<PAGE>
- --------------------------------------------------------------------------------
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 (Date of earliest event reported) September 27, 1996
Prudential Securities Secured Financing Corporation
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-91148 13-3526694
- ---------------------------- ------------ -------------------
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
One New York Plaza
New York, New York 10292
(Address of Principal ------------------
Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-7435
--------------
No Change
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
Description of the Certificates and the Mortgage Loans
Prudential Securities Secured Financing Corporation registered
issuances of up to $500,000,000 principal amount of Mortgage Pass-Through
Certificates on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Act"), by the Registration Statements
on Form S-3 (Registration File No. 33-91148) (as amended, the "Registration
Statement"). Pursuant to the Registration Statement, ABFS Mortgage Loan Trust
1996-2 (the "Trust") issued approximately $38,799,000 in aggregate principal
amount of its Mortgage Pass-Through Certificates, Series 1996-2 (the
"Certificates"), on September 27, 1996. This Current Report on Form 8-K is
being filed to satisfy an undertaking to file copies of certain agreements
executed in connection with the issuance of the Certificates, the forms of which
were filed as Exhibits to the Registration Statement.
The Certificates were issued pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") attached hereto as EXHIBIT
4.1, dated as of August 31, 1996, between Prudential Securities Secured
Financing Corporation, American Business Credit, Inc., in its capacity as
servicer (the "Servicer"), and The Chase Manhattan Bank, in its capacity as
trustee (the "Trustee"). The Certificates consist of one class of senior
Certificates (the "Class A Certificates") and one class of subordinated
Certificates (the "Class R Certificates"). Only the Class A Certificates are
being offered hereby. The Certificates initially evidence, in the aggregate,
100% of the undivided beneficial ownership interests in the Trust.
The assets of the Trust will be primarily fixed-rate, closed-end,
conventional, monthly pay, generally fully amortizing, business and consumer
purpose residential home equity loans (the "Mortgage Loans") secured by first or
second lien mortgages or deeds of trust (the "Mortgages") on real properties
(the "Mortgaged Properties"). The Mortgaged Properties securing the Mortgage
Loans consist primarily of single family residences (which may be detached, part
of a two-to four-family dwelling, a condominium unit or a unit in a planned unit
development).
Interest distributions on the Class A Certificates are based on the
Certificate Principal Balance thereof and the then applicable Pass-Through Rate
thereof. The Pass-Through Rate is 7.525% per annum for the Class A
Certificates.
2
<PAGE>
The Class A Certificates have an aggregate principal amount of
$38,799,000.
As of the Closing Date, the Mortgage Loans possessed the
characteristics described in the Prospectus dated August 4, 1995 and the
Prospectus Supplement dated September 12, 1996 filed pursuant to Rule 424(b)(5)
of the Act on October 2, 1996.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Not applicable
(b) Not applicable
(c) Exhibits:
1.1 Underwriting Agreement, dated September 12, 1996 between
Prudential Securities Secured Financing Corporation and Prudential Securities
Incorporated.
4.1 Pooling and Servicing Agreement, dated as of August 31, 1996,
between Prudential Securities Secured Financing Corporation, American Business
Credit, Inc., as servicer, and The Chase Manhattan Bank, as trustee.
4.2 Unaffiliated Seller's Agreement, dated as of August 31, 1996,
among American Business Credit, Inc., Home American Credit, Inc. d/b/a Upland
Mortgage, Prudential Securities Secured Financing Corporation, and ABFS 1996-2,
Inc.
4.5 Certificate Insurance Policy.
24.1 Consent of Coopers & Lybrand L.L.P. regarding financial
statements of the Financial Security Assurance Inc. and their report.
28.1 Indemnification Agreement dated as of September 12, 1996, among
Financial Security Assurance Inc., American Business Credit, Inc., Prudential
Securities Secured Financing Corporation, HomeAmerican Credit, Inc. d/b/a Upland
Mortgage and Prudential Securities Incorporated.
3
<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 hereunto duly authorized.
PRUDENTIAL SECURITIES SECURED FINANCING
CORPORATION
----------------------------------------
As Depositor and on behalf of ABFS
Mortgage Loan Trust 1996-2
Registrant
By: /s/ Norman Chaleff
-------------------------------------
Name: Norman Chaleff
Title: Vice President
Dated: October 8, 1996
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description Page No.
- ----------- ----------- --------
1.1 Underwriting Agreement, dated September 12, 1996, 6
between Prudential Securities Secured Financing
Corporation and Prudential Securities Incorporated.
4.1 Pooling and Servicing Agreement, dated as of 34
August 31, 1996, between Prudential Securities
Secured Financing Corporation, American
Business Credit, Inc., as servicer, and The Chase
Manhattan Bank, as trustee.
4.2 Unaffiliated Seller's Agreement, dated as of 160
August 31, 1996, among American Business Credit, Inc.,
HomeAmerican Credit, Inc. d/b/a Upland Mortgage,
Prudential Securities Secured Financing Corporation,
and ABFS 1996-2, Inc.
4.5 Certificate Insurance Policy. 208
24.1 Consent of Coopers & Lybrand L.L.P. regarding 218
financial statements of the Financial Security
Assurance Inc. and their report.
28.1 Indemnification Agreement, dated as of 220
September 12, 1996, among Financial Security
Assurance Inc., American Business Credit, Inc.,
Prudential Securities Secured Financing Corporation,
HomeAmerican Credit, Inc. d/b/a Upland Mortgage and
Prudential Securities Incorporated.
<PAGE>
EXHIBIT 1.1
<PAGE>
ABFS MORTGAGE LOAN TRUST 1996-2
MORTGAGE LOAN PASS-THROUGH CERTIFICATES
SERIES 1996-2
UNDERWRITING AGREEMENT
<PAGE>
UNDERWRITING AGREEMENT
PRUDENTIAL SECURITIES INCORPORATED
One New York Plaza
New York, New York 10292
September 12, 1996
Dear Sirs:
Prudential Securities Secured Financing Corporation (the "Depositor")
proposes, subject to the terms and conditions stated herein and in the attached
Underwriting Agreement Standard Provisions, dated September 12, 1996 (the
"Standard Provisions"), between the Depositor and Prudential Securities
Incorporated, to issue and sell to you (the "Underwriter") the Securities
specified in Schedule I hereto (the "Offered Securities"). The Depositor agrees
that each of the provisions of the Standard Provisions is incorporated herein by
reference in its entirety, and shall be deemed to be a part of this Agreement to
the same extent as if such provisions had been set forth in full herein; and
each of the representations and warranties set forth therein shall be deemed to
have been made at and as of the date of this Underwriting Agreement. Each
reference to the "Representative" herein and in the provisions of the Standard
Provisions so incorporated by reference shall be deemed to refer to you. Unless
otherwise defined herein, terms defined in the Standard Provisions are used
herein as therein defined. The Prospectus Supplement and the accompanying
Prospectus relating to the Offered Securities (together, the "Prospectus") are
incorporated by reference herein.
Subject to the terms and conditions set forth herein and in the
Standard Provisions incorporated herein by reference, the Depositor agrees to
issue and sell to the Underwriter, and the Underwriter agrees to purchase from
the Depositor, at the time and place and at the purchase price to the
Underwriter and in the manner set forth in Schedule I hereto, the entire
original principal balance of the Offered Securities.
If the foregoing is in accordance with your understanding, please sign
and return to us two counterparts hereof, and upon acceptance hereof by you,
this letter and such acceptance hereof, including the provisions of the Standard
Provisions incorporated herein by reference, shall constitute a binding
agreement between the Underwriter and the Depositor.
<PAGE>
Yours truly,
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION
By:______________________________
Name: Norman Chaleff
Title: Vice President
Accepted as of the date hereof:
PRUDENTIAL SECURITIES INCORPORATED
By:______________________________
Name: Brendan Keane
Title: Vice President
[Signature Page to Underwriting Agreement]
<PAGE>
SCHEDULE I
Title of Offered
Securities: ABFS Mortgage Loan Trust 1996-2, Mortgage Loan
Pass-Through Certificates, Series 1996--2, Class
A.
Terms of Offered
Securities: The Offered Securities shall have the terms set
forth in the Prospectus and shall conform in all
material respects to the descriptions thereof
contained therein, and shall be issued pursuant to
a Pooling and Servicing Agreement to be dated as
of August 31, 1996 among the Depositor, American
Business Credit, Inc., as servicer, and The Chase
Manhattan Bank, as trustee.
Purchase Price: The purchase price for the Offered Securities
shall be 99.453125% of the aggregate principal
balance of the Class A Certificates as of the
Closing Date, plus accrued interest at the rate of
7.525% per annum from September 1, 1996 to
September 27, 1996.
Specified funds for
payment of Purchase Price: Federal Funds (immediately available funds).
Required Ratings: Aaa by Moody's Investors Service, Inc.
AAA by Standard & Poor's Ratings Services
Closing Date: On or about September 27, 1996 at 10:00 A.M.
eastern standard time or at such other time as the
Depositor and the Underwriter shall agree.
Closing Location: Offices of Dewey Ballantine, 1301 Avenue of the
Americas, New York, New York.
Name and address of
Representative: Designated Representative: Prudential Securities
Incorporated.
Address for Notices, etc.: One New York Plaza
New York, New York 10292
Attn: Len Blum
<PAGE>
STANDARD PROVISIONS TO UNDERWRITING AGREEMENT
September 12, 1996
From time to time, Prudential Securities Secured Financing
Corporation, a Delaware corporation (the "Depositor") may enter into one or more
underwriting agreements (each, an "Underwriting Agreement") that provide for the
sale of designated securities to the several underwriters named therein (such
underwriters constituting the "Underwriters" with respect to such Underwriting
Agreement and the securities specified therein). The several underwriters named
in an Underwriting Agreement will be represented by one or more representatives
as named in such Underwriting Agreement (collectively, the "Representative").
The term "Representative" also refers to a single firm acting as sole
representative of the Underwriters and to Underwriters who act without any firm
being designated as their representative. The standard provisions set forth
herein (the "Standard Provisions") may be incorporated by reference in any
Underwriting Agreement. This Agreement shall not be construed as an obligation
of the Depositor to sell any securities or as an obligation of any of the
Underwriters to purchase such securities. The obligation of the Depositor to
sell any securities and the obligation of any of the Underwriters to purchase
any of the securities shall be evidenced by the Underwriting Agreement with
respect to the securities specified therein. An Underwriting Agreement shall be
in the form of an executed writing (which may be in counterparts), and may be
evidenced by an exchange of telegraphic communications or any other rapid
transmission device designed to produce a written record of the communications
transmitted. The obligations of the underwriters under this Agreement and each
Underwriting Agreement shall be several and not joint. Unless otherwise defined
herein, the terms defined in the Underwriting Agreement are used herein as
defined in the Prospectus referred to below.
1. The Offered Securities. The Depositor proposes to sell pursuant
to the applicable Underwriting Agreement to the several Underwriters named
therein home equity loan certificates (the "Securities") representing beneficial
ownership interests in a trust, the trust property of which consists of a pool
of home equity loans (the "Mortgage Loans") and certain related property. The
Securities will be issued pursuant to a pooling and servicing agreement (the
"Pooling and Servicing Agreement") by and among the Depositor, American Business
Credit, Inc., as Servicer (the "Servicer") and The Chase Manhattan Bank, as
trustee (the "Trustee").
The terms and rights of any particular issuance of Securities shall be
as specified in the Underwriting Agreement relating thereto and in or pursuant
to the Pooling and Servicing Agreement identified in such Underwriting
Agreement. The Securities which are the subject of any particular Underwriting
Agreement into which this Agreement is incorporated are herein referred to as
the "Offered Securities."
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3 (File No.33-51148),
including a prospectus relating to the Securities under the Securities Act of
1933, as amended (the "1933 Act"). The term "Registration Statement" means such
registration statement as amended to the date of the Underwriting Agreement.
The term "Base Prospectus" means the prospectus included in the Registration
Statement. The term "Prospectus" means the Base Prospectus together with the
prospectus supplement specifically relating to the Offered Securities, as first
filed with the Commission pursuant to Rule 424. The term "Preliminary
Prospectus" means a preliminary
1
<PAGE>
prospectus supplement specifically relating to the Offered Securities together
with the Base Prospectus.
2. Offering by the Underwriters. Upon the execution of the
Underwriting Agreement applicable to any Offered Securities and the
authorization by the Representative of the release of such Offered Securities,
the several Underwriters propose to offer for sale to the public the Offered
Securities at the prices and upon the terms set forth in the Prospectus.
3. Purchase, Sale and Delivery of the Offered Securities. Unless
otherwise specified in the Underwriting Agreement, payment for the Offered
Securities shall be made by certified or official bank check or checks payable
to the order of the Depositor in immediately available or next day funds, at the
time and place set forth in the Underwriting Agreement, upon delivery to the
Representative for the respective accounts of the several Underwriters of the
Offered Securities registered in definitive form and in such names and in such
denominations as the Representative shall request in writing not less than five
full business days prior to the date of delivery. The time and date of such
payment and delivery with respect to the Offered Securities are herein referred
to as the "Closing Date".
4. Conditions of the Underwriters' Obligations. The respective
obligations of the several Underwriters pursuant to the Underwriting Agreement
shall be subject, in the discretion of the Representative, to the accuracy in
all material respects of the representations and warranties of the Depositor
contained herein as of the date of the Underwriting Agreement and as of the
Closing Date as if made on and as of the Closing Date, to the accuracy in all
material respects of the statements of the officers of the Depositor and the
Servicer made in any certificates pursuant to the provisions hereof and of the
Underwriting Agreement, to the performance by the Depositor of its covenants and
agreements contained herein and to the following additional conditions
precedent:
(a) All actions required to be taken and all filings required to be
made by or on behalf of the Depositor under the 1933 Act and the
Securities Exchange Act of 1934, as amended (the "1934 Act") prior to
the sale of the Offered Securities shall have been duly taken or made.
(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall be in effect; (ii) no proceedings for
such purpose shall be pending before or threatened by the Commission,
or by any authority administering any state securities or "Blue Sky"
laws; (iii) any requests for additional information on the part of the
Commission shall have been complied with to the Representative's
reasonable satisfaction, (iv) since the respective dates as of which
information is given in the Registration Statement and the Prospectus
except as otherwise stated therein, there shall have been no material
adverse change in the condition, financial or otherwise, earnings,
affairs, regulatory situation or business prospects of the Depositor;
(v) there are no material actions, suits or proceedings pending before
any court or governmental agency, authority or body or threatened,
affecting the Depositor or the transactions contemplated by the
Underwriting Agreement; (vi) the Depositor is not in violation of its
charter or its by-laws or in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which it is a party or by which
2
<PAGE>
it or its properties may be bound, which violations or defaults
separately or in the aggregate would have a material adverse effect on
the Depositor; and (vii) the Representative shall have received, on
the Closing Date a certificate, dated the Closing Date and signed by
an executive officer of the Depositor, to the foregoing effect.
(c) Subsequent to the execution of the Underwriting Agreement, there
shall not have occurred any of the following: (i) if at or prior to
the Closing Date, trading in securities on the New York Stock Exchange
shall have been suspended or any material limitation in trading in
securities generally shall have been established on such exchange, or
a banking moratorium shall have been declared by New York or United
States authorities; (ii) if at or prior to the Closing Date, there
shall have been an outbreak or escalation of hostilities between the
United States and any foreign power, or of any other insurrection or
armed conflict involving the United States which results in the
declaration of a national emergency or war, and, in the reasonable
opinion of the Representative, makes it impracticable or inadvisable
to offer or sell the Offered Securities or (iii) if at or prior to the
Closing Date, a general moratorium on commercial banking activities in
New York shall have been declared by either federal or New York State
authorities.
(d) The Representative shall have received, on the Closing Date, a
certificate dated the Closing Date and signed by an executive officer
of the Depositor to the effect that attached thereto is a true and
correct copy of the letter from each nationally recognized statistical
rating organization (as that term is defined by the Commission for
purposes of Rule 436(g)(2) under the 1933 Act) that rated the Offered
Securities and confirming that, unless otherwise specified in the
Underwriting Agreement, the Offered Securities have been rated in the
highest rating categories by each such organization and that each such
rating has not been rescinded since the date of the applicable letter.
(e) The Representative shall have received, on the Closing Date, an
opinion of Dewey Ballantine, special counsel for the Depositor, dated
the Closing Date, in form and substance satisfactory to the
Representative and containing opinions substantially to the effect set
forth in Exhibit A hereto.
(f) The Representative shall have received, on the Closing Date, an
opinion of counsel for the Servicer, dated the Closing Date, in form
and substance satisfactory to the Representative and counsel for the
Underwriters and containing opinions substantially to the effect set
forth in Exhibit B hereto.
(g) The Representative shall have received, on the Closing Date, an
opinion of counsel for the Trustee, dated the Closing Date, in form
and substance satisfactory to the Representative and counsel for the
Underwriters and containing opinions substantially to the effect set
forth in Exhibit C hereto.
(h) The Representative shall have received, on the Closing Date, an
opinion of Dewey Ballantine, counsel for the Underwriters, dated the
Closing Date, with respect to the incorporation of the Depositor, the
validity of the Offered
3
<PAGE>
Securities, the Registration Statement, the Prospectus and other
related matters as the Underwriters may reasonably require, and the
Depositor shall have furnished to such counsel such documents as they
request for the purpose of enabling them to pass upon such matters.
(i) The Representative shall have received, on or prior to the date
of first use of the prospectus supplement relating to the Offered
Securities, and on the Closing Date if requested by the
Representative, letters of independent accountants of the Depositor in
the form and reflecting the performance of the procedures previously
requested by the Representative.
(j) The Depositor shall have furnished or caused to be furnished to
the Representative on the Closing Date a certificate of an executive
officer of the Depositor satisfactory to the Representative as to the
accuracy of the representations and warranties of the Depositor herein
at and as of such Closing Date as if made as of such date, as to the
performance by the Depositor of all of its obligations hereunder to be
performed at or prior to such Closing Date, and as to such other
matters as the Representative may reasonably request;
(k) The Servicer shall have furnished or caused to be furnished to
the Representative on the Closing Date a certificate of officers of
such Servicer in form and substance reasonably satisfactory to the
Representative;
(l) The Certificate Insurance Policy shall have been duly executed
and issued at or prior to the Closing Date and shall conform in all
material respects to the description thereof in the Prospectus
Supplement.
(m) The Representative shall have received, on the Closing Date, an
opinion of counsel to Financial Security Assurance ("the Certificate
Insurer"), dated the Closing Date, in form and substance satisfactory
to the Representative and counsel for the Underwriters and containing
opinions substantially to the effect set forth in Exhibit D hereto.
(n) On or prior to the Closing Date there shall not have occurred any
downgrading, nor shall any notice have been given of (i) any intended
or potential downgrading or (ii) any review or possible change in
rating the direction of which has not been indicated, in the rating
accorded the Certificate Insurer's claims paying ability by any
"nationally recognized statistical rating organization," as such term
is defined for purposes of the 1933 Act.
(o) There has not occurred any change, or any development involving a
prospective change, in the condition, financial or otherwise, or in
the earnings, business or operations, since June 30, 1996, of the
Certificate Insurer, that is in the Representative's judgment material
and adverse and that makes it in the Representative's judgment
impracticable to market the Offered Securities on the terms and in the
manner contemplated in the Prospectus.
(p) The Representative shall have received, on the Closing Date, a
certificate dated the Closing Date and signed by the President, a
senior vice president or a
4
<PAGE>
vice president of the Certificate Insurer to the effect that the
signer of such certificate has carefully examined the Certificate
Insurance Policy, the Insurance Agreement dated the Closing Date (the
"Insurance Agreement") among the Servicer, the Underwriter, the
Depositor and the Certificate Insurer and the related documents and
that, to the best of his or her knowledge based on reasonable
investigation:
(i) there are no actions, suits or proceedings pending or
threatened against or affecting the Certificate Insurer which, if
adversely determined, individually or in the aggregate, would
adversely affect the Certificate Insurer's performance under the
Certificate Insurance Policy or the Insurance Agreement;
(ii) each person who, as an officer or representative of the
Certificate Insurer, signed or signs the Certificate Insurance Policy,
the Insurance Agreement or any other document delivered pursuant
hereto, on the date thereof, or on the Closing Date, in connection
with the transactions described in this Agreement was, at the
respective times of such signing and delivery, and is now, duly
elected or appointed, qualified and acting as such officer or
representative, and the signatures of such persons appearing on such
documents are their genuine signatures;
(iii) the information contained in the Prospectus under the captions
"THE CERTIFICATE INSURANCE POLICY" and "THE CERTIFICATE INSURER" is
true and correct in all material respects and does not omit to state a
material fact with respect to the description of the Certificate
Insurance Policies or the ability of the Certificate Insurer to meet
its payment obligations under the Certificate Insurance Policies;
(iv) the tables regarding the Certificate Insurer's capitalization
set forth under the heading "THE CERTIFICATE INSURANCE POLICY" and THE
CERTIFICATE INSURER" present fairly the capitalization of the
Certificate Insurer as of June 30, 1996;
(v) on or prior to the Closing Date, there has been no downgrading,
nor has any notice been given of (i) any intended or potential
downgrading or (ii) any review or possible changes in rating the
direction of which has not been indicated, in the rating accorded the
claims paying ability of the Certificate Insurer by any "nationally
recognized statistical rating organization," as such term is defined
for purposes of the 1933 Act;
(vi) the audited balance sheet of the Certificate Insurer as of
December 31, 1995 and the related statement of income and retained
earnings for the fiscal year then ended, and the accompanying
footnotes, together with an opinion thereon dated January 17, 1996 of
Coopers & Lybrand, independent certificated public accountants, copies
of which are incorporated by reference in the Prospectus, fairly
present in all material respects the financial condition of the
Certificate Insurer as of such date and for the period covered by such
statements in accordance with generally accepted accounting principles
consistently applied.
5
<PAGE>
(vii) to the best knowledge of such officer, since June 30, 1996 no
material adverse change has occurred in the financial position of the
Certificate Insurer other than as set forth in the Prospectus.
The officer of the Certificate Insurer certifying to items (v)-(vii)
shall be an officer in charge of a principal financial function. The
Certificate Insurer shall attach to such certificate a true and
correct copy of its certificate or articles of incorporation, as
appropriate, and its bylaws, all of which are in full force and effect
on the date of such certificate.
(q) The Representative shall have been furnished such further
information, certificates, documents and opinions as the
Representative may reasonably request.
5. Covenants of the Depositor. In further consideration of the
agreements of the Underwriters contained in the Underwriting Agreement, the
Depositor covenants as follows:
(a) To furnish the Representative, without charge, copies of the
Registration Statement and any amendments thereto including exhibits
and as many copies of the Prospectus and any supplements and
amendments thereto as the Representative may from time to time
reasonably request.
(b) Immediately following the execution of the Underwriting
Agreement, the Depositor will prepare a prospectus supplement setting
forth the principal amount, notional amount or stated amount, as
applicable, of Offered Securities covered thereby, the price at which
the Offered Securities are to be purchased by the Underwriters from
the Depositor, either the initial public offering price or prices or
the method by which the price or prices at which the Offered
Securities are to be sold will be determined, the selling concessions
and reallowances, if any, any delayed delivery arrangements, and such
other information as the Representative and the Depositor deem
appropriate in connection with the offering of the Offered Securities,
but the Depositor will not file any amendment to the Registration
Statement or any supplement to the Prospectus of which the
Representative shall not previously have been advised and furnished
with a copy a reasonable time prior to the proposed filing or to which
the Representative shall have reasonably objected. The Depositor will
use its best efforts to cause any amendment to the Registration
Statement to become effective as promptly as possible. During the
time when a Prospectus is required to be delivered under the 1933 Act,
the Depositor will comply so far as it is able with all requirements
imposed upon it by the 1933 Act and the rules and regulations
thereunder to the extent necessary to permit the continuance of sales
or of dealings in the Offered Securities in accordance with the
provisions hereof and of the Prospectus, and the Depositor will
prepare and file with the Commission, promptly upon request by the
Representative, any amendments to the Registration Statement or
supplements to the Prospectus which may be necessary or advisable in
connection with the distribution of the Offered Securities by the
Underwriters, and will use its best efforts to cause the same to
become effective as promptly as possible. The Depositor will advise
the Representative, promptly after it receives notice thereof, of the
time when any amendment to the Registration Statement or any amended
6
<PAGE>
Registration Statement has become effective or any supplement to the
Prospectus or any amended Prospectus has been filed. The Depositor
will advise the Representative, promptly after it receives notice or
obtains knowledge thereof, of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement
or any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, or the suspension of the qualification
of the Offered Securities for offering or sale in any jurisdiction, or
of the initiation or threatening of any proceeding for any such
purpose, or of any request made by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information, and the Depositor will use its best efforts to
prevent the issuance of any such stop order or any order suspending
any such qualification, and if any such order is issued, to obtain the
lifting thereof as promptly as possible.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the 1933 Act, any event
occurs as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material fact, or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary for any other reason to amend or supplement the Prospectus
to comply with the 1933 Act, to promptly notify the Representative
thereof and upon their request to prepare and file with the
Commission, at the Depositor's own expense, an amendment or supplement
which will correct such statement or omission or any amendment which
will effect such compliance.
(d) During the period when a prospectus is required by law to be
delivered in connection with the sale of the Offered Securities
pursuant to the Underwriting Agreement, the Depositor will file, on a
timely and complete basis, all documents that are required to be filed
by the Depositor with the Commission pursuant to Sections 13, 14, or
15(d) of the 1934 Act.
(e) To qualify the Offered Securities for offer and sale under the
securities or "Blue Sky" laws of such jurisdictions as the
Representative shall reasonably request and to pay all expenses
(including fees and disbursements of counsel) in connection with such
qualification of the eligibility of the Offered Securities for
investment under the laws of such jurisdictions as the Representative
may designate provided that in connection therewith the Depositor
shall not be required to qualify to do business or to file a general
consent to service of process in any jurisdiction.
(f) To make generally available to the Depositor's security holders,
as soon as practicable, but in any event not later than eighteen
months after the date on which the filing of the Prospectus, as
amended or supplemented, pursuant to Rule 424 under the 1933 Act first
occurs, an earnings statement of the Depositor covering a twelve-month
period beginning after the date of the Underwriting Agreement, which
shall satisfy the provisions of Section 11(a) of the 1933 Act and the
applicable rules and regulations of the Commission thereunder
(including at the option of the Depositor Rule 158).
7
<PAGE>
(g) For so long as any of the Offered Securities remain outstanding,
to furnish to the Representative upon request in writing copies of
such financial statements and other periodic and special reports as
the Depositor may from time to time distribute generally to its
creditors or the holders of the Offered Securities and to furnish to
the Representative copies of each annual or other report the Depositor
shall be required to file with the Commission.
(h) For so long as any of the Offered Securities remain outstanding,
the Depositor will, or will cause the Servicer to, furnish to the
Representative, as soon as available, a copy of (i) the annual
statement of compliance delivered by the Servicer to the Trustee under
the applicable Pooling and Servicing Agreement, (ii) the annual
independent public accountants' servicing report furnished to the
Trustee pursuant to the applicable Pooling and Servicing Agreement,
(iii) each report regarding the Offered Securities mailed to the
holders of such Securities, and (iv) from time to time, such other
information concerning such Securities as the Representative may
reasonably request.
6. Representations and Warranties of the Depositor. The Depositor
represents and warrants to, and agrees with, each Underwriter, as of the date of
the Underwriting Agreement, as follows:
(a) The Registration Statement including a prospectus relating to the
Securities and the offering thereof from time to time in accordance
with Rule 415 under the 1933 Act has been filed with the Commission
and such Registration Statement, as amended to the date of the
Underwriting Agreement, has become effective. No stop order
suspending the effectiveness of such Registration Statement has been
issued and no proceeding for that purpose has been initiated or
threatened by the Commission. A prospectus supplement specifically
relating to the Offered Securities will be filed with the Commission
pursuant to Rule 424 under the 1933 Act; provided, however, that a
supplement to the Prospectus prepared pursuant to Section 5(b) hereof
shall be deemed to have supplemented the Basic Prospectus only with
respect to the Offered Securities to which it relates. The conditions
to the use of a registration statement on Form S-3 under the 1933 Act,
as set forth in the General Instructions on Form S-3, and the
conditions of Rule 415 under the 1933 Act, have been satisfied with
respect to the Depositor and the Registration Statement. There are no
contracts or documents of the Depositor that are required to be filed
as exhibits to the Registration Statement pursuant to the 1933 Act or
the rules and regulations thereunder that have not been so filed.
(b) On the effective date of the Registration Statement, the
Registration Statement and the Basic Prospectus conformed in all
material respects to the requirements of the 1933 Act and the rules
and regulations thereunder, and did not include any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading; on the date of the Underwriting Agreement and as of the
Closing Date, the Registration Statement and the Prospectus conform,
and as amended or supplemented, if applicable, will conform in all
material respects to the requirements of the 1933 Act and the rules
and regulations thereunder, and on the
8
<PAGE>
date of the Underwriting Agreement and as of the Closing Date, neither
of such documents includes any untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and neither
of such documents as amended or supplemented, if applicable, will
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the
foregoing does not apply to statements or omissions in any of such
documents based upon written information furnished to the Depositor by
any Underwriter specifically for use therein.
(c) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise
stated therein, there has been no material adverse change in the
condition, financial or otherwise, earnings, affairs, regulatory
situation or business prospects of the Depositor, whether or not
arising in the ordinary course of the business of the Depositor.
(d) The Depositor has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of
Delaware.
(e) The Depositor has all requisite power and authority (corporate
and other) and all requisite authorizations, approvals, orders,
licenses, certificates and permits of and from all government or
regulatory officials and bodies to own its properties, to conduct its
business as described in the Registration Statement and the Prospectus
and to execute, deliver and perform this Agreement, the Underwriting
Agreement, the Pooling and Servicing Agreement and, if applicable, the
Custodial Agreement, except such as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution by the Underwriter of the Offered Securities; all such
authorizations, approvals, orders, licenses, certificates are in full
force and effect and contain no unduly burdensome provisions; and,
except as set forth or contemplated in the Registration Statement or
the Prospectus, there are no legal or governmental proceedings pending
or, to the best knowledge of the Depositor, threatened that would
result in a material modification, suspension or revocation thereof.
(f) The Offered Securities have been duly authorized, and when the
Offered Securities are issued and delivered pursuant to the
Underwriting Agreement, the Offered Securities will have been duly
executed, issued and delivered and will be entitled to the benefits
provided by the applicable Pooling and Servicing Agreement, subject,
as to the enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and other laws affecting the
rights of creditors generally, and to general principles of equity
(regardless of whether the entitlement to such benefits is considered
in a proceeding in equity or at law), and will conform in substance to
the description thereof contained in the Registration Statement and
the Prospectus, and will in all material respects be in the form
contemplated by the Pooling and Servicing Agreement.
(g) The execution and delivery by the Depositor of this Agreement,
the Underwriting Agreement and the Pooling and Servicing Agreement are
within the
9
<PAGE>
corporate power of the Depositor and neither the execution and
delivery by the Depositor of this Agreement, the Underwriting
Agreement and the Pooling and Servicing Agreement nor the consummation
by the Depositor of the transactions therein contemplated, nor the
compliance by the Depositor with the provisions thereof, will conflict
with or result in a breach of, or constitute a default under, the
charter or the by-laws of the Depositor or any of the provisions of
any law, governmental rule, regulation, judgment, decree or order
binding on the Depositor or its properties, or any of the provisions
of any indenture, mortgage, contract or other instrument to which the
Depositor is a party or by which it is bound, or will result in the
creation or imposition of a lien, charge or encumbrance upon any of
its property pursuant to the terms of any such indenture, mortgage,
contract or other instrument, except such as have been obtained under
the 1933 Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Offered Securities by the Underwriters.
(h) The Underwriting Agreement has been, and at the Closing Date the
Pooling and Servicing Agreement will have been, duly authorized,
executed and delivered by the Depositor.
(i) At the Closing Date, each of the Underwriting Agreement and the
Pooling and Servicing Agreement will constitute a legal, valid and
binding obligation of the Depositor, enforceable against the
Depositor, in accordance with its terms, subject, as to the
enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium and other laws affecting the rights of
creditors generally, and to general principles of equity and the
discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law).
(j) No filing or registration with, notice to, or consent, approval,
non-disapproval, authorization or order or other action of, any court
or governmental authority or agency is required for the consummation
by the Depositor of the transactions contemplated by the Underwriting
Agreement or the Pooling and Servicing Agreement, except such as have
been obtained and except such as may be required under the 1933 Act,
the rules and regulations thereunder, or state securities or "Blue
Sky" laws, in connection with the purchase and distribution of the
Offered Securities by the Underwriters.
(k) The Depositor owns or possesses or has obtained all material
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to lease, own or license, as the case may be,
and to operate, its properties and to carry on its business as
presently conducted and has received no notice of proceedings relating
to the revocation of any such license, permit, consent, order or
approval, which singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially adversely
affect the conduct of the business, results of operations, net worth
or condition (financial or otherwise) of the Depositor.
10
<PAGE>
(l) Other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending to which the
Depositor is a party or of which any property of the Depositor is the
subject which, if determined adversely to the Depositor would
individually or in the aggregate have a material adverse effect on the
condition (financial or otherwise), earnings, affairs, or business or
business prospects of the Depositor and, to the best of the
Depositor's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(m) Each of the Offered Securities will, when issued, be a "mortgage
related security" as such term is defined in Section 3(a)(41) of the
1934 Act.
(n) At the Closing Date or any Subsequent Transfer Date, as the case
may be, each of the Mortgage Loans which is a subject of the Pooling
and Servicing Agreement and all such Mortgage Loans in the aggregate
will meet the criteria for selection described in the Prospectus, and
at the Closing Date or any Subsequent Transfer Date, as the case may
be, the representations and warranties made by the Depositor in such
Pooling and Servicing Agreement will be true and correct as of such
date.
(o) At the time of execution and delivery of the Pooling and
Servicing Agreement and on any Subsequent Transfer Date, as the case
may be, the Depositor will have good and marketable title to the
Mortgage Loans being transferred to the Trustee pursuant to the
Pooling and Servicing Agreement, free and clear of any lien, mortgage,
pledge, charge, encumbrance, adverse claim or other security interest
(collectively, "Liens"), and will not have assigned to any person any
of its right, title or interest in such Mortgage Loans or in such
Pooling and Servicing Agreement or the Offered Securities being issued
pursuant thereto, the Depositor will have the power and authority to
transfer such Mortgage Loans to the Trustee and to transfer the
Offered Securities to each of the Underwriters, and upon execution and
delivery to the Trustee of the Pooling and Servicing Agreement and
delivery to each of the Underwriters of the Offered Securities, and on
any Subsequent Transfer Date, as the case may be, the Trustee will
have good and marketable title to the Mortgage Loans and each of the
Underwriters will have good and marketable title to the Offered
Securities, in each case free and clear of any Liens.
(p) The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as amended, and the
Trust Fund (as defined in the Pooling and Servicing Agreement) is not
required to be registered under the Investment Company Act of 1940, as
amended.
(q) Any taxes, fees and other governmental charges in connection with
the execution, delivery and issuance of the Underwriting Agreement,
this Agreement, the Pooling and Servicing Agreement and the Offered
Securities have been or will be paid at or prior to the Closing Date.
11
<PAGE>
7. Indemnification and Contribution.
(a) The Depositor agrees to indemnify and hold harmless each
Underwriter (including Prudential Securities Incorporated acting in
its capacity as Representative and as one of the Underwriters), and
each person, if any, who controls any Underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter or such controlling person
may become subject under the 1933 Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter and each such
controlling person for any legal or other expenses reasonably incurred
by such Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Depositor will not be liable in
any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto in reliance upon and in conformity
with (1) written information furnished to the Depositor by any
Underwriter through the Representative specifically for use therein or
(2) information regarding the Mortgage Loans except to the extent that
the Depositor has been indemnified by the Servicer. This indemnity
agreement will be in addition to any liability which the Depositor may
otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Depositor,
each of the Depositor's directors, each of the Depositor's officers
who signed the Registration Statement and each person, if any, who
controls the Depositor, within the meaning of the 1933 Act, against
any losses, claims, damages or liabilities to which the Depositor, or
any such director, officer or controlling person may become subject,
under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or
any other prospectus relating to the Offered Securities, or arise out
of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statements or alleged untrue
statements or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Depositor
by any Underwriter through the Representative specifically for use
therein; and each Underwriter will reimburse any legal or other
expenses reasonably incurred by the Depositor or any such director,
officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. This
indemnity
12
<PAGE>
agreement will be in addition to any liability which such Underwriter
may otherwise have. The Depositor acknowledges that the statements
set forth under the caption "Plan of Distribution" in the Prospectus
Supplement constitute the only information furnished to the Depositor
by or on behalf of any Underwriter for use in the Registration
Statement, any Preliminary Prospectus or the Prospectus, and each of
the several Underwriters represents and warrants that such statements
are correct as to it.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 7, notify the indemnifying party
of the commencement thereof, but the omission to so notify the
indemnifying party will not relieve the indemnifying party from any
liability which the indemnifying party may have to any indemnified
party hereunder except to the extent such indemnifying party has been
prejudiced thereby. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof with counsel satisfactory to such indemnified party. After
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section 7 for any
legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that the Representative
shall have the right to employ separate counsel to represent the
Representative, those other Underwriters and their respective
controlling persons who may be subject to liability arising out of any
claim in respect of which indemnity may be sought by the Underwriters
against the Depositor under this Section 7 if, in the reasonable
judgment of the Representative, it is advisable for the Representative
and those Underwriters and controlling persons to be represented by
separate counsel, and in that event the fees and expenses of such
separate counsel shall be paid by the Depositor (it being understood,
however, that the Depositor shall not, in connection with any one such
claim or separate but substantially similar or related claim in the
same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more
than one separate firm of attorneys at any time for the Representative
and those Underwriters and controlling persons).
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the
preceding parts of this Section 7 is for any reason held to be
unavailable to or insufficient to hold harmless an indemnified party
under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to
therein, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof);
provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not
guilty of such
13
<PAGE>
fraudulent misrepresentation. In determining the amount of
contribution to which the respective parties are entitled, there shall
be considered the relative benefits received by the Depositor on the
one hand, and the Underwriters on the other, from the offering of the
Offered Securities (taking into account the portion of the proceeds of
the offering realized by each), the Depositor's and the Underwriters'
relative knowledge and access to information concerning the matter
with respect to which the claim was asserted, the opportunity to
correct and prevent any statement or omission, and any other equitable
considerations appropriate in the circumstances. The Depositor and
the Underwriters agree that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocation
(even if the Underwriters were treated as one entity for such
purpose). No Underwriter or person controlling such Underwriter shall
be obligated to make contribution hereunder which in the aggregate
exceeds the total underwriting fee of the Offered Securities purchased
by such Underwriter under the Underwriting Agreement, less the
aggregate amount of any damages which such Underwriter and its
controlling persons have otherwise been required to pay in respect of
the same or any substantially similar claim. The Underwriters'
obligation to contribute hereunder are several in proportion to their
respective underwriting obligations and not joint. For purposes of
this Section 7, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as such Underwriter, and each director of the
Depositor, each officer of the Depositor who signed the Registration
Statement, and each person, if any, who controls the Depositor within
the meaning of Section 15 of the 1933 Act, shall have the same rights
to contribution as the Depositor.
(e) The parties hereto agree that the first sentence of Section
3.04(b) of the Indemnification Agreement (the "Indemnification
Agreement") dated as of the Closing Date among the Certificate
Insurer, the Servicer, the Depositor and the Underwriter shall not be
construed as limiting the Depositor's right to enforce its rights
under Section 7 of this Agreement. The parties further agree that, as
between the parties hereto, to the extent that the provisions of
Section 3.04 of the Indemnification Agreement conflict with Section 7
hereof, the provisions of Section 7 hereof shall govern.
8. Survival of Certain Representations and Obligations. The
respective representations, warranties, agreements, covenants, indemnities and
other statements of the Depositor, its officers and the several Underwriters set
forth in, or made pursuant to, the Underwriting Agreement shall remain in full
force and effect, regardless of any investigation, or statement as to the result
thereof, made by or on behalf of any Underwriter, the Depositor, or any of the
officers or directors or any controlling person of any of the foregoing, and
shall survive the delivery of and payment for the Offered Securities.
9. Termination.
(a) The Underwriting Agreement may be terminated by the Depositor by
notice to the Representative in the event that a stop order suspending
the effectiveness of the Registration Statement shall have been issued
or proceedings for that purpose shall have been instituted or
threatened.
14
<PAGE>
(b) The Underwriting Agreement may be terminated by the
Representative by notice to the Depositor in the event that the
Depositor shall have failed, refused or been unable to perform all
obligations and satisfy all conditions to be performed or satisfied
hereunder by the Depositor at or prior to the Closing Date.
(c) Termination of the Underwriting Agreement pursuant to this
Section 9 shall be without liability of any party to any other party
other than as provided in Sections 7 and 11 hereof.
10. Default of Underwriters. If any Underwriter or Underwriters
defaults or default in their obligation to purchase Offered Securities which it
or they have agreed to purchase under the Underwriting Agreement and the
aggregate principal amount of the Offered Securities which such defaulting
Underwriter or Underwriters agreed but failed to purchase is ten percent or less
of the aggregate principal amount, notional amount or stated amount, as
applicable, of the Offered Securities to be sold under the Underwriting
Agreement, as the case may be, the other Underwriters shall be obligated
severally in proportion to their respective commitments under the Underwriting
Agreement to purchase the Offered Securities which such defaulting Underwriter
or Underwriters agreed but failed to purchase. If any Underwriter or
Underwriters so defaults or default and the aggregate principal amount of the
Offered Securities with respect to which such default or defaults occurs or
occur is more than ten percent of the aggregate principal amount, notional
amount or stated amount, as applicable, of Offered Securities to be sold under
the Underwriting agreement, as the case may be, and arrangements satisfactory to
the Representative and the Depositor for the purchase of such Offered Securities
by other persons (who may include one or more of the non-defaulting Underwriters
including the Representative) are not made within 36 hours after any such
default, the Underwriting Agreement will terminate without liability on the part
of any non-defaulting Underwriters or the Depositor except for the expenses to
be paid or reimbursed by the Depositor pursuant to Section 11 hereof. As used
in the Underwriting Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10. Nothing herein shall
relieve a defaulting Underwriter from liability for its default.
11. Expenses. The Depositor agrees with the several Underwriters
that:
(a) whether or not the transactions contemplated in the Underwriting
Agreement are consummated or the Underwriting Agreement is terminated,
the Depositor will pay all fees and expenses incident to the
performance of its obligations under the Underwriting Agreement,
including, but not limited to, (i) the Commission's registration fee,
(ii) the expenses of printing and distributing the Underwriting
Agreement and any related underwriting documents, the Registration
Statement, any Preliminary Prospectus, the Prospectus, any amendments
or supplements to the Registration Statement or the Prospectus, and
any Blue Sky memorandum or legal investment survey and any supplements
thereto, (iii) fees and expenses of rating agencies, accountants and
counsel for the Depositor, (iv) the expenses referred to in Section
5(e) hereof, and (v) all miscellaneous expenses referred to in Item 30
of the Registration Statement;
(b) all out-of-pocket expenses, including counsel fees, disbursements
and expenses, reasonably incurred by the Underwriters in connection
with investigating, preparing to market and marketing the Offered
Securities and proposing to purchase and purchasing the Offered
Securities under the
15
<PAGE>
Underwriting Agreement will be borne and paid by the Depositor if the
Underwriting Agreement is terminated by the Depositor pursuant to
Section 9(a) hereof or by the Representative on account of the
failure, refusal or inability on the part of the Depositor to perform
all obligations and satisfy all conditions on the part of the
Depositor to be performed or satisfied hereunder; and
(c) the Depositor will pay the cost of preparing the certificates for
the Offered Securities.
Except as otherwise provided in this Section 11, the Underwriters
agree to pay all of their expenses in connection with investigating, preparing
to market and marketing the Offered Securities and proposing to purchase and
purchasing the Offered Securities under the Underwriting Agreement, including
the fees and expenses of their counsel and any advertising expenses incurred by
them in making offers and sales of the Offered Securities.
12. Notices. All communications under the Underwriting Agreement
shall be in writing and, if sent to the Underwriters, shall be mailed, delivered
or telegraphed and confirmed to the Representative at the address and to the
attention of the person specified in the Underwriting Agreement, and, if sent to
the Depositor, shall be mailed, delivered or telegraphed and confirmed to
Prudential Securities Secured Financing Corporation, One New York Plaza, 15th
Floor, New York, New York 10292, Attention: Managing Director-Asset Finance
Group; provided, however, that any notice to any Underwriter pursuant to the
Underwriting Agreement shall be mailed, delivered or telegraphed and confirmed
to such Underwriter at the address furnished by it.
13. Representative of Underwriters. Any Representative identified in
the Underwriting Agreement will act for the Underwriters of the Offered
Securities and any action taken by the Representative under the Underwriting
Agreement will be binding upon all of such Underwriters.
14. Successors. The Underwriting Agreement shall inure to the
benefit of and shall be binding upon the several Underwriters and the Depositor
and their respective successors and legal representatives, and nothing expressed
or mentioned herein or in the Underwriting Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of the Underwriting Agreement, or any provisions herein
contained, the Underwriting Agreement and all conditions and provisions hereof
being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person except that (i) the
representations and warranties of the Depositor contained herein or in the
Underwriting Agreement shall also be for the benefit of any person or persons
who controls or control any Underwriter within the meaning of Section 15 of the
1933 Act, and (ii) the indemnities by the several Underwriters shall also be for
the benefit of the directors of the Depositor, the officers of the Depositor who
have signed the Registration Statement and any person or persons who control the
Depositor within the meaning of Section 15 of the 1933 Act. No purchaser of the
Offered Securities from any Underwriter shall be deemed a successor because of
such purchase. This Agreement and each Underwriting Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
16
<PAGE>
15. Time of the Essence. Time shall be of the essence of each
Underwriting Agreement.
16. Governing Law. This Agreement and each Underwriting Agreement
shall be governed by and construed in accordance with the laws of the State of
New York.
[Signature Page Follows]
17
<PAGE>
If the foregoing is in accordance with your understanding, please sign
and return two counterparts hereof.
Yours truly,
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION
By: /s/ Norman Chaleff
------------------------------
Name: Norman Chaleff
Title: Vice President
Accepted as of the date hereof:
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ Brendan Keane
---------------------------
Name: Brendan Keane
Title: Vice President
[Signature Page to Underwriting Agreement Standard Provisions]
<PAGE>
Exhibit A
Opinions of Dewey Ballantine,
special counsel for the Depositor
---------------------------------
(1) Each of the Documents constitutes the valid, legal and binding
agreement of the Depositor, and is enforceable against the Depositor in
accordance with its terms.
(2) The Certificates, assuming the due execution by the Trustee and due
authentication by the Trustee and payment therefor pursuant to the Underwriting
Agreement, are validly issued and outstanding and are entitled to the benefits
of the Pooling and Servicing Agreement.
(3) No consent, approval, authorization or order of, registration or
filing with, or notice to, any governmental authority or court is required under
federal laws or the laws of the State of New York for the execution, delivery
and performance of the Documents or the offer, issuance, sale or delivery of the
Certificates or the consummation of any other transaction contemplated thereby
by the Depositor, except such which have been obtained.
(4) The Registration Statement and the Prospectus (other than the
financial and statistical data included therein, as to which we are not called
upon to express any opinion), at the time the Registration Statement became
effective, as of the date of execution of the Underwriting Agreement and as of
the date hereof comply as to form in all material respects with the requirements
of the Securities Act of 1933, as amended, and the rules and regulations
thereunder, and the Exchange Act and the rules and regulations thereunder, and
we do not know of any amendment to the Registration Statement required to be
filed, or of any contracts, indentures or other documents of a character
required to be filed as an exhibit to the Registration Statement or required to
be described in the Registration Statement or the Prospectus, which has not been
filed or described as required.
(5) Neither the qualification of the Pooling and Servicing Agreement under
the Trust Indenture Act of 1939, as amended, nor the registration of the Trust
Fund created by the Pooling and Servicing Agreement under the Investment Company
Act of 1940 is required.
(6) The statements in the Prospectus Supplement set forth under the
caption "DESCRIPTION OF THE CERTIFICATES," to the extent such statements purport
to summarize certain provisions of the Certificates or of the Pooling and
Servicing Agreement or of the Unaffiliated Seller's Agreement, are fair and
accurate in all material respects.
<PAGE>
Exhibit B
Opinions of Counsel to
the Servicer
-------------------------
(1) The Servicer has been duly organized and is validly existing as a
corporation in good standing under the federal laws of the United States and is
duly qualified to transact business in the State of Pennsylvania.
(2) The Servicer has the requisite power and authority to execute and
deliver, engage in the transactions contemplated by, and perform and observe the
conditions of, the Pooling and Servicing Agreement, the Unaffiliated Seller's
Agreement dated as of the Closing Date (the "Unaffiliated Seller's Agreement")
between the Servicer and the Depositor, collectively referred to hereinafter as
the "Servicer Agreements".
(3) The Servicer Agreements have been duly and validly authorized,
executed and delivered by the Servicer, all requisite corporate action having
been taken with respect thereto, and each constitutes the valid, legal and
binding agreement of the Servicer, and are enforceable against the Servicer in
accordance with their respective terms.
(4) Neither the transfer of the Mortgage Loans to the Depositor, nor the
execution, delivery or performance by the Servicer of the Servicer Agreements
(A) conflicts or will conflict with or results or will result in a breach of, or
constitutes or will constitute a default under or violates or will violate, (i)
any term or provision of the Articles of Incorporation or By-laws of the
Servicer; (ii) any term or provision of any material agreement, contract,
instrument or indenture, to which the Servicer or any of its subsidiaries is a
party or is bound; or (iii) any order, judgment, writ, injunction or decree of
any court or governmental agency or body or other tribunal having jurisdiction
over the Servicer or any of its properties; or (B) results in, or will result in
the creation or imposition of any lien, charge or encumbrance upon the Trust
Fund or upon the Certificates, except as otherwise contemplated by the Pooling
and Servicing Agreement.
(5) The endorsement and delivery of each Mortgage Note, and the
preparation, delivery and recording of an Assignment of Mortgage with respect to
each Mortgage is sufficient fully to transfer to the Depositor and its assignees
all right, title and interest of the Servicer in the Mortgage Note and Mortgage,
as noteholder and mortgagee or assignee thereof.
(6) No consent, approval, authorization or order of, registration or
qualification of or with or notice to, any courts, governmental agency or body
or other tribunal is required under the laws of New York or Pennsylvania, for
the execution, delivery and performance of the Servicer Agreements or the
consummation of any other transaction contemplated thereby by the Servicer,
except such which have been obtained.
(7) There are no legal or governmental suits, proceedings or
investigations pending or, to such counsel's knowledge, threatened against the
Servicer before any court, governmental agency or body or other tribunal (A)
which, if determined adversely to the Servicer, would
<PAGE>
individually or in the aggregate have a material adverse effect on (i) the
consolidated financial position, business prospects, stockholders's equity or
results of operations of the Servicer; (ii) the Servicer's ability to perform
its obligations under, or the validity or enforceability of, the Servicer
Agreements; (iii) any Mortgage Note or Mortgaged Property, or the title of any
Mortgagor to any Mortgaged Property; or (B) which have not otherwise been
disclosed in the Registration Statement and to the best of such counsel's
knowledge, no such proceedings or investigations are threatened or contemplated
by governmental authorities or threatened by others.
B-2
<PAGE>
Exhibit C
Opinions of Counsel to
the Trustee
----------------------
(1) The Trustee is a national banking association duly organized, validly
existing and in good standing under the laws of the United States and has the
power and authority to enter into and to take all actions required of it under
the Pooling and Servicing Agreement.
(2) The Pooling and Servicing Agreement has been duly authorized, executed
and delivered by the Trustee and the Pooling and Servicing Agreement constitutes
the legal, valid and binding obligation of the Trustee, enforceable against the
Trustee in accordance with its terms, except as enforceability thereof may be
limited by (A) bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally, as such laws would
apply in the event of a bankruptcy, insolvency or reorganization or similar
occurrence affecting the Trustee, and (B) general principles of equity
regardless of whether such enforcement is sought in a proceeding at law or in
equity.
(3) No consent, approval, authorization or other action by any
governmental agency or body or other tribunal is required on the part of the
Trustee in connection with its execution and delivery of the Pooling and
Servicing Agreement or the performance of its obligations thereunder.
(4) The Certificates have been duly executed, authenticated and delivered
by the Trustee.
(5) The execution and delivery of, and performance by the Trustee of its
obligations under, the Pooling and Servicing Agreement do not conflict with or
result in a violation of any statute or regulation applicable to the Trustee, or
the charter or bylaws of the Trustee, or to the best knowledge of such counsel,
any governmental authority having jurisdiction over the Trustee or the terms of
any indenture or other agreement or instrument to which the Trustee is a party
or by which it is bound.
C-1
<PAGE>
Exhibit D
Opinions of Counsel
to the Certificate Insurer
--------------------------
(1) The Certificate Insurer is a stock insurance corporation, duly
incorporated and validly existing under the laws of the State of New York. The
Certificate Insurer is validly licensed and authorized to issue the Certificate
Insurance Policy and perform its obligations under the Certificate Insurance
Policy in accordance with the terms thereof, under the laws of the State of New
York.
(2) The execution and delivery by the Certificate Insurer of the
Certificate Insurance Policy, and the Indemnification Agreement are within the
corporate power of the Certificate Insurer and have been authorized by all
necessary corporate action on the part of the Certificate Insurer; the
Certificate Insurance Policy has been duly executed and is the valid and binding
obligation of the Certificate Insurer enforceable in accordance with its terms
except that the enforcement of the Certificate Insurance Policy may be limited
by laws relating to bankruptcy, insolvency, reorganization, moratorium,
receivership and other similar laws affecting creditors' rights generally and by
general principles of equity.
(3) The Certificate Insurer is authorized to deliver the Indemnification
Agreement, and the Indemnification Agreement has been duly executed and is the
valid and binding obligation of the Certificate Insurer enforceable in
accordance with its terms except that the enforcement thereof may be limited by
laws relating to bankruptcy, insolvency, reorganization, moratorium,
receivership and other similar laws affecting creditors' rights generally and by
general principles of equity and by public policy considerations relating to
indemnification for securities law violations.
(4) No consent, approval, authorization or order of any state or federal
court or governmental agency or body is required on the part of the Certificate
Insurer, the lack of which would adversely affect the validity or enforceability
of the Certificate Insurance Policy; to the extent required by applicable legal
requirements that would adversely affect validity or enforceability of the
Certificate Insurance Policy, the form of each Certificate Insurance Policy has
been filed with, and approved by, all governmental authorities having
jurisdiction over the Certificate Insurer in connection with such Certificate
Insurance Policy.
(5) To the extent the Certificate Insurance Policy constitutes a security
within the meaning of Section 2(1) of the 1933 Act, it is a security that is
exempt from the registration requirements of the Act.
(6) The information set forth under the caption "THE CERTIFICATE INSURANCE
POLICY AND THE CERTIFICATE INSURER" in the Prospectus insofar as such statements
constitute a description of the Certificate Insurance Policies, accurately
summarizes the Certificate Insurance Policy.
D-1
<PAGE>
EXHIBIT 4.1
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of August 31, 1996
by and among
Prudential Securities Secured Financing Corporation
(Depositor)
and
American Business Credit, Inc.
(Servicer)
and
The Chase Manhattan Bank
(Trustee)
ABFS Mortgage Loan Trust 1996-2
Mortgage Pass-Through Certificates,
Series 1996-2
Class A and Class R
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . 1
Section 1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . 1
Section 1.02 Provisions of General Application.. . . . . . . . . . . . 24
Section 1.03 Business Day Certificate. . . . . . . . . . . . . . . . . 24
ARTICLE II
ESTABLISHMENT OF THE TRUST
SALE AND CONVEYANCE OF THE TRUST FUND. . . . . . . . . 25
Section 2.01 Establishment of the Trust. . . . . . . . . . . . . . . . 25
Section 2.02 Purchase and Sale of Initial Mortgage Loans.. . . . . . . 25
Section 2.03 Purchase and Sale of Subsequent Mortgage Loans. . . . . . 25
Section 2.04 Possession of Mortgage Files; Access to Mortgage Files. . 27
Section 2.05 Delivery of Mortgage Loan Documents . . . . . . . . . . . 27
Section 2.06 Acceptance by Trustee of the Trust Fund; Certain
Substitutions; Certification by Trustee . . . . . . . . 30
Section 2.07 Designations under REMIC Provisions; Designation of
Startup Day . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.08 Execution of Certificates . . . . . . . . . . . . . . . . 32
Section 2.09 Application of Principal and Interest . . . . . . . . . . 32
Section 2.10 Grant of Security Interest. . . . . . . . . . . . . . . . 32
Section 2.11 Further Action Evidencing Assignments.. . . . . . . . . . 33
ARTICLE III
REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . 33
Section 3.01 Representations of the Servicer . . . . . . . . . . . . . 33
Section 3.02 Representations, Warranties and Covenants of the
Depositor . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.03 Purchase and Substitution . . . . . . . . . . . . . . . . 36
ARTICLE IV
THE CERTIFICATES . . . . . . . . . . . . . . 37
Section 4.01 The Certificates. . . . . . . . . . . . . . . . . . . . . 37
Section 4.02 Registration of Transfer and Exchange of Certificates . . 38
Section 4.03 Mutilated, Destroyed, Lost or Stolen Certificates . . . . 43
Section 4.04 Persons Deemed Owners . . . . . . . . . . . . . . . . . . 43
i
<PAGE>
PAGE
ARTICLE V
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS. . . . . . 43
Section 5.01 REMIC Matters; The Servicer.. . . . . . . . . . . . . . . 43
Section 5.02 Collection of Certain Mortgage Loan Payments;
Collection Account. . . . . . . . . . . . . . . . . . . 45
Section 5.03 Permitted Withdrawals from the Collection Account . . . . 46
Section 5.04 Hazard Insurance Policies; Property Protection
Expenses. . . . . . . . . . . . . . . . . . . . . . . . 47
Section 5.05 Assumption and Modification Agreements. . . . . . . . . . 47
Section 5.06 Realization Upon Defaulted Mortgage Loans . . . . . . . . 48
Section 5.07 Trustee to Cooperate. . . . . . . . . . . . . . . . . . . 49
Section 5.08 Servicing Compensation; Payment of Certain Expenses by
Servicer. . . . . . . . . . . . . . . . . . . . . . . . 49
Section 5.09 Annual Statement as to Compliance . . . . . . . . . . . . 50
Section 5.10 Annual Independent Public Accountants' Servicing Report . 50
Section 5.11 Access to Certain Documentation . . . . . . . . . . . . . 50
Section 5.12 Maintenance of Fidelity Bond. . . . . . . . . . . . . . . 50
Section 5.13 The Subservicer . . . . . . . . . . . . . . . . . . . . . 50
Section 5.14 Reports to the Trustee; Collection Account Statements . . 51
Section 5.15 Optional Purchase of Defaulted Mortgage Loans . . . . . . 51
Section 5.16 Reports to be Provided by the Servicer. . . . . . . . . . 51
Section 5.17 Adjustment of Servicing Compensation in Respect of
Prepaid Mortgage Loans. . . . . . . . . . . . . . . . . 52
Section 5.18 Periodic Advances; Special Advance. . . . . . . . . . . . 52
Section 5.19 Indemnification; Third Party Claims . . . . . . . . . . . 53
Section 5.20 Maintenance of Corporate Existence and Licenses;
Merger or Consolidation of the Servicer . . . . . . . . 53
Section 5.21 Assignment of Agreement by Servicer; Servicer Not to
Resign. . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.22 Periodic Filings with the Securities and Exchange
Commission; Additional Information. . . . . . . . . . . 54
ARTICLE VI
DISTRIBUTIONS AND PAYMENTS. . . . . . . . . . . . 54
Section 6.01 Establishment of Accounts; Withdrawals from Accounts;
Deposits to the Certificate Account . . . . . . . . . . 54
Section 6.02 Permitted Withdrawals From the Certificate Account. . . . 55
Section 6.03 Collection of Money . . . . . . . . . . . . . . . . . . . 56
Section 6.04 The Certificate Insurance Policy. . . . . . . . . . . . . 56
Section 6.05 Distributions . . . . . . . . . . . . . . . . . . . . . . 58
Section 6.06 Investment of Accounts. . . . . . . . . . . . . . . . . . 58
Section 6.07 Reports by the Trustee. . . . . . . . . . . . . . . . . . 59
Section 6.08 Additional Reports by Trustee . . . . . . . . . . . . . . 61
Section 6.09 Compensating Interest . . . . . . . . . . . . . . . . . . 61
Section 6.10 Effect of Payments by the Certificate Insurer;
Subrogation . . . . . . . . . . . . . . . . . . . . . . 61
ii
<PAGE>
PAGE
ARTICLE VII
DEFAULT . . . . . . . . . . . . . . . . 62
Section 7.01 Events of Default . . . . . . . . . . . . . . . . . . . . 62
Section 7.02 Trustee to Act; Appointment of Successor. . . . . . . . . 64
Section 7.03 Waiver of Defaults. . . . . . . . . . . . . . . . . . . . 65
Section 7.04 Rights of the Certificate Insurer to Exercise Rights
of Class A Certificateholders . . . . . . . . . . . . . 65
Section 7.05 Trustee To Act Solely with Consent of the Certificate
Insurer . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.06 Mortgage Loans, Trust Fund and Accounts Held for
Benefit of the Certificate Insurer. . . . . . . . . . . 66
Section 7.07 Certificate Insurer Default . . . . . . . . . . . . . . . 67
ARTICLE VIII
TERMINATION . . . . . . . . . . . . . . . 67
Section 8.01 Termination . . . . . . . . . . . . . . . . . . . . . . . 67
Section 8.02 Additional Termination Requirements . . . . . . . . . . . 68
Section 8.03 Accounting Upon Termination of Servicer . . . . . . . . . 69
Section 8.04 Retention and Termination of the Servicer . . . . . . . . 69
ARTICLE IX
THE TRUSTEE . . . . . . . . . . . . . . . 70
Section 9.01 Duties of Trustee . . . . . . . . . . . . . . . . . . . . 70
Section 9.02 Certain Matters Affecting the Trustee . . . . . . . . . . 74
Section 9.03 Trustee Not Liable for Certificates or Mortgage Loans . . 75
Section 9.04 Trustee May Own Certificates. . . . . . . . . . . . . . . 75
Section 9.05 Trustee's Fees and Expenses; Indemnity. . . . . . . . . . 75
Section 9.06 Eligibility Requirements for Trustee. . . . . . . . . . . 76
Section 9.07 Resignation and Removal of the Trustee. . . . . . . . . . 76
Section 9.08 Successor Trustee . . . . . . . . . . . . . . . . . . . . 77
Section 9.09 Merger or Consolidation of Trustee. . . . . . . . . . . . 77
Section 9.10 Appointment of Co-Trustee or Separate Trustee . . . . . . 77
Section 9.11 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . 78
Section 9.12 Retirement of Certificates. . . . . . . . . . . . . . . . 78
ARTICLE X
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . 79
Section 10.01 Limitation on Liability of the Depositor and the
Servicer . . . . . . . . . . . . . . . . . . . . . . . 79
Section 10.02 Acts of Certificateholders . . . . . . . . . . . . . . . 79
Section 10.03 Amendment. . . . . . . . . . . . . . . . . . . . . . . . 79
Section 10.04 Recordation of Agreement . . . . . . . . . . . . . . . . 80
iii
<PAGE>
PAGE
Section 10.05 Duration of Agreement. . . . . . . . . . . . . . . . . . 80
Section 10.06 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 10.07 Severability of Provisions . . . . . . . . . . . . . . . 81
Section 10.08 No Partnership . . . . . . . . . . . . . . . . . . . . . 81
Section 10.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . 81
Section 10.10 Successors and Assigns . . . . . . . . . . . . . . . . . 81
Section 10.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 10.12 The Certificate Insurer Default. . . . . . . . . . . . . 81
Section 10.13 Third Party Beneficiary. . . . . . . . . . . . . . . . . 81
Section 10.14 Intent of the Parties. . . . . . . . . . . . . . . . . . 81
Section 10.15 Appointment of Tax Matters Person. . . . . . . . . . . . 81
Section 10.16 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF
JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . 81
EXHIBITS
EXHIBIT A Certificate Insurance Policy
EXHIBIT B-1 Class A Certificate
EXHIBIT B-2 Class R Certificate
EXHIBIT C Mortgage File
EXHIBIT D Mortgage Loan Schedule
EXHIBIT E Trustee's Acknowledgement of Receipt of files
EXHIBIT F Initial Certification of Trustee
EXHIBIT G Final Certification of Trustee
EXHIBIT H Request for Release of Documents
EXHIBIT I Transfer Affidavit and Agreement
EXHIBIT J Transferor's Certificate
EXHIBIT K ERISA Investment Representation Letters
EXHIBIT L [Reserved]
EXHIBIT M Certificate Re: Prepaid Loans
iv
<PAGE>
POOLING AND SERVICING AGREEMENT, relating to ABFS MORTGAGE LOAN TRUST
1996-2, dated as of August 31, 1996, by and among PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION, a Delaware corporation, in its capacity as Depositor of
the Trust (the "Depositor"), AMERICAN BUSINESS CREDIT, INC. a Pennsylvania
corporation, in its capacity as servicer (the "Servicer"), and THE CHASE
MANHATTAN BANK, a New York banking corporation, in its capacity as trustee (the
"Trustee").
WHEREAS, the Depositor wishes to establish a trust which provides for
the allocation and sale of the beneficial interests therein and the maintenance
and distribution of the trust estate;
WHEREAS, the Servicer has agreed to service the Mortgage Loans, which
constitute the principal assets of the trust estate;
WHEREAS, The Chase Manhattan Bank is willing to serve in the capacity
of Trustee hereunder; and
WHEREAS, Financial Security Assurance Inc. (the "Certificate Insurer")
is intended to be a third party beneficiary of this Agreement and is hereby
recognized by the parties hereto to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Depositor, the Servicer and the Trustee hereby
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. Whenever used herein, the
following words and phrases, unless the context otherwise requires, shall have
the following meanings.
ACCEPTED SERVICING PRACTICES: The Servicer's normal servicing
practices, which in general will conform to the mortgage servicing practices of
prudent mortgage lending institutions which service for their own account
mortgage loans of the same type as the Mortgage Loans in the jurisdictions in
which the related Mortgaged Properties are located.
ACCOUNT: Any of the Collection Account, the Certificate Account, the
Capitalized Interest Account, Policy Payment Account or the Pre-Funding Account.
ADDITION NOTICE: A written notice from the Seller to the Trustee, the
Rating Agencies and the Certificate Insurer that the Seller desires to make a
Subsequent Transfer.
ADJUSTED PASS-THROUGH RATE: With respect to any Distribution Date,
the percentage equal to the sum of (i) the Class A Pass-Through Rate, (ii) the
rate at which the Trustee's Fee is determined and (iii) the Premium Percentage.
ADMINISTRATIVE COSTS: With respect to any Distribution Date, the sum
of the Trustee Fee, the Premium Amount and the Servicing Fee for such
Distribution Date.
<PAGE>
AFFILIATE: With respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
AGREEMENT: This Pooling and Servicing Agreement, including the
Exhibits hereto, and all amendments hereof and supplements hereto.
APPRAISED VALUE: As to any Mortgaged Property and time referred to
herein, the appraised value of the Mortgaged Property based upon the appraisal
made by or on behalf of the Originator at the time referred to herein or, in the
case of a Mortgage Loan that is a purchase money mortgage loan, the sales price
of the Mortgaged Property, if such sales price is less than such appraised
value.
ASSIGNMENT OF MORTGAGE: With respect to each Mortgage Loan, an
assignment of the Mortgage, notice of transfer or equivalent instrument
sufficient under the laws of the jurisdiction wherein the related Mortgaged
Property is located to reflect of record the sale of the Mortgage to the Trustee
for the benefit of the Certificateholders.
AUTHORIZED DENOMINATIONS: Each of the Class A Certificates is
issuable only in the minimum Percentage Interest corresponding to a minimum
denomination of $1,000 or integral multiples of $1,000 in excess thereof;
provided, however, that one Certificate is issuable in a denomination equal to
any such multiple plus an additional amount such that the aggregate denomination
of all Class A Certificates shall be equal to the applicable Original
Certificate Principal Balance.
AVAILABLE FUNDS: As defined in Section 6.04(a).
AVAILABLE FUNDS SHORTFALL: With respect to any Distribution Date, an
amount equal to the excess of the Insured Distribution Amount for such
Distribution Date over the Available Funds for such Distribution Date.
BUSINESS DAY: Any day other than (a) a Saturday or Sunday, or (b) a
day on which banking institutions in the States of Pennsylvania or New York are
authorized or obligated by law or executive order to be closed.
CAPITALIZED INTEREST ACCOUNT: The Capitalized Interest Account
established in accordance with Section 6.01(a) hereof and maintained by the
Trustee.
CAPITALIZED INTEREST REQUIREMENT: With respect to the Distribution
Dates occurring in October 1996, November 1996, December 1996 and January 1997,
(A) the product of (i) one-twelfth of the Adjusted Pass-Through Rate as
calculated as of such Distribution Date and (ii) the Pre-Funded Amount as of the
first day of the related Due Period, MINUS (B) 30 days' interest, at the related
Mortgage Interest Rate, on the Subsequent Mortgage Loans transferred to the
Trust during the related Due Period which had a Due Date after the related
Subsequent Cut-Off Date during the related Due Period, MINUS (C) the amount of
any Pre-Funding Earnings earned from the last Distribution Date (or the Closing
Date with respect to the October 1996 Distribution Date).
2
<PAGE>
CERCLA: The Comprehensive Environmental Response, Compensation and
Liability Act of 1980.
CERTIFICATE: Any Class A Certificate or Class R Certificate executed
by the Trustee on behalf of the Trust Fund and authenticated by the Trustee.
CERTIFICATE ACCOUNT: The Certificate Account established in
accordance with Section 6.01(a) hereof and maintained by the Trustee.
CERTIFICATEHOLDER or HOLDER: Except as provided in Article X, each
Person in whose name a Certificate is registered in the Certificate Register,
except that, solely for the purposes of giving any consent (except any consent
required to be obtained pursuant to Section 10.02), waiver, request or demand
pursuant to this Agreement, any Certificate registered in the name of the
Servicer or any Subservicer or the Seller, or any Affiliate of any of them,
shall be deemed not to be outstanding and the undivided Percentage Interest
evidenced thereby shall not be taken into account in determining whether the
requisite percentage of Certificates necessary to effect any such consent,
waiver, request or demand has been obtained. For purposes of any consent,
waiver, request or demand of Certificateholders pursuant to this Agreement, upon
the Trustee's request, the Servicer and the Seller shall provide to the Trustee
a notice identifying any of their respective Affiliates or the Affiliates of any
Subservicer that is a Certificateholder as of the date(s) specified by the
Trustee in such request. Any Certificates on which payments are made under the
Certificate Insurance Policy shall be deemed to be outstanding and held by the
Certificate Insurer to the extent of such payment.
CERTIFICATE INSURANCE PAYMENT ACCOUNT: The Certificate Insurance
Payment Account established in accordance with Section 6.04(c) hereof and
maintained by the Trustee.
CERTIFICATE INSURANCE POLICY: The Financial Guaranty Insurance Policy
No. 50514-N, and all endorsements thereto dated the Closing Date, issued by the
Certificate Insurer for the benefit of the Certificateholders, a copy of which
is attached hereto as Exhibit A.
CERTIFICATE INSURER: Financial Security Assurance Inc., a stock
insurance company organized and created under the laws of the State of New York,
and any successors thereto.
CERTIFICATE INSURER DEFAULT: The existence and continuance of any of
the following:
(a) the Certificate Insurer shall have failed to make a required
payment when due under the Certificate Insurance Policy;
(b) the Certificate Insurer shall have (i) filed a petition or
commenced any case or proceeding under any provision or chapter of the
United States Bankruptcy Code, the New York State Insurance Law or any
other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation, or reorganization, (ii) made a general
assignment for the benefit of its creditors or (iii) had an order for
relief entered against it under the United States Bankruptcy Code, the New
York State Insurance Law or any other similar federal or state law relating
to insolvency, bankruptcy, rehabilitation, liquidation, or reorganization
that is final and nonappealable; or
3
<PAGE>
(c) a court of competent jurisdiction, the New York Department of
Insurance or any other competent regulatory authority shall have entered a
final and nonappealable order, judgment or decree (i) appointing a
custodian, trustee, agent, or receiver for the Certificate Insurer or for
all or any material portion of its property or (ii) authorizing the taking
of possession by a custodian, trustee, agent, or receiver of the
Certificate Insurer or of all or any material portion of its property.
CERTIFICATE PRINCIPAL BALANCE: As to any particular Class A
Certificate and date of determination, the product of the Percentage Interest
evidenced thereby and the aggregate Class A Certificate Principal Balance as of
such date. The Class R Certificates do not have a "Certificate Principal
Balance".
CERTIFICATE REGISTER: As described in Section 4.02(a).
CIVIL RELIEF ACT: The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
CIVIL RELIEF ACT INTEREST SHORTFALL: With respect to any Distribution
Date, for any Mortgage Loan as to which there has been a reduction in the amount
of interest collectible thereon for the most recently ended Due Period as a
result of the application of the Civil Relief Act, the amount, if any, by which
(a) interest collectible on such Mortgage Loan during the most recently ended
calendar month is less than (b) the sum of one month's interest on the Principal
Balance of such Mortgage Loan, calculated at a rate equal to the Mortgage
Interest Rate.
CLASS A CARRY-FORWARD AMOUNT: As of any Distribution Date, the sum of
(a) the amount, if any, by which (i) the Class A Distribution Amount as of the
immediately preceding Distribution Date exceeded (ii) the amount of the actual
distribution made to the Holders of such Class A Certificates on such
immediately preceding Distribution Date and (b) 30 days' interest on the amount
described in clause (a) which is applicable to interest, calculated at an
interest rate equal to the Class A Pass-Through Rate applicable to such
Distribution Date.
CLASS A CERTIFICATE: Any Certificate designated as a "Class A
Certificate" on the face thereof, in the form of Exhibit B-1 hereto, and
authenticated by the Trustee in accordance with the procedures set forth herein.
The Class A Certificates shall be issued in an initial aggregate Certificate
Principal Balance equal to the Original Certificate Principal Balance.
CLASS A CERTIFICATE PRINCIPAL BALANCE: As of any time of
determination, the Original Certificate Principal Balance less any amounts
distributed with respect to principal thereon on all prior Distribution Dates.
CLASS A CURRENT INTEREST: With respect to the Class A Certificates
for any Distribution Date, the product of (x) one-twelfth of the Class A Pass-
Through Rate applicable to such Distribution Date and (y) the Class A
Certificate Principal Balance as of such Distribution Date (and prior to making
any distributions on such Distribution Date).
CLASS A DISTRIBUTION AMOUNT: With respect to the Class A Certificates
for any Distribution Date, the sum of (a) the Class A Interest Distribution
Amount for such Distribution Date and (b) the Class A Principal Distribution
Amount for such Distribution Date.
4
<PAGE>
CLASS A FINAL SCHEDULED MATURITY DATE: The February 15, 2028
Distribution Date.
CLASS A INTEREST DISTRIBUTION AMOUNT: With respect to the Class A
Certificates for any Distribution Date an amount equal to (a) the related Class
A Current Interest, MINUS (b) the Mortgage Loan Interest Shortfall, PLUS (c) any
Class A Carry-Forward Amount allocable to interest in respect of the Class A
Certificates less any amounts paid by the Certificate Insurer in respect of such
Class A Carry-Forward Amount, in each case as of such Distribution Date.
CLASS A PASS-THROUGH RATE: With respect to any Distribution Date, the
per annum rate equal to 7.525% plus, with respect to any Distribution Date
occurring after the Clean-up Call Date, 0.75% per annum.
CLASS A PRINCIPAL DISTRIBUTION AMOUNT: With respect to the
Certificates for any Distribution Date, the lesser of:
(a) the excess of (i) the sum, as of such Distribution Date, of (A) the
Available Funds and (B) any Insured Payment over (ii) the Class A
Interest Distribution Amount; and
(b) the sum, without duplication, of:
(i) the Class A Carry-Forward Amount (to the extent such Carry-
Forward Amount relates to principal),
(ii) all principal in respect of the Mortgage Loans actually
collected during the related Due Period,
(iii) the Principal Balance of each Mortgage Loan that either was
repurchased by a the Seller or by the Depositor or purchased
by the Servicer on the related Servicer Distribution Date,
to the extent such Principal Balance is actually received by
the Trustee,
(iv) any Substitution Adjustments delivered by the Depositor on
the related Servicer Distribution Date in connection with a
substitution of a Mortgage Loan, to the extent such
Substitution Adjustments are actually received by the
Trustee,
(v) the Net Liquidation Proceeds actually collected by the
Servicer of all Mortgage Loans during the related Due Period
(to the extent such Net Liquidation Proceeds relates to
principal),
(vi) any moneys released from the Pre-Funding Account as a
prepayment of the Class A Certificates on the Distribution
Date which immediately follows the end of the Pre-Funding
Period,
(vii) the amount of any Subordination Deficit for such
Distribution Date,
(viii) the proceeds received by the Trustee of any termination of
the Trust Fund (to the extent such proceeds relates to
principal), and
5
<PAGE>
(ix) the amount of any Subordination Increase Amount for such
Distribution Date;
MINUS
(x) the amount of any Subordination Reduction Amount for such
Distribution Date.
CLASS R CERTIFICATE: Any Certificate denominated as a Class R
Certificate and subordinate to the Class A Certificates in right of payment to
the extent set forth herein, which Certificate shall be in the form of Exhibit
B-2 hereto.
CLASS R CERTIFICATEHOLDER: A Holder of a Class R Certificate.
CLOSING DATE: September 27, 1996.
CODE: The Internal Revenue Code of 1986, as amended.
COLLECTION ACCOUNT: The Eligible Account established and maintained
by the Servicer pursuant to Section 5.02(b).
COMMISSION: The Securities and Exchange Commission.
COMPENSATING INTEREST: As defined in Section 6.09 hereof.
CUMULATIVE LOSS PERCENTAGE: As of any date of determination thereof,
the aggregate of all Realized Losses since the Startup Date as a percentage of
the Maximum Collateral Amount.
CUMULATIVE LOSS TEST: The Cumulative Loss Test for each period
indicated below is satisfied if the Cumulative Loss Percentage for such period
does not exceed the percentage set out for such period below:
Cumulative Loss
Period Percentage
------ ---------------
1st - 24th Distribution Date 1.00%
25th - 36th Distribution Date 1.50%
37th - 48th Distribution Date 1.75%
49th - 60th Distribution Date
and thereafter 2.00%
CURTAILMENT: With respect to a Mortgage Loan, any payment of
principal received during a Due Period as part of a payment that is in excess of
the amount of the Monthly Payment due for such Due Period and which is not
intended to satisfy the Mortgage Loan in full, nor is intended to cure a
delinquency.
CUSTODIAN: As defined in Section 2.04(c).
6
<PAGE>
CUT-OFF DATE: With respect to the Initial Mortgage Loans, the Initial
Cut-Off Date, and with respect to the Subsequent Mortgage Loans, the Subsequent
Cut-Off Date.
DEBT SERVICE REDUCTION: With respect to any Mortgage Loan, a
reduction by a court of competent jurisdiction of the Monthly Payment due on
such Mortgage Loan in a proceeding under the Bankruptcy Code, except such a
reduction that constitutes a Deficient Valuation or a permanent forgiveness of
principal.
DEFICIENT VALUATION: With respect to any Mortgage Loan, a valuation
of the related Mortgaged Property by a court of competent jurisdiction in an
amount less than the then outstanding principal balance of the Mortgage Loan,
which valuation results from a proceeding initiated under the United States
Bankruptcy Code.
DELETED MORTGAGE LOAN: A Mortgage Loan replaced by or to be replaced
by a Qualified Substitute Mortgage Loan.
DELINQUENCY RATIO: With respect to any Distribution Date, the
percentage equivalent of a fraction (a) the numerator of which equals the
aggregate Principal Balances of all Mortgage Loans that are 60 or more days
Delinquent, in foreclosure or converted to REO Property as of the last day of
such Due Period and (b) the denominator of which is the aggregate Principal
Balance of the Mortgage Loans as of the last day of such Due Period.
DELINQUENT: A Mortgage Loan is "delinquent" if any payment due
thereon is not made by the close of business on the day such payment is
scheduled to be due. A Mortgage Loan is "30 days delinquent" if such payment
has not been received by the close of business on the corresponding day of the
month immediately succeeding the month in which such payment was due, or, if
there is no such corresponding day (e.g., as when a 30-day month follows a
31-day month in which a payment was due on the 31st day of such month) then on
the last day of such immediately succeeding month. Similarly for "60 days
delinquent," "90 days delinquent" and so on.
DEPOSITOR: Prudential Securities Secured Financing Corporation, a
Delaware corporation, and any successor thereto.
DEPOSITORY: The Depository Trust Company, 55 Water Street, New York,
New York 10041 and any successor Depository hereafter named.
DIRECT PARTICIPANT: Any broker-dealer, bank or other financial
institution for which the Depository holds Class A Certificates from time to
time as a securities depositary.
DISTRIBUTION DATE: The 15th day of any month or if such 15th day is
not a Business Day, the first Business Day immediately following, commencing on
October 15, 1996.
DUE DATE: With respect to each Mortgage Loan and any Distribution
Date, the day of the calendar month preceding the calendar month in which such
Distribution Date occurs on which the Monthly Payment for such Mortgage Loan was
due.
DUE PERIOD: With respect to each Distribution Date, the calendar
month preceding the related Distribution Date.
7
<PAGE>
ELIGIBLE ACCOUNT: Either (A) an account or accounts maintained with
an institution (which may include the Trustee, provided such institution
otherwise meets these requirements) whose deposits are insured by the FDIC, the
unsecured and uncollateralized debt obligations of which institution shall be
rated AA or better by S&P and Aa2 or better by Moody's and in the highest short
term rating category by S&P and Moody's, and 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 (including the Trustee) 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
Certificate Insurer and the Rating Agencies or (B) a trust account or accounts
maintained with the trust department of a federal or state chartered depository
institution or trust company (which may include the Trustee, provided that the
Trustee otherwise meets these requirements), having capital and surplus of not
less than $50,000,000, acting in its fiduciary capacity.
ERISA: As defined in Section 4.02(m) hereof.
EVENT OF DEFAULT: As described in Section 7.01.
EXCESS SUBORDINATED AMOUNT: With respect to the Mortgage Loans and
any Distribution Date, the excess, if any, of (x) the Subordinated Amount that
would apply on such Distribution Date after taking into account the payment of
the related Class A Distribution Amount on such Distribution Date (except for
any distributions of related Subordination Reduction Amounts on such
Distribution Date) over (y) the related Specified Subordinated Amount for such
Distribution Date; PROVIDED, HOWEVER, that the Excess Subordinated Amount for
the period beginning with the Distribution Date as to which clause (b)(i)(y)(A)
of "Specified Subordinated Amount" applies (the "Trigger Date") and ending on
the Distribution Date occurring in the month six months subsequent to the
Trigger Date (inclusive) shall be limited to the amount obtained using the
following formula.
n X E.S.A.
---
6
Where "n" is equal to the number of Distribution Dates that have occurred since
the Trigger Date and "E.S.A." is equal to the amount of Excess Subordinated
Amount that would otherwise be obtained for such Distribution Date without
regard to the provisions of this proviso.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, and any successor
thereto.
FNMA: The Federal National Mortgage Association, and any successor
thereto.
FORECLOSURE PROFITS: As to any Distribution Date, the excess, if
any, of (i) Net Liquidation Proceeds in respect of each Mortgage Loan that
became a Liquidated Mortgage Loan during the month immediately preceding the
month of such Distribution Date over (ii) the sum of the unpaid principal
balance of each such Liquidated Mortgage Loan plus accrued and unpaid interest
at the applicable Mortgage Interest Rate on the unpaid principal balance thereof
8
<PAGE>
from the Due Date to which interest was last paid by the Mortgagor (or, in the
case of a Liquidated Mortgage Loan that had been an REO Mortgage Loan, from the
Due Date to which interest was last deemed to have been paid pursuant to
Section 5.06 to the first day of the month following the month in which such
Mortgage Loan became a Liquidated Mortgage Loan).
I & I PAYMENTS: Payments due and owing under the Insurance and
Indemnity Agreement other than pursuant to Section 3.02(b) of such Agreement.
INDIRECT PARTICIPANT: Any financial institution for whom any Direct
Participant holds an interest in a Class A Certificate.
INITIAL CUT-OFF DATE: The close of business on August 30, 1996 (or
with respect to any Initial Mortgage Loan originated after August 30, 1996, the
date of origination of such Initial Mortgage Loan).
INITIAL MORTGAGE LOANS: The Mortgage Loans delivered by the Depositor
on the Startup Date.
INITIAL SUBORDINATED AMOUNT: An amount equal to 3.0% of the Maximum
Collateral Amount.
INSURANCE AND INDEMNITY AGREEMENT: The Insurance and Indemnity
Agreement dated as of September 1, 1996 among the Certificate Insurer, the
Depositor, the Servicer, the Seller and HomeAmerican Credit, Inc., d/b/a Upland
Mortgage, as such agreement may be amended or supplemented in accordance with
the provisions thereof.
INSURANCE PROCEEDS: Proceeds paid by any insurer pursuant to any
insurance policy covering a Mortgage Loan to the extent such proceeds are not
applied to the restoration of the related Mortgaged Property or released to the
related Mortgagor in accordance with Accepted Servicing Practices. "Insurance
Proceeds" do not include "Insured Payments."
INSURED DISTRIBUTION AMOUNT: With respect to any Distribution Date,
the sum of (a) the Class A Interest Distribution Amount with respect to such
Distribution Date and (b) the Subordination Deficit, if any, as of such
Distribution Date.
INSURED PAYMENT: With respect to any Distribution Date, the Available
Funds Shortfall.
LATE PAYMENT RATE: Has the meaning ascribed thereto in the Insurance
and Indemnity Agreement.
LIQUIDATED MORTGAGE LOAN: A Mortgage Loan with respect to which the
related Mortgaged Property has been acquired, liquidated or foreclosed and with
respect to which the Servicer determines that all Liquidation Proceeds which it
expects to recover have been recovered.
LIQUIDATED LOAN LOSS: With respect to any Distribution Date, the
aggregate of the amount of losses with respect to each Mortgage Loan which
became a Liquidated Mortgage Loan prior to the Due Date preceding such
Distribution Date, equal to the excess of
9
<PAGE>
(i) the unpaid principal balance of each such Liquidated Mortgage Loan, plus
accrued interest thereon in accordance with the amortization schedule at the
time applicable thereto at the applicable Mortgage Interest Rate from the Due
Date as to which interest was last paid with respect thereto through the last
day of the month in which such Mortgage Loan became a Liquidated Mortgage Loan,
over (ii) Net Liquidation Proceeds with respect to such Liquidated Mortgage
Loan.
LIQUIDATION EXPENSES: Expenses incurred by the Servicer in connection
with the liquidation of any defaulted Mortgage Loan or property acquired in
respect thereof (including, without limitation, legal fees and expenses,
committee or referee fees, and, if applicable, brokerage commissions and
conveyance taxes), any unreimbursed amount expended by the Servicer pursuant to
Sections 5.04 and 5.06 respecting the related Mortgage Loan and any unreimbursed
expenditures for real property taxes or for property restoration or preservation
of the related Mortgaged Property. Liquidation Expenses shall not include any
previously incurred expenses in respect of an REO Mortgage Loan which have been
netted against related REO Proceeds.
LIQUIDATION PROCEEDS: The amount (other than Insurance Proceeds)
received by the Servicer in connection with (i) the taking of all or a part of
Mortgaged Property by exercise of the power of eminent domain or condemnation,
(ii) the liquidation of a defaulted Mortgage Loan through a trustee's sale,
foreclosure sale, REO Disposition or otherwise or (iii) the liquidation of any
other security for such Mortgage Loan, including, without limitation, pledged
equipment, inventory and working capital and assignments of rights and interests
made by the related mortgagor.
LOAN REPURCHASE PRICE: As defined in Section 2.06(b).
LOAN-TO-VALUE RATIO OR LTV: As to any Mortgage Loan at any time, the
fraction, expressed as a percentage, the numerator of which is the sum of (i)
the Principal Balance thereof at such time and (ii) the unpaid principal balance
of the related first mortgage loan, if any, as of such time, and the denominator
of which is 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.
MAJORITY CERTIFICATEHOLDERS: The Holder or Holders of Class A
Certificates evidencing Percentage Interests in excess of 51% in the aggregate.
MAXIMUM COLLATERAL AMOUNT: The aggregate Loan Balances of all Initial
Mortgage Loans as of the Cut-Off Date plus the Original Pre-Funded Amount.
MONTHLY PAYMENT: As to any Mortgage Loan (including any REO Mortgage
Loan) and any Due Date, the payment of principal and interest due thereon as
specified for such Due Date in the related amortization schedule at the time
applicable thereto (after adjustment for any Curtailments and Deficient
Valuations occurring prior to such Due Date but before any adjustment to such
amortization schedule by reason of any bankruptcy, other than Deficient
Valuations or similar proceeding or any moratorium or similar waiver or grace
period).
MOODY'S: Moody's Investors Service, Inc., a corporation organized and
existing under Delaware law, or any successor thereto and if such corporation no
longer for any reason
10
<PAGE>
performs the services of a securities rating agency, "Moody's" shall be deemed
to refer to any other nationally recognized rating agency designated by the
Certificate Insurer.
MORTGAGE: The mortgage, deed of trust or other instrument creating a
first or second lien on the Mortgaged Property.
MORTGAGE FILE: As described in Exhibit C.
MORTGAGE INTEREST RATE: As to any Mortgage Loan, the per annum fixed
rate at which interest accrues on the unpaid principal balance thereof.
MORTGAGE LOAN: The Initial Mortgage Loans and the Subsequent Mortgage
Loans, together with any Qualified Replacement Mortgages substituted therefor in
accordance with this Agreement, as from time to time are held as a part of the
Trust Fund, the Initial Mortgage Loans originally so held being identified in
the initial Mortgage Loan Schedule. When used in respect of any Distribution
Date, the term Mortgage Loans shall mean all Mortgage Loans (including those in
respect of which the Trustee has acquired the related Mortgaged Property) which
have not been repaid in full prior to the related Due Period, did not become
Liquidated Mortgage Loans prior to such related Due Period or were not
repurchased or replaced by the Seller prior to such related Due Period.
MORTGAGE LOAN INTEREST SHORTFALL: With respect to any Distribution
Date, as to any Mortgage Loan, the sum of (a) any Prepayment Interest Shortfall
for which no payment of Compensating Interest is paid and (b) any Civil Relief
Act Interest Shortfall in respect of such Mortgage Loan for such Distribution
Date.
MORTGAGE LOAN SCHEDULE: The initial schedule of Initial Mortgage
Loans as of the Initial Cut-Off Date as attached hereto as Exhibit E, which will
be deemed to be modified automatically upon any replacement, sale, substitution,
liquidation, transfer or addition of any Mortgage Loan, including the addition
of a Subsequent Mortgage Loan, pursuant to the terms hereof. The initial
Mortgage Loan Schedule sets forth as to each Initial Mortgage Loan, and any
subsequent Mortgage Loan Schedule provided in connection with the Subsequent
Mortgage Loans will set forth as to each Subsequent Mortgage Loan: (i) its
identifying number and the name of the related Mortgagor; (ii) the billing
address for the related Mortgaged Property including the state and zip code;
(iii) its date of origination; (iv) the original number of months to stated
maturity; (v) the original stated maturity; (vi) the original Principal Balance;
(vii) its Cut-Off Date Balance; (viii) the Mortgage Interest Rate; and (ix) the
scheduled monthly payment of principal and interest.
MORTGAGE NOTE: The original, executed note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
MORTGAGE PORTFOLIO PERFORMANCE TEST: The Mortgage Portfolio
Performance Test is satisfied for any date of determination thereof if (i) the
Rolling Six Month Delinquency Rate is less than or equal to 13.25%, (ii) the
Subordination Loss Test is satisfied and (iii) if the 12 Month Loss Amount is
not greater than or equal to 1.25% of the Pool Principal Balance as of the first
day of the twelfth preceding calendar month.
11
<PAGE>
MORTGAGED PROPERTY: The underlying property or properties securing a
Mortgage Loan, consisting of a fee simple estate in a one or more parcels of
land.
MORTGAGOR: The obligor on a Mortgage Note.
NET FORECLOSURE PROFITS: As to any Distribution Date, the excess, if
any, of (i) the aggregate Foreclosure Profits with respect to such Distribution
Date over (ii) Liquidated Loan Losses with respect to such Distribution Date.
NET LIQUIDATION PROCEEDS: As to any Liquidated Mortgage Loan,
Liquidation Proceeds net of Liquidation Expenses and net of any unreimbursed
Periodic Advances made by the Servicer. For all purposes of this Agreement, Net
Liquidation Proceeds shall be allocated first to accrued and unpaid interest on
the related Mortgage Loan and then to the unpaid principal balance thereof.
NET MONTHLY EXCESS CASHFLOW: As of any Distribution Date, the excess
of (x) the Available Funds then on deposit in the Certificate Account over (y)
the sum of (i) Class A Distribution Amount, calculated for this purpose without
regard to any Subordination Increase Amount or portion thereof included therein
and (ii) the Reimbursement Amount, if any, for such Distribution Date.
NET MORTGAGE INTEREST RATE: With respect to each Mortgage Loan at any
time of determination, a rate equal to (i) the Mortgage Interest Rate on such
Mortgage Loan minus (ii) the sum of the rates used to determine the related
Administrative Costs. Any regular monthly computation of interest at such rate
shall be based upon annual interest at such rate on the applicable amount
divided by twelve.
NET REO PROCEEDS: As to any REO Mortgage Loan, REO Proceeds net of
any related expenses of the Servicer.
NONRECOVERABLE ADVANCES: With respect to any Mortgage Loan, (a) any
Periodic Advance previously made and not reimbursed from late collections
pursuant to Section 5.04, or (b) a Periodic Advance proposed to be made in
respect of a Mortgage Loan or REO Property either of which, in the good faith
business judgment of the Servicer, as evidenced by an Officer's Certificate
delivered to the Certificate Insurer and the Trustee no later than the Business
Day following such determination, would not ultimately be recoverable pursuant
to Sections 5.04 and Section 6.04.
OFFICER'S CERTIFICATE: A certificate signed by the Chairman of the
Board, the President or a Vice President and the Treasurer, the Secretary or one
of the Assistant Treasurers or Assistant Secretaries of the Seller and/or the
Servicer, or the Depositor, as required by this Agreement.
OPINION OF COUNSEL: A written opinion of counsel, who may, without
limitation, be counsel for the Seller, the Servicer, the Trustee, a
Certificateholder or a Certificateholder's prospective transferee or the
Certificate Insurer (including except as otherwise provided herein, in-house
counsel) reasonably acceptable to each addressee of such opinion and experienced
in matters relating to the subject of such opinion; except that any opinion of
counsel relating to (a) the qualification of the REMIC Trust as a REMIC or (b)
compliance with the
12
<PAGE>
REMIC Provisions must be an opinion of counsel who (i) is in fact independent of
the Seller, the Servicer and the Trustee, (ii) does not have any direct
financial interest or any material indirect financial interest in the Seller or
the Servicer or the Trustee or in an Affiliate thereof, (iii) is not connected
with the Seller or the Servicer or the Trustee as an officer, employee, director
or person performing similar functions and (iv) is reasonably acceptable to the
Certificate Insurer.
ORIGINAL CERTIFICATE PRINCIPAL BALANCE: As of the Startup Day and as
to the Class A Certificates, $38,799,000.00
The Class R Certificates do not have an Original Certificate Principal Balance.
ORIGINAL POOL PRINCIPAL BALANCE: The Pool Principal Balance as of the
Initial Cut-Off Date, which amount is equal to $26,915,932.68.
ORIGINAL PRE-FUNDED AMOUNT: $13,084,067.32.
ORIGINATORS: American Business Credit, Inc. and HomeAmerican Credit,
Inc., d/b/a Upland Mortgage.
OVERFUNDED INTEREST AMOUNT: With respect to each Subsequent Transfer
Date occurring in September 1996, the excess of (i) four-months' interest on the
amount on deposit in the Pre-Funding Account (net of any Pre-Funding Earnings)
immediately following such Subsequent Transfer Date calculated at the
Adjusted Pass-Through Rate over (ii) four-months' interest on the amount on
deposit in the Pre-Funding Account as of the first day of the related Due Period
at the Adjusted Pass-Through Rate.
With respect to each Subsequent Transfer Date occurring in October 1996, the
excess of (i) three-months' interest on the amount on deposit in the Pre-Funding
Account (net of any Pre-Funding Earnings) immediately following such Subsequent
Transfer Date calculated at the Adjusted Pass-Through Rate over (ii) three-
months' interest on the amount on deposit in the Pre-Funding Account as of the
first day of the related Due Period at the Adjusted Pass-Through Rate.
With respect to each Subsequent Transfer Date occurring in November 1996, the
excess of (i) two-months' interest on the amount on deposit in the Pre-Funding
Account (net of any Pre-Funding Earnings) immediately following such Subsequent
Transfer Date calculated at the Adjusted Pass-Through Rate over (ii) two-months'
interest on the amount on deposit in the Pre-Funding Account as of the first day
of the related Due Period at the Adjusted Pass-Through Rate.
With respect to each Subsequent Transfer Date occurring in December 1996, the
excess of (i) one-month's interest on the amount on deposit in the Pre-Funding
Account (net of any Pre-Funding Earnings) immediately following such Subsequent
Transfer Date calculated at the Adjusted Pass-Through Rate over (ii) one-month's
interest on the amount on deposit in the Pre-Funding Account as of the first day
of the related Due Period at the Adjusted Pass-Through Rate.
OWNERSHIP INTEREST: As to any Certificate, any ownership or security
interest in such Certificate, including any interest in such Certificate as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial, as owner or as pledgee.
13
<PAGE>
OWNER-OCCUPIED MORTGAGED PROPERTY: A Residential Dwelling as to which
(a) the related Mortgagor represented an intent to occupy as such Mortgagor's
primary, secondary or vacation residence at the origination of the Mortgage
Loan, and (b) the Seller has no actual knowledge that such Residential Dwelling
is not so occupied.
PERCENTAGE INTEREST: With respect to a Class A Certificate, the
portion evidenced by such Certificate, expressed as a percentage rounded to four
decimal places, equal to a fraction the numerator of which is the denomination
represented by such Certificate and the denominator of which is the Original
Certificate Principal Balance. With respect to a Class R Certificate, the
portion evidenced thereby as stated on the face of such Certificate.
PERIODIC ADVANCE: The aggregate of the advances required to be made
by the Servicer on any Servicer Distribution Date pursuant to Section 5.18
hereof, the amount of any such advances being equal to the sum of:
(a) the product of (A) the Principal Balance of the Mortgage Loans
that were Delinquent as of the close of business on the Business Day
preceding the related Servicer Distribution Date and (B) the Adjusted Pass-
Through Rate; and
(b) with respect to each REO Property which was acquired during or
prior to the related Due Period and as to which an REO Disposition did not
occur during the related Due Period, an amount equal to the excess, if any,
of (i) interest on the Principal Balance of such REO Mortgage Loan at the
related Adjusted Pass-Through Rate, for the most recently ended Due Period
over (ii) the net income from the REO Property transferred to the
Certificate Account for such Distribution Date;
PROVIDED, HOWEVER, that in each such case such advance has not been determined
by the Servicer to be a Nonrecoverable Advance.
PERMITTED INVESTMENTS: As used herein, Permitted Investments shall
include the following:
(i) obligations of, or guaranteed as to principal and interest by,
the United States or any agency or instrumentality thereof when such
obligations are backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause (i)
maturing not more than three months from the date of acquisition thereof,
provided that the unsecured obligations of the party agreeing to repurchase
such obligations are at the time rated in one of the two highest rating
categories by the Rating Agencies;
(iii) certificates of deposit, time deposits and bankers' acceptances
(which, in the case of bankers' acceptances, shall in no event have an
original maturity of more than 365 days) of any U.S. depository institution
or trust company, incorporated under the laws of the United States or any
state; PROVIDED that the debt obligations of such depository institution or
trust company at the date of acquisition thereof have been rated in one of
the two highest rating categories by the Rating Agencies;
14
<PAGE>
(iv) commercial paper (having original maturities of not more than
270 days) of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been rated
in the highest short-term rating category by the Rating Agencies;
(v) the VISTA U.S. Government Money Market Fund, the VISTA Prime
Money Market Fund and the VISTA Treasury Plus Fund, so long as any such
fund is rated in one of the two highest rating categories by Moody's or
S&P;
provided that each such Permitted Investment shall be a "permitted investment"
within the meaning of Section 860G(a)(5) of the Code and that no instrument
described hereunder shall evidence either the right to receive (x) only interest
with respect to the obligations underlying such instrument or (y) both principal
and interest payments derived from obligations underlying such instrument and
the interest and principal payments with respect to such instrument provided a
yield to maturity at par greater than 120% of the yield to maturity at par of
the underlying obligations; and provided, further, that no instrument described
hereunder may be purchased at a price greater than par if such instrument may be
prepaid or called at a price less than its purchase price prior to stated
maturity.
PERMITTED TRANSFEREE: Any Person other than (a) the United States,
any State or political subdivision thereof, or any agency or instrumentality of
any of the foregoing, (b) a foreign government, International Organization or
any agency or instrumentality of either of the foregoing, (c) an organization
(except certain farmers' cooperatives described in Section 521 of the Code)
which is exempt from tax imposed by Chapter I of the Code (including the tax
imposed by Section 511 of the Code on unrelated business taxable income) on any
excess inclusions (as defined in Section 860E(c)(1) of the Code) with respect to
any Class R Certificate, (d) rural electric and telephone cooperatives described
in Section 1381(a)(2)(C) of the Code and (e) any other Person so designated by
the Trustee based upon an Opinion of Counsel to the Trustee and the Certificate
Insurer that the transfer of an Ownership Interest in a Class R Certificate to
such Person may cause either (i) the REMIC Trust to fail to qualify as a REMIC
at any time that the Class A Certificates are outstanding or (ii) the Trust Fund
or any Person having an Ownership Interest in any Class of Certificates, other
than such Person, to incur a liability for any federal tax imposed under the
Code that would not otherwise be imposed but for the Transfer of an Ownership
Interest in a Class R Certificate to such Person. The terms "United States,"
"State" and "International Organization" shall have the meanings set forth in
Section 7701 of the Code or successor provisions. A corporation will not be
treated as an instrumentality of the United States or of any State or political
subdivision thereof for these purposes if all of its activities are subject to
tax and, with the exception of FHLMC, a majority of its board of directors is
not selected by such governmental unit.
PERSON: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, national banking association,
unincorporated organization or government or any agency or political subdivision
thereof.
PLAN: As defined in Section 4.02(m).
POOL CUMULATIVE LOAN LOSSES: With respect to any period, the sum of
all Liquidated Loan Losses which occurred during such period.
15
<PAGE>
POOL PRINCIPAL BALANCE: The aggregate Principal Balances as of any
date of determination.
PREFERENCE AMOUNT: Any amounts distributed in respect of the Class A
Certificates which are recovered from any Holder of a Class A Certificate as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code or other similar law in accordance with a final, nonappealable
order of a court having competent jurisdiction and which have not theretofore
been repaid to such Owner.
PREFERENCE CLAIM: As defined in Section 6.04(f).
PRE-FUNDING ACCOUNT: The Pre-Funding Account established in
accordance with Section 6.01(a) hereof and maintained by the Trustee.
PRE-FUNDING AMOUNT: With respect to any date, the amount on deposit
in the Pre-Funding Account.
PRE-FUNDING EARNINGS: The actual investment earnings realized on
amounts deposited in the Pre-Funding Account.
PRE-FUNDING PERIOD: The period commencing on the Startup Date and
ending on the earliest to occur of (i) the date on which the amount on deposit
in the Pre-Funding Account (exclusive of any investment earnings) is less than
$100,000, (ii) the date on which any Servicer Default occurs and (iii) December
27, 1996.
PREMIUM AMOUNT: The product of the Premium Percentage and the Class A
Certificate Principal Balance for the related Distribution Date.
PREMIUM PERCENTAGE: 0.28% per annum; PROVIDED, HOWEVER, that if a
Premium Supplement Event has occurred and is continuing, the Premium Percentage
shall be 0.48% per annum.
PREMIUM SUPPLEMENT EVENT: Means any Event of Default hereunder or an
"Event of Default" as defined in the Insurance and Indemnity Agreement.
PREPAYMENT ASSUMPTION: A constant prepayment rate of 22% HEP, used
solely for determining the accrual of original issue discount and market
discount on the Certificates for federal income tax purposes.
PREPAYMENT INTEREST SHORTFALL: With respect to any Distribution Date,
for each Mortgage Loan that was the subject during the related Due Period of a
Principal Prepayment, an amount equal to the excess, if any, of (a) 30 days'
interest on the Principal Balance of such Mortgage Loan at a per annum rate
equal to the Mortgage Interest Rate (or at such lower rate as may be in effect
for such Mortgage Loan pursuant to application of the Civil Relief Act, any
Deficient Valuation and/or any Debt Service Reduction) minus the rate at which
the Servicing Fee is calculated over (b) the amount of interest actually
remitted by the Mortgagor in connection with such Principal Prepayment less the
Servicing Fee for such Mortgage Loan in such month.
16
<PAGE>
PRINCIPAL BALANCE: As to any Mortgage Loan and any date of
determination, the outstanding principal balance of such Mortgage Loan as of
such date of determination after giving effect to prepayments received prior to
the end of the related Due Period and Deficient Valuations incurred prior to
such Due Date. The Principal Balance of a Mortgage Loan which becomes a
Liquidated Mortgage Loan on or prior to such Due Date shall be 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 the full amount
of scheduled interest due on any Due Date in any month or months subsequent to
the month of prepayment.
PRINCIPAL REMITTANCE AMOUNT: As of any Distribution Date, the sum,
without duplication of the amounts specified in clauses (b)(ii) through (b)(v)
of the definition of the Class A Principal Distribution Amount.
PROSPECTUS SUPPLEMENT: The Prospectus Supplement dated September 12,
1996 relating to the Class A Certificates filed with the Commission in
connection with the Registration Statement heretofore filed or to be filed with
the Commission pursuant to Rule 424(b)(2) or 424(b)(5).
PURCHASE AGREEMENT: The Unaffiliated Seller's Agreement, dated as of
the date hereof, between the Seller and the Depositor relating to the sale of
the Mortgage Loans to the Depositor.
QUALIFIED APPRAISER: An appraiser, duly appointed by the Seller, who
had no interest, direct or indirect, in the Mortgaged Property or in any loan
made on the security thereof, and whose compensation is not affected by the
approval or disapproval of the Mortgage Loan, and such appraiser and the
appraisal made by such appraiser both satisfy the requirements of Title XI of
the Federal Institutions Reform, Recovery and Enforcement Act of 1989 and the
regulations promulgated thereunder, all as in effect on the date the Mortgage
Loan was originated.
QUALIFIED MORTGAGE: "Qualified Mortgage" shall have the meaning set
forth from time to time in the definition thereof at Section 860G(a)(3) of the
Code (or any successor statute thereto).
QUALIFIED SUBSTITUTE MORTGAGE LOAN: A mortgage loan or mortgage loans
substituted for a Deleted Mortgage Loan pursuant to Section 2.04 or 3.03 hereof,
which (a) has or have an interest rate at least equal to those applicable to the
Deleted Mortgage Loan, (b) relates or relate to a detached one-family residence
or to the same type of Residential Dwelling as the Deleted Mortgage Loan and in
each case has or have the same or a better lien priority as the Deleted Mortgage
Loan and has the same occupancy status or is an Owner Occupied Mortgaged
Property, (c) matures or mature no later than (and not more than one year
earlier than) the Deleted Mortgage Loan, (d) has or have a Loan-to-Value Ratio
or Loan-to-Value Ratios at the time of such substitution no higher than the
Loan-to-Value Ratio of the Deleted Mortgage Loan, (e) has or have a principal
balance or principal balances (after application of all payments received on or
prior to the date of substitution) not substantially less and not more than the
Principal Balance of the Deleted Mortgage Loan as of such date, (f) satisfies or
satisfy the criteria set forth from time to time in the definition of "qualified
replacement mortgage" at Section
17
<PAGE>
860G(a)(4) of the Code (or any successor statute thereto), and (g) complies or
comply as of the date of substitution with each representation and warranty set
forth in Sections 3.01 and 3.02 of the Purchase Agreement.
RATING AGENCY: S&P or Moody's.
RECORD DATE: The last Business Day of the month immediately preceding
a month in which a Distribution Date occurs.
REIMBURSEMENT AMOUNT: As of any Distribution Date, the sum of (a)(i)
all Insured Payments previously received by the Trustee and all Preference
Amounts previously paid by the Certificate Insurer and in each case not
previously repaid to the Certificate Insurer pursuant to Sections 6.05(a)(ii)
hereof plus (ii) interest accrued on each such Insured Payment and Preference
Amounts not previously repaid calculated at the Late Payment Rate from the date
the Trustee received the related Insured Payment or Preference Amounts were paid
by the Certificate Insurer and (b)(i) any amounts then due and owing to the
Certificate Insurer under the Insurance and Indemnity Agreement, as certified to
the Trustee by the Certificate Insurer plus (ii) interest on such amounts at the
rate specified in the Insurance and Indemnity Agreement. The Certificate
Insurer shall notify the Trustee and the Depositor of the amount of any
Reimbursement Amount.
REMIC: A "real estate mortgage investment conduit" within the meaning
of Section 860D of the Code.
REMIC PROVISIONS: Provisions of the federal income tax law relating
to real estate mortgage investment conduits, which appear at Sections 860A
through 860G of Subchapter M of Chapter I of the Code, and related provisions,
and temporary and final regulations promulgated thereunder and published
rulings, notices and announcements, as the foregoing may be in effect from time
to time.
REMIC TRUST: The segregated pool of assets consisting of the Trust
Fund. The Pre-Funding Account and the Capitalized Interest Account shall not be
part of the REMIC Trust.
REO DISPOSITION: The final sale by the Servicer of a Mortgaged
Property acquired by the Servicer in foreclosure or by deed in lieu of
foreclosure.
REO MORTGAGE LOAN: Any Mortgage Loan which is not a Liquidated
Mortgage Loan and as to which the indebtedness evidenced by the related Mortgage
Note is discharged and the related Mortgaged Property is held as part of the
Trust Fund.
REO PROCEEDS: Proceeds received in respect of any REO Mortgage Loan
(including, without limitations, proceeds from the rental of the related
Mortgaged Property).
REO PROPERTY: A Mortgaged Property acquired by the Servicer in the
name of the Trustee on behalf of the Certificateholders through foreclosure or
deed-in-lieu of foreclosure.
REPRESENTATION LETTER: Letters to, or agreements with, the Depository
to effectuate a book entry system with respect to the Class A Certificates
registered in the Certificate Register under the nominee name of the Depository.
18
<PAGE>
REQUEST FOR RELEASE: A request for release in substantially the form
attached as Exhibit H hereto.
RESIDENTIAL DWELLING: A one- to four-family dwelling, a unit in a
planned unit development, a unit in a condominium development, a townhouse or a
manufactured housing unit which is non-mobile.
RESPONSIBLE OFFICER: When used with respect to the Trustee, any
officer assigned to the Corporate Trust Division (or any successor thereto),
including any Vice President, Senior Trust Officer, Trust Officer, Assistant
Trust Officer, any Assistant Secretary, any trust officer or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers and to whom, with respect to a particular
matter, such matter is referred because of such officer's knowledge of and
familiarity with the particular subject. When used with respect to the Seller
or the Servicer, the President or any Vice President, Assistant Vice President,
or any Secretary or Assistant Secretary.
ROLLING SIX MONTH DELINQUENCY RATE: For any Distribution Date, the
fraction, expressed as a percentage, equal to the average of the Delinquency
Ratio for each of the six (1, 2, 3, 4 or 5 in the case of the first six
Distribution Dates, as the case may be) immediately preceding Due Periods.
S&P: Standard & Poor's Ratings Services, a division of The McGraw-
Hill Companies or any successor thereto and if such corporation no longer for
any reason performs the services of a securities rating agency, "S&P" shall be
deemed to refer to any other nationally recognized statistical rating
organization designated by the Certificate Insurer.
SELLER: ABFS 1996-2, Inc.
SERVICER: American Business Credit, Inc., a Pennsylvania corporation,
or any successor appointed as herein provided.
SERVICER DISTRIBUTION DATE: With respect to any Distribution Date,
the 10th day of the month in which such Distribution Date occurs, or if such
10th day is not a Business Day, the Business Day preceding such 10th day.
SERVICER REMITTANCE AMOUNT: With respect to any Servicer Distribution
Date, an amount equal to the sum of (i) all collections of principal and
interest on the Mortgage Loans (including Principal Prepayments, Net REO
Proceeds and Net Liquidation Proceeds, if any) collected by the Servicer during
the related Due Period, (ii) all Periodic Advances made by the Servicer with
respect to interest payments due to be received on the Mortgage Loans on the
related Due Date and (iii) any other amounts required to be placed in the
Collection Account by the Servicer pursuant to this Pooling and Servicing
Agreement but excluding the following:
(a) amounts received on particular Mortgage Loans as late payments of
interest and respecting which the Servicer has previously made an
unreimbursed Periodic Advance;
(b) those portions of each payment of interest on a particular
Mortgage Loan which represent the Servicing Fee;
19
<PAGE>
(c) that portion of Liquidation Proceeds and REO Proceeds to the
extent of any unpaid Servicing Fee;
(d) all income from Permitted Investments that is held in the
Collection Account for the account of the Servicer;
(e) all amounts in respect of late fees, assumption fees, prepayment
fees and similar fees;
(f) certain other amounts which are reimbursable to the Servicer, as
provided in this Pooling and Servicing Agreement; and
(g) Net Foreclosure Profits.
SERVICING ADVANCES: All reasonable and customary "out-of-pocket"
costs and expenses incurred in the performance by the Servicer of its servicing
obligations, including, but not limited to, the cost of (a) the preservation,
restoration and protection of the Mortgaged Property, (b) any enforcement or
judicial proceedings, including foreclosures, (c) the management and liquidation
of the REO Property, including reasonable fees paid to any independent
contractor in connection therewith, (d) compliance with the obligations under
Section 5.22, all of which reasonable and customary out-of-pocket costs and
expenses are reimbursable to the Servicer to the extent provided in Sections
5.03, 5.22 and 5.16.
SERVICING COMPENSATION: The Servicing Fee and other amounts to which
the Servicer is entitled pursuant to Section 5.08.
SERVICING FEE: As to each Mortgage Loan, the annual fee payable to
the Servicer, which is calculated as an amount equal to the product of (a) 0.50%
per annum, and (b) the Principal Balance thereof. Such fee shall be calculated
and payable monthly only from the amounts received in respect of interest on
such Mortgage Loan and shall be computed on the basis of the same principal
amount and for the period respecting which any related interest payment on a
Mortgage Loan is computed. The Servicing Fee includes any servicing fees owed
or payable to any Subservicer.
SERVICING OFFICER: Any officer of the 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 Trustee and the Certificateholders by the Servicer, as such list may from
time to time be amended.
SPECIAL ADVANCE: As defined in Section 5.18(b) hereof.
SPECIFIED SUBORDINATED AMOUNT: Means:
(a) With respect to a Distribution Date occurring on or prior to the
Stepdown Date, the amount which is equal to 10% of the Maximum Collateral
Amount;
(b) With respect to a Distribution Date after the Stepdown Date, (i)
if the Stepdown Requirement is satisfied, the lesser of (x) the amount
equal to 10% of the Maximum Collateral Value and (y) the greater of (A) the
amount equal to 20% of the
20
<PAGE>
then outstanding aggregate Loan Balances of the Mortgage Loans or (B) 1% of
the Maximum Collateral Value or (ii) if the Stepdown Requirement is not
satisfied, the amount which is equal to 10% of the Maximum Collateral
Amount;
PROVIDED, HOWEVER, that if on any Distribution Date, the Mortgage Portfolio
Performance Test is not satisfied, then the Specified Subordinated Amount will
be unlimited during the period that such Mortgage Portfolio Performance Test is
not satisfied.
STARTUP DAY: The day designated as such pursuant to Section 2.07(b)
hereof.
STEP DOWN DATE: The Distribution Date occurring in March 1999.
STEP DOWN REQUIREMENT: The Stepdown Requirement is satisfied for any
date of determination thereof if as of such date of determination (x) the
Rolling Six Month Delinquency Rate is less than 11.25%, (y) the Cumulative Loss
Test is satisfied and (z) the 12 Month Loss Amount is not greater than or equal
to 0.75% of the Pool Principal Balance as of the first day of the twelfth
preceding calendar month.
SUBORDINATED AMOUNT: As of any Distribution Date, the difference, if
any, between (a) the sum of (i) the aggregate Principal Balances of the Mortgage
Loans as of the close of business on the last day of the related Due Period and
(ii) the amount on deposit in the Pre-Funding Account as of the close of
business on the last day of the immediately preceding Due Period and (b) the
Class A Certificate Principal Balance as of such Distribution Date (after taking
into account the payment of the Principal Remittance Amount on such Distribution
Date except for any portion thereof related to an Insured Payment); PROVIDED,
HOWEVER, that such amount shall not be less than zero.
SUBORDINATION DEFICIENCY AMOUNT: With respect to any Distribution
Date, the difference, if greater than zero, between (a) the Specified
Subordinated Amount applicable to such Distribution Date and (b) the
Subordinated Amount applicable to such Distribution Date prior to taking into
account the payment of any related Subordination Increase Amounts on such
Distribution Date.
SUBORDINATION DEFICIT: As of any Distribution Date, the amount, if
any, by which (a) the Class A Certificate Principal Balance, after taking into
account the payment of the Class A Principal Distribution Amount (other than
clause (vii) thereof) on such date exceeds (b) the sum of (i) the aggregate
Principal Balance of the Mortgage Loans determined as of the end of the
immediately preceding Due Period and (ii) the amount on deposit in the Pre-
Funding Account as of the close of business on the last day of the immediately
preceding Due Period.
SUBORDINATION INCREASE AMOUNT: With respect to any Distribution Date,
the lesser of (a) the Subordination Deficiency Amount as of such Distribution
Date (after taking into account the payment of the Class A Principal
Distribution Amount on such Distribution Date (except for any Subordination
Increase Amount)) and (b) the amount of Net Monthly Excess Cashflow on such
Distribution Date.
SUBORDINATION LOSS TEST: The Subordination Loss Test for any period
set out below is satisfied if the Cumulative Loss Percentage for such period
does not exceed the percentage set out for such period below:
21
<PAGE>
Cumulative Loss
Period Percentage
------ ---------------
1st - 12th Distribution Date 0.75%
13th - 24th Distribution Date 1.25%
25th - 36th Distribution Date 1.75%
37th - 48th Distribution Date 2.00%
49th - 60th Distribution Date
and thereafter 2.50%
SUBORDINATION REDUCTION AMOUNT: With respect to any Distribution
Date, an amount equal to the lesser of (a) the Excess Subordinated Amount for
such Distribution Date and (b) the Principal Remittance Amount for the prior Due
Period.
SUBSEQUENT CUT-OFF DATE: As to the Subsequent Mortgage Loans, the
date specified in the Addition Notice delivered in connection therewith.
SUBSEQUENT MORTGAGE LOANS: The Mortgage Loans hereafter transferred
and assigned to the Trust pursuant to Section 2.03.
SUBSEQUENT TRANSFER: The transfer and assignment by the Seller to the
Trust of the Subsequent Mortgage Loans pursuant to the terms hereof.
SUBSEQUENT TRANSFER DATE: The Business Day on which a Subsequent
Transfer occurs.
SUBSERVICER: HomeAmerican Credit, Inc., a Pennsylvania corporation,
or its successor in interest.
SUBSERVICING AGREEMENT: The agreement between the Servicer and the
Subservicer relating to subservicing and/or administration of certain Mortgage
Loans as provided in Section 5.13, a copy of which shall be delivered, along
with any modifications thereto, to the Trustee and the Certificate Insurer.
SUBSTITUTION ADJUSTMENT: As to any date on which a substitution
occurs pursuant to Sections 2.06 or 3.03, the amount (if any) by which the
aggregate principal balances (after application of principal payments received
on or before the date of substitution of any Qualified Substitute Mortgage Loans
as of the date of substitution, are less than the aggregate of the Principal
Balances of the related Deleted Mortgage Loans together with 30 days' interest
thereon at the Mortgage Interest Rate.
TAX MATTERS PERSON: The Person or Persons appointed pursuant to
Section 10.15 from time to time to act as the "tax matters person" (within the
meaning of the REMIC Provisions) of the REMIC Trust.
TAX RETURN: The federal income tax return on Internal Revenue Service
Form 1066, "U.S. Real Estate Mortgage Investment Conduit Income Tax Return,"
including Schedule Q thereto, Quarterly Notice to Residual Interest Holders of
REMIC Taxable Income or Net Loss
22
<PAGE>
Allocation, or any successor forms, to be filed on behalf of the Trust Fund due
to its classification as a REMIC under the REMIC Provisions, together with any
and all other information reports or returns that may be required to be
furnished to the Certificateholders or filed with the Internal Revenue Service
or any other governmental taxing authority under any applicable provision of
federal, state or local tax laws.
TRANSFER: Any direct or indirect transfer, sale, pledge,
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
TRANSFER AFFIDAVIT AND AGREEMENT: As defined in Section 4.02(k)(ii).
TRANSFEREE: Any Person who is acquiring by Transfer any Ownership
Interest in a Certificate.
TRANSFEROR: Any Person who is disposing by Transfer any Ownership
Interest in a Certificate.
TRUST: ABFS Mortgage Loan Trust 1996-2, the trust created hereunder.
TRUSTEE: The Chase Manhattan Bank, or its successor in interest, or
any successor trustee appointed as herein provided.
TRUSTEE FEE: As to any Distribution Date, the fee payable to the
Trustee in respect of its services as Trustee that accrues at a monthly rate
equal to one-twelfth of 0.04% on the Principal Balance of each Mortgage Loan as
of the immediately preceding Due Date.
TRUSTEE'S MORTGAGE FILE: The documents delivered to the Trustee or
its designated agent pursuant to Section 2.05.
TRUSTEE'S REMITTANCE REPORT: As defined in Section 6.07.
TRUST FUND: The segregated pool of assets subject hereto,
constituting the trust created hereby and to be administered hereunder,
consisting of: (i) such Mortgage Loans as from time to time are subject to this
Agreement, together with the Mortgage Files relating thereto, and together with
all collections thereon and proceeds thereof; (ii) any REO Property, together
with all collections thereon and proceeds thereof; (iii) the Trustee's rights
with respect to the Mortgage Loans under all insurance policies required to be
maintained pursuant to this Agreement and any proceeds thereof; any other
security for such Mortgage Loan, including, without limitation, pledged
equipment, inventory and working capital and assignments of rights and interests
made by the related mortgagor; (v) the Certificate Insurance Policy; (vi) the
rights and remedies of the Trustee against any Person making any representation
or warranty to the Trustee hereunder, to the extent provided herein; and
(vii) each Account and such assets that are deposited therein from time to time
and any investments thereof, together with any and all income, proceeds and
payments with respect thereto.
12 MONTH LOSS AMOUNT: With respect to any Distribution Date, an
amount equal to the aggregate of all Liquidation Loan Losses on the Mortgage
Loans which became Liquidated Mortgage Loans during the 12 preceding Due
Periods.
23
<PAGE>
UNDERWRITER: Prudential Securities Incorporated.
UNDERWRITING GUIDELINES: The underwriting guidelines of the Seller
and of the Servicer, a copy of which is attached as an exhibit to the Purchase
Agreement.
UNITED STATES PERSON: A citizen or resident of the United States, a
corporation, partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof, or an estate or
trust whose income from sources without the United States is includible in gross
income for United States federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States.
Section 1.02 PROVISIONS OF GENERAL APPLICATION. (a) All accounting
terms not specifically defined herein shall be construed in accordance with
GAAP.
(b) The terms defined in this Article include the plural as well as
the singular.
(c) The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole. All references to Articles
and Sections shall be deemed to refer to Articles and Sections of this
Agreement.
(d) Reference to statutes are to be construed as including all
statutory provisions consolidating, amending or replacing the statute to which
reference is made and all regulations promulgated pursuant to such statutes.
(e) All calculations of interest (other than with respect to the
Mortgage Loans) provided for herein shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All calculations of interest with respect
to any Mortgage Loan provided for herein shall be made in accordance with the
terms of the related Note and Mortgage or, if such documents do not specify the
basis upon which interest accrues thereon, on the basis of a 360-day year
consisting of twelve 30-day months, to the extent permitted by applicable law.
(f) Any Mortgage Loan payment is deemed to be received on the date
such payment is actually received by the Servicer, provided, however, that for
purposes of calculating distributions on the Certificates prepayments with
respect to any Mortgage Loan are deemed to be received on the date they are
applied in accordance with customary servicing practices consistent with the
terms of the related Note and Mortgage to reduce the outstanding principal
balance of such Mortgage Loan on which interest accrues.
Section 1.03 BUSINESS DAY CERTIFICATE. On the Closing Date (with
respect to the calendar year 1996) and thereafter, within 15 days prior to the
end of each calendar year while this Agreement remains in effect (with respect
to the succeeding calendar years), the Servicer shall provide to the Trustee and
the Depositor a certificate of a Servicing Officer specifying the days on which
banking institutions in the State of Pennsylvania are authorized or obligated by
law, executive order or governmental decree to be closed.
24
<PAGE>
ARTICLE II
ESTABLISHMENT OF THE TRUST
SALE AND CONVEYANCE OF THE TRUST FUND
Section 2.01 ESTABLISHMENT OF THE TRUST. The Depositor does hereby
establish, pursuant to the further provisions of this Agreement and the laws of
the State of New York, an express trust to be known, for convenience, as "ABFS
Mortgage Loan Trust 1996-2" and does hereby appoint The Chase Manhattan Bank as
Trustee in accordance with the provisions of this Agreement.
Section 2.02 PURCHASE AND SALE OF INITIAL MORTGAGE LOANS. The
Depositor does hereby sell, transfer, assign, set over and convey to the Trustee
without recourse but subject to the terms and provisions of this Agreement, all
of the right, title and interest of the Depositor in and to the Initial Mortgage
Loans, and all other assets included or to be included in the Trust Fund for the
benefit of the Certificateholders and the Certificate Insurer. In connection
with such transfer and assignment, and pursuant to Section 2.07 of the Purchase
Agreement, the Depositor does hereby also irrevocably transfer, assign, set over
and otherwise convey to the Trustee all of its rights under the Purchase
Agreement including, without limitation, its right to exercise the remedies
created by Sections 2.05 and 3.05 of the Purchase Agreement for defective
documentation and for breaches of representations and warranties, agreements and
covenants of the Seller and the Originators contained in Sections 3.01, 3.02 and
3.03 of the Purchase Agreement.
Section 2.03 PURCHASE AND SALE OF SUBSEQUENT MORTGAGE LOANS.
(a) Subject to the satisfaction of the conditions set forth in
paragraph (b) below, in consideration of the Trustee's delivery on the related
Subsequent Transfer Dates to or upon the order of the Depositor of all or a
portion of the balance of funds in the Pre-Funding Account, the Depositor shall
on any Subsequent Transfer Date sell, transfer, assign, set over and convey to
the Trustee without recourse but subject to terms and provisions of this
Agreement, all of the right, title and interest of the Depositor in and to the
Subsequent Mortgage Loans, and all other assets included or to be included in
the Trust Fund for the benefit of the Certificateholders and the Certificate
Insurer. In connection with such transfer and assignment, and pursuant to
Section 2.07 of the Purchase Agreement, the Depositor does hereby also
irrevocably transfer, assign, set over and otherwise convey to the Trustee all
of its rights under the Purchase Agreement including, without limitation, its
right to exercise the remedies created by Sections 2.05 and 3.05 of the Purchase
Agreement for defective documentation and for breaches of representations and
warranties, agreements and covenants of the Seller contained in Sections 3.01,
3.02 and 3.03 of the Purchase Agreement.
The amount released from the Pre-Funding Account with respect to a
transfer of Subsequent Mortgage Loans shall be one-hundred percent (100%) of the
aggregate principal balances as of the related Subsequent Cut-Off Date of the
Subsequent Mortgage Loans so transferred.
(b) The Subsequent Mortgage Loans and the other property and rights
related thereto described in paragraph (a) above shall be transferred by the
Depositor to the Trust only
25
<PAGE>
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 Trustee, the Rating Agencies
and the Certificate Insurer with a timely Addition Notice, which shall
include a Mortgage Loan Schedule, listing the Subsequent Mortgage Loans and
shall have provided any other information reasonably requested by any of
the foregoing with respect to the Subsequent Mortgage Loans;
(ii) the Seller shall have deposited in the Collection Account all
collections of (x) principal in respect of the Subsequent Mortgage Loans
received after the related Subsequent Cut-Off Date and (y) interest due on
the Subsequent Mortgage Loans after the related Subsequent Cut-Off Date;
(iii) as of each Subsequent Transfer Date, the Depositor was not
insolvent nor will be made insolvent by such transfer nor is the Depositor
aware of any pending insolvency;
(iv) such addition will not result in a material adverse tax
consequence to the Trust or the Holders of the Certificates;
(v) the Pre-Funding Period shall not have terminated;
(vi) the Seller shall have delivered to the Trustee an Officer's
Certificate confirming the satisfaction of each condition precedent
specified in this paragraph (b) and that the Subsequent Mortgage Loans
comply with the provisions of this Section 2.02 and each complies with the
terms of in the Purchase Agreement, including each of the representations
and warranties made with respect thereto; and
(vii) there shall have been delivered to the Certificate Insurer, the
Rating Agencies and the Trustee, Independent Opinions of Counsel with
respect to the transfer of the Subsequent Mortgage Loans substantially in
the form of the Opinions of Counsel delivered to the Certificate Insurer
and the Trustee on the Startup Date (bankruptcy, corporate and tax
opinions).
(c) The obligation of the Trust to purchase the Subsequent Mortgage
Loans on a Subsequent Transfer Date is subject to the following requirements:
(i) such Subsequent Mortgage Loan may not be 30 or more days contractually
delinquent as of the related Subsequent Cut-Off Date; (ii) the original term to
maturity of such Subsequent Mortgage Loan may not exceed 360 months; (iii) such
Subsequent Mortgage Loan shall have a Mortgage Rate of at least 8.75%; (iv) the
purchase of the Subsequent Mortgage Loans is consented to by the Certificate
Insurer and the Rating Agencies; (v) the principal balance of any such
Subsequent Mortgage Loan may not exceed $350,000.00; (vi) no more than 35% of
such Subsequent Mortgage Loans may be second liens; (vii) no such Subsequent
Mortgage Loan shall have a CLTV of more than, (A) for consumer purpose loans,
85%, and (B) for business purpose loans, 75%; (viii) no more than 20% of such
Subsequent Mortgage Loans may be Balloon Loans; (ix) no more than 20% of such
Subsequent Mortgage Loans may be secured by mixed-use properties, commercial
properties, or four or more unit multifamily properties; (x) no more than 5% of
such Subsequent Mortgage Loans can be secured by commercial properties; and (xi)
following the purchase of such
26
<PAGE>
Subsequent Mortgage Loans by the Trust, the Mortgage Loans (including the
Subsequent Mortgage Loans) (A) will have a weighted average Mortgage Rate,
(I) for consumer purpose loans, of at least 11.35% and (II) for business purpose
loans, of at least 15.75%; and (B) will have a weighted average LTV of not more
than 72%.
(d) In connection with the transfer and assignment of the Subsequent
Mortgage Loans, the Depositor shall satisfy the document delivery requirements
set forth in Section 2.05.
(e) On each Subsequent Transfer Date upon written instruction from
the Seller, the Trustee shall withdraw from the Capitalized Interest Account and
pay to the Seller on such Subsequent Transfer Date the Overfunded Interest
Amount for such Subsequent Transfer Date, as calculated by the Trustee with the
cooperation of the Seller and subject to the approval of the Certificate
Insurer.
Section 2.04 POSSESSION OF MORTGAGE FILES; ACCESS TO MORTGAGE FILES.
(a) Upon the issuance of the Certificates, the ownership of each Mortgage Note,
the Mortgage and the contents of the related Mortgage File related to each
Mortgage Loan is vested in the Trustee for the benefit of the Certificateholders
and the Certificate Insurer.
(b) Pursuant to Section 2.05 of the Purchase Agreement, the Depositor
has delivered or caused to be delivered the Trustee's Mortgage File related to
each Mortgage Loan to the Trustee.
(c) The Trustee will be the custodian or may enter into a custodial
agreement pursuant to which the Trustee will appoint a custodian (a "Custodian")
to hold the Mortgage Files in trust for the benefit of all present and future
Certificateholders and the Certificate Insurer; provided, however, that the
custodian so appointed shall in no event be the Depositor or the Servicer or any
Person known to a Responsible Officer of the Trustee to be an Affiliate of any
of them and shall be approved by the Certificate Insurer.
(d) The Custodian shall afford the Depositor, the Certificate Insurer
and the Servicer reasonable access to all records and documentation regarding
the Mortgage Loans relating to this Agreement, such access being afforded at
customary charges, upon reasonable request and during normal business hours at
the offices of the Custodian.
Section 2.05 DELIVERY OF MORTGAGE LOAN DOCUMENTS. (a) In connection
with the transfer and assignment of the Mortgage Loans, the Depositor does
hereby with respect to the Initial Mortgage Loans, and will on or before the
Subsequent Transfer Date with respect to Subsequent Mortgage Loans, deliver or
cause to be delivered to the Trustee the following documents or instruments with
respect to each Mortgage Loan so transferred or assigned:
(i) The original Mortgage Note, endorsed without recourse in
blank by the Seller, including all intervening endorsements showing a
complete chain of endorsement;
(ii) The related Mortgage with evidence of recording indicated
thereon or a copy thereof certified by the applicable recording office;
27
<PAGE>
(iii) The recorded mortgage assignment, or copy thereof certified
by the applicable recording office, if any, showing a complete chain of
assignment from the originator of the related Mortgage Loan to the Seller
(which assignment may, at the Seller's option, be combined with the
assignment referred to in subpart (iv) hereof);
(iv) A mortgage assignment in recordable form (which, if
acceptable for recording in the relevant jurisdiction, may be included in a
blanket assignment or assignments) of each Mortgage from the Seller to the
Trustee;
(v) Originals of all assumption, modification and substitution
agreements in those instances where the terms or provisions of a Mortgage
or Mortgage Note have been modified or such Mortgage or Mortgage Note has
been assumed; and
(vi) Evidence of title insurance (which may consist of (A) a copy
of the title insurance policy, or (B) a binder thereof or copy of such
binder) together with a certificate from the Seller that the original
Mortgage has been delivered to the title insurance company that issued such
binder for recordation.
In instances where the original recorded Mortgage and a completed
assignment thereof in recordable form cannot be delivered by the Seller to the
Trustee prior to or concurrently with the execution and delivery of this
Agreement (or, with respect to Subsequent Mortgage Loans, prior to or on the
Subsequent Transfer Date), due to a delay in connection with recording, the
Seller may:
(x) In lieu of delivering such original recorded Mortgage,
deliver to the Trustee a copy thereof provided that the Seller certifies
that the original Mortgage has been delivered to a title insurance company
for recordation after receipt of its policy of title insurance or binder
therefor; and
(y) In lieu of delivering the completed assignment in recordable
form, deliver to the Trustee the assignment in recordable form, otherwise
complete except for recording information.
The Trustee shall promptly upon receipt thereof, with respect to each
Mortgage Note described in (i) above and each assignment described in (iv)
above, endorse such Mortgage Note and assignment as follows: "The Chase
Manhattan Bank, as Trustee under the Pooling and Servicing Agreement dated as of
August 31, 1996, ABFS Mortgage Loan Trust 1996-2."
As promptly as practicable, but in any event within thirty (30) days
from the Closing Date or the Subsequent Transfer Date, as applicable, the Seller
shall cause to be recorded, at the Seller's expense, in the appropriate public
office for real property records, the assignments of the Mortgages to the
Trustee.
All original documents relating to the Mortgage Loans which are not
delivered to the Trustee, as permitted by Section 2.05(a) of the Purchase
Agreement and this Section 2.05(a), are and shall be held by the Seller or the
Servicer in trust for the benefit of the Trustee on behalf of the
Certificateholders.
28
<PAGE>
(b) Within 30 days following delivery of the Mortgage Files to the
Trustee, the Trustee will review each Mortgage File to ascertain that all
required documents set forth in Section 2.01(a) have been executed and received,
and that such documents relate to the Mortgage Loans identified on the Mortgage
Loan Schedule, and in so doing the Trustee may rely on the purported due
execution and genuineness of any signature thereon. If within such 30-day
period (or, with respect to any Qualified Replacement Mortgage, within 30 days
after the assignment thereof) the Trustee finds any document constituting a part
of a Mortgage File not to have been executed or received or to be unrelated to
the Mortgage Loans identified in the Mortgage Loan Schedule, the Trustee shall
(i) promptly notify the Class A Certificateholders in writing with the details
thereof, and (ii) promptly notify the Servicer, which shall have a period of 60
days after such notice within which to correct or cure any such defect. Each
original recorded assignment of a Mortgage shall be delivered to the Trustee
within 10 days following the date on which it is returned to the Servicer by the
office with which such assignment was filed for recording and within 10 days
following receipt by the Trustee of the recorded assignment or the assignment in
recordable form, as the case may be, the Trustee shall review such assignment to
confirm the information specified above with respect to the documents
constituting the Mortgage File. Upon receipt by the Trustee of the recorded
assignment or the assignment in recordable form, as the case may be, such
recorded assignment or assignment in recordable form shall become part of the
Mortgage File. The Trustee shall notify the Servicer of any defect in such
assignment based on such review. The Servicer shall have a period of 60 days
following such notice to correct or cure such defect. In the event that the
Servicer fails to record an assignment of a Mortgage as herein provided the
Trustee shall, at the Servicer's expense, use reasonable efforts to prepare and,
if required hereunder, file such assignments for recordation in the appropriate
real property or other records and the Servicer hereby appoints the Trustee as
its attorney-in-fact with full power and authority acting in its stead for the
purpose of such preparation, execution and filing.
(c) It is intended that the conveyance of the Mortgage Loans and other
property by the Depositor to the Trustee as provided in this Section 2.05 and
Sections 2.02 and 2.03 be, and be construed as, a sale of the Mortgage Loans and
such other property by the Depositor to the Trustee for the benefit of the
Certificateholders. It is, further, not intended that such conveyance be deemed
a pledge of the Mortgage Loans or such other property by the Depositor to the
Trustee to secure a debt or other obligation of the Depositor. However, in the
event that the Mortgage Loans or any of such other property are held to be
property of the Depositor, or if for any reason this Agreement is held or deemed
to create a security interest in the Mortgage Loans or any of such other
property, then it is intended that: (i) this Agreement shall also be deemed to
be a security agreement within the meaning of the Uniform Commercial Code; (ii)
the conveyance provided for in this Section shall be deemed to be a grant by the
Depositor to the Trustee of a security interest in all of the Depositor's right,
title and interest in and to the Mortgage Loans and such other property and all
amounts payable to the holders of the Mortgage Loans in accordance with the
terms thereof and all proceeds of the conversion, voluntary or involuntary, of
the foregoing into cash, instruments, securities or other property, including
without limitation all amounts from time to time held or invested in the
Certificate Account, whether in the form of cash, instruments, securities or
other property; (iii) the possession by the Trustee or its agent of the Mortgage
Notes and such other items of property as constitute instruments, money,
negotiable documents or chattel paper shall be deemed to be "possession by the
secured party" for purposes of perfecting the security interest pursuant to the
Uniform Commercial Code; and (iv) notifications to persons holding such
property, and acknowledgments, receipts or confirmations from persons holding
such property, shall be deemed notifications to, or acknowledgments, receipts or
confirmations from financial intermediaries, bailees or agents (as applicable)
of the
29
<PAGE>
Trustee for the purpose of perfecting such security interest under applicable
law. The Depositor and the Trustee shall, to the extent consistent with this
Agreement, take such actions as may be necessary to ensure that, if this
Agreement were deemed to create a security interest in the Mortgage Loans or any
of such other property, such security interest would be deemed to be a perfected
security interest of first priority under applicable law and will be maintained
as such throughout the term of the Agreement.
(d) Without diminution of the requirements of Sections 2.04(c) and
this Section 2.05, all original documents relating to the Mortgage Loans that
are not delivered to the Trustee are and shall be held by the Servicer in trust
for the benefit of the Trustee on behalf of the Certificateholders and the
Certificate Insurer. In the event that any such original document is required
pursuant to the terms of this Section 2.05 to be a part of a Mortgage File, such
document shall be delivered promptly to the Trustee pursuant to the Purchase
Agreement. In acting as custodian of any such original document, the Servicer
agrees further that it does not and will not have or assert any beneficial
ownership interest in the Mortgage Loans or the Mortgage Files. Promptly upon
the Depositor's and the Trust's acquisition thereof and the Servicer's receipt
thereof, the Servicer on behalf of the Trust shall mark conspicuously each
original document not delivered to the Trustee, and the Seller's master data
processing records evidencing each Mortgage Loan with a legend, acceptable to
the Trustee, evidencing that the Trust has purchased the Mortgage Loans and all
right and title thereto and interest therein pursuant to the Purchase Agreement
and this Agreement.
Section 2.06 ACCEPTANCE BY TRUSTEE OF THE TRUST FUND; CERTAIN
SUBSTITUTIONS; CERTIFICATION BY TRUSTEE. (a) The Trustee agrees to execute and
deliver to the Depositor, the Certificate Insurer, the Servicer and the Seller
on or prior to the Closing Date an acknowledgment of receipt of the related
Certificate Insurance Policy and, with respect to each Mortgage Loan, the
original Mortgage Note (with any exceptions noted), in the form attached as
Exhibit E hereto and declares that it will hold such documents and any
amendments, replacements or supplements thereto, as well as any other assets
included in the definition of Trust Fund and delivered to the Trustee, as
Trustee in trust upon and subject to the conditions set forth herein for the
benefit of the Certificateholders and the Certificate Insurer. The Trustee
agrees, for the benefit of the Certificateholders and the Certificate Insurer,
to review (or cause to be reviewed) each Trustee's Mortgage File within 30 days
after the Closing Date (with respect to the Initial Mortgage Loans) and to
deliver to the Seller, the Servicer, the Depositor and the Certificate Insurer a
certification in the form attached hereto as Exhibit F to the effect that, as to
each Mortgage Loan listed in the related Mortgage Loan Schedule (other than any
Mortgage Loan paid in full or any Mortgage Loan specifically identified in such
certification as not covered by such certification), (i) all documents required
to be delivered to it pursuant to Section 2.05 are in its possession, (ii) each
such document has been reviewed by it and has not been mutilated, damaged, torn
or otherwise physically altered (handwritten additions, changes or corrections
shall not constitute physical alteration if initialled by the Mortgagor),
appears regular on its face and relates to such Mortgage Loan, and (iii) based
on its examination and only as to the foregoing documents, the information set
forth on the Mortgage Loan Schedule as to the information set forth in (i),
(ii), (v) and (vi) of the definition of "Mortgage Loan Schedule" set forth
herein accurately reflects the information set forth in the Trustee's Mortgage
File delivered on such date. The Trustee shall be under no duty or obligation
to inspect, review or examine any such documents, instruments, certificates or
other papers to determine that they are genuine, enforceable, or appropriate for
the represented purpose or that they are other than what they purport to be on
their face.
30
<PAGE>
By December 31, 1996, the Trustee shall deliver (or cause to be
delivered) to the Servicer, the Seller, the Depositor and the Certificate
Insurer a final certification in the form attached hereto as Exhibit G to the
effect that, as to each Mortgage Loan listed in the Mortgage Loan Schedule
(other than any Mortgage Loan paid in full or any Mortgage Loan specifically
identified in such certification as not covered by such certification), (i) all
documents required to be delivered to it pursuant to Section 2.05 are in its
possession, (ii) each such document has been reviewed by it and has not been
mutilated, damaged, torn or otherwise physically altered (handwritten additions,
changes or corrections shall not constitute physical alteration if initialled by
the Mortgagor), appears regular on its face and relates to such Mortgage Loan,
and (iii) based on its examination and only as to the foregoing documents, the
information set forth in (i), (ii), (v) and (vi) of the definition of "Mortgage
Loan Schedule" set forth herein accurately reflects the information set forth in
the Trustee's Mortgage File delivered on such date.
(b) If the Trustee during the process of reviewing the Trustee's
Mortgage Files finds any document constituting a part of a Trustee's Mortgage
File which is not executed, has not been received, is unrelated to the Mortgage
Loan identified in the related Mortgage Loan Schedule, or does not conform to
the requirements of Section 2.05 or the description thereof as set forth in the
related Mortgage Loan Schedule, the Trustee or the Certificate Insurer, as
applicable, shall promptly so notify the Servicer, the Seller, the Certificate
Insurer and the Trustee. In performing any such review, the Trustee may
conclusively rely on the Seller as to the purported genuineness of any such
document and any signature thereon. It is understood that the scope of the
Trustee's review of the Mortgage Files is limited solely to confirming that the
documents listed in Section 2.05 have been executed and received and relate to
the Mortgage Files identified in the related Mortgage Loan Schedule. Pursuant
to the Purchase Agreement, the Seller and the Originators have agreed to use
reasonable efforts to cause to be remedied a material defect in a document
constituting part of a Mortgage File of which it is so notified by the Trustee.
If, however, within 60 days after the Trustee's notice to it respecting such
defect the Seller has not caused to be remedied the defect and the defect
materially and adversely affects the interest of the Certificateholders in the
related Mortgage Loan or the interests of the Certificate Insurer, the Seller
and the Originators will be obligated, pursuant to the Purchase Agreement, to
either (i) substitute in lieu of such Mortgage Loan a Qualified Substitute
Mortgage Loan in the manner and subject to the conditions set forth in Section
3.03 or (ii) purchase such Mortgage Loan at a purchase price equal to the
Principal Balance of such Mortgage Loan as of the date of purchase, plus all
accrued and unpaid interest on such Principal Balance computed at the Mortgage
Interest Rate, net of the Servicing Fee if the Seller or an Originator, as
applicable, is the Servicer, plus the amount of any unreimbursed Servicing
Advances made by the Servicer with respect to such Mortgage Loan, which purchase
price shall be deposited in the Collection Account on the next succeeding
Servicer Distribution Date, after deducting therefrom any amounts received in
respect of such repurchased Mortgage Loan or Loans and being held in the
Collection Account for future distribution to the extent such amounts have not
yet been applied to principal or interest on such Mortgage Loan (the "Loan
Repurchase Price"). For purposes of calculating the Available Funds, any Loan
Repurchase Price or Substitution Adjustment that is paid shall be deemed
deposited in the Certificate Account in the Due Period preceding such Servicer
Distribution Date.
(c) Upon receipt by the Trustee of a certification of a Servicing
Officer of such substitution or purchase and, in the case of a substitution,
upon receipt of the related Trustee's Mortgage File, and the deposit of the
amounts described above in the Collection Account (which certification shall be
in the form of Exhibit H hereto), the Trustee shall release to the Servicer for
release to the Seller the related Trustee's Mortgage File and shall execute,
31
<PAGE>
without recourse, and deliver such instruments of transfer furnished by the
Seller as may be necessary to transfer such Mortgage Loan to the Seller. The
Trustee shall notify the Certificate Insurer if the Seller fails to repurchase
or substitute for a Mortgage Loan in accordance with the foregoing.
Section 2.07 DESIGNATIONS UNDER REMIC PROVISIONS; DESIGNATION OF
STARTUP DAY. (a) The Class A Certificates are hereby designated as the
"regular interests", and the Class R Certificates are designated the single
class of "residual interests" in the REMIC Trust for the purposes of the REMIC
Provisions.
(b) The Closing Date will be the "startup day" of the REMIC Trust
within the meaning of Section 860G(a)(9) of the Code.
Section 2.08 EXECUTION OF CERTIFICATES. The Trustee acknowledges the
assignment to it of the Mortgage Loans and the delivery of the Trustee's
Mortgage Files relating thereto to it and, concurrently with such delivery, has
executed, authenticated and delivered to or upon the order of the Depositor, in
exchange for the Mortgage Loans, the Trustee's Mortgage Files and the other
assets included in the definition of Trust Fund, Certificates duly authenticated
by the Trustee in Authorized Denominations evidencing the entire ownership of
the Trust Fund.
Section 2.09 APPLICATION OF PRINCIPAL AND INTEREST. In the event
that Net Liquidation Proceeds on a Liquidated Mortgage Loan are less than the
Principal Balance of the related Mortgage Loan plus accrued interest thereon, or
any Mortgagor makes a partial payment of any Monthly Payment due on a Mortgage
Loan, such Net Liquidation Proceeds or partial payment shall be applied to
payment of the related Mortgage Note as provided therein, and if not so
provided, first to interest accrued at the Mortgage Interest Rate and then to
principal.
Section 2.10 GRANT OF SECURITY INTEREST. (a) Except with respect to
the REMIC Provisions, it is the intention of the parties hereto that the
conveyance by the Depositor of the Trust Fund to the Trustee on behalf of the
Trust shall constitute a purchase and sale of such Trust Fund and not a loan.
In the event, however, that a court of competent jurisdiction were to hold that
the transaction evidenced hereby constitutes a loan and not a purchase and sale,
it is the intention of the parties hereto that this Agreement shall constitute a
security agreement under applicable law, and that the Depositor shall be deemed
to have granted to the Trustee, on behalf of the Trust, a first priority
perfected security interest in all of the Depositor's right, title and interest
in, to and under the Trust Fund. The conveyance by the Depositor of the Trust
Fund to the Trustee on behalf of the Trust shall not constitute and is not
intended to result in an assumption by the Trustee or any Certificateholder of
any obligation of the Seller or any other Person in connection with the Trust
Fund.
(b) The Depositor and the Servicer shall take no action inconsistent
with the Trust's ownership of the Trust Fund and each shall indicate or shall
cause to be indicated in its records and records held on its behalf that
ownership of each Mortgage Loan and the assets in the Trust Fund are held by the
Trustee on behalf of the Trust. In addition, the Depositor and the Servicer
shall respond to any inquiries from third parties with respect to ownership of a
Mortgage Loan or any other asset in the Trust Fund by stating that it is not the
owner of such asset and that ownership of such Mortgage Loan or other Trust Fund
asset is held by the Trustee on behalf of the Trust.
32
<PAGE>
Section 2.11 FURTHER ACTION EVIDENCING ASSIGNMENTS. (a) The Servicer
agrees that, from time to time, at its expense, it shall cause the Seller (and
the Depositor on behalf of itself also agrees that it shall), promptly to
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or appropriate, or that the Servicer or the
Trustee may reasonably request, in order to perfect, protect or more fully
evidence the transfer of ownership of the Trust Fund or to enable the Trustee to
exercise or enforce any of its rights hereunder. Without limiting the
generality of the foregoing, the Servicer and the Depositor will, upon the
request of the Servicer or the Trustee execute and file (or cause to be executed
and filed) such real estate filings, financing or continuation statements, or
amendments thereto or assignments thereof, and such other instruments or
notices, as may be necessary or appropriate.
(b) The Depositor hereby grants to the Servicer and the Trustee
powers of attorney to execute all documents on its behalf under this Agreement
and the Purchase Agreement as may be necessary or desirable to effectuate the
foregoing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 REPRESENTATIONS OF THE SERVICER. The Servicer hereby
represents and warrants to the Trustee, the Depositor, the Certificate Insurer
and the Certificateholders as of the Closing Date and during the term of this
Agreement that:
(a) The Seller, the Servicer and the Subservicer each is a
corporation duly organized, validly existing and in good standing under the
laws of their respective states of incorporation and has the corporate
power to own its assets and to transact the business in which it is
currently engaged. The Seller, the Servicer and the Subservicer each 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 or the performance of
its obligations hereunder requires such qualification and in which the
failure so to qualify could reasonably be expected to have a material
adverse effect on the business, properties, assets, or condition (financial
or other) of the Seller, the Servicer or the Subservicer or the performance
of their respective obligations hereunder;
(b) The Seller and the Servicer each has the power and authority to
make, execute, deliver and perform this Agreement and all of the
transactions contemplated under this Agreement, and has taken all necessary
corporate action to authorize the execution, delivery and performance of
this Agreement. When executed and delivered, this Agreement will
constitute the legal, valid and binding obligation of the Seller and the
Servicer, enforceable in accordance with its terms, except as enforcement
of such terms may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies;
(c) Neither the Seller nor the Servicer is required to obtain the
consent of any other party or any consent, license, approval or
authorization from, or registration or declaration with, any governmental
authority, bureau or agency which consent already has not been obtained in
connection with the execution, delivery, performance, validity or
33
<PAGE>
enforceability of this Agreement, except such as have been obtained prior
to the Closing Date;
(d) The execution, delivery and performance of this Agreement by the
Seller and the Servicer will not violate any provision of any existing law
or regulation or any order or decree of any court or the Articles of
Incorporation or Bylaws of the Seller or the Servicer, respectively, or
constitute a breach of any mortgage, indenture, contract or other Agreement
to which the Seller or the Servicer, respectively, is a party or by which
it may be bound;
(e) There is no action, suit, proceeding or investigation pending or
threatened against the Servicer, the Seller or the Subservicer which,
either in any one instance or in the aggregate, is, in the Servicer's and
the Seller's judgment, likely to result in any material adverse change in
the business, operations, financial condition, properties, or assets of the
Servicer, the Seller or the Subservicer, or in any material impairment of
the right or ability of any of them to carry on its business substantially
as now conducted, or in any material liability on the part of any of them,
or which would draw into question the validity of this Agreement, the
Certificates, or the Mortgage Loans or of any action taken or to be taken
in connection with the obligations of the Seller or the Servicer
contemplated herein or therein, or which would be likely to impair
materially the ability of the Seller or the Servicer to perform its
obligations hereunder;
(f) Neither this Agreement nor any statement, report, or other
document furnished or to be furnished pursuant to this Agreement or in
connection with the transactions contemplated hereby, including without
limitation the sale or placement of the Certificates, contains any untrue
statement of fact provided by or on behalf of the Seller or the Servicer or
omits to state a fact necessary to make the statements provided by or on
behalf of the Seller or the Servicer contained herein or therein not
misleading:
(g) Neither the Seller nor the Servicer believes, nor does either
have any reason or cause to believe, that it cannot perform each and every
covenant contained in this Agreement;
(h) The transfer, assignment, and conveyance of the Mortgage Loans by
the Seller pursuant to this Agreement is not subject to the bulk transfer
or any similar statutory provisions in effect in any applicable
jurisdiction;
(i) The Seller is solvent and will not as a result of this Agreement
and the undertakings of the Seller hereunder be rendered insolvent; and
(j) None of the Seller, the Servicer or the Subservicer is an
"investment company" or a company "controlled by an investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.01 shall survive the delivery of the
respective Mortgage Files to the Trustee or to a custodian, as the case may be,
and inure to the benefit of the Trustee.
34
<PAGE>
Section 3.02 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
DEPOSITOR. The Depositor hereby represents, warrants and covenants to the
Trustee that as of the date of this Agreement or as of such date specifically
provided herein:
(a) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(b) The Depositor has the corporate power and authority to convey the
Mortgage Loans and to execute, deliver and perform, and to enter into and
consummate transactions contemplated by, this Agreement;
(c) This Agreement has been duly and validly authorized, executed and
delivered by the Depositor, all requisite corporate action having been
taken, and, assuming the due authorization, execution and delivery hereof
by the Servicer and the Trustee, constitutes or will constitute the legal,
valid and binding agreement of the Depositor, enforceable against the
Depositor in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors generally,
and by general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law);
(d) No consent, approval, authorization or order of or registration
or filing with, or notice to, any governmental authority or court is
required for the execution, delivery and performance of or compliance by
the Depositor with this Agreement or the consummation by the Depositor of
any of the transactions contemplated hereby, except as have been made on or
prior to the Closing Date;
(e) None of the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby or thereby, or the
fulfillment of or compliance with the terms and conditions of this
Agreement, (i) conflicts or will conflict with or results or will result in
a breach of, or constitutes or will constitute a default or results or will
result in an acceleration under (A) the charter or bylaws of the
Depositor, or (B) of any term, condition or provision of any material
indenture, deed of trust, contract or other agreement or instrument to
which the Depositor or any of its subsidiaries is a party or by which it or
any of its subsidiaries is bound; (ii) results or will result in a
violation of any law, rule, regulation, order, judgment or decree
applicable to the Depositor of any court or governmental authority having
jurisdiction over the Depositor or its subsidiaries; or (iii) results in
the creation or imposition of any lien, charge or encumbrance which would
have a material adverse effect upon the Mortgage Loans or any documents or
instruments evidencing or securing the Mortgage Loans;
(f) There are no actions, suits or proceedings before or against or
investigations of, the Depositor pending, or to the knowledge of the
Depositor, threatened, before any court, administrative agency or other
tribunal, and no notice of any such action, which, in the Depositor's
reasonable judgment, might materially and adversely affect the performance
by the Depositor of its obligations under this Agreement, or the validity
or enforceability of this Agreement; and
35
<PAGE>
(g) The Depositor is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency that may materially and adversely
affect its performance hereunder.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.02 shall survive delivery of the
respective Mortgage Files to the Trustee or to a custodian, as the case may be,
and shall inure to the benefit of the Trustee.
Section 3.03 PURCHASE AND SUBSTITUTION. (a) It is understood and
agreed that the representations and warranties set forth in Sections 3.01, 3.02
and 3.03 of the Purchase Agreement shall survive delivery of the Certificates to
the Certificateholders. Pursuant to the Purchase Agreement, with respect to any
representation or warranty contained in Sections 3.01, 3.02 or 3.03 of the
Purchase Agreement that is made to the best of the Seller's knowledge, if it is
discovered by the Servicer, any Subservicer, the Trustee, the Certificate
Insurer or any Certificateholder that the substance of such representation and
warranty was inaccurate as of the Closing Date and such inaccuracy materially
and adversely affects the value of the related Mortgage Loan, then
notwithstanding the Seller's lack of knowledge with respect to the inaccuracy at
the time the representation or warranty was made, such inaccuracy shall be
deemed a breach of the applicable representation or warranty. Upon discovery by
the Seller, the Servicer, any Subservicer, the Trustee or the Certificate
Insurer of a breach of any of such representations and warranties which
materially and adversely affects the value of the Mortgage Loans or the interest
of the Certificateholders or the Certificate Insurer, or which materially and
adversely affects the interests of the Certificate Insurer or the
Certificateholders in the related Mortgage Loan in the case of a representation
and warranty relating to a particular Mortgage Loan (notwithstanding that such
representation and warranty was made to the Seller's best knowledge), the party
discovering such breach shall give prompt written notice to the others. Subject
to the last paragraph of this Section 3.03, within 60 days of the earlier of its
discovery or its receipt of notice of any breach of a representation or
warranty, pursuant to the Purchase Agreement, the Servicer shall, or shall cause
the Seller or an Originator to (a) promptly cure such breach in all material
respects, or (b) purchase such Mortgage Loan on the next succeeding Servicer
Distribution Date, in the manner and at the price specified in Section 2.06(b),
or (c) remove such Mortgage Loan from the Trust Fund (in which case it shall
become a Deleted Mortgage Loan) and substitute one or more Qualified Substitute
Mortgage Loans; provided, that, such substitution is effected not later than the
date which is two years after the Startup Day or at such later date, if the
Trustee and the Certificate Insurer receive an Opinion of Counsel to the effect
set forth below in this Section. In addition, pursuant to the Purchase
Agreement, the Seller and the related Originator shall be obligated to indemnify
the Trustee, the Certificateholders and the Certificate Insurer for any third
party claims arising out of a breach by the Seller of representations or
warranties regarding the Mortgage Loans. Pursuant to the Purchase Agreement any
such substitution shall be accompanied by payment by the Seller of the
Substitution Adjustment, if any, to be deposited in the Collection Account.
(b) As to any Deleted Mortgage Loan for which the Seller substitutes
a Qualified Substitute Mortgage Loan or Loans, the Servicer shall cause the
Seller or an Originator, as applicable, to effect such substitution by
delivering to the Trustee a certification in the form attached hereto as Exhibit
H, executed by a Servicing Officer and the documents described in Sections
2.05(a)(i)-(vi) for such Qualified Substitute Mortgage Loan or Loans.
36
<PAGE>
(c) The Servicer shall deposit in the Collection Account all payments
received in connection with such Qualified Substitute Mortgage Loan or Loans
after the date of such substitution. Monthly Payments received with respect to
Qualified Substitute Mortgage Loans on or before the date of substitution will
be retained by the Seller. The Trust Fund will own all payments received on the
Deleted Mortgage Loan on or before the date of substitution, and the Seller
shall thereafter be entitled to retain all amounts subsequently received in
respect of such Deleted Mortgage Loan. The Servicer shall give written notice
to the Trustee and the Certificate Insurer that such substitution has taken
place and shall amend the Mortgage Loan Schedule to reflect the removal of such
Deleted Mortgage Loan from the terms of this Agreement and the substitution of
the Qualified Substitute Mortgage Loan. Upon such substitution, such Qualified
Substitute Mortgage Loan or Loans shall be subject to the terms of this
Agreement in all respects.
(d) It is understood and agreed that the obligations of the Seller
and the related Originator set forth in Sections 2.05 and 3.05 of the Purchase
Agreement to, and the Servicer's obligation to cause the Seller and the
Originator to, cure, purchase or substitute for a defective Mortgage Loan, or to
indemnify as described in clause (a) above, constitute the sole remedies of the
Trustee, the Certificate Insurer and the Certificateholders respecting a breach
of the representations and warranties of the Seller set forth in Sections 3.01
and 3.02 of the Purchase Agreement. The Trustee shall give prompt written
notice to the Certificate Insurer and the Rating Agencies of any repurchase or
substitution made pursuant to this Section 3.03 or Section 2.06(b).
(e) Upon discovery by the Servicer, the Trustee, the Certificate
Insurer or any Certificateholder that any Mortgage Loan does not constitute a
Qualified Mortgage, the party discovering such fact shall promptly (and in any
event within 5 days of the discovery) give written notice thereof to the other
parties. In connection therewith, pursuant to the Purchase Agreement, the
Seller shall be required to repurchase or substitute a Qualified Substitute
Mortgage Loan for the affected Mortgage Loan within 90 days of the earlier of
such discovery by any of the foregoing parties, or the Trustee's or the Seller's
receipt of notice, in the same manner as it would a Mortgage Loan for a breach
of representation or warranty contained in Sections 3.01, 3.02 or 3.03 of the
Purchase Agreement. The Trustee shall reconvey to the Seller the Mortgage Loan
to be released pursuant hereto in the same manner, and on the same terms and
conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty contained in Sections 3.01, 3.02 or 3.03 of the
Purchase Agreement.
ARTICLE IV
THE CERTIFICATES
Section 4.01 THE CERTIFICATES. The Certificates shall be
substantially in the forms annexed hereto as Exhibit B. All Certificates shall
be executed by manual or facsimile signature on behalf of the Trustee by an
authorized officer and authenticated by the manual or facsimile signature of an
authorized officer. Certificates bearing the signatures of individuals who were
at the time of the execution of the Certificates the authorized officers of the
Trustee shall bind the Trustee, notwithstanding that such individuals or any of
them have ceased to hold such offices prior to the delivery of such Certificates
or did not hold such offices at the date of such Certificates. All Certificates
issued hereunder shall be dated the date of their authentication.
37
<PAGE>
Section 4.02 REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES.
(a) The Trustee, as registrar, shall cause to be kept a register (the
"Certificate Register") in which, subject to such reasonable regulations as it
may prescribe, the Trustee shall provide for the registration of Certificates
and the registration of transfer of Certificates. The Trustee is hereby
appointed registrar for the purpose of registering Certificates and transfers of
Certificates as herein provided. The Certificate Insurer shall be entitled to
inspect and copy the Certificate Register and the records of the Trustee
relating to the Certificates during normal business hours upon reasonable
notice.
(b) All Certificates issued upon any registration of transfer or
exchange of Certificates shall be valid evidence of the same ownership interests
in the Trust and entitled to the same benefits under this Agreement as the
Certificates surrendered upon such registration of transfer or exchange.
(c) Every Certificate presented or surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by the
Holder thereof or his attorney duly authorized in writing.
(d) No service charge shall be made to a Holder for any registration
of transfer or exchange of Certificates, but the Trustee may require payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Certificates; any other expenses in connection with such transfer or exchange
shall be an expense of the Trust.
(e) It is intended that the Class A Certificates be registered so as
to participate in a global book-entry system with the Depository, as set forth
herein. The Class A Certificates shall, except as otherwise provided in the
next paragraph, be initially issued in the form of a single fully registered
Class A Certificate with a denomination equal to the Original Class A Principal
Balance. Upon initial issuance, the ownership of each such Class A Certificate
shall be registered in the Certificate Register in the name of Cede & Co., or
any successor thereto, as nominee for the Depository. The Depositor and the
Trustee are hereby authorized to execute and deliver the Representation Letter
with the Depository. With respect to Class A Certificates registered in the
Certificate Register in the name of Cede & Co., as nominee of the Depository,
the Depositor, the Seller, the Servicer, the Trustee and the Certificate Insurer
shall have no responsibility or obligation to Direct or Indirect Participants or
beneficial owners for which the Depository holds Class A Certificates from time
to time as a Depository. Without limiting the immediately preceding sentence,
the Depositor, the Seller, the Servicer, the Trustee and the Certificate Insurer
shall have no responsibility or obligation with respect to (i) the accuracy of
the records of the Depository, Cede & Co., or any Direct or Indirect Participant
with respect to any Ownership Interest, (ii) the delivery to any Direct or
Indirect Participant or any other Person, other than a Certificateholder, of any
notice with respect to the Class A Certificates or (iii) the payment to any
Direct or Indirect Participant or any other Person, other than a
Certificateholder, of any amount with respect to any distribution of principal
or interest on the Class A Certificates. No Person other than a
Certificateholder shall receive a certificate evidencing such Class A
Certificate. Upon delivery by the Depository to the Trustee of written notice
to the effect that the Depository has determined to substitute a new nominee in
place of Cede & Co., and subject to the provisions hereof with respect to the
payment of interest by the mailing of checks or drafts
38
<PAGE>
to the Certificateholders appearing as Certificateholders at the close of
business on a Record Date, the name "Cede & Co." in this Agreement shall refer
to such new nominee of the Depository.
(f) In the event that (i) the Depository or the Servicer advises the
Trustee in writing that the Depository is no longer willing or able to discharge
properly its responsibilities as nominee and depository with respect to the
Class A Certificates and the Servicer or the Depository is unable to locate a
qualified successor or (ii) the Trustee at its sole option elects to terminate
the book-entry system through the Depository, the Class A Certificates shall no
longer be restricted to being registered in the Certificate Register in the name
of Cede & Co. (or a successor nominee) as nominee of the Depository. At that
time, the Servicer may determine that the Class A Certificates shall be
registered in the name of and deposited with a successor depository operating a
global book-entry system, as may be acceptable to the Servicer, or such
depository's agent or designee but, if the Servicer does not select such
alternative global book-entry system, then the Class A Certificates may be
registered in whatever name or names Certificateholders transferring Class A
Certificates shall designate, in accordance with the provisions hereof;
provided, however, that any such reregistration shall be at the expense of the
Servicer.
(g) Notwithstanding any other provision of this Agreement to the
contrary, so long as any Class A Certificate is registered in the name of Cede &
Co., as nominee of the Depository, all distributions of principal or interest on
such Class A Certificates as the case may be and all notices with respect to
such Class A Certificates as the case may be shall be made and given,
respectively, in the manner provided in the Representation Letter.
(h) No transfer, sale, pledge or other disposition of any Class R
Certificate shall be made unless such disposition is made pursuant to an
effective registration statement under the Securities Act of 1933, as amended
and effective registration or qualification under applicable state securities
laws or "Blue Sky" laws, or is made in a transaction that does not require such
registration or qualification. None of the Servicer, the Depositor, the Seller
or the Trustee is obligated under this Agreement to register Certificates under
the Securities Act of 1933, as amended or any other securities law or to take
any action not otherwise required under this Agreement to permit the transfer of
the Class R Certificates without such registration or qualification. Any such
Certificateholder desiring to effect such transfer shall, and does hereby agree
to, indemnify the Trustee, the Depositor, the Seller, the Servicer and the
Certificate Insurer against any liability that may result if the transfer is not
exempt or is not made in accordance with such applicable federal and state laws.
Promptly after receipt by an indemnified party under this paragraph of notice of
the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under this
paragraph, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this paragraph. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to appoint counsel reasonably satisfactory
to such indemnified party to represent the indemnified party in such action;
PROVIDED, HOWEVER, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. Upon receipt of notice from
39
<PAGE>
the indemnifying party to such indemnified party of its election so to appoint
counsel to defend such action and approval by the indemnified party of such
counsel, the indemnifying party will not be liable to such indemnified party
under this paragraph for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso of the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel for any indemnified party), (ii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. Under no
circumstances shall the indemnified party enter into a settlement agreement with
respect to any lawsuit, claim or other proceeding without the prior written
consent of the indemnifying party.
(i) Subject to the restrictions set forth in this Agreement, upon
surrender for registration of transfer of any Certificate at the office or
agency of the Trustee located in New York, New York, the Trustee shall execute,
authenticate and deliver in the name of the designated transferee or
transferees, a new Certificate of the same Class and Percentage Interest and
dated the date of authentication by the Trustee. At the option of the
Certificateholders, Certificates may be exchanged for other Certificates of
Authorized Denominations of a like aggregate Percentage Interest, upon surrender
of the Certificates to be exchanged at such office. Whenever any Certificates
are so surrendered for exchange, the Trustee shall execute, authenticate and
deliver the Certificates which the Certificateholder making the exchange is
entitled to receive. No service charge shall be made for any transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates. All Certificates
surrendered for transfer and exchange shall be cancelled and destroyed by the
Trustee in accordance with the Trustee's standard procedures.
(j) No transfer of a Class A Certificate shall be made to the Seller
or, to the actual knowledge of a Responsible Officer of the Trustee, to any of
the Seller's Affiliates, successors or assigns.
(k) Each Person who has or who acquires any Ownership Interest in a
Class R Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions and to
have irrevocably appointed the Servicer or its designee as its attorney-in-fact
to negotiate the terms of any mandatory sale under clause (8) below and to
execute all instruments of transfer and to do all other things necessary in
connection with any such sale, and the rights of each Person acquiring any
Ownership Interest in a Class R Certificate are expressly subject to the
following provisions:
(i) Each Person holding or acquiring any Ownership Interest in a
Class R Certificate shall be a Permitted Transferee and a United States
Person and shall promptly notify the Trustee of any change or impending
change in its status as either a United States Person or a Permitted
Transferee.
(ii) In connection with any proposed Transfer of any Ownership
Interest in a Class R Certificate, the Trustee shall require delivery to it
of, and shall not register the Transfer of any Class R Certificate until
its receipt of, an affidavit and agreement (a
40
<PAGE>
"Transfer Affidavit and Agreement") attached hereto as Exhibit I from the
proposed Transferee, in form and substance satisfactory to the Trustee,
representing and warranting, among other things, that such Transferee is a
Permitted Transferee, that it is not acquiring its Ownership Interest in the
Class R Certificate that is the subject of the proposed Transfer as a nominee,
trustee or agent for any Person that is not a Permitted Transferee, that for so
long as it retains its Ownership Interest in a Class R Certificate, it will
endeavor to remain a Permitted Transferee, and that it has reviewed the
provisions of this Section 4.02(k) and agrees to be bound by them.
(iii) Notwithstanding the delivery of a Transfer Affidavit and
Agreement by a proposed Transferee under clause (ii) above, if the Trustee
has actual knowledge that the proposed Transferee is not a Permitted
Transferee, no Transfer of an Ownership Interest in a Class R Certificate
to such proposed Transferee shall be effected.
(iv) Each Person holding or acquiring any Ownership Interest in a
Class R Certificate shall agree (x) to require a Transfer Affidavit and
Agreement from any other Person to whom such Person attempts to transfer
its Ownership Interest in a Class R Certificate and (y) not to transfer its
Ownership Interest unless it provides a certificate (attached hereto as
Exhibit J) to the Trustee stating that, among other things, it has no
actual knowledge that such other Person is not a Permitted Transferee.
(v) Each Person holding or acquiring an Ownership Interest in a
Class R Certificate, by purchasing an Ownership Interest in such
Certificate, agrees to give the Trustee written notice that it is a
"pass-through interest holder" within the meaning of temporary Treasury
regulation Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an
Ownership Interest in a Class R Certificate, if it is, or is holding an
Ownership Interest in a Class R Certificate on behalf of, a "pass-through
interest holder".
(vi) The Trustee will register the Transfer of any Class R
Certificate only if it shall have received the Transfer Affidavit and
Agreement and all of such other documents as shall have been reasonably
required by the Trustee as a condition to such registration. In addition,
no Transfer of a Class R Certificate shall be made unless the Trustee shall
have received a representation letter from the Transferee of such
Certificate to the effect that such Transferee is a United States Person
and is not a "disqualified organization" (as defined in Section 860E(e)(5)
of the Code).
(vii) Any attempted or purported transfer of any Ownership Interest
in a Class R Certificate in violation of the provisions of this Section
4.02 shall be absolutely null and void and shall vest no rights in the
purported transferee. If any purported transferee shall become a Holder of
a Class R Certificate in violation of the provisions of this Section 4.02,
then the last preceding Permitted Transferee shall be restored to all
rights as Holder thereof retroactive to the date of registration of
transfer of such Class R Certificate. The Trustee shall notify the
Servicer upon receipt of written notice or discovery by a Responsible
Officer that the registration of transfer of a Class R Certificate was not
in fact permitted by this Section 4.02. Knowledge shall not be imputed to
the Trustee with respect to an impermissible transfer in the absence of
such a written notice or discovery by a Responsible Officer. The Trustee
shall be under no liability to any Person for any registration of transfer
of a Class R Certificate that is in fact not permitted by this Section 4.02
or for making any payments due on such Certificate to the Holder
41
<PAGE>
thereof or taking any other action with respect to such Holder under the
provisions of this Agreement so long as the transfer was registered after
receipt of the related Transfer Affidavit and Transfer Certificate. The
Trustee shall be entitled, but not obligated to, recover from any Holder of
a Class R Certificate that was in fact not a Permitted Transferee at the
time it became a Holder or, at such subsequent time as it became other than
a Permitted Transferee, all payments made on such Class R Certificate at
and after either such time. Any such payments so recovered by the Trustee
shall be paid and delivered by the Trustee to the last preceding Holder of
such Certificate.
(viii) If any purported transferee shall become a Holder of a Class R
Certificate in violation of the restrictions in this Section 4.02, then the
Servicer or its designee shall have the right, without notice to the Holder
or any prior Holder of such Class R Certificate, to sell such Class R
Certificate to a purchaser selected by the Servicer or its designee on such
reasonable terms as the Servicer or its designee may choose. Such
purchaser may be the Servicer itself or any Affiliate of the Servicer. The
proceeds of such sale, net of commissions, expenses and taxes due, if any,
will be remitted by the Servicer to the last preceding purported transferee
of such Class R Certificate, except that in the event that the Servicer
determines that the Holder or any prior Holder of such Class R Certificate
may be liable for any amount due under this Section 4.02 or any other
provision of this Agreement, the Servicer may withhold a corresponding
amount from such remittance as security for such claim. The terms and
conditions of any sale under this clause (8) shall be determined in the
sole discretion of the Servicer or its designee, and it shall not be liable
to any Person having an Ownership Interest in a Class R Certificate as a
result of its exercise of such discretion.
(l) The provisions of Section 4.02(k) may be modified, added to or
eliminated, provided that there shall have been delivered to the Trustee and the
Certificate Insurer an Opinion of Counsel to the effect that such modification
of, addition to or elimination of such provisions will not cause the REMIC Trust
to cease to qualify as a REMIC and will not cause (x) the REMIC Trust to be
subject to an entity-level tax caused by the Transfer of any Ownership Interest
in a Class R Certificate to a Person that is not a Permitted Transferee or (y) a
Person other than the prospective transferee to be subject to a REMIC-related
tax caused by the Transfer of an Ownership Interest in a Class R Certificate to
a Person that is not a Permitted Transferee.
(m) Before the earlier of (i) the date on which the Pre-Funding
Period expires and (ii) the date on which the Department of Labor amends
Prohibited Transaction Exemption 90-32 to permit the use of pre-funding accounts
thereunder, no sale or other transfer of record or beneficial ownership of any
Class A Certificate shall be made to any Person which is a pension or benefit
plan or individual retirement arrangement that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or to Section 4975
of the Code or an entity whose underlying assets are deemed to be assets of such
a plan or arrangement by reason of such plan's or arrangement's investment in
the entity, as determined under U.S. Department of Labor Regulations 29 C.F.R.
Section 2510.3-101 or otherwise (collectively, a "Plan"). By acceptance of a
Class A Certificate during such period, each Person acquiring a Class A
Certificate shall be deemed to have represented that it is not a Plan.
Furthermore, the Trustee and the Servicer shall require the prospective
transferee of any Class R Certificate to certify (in the form of Exhibit K
hereto) that it is not a Plan.
42
<PAGE>
Section 4.03 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If
(a) any mutilated Certificate is surrendered to the Trustee, or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (b) there is delivered to the Servicer, the Certificate Insurer
and the Trustee such security or indemnity as may reasonably be required by each
of them to save each of them harmless, then, in the absence of notice to the
Servicer and the Trustee that such Certificate has been acquired by a bona fide
purchaser, the Trustee shall execute, authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like tenor and Percentage Interest, but bearing a number not
contemporaneously outstanding. Upon the issuance of any new Certificate under
this Section 4.03, the Servicer and the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and their fees and expenses connected therewith. Any duplicate
Certificate issued pursuant to this Section 4.03 shall constitute complete and
indefeasible evidence of ownership in the Trust Fund, as if originally issued,
whether or not the mutilated, destroyed, lost or stolen Certificate shall be
found at any time.
Section 4.04 PERSONS DEEMED OWNERS. Prior to due presentation of a
Certificate for registration of transfer and subject to the provisions of
Section 4.02 and Article X, the Servicer, the Depositor, the Seller, the
Certificate Insurer and the Trustee may treat the Person in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving remittances pursuant to Section 6.05 and for all other purposes
whatsoever, and the Servicer, the Depositor, the Seller, the Certificate Insurer
and the Trustee shall not be affected by notice to the contrary.
ARTICLE V
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
Section 5.01 REMIC MATTERS; THE SERVICER.
(a) The parties intend that the Trust Fund formed hereunder shall,
except for the Pre-Funded Account and the Capitalized Interest Account,
constitute, and that the affairs of the Trust Fund shall be conducted and this
Agreement shall be construed so as to qualify the Trust Fund as, a "real estate
mortgage investment conduit" as defined in and in accordance with the REMIC
Provisions. In furtherance of such intention, the Trustee covenants and agrees
that it shall, to the extent permitted by applicable law, act as agent (and the
Trustee is hereby appointed to act as agent) on behalf of the Trust Fund and
that in such capacity it shall: (a) prepare and file, or cause to be prepared
and filed, all required federal, state and local tax returns for the REMIC using
a calendar year as the taxable year for the Trust Fund when and as required by
the REMIC Provisions and other applicable federal, state and local income tax
laws; (b) maintain or cause the maintenance of the books of the Trust Fund on
the accrual method of accounting; (c) make an election, on behalf of the Trust
Fund, to be treated as a REMIC on the federal tax return of the Trust Fund for
its first taxable year, in accordance with the REMIC Provisions; provided,
however, that such election shall not be made with respect to the Pre-Funding
Account and the Capitalized Interest Account and shall specifically exclude the
Pre-Funding Account and the Capitalized Interest Account from the assets for
which a REMIC election is made; (d) prepare and forward, or cause to be prepared
and forwarded, to the Certificateholders all information reports as and when
required to be provided to them in accordance with the REMIC Provisions; (e)
conduct the affairs of the Trust Fund at all times that any
43
<PAGE>
Certificates are outstanding so as to maintain the status thereof as a REMIC
under the REMIC Provisions; and (f) not knowingly or intentionally take any
action or omit to take any action that would cause the termination of the REMIC
status of the Trust Fund.
The Capitalized Interest Account is an "outside reserve fund" within
the meaning of Treasury Regulations Section 1.860G-2(h) and is not an asset of
the REMIC. The Seller is the owner of the Capitalized Interest Account for
purposes of Treasury Regulations Section 1.860G-2(h). For all federal income
tax purposes, amounts transferred by the REMIC to the Capitalized Interest
Account, if any, will be treated as amounts distributed by the REMIC to the
Seller.
In the event that any income tax (including any tax with regard to
"prohibited transactions" of the Trust Fund as defined in Section 860F of the
Code) is imposed on the Trust Fund, such tax shall be charged against amounts
otherwise distributable to the Holders of the Class R Certificates on a PRO rata
basis to the extent hereinafter provided. In the event that any such tax shall
be due and owing at a time when amounts otherwise distributable to the Holders
of the Class R Certificates are not available, the Trustee shall pay such tax
from its own funds. In such event, the Trustee is hereby authorized to retain
from amounts otherwise distributable to the Holders of the Class R Certificates
on any Distribution Date sufficient funds to reimburse the Trustee for the
payment of such tax (to the extent that the Trustee has not been previously
reimbursed or indemnified therefor) (but such obligation shall not prevent the
Trustee or any other appropriate Person from contesting any such tax in
appropriate proceedings and shall prevent the Trustee from withholding payment
of such tax, if permitted by law, pending the outcome of such proceedings).
(b) The Servicer shall service and administer the Mortgage Loans in
accordance with the Accepted Servicing Practices and shall have full power and
authority to do any and all things not inconsistent therewith in connection with
such servicing and administration which it may deem necessary or desirable
subject to the limitations set forth in this Agreement. The Trustee shall
furnish the Servicer with any powers of attorney and other documents necessary
or appropriate to enable the Servicer to carry out its servicing and
administrative duties hereunder. Without limiting the generality of the
foregoing, the Servicer shall continue, and is hereby authorized and empowered
by the Trustee, to execute and deliver, on behalf of itself, the
Certificateholders and the Trustee or any of them, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge and all
other comparable instruments, and to effect such modifications, waivers,
indulgences and other like matters as are in its judgment necessary or
desirable, with respect to the Mortgage Loans and the Mortgaged Properties and
the servicing and administration thereof. The Servicer shall notify the Trustee
of any such waiver, release, discharge, modification, indulgence or other such
matter by delivering to the Trustee an Officer's Certificate certifying that
such agreement is in compliance with this Section 5.01(b) together with the
original copy of any written agreement or other document executed in connection
therewith, all of which written agreements or documents shall, for all purposes,
be considered a part of the related Mortgage File to the same extent as all
other documents and instruments constituting a part thereof. Notwithstanding
anything in this Agreement to the contrary, the Servicer shall not permit any
modification with respect to any Mortgage Loan that would change the Mortgage
Interest Rate, reduce or increase the principal balance, change the lien
priority, or change the final maturity date on or of such Mortgage Loan unless
(i) the Mortgagor is in default with respect to the Mortgage Loan or such
default is, in the judgment of the Servicer, imminent and (ii) the Certificate
Insurer consents to such modifications in writing; provided, however, that the
Servicer shall be permitted to extend the final maturity date on a Mortgage Loan
by 180 days or less without the consent of the Certificate Insurer.
44
<PAGE>
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Agreement) to the Trustee under this Agreement is
intended by the parties to be that of an independent contractor and not that of
a joint venturer, partner or agent.
Section 5.02 COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS; COLLECTION
ACCOUNT.
(a) The Servicer shall make its reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with this Agreement,
follow the Accepted Servicing Practices. Consistent with the foregoing, the
Servicer may in its discretion waive any assumption fees or other fees which may
be collected in the ordinary course of servicing such Mortgage Loans.
(b) The Servicer shall establish and maintain in the name of the
Trustee the Collection Account, in trust for the benefit of the
Certificateholders and the Certificate Insurer. The Collection Account shall be
established and maintained as an Eligible Account.
(c) The Servicer shall deposit in the Collection Account any amounts
representing Monthly Payments on the Mortgage Loans due or to be applied as of a
date after the Cut-Off Date, and thereafter, on a daily basis (except as
otherwise permitted herein), the following payments and collections received or
made by it (other than in respect of principal of and interest on the Mortgage
Loans due on or before the Cut-Off Date):
(i) Payments of interest on the Mortgage Loans;
(ii) Payments of principal of the Mortgage Loans;
(iii) The Loan Repurchase Price of Mortgage Loans repurchased
pursuant to Sections 2.06 or 5.05;
(iv) The Substitution Adjustment received in connection with
Mortgage Loans for which Qualified Replacement Mortgages are received
pursuant to Sections 2.06 and 3.03;
(v) All Liquidation Proceeds; and
(vi) All Insurance Proceeds (including, for this purpose,
any amounts required to be deposited by the Servicer pursuant to the last
sentence of Section 5.04).
It is understood that the Servicer need not deposit amounts
representing fees, prepayment premiums, late payment charges or extension or
other administrative charges payable by Mortgagors, or amounts received by the
Servicer for the account of Mortgagors for application towards the payment of
taxes, insurance premiums, assessments and similar items.
(d) The Trustee shall invest any funds in the Collection Account in
Permitted Investments as directed by the Servicer, which shall mature not later
than the Business Day next preceding the Distribution Date next following the
date of such investment (except that any investment held by the Trustee may
mature on such Distribution Date) and shall not be sold or disposed of prior to
its maturity. All net income and gain realized from any such investment shall
be for the benefit of the Servicer and shall be subject to its withdrawal or
order on a Distribution Date. The Servicer shall deposit from its own funds
45
<PAGE>
the amount of any loss, to the extent not offset by investment income or
earnings, in the Collection Account upon the realization of such loss.
Section 5.03 PERMITTED WITHDRAWALS FROM THE COLLECTION ACCOUNT. The
Trustee shall make withdrawals from the Collection Account, on any Distribution
Date, for the following purposes:
(a) To reimburse the Servicer for Liquidation Expenses
theretofore incurred in respect of any Mortgage Loan in an amount not to
exceed the amount of the related Insurance Proceeds and Liquidation
Proceeds deposited in the Collection Account pursuant to Section
5.02(b)(v)-(vi);
(b) To reimburse the Servicer for amounts expended by it
pursuant to Section 5.04 in good faith in connection with the restoration
of damaged property, in an amount not to exceed the amount of the related
Insurance Proceeds and Liquidation Proceeds (net of withdrawals pursuant to
clause (i) above) and amounts representing proceeds of other insurance
policies covering the property subject to the related Mortgage deposited in
the Collection Account pursuant to Section 5.02(b)(v)-(vi);
(c) To pay to the Seller amounts received in respect of any
Defective Mortgage Loan purchased or substituted for by the Seller to the
extent that the distribution of any such amounts on the Distribution Date
upon which the proceeds of such purchase are distributed would make the
total amount distributed in respect of any such Mortgage Loan on such
Distribution Date greater than the Loan Repurchase Price or the
Substitution Adjustment therefor;
(d) To reimburse the Servicer for unreimbursed Servicing
Advances, without interest, with respect to the Mortgage Loans for which it
has made an Advance, from subsequent collections with respect to interest
on such Mortgage Loans and from Liquidation Proceeds, Insurance Proceeds
and/or the Loan Repurchase Price or Substitution Adjustment of or relating
to such Mortgage Loans;
(e) To reimburse itself for any Periodic Advances determined in
good faith to have become Nonrecoverable Advances, such reimbursement to be
made from any funds in the Collection Account;
(f) to withdraw any amount received from a Mortgagor that is
recoverable and sought to be recovered as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code in
accordance with a final, nonappealable order of a court having competent
jurisdiction;
(g) to withdraw any funds deposited in the Collection Account
that were not required to be deposited therein; and
(h) to pay itself Servicing Compensation pursuant to Section
5.08 hereof to the extent not retained or paid.
The Servicer shall keep and maintain a separate accounting for each
Mortgage Loan for the purpose of accounting for withdrawals from the Collection
Account pursuant to subclause (a).
46
<PAGE>
Section 5.04 HAZARD INSURANCE POLICIES; PROPERTY PROTECTION EXPENSES.
(a) The Servicer shall cause to be maintained for each Mortgage Loan
a hazard insurance policy with extended coverage which contains a standard
mortgagee's clause with an appropriate endorsement in an amount equal to the
lesser of (a) the maximum insurable value of the related Mortgaged Property or
(b) the sum of the Principal Balance of such Mortgage Loan plus the outstanding
balance of any mortgage loan senior to such Mortgage Loan, but in no event shall
such amount be less than is necessary to prevent the Mortgagor from becoming a
coinsurer thereunder. The Servicer shall also maintain on property acquired
upon foreclosure, or by deed in lieu of foreclosure, hazard insurance with
extended coverage in an amount which is at least equal to the lesser of (i) the
maximum insurable value from time to time of the improvements which are a part
of such property or (ii) the combined Principal Balance of such Mortgage Loan
and the principal balance of any mortgage loan senior to such Mortgage Loan at
the time of such foreclosure plus accrued interest and the good-faith estimate
of the Servicer of related Liquidation Expenses to be incurred in connection
therewith. Amounts collected by the Servicer under any such policies shall be
deposited in the Collection Account to the extent that they constitute
Liquidation Proceeds or Insurance Proceeds. Each hazard insurance policy shall
contain a standard mortgage clause naming the Originator, its successors and
assigns, as mortgagee. The Servicer shall be under no obligation to require
that any Mortgagor maintain earthquake or flood or other additional insurance
and shall be under no obligation itself to maintain any such additional
insurance on property acquired in respect of a Mortgage Loan, other than
pursuant to such applicable laws and regulations as shall at any time be in
force and as shall require such additional insurance.
(b) If the Servicer shall obtain and maintain a blanket policy issued
by an insurer acceptable to the Rating Agencies and the Certificate 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 Section
5.04(a), it being understood and agreed that such policy may contain a
deductible clause, in which case the Servicer shall, in the event that there
shall not have been maintained on the related Mortgaged Property a policy
complying with Section 5.04(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.
(c) If the Mortgaged Property or REO Property is located at the time
of origination of the Mortgage Loan in a federally designated special flood
hazard area (and if the flood insurance policy referenced herein has been made
available), the Servicer will cause to be maintained flood insurance in respect
thereof. Such flood insurance shall be in an amount equal to the lesser of (i)
the Loan Balance of the related Mortgage Loan and the balance of the related
first lien, if any, (ii) the maximum insurable value of the related Mortgaged
Property, and (iii) the maximum amount of such insurance available for the
related Mortgaged Property under the national flood insurance program (assuming
that the area in which such Mortgaged Property is located is participating in
such program).
Section 5.05 ASSUMPTION AND MODIFICATION AGREEMENTS. In any case in
which a Mortgaged Property has been or is about to be conveyed by the Mortgagor,
the Servicer shall exercise its right to accelerate the maturity of the related
Mortgage Loan and require that the Principal Balance thereof be paid in full on
or prior to such conveyance by the Mortgagor under any "due-on-sale" clause
applicable thereto. If such "due-on-sale" clause, by its terms, is not operable
or the Servicer is prevented, as provided in the last paragraph of this Section
5.05, from enforcing any such clause, the Servicer is authorized, subject to the
consent of the Certificate Insurer, to take or enter into an assumption and
modification 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
Mortgage Note and the Mortgagor remains liable thereon or, if the Servicer
47
<PAGE>
in its reasonable judgment finds it appropriate, is released from liability
thereon. The Servicer shall notify the Trustee that any assumption and
modification agreement has been completed by delivering to the Trustee and the
Certificate Insurer an Officer's Certificate certifying, that such agreement is
in compliance with this Section 5.05 together with the original copy of such
assumption and modification agreement. Any such assumption and modification
agreement shall, for all purposes, be considered a part of the related Mortgage
File to the same extent as all other documents and instruments constituting a
part thereof. In connection with any such agreement, the then current Mortgage
Interest Rate thereon shall not be increased or decreased. Any fee collected by
the Servicer for entering into any such agreement will be retained by the
Servicer as additional servicing compensation. At its sole election, the
Servicer may purchase from the Trust Fund any Mortgage Loan that has been
assumed in accordance with this Section 5.05 within one month after the date of
such assumption at a price equal to the greater of (i) the fair market value of
such Mortgage Loan (as determined by the Servicer in its good faith judgment)
and (ii) the Loan Repurchase Price. Such amount, if any, shall be deposited
into the Collection Account in the Due Period in which such repurchase is made.
Notwithstanding the foregoing paragraph of this Section 5.05 or any
other provision of this Agreement, the Servicer shall not be deemed to be in
default, breach or any other violation of its obligations hereunder by reason of
any assumption of a Mortgage Loan, or transfer of any Mortgaged Property without
the assumption thereof, by operation of law or any assumption or transfer which
the Servicer reasonably believes it may be restricted by law from preventing for
any reason whatsoever.
Section 5.06 REALIZATION UPON DEFAULTED MORTGAGE LOANS. (a) The
Servicer shall foreclose upon or otherwise comparably convert to ownership
Mortgaged Properties securing such of the Mortgage Loans as come into and
continue in default and as to which no satisfactory arrangements can be made for
collection of delinquent payments pursuant to Section 5.02(a). Prior to
conducting any sale in a foreclosure proceeding or accepting a deed-in-lieu of
foreclosure with respect to any Mortgaged Property, the Servicer shall cause an
environmental review to be performed, in accordance with Accepted Servicing
Practices on the Mortgaged Property by a company such as Equifax, Inc. or
Toxicheck. If such review reveals that the Mortgaged Property has on it, under
it or is near hazardous or toxic material or waste or reveals any other
environmental problem, the Servicer shall not foreclose or accept a deed-in-lieu
of foreclosure. In connection with such foreclosure or other conversion, the
Servicer shall follow such practices (including, in the case of any default on a
related senior mortgage loan, the advancing of funds to correct such default)
and procedures which are not inconsistent with the Accepted Servicing Practices
as it shall deem necessary or advisable and as shall be normal and usual in its
general first and second mortgage loan servicing activities. The foregoing is
subject to the proviso that the Servicer shall not be required to expend its own
funds in connection with any foreclosure or towards the correction of any
default on a related senior mortgage loan or restoration of any property unless,
in the reasonable judgment of the Servicer, such expenses will be recoverable
from Liquidation Proceeds.
(b) 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 Trustee, or to its nominee on behalf of
Certificateholders. In the event that the Trust Fund acquires any Mortgaged
Property as aforesaid or otherwise in connection with a default or imminent
default on a Mortgage Loan, such Mortgaged Property shall be disposed of by or
on behalf of the Trust Fund within two years after its acquisition by the Trust
Fund unless the Servicer shall have furnished the Trustee with an Opinion of
Counsel to the effect that the holding by the Trust Fund of such Mortgaged
Property subsequent to two years after its acquisition will not result in the
imposition of taxes on "prohibited transactions" of the Trust Fund as defined in
Section 860F of the Code or cause the Trust Fund to fail to qualify as a REMIC
at any time that any Certificates are outstanding.
48
<PAGE>
(c) Any Insurance Proceeds or Liquidation Proceeds received with
respect to a Mortgage Loan or REO Property (other than received in connection
with a purchase by the Class R Certificateholders of all the Mortgage Loans and
REO Properties in the Trust Estate pursuant to Section 8.01(b)) will be applied
in the following order of priority, in each case to the extent of available
funds: first, to pay the Servicer any accrued and unpaid Servicing Fees
relating to such Mortgage Loan; second, to reimburse the Servicer or any
Subservicer for any related unreimbursed Servicing Advances, and any related
unreimbursed Periodic Advances theretofore funded by the Servicer or any
Subservicer from its own funds, in each case, with respect to the related
Mortgage Loan; third, to accrued and unpaid interest on the Mortgage Loan, at
the Mortgage Loan Rate (or at such lesser rate as may be in effect for such
Mortgage Loan pursuant to application of the Civil Relief Act) on the Principal
Balance of such Mortgage Loan, to the date such Mortgage Loan is determined to
be a Liquidated Mortgage Loan if it is a Liquidated Mortgage Loan, or to the Due
Date in the Due Period prior to the Distribution Date on which such amounts are
to be distributed if such determination has not yet been made, minus any unpaid
Servicing Fees with respect to such Mortgage Loan; fourth, to the extent of the
Principal Balance of the Mortgage Loan outstanding immediately prior to the
receipt of such proceeds, as a recovery of principal of the related Mortgage
Loan; and fifth, to any prepayment or late payment charges or penalty interest
payable in connection with the receipt of such proceeds and to all other fees
and charges due and payable with respect to such Mortgage Loan. The amount of
any gross Insurance Proceeds and Liquidation Proceeds received with respect to
any Mortgage Loan or REO Property minus the amount of any unreimbursed Servicing
Advances, unreimbursed Periodic Advances or unpaid Servicing Fees, in each case,
with respect to the related Mortgage Loan, are the "Net Recovery Proceeds" with
respect to such Mortgage Loan or REO Property.
Section 5.07 TRUSTEE TO COOPERATE. Upon the payment in full of the
Principal Balance of any Mortgage Loan, the Servicer will notify the Trustee by
a certification (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 pursuant to Section 5.02 have been so
deposited) of a Servicing Officer. Upon any such payment in full, the Servicer
is authorized to execute, pursuant to the authorization contained in Section
5.01, an instrument of satisfaction regarding the related Mortgage, which
instrument of satisfaction shall be recorded by the Servicer if required by
applicable law and be delivered to the Person entitled thereto, it being
understood and agreed that no expenses incurred in connection with such
instrument of satisfaction shall be reimbursed from the Collection Account.
From time to time and as appropriate for the servicing or foreclosure of any
Mortgage Loan, the Trustee shall, upon request of the Servicer and delivery to
the Trustee of a trust receipt signed by a Servicing Officer, release the
related Mortgage File to the Servicer and shall execute such documents as shall
be necessary to the prosecution of any such proceedings. Such trust receipt
shall obligate the Servicer to return the Mortgage File to the Trustee when the
need therefor by the Servicer no longer exists unless the Mortgage Loan shall be
liquidated, in which case, upon receipt of a certificate of a Servicing Officer
similar to that hereinabove specified, the trust receipt shall be released by
the Trustee to the Servicer.
Section 5.08 SERVICING COMPENSATION; PAYMENT OF CERTAIN EXPENSES BY
SERVICER. On each Distribution Date, the Servicer shall be entitled to receive
and the Trustee shall pay, out of collections on the Mortgage Loans for the Due
Period, as servicing compensation for such Due Period, an amount (the "Monthly
Servicing Fee") equal to the product of one-twelfth of the Servicing Fee Rate
and the Pool Balance as of the beginning of such Due Period. Additional
servicing compensation in the form of assumption fees, late payment charges or
extension and other administrative charges shall be retained by the Servicer.
The Servicer shall be required to pay all expenses incurred by it in connection
with its activities hereunder (including payment of all fees and expenses of the
Subservicer and payment of the Trustee Fee to the extent that monies in the
Collection Account are insufficient therefor, as provided in
49
<PAGE>
Section 9.05 hereof, and all other fees and expenses not expressly stated
hereunder to be payable by or from another source) and shall not be entitled to
reimbursement therefor except as specifically provided herein.
Section 5.09 ANNUAL STATEMENT AS TO COMPLIANCE. The Servicer will
deliver to the Trustee, the Rating Agencies, the Certificate Insurer and each
Certificateholder, on or before April 30 of each year, beginning April 30, 1997,
an Officer's Certificate of the Servicer stating that (a) a review of the
activities of the Servicer during the preceding calendar year and of its
performance under this Agreement has been made under such Officer's supervision
and (b) to the best of such officer's knowledge, based on such review, the
Servicer has fulfilled all its material obligations under this Agreement
throughout such year, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof.
Section 5.10 ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT.
On or before April 30 of each year, beginning April 30, 1997, the Servicer at
its expense shall cause a firm of independent public accountants that is a
member of the American Institute of Certified Public Accountants (who may also
render other services to the Servicer) to furnish a report to the Trustee, the
Rating Agencies and each Certificateholder to the effect that such firm has
examined certain documents and records relating to the servicing of mortgage
loans under pooling and servicing agreements (including this Agreement)
substantially similar to this Agreement, and that such examination, which has
been conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers (to the extent that the procedures in such audit
guide are applicable to the servicing obligations set forth in such agreements),
has disclosed no items of noncompliance with the provisions of this Agreement
which, in the opinion of such firm, are material, except for such items of
noncompliance as shall be set forth in such report.
Section 5.11 ACCESS TO CERTAIN DOCUMENTATION. Each of the Servicer
and the Seller shall permit the designated agents or representatives of each
Certificateholder, the Certificate Insurer and the Trustee (i) to examine and
make copies of and abstracts from all books, records and documents (including
computer tapes and disks) in the possession or under the control of the Servicer
or the Seller relating to the Mortgage Loans and (ii) to visit the offices and
properties of the Servicer and of the Seller for the purpose of examining such
materials and to discuss matters relating to the Mortgage Loans and the
Servicer's and the Seller's performance under this Agreement with any of the
officers or employees of the Servicer and the Seller having knowledge thereof
and with the independent public accountants of the Servicer (and by this
provision the Servicer and the Seller each authorize their respective
accountants to discuss their respective finances and affairs), all at such
reasonable times, as often as may be reasonably requested and without charge to
such Certificateholder, the Certificate Insurer or the Trustee.
Section 5.12 MAINTENANCE OF FIDELITY BOND. The Servicer shall during
the term of its service as servicer maintain in force a fidelity bond and errors
and omissions insurance in respect of its officers, employees or agents. Such
bond and insurance shall comply with the requirements from time to time of the
Federal National Mortgage Association for Persons performing servicing for
mortgage loans purchased by such association.
Section 5.13 THE SUBSERVICER. The parties acknowledge that the
Servicer intends to appoint the Subservicer as the Servicer's agent for the
purpose of servicing on the Servicer's behalf such of the Mortgage Loans as were
originated in the State of New Jersey. The Servicer agrees to cause the
Subservicer to service such Mortgage Loans in a manner consistent with the
Accepted Servicing Practices set forth in this Agreement, and agrees that
receipt by the Subservicer of any and all amounts which by the terms hereof are
required to be deposited in the Collection Account shall constitute receipt
thereof by the Servicer for all purposes hereof as of the date so received by
the Subservicer. Notwithstanding such
50
<PAGE>
designation of the Subservicer, the Servicer agrees that it is, and it shall
remain, fully obligated under the terms hereof as Servicer with respect to all
such Mortgage Loans, and nothing herein shall relieve or release the Servicer
from its obligations to the other parties hereto to service such Mortgage Loans
in the manner provided in this Agreement.
Section 5.14 REPORTS TO THE TRUSTEE; COLLECTION ACCOUNT STATEMENTS.
Not later than 15 days after each Distribution Date, the Servicer shall provide
to the Trustee and the Certificate Insurer a statement, certified by a Servicing
Officer, setting forth the status of the Collection Account as of the close of
business on the related Distribution Date, stating that all distributions
required by this Agreement to be made by the Servicer on behalf of the Trustee
have been made (or if any required distribution has not been made by the
Servicer, specifying the nature and status thereof) and showing, for the period
covered by such statement, the aggregate of deposits into and withdrawals from
the Collection Account for each category of deposit specified in Section 5.02
and each category of withdrawal specified in Section 5.03 and the aggregate of
deposits into the Collection Account as specified in Section 6.01(c). Such
statement shall also state the aggregate unpaid principal balance of all the
Mortgage Loans as of the close of business on the last day of the month
preceding the month in which such Distribution Date occurs. Copies of such
statement shall be provided by the Trustee to any Certificateholder upon
request.
Section 5.15 OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS. (a) The
Seller or any Affiliate of the Seller, in its sole discretion, shall have the
right to elect (by written notice sent to the Servicer, the Trustee and the
Certificate Insurer), but shall not be obligated, to purchase for its own
account from the Trust Fund any Mortgage Loan which is 90 days or more
Delinquent in the manner and at the price specified in Section 2.06(b) except
that the amount described in clause (ii) of Section 2.06(b) shall in no case be
net of the Servicing Fee. The purchase price for any Mortgage Loan purchased
hereunder shall be deposited in the Collection Account and the Trustee, upon
receipt of such deposit, shall release or cause to be released to the purchaser
of such Mortgage Loan the related Trustee's Mortgage File and shall execute and
deliver such instruments of transfer or assignment prepared by the purchaser of
such Mortgage Loan, in each case without recourse, as shall be necessary to vest
in the purchaser of such Mortgage Loan any Mortgage Loan released pursuant
hereto and the purchaser of such Mortgage Loan shall succeed to all the
Trustee's right, title and interest in and to such Mortgage Loan and all
security and documents related thereto. Such assignment shall be an assignment
outright and not for security. The purchaser of such Mortgage Loan shall
thereupon own such Mortgage Loan, and all security and documents, free of any
further obligation to the Trustee or the Certificateholders with respect
thereto.
(b) Notwithstanding the foregoing, unless the Certificate Insurer
consents, any such Affiliate of the Seller may only exercise its option pursuant
to this Section 5.15 with respect to the Mortgage Loan or Mortgage Loans that
have been Delinquent for the longest period at the time of such repurchase. Any
request by such Affiliate to the Certificate Insurer for consent to repurchase
Mortgage Loans that are not the most Delinquent shall be accompanied by a
description of the Mortgage Loans that have been Delinquent longer than the
Mortgage Loan or Mortgage Loans such Affiliate proposes to repurchase. If the
Certificate Insurer fails to respond to such request within 10 Business Days
after receipt thereof, such Affiliate may repurchase the Mortgage Loan or
Mortgage Loans proposed to be repurchased without the consent of, or any further
action by, the Certificate Insurer. Notice to the Certificate Insurer shall be
delivered in accordance with the terms of the Insurance and Indemnity Agreement.
Section 5.16 REPORTS TO BE PROVIDED BY THE SERVICER. (a) In
connection with the transfer of the Certificates, the Trustee on behalf of any
Certificateholder may request that the Servicer make available to any
prospective Certificateholder annual audited financial statements of the
Servicer for one or more of the most recently completed five fiscal years for
which such statements are available, which
51
<PAGE>
request shall not be unreasonably denied or unreasonably delayed. Such annual
audited financial statements also shall be made available to the Certificate
Insurer upon request.
(b) The Servicer also agrees to make available on a reasonable basis
to the Certificate Insurer or any prospective Certificateholder a knowledgeable
financial or accounting officer for the purpose of answering reasonable
questions respecting recent developments affecting the Servicer or the financial
statements of the Servicer and to permit the Certificate Insurer or any
prospective Certificateholder to inspect the Servicer's servicing facilities
during normal business hours for the purpose of satisfying the Certificate
Insurer or such prospective Certificateholder that the Servicer has the ability
to service the Mortgage Loans in accordance with this Agreement.
Section 5.17 ADJUSTMENT OF SERVICING COMPENSATION IN RESPECT OF
PREPAID MORTGAGE LOANS. The aggregate amount of the Servicing Fees that the
Servicer shall be entitled to receive with respect to all of the Mortgage Loans
and each Distribution Date shall be offset on such Distribution Date by an
amount equal to the aggregate Prepayment Interest Shortfall with respect to all
Mortgage Loans which were subjects of Principal Prepayments during the month
preceding the month of such Distribution Date. The amount of any offset against
the aggregate Servicing Fee with respect to any Distribution Date under this
Section 5.17 shall be limited to the aggregate amount of the Servicing Fees
otherwise payable to the Servicer (without adjustment on account of Prepayment
Interest Shortfalls) with respect to (i) scheduled payments having the Due Date
occurring in the month of such Distribution Date received by the Servicer prior
to the Servicer Distribution Date, and (ii) Principal Prepayments, Curtailments
and Liquidation Proceeds received in the month preceding the month in which such
Distribution Date occurs, and the rights of the Certificateholders to the offset
of the aggregate Prepayment Interest Shortfalls shall not be cumulative.
Section 5.18 PERIODIC ADVANCES; SPECIAL ADVANCE. (a) If, on any
Servicer Distribution Date, the Servicer determines that any Monthly Payments
due on the Due Date immediately preceding such Servicer Distribution Date have
not been received as of the close of business on the Business Day preceding such
Servicer Distribution Date, the Servicer shall determine the amount of any
Periodic Advance required to be made with respect to the related Distribution
Date. The Servicer shall, one Business Day after such Servicer Distribution
Date, deliver a magnetic tape or diskette to the Trustee indicating the payment
status of each Mortgage Loan as of such Servicer Distribution Date. The
Servicer shall include in the amount to be deposited in the Collection Account
on such Servicer Distribution Date an amount equal to the Periodic Advance, if
any, which deposit may be made in whole or in part from funds in the Collection
Account being held for future distribution or withdrawal on or in connection
with Distribution Dates in subsequent months. Any funds being held for future
distribution to Certificateholders and so used shall be replaced by the Servicer
from its own funds by deposit in the Collection Account on or before the
Business Day preceding any such future Servicer Distribution Date to the extent
that funds in the Collection Account on such Servicer Distribution Date shall be
less than payments to Certificateholders required to be made on such date.
The Servicer shall designate on its records the specific Mortgage
Loans and related installments (or portions thereof) as to which such Periodic
Advance shall be deemed to have been made, such determination being conclusive
for purposes of withdrawals from the Collection Account pursuant to Section
5.03.
(b) In addition to the Periodic Advances the Servicer shall make a
special advance (the "Special Advance") on the Servicer Distribution Date
occurring in October, 1996, of $22,449.12, with respect to interest on Mortgage
Loans not having their first payment due until October, 1996. The Special
52
<PAGE>
Advance shall be made without regard to recoverability, and shall not be
reimbursable. In no event shall the Trustee, as successor Servicer, be liable
for the payment of the Special Advance.
Section 5.19 INDEMNIFICATION; THIRD PARTY CLAIMS. (a) The Servicer
agrees to indemnify and to hold each of the Depositor, the Trustee, the Seller,
the Certificate Insurer and each Certificateholder harmless against any and all
claims, losses, penalties, fines, forfeitures, legal fees and related costs,
judgments, and any other costs, fees and expenses that the Depositor, the
Trustee, the Seller, the Certificate Insurer and any Certificateholder may
sustain in any way related to the failure of the Servicer to perform its duties
and service the Mortgage Loans in compliance with the terms of this Agreement.
Each indemnified party and the Servicer shall immediately notify the other
indemnified parties if a claim is made by a third party with respect to this
Agreement, and the Servicer shall assume the defense of any such claim and pay
all expenses in connection therewith, including reasonable counsel fees, and
promptly pay, discharge and satisfy any judgment or decree which may be entered
against the Depositor, the Servicer, the Trustee, the Seller, the Certificate
Insurer and/or Certificateholder in respect of such claim. The Trustee shall
reimburse the Servicer in accordance with Section 5.08 hereof for all amounts
advanced by it pursuant to the preceding sentence except when the claim relates
directly to the failure of the Servicer to service and administer the Mortgages
in compliance with the terms of this Agreement; PROVIDED, that the Servicer's
indemnity hereunder shall not be in any manner conditioned on the availability
of funds for such reimbursement.
(b) The Trustee may, if necessary, reimburse the Servicer from
amounts otherwise distributable on the Class R Certificates for all amounts
advanced by it pursuant to Section 4.04(a)(ii) of the Purchase Agreement, except
when the claim relates directly to the failure of the Servicer, if it is, or is
an Affiliate of, the Seller, to perform its obligations to service and
administer the Mortgages in compliance with the terms of the Purchase Agreement,
or the failure of the Seller to perform its duties in compliance with the terms
of this Agreement.
(c) The Trustee shall reimburse the Seller from amounts otherwise
distributable on the Class R Certificates for all amounts advanced by the Seller
pursuant to the second sentence of Section 4.04(a)(ii) of the Purchase Agreement
except when the relevant claim relates directly to the failure of the Seller to
perform its duties in compliance with the terms of the Purchase Agreement.
Section 5.20 MAINTENANCE OF CORPORATE EXISTENCE AND LICENSES; MERGER
OR CONSOLIDATION OF THE SERVICER. (a) The Servicer will keep in full effect its
existence, rights and franchises as a corporation, will obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction
necessary to protect the validity and enforceability of this Agreement or any of
the Mortgage Loans and to perform its duties under this Agreement and will
otherwise operate its business so as to cause the representations and warranties
under Section 3.01 to be true and correct at all times under this Agreement.
(b) Any Person into which the Servicer may be merged or consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Servicer shall be a party, or any Person succeeding to the business of
the Servicer, shall be an established mortgage loan servicing institution that
has a net worth of at least $15,000,000 and is a Permitted Transferee, and in
all events shall be the successor of the Servicer without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding. The Servicer shall send notice
of any such merger or consolidation to the Trustee and the Certificate Insurer.
53
<PAGE>
Section 5.21 ASSIGNMENT OF AGREEMENT BY SERVICER; SERVICER NOT TO
RESIGN. The Servicer shall not assign this Agreement nor resign from the
obligations and duties hereby imposed on it except by mutual consent of the
Servicer, the Seller, the Certificate Insurer and the Trustee or upon the
determination that the Servicer's duties hereunder are no longer permissible
under applicable law and that such incapacity cannot be cured by the Servicer
without incurring, in the reasonable judgment of the Certificate Insurer,
unreasonable expense. Any such determination that the Servicer's duties
hereunder are no longer permissible under applicable law permitting the
resignation of the Servicer shall be evidenced by a written Opinion of Counsel
(who may be counsel for the Servicer) to such effect delivered to the Trustee,
the Seller, the Depositor and the Certificate Insurer. No such resignation
shall become effective until the Trustee or a successor appointed in accordance
with the terms of this Agreement has assumed the Servicer's responsibilities and
obligations hereunder in accordance with Section 7.02. The Servicer shall
provide the Trustee, the Rating Agencies and the Certificate Insurer with 30
days prior written notice of its intention to resign pursuant to this Section
5.21.
Section 5.22 PERIODIC FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION; ADDITIONAL INFORMATION. The Trustee shall prepare or cause to be
prepared for filing with the Commission (other than the initial Current Report
on Form 8-K to be filed by the Depositor in connection with the issuance of the
Certificates) any and all reports, statements and information respecting the
Trust and/or the Certificates required to be filed, and shall solicit any and
all proxies of the Certificateholders whenever such proxies are required to be
solicited, pursuant to the Securities Exchange Act of 1934, as amended. The
Depositor shall promptly file, and exercise its reasonable best efforts to
obtain a favorable response to, no-action requests with, or other appropriate
exemptive relief from, the Commission seeking the usual and customary exemption
from such reporting requirements granted to issuers of securities similar to the
Certificates. Fees and expenses incurred by the Trustee in connection with the
foregoing shall be reimbursed pursuant to Section 9.05 and shall not be paid by
the Trust.
The Servicer and the Depositor each agree to promptly furnish to the
Trustee, from time to time upon request, such further information, reports and
financial statements as the Trustee deems appropriate to prepare and file all
necessary reports with the Securities and Exchange Commission.
ARTICLE VI
DISTRIBUTIONS AND PAYMENTS
Section 6.01 ESTABLISHMENT OF ACCOUNTS; WITHDRAWALS FROM ACCOUNTS;
DEPOSITS TO THE CERTIFICATE ACCOUNT. (a) The Trustee shall establish and
maintain the Certificate Account which shall be titled "Certificate Account, The
Chase Manhattan Bank, as trustee for the registered holders of ABFS Mortgage
Loan Trust 1996-2, Mortgage Pass-Through Certificates, Series 1996-2, Class A
and Class R", the Pre-Funding Account which shall be titled "Pre-Funding
Account, The Chase Manhattan Bank, as trustee for the registered holders of ABFS
Mortgage Loan Trust 1996-2, Mortgage Pass-Through Certificates, Series 1996-2,
Class A and Class R" and the Capitalized Interest Account which shall be titled
"Capitalized Interest Account, The Chase Manhattan Bank, as trustee for the
registered holders of ABFS Mortgage Loan Trust 1996-2, Mortgage Pass-Through
Certificates, Series 1996-2, Class A and Class R", each of which such Account
shall be an Eligible Account. Upon receipt of the proceeds of the sale of the
Certificates, on the Closing Date, the Trustee shall, upon the Seller's
direction, from the proceeds of the sale of the Certificates, deposit, on behalf
of the Certificateholders (i) in the Pre-Funding Account, the Original Pre-
Funded Amount and (ii) in the Capitalized Interest Account, an amount equal to
$174,835.85.
54
<PAGE>
(b) The Servicer may direct the Trustee in writing to invest the
funds in the Certificate Account only in Permitted Investments. No Permitted
Investment shall be sold or disposed of at a gain prior to maturity unless the
Servicer has delivered to the Trustee an Opinion of Counsel (at the Servicer's
expense) that such sale or disposition will not cause the Trust Fund to be
subject to the tax on income from prohibited transactions imposed by Code
Section 86OF(a)(1), otherwise subject the Trust Fund to tax or cause the Trust
Fund to fail to qualify as a REMIC and the Certificate Insurer consents to such
disposition. All income (other than any gain from a sale or disposition of the
type referred to in the preceding sentence) realized from any such Permitted
Investment shall be for the benefit of the Servicer as additional servicing
compensation. The amount of any losses incurred in respect of any such
investments shall be deposited in the Certificate Account by the Servicer out of
its own funds immediately as realized.
(c) On each Servicer Distribution Date, the Servicer shall cause to
be deposited in the Certificate Account, from funds on deposit in the Collection
Account, (a) an amount equal to the Servicer Remittance Amount and (b) Net
Foreclosure Profits, if any with respect to the related Distribution Date, minus
any portion thereof payable to the Servicer pursuant to Section 5.03. On each
Servicer Distribution Date, the Servicer shall also deposit into the Certificate
Account any Periodic Advances with respect to the related Distribution Date
calculated in accordance with Section 5.18; on the Servicer Distribution Date
occurring on October, 1996 the Servicer will also deposit the Special Advance in
the Certificate Account.
(d) On the October 15, 1996, the November 15, 1996, the December 15,
1996 and the January 15, 1997 Distribution Dates, the Trustee shall transfer
from the Capitalized Interest Account to the Certificate Account the Capitalized
Interest Requirement, if any, for such Distribution Date.
(e) On the Distribution Date following the final Subsequent Transfer
Date, or the January 15, 1997 Distribution Date, whichever is earlier, any
amounts remaining in the Capitalized Interest Account, after taking into account
the transfers on such Distribution Date described in clause (d) above, shall be
paid to the Seller, and the Capitalized Interest Account shall be closed.
(f) On any Subsequent Transfer Date, the Seller shall instruct in
writing the Trustee to withdraw from the Pre-Funding Account an amount equal to
100% of the aggregate Loan Balances as of the related Subsequent Cut-Off Date of
the Subsequent Mortgage Loans sold to the Trust on such Subsequent Transfer Date
and pay such amount to or upon the order of the Seller upon satisfaction of the
conditions set forth in Section 2.03(b) and (c) hereof with respect to such
transfer. The Trustee may conclusively rely on such written instructions from
the Seller.
(g) If (x) the Pre-Funded Amount has not been reduced to zero by
December 27, 1996 or (y) the Pre-Funded Amount has been reduced to $100,000 or
less by the October 15, 1996 Distribution Date, or by the November 15, 1996
Distribution Date, or by the December 15, 1996 Distribution Date, in each case
after giving effect to any reductions in the Pre-Funded Amount on such date, the
Trustee shall withdraw from the Pre-Funding Account on such date and deposit in
the Certificate Account the amount on deposit in the Pre-Funding Account other
than any Pre-Funding Earnings.
(h) On the October 15, 1996, the November 15, 1996 and the December
15, 1996 Distribution Dates the Trustee shall transfer from the Pre-Funding
Account to the Certificate Account the Pre-Funding Earnings, if any, applicable
to each such Distribution Date.
Section 6.02 PERMITTED WITHDRAWALS FROM THE CERTIFICATE ACCOUNT.
The Trustee shall withdraw or cause to be withdrawn funds from the Certificate
Account for the following purposes:
55
<PAGE>
(a) to effect the distributions described in Section 6.05;
(b) to pay to the Seller with respect to each Mortgage Loan or
property acquired in respect thereof that has been repurchased or replaced
pursuant to Section 2.04 or 2.05 or to pay to the Servicer with respect to
each Mortgage Loan or property acquired in respect thereof that has been
purchased all amounts received thereon and not required to be distributed
as of the date on which the related repurchase or purchase price or
Principal Balance was determined;
(c) to pay the Servicer any interest earned on or investment income
earned with respect to funds in the Certificate Account;
(d) to return to the Collection Account any amount deposited in the
Certificate Account that was not required to be deposited therein;
(e) to pay itself the Trustee Fee or make other reimbursements to
itself in accordance with Section 9.05; and
(f) to clear and terminate the Certificate Account upon termination
of the Trust Fund pursuant to Article VIII.
The Trustee shall keep and maintain a separate accounting for
withdrawals from the Certificate Account pursuant to each of subclauses (a)
through (f) listed above.
Section 6.03 COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Trustee may demand payment or delivery of all money and
other property payable to or receivable by the Trustee pursuant to this
Agreement, including (a) all payments due on the Mortgage Loans in accordance
with the respective terms and conditions of such Mortgage Loans and required to
be paid over to the Trustee by the Servicer or by any Sub-Servicer and (b)
Insured Payments. The Trustee shall hold all such money and property received
by it, as part of the Trust Fund and shall apply it as provided in this
Agreement.
Section 6.04 THE CERTIFICATE INSURANCE POLICY. (a) Within two (2)
days of each Servicer Distribution Date, the Trustee shall determine with
respect to the immediately following Distribution Date, the amount to be on
deposit in the Certificate Account on such Distribution Date as a result of the
(i) Servicer's remittance of the Servicer Remittance Amount on the related
Servicer Distribution Date, and (ii) any transfers to the Certificate Account
made from the Capitalized Interest Account and/or the Pre-Funding Account
relating to such Distribution Date pursuant to Section 6.01 hereof, excluding
the amount of any Insured Payment and prior to the application of the amounts
described in clauses (a)(i) through (a)(iii) of Section 6.05 for the related
Distribution Date. The amounts described above in the preceding sentence with
respect to the Distribution Date are the "Available Funds".
(b) If on any Distribution Date there is an Available Funds
Shortfall, the Trustee shall complete a Notice in the form of Exhibit A to the
Certificate Insurance Policy and submit such notice to the Certificate Insurer
no later than 12:00 noon New York City time on the second Business Day preceding
such Distribution Date as a claim for an Insured Payment in an amount equal to
such Available Funds Shortfall.
(c) The Trustee shall establish a separate Eligible Account for the
benefit of Holders of the Certificates and the Certificate Insurer referred to
herein as the "Certificate Insurance Payment
56
<PAGE>
Account" over which the Trustee shall have exclusive control and sole right of
withdrawal. The Trustee shall deposit upon receipt any amount paid under the
Certificate Insurance Policy in the Certificate Insurance Payment Account and
distribute such amount only for purposes of payment to the Certificateholders of
the Insured Distribution Amount for which a claim was made and such amount may
not be applied to satisfy any costs, expenses or liabilities of the Servicer,
the Trustee or the Trust Fund. Amounts paid under the Certificate Insurance
Policy, to the extent needed to pay the Insured Distribution Amount shall be
transferred to the Certificate Account on the related Distribution Date and
disbursed by the Trustee to the Certificateholders in accordance with Section
6.05. 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 Insured
Distribution Amount with other funds available to make such payment. However,
the amount of any payment of principal or of interest on the Certificates to be
paid from funds transferred from the Certificate Insurance Payment Account shall
be noted as provided in paragraph (d) below in the Certificate Register and in
the statement to be furnished to Holders of the Certificates pursuant to Section
6.07. Funds held in the Certificate Insurance Payment Account shall not be
invested. Any funds remaining in the Certificate Insurance Payment Account on
the first Business Day following a Distribution Date shall be returned to the
Certificate Insurer pursuant to the written instructions of the Certificate
Insurer by the end of such Business Day.
(d) The Trustee shall keep a complete and accurate record of the
amount of interest and principal paid in respect of any Certificate from moneys
received under the Certificate Insurance Policy. The Certificate 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 Trustee.
(e) In the event that the Trustee has received a certified copy of an
order of the appropriate court that any Insured Payment has been voided in whole
or in part as a preference payment under applicable bankruptcy law, the Trustee
shall so notify the Certificate Insurer, shall comply with the provisions of the
Certificate Insurance Policy to obtain payment by the Certificate Insurer of
such voided Insured Payment, and shall, at the time it provides notice to the
Certificate Insurer, notify, by mail to the Certificateholders of the affected
Certificates that, in the event any Certificateholder's Insured Payment is so
recovered, such Certificateholder will be entitled to payment pursuant to the
Certificate Insurance Policy, a copy of which shall be made available through
the Trustee, the Certificate Insurer or the Certificate Insurer's fiscal agent,
if any, and the Trustee shall furnish to the Certificate Insurer or its fiscal
agent, if any, its records evidencing the payments which have been made by the
Trustee and subsequently recovered from the Certificateholders, and dates on
which such payments were made.
(f) The Trustee shall promptly notify the Certificate Insurer of any
proceeding or the institution of any action, of which a Responsible Officer of
the Trustee has actual knowledge, seeking the avoidance as a preferential
transfer under applicable bankruptcy, insolvency, receivership or similar law (a
"Preference Claim") of any distribution made with respect to the Certificates.
Each Certificateholder, by its purchase of Certificates, the Servicer and the
Trustee agree that, the Certificate Insurer (so long as no Certificate Insurer
Default exists) may at any time during the continuation of any proceeding
relating to a Preference Claim direct all matters relating to such Preference
Claim, including, without limitation, (i) the direction of any appeal of any
order relating to such Preference Claim and (ii) the posting of any surety,
supersedeas or performance bond pending any such appeal. In addition and
without limitation of the foregoing, the Certificate Insurer shall be subrogated
to, and each Certificateholder, the Servicer and the Trustee hereby delegate and
assign to the Certificate Insurer, to the fullest extent permitted by law, the
rights of the Servicer, the Trustee and each Certificateholder in the conduct of
any such Preference Claim, including, without limitation, all rights of any
party to any adversary proceeding or action with respect to any court order
issued in connection with any such Preference Claim.
57
<PAGE>
Section 6.05 DISTRIBUTIONS. (a) No later than 12:00 noon Pennsylvania
time on the fourth Business Day following each Record Date, the Servicer shall
deliver to the Trustee a report in computer-readable form containing such
information as to each Mortgage Loan as of such Record Date and such other
information as the Trustee shall reasonably require. With respect to the
Certificate Account, on each Distribution Date, the Trustee shall make the
following allocations, disbursements and transfers in the following order of
priority, and each such allocation, transfer and disbursement shall be treated
as having occurred only after all preceding allocations, transfers and
disbursements have occurred:
(i) to the Trustee, an amount equal to the Trustee's Fees then
due to it;
(ii) from amounts then on deposit in the Certificate Account
(excluding any Insured Payments) to the Certificate Insurer the lesser of
(x) the excess of (i) the amount then on deposit in the Certificate Account
over (ii) the Insured Distribution Amount for such Distribution Date and
(y) the amount of all Reimbursement Amounts which have not been previously
repaid as of such Distribution Date and any other amounts then due to the
Certificate Insurer pursuant to the Insurance and Indemnity Agreement
(including the Premium Amount);
(iii) from amounts then on deposit in the Certificate Account
(including any Insured Payments), to the Class A Certificateholders an
amount equal to the Class A Interest Distribution Amount, less any portion
of any Class A Carry-Forward Amount allocable to interest which was paid to
the Certificate Insurer under clause (iii) above pursuant to the
Certificate Insurer's subrogation rights;
(iv) from amounts then on deposit in the Certificate Account
(including any Insured Payments), to the Class A Certificateholders an
amount equal to the Class A Principal Distribution Amount, less any portion
of any Class A Carry-Forward Amount allocable to principal which was paid
to the Certificate Insurer under clause (iii) above pursuant to the
Certificate Insurer's subrogation rights; and
(v) following the making by the Trustee of all allocations,
transfers and disbursements described above, from amounts then on deposit
in the Certificate Account, the Trustee shall distribute to the Holders of
the Class R Certificates, the amount remaining in the Certificate Account
on such Distribution Date, if any.
Notwithstanding the foregoing, the aggregate amounts distributed on
all Distribution Dates to the Holders of the Class A Certificates on account of
principal shall not exceed the Original Certificate Principal Balance for the
Class A Certificates.
Section 6.06 INVESTMENT OF ACCOUNTS. (a) So long as no Event of
Default shall have occurred and be continuing, and consistent with any
requirements of the Code, all or a portion of any Account other than the
Certificate Insurance Payment Account held by the Trustee shall be invested and
reinvested by the Trustee, as directed in writing by the Servicer, in one or
more Permitted Investments bearing interest or sold at a discount. If an Event
of Default shall have occurred and be continuing or if the Servicer does not
provide investment directions, the Trustee shall invest all Accounts in
Permitted Investments described in paragraph (iv) of the definition of Permitted
Investments. No such investment in any Account shall mature later than the
Business Day immediately preceding the next Distribution Date (except that if
such Permitted Investment is an obligation of the Trustee, then such Permitted
Investment shall mature not later than such Distribution Date).
58
<PAGE>
(b) Subject to Section 6.01(b), if any amounts are needed for
disbursement from any Account held by the Trustee and sufficient uninvested
funds are not available to make such disbursement, the Trustee shall cause to be
sold or otherwise converted to cash a sufficient amount of the investments in
such Account. The Trustee shall not be, and the Servicer shall be, liable for
any investment loss or other charge resulting therefrom unless the Trustee's
failure to perform in accordance with this Section 6.06 is the cause of such
loss or charge.
(c) Subject to Section 9.01 hereof, the Trustee shall not in any way
be held liable by reason of any insufficiency in any Account held by the Trustee
resulting from any investment loss on any Permitted Investment included therein
(except to the extent that the Trustee is the obligor and has defaulted thereon
or as provided in subsection (b) of this Section 6.06).
(d) So long as no Event of Default shall have occurred and be
continuing, all net income and gain realized from investment of, and all
earnings on, funds deposited in any Account (excluding the Certificate Insurance
Payment Account) shall be for the benefit of the Servicer as servicing
compensation (in addition to the Servicing Fee). The Servicer shall deposit in
the related Account the amount of any loss incurred in respect of any Permitted
Investment held therein which is in excess of the income and gain thereon
immediately upon realization of such loss, without any right to reimbursement
therefor from its own funds.
Section 6.07 REPORTS BY THE TRUSTEE. (a) On each Distribution Date
the Trustee shall provide to each Holder, to the Servicer, to the Certificate
Insurer, to the Underwriter, to the Depositor and to the Rating Agencies a
written report (the "Trustee Remittance Report"), setting forth information
including, without limitation, the following information:
(i) the amount of the distribution with respect to the Class A
Certificates and the Class R Certificates;
(ii) the amount of such distributions allocable to principal,
separately identifying the aggregate amount of any Prepayments or other
unscheduled recoveries of principal included therein and separately
identifying any Subordination Increase Amounts;
(iii) the amount of such distributions allocable to interest and
the calculation thereof;
(iv) the Certificate Principal Balance of the Class A
Certificates as of such Distribution Date, together with the principal
amount of the Class A Certificates (based on a Certificate in an original
principal amount of $1,000) then outstanding, in each case after giving
effect to any payment of principal on such Distribution Date;
(v) the amount of any Insured Payment included in the amounts
distributed to the Class A Certificateholders on such Distribution Date;
(vi) the total of any Substitution Adjustments and any Loan
Repurchase Price amounts included in such distribution; and
(vii) the amounts, if any, of any Liquidation Loan Losses for the
related Due Period.
59
<PAGE>
Items (i), (ii) and (iii) above shall, with respect to the Class A
Certificates, be presented on the basis of a Certificate having a $1,000
denomination. In addition, by January 31 of each calendar year following any
year during which the Certificates are outstanding, the Trustee shall furnish a
report to each Holder of record if so requested in writing at any time during
each calendar year as to the aggregate of amounts reported pursuant to (i), (ii)
and (iii) with respect to the Certificates for such calendar year.
(b) All distributions made to the Class A Certificateholders and the
Class R Certificateholders as a Class on each Distribution Date will be made on
a pro rata basis among the Certificateholders of each Class on the next
preceding Record Date based on the Percentage Interest represented by their
respective Certificates, and shall be made by wire transfer of immediately
available funds to the account of such Certificateholder at a bank or other
entity having appropriate facilities therefor, if, in the case of a Class A
Certificateholder, such Certificateholder shall own of record Certificates of
the same Class which have denominations aggregating at least $5,000,000
appearing in the Certificate Register and shall have provided complete wiring
instructions at least five Business Days prior to the Record Date, and otherwise
by check mailed to the address of such Certificateholder appearing in the
Certificate Register.
(c) In addition, on each Distribution Date the Trustee will
distribute to each Holder, to the Certificate Insurer, to the Underwriter, to
the Servicer, to the Depositor and to the Rating Agencies, together with the
information described in subsection (a) preceding, the following information
with respect to the Mortgage Loans as of the close of business on the last
Business Day of the prior calendar month (except as otherwise provided in clause
(v) below), which is hereby required to be prepared by the Servicer and
furnished to the Trustee for such purpose on or prior to the related Servicer
Distribution Date:
(i) the total number of Mortgage Loans and the aggregate
Principal Balances thereof, together with the number, aggregate principal
balances of such Mortgage Loans and the percentage (based on the aggregate
Principal Balances of the Mortgage Loans) of the aggregate Principal
Balances of such Mortgage Loans to the aggregate Principal Balance of all
Mortgage Loans (A) 30-59 days Delinquent, (B) 60-89 days Delinquent and (C)
90 or more days Delinquent;
(ii) the number, aggregate Principal Balances of all Mortgage
Loans and percentage (based on the aggregate Principal Balances of the
Mortgage Loans) of the aggregate Principal Balances of such Mortgage Loans
to the aggregate Principal Balance of all Mortgage Loans in foreclosure
proceedings and the number, aggregate Principal Balances of all Mortgage
Loans and percentage (based on the aggregate Principal Balances of the
Mortgage Loans) of any such Mortgage Loans also included in any of the
statistics described in the foregoing clause (i);
(iii) the number, aggregate Principal Balances of all Mortgage
Loans and percentage (based on the aggregate Principal Balances of the
Mortgage Loans) of the aggregate Principal Balances of such Mortgage Loans
to the aggregate Principal Balance of all Mortgage Loans relating to
Mortgagors in bankruptcy proceedings and the number, aggregate Principal
Balances of all Mortgage Loans and percentage (based on the aggregate
Principal Balances of the Mortgage Loans) of any such Mortgage Loans also
included in any of the statistics described in the foregoing clause (i);
(iv) the number, aggregate Principal Balances of all Mortgage
Loans and percentage (based on the aggregate Principal Balances of the
Mortgage Loans) of the aggregate Principal Balances of such Mortgage Loans
to the aggregate Principal Balance of all Mortgage Loans relating to REO
Properties and the number, aggregate Principal Balances of all Mortgage
60
<PAGE>
Loans and percentage (based on the aggregate Principal Balances of the
Mortgage Loans) of any such Mortgage Loans also included in any of the
statistics described in the foregoing clause (i);
(v) the weighted average Mortgage Interest Rate as of the Due
Date occurring in the Due Period related to such Distribution Date;
(vi) the weighted average remaining term to stated maturity of
all Mortgage Loans; and
(vii) the book value of any REO Property.
Section 6.08 ADDITIONAL REPORTS BY TRUSTEE. (a) The Trustee shall
report to the Depositor, the Servicer and the Certificate Insurer with respect
to the amount then held in each Account (including investment earnings accrued
or scheduled to accrue) held by the Trustee and the identity of the investments
included therein, as the Depositor, the Servicer or the Certificate Insurer may
from time to time request in writing.
(b) From time to time, at the request of the Certificate Insurer, the
Trustee shall report to the Certificate Insurer with respect to its actual
knowledge, without independent investigation, of any breach of any of the
representations or warranties relating to individual Mortgage Loans set forth in
any Purchase Agreement or in Section 3.01 or 3.02 hereof. The Trustee shall
also provide the Certificate Insurer such other information as may be reasonably
requested by it.
Section 6.09 COMPENSATING INTEREST. Not later than the close of
business on the third Business Day prior to the Distribution Date, the Servicer
shall remit to the Trustee (without right or reimbursement therefor) for deposit
into the Certificate Account an amount equal to the lesser of (a) the aggregate
of the Prepayment Interest Shortfalls for the related Distribution Date
resulting from Principal Prepayments during the related Due Period and (b) its
aggregate Servicing Fees received in the related Due Period and shall not have
the right to reimbursement therefor (the "Compensating Interest").
Section 6.10 EFFECT OF PAYMENTS BY THE CERTIFICATE INSURER;
SUBROGATION. Anything herein to the contrary notwithstanding, any payment with
respect to principal of or interest on the Certificates which is made with
moneys received pursuant to the terms of the Certificate Insurance Policy shall
not be considered payment of the Certificates from the Trust Fund. The
Depositor, the Servicer and the Trustee acknowledge, and each Holder by its
acceptance of a Certificate agrees, that without the need for any further action
on the part of the Certificate Insurer, the Depositor, the Servicer, the Trustee
or the Certificate Registrar (a) to the extent the Certificate Insurer makes
payments, directly or indirectly, on account of principal of or interest on the
Certificates to the Holders of such Certificates, the Certificate Insurer will
be fully subrogated to, and each Certificateholder, the Servicer and the Trustee
hereby delegate and assign to the Certificate Insurer, to the fullest extent
permitted by law, the rights of such Holders to receive such principal and
interest from the Trust Fund, including, without limitation, any amounts due to
the Certificateholders in respect of securities law violations arising from the
offer and sale of the Certificates, and (b) the Certificate Insurer shall be
paid such amounts from the sources and in the manner provided herein for the
payment of such amounts and as provided in the Insurance and Indemnity
Agreement. The Trustee and the Servicer shall cooperate in all respects with
any reasonable request by the Certificate Insurer for action to preserve or
enforce the Certificate Insurer's rights or interests under this Agreement
without limiting the rights or affecting the interests of the Holders as
otherwise set forth herein.
61
<PAGE>
ARTICLE VII
DEFAULT
Section 7.01 EVENTS OF DEFAULT. (a) In case one or more of the
following Events of Default by the Servicer shall occur and be continuing, that
is to say:
(i) any failure by the Servicer to remit to the Trustee any
payment required to be made by the Servicer under the terms of this
Agreement which continues unremedied for one (1) Business Day after the
date upon which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer and the Certificate Insurer
by the Trustee or to the Servicer and the Trustee by the Certificate
Insurer or Certificateholders of Class A Certificates evidencing Percentage
Interests of at least 25%;
(ii) the failure by the Servicer to make any required Servicing
Advance which failure continues unremedied for a period of 30 days after
the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee or to the
Servicer and the Trustee by any Certificateholder or the Certificate
Insurer;
(iii) any failure on the part of the Servicer duly to observe or
perform in any material respect any other of the covenants or agreements on
the part of the Servicer contained in this Agreement, or the failure of any
representation and warranty made pursuant to Section 3.01 to be true and
correct which continues unremedied for a period of 30 days after the date
on which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer, as the case may be, by the Depositor
or the Trustee or to the Servicer and the Trustee by any Certificateholder
or the Certificate Insurer;
(iv) a decree or order of a court or agency or supervisory
authority having jurisdiction in an involuntary case under any present or
future federal or state bankruptcy, insolvency or similar law or for the
appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall
have been entered against the Servicer and such decree or order shall have
remained in force, undischarged or unstayed for a period of 30 days;
(v) the Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of or
relating to the Servicer or of or relating to all or substantially all of
the Servicer's property;
(vi) the Servicer shall admit in writing its inability to pay its
debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its
obligations;
(vii) the Certificate Insurer shall notify the Trustee of any
event of default under the Insurance and Indemnity Agreement;
(viii) if on any Distribution Date the Rolling Six Month
Delinquency Rate exceeds 15.50%;
62
<PAGE>
(ix) if on any Distribution Date occurring in September of any
year, commencing in September 1997, the 12 Month Loss Amount exceeds 1.75%
of the Pool Principal Balance as of the close of business on the first day
of the twelfth preceding calendar month;
(x) if (a) on any Distribution Date occurring before October 1,
1997, the aggregate Pool Cumulative Loan Losses since the Cut-Off Date
exceed 1.00% of the Original Pool Principal Balance, (b) on any
Distribution Date on or after October 1, 1997 and before October 1, 1998,
the aggregate Pool Cumulative Loan Losses since the Cut-Off Date exceed
1.50% of the Original Pool Principal Balance, (c) on any Distribution Date
on or after October 1, 1998 and before October 1, 1999, the aggregate Pool
Cumulative Loan Losses since the Cut-Off Date exceed 2.25% of the Original
Pool Principal Balance, (d) on any Distribution Date on or after October 1,
1999 and before October 1, 2000, the aggregate Pool Cumulative Loan Losses
since the Cut-Off Date exceed 3.00% of the Original Pool Principal Balance,
or (e) on any Distribution Date on or after October 1, 2000, the aggregate
Pool Cumulative Loan Losses since the Cut-Off Date exceed 3.75% of the
Original Pool Principal Balance.
(b) then, and in each and every such case, so long as an Event of
Default shall not have been remedied: (x) with respect solely to clause (i)
above, if such payment is in respect of Periodic Advances or Compensating
Interest owing by the Servicer and such payment is not made by 12:00 Noon New
York time on the second Business Day prior to the applicable Distribution Date,
the Trustee, upon receipt of written notice or discovery by a Responsible
Officer of such failure, shall give immediate telephonic notice of such failure
to a Servicing Officer of the Servicer and to the Certificate Insurer and the
Trustee shall, with the consent of the Certificate Insurer, terminate all of the
rights and obligations of the Servicer under this Agreement and the Trustee, or
a successor servicer appointed in accordance with Section 7.02, shall
immediately make such Periodic Advance or payment of Compensating Interest and
assume, pursuant to Section 7.02 hereof, the duties of a successor Servicer; (y)
with respect to that portion of clause (i) above not referred to in the
preceding clause (x) and clauses (ii), (iii), (iv), (v), (vi) and (vii) above,
the Trustee shall, but only at the direction of the Certificate Insurer or the
Majority Certificateholders, by notice in writing to the Servicer and a
Responsible Officer of the Trustee and subject to the prior written consent of
the Certificate Insurer, in the case of any removal at the direction of the
Majority Certificateholders, and in addition to whatever rights such
Certificateholders may have at law or equity to damages, including injunctive
relief and specific performance, terminate all the rights and obligations of the
Servicer under this Agreement and in and to the Mortgage Loans and the proceeds
thereof, as servicer; and (z) with respect to clause (viii)-(x) above, the
Trustee shall, but only at the direction of the Certificate Insurer, after
notice in writing to the Servicer and a Responsible Officer of the Trustee,
terminate all the rights and obligations of the Servicer under this Agreement
and in and to the Mortgage Loans and the proceeds thereof, as Servicer. Upon
receipt by the Servicer of such written notice, all authority and power of the
Servicer under this Agreement, whether with respect to the Mortgage Loans or
otherwise, shall, subject to Section 7.02, pass to and be vested in the Trustee
or its designee approved by the Certificate Insurer and the Trustee is hereby
authorized and empowered to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, at the expense of the Servicer, any and all
documents and other instruments and do or cause to be done all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, including, but not limited to, the transfer and endorsement or
assignment of the Mortgage Loans and related documents. The Servicer agrees to
cooperate (and pay any related costs and expenses) with the Trustee in effecting
the termination of the Servicer's responsibilities and rights hereunder,
including, without limitation, the transfer to the Trustee or its designee for
administration by it of all amounts which shall at the time be credited by the
Servicer to the Collection Account or thereafter received with respect to the
Mortgage Loans. The Trustee shall promptly notify the Certificate Insurer and
the Rating Agencies of the occurrence of an Event of Default.
63
<PAGE>
Section 7.02 TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. (a) On and
after the time the Servicer receives a notice of termination pursuant to Section
7.01, or the Trustee receives the resignation of the Servicer evidenced by an
Opinion of Counsel pursuant to Section 5.21, or the Servicer is removed as
Servicer pursuant to Article VII, in which event the Trustee shall promptly
notify the Rating Agencies, except as otherwise provided in Section 7.01, the
Trustee shall be the successor in all respects to the Servicer in its capacity
as servicer under this Agreement and the transactions set forth or provided for
herein and shall be subject to all the responsibilities, duties and liabilities
relating thereto placed on the Servicer by the terms and provisions hereof
arising on or after the date of succession; provided, however, that the Trustee
shall not be liable for any actions or the representations and warranties of any
servicer prior to it and including, without limitation, the obligations of the
Servicer set forth in Sections 2.06 and 3.03. The Trustee, as successor
servicer, shall be obligated to pay Compensating Interest pursuant to Section
6.09 in any event and to make advances pursuant to Section 5.18 unless, and only
to the extent the Trustee determines reasonably and in good faith that such
advances would not be recoverable pursuant to Section 5.04, such determination
to be evidenced by a certification of a Responsible Officer of the Trustee
delivered to the Certificate Insurer.
(b) Notwithstanding the above, the Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act or if the Majority
Certificateholders with the consent of the Certificate Insurer or the
Certificate Insurer so requests in writing to the Trustee, appoint, pursuant to
the provisions set forth in paragraph (c) below, or petition a court of
competent jurisdiction to appoint, any established mortgage loan servicing
institution acceptable to the Certificate Insurer that has a net worth of not
less than $15,000,000 as the successor to the Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Servicer hereunder.
(c) In the event the Trustee is the successor servicer, it shall be
entitled to the same Servicing Compensation (including the Servicing Fee as
adjusted pursuant to the definition thereof) and other funds pursuant to Section
5.08 hereof as the Servicer if the Servicer had continued to act as servicer
hereunder. In the event the Trustee is unable or unwilling to act as successor
servicer, the Trustee shall solicit, by public announcement, bids from housing
and home finance institutions, banks and mortgage servicing institutions meeting
the qualifications set forth above. Such public announcement shall specify that
the successor servicer shall be entitled to the full amount of the aggregate
Servicing Fees hereunder as servicing compensation, together with the other
Servicing Compensation. Within thirty days after any such public announcement,
the Trustee shall negotiate and effect the sale, transfer and assignment of the
servicing rights and responsibilities hereunder to the qualified party
submitting the highest qualifying bid. The Trustee shall deduct from any sum
received by the Trustee from the successor to the Servicer in respect of such
sale, transfer and assignment all costs and expenses of any public announcement
and of any sale, transfer and assignment of the servicing rights and
responsibilities hereunder and the amount of any unreimbursed Servicing Advances
and Periodic Advances owed to the Trustee. After such deductions, the remainder
of such sum shall be paid by the Trustee to the Servicer at the time of such
sale, transfer and assignment to the Servicer's successor.
(d) The Trustee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession.
The Servicer agrees to cooperate with the Trustee and any successor servicer in
effecting the termination of the Servicer's servicing responsibilities and
rights hereunder and shall promptly provide the Trustee or such successor
servicer, as applicable, at the Servicer's cost and expense, all documents and
records reasonably requested by it to enable it to assume the Servicer's
functions hereunder and shall promptly also transfer to the Trustee or such
successor servicer, as applicable, all amounts that then have been or should
have been deposited in the Collection Account by the Servicer or that are
thereafter received with respect to the Mortgage Loans. Any collections
received
64
<PAGE>
by the Servicer after such removal or resignation shall be endorsed by it to the
Trustee and remitted directly to the Trustee or, at the direction of the
Trustee, to the successor servicer. Neither the Trustee nor any other successor
servicer shall be held liable by reason of any failure to make, or any delay in
making, any distribution hereunder or any portion thereof caused by (i) the
failure of the Servicer to deliver, or any delay in delivering, cash, documents
or records to it, or (ii) restrictions imposed by any regulatory authority
having jurisdiction over the Servicer hereunder. Notwithstanding anything to
the contrary herein, no appointment of a successor to the Servicer under this
Agreement shall be effective until the Trustee and the Certificate Insurer shall
have consented thereto, and written notice of such proposed appointment shall
have been provided by the Trustee to the Certificate Insurer and to each
Certificateholder. The Trustee shall not resign as servicer until a successor
servicer reasonably acceptable to the Certificate Insurer has been appointed.
The Certificate Insurer shall have the right to remove the Trustee as successor
Servicer under this Section 7.02 without cause, and the Trustee shall appoint
such other successor Servicer as directed by the Certificate Insurer.
(e) Pending appointment of a successor to the Servicer hereunder, the
Trustee shall act in such capacity as hereinabove provided. In connection with
such appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and such
successor shall agree; PROVIDED, HOWEVER, that no such compensation shall be in
excess of that permitted the Servicer pursuant to Section 5.08, together with
other Servicing Compensation. The Servicer, the Trustee and such successor
shall take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
Section 7.03 WAIVER OF DEFAULTS. The Majority Certificateholders
may, on behalf of all Certificateholders, and subject to the consent of the
Certificate Insurer, waive any events permitting removal of the Servicer as
servicer pursuant to this Article VII; provided, however, that the Majority
Certificateholders may not waive a default in making a required distribution on
a Certificate without the consent of the holder of such Certificate. Upon any
waiver of a past default, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been remedied for every
purpose of this Agreement. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereto except to the extent
expressly so waived. Notice of any such waiver shall be given by the Trustee to
the Rating Agencies and the Certificate Insurer.
Section 7.04 RIGHTS OF THE CERTIFICATE INSURER TO EXERCISE RIGHTS OF
CLASS A CERTIFICATEHOLDERS. By accepting its Certificate, each Class A
Certificateholder agrees that unless a Certificate Insurer Default exists, the
Certificate Insurer shall be deemed to be the Certificateholders for all
purposes (other than with respect to the receipt of payment on the Certificates)
and shall have the right to exercise all rights of the Class A
Certificateholders under this Agreement and under the Class A Certificates
without any further consent of the Class A Certificateholders, including,
without limitation:
(a) the right to require the Seller to repurchase Mortgage Loans
pursuant to Section 2.06 or 3.03 hereof to the extent set forth in such
Sections;
(b) the right to give notices of breach or to terminate the rights
and obligations of the Servicer as servicer pursuant to Section 7.01 hereof
and to consent to or direct waivers of Servicer defaults pursuant to
Section 7.03 hereof;
(c) the right to direct the actions of the Trustee during the
continuance of a Servicer default pursuant to Sections 7.01 and 7.02
hereof;
65
<PAGE>
(d) the right to institute proceedings against the Servicer pursuant
to Section 7.01 hereof;
(e) the right to direct the Trustee to investigate certain matters
pursuant to Section 9.02(a)(v) hereof;
(f) the right to remove the Trustee pursuant to Section 9.07 hereof;
(g) the right to direct foreclosures upon the failure of the Servicer
to do so in accordance with the provisions of Section 5.06 of this
Agreement; and
(h) any rights or remedies expressly given the Majority
Certificateholders.
In addition, each Certificateholder agrees that, subject to Section
10.02, unless a Certificate Insurer Default exists, the rights specifically
enumerated above may only be exercised by the Certificateholders with the prior
written consent of the Certificate Insurer.
Section 7.05 TRUSTEE TO ACT SOLELY WITH CONSENT OF THE CERTIFICATE
INSURER. Unless a Certificate Insurer Default exists, the Trustee shall not,
without the Certificate Insurer's consent or unless directed by the Certificate
Insurer:
(a) terminate the rights and obligations of the Servicer as Servicer
pursuant to Section 7.01 hereof;
(b) agree to any amendment pursuant to Section 10.03 hereof; or
(c) undertake any litigation.
The Certificate Insurer may, in writing and in its sole discretion
renounce all or any of its rights under Sections 7.04, 7.05 or 7.06 or any
requirement for the Certificate Insurer's consent for any period of time.
Section 7.06 MORTGAGE LOANS, TRUST FUND AND ACCOUNTS HELD FOR BENEFIT
OF THE CERTIFICATE INSURER. (a) The Trustee shall hold the Trust Fund and the
Mortgage Files for the benefit of the Certificateholders and the Certificate
Insurer and all references in this Agreement and in the Certificates to the
benefit of Holders of the Certificates shall be deemed to include the
Certificate Insurer. The Trustee shall cooperate in all reasonable respects
with any reasonable request by the Certificate Insurer for action to preserve or
enforce the Certificate Insurer's rights or interests under this Agreement and
the Certificates unless, as stated in an Opinion of Counsel addressed to the
Trustee and the Certificate Insurer, such action is adverse to the interests of
the Certificateholders or diminishes the rights of the Certificateholders or
imposes additional burdens or restrictions on the Certificateholders.
(b) The Servicer hereby acknowledges and agrees that it shall service
the Mortgage Loans for the benefit of the Certificateholders and for the benefit
of the Certificate Insurer, and all references in this Agreement to the benefit
of or actions on behalf of the Certificateholders shall be deemed to include the
Certificate Insurer.
66
<PAGE>
Section 7.07 CERTIFICATE INSURER DEFAULT. Notwithstanding anything
elsewhere in this Agreement or in the Certificates to the contrary, if a
Certificate Insurer Default exists, or if and to the extent the Certificate
Insurer has delivered its written renunciation of all of its rights under this
Agreement, the provisions of this Article VII and all other provisions of this
Agreement which (a) permit the Certificate Insurer to exercise rights of the
Certificateholders, (b) restrict the ability of the Certificateholders, the
Servicer or the Trustee to act without the consent or approval of the
Certificate Insurer, (c) provide that a particular act or thing must be
acceptable to the Certificate Insurer, (d) permit the Certificate Insurer to
direct (or otherwise to require) the actions of the Trustee, the Servicer or the
Certificateholders, (e) provide that any action or omission taken with the
consent, approval or authorization of the Certificate Insurer shall be
authorized hereunder or shall not subject the party taking or omitting to take
such action to any liability hereunder or (f) which have a similar effect, shall
be of no further force and effect and the Trustee shall administer the Trust
Fund and perform its obligations hereunder solely for the benefit of the Holders
of the Certificates. Nothing in the foregoing sentence, nor any action taken
pursuant thereto or in compliance therewith, shall be deemed to have released
the Certificate Insurer from any obligation or liability it may have to any
party or to the Certificateholders hereunder, under any other agreement,
instrument or document (including, without limitation, the Certificate Insurance
Policy) or under applicable law.
ARTICLE VIII
TERMINATION
Section 8.01 TERMINATION. (a) Subject to Section 8.02, this
Agreement shall terminate upon notice to the Trustee of either: (i) the later
of the distribution to Certificateholders of the final payment or collection
with respect to the last Mortgage Loan (or Periodic Advances of same by the
Servicer), or the disposition of all funds with respect to the last Mortgage
Loan and the remittance of all funds due hereunder and the payment of all
amounts due and payable to the Certificate Insurer and the Trustee or (ii)
mutual consent of the Servicer, the Certificate Insurer and all
Certificateholders in writing; PROVIDED, HOWEVER, that in no event shall the
Trust established by this Agreement terminate later than twenty-one years after
the death of the last surviving lineal descendant of Joseph P. Kennedy, late
Ambassador of the United States to the Court of St. James, alive as of the date
hereof.
(b) In addition, subject to Section 8.02, the Servicer may, at its
option and at its sole cost and expense, terminate this Agreement on any date on
which the Pool Principal Balance is less than 10% of the Maximum Collateral
Amount by purchasing, on the next succeeding Distribution Date, all of the
outstanding Mortgage Loans and REO Properties at a price equal to the sum of (i)
100% of the aggregate Principal Balance of each outstanding Mortgage Loan and
each REO Property and (ii) the greater of (1) the aggregate amount of accrued
and unpaid interest on the Mortgage Loans through the related Due Period and (2)
30 days' accrued interest thereon computed at a rate equal to the related
Mortgage Interest Rate, in each case net of the Servicing Fee, and (iii) any
unreimbursed amounts due to the Certificate Insurer under this Agreement and any
I&I Payments (the "Termination Price"). Any such purchase shall be accomplished
by deposit into the Certificate Account of the Termination Price. No such
termination is permitted without the prior written consent of the Certificate
Insurer if it would result in a draw on the Certificate Insurance Policy.
(c) If on any Distribution Date, the Servicer determines that there
are no outstanding Mortgage Loans and no other funds or assets in the Trust Fund
other than funds in the Certificate Account, the Servicer shall send a final
distribution notice promptly to each such Certificateholder in accordance with
paragraph (d) below.
67
<PAGE>
(d) Notice of any termination, specifying the Distribution Date upon
which the Trust Fund will terminate and the Certificateholders shall surrender
their Certificates to the Trustee for payment of the final distribution and
cancellation, shall be given promptly by the Servicer by letter to
Certificateholders mailed during the month of such final distribution before the
Servicer Distribution Date in such month, specifying (i) the Distribution Date
upon which final payment of the Certificates will be made upon presentation and
surrender of Certificates at the office of the Trustee therein designated, (ii)
the amount of any such final payment and (iii) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made only
upon presentation and surrender of the Certificates at the office of the Trustee
therein specified. The Servicer shall give such notice to the Trustee therein
specified. The Servicer shall give such notice to the Trustee at the time such
notice is given to Certificateholders. The obligations of the Certificate
Insurer hereunder shall terminate upon the deposit by the Servicer with the
Trustee of a sum sufficient to purchase all of the Mortgage Loans and REO
Properties as set forth above or when the Class A Principal Balance has been
reduced to zero.
(e) In the event that all of the Certificateholders shall not
surrender their Certificates for cancellation within six months after the time
specified in the above-mentioned written notice, the Servicer shall give a
second written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within six months after the second notice, all of the Certificates
shall not have been surrendered for cancellation, the Trustee may take
appropriate steps, or may appoint an agent to take appropriate steps, to contact
the remaining Certificateholders concerning surrender of their Certificates and
the cost thereof shall be paid out of the funds and other assets which remain
subject hereto. If within nine months after the second notice all the
Certificates shall not have been surrendered for cancellation, the Class R
Certificateholders shall be entitled to all unclaimed funds and other assets
which remain subject hereto and the Trustee upon transfer of such funds shall be
discharged of any responsibility for such funds and the Certificateholders shall
look only to the Class R Certificateholders for payment and not to the
Certificate Insurer. Such funds shall remain uninvested.
Section 8.02 ADDITIONAL TERMINATION REQUIREMENTS. (a) In the event
that the Servicer exercises its purchase option as provided in Section 8.01, the
Trust Fund shall be terminated in accordance with the following additional
requirements, unless the Trustee has been furnished with an Opinion of Counsel
to the effect that the failure of the REMIC Trust to comply with the
requirements of this Section 8.02 will not (i) result in the imposition of taxes
on "prohibited transactions" of the REMIC Trust as defined in Section 860F of
the Code or (ii) cause the REMIC Trust to fail to qualify as a REMIC at any time
that any Class A Certificates are outstanding:
(i) Within 90 days prior to the final Distribution Date the
Servicer shall adopt and the Trustee shall sign, a plan of complete
liquidation of the REMIC Trust meeting the requirements of a "Qualified
Liquidation" under Section 860F of the Code and any regulations thereunder;
(ii) At or after the time of adoption of such a plan of complete
liquidation and at or prior to the final Distribution Date, the Trustee
shall sell all of the assets of the Trust Fund to the Servicer for cash;
and
(iii) At the time of the making of the final payment on the
Certificates, the Trustee shall distribute or credit, or cause to be
distributed or credited (A) to the Class A Certificateholders the Class A
Principal Balance, plus one month's interest thereon at the Class A
Pass-Through Rate, (B) to the Certificate Insurer any amounts due the
Certificate Insurer under this
68
<PAGE>
Agreement and unpaid, including unreimbursed Insured Payments and I&I
Payments and (C) to the Class R Certificateholders, all cash on hand after
such payment to the Class A Certificateholders (other than cash retained to
meet claims) and the Trust Fund shall terminate at such time.
(b) By their acceptance of the Certificates, the Holders thereof
hereby agree to appoint the Servicer as their attorney in fact to: (i) adopt
such a plan of complete liquidation (and the Certificateholders hereby appoint
the Trustee as their attorney in fact to sign such plan) as appropriate or upon
the written request of the Certificate Insurer and (ii) to take such other
action in connection therewith as may be reasonably required to carry out such
plan of complete liquidation all in accordance with the terms hereof.
Section 8.03 ACCOUNTING UPON TERMINATION OF SERVICER. Upon
termination of the Servicer, the Servicer shall, at its expense:
(a) deliver to its successor or, if none shall yet have been
appointed, to the Trustee, the funds in any Account;
(b) deliver to its successor or, if none shall yet have been
appointed, to the Trustee all Mortgage Files and related documents and
statements held by it hereunder and a Mortgage Loan portfolio computer
tape;
(c) deliver to its successor or, if none shall yet have been
appointed, to the Trustee and, upon request, to the Certificateholders a
full accounting of all funds, including a statement showing the Monthly
Payments collected by it and a statement of monies held in trust by it for
the payments or charges with respect to the Mortgage Loans; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer
of servicing of the Mortgage Loans to its successor and to more fully and
definitively vest in such successor all rights, powers, duties,
responsibilities, obligations and liabilities of the "Servicer" under this
Agreement.
Section 8.04 RETENTION AND TERMINATION OF THE SERVICER. The Servicer
hereby covenants and agrees to act as servicer under this Agreement for an
initial term commencing on the Closing Date and expiring on December 31, 1996,
which term shall be extendable by the Certificate Insurer for successive terms
thereafter of one calendar quarter each (ending on March 31st, June 30th,
September 30th or December 31st (or, as specified in a writing delivered by the
Certificate Insurer from time to time to the Servicer and the Trustee, such
other term-by-term basis)), until the Class A Final Scheduled Maturity Date.
Each such notice (including each notice pursuant to standing instructions, which
shall be deemed delivered at successive calendar quarter intervals for so long
as such instructions are in effect) (a "Servicer Extension Notice") delivered by
the Certificate Insurer to the Trustee shall be promptly delivered by the
Trustee to the Servicer. The Servicer hereby agrees that, upon its receipt of
any such Servicer Extension Notice, the Servicer shall become bound, for the
duration of the term covered by such Servicer Extension Notice, to continue as
the Servicer subject to and in accordance with the other provisions of this
Agreement. The Trustee agrees that if as of the fifteenth day prior to the last
day of any term of the Servicer the Trustee shall not have received a Servicer
Extension Notice from the Certificate Insurer, the Trustee will, within 5 days
thereafter, give written notice of such nonreceipt to the Certificate Insurer
and the Servicer.
69
<PAGE>
ARTICLE IX
THE TRUSTEE
Section 9.01 DUTIES OF TRUSTEE. (a) The Trustee, prior to the
occurrence of an Event of Default and after the curing of all Events of Default
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. If an Event of Default has
occurred and has not been cured or waived, the Trustee shall exercise such of
the rights and powers vested in it by this Agreement, and use the same degree of
care and skill in its exercise as a prudent person would exercise or use under
the circumstances in the conduct of such person's own affairs.
(b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform on their face to the requirements of this Agreement; PROVIDED, HOWEVER,
that the Trustee shall not be responsible for the accuracy or content of any
resolution, certificate, statement, opinion, report, document, order or other
instrument furnished by the Servicer or the Seller hereunder. If any such
instrument is found not to conform on its face to the requirements of this
Agreement, the Trustee shall take action as it deems appropriate to have the
instrument corrected and, if the instrument is not corrected to the Trustee's
satisfaction, the Trustee will, at the expense of the Servicer notify the
Certificate Insurer and request written instructions as to the action it deems
appropriate to have the instrument corrected, and if the instrument is not so
corrected, the Trustee will provide notice thereof to the Certificate Insurer
who shall then direct the Trustee as to the action, if any, to be taken.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default, and after
the curing of all such Events of Default which may have occurred, the
duties and obligations of the Trustee shall be determined solely by the
express provisions of this Agreement, the Trustee shall not be liable
except for the performance of such duties and obligations as are
specifically set forth in this Agreement, no implied covenants or
obligations shall be read into this Agreement against the Trustee and, in
the absence of bad faith on the part of the Trustee, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any certificates or opinions furnished
to the Trustee and conforming to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or other officers of
the Trustee, unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of the Certificate Insurer or with the
consent of the Certificate Insurer, the Class A Certificateholders holding
Class A Certificates evidencing Percentage Interests of at least 25%,
relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Agreement;
70
<PAGE>
(iv) The Trustee shall not be required to take notice or be
deemed to have notice or knowledge of any default or Event of Default
(except an Event of Default with respect to the nonpayment of any amount
described in Section 7.01(a), unless a Responsible Officer of the Trustee
shall have received written notice thereof. In the absence of receipt of
such notice, the Trustee may conclusively assume that there is no default
or Event of Default (except a failure to make a Periodic Advance);
(v) The Trustee shall not be required to expend or risk its own
funds or otherwise incur financial liability for the performance of any of
its duties hereunder or the exercise of any of its rights or powers if
there is reasonable ground for believing that the repayment of such funds
or adequate indemnity against such risk or liability is not reasonably
assured to it and none of the provisions contained in this Agreement shall
in any event require the Trustee to perform, or be responsible for the
manner of performance of, any of the obligations of the Servicer under this
Agreement except during such time, if any, as the Trustee shall be the
successor to, and be vested with the rights, duties, powers and privileges
of, the Servicer in accordance with the terms of this Agreement; and
(vi) Subject to the other provisions of this Agreement (and
except in its capacity as successor Servicer) and without limiting the
generality of this Section, the Trustee shall have no duty (A) to see to
any recording, filing, or depositing of this Agreement or any agreement
referred to herein or any financing statement or continuation statement
evidencing a security interest, or to see to the maintenance of any such
recording or filing or depositing or to any rerecording, refiling or
redepositing of any thereof, (B) to see to any insurance, (C) to see to the
payment or discharge of any tax, assessment, or other governmental charge
or any lien or encumbrance of any kind owing with respect to, assessed or
levied against, any part of the Trust, the Trust Fund, the
Certificateholders or the Mortgage Loans, (D) to confirm or verify the
contents of any reports or certificates of the Servicer delivered to the
Trustee pursuant to this Agreement believed by the Trustee to be genuine
and to have been signed or presented by the proper party or parties.
(d) It is intended that the REMIC Trust formed hereunder shall
constitute, and that the affairs of the REMIC Trust shall be conducted so as to
qualify it as, a REMIC as defined in and in accordance with the REMIC
Provisions. In furtherance of such intention, the Seller, as Class R
Certificateholder, covenants and agrees that it shall act as agent (and the
Seller, as Class R Certificateholder, is hereby appointed to act as agent) and
as Class R Certificateholder Tax Matters Person on behalf of the REMIC Trust,
and that in such capacities it shall:
(i) prepare, sign and file, or cause to be prepared and filed,
in a timely manner, a U.S. Real Estate Mortgage Investment Conduit Income
Tax Return (Form 1066) and any other Tax Return required to be filed by the
REMIC Trust, using a calendar year as the taxable year for the REMIC Trust;
(ii) make, or cause to be made, an election, on behalf of the
REMIC Trust, to be treated as a REMIC on the federal tax return of the
REMIC Trust for its first taxable year;
(iii) prepare and forward, or cause to be prepared and forwarded,
to the Trustee, the Certificateholders and to the Internal Revenue Service
and any other relevant governmental taxing authority all information
returns or reports as and when required to be provided to them in
accordance with the REMIC Provisions;
71
<PAGE>
(iv) to the extent that the affairs of the REMIC Trust are within
its control, conduct such affairs of the REMIC Trust at all times that any
Certificates are outstanding so as to maintain the status of the REMIC
Trust as a REMIC under the REMIC Provisions and any other applicable
federal, state and local laws, including, without limitation, information
reports relating to "original issue discount," as defined in the Code,
based upon the Prepayment Assumption and calculated by using the issue
price of the Certificates;
(v) not knowingly or intentionally take any action or omit to
take any action that would cause the termination of the REMIC status of the
REMIC Trust;
(vi) pay the amount of any and all federal, state, and local
taxes, including, without limitation, any minimum tax imposed by Section
23151(a) and 23153(a) of the Pennsylvania Revenue and Taxation Code upon
the Trustee or the Certificateholders in connection with the Trust, the
Trust Fund or the Mortgage Loans, prohibited transaction taxes as defined
in Section 860F of the Code, other than any amount due as a result of a
transfer or attempted or purported transfer in violation of Section 4.02,
imposed on the Trust Fund when and as the same shall be due and payable
(but such obligation shall not prevent the Trustee or any other appropriate
Person from contesting any such tax in appropriate proceedings and shall
not prevent the Trustee from withholding payment of such tax, if permitted
by law, pending the outcome of such proceedings). The Trustee shall be
entitled to reimbursement in accordance with Sections 9.01(c) and 9.05
hereof;
(vii) ensure that any such returns or reports filed on behalf of
the Trust Fund by the Trustee are properly executed by the appropriate
person and submitted in a timely manner;
(viii) represent the Trust Fund in any administrative or judicial
proceedings relating to an examination or audit by any governmental taxing
authority, request an administrative adjustment as to any taxable year of
the Trust Fund, enter into settlement agreements with any governmental
taxing agency, extend any statute of limitations relating to any item of
the Trust Fund and otherwise act on behalf of the Trust Fund in relation to
any tax matter involving the Trust Fund;
(ix) as provided in Section 5.12 hereof, make available
information necessary for the computation of any tax imposed (1) on
transferrors of residual interests to transferees that are not Permitted
Transferees or (2) on pass-through entities, any interest in which is held
by an entity which is not a Permitted Transferee. The Trustee covenants
and agrees that it will cooperate with the Servicer in the foregoing
matters and that it will sign, as Trustee, any and all Tax Returns required
to be filed by the Trust Fund. Notwithstanding the foregoing, at such time
as the Trustee becomes the successor Servicer, the holder of the largest
percentage of the Class R Certificates shall serve as Tax Matters Person
until such time as an entity is appointed to succeed the Trustee as
Servicer;
(x) make available to the Internal Revenue Service and those
Persons specified by the REMIC Provisions all information necessary to
compute any tax imposed (A) as a result of the Transfer of an Ownership
Interest in a Class R Certificate to any Person who is not a Permitted
Transferee, including the information described in Treasury regulations
sections 1.860D-1(b)(5) and 1.860E-2(a)(5)with respect to the "excess
inclusions" of such Class R Certificate and (B) as a result of any
regulated investment company, real estate investment trust, common trust
fund, partnership, trust, estate or organization described in Section 1381
of the Code that holds an Ownership Interest
72
<PAGE>
in a Class R Certificate having as among its record holders at any time any
Person that is not a Permitted Transferee. Reasonable compensation for
providing such information may be accepted by the Trustee;
(xi) pay out of its own funds, without any right of
reimbursement, any and all tax related expenses of the Trust Fund
(including, but not limited to, tax return preparation and filing expenses
and any professional fees or expenses related to audits or any
administrative or judicial proceedings with respect to the Trust Fund that
involve the Internal Revenue Service or state tax authorities), other than
the expense of obtaining any Opinion of Counsel required pursuant to
Sections 3.03, 5.10 and 8.02 and other than taxes except as specified
herein;
(xii) upon filing with the Internal Revenue Service, the Trustee
shall furnish to the Holders of the Class R Certificates the Form 1066 and
each Form 1066Q and shall respond promptly to written requests made not
more frequently than quarterly by any Holder of Class R Certificates with
respect to the following matters:
(A) the original projected principal and interest cash flows on
the Closing Date on the regular and residual interests created
hereunder and on the Mortgage Loans, based on the Prepayment
Assumption;
(B) the projected remaining principal and interest cash flows as
of the end of any calendar quarter with respect to the regular and
residual interests created hereunder and the Mortgage Loans, based on
the Prepayment Assumption;
(C) the Prepayment Assumption and any interest rate assumptions
used in determining the projected principal and interest cash flows
described above;
(D) the original issue discount (or, in the case of the Mortgage
Loans, market discount) or premium accrued or amortized through the
end of such calendar quarter with respect to the regular or residual
interests created hereunder and with respect to the Mortgage Loans,
together with each constant yield to maturity used in computing the
same;
(E) the treatment of losses realized with respect to the
Mortgage Loans or the regular interests created hereunder, including
the timing and amount of any cancellation of indebtedness income of
the REMIC with respect to such regular interests or bad debt
deductions claimed with respect to the Mortgage Loans;
(F) the amount and timing of any non-interest expenses of the
REMIC; and
(G) any taxes (including penalties and interest) imposed on the
REMIC, including, without limitation, taxes on "prohibited
transactions," "contributions" or "net income from foreclosure
property" or state or local income or franchise taxes; and
(xiii) make any other required reports in respect of interest
payments in respect of the Mortgage Loans and acquisitions and abandonments
of Mortgaged Property to the Internal Revenue Service and/or the borrowers,
as applicable.
(e) In the event that any tax is imposed on "prohibited transactions"
of the REMIC as defined in Section 860F(a)(2) of the Code, on the "net income
from foreclosure property" of the REMIC
73
<PAGE>
as defined in Section 860G(c) of the Code, on any contribution to the REMIC
after the Startup Day pursuant to Section 860G(d) of the Code, or any other tax
(other than any minimum tax imposed by Sections 23151(a) or 23153(a) of the
Pennsylvania Revenue and Taxation Code) is imposed, such tax shall be paid by
(i) the Trustee, if such tax arises out of or results from a breach by the
Trustee of any of its obligations under this Agreement, (ii) the Servicer, if
such tax arises out of or results from a breach by the Servicer of any of its
obligations under this Agreement, or otherwise (iii) the holders of the Class R
Certificates in proportion to their Percentage Interests. To the extent such
tax is chargeable against the holders of the Class R Certificates,
notwithstanding anything to the contrary contained herein, the Trustee is hereby
authorized to retain from amounts otherwise distributable to the Holders of the
Class R Certificates on any Distribution Date sufficient funds to reimburse the
Trustee for the payment of such tax (to the extent that the Trustee has not been
previously reimbursed or indemnified therefor).
Section 9.02 CERTAIN MATTERS AFFECTING THE TRUSTEE. (a) Except as
otherwise provided in Section 9.01:
(i) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate, Opinion
of Counsel, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal,
bond or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(ii) the Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and protection in respect
of any action taken or suffered or omitted by it hereunder in good faith
and in accordance with such opinion of counsel;
(iii) the Trustee shall be under no obligation to exercise any of
the trusts or powers vested in it by this Agreement or to institute,
conduct or defend by litigation hereunder or in relation hereto at the
request, order or direction of the Certificate Insurer or any of the
Certificateholders, pursuant to the provisions of this Agreement, unless
such Certificateholders or the Certificate Insurer, as applicable, shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein by the
Trustee or thereby; nothing contained herein shall, however, relieve the
Trustee of the obligation, upon the occurrence of an Event of Default
(which has not been cured), to exercise such of the rights and powers
vested in it by this Agreement, and to use the same degree of care and
skill in its exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs;
(iv) the Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Agreement;
(v) prior to the occurrence of an Event of Default hereunder and
after the curing of all Events of Default which may have occurred, the
Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or other
paper or document, unless requested in writing to do so by the Certificate
Insurer or Holders of Class A Certificates evidencing Percentage Interests
aggregating not less than 25%; PROVIDED, HOWEVER, that if the payment
within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation
is, in the opinion of the Trustee, not reasonably assured to the
74
<PAGE>
Trustee by the security afforded to it by the terms of this Agreement, the
Trustee may require reasonable indemnity against such expense or liability
as a condition to taking any such action. The reasonable expense of every
such examination shall be paid by the Servicer or, if paid by the Trustee,
shall be repaid by the Servicer upon demand from the Servicer's own funds;
(vi) the right of the Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the
Trustee shall not be answerable for other than its negligence or willful
misconduct in the performance of such act;
(vii) the Trustee shall not be required to give any bond or surety
in respect of the execution of the Trust created hereby or the powers
granted hereunder; and
(viii) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys.
(b) Following the Startup Day, the Trustee shall not knowingly accept
any contribution of assets to the Trust Fund, unless the Trustee shall have
received an Opinion of Counsel (at the expense of the Servicer) to the effect
that the inclusion of such assets in the Trust Fund will not cause the REMIC
Trust to fail to qualify as a REMIC at any time that any Certificates are
outstanding or subject the REMIC Trust to any tax under the REMIC Provisions or
other applicable provisions of federal, state and local law or ordinances. The
Trustee agrees to indemnify the Trust Fund and the Servicer for any taxes and
costs, including any attorney's fees, imposed or incurred by the Trust Fund or
the Servicer as a result of the breach of the Trustee's covenants set forth
within this subsection (b).
Section 9.03 TRUSTEE NOT LIABLE FOR CERTIFICATES OR MORTGAGE LOANS.
The recitals contained herein (other than the certificate of authentication on
the Certificates) shall be taken as the statements of the Seller or the Servicer
as the case may be, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Agreement or of any Mortgage Loan or related document. The
Trustee shall not be accountable for the use or application of any funds paid to
the Servicer in respect of the Mortgage Loans or deposited in or withdrawn from
the Collection Account by the Servicer. The Trustee shall not be responsible
for the legality or validity of the Agreement or the validity, priority,
perfection or sufficiency of the security for the Certificates issued or
intended to be issued hereunder.
Section 9.04 TRUSTEE MAY OWN CERTIFICATES. The Trustee in its
individual or any other capacity may become the owner or pledgor of Certificates
with the same rights it would have if it were not Trustee, and may otherwise
deal with the parties hereto.
Section 9.05 TRUSTEE'S FEES AND EXPENSES; INDEMNITY. (a) The Trustee
acknowledges that in consideration of the performance of its duties hereunder it
is entitled to receive the Trustee's Fee in accordance with the provision of
Section 6.04(a). Additionally, the Trustee hereby covenants, for the benefit of
the Depositor, that the Trustee has arranged separately with the Servicer for
the payment to the Trustee of all of the Trustee's expenses in connection with
this Agreement, including, without limitation, all of the Trustee's fees and
expenses in connection with any actions taken by the Trustee pursuant to Section
9.12 hereof. For the avoidance of doubt, the parties hereto acknowledge that it
is the intent of the parties that the Depositor and the Certificate Insurer
shall not pay any of the Trustee's fees and expenses in connection with this
transaction. The Trustee shall not be entitled to compensation for any expense,
disbursement or advance as may arise from its negligence or bad faith, and the
Trustee shall have no lien on the Trust Fund for the payment of its fees and
expenses.
75
<PAGE>
(b) The Trust Fund, the Trustee and any director, officer, employee
or agent of the Trustee shall be indemnified by the Servicer and held harmless
against any loss, liability, claim, damage or expense arising out of, or imposed
upon the Trust or the Trustee through the Servicer's acts or omissions in
violation of this Agreement, other than any loss, liability or expense incurred
by reason of willful misfeasance, bad faith or negligence of the Trustee in the
performance of its duties hereunder or by reason of the Trustee's reckless
disregard of obligations and duties hereunder. The obligations of the Servicer
under this Section 9.05 arising prior to any resignation or termination of the
Servicer hereunder shall survive termination of the Servicer and payment of the
Certificates, and shall extend to any co-trustee appointed pursuant to this
Article IX.
Section 9.06 ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The Trustee
hereunder shall at all times be a banking entity (a) organized and doing
business under the laws of any state or the United States of America subject to
supervision or examination by federal or state authority, (b) authorized under
such laws to exercise corporate trust powers, including taking title to the
Trust Fund assets on behalf of the Certificateholders, (c) having a combined
capital and surplus of at least $50,000,000, (d) whose long-term deposits, if
any, shall be rated at least BBB- by S&P and Baa3 by Moody's (except as provided
herein) or such lower long-term deposit rating as may be approved in writing by
the Certificate Insurer, and (e) reasonably acceptable to the Certificate
Insurer as evidenced in writing. If such banking entity publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of
determining an entity's combined capital and surplus for clause (c) of this
Section, the amount set forth in its most recent report of condition so
published shall be deemed to be its combined capital and surplus. In case at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the manner
and with the effect specified in Section 9.07.
Section 9.07 RESIGNATION AND REMOVAL OF THE TRUSTEE. (a) The Trustee
may at any time resign and be discharged from the trusts hereby created by
giving written notice thereof to the Servicer, the Certificate Insurer and all
Certificateholders. Upon receiving such notice of resignation, the Servicer at
the direction of the Certificate Insurer shall promptly appoint a successor
trustee by written instrument, in duplicate, which instrument shall be delivered
to the resigning Trustee and to the successor trustee. A copy of such
instrument shall be delivered to the Depositor, the Certificateholders, the
Certificate Insurer and the Seller by the Servicer. Unless a successor trustee
shall have been so appointed and shall have accepted appointment within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 9.06 and shall fail to resign after
written request therefor by the Servicer or the Certificate Insurer, or if at
any time the Trustee shall become incapable of acting, or shall be adjudged
bankrupt or insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Servicer (with the consent of the Certificate Insurer) or
the Certificate Insurer may remove the Trustee and the Servicer shall, within 30
days after such removal, appoint, at the direction of the Certificate Insurer, a
successor trustee by written instrument, in duplicate, which instrument shall be
delivered to the Trustee so removed and to the successor trustee. A copy of
such instrument shall be delivered to the Depositor, the Certificateholders, the
Certificate Insurer and the Seller by the Servicer.
(c) If the Trustee fails to perform in accordance with the terms of
this Agreement, the Majority Certificateholders or the Certificate Insurer may
remove the Trustee and appoint a successor trustee by written instrument or
instruments, in triplicate, signed by such Holders or their attorneys-in-fact
duly
76
<PAGE>
authorized, one complete set of which instruments shall be delivered to the
Servicer, one complete set to the Trustee so removed and one complete set to the
successor Trustee so appointed.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 9.08.
Section 9.08 SUCCESSOR TRUSTEE. Any successor trustee appointed as
provided in Section 9.07 shall execute, acknowledge and deliver to the
Depositor, the Certificate Insurer, the Seller, the Servicer and to its
predecessor trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as trustee herein. The predecessor trustee shall deliver to the successor
trustee all Mortgage Files and related documents and statements held by it
hereunder, and the Servicer and the predecessor trustee shall execute and
deliver such instruments and do such other things as may reasonably be required
for more fully and certainly vesting and confirming in the successor trustee all
such rights, powers, duties and obligations. No successor trustee shall accept
appointment as provided in this Section unless at the time of such acceptance
such successor trustee shall be eligible under the provisions of Section 9.06.
Upon acceptance of appointment by a successor trustee as provided in this
Section, the Servicer shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register and to the Rating Agencies. If the Servicer fails to mail
such notice within 10 days after acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be mailed at the
expense of the Servicer.
Section 9.09 MERGER OR CONSOLIDATION OF TRUSTEE. Any Person into
which the Trustee may be merged or converted or with which it may be
consolidated or any corporation or national banking association resulting from
any merger, conversion or consolidation to which the Trustee shall be a party,
or any corporation or national banking association succeeding to the business of
the trustee, shall be the successor of the Trustee hereunder, provided such
corporation or national banking association shall be eligible under the
provisions of Section 9.06, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
Section 9.10 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE. (a)
Notwithstanding any other provisions hereof, at any time, for the purpose of
meeting any legal requirements of any jurisdiction in which any part of the
Trust Fund or property securing the same may at the time be located, the
Servicer and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust Fund, and
to vest in such Person or Persons, in such capacity, such title to the Trust
Fund, or any part thereof, and, subject to the other provisions of this Section
9.10 and the consent of the Certificate Insurer, such powers, duties,
obligations, rights and trusts as the Servicer and the Trustee may consider
necessary or desirable. If the Servicer shall not have joined in such
appointment within 15 days after the receipt by it of a request so to do, or in
case an Event of Default shall have occurred and be continuing, the Trustee
alone shall have the power to make such appointment. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 9.06 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 9.08 hereof.
77
<PAGE>
(b) In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 9.10, all rights, powers, duties and
obligations conferred or imposed upon the Trustee shall be conferred or imposed
upon and exercised or performed by the Trustee and such separate trustee or
co-trustee jointly, except to the extent that under any law of any jurisdiction
in which any particular act or acts are to be performed (whether as Trustee
hereunder or as successor to the Servicer hereunder), the Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to the
Trust Fund or any portion thereof in any such jurisdiction) shall be exercised
and performed by such separate trustee or co-trustee at the direction of the
Trustee.
(c) Any notice, request or other writing given to the Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this 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
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Every such instrument shall be filed with the Trustee.
(d) Any separate trustee or co-trustee may, at any time, constitute
the Trustee, its agent or attorney-in-fact, with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. The Trustee shall not be
responsible for any action or inaction of any such separate trustee or
co-trustee, provided that the Trustee appointed such separate trustee or co-
trustee with due care. If any separate trustee or co-trustee shall die, become
incapable of acting, resign or be removed, all of its estates, properties,
rights, remedies and trusts shall vest in and be exercised by the Trustee, to
the extent permitted by law, without the appointment of a new or successor
trustee.
Section 9.11 TAX RETURNS. The Servicer and the Depositor, as
applicable, upon request, will promptly furnish the Trustee with all such
information as may be reasonably required in connection with the Trustee's
preparation of all Tax Returns of the Trust Fund or for the purpose of the
Trustee responding to reasonable requests for information made by
Certificateholders in connection with tax matters and, upon request within five
(5) Business Days after its receipt thereof, the Servicer shall (a) sign on
behalf of the Trust Fund any Tax Return that the Servicer is required to sign
pursuant to applicable federal, state or local tax laws, and (b) cause such Tax
Return to be returned to the Trustee for filing and for distribution to
Certificateholders if required.
Section 9.12 RETIREMENT OF CERTIFICATES. The Trustee shall, upon the
retirement of the Certificates pursuant hereto or otherwise, furnish to the
Certificate Insurer a notice of such retirement, and, upon retirement of the
Certificates and the expiration of the term of the Certificate Insurance Policy,
shall surrender the Certificate Insurance Policy to the Certificate Insurer for
cancellation.
78
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01 LIMITATION ON LIABILITY OF THE DEPOSITOR AND THE
SERVICER. Neither the Depositor nor the Servicer nor any of the directors,
officers, employees or agents of the Depositor or the Servicer shall be under
any liability to the Trust, the Certificateholders or the Certificate Insurer
for any action taken, or for refraining from the taking of any action, in good
faith pursuant to this Agreement, or for errors in judgment; PROVIDED, HOWEVER,
that this provision shall not protect the Depositor or the Servicer or any such
Person against any breach of warranties or representations made herein, or
against any specific liability imposed on each such party pursuant to this
Agreement or against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations or duties hereunder. The Depositor
or the Servicer and any director, officer, employee or agent of the Depositor or
the Servicer may rely in good faith on any document of any kind which, PRIMA
FACIE, is properly executed and submitted by any appropriate Person respecting
any matters arising hereunder.
Section 10.02 ACTS OF CERTIFICATEHOLDERS. (a) Except as otherwise
specifically provided herein, whenever Certificateholder action, consent or
approval is required under this Agreement, such action, consent or approval
shall be deemed to have been taken or given on behalf of, and shall be binding
upon, all Certificateholders if the Majority Certificateholders or the
Certificate Insurer agrees to take such action or give such consent or approval.
(b) The death or incapacity of any Certificateholder shall not
operate to terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heir to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of the
Trust Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
(c) No Certificateholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third person by reason of any action taken by the parties
to this Agreement pursuant to any provision hereof.
Section 10.03 AMENDMENT. (a) This Agreement may be amended from
time to time by the Servicer, the Depositor and the Trustee by written
agreement, upon the prior written consent of the Certificate Insurer, without
notice to or consent of the Certificateholders to cure any ambiguity, to correct
or supplement any provisions herein, to comply with any changes in the Code, or
to make any other provisions with respect to matters or questions arising under
this Agreement which shall not be inconsistent with the provisions of this
Agreement; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, at the expense of the party requesting the change, delivered
to the Trustee, adversely affect in any material respect the interests of any
Certificateholder; and provided further, that no such amendment shall reduce in
any manner the amount of, or delay the timing of, payments received on Mortgage
Loans which are required to be distributed on any Certificate without the
consent of the Holder of such Certificate, or change the rights or obligations
of any other party hereto without the consent of such party. The Trustee shall
give prompt written notice to the Rating Agencies of any amendment made pursuant
to this Section 10.03 or pursuant to Section 6.09 of the Purchase Agreement.
79
<PAGE>
(b) This Agreement may be amended from time to time by the Servicer,
the Depositor and the Trustee with the consent of the Certificate Insurer, the
Majority Certificateholders and the Holders of the majority of the Percentage
Interest in the Class R Certificates for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Holders; provided, however, that
no such amendment shall be made unless the Trustee receives an Opinion of
Counsel, at the expense of the party requesting the change, that such change
will not adversely affect the status of the REMIC Trust as a REMIC or cause a
tax to be imposed on the REMIC, and provided further, that no such amendment
shall reduce in any manner the amount of, or delay the timing of, payments
received on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the Holder of such Certificate or reduce the
percentage for the Holders of which are required to consent to any such
amendment without the consent of the Holders of 100% of Certificates affected
thereby.
(c) It shall not be necessary for the consent of Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof.
Section 10.04 RECORDATION OF AGREEMENT. To the extent permitted by
applicable law, this Agreement, or a memorandum thereof if permitted under
applicable law, is subject to recordation in all appropriate public offices for
real property records in all of the counties or other comparable jurisdictions
in which any or all of the properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere, such recordation
to be effected by the Servicer at the Certificateholders' expense on direction
and at the expense of Majority Certificateholders requesting such recordation,
but only when accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.
Section 10.05 DURATION OF AGREEMENT. This Agreement shall continue
in existence and effect until terminated as herein provided.
Section 10.06 NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered to (i) in the case of the Servicer, American Business Credit, Inc.,
Balapointe Office Centre, 111 Presidential Boulevard, Suite 215, Bala Cynwyd, PA
19004, Attention: Mr. Anthony Santilli, Jr., (ii) in the case of the Seller,
ABFS 1996-2, Inc., Balapointe Office Centre, 111 Presidential Boulevard, Suite
215, Bala Cynwyd, PA 19004, Attention: Mr. Anthony Santilli, Jr., (iii) in the
case of the Trustee, The Chase Manhattan Bank, Global Trust Services, 450 West
33rd Street, New York, NY 10001 Attention: MBS, (iv) in the case of the
Certificateholders, as set forth in the Certificate Register, (v) in the case of
Moody's, 99 Church Street, New York, New York 10007 Attention: Home Equity
Monitoring Group, (vi) in the case of S&P, 26 Broadway, New York, New York 10004
Attention: Residential Mortgage Surveillance Group, (vii) in the case of the
Certificate Insurer, Financial Security Assurance Inc., 350 Park Avenue, New
York, New York 10022 Attention: Surveillance Department (in each case in which
notice or other communication to the Certificate Insurer refers to an Event of
Default, a claim on the Certificate Insurance Policy or with respect to which
failure on the part of the Certificate Insurer to respond shall be deemed to
constitute consent or acceptance, then a copy of such notice or other
communication should also be sent to the attention of each of the General
Counsel and the Head -- Financial Guaranty Group and shall be marked to indicate
"URGENT MATERIAL ENCLOSED") and (viii) in the case of the Depositor or the
Underwriter, One New York Plaza, New York, New York 10292, Attention: Len Blum.
Any such notices shall be deemed to be effective with respect
80
<PAGE>
to any party hereto upon the receipt of such notice by such party, except that
notices to the Certificateholders shall be effective upon mailing or personal
delivery.
Section 10.07 SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other covenants, agreements, provisions or terms of this
Agreement.
Section 10.08 NO PARTNERSHIP. Nothing herein contained shall be
deemed or construed to create a co-partnership or joint venture between the
parties hereto and the services of the Servicer shall be rendered as an
independent contractor and not as agent for the Certificateholders.
Section 10.09 COUNTERPARTS. This Agreement may be executed in one or
more counterparts and by the different parties hereto on separate counterparts,
each of which, when so executed, shall be deemed to be an original; such
counterparts, together, shall constitute one and the same agreement.
Section 10.10 SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and be binding upon the Servicer, the Depositor, the Trustee and
the Certificateholders and their respective successors and permitted assigns.
Section 10.11 HEADINGS. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
Section 10.12 THE CERTIFICATE INSURER DEFAULT. Any right conferred
to the Certificate Insurer shall be suspended during any period in which a
Certificate Insurer Default exists. At such time as the Certificates are no
longer outstanding hereunder, and no amounts owed to the Certificate Insurer
hereunder remain unpaid, the Certificate Insurer's rights hereunder shall
terminate.
Section 10.13 THIRD PARTY BENEFICIARY. The parties agree that each
of the Seller and the Certificate Insurer is intended and shall have all rights
of a third-party beneficiary of this Agreement.
Section 10.14 INTENT OF THE PARTIES. It is the intent of the
Depositor and Certificateholders that, for federal income taxes, state and local
income or franchise taxes and other taxes imposed on or measured by income, the
Certificates will be treated as evidencing beneficial ownership interests in a
REMIC. The parties to this Agreement and the holder of each Certificate, by
acceptance of its Certificate, and each beneficial owner thereof, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates in accordance with the preceding sentence for purposes of federal
income taxes, state and local income and franchise taxes and other taxes imposed
on or measured by income.
Section 10.15 APPOINTMENT OF TAX MATTERS PERSON. The Holders of the
Class R Certificates hereby appoint the Seller to act, as their agent, as the
Tax Matters Person for the REMIC Trust for all purposes of the Code. The Tax
Matters Person will perform, or cause to be performed, such duties and take, or
cause to be taken, such actions as are required to be performed or taken by the
Tax Matters Person under the code. The Holders of the Class R Certificates may
hereafter appoint a different entity as their agent, or may appoint one of the
Class R Certificateholders to be the Tax Matters Person.
Section 10.16 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
81
<PAGE>
WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE
OF NEW YORK.
(b) THE SERVICER AND THE TRUSTEE HEREBY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES
DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY, AND EACH
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL
SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET
FORTH IN SECTION 10.06 HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS,
POSTAGE PREPAID. THE DEPOSITOR, THE SERVICER AND THE TRUSTEE EACH HEREBY WAIVE
ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY
ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION
SHALL AFFECT THE RIGHT OF THE DEPOSITOR, THE SERVICER OR THE TRUSTEE TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT ANY OF THEIR RIGHTS
TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION.
(c) THE DEPOSITOR, THE SERVICER AND THE TRUSTEE EACH HEREBY WAIVES
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE WILL BE RESOLVED IN A
BENCH TRIAL WITHOUT A JURY.
[Remainder of Page Intentionally Left Blank]
82
<PAGE>
IN WITNESS WHEREOF, the Servicer, the Trustee and the Depositor have
caused their names to be signed hereto by their respective officers thereunto
duly authorized as of the day and year first above written.
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION, as
Depositor
By: /s/ Norman Chaleff
----------------------------------------
Name: Norman Chaleff
Title: Vice President
AMERICAN BUSINESS CREDIT, INC., as Servicer
By: /s/ Beverly Santilli
----------------------------------------
Name: Beverly Santilli
Title: President
THE CHASE MANHATTAN BANK, as Trustee
By: /s/ John Mynttinen
----------------------------------------
Name: John Mynttinen
Title: Second Vice President
[Signature Page to Pooling and Servicing Agreement]
<PAGE>
State of New York )
) ss.:
County of New York )
On the 27th day of September, 1996 before me, a Notary Public in and
for the State of New York, personally appeared Beverly Santilli, known to me to
be President of American Business Credit, Inc., the corporation that executed
the within instrument and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
/s/ Mary Jane Constant
-------------------------
Notary Public
My Commission expires MARY JANE CONSTANT
Notary Public, State of New York
No. 01CO4960883
Qualified in New York County
Commission Expires Jan. 2
<PAGE>
State of New York )
) ss.:
County of New York )
On the 27th day of September, 1996 before me, a Notary Public in and
for the State of New York, personally appeared John Mynttinen, to me to be a
Second Vice President of The Chase Manhattan Bank, the bank that executed the
within instrument and also known to me to be the person who executed it on
behalf of said bank, and acknowledged to me that such bank executed the within
instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
/s/ Mary Jane Constant
-------------------------
Notary Public
My Commission expires MARY JANE CONSTANT
Notary Public, State of New York
No. 01CO4960883
Qualified in New York County
Commission Expires Jan. 2
<PAGE>
State of New York )
) ss.:
County of New York )
On the 27th day of September, 1996, before me, a Notary Public in and
for the State of New York, personally appeared Norman Chaleff, known to me to be
a Vice President of Prudential Securities Secured Financing Corporation, the
corporation that executed the within instrument and also known to me to be the
person who executed it on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunder to set my hand and affixed my
official seal the day and year in this certificate first above written.
/s/ Mary Jane Constant
-------------------------
Notary Public
My Commission expires MARY JANE CONSTANT
Notary Public, State of New York
No. 01CO4960883
Qualified in New York County
Commission Expires Jan. 2
<PAGE>
EXHIBITS TO POOLING AND SERVICING AGREEMENT
<PAGE>
EXHIBIT A
CERTIFICATE INSURANCE POLICY
A-1
<PAGE>
EXHIBIT B-1
FORM OF CLASS A CERTIFICATE
---------------------------
ABFS MORTGAGE LOAN TRUST 1996-2
MORTGAGE PASS-THROUGH CERTIFICATES
CLASS A CERTIFICATE
Series 1996-2 Original Certificate Principal
Balance:
$_____________
Pass-Through
Rate: 7.525% Original Dollar Amount as of the Cut-Off
Date Represented
No. A-1 by this Certificate:
$_____________
Date of Pooling and
Servicing Agreement:
As of August 31, 1996
Cut-Off Date: Percentage Interest of
close of business this Certificate:
August 30, 1996 100%
Servicer: American
Business Credit, Inc.
First Distribution Date:
October 15, 1996
Latest Maturity Date:
Closing Date: ________ 15, 20___
September 27, 1996
Trustee: The Chase Manhattan
Bank
CUSIP: ________
Unless this Certificate is presented by an authorized representative
of the Depository Trust Company, a New York corporation ("DTC"), to the
Depositor or its agent for registration of transfer, exchange, or payment, and
any certificate issued is registered in the name of Cede & Co. or in such other
name as is requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or to such other entity as is requested by an authorized
B-1-1
<PAGE>
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 certifies that CEDE & CO. is the registered owner of a Class A
Certificate percentage interest (the "Percentage Interest") in certain first and
second lien mortgage loans (the "Mortgage Loans") serviced by American Business
Credit, Inc. (hereinafter called the "Servicer"), in its capacity as servicer
under that certain Pooling and Servicing Agreement (the "Agreement") dated as of
August 31, 1996 among American Business Credit, Inc., as servicer, Prudential
Securities Secured Financing Corporation, as depositor (the "Depositor") and The
Chase Manhattan Bank, as trustee (the "Trustee"). The Mortgage Loans were
originated or acquired by American Business Credit, Inc. ("ABC") or HomeAmerican
Credit, Inc. d/b/a Upland Mortgage ("Upland" and together with ABC, the
"Originators") and sold to ABFS 1996-2, Inc. (the "Seller") which in turn sold
the Mortgage Loans to the Depositor pursuant to that certain Unaffiliated
Seller's Agreement dated as of September 27, 1996 between the Depositor and the
Seller. The Mortgage Loans will be serviced by the Servicer pursuant to the
terms and conditions of the Agreement, certain of the pertinent provisions of
which are set forth herein. To the extent not defined herein, the capitalized
terms used herein have the meanings assigned in the Agreement. This Certificate
is issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the holder of this Certificate by virtue of the
acceptance hereof assents and by which such holder is bound. The Initial
Mortgage Loans have aggregate outstanding principal balances, at the close of
business on the Cut-Off Date herein referred to, after application of payments
received by the Seller on or before such date, of $_________________.
On each Distribution Date, commencing on October 15, 1996, the Trustee
shall distribute to the Person in whose name this Certificate is registered on
the last day of the month next preceding the month of such distribution (the
"Record Date"), an amount equal to the product of the Percentage Interest
evidenced by this Certificate and the amount required to be distributed to
Holders of Class A Certificates on such Distribution Date pursuant to Section
6.05 of the Agreement.
Distributions on this Certificate will be made by the Trustee by wire
transfer of immediately available funds to the account of the Person entitled
thereto as shall appear on the Certificate Register without the presentation or
surrender of this Certificate (except for the final distribution as described
below) or the making of any notation thereon, at a bank or other entity having
appropriate facilities therefor, if such Person shall own of record Certificates
of the same Class which have denominations aggregating at least $5,000,000
appearing in the Certificate Register and shall have so notified the Trustee at
least five business days prior to the related Record Date, or by check mailed to
the address of such Person appearing in the Certificate Register.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
maintained for that purpose by the Trustee in New York, New York.
This Certificate is one of a duly authorized issue of Certificates
designated as Mortgage Pass-Through Certificates, Series 1996-2, Class A and
Class R (herein called the
B-1-2
<PAGE>
"Certificates") and representing undivided ownership of (i) such Mortgage Loans
as from time to time are subject to the Agreement, together with the Mortgage
Files relating thereto and all collections thereon and proceeds thereof (other
than payments of interest that accrued on each Mortgage Loan up to the Cut-Off
Date), (ii) such assets as from time to time are identified as REO Property and
collections thereon and proceeds thereof, assets that are deposited in the
Accounts, including amounts on deposit in such Accounts and invested in
Permitted Investments, (iii) the Trustee's rights with respect to the Mortgage
Loans under all insurance policies required to be maintained pursuant to the
Agreement and any Insurance Proceeds, (iv) the Certificate Insurance Policy, (v)
Liquidation Proceeds and (vi) Released Mortgaged Property Proceeds.
The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Seller, the Servicer, the Originators, the Certificate
Insurer or the Trustee and are not insured or guaranteed by the Federal Deposit
Insurance Corporation, the Government National Mortgage Association, the Federal
Housing Administration or the Veterans Administration or any other governmental
agency. The Certificates are limited in right of payment to certain collections
and recoveries respecting the Mortgage Loans and, with respect to the Class A
Certificates, Insured Payments under the Certificate Insurance Policy, all as
more specifically set forth herein and in the Agreement. In the event Servicer
funds are advanced with respect to any Mortgage Loan, such advance is
reimbursable to the Servicer from related recoveries on such Mortgage Loan.
Financial Security Assurance, Inc. (the "Certificate Insurer") has
issued a surety bond with respect to the Class A Certificates, a copy of which
is attached as Exhibit A to the Agreement.
Subject to certain restrictions, the Agreement permits the amendment
thereof by the Depositor, the Servicer and the Trustee. Subject to the rights
of the Certificate Insurer, the Agreement permits the Majority
Certificateholders to waive, on behalf of all Certificateholders, any default by
the Servicer in the performance of its obligations under the Agreement and its
consequences, except in a default in making any required distribution on a
Certificate. Any such consent or waiver by the Majority Certificateholders
shall be conclusive and binding on the holder of this Certificate and upon all
future holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
of such consent is made upon this Certificate.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies maintained by the Trustee in New York, New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to, the Trustee, 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 undivided
Percentage Interest will be issued to the designated transferee or transferees.
The Certificates are issuable only in fully-registered form. As
provided in the Agreement and subject to certain limitations therein set forth,
the Certificate is exchangeable for a new Certificate evidencing the same
undivided ownership interest, as requested by the holder surrendering the same.
B-1-3
<PAGE>
No service charge will be made for any such registration of transfer
or exchange, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
The Servicer, the Depositor, the Seller and the Trustee and any agent
of any of the foregoing, may treat the person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the foregoing shall
be affected by notice to the contrary.
The obligations created by the Agreement shall terminate upon notice
to the Trustee of: (i) the later of (a) the distribution to Certificateholders
of the final payment or collection with respect to the last Mortgage Loan (or
Periodic Advances of same by the Servicer), or the disposition of all funds with
respect to the last Mortgage Loan and the remittance of all funds due under the
Agreement and the payment of all amounts due and payable to the Certificate
Insurer and the Trustee or (b) mutual consent of the Servicer, the Certificate
Insurer and all Certificateholders, or (ii) the purchase by the Servicer of all
outstanding Mortgage Loans and REO Properties at a price determined as provided
in the Agreement (the exercise of the right of the Servicer to purchase all the
Mortgage Loans and property in respect of Mortgage Loans will result in early
retirement of the Certificates), the right of the Servicer to purchase being
subject to the Pool Principal Balance of the Mortgage Loans and REO Properties
at the time of purchase being less than ten percent (10%) of the Maximum
Collateral Amount. Unless this Certificate has been authenticated by the
Trustee, by manual signature, this Certificate shall not be entitled to any
benefit under the Agreement or be valid for any purpose.
Before the earlier of (i) the date on which the Pre-Funding Period
expires and (ii) the date on which the Department of Labor amends Prohibited
Transaction Exemption 90-32 to permit the use of pre-funding accounts
thereunder, no sale or other transfer of record or beneficial ownership of any
Class A Certificate shall be made to any Person which is a pension or benefit
plan or individual retirement arrangement that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or to Section 4975
of the Code or an entity whose underlying assets are deemed to be assets of such
a plan or arrangement by reason of such plan's or arrangement's investment in
the entity, as determined under U.S. Department of Labor Regulations 29 C.F.R.
Section 2510.3-101 or otherwise (collectively, a "Plan"). By acceptance of a
Class A Certificate during such period, each Person acquiring a Class A
Certificate shall be deemed to have represented that it is not a Plan.
B-1-4
<PAGE>
Unless this Certificate has been countersigned by the Trustee, by manual
signature, this Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed by its authorized officer.
The Chase Manhattan Bank,
not in its individual capacity but
solely as Trustee
By:________________________________
Authorized Officer
Attest:
By:________________________________
Authorized Officer
CERTIFICATE OF AUTHENTICATION
This is a Class A Certificate referred to in the within-mentioned
Agreement, which Certificate is issued to Cede & Co. in
the initial denomination of $__________.
The Chase Manhattan Bank,
not in its individual capacity but
solely as Trustee
By:________________________________
Authorized Signatory
Dated: September 27, 1996
B-1-5
<PAGE>
EXHIBIT B-2
FORM OF CLASS R CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAW OF ANY STATE. ANY
RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH
REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT
REQUIRE SUCH REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE PROVISIONS
OF SECTION 4.02 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "RESIDUAL
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED.
ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CLASS R CERTIFICATE MAY BE
MADE ONLY IF THE PROPOSED TRANSFEREE PROVIDES (1) AN OPINION OF COUNSEL TO THE
TRUSTEE AND (2) AN AFFIDAVIT TO THE TRUSTEE THAT SUCH TRANSFEREE IS A PERMITTED
TRANSFEREE (AS DEFINED IN THE POOLING AND SERVICING AGREEMENT) OR AN AGENT OF A
PERMITTED TRANSFEREE. NOTWITHSTANDING THE REGISTRATION IN THE CERTIFICATE
REGISTER OF ANY TRANSFER OF THIS CLASS R CERTIFICATE TO A PERSON OTHER THAN A
PERMITTED TRANSFEREE OR AN AGENT OF A PERMITTED TRANSFEREE SUCH REGISTRATION
SHALL BE DEEMED TO BE OF NO LEGAL FORCE OR EFFECT WHATSOEVER AND SUCH PERSON
SHALL NOT BE DEEMED TO BE A CERTIFICATEHOLDER FOR ANY PURPOSE HEREUNDER,
INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS CERTIFICATE.
NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE TO ANY
EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT, INCLUDING INDIVIDUAL
RETIREMENT ACCOUNTS AND ANNUITIES, KEOGH PLANS AND COLLECTIVE INVESTMENT FUNDS
AND SEPARATE ACCOUNTS IN WHICH SUCH PLANS, ACCOUNTS OR ARRANGEMENTS ARE INVESTED
THAT IS SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA"), OR THE INTERNAL REVENUE CODE OF 1986 ("CODE"), NOR TO AN
ENTITY WHOSE UNDERLYING ASSETS ARE DEEMED TO BE ASSETS OF SUCH A PLAN, ACCOUNT
OR ARRANGEMENT BY REASON OF SUCH PLAN'S, ACCOUNT'S OR ARRANGEMENT'S INVESTMENT
IN THE ENTITY, AS DETERMINED UNDER U.S. DEPARTMENT OF LABOR REGULATIONS 29
C.F.R. SECTION 2510.3-101 OR OTHERWISE.
B-2-1
<PAGE>
ABFS MORTGAGE LOAN TRUST 1996-2
MORTGAGE PASS-THROUGH CERTIFICATES
CLASS R CERTIFICATE
Series 1996-2
No. R-1
Date of Pooling and
Servicing Agreement:
As of August 31, 1996
Cut-Off Date: Percentage Interest of
close of business this Certificate:
August 31, 1996 100%
Servicer: American
Business Credit, Inc.
First Distribution Date:
October 15, 1996
Latest Maturity Date:
Closing Date: ______ 15, 20___
September 27, 1996
Trustee: The Chase Manhattan Bank
This certifies that ABFS 1996-2, Inc. is the registered owner of a
Class R percentage interest (the "Percentage Interest") in certain first or
second lien mortgage loans (the "Mortgage Loans") serviced by American Business
Credit, Inc. (hereinafter called the "Servicer", in its capacity as servicer
under that certain Pooling and Servicing Agreement (the "Agreement") dated as of
August 31, 1996 among American Business Credit, Inc., as servicer, Prudential
Securities Secured Financing Corporation, as depositor (the "Depositor") and The
Chase Manhattan Bank, as trustee (the "Trustee"). The Mortgage Loans were
originated or acquired by American Business Credit, Inc. ("ABC") or HomeAmerican
Credit, Inc. d/b/a Upland Mortgage ("Upland" and together with ABC, the
"Originators") and sold to ABFS 1996-2, Inc. (the "Seller") which in turn sold
the Mortgage Loans to the Depositor pursuant to that certain Unaffiliated
Seller's Agreement dated as of September 27, 1996 between the Depositor and the
Seller. The Mortgage Loans will be serviced by the Servicer pursuant to the
terms and conditions of the Agreement, certain of the pertinent provisions of
which are set forth herein. To the extent not defined herein, the capitalized
terms used herein have the meanings assigned in the Agreement. This Certificate
is issued under and is subject to the terms, provisions and conditions
B-2-2
<PAGE>
of the Agreement, to which Agreement the holder of this Certificate by virtue of
the acceptance hereof assents and by which such holder is bound. The Mortgage
Loans have aggregate outstanding principal balances, at the close of business on
the Cut-Off Date herein referred to, after application of payments received by
the Seller on or before such date, of $__________.
On each Distribution Date, commencing on October 15, 1996, the Trustee
shall distribute to the Person in whose name this Certificate is registered on
the last day of the month next preceding the month of such distribution (the
"Record Date"), an amount equal to the product of the Percentage Interest
evidenced by this Certificate and the amount required to be distributed to
Holders of Class R Certificates on such Distribution Date pursuant to Section
6.05 of the Agreement.
Distributions on this Certificate will be made by the Trustee by wire
transfer of immediately available funds to the account of the Person entitled
thereto as shall appear on the Certificate Register without the presentation or
surrender of this Certificate (except for the final distribution as described
below) or the making of any notation thereon, at a bank or other entity having
appropriate facilities therefor, if such Person shall own of record Certificates
of the same Class which have denominations aggregating at least $5,000,000
appearing in the Certificate Register and shall have so notified the Trustee at
least five business days prior to the related Record Date, or by check mailed to
the address of such Person appearing in the Certificate Register.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
maintained for that purpose by the Trustee in New York, New York.
This Certificate is one of a duly authorized issue of Certificates
designated as Mortgage Pass-Through Certificates, Series 1996-2, Class A and
Class R (herein called the "Certificates") and representing undivided ownership
of (i) such Mortgage Loans as from time to time are subject to the Agreement,
together with the Mortgage Files relating thereto and all collections thereon
and proceeds thereof (other than payments of interest that accrued on each
Mortgage Loan up to the Cut-Off Date), (ii) such assets as from time to time are
identified as REO Property and collections thereon and proceeds thereof, assets
that are deposited in the Accounts, including amounts on deposit in such
Accounts and invested in Permitted Investments, (iii) the Trustee's rights with
respect to the Mortgage Loans under all insurance policies required to be
maintained pursuant to the Agreement and any Insurance Proceeds, (iv) the
Certificate Insurance Policy, (v) Liquidation Proceeds and (vi) Released
Mortgaged Property Proceeds.
The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Seller, the Servicer, the Certificate Insurer or the Trustee
and are not insured or guaranteed by the Federal Deposit Insurance Corporation,
the Government National Mortgage Association, the Federal Housing Administration
or the Veterans Administration or any other governmental agency. The
Certificates are limited in right of payment to certain collections and
recoveries respecting the Mortgage Loans and, with respect to the Class A
Certificates, Insured Payments under the Certificate Insurance Policy, all as
more specifically set forth herein and in the Agreement. In the event Servicer
funds are advanced with respect to any Mortgage Loan, such advance is
reimbursable to the Servicer from related recoveries on such Mortgage Loan.
B-2-3
<PAGE>
Financial Security Assurance, Inc. (the "Certificate Insurer") has
issued a surety bond with respect to the Class A Certificates, a copy of which
is attached as Exhibit A to the Agreement.
Subject to certain restrictions, the Agreement permits the amendment
thereof by the Depositor, the Servicer and the Trustee. Subject to the rights
of the Certificate Insurer, the Agreement permits the Majority
Certificateholders to waive, on behalf of all Certificateholders, any default by
the Servicer in the performance of its obligations under the Agreement and its
consequences, except in a default in making any required distribution on a
Certificate. Any such consent or waiver by the Majority Certificateholders
shall be conclusive and binding on the holder of this Certificate and upon all
future holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
of such consent is made upon this Certificate.
As provided in the Agreement and subject to certain limitations
therein set forth, including, without limitation, with respect to the Class R
Certificates, execution and delivery as appropriate of the Transfer Affidavit
and Agreement (attached as an exhibit to the Agreement) and the Transfer
Certificate (attached as an exhibit to the Agreement) described in Section
4.02(i) of the Agreement, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies maintained by the Trustee in New York, New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to, the Trustee, 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 undivided
Percentage Interest will be issued to the designated transferee or transferees.
No transfer of a Class R Certificate or any interest therein shall be
made to any employee benefit plan or other retirement arrangement, including
individual retirement accounts and annuities, Keogh plans and collective
investment funds and separate accounts in which such plans, accounts or
arrangements are invested, that is subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the Code (each, a "Plan"), nor to
an entity whose underlying assets are deemed to be assets of such a plan,
account or arrangement by reason of such plan's, account's or arrangement's
investment in the entity, as determined under U.S. Department of Labor
Regulations 29 C.F.R. Section 2510.3-101 or otherwise.
The Certificates are issuable only in fully-registered form. As
provided in the Agreement and subject to certain limitations therein set forth,
the Certificate is exchangeable for a new Certificate evidencing the same
undivided ownership interest, as requested by the holder surrendering the same.
No service charge will be made for any such registration of transfer
or exchange, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
The Servicer, the Depositor, the Seller and the Trustee and any agent
of any of the foregoing, may treat the person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the foregoing shall
be affected by notice to the contrary.
B-2-4
<PAGE>
The obligations created by the Agreement shall terminate upon notice
to the Trustee of: (i) the later of (a) the distribution to Certificateholders
of the final payment or collection with respect to the last Mortgage Loan (or
Periodic Advances of same by the Servicer), or the disposition of all funds with
respect to the last Mortgage Loan and the remittance of all funds due under the
Agreement and the payment of all amounts due and payable to the Certificate
Insurer and the Trustee or (b) mutual consent of the Servicer, the Certificate
Insurer and all Certificateholders, or (ii) the purchase by the Servicer of all
outstanding Mortgage Loans and REO Properties at a price determined as provided
in the Agreement (the exercise of the right of the Servicer to purchase all the
Mortgage Loans and property in respect of Mortgage Loans will result in early
retirement of the Certificates), the right of the Servicer to purchase being
subject to the Pool Principal Balance of the Mortgage Loans and REO Properties
at the time of purchase being less than ten percent (10%) of the Maximum
Collateral Amount. By its acceptance of this Certificate, the Certificateholder
hereby appoints the Servicer as its attorney-in-fact to negotiate the sale and
effect the transfer of a Class R Certificate in accordance with Section 4.02(i)
of the Agreement and to adopt a plan of liquidation of the Trust Fund in
accordance with Section 8.02 of the Agreement. Unless this Certificate has been
countersigned by the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
B-2-5
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed by its authorized officer.
The Chase Manhattan Bank,
not in its individual capacity but
solely as Trustee
By:_____________________________________
Authorized Officer
CERTIFICATE OF AUTHENTICATION
This is one of the Class R
Certificates referred to in
the within-named Agreement
By:________________________
Authorized Officer
Dated: September 27, 1996
B-2-6
<PAGE>
EXHIBIT C
MORTGAGE FILE
With respect to each Mortgage Loan, the Mortgage File shall include
each of the following items (copies to the extent the originals have been
delivered to the Trustee pursuant to Section 2.03 of the Agreement), all of
which shall be available for inspection by the Certificateholders, to the extent
required by applicable laws:
1. The original Mortgage Note, with all prior and intervening
endorsements showing a complete chain of endorsements from the
originator of the Mortgage Loan to the Person so endorsing the
Mortgage Loan to the Trustee, endorsed by such Person "Pay to the
order of _______________ _______________________ without recourse" and
signed, by facsimile or manual signature, in the name of the Seller by
a Responsible Officer.
2. Either: (i) the original Mortgage, and related power of attorney, if
any, with evidence of recording thereon, or (ii) a copy of the
Mortgage and related power of attorney, if any, certified as a true
copy of the original Mortgage or power of attorney by a Responsible
Officer of the Seller on the face of such copy substantially as
follows: "certified true and correct copy of original which has been
transmitted for recordation."
3. Either: (i) The original Assignment of Mortgage in recordable form in
blank or (ii) a copy of the Assignment certified as a true copy of the
original Assignment by a Responsible Officer of the Seller on the face
of such copy substantially as follows: "certified true and correct
copy of original which has been transmitted for recordation." Any
such Assignments of Mortgage may be made by blanket assignments for
Mortgage Loans secured by the Mortgaged Properties located in the same
county, if permitted by applicable law.
4. The original lender's policy of title insurance or a true copy
thereof, or if such original lender's title insurance policy has been
lost, a copy thereof certified by the appropriate title insurer to be
true and complete, or if such lender's title insurance policy has not
been issued as of the Closing Date, a marked up commitment (binder) to
issue such policy.
5. All original intervening assignments, if any, showing a complete chain
of assignments from the originator to the Seller, including any
recorded warehousing assignments, with evidence of recording thereon,
certified by a Responsible Officer of the Seller by facsimile or
manual signature as a true copy of the original of such intervening
assignments.
6. Originals of all assumption, written assurance, substitution and
modification agreements, if any.
C-1
<PAGE>
EXHIBIT D
MORTGAGE LOAN SCHEDULE
D-1
<PAGE>
EXHIBIT E
TRUSTEE'S ACKNOWLEDGMENT OF RECEIPT
September 27, 1996
ABFS 1996-2, Inc.
BalaPointe Office Centre
111 Presidential Boulevard
Suite 215
Bala Cynwyd, PA 19004
Prudential Securities Secured
Financing Corporation
One New York Plaza
New York, NY 10292
American Business Credit, Inc.
BalaPointe Office Centre
111 Presidential Boulevard
Suite 215
Bala Cynwyd, PA 19004
Financial Security Assurance, Inc.
350 Park Avenue
New York, New York 10022
Re: Pooling and Servicing Agreement, dated as of August 31, 1996 among
Prudential Securities Secured Financing Corporation, as Depositor,
American Business Credit, Inc., as Servicer, and The Chase Manhattan
Bank, as Trustee, Mortgage Pass-Through Certificates, Series 1996-2,
Class A and Class R
----------------------------------------------------------------------
Ladies and Gentlemen:
In accordance with Section 2.06 of the above-captioned Pooling and
Servicing Agreement, the undersigned, as Trustee, hereby acknowledges receipt by
it in good faith without notice of adverse claims, subject to the provisions of
Sections 2.05 and 2.06 of the Pooling and Servicing Agreement (as such
provisions relate to the Initial Mortgage Loans), of (x) the documents relating
to the Initial Mortgage Loans referred to in Section 2.05(a) of the Pooling and
Servicing Agreement, except with respect to the list of exceptions attached
hereto, and based on
E-1
<PAGE>
its examination and only as to the foregoing, the information set forth in the
Mortgage Loan Schedule accurately reflects information set forth in the Mortgage
File as well as the assignment to it of all other assets included in clauses
[(i) and (iii)] of the definition of "Trust Fund", (y) the Certificate Account,
the Pre-Funding Account and the Capitalized Interest Account and (z) the
Certificate Insurance Policy and declares that it holds and will hold the Policy
and such documents and the other documents delivered to it constituting the
Mortgage Files, and that it holds or will hold all such assets and such other
assets included in the definition of "Trust Fund" that are delivered to it, in
trust for the exclusive use and benefit of all present and future
Certificateholders.
The Trustee has made no independent examination of any such documents
beyond the review specifically required in the above-referenced Pooling and
Servicing Agreement. The Trustee makes no representations as to: (i) the
validity, legality, sufficiency, enforceability or genuineness of any such
documents or any of the Mortgage Loans identified on the Mortgage Loan Schedule,
or (ii) the collectability, insurability, effectiveness or suitability of any
such Mortgage Loan.
The Schedule of Mortgage Loans is attached to this Receipt.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Pooling and Servicing
Agreement.
The Chase Manhattan Bank,
as Trustee
By:________________________________
Name:
Title:
E-2
<PAGE>
EXHIBIT F
INITIAL CERTIFICATION OF TRUSTEE
___________ , 1996
ABFS 1996-2, Inc.
BalaPoint Office Centre
111 Presidential Boulevard
Suite 215
Bala Cynwyd, PA 19004
Prudential Securities Secured
Financing Corporation
One New York Plaza
New York, NY 10292
American Business Credit, Inc.
BalaPoint Office Centre
111 Presidential Boulevard
Suite 215
Bala Cynwyd, PA 19004
Financial Security Assurance, Inc.
350 Park Avenue
New York, New York 10022
Re: Pooling and Servicing Agreement, dated as of August 31, 1996 among
Prudential Securities Secured Financing Corporation, as Depositor,
American Business Credit, Inc., as Servicer, and The Chase Manhattan
Bank, as Trustee, Mortgage Pass-Through Certificates, Series 1996-2,
Class A and Class R
----------------------------------------------------------------------
Ladies and Gentlemen:
In accordance with the provisions of Section 2.06 of the
above-referenced Pooling and Servicing Agreement, the undersigned, as Trustee,
hereby certifies that as to each Mortgage Loan listed in the Mortgage Loan
Schedule (other than any Mortgage Loan paid in full or any Mortgage Loan listed
on the attachment hereto), it has reviewed the documents delivered to it
pursuant to Section 2.03 of the Pooling and Servicing Agreement and has
determined that (i) all
F-1
<PAGE>
documents required to be delivered to it pursuant to the above-referenced
Pooling and Servicing Agreement are in its possession, (ii) such documents have
been reviewed by it and appear regular on their face and have not been
mutilated, damaged, torn or otherwise physically altered and relate to such
Mortgage Loan, (iii) based on its examination and only as to the foregoing
documents, the information set forth in the Mortgage Loan Schedule respecting
such Mortgage Loan accurately reflects the information set forth in the
Trustee's Mortgage File and (iv) each Mortgage Note has been endorsed as
provided in Section 2.03 of the Pooling and Servicing Agreement. The Trustee
has made no independent examination of such documents beyond the review
specifically required in the above-referenced Pooling and Servicing Agreement.
The Trustee makes no representations as to: (i) the validity, legality,
enforceability or genuineness of any such documents contained in each or any of
the Mortgage Loans identified on the Mortgage Loan Schedule, or (ii) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Pooling and Servicing
Agreement.
The Chase Manhattan Bank, as Trustee
By:_____________________________
Name: __________________________
Title:___________________________
F-2
<PAGE>
EXHIBIT G
FINAL CERTIFICATION OF THE TRUSTEE
___________, 1996
ABFS 1996-2, Inc.
BalaPoint Office Centre
111 Presidential Boulevard
Suite 215
Bala Cynwyd, PA 19004
Prudential Securities Secured
Financing Corporation
One New York Plaza
New York, NY 10292
American Business Credit, Inc.
BalaPoint Office Centre
111 Presidential Boulevard
Suite 215
Bala Cynwyd, PA 19004
Financial Security Assurance, Inc.
350 Park Avenue
New York, New York 10022
Re: Pooling and Servicing Agreement, dated as of August 31, 1996 among
Prudential Securities Secured Financing Corporation, as Depositor,
American Business Credit, Inc., as Servicer, and The Chase Manhattan
Bank, as Trustee, Mortgage Pass-Through Certificates, Series 1996-2,
Class A and Class R
----------------------------------------------------------------------
Ladies and Gentlemen:
In accordance with Section 2.06 of the above-captioned Pooling and
Servicing Agreement, the undersigned, as Trustee, hereby certifies that, except
as noted on the attachment hereto, 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 documents delivered to it pursuant to
Section 2.03 of the Pooling and Servicing Agreement and has determined that (i)
all documents required to be delivered to it pursuant to the above-referenced
Pooling and Servicing Agreement are in its possession, (ii) such documents have
been reviewed by it and
G-1
<PAGE>
appear regular on their face and have not been mutilated, damaged, torn or
otherwise physically altered and relate to such Mortgage Loan, and (iii) based
on its examination, and only as to the foregoing documents, the information set
forth in the Mortgage Loan Schedule respecting such Mortgage Loan accurately
reflects the information set forth in the Trustee's Mortgage File. The Trustee
has made no independent examination of such documents beyond the review
specifically required in the above-referenced Pooling and Servicing Agreement.
The Trustee makes no representations as to: (i) the validity, legality,
enforceability or genuineness of any such documents contained in each or any of
the Mortgage Loans identified on the Mortgage Loan Schedule, or (ii) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Pooling and Servicing
Agreement.
The Chase Manhattan Bank, as
Trustee
By: ______________________________
Name: ____________________________
Title: ___________________________
G-2
<PAGE>
EXHIBIT H
REQUEST FOR RELEASE OF DOCUMENTS
__________ , 1996
To: The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Re: Prudential Securities Secured Financing Corporation Trust,
Mortgage Pass-Through Certificates, Series 1996-2, Class A
and Class R
----------------------------------------------------------
In connection with the administration of the pool of Mortgage Loans
held by you as Trustee for the Certificateholders, we request the release, and
acknowledge receipt, of the (Trustee's Mortgage File/[specify document]) for the
Mortgage Loan described below, for the reason indicated.
MORTGAGOR'S NAME, ADDRESS & ZIP CODE:
MORTGAGE LOAN NUMBER:
REASON FOR REQUESTING DOCUMENTS (check one)
____ 1. Mortgage Loan Paid in Full
(Servicer hereby certifies that all amounts received in
connection therewith have been credited to the Collection
Account.)
____ 2. Mortgage Loan Liquidated
(Servicer hereby certifies that all proceeds of foreclosure,
insurance or other liquidation have been finally received and
credited to the Collection Account.)
____ 3. Mortgage Loan in Foreclosure
H-1
<PAGE>
____ 4. Mortgage Loan Repurchased Pursuant to Section 5.18 of the Pooling and
Servicing Agreement.
____ 5. Mortgage Loan Repurchased or Substituted pursuant to Article II or III
of the Pooling and Servicing Agreement (Servicer hereby certifies that
the repurchase price or Substitution Adjustment has been credited to
the Certificate Account and that the substituted mortgage loan is a
Qualified Substitute Mortgage Loan.)
____ 6. Other
(explain)________________________________________________________
If box 1 or 2 above is checked, and if all or part of the Trustee's
Mortgage File was previously released to us, please release to us our previous
receipt on file with you, as well as any additional documents in your possession
relating to the above specified Mortgage Loan.
If box 3, 4, 5 or 6 above is checked, upon our return of all of the
above documents to you as Trustee, please acknowledge your receipt by signing in
the space indicated below, and returning this form.
________________________________
By: ____________________________
Name: __________________________
Title: _________________________
Documents returned to Trustee:
The Chase Manhattan Bank, as
Trustee
By: __________________________
Date: ________________________
H-2
<PAGE>
EXHIBIT I
TRANSFER AFFIDAVIT AND AGREEMENT
STATE OF )
: ss.:
COUNTY OF )
[NAME OF OFFICER], being first duly sworn, deposes and says:
1. That he is [Title of Officer] of [Name of Owner] (record or
beneficial owner of Prudential Securities Secured Financing Corporation Mortgage
Pass-Through Certificates, Series 1996-2, Class R (the "Owner")), a [savings
institution] [corporation] duly organized and existing under the laws of [the
State of ______] [the United States], on behalf of which he makes this affidavit
and agreement.
2. That the Owner (i) is not and will not be a "disqualified
organization" as of [date of transfer] within the meaning of Section 860E(e)(5)
of the Internal Revenue Code of 1986 (the "Code"), (ii) will endeavor to remain
other than a disqualified organization for so long as it retains its ownership
interest in the Class R Certificates, and (iii) is acquiring the Class R
Certificates for its own account or for the account of another Owner from which
it has received an affidavit and agreement in substantially the same form as
this affidavit and agreement. A "Permitted Transferee" is any person other than
a "disqualified organization" or a possession of the United States. (For this
purpose, a "disqualified organization" means the United States, any state or
political subdivision thereof, any agency or instrumentality of any of the
foregoing (other than an instrumentality all of the activities of which are
subject to tax and, except for the Federal Home Loan Mortgage Corporation, a
majority of whose board of directors is not selected by any such governmental
entity) or any foreign government, international organization or any agency or
instrumentality of such foreign government or organization, any rural electric
or telephone cooperative, or any organization (other than certain farmers'
cooperatives) that is generally exempt from federal income tax unless such
organization is subject to the tax on unrelated business taxable income).
3. That the Owner is aware (i) of the tax that would be imposed on
transfers of Class R Certificates to disqualified organizations under the Code,
that applies to all transfers of Class R Certificates after March 31, 1988; (ii)
that such tax would be on the transferor, or, if such transfer is through an
agent (which person includes a broker, nominee or middleman) for a disqualified
organization, on the agent; (iii) that the person otherwise liable for the tax
shall be relieved of liability for the tax if the transferee furnishes to such
person an affidavit that the transferee is not a disqualified organization and,
at the time of transfer, such person does not have actual knowledge that the
affidavit is false; and (iv) that the Class R Certificates may be "noneconomic
residual interests" within the meaning of proposed Treasury regulations
promulgated pursuant to the Code and that the transferor of a noneconomic
residual interest will remain liable for any taxes due with respect to the
income on such residual interest, unless no significant purpose of the transfer
was to impede the assessment or collection of tax.
I-1
<PAGE>
4. That the Owner is aware of the tax imposed on a "pass-through
entity" holding Class R Certificates if at any time during the taxable year of
the pass-through entity a disqualified organization is the record holder of an
interest in such entity. (For this purpose, a "pass through entity" includes a
regulated investment company, a real estate investment trust or common trust
fund, a partnership, trust or estate, and certain cooperatives.)
5. That the Owner is aware that the Trustee will not register the
transfer of any Class R Certificates unless the transferee, or the transferee's
agent, delivers to it an affidavit and agreement, among other things, in
substantially the same form as this affidavit and agreement. The Owner
expressly agrees that it will not consummate any such transfer if it knows or
believes that any of the representations contained in such affidavit and
agreement are false.
6. That the Owner has reviewed the restrictions set forth on the
face of the Class R Certificates and the provisions of Section 4.02(i) of the
Pooling and Servicing Agreement under which the Class R Certificates were issued
(in particular, clauses (g) and (h) of Section 4.02(i) which authorize the
Trustee to deliver payments to a person other than the Owner and negotiate a
mandatory sale by the Trustee in the event that the Owner holds such
Certificates in violation of Section 4.02(i)). The Owner expressly agrees to be
bound by and to comply with such restrictions and provisions.
7. That the Owner consents to any additional restrictions or
arrangements that shall be deemed necessary upon advice of counsel to constitute
a reasonable arrangement to ensure that the Class R Certificates will only be
owned, directly or indirectly, by an Owner that is not a disqualified
organization.
8. That the Owner's Taxpayer Identification Number is ____________.
9. This affidavit and agreement relates only to the Class R
Certificates held by the Owner and not to any other holder of the Class R
Certificates. The Owner understands that the liabilities described herein
relate only to the Class R Certificates.
10. That no purpose of the Owner relating to the transfer of any of
the Class R Certificates by the Owner is or will be to impede the assessment or
collection of any tax.
11. That the Owner has no present knowledge or expectation that it
will be unable to pay any United States taxes owed by it so long as any of the
Certificates remain outstanding.
12. That the Owner has no present knowledge or expectation that it
will become insolvent or subject to a bankruptcy proceeding for so long as any
of the Class R Certificates remain outstanding.
13. That the Owner is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof, or an estate or
trust whose income from sources without the United States is includable in gross
income for United States federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States.
I-2
<PAGE>
14. That the Owner will, in connection with any transfer that it
makes of the Class R Certificates, deliver to the Trustee an affidavit in form
and substance satisfactory to the Trustee, representing and warranting that it
is not transferring the Class R Certificates to impede the assessment or
collection of any tax and that it has no actual knowledge that the proposed
transferee: (i) has insufficient assets to pay any taxes owned by such
transferee as holder of the Class R Certificates; (ii) may become insolvent or
subject to a bankruptcy proceeding, for so long as the Class R Certificates
remains outstanding and; (iii) is not a Permitted Transferee.
15. That the Owner agrees to require a Transfer Affidavit and
Agreement from any person to whom the Owner attempts to transfer a percentage
interest in the Class R Certificates, and in connection with any transfer by a
person for whom the Owner is acting as nominee, trustee or agent, and the Owner
will not transfer its percentage interest or cause any percentage interest to be
transferred to any person that the Owner knows is not a Permitted Transferee.
In connection with any such transfer by the Owner, the Owner agrees to deliver
to the Trustee a transfer certificate in the form attached to the Pooling and
Servicing Agreement as Exhibit J to the effect that the Owner has no actual
knowledge that the person to which the transfer is to be made is not a Permitted
Transferee.
I-3
<PAGE>
IN WITNESS WHEREOF, the Owner has caused this instrument to be
executed on its behalf, pursuant to the authority of its Board of Directors, by
its [Title of Officer] and its corporate seal to be hereunto attached, attested
by its [Assistant] Secretary, this __ day of ______.
[NAME OF OWNER]
By: __________________________
[Name of Officer]
[Title of Officer]
[Corporate Seal]
ATTEST:
_______________________________
[Assistant] Secretary
Personally appeared before me the above-named [Name of Officer], known
or proved to me to be the same person who executed the foregoing instrument and
to be the [Title of Officer] of the Owner, and acknowledged to me that he
executed the same as his free act and deed and the free act and deed of the
Owner.
Subscribed and sworn before me this ____ day of ____________ ____.
______________________________
NOTARY PUBLIC
COUNTY OF ____________________
STATE OF ____________________
My Commission expires the ____
day of ____________, ____.
I-4
<PAGE>
EXHIBIT J
Transferor's Certificate
________________, 19__
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Attention: Corporate Trust Administration
Re: ABFS Mortgage Loan Trust 1996-2 Mortgage Pass-Through
Certificates, Series 1996-2, Class R Certificates
-----------------------------------------------------
Ladies and Gentlemen:
This letter is delivered to you in connection with the transfer by
_____________________ (the "Seller") to ______________________ (the "Purchaser")
of a ___% Percentage Interest of Prudential Securities Secured Financing
Corporation Mortgage Pass-Through Certificates, Series 1996-2, Class R (the
"Certificates"), pursuant to Section 4.02 of the Pooling and Servicing Agreement
(the "Pooling and Servicing Agreement"), dated as of August 31, 1996 among
American Business Credit, Inc., as servicer (the "Company"), Prudential
Securities Secured Financing Corporation, as depositor, and The Chase Manhattan
Bank, as trustee (the "Trustee"). All terms used herein and not otherwise
defined shall have the meanings set forth in the Pooling and Servicing
Agreement. The Seller hereby certifies, represents and warrants to, and
covenants with, the Company and the Trustee that:
1. No purpose of the Seller relating to the transfer of the
Certificates by the Seller to the Purchaser is or will be to impede the
assessment or collection of any tax.
2. The Seller understands that the Purchaser has delivered to the
Trustee and the Company a transfer affidavit and agreement in the form attached
to the Pooling and Servicing Agreement as Exhibit I. The Seller does not know or
believe that any representation contained therein is false.
J-1
<PAGE>
3. The Seller has no actual knowledge that the proposed Transferee is
not both a United States Person and a Permitted Transferee.
Very truly yours,
______________________________
(Seller)
By: __________________________
Name: ________________________
Title: _______________________
J-2
<PAGE>
EXHIBIT K
ERISA INVESTMENT REPRESENTATION LETTER
Prudential Securities Secured
Financing Corporation
One New York Plaza
New York, NY 10292
American Business Credit, Inc.
BalaPointe Office Centre
111 Presidential Boulevard
Suite 215
Bala Cynwyd, PA 19004
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Re: ABFS Mortgage Loan Trust 1996-2 Mortgage Pass-Through
Certificates, Series 1996-2, Class R Certificates
-----------------------------------------------------
The undersigned (the "Purchaser") proposes to purchase certain Class R
Certificates (the "Certificates"). In doing so, the Purchaser hereby
acknowledges and agrees as follows:
Section 1. DEFINITIONS. Each capitalized term used herein and not
otherwise defined shall have the meaning given it in the Pooling and Servicing
Agreement, dated as of August 31, 1996 (the "Agreement"), among Prudential
Securities Secured Financing Corporation, as Depositor (the "Depositor"),
American Business Credit, Inc., as Servicer (the "Servicer") and The Chase
Manhattan Bank, as Trustee (the "Trustee") relating to the Certificates.
Section 2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. In
connection with the proposed transfer, the Purchaser represents and warrants to
the Depositor and the Trustee that the Purchaser is not a pension or benefit
plan or individual retirement arrangement that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or to Section 4975
of the Code or an entity whose underlying assets are deemed to be assets of such
a plan or arrangement by reason of such plan's or arrangement's investment in
the entity, as determined under U.S. Department of Labor Regulations 29 C.F.R.
Section 2510.3-101 or otherwise.
K-1
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this ERISA Investment
Representation Letter to be validly executed by its duly authorized
representative as of the date first above written.
[NAME OF PURCHASER]
By:___________________
Name:
Title:
K-2
<PAGE>
EXHIBIT L
[RESERVED]
L-1
<PAGE>
EXHIBIT M
CERTIFICATE RE: PREPAID LOANS
I, ______________, ____________ of ABFS 1996-2, INC., as Seller,
hereby certify that between the "Cut-Off Date" (as defined in the Pooling and
Servicing Agreement dated as of August 31, 1996 among Prudential Securities
Secured Financing Corporation, American Business Credit, Inc. and The Chase
Manhattan Bank, as trustee) and the "Startup Day" the following schedule of
"Mortgage Loans" (each as defined in the Pooling and Servicing Agreement) have
been prepaid in full.
Dated:
By:________________________________
M-1
<PAGE>
EXHIBIT 4.2
<PAGE>
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION,
Depositor
ABFS 1996-2, INC.,
Unaffiliated Seller
and
AMERICAN BUSINESS CREDIT, INC. AND
HOMEAMERICAN CREDIT, INC., D/B/A UPLAND MORTGAGE,
Originators
___________________________
UNAFFILIATED SELLER'S AGREEMENT
Dated as of September 27, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE ONE DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE TWO PURCHASE, SALE AND CONVEYANCE OF MORTGAGE LOANS . . . . 5
Section 2.01. Agreement to Purchase the Initial Mortgage Loans. . . . 5
Section 2.02. Agreement to Purchase the Subsequent Mortgage Loans . . 5
Section 2.03. Purchase Price. . . . . . . . . . . . . . . . . . . . 7
Section 2.04. Conveyance of Mortgage Loans; Possession of
Mortgage Files. . . . . . . . . . . . . . . . . . . . . 7
Section 2.05. Delivery of Mortgage Loan Documents . . . . . . . . . . 8
Section 2.06. Acceptance of Mortgage Loans. . . . . . . . . . . . . . 9
Section 2.07. Transfer of Mortgage Loans; Assignment of
Agreement . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.08. Examination of Mortgage Files . . . . . . . . . . . . . 11
Section 2.09. Books and Records . . . . . . . . . . . . . . . . . . . 11
Section 2.10. Cost of Delivery and Recordation of Documents . . . . . 12
ARTICLE THREE REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . 12
Section 3.01. Representations and Warranties as to the
Originators . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.02. Representations and Warranties as to the
Unaffiliated Seller . . . . . . . . . . . . . . . . . . 14
Section 3.03. Representations and Warranties Relating to the
Mortgage Loans. . . . . . . . . . . . . . . . . . . . . 16
Section 3.04. Representations and Warranties of the Depositor . . . . 23
Section 3.05. Repurchase Obligation for Defective Documentation
and for Breach of a Representation or Warranty. . . . . 24
ARTICLE FOUR THE UNAFFILIATED SELLER . . . . . . . . . . . . . . . . 27
Section 4.01. Covenants of the Originators and the
Unaffiliated Seller . . . . . . . . . . . . . . . . . . 27
Section 4.02. Merger or Consolidation . . . . . . . . . . . . . . . . 27
Section 4.03. Costs . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.04. Indemnification . . . . . . . . . . . . . . . . . . . . 28
ARTICLE FIVE CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . 30
Section 5.01. Conditions of Depositor's Obligations . . . . . . . . . 30
Section 5.02. Conditions of Unaffiliated Seller's Obligations . . . . 32
Section 5.03. Termination of Depositor's Obligations. . . . . . . . . 32
ARTICLE SIX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 33
Section 6.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.02. Severability of Provisions. . . . . . . . . . . . . . . 33
Section 6.03. Agreement of Unaffiliated Seller. . . . . . . . . . . . 33
Section 6.04. Survival. . . . . . . . . . . . . . . . . . . . . . . . 33
i
<PAGE>
Section 6.05. Effect of Headings and Table of Contents. . . . . . . . 33
Section 6.06. Successors and Assigns. . . . . . . . . . . . . . . . . 34
Section 6.07. Confirmation of Intent; Grant of Security
Interest. . . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.08. Miscellaneous . . . . . . . . . . . . . . . . . . . . . 34
Section 6.09. Amendments. . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.10. Third-Party Beneficiaries . . . . . . . . . . . . . . . 35
Section 6.11. GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . 35
Section 6.12. Execution in Counterparts . . . . . . . . . . . . . . . 36
Exhibit A - Mortgage Loan Schedule
Exhibit B - Officer's Certificate
Exhibit C - Opinion of Counsel to Unaffiliated Seller
ii
<PAGE>
This Unaffiliated Seller's Agreement, dated as of September 27, 1996,
by and among PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION, a Delaware
corporation, its successors and assigns (the "Depositor"), ABFS 1996-2, INC., a
Delaware corporation and its successors (the "Unaffiliated Seller"), AMERICAN
BUSINESS CREDIT, INC., a Pennsylvania corporation ("ABC") and HOMEAMERICAN
CREDIT, INC. D/B/A UPLAND MORTGAGE ("Upland" and together with ABC, the
"Originators").
WHEREAS, Exhibit A attached hereto and made a part hereof lists
certain fixed rate business and consumer purpose first and second lien mortgage
loans (the "Mortgage Loans") owned by the Originators that the Originators
desire to sell to the Unaffiliated Seller and the Unaffiliated Seller desires to
sell to the Depositor and that the Depositor desires to purchase;
WHEREAS, it is the intention of the Unaffiliated Seller and the
Depositor that simultaneously with the Originators' conveyance of the Mortgage
Loans to the Unaffiliated Seller and the Unaffiliated Seller's conveyance of the
Mortgage Loans to the Depositor on the Closing Date, (a) the Depositor shall
deposit the Mortgage Loans in a trust pursuant to a Pooling and Servicing
Agreement to be dated as of August 31, 1996 (the "Pooling and Servicing
Agreement"), to be entered into by and among the Depositor, as depositor,
American Business Credit, Inc., as servicer and The Chase Manhattan Bank, as
trustee (the "Trustee") and (b) the Trustee shall issue certificates evidencing
beneficial ownership interests in the property of the trust fund formed by the
Pooling and Servicing Agreement to the Depositor;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE ONE
DEFINITIONS
Section 1.01. DEFINITIONS. Whenever used herein, the following words
and phrases, unless the context otherwise requires, shall have the meanings
specified in this Article:
"ACCEPTED SERVICING PRACTICES" means the Servicer's normal servicing
practices, which in general will conform to the mortgage servicing practices of
prudent mortgage lending institutions which service their own account mortgage
loans of the same type as the Mortgage Loans in the jurisdictions in which the
related Mortgaged Properties are located.
"AGREEMENT" means this Unaffiliated Seller's Agreement, as amended or
supplemented in accordance with the provisions hereof.
"APPRAISED VALUE" means the appraised value of the Mortgaged Property
based upon the appraisal made by or on behalf of the Originators.
<PAGE>
"CERTIFICATE INSURER" means Financial Security Assurance Inc., a stock
insurance company organized and created under the laws of the State of New York,
and any successors thereto.
"CLOSING DATE" shall have the meaning ascribed thereto in
Section 2.01(c).
"COMMISSION" means the Securities and Exchange Commission.
"CUT-OFF DATE" means, with respect to the Initial Mortgage Loans, the
Initial Cut-Off Date, and with respect to the Subsequent Mortgage Loans, the
Subsequent Cut-Off Date.
"CUT-OFF DATE AGGREGATE PRINCIPAL BALANCE" means the aggregate unpaid
principal balance of the Initial Mortgage Loans as of the Cut-Off Date (or, with
respect to Initial Mortgage Loans which were originated after the Cut-Off Date
as of the date of origination). The Cut-Off Date Aggregate Principal Balance is
$26,915,932.68.
"CUT-OFF DATE PRINCIPAL BALANCE" means as to each Mortgage Loan, its
unpaid principal balance as of the Cut-Off Date (or, with respect to Initial
Mortgage Loans which were originated after the Cut-Off Date as of the date of
origination).
"DELETED MORTGAGE LOAN" means a Mortgage Loan replaced by or to be
replaced by a Qualified Substitute Mortgage Loan pursuant to the terms of the
Pooling and Servicing Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"INITIAL CUT-OFF DATE" means the close of business on August 30, 1996.
"INITIAL MORTGAGE LOANS" means the Mortgage Loans transferred and
assigned to the Depositor on the Closing Date.
"MONTHLY PAYMENT" means, as to any Mortgage Loan (including any REO
Mortgage Loan) 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 for any Curtailments and Deficient Valuations
occurring prior to such Due Date but before any adjustment to such amortization
schedule by reason of any bankruptcy, other than Deficient Valuations or similar
proceeding or any moratorium or similar waiver or grace period).
"MORTGAGE" means the mortgage or deed of trust creating a first or
second lien on an estate in fee simple in real property, and securing a Mortgage
Note, as amended or modified.
"MORTGAGE INTEREST RATE" means, as to any Mortgage Loan, the fixed per
annum rate at which interest accrues on the unpaid principal balance thereof.
"MORTGAGE LOANS" means such of the mortgage loans to be sold,
transferred and assigned to the Depositor on the Closing Date and each
Subsequent Transfer Date pursuant to Article Two hereof (including the related
Mortgage Notes and related Mortgages), all as identified in the Mortgage Loan
Schedule, and including any mortgage loan substituting or replacing a Mortgage
Loan pursuant to the terms of the Pooling and Servicing Agreement.
2
<PAGE>
"MORTGAGE LOAN SCHEDULE" shall have the meaning ascribed thereto in
Section 2.01(b).
"MORTGAGE NOTE" means the note or other evidence of indebtedness
evidencing the indebtedness of a Mortgagor under a Mortgage Loan, as amended or
modified.
"MORTGAGED PROPERTY" means the property subject to a Mortgage.
"MORTGAGOR" means the obligor on a Mortgage Note.
"POOLING AND SERVICING AGREEMENT" shall have the meaning ascribed
thereto in the recitals hereof.
"PROSPECTUS" means the Prospectus dated August 4, 1995 relating to the
offering by the Depositor from time to time of its Pass-Through Certificates
(Issuable in Series) in the form in which it was or will be filed with the
Securities Exchange Commission pursuant to Rule 424(b) under the Securities Act
with respect to the offer and sale of the Certificates.
"PROSPECTUS SUPPLEMENT" means the Prospectus Supplement dated
September 12, 1996, relating to the offering of the Certificates in the form in
which it was or will be filed with the Commission pursuant to Rule 424(b) under
the Securities Act with respect to the offer and sale of the Certificates.
"QUALIFIED APPRAISER" means an appraiser, duly appointed by the
Unaffiliated Seller, who had no interest, direct or indirect, in the Mortgaged
Property or in any loan made on the security thereof, and whose compensation is
not affected by the approval or disapproval of the Mortgage Loan, and such
appraiser and the appraisal made by such appraiser both satisfy the requirements
of Title XI of the Federal Institutions Reform, Recovery and Enforcement Act of
1989 and the regulations promulgated thereunder, all as in effect on the date
the Mortgage Loan was originated.
"REGISTRATION STATEMENT" means that certain registration statement on
Form S-3, as amended (Registration No. 33-51148) relating to the offering by the
Depositor from time to time of its Pass-Through Certificates (Issuable in
Series) as heretofore declared effective by the Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSEQUENT CUT-OFF DATE" means the date specified in the Addition
Notice relating to Subsequent Mortgage Loans.
"SUBSEQUENT MORTGAGE LOANS" means the Mortgage Loans hereafter
transferred and assigned to the Depositor on a Subsequent Transfer Date.
"TERMINATION EVENT" means the existence of any one or more of the
following conditions:
3
<PAGE>
(a) a stop order suspending the effectiveness of the Registration
Statement shall have been issued or a proceeding for that purpose shall have
been initiated or threatened by the Commission; or
(b) subsequent to the execution and delivery of this Agreement, a
downgrading, or public notification of a possible change, without indication of
direction, shall have occurred in the rating afforded any of the debt securities
or claims paying ability of any person providing any form of credit enhancement
for any of the Certificates, by any "nationally recognized statistical rating
organization," as that term is defined by the Commission for purposes of Rule
436(g)(2) under the Securities Act; or
(c) subsequent to the execution and delivery of this Agreement, there
shall have occurred an adverse change in the condition, financial or otherwise,
earnings, affairs, regulatory situation or business prospects of the Certificate
Insurer or the Unaffiliated Seller reasonably determined by the Depositor to be
material; or
(d) subsequent to the date of this Agreement there shall have
occurred any of the following: (i) a suspension or material limitation in
trading in securities substantially similar to the Certificates; (ii) a general
moratorium on commercial banking activities in New York declared by either
Federal or New York State authorities; or (iii) the engagement by the United
States in hostilities, or the escalation of such hostilities, or any calamity or
crisis, if the effect of any such event specified in this clause (iii) in the
reasonable judgment of the Depositor makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Certificates on the
terms and in the manner contemplated in the Prospectus Supplement.
"UNAFFILIATED SELLER" means ABFS 1996-2, Inc., in its capacity as
Unaffiliated Seller of the Mortgage Loans under this Agreement and any successor
to ABFS 1996-2, Inc., whether through merger, consolidation, purchase and
assumption of ABFS 1996-2, Inc. or all or substantially all of its assets or
otherwise.
Capitalized terms used herein that are not otherwise defined shall
have the respective meanings ascribed thereto in the Pooling and Servicing
Agreement.
4
<PAGE>
ARTICLE TWO
PURCHASE, SALE AND CONVEYANCE OF MORTGAGE LOANS
Section 2.01. AGREEMENT TO PURCHASE THE INITIAL MORTGAGE LOANS. (a)
Subject to the terms and conditions of this Agreement, the Originators agree to
sell, and the Unaffiliated Seller agrees to purchase on the Closing Date and
immediately subsequent thereto, the Unaffiliated Seller agrees to sell, and the
Depositor agrees to purchase, the Mortgage Loans having the Cut-Off Date
Aggregate Principal Balance or, in accordance with Section 2.08, such other
balance as is evidenced by the actual Cut-Off Date Aggregate Principal Balance
of the Mortgage Loans accepted by the Depositor on the Closing Date and listed
in the Mortgage Loan Schedule.
(b) Subject to Section 2.08, the Depositor and the Unaffiliated
Seller have agreed upon which of the Unaffiliated Seller's Mortgage Loans are to
be purchased by the Depositor on the Closing Date pursuant to this Agreement,
and the Unaffiliated Seller has prepared a schedule describing the Mortgage
Loans (the "Mortgage Loan Schedule") setting forth all of the Mortgage Loans to
be purchased under this Agreement, which schedule is attached hereto as Exhibit
A. The Mortgage Loan Schedule shall conform to the requirements of the
Depositor and to the definition of "Mortgage Loan Schedule" under the Pooling
and Servicing Agreement.
(c) The closing for the purchase and sale of the Mortgage Loans shall
take place at the offices of Dewey Ballantine, New York, New York, at
10:00 a.m., New York time, on September 27, 1996 or such other place and time as
the parties shall agree (such time being herein referred to as the "Closing
Date").
Section 2.02. AGREEMENT TO PURCHASE THE SUBSEQUENT MORTGAGE LOANS.
(a) Subject to the terms and conditions of this Agreement, the Originators
agree to sell, and the Unaffiliated Seller agrees to purchase on the each
Subsequent Transfer Date and immediately subsequent thereto, the Unaffiliated
Seller agrees to sell, and the Depositor agrees to purchase, Subsequent Mortgage
Loans, having an Aggregate Principal Balance of up to $13,084,067.32 as listed
in the Mortgage Loan Schedule attached to the related Addition Notice.
(b) Subject to Section 2.08, the Depositor and the Unaffiliated
Seller have agreed upon which of the Unaffiliated Seller's Mortgage Loans are to
be purchased by the Depositor on a Subsequent Transfer Date pursuant to this
Agreement, and the Unaffiliated Seller has prepared a schedule describing the
Mortgage Loans (the "Mortgage Loan Schedule") setting forth all of the Mortgage
Loans to be purchased under this Agreement, which schedule is attached hereto as
Exhibit A. The Mortgage Loan Schedule shall conform to the requirements of the
Depositor and to the definition of "Mortgage Loan Schedule" under the Pooling
and Servicing Agreement.
(c) Subject to the satisfaction of the conditions set forth in
paragraph (d) below, (i) in consideration of the Unaffiliated Seller's delivery
on the related Subsequent Transfer Dates to or upon the order of the Originators
of the purchase price, the Originators shall on any Subsequent Transfer Date
sell, transfer, assign, set over and convey to the Trustee without recourse but
subject to terms and provisions of this Agreement, all of the right, title and
interest of the Originators in and to the Subsequent Mortgage Loans, and all
other assets included or to
5
<PAGE>
be included in the Trust Fund for the benefit of the Certificateholders and the
Certificate Insurer and (ii) in consideration of the Depositor's delivery on the
related Subsequent Transfer Dates to or upon the order of the Unaffiliated
Seller of the purchase price, the Unaffiliated Seller shall on any Subsequent
Transfer Date sell, transfer, assign, set over and convey to the Trustee without
recourse but subject to terms and provisions of this Agreement, all of the
right, title and interest of the Originators in and to the Subsequent Mortgage
Loans, and all other assets included or to be included in the Trust Fund for the
benefit of the Certificateholders.
(d) The Subsequent Mortgage Loans and the other property and rights
related thereto described in paragraph (c) above shall be transferred by the
Depositor to the Trust only upon the satisfaction of each of the following
conditions on or prior to the related Subsequent Transfer Date:
(i) the Unaffiliated Seller shall have provided the Trustee, the
Rating Agencies and the Certificate Insurer with a timely Addition Notice,
which shall include a Mortgage Loan Schedule listing the Subsequent
Mortgage Loans and shall have provided any other information reasonably
requested by any of the foregoing with respect to the Subsequent Mortgage
Loans;
(ii) The Unaffiliated Seller shall have deposited in the Collection
Account all collections of (x) principal in respect of the Subsequent
Mortgage Loans received after the related Subsequent Cut-Off Date and (y)
interest due on the Subsequent Mortgage Loans after the related Subsequent
Cut-Off Date;
(iii) as of each Subsequent Transfer Date, the Depositor was not
insolvent nor will be made insolvent by such transfer nor is the Depositor
aware of any pending insolvency;
(iv) such addition will not result in a material adverse tax
consequence to the Trust or the Holders of the Certificates;
(v) the Pre-Funding Period shall not have terminated;
(vi) the Unaffiliated Seller shall have delivered to the Trustee an
Officer's Certificate confirming the satisfaction of each condition
precedent specified in this paragraph (b) and that the Subsequent Mortgage
Loans comply with the provisions of this Section 2.03; and
(vii) there shall have been delivered to the Certificate Insurer, the
Rating Agencies and the Trustee, independent Opinions of Counsel with
respect to the transfer of the Subsequent Mortgage Loans substantially in
the form of the Opinions of Counsel delivered to the Certificate Insurer
and the Trustee on the Startup Date (bankruptcy, corporate and tax
opinions).
(e) The obligation of the Depositor to purchase a Subsequent Mortgage
Loan on any Subsequent Transfer Date is subject to the requirements set forth in
Section 2.03(c) of the Pooling and Servicing Agreement.
6
<PAGE>
Section 2.03. PURCHASE PRICE. (a) On the Closing Date, as full
consideration for the Unaffiliated Seller's sale of the Initial Mortgage Loans
to the Depositor, the Depositor will deliver to the Unaffiliated Seller (i) an
amount in cash equal to the sum of (A) 99.453125% of the aggregate principal
balance as of the Closing Date of the Class A Certificates, and (B) accrued
interest on such principal balance at the rate of 7.525% per annum from (and
including) September 1, 1996 to (but not including) September 27, 1996, payable
by wire transfer of same day funds and (ii) the Class R Certificates to be
issued pursuant to the Pooling and Servicing Agreement.
On the Closing Date, as full consideration for the Originators' sale
of the Initial Mortgage Loans to the Unaffiliated Seller, the Unaffiliated
Seller will deliver to the Originators an amount in cash equal to the sum of (A)
99.453125% of the aggregate principal balance as of the Closing Date of the
Class A Certificates, and (B) accrued interest on such principal balance at the
rate of 7.525% per annum from (and including) September 1, 1996 to (but not
including) September 27, 1996, payable by wire transfer of same day funds.
(b) On each Subsequent Transfer Date, as full consideration for
Originators' sale to the Unaffiliated Seller and the Unaffiliated Seller's sale
of the Subsequent Mortgage Loans to the Depositor, the Depositor will deliver to
the Unaffiliated Seller and the Unaffiliated Seller will deliver to the
Originators an amount in cash equal to the sum of 100% of the aggregate
principal balance as of the related Subsequent Cut-Off Date of the Subsequent
Mortgage Loans.
Section 2.04. CONVEYANCE OF MORTGAGE LOANS; POSSESSION OF MORTGAGE
FILES. (a) On the Closing Date and on each Subsequent Transfer Date, the
Originators shall sell, transfer, assign, set over and convey to the
Unaffiliated Seller, without recourse but subject to the terms of this
Agreement, all right, title and interest in and to the applicable Mortgage
Loans, the insurance policies relating to each such Mortgage Loan and all right,
title and interest in and to the proceeds of such insurance policies from and
after the Closing Date and the Unaffiliated Seller shall sell, transfer, assign,
set over and convey to the Depositor, without recourse but subject to the terms
of this Agreement, all right, title and interest in and to the applicable
Mortgage Loans, the insurance policies relating to each such Mortgage Loan and
all right, title and interest in and to the proceeds of such insurance policies
from and after the Closing Date. Upon payment of the purchase price for such
Mortgage Loans as provided in Section 2.03 of this Agreement, the Originators
and the Unaffiliated Seller shall have hereby, and shall be deemed to have,
sold, transferred, assigned, set over and conveyed such Mortgage Loans, the
insurance policies relating to each such Mortgage Loan and all right, title and
interest in and to the proceeds of such insurance policies from and after the
Closing Date.
(b) Upon the sale of such Mortgage Loans, the ownership of each
related Mortgage Note, each related Mortgage and the contents of the related
Mortgage File shall immediately vest in the Depositor and the ownership of all
related records and documents with respect to each Mortgage Loan prepared by or
which come into the possession of the Originators or the Unaffiliated Seller
shall immediately vest in the Depositor. The contents of any Mortgage File in
the possession of the Originators or the Unaffiliated Seller at any time after
such sale, and any scheduled payments of principal and interest on the Mortgage
Loans due after the Cut-Off Date and received by the Originators or the
Unaffiliated Seller, shall be held in trust by the Originators or the
Unaffiliated Seller for the benefit of the Depositor as the owner thereof, and
shall be promptly delivered by the Originators or the Unaffiliated Seller to or
upon the order of the Depositor.
7
<PAGE>
(c) Pursuant to the Pooling and Servicing Agreement, the Depositor
shall, on the Closing Date, assign all of its right, title and interest in and
to the applicable Mortgage Loans to the Trustee for the benefit of the
Certificateholders and the Certificate Insurer.
Section 2.05. DELIVERY OF MORTGAGE LOAN DOCUMENTS. (a) On or prior
to the Closing Date or Subsequent Transfer Date, as applicable, the Unaffiliated
Seller shall deliver to the Trustee (as assignee of the Depositor pursuant to
the Pooling and Servicing Agreement), each of the following documents for each
applicable Mortgage Loan:
(i) The original Mortgage Note, endorsed without recourse in blank by
the Unaffiliated Seller, including all intervening endorsements showing a
complete chain of endorsement;
(ii) The related Mortgage with evidence of recording indicated
thereon or a copy thereof certified by the applicable recording office;
(iii) The recorded mortgage assignment, or copy thereof certified by
the applicable recording office, if any, showing a complete chain of
assignment from the originator of the related Mortgage Loan to the
Unaffiliated Seller (which assignment may, at Seller's option, be combined
with the assignment referred to in subpart (iv) hereof);
(iv) A mortgage assignment in recordable form (which, if acceptable
for recording in the relevant jurisdiction, may be included in a blanket
assignment or assignments) of each Mortgage from the Unaffiliated Seller to
the Trustee;
(v) Originals of all assumption, modification and substitution
agreements in those instances where the terms or provisions of a Mortgage
or Mortgage Note have been modified or such Mortgage or Mortgage Note has
been assumed; and
(vi) Evidence of title insurance (which may consist of (A) a copy of
the title insurance policy, or (B) a binder thereof or copy of such binder)
together with a certificate from the Unaffiliated Seller that the original
Mortgage has been delivered to the title insurance company that issued such
binder for recordation.
In instances where the original recorded Mortgage and a completed
assignment thereof in recordable form cannot be delivered by the Unaffiliated
Seller to the Trustee prior to or concurrently with the execution and delivery
of this Agreement (or, with respect to Subsequent Mortgage Loans, prior to or on
the Subsequent Transfer Date), due to a delay in connection with recording, the
Unaffiliated Seller may:
(x) In lieu of delivering such original recorded Mortgage, deliver to
the Trustee a copy thereof provided that the Unaffiliated Seller certifies
that the original Mortgage has been delivered to a title insurance company
for recordation after receipt of its policy of title insurance or binder
therefor; and
(y) In lieu of delivering the completed assignment in recordable
form, deliver to the Trustee the assignment in recordable form, otherwise
complete except for recording information.
8
<PAGE>
(b) Pursuant to the Pooling and Servicing Agreement, the Unaffiliated
Seller shall be required to promptly submit for recording in the appropriate
public office for real property records, each assignment referred to in (a)
above. The Trustee shall be required to retain a copy of each assignment
submitted for recording. In the event that any such assignment is lost or
returned unrecorded because of a defect therein, the Unaffiliated Seller shall
promptly prepare a substitute assignment or cure such defect, as the case may
be, and thereafter the Unaffiliated Seller shall be required to submit each such
assignment for recording.
(c) The Unaffiliated Seller shall, within five Business Days after
the receipt thereof, and in any event, no later than 120 days after the Closing
Date, deliver or cause to be delivered to the Trustee (as assignee of the
Depositor pursuant to the Pooling and Servicing Agreement): (i) the original
recorded Mortgage and related power of attorney, if any, in those instances
where a copy thereof certified by the Unaffiliated Seller was delivered to the
Trustee (as assignee of the Depositor pursuant to the Pooling and Servicing
Agreement); (ii) the original recorded assignment of Mortgage from the
Unaffiliated Seller to the Trustee (as assignee of the Depositor pursuant to the
Pooling and Servicing Agreement), which, together with any intervening
assignments of Mortgage, evidences a complete chain of assignment from the
originator of the Mortgage Loan to the Trustee in those instances where copies
of such assignments certified by the Unaffiliated Seller were delivered to the
Trustee (as assignee of the Depositor pursuant to the Pooling and Servicing
Agreement); and (iii) the title insurance policy or title opinion required in
clause (a)(vi) above. Notwithstanding anything to the contrary contained in
this Section 2.05, in those instances where the public recording office retains
the original Mortgage, power of attorney, if any, assignment or assignment of
Mortgage after it has been recorded or such original has been lost, the
Unaffiliated Seller shall be deemed to have satisfied its obligations hereunder
upon delivery to the Trustee (as assignee of the Depositor pursuant to the
Pooling and Servicing Agreement) of a copy of such Mortgage, power of attorney,
if any, assignment or assignment of Mortgage certified by the public recording
office to be a true copy of the recorded original thereof. From time to time
the Unaffiliated Seller may forward or cause to be forwarded to the Trustee (as
assignee of the Depositor pursuant to the Pooling and Servicing Agreement)
additional original documents evidencing an assumption or modification of a
Mortgage Loan.
(d) All original documents relating to the Mortgage Loans that are
not delivered to the Trustee (as assignee of the Depositor pursuant to the
Pooling and Servicing Agreement) as permitted by Section 2.05 (a) are and shall
be held by the Unaffiliated Seller in trust for the benefit of the Trustee on
behalf of the Certificateholders and the Certificate Insurer. In the event that
any such original document is required pursuant to the terms of this Section
2.05 to be a part of a Mortgage File, such document shall be delivered promptly
to the Trustee (as assignee of the Depositor pursuant to the Pooling and
Servicing Agreement). From and after the sale of the Mortgage Loans to the
Depositor pursuant hereto, to the extent that the Unaffiliated Seller retains
legal title of record to any Mortgage Loans prior to the vesting of legal title
in the Trustee (as assignee of the Depositor pursuant to the Pooling and
Servicing Agreement), such title shall be retained in trust for the Depositor as
the owner of the Mortgage Loans and the Trustee, as the Depositor's assignee.
Section 2.06. ACCEPTANCE OF MORTGAGE LOANS. (a) Pursuant to the
Pooling and Servicing Agreement, the Trustee has agreed to execute and deliver
on or prior to the Closing Date an acknowledgment of receipt of, for each
Mortgage Loan, the original Mortgage Note with respect to each Mortgage Loan
(with any exceptions noted), in the form attached as Exhibit E to the Pooling
and Servicing Agreement and declares that it will hold such documents and any
9
<PAGE>
amendments, replacements or supplements thereto, as well as any other assets
included in the definition of Trust Fund in the Pooling and Servicing Agreement
and delivered to the Trustee, as Trustee in trust upon and subject to the
conditions set forth in the Pooling and Servicing Agreement for the benefit of
the Certificateholders and the Certificate Insurer. Pursuant to the Pooling and
Servicing Agreement, the Trustee has agreed, for the benefit of the
Certificateholders and the Certificate Insurer, to review (or cause to be
reviewed) each Trustee's Mortgage File within 30 days after the Closing Date
(or, with respect to any Qualified Substitute Mortgage Loan, within 30 days
after the receipt by the Trustee thereof) and to deliver to the initial
Certificateholders, the Unaffiliated Seller, the Servicer and the Certificate
Insurer a certification in the form attached to the Pooling and Servicing
Agreement as Exhibit F to the effect that, as to each Mortgage Loan listed in
the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any
Mortgage Loan specifically identified in such certification as not covered by
such certification), (i) all documents required to be delivered to it pursuant
to the Pooling and Servicing Agreement are in its possession, (ii) each such
document has been reviewed by it and has not been mutilated, damaged, torn or
otherwise physically altered (handwritten additions, changes or corrections
shall not constitute physical alteration if initialled by the Mortgagor),
appears regular on its face and relates to such Mortgage Loan, and (iii) based
on its examination and only as to the foregoing documents, the information set
forth on the Mortgage Loan Schedule accurately reflects the information set
forth in the Trustee's Mortgage File delivered on such date. Pursuant to the
Pooling and Servicing Agreement, the Trustee shall be under no duty or
obligation to inspect, review or examine any such documents, instruments,
certificates or other papers to determine that they are genuine, enforceable, or
appropriate for the represented purpose or that they are other than what they
purport to be on their face. Pursuant to the Pooling and Servicing Agreement,
within 270 days after the Closing Date, the Trustee shall be required to deliver
(or cause to be delivered) to the Servicer, the Unaffiliated Seller, the initial
Certificateholders and the Certificate Insurer a final certification in the form
attached to the Pooling and Servicing Agreement as Exhibit G to the effect that,
as to each Mortgage Loan listed in the Mortgage Loan Schedule (other than any
Mortgage Loan paid in full or any Mortgage Loan specifically identified in such
certification as not covered by such certification), (i) all documents required
to be delivered to it pursuant to the Pooling and Servicing Agreement are in its
possession, (ii) each such document has been reviewed by it and has not been
mutilated, damaged, torn or otherwise physically altered (handwritten additions,
changes or corrections shall not constitute physical alteration if initialled by
the Mortgagor), appears regular on its face and relates to such Mortgage Loan,
and (iii) based on its examination and only as to the foregoing documents, the
information set forth on the Mortgage Loan Schedule accurately reflects the
information set forth in the Trustee's Mortgage File delivered on such date.
(b) The Pooling and Servicing Agreement provides that, if the Trustee
during the process of reviewing the Trustee's Mortgage Files finds any document
constituting a part of a Trustee's Mortgage File which is not executed, has not
been received, is unrelated to the Mortgage Loan identified in the Mortgage Loan
Schedule, or does not conform to the requirements of Section 2.05 or the
description thereof as set forth in the Mortgage Loan Schedule, the Trustee
shall promptly so notify the Servicer, the Unaffiliated Seller, the Certificate
Insurer and the Trustee. The Unaffiliated Seller agrees that in performing any
such review, the Trustee may conclusively rely on the Unaffiliated Seller as to
the purported genuineness of any such document and any signature thereon. The
Unaffiliated Seller agrees to use reasonable efforts to remedy a material defect
in a document constituting part of a Mortgage File of which it is notified. If,
however, within 60 days after such notice the Unaffiliated Seller has not
remedied the defect and the defect materially and adversely affects the interest
of the Certificateholders in
10
<PAGE>
the related Mortgage Loan or the interests of the Certificate Insurer, then the
Unaffiliated Seller shall either substitute in lieu of such Mortgage Loan a
Qualified Substitute Mortgage Loan or purchase such Mortgage Loan in the manner
and subject to the conditions set forth in Section 3.05.
(c) The failure of the Trustee or the Certificate Insurer to give any
notice contemplated herein within the time periods specified above shall not
affect or relieve the Unaffiliated Seller's obligation to repurchase for any
Mortgage Loan pursuant to this Section 2.06 or Section 3.05 of this Agreement.
Section 2.07. TRANSFER OF MORTGAGE LOANS; ASSIGNMENT OF AGREEMENT.
The Unaffiliated Seller hereby acknowledges and agrees that the Depositor may
assign its interest under this Agreement to the Trustee as may be required to
effect the purposes of the Pooling and Servicing Agreement, without further
notice to, or consent of, the Unaffiliated Seller, and the Trustee shall succeed
to such of the rights and obligations of the Depositor hereunder as shall be so
assigned. The Depositor shall, pursuant to the Pooling and Servicing Agreement,
assign all of its right, title and interest in and to the Mortgage Loans and its
right to exercise the remedies created by Sections 2.06 and 3.05 hereof for
breaches of the representations, warranties, agreements and covenants of the
Unaffiliated Seller contained in Sections 2.05, 2.06, 3.02 and 3.03 hereof to
the Trustee for the benefit of the Certificateholders and the Certificate
Insurer. The Unaffiliated Seller agrees that, upon such assignment to the
Trustee, such representations, warranties, agreements and covenants will run to
and be for the benefit of the Trustee and the Trustee may enforce, without
joinder of the Depositor, the repurchase obligations of the Unaffiliated Seller
set forth herein with respect to breaches of such representations, warranties,
agreements and covenants.
Section 2.08. EXAMINATION OF MORTGAGE FILES. Prior to the Closing
Date and each Subsequent Transfer Date, as applicable, the Unaffiliated Seller
shall make the Mortgage Files available to the Depositor or its designee for
examination at the Unaffiliated Seller's offices or at such other place as the
Unaffiliated Seller shall reasonably specify. Such examination may be made by
the Depositor or its designee at any time on or before the Closing Date or
Subsequent Transfer Date, as the case may be. If the Depositor or its designee
makes such examination prior to the Closing Date or Subsequent Transfer Date, as
the case may be, and identifies any Mortgage Loans that do not conform to the
requirements of the Depositor as described in this Agreement, such Mortgage
Loans shall be deleted from the Mortgage Loan Schedule and may be replaced,
prior to the Closing Date or Subsequent Transfer Date, as the case may be, by
substitute Mortgage Loans acceptable to the Depositor. The Depositor may, at
its option and without notice to the Unaffiliated Seller, purchase all or part
of the Mortgage Loans without conducting any partial or complete examination.
The fact that the Depositor or the Trustee has conducted or has failed to
conduct any partial or complete examination of the Mortgage Files shall not
affect the rights of the Depositor or the Trustee to demand repurchase or other
relief as provided in this Agreement.
Section 2.09. BOOKS AND RECORDS. The sale of each Mortgage Loan
shall be reflected on each of the Originators' and the Unaffiliated Seller's
accounting and other records, balance sheet and other financial statements as a
sale of assets by the Originators to the Unaffiliated Seller and by the
Unaffiliated Seller to the Depositor. Each of the Originators and the
Unaffiliated Seller shall be responsible for maintaining, and shall maintain, a
complete set of books and records for each Mortgage Loan which shall be clearly
marked to reflect the ownership
11
<PAGE>
of each Mortgage Loan by the Trustee for the benefit of the Certificateholders
and the Certificate Insurer.
Section 2.10. COST OF DELIVERY AND RECORDATION OF DOCUMENTS. The
costs relating to the delivery and recordation of the documents specified in
this Article Two in connection with the Mortgage Loans shall be borne by the
Unaffiliated Seller.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
Section 3.01. REPRESENTATIONS AND WARRANTIES AS TO THE ORIGINATORS.
Each of the Originators hereby represents and warrants to the Unaffiliated
Seller and the Depositor, as of the Closing Date, that:
(a) The Originator is a corporation duly organized, validly existing
and in good standing under the laws of the State of Pennsylvania and has all
licenses necessary to carry on its business as now being conducted and is
licensed, qualified and in good standing in each state where a Mortgaged
Property is located if the laws of such state require licensing or qualification
in order to conduct business of the type conducted by the Originator and to
perform its obligations as the Originator hereunder, and in any event the
Originator is in compliance with the laws of any such state to the extent
necessary to ensure the enforceability of the related Mortgage Loan; the
Originator has the full power and authority, corporate and otherwise, to execute
and deliver this Agreement and to perform in accordance herewith; the execution,
delivery and performance of this Agreement (including all instruments of
transfer to be delivered pursuant to this Agreement) by the Originator and the
consummation of the transactions contemplated hereby have been duly and validly
authorized; this Agreement evidences the valid, binding and enforceable
obligation of the Originator; and all requisite corporate action has been taken
by the Originator to make this Agreement valid and binding upon the Originator
in accordance with its terms;
(b) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Originator of, or compliance by the Originator with, this
Agreement or the sale of the Mortgage Loans pursuant to the terms of this
Agreement or the consummation of the transactions contemplated by this
Agreement, or if required, such approval has been obtained prior to the Closing
Date;
(c) Neither the execution and delivery of this Agreement, the
acquisition or origination of the Mortgage Loans by the Originator or the
transactions contemplated hereby, nor the fulfillment of or compliance with the
terms and conditions of this Agreement, has or will conflict with or result in a
breach of any of the terms, conditions or provisions of the Originator's charter
or by-laws or any legal restriction or any agreement or instrument to which the
Originator is now a party or by which it is bound or to which its property is
subject, or constitute a default or result in an acceleration under any of the
foregoing, or result in the violation of any law, rule, regulation, order,
judgment or decree to which the Originator or its property is subject, or impair
the ability of the Trustee (or the Servicer as the agent of the Trustee) to
realize on the Mortgage Loans, or impair the value of the Mortgage Loans;
12
<PAGE>
(d) Neither this Agreement nor the information contained in the
Prospectus Supplement under the captions "The Mortgage Pool", "The Originators,
the Seller and the Servicer" and "Servicing of the Mortgage Loans" nor any
statement, report or other document prepared by the Originator and furnished or
to be furnished pursuant to this Agreement or in connection with the
transactions contemplated hereby contains any untrue statement or alleged untrue
statement of any material fact or omits to state a material fact necessary to
make the statements contained herein or therein, in light of the circumstances
under which they were made, not misleading;
(e) There is no action, suit, proceeding or investigation pending or,
to the knowledge of the Originator, threatened before a court, administrative
agency or government tribunal against the Originator which, either in any one
instance or in the aggregate, may result in any material adverse change in the
business, operations, financial condition, properties or assets of the
Originator, or in any material impairment of the right or ability of the
Originator to carry on its business substantially as now conducted, or in any
material liability on the part of the Originator, or which would draw into
question the validity of this Agreement, the Mortgage Loans, or of any action
taken or to be taken in connection with the obligations of the Originator
contemplated herein, or which would impair materially the ability of the
Originator to perform under the terms of this Agreement or that might prohibit
its entering into this Agreement or the consummation of any of the transactions
contemplated hereby;
(f) The Originator is not in violation of or in default with respect
to, and the execution and delivery of this Agreement by the Originator and its
performance of and compliance with the terms hereof will not constitute a
violation or 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 violation or default might have consequences that would materially
and adversely affect the condition (financial or other) or operations of the
Originator or its properties or might have consequences that would materially
and adversely affect its performance hereunder or under any Subservicing
Agreement;
(g) Upon the receipt of each Trustee's Mortgage File by the Depositor
under this Agreement, the Depositor will have good title on behalf of the Trust
Fund to each related Mortgage Loan and such other items comprising the corpus of
the Trust Fund free and clear of any lien created by the Originator (other than
liens which will be simultaneously released);
(h) The consummation of the transactions contemplated by this
Agreement are in the ordinary course of business of the Originator, and the
transfer, assignment and conveyance of the Mortgage Notes and the Mortgages by
the Originator pursuant to this Agreement are not subject to the bulk transfer
or any similar statutory provisions in effect in any applicable jurisdiction;
(i) With respect to any Mortgage Loan purchased by the Originator,
the Originator acquired title to the Mortgage Loan in good faith, without notice
of any adverse claim;
(j) The Originator does not believe, nor does it have any reason or
cause to believe, that it cannot perform each and every covenant contained in
this Agreement. The Originator is solvent and the sale of the Mortgage Loans by
the Originator pursuant to the terms of this Agreement will not cause the
Originator to become insolvent. The sale of the Mortgage
13
<PAGE>
Loans by the Originator pursuant to the terms of this Agreement was not
undertaken with the intent to hinder, delay or defraud any of the Originator's
creditors;
(k) The Mortgage Loans are not intentionally selected in a manner so
as to affect adversely the interests of the Depositor or of any transferee of
the Depositor (including the Trustee);
(l) The Originator has determined that it will treat the disposition
of the Mortgage Loans pursuant to this Agreement as a sale for accounting and
tax purposes;
(m) The Originator has not dealt with any broker or agent or anyone
else that may be entitled to any commission or compensation in connection with
the sale of the Mortgage Loans to the Depositor other than to the Depositor or
an affiliate thereof; and
(n) The consideration received by the Originator upon the sale of the
Mortgage Loans under this Agreement constitutes fair consideration and
reasonably equivalent value for the Mortgage Loans.
Section 3.02. REPRESENTATIONS AND WARRANTIES AS TO THE UNAFFILIATED
SELLER. The Unaffiliated Seller hereby represents and warrants to the
Depositor, as of the Closing Date, that:
(a) The Unaffiliated Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all licenses necessary to carry on its business as now being conducted and is
licensed, qualified and in good standing in each state where a Mortgaged
Property is located if the laws of such state require licensing or qualification
in order to conduct business of the type conducted by the Unaffiliated Seller
and to perform its obligations as the Unaffiliated Seller hereunder, and in any
event the Unaffiliated Seller is in compliance with the laws of any such state
to the extent necessary to ensure the enforceability of the related Mortgage
Loan; the Unaffiliated Seller has the full power and authority, corporate and
otherwise, to execute and deliver this Agreement and to perform in accordance
herewith; the execution, delivery and performance of this Agreement (including
all instruments of transfer to be delivered pursuant to this Agreement) by the
Unaffiliated Seller and the consummation of the transactions contemplated hereby
have been duly and validly authorized; this Agreement evidences the valid,
binding and enforceable obligation of the Unaffiliated Seller; and all requisite
corporate action has been taken by the Unaffiliated Seller to make this
Agreement valid and binding upon the Unaffiliated Seller in accordance with its
terms;
(b) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Unaffiliated Seller of or compliance by the Unaffiliated
Seller with this Agreement or the sale of the Mortgage Loans pursuant to the
terms of this Agreement or the consummation of the transactions contemplated by
this Agreement, or if required, such approval has been obtained prior to the
Closing Date;
(c) Neither the execution and delivery of this Agreement, the
acquisition or origination of the Mortgage Loans by the Unaffiliated Seller or
the transactions contemplated hereby, nor the fulfillment of or compliance with
the terms and conditions of this Agreement, has or will conflict with or result
in a breach of any of the terms, conditions or provisions of the Unaffiliated
Seller's charter or by-laws or any legal restriction or any agreement or
instrument to which the Unaffiliated Seller is now a party or by which it is
bound or to which its property is
14
<PAGE>
subject, or constitute a default or result in an acceleration under any of the
foregoing, or result in the violation of any law, rule, regulation, order,
judgment or decree to which the Unaffiliated Seller or its property is subject,
or impair the ability of the Trustee (or the Servicer as the agent of the
Trustee) to realize on the Mortgage Loans, or impair the value of the Mortgage
Loans;
(d) Neither this Agreement nor the information contained in the
Prospectus Supplement under the captions "The Mortgage Pool", "The Originators,
the Seller and the Servicer" and "Servicing of the Mortgage Loans" nor any
statement, report or other document prepared by the Unaffiliated Seller and
furnished or to be furnished pursuant to this Agreement or in connection with
the transactions contemplated hereby contains any untrue statement or alleged
untrue statement of any material fact or omits to state a material fact
necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading;
(e) There is no action, suit, proceeding or investigation pending or,
to the knowledge of the Unaffiliated Seller, threatened before a court,
administrative agency or government tribunal against the Unaffiliated Seller
which, either in any one instance or in the aggregate, may result in any
material adverse change in the business, operations, financial condition,
properties or assets of the Unaffiliated Seller, or in any material impairment
of the right or ability of the Unaffiliated Seller to carry on its business
substantially as now conducted, or in any material liability on the part of the
Unaffiliated Seller, or which would draw into question the validity of this
Agreement, the Mortgage Loans, or of any action taken or to be taken in
connection with the obligations of the Unaffiliated Seller contemplated herein,
or which would impair materially the ability of the Unaffiliated Seller to
perform under the terms of this Agreement or that might prohibit its entering
into this Agreement or the consummation of any of the transactions contemplated
hereby;
(f) The Unaffiliated Seller is not in violation of or in default with
respect to, and the execution and delivery of this Agreement by the Unaffiliated
Seller and its performance of and compliance with the terms hereof will not
constitute a violation or 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 violation or default might have consequences that
would materially and adversely affect the condition (financial or other) or
operations of the Unaffiliated Seller or its properties or might have
consequences that would materially and adversely affect its performance
hereunder or under any Subservicing Agreement;
(g) Upon the receipt of each Trustee's Mortgage File by the Depositor
under this Agreement, the Depositor will have good title on behalf of the Trust
Fund to each related Mortgage Loan and such other items comprising the corpus of
the Trust Fund free and clear of any lien created by the Unaffiliated Seller
(other than liens which will be simultaneously released);
(h) The consummation of the transactions contemplated by this
Agreement are in the ordinary course of business of the Unaffiliated Seller, and
the transfer, assignment and conveyance of the Mortgage Notes and the Mortgages
by the Unaffiliated Seller pursuant to this Agreement are not subject to the
bulk transfer or any similar statutory provisions in effect in any applicable
jurisdiction;
15
<PAGE>
(i) With respect to any Mortgage Loan purchased by the Unaffiliated
Seller, the Unaffiliated Seller acquired title to the Mortgage Loan in good
faith, without notice of any adverse claim;
(j) The Unaffiliated Seller does not believe, nor does it have any
reason or cause to believe, that it cannot perform each and every covenant
contained in this Agreement. The Unaffiliated Seller is solvent and the sale of
the Mortgage Loans by the Unaffiliated Seller pursuant to the terms of this
Agreement will not cause the Unaffiliated Seller to become insolvent. The sale
of the Mortgage Loans by the Unaffiliated Seller pursuant to the terms of this
Agreement was not undertaken with the intent to hinder, delay or defraud any of
the Unaffiliated Seller's creditors;
(k) The Mortgage Loans are not intentionally selected in a manner so
as to affect adversely the interests of the Depositor or of any transferee of
the Depositor (including the Trustee);
(l) The Unaffiliated Seller has determined that it will treat the
disposition of the Mortgage Loans pursuant to this Agreement as a sale for
accounting and tax purposes;
(m) The Unaffiliated Seller has not dealt with any broker or agent or
anyone else that may be entitled to any commission or compensation in connection
with the sale of the Mortgage Loans to the Depositor other than to the Depositor
or an affiliate thereof; and
(n) The consideration received by the Unaffiliated Seller upon the
sale of the Mortgage Loans under this Agreement constitutes fair consideration
and reasonably equivalent value for the Mortgage Loans.
Section 3.03. REPRESENTATIONS AND WARRANTIES RELATING TO THE MORTGAGE
LOANS. The Originators represent and warrant to the Unaffiliated Seller and the
Unaffiliated Seller represents to the Depositor that, as of the Closing Date, as
to each Initial Mortgage Loan, and as of the Subsequent Transfer Date, as to
each Subsequent Mortgage Loan, immediately prior to the sale and transfer of
such Mortgage Loan by the Unaffiliated Seller to the Depositor:
(a) The information set forth in each Mortgage Loan Schedule is
complete, true and correct;
(b) The information to be provided by the Unaffiliated Seller to the
Depositor in connection with a Subsequent Mortgage Loan will be true and correct
in all material respects at the date or dates respecting which such information
is furnished;
(c) Each Mortgage is a valid first or second lien on a fee simple (or
its equivalent under applicable state law) estate in the real property securing
the amount owed by the Mortgagor under the Mortgage Note subject only to (i) the
lien of current real property taxes and assessments which are not delinquent,
(ii) any related first mortgage loan, (iii) 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 in the area wherein
the property subject to the Mortgage is located or specifically reflected in the
appraisal obtained in connection with the origination of the related Mortgage
Loan obtained by the Unaffiliated Seller and (iv) other matters to which like
16
<PAGE>
properties are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by such Mortgage;
(d) Immediately prior to the transfer and assignment by the
Unaffiliated Seller to the Trustee, the Unaffiliated Seller had good title to,
and was the sole owner of each Mortgage Loan, free of any interest of any other
Person, and the Unaffiliated Seller has transferred all right, title and
interest in each Mortgage Loan to the Trustee;
(e) As of the Cut-Off Date, no payment of principal or interest on or
in respect of any Mortgage Loan remains unpaid for 30 or more days past the date
the same was due in accordance with the related Mortgage Note without regard to
applicable grace periods;
(f) No Mortgage Loan has a Loan Rate less than 6.99% per annum and
the weighted average interest rate of the Mortgage Loans is 12.91%;
(g) At origination, no Mortgage Loan had an original term to maturity
of greater than 360 months;
(h) As of the Cut-Off Date, the weighted average maturity of the
Mortgage Loans is 183 months;
(i) To the best knowledge of the Unaffiliated Seller, there is no
mechanics' lien or claim for work, labor or material (and no rights are
outstanding that under law could give rise to such lien) affecting the premises
subject to any Mortgage which is or may be a lien prior to, or equal or
coordinate with, the lien of such Mortgage, except those which are insured
against by the title insurance policy referred to in (af) below;
(j) To the best knowledge of the Unaffiliated Seller, there is no
delinquent tax or assessment lien against any Mortgaged Property;
(k) Such Mortgage Loan, the Mortgage, and the Mortgage Note,
including, without limitation, the obligation of the Mortgagor to pay the unpaid
principal of and interest on the Mortgage Note, are each not subject to any
right of rescission (or any such rescission right has expired in accordance with
applicable law), set-off, counterclaim, or defense, including the defense of
usury, nor will the operation of any of the terms of the Mortgage Note or the
Mortgage, or the exercise of any right thereunder, render either the Mortgage
Note or the Mortgage unenforceable, in whole or in part, or subject to any right
of rescission, set-off, counterclaim, or defense, including the defense of
usury, and no such right of rescission, set-off, counterclaim, or defense has
been asserted with respect thereto.
(l) To the best knowledge of the Unaffiliated Seller, the Mortgaged
Property is free of material damage and is in good repair, and there is no
pending or threatened proceeding for the total or partial condemnation of the
Mortgaged Property;
(m) The Unaffiliated Seller has not received a notice of default of
any first mortgage loan secured by the Mortgaged Property which has not been
cured by a party other than the Unaffiliated Seller;
17
<PAGE>
(n) Each Mortgage Note and Mortgage are in substantially the forms
previously provided to the Trustee on behalf of the Unaffiliated Seller;
(o) No Mortgage Loan had, at the date of origination, a Combined
Loan-to-Value Ratio in excess of 90.00%, and the weighted average Combined Loan-
to-Value ratio of all Mortgage Loans is 67.63%;
(p) The Mortgage Loan was not originated in a program in which the
amount of documentation in the underwriting process was limited in comparison to
the originator's normal documentation requirements;
(q) No more than the following percentages of the Mortgage Loans by
Principal Balance as of the Cut-Off Date are secured by Mortgaged Properties
located in the following states;
State Percent of
Principal Balance
----------------- ------------------
Delaware 3.68%
Maryland 3.74
New Jersey 33.82
New York 7.71
Pennsylvania 47.23
Virginia 3.81
------
100.00%
------
------
(r) The Mortgage Loans were not selected by the Unaffiliated Seller
for inclusion in the Trust Fund on any basis adverse to the Trust Fund relative
to the portfolio of similar mortgage loans of the Unaffiliated Seller;
(s) None of the Mortgage Loans constitutes a lien on leasehold
interests;
(t) Each Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security including (A) in the case of a Mortgage designated as a deed of trust,
by trustee's sale and (B) otherwise by judicial foreclosure. To the best of the
Unaffiliated Seller's knowledge, there is no homestead or other exemption
available to the related Mortgagor which would materially interfere with the
right to sell the related Mortgaged Property at a trustee's sale or the right to
foreclose the related Mortgage. The Mortgage contains customary and enforceable
provisions for the acceleration of the payment of the Principal Balance of such
Mortgage Loan in the event all or any part of the related Mortgaged Property is
sold or otherwise transferred without the prior written consent of the holder
thereof;
(u) The proceeds of such Mortgage Loan have been fully disbursed,
including reserves set aside by the Unaffiliated Seller, there is no requirement
for, and the Unaffiliated Seller shall not make any, future advances thereunder.
Any future advances made prior to the Cut-Off Date have been consolidated with
the principal balance secured by the Mortgage, and such principal balance, as
consolidated, bears a single interest rate and single repayment term reflected
on the applicable Mortgage Loan Schedule. The Principal Balance as of the Cut-
Off Date does not exceed the original principal amount of such Mortgage Loan.
Except with respect
18
<PAGE>
to approximately $45,000.00 of escrow funds, any and all requirements as to
completion of any on-site or off-site improvements and as to disbursements of
any escrow funds therefor have been complied with. All costs, fees, and
expenses incurred in making, or recording such Mortgage Loan have been paid;
(v) All Mortgage Loans were originated in compliance with the
Originators' Underwriting Guidelines;
(w) The terms of the Mortgage and Mortgage Note have not been
impaired, waived, altered, or modified in any respect, except by a written
instrument which has been recorded, if necessary, to protect the interest of the
Trustee and which has been delivered to the Trustee. The substance of any such
alteration or modification is or as to Subsequent Mortgage Loans will be
reflected on the applicable Mortgage Loan Schedule and, to the extent necessary,
has been or will be approved by (i) the insurer under the applicable mortgage
title insurance policy, and (ii) the insurer under any other insurance policy
required hereunder for such Mortgage Loan where such insurance policy requires
approval and the failure to procure approval would impair coverage under such
policy;
(x) No instrument of release, waiver, alteration, or modification has
been executed in connection with such Mortgage Loan, and no Mortgagor has been
released, in whole or in part, except in connection with an assumption agreement
which has been approved by the insurer under any insurance policy required
hereunder for such Mortgage Loan where such policy requires approval and the
failure to procure approval would impair coverage under such policy, and which
is part of the Mortgage File and has been delivered to the Trustee, and the
terms of which are reflected in the applicable Mortgage Loan Schedule;
(y) Other than delinquencies described in clause (e) above, there is
no default, breach, violation, or event of acceleration existing under the
Mortgage or the Mortgage Note and no event which, with the passage of time or
with notice and the expiration of any grace or cure period, would constitute
such a default, breach, violation or event of acceleration, and the Unaffiliated
Seller has not waived any such default, breach, violation or event of
acceleration. All taxes, governmental assessments (including assessments
payable in future installments), insurance premiums, water, sewer, and municipal
charges, leaseholder payments, or ground rents which previously became due and
owing in respect of or affecting the related Mortgaged Property have been paid.
The Unaffiliated Seller 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
or the Mortgage Note;
(z) All of the improvements which were included for the purposes of
determining the Appraised Value of the Mortgaged Property were completed at the
time that such Mortgage Loan was originated and lie wholly within the boundaries
and building restriction lines of such Mortgaged Property. Except for DE
MINIMIS encroachments, no improvements on adjoining properties encroach upon the
Mortgaged Property. To the best of the Unaffiliated Seller's knowledge, no
improvement located on or being part of the Mortgaged Property is in violation
of any applicable zoning law or regulation. All inspections, licenses, and
certificates required to be made or issued with respect to all occupied portions
of the Mortgaged Property (including all such improvements which were included
for the purpose of determining such Appraised Value) and, with respect to the
use and occupancy of the same, including but not limited to certificates of
occupancy and fire underwriters certificates, have been made or obtained
19
<PAGE>
from the appropriate authorities and the Mortgaged Property is lawfully occupied
under applicable law;
(aa) To the best of the Unaffiliated Seller's knowledge, there do not
exist any circumstances or conditions with respect to the Mortgage, the
Mortgaged Property, the Mortgagor, or the Mortgagor's credit standing that can
be reasonably expected to cause such Mortgage Loan to become delinquent or
adversely affect the value or marketability of such Mortgage Loan, other than
any such circumstances or conditions permitted under the Originator's
Underwriting Guidelines;
(ab) All parties which have had any interest in the Mortgage, whether
as mortgagee, assignee, pledgee or otherwise, are (or, during the period in
which they held and disposed of such interest, were) (i) in compliance with any
and all applicable licensing requirements of the laws of the state wherein the
Mortgaged Property is located and (ii) (A) organized under the laws of such
state, (B) qualified to do business in such state, (C) federal savings and loan
associations or national banks having principal offices in such state, (D) not
doing business in such state, or (E) not required to qualify to do business in
such state;
(ac) The Mortgage Note and the Mortgage are genuine, and each is the
legal, valid and binding obligation of the maker thereof, enforceable in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the enforcement of creditors' rights generally and except that the
equitable remedy of specific performance and other equitable remedies are
subject to the discretion of the courts. All parties to the Mortgage Note and
the Mortgage had legal capacity to execute the Mortgage Note and the Mortgage
and convey the estate therein purported to be conveyed, and the Mortgage Note
and the Mortgage have been duly and properly executed by such parties or
pursuant to a valid power-of-attorney that has been recorded with the Mortgage;
(ad) The transfer of the Mortgage Note and the Mortgage as and in the
manner contemplated by this Agreement is sufficient either (i) fully to transfer
to the Depositor all right, title, and interest of the Unaffiliated Seller
thereto as note holder and mortgagee or (ii) to grant to the Depositor the
security interest referred to in Section 6.07 hereof. The Mortgage has been
duly assigned and the Mortgage Note has been duly endorsed. The assignment of
Mortgage delivered to the Trustee pursuant to Section 2.04(a)(iv) is in
recordable form and is acceptable for recording under the laws of the applicable
jurisdiction. The endorsement of the Mortgage Note, the delivery to the Trustee
of the endorsed Mortgage Note, and such assignment of Mortgage, and the delivery
of such assignment of Mortgage for recording to, and the due recording of such
assignment of Mortgage in, the appropriate public recording office in the
jurisdiction in which the Mortgaged Property is located are sufficient to permit
the Trustee to avail itself of all protection available under applicable law
against the claims of any present or future creditors of the Unaffiliated
Seller, and are sufficient to prevent any other sale, transfer, assignment,
pledge, or hypothecation of the Mortgage Note and Mortgage by the Unaffiliated
Seller from being enforceable;
(ae) Any and all requirements of any federal, state, or local law
including, without limitation, usury, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity, or disclosure
laws applicable to such Mortgage Loan have been complied with, and the Servicer
shall maintain in its possession, available for the Trustee's inspection, and
shall deliver to the Trustee or its designee upon demand, evidence of compliance
20
<PAGE>
with all such requirements. The consummation of the transactions contemplated
by this Agreement will not cause the violation of any such laws;
(af) Such Mortgage Loan is covered by an ALTA mortgage title
insurance policy or such other generally used and acceptable form of policy,
issued by and the valid and binding obligation of a title insurer qualified to
do business in the jurisdiction where the Mortgaged Property is located,
insuring the Unaffiliated Seller, and its successors and assigns, as to the
first or second priority lien, as applicable, of the Mortgage in the original
principal amount of such Mortgage Loan. The assignment to the Trustee of the
Unaffiliated Seller's interest in such mortgage title insurance policy does not
require the consent of or notification to the insurer. Such mortgage title
insurance policy is in full force and effect and will be in full force and
effect and inure to the benefit of the Trustee upon the consummation of the
transactions contemplated by this Agreement. No claims have been made under
such mortgage title insurance policy and neither the Unaffiliated Seller nor any
prior holder of the Mortgage has done, by act or omission, anything which would
impair the coverage of such mortgage title insurance policy;
(ag) All improvements upon the Mortgaged Property are insured against
loss by fire, hazards of extended coverage, and such other hazards as are
customary in the area where the Mortgaged Property is located pursuant to
insurance policies conforming to the requirements of Section 3.05 hereof. If
the Mortgaged Property at origination was located in an area identified on a
flood hazard boundary map or flood insurance rate map issued by the Federal
Emergency Management Agency as having special flood hazards (and such flood
insurance has been made available), such Mortgaged Property was covered by flood
insurance at origination. Each individual insurance policy is the valid and
binding obligation of the insurer, is in full force and effect, and will be in
full force and effect and inure to the benefit of the Trustee upon the
consummation of the transactions contemplated by this Agreement, and contain a
standard mortgage clause naming the originator of such Mortgage Loan, and its
successors and assigns, as mortgagee and loss payee. All premiums thereon have
been paid. The Mortgage obligates the Mortgagor 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, and neither the Unaffiliated Seller nor any prior holder of the
Mortgage has acted or failed to act so as to impair the coverage of any such
insurance policy or the validity, binding effect, and enforceability thereof;
(ah) If the Mortgage constitutes a deed of trust, a trustee, duly
qualified under applicable law to serve as such, has been properly designated
and currently so serves and is named in such Mortgage, as no fees or expenses
are or will become payable by the Trustee or the Certificateholders to the
trustee under the deed of trust, except in connection with a trustee's sale
after default by the Mortgagor;
(ai) The Mortgaged Property consists of one or more parcels of real
property separately assessed for tax purposes. To the extent there is erected
thereon a detached or an attached one-family residence or a detached two-to six-
family dwelling, or an individual condominium unit in a low-rise condominium, or
an individual unit in a planned unit development, or a commercial property, or a
mixed use or multiple purpose property, such residence, dwelling or unit is not
(i) a unit in a cooperative apartment, (ii) a property constituting part of a
syndication, (iii) a time share unit, (iv) a property held in trust, (v) a
mobile home, (vi) a manufactured dwelling, (vii) a log-constructed home, or
(viii) a recreational vehicle;
21
<PAGE>
(aj) There exist no material deficiencies with respect to escrow
deposits and payments, if such are required, for which customary arrangements
for repayment thereof have not been made or which the Unaffiliated Seller
expects not to be cured, and no escrow deposits or payments of other charges or
payments due the Unaffiliated Seller have been capitalized under the Mortgage or
the Mortgage Note;
(ak) Such Mortgage Loan was not originated at a below market interest
rate. Such Mortgage Loan does not have a shared appreciation feature, or other
contingent interest feature;
(al) The origination and collection practices used by the
Unaffiliated Seller or the Servicer with respect to such Mortgage Loan have been
in all respects legal, proper, prudent, and customary in the mortgage
origination and servicing business;
(am)The Mortgagor has, to the extent required by applicable law,
executed a statement to the effect that the Mortgagor has received all
disclosure materials, if any, required by applicable law with respect to the
making of fixed-rate mortgage loans. The Servicer shall maintain or cause to be
maintained such statement in the Mortgage File;
(an) All amounts received by the Unaffiliated Seller with respect to
such Mortgage Loan after the Cut-Off Date and required to be deposited in the
Certificate Account have been so deposited in the Certificate Account and are,
as of the Closing Date, or will be as of the Subsequent Transfer Date, as
applicable, in the Certificate Account;
(ao) The appraisal report with respect to the Mortgaged Property
contained in the Mortgage File was signed prior to the approval of the
application for such Mortgage Loan by a qualified appraiser, duly appointed by
the originator of such Mortgage Loan, who had no interest, direct or indirect,
in the Mortgaged Property or in any loan made on the security thereof and whose
compensation is not affected by the approval or disapproval of such application;
(ap) When measured by the Cut-Off Date Balances as of the Cut-Off
Date, the Mortgagors with respect to at least 85.31% of the Mortgage Loans
represented at the time of origination that the Mortgagor would occupy the
Mortgaged Property as the Mortgagor's primary residence;
(aq) The Unaffiliated Seller has no knowledge with respect to the
Mortgaged Property of any governmental or regulatory action or third party claim
made, instituted or threatened in writing relating to a violation of any
applicable federal, state or local environmental law, statute, ordinance,
regulation, order, decree or standard;
(ar) Each Mortgage Loan is a "qualified mortgage" within the meaning
of Section 860G(a)(3) of the Code;
(as) With respect to second lien Mortgage Loans:
(i) the Unaffiliated Seller has no knowledge that the Mortgagor has
received notice from the holder of the prior mortgage that such prior
mortgage is in default,
22
<PAGE>
(ii) no consent from the holder of the prior mortgage is needed for
the creation of the second lien Mortgage or, if required, has been obtained
and is in the related Mortgage File,
(iii) if the prior mortgage has a negative amortization, the Combined
Loan-to-Value Ratio was determined using the maximum loan amount of such
prior mortgage, and
(iv) the related first mortgage loan encumbering the related
Mortgaged Property does not have a mandatory future advance provision,
(v) the Mortgage Loans conform in all material respects to the
description thereof in the Prospectus Supplement.
(at) The Unaffiliated Seller further represents and warrants to the
Trustee and the Certificateholders that as of the Subsequent Cut-Off Date all
representations and warranties set forth in clauses (a) through (as) above will
be correct in all material respects as to each Subsequent Mortgage Loan, and the
representations so made in this subsection (at) as to the following matters will
be deemed to be correct if: (i) each Subsequent Mortgage Loan is not 30 or more
days contractually delinquent as of the related Subsequent Cut-Off Date; (ii)
the original term to maturity of each Subsequent Mortgage Loan does not exceed
360 months; (iii) each Subsequent Mortgage Loan has a Mortgage Rate of at least
8.75%; (iv) the purchase of the Subsequent Mortgage Loans is consented to by the
Certificate Insurer and the Rating Agencies; (v) the principal balance of any
Subsequent Mortgage Loan does not exceed $350,000.00; (vi) no more than 35% of
the Subsequent Mortgage Loans are second liens; (vii) no Subsequent Mortgage
Loan has a CLTV of more than, (A) for consumer purpose loans, 85%, and (B) for
business purpose loans, 75%; (viii) no more than 20% of the Subsequent Mortgage
Loans are Balloon Loans; (ix) no more than 20% of the Subsequent Mortgage Loans
are secured by mixed-use properties, commercial properties, or four or more unit
multifamily properties; (x) no more than 5% of the Subsequent Mortgage Loans are
secured by commercial properties; and (xi) following the purchase of the
Subsequent Mortgage Loans by the Trust, the Mortgage Loans (including the
Subsequent Mortgage Loans) (A) will have a weighted average Mortgage Rate, (I)
for consumer purpose loans, of at least 11.35% and (II) for business purpose
loans, of at least 15.75%; and (B) will have a weighted average LTV of not more
than 72%;
(au) to the best of the Unaffiliated Seller's knowledge, no error,
omission, misrepresentation, negligence, fraud or similar occurrence with
respect to a Mortgage Loan has taken place on the part of any person, including
without limitation the Mortgagor, any appraiser, an builder or developer, or an
other party involved in the origination of the Mortgage Loan or in the
application of any insurance in relation to such Mortgage Loan.
Section 3.04. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The
Depositor hereby represents, warrants and covenants to the Unaffiliated Seller,
as of the date of execution of this Agreement and the Closing Date, that:
(a) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware;
23
<PAGE>
(b) The Depositor has the corporate power and authority to purchase
each Mortgage Loan and to execute, deliver and perform, and to enter into and
consummate all the transactions contemplated by this Agreement;
(c) This Agreement has been duly and validly authorized, executed and
delivered by the Depositor, and, assuming the due authorization, execution and
delivery hereof by the Unaffiliated Seller, constitutes the legal, valid and
binding agreement of the Depositor, enforceable against the Depositor in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(d) No consent, approval, authorization or order of or registration
or filing with, or notice to, any governmental authority or court is required
for the execution, delivery and performance of or compliance by the Depositor
with this Agreement or the consummation by the Depositor of any of the
transactions contemplated hereby, except such as have been made on or prior to
the Closing Date;
(e) The Depositor has filed or will file the Prospectus and
Prospectus Supplement with the Commission in accordance with Rule 424(b) under
the Securities Act; and
(f) None of the execution and delivery of this Agreement, the
purchase of the Mortgage Loans from the Unaffiliated Seller, the consummation of
the other transactions contemplated hereby, or the fulfillment of or compliance
with the terms and conditions of this Agreement, (i) conflicts or will conflict
with the charter or bylaws of the Depositor or conflicts or will conflict with
or results or will result in a breach of, or constitutes or will constitute a
default or results or will result in an acceleration under, any term, condition
or provision of any indenture, deed of trust, contract or other agreement or
other instrument to which the Depositor is a party or by which it is bound and
which is material to the Depositor, or (ii) results or will result in a
violation of any law, rule, regulation, order, judgment or decree of any court
or governmental authority having jurisdiction over the Depositor.
Section 3.05. REPURCHASE OBLIGATION FOR DEFECTIVE DOCUMENTATION AND
FOR BREACH OF A REPRESENTATION OR WARRANTY. (a) Each of the representations and
warranties contained in Sections 3.01, 3.02 and 3.03 shall survive the purchase
by the Depositor of the Mortgage Loans and the subsequent transfer thereof by
the Depositor to the Trustee and shall continue in full force and effect,
notwithstanding any restrictive or qualified endorsement on the Mortgage Notes
and notwithstanding subsequent termination of this Agreement or the Pooling and
Servicing Agreement.
(b) With respect to any representation or warranty contained in
Section 3.01 that is made to the best of the Originators' knowledge or contained
in Sections 3.02 or 3.03 hereof that is made to the best of the Unaffiliated
Seller's knowledge, if it is discovered by the Servicer, any Subservicer, the
Trustee, the Certificate Insurer or any Certificateholder that the substance of
such representation and warranty was inaccurate as of the Closing Date and such
inaccuracy materially and adversely affects the value of the related Mortgage
Loan, then notwithstanding the Originators' or the Unaffiliated Seller's lack of
knowledge with respect to the inaccuracy at the time the representation or
warranty was made, such inaccuracy shall be deemed a breach of the applicable
representation or warranty. Upon discovery by the Originators, the Unaffiliated
Seller,
24
<PAGE>
the Servicer, any Subservicer, the Trustee, the Certificate Insurer or any
Certificateholder of a breach of any of such representations and warranties
which materially and adversely affects the value of Mortgage Loans or the
interest of the Certificateholders, or which materially and adversely affects
the interests of the Certificate Insurer or the Certificateholders in the
related Mortgage Loan in the case of a representation and warranty relating to a
particular Mortgage Loan (notwithstanding that such representation and warranty
was made to the Originators' or the Unaffiliated Seller's best knowledge), the
party discovering such breach shall give pursuant to Section 3.03 of the Pooling
and Servicing Agreement prompt written notice to the others. Subject to the
next to last paragraph of this Section 3.05, within 60 days of the earlier of
its discovery or its receipt of notice of any breach of a representation or
warranty, the Unaffiliated Seller and the Originators shall (a) promptly cure
such breach in all material respects, or (b) purchase such Mortgage Loan at a
purchase price equal to the Principal Balance of such Mortgage Loan as of the
date of purchase, plus the greater of (i) all accrued and unpaid interest on
such Principal Balance and (ii) 30 days' interest on such Principal Balance,
computed at the Mortgage Interest Rate, net of the Servicing Fee if the
Unaffiliated Seller is the Servicer, plus the amount of any unreimbursed
Servicing Advances made by the Servicer with respect to such Mortgage Loan, or
(c) remove such Mortgage Loan from the Trust Fund (in which case it shall become
a Deleted Mortgage Loan) and substitute one or more Qualified Substitute
Mortgage Loans; provided, that, such substitution is effected not later than the
date which is 2 years after the Startup Day or at such later date, if the
Trustee and the Certificate Insurer receive an Opinion of Counsel to the effect
set forth below in this Section. Any such substitution shall be accompanied by
payment by the Unaffiliated Seller of the Substitution Adjustment, if any, to be
deposited in the Certificate Account pursuant to the Pooling and Servicing
Agreement. The Originators shall cooperate with the Unaffiliated Seller to cure
any breach and shall reimburse the Unaffiliated Seller for the costs and
expenses related to any cure, substitution (including any Substitution
Adjustment) or repurchase incurred by the Unaffiliated Seller pursuant to this
Section 3.05.
(c) As to any Deleted Mortgage Loan for which the Unaffiliated Seller
substitutes a Qualified Substitute Mortgage Loan or Loans, the Unaffiliated
Seller shall effect such substitution by delivering to the Trustee a
certification in the form attached to the Pooling and Servicing Agreement as
Exhibit H, executed by a Servicing Officer and the documents described in
Section 2.06(a) for such Qualified Substitute Mortgage Loan or Loans. Pursuant
to the Pooling and Servicing Agreement, upon receipt by the Trustee of a
certification of a Servicing Officer of such substitution or purchase and, in
the case of a substitution, upon receipt of the related Trustee's Mortgage File,
and the deposit of certain amounts in the Certificate Account pursuant to
Section 2.07(b) of the Pooling and Servicing Agreement (which certification
shall be in the form of Exhibit H to the Pooling and Servicing Agreement), the
Trustee shall be required to release to the Servicer for release to the
Unaffiliated Seller the related Trustee's Mortgage File and shall be required to
execute, without recourse, and deliver such instruments of transfer furnished by
the Unaffiliated Seller as may be necessary to transfer such Mortgage Loan to
the Unaffiliated Seller.
(d) Pursuant to the Pooling and Servicing Agreement, the Servicer
shall deposit in the Certificate Account all payments received in connection
with such Qualified Substitute Mortgage Loan or Loans after the date of such
substitution. Monthly Payments received with respect to Qualified Substitute
Mortgage Loans on or before the date of substitution will be retained by the
Unaffiliated Seller. The Trust Fund will own all payments received on the
Deleted Mortgage Loan on or before the date of substitution, and the
Unaffiliated Seller shall thereafter be entitled to retain all amounts
subsequently received in respect of such Deleted Mortgage Loan.
25
<PAGE>
Pursuant to the Pooling and Servicing Agreement, the Servicer shall be required
to give written notice to the Trustee and the Certificate Insurer that such
substitution has taken place and shall amend the Mortgage Loan Schedule to
reflect the removal of such Deleted Mortgage Loan from the terms of the Pooling
and Servicing Agreement and the substitution of the Qualified Substitute
Mortgage Loan. The parties hereto agree to amend the Mortgage Loan Schedule
accordingly. Upon such substitution, such Qualified Substitute Mortgage Loan or
Loans shall be subject to the terms of the Pooling and Servicing Agreement and
this Agreement in all respects, and the Unaffiliated Seller shall be deemed to
have made with respect to such Qualified Substitute Mortgage Loan or Loans, as
of the date of substitution, the representations and warranties set forth in
Sections 3.02 and 3.03 herein. On the date of such substitution, the
Unaffiliated Seller will remit to the Servicer and pursuant to the Pooling and
Servicing Agreement the Servicer will deposit into the Certificate Account an
amount equal to the Substitution Adjustment, if any.
(e) It is understood and agreed that the obligations of the
Unaffiliated Seller set forth in Section 2.06 and this Section 3.05 to cure,
purchase or substitute for a defective Mortgage Loan as provided in Section 2.06
and this Section 3.05 constitute the sole remedies of the Depositor, the
Trustee, the Certificate Insurer and the Certificateholders respecting a breach
of the foregoing representations and warranties.
(f) Any cause of action against the Unaffiliated Seller relating to
or arising out of the breach of any representations and warranties or covenants
made in Sections 2.06, 3.02 or 3.03 shall accrue as to any Mortgage Loan upon
(i) discovery of such breach by any party and notice thereof to the Unaffiliated
Seller, (ii) failure by the Unaffiliated Seller to cure such breach or purchase
or substitute such Mortgage Loan as specified above, and (iii) demand upon the
Unaffiliated Seller by the Trustee for all amounts payable in respect of such
Mortgage Loan.
(g) Notwithstanding any contrary provision of this Agreement, with
respect to any Mortgage Loan which is not in default or as to which no default
is imminent, no purchase, or substitution pursuant to Section 2.06(b) or this
Section 3.04 shall be made unless the Unaffiliated Seller provides to the
Trustee and the Certificate Insurer an Opinion of Counsel to the effect that
such purchase or substitution would not (i) result in the imposition of taxes on
"prohibited transactions" of the REMIC Trust, as defined in Section 860F of the
Code or a tax on contributions to the REMIC Trust under the REMIC Provisions, or
(ii) cause the REMIC Fund to fail to qualify as a REMIC at any time that any
Certificates are outstanding. Any Mortgage Loan as to which purchase or
substitution was delayed pursuant to this paragraph shall be purchased or
substituted (subject to compliance with Section 2.06 and this Section 3.05) upon
the earlier of (a) the occurrence of a default or imminent default with respect
to such loan and (b) receipt by the Trustee and the Certificate Insurer of an
Opinion of Counsel to the effect that such purchase or substitution will not
result in the events described in clauses (i) and (ii) of the preceding
sentence.
(h) Pursuant to the Pooling and Servicing Agreement, upon discovery
by the Unaffiliated Seller, the Servicer, the Trustee, the Certificate Insurer
or any Certificateholder that any Mortgage Loan does not constitute a Qualified
Mortgage, the party discovering such fact shall promptly (and in any event
within 5 days of the discovery) give written notice thereof to the other
parties. In connection therewith, the Unaffiliated Seller shall repurchase or
substitute a Qualified Substitute Mortgage Loan for the affected Mortgage Loan
within 90 days of the earlier of such discovery by any of the foregoing parties,
or the Trustee's or the Unaffiliated Seller's receipt of notice, in the same
manner as it would a Mortgage Loan for a breach of representation or
26
<PAGE>
warranty contained in Sections 3.02 or 3.03. Pursuant to the Pooling and
Servicing Agreement the Trustee shall reconvey to the Unaffiliated Seller the
Mortgage Loan to be released pursuant hereto in the same manner, and on the same
terms and conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty contained in Sections 3.02 or 3.03.
(i) Notwithstanding anything in this Agreement or the Pooling and
Servicing Agreement to the contrary, the Unaffiliated Seller's repurchase
obligations hereunder shall not include failure of the Trustee to record
assignments of the Mortgage Loans referenced in clause (a)(iii) in Section 2.05.
All parties hereto acknowledge and agree that the Trustee has the responsibility
to record all such assignments of the Mortgage Loans to the Trustee.
ARTICLE FOUR
THE UNAFFILIATED SELLER
Section 4.01. COVENANTS OF THE ORIGINATORS AND THE UNAFFILIATED
SELLER. Each of the Originators and the Unaffiliated Seller covenants to the
Depositor as follows:
(a) The Originators and the Unaffiliated Seller shall cooperate with
the Depositor and the firm of independent certified public accountants retained
with respect to the issuance of the Certificates in making available all
information and taking all steps reasonably necessary to permit the accountants'
letters required hereunder to be delivered within the times set for delivery
herein.
(b) The Unaffiliated Seller agrees to satisfy or cause to be
satisfied on or prior to the Closing Date, all of the conditions to the
Depositor's obligations set forth in Section 5.01 hereof that are within the
Unaffiliated Seller's (or its agents') control.
(c) The Originators and the Unaffiliated Seller hereby agree to do
all acts, transactions, and things and to execute and deliver all agreements,
documents, instruments, and papers by and on behalf of the Originators or the
Unaffiliated Seller as the Depositor or its counsel may reasonably request in
order to consummate the transfer of the Mortgage Loans to the Depositor and the
subsequent transfer thereof to the Trustee, and the rating, issuance and sale of
the Certificates.
Section 4.02. MERGER OR CONSOLIDATION. Each of the Originators and
the Unaffiliated Seller will keep in full effect its existence, rights and
franchises as a corporation and will obtain and preserve its qualification to do
business as a foreign corporation, in each jurisdiction necessary to protect the
validity and enforceability of this Agreement or any of the Mortgage Loans and
to perform its duties under this Agreement. Any Person into which the any of
the Originators or the Unaffiliated Seller may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Originators or the Unaffiliated Seller shall be a party, or any Person
succeeding to the business of the Originators or the Unaffiliated Seller, shall
be approved by the Certificate Insurer which approval shall not be unreasonably
withheld. If the approval of the Certificate Insurer is not required, the
successor shall be an established mortgage loan servicing institution that is a
Permitted Transferee and in all events shall be the successor of the Originators
or the Unaffiliated Seller without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein
27
<PAGE>
to the contrary notwithstanding. The Originators and the Unaffiliated Seller
shall send notice of any such merger or consolidation to the Trustee and the
Certificate Insurer.
Section 4.03. COSTS. In connection with the transactions
contemplated under this Agreement and the Pooling and Servicing Agreement, the
Unaffiliated Seller shall promptly pay (or shall promptly reimburse the
Depositor to the extent that the Depositor shall have paid or otherwise
incurred): (a) the fees and disbursements of the Depositor's counsel; (b) the
fees of Standard & Poor's Ratings Group and Moody's Investors Service, Inc.; (c)
any of the fees of the Trustee and the fees and disbursements of the Trustee's
counsel; (d) expenses incurred in connection with printing the Prospectus, the
Prospectus Supplement, any amendment or supplement thereto, any preliminary
prospectus and the Certificates; (e) fees and expenses relating to the filing of
documents with the Securities and Exchange Commission (including without
limitation periodic reports under the Exchange Act); (f) the shelf registration
amortization fee (which fee shall equal 1/29th of 1% of the amount of the
Certificates plus $7,500) paid in connection with the issuance of Certificates;
and (g) all of the initial expenses (not to exceed $40,000) of the Certificate
Insurer including, without limitation, legal fees and expenses, accountant fees
and expenses and expenses in connection with due diligence conducted on the
Mortgage Files. For the avoidance of doubt, the parties hereto acknowledge that
it is the intention of the parties that the Depositor shall not pay any of the
Trustee's fees and expenses in connection with the transactions contemplated by
the Pooling and Servicing Agreement. All other costs and expenses in connection
with the transactions contemplated hereunder shall be borne by the party
incurring such expenses.
Section 4.04. INDEMNIFICATION. (a) (i) The Originators and the
Unaffiliated Seller, jointly and severally, agree to indemnify and hold harmless
the Depositor, each of its directors, each of its officers who have signed the
Registration Statement, and each of its directors and each person or entity who
controls the Depositor or any such person, within the meaning of Section 15 of
the Securities Act, against any and all losses, claims, damages or liabilities,
joint and several, to which the Depositor or any such person or entity may
become subject, under the Securities Act or otherwise, and will reimburse the
Depositor and each such controlling person for any legal or other expenses
incurred by the Depositor or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Prospectus Supplement or any
amendment or supplement to the Prospectus Supplement or the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements in the Prospectus Supplement or any
amendment or supplement to the Prospectus Supplement approved in writing by the
Originators or the Unaffiliated Seller, in light of the circumstances under
which they were made, not misleading, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission relates to
the information contained in the Prospectus Supplement referred to in
Section 3.01(d). This indemnity agreement will be in addition to any liability
which the Originators and the Unaffiliated Seller may otherwise have.
(ii) The Originators and the Unaffiliated Seller, jointly and severally,
agree to indemnify and to hold the Depositor harmless against any and all
claims, losses, penalties, fines, forfeitures, legal fees and related
costs, judgments, and any other costs, fees and expenses that the Depositor
may sustain in any way related to the failure of any of the Originators or
the Unaffiliated Seller to perform its duties in compliance with the terms
of this Agreement. The Originators or the Unaffiliated Seller shall
immediately notify the Depositor if a claim is made by a third party with
respect to this Agreement, and the Originators or the Unaffiliated Seller
shall assume the defense of any such claim and pay
28
<PAGE>
all expenses in connection therewith, including reasonable counsel fees,
and promptly pay, discharge and satisfy any judgment or decree which may be
entered against the Depositor in respect of such claim. Pursuant to the
Pooling and Servicing Agreement, the Trustee shall reimburse the
Unaffiliated Seller in accordance with the Pooling and Servicing Agreement
for all amounts advanced by the Unaffiliated Seller pursuant to the
preceding sentence except when the claim relates directly to the failure of
the Unaffiliated Seller to perform its duties in compliance with the terms
of this Agreement.
(b) The Depositor agrees to indemnify and hold harmless each of the
Originators and the Unaffiliated Seller, each of their respective directors and
each person or entity who controls the Originators or the Unaffiliated Seller or
any such person, within the meaning of Section 15 of the Securities Act, against
any and all losses, claims, damages or liabilities, joint and several, to which
the Originators or the Unaffiliated Seller or any such person or entity may
become subject, under the Securities Act or otherwise, and will reimburse the
Originators and the Unaffiliated Seller and any such director or controlling
person for any legal or other expenses incurred by such party or any such
director or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Prospectus, the Prospectus
Supplement, any amendment or supplement to the Prospectus or the Prospectus
Supplement or the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, but
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission is other than a statement or omission relating to
the information set forth in subsection (a)(i) of this Section 4.04. This
indemnity agreement will be in addition to any liability which the Depositor may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 4.04 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 4.04, notify the indemnifying party in writing of the
commencement thereof, but the omission to so notify the indemnifying party will
not relieve the indemnifying party from any liability which the indemnifying
party may have to any indemnified party hereunder except to the extent such
indemnifying party has been prejudiced thereby. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. After notice from the indemnifying
party to such indemnified party of its election to assume the defense thereof,
the indemnifying party will not be liable to such indemnified party under this
Section 4.04 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it that are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. The indemnifying party shall not be liable for
the expenses of more than one separate counsel.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the preceding
parts of this Section 4.04 is for any
29
<PAGE>
reason held to be unavailable to or insufficient to hold harmless an indemnified
party under subsection (a) or subsection (b) of this Section 4.04 in respect of
any losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, the indemnifying party shall contribute to the amount paid
or payable by the indemnified party as a result of such losses, claims, damages
or liabilities (or actions in respect thereof); provided, however, that no
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. In determining
the amount of contribution to which the respective parties are entitled, there
shall be considered the relative benefits received by the Originators and the
Unaffiliated Seller on the one hand, and the Depositor on the other, the
Originators', the Unaffiliated Seller's and the Depositor's relative knowledge
and access to information concerning the matter with respect to which the claim
was asserted, the opportunity to correct and prevent any statement or omission,
and any other equitable considerations appropriate in the circumstances. The
Originators, the Unaffiliated Seller and the Depositor agree that it would not
be equitable if the amount of such contribution were determined by pro rata or
per capita allocation. For purposes of this Section 4.04, each director of the
Depositor, each officer of the Depositor who signed the Registration Statement,
and each person, if any who controls the Depositor within the meaning of Section
15 of the Securities Act, shall have the same rights to contribution as the
Depositor, and each director of the Originators or the Unaffiliated Seller, and
each person, if any who controls the Originators or the Unaffiliated Seller
within the meaning of Section 15 of the Securities Act, shall have the same
rights to contribution as the Originators and the Unaffiliated Seller.
ARTICLE FIVE
CONDITIONS OF CLOSING
Section 5.01. CONDITIONS OF DEPOSITOR'S OBLIGATIONS. The obligations
of the Depositor to purchase the Mortgage Loans will be subject to the
satisfaction on the Closing Date of the following conditions. Upon payment of
the purchase price for the Mortgage Loans, such conditions shall be deemed
satisfied or waived.
(a) Each of the obligations of the Unaffiliated Seller required to be
performed by it on or prior to the Closing Date pursuant to the terms of this
Agreement shall have been duly performed and complied with and all of the
representations and warranties of the Unaffiliated Seller under this Agreement
shall be true and correct as of the Closing Date and no event shall have
occurred which, with notice or the passage of time, would constitute a default
under this Agreement, and the Depositor shall have received a certificate to the
effect of the foregoing signed by an authorized officer of the Unaffiliated
Seller.
(b) The Depositor shall have received a letter dated the date of this
Agreement, in form and substance acceptable to the Depositor and its counsel,
prepared by Deloitte & Touche LLP, independent certified public accountants,
regarding the numerical information contained in the Prospectus Supplement under
the captions "Prepayment Yield Considerations" and "The Mortgage Pool."
(c) The Mortgage Loans will be acceptable to the Depositor, in its
sole discretion.
(d) The Depositor shall have received the following additional
closing documents, in form and substance satisfactory to the Depositor and its
counsel:
30
<PAGE>
(i) the Mortgage Loan Schedule;
(ii) the Pooling and Servicing Agreement dated as of August 31, 1996
and the Underwriting Agreement dated as of September 12, 1996 between the
Depositor and Prudential Securities Incorporated and all documents required
thereunder, duly executed and delivered by each of the parties thereto
other than the Depositor;
(iii) officer's certificates of an officer of each of the Originators
and the Unaffiliated Seller, dated as of the Closing Date, in the form of
Exhibit B hereto, and attached thereto resolutions of the board of
directors and a copy of the charter and by-laws;
(iv) copy of each of the Originators and the Unaffiliated Seller's
charter and all amendments, revisions, and supplements thereof, certified
by a secretary of each entity;
(v) an opinion of the counsel for the Originators and the
Unaffiliated Seller as to various corporate matters substantially in the
form attached hereto as Exhibit C (it being agreed that the opinion shall
expressly provide that the Trustee shall be entitled to rely on the
opinion);
(vi) opinions of counsel for the Unaffiliated Seller, in forms
acceptable to the Depositor, its counsel, S&P and Moody's as to such
matters as shall be required for the assignment of a rating to the Class A
Certificates of AAA by S&P, and Aaa by Moody's (it being agreed that such
opinions shall expressly provide that the Trustee shall be entitled to rely
on such opinions);
(vii) a letter from Moody's that it has assigned a rating of Aaa to
the Class A Certificates;
(viii) a letter from S&P that it has assigned a rating of AAA to the
Class A Certificates;
(ix) an opinion of counsel for the Trustee in form and substance
acceptable to the Depositor, its counsel, Moody's and S&P (it being agreed
that the opinion shall expressly provide that the Unaffiliated Seller shall
be entitled to rely on the opinion);
(x) an opinion or opinions of counsel for the Servicer, in form and
substance acceptable to the Depositor, its counsel, Moody's and S&P (it
being agreed that the opinion shall expressly provide that the Unaffiliated
Seller shall be entitled to rely on the opinion); and
(xi) an opinion or opinions of counsel for the Certificate Insurer,
in each case in form and substance acceptable to the Depositor, its
counsel, Moody's and S&P (it being agreed that the opinion shall expressly
provide that the Unaffiliated Seller shall be entitled to rely on the
opinion).
(e) The Certificate Insurance Policies shall have been duly executed,
delivered and issued with respect to the Certificates.
(f) All proceedings in connection with the transactions contemplated
by this Agreement and all documents incident hereto shall be satisfactory in
form and substance to the Depositor and its counsel.
31
<PAGE>
(g) The Unaffiliated Seller shall have furnished the Depositor with
such other certificates of its officers or others and such other documents or
opinions as the Depositor or its counsel may reasonably request.
Section 5.02. CONDITIONS OF UNAFFILIATED SELLER'S OBLIGATIONS. The
obligations of the Unaffiliated Seller under this Agreement shall be subject to
the satisfaction, on the Closing Date, of the following conditions:
(a) Each of the obligations of the Depositor required to be performed
by it at or prior to the Closing Date pursuant to the terms of this Agreement
shall have been duly performed and complied with and all of the representations
and warranties of the Depositor contained in this Agreement shall be true and
correct as of the Closing Date and the Unaffiliated Seller shall have received a
certificate to that effect signed by an authorized officer of the Depositor.
(b) The Unaffiliated Seller shall have received the following
additional documents:
(i) the Pooling and Servicing Agreement, and all documents required
thereunder, in each case executed by the Depositor as applicable; and
(ii) a copy of a letter from Moody's to the Depositor to the effect
that it has assigned a rating of Aaa to the Class A Certificates and a copy
of a letter from S&P to the Depositor to the effect that it has assigned a
rating of AAA to the Class A Certificates.
(iii) an opinion of counsel for the Trustee in form and substance
acceptable to the Unaffiliated Seller and its counsel;
(iv) an opinion or opinions of counsel for the Certificate Insurer,
in each case in form and substance acceptable to the Unaffiliated Seller
and its counsel;
(v) an opinion of the counsel for the Depositor as to securities and
tax matters; and
(vi) an opinion of the counsel for the Depositor as to true sale
matters.
(c) The Depositor shall have furnished the Unaffiliated Seller with
such other certificates of its officers or others and such other documents to
evidence fulfillment of the conditions set forth in this Agreement as the
Unaffiliated Seller may reasonably request.
Section 5.03. TERMINATION OF DEPOSITOR'S OBLIGATIONS. The Depositor
may terminate its obligations hereunder by notice to the Unaffiliated Seller at
any time before delivery of and payment of the purchase price for the Mortgage
Loans if: (a) any of the conditions set forth in Section 5.01 are not satisfied
when and as provided therein; (b) there shall have been the entry of a decree or
order by a court or agency or supervisory authority having jurisdiction in the
premises for the appointment of a conservator, receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Unaffiliated Seller, or for the
winding up or liquidation of the affairs of the Unaffiliated Seller; (c) there
shall have been the consent by the Unaffiliated Seller to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating to
the Unaffiliated Seller or of or relating to
32
<PAGE>
substantially all of the property of the Unaffiliated Seller; (d) any purchase
and assumption agreement with respect to the Unaffiliated Seller or the assets
and properties of the Unaffiliated Seller shall have been entered into; or (e) a
Termination Event shall have occurred. The termination of the Depositor's
obligations hereunder shall not terminate the Depositor's rights hereunder or
its right to exercise any remedy available to it at law or in equity.
ARTICLE SIX
MISCELLANEOUS
Section 6.01. NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered to or mailed by registered mail, postage prepaid, or
transmitted by telex or telegraph and confirmed by a similar mailed writing, if
to the Depositor, addressed to the Depositor at Prudential Securities Secured
Financing Corporation, One New York Plaza, 15th Floor, New York, New York
10292, Attention: Asset Finance Group, or to such other address as the
Depositor may designate in writing to the Unaffiliated Seller and if to the
Unaffiliated Seller, addressed to the Unaffiliated Seller at ABFS 1996-2, Inc.,
Balapointe Office Centre, 111 Presidential Boulevard, Suite 215, Bala Cynwyd,
Pennsylvania 19004, Attention: Mr. Anthony Santilli, Jr., or to such other
address as the Unaffiliated Seller may designate in writing to the Depositor.
Section 6.02. SEVERABILITY OF PROVISIONS. Any part, provision,
representation, warranty or covenant of this Agreement which is prohibited or
which is held to be void or unenforceable shall be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. Any part, provision, representation, warranty or covenant of
this Agreement which is prohibited or unenforceable or is held to be void 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 as to any Mortgage Loan shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto waive any provision of law which prohibits
or renders void or unenforceable any provision hereof.
Section 6.03. AGREEMENT OF UNAFFILIATED SELLER. The Unaffiliated
Seller agrees to execute and deliver such instruments and take such actions as
the Depositor may, from time to time, reasonably request in order to effectuate
the purpose and to carry out the terms of this Agreement.
Section 6.04. SURVIVAL. The parties to this Agreement agree that the
representations, warranties and agreements made by each of them herein and in
any certificate or other instrument delivered pursuant hereto shall be deemed to
be relied upon by the other party hereto, notwithstanding any investigation
heretofore or hereafter made by such other party or on such other party's
behalf, and that the representations, warranties and agreements made by the
parties hereto in this Agreement or in any such certificate or other instrument
shall survive the delivery of and payment for the Mortgage Loans.
Section 6.05. 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.
33
<PAGE>
Section 6.06. SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Except as expressly permitted by the terms
hereof, this Agreement may not be assigned, pledged or hypothecated by any party
hereto to a third party without the written consent of the other party to this
Agreement and the Certificate Insurer; provided, however, that the Depositor may
assign its rights hereunder without the consent of the Unaffiliated Seller.
Section 6.07. CONFIRMATION OF INTENT; GRANT OF SECURITY INTEREST. It
is the express intent of the parties hereto that the conveyance of the Mortgage
Loans by the Originators to the Unaffiliated Seller and by the Unaffiliated
Seller to the Depositor as contemplated by this Unaffiliated Seller's Agreement
be, and be treated for all purposes as, a sale of the Mortgage Loans. It is,
further, not the intention of the parties that such conveyance be deemed a
pledge of the Mortgage Loans by Originator to the Unaffiliated Seller or by the
Unaffiliated Seller to the Depositor to secure a debt or other obligation of the
Originators or the Unaffiliated Seller, as the case may be. However, in the
event that, notwithstanding the intent of the parties, the Mortgage Loans are
held to continue to be property of the Originators or the Unaffiliated Seller
then (a) this Unaffiliated Seller's Agreement shall also be deemed to be a
security agreement within the meaning of Articles 8 and 9 of the Uniform
Commercial Code; (b) the transfer of the Mortgage Loans provided for herein
shall be deemed to be a grant by the Originators to the Unaffiliated Seller and
by the Unaffiliated Seller to the Depositor of a security interest in all of
such parties' right, title and interest in and to the Mortgage Loans and all
amounts payable on the Mortgage Loans in accordance with the terms thereof and
all proceeds of the conversion, voluntary or involuntary, of the foregoing into
cash, instruments, securities or other property; (c) the possession by the
Depositor of Mortgage Notes and such other items of property as constitute
instruments, money, negotiable documents or chattel paper shall be deemed to be
"possession by the secured party" for purposes of perfecting the security
interest pursuant to Section 9--305 of the Uniform Commercial Code; and (d)
notifications to persons holding such property, and acknowledgments, receipts or
confirmations from persons holding such property, shall be deemed notifications
to, or acknowledgments, receipts or confirmations from, financial
intermediaries, bailees or agents (as applicable) of the Depositor for the
purpose of perfecting such security interest under applicable law. Any
assignment of the interest of the Depositor pursuant to any provision hereof
shall also be deemed to be an assignment of any security interest created
hereby. The Originators, the Unaffiliated Seller and the Depositor shall, to
the extent consistent with this Unaffiliated Seller's Agreement, take such
actions as may be necessary to ensure that, if this Unaffiliated Seller's
Agreement were deemed to create a security interest in the Mortgage Loans, such
security interest would be deemed to be a perfected security interest of first
priority under applicable law and will be maintained as such throughout the term
of this Agreement.
Section 6.08. MISCELLANEOUS. This Agreement supersedes all prior
agreements and understandings relating to the subject matter hereof.
Section 6.09. AMENDMENTS. (a) This Agreement may be amended from time
to time by the Originators, the Unaffiliated Seller and the Depositor by written
agreement, upon the prior written consent of the Certificate Insurer, without
notice to or consent of the Certificateholders to cure any ambiguity, to correct
or supplement any provisions herein, to comply with any changes in the Code, or
to make any other provisions with respect to matters or questions arising under
this Agreement which shall not be inconsistent with the provisions of this
Agreement; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, at the expense of the party requesting the change, delivered
to the Trustee, adversely affect in any material respect the interests of any
Certificateholder; and provided further, that no such amendment shall reduce in
any manner the amount of, or delay the timing of, payments received on Mortgage
Loans which are required to be distributed on any Certificate without the
consent
34
<PAGE>
of the Holder of such Certificate, or change the rights or obligations of any
other party hereto without the consent of such party.
(b) This Agreement may be amended from time to time by the
Unaffiliated Seller and the Depositor with the consent of the Certificate
Insurer, the Majority Certificateholders and the Holders of the majority of the
Percentage Interest in the Class R Certificates for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Holders;
provided, however, that no such amendment shall be made unless the Trustee
receives an Opinion of Counsel, at the expense of the party requesting the
change, that such change will not adversely affect the status of the REMIC Trust
as a REMIC or cause a tax to be imposed on the REMIC, and provided further, that
no such amendment shall reduce in any manner the amount of, or delay the timing
of, payments received on Mortgage Loans which are required to be distributed on
any Certificate without the consent of the Holder of such Certificate or reduce
the percentage for each Class the Holders of which are required to consent to
any such amendment without the consent of the Holders of 100% of each Class of
Certificates affected thereby.
(c) It shall not be necessary for the consent of Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof.
Section 6.10. THIRD-PARTY BENEFICIARIES. The parties agree that each
of the Certificate Insurer and the Trustee is an intended third-party
beneficiary of this Agreement to the extent necessary to enforce the rights and
to obtain the benefit of the remedies of the Depositor under this Agreement
which are assigned to the Trustee for the benefit of the Certificateholders and
the Certificate Insurer pursuant to the Pooling and Servicing Agreement and to
the extent necessary to obtain the benefit of the enforcement of the obligations
and covenants of the Unaffiliated Seller under Section 4.01 and 4.04(a)(ii) of
this Agreement. The parties further agree that Prudential Securities
Incorporated and each of its directors and each person or entity who controls
Prudential Securities Incorporated or any such person, within the meaning of
Section 15 of the Securities Act (each, an "Underwriter Entity") is an intended
third-party beneficiary of this Agreement to the extent necessary to obtain the
benefit of the enforcement of the obligations and covenants of the Unaffiliated
Seller with respect to each Underwriter Entity under Section 4.04(a)(i) of this
Agreement.
SECTION 6.11. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE
OF NEW YORK.
(b) THE DEPOSITOR AND THE UNAFFILIATED SELLER EACH HEREBY SUBMIT TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE
UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK
CITY, AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO
THE ADDRESS SET FORTH IN SECTION 6.01 OF THIS AGREEMENT AND SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN
DEPOSITED IN THE U.S. MAIL, POSTAGE PREPAID. THE DEPOSITOR AND THE UNAFFILIATED
SELLER EACH HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND
35
<PAGE>
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE
DEPOSITOR AND THE UNAFFILIATED SELLER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT EITHER'S RIGHT TO BRING ANY ACTION OR PROCEEDING IN
THE COURTS OF ANY OTHER JURISDICTION.
(C) THE DEPOSITOR AND THE UNAFFILIATED SELLER EACH HEREBY WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN
CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE
RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
Section 6.12. EXECUTION IN COUNTERPARTS. This Agreement 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.
[Remainder of Page Intentionally Left Blank]
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their names to be
signed by their respective officers thereunto duly authorized as of the date
first above written.
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION
By: /s/ Norman Chaleff
--------------------------------
Name: Norman Chaleff
Title: Vice President
ABFS 1996-2, INC.
By: /s/ Anthony J. Santilli, Jr.
--------------------------------
Name: Anthony J. Santilli, Jr.
Title: President
AMERICAN BUSINESS CREDIT, INC.
By: /s/ Beverly Santilli
--------------------------------
Name: Beverly Santilli
Title: President
HOMEAMERICAN CREDIT, INC., D/B/A
UPLAND MORTGAGE
By: /s/ Jeffrey M. Ruben
--------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
[Signature Page to Unaffiliated Seller's Agreement]
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On September 27, 1996 before me, the undersigned, a Notary Public in
and for said County and State, personally appeared Norman Chaleff, personally
known to me (or proved to me on the basis of satisfactory evidence) to be a Vice
President of Prudential Securities Secured Financing Corporation, a Delaware
corporation, the corporation that executed the within Unaffiliated Seller's
Agreement on behalf of said corporation, and acknowledged to me that said
corporation executed it.
/s/ Mary Jane Constant
---------------------------------
Notary Public
My Commission expires:
MARY JANE CONSTANT
Notary Public, State of New York
No. 01C04960883
Qualified in New York County
Commission Expires Jan. 2
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On September 27, 1996 before me, the undersigned, a Notary Public in
and for said County and State, personally appeared Anthony J. Santilli,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be President of ABFS 1996-2, Inc., the entity that executed the within
Unaffiliated Seller's Agreement; on behalf of said corporation, and acknowledged
to me that said corporation executed it.
/s/ Mary Jane Constant
---------------------------------
Notary Public
My Commission expires:
MARY JANE CONSTANT
Notary Public, State of New York
No. 01C04960883
Qualified in New York County
Commission Expires Jan. 2
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On September 27, 1996 before me, the undersigned, a Notary Public in
and for said County and State, personally appeared Beverly Santilli, personally
known to me (or proved to me on the basis of satisfactory evidence) to be
President of American Business Credit, Inc., the entity that executed the within
Unaffiliated Seller's Agreement; on behalf of said corporation, and acknowledged
to me that said corporation executed it.
/s/ Mary Jane Constant
---------------------------------
Notary Public
My Commission expires:
MARY JANE CONSTANT
Notary Public, State of New York
No. 01C04960883
Qualified in New York County
Commission Expires Jan. 2
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On September 27, 1996 before me, the undersigned, a Notary Public in
and for said County and State, personally appeared Jeffrey M. Ruben, personally
known to me (or proved to me on the basis of satisfactory evidence) to be a
Senior Vice President of HomeAmerican Credit, Inc., d/b/a Upland Mortgage the
entity that executed the within Unaffiliated Seller's Agreement; on behalf of
said corporation, and acknowledged to me that said corporation executed it.
/s/ Mary Jane Constant
---------------------------------
Notary Public
My Commission expires:
MARY JANE CONSTANT
Notary Public, State of New York
No. 01C04960883
Qualified in New York County
Commission Expires Jan. 2
<PAGE>
EXHIBIT A
MORTGAGE LOAN SCHEDULE
A-1
<PAGE>
EXHIBIT B
FORM OF
OFFICER'S CERTIFICATE
B-1
<PAGE>
EXHIBIT C
FORM OF
OPINION OF COUNSEL
TO UNAFFILIATED SELLER
C-1
<PAGE>
EXHIBIT 4.5
<PAGE>
FINANCIAL GUARANTY
INSURANCE POLICY
FINANCIAL
SECURITY
ASSURANCE-SM-
Trust: As described in Endorsement No. 1 Policy No.: 50514-N
Certificates: $38,799,000 ABFS Mortgage Loan Date of Issuance: 9/27/96
Trust 1996-2, Mortgage Pass-Through
Certificates, Series 1996-2, Class A
FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"), for consideration
received, hereby UNCONDITIONALLY AND IRREVOCABLY GUARANTEES to the Trustee for
the benefit of each Holder, subject only to the terms of this Policy (which
includes each indorsement hereto), the full and complete payment of Guaranteed
Distributions with respect to the Certificates of the Trust referred to above.
For the further protection of each Holder, Financial Security irrevocably
and unconditionally guarantees payment of the amount of any distribution of
principal or interest with respect to the Certificates made during the Term of
this Policy to such Holder that is subsequently avoided in whole or in part as a
preference payment under applicable law.
Payment of any amount required to be paid under this Policy will be made
following receipt by Financial Security of notice as described in Endorsement
No. 1 hereto.
Financial Security shall be subrogated to the rights of each Holder to
receive distributions with respect to each Certificate held by such Holder to
the extent of any payment by Financial Security hereunder.
Except to the extent expressly modified by Endorsement No. 1 hereto, the
following terms shall have the meanings specified for all purposes of this
Policy. "Holder" means the registered owner of any Certificate as indicated on
the registration books maintained by or on behalf of the Trustee for such
purpose or, if the Certificate is in bearer form, the holder of the Certificate.
"Trustee," "Guaranteed Distributions" and "Term of this Policy" shall have the
meanings set forth in Endorsement No. 1 hereto.
This Policy sets forth in full the undertaking of Financial Security, and
shall not be modified, altered or affected by any other agreement or instrument,
including any modification or amendment thereto. Except to the extent expressly
modified by an endorsement hereto, the premiums paid in respect of this Policy
are nonrefundable for any reason whatsoever. This Policy may not be canceled or
revoked during the Term of this Policy. An acceleration payment shall not be
due under this Policy unless such acceleration is at the sole option of
Financial Security. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY
INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
In witness whereof, FINANCIAL SECURITY ASSURANCE INC. has caused this
Policy to be executed on its behalf by its Authorized Officer.
FINANCIAL SECURITY ASSURANCE INC.
By /s/ Bruce Stein
---------------------------------
AUTHORIZED OFFICER
A subsidiary of Financial Security Assurance Holdings Ltd.
350 Park Avenue, New York, NY 10022-6022
Form 101NY (5/89)
<PAGE>
ENDORSEMENT NO. 1 TO
FINANCIAL GUARANTY INSURANCE POLICY
FINANCIAL SECURITY ASSURANCE INC.
TRUST: Established pursuant to the Pooling and Servicing Agreement,
dated as of August 31, 1996, among Prudential Securities
Secured Financing Corporation, as Depositor, American
Business Credit, Inc., as Servicer, and The Chase Manhattan
Bank, as Trustee
CERTIFICATES: $38,799,000 ABFS Mortgage Loan Trust 1996-2, Mortgage Pass-
Through Certificates, Series 1996-2, Class A
POLICY NO.: 50514-N
DATE OF ISSUANCE: September 27, 1996
1. DEFINITIONS. For all purposes of this Policy, the terms specified
below shall have the meanings or constructions provided below. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
provided in the Pooling and Servicing Agreement unless the context shall
otherwise require.
"BUSINESS DAY" means any day other than (i) a Saturday or Sunday, or (ii) a
day on which banking institutions in the City of New York,are authorized or
obligated by law or executive order to be closed.
"GUARANTEED DISTRIBUTIONS" means, with respect to each Distribution Date,
the distribution to be made to Holders in an aggregate amount equal to the
Insured Distribution Amount, in each case in accordance with the original terms
of the Certificates when issued and without regard to any amendment or
modification of the Certificates or the Pooling and Servicing Agreement except
amendments or modifications to which Financial Security has given its prior
written consent. Guaranteed Distributions shall not include, nor shall coverage
be provided under this Policy in respect of, any taxes, withholding or other
charge imposed by any governmental authority due in connection with the payment
of any Guaranteed Distribution to a Holder.
"POLICY" means this Financial Guaranty Insurance Policy and includes each
endorsement thereto.
"POLICY PAYMENTS ACCOUNT" means the "Certificate Insurance Payment Account"
as defined in the Pooling and Servicing Agreement.
<PAGE>
"POOLING AND SERVICING AGREEMENT" means the Pooling and Servicing
Agreement, dated as of August 31, 1996, among Prudential Securities Secured
Financing Corporation, as Depositor, American Business Credit, Inc., as
Servicer, and The Chase Manhattan Bank, as Trustee.
"RECEIPT" and "RECEIVED" mean actual delivery to Financial Security and to
the Fiscal Agent (as defined below), if any, prior to 12:00 noon, New York City
time, on a Business Day; delivery either on a day that is not a Business Day, or
after 12:00 noon, New York City time, shall be deemed to be receipt on the next
succeeding Business Day. If any notice or certificate given hereunder by the
Trustee is not in proper form or is not properly completed, executed or
delivered, it shall be deemed not to have been Received, and Financial Security
or its Fiscal Agent shall promptly so advise the Trustee and the Trustee may
submit an amended notice.
"TERM OF THIS POLICY" means the period from and including the Date of
Issuance to and including the date on which (i) the Certificate Principal
Balance of all of the Certificates is zero, (ii) any period during which any
payment on the Certificates could have been avoided in whole or in part as a
preference payment under applicable bankruptcy, insolvency, receivership or
similar law has expired, and (iii) if any proceedings requisite to avoidance as
a preference payment have been commenced prior to the occurrence of (i) and
(ii), a final and nonappealable order in resolution of each such proceeding has
been entered.
"TRUSTEE" means The Chase Manhattan Bank in its capacity as Trustee under
the Pooling and Servicing Agreement and any successor in such capacity.
2. NOTICES AND CONDITIONS TO PAYMENT IN RESPECT OF GUARANTEED
DISTRIBUTIONS. Following Receipt by Financial Security of a notice and
certificate from the Trustee in the form attached as Exhibit A to this
Endorsement, Financial Security will pay any amount payable hereunder in respect
of Guaranteed Distributions out of the funds of Financial Security on the later
to occur of (a) 12:00 noon, New York City time, on the second Business Day
following such Receipt; and (by 12:00 noon, New York City time, on the
Distribution Date to which such claim relates. Payments due hereunder in
respect of Guaranteed Distributions will be disbursed by wire transfer of
immediately available funds to the Policy Payments Account established pursuant
to the Pooling and Servicing Agreement or, if no such Policy Payments Account
has been established, to the Trustee.
Financial Security shall be entitled to pay any amount hereunder in respect
of Guaranteed Distributions, including any acceleration payment, whether or not
any notice and certificate shall have been received by Financial Security as
provided above. Financial Security shall be entitled to pay hereunder any
amount in respect of Guaranteed Distributions on an accelerated basis at any
time or from time to time, in whole or in part, prior to the scheduled date of
payment thereof. Financial Security's obligations hereunder in respect of
Guaranteed Distributions shall be discharged to the extent funds are
2
<PAGE>
disbursed by Financial Security As provided herein whether or not such funds are
properly applied by the Trustee.
3. NOTICES AND CONDITIONS TO PAYMENT IN RESPECT OF GUARANTEED
DISTRIBUTIONS AVOIDED AS PREFERENCE PAYMENTS. If any Guaranteed Distribution is
avoided as a preference payment under applicable bankruptcy, insolvency,
receivership or similar law, Financial Security will pay such amount out of the
funds of Financial Security on the later of (a) the date when due to be paid
pursuant to the Order referred to below or (b) the first to occur of (i) the
fourth Business Day following Receipt by Financial Security from the Trustee of
(A) a certified copy of the order of the court or other governmental body which
exercised jurisdiction to the effect that the Holder is required to return
principal or interest distributed with respect to the Certificates during the
Term of this Policy because such distributions were avoidable as preference
payments under applicable bankruptcy law (the "Order"), (B) a certificate of the
Holder that the Order has been entered and is not subject to any stay and (C) an
assignment duly executed and delivered by the Holder, in such form as is
reasonably required by Financial Security and provided to the Holder by
Financial Security, irrevocably assigning to Financial Security all rights and
claims of the Holder relating to or arising under the Certificates against the
debtor which made such preference payment or otherwise with respect to such
preference payment or (ii) the date of Receipt by Financial Security from the
Trustee of the items referred to in clauses (A), (B) and (C) above if, at least
four Business Days prior to such date of Receipt, Financial Security shall have
Received written notice from the Trustee that such items were to be delivered on
such date and such date was specified in such notice. Such payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order and not to the Trustee or any Holder directly
(unless a Holder has previously paid such amount to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order, in which case
such payment shall be disbursed to the Trustee for distribution to such Holder
upon proof of such payment reasonably satisfactory to Financial Security). In
connection with the foregoing, Financial Security shall have the rights provided
pursuant to Section 6.04(f) of the Pooling and Servicing Agreement.
4. GOVERNING LAW. This Policy shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
conflict of laws principles thereof.
5. FISCAL AGENT. At any time during the Term of this Policy, Financial
Security may appoint a fiscal agent (the "Fiscal Agent") for purposes of this
Policy by written notice to the Trustee at the notice address specified in the
Pooling and Servicing Agreement specifying the name and notice address of the
Fiscal Agent. From and after the date of receipt of such notice by the Trustee,
i) copies of all notices and documents required to be delivered to Financial
Security pursuant to this Policy shall be simultaneously delivered to the Fiscal
Agent and to Financial Security and shall not be deemed Received until Received
by both and (ii) all payments required to be made by Financial Security under
this Policy may be made directly by Financial Security or by the Fiscal Agent on
behalf of Financial Security. The Fiscal Agent is the agent of Financial
3
<PAGE>
Security only and the Fiscal Agent shall in no event be liable to any Holder for
any acts of the Fiscal Agent or any failure of Financial Security to deposit, or
cause to be deposited, sufficient funds to make payments due under this Policy.
6. WAIVER OF DEFENSES. To the fullest extent permitted by applicable law
Financial Security agrees not to assert, and hereby waives, for the benefit of
each Holder, all rights (whether by counterclaim, setoff or otherwise) and
defenses (including, without limitation, the defense of fraud), whether acquired
by subrogation, assignment or otherwise, to the extent that such rights and
defenses may be at available to Financial Security to avoid payment of its
obligations under this Policy in accordance with the express provisions of this
Policy.
7. NOTICES. All notices to be given hereunder shall be in writing
(except as otherwise specifically provided herein) and shall be mailed by
registered mail or personally delivered or telecopied to Financial Security as
follows:
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Senior Vice President
- Surveillance
Telecopy No.: (212) 339-3518
Confirmation: (212) 826-0100
Financial Security may specify a different address or addressees in writing
mailed or delivered to the Trustee.
8. PRIORITIES. In the event any term or provision of the face of this
Policy is inconsistent with the provisions of this Endorsement, the provisions
of this Endorsement shall take precedence and shall be binding.
9. EXCLUSIONS FROM INSURANCE GUARANTY FUNDS. This Policy is not covered
by the Property/Casualty Insurance Security Fund specified in Article 76 of the
New York Insurance Law. This Policy is not covered by the Florida Insurance
Guaranty Association created under Part II of Chapter 631 of the Florida
Insurance Code. In the event Financial Security were to become insolvent, any
claims arising under this Policy are excluded from coverage by the California
Insurance Guaranty Association, established pursuant to Article 14.2 of Chapter
1 of Part 2 of Division I of the California Insurance Code.
10. SURRENDER OF POLICY. The Holder shall surrender this Policy to
Financial Security for cancellation upon expiration of the Term of this Policy.
4
<PAGE>
IN WITNESS WHEREOF, FINANCIAL SECURITY ASSURANCE INC. has caused this
Endorsement No. 1 to be executed by its Managing Director.
FINANCIAL SECURITY ASSURANCE INC.
By /s/ Bruce Stein
---------------------------------
Authorized Officer
5
<PAGE>
Exhibit A
To Endorcement 1
NOTICE OF CLAIM AND CERTIFICATE
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10023
The undersigned, a duly authorized officer of The Chase Manhattan Bank (the
"Trustee"), hereby certifies to Financial Security Assurance Inc. ("Financial
Security"), with reference to Financial Guaranty Insurance Policy No. 50514-N
dated September 27, 1996 (the "Policy") issued by Financial Security in respect
of the ABFS Mortgage Loan Trust 1996-2, Mortgage Pass-Through Certificates
Series 1996-2, Class A (the "Certificates"), that:
(i) The Trustee is the Trustee under the Pooling and Servicing
Agreement for the Holders.
(ii) The sum of all amounts on deposit (or scheduled to be on
deposit) in the Certificate Account and available for distribution to the
Holders pursuant to the Pooling and Servicing Agreement will be $_______
(the "Shortfall") less than the Guaranteed Distributions with respect to
the Distribution Date occurring on [insert date].
(iii) The Trustee is making a claim under the Policy for the
Shortfall to be applied to distributions of principal or interest or both
with respect to the Certificates.
(iv) The Trustee agrees that, following receipt of funds from
Financial Security, it shall (a) hold such amounts in trust and apply the
same directly to the payment of Guaranteed Distributions on the
Certificates when due; (b) not apply such funds for any other purpose; (c)
not commingle such funds with other funds held by the Trustee; and (d)
maintain an accurate record of such payments with respect to each
Certificate and the corresponding claim on the Policy and proceeds thereof
and, if the Certificate is required to be surrendered or presented for such
payment, shall stamp on each such Certificate the legend "$[insert
applicable amount] paid by Financial Security and the balance hereof has
been cancelled and reissued" and then shall deliver such Certificate to
Financial Security.
A-1
<PAGE>
(v) The Trustee, on behalf of the Holders, hereby assigns to
Financial Security the rights of the Holders with respect to the
Certificates to the extent of any payments under the Policy, including,
without limitation, any amounts due to the Holders in respect of securities
law violations arising from the offer and sale of the Certificates. The
foregoing assignment is in addition to, and not in limitation of, rights of
subrogation otherwise available to Financial Security in respect of such
payments. The foregoing assignment is in addition to, and not in
limitation of, the rights of subrogation otherwise available to Financial
Security in respect of Guaranteed Distributions. The Trustee shall take
such action and deliver such instruments as may be reasonably requested or
required by Financial Security to effectuate the purpose or provisions of
this clause (v).
(vi) The Trustee, on its behalf and on behalf of the Holders, hereby
appoints Financial Security as agent and attorney-in-fact for the Trustee
and each such Holder in any legal proceeding with respect to the
Certificates. The Trustee hereby agrees that, so long as a Certificate
Insurer Default (as defined in the Pooling and Servicing Agreement) shall
not exist, Financial Security may at any time during the continuation of
any proceeding relating to the Sponsor or the Certificates under the United
States Bankruptcy Code or any other applicable bankruptcy, insolvency,
receivership, rehabilitation or similar law (an "Insolvency Proceeding")
direct all matters relating to such Insolvency Proceeding, including,
without limitation, (A) all matters relating to any claim in connection
with an Insolvency Proceeding seeking the avoidance as a preferential
transfer of any payment made with respect to the Certificates (a
"Preference Claim"), (B) the direction of any appeal of any order relating
to any Preference Claim at the expense of Financial Security but subject to
reimbursement as provided in the Insurance Agreement, and (C) the posting
of any surety, supersedeas or performance bond pending any such appeal. In
addition, the Trustee hereby agrees that Financial Security shall be
subrogated to, and the Trustee, on its behalf and on behalf of each Holder,
hereby delegates and assigns to Financial Security, to the fullest extent
permitted by law, the rights of the Trustee and each Holder in the conduct
of any Insolvency Proceeding, including, without limitation, all rights of
any party to an adversary proceeding or action with respect to any court
order issued in connection with any such Insolvency Proceeding.
(vii) Payment should be made by wire transfer directed to [the Policy
Payments Account.]
Unless the context otherwise requires, capitalized terms used in this
Notice of Claim and Certificate and not defined herein shall have the meanings
provided in the Policy.
A-2
<PAGE>
IN WITNESS WHEREOF, the Trustee has executed and delivered this Notice of
Claim and Certificate as of the _____ day of __________, ____.
THE CHASE MANHATTAN BANK
By_________________________________
Title______________________________
- ------------------------------------------------
For Financial Security or Fiscal Agent Use Only
Wire transfer sent on _________ by _________
Confirmation Number __________
A-3
<PAGE>
EXHIBIT 24.1
<PAGE>
CONSENT of INDEPENDENT ACCOUNTANTS
----------
We consent to the incorporation by reference in the Prospectus Supplement dated
September 12, 1996 (to Prospectus dated August 4, 1995) of Prudential Securities
Secured Financing Corporation, relating to the Mortgage Pass-Through
Certificates, Series 1996-2 of ABFS Mortgage Loan Trust 1996-2 of our report
dated January 17, 1996, on our audits of the consolidated financial statements
of Financial Security Assurance Inc. and Subsidiaries as of December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995.
We also consent to the reference to our Firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
New York, New York
September 27, 1996
<PAGE>
EXHIBIT 28.1
<PAGE>
- --------------------------------------------------------------------------------
INDEMNIFICATION AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
ABFS 1996-2, INC.
AMERICAN BUSINESS CREDIT, INC.
HOMEAMERICAN CREDIT, INC. D/B/A UPLAND MORTGAGE
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
and
PRUDENTIAL SECURITIES INCORPORATED
Dated as of September 12, 1996
ABFS Mortgage Loan Trust 1996-2
Mortgage Pass-Through Certificates, Series 1996-2
$38,799,000 Class A Certificates
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Section 1. DEFINITIONS................................................... 1
Section 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
OF FINANCIAL SECURITY......................................... 3
Section 3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
OF THE UNDERWRITER............................................ 5
Section 4. INDEMNIFICATION............................................... 6
Section 5. INDEMNIFICATION PROCEDURES.................................... 6
Section 6. CONTRIBUTION.................................................. 7
Section 7. MISCELLANEOUS................................................. 8
EXHIBIT
Exhibit A Opinion of General Counsel
<PAGE>
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT dated as of September 12, 1996, among FINANCIAL
SECURITY ASSURANCE INC. ("Financial Security"), PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION (the "Depositor"), AMERICAN BUSINESS CREDIT, INC. (the
"Company"), ABFS 1996-2, INC. (the "Seller"), HOMEAMERICAN CREDIT, INC., D/B/A
UPLAND MORTGAGE (the "Originator") and PRUDENTIAL SECURITIES INCORPORATED (the
"Underwriter"):
Section 1. DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings provided below:
"Agreement" means this Indemnification Agreement, as amended from time to
time.
"Company Party" means any of the Company, its parent, subsidiaries and
affiliates and any shareholder, director, officer, employee, agent or
"controlling person" (as such term is used in the Securities Act) of any of the
foregoing.
"Depositor Party" means any of the Depositor, its parent, subsidiaries and
affiliates and any shareholder, director, officer, employee, agent or
"controlling person" (as such term is used in the Securities Act) of any of the
foregoing.
"Financial Security Agreements" means this Agreement and the Insurance
Agreement.
"Financial Security Information" has the meaning provided in Section 2(g)
hereof.
"Financial Security Party" means any of Financial Security, its parent,
subsidiaries and affiliates, and any shareholder, director, officer, employee,
agent or "controlling person" (as such term is used in the Securities Act) of
any of the foregoing.
"Indemnified Party" means any party entitled to any indemnification
pursuant to Section 4 hereof.
"Indemnifying Party" means any party required to provide indemnification
pursuant to Section 4 hereof.
"Insurance Agreement" means the Insurance and Indemnity Agreement, dated as
of September 1, 1996, by and among Financial Security, the Depositor, the
Company, the Originator and the Seller.
<PAGE>
-2-
"Losses" means (a) any actual out-of-pocket damages incurred by the party
entitled to indemnification or contribution hereunder, (b) any actual
out-of-pocket costs or actual expenses reasonably incurred by such party,
including reasonable fees or expenses of its counsel and other expenses incurred
in connection with investigating or defending any claim, action or other
proceeding which entitle such party to be indemnified hereunder (subject to the
limitations set forth in Section 5 hereof), to the extent not paid, satisfied or
reimbursed from funds provided by any other Person other than an affiliate of
such party (provided that the foregoing shall not create or imply any obligation
to pursue recourse against any such other Person), plus (c) interest on the
amount paid by the party entitled to indemnification or contribution from the
date of such payment to the date of payment by the party who is obligated to
indemnify or contribute hereunder at the statutory rate applicable to judgments
for breach of contract.
"Offering Circular" means the Prospectus dated August 4, 1995, including
the Prospectus Supplement thereto dated September 12, 1996, relating to the
Securities.
"Offering Document" means the Offering Circular and any amendments or
supplements thereto and any other material or documents delivered by the
Underwriter to any Person in connection with the offer or sale of the
Securities.
"Originator Party" means any of the Originator, its parent, subsidiaries
and affiliates and any shareholder, director, officer, employee, agent or
"controlling person" (as such term is used in the Securities Act) of any of the
foregoing.
"Person" means any individual, partnership, joint venture, corporation,
trust, unincorporated organization or other organization or entity (whether
governmental or private).
"Policy" means the financial guaranty insurance policy delivered by
Financial Security with respect to the Securities.
"Securities" means the Class A Certificates issued pursuant to a Pooling
and Servicing Agreement, dated as of August 31, 1996 by and among, the
Depositor, the Company and The Chase Manhattan Bank, as trustee.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Seller Party" means any of the Seller, its parent, subsidiaries and
affiliates, and any shareholder, director, officer, employee, agent or
"controlling person" (as such term is used in the Securities Act) of any of the
foregoing.
"Underwriting Agreement" means the Underwriting Agreement dated as of
September 12, 1996, between the Depositor and the Underwriter in respect of the
Securities.
"Underwriter Information" has the meaning provided in Section 3(c) hereof.
<PAGE>
-3-
"Underwriter Party" means any of the Underwriter, its parent, subsidiaries
and affiliates and any shareholder, director, officer, employee, agent or
"controlling person" (as such term is used in the Securities Act) of any of the
foregoing.
Section 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF FINANCIAL
SECURITY. Financial Security represents, warrants and agrees, as of the date
hereof and as of the Closing Date, as follows:
(a) ORGANIZATION, ETC. Financial Security is a stock insurance company
duly organized, validly existing and authorized to transact financial guaranty
insurance business under the laws of the State of New York.
(b) AUTHORIZATION, ETC. The Policy and the Financial Security Agreements
have been duly authorized, executed and delivered by Financial Security.
(c) VALIDITY, ETC. The Policy and the Financial Security Agreements
constitute valid and binding obligations of Financial Security, enforceable
against Financial Security in accordance with their terms, subject, as to the
enforcement of remedies, to bankruptcy, insolvency, reorganization,
rehabilitation, moratorium and other similar laws affecting the enforceability
of creditors' rights generally applicable in the event of the bankruptcy or
insolvency of Financial Security and to the application of general principles of
equity and subject, in the case of this Agreement, to principles of public
policy limiting the right to enforce the indemnification provisions contained
herein.
(d) EXEMPTION FROM REGISTRATION. The Policy is exempt from registration
under the Securities Act.
(e) NO CONFLICTS. Neither the execution or delivery by Financial Security
of the Policy or the Financial Security Agreements, nor the performance by
Financial Security of its obligations thereunder, will conflict with any
provision of the certificate of incorporation or the bylaws of Financial
Security nor result in a breach of, or constitute a default under, any material
agreement or other instrument to which Financial Security is a party or by which
any of its property is bound nor violate any judgment, order or decree
applicable to Financial Security of any governmental or regulatory body,
administrative agency, court or arbitrator having jurisdiction over Financial
Security (except that, in the published opinion of the Securities and Exchange
Commission, the indemnification provisions of this Agreement, insofar as they
relate to indemnification for liabilities arising under the Securities Act, are
against public policy as expressed in the Securities Act and are therefore
unenforceable).
(f) FINANCIAL INFORMATION. The consolidated balance sheets of Financial
Security as of December 31, 1995 and December 31, 1994 and the related
consolidated statements of income, changes in shareholder's equity and cash
flows for the fiscal years then ended and the interim consolidated balance sheet
of Financial Security as of June 30, 1996, and the related
<PAGE>
-4-
statements of income, changes in shareholder's equity and cash flows for the
interim period then ended, furnished by Financial Security for use in the
Offering Circular, fairly present in all material respects the financial
condition of Financial Security as of such dates and for such periods in
accordance with generally accepted accounting principles consistently applied
(subject as to interim statements to normal year-end adjustments) and since the
date of the most current interim consolidated balance sheet referred to above
there has been no change in the financial condition of Financial Security which
would materially and adversely affect its ability to perform its obligations
under the Policy.
(g) FINANCIAL SECURITY INFORMATION. The information in the Offering
Circular set forth under the caption "The Certificate Insurer" (as revised from
time to time in accordance with the provisions hereof, the "Financial Security
Information") is limited and does not purport to provide the scope of disclosure
required to be included in a prospectus with respect to a registrant in
connection with the offer and sale of securities of such registrant registered
under the Securities Act. Within such limited scope of disclosure, however, as
of the date of the Offering Circular and as of the date hereof, the Financial
Security Information does not contain any untrue statement of a material fact,
or omit to state a material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
(h) ADDITIONAL INFORMATION. Financial Security will furnish to the
Underwriter, the Company or the Depositor, upon request of the Underwriter, the
Company or the Depositor, as the case may be, copies of Financial Security's
most recent financial statements (annual or interim, as the case may be) which
fairly present in all material respects the financial condition of Financial
Security as of the dates and for the periods indicated, in accordance with
generally accepted accounting principles consistently applied except as noted
therein (subject, as to interim statements, to normal year-end adjustments);
provided, however, that, if the Underwriter, the Company, the Seller or the
Depositor shall require a manually signed report or consent of Financial
Security's auditors in connection with such financial statements, such report or
consent shall be at the expense of the Underwriter, the Company, the Seller or
the Depositor, as the case may be. In addition, if the delivery of an Offering
Circular relating to the Securities is required at any time prior to the
expiration of nine months after the time of issue of the Offering Circular in
connection with the offering or sale of the Securities, the Depositor or the
Underwriter will notify Financial Security of such requirement to deliver an
Offering Circular and Financial Security will promptly provide the Underwriter
and the Depositor with any revisions to the Financial Security Information that
are in the judgment of Financial Security necessary to prepare an amended
Offering Circular or a supplement to the Offering Circular which will correct
such statement or omission.
(i) OPINION OF COUNSEL. Financial Security will furnish to the Seller, the
Originator, the Depositor, the Underwriter and the Company on the closing date
for the sale of the Securities an opinion of its Associate General Counsel, to
the effect set forth in Exhibit A
<PAGE>
-5-
attached hereto, dated such closing date and addressed to the Seller, the
Originator, the Depositor, the Underwriter and the Company.
(j) CONSENTS AND REPORTS OF INDEPENDENT ACCOUNTANTS. Financial Security
will furnish to the Underwriter, the Company and the Depositor, upon request, as
comfort from its independent accountants in respect of its financial condition,
(i) at the expense of the Person specified in the Insurance Agreement, a copy of
the Offering Circular, including either a manually signed consent or a manually
signed report of Financial Security's independent accountants and (ii) the
quarterly review letter by Financial Security's independent accountants in
respect of the most recent interim financial statements of Financial Security.
Nothing in this Agreement shall be construed as a representation or
warranty by Financial Security concerning the rating of its claims-paying
ability by Standard & Poor's Ratings Services or Moody's Investors Service, Inc.
or any other rating agency (collectively, the "Rating Agencies"). The Rating
Agencies, in assigning such ratings, take into account facts and assumptions not
described in the Offering Circular and the facts and assumptions which are
considered by the Rating Agencies, and the ratings issued thereby, are subject
to change over time.
Section 3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE
UNDERWRITER. The Underwriter represents, warrants and agrees, as of the date
hereof and as of the Closing Date, as follows:
(a) COMPLIANCE WITH LAWS. The Underwriter will comply in all material
respects with all legal requirements in connection with offers and sales of the
Securities and make such offers and sales in the manner provided in the Offering
Circular.
(b) OFFERING DOCUMENT. The Underwriter will not use, or distribute to
other broker-dealers for use, any Offering Document in connection with the offer
and sale of the Securities unless such Offering Document includes such
information as has been furnished by Financial Security for inclusion therein
and the information therein concerning Financial Security has been approved by
Financial Security in writing. Financial Security hereby consents to the
information in respect of Financial Security included in the Offering Circular.
Each Offering Document will include the following statement: "The Policy is not
covered by the property/casualty insurance security fund specified in Article 76
of the New York Insurance Law".
(c) UNDERWRITING INFORMATION. The following information constitutes the
only information furnished by the Underwriter (the "Underwriter Information"):
(i) the statements set forth in the last two paragraphs on the front cover page
of the Offering Circular regarding market making; (ii) the statements set forth
under the heading "Plan of Distribution"; and (iii) the statements set forth in
materials delivered by the Underwriter to the Depositor within the meaning of
the no-action letter dated May 20, 1994 issued by the Division of Corporation
Finance of the Securities Exchange Commission (the "Commission") to Kidder,
Peabody
<PAGE>
-6-
Acceptance Corporation I, Kidder, Peabody & Co. Incorporated and Kidder
Structured Asset Corporation and the no-action letter dated May 27, 1994
issued by the Division of Corporation Finance of the Commission to the Public
Securities Association and filed by the Sponsor with the Commission in the
Current Report or Reports on Form 8-K (the "Form 8-K"). The Underwriter
confirms that such statements (to such extent) are correct.
Section 4. INDEMNIFICATION. (a) Financial Security agrees, upon the
terms and subject to the conditions provided herein, to indemnify, defend and
hold harmless each Depositor Party, each Company Party, each Seller Party, each
Originator Party and each Underwriter Party against (i) any and all Losses
incurred by them with respect to the offer and sale of the Securities and
resulting from Financial Security's breach of any of its representations,
warranties or agreements set forth in Section 2 hereof and (ii) any and all
Losses to which any Depositor Party, Company Party, Seller Party, Originator
Party or Underwriter Party may become subject, under the Securities Act or
otherwise, insofar as such Losses arise out of or result from an untrue
statement of a material fact contained in any Offering Document or the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or omission was made in the Financial
Security Information included therein in accordance with the provisions hereof.
(b) The Underwriter agrees, upon the terms and subject to the conditions
provided herein, to indemnify, defend and hold harmless each Financial Security
Party against (i) any and all Losses incurred by them with respect to the offer
and sale of the Securities and resulting from the Underwriter's breach of any of
its representations, warranties or agreements set forth in Section 3 hereof and
(ii) any and all Losses to which any Financial Security Party may become
subject, under the Securities Act or otherwise, insofar as such Losses arise out
of or result from an untrue statement of a material fact contained in any
Offering Document or the omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
omission was made in the Underwriter Information included therein.
(c) Upon the incurrence of any Losses for which a party is entitled to
indemnification hereunder, the Indemnifying Party shall reimburse the
Indemnified Party promptly upon establishment by the Indemnified Party to the
Indemnifying Party of the Losses incurred.
Section 5. INDEMNIFICATION PROCEDURES. Except as provided below in
Section 6 with respect to contribution or in Section 7(e), the indemnification
provided herein by an Indemnifying Party shall be the exclusive remedy of any
and all Indemnified Parties for the breach of a representation, warranty or
agreement hereunder by an Indemnifying Party; provided, however, that each
Indemnified Party shall be entitled to pursue any other remedy at law or in
equity for any such breach so long as the damages sought to be recovered shall
not exceed the Losses incurred thereby resulting from such breach. In the event
that any action or regulatory proceeding shall be commenced or claim asserted
which may entitle an Indemnified Party to be indemnified under this Agreement,
such party shall give the Indemnifying Party
<PAGE>
-7-
written or telegraphic notice of such action or claim reasonably promptly after
receipt of written notice thereof. The Indemnifying Party shall be entitled to
participate in and, upon notice to the Indemnified Party, assume the defense of
any such action or claim in reasonable cooperation with, and with the reasonable
cooperation of, the Indemnified Party. The Indemnified Party will have the
right to employ its own counsel in any such action in addition to the counsel of
the Indemnifying Party, but the fees and expenses of such counsel will be at the
expense of such Indemnified Party, unless (a) the employment of counsel by the
Indemnified Party at its expense has been authorized in writing by the
Indemnifying Party, (b) the Indemnifying Party has not in fact employed counsel
to assume the defense of such action within a reasonable time after receiving
notice of the commencement of the action, or (c) the named parties to any such
action or proceeding (including any impleaded parties) include both the
Indemnifying Party and one or more Indemnified Parties, and the Indemnified
Parties shall have been advised by counsel that there may be one or more legal
defenses available to them which are different from or additional to those
available to the Indemnifying Party (it being understood, however, that the
Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any time for all Depositor Parties, one such
firm for all Underwriter Parties, one such firm for all Company Parties, one
such firm for all Seller Parties, one such firm for all Originator Parties and
one such firm for all Financial Security Parties, as the case may be, which firm
shall be designated in writing by the Depositor in respect of the Depositor
Parties, by the Underwriter in respect of the Underwriter Parties, by the
Company in respect of the Company Parties, by the Seller in respect of the
Seller Parties, by the Originator in respect of the Originator Parties and by
Financial Security in respect of the Financial Security Parties), in each of
which cases the fees and expenses of counsel will be at the expense of the
Indemnifying Party and all such fees and expenses will be reimbursed promptly as
they are incurred. The Indemnifying Party shall not be liable for any
settlement of any such claim or action unless the Indemnifying Party shall have
consented thereto or be in default in its obligations hereunder. Any failure by
an Indemnified Party to comply with the provisions of this Section shall relieve
the Indemnifying Party of liability only if such failure is prejudicial to the
position of the Indemnifying Party and then only to the extent of such
prejudice.
Section 6. CONTRIBUTION. (a) To provide for just and equitable
contribution if the indemnification provided by any Indemnifying Party is
determined to be unavailable for any Indemnified Party (other than due to
application of this Section), each Indemnifying Party shall contribute to the
Losses arising from any breach of any of its representations, warranties or
agreements contained in this Agreement in such proportion as is appropriate to
reflect (i) the benefits received by such Indemnifying Party relative to the
benefits received by the Indemnified Party or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Indemnifying Party on the one hand and
the Indemnified Party on the other in connection with such Loss; provided,
however, that an Indemnifying Party
<PAGE>
-8-
shall in no event be required to contribute to all Indemnified Parties an
aggregate amount in excess of the Losses incurred by such Indemnified Parties
resulting from the breach of representations, warranties or agreements contained
in this Agreement.
(b) The relative fault of each Indemnifying Party, on the one hand, and of
each Indemnified Party, on the other, shall be determined by reference to, among
other things, whether the breach of, or alleged breach of, any representations,
warranties or agreements contained in this Agreement relates to information
supplied by, or action within the control of, the Indemnifying Party or the
Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such breach.
(c) The parties agree that Financial Security shall be solely responsible
for the Financial Security Information, the Underwriter shall be solely
responsible for the Underwriter Information and that, as and to the extent
provided in the Insurance Agreement, the balance of the Offering Document shall
be the responsibility of the Company, the Originator, the Seller and the
Depositor.
(d) Notwithstanding anything in this Section 6 to the contrary, the
Underwriter shall not be required to contribute an amount greater than the
excess, if any, of (x) the purchase prices paid by investors to the Underwriter
for the Certificates over (y) the purchase price paid by the Underwriter for the
Certificates.
(e) No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(f) Upon the incurrence of any Losses entitled to contribution hereunder,
the contributor shall reimburse the party entitled to contribution promptly upon
establishment by the party entitled to contribution to the contributor of the
Losses incurred.
(g) The provisions relating to contribution set forth in this Section 6 do
not limit the rights of any party to indemnification under Section 4.
Section 7. MISCELLANEOUS.
(a) NOTICES. All notices and other communications provided for under this
Agreement shall be delivered to the address set forth below or to such other
address as shall be designated by the recipient in a written notice to the other
party or parties hereto.
<PAGE>
-9-
If to Financial Security:
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Surveillance Department
Re: ABFS Mortgage Loan Trust 1996-2
Mortgage Pass-Through Certificates, Series
1996-2
If to the Depositor: Prudential Securities Secured Financing
Corporation One New York Plaza, 15th Floor
Attention: Managing Director, Asset-Backed Finance
Group
If to the Company: American Business Credit, Inc.
BalaPointe Office Centre
111 Presidential Boulevard
Suite 215
Bale Cynwyd, PA 19004
Attention: Jeffrey Ruben, Esq.
If to the Underwriter: Prudential Securities Incorporated
One New York Plaza, 15th Floor
New York, New York 10292
If to the Seller: ABFS 1996-2, Inc.
BalaPointe Office Centre
111 Presidential Boulevard
Suite 215
Bale Cynwyd, PA 19004
Attention: Jeffrey Ruben, Esq.
If to the Originator: HomeAmerican Credit, Inc. D/B/A Upland Mortgage
BalaPointe Office Centre
111 Presidential Boulevard
Suite 215
Bale Cynwyd, PA 19004
Attention: Jeffrey Ruben, Esq.
(b) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
<PAGE>
-10-
(c) ASSIGNMENTS. This Agreement may not be assigned by any party
without the express written consent of each other party. Any assignment
made in violation of this Agreement shall be null and void.
(d) AMENDMENTS. Amendments of this Agreement shall be in writing
signed by each party hereto.
(e) SURVIVAL, ETC. The indemnity and contribution agreements
contained in this Agreement shall remain operative and in full force and
effect, regardless of (i) any investigation made by or on behalf of any
Indemnifying Party, (ii) the issuance of the Securities or (iii) any
termination of this Agreement or the Policy. The indemnification provided
in this Agreement will be in addition to any liability which the parties
may otherwise have and shall in no way limit any obligations of the
Company, the Depositor, the Seller, the Originator or the Underwriter under
the Underwriting Agreement or the Insurance Agreement, as applicable.
(f) COUNTERPARTS. This Agreement may be executed in counterparts by
the parties hereto, and all such counterparts shall constitute one and the
same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
FINANCIAL SECURITY ASSURANCE INC.
By /s/ Daniel Farrell
-----------------------------------
Name: Daniel Farrell
---------------------------------
Authorized Officer
ABFS 1996-2, INC.
By /s/ Anthony J. Santilli, Jr.
-----------------------------------
Name: Anthony J. Santilli, Jr.
Title: President
AMERICAN BUSINESS CREDIT, INC.
By /s/ Beverly Santilli
-----------------------------------
Name: Beverly Santilli
Title: President
HOMEAMERICAN CREDIT, INC. D/B/A UPLAND
MORTGAGE
By /s/ Jeffrey M. Ruben
-----------------------------------
Name: Jeffrey M. Ruben
Title: Senior Vice President
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION
By /s/ Norman Chaleff
-----------------------------------
Name: Norman Chaleff
Title: Vice President
PRUDENTIAL SECURITIES
INCORPORATED
By /s/ Brendan Keane
-----------------------------------
Name: Brendan Keane
Title: Vice President
<PAGE>
EXHIBIT A
OPINION OF GENERAL COUNSEL
Based upon the foregoing, I am of the opinion that:
1. Financial Security is a stock insurance company duly organized,
validly existing and authorized to transact financial guaranty insurance
business under the laws of the State of New York.
2. The Policy and the Agreements have been duly authorized, executed and
delivered by Financial Security.
3. The Policy and the Agreements constitute valid and binding obligations
of Financial Security, enforceable against Financial Security in accordance with
their terms, subject, as to the enforcement of remedies, to bankruptcy,
insolvency, reorganization, rehabilitation, moratorium and other similar laws
affecting the enforceability of creditors' rights generally applicable in the
event of the bankruptcy or insolvency of Financial Security and to the
application of general principles of equity and subject, in the case of the
Indemnification Agreement, to principles of public policy limiting the right to
enforce the indemnification provisions contained therein insofar as they relate
to indemnification for liabilities arising under applicable securities laws.
4. The Policy is exempt from registration under the Securities Act of
1933, as amended (the "Act").
5. Neither the execution or delivery by Financial Security of the Policy
or the Agreements, nor the performance by Financial Security of its obligations
thereunder, will conflict with any provision of the certificate of incorporation
or the by-laws of Financial Security or, to the best of my knowledge, result in
a breach of, or constitute a default under, any agreement or other instrument to
which Financial Security is a party or by which it or any of its property is
bound or, to the best of my knowledge, violate any judgment, order or decree
applicable to Financial Security of any governmental or regulatory body,
administrative agency, court or arbitrator having jurisdiction over Financial
Security (except that in the published opinion of the Securities and Exchange
Commission the indemnification provisions of the Indemnification Agreement,
insofar as they relate to indemnification for liabilities arising under the Act,
are against public policy as expressed in the Act and are therefore
unenforceable).
In addition, please be advised that I have reviewed the description of
Financial Security under the caption "The Certificate Insurer" in the Prospectus
Supplement dated September 12, 1996 (the "Offering Document") of the Depositor
with respect to the Securities. The information provided in the Offering
Document with respect to Financial Security is limited and does not purport to
provide the scope of disclosure required to be included in a prospectus
<PAGE>
with respect to a registrant under the Act in connection with a public offering
and sale of securities of such registrant. Within such limited scope of
disclosure, however, there has not come to my attention any information which
would cause me to believe that the description of Financial Security referred to
above, as of the date of the Offering Document or as of the date of this
opinion, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (except that I express no opinion with respect to any financial
statements or other financial information contained or referred to therein).
