Guaranty Group and shall be marked to
indicate "URGENT MATERIAL ENCLOSED."
(c) in the case of Rating Agencies: Moody's Investors Service, Inc.
4th Floor
99 Church Street
-34-
<PAGE>
New York, NY 10007
Attention: Residential Mortgage
Monitoring Department
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 the Owner Trustee: Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust
Administration
(f) in the case of the Indenture
Trustee: Bankers Trust Company of
California, N.A.
3 Park Plaza, 16th Floor
Irvine, CA 92614
Fax No.: (714) 253-7577
Attention: Corporate Trust
Department
PacificAmerica Home
Equity Loan Trust
Series 1998-1
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 Noteholder shall be given by first class mail, postage prepaid, at
the address of such Noteholder 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 Noteholder
receives such notice. Any notice or other document required to be delivered or
mailed by the Indenture Trustee to any Rating Agency shall be given on a
reasonable efforts basis and only as a matter of courtesy
-35-
<PAGE>
and accommodation and the Indenture Trustee shall have no liability for failure
to deliver such notice or document to any Rating Agency.
Section 7.04. 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 Notes or the rights of the Noteholders thereof.
Section 7.05. THIRD-PARTY BENEFICIARIES. This Servicing Agreement will
inure to the benefit of and be binding upon the parties hereto, the Noteholders,
the Note Insurer, the Owner Trustee, the Indenture Trustee 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 7.06. 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 7.07. 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 7.08. TERMINATION UPON PURCHASE BY THE MASTER SERVICER. Except
with respect to obligations of the Master Servicer relating to any
representations and warranties or indemnities made by it in this Agreement, the
respective obligations and responsibilities of the Master Servicer and the
Issuer created hereby shall terminate upon the satisfaction and discharge of the
Indenture pursuant to Section 4.10 thereof.
Section 7.09. NO PETITION. The Master Servicer, by entering into this
Servicing Agreement, hereby covenants and agrees that it will not at any time
institute against the Issuer, or join in any institution against the Issuer, any
bankruptcy proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations of the Issuer. This section shall
survive the termination of this Servicing Agreement by one year.
Section 7.10. NO RECOURSE. The Master Servicer acknowledges that no
recourse may be had against the Issuer, except as may be expressly set forth in
this Servicing Agreement.
-36-
<PAGE>
ARTICLE VIII
ADMINISTRATIVE DUTIES OF THE MASTER SERVICER
Section 8.01. ADMINISTRATIVE DUTIES. (a) DUTIES WITH RESPECT
TO THE INDENTURE. The Master Servicer shall perform all its duties and the
duties of the Issuer under the Indenture. In addition, the Master Servicer shall
consult with the Owner Trustee as the Master Servicer deems appropriate
regarding the duties of the Issuer under the Indenture. The Master 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 Master Servicer shall prepare for execution by the Issuer or shall cause the
preparation by other appropriate Persons of all such documents, reports,
filings, instruments, certificates and opinions as it shall be the duty of the
Issuer to prepare, file or deliver pursuant to the Indenture. In furtherance of
the foregoing, the Master Servicer 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 Master Servicer
set forth in this Servicing Agreement or any of the Basic Documents, the Master
Servicer shall perform such calculations and shall prepare for execution by the
Issuer or the Owner Trustee or shall cause the preparation by other appropriate
Persons of all such documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the 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 Note Insurer shall take 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
Note Insurer or the Owner Trustee, the Master Servicer shall administer, perform
or supervise the performance of such other activities in connection with the
Notes (including the Basic Documents) as are not covered by any of the foregoing
provisions and as are expressly requested by the Issuer, the Note Insurer or the
Owner Trustee and are reasonably within the capability of the Master Servicer.
(ii) Notwithstanding anything in this Servicing
Agreement or any of the Basic Documents to the contrary, the Master Servicer
shall be responsible for, upon learning of such event, promptly notifying the
Owner Trustee, the Indenture Trustee and the Note Insurer in the event that any
withholding tax is imposed on the Issuer's payments (or allocations of income)
to an Owner (as defined in the Trust Agreement) as contemplated in Section
5.01(b) 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 Master 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 accordance with any directions received from the Issuer and shall be, in the
-37-
<PAGE>
Master 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 Master 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 Master Servicer are non-ministerial, the Master
Servicer shall not take any action pursuant to this Article VIII unless within a
reasonable time before the taking of such action, the Master Servicer shall have
notified the Owner Trustee, the Note Insurer and the Indenture Trustee of the
proposed action and the Owner Trustee, the Note 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; provided that the Issuer cannot agree to any
amendment or supplement to the Indenture without the approval
of the Master Servicer, which consent shall not be
unreasonably withheld;
(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 or the appointment of successor Master Servicers or
the consent to the assignment by the Certificate Registrar,
Paying Agent or Trustee of its obligations under the
Indenture; and
(E) the removal of the Indenture Trustee.
Section 8.02. RECORDS. The Master 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 Note Insurer upon
reasonable request and at any time during normal business hours.
Section 8.03. ADDITIONAL INFORMATION TO BE FURNISHED. The
Master Servicer shall furnish to the Issuer, the Indenture Trustee and the Note
Insurer from time to time such additional information regarding the Notes as the
Issuer or the Note Insurer shall reasonably request.
-38-
<PAGE>
IN WITNESS WHEREOF, the Master 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.
PACIFICAMERICA MONEY CENTER, INC.,
as Master Servicer
By /s/ Charles J. Siegel
--------------------------------------
Name: Charles J. Siegel
Title: Chief Financial Officer
PACIFICAMERICA HOME EQUITY LOAN TRUST
SERIES 1998-1, as Issuer
By Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee
By /s/ Emmett R. Harmon
--------------------------------------
Name: Emmett R. Harmon
Title: Vice President
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
not in its individual capacity but solely
as Indenture Trustee
By /s/ Melanie Anbarci
--------------------------------------
Name: Melanie Anbarci
Title: Assistant Secretary
<PAGE>
EXHIBIT A
MORTGAGE LOAN SCHEDULE
AVAILABLE UPON REQUEST
<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."
_____________________________________ [Send Files To:
[Name of Master Servicer] ________________________
Authorized Signature ________________________
________________________
Attention: ________________________
******************************************************************
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) $____________
- --------------------------
Name
- --------------------------
Title
- --------------------------
Date
C-1
================================================================================
MERRILL LYNCH MORTGAGE INVESTORS, INC.,
as Company
and
WILMINGTON TRUST COMPANY,
as Owner Trustee
-----------------------------------------
AMENDED AND RESTATED
TRUST AGREEMENT
Dated as of March 1, 1998
------------------------------------------
PACIFICAMERICA HOME EQUITY LOAN ASSET-BACKED CERTIFICATES,
SERIES 1998-1
================================================================================
<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 MORTGAGE LOANS;
CERTIFICATES.........................................................6
3.01. CONVEYANCE OF THE MORTGAGE LOANS........................6
3.02. INITIAL OWNERSHIP.......................................6
3.03. THE CERTIFICATES........................................6
3.04. AUTHENTICATION OF CERTIFICATES..........................7
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
ARTICLE IV
AUTHORITY AND DUTIES OF OWNER TRUSTEE................................12
4.01. GENERAL AUTHORITY......................................12
<PAGE>
SECTION PAGE
4.02. GENERAL DUTIES.........................................12
4.03. ACTION UPON INSTRUCTION................................12
4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED
DOCUMENTS OR IN INSTRUCTIONS...........................13
4.05. RESTRICTIONS...........................................14
4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO
CERTAIN MATTERS........................................14
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..............16
4.10. MAJORITY CONTROL.......................................16
ARTICLE V
APPLICATION OF TRUST FUNDS...........................................17
5.01. DISTRIBUTIONS..........................................17
5.02. METHOD OF PAYMENT......................................17
5.03. TAX RETURNS............................................18
5.04. STATEMENTS TO CERTIFICATEHOLDERS.......................18
ARTICLE VI
CONCERNING THE OWNER TRUSTEE.........................................18
6.01. ACCEPTANCE OF TRUSTS AND DUTIES........................18
6.02. FURNISHING OF DOCUMENTS................................19
6.03. REPRESENTATIONS AND WARRANTIES.........................19
6.04. RELIANCE; ADVICE OF COUNSEL............................20
6.05. NOT ACTING IN INDIVIDUAL CAPACITY......................21
6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR
RELATED DOCUMENTS......................................21
6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND NOTES...........21
6.08. PAYMENTS FROM OWNER TRUST ESTATE.......................21
6.09. DOING BUSINESS IN OTHER JURISDICTIONS..................22
6.10. LIABILITY OF CERTIFICATE REGISTRAR AND CERTIFICATE
PAYING AGENT...........................................22
ARTICLE VII
COMPENSATION OF OWNER TRUSTEE........................................22
7.01. OWNER TRUSTEE'S FEES AND EXPENSES......................22
7.02. INDEMNIFICATION........................................22
ARTICLE VIII
TERMINATION OF TRUST AGREEMENT.......................................23
8.01. TERMINATION OF TRUST AGREEMENT.........................23
<PAGE>
SECTION PAGE
ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES...............25
9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE.............25
9.02. RESIGNATION AND REPLACEMENT OF OWNER TRUSTEE...........25
9.03. SUCCESSOR OWNER TRUSTEE................................26
9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE...............26
9.05. APPOINTMENT OF COTRUSTEE OR SEPARATE TRUSTEE...........26
ARTICLE X
MISCELLANEOUS........................................................28
10.01. AMENDMENTS.............................................28
10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE...................29
10.03. LIMITATIONS ON RIGHTS OF OTHERS........................30
10.04. NOTICES................................................30
10.05. SEVERABILITY...........................................30
10.06. SEPARATE COUNTERPARTS..................................31
10.07. SUCCESSORS AND ASSIGNS.................................31
10.08. NO PETITION............................................31
10.09. NO RECOURSE............................................31
10.10. HEADINGS...............................................31
10.11. GOVERNING LAW..........................................31
10.12. INTEGRATION............................................31
10.13. THIRDPARTY BENEFICIARY.................................31
10.14. SUSPENSION AND TERMINATION OF NOTE INSURER'S
RIGHTS.................................................32
<PAGE>
SECTION PAGE
EXHIBIT
Exhibit A - Form of Certificate...............................................A1
Exhibit B - Certificate of Trust of PacificAmerica Home Equity Loan Trust.....B1
Exhibit C - Form of Rule 144A Investment Representation.......................C1
Exhibit D - Form of Investor Representation Letter............................D1
Exhibit E - Form of Transferor Representation Letter..........................E1
Exhibit F - Form of Certificate of NonForeign Status..........................F1
Exhibit G - Form of ERISA Representation Letter...............................G1
Exhibit H - Form of Representation Letter.....................................H1
Exhibit I - Initial Trust Agreement...........................................I1
<PAGE>
This Amended and Restated Trust Agreement (which amends and restates
the Trust Agreement, dated March 6, 1998, between Merrill Lynch Mortgage
Investors, Inc. (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 March 1, 1998 (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 March 1, 1998,
between PacificAmerica Home Equity Loan Trust Series 1998-1, as Issuer, and
Bankers Trust Company of California, N.A., 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
<PAGE>
-2-
Agreement unless otherwise specified; and the term "including" shall mean
"including without limitation".
(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 "PacificAmerica Home Equity Loan Trust Series 1998-1", in which name
the Owner Trustee may conduct the business of the Trust, make and execute
contracts and other instruments on behalf of the Trust and sue and be sued.
Section 2.02. 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 Notes pursuant to the Indenture and the
Certificates pursuant to this Trust Agreement and to sell the Notes and
the Certificates;
(ii) with the proceeds of the sale of the Notes and the
Certificates, to pay the organizational, start-up and transactional
expenses of the Trust;
(iii) to purchase, hold, assign, grant, transfer, pledge
and convey the Mortgage Loans pursuant to the Indenture and to hold,
manage and distribute to the Certificateholders pursuant to Section
5.01 any portion of the Owner Trust Estate (as defined herein) released
from the Lien of, and remitted to the Trust pursuant to the Indenture;
(iv) to enter into and perform its obligations under the
Basic Documents to which it is to be a party;
<PAGE>
-3-
(v) 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;
(vi) 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
(vii) 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 Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this 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 Notes 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 Master 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 Notes or the
Certificates, or for any losses incurred by a Certificateholder in the capacity
of an investor in the Certificates or a Noteholder in the capacity of an
investor in the Notes. 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 Note 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 Note 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.
(vi) There is no action, proceeding or investigation by
or before any court, governmental or administrative agency or
arbitrator pending or, to the Company's knowledge, threatened, which
would prohibit its entering into or performing its obligations under
this Trust Agreement.
Section 2.11. PAYMENT OF TRUST FEES. The Owner Trustee Fee shall be
paid pursuant to Section 3.05 of the Indenture. In addition, the Master Servicer
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.
Section 2.13. FEDERAL INCOME TAX ALLOCATIONS. Net income for the Trust
for any month, as determined for federal income tax purposes (and each item of
income, gain, loss and deduction entering into the computation thereof), shall
be allocated to the Certificateholders, pro rata.
<PAGE>
-6-
ARTICLE III
CONVEYANCE OF THE 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, on behalf of the Holders of the Notes and the Certificates and the Note
Insurer, without recourse, all its right, title and interest in and to the
Mortgage Loans, including all interest and principal received on or with respect
to the Mortgage Loans after the Cut-Off Date (other than payments of principal
and interest due on the Mortgage Loans on or before the Cut-Off Date). 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 to the extent
of the Mortgage Loans.
The conveyance of the Mortgage Loans by the Company to the Trust
hereunder is intended to facilitate the simultaneous issuance of the Notes under
the Indenture and issuance of the Certificates hereunder. The parties hereto
intend that the conveyance of the 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 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 Mortgage Loans for the benefit of the Noteholders and
the Note 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 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 PacificAmerica Money Center, Inc. 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.
<PAGE>
-7-
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, 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.
Bankers Trust Company of California, N.A. 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.
<PAGE>
-8-
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 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 Master Servicer, the Note 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 Note 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 Master Servicer, the Note 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 Master Servicer, the Note 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 Master
Servicer, the Note 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
Master Servicer, the Note 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 PacificAmerica Money
Center, Inc. or by the pledge of any such Certificate by PacificAmerica Money
Center, Inc. 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 PacificAmerica Money
Center, Inc. to MLMCI.
<PAGE>
-9-
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 Master
Servicer are provided with an Opinion of Counsel which establishes to the
satisfaction of the Company, the Owner Trustee, the Certificate Registrar and
the Master 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 Master 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 Note Insurer or the Master
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 Master 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
<PAGE>
-10-
(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 transfer of the Certificates by
the Company to PacificAmerica Money Center, Inc.
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 or the Certificate
Registrar 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 Bankers Trust Company of California,
N.A. as Certificate Paying Agent and Bankers Trust Company of California, N.A.
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; 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. Bankers Trust Company of California, N.A. shall be permitted
to resign as Certificate Paying Agent upon 30 days written notice to the Owner
Trustee and the Note Insurer; provided Bankers Trust Company of California,
<PAGE>
-12-
N.A. is also resigning as Paying Agent under the Indenture at such time. In the
event that Bankers Trust Company of California, N.A. 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.
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.
<PAGE>
-13-
(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 Note 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 Note 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 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 Noteholders and the
Note 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, provided, that if necessary, the Owner Trustee will
execute any documents required to effectuate such filings. 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.
<PAGE>
-14-
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 Note 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 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 Note Insurer in
writing of the proposed action and the Certificateholders and the Note 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 Note Insurer have
withheld consent or provided alternative direction (provided, however, that any
direction by the Certificateholders shall require the prior consent of the Note
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);
<PAGE>
-15-
(c) the amendment or other change to this Trust Agreement or any Basic
Document in circumstances where the consent of any Noteholder or the Note
Insurer is required;
(d) the amendment or other change to this Trust Agreement or any Basic
Document in circumstances where the consent of any Noteholder or the Note
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 Note
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 Note 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 Master
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;
(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.
In addition the Trust shall not commingle its assets with those of any
other entity. The Trust shall maintain its financial and accounting books and
records separate from those of any
<PAGE>
-16-
other entity. Except as expressly set forth herein, the Trust shall pay its
indebtedness and any operating expenses from its own funds, and the Trust shall
not pay the indebtedness, operating expenses or liabilities of any other entity.
The Trust shall maintain appropriate minutes or other records of all appropriate
actions and shall maintain its office separate from the offices of the Seller
and the Master Servicer.
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 Note Insurer, to (a)
remove or replace the Master 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 Documents, 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 Note 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 Note 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 Note Insurer, the Noteholders and the
Owner Trustee and the delivery to the Owner Trustee by each such
Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that the Trust is insolvent. 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
<PAGE>
-17-
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.
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 as evidenced by written notice thereof delivered to the Indenture Trustee
prior to the Determination Date.
(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 (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 Noteholders and the Note 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
<PAGE>
-18-
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.
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
<PAGE>
-19-
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 Notes;
(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 Notes, 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 Noteholder 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 Master 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
(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 Note 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;
<PAGE>
-20-
(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 Owner Trustee and 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 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, Note, 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
<PAGE>
-21-
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.
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 Notes, 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 Noteholders
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 NOTES. The Owner
Trustee in its individual or any other capacity may, subject to Section 3.05,
become the owner or pledgee of Certificates or Notes 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
<PAGE>
-22-
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.
Section 6.10. LIABILITY OF CERTIFICATE REGISTRAR AND CERTIFICATE PAYING
AGENT. All provisions of this Trust Agreement affording protection to or
limiting the liability of the Owner Trustee shall inure as well to the
Certificate Registrar and Certificate Paying Agent. Such protection shall
survive the termination of this Trust Agreement and the resignation or removal
of either the Certificate Registrar or 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 Trust Estate
pursuant to Section 3.05(a) of the Indenture 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 to the Owner
Trustee pursuant to Section 3.05 of the Indenture.
Section 7.02. INDEMNIFICATION. The Master Servicer 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,
<PAGE>
-23-
taxes, claims, actions and suits, and any and all reasonable costs, expenses and
disbursements (including reasonable legal fees and expenses) of any kind and
nature whatsoever (collectively, "Expenses") which may at any time be imposed
on, incurred by, or asserted against the Owner Trustee or any Indemnified Party
in any way relating to or arising out of this 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 Master Servicer 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 Master Servicer written notice thereof
promptly after the Indemnified Party shall have actual knowledge
thereof;
(iii) while maintaining control over its own defense, the
Master Servicer shall consult with the Indemnified Party in preparing
such defense; and
(iv) notwithstanding anything in this Trust Agreement to
the contrary, the Master Servicer shall not be liable for settlement of
any claim by an Indemnified Party entered into without the prior
consent of the Master Servicer 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 Master Servicer, 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 Master Servicer 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
<PAGE>
-24-
March 2028, 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
the Seller, following the optional redemption of the Notes by the Seller
pursuant to Section 8.07 of the Indenture; provided in each case that all
amounts owing to the Noteholders and the Note 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 Note Insurer mailed within five Business Days of receipt of notice of
the final payment on the Notes 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, (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.
<PAGE>
-25-
(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 Note
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 Note 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.
Section 9.02. RESIGNATION AND 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 Note Insurer and the
Company. Upon receiving such notice of resignation, the Company shall promptly
appoint a successor Owner Trustee with the consent of the Note 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 Note 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 Note 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 Note Insurer and shall remove the Owner Trustee at the
direction of the Note Insurer.
<PAGE>
-26-
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 Master Servicer shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies and
the Note 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.
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 Noteholders, the Note 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 Note 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,
<PAGE>
-27-
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 Note 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 Note 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
(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.
<PAGE>
-28-
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 Note
Insurer and the Seller 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 party seeking such amendment to the
effect that such amendment (i) complies with the provisions of this Section and
(ii) would not cause the Trust (if PacificAmerica Money Center, Inc. was not the
Holder of 100% of the Certificates or if the Note 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 Note or the
rating then assigned to any Note without taking into account the Note Insurance
Policy or (ii) an Opinion of Counsel obtained by the Master Servicer to the
effect that such action will not adversely affect in any material respect the
interests of any Holders or the Note Insurer, and the consent of the Note
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 Note Insurer shall be furnished with an Opinion of Counsel obtained by the
Master 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 Note
Insurer and the consent of the Note 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
party seeking such amendment to the effect that such action will not adversely
affect in any material respect the interests of any Holders or the Note Insurer,
(ii) the consent of the Note 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 Note or the rating then assigned
to any Note without taking into account the Note 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
<PAGE>
-29-
related Certificateholder and the Note 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 party seeking such
amendment to the effect that such action will not adversely affect in any
material respect the interests of any Holders or the Note 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 Notes or the
rating then assigned to the Notes without taking into account the Note Insurance
Policy and the consent of the Note Insurer shall be obtained.
(g) Promptly after the execution of any such amendment or consent, the
Master Servicer shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee, the Note
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 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
<PAGE>
-30-
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 Note Insurer and, to the
extent expressly provided herein, the Indenture Trustee and the Noteholders, 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: Mike McGovern, Legal
Department; to the Indenture Trustee at: Bankers Trust Company of California,
N.A., 3 Park Plaza, 16th Floor, Irvine, California 92614; Attention: Corporate
Trust Department - PacificAmerica Home Equity Loan Trust Series 1998-1, to the
Note Insurer at: Financial Security Assurance Inc., 350 Park Avenue, New York,
NY 10022, Attention: Surveillance Department (telecopy number: (212) 339-3518);
to Moody's at: 99 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.
<PAGE>
-31-
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 Note 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 the Company
or the Trust, or join in any institution against the Company or the Trust of,
any bankruptcy proceedings under any United States federal or state bankruptcy
or similar law in connection with any obligations to the Certificates, the
Notes, 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 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 Note 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
<PAGE>
-32-
Owner Trustee to the beneficial owners of the Trust or to create a fiduciary
obligation to any person other than the beneficial owners of the Trust.
Section 10.14. SUSPENSION AND TERMINATION OF NOTE INSURER'S RIGHTS.
During the continuation of a Note Insurer Default, rights granted or reserved to
the Note Insurer hereunder shall vest instead in the Certificateholders;
provided that the Note Insurer shall be entitled to any distributions in
reimbursement in accordance with the Indenture.
At such time as either (i) the Note Principal Balance has been reduced
to zero or (ii) the Note Insurance Policy has been terminated and in either case
of (i) or (ii) the Note Insurer has been reimbursed for all Scheduled Payments
and any other amounts owed under the Note Insurance Policy and the Insurance
Agreement (and the Note Insurer no longer has any obligation under the Note
Insurance Policy, except for breach thereof by the Note Insurer), then the
rights and benefits granted or reserved to the Note Insurer hereunder (including
the rights to direct certain actions and receive certain notices) shall
terminate and the Certificateholders shall be entitled to the exercise of such
rights and to receive such benefits of the Note Insurer following such
termination to the extent that such rights and benefits are applicable to the
Certificateholders.
<PAGE>
-33-
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 /s/ Peter Cerwin
-----------------------------------------
Name: Peter Cerwin
Title: Vice President
WILMINGTON TRUST COMPANY, as
Owner Trustee,
By: /s/ Emmett R. Harmon
----------------------------------------
Name: Emmett R. Harmon
Title: Vice President
Acknowledged and Agreed:
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
as Certificate Registrar
and Certificate Paying Agent
By: /s/ Melanie Anbarci
----------------------------
Name: Melanie Anbarci
Title: Assistant Secretary
<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 MASTER SERVICER, THE INDENTURE
<PAGE>
A-2
TRUSTEE, OR 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: March 1, 1998
First Payment Date
April 27, 1998
PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-1
PACIFICAMERICA HOME EQUITY LOAN ASSET-BACKED CERTIFICATES,
SERIES 1998-1
Evidencing a fractional undivided equity interest in the Owner Trust
Estate, the property of which consists primarily of the Mortgage Loans in
PacificAmerica Home Equity Loan Trust Series 1998-1 (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 March __,
1998, as amended and restated by the Amended and Restated Trust Agreement, dated
as of March 1, 1998 (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 PacificAmerica
Home Equity Loan Asset-Backed Certificates, Series 1998-1 (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 primarily consists of the
Mortgage Loans in the PacificAmerica Home Equity Loan Trust Series 1998-1 and a
Note Insurance Policy. The rights of the Holders of the Certificates are
subordinated to the rights of the Holders of the Notes, 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 April 1998, 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 Noteholders as described in the Indenture, dated as of March 1,
1998, between the Trust and Bankers Trust Company of California, N.A., 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
Notes, 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
[BANKERS TRUST COMPANY OF CALIFORNIA, N.A., 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 Master 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 Note 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 PacificAmerica Money
Center, Inc. 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 Note or the rating then assigned
to any Note without taking into account the Note 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 Note
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 Note 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 Note 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 Note or the
rating then assigned to any Note without taking into account the Note 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, payments received that are
required to be distributed on any Certificate without the consent of the related
Certificateholder and the Note 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 Bankers Trust Company of California, N.A..
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
PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-1
---------------------------------------------------
THIS Certificate of Trust of PacificAmerica Home Equity Loan
Trust Series 1998-1 (the "Trust"), dated ____________, 1998, 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
PacificAmerica Home Equity Loan Trust Series 1998-1.
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 ____________, 1998
By:_________________________________________
Name:
Title:
<PAGE>
C-1
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 March 1, 1998, between Merrill
Lynch Mortgage Investors, Inc., as Company, and Wilmington Trust Company, as
Owner Trustee) pursuant to Section 3.05 of the Agreement and Bankers Trust
Company of California, N.A. 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 Master
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, Master 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 Master Servicer, the Indenture Trustee or
the Trust to any
<PAGE>
C-3
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.]
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>
D-1
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
Bankers Trust Company of California, N.A.
3 Park Plaza, 16th Floor
Irvine, California 92614
Attention: Corporate Trust Administration
Re: PacificAmerica Home Equity Loan Trust Series 1998-1
PacificAmerica Home Equity Loan Asset-Backed Certificates,
SERIES 1998-1 (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 March 1, 1998, 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
Bankers Trust Company of California, N.A., 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 Master Servicer with
either: (x) an opinion of counsel, satisfactory to the Company, the
Owner Trustee, the Certificate Registrar and the Master 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 Master 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
Master 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
Bankers Trust Company of California, N.A.
3 Park Plaza, 16th Floor
Irvine, California 92614
Attention: Corporate Trust Administration
Re: PacificAmerica Home Equity Loan Trust Series 1998-1
PacificAmerica Home Equity Loan Asset-Backed Certificates,
Series 1998-1 (the "Certificates")
----------------------------------------------------------
Ladies and Gentlemen:
_______________________ (the "Purchaser") intends to purchase
from _________________ (the "Seller") a ___% Certificate Percentage Interest of
PacificAmerica Home Equity Loan Asset- Backed Certificates, Series 1998-1 (the
"Certificates"), issued pursuant to the Amended and Restated Trust Agreement
(the "Trust Agreement"), dated as of March 1, 1998 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
Bankers Trust Company of California, N.A., 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 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
<PAGE>
E-2
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 March 1, 1998 (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 PacificAmerica Home Equity Loan
Asset-Backed Certificates, Series 1998-1 (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;
2. The Beneficial Owner's office address and
place of incorporation (if applicable) is ;
and
<PAGE>
F-2
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.
[TPW: NY01:647073.1] 16018-00487 04/01/98 02:44PM
<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
Bankers Trust Company of California, N.A., as Certificate Registrar
3 Park Plaza, 16th Floor
Irvine, California 92614
Re: PacificAmerica Home Equity Loan Trust Series 1998-1
PacificAmerica Home Equity Loan Asset-Backed Certificates,
Series 1998-1
----------------------------------------------------------
Dear Sirs:
__________________________________ (the "Transferee") intends to
acquire from _____________________ (the "Transferor") a ____% Certificate
Percentage Interest of PacificAmerica. Home Equity Loan Asset-Backed
Certificates, Series 1998-1 (the "Certificates"), issued pursuant to an Amended
and Restated Trust Agreement (the "Trust Agreement"), dated as of March 1, 1998,
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 Master 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
<PAGE>
G-2
the Department of Labor ("DOL") regulation, 29 C.F.R. ss. 2510.3-101,
and (iii) will not 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.
<PAGE>
G-3
(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
Bankers Trust Company of California, N.A., as Certificate Registrar
3 Park Plaza, 16th Floor
Irvine, California 92614
Re: PacificAmerica Home Equity Loan Trust Series 1998-1
PacificAmerica Home Equity Loan Asset-Backed Certificates,
Series 1998-1
----------------------------------------------------------
Dear Sirs:
__________________________________ (the "Transferee") intends
to acquire from _____________________ (the "Transferor") a ___% Certificate
Percentage Interest of PacificAmerica Home Equity Loan Asset-Backed
Certificates, Series 1998-1 (the "Certificates"), issued pursuant to an Amended
and Restated Trust Agreement (the "Trust Agreement"), dated as of March 1, 1998
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 Master 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
<PAGE>
H-2
for federal income tax purposes, the Certificates are not more than 50%
of the assets of the partnership, grantor trust or S corporation.
Very truly yours,
By:
Name:
Title:
<PAGE>
EXHIBIT I
INITIAL TRUST AGREEMENT
AVAILABLE UPON REQUEST
================================================================================
PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-1
Issuer
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
Indenture Trustee
-----------------------------------------
INDENTURE
Dated as of March 1, 1998
------------------------------------------
PACIFICAMERICA HOME EQUITY LOAN ASSET-BACKED NOTES,
SERIES 1998-1
-------------
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
SECTION PAGE
- ------- ----
ARTICLE I
DEFINITIONS
1.01. DEFINITIONS.............................................2
1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.......2
1.03. RULES OF CONSTRUCTION...................................3
ARTICLE II
ORIGINAL ISSUANCE OF NOTES
2.01. FORM....................................................3
2.02. EXECUTION, AUTHENTICATION AND DELIVERY..................4
2.03. ACCEPTANCE OF MORTGAGE LOANS BY INDENTURE TRUSTEE.......4
ARTICLE III
COVENANTS
3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE
MORTGAGE LOANS..........................................5
3.02. MAINTENANCE OF OFFICE OR AGENCY.........................6
3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT....6
3.04. EXISTENCE...............................................7
3.05. PAYMENT OF PRINCIPAL AND INTEREST.......................8
3.06. PROTECTION OF TRUST ESTATE.............................10
3.07. OPINIONS AS TO TRUST ESTATE............................10
3.08. PERFORMANCE OF OBLIGATIONS.............................11
3.09. NEGATIVE COVENANTS.....................................11
3.10. ANNUAL STATEMENT AS TO COMPLIANCE......................12
3.11. [Reserved].............................................13
3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE
MORTGAGE LOANS.........................................13
3.13. AMENDMENTS TO SERVICING AGREEMENT......................13
3.14. SERVICER AS AGENT AND BAILEE OF THE INDENTURE
TRUSTEE................................................13
3.15. INVESTMENT COMPANY ACT.................................13
3.16. ISSUER MAY CONSOLIDATE, ETC............................14
3.17. SUCCESSOR OR TRANSFEREE................................16
3.18. NO OTHER BUSINESS......................................16
3.19. NO BORROWING...........................................16
3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES......16
3.21. CAPITAL EXPENDITURES...................................16
3.22. TREATMENT OF NOTES AS DEBT FOR TAX PURPOSES............16
<PAGE>
3.23. RESTRICTED PAYMENTS....................................16
3.24. NOTICE OF EVENTS OF DEFAULT............................17
3.25. FURTHER INSTRUMENTS AND ACTS...........................17
3.26. STATEMENTS TO NOTEHOLDERS..............................17
3.27. DETERMINATION OF NOTE INTEREST RATE....................17
3.28. CLAIMS UPON THE POLICY; POLICY PAYMENTS ACCOUNT........17
ARTICLE IV
THE NOTES; SATISFACTION AND DISCHARGE OF INDENTURE
4.01. THE NOTES..............................................19
4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND
EXCHANGE OF NOTES; APPOINTMENT OF CERTIFICATE
REGISTRAR...........................................19
4.03. MUTILATED, DESTROYED, LOST OR STOLEN NOTES.............20
4.04. PERSONS DEEMED OWNERS..................................21
4.05. CANCELLATION...........................................21
4.06. BOOK-ENTRY NOTES.......................................22
4.07. NOTICES TO DEPOSITORY..................................22
4.08. DEFINITIVE NOTES.......................................22
4.09. TAX TREATMENT..........................................23
4.10. SATISFACTION AND DISCHARGE OF INDENTURE................23
4.11. APPLICATION OF TRUST MONEY.............................24
4.12. SUBROGATION AND COOPERATION............................25
4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT...............26
4.14. TEMPORARY NOTES........................................26
ARTICLE V
DEFAULT AND REMEDIES
5.01. EVENTS OF DEFAULT......................................26
5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.....27
5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY INDENTURE TRUSTEE................................27
5.04. REMEDIES; PRIORITIES...................................30
5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE..............32
5.06. LIMITATION OF SUITS....................................32
5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE
PRINCIPAL AND INTEREST.................................33
5.08. RESTORATION OF RIGHTS AND REMEDIES.....................33
5.09. RIGHTS AND REMEDIES CUMULATIVE.........................33
5.10. DELAY OR OMISSION NOT A WAIVER.........................33
5.11. CONTROL BY NOTE INSURER................................33
5.12. WAIVER OF PAST DEFAULTS................................34
5.13. UNDERTAKING FOR COSTS..................................34
5.14. WAIVER OF STAY OR EXTENSION LAWS.......................35
<PAGE>
5.15. SALE OF TRUST ESTATE...................................35
5.16. ACTION ON NOTES........................................37
5.17. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS.....37
ARTICLE VI
THE INDENTURE TRUSTEE
6.01. DUTIES OF INDENTURE TRUSTEE............................38
6.02. RIGHTS OF INDENTURE TRUSTEE............................39
6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE.................40
6.04. INDENTURE TRUSTEE'S DISCLAIMER.........................40
6.05. NOTICE OF EVENT OF DEFAULT.............................40
6.06. TAX ADMINISTRATION OF THE ISSUER.......................40
6.07. COMPENSATION AND INDEMNITY.............................40
6.08. REPLACEMENT OF INDENTURE TRUSTEE.......................41
6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER..................42
6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE
INDENTURE TRUSTEE......................................42
6.11. ELIGIBILITY; DISQUALIFICATION..........................44
6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER.......44
6.13. REPRESENTATIONS AND WARRANTIES.........................44
6.14. DIRECTIONS TO INDENTURE TRUSTEE........................45
6.15. THE AGENTS.............................................45
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND
ADDRESSES OF NOTEHOLDERS.............................45
7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS..........................................45
7.03. REPORTS BY THE INDENTURE TRUSTEE.......................46
7.04. REPORTS BY INDENTURE TRUSTEE...........................47
7.05. STATEMENTS TO NOTEHOLDERS..............................47
7.06. BOOKS AND RECORDS......................................49
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
8.01. COLLECTION OF MONEY....................................49
8.02. TRUST ACCOUNTS.........................................49
8.03. OFFICER'S CERTIFICATE..................................50
8.04. TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS...........50
8.05. RELEASE OF TRUST ESTATE................................50
8.06. SURRENDER OF NOTES UPON FINAL PAYMENT..................51
<PAGE>
8.07. OPTIONAL REDEMPTION OF THE NOTES.......................51
ARTICLE IX
SUPPLEMENTAL INDENTURES
9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
NOTEHOLDERS..........................................52
9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS....53
9.03. EXECUTION OF SUPPLEMENTAL INDENTURES...................55
9.04. EFFECT OF SUPPLEMENTAL INDENTURE.......................55
9.05. CONFORMITY WITH TRUST INDENTURE ACT....................55
9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES..........55
ARTICLE X
MISCELLANEOUS
10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC..............56
10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE.......57
10.03. ACTS OF NOTEHOLDERS....................................58
10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, NOTE
INSURER AND RATING AGENCIES.........................59
10.05. NOTICES TO NOTEHOLDERS; WAIVER.........................60
10.06. CONFLICT WITH TRUST INDENTURE ACT......................61
10.07. EFFECT OF HEADINGS.....................................61
10.08. SUCCESSORS AND ASSIGNS.................................61
10.09. SEPARABILITY...........................................61
10.10. BENEFITS OF INDENTURE..................................61
10.11. LEGAL HOLIDAYS.........................................61
10.12. GOVERNING LAW..........................................61
10.13. COUNTERPARTS...........................................61
10.14. RECORDING OF INDENTURE.................................62
10.15. ISSUER OBLIGATION......................................62
10.16. NO PETITION............................................62
10.17. INSPECTION.............................................62
ARTICLE XI
CERTAIN MATTERS REGARDING THE NOTE INSURER
11.01. CERTAIN RIGHTS OF THE NOTE INSURER.....................63
11.02. INDENTURE TRUSTEE TO ACT SOLELY WITH CONSENT OF THE
NOTE INSURER........................................63
11.03. TRUST ESTATE AND ACCOUNTS HELD FOR BENEFIT OF THE
NOTE INSURER AND THE NOTEHOLDERS.......................64
11.04. EFFECT OF PAYMENTS BY THE NOTE INSURER; SUBROGATION....64
11.05. INSOLVENCY PROCEEDINGS.................................64
11.06. NOTICES TO THE NOTE INSURER............................65
<PAGE>
Signatures and Seals ...................................................... 59
Acknowledgments ........................................................... 60
<PAGE>
EXHIBITS
Exhibit A - Form of Notes
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 March 1, 1998, between
PacificAmerica Home Equity Loan Trust Series 1998-1, a Delaware business trust,
as Issuer (the "Issuer"), and Bankers Trust Company of California, N.A., 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
PacificAmerica Home Equity Loan Asset-Backed Notes, Series 1998-1 (the "Notes")
and the Note Insurer.
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as Indenture Trustee for the benefit of the Holders of the Notes
and the Note 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
(other than any income thereon) and the Pre-Funding Account; (e) all rights
under the (i) Home Equity Loan Purchase Agreement as assigned to the Issuer,
(ii) the Servicing Agreement and any Subservicing Agreements and (iii) 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
Notes, 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 Inden ture.
The Indenture Trustee, as trustee on behalf of the Holders of
the Notes and the Note 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 Indenture Trustee agrees
that it will hold the Note Insurance Policy in trust and that it will hold
<PAGE>
any proceeds of any claim made upon the Note Insurance Policy solely for the use
and benefit of the Holders of the Notes in accordance with the terms hereof and
the terms of the Note Insurance Policy.
The Indenture Trustee further acknowledges that in the event
the conveyance of the Mortgage Loans by the Company to the Issuer pursuant to
the Trust Agreement is determined to constitute a financing, the Indenture
Trustee holds the Mortgage Loans as the designee of the Issuer, subject,
however, to a prior lien in favor of the Noteholders and the Note Insurer.
The Indenture Trustee further acknowledges that in the event
(i) the transfer of the Initial Mortgage Loans from the Seller to the Company
pursuant to the Home Equity Loan Purchase Agreement is determined to be a
financing; (ii) 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 (iii) the conveyance 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 the Company and the Issuer,
respectively, subject however, in each case, to a prior lien in favor of the
Noteholders and the Note Insurer pursuant to the terms of this Indenture.
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 Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Indenture Trustee.
2
<PAGE>
"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, and 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;
(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, instru ment 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
ORIGINAL ISSUANCE OF NOTES
Section 2.01. FORM. The Notes, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the form set forth in
Exhibit A, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture.
The Notes 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 Notes set forth in Exhibit A are part of the
terms of this Indenture.
3
<PAGE>
Section 2.02. EXECUTION, AUTHENTICATION AND DELIVERY. The Notes shall
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals
who were at any time Authorized Officers of the 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 Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Request authenticate
and deliver Notes for original issue in an aggregate initial principal amount of
$130,000,000.00.
The Notes that are authenticated and delivered by the
Indenture Trustee to or upon the order of the Issuer on the Closing Date shall
be dated March 25, 1998. All other Notes that are authenticated after the
Closing Date shall be dated the date of its authentication. The Notes shall be
issuable as registered Notes and the Notes shall be issuable in the minimum
initial Note Principal Balances of $25,000 and in integral multiples of $1,000
in excess thereof.
No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
Section 2.03. 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 2.2 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 Notes and the Note
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, with
respect to any documents received beyond 45 days after the Closing Date,
promptly thereafter), the Indenture Trustee agrees, for the benefit of the
Noteholders and the Note 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 Note Insurer an initial certification in the form annexed hereto as
Exhibit B. In conducting such review, the Indenture Trustee will ascertain
whether all required documents described in Section 2.2 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 (vi) of such section, the
Indenture Trustee's obligations shall extend only to documents actually
delivered pursuant to such
4
<PAGE>
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 to Attachment B to Exhibit 2 of the Home Equity Loan
Purchase Agreement, the Indenture Trustee shall promptly notify the Seller and
the Note Insurer of such finding and the Seller's obligation to cure such defect
or repurchase or substitute for the related Mortgage Loan.
(b) No later than 180 days after the Closing Date, the
Indenture Trustee will review, for the benefit of the Noteholders and the Note
Insurer, the Mortgage Files and will execute and deliver or cause to be executed
and delivered to the Seller and the Note 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 (ii) and (iv) of Section 2.2 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 to Attachment B to Exhibit 2 of
the Home Equity Loan Purchase Agreement, the Indenture Trustee shall promptly
notify the Seller and the Note Insurer of such finding and the Seller's
obligation to cure such defect or repurchase or substitute for the related
Mortgage Loan.
(c) Upon deposit of the Repurchase Price in the Payment
Account and receipt of a Request for Release in the form of Exhibit B to the
Servicing Agreement, 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 Master
Servicer, the related Sub-Servicer, the Note Insurer and the Rating Agencies of
such amendment.
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 Noteholders and
the Note 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 Master Servicer or any Sub-Servicer,
each remittance received by the Indenture Trustee
5
<PAGE>
with respect to the Mortgage Loans and (ii) amounts transferred from the
Pre-Funding Account and the Interest Coverage Account. The Indenture Trustee
shall make all payments of principal of and interest on the Notes, 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, Notes may be surrendered for
registration of transfer or exchange, and where notices and demands to or upon
the Issuer in respect of the Notes and this Indenture may be served. The Issuer
hereby initially appoints the Indenture Trustee to serve as its agent for the
foregoing purposes. The Issuer will give notice to the Indenture Trustee and the
Note Insurer of any change in the location of such office. 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 Notes 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 Notes 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 Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee and the Note 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
Notes;
(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums so held in trust by such Paying
Agent;
(iv) immediately resign as Paying Agent and forthwith
pay to the Indenture Trustee all sums held by it in trust for the
payment of Notes if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its appointment;
6
<PAGE>
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any Notes of
any applicable withholding taxes imposed thereon and with respect to
any applicable reporting requirements in connection therewith; 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 Note (other than amounts paid
under the Note 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; and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to the Issuer for payment thereof (but
only to the extent of the amounts so paid to the Issuer), and all liability of
the Indenture Trustee or such Paying Agent with respect to such trust money
shall thereupon cease; provided, however, that the Indenture Trustee or such
Paying Agent, before being required to make any such repayment, shall at the
expense and direction of the Issuer cause to be published once, in 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 paid to
the Issuer. The Indenture Trustee with the consent of the Note Insurer, so long
as no Note 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 Notes 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. (a) 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 successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Mortgage Loans and each other
instrument or agreement included in the Trust Estate.
7
<PAGE>
(b) Any successor to the Owner Trustee appointed pursuant to
Section 9.03 of the Trust Agreement shall be the successor Owner Trustee under
this Indenture without the execution or filing of any paper, instrument or
further act to be done on the part of the parties hereto.
(c) Upon any consolidation or merger of or other succession to
the Owner Trustee, the Person succeeding to the Owner Trustee under the Trust
Agreement may exercise every right and power of the Owner Trustee under this
Indenture with the same effect as if such Person had been named as the Owner
Trustee herein.
Section 3.05. 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 Noteholders and to other
Persons the amounts to which they are entitled as set forth below; PROVIDED,
HOWEVER, that any amounts representing payments from the Note Insurer shall be
used only to pay interest and principal to the Noteholders pursuant to clauses
(iii) and (iv):
(i) to the Indenture Trustee, the Indenture Trustee
Fee and, payable on the Payment Date occurring each April commencing in
April 1998, to the Owner Trustee, the Owner Trustee Fee;
(ii) to the Note Insurer, the Note Insurance Premium;
(iii) to the Noteholders, the Interest Payment Amount
with respect to such Payment Date, less the sum of any Prepayment
Interest Shortfalls for such Payment Date, to the extent not covered by
Compensating Interest payments by the Master Servicer, and any Relief
Act Shortfalls for such Payment Date;
(iv) to the Noteholders, as principal on the Notes,
the Principal Payment Amount with respect to such Payment Date;
(v) to the Note Insurer, the sum of (a) all payments
previously paid by the Note Insurer under the Note Insurance Policy
which have not previously been reimbursed, (b) any other amounts due to
the Note 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 Noteholders, as principal on the Notes,
the Subordination Increase Amount for such Payment Date;
(vii) to the Noteholders, any unpaid Prepayment
Interest Shortfalls, Relief Act Shortfalls and 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;
8
<PAGE>
(ix) to the Master Servicer, any amounts owing to the
Master 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 Certificate Paying
Agent, on behalf of the Certificateholders.
The Indenture Trustee shall make claims under the Note
Insurance Policy pursuant to Section 3.28 of this Indenture and in accordance
with the Note Insurance Policy. The Indenture Trustee shall deposit any
Scheduled Payment received from the Note Insurer in the Policy Payment Account.
All amounts received under the Note Insurance Policy shall be used solely for
the payment to Holders of principal and interest on the Notes pursuant to
Section 3.05 of the Indenture.
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 Notes 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 Note that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall, so long as the Notes are Book-Entry Notes
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 of the Indenture Trustee in writing at least five Business Days
prior to the related Record Date and such Holder holds Notes of an aggregate
initial Note Principal Balance of at least $5,000,000, such installment shall be
paid by wire transfer to an account specified by such Holder, and in all other
cases or if no such instructions have been delivered to the Indenture Trustee,
by check to such Noteholder mailed to such Holder's address as it appears in the
Note 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 Note shall be due and payable in
full on the Final Scheduled Payment Date as provided in the form of Note set
forth in Exhibit A. All principal payments on the Notes shall be made to the
Noteholders entitled thereto in accordance with the Percentage Interests
represented by such Notes. Upon notice to the Indenture Trustee by the Issuer,
the Indenture Trustee shall notify the Person in whose name a Note is registered
at the close of business on the Record Date preceding the 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
9
<PAGE>
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 Note at the Final Scheduled Payment Date or other final
Payment Date will be payable only upon presentation and surrender of such Note
and shall specify the place where such Note may be presented and surrendered for
such final payment. No interest shall accrue on the Notes 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;
(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 Master 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 Note Insurer and the
Noteholders 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 Note 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 continu ation 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
10
<PAGE>
such counsel, no such action is necessary to make such lien and first priority
security interest effective.
(b) On or before March 1 in each calendar year, beginning in
1999, the Issuer shall furnish to the Indenture Trustee and the Note 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 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.
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 Note Insurer so long
as no Note 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 Master
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 Note Insurer, so long as no Note Insurer Default exists, be
able to exercise the rights of the Issuer to direct the actions of the Master
Servicer pursuant to the Servicing Agreement.
Section 3.09. NEGATIVE COVENANTS. So long as any Notes 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 Note Insurer or the Indenture Trustee
with the consent of the Note Insurer, so long as no Note Insurer
Default exists;
11
<PAGE>
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate;
(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 Notes under this Indenture except as may be expressly
permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien of this
Indenture) to be created on or extend to or other wise 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;
(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 Equity Loan Purchase Agreement
or any other Basic Document, if any such action would materially and
adversely affect the interests of the Noteholders or the Note Insurer;
or
(v) issue debt obligations under any other indenture;
(vi) incur or assume any indebtedness or guaranty any
indebtedness of any Person, except for such indebtedness as may be
incurred by the Issuer in connection with the issuance of the Notes
pursuant to this Indenture;
(vii) dissolve or liquidate in whole, or subject to
Section 3.16, in part or merge or consolidate with any other Person; or
(viii) take any other action or fail to take any action
which may cause the Issuer to be taxable as (a) an association pursuant
to Section 7701 of the Code and the corresponding regulations or (b) as
a taxable mortgage pool pursuant to Section 7701(i) of the Code and the
corresponding regulations.
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer will
deliver to the Indenture Trustee and the Note 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
12
<PAGE>
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 Note 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 Inden ture Trustee and the Note Insurer that it will not enter into any
amendment or supplement to the Servicing Agreement without the prior written
consent of the Master Servicer, the Sub-Servicer (provided, that the consent of
the Sub-Servicer shall not be unreasonably withheld), the Indenture Trustee and
the Note Insurer. The Indenture Trustee, as pledgee of the Mortgage Loans, may,
with the consent of the Note Insurer so long as no Note Insurer Default exists,
decline to enter into or consent to any such supplement or amendment if the Note
Insurer's or Noteholders' 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 Master Servicer, the Issuer and the Indenture
Trustee hereby acknowledge that the Master Servicer is acting as agent and
bailee of the 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 Master Servicer, and any other items constituting a part of the
Trust Estate which from time to time come into the possession of the Master
Servicer. It is intended that, by the Master 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 Master 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
13
<PAGE>
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 Note Insurer, the due and punctual payment of the principal of and
interest on all Notes and to the Certificate Paying Agent, on behalf of
the Certificateholders, and the payment of the Note Insurance Premium
and all other amounts payable to the Note 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 Notes,
without taking into account the Note Insurance Policy, to be reduced,
suspended or withdrawn or to be considered by either Rating Agency to
be below investment grade;
(iv) the Issuer and the Note 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 Notes 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;
(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 Note 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 Note Insurer, so long as no Note Insurer
Default exists, shall have given its prior written consent.
14
<PAGE>
(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 Notes and to the
Certificate Paying Agent, on behalf of the Certificateholders, and the
payment of the Note Insurance Premium and all other amounts payable to
the Note 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 Notes and the Note Insurer, (D) unless
otherwise provided in such supplemental indenture, expressly agree to
indemnify, defend and hold harmless the Issuer, the Indenture Trustee
and the Note Insurer against and from any loss, liability or expense
arising under or related to this Indenture and the Notes 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 Notes;
(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 Notes or the
rating of the Notes without taking into account the Note Insurance
Policy to be reduced, suspended or withdrawn;
(iv) the Issuer and the Note 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 Notes 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;
(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 Note 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
15
<PAGE>
(vii) the Note Insurer, so long as no Note 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 Notes immediately upon
the delivery of written notice to the Indenture Trustee and the Note Insurer of
such conveyance or transfer and approval of such transaction given by the Note
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 Notes 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 Notes and amounts due to the Note 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.
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. TREATMENT OF NOTES AS DEBT FOR TAX PURPOSES. The Issuer
shall treat the Notes as indebtedness for all federal, state and local income
and franchise tax purposes.
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
16
<PAGE>
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 Master 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 Note 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 Note 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 NOTEHOLDERS. On each Payment Date, the
Indenture Trustee and the Certificate Registrar shall forward by mail to each
Noteholder 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 Master Servicer to be
included in such statement or (ii) include any information required to be
included in such statement if the Master Servicer has failed to timely produce
such information to the Indenture Trustee as required pursuant to the Servicing
Agreement.
Section 3.27. DETERMINATION OF NOTE INTEREST RATE. On the second LIBOR
Business Day immediately preceding each Payment Date (or the second LIBOR
Business Day immediately preceding the Closing Date with respect to the first
Interest Period), the Indenture Trustee shall determine One-Month LIBOR and the
Note Interest Rate for the following Interest Period and shall inform the
Issuer, the Master Servicer and the Company at their respective facsimile
numbers given to the Indenture Trustee in writing thereof.
Section 3.28. CLAIMS UPON THE POLICY; POLICY PAYMENTS ACCOUNT.
(a) If, by the close of business on the third Business Day
prior to a Payment Date, the Indenture Trustee determines that a Deficiency
Amount for any Payment Date is greater than zero, then the Indenture Trustee
shall give notice to the Note Insurer by telephone or telecopy of the amount of
such Deficiency Amount. Such notice of such Deficiency Amount shall be confirmed
in writing in the form set forth as Exhibit A to the Endorsement of the Policy,
to the Note Insurer and the Fiscal Agent (as defined in the Policy), if any, at
or before 10:00 a.m. New York time on the second Business Day prior to such
Payment Date. Following Receipt (as defined in the Policy) by the Note Insurer
of such notice in such form, the Note Insurer or the Fiscal Agent will pay any
amount payable under the Policy on the later to occur of (i) 12:00 noon New York
time on the second Business Day following such receipt, and (ii) 12:00 noon New
York time
17
<PAGE>
on the Payment Date to which such deficiency relates, as provided in the
Endorsement to the Policy.
(b) The Indenture Trustee shall establish a separate special
purpose trust account for the benefit of Noteholders and the Note Insurer
referred to herein as the "Policy Payments Account" over which the Indenture
Trustee shall have exclusive control and sole right of withdrawal. The Indenture
Trustee shall deposit any amount paid under the Policy in the Policy Payments
Account and distribute such amount only for purposes of payment to the
Noteholders of the Scheduled Payment for which a claim was made, and such amount
may not be applied to satisfy any costs, expenses or liabilities of the Master
Servicer, the Indenture Trustee or the Trust Estate. Amounts paid under the
Policy shall be transferred to the Payment Account in accordance with the next
succeeding paragraph and disbursed by the Indenture Trustee to the Noteholder in
accordance with Section 3.05. It shall not be necessary for such payments to be
made by checks or wire transfers separate from the checks or wire transfers used
to pay the Scheduled Payment with other funds available to make such payment.
However, the amount of any payment of principal of or interest on the Notes to
be paid from funds transferred from the Policy Payments Account shall be noted
as provided in paragraph (c) below in the Note Register and in the statement to
be furnished to Noteholder pursuant to Section 7.05. Funds held in the Policy
Payments Account shall not be invested.
On any Payment Date with respect to which a claim has been
made under the Policy, the amount of any funds received by the Indenture Trustee
as a result of any claim under the Policy, to the extent required to make
Scheduled Payment on such Payment Date, shall be withdrawn from the Policy
Payments Account and deposited in the Payment Account and applied by the
Indenture Trustee, together with the other funds to be withdrawn from the
Payment Account pursuant to Section 3.05 directly to the payment in full of the
Scheduled Payment due on the Notes. Funds received by the Indenture Trustee as a
result of any claim under the Policy shall be deposited by the Indenture Trustee
in the Policy Payments Account and used solely for payment to the Noteholder and
may not be applied to satisfy any costs, expenses or liabilities of the Master
Servicer, the Indenture Trustee or the Trust Estate. Any funds remaining in the
Policy Payments Account on the first Business Day following a Payment Date shall
be remitted to the Note Insurer, pursuant to the instructions of the Note
Insurer, by the end of such Business Day.
(c) The Indenture Trustee shall keep a complete and accurate
record of the amount of interest and principal paid in respect of any Note from
moneys received under the Policy. The Note Insurer shall have the right to
inspect such records at reasonable times during normal business hours upon one
Business Day's prior notice to the Indenture Trustee.
(d) The Indenture Trustee shall promptly notify the Note
Insurer and Fiscal Agent of any proceeding or the institution of any action, of
which a Responsible Officer of the Indenture Trustee has actual knowledge,
seeking the avoidance as a preferential transfer under applicable bankruptcy,
insolvency, receivership or similar law (a "Preference Claim") of any Scheduled
Payment made with respect to the Notes. Each Noteholder, by its purchase of
Notes, the Master Servicer and the Indenture Trustee hereby agree that the Note
Insurer (so long as no Note Insurer Default under clause (a) of the definition
thereof has occurred and is continuing) may at any time
18
<PAGE>
during the continuation of any proceeding relating to a Preference Claim direct
all matters relating to such Preference Claim, including, without limitation,
(i) the direction of any appeal of any order relating to such Preference Claims
and (ii) the posting of any surety, supersedes or performance bond pending any
such appeal. In addition and without limitation of the foregoing, the Note
Insurer shall be subrogated to the rights of the Master Servicer, the Indenture
Trustee and each Noteholder in the conduct of any such Preference Claim,
including, without limitation, all rights of any party to an adversary
proceeding action with respect to any court order issued in connection with any
such Preference Claim.
ARTICLE IV
THE NOTES; SATISFACTION AND DISCHARGE OF INDENTURE
Section 4.01. THE NOTES. The Notes shall be registered in the name of a
nominee desig nated by the Depository. Beneficial Owners will hold interests in
the Notes through the book-entry facilities of the Depository in minimum initial
Note Principal Balances of $25,000 and inte gral 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 Notes)
deal with the Depository as the authorized representative of the Beneficial
Owners with respect to the Notes for the purposes of exercising the rights of
Holders of Notes 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 Notes 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 Notes as to which they are the Beneficial Owners. Requests and directions
from, and votes of, the Depository as Holder of the Notes 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 Noteholders and give notice to the
Depository of such record date. Without the consent of the Issuer and the
Indenture Trustee, no Note may be transferred by the Depository except to a
successor Depository that agrees to hold such Note 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 Notes
it beneficially owns in the manner prescribed in Section 4.08.
Section 4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF NOTES; APPOINTMENT OF CERTIFICATE REGISTRAR AND NOTE REGISTRAR. The Issuer
shall cause the Indenture Trustee, as Note Registrar, to keep at the Corporate
Trust Office a Note Register in which, subject to such reasonable regulations as
it may prescribe, the Note Registrar shall provide for the registration of Notes
and of transfers and exchanges of Notes as herein provided.
19
<PAGE>
Subject to the restrictions and limitations set forth below,
upon surrender for registration of transfer of any Note 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 or
more new Notes in authorized initial Note Principal Balances evidencing the same
aggregate Percentage Interests.
Subject to the foregoing, at the option of the Noteholders,
Notes may be exchanged for other Notes of like tenor and in authorized initial
Note Principal Balances evidencing the same aggregate Percentage Interests upon
surrender of the Notes to be exchanged at the Corporate Trust Office of the Note
Registrar. Whenever any Notes are so surrendered for exchange, the Issuer shall
execute and the Indenture Trustee shall authenticate and deliver the Notes which
the Note holder making the exchange is entitled to receive. Each Note presented
or surrendered for registration of transfer or exchange shall (if so required by
the Note Registrar) be duly endorsed by, or be accompanied by a written
instrument of transfer in form reasonably satisfactory to the Note 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. Notes delivered upon any such transfer or
exchange will evidence the same obligations, and will be entitled to the same
rights and privileges, as the Notes surrendered.
No service charge shall be made for any registration of
transfer or exchange of Notes, but the Note 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 Notes.
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. The Issuer hereby appoints the Indenture
Trustee as Note Registrar.
Section 4.03. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer, the Note Insurer and the
Indenture Trustee harmless, then, in the absence of notice to the Issuer, the
Note Registrar or the Indenture Trustee that such Note has been acquired by a
bona fide purchaser, 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 Note, a replacement Note; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, instead
of issuing a replacement Note, the Issuer may pay such destroyed, lost or stolen
Note when so due or payable without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the
20
<PAGE>
proviso to the preceding sentence, a bona fide purchaser of the original Note in
lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer, the Note Insurer and the Indenture Trustee shall be
entitled to recover such replacement Note (or such payment) from the Person to
whom it was delivered or any Person taking such replacement Note from such
Person to whom such replacement Note was delivered or any assignee of such
Person, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Issuer, the Note Insurer or the Indenture Trustee in
connection therewith.
Upon the issuance of any replacement Note under this Section
4.03, the Issuer may require the payment by the Holder of such Note of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 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 Notes.
Section 4.04. PERSONS DEEMED OWNERS. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Note Insurer, the
Indenture Trustee and any agent of the Issuer, the Note Insurer, or the
Indenture Trustee may treat the Person in whose name any Note is registered (as
of the day of determination) as the owner of such Note for the purpose of
receiving payments of principal of and interest, if any, on such Note and for
all other purposes whatsoever, whether or not such Note be overdue, and neither
the Issuer, the Note Insurer, the Indenture Trustee nor any agent of the Issuer,
the Note Insurer or the Indenture Trustee shall be affected by notice to the
contrary.
Section 4.05. CANCELLATION. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section 4.05, except as expressly
permitted by this Indenture. All canceled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they be destroyed or returned to it; provided, however, that such
Issuer Request is timely and the Notes have not been previously disposed of by
the Indenture Trustee.
21
<PAGE>
Section 4.06. BOOK-ENTRY NOTES. The Notes, upon original issuance, will
be issued in the form of definitive Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Depository, by, or on
behalf of, the Issuer. Such Notes shall initially be registered on the Note
Register in the name of Cede & Co., the nominee of the initial Depository, and
no Beneficial Owner will receive a Definitive Note representing such Beneficial
Owner's interest in such Note, except as provided in Section 4.08. Unless and
until definitive, fully registered Notes (the "Definitive Notes") 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 Note Registrar, the Note 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 Notes and the giving of instructions or directions
hereunder) as the sole holder of the Notes, and shall have no
obligation to the Beneficial Owners of Notes;
(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 Notes and the Depository
and/or the Depository Participants. Unless and until Definitive Notes
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 Notes 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 Notes evidencing a
specified percentage of the Note Principal Balances of the Notes, 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 Notes and has delivered such instructions to the Indenture Trustee.
Section 4.07. NOTICES TO DEPOSITORY. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes 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 Notes to the
Depository, and shall have no obligation to the Beneficial Owners.
Section 4.08. DEFINITIVE NOTES. If (i) the Indenture Trustee determines
that the Depository is no longer willing or able to properly discharge its
responsibilities with respect to the Notes and the Indenture Trustee is unable
to locate a qualified successor, (ii) the Indenture Trustee elects to
22
<PAGE>
terminate the book-entry system through the Depository or (iii) after the
occurrence of an Event of Default, Beneficial Owners of Notes representing
beneficial interests aggregating at least a majority of the Note Principal
Balances of the Notes advise the Depository in writing that the continuation of
a book-entry system through the Depository is no longer in the best interests of
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 Notes to Beneficial Owners requesting the same. Upon
surrender to the Indenture Trustee of the typewritten Notes representing the
Book-Entry Notes by the Depository, accompanied by registration instructions,
the Issuer shall execute and the Indenture Trustee shall authenticate the
Definitive Notes in accordance with the instructions of the Depository. None of
the Issuer, the Note 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
Notes, the Indenture Trustee shall recognize the Holders of the Definitive Notes
as Noteholders. The Indenture Trustee shall notify the Note Insurer upon the
issuance of Definitive Notes.
Section 4.09. TAX TREATMENT. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that, for federal,
state and local income, single business and franchise tax purposes, the Notes
will qualify as indebtedness. The Issuer, by entering into this Indenture, and
each Noteholder, by its acceptance of its Note (and each Beneficial Owner by its
acceptance of an interest in the applicable Book-Entry Note), agree to treat the
Notes 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 Notes, except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders (and the Note
Insurer, as subrogee of the Noteholders) 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 Noteholders as beneficiaries hereof with respect to the property so deposited
with the Indenture Trustee payable to all or any of them, and the Indenture
Trustee, on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture with
respect to the Notes and shall release and deliver the Collateral to or upon the
order of the Issuer, when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 4.03 hereof and (ii) Notes
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
23
<PAGE>
(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
a. have become due and payable,
b. will become due and payable at the Final
Scheduled Payment Date within one year, or
c. have been declared immediately due and
payable pursuant to Section 5.02 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 Notes
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 (pursuant to ss.10.01(b)) to the
Indenture Trustee and the Note 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 Notes, 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 notice of the Note Insurer; and
(C) the Issuer has delivered to the Indenture Trustee and the
Note 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 Notes 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 Note Insurer,
as applicable, as the Indenture Trustee may determine, to the Holders of Notes,
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.
24
<PAGE>
Section 4.12. SUBROGATION AND COOPERATION. (a) The Issuer and the
Indenture Trustee acknowledge (and each Noteholder by acceptance of its Note
hereby agrees) that (i) to the extent the Note Insurer makes payments under the
Note Insurance Policy on account of principal of or interest on the Notes, the
Note Insurer will be fully subrogated to the rights of such Holders to receive
such principal and interest from the Issuer, and (ii) the Note Insurer shall be
paid such 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.
Scheduled Payments disbursed by the Indenture Trustee from
proceeds of the Note Insurance Policy shall not be considered payment by the
Issuer with respect to the Notes, nor shall such disbursement of such Scheduled
Payments discharge the obligations of the Issuer with respect to the amounts
thereof, and the Note Insurer shall become the owner of such amounts as the
deemed subrogee of such Noteholders.
The Indenture Trustee shall cooperate in all respects with any
reasonable request by the Note Insurer for action to preserve or enforce the
Note Insurer's rights or interest under this Indenture or the Insurance
Agreement, consistent with this Indenture and without limiting the rights of the
Noteholders 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 Notes, or under this Indenture in respect
to the Notes 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 Note Insurer hereunder;
provided, however, action shall be taken pursuant to this Section 4.12 by the
Indenture Trustee to preserve the Note Insurer's rights or interest under this
Agreement or the Insurance Agreement only to the extent such action is available
to the Noteholders or the Note Insurer under other provisions of this Indenture.
25
<PAGE>
Notwithstanding any provision of this Indenture to the
contrary, so long as no Note Insurer Default exists, the Note Insurer shall at
all times be treated as if it were the exclusive Noteholder 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 Note 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 Note Insurer when
the Note Insurer is exercising the rights of the Noteholders 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 Notes,
all monies then held by any Person other than the Indenture Trustee under the
provisions of this Indenture with respect to such Notes shall, upon demand of
the Issuer, be paid to the Indenture Trustee to be held and applied according to
Section 3.05 and thereupon such Person shall be released from all further
liability with respect to such monies.
Section 4.14. TEMPORARY NOTES. Pending the preparation of any
Definitive Notes, the Issuer may execute and upon its written direction, the
Indenture Trustee may authenticate and make available for delivery, temporary
Notes that are printed, lithographed, typewritten, photocopied or otherwise
produced, in any denomination, substantially of the tenor of the Definitive
Notes in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Notes may reasonably determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause
Definitive Notes to be prepared without unreasonable delay. After the
preparation of the Definitive Notes, the temporary Notes shall be exchangeable
for Definitive Notes upon surrender of the temporary Notes at the office or
agency of the Indenture Trustee, without charge to the Holder. Upon surrender
for cancellation of any one or more temporary Notes, the Issuer shall execute
and the Indenture Trustee shall authenticate and make available for delivery, in
exchange therefor, Definitive Notes of authorized denominations and of like
tenor and aggregate principal amount. Until so exchanged, such temporary Notes
shall in all respects be entitled to the same benefits under this Indenture as
Definitive Notes.
ARTICLE V
DEFAULT AND REMEDIES
Section 5.01. EVENTS OF DEFAULT. The Issuer shall deliver to the
Indenture Trustee and the Note 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.
26
<PAGE>
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 Note Insurer), and,
at the written direction of the Note Insurer, or if a Note Insurer Default
exists, the Holders of Notes representing not less than a majority of the Note
Principal Balances of all Notes, shall, declare the Notes to be immediately due
and payable, by a notice in writing to the Issuer (and to the Indenture Trustee
if given by Noteholders), and upon any such declaration the unpaid Note
Principal Balance of the Notes, 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 Note Insurer or, if a Note
Insurer Default exists, the Holders of Notes representing a majority of the Note
Principal Balances of all Notes, 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 Note Insurer has paid or
deposited with the Indenture Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on the
Notes and all other amounts that would then be due hereunder
or upon the Notes 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
(ii) all Events of Default, other than the nonpayment
of the principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.12.
provided, however, the Note Insurer, so long as no Note 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 Note when
the same becomes due and payable, and such default continues for a period of
five days, or (ii) default is made in the payment of the principal (including
the Principal Payment Amount and the Subordination Increase Amount) of or any
installment of the principal of any Note when the same becomes due and payable,
the Issuer shall,
27
<PAGE>
immediately upon demand of the Indenture Trustee, at the direction of the Note
Insurer, so long as no Note Insurer Default exists, pay to the Indenture
Trustee, for the benefit of the Holders of Notes and of the Note Insurer, the
whole amount then due and payable on the Notes for principal and interest, with
interest at the Note 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 Note Insurer, so long as no
Note 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 Notes and collect in the
manner provided by law out of the property of the Issuer or other obligor the
Notes, 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 Note Insurer, so long as no Note
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 Noteholders and the Note
Insurer, by such appropriate Proceedings as the Indenture Trustee, at the
direction of the Note Insurer, so long as no Note 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 Notes or any Person having or claiming an ownership
interest in the Trust Estate, Proceedings under Title 11 of the United States
Code or any other applicable federal or state bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer or its property or such other
obligor or Person, or in case of any other comparable judicial Proceedings
relative to the Issuer or other obligor upon the Notes, or to the creditors or
property of the Issuer or such other obligor, the Indenture Trustee, at the
direction of the Note Insurer, so long as no Note Insurer Default exists,
irrespective of whether the principal of any Notes shall then be due and payable
as therein expressed or by declaration or otherwise and irrespective of whether
the Indenture Trustee shall have made any demand pursuant to the provisions of
this Section, shall be entitled and empowered, 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
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to the Indenture
Trustee and
28
<PAGE>
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 Note Insurer and of the Noteholders
allowed in such Proceedings;
(ii) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of Notes in any election
of a trustee, a standby trustee or Person performing similar functions
in any such Proceedings;
(iii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders, the Note
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 Note Insurer or the Holders of Notes
allowed in any judicial proceedings relative to the Issuer, its
creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee,
with the consent of the Note Insurer, so long as no Note Insurer Default exists,
shall consent to the making of payments directly to such Noteholders, 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 Note Insurer.
(e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any Note
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 Notes, may be enforced by the Indenture Trustee
without the possession of any of the Notes or the production thereof in any
trial or other Proceedings relative thereto, and any such action or proceedings
instituted by the Indenture Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment, subject to the payment of the
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 Notes and the Note
Insurer, subject to Section 5.05 hereof.
29
<PAGE>
(g) In any Proceedings brought by the Indenture Trustee with
the consent of the Note Insurer, so long as no Note 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 Notes, and it shall
not be necessary to make any Noteholder a party to any such Proceedings.
Section 5.04. REMEDIES; PRIORITIES. (a) If an Event of Default shall
have occurred and be continuing 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 Note Insurer so
long as no Note Insurer Default exists, may and, at the direction of the Note
Insurer so long as no Note 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 Notes 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 Notes 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 Notes
and the Note 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;
provided, however, that so long as a Note 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 Note Principal Balance, (B) the proceeds of such sale
or liquidation distributable to the Holders of the Notes are sufficient to
discharge in full all amounts then due and unpaid upon the Notes for principal
and interest and to reimburse the Note Insurer for any amounts drawn under the
Note Insurance Policy and any other amounts due to the Note 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 Notes as they would have become due if the Notes had not
been declared due and payable, and the Indenture Trustee obtains the consent of
the Holders of a majority of the aggregate Note 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.
30
<PAGE>
(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 Note Insurer shall be used only to pay interest and principal to the
Noteholders pursuant to clauses THIRD and FOURTH below:
FIRST: to the Indenture Trustee for amounts due under Section
6.07 hereof;
SECOND: to the Note Insurer, provided no Note Insurer Default
exists, with respect to any Premium Amount then due;
THIRD: to the Noteholders for amounts due and unpaid on the
Notes with respect to interest, ratably, without preference or
priority of any kind, according to the amounts due and payable
on the Notes for interest (including the Interest Payment
Amount but not including any unpaid Prepayment Interest
Shortfalls, Relief Act Shortfalls, and the Carry-Forward
Amount) from amounts available in the Trust Estate for the
Noteholders;
FOURTH: to Noteholders for amounts due and unpaid on the Notes
with respect to principal (including, but not limited to, any
Principal Payment Amount), from amounts available in the Trust
Estate for the Noteholders, and to each Noteholder ratably,
without preference or priority of any kind, according to the
amounts due and payable on the Notes for principal, until the
Note Principal Balance is reduced to zero;
FIFTH: to the Note Insurer, the sum of (a) all payments
previously paid by the Note Insurer under the Note Insurance
Policy which have not previously been reimbursed, (b) any
other amounts due to the Note 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 (including any Premium Amount not paid
pursuant to clause SECOND above);
SIXTH: to the Noteholders for amounts due and unpaid on the
Notes with respect to any unpaid Prepayment Interest
Shortfalls, Relief Act Shortfalls, and the CarryForward
Amount, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes with
respect thereto, from amounts available in the Trust Estate
for the Noteholders; and
SEVENTH: to the payment of the remainder, if any, to the
Certificate Paying Agent to be distributed to the
Certificateholders or any other person legally entitled
thereto.
The Indenture Trustee may fix a Record Date and payment date
for any payment to Noteholders pursuant to this Section 5.04. With respect to
any acceleration at the direction of the Note Insurer, the first payment date
after the acceleration shall be the first Payment Date after
31
<PAGE>
the acceleration. Promptly after the Indenture Trustee receives such direction,
the Indenture Trustee shall mail to each Noteholder 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 Notes
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 Note Insurer, and
shall, at the direction of the Note Insurer, so long as no Note Insurer Default
exists, elect to take and maintain possession of the Trust Estate. It is the
desire of the parties hereto and the Noteholders that there be at all times
sufficient funds for the payment of principal of and interest on the Notes and
other obligations of the Issuer including payment to the Note 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 Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, 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 50% of the Note
Principal Balances of the Notes 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;
(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 Note Principal Balances of the Notes;
and
(vi) such Holder or Holders have the consent of the Note
Insurer, unless a Note Insurer Default exists.
32
<PAGE>
It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
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 Notes, each representing
less than a majority of the Note Principal Balances of the Notes, the Indenture
Trustee in its sole discretion may determine what action, if any, shall be
taken, notwithstanding any other provisions of this Indenture.
Section 5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST. Notwithstanding any other provisions in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture 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 Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee, the Note Insurer or to such Noteholder, then and in every such case the
Issuer, the Indenture Trustee, the Note Insurer and the Noteholders shall,
subject to any determination in such Proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Indenture Trustee, the Note Insurer and the Noteholders 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, to the Note Insurer or to
the Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 5.10. DELAY OR OMISSION NOT A WAIVER. No delay or omission of
the Indenture Trustee, the Note Insurer or any Holder of any Note to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Indenture Trustee, the Note Insurer or to the Noteholders may be
exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee, the Note Insurer or by the Noteholders, as the case may be.
33
<PAGE>
Section 5.11. CONTROL BY NOTE INSURER. The Note Insurer, or if a Note
Insurer Default exists, the Holders of a majority of the Note Principal Balances
of Notes (subject to the provisions of Section 5.06) shall have the right to
direct the time, method and place of conducting any Proceeding for any remedy
available to the Indenture Trustee with respect to the Notes or exer cising 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 Note 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 Notes
representing 100% of the Note Principal Balances of the Notes;
(iii) if the conditions set forth in Section 5.05 hereof
have been satisfied and the Indenture Trustee, with the consent of the
Note Insurer, so long as no Note Insurer Default exists, elects to
retain the Trust Estate pursuant to such Section, then any direction to
the Indenture Trustee by Holders of Notes (other than with respect to
the Note Insurer exercising the rights of Noteholders 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 Note 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 Noteholders 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 Note Insurer Default exists, might
materially adversely affect the rights of any Noteholders not consenting to such
action.
Section 5.12. WAIVER OF PAST DEFAULTS. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02 hereof,
the Note Insurer, or if a Note Insurer Default exists, the Holders of Notes of
not less than a majority of the Note Principal Balances of the Notes, 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 Notes or (b)
in respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Note or (c) the waiver of which would
materially and adversely affect the interests of the Note Insurer or modify its
obligation under the Note Insurance Policy. In the case of 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 and the Issuer, the Indenture
Trustee and the Holders of the Notes shall be restored to their former positions
and rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Event of Default or impair any right consequent thereto.
Section 5.13. UNDERTAKING FOR COSTS. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court
34
<PAGE>
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 Note Insurer, (b) any suit
instituted by any Noteholder, or group of Noteholders, in each case holding in
the aggregate more than 10% of the Note Principal Balances of the Notes or (c)
any suit instituted by any Noteholder for the enforcement of the payment of
principal of or interest on any Note on or after the respective due dates
expressed in such Note and in this Indenture.
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 whatso ever, 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 Notes and under this
Indenture and under the Insurance Agreement shall have been paid. The Indenture
Trustee with the consent of the Note Insurer, so long as no Note Insurer Default
exists, may from time to time postpone any public Sale by public 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 Note Insurer or, if a Note Insurer Default exists, the
Holders of all Notes, consent to or direct the Indenture Trustee to make, such
Sale, or
(2) unless the Note Insurer otherwise consents, the proceeds
of such Sale would be not less than the entire amount which would be payable to
the Noteholders under the Notes and the Note Insurer in respect of amounts drawn
under the Note Insurance Policy and any other amounts due to the Note 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
35
<PAGE>
(3) The Indenture Trustee determines with the consent of the
Note Insurer, so long as no Note 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 Note Insurer consents to such Sale, or
if a Note Insurer Default exists, the Holders of Notes representing at least
66-2/3% of the Note Principal Balances of the Notes 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 Note Insurer or, if a Note Insurer Default
exists, the Holders of Notes representing at least 66-2/3% of the Note Principal
Balances of the Notes 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 and no Person bids an amount equal to or
greater than such amount, the Indenture Trustee on behalf of the Trust shall
reject all bids.
(d) In connection with a Sale of all or any portion of the
Trust Estate,
(1) any Holder or Holders of Notes may bid for and with the
consent of the Note 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 Notes 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 Notes, 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;
(2) the Indenture Trustee, with the consent of the Note
Insurer, so long as no Note 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 Notes and Holders of
Certificates and amounts owing to the Note 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 Notes in order to complete any such Sale or in order for
the net Sale price to be credited against such Notes, 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;
36
<PAGE>
(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 NOTES. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee, the Note Insurer or the Noteholders shall be
impaired by the recovery of any judgment by the Indenture Trustee 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 or the Note Insurer 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 Note Insurer may request
to cause the Issuer to compel or secure the performance and observance by the
Seller and the Master 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 by Pacific of each of its obligations to the
Issuer under or in connection with the Amended and Restated Trust 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, the Servicing Agreement and the Amended and Restated Loan
Sale Agreement to the extent and in the manner directed by the Indenture
Trustee, with the consent of the Note Insurer, so long as no Note Insurer
Default exists, as pledgee of the Mortgage Loans, or by the Note Insurer,
including the transmission of notices of default on the part of the Seller, the
Master Servicer or Pacific thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Master Servicer of each of their obligations under the Home Equity
Loan Purchase Agreement and the Servicing Agreement and by Pacific of each of
its obligations to the Issuer under or in connection with the Amended and
Restated Loan Sale Agreement. So long as no Note Insurer Default exists, the
Note Insurer shall have the right to approve or reject any proposed successor to
the Master 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 Note 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
37
<PAGE>
thereafter)) of the Note Insurer or, if a Note Insurer Default exists, the
Holders of 66-2/3% of the Note Principal Balances of the Notes, shall exercise
all rights, remedies, powers, privileges and claims of the Issuer against the
Seller or the Master Servicer under or in connection with the Home Equity Loan
Purchase Agreement and the Servicing Agreement or against Pacific under or in
connection with the Amended and Restated Loan Sale Agreement, including the
right or power to take any action to compel or secure performance or observance
by the Seller, the Master Servicer or Pacific, 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, the Servicing Agreement or the Amended and Restated Loan
Sale Agreement, as the case may be, and any right of the Issuer to take such
action shall not be suspended.
ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. DUTIES OF INDENTURE TRUSTEE. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(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
38
<PAGE>
(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 Note 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
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 Master 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 Notes generally, the Issuer, the Trust Estate or this
Indenture.
Section 6.02. RIGHTS OF INDENTURE TRUSTEE. (a) The Indenture Trustee
may rely on any document reasonably believed by it to be genuine and to have
been signed or presented by the proper person. The Indenture Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting,
it may reasonably 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. 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.
39
<PAGE>
(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 reasonably believes to be
authorized or within its rights or powers; provided, however, that the Indenture
Trustee's conduct does not constitute willful misconduct, negligence or bad
faith.
(e) The Indenture Trustee may consult with counsel chosen by
it with due care, and advice or Opinion of Counsel with respect to legal matters
relating to this Indenture and the Notes shall be full and complete
authorization and protection from liability in respect to any action taken,
omitted or suffered by it hereunder in good faith and in accordance with the
advice or opinion of such counsel.
Section 6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Note 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 Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, 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 Notes or in the Notes 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 promptly give notice thereof to the Note
Insurer. The Trustee shall mail to each Noteholder 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 Note, the
Indenture Trustee may withhold the notice to Noteholders if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of Noteholders.
Section 6.06. TAX ADMINISTRATION OF THE ISSUER. The Indenture Trustee,
based solely on information timely provided by the Master 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.
40
<PAGE>
Section 6.07. COMPENSATION AND INDEMNITY. The Indenture Trustee shall
receive on each Payment Date the Indenture Trustee Fee as 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. The Indenture Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Indenture
Trustee shall be reimbursed 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 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. The Indenture Trustee shall be
indemnified by the Master Servicer as set forth in Section 5.06(a) of the
Servicing Agreement 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 Master Servicer and the Note Insurer promptly of any
claim for which it may seek indemnity. Failure by the Indenture Trustee to so
notify the Master Servicer shall not relieve the Master Servicer of its
obligations hereunder. The Master Servicer shall defend any such claim, and the
Indenture Trustee may have separate counsel and the Master Servicer shall pay
the reasonable fees and expenses of such counsel. The Master Servicer 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 indemnification provided by
this Section 6.07 shall survive the termination, satisfaction, discharge,
redemption or assignment of this Indenture or the resignation or removal of the
Indenture Trustee hereunder.
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 Note Insurer. The Note
Insurer or, if a Note Insurer Default exists, the Holders of a majority of Note
Principal Balances of the Notes may remove the Indenture Trustee by so notifying
the Issuer and the Indenture Trustee and the Note Insurer and may appoint a
successor Indenture Trustee. The Issuer shall, with the consent of the Note
Insurer, so long as no Note 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;
41
<PAGE>
(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 Note Insurer, so long as no
Note Insurer Default exists, promptly appoint a successor Indenture Trustee
acceptable to the Note Insurer.
A successor Indenture Trustee shall deliver a written
acceptance of its appointment to the retiring Indenture Trustee, the Note
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 Noteholders. The retiring Indenture Trustee shall promptly transfer all
property held by it as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within
60 days after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer, the Note Insurer or the Holders of a majority of
Note Principal Balances of the Notes 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 with respect to
services performed and expenses incurred prior to such replacement.
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 Note 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 Notes shall have been authenticated but
not delivered, any such successor to the Indenture Trustee may adopt the
certificate of authentication of any predecessor trustee and deliver such Notes
so authenticated; and if at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force provided in the Notes or in this Indenture that the
certificate of the Indenture Trustee shall have.
42
<PAGE>
Section 6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE
TRUSTEE. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust 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
Noteholders and the Note Insurer, such title to the Trust Estate, or any part
hereof, and, subject to the other provisions of this Section, such powers,
duties, obli gations, rights and trusts as the Indenture Trustee or the Note
Insurer may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 6.11 hereof and notice to, and the consent of, the Note
Insurer (but not the Noteholders) 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.
43
<PAGE>
(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 acceptable to the Note 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 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;
44
<PAGE>
(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; and
(v) This Indenture, when executed by Indenture Trustee,
will constitute the legal, valid and binding obligation of the
Indenture Trustee, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and general equitable principles.
Section 6.14. DIRECTIONS TO INDENTURE TRUSTEE. The Indenture Trustee is
hereby directed:
(a) to accept the pledge of the Mortgage Loans and hold the
assets of the Owner Trust Estate in trust for the Noteholders and the Note
Insurer;
(b) to authenticate and deliver the Notes 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 Note Registrar, the Certificate Paying Agent
and the Certificate Registrar.
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES
OF NOTEHOLDERS. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after each Record Date, a list, in
such form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee and the Note 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 Note Registrar, no such list shall be required to be furnished.
45
<PAGE>
Section 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 hereof and the names and addresses of Holders of Notes received
by the Indenture Trustee in its capacity as Note Registrar. The Indenture
Trustee may destroy any list furnished to it as provided in such Section 7.01
upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss.312(b) with
other Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar
shall have the protection of TIA ss. 312(c).
Section 7.03. REPORTS BY THE INDENTURE TRUSTEE. (a) The Indenture
Trustee shall:
(i) file with the Company and the Note 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: promptly 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 Noteholders for such Payment Date as an exhibit thereto.
Prior to January 30, 1999, the Indenture Trustee shall file a Form 15
Suspension Notification with respect to the Trust Fund, if applicable.
Prior to March 31, 1999, 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 Note 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 Note Insurer (and the
Indenture Trustee shall transmit by mail to all Noteholders 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
46
<PAGE>
to time by the Commission. For purposes of notice under TIA the parties
hereto agree that the Statement to Noteholders provided in Section 7.05
hereof shall be deemed notice, as applicable.
(b) Unless the Issuer otherwise determines, the fiscal year of
the Issuer shall end on December 31 of each year.
(c) The Company and the Issuer hereby agrees to furnish such
information and otherwise cooperate with the Indenture Trustee as necessary for
the Indenture Trustee to perform its duties as provided in this Section 7.03.
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, 1999, the
Indenture Trustee shall mail to each Noteholder as required by TIA ss. 313(c)
and to the Note 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
Noteholders shall be filed by the Indenture Trustee with the Commission and each
stock exchange, if any, on which the Notes are listed. The Issuer shall notify
the Indenture Trustee and the Note Insurer if and when the Notes are listed on
any stock exchange.
Section 7.05. STATEMENTS TO NOTEHOLDERS. (a) Subject to Section 3.26 of
this Indenture, with respect to each Payment Date, the Indenture Trustee shall
deliver to each Certificateholder and Noteholder, the Note Insurer, the Company,
the Owner Trustee, the Certificate Paying Agent and each Rating Agency, a
statement setting forth the following information as to the Notes, 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 Noteholders 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
Noteholders for such Payment Date;
(iv) the Scheduled Payments, if any, paid by the Note
Insurer under the Note Insurance Policy for such Payment Date and the aggregate
Scheduled Payments for all prior Payment Dates paid by the Note Insurer under
the Note Insurance Policy and not yet reimbursed;
(v) the aggregate Principal Balance of the Mortgage
Loans as of the end of the preceding Due Period;
47
<PAGE>
(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 for such Payment Date;
(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
Notes after such Payment Date;
(xii) the aggregate Note Principal Balance of the Notes
after giving effect to the distribution of principal on such Payment Date;
(xiii) the Maximum Note Interest Rate, Guaranteed
Interest Payment Amount and Note Interest Rate for such Payment Date;
(xiv) the number and aggregate Principal Balance of
first lien Mortgage Loans and the number and aggregate Principal Balance of
second lien 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; and
(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.
Items (iii) and (xii) above shall be presented on the basis of
a Note having a $1,000 denomination. In addition, by January 31 of each calendar
year following any year during which
48
<PAGE>
the Notes are outstanding, the Indenture Trustee shall furnish a report to each
Noteholder 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 Notes for such calendar year.
The Indenture Trustee in the absence of manifest error may
conclusively rely upon the Determination Date Report provided by the Master
Servicer pursuant to Section 4.01 of the Servicing Agreement in its preparation
of its Statement to the Noteholders pursuant to this Section 7.05.
Section 7.06. BOOKS AND RECORDS.
The Issuer hereby covenants with the Indenture Trustee that,
so long as any of the Notes remain Outstanding, it shall:
(a) at all times cause to be kept proper books of account and
allow the Indenture Trustee 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 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.
49
<PAGE>
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 Noteholders and the Note
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 Noteholders and the Note Insurer.
On each Payment Date, the Indenture Trustee shall distribute
all amounts on deposit in the Payment Account to Noteholders in respect of the
Notes and to such other persons in the order 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 Note 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 and any losses on such
investments shall be deposited by the Indenture Trustee into the Payment Account
no later than the Business Day preceding each Payment Date.
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 NOTEHOLDERS. This
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
Noteholders, the Note 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 here by 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
50
<PAGE>
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 Notes Outstanding, (ii) all sums due to the Indenture Trustee pursuant to
this Indenture have been paid, and (iii) all sums due to the Note Insurer have
been paid, release any remaining portion of the Trust Estate that secured the
Notes 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 Note Insurer stating that the Note Insurer has no objection to
such request from the Issuer.
Section 8.06. SURRENDER OF NOTES UPON FINAL PAYMENT. By acceptance of
any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.
Section 8.07. OPTIONAL REDEMPTION OF THE NOTES. (a) The holder of the
majority of the Certificates shall have the option to purchase all of the Home
Equity Loans from the Trust and direct the Issuer to redeem the Notes in whole,
but not in part, on any Payment Date on or after the Payment Date on which the
aggregate Principal Balance of the Home Equity Loans is less than or equal to
10% of the Original Pool Balance. The aggregate redemption price for the Notes
will be calculated as pursuant to Section 7.2 of the Home Equity Loan Purchase
Agreement.
(b) In order to exercise the foregoing option, the holder of
the majority of the Certificates 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 to the Indenture Trustee, the Note Insurer, the
Issuer and the Owner Trustee of its intention to purchase all of the Home Equity
Loans from the Trust and to direct the Issuer to redeem the Notes. Following
receipt of the notice from the holder of the majority of the Certificates and
the aggregate redemption amount, pursuant to the foregoing, the Indenture
Trustee shall release to the holder of the majority of the Certificates the
Mortgage Files pertaining to the Home Equity Loans being purchased and provide
notice to the Noteholders of the final payment on the Notes and shall apply such
funds to make final payments of principal and interest on the Notes 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 holder of the majority of the Certificates is not sufficient to
make such redemption or such redemption cannot be completed for any reason, the
amount so deposited with the Indenture Trustee shall be immediately returned to
the holder of the majority of the Certificates in full and shall not be used for
any other purpose or be deemed to be part of the Trust Estate.
51
<PAGE>
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
(a) Without the consent of the Holders of any Notes but with the prior written
consent of the Note Insurer and the Seller 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, 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 Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Holders of the Notes, or to surrender any right or power
herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity 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 Notes;
(vii) to evidence and provide for the acceptance of the
appointment hereunder by a successor Indenture Trustee with respect to
the Notes and to add to or change any of the provisions of this
Indenture as shall be necessary to facilitate the administration of the
trusts hereunder by more than one 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;
52
<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 Notes under Treasury Regulation Section 1.1001.3 or
adversely affect the status of the Notes 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
Notes but with the prior written consent of the Note 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 Notes 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 Notes (without taking into account the
Note Insurer Policy)) (i) adversely affect in any material respect the interests
of any Noteholder or (ii) if 100% of the Certificates are not owned by
PacificAmerica Money Center, Inc. or if the Note 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 NOTEHOLDERS. 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 Note Insurer and the Seller and the consent of the Holders of not less
than a majority of the Note Principal Balances of the Notes 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 Notes under this Indenture; provided,
however, that no such supplemental indenture shall, without the consent of the
Holder of each Note affected thereby:
(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the principal amount
thereof 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 Notes, or change any place of payment where, or the
coin or currency in which, any Note or the interest thereon is payable,
or impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof;
53
<PAGE>
(ii) reduce the percentage of the Note Principal
Balances of the Notes, the consent of the Holders of which is required
for any such supplemental indenture, or the consent of the Holders of
which is required for any waiver of compliance with certain provisions
of this Indenture or certain defaults hereunder and their consequences
provided for in this Indenture;
(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 "Noteholder";
(iv) reduce the percentage of the Note Principal
Balances of the Notes 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 Note
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 Note 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 Note 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 Note
Insurer, so long as no Note Insurer Default exists, in its discretion determine
whether or not any Notes would be affected by any supplemental indenture and any
such determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under
this Section 9.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
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 Notes to which such amendment
or supplemental indenture relates a notice setting forth in general terms the
substance of such supplemental indenture. Any failure of the Indenture
54
<PAGE>
Trustee to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
Section 9.03. 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 Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the require ments 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 NOTES TO SUPPLEMENTAL INDENTURES. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Inden ture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
55
<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 Note 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 2.2 of the Home Equity Loan Purchase
Agreement or the addition of Subsequent Mortgage Loans pursuant to Section 2.3
thereof, 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 Note 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
56
<PAGE>
of the Collateral or other property or securities to be so deposited and a
report from a nationally recognized accounting firm verifying such value.
(ii) Whenever the Issuer is required to furnish to
the Indenture Trustee and the Note 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 and the
Note Insurer 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 Note Principal Balances of the
Notes, but such a certificate need not be furnished with respect to any
securities so deposited, if the fair value thereof to the Issuer as set forth in
the related Officer's Certificate is less than $25,000 or less than one percent
of the Note Principal Balances of the Notes.
(ii) Except with respect to the substitution of
Mortgage Loans pursuant to Section 2.2 of the Home Equity Loan Purchase
Agreement or the addition of Subsequent Mortgage Loans pursuant to Section 2.3
thereof, 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
Note 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 Note 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 and
the Note Insurer an Independent Certificate as to the same matters if the fair
value of the property or securities and of all other property, other than
securities released from the lien of this Indenture since the commencement of
the then-current calendar year, as set forth in the certificates required by
clause (iii) above and this clause (iv), equals 10% or more of the Note
Principal Balances of the Notes, but such certificate need not be furnished in
the case of any release of property or securities if the fair value thereof as
set forth in the related Officer's Certificate is less than $25,000 or less than
one percent of the then Note Principal Balances of the Notes.
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,
57
<PAGE>
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 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 condi tion 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 NOTEHOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Indenture Trustee, and,
where it is hereby expressly required, to the Issuer. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01 hereof) conclusive in favor of the Indenture
Trustee and the Issuer, if made in the manner provided in this Section 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 Notes shall be proved by the Note
Registrar.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Notes shall bind the Holder
of every Note issued upon the registration thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered
58
<PAGE>
to be done by the Indenture Trustee or the Issuer in reliance thereon, whether
or not notation of such action is made upon such Note.
Section 10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, NOTE
INSURER AND RATING AGENCIES. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Note 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 Noteholders is to be
made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the
Issuer or the Note 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 of the Indenture
Trustee. The Indenture Trustee shall promptly transmit any notice
received by it from the Noteholders to the Issuer and the Note Insurer;
or
(ii) the Issuer by the Indenture Trustee or by any
Noteholder or the Note Insurer shall be sufficient for every purpose
hereunder if in writing and mailed first-class, postage prepaid, to the
Issuer addressed to: PacificAmerica Home Equity Loan Trust Series
1998-1, 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 Noteholders to the Indenture Trustee and the
Note Insurer; or
(iii) the Company by the Indenture Trustee or by any
Noteholder or the Note 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 Noteholders to the
Indenture Trustee and the Note Insurer; or
(iv) the Seller by the Indenture Trustee or by any
Noteholder or the Note Insurer shall be sufficient for every purpose
hereunder if in writing and mailed first-class, postage prepaid, to the
Issuer addressed to: PacificAmerica Money Center, Inc., 21031 Ventura
Boulevard, Woodland Hills, California 91364-2210, Attention: Chief
Financial Officer (telecopy number (818) 598-8298), 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 Noteholders to the Indenture Trustee and the Note Insurer; or
(v) the Note Insurer by the Issuer, the Indenture
Trustee or by any Noteholders shall be sufficient for every purpose
hereunder if in writing and mailed, first-
<PAGE>
class, postage pre-paid, or personally delivered or telecopied to:
Financial Security Assurance Inc., 350 Park Avenue, New York, NY 10022,
Attention: Surveillance Department, Re: Pacific America Home Equity
Loan Asset-Backed Notes Series 1998-1 (telecopy number (212) 339-3518).
In each case in which a notice or other communication to the Note
Insurer refers to a Servicing Default or a claim under the Policy or
with respect to which failure on the part of the Note Insurer to
respond shall be deemed to constitute consent or acceptance, then a
copy of such notice or other communication shall also be sent to the
attention of the General Counsel and the Head-Financial Guaranty Group
and shall be marked to indicate "URGENT MATERIAL ENCLOSED."
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.,
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 NOTEHOLDERS; WAIVER. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed first-class, postage prepaid, to each Noteholder affected by such
event, at such Person's address as it appears on the Note Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given 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 Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service
as a result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Noteholders when such notice is
required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be satisfactory to the Indenture Trustee
shall be deemed to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating
Agencies, failure to give such notice shall not affect any other rights or
obligations created hereunder, and shall not under any circumstance constitute
an Event of Default.
60
<PAGE>
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.
Section 10.08. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
Section 10.09. SEPARABILITY. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.10. BENEFITS OF INDENTURE. The Note 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 Note Insurer any right, remedy or claim under or by reason of this
Indenture, the Note Insurer may enforce any such right, remedy or claim
conferred, given or granted hereunder. Nothing in this Indenture or in the
Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders and the Note 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 Notes or this Inden ture) 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.
61
<PAGE>
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 at its expense accompanied by an Opinion of Counsel at
its expense (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 Noteholders or any other
Person secured hereunder or for the enforcement of any right or remedy granted
to the Indenture Trustee under this Indenture.
Section 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 Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may 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 Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Company or the
Issuer, or join in any institution against 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 Notes, 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 Note
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 Note 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.
62
<PAGE>
ARTICLE XI
CERTAIN MATTERS REGARDING THE NOTE INSURER
Section 11.01. CERTAIN RIGHTS OF THE NOTE INSURER. By accepting its
Note, each Noteholder agrees that unless a Note Insurer Default exists, the Note
Insurer shall have the following rights, without any consent of the Noteholders:
(a) the right to direct foreclosure upon Mortgage Loans upon
failure of the Master Servicer to do so for any reason;
(b) the right to require Pacific or the Seller to repurchase
or substitute for, or to require the Master Servicer to purchase, Mortgage
Loans;
(c) the right to give notice of breach or to terminate the
rights and obligations of the Master Servicer;
(d) the right to direct the actions of the Indenture Trustee
during the continuance of a Servicing Default.
In addition, each Noteholder agrees that, unless a Note
Insurer Default exists, the right to remove the Indenture Trustee may be
exercised by the Majority Noteholders only with the prior written consent of the
Note Insurer.
Section 11.02. INDENTURE TRUSTEE TO ACT SOLELY WITH CONSENT OF THE NOTE
INSURER.
(a) Unless a Note Insurer Default exists, the Indenture
Trustee shall not;
(i) terminate the rights and obligations of the Master
Servicer or consent to the resignation of the Master Servicer;
(ii) terminate any Sub-Servicing Agreements; or
(iii) assume any Sub-Servicing Agreements;
without the prior written consent of the Note Insurer.
(b) Notwithstanding anything herein to the contrary, after the
occurrence of a Servicing Default and until such time as all Servicing Defaults
have been cured, no provision of this Agreement shall require the Indenture
Trustee to take any action or omit to take any action at the request of the Note
Insurer or any Noteholder to the extent the Indenture Trustee believes in good
faith such action or omission would cause the Indenture Trustee to violate any
law or
63
<PAGE>
regulation applicable to it or to breach their respective obligations owed by it
to the Noteholders and to the Note Insurer, pursuant to their Agreement or
otherwise.
Section 11.03. TRUST ESTATE AND ACCOUNTS HELD FOR BENEFIT OF THE NOTE
INSURER AND THE NOTEHOLDERS. The Indenture Trustee shall hold the Trust Estate
and the Mortgage Files, and shall maintain the Accounts, for the benefit of the
Noteholders and the Note Insurer and all references in this Agreement and in the
Notes to the benefit of Noteholders shall be deemed to include the Note Insurer.
The Indenture Trustee shall cooperate in all reasonable respects with any
reasonable requests by the Note Insurer or the Noteholders (when other than the
Seller, the Master Servicer or any affiliate thereof), for action to preserve or
enforce the respective rights and interests of the Note Insurer or the
Noteholders (when other than the Seller, the Master Servicer or any affiliate
thereof) under this Agreement and the Notes.
The Master Servicer hereby acknowledges and agrees that it
shall service and administer, or cause a Sub-Servicer to service and administer,
the Mortgage Loans and any REO Properties for the benefit of the Noteholders and
for the benefit of the Note Insurer, and all references in this Agreement to the
benefit of or actions on behalf of the Noteholders shall be deemed to include
the Note Insurer. Unless a Note Insurer Default exists, the Master Servicer
shall not terminate any Sub-Servicing Agreements or undertake any litigation
with respect to the transactions contemplated by the Basic Documents pursuant to
Section 3.02(b) of the Servicing Agreement without the prior written consent of
the Note Insurer. Unless a Note Insurer Default exists, the Indenture Trustee
shall not undertake any litigation pursuant to Section 5.03 (other than
litigation to enforce their respective rights hereunder) without the prior
written consent of the Note Insurer.
Section 11.04. EFFECT OF PAYMENTS BY THE NOTE INSURER; SUBROGATION.
Anything herein to the contrary notwithstanding, any payment with respect to
principal of or interest on the Notes which is made with moneys received
pursuant to the terms of the Policy shall not be considered payment of the Notes
from the Trust Estate. The Indenture Trustee agrees, that without the need for
any further action on the part of the Note Insurer, the Seller, the Master
Servicer or the Indenture Trustee, to the extent the Note Insurer makes
payments, directly or indirectly, on account of principal of or interest on the
Notes to the Noteholders, the Note Insurer will be fully subrogated to the
rights of such Noteholders to receive such principal and/or interest from the
Trust Estate. The Issuer shall not be discharged from its obligations hereunder
upon payment of principal of any interest on the Notes by the Note Insurer under
the Policy.
The Indenture Trustee shall reasonably cooperate in all
respects with any reasonable request by the Note Insurer or the Noteholders
(when other than the Seller, the Master Servicer or any affiliate thereof) for
action to preserve or enforce the respective rights or interests of the Note
Insurer or the Noteholders under this Agreement without limiting the rights or
affecting the interest of the Noteholders as otherwise set forth herein.
Section 11.05. INSOLVENCY PROCEEDINGS. The Indenture Trustee shall
promptly notify the Note Insurer of either of the following as to which it has
actual knowledge: (i) the commencement of any proceeding by or against the
Issuer commenced under the United States Bankruptcy Code
64
<PAGE>
or any other applicable bankruptcy, insolvency, receivership, rehabilitation or
similar law (an "Insolvency Proceeding") and (ii) the making of any claim in
connection with any Insolvency Proceeding seeking the avoidance as a
preferential transfer (a "Preference Claim") of any payment of principal of, or
interest on, the Notes. Each Noteholder, by its purchase of Notes, and the
Indenture Trustee hereby agree that the Note Insurer may at any time during the
continuation of an Insolvency Proceeding direct all matters relating to such
Insolvency Proceeding, including, without limitation, (i) all matters relating
to any Preference Claim, (ii) the direction of any appeal of any order relating
to any Preference Claim at the expense of the Note Insurer but subject to
reimbursement as provided in the Insurance Agreement and (iii) the posting of
any surety, supersedeas or performance bond pending any such appeal. In
addition, and without limitation of the foregoing, as set forth in Section
11.04, the Note Insurer shall be subrogated to, and each Noteholder and the
Indenture Trustee hereby delegate and assign, to the fullest extent permitted by
law the rights of the Indenture Trustee and each Noteholder in the conduct of
any Insolvency Proceeding, including, without limitation, all rights of any
party to an adversary proceeding action with respect to any court order issued
in connection with any such Insolvency Proceeding.
Section 11.06. NOTICES TO THE NOTE INSURER. All notices, statements,
reports, certificates or opinions required by this Agreement to be sent to any
other party hereto or to the Noteholders and, if not otherwise required to be
sent to the Note Insurer, shall also be sent to the Note Insurer.
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.
PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES
1998-1, as Issuer
By: WILMINGTON TRUST COMPANY, not in its individual
capacity but solely as Owner Trustee
By: /s/ Emmett R. Harmon
-------------------------------------------
Name: Emmett R. Harmon
Title: Vice President
BANKERS TRUST COMPANY OF CALIFORNIA, N.A., not in
its individual capacity but solely as Indenture
Trustee and as Note Registrar
By: /s/ Melanie Anbarci
------------------------------------------
Name: Melanie Anbarci
Title: Assistant Secretary
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
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: /s/ Melanie Anbarci
--------------------------
Name: Melanie Anbarci
Title: Assistant Secretary
66
<PAGE>
STATE OF DELAWARE )
) ss.:
COUNTY OF NEW CASTLE )
On this __ day of March, before me personally appeared
__________________________, to me known, who being by me duly sworn, did depose
and say, that [s]he is the ____________________________ of the Owner Trustee,
one of the corporations described in and which executed the above instrument;
that [s]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 [s]he signed his name thereto by like
order.
Notary Public
[NOTARIAL SEAL]
67
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 25th day of March, before me personally appeared Melanie
Anbarci, to me known, who being by me duly sworn, did depose and say, that
[s]he is the Assistant Secretary of Bankers Trust Company of California, N.A.,
as Indenture Trustee, a national banking association, which executed the above
instrument; that [s]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 [s]he signed his/her name thereto by like order.
Notary Public
[NOTARIAL SEAL]
68
<PAGE>
EXHIBIT A
FORM OF NOTES
UNLESS THIS NOTE 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 NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THIS NOTE IS A NON-RECOURSE OBLIGATION OF THE ISSUER, AND IS LIMITED IN RIGHT OF
PAYMENT TO AMOUNTS AVAILABLE FROM THE TRUST ESTATE AND THE NOTE INSURANCE POLICY
AS PROVIDED IN THE INDENTURE REFERRED TO BELOW. THE ISSUER IS NOT OTHERWISE
PERSONALLY LIABLE FOR PAYMENTS ON THIS NOTE.
PRINCIPAL OF THIS NOTE IS PAYABLE OVER TIME AS SET FORTH HEREIN. ACCORDINGLY,
THE OUTSTANDING PRINCIPAL OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT
SHOWN ON THE FACE HEREOF.
PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-1
PACIFICAMERICA HOME EQUITY LOAN ASSET-BACKED NOTES, SERIES 1998-1
AGGREGATE NOTE PRINCIPAL
BALANCE: $130,000,000
INITIAL NOTE PRINCIPAL
BALANCE OF THIS NOTE: $130,000,000 CUSIP NO.
NOTE NUMBER: 1
69
<PAGE>
PacificAmerica Home Equity Loan Trust Series 1998-1 (the "Issuer"), a
Delaware business trust, for value received, hereby promises to pay to
__________ or registered assigns, the principal sum of ________________________
($___________) 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 April 1998 and ending on or before the Payment
Date occurring in March 2028 (the "Stated Maturity") and to pay interest on the
Note Principal Balance of this Note outstanding from time to time as provided
below.
This Note is one of a duly authorized issue of PacificAmerica Home
Equity Loan Asset- Backed Notes, Series 1998-1, (the "Notes"), issued under an
Indenture, dated as of March 1, 1998 (the "Indenture"), between the Issuer and
Bankers Trust Company of California, N.A., 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 Notes and the terms upon
which the Notes are to be authenticated and delivered. All terms used in this
Note which are defined in the Indenture shall have the meanings assigned to them
in the Indenture.
Payments of principal and interest on the Notes will be made on each
Payment Date to Noteholders of record as of the related Record Date. On each
Payment Date, Noteholders 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, Noteholders 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 "Note
Principal Balance" of a Note 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 Note on account of
principal.
The principal of, and interest on, this Note 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 Note shall
be equal to this Note's pro rata share of the aggregate payments on all Notes as
described above, and shall be applied as between interest and principal as
provided in the Indenture.
Financial Security Assurance Inc. (the "Note Insurer"), in
consideration of the payment of the premium and subject to the terms of the
financial guaranty insurance policy (the "Note Insurance Policy") issued
thereby, has unconditionally and irrevocably guaranteed the payment of the
Scheduled Payment. The Note Insurance Policy will not cover any Prepayment
Interest Shortfalls, Relief Act Shortfalls or Carry-Forward Amount.
All principal and interest accrued on the Notes, if not previously
paid, will become finally due and payable at the Final Scheduled Payment Date.
70
<PAGE>
The Notes are subject to redemption in whole, but not in part, by the
Seller on any Payment Date on or after the Payment Date on which the aggregate
Principal Balance of the Mortgage Loans is less than or equal to 10% of the
Original Pool Balance.
The Issuer shall not be liable upon the indebtedness evidenced by the
Notes except to the extent of amounts available from the Trust Estate which
constitutes security for the payment of the Notes. The assets included in the
Trust Estate and payments under the Note Insurance Policy will be the sole
source of payments on the Notes, and each Holder hereof, by its acceptance of
this Note, agrees that (i) such Note will be limited in right of payment to
amounts available from the Trust Estate and the Note 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 Master
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 Notes
pursuant to the Indenture.
Any payment of principal or interest payable on this Note which is
punctually paid on the applicable Payment Date shall be paid to the Person in
whose name such Note (or one or more predecessor Notes) 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 Note Register on such Record Date,
except for the final installment of principal and interest payable with respect
to such Note, which shall be payable as provided below. Notwithstanding the
foregoing, upon written request with appropriate instructions by the Holder of
this Note (holding an aggregate initial Note 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 Note (or
one or more predecessor Notes) effected by payments of principal made on any
Payment Date shall be binding upon all Holders of this Note 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 Note. The final
payment of this Note 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 Note delivered under the
Indenture, upon registration of transfer of or in exchange for or in lieu of any
other Note, shall carry the rights to unpaid principal and interest that were
carried by such other Note.
If an Event of Default as defined in the Indenture shall occur and be
continuing with respect to the Notes, the Notes 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 Note Principal Balance of the Notes, the amount payable to the Holder of
this Note will be equal to the sum of the unpaid Note Principal Balance of the
Notes, together with accrued and unpaid interest thereon as described in the
Indenture. The Indenture provides that, notwithstanding the acceleration of the
maturity of the Notes, under certain circumstances specified therein, all
amounts collected as proceeds of the Trust Estate securing the
71
<PAGE>
Notes or otherwise shall continue to be applied to payments of principal of and
interest on the Notes as if they had not been declared due and payable.
The failure to pay any Subordination Increase Amount, any Prepayment
Interest Shortfall, to the extent not covered by Compensating Interest payments
by the Master Servicer, any Relief Act Shortfalls or any 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 Note Insurer Default exists (i) the
Note Insurer shall be deemed to be the holder of the Notes for certain purposes
specified in the Indenture (other than with respect to payment on the Notes),
and will be entitled to exercise all rights of the Noteholders thereunder,
including the rights of Noteholders relating to the occurrence of, and the
remedies with respect to, an Event of Default, without the consent of such
Noteholders, 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 Note Insurer.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note may be registered on the Note Register of
the Issuer. Upon surrender for registration of transfer of, or presentation of a
written instrument of transfer for, this Note at the Corporate Trust Office,
accompanied by proper instruments of assignment in form satisfactory to the
Indenture Trustee, one or more new Notes of any authorized denominations and of
a like aggregate initial Note Principal Balance will be issued to the designated
transferee or transferees.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note is registered as the owner
of such Note (i) on the applicable Record Date for the purpose of making
payments and interest of such Note, and (ii) on any other date for all other
purposes whatsoever, as the owner hereof, whether or not this Note be overdue,
and neither the Issuer, the Indenture Trustee nor 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 Notes under the Indenture at any
time by the Issuer with the consent of the Note Insurer and the Holders of a
majority of all Notes at the time outstanding. The Indenture also contains
provisions permitting (i) the Note Insurer or (ii) if a Note Insurer Default
exists, the Holders of Notes representing specified percentages of the aggregate
Note Principal Balance of the Notes on behalf of the Holders of all the Notes,
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 Note (or
any one or more predecessor Notes) shall bind the Holder of every Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not notation of such consent or waiver is made upon such
Note. The Indenture also permits the Issuer and the
72
<PAGE>
Indenture Trustee to amend or waive certain terms and conditions set forth in
the Indenture without the consent of the Holders of the Notes issued thereunder.
Initially, the Notes will be represented by one bond registered in the
name of CEDE & Co. as nominee of DTC, acting in its capacity as the Depository
for the Notes. The Notes will be delivered in denominations as provided in the
Indenture and subject to certain limitations therein set forth. The Notes are
exchangeable for a like aggregate initial Note Principal Balance of Notes 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 Note shall not be entitled to
any benefit under the Indenture, or be valid or obligatory for any purpose.
Each Noteholder, by accepting a Note, hereby covenants and agrees that
such Noteholder will not at any time institute against the Company or the
Issuer, or join in any institution against 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 Notes, the
Indenture or any of the Basic Documents.
So long as no Note Insurer Default exists, the Note Insurer shall at
all times be treated as if it were the exclusive Noteholder 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 Note Insurer so long as it is indemnified therefor to
its reasonable satisfaction.
AS PROVIDED IN THE INDENTURE, THIS NOTE AND THE INDENTURE CREATING THIS
NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.
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:
PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES
1998-1
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 Notes referred to in the within-mentioned Indenture.
BANKERS TRUST COMPANY OF CALIFORNIA, N.A., 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 Note, 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 Note 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 Note 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]
[Note Insurer]
[Company]
- ----------------------------
- ----------------------------
Re: Indenture, dated as of March 1, 1998 (the "Indenture"), between
PacificAmerica Home Equity Loan Trust Series 1998-1 and Bankers
Trust Company of California, N.A. -- PacificAmerica Home Equity
Loan Asset-Backed Notes, Series 1998-1
Gentlemen:
In accordance with Section 2.03 of the above-captioned
Indenture, and Section 2.2 of the Home Equity Loan Purchase Agreement, dated
March 19, 1998 among PacificAmerica Money Center, Inc., Merrill Lynch Mortgage
Investors, Inc., PacificAmerica Home Equity Loan Trust Series 1998-1 and Bankers
Trust Company of California, N.A. (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), (ii), (iii) and (vi) 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 2.2 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, effectiveness
-2-
<PAGE>
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.
BANKERS TRUST COMPANY OF CALIFORNIA,
N.A., 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]
[Note Insurer]
[Company]
- --------------------------
- --------------------------
Re: Indenture, dated as of March 1, 1998 (the "Indenture"), between
PacificAmerica Home Equity Loan Trust Series 1998-1 and Bankers
Trust Company of California, N.A. -- PacificAmerica Home Equity
Loan Asset-Backed Notes, Series 1998-1
Gentlemen:
In accordance with Section 2.03 of the above-captioned
Indenture, and Section 2.2 of the Home Equity Loan Purchase Agreement, dated
March 19, 1998 among PacificAmerica Money Center, Inc., Merrill Lynch Mortgage
Investors, Inc., PacificAmerica Home Equity Loan Trust Series 1998-1 and Bankers
Trust Company of California, N.A. (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 2.2 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 2.2 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.
BANKERS TRUST COMPANY OF CALIFORNIA,
N.A., not in its individual capacity but solely as
Indenture Trustee
By:_______________________________________
Name:
Title:
-5-
<PAGE>
EXHIBIT D
MORTGAGE LOAN SCHEDULE
AVAILABLE UPON REQUEST
-6-
<PAGE>
APPENDIX A
DEFINITIONS
ACCEPTED SERVICING PROCEDURES: Servicing procedures that meet
at least the mortgage servicing practices (including collection procedures) of
prudent mortgage lenders and loan servicers that originate and service mortgage
loans comparable to the Mortgage Loans and the reliance placed by the
Securityholders on the Master Servicer or a Subservicer for the servicing of the
Mortgage Loans but without regard to:
(i) any relationship that the Master Servicer, any Subservicer
or any Affiliate of the Master Servicer or any Subservicer may
have with the related Mortgagor;
(ii) the ownership of any Notes or the Certificates by the
Master Servicer or any Affiliate of the Master Servicer;
(iii) the Master Servicer's obligation to make Servicing
Advances; or
(iv) the Master Servicer's or any Subservicer's right to
receive compensation for its services hereunder with respect
to any particular transaction.
ADDITION NOTICE: With respect to the transfer of Subsequent
Mortgage Loans to the Issuer pursuant to Section 2.3 of the Home Equity Loan
Purchase Agreement, a notice given to the Rating Agencies, the Indenture
Trustee, the Note Insurer and the Owner Trustee, which shall be given not later
than seven Business Days prior to the related Subsequent Transfer Date, of the
Seller's designation of Subsequent Mortgage Loans to be sold to the Issuer and
the aggregate principal balance as of the Subsequent Cut-off Date of such
Subsequent Mortgage Loans.
ADJUSTABLE RATE INITIAL MORTGAGE LOAN: Each of the Adjustable
Rate Mortgage Loans transferred to the Issuer on the Closing Date.
ADJUSTABLE RATE MORTGAGE LOAN: Each of the Mortgage Loans
identified in the Mortgage Loan Schedule as having a Mortgage Rate that is
subject to adjustment.
ADJUSTMENT DATE: As to each Adjustable Rate Mortgage Loan,
each date set forth in the related Mortgage Note on which an adjustment to the
interest rate on such Mortgage Loan becomes effective.
ADMINISTRATIVE FEE: The sum of the Owner Trustee Fee and the
Note Insurance Premium.
ADVANCE: As to any Mortgage Loan, any advance made by the
Master Servicer pursuant to Section 4.02 of the Servicing Agreement.
<PAGE>
AFFILIATE: With respect to any Person, any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" means the power to direct the management
and policies of a Person, directly or indirectly, whether through ownership of
voting securities, by contract or otherwise and "controlling" and "controlled"
shall have meanings correlative to the foregoing.
AMENDED AND RESTATED LOAN SALE AGREEMENT: As set forth in the
Insurance Agreement.
APPRAISED VALUE: The value of a Mortgaged Property which is
the lesser of (i) the appraisal made at the time of the origination of the
related Mortgage Loan, or (ii) the sales price of such Mortgaged Property at
such time of origination. With respect to a Mortgage Loan the proceeds of which
were used to refinance an existing mortgage loan, the appraised value of the
Mortgaged Property based upon the appraisal (as reviewed and approved by the
Seller) obtained at the time of refinancing.
ASSIGNMENT OF MORTGAGE: An assignment of Mortgage, notice of
transfer or equivalent instrument, in recordable form, which is sufficient under
the laws of the jurisdiction wherein the related Mortgaged Property is located
to reflect of record the sale of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering Mortgages secured by Mortgaged Properties located in the
same county, if permitted by law.
AUTHORIZED NEWSPAPER: A newspaper of general circulation in
the Borough of Manhattan, The City of New York, printed in the English language
and customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays.
AUTHORIZED OFFICER: With respect to the Issuer, any officer of
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identi fied on the list of Authorized Officers
delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter).
AVAILABLE FUNDS: As to any Payment Date, an amount equal to
the amount on deposit in the Payment Account on such Payment Date and available
for distribution to the Noteholders, minus (i) the Administrative Fee and the
Indenture Trustee Fee and (ii) if the Notes have been declared due and payable
following an Event of Default on such Payment Date, any amounts owed to the
Indenture Trustee by the Issuer pursuant to Section 6.07 of the Indenture and
any amounts owed to the Note Insurer by the Issuer pursuant to Section 5.04(b)
of the Indenture.
BANKRUPTCY CODE: The Bankruptcy Code of 1978, as amended.
BASE SPECIFIED OVERCOLLATERALIZATION AMOUNT: As of any date
the product of the Target Percentage and the Original Pool Balance.
-2-
<PAGE>
BASIC DOCUMENTS: The Trust Agreement, the Certificate of
Trust, the Indenture, the Home Equity Loan Purchase Agreement, the Amended and
Restated Loan Sale Agreement, the Insurance Agreement, the Sub-Servicing
Agreement, the Indemnification Agreement, the Servicing Agreement, and the other
documents and certificates delivered in connection with any of the above.
BENEFICIAL OWNER: With respect to any Note, the Person who is
the beneficial owner of such Note as reflected on the books of the Depository or
on the books of a Person maintaining an account with such Depository (directly
as a Depository Participant or indirectly through a Depository Participant, in
accordance with the rules of such Depository).
BOOK-ENTRY NOTES: Beneficial interests in the Notes, ownership
and transfers of which shall be made through book entries by the Depository as
described in Section 4.06 of the Indenture.
BUSINESS DAY: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the City of New York, Delaware or
California or in the city in which the corporate trust offices of the Indenture
Trustee or the principal office of the Note Insurer are located, are required or
authorized by law to be closed.
BUSINESS TRUST STATUTE: Chapter 38 of Title 12 of the Delaware
Code, 12 DEL. Code ss.ss.3801 ET SEQ., as the same may be amended from time to
time.
CARRY-FORWARD AMOUNT: With respect to the Notes and any
Payment Date, an amount equal to the excess of (a) the amount determined
pursuant to clause (i) of the definition of Interest Payment Amount over (b) the
Guaranteed Interest Payment Amount.
CASH LIQUIDATION: As to any defaulted Mortgage Loan other than
a Mortgage Loan as to which an REO Acquisition occurred, a determination by the
Master Servicer that it has received all Net Liquidation Proceeds and other
payments or cash recoveries which the Master Servicer reasonably and in good
faith expects to be finally recoverable with respect to such Mortgage Loan.
CERTIFICATE DISTRIBUTION ACCOUNT: The account or accounts
created and maintained pursuant to Section 3.10(c) of the Trust Agreement. The
Certificate Distribution Account shall be an Eligible Account.
CERTIFICATE PAYING AGENT: The meaning specified in Section
3.10 of the Trust Agreement.
CERTIFICATE PERCENTAGE INTEREST: With respect to each
Certificate, the Certificate Percentage Interest on the face thereof.
-3-
<PAGE>
CERTIFICATE REGISTER: The register maintained by the
Certificate Registrar in which the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates.
CERTIFICATE REGISTRAR: Initially, the Indenture Trustee, in
its capacity as Certificate Registrar, or any successor to the Indenture Trustee
in such capacity.
CERTIFICATE OF TRUST: The Certificate of Trust filed for the
Issuer pursuant to Section 3810(a) of the Business Trust Statute.
CERTIFICATES OR HOME EQUITY LOAN ASSET-BACKED CERTIFICATES:
The PacificAmerica Home Equity Loan Asset-Backed Certificates, Series 1998-1,
evidencing the beneficial ownership interest in the Issuer and executed by the
Owner Trustee in substantially the form set forth in Exhibit A to the Trust
Agreement.
CERTIFICATEHOLDER: The Person in whose name a Certificate is
registered in the Certificate Register. Pledgees of Certificates that have been
pledged in good faith may be regarded as Certificateholders if the pledgee
establishes to the satisfaction of the Indenture Trustee or the Owner Trustee,
as the case may be, the pledgee's right so to act with respect to such
Certificates and that the pledgee is not the Issuer, any other obligor upon the
Certificates or any Affiliate of any of the foregoing Persons.
CLOSING DATE: March 25, 1998.
CODE: The Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
COLLATERAL: The meaning specified in the Granting Clause of
the Indenture.
COLLECTION ACCOUNT: The account or accounts created and
maintained pursuant to the Servicing Agreement. The Collection Account shall be
an Eligible Account.
COMBINED LOAN-TO-VALUE RATIO: With respect to any Mortgage
Loan which is secured by a second lien on the related Mortgaged Property and any
date, the ratio, expressed as a percentage, the numerator of which is the sum of
(i) the unpaid principal balance of such Mortgage Loan plus (ii) the unpaid
principal balance of any senior lien on the related Mortgaged Property, and the
denominator of which is the lesser of (i) the Appraised Value of the related
Mortgaged Property as of the date of the appraisal used by or on behalf of the
Seller to underwrite such Mortgage Loan or (ii) the sale price of the related
Mortgaged Property if such a sale occurred at origination of the Mortgage Loan.
COMPANY: Merrill Lynch Mortgage Investors, Inc., a Delaware
corporation, and its successors and assigns.
-4-
<PAGE>
COMPENSATING INTEREST: With respect to any Determination Date,
an amount equal to the lesser of (i) the aggregate amount of any Prepayment
Interest Shortfall with respect to all Mortgage Loans prepaid in full during the
related Prepayment Period and (ii) the Servicing Fee for such Determination
Date.
CORPORATE TRUST OFFICE: With respect to the Indenture Trustee,
Certificate Registrar, Certificate Paying Agent and Paying Agent, the principal
corporate trust office of the Indenture Trustee and Note Registrar at which at
any particular time its corporate trust business shall be administered, which
office at the date of the execution of this instrument is located at 3 Plaza,
16th Floor, Irvine, California 92614, Attention: PacificAmerica Home Equity Loan
Trust Series 1998-1. With respect to the Owner Trustee, the principal corporate
trust office of the Owner Trustee at which at any particular time its corporate
trust business shall be administered, which office at the date of the execution
of this Trust Agreement is located at Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19801, Attention:
PacificAmerica Home Equity Loan Trust Series 1998-1.
CUMULATIVE LOSS PERCENTAGE: As to any Payment Date and the
Mortgage Loans, the percentage equivalent of the fraction obtained by dividing
(i) the aggregate of Realized Losses on the Mortgage Loans from the Cut-off Date
through the last day of the most recently ended Due Period by (ii) the Original
Pool Balance.
CUT-OFF DATE: March 1, 1998.
CUT-OFF DATE PRINCIPAL BALANCE: With respect to any Initial
Mortgage Loan, the unpaid principal balance thereof as of the opening of
business on the last day of the related Due Period immediately prior to the
Cut-off Date.
DEBT SERVICE REDUCTION: With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation or any reduction that results in a
permanent forgiveness of principal.
DEFAULT: Any occurrence which is or with notice or the lapse
of time or both would become an Event of Default.
DEFICIENCY AMOUNT: As of any Payment Date, the sum of (i) any
shortfall in the amounts in the Payment Account available to pay the Interest
Payment Amount, net of any Prepayment Interest Shortfalls not covered by
Compensating Interest and of any shortfalls resulting from application of the
Relief Act, (ii) the Subordination Deficit, and (iii) without duplication of the
amounts included pursuant to clause (ii) of this definition, the aggregate
Principal Balance of the Notes, to the extent unpaid on the final Payment Date
or earlier termination of the Indenture pursuant to the terms thereof.
-5-
<PAGE>
DEFICIENT VALUATION: With respect to any Mortgage Loan, a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding indebtedness under the Mortgage Loan, or
any reduction in the amount of principal to be paid in connection with any
scheduled Monthly Payment that constitutes a permanent forgiveness of principal,
which valuation or reduction results from a proceeding under the Bankruptcy
Code.
DEFINITIVE NOTES: The meaning specified in Section 4.06 of the
Indenture.
DELETED MORTGAGE LOAN: A Mortgage Loan replaced or to be
replaced with an Eligible Substitute Mortgage Loan.
DELINQUENCY AMOUNT: The product of the Rolling Delinquency
Percentage and the aggregate Principal Balance of the Mortgage Loans as of the
close of business on the last day of the related Due Period.
DELINQUENCY PERCENTAGE: As of the last day of any Due Period
and with respect to the Mortgage Loans, the percentage equivalent of a fraction,
the numerator of which equals the aggregate Principal Balance of the Mortgage
Loans that are 60 or more days delinquent, in foreclosure or converted to REO
Properties as of such last day of such Due Period, and the denominator of which
is the aggregate Principal Balance of the Mortgage Loans as of the last day of
such Due Period.
DEPOSITORY OR DEPOSITORY AGENCY: The Depository Trust Company
or a successor appointed by the Indenture Trustee with the approval of the
Company. Any successor to the Depository shall be an organization registered as
a "clearing agency" pursuant to Section 17A of the Exchange Act and the
regulations of the Securities and Exchange Commission thereunder.
DEPOSITORY PARTICIPANT: A Person for whom, from time to time,
the Depository effects book-entry transfers and pledges of securities deposited
with the Depository.
DETERMINATION DATE: With respect to any Payment Date, the 15th
day of the related month, or if the 15th day of such month is not a Business
Day, the immediately preceding Business Day.
DETERMINATION DATE REPORT: The meaning specified in Section
4.01 of the Servicing Agreement.
DUE DATE: The first day of the month of the related Payment
Date.
DUE PERIOD: With respect to any Mortgage Loan and Due Date,
the period commencing on the second day of the month preceding the month of such
Payment Date (or, with respect to the first Due Period, the day following the
Cut-off Date) and ending on the related Due Date.
-6-
<PAGE>
ELIGIBLE ACCOUNT: An account that is either: (A) (1) (i) a
segregated account or (ii) accounts maintained with an institution whose
deposits are insured by the FDIC, (2) the unsecured and uncollateralized long
term debt obligations of which institution shall be rated A+ or higher by
Standard & Poor's and A1 or higher by Moody's and unsecured and uncollateralized
short term debt obligations of which institution shall be rated A-1 or higher by
Standard & Poor's and P-1 or higher by Moody's, and (3) which is (i) a federal
savings and loan association duly organized, validly existing and in good
standing under the federal banking laws, (ii) an institution duly organized,
validly existing and in good standing under the applicable banking laws of any
state; (iii) a national banking association duly organized, validly existing and
in good standing under the federal banking laws, (iv) a principal subsidiary of
a bank holding company or (v) approved in writing by the Note Insurer and each
Rating Agency or (B) a segregated trust account or accounts maintained with the
trust department of a federal or state chartered depository institution
acceptable to the Note Insurer and each Rating Agency, having capital and
surplus of not less than $100,000,000, acting in its fiduciary capacity.
ELIGIBLE INVESTMENTS: One or more of the following:
(i) direct obligations of, and obligations fully
guaranteed by, the United States of America, any of FNMA, FHLMC, the
Federal National Mortgage Association, the Federal Home Loan Banks or
any agency or instrumentality of the United States of America the
obligations of which are backed by the full faith and credit of the
United States of America;
(ii) (A) demand and time deposits in, certificates of
deposit of, banker's acceptances issued by or federal funds sold by any
depository institution or trust company (including the Indenture
Trustee or its agent acting in their respective commercial capacities)
incorporated under the laws of the United States of America or any
State thereof and subject to supervision and examination by federal
and/or state authorities, so long as at the time of such investment or
contractual commitment providing for such investment, such depository
institution or trust company has a short term unsecured debt rating in
the highest available rating category of each of the Rating Agencies
and provided that each such investment has an original maturity of no
more than 365 days, and (B) any other demand or time deposit or deposit
which is fully insured by the FDIC;
(iii) repurchase obligations with a term not to exceed 30
days with respect to any security described in clause (i) above and
entered into with a depository institution or trust company (acting as
a principal) rated "A" or higher by Standard & Poor's and A2 or higher
by Moody's; provided, however, that collateral transferred pursuant to
such repurchase obligation must (A) be valued daily at current market
price plus accrued interest, (B) pursuant to such valuation, equal, at
all times, 105% of the cash transferred by the Indenture Trustee in
exchange for such collateral and (C) be delivered to the Indenture
Trustee or, if the Indenture Trustee is supplying the collateral, an
agent for the Indenture Trustee, in such a manner as to accomplish
perfection of a security interest in the collateral by possession of
certificated securities.
-7-
<PAGE>
(iv) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the United
States of America or any State thereof which has a long term unsecured
debt rating in the highest available rating category of each of the
Rating Agencies at the time of such investment;
(v) commercial paper having an original maturity of
less than 365 days and issued by an institution having a short term
unsecured debt rating in the highest available rating category of each
of the Rating Agencies at the time of such investment;
(vi) a guaranteed investment contract approved by each
of the Rating Agencies and the Note Insurer and issued by an insurance
company or other corporation having a long term unsecured debt rating
in the highest available rating category of each of the Rating Agencies
at the time of such investment;
(vii) money market funds having ratings in the highest
available long-term rating category of each of the Rating Agencies at
the time of such investment; any such money market funds which provide
for demand withdrawals being conclusively deemed to satisfy any
maturity requirement for Eligible Investments set forth in the
Indenture; and
(viii) any investment approved in writing by each of the
Rating Agencies and the Note Insurer.
provided, however, that each such instrument shall be acquired in an arm's
length transaction and no such instrument shall be an Eligible Investment if it
represents, either (1) the right to receive only interest payments with respect
to the underlying debt instrument or (2) the right to receive both principal and
interest payments derived from obligations underlying such instrument and the
principal and interest payments with respect to such instrument provide a yield
to maturity greater than 120% of the yield to maturity at par of such underlying
obligations; provided further, however, that each such instrument acquired shall
not be acquired at a price in excess of par.
The Indenture Trustee may purchase from or sell to itself or an affiliate, as
principal or agent, the Eligible Investments listed above.
ELIGIBLE SUBSTITUTE MORTGAGE LOAN: A Mortgage Loan substituted
by the Seller for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in an Officer's Certificate delivered to the
Indenture Trustee and the Note Insurer, (i) have an outstanding principal
balance, after deduction of the principal portion of the monthly payment due in
the month of substitution (or in the case of a substitution of more than one
Mortgage Loan for a Deleted Mortgage Loan, an aggregate outstanding principal
balance, after such deduction), not in excess of the outstanding principal
balance of the Deleted Mortgage Loan (the amount of any shortfall to be
deposited by the Seller in the Collection Account in the month of substitution);
(ii) comply in all material respects with each representation and warranty set
forth in clauses (i) through (lxvi) of Section 3.1(b) of the Home Equity Loan
Purchase Agreement other than clauses (iii)-(xiv), (xli), (xliv), (lv) and
(lix); (iii) have a Mortgage Rate (or in the case of a
-8-
<PAGE>
substitution of more than one Mortgage Loan for a Deleted Mortgage Loan, a
weighted average Mortgage Rate) and, with respect to an Adjustable Rate Mortgage
Loan, a Gross Margin no lower than and not more than 1% per annum higher than
the Mortgage Rate and Gross Margin, respectively, of the Deleted Mortgage Loan
as of the date of substitution; (iv) have a Loan-to-Value Ratio and Combined
Loan-to-Value Ratio, if applicable, at the time of substitution no higher than
that of the Deleted Mortgage Loan at the time of substitution; (v) have a
remaining term to stated maturity not greater than (and, unless consented to by
the Note Insurer, not more than one year less than) that of the Deleted Mortgage
Loan; (vi) not be 30 days or more delinquent; (vii) have a property type,
occupancy status, and credit quality based on the applicable underwriting
guidelines that are at least as favorable as those of the Deleted Mortgage Loan
and shall not provide for a balloon payment; (viii) in the case of each
Adjustable Rate Mortgage Loan, have a next Adjustment Date not more than two
months later than that of the Deleted Mortgage Loan; (ix) in the case of a
Mortgage Loan substituted for an Adjustable Rate Mortgage Loan, be an Adjustable
Rate Mortgage Loan; (x) be in the same or better lien position as the Deleted
Loan, and (xi) be acceptable to the Note Insurer, in its sole discretion.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
EVENT OF DEFAULT: With respect to the Indenture, any one of
the following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) a default by the Issuer in the payment of (a) the
Interest Payment Amount (other than any Prepayment Interest Shortfalls
for such Payment Date to the extent not covered by Compensating
Interest Payments by the Master Servicer, and any Relief Act Shortfalls
for such Payment Date) or the Principal Payment Amount with respect to
a Payment Date on such Payment Date or (b) the Subordination Increase
Amount, any Prepayment Interest Shortfalls for such Payment Date to the
extent not covered by Compensating Interest Payments by the Master
Servicer, any Relief Act Shortfalls for such Payment Date or the
Carry-Forward Amount, but only, with respect to clause (b), to the
extent funds are available to make such payment as provided in the
Indenture (provided that for purposes of this clause, payment by the
Indenture Trustee from proceeds of the Note Insurance Policy shall not
be considered payment by the Issuer with respect to the Notes); or
(ii) the failure by the Issuer on the Final Scheduled
Payment Date to reduce the Note Principal Balance to zero (provided
that for purposes of this clause, payment by the Indenture Trustee from
proceeds of the Note Insurance Policy shall not be considered payment
by the Issuer with respect to the Notes) ; or
(iii) there occurs a default in the observance or
performance of any covenant or agreement of the Issuer made in the
Indenture, or any representation or warranty of the Issuer made in the
Indenture or in any certificate or other writing delivered
-9-
<PAGE>
pursuant thereto or in connection therewith proving to have been
incorrect in any material respect as of the time when the same shall
have been made, and such default shall continue or not be cured, or the
circumstance or condition in respect of which such representation or
warranty was incorrect shall not have been eliminated or otherwise
cured, for a period of 30 days after there shall have been given, by
registered or certified mail, to the Issuer by the Indenture Trustee or
to the Issuer and the Indenture Trustee by the Note Insurer, or if a
Note Insurer Default exists, the Holders of at least 50% of the
aggregate Note Principal Balance of the Notes, a written notice
specifying such default or incorrect representation or warranty and
requiring it to be remedied and stating that such notice is a notice of
default hereunder; or
(iv) there occurs the filing of a decree or order for
relief by a court having jurisdiction in the premises in respect of the
Issuer or any substantial part of the Trust Estate in an involuntary
case under any applicable federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or for any substantial part of the Trust Estate,
or ordering the winding-up or liquidation of the Issuer's affairs, and
such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days;
(v) there occurs the commencement by the Issuer of a
voluntary case under any applicable federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or the
consent by the Issuer to the entry of an order for relief in an
involuntary case under any such law, or the consent by the Issuer to
the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Issuer or for any substantial part of the assets of the Trust Estate,
or the making by the Issuer of any general assignment for the benefit
of creditors, or the failure by the Issuer generally to pay its debts
as such debts become due, or the taking of any action by the Issuer in
furtherance of any of the foregoing; or
(vi) there shall have occurred, and the Note Insurer
shall have notified the Master Servicer and the Indenture Trust of, an
event of default by the Master Servicer under the Insurance Agreement,
provided (except in the case of a default by the Master Servicer under
Section 5.10(f) of the Insurance Agreement) that no Note Insurer
Default exists.
EVENT OF SERVICER TERMINATION: With respect to the Servicing
Agreement, a Servicing Default as defined in Section 6.01 of the Servicing
Agreement.
EXCESS SUBORDINATION AMOUNT: With respect to any Payment Date,
the excess, if any, of (a) the Subordination Amount that would apply on such
Payment Date after taking into account all distributions to be made on such
Payment Date (exclusive of any reductions thereto attributable to Subordination
Reduction Amounts on such Payment Date) over (b) the Required Subordination
Amount for such Payment Date.
-10-
<PAGE>
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
EXPENSES: The meaning specified in Section 7.02 of the Trust
Agreement.
FDIC: The Federal Deposit Insurance Corporation or any
successor thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, or any
successor thereto.
FINAL SCHEDULED PAYMENT DATE: The Payment Date occurring in
December 2027.
FIXED RATE INITIAL MORTGAGE LOAN: Each of the Fixed Rate
Mortgage Loans transferred to the Issuer on the Closing Date.
FIXED RATE MORTGAGE LOAN: Each of the Mortgage Loans
identified in the Mortgage Loan Schedule as having a Mortgage Rate that is
fixed.
FNMA: The Federal National Mortgage Association, or any
successor thereto.
FORECLOSURE PROFIT: With respect to a Liquidated Mortgage
Loan, the amount, if any, by which (i) the aggregate of its Net Liquidation
Proceeds exceeds (ii) the related Principal Balance (plus accrued and unpaid
interest thereon at the applicable Mortgage Rate from the date interest was last
paid through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.
FUNDING PERIOD: The period beginning on the Closing Date and
ending on the earlier of the date on which (a) the amount on deposit in the
related Pre-Funding Account (net of any investment earnings thereon) is less
than $10,000 or (b) the close of business on April 27, 1998.
GRANT: Pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to the Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of such collateral or other agreement or
instrument and all other moneys payable thereunder, to give and receive notices
and other communications, to make waivers or other agreements, to exercise all
rights and options, to bring proceedings in the name of the granting party or
otherwise, and generally to do and receive anything that the granting party is
or may be entitled to do or receive thereunder or with respect thereto.
-11-
<PAGE>
GROSS MARGIN: With respect to any Mortgage Loan, the
percentage set forth as the "Gross Margin" for such Mortgage Loan on the
Mortgage Loan Schedule, as adjusted from time to time in accordance with the
terms of the Servicing Agreement.
GUARANTEED INTEREST PAYMENT AMOUNT: As to any Payment Date, an
amount equal to interest accrued on the aggregate outstanding Principal Balance
of the Mortgage Loans payable on the related Due Date minus the aggregate amount
of the related Servicing Fee, the Indenture Trustee Fee, the Owner Trustee Fee,
the Note Insurance Premium and the Minimum Spread.
HOME EQUITY LOAN PURCHASE AGREEMENT: The Home Equity Loan
Purchase Agreement, dated as of March 19, 1998, among the Seller, the Company,
the Indenture Trustee and the Issuer.
INDEMNIFICATION AGREEMENT: The Indemnification Agreement,
dated as of March 25, 1998, among the Note Insurer, the Seller and the
Underwriter, including any amendments and supplements thereto.
INDEMNIFIED PARTY: The meaning specified in Section 7.02 of
the Trust Agreement.
INDENTURE: The indenture, dated as of March 1, 1998, between
the Issuer, as debtor, and the Indenture Trustee, as Indenture Trustee.
INDENTURE TRUSTEE: Bankers Trust Company of California, N.A.,
a national banking association, and its successors and assigns or any successor
indenture trustee appointed pursuant to the terms of the Indenture.
INDENTURE TRUSTEE FEE: With respect to each Mortgage Loan and
any Payment Date the product of (i) the Indenture Trustee Fee Rate divided by 12
and (ii) the Principal Balance of such Mortgage Loan as of such date.
INDENTURE TRUSTEE FEE RATE: 0.015% per annum.
INDEPENDENT: When used with respect to any specified Person,
the Person (i) is in fact independent of the Issuer, any other obligor on the
Notes, the Seller, the Master Servicer, the Issuer, the Company and any
Affiliate of any of the foregoing Persons, (ii) does not have any direct
financial interest or any material indirect financial interest in the Issuer,
any such other obligor, the Seller, the Master Servicer, the Issuer, the Company
or any Affiliate of any of the foregoing Persons and (iii) is not connected with
the Issuer, any such other obligor, the Seller, the Master Servicer, the Issuer,
the Company or any Affiliate of any of the foregoing Persons as an officer,
employee, promoter, underwriter, trustee, partner, director or person performing
similar functions.
INDEPENDENT CERTIFICATE: A certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable
-12-
<PAGE>
requirements of Section 10.01 of the Indenture, made by an Independent appraiser
or other expert appointed by the Issuer and approved by the Indenture Trustee in
the exercise of reasonable care, and such opinion or certificate shall state
that the signer has read the definition of "Independent" in this Indenture and
that the signer is Independent within the meaning thereof.
INDEX: With respect to any Adjustable Rate Mortgage Loan, the
index for the adjustment of the Mortgage Rate set forth as such on the related
Mortgage Note.
INITIAL MORTGAGE LOAN: A Mortgage Loan transferred and
conveyed by the Company to the Issuer on the Closing Date, as listed on the
Mortgage Loan Schedule.
INSURANCE AGREEMENT: The Insurance and Indemnity Agreement,
dated as of March 25, 1998, among the Master Servicer, the Seller, the Company,
the Issuer, the Indenture Trustee and the Note Insurer, including any amendments
and supplements thereto.
INSURANCE PROCEEDS: Proceeds paid by any insurer (other than
the Note Insurer) pursuant to any insurance policy covering a Mortgage Loan
which are required to be remitted to the Master Servicer, or amounts required to
be paid by the Master Servicer pursuant to the Servicing Agreement, net of any
component thereof (i) covering any expenses incurred by or on behalf of the
Master Servicer in connection with obtaining such proceeds, (ii) that is applied
to the restoration or repair of the related Mortgaged Property or (iii) released
to the Mortgagor in accordance with the Master Servicer's normal servicing
procedures.
INTEREST COVERAGE ACCOUNT: The account established and
maintained pursuant to Section 2.5 of the Home Equity Loan Purchase Agreement.
INTEREST COVERAGE ADDITION: As to any Payment Date, an amount,
not less than $0.00, equal to the sum of (x) interest accrued for the related
Interest Period on an amount equal to (i) the Original Pre-Funded Amount minus
(ii) the aggregate Principal Balance of any related Subsequent Mortgage Loans
transferred prior to the related Interest Period, calculated at a rate equal to
the Note Interest Rate and (y) the Note Insurance Premium accrued on the excess,
if any, of the Original Pre-Funded Amount over the aggregate Principal Balance
of any related Subsequent Mortgage Loans transferred prior to the related
Interest Period.
INTEREST COVERAGE AMOUNT: The amount to be paid from proceeds
received from the sale of the Notes for deposit into the Interest Coverage
Account pursuant to Section 2.5 of the Home Equity Loan Purchase Agreement on
the Closing Date, which amount shall be $155,135.00.
INTEREST DETERMINATION DATE: With respect to the Payment Date
occurring in April 1998, the second London Business Day preceding the Closing
Date and with respect to any Interest Period thereafter, the second London
Business Day preceding the commencement of such Interest Period.
-13-
<PAGE>
INTEREST PAYMENT AMOUNT: With respect to any Payment Date, an
amount equal to the lesser of (i) interest accrued during the related Interest
Period on the Note Principal Balances of the Notes at the then-applicable Note
Interest Rate and (ii) the Guaranteed Interest Payment Amount.
INTEREST PERIOD: With respect to any Payment Date other than
the first Payment Date, the period beginning on the preceding Payment Date and
ending on the day preceding such Payment Date, and in the case of the first
Payment Date, the period beginning on the Closing Date and ending on the day
preceding the first Payment Date.
INTEREST RATE ADJUSTMENT DATE: With respect to each Adjustable
Rate Mortgage Loan, the date or dates on which the Mortgage Rate is adjusted in
accordance with the related Mortgage Note.
INVESTMENT COMPANY ACT: The Investment Company Act of 1940, as
amended, and any amendments thereto.
ISSUER: PacificAmerica Home Equity Loan Trust Series 1998-1, a
Delaware business trust, or its successor in interest.
ISSUER REQUEST: A written order or request signed in the name
of the Issuer by any one of its Authorized Officers and approved in writing by
the Note Insurer, so long as no Note Insurer Default exists, and delivered to
the Indenture Trustee.
LIEN: Any mortgage, deed of trust, pledge, conveyance,
hypothecation, assignment, participation, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority right or interest or other security
agreement or preferential arrangement of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agree ment, any financing lease having substantially the same economic effect as
any of the foregoing and the filing of any financing statement under the UCC
(other than any such financing statement filed for informational purposes only)
or comparable law of any jurisdiction to evidence any of the foregoing.
LIFETIME RATE CAP: With respect to each Adjustable Rate
Mortgage Loan with respect to which the related Mortgage Note provides for a
lifetime rate cap, the maximum Mortgage Rate permitted over the life of such
Mortgage Loan under the terms of such Mortgage Note, as set forth on the
Mortgage Loan Schedule and initially as set forth on Exhibit A to the Servicing
Agreement.
LIQUIDATED MORTGAGE LOAN: With respect to any Payment Date,
any Mortgage Loan in respect of which the Master Servicer has determined, in
accordance with the servicing procedures specified in the Servicing Agreement,
as of the end of the related Prepayment Period that substantially all
Liquidation Proceeds which it reasonably expects to recover with respect to the
disposition of the related Mortgaged Property or REO Property have been
recovered.
-14-
<PAGE>
LIQUIDATION EXPENSES: Out-of-pocket expenses (exclusive of
overhead) which are incurred by or on behalf of the Master Servicer in
connection with the liquidation of any Mortgage Loan and not recovered under any
insurance policy, such expenses including, without limitation, legal fees and
expenses, any unreimbursed amount expended respecting the related Mortgage Loan
and any related and unreimbursed expenditures for real estate property taxes or
for property restoration, preservation or insurance against casualty loss or
damage.
LIQUIDATION PROCEEDS: Proceeds (including Insurance Proceeds
but not including amounts received under the Note Insurance Policy) received in
connection with the liquidation of any Mortgage Loan or related REO Property,
whether through trustee's sale, foreclosure sale or otherwise.
LOAN-TO-VALUE RATIO: With respect to any Mortgage Loan, as of
any date of determination, a fraction expressed as a percentage, the numerator
of which is the then current principal amount of the Mortgage Loan, and the
denominator of which is the lesser of the Purchase Price or the Appraised Value
of the related Mortgaged Property.
LOAN YEAR: With respect to any Mortgage Loan, the one year
period commencing on the day succeeding the origination of such Mortgage Loan
and ending on the anniversary date of such Mortgage Loan, and each annual period
thereafter.
LONDON BUSINESS DAY: Any day on which banks in the City of
London, England are open and conducting transactions in United States dollars.
MASTER SERVICER: PacificAmerica Money Center, Inc. a Delaware
corporation, and its successors and assigns.
MAXIMUM NOTE INTEREST RATE: 14.50% per annum.
MAXIMUM MORTGAGE RATE: With respect to each Adjustable Rate
Mortgage Loan, the maximum Mortgage Rate as set forth in the related Mortgage
Note.
MINIMUM MORTGAGE RATE: With respect to each Adjustable Rate
Mortgage Loan, the minimum Mortgage Rate as set forth in the related Mortgage
Note.
MINIMUM SPREAD: With respect to each Home Equity Loan and each
Payment Date, 1/12 of 1.00% per annum times the Principal Balance of such Home
Equity Loan as of such date.
MONTHLY PAYMENT: With respect to any Mortgage Loan (including
any REO Property) and any Due Date, the payment of principal and interest due
thereon in accordance with the amortization schedule at the time applicable
thereto (after adjustment, if any, for partial Principal Prepayments and for
Deficient Valuations occurring prior to such Due Date but before
-15-
<PAGE>
any adjustment to such amortization schedule by reason of any bankruptcy, other
than a Deficient Valuation, or similar proceeding or any moratorium or similar
waiver or grace period).
MOODY'S: Moody's Investors Service, Inc. or its successor in
interest.
MORTGAGE: The mortgage, deed of trust or other instrument
creating a first lien or second lien on an estate in fee simple interest in real
property securing a Mortgage Loan.
MORTGAGE FILE: The file containing the Related Documents
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to the Home Equity Loan Purchase
Agreement or the Servicing Agreement.
MORTGAGE LOAN SCHEDULE: With respect to any date, the schedule
of Mortgage Loans (in electronic format) pledged under the Indenture on such
date, including, as applicable, the schedule of Initial Mortgage Loans as of the
Cut-off Date set forth in Exhibit 1 of this Agreement and such schedule, as
amended by the Seller to reflect (i) Eligible Substitute Mortgage Loans and
Deleted Mortgage Loans, and (ii) as of each Subsequent Transfer Date, any
Subsequent Mortgage Loans, which schedules set forth as to each Mortgage Loan:
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the
Mortgaged Property;
(iii) the Mortgage Rate at origination;
(iv) with respect to an Adjustable Rate Mortgage Loan, the
Maximum Rate and the Minimum Rate;
(v) the maturity date;
(vi) the original principal balance;
(vii) the first payment date;
(viii) the type of Mortgaged Property;
(ix) the Monthly Payment in effect as of the Cut-off Date
(with respect to an Initial Mortgage Loan) or
Subsequent Cut-off Date (with respect to a Subsequent
Mortgage Loan);
(x) the Principal Balance as of the Cut-off Date (with
respect to an Initial Mortgage Loan) or Subsequent
Cut-off Date (with respect to a Subsequent Mortgage
Loan);
-16-
<PAGE>
(xi) with respect to an Adjustable Rate Mortgage Loan, the
Index, the Gross Margin; the Lifetime Rate Cap and
the Periodic Rate Cap;
(xii) with respect to an Adjustable Rate Mortgage Loan, the
first Adjustment Date and next Adjustment Date, if
any;
(xiii) with respect to an Adjustable Rate Mortgage Loan, the
Adjustment Date frequency and Payment Date frequency;
(xiv) the occupancy status;
(xv) the purpose of the Mortgage Loan;
(xvi) the Appraised Value of the Mortgaged Property;
(xvii) the original term to maturity;
(xviii) the paid-through date of the Mortgage Loan;
(xix) the Loan-to-Value Ratio or, with respect to a
Mortgage Loan secured by a second lien, the Combined
Loan-to-Value Ratio;
(xx) whether the Mortgage Loan is an Adjustable Rate
Mortgage Loan or a Fixed Rate Mortgage Loan;
(xxi) whether or not the Mortgage Loan was underwritten
pursuant to a limited documentation program; and
(xxii) whether the related Mortgage Loan is secured by a
first or second lien.
The Mortgage Loan Schedule shall also set forth the total of
the amounts described under (ix) above for all of the Mortgage Loans.
MORTGAGE LOANS: At any time, collectively, all Mortgage Loans
that have been sold or otherwise transferred and conveyed by the Seller to the
Company or to the Issuer, as applicable, under the Home Equity Loan Purchase
Agreement, in each case together with the Related Documents, and that remain
subject to the terms thereof. As applicable, Mortgage Loan shall be deemed to
refer to the related REO Property and to Initial Mortgage Loans, Eligible
Substitute Mortgage Loans, and Subsequent Mortgage Loans.
MORTGAGE NOTE: The note or other evidence of the indebtedness
of a Mortgagor under a Mortgage Loan.
-17-
<PAGE>
MORTGAGE RATE: With respect to any Mortgage Loan, the annual
rate at which interest accrues on such Mortgage Loan.
MORTGAGED PROPERTY: The underlying property, including real
property and improvements thereon, securing a Mortgage Loan.
MORTGAGOR: The obligor or obligors under a Mortgage Note.
NET LIQUIDATION PROCEEDS: With respect to any Liquidated
Mortgage Loan, Liquidation Proceeds net of Liquidation Expenses.
NET MONTHLY EXCESS SPREAD: With respect to any Payment Date,
the excess of (x) Available Funds for such Payment Date over (y) the sum for
such Payment Date of (A) the Interest Payment Amount and (B) the sum of the
amounts described in clauses (1) through (3) of the definition of the Principal
Payment Amount.
NET MORTGAGE RATE: With respect to any Mortgage Loan and any
day, the related Mortgage Rate less the sum of the related Servicing Fee Rate
and the Indenture Trustee Fee Rate.
NONRECOVERABLE ADVANCE: With respect to any Mortgage Loan, any
Advance or any Servicing Advance (i) which was previously made or is proposed to
be made by the Master Servicer; and (ii) which, in the good faith judgment of
the Master Servicer, will not or, in the case of a proposed Advance or Servicing
Advance, would not, be ultimately recoverable by the Master Servicer from
Liquidation Proceeds, Insurance Proceeds or future payments on such Mortgage
Loan.
NOTE INSURANCE POLICY: The note guaranty insurance policy
number # 50675-N, issued by the Note Insurer to the Indenture Trustee for the
benefit of the Noteholders.
NOTE INSURANCE PREMIUM: The premium payable to the Note
Insurer, pursuant to the Insurance Agreement.
NOTE INSURER: Financial Security Assurance Inc., a New York
stock insurance corporation or any successor thereto.
NOTE INSURER DEFAULT: The existence and continuance of any of
the following: (a) a failure by the Note Insurer to make a payment required
under the Note Insurance Policy in accordance with its terms; or (b)(i) the Note
Insurer (A) files any petition or commences any case or proceeding under any
provision or chapter of the Bankruptcy Code or any other similar federal or
state law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (B) makes a general assignment for the benefit of its creditors,
or (C) has an order for relief entered against it under the Bankruptcy Code or
any other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation or reorganization which is final and nonappealable;
or (ii) a court of competent jurisdiction, the New York Department of Insurance
-18-
<PAGE>
or other competent regulatory authority enters a final and nonappealable order,
judgment or decree (A) appointing a custodian, trustee, agent or receiver for
the Note Insurer or for all or any material portion of its property or (B)
authorizing the taking of possession by a custodian, trustee, agent or receiver
of the Note Insurer (or the taking of possession of all or any material portion
of the property of the Note Insurer).
NOTE INTEREST RATE: With respect to the first Payment Date a
per annum rate equal to 5.90750% and with respect to each subsequent Payment
Date, a per annum rate equal to the lesser of (i) (a) with respect to each
Payment Date up to and including the Payment Date on which the aggregate
Principal Balance of the Mortgage Loans is less than 10% of the Original Pool
Balance, One-Month LIBOR plus 0.22%, and (b) with respect to each Payment Date
thereafter, One-Month LIBOR plus 0.44% and (ii) 14.50% per annum with respect to
such Payment Date.
NOTE OWNER: The Beneficial Owner of a Note.
NOTE PERCENTAGE: With respect to any Payment Date and any
Note, the ratio expressed as a percentage of the Note Principal Balance of such
Note to the aggregate Note Principal Balance of all Notes immediately prior to
such Payment Date.
NOTE PRINCIPAL BALANCE: With respect to any Note, the initial
principal balance thereof as of the Closing Date and reduced by all amounts
distributed in respect of principal with respect to such Note.
NOTE REGISTER: The register maintained by the Note Registrar
in which the Note Registrar shall provide for the registration of Notes and of
transfers and exchanges of Notes, as described in Section 4.02 of the Indenture.
NOTE REGISTRAR: The Indenture Trustee, in its capacity as Note
Registrar.
NOTEHOLDER OR HOLDER: The Person in whose name a Note is
registered in the Note Register, except that, any Note registered in the name of
the Company, the Issuer or the Indenture Trustee or any Affiliate of any of them
shall be deemed not to be a Noteholder or Holder, nor shall any Note so owned be
considered outstanding, for purposes of giving any request, demand,
authorization, direction, notice, consent or waiver under the Indenture or the
Trust Agreement, provided that, in determining whether the Indenture Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes that the Indenture Trustee
knows to be so owned shall be so disregarded. Any Notes on which payments are
made under the Note Insurance Policy shall be deemed Outstanding until the Note
Insurer has been reimbursed with respect thereto and the Note Insurer shall be
deemed the Noteholder thereof to the extent of such unreimbursed payment.
NOTES: PacificAmerica Home Equity Loan Asset-Backed Notes,
Series 1998-1, designated as the "Notes" in the Indenture.
-19-
<PAGE>
OFFICER'S CERTIFICATE: With respect to the Master Servicer, a
certificate signed by the President, a Director, a Vice President or an
Assistant Vice President, of the Master Servicer and delivered to the Indenture
Trustee. With respect to the Issuer, a certificate signed by any Authorized
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 10.01 of the Indenture,
and delivered to the Indenture Trustee. With respect to the Note Insurer, a
certificate signed by any authorized officer of the Note Insurer and delivered
to the Issuer and Indenture Trustee pursuant to Section 2.3(b)(vi) of the Home
Equity Loan Purchase Agreement
ONE-MONTH LIBOR: With respect to any Interest Period, the rate
determined by the Indenture Trustee on the related Interest Determination Date
on the basis of the offered rates of the Reference Banks for one-month United
States dollar deposits, as such rates appear on the Telerate Page 3750, as of
11:00 a.m. (London time) on such Interest Determination Date. If such rate does
not appear on Telerate Page 3750, the rate for that day will be determined on
the basis of the rates at which deposits in United States dollars are offered by
the Reference Banks at approximately 11:00 a.m., London time, on that day to
prime banks in the London interbank market for a period equal to the relevant
Interest Period (commencing on the first day of such Interest Period). The
Indenture Trustee will request the principal London office of each of the
Reference Banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate for that day will be the arithmetic mean of
the quotations. If fewer than two quotations are provided as requested, the rate
for that day will be the arithmetic mean of the rates quoted by major banks in
The City of New York, selected by the Indenture Trustee, at approximately 11:00
a.m., New York City time, on that day for loans in United States dollars to
leading European banks for a period equal to the relevant Interest Period
(commencing on the first day of such Interest Period).
"Telerate Page 3750" means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices) and
"Reference Banks" means leading banks selected by the Indenture Trustee and
engaged in transactions in European deposits in the international Eurocurrency
market.
The establishment of One-Month LIBOR on each Interest Determination
Date by the Indenture Trustee and the Indenture Trustee's calculation of the
rate of interest applicable to the Notes for the related Interest Period shall
(in the absence of manifest error) be final and binding.
OPINION OF COUNSEL: A written opinion of counsel acceptable to
the Note Insurer, who may be in-house counsel for the Master Servicer if
acceptable to the Indenture Trustee, the Note Insurer and the Rating Agencies or
counsel for the Company, as the case may be.
ORIGINAL POOL BALANCE: The sum of (x) the Principal Balance of
the Mortgage Loans as of the Cut-Off Date and (y) the Original Pre-Funded
Amount, which sum equals $130,000,000.21.
-20-
<PAGE>
ORIGINAL PRE-FUNDED AMOUNT: The amount deposited (from the
Note proceeds) in the Pre-Funding Account on the Closing Date, which amount is
$30,282,598.00.
ORIGINAL VALUE: Except in the case of a refinanced Mortgage
Loan, the lesser of the Appraised Value or sales price of Mortgaged Property at
the time a Mortgage Loan is closed, and for a refinanced Mortgage Loan, the
Original Value is the value of such property set forth in
an appraisal acceptable to the Master Servicer.
OUTSTANDING: With respect to the Notes, as of the date of
determination, all Notes theretofore executed, authenticated and delivered under
this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Indenture Trustee for cancellation; and
(ii) Notes in exchange for or in lieu of which other Notes
have been executed, authenticated and delivered pursuant to
the Indenture unless proof satisfactory to the Indenture
Trustee is presented that any such Notes are held by a holder
in due course;
All Notes that have been paid with funds provided under the Note Insurance
Policy shall be deemed to be Outstanding until the Note Insurer has been
reimbursed with respect thereto.
OWNER: As defined in Section 2.05 of the Trust Agreement.
OWNER TRUST ESTATE: The corpus of the Issuer created by the
Trust Agreement which consists of items referred to in Section 2.05 of the Trust
Agreement.
OWNER TRUSTEE: Wilmington Trust Company and its successors and
assigns or any successor owner trustee appointed pursuant to the terms of the
Trust Agreement.
OWNER TRUSTEE FEE: $4,000 per annum, payable on the Payment
Date occurring each April commencing in April 1998.
PACIFIC: Pacific Thrift and Loan Company.
PAYING AGENT: Any paying agent or co-paying agent appointed
pursuant to Section 3.03 of the Indenture, which initially shall be the
Indenture Trustee.
PAYMENT ACCOUNT: The account established by the Indenture
Trustee pursuant to Section 3.01 of the Indenture. The Payment Account shall be
an Eligible Account.
PAYMENT DATE: The 25th day of each month, or if such day is
not a Business Day, then the next Business Day.
-21-
<PAGE>
PERFORMANCE TEST VIOLATION: means a Servicer Termination
Rolling Delinquency Test Violation, a Servicer Termination Cumulative Loss Test
Violation or a Servicer Termination Rolling Loss Test Violation.
PERCENTAGE INTEREST: With respect to any Note, the percentage
obtained by dividing the Note Principal Balance of such Note by the aggregate of
the Note Principal Balances of all Notes. With respect to any Certificate, the
percentage on the face thereof.
PERIODIC RATE CAP: With respect to any Adjustable Rate
Mortgage Loan, the maximum rate, if any, by which the Mortgage Rate on such
Mortgage Loan can adjust on any Adjustment Date, as stated in the related
Mortgage Note or Mortgage.
PERSON: Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
POLICY PAYMENTS ACCOUNT: The account established pursuant to
Section 3.28 of the Indenture.
POOL BALANCE: With respect to any date, the sum of the
aggregate of the Principal Balances of all Mortgage Loans and the Pre-Funded
Amount as of such date.
PRE-FUNDED AMOUNT: With respect to any date of determination,
the amount on deposit in the Pre-Funding Account.
PRE-FUNDING ACCOUNT: The account established and maintained
pursuant to Section 2.4 of the Home Equity Loan Purchase Agreement.
PREFERENCE AMOUNT: Any amount previously distributed to a
Holder on the Notes that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
PREPAYMENT INTEREST SHORTFALL: As to any Payment Date and any
Mortgage Loan (other than a Mortgage Loan relating to an REO Property) that was
the subject of (a) a Principal Prepayment in full during the related Prepayment
Period, an amount equal to the excess of interest accrued during the related
Prepayment Period at the Net Mortgage Rate on the Principal Balance of such
Mortgage Loan over the amount of interest (adjusted to the Net Mortgage Rate)
paid by the Mortgagor for such Prepayment Period to the date of such Principal
Prepayment in full or (b) a partial Principal Prepayment during the prior
calendar month, an amount equal to interest accrued during the related
Prepayment Period at the Net Mortgage Rate on the amount of such partial
Prepayment.
-22-
<PAGE>
PREPAYMENT PERIOD: As to any Payment Date, the calendar month
preceding the month of such Payment Date.
PRINCIPAL BALANCE: With respect to any Mortgage Loan or
related REO Property, at any given time, (i) the Principal Balance of the
Mortgage Loan as of the Cut-off Date or Subsequent Cut-off Date, as applicable,
minus (ii) the sum of (a) the principal portion of the Monthly Payments which
were received with respect to such Mortgage Loan or REO Property during each Due
Period ending prior to the most recent Payment Date, and (b) all Principal
Prepayments with respect to such Mortgage Loan or REO Property, and all
Insurance Proceeds, Liquidation Proceeds and REO Proceeds, to the extent applied
by the Master Servicer as recoveries of principal in accordance with the
Servicing Agreement with respect to such Mortgage Loan or REO Property, and (c)
the principal portion of any Realized Loss with respect thereto for any previous
Payment Date.
PRINCIPAL PAYMENT AMOUNT: (a) With respect to any Payment
Date, other than the Final Scheduled Payment Date, the lesser of (a) the sum of
(x) the Available Funds remaining after distributions pursuant to clauses (i)
through (iii) of Section 3.05 of the Indenture and (y) any portion of any
Scheduled Payment for such Payment Date representing principal and (b) the sum
of:
(1) the principal portion of all Monthly Payments
received during the related Due Period on each
Mortgage Loan;
(2) the Principal Balance of any Mortgage Loan
repurchased during the related Prepayment Period
pursuant to the Home Equity Loan Purchase Agreement
or Sections 3.12 or 3.18 of the Servicing Agreement
and the amount of any Substitution Adjustment Amounts
received during the related Prepayment Period;
(3) the principal portion of all other unscheduled
collections received during the related Prepayment
Period (or deemed to be received during the related
Prepayment Period) (including, without limitation and
without duplication, Principal Prepayments in full,
partial Principal Prepayments, Insurance Proceeds,
Liquidation Proceeds and REO Proceeds) to the extent
applied by the Master Servicer as payments or
recoveries of principal of the related Mortgage Loan;
(4) any portion of any Scheduled Payment for such
Payment Date representing principal; and
(5) with respect to the Payment Date immediately
following the end of the Funding Period, any amounts
in the related Pre-Funding Account after giving
effect to any purchase of related Subsequent Mortgage
Loans;
MINUS
-23-
<PAGE>
(6) the amount of any Subordination Reduction Amount
for such Payment
Date;
and (b) with respect to the Final Scheduled Payment Date, the amount necessary
to reduce the Note Principal Balance to zero.
PRINCIPAL PREPAYMENT: Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment.
PROCEEDING: Any suit in equity, action at law or other
judicial or administrative proceeding.
PROSPECTUS: The Prospectus Supplement, together with the
attached Prospectus dated June 19, 1997, with respect to the Notes.
PROSPECTUS SUPPLEMENT: The Prospectus Supplement dated March
19, 1998, with respect to the Notes.
PURCHASE PRICE: The meaning specified in Section 2.1 and
2.3(a) of the Home Equity Loan Purchase Agreement.
RATING AGENCY: Any nationally recognized statistical rating
organization, or its successor, that rated the Notes at the request of the
Company at the time of the initial issuance of the Notes. Initially such rating
agencies shall consist of Moody's and Standard & Poor's. If such organization or
a successor is no longer in existence, "Rating Agency" shall be such nationally
recognized statistical rating organization, or other comparable Person,
designated by the Note Insurer so long as no Note Insurer Default exists, notice
of which designation shall be given to the Indenture Trustee. References herein
to the highest short term unsecured rating category of a Rating Agency shall
mean A-1 or better in the case of Standard & Poor's and P-1 or better in the
case of Moody's and in the case of any other Rating Agency shall mean such
equivalent rating. References herein to the highest long-term rating category of
a Rating Agency shall mean "AAA" in the case of Standard & Poor's and "Aaa" in
the case of Moody's and in the case of any other Rating Agency, such equivalent
rating.
REALIZED LOSS: With respect to each Mortgage Loan (or REO
Property) as to which a Cash Liquidation or REO Disposition has occurred, an
amount (not less than zero) equal to (i) the Principal Balance of the Mortgage
Loan (or REO Property) as of the date of Cash Liquidation or REO Disposition,
plus (ii) interest (and REO Imputed Interest, if any) at the Net Mortgage Rate
from the Due Date as to which interest was last paid or advanced to Noteholders
up to the last day of the month in which the Cash Liquidation (or REO
Disposition) occurred on the Principal Balance of such Mortgage Loan (or REO
Property) outstanding during each Due Period that such interest was not paid or
advanced, minus (iii) Net Liquidation Proceeds, if any, received during
-24-
<PAGE>
the month in which such Cash Liquidation (or REO Disposition) occurred, minus
the portion thereof reimbursable to the Master Servicer or any Subservicer with
respect to related Advances or expenses as to which the Master Servicer or
Subservicer is entitled to reimbursement thereunder but which have not been
previously reimbursed. With respect to each Mortgage Loan which has become the
subject of a Deficient Valuation, the difference between the principal balance
of the Mortgage Loan outstanding immediately prior to such Deficient Valuation
and the principal balance of the Mortgage Loan as reduced by the Deficient
Valuation. With respect to each Mortgage Loan which has become the object of a
Debt Service Reduction, the amount of such Debt Service Reduction.
RECORD DATE: With respect to the Notes and any Payment Date,
the last day of the calendar month preceding such Payment Date or in the case of
the first Payment Date, the Record Date shall be the Closing Date.
REFERENCE BANKS: Bankers Trust Company, Barclay's Bank PLC,
The Bank of Tokyo and National Westminster Bank PLC and their successors in
interest; PROVIDED that if any of the foregoing banks are not suitable to serve
as a Reference Bank, then any leading banks selected by the Indenture Trustee
which are engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
not controlling, under the control of or under common control with the Company
or any Affiliate thereof, (iii) whose quotations appear on the Reuters Screen
LIBO Page on the relevant Interest Determination Date and (iv) which have been
designated as such by the Indenture Trustee.
REGISTERED HOLDER: The Person in whose name a Note is
registered in the Note Register on the applicable Record Date.
RELATED DOCUMENTS: With respect to each Mortgage Loan, the
documents specified in Section 2.2 of the Home Equity Loan Purchase Agreement
and any documents required to be added to such documents pursuant to the Home
Equity Loan Purchase Agreement, the Trust Agreement, the Indenture or the
Servicing Agreement.
RELIEF ACT: The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
RELIEF ACT SHORTFALL: As to any Payment Date and any Mortgage
Loan (other than a Mortgage Loan relating to an REO Property), any shortfalls of
interest collected relating to the Relief Act or similar legislation or
regulations.
REO ACQUISITION: The acquisition by the Master Servicer on
behalf of the Indenture Trustee for the benefit of the Noteholders and the Note
Insurer of any REO Property pursuant to Section 3.13 of the Servicing Agreement.
REO DISPOSITION: As to any REO Property, a determination by
the Master Servicer that it has received substantially all Insurance Proceeds,
Liquidation Proceeds, REO Proceeds and
-25-
<PAGE>
other payments and recoveries (including proceeds of a final sale) which the
Master Servicer expects to be finally recoverable from the sale or other
disposition of the REO Property.
REO IMPUTED INTEREST: As to any REO Property, for any period,
an amount equivalent to interest (at the Net Mortgage Rate that would have been
applicable to the related Mortgage Loan had it been outstanding) on the unpaid
principal balance of the Mortgage Loan as of the date of acquisition thereof for
such period as such balance is reduced pursuant to Section 3.13 of the Servicing
Agreement by any income from the REO Property treated as a recovery of
principal.
REO PROCEEDS: Proceeds, net of expenses, received in respect
of any REO Property (including, without limitation, proceeds from the rental of
the related Mortgaged Property), which proceeds are required to be deposited
into the Collection Account within two days of receipt by the Master Servicer.
REO PROPERTY: A Mortgaged Property that is acquired by the
Issuer by foreclosure or by deed in lieu of foreclosure.
REPURCHASE EVENT: With respect to any Mortgage Loan, either
(i) a discovery that, as of the Closing Date the related Mortgage was not a
valid first, or if so stated in the Mortgage Loan Schedule, second lien on the
related Mortgaged Property subject only to (A) the lien of real property taxes
and assessments not yet due and payable, (B) covenants, conditions, and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of such Mortgage and such other permissible title
exceptions as are permitted, (C) other matters to which like properties are
commonly subject which do not materially adversely affect the value, use,
enjoyment or marketability of the related Mortgaged Property, and (D) if such
Mortgage Loan is secured by a second lien, the first lien on the Mortgaged
Property or (ii) with respect to any Mortgage Loan as to which the Seller
delivers an affidavit certifying that the original Mortgage Note has been lost
or destroyed, a subsequent default on such Mortgage Loan if the enforcement
thereof or of the related Mortgage is materially and adversely affected by the
absence of such original Mortgage Note.
REPURCHASE PRICE: With respect to any Mortgage Loan required
to be repurchased on any date pursuant to the Home Equity Loan Purchase
Agreement or permitted to be purchased by the Master Servicer pursuant to the
Servicing Agreement, an amount equal to the sum, without duplication, of (i)
100% of the Principal Balance thereof (without reduction for any amounts charged
off) and (ii) unpaid accrued interest at the Mortgage Rate on the outstanding
principal balance thereof from the Due Date to which interest was last paid by
the Mortgagor (or with respect to which an Advance was last made by the Master
Servicer) to the first day of the month following the month of purchase plus
(iii) the amount of any unreimbursed Advances or Servicing Advances made with
respect to such Mortgage Loan plus (iv) any other amounts owed to the Master
Servicer or the Subservicer pursuant to Section 3.07 of the Servicing Agreement
and not included in clause (iii) of this definition.
-26-
<PAGE>
REQUEST FOR RELEASE: Exhibit B to Servicing Agreement.
REQUIRED SUBORDINATION AMOUNT: For any Payment Date, an amount
equal to the Base Specified Overcollateralization Amount, subject to the
following: (i) if, with respect to such Payment Date, the Step Up Trigger has
occurred, the Required Subordination Amount for such Payment Date will be an
amount equal to the entire aggregate Principal Balance of the Mortgage Loans as
of such Payment Date; (ii) if, with respect to such Payment Date, the Step Up
Trigger has not occurred but the Step Up Spread Squeeze Test is met, the
Required Subordination Amount for such Payment Date will be an amount equal to
the sum of (A) the Required Subordination Amount for such Payment Date
determined as though the Step Up Spread Squeeze Test were not met plus (B) the
Spread Squeeze Subordination Increase Amount; or (iii) if, with respect to such
Payment Date, neither the Step Up Trigger has occurred nor the Step Up Spread
Squeeze Test is met but the Step Down Trigger has occurred, the Required
Subordinated Amount for such Payment Date will be an amount equal to the
greatest of (A) 0.50% of the Original Pool Balance, (B) three times the
Principal Balance of the Mortgage Loan with the largest Principal Balance as of
such Payment Date, and (C) the Stepped Down Required Subordinated Percentage of
the aggregate Principal Balance of the Mortgage Loans as of such Payment Date.
Notwithstanding the above, the Required Subordination Amount
shall not step-down pursuant to clause (iii) above, (i) if a claim on the Note
Insurance Policy has occurred, (ii) if a Servicer Default has occurred which has
not been waived by the Note Insurer or (iii) if the Required Subordination
Amount after the step-down would equal or exceed the Delinquency Amount.
The Required Subordination Amount may be reduced or eliminated
by the Note Insurer in its sole discretion. Upon any such reduction or
elimination, the Master Servicer shall give written notice thereof to each
Rating Agency.
The Required Subordination Amount may be adjusted by mutual
agreement of the Note Insurer and the Seller under the circumstances set forth
in Section 2.3(e) of the Home Equity
Loan Purchase Agreement.
RESPONSIBLE OFFICER: With respect to the Indenture Trustee,
any officer of the Indenture Trustee with direct responsibility for the
administration of the Indenture and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
ROLLING DELINQUENCY PERCENTAGE: For any Payment Date, the
average of the Delinquency Percentages for the Mortgage Loans as of the last day
of each of the three (or 1 and 2 in the case of the first two Payment Dates, as
applicable) most recently ended Due Periods.
SALE: The meaning assigned in Section 5.15 of the Indenture.
SCHEDULED PAYMENT: Shall have the meaning set forth in the
Note Insurance Policy.
-27-
<PAGE>
SECURITIES ACT: The Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
SECURITY: Any of the Certificates or Notes.
SECURITYHOLDER or HOLDER: Any Noteholder or a
Certificateholder.
SECURITY INSTRUMENT: A written instrument creating a valid
first lien on a Mortgaged Property securing a Mortgage Note, which may be any
applicable form of mortgage, deed of trust, deed to secure debt or security
deed, including any riders or addenda thereto.
SELLER: PacificAmerica Money Center, Inc. a Delaware
corporation, and its successors and assigns.
SERVICER TERMINATION ROLLING DELINQUENCY TEST VIOLATION: Means
with respect to any Payment Date, if the Rolling Delinquency Percentage for such
Payment Date exceeds 12.50%.
SERVICER TERMINATION CUMULATIVE LOSS TEST VIOLATION: Means
with respect to any Payment Date, if the Cumulative Loss Percentage exceeds the
percentage of the Original Pool Balance set forth below:
PERIOD CUMULATIVE LOSS PERCENTAGE
1st-12th Payment Dates 1.25%
13th-24th Payment Dates 2.25%
25th-36th Payment Dates 2.70%
37th-48th Payment Dates 3.25%
49th Payment Date and after 3.75%
SERVICER TERMINATION ROLLING LOSS TEST VIOLATION: Means with
respect to any Payment Date if the weighted average of the aggregate Realized
Losses in respect of the Trust Estate during the preceding six Due Periods (or,
on any Payment Date prior to the sixth Payment Date, for each Due Period since
the Cut-off Date) (such weighted average to be computed on the basis of the
Principal Balance as of the first day of each such Due Period), multiplied by
twelve exceeds 1.75% of the aggregate Principal Balance of the Mortgage Loans
(including REO Properties) as of the first day of such six-month (or shorter)
period.
SERVICING ACCOUNT: The separate trust account created and
maintained by the Master Servicer or each Subservicer with respect to the
Mortgage Loans or REO Property, which shall be an Eligible Account, for
collection of taxes, assessments, insurance premiums and comparable items as
described in Section 3.08 of the Servicing Agreement.
-28-
<PAGE>
SERVICING ADVANCES: All customary, reasonable and necessary
"out of pocket" costs and expenses incurred in connection with a default,
delinquency or other unanticipated event in the performance by the Master
Servicer of its servicing obligations, including, without duplication, but not
limited to, the cost of (i) the preservation, restoration and protection of a
Mortgaged Property, (ii) any enforcement or judicial proceedings, including
foreclosures, (iii) the management and liquidation of any REO Property and (iv)
compliance with the obligations under Section 3.13 of the Servicing Agreement.
SERVICING AGREEMENT: The Servicing Agreement, dated as of
March 1, 1998, among the Master Servicer, the Indenture Trustee and the Issuer.
SERVICING DEFAULT: The meaning assigned in Section 6.01 of the
Servicing Agreement.
SERVICING FEE: With respect to the Mortgage Loans and any
Payment Date, the product of (i) the Servicing Fee Rate divided by 12 and (ii)
the Principal Balance of such Mortgage Loans as of such date.
SERVICING FEE RATE: With respect to any Mortgage Loan, 0.50%
per annum.
SERVICING OFFICER: Any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and specimen signature appear on a list of servicing officers
furnished to the Indenture Trustee (with a copy to the Note Insurer) by the
Master Servicer or a Subservicer, as such list may be amended from time to time.
SINGLE NOTE: A Note in the amount of $1,000.
SPREAD SQUEEZE CONDITION: The Spread Squeeze Condition will be
met with respect to a Payment Date after the sixth Payment Date if the Spread
Squeeze Percentage for such Payment Date is less than 3.00%.
SPREAD SQUEEZE PERCENTAGE: With respect to any Payment Date
after the sixth Payment Date, the percentage equivalent of a fraction, the
numerator of which is the product of 12 and the Net Monthly Excess Spread for
such Payment Date, and the denominator of which is the aggregate Principal
Balance of the Mortgage Loans as of such Payment Date.
SPREAD SQUEEZE SUBORDINATION INCREASE AMOUNT: For any Payment
Date on which the Step Up Spread Squeeze Test is met, an amount determined as
follows:
(a) if the Spread Squeeze Condition is met for such Payment
Date, the Spread Squeeze Subordination Increase Amount for
such Payment Date shall be equal to the product obtained by
multiplying (i) three, (ii) the excess, if any, of 3.00% over
the Spread Squeeze Percentage for such Payment Date and (iii)
the Original Pool Balance; or
-29-
<PAGE>
(b) if the Spread Squeeze Condition is not met for such
Payment Date, the Spread Squeeze Subordination Increase Amount
for such Payment Date shall be equal to (A) the Spread Squeeze
Subordination Increase Amount for the most recent Payment Date
for which the Spread Squeeze Condition was met minus (B) the
product obtained by multiplying (i) one sixth of the amount
determined under clause (A) above and (ii) the number of
consecutive Payment Dates through and including the current
Payment Date for which the Spread Squeeze Percentage was
greater than or equal to 3.00%.
STANDARD & POOR'S: Standard & Poor's Ratings Service, or its
successor in interest.
STEP DOWN CUMULATIVE LOSS TEST: The Step Down Cumulative Loss
Test will be met with respect to a Payment Date as follows:(i) for the 30th
through the 36th Payment Dates, if the Cumulative Loss Percentage for such
Payment Date is 1.50% or less; (ii) for the 37th through the 48th Payment Dates,
if the Cumulative Loss Percentage for such Payment Date is 2.50% or less; (iii)
for the 49th through the 60th Payment Dates, if the Cumulative Loss Percentage
is 3.00% or less; (iv) for any Payment Date after the 61st Payment Date, if the
Cumulative Loss Percentage for such Payment Date is 3.25% or less.
STEP DOWN ROLLING DELINQUENCY TEST: The Step Down Rolling
Delinquency Test will be met with respect to a Payment Date if the Rolling
Delinquency Percentage for such Payment Date is 9.5% or less.
STEP DOWN ROLLING LOSS TEST: The Step Down Rolling Loss Test
will be met with respect to a Payment Date if the aggregate weighted average of
the Realized Losses during each of the preceding six Due Periods (such weighted
average to be computed on the basis of the Principal Balance as of the first day
of each such Due Period), multiplied by twelve, is less than 1.00% of the
aggregate Principal Balance of the Mortgage Loans (including REO Properties) as
of the first day of such six-month period.
STEP DOWN TRIGGER: For any Payment Date after the 30th Payment
Date, the Step Down Trigger will have occurred if each of the Step Down
Cumulative Loss Test, the Step Down Rolling Delinquency Test and the Step Down
Rolling Loss Test is met. In no event will the Step Down Trigger be deemed to
have occurred for the 30th Payment Date or any preceding Payment Date.
STEPPED DOWN REQUIRED SUBORDINATED PERCENTAGE: For any Payment
Date for which the Step Down Trigger has occurred, a percentage equal to (i) the
percentage equivalent of a fraction, the numerator of which is the Base
Specified Overcollateralization Amount and the denominator of which is aggregate
Principal Balance of the Mortgage Loans as of such Payment Date, minus (ii) the
percentage equivalent of a fraction, the numerator of which is the product of
(A) the percentage calculated under clause (i) above minus two times the Target
Percentage, multiplied by (B) the number of consecutive Payment Dates through
and including the Payment Date for which the Stepped Down Required Subordinated
Percentage is being calculated, up to a
-30-
<PAGE>
maximum of three, for which the Step Down Trigger has occurred, and the
denominator of which is three.
STEP UP CUMULATIVE LOSS TEST: The Step Up Cumulative Loss Test
will be met with respect to a Payment Date as follows: (i) for the 1st through
the 12th Payment Dates, if the Cumulative Loss Percentage for such Payment Date
is more than 1.00%; (ii) for the 13th through the 24th Payment Dates, if the
Cumulative Loss Percentage for such Payment Date is more than 1.25%; (iii) for
the 25th through the 36th Payment Dates, if the Cumulative Loss Percentage for
such Payment Date is more than 2.50%; (iv) for the 37th through the 48th Payment
Dates, if the Cumulative Loss Percentage for such Payment Date is more than
3.00%; and (v) for the 49th Payment Date and any Payment Date thereafter, if the
Cumulative Loss Percentage for such Payment Date is more than 3.50%.
STEP UP ROLLING DELINQUENCY TEST: The Step Up Rolling
Delinquency Test will be met with respect to a Payment Date if the Rolling
Delinquency Percentage for such Payment Date is more than 11.5%.
STEP UP ROLLING LOSS TEST: The Step Up Rolling Loss Test will
be met with respect to a Payment Date if the weighted average of the aggregate
Realized Losses during the preceding six Due Periods (or, on any Payment Date
prior to the sixth Payment Date, for each Due Period since the Cut-off Date)
(such weighted average to be computed on the basis of the Principal Balance as
of the first day of each such Due Period), multiplied by twelve, is greater than
or equal to 1.50% of the aggregate Principal Balance of the Mortgage Loans
(including REO Properties) as of the first day of such six-month (or shorter)
period.
STEP UP SPREAD SQUEEZE TEST: The Step Up Spread Squeeze Test
will be met with respect to a Payment Date if the Spread Squeeze Condition is
met for such Payment Date or was met for any of the five preceding Payment
Dates.
STEP UP TRIGGER: For any Payment Date, the Step Up Trigger
will have occurred if any one of the Step Up Cumulative Loss Test, the Step Up
Rolling Delinquency Test or the Step Up Rolling Loss Test is met.
SUBORDINATION AMOUNT: As of any Payment Date, the excess, if
any, of (x) the sum of the Pool Balance as of the close of business on the last
day of the related Due Period, over (y) the Note Principal Balance of the Notes
as of such Payment Date (and following the making
of all distributions on such Payment Date).
SUBORDINATION DEFICIT: With respect to any Payment Date, the
amount, if any, by which (x) the aggregate Note Principal Balance of the Notes
as of such Payment Date, and following the making of all distributions to be
made on such Payment Date (except for any payment to be made as to principal
from proceeds of the Note Insurance Policy), exceeds (y) the Pool Balance as of
the close of business on the preceding Due Date for such Payment Date.
-31-
<PAGE>
SUBORDINATION INCREASE AMOUNT: With respect to any Payment
Date, the amount of any Net Monthly Excess Spread available in the Payment
Account to increase the Subordination Amount to the Required Subordination
Amount.
SUBORDINATION REDUCTION AMOUNT: With respect to any Payment
Date, an amount equal to the lesser of (a) the Excess Subordination Amount and
(b) the principal collections received by the Master Servicer with respect to
the prior Due Period.
SUBSEQUENT CUT-OFF DATE: With respect to those Subsequent
Mortgage Loans which are sold to the Trust pursuant to a Subsequent Transfer
Instrument, the date specified in the related Subsequent Transfer Instrument.
SUBSEQUENT MORTGAGE LOAN: A Mortgage Loan sold by the Seller
to the Issuer pursuant to Section 2.3 of the Home Equity Loan Purchase
Agreement, such Mortgage Loan being identified on the Mortgage Loan Schedule
attached to a Subsequent Transfer Instrument, as set forth in such Subsequent
Transfer Instrument.
SUBSEQUENT TRANSFER DATE: With respect to each Subsequent
Transfer Instrument, the date on which the related Subsequent Mortgage Loans are
sold to the Trust.
SUBSEQUENT TRANSFER INSTRUMENT: Each Subsequent Transfer
Instrument dated as of a Subsequent Transfer Date executed by the Seller and the
Issuer substantially in the form of Exhibit 2 to the Home Equity Loan Purchase
Agreement, by which Subsequent Mortgage Loans are sold to the Trust.
SUBSERVICER: On the Closing Date, Advanta Mortgage Corp. USA,
and its successors and assigns, and thereafter, any Person with whom the Master
Servicer has entered into a Subservicing Agreement as a Subservicer, with the
consent of the Note Insurer.
SUBSERVICING ACCOUNT: An Eligible Account established or
maintained by a Sub servicer as provided for in Section 3.06(e) of the Servicing
Agreement.
SUBSERVICING AGREEMENT: Each written contract between the
Master Servicer and any Subservicer relating to servicing and administration of
certain Mortgage Loans as provided in Section 3.02 of the Servicing Agreement.
SUBSERVICING FEE: With respect to each Mortgage Loan and any
Payment Date, the portion of the Servicing Fee paid to a Subservicer.
SUBSTITUTION ADJUSTMENT AMOUNT: With respect to any Eligible
Substitute Mortgage Loan, the amount as defined in Section 2.03 of the Servicing
Agreement.
TARGET PERCENTAGE: 5.5%.
-32-
<PAGE>
TREASURY REGULATIONS: Regulations, including proposed or
temporary Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
TRUST: The PacificAmerica Home Equity Loan Trust Series 1998-1
to be created pursuant to the Trust Agreement.
TRUST AGREEMENT: The Trust Agreement, dated as of March 6,
1998, as amended and restated by the Amended and Restated Trust Agreement, dated
as of March 1, 1998, between the Owner Trustee and the Company.
TRUST ESTATE: The meaning specified in the Granting Clause of
the Indenture.
TRUST INDENTURE ACT OR TIA: The Trust Indenture Act of 1939,
as amended from time to time, as in effect on any relevant date.
UCC: The Uniform Commercial Code, as amended from time to
time, as in effect in any specified jurisdiction.
UNDERWRITER: Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
UNDERWRITING GUIDELINES: The underwriting guidelines of the
Seller, as set forth in the Prospectus Supplement.
-33-
================================================================================
MERRILL LYNCH MORTGAGE INVESTORS, INC.
as Company,
PACIFICAMERICA MONEY CENTER, INC.
as Seller,
PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-1
as Issuer,
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
as Indenture Trustee
----------------------------
HOME EQUITY LOAN PURCHASE AGREEMENT
Dated as of March 19, 1998
----------------------------
Fixed and Adjustable Rate Mortgage Loans
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS..................................................2
ARTICLE II
SALE OF MORTGAGE LOANS AND RELATED PROVISIONS
Section 2.1. SALE OF INITIAL MORTGAGE LOANS..............................16
Section 2.2. OBLIGATIONS REGARDING THE MORTGAGE LOANS....................16
Section 2.3. CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS.................19
Section 2.4. PRE-FUNDING ACCOUNT.........................................22
Section 2.5. INTEREST COVERAGE ACCOUNT...................................23
ARTICLE III
REPRESENTATIONS AND WARRANTIES;
REMEDIES FOR BREACH
Section 3.1. SELLER REPRESENTATIONS AND WARRANTIES.......................24
Section 3.2 COMPANY REPRESENTATIONS AND WARRANTIES......................38
ARTICLE IV
SELLER'S COVENANTS
Section 4.1. COVENANTS OF THE SELLER.....................................39
Section 4.2. PAYMENT OF EXPENSES.........................................40
ARTICLE V
CONDITIONS TO INITIAL MORTGAGE LOAN PURCHASE
Section 5.1. CONDITIONS OF COMPANY'S OBLIGATIONS.........................41
ARTICLE VI
LIMITATION ON LIABILITY OF THE SELLER
WITH RESPECT TO THE MORTGAGE LOANS
Section 6.1. LIMITATION ON LIABILITY OF THE SELLER.......................41
-i-
<PAGE>
PAGE
ARTICLE VII
TERMINATION
Section 7.1. TERMINATION.................................................42
Section 7.2. OPTIONAL REDEMPTION.........................................43
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1. AMENDMENT...................................................44
Section 8.2. GOVERNING LAW...............................................44
Section 8.3. NOTICES.....................................................44
Section 8.4. SEVERABILITY OF PROVISIONS..................................45
Section 8.5. RELATIONSHIP OF PARTIES.....................................46
Section 8.6. COUNTERPARTS................................................46
Section 8.7. FURTHER AGREEMENTS..........................................46
Section 8.8. INTENTION OF THE PARTIES....................................46
Section 8.9. SUCCESSORS AND ASSIGNS; ASSIGNMENT OF PURCHASE AGREEMENT....46
Section 8.10. SURVIVAL....................................................47
Section 8.11. THIRD PARTY BENEFICIARY.....................................47
Exhibits
Exhibit 1 Mortgage Loan Schedule for Initial Mortgage Loans
Exhibit 2 Subsequent Transfer Instrument
-ii-
<PAGE>
-1-
This HOME EQUITY LOAN PURCHASE AGREEMENT (this "Agreement"),
dated as of March 19, 1998, is made among PacificAmerica Money Center, Inc. (the
"Seller"), Merrill Lynch Mortgage Investors, Inc. (the "Company"),
PacificAmerica Home Equity Loan Trust Series 1998-1 (the "Issuer") and Bankers
Trust Company of California, N.A. (the "Indenture Trustee").
W I T N E S S E T H :
---------------------
WHEREAS, the Seller owns certain Mortgage Loans indicated on
the Mortgage Loan Schedule attached as Exhibit 1 hereto (the "Initial Mortgage
Loans"), including rights to (a) any property acquired by foreclosure or deed in
lieu of foreclosure or otherwise, and (b) the proceeds of any insurance policies
covering the Initial Mortgage Loans;
WHEREAS, pursuant to the terms of this Home Equity Loan
Purchase Agreement the parties hereto desire that the Seller sell (i) the
Initial Mortgage Loans to the Company on the Closing Date and (ii) the
Subsequent Mortgage Loans to the Issuer on each Subsequent Transfer Date, and
that the Seller make certain representations and warranties on the Closing Date
and on each Subsequent Transfer Date;
WHEREAS, the Company will sell the Initial Mortgage Loans and
transfer all of its rights under this 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 Company, the
Certificates;
WHEREAS, pursuant to the terms of the Indenture, the Issuer
will issue and transfer to or at the direction of the Company, the Notes; and
WHEREAS, pursuant to the terms of the Servicing Agreement, the
Master 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:
<PAGE>
-2-
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. For all purposes of this Agreement,
all capitalized terms used herein shall have the meanings specified herein.
ADDITION NOTICE: With respect to the transfer of Subsequent
Mortgage Loans to the Trust pursuant to Section 2.3 herein, a notice in
substantially the form set forth in Exhibit 3 to this Agreement given to the
Rating Agencies, the Indenture Trustee, the Note Insurer and the Owner Trustee ,
which shall be given not later than seven Business Days prior to the related
Subsequent Transfer Date, of the Seller's designation of Subsequent Mortgage
Loans to be sold to the Issuer and the aggregate principal balance as of the
Subsequent Cut-off Date of such Subsequent Mortgage Loans.
ADJUSTABLE RATE INITIAL MORTGAGE LOAN: Each of the Adjustable
Rate Mortgage Loans transferred to the Issuer on the Closing Date.
ADJUSTABLE RATE MORTGAGE LOAN: Each of the Mortgage Loans
identified in the Mortgage Loan Schedule as having a Mortgage Rate that is
subject to adjustment.
ADJUSTMENT DATE: As to each Adjustable Rate Mortgage Loan,
each date set forth in the related Mortgage Note on which an adjustment to the
interest rate on such Mortgage Loan becomes effective.
APPRAISED VALUE: The appraised value of a Mortgaged Property
based upon the lesser of (i) the appraisal made at the time of the origination
of the related Mortgage Loan, or (ii) the sales price of such Mortgaged Property
at such time of origination. With respect to a Mortgage Loan the proceeds of
which were used to refinance an existing mortgage loan, the appraised value of
the Mortgaged Property based upon the appraisal (as reviewed and approved by the
Seller) obtained at the time of refinancing.
ASSIGNMENT OF MORTGAGE: An assignment of Mortgage, notice of
transfer or equivalent instrument, in recordable form, which is sufficient under
the laws of the jurisdiction wherein the related Mortgaged Property is located
to reflect of record the sale of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering Mortgages secured by Mortgaged Properties located in the
same county, if permitted by law.
BANKRUPTCY CODE: The Bankruptcy Code of 1978, as amended.
<PAGE>
-3-
BASIC DOCUMENTS: The Trust Agreement, the Certificate of
Trust, the Indenture, this Agreement, the Insurance Agreement, the
Indemnification Agreement, the Servicing Agreement, the Sub-Servicing Agreement
and the other documents and certificates delivered in connection with any of the
above.
BUSINESS DAY: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the City of New York, Delaware or
California or in the city in which the corporate trust offices of the Indenture
Trustee or the principal office of the Note Insurer are located, are required or
authorized by law to be closed.
BUSINESS TRUST STATUTE: Chapter 38 of Title 12 of the Delaware
Code, 12 DEL. Code ss.ss.3801 ET SEQ., as the same may be amended from time to
time.
CARRY-FORWARD AMOUNT: With respect to the Notes and any
Payment Date, an amount equal to (a) the amount determined pursuant to clause
(i) of the definition of Interest Payment Amount minus (b) the Guaranteed
Interest Payment Amount.
CERTIFICATE OF TRUST: The Certificate of Trust filed for the
Trust pursuant to Section 3810(a) of the Business Trust Statute.
CERTIFICATES OR HOME EQUITY LOAN ASSET-BACKED CERTIFICATES:
The PacificAmerica Home Equity Loan Asset-Backed Certificates, Series 1998-1,
evidencing the beneficial ownership interest in the Issuer and executed by the
Owner Trustee in substantially the form set forth in Exhibit A to the Trust
Agreement.
CERTIFICATEHOLDER: The Person in whose name a Certificate is
registered in the Certificate Register. Pledgees of Certificates that have been
pledged in good faith may be regarded as Certificateholders if the pledgee
establishes to the satisfaction of the Indenture Trustee or the Owner Trustee,
as the case may be, the pledgee's right so to act with respect to such
Certificates and that the pledgee is not the Issuer, any other obligor upon the
Certificates or any Affiliate of any of the foregoing Persons.
CLOSING DATE: March 25, 1998.
COLLECTION ACCOUNT: The account or accounts created and
maintained pursuant to the Servicing Agreement. The Collection Account shall be
an Eligible Account.
COMBINED LOAN-TO-VALUE RATIO: With respect to any Mortgage
Loan which is secured by a second lien on the related Mortgaged Property and any
date, the ratio, expressed as a percentage, the numerator of which is the sum of
(i) the unpaid principal balance of the Mortgage Loan plus (ii) the original
principal balance of any second lien on the related Mortgaged
<PAGE>
-4-
Property as of such date, and the denominator of which is the lesser of (i) the
Appraised Value of the related Mortgaged Property as of the date of the
appraisal used by or on behalf of the Seller to underwrite such Mortgage Loan or
(ii) the sale price of the related Mortgaged Property if such a sale occurred at
origination of the Mortgage Loan.
COMPANY: Merrill Lynch Mortgage Investors, Inc., a Delaware
corporation, and its successors and assigns.
CUT-OFF DATE: March 1, 1998.
DEFICIENT VALUATION: With respect to any Mortgage Loan, a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding indebtedness under the Mortgage Loan, or
any reduction in the amount of principal to be paid in connection with any
scheduled Monthly Payment that constitutes a permanent forgiveness of principal,
which valuation or reduction results from a proceeding under the Bankruptcy
Code.
DELETED MORTGAGE LOAN: A Mortgage Loan replaced or to be
replaced with an Eligible Substitute Mortgage Loan.
DETERMINATION DATE: With respect to any Payment Date, the 15th
day of the related month, or if the 15th day of such month is not a Business
Day, the immediately preceding Business Day.
DUE DATE: The first day of the month of the related Payment
Date.
DUE PERIOD: With respect to any Mortgage Loan and Due Date,
the period commencing on the second day of the month preceding the month of such
Payment Date (or, with respect to the first Due Period, the day following the
Cut-off Date) and ending on the related Due Date.
ELIGIBLE ACCOUNT: An account that is either: (A) (1) (i) a
segregated account or (ii) accounts maintained with an institution whose
deposits are insured by the FDIC, (2) the unsecured and uncollateralized long
term debt obligations of which institution shall be rated A+ or higher by
Standard & Poor's and A1 or higher by Moody's and the unsecured and
uncollateralized short term debt obligations of which institution shall be rated
A-1 or higher by Standard & Poor's and P-1 or higher by Moody's, and (3) which
is (i) a federal savings and loan association duly organized, validly existing
and in good standing under the federal banking laws, (ii) an institution duly
organized, validly existing and in good standing under the applicable banking
laws of any state; (iii) a national banking association duly organized, validly
existing and in good standing under the federal banking laws, (iv) a principal
subsidiary of a bank holding company or (v) approved in writing by the Note
Insurer and each Rating Agency or (B) a segregated trust account
<PAGE>
-5-
or accounts maintained with the trust department of a federal or state chartered
depository institution acceptable to the Note Insurer and each Rating Agency,
having capital and surplus of not less than $100,000,000, acting in its
fiduciary capacity.
ELIGIBLE INVESTMENTS: One or more of the following:
(i) direct obligations of, and obligations fully
guaranteed by, the United States of America, any of the Federal Home
Mortgage Corporation, the Federal National Mortgage Association, the
Federal Home Loan Banks or any agency or instrumentality of the United
States of America the obligations of which are backed by the full faith
and credit of the United States of America;
(ii) (A) demand and time deposits in, certificates of
deposit of, banker's acceptances issued by or federal funds sold by any
depository institution or trust company (including the Indenture
Trustee or its agent acting in their respective commercial capacities)
incorporated under the laws of the United States of America or any
State thereof and subject to supervision and examination by federal
and/or state authorities, so long as at the time of such investment or
contractual commitment providing for such investment, such depository
institution or trust company has a short term unsecured debt rating in
the highest available rating category of each of the Rating Agencies
and provided that each such investment has an original maturity of no
more than 365 days, and (B) any other demand or time deposit or deposit
which is fully insured by the Federal Deposit Insurance Corporation;
(iii) repurchase obligations with a term not to exceed 30
days with respect to any security described in clause (i) above and
entered into with a depository institution or trust company (acting as
a principal) rated "A" or higher by Standard & Poor's and A2 or higher
by Moody's; provided, however, that collateral transferred pursuant to
such repurchase obligation must (A) be valued daily at current market
price plus accrued interest, (B) pursuant to such valuation, equal, at
all times, 105% of the cash transferred by the Indenture Trustee in
exchange for such collateral and (C) be delivered to the Indenture
Trustee or, if the Indenture Trustee is supplying the collateral, an
agent for the Indenture Trustee, in such a manner as to accomplish
perfection of a security interest in the collateral by possession of
certificated securities.
(iv) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the United
States of America or any State thereof which has a long term unsecured
debt rating in the highest available rating category of each of the
Rating Agencies at the time of such investment;
<PAGE>
-6-
(v) commercial paper having an original maturity of
less than 365 days and issued by an institution having a short term
unsecured debt rating in the highest available rating category of each
of the Rating Agencies at the time of such investment;
(vi) a guaranteed investment contract approved by each
of the Rating Agencies and the Note Insurer and issued by an insurance
company or other corporation having a long term unsecured debt rating
in the highest available rating category of each of the Rating Agencies
at the time of such investment;
(vii) money market funds having ratings in the highest
available long-term rating category of each of the Rating Agencies at
the time of such investment; any such money market funds which provide
for demand withdrawals being conclusively deemed to satisfy any
maturity requirement for Eligible Investments set forth in the
Indenture; and
(viii) any investment approved in writing by each of the
Rating Agencies and the Note Insurer.
provided, however, that each such instrument shall be acquired in an arm's
length transaction and no such instrument shall be an Eligible Investment if it
represents, either (1) the right to receive only interest payments with respect
to the underlying debt instrument or (2) the right to receive both principal and
interest payments derived from obligations underlying such instrument and the
principal and interest payments with respect to such instrument provide a yield
to maturity greater than 120% of the yield to maturity at par of such underlying
obligations; provided further, however, that each such instrument acquired shall
not be acquired at a price in excess of par.
The Indenture Trustee may purchase from or sell to itself or an affiliate, as
principal or agent, the Eligible Investments listed above.
ELIGIBLE SUBSTITUTE MORTGAGE LOAN: A Mortgage Loan substituted
by the Seller for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in an Officer's Certificate delivered to the
Indenture Trustee and the Note Insurer, (i) have an outstanding principal
balance, after deduction of the principal portion of the monthly payment due in
the month of substitution (or in the case of a substitution of more than one
Mortgage Loan for a Deleted Mortgage Loan, an aggregate outstanding principal
balance, after such deduction), not in excess of the outstanding principal
balance of the Deleted Mortgage Loan (the amount of any shortfall to be
deposited by the Seller in the Collection Account in the month of substitution);
(ii) comply in all material respects with each representation and warranty set
forth in clauses (i) through (lxvi) of Section 3.1(b) hereof other than clauses
(iii)-(xiv), (xli), (xliv), (lv) and (lix); (iii) have a Mortgage Rate (or in
the case of a substitution of more than one Mortgage Loan for a Deleted Mortgage
Loan, a weighted average Mortgage Rate) and, with respect to an Adjustable Rate
Mortgage Loan, a Gross Margin, no lower than and not more than 1% per annum
higher than the Mortgage Rate and Gross Margin, respectively, of the Deleted
Mortgage Loan as of the date
<PAGE>
-7-
of substitution; (iv) have a Loan-to-Value Ratio and Combined Loan-to-Value
Ratio, if applicable, at the time of substitution no higher than that of the
Deleted Mortgage Loan at the time of substitution; (v) have a remaining term to
stated maturity not greater than (and, unless consented to by the Note Insurer,
not more than one year less than) that of the Deleted Mortgage Loan; (vi) not be
30 days or more delinquent; (vii) have a property type, occupancy status, and
credit quality based on the applicable underwriting guidelines that are at least
as favorable as those of the Deleted Mortgage Loan and not provide for a balloon
payment; (viii) in the case of each Adjustable Rate Mortgage Loan, have a next
Adjustment Date not more than two months later than that of the Deleted Mortgage
Loan; (ix) in the case of a Mortgage Loan substituted for an Adjustable Rate
Mortgage Loan, be an Adjustable Rate Mortgage Loan; (x) be acceptable to the
Note Insurer, in its sole discretion and (xi) have a lien priority which is not
lower than the lien priority of the Deleted Mortgage Loan.
FIXED RATE INITIAL MORTGAGE LOAN: Each of the Fixed Rate
Mortgage Loans transferred to the Issuer on the Closing Date.
FIXED RATE MORTGAGE LOAN: Each of the Mortgage Loans
identified in the Mortgage Loan Schedule as having a Mortgage Rate that is
fixed.
FUNDING PERIOD: The period beginning on the Closing Date and
ending on the earlier of the date on which (a) the amount on deposit in the
related Pre-Funding Account (net of any investment earnings thereon) is less
than $10,000 or (b) the close of business on April 27, 1998.
GUARANTEED INTEREST PAYMENT AMOUNT: As to any Payment Date, an
amount equal to interest accrued on the aggregate outstanding Principal Balance
of the Mortgage Loans payable on the related Due Date minus the aggregate amount
of the related Servicing Fee, the Indenture Trustee Fee, the Owner Trustee Fee,
the Note Insurance Premium and the Minimum Spread, each as determined pursuant
to the Basic Documents.
GROSS MARGIN: With respect to any Mortgage Loan, the
percentage set forth as the "Gross Margin" for such Mortgage Loan on the
Mortgage Loan Schedule, as adjusted from time to time in accordance with the
terms of the Servicing Agreement.
HOME EQUITY LOAN PURCHASE AGREEMENT: This Agreement, dated
March 19, 1998, among the Seller, the Company, the Indenture Trustee and the
Issuer.
INDENTURE: The indenture, to be dated as of March 1, 1998,
between the Issuer, as debtor, and the Indenture Trustee, as Indenture Trustee.
<PAGE>
-8-
INDENTURE TRUSTEE: Bankers Trust Company of California, N.A.,
a national banking association, and its successors and assigns or any successor
indenture trustee appointed pursuant to the terms of the Indenture.
INDEX: With respect to any Adjustable Rate Mortgage Loan, the
index for the adjustment of the Mortgage Rate set forth as such on the related
Mortgage Note.
INITIAL MORTGAGE LOAN: A Mortgage Loan transferred and
conveyed by the Company to the Issuer on the Closing Date, as listed on the
Mortgage Loan Schedule.
INSURANCE AGREEMENT: The Insurance and Indemnity Agreement, to
be dated as of March 25, 1998, among the Master Servicer, the Seller, the
Company, the Issuer, the Indenture Trustee and the Note Insurer, including any
amendments and supplements thereto.
INTEREST COVERAGE ACCOUNT: The account established and
maintained pursuant to Section 2.5 of this Agreement.
INTEREST COVERAGE ADDITION: As to any Payment Date, an amount,
not less than $0.00, equal to the sum of (x) interest accrued for the related
Interest Period on an amount equal to (i) the Original Pre-Funded Amount minus
(ii) the aggregate Principal Balance of any related Subsequent Mortgage Loans
transferred prior to the related Interest Period, calculated at a rate equal to
the Note Interest Rate and (y) the Note Insurance Premium accrued on the excess,
if any, of the Original Pre-Funded Amount over the aggregate Principal Balance
of any related Subsequent Mortgage Loans transferred prior to the related
Interest Period.
INTEREST COVERAGE AMOUNT: The amount to be paid from proceeds
received from the sale of the Notes for deposit into the related Interest
Coverage Account pursuant to Section 2.5 hereof on the Closing Date, which
amount shall be $155,135.00.
INTEREST PAYMENT AMOUNT: With respect to any Payment Date, an
amount equal to the lesser of (i) interest accrued during the related Interest
Period on the Note Principal Balances of the Notes at the then-applicable Note
Interest Rate and (ii) the Guaranteed Interest Payment Amount.
ISSUER: PacificAmerica Home Equity Loan Trust Series 1998-1, a
Delaware business trust, or its successor in interest.
LIEN: Any mortgage, deed of trust, pledge, conveyance,
hypothecation, assignment, participation, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority right or interest or other security
agreement or preferential arrangement of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agree ment, any financing lease having substantially the same economic effect as
any of the foregoing
<PAGE>
-9-
and the filing of any financing statement under the UCC (other than any such
financing statement filed for informational purposes only) or comparable law of
any jurisdiction to evidence any of the
foregoing.
LOAN-TO-VALUE RATIO: With respect to any Mortgage Loan, as of
any date of determination, a fraction expressed as a percentage, the numerator
of which is the then current principal amount of the Mortgage Loan, and the
denominator of which is the lesser of the Purchase Price or the Appraised Value
of the related Mortgaged Property.
MASTER SERVICER: PacificAmerica Money Center, Inc. a Delaware
corporation, and its successors and assigns.
MAXIMUM MORTGAGE RATE: With respect to each Adjustable Rate
Mortgage Loan, the maximum Mortgage Rate as set forth in the related Mortgage
Note.
MINIMUM MORTGAGE RATE: With respect to each Adjustable Rate
Mortgage Loan, the minimum Mortgage Rate as set forth in the related Mortgage
Note.
MONTHLY PAYMENT: With respect to any Mortgage Loan (including
any REO Property) and any Due Date, the payment of principal and interest due
thereon in accordance with the amortization schedule at the time applicable
thereto (after adjustment, if any, for partial Principal Prepayments and for
Deficient Valuations occurring prior to such Due Date but before any adjustment
to such amortization schedule by reason of any bankruptcy, other than a
Deficient Valuation, or similar proceeding or any moratorium or similar waiver
or grace period).
MORTGAGE: The mortgage, deed of trust or other instrument
creating a first or second lien on an estate in fee simple interest in real
property securing a Mortgage Loan.
MORTGAGE FILE: The file containing the Related Documents
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to Section 2.2 hereof or the Servicing
Agreement.
MORTGAGE LOAN SCHEDULE: With respect to any date, the schedule
of Mortgage Loans pledged under the Indenture on such date, including, as
applicable, the schedule of Initial Mortgage Loans as of the Cut-off Date set
forth in Exhibit 1 of this Agreement and such schedule, as amended by the Seller
to reflect (i) Eligible Substitute Mortgage Loans and Deleted Mortgage Loans,
and (ii) as of each Subsequent Transfer Date, any Subsequent Mortgage Loans,
which schedules set forth as to each Mortgage Loan
<PAGE>
-10-
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the
Mortgaged Property;
(iii) the Mortgage Rate at origination;
(iv) with respect to an Adjustable Rate Mortgage Loan, the
Maximum Rate and the Minimum Rate;
(v) the maturity date;
(vi) the original principal balance;
(vii) the first payment date;
(viii) the type of Mortgaged Property;
(ix) the Monthly Payment in effect as of the Cut-off Date
(with respect to an Initial Mortgage Loan) or
Subsequent Cut-off Date (with respect to a Subsequent
Mortgage Loan);
(x) the Principal Balance as of the Cut-off Date (with
respect to an Initial Mortgage Loan) or Subsequent
Cut-off Date (with respect to a Subsequent
Mortgage Loan);
(xi) with respect to an Adjustable Rate Mortgage Loan, the
Index, the Gross Margin; the Lifetime Rate Cap and
the Periodic Rate Cap;
(xii) with respect to an Adjustable Rate Mortgage Loan, the
first Adjustment Date and next Adjustment Date, if
any;
(xiii) with respect to an Adjustable Rate Mortgage Loan, the
Adjustment Date frequency and Payment Date frequency;
(xiv) the occupancy status;
(xv) the purpose of the Mortgage Loan;
(xvi) the Appraised Value of the Mortgaged Property;
(xvii) the original term to maturity;
<PAGE>
-11-
(xviii) the paid-through date of the Mortgage Loan;
(xix) the Loan-to-Value Ratio or, with respect to a
Mortgage Loan secured by a second lien, the combined
Loan-to-Value Ratio;
(xx) whether the Mortgage Loan is an Adjustable Rate
Mortgage Loan or a Fixed Rate Mortgage Loan;
(xxi) whether or not the Mortgage Loan was underwritten
pursuant to a limited documentation program; and
(xxii) whether the Mortgaged Property is subject to a first
or second lien.
The Mortgage Loan Schedule shall also set forth the total of
the amounts described under (ix) above for all of the Mortgage Loans.
MORTGAGE LOANS: At any time, collectively, all Mortgage Loans
that have been sold or otherwise transferred and conveyed by the Seller to the
Company or to the Issuer, as applicable, under this Agreement, in each case
together with the Related Documents, and that remain subject to the terms
thereof. As applicable, Mortgage Loan shall be deemed to refer to the related
REO Property and to Initial Mortgage Loans, Eligible Substitute Mortgage Loans
and Subsequent Mortgage Loans.
MORTGAGE NOTE: The note or other evidence of the indebtedness
of a Mortgagor under a Mortgage Loan.
MORTGAGE RATE: With respect to any Mortgage Loan, the annual
rate at which interest accrues on such Mortgage Loan.
MORTGAGED PROPERTY: The underlying property, including real
property and improvements thereon, securing a Mortgage Loan.
MORTGAGOR: The obligor or obligors under a Mortgage Note.
NOTE INSURER: Financial Security Assurance Inc., a New York
stock insurance corporation or any successor thereto.
NOTE INTEREST RATE: With respect to the first Payment Date a
per annum rate equal to One-Month LIBOR plus 5.90750 % and with respect to each
subsequent Payment Date, a per
<PAGE>
-12-
annum rate equal to the lesser of (i) (a) with respect to each Payment Date up
to and including the Payment Date on which the aggregate Principal Balance of
the Mortgage Loans is less than or equal to 10% of the Original Pool Balance,
One-Month LIBOR plus 0.22%, and (b) with respect to each Payment Date
thereafter, One-Month LIBOR plus 0.44% and (ii) 14.50% per annum.
NOTE PRINCIPAL BALANCE: With respect to any Note, the initial
principal balance thereof as of the Closing Date and reduced by all amounts
distributed in respect of principal with respect to such Note.
NOTEHOLDER OR HOLDER: The Person in whose name a Note is
registered in the Note Register, except that, any Note registered in the name of
the Company, the Issuer or the Indenture Trustee or any Affiliate of any of them
shall be deemed not to be a Noteholder or Holder, nor shall any Note so owned be
considered outstanding, for purposes of giving any request, demand,
authorization, direction, notice, consent or waiver under the Indenture or the
Trust Agreement, provided that, in determining whether the Indenture Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes that the Indenture Trustee
knows to be so owned shall be so disregarded. Any Notes on which payments are
made under the Note Insurance Policy shall be deemed Outstanding until the Note
Insurer has been reimbursed with respect thereto and the Note Insurer shall be
deemed the Noteholder thereof to the extent of such unreimbursed payment.
NOTES: PacificAmerica Home Equity Loan Asset-Backed Notes,
Series 1998-1, designated as the "Notes" in the Indenture.
OFFICER'S CERTIFICATE: With respect to the Master Servicer, a
certificate signed by the President, a Director, a Vice President or an
Assistant Vice President, of the Master Servicer and delivered to the Indenture
Trustee. With respect to the Seller, a certificate signed by the President, a
Director, a Vice President or an Assistant Vice President, of the Seller, under
the circumstances described in, and otherwise complying with, the applicable
requirements of Section 2.03(b)(vi) of this Agreement. With respect to the
Issuer, a certificate signed by any Authorized Officer of the Issuer, under the
circumstances described in, and otherwise complying with, the applicable
requirements of Section 10.01 of the Indenture, and delivered to the Indenture
Trustee.
OPINION OF COUNSEL: A written opinion of counsel acceptable to
the Note Insurer, who may be in-house counsel for the Master Servicer if
acceptable to the Indenture Trustee, the Note Insurer and the Rating Agencies or
counsel for the Company, as the case may be.
ORIGINAL POOL BALANCE: The sum of (x) the Principal Balance of
the Mortgage Loans as of the Cut-Off Date and (y) the Original Pre-Funded
Amount, which sum equals $130,000,000.21 .
<PAGE>
-13-
ORIGINAL PRE-FUNDED AMOUNT: The amount deposited (from
proceeds) in the Pre- Funding Account on the Closing Date, which amount is
$30,282,598.00.
OWNER TRUSTEE: Wilmington Trust Company and its successors and
assigns or any successor owner trustee appointed pursuant to the terms of the
Trust Agreement.
PAYMENT ACCOUNT: The account established by the Indenture
Trustee pursuant to Section 3.01 of the Indenture. The Payment Account shall be
an Eligible Account.
PAYMENT DATE: The 25th day of each month, or if such day is
not a Business Day, then the next Business Day.
PERIODIC RATE CAP: With respect to any Adjustable Rate
Mortgage Loan, the maximum rate, if any, by which the Mortgage Rate on such
Mortgage Loan can adjust on any Adjustment Date, as stated in the related
Mortgage Note or Mortgage.
PERSON: Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
PRE-FUNDED AMOUNT: With respect to any date of determination,
the amount on deposit in the Pre-Funding Account.
PRE-FUNDING ACCOUNT: The account established and maintained
pursuant to Section 2.4 of this Agreement.
PRINCIPAL BALANCE: With respect to any Mortgage Loan or
related REO Property, at any given time, (i) the Principal Balance of the
Mortgage Loan as of the Cut-off Date or Subsequent Cut-off Date, as applicable,
minus (ii) the sum of (a) the principal portion of the Monthly Payments which
were received with respect to such Mortgage Loan or REO Property during each Due
Period ending prior to the most recent Payment Date, and (b) all Principal
Prepayments with respect to such Mortgage Loan or REO Property, and all
Insurance Proceeds, Liquidation Proceeds and REO Proceeds, to the extent applied
by the Master Servicer as recoveries of principal in accordance with the
Servicing Agreement with respect to such Mortgage Loan or REO Property, and (c)
the principal portion of any Realized Loss with respect thereto for any previous
Payment Date.
PROSPECTUS: The Prospectus Supplement dated March 19, 1998,
together with the attached Prospectus dated June 19, 1997, with respect to the
Notes.
PROSPECTUS SUPPLEMENT: The Prospectus Supplement dated March
19, 1998, with respect to the Notes.
<PAGE>
-14-
PURCHASE PRICE: The meaning specified in Sections 2.1 and
2.3(a) of this Agreement.
RELATED DOCUMENTS: With respect to each Mortgage Loan, the
documents specified in Section 2.2 of this Agreement and any documents required
to be added to such documents pursuant to this Agreement, the Trust Agreement,
the Indenture or the Servicing Agreement.
REO PROPERTY: A Mortgaged Property that is acquired by the
Issuer by foreclosure or by deed in lieu of foreclosure.
REPURCHASE EVENT: With respect to any Mortgage Loan, either
(i) a discovery that, as of the Closing Date the related Mortgage was not a
valid first or second lien on the related Mortgaged Property or a discovery that
a Mortgage Loan represented as of the Closing Date to be a valid first lien is a
valid second lien, in each case subject only to (A) the lien of real property
taxes and assessments not yet due and payable, (B) covenants, conditions, and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of such Mortgage and such other permissible title
exceptions as are permitted and (C) other matters to which like properties are
commonly subject which do not materially adversely affect the value, use,
enjoyment or marketability of the related Mortgaged Property or (ii) with
respect to any Mortgage Loan as to which the Seller delivers an affidavit
certifying that the original Mortgage Note has been lost or destroyed, a
subsequent default on such Mortgage Loan if the enforcement thereof or of the
related Mortgage is materially and adversely affected by the absence of such
original Mortgage Note.
REPURCHASE PRICE: With respect to any Mortgage Loan required
to be repurchased on any date pursuant to this Agreement or permitted to be
purchased by the Master Servicer pursuant to the Servicing Agreement, an amount
equal to the sum, without duplication, of (i) 100% of the Principal Balance
thereof (without reduction for any amounts charged off) and (ii) unpaid accrued
interest at the Mortgage Rate on the outstanding principal balance thereof from
the Due Date to which interest was last paid by the Mortgagor (or with respect
to which an Advance was last made by the Master Servicer) to the first day of
the month following the month of purchase plus (iii) the amount of any
unreimbursed Servicing Advances or unreimbursed Advances made with respect to
such Mortgage Loan plus (iv) any other amounts owed to the Master Servicer or
the Subservicer pursuant to Section 3.07 of the Servicing Agreement and not
included in clause (iii) of this definition.
REQUIRED SUBORDINATION AMOUNT: For any Payment Date, an amount
equal to the Base Specified Overcollateralization Amount, subject to the
following: (i) if, with respect to such Payment Date, the Step Up Trigger has
occurred, the Required Subordination Amount for such Payment Date will be an
amount equal to the entire aggregate Principal Balance of the Mortgage Loans as
of such Payment Date; (ii) if, with respect to such Payment Date, the Step Up
Trigger has not occurred but the Step Up Spread Squeeze Test is met, the
Required Subordination Amount
<PAGE>
-15-
for such Payment Date will be an amount equal to the sum of (A) the Required
Subordination Amount for such Payment Date determined as though the Step Up
Spread Squeeze Test were not met plus (B) the Spread Squeeze Subordination
Increase Amount; or (iii) if, with respect to such Payment Date, neither the
Step Up Trigger has occurred nor the Step Up Spread Squeeze Test is met but the
Step Down Trigger has occurred, the Required Subordinated Amount for such
Payment Date will be an amount equal to the greatest of (A) 0.50% of the
Original Pool Balance, (B) three times the Principal Balance of the Mortgage
Loan with the largest Principal Balance as of such Payment Date, and (C) the
Stepped Down Required Subordinated Percentage of the aggregate Principal Balance
of the Mortgage Loans as of such Payment Date.
Notwithstanding the above, the Required Subordination Amount
shall not step-down pursuant to clause (iii) above, (i) if a claim on the Note
Insurance Policy has occurred, (ii) if a Servicer Default has occurred which has
not been waived by the Note Insurer or (iii) if the Required Subordination
Amount after the step-down would equal or exceed the Delinquency Amount.
The Required Subordination Amount may be reduced or eliminated
by the Note Insurer in its sole discretion. Upon any such reduction or
elimination, the Seller, in its capacity as Master Servicer, shall give written
notice thereof to each Rating Agency and the Indenture
Trustee.
The Required Subordination Amount may be adjusted by mutual
agreement of the Note Insurer and the Seller under the circumstances set forth
in Section 2.3(e) of this
Agreement.
SECURITY: Any of the Certificates or Notes.
SECURITYHOLDER or HOLDER: Any Noteholder or a
Certificateholder.
SELLER: PacificAmerica Money Center, Inc. a Delaware
corporation, and its successors and assigns.
SERVICING ADVANCES: All customary, reasonable and necessary
"out of pocket" costs and expenses incurred in connection with a default,
delinquency or other unanticipated event in the performance by the Master
Servicer of its servicing obligations, including, without duplication, but not
limited to, the cost of (i) the preservation, restoration and protection of a
Mortgaged Property, (ii) any enforcement or judicial proceedings, including
foreclosures, (iii) the management and liquidation of any REO Property and (iv)
compliance with the obligations under Section 3.13 of the Servicing Agreement.
SERVICING AGREEMENT: The Servicing Agreement, to be dated as
of March 1, 1998, among the Master Servicer, the Indenture Trustee and the
Issuer.
<PAGE>
-16-
SERVICING OFFICER: Any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and specimen signature appear on a list of servicing officers
furnished to the Indenture Trustee (with a copy to the Note Insurer) by the
Master Servicer or a Subservicer, as such list may be amended from time to time.
SUBSEQUENT CUT-OFF DATE: With respect to those Subsequent
Mortgage Loans which are sold to the Trust pursuant to a Subsequent Transfer
Instrument the date specified in the related Subsequent Transfer Instrument.
SUBSEQUENT MORTGAGE LOAN: A Mortgage Loan sold by the Seller
to the Issuer pursuant to Section 2.3 of this Agreement, such Mortgage Loan
being identified on the Mortgage Loan Schedule attached to a Subsequent Transfer
Instrument, as set forth in such Subsequent
Transfer Instrument.
SUBSEQUENT TRANSFER DATE: With respect to each Subsequent
Transfer Instrument, the date on which the related Subsequent Mortgage Loans are
sold to the Trust.
SUBSEQUENT TRANSFER INSTRUMENT: Each Subsequent Transfer
Instrument dated as of a Subsequent Transfer Date executed by the Seller and the
Issuer substantially in the form of Exhibit 2 to this Agreement, by which
Subsequent Mortgage Loans are sold to the Trust.
SUB-SERVICER: Advantage Mortgage Corp. USA, and its successors
and assigns.
SUB-SERVICING AGREEMENT: The Sub-Servicing Agreement, to be
dated as of March 1, 1998, between the Master Servicer and the Sub-Servicer.
TRUST: The PacificAmerica Home Equity Loan Trust Series 1998-1
to be created pursuant to the Trust Agreement.
TRUST AGREEMENT: The Trust Agreement, to be dated as of March
1, 1998, as amended and restated by the Amended and Restated Trust Agreement, to
be dated as of March 1, 1998, between the Owner Trustee and the Company.
TRUST ESTATE: The meaning specified in the Granting Clause of
the Indenture.
UCC: The Uniform Commercial Code, as amended from time to
time, as in effect in any specified jurisdiction.
UNDERWRITER: Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
<PAGE>
-17-
ARTICLE II
SALE OF MORTGAGE LOANS AND RELATED PROVISIONS
Section 2.1. SALE OF INITIAL MORTGAGE LOANS.
The Seller hereby sells, and the Company hereby purchases on
the Closing Date, the Initial Mortgage Loans identified on the Mortgage Loan
Schedule annexed hereto as Exhibit 1. In addition, the Seller shall deposit with
the Indenture Trustee from proceeds of the issuance of the Notes on the Closing
Date (i) the Original Pre-Funded Amount for deposit in the Pre- Funding Account
and (ii) the Interest Coverage Amount for deposit in the Interest Coverage
Account. The Initial Mortgage Loans will be fixed and adjustable rate,
residential first and second lien mortgage loans. The Initial Mortgage Loans
will have a Principal Balance as of the close of business on the Cut-off Date,
after giving effect to any payments due on or before such date whether or not
received, of approximately $99,717,402. The sale of the Initial Mortgage Loans
will take place on the Closing Date, subject to and simultaneously with the
deposit of the Initial Mortgage Loans and the amounts in the Pre-Funding Account
and the Interest Coverage Account into the Trust Estate, the issuance of the
Securities and the sale of the Notes by the Issuer pursuant to the Underwriting
Agreement. The purchase price (the "Purchase Price") for the Initial Mortgage
Loans to be paid by the Company to the Seller on the Closing Date shall consist
of the following:
(i) a payment in an amount equal to 99.65% 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 Seller 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 Seller of the Certificates issued
by the Issuer pursuant to the Trust Agreement.
Section 2.2. OBLIGATIONS REGARDING THE MORTGAGE LOANS. (a) In
connection with the conveyances by the Seller of the Initial Mortgage Loans and
the Subsequent Mortgage Loans, the Seller shall on behalf of and at the
direction of the Company deliver to, and deposit with, the Indenture Trustee, on
or before the Closing Date in the case of an Initial Mortgage Loan, and one
Business Day prior to the related Subsequent Transfer Date in the case of a
Subsequent Mortgage Loan, the following documents or instruments with respect to
each Mortgage Loan (the "Mortgage File"):
(i) the original Mortgage Note endorsed to the order of
"Bankers Trust Company of California, N.A., as trustee pursuant to the
Indenture dated as of March 1, 1998, relating to the PacificAmerica
Home Equity Loan Asset-Backed Notes, 1998-1";
<PAGE>
-18-
(ii) the original Mortgage with evidence of recording thereon,
or, if the original Mortgage has not yet been returned from the public
recording office, a copy of the original Mortgage certified by the
Seller, its designee or the public recording office in which such
original Mortgage has been recorded;
(iii) an original assignment (which may be included in one or
more blanket assignments if permitted by applicable law) of the
Mortgage endorsed to "Bankers Trust Company of California, N.A., as
trustee pursuant to the Indenture dated as of March 1, 1998, relating
to the PacificAmerica Home Equity Loan Asset-Backed Notes, Series 1998-
1", and otherwise in recordable form;
(iv) originals of any intervening assignments of the Mortgage,
with evidence of recording thereon, or, if the original of any such
intervening assignment has not yet been returned from the public
recording office, a copy of such original intervening assignment
certified by the Seller, its designee or the public recording office in
which such original intervening assignment has been recorded;
(v) the original policy of title insurance (or a commitment
for title insurance, if the policy is being held by the title insurance
company pending recordation of the Mortgage or a binder or preliminary
title policy if the final title insurance policy is not available);
(vi) a true and correct copy of each assumption, modification,
consolidation or substitution agreement, if any, relating to the
Mortgage Loan.
If a material defect in any Mortgage File is discovered which
may materially and adversely affect the value of the related Mortgage Loan, or
the interests of the Indenture Trustee (as pledgee of the Mortgage Loans), the
Noteholders, the Certificateholders or the Note Insurer in such Mortgage Loan,
including if any document required to be delivered to the Indenture Trustee has
not been delivered (provided that a Mortgage File will not be deemed to contain
a defect for an unrecorded assignment under clause (iii) above for 180 days
following submission of the assignment if the Seller has submitted such
assignment for recording pursuant to the terms of the following paragraph), the
Seller shall cure such defect, repurchase the related Mortgage Loan at the
Repurchase Price or substitute an Eligible Substitute Mortgage Loan for the
related Mortgage Loan upon the same terms and conditions set forth in Section
3.1 hereof as to the Initial Mortgage Loans and the Subsequent Mortgage Loans
and Section 2.3(c) hereof as to the Subsequent Mortgage Loans.
Within 30 days after the Closing Date in the case of an
Initial Mortgage Loan or, in the case of a Subsequent Mortgage Loan, promptly
after the Subsequent Transfer Date (or after the date of transfer of any
Eligible Substitute Mortgage Loan), the Seller at its own expense shall
<PAGE>
-19-
complete and submit for recording in the appropriate public office for real
property records each of the assignments referred to in clause (iii) above, with
such assignment completed in favor of the Indenture Trustee. While such
assignment to be recorded is being recorded, the Indenture Trustee shall retain
a photocopy of such assignment. If any assignment is lost or returned unrecorded
to the Indenture Trustee because of any defect therein, the Seller is required
to prepare a substitute assignment or cure such defect, as the case may be, and
the Seller shall cause such substitute assignment to be recorded in accordance
with this paragraph.
In instances where an original Mortgage or any original
intervening assignment of Mortgage is not, in accordance with clause (ii) or
(iv) above, delivered by the Seller to the Indenture Trustee prior to or on the
Closing Date in the case of an Initial Mortgage Loan or, in the case of a
Subsequent Mortgage Loan, prior to or on the Subsequent Transfer Date, the
Seller will deliver or cause to be delivered the originals of such documents to
the Indenture Trustee promptly upon receipt thereof.
Effective on the Closing Date, the Company hereby acknowledges
its acceptance of all right, title and interest to the Initial Mortgage Loans
and other property, existing on the Closing Date and thereafter created,
conveyed to it pursuant to Section 2.1 and this Section
2.2.
The Indenture Trustee, as assignee or transferee of the
Company, shall be entitled to all scheduled principal payments due after the
Cut-off Date, all other payments of principal due and collected after the
Cut-off Date, and all payments of interest on the Initial Mortgage Loans, minus
that portion of any such payment which is allocable to the period prior to the
Cut-off Date. No scheduled payments of principal due on or before the Cut-off
Date and collected after the Cutoff Date shall belong to the Company pursuant to
the terms of this Agreement. The Servicing Agreement shall provide that any late
payment charges collected in connection with a Mortgage Loan shall be paid to
the Master Servicer as provided therein.
(b) The parties hereto intend that the transactions set forth
herein constitute a sale by the Seller to the Company on the Closing Date of all
the Seller's right, title and interest in and to the Initial Mortgage Loans and
other property as and to the extent described above. Nothwithstanding the
foregoing, in the event the transactions set forth herein shall be deemed not to
be a sale, the Seller hereby grants to the Company as of the Closing Date a
security interest in all of the Seller's right, title and interest in, to and
under the Initial Mortgage Loans and such other property, to secure all of the
Seller's obligations hereunder, and this Agreement shall constitute a security
agreement under applicable law. The Seller 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 California (which shall be submitted for filing within
10 days after 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 Seller or the filing of any additional UCC-1
financing
<PAGE>
-20-
statements due to the change in the principal office of the Seller, as are
necessary to perfect and protect the interests of the Company and its assignees
in each Initial Mortgage Loan and the proceeds thereof.
Section 2.3. CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS.
(a) Subject to the conditions set forth in paragraphs (b) and
(c) below in consideration of the Issuer's delivery on the related Subsequent
Transfer Dates of all or a portion of the balance of funds in the Pre-Funding
Account, the Seller shall on any Subsequent Transfer Date sell, transfer,
assign, set over and convey without recourse to the Issuer but subject to the
other terms and provisions of this Agreement all of the right, title and
interest of the Seller in and to (i) the Subsequent Mortgage Loans identified on
the related Mortgage Loan Schedule attached to the related Subsequent Transfer
Instrument delivered by the Seller on such Subsequent Transfer Date, (ii)
principal due and interest accruing on the Subsequent Mortgage Loans after the
related Subsequent Cut-off Date and (iii) all items with respect to such
Subsequent Mortgage Loans to be delivered pursuant to Section 2.2 above and the
other items in the related Mortgage Files; PROVIDED, HOWEVER, that the Seller
reserves and retains all right, title and interest in and to principal received
and interest accruing on the Subsequent Mortgage Loans prior to the related
Subsequent Cut-off Date. The transfer to the Issuer by the Seller of the
Subsequent Mortgage Loans identified on each Mortgage Loan Schedule attached to
the related Subsequent Transfer Instrument shall be absolute and is intended by
the Issuer and the Seller to constitute and to be treated as a sale of the
Subsequent Mortgage Loans by the Seller to the Issuer. In the event the
transactions set forth herein shall be deemed not to be a sale, the Seller
hereby grants to the Issuer as of each Subsequent Transfer Date a security
interest in all of the Seller's right, title and interest in, to and under the
related Subsequent Mortgage Loans and such other property, to secure all of the
Seller's obligations hereunder, and this Agreement shall constitute a security
agreement under applicable law. The Seller 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 California (which shall be submitted for filing as of
the related Subsequent Transfer Date), any continuation statements with respect
thereto and any amendments thereto required to reflect a change in the name or
corporate structure of the Seller or the filing of any additional UCC-1
financing statements due to the change in the principal office of the Seller, as
are necessary to perfect and protect the interests of the Issuer and its
assignees in each Subsequent Mortgage Loan and the proceeds thereof.
The Issuer on each Subsequent Transfer Date shall acknowledge
its acceptance of all right, title and interest to the related Subsequent
Mortgage Loans and other property, existing on the Subsequent Transfer Date and
thereafter created, conveyed to it pursuant to this Section 2.3.
<PAGE>
-21-
The Indenture Trustee, as assignee of the Issuer, shall be
entitled to all scheduled principal payments due after each Subsequent Cut-off
Date, all other payments of principal due and collected after each Subsequent
Cut-off Date, and all payments of interest on the Subsequent Mortgage Loans,
minus that portion of any such payment which is allocable to the period prior to
the related Subsequent Cut-off Date. No scheduled payments of principal due on
or before the related Subsequent Cut-off Date and collected after the related
Subsequent Cut-off Date shall belong to the Issuer pursuant to the terms of this
Agreement.
The Purchase Price paid for any Subsequent Mortgage Loan by
the Indenture Trustee, at the direction of the Issuer, from amounts on deposit
in the Pre-Funding Account shall be one-hundred percent (100%) of the aggregate
Principal Balances of the Subsequent Mortgage Loans so transferred (as
identified on the Mortgage Loan Schedule attached to the related Subsequent
Transfer Instrument provided by the Seller).
(b) The Seller shall transfer to the Issuer the Subsequent
Mortgage Loans and the other property and rights related thereto described in
the first paragraph of Section 2.3 (a) above, and the Issuer shall cause to be
released funds from the related Pre-Funding Account, only upon the satisfaction
of each of the following conditions on or prior to the related Subsequent
Transfer Date:
(i) the Seller shall have provided the Indenture Trustee and
the Note Insurer with a timely Addition Notice, which notice shall be
given no fewer than seven Business Days prior to the related Subsequent
Transfer Date and shall designate the Subsequent Mortgage Loans to be
sold to the Issuer and the aggregate Principal Balances of such
Subsequent Mortgage Loans as of the related Subsequent Cut-off Date and
any other information reasonably requested by the Indenture Trustee or
the Note Insurer with respect to the Subsequent Mortgage Loans;
(ii) the Seller shall have delivered to the Indenture Trustee
a duly executed Subsequent Transfer Instrument substantially in the
form of Exhibit 2, (A) confirming the satisfaction of each condition
precedent and representations specified in this Section 2.3(b) and
Section 2.3(c) following and in the related Subsequent Transfer
Instrument and (B) including a Subsequent Mortgage Loan Schedule
listing the Subsequent Mortgage Loans;
(iii) as of each Subsequent Transfer Date, as evidenced by
delivery of the Subsequent Transfer Instrument in the form of Exhibit
2, the Seller shall not be insolvent nor shall it have been made
insolvent by such transfer nor shall it be aware of any pending
insolvency;
<PAGE>
-22-
(iv) such sale and transfer shall not result in a material
adverse tax consequence to the Issuer or, due to any action or inaction
on the part of the Seller, to the
Securityholders;
(v) the Funding Period shall not have terminated;
(vi) the Note Insurer shall have informed the Seller that the
Subsequent Mortgage Loans are acceptable to the Note Insurer in its
sole discretion, and the Seller shall have delivered to the Issuer and
the Indenture Trustee, with a copy to the Note Insurer, an Officer's
Certificate confirming such approval;
(vii) the Seller shall have delivered to the Indenture
Trustee, the Rating Agencies and the Note Insurer Opinions of Counsel
addressed to the Note Insurer, the Rating Agencies and the Indenture
Trustee with respect to the transfer of the Subsequent Mortgage Loans
substantially in the form of the Opinions of Counsel delivered to the
Note Insurer and the Indenture Trustee on the Closing Date regarding
certain bankruptcy, corporate and tax matters.
(c) The obligation of the Issuer to purchase a Subsequent
Mortgage Loan on any Subsequent Transfer Date is subject to the following
conditions: (1) each such Subsequent Mortgage Loan must satisfy the
representations and warranties specified in the related Subsequent Transfer
Instrument and this Agreement; (2) the Seller will select such Subsequent
Mortgage Loans only in a manner that it reasonably believes is not adverse to
the interests of the Noteholders or the Note Insurer; (3) the Seller will
deliver to the Note Insurer and the Indenture Trustee certain Opinions of
Counsel acceptable to the Note Insurer and the Indenture Trustee with respect to
the validity of the conveyance of such Subsequent Mortgage Loans; and (4) as of
each Subsequent Cut-off Date each Subsequent Mortgage Loan will satisfy the
following criteria: (i) such Subsequent Mortgage Loan may not be 30 or more days
contractually delinquent as of the related Subsequent Cut-off Date; (ii) the
remaining stated term to maturity of such Subsequent Mortgage Loan will not
exceed 360 months; (iii) such Subsequent Mortgage Loan must have an outstanding
Principal Balance of at least $20,000 and no more than $350,000 as of the
Subsequent Cut-off Date; (iv) such Subsequent Mortgage Loan will be underwritten
in accordance with the criteria set forth under "Description of the Home Equity
Pool -- Underwriting" in the Prospectus Supplement; (v) such Subsequent Mortgage
Loan must have a Loan-to-Value Ratio at origination of no more than 90.00% ;
and, if applicable, a Combined Loan-to-Value Ratio at origination of no more
than 90.00%; (vi) the stated maturity of such Subsequent Mortgage Loan will be
no later than 360 months; (vii) such Subsequent Mortgage Loan shall not provide
for negative amortization; (viii) such Subsequent Mortgage Loan must have a
fixed Mortgage Rate of at least 9.00% or, if an adjustable rate loan, a Gross
Margin of at least 5.50%; (ix) such Subsequent Mortgage Loan must not have a
fixed Mortgage Rate if the aggregate principal balance of Fixed Rate Mortgage
Loans included in the Trust Estate following the purchase of such Subsequent
<PAGE>
-23-
Mortgage Loan would be greater than 8.0% of the aggregate principal balance of
all Mortgage Loans included in the Trust Estate following the purchase of such
Subsequent Mortgage Loans; and (x) following the purchase of such Subsequent
Mortgage Loans by the Issuer, the Mortgage Loans included in the Trust Estate
must have a weighted average interest rate, a weighted average remaining term to
maturity and a weighted average Loan-to-Value Ratio at origination, as of each
respective Subsequent Cut-off Date, which does not vary materially from the
Initial Mortgage Loans included in the Trust Estate on the Closing Date and the
percentage of Mortgage Loans included in the Trust Estate (by aggregate
principal balance) that are secured by second liens on the related Mortgaged
Properties shall be no greater than the percentage of Initial Mortgage Loans
included in the Trust Estate on the Closing Date. In addition, the Indenture
Trustee shall not agree to any transfer of Subsequent Mortgage Loans without a
signed certification required pursuant to Section 2.3(b)(vi). Subsequent
Mortgage Loans with characteristics varying from those set forth above may be
purchased by the Issuer and included in the Trust Estate if they are acceptable
to the Note Insurer, in its sole discretion, as evidenced by the certification
required pursuant to Section 2.3(b)(vi); provided, however, that the addition of
such Mortgage Loans will not materially affect the aggregate characteristics of
the entire Mortgage Loans. Upon the end of the Funding Period, the Note Insurer
may adjust the Required Subordination Amount pursuant to Section 2.3(e) hereof.
(d) Within five Business Days after each Subsequent Transfer
Date, the Seller shall deliver to the Rating Agencies, the Indenture Trustee and
the Note Insurer a copy of the updated Mortgage Loan Schedule including the
Subsequent Mortgage Loans in electronic
format.
(e) In the event that a mortgage loan is not acceptable to the
Note Insurer as a Subsequent Mortgage Loan pursuant to Section 2.3(b)(vi)
hereof, the Note Insurer and the Seller may mutually agree to the transfer of
such mortgage loan to the Issuer as a Subsequent Mortgage Loan, subject to any
increase in the Required Subordination Amount that may be agreed to by the
Seller and the Note Insurer pursuant to the Indenture, in which event the Seller
shall deliver to the Issuer and the Indenture Trustee, with a copy to the Note
Insurer, an Officer's Certificate confirming the agreement to the transfer of
such Subsequent Mortgage Loan and specifying the amount of such increase in the
Required Subordination Amount.
Section 2.4. 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, Bankers Trust Company of California, N.A., as indenture
trustee for the registered holders of PacificAmerica Home Equity Loan Asset
Trust Series 1998-1" (the "Pre-Funding Account"). The Indenture Trustee shall,
promptly upon receipt, deposit in the Pre-Funding Account and retain therein the
Original Pre- Funded Amount remitted on the Closing Date to the Indenture
Trustee by the Issuer from proceeds
<PAGE>
-24-
of the sale of the Notes. Funds deposited in the Pre-Funding Account shall be
held in trust by the Indenture Trustee for the Holders of the Notes and the Note
Insurer for the uses and purposes set forth herein. 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 (vii) of the definition of Eligible
Investments with a maturity date no later than the second Business Day preceding
each Payment Date. 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 the Business
Day immediately preceding each Payment Date. The Issuer shall deposit in the
Pre-Funding Account the amount of any net loss incurred in respect of any such
Eligible Investment immediately upon realization of such loss without any right
of reimbursement therefor.
(ii) Amounts on deposit in the Pre-Funding Account shall be
withdrawn by the Indenture Trustee as follows:
(A) On any Subsequent Transfer Date, upon the
direction of the Issuer, 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 2.3 hereof 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 second Business Day immediately
prior to the first 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 2.5. 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,
Bankers Trust Company of California, N.A., as indenture trustee for the
registered holders of PacificAmerica Home Equity Loan Asset Trust Series 1998-1"
(the "Interest Coverage Account"). The Indenture Trustee shall, promptly upon
receipt, deposit in the Interest Coverage Account and retain therein the
Interest Coverage Amount remitted on the Closing Date to the Indenture Trustee
by the Issuer. 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 2.4. Funds deposited in the Interest Coverage
Account shall be held in trust by the Indenture Trustee for the Holders of the
Notes and the Note Insurer for the uses and purposes set forth herein. If the
Indenture Trustee shall not have received an
<PAGE>
-25-
investment direction from the Issuer, the Indenture Trustee will invest funds
deposited in the Interest Coverage Account in Eligible Investments of the kind
described in clause (vii) of the definition of Eligible Investments with a
maturity date no later than the second Business Day preceding each Payment Date.
The Seller shall deposit in the Interest Coverage Account the amount of any net
loss incurred in respect of any such Eligible Investment immediately upon
realization of such loss without any right of reimbursement therefor. The Seller
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 and on the
Payment Date immediately after the Funding Period, the Indenture Trustee shall
withdraw from the Interest Coverage Account and deposit in the Payment Account
the Interest Coverage Addition.
(c) On the Payment Date immediately following the conveyance
of a Subsequent Mortgage Loan to the Indenture Trustee, funds on deposit in the
Interest Coverage Account in an amount equal to (i) the product of (a) the
Pre-Funding Amount on the related Due Date (or in the case of the first Payment
Date during the Funding Period, on the Closing Date) and (b) one-twelfth and (c)
the weighted average of the applicable Note Interest Rates for the Notes minus
(ii) in the case of any Subsequent Mortgage Loan transferred to the Issuer
during the related Due Period, the amount of any interest collected after the
related Subsequent Cut-off Date and during such related Due Period shall be
deposited into the Payment Account.
(d) Upon the earlier of (i) termination of the Trust Estate 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 paid to the Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES;
REMEDIES FOR BREACH
Section 3.1. SELLER REPRESENTATIONS AND WARRANTIES. The Seller
hereby represents and warrants to the Company, the Indenture Trustee and the
Note Insurer as of the date hereof and as of the Closing Date and as of each
Subsequent Transfer Date (or if otherwise specified below, as of the date so
specified):
<PAGE>
-26-
(a) As to the Seller:
(i) The Seller (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and (ii) is qualified and in good standing as a foreign corporation to
do business in each jurisdiction where such qualification is necessary,
except where the failure so to qualify would not have a material
adverse effect on the Seller's ability to enter into this Agreement and
each Subsequent Transfer Instrument and to consummate the transactions
contemplated hereby and thereby;
(ii) The Seller has the power and authority to make, execute,
deliver and perform its obligations under this Agreement and each
Subsequent Transfer Instrument and all of the transactions contemplated
under this Agreement and each Subsequent Transfer Instrument, and has
taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement and each Subsequent Transfer
Instrument;
(iii) The Seller is not required to obtain the consent of any
other Person or any consent, 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 Agreement or any Subsequent Transfer
Instrument, except for such consents, approvals 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 Agreement and each
Subsequent Transfer Instrument and the performance of the transactions
contemplated hereby by the Seller will not violate any provision of any
existing law or regulation or any order or decree of any court
applicable to the Seller or any provision of the certificate of
incorporation or bylaws of the Seller, or constitute a material breach
of any mortgage, indenture, contract or other agreement to which the
Seller is a party or by which the Seller may be bound;
(v) No litigation or administrative proceeding of or before
any court, tribunal or governmental body is currently pending, or to
the knowledge of the Seller threatened, against the Seller or any of
its properties or with respect to this Agreement or any Subsequent
Transfer Instrument, the Notes or the Certificates which in the opinion
of the Seller has a reasonable likelihood of resulting in a material
adverse effect on the transactions contemplated by this Agreement or
any Subsequent Transfer Instrument;
(vi) This Agreement and each Subsequent Transfer Instrument
constitute the legal, valid and binding obligations of the Seller,
enforceable against the Seller in accordance with its terms, except as
enforceability may be limited by applicable
<PAGE>
-27-
bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect affecting the enforcement of creditors'
rights in general and except as such enforceability may be limited by
general principles of equity (whether considered in a
proceeding at law or in equity);
(vii) This Agreement constitutes a valid transfer and
assignment to the Company of all right, title and interest of the
Seller in and to the Cut-off Date Principal Balance of the Initial
Mortgage Loans, all monies due or to become due with respect thereto,
and all proceeds of such Cut-off Date Principal Balance of the Initial
Mortgage Loans and this Agreement and the related Subsequent Transfer
Instrument constitute a valid transfer and assignment to the Issuer of
all right, title and interest of the Seller in and to the Subsequent
Cut-off Date Principal Balance of the Subsequent Mortgage Loans, all
monies due or to become due with respect thereto, and all proceeds of
such Subsequent Cut-off Date Principal Balance of the Subsequent
Mortgage Loans; and
(viii) The Seller is not in default with respect to any order
or decree of any court or any order or regulation of any federal, state
or governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or
other) or operations of the Seller or its properties or might have
consequences that would materially adversely affect its performance
hereunder; and
(b) As to each Initial Mortgage Loan as of the Closing Date, and with
respect to each Subsequent Mortgage Loan as of the related Subsequent Transfer
Date, except as otherwise
expressly stated:
(i) The information set forth on the Mortgage Loan Schedule
with respect to each Mortgage Loan is true and correct in all material
respects as of the Closing Date, each Subsequent Transfer Date and each
date of substitution of an Eligible Substitute Mortgage Loan, as
applicable, and the information regarding the Mortgage Loans on the
computer diskette or tape delivered to the Note Insurer prior to the
Closing Date, each Subsequent Transfer Date and each date of
substitution of an Eligible Substitute Mortgage Loan, is true and
accurate in all material respects and describes the same Mortgage Loans
as the Mortgage Loans on the Mortgage Loan Schedule;
(ii) The Mortgage Loans are not being transferred with any
intent to hinder, delay or defraud any creditors;
(iii) No more than 3.21% of the Initial Mortgage Loans (by
Cut-off Date Principal Balance) were secured by condominium units; no
more than 4.53% of the Initial Mortgage Loans (by Cut-off Date
Principal Balance) were secured by attached housing; and no Initial
Mortgage Loans were secured by properties in planned unit developments;
<PAGE>
-28-
(iv) As of the Cut-off Date, the remaining term of each
Mortgage Loan is not more than 360 months and not less than 122 months;
(v) No more than 37.93% of the Initial Mortgage Loans (by
Cut-off Date Principal Balance) have been the subject of cash-out
refinances;
(vi) No more than 39.58% of the Initial Mortgage Loans (by
Cut-off Date Principal Balance) have been the subject of rate and term
(no cash-out) refinances;
(vii) No fewer than 22.49% of the Initial Mortgage Loans (by
Cut-off Date Principal Balance) are purchase money loans;
(viii) No more than 18.28% of the Initial Mortgage Loans (by
Cut-off Date Principal Balance) are secured by Mortgaged Properties
located in the State of California, and no more than 14.61% of the
Initial Mortgage Loans (by Cut-off Date Principal Balance) are located
in any other state;
(ix) The original Principal Balances of the Initial Mortgage
Loans ranged from $19,800.00 to $500,000.00. The average outstanding
Principal Balance of the Initial Mortgage Loans (by Cut-off Date
Principal Balance) is approximately $93,368.35;
(x) At least 88.17% of the Initial Mortgage Loans (by Cut-off
Date Principal Balance) were secured by a first or second lien on a
parcel of real property improved by a single family detached residence;
no more than 3.29% of the Initial Mortgage Loans (by Cut-off Date
Principal Balance) were secured by a first or second lien on a parcel
of real estate improved by a two-to four-unit single family residence;
no more than 0.23% of the Initial Mortgage Loans (by Cut-off Date
Principal Balance) were secured by a first or second lien on a parcel
of real estate improved by manufactured housing; and no more than 0.57%
of the Initial Mortgage Loans (by Cut-off Date Principal Balance) were
secured by a first or second lien on a parcel of real estate improved
by a townhouse;
(xi) The earliest year of origination of any Initial Mortgage
Loan is 1996 and the latest month and year of origination of any
Initial Mortgage Loan is March, 1998.
(xii) The Mortgage Rates borne by the Initial Mortgage Loans
as of the Cutoff Date range from 7.39% per annum to 17.80% per annum
and the weighted average Mortgage Rate (by Cut-off Date Principal
Balance) of the Initial Mortgage loans was 11.176% per annum;
(xiii) No Initial Mortgage Loan in the Mortgage Pool had a
Combined Loan-
<PAGE>
to-Value Ratio at origination in excess of 95.00%, and the weighted
average Combined Loan- to-Value Ratio (by Cut-off Date Principal
Balance) for the Initial Mortgage Loans was equal to or less than
75.59%. No Adjustable Rate Initial Mortgage Loan in the Mortgage Pool
had a Loan-to-Value Ratio at origination in excess of 95.00%, and the
weighted average Loan-to-Value Ratio (by Cut-off Date Principal
Balance) for the Adjustable Rate Initial Mortgage Loans was equal to or
less than 76.60%. No Fixed Rate Initial Mortgage Loan in the Mortgage
Pool had a Combined Loan-to-Value Ratio at origination in excess of
95.00%, and the weighted average Combined Loan-to-Value Ratio (by
Cut-off Date Principal Balance) for the Fixed Rate Initial Mortgage
Loans was equal to or less than 70.31%. 24.45% of the Mortgage Loans
(by Cut-off Date Principal Balance) have a Loan- to-Value Ratio in
excess of 80% and none were covered by a Primary Insurance Policy.
(xiv) Approximately 97.36% and 2.64% of the Mortgage Loans are
secured by first and second liens, respectively, on the related
Mortgaged Property; with respect to each Mortgage Loan secured by a
second lien, either (i) no consent for such Mortgage Loan was required
by the holder of the related prior lien or (ii) such consent has been
obtained and is contained in the Mortgage File; 19.43% of the Initial
Mortgage Loans secured by first liens (by Cut-off Date Principal
Balance) have secondary financing on the related Mortgaged Property,
which secondary financing is not included in the Trust Estate;
(xv) To the best of the Seller's knowledge, there is no valid
offset, right of rescission, defense, claim or counterclaim of any
obligor under any Mortgage Note or Mortgage, including the obligation
of the Mortgagor to pay the unpaid principal of or interest on such
Mortgage Note, and any applicable right of rescission has expired, nor
will the operation of any of the terms of such Mortgage Note or
Mortgage, or the exercise of any right thereunder, render either the
Mortgage Note or the Mortgage unenforceable, in whole or in part, or
subject to any right of rescission, set-off, recoupment, counterclaim
or defense, including, without limitation, the defense of usury, and no
such right of rescission, set-off, recoupment, counterclaim or defense
has been asserted with respect thereto, and, to the best of Seller's
knowledge, no Mortgagor as of the Cut-off Date or as of the Subsequent
Cut-off Date, as applicable, of the applicable Mortgage was a debtor in
any state or federal bankruptcy or insolvency proceeding;
(xvi) To the best of the Seller's knowledge, there are no
mechanics' liens or claims for work, labor or material affecting any
Mortgaged Property which are or may be a lien prior to, or equal with,
the lien of such Mortgage, except those which are insured against by
the title insurance policy referred to in clause (xix) below;
(xvii) To the best of the Seller's knowledge, as of the
Cut-off Date in the case of an Initial Mortgage Loan or as of the
related Subsequent Cut-off Date in the case of a Subsequent Mortgage
Loan, each Mortgaged Property is free of material damage and is
<PAGE>
-30-
in good repair and there is no proceeding pending or threatened for the
total or partial condemnation of any Mortgage Property;
(xviii) Each Mortgage is a valid and enforceable first, or
with respect to those Mortgage Loans identified on the Mortgage Loan
Schedule as second liens, second lien on the Mortgaged Property
securing the related Mortgage Note and each Mortgaged Property is owned
by the Mortgagor in fee simple (except with respect to common areas in
the case of condominiums, PUDs and DE MINIMIS PUDs) subject only to (1)
the lien of nondelinquent current real property taxes and assessments,
(2) covenants, conditions and restrictions, rights of way, easements
and other matters of public record as of the date of recording of such
Mortgage, such exceptions appearing of record being acceptable to
mortgage lending institutions generally or specifically reflected in
the appraisal made in connection with the origination of the related
Mortgage Loan or referred to in the lender's title insurance policy
delivered to the originator of the related Mortgage Loan and (3) other
matters to which like properties are commonly subject that do not
materially interfere with the benefits of the security intended to be
provided by such Mortgage. Immediately prior to the sale of such
Mortgage Loan to the Company in the case of an Initial Mortgage Loan
and to the Issuer in the case of a Subsequent Mortgage Loan pursuant to
this Agreement, the Seller had full right to sell and assign the same
to the Company or the Issuer, as the case may be. Immediately following
the sale of such Mortgage Loan to the Company and the Company's
assignment and sale thereof to the Issuer in the case of an Initial
Mortgage Loan and immediately following the sale of such Mortgage Loan
to the Issuer in the case of a Subsequent Mortgage Loan, the Issuer
will have good title thereto subject to no claims or liens other than
the lien of the Indenture;
(xix) To the best of the Seller's knowledge, each Mortgage
Loan at origination complied in all material respects with applicable
state and federal laws, including, without limitation, usury, equal
credit opportunity, real estate settlement procedures, the Federal
Truth-In-Lending Act and disclosure laws and consummation of the
transactions contemplated hereby, including without limitation, the
receipt of interest by the owner of such Mortgage Loan or the holders
of Notes secured thereby, will not violate any such laws. Each Mortgage
Loan is being serviced in all material respects in accordance with
applicable state and federal laws, including, without limitation, the
Federal Truth-In- Lending Act and other consumer protection laws, real
estate settlement procedures, usury, equal credit opportunity and
disclosure laws;
(xx) Neither the Seller nor any prior holder of any Mortgage
has impaired, waived, altered or modified the Mortgage or Mortgage
Notes in any material respect (except that a Mortgage Loan may have
been modified by a written instrument which has been recorded, if
necessary to protect the interests of the owner of such Mortgage Loan
or the Notes, and which has been delivered to the Indenture Trustee);
satisfied, canceled
<PAGE>
-31-
or subordinated such Mortgage in whole or in part; released the
applicable Mortgaged Property in whole or in part from the lien of such
Mortgage; or executed any instrument of release, cancellation or
satisfaction with respect thereto;
(xxi) A lender's policy of title insurance (on an ALTA or CLTA
form) or binder, or other assurance of title customary in the relevant
jurisdiction insuring the first or second lien priority of the Mortgage
Loan in an amount at least equal to the original Principal Balance of
each such Mortgage Loan or a commitment binder or commitment to issue
the same was effective on the date of the origination of each Mortgage
Loan, each such policy is valid and remains in full force and effect,
and each such policy was issued by a title insurer qualified to do
business in the jurisdiction where the Mortgaged Property is located,
which policy insures the Seller and successor owners of indebtedness
secured by the insured Mortgage as to the first or second priority lien
of the Mortgage as applicable. The Seller is, and such successor owners
will be, the sole insured under such lender's title insurance policy;
no claims have been made under such mortgage title insurance policy; no
prior holder of the applicable Mortgage, including the Seller, has
done, by act or omission, anything which would impair the coverage of
such mortgage title insurance policy; and each such policy, binder or
assurance contains all applicable endorsements;
(xxii) All of the improvements which were included for the
purpose of determining the Appraised Value of the Mortgaged Property
lie wholly within the boundaries and building restriction lines of such
property and no improvements on adjoining properties encroach upon the
Mortgaged Property;
(xxiii) No improvement located on or being part of the
Mortgaged Property is in violation of any applicable zoning law or
regulation, subdivision law or ordinance, except where the failure to
comply would not have a material adverse effect on the market value of
the Mortgaged Property. All inspections, licenses and certificates
required to be made or issued with respect to all occupied portions of
the Mortgaged Property and, with respect to the use and occupancy and
fire underwriting certificates, have been made or obtained from the
appropriate authorities and the Mortgaged Property is lawfully occupied
under applicable law except where the failure to comply would not have
a material adverse effect on the market value of the Mortgaged
Property;
(xxiv) Each Mortgage Note and the applicable Mortgage are
genuine, and each is the legal, valid and binding obligation of the
maker thereof, enforceable in accordance with its terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium,
receivership and other similar laws relating to creditors' rights
generally or by equitable principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law). All
parties to the Mortgage Note and the Mortgage had legal capacity to
<PAGE>
-32-
execute the Mortgage Note and the Mortgage and each Mortgage Note and
Mortgage has been duly and properly executed by such parties;
(xxv) The proceeds of the Mortgage Loans have been fully
disbursed, there is no requirement for future advances thereunder and
any and all requirements as to completion of any on-site or off-site
improvements and as to disbursement of any escrow funds therefor have
been complied with. All costs, fees and expenses incurred in making,
closing or recording the Mortgage Loans were paid and the Mortgagor is
not entitled to any refund of amounts paid or due under the Mortgage
Note;
(xxvi) Each Mortgage contains customary and enforceable
provisions that render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the
benefits of the security, including (i) in the case of a Mortgage
designated as a deed of trust, by trustee's sale, and (ii) otherwise by
judicial foreclosure or if applicable, non-judicial foreclosure. Upon
default by a Mortgagor on a Mortgage Loan and foreclosure on, or
trustee's sale of, the Mortgaged Property pursuant to the proper
procedures, the holder of the Mortgage Loan will be able to deliver
good and merchantable title to the property, subject to any applicable
rights of redemption;
(xxvii) With respect to each Mortgage constituting a deed of
trust, either a trustee, duly qualified under applicable law to serve
as such, has been properly designated and currently so serves and is
named in such Mortgage or if no duly qualified trustee has been
properly designated and so serves, the Mortgage contains satisfactory
provisions for the appointment of such trustee by the holder of the
Mortgage at no cost or expense to such holder, and no fees or expenses
are or will become payable by the Noteholders or the Note Insurer to
the trustee under the deed of trust, except in connection with a
trustee's sale after default by the Mortgagor;
(xxviii) There exist no deficiencies with respect to escrow
deposits and payments, if such are required, for which customary
arrangements for repayment thereof cannot be made, and no escrow
deficits or payments of other charges or payments due the Seller have
been capitalized under the Mortgage or the applicable Mortgage Note;
(xxix) The Mortgage Note is not and has not been secured by
any collateral, pledged account or other security other than real
estate securing the Mortgagor's obligations and no Mortgage Loan is
secured by more than one Mortgaged Property;
(xxx) To the best of the Seller's knowledge, as of the Closing
Date in the case of an Initial Mortgage Loan, and as of the related
Subsequent Transfer Date in the case of a Subsequent Mortgage Loan, the
improvements upon each Mortgaged Property are covered by a valid and
existing hazard insurance policy substantially acceptable to the
<PAGE>
-33-
Seller which policy provides for fire extended coverage and such other
hazards as are customary in the area where the Mortgaged Property is
located representing coverage in an amount not less than the lesser of
(A) the maximum insurable value of the improvements securing such
Mortgage Loan and (B) the outstanding Principal Balance of the related
Mortgage Loan; if the improvement on the Mortgaged Property is a
condominium unit, it is included under the coverage afforded by a
blanket policy for the condominium project. All individual insurance
policies contain a standard mortgagee clause naming the Seller or the
original holder of the Mortgage, and its successors in interest, as
mortgagee, and the Seller has received no notice that any premiums due
and payable thereon have not been paid; the Mortgage obligates the
Mortgagor thereunder to maintain all such insurance at the Mortgagor's
cost and expense, and upon the Mortgagor's failure to do so, authorizes
the holder of the Mortgage to obtain and maintain such insurance at the
Mortgagor's cost and expense and to seek reimbursement therefor from
the Mortgagor. There has been no act or omission which would impair the
coverage of any such policy, the benefits of the endorsement provided
for herein, or the validity and binding effect of either;
(xxxi) If the Mortgaged Property is in an area identified in
the Federal Register by the Federal Emergency Management Agency as
having special flood hazards, a flood insurance policy in a form
meeting the requirements of the current guidelines of the Flood
Insurance Administration is in effect with respect to such Mortgaged
Property with a generally acceptable carrier in an amount representing
coverage not less than the least of (A) the outstanding Principal
Balance of the Mortgage Loan, (B) the minimum amount required to
compensate for damage or loss on a replacement cost basis and (C) the
maximum amount of flood coverage that is available under federal law;
(xxxii) Except for the Mortgage Loans referred to in clause
(xli) as being delinquent, there is no material monetary default,
breach, violation or event of acceleration existing under the Mortgage
or the applicable Mortgage Note; and no material event which, with the
passage of time or with notice and the expiration of any grace or cure
period, would constitute a material default, breach, violation or event
of acceleration, and neither the Seller, any of its affiliates nor any
Master Servicer or subservicer of any related Mortgage Loan has waived
any default, breach, violation or event of acceleration; no foreclosure
action is threatened or has been commenced with respect to the Mortgage
Loan;
(xxxiii) Each Mortgage Loan is being serviced by Advanta
Mortgage Corp. USA;
(xxxiv) There is no obligation on the part of the Seller or
any other party to make any payments with respect to the related
Mortgage Loan in addition to the Monthly Payments required to be made
by the applicable Mortgagor;
<PAGE>
-34-
(xxxv) Any future advances made prior to the Cut-off Date in
the case of an Initial Mortgage Loan and as of the related Subsequent
Cut-off Date in the case of a Subsequent Mortgage Loan, with respect to
any Mortgage Loan have been consolidated with the outstanding principal
amount secured by such Mortgage, and the secured principal amount, as
consolidated, bears a single interest rate and single repayment term
reflected on the Mortgage Loan Schedule. The consolidated principal
amount does not exceed the original principal amount of the Mortgage
Loan. The Mortgage Note with respect to any Mortgage Loan does not
permit or obligate the Master Servicer to make future advances to the
Mortgagor at the option of the Mortgagor;
(xxxvi) The Seller has caused or will cause to be performed
any and all acts required to preserve the rights and remedies of the
Company and the Issuer evidencing an interest in the Mortgage Loans in
any insurance policies applicable to the Mortgage Loans including,
without limitation, any necessary notifications of insurers,
assignments of policies or interests therein, and establishments of
coinsured, joint loss payee and mortgagee rights in favor of the
Company or the Issuer, as applicable;
(xxxvii) To the best of the Seller's knowledge, except as set
forth in clause (xli), there are no defaults by the Mortgagor in
complying with the terms of any Mortgage, and all taxes, governmental
assessments, insurance premiums, water, sewer and municipal charges
which previously became due and owing have been paid, or, if required
by the terms of the Mortgage Loan, an escrow of funds has been
established in an amount sufficient to pay for every such item which
remains unpaid and which has been assessed, but is not yet due and
payable. Except for (A) payments in the nature of escrow payments and
(B) interest accruing from the date of the Mortgage Note or date of
disbursement of the Mortgage proceeds to the day which precedes by one
month the Due Date of the first installment of principal and interest,
including, without limitation, taxes and insurance payments, the Master
Servicer has not advanced funds, or induced, solicited or knowingly
received any advance of funds by a party other than the Mortgagor,
directly or indirectly, for the payment of any amount required by the
Mortgage;
(xxxviii) At the time of origination, each Mortgaged Property
was the subject of an appraisal which conforms to the underwriting
requirements of the related originator; and the Mortgage File contains
an appraisal of the applicable Mortgaged Property;
(xxxix) None of the Mortgage Loans are graduated payment
Mortgage Loans or growth equity Mortgage Loans;
(xl) None of the Adjustable Rate Mortgage Loans permit or
require the conversion of the related Mortgage Rate to a fixed rate;
<PAGE>
-35-
(xli) (a) Except with respect to no more than 0.33% of the
Initial Mortgage Loans (by Cut-off Date Principal Balance) none of the
payments of principal of or interest on or in respect of any Initial
Mortgage Loans shall be 30 days or more but less than 60 days past due
as of March 1, 1998; none of the payments of principal or interest on
or in respect of any Initial Mortgage Loans or Subsequent Mortgage
Loans shall be 60 days or more past due as of the Cut-off Date or
Subsequent Cut-off Date, as applicable; (b) except as set forth in
clause (a) above, no Mortgage Loan has been contractually delinquent
for more than one monthly installment period during the twelve months
preceding the Cut-off Date or the Subsequent Cut-off Date, as
applicable; (c) except as set forth in clause (a) above, all payments
required to be made by the Mortgagor under the terms of the Mortgage
Note have been made and credited; and (d) to the Seller's knowledge,
there was no delinquent recording, tax or assessment lien against the
property subject to any Mortgage, except where such lien was being
contested in good faith and a stay had been granted against levying on
the property;
(xlii) Upon payment of the Purchase Price for the Mortgage
Loans by the Company or the Issuer, as applicable, pursuant to this
Agreement, the Seller has transferred to the Company in the case of an
Initial Mortgage Loan and to the Issuer in the case of a Subsequent
Mortgage Loan good and marketable title to each Mortgage Note and
Mortgage free and clear of any and all liens (except the related first
lien if such Mortgage Loan is secured by a second lien and except as
set forth in clause (xviii) above), claims, encumbrances, participation
interests, equities, pledges, charges or security interests of any
nature and has or had full right and authority, subject to no
participation of or agreement with any other person, to sell and assign
the same, and following the sale of each Mortgage Loan, the Company, or
the Issuer, as applicable, will own such Mortgage Loan free and clear
of any encumbrance, equity interest, participation interest, lien,
pledge, charge, claim or security interest;
(xliii) The Seller acquired any right, title and interest in
and to the Mortgage Loans in good faith and without notice of any
adverse claim;
(xliv) 83.93% of the Initial Mortgage Loans are Adjustable
Rate Mortgage Loans and 16.07% of the Initial Mortgage Loans are Fixed
Rate Mortgage Loans;
(xlv) The Mortgage Note, the Mortgage, the related Assignment
of Mortgage and any other documents required to be delivered by the
Seller have been or will be delivered to the Indenture Trustee. The
Indenture Trustee is in possession of a complete, true and accurate
Mortgage File in accordance with Section 2.2 hereof. Substantially all
Mortgage Loans have monthly payments due on the first day of each month
and each Mortgage Loan had an original term to maturity of no greater
than 30 years;
<PAGE>
-36-
(xlvi) All of the Mortgage Loans contain a due-on-sale
provision except that all of the Mortgage Loans located in Minnesota
that are purchase money loans are assumable;
(xlvii) Each of the Mortgage and the Assignment of Mortgage is
in recordable form and is acceptable for recording under the laws of
the jurisdiction in which the Mortgaged Property is located;
(xlviii) The Mortgagor has not notified the Seller, and the
Seller has no knowledge of any relief requested or allowed to the
Mortgagor under the Soldiers' and Sailors' Civil Relief Act of 1940;
(xlix) To the best of the Seller's knowledge, there exists no
violation of any local, state, or federal environmental law, rule or
regulation in respect of the Mortgaged Property which violation has or
could have a material adverse effect on the market value of such
Mortgaged Property. The Seller has no knowledge of any pending action
or proceeding directly involving the related Mortgaged Property in
which compliance with any environmental law, rule or regulation is in
issue; and, to the best of the Seller's knowledge, nothing further
remains to be done to satisfy in full all requirements of each such
law, rule or regulation constituting a prerequisite to the use and
employment of such Mortgaged Property;
(l) Each Mortgage Loan conforms, and all such Mortgage Loans
in the aggregate conform, to the description thereof set forth in the
Prospectus Supplement in all material respects;;
(li) Immediately prior to the transfer to the Company or the
Issuer, as applicable, the Seller had good and marketable title
thereto, and the Seller is the sole owner of beneficial title to and
holder of the Mortgage Loan. The Seller is conveying the same to the
Company or the Issuer, as applicable, free and clear of any and all
liens claims, encumbrances, participation interests, equities, pledges,
charges or security interests of any nature and has full right and
authority to sell and assign the same pursuant to this Agreement,
except for liens which will be released simultaneously with such
conveyance;
(lii) For each Mortgage Loan, the related Mortgage File
contains a true, accurate and correct copy of each of the documents and
instruments required to be included therein;
(liii) The Seller, in its capacity as Master Servicer, meets
all applicable requirements under the Servicing Agreement;
<PAGE>
-37-
(liv) No instrument of release or waiver has been executed in
connection with the Mortgage Loans, and no Mortgagor has been released,
in whole or in part from its obligations in connection with a Mortgage
Loan except in connection with an assumption agreement which has been
delivered to the Indenture Trustee;
(lv) On the basis of a representation by the Mortgagor at the
time of origination of the Mortgage Loans, at least 92.79% of the
Initial Mortgage Loans (by Cutoff Date Principal Balance) will be
secured by Mortgages on owner-occupied primary residence properties;
(lvi) None of the Initial Mortgage Loans (by Cut-off Date
Principal Balance) provide for a balloon payment;
(lvii) No Mortgage Loan was originated based on an appraisal
of the related Mortgaged Property made prior to completion of
construction of the improvements thereon;
(lviii) None of the Mortgage Loans is a "buy down" mortgage
loan;
(lix) As of the Cut-Off Date, the Mortgage Rate of each
Initial Mortgage Loan was not more than 17.80% per annum and not less
than 7.39% per annum, and the weighted average Mortgage Rate of the
Initial Mortgage Loans was approximately 11.18% per annum;
(lx) No selection procedure reasonably believed by the Seller
to be adverse to the interests of the Noteholders or the Note Insurer
was utilized in selecting the Mortgage Loans;
(lxi) The terms of the Mortgage Note related to each
Adjustable Rate Mortgage Loan provide that, following an initial period
of six months, two years, three years or five years following the month
in which such Mortgage Loan was originated and semiannually or annually
thereafter (each such date, an "Adjustment Date"), the Mortgage Rate on
such Mortgage Loan will be adjusted to equal the sum of (a) the related
Index and (b) a fixed percentage amount specified in the related
Mortgage Note (each, a "Gross Margin"), provided, however, that the
Mortgage Rate generally will not increase or decrease by the related
Periodic Rate Cap, and will not increase above a specified maximum
Mortgage Rate over the life of the Adjustable Rate Mortgage Loan (the
"Maximum Mortgage Rate") or decrease below a specified minimum Mortgage
Rate over the life of the Adjustable Rate Mortgage Loan (the "Minimum
Mortgage Rate").
<PAGE>
-38-
(lxii) No material misrepresentation, fraud or similar
occurrence with respect to a Mortgage Loan has taken place on the part
of the Seller, its affiliates or employees or to the best of the
Seller's knowledge, any other person involved in the origination of the
Mortgage Loan or in the application for any insurance in relation to
such Mortgage Loan.
(lxiii) Each Mortgage Loan was originated by a mortgagee
approved by the Secretary of Housing and Urban Development pursuant to
Sections 203 and 211 of the Act, a savings and loan association, a
savings bank, a commercial bank, credit union, insurance company or
similar institution which is supervised and examined by a federal or
state authority.
(lxiv) With respect to each Mortgage Loan secured by
manufactured housing, such manufactured housing is permanently affixed
to a foundation and constitutes real estate under applicable state law.
(lxv) No Mortgage Loans are date of payment or simple interest
loans.
(lxvi) The sale, transfer, assignment and conveyance of
Mortgage Loans by the Seller pursuant to this Agreement is not subject
to and will not result in any tax, fee or governmental charge payable
by the Company, the Issuer or the Indenture Trustee to any federal,
state or local government ("Transfer Taxes") other than Transfer Taxes
which have or will be paid by the Seller as due.
Upon discovery by the Seller or upon notice from the Company,
the Note Insurer, the Issuer, the Owner Trustee or the Indenture Trustee, as
applicable, of a breach of any representation or warranty in subsection (a) of
this Section which materially and adversely affects the interests of the
Noteholders or the Certificateholders or the Note Insurer, as applicable, the
Seller shall, within 45 days of its discovery or its receipt of notice of such
breach, either (i) cure such breach in all material respects or (ii) to the
extent that such breach is with respect to a Mortgage Loan or a Related
Document, either (A) repurchase such Mortgage Loan from the Issuer at the
Repurchase Price, or (B) substitute one or more Eligible Substitute Mortgage
Loans for such Mortgage Loan, in each case in the manner and subject to the
conditions and limitations set forth below.
Upon discovery by the Seller or upon notice from the Company,
the Note Insurer, the Issuer, the Owner Trustee or the Indenture Trustee, as
applicable, of a breach of any representation or warranty in this subsection (b)
with respect to any Mortgage Loan or upon the occurrence of a Repurchase Event,
which materially and adversely affects the value of the related Mortgage Loan or
the interests of any Noteholders, Certificateholders or the Note Insurer, as
applicable, or of the Company or the Issuer in such Mortgage Loan (notice of
which shall be given to the Company and the Issuer by the Seller, with a copy to
the Note Insurer, if it discovers the
<PAGE>
-39-
same) the Seller shall, within 90 days after the earlier of its discovery or
receipt of notice thereof, either cure such breach or Repurchase Event in all
material respects or either (i) repurchase such Mortgage Loan from the Issuer at
the Repurchase Price, or (ii) substitute one or more Eligible Substitute
Mortgage Loans for such Mortgage Loan, in each case in the manner and subject to
the conditions set forth below. The Repurchase Price for any such Mortgage Loan
repurchased by the Seller shall be deposited or caused to be deposited by the
Master Servicer in the Collection Account maintained by it pursuant to Section
3.06 of the Servicing Agreement. With respect to the representations and
warranties contained herein that the Seller has made to the best of its
knowledge, if it is discovered that the substance of any such representation and
warranty was inaccurate as of the date such representation and warranty was made
or deemed to be made, and such inaccuracy materially and adversely affects the
value of the related Mortgage Loan or the interest therein of the Company or the
Note Insurer, then notwithstanding the lack of knowledge by the Seller with
respect to the substance of such representation and warranty being inaccurate at
the time the representation and warranty was made, the Seller shall take such
action described in this paragraph in respect of such Mortgage Loan.
In the event that the Seller elects to substitute an Eligible
Substitute Mortgage Loan or Loans for a Deleted Mortgage Loan pursuant to this
Section 3.1, the Seller shall deliver to the Indenture Trustee on behalf of the
Issuer, with respect to such Eligible Substitute Mortgage Loan or Loans, the
original Mortgage Note and all other documents and agreements as are required by
Section 2.2 hereof, with the Mortgage Note endorsed as required by such Section
2.2 hereof. No substitution will be made in any calendar month after the
Determination Date for such month. 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 Master Servicer and remitted by the
Master 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 Seller shall cause the
Master Servicer to amend the Mortgage Loan Schedule to reflect the removal of
such Deleted Mortgage Loan and the substitution of the Eligible Substitute
Mortgage Loan or Loans and to deliver the amended Mortgage Loan Schedule to the
Indenture Trustee. Upon such substitution, the Eligible Substitute Mortgage Loan
or Loans shall be subject to the terms of this Agreement and the Servicing
Agreement in all respects, the Seller shall be deemed to have made the
representations and warranties with respect to the Eligible Substitute Mortgage
Loan contained herein set forth in this Section 3.1(b), to the extent set forth
in the definition of "Eligible Substitute Mortgage Loan", as of the date of
substitution, and the Seller shall be obligated to repurchase or substitute for
any Eligible Substitute Mortgage Loan as to which a Repurchase Event has
occurred as provided herein. In connection with the substitution of one or more
Eligible Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the
Master 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
<PAGE>
-40-
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 amount
of such shortfall to the Master Servicer for deposit into the Collection Account
on the day of substitution, without any reimbursement therefor.
Upon receipt by the Issuer and the Indenture Trustee of
written notification, signed by a Servicing Officer, of the deposit of such
Repurchase Price or of such substitution of an Eligible Substitute Mortgage Loan
and deposit of any applicable Substitution Adjustment Amount as provided above,
the Indenture Trustee on behalf of the Issuer and the Note Insurer shall release
to the Seller the related Mortgage File for the Mortgage Loan being repurchased
or substituted for and the Issuer shall execute and deliver such instruments of
transfer or assignment prepared by the Master Servicer, in each case without
recourse, as shall be necessary to vest in the Seller or its designee such
Mortgage Loan released pursuant hereto and thereafter such Mortgage Loan shall
not be an asset of the Issuer.
It is understood and agreed that the obligation of the Seller
to cure any breach with respect to or to repurchase or substitute for, any
Mortgage Loan as to which such a breach has occurred and is continuing shall,
except to the extent provided in Section 5.1 of this Agreement, constitute the
sole remedy respecting such breach available to the Company, the Issuer, the
Certificateholders (or the Owner Trustee on behalf of the Certificateholders)
and the Noteholders (or the Indenture Trustee on behalf of the Noteholders)
against the Seller.
It is understood and agreed that the representations and
warranties set forth in this Section 3.1 shall survive delivery of the
respective Mortgage Files to the Issuer.
Section 3.2 COMPANY REPRESENTATIONS AND WARRANTIES. The
Company hereby represents and warrants to the Seller, the Indenture Trustee and
the Note Insurer as of the date hereof and as of the Closing Date that:
(a) 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.
(b) 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 and the
ability of the Company to perform under this Agreement.
<PAGE>
-41-
(c) The Company has the power and authority to execute and
deliver this Agreement and to carry out its terms; the Company has full power
and authority to purchase the property to be purchased from the Seller and the
Company has duly authorized such purchase by all necessary corporate action; and
the execution, delivery and performance of this Agreement have been duly
authorized by the Company by all necessary corporate action.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with, result
in any breach of any of the terms and provisions of, or constitute (with or
without notice or lapse of time) a default under, the articles of incorporation
or 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.
ARTICLE IV
SELLER'S COVENANTS
Section 4.1. COVENANTS OF THE SELLER. The Seller hereby
covenants as of the date hereof and as of the Closing Date and as of each
Subsequent Transfer Date that, except for the transfer hereunder, on and after
the Closing Date, the Seller will not sell, pledge, assign or transfer to any
other Person, or grant, create, incur or assume any Lien on, any Initial
Mortgage Loan or Subsequent Mortgage Loan, whether now existing or hereafter
created, or any interest therein; the Seller will notify the Issuer, on its own
behalf and as assignee of the Company, the Indenture Trustee and the Note
Insurer of the existence of any such Lien on any Mortgage Loan immediately upon
discovery thereof; and the Seller will defend the right, title and interest of
the Issuer, on its own behalf and as assignee of the Company, the Indenture
Trustee and the Note Insurer in, to and under the Mortgage Loans, whether now
existing or hereafter created, against all claims of third parties claiming
through or under the Seller.
In the event that the Indenture Trustee receives actual notice of any
Transfer Taxes arising out of the transfer, assignment and conveyance of the
Mortgage Loans, on written demand by the Indenture Trustee, or upon the Seller's
otherwise being given notice thereof by the Indenture Trustee, the Seller shall
pay any and all such Transfer Taxes (it being understood that the Holders of the
Notes, the Indenture Trustee and the Note Insurer shall have no obligation to
pay such Transfer Taxes).
<PAGE>
-42-
Section 4.2. PAYMENT OF EXPENSES.
(a) The Seller will pay on the Closing Date all expenses
incident to the performance of its obligations under this Agreement, including
(i) the preparation, printing and any filing of the preliminary prospectus,
Prospectus Supplement and Prospectus (including any schedules or exhibits and
any document incorporated therein by reference) originally filed and of each
amendment or supplement thereto, (ii) the preparation, printing and delivery to
the Underwriter of this Agreement, the Indenture and such other documents as may
be required in connection with the offering, purchase, sale and delivery of the
Notes, (iii) the preparation, issuance and delivery of the certificates for the
Notes to the Underwriter, including any charges of DTC in connection therewith;
(iv) the fees and disbursements of the Company's accountants and other advisors,
(v) the qualification of the Notes under securities laws in accordance with the
provisions of Section 3(f) of the Underwriting Agreement, including filing fees
and the reasonable fees and disbursements of counsel for the Underwriter in
connection therewith, (vi) the printing and delivery to the Underwriter of
copies of each preliminary prospectus and of the Prospectus and any amendments
or supplements thereto, (vi) the fees and expenses of the Indenture Trustee and
Owner Trustee, including the fees and disbursements of counsel for the Indenture
Trustee and Owner Trustee in connection with the Indenture, the Trust Agreement
and the Notes and (vii) any fees payable in connection with the rating of the
Notes.
(b) If the Underwriting Agreement is terminated by the
Underwriter in accordance with the provisions of Section 5 or Section 9(a)(i)
thereof, the Seller shall reimburse the Underwriter for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriter.
ARTICLE V
CONDITIONS TO INITIAL MORTGAGE LOAN PURCHASE
Section 5.1. CONDITIONS OF COMPANY'S OBLIGATIONS. The
Company's obligation to purchase the Initial Mortgage Loans which it accepts for
purchase hereunder shall be subject to each of the following conditions:
(i) the Mortgage File for each Initial Mortgage
Loan shall have been delivered in accordance
with this Agreement and the Trust Agreement;
(ii) the representations and warranties set forth
in Section 3.1(b) hereof with respect to
each Initial Mortgage Loan shall be true as
of the Closing Date;
<PAGE>
-43-
(iii) The Underwriter or its affiliates shall have
had an opportunity to perform a due
diligence review of each Mortgage Loan and
shall have arranged for reappraisals of
value with respect to each Mortgage Loan if
desired by the Underwriter; and
(iv) The Seller shall have provided to the
Underwriter or its affiliates such other
documents which are then required to have
been delivered under this Agreement or which
are reasonably requested by the Underwriter
or its affiliates, which other documents may
include UCC financing statements, a
favorable opinion or opinions of counsel
with respect to matters which are reasonably
requested by the Underwriter, and/or an
Officers' Certificate from the Underwriter.
ARTICLE VI
LIMITATION ON LIABILITY OF THE SELLER
WITH RESPECT TO THE MORTGAGE LOANS
Section 6.1. LIMITATION ON LIABILITY OF THE SELLER. None of
the directors, officers, employees or agents of the Seller shall be under any
liability to the Company, it being expressly understood that all such liability
is expressly waived and released as a condition of, and as consideration for,
the execution of this Agreement. Except as and to the extent expressly provided
in the Basic Documents, the Seller shall not be under any liability to the
Issuer, the Owner Trust, the Owner Trustee, the Indenture Trustee, the
Noteholders or the Certificateholders. The Seller and any director, officer,
employee or agent of the Seller may rely in good faith on any document of any
kind PRIMA FACIE properly executed and submitted by any Person respecting any
matters arising hereunder.
ARTICLE VII
TERMINATION
Section 7.1. TERMINATION.
(a) Except as provided in Section 7.1(b) hereof, the
respective obligations and responsibilities of the Seller, the Company, the
Issuer and the Indenture Trustee created hereby shall terminate, except for the
Seller's indemnity obligations as provided herein, upon the earlier of (i) the
termination of the Issuer pursuant to the terms of the Trust Agreement and (ii)
the
<PAGE>
-44-
purchase by the Seller from the Issuer of all, but not part, of the Mortgage
Loans and all property acquired, in respect of any Mortgage Loan pursuant to
Section 7.2 hereof.
(b) The Company may terminate this Agreement, by notice to the
Seller, at any time at or prior to the Closing Date:
(i) if the Underwriting Agreement is terminated by the
Underwriter pursuant to the terms of the Underwriting Agreement or if
there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the
Prospectus, any material adverse change in the financial condition,
earnings, business affairs or business prospects of the Seller, whether
or not arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the
financial markets in the United States, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of
which is such as to make it, in the judgment of the Underwriter,
impracticable to market the Notes or to enforce contracts for the sale
of the Notes, or
(iii) if trading in any securities of the Seller has been
suspended or limited by the Commission or the New York Stock Exchange,
or if trading generally on the American Stock Exchange or the New York
Stock Exchange or in the NASDAQ National Market System has been
suspended or limited, or minimum or maximum prices for trading have
been fixed, or maximum ranges for prices have been required, by any of
said exchanges or by such system or by order of the Commission, the
National Association of Securities Dealers, Inc. or any other
governmental authority,
(iv) if a banking moratorium has been declared by either
Federal or New York authorities,
(v) a change in control of the Seller shall have occurred
other than in connection with and as a result of the issuance and sale
by the Seller or registered, publicly offered common stock;
(vi) there is (A) a material breach by the Seller of any
representation and warranty contained in this Agreement or the
Underwriting Agreement other than a representation or warranty relating
to particular Mortgage Loans, and the Underwriter has reason to believe
in good faith either that such breach is not curable within 2 (two)
days or that such breach may not have been cured in all material
respects at the expiration of 2 (two) days following discovery thereof
by the Seller OR (B) a failure by the Seller to make
<PAGE>
-45-
any payment payable by it under this Agreement OR (C) any other failure
by the Seller to observe and perform in any material respect its
material covenants, agreements and obligations with the Company,
including without limitation those contained in this Agreement, and the
Company has reason to believe in good faith that such failure may not
have been cured in all material respects at the expiration of 2 (two)
days following discovery thereof by the Seller, or
(vii) the Seller fails to provide written notification to the
Underwriter of any change in its loan origination, acquisition or
appraisal guidelines or practices, or the Seller, without the prior
consent of the Underwriter (which shall not be unreasonably withheld),
amends in any material respect its loan origination, acquisition or
appraisal guidelines or practices.
If this Agreement is terminated pursuant to this Section
7.1(b), such termination shall be without liability of any party to any other
party except as provided in Section 4.2 hereof.
Section 7.2. OPTIONAL REDEMPTION. (a) Subject to the
provisions of clause (b) below, the majority Certificateholder has the right to
purchase the Mortgage Loans in whole, but not in part, on any Payment Date on or
after the Payment Date on which the aggregate Principal Balance of the Mortgage
Loans as of any Payment Date is less than or equal to 10% of the Original Pool
Balance. The purchase price will be equal to 100% of the aggregate outstanding
Note Principal Balance and accrued and unpaid interest thereon (including any
Carry-Forward Amount) at the Note Interest Rate through the date on which the
Notes are redeemed in full together with all amounts due and owing, including
any such amounts due and owing in connection with such redemption, to the Note
Insurer, the Master Servicer and the Indenture Trustee. If such right is
exercised by the majority Certificateholder, the majority Certificateholder
shall deposit the amount calculated above with the Indenture Trustee pursuant to
Section 5.02 of the Indenture and, upon the receipt of such deposit, the
Indenture Trustee shall release to the majority Certificateholder pursuant to
Section 8.07 of the Indenture the Mortgage Files pertaining to the Mortgage
Loans being purchased.
(b) The majority Certificateholder, at its expense, shall
prepare and deliver to the Indenture Trustee for execution, at the time the
Mortgage Loans are to be released to the majority Certificateholder, appropriate
documents assigning each such Mortgage Loan from the Indenture Trustee or the
Trust to the majority Certificateholder or the appropriate party.
<PAGE>
-46-
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1. AMENDMENT. This Agreement may be amended from
time to time by the Seller, the Indenture Trustee and the Company by written
agreement signed by the Seller, the Indenture Trustee and the Company, with the
prior written consent of the Note Insurer.
Section 8.2. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with such laws.
Section 8.3. NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by registered mail, postage prepaid, addressed
as follows:
(i) if to the Seller:
PacificAmerica Money Center, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364-2210
Attention:
or, such other address as may hereafter be furnished to the Company in writing
by the Seller.
(ii) if to the Company:
Merrill Lynch Mortgage Investors, Inc.
North Tower
World Financial Center
New York, NY 10281-1201
Attention: Legal Department
or such other address as may hereafter be furnished to the Seller in writing by
the Company.
(iii) if to the Issuer:
PacificAmerica Home Equity Loan Trust
Series 1998-1
c/o PacificAmerica Money Center, Inc.
21031 Ventura Boulevard
Woodland Hills, CA 91364-2210
<PAGE>
-47-
Attention:
or such other address as may hereafter be furnished to the Seller in writing by
the Issuer.
(iv) if to the Indenture Trustee:
Bankers Trust Company of California, N.A.
3 Park Plaza, 16th Floor
Irvine, California 92614
Attention: PacificAmerica Series 1998-1
or such other address as may hereafter be furnished to the Seller in writing by
the Indenture Trustee.
(v) if to the Note Insurer:
Financial Security Assurance
350 Park Avenue
New York, NY 10022
Attention: Surveillance Department
Re: PacificAmerica Home Equity Loan
Asset-Backed Notes Series 1998-1
Telecopy No.: (212) 339-3518, (212) 359-3529
Confirmation: (212) 826-0100
Section 8.4. SEVERABILITY OF PROVISIONS. If any one or more of
the covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
Section 8.5. RELATIONSHIP OF PARTIES. Nothing herein contained
shall be deemed or construed to create a partnership or joint venture between
the parties hereto, and the services of the Seller shall be rendered as an
independent contractor and not as agent for the Company.
Section 8.6. COUNTERPARTS. This Agreement may be executed in
two or more counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed to be an original
and such counterparts together shall constitute one and the same agreement.
<PAGE>
-48-
Section 8.7. FURTHER AGREEMENTS. The Company, the Indenture
Trustee and the Seller each agree to execute and deliver to the other such
additional documents, instruments or agreements as may be necessary or
appropriate to effectuate the purposes of this Agreement. Each of the Company
and the Seller agrees to use its best reasonable efforts to take all actions
necessary to be taken by it to cause the Notes to be issued and rated in the
highest rating category by each of the Rating Agencies, and each party will
cooperate with the other in connection therewith.
Section 8.8. INTENTION OF THE PARTIES. It is the intention of
the parties that (i) the Company will be purchasing on the Closing Date, and the
Seller will be selling on the Closing Date, the Initial Mortgage Loans, rather
than the Company providing a loan to the Seller secured by the Initial Mortgage
Loans on the Closing Date, and (ii) the Issuer will be purchasing on each
Subsequent Transfer Date, and the Seller will be selling on each Subsequent
Transfer Date, the related Subsequent Mortgage Loans, rather than the Issuer
providing a loan to the Seller secured by the related Subsequent Mortgage Loans
on each Subsequent Transfer Date. Accordingly, the parties hereto each intend to
treat this transaction with respect to the transaction for federal income tax
purposes as (i) a sale by the Seller, and a purchase by the Company, of the
Initial Mortgage Loans on the Closing Date and (ii) a sale by the Seller, and a
purchase by the Issuer, of the related Subsequent Mortgage Loans on each
Subsequent Transfer Date. The Company and the Issuer will have the right to
review the Mortgage Loans and the Related Documents to determine the
characteristics of the Mortgage Loans which will affect the federal income tax
consequences of owning the Mortgage Loans and the Seller will cooperate with all
reasonable requests made by the Company and/or the Issuer in the course of such
review.
Section 8.9. SUCCESSORS AND ASSIGNS; ASSIGNMENT OF PURCHASE
AGREEMENT. This Agreement shall bind and inure to the benefit of and be
enforceable by the Seller, the Company, the Issuer, the Indenture Trustee and
the Note Insurer and their respective successors and assigns. The obligations of
the Seller under this Agreement cannot be assigned or delegated to a third party
without the consent of the Company and the Note Insurer, which consent shall be
at the Company's and the Note Insurer's sole discretion. The parties hereto
acknowledge that (i) the Company is acquiring the Initial Mortgage Loans for the
purpose of selling them to the Issuer, who will in turn pledge the Initial
Mortgage Loans to the Indenture Trustee for the benefit of the Noteholders and
the Note Insurer and (ii) the Issuer is acquiring the Subsequent Mortgage Loans
for the purpose of pledging the Subsequent Mortgage Loans to the Indenture
Trustee for the benefit of the Noteholders and the Note Insurer. As an
inducement to the Company and the Issuer to purchase the Mortgage Loans, the
Seller acknowledges and consents to (i) the assignment by the Company to the
Issuer of all of the Company's rights against the Seller pursuant to this
Agreement and to the enforcement or exercise of any right or remedy against the
Seller pursuant to this Agreement and (ii) the assignment by the Issuer to the
Indenture Trustee and the Note Insurer of such rights and to the enforcement or
exercise of any right or remedy against the Seller pursuant to this Agreement.
Such enforcement of a right or remedy by the Issuer, the Owner Trustee, the
Indenture Trustee or the Note Insurer, as applicable, shall have the same force
and
<PAGE>
-49-
effect as if the right or remedy had been enforced or exercised by the Company
or the Issuer directly.
Section 8.10. SURVIVAL. The representations and warranties
made herein by the Seller and the provisions of Article V hereof shall survive
the purchase of the Mortgage Loans hereunder.
Section 8.11. THIRD PARTY BENEFICIARY. The Note Insurer shall
be a third party beneficiary hereof and shall be entitled to enforce the
provisions of this Agreement as if a party hereto.
<PAGE>
IN WITNESS WHEREOF, the Seller and the Company have caused
their names to be signed to this Home Equity Loan Purchase Agreement by their
respective officers thereunto duly authorized as of the day and year first above
written.
MERRILL LYNCH MORTGAGE INVESTORS, INC.
as Company
By: /s/ Peter Cerwin
-----------------------------------------
Name: Peter Cerwin
Title: Vice President
PACIFICAMERICA MONEY CENTER, INC.
as Seller
By: /s/ Charles J. Siegel
-----------------------------------------
Name: Charles J. Siegel
Title: Chief Financial Officer
PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES
1998-1
as Issuer
By: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely in its
capacity as Owner Trustee
By: /s/ Emmett R. Harmon
-----------------------------------------
Authorized Signatory
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
as Indenture Trustee
By: /s/ Melanie Anbarci
-----------------------------------------
Name: Melanie Anbarci
Title: Assistant Secretary
<PAGE>
EXHIBIT 1
MORTGAGE LOAN SCHEDULE
AVAILABLE UPON REQUEST
<PAGE>
EXHIBIT 2
SUBSEQUENT TRANSFER INSTRUMENT
Pursuant to this Subsequent Transfer Instrument (the
"Instrument"), dated ___________, 1998, between PacificAmerica Money Center,
Inc. as seller (the "Seller"), and PacificAmerica Home Equity Loan Trust Series
1998-1 as issuer (the "Issuer"), and pursuant to the Home Equity Loan Purchase
Agreement, dated as of March 19, 1998, among the Seller, the Issuer, Merrill
Lynch Mortgage Investors, Inc. and Bankers Trust Company of California, N.A.
(the "Home Equity Loan Purchase Agreement"), the Seller and the Issuer agree to
the sale by the Seller and the purchase by the Issuer of the Mortgage Loans
listed on the attached Subsequent Mortgage Loan Schedule (the "Subsequent
Mortgage Loans").
Capitalized terms used and not defined herein have their
respective meanings as set forth in Section 1.1 of the Home Equity Loan Purchase
Agreement, which meanings are incorporated by reference herein. All other
capitalized terms used herein shall have the meanings
specified herein.
Section 1. CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS.
(a) The Seller does hereby sell, transfer, assign, set over
and convey to the Issuer, without recourse, all of its right, title and interest
in and to the Subsequent Mortgage Loans, and including all principal received
and interest accruing on the Subsequent Mortgage Loans on and after the related
Subsequent Cut-off Date, and all items with respect to the Subsequent Mortgage
Loans to be delivered pursuant to Section 2.2 of the Home Equity Loan Purchase
Agreement; provided, however, that the Seller reserves and retains all right,
title and interest in and to principal received and interest accruing on the
Subsequent Mortgage Loans prior to the related Subsequent Cut-off Date. The
Seller, contemporaneously with the delivery of this Agreement, has delivered or
caused to be delivered to the Indenture Trustee each item set forth in Section
2.2 of the Home Equity Loan Purchase Agreement. The transfer to the Issuer by
the Seller of the Subsequent Mortgage Loans identified on the Subsequent
Mortgage Loan Schedule shall be absolute and is intended by the Seller, the
Issuer, the Indenture Trustee and the Noteholders to constitute and to be
treated as a sale by the Seller.
The parties hereto intend that the transactions set forth
herein constitute a sale by the Seller to the Issuer on the Subsequent Transfer
Date of all the Seller's right, title and interest in and to the Subsequent
Mortgage Loans, and other property as and to the extent described above. In the
event the transactions set forth herein shall be deemed not to be a sale, the
Seller hereby grants to the Issuer as of the Subsequent Transfer Date a security
interest in all of the Seller's right, title and interest in, to and under the
Subsequent Mortgage Loans, and such other property, to secure all of the
Issuer's obligations hereunder, and this Agreement shall constitute a security
agreement under applicable law. The Seller 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
<PAGE>
financing statements filed in the State of Delaware and the State of California
(which shall be submitted for filing as of the Subsequent Transfer Date), any
continuation statements with respect thereto and any amendments thereto required
to reflect a change in the name or corporate structure of the Seller or the
filing of any additional UCC-1 financing statements due to the change in the
principal office of the Seller, as are necessary to perfect and protect the
Issuer's interests in each Subsequent Mortgage Loan and the proceeds thereof.
(b) The expenses and costs relating to the delivery of the
Subsequent Mortgage Loans, this Instrument and the Home Equity Loan Purchase
Agreement shall be borne by the Seller.
(c) Additional terms of the sale are set forth on Attachment A
hereto.
Section 2. REPRESENTATIONS AND WARRANTIES; CONDITIONS
PRECEDENT.
(a) The Seller hereby affirms the representations and
warranties set forth in Section 3.1 of the Home Equity Loan Purchase Agreement
that relate to the Seller or the Subsequent Mortgage Loans as of the date
hereof. The Seller hereby confirms that each of the conditions set forth in
Section 2.3(b) of the Home Equity Loan Purchase Agreement are satisfied as of
the date hereof and further represents and warrants that each Subsequent
Mortgage Loan complies with the requirements of this Instrument and Section
2.3(c) of the Home Equity Loan Purchase Agreement.
(b) The Seller is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations hereunder; it will not be rendered insolvent by the execution and
delivery of this Instrument or by the performance of its obligations hereunder
nor is it aware of any pending insolvency; no petition of bankruptcy (or similar
insolvency proceeding) has been filed by or against the Seller prior to the date
hereof;
(c) All terms and conditions of the Home Equity Loan Purchase
Agreement are hereby ratified and confirmed; provided, however, that in the
event of any conflict the provisions of this Instrument shall control over the
conflicting provisions of the Home Equity Loan
Purchase Agreement.
Section 3. RECORDATION OF INSTRUMENT.
To the extent permitted by applicable law, this Instrument, or
a memorandum thereof if permitted under applicable law, is subject to
recordation in all appropriate public offices for real property records in all
of the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Master Servicer at the Noteholders' expense on direction of the majority
Noteholders or the Note Insurer, but only when accompanied by an Opinion of
Counsel to the effect that such recordation materially and
<PAGE>
beneficially affects the interests of the Noteholders or the Note Insurer or is
necessary for the administration or servicing of the Mortgage Loans.
Section 4. GOVERNING LAW.
This Instrument shall be construed in accordance with the laws
of the State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws, without giving
effect to principles of conflicts of law.
Section 5. COUNTERPARTS.
This Instrument 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 instrument.
Section 6. SUCCESSORS AND ASSIGNS.
This Instrument shall inure to the benefit of and be binding
upon the Seller and the Issuer and their respective successors and assigns.
PACIFICAMERICA MONEY CENTER, INC.
By:__________________________________________
Name:________________________________________
Title:_______________________________________
PACIFICAMERICA HOME EQUITY LOAN
TRUST SERIES 1998-1
By: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely in its
capacity as Owner Trustee
By:__________________________________________
Authorized Signatory
<PAGE>
ATTACHMENTS
A. Additional terms of the sale.
B. Schedule of Subsequent Mortgage Loans.
C. Opinions of Seller's counsel (bankruptcy, corporate).
D. Seller's Officer's Certificate.
E. Seller's Officer's Certificate (confirmation of Note Insurer
approval).
<PAGE>
PACIFICAMERICA HOME EQUITY LOAN
ASSET-BACKED-
NOTES, SERIES 1998-1
ATTACHMENT A TO SUBSEQUENT TRANSFER INSTRUMENT
Series 1998-1
________, 1998
A.
1. Subsequent Cut-off Date:
2. Pricing Date:
3. Subsequent Transfer Date:
4. Aggregate Principal Balance of the Subsequent Mortgage Loans
as of the Subsequent Cut-off Date:
5. Purchase Price: 100.00%
B.
As to all the Subsequent Mortgage Loans the subject of this Instrument:
1. Longest stated term to maturity: _____ months
2. Minimum Mortgage Rate: _____ %
3. Maximum Mortgage Rate: _____ %
4. WAC of all Mortgage Loans: _____ %
5. WAM of all Mortgage Loans: _____ %
6. Largest Principal Balance: $________
7. Non-owner occupied Mortgaged Properties: _____ %
8. California zip code concentration: _____ %
9. Condominiums: _____ %
10. Single-family: _____ %
11. Weighted average term since origination:
12. [March/April/May 1998] first payment date: _____ %
<PAGE>
EXHIBIT 3
ADDITION NOTICE
DATE:
Bankers Trust Company Moody's Investor's Service, Inc.
of California, N.A. 99 Church Street
3 Park Plaza, 16th Floor New York, New York 10007
Irvine, California 92614
Financial Security Assurance Wilmington Trust Company
350 Park Avenue 1100 North Market Street
New York, New York 10022 Wilmington, Delaware 19890
Standard & Poor's Ratings Services
26 Broadway
New York, New York 10004-1064
Re: Home Equity Loan Purchase Agreement, dated as of March 19,
1998 (the "Purchase Agreement"), among PacificAmerica Money
Center, Inc. (the "Seller"), PacificAmerica Home Equity Loan
Trust Series 1998-1, a Delaware business trust (the "Issuer"),
Bankers Trust Company of California, N.A., as indenture
trustee (the "Indenture Trustee") and Merrill Lynch Mortgage
Investors, Inc., relating to PacificAmerica Home Equity Loan
Asset-Backed Notes and Certificates, Series 1998-1
--------------------------------------------------------------
Ladies and Gentlemen:
Pursuant to Section 2.3 of the above-captioned Purchase
Agreement, the Seller has designated the Subsequent Mortgage Loans (see
subsequent mortgage loan schedule attached hereto) to be sold to the Issuer on
_____________, 1998, with an aggregate principal balance of $_________________.
Capitalized terms not otherwise defined herein have the meaning set forth in the
Purchase Agreement.
Please acknowledge your receipt of this notice by
countersigning the enclosed copy in the space indicated below and returning it
to the attention of the undersigned.
Very truly yours,
PACIFICAMERICA MONEY CENTER, INC.
<PAGE>
By:_________________________________
Name:
Title:
ACKNOWLEDGED AND AGREED:
BANKERS TRUST COMPANY
OF CALIFORNIA, N.A.
By:___________________________
Name:
Title:
