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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)
June 4, 1996
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Chevy Chase Bank, F.S.B. (as Transferor and Servicer under a Pooling
and Servicing Agreement dated as of May 1, 1996 providing for the
issuance of Home Loan Asset-Backed Certificates, Series 1996-1)
CHEVY CHASE BANK, F.S.B.
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(Exact name of registrant as specified in charter)
United States 333-1682 52-0897004
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) No.)
8401 Connecticut Avenue, Chevy Chase, Maryland 20815
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 986-7000
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Not Applicable
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(Former name or former address, if changed since last report.)
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Item 5. Other Events
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Chevy Chase Bank, F.S.B., as transferor (the "Transferor") and as
servicer (the "Servicer") registered issuances of up to $500,000,000 principal
amount of Chevy Chase Home Loan Asset-Backed Certificates on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended (the "Act"), by a Registration Statement on Form S-3 (Registration File
No. 333-1682) (as amended, the "Registration Statement"). Pursuant to the
Registration Statement, the Transferor caused Chevy Chase Home Loan Trust,
Series 1996-1 to issue $153,521,000 principal amount of 7.15% Home Loan Asset-
Backed Certificates, Series 1996-1 (the "Certificates"), on June 4, 1996 (the
"Closing Date"). This Current Report on Form 8-K is being filed to file a copy
of the Pooling and Servicing Agreement referred to below, the Underwriting
Agreement entered into among the Transferor, CS First Boston Corporation and
Smith Barney Inc. and the Financial Guaranty Insurance Policy issued by Capital
Markets Assurance Corporation.
The Certificates were issued pursuant to a pooling and servicing
agreement (the "Pooling and Servicing Agreement"), dated as of May 1, 1996 (the
"Initial Cut-Off Date"), among Chevy Chase Bank, F.S.B., as Transferor and as
Servicer and Norwest Bank Minnesota, National Association, as trustee (the
"Trustee").
On the Closing Date, the Seller delivered to the Trustee Initial Loans of
$153,521,961.79.
Capitalized terms not defined herein have the meanings assigned in the
Pooling and Servicing Agreement attached hereto as Exhibit 4.1.
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Item 7. Financial statements, Pro Forma Financial Information
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and Exhibits.
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(c) Exhibits
Exhibit No.
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1.1 Underwriting Agreement dated May 28, 1996 among the Transferor,
CS First Boston Corporation and Smith Barney Inc.
4.1 Pooling and Servicing Agreement dated as of May 1, 1996 among
the Transferor, the Servicer and Norwest Bank, Minnesota,
National Association.
99.1 Financial Guaranty Insurance Policy issued by Capital Markets
Assurance Corporation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
CHEVY CHASE BANK, F.S.B.
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(Registrant)
By: /s/ Joel A. Friedman
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Name: Joel A. Friedman
Title: Senior Vice President
and Controller
Date: June 6, 1996
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EXHIBIT INDEX
Sequentially
Exhibit Number Description Numbered Page
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1.1 Underwriting Agreement dated May
28, 1996 among the Transferor, CS
First Boston Corporation and Smith
Barney Inc.
4.1 Pooling and Servicing Agreement
dated as of May 1, 1996 among the
Transferor, the Servicer and
Norwest Bank Minnesota, National
Association
99.1 Financial Guaranty Insurance
Policy issued by Capital Markets
Assurance Corporation
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Exhibit 1.1
$153,521,000
CHEVY CHASE BANK, F.S.B.
Chevy Chase Home Loan Trust, Series 1996-1
UNDERWRITING AGREEMENT
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May 28, 1996
CS FIRST BOSTON CORPORATION, as
Representative of the several
underwriters listed on Schedule I
hereto (the "Representative")
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Ladies and Gentlemen:
1. Introduction. Chevy Chase Bank, F.S.B., a federally chartered stock
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savings bank ("Chevy Chase"), has authorized the issuance and sale of
$153,521,000 aggregate principal amount of 7.15% Home Loan Asset-Backed
Certificates, Series 1996-1 (the "Certificates"), evidencing fractional
undivided interests in Chevy Chase Home Loan Trust, Series 1996-1 (the "Trust").
The Trust consists of a pool of closed-end home equity debt consolidation loans
(the "Initial Closed-End Loans") and conventional home improvement installment
sales contracts and installment loan agreements (the "Initial Home Improvement
Contracts," and, together with the Initial Closed-End Loans, the "Initial
Loans") most of which are secured primarily by second or third deeds of trust or
mortgages on primarily one- to four-family residential properties, certain
monies received thereunder on or after May 1, 1996 (the "Initial Cut-off Date"),
additional closed-end home equity debt consolidation loans (the "Subsequent
Closed-End Loans," and together with the Initial Closed-End Loans, the "Closed-
End Loans") and additional conventional home improvement installment sales
contracts and installment loan agreements (the "Subsequent Home Improvement
Contracts" and, together with the Initial Home Improvement Contracts, the "Home
Improvement Contracts," the Subsequent Home Improvement Contracts, together
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with the Subsequent Closed-End Loans, the "Subsequent Loans," and the Subsequent
Loans together with the Initial Loans, the "Loans") which may be secured
primarily be second or third deeds of trust or mortgages, certain monies
received thereunder on or after their respective subsequent cut-off dates (each,
a "Subsequent Cut-off Date") and the other property and proceeds thereof, as
more fully described in the Pooling and Servicing Agreement (as defined below)
(collectively, the "Trust Property"). The Trust Property will be conveyed to
Norwest Bank Minnesota, National Association, a national banking association, as
trustee (the "Trustee"), on behalf of the certificateholders pursuant to the
Pooling and Servicing Agreement to be dated as of May 1, 1996 (the "Pooling and
Servicing Agreement") between Chevy Chase, as transferor (the "Transferor") and
as servicer (the "Servicer"), and the Trustee. The Trustee, on behalf of the
holders of the Certificates, will have the benefit of an irrevocable financial
guaranty insurance policy (the "Policy") to be issued by Capital Markets
Assurance Corporation, a New York domiciled monoline insurance company (the
"Certificate Insurer"), pursuant to an insurance and indemnity agreement dated
as of May 1, 1996 (the "Insurance Agreement") among the Certificate Insurer,
Chevy Chase, in its individual capacity and as Transferor and Servicer, and the
Trustee. In connection with the transactions contemplated hereby, CS First
Boston Corporation, Chevy Chase and the Certificate Insurer will enter into an
Indemnification Agreement dated as of May 28, 1996 (the "Indemnification
Agreement").
The Certificates are more fully described in a Registra-tion Statement
which Chevy Chase has furnished to each of you (together, the "Underwriters" and
each of you, an "Underwriter"). Capitalized terms used but not defined herein
shall have the meanings given to them in the Pooling and Servicing Agreement.
2. Representations and Warranties of Chevy Chase. Chevy Chase
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represents and warrants to, and agrees with, the Underwriters that:
(a) Chevy Chase has filed with the Securities and Exchange Commission
(the "Commission"), on February 27, 1996, a registration statement (No. 333-
1682) on Form S-3, including a prospectus, relating to the Certificates, which
has become effective. Such registration statement, as amended as of the date of
this Agreement, is hereinafter referred to as the "Registration Statement," and
the prospectus included in such Registration Statement, as supplemented by a
prospectus supplement (the "Prospectus Supplement") to reflect the terms of the
Certificates as first filed with the Commission after the date of this Agreement
pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under the
Securities Act of 1933, as amended (the "Act"), including all material
incorporated by reference therein, is
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hereinafter referred to as the "Prospectus." A "preliminary prospectus" means
any form of prospectus, including any prospectus supplement, relating to the
Certificates used prior to the date of this Agreement that is subject to
completion.
(b) On the effective date of the registration statement such
registration statement conformed in all respects to the requirements of the Act
and the rules and regulations of the Commission thereunder (the "Rules and
Regulations") 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, and on the date of this Agreement
the Registration Statement and the preliminary prospectus conform, and at the
time of the filing of the Prospectus in accordance with Rule 424(b), the
Registration Statement and the Prospectus will conform, in all respects to the
requirements of the Act and the Rules and Regulations, and neither of such
documents 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 (and with respect to the Prospectus, in the light of the
circumstances under which they were made) not misleading, except that the
foregoing does not apply to statements in or omissions from any of such
documents based upon written information furnished to Chevy Chase by any
Underwriter through the Representative specifically for use therein (it being
understood that the only such information is the Underwriter Information, as
defined in Section 8(a)(i)).
(c) Chevy Chase meets the requirements for use of Form S-3 under the
Act.
(d) The documents incorporated by reference in the Registration
Statement and Prospectus, at the time they were or hereafter are filed with the
Commission, complied and will comply in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder.
(e) Since the respective dates as of which information is given in the
Prospectus, or the Prospectus as amended and supplemented, there has not been
any material adverse change in the general affairs, management or results of
operations of Chevy Chase or of its subsidiaries otherwise than as set forth or
contemplated in the Prospectus or the Prospectus as amended and supplemented,
nor has there been any adverse change in the general affairs, management, or
results of operations of any other affiliate of Chevy Chase which could have a
material adverse effect on the general affairs, management or results of
operations of Chevy Chase or its subsidiaries, otherwise than as set forth or
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contemplated in the Prospectus or the Prospectus as amended and supplemented.
(f) Chevy Chase is a federally chartered stock savings bank duly
organized and validly existing under the laws of the United States of America,
and has full corporate power, authority and legal right to own its properties
and conduct its business as such properties are presently owned and such
business is presently conducted, and to execute, deliver and perform its
obligations under this Agreement, the Pooling and Servicing Agreement, the
Insurance Agreement and the Indemnification Agreement, and to cause the
Certificates to be issued. Chevy Chase has conducted and is conducting its
business so as to comply in all material respects with all applicable statutes
and all regulations, including, without limitation, all regulations, decisions,
directives and orders of, as applicable, the Office of Thrift Supervision and
the Federal Home Loan Bank of Atlanta.
(g) Except as set forth in the Prospectus, or the Prospectus as amended
and supplemented, (i) there are no legal, governmental or regulatory proceedings
pending to which Chevy Chase is a party or of which any of its property is the
subject, which, if determined adversely to Chevy Chase, would individually or in
the aggregate have a material adverse effect on the performance by Chevy Chase
of this Agreement, the Pooling and Servicing Agreement, the Insurance Agreement
or the Indemnification Agreement or the consummation of the transactions
contemplated hereunder or thereunder and (ii) to the best of its knowledge, no
such proceedings are threatened or contemplated by governmental or regulatory
authorities or threatened by others.
(h) This Agreement has been duly authorized and validly executed and
delivered by Chevy Chase and constitutes a valid and binding agreement of Chevy
Chase, enforceable against Chevy Chase in accordance with its terms, except to
the extent that (i) the enforceability hereof may be subject to insolvency,
reorganization, moratorium, receivership, conservatorship or other similar laws,
regulations or procedures of general applicability now or hereafter in effect
relating to or affecting creditors' or other obligees' rights generally or the
rights of creditors or obligees of federally chartered stock savings banks, the
deposits of which are insured by the Federal Deposit Insurance Corporation (the
"FDIC"), (ii) the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought and (iii)
rights to indemnification and contribution under this Agreement may be limited
by state or federal securities laws or the policies underlying such laws.
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(i) The Pooling and Servicing Agreement, the Insurance Agreement and
the Indemnification Agreement have been duly authorized and, when executed and
delivered by Chevy Chase and assuming the due authorization, execution and
delivery of the Pooling and Servicing Agreement, the Insurance Agreement and the
Indemnification Agreement by the other parties thereto, will constitute valid
and binding obligations of Chevy Chase enforceable against Chevy Chase in
accordance with their respective terms, except to the extent that (i) the
enforceability thereof may be subject to insolvency, reorganization, moratorium,
receivership, conservatorship or other similar laws, regulations or procedures
of general applicability now or hereafter in effect relating to or affecting
creditors' or obligees' rights generally or the rights of creditors or obligees
of federally chartered stock savings banks, the deposits of which are insured by
the FDIC, (ii) the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought and (iii)
rights to indemnification and contribution under the Indemnification Agreement
may be limited by state or federal securities laws or the policies underlying
such laws.
(j) The issuance and delivery of the Certificates, the consummation of
any other of the transactions contemplated herein, in the Pooling and Servicing
Agreement, in the Insurance Agreement or in the Indemnification Agreement, or
the fulfillment of the terms of this Agreement, the Pooling and Servicing
Agreement, the Insurance Agreement or the Indemnification Agreement, do not and
will not conflict with or violate any term or provision of the charter or bylaws
of Chevy Chase, any statute, order or regulation applicable to Chevy Chase of
any court, regulatory body, administrative agency or governmental body having
jurisdiction over Chevy Chase and do not and will not conflict with, result in a
breach or violation or the acceleration of or constitute a default under or
result in the creation or imposition of any lien, charge or encumbrance upon any
of the property or assets of Chevy Chase pursuant to the terms of, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which Chevy Chase is a party or by which Chevy Chase may be bound
or to which any of the property or assets of Chevy Chase may be subject except
for conflicts, violations, breaches, accelerations and defaults which would not,
individually or in the aggregate, be materially adverse to Chevy Chase or
materially adverse to the transactions contemplated by this Agreement.
(k) Arthur Andersen & Co. is an independent public accountant with
respect to Chevy Chase as required by the Act and the Rules and Regulations.
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(l) The direction by Chevy Chase to the Trustee to execute,
authenticate, issue and deliver the Certificates has been duly authorized by
Chevy Chase and, assuming the Trustee has been duly authorized to do so, when
executed, authenticated, issued and delivered by the Trustee in accordance with
the Pooling and Servicing Agreement, the Certificates will be validly issued and
outstanding and will be entitled to the benefits of the Pooling and Servicing
Agreement.
(m) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States is required for the issuance and sale of the Certificates, or the
consummation by Chevy Chase of the other transactions contemplated by this
Agreement, the Pooling and Servicing Agreement, the Insurance Agreement or the
Indemnification Agreement, except the registration under the Act of the
Certificates and such consents, approvals, authorizations, registrations or
qualifications as may have been obtained or effected or as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Certificates by you.
(n) Chevy Chase possesses all material licenses, certificates,
authorities and permits issued by the appropriate state, Federal or foreign
regulatory agencies or bodies necessary to conduct the business now conducted
by it and as described in the Prospectus and Chevy Chase has not received notice
of proceedings relating to the revocation or modification of any such license,
certificate, authority or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the conduct of its business, operations, financial condition or
income.
(o) At the time of execution and delivery of the Pooling and Servicing
Agreement, Chevy Chase (i) will have good and marketable title to the Initial
Loans being transferred by it to the Trustee pursuant thereto, free and clear of
any lien, mortgage, pledge, charge, encumbrance, adverse claim or other security
interest (collectively, "Liens"), (ii) will not have assigned to any person any
of its right, title or interest in such Initial Loans or in the Pooling and
Servicing Agreement or the Certificates and (iii) will have the power and
authority to sell such Initial Loans to the Trustee and to sell the Certificates
to you, and upon execution and delivery of the Pooling and Servicing Agreement
by the Trustee, the Trustee will have acquired legal title and beneficial
ownership of all of Chevy Chase's right, title and interest in and to the
Initial Loans and upon delivery to you of the Certificates you will have good
and marketable title to the Certificates, in each case free of Liens. At the
time of transfer of any Subsequent Loans to the Trust (each such date, a
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"Subsequent Transfer Date") Chevy Chase (i) will have good and marketable title
to the Subsequent Loans being transferred by it to the Trustee pursuant to the
related Subsequent Transfer Agreement, free and clear of any Liens, (ii) will
not have assigned to any person any of its right, title or interest in such
Subsequent Loans and (iii) will have the power and authority to sell such
Subsequent Loans to the Trustee, and the Trustee will have acquired legal title
and beneficial ownership of all of Chevy Chase's right, title and interest in
and to the Subsequent Loans free of Liens.
(p) As of the Closing Date, each of the Initial Loans will meet the
eligibility criteria described in the Prospectus and as of each Subsequent
Transfer Date each of the Subsequent Loans being transferred on such Subsequent
Transfer Date will meet the eligibility criteria described in the Prospectus.
(q) The Trust is not, and immediately following the issuance and sale
of the Certificates will not be, required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended (the "1940 Act"),
as in effect on the date hereof.
(r) Each of the Certificates, the Pooling and Servicing Agreement, the
Insurance Agreement and the Policy conforms in all material respects to the
descriptions thereof contained in the Prospectus.
(s) Any taxes, fees and other governmental charges in connection with
the execution, delivery and issuance of this Agreement, the Pooling and
Servicing Agreement, the Insurance Agreement, the Indemnification Agreement and
the Certificates that are required to be paid by Chevy Chase at or prior to the
Closing Date have been paid or will be paid at or prior to the Closing Date.
(t) As of the Closing Date, the representations and warranties of Chevy
Chase in the Pooling and Servicing Agreement and the Indemnification Agreement
will be true and correct.
Any certificate signed by an officer of Chevy Chase and delivered to
you in connection with an offering of the Certificates shall be deemed, and
shall state that it is, a representation and warranty as to the matters covered
thereby to each person to whom the representations and warranties in this
Section 2 are made.
3. Purchase, Sale and Delivery of the Certificates. The
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Underwriters' commitment to purchase the Certificates pursuant to this Agreement
shall be deemed to have been made on the basis
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of the representations and warranties herein contained and shall be subject to
the terms and conditions herein set forth. Chevy Chase agrees to instruct the
Trustee to issue and agrees to sell to the Underwriters, and the Underwriters
agree, severally and not jointly, to purchase from Chevy Chase at the purchase
price set forth on Schedule 1 hereto the principal amount of Certificates set
forth opposite their respective names on Schedule 1 hereto.
Payment of the purchase price for, and delivery of, any Certificates to
be purchased by you shall be made at the office of Stroock & Stroock & Lavan, 7
Hanover Square, New York, New York 10004, or at such other place as shall be
agreed upon by you and Chevy Chase, at 10:00 a.m. New York City time on June 4,
1996 (the "Closing Date"), or at such other time or date as shall be agreed upon
in writing by you and Chevy Chase. Payment shall be made to Chevy Chase by wire
transfer of same day funds payable to the account of Chevy Chase. Delivery of
the Certificates shall be made to you for your account against payment of the
purchase price thereof. Such Certificates shall be in such denominations and
registered in such names as you may request in writing at least one Business Day
prior to the Closing Date. For purposes of Rule 15c6-1 under the Securities
Exchange Act of 1934, the Closing Date (if later than the otherwise applicable
settlement date) shall be the settlement date for payment of funds and delivery
of the Certificates. Such Certificates, which may be in temporary form, will
be made available for examination and packaging by you no later than 3:00 p.m.
on the Business Day prior to the Closing Date.
4. Offering. It is understood that the Underwriters severally and
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not jointly propose to offer the Certificates for sale to the public (which may
include selected dealers) on the terms set forth in the Prospectus.
5. Covenants of Chevy Chase. Chevy Chase covenants with each of the
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Underwriters as follows:
(a) Chevy Chase will file the Prospectus with the Commission
pursuant to and in accordance with subparagraph (2) (or, if applicable and
if consented to by the Underwriters, subparagraph (5)) of Rule 424(b) not
later than the second Business Day following the execution and delivery of
this Agreement. Chevy Chase will advise the Underwriters promptly of any
such filing pursuant to Rule 424(b).
(b) Chevy Chase will advise the Underwriters promptly of any
proposal to amend or supplement the Registration Statement or the
Prospectus, and will not effect such amendment or supplementation without
the Underwriters' consent; and Chevy Chase will also advise the Underwriters
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promptly of the effectiveness of such amendment or supplementation (if its
effective time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of the Registration
Statement or the Prospectus and of the institution by the Commission of any
stop order proceedings in respect of the Registration Statement and Chevy
Chase will make every reasonable effort to prevent the issuance of any such
stop order and to obtain as soon as possible its lifting, if issued.
(c) If at any time when the Prospectus as amended or supplemented
is required by the Act to be delivered in connection with sales of the
Certificates by you, any event shall occur or condition exist as a result of
which it is necessary, in the opinion of counsel for Chevy Chase, to further
amend or supplement the Prospectus as then amended or supplemented in order
that the Prospectus as amended or supplemented will not include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading at the time it is delivered to a purchaser,
or if it shall be necessary, in the opinion of any such counsel, at any such
time to amend or supplement the Registration Statement or the Prospectus as
then amended or supplemented in order to comply with the requirements of the
Act or the Rules and Regulations, Chevy Chase will promptly prepare and,
subject to the other provisions of this Section 5, file with the Commission
such amendment or supplement as may be necessary to correct such untrue
statement or omission or to make the Registration Statement comply with such
requirements, and within two Business Days will furnish to you as many
copies of the Prospectus, as amended or supplemented, as you shall
reasonably request.
(d) Chevy Chase will give you reasonable notice of its intention
to file any amendment to the Registration Statement, the Prospectus or the
Prospectus as amended or supplemented, pursuant to the Act, will furnish you
with copies of any such amendment or supplement proposed to be filed a
reasonable time in advance of filing, and will not file any such amendment
or supplement to which you shall object. Neither the consent of the
Representative to, nor the delivery by the Representative of, any such
amendment or supplement shall constitute a waiver of any of the conditions
set forth in Section 6.
(e) Chevy Chase will notify you immediately, and confirm the
notice in writing, (i) of the effectiveness of any amendment to the
Registration Statement, (ii) of the
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mailing or the delivery to the Commission for filing of any supplement to
the Prospectus or the Prospectus as amended or supplemented, (iii) of the
receipt and contents of any comments from the Commission with respect to the
Registration Statement or the Prospectus or the Prospectus as amended or
supplemented, (iv) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or
for additional information and (v) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. Chevy Chase will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible
moment.
(f) Chevy Chase will deliver to you as many signed and as many
conformed copies of each Registration Statement (as originally filed) and of
each amendment thereto (including exhibits filed therewith or incorporated
by reference therein and documents incorporated by reference in the
Prospectus) as you may reasonably request.
(g) Chevy Chase will cause the Trust to make generally available
to holders of the Certificates, as soon as practicable, but no later than
sixteen months after the date hereof, an earnings statement of the Trust
covering a period of at least twelve consecutive months beginning after the
later of (i) the effective date of the registration statement relating to
the Certificates and (ii) the effective date of the most recent post-
effective amendment to the Registration Statement to become effective prior
to the date of this Agreement and, in each case, satisfying the provisions
of Section 11(a) of the Act (including Rule 158 promulgated thereunder).
(h) Chevy Chase will endeavor, in cooperation with you, to
qualify the Certificates for offering and sale under the applicable
securities laws of such states and other jurisdictions of the United States
as you may designate, and will maintain or cause to be maintained such
qualifications in effect for as long as may be required for the distribution
of the Certificates. Chevy Chase will file or cause the filing of such
statements and reports as may be required by the laws of each jurisdiction
in which the Certificates have been qualified as above provided.
(i) Chevy Chase will not, without your prior consent, publicly
offer or sell or contract to sell any securities, of which Chevy Chase is
the issuer, representing
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interests in or secured by Closed-End Loans, Home Improvement Contracts or
similar assets secured by interests in real property or improvements thereon
for a period of 30 days following the commencement of the offering of the
Certificates to the public.
(j) So long as the Certificates shall be outstanding, Chevy Chase
will deliver to you the annual statement as to compliance delivered to the
Trustee pursuant to Section 13.14 of the Pooling and Servicing Agreement and
the annual statement of a firm of independent public accountants furnished
to the Trustee pursuant to Section 13.08 of the Pooling and Servicing
Agreement as soon as such statements are furnished to the Trustee.
(k) Chevy Chase will apply the net proceeds from the sale of the
Certificates in the manner set forth in the Prospectus.
(l) If, between the date hereof or, if earlier, the dates as of
which information is given in the Prospectus and the Closing Date, to the
knowledge of Chevy Chase there shall have been any material change, or any
development involving a prospective material change in or affecting the
general affairs, management, financial position, shareholders' equity or
results of operations of Chevy Chase, Chevy Chase will give prompt written
notice thereof to you.
(m) Chevy Chase, during the period when the Prospectus is
required to be delivered under the Act, will file promptly all documents
required to be filed with the Commission pursuant to Section 13 or 14 of the
Exchange Act, including, without limitation, a Form 8-K containing this
Agreement, the Pooling and Servicing Agreement and the Policy.
6. Conditions of the Obligations of the Underwriters. The
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obligations of the several Underwriters to purchase the Certificates pursuant to
this Agreement are subject to the accuracy on and as of the Closing Date of the
representations and warranties on the part of Chevy Chase herein contained, to
the accuracy of the statements of officers of Chevy Chase made pursuant hereto,
to the performance by Chevy Chase of all of its obligations hereunder and to the
following conditions at the Closing Date:
(a) The Prospectus shall have been filed with the Commission in
accordance with the Rules and Regulations and Section 5(a) hereof. No stop
order suspending the effectiveness of the Registration Statement shall have
been
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issued and no proceedings for that purpose shall have been instituted or
threatened by the Commission.
(b) You shall have received the favorable opinion, dated the
Closing Date, of Shaw, Pittman, Potts & Trowbridge, counsel to Chevy Chase
(with respect to items (i) through (vii), (xi) (to the extent specified
therein), (xiii) and (xiv)), and other counsel to Chevy Chase reasonably
satisfactory to you (with respect to items (viii) through (x), (xi) (to the
extent specified therein) and (xii)), addressed to you and in form and scope
satisfactory to you to the effect that:
(i) Chevy Chase has been duly chartered and is validly existing as a
federally chartered stock savings bank under the laws of the United States
of America, and has full corporate power, authority and legal right to (a)
own its properties and conduct its business as described in the Prospectus,
(b) execute, deliver and perform its obligations under this Agreement, the
Pooling and Servicing Agreement, the Insurance Agreement and the
Indemnification Agreement, (c) cause the Certificates to be issued and (d)
consummate the other transactions contemplated under this Agreement, the
Pooling and Servicing Agreement, the Insurance Agreement and the
Indemnification Agreement.
(ii) Chevy Chase has duly authorized, executed and delivered the
written order to the Trustee to execute and deliver the Certificates. When
the Certificates have been duly executed, delivered and authenticated in
accordance with the Pooling and Servicing Agreement and delivered and paid
for pursuant to this Agreement, the Certificates will be validly issued,
outstanding and entitled to the benefits of the Pooling and Servicing
Agreement, subject as to enforceability to the effects of applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
and similar laws now or hereafter in effect relating to creditors' or other
obligees' rights generally or the rights of creditors or other obligees of
institutions the deposits of which are insured by the Federal Deposit
Insurance Corporation ("FDIC") and subject to general principles of equity
(whether applied in a proceeding at law or in equity).
(iii) Chevy Chase has duly authorized, executed and delivered this
Agreement, the Pooling and Servicing Agreement, the Insurance Agreement and
the Indemnification Agreement, and each of the Pooling and Servicing
Agreement, the Insurance Agreement and the Indemnification Agreement is the
legal, valid and binding obligation of Chevy Chase, enforceable against
Chevy Chase in accordance with its terms,
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subject as to enforceability (i) to the effects of applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium and similar
laws now or hereafter in effect relating to creditors' or other obligees'
rights generally or the rights of creditors or other obligees of
institutions the deposits of which are insured by the FDIC and subject to
general principles of equity (whether applied in a proceeding at law or in
equity), and (ii) to limitations on the rights to indemnification and
contribution, with respect to this Agreement and the Indemnification
Agreement, under state and federal securities laws and the policies
underlying such laws.
(iv) The execution and delivery by Chevy Chase of this Agreement, the
Pooling and Servicing Agreement, the Insurance Agreement and the
Indemnification Agreement, the transfer of the Trust Property by Chevy Chase
to the Trust, the issuance and sale of the Certificates and the consummation
by Chevy Chase of the other transactions contemplated by this Agreement, the
Pooling and Servicing Agreement, the Insurance Agreement and the
Indemnification Agreement (A) do not and will not conflict with or result in
a violation of (i) any statute or regulation of the United States of America
or the State of Maryland, (ii) the charter or bylaws of Chevy Chase or (iii)
any order, writ, judgment or decree known to us to which Chevy Chase is a
party or is subject, or (B) to our knowledge, except as contemplated in the
Agreements, do not and will not result in any lien, charge or encumbrance
upon any of the properties or assets of Chevy Chase. Such counsel may state
that they render no opinion pursuant to clause (A) of this paragraph (iv)
with respect to any statute or regulation under which rights to indemnity
and contribution for violation of federal or state securities laws may be
limited or prohibited.
(v) To such counsel's knowledge, there are no actions, proceedings or
investigations pending against Chevy Chase or threatened against Chevy Chase
before any court, administrative agency or other tribunal (i) asserting the
invalidity of the Certificates, the Trust, this Agreement, the Pooling and
Servicing Agreement, the Insurance Agreement or the Indemnification
Agreement, (ii) seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by this Agreement, the
Pooling and Servicing Agreement, the Insurance Agreement or the
Indemnification Agreement, (iii) that could adversely affect the validity or
enforceability of this Agreement, the Pooling and Servicing Agreement, the
Insurance Agreement, the Indemnification Agreement or the Certificates
against Chevy Chase or the ability of Chevy Chase to perform its
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obligations thereunder or (iv) seeking to affect adversely the federal
income tax attributes of the Certificates as described in the Prospectus and
the Prospectus Supplement under the heading "Federal Income Tax
Considerations."
(vi) No consent, license, approval, authorization or order of, or
filing with, any court or governmental agency or body is required of Chevy
Chase for the consummation by Chevy Chase of the transactions contemplated
in this Agreement, the Pooling and Servicing Agreement, the Insurance
Agreement or the Indemnification Agreement, except such consents, licenses,
approvals, authorizations or orders as have been obtained or such filings as
have been made or as may be required under state securities or Blue Sky laws
and except where the failure to obtain the same would not have a material
adverse effect upon the rights of the Certificateholders.
(vii) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against Chevy Chase that are required to
be disclosed in the Registration Statement and the Prospectus, other than
those disclosed therein.
(viii) All actions required, if any, to be taken and all filings
required to be made by Chevy Chase or the Trust under the Act and the
Exchange Act prior to the sale of the Certificates have been duly taken or
made.
(ix) The Pooling and Servicing Agreement need not be qualified under
the Trust Indenture Act and the Trust is not required to register under the
1940 Act.
(x) Such counsel has been advised by the Commission's staff that the
Registration Statement has become effective under the Act; any required
filing of the Prospectus pursuant to Rule 424(b) promulgated under the Act
has been made in the manner and within the time period required under such
rule; and to such counsel's knowledge no stop order suspending the
effectiveness of the Registration Statement or any part thereof has been
issued and no proceedings for that purpose are pending or threatened by the
Commission.
(xi) Such counsel shall state that they have participated in the
preparation of the Registration Statement and no facts have come to their
attention which may cause them to believe that the Registration Statement as
of its effective time contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein not
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misleading or that the Prospectus, as of its date or the Closing Date,
contains any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided that such counsel need not express any view with respect to (i) the
information under the heading "The Certificate Insurer" and (ii) the
financial or statistical material included in the Registration Statement or
the Prospectus. With respect to this paragraph (xi), such a statement shall
be made by Shaw, Pittman, Potts & Trowbridge with respect to the statements
in the Registration Statement and the Prospectus made under the headings
"Risk Factors --Approach to Underwriting May Affect Liquidation Proceeds"
(with respect to the third and fourth sentences thereunder), "The
Transferor" and "The Chevy Chase Home Loan Program" in the Prospectus
Supplement, and under the headings "The Transferor" and "The Trust Funds --
The Loans" in the Prospectus. Stroock & Stroock & Lavan, special counsel to
Chevy Chase, shall make such a statement with respect to the remainder of
the Registration Statement and the Prospectus other than the material
specifically identified in this paragraph (xi).
(xii) Should the FDIC be appointed as a conservator or receiver of Chevy
Chase pursuant to Section 11(c)(3)(A) of the Federal Deposit Insurance Act,
as amended (the "FDIA") or pursuant to Section 11(c)(4) of the FDIA, the
valid perfected security interest of the Trustee in the Loans would be
enforceable against Chevy Chase. For purposes of this paragraph (xii), such
counsel may assume that from the time of its execution the Pooling and
Servicing Agreement has been and will be an official record (as such term is
used in Sections 11(n)(4)(I)(iv) and 13(e)(4) of the FDIA) of Chevy Chase,
and may make such other assumptions as are customary in opinions of this
type.
(xiii) To such counsel's knowledge, there are no contracts, indentures,
mortgages, loan agreements, notes, leases or other instruments to which
Chevy Chase is a party that are required to be filed as exhibits to the
Registration Statement other than those described or referred to therein or
filed or incorporated by reference as exhibits thereto.
(xiv) The statements in the Prospectus under the heading "Certain
Legal Aspects of the Loans," to the extent that they constitute statements
of a matter of law or legal conclusions with respect to the federal laws of
the United States, or the laws of the District of Columbia, the Commonwealth
of Virginia or the State of Maryland, have been
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reviewed by such counsel and are correct in all material respects.
(c) You shall have received the favorable opinion of Shaw,
Pittman, Potts & Trowbridge with respect to those state tax matters relating
to the State of Maryland and the Commonwealth of Virginia as has been
requested by the Certificate Insurer.
(d) You shall have received the favorable opinion of counsel to
the Trustee, dated the Closing Date, addressed to you and in form and scope
satisfactory to you, to the effect that:
(i) The Trustee has duly authorized, executed and delivered the
Pooling and Servicing Agreement.
(ii) The Trustee has full power and authority to execute and
deliver the Pooling and Servicing Agreement and to perform its obligations
thereunder and such Agreement constitutes the valid, legal and binding
obligation of the Trustee, enforceable against the Trustee in accordance
with its terms.
(iii) The Certificates have been duly executed and authenticated
by the Trustee.
(iv) The execution and delivery by the Trustee of the Pooling and
Servicing Agreement and the performance by the Trustee of its duties
thereunder do not conflict with or result in a violation of (a) any law or
regulation of the United States of America or the State of New York, (b) the
charter or bylaws of the Trustee or (c) any order, writ, judgment or decree.
(v) No consent, approval or authorization of, or registration,
declaration or filing with, any court or governmental agency or body of the
United States of America or any state thereof is required for the execution,
delivery or performance by the Trustee of the Pooling and Servicing
Agreement.
(e) You shall have received the favorable opinion, dated the date
of Closing Date, of counsel for the Certificate Insurer, in form and scope
satisfactory to you, to the effect that:
(i) The Certificate Insurer is a corporation validly existing, in
good standing and licensed to transact
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the business of surety and financial guaranty insurance under the laws of
the State of New York.
(ii) The Certificate Insurer has the corporate power to execute
and deliver, and to perform its obligations under, the Policy, the Insurance
Agreement and the Indemnification Agreement.
(iii) Each of the Policy, the Insurance Agreement and the
Indemnification Agreement has been duly authorized, executed and delivered
on behalf of the Certificate Insurer.
(iv) Except as have already been obtained, no authorization,
consent, approval, license, formal exemption or declaration from, nor any
notice to or filing with, any court or governmental agency or body of the
United States of America or the State of New York which if not obtained
would affect or impair the validity or enforceability of the Policy, the
Insurance Agreement or the Indemnification Agreement against the Certificate
Insurer is required in connection with the execution and delivery by the
Certificate Insurer of the Policy, the Insurance Agreement, the
Indemnification Agreement or in connection with the Certificate Insurer's
performance of its obligations thereunder; such counsel may note that
(S)6905 of Article 69 of the New York State Insurance Law, as amended,
requires that policy forms and any amendments thereto shall be filed with
the Superintendent of the New York State Insurance Department within thirty
days of their use by the insurer if not previously so filed.
(v) Each of the Policy and, assuming due authorization, execution
and delivery of the Insurance Agreement and the Indemnification Agreement by
the parties thereto (other than the Certificate Insurer), the Insurance
Agreement and the Indemnification Agreement is the legal, valid and binding
obligation of the Certificate Insurer, enforceable against the Certificate
Insurer in accordance with its terms subject, as to enforcement, to (a)
bankruptcy, reorganization, insolvency, moratorium and other similar laws
relating to or affecting the enforcement of creditors' rights generally,
including, without limitation, laws relating to fraudulent transfers or
conveyances, preferential transfers and equitable subordination, presently
or from time to time in effect and general principles of equity (regardless
of whether such enforcement is considered in a proceeding in equity or at
law), as such laws may be applied in any such proceeding with respect to the
Certificate Insurer, and (b) the qualification that the remedy of specific
performance
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may be subject to equitable defenses and to the discretion of the court
before which any proceedings with respect thereto may be brought and (c) the
enforceability of rights to indemnification under the Indemnification
Agreement may be subject to limitations of public policy under applicable
securities laws.
(vi) The Policy is not required to be registered under the
Securities Act of 1933, as amended, in connection with the offer and sale of
the Certificates in the manner contemplated by the Prospectus Supplement.
(f) You shall have received the favorable opinion, dated the
Closing Date, of Shaw, Pittman, Potts & Trowbridge, counsel to Chevy Chase,
addressed to you and in form and scope satisfactory to you, relating to the
creation, attachment and perfection of a first priority security interest in
the Initial Loans and, when transferred to the Trustee, the Subsequent Loans
(in each case except with respect to any provisions of the Loans which
purport to encumber assets as collateral for such Loans and any rights to
enforcement with respect to such assets) in favor of the Trustee on behalf
of the Certificateholders. Such opinion may contain assumptions,
qualifications and limitations as are customary in opinions of this type and
are reasonably acceptable to the Underwriters. In rendering such opinion,
such counsel may state that they express no opinion as to the laws of any
jurisdiction other than specified federal laws of the United States of
America, the laws of the State of New York (with respect to the creation and
attachment of a security interest in the Loans) and the laws of the
Commonwealth of Virginia and the laws of the State of Maryland (with respect
to the perfection and priority of the security interest in the Loans).
(g) You shall have received the favorable opinion, dated the
Closing Date, of Stroock & Stroock & Lavan, counsel to the Underwriters,
addressed to you and in form and scope satisfactory to you to the effect
that:
(i) The statements in the Prospectus and the Prospectus
Supplement under the headings "Summary of Terms -- Federal Tax
Consideration" and "Federal Income Tax Considerations," to the extent
that they constitute statements of matters of law or legal conclusions
with respect thereto, have been reviewed by such counsel and accurately
describe the material consequences to holders of the Certificates under
the Code.
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(ii) The Certificates will be treated as debt for federal income
tax purposes.
(iii) The Trust will not be taxable as an association taxable as a
corporation or as a publicly traded partnership.
(iv) Such other matters as the Underwriters shall reasonably
require and the Transferor shall have furnished to such counsel such
documents as they may reasonably request for the purpose of enabling
them to pass upon such matters.
(h) Chevy Chase shall have furnished to you a certificate signed
on behalf of Chevy Chase by the principal accounting or principal financial
officer thereof, dated the Closing Date, as to (i) the accuracy of the
representations and warranties of Chevy Chase herein at and as of the
Closing Date, (ii) the performance by Chevy Chase of all of its obligations
hereunder to be performed at or prior to the Closing Date and (iii) such
other matters as you may reasonably request.
(i) The Trustee shall have furnished to you a certificate of the
Trustee, signed by one or more duly authorized officers of the Trustee,
dated the Closing Date, as to the due acceptance of the Pooling and
Servicing Agreement by the Trustee and the due execution and delivery of the
Certificates by the Trustee thereunder and such other matters as you shall
reasonably request.
(j) The Certificate Insurer shall have furnished to you and Chevy
Chase a certificate of the Certificate Insurer, signed by one or more duly
authorized officers of the Certificate Insurer, dated the Closing Date, to
the effect that:
(i) Each such officer has reviewed the information with respect to
the Certificate Insurer in the section of the Prospectus Supplement
captioned "The Certificate Insurer" and that although such information
does not purport to provide the scope of disclosure required to be
included by the Act with respect to a registrant in connection with the
offer and sale of securities of such registrant, such officer has no
reason to believe that such section of the Prospectus Supplement
contains 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, in the light
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of the circumstances under which they are made, not misleading; and
(ii) There has been no change in the financial condition of the
Certificate Insurer since March 31, 1996 which would have a material
adverse effect on the Certificate Insurer's ability to meet its
obligations under the Policy.
(k) The Policy shall have been issued by the Certificate Insurer
pursuant to the Insurance Agreement.
(l) The Certificates shall have been rated "AAA" by Standard and
Poor's Ratings Group and "AAA" by Moody's Investors Service, Inc., and such
ratings shall not have been rescinded.
(m) You shall have received from Arthur Andersen & Co., or other
independent certified public accountants acceptable to you, letters, on or
prior to the date of this Agreement delivered at such times in form
satisfactory to you, confirming that they are independent public accountants
within the meaning of the Act and the Rules and Regulations and stating in
effect that (i) they have performed certain specified procedures as a result
of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting, financial
or statistical information derived from the general accounting records of
Chevy Chase) set forth in the Registration Statement and the Prospectus (and
any supplements thereto), agrees with the accounting records of Chevy Chase,
excluding any questions of legal interpretation, and (ii) they have
performed certain specified procedures with respect to the accounts.
(n) Prior to the Closing Date, you shall have been furnished with
such documents and opinions as you may reasonably require in order to
evidence the accuracy and completeness of any of the representations and
warranties or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by Chevy Chase in connection with the issuance and
sale of the Certificates as herein contemplated shall be satisfactory in
form and substance to you.
(o) Since the respective dates as of which information is given
in the Prospectus, there shall not have been any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, shareholders' equity or results of
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operations of Chevy Chase otherwise than as set forth in the Prospectus, the
effect of which is in your judgment so material and adverse as to make 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.
(p) The Representative shall have received copies of each opinion
of counsel and certificate delivered to either Rating Agency or the
Certificate Insurer, together with a letter addressed to the Representative,
dated the Closing Date, to the effect that each Underwriter may rely on each
such opinion and certificate to the same extent as though such opinion was
addressed to each as of its date.
(q) Prior to the Closing Date, Chevy Chase shall have furnished
to you such further information, certificates and documents as you may
reasonably request.
If any condition specified in this Section 6 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by you by notice to Chevy Chase at any time at or prior to the Closing Date, and
such termination shall be without liability of any party to any other party
except as provided in Section 7.
7. Payment of Expenses. Chevy Chase agrees to pay all expenses
-------------------
incident to the performance of its obligations under this Agreement, including
without limitation those related to (i) the filing of the Registration Statement
and all amendments thereto, (ii) the duplication and delivery to you, in such
quantities as you may reasonably request, of copies of this Agreement, (iii) the
preparation, issuance and delivery of the Certificates, (iv) 50% of the fees and
disbursements of Stroock & Stroock & Lavan, special counsel to Chevy Chase, the
remaining 50% to be paid by the Underwriters, and the fees and disbursements of
Arthur Andersen & Co., accountants of Chevy Chase, and (v) the qualification of
the Certificates under securities and Blue Sky laws and the determination of the
eligibility of the Certificates for investment in accordance with the provisions
of subsection 5(h), including filing fees and all fees and disbursements of
Stroock & Stroock & Lavan, in connection therewith and in connection with the
preparation of any Blue Sky Survey, (vi) the printing and delivery to you, in
such quantities as you may reasonably request, hereinabove stated, of copies of
the Registration Statement and Prospectus and all amendments and supplements
thereto, and of any Blue Sky Survey, (vii) the duplication and delivery to you,
in such quantities as you may reasonably request, of copies of the Pooling and
Servicing Agreement, the Insurance Agreement and the Indemnification
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Agreement, (viii) the fees charged by nationally recognized statistical rating
agencies for rating the Certificates, (ix) the fees and expenses of the Trustee
and its counsel and (x) the fees and expenses of the Certificate Insurer and its
counsel.
If this Agreement is terminated by you in accordance with the
provisions of Section 6 and Section 11(i), Chevy Chase shall reimburse you for
all reasonable out-of-pocket expenses including without limitation all fees and
disbursements of Stroock & Stroock & Lavan.
8. Indemnification. (a) Chevy Chase agrees to indemnify and hold
---------------
harmless you and each person, if any, who controls you within the meaning of the
Act or the Exchange Act, as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus or preliminary prospectus
supplement, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein
not misleading (in the case of the Prospectus or any amendment or supplement
thereto, in the light of the circumstances under which they were made);
provided, however, that Chevy Chase will not be liable in any such case to
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the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to Chevy Chase by any
Underwriter through the Representative specifically for use therein, it
being understood and agreed that the only such information furnished by any
Underwriters consists of the following information (collectively, the
"Underwriter Information"):
(w) the fifth paragraph on the cover of the Prospectus
(discussing the offering of the Certificates);
(x) the third paragraph on the inside cover of the Prospectus
(discussing the risk of a lack of secondary trading);
(y) the fifth paragraph on the inside cover of the Prospectus
(discussing over-allotments and stabilization); and
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(z) the information contained under "Underwriting" in the
Prospectus;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid
in settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever arising out of or based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, if such
settlement is effected with the written consent of Chevy Chase; and
(iii) against any and all expense whatsoever (including the fees
and disbursements of counsel chosen by you, subject to subsection 8(c)) as
reasonably incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever arising out of or
based upon any such untrue statement or omission, to the extent that any
such expense is not paid under (i) or (ii) above;
provided such indemnity with respect to the Prospectus or any preliminary
prospectus shall not inure to the benefit of the Underwriter (or person
controlling such Underwriter) from whom the person suffering any such loss,
claim, damage or liability purchased the Certificates which are the subject
thereof if such person did not receive a copy of the Prospectus at or prior to
the confirmation of the sale of such Certificates to such person in any case
where such delivery is required by the Act and the untrue statement or omission
of a material fact contained in any preliminary prospectus was corrected in the
Prospectus and the Prospectus was delivered to such Underwriter in a timely
manner in accordance with Section 5(c). This indemnity agreement will be in
addition to any liability which Chevy Chase may otherwise have.
(b) Each of you agrees, severally and jointly, to indemnify and
hold harmless Chevy Chase, each of its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls
Chevy Chase within the meaning of the Act or the Exchange Act against any
and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, but only with respect
to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement, the Prospectus, or any
amendment or supplement thereto or any related preliminary prospectus or
preliminary prospectus supplement in reliance upon and in conformity with
written information furnished to Chevy Chase
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by any Underwriter through the Representative expressly for use therein it
being understood and agreed that the only such information furnished by any
Underwriter consists of the Underwriter Information. This indemnity
agreement will be in addition to any liability which you may otherwise have.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it with respect to which
indemnity may be sought hereunder but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have on account
of this indemnity agreement other than to the extent that such indemnifying
party is materially prejudiced by the indemnified party's failure to provide
such notification. An indemnifying party may participate at its own expense
in the defense of such action. If it so elects within a reasonable time
after receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties
defendant in such action, unless such indemnified parties reasonably object
to such assumption on the ground that there may be legal defenses available
to them which are different from or in addition to those available to such
indemnifying party. If an indemnifying party assumes the defense of such
action, the indemnifying parties shall not be liable for any fees and
expenses of counsel for the indemnified parties incurred thereafter in
connection with such action other than reasonable costs of investigation.
In no event shall the indemnifying parties be liable for the fees and
expenses of more than one counsel for all indemnified parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances,
unless (i) if the defendants in any such action include one or more of the
indemnified parties and the indemnifying party, one or more of the
indemnified parties shall have employed separate counsel after having
reasonably concluded that there may be legal defenses available to it or
them that are different from or additional to those available to the
indemnifying party or to one or more of the other indemnified parties or
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of the commencement of the action. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened action
in respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party unless
such settlement
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includes an unconditional release of such indemnified party from all
liability from any claims that are the subject matter of such action.
9. Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnity agreement provided for in
Section 8 is for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, Chevy Chase on the one hand,
and each of you, on the other, shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by said
indemnity agreement incurred by Chevy Chase and you (i) in such proportion as is
appropriate to reflect the relative benefits received by Chevy Chase on the one
hand and each of you on the other from the offering of the Certificates 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 Chevy
Chase on the one hand and each of you on the other in connection with the
statements or omissions which resulted in the losses, liabilities, claims,
damages and expenses. The relative benefits received by Chevy Chase on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by Chevy Chase bear to the total underwriting discounts and
commissions received by the Underwriters; provided, however, that no person
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guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by Chevy Chase or by you and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. Notwithstanding the provisions of
this Section 9, no Underwriter shall be required to contribute any amount in
excess of the amount of the underwriting discounts and commissions received by
such Underwriter. For purposes of this Section 9, each person, if any, who
controls you within the meaning of the Act or the Exchange Act shall have the
same rights to contribution as each of you and each director of Chevy Chase,
each officer of Chevy Chase who signed the Registration Statement, and each
person, if any, who controls Chevy Chase within the meaning of the Act or the
Exchange Act shall have the same rights to contribution as Chevy Chase.
10. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representations, warranties and agreements
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contained in this Agreement or contained in certificates of officers of Chevy
Chase submitted pursuant hereto shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of you or any
controlling person of you, or by or on behalf of Chevy Chase and shall survive
delivery of any Certificates to you.
11. Termination of Agreement. You may terminate this Agreement,
------------------------
immediately upon notice to Chevy Chase, at any time at or prior to the Closing
Date (i) if there has occurred any outbreak or escalation of hostilities or
other calamity or crisis the effect of which on the financial market of the
United States of America is such as to make it, in your judgment, impracticable
to market the Certificates or enforce contracts for the sale of the
Certificates, or (ii) if trading generally on either the New York Stock Exchange
or the American Stock Exchange has been suspended, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices for securities have
been required, by either of such exchanges or by order of the Commission or any
other governmental authority, or if a banking moratorium has been declared by
either Federal or New York State authorities. In the event of any such
termination, the covenant set forth in subsection 5(d), the provisions of
Section 7, the indemnity agreement set forth in Section 8, the contribution
provisions set forth in Section 9 and the provisions of Sections 10 and 13 shall
remain in effect.
12. Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed to have been duly given if mailed or transmitted
by any standard form of telecommunication. Notices to CS First Boston
Corporation shall be directed to the address set forth on the first page hereof,
or sent by facsimile machine which produces an electronic confirmation of
receipt to 212/318-0532, Attention: Investment Banking Department, Transactions
Advisory Group. Notices to Smith Barney Inc. shall be directed to the address
set forth on the first page hereof, or sent by facsimile machine which produces
an electronic confirmation of receipt to 212/723-8904 Attention: Syndicate
Operations. Notices to Chevy Chase shall be directed to Chevy Chase Bank,
F.S.B., 8401 Connecticut Avenue, Chevy Chase, Maryland 20815, or sent by
facsimile machine which produces an electronic confirmation of receipt to
301/986-7401, Attention: Stephen R. Halpin, Jr.
13. Parties. This Agreement shall inure to the benefit of and be
-------
binding upon you and Chevy Chase, and their respective successors. Nothing
expressed or mentioned in this Agreement is intended nor shall it be construed
to give any person, firm or corporation, other than the parties hereto or
thereto and their respective successors and the controlling persons and officers
and
-26-
<PAGE>
directors referred to in Sections 8 and 9 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or with
respect to this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the parties and their respective successors and said
controlling persons and officers and directors and their heirs and legal
representatives (to the extent of their rights as specified herein and therein)
and except as provided above for the benefit of no other person, firm or
corporation. No purchaser of Certificates from you shall be deemed to be a
successor by reason merely of such purchase.
14. Representation of Underwriters. CS First Boston Corporation will
------------------------------
act for the several Underwriters in connection with this financing, and any
action taken by the Underwriters under this Agreement will be binding upon all
the Underwriters.
15. Governing Law and Time. This Agreement shall be governed by the
----------------------
laws of the State of New York and shall be construed in accordance with such
laws without regard to principles of conflicts of laws. Specified times of day
refer to New York City time.
16. Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed to be an original, but together they shall constitute
but one instrument.
-27-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
you and Chevy Chase in accordance with its terms.
Very truly yours,
CHEVY CHASE BANK, F.S.B.
By: __________________________________
Name:
Title:
CONFIRMED AND ACCEPTED, as of the
date first above written:
CS FIRST BOSTON CORPORATION
SMITH BARNEY INC.
By: CS FIRST BOSTON CORPORATION
By: _____________________________
Name:
Title:
-28-
<PAGE>
Schedule 1
Underwriting
---------
<TABLE>
<CAPTION>
Purchase Price Principal Proceeds to
Underwriter Percentage Amount Chevy Chase
- ----------- --------------- ----------- --------------
<S> <C> <C> <C>
CS First Boston
Corporation 99.459375% $76,760,500 $76,345,513.54
Smith Barney Inc. 99.459375% $76,760,500 $76,345,513.54
</TABLE>
<PAGE>
Exhibit 4.1
EXECUTION COPY
================================================================
POOLING AND SERVICING AGREEMENT
BETWEEN
CHEVY CHASE BANK, F.S.B.,
AS TRANSFEROR AND SERVICER,
AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
AS TRUSTEE
DATED AS OF MAY 1, 1996
CHEVY CHASE HOME LOAN TRUST 1996-1
7.15% HOME LOAN ASSET-BACKED CERTIFICATES, SERIES 1996-1
================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
SPECIAL DEFINITIONS AND TERMS
SECTION 1.01. Special Definitions and Terms .....................
ARTICLE II
ESTABLISHMENT OF TRUST
SECTION 2.01. Creation of Trust .................................
SECTION 2.02. Acceptance by Trustee .............................
ARTICLE III
TRANSFER OF LOANS
SECTION 3.01. Transfer of Initial Loans .........................
SECTION 3.02 Transfer of Subsequent Loans ......................
SECTION 3.03. Acceptance by Trustee; Reassignment
of Loans; Substitution of Eligible
Substitute Loans ...................................
ARTICLE IV
INCORPORATION OF STANDARD TERMS
AND CONDITIONS
SECTION 4.01. Incorporation of Standard Terms
and Conditions of Agreement .........................
ARTICLE V
ADDITIONAL REPRESENTATIONS AND
WARRANTIES OF THE TRANSFEROR
SECTION 5.01. Additional Representations
and Warranties of the Transferor ....................
SCHEDULE A Schedule of Loans
ANNEX A Standard Terms and Conditions of Agreement
<PAGE>
POOLING AND SERVICING AGREEMENT dated as of May 1, 1996, between CHEVY
CHASE BANK, F.S.B., a federal savings bank organized under the laws of the
United States, as transferor and servicer (the "Transferor" and "Servicer,"
respectively), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION ("Norwest"), a
national banking association, as trustee (the "Trustee").
WHEREAS, the Transferor owns and wishes to transfer to the Trust (as
hereinafter defined) certain closed-end home equity debt consolidation loans
(the "Initial Closed-End Loans") and conventional home improvement installment
sales contracts and installment loan agreements (the "Initial Home Improvement
Contracts"), identified in the Loan Schedule attached hereto as Exhibit A, most
of which are secured primarily by second or third deeds of trust or mortgages
(the "Initial Mortgages") on residential properties that are primarily one- to
four-family properties (the "Initial Mortgaged Properties"); and
WHEREAS, in the ordinary course of business the Transferor currently
expects to originate or acquire and wishes to transfer to the Trust from time to
time additional closed-end home equity debt consolidation loans (the "Subsequent
Closed-End Loans"; together with the Initial Closed-End Loans, the "Closed-End
Loans") and conventional home improvement installment sales contracts and
installment loan agreements (the "Subsequent Home Improvement Contracts";
together with the Initial Home Improvement Contracts, the "Home Improvement
Contracts") which satisfy the criteria specified in Section 3.02(b) of the
Agreement to be identified in Schedule A attached to each Subsequent Transfer
Agreement, most of which will be secured primarily by second or third deeds of
trust or mortgages (the "Subsequent Mortgages") on residential properties that
are primarily one - to four-family properties (the "Subsequent Mortgaged
Properties");
WHEREAS, the Transferor, the Servicer and the Trustee wish to set forth the
terms and conditions pursuant to which the Trust will acquire Closed-End Loans
and Home Improvement Contracts and certain related property from the Transferor,
and the Servicer will service such Loans and Contracts on behalf of the Trust;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the Transferor, the Servicer and the Trustee agree as
follows:
<PAGE>
ARTICLE I
Special Definitions and Terms
SECTION 1.01. Special Definitions and Terms. Capitalized terms used
-----------------------------
and not defined herein have the meanings assigned thereto in the Standard Terms
and Conditions of Agreement attached hereto as Annex A. Section and Article
references herein to Sections and Articles not contained in this Pooling and
Servicing Agreement shall be deemed to be references to Sections and Articles in
the Standard Terms and Conditions of Agreement. Whenever used in this Agreement
and the Standard Terms and Conditions of Agreement, the following words and
phrases shall have the following meanings:
"Agreement" means this Pooling and Servicing Agreement, including the
Standard Terms and Conditions of Agreement of Chevy Chase Home Loan Trusts,
dated as of May 1, 1996, in the form attached hereto as Annex A.
"Amortization Period" means the period commencing August 1, 1997 and
ending on the first to occur of (i) the first day of a Monthly Collection Period
in which an Early Amortization Event occurs; (ii) the first day of a Monthly
Collection Period in which a Rapid Amortization Event occurs; (iii) the later of
(A) the date when the Certificate Principal Balance has been reduced to zero or
(B) the date on which all amounts owed to the Certificate Insurer have been paid
in full or (iv) the date when the Trust otherwise terminates. For the avoidance
of doubt, the Amortization Period shall not occur if any of the events described
in clauses (i) through (iv) above, inclusive, occur prior to August 1, 1997.
"Certificate" means a 7.15% Home Loan Asset-Backed Certificate, Series
1996-1 evidencing a beneficial interest in the Trust, substantially in the form
of Exhibit A to the Standard Terms and Conditions of Agreement.
"Certificate Insurer" means Capital Markets Assurance Corporation, a
monoline insurance corporation organized under the laws of the State of New
York, or any successor thereto.
"Certificate Rate" means 7.15% per annum.
"Closed-End Loan" has the meaning ascribed thereto in the second
WHEREAS clause hereof.
"Closing Date" means June 4, 1996.
- 2 -
<PAGE>
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, which at the time of execution of this agreement is Sixth Street
and Marquette Avenue, Minneapolis, Minnesota 55479-0069 (facsimile: (612) 667-
9825), Attention: Corporate Trust Department - Patrick Bassett.
"Depository Agreement" means the agreement dated June 3, 1996, among
the Trustee, the Servicer and The Depository Trust Company, as the initial
Clearing Agency, substantially in the form attached as Exhibit B to the Standard
Terms and Conditions of Agreement.
"Distribution Date" means the 15th day of each November, February, May
and August or, if such day is not a Business Day, the immediately following
Business Day, commencing November 15, 1997.
"Excess Funding Initial Deposit" means $4,098,122.18.
"Initial Certificate Principal Balance" means $153,521,000.00.
"Initial Closed-End Loans" has the meaning ascribed thereto in the
first WHEREAS clause hereof.
"Initial Cut-off Date" means May 1, 1996.
"Initial Home Improvement Contracts" has the meaning ascribed thereto
in the first WHEREAS clause hereof.
"Initial Loans" means the Initial Closed-End Loans and Initial Home
Improvement Contracts specified in the Loan Schedule and transferred to the
Trust hereunder on the Closing Date.
"Initial Mortgaged Properties" has the meaning ascribed thereto in
the first WHEREAS clause hereof.
"Initial Mortgages" has the meaning ascribed thereto in the first
WHEREAS clause hereof.
"Initial Reserve Fund Deposit" means $988,100.42.
"Loan Schedule" means as of any date, the schedule of Closed-End Loans
and Home Improvement Contracts included in the Trust Property on such date,
which sets forth as to each Initial Loan, as of the Initial Cut-off Date, as to
each Subsequent Loan, as of the related Subsequent Cut-off Date, and as to each
Eligible Substitute Loan, as of the last day of the Monthly Collection Period
during which the time to correct or cure the
- 3 -
<PAGE>
defect in the related Loan has expired (i) the principal balance thereof, (ii)
the stated maturity upon which full and complete payment of the principal
balance is due and payable, (iii) the name and address of the related Obligor
and (iv) whether such Initial Loan is a Secured Loan. Initially references to
"Loan Schedule" shall refer to (x) with respect to items (i) through (iii), the
magnetic tape referred to in Schedule A on or prior to the Closing Date and (y)
with respect to item (iv), the Officer's Certificate delivered to the Trustee
within ten Business Days of the Closing Date; thereafter, "Loan Schedule" shall
refer to such schedule as amended from time to time in accordance with Sections
3.02, 3.03, 12.01 and 13.01 hereof. The information described in clause (iii)
shall not be disclosed by the Trustee to any person other than the Certificate
Insurer or with the consent of the Transferor or if otherwise required by law or
court order.
"Loans" means, as of any date, the Closed-End Loans and Home
Improvement Contracts identified on the Loan Schedule as of such date.
"Monthly Payment Date" means the 15th day of each month or, if such
day is not a Business Day, the next succeeding Business Day, commencing June 15,
1996.
"Mortgaged Properties" means the property, real, personal or mixed,
encumbered by the Mortgage which secures a Note ,installment sales contract or
installment loan agreement evidencing a Secured Loan.
"Mortgages" means, as of any date, the Initial Mortgages together
with the Subsequent Mortgages.
"Policy" means the financial guaranty insurance policy number SB-9672
issued by the Certificate Insurer to the Trustee for the benefit of the
Certificateholders, including any endorsements thereto.
"Revolving Period" means the period from the Closing Date to but
excluding the earlier of (i) August 1, 1997 and (ii) the first day of the
Monthly Collection Period in which an Early Amortization Event or a Rapid
Amortization Event occurs.
"Secured Loans" means those Loans secured by a Mortgaged Property.
"Servicing Fee Rate" means 0.75% per annum or such other rate per
annum to be paid to a successor Servicer subject to the limitations set forth in
Section 18.02.
- 4 -
<PAGE>
"Standard Terms and Conditions of Agreement" means the Standard Terms
and Conditions of Agreement of Chevy Chase Home Loan Trusts, dated as of May 1,
1996, in the form attached hereto as Annex A.
"Stated Maturity Date" means the Distribution Date in May, 2015.
"Subsequent Closed-End Loans" has the meaning ascribed thereto in
the second WHEREAS clause hereof.
"Subsequent Home Improvement Contract" has the meaning ascribed
thereto in the second WHEREAS clause hereof.
"Subsequent Loan Purchase Termination Date" has the meaning ascribed
thereto in Section 3.02(a).
"Subsequent Loans" means any Subsequent Closed-End Loans or Subsequent
Home Improvement Contracts transferred to the Trustee hereunder on a Subsequent
Transfer Date identified in Schedule A to the related Subsequent Transfer
Agreement.
"Subsequent Mortgages" has the meaning ascribed thereto in the second
WHEREAS Clause hereof.
"Subsequent Transfer Date" means any Monthly Payment Date designated
by the Transferor in an Addition Notice on which the Transferor shall transfer
Subsequent Loans to the Trust.
"Trust" has the meaning ascribed thereto in Section 2.01.
"Trustee" means Norwest Bank Minnesota, National Association, a
national banking association, its successors in interest and any successor
Trustee hereunder.
"Trustee's Fee" means an annual fee of $2,000, payable in equal
installments on each Monthly Payment Date plus the reasonable out-of-pocket
expenses (including the reasonable fees and expenses of counsel) of the Trustee
incurred in connection with the performance of its obligations hereunder.
ARTICLE II
Establishment of Trust
SECTION 2.01. Creation of Trust. Upon the execution of this
-----------------
Agreement by the parties hereto, there is hereby created a separate trust, which
shall be known as Chevy Chase Home Loan
- 5 -
<PAGE>
Trust 1996-1 (the "Trust"). The Trust shall be administered pursuant to the
provisions of this Agreement for the benefit of the Certificateholders and the
Certificate Insurer.
SECTION 2.02. Acceptance by Trustee. The Trustee hereby accepts all
---------------------
consideration transferred by the Transferor pursuant to Section 3.01 and to be
transferred pursuant to Section 3.02 and declares that it will hold such
consideration upon the trusts set forth herein for the benefit of the
Certificateholders and the Certificate Insurer, subject to the terms and
provisions of this Agreement.
ARTICLE III
Transfer of Loans
SECTION 3.01. Transfer of Initial Loans. (a) In consideration of
-------------------------
the Trustee's delivery on the Closing Date to or upon the order of the
Transferor of Certificates in an initial aggregate principal amount equal to the
Initial Certificate Principal Balance, the Transferor does hereby transfer,
assign, set over and otherwise transfer to the Trustee in trust for the benefit
of the Certificateholders and the Certificate Insurer, without recourse (subject
to the obligations set forth herein), all right, title and interest of the
Transferor in and to:
(1) the Initial Loans, and all moneys received thereon
(including any interest and any payments in respect of delinquent or
defaulted obligations thereunder) on and after the Initial Cut-off
Date;
(2) the Initial Mortgages and the security interests in the
Initial Mortgaged Properties and any other properties or interests in
properties granted by Obligors pursuant to the Initial Loans and/or
Initial Mortgages and any other interest of the Transferor in such
Initial Mortgaged Properties or such other properties or interests in
properties granted by the Obligor in connection with the Initial
Loans;
(3) any proceeds with respect to the Initial Loans from claims
on any insurance policies covering Initial Mortgaged Properties, or
any other properties or interests in properties granted by the
Obligors thereof pursuant to any of the Initial Loans or the Initial
Mortgages;
- 6 -
<PAGE>
(4) any proceeds from the liquidation of the Initial Loans or any
of the related Initial Mortgaged Properties or any other properties or
interests in properties granted by the Obligors thereof pursuant to
any of the Initial Loans or the Initial Mortgages;
(5) the related Loan Files; and
(6) the proceeds of any and all of the foregoing.
It is the intention of the Transferor that the transfer and assignment
contemplated by this Agreement shall constitute a sale of the Initial Loans and
other Trust Property in which it has an interest from the Transferor to the
Trust and the beneficial interest in and title to the Initial Loans and the
other Trust Property shall not be part of the Transferor's estate in the event a
conservator, receiver, liquidator or similar person is appointed in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings with respect to the Transferor.
In connection with such assignment and transfer, the Transferor shall
file, on or prior to the Closing Date, in the appropriate office of any
applicable state, county or other relevant jurisdiction, a UCC-1 financing
statement executed by the Transferor as debtor, naming the Trustee as secured
party, for the benefit of the Certificateholders and the Certificate Insurer,
and identifying as collateral the Initial Loans identified on the Loan Schedule,
any Subsequent Loans added to such Loan Schedule and all property transferred by
the Transferor to the Trust constituting part of the Trust Property. In
connection with such filing, the Transferor shall cause to be filed all
necessary continuation statements thereof and take or cause to be taken such
actions and execute such documents as are necessary to continue the perfection
and protect the Trustee's interest in such property for the benefit of the
Certificateholders and the Certificate Insurer.
(b) In connection with the foregoing assignment and transfer by the
Transferor, and except as provided in the immediately following paragraph, the
Transferor shall deliver to, and deposit with, the Trustee on or before the
Closing Date, with respect to each Initial Loan:
(i) The original Note or installment sale contract or installment
loan agreement, as applicable, with any intervening endorsements
and/or assignments evidencing a complete chain of title from the
- 7 -
<PAGE>
originator thereof to the Transferor and, in the case of a Note which
is a promissory note, endorsed in blank and signed, by facsimile or
manual signature, in the name of the Transferor by an Officer thereof;
(ii) With respect to each Initial Loan which is a Secured Loan,
either: (i) the original Initial Mortgage, with evidence of recording
thereon, (ii) a copy of the Initial Mortgage certified as a true copy
by an Officer of the Transferor, if the original has been transmitted
for recording but has not, at the time of delivery of this Agreement,
been returned or (iii) a copy of the Initial Mortgage certified by the
public recording office in those instances where the original recorded
Initial Mortgage has been lost or has been retained by the public
recording office; and
(iii) Originals of all assumption and modification agreements, if
any, or a copy certified as a true copy by an Officer of the
Transferor if the original has been transmitted for recording until
such time as the original is returned by the public recording office
(such documents, along with the items in (i) and (ii) above and, with
respect to each Secured Loan, the related Assignment of Mortgage
referred to in subsection (d) below, being referred to herein with
respect to each Loan as the "Loan File").
(c) The Transferor hereby confirms to the Trustee that it has caused
the portions of the Electronic Ledger relating to the Initial Loans to be
clearly and unambiguously marked to indicate that such Initial Loans have been
transferred and assigned to the Trustee and constitute part of the Trust in
accordance with the terms of the trust created hereunder.
(d) The Transferor, at its own expense, shall deliver to the Trustee
within 90 days of the Closing Day an Assignment of Mortgage for each Initial
Loan which is a Secured Loan in blank in recordable form. Any such assignment
may be made by blanket assignments for Secured Loans located in the same county,
if permitted by applicable law. Any such Assignment of Mortgage shall be
required to be recorded only under the circumstances described in Section 13.15.
SECTION 3.02. Transfer of Subsequent Loans. (a) Subject to the
----------------------------
conditions set forth in paragraph (b) below, in consideration of the Trustee's
delivery on each related Subsequent Transfer Date to or upon the order of the
Transferor of the amount described in Section 14.08 of the Standard Terms and
Conditions of Agreement, the Transferor does hereby assign,
- 8 -
<PAGE>
set over and otherwise transfer to the Trustee, for the benefit of the
Certificateholders and the Certificate Insurer, without recourse (subject to the
obligations set forth herein), all right, title and interest of the Transferor
in and to:
(i) the Subsequent Loans listed on Schedule A to the related
Subsequent Transfer Agreement, and all monies received thereon (including
any interest and any payments in respect of delinquent or defaulted
obligations thereunder) on and after the relevant Subsequent Cut-off Date;
(ii) the related Subsequent Mortgages and the security interests in the
related Subsequent Mortgaged Properties and any other properties or
interests in properties granted by Obligors pursuant to such Subsequent
Loans and/or Subsequent Mortgages and any other interest of the Transferor
in such Subsequent Mortgaged Properties or such other properties or
interests in properties granted by the Obligors in connection with such
Subsequent Loans;
(iii) any proceeds with respect to such Subsequent Loans from claims on
any insurance policies covering the related Subsequent Mortgaged Properties,
or any other properties or interests in properties granted by the Obligors
thereof pursuant to any of such Subsequent Loans or Subsequent Mortgages;
(iv) any proceeds from any liquidation of such Subsequent Loans or any
of the related Subsequent Mortgaged Properties, or any other properties or
interests in properties granted by the Obligors thereof pursuant to such
Subsequent Loans or such Subsequent Mortgaged Properties;
(v) the related Loan Files; and
(vi) the proceeds of any and all of the foregoing.
The Transferor hereby covenants to transfer Subsequent Loans on Monthly
Payment Dates to the Trust in aggregate principal amounts so as not to cause an
Early Amortization Event to the extent that it originates or acquires such
Subsequent Loans which comply with the requirements for transfer set forth in
subsection (b) below until but excluding the first Monthly Payment Date
following the earliest of (i) the occurrence of an Early Amortization Event,
(ii) the occurrence of a Rapid Amortization Event, or (iii) the date on which
the Certificate Principal Balance has been reduced to 20% or less of the Initial
Certificate Principal Balance (each such date, a "Subsequent Loan Purchase
Termination Date").
- 9 -
<PAGE>
(b) The Transferor shall transfer to the Trustee, for the benefit of
the Certificateholders and the Certificate Insurer, the Subsequent Loans and the
other property and rights related thereto described in paragraph (a) above only
upon the satisfaction of each of the following conditions precedent on or prior
to the related Subsequent Transfer Date:
(i) the Transferor shall have provided the Trustee, the
Certificate Insurer and the Rating Agencies with an Addition Notice not
later than ten Business Days prior to such Subsequent Transfer Date and
shall have provided any information reasonably requested by any of the
foregoing with respect to such Subsequent Loans;
(ii) the Transferor shall have delivered to the Trustee a duly
executed Subsequent Transfer Agreement, which shall include supplements
to the Loan Schedule listing the Subsequent Loans to be transferred on
such Subsequent Transfer Date;
(iii) the Transferor shall have deposited in the Collection
Account, to the extent required by Section 14.02, all collections in
respect of the Subsequent Loans received on and after the Subsequent
Cut-off Date;
(iv) no Subsequent Loan Purchase Termination Date shall have
occurred;
(v) after giving effect to any transfer of Subsequent Loans on a
Subsequent Transfer Date, all Subsequent Loans transferred to the
Trustee shall meet each of the following criteria (based on the
characteristics of all Subsequent Loans previously transferred to the
Trustee and the Subsequent Loans to be transferred on such Subsequent
Transfer Date, in each case based on the outstanding principal balance
of such Subsequent Loans and their other relevant characteristics as of
their respective Subsequent Cut-off Dates): (i) the weighted average
Loan Rate of the Subsequent Loans shall not be less than 13.65%; (ii)
the weighted average original term of the Subsequent Loans shall not be
greater than 138 months; (iii) not more than 13.82% of the Subsequent
Loans shall not be secured by a Subsequent Mortgage and (iv) not more
than 4.77% of the Subsequent Loans are Paid Ahead Loans.
(vi) each of the representations and warranties made by the
Transferor pursuant to Section 12.01 of the
- 10 -
<PAGE>
Standard Terms and Conditions of Agreement with respect to the
Subsequent Loans to be transferred on such Subsequent Transfer Date
shall be true and correct as of the related Subsequent Transfer Date,
and the Transferor shall have performed all obligations to be performed
by it hereunder on or prior to such Subsequent Transfer Date;
(vii) the Transferor shall, at its own expense, on or prior to the
Subsequent Transfer Date, indicate in its computer files that the
Subsequent Loans identified in the related Subsequent Transfer
Agreement have been transferred to the Trustee pursuant to this
Agreement;
(viii) no selection procedures adverse to the interests of the
Certificateholders or the Certificate Insurer shall have been utilized
in selecting the Subsequent Loans;
(ix) [RESERVED]
(x) as of the related Subsequent Cut-off Date, each Subsequent
Loan transferred on such Subsequent Transfer Date will be a Simple
Interest Loan and will have a Loan Rate of at least 6.00%;
(xi) as of the related Subsequent Cut-off Date, each Subsequent
Loan will have a remaining principal balance of not more than $100,000;
(xii) with respect to the Subsequent Loans being transferred on
such Subsequent Transfer Date, the last scheduled payment date on the
Subsequent Loan with the latest scheduled payment date shall not be
later than April 30, 2015;
(xiii) as of the related Subsequent Cut-off Date, no Subsequent
Loan will be paid ahead more than six payments as of the related
Subsequent Cut-off Date;
(xiv) with respect to each Subsequent Loan to be transferred on such
Subsequent Transfer Date, as of the related Subsequent Cut-off Date, at
least one scheduled payment shall have been made on such Subsequent
Loan or the next payment shall be due during the month of the related
Subsequent Cut-off Date;
(xv) no Subsequent Loan being transferred on such Subsequent
Transfer Date, as of the related Subsequent Cut-off Date, is a Deferral
Loan unless the first
- 11 -
<PAGE>
payment for such Subsequent Loan is due during the month of such
Subsequent Cut-off Date, after giving effect to any permitted deferral;
(xvi) each of the Rating Agencies shall have advised the
Transferor, the Certificate Insurer and the Trustee that the transfer
of the Subsequent Loans will not result in a qualification,
modification, downgrade or withdrawal of its then current rating of the
Certificates;
(xvii) the Certificate Insurer (so long as no Insurer Default
shall have occurred and be continuing) shall have approved the transfer
of such Subsequent Loans to the Trust, such approval based on its
review of the underwriting of such Subsequent Loans;
(xviii) the Transferor shall have delivered to the Trustee the
related Loan Files (other than the related Assignments of Mortgage for
such Subsequent Loans which are Secured Loans) with respect to such
Subsequent Loans;
(xix) the Transferor shall have delivered to the Certificate
Insurer an Officer's Certificate stating that a lien search in all
appropriate filing offices has been conducted within 15 or fewer
Business Days prior to such Subsequent Transferor Date which search has
not revealed any liens, pledges, charges or other encumbrance on any of
such Subsequent Loans (a copy of such lien search to be attached to
such Officer's Certificate);
(xx) the Transferor shall have delivered to the Certificate Insurer
and the Trustee an Officers' Certificate confirming the satisfaction of
each condition precedent specified in this paragraph (b); and
(xxi) the Trustee shall have inspected each of the certificates,
schedules and Officers' Certificates delivered in connection with such
transfer and determined that each such item required to be delivered
pursuant to this Section 3.02(b) has been so delivered.
Notwithstanding the foregoing, each of the foregoing conditions other
than condition (xii) may be waived by the Trustee with the consent of the
Certificate Insurer.
- 12 -
<PAGE>
Notwithstanding the foregoing, condition (xvi) and (xvii) will be
deemed satisfied if the Subsequent Loans identified in the Addition Notice for
the related Subsequent Transfer Date have been selected from a pool of Home
Loans previously approved by the Certificate Insurer and the Rating Agencies as
eligible to be Subsequent Loans, as certified by the Transferor in its
certificate delivered pursuant to condition (xx).
On each Subsequent Transfer Date the Loan Schedule shall be amended as
of the related Subsequent Cut-off Date to reflect the addition of the Subsequent
Loans identified on Schedule A to the related Subsequent Transfer Agreement.
The Transferor hereby covenants that in the event any of the foregoing
conditions precedent are not satisfied with respect to any Subsequent Loan on
the date required as specified above, the Transferor shall immediately
repurchase such Subsequent Loan from the Trustee, at a price equal to the
Retransfer Deposit Amount thereof, in the manner specified in Section 3.03.
(c) The Transferor, at its own expense, shall deliver to the Trustee
within 30 days of each Subsequent Transfer Date an Assignment of Mortgage for
each Subsequent Loan transferred on such Subsequent Transfer Date which is a
Secured Loan (to the extent of the Trustee's interest therein) in favor of the
Trustee in recordable form. Any such assignment may be made by blanket
assignments for Secured Loans located in the same county, if permitted by
applicable law. Any such Assignment of Mortgage shall be required to be
recorded only under the circumstances described in Section 13.15.
SECTION 3.03 Acceptance by Trustee; Reassignment of Loans;
---------------------------------------------
Substitution of Eligible Substitute Loans.
- -----------------------------------------
(a) The Trustee acknowledges receipt of the documents identified in, and on
each Subsequent Transfer Date the Trustee shall acknowledge receipt of the
documents identified in, the Initial Certification in the form annexed hereto as
Exhibit C-1 and declares that it does hold and shall hold such files and the
documents constituting a part of the Loan Files in trust to the extent received
by it, upon the terms herein set forth, for the use and benefit of all present
and future Certificateholders and the Certificate Insurer. The Trustee
acknowledges that it shall maintain possession of the Loan Files in the State of
Maryland unless and until (x) 30 days prior notice has been given to the Rating
Agencies and the Certificate Insurer, and (y) all measures necessary to perfect
(or continue the perfection in) the interest of the Trustee in such Loan Files
in
- 13 -
<PAGE>
the jurisdiction to which the Loan Files are to be moved have been taken to the
satisfaction of the Certificate Insurer.
(b) The Trustee shall review each document delivered to it pursuant to
Sections 3.01(b), 3.01(d), 3.02(b) and 3.02(c) to ascertain that all required
documents referred to therein have been executed and received, and that such
documents relate to the Loans identified on the Loan Schedule. The Trustee may
rely on the purported due execution of any such documents and genuineness of any
signature thereon. With respect to the Initial Loans, not later than 120 days
following the Closing Date, and with respect to Subsequent Loans, not later than
60 days following the related Subsequent Transfer Date, the Trusteeshall deliver
to the Transferor and the Servicer a certificate substantially in the form of
Exhibit C-2. If, as set forth in such certificate, the Trustee determines that
it does not have a Loan File for a Loan or any document constituting a part of a
Loan File (i) does not bear the required signatures, (ii) has not been received
or (iii) is unrelated to the Initial Loans identified in the Loan Schedule on
the Closing Date or, with respect to Subsequent Loans, the Subsequent Loans
identified in Schedule A to the related Subsequent Transfer Agreement, the
Transferor shall correct or cure any such specified defect within 30 days of
receipt of notice of such defect. In addition, within fifteen (15) days
following the substitution of any Eligible Substitute Loan, (i) the Trustee
shall review the Loan File for such Eligible Substitute Loan (which shall
include, at the time of delivery, an Assignment of Mortgage in recordable form
if such Eligible Substitute Loan is a Secured Loan) for the purpose and to the
extent set forth above in this paragraph, and (ii) shall deliver to the
Transferor, the Servicer and the Certificate Insurer a certificate substantially
in the form of Exhibit D specifying any defect with respect to such Loan, as
described above. The Transferor shall have a period of thirty (30) days after
receipt from the Trustee of such certificate to correct or cure such defect.
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.
The Trustee shall have no responsibility for reviewing any Loan except as
expressly provided in this Section 3.03(b). Without limiting the effect of the
preceding sentence, in reviewing any Loan File, the Trustee shall have no
responsibility for determining whether any document is valid and binding,
whether the text of any assignment or endorsement is in proper or recordable
form (except to determine that such endorsement is in blank), whether any
document has been recorded in accordance
- 14 -
<PAGE>
with the requirements of any applicable jurisdiction or whether a blanket
assignment is permitted in any applicable jurisdiction, but shall only be
required to determine whether a document has been executed, that it appears to
be what it purports to be, and, where applicable, that it purports to be
recorded.
(c) If the time to correct or cure any defect of which the Trustee has
notified the Transferor pursuant to Section 3.03(b) has expired without any
correction or cure, the Transferor shall, on the Business Day immediately
preceding the Determination Date in the month following the Monthly Collection
Period in which the time to correct or cure such defect expired, remove the
related Loan (including any property acquired in respect thereof and any
insurance policy or Insurance Proceeds with respect thereto) from the Trust
either (i) in exchange for depositing in the Trust the Retransfer Deposit
Amount, which amount shall be deposited into the Collection Account pursuant to
Section 14.04 on such Business Day, or (ii) by substituting in its place an
Eligible Substitute Loan or Loans, delivering to the Trustee an assignment
substantially in the form of Exhibit E-1A, without recourse, in order to vest in
the Trustee all right, title and interest of the Transferor in and to such
Eligible Substitute Loan as of the last day of the Monthly Collection Period in
which the time to correct or cure such defect expired, and depositing in the
Collection Account any related Substitution Adjustment Amount. Promptly upon
receipt by the Trustee of (i) in the case of a payment in respect of the removed
Loan, written notification signed by a Servicing Officer to the effect that the
Retransfer Deposit Amount for any such Loan has been so deposited into the
Collection Account or (ii) in the case of a substitution, the Loan for each
related Eligible Substitute Loan and written notification signed by a Servicing
Officer to the effect that such Loan complies with the definition of Eligible
Substitute Loan and that the Substitution Adjustment Amount, if any, has been
deposited into the Collection Account as provided in Section 14.04, the Trustee
shall release to the Transferor the Loan File for the removed Loan and shall
execute and deliver to the Transferor an assignment substantially in the form of
Exhibit E-1, without recourse, in order to vest in the Transferor all right,
title and interest of the Trustee in and to such removed Loan (including any
property acquired in respect thereof and any insurance policy or Insurance
Proceeds with respect thereto). The form of assignment attached as Exhibits E-1
and E-1A may be modified from time to time to the extent required by applicable
law, as evidenced by an Opinion of Counsel delivered to the Trustee. The
obligation of the Transferor to remove (to the extent permitted herein) any Loan
and either (x) deposit the Retransfer Deposit Amount or (y) substitute an
Eligible Substitute Loan and the
- 15 -
<PAGE>
deposit of the related Substitution Adjustment Amount, if any, shall constitute
the sole remedy with respect to such defect available to Certificateholders, the
Trustee (for itself or on behalf of Certificateholders and the Certificate
Insurer) or the Certificate Insurer against the Transferor.
(d) The Substitution Adjustment Amount for any Monthly Collection Period
shall be deposited into the Collection Account on the Business Day immediately
preceding the Determination Date occurring in the month following such Monthly
Collection Period. All amounts received in respect of the Eligible Substitute
Loan or Loans during the Monthly Collection Period in which the time to correct
or cure the defect giving rise to the relevant substitution occurs shall not be
a part of the Trust and shall not be deposited by the Servicer into the
Collection Account. All amounts received by the Servicer during the Monthly
Collection Period in which the circumstances giving rise to such substitution
occur in respect of any Loan so removed from the Trust shall be deposited by the
Servicer into the Collection Account. The Servicer shall amend the Loan
Schedule to reflect the removal of such Loan from the terms of this Agreement
and the substitution of the Eligible Substitute Loan or Loans therefor as of the
last day of the Monthly Collection Period during which the time to correct or
cure the defect has expired. Upon such substitution, the Eligible Substitute
Loan or Loans shall be subject to the terms of this Agreement in all respects,
and the Transferor shall be deemed to have entered into or made with respect to
such Eligible Substitute Loan or Loans, as of the date of substitution, the
covenants, representations and warranties set forth in Section 12.01 of the
Standard Terms and Conditions of the Agreement as of the first day of the
Monthly Collection Period following the Monthly Collection Period during which
the time to correct or cure the defect giving rise to such substitution
occurred. The procedures applied by the Transferor in selecting each Eligible
Substitute Loan shall not be adverse to the interests of the Trustee, the
Certificate Insurer or the Certificateholders and shall be comparable to the
selection procedures applicable to the Loans conveyed hereunder as of the date
of this Agreement.
The provisions of Sections 3.03(c) and 3.03(d) shall also apply to any
substitution of Eligible Substitute Loan or Loans by the Transferor pursuant to
Section 12.01 and by the Servicer pursuant to Section 13.01.
- 16 -
<PAGE>
ARTICLE IV
Incorporation of Standard Terms and Conditions
SECTION 4.01. Incorporation of Standard Terms and Conditions of Agreement.
-----------------------------------------------------------
This Pooling and Servicing Agreement does hereby incorporate by reference the
Standard Terms and Conditions of Agreement for Chevy Chase Home Loan Trusts
dated as of May 1, 1996 (the "Standard Terms and Conditions of Agreement"), in
the form attached hereto as Annex A.
ARTICLE V
Additional Representations and Warranties of the Transferor
SECTION 5.01. Additional Representations and Warranties of the
------------------------------------------------
Transferor. The Transferor makes the following representations and warranties
- ----------
on which the Trustee relies in accepting the Initial Loans in trust and
executing and authenticating the Certificates. Such representations and
warranties speak as of the execution and delivery of this Agreement and as of
the Closing Date but shall survive the sale, transfer and assignment of the
Initial Loans to the Trustee and the delivery of the related Loan Files on the
Closing Date to the Trustee.
(i) Loan Rate. As of the Initial Cut-off Date, each Initial Loan has a
---------
Loan Rate of not less than 6.00%.
(ii) Balance. As of the Initial Cut-off Date, the outstanding
-------
principal balance for each Initial Loan was not less than $1500 or greater than
$100,000.
- 17 -
<PAGE>
(iii) Payment Terms. As of the Initial Cut-off Date, no Initial Loan
-------------
had a stated maturity date later than April 30, 2015.
IN WITNESS WHEREOF, the Transferor, the Servicer and the Trustee have caused
this Pooling and Servicing Agreement to be duly executed by their respective
officers as of the day and year first above written.
CHEVY CHASE BANK, F.S.B.,
as Transferor and Servicer
By:_______________________________
Name:
Title:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION
as Trustee
By:______________________________
Name:
Title:
- 18 -
<PAGE>
State of New York )
) ss. :
County of New York )
On the 4th day of June, 1996, before me, a notary public in and for the
State of New York, personally appeared Mark Holles, known to me who, being by me
duly sworn, did depose and say that he is Vice President of Chevy Chase Bank,
F.S.B., a federal savings bank organized under the laws of the United States,
being among the parties that executed the foregoing instrument; and that he
signed his name thereto by like authority.
Notary Public
[Notarial Seal]
- 19 -
<PAGE>
State of New York )
) ss. :
County of New York )
On the 4th day of June, 1996 before me, a notary public in and for the
State of New York, personally appeared Patrick Bassett, known to me who, being
by me duly sworn, did depose and say that he is a Vice President of Norwest Bank
Minnesota, National Association, one of the parties that executed the foregoing
instrument; and that he signed his name thereto by authority of the Board of
Directors of said Bank.
Notary Public
[Notarial Seal]
- 20 -
<PAGE>
SCHEDULE A
SCHEDULE OF LOANS
The magnetic tape delivered to the Trustee by the Transferor on or prior
to the Closing Date as the same may be amended from time to time in accordance
with the Agreement.
<PAGE>
================================================================
FORM OF STANDARD TERMS AND CONDITIONS OF AGREEMENT
OF
CHEVY CHASE HOME LOAN TRUSTS
CHEVY CHASE BANK, F.S.B.
Transferor and Servicer
Dated as of May 1, 1996
================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLES I - X
Reserved
ARTICLE XI
Definitions
SECTION 11.01. Definitions ....................................
SECTION 11.02. Other Definitional Provisions ..................
ARTICLE XII
The Loans
SECTION 12.01. Representations and Warranties
of the Transferor Regarding the Loans;
Removal and Substitution Obligations ...........
SECTION 12.02. Official Record
ARTICLE XIII
Administration and Servicing of Loans
SECTION 13.01. The Servicer and the Transferor ................
SECTION 13.02. Collection of Certain Loan Payments ............
SECTION 13.03. Maintenance of Hazard Insurance;
Property Protection Expenses ..................
SECTION 13.04. Assumption and Modification Agreements .........
SECTION 13.05. Realization Upon Liquidated Loans ..............
SECTION 13.06. Servicer's Certificate .........................
SECTION 13.07. Servicing Fee ..................................
SECTION 13.08. Annual Independent Certified Public
Accountants' Servicing Report .................
SECTION 13.09. Access to Certain Documentation and
Information Regarding the Loans ...............
SECTION 13.10. Maintenance of Certain Servicing
Policies ......................................
SECTION 13.11. Reports to Securities and Exchange
Commission ....................................
SECTION 13.12. Information Required by the Internal
Revenue Service Generally and Reports of
(i)
<PAGE>
Foreclosures and Abandonments of Mortgaged
Property ......................................
SECTION 13.13. Servicer Expenses ..............................
SECTION 13.14. Annual Statement as to Compliance ..............
SECTION 13.15. Recordation of Assignments of Mortgage .........
ARTICLE XIV
Distributions; Allocations; Reserve Fund;
Statements to Certificateholders
SECTION 14.01. Establishment of Accounts ......................
SECTION 14.02. Collections ....................................
SECTION 14.03. Application of Collections .....................
SECTION 14.04. Additional Deposits ............................
SECTION 14.04A Permitted Withdrawal from the Collection
Account .......................................
SECTION 14.05 Allocations and Deposits .......................
SECTION 14.06. Distributions ..................................
SECTION 14.07. Reserve Fund ...................................
SECTION 14.08. Excess Funding Account .........................
SECTION 14.09. Statements to Certificateholders ...............
SECTION 14.10. Tax Returns ....................................
ARTICLE XIV A
The Policy
SECTION 14A.01 The Policy .....................................
SECTION 14A.02 Claims Under Policy ............................
SECTION 14A.03 Surrender of Policy ............................
SECTION 14A.04 Replacement of Policy ..........................
ARTICLE XV
The Certificates
SECTION 15.01. The Certificates ...............................
SECTION 15.02. Authentication of Certificates .................
SECTION 15.03. Registration of Transfer and
Exchange of Certificates ......................
SECTION 15.04. [RESERVED] .....................................
SECTION 15.05. Mutilated, Destroyed, Lost or
Stolen Certificates ...........................
SECTION 15.06. Persons Deemed Owners ..........................
SECTION 15.07. Access to List of Certificateholders'
Names and Addresses ...........................
SECTION 15.08. Maintenance of Office or Agency ................
(ii)
<PAGE>
SECTION 15.09. Book-Entry Certificates ........................
SECTION 15.10. Notices to Clearing Agency .....................
SECTION 15.11. Replacement Certificates .......................
SECTION 15.12. Temporary Certificates .........................
ARTICLE XVI
Rapid Amortization Events
SECTION 16.01. Rapid Amortization Events ......................
SECTION 16.02. Additional Rights Upon the
Occurrence of Certain Events ..................
ARTICLE XVII
The Transferor and Servicer
SECTION 17.01. Representations of the Transferor and
Servicer ......................................
SECTION 17.02. Liability of the Servicer ......................
SECTION 17.03. Merger or Consolidation of,
or Assumption of the Obligations of,
Servicer or Transferor ........................
SECTION 17.04. Limitation on Liability of the
Servicer and Others ...........................
SECTION 17.05. Delegation of Duties ...........................
SECTION 17.06. Servicer Not to Resign .........................
SECTION 17.07. Limitation on Liability of Certain
Persons .......................................
SECTION 17.08. Liability of Transferor ........................
SECTION 17.09. Transferor May Own Certificates ................
ARTICLE XVIII
Default
SECTION 18.01. Events of Default ..............................
SECTION 18.02. Trustee to Act; Appointment of
Successor .....................................
SECTION 18.03. Notification to Certificateholders .............
SECTION 18.04. Waiver of Past Defaults ........................
(iii)
<PAGE>
ARTICLE XIX
The Trustee
SECTION 19.01. Duties of Trustee ..............................
SECTION 19.02. Certain Matters Affecting Trustee ..............
SECTION 19.03. Trustee Not Liable for
Certificates or Loans..........................
SECTION 19.04. Trustee May Own Certificates ...................
SECTION 19.05. Trustee's Fees and Expenses ....................
SECTION 19.06. Eligibility Requirements for Trustee ...........
SECTION 19.07. Resignation or Removal of Trustee ..............
SECTION 19.08. Successor Trustee ..............................
SECTION 19.09. Merger or Consolidation of Trustee .............
SECTION 19.10. Appointment of Co-Trustee or
Separate Trustee ..............................
SECTION 19.11. Representations and Warranties
of Trustee ....................................
SECTION 19.12. No Bankruptcy Petition .........................
SECTION 19.13. Trustee's Certificate ..........................
SECTION 19.14. Trustee's Assignment of
Purchased Loans ...............................
SECTION 19.15. Appointment of Paying Agent ....................
SECTION 19.16. Limitation of Liability of Trustee .............
SECTION 19.17. Streit Act .....................................
ARTICLE XX
Termination
SECTION 20.01. Termination ....................................
ARTICLE XXI
Miscellaneous Provisions
SECTION 21.01. Amendment ......................................
SECTION 21.02. Recordation of Agreement .......................
SECTION 21.03. Limitation on Rights of
Certificateholders ............................
SECTION 21.04. Protection of Title to Trust ...................
SECTION 21.05. Separate Counterparts ..........................
SECTION 21.06. Governing Law ..................................
SECTION 21.07. Notices ........................................
SECTION 21.08. Severability of Provisions .....................
SECTION 21.09. Assignment .....................................
SECTION 21.10. Certificates Nonassessable
and Fully Paid ................................
(iv)
<PAGE>
SECTION 21.11. Counterparts ...................................
SECTION 21.12. Effect of Headings and Table of
Contents ......................................
SECTION 21.13. Third Party Beneficiary ........................
SECTION 21.14. Merger and Integration .........................
SECTION 21.15. Certificate Insurer as Controlling
Party .........................................
SECTION 21.16. Representation of Certificateholders ...........
Exhibit A Form of Certificate
Exhibit B Form of Depository Agreement
Exhibit C-1 Form of Trustee's Initial Certification
Exhibit C-2 Form of Trustee's Certification
Exhibit D Form of Trustee's Notification of Defective Loans
Exhibit E-1 Form of Trustee's Certificate - Assignment to
Servicer
Exhibit E-2 Form of Trustee's Certificate - Assignment to Transferor
Exhibit E-1A Form of Assignment of Eligible Substitute Loans to Trustee
Exhibit F Form of Servicer's Certificate
Exhibit G [Reserved]
Exhibit H Form of Subsequent Transfer Agreement
Exhibit I Form of Insurance and Indemnity Agreement
(v)
<PAGE>
CHEVY CHASE HOME LOAN TRUST
STANDARD TERMS AND CONDITIONS OF AGREEMENT
Dated as of May 1, 1996
INTRODUCTION
These Standard Terms and Conditions of Agreement shall be applicable to
any Chevy Chase Home Loan Trust formed on or after the date hereof with respect
to which a Pooling and Servicing Agreement incorporating by reference these
Standard Terms and Conditions of Agreement shall have been executed.
ARTICLES I-X
Reserved
ARTICLE XI
Definitions
SECTION 11.01. Definitions. Whenever used in the Agreement, the
-----------
following words and phrases, unless the context otherwise requires, shall have
the following meanings:
"Addition Notice" means, with respect to any transfer of Subsequent
Loans, notice of the Transferor's election to transfer Subsequent Loans to the
Trust, such notice to designate the related Subsequent Transfer Date and the
approximate principal amount of Subsequent Loans to be transferred on such
Subsequent Transfer Date.
"Adjusted Certificate Principal Balance" means (i) with respect to any
Monthly Payment Date relating to the Revolving Period, the Initial Certificate
Principal Balance, and (ii) with respect to any other Monthly Payment Date, an
amount equal to (1) the Certificate Principal Balance (x) relating to the
Amortization Period, on the prior Distribution Date (or, if there is no prior
Distribution Date, the Initial Certificate Principal Balance) and (y) relating
to any Early Amortization Period or Rapid Amortization Period, on the prior
Monthly Payment Date, in each case, after giving effect to any distributions of
principal thereon on such date minus (2) the sum of (x) Monthly Allocable
-----
Principal for such Monthly Payment Date (other than (a) the
Overcollateralization Deposit/Distribution Amounts for such Monthly Payment
Date, (b) the Reserve Fund Principal Transfer Amount for such Monthly
Payment Date and (c) any Principal Deficiency Draw Amount for such Monthly
Payment Date) and (y) during the Amortization Period,
<PAGE>
Monthly Allocable Principal for each other Monthly Payment Date that has
occurred since the last Distribution Date.
"Affiliate" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect
to any 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" means a pooling and servicing agreement between Chevy Chase
Bank, as transferor and servicer, and the Trustee named in such agreement, into
which these Standard Terms and Conditions of Agreement shall be incorporated by
reference, and all amendments and supplements thereto.
"Appointment Day" has the meaning ascribed thereto in Section 16.02.
"Assignment of Mortgage" means, with respect to each Mortgage, an
assignment, notice of transfer, or equivalent instrument sufficient under the
laws of the jurisdiction in which the Mortgaged Property is located to record
the sale of the related Mortgage to the Trustee for the benefit of the
Certificateholders and the Certificate Insurer.
"Avoided Payment" has the meaning ascribed thereto in Section 14A.02.
"Base Servicing Fee" means, with respect to any Monthly Collection
Period, the fee payable to the Servicer for services rendered during such
Monthly Collection Period, which shall be equal to one-twelfth of the Servicing
Fee Rate multiplied by the excess of the Pool Balance as of the first day of
such Monthly Collection Period over the aggregate principal balance of any
Defective Loans retransferred to the Transferor or transferred to the Servicer
as of the last day of such Monthly Collection Period.
"BIF" means The Bank Insurance Fund, as from time to time constituted,
created under the Financial Institutions Reform, Recovery, and Enhancement Act
of 1989, or if at any time after the execution of this instrument the Bank
Insurance Fund is not existing and performing duties now assigned to it, the
body performing such duties on such date.
"Book-Entry Certificates" means, unless otherwise specified in the
Agreement, a beneficial interest in the Certificates, ownership and transfers of
which shall be registered through book entries by a Clearing Agency as described
in Section 15.09.
- 2 -
<PAGE>
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in the States of Minnesota, New York or Maryland
(or such other state in which the Corporate Trust Office of the Trustee or the
main office of the Paying Agent is located) are required or authorized to be
closed.
"Certificate Principal Balance" means, as of any date of determination,
the Initial Certificate Principal Balance, as specified in the Agreement,
reduced by all amounts previously distributed to Holders of Certificates and
allocable to principal.
"Certificate Rate" has the meaning specified in the applicable
Agreement.
"Certificate Owner" means, with respect to a Book-Entry Certificate,
the Person who is the beneficial owner of such Book-Entry Certificate, as
reflected on the books of the Clearing Agency or on the books of a Person
maintaining an account with such Clearing Agency (directly as a Clearing Agency
Participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency).
"Certificate Register" and "Certificate Registrar" mean the register
maintained and the registrar appointed pursuant to Section 15.03.
"Certificateholder" or "Holder" means a Person in whose name a
Certificate is registered in the Certificate Register, except that, solely for
the purpose of the giving of any consent, waiver, request or demand pursuant to
this Agreement, unless all Certificates are then so held, any Certificate
registered in the name of the Transferor or the Servicer or any affiliate of
either shall be deemed not be outstanding and any such Certificates shall not be
taken into account in determining whether the requisite amount of
Certificateholders necessary to effect any such consent, waiver, request or
demand shall have been obtained; provided, however, that in determining whether
-------- -------
the Trustee shall be protected in relying upon any such consent, waiver, request
or demand, only Certificates which an Officer of the Trustee assigned to matters
under this Agreement actually knows to be so owned shall not be so taken into
account.
"Certificateholders' Interest Carryover Shortfall" means, with respect
to any Monthly Payment Date, the excess of the Interest Distributable Amount for
the preceding Monthly Payment Date over the amount of interest that was actually
distributed to Certificateholders on such preceding Monthly Payment Date, plus
interest on such excess, to the extent permitted by law, at the Certificate Rate
from and including the preceding Monthly Payment Date to but excluding the
current Monthly Payment Date.
- 3 -
<PAGE>
"Certificateholders' Percentage" means, with respect to any Monthly
Collection Period, a percentage equal to (i) during the Revolving Period, an
Early Amortization Period and a Rapid Amortization Period, 100% and (ii) during
the Amortization Period, 90% until the first day of the Monthly Collection
Period during which the Distribution Date on which the Certificate Principal
Balance has been reduced to 20% of the Initial Certificate Principal Balance
occurs, and thereafter 100%.
"Certificates" shall have the meaning set forth in the Agreement.
"Chevy Chase" means Chevy Chase Bank, F.S.B., a federal savings bank
organized under the laws of the United States, or its successor in interest.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" with respect to each Trust shall have the meaning set
forth in the applicable Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateralization Deficiency" means, with respect to each Monthly
Payment Date, the amount, if any, by which the Stated Certificate Principal
Balance as of such Monthly Payment Date exceeds the Invested Amount as of such
Monthly Payment Date.
"Collection Account" means the account designated as such, established
and maintained pursuant to Section 14.01(a).
"Corporate Trust Office" means the principal office of the Trustee at
the address set forth in the related Agreement or at such other address as the
Trustee may designate from time to time by notice to Certificateholders, the
Certificate Insurer, the Transferor and the Servicer, or the principal corporate
trust office of any successor Trustee (of which address such successor Trustee
shall notify the Certificateholders, the Transferor and Servicer).
"Cumulative Realized Loss Ratio" means, with respect to any
Determination Date, a fraction, expressed as a percentage, the numerator of
which is the aggregate unpaid principal balance of all Liquidated Loans as of
the end of the related Monthly Collection Period (after
- 4 -
<PAGE>
giving effect to the application of Net Liquidation Proceeds and Recoveries with
respect to such Liquidated Loans) and the denominator of which is the sum of the
Original Pool Balance and the unpaid principal balance of each Subsequent Loan
as of its related Subsequent Cut-off Date that has been acquired by the Trust on
or prior to the end of the related Monthly Collection Period.
"Defective Loan" means any Loan which is required to be removed or
replaced by the Transferor pursuant to Section 3.02, 3.03 or 12.01 or removed or
replaced by the Servicer pursuant to Section 13.01.
"Deferral Loan" means a Loan for which the related Obligor has elected
to extend the contractual period between the Loan's funding date and the Loan's
first scheduled due date.
"Deposit Date" means, with respect to each Monthly Payment Date, the
Business Day preceding such Monthly Payment Date.
"Determination Date" means, unless otherwise specified in the
Agreement, with respect to a Monthly Collection Period, the fifth Business Day
prior to the related Monthly Payment Date.
"Direct Home Improvement Loan" means an installment loan agreement
originated by Chevy Chase in connection with the financing of the construction
of home improvements, which loan may be secured by a Mortgage.
"Dissolution Distribution Date" has the meaning ascribed thereto in
Section 16.02.
"Distribution Date" with respect to each Trust shall have the meaning
set forth in the applicable Agreement.
"Early Amortization Event" means the occurrence of any of the
following:
(i) the Transferor's failure to deposit in the Collection Account on
the Business Day prior to any Determination Date the Negative Carry Deposit
Amount for the related Monthly Collection Period;
(ii) on any Determination Date, the Cumulative Realized Loss Ratio as
of such date exceeds (a) in the case of any Determination Date prior to the June
1997 Determination Date, 5%, (b) in the case of any Determination Date on and
after the June 1997 Determination Date but prior to the June 1998 Determination
Date, 8.5% and (c) in the case of any Determination Date on and after the June
1998 Determination Date, 12%;
(iii) the Transferor's failure to deliver Subsequent Loans to the Trust
with an aggregate outstanding unpaid principal balance as of
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<PAGE>
the related Subsequent Cut-off Dates, to the extent originated and otherwise
satisfying the criteria for Subsequent Loans specified in Section 3.02(b), (a)
no later than the Monthly Payment Date in February 1997, in an aggregate amount
equal to the lesser of (x) the amounts deposited in the Excess Funding Principal
Subaccount prior to the November 1996 Monthly Payment Date which have not
previously been applied to fund Excess Funding Interest Transfer Amounts prior
to such date and (y) $18,750,000, (b) no later than the Monthly Payment Date in
November 1997, in an aggregate amount equal to the lesser of (x) the amounts
deposited in the Excess Funding Principal Subaccount prior to the August 1997
Monthly Payment Date which have not previously been applied to fund Excess
Funding Interest Transfer Amounts prior to such date and (y) $43,385,000, and
(c) on each Monthly Payment Date after November 1997, in an amount equal to the
excess, if any, of the amounts deposited in the Excess Funding Principal
Subaccount through the end of the Monthly Collection Period which occurred 15
months prior to such Monthly Payment Date over the sum of all transfers from the
Excess Funding Account to fund Excess Funding Interest Transfer Amounts through
the end of such Monthly Collection Period;
(iv) a draw on the Policy with respect to a Monthly Collection Period
during the Revolving Period; and
(v) on any Determination Date the amount on deposit in the Excess
Funding Account exceeds $60,000,000.
"Early Amortization Period" means the period commencing on the first
day of a Monthly Collection Period during which an Early Amortization event
occurs, and ending on the first to occur of (i) the first day of a Monthly
Collection Period in which a Rapid Amortization Event occurs; (ii) the later of
(A) the date when the Certificate Principal Balance has been reduced to zero and
(B) the date on which all amounts owing to the Certificate Insurer have been
paid in full; and (iii) the date when the Trust otherwise terminates.
"Electronic Ledger" means the electronic master record of Home Loans
(including the Loans) maintained by the Servicer.
"Eligible Account" means an account that is (i) (A) maintained with a
depository institution which has a short term certificate of deposit rating at
the time of any deposit therein in the highest short-term debt rating category
by the Rating Agencies and (B) one or more accounts with a depository
institution whose accounts are fully insured by either the SAIF or the BIF of
the Federal Deposit Insurance Corporation with a minimum long-term unsecured
debt rating of Baa3, (ii) a trust account maintained with the Trustee in its
corporate trust department or (iii) otherwise acceptable to each Rating Agency
as evidenced by a letter from such Rating Agency to the Trustee, without
reduction or withdrawal of their then current ratings of the Certificates, and
acceptable to the Certificate Insurer.
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<PAGE>
"Eligible Substitute Loan" means a Loan proposed to be substituted by
the Transferor for a Defective Loan which, on the date of such substitution,
shall (i) have an outstanding principal balance (except as provided below) not
less than 95% of the outstanding principal balance of such Defective Loan on the
date of such substitution; (ii) have a Loan Rate not less than the Loan Rate of
such Defective Loan and not more than one hundred (100) basis points in excess
of the Loan Rate of such Defective Loan; (iii) have a remaining term to maturity
not later nor more than six months earlier than the remaining term of such
Defective Loan; (iv) be secured by a Mortgage in a lien position not junior to
the lien position of the Mortgage of such Defective Loan (if any); (v) satisfy
the conditions of transfer of a Subsequent Loan specified in clauses (v), (xii),
(xiii), (xiv), (xv), (xvi) and (xviii) of Section 3.02(b); and (v) comply with
each representation and warranty set forth in Section 12.01 as if made on the
date of such substitution. If more than one Loan is substituted for Defective
Loans on any substitution date, the requirements of clause (i) of this
definition shall be satisfied if such Loans shall have aggregate principal
balances not less than 95% of the aggregate principal balances of such Defective
Loans on the date of substitution and such substitution is approved in writing
in advance by the Certificate Insurer.
"Excess Funding Account" means the account designated as such,
established and maintained pursuant to Section 14.01.
"Excess Funding Interest Subaccount" means the subaccount of the Excess
Funding Account designated as such, established and maintained pursuant to
Section 14.01.
"Excess Funding Interest Transfer Amount" means the least of (x) the
excess of (A) the Interest Distributable Amount for such Monthly Payment Date
over (B) the amount on deposit in the Interest Distribution Account before
giving any effect to any transfer from the Excess Funding Account, (y) the
amount on deposit in the Excess Funding Account and (z) the amount which when
withdrawn from the Excess Funding Account would cause the Overcollateralization
Amount to equal zero.
"Excess Funding Principal Subaccount" means the subaccount of the
Excess Funding Account designated as such, established and maintained pursuant
to Section 14.01.
"Excess Interest" means, with respect to any Monthly Collection Period,
Interest Collections for such Monthly Collection Period remaining after
allocation of the amounts described in clauses (A), (B), (C), (D) and (E) of
Sections 14.05(a)(i) and 14.05(b)(i).
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<PAGE>
"Excess Overcollateralization Amount" means, as of any Monthly Payment
Date, an amount equal to the lesser of (x) the amount by which the
Overcollateralization Amount for such Monthly Payment Date exceeds the Required
Overcollateralization Amount for such Monthly Payment Date (but in no event less
than zero) and (y) the Net Principal Collections received in respect of the
related Monthly Collection Period.
"Expense Distribution Account" means the subaccount of the Collection
Account designated as such, established and maintained pursuant to Section
14.01.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor.
"Final Order" has the meaning ascribed thereto in Section 14A.02.
"Foreclosure Proceedings" means proceedings or action for foreclosure,
deed in lieu of foreclosure or trustee's sale with respect to any Loan and the
related Mortgaged Property.
"Funding Principal Amount" means with respect to each Monthly
Collection Period (i) during the Revolving Period, an amount equal to the
Monthly Available Principal for such Monthly Collection Period, (ii) during the
Amortization Period, an amount equal to the Funding Principal Percentage of the
Net Principal Collections received in respect of such Monthly Collection Period
minus the Funding Principal Percentage of the Excess Overcollateralization
- -----
Amount for such Monthly Collection Period, and (iii) during an Early
Amortization Period or a Rapid Amortization Period, zero.
"Funding Principal Percentage" means 10% until the first day of the
Monthly Collection Period following the Distribution Date on which the
Certificate Principal Balance is equal to or less than 20% of the Initial
Certificate Principal Balance occurs, and thereafter 0%.
"Home Loans" means Indirect Debt Consolidation Loans, Indirect Home
Improvement Loans and Direct Home Improvement Loans acquired or originated by
Chevy Chase.
"Indemnification Agreement" means the Indemnification Agreement by and
among the Transferor, CS First Boston Corporation, Smith Barney Inc. and the
Certificate Insurer dated May 28, 1995.
"Indirect Debt Consolidation Loan" means a closed-end home equity loan
originated by a third party and acquired by Chevy Chase in connection with the
consolidation of obligations of the related Obligor.
"Indirect Home Improvement Loan" means an installment sales contract or
installment loan agreement originated by a third party in
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<PAGE>
connection with home improvements and subsequently acquired by Chevy Chase.
"Initial Certificate Principal Balance" shall have the meaning
specified in the Agreement.
"Initial Reserve Fund Deposit" with respect to a Reserve Fund and any
Trust shall have the meaning set forth in the related Agreement.
"Insolvency Event" has the meaning ascribed thereto in Section 16.01.
"Insolvency Proceeding" means the commencement, after the Closing Date,
of any bankruptcy, insolvency, readjustment of debt, reorganization, marshalling
of assets and liabilities or similar proceedings by or against any person, or
the commencement, after the Closing Date, of any proceedings by or against any
Person for the winding up or liquidation of its affairs, or the consent after
the date hereof to the appointment of a trustee, conservator, receiver or
liquidator in any bankruptcy, insolvency, readjustment of debt, reorganization,
marshalling of assets and liabilities or similar proceedings of or relating to
any Person.
"Insurance Agreement" means the Insurance and Indemnity Agreement dated
as of May 1, 1996 among the Certificate Insurer, the Transferor, the Trustee and
the Servicer.
"Insurance Proceeds" means, as to any Loan and Monthly Collection
Period, proceeds paid to the Servicer pursuant to any insurance policy relating
to such Loan or Mortgaged Property, reduced by related expenses, which proceeds
(x) are not Liquidation Proceeds, and (y) are not applied or expected to be
applied to the restoration or repair of the related Mortgaged Property or
released to the related Obligor in accordance with the normal servicing
procedures of the Servicer.
"Insurer Default" means the occurrence and continuance of any of the
following events:
(a) the Certificate Insurer shall fail to pay when due, as and in
the amounts required, any amount payable under the Policy; or
(b) (i) the Superintendent of Insurance of the State of New York
(or any Person succeeding to the duties of such Superintendent) (for
the purpose of this paragraph (b), the "Superintendent") shall apply
for any order (A) pursuant to Section 7402 of the New York Insurance
Law (or any successor provisions thereto), directing him to
rehabilitate the Certificate Insurer, (B) pursuant to Section 7404 of
the New
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<PAGE>
York Insurance Law (or any successor provision thereto), directing him
to liquidate the business of the Certificate Insurer or (C) pursuant to
Section 7416 of the New York Insurance Law (or any successor provision
thereto), dissolving the corporate existence of the Certificate Insurer
which is not dismissed or withdrawn during a period of 60 consecutive
days or relief sought; (ii) the Superintendent shall determine that the
Certificate Insurer is insolvent within the meaning of Section 1309 of
the New York Insurance Law; (iii) the Certificate Insurer shall
commence a voluntary case or other proceeding seeking rehabilitation,
liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief
or to the appointment of or taking possession by any such official in
an involuntary case or other proceeding commenced against it, or shall
make a general assignment for the benefit of creditors; or (iv) an
involuntary case or other proceeding shall be commenced against the
Certificate Insurer seeking rehabilitation, liquidation, reorganization
or other relief with respect to it or its debts under a bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property and such
case or proceeding is not dismissed or otherwise terminated within a
period of 60 consecutive days or a court of competent jurisdiction
enters an order granting the relief sought in such case or proceeding.
"Interest Collections" means, for any Monthly Payment Date, an amount
equal to (i) interest collections received from or on behalf of Obligors during
the related Monthly Collection Period calculated in accordance with the Simple
Interest Method and otherwise in accordance with this Agreement (less, with
respect to any Loan for which a Servicer Advance has been made and not
previously reimbursed, such interest collections allowable to pay any such
unreimbursed Servicer Advance), (ii) the interest portion of Net Liquidation
Proceeds and Insurance Proceeds received during the related Monthly Collection
Period calculated in accordance with the Simple Interest Method and otherwise in
accordance with this Agreement, (iii) Recoveries received during the related
Monthly Collection Period, (iv) the interest portion of the Retransfer Deposit
Amount received in respect of the related Monthly Collection Period, (v)
Investment Earnings on amounts on deposit in the Collection Account, the Excess
Funding Account and the Reserve Fund for the related Monthly Collection Period,
and (vi) any Negative Carry Deposit Amount received in respect of the related
Monthly Collection Period.
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<PAGE>
"Interest Deficiency Draw Amount" means, for any Monthly Payment Date,
the amount, if any, by which the Interest Distributable Amount with respect to
such Monthly Payment Date exceeds all amounts on deposit in the Collection
Account, Excess Funding Account and Reserve Fund which the Trustee is required
to transfer, allocate or deposit to the Interest Distribution Account on the
related Deposit Date pursuant to Section 14.05(c).
"Interest Distributable Amount" means with respect to the first Monthly
Collection Period, interest accrued at the Certificate Rate for the Interest
Period and with respect to each Monthly Payment Date thereafter , the sum of (i)
interest accrued during the related Interest Period equal to one-twelfth of the
product of the Certificate Rate and the Certificate Principal Balance
immediately preceding such Monthly Payment Date, plus (ii) the
Certificateholders' Interest Carryover Shortfall, in each case calculated on the
basis of a 360-day year comprised of twelve 30-day months.
"Interest Distribution Account" means the subaccount of the Collection
Account designated as such, and established and maintained pursuant to Section
14.01.
"Interest Period" means the period from and including the Closing Date
(in the case of the first Monthly Payment Date) or from and including most
recent Monthly Payment Date on which interest has been paid to but excluding the
following Monthly Payment Date.
"Invested Amount" means, as of any Monthly Payment Date, the sum of the
Pool Balance as of such Monthly Payment Date plus amounts on deposit in the
Excess Funding Account (other than Investment Earnings) on such Monthly Payment
Date (after giving effect to any deposits thereto on the related Deposit Date
and reductions thereof in respect of (i) Subsequent Loans, if any, to be
acquired on such Monthly Payment Date as specified in the Addition Notice for
such Monthly Payment Date and (ii) any reductions thereof in respect of Excess
Funding Interest Transfer Amounts).
"Investment Earnings" means, with respect to any Monthly Payment Date,
the investment earnings (net of losses and investment expenses) on amounts on
deposit in the accounts established pursuant to Section 14.01 and the Reserve
Fund.
"Liquidated Loan" means, with respect to any Determination Date, a Loan
with respect to which the earlier of the two following events has occurred: (i)
the related Obligor is contractually delinquent for 180 days as of the end of
the most recently completed Monthly Collection Period or (ii) the Servicer has
determined in accordance with its customary servicing practices that eventual
payment of the scheduled payments is unlikely.
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<PAGE>
"Liquidation Expenses" means expenses which are incurred by the
Servicer in connection with the liquidation of any Loan and not recovered under
any insurance policy or from any Obligor, including, without limitation, legal
fees and expenses, the cost of recordation of assignments, title fees and
expenses, any unreimbursed amount expended by the Servicer pursuant to Section
13.05 with respect to such Loan (including, without limitation, amounts advanced
to cure defaults on any mortgage loan which is senior to such Loan or to pay in
full any such senior mortgage loan) and any related and unreimbursed
expenditures for real estate property taxes or for property restoration,
preservation or insurance against casualty loss or damage as are customary in
the residential mortgage loan servicing industry.
"Liquidation Loss Amount" means, with respect to any Liquidated Loan,
the unrecovered principal balance thereof at the end of the related Monthly
Collection Period in which such Loan became a Liquidated Loan, after giving
effect to the application of the principal portion of Net Liquidation Proceeds
in connection therewith.
"Liquidation Proceeds" means proceeds (excluding any amounts drawn from
the Excess Funding Account, the Reserve Fund or on the Policy) received in
connection with the liquidation of Liquidated Loans and any related collateral
granted as security therefor, during the Monthly Collection Period in which such
Loan became a Liquidated Loan.
"Loan Files" has the meaning ascribed thereto in Section 3.01(b)(iii)
of the Agreement.
"Loan Rate" of a Loan means the annual per annum interest rate stated
in the related Loan.
"Material Subsidiary" means any subsidiary of the Transferor with total
consolidated assets in excess of $100,000,000.
"Monthly Allocable Principal" means, with respect to each Monthly
Payment Date relating to the Amortization Period, an Early Amortization Period
or a Rapid Amortization Period, an amount equal to the sum of (i) the Monthly
Available Principal deposited in the Principal Distribution Account for such
Monthly Payment Date, (ii) any Excess Interest deposited in the Principal
Distribution Account pursuant to Section 14.05(b)(i)(F) for such Monthly Payment
Date, (iii) any Excess Interest deposited in the Principal Distribution Account
pursuant to Sections 14.05(b)(i)(I) and 14.05(b)(i)(J) for such Monthly Payment
Date, (iv) the Reserve Fund Principal Transfer Amount drawn from the Reserve
Fund pursuant to Section 14.05(c)(iii) for such Monthly Payment Date and (v) the
Principal Deficiency Draw Amount made under the Policy for such Monthly Payment
Date.
"Monthly Available Principal" means, with respect to each Monthly
Collection Period, an amount equal to the Certificateholders'
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<PAGE>
Percentage of Net Principal Collections received in respect of such Monthly
Collection Period, minus the Certificateholders' Percentage of the Excess
-----
Overcollateralization Amount.
"Monthly Collection Period" for any Monthly Payment Date is the
calendar month preceding such Monthly Payment Date.
"Moody's" means Moody's Investors Service, Inc., or its successor.
"Negative Carry Amount" means, with respect to any Monthly Collection
Period, an amount equal to the excess, if any, of (i) one-twelfth of the product
of (x) the sum of the Certificate Rate plus the Policy Premium Rate plus the
Trustee Fee Rate, and (y) the sum of the amounts on deposit on the last day of
such Monthly Collection Period in the Excess Funding Principal Subaccount and
the Principal Distribution Account, over (ii) investment earnings on amounts on
deposit in the Excess Funding Principal Subaccount and the Principal
Distribution Account (in each case net of losses) for such Monthly Collection
Period.
"Negative Carry Deposit Amount" means, with respect to any Monthly
Collection Period, the lesser of (i) the Negative Carry Amount for such Monthly
Collection Period and (ii) the amount by which Interest Collections (other than
the Negative Carry Deposit Amount) for such Monthly Collection Period is less
than the amount necessary to satisfy all allocations of Interest Collections for
the related Monthly Payment Date other than any amounts allocable to the
Transferor Distribution Account.
"Net Liquidation Proceeds" means, with respect to a Liquidated Loan,
Liquidation Proceeds reduced by related expenses (including, without limitation,
Servicer Advances, the cost of recordation of assignments and any amount
advanced in respect of the repayment of a senior mortgage).
"Net Principal Collections" means, with respect to each Monthly
Collection Period, Principal Collections net of any Principal Collections
allocated pursuant to Section 14.05(b)(ii)(A).
"Note" means the promissory note or other evidence of indebtedness
evidencing the indebtedness of an Obligor under a Loan.
"Obligor" on a Loan means the obligor or obligors who owe payments
under the Loan or any guarantor or surety of such person.
"Officer" means any of the Chairman of the Board of Directors, a Vice
Chairman of the Board of Directors, the President, an Executive Vice President,
a Senior Vice President or a Vice President of the Transferor.
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<PAGE>
"Officer's Certificate" means a certificate delivered to the Trustee
and signed by the Chairman of the Board of Directors, a Vice Chairman of the
Board of Directors, the President, an Executive Vice President, a Senior Vice
President or a Vice President of the Transferor, if delivered by the Transferor,
and by a Servicing Officer, if delivered by the Servicer.
"Opinion of Counsel" means one or more written opinions of counsel, who
may be an employee of or counsel to the Transferor or the Servicer, which
counsel shall be acceptable to the Trustee, the Certificate Insurer or Rating
Agencies, as applicable.
"Original Pool Balance" means the Pool Balance as of the Initial Cut-
off Date.
"Overcollateralization Amount" means, with respect to any Monthly
Payment Date, the amount, if any, by which the Invested Amount (without giving
effect to any allocation and deposit pursuant to Section 14.05(a)(i)(J) or
Section 14.05(b)(i)(J)) as of such Monthly Payment Date exceeds the Adjusted
Certificate Principal Balance on such Monthly Payment Date.
"Overcollateralization Deposit/Distribution Amount" has the meaning
ascribed thereto in Section 14.05(a)(i)(J).
"Paid-Ahead Loan" means a loan for which, as of the Initial Cut-off
Date or related Subsequent Cut-off Date, as the case may be, one or more
scheduled payments has been made in advance.
"Paying Agent" means any Person appointed by the Trustee pursuant to
Section 19.15.
"Permitted Investments" means one or more of the following:
(i) obligations of, or guaranteed as to the full and timely payment of
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) above
maturing not more than one month from the date of acquisition thereof, provided
--------
that the unsecured obligations of the party agreeing to repurchase the specified
obligations are at the time of such agreement rated by each Rating Agency in its
highest short-term rating category and provided, further, that if Moody's is a
-------- -------
Rating Agency, the short-term debt obligations of the party agreeing to
repurchase the specified obligations shall be rated P-1 or better;
(iii) certificates of deposit, demand deposits, time deposits and
bankers' acceptances (which, if Moody's is a Rating Agency, shall
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<PAGE>
each have an original maturity of not more than 90 days and, in the case of
bankers' acceptances, shall in no event have an original maturity of more than
365 days) of any United States depository institution or trust company
incorporated under the laws of the United States or any state or any branch or
agency of any foreign bank licensed under the laws of the United States or any
state thereof, provided that the debt obligations of such depository
--------
institution or trust company at the date of acquisition of such certificates,
demand deposits, time deposits or bankers' acceptances have been rated by each
Rating Agency in its highest short-term rating category and provided, further,
-------- -------
that if Moody's is a Rating Agency, the short-term obligations of such
depository institution or trust company shall be rated P-1 or better;
(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 by each Rating
Agency in its highest short-term rating category;
(v) investments in money market funds registered under the Investment
Company Act of 1940, as amended, that, at the time of the Trust's investment or
contractual commitment to invest therein, are rated in the highest investment
category or otherwise approved in writing by each Rating Agency; and
(vi) other obligations or securities that are acceptable to each Rating
Agency and the Certificate Insurer as a Permitted Investment hereunder and will
not result in the reduction, suspension or withdrawal of the then-current
rating of the Certificates without taking into account the Policy;
provided, however, that (a) no instrument described hereunder shall evidence the
- -------- -------
right to receive only interest with respect to the obligations underlying such
instrument and (b) no instrument purchased hereunder may be a callable
investment purchased at a premium. The highest short-term rating of Standard &
Poor's for the investments specified in clauses (ii), (iii) and (iv) is A-1+ and
the highest investment category rating of Standard & Poor's for the investments
specified in clause (v) is either AAAm or AAAm-G.
"Person" means any legal person, including any individual, corporation,
partnership, limited liability company, joint venture, estate, association,
joint stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof, or any other entity.
"Policy Premium Rate" means the per annum rate on which the premium
payable to the Certificate Insurer is calculated, based on the outstanding
Certificate Principal Balance, as set forth in the Insurance Agreement.
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<PAGE>
"Pool Balance" means, as of any Monthly Payment Date, an amount equal
to the aggregate unpaid principal balance of the Loans as of the last day of the
related Monthly Collection Period plus the aggregate unpaid principal balance of
----
any Subsequent Loans as of the related Subsequent Cut-off Date transferred to
the Trust on the Subsequent Transfer Date on which such Monthly Payment Date
occurs, in each case other than Loans which became Liquidated Loans during or
prior to such Monthly Collection Period and other than Loans that have been
retransferred to the Transferor or transferred to the Servicer prior to such
Monthly Payment Date.
"Preference Event" has the meaning ascribed thereto in Section 14A.02.
"Principal Collections" means, for any Monthly Payment Date, (i)
principal collections received from Obligors on the Loans during the related
Monthly Collection Period calculated in accordance with the Simple Interest
Method and otherwise in accordance with the Agreement (less, with respect to any
Loan for which a Servicer Advance has been made and not reimbursed from Interest
Collections on such Loan relating to such Monthly Payment Date, principal
collections allocable to pay any remaining portion of such unreimbursed Servicer
Advance), (ii) the principal portion of the Net Liquidation Proceeds and
Insurance Proceeds received during the related Monthly Collection Period and
(iii) the principal portion of the Retransfer Deposit Amount and the
Substitution Adjustment Amount, of any transferred Loan in respect of the
related Monthly Collection Period.
"Principal Deficiency Draw Amount" means, for any Monthly Payment Date,
(i) if such Monthly Payment Date relates to the Revolving Period,
an Early Amortization Period or a Rapid Amortization Period (other than
any such Monthly Payment Date corresponding to either of the dates
described in clause (iii) below), the amount, if any, by which the
Stated Certificate Principal Balance with respect to such Monthly
Payment Date calculated after giving effect to the allocation and
deposit of the Reserve Fund Principal Transfer Amount, which the
Trustee is required to transfer from the Reserve Fund on or prior to
the related Deposit Date pursuant to Section 14.05(c) of the Pooling
and Servicing Agreement) exceeds the Invested Amount with respect to
such Monthly Payment Date; or
(ii) if such Monthly Payment Date relates to the Amortization
Period (other than any such Monthly Payment Date corresponding to
either of the dates described in clause (iii) below), (A) for each
Monthly Payment Date corresponding to a Distribution Date, the amount
calculated for such Monthly
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<PAGE>
Payment Date in accordance with the provisions of clause (i) above, and
(B) for each other Monthly Payment Date, zero; or
(iii) if such Monthly Payment Date is the Dissolution Distribution
Date or the Stated Maturity Date (whichever first occurs), the amount,
if any, by which the outstanding Certificate Principal Balance in
effect as of the Deposit Date relating to such Monthly Payment Date
exceeds the aggregate amount of all funds which the Trustee is required
to transfer from the Collection Account, Excess Funding Account and
Reserve Fund, on such related Deposit Date to the Principal
Distribution Account pursuant to the terms of the Pooling and Servicing
Agreement.
"Principal Distributable Amount" means (i) with respect to each
Distribution Date relating to the Amortization Period, an amount equal to the
Monthly Allocable Principal relating to each of the three Monthly Collection
Periods preceding such Distribution Date, (ii) with respect to each Monthly
Payment Date relating to an Early Amortization Period or a Rapid
Amortization Period, the Monthly Allocable Principal relating to the Monthly
Collection Period preceding such Monthly Payment Date and, if an Early
Amortization Event or a Rapid Amortization Event occurs at any time after the
Revolving Period has ended, the Monthly Allocable Principal for any prior
Monthly Collection Period that was not previously distributed, plus, on the
Monthly Payment Date relating to the Monthly Collection Period during which an
Early Amortization Event or a Rapid Amortization Event has occurred, all amounts
then on deposit in the Excess Funding Account, and (iii) on the first
Distribution Date on which the Certificate Principal Balance as of the preceding
Distribution Date has been reduced to 20% or less of the Initial Certificate
Principal Balance, all amounts then on deposit in the Excess Funding Account;
provided, however, that on the Stated Maturity Date and the Dissolution
- -------- -------
Distribution Date, the Principal Distributable Amount will equal the Certificate
Principal Balance; provided further, however, that in no event will the
-------- ------- -------
aggregate amount distributed to Certificateholders in respect of principal
exceed the Initial Certificate Principal Balance.
"Principal Distribution Account" means the subaccount of the Collection
Account designated as such, and established and maintained pursuant to Section
14.01.
"Rapid Amortization Event" has the meaning ascribed thereto in Section
16.01.
"Rapid Amortization Period" means the period commencing upon the first
day of a Monthly Collection Period during which a Rapid Amortization Event
occurs and ending on the first to occur of (i) the later of (A) the date when
the Certificate Principal Balance has been reduced to zero or (B) the date on
which all amounts owing to the
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<PAGE>
Certificate Insurer have been paid in full, and (ii) the date when the Trust
otherwise terminates.
"Rating Agency" means, unless otherwise specified in the Agreement,
Moody's and Standard & Poor's. If no such organization or successor maintains a
rating on the Certificates, "Rating Agency" shall mean any nationally recognized
statistical rating organization or other comparable Person designated by the
Transferor and acceptable to the Certificate Insurer (so long as an Insurer
Default shall not have occurred and be continuing) notice of which designation
shall be given to the Trustee and the Servicer.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have been given 10 Business Days (or such shorter period as
shall be acceptable to each Rating Agency) prior notice thereof and that each of
the Rating Agencies shall have notified the Transferor, the Servicer, the
Certificate Insurer and the Trustee in writing that such action will not result
in a reduction or withdrawal of the then current rating of the Certificates.
"Record Date" with respect to each Monthly Payment Date means the day
immediately preceding such Monthly Payment Date if the Certificates are Book
Entry Certificates, and on the last day of the month preceding the month of the
related Monthly Payment Date, if Replacement Certificates are issued, unless
otherwise specified in the Agreement.
"Recordation Fees" means the fees and expenses incurred by the Trustee
in connection with the recordation of Assignments of Mortgages pursuant to
Section 13.15.
"Recoveries" means, with respect to any Liquidated Loan and a Monthly
Collection Period, the amount collected with respect to such Loan from whatever
source (other than from withdrawals from the Excess Funding Account or the
Reserve Fund, or from draws on the Policy) in a Monthly Collection Period
following the Monthly Collection Period during which such Loan became a
Liquidated Loan, reduced by related expenses incurred by the Servicer and not
previously reimbursed from Liquidation Proceeds or otherwise in connection with
the liquidation of such Loan or the related Mortgaged Property (including,
without limitation, any Servicer Advances, costs of recording assignments and
any amount advanced in respect of the repayment of a senior mortgage).
"Replacement Certificates" shall have the meaning ascribed thereto in
Section 15.09.
"Remaining Interest" means, with respect of any Monthly Collection
Period, Interest Collections for such Monthly Collection Period remaining after
allocation of the amounts described in clauses (A)-(I) (inclusive) of Section
14.05(b)(i).
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<PAGE>
"Required Overcollateralization Amount" has the meaning specified in
the Insurance Agreement.
"Reserve Fund" has the meaning ascribed thereto in Section 14.07.
"Reserve Fund Interest Transfer Amount" means, with respect to each
Deposit Date, an amount equal to the lesser of (x) the excess of (A) the
Interest Distributable Amount for the related Monthly Payment Date over (B) all
amounts on deposit in the Interest Distribution Account on such Deposit Date
(including the Excess Funding Interest Transfer Amount on such date) before
giving effect to any transfer from the Reserve Fund and (y) the amount on
deposit in the Reserve Fund on such Deposit Date.
"Reserve Fund Principal Transfer Amount" means, with respect to each
Deposit Date, an amount equal to the lesser of (x) the Collateralization
Deficiency for the related Monthly Payment Date and (y) the amount remaining on
deposit in the Reserve Fund on such Deposit Date after giving effect to any
withdrawals therefrom of a Reserve Fund Interest Transfer Amount on such Deposit
Date.
"Retransfer Deposit Amount" means, with respect to a Loan to be
retransferred to the Transferor or transferred to the Servicer, the principal
balance thereof as of the end of the Monthly Collection Period immediately
preceding the date of retransfer or transfer, plus accrued and unpaid interest
thereon at the Loan Rate less the Servicing Fee Rate through the end of the
Monthly Collection Period in which the retransfer date occurs.
"SAIF" means The Savings Association Insurance Fund, as from time to
time constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
"Servicer" means Chevy Chase as the servicer of the Loans, and each
successor Servicer pursuant to Section 17.03 or 18.02.
"Servicer Advance" has the meaning ascribed thereto in Section 13.05.
"Servicer's Certificate" means an Officers' Certificate of the Servicer
delivered pursuant to Section 13.07, substantially in the form of Exhibit F.
"Servicing Fee" means the fee payable to the Servicer for services
rendered during each Monthly Collection Period, determined pursuant to Section
13.06.
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<PAGE>
"Servicing Fee Rate" means 0.75% per annum.
"Servicing Transfer Expense" has the meaning described thereto in
Section 18.01.
"Servicing Officer" means any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Loans whose name
appears on a list of servicing officers annexed to an Officer's Certificate
furnished to the Trustee and the Certificate Insurer by the Servicer, as such
list may be amended from time to time.
"Simple Interest Loan" means any Loan under which the portion of a
payment allocable to interest and the portion allocable to principal is
determined in accordance with the Simple Interest Method.
"Simple Interest Method" means the method of allocating a fixed level
payment to principal and interest, pursuant to which the portion of such payment
that is allocated to interest is equal to the product of the fixed rate of
interest multiplied by the unpaid principal balance multiplied by the period of
time elapsed since the preceding payment of interest was made (in some states
assuming 30 day months), divided by the actual number of days in a year (360
days in states which assume 30 day months) and the remainder of such payment is
allocable to principal.
"Specified Reserve Fund Requirement" has the meaning specified in the
Insurance Agreement.
"Standard & Poor's" means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., or its successor.
"Stated Certificate Principal Balance" means (i) with respect to any
Monthly Payment Date relating to the Revolving Period, the Initial Certificate
Principal Balance, (ii) with respect to any other Monthly Payment Date, an
amount equal to (1) the Certificate Principal Balance (x) relating to the
Amortization Period, on the prior Distribution Date (or, if there is no prior
Distribution Date, the Initial Certificate Principal Balance) and (y) relating
to any Early Amortization Period or any Rapid Amortization Period, on the prior
Monthly Payment Date, in each case, after giving effect to any distributions of
principal thereon on such date minus (2) the sum of (x) Monthly Allocable
-----
Principal for such Monthly Payment Date (other than the Reserve Fund Principal
Transfer Amount for such Monthly Payment Date and other than any Principal
Deficiency Draw Amount under the Policy for such Monthly Payment Date) and (y)
relating to the Amortization Period, Monthly Allocable Principal for each other
Monthly Payment Date that has occurred since the last Distribution Date.
"Subsequent Cut-off Date" means the first day of the month in which
particular Subsequent Loans identified in Schedule A to the
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related Subsequent Transfer Agreement are transferred to the Trustee pursuant
to the related Subsequent Transfer Agreement.
"Subsequent Transfer Agreement" means a written agreement substantially
in the form of Exhibit H.
"Substitution Adjustment Amount" means, as to the Monthly Collection
Period related to a Monthly Payment Date with respect to which the Transferor or
the Servicer substitutes one or more Eligible Substitute Loans pursuant to
Section 3.03, 12.01 or 13.01, the amount, if any, by which the sum of (i) the
aggregate principal balances at the end of such Monthly Collection Period of all
such Eligible Substitute Loans being added to the Trust is less than (ii) the
aggregate principal balances at the end of such Monthly Collection Period of the
related Loans being removed from the Trust, such amount to be deposited into the
Collection Account when and to the extent provided in Sections 3.03, 12.01 or
13.01.
"Supplemental Servicing Fee" means charges including late fees,
prepayment fees, rebates and other administrative fees and expenses or similar
charges allowed by applicable law with respect to Loans, collected (from
whatever source) on the Loans during the related Monthly Collection Period.
"Transferor" means Chevy Chase Bank, F.S.B. and its successors in
interest to the extent permitted hereunder.
"Transferor Distribution Account" means the subaccount of the
Collection Account designated as such and maintained pursuant to Section 14.01.
"Trigger Event" means the occurrence of any of the following events:
(i) failure by the Servicer to pay the Certificate Insurer amounts payable under
the Insurance Agreement which failure continues unremedied for five Business
Days after notice to the Servicer; (ii) failure of the Servicer to pay amounts
payable under the Agreement, which failure results in a draw on the Policy;
(iii) the occurrence of an Event of Default; (iv) a determination that the
performance of the Servicer under the Agreement is not satisfactory in the
reasonable opinion of the Certificate Insurer or (v) the occurrence of a Rapid
Amortization Event other than a Rapid Amortization Event described in clauses
(d) or (f) of the definition thereof.
"Trust" shall have the meaning set forth in the Agreement.
"Trust Property" means the property and proceeds of every description
conveyed pursuant to Sections 3.01 and 3.02 of an Agreement, the Policy, amounts
on deposit in the Collection Account, Reserve Fund and Excess Funding Account,
any financial assets or investment property (as defined in the UCC) or other
investments purchased with such funds,
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and any proceeds thereof or other amounts payable with respect thereto, all
other rights, property and interests in property granted to the Trustee under
this Agreement for the benefit of the Certificateholders and/or the Certificate
Insurer and any and all products and proceeds of the foregoing.
"Trustee" with respect to each Trust shall have the meaning assigned
thereto in the Agreement.
"Trustee Officer" means the chairman or vice-chairman of the board of
directors, the chairman or vice-chairman of the executive committee of the board
of directors, the president, any vice president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer, the cashier, any assistant
cashier, any trust officer or assistant trust officer, the controller and any
assistant controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
"Trustee Fee Rate" means, as of any date of determination, the amount
of the Trustee's Fee for such Monthly Collection Period expressed as a per annum
rate, based on the then-outstanding Certificate Principal Balance.
"UCC" means the Uniform Commercial Code as in effect in the State of
New York on the date hereof.
SECTION 11.02. Other Definitional Provisions. (a) All terms defined
-----------------------------
in this Standard Terms and Conditions of Agreement or any Agreement shall have
the meanings defined herein when used in any certificate or other document made
or delivered pursuant hereto or thereto unless otherwise defined therein.
(b) As used herein, in any Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined herein or in such Agreement or in any such certificate or other
document, and accounting terms partly defined herein or in such Agreement or in
any such certificate or other document to the extent not defined, shall have the
respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms herein, in
any related Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained herein, in such Agreement or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used herein shall refer to these Standard Terms and
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Conditions of Agreement and the Agreement as a whole and not to any particular
provision of the Standard Terms and Conditions of Agreement or the Agreement;
Article, Section, Schedule and Exhibit references contained in the Standard
Terms and Conditions of Agreement or any Agreement are references to Articles,
Sections, Schedules and Exhibits in or to the Standard Terms and Conditions of
Agreement and the Agreement, as appropriate; and the term "including" shall mean
"including without limitation".
(d) The definitions contained in these Standard Terms and Conditions
of Agreement and the Agreement are applicable to the singular as well as the
plural forms of such terms and to the masculine as well as to the feminine and
neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
ARTICLE XII
The Loans
SECTION 12.01. Representations and Warranties of the Transferor
------------------------------------------------
Regarding the Loans; Removal and Substitution Obligations. (q) The Transferor
- ---------------------------------------------------------
represents and warrants to the Trustee, the Certificate Insurer and the
Certificateholders as of the date of this Agreement and as of the Closing Date
in the case of the Initial Loans, and as of the applicable Subsequent Transfer
Date in the case of the Subsequent Loans (in each case unless otherwise
specified), that:
(i) The information set forth on the Loan Schedule with respect to the
Initial Loans was, and the information to be set forth on Schedule A to each
Subsequent Transfer Agreement with respect to the related Subsequent Loans will
be, true and correct in all material respects at the date or dates as of which
such information was or will be furnished by the Transferor.
(ii) Each Note and each Mortgage is genuine and each is the legal, valid
and binding obligation of the Obligor thereof, enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights in general and
by general principles of equity. All parties to each Note and, if applicable,
each related Mortgage had legal capacity at the time to enter into the related
Loan and to execute and deliver such Note and, if applicable, Mortgage, and such
Note and, if
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applicable, Mortgage have been duly and properly executed by such parties.
(iii) As of the Closing Date, each Initial Mortgage securing an Initial
Loan is, and as of the related Subsequent Transfer Date each Subsequent Mortgage
securing a Subsequent Loan will be, a valid lien on the related Mortgage
Property, subject only to (a) the lien of current real property taxes and
assessments, (b) the lien of the related first mortgage loan or deed of trust,
if any, the second mortgage loan or deed of trust, if any, and the third
mortgage loan or deed of trust, if any, (c) 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 related Mortgaged Property is located or specifically reflected in the
appraisal obtained in connection with the origination of the related Home Loan
obtained by the Transferor and (d) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of the
security interest intended to be provided by such Mortgage.
(iv) As of the Initial Cut-Off Date with respect to each Initial Loan,
and as of the related Subsequent Cut-off Date with respect to each Subsequent
Loan, as the case may be, the proceeds of any such Loan have been fully
disbursed and there is no requirement for future advances thereunder, all costs,
fees and expenses incurred in making or closing such Loan and the recording of
the related Mortgage, if any, were disbursed, the Obligor thereon is not
entitled to any refund of any amounts paid or due under any related Note,
installment sales contract or installment loan agreement, or any related
Mortgage and any and all requirements set forth in any documents relating to
such Loan have been complied with.
(v) Each Mortgage contains customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security provided thereby, including, (i) in the case of a Mortgage designated
as a deed of trust, by trustee's sale, and (ii) otherwise, by judicial
foreclosure.
(vi) Each Loan is an Indirect Debt Consolidation Loan, an Indirect Home
Improvement Loan or a Direct Home Improvement Loan, and has been underwritten by
Transferor in accordance with its originator's (and the Transferor's) then
current underwriting guidelines.
(vii) No Obligor has notified the Transferor, and the Transferor has no
knowledge, of any relief requested or allowed to an Obligor under the Soldiers'
and Sailors' Relief Act.
(viii) Immediately prior to the transfer and assignment referred to in
Section 3.01(a), the Transferor had good and marketable title to
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each Initial Loan, and prior to each transfer and assignment referred to in
Section 3.02(a) or 3.02(c) the Transferor shall have good and marketable title
to each Subsequent Loan being transferred on the related Subsequent Transfer
Date, in each case subject to no prior lien, mortgage, security interest,
pledge, charge or other encumbrance.
(ix) As of the Closing Date, the transfer to the Trust of the Initial
Loans constitutes, and as of each Subsequent Transfer Date the transfer to the
Trust of the related Subsequent Loans will constitute, the grant of a first
priority perfected ownership interest or security interest therein (to the
extent provided herein) to the Trustee for the benefit of the Certificateholders
and the Certificate Insurer.
(x) As of the Initial Cut-off Date with respect to any Initial Loan,
and as of the related Subsequent Cut-off Date with respect to any Subsequent
Loan, no payment on or in respect of any such Initial Loan or such Subsequent
Loan, as applicable, shall be 30 or more days past due on a contractual basis.
(xi) As of the Closing Date with respect to any Initial Loan, and as of
the related Subsequent Transfer Date with respect to any Subsequent Loan, there
shall be no recorded lien for any delinquent recording fee, tax or assessment
against any Initial Mortgaged Property or related Subsequent Mortgaged Property,
as applicable.
(xii) As of the Closing Date with respect to any Initial Loan, and
as of the related Subsequent Transfer Date with respect to any Subsequent Loan,
to the knowledge of the Transferor no such Loan or related Mortgage shall be
subject to any valid offset, defense or counterclaim.
(xiii) As of the Closing Date with respect to any Initial Loan and as of
the related Subsequent Transfer Date with respect to any Subsequent Loan, to the
knowledge of the Transferor each Mortgaged Property relating to a Secured Loan
to be transferred on such date shall be free of material damage and be in good
repair.
(xiv) Each Initial Loan shall comply at the time it was made and, with
respect to each Subsequent Loan conveyed on a Subsequent Transfer Date, such
Subsequent Loan shall comply at the time it is made, in all material respects
with applicable state and federal laws, including, without limitation, usury,
equal credit opportunity and disclosure laws, and the consummation of the
transactions herein contemplated, including, without limitation, the receipt of
interest by the Certifi-cateholders, will not violate such laws in any material
respect.
(xv) As of the Closing Date with respect to each Initial Loan, and as of
the related Subsequent Transfer Date with respect to each Subsequent Loan, the
Transferor shall not have received a notice of default of any senior mortgage
loan on a Mortgaged Property relating to
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a Secured Loan to be transferred on such date which has not been cured by a
party other than the Transferor.
(xvi) As of the date of origination with respect to each Initial Loan
and each Subsequent Loan, each related Note (if applicable), and each Mortgage
relating to a Secured Loan to be transferred on the Closing Date or the related
Subsequent Cut-off Date, shall be an enforceable obligation of the related
Obligor, except as enforceability may be limited by (a) bankruptcy, insolvency
or other similar laws now or hereafter in effect relating to the enforcement of
creditors' rights generally and (b) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity), and,
to the knowledge of the Transferor as of the Closing Date or the related
Subsequent Transfer Date, as applicable, there is no offset, defense, claim or
counterclaim to any obligation under such Note or, with respect to each Secured
Loan, under the related Mortgage, including the obligation of the Obligor to pay
principal and interest in accordance with the terms of such Note.
(xvii) No selection procedure reasonably believed by the Transferor to be
adverse to the interests of the Certificateholders or the Certificate Insurer,
shall have been utilized in selecting the Loans.
(xviii) Each Closed End Loan was originated by the Transferor or acquired
by the Transferor from a mortgage company, duly licensed in each relevant
jurisdiction.
(xix) The Loan File for each Loan shall contain all required documents
referred to in Section 3.01(b) other than the related Assignment of Mortgage for
each Secured Loan, and such documents bear manual signatures of Obligors and
relate to such Loan.
(r) The representations and warranties set forth in Section 12.01(a)
shall survive the sale, transfer and assignment of the Initial Loans on the
Closing Date and, with respect to Subsequent Loans, the sale, transfer and
assignment of the related Subsequent Loans on each Subsequent Transfer Date and,
in each case shall survive the delivery of the related Loan Files to or on
behalf of the Trustee. Upon discovery by the Transferor, the Servicer, the
Certificate Insurer or the Trustee of a breach of any of the representations and
warranties with respect to any Loan made pursuant to Section 5.01 or Section
12.01(a) of this Agreement or Section 5 of any Subsequent Transfer Agreement or
a breach of the Servicer of Section 13.01, which in each case materially and
adversely affects the interests of the Certificateholders or the Certificate
Insurer in such Loan, the party discovering such breach shall give written
notice thereof to the other parties and the Certificate Insurer within 5 days
after such discovery; provided, however, that failure to give such notice within
-------- -------
such five day period shall not relieve the Transferor or the Servicer, as the
case may be, of
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any of their corresponding obligations. Within 30 days after its discovery or
its receipt of notice of any such breach, the Transferor or the Servicer, as
applicable, shall use all reasonable efforts to cure such breach in all material
respects. Unless at the expiration of such 30-day period, such breach has been
cured in all material respects or otherwise does not exist or continue to exist,
the Transferor or the Servicer, as applicable, shall, not later than the
Business Day preceding the Determination Date immediately preceding the Monthly
Payment Date in the month following the related Monthly Collection Period in
which any such cure period expired, remove such Defective Loan (including any
property acquired in respect thereof and any insurance policy or Insurance
Proceeds with respect thereto) in exchange for (i) deposit of the Retransfer
Deposit Amount or (ii) in the case of the Transferor only, substitution in its
place of an Eligible Substitute Loan or Loans, in any case in the same manner
and subject to the same conditions as set forth in Section 3.03(c). In
conjunction with any removal pursuant to the foregoing, the Transferor shall be
entitled to receive an assignment of the removed Loan and a release of the
related Loan File from the Trustee to the extent set forth in Section 3.03(c).
Any such Defective Loan shall be deemed to have been purchased as of the last
day of the Monthly Collection Period immediately preceding date on which such
purchase occurred. The obligation of the Transferor to remove any Loan as to
which a breach has occurred and is continuing shall constitute the sole remedy
against the Transferor with respect to such breach available to
Certificateholders, the Trustee on behalf of Certificateholders, or the
Certificate Insurer.
A breach of the representation and warranty set forth in clause (xix)
of Section 12.01 with respect to any Loan shall be deemed to affect materially
and adversely the interests of the Certificateholders and the Certificate
Insurer in such Loan. Notwithstanding the first paragraph of this Section
12.01(b), the provisions of Section 3.03(b) shall control with respect to notice
and cure periods applicable to the correction of any defective Loan Files and
the obligations of the Transferor with respect thereto.
Any purchase of, or substitution of an Eligible Substitute Loan or
Loans for, a Defective Loan by the Servicer pursuant to Section 13.01 shall be
effected in the same manner and subject to the same conditions as set forth in
Section 3.03(c). Upon completing any such purchase or substitution, the
Servicer shall receive an assignment of such Defective Loan and a release of the
related Loan File from the Trustee to the extent set forth in Section 3.03(c).
The Loan Schedule shall be amended to reflect all additions,
substitutions or deletions of Loans provided for in this Section (x) with
respect to Eligible Substitute Loans and Defective Loans, as provided in Section
3.01(d) and (y) with respect to each Subsequent Loan, as of the related
Subsequent Cut-off Date.
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SECTION 12.02. Official Record. The Transferor and the Servicer agree
---------------
that, so long as the Certificates remain outstanding and/or amounts remain owing
to the Certificate Insurer, this Agreement, the Insurance Agreement, the
Indemnification Agreement and all related agreements, documents, instruments and
certificates delivered hereunder or thereunder shall remain outstanding as an
official record of the Transferor within the meaning of Section 13(e) of the
Federal Deposit Insurance Act, as amended (12 U.S.C. Section 1823(e)).
ARTICLE XIII
Administration and Servicing of Loans
SECTION 13.01. The Servicer and the Transferor. (a) The Servicer
-------------------------------
shall service and administer the Loans in accordance with its customary
procedures consistent with general industry practice, provided, however, that
-------- -------
such procedures shall be the same in all material respects as the procedures
followed by the Servicer with respect to Home Loans held in its own portfolio.
The Servicer shall have full power and authority to do any and all things in
connection with such servicing and administration which it may deem necessary or
desirable as to maximize the receipt of principal and interest on such Loans and
Net Liquidation Proceeds with respect to Liquidated Loans. 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, the Certificate Insurer and the Trustee or any
of them, any and all instruments of satisfaction or cancellation, or of partial
or full release or discharge, and all other comparable instruments, with respect
to the Loans and, with respect to Secured Loans, the related Mortgaged
Properties. The Trustee shall furnish the Servicer a power of attorney in the
form attached hereto as Exhibit G and other documents necessary or appropriate
to enable the Servicer to carry out its servicing and administrative duties
hereunder.
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.
(b) The Servicer shall not consent to the placement of a lien on any
Mortgaged Property senior to that of the related Mortgage unless such action is
consistent with reasonable commercial practice.
(c) The Servicer may grant extensions or modifications with respect to
any Loan if (a) in the Servicer's good faith judgment, such extension or
modification would minimize the loss that might otherwise be experienced with
respect to such Loan, (b)(i) such Loan is a Liquidated Loan or (ii) a payment
default with respect to such Loan is
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reasonably foreseeable by the Servicer and (c) such extension or modification is
consistent with the Servicer's customary servicing practice. Notwithstanding the
foregoing, the Servicer may not extend or modify a Loan such that the stated
final maturity date of such Loan would extend beyond the last day of the Monthly
Collection Period preceding the Stated Maturity Date.
(d) The Servicer may agree to extend the final maturity date of any
Loan beyond the last day of the Monthly Collection Period preceding the Stated
Maturity Date if the Servicer, not later than the Business Day immediately
preceding the Determination Date next following the Monthly Collection Period in
which any such extension is made shall either remove the applicable Loan or
substitute an Eligible Substitute Loan or Loans for such Loan, and remit to the
Trustee the applicable Retransfer Deposit Amount or Substitution Adjustment
Amount.
(e) Any substitution of an Eligible Substitute Loan or Loans pursuant
to subsection (d) shall be effected in the same manner and subject to the same
conditions as set forth in Section 3.03(c), and the Loan Schedule shall be
amended to reflect such substitution. Upon completing any such transfer the
Servicer shall receive an assignment of the related Loan and a release of the
related Loan File from the Trustee to the extent set forth in Section 3.03(c).
SECTION 13.02. Collection of Certain Loan Payments.
-----------------------------------
(a) The Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Loans, and shall, to the extent
such procedures shall be consistent with this Agreement, follow such collection
procedures as it follows with respect to Home Loans in its servicing portfolio
comparable to the Loans. Consistent with, and without limiting the generality
of, the foregoing, the Servicer, in its discretion, may waive any late payment
charge or any assumption fees or other fees which may be collected in the
ordinary course of the servicing of the Loans.
(b) The Transferor shall Transfer any payments it receives with
respect to a Loan to the Servicer within two Business Days following receipt
thereof.
SECTION 13.03. Maintenance of Hazard Insurance; Property Protection
----------------------------------------------------
Expenses. The Servicer, in accordance with its customary servicing procedures,
- --------
shall cause to be maintained for each Secured Loan hazard insurance naming the
Servicer as loss payee thereunder providing extended coverage in an amount which
is at least equal to the lesser of (i) the maximum insurable value of the
improvements securing such Loan from time to time or (ii) the principal balance
of such Loan. The Servicer shall also maintain, on property acquired in
Foreclosure Proceedings, hazard insurance with extended coverage in an amount
which is at least equal to the lesser of (i) the maximum insurable value from
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time to time of the improvements which are a part of such property or (ii) the
principal balance of such Loan at the time of such Foreclosure Proceedings, plus
accrued interest and the good-faith estimate of the Servicer of related expenses
to be incurred in connection therewith. Amounts collected by the Servicer under
any such policies shall be deposited as Liquidation Proceeds or Insurance
Proceeds into the Collection Account to the extent provided in Section 14.02. In
cases in which any Mortgaged Property securing a Secured Loan is located in a
federally designated special flood hazard area, the hazard insurance to be
maintained for the related Loan, or on property acquired in Foreclosure
Proceedings, shall include flood insurance. All such flood insurance shall be in
an amount equal to the lesser of (i) maximum amount available under standard
flood insurance in such designated flood area and (ii) the principal balance of
the applicable Loan and the principal balance of any mortgage loan senior to
such Loan from time to time. The Servicer shall be under no obligation to
require that any Obligor maintain earthquake or other additional insurance and
the Servicer shall be under no obligation itself to maintain any such additional
insurance on property acquired in respect of a 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.
If the Servicer shall obtain and maintain a blanket policy issued by an
insurer acceptable to the Rating Agencies insuring against hazard losses on all
of the Loans, it shall conclusively be deemed to have satisfied its obligations
as set forth in the first sentence of this Section 13.03. Any such blanket
policy may contain a deductible clause. In the event that there shall not have
been maintained on the related Mortgaged Property a policy complying with the
first sentence of this Section 13.03, and there shall have been a loss which
would have been covered by such policy, the Servicer shall deposit into the
Collection Account the amount not otherwise payable under the blanket policy
because of such deductible clause.
The Servicer shall apply all Insurance Proceeds received with respect
to a Loan in reduction of the unpaid principal balance of such Loan.
SECTION 13.04. Assumption and Modification Agreements. In any case in
--------------------------------------
which a Mortgaged Property securing a Secured Loan has been or is about to be
conveyed by the Obligor, the Servicer shall have the option to exercise its
right to accelerate the maturity of the Loan secured thereby unless it is
prohibited from doing so by applicable law. If the Servicer is prevented from
enforcing such right by applicable law or elects not to exercise such right, the
Servicer (so long as such action conforms with the Servicer's underwriting
standards at the time for new originations) is authorized to take or enter into
an assumption and modification agreement from or with the Person to whom such
Mortgaged Property has been or is about to be conveyed, pursuant to which such
Person becomes liable under the related Loan and, to the
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extent permitted by applicable law, the Obligor remains liable thereon. No
change in the terms of the related Loan may be made by the Servicer in
connection with any such assumption or modification to the extent that such
change would not be permitted to be made in respect of the original Loan
pursuant to Section 13.01(c). The Servicer shall notify the Trustee and the
Certificate Insurer that any assumption and modification agreement has been
completed by delivering to the Trustee (i) an Officer's Certificate certifying
that such agreement is in compliance with this Section 13.04 and (ii) a manually
executed copy of such assumption and modification agreement. Any such assumption
and modification agreement shall, for all purposes, be considered a part of the
related Loan File to the same extent as all other documents and instruments
constituting a part thereof. Any fee collected by the Servicer for entering into
any such agreement shall be retained by the Servicer as additional servicing
compensation.
SECTION 13.05. Realization Upon Liquidated Loans. The Servicer may,
---------------------------------
but is not required to, foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Secured Loans as come into
and continue in default when, in the opinion of the Servicer based upon the
practices and procedures referred to in the following sentence, no satisfactory
arrangements can be made for collection of delinquent payments. 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 or to pay in full such
senior mortgage loan) and procedures as it shall deem necessary or advisable and
as shall be normal and usual in its general servicing activities in connection
with Home Loans in its portfolio. Notwithstanding the foregoing, if the
Servicer has actual knowledge or reasonably believes that any Mortgaged Property
is contaminated by hazardous or toxic wastes or substances, then the Servicer
shall not cause the Trust to acquire title to such Mortgaged Property in a
foreclosure or similar proceeding if such acquisition in the reasonable opinion
of the Servicer is not commercially reasonable. The foregoing is subject to the
proviso that the Servicer shall not be required to advance its own funds in
connection with any foreclosure or restoration of any Mortgaged Property unless
it reasonably believes, consistent with its customary servicing practices, that
such advance will be recoverable and will maximize the receipt of principal and
interest on the related Loan (including Liquidation Proceeds with respect to
such Loan) after taking into account the Servicer's recovery of such advance
(any such advance, a "Servicer Advance"). The Servicer shall be entitled to
retain out of payments made by the Obligor on a Loan on which a Servicer Advance
was made an amount equal to such Servicer Advance.
Liquidation Expenses incurred by the Servicer in connection with a
Liquidated Loan shall be recoverable by the Servicer solely out of Liquidation
Proceeds and Recoveries received in respect of the same Liquidated Loan. The
Servicer's failure to claim reimbursement for
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Liquidation Expenses out of Liquidation Proceeds or Recoveries received in
respect of the related Liquidated Loan for any one or more Monthly Collection
Periods shall not in any way be deemed a waiver of its right in the future to
seek reimbursement for such Liquidation Expenses or additional Liquidation
Expenses out of Recoveries received with respect to the related Liquidated Loan
for subsequent Monthly Collection Periods.
SECTION 13.06. Servicing Fee. The Servicing Fee for a Monthly Payment
-------------
Date shall equal the sum of the Base Servicing Fee and the Supplemental
Servicing Fee, plus any reimbursement pursuant to Section 17.04. The Servicer,
in its discretion at its election, may defer receipt of all or any portion of
the Servicing Fee for any Monthly Collection Period to and until a later Monthly
Collection Period for any reason, including in order to avoid a shortfall in any
payments due on any Certificates. Any such deferred amount shall be payable to
the Servicer on demand.
SECTION 13.07. Servicer's Certificate. (a) On each Determination
----------------------
Date, the Servicer shall deliver to the Trustee, the Certificate Insurer and
each Rating Agency a Servicer's Certificate containing, among other things, (i)
all information necessary to enable the Trustee to make any withdrawal, deposit
and set-off required by Section 14.04, 14.04A or 14.05, to give any notice
required by Section 14A.01 and make the distributions required by Section 14.06,
(ii) all information necessary to enable the Trustee to send the statements to
Certificateholders and the Certificate Insurer required by Section 14.09, (iii)
a listing of all Loans to be purchased on the related Monthly Payment Date,
identifying the Loans to be purchased, and (iv) all information necessary to
enable the Trustee to reconcile all deposits to, and withdrawals from, the
Collection Account, the Excess Funding Account and the Reserve Fund for the
related Monthly Collection Period and Monthly Payment Date. Loans transferred to
the Servicer or retransferred to the Transferor and each Loan which became a
Liquidated Loan or which was paid in full during the related Monthly Collection
Period shall be identified by account number (as set forth in the Loan
Schedule). A copy of such certificate may be obtained by any Certificateholder
by a request in writing to the Trustee addressed to the Corporate Trust Office.
The Trustee shall not be under any obligation to confirm or reconcile the
information provided pursuant to Section 13.07.
(b) If the Servicer's Certificate contains a manifest error, the
Certificate Insurer's written notice to the Servicer and the Trustee containing
the corrected information shall be deemed to amend such Servicer's Certificate.
SECTION 13.08. Annual Independent Public Accountants' Servicing
------------------------------------------------
Report. The Servicer, at its expense, shall cause a firm of independent public
accountants (who shall be (i)(A) recognized or a "big
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<PAGE>
six" accounting firm or (B) approved by the Certificate Insurer and (ii) a
member of the American Institute of Certified Public Accountants and may also
render other services to the Servicer or the Transferor) to furnish a statement
to the Trustee and the Certificate Insurer on or before December 31 of each
year, beginning with December 31, 1996, to the effect that such firm has
examined certain documents and records relating to the servicing of the Loans by
the Servicer under this Agreement during the preceding twelve (12) months ended
September 30 (or, in the case of the first such Certificate, the applicable
period ended September 30) and that such examination, which has been conducted
substantially in accordance with (i) the audit guide for audits of non-
supervised mortgagees approved by the Department of Housing and Urban
Development for use by independent public accountants or (ii) the requirements
of the Uniform Single Attestation Program for Mortgage Bankers (to the extent
that the procedures in such audit guide or audit program are applicable to the
servicing obligations hereunder), 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 13.09. Access to Certain Documentation and Information
-----------------------------------------------
Regarding the Loans. The Servicer and the Transferor shall provide to the
- -------------------
Certificateholders which are federally insured savings and loan associations,
the Office of Thrift Supervision (successor to the Federal Home Loan Bank
Board), the Federal Deposit Insurance Corporation and the supervisory agents and
examiners of the Office of Thrift Supervision, access to the documentation
regarding the Loans to the extent required by applicable regulations of the
Office of Thrift Supervision and the Federal Deposit Insurance Corporation
(acting as operator of the SAIF or the BIF). The Servicer and the Transferor
shall provide to the Trustee, and the Servicer, the Transferor and the Trustee
shall provide to the Certificate Insurer or its nominee, access to the
documentation regarding the Loans. Such access in all cases shall be afforded
without charge (except to the Transferor in accordance with the terms of the
Insurance Agreement), but only upon reasonable request and during normal
business hours at the offices of the Servicer, the Transferor or the Trustee, as
the case may be. Nothing in this Section 13.09 shall derogate from the
obligation of the Transferor or the Servicer to observe any applicable law
prohibiting disclosure of information regarding the Obligors, and the failure of
the Transferor or the Servicer to provide access as provided in this Section
13.09 as a result of such obligation shall not constitute a breach of this
Section 13.09.
SECTION 13.10. Maintenance of Certain Servicing Policies. The
-----------------------------------------
Servicer shall during the term of its service as Servicer maintain in force (i)
a policy or policies of insurance covering errors and omissions in the
performance of its obligations as servicer hereunder and (ii) a fidelity bond in
respect of its officers, employees or agents. Each such policy or policies and
bond shall, together, comply with the requirements from time to time of the
Federal National Mortgage
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<PAGE>
Association for persons performing servicing for mortgage loans purchased by
such Association.
SECTION 13.11. Reports to the Securities and Exchange Commission. The
-----------------------------------------------------------------
Servicer shall, on behalf of the Trust, cause to be filed with the Securities
and Exchange Commission any periodic reports required to be filed under the
provisions of the Securities Exchange Act of 1934, as amended, and the rules,
regulations or orders of the Securities and Exchange Commission thereunder.
SECTION 13.12. Information Required by the Internal Revenue Service
--------------------------------------------------------------------
Generally and Reports of Foreclosures and Abandonments of Mortgaged Property.
- ----------------------------------------------------------------------------
Consistent with Section 13.16, the Servicer shall prepare and file, or cause to
be prepared and filed, and shall file or cause to be filed, all federal and
state information reports when and as required by all applicable state and
federal income tax laws, including, without limitation, reports required by
Section 6050J of the Code.
SECTION 13.13. Servicer Expenses. Except as expressly provided in
-----------------
this Agreement, the Servicer shall be required to pay all expenses incurred by
it in connection with its activities hereunder, including fees and disbursements
of independent accountants, taxes imposed on the Servicer and expenses incurred
in connection with distributions and reports to Certificateholders and the
Certificate Insurer.
SECTION 13.14. Annual Statement as to Compliance. The Servicer shall
---------------------------------
deliver to the Trustee and the Certificate Insurer, on or before December 31 of
each year, beginning with December 31, 1996, an Officer's Certificate signed by
a Servicing Officer stating that (i) a review of the activities of the Servicer
during the preceding twelve (12) months ended September 30 (or, in the case of
the first such Certificate, the applicable period ended September 30) and of its
performance under this Agreement has been made under such Servicing Officer's
supervision and (ii) to the best of such Servicing Officer's knowledge, based on
such review, the Servicer has fulfilled all its material obligations under this
Agreement throughout such year or applicable period, or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
known to such Servicing Officer and the nature and status thereof.
SECTION 13.15. Recordation of Assignments of Mortgage. An Assignment
--------------------------------------
of Mortgage shall be submitted for recordation by the Servicer if (x) the
Servicer determines in its reasonable judgment, or the Certificate Insurer has
determined in its reasonable judgment and has so informed the Servicer, that
such recordation is necessary to foreclose upon a Mortgaged Property related to
a Liquidated Loan and that foreclosing upon such Mortgaged Property will
maximize the receipt of Net Liquidation Proceeds or Recoveries with respect to
such Liquidated Loan, or (y) the Transferor fails to be adequately
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<PAGE>
capitalized, as determined pursuant to the regulations of the Office of Thrift
Supervision and as of any Determination Date following any such failure, (i) if
during the Revolving Period, there is no Overcollateralization
Deposit/Distribution Amount (calculated without including any Negative Carry
Deposit Amount in Interest Collections for the related Monthly Collection
Period) for the related Monthly Collection Period and the Overcollateralization
Amount for the related Monthly Payment Date is less than the Required
Overcollateralization Amount for such Monthly Payment Date, or (ii) if at any
time after the Revolving Period has ended, the Overcollateralization Amount for
the related Monthly Payment Date is less than the Required Overcollateralization
Amount for such Monthly Payment Date, in which case the Trustee shall record all
or any portion of such Assignments of Mortgage as and when directed by the
Certificate Insurer, the costs and expenses incurred by the Trustee in
connection with any such recordation being referred to herein as the
"Recordation Fees."
SECTION 13.16. Tax Treatment . It is the intention of the Transferor
-------------
and the Certificateholders (and Certificate Owners) that the Certificates will
be indebtedness of the Transferor for federal, state and local income and
franchise tax purposes and for purposes of any other tax imposed on or
measured by income. The Transferor, the Trustee and each Certificateholder (and
Certificate Owner) by acceptance of its Certificate (or, in the case of a
Certificate Owner, by virtue of such Certificate Owner's acquisition of a
beneficial interest therein) and the Certificate Insurer agree to treat the
Certificates (or beneficial interests therein), for purposes of federal, state
and local income and franchise tax purposes and for purposes of any other tax
imposed on or measured by income, as indebtedness of the Transferor secured by
the Loans and to report the transactions contemplated by this Agreement on all
applicable tax returns (if any) in a manner consistent with such treatment.
Each Certificateholder agrees that it will cause any Certificate Owner acquiring
an interest in a Certificate through it to comply with this Agreement as to
treatment as indebtedness for federal, state and local income and franchise tax
purposes and for purposes of any other tax imposed on or measured by income.
Furthermore, the Trustee shall treat the Trust as a security device only, and
shall not file tax returns or obtain an employer identification number on behalf
of the Trust.
ARTICLE XIV
Accounts; Collections; Allocations; Distributions;
Statements to Certificateholders
SECTION 14.01. Establishment of Accounts. (a) (i) The Servicer, for
-------------------------
the benefit of the Certificateholders and the Certificate Insurer, shall
establish and maintain in the name of, and under the sole dominion and control
of, the Trustee an Eligible Account (the
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<PAGE>
"Collection Account"), bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Certificateholders and the
Certificate Insurer. The Collection Account shall initially be held with the
Trustee.
(ii) The Servicer, for the benefit of the Certificateholders and the
Certificate Insurer, shall establish and maintain within the Collection Account
four administrative subaccounts (the "Interest Distribution Account," the
"Principal Distribution Account," the "Expense Distribution Account" and the
"Transferor Distribution Account," respectively).
(iii) The Servicer, for the benefit of the Certificateholders and the
Certificate Insurer, shall establish and maintain in the name of, and under the
sole dominion and control of the Trustee an Eligible Account (the "Excess
Funding Account"), bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Certificateholders and the
Certificate Insurer. The Excess Funding Account shall initially be held with
the Trustee.
(iv) The Servicer, for the benefit of the Certificate-
holders and the Certificate Insurer, shall establish and maintain within the
Excess Funding Account two administrative subaccounts (the "Excess Funding
Interest Subaccount" and the "Excess Funding Principal Subaccount,"
respectively).
(b) On or prior to the Closing Date, the Transferor shall deposit the
Excess Funding Initial Deposit in the Excess Funding Account, which shall be
allocated to the Excess Funding Interest Subaccount.
(c) Funds on deposit in the Collection Account, the Reserve Fund and
the Excess Funding Account shall be invested by the Trustee (or any custodian
with respect to funds on deposit in any such account) in Permitted Investments
selected in writing by the Servicer (pursuant to standing instructions or
otherwise); provided, however, it is understood and agreed that the Trustee
-------- -------
shall not be liable for any loss arising from such investment in Permitted
Investments. Permitted Investments may be purchased by or through the Trustee
or any of its affiliates. All such Permitted Investments shall be held by or on
behalf of the Trustee for the benefit of the Certificateholders and the
Certificate Insurer. Other than as permitted by the Rating Agencies and the
Certificate Insurer, funds on deposit in the Collection Account, the Reserve
Fund and the Excess Funding Account shall be invested in Permitted Investments
that will mature so that such funds will be available at the close of business
on the Business Day immediately preceding the next Monthly Payment Date;
provided, however, that funds invested in Permitted Investments which are
- -------- -------
obligations of the Trustee may mature on such Monthly Payment Date. Funds
deposited in the Collection Account, the Reserve Fund and the Excess Funding
Account upon
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<PAGE>
the maturity of any Permitted Investments on the day immediately preceding a
Monthly Payment Date are not required to be invested overnight.
(d) Notwithstanding anything to the contrary contained herein, each of
the foregoing Accounts and the Reserve Fund shall be deemed to be property of
the Transferor for federal income tax purposes.
SECTION 14.02. Collections. The Servicer shall remit within two
-----------
Business Days of receipt thereof to the Collection Account all payments by or on
behalf of the Obligors with respect to the Loans (other than Loans retransferred
to the Transferor or transferred to the Servicer) and all Liquidation Proceeds,
Recoveries and Insurance Proceeds, in each case as collected during each Monthly
Collection Period less any payments owed thereon to the Servicer. No later than
the Business Day preceding the related Subsequent Transfer Date the Transferor
shall deposit all payments by or on behalf of the Obligors received on or after
the related Subsequent Cut-Off Date with respect to the Subsequent Loans to be
transferred on such Subsequent Transfer Date in the Collection Account. For
purposes of this Article XIV the phrase "payments by or on behalf of Obligors"
shall mean payments made with respect to the Loans by Persons other than the
Servicer or the Transferor.
SECTION 14.03. Application of Collections. All collections for each
--------------------------
Monthly Collection Period shall be applied by the Servicer as follows:
With respect to each Loan (other than a Loan retransferred to the
Transferor or transferred to the Servicer), payments by or on behalf of the
Obligor (other than Supplemental Servicing Fees with respect to such Loan, to
the extent collected) shall be applied to interest and principal in accordance
with the Simple Interest Method and the terms of such Loan.
All amounts collected that are payable to the Servicer as Supplemental
Servicing Fees hereunder shall be deposited in the Collection Account and
allocated to the Servicer in accordance with Section 14.05.
SECTION 14.04. Additional Deposits. (a) The Servicer and the
-------------------
Transferor shall deposit or cause to be deposited in the Collection Account the
aggregate Retransfer Deposit Amount with respect to Loans retransferred to the
Transferor or transferred to the Servicer and the aggregate Substitution
Adjustment Amount with respect to the transfer by the Transferor or the Servicer
of Eligible Substitute Loans, and the Transferor shall deposit therein all
amounts to be paid under Section 20.01. The interest portion of the Retransfer
Deposit Amount will be treated as Interest Collections by the Trustee as set
forth in the Servicer's Certificate and allocated accordingly, and the principal
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<PAGE>
portion of the Retransfer Deposit Amount and any Substitution Adjustment Amount
will be allocated as Principal Collections and treated accordingly, in each case
with respect to the Monthly Collection Period for which such amounts are
deposited.
(b) On the Business Day preceding each Determination Date, the
Transferor shall deposit, or cause to be deposited, in the Collection Account
the Negative Carry Deposit Amount.
SECTION 14.04A. Permitted Withdrawals from the Collection Account.
-------------------------------------------------
(a) The Trustee may, from time to time, make withdrawals from the Collection
Account subject to the conditions and for the purposes set forth in this
Agreement, including the following:
(i) to make the allocations, deposits, distributions and payments as
provided in Sections 14.05 and 14.06;
(ii) to indemnify the Servicer to the extent required or permitted
pursuant to Section 17.04(b) or 17.04(c)
(iii) to pay the Transferor or the Servicer, as applicable, amounts
received in respect of Defective Loans during the Monthly Collection Period
occurring in the month in which such Defective Loans were purchased or replaced
or which were otherwise reflected in the calculation of the related Retransfer
Deposit Amount or any Substitution Adjustment Amount;
(iv) to clear and terminate the Collection Account in accordance with
Section 20.01.
(b) Any provision herein to the contrary notwithstanding, if the
Servicer or the Transferor deposits into the Collection Account any amount not
required to be deposited therein pursuant to Section 14.02, the Servicer may at
any time instruct the Trustee to withdraw such amount from the Collection
Account and to pay such amount to the Servicer. The Servicer shall deliver an
Officer's Certificate to the Trustee which states that it is submitted pursuant
to this Section 14.04A(b) and specifies any amounts deposited in error. If the
facts set forth on the face of such Officer's Certificate indicate that amounts
deposited were not required to be deposited into the Collection Account pursuant
to Section 14.02, the Trustee shall withdraw such amount and pay over such
amount to the Servicer. To the extent that any amounts withdrawn are payable to
the Transferor, the Servicer shall receive such amounts as custodian for the
Transferor.
(c) Any provision herein to the contrary notwithstanding, the Servicer
may debit against any amount required to be deposited into the Collection
Account as set forth in the
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<PAGE>
Servicer's Certificate any amount previously deposited into the Collection
Account in respect of payments by Obligors made by checks subsequently returned
for insufficient funds or other reason for non-payment, where the Servicer had
deposited such amounts to the Collection Account in anticipation of, and prior
to receiving, good funds in respect of such check or other item of payment.
SECTION 14.05. Allocations and Deposits. (a) On each Deposit Date
------------------------
following each Monthly Collection Period relating to the Revolving Period, the
Trustee shall make the following allocations and deposits to the indicated
accounts based on the information contained in the Servicer's Certificate:
(i) from Interest Collections for the related Monthly Collection
Period to the extent available in the following order of priority:
(A) [Intentionally omitted];
(B) to the Expense Distribution Account, an amount equal to the
Servicing Fee for the related Monthly Collection Period, all accrued
and unpaid Servicing Fees for prior Monthly Collection Periods;
(C) to the Expense Distribution Account, an amount equal to the
Trustee's Fee for the related Monthly Collection Period and all accrued
and unpaid Trustee's Fees for prior Monthly Collection Periods;
(D) to the Interest Distribution Account, first, an amount equal
to that portion of the Interest Distributable Amount allocable to
accrued interest for such Monthly Payment Date and second, an amount
equal to that portion of the Interest Distributable Amount allocable to
any Certificateholder's Interest Carryover Shortfall to be paid on such
Monthly Payment Date;
(E) to the Expense Distribution Account, an amount equal to the
monthly premium for the Policy;
(F) to the Excess Funding Principal Subaccount, an amount equal to
the aggregate Liquidation Loss Amounts with respect to each Loan which
became a Liquidated Loan during the related Monthly Collection Period;
(G) to the Expense Distribution Account, an amount equal to all
prior unreimbursed draws made on
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<PAGE>
the Policy together with interest accrued thereon pursuant to the
Insurance Agreement;
(H) to the Reserve Fund, an amount sufficient to satisfy the
Specified Reserve Fund Requirement;
(I) to the Excess Funding Interest Subaccount, an amount equal to
all prior Excess Funding Interest Transfer Amounts not previously
reimbursed from Interest Collections;
(J) to the Excess Funding Interest Subaccount, an amount equal to
the excess, if any, of the Required Overcollateralization Amount for
the related Monthly Payment Date over the Overcollateralization Amount
for such Monthly Payment Date (the aggregate of amounts, if any,
allocated pursuant to this clause (J) being referred to herein as the
"Overcollateralization Deposit/Distribution Amount");
(K) to the Expense Distribution Account, any other amounts owed to
the Certificate Insurer pursuant to the Insurance Agreement; and
(L) to the Transferor Distribution Account, any remaining
amounts, and
(ii) from Principal Collections for the related Monthly Collection
Period to the extent available in the following order of priority:
(A) to the Expense Distribution Account, an amount equal to any
Recordation Fees, if any, to the extent not satisfied by the allocation
set forth in Section 14.05(a)(i)(A);
(B) to the Transferor Distribution Account, an amount equal to the
Excess Overcollateralization Amount for the related Monthly Payment
Date; and
(C) to the Excess Funding Principal Subaccount, the Funding
Principal Amount for the related Monthly Collection Period.
(b) On each Deposit Date following each Monthly Collection Period
relating to the Amortization Period, an Early Amortization Period, if any, and a
Rapid Amortization Period, if any, the Trustee shall make the following
allocations and deposits to the indicated accounts based on the information
contained in the Servicer's Certificate:
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<PAGE>
(i) From Interest Collections for the related Monthly Collection
Period to the extent available in the following order of priority:
(A) to the Expense Distribution Account, an amount equal to any
Recordation Fee incurred pursuant to Section 13.15;
(B) to the Expense Distribution Account, an amount equal to the
Servicing Fee for the related Monthly Collection Period, all accrued
and unpaid Servicing Fees for prior Monthly Collection Periods;
(C) to the Expense Distribution Account, an amount equal to the
Trustee's Fee for the related Monthly Collection Period and all accrued
and unpaid Trustee's Fees for prior Monthly Collection Periods;
(D) to the Interest Distribution Account, first, an amount equal
to that portion of the Interest Distributable Amount allocable to
accrued interest for such Monthly Payment Date and second, an amount
equal to that portion of the Interest Distributable Amount allocable to
any Certificateholders' Interest Carryover Shortfall to be paid on such
Monthly Payment Date;
(E) to the Expense Distribution Account, an amount equal to the
monthly premium for the Policy;
(F) to the Principal Distribution Account, an amount equal to the
aggregate Liquidation Loss Amounts with respect to each Loan which
became a Liquidated Loan during the related Monthly Collection Period;
(G) to the Expense Distribution Account, an amount equal to all
prior unreimbursed draws made on the Policy together with accrued
interest thereon;
(H) to the Reserve Fund, an amount sufficient to satisfy the
Specified Reserve Fund Requirement;
(I) to the Principal Distribution Account, an amount equal to all
prior Excess Funding Interest Transfer Amounts not previously
reimbursed from Interest Collections;
(J) to the Principal Distribution Account, (1) with respect to
each Monthly Collection Period relating to the Amortization Period and
any Early Amortization Period, the Overcollateralization
Deposit/Distribution
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<PAGE>
Amount, and (2) with respect to each Monthly Collection Period relating
to a Rapid Amortization Period, any Remaining Interest;
(K) to the Expense Distribution Account, any other amounts owed to
the Certificate Insurer pursuant to the Insurance Agreement; and
(L) to the Transferor Distribution Account, any remaining amounts,
and
(ii) from Principal Collections for the related Monthly Collection
Period to the extent, available in the following order of priority:
(A) to the Expense Distribution Account, an amount equal to all
prior unreimbursed draws made on the Policy together with accrued
interest thereon, to the extent not satisfied by the allocation set
forth in Section 14.05(b)(i)(G);
(B) to the Expense Distribution Account, an amount equal to any
Recordation Fees, if any, to the extent not satisfied by the allocation
set forth in Section 14.05(b)(i)(A);
(C) to the Transferor Distribution Account, an amount equal to the
Excess Overcollateralization Amount for the related Monthly Payment
Date.
(D) so long as no Early Amortization Event or Rapid Amortization
Event has occurred, to the Excess Funding Principal Subaccount, an
amount equal to the Funding Principal Amount for the related Monthly
Payment Date;
(E) to the Principal Distribution Account, an amount equal to the
Monthly Available Principal for the related Monthly Payment Date; and
(c) On each Deposit Date relating to each Monthly Payment Date which is
not the Dissolution Distribution Date or the Stated Maturity Date, the Trustee
shall transfer from the Excess Funding Account and the Reserve Fund the
following amounts to the following accounts in the following order of priority
based on the information set forth in the Servicer's Certificate:
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<PAGE>
(i) from the Excess Funding Account, an amount equal to the Excess
Funding Interest Transfer Amount for such Deposit Date, first from the
Excess Funding Interest Subaccount until the amount allocated thereto
has been reduced to zero, and then from the Excess Funding Principal
Subaccount to the Interest Distribution Account;
(ii) from the Reserve Fund, an amount equal to the Reserve Fund
Interest Transfer Amount for such Deposit Date to the Interest
Distribution Account;
(iii) from the Reserve Fund, an amount equal to the Reserve Fund
Principal Transfer Amount for such Deposit Date, if with respect to a
Monthly Collections Period relating to the Revolving Period, to the
Excess Funding Principal Subaccount, and otherwise to the Principal
Distribution Account; and
(iv) any amount otherwise remaining in the Reserve Fund in excess
of the Specified Reserve Fund Requirement on any Monthly Payment Date,
to the Transferor Distribution Account.
(d) On the Deposit Date relating to the Monthly Collection Period in
which a Subsequent Loan Purchase Termination Date occurs, following the
allocation set forth in subsection (c)(i) above, the Trustee shall allocate to,
and deposit in, the Principal Distribution Account all amounts then on deposit
in the Excess Funding Account.
(e) On the Deposit Date relating to the Dissolution Distribution Date
or the Stated Maturity Date, the Trustee shall transfer from the Excess Funding
Account and the Reserve Fund the following amounts to the following accounts in
the following order of priority based on the information set forth in the
Servicer's Certificate:
(i) from the Excess Funding Account, an amount equal to the Excess
Funding Interest Transfer Amount for such Deposition Date, to the
Interest Distribution Account, and then an amount equal to the lesser
of (x) the difference between the outstanding Certificate Principal
Balance on such Deposit Date and the amount then on deposit in the
Principal Distribution Account (after giving effect to the allocations
set forth in Section 14.05(b)) and (y) the amount then remaining on
deposit in the Excess Funding Account, to the Principal Distribution
Account;
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<PAGE>
(ii) from the Reserve Fund, an amount equal to the Reserve Fund
Interest Transfer Amount for such Deposit Date to the Interest
Distribution Account; and
(iii) from the Reserve Fund, an amount equal to the difference
between (x) the outstanding Certificate Principal Balance on such
Deposit Date and the amount then on deposit in the Principal
Distribution Account (after giving effect to the transfer pursuant to
subsection (i) above) and (y) the amount remaining on deposit in the
Reserve Fund for such Deposit Date, to the Principal Distribution
Account.
SECTION 14.06. Distributions. (a) On each Monthly Payment Date, the
-------------
Trustee shall cause to be made the following distributions from the following
accounts (after giving effect to all deposits therein, including amounts
transferred from the Reserve Fund and paid under the Policy) in the amounts set
forth in the Servicer's Certificate for such Monthly Payment Date:
(i) (A) from amounts deposited in the Expense Distribution Account
pursuant to Sections 14.05(a)(i) and 14.05(b)(i), in the following order:
First, to the Trustee, the Recordation Fees, if any, for the related
-----
Monthly Collection Period,
Second, to the Servicer, the aggregate Servicing Fee for the related
------
Monthly Collection Period, and any unpaid Servicing Fee for prior Monthly
Collection Periods,
Third, to the Trustee, the Trustee's Fee for the related Monthly
-----
Collection Period and any unpaid Trustee's Fee for prior Monthly Collection
Periods, and
Fourth, to the Certificate Insurer, for (i) the monthly premium
------
payable in connection with the Policy and (ii) all other amounts then due and
owing the Certificate Insurer,
and (B) from amounts deposited in the Expense Distribution Account pursuant to
Sections 14.05(a)(ii) and 14.05(b)(ii) in the following order:
First, to the Certificate Insurer, all amounts then due and owing to
-----
the Certificate Insurer other than the monthly premium then payable in
connection with the Policy; and
Second, to the Trustee, the Recordation Fees, if any, for the related
------
Monthly Collection Period to the extent not satisfied in clause (i)(A) First
-----
above;
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(ii) from the Interest Distribution Account, to the Certificateholders
of record as of the previous Record Date, the Interest Distributable Amount,
(iii) from the Excess Funding Account after giving effect to the
allocations set forth in Section 14.05(c), on each Monthly Payment Date
occurring prior to the Subsequent Loan Purchase Termination Date, first from the
Excess Funding Principal Subaccount until the amount allocated thereto has been
reduced to zero, and then from the Excess Funding Interest Subaccount, to the
Transferor an amount equal to the outstanding principal balance as of the
related Subsequent Cut-off Date of the Subsequent Loans, if any, to be
transferred on such Monthly Payment Date, and
(iv) from the Transferor Distribution Account, all amounts on deposit
therein to the Transferor.
(b) In addition to making each of the distributions set forth in
subsection (a) above, on each Distribution Date relating to the Amortization
Period, and on each Monthly Payment Date relating to an Early Amortization
Period or a Rapid Amortization Period, the Trustee shall distribute pro rata to
Certificateholders of record as of the previous Record Date the Principal
Distributable Amount from funds then on deposit in the Principal Distribution
Account.
Distributions to Certificateholders, except in the case of
distributions under Section 20.1, shall be made by check mailed by the Trustee
to each Certificateholder's respective address of record on the Certificate
Register (or, where a Clearing Agency is the Certificateholder, by delivery of
immediately available funds) and distributions to the Servicer, the Certificate
Insurer or the Transferor shall be made by wire transfer of immediately
available funds.
SECTION 14.07. Reserve Fund. (a) In order to assure that sufficient
------------
amounts to make required distributions to Certificateholders will be available,
the Servicer shall establish and maintain an Eligible Account (the "Reserve
Fund") with the Trustee, under the sole dominion and control of the Trustee,
bearing a designation clearly indicating that the funds deposited therein are
held in trust for the benefit of the Certificateholders and the Certificate
Insurer. The Reserve Fund will include the money and other property deposited
and held therein pursuant to Section 14.05 and this Section.
(b) On or prior to the Closing Date, the Transferor shall deposit an
amount equal to the Initial Reserve Fund Deposit into the Reserve Fund.
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<PAGE>
(c) Funds on deposit in the Reserve Fund shall be invested in Permitted
Investments as set forth in Section 14.01(b).
(d) Following the payment in full of the Certificate Principal Balance
and of all other amounts owing or to be distributed under the Agreement to
Certificateholders and any Person other than the Certificate Insurer who is
entitled to payment by the Trust, any amount remaining on deposit in the Reserve
Fund shall be allocated to the Expense Distribution Account and distributed to
the Certificate Insurer to the extent of amounts payable and unpaid to the
Certificate Insurer hereunder or under the Insurance Agreement. Any amount
remaining in the Reserve Fund after such allocation to the Expense Distribution
Account and the termination of the Trust shall be allocated to the Transferor
Distribution Account and distributed to the Transferor.
SECTION 14.08. Excess Funding Account. On each Deposit Date following
----------------------
each Monthly Collection Period prior to the Monthly Collection Period in which a
Subsequent Loan Purchase Termination Date occurs, based on the information
contained in the Servicer's Certificate, the Trustee shall withdraw from the
Excess Funding Account the Excess Funding Interest Transfer Amount, first from
the Excess Funding Interest Subaccount until the amount therein has been reduced
to zero, and then from the Excess Funding Principal Subaccount, and deposit such
Excess Funding Interest Transfer Amount in the Interest Distribution Account.
From the amounts remaining on deposit in the Excess Funding Account, on each
Monthly Payment Date occurring prior to the Subsequent Loan Purchase Termination
Date, based on the information contained in such Servicer's Certificate, the
Trustee shall withdraw from the Excess Funding Account, first from the Excess
Funding Principal Subaccount until the amount allocated thereto has been reduced
to zero, and then from the Excess Funding Interest Subaccount, an amount equal
to the unpaid principal balance as of the related Subsequent Cut-Off Date of the
Subsequent Loans transferred to the Trust on such Subsequent Transfer Date, and
distribute such amount to or upon the order of the Transferor upon satisfaction
of the conditions precedent to such transfer as set forth in Section 3.02(b).
SECTION 14.09. Statements to Certificateholders. On each Monthly
--------------------------------
Payment Date, the Servicer shall provide to the Certificate Insurer, the Rating
Agencies and the Trustee for the Trustee to forward to each Certificateholder of
record as of the most recent Record Date, a statement substantially in the form
of Exhibit F setting forth at least the following information as to the
Certificates:
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<PAGE>
(i) the amount being distributed to Certificateholders;
(ii) the amount of interest included in such distribution and the
portion thereof attributable to Interest Collections;
(iii) the amount, if any, of any Certificateholders' Interest
Carryover Shortfall included in such distribution (and the amount of interest
thereon);
(iv) the amount, if any, of the remaining Certificate-holders'
Interest Carryover Shortfall after giving effect to such distribution;
(v) the amount, if any, of principal included in such distribution and
the portion thereof attributable to Principal Collections;
(vi) the amount, if any, of the reimbursement of previous Liquidation
Loss Amounts included in such distribution;
(vii) the amount, if any, of the aggregate unreimbursed Liquidation
Loss Amounts after giving effect to such distribution;
(viii) the Servicing Fee for such Monthly Payment Date;
(ix) the Invested Amount and the Certificate Principal Balance, each
after giving effect to such distribution;
(x) the Required Overcollateralization Amount, and the
Overcollateralization Amount, if any, after giving effect to such distribution;
(xi) the Pool Balance as of the end of the related Monthly Collection
Period;
(xii) the Overcollateralization Deposit/Distribution Amount for such
Monthly Payment Date, if any;
(xiii) the number and aggregate principal balance of the Loans which
are delinquent for 30-59 days, 60-89 days and 90 or more days, respectively, as
of the end of the related Monthly Collection Period;
(xiv) the aggregate Liquidation Loss Amount for all Loans that became
Liquidated Loans in the related Monthly Collection Period;
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(xv) the aggregate principal balance of Subsequent Loans to be
acquired by the Trust on such Monthly Payment Date;
(xvi) the aggregate amount on deposit in the Excess Funding Account,
the Excess Funding Interest Subaccount and the Excess Funding Principal
Subaccount, in each case on the Monthly
Payment Date after giving effect to deposits to and withdrawals therefrom on
such Monthly Payment Date; and
(xvii) the amount of any draws on the Policy.
Each amount set forth pursuant to subclauses (i), (ii), (iii), (iv) and (v)
above shall be expressed as a dollar amount per $1,000 of original principal
balance of Certificate.
SECTION 14.10. Tax Returns. Consistent with Section 13.16, the
-----------
Trustee shall deliver to each Holder of a Certificate a statement setting forth
the aggregate amount distributed pursuant to Section 14.09(i) and (ii) for the
preceding calendar year to enable each Holder to prepare its federal and state
income tax returns.
ARTICLE XIV A
The Policy
SECTION 14A.01. The Policy. The Servicer and the Transferor agree,
----------
simultaneously with the execution and delivery of this Agreement, to cause the
Certificate Insurer to issue the Policy to the Trustee for the benefit of the
Trust in accordance with the terms thereof.
SECTION 14A.02. Claims Under Policy. (a)(i) If on any Determination
-------------------
Date the Servicer has reported to the Trustee in the Servicer's Certificate that
the Servicer has determined (A) that for such Monthly Collection Period the
amount to be on deposit in the Interest Distribution Account, including any
Excess Funding Interest Transfer Amount and any Reserve Fund Interest Transfer
Amount to be transferred on the related Deposit Date, is insufficient to provide
for the Interest Distributable Amount on such Monthly Payment Date and/or (B)
that a Collateralization Deficiency will exist on such Monthly Payment Date (or
Distribution Date, in the case of a Monthly Payment Date relating to the
Amortization Period) after giving effect to the transfer of any Reserve Fund
Principal Transfer Amount on the related Deposit Date (or Distribution Date, as
the case may be) then on the next Business Day the Trustee shall furnish the
Certificate Insurer and the Servicer with a completed notice in the form set
forth as Exhibit A to the Policy (the "Notice for
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<PAGE>
Payment"). The Notice for Payment shall specify the amount of the Interest
Deficiency Draw Amount and/or the Principal Deficiency Draw Amount and shall
constitute a claim pursuant to the Policy. Upon receipt of any payments on
behalf of the Certificateholders under the Policy, the Trustee shall deposit any
Interest Deficiency Draw Amount in the Interest Distribution Account and deposit
any Principal Deficiency Draw Amount, if with respect to a Monthly Collection
Period relating to the Revolving Period, in the Excess Funding Principal
Subaccount, and if with respect to a Monthly Collection Period relating to any
time thereafter in the Principal Distribution Account. Such amounts shall be
distributed pursuant to Section 14.06.
(ii) If on the Determination Date preceding the Dissolution
Distribution Date or the Stated Maturity Date the Servicer has reported to the
Trustee in the Servicer's Certificate that the Servicer has determined that an
Interest Deficiency will exist or the Certificate Principal Balance will not be
reduced to zero on such Dissolution Distribution Date or Stated Maturity Date
after giving effect to the transfer of any amounts to be made pursuant to
Section 14.05(e) on the Deposit Date preceding such Dissolution Distribution
Date or Stated Maturity Date, then no later than 11:00 a.m. Minneapolis time on
the next Business Day the Trustee shall furnish the Certificate Insurer, and the
Servicer with a Notice for Payment specifying the amount of the Interest
Deficiency Draw Amount and/or the Principal Deficiency Draw Amount which shall
constitute a claim pursuant to the Policy. Upon receipt of any payments on
behalf of the Certificateholders under the Policy, the Trustee shall deposit any
Interest Deficiency Draw Amount in the Interest Distribution Account and deposit
any Principal Deficiency Draw Amount in the Principal Distribution Account, and
distribute such amounts to Certificateholders on the related Monthly Payment
Date.
(b) The Trustee shall receive, as attorney-in-fact of each
Certificateholder, any payment from the Certificate Insurer and disburse the
same to each Certificateholder, for the purposes and in the respective amounts
required in accordance with the provisions of Section 14.06.
(c) The Trustee shall keep complete and accurate records of the amount
of payments received from the Certificate Insurer and the Certificate Insurer
shall have the right to inspect such records at reasonable times upon one
Business Day's prior notice to the Trustee.
(d) If the payment of an Interest Deficiency Draw Amount or a Principal
Deficiency Draw Amount pursuant to the Policy is voided (a "Preference Event")
under any applicable
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bankruptcy, insolvency, receivership or similar law in an Insolvency Proceeding
and, as a result of such a Preference Event, the Trustee is required to return
such voided payment, or any portion of such voided payment, in its possession
made in respect of the Certificates (an "Avoided Payment"), the Trustee shall
furnish to the Certificate Insurer (x) a certified copy of a final order of a
court exercising jurisdiction in such Insolvency Proceeding to the effect that
the Trustee is required to return any such payment or portion thereof during the
term of the Policy because such payment was voided under applicable law, with
respect to which order the appeal period has expired without an appeal having
been filed (the "Final Order"), (y) an assignment, in form reasonably
satisfactory to the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of the Trustee relating to or arising
under such Avoided Payment and (z) a Notice for Payment appropriately completed
and executed by the Trustee. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Final
Order and not to the Trustee directly unless the Trustee has previously paid
such amounts pursuant to a court order or otherwise. The Trustee is not
permitted to make a claim on the Trust or on any Certificateholder for payments
made to Certificateholders under the Policy which are characterized as
preference payments by any bankruptcy court having jurisdiction over any
bankrupt Obligor unless ordered to do so by such bankruptcy court.
SECTION 14A.03. Surrender of Policy. The Trustee shall surrender the
-------------------
Policy to the Certificate Insurer for cancellation upon its expiration in
accordance with the terms thereof.
SECTION 14A.04. Replacement Policy. In the event the rating of the
------------------
Certificate Insurer is downgraded by any Rating Agency such that the rating of
the Certificates is reduced, suspended or withdrawn, the Servicer shall be
permitted, in accordance with the terms of the Insurance Agreement, but shall
not be obligated, to substitute a new certificate insurance policy for the
Policy or may arrange for any other form of credit enhancement; provided,
--------
however, that, in each case, the rating of the Certificates following any such
- -------
substitution shall be the highest rating available for each of the Rating
Agencies and provided further that the Certificate Insurer is reimbursed for all
amounts due under this Agreement and the Insurance Agreement. It shall be a
condition to substitution of any such new certificate insurance policy or other
form of credit enhancement that there be delivered to the Trustee (i) an
Officer's Certificate by the Servicer stating that the conditions to such
substitution set forth in this Section 14A.04 (other than in clause (ii)) have
been satisfied and (ii) a legal opinion,
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<PAGE>
acceptable in form to the Trustee, from counsel to the provider of such
certificate insurance policy or other form of credit enhancement with respect to
the enforceability thereof and such other matters as the Trustee may require.
Upon receipt of written notice of any such substitution from the Servicer and
the taking of physical possession of the replacement certificate insurance
policy or other form of credit enhancement, the Trustee shall, within five (5)
Business Days following receipt of such notice and such taking of physical
possession, deliver the Policy marked "Cancelled" to the Certificate Insurer,
and the Certificate Insurer will have no further liability under the Policy.
ARTICLE XV
THE CERTIFICATES
SECTION 15.01. The Certificates. Unless otherwise specified in the
----------------
Agreement, the Certificates shall be issued in fully registered form in minimum
denominations of $1,000 and integral multiples thereof, except that one
Certificate may be issued in a different denomination. The Certificates shall
be executed on behalf of the Trust by manual or facsimile signature of an
authorized officer of the Trustee. Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust shall be validly issued
and entitled to the benefit of the Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of authentication and delivery of such Certificates.
A transferee of a Certificate shall become a Certificateholder and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Certificate
duly registered in such transferee's name pursuant to Section 15.03.
SECTION 15.02. Authentication of Certificates. The Trustee shall
------------------------------
cause the Certificates to be executed on behalf of the Trust, authenticated and
delivered to or upon the written order of the Transferor, signed by its chairman
of the board, its president, any vice president, secretary, or assistant
treasurer, without further corporate action by the Transferor, in authorized
denominations, pursuant to the Agreement. No Certificate shall entitle its
Holder to any benefit under the Agreement or shall be valid for any purpose
unless there shall appear on such Certificate a certificate of authentication
substantially in the
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<PAGE>
form set forth in Exhibit A, executed by the Trustee by manual signature. Such
authentication shall constitute conclusive evidence that such Certificate shall
have been duly authenticated and delivered hereunder. All Certificates shall be
dated the date of their authentication.
SECTION 15.03. Registration of Transfer and Exchange of Certificates.
-----------------------------------------------------
The Certificate Registrar shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 15.08, a Certificate Register in which,
subject to such reasonable regulations as it may prescribe, the Trustee shall
provide for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. Unless otherwise specified in the Agreement,
the Trustee shall be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Certificate at the
Corporate Trust Office, the Trustee shall execute, authenticate and deliver, in
the name of the designated transferee or transferees, one or more new
Certificates in authorized denominations of a like aggregate amount dated the
date of authentication by the Trustee. At the option of a Holder, Certificates
may be exchanged for other Certificates of authorized denominations of a like
aggregate amount upon surrender at the Corporate Trust Office of the
Certificates to be exchanged.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Trustee and the Certificate Registrar duly executed by the
Holder or such Holder's attorney duly authorized in writing. Each Certificate
surrendered for registration of transfer and exchange shall be canceled and
subsequently disposed of by the Trustee in accordance with its customary
procedures.
No service charge shall be made for any registration of 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.
SECTION 15.04. [Reserved]
SECTION 15.05. Mutilated, Destroyed, Lost or Stolen Certificates. If
-------------------------------------------------
(a) any mutilated Certificate shall be surrendered to the Certificate Registrar,
or if the Certificate Registrar shall receive evidence to its satisfaction of
the destruction, loss or theft of any Certificate and (b) there shall be
delivered to the Certificate Registrar, the Trustee and
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<PAGE>
(unless an Insurer Default shall have occurred and be continuing) the
Certificate Insurer such security or indemnity as may be required by them to
save each of them harmless, then in the absence of notice that such Certificate
has been acquired by a bona fide purchaser, the Trustee on behalf of the Trust
shall execute, and the Trustee shall authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like tenor and denomination. In connection with the issuance of
any new Certificate under this Section, the Trustee and the Certificate
Registrar may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Certificate issued pursuant to this Section shall constitute conclusive evidence
of ownership in the Trust, as if originally issued, whether or not the lost,
stolen or destroyed Certificate shall be found at any time.
SECTION 15.06. Persons Deemed Owners. Prior to due presentation of a
---------------------
Certificate for registration of transfer, the Trustee or the Certificate
Registrar may treat the Person in whose name any Certificate shall be registered
as the owner of such Certificate for the purpose of receiving distributions
pursuant to Section 14.06 and for all other purposes whatsoever, and neither the
Trustee, the Certificate Insurer, the Certificate Registrar nor any agent of the
Trustee, Certificate Insurer or Certificate Registrar shall be bound by any
notice to the contrary.
SECTION 15.07. Access to List of Certificateholders' Names and
-----------------------------------------------
Addresses. The Trustee shall furnish or cause to be furnished to the Servicer,
- ---------
and (unless an Insurer Default shall have occurred and be continuing) the
Certificate Insurer, within 15 days after receipt by the Trustee of a request
therefor from such party in writing, a list, in such form as such party may
reasonably require, of the names and addresses of the Certificateholders as of
the most recent Record Date. If three or more Certificateholders, or one or
more Holders of Certificates evidencing in the aggregate not less than 25% of
the Certificate Principal Balance apply in writing to the Trustee, and such
application states that the applicants desire to communicate with other
Certificateholders with respect to their rights under the Agreement or under the
Certificates and such application shall be accompanied by a copy of the
communication that such applicants propose to transmit, then the Trustee shall,
within five Business Days after the receipt for such application, afford such
applicants access during normal business hours to the current list of
Certificateholders. Each Holder, by receiving and holding a Certificate, shall
be deemed to have agreed to hold neither the Servicer nor the Trustee
accountable by reason of the
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<PAGE>
disclosure of its name and address, regardless of the source from which such
information was derived.
SECTION 15.08. Maintenance of Office or Agency. The Trustee shall
-------------------------------
maintain in the City of New York, New York an office or offices or agency or
agencies where Certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Trustee in respect of the
Certificates and the Agreement may be served. The Trustee initially designates
its office at Norwest Trust Company, Three New York Plaza, 15th floor, New York,
New York 10004 as its office for such purposes. The Trustee shall give prompt
written notice to the Servicer and to Certificateholders of any change in the
location of the Certificate Register or any such office or agency.
SECTION 15.09. Book-Entry Certificates. The Certificates may be
-----------------------
issued in the form of one or more typewritten Certificates representing Book-
Entry Certificates, to be delivered by, or on behalf of, the Transferor to the
initial Clearing Agency, which, unless otherwise specified in the Agreement,
shall be The Depository Trust Company. In such case, the Certificates delivered
to the Depository Trust Company shall initially be registered on the Certificate
Register in the name of Cede & Co., the nominee of the initial Clearing Agency,
and no Certificate Owner will receive a definitive certificate representing such
Certificate Owner's interest in the Certificates, except as provided in Section
15.11. Unless and until definitive, fully registered Certificates (the
"Replacement Certificates") have been issued to such Certificate Owners pursuant
to Section 15.11:
(i) the provisions of this Section shall be in full force and effect;
(ii) the Transferor, the Servicer, the Certificate Insurer, the
Certificate Registrar and the Trustee may deal with the Clearing Agency for all
purposes (including the making of distributions on such Certificates) as the
sole Holder of such Certificates and shall have no obligation to the related
Certificate Owners;
(iii) to the extent that the provisions of this Section conflict with
any other provisions of this Agreement, the provisions of this Section shall
control;
(iv) the rights of such Certificate Owners shall be exercised only
through the Clearing Agency and shall be limited to those established by law and
agreements between such Certificate Owners and the Clearing Agency and/or the
Clearing
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<PAGE>
Agency Participants. Pursuant to the Depository Agreement, unless and until
Replacement Certificates are issued pursuant to Section 15.11, the initial
Clearing Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit distributions of principal and interest on
such Certificates to such Clearing Agency Participants; and
(v) whenever the Agreement requires or permits actions to be taken
based upon instructions or directions of Holders of Certificates evidencing a
specified percentage of the Certificate Principal Balance, the Clearing Agency
shall be deemed to represent such percentage only to the extent that it has
received instructions to such effect from Certificate Owners and/or Clearing
Agency Participants owning or representing, respectively, such required
percentage of the beneficial interest in such Certificates and has delivered
such instructions to the Trustee.
SECTION 15.10. Notices to Clearing Agency. Whenever notice or other
--------------------------
communication to the Certificateholders is required under this Agreement, unless
and until Replacement Certificates shall have been issued to Certificate Owners
pursuant to Section 15.11, the Trustee and the Servicer shall give all such
notices and communications specified herein to be given to Certificate Owners to
the Clearing Agency.
SECTION 15.11. Replacement Certificates. If (i) the Transferor
------------------------
advises the Trustee in writing that The Depository Trust Company is no longer
willing or able to discharge properly its responsibilities under the Depository
Agreement and the Transferor is unable to locate a qualified successor, (ii) the
Transferor at its option advises the Trustee in writing that it elects to
terminate the book-entry system through the Clearing Agency or (iii) after the
occurrence of an Event of Default Certificate Owners having certificates
evidencing no less than 51% of the Certificate Principal Balance together advise
the Trustee and the Clearing Agency in writing that the continuation of a book-
entry system through to the exclusion of any physical being issued to
Certificate Owners is no longer in the best interests of the Certificate Owners,
then the Clearing Agency shall notify all Certificate Owners and the Trustee of
the occurrence of such event and of the availability of Replacement Certificates
to Certificate Owners requesting the same. Upon surrender to the Trustee of
the typewritten Certificates representing the Book-Entry Certificates by the
Clearing Agency, accompanied by registration instructions, the Trustee shall
execute and authenticate the Replacement Certificates in accordance with the
instructions of the Clearing Agency. None of the Transferor, the Certificate
Registrar or the Trustee shall be liable for any delay in delivery of such
instructions and may
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conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Replacement Certificates, the Trustee shall recognize the
Holders of the Replacement Certificates as Certificateholders hereunder. The
Replacement Certificates shall be printed, lithographed or engraved or may be
produced in any other manner as is reasonably acceptable to the Trustee, as
evidenced by its execution thereof.
SECTION 15.12. Temporary Certificates. In the event that the
----------------------
Agreement provides that the Certificates are not to be issued in book-entry form
pursuant to Section 15.09, pending the preparation of definitive Certificates,
the Trustee, on behalf of the Trust, may execute, authenticate and deliver,
temporary Certificates that are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Certificates in lieu of which they are issued. If
temporary Certificates are issued, the Transferor will cause definitive
Certificates to be prepared without unreasonable delay. After the preparation
of definitive Certificates, the temporary Certificates shall be exchangeable for
definitive Certificates upon surrender of the temporary Certificates at the
office or agency to be maintained as provided in Section 15.08, without charge
to the Holder. Upon surrender for cancellation of any one or more temporary
Certificates, the Trustee shall execute, authenticate and deliver in exchange
therefor a like principal amount of definitive Certificates in authorized
denominations. Until so exchanged, the temporary Certificates shall in all
respects be entitled to the same benefits under the Agreement as definitive
Certificates.
ARTICLE XVI
Rapid Amortization Events
SECTION 16.01 Rapid Amortization Events. If any one of the following
-------------------------
events shall occur during the Revolving Period, the Amortization Period or an
Early Amortization Period:
(a) the failure on the part of the Transferor (i) to make any payment
or deposit required by the terms of this Agreement and such failure results in a
draw on the Policy, or (ii) to make a payment under the Insurance Agreement
within five Business Days after the date such payment is required to be made, or
(iii) to observe or perform in any material respect the obligations of the
Transferor set forth in Section 3.01(d) and 3.02(c), or (iv) to observe or
perform in any material respect any other covenant or agreement of the
Transferor set forth in this Agreement or the Insurance Agreement, which
failure, in each
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case, materially and adversely affects or shall materially and adversely affect
the interests of the Certificateholders or the Certificate Insurer and which, in
the case of clause (iv), continues unremedied and continues to affect materially
and adversely the interests of the Certificateholders or the Certificate Insurer
for a period of 60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Transferor by
the Trustee, or to the Transferor and the Trustee by the Certificate Insurer or
the Holders of Certificates evidencing in the aggregate not less than 51% of the
Certificate Principal Balance;
(b) any representation or warranty made by the Transferor in this
Agreement or the Insurance Agreement shall prove to have been incorrect in any
material respect when made and as a result of which the interests of the
Certificateholders or the Certificate Insurer are materially and adversely
affected and which continues to be incorrect in any material respect and
continues to affect materially and adversely the interests of the
Certificateholders or the Certificate Insurer for a period of 60 days after the
date on which written notice of such failure, requiring the same to be remedied,
shall have been given to the Transferor by the Trustee, or to the Transferor and
the Trustee by either the Certificate Insurer or the Holders of Certificates
evidencing not less than 51% of the Certificate Principal Balance; provided,
--------
however, that a Rapid Amortization Event pursuant to this subparagraph (b) shall
- -------
not be deemed to have occurred hereunder if the Transferor has accepted
retransfer of any related Loans in accordance with the provisions hereof;
(c) the Transferor or a Material Subsidiary shall consent to the
appointment of a receiver, liquidator, assignee, trustee, custodian,
sequestrator, conservator or other similar official in any insolvency,
receivership, conservatorship, readjustment of debt, marshaling of assets and
liabilities or similar proceedings of or relating to the Transferor or such
Material Subsidiary or relating to all or substantially all of the property of
the Transferor or such Material Subsidiary, or a court or agency or supervisory
authority having jurisdiction in the premises shall issue, or enter against the
Transferor or a Material Subsidiary a decree or order for the appointment of a
receiver, liquidator, assignee, trustee, custodian, sequestrator, conservator or
other similar official in any insolvency, receivership, conservatorship,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings or for the winding-up or liquidation of the affairs of the
Transferor or such Material Subsidiary; or the Transferor or a Material
Subsidiary shall admit in writing its inability to pay its debts generally as
they become due, file a petition to take advantage of any applicable insolvency,
reorganization, liquidation,
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<PAGE>
receivership, or conservatorship statute, make any assignment for the benefit of
its creditors or voluntarily suspend payment of its obligations; or a proceeding
shall have been instituted by a court having jurisdiction in the premises
seeking a decree or order for relief in respect of the Transferor or a Material
Subsidiary in an involuntary insolvency, receivership, conservatorship,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings or for the appointment of a receiver, liquidator, assignee, trustee,
custodian, sequestrator, conservator or other similar official, of the
Transferor or a Material Subsidiary for any substantial part of its property, or
for the liquidation and winding up of its affairs and, if instituted against the
Transferor or a Material Subsidiary, any such proceeding shall continue
undismissed or unstayed and in effect for a period of 60 consecutive days, or
any of the actions sought in such proceeding shall occur (any such event, an
"Insolvency Event");
(d) the Trust shall become subject to registration as an "investment
company" under the Investment Company Act of 1940, as amended;
(e) the Agreement or the Insurance Agreement shall cease to be in full
force and effect in any material respect;
(f) the aggregate principal amount of all non-reimbursed draws under
the Policy shall exceed 1.5% of the Initial Certificate Principal Balance;
(g) the Trust shall fail to have at least a first priority perfected
security interest in the Loans (except with respect to any provisions of the
Loans which purport to encumber assets as collateral for such Loans and any
rights to enforcement with respect to such assets); or
(h) a Trigger Event specified in clauses (i)-(iv) of the definition
thereof shall occur and a successor Servicer satisfactory to the Certificate
Insurer shall not have been appointed within 120 days of such Trigger Event,
then, in the case of any event described in subparagraph (a), (b), (c)(with
respect to a Material Subsidiary), (e), (f), (g) or (h) after the applicable
grace period, if any, set forth in such subparagraphs, any of the Certificate
Insurer or, with the Certificate Insurer's consent (so long as no Insurer
Default shall have occurred and be continuing), the Trustee or the Holders of
Certificates evidencing in the aggregate more than 51% of the Certificate
Principal Balance, by notice given in writing to the Servicer (and to the
Trustee, if given by either the Certificate Insurer or the Certificateholders)
may declare that a
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rapid amortization event (a "Rapid Amortization Event") has occurred as of the
date of such notice, and in the case of any event described in subparagraphs (c)
(other than with respect to a Material Subsidiary), or (d), a Rapid Amortization
Event shall occur without any notice or other action on the part of the Trustee,
the Certificate Insurer or the Certificateholders, immediately upon the
occurrence of such event.
SECTION 16.02. Additional Rights Upon the Occurrence of Certain
------------------------------------------------
Events. (a) If an Insolvency Event occurs with respect to the Transferor, the
arrangement among the Certificateholders and the Transferor shall dissolve and
the Trust shall be liquidated in accordance with the following procedures. The
Transferor shall on the day of such Insolvency Event or violation (the
"Appointment Day") immediately cease to transfer Subsequent Loans to the Trust
and shall promptly give notice to the Trustee thereof. Notwithstanding any
cessation of the transfer to the Trust of Subsequent Loans, Subsequent Loans
transferred to the Trust prior to the occurrence of such Insolvency Event, and
interest accrued in respect of such Subsequent Loans shall continue to be
allocated and paid in accordance with Article XIV. Within 15 days of the
Appointment Day, the Trustee shall publish a notice in an Authorized Newspaper
that an Insolvency Event has occurred and that the Trustee intends to sell,
dispose of or otherwise liquidate the Loans as described below. The Trustee
shall obtain a position listing from the Clearing Agency as of the record date
established by the Trustee and make a reasonable attempt to solicit
Certificateholders with respect to such proposed sale. Unless within 75 days
from the day the notice above is given, the Trustee shall have received written
instructions from Certificateholders evidencing in the aggregate not less than
51% of the Certificates and the Person, if any, designated by the Transferor
prior to such Insolvency Event to the effect that such Certificateholders and
such Person, if any, disapprove of the liquidation of the Loans, the Trustee
shall sell, dispose of or otherwise liquidate the Loans in a commercially
reasonable manner and on commercially reasonable terms, which shall include the
solicitation of competitive bids. By accepting its interest in a Certificate
hereunder, each Certificateholder hereby delegates to the Certificate Insurer
its right to give such instructions to the Trustee, unless an Insurer Default
has occurred and is continuing. Any attempted designation of a Person for such
purposes by the Transferor prior to an Insolvency Event which does not, by its
terms, include an irrevocable written delegation to the Certificate Insurer of
the designee's right to give such instructions to the Trustee shall be null and
void and of no force or effect (unless an Insurer Default shall have occurred
and be continuing prior to any such attempted designation). Unless an Insurer
Default has occurred, the Certificate Insurer
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may make such instruction on behalf of the Certificateholders and such Person,
if any, designated by the Transferor prior to such Insolvency Event. The Trustee
may obtain a prior determination from any such conservator, receiver or
liquidator that the terms and manner of any proposed sale, disposition or
liquidation are commercially reasonable.
(b) The proceeds from the sale, disposition or liquidation of the Loans
pursuant to subsection (a) above (net of the Trustee's fees and expenses,
including the fees and expenses of its counsel) shall be treated as Interest
Collections on the Loans and shall be allocated and deposited in accordance with
the provisions of Article XIV, such proceeds to be distributed to
Certificateholders on the Monthly Payment Date relating to the Monthly
Collection Period in which the date such proceeds are received occurs (the
"Dissolution Distribution Date"). On the day following the Monthly Payment Date
on which such proceeds are distributed to the Certificateholders, the Trust
shall terminate.
(c) The Trustee may appoint an agent or agents to assist with its
responsibilities pursuant to this Article XVI with respect to competitive bids.
The Trustee may recover its reasonable actual third party expenses from the
Trust (in an amount not to exceed $10,000) if Certificateholders evidencing in
the aggregate at least 51% of the Certificates and the person designated by the
Transferor prior to an Insolvency Event, or the Certificate Insurer, on their
behalf, vote not to sell the Loans.
ARTICLE XVII
The Transferor and Servicer
SECTION 17.01. Representations of the Transferor and Servicer. Chevy
----------------------------------------------
Chase, in its capacity as Transferor and Servicer, makes the following
representations on which the Certificate Insurer shall be deemed to have relied
in executing and delivering the Policy and on which the Trustee shall be deemed
to have relied in accepting the Loans in trust and executing and authenticating
the Certificates. The representations speak as of the execution and delivery of
the Agreement and as of the Closing Date, in the case of the Loans, and shall
survive the sale of the Loans to the Trust.
(i) Chevy Chase is validly existing as a federally chartered savings
bank in good standing under the laws of the United States and has the corporate
power and authority to own its assets and to transact the business in which it
is currently engaged.
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(ii) Chevy Chase has the corporate 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 Chevy Chase enforceable in accordance with its terms,
except as enforcement of such terms may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, conservatorship, moratorium or other
similar laws now or hereafter in effect affecting the enforcement of creditors'
or obligees' rights generally or the rights of creditors or obligees of
federally chartered savings banks, the deposits of which are insured by the
SAIF, and except as such enforceability may be limited by general principles of
equity (whether considered in a proceeding at law or in equity).
(iii) Chevy Chase is not 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 in connection
with the execution, delivery, performance, validity or enforceability of this
Agreement, except for any such consent, license, approval or authorization, or
registration or declaration, as shall have been obtained or filed, as the case
may be, prior to the Closing Date.
(iv) The execution, delivery and performance of this Agreement by
Chevy Chase will not violate any provision of any existing law or regulation or
any order or decree of any court applicable to Chevy Chase or any provision of
the charter or bylaws of Chevy Chase, or constitute a material breach of any
mortgage, indenture, contract or other agreement to which Chevy Chase is a party
or by which Chevy Chase may be bound.
(v) No litigation or administrative proceeding of or before any court,
tribunal or governmental body is currently pending, or to the knowledge of Chevy
Chase threatened, against Chevy Chase or any of its properties or with respect
to this Agreement or the Certificates which could have a material adverse effect
on the transactions contemplated by this Agreement.
(vi) Chevy Chase has fully complied, and will continue to maintain
full compliance, with the provisions of Section 13(e) of the Federal Deposit
Insurance Act, as amended (12 U.S.C. (S)1823(e)).
Upon discovery by the Transferor, the Servicer, the Certificate Insurer or the
Trustee of a breach of any of the representations and warranties in this Section
17.01 which materially and
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adversely affects the interests of the Certificateholders, such party shall give
prompt written notice of such breach to the other parties. Within sixty (60)
days after its discovery or receipt of notice of any such breach, or, with the
prior written consent of an Officer of the Trustee and the Certificate Insurer,
within such longer period specified in such consent, the Servicer shall cure
such breach in all material respects.
SECTION 17.02. Liability of the Servicer. The Servicer shall be
-------------------------
liable in accordance herewith only to the extent of the obligations specifically
imposed upon and undertaken by the Servicer herein.
SECTION 17.03. Merger or Consolidation of, or Assumption of the
------------------------------------------------
Obligations of, the Servicer or Transferor. Any corporation into which the
- ------------------------------------------
Servicer or Transferor may be merged or consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Servicer or
Transferor shall be a party, or any corporation succeeding to the business of
the Servicer or Transferor by any sale or transfer by the Servicer or Transferor
of all or substantially all of its property and assets to such corporation,
shall be the successor of the Servicer or Transferor hereunder, and shall
execute and deliver to the Trustee and the Certificate Insurer an agreement in
form reasonably satisfactory to the Trustee and the Certificate Insurer which
contains an assumption by such successor entity of the due and punctual
performance and observance of each covenant and condition to be performed or
observed by the Servicer or Transferor under this Agreement.
SECTION 17.04. Limitation on Liability of the Servicer and Others.
--------------------------------------------------
(a) No recourse under or upon any obligation or covenant of this Agreement, or
of any Certificate, or for any claim based thereon or otherwise in respect
thereof, shall be had against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Servicer, either directly or
through the Servicer, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise other than
for the willful misconduct or bad faith of any such person; it being expressly
understood that this Agreement and the obligations issued hereunder are solely
corporate obligations, and that no such personal liability whatsoever shall
attach to, or is or shall be incurred by the incorporators, shareholders,
officers or directors, as such, of the Servicer or of any successor corporation,
or any of them, because of the issuance of the Certificates, or under or by
reason of the obligations, covenants or agreements contained in this Agreement
or in any of the Certificates or implied therefrom; and that any and all such
personal liability, either at common law or in equity or by constitution or
statute, of, and
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any and all such rights and claims against, every such incorporator,
shareholder, officer or director, as such, because of the issuance of the
Certificates, or under or by reason of the obligations or covenants contained in
this Agreement or in any of the Certificates or implied therefrom, are hereby
expressly waived and released as a condition of, and as a consideration for, the
execution of this Agreement and the issuance of the Certificates. The Servicer
and any director, officer, employee or agent of the Servicer may rely in good
faith on any document of any kind prima facie properly executed and submitted by
-----------
any Person respecting any matters arising hereunder.
(b) The Servicer shall not be under any liability to the Trust or the
Certificateholders for taking any action or for refraining from taking any
action pursuant to this Agreement, or for errors in judgment; provided, however,
-------- -------
that this provision shall not protect the Servicer against any liability which
would otherwise be imposed upon the Servicer by reason of its willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties as Servicer
hereunder. The Servicer shall not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its duties to
service the Loans in accordance with this Agreement which in its reasonable
opinion may involve it in any expense or liability; provided, however, that the
-------- -------
Servicer, in its sole discretion, may undertake any such action which it may
deem necessary or desirable in respect of this Agreement, and the rights and
duties of the parties hereto and the interests of the Certificateholders
hereunder. In such event, the reasonable legal expenses and costs of such
action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust, and the Servicer shall be entitled to be reimbursed
therefor pursuant to Section 14.04A. The Servicer's right to reimbursement
pursuant to this Section 17.04(b) shall survive any resignation or termination
of the Servicer pursuant to Section 17.06 or 18.01 with respect to any losses,
expenses, costs or liabilities arising prior to such resignation or termination,
or arising from events that occurred prior to such resignation or termination.
(c) The Servicer and any director, officer, employee or agent of the
Servicer shall be indemnified by the Trust and held harmless to the extent
provided herein against any loss, liability or expense incurred in connection
with any legal action relating to this Agreement or the Certificates, other than
any loss, liability or expense related to any specific Loan or Loans (except as
any such loss, liability or expense shall be otherwise reimbursable pursuant to
this Agreement) and any loss, liability or expense incurred by the Servicer by
reason of willful misfeasance, bad faith or gross negligence by the Servicer in
the
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performance of its duties hereunder or by reason of its reckless disregard of
its obligations and duties hereunder. The Servicer and any director, officer,
employee or agent of the Servicer shall be entitled to such indemnity pursuant
to Section 14.04A. The Servicer's right to indemnity pursuant to this Section
17.04(c) shall survive any resignation or termination of the Servicer pursuant
to Section 17.06 or 18.01 with respect to any losses, expenses, costs or
liabilities arising prior to such resignation or termination, or arising from
events that occurred prior to such resignation or termination. Any claims under
this Section 17.04(c) by or on behalf of the Certificateholders or the Trust
shall be made only against the Servicer who shall be liable to the extent
provided herein with respect to its own acts and omissions as well as the acts
and omissions of its directors, officers, employees and agents.
SECTION 17.05. Delegation of Duties. In the ordinary course of
--------------------
business the Servicer at any time may, with the consent of the Certificate
Insurer, delegate any of its duties hereunder to any Person, including any of
its affiliates, who agrees to conduct such duties in accordance with standards
comparable to those with which the Servicer complies pursuant to Section 13.01.
Such delegation shall not relieve the Servicer of its liabilities and
responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 17.06. The Servicer shall provide
each Rating Agency, the Trustee and the Certificate Insurer with written notice
prior to the delegation of any of its duties to any Person other than any of the
Servicer's affiliates or their respective successors and assigns.
SECTION 17.06. Servicer Not to Resign. Subject to the provisions of
----------------------
Section 17.03 and the last sentence of this paragraph, the Servicer shall not
resign from the obligations and duties hereby imposed on it except upon
determination that the performance of its obligations or duties hereunder is no
longer permissible under applicable law or is in material conflict by reason of
applicable law with any other activities carried on by it or its subsidiaries or
other affiliates, the other activities of the Servicer so causing such a
conflict being of a type and nature carried on by the Servicer or such
subsidiaries or other affiliates at the date of this Agreement.
Any resignation under this Section 17.06 shall not relieve the Servicer
of responsibility for any of the obligations specified in Sections 18.01 and
18.02 as obligations that survive the resignation or termination of the
Servicer; provided, however, that no resignation by the Servicer shall become
-------- -------
effective until the Trustee or a successor servicer shall have assumed the
responsibilities and obligations of the Servicer in
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accordance with Section 18.02. The Servicer shall have no claim (whether by
subrogation or otherwise) or other action against any Certificateholder for any
amounts paid by the Servicer pursuant to any provision of this Agreement. Any
determination permitting the resignation of the Servicer shall be evidenced by
an Opinion of Counsel to such effect delivered to the Trustee and the
Certificate Insurer.
SECTION 17.07. Limitation on Liability of Certain Persons. Except as
------------------------------------------
provided in Section 17.08 hereof, no recourse under or upon any obligation or
covenant of this Agreement, or of any Certificate, or for any claim based
thereon or otherwise in respect thereof, shall be had against any incorporator,
shareholder, officer or director, as such, past, present or future, of the
Transferor or of any successor corporation, either directly or through the
Transferor, whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise other than for the
willful misconduct or bad faith of any such person; it being expressly
understood that this Agreement and the obligations issued hereunder are solely
corporate obligations, and that no such personal liability whatever shall attach
to, or is or shall be incurred by the incorporators, shareholders, officers or
directors, as such, of the Transferor, or any of them, because of the issuance
of the Certificates, or under or by reason of the obligations, covenants or
agreements contained in this Agreement or in any of the Certificates or implied
therefrom; and that any and all such personal liability, either at common law or
in equity or by constitution or statute, of, and any and all such rights and
claims against, every such incorporator, shareholder, officer or director, as
such, because of the issuance of the Certificates, or under or by reason of the
obligations, covenants or agreements contained in this Agreement or in any of
the Certificates or implied therefrom, are hereby expressly waived and released
as a condition of, and as a consideration for, the execution of this Agreement
and the issuance of the Certificates. The Transferor and any director, officer,
employee or agent of the Transferor may rely in good faith on any document of
any kind prima facie properly executed and submitted by any Person respecting
-----------
any matters arising hereunder.
SECTION 17.08. Liability of Transferor. Notwithstanding Section 17.07
-----------------------
(and notwithstanding any other provisions of this Agreement) the Transferor by
entering into this Agreement, by its acceptance thereof, agrees to be liable,
directly to the Trustee or any other injured party, for the entire amount of any
losses, claims, damages or liabilities (other than those that would be incurred
by a Certificateholder as an investor in the Certificates if the Certificates
were notes secured by the Loans including, but not limited to, as a result
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of the performance of the Loans, market fluctuations, a shortfall or failure to
make payment under the Policy or other similar market or investment risks
associated with ownership of the Certificates) arising out of or based on the
arrangement created by this Agreement or the actions of the Servicer taken
pursuant hereto including those due to environmental liabilities relating to the
Loans (to the extent that, if the Trust assets at the time the claim is made
were used to pay in full all outstanding Certificates, the Trust assets that
would remain after the Certificateholders were paid in full would be
insufficient to pay any such losses, claims, damages or liabilities) as though
this Agreement created a partnership under the New York Revised Uniform
Partnership Act in which the Transferor was a general partner. The rights
created by this Section 17.08 shall run directly to and be enforceable by the
injured party subject to the limitations hereof.
SECTION 17.09. Transferor May Own Certificates. The Transferor and
-------------------------------
any Person controlling, controlled by or under common control with the
Transferor may in its individual or any other capacity become the owner or
pledgee of Certificates with these and rights as it would have if it were not
the Transferor or such an affiliate thereof, except as otherwise provided in the
definition of the term "Certificateholder" specified in Section 11.01.
Certificates so owned by or pledged to the Transferor or such controlling or
commonly controlled Person shall have an equal and proportionate benefit under
the provisions of this Agreement, without preference, priority or distinction as
among all of the Certificates, except as otherwise provided in the definition of
the term "Certificateholder" specified in Section 11.01.
ARTICLE XVIII
Default
SECTION 18.01. Events of Default. If any one of the following
-----------------
events ("Events of Default") shall occur and be continuing:
(i) any failure by the Servicer to deposit into the Collection Account
any deposit required to be made under the terms of this Agreement which
continues unremedied for a period of five (5) Business Days after the date upon
which written notice of such failure 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 to the Servicer, the Trustee and the Certificate Insurer
by the Holders of
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Certificates evidencing in the aggregate not less than 51% of the Certificate
Principal Balance; or
(ii) failure on the part of the Servicer duly to observe or perform in
any material respect any other covenants or agreements of the Servicer set forth
in the Insurance Agreement or in this Agreement, which breach (A) materially and
adversely affect the interests of Certificateholders or the Certificate Insurer
and (B) continues unremedied for a period of sixty (60) days after the date on
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 to the Servicer,
the Certificate Insurer and the Trustee by the Holders of Certificates
evidencing in the aggregate not less than 51% of the Certificate Principal
Balance; or
(iii) the entry against the Servicer of a decree or order by a court or
agency or supervisory authority having jurisdiction in the premises for the
appointment of a conservator, receiver or liquidator in any insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a period of
one hundred twenty (120) days; or
(iv) the consent by the Servicer to the appointment of a conservator
or receiver or liquidator in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings of or relating to the Servicer or
of or relating to substantially all of its property; or any action by the
Servicer to admit in writing its inability to pay its debts generally as they
become due, to file a petition to take advantage of any applicable insolvency or
reorganization statute or to make an assignment for the benefit of its
creditors;
then, and in each and every such case, so long as an Event of Default shall not
have been remedied by the Servicer, either the Certificate Insurer (so long as
no Insurer Default has occurred and is continuing) or the Trustee or Holders of
Certificates evidencing not less than 51% of the Certificate Principal Balance
with the consent of the Certificate Insurer (if no Insurer Default has occurred
and is continuing) by notice then given in writing to the Servicer (and to the
Trustee if given by the Certificate Insurer or the Certificateholders), may and
at the direction of the Holders of Certificates evidencing in the aggregate no
less than 51% of the aggregate Certificate Principal Balance, shall terminate
all of the rights and obligations of the Servicer as servicer under this
Agreement.
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If a Trigger Event other than as specified in clause (v) of the
definition thereof shall have occurred, the Certificate Insurer (so long as no
Insurer Default has occurred and is continuing) may require the Trustee to
deliver a notice of termination to the Servicer and to appoint a successor
Servicer pursuant to Section 18.02, all reasonable costs and expenses incurred
in connection with such transfer shall be borne by the Servicer (such costs and
expenses, the "Servicing Transfer Expense"). If a Trigger Event specified in
clause (v) of the definition thereof shall occur, the Certificate Insurer (so
long as no Insurer Default has occurred and is continuing) may (i) cause, or
require the Servicer to cause payments made by Obligors on the Loans to be
redirected directly to the Trustee (whether by giving notice of such redirection
to the relevant Obligor by U.S. Mail or such other reasonable means as may be
selected by the Certificate Insurer) and (ii) avail itself of any other remedies
available hereunder, under the Insurance Agreement or applicable law. The
Transferor hereby grants to each of the Servicer, the Trustee and the
Certificate Insurer the right, power and authority to give notice to Obligors,
under clause (i) above, in the name and on behalf of the Transferor as its
attorney-in-fact, which grant of power of attorney, being coupled with an
interest, is irrevocable.
Any written notice of termination provided to the Servicer pursuant to
this Section 18.01 shall be simultaneously provided to the Certificate Insurer
and the Rating Agencies. On or after the receipt by the Servicer of such
written notice, all authority and power of, and all benefits accruing to, the
Servicer under this Agreement, whether with respect to the Certificates or the
Loans or otherwise, shall pass to and be vested in the Trustee or such successor
Servicer as may be appointed under Section 18.02 pursuant to and under this
Section 18.01; and, without limitation, the Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact
or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the transfer and
endorsement of the Loans and related documents, or otherwise. The predecessor
Servicer shall cooperate with the successor Servicer and the Trustee in
effecting the termination of the responsibilities and rights of the Servicer
hereunder, including, without limitation, the transfer to the successor Servicer
for the administration by it of all cash amounts that shall at the time be owned
by the predecessor Servicer for deposit, or that shall thereafter be received by
the Servicer with respect to the Loans.
The Certificate Insurer may notify the Trustee of the occurrence of a
Trigger Event and request termination of the
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rights and obligations of the Servicer hereunder because of such occurrence;
provided, however, that the Trustee shall incur no liability for voluntarily
- -------- -------
complying with such request.
No Holder of Certificates will have any right under this Agreement to
institute any proceeding in its name with respect to this Agreement unless such
holder previously has given to the Trustee and the Certificate Insurer written
notice of default and unless Holders of Certificates evidencing in the aggregate
not less than 25% of the Certificate Principal Balance with the consent of the
Certificate Insurer have made written request upon the Trustee to institute such
proceeding in its own name as Trustee thereunder and have offered to the Trustee
reasonable indemnity, and the Trustee for 60 days has neglected or refused to
institute any such proceeding. The Trustee will be under no obligation to
exercise any of the trusts or powers vested in it by this Agreement or to make
any investigation of matters arising hereunder or to institute, conduct or
defend any litigation hereunder or in relation hereto at the request, order or
direction of any of the Holders of Certificates or the Certificate Insurer
covered by this Agreement, unless such Holders of Certificates or the
Certificate Insurer have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities that may be incurred therein or
thereby.
SECTION 18.02. Trustee to Act; Appointment of Successor. (a) Upon
----------------------------------------
the Servicer's receipt of notice of termination pursuant to Section 18.01 or the
Servicer's resignation in accordance with the terms of Section 17.06, 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 predecessor Servicer by the terms and provisions
hereof; provided, however, that the responsibilities and duties of the
-------- -------
predecessor Servicer with respect to the removal of Loans pursuant to Section
12.01 shall not terminate with regard to actions taken prior to the appointment
of the successor Servicer. As compensation therefor, the Trustee shall be
entitled to the Servicing Fee as compensation. Notwithstanding the above, if
the Trustee is unable or unwilling to act as successor Servicer, the Certificate
Insurer shall appoint a successor Servicer. If an Insurer Default shall have
occurred and is continuing, or the Certificate Insurer fails to make such
appointment within 60 days after receiving notice from the Trustee that it is
unable or unwilling to act as Servicer, the Trustee shall petition a court of
competent jurisdiction to appoint any established housing and home finance
institution having a net worth of not less than
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$10,000,000 as the successor to the predecessor Servicer hereunder. In
connection with such appointment and assumption, the Trustee may make such
arrangements for the compensation of such successor out of payments on Loans as
it and such successor shall agree; provided, however, in no event shall the
-------- -------
Servicing Fee Rate for such successor be greater than 1.15%. The Trustee and
such successor shall take such action, consistent with this Agreement, as shall
be necessary to effectuate any such succession (including, without limitation,
the transfer or replacement of hazard insurance required pursuant to Section
13.03 hereof) and the costs and expenses of such transfer shall be borne by the
successor Servicer. Any successor Servicer shall execute and deliver to the
Certificate Insurer an undertaking to be bound by the terms of the Insurance
Agreement in the form attached as Exhibit I.
(b) Any successor Servicer, including the Trustee during the term of
its service as Servicer, shall maintain in force (i) a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Servicer hereunder, and (ii) a fidelity bond in respect of its officers,
employees and agents to the same extent as the Servicer is so required pursuant
to Section 13.10.
SECTION 18.03. Notification to Certificateholders. Upon any
----------------------------------
termination or appointment of a successor to the Servicer pursuant to this
Article XVIII, the Trustee shall give prompt written notice thereof to
Certificateholders at their respective addresses appearing in the Certificate
Register and to the Certificate Insurer and the Rating Agencies.
SECTION 18.04. Waiver of Past Defaults. So long as no Insurer Default
-----------------------
shall have occurred and be continuing, the Certificate Insurer (or, if an
Insurer Default shall have occurred and be continuing, the Holders of
Certificates evidencing in the aggregate not less than a majority of the
Certificate Principal Balance) may, on behalf of all Holders of Certificates,
waive any default by the Servicer in the performance of its obligations
hereunder and its consequences or any Trigger Event by the Servicer or the
Transferor. Upon any such waiver of a past default, or Trigger Event such
default shall cease to exist, and any Event of Default or Trigger Event arising
therefrom shall be deemed to have been remedied for every purpose of the
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereon.
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ARTICLE XIX
The Trustee
SECTION 19.01. Duties of Trustee. (a) If an Event of Default has
-----------------
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by the Agreement and use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in the Agreement and no implied covenants or
obligations shall be read into the Agreement against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of the Agreement; provided, however,
that the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of the Agreement.
(c) The Trustee shall take and maintain custody of the Loan Schedule
included as an exhibit to the Agreement and shall retain all Servicer's
Certificates identifying Loans that are retransferred to the Transferor or
transferred to the Servicer, Liquidated Loans, and Defective Loans which have
been replaced by Eligible Substitute Loans.
(d) The Trustee shall not be liable with respect to any action taken,
suffered or omitted to be taken in good faith in accordance with the Agreement
or at the direction of the Certificate Insurer or at the direction of Holders of
Certificates evidencing in the aggregate not less than 25% of the Certificate
Principal Balance 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 the Agreement;
(e) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of clause (d) of this
Section;
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(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Trustee Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to the Agreement.
(f) No provision of the Agreement shall require the Trustee to expend
or risk its own funds or otherwise incur financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or
powers, if it shall have reasonable grounds to believe that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
SECTION 19.02. Certain Matters Affecting Trustee. Except as
---------------------------------
otherwise provided in Section 19.01:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in any such document.
(b) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters or relating to the Agreement or the
Certificates shall be full and complete authorization and protection from
liability in respect of any action taken, suffered or omitted by it under the
Agreement in good faith and in accordance with such advice or opinion of such
counsel.
(c) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by the Agreement, or to institute, conduct or
defend any litigation under the Agreement at the request, order or direction of
the Certificate Insurer or any of the Certificateholders pursuant to the
provisions of the Agreement, unless the Certificate Insurer or such
Certificateholders, as the case may be, shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby.
(d) The Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith which it believes to be authorized or within its
rights or powers conferred upon it by the Agreement; provided, that such conduct
does not constitute willful misconduct, bad faith or negligence on the part of
the Trustee.
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(e) The Trustee may execute any of the trusts or powers or perform any
duties hereunder either directly or by or through agents or attorneys or a
custodian, and the Trustee shall not be responsible for any misconduct or
negligence of any such agent, attorney or custodian appointed with due care by
it hereunder.
SECTION 19.03. Trustee Not Liable for Certificates or Loans. The
--------------------------------------------
recitals contained herein and in the Certificates (other than the certificate of
authentication on the Certificates) shall be taken as the statements of the
Transferor or the Servicer, as the case may be, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee shall make no
representations as to the validity or sufficiency of the Agreement or of the
Certificates (other than the certificate of authentication on the Certificates),
or of any Loan or related document. The Trustee shall at no time have any
responsibility or liability for or with respect to any offering materials used
in connection with the sale of the Certificates, the legality, validity and
enforceability of any Loan, or the perfection and priority of any security
interest created by any Loan in any Mortgaged Property or the maintenance of any
such perfection and priority, or for or with respect to the efficacy of the
Trust, the representations, warranties and covenants of the Trust or its ability
to generate the payments to be distributed to Certificateholders under the
Agreement, including, without limitation: the existence, condition and ownership
of any Mortgaged Property; the existence and enforceability of any insurance
thereon; the existence and contents of any Loan or any computer or other record
thereof; the validity of the assignment of any Loan to the Trust or of any
intervening assignment; the completeness of any Loan; the performance or
enforcement of any Loan; the compliance by the Transferor or the Servicer with
any covenant, warranty or representation made under the Agreement or in any
related document and the accuracy of any such covenant, warranty or
representation or any action of the Servicer taken in the name of the Trustee.
SECTION 19.04. Trustee May Own Certificates. The Trustee in its
----------------------------
individual or any other capacity may become the owner or pledgee of Certificates
and may deal with the Transferor and the Servicer in banking transactions with
the same rights as it would have if it were not Trustee.
SECTION 19.05. Trustee's Fees and Expenses. The Trustee shall be
---------------------------
entitled to receive the Trustee's Fee allocated to it pursuant to Section 14.05
for all services rendered by it in the execution of the trust created by the
Agreement and in the exercise and performance of any of the Trustee's powers and
duties under the Agreement. The Trustee's Fee shall be the only
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fee payable to the Trustee for its services as Trustee, provided that the
Trustee shall be entitled to their out-of-pocket expenses in accordance with the
Agreement. The Trustee shall be entitled to be reimbursed by the Servicer for
its reasonable expenses under the Agreement, including the reasonable
compensation, expenses and disbursements of such agents, representatives,
experts and counsel as the Trustee may employ in connection with the exercise
and performance of its rights and duties under the Agreement.
SECTION 19.06. Eligibility Requirements for Trustee. The Trustee
------------------------------------
shall at all times be a corporation or association having an office in the same
state as the location of the Corporate Trust Office; organized and doing
business under the laws of any state or the United States of America; authorized
under any laws to exercise corporate trust powers; having a combined capital and
surplus of at least $10,000,000 and subject to supervision or examination by
federal or state authorities; and (so long as an Insurer Default shall not have
occurred and be continuing) satisfactory to the Certificate Insurer, and having
(or having a parent that has) a rating of at least Baa3 by Moody's. If such
corporation shall publish reports of condition at least annually pursuant to law
or to the requirements of the aforesaid supervising or examining authority, then
for the purpose of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
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 19.07.
SECTION 19.07. Resignation or Removal of Trustee. The Trustee may at
---------------------------------
any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Servicer and the Certificate Insurer. Upon
receiving such notice of resignation, the Servicer shall promptly appoint a
successor Trustee (consented to and approved in writing by the Certificate
Insurer, such consent not to be unreasonably withheld) by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor Trustee. If no successor Trustee shall
have been so appointed and have accepted appointment within 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.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 19.06 and shall fail to resign after written
request therefor by the Servicer or the
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Certificate Insurer, or if at any time the Trustee shall be legally unable to
act, 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 or the
Certificate Insurer may remove the Trustee. If the Servicer or the Certificate
Insurer shall remove the Trustee under the authority of the immediately
preceding sentence, the Servicer shall (so long as an Insurer Default shall not
have occurred and be continuing) with the written consent of the Certificate
Insurer, or (unless an Insurer Default shall have occurred and be continuing) at
the written request of the Certificate Insurer, or the Certificate Insurer
shall, promptly appoint a successor Trustee (which successor Trustee, if
appointed by the Certificate Insurer, shall be subject to the prior written
consent of the Servicer, which consent shall not be unreasonably withheld) by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the outgoing Trustee so removed and one copy to the successor
Trustee, and the Servicer shall pay all fees and expenses owed to the outgoing
Trustee. Any successor trustee shall (so long as an Insurer Default shall not
have occurred and be continuing) be acceptable to the Certificate Insurer.
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
pursuant to Section 19.08 and payment of all fees and expenses owed to the
outgoing Trustee. The Servicer shall provide notice of such resignation or
removal of the Trustee to each of the Rating Agencies.
SECTION 19.08. Successor Trustee. Any successor Trustee appointed
-----------------
pursuant to Section 19.07 shall execute, acknowledge and deliver to the Servicer
and the Certificate Insurer and to its predecessor Trustee an instrument
accepting such appointment under the Agreement as Trustee 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 under the Agreement, with like effect as if originally named as
Trustee. The predecessor Trustee shall upon payment of its fees and expenses
deliver to the successor Trustee all documents and statements and monies held by
it under the Agreement; and the Servicer and the predecessor Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the
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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 pursuant to Section 19.06.
Upon acceptance of appointment by a successor Trustee pursuant to this
Section, the Servicer shall mail notice thereof to all Certificateholders, the
Certificate Insurer and the Rating Agencies. If the Servicer shall fail 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 19.09. Merger or Consolidation of Trustee. Any corporation
----------------------------------
into which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be eligible pursuant to Section 19.06, without the execution
or filing of any instrument or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding. The Trustee shall mail
notice of any such merger or consolidation to the Rating Agencies and the
Certificate Insurer.
SECTION 19.10. Appointment of Co-Trustee or Separate Trustee.
---------------------------------------------
Notwithstanding any other provisions of the Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Mortgaged Property is located, the Servicer, the Certificate
Insurer (provided an Insurer Default shall not have occurred and be continuing)
and the Trustee 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, jointly with the Trustee, or separate trustee or separate trustees, of
all or any part of the Trust, and to vest in such Person, in such capacity and
for the benefit of the Certificateholders, such title to the Trust or any part
thereof and, subject to the other provisions of this Section, such powers,
duties, obligations, rights, and trusts as the Servicer, the Certificate Insurer
and the Trustee may consider necessary or desirable. If the Servicer and the
Certificate Insurer shall not have joined in (or rejected the entity named in
the request) such appointment within 15 days after the receipt by it of a
request so to do, the Trustee alone shall have the power to make such
appointment. No co-trustee or
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separate trustee under the Agreement shall be required to meet the terms of
eligibility as a successor Trustee pursuant to Section 19.06 and no notice of
the appointment of any co-trustee or separate trustee shall be required pursuant
to Section 19.08.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) All rights, powers, duties and obligations conferred or imposed
upon any such separate trustee or co-trustee shall be conferred upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in such act), except to
the extent that under any law of any jurisdiction in which any particular act or
acts are to be performed, the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust or any portion thereof
in any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the Trustee;
(ii) No trustee under the Agreement shall be personally liable by
reason of any act or omission of any other trustee under the Agreement; and
(iii) Provided no Insurer Default shall have occurred and be
continuing, the Certificate Insurer may, and, in the event an Insurer Default
shall have occurred and be continuing, then, the Servicer and the Trustee acting
jointly may, at any time accept the resignation of or remove any separate
trustee or co-trustee.
Any notice, request or other writing given to the 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 the Agreement and the conditions
of this Article. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of the Agreement,
specifically including every provision of the Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Each
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicer.
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Any separate trustee or co-trustee may at any time appoint 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 the Agreement on
its behalf and in its name. If any separate trustee or co-trustee shall die,
become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor co-trustee or separate trustee.
SECTION 19.11. Representations and Warranties of Trustee. The Trustee
-----------------------------------------
shall make the following representations and warranties on which the Transferor
and Certificateholders shall be deemed to rely:
(i) The Trustee is a national banking association duly organized,
validly existing and in good standing under the laws of its place of
organization.
(ii) The Trustee has full corporate power, authority and legal right
to execute and deliver, and to perform its obligations under, the Agreement as
Trustee, and shall have taken all necessary action to authorize the execution
and delivery of, and the performance of its obligations under, the Agreement.
(iii) The Agreement shall have been duly executed and delivered by the
Trustee.
SECTION 19.12. No Bankruptcy Petition. The Trustee, by entering into
----------------------
the Agreement, and each Certificateholder, by accepting a Certificate, hereby
covenant and agree that they will not at any time, prior to the date that is one
year and one day after the termination of the Agreement, institute against, or
join any other Person in instituting against, the Trust any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
similar proceedings under any federal or state bankruptcy or similar law in
connection with the Certificates or the Agreement.
SECTION 19.13. Trustee's Certificate. On or as soon as practicable
---------------------
after each Record Date as of which Loans shall be assigned to the Transferor or
the Servicer pursuant to Section 19.14, the Trustee shall execute a Trustee's
Certificate (in the form of Exhibit E-1 or E-2, as applicable), based on the
information contained in the Servicer's Certificate for the related Monthly
Collection Period, amounts deposited to the Collection Account and notices
received pursuant to the Agreement, identifying the Loans retransferred to the
Transferor or Loans for which Eligible Substitute Loans have been delivered
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by the Transferor pursuant to Sections 3.03, 12.01 or 20.01, or transferred to
the Servicer or Loans for which Eligible Substitute Loans have been delivered by
the Servicer pursuant to Section 13.01, during such Monthly Collection Period,
and shall deliver such Trustee's Certificate, accompanied by a copy of the
Servicer's Certificate for such Monthly Collection Period, to the Transferor or
the Servicer, as applicable. The Trustee's Certificate submitted with respect to
such Monthly Payment Date shall operate, as of such Monthly Payment Date, as an
assignment, without recourse, representation or warranty, to the Transferor or
the Servicer, as applicable, of all the Trustee's right, title and interest in
and to any such Loan retransferred to the Transferor or transferred to the
Servicer or any Loan for which an Eligible Substitute Loan has been delivered
and to the other property conveyed to the Trust with respect thereto, and all
security and documents relating thereto, such assignment being an assignment
outright and not for security.
SECTION 19.14. Trustee's Assignment of Loans. With respect to all
-----------------------------
Loans retransferred to the Transferor or Loans for which Eligible Substitute
Loans have been delivered by the Transferor pursuant to Section 3.03 or 12.01 or
retransferred to the Transferor pursuant to Section 20.01, or transferred to the
Servicer pursuant to Section 13.01, the Trustee shall by a Trustee's Certificate
(in the form of Exhibit E-1 or E-2, as applicable) assign, without recourse,
representation or warranty, to the Transferor or the Servicer, as applicable,
all the Trustee's right, title and interest in and to any such Loan and the
other property conveyed to the Trust with respect thereto, and all security and
documents relating thereto, such assignment being an assignment outright and not
for security.
SECTION 19.15. Appointment of Paying Agent. The Trustee is empowered
---------------------------
to appoint a Paying Agent for the purpose of making distributions to
Certificateholders pursuant to Section 14.06. Any Paying Agent appointed
hereunder must be approved by the Certificate Insurer and satisfy the
eligibility requirements for the Trustee as set forth in Section 19.06, and if
such Paying Agent subsequently shall fail to satisfy such eligibility
requirements, then, unless such Paying Agent shall promptly resign as such, the
Trustee, if the Trustee has been notified in writing or otherwise has actual
knowledge of such failure, shall terminate the appointment of such Paying Agent.
The Trustee hereby appoints itself as Paying Agent.
The Trustee shall cause such Paying Agent other than itself to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee that such Paying Agent shall hold all sums held by it for the
payment to Certificateholders in trust for the benefit of the Certificate-
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holders and the Certificate Insurer entitled thereto until such sums shall be
paid to such Certificateholders.
SECTION 19.16. Limitation of Liability of Trustee. Notwithstanding
----------------------------------
anything contained herein to the contrary (i) this Agreement has been accepted
by Norwest Bank Minnesota, National Association not in its individual capacity
but solely as Trustee, and in no event shall Norwest Bank Minnesota, National
Association have any liability for the representations, warranties, covenants,
agreements or other obligations of the Transferor hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Transferor and (ii)
under no circumstances shall Norwest Bank Minnesota, National Association be
liable for the payment of any indebtedness or expenses of the Trust; provided,
--------
however, nothing contained herein shall relieve Norwest Bank Minnesota, National
- -------
Association of its obligations contained herein in its capacity as successor
Servicer and as Trustee.
SECTION 19.17. Streit Act. Any provisions required to be contained
----------
in this Agreement by Section 126 of Article 4-A of the New York Real Property
Law are hereby incorporated, and such provisions shall be in addition to those
conferred or imposed by this Agreement; provided, however, that to the extent
-------- -------
that such Section 126 shall not apply to this Agreement, such Section 126 shall
not have any effect, and if such Section 126 should at any time be repealed or
cease to apply to this Agreement, or be construed by judicial decision to be
inapplicable, such Section 126 shall cease to have any further effect upon the
provisions of this Agreement. In case of a conflict between the provisions of
this Agreement and any mandatory provision of Article 4-A of the New York Real
Property Law, such mandatory provisions of such Article 4-A shall prevail,
provided, however, that if such Article 4-A shall not apply to this Agreement,
- -------- -------
or be construed by judicial decision to be inapplicable, such mandatory
provisions of such Article 4-A shall cease to have any further effect upon the
provisions of this Agreement.
ARTICLE XX
Termination
SECTION 20.01. Termination. (a) The respective obligations and
-----------
responsibilities of the Servicer, the Transferor and the Trustee created hereby
(other than the obligation of the Trustee to make certain payments to
Certificateholders after the final Distribution Date and the obligation of the
Servicer to
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send certain notices as hereinafter set forth) shall terminate upon the last
action required to be taken by the Trustee on the final Monthly Payment Date
pursuant to this Article XX following the later of (A) payment in full of all
amounts owing to the Certificate Insurer and (B) the earliest of (i) the
retransfer, under the conditions specified in Section 20.01(b), to the
Transferor of each Loan and all property acquired in respect of any Loan
remaining in the Trust for an amount equal to the sum of (x) the outstanding
Certificate Principal Balance, (y) accrued and unpaid interest through the day
preceding the final Monthly Payment Date, and (z) any unpaid Certificateholders'
Interest Carryover Shortfall, (ii) the Distribution Date or Monthly Payment Date
on which the distribution made to Certificateholders has reduced the Certificate
Principal Balance to zero, (iii) the Dissolution Distribution Date or (iv) the
Stated Maturity Date; provided, however, that in no event shall the trust
created by the Agreement continue beyond the expiration of 21 years from the
death of the last survivor of the descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James, living on the date of
the Agreement. The Servicer shall promptly notify the other parties hereto and
the Certificate Insurer of any prospective termination pursuant to this Section.
(b) The Transferor shall have the right to exercise the option to
effect the retransfer to the Transferor of each Loan pursuant to Section
20.01(a) above on any Distribution Date on or after the Distribution Date
immediately prior to which the Certificate Principal Balance is less than or
equal to $7,676,050 (five percent (5%) of the Initial Certificate Principal
Balance) and all amounts due and owing to the Certificate Insurer and
unreimbursed draws on the Policy, together with interest thereon, as provided in
the Insurance Agreement, have been paid.
(c) Notice of any termination of the Trust, specifying the
Distribution Date or Monthly Payment Date upon which Certificateholders shall
surrender their Certificates to the Trustee for payment of the final
distribution and cancellation of the Certificates, shall, upon receipt by the
Trustee from the Servicer of such notice, be given by the Trustee by letter to
Certificateholders mailed not earlier than the 15th day and not later than the
25th day of the month next preceding the specified Distribution Date or Monthly
Payment Date stating (A) the Distribution Date or Monthly Payment Date upon
which final payment of the Certificates shall be made upon presentation and
surrender of the Certificates at the office of the Trustee therein designated,
(B) the amount of such final payment and (C) that the Record Date otherwise
applicable to such Distribution Date or Monthly Payment Date is not applicable,
payments being made only upon presentation and surrender of the Certificates at
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the office of the Trustee therein specified. The Trustee shall give such notice
to the Certificate Registrar (if other than the Trustee) at the time such notice
is given to Certificateholders. Upon presentation and surrender of the
Certificates, the Trustee shall cause to be distributed to Certificateholders
amounts distributable on such Distribution Date or Monthly Payment Date pursuant
to Section 14.06.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Trustee shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
one year after such 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 that shall remain
subject to the Agreement. Any funds remaining in the Trust after exhaustion of
such remedies shall be distributed by the Trustee to the Transferor. As soon as
practicable after the termination of the Trust, the Trustee shall surrender the
Policy to the Certificate Insurer for cancellation.
ARTICLE XXI
Miscellaneous Provisions
SECTION 21.01. Amendment. (a) This Agreement may be amended from
---------
time to time by the Servicer, the Transferor and the Trustee with the consent of
the Certificate Insurer (which consent shall not be unreasonably withheld)
without the consent of any of the Certificateholders, (i) to cure any ambiguity,
(ii) to correct any defective provisions or to correct or supplement any
provisions herein which may be inconsistent with any other provisions herein,
(iii) to add or delete any other provisions with respect to matters or questions
arising hereunder that are not inconsistent herewith, (iv) to add or amend any
provisions herein as required by the Rating Agencies in order to maintain or
improve the rating of the Certificates (it being understood that, after
obtaining the ratings in effect on the Closing Date, neither the Transferor nor
the Servicer is obligated to obtain, maintain or improve any such rating) or (v)
to add any other provisions herein with respect to matters or questions arising
hereunder; provided, however, that, as evidenced by an Opinion of Counsel, in
-------- -------
each case such action shall not adversely affect in any material respect the
interests of any Certificateholder (and
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provided that any such amendment will be deemed not to materially and adversely
affect the Certificateholders if the person requesting such amendment obtains a
letter from each Rating Agency stating that such amendment would not result in a
downgrading or withdrawal of the rating of the Certificates and provided further
that any such amendment will be deemed not to materially and adversely affect
the Certificate Insurer if each Rating Agency has confirmed that such amendment
would not result in a reduction below investment grade of the Certificates
without regard to the Policy).
This Agreement may also be amended from time to time by the Servicer,
the Transferor and the Trustee, with the consent of the Certificate Insurer and
the Holders of Certificates evidencing not less than 51% of the Certificate
Principal Balance, and the Servicer, the Trustee and the Certificate Insurer may
from time to time consent to the amendment of the Policy for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or the Policy, as the case may be, or of modifying
in any manner the rights of the Certificateholders; provided, however, that no
-------- -------
such amendment shall (i) reduce in any manner the amount of, or delay the timing
of, collections of payments of Loans or distributions or payments under the
Policy which are required to be made on any Certificate, without the consent of
the Holder of such Certificate, or (ii) reduce the aforesaid percentage required
to consent to any such amendment, without the consent of the Holder of each
Certificate then outstanding.
Prior to the execution of any such amendment made with the consent of
the Certificateholders, the Trustee shall furnish written notification of the
substance of such amendment to each Rating Agency and the Certificate Insurer.
Promptly after the execution of any such amendment made with the consent of the
Certificateholders, the Trustee shall furnish written notification of the
substance of such amendment to each Certificateholder and fully executed
original counterparts of the instruments effecting any such amendment to the
Certificate Insurer.
It shall not be necessary for the consent of Certificateholders under
this Section 21.01 to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable requirements as the Trustee may prescribe.
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The Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Trustee's own rights, duties or immunities under
this Agreement or otherwise.
(b) In connection with any amendment pursuant to this Section 21.01,
as a condition precedent to the effectiveness thereof, each of the Trustee and
the Certificate Insurer shall (i) receive an Opinion of Counsel (a) that such
amendment will not adversely affect the federal income tax characterization of
the Certificates, (b) that such amendment will not cause the Trust to be treated
as an association (or publicly traded partnership) taxable as a corporation, (c)
that such amendment will not cause or constitute an event in which gain or loss
would be recognized by any Certificateholder and (d) that such amendment will
not cause adverse federal income tax consequences to the Trust or the
Certificateholders and (ii) be entitled to receive and rely on an Opinion of
Counsel to the effect that such amendment is authorized or permitted by this
Agreement.
(c) Notwithstanding anything to the contrary contained in subsection
21.01(a) above, the provisions of the Agreement relating to (i) the Reserve Fund
or the Specified Reserve Fund Requirement, and (ii) any additional sources of
funds which may be added to the Reserve Fund or uses of funds on deposit in the
Reserve Fund may be amended in any respect by the Transferor, the Servicer, the
Trustee and the Certificate Insurer without the consent of, or notice to, the
Certificateholders.
SECTION 21.02. Recordation of Agreement. This Agreement is subject to
------------------------
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
Mortgaged Properties are situated, and in any other appropriate public recording
office or elsewhere, such recordation to be effected by the Servicer and at its
expense on direction by the Trustee or the Certificate Insurer, but only upon
direction of the Trustee or the Certificate Insurer accompanied by an Opinion of
Counsel to the effect that such recordation materially and beneficially affects
the interests of Certificateholders or the Certificate Insurer.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
SECTION 21.03. Limitation on Rights of Certificateholders. The death
------------------------------------------
or incapacity of any
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<PAGE>
Certificateholder shall not operate to terminate this Agreement or the Trust,
nor entitle such Certificateholder's legal representatives or heirs to claim an
accounting or to take any action or commence any proceeding in any court for a
partition or winding up of the Trust, nor otherwise affect the rights,
obligations and liabilities of the parties hereto or any such party.
No Certificateholder shall have any right to vote (except as provided
in Section 21.01 or in Section 16.01 (subject in all events to the delegation of
such voting rights described therein)) or in any manner otherwise control the
operation and management of the Trust, or the obligations of the parties hereto,
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.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Holder previously shall have given to the Trustee a written notice
of default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Certificates evidencing not less than 25% of the aggregate
Certificate Principal Balance of Certificates, with the consent of the
Certificate Insurer, shall have made written request upon the Trustee to
institute such action, suit or proceeding in its own name as Trustee hereunder
and shall have offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby, and the Trustee, for sixty (60) days after its receipt of such notice,
request and offer of indemnity, shall have neglected or refused to institute any
such action, suit or proceeding; it being understood and intended, and being
expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb or prejudice
the rights of the Holders of any other of the Certificates, or to obtain or seek
to obtain priority over or preference to any other such Holder, or to enforce
any right under this Agreement, except in the manner herein provided and for the
equal, ratable and common benefit of all Certificate-holders. For the
protection and enforcement of the provisions of this Section 21.03, each and
every Certificateholder and the Trustee shall be entitled to such relief as can
be given either at law or in equity.
SECTION 21.04. Protection of Title to Trust. (a) The Transferor
----------------------------
shall execute and file such financing statements and
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<PAGE>
cause to be executed and filed such continuation statements, all in such manner
and in such places as may be required by law fully to preserve, maintain and
protect the interest of the Certificateholders, the Certificate Insurer and the
Trustee in the Loans and in the proceeds thereof. The Transferor shall deliver
(or cause to be delivered) to the Trustee and the Certificate Insurer file-
stamped copies of, or filing receipts for, any document filed as provided above,
as soon as available following such filing.
(b) Neither the Transferor nor the Servicer shall change its name,
identity or corporate structure in any manner that would, could or might make
any financing statement or continuation statement filed in accordance with
paragraph (a) above seriously misleading within the meaning of Section 9-402(7)
of the UCC, unless it shall have given the Trustee and Certificate Insurer at
least 20 days' prior written notice thereof and shall have promptly filed
appropriate amendments to all previously filed financing statements or
continuation statements. Promptly upon such filing, the Transferor or the
Servicer, as the case may be, shall deliver an Opinion of Counsel, in form and
substance reasonably satisfactory to the Certificate Insurer, to the effect that
either (A) all financing statements and continuation statements have been
executed and filed that are necessary fully to preserve and protect the interest
of the Trust in the portion of the Trust Property with respect to which the
filing of financing statements is sufficient to perfect a security interest,
including the Loans, and reciting the details of such filings or referring to
prior Opinions of Counsel in which such details are given, or (B) no such action
shall be necessary to preserve and protect such interest.
(c) Each of the Transferor and the Servicer shall have an obligation
to give the Trustee and Certificate Insurer at least 60 days' prior written
notice of any relocation of its principal executive office if, as a result of
such relocation, the applicable provisions of the UCC would require the filing
of any amendment of any previously filed financing or continuation statement or
of any new financing statement, and shall promptly file any such amendment or
new financing statement. The Servicer shall at all times maintain its principal
executive office and each office from which it shall service Loans within the
United States of America.
(d) The Servicer shall maintain accounts and records as to each Loan
accurately and in sufficient detail to permit (i) the reader thereof to know at
any time the status of such Loan, including payments and recoveries made and
payments owing (and the nature of each) and (ii) reconciliation between payments
or recoveries on (or with respect to) each Loan and the amounts from
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<PAGE>
time to time deposited in the Collection Account in respect of such Loan.
(e) The Servicer shall maintain its computer systems so that, from and
after the time of sale under the Agreement of the Loans to the Trustee, the
Servicer's Electronic Ledger (including any back-up archives) that refer to a
Loan shall indicate clearly the interest of the Trust in such Loan, and that
such Loan is owned by the Trust. Indication of the Trust's ownership of a Loan
shall be deleted from or modified on the Servicer's computer systems when, and
only when, such Loan shall have been paid in full or repurchased.
(f) If at any time the Transferor or the Servicer shall propose to
sell, grant a security interest in, or otherwise transfer any interest in Home
Loans to any prospective purchaser, lender or other transferee, the Servicer
shall give to such prospective purchaser, lender or other transferee computer
tapes, records or print-outs (including any restored from back-up archives)
that, if they shall refer in any manner whatsoever to any Loan, shall indicate
clearly that such Loan has been sold and is owned by the Trustee.
(g) The Servicer shall permit the Trustee and the Certificate Insurer
and their respective agents at any time during normal business hours to inspect,
audit and make copies of and abstracts from the Servicer's records regarding any
Loan or any other portion of the Trust Property. The preceding sentence shall
not create any duty or obligation on the part of the Trustee to perform any such
acts.
(h) Upon request, the Servicer shall furnish to the Trustee or the
Certificate Insurer, within ten Business Days, a list of all Loans (by contract
number and name of Obligor) then held as part of the Trust, together with a
reconciliation of such list to the Loan Schedule and to each of the Officer's
Certificates furnished before such request indicating removal of Loans from the
Trust.
(i) The Servicer shall deliver to the Trustee and the Certificate
Insurer:
(1) promptly after the execution and delivery of the Agreement and, if
required pursuant to Section 21.01, of each amendment, an Opinion of Counsel
stating that, in the opinion of such Counsel, in form and substance reasonably
satisfactory to the Certificate Insurer, either (A) all financing statements and
continuation statements have been executed and filed that are necessary fully to
preserve and protect the interest of the Trust in the portion of the Trust
Property with respect to which the
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<PAGE>
filing of financing statements is sufficient to perfect a security interest,
including the Loans, and reciting the details of such filings or referring to
prior Opinions of Counsel in which such details are given, or (B) no such action
shall be necessary to preserve and protect such interest; and
(2) within 90 days after the beginning of each calendar year beginning
with the first calendar year beginning more than three months after the Cut-off
Date, an Opinion of Counsel, dated as of a date during such 90-day period,
stating that, in the opinion of such counsel, either (A) all financing
statements and continuation statements have been executed and filed that are
necessary fully to preserve and protect the interest of the Trust in the portion
of the Trust Property with respect to which the filing of financing statements
is sufficient to perfect a security interest, including the Loans, and reciting
the details of such filings or referring to prior Opinions of Counsel in which
such details are given, or (B) no such action shall be necessary to preserve and
protect such interest.
Each Opinion of Counsel referred to in clause (l) or (2) above shall specify
any action necessary (as of the date of such opinion) to be taken in the
following year to preserve and protect such interest.
SECTION 21.05. Separate Counterparts. The Agreement may be executed
---------------------
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 21.06. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS WITHOUT REFERENCE TO THE CONFLICTS OF LAW PROVISIONS THEREOF;
PROVIDED, HOWEVER, THAT THE IMMUNITIES AND STANDARD OF CARE OF THE TRUSTEE IN
- -------- -------
THE ADMINISTRATION OF ITS TRUST HEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE
JURISDICTION IN WHICH ITS PRINCIPAL PLACE OF BUSINESS IS LOCATED.
SECTION 21.07. Notices. All demands, notices and communications
-------
hereunder shall be in writing and personally delivered, mailed by certified
mail, return receipt requested, or telecopied, and shall be deemed to have been
duly given upon receipt, (a) in the case of the Transferor or the Servicer, c/o
Chevy Chase Bank, F.S.B., 8401 Connecticut Avenue, Chevy Chase, Maryland 20815,
Attention: Stephen R. Halpin, Jr., Executive Vice President and Chief Financial
Officer, telecopy: (301)986-7401, (c) in the case of the Trustee or Paying
Agent, at the Corporate
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<PAGE>
Trust Office; (d) in the case of the Certificate Insurer, to Capital Markets
Assurance Corporation, 885 Third Avenue, New York, New York 10022; Attention:
Managing Director-Consumer Structured Finance, telecopy (212) 891-1456 (e) in
the case of Moody's, ABS Monitoring Department, 4th Floor, 99 Church Street, New
York, New York 10007, telecopy: (212) 553-4773 and (f) in the case of Standard &
Poor's, Mortgage-Backed Securities Surveillance Department, 25 Broadway, New
York, New York 10004, telecopy: (212)412-0323, or, as to each party, at such
other address or telecopy number as shall be designated by such party in a
written notice to each other party. Any notice required or permitted to be
mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice. The Trustee has agreed herein to provide
notices to the Rating Agencies as a matter of courtesy and accommodation and
shall incur no liability to any Person for any failure to provide any such
notices.
SECTION 21.08. Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
SECTION 21.09. Assignment. Notwithstanding anything to the contrary
----------
contained herein, except as provided in Sections 17.03 and 17.06, this Agreement
may not be assigned by the Transferor or the Servicer without the prior written
consent of the Certificate Insurer. The Transferor shall not sell, transfer or
assign any of its rights hereunder except (i) to the Certificate Insurer and
(ii) to any other third party the right to receive distributions from the
Transferor Distribution Account (including but not limited to amounts to be
released from the Reserve Fund) (such transfer to any third party other than the
Certificate Insurer, a "Permitted Transfer"). In connection with any Permitted
Transfer, as a condition precedent to the effectiveness thereof, the Trustee
shall receive an Opinion of Counsel (a) that such Permitted Transfer will not
adversely affect the federal income tax characterization of the Certificates,
(b) that such Permitted Transfer will not cause the Trust to be treated as an
association (or publicly traded partnership) taxable as a corporation, (c) that
such Permitted Transfer will not cause or constitute an event in which gain or
loss would be recognized by any Certificateholder and (d) that
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<PAGE>
such Permitted Transfer will not cause adverse federal income tax consequences
to the Trust or the Certificateholders. Any purported sale, transfer, or
assignment of the Transferor's rights hereunder, including a Permitted Transfer,
in violation of the foregoing shall be void ab initio.
-- ------
Notwithstanding the preceding paragraph, the Transferor may designate
(the "Designation") a person (the "Designee") as having the right to vote to
continue the Trust following an Insolvency Event as set forth in Section
16.02(a). The Designation shall only be effective hereunder if the Designee has
delegated such right to the Certificate Insurer until such time as an Insurer
Default has occurred and in connection with any Designation, as a condition
precedent to the effectiveness thereof, the Trustee shall receive an Opinion of
Counsel (a) that such Designation will not adversely affect the federal income
tax characterization of the Certificates, (b) that such Designation will not
cause the Trust to be treated as an association (or publicly traded partnership)
taxable as a corporation, (c) that such Designation will not cause or constitute
an event in which gain or loss would be recognized by any Certificateholder and
(d) that such Designation will not cause adverse federal income tax consequences
to the Trust or the Certificateholders. Any purported Designation in violation
of the foregoing shall be void ab initio.
-- ------
SECTION 21.10. Certificates Nonassessable and Fully Paid. The parties
-----------------------------------------
agree that the Certificateholders shall not be personally liable for obligations
of the Trust, that the beneficial ownership interests represented by the
Certificates shall be nonassessable for any losses or expenses of the Trust or
for any reason whatsoever, and that Certificates upon execution, authentication
and delivery thereof by the Trustee pursuant to Section 15.02 are and shall be
deemed fully paid.
SECTION 21.11. Counterparts. This instrument may be executed in any
------------
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 21.12. Effect of Headings and Table of Contents. The Article
----------------------------------------
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
SECTION 21.13. Third Party Beneficiary. This Agreement shall inure to
-----------------------
the benefit of and be binding upon the parties hereto, and, in addition, shall
inure to the benefit of Certificateholders and, to the extent provided herein,
the Certificate Insurer and their respective successors and permitted
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<PAGE>
assigns. Except as otherwise provided in this Agreement, no other Person shall
have any right or obligation hereunder.
SECTION 21.14. Merger and Integration. Except as specifically
----------------------
stated otherwise herein, this Agreement sets forth the entire understanding of
the parties relating to the subject matter hereof, and all prior understandings,
written or oral, and all contemporaneous oral understandings, are superseded by
this Agreement. This Agreement may not be modified, amended, waived or
supplemented except as provided herein.
SECTION 21.15. Certificate Insurer as Controlling Party. Each
----------------------------------------
Certificateholder by purchase of the Certificates held by it acknowledges that
the Trustee on behalf of the Trust, as partial consideration of the issuance of
the Policy, has agreed that the Certificate Insurer shall have certain rights
hereunder for so long as no Insurer Default shall have occurred and be
continuing. So long as an Insurer Default has occurred and is continuing, any
provision giving the Certificate Insurer the right to direct, appoint or consent
to, approve of, or take any action under this Agreement shall be inoperative
during the period of such Insurer Default and such right shall instead vest in
the Trustee acting at the direction of the Holders of Certificates. The
Certificate Insurer may disclaim any of its rights and powers under this
Agreement (but not its duties and obligations under the Policy) upon delivery of
a written notice to the Trustee. The Certificate Insurer may give or withhold
any consent hereunder in its reasonable discretion.
SECTION 21.16. Representation of Certificateholders. Each
------------------------------------
Certificateholder, by virtue of its acceptance of a Certificate, is deemed to
have represented that it is not an employee benefit plan or other retirement
arrangement subject to Title I of the Employee Retirement Income Security Act of
1974, as amended, and or Section 4975 of the Internal Revenue Code of 1986, as
amended, or an entity whose underlying assets include plan assets by reason of
such plan or account investing in such an entity (including insurance company
separate or general accounts and collective investment funds).
SECTION 21.17. Grant of Security Interest. In the event that,
--------------------------
notwithstanding the intent of the Transferor, the transfer and assignment of any
Trust Property contemplated hereby is held not to be a sale, the Transferor
hereby grants a security interest to the Trustee for the benefit of the
Certificateholders and the Certificate Insurer in the property referred to in
Sections 3.01 and 3.02, and the Eligible Accounts constituting the Reserve Fund,
the Excess Funding Account and any earnings thereon, and any investments held
therein or purchased with funds deposited therein from time to time, but
specifically excluding
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<PAGE>
any rights the Transferor has hereunder to distributions or payments made from
any such Account, whether or not such payment or distribution should be deemed
as constitute "proceeds" of any such Account or of any investment held therein
or purchased with funds deposited therein.
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<PAGE>
EXHIBIT A
FORM OF CERTIFICATE
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS CERTIFICATE
WILL BE MADE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING
PRINCIPAL AMOUNT OF THIS CERTIFICATE AT ANY TIME MAY BE LESS THAN THE AMOUNT
SHOWN ON THE FACE HEREOF.
NUMBER $ CUSIP NO.
R-
CHEVY CHASE HOME LOAN TRUST 1996-1
7.15% HOME LOAN ASSET BACKED CERTIFICATE, SERIES 1996-1
evidencing a fractional undivided interest in the Trust, as defined below, the
property of which includes a pool of closed-end home equity debt consolidation
loans and certain conventional home improvement installment sales contracts and
installment loan agreements, most of which are secured primarily by second or
third deeds of trust on residential properties that are primarily one-to-four
family properties.
(This Certificate does not represent an interest in or obligation of Chevy
Chase Bank, F.S.B. or any of its affiliates).
THIS CERTIFIES THAT _________________________________________ is the
registered owner of _______________________________________ DOLLARS
nonassessable, fully-paid, fractional undivided interest in Chevy Chase Home
Loan Trust 1996-1 (the "Trust") formed pursuant to the Pooling and Servicing
Agreement (the "Agreement") dated as of May 1, 1996, between Chevy Chase Bank,
F.S.B., a federal savings bank organized under the laws of the United States, as
transferor (the "Transferor") and as servicer (in such capacity, the
"Servicer"), and Norwest Bank Minnesota, National Association, a national
A-1
<PAGE>
banking association, as Trustee, a summary of certain of the pertinent
provisions of which is set forth below. To the extent not otherwise defined
herein, the capitalized terms used herein have the meanings assigned to them in
the Agreement.
This Certificate is one of a duly authorized series of Certificates,
designated as the _____% Home Loan Asset Backed Certificates, Series 1996-1
(herein called the "Certificates"), all issued under the Agreement, to which
Agreement reference is hereby made for a statement of the respective rights and
obligations thereunder of the Transferor, the Servicer, the Trustee and Holders
of the Certificates. The Certificates are subject to all terms of the
Agreement.
The property of the Trust includes a pool of closed-end home equity
debt-consolidation loans and conventional home improvement installment sales
contracts and installment loan agreements transferred to the Trust on the date
of the issuance of the Certificates, and to be transferred to the Trust from
time to time thereafter (collectively, the "Loans"), security interests in the
improvements financed thereby, certain bank accounts and the proceeds thereof,
the rights to certain amounts on deposit, a financial guaranty insurance policy
(the "Policy") issued by Capital Markets Assurance Corporation (the "Certificate
Insurer"), certain rights against the Transferor and the Servicer in the event
of breaches of representations, warranties or covenants with respect to the
Loans, proceeds from claims on certain insurance policies and all proceeds of
the foregoing.
Under the Agreement, there will be distributed (i) on the 15th day of
each month or, if such 15th day is not a Business Day, the next Business Day
(each, a "Monthly Payment Date"), commencing on June 15, 1996 to the Person in
whose name this Certificate is registered at the close of business on the day
immediately preceding such Monthly Payment Date (the "Record Date"), such
Certificateholder's fractional undivided interest in the Interest Distributable
Amount to be distributed to Certificateholders on such Monthly Payment Date, and
(ii) on the 15th day of each November, February, May and August, or if such 15th
day is not a Business Day, the next Business Day (each, a "Distribution Date"),
commencing on November 15, 1997 (or earlier under the circumstances set forth in
the Agreement) to the Person in whose name this Certificate is registered on the
related Record Date, such Certificateholder's fractional undivided interest in
the Principal Distributable Amount to be distributed to Certificateholders on
such Distribution Date. Until such first Distribution Date, principal payments
on the Loans will be placed on deposit in an account in the name of the Trustee
or used by the Trustee to purchase additional Loans, as provided in the
Agreement. Under certain circumstances as set forth in the
A-2
<PAGE>
Agreement, the Principal Distributable Amount may be paid on each Monthly
Payment Date.
The "Interest Distributable Amount" means, with respect to each Monthly
Payment Date, the sum of (i) interest accrued during the related Interest Period
equal to one-twelfth of the product of 7.15% and the Certificate Principal
Balance immediately preceding such Monthly Payment Date, plus (ii) the
Certificateholders' Interest Carryover Shortfall (i.e. interest due but not paid
on a prior Monthly Payment Date, as further described in the Agreement),
calculated on the basis of a 360-day year comprised of twelve 30-day months.
Full and complete payment of the Interest Distributable Amount on each
Monthly Payment Date and the Collateralization Deficiency on each Distribution
Date, including the payment of the outstanding Certificate Principal Balance on
the earlier of the Dissolution Distribution Date or May 15, 2015 (the "Stated
Maturity Date") is unconditionally and irrevocably guaranteed pursuant to the
Policy.
It is the intent of the Transferor and the Certificateholders that, for
purposes of federal income, state and local income and single business tax and
any other income taxes, the Certificates will be treated as debt of the
Transferor. The Transferor, the Servicer, the Trustee Agent and the
Certificateholders, by acceptance of a Certificate, agree to treat, and to take
no action inconsistent with the treatment of, the Certificates for such tax
purposes.
Distributions on this Certificate will be made as provided in the
Agreement by the Trustee by check mailed to the Certificateholder of record in
the Certificate Register without the presentation or surrender of this
Certificate or the making of any notation hereon, except that with respect to
Certificates registered on the Record Date in the name of the nominee of the
Clearing Agency (initially, such nominee to be Cede & Co.), payments will be
made by wire transfer in immediately available funds to the account designated
by such nominee. Except as otherwise provided in the Agreement and
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 the city of Minneapolis,
Minnesota.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
A-3
<PAGE>
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Trustee, by manual signature, this
Certificate shall not entitle the Holder hereof to any benefit under the
Agreement or be valid for any purpose.
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
A-4
<PAGE>
IN WITNESS WHEREOF, the Trustee, on behalf of the Trust and not in its
individual capacity, has caused this Certificate to be duly executed.
Date: CHEVY CHASE HOME LOAN TRUST 1996-1
By: ______________________________,
not in its individual capacity
but solely as Trustee
By: ______________________________
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned Agreement.
Date: __________________________________ as Trustee
By: ______________________________ Authorized Signatory
A-5
<PAGE>
(REVERSE OF CERTIFICATE)
The Certificates do not represent an obligation of, or an interest in,
the Transferor, the Servicer, the Trustee or any affiliates of any of them, and
no recourse may be had against such parties or their assets except as expressly
set forth or contemplated herein or in the Agreement. In addition, this
Certificate is limited in right of payment to certain collections and recoveries
with respect to the Loans (and certain other amounts) and rights to certain
amounts on deposits in the Reserve Fund and claims made under the Policy, all as
more specifically set forth herein and in the Agreement. A copy of the
Agreement may be examined by any Certificateholder upon written request during
normal business hours at the principal office of the Transferor and at such
other places, if any, designated by the Transferor.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Transferor, the Servicer and the Trustee and the rights of the
Certificateholders at any time by the Transferor, the Servicer and the Trustee
with the consent of the Certificate Insurer and the Holders of Certificates
evidencing not less than a majority of the Certificate Principal Balance. Any
such consent by the Holder of this Certificate shall be conclusive and binding
on such Holder and on all future Holders of this Certificate and of any
Certificate issued upon the transfer hereof or in exchange hereof or in lieu
hereof, whether or not notation of such consent is made upon this Certificate.
The Agreement also permits the amendment thereof, in certain limited
circumstances, without the consent of the Holders of any of the Certificates.
As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registerable in the Certificate
Register upon surrender of this Certificate for registration of transfer at the
offices or agencies of the Certificate Registrar maintained by the Trustee in
the Borough of Manhattan, The City of New York, accompanied by a written
instrument of transfer in form satisfactory to the Trustee and the Certificate
Registrar duly executed by the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of authorized
denominations evidencing the same aggregate interest in the Trust will be issued
to the designated transferee. The initial Certificate Registrar appointed under
the Agreement is Norwest Bank Minnesota, National Association.
A-6
<PAGE>
Except as provided in the Agreement, the Certificates are issuable only
as registered certificates without coupons in a minimum denomination of $1,000.
As provided in the Agreement and subject to certain limitations therein set
forth, Certificates are exchangeable for new Certificates of authorized
denominations evidencing the same aggregate denomination, as requested by the
Holder surrendering the same. No service charge will be made for any such
registration of transfer or exchange, but the Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge payable in connection therewith.
The Trustee, the Certificate Registrar and any agent of the Trustee or
the Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the Trustee, the
Certificate Registrar or any such agent shall be affected by any notice to the
contrary.
The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon the payment to Certificateholders of
all amounts required to be paid to them pursuant to the Agreement and the
disposition of all property held by the Trust. The Transferor of the Loans may
at its option purchase the Trust Property at a price specified in the Agreement,
and such purchase of the Loans and other property of the Trust will effect early
retirement of the Certificates; however, such right of purchase is exercisable
only on any Distribution Date on or after the Distribution Date immediately
prior to which the Certificate Principal Balance is less than or equal to 5% of
the Initial Certificate Principal Balance.
A-7
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
_________________________________________________________________
_______________ (Please print or type name and address, including postal zip
code, of assignee)
_________________________________________________________________
_______________ the within Certificate, and all rights thereunder, hereby
irrevocably constituting and appointing ____________________________ to transfer
said Certificate on the books of the Certificate Registrar, with full power of
substitution in the premises.
Dated:
___________________________________________*/
Signature Guaranteed:
____________________________*/
_______________________
*/ NOTICE: The signature to this assignment must correspond with the name as
it appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-8
<PAGE>
EXHIBIT C-1
Form of Initial Certification of Trustee
----------------------------------------
Chevy Chase Bank, F.S.B. _____ __, 199_
8401 Connecticut Avenue
Chevy Chase, Maryland 20815
Ladies and Gentlemen:
In accordance with Section 3.03 of the Pooling and Servicing Agreement
(the "Agreement") dated as of May 1, 1996 between Chevy Chase Bank, F.S.B., as
transferor and as servicer, and Norwest Bank Minnesota, National Association, as
trustee (the "Trustee"), the undersigned hereby acknowledges that it is in
possession of ____ Boxes said to contain a Loan File (other than any Assignments
of Mortgages in connection with Secured Loans transferred on the date hereof)
with respect to each [Initial] [Subsequent] Loan identified in [the Loan
Schedule (the "Loan Schedule") to the Pooling and Servicing] [Schedule A to the
Subsequent Transfer] Agreement dated as of ________ ___, 199__ (other than any
[Initial] [Subsequent] Loan indicated on the attached Schedule).
Within 30 days of the date hereof, the Trustee will deliver to you a
Certificate acknowledging that it is in receipt of _________ files.
The Trustee makes no representation as to: (i) the validity, legality,
enforceability, recordability or genuineness of the Loan Files identified on
[the Loan Schedule] [such Schedule A] or (ii) the collectability, insurability,
effectiveness or suitability of any such Loan. The Trustee has not conducted an
independent review of the Loan Files other than as specified above.
All capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Pooling and Servicing Agreement.
Norwest Bank Minnesota,
National Association, as
Trustee
C-1-1
<PAGE>
By:___________________
Name:
Title:
C-1-2
<PAGE>
EXHIBIT C-2
Form of Certification of Trustee
--------------------------------
Chevy Chase Bank, F.S.B. _____ __, 199_
8401 Connecticut Avenue
Chevy Chase, Maryland 20815
Ladies and Gentlemen:
In accordance with Section 3.03 of the Pooling and Servicing Agreement
(the "Agreement") dated as of May 1, 1996 between Chevy Chase Bank, F.S.B., as
transferor and as servicer, and Norwest Bank Minnesota, National Association, as
trustee (the "Trustee"), the undersigned hereby certifies that as to each
[Initial][Subsequent] Loan identified in [the Loan Schedule (the "Loan
Schedule") to the Pooling and Servicing] [Schedule A to the Subsequent Transfer]
Agreement dated as of ____ __, 199_ (other than any [Initial][Subsequent] Loan
paid in full or indicated on the attached Schedule) it has received each
document specified in Sections [3.01(b) and 3.01(d)][3.02(b) and 3.02(c)] of the
Pooling and Servicing Agreement.
Based on its review and examination and only as to the foregoing
documents, such documents appear regular on their face and related to each such
Loan.
The Trustee makes no representation as to: (i) the validity, legality,
enforceability, recordability or genuineness of the documents identified above
with respect to each Loan or (ii) the collectability, insurability,
effectiveness or suitability of any such Loan. The Trustee has not conducted an
independent review of the Loan Files other than as specified above.
All capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Pooling and Servicing Agreement.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By:___________________
C-2-1
<PAGE>
Name:
Title:
C-2-2
<PAGE>
EXHIBIT E-1
FORM OF TRUSTEE' CERTIFICATE - ASSIGNMENT TO TRANSFEROR
Trustee's Certificate pursuant to Section 19.14 of the Pooling and
Servicing Agreement.
Norwest Bank Minnesota, National Association, as trustee (the
"Trustee") of Chevy Chase Home Loan Trust 1996-1, created pursuant to the
Pooling and Servicing Agreement, dated as of May 1, 1996 (including the Standard
Terms and Conditions of Agreement incorporated by reference therein, the
"Pooling and Servicing Agreement"), between Chevy Chase Bank, F.S.B. (the
"Transferor" and "Servicer"), and the Trustee, does hereby sell, transfer,
assign and otherwise convey to the Transferor, without recourse, representation
or warranty, all of the Trustee's right, title and interest in and to all of the
Loans (as defined in the Pooling and Servicing Agreement) identified in the
attached Servicer's Certificate as "Retransferred Loans," which are to be
retransferred to the Transferor or for which Eligible Substitute Loans are to be
transferred by the Transferor pursuant to Section [3.03] [12.01][20.01] of the
Pooling and Servicing Agreement, and all security and documents relating
thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this _______ day of
______________________, 199___.
_______________________________
E-1
<PAGE>
EXHIBIT E-2
FORM OF TRUSTEE' CERTIFICATE - ASSIGNMENT TO SERVICER
Trustee's Certificate pursuant to Section 19.14 of the Pooling and
Servicing Agreement.
Norwest Bank Minnesota, National Association, as trustee (the
"Trustee") of Chevy Chase Home Loan Trust 1996-1, created pursuant to the
Pooling and Servicing Agreement, dated as of May 1, 1996 (including the Standard
Terms and Conditions of Agreement incorporated by reference therein, the
"Pooling and Servicing Agreement"), between Chevy Chase Bank, F.S.B. (the
"Transferor" and "Servicer") and the Trustee does hereby sell, transfer, assign
and otherwise convey to the Servicer, without recourse, representation or
warranty, all of the Trustee's right, title and interest in and to all of the
Loans (as defined in the Pooling and Servicing Agreement) identified in the
attached Servicer's Certificate as "Transferred Loans," which are to be
transferred by the Servicer pursuant to Section 13.01 of the Pooling and
Servicing Agreement, and all security and documents relating thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this _______ day of
______________________, 199___.
____________________________
E-2
<PAGE>
EXHIBIT E-1A
FORM OF TRANSFEROR CERTIFICATE - ASSIGNMENT TO TRUSTEE
Transferor's Certificate pursuant to Section 3.03 of the
Pooling and Servicing Agreement.
Pursuant to the Pooling and Servicing Agreement, dated as of May 1, 1996
(including the Standard Terms and Conditions of Agreement incorporated by
reference therein, the "Pooling and Servicing Agreement"), between Chevy Chase
Bank, F.S.B. (the "Transferor" and "Servicer"), and Norwest Bank Minnesota,
National Association, as trustee (the "Trustee"), the Transferor does hereby
sell, transfer, assign and otherwise convey to the Trustee, without recourse,
all of the Transferor's right, title and interest in and to all of the Loans (as
defined in the Pooling and Servicing Agreement) identified in Schedule A
attached hereto as "Eligible Substitute Loans," which are to be transferred to
the Trustee and held in trust for the benefit of the Certificateholders and the
Certificate Insurer, and all security and documents relating thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this _______ day of
______________________, 199___.
CHEVY CHASE BANK, F.S.B.
By:__________________
Name:
Title:
E-3
<PAGE>
EXHIBIT F
FORM OF SERVICER'S CERTIFICATE
CHEVY CHASE HOME LOAN TRUST 1996-1 7.15% Asset Backed Certificates, Series
1996-1.
Monthly Payment Date:
Monthly Collection Period:
Under the Pooling and Servicing Agreement dated as of May 1, 1996 between
Chevy Chase Bank, F.S.B., as Transferor and Servicer and Norwest Bank Minnesota,
National Association, as Trustee, the Servicer is required to prepare certain
information each month regarding current distributions to Certificateholders and
the performance of the Trust during the previous month. The information that is
required to be prepared with respect to the Monthly Payment Date and Monthly
Collection Period listed above is set forth below. Certain of the information
is presented on the basis of an original principal amount of $1,000 per
Certificate, and certain other information is presented based upon the aggregate
amounts for the Trust as a whole.
A. Information Regarding the Current Monthly Distribution.
1. Certificates.
(a) The aggregate amount of the
distribution to Certificateholders.......... $________
(b) The amount of the distribution set
forth in paragraph A.1.(a) above in
respect of Interest Collections............. $________
(c) The amount of the distribution set
forth in paragraph A.1.(a) above in
respect of Certificateholders'
Interest Carryover Shortfall................ $________
(d) The amount of the distribution set
forth in paragraph A.1.(a) above in
respect of Principal Collections............ $________
(e) The amount of the reimbursement of
previous Liquidation Loss Amounts
included in A.1(d).......................... $________
(f) The amount of the aggregate
unreimbursed Liquidation Loss
F-1
<PAGE>
Amounts after giving effect to
the distribution in A.1.(a) above............ $________
(g) The amount of the distribution set
forth in paragraph A.1.(a) above
per $1,000 interest.......................... $________
(h) The amount of the distribution set
forth in paragraph A.1.(b) above
per $1,000 interest.......................... $________
(i) The amount of the distribution set
forth in paragraph A.1.(c) above
per $1,000 interest.......................... $________
(j) The amount of the distribution set
forth in paragraph A.1.(d) above
per $1,000 interest.......................... $________
B. Information Regarding the Performance of the Trust.
1. Pool Balance and Certificate Principal Balance.
(a) The Pool Balance at the close of business on
the last day of the Monthly
Collection Period............................ $_____
(b) The Certificate Principal Balance after
giving effect to payments allocated to
principal as set forth in Paragraph A.1(d)
above........................................ $_____
(c) The Invested Amount after giving affect to
the payments set forth in paragraph A.1(a)... $_____
(d) The Required Overcollateralization Amount
after giving effect to the payment set
forth in paragraph A.1(a).................... $_____
(e) The Overcollateralization Amount after
giving effect to the payment set forth in
paragraph A.1(a)............................. $_____
(f) The Overcollateralization Deposit/
Distribution Amount for such Monthly
Payment Date (included in A.1(d) during
the Amortization Period, an Early Amor-
tization Period and a Rapid Amortization
Period)...................................... $_____
F-2
<PAGE>
(g) The number and aggregated principal
balance of Loans which are delinquent
by 30-59 days, 60-89 days and 90 or
more days or at the end of the close
of business on the last day of the
preceding Monthly Collection Period:
Days Delinquent Number Amount
--------------- ------ ------
30-59
60-89
90 or more
(h) The aggregate Liquidation Loss Amount
for all Loans that became Liquidated
Loans in the Monthly Collection Period....... $_____
2. Servicing Fee.
The aggregate amount of the Servicing
Fee paid to the Servicer with respect
to the preceding Monthly Collection Period... $_____
3. Payment Shortfalls.
(a) The amount of the Certificateholders'
Interest Carryover Shortfall after
giving effect to the payments set forth
in paragraph A.1(b) above.................... $______
(b) The amount of the Certificateholders
Interest Carryover Shortfalls set
forth in paragraph B.3.(a) above per
$1,000 interest.............................. $______
4. Transfer of Subsequent Loans
(a) Aggregate Principal Amount of Subsequent
Loans to be acquired by the Trust on such
Monthly Payment Date......................... $_____
(b) Aggregate amount on deposit in the Excess
Funding Account on such Monthly Payment
Date after giving effect to all deposits
and withdrawals therefrom on such Monthly
Payment Date................................. $_____
(c) Aggregate amount on deposit in the Excess
Funding Interest Subaccount on such Monthly
Payment Date after giving effect to all
F-3
<PAGE>
deposits and withdrawals therefrom on such
Monthly Payment Date......................... $_____
(d) Aggregate amount on deposit in the Excess
Funding Principal Subaccount on such Monthly
Payment Date after giving effect to all
5. Draws on Policy
(a) Amount of the distribution set forth
in paragraph A.1(a) in respect of a
draw on the Policy........................... $_____
(b) Amount of the distribution set forth
in paragraph A.1(b) in respect of a
draw on the Policy........................... $_____
(c) Amount of the distribution set forth
in paragraph A.1(d) in respect of a
draw on the Policy........................... $_____
[6. Draws on Reserve Fund and Excess Funding Account
(a) Amount of the distribution set forth in
paragraph A.1(a) in respect of Reserve Fund
interest Transfer Amount..................... $_____
(b) Amount of the distribution set forth in
paragraph A.1(a) in respect of Reserve Fund
Principal Transfer Amount.................... $_____
(c) Amount of the distribution set forth in
paragraph A.1(a) in respect of Excess Funding
Interest Transfer Amount..................... $_____]
F-4
<PAGE>
EXHIBIT H
FORM OF
SUBSEQUENT TRANSFER AGREEMENT
Transfer No. OF SUBSEQUENT LOANS dated as
of , 199__,
between CHEVY CHASE BANK, F.S.B., as transferor (the "Transferor")
and as servicer (the "Servicer"), and Norwest Bank Minnesota,
National Association, as trustee (the "Trustee") pursuant to the
Pooling and Servicing Agreement referred to below.
W I T N E S S E T H:
WHEREAS the Transferor, the Servicer and the Trustee are parties to a
Pooling and Servicing Agreement, dated as of May 1, 1996 (as amended or
supplemented, the "Pooling and Servicing Agreement");
WHEREAS pursuant to the Pooling and Servicing Agreement, the
Transferor wishes to transfer the Subsequent Loans to the Trustee on behalf of
the Certificateholders; and
WHEREAS, the Trustee is willing to accept such transfer subject to
the terms and conditions hereof.
NOW, THEREFORE, the Transferor, the Trustee and the Servicer hereby
agree as follows:
1. Defined Terms. Capitalized terms used herein shall have the
-------------
meanings ascribed to them in the Pooling and Servicing Agreement unless
otherwise defined herein.
"Subsequent Cut-off Date" shall mean, with respect to the Subsequent
-----------------------
Loans conveyed hereby, , 199_.
"Subsequent Transfer Date" shall mean, with respect to the Subsequent
------------------------
Loans conveyed hereby, , 199_.
2. Schedule of Loans. Annexed hereto as Schedule A are supplements
-----------------
to the Loan Schedule to the Pooling and Servicing Agreement listing the Home
Loans that constitute the Subsequent Loans to be conveyed pursuant to this
Agreement on the Subsequent Transfer Date.
H-1
<PAGE>
3. Transfer of Subsequent Loans. In consideration of the Trustee's
----------------------------
delivery to or upon the order of the Transferor of $ the
Transferor does hereby assign, set over and otherwise transfer to the Trustee in
trust for the benefit of the Certificateholders and the Certificate Insurer,
without recourse (except as provided in the Pooling and Servicing Agreement),
all right title and interest of the Transferor in and to:
(i) the Subsequent Loans listed on Schedule A hereto, and all monies
received thereon (including any interest and any payments in respect of
delinquent or defaulted obligations thereunder) on and after the relevant
Subsequent Cut-off Date;
(ii) the Mortgages and the security interests in the Mortgaged
Properties and any other properties or interests in properties granted by
Obligors pursuant to such Subsequent Loans and/or Subsequent Mortgages and any
other interest of the Transferor in such Mortgaged Properties or such other
properties or interests in properties granted by any of the Obligors thereof;
(iii) any proceeds with respect to such Subsequent Loans from claims
on any insurance policies covering the Mortgaged Properties, and other
properties or interests in properties granted by the Obligors thereof pursuant
to such Subsequent Loans and Subsequent Mortgages;
(iv) any proceeds from any liquidation of the Subsequent Loans or any
of the related Mortgaged Properties or other properties or interests in
properties granted by the Obligors thereof pursuant to such Subsequent Loans and
Subsequent Mortgages;
(v) the related Loan Files;
(vi) the proceeds of any and all of the foregoing.
4. Representations and Warranties of the Transferor. The Transferor
------------------------------------------------
hereby represents and warrants to the Trustee for the benefit of the
Certificateholders as of the date of this Agreement and as of the Subsequent
Transfer Date that:
(i) Organization and Good Standing. The Transferor is validly
------------------------------
existing as a federally chartered savings bank in good standing under the laws
of the United States and has the corporate power and authority to own its assets
and to transact the business in which it is currently engaged.
H-2
<PAGE>
(ii) Legal, Valid & Binding Obligation. The Transferor has the
---------------------------------
corporate 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 Chevy Chase enforceable in
accordance with its terms, except as enforcement of such terms may be limited by
applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium or other similar laws now or hereafter in effect
affecting the enforcement of creditors' or obligees' rights generally or the
rights of creditors or obligees of federally chartered savings banks, the
deposits of which are insured by the SAIF, and except as such enforceability may
be limited by general principles of equity (whether considered in a proceeding
at law or in equity).
(iii) No Consent. The Transferor is not 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 in connection with the execution, delivery, performance, validity or
enforceability of this Agreement, except for any such consent, license, approval
or authorization, or registration or declaration, as shall have been obtained or
filed, as the case may be, prior to the Subsequent Transfer Date.
(iv) No Violation. The execution, delivery and performance of this
------------
Agreement by the Transferor will not violate any provision of any existing law
or regulation or any order or decree of any court applicable to the Transferor
or any provision of the charter or bylaws of the Transferor, or constitute a
material breach of any mortgage, indenture, contract or other agreement to which
the Transferor is a party or by which the Transferor may be bound.
(v) No Proceeding. No litigation or administrative proceeding of or
-------------
before any court, tribunal or governmental body is currently pending, or to the
knowledge of the Transferor threatened, against the Transferor or any of its
properties or with respect to this Agreement or the Certificates which could
have a material adverse effect on the transactions contemplated by this
Agreement.
(vi) Compliance with FDIA. The Transferor has fully complied, and
--------------------
will continue to maintain full compliance, with the provisions of Section 13(e)
of the Federal Deposit Insurance Act, as amended (12 U.S.C. (S) 1823(e)).
H-3
<PAGE>
(vii) Principal Balance. The aggregate principal balance of the
-----------------
Subsequent Loans listed on Schedule A annexed hereto and conveyed to the Trustee
pursuant this Agreement as of the Subsequent Cut-off Date is $_______.
5. Conditions Precedent. The obligation of the Trustee to acquire
--------------------
the Subsequent Loans hereunder is subject to the satisfaction, on or prior to
the Subsequent Transfer Date, of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by the Transferor in Section 4 of this Agreement and, with
respect to the Subsequent Loans, in Section 12.01 of the Pooling and Servicing
Agreement shall be true and correct as of the date of this Agreement and as of
the Subsequent Transfer Date, and such representations and warranties shall
survive the delivery of the Subsequent Loans.
(b) Purchase Agreement Conditions. Each of the conditions set forth
-----------------------------
in Sections 3.02(b) of the Pooling and Servicing Agreement applicable to the
transfer of Subsequent Loans shall have been satisfied.
(c) Collections. The Transferor shall have delivered to the Trustee
-----------
for deposit to the Collection Account all collections in respect of Subsequent
Loans required to be deposited by the Transferor to the Collection Account
pursuant to Section 3.02(b) of the Pooling and Servicing Agreement.
(d) Additional Information. The Transferor shall have delivered to
----------------------
the Trustee such information as was reasonably requested by the Trustee to
satisfy itself as to (i) the accuracy of the representations and warranties set
forth in Section 4 of this Agreement and Section 12.01 of the Pooling and
Servicing Agreement and (ii) the satisfaction of the conditions set forth in
this Section 5.
6. Ratification of Agreement. As supplemented by this Agreement, the
-------------------------
Pooling and Servicing Agreement is in all respects ratified and confirmed and
the Pooling and Servicing Agreement as so supplemented by this Agreement shall
be read, taken and construed as one and the same instrument.
7. Counterparts. This Agreement may be executed in two or more
------------
counterparts (and by different parties in separate counterparts), each of which
shall be an original but all of which together shall constitute one and the same
instrument.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
-------------
WITH THE LAWS OF THE STATE OF NEW YORK, AND THE
H-4
<PAGE>
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS WITHOUT REFERENCE TO THE CONFLICTS OF LAW PROVISIONS
THEREOF; PROVIDED, HOWEVER, THAT THE IMMUNITIES AND STANDARD OF CARE OF THE
-------- -------
TRUSTEE IN THE ADMINISTRATION OF ITS TRUST HEREUNDER SHALL BE GOVERNED BY THE
LAWS OF THE JURISDICTION IN WHICH ITS PRINCIPAL PLACE OF BUSINESS IS LOCATED.
H-5
<PAGE>
IN WITNESS WHEREOF, the Transferor, the Servicer and the Trustee have
caused this Agreement to be duly executed and delivered by their respective duly
authorized officers as of the day and the year first above written.
CHEVY CHASE BANK, F.S.B.
as Transferor and Servicer,
By: _____________________
Name:
Title:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as
Trustee,
By: ________________________
Name:
Title:
H-6
<PAGE>
Exhibit 99.1
CAPITAL MARKETS ASSURANCE CORPORATION
FINANCIAL GUARANTY INSURANCE POLICY
June 4, 1996
Policy No. SB9672
RE: CHEVY CHASE HOME LOAN TRUST 1996-1 (the "Trust");
- -- -----
7.15% Home Loan Asset-Backed Certificates, Series 1996-1 (the
"Certificates")
-------------
Insured Obligation:
- ------------------
Obligation of the Trust to pay, on or prior to the Policy Termination
Date, up to $153,521,000 in aggregate principal amount of the
Certificates, plus accrued and unpaid interest on the Certificates
Beneficiary:
- -----------
Norwest Bank Minnesota, National Association, as trustee of the
Trust, and its permitted successors and assigns under the Pooling and
Servicing Agreement (the "Trustee")
-------
For consideration received, CAPITAL MARKETS ASSURANCE CORPORATION
("CapMAC"), hereby unconditionally and irrevocably guarantees to the
------
Beneficiary, payment of the Insured Obligation, subject to the terms of this
financial guaranty insurance policy (the "Policy"). CapMAC agrees to pay to the
------
Beneficiary, in respect of each Monthly Payment Date on or prior to the Policy
Termination Date, an amount (the "Payment Amount") equal to the sum of (a) the
--------------
Interest Deficiency Draw Amount relating to such Monthly Payment Date, if any,
and (b) the Principal Deficiency Draw Amount, if any, relating to such Monthly
Payment Date; provided, however, that in no event shall the aggregate amount of
-------- -------
payments made hereunder in respect of principal on the Certificates exceed
$153,521,000 (the "Insured Principal Amount").
------------------------
Notwithstanding anything herein to the contrary, in no event shall CapMAC be
obligated to make any payments in respect of principal on the Certificates
pursuant to any Notice for Payment presented hereunder in an amount in excess of
the lesser of (i) the Insured Principal Amount minus the sum of all amounts
-----
theretofore paid in respect of principal on the Certificates pursuant to all
Notices for Payment hereunder (the "Net Insured Principal Amount") and (ii) the
----------------------------
Principal Deficiency Draw Amount
-1-
<PAGE>
calculated hereunder in respect of the Monthly Payment Date to which the Notice
for Payment relates.
Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to them in the Pooling and Servicing Agreement, dated as
of May 1, 1996, by and between Chevy Chase Bank, F.S.B., as transferor (in such
capacity, the "Transferor") and as servicer (in such capacity, the "Servicer")
---------- --------
and the Trustee (as the same may be amended, restated, supplemented or otherwise
modified from time to time thereafter, the "Pooling and Servicing Agreement").
-------------------------------
"Insolvency Proceeding" means the commencement, after the date hereof, of
---------------------
any bankruptcy, insolvency, readjustment of debt, reorganization, marshalling of
assets and liabilities or similar proceedings by or against any Person, or the
commencement, after the date hereof, of any proceedings by or against any Person
for the winding up or liquidation of its affairs, or the consent after the date
hereof to the appointment of a trustee conservator, receiver or liquidator in
any bankruptcy, insolvency, readjustment of debt, reorganization, marshalling of
assets and liabilities or similar proceedings of or relating to any person.
"Interest Deficiency Draw Amount" means, for any Monthly Payment Date, the
-------------------------------
amount, if any, by which the Interest Distributable Amount with respect to such
Monthly Payment Date exceeds all amounts on deposit in the Collection Account,
the Excess Funding Account and the Reserve Fund which the Trustee is required to
transfer, allocate or deposit to the Interest Distribution Account on the
related Deposit Date pursuant to Section 14.05(c) of the Pooling and Servicing
Agreement.
"Principal Deficiency Draw Amount" means, for any Monthly Payment Date,
--------------------------------
(i) if such Monthly Payment Date relates to the Revolving Period, an
Early Amortization Period or a Rapid Amortization Period (other than any
such Monthly Payment Date corresponding to either of the dates described in
clause (iii) below), the amount, if any, by which the Stated Certificate
Principal Balance with respect to such Monthly Payment Date (calculated
after giving effect to the allocation and deposit of the Reserve Fund
Principal Transfer Amount, which the Trustee is required to transfer from
the Reserve Fund on or prior to the related Deposit Date pursuant to Section
14.05(c) of the Pooling and Servicing Agreement) exceeds the Invested Amount
with respect to such Monthly Payment Date; or
-2-
<PAGE>
(ii) if such Monthly Payment Date relates to the Amortization Period
(other than any such Monthly Payment Date corresponding to either of the
dates described in clause (iii) below), (A) for each Monthly Payment Date
corresponding to a Distribution Date, the amount calculated for such Monthly
Payment Date in accordance with the provisions of clause (i) above, and (B)
for each other Monthly Payment Date, zero; or
(iii) if such Monthly Payment Date is the Dissolution Distribution
Date or the Stated Maturity Date (whichever first occurs), the amount, if
any, by which the outstanding Certificate Principal Balance in effect as of
the Deposit Date relating to such Monthly Payment Date exceeds the aggregate
amount of all funds which the Trustee is required to transfer from the
Collection Account, the Excess Funding Account and the Reserve Fund, on such
related Deposit Date, to the Principal Distribution Account pursuant to the
terms of the Pooling and Servicing Agreement.
CapMAC will pay or cause to be paid to the Beneficiary, irrevocably and
unconditionally and without the prior assertion of any defenses to payment,
including fraud in inducement or fact, the amount demanded in a Notice for
Payment (as defined below), not to exceed the Payment Amount for the Monthly
Payment Date relating to such Notice for Payment, in immediately available funds
on the later of (a) 11:00 a.m. New York City time on the Business Day
immediately preceding such Monthly Payment Date and, (b) 11:00 a.m. New York
City time on the second Business Day next succeeding presentation to CapMAC (as
hereinafter provided) of a notice for payment in the form of Exhibit A hereto
("Notice for Payment"), appropriately completed and executed by the Beneficiary.
- --------------------
A Notice for Payment under this Policy must be received by CapMAC by 2:00
p.m. New York City time on any Business Day by (a) delivery of the original
Notice for Payment to CapMAC at its address set forth below, or (b) facsimile
transmission of the original Notice for Payment to CapMAC at its facsimile
number set forth below. If presentation is made by facsimile transmission, the
Beneficiary shall (i) simultaneously confirm transmission by telephone to CapMAC
at its telephone number set forth below, and (ii) as soon as reasonably
practicable, deliver the original Notice for Payment to CapMAC at its address
set forth below. Any Notice for Payment received by CapMAC after 2:00 p.m. New
York City time, on a Business Day, or on any day that is not a Business Day,
will be deemed to be received by CapMAC at 9:00 a.m., New York City time, on the
next succeeding Business Day.
-3-
<PAGE>
Subject to the foregoing, if the payment of any Payment Amount pursuant
hereto is voided (a "Preference Event") under any applicable bankruptcy,
----------------
insolvency, receivership or similar law in an Insolvency Proceeding, and, as a
result of such a Preference Event, the Beneficiary is required to return such
voided payment, or any portion of such voided payment, in its possession made in
respect of the Certificates (an "Avoided Payment"), CapMAC will pay on the
---------------
guarantee described in the first paragraph hereof, an amount equal to such
Avoided Payment, irrevocably, absolutely and unconditionally and without the
assertion of any defenses to payments, including fraud in inducement or fact or
any other circumstances that would have the effect of discharging a surety in
law or in equity, upon receipt by CapMAC from the Beneficiary of (x) a certified
copy of a final order of a court exercising jurisdiction in such Insolvency
Proceeding to the effect that the Beneficiary is required to return any such
payment or portion thereof prior to the Termination Date (as defined below) of
this Policy because such payment was voided under applicable law, with respect
to which order the appeal period has expired without an appeal having been filed
(the "Final Order"), (y) an assignment, in form reasonably satisfactory to
-----------
CapMAC, irrevocably assigning to CapMAC all rights and claims of such
Beneficiary relating to or arising under such Avoided Payment and (z) a Notice
for Payment in the form of Exhibit A hereto appropriately completed and executed
---------
by the Beneficiary. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Final
Order and not to the Beneficiary directly unless the Trustee has previously paid
such amounts pursuant to a court order or otherwise.
Notwithstanding anything in the foregoing paragraph to the contrary, in no
event shall CapMAC be obligated to make any payment in respect of any Avoided
Payment, which payment represents a payment of the principal amount of the
Certificates, prior to the time CapMAC would have been required to make a
payment in respect of such principal pursuant to the first paragraph of this
Policy.
CapMAC shall make payments due in respect of Avoided Payments prior to 1:00
p.m. New York City time on the second Business Day following CapMAC's receipt of
the documents required under clauses (x) through (z) of the second preceding
paragraph. Any such documents received by CapMAC after 2:00 p.m. New York City
time on any Business Day or on any day that is not a Business Day shall be
deemed to have been received by CapMAC at 9:00 a.m., New York City time, on the
next succeeding Business Day. All payments made by CapMAC hereunder in respect
of Avoided Payments will be made with CapMAC's own funds.
-4-
<PAGE>
CapMAC hereby waives and agrees not to assert any and all rights to require
the Beneficiary to make demand on or to proceed against any person, party or
security prior to demanding payment under this Policy.
No defenses, set-offs and counterclaims of any kind available to CapMAC so
as to deny payment of any amount due in respect of this Policy will be valid and
CapMAC hereby waives and agrees not to assert any and all such defenses, set-
offs and counterclaims, including, without limitation, any such rights acquired
by subrogation, assignment or otherwise.
Any rights of subrogation acquired by CapMAC as a result of any payment made
under this Policy shall, in all respects, be subordinate and junior in right of
payment to the prior indefeasible payment in full of all amounts due the
Beneficiary on account of payments due under the Certificates.
This Policy is neither transferable nor assignable, except in whole, but not
in part, to a successor Trustee duly appointed and qualified under the Pooling
and Servicing Agreement. Such transfer and assignment shall be effective upon
receipt by CapMAC of a copy of the instrument effecting such transfer and
assignment signed by the transferor and by the transferee, and a certificate,
properly completed and signed by the transferor and the transferee, in the form
of Exhibit C hereto (which shall be conclusive evidence of such transfer and
---------
assignment), and, in such case, the transferee instead of the transferor shall,
without the necessity of further action, be entitled to all the benefits of and
rights under this Policy in the transferor's place; provided that, in such case,
--------
the Notice for Payment presented hereunder shall be a certificate of the
transferee and shall be signed by a Person who states therein that he or she is
a duly authorized officer of the transferee.
All notices, presentations, transmissions, deliveries and communications
made by the Beneficiary to CapMAC with respect to this Policy shall specifically
refer to the number of this Policy and shall be made to CapMAC at:
Capital Markets Assurance Corporation
885 Third Avenue, 14th Floor
New York, N.Y. 10022
Attention: Senior Vice President,
Consumer Structured Finance
Telephone: (212) 891-4272
Facsimile: (212) 891-1456
-5-
<PAGE>
or such other address, officer, telephone number or facsimile number as CapMAC
may designate to the Beneficiary in writing from time to time. Each such
notice, presentation, delivery and communication shall be effective only upon
actual receipt by CapMAC.
The obligations of CapMAC under this Policy are irrevocable, primary,
absolute and unconditional (except as expressly provided herein) and neither the
failure of the Beneficiary, the Transferor or Servicer or any other person to
perform any covenant or obligation in favor of CapMAC (or otherwise), nor the
failure or omission to make a demand permitted hereunder, nor the commencement
of any bankruptcy, debtor or other insolvency proceeding by or against the
Beneficiary or the Transferor or Servicer or any other person shall in any way
affect or limit CapMAC's obligations under this Policy. If an action or
proceeding to enforce this Policy is brought, the Beneficiary shall be entitled
to recover from CapMAC costs and expenses reasonably incurred, including without
limitation reasonable fees and expenses of counsel.
There shall be no acceleration of any payment due under this Policy unless
such acceleration is at the sole option of CapMAC.
This Policy and the obligations of CapMAC hereunder shall terminate upon the
date (the "Policy Termination Date") which is the earliest to occur of: (i) the
-----------------------
Distribution Date occurring in May, 2015, (ii) the date on which the Net Insured
Principal Amount is reduced to zero, (iii) the receipt by CapMAC of written
notice, together with the original of this Policy, from the Beneficiary
substantially in the form of Exhibit B hereto, stating that the Trust has been
---------
terminated in accordance with the terms of the Pooling and Servicing Agreement,
signed by the Beneficiary, (iv) the Monthly Payment Date upon which the final
distribution on the Certificates is made and all amounts owed under the
Certificates have been paid in full, and (v) the receipt by CapMAC, on any
Business Day following a downgrade of its claims paying ability rating by any
Rating Agency, of written notice from the Servicer terminating this Surety Bond;
provided, however, that no termination under this clause (v) shall be effective
- -------- -------
unless and until (1) all amounts owed to CapMAC under the Insurance Agreement on
the date such written notice is received by CapMAC are paid in full and in cash,
and (2) the original of this Policy is received by CapMAC.
This original of this Policy shall be returned to CapMAC upon the expiration
of its term.
-6-
<PAGE>
THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE FUND SPECIFIED
IN ARTICLE SEVENTY-SIX OF THE NEW YORK STATE INSURANCE LAW.
This Policy sets forth in full the undertakings of CapMAC, and shall not be
modified, altered or affected by any other agreement or instrument, including
any modification or amendment to any other agreement or instrument, or by the
merger, consolidation or dissolution of the Trust or any other Person and may
not be canceled or revoked prior to the time it is terminated in accordance with
the express terms hereof.
THIS POLICY SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, CapMAC has caused this Policy to be executed on the date
first written above.
CAPITAL MARKETS ASSURANCE CORPORATION
By______________________________________
Name:
Title:
-7-
<PAGE>
EXHIBIT A TO POLICY NO. SB9672
Capital Markets Assurance Corporation
885 Third Avenue
New York, New York 10022
Attention: Managing Director,
Consumer Structured Finance
NOTICE FOR PAYMENT
UNDER POLICY NO. SB9672
The undersigned individual, a duly authorized officer of Norwest Bank
Minnesota, National Association, as Trustee (the "Beneficiary"), hereby
-----------
certifies to Capital Markets Assurance Corporation ("CapMAC"), with reference to
------
the Policy No. SB9672 dated June 4, 1996 (the "Policy"), as follows:
------
1. The Beneficiary is the Trustee under the Pooling and Servicing
Agreement, dated as of May 1, 1996, by and among Chevy Chase Bank, F.S.B., as
Transferor, Chevy Chase Bank, F.S.B., as Servicer and the Beneficiary, as
Trustee (the "Pooling and Servicing Agreement").
-------------------------------
2. This notice relates to the [insert date], a Monthly Payment Date [and
Distribution Date].
3. The Beneficiary demands payment of $__________, which is the Payment
Amount, as calculated pursuant to the Policy. The Payment Amount consists of:
(check as appropriate)
the Interest Deficiency Draw Amount
___ in the amount of $__________;
the Principal Deficiency Draw Amount
___ in the amount of $__________;
[For a Notice for Payment in respect of an Avoided Payment use the following
paragraphs 4 and 5.]
4. The Trustee hereby represents and warrants, based upon information
available to it, that (i) the amount entitled to be drawn under the Policy on
the date hereof in respect of an Avoided Payment is [$ ] (the
"Avoided Payment Amount"), and (ii) the documents required by the Policy to be
- -----------------------
delivered in connection with such Avoided Payment and Avoided Payment Amount
have previously been presented to CapMAC or are attached hereto.
5. The amount demanded is to be paid in immediately available funds by
wire transfer to [ ].
<PAGE>
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to them in the Pooling and Servicing Agreement and the Policy,
as the case may be.
IN WITNESS WHEREOF, this notice has been executed this ______ day of
_____________________, ______.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee
By:_____________________________
Name:
Title:
-2-
<PAGE>
EXHIBIT B TO POLICY NO. SB9672
Capital Markets Assurance Corporation
885 Third Avenue
New York, New York 10022
Attention: Managing Director,
Consumer Structured Finance
Ladies and Gentlemen:
Reference is made to that certain Policy No. SB9672 dated June 4, 1996 which
has been issued by Capital Markets Assurance Corporation in favor of Norwest
Bank Minnesota, National Association, as Trustee.
The undersigned hereby certifies and confirms that the Trust has terminated
in accordance with the terms of the Pooling and Servicing Agreement.
The original of the Policy is enclosed herewith and marked "CANCELLED".
[Name of Trustee or
Transferee]
By:_____________________________
Name:
Title:
<PAGE>
EXHIBIT C TO POLICY NO. SB9672
Capital Markets Assurance Corporation
885 Third Avenue, 14th Floor
New York, New York 10022
Attention: Managing Director,
Consumer Structured Finance
Ladies and Gentlemen:
Reference is made to that certain Policy No. SB9672 dated June 4, 1996
(the "Policy") which was originally issued by Capital Markets Assurance
------
Corporation in favor of Norwest Bank Minnesota, National Association, as
Trustee.
The undersigned [Name of Transferor] has transferred and assigned (and
hereby confirms to you said transfer and assignment) all of its rights in and
under said Policy to [Name of Transferee] and confirms that [Name of Transferor]
no longer has any rights under or interest in said Policy.
Transferor and Transferee have indicated on the face of said Policy
that it has been transferred and assigned to Transferee.
Transferee hereby certifies that it is a duly authorized transferee
under the terms of said Policy and the related Pooling and Servicing Agreement
and is accordingly entitled, upon presentation of the document(s) called for
therein, to receive payment thereunder.
______________________________
[Name of Transferor]
By:__________________________
[Name and Title of
Authorized Officer of
Transferor]
_____________________________
[Name of Transferee]
By:__________________________
[Name and Title of
Authorized Officer of
Transferee]
