<PAGE> 1
As filed with the Securities and Exchange Commission on February 5, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-3
Registration Statement
Under the
Securities Act of 1933
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<TABLE>
<S> <C>
AAMES CAPITAL CORPORATION AAMES CAPITAL ACCEPTANCE CORP.
(Exact Name of Registrant as Specified in Its Charter) (Exact Name of Registrant as Specified in Its Charter)
CALIFORNIA 95-444916 DELAWARE APPLIED FOR
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(State of Incorporation) (I.R.S. Employer Identification No.) (State of Incorporation) (I.R.S. Employer Identification No.)
3731 WILSHIRE BLVD. 3731 WILSHIRE BLVD.
LOS ANGELES, CALIFORNIA 90010 LOS ANGELES, CALIFORNIA 90010
213/351-6100 213/351-6100
(Address, Including Zip Code, and Telephone Number, Including (Address, Including Zip Code, and Telephone Number, Including
Area Code, Area Code,
of Registrant's Principal Executive Offices) of Registrant's Principal Executive Offices)
BARBARA POLSKY, ESQ. BARBARA POLSKY, ESQ.
AAMES CAPITAL CORPORATION AAMES CAPITAL ACCEPTANCE CORP.
3731 WILSHIRE BLVD. 3731 WILSHIRE BLVD.
LOS ANGELES, CALIFORNIA 90010 LOS ANGELES, CALIFORNIA 90010
213/351-6100 213/351-6100
(Name, Address, Including Zip Code, and Telephone Number, (Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service) Including Area Code, of Agent for Service)
</TABLE>
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COPIES TO:
JAMES A. BLALOCK III, ESQ.
ANDREWS & KURTH L.L.P.
1701 PENNSYLVANIA AVE., N.W. -- SUITE 200
WASHINGTON, DC 20006
202/662-2700
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
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If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]________________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. [ ]_______________________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Amount to be Proposed Maximum Proposed Maximum Amount of
Registered(1) Offering Price Per Aggregate Offering Registration Fee(3)
Title of Securities to be Registered Unit(2) Price(2)
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<S> <C> <C> <C> <C>
Asset-Backed Certificates and Bonds $2,800,000,000 100% $2,800,000,000 $730,712.12
(Each Issuable in Series)
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</TABLE>
(1) Includes $388,650,000 principal amount of Aames Capital Corporation's
Mortgage Pass-Through Certificates previously registered under its
Registration Statement on Form S-3 (Registration No. 333-10185) that
remain unsold as of the date hereof. As permitted by Rule 429 under
the Securities Act of 1933, as amended, the Prospectus filed as part of
this Registration Statement on Form S-3 will be used in connection with
the offering of such previously registered and unsold securities and
the securities covered hereby.
(2) Estimated solely for purposes of calculating the registration fee.
(3) The registration fee specified in the table has been computed on the
basis of the $2,411,350,000 principal amount of securities covered
hereby, prior to including the previously registered and unsold
securities referred to in footnote (1).
------------------------------
The Registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrants shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE> 2
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION , DATED FEBRUARY 5, 1997
PROSPECTUS
DATED _________ __, 1997
AAMES CAPITAL CORPORATION
AAMES CAPITAL ACCEPTANCE CORP.
(INCLUDING CERTAIN LIMITED PURPOSE ENTITIES, ALL OF THE BENEFICIAL OWNERSHIP
INTEREST IN WHICH IS OWNED BY AAMES CAPITAL ACCEPTANCE CORP.)
$2,800,000,000
ASSET-BACKED CERTIFICATES AND BONDS
(EACH ISSUABLE IN SERIES)
This Prospectus relates to Asset-Backed Certificates (the
"Certificates") and Asset-Backed Bonds (the "Bonds" and, together with the
Certificates, the "Securities"), each issuable in series (each, a "Series"),
that may be sold from time to time by Aames Capital Corporation ("ACC") or
Aames Capital Acceptance Corp. ("ACAC") (either such entity, the "Transferor"
and, together, the "Transferors") on terms determined at the time of sale and
described in the related Prospectus Supplement. As specified in the related
Prospectus Supplement, the Securities of each Series will be either
Certificates that will evidence a beneficial undivided interest in assets
deposited in a trust fund (each, a "Trust") by a Transferor pursuant to a
Pooling and Servicing Agreement (each, a "Pooling and Servicing Agreement") to
be entered into among the related Transferor, ACC, as servicer (the
"Servicer"), and the trustee specified in the related Prospectus Supplement
(the "Trustee"), or Bonds that will be secured by a trust estate (each, a
"Trust Estate") comprised of assets pledged to the related Trustee by either
ACAC or a separate entity formed by ACAC solely for the purpose of issuing the
Bonds of the related Series (either such entity, as applicable, the "Bond
Issuer") pursuant to an Indenture (each, an "Indenture") to be entered into at
the date the related Series of Bonds is issued.
(continued on next page)
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PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING HEREIN UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 16 BEFORE PURCHASING ANY SECURITIES.
------------------------------
BONDS OF A SERIES WILL CONSTITUTE NON-RECOURSE OBLIGATIONS OF THE RELATED BOND
ISSUER. CERTIFICATES OF A SERIES WILL EVIDENCE INTERESTS ONLY IN THE RELATED
TRUST. EXCEPT AS OTHERWISE SET FORTH HEREIN AND IN THE RELATED PROSPECTUS
SUPPLEMENT, THE SECURITIES WILL NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF THE SERVICER, ANY ORIGINATOR, THE TRUSTEE OR ANY
OF THEIR RESPECTIVE AFFILIATES. NEITHER THE SECURITIES NOR
THE UNDERLYING MORTGAGE LOANS WILL BE GUARANTEED OR
INSURED BY ANY GOVERNMENTAL AGENCY OR ANY OTHER
PERSON OR ENTITY, EXCEPT AS SET FORTH IN THE
RELATED PROSPECTUS SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED
PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES OF ANY
SERIES UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
<PAGE> 3
(continued from previous page)
The primary assets of each Trust or Trust Estate, as applicable, will
consist of one or more pools (each, a "Mortgage Pool") of mortgage loans
(collectively, the "Mortgage Loans") secured by first or junior liens on one-
to four-family residential properties. The Mortgage Loans will be acquired by
the related Transferor, either directly or indirectly, from one or more
affiliated or unaffiliated entities (the "Originators"). A Trust or Trust
Estate, as applicable, may include, in addition to the Mortgage Loans, (i) if
specified in the related Prospectus Supplement, funds on deposit in one or more
prefunding accounts and/or capitalized interest accounts and (ii) financial
guaranty insurance policies, cash accounts, letters of credit, limited guaranty
insurance policies, third party guarantees or other forms of credit
enhancement, to the extent described in the related Prospectus Supplement.
Amounts on deposit in a prefunding account for any Series will be applied for
the acquisition of additional Mortgage Loans during the related funding period
specified in the related Prospectus Supplement in the manner specified therein.
Each Series of Certificates will be issued in one or more classes
(each, a "Class"). Each Class of Certificates will evidence a beneficial
interest of a specified percentage (which may be 0%) or portion of future
interest payments and a specified percentage (which may be 0%) or portion of
future principal payments on the Mortgage Loans in the related Trust. A Series
of Certificates may include one or more senior Classes that receive certain
preferential treatment with respect to one or more other Classes of
Certificates of such Series. One or more Classes of Certificates of a Series
may be entitled to receive distributions of principal, interest or any
combination thereof prior to one or more other Classes of Certificates of such
Series or after the occurrence of specified events, or may be required to
absorb one or more types of losses prior to one or more other Classes of
Certificates, in each case as specified in the related Prospectus Supplement.
Each Series of Bonds will be issued in a single Class.
Distributions or payments, as applicable, to holders of Securities
("Securityholders") will be made on certain dates specified in the related
Prospectus Supplement (each, a "Distribution Date," with respect to
Certificates, or a "Payment Date," with respect to Bonds), which may occur at
monthly, quarterly, semi-annually or at such other intervals as are specified
therein.
Bonds of a Series will constitute non-recourse obligations of the
related Bond Issuer. Certificates of a Series will evidence interests only in
the related Trust. Except as otherwise set forth herein and in the related
Prospectus Supplement, the Securities will not represent an obligation of or
interest in the Servicer, any Originator or any of their respective affiliates
or any other person. Unless otherwise specified in the related Prospectus
Supplement, the obligations of a Transferor with respect to a Series of
Securities will be limited to those arising in respect of certain
representations and warranties on the Mortgage Loans. The principal
obligations of the Servicer with respect to the related Series of Securities
will be limited to obligations pursuant to certain representations and
warranties and to its contractual servicing obligations under the Pooling and
Servicing Agreement, with respect to Certificates, or a servicing agreement
(each, a "Servicing Agreement") to be entered into among ACC, as Servicer, the
related Bond Issuer and the Trustee, with respect to Bonds, including any
obligation it may have to advance delinquent payments on the Mortgage Loans in
the related Trust or Trust Estate, as applicable.
THE YIELD ON THE SECURITIES OF A GIVEN SERIES MAY BE AFFECTED BY,
AMONG OTHER THINGS, THE RATE OF PAYMENT OF PRINCIPAL (INCLUDING PREPAYMENTS) OF
THE MORTGAGE LOANS IN THE RELATED TRUST OR TRUST ESTATE, AS APPLICABLE, AND THE
TIMING OF RECEIPT OF SUCH PAYMENTS AS DESCRIBED HEREIN AND IN THE RELATED
PROSPECTUS SUPPLEMENT. A TRUST MAY BE SUBJECT TO EARLY TERMINATION UNDER THE
CIRCUMSTANCES DESCRIBED HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT. THE
BONDS OF ANY SERIES MAY BE SUBJECT TO OPTIONAL REDEMPTION UNDER THE
CIRCUMSTANCES DESCRIBED HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT. SEE
"RISK FACTORS -- YIELD, MATURITY AND PREPAYMENT CONSIDERATIONS" AND "MATURITY,
PREPAYMENT AND YIELD CONSIDERATIONS" HEREIN.
If specified in a Prospectus Supplement relating to a Series of
Certificates, one or more elections may be made to treat each Trust or
specified portions thereof as a "real estate mortgage investment conduit"
("REMIC") for federal income tax purposes.
Offers of the Securities may be made through one or more different
methods, including offerings through underwriters as more fully described under
"Method of Distribution" herein and under "Underwriting" in the related
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Prospectus Supplement. Prior to issuance, there will have been no market for
the Securities of any Series, and there can be no assurance that a secondary
market for the Securities will develop or, if it does develop, that it will
continue.
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES COVERED BY SUCH PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE
REQUIRED TO DELIVER SUCH PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AND PROSPECTUS
SUPPLEMENT WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder, among other things, will set forth with respect to such
Series of Securities: (i) a description of such Securities; (ii) the rate of
interest, the "Certificate Rate" or "Bond Rate" or other applicable rate (or
the manner of determining such rate) and authorized denominations of such
Securities; (iii) certain information concerning the Mortgage Loans and
financial guaranty insurance policies, cash accounts, letters of credit,
limited guaranty insurance policies, third party guarantees or other forms of
credit enhancement, if any, relating to one or more Mortgage Pools or all or
part of the related Securities; (iv) in the case of Certificates, the specified
interest of each Class of Certificates in, and manner and priority of, the
distributions on the Mortgage Loans; (v) in the case of Certificates,
information as to the nature and extent of subordination with respect to such
Certificates, if any; (vi) the Distribution Dates or Payment Dates, as
applicable; (vii) the amount, if any, deposited in the related Prefunding
Account, the length of the related Funding Period or the Revolving Period and
the criteria for determining which additional Mortgage Loans may become assets
of the related Trust or Trust Estate, as applicable; (viii) in the case of
Certificates, the circumstances, if any, under which the related Trust may be
subject to early termination; (ix) in the case of Bonds, the circumstances, if
any, under which such Bonds may be subject to redemption; (x) in the case of
Certificates, whether a REMIC election will be made and the designation of the
regular and residual interest therein; and (xi) additional information with
respect to the plan of distribution of such Securities.
AVAILABLE INFORMATION
The Transferors have filed a Registration Statement under the
Securities Act of 1933, as amended (the "1933 Act"), with the Securities and
Exchange Commission (the "Commission") with respect to the Securities. The
Registration Statement and amendments thereof and the exhibits thereto may be
inspected at the Public Reference Room of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at Seven
World Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Electronic filings made through the Electronic Data Gathering Analysis and
Retrieval System are publicly available through the Commission's Web Site
(http://www.sec.gov).
No person has been authorized to give any information or to make any
representation regarding the Series of Securities referred to in the
accompanying Prospectus Supplement other than those contained or incorporated
by reference in this Prospectus and such Prospectus Supplement with respect to
such Series and, if given or made, such information or representations must not
be relied upon. This Prospectus and the accompanying Prospectus Supplement do
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the Securities offered hereby and thereby nor an offer of
the Securities to any person in any state or other jurisdiction in which such
offer would be unlawful. The delivery of this Prospectus at any time does not
imply that information herein is correct as of any time subsequent to its date.
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<PAGE> 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed with the Commission relating to the Trust or Trust
Estate, as applicable, referred to in the accompanying Prospectus Supplement
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), after the date of this Prospectus and
prior to the termination of any offering of the related Securities or relating
to the terms or collateral with respect to such offering shall be deemed to be
incorporated by reference in this Prospectus and to be part of this Prospectus
from the date of the filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for all purposes of this Prospectus to the
extent that a statement contained herein (or in the accompanying Prospectus
Supplement) or in any other subsequently filed document that also is or is
deemed to be incorporated by reference modifies or replaces such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Trustee or Transferor with respect to any Series of Securities
will provide without charge to each person to whom this Prospectus is
delivered, on the written or oral request of such person, a copy of any or all
of the documents referred to above that may be incorporated by reference in
this Prospectus (not including exhibits to the information that is incorporated
by reference unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates). Such requests should
be directed to the Corporate Trust Office of the Trustee specified in the
accompanying Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement, no
information that relates to any Series of Securities other than the Series
referred to in the accompanying Prospectus Supplement shall be deemed to be
incorporated by reference in this Prospectus.
REPORTS TO SECURITYHOLDERS
Monthly and annual reports concerning any Securities and the related
assets included in the Trust or Trust Estate, as applicable, will be sent by
the Trustee to all related Securityholders. See "Description of the Securities
- -- Reports to Securityholders" herein. If the Securities of a Series are to be
issued in book-entry form, such reports will be sent to the Securityholder of
record, and beneficial owners of such Securities will have to rely on the
procedures described herein under "Description of the Securities -- Form of
Securities -- Book-Entry Registration" to obtain such reports.
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<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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CAPTION PAGE
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<S> <C>
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Limited Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . 16
Limited Assets; Limited Obligations . . . . . . . . . . . . . . . . 16
Nature of the Security for Mortgage Loans . . . . . . . . . . . . . 16
Legal Considerations . . . . . . . . . . . . . . . . . . . . . . . 19
Yield, Maturity and Prepayment Considerations . . . . . . . . . . . 20
Limitations on Interest Payments and Foreclosures . . . . . . . . . 21
Security Rating . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Book-Entry Registration . . . . . . . . . . . . . . . . . . . . . . 22
Funds Available for Redemptions at the
Request of Bondholders . . . . . . . . . . . . . . . . . . . . . 22
THE TRUSTS AND TRUST ESTATES . . . . . . . . . . . . . . . . . . . . . 23
The Mortgage Loans -- General . . . . . . . . . . . . . . . . . . . 23
Forward Commitments; Prefunding
Accounts; Capitalized Interest Accounts . . . . . . . . . . . . . 25
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
AAMES CAPITAL CORPORATION . . . . . . . . . . . . . . . . . . . . . . . 26
AAMES CAPITAL ACCEPTANCE CORP. . . . . . . . . . . . . . . . . . . . . 26
THE SERVICER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Mortgage Loan Delinquency and
Foreclosure Experience . . . . . . . . . . . . . . . . . . . . . 27
THE ORIGINATORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Underwriting Guidelines . . . . . . . . . . . . . . . . . . . . . . 28
Representations by Originators and the Transferors . . . . . . . . 29
DESCRIPTION OF THE SECURITIES . . . . . . . . . . . . . . . . . . . . . 30
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Form of Securities . . . . . . . . . . . . . . . . . . . . . . . . 31
Distributions and Payments on Securities . . . . . . . . . . . . . 32
Revolving Period and Amortization
Period; Transferor Interest . . . . . . . . . . . . . . . . . . . 35
Reports to Securityholders . . . . . . . . . . . . . . . . . . . . 36
CREDIT ENHANCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Reserve Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 38
Financial Guaranty Insurance Policies . . . . . . . . . . . . . . . 39
Mortgage Pool Insurance Policies . . . . . . . . . . . . . . . . . 39
Special Hazard Insurance Policies . . . . . . . . . . . . . . . . . 40
Bankruptcy Bonds . . . . . . . . . . . . . . . . . . . . . . . . . 40
Cross Support . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Other Insurance, Guarantees and
Similar Instruments or Agreements . . . . . . . . . . . . . . . . 41
Maintenance of Credit Enhancement . . . . . . . . . . . . . . . . . 41
MATURITY, PREPAYMENT AND
YIELD CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 42
THE POOLING AND SERVICING
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Assignment of Mortgage Loans . . . . . . . . . . . . . . . . . . . 44
Payments on the Mortgage Loans . . . . . . . . . . . . . . . . . . 46
Investment of Accounts . . . . . . . . . . . . . . . . . . . . . . 47
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . 47
Monthly Advances and Compensating Interest . . . . . . . . . . . . 48
Realization upon Defaulted Mortgage Loans . . . . . . . . . . . . . 49
General Servicing Procedures . . . . . . . . . . . . . . . . . . . 49
Sub-Servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Servicing and Other Compensation
and Payment of Expenses . . . . . . . . . . . . . . . . . . . . . 50
Maintenance of Hazard Insurance . . . . . . . . . . . . . . . . . . 50
Enforcement of Due-on-Sale Clauses . . . . . . . . . . . . . . . . 51
Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Certificate Events of Default . . . . . . . . . . . . . . . . . . . 52
Rights upon Certificate Events of Default . . . . . . . . . . . . . 52
Termination; Optional Termination . . . . . . . . . . . . . . . . . 53
Evidence as to Compliance . . . . . . . . . . . . . . . . . . . . . 53
Indemnification of Officers and Directors of the Transferors . . . 54
The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
THE INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Modification of Indenture . . . . . . . . . . . . . . . . . . . . . 55
Bond Events of Default . . . . . . . . . . . . . . . . . . . . . . 55
Rights upon Bond Events of Default . . . . . . . . . . . . . . . . 56
List of Bondholders . . . . . . . . . . . . . . . . . . . . . . . . 56
Annual Compliance Statement . . . . . . . . . . . . . . . . . . . . 57
Trustee's Annual Report . . . . . . . . . . . . . . . . . . . . . . 57
Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . 57
Redemption of Bonds . . . . . . . . . . . . . . . . . . . . . . . . 57
Reports by Trustee to Bondholders . . . . . . . . . . . . . . . . . 57
Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . 57
CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS AND RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . . 57
Nature of the Mortgage Loans . . . . . . . . . . . . . . . . . . . 58
Foreclosure/Repossession . . . . . . . . . . . . . . . . . . . . . 58
Rights of Redemption . . . . . . . . . . . . . . . . . . . . . . . 59
Certain Provisions of California Deeds of Trust . . . . . . . . . . 59
Anti-deficiency Legislation and Other
Limitations on Lenders . . . . . . . . . . . . . . . . . . . . . 60
Enforceability of Due-on-Sale Clauses . . . . . . . . . . . . . . . 61
Prepayment Charges . . . . . . . . . . . . . . . . . . . . . . . . 61
Applicability of Usury Laws . . . . . . . . . . . . . . . . . . . . 61
Soldiers' and Sailors' Civil Relief Act . . . . . . . . . . . . . . 61
Environmental Considerations . . . . . . . . . . . . . . . . . . . 62
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Taxation of Certificates . . . . . . . . . . . . . . . . . . . . . 63
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Taxation of Debt Certificates
(Including Regular Certificates) . . . . . . . . . . . . . . . . 63
Taxation of Certificates as to Which a REMIC
Election Has Been Made . . . . . . . . . . . . . . . . . . . . . 69
Taxation of the REMIC and its Holders . . . . . . . . . . . . . . . 69
REMIC Expenses; Single Class REMICs . . . . . . . . . . . . . . . . 69
Taxation of the REMIC . . . . . . . . . . . . . . . . . . . . . . . 70
Taxation of Holders of Residual Certificates . . . . . . . . . . . 71
Administrative Matters . . . . . . . . . . . . . . . . . . . . . . 73
Tax Status as a Grantor Trust . . . . . . . . . . . . . . . . . . . 73
Tax Characterization of the Trust as a Partnership;
Tax Consequences to Holders of the Certificates
Issued By a Partnership . . . . . . . . . . . . . . . . . . . . 76
Certain Certificates Treated as Indebtedness . . . . . . . . . . . 80
Taxation of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . 81
Miscellaneous Tax Aspects . . . . . . . . . . . . . . . . . . . . . 82
Tax Treatment of Foreign Investors . . . . . . . . . . . . . . . . 82
STATE TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . 83
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 84
Plan Asset Regulations . . . . . . . . . . . . . . . . . . . . . . 84
Prohibited Transaction Class Exemption . . . . . . . . . . . . . . 85
LEGAL INVESTMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . 86
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
FFIEC Policy Statement . . . . . . . . . . . . . . . . . . . . . . 86
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
METHOD OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . 87
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 87
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
INDEX OF PRINCIPAL TERMS . . . . . . . . . . . . . . . . . . . . . . . 89
</TABLE>
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<PAGE> 7
SUMMARY
This Summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related
Prospectus Supplement. Reference is made to the Index of Principal Terms for
the location in this Prospectus of the definitions of certain capitalized terms
not otherwise defined in this Summary.
Securities Offered . . . . . . . . Up to $2,800,000,000 aggregate
principal amount of Asset-Backed
Certificates (the "Certificates") and
Asset-Backed Bonds (the "Bonds" and,
together with the Certificates, the
"Securities"), issuable in series
(each, a "Series").
The Transferors . . . . . . . . . . Aames Capital Corporation, a California
Corporation ("ACC"), and a wholly owned
subsidiary of Aames Financial
Corporation ("AFC"), and Aames Capital
Acceptance Corp., a Delaware
corporation ("ACAC" and, together with
ACC, the "Transferors"), and a wholly
owned limited purpose finance
subsidiary of AFC. The principal
office of each Transferor is located in
Los Angeles, California. See "Aames
Capital Corporation" and "Aames Capital
Acceptance Corp." herein.
The Servicer . . . . . . . . . . . ACC, as Servicer (the "Servicer"). See
"The Pooling and Servicing Agreement --
General Servicing Procedures" herein.
Sub-Servicers . . . . . . . . . . . The Servicer may appoint one or more
mortgage servicing institutions (each,
a "Sub-Servicer") to service and
administer the Mortgage Loans in a
Mortgage Pool if so indicated in the
related Prospectus Supplement.
The Trustee . . . . . . . . . . . . The trustee (the "Trustee") for each
Series of Securities will be specified
in the related Prospectus Supplement.
The Securities . . . . . . . . . . Each Series of Certificates will be
issued at the direction of the related
Transferor by a separate trust fund
(each, a "Trust"), created pursuant to
an agreement (each, a "Pooling and
Servicing Agreement") among the related
Transferor, the Servicer and the
Trustee. Each Certificate will
represent an interest of the type
described in the related Prospectus
Supplement in the assets of the related
Trust. The Certificates of any Series
may be issued in one or more classes
(each, a "Class"), as specified in the
related Prospectus Supplement. A
Series of Certificates may include one
or more Classes of senior Certificates
(collectively, the "Senior
Certificates") that receive certain
preferential treatment specified in the
related Prospectus Supplement with
respect to one or more Classes of
subordinate Certificates (collectively,
the "Subordinated Certificates").
Holders of Certificates are referred to
herein as "Certificateholders."
Each Series of Bonds will be
non-recourse obligations of either ACAC
or a separate entity (which may be
organized as a trust, partnership,
limited liability company or
corporation) formed by ACAC solely for
the purpose of issuing the Bonds of the
related Series (either such entity, as
applicable, the "Bond Issuer"). The
Bond Issuer will be identified and
described in the Prospectus Supplement
relating to a Series of Bonds and will
not have, nor be expected in the future
to have, any significant assets
available for payments on such Series
of Bonds, other than the assets
included in the related Trust Estate.
Each Series of Bonds will be issued
pursuant to an indenture (each, an
"Indenture") between the related Bond
Issuer and the related Trustee,
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<PAGE> 8
and the assets included in the trust
estate (each, a "Trust Estate") pledged
to secure such Series will be the sole
source of payments on the Bonds. The
Bonds of any Series will be issuable in
a single class. Holders of Bonds are
referred to herein as "Bondholders"
and, together with Certificateholders,
as "Securityholders."
The assets of each Trust or Trust
Estate, as applicable, will consist
primarily of the Mortgage Loans.
Certain Series of Securities may be
covered by a Financial Guaranty
Insurance Policy, a Mortgage Pool
Insurance Policy, a Special Hazard
Insurance Policy, a Bankruptcy Bond or
other insurance policies, cash
accounts, letters of credit, limited
guaranty insurance policies, third
party guarantees or other forms of
credit enhancement, as described herein
and in the related Prospectus
Supplement. See "Credit Enhancement"
herein.
Each Class of Certificates within a
Series will evidence the interests
specified in the related Prospectus
Supplement, which may (i) include the
right to receive distributions
allocable only to principal, only to
interest or to any combination thereof;
(ii) include the right to receive
distributions only of prepayments of
principal throughout the lives of the
Certificates or during specified
periods; (iii) be subordinated in the
right to receive distributions of
scheduled payments of principal,
prepayments of principal, interest or
any combination thereof to one or more
other Classes of Certificates of such
Series throughout the lives of the
Certificates or during specified
periods or may be subordinated with
respect to certain losses or
delinquencies; (iv) include the right
to receive such distributions only
after the occurrence of events
specified in the related Prospectus
Supplement; (v) include the right to
receive distributions in accordance
with a schedule or formula or on the
basis of collections from designated
portions of the assets in the related
Trust; (vi) include, as to Certificates
entitled to distributions allocable to
interest, the right to receive interest
at a fixed rate or an adjustable rate;
and (vii) include, as to Certificates
entitled to distributions allocable to
interest, the right to distributions
allocable to interest only after the
occurrence of events specified in the
related Prospectus Supplement and, in
each case, may accrue interest until
such events occur, as specified in such
Prospectus Supplement. The timing and
amount of such distributions may vary
among Classes as specified in the
related Prospectus Supplement.
Unless otherwise specified in the
related Prospectus Supplement, the
Securities will be issuable in fully
registered form, in the minimum
denominations set forth in such
Prospectus Supplement. See
"Description of the Securities" herein.
The Mortgage Loans . . . . . . . . The primary assets of each Trust or
Trust Estate, as applicable, will
consist of one or more pools (each, a
"Mortgage Pool") of first and junior
lien mortgage loans or deeds of trust
(the "Mortgage Loans"), including any
note or other instrument of
indebtedness (each, a "Mortgage Note").
The Mortgage Pool for a given Series of
Securities will be transferred pursuant
to the related Pooling and Servicing
Agreement or Indenture, as applicable.
The Mortgage Loans will be secured by
one- to four-family residential
properties, including townhouses,
condominiums and manufactured housing
(which is permanently affixed to and
treated as
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<PAGE> 9
real property under local law), but
excluding co-operatives and mobile
homes. To the extent provided in the
related Prospectus Supplement,
additional Mortgage Loans may be
periodically added as assets of the
related Trust or Trust Estate, as
applicable, or may be removed from time
to time if certain asset tests are met,
all as described in the related
Prospectus Supplement.
The Mortgage Loans will not be insured
or guaranteed by any governmental
agency.
The Mortgage Loans to be included in
any Mortgage Pool will be described in
the related Prospectus Supplement. The
Mortgage Loans will have interest
payable thereon at (i) fixed rates
specified in the related Prospectus
Supplement, (ii) adjustable rates
computed as specified in the related
Prospectus Supplement or (iii)
graduated or other variable rates
described in the related Prospectus
Supplement. Unless otherwise specified
in the related Prospectus Supplement,
each Mortgage Loan will require monthly
payment of principal and interest.
Scheduled payments of principal on any
Mortgage Loan may be computed (i) on a
level debt service basis that will
result in full amortization over the
stated term of such Mortgage Loan, (ii)
in the case of a Balloon Loan, on the
basis of an assumed amortization
schedule that is significantly longer
than the original term of maturity of
such Mortgage Loan and will require
payment of a substantial amount of
principal at the stated maturity
specified in the related Mortgage Note
or (iii) on such other basis as is
specified in the related Prospectus
Supplement.
If so specified in the Prospectus
Supplement relating to a Series of
Certificates, the Mortgage Pool may be
divided into two or more groups based
on certain characteristics of the
related Mortgage Loans (such as type or
amount of Mortgage Rate, remaining term
to maturity or type of Mortgaged
Property) and amounts received,
collected or recovered in respect of
any such group will be the primary
source from which distributions on
certain Classes of Certificates will be
derived.
The property securing a Mortgage Loan
(each, a "Mortgaged Property") may be
located in any one of the fifty states
or the District of Columbia. Unless
otherwise specified in the related
Prospectus Supplement, all of the
Mortgage Loans will be covered by
Standard Hazard Insurance Policies
insuring against certain losses due to
fire and other causes.
The Prospectus Supplement for each
Series of Securities will specify with
respect to all Mortgage Loans included
in each related Mortgage Pool, among
other things, (i) the aggregate
outstanding principal balance and the
average outstanding principal balance
of the Mortgage Loans in such Mortgage
Pool as of the date specified in the
Prospectus Supplement (the "Cut-off
Date"), (ii) the largest principal
balance of any of the Mortgage Loans,
(iii) the types of Mortgaged Properties
securing the Mortgage Loans, (iv) the
original terms to maturity of the
Mortgage Loans, (v) the weighted
average term to maturity of the
Mortgage Loans as of the Cut-off Date
and the range of the terms to maturity,
(vi) the ranges of the Combined
Loan-to-Value Ratios at origination,
(vii) the weighted average Mortgage
Rate and ranges of Mortgage Rates borne
by the Mortgage Loans and (viii) the
geographic distribution of the
Mortgaged Properties on a
state-by-state basis.
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<PAGE> 10
Revolving Period and Amortization
Period; Transferor Interest . . . If the Prospectus Supplement relating
to a Series of Certificates so
provides, there may be a period
commencing on the date of issuance of a
Class or Classes of such Certificates
and ending on the date set forth in the
related Prospectus Supplement (the
"Revolving Period") during which no
principal payments will be made to one
or more Classes of Certificates of the
related Series as are identified in
such Prospectus Supplement. All
collections of principal otherwise
allocated to such Class or Classes of
Certificates may be (i) utilized by the
Trust during such period to acquire
additional Mortgage Loans that satisfy
the criteria described in the related
Prospectus Supplement, (ii) held in an
account and invested in Eligible
Investments for later distribution to
Certificateholders, (iii) applied to
those Class or Classes of Certificates,
if any, of the same or different Series
as specified in the related Prospectus
Supplement as then are in amortization
or (iv) otherwise applied as specified
in the related Prospectus Supplement.
An "Amortization Period" is the period,
if any, specified as such in the
Prospectus Supplement relating to a
Series of Certificates during which an
amount of principal is payable to
holders of one or more Classes of such
Series of Certificates. If so
specified in the related Prospectus
Supplement, during an Amortization
Period all or a portion of principal
collections on the Mortgage Loans may
be applied as specified above for a
Revolving Period and, to the extent not
so applied, will be distributed to the
Class or Classes of Certificates of the
same or different Series as specified
in the related Prospectus Supplement as
then being entitled to payments of
principal. In addition, if so
specified in the related Prospectus
Supplement, amounts deposited in
certain accounts for the benefit of one
or more Classes of Certificates may be
released from time to time or on a
specified date and applied as a payment
of principal on such Class or Classes
of Certificates. The related
Prospectus Supplement will set forth
the circumstances that will result in
the commencement of an Amortization
Period.
Each Trust that has a Revolving Period
may also issue to the related
Transferor a certificate evidencing an
undivided beneficial interest (the
"Transferor Interest") in the Trust not
represented by the other Certificates
issued by such Trust. As further
described in the Prospectus Supplement
relating to a Series of Certificates,
the value of such Transferor Interest
will fluctuate as the amount of the
assets of the Trust fluctuates and the
outstanding amount of the Certificates
of the related Series of Certificates
is reduced.
Forward Commitments;
Prefunding Accounts and
Capitalized Interest Accounts . . If so specified in the related
Prospectus Supplement, the related
Pooling and Servicing Agreement or
Indenture, as applicable, may contain
provisions pursuant to which the
related Transferor will agree to
transfer additional Mortgage Loans into
the related Mortgage Pool for a
specified period of time (the "Funding
Period") following the date on which
the related Securities are issued (such
provisions being referred to herein as
a "Forward Commitment"). Any Forward
Commitment will require that any
Mortgage Loans so transferred conform
to the requirements specified in the
related Pooling and Servicing Agreement
or Indenture, as applicable. If a
Forward Commitment is to be utilized,
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<PAGE> 11
unless otherwise specified in the
related Prospectus Supplement, a
deposit will be made to a segregated
account (each, a "Prefunding Account")
in an amount equal to all or a portion
of the proceeds received by the related
Transferor in connection with the sale
of the Securities of the related Series
(such amount, the "Prefunding Amount").
Subsequently, the additional Mortgage
Loans will be conveyed by the related
Transferor to the related Trust in
exchange for cash from the related
Prefunding Account in one or more
transfers. The related Pooling and
Servicing Agreement or Indenture, as
applicable, will require that, if any
of the Prefunding Amount is not applied
to acquire additional Mortgage Loans by
the end of the Funding Period, then any
amounts remaining on deposit in the
Prefunding Account will be released
from the Prefunding Account and
distributed or paid, as applicable, in
reduction of the principal balance of
the related Securities as specified in
the related Prospectus Supplement.
If a Prefunding Account is established,
a segregated account (each, a
"Capitalized Interest Account") may
also be established for the related
Series. On the closing date for such
Series, all or a portion of the
proceeds received by the related
Transferor in connection with the sale
of the Securities of the related Series
may be deposited in the Capitalized
Interest Account and used to fund the
excess, if any, of (x) the sum of (i)
the amount of interest accrued on the
Securities of such Series specified in
the related Prospectus Supplement and,
(ii) if specified in the related
Prospectus Supplement, certain fees or
expenses during the Funding Period such
as Trustee fees and credit enhancement
fees, over (y) the amount of interest
available therefor from the Mortgage
Loans included in the original Mortgage
Pool. If so specified in the related
Prospectus Supplement, amounts on
deposit in the Capitalized Interest
Account may be released to the related
Transferor prior to the end of the
Funding Period subject to the
satisfaction of certain tests specified
in the related Prospectus Supplement.
Any amounts on deposit in the
Capitalized Interest Account at the end
of the Funding Period that are not
necessary for such purposes will be
distributed to the person specified in
the related Prospectus Supplement.
Credit Enhancement . . . . . . . . The Mortgage Loans included in a Trust
or Trust Estate, applicable, the
Securities of the related Series or, in
the case of Certificates, one or more
Classes of Certificates of the related
Series may have the benefit of one or
more types of credit enhancement, as
described in the related Prospectus
Supplement. The protection against
losses afforded by any such credit
support will be limited. Such credit
enhancement may include one or more of
the following types or another type of
credit enhancement as specified in the
Prospectus Supplement:
A. Subordinated Certificates In the case of a Series of
Certificates, the rights of the holders
of any Subordinated Certificates of
such Series to receive distributions
with respect to the related Trust will
be subordinated to the rights of the
holders of the Senior Certificates of
the same Series to receive
distributions to the extent described
in the related Prospectus Supplement.
This subordination is intended to
enhance the likelihood of regular
receipt by holders of Senior
Certificates of the full amount of
payments which such holders would be
entitled to receive if there had been
no losses; however, there can be no
assurance that the Senior Certificates
will receive the full amount of
payments to which they are entitled as
a result of such subordination or the
existence of the Reserve
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<PAGE> 12
Accounts described below. The
protection afforded to the holders of
Senior Certificates through
subordination may be accomplished by
the preferential right of such
Certificateholders to receive, prior to
any distribution being made in respect
of the related Subordinated
Certificates, the amounts of principal
and interest due to them on each
Distribution Date out of the funds
available for distribution on such date
in the related Certificate Account to
the extent described in the related
Prospectus Supplement. The protection
afforded to the holders of Senior
Certificates through subordination also
may be accomplished by allocating
certain types of losses or
delinquencies to the related
Subordinated Certificates to the extent
described in the related Prospectus
Supplement.
If so specified in the related
Prospectus Supplement, a Subordinated
Class of Certificates may be senior to
other Classes of Certificates with
respect to the right to receive certain
types of payments or with respect to
allocation of certain losses or
delinquencies. If so specified in the
related Prospectus Supplement,
subordination may apply only in the
event of certain types of losses not
covered by other forms of credit
enhancement, such as hazard losses not
covered by Standard Hazard Insurance
Policies or losses due to the
bankruptcy of the borrower under a
Mortgage Loan (the "Mortgagor") not
covered by a Bankruptcy Bond. The
related Prospectus Supplement will set
forth information concerning the amount
of subordination of a Class or Classes
of Subordinated Certificates in a
Series, the circumstances in which such
subordination will be applicable and
the manner, if any, in which the amount
of subordination will decrease over
time.
B. Reserve Account . . . . . If so specified in the related
Prospectus Supplement, one or more
reserve or spread accounts (each, a
"Reserve Account") may be established
and maintained, in whole or in part, by
the deposit therein of distributions
allocable to the holders of the
Securities of the related Series or, in
the case of Certificates, specified
Classes of the Certificates of the
related Series for a specified time or
until a specified level is reached.
The related Prospectus Supplement will
set forth information concerning the
manner of funding any Reserve Account
and the conditions under which amounts
in any such Reserve Account will be
used to make distributions or payments
to holders of such Securities or
released to holders of Securities, the
Servicer, the related Transferor or
another entity, as applicable.
C. Financial Guaranty Insurance
Policy . . . . . . . . If so specified in the related
Prospectus Supplement, a financial
guaranty insurance policy or policies
(each, a "Financial Guaranty Insurance
Policy") may be obtained and maintained
for Securities of the related Series
or, in the case of Certificates,
specified Classes of the Certificates
of the related Series. A Financial
Guaranty Insurance Policy generally
will unconditionally and irrevocably
guarantee that the full amount of
principal and interest distributable or
payable, as applicable, to
Securityholders on any Distribution
Date or Payment Date, as applicable, as
well as any other amounts specified in
the related Prospectus Supplement (the
"Insured Amount"), will be available
for distribution or payment, as
applicable, to Securityholders on such
date. The terms of any such Financial
Guaranty Insurance Policy will be
described in the related Prospectus
Supplement.
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<PAGE> 13
D. Mortgage Pool Insurance
Policy . . . . . . . . If so specified in the related
Prospectus Supplement, a mortgage pool
insurance policy or policies (each, a
"Mortgage Pool Insurance Policy") may
be obtained and maintained for all or
certain of the Mortgage Loans in the
related Mortgage Pool, limited in
scope, covering losses on the related
Mortgage Loans up to a maximum amount.
The terms of any such Mortgage Pool
Insurance Policy will be described in
the related Prospectus Supplement.
E. Special Hazard Insurance
Policy . . . . . . . . If so specified in the related
Prospectus Supplement, certain physical
risks with respect to the related
Mortgaged Properties that would not
otherwise be insured against by
Standard Hazard Insurance Policies may
be covered by a special hazard
insurance policy or policies (each, a
"Special Hazard Insurance Policy").
Each Special Hazard Insurance Policy
will be limited in scope and will cover
losses up to a maximum amount. The
terms of any such Special Hazard
Insurance Policy will be described in
the related Prospectus Supplement.
F. Bankruptcy Bond . . . . . If so specified in the related
Prospectus Supplement, a mortgagor
bankruptcy bond or bonds (each, a
"Bankruptcy Bond") may be obtained to
cover certain losses resulting from a
reduction by a bankruptcy court of
scheduled payments of principal or
interest on a Mortgage Loan or a
reduction by such court of the
principal amount of a Mortgage Loan.
The level of coverage and other terms
of each Bankruptcy Bond will be
specified in the related Prospectus
Supplement.
G. Cross Support . . . . . . If so specified in the Prospectus
Supplement relating to a Series of
Certificates, the interests of separate
Trusts or separate groups of assets in
a single Trust may be evidenced by
separate Classes of the related Series
of Certificates. In such case, credit
support may be provided by a
cross-support feature which requires
that distributions be made with respect
to certain Certificates evidencing
interests in one or more Trusts or
asset groups prior to distributions to
other Certificates evidencing interests
in other Trusts or asset groups. If
specified in the related Prospectus
Supplement, the coverage provided by
one or more other forms of credit
support, such as Reserve Accounts or
Financial Guaranty Insurance Policies,
may apply concurrently to two or more
separate Trusts, without priority among
such Trusts, until the credit support
is exhausted. If applicable, the
Prospectus Supplement will identify the
Trusts or asset groups to which such
credit support relates and the manner
of determining the amount of the
coverage provided thereby and of the
application of such coverage to the
identified Trusts or asset groups.
H. Other Credit Enhancement . Other credit enhancement arrangements,
including, but not limited to, letters
of credit or third party guarantees,
may be used to provide coverage for
certain risks of losses on the Mortgage
Loans in a given Trust or Trust Estate,
as applicable. These arrangements may
be in addition to or in lieu of any
forms of credit support described in
this Prospectus. The related
Prospectus Supplement will describe any
such arrangements, including
information as to the extent of
coverage and any conditions thereto or
limitations thereon. Any such
arrangement must be acceptable to each
nationally recognized statistical
rating agency that is engaged by the
related Transferor to provide a rating
for any Securities of the related
Series (each, a "Rating Agency").
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<PAGE> 14
Advances . . . . . . . . . . . . . Unless otherwise specified in the
related Prospectus Supplement, the
Servicer and, if applicable, each
Sub-Servicer will be obligated each
month (or at such other intervals
specified in the related Prospectus
Supplement) to advance amounts
corresponding to all or a portion of
delinquent interest payments on such
Mortgage Loan until the date on which
the related Mortgaged Property is sold
at a foreclosure sale or the related
Mortgage Loan is otherwise liquidated
or charged off. Any such obligation to
make advances may be limited to amounts
deemed to be recoverable from late
payments or liquidation proceeds, for
specified periods or, in the case of a
given Series of Certificates, to
amounts due to holders of any Senior
Certificates, or any combination
thereof, in each case as specified in
the related Prospectus Supplement. See
"The Pooling and Servicing Agreement --
Monthly Advances and Compensating
Interest" herein.
Compensating Interest . . . . . . . Unless otherwise specified in the
related Prospectus Supplement, with
respect to each Mortgage Loan as to
which a prepayment is received, that
becomes a Liquidated Mortgage Loan or
is otherwise charged-off during the
Collection Period related to a
Distribution Date or Payment Date, as
applicable, the Servicer will be
required with respect to such date to
remit to the Trustee, from amounts
otherwise payable to the Servicer as
servicing compensation, an amount
generally representing the excess of 30
days of interest on the principal
balance of such Mortgage Loan prior to
such prepayment, liquidation or
charge-off over the amount of interest
actually received on the related
Mortgage Loan during the applicable
Collection Period. See "The Pooling
and Servicing Agreement -- Monthly
Advances and Compensating Interest"
herein.
Optional Termination with
Respect to Certificates . . . . . The related Transferor, the Servicer or
certain other entities specified in the
Prospectus Supplement relating to a
Series of Certificates may have the
option to effect early retirement of
such Series of Certificates by
acquiring the Mortgage Loans in the
Trust, subject to the aggregate
principal balance of the related
Mortgage Loans being less than the
percentage specified in the related
Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans
at the Cut-off Date for the related
Series. Typically, the related
Transferor, the Servicer or such other
entity will cause the retirement of a
Series of Certificates when servicing
of the then remaining amount of
Mortgage Loans becomes inefficient.
See "The Pooling and Servicing
Agreement -- Termination; Optional
Termination" herein.
Redemption of Bonds . . . . . . . . To the extent provided in the
Prospectus Supplement relating to a
Series of Bonds, the Bonds of any
Series may be (i) redeemed at the
request of holders of such Bonds; (ii)
redeemed at the option of the related
Bond Issuer or another party specified
in the related Prospectus Supplement;
or (iii) subject to special redemption
under certain circumstances. The
circumstances and terms under which the
Bonds of a given Series may be redeemed
will be described in the related
Prospectus Supplement.
Certain Federal Income Tax
Consequences . . . . . . . . . . Investors are advised to consult their
tax advisors and to review "Certain
Federal Income Tax Consequences" herein
and in the related Prospectus
Supplement.
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<PAGE> 15
I. Certificates
A. REMIC . . . . . . . . . . If an election is to be made to treat
the Trust for a Series of Certificates
as a REMIC for federal income tax
purposes, the related Prospectus
Supplement will specify which Class or
Classes thereof will be designated as
regular interests in the REMIC
("Regular Certificates") and which
Class of Certificates will be
designated as the residual interest in
the REMIC ("Residual Certificates").
To the extent provided herein and in
the related Prospectus Supplement,
Certificates representing an interest
in the REMIC will be considered
"qualifying real property loans" within
the meaning of Section 593(d) of the
Internal Revenue Code of 1986, as
amended (the "Code"), "real estate
assets" for purposes of Section
856(c)(5)(A) of the Code and assets
described in Section 7701(a)(19)(C) of
the Code.
For federal income tax purposes,
Regular Certificates generally will be
treated as debt obligations of the
Trust with payment terms equivalent to
the terms of such Certificates.
Holders of Regular Certificates will be
required to report income with respect
to such Certificates under an accrual
method, regardless of their normal tax
accounting method. Original issue
discount, if any, on Regular
Certificates will be includible in the
income of the Certificateholders
thereof as it accrues, in advance of
receipt of the cash attributable
thereto, which rate of accrual will be
determined based on a reasonable
assumed prepayment rate. The Residual
Certificates generally will not be
treated as evidences of indebtedness
for federal income tax purposes, but
instead, as representing rights to the
taxable income or net loss of the
REMIC.
B. Grantor Trust . . . . . . If so specified in the Prospectus
Supplement relating to a Series of
Certificates, the Trust for a Series of
Certificates will be classified as a
grantor trust for federal income tax
purposes and not as an association
taxable as a corporation. Holders of
Certificates of such Series will be
treated for such purposes, subject to
the possible application of the
stripped bond rules, as owners of
undivided interests in the related
Mortgage Loans and generally will be
required to report as income their pro
rata share of the entire gross income
(including amounts paid as reasonable
servicing compensation) from the
Mortgage Loans and will be entitled,
subject to certain limitations, to
deduct their pro rata share of expenses
of the Trust.
To the extent provided herein and in
the related Prospectus Supplement,
Certificates of such Series will
represent interests in "qualifying real
property loans" within the meaning of
Section 593(d) of the Code, "real
estate assets" for purposes of Section
856(c)(5)(A) of the Code and "[l]oans
. . . principally secured by an interest
in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code.
C. Certificates Treated as Debt If so specified in the Prospectus
Supplement relating to a Series of
Certificates, a Trust may issue
Certificates that will be characterized
as indebtedness for federal income tax
purposes of the related Transferor
secured by the related Mortgage Loans.
Each investor in an interest in the
Certificates of the related Series, by
acceptance of its interest therein,
will agree to treat such Certificates
as debt for federal, state and local
income and franchise tax purposes.
II. Bonds . . . . . . . . . . . For federal income tax purposes, Bonds
generally will be treated as debt
obligations of the related Bond Issuer.
Holders of Bonds will not be
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<PAGE> 16
required to report income with respect
to such Bonds under an accrual method,
unless the Bondholders otherwise use
the accrual method. Bonds will not
represent interests in "qualifying real
property loans" within the meaning of
Section 593(d) of the Code, "real
estate assets" for purposes of Section
856(c)(5)(A) of the Code and "[l]oans .
. . principally secured by an interest
in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code.
ERISA Considerations . . . . . . . Fiduciaries of employee benefit plans
subject to Title I of the Employee
Retirement Income Security Act of 1974,
as amended ("ERISA"), should consider
the ERISA fiduciary investment
standards before authorizing an
investment by a plan in a Series of
Securities. In addition, fiduciaries
of employee benefit plans subject to
Title I of ERISA, as well as certain
plans not subject to ERISA, but which
are subject to Section 4975 of the
Code, such as individual retirement
accounts and Keogh plans covering only
a sole proprietor or partners
(collectively, "Plan(s)"), should
consult with their legal counsel to
determine whether an investment in a
Series of Securities will cause the
Mortgage Loans included in the related
Mortgage Pool, to be considered plan
assets pursuant to the plan asset
regulations set forth in 29 C.F.R.
Section 2510.3-101 (the "Plan Asset
Regulations"), thereby subjecting the
Plan to the prohibited transaction
rules with respect to the Mortgage
Loans and the Trustee or the Servicer
to the fiduciary investment standards
of ERISA, or cause the excise tax
provisions of Section 4975 of the Code
to apply to the Mortgage Loans in the
absence of an exemption granted by the
Department of Labor applicable to the
purchase, sale, transfer or holding of
a Series of Securities. See "ERISA
Considerations" herein.
Rating . . . . . . . . . . . . . . At the date of issuance, the Securities
offered pursuant to the related
Prospectus Supplement will be rated in
one of the four highest rating
categories by one or more Rating
Agencies. See "Rating" herein.
Legal Investment . . . . . . . . . Unless otherwise indicated in the
related Prospectus Supplement, the
Securities of any Series will not
constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA") and, if so, will
not be legal investments for certain
types of institutional investors under
SMMEA. Institutions whose investment
activities are subject to legal
investment laws and regulations or to
review by certain regulatory
authorities may be subject to
additional restrictions on investment
in Securities of the related Series.
Any such institution should consult its
own legal advisors in determining
whether and the extent to which a
Series of Securities constitutes legal
investments for such investors. See
"Legal Investment Considerations"
herein.
Registration of Securities . . . . Unless otherwise specified in the
related Prospectus Supplement, the
Securities will be issued as physical
securities ("Definitive Securities") in
fully registered form in the
denominations specified in the related
Prospectus Supplement. The Securities
may be represented, however, by a
single certificate or bond, as
applicable, registered in the name of
Cede & Co. ("Cede"), as nominee of The
Depository Trust Company ("DTC"), or
another nominee if so specified in the
related Prospectus Supplement. In such
case, the beneficial owners thereof
will not be entitled to receive
Definitive Securities representing
their respective interests, except in
certain circumstances described in the
related Prospectus Supplement. See
"Description of the Securities -- Form
of Securities -- Book-Entry
Registration" herein.
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<PAGE> 17
RISK FACTORS
LIMITED LIQUIDITY
Prior to issuance, there will have been no market for the Securities
of any Series. There can be no assurance that a secondary market for the
Securities will develop or, if a secondary market does develop, that it will
provide Securityholders with liquidity of investment or that it will continue
for the lives of the Securities. Unless otherwise indicated in the related
Prospectus Supplement, the Securities will not constitute "mortgage related
securities" under the Secondary Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA"), and certain investors may be subject to legal restrictions
that preclude their purchase of any such non-SMMEA Certificates. In addition,
with respect to a given Series of Certificates, certain Classes of Certificates
may be restricted as to transferability to certain entities if so specified in
the related Prospectus Supplement. Any restrictions on the purchase or
transferability of the Securities of a given Series may have a negative effect
on the development of a secondary market in such Securities.
LIMITED ASSETS; LIMITED OBLIGATIONS
Proceeds of the assets of any Trust or Trust Estate, as applicable,
including the Mortgage Loans, any Reserve Account and any Financial Guaranty
Insurance Policy or other form of credit enhancement, will be the sole source
of funds for the required distributions or payments, as applicable, on the
Securities of the related Series and there will be no recourse to the related
Transferor or any other entity in the event that such proceeds are insufficient
or otherwise unavailable to make any such required distributions or payments,
as applicable, on such Securities. The Certificates of any Series will
represent beneficial interests in the related Trust only. The Bonds of any
Series will be non-recourse obligations of the related Bond Issuer, and the
assets of the related Trust Estate will be the sole source of payments on the
Bonds. The Securities will not represent an interest in or obligation of the
Servicer, any Originator, the Trustee, any Sub-Servicer or any other person.
Neither the Securities nor the Mortgage Loans will be insured or guaranteed by
any governmental agency or instrumentality. Except as otherwise specified in
the related Prospectus Supplement, neither the Securities nor the underlying
Mortgage Loans will be guaranteed or insured by the related Transferor, the
Servicer, the related Originators, the Trustee, any Sub-Servicer or any of
their respective affiliates. The only obligations of the foregoing entities
with respect to the Securities or the Mortgage Loans will be the obligations
(if any) of the related Transferor pursuant to certain limited representations
and warranties made with respect to the Mortgage Loans, and the servicing
obligations of the Servicer and any Sub-Servicer under the related Agreement
(including their respective limited obligations to make certain advances in the
event of delinquencies on the Mortgage Loans, but only to the extent deemed
recoverable). Notwithstanding the foregoing, and as specified in the related
Prospectus Supplement, certain types of credit enhancement, such as a Financial
Guaranty Insurance Policy or a letter of credit, may constitute a full recourse
obligation of the provider of such credit enhancement.
NATURE OF THE SECURITY FOR MORTGAGE LOANS
Risks Associated with Any Decline in Value of Mortgaged Properties.
An overall decline in the market value of residential real estate, the general
condition of a Mortgaged Property or other factors, including acts of nature
such as hurricanes, floods, tornadoes or earthquakes, could adversely affect
the values of the Mortgaged Properties such that the outstanding balances of
the Mortgage Loans, together with any other liens on the Mortgaged Properties,
equal or exceed the value of the Mortgaged Properties. Such a decline could,
in certain circumstances, result in the interest in the Mortgaged Property held
by the related Trust or Trust Estate, as applicable, being extinguished. In
addition, certain areas of the country may from time to time experience
significant declines in real estate values. The related Transferor will not be
able to quantify the impact of any such declines in the value of any Mortgaged
Properties or predict whether, to what extent or how long such declines may
continue. Because certain Mortgage Loans may have been underwritten pursuant
to standards that rely primarily on the value of the related Mortgaged
Properties rather than the creditworthiness of the borrowers under such
Mortgage Loans (each, a "Mortgagor"), the actual rates of delinquencies,
foreclosures and losses on such Mortgage Loans, particularly in periods during
which the value of the related Mortgaged Properties has declined, could be
higher than those historically experienced by the mortgage lending industry in
general.
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<PAGE> 18
Risks Associated with Junior Liens. Certain of the Mortgage Loans
will be home equity loans secured by junior liens (each, a "Junior Loan")
subordinate to the rights of the mortgagees under the related senior mortgages
(each, a "Senior Lien"). As a result, the proceeds from any liquidation,
insurance or condemnation proceedings will be available to satisfy the
principal balance of a Junior Loan only to the extent that the claims, if any,
of each such Senior Lien are satisfied in full, including any related
foreclosure costs. In addition, a junior mortgagee may not foreclose on the
Mortgaged Property securing the related Junior Loan unless it forecloses
subject to the related Senior Lien, in which case it must either pay the entire
amount of each Senior Lien to the applicable mortgagee at or prior to the
foreclosure sale or undertake the obligation to make payments on each Senior
Lien in the event of a default thereunder. Generally, a servicer will satisfy
each such Senior Lien at or prior to the foreclosure sale only to the extent it
determines that any amounts so paid will be recoverable from future payments
and collections on the Junior Loan or otherwise. No Trust or Trust Estate will
have any source of funds to satisfy any such Senior Lien or make payments due
under any Senior Lien. See "Certain Legal Aspects of the Mortgage Loans and
Related Matters -- Foreclosure/Repossession" herein.
Risks Associated with Balloon Loans. Certain of the Mortgage Loans
may constitute "Balloon Loans." Balloon Loans are loans originated with a term
to stated maturity that is shorter than the period on which the corresponding
amortization schedule is based. As a result, upon the maturity of a Balloon
Loan, the Mortgagor will be required to make a "balloon payment" which will be
significantly larger than the previous monthly payments due on such Balloon
Loan. The ability of such Mortgagor to repay a Balloon Loan at maturity
frequently will depend on such Mortgagor's ability to refinance the Mortgage
Loan. The ability of a Mortgagor to refinance such a Mortgage Loan will be
affected by a number of factors, including the prevailing level of mortgage
rates at the time, the value of the related Mortgaged Property, the Mortgagor's
equity in the related Mortgaged Property, the financial condition of the
Mortgagor, the tax laws and general economic conditions at the time.
Although a low interest rate environment may facilitate the
refinancing of a Balloon Loan, the receipt and reinvestment by Securityholders
of the proceeds in such an environment may produce a lower return than that
previously received in respect of the related Mortgage Loan. Conversely, a
high interest rate environment may make it more difficult for the Mortgagor to
accomplish a refinancing and may result in delinquencies or defaults. None of
the related Transferor, the Servicer, the Originators, the Trustee or any other
entity will be obligated to provide funds to refinance any Balloon Loan.
Risks Associated with Bankruptcy of the Mortgagor. General economic
conditions and other factors (which may not affect real property values) have
an impact on the ability of Mortgagors to repay Mortgage Loans. Loss of
earnings, illness, divorce and other similar factors may lead to an increase in
delinquencies, defaults and bankruptcy filings by Mortgagors. In the event of
personal bankruptcy of a Mortgagor, a bankruptcy court may suspend or reduce
the payments of principal and interest to be paid with respect to the related
Mortgage Loan or permanently reduce the principal balance of such Mortgage
Loan, thus either delaying or permanently limiting the amount ultimately
received by the related Trust or Trust Estate in respect of such Mortgage Loan.
Moreover, if a bankruptcy court were to prevent the Trustee for the related
Trust or Trust Estate, as applicable, or the related Servicer from causing a
transfer of the related Mortgaged Property in connection with a foreclosure or
similar proceeding, any remaining balance on the related Mortgage Loan may not
be recoverable and the related Trust or Trust Estate may experience a loss to
the extent of any such remaining balance.
Risks Associated with Defaulted Mortgage Loans. Even assuming that
the Mortgaged Properties provide adequate security for the Mortgage Loans,
substantial delays could be encountered in connection with the liquidation of
defaulted Mortgage Loans and corresponding delays in the distribution or
payment of related proceeds to the related Securityholders could occur. An
action to foreclose on a Mortgaged Property securing a Mortgage Loan is
regulated by state statutes and rules and is subject to many of the same delays
and expenses as other lawsuits if defenses or counterclaims are interposed,
sometimes requiring several years to complete. Furthermore, in some states an
action to obtain a deficiency judgment is not permitted following a nonjudicial
sale of a Mortgaged Property. In the event of a default by a Mortgagor, these
restrictions, among other things, may impede the ability of the Servicer or any
Sub-Servicer to foreclose on or sell the Mortgaged Property or to obtain
Liquidation Proceeds (net of expenses) sufficient to repay all amounts due on
the related Mortgage Loan. The Servicer or any Sub-Servicer will be entitled
to deduct from Liquidation Proceeds all expenses reasonably incurred in
attempting to recover amounts due on the related Liquidated Mortgage Loan and
not yet repaid, including unreimbursed Monthly Advances and Servicing Advances,
payments to prior lienholders, legal fees and costs of
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<PAGE> 19
legal action, real estate taxes, and maintenance and preservation expenses. In
the event that any of the Mortgaged Properties fail to provide adequate
security for the related Mortgage Loans, and the credit enhancement for the
related Series is not available to cover resulting shortfalls, Securityholders
could experience a loss on their investment.
Liquidation expenses with respect to defaulted Mortgage Loans do not
vary directly with the outstanding principal balance of the Mortgage Loans at
the time of default. Therefore, assuming that the Servicer or any Sub-
Servicer took the same steps in realizing upon a defaulted Mortgage Loan having
a small remaining principal balance as it would in the case of a defaulted
Mortgage Loan having a larger principal balance, the amount realized after
expenses of liquidation would be smaller as a percentage of the outstanding
principal balance of the smaller Mortgage Loan than would be the case with a
larger Mortgage Loan. Because the average outstanding principal balances of
Mortgage Loans that are Junior Loans generally are smaller relative to the
average outstanding principal balances of Mortgage Loans that are first
mortgage loans, realizations net of liquidation expenses on defaulted Mortgage
Loans that are Junior Loans may also be smaller as a percentage of the
principal amount of such Mortgage Loans than would be the case if such mortgage
loans were secured by first mortgages.
Risks Associated with Acquiring Additional Mortgage Loans. If a
Pooling and Servicing Agreement or Indenture provides for a Prefunding Account
and the principal balance of additional Mortgage Loans delivered by the related
Transferor during the related Funding Period is less than the Prefunding
Amount, the holders of the Securities of the related Series may receive a
prepayment of principal as and to the extent described in the related
Prospectus Supplement. In addition, if so specified in the Prospectus
Supplement relating to a Series of Certificates, an Amortization Period may
result from the failure of the related Transferor to assign additional Mortgage
Loans to the related Trust during the Revolving Period, thereby resulting in a
prepayment of the related Certificates. Any such principal prepayment may
adversely affect the yield to maturity of the related Securities. Because
prevailing interest rates are subject to fluctuation, there can be no assurance
that investors will be able to reinvest such a prepayment at yields equaling or
exceeding the yields on the related Securities. It is possible that the yield
on any such reinvestment will be lower, and may be significantly lower, than
the yield on the related Securities.
Each additional Mortgage Loan must satisfy the eligibility criteria
specified in the related Prospectus Supplement and related Pooling and
Servicing Agreement or Indenture, as applicable. Such eligibility criteria
will be determined in consultation with each Rating Agency (and/or any credit
enhancement provider for the related Series) prior to the issuance of such
Series and are designed to ensure that if such additional Mortgage Loans were
included as part of the initial Mortgage Loans, the credit quality thereof
would be consistent with the initial rating of the Securities of such Series.
At the time additional Mortgage Loans are transferred for inclusion in the
related Mortgage Pool, the related Transferor will certify that all conditions
precedent to the transfer of such additional Mortgage Loans, including the
satisfaction of specific eligibility criteria, have been satisfied. It is a
condition to the transfer of any additional Mortgage Loans by the related
Transferor for inclusion in the related Mortgage Pool that each Rating Agency,
after receiving prior notice of any such proposed transfer, shall not have
advised the related Transferor or the Trustee or any credit enhancement
provider for the related Series that the conveyance of such additional Mortgage
Loans will result in a qualification, modification or withdrawal of its then
current rating of the Securities of such Series. Following the transfer of
additional Mortgage Loans for inclusion in the related Mortgage Pool, the
aggregate characteristics of the Mortgage Loans then held in the related Trust
or Trust Estate, as applicable, may vary from those included in the original
Mortgage Pool. As a result, the additional Mortgage Loans may adversely affect
the performance of the related Securities. See "The Trusts and Trust Estates
- -- Forward Commitments; Prefunding Accounts; Capitalized Interest Accounts"
herein.
The ability of any Trust or Trust Estate, as applicable, to invest in
additional Mortgage Loans during the related Funding Period and, in the case of
a Series of Certificates, any Revolving Period, will be dependent upon the
ability of the related Transferor to acquire Mortgage Loans that satisfy the
prerequisites to transfer for inclusion in the related Mortgage Pool specified
in the related Prospectus Supplement. The ability of the related Transferor to
acquire such Mortgage Loans will be affected by a variety of social and
economic factors, including the prevailing level of market interest rates,
unemployment levels and consumer perceptions of general economic conditions.
Environmental Concerns. Under environmental legislation and case law
applicable in various states, a secured party that takes a deed in lieu of
foreclosure, acquires a Mortgaged Property at a foreclosure sale or, prior to
foreclosure, has been involved in decisions or actions affecting day-to-day
operations at a Mortgaged Property may
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<PAGE> 20
be liable for the costs of cleaning up any contamination found at such Mortgaged
Property. These costs, which could be substantial, could be a liability of the
Trust or Trust Estate, as applicable, and any such liability may ultimately be
borne by the Securityholders of the related Series of Securities. This
potential exposure will be minimized to some extent because under the terms of
the related Pooling and Servicing Agreement, Indenture or Servicing Agreement,
as applicable, the related Trustee and Servicer will not be authorized to take
any action that may be deemed participation in the management of a contaminated
Mortgaged Property. See "Certain Legal Aspects of the Mortgage Loans and
Related Matters -- Environmental Considerations" herein.
Risks Associated with Non-Owner Occupied Properties. Certain of the
Mortgaged Properties relating to Mortgage Loans may not be owner occupied. It
is possible that the rates of delinquencies, foreclosures and losses on
Mortgage Loans secured by non-owner occupied properties could be higher than
such rates on Mortgage Loans secured by the primary residence of the borrower.
LEGAL CONSIDERATIONS
State and Federal Regulations. Applicable state laws generally
regulate interest rates and other charges, require certain disclosures and
require licensing of the Originators, the Servicer and any Sub-Servicer. In
addition, most states have other laws, public policies and general principles
of equity relating to the protection of consumers, unfair and deceptive
practices and practices which may apply to the origination, servicing and
collection of the Mortgage Loans. In California, for example, a mortgage
lender is subject to the California Fair Debt Collection Practices Act which
regulates practices used to effect collection on consumer loans. See "Certain
Legal Aspects of the Mortgage Loans and Related Matters" herein.
The Mortgage Loans may also be subject to federal laws, including:
(i) the Truth in Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the borrowers regarding the terms of the
Mortgage Loans; (ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of age,
race, color, sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit Protection
Act, in the extension of credit; (iii) the Real Estate Settlement Procedures
Act and Regulation X promulgated thereunder, which require certain disclosures
to borrowers regarding the settlement and servicing of the Mortgage Loans; (iv)
the Fair Credit Reporting Act, which regulates the use and reporting of
information related to the borrower's credit experience; and (v) the Federal
Trade Commission Preservation of Consumer's Claims and Defenses Rule, 16 C.F.R.
Part 433, regarding the preservation of a consumer's rights.
The federal Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), may affect the ability of the Servicer to collect
full amounts of interest on certain Mortgage Loans and could interfere with the
ability of the Servicer to foreclose on certain properties. See "Certain Legal
Aspects of the Mortgage Loans and Related Matters -- Soldiers' and Sailors'
Civil Relief Act" herein.
It is possible that some of the Mortgage Loans will be subject to the
Riegle Community Development and Regulatory Improvement Act of 1994 (the
"Riegle Act") which incorporates the Home Ownership and Equity Protection Act
of 1994. The Riegle Act amended the Truth in Lending Act, which in turn led to
certain additional provisions being added to Regulation Z, the implementing
regulation of the Truth in Lending Act. These provisions impose additional
disclosure and other requirements on creditors with respect to non-purchase
money mortgage loans with high interest rates or high up-front fees and
charges. In general, mortgage loans within the purview of the Riegle Act have
annual percentage rates over 10% greater than the yield on Treasury Securities
of comparable maturity and/or fees and points which exceed the greater of 8% of
the total loan amount or $400. The provisions of the Riegle Act apply on a
mandatory basis to all mortgage loans originated on or after October 1, 1995.
The provisions can impose specific statutory liabilities upon creditors who
fail to comply with their provisions and may affect the enforceability of the
related loans. In addition, any assignee of the creditor would generally be
subject to all claims and defenses that the consumer could assert against the
creditor, including, without limitation, the right to rescind the mortgage
loan.
Depending on the provisions of the applicable law and the specific
facts and circumstances involved, violations of these laws, policies and
principles may limit the ability of the Servicer, or any Sub-Servicer, to
collect all or part of the principal of or interest on the Mortgage Loans, may
entitle the borrower to a refund of amounts previously paid and, in addition,
could subject the Servicer, or any Sub-Servicer, to damages and administrative
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<PAGE> 21
sanctions. If the Servicer, or any Sub-Servicer, is unable to collect all or
part of the principal or interest on any Mortgage Loans because of a violation
of the aforementioned laws, public policies or general principles of equity,
distributions or payments to Securityholders of realized proceeds of the assets
in the related Trust or Trust Estate, as applicable, may be delayed, or such
proceeds may not be sufficient to repay all amounts owed to Securityholders.
Furthermore, depending upon whether damages and sanctions are assessed against
the Servicer or an Originator, such violations may have a material impact upon
the financial ability of the Servicer to continue to act in such capacity or
the ability of a Transferor to withdraw or replace Mortgage Loans if such
violation breaches a representation or warranty contained in the related
Pooling and Servicing Agreement or Indenture, as applicable.
YIELD, MATURITY AND PREPAYMENT CONSIDERATIONS
The yield to maturity of the Securities of any Series will be affected
by the amount and timing of principal payments on the related Mortgage Loans,
the manner of allocation of available funds and/or losses to such Securities,
the interest rates or amounts of interest payable on such Securities and the
purchase price paid for such Securities. In the case of a Series of
Certificates issued in Classes, the interaction of the foregoing factors may
have different effects on, and create different risks for, such Classes, and
the effects and/or risks for any one Class may vary over the life of such
Class. The related Prospectus Supplement may include additional prepayment
considerations with respect to the Securities of the related Series. Investors
should carefully consider the different consequences of such risks as may be
described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans may be prepaid in full or in part at any time; however, a
prepayment penalty or premium may still be imposed in connection therewith. The
rate of prepayments of the Mortgage Loans cannot be predicted and may be
affected by a wide variety of economic, social and other factors, including
prevailing interest rates, the availability of alternative financing and
homeowner mobility. Therefore, no assurance can be given as to the level of
prepayments that may be experienced on Mortgage Loans included in any Mortgage
Pool.
Although published statistical data regarding the effects of interest
rates on prepayment rates for Mortgage Loans of the type typically made or
acquired by the Originators is limited, a number of factors suggest that the
prepayment behavior of a pool including Mortgage Loans may be significantly
different from that of a pool composed entirely of conforming, non-conforming,
"jumbo" or government-insured (i.e., "traditional") first mortgage loans with
equivalent interest rates and maturities. One such factor is the smaller
average principal balance of Mortgage Loans that may result in a higher
prepayment rate than that of a traditional first mortgage loan with a larger
average balance, regardless of the interest rate environment. A small
principal balance, however, also may make refinancing Mortgage Loans at a lower
interest rate less attractive to the borrower relative to refinancing a larger
balance first mortgage loan, as the perceived impact to the borrower of lower
interest rates on the amount of the monthly payment for a Mortgage Loan may be
less than for a traditional first mortgage loan with a larger balance. Other
factors that might be expected to affect the prepayment rate of a pool of
Mortgage Loans include the amounts of, and interest rates on, the underlying
Senior Liens, if any, and the use of first mortgage loans as long-term
financing for home purchase and home equity loans as shorter-term financing for
a variety of purposes, including home improvement, education expenses and
purchases of consumer durables such as automobiles. Accordingly, Mortgage Loans
may experience a higher rate of prepayments than traditional first mortgage
loans. In addition, any future limitations on the deductibility of interest
payments on the Mortgage Loans for federal income tax purposes may further
increase the rate of prepayments on the Mortgage Loans.
In addition, certain of the Mortgage Loans comprising the Mortgage
Pool may have adjustable Mortgage Interest Rates ("ARM Loans"). As is the case
with conventional fixed-rate mortgage loans, ARM Loans may be subject to a
greater rate of principal prepayments in a declining interest rate environment.
For example, if prevailing interest rates fall appreciably, ARM Loans could be
subject to higher prepayment rates than if prevailing interest rates remain
constant because the availability of fixed-rate mortgage loans at competitive
interest rates may encourage mortgagors to refinance their ARM Loans to "lock
in" a lower fixed interest rate. Conversely, if prevailing interest rates rise
appreciably, ARM Loans may prepay at lower rates than if prevailing interest
rates remain at or below those in effect at the time such ARM Loans were
originated. There can be no certainty as to the rate of prepayments on the ARM
Loans in stable or changing interest rate environments. See "Maturity,
Prepayment and Yield Considerations" herein.
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<PAGE> 22
Prepayments may result from voluntary early payments by borrowers
(including payments in connection with refinancings of any related Senior
Liens), sales of Mortgaged Properties subject to due-on-sale provisions and
liquidations due to default, as well as the receipt of proceeds from physical
damage, credit life and disability insurance policies. In addition,
withdrawals or reacquisitions of Mortgage Loans from a Trust or Trust Estate,
as applicable, required to be made under the related Pooling and Servicing
Agreement or Indenture will have the same effect on the Securityholders as a
prepayment of such Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, all of the Mortgage Loans contain due-on-sale
provisions, and the Servicer will be required to enforce such provisions unless
(i) such enforcement would materially increase the risk of default or
delinquency on, or materially decrease the security for, such Mortgage Loan or
(ii) such enforcement is not permitted by applicable law, in which case the
Servicer is authorized to permit the purchaser of the related Mortgaged
Property to assume the Mortgage Loan. Additionally, should any Originator
solicit refinancings from existing borrowers, the rate of prepayments on the
Mortgage Loans may increase due to any resulting refinancings.
Prepayments on the Mortgage Loans for a Series generally will result
in a faster rate of distributions or payments, as applicable, of principal on
the Securities. Thus, the prepayment experience of the Mortgage Loans will
affect the average life and yield to investors and the extent to which the
Securities of any Series are paid prior to the final scheduled Distribution
Date or Payment Date, as applicable, therefor. A Series of Certificates may
include Classes which pay "interest only" or are entitled to receive a
disproportionately high level of interest distributions compared to the amount
of principal to which such Classes are entitled (each, an "Interest Weighted
Class") or Classes which pay "principal only" or are entitled to receive a
disproportionately high level of principal distributions compared to the amount
of interest to which such Classes are entitled (each, a "Principal Weighted
Class"). A Series of Certificates may include an Interest Weighted Class
offered at a significant premium or a Principal Weighted Class offered at a
substantial discount. Yields on such Classes will be extremely sensitive to
prepayments on the Mortgage Loans for such Series. In general if the
Securities of any Series, including Certificates that represent an Interest
Weighted Class, are purchased at a premium and principal payments on the
Mortgage Loans occur at a rate faster than anticipated at the time of purchase,
the investor's actual yield to maturity could be significantly lower than that
assumed at the time of purchase. Where the amount of interest allocated with
respect to an Interest Weighted Class of Certificates is extremely
disproportionate to principal, the related Certificateholder could, under some
such prepayment scenarios, fail to recoup its original investment. Conversely,
if the Securities of any Series, including Certificates that represent a
Principal Weighted Class, are purchased at a discount and principal payments on
the Mortgage Loans occur at a rate slower than assumed at the time of purchase,
the investor's actual yield to maturity could be significantly lower than that
originally anticipated. See "Maturity, Prepayment and Yield Considerations"
herein.
Any rating assigned to the Securities by a Rating Agency will reflect
only such Rating Agency's assessment of the likelihood that timely
distributions or payments, as applicable, will be made with respect to such
Securities in accordance with the related Pooling and Servicing Agreement or
Indenture, as applicable. Such rating will not constitute an assessment of the
likelihood that principal prepayments on the Mortgage Loans will be made by
Mortgagors or of the degree to which the rate of such prepayments might differ
from that originally anticipated. As a result, such rating will not address the
possibility that prepayment rates higher or lower than anticipated by an
investor may cause such investor to experience a lower than anticipated yield,
or that an investor purchasing an Interest Weighted Class of Certificates at a
significant premium might fail to recoup its initial investment.
Collections on the Mortgage Loans may vary due to the level of
incidence of delinquent payments and of prepayments. Collections on the
Mortgage Loans may also vary due to seasonal purchasing and payment habits of
Mortgagors.
LIMITATIONS ON INTEREST PAYMENTS AND FORECLOSURES
Generally, under the terms of the Relief Act or similar state
legislation, a mortgagor who enters military service after the origination of
the related mortgage loan (including a mortgagor who is a member of the
National Guard or is in reserve status at the time of the origination of the
mortgage loan and is later called to active duty) may not be charged interest
(including fees and charges) above an annual rate of 6% during the period of
such mortgagor's active duty status, unless a court orders otherwise upon
application of the lender. It is possible that such action could affect, for
an indeterminate period of time, the ability of the Servicer to collect full
amounts of interest on certain of the Mortgage Loans. In addition, the Relief
Act imposes limitations which would impair the
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<PAGE> 23
ability of the Servicer to foreclose on an affected Mortgage Loan during the
Mortgagor's period of active duty status. Thus, in the event that such a
Mortgage Loan goes into default, there may be delays and losses occasioned by
the inability to realize upon the Mortgaged Property in a timely fashion.
SECURITY RATING
Depending on the structure of the related transaction, the ratings
assigned to the Securities of a given Series the credit of which is enhanced
through external means, such as a letter of credit, Financial Guaranty
Insurance Policy, Mortgage Pool Insurance Policy, Special Hazard Insurance
Policy or Bankruptcy Bond, may depend primarily on the creditworthiness of the
provider of such external credit enhancement device. Any reduction or
withdrawal of the rating assigned to the claims-paying ability of the credit
enhancement provider below the rating initially given to such Securities would
likely result in a reduction in the rating of such Securities and, in such
event, the market price of such Securities could be adversely affected. See
"Rating" herein.
BOOK-ENTRY REGISTRATION
Effect on Liquidity. If so specified in the related Prospectus
Supplement, the Securities may initially be registered in book-entry form.
Issuance of the Securities in book-entry form may reduce the liquidity of such
Securities in the secondary market because investors may be unwilling to
purchase Securities for which they cannot obtain physical certificates.
Difficulty in Pledging. Because transactions in Securities, in most
cases, will be able to be effected only through Participants, Indirect
Participants and certain banks, the ability of a Securityholder to pledge
Securities to persons or entities that do not participate in the DTC system, or
otherwise to take actions in respect of such Securities, may be impaired
because physical certificates representing the Securities will not generally be
available.
Potential Delays in Receipt of Distributions or Payments.
Securityholders may experience some delay in their receipt of distributions or
payments, as applicable, of interest on and principal of the Securities because
distributions may be required to be forwarded by the related Trustee to DTC
and, in such a case, DTC will be required to credit such distributions or
payments, as applicable, to the accounts of its Participants which thereafter
will be required to credit them to the accounts of the applicable
Securityholders either directly or indirectly through Indirect Participants.
See "Description of the Securities -- Form of Securities -- Book-Entry
Registration" herein.
FUNDS AVAILABLE FOR REDEMPTIONS AT THE REQUEST OF BONDHOLDERS
With respect to any Series of Bonds for which the related Prospectus
Supplement provides for redemptions of such Bonds at the request of
Bondholders, there can be no assurance that amounts available for such
redemptions for such Bonds will be sufficient to permit such Bonds to be
redeemed within a reasonable time after redemption is requested, for reasons
including the following:
(i) Scheduled principal payments on the related Mortgage
Loans generally will be minimal in the early years and will increase
in the later years of such Mortgage Loans. As a result, funds
available to be applied to redemptions at the request of Bondholders,
may be expected to be limited in the early years and to increase
during the later years of each Series. Accordingly, the availability
of funds for redemptions of Bonds of any Series at the request of
Bondholders will depend largely upon the rates of prepayment of the
related Mortgage Loans.
(ii) Prepayments of principal on Mortgage Loans are less
likely to occur during periods of higher interest rates when it is
more likely that requests for redemption by Bondholders will be made.
During periods in which prevailing interest rates are higher than the
interest rate paid on Bonds that may be redeemed at the request of
Bondholders, greater numbers of such Bonds are expected to be tendered
for redemption in order to take advantage of the higher interest rates
payable on other investments then available. During such periods,
there will likely also be a reduction in the rate of prepayments on
the related Mortgage Loans, thus limiting the funds available to
satisfy requested redemption by Bondholders.
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<PAGE> 24
(iii) As specified in the related Prospectus Supplement,
certain Bondholders, such as personal representatives of deceased
Bondholders, may have certain priorities as to redemption at the
request of Bondholders.
THE TRUSTS AND TRUST ESTATES
The Trust or Trust Estate, as applicable, for any Series of Securities
will include a Mortgage Pool that may consist of Mortgage Loans together with
payments in respect thereof and certain other accounts, obligations or
agreements, in each case as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
sole source of distributions or payments, as applicable, in respect of the
Securities will be the assets included in the related Trust or Trust Estate, as
applicable. The Securities will not be entitled to payments in respect of any
other assets included in any other Trust or Trust Estate established by the
related Transferor or any of its affiliates.
The following is a brief description of the Mortgage Loans expected to
be included in the Trust or Trust Estate, as applicable, relating to a given
Series of Securities. The related Prospectus Supplement will set forth
detailed information respecting the Mortgage Loans proposed to be included in
the related Mortgage Pool. Information regarding the actual composition of the
Mortgage Loans in the related Mortgage Pool will be set forth in a report on
Form 8-K to be filed with the Commission within 15 days after such Mortgage
Pool is complete (the "Detailed Description"). A schedule of the Mortgage
Loans relating to such Series will be attached to the related Pooling and
Servicing Agreement or Indenture, as applicable, delivered in connection with
the issuance of the Securities.
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Pool may be divided into two or more groups based on
certain characteristics of the related Mortgage Loans (such as type or amount
of Mortgage Rate, remaining term to maturity or type of Mortgaged Property) and
amounts received, collected or recovered in respect of any such group will be
the primary source from which distributions on certain Classes of Certificates
will be derived.
THE MORTGAGE LOANS -- GENERAL
The real properties (including condominiums and townhouses) which
secure repayment of the Mortgage Loans (the "Mortgaged Properties") may be
located in any one of the fifty states or the District of Columbia. Unless
otherwise specified in the related Prospectus Supplement, all of the Mortgage
Loans will be covered by standard hazard insurance policies ("Standard Hazard
Insurance Policies"). The existence and extent of any such coverage will be
described in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Mortgage Loans will not be insured or
guaranteed by any governmental agency or covered wholly or partially by primary
mortgage insurance policies.
Unless otherwise specified in the related Prospectus Supplement, all
of the Mortgage Loans in a Mortgage Pool will provide for payments to be made
monthly on due dates occurring throughout the month.
The Mortgage Loans to be included in any Mortgage Pool will be
described in the related Prospectus Supplement. The Mortgage Loans will have
interest payable thereon at (i) fixed rates specified in the related Prospectus
Supplement, (ii) adjustable rates computed as specified in the related
Prospectus Supplement or (iii) graduated or other variable rates described in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, each Mortgage Loan will require monthly payment of
principal and interest. Scheduled payments of principal on any Mortgage Loan
may be computed (i) on a level debt service basis that will result in full
amortization over the stated term of such Mortgage Loan, (ii) in the case of a
Balloon Loan, on the basis of an assumed amortization schedule that is
significantly longer than the original term to maturity of such Mortgage Loan
and will require payment of a substantial amount of principal at the stated
maturity specified in the related Mortgage Note or (iii) on such other basis as
is specified in the related Prospectus Supplement.
Certain of the Mortgage Loans may have been originated pursuant to
underwriting standards that rely primarily on the value and adequacy of the
Mortgaged Property as collateral and, to a much lesser extent, on the
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<PAGE> 25
creditworthiness of the related Mortgagor. Accordingly, the rates of
delinquencies, foreclosures and losses on such Mortgage Loans, particularly in
periods during which the value of the related Mortgaged Properties has
declined, may be higher than those historically experienced by the mortgage
lending industry in general. See "The Originators -- Underwriting Guidelines"
herein.
Prepayments of principal may be subject to a prepayment fee, which may
be fixed for the life of the Mortgage Loan or may decline over time, and may be
prohibited for the life of the Mortgage Loan or for certain periods ("lockout
periods"). Certain Mortgage Loans may permit prepayments after expiration of
the applicable lockout period and may require the payment of a prepayment fee
in connection with any such subsequent prepayment. Other Mortgage Loans may
permit prepayments without payment of a fee unless the prepayment occurs during
specified time periods. The Mortgage Loans may include due-on-sale clauses
which permit the mortgagee to demand payment of the entire Mortgage Loan in
connection with the sale or certain transfers of the related Mortgaged
Property. Other Mortgage Loans may be assumable by persons meeting the then
applicable underwriting standards of the applicable Originator.
The Prospectus Supplement for each Series of Securities will contain
information, as of the date of such Prospectus Supplement and to the extent
then specifically known to the related Transferor, with respect to the Mortgage
Loans contained in the related Mortgage Pool, including (i) the aggregate
outstanding principal balance and the average outstanding principal balance of
the Mortgage Loans as of the applicable Cut-off Date, (ii) the largest
principal balance and the smallest principal balance of any of the Mortgage
Loans, (iii) the types of Mortgaged Properties securing the Mortgage Loans,
(iv) the original terms to maturity of the Mortgage Loans, (v) the weighted
average term to maturity of the Mortgage Loans as of the related Cut-off Date
and the range of the terms to maturity, (vi) the ranges of Combined
Loan-to-Value Ratios at origination, (vii) the weighted average Mortgage Rate
and ranges of Mortgage Rates borne by the Mortgage Loans and (viii) the
geographical distribution of the Mortgaged Properties on a state-by-state
basis. If specific information respecting the Mortgaged Loans is not known to
the related Transferor at the time the related Securities are initially
offered, more general information of the nature described above will be
provided in the related Prospectus Supplement and specific information will be
set forth in the Detailed Description.
The "Combined Loan-to-Value Ratio" of a Mortgage Loan at any given
time is the ratio, expressed as a percentage, determined by dividing (x) the
sum of the original principal balance of such Mortgage Loan, plus the current
principal balance of any Senior Lien on the related Mortgaged Property, by (y)
the Appraised Value of such Mortgaged Property. "Appraised Value" is the
appraised value of a Mortgaged Property based upon the lesser of (i) the
appraisal or valuation made either at the time of the origination of the
related Mortgaged Loan or, in certain cases with respect to Mortgage Loans
acquired directly or indirectly by the related Transferor from an Unaffiliated
Originator, at or immediately prior to the date of acquisition of the related
Mortgage Loan, and (ii) in the case where there is no Senior Lien to the
Mortgage Loan and such Mortgage represents a purchase money instrument, the
sales price of the related Mortgaged Property at the time of the origination of
the related Mortgage Loan.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should
experience an overall decline in property values such that the outstanding
principal balances of the Mortgage Loans (plus any additional financing by
other lenders secured by the same Mortgaged Properties) in a particular
Mortgage Pool become equal to or greater than the value of such Mortgaged
Properties or if the general condition of a Mortgaged Property declines, the
actual rates of delinquencies, foreclosures and losses on the related Mortgage
Loans could be higher than those now generally experienced in the mortgage
lending industry. Any overall decline in the market value of residential real
estate, the general condition of the Mortgaged Properties or other factors
could adversely affect the values of the Mortgaged Properties such that the
outstanding principal balance of such Mortgage Loans, together with any
additional liens on the Mortgaged Properties, equal or exceed the value of such
Mortgaged Properties and give rise to the consequences discussed in the
preceding sentence.
Each Series of Bonds will be secured by the assets included in the
related Trust Estate that will have been pledged to the related Trustee by the
related Bond Issuer, and each Series of Certificates will represent a
beneficial interest in the assets included in the related Trust that will have
been transferred to the related Trustee by the related Transferor. The
Servicer will service the Mortgage Loans either directly, or through the
Sub-Servicers, pursuant to the related Pooling and Servicing Agreement or
Servicing Agreement, as applicable, and will receive a fee for such
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<PAGE> 26
services. See "The Pooling and Servicing Agreement -- General Servicing
Procedures" herein. With respect to Mortgage Loans serviced through a
Sub-Servicer, the Servicer will remain liable for its servicing obligations
under the related Pooling and Servicing Agreement or Servicing Agreement, as
applicable, as if the Servicer alone were servicing such Mortgage Loans.
The obligations of the Servicer with respect to the Mortgage Loans
will consist principally of its contractual servicing obligations, including
its obligations to make Servicing Advances and to enforce the obligations of
the Sub-Servicers, under the related Agreement, and its obligation to make
certain Monthly Advances in the event of delinquencies in payments on or with
respect to the Mortgage Loans in the amounts described under "The Pooling and
Servicing Agreement -- Monthly Advances and Compensating Interest" herein. The
obligations of the Servicer to make Monthly Advances may be subject to
limitations, to the extent provided herein and in the related Prospectus
Supplement.
FORWARD COMMITMENTS; PREFUNDING ACCOUNTS; CAPITALIZED INTEREST ACCOUNTS
If so specified in the related Prospectus Supplement, the related
Pooling and Servicing Agreement or Indenture, as applicable, may contain
provisions pursuant to which the related Transferor will agree to transfer
additional Mortgage Loans into the related Mortgage Pool during a specified
period of time (the "Funding Period") following the date on which the related
Securities are issued (such provisions being referred to herein as a "Forward
Commitment"). The Forward Commitment may permit the transfer to the related
Trust or Trust Estate, as applicable, of additional Mortgage Loans that have
not completed the origination process by the date on which the Securities are
to be delivered to the Securityholders (the "Closing Date") or were otherwise
not available to be delivered by the related Transferor on such Closing Date.
If a Forward Commitment is to be utilized, unless otherwise specified in the
related Prospectus Supplement, a deposit will be made to a segregated account
(each, a "Prefunding Account") in an amount equal to all or a portion of the
proceeds received in connection with the sale of the Securities of the related
Series (such amount, the "Prefunding Amount"). Subsequently, additional
Mortgage Loans will be conveyed by the related Transferor for inclusion in the
related Mortgage Pool in exchange for cash from the related Prefunding Account
in one or more transfers. The related Pooling and Servicing Agreement or
Indenture, as applicable, will require that, if any portion of the Prefunding
Amount is not applied to acquire additional Mortgage Loans by the end of the
Funding Period, any amounts remaining will be released from the Prefunding
Account and distributed or paid, as applicable, in reduction of the principal
balance of the related Securities as specified in the related Prospectus
Supplement.
Each additional Mortgage Loan must satisfy the eligibility criteria
specified in the related Prospectus Supplement and related Pooling and
Servicing Agreement or Indenture, as applicable. Such eligibility criteria
will be determined in consultation with each Rating Agency (and/or any credit
enhancement provider for the related Series) prior to the issuance of such
Series and are designed to ensure that if such additional Mortgage Loans were
included as part of the initial Mortgage Pool, the credit quality thereof would
be consistent with the initial rating of the Securities of such Series. At the
time additional Mortgage Loans are transferred for inclusion in the related
Mortgage Pool, the related Transferor will certify that all conditions
precedent to the transfer of such additional Mortgage Loans, including the
satisfaction of specific eligibility criteria, have been satisfied. It is a
condition to the transfer of any additional Mortgage Loans by the related
Transferor for inclusion in the related Mortgage Pool that each Rating Agency,
after receiving prior notice of such proposed transfer, shall not have advised
the related Transferor or the Trustee or any credit enhancement provider for
the related Series that the conveyance of such additional Mortgage Loans will
result in a qualification, modification or withdrawal of its then current
rating of any Securities of such Series. Following the transfer of additional
Mortgage Loans to the related Trust or Trust Estate, as applicable, the
aggregate characteristics of the Mortgage Loans then held in such Trust or
Trust Estate may vary from those included in the original Mortgage Pool. As a
result, the additional Mortgage Loans may adversely affect the performance of
the related Securities.
If a Prefunding Account is established, a segregated account (each, a
"Capitalized Interest Account") may also be established for the related Series.
On the Closing Date for such Series, all or a portion of the proceeds received
by the related Transferor in connection with the sale of the Securities of the
related Series may be deposited in the Capitalized Interest Account and used to
fund the excess, if any, of the sum of (i) the amount of interest accrued on
the Securities of such Series specified in the related Prospectus Supplement
and (ii) if specified in the related Prospectus Supplement, certain fees or
expenses during the Funding Period such as Trustee fees and
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<PAGE> 27
credit enhancement fees, over the amount of interest available therefor from
the Mortgage Loans in the related Mortgage Pool. If so specified in the
related Prospectus Supplement, amounts on deposit in the Capitalized Interest
Account may be released to the related Transferor prior to the end of the
Funding Period subject to the satisfaction of certain tests specified in the
related Prospectus Supplement. Any amounts on deposit in the Capitalized
Interest Account at the end of the Funding Period that are not necessary for
such purposes will be distributed to the person specified in the related
Prospectus Supplement.
USE OF PROCEEDS
Each Transferor intends to use the net proceeds to be received from
the sale of the Securities of each Series to acquire the Mortgage Loans to be
deposited in the related Mortgage Pool, to establish any Reserve Account,
Prefunding Account or Capitalized Interest Account and to pay other expenses
connected with the pooling of Mortgage Loans and the issuance of Securities.
Any amounts remaining after such payments may be used for general corporate
purposes. The timing and amount of offerings of Securities by each Transferor
will be influenced by a number of factors, including volume of Mortgage Loans
acquired by such Transferor from time to time, prevailing interest rates,
availability of funds and general market conditions.
AAMES CAPITAL CORPORATION
Aames Capital Corporation ("ACC") was incorporated in the State of
California on August 13, 1993 and is a wholly owned subsidiary of AFC. ACC is
primarily engaged in acquiring, owning, transferring and servicing Mortgage
Loans. ACC maintains its principal offices at 3731 Wilshire Boulevard, Los
Angeles, California 90010 and its telephone number is (800) 829-2929. ACC will
only act as Transferor in connection with the issuance of Certificates and will
not act in such capacity in connection with the issuance of any Series of
Bonds. Neither ACC nor any of its affiliates will insure or guarantee
distributions on the Securities of any Series.
AAMES CAPITAL ACCEPTANCE CORP.
Aames Capital Acceptance Corp. ("ACAC") was incorporated under the
laws of the State of Delaware on February 4, 1997, and is a wholly owned
limited purpose finance subsidiary of Aames Financial Corporation ("AFC").
ACAC's principal office is located at 3731 Wilshire Boulevard, Los Angeles,
California 90010 and its telephone number is (213) 351-6100. ACAC was
organized for the sole purpose of facilitating transactions of the type
described herein and in connection therewith purchasing, holding, owning and
transferring all right, title and interest in Mortgage Loans and any activities
incidental to and necessary or convenient for the accomplishment of such
purpose. ACAC does not have, and is not expected in the future to have, any
significant assets.
ACAC may act as the Bond Issuer or may sell or assign its beneficial
ownership interest in any Mortgage Pool, in whole or in part, to another entity
formed by ACAC solely for the purpose of acting as the Bond Issuer for a given
Series of Bonds at or prior to the time of the issuance of such Bonds. Each
Series of Bonds will be non- recourse obligations of the related Bond Issuer.
ACAC's Certificate of Incorporation places substantial restrictions on
the operations and management of ACAC such that a voluntary or involuntary
application with respect thereto for relief under the United States Bankruptcy
Code or similar state laws is unlikely. Neither ACAC nor any of its affiliates
will insure or guarantee distributions on the Securities of any Series.
THE SERVICER
GENERAL
ACC will act as servicer (in such capacity, the "Servicer") with
respect to the Mortgage Loans included in the Mortgage Pool for any Series of
Securities.
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<PAGE> 28
MORTGAGE LOAN DELINQUENCY AND FORECLOSURE EXPERIENCE
The following table sets forth delinquency and foreclosure experience
of home equity loans originated or purchased by the Servicer or Affiliated
Originators and included in the servicing portfolio of the Servicer or its
affiliates for the periods indicated, except that the information with respect
to losses on foreclosed loans does not include any mortgage loans not sold by
the Servicer in connection with a securitization even if serviced and
foreclosed upon during the indicated period.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Percentage of dollar amount of delinquent loans to
loans serviced (period end)(1)(2)
One Month . . . . . . . . . . . . . . . . . . . . . . 3.78% 3.88% 4.86%
Two Months . . . . . . . . . . . . . . . . . . . . . 1.61% 1.56% 1.79%
Three or More Months:
Not foreclosed(3) . . . . . . . . . . . . . . . . . 6.71% 5.00% 8.05%
Foreclosed(4) . . . . . . . . . . . . . . . . . . . 3.58% 1.47% 1.04%
----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . 15.68% 11.91% 15.74%
====== ====== ======
Percentage of dollar amount of loans foreclosed to
loans serviced (period end)(2) . . . . . . . . . . . . . 3.02% 1.17% 1.17%
Number of loans foreclosed . . . . . . . . . . . . . . . . 215 159 221
Principal amount at time of foreclosure of foreclosed
loans (in thousands) . . . . . . . . . . . . . . . . . . . $11,528 $6,675 $14,349
Losses on foreclosed loans included in pools of loans
securitized (in thousands) . . . . . . . . . . . . . . . . $40 $322 $1,342
</TABLE>
- -------------
(1) Delinquent loans are loans for which more than one payment is due.
(2) The delinquency and foreclosure percentages are calculated on the basis of
the total dollar amount of mortgage loans originated or purchased by the
Servicer and, in each case, serviced by the Servicer as of the end of the
periods indicated. The total outstanding principal balance of such loans
serviced by the Servicer as of the end of any indicated period includes
many loans that will not have been outstanding long enough to give rise to
some or all of the indicated periods of delinquency.
(3) Represents loans that are in foreclosure but as to which foreclosure
proceedings have not concluded.
(4) Represents properties acquired by the Servicer following foreclosure sale
and still serviced by the Servicer at period end.
The loss information included in the table above reflects only loss
experience with respect to foreclosed properties for which affiliates of the
Servicer were retained to manage such properties during such periods. The loss
information excludes any gains realized on foreclosed properties.
The Servicer's servicing portfolio has grown over the periods
presented. However, because foreclosures and losses typically occur months or
years after a loan is originated, data relating to delinquencies, foreclosures
and losses as a percentage of the current portfolio can understate the risk of
future delinquencies, losses or foreclosures. No information is available to
the Servicer with respect to delinquencies, foreclosures or losses on loans
originated by affiliates of the Servicer if the related loans or properties
were not serviced or managed, as applicable, by the Servicer or such
affiliates. In addition, no information is available to the Servicer with
respect to delinquency, foreclosure or loss experience with respect to loans
originated by any Unaffiliated Originators if the related loans or properties
were not serviced or managed, as applicable, by the Servicer.
Losses realized on properties managed by affiliates of the Servicer
and acquired upon foreclosure of loans generally increased over the three-year
period ended June 30, 1996. However, the amount of such losses is relatively
low in comparison to the volume of home equity mortgage loans originated by
affiliates of the Servicer during such period, and the Servicer believes such
losses were limited as a direct result of loan origination standards, similar
to the Aames Guidelines, that have historically required a low initial Combined
Loan-to-Value Ratio. See "The Originators -- Underwriting Guidelines" and
"Risk Factors -- Nature of the Security for Mortgage Loans" herein.
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<PAGE> 29
There is no assurance that the delinquency, foreclosure and loss
experience with respect to any of the Mortgage Loans or with respect to any
Mortgage Pool will be comparable to the experience reflected above for home
equity mortgage loans originated or purchased and serviced by affiliates of the
Servicer. Because certain Mortgage Loans may have been underwritten pursuant
to standards that rely primarily on the value of the related Mortgaged
Properties rather than the creditworthiness of the related Mortgagors, the
actual rates of delinquencies, foreclosures and losses on such Mortgage Loans,
particularly in periods during which the value of the related Mortgaged
Properties has declined, could be higher than those historically experienced by
the mortgage lending industry in general. To the extent the Aames Guidelines
applicable in the future permit higher initial Combined Loan-to-Value Ratios
than those that have been required historically, or to the extent Mortgage
Pools contain a larger percentage of higher credit grade loans than have
historically been the case, losses realized on foreclosures of the related
Mortgaged Properties may be higher than the experience reflected above for home
equity mortgage loans originated or purchased and serviced by affiliates of the
Servicer. In addition, the rate of delinquencies, foreclosures and losses with
respect to the Mortgage Loans will also be affected by, among other things,
interest rate fluctuations and general and regional economic conditions. See
"Risk Factors -- Nature of the Security for Mortgage Loans" herein.
THE ORIGINATORS
Each Transferor may acquire Mortgage Loans originated by one or more
subsidiaries of AFC ("Affiliated Originators"). In addition, each Transferor
may directly, or indirectly through one of the Affiliated Originators, acquire
Mortgage Loans originated by entities unaffiliated with AFC ("Unaffiliated
Originators") (together with Affiliated Originators, the "Originators").
UNDERWRITING GUIDELINES
All Mortgage Loans originated by Affiliated Originators will be
underwritten in accordance with standard guidelines (the "Aames Guidelines")
developed by the Servicer and the related Affiliated Originator for customary
application in the Affiliated Originator's loan origination activities, as
described below. Mortgage Loans originated by Unaffiliated Originators are
reunderwritten in accordance with the applicable Aames Guidelines.
The Aames Guidelines generally are applied to evaluate the value and
adequacy of the Mortgaged Property as collateral and to evaluate the
Mortgagor's credit standing and repayment ability. In determining the adequacy
of the Mortgaged Property as collateral, the related Originator obtains an
appraisal of each property considered for financing. The appraiser is required
to inspect the property and verify that it is in acceptable condition and that
construction, if new, has been completed. The appraisal is based on the market
value of comparable homes and is conducted substantially in accordance with
mortgage banking industry appraisal standards. Appraisers utilized by
Affiliated Originators are generally employees of the related Affiliated
Originator. In connection with the related Transferor's reunderwriting of the
Mortgage Loans originated by Unaffiliated Originators, such Transferor will
have reviewed the appraisal values for all of the Mortgaged Properties securing
such Mortgage Loans; however, such Transferor generally will not reappraise any
such Mortgage Loans. There can be no assurance that if such Mortgage Loans
were reappraised by the related Transferor in accordance with the applicable
Aames' Guidelines that the appraised value of such Mortgaged Properties would
not be lower than the appraised value determined at origination by or on behalf
of the related Unaffiliated Originators.
In general, a prospective borrower applying for a Mortgage Loan is
required to fill out a detailed application designed to provide the Originator
pertinent information. As part of the description of the borrower's financial
condition, the borrower generally is required to provide a current list of
assets and liabilities and a statement of income and expenses, as well as an
authorization to apply for a credit report that summarizes the borrower's
credit history. The Originator obtains credit information from credit
reporting agencies. In many cases, the credit information obtained will
include major derogatory credit items such as credit write-offs, outstanding
judgments and prior bankruptcies. The Originator generally verifies the
borrower's employment but in many cases does not verify the borrower's income.
Once all the signed loan documents, including the promissory note and
a security instrument (i.e., mortgage, deed of trust or security deed), and all
applicable employment, credit and property information are received, a
determination is made as to whether to make the loan. The primary (but not the
only) factor considered
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by the Originator in making this determination is the Combined Loan-to-Value
Ratio of the related Mortgaged Property, taking into account any existing
Senior Liens and the principal amount of the loan made with respect to the
related Mortgaged Property. Generally, a Mortgaged Property with a lower
Combined Loan-to-Value Ratio provides greater Security than a Mortgaged
Property with a higher Combined Loan-to-Value Ratio.
After expiration of any three business day rescission period that is
required by the federal Truth in Lending Act and the security instrument is
ready for recordation, the loan is fully funded. Repayment of principal and
interest is generally scheduled to begin approximately one month after funding
and, in many cases, the Originator, solely at the direction of the related
borrower, will withhold out of the related loan proceeds at origination the
first monthly payment to become due on such loan. The Aames Guidelines
generally require title insurance coverage issued at origination by an approved
title insurance company issuing an a standard form title insurance policy.
Such title policy is required to be in an amount at least equal to the original
principal amount of the related Mortgage Loan.
Notwithstanding the foregoing, in circumstances deemed appropriate by
the Servicer and/or ACC, certain of the Aames Guidelines may be modified or
waived with respect to some or all of the Mortgage Loans included in the
Mortgage Pool for a Series of Securities.
REPRESENTATIONS BY ORIGINATORS AND THE TRANSFERORS
Generally, an Unaffiliated Originator will make certain
representations and warranties with respect to the Mortgage Loans, as specified
below, when the Mortgage Loans are sold by such Unaffiliated Originator to the
related Transferor or an affiliate thereof. The related Transferor will make
comparable representations and warranties with respect to the Mortgage Loans
being transferred pursuant to the related Pooling and Servicing Agreement or
Indenture, as applicable.
Such representations and warranties generally include, among other
things, that (A) at the time of the sale by the Originator of each Mortgage
Loan and, (B) at the time of the conveyance by such Transferor of each
Mortgage Loan into the related Mortgage Pool: (i) the information with respect
to each Mortgage Loan set forth in the Loan Schedule and delivered upon
conveyance of the Mortgage Loan is true and correct as of the related Cut-off
Date; (ii) the proceeds of each Mortgage Loan have been fully disbursed and
there are no obligations to make further disbursements with respect to any
Mortgage Loan; (iii) each Mortgaged Property is improved by a single (one- to
four-) family residential dwelling, which may include a condominium, townhouse
or manufactured home which is permanently affixed to and treated as real
property under local law; (iv) each Mortgage Loan had, at the time of
origination, either an attorney's certification of title or a title search or
title policy; (v) as of the related Cut- off Date, each Mortgage Loan is
secured by a valid and subsisting lien of record on the Mortgaged Property
having the priority indicated on the related Loan Schedule and subject in all
cases to exceptions to title set forth in the title insurance policy, if any,
with respect to the related Mortgage Loan; (vi) each Originator held good and
indefeasible title to, and was the sole owner of, each Mortgage Loan conveyed
by such Originator; and (vii) each Mortgage Loan was originated in accordance
with law and is the valid, legal and binding obligation of the related
Mortgagor, subject to certain limitations.
Unless otherwise described in the related Prospectus Supplement, all
of the representations and warranties of an Unaffiliated Originator in respect
of a Mortgage Loan will be made as of the date on which such Unaffiliated
Originator sells the Mortgage Loan, and all of the representations and
warranties of the related Transferor in respect of a Mortgage Loan will be made
as of the date such Transferor conveys such Mortgage Loan into the related
Mortgage Pool. The date as of which such representations and warranties are
made thus may be a date prior to the date of the issuance of the related Series
of the Securities. A substantial period of time may elapse between the date as
of which the representations and warranties are made and the date the related
Series of Securities is issued. However, the related Transferor will not
include any Mortgage Loan in the Mortgage Pool for any Series of Securities if
anything has come to such Transferor's attention that would cause it to believe
that such representations and warranties will not be accurate and complete in
all material respects in respect of such Mortgage Loan as of the date of
initial issuance of the related Series of Securities.
Upon a breach of a representation and/or warranty with respect to a
Mortgage Loan made by the related Transferor under the related Pooling and
Servicing Agreement or Indenture, as applicable, which occurs after
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conveyance of the related Mortgage Loan to a Mortgage Pool, such Transferor may
be required to withdraw such Mortgage Loan from such Mortgage Pool or remove
such Mortgage Loan from the Mortgage Pool and convey a substantially similar
mortgage loan to the Mortgage Pool in substitution therefor.
DESCRIPTION OF THE SECURITIES
Each Series of Certificates will be issued in one or more classes
(each, a "Class") pursuant to an agreement (each, a "Pooling and Servicing
Agreement") dated as of the related Cut-off Date among the related Transferor,
the Servicer and the Trustee for the benefit of the holders of the Certificates
("Certificateholders") of such Series. Each Series of Bonds will be issued in
a single class pursuant to an indenture (each, an "Indenture") dated as of the
related Cut-off Date between the related Bond Issuer and the Trustee for the
benefit of the holders of the Bonds ("Bondholders" and, together with
Certificateholders, "Securityholders") of such Series. The provisions of each
Pooling and Servicing Agreement or Indenture, as applicable, will vary
depending upon the nature of the Securities to be issued thereunder and the
nature of the related Trust or Trust Estate, as applicable. A representative
form of Pooling and Servicing Agreement and Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summaries describe the material provisions relating to the Securities
which may appear in any related Pooling and Servicing Agreement or Indenture,
as applicable. The Prospectus Supplement for a Series of Securities will
describe any material provision of the related Pooling and Servicing Agreement
or Indenture, as applicable, relating to such Series that materially differs
from the description thereof contained in this Prospectus. The summaries do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the definitive Pooling and
Servicing Agreement or Indenture, as applicable, for each Series of Securities
and the applicable Prospectus Supplement. A copy of the definitive Pooling and
Servicing Agreement or Indenture, as applicable (each without exhibits),
relating to any Series of Securities will be provided to Securityholders,
without charge, upon written request to the related Transferor addressed to it
at: 3731 Wilshire Boulevard, Los Angeles, California 90010, Attention:
Corporate Secretary.
GENERAL
The Certificates of a given Series will evidence undivided beneficial
interests in the assets of the related Trust specified in the related
Prospectus Supplement. The Bonds of a given Series will represent non-recourse
obligations of the related Bond Issuer, secured by the assets in the related
Trust Estate, and the proceeds of such assets will be the sole source of
payments on such Bonds. The Securities of a given Series may be covered by or
entitled to the benefits of a Financial Guaranty Insurance Policy, a Mortgage
Pool Insurance Policy, a Special Hazard Insurance Policy, a Bankruptcy Bond or
other insurance policies, cash accounts, letters of credit, limited guaranty
insurance policies, third party guarantees or other forms of credit
enhancement, in each case as described herein and in the related Prospectus
Supplement. A Series of Certificates may include one or more Classes of senior
certificates that receive certain preferential treatment (collectively, "Senior
Certificates") with respect to one or more subordinated Classes (collectively,
"Subordinated Classes") of Certificates of such Series. Distributions on one
or more Classes of a Series of Certificates may be made: (a) prior to one or
more other Classes, (b) after the occurrence of specified events, (c) in
accordance with a schedule or formula, (d) on the basis of collections from
designated portions of the Mortgage Loans in the related Trust or (e) on a
different basis, in each case as specified in the related Prospectus
Supplement. The timing and amounts of such distributions may vary among such
Classes or over time as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions or payments, as applicable, on Securities will be made only from
the assets of the related Trust or Trust Estate, as applicable, and the
Securities will not represent interests in or obligations of the related
Transferor, the Servicer, the Trustee, any Originator or any other person. The
assets of each Trust or Trust Estate, as applicable, will consist of one or
more of the following, to the extent set forth in the related Prospectus
Supplement: (a) the Mortgage Loans that from time to time are subject to the
related Pooling and Servicing Agreement or Indenture, as applicable; (b) the
assets of the Trust or the Trust Estate that from time to time are required by
the Pooling and Servicing Agreement or Indenture, as applicable, to be
deposited in the Certificate Account or Bond Account, as applicable, the
Collection Account and any other accounts (collectively, the "Accounts")
established pursuant to the related Pooling and Servicing Agreement or
Indenture, as applicable, or to be invested in Permitted Investments; (c)
property and any proceeds thereof acquired by foreclosure, deed in lieu of
foreclosure or a comparable conversion of the Mortgage Loans in the related
Mortgage Pool; (d) any Financial Guaranty Insurance Policy; (e) any Mortgage
Pool Insurance Policy;
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(f) any Special Hazard Insurance Policy; (g) any Bankruptcy Bond; (h) any funds
on deposit from time to time in any Reserve Account; and (i) all rights under
any other insurance policies, guarantees, surety bonds, letters of credit or
other credit enhancement covering any Securities, any Mortgage Loan in the
related Mortgage Pool or any related Mortgaged Property required pursuant to
the related Pooling and Servicing Agreement or Indenture, as applicable.
FORM OF SECURITIES
General. Unless otherwise specified in the Prospectus Supplement, the
Securities of each Series will be issued as physical certificates ("Definitive
Securities") in fully registered form only in the denominations specified in
the related Prospectus Supplement. Definitive Securities, if issued, will be
transferable and exchangeable at the corporate trust office of the Trustee or,
at the election of the Trustee, the office of a registrar for the Securities
appointed by the Trustee, in either case as named in the related Prospectus
Supplement. No service charge will be incurred for any registration of
exchange or transfer, but the Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge. If provided in the related
Pooling and Servicing Agreement or Indenture, as applicable, a certificate
administrator may perform certain duties in connection with the administration
of the Securities.
Book-Entry Registration. If so specified in the related Prospectus
Supplement, the Securities may initially be registered in the name of Cede &
Co. ("Cede"), the nominee of The Depository Trust Company ("DTC"). DTC is a
limited purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Participants") and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in their accounts, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system also is available to others such as brokers, dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participant").
Under a book-entry format, Securityholders that are not Participants
or Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of Securities registered in the name of Cede, as nominee of DTC, may
do so only through Participants and Indirect Participants. In addition, such
Securityholders will receive all distributions or payments, as applicable, of
principal of and interest on the Securities from the Trustee through DTC and
its Participants. Under a book-entry format, Securityholders will receive
payments after the related Distribution Date or Payment Date, as applicable,
because, while payments are required to be forwarded to Cede, as nominee for
DTC, on each such date, DTC will forward such payments to its Participants
which thereafter will be required to forward them to Indirect Participants or
Securityholders. Under a book-entry format, it is anticipated that the only
Securityholder will be Cede, as nominee of DTC, and that the beneficial holders
of Securities will not be recognized by the Trustee as Securityholders under
the related Pooling and Servicing Agreement or Indenture, as applicable. The
beneficial holders of such Securities will only be permitted to exercise the
rights of Securityholders under the related Pooling and Servicing Agreement or
Indenture, as applicable, indirectly through DTC and its Participants who in
turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit payments of principal of and interest on the
Securities. Participants and Indirect Participants with which Securityholders
have accounts with respect to the Securities similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of such
Securityholders. Accordingly, although Securityholders will not possess
physical securities, such rules, regulations and procedures provide a mechanism
by which Securityholders will receive distributions or payments, as applicable,
and will be able to transfer their interests.
Securityholders who are not Participants may transfer ownership of
Securities only through Participants by instructing such Participants to
transfer Securities, by book-entry transfer, through DTC for the account of the
purchasers of such Securities, which account is maintained with their
respective Participants. Under the rules and in
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accordance with DTC's normal procedures, transfers of ownership of Securities
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Similarly, the respective Participants will
make debits or credits, as the case may be, on their records on behalf of the
selling and purchasing Securityholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC in general advises that it will take any action permitted to be
taken by a Securityholder under a Pooling and Servicing Agreement or Indenture,
as applicable only at the direction of one or more Participants to whose
account the Securities are credited. Additionally, DTC in general advises that
it will take such actions with respect to specified percentages of the
Securityholders only at the direction of and on behalf of Participants whose
holdings include current principal amounts of outstanding Securities that
satisfy such specified percentages. DTC may take conflicting actions with
respect to other current principal amounts of outstanding Securities to the
extent that such actions are taken on behalf of Participants whose holdings
include such current principal amounts of outstanding Securities.
Any Securities initially registered in the name of Cede, as nominee of
DTC, will be issued in fully registered form as Definitive Securities to
Securityholders or their nominees, rather than to DTC or its nominee only under
the events specified in the related Pooling and Servicing Agreement or
Indenture, as applicable, as described in the related Prospectus Supplement.
Upon the occurrence of any of the events specified in the related Pooling and
Servicing Agreement and Prospectus Supplement, DTC will be required to notify
all Participants of the availability through DTC of Definitive Securities.
Upon surrender by DTC of the physical securities representing the Securities
and instruction for re-registration, the Trustee will issue the Securities in
the form of Definitive Securities, and thereafter the Trustee will recognize
the holders of such Definitive Securities as Securityholders. Thereafter,
payments of principal of and interest on the Securities will be made by the
Trustee directly to Securityholders in accordance with the procedures set forth
herein and in the related Pooling and Servicing Agreement or Indenture, as
applicable. The final distribution or payment, as applicable, of any Security
(whether Definitive Securities or Securities registered in the name of Cede),
however, will be made only upon presentation and surrender of such Securities
on the final Distribution Date or Payment Date, as applicable, at such office
or agency as is specified in the notice of final payment to Securityholders.
DISTRIBUTIONS AND PAYMENTS ON SECURITIES
General. Unless otherwise specified in the related Prospectus
Supplement, distributions of principal and interest (or, if applicable, of
principal only or interest only) on the related Certificates, or payments of
principal and interest on the related Bonds, as applicable, will be made by the
Trustee on each Distribution Date specified in the related Prospectus
Supplement (each, a "Distribution Date") or Payment Date specified in the
related Prospectus Supplement (each, a "Payment Date"), respectively, in the
amounts specified in the related Prospectus Supplement. Distributions or
payments, as applicable, will be made to the persons in whose names the
Securities are registered at the close of business on the record dates
specified in the Prospectus Supplement. Distributions or payments, as
applicable, will be made by check mailed to the persons entitled thereto at the
address appearing in the register maintained for Securityholders (the "Security
Register") or, to the extent described in the related Prospectus Supplement, by
wire transfer or by such other means as are described therein, except that the
final distribution or payment, as applicable, in retirement of the Securities
will be made only upon presentation and surrender of the Securities at the
office or agency of the Trustee or other person specified in the final
distribution notice to Securityholders.
With respect to a given Series of Certificates, each Class of
Certificates within such Series will evidence the interests specified in the
related Prospectus Supplement, which may include, among other things, (i) the
right to receive distributions allocable only to principal, only to interest or
to any combination thereof; (ii) the right to receive distributions only of
prepayments of principal throughout the lives of the Certificates or during
specified periods; (iii) interests that are subordinated in their right to
receive distributions of scheduled payments of principal, prepayments of
principal, interest or any combination thereof to one or more other Classes of
Certificates of such
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Series throughout the lives of the Certificates or during specified periods or
interests that are subordinated with respect to certain losses or
delinquencies; (iv) the right to receive distributions only after the
occurrence of events specified in the related Prospectus Supplement; (v) the
right to receive distributions in accordance with a schedule or formula or on
the basis of collections from designated portions of the assets in the related
Trust; (vi) as to Certificates entitled to distributions allocable to interest,
the right to receive interest at a fixed rate or an adjustable rate; (vii) as
to Certificates entitled to distributions allocable to interest, the right to
such distributions allocable to interest only after the occurrence of events
specified in the related Prospectus Supplement; and (viii) as to Certificates
entitled to distributions allocable to interest only after the occurrence of
certain events, the accrual but deferment of payment of interest until such
events occur, in each case as specified in such Prospectus Supplement.
In general, the method of determining the amount of distributions or
payments, as applicable, on a particular Series of Securities will depend on
the type of credit support, if any, that is used with respect to such Series.
See "Credit Enhancement" herein. Set forth below is a general description of
certain methods that may be used to determine the amount of distributions or
payments, as applicable, on the Securities of a particular Series. The
Prospectus Supplement for each Series of Securities will describe the method to
be used in determining the amount of distributions or payments, as applicable,
on the Securities of such Series.
Distributions or payments, as applicable, allocable to principal and
interest on the Securities of a Series will be made by the Trustee out of, and
only to the extent of, funds in a segregated account established and maintained
by the Trustee for the deposits of such amounts (the "Certificate Account,"
with respect to Certificates, and the "Bond Account," with respect to Bonds).
The Certificate Account or Bond Account, as applicable, may include funds
transferred from any Reserve Account, any Prefunding Account and funds received
as a result of any other form of credit enhancement. As between Certificates
of different Classes and as between distributions of interest and principal
and, if applicable, between distributions of prepayments of principal and
scheduled payments of principal, distributions made on any Distribution Date
will be applied as specified in the related Prospectus Supplement. Unless
otherwise specified in the Prospectus Supplement relating to a given Series of
Certificates, distributions or payments, as applicable, on the Certificates of
any Class of a Series will be made pro rata to all related Certificateholders
of that Class.
Available Funds. All distributions or payments, as applicable, on the
Securities of each Series on any Distribution Date or Payment Date, as
applicable, will be made from the funds available for distribution or payment,
as applicable, on such Distribution Date or Payment Date, as applicable, as
described below ("Available Funds"), in accordance with the terms described in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, Available Funds for each Distribution Date or Payment
Date, as applicable, will equal the sum of the following amounts:
(i) the aggregate of all previously undistributed payments on
account of principal (including principal prepayments, if any, and
prepayment penalties, if so provided in the related Prospectus
Supplement) and interest on the Mortgage Loans in the related Mortgage
Pool, received by the Servicer during the related collection period
(the "Collection Period") except:
(a) all payments which were due before the Cut-off
Date;
(b) amounts received on particular Mortgage Loans as
late payments of principal or interest and, unless otherwise
specified in the related Prospectus Supplement, other amounts
required to be paid by the Mortgagors which are to be retained
by the Servicer (including any Sub-Servicer) as additional
compensation;
(c) amounts representing reimbursement, to the
extent permitted as described under "The Pooling and Servicing
Agreement -- Monthly Advances and Compensating Interest" and
"-- Servicing and Other Compensation and Payment of Expenses,"
for advances made by the Servicer or any Sub-Servicers that
were deposited into the Certificate Account or Bond Account,
as applicable, and amounts representing reimbursement for
certain other losses and expenses incurred by the Servicer or
any Sub-Servicer as permitted under the related Pooling and
Servicing Agreement or Servicing Agreement, as applicable;
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(d) that portion of each collection of interest on a
particular Mortgage Loan in such Mortgage Pool representing
servicing compensation payable to the Servicer that is to be
retained from such collection or is permitted to be retained
from related Insurance Proceeds, Liquidation Proceeds or
proceeds of Mortgage Loans withdrawn from the Mortgage Pool
pursuant to the related Pooling and Servicing Agreement or
Servicing Agreement, as applicable; and
(e) Trustee fees and other expenses or fees payable
out of the related Trust or Trust Estate, as applicable, as
specified in the related Prospectus Supplement;
(ii) all amounts received and retained, if any, in connection
with the liquidation of defaulted Mortgage Loans ("Liquidation
Proceeds"), net of unreimbursed liquidation expenses and insured
expenses incurred and unreimbursed advances made by the Servicer or
any Sub-Servicer ("Net Liquidation Proceeds"), including all proceeds
(net of unreimbursed Servicing Advances) of title insurance, hazard
insurance and primary mortgage insurance, if any ("Insurance
Proceeds"), all Principal Prepayments, all proceeds received in
connection with the condemnation of a Mortgaged Property or the
release of part of a Mortgaged Property and all proceeds of any
Mortgage Loan acquired by the related Transferor or any other entity
pursuant to the Pooling and Servicing Agreement, the Indenture or the
Servicing Agreement;
(iii) the amount of any Monthly Advance or Compensating
Interest Payment made by the Servicer or any Sub-Servicer, as
deposited by such in the Certificate Account or Bond Account, as
applicable; and
(iv) if applicable, amounts withdrawn from a Reserve Account
or a Prefunding Account or received in connection with other credit
enhancement.
Distributions and Payments of Interest. Unless otherwise specified in
the Prospectus Supplement relating to a given Series of Certificates, each
Class of Certificates may bear interest at a different rate, which may be fixed
or adjustable (the "Certificate Rate"). All of the Bonds of a given Series
will bear interest at the same rate, which may be fixed or adjustable (the
"Bond Rate"). Interest will accrue on the Security Principal Balance (or, in
the case of a Class of Certificates entitled only to distributions allocable to
interest, the aggregate notional principal balance) of Securities entitled to
interest, at the Certificate Rate or Bond Rate, as applicable, and for the
periods specified in the Prospectus Supplement. To the extent funds are
available therefor, interest accrued during each such specified period on
Securities entitled to interest (other than a Class of Certificates that
provides for interest that accrues, but is not currently payable, referred to
hereafter as "Accrual Certificates") will be distributable or payable on the
Distribution Dates or Payment Dates, as applicable, specified in the Prospectus
Supplement until the aggregate Security Principal Balance of the related
Securities has been distributed or paid in full or, in the case of a Class of
Certificates entitled only to distributions allocable to interest, until the
aggregate notional principal balance of such Certificates is reduced to zero or
for the period of time designated in the Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a
given Series of Certificates, distributions allocable to interest on each
Certificate of such Series that is not entitled to distributions allocable to
principal will be calculated based on the notional principal balance of such
Certificate. The notional principal balance of a Certificate will not evidence
an interest in or entitlement to distributions allocable to principal but will
be used solely for convenience in expressing the calculation of interest and
for certain other purposes.
With respect to any Class of Accrual Certificates, if specified in the
Prospectus Supplement relating to a given Series of Certificates, any interest
that has accrued but is not paid on a given Distribution Date will be added to
the aggregate Security Principal Balance of such Class of Certificates on that
Distribution Date. Unless otherwise specified in the related Prospectus
Supplement, distributions of interest on each Class of Accrual Certificates
will commence only after the occurrence of the events specified in such
Prospectus Supplement. Prior to such time, the beneficial interest of such
Class of Accrual Certificates in the Trust, as reflected in the aggregate
Security Principal Balance of such Class of Accrual Certificates, will increase
on each Distribution Date by the amount of interest that accrued on such Class
during the preceding interest accrual period but that was not required to be
distributed to such Class on such Distribution Date. Any such Class of Accrual
Certificates will thereafter accrue interest on its outstanding Security
Principal Balance as so adjusted.
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Distributions and Payments of Principal. Unless otherwise specified
in the Prospectus Supplement relating to a given Series of Certificates, the
aggregate principal balance amount of any Class of Certificates entitled to
distributions of principal will be the aggregate original Security Principal
Balance of such Class of Certificates specified in the related Prospectus
Supplement, less all amounts previously distributed to such Certificates as
allocable to principal. The aggregate principal balance amount of the Bonds of
any Series will be the aggregate original Security Principal Balance of such
Bonds specified in the related Prospectus Supplement, less all amounts
previously paid on such Bonds as allocable to principal. In the case of
Accrual Certificates, unless otherwise specified in the Prospectus Supplement
relating to a given Series of Certificates, the original Security Principal
Balance will be increased by all interest accrued but not then distributable on
such Accrual Certificates. The Prospectus Supplement relating to a given
Series of Certificates will specify the method by which the amount of principal
payments on the Certificates will be calculated and the manner in which such
amount will be allocated among the Classes of Certificates entitled to
distributions of principal. As used herein, the term "Security Principal
Balance" at any time means the principal balance of the related Securities
determined as described above.
The Prospectus Supplement relating to a given Series of Certificates
may provide that one or more Classes of Senior Certificates will be entitled to
receive all or a disproportionate percentage of any principal payments made by
a Mortgagor which are received in advance of their scheduled due dates and are
not accompanied by amounts representing scheduled interest due after the month
of such payments ("Principal Prepayments") in the percentages and under the
circumstances or for the periods specified in the Prospectus Supplement. Any
such allocation of Principal Prepayments to such Class or Classes of
Certificates will have the effect of accelerating the amortization of such
Senior Certificates while increasing the interests evidenced by Subordinated
Certificates in the Trust. Increasing the interests of Subordinated
Certificates relative to that of the Senior Certificates is intended to
preserve the availability of the subordination provided by the Subordinated
Certificates. See "Credit Enhancement -- Subordination" herein. The timing
and amounts of distributions allocable to interest and principal and, if
applicable, Principal Prepayments and scheduled payments of principal, to be
made on any Distribution Date may vary among Classes over time, or otherwise,
as specified in the Prospectus Supplement.
REVOLVING PERIOD AND AMORTIZATION PERIOD; TRANSFEROR INTEREST
If the Prospectus Supplement relating to a given Series of
Certificates so provides, there may be a period commencing on the date of
issuance of a Class or Classes of Certificates of a Series and ending on the
date set forth in the related Prospectus Supplement (the "Revolving Period")
during which no principal payments will be made to one or more Classes of
Certificates of the related Series as are identified in such Prospectus
Supplement. All collections of principal otherwise allocated to such Class or
Classes of Certificates may be (i) utilized by the Trust during such period to
acquire additional Mortgage Loans that satisfy the criteria described in the
related Prospectus Supplement, (ii) held in an account and invested in Eligible
Investments for later distribution to Certificateholders, (iii) applied to
those Class or Classes of Certificates, if any, of the same Series as specified
in the related Prospectus Supplement as then are in amortization or (iv)
otherwise applied as specified in the related Prospectus Supplement.
An "Amortization Period" is the period, if any, specified as such in
the related Prospectus Supplement during which an amount of principal is
payable to holders of one or more Classes of a Series of Certificates. If so
specified in the related Prospectus Supplement, during an Amortization Period
all or a portion of principal collections on the Mortgage Loans may be applied
as specified above for a Revolving Period and, to the extent not so applied,
will be distributed to the Class or Classes of Certificates of the same or
different Series as specified in the related Prospectus Supplement as then
being entitled to payments of principal. In addition, if so specified in the
related Prospectus Supplement, amounts deposited in certain accounts for the
benefit of one or more Classes of Certificates may be released from time to
time or on a specified date and applied as a payment of principal on such
Classes of Certificates. The related Prospectus Supplement will set forth the
circumstances that will result in the commencement of an Amortization Period.
Each Trust that has a Revolving Period may also issue to the related
Transferor a certificate evidencing a Transferor Interest in the Trust not
represented by the other Certificates issued by such Trust. As further
described in the related Prospectus Supplement, the value of such Transferor
Interest will fluctuate as the amount of the assets of the Trust fluctuates and
the outstanding amount of the Certificates of the related Series of
Certificates is reduced.
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REPORTS TO SECURITYHOLDERS
Except as otherwise set forth in the related Prospectus Supplement, on
or before each Distribution Date or Payment Date, as applicable, each
Securityholder of record of the related Series of Securities will be entitled
to receive a statement setting forth, to the extent applicable to such Series,
the following information with respect to the distribution for such
Distribution Date or Payment Date, as applicable.
(i) the amount of such distribution or payment, as
applicable, allocable to principal, separately identifying the
aggregate amount of any Principal Prepayments and, if so specified in
the related Prospectus Supplement, any prepayment penalties included
therein;
(ii) the amount of such distribution or payment, as
applicable, allocable to interest;
(iii) the amounts of (a) any overdue accrued interest
included in such distribution or payment, as applicable, (b) any
remaining overdue accrued interest with respect to such Securities or
(c) any current shortfall in amounts to be distributed or paid, as
applicable, as accrued interest to holders of such Securities;
(iv) the amounts of (a) any overdue payments of scheduled
principal included in such distribution, (b) any remaining overdue
principal amounts with respect to such Securities, (c) any current
shortfall in receipt of scheduled principal payments on the related
Mortgage Loans or (d) any realized losses or Liquidation Proceeds to be
allocated as reductions in the outstanding principal balances of such
Securities;
(v) if applicable with respect to a given Series of
Certificates, the aggregate amount (a) otherwise allocable to the
Subordinated Certificateholders on such Distribution Date and (b)
withdrawn from a Reserve Account, if any, that is included in the
amounts distributed with respect to Senior Certificates;
(vi) the total amount of the Insured Amount included in the
amount distributed on such Distribution Date or Payment Date, as
applicable;
(vii) the Pool Balance and the Pool Factor of the Mortgage
Loans after giving effect to the distribution or payment, as
applicable, on the Distribution Date or Payment Date, as applicable;
(viii) if applicable with respect to a given Series of
Certificates, the percentage of principal payments on the Mortgage
Loans, if any, which each Class will be entitled to receive on the
following Distribution Date;
(ix) unless the Certificate Rate or Bond Rate, as applicable,
is a fixed rate, the related Certificate Rate or Bond Rate applicable
to the distribution on the Distribution Date or Payment Date, as
applicable;
(x) the number and aggregate principal balance of Mortgage
Loans in the related Mortgage Pool contractually delinquent (a) one
month, (b) two months and (c) three or more months as of the end of the
related Collection Period;
(xi) the number and aggregate principal balance of all
Mortgage Loans in foreclosure or other similar proceedings, and the
book value of any real estate acquired through foreclosure or grant of
a deed in lieu of foreclosure;
(xii) if applicable, the amount remaining in any Reserve
Account or the amount remaining of any other credit support, after
giving effect to the distribution or payment, as applicable, on the
Distribution Date or Payment Date, as applicable;
(xiii) if applicable, during the Funding Period, the
remaining Prefunding Amount and the portion of the Prefunding Amount
used to acquire additional Mortgage Loans since the preceding
Distribution Date or Payment Date as applicable;
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(xiv) if applicable, during the Funding Period, the amount
remaining in the Capitalized Interest Account; and
(xv) the amount of Monthly Advances, Servicing Advances
and/or Compensating Interest Payments, if any, made since the
preceding Distribution Date or Payment Date, as applicable.
Where applicable, any amount set forth above may be expressed as a
dollar amount of the related Securities having the denomination or interest
specified either in the related Prospectus Supplement or in the report to
Securityholders. The report to Securityholders for any Series of Securities
may include additional or other information of a similar nature to that
specified above.
The "Pool Balance" means the aggregate outstanding principal balance
of the Mortgage Loans as of the related Distribution Date or Payment Date, as
applicable, and the "Pool Factor" is the percentage obtained by dividing the
Pool Balance as of such Distribution Date or Payment Date, as applicable, by
the Cut-off Date Pool Balance.
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer or the Trustee will mail to each person who was a
Securityholder of record at any time during such calendar year (a) a report as
to the aggregate of amounts reported pursuant to (i) and (ii) above for such
calendar year or, in the event such person was a Securityholder of record
during a portion of such calendar year, for the applicable portion of such year
and (b) such other customary information as may be deemed necessary or
desirable for Securityholders to prepare their tax returns.
CREDIT ENHANCEMENT
Credit enhancement may be provided with respect to a Series of
Securities or with respect to the Mortgage Loans included in the related Trust
or Trust Estate, as applicable. Credit enhancement may be in the form of (i) in
the case of a given Series of Certificates, the subordination of one or more
Classes of the Certificates of such Series, (ii) the use of a Financial
Guaranty Insurance Policy, a Mortgage Pool Insurance Policy, a Special Hazard
Insurance Policy, a Bankruptcy Bond, a Reserve Account or other insurance
policies, cash accounts, letters of credit, limited guaranty insurance
policies, third party guarantees or other forms of credit enhancement described
in the related Prospectus Supplement, or in the case of a given Series of
Certificates, the use of a cross-support feature, or (iii) any combination of
the foregoing. The protection against losses afforded by any credit
enhancement will be limited and will not guarantee repayment of the entire
principal balance of the Securities and interest thereon. If losses occur that
exceed the maximum amount covered by the credit enhancement or that are not
covered by the credit enhancement, Securityholders will bear their allocable
share of such deficiency. If a form of credit enhancement applies to several
Classes of Certificates of a given Series, and if principal payments of certain
Classes will be distributed prior to such distributions to other Classes, the
Classes which receive distributions at a later time are more likely to bear any
losses which exceed the amount covered by credit enhancement.
Unless otherwise specified in the Prospectus Supplement, coverage
under any credit enhancement may be canceled or reduced by the related
Transferor without the consent of Securityholders, if such cancellation or
reduction would not adversely affect the rating or ratings of the related
Securities.
SUBORDINATION
If so specified in a Prospectus Supplement relating to a given Series
of Certificates, scheduled principal, Principal Prepayments, interest or any
combination thereof that otherwise would have been distributable to one or more
Classes of Subordinated Certificates of such Series will instead be distributed
to holders of one or more Classes of Senior Certificates, under the
circumstances and to the extent specified in such Prospectus Supplement. If
specified in the related Prospectus Supplement, the holders of Senior
Certificates will receive the amounts of principal and interest due to them on
each Distribution Date out of the funds available for distribution on such date
in the related Certificate Account prior to any such distribution being made to
holders of the related Subordinated Certificates, in each case under the
circumstances and subject to the limitations specified in such Prospectus
Supplement. The protection afforded to the holders of Senior Certificates
through subordination also may be accomplished by first allocating certain
types of losses or delinquencies to the related Subordinated Certificates, to
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the extent described in the related Prospectus Supplement. If aggregate losses
and delinquencies in respect of such Mortgage Loans were to exceed the total
amounts otherwise available for distribution to holders of Subordinated
Certificates or, if applicable, were to exceed the specified maximum amount,
holders of Senior Certificates would experience losses on such Certificates.
If so specified in the Prospectus Supplement relating to a given
Series of Certificates, the same Class of Certificates may be Senior
Certificates with respect to the right to receive certain types of payments or
with respect to the allocation of certain types of losses or delinquencies and
Subordinated Certificates with respect to the right to receive other types of
payments or with respect to the allocation of certain types of losses or
delinquencies. If specified in the Prospectus Supplement, various Classes of
Senior Certificates and Subordinated Certificates may themselves be subordinate
in their right to receive certain distributions to other Classes of Senior and
Subordinated Certificates, respectively, through a cross-support mechanism or
otherwise. As between Classes of Senior Certificates and as between Classes of
Subordinated Certificates, distributions may be allocated among such Classes
(i) in the order of their scheduled final distribution dates, (ii) in
accordance with a schedule or formula, (iii) in relation to the occurrence of
certain events or (iv) otherwise, in each case as specified in the related
Prospectus Supplement.
The related Prospectus Supplement will set forth information
concerning the amount of subordination of a Class or Classes of Subordinated
Certificates in a Series, the circumstances in which such subordination will be
applicable, the manner, if any, in which the amount of subordination will
decrease over time, the manner of funding any Reserve Account and the
conditions under which amounts in any such Reserve Account will be used to make
distributions to Senior Certificateholders or released to Subordinated
Certificateholders from the related Trust.
RESERVE ACCOUNTS
If so specified in the related Prospectus Supplement, cash, U.S.
Treasury securities, instruments evidencing ownership of principal or interest
payments thereon, demand notes, certificates of deposit or a combination
thereof in the aggregate amount specified in such Prospectus Supplement may be
deposited by the related Transferor, the Servicer or the Originators, as
applicable, on the date specified in the related Prospectus Supplement in one
or more reserve accounts (each, a "Reserve Account") established as part of the
related Trust or Trust Estate, as applicable. In addition to or in lieu of the
foregoing, if so specified in a Prospectus Supplement relating to a given
Series of Certificates, all or any portion of amounts otherwise distributable
on any Distribution Date to holders of Subordinated Certificates may instead be
deposited into a Reserve Account. Such deposits may be made on the date
specified in the related Prospectus Supplement, which may include each
Distribution Date for specified periods or until the balance in the Reserve
Account has reached a specified amount. See "-- Subordination" above.
The cash and other assets in a Reserve Account will be used to enhance
the likelihood of timely payment of principal of, and interest on, or, if so
specified in the related Prospectus Supplement, to provide additional
protection against losses in respect of, the assets in the related Trust or
Trust Estate, as applicable, to pay the expenses of the Trust or Trust Estate,
as applicable, or for such other purposes specified in such Prospectus
Supplement. Any cash in a Reserve Account and the proceeds upon maturity or
liquidation of any other asset or instrument therein will be invested, to the
extent acceptable to the applicable Rating Agency, in Permitted Investments,
including obligations of the United States and certain agencies thereof,
certificates of deposit, certain commercial paper, time deposits and bankers
acceptances sold by eligible commercial banks, certain repurchase agreements of
United States government securities with eligible commercial banks and certain
other instruments acceptable to the applicable Rating Agency. Unless otherwise
specified in the related Prospectus Supplement, any asset or instrument
deposited in any Reserve Account will name the Trustee, in its capacity as
trustee for the Securityholders, as beneficiary and will be issued by an entity
acceptable to the applicable Rating Agency.
Any amounts on deposit in a Reserve Account will be available for
withdrawal from such Reserve Account for distribution or payment, as
applicable, to holders of Securities or release to holders of Securities, the
related Transferor, the Servicer, the Originators or another entity for the
purposes, in the manner and at the times specified in the related Prospectus
Supplement.
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FINANCIAL GUARANTY INSURANCE POLICIES
If so specified in the related Prospectus Supplement, a financial
guaranty insurance policy or policies (each, a "Financial Guaranty Insurance
Policy") may be obtained and maintained for the Securities of a given Series.
The provider of any Financial Guaranty Insurance Policy (a "Securities
Insurer") will be described in the related Prospectus Supplement. A copy of
any such Financial Guaranty Insurance Policy will be attached as an exhibit to
the related Pooling and Servicing Agreement or Indenture, as applicable.
Unless otherwise specified in the related Prospectus Supplement, a
Financial Guaranty Insurance Policy will unconditionally and irrevocably
guarantee to Securityholders that a certain amount will be available for
distribution or payment, as applicable, to Securityholders on a related
Distribution Date or Payment Date, as applicable (the "Insured Amount"). The
Insured Amount will equal the full amount of principal and interest
distributable as of any Distribution Date or due and payable as of any Payment
Date, as applicable, to Securityholders under the related Pooling and Servicing
Agreement or Indenture, as applicable, plus any other amounts specified therein
or in the related Prospectus Supplement.
The specific terms of any Financial Guaranty Insurance Policy will be
described in the related Prospectus Supplement.
Subject to the terms of the related Pooling and Servicing Agreement or
Indenture, as applicable, a Securities Insurer may be subrogated to the rights
of Securityholders to receive payments under the Securities to the extent of
any payments by such Securities Insurer under the related Financial Guaranty
Insurance Policy that were not previously reimbursed. However, any such
subrogation rights of a Securities Insurer may not result in a reduction of the
amount otherwise distributable on any Distribution Date or due and payable on
any Payment Date, as applicable, to holders of the Securities covered by such
Financial Guaranty Insurance Policy.
MORTGAGE POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement, a mortgage pool
insurance policy or policies (each, a "Mortgage Pool Insurance Policy") issued
by the insurer (the "Mortgage Pool Insurer") named in such Prospectus
Supplement will be obtained and maintained for all or certain of the Mortgage
Loans. A Mortgage Pool Insurance Policy will, subject to the limitations
described below, cover losses on the related Mortgage Loans up to a maximum
amount specified in the related Prospectus Supplement. A Mortgage Pool
Insurance Policy, however, is not a blanket policy against loss, as claims
thereunder may be made only respecting losses on certain Mortgage Loans and
only upon satisfaction of certain conditions precedent described below. Unless
otherwise specified in a related Prospectus Supplement, a Mortgage Pool
Insurance Policy will not cover losses due to a failure to pay or denial of a
claim under a primary mortgage insurance policy.
A Mortgage Pool Insurance Policy generally will not insure (and many
primary mortgage insurance policies do not insure) against loss sustained by
reason of a default arising from, among other things, (i) fraud or negligence
in the origination or servicing of a Mortgage Loan, including misrepresentation
by the Mortgagor, the Originator or persons involved in the origination
thereof, or (ii) failure to construct a Mortgaged Property in accordance with
plans and specifications. If so specified in the related Prospectus
Supplement, an endorsement to a Mortgage Pool Insurance Policy, a bond or other
credit support may cover fraud in connection with the origination of Mortgage
Loans. If so specified in the related Prospectus Supplement, a failure of
coverage attributable to an event specified in clause (i) or (ii) above might
result in a breach of the related Transferor's representations and, in such
event, might give rise to an obligation on the part of the related Transferor
to withdraw the defaulted Mortgage Loan from the Mortgage Pool if the breach
cannot be cured by the such Transferor. No Mortgage Pool Insurance Policy will
cover losses in respect of a defaulted Mortgage Loan occurring when the
Servicer of such Mortgage Loan, at the time of default or thereafter, was not
approved by the applicable Mortgage Pool Insurer.
The original amount of coverage under a Mortgage Pool Insurance Policy
will be reduced over the life of the related Securities by the aggregate dollar
amount of claims paid by the Servicer less the aggregate of the net amounts
realized by the Mortgage Pool Insurer upon disposition of all foreclosed
properties. The amount of claims paid will include certain expenses incurred
by the Servicer, as well as accrued interest on delinquent Mortgage Loans to
the date of payment of the claim. Accordingly, if aggregate net claims paid
under a Mortgage Pool
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Insurance Policy reach the maximum amount, coverage under the Mortgage Pool
Insurance Policy will be exhausted and any further losses will be borne by the
related Securityholders.
The terms of any Mortgage Pool Insurance Policy will be described in
the related Prospectus Supplement.
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the related Prospectus Supplement, a special hazard
insurance policy or policies (each, a "Special Hazard Insurance Policy") will
be obtained for the related Mortgage Pool and will be issued by the insurer
(the "Special Hazard Insurer") named in such Prospectus Supplement. Each
Special Hazard Insurance Policy, subject to limitations described below, will
protect the related Securityholders from (i) loss by reason of damage to
Mortgaged Properties caused by certain hazards (including earthquakes and, to a
limited extent, tidal waves and related water damage) not insured against under
the standard form of hazard insurance policy for the respective states in which
the Mortgaged Properties are located or under a flood insurance policy if the
Mortgaged Property is not located in a federally designated flood area, and
(ii) loss caused by reason of the application of the coinsurance clause
contained in a hazard insurance policy. See "The Pooling and Servicing
Agreement -- Maintenance of Hazard Insurance" herein. A Special Hazard
Insurance Policy will not cover losses occasioned by war, civil insurrection,
certain governmental action, errors in design, faulty workmanship or materials
(except under certain circumstances), nuclear reaction, flood (if the Mortgaged
Property is located in a federally designated flood area), chemical
contamination and certain other risks. The amount of coverage under any
Special Hazard Insurance Policy will be specified in the related Prospectus
Supplement. A Special Hazard Insurance Policy will provide that no claim may
be paid unless hazard and, if applicable, flood insurance on the related
Mortgaged Property securing the Mortgage Loan has been kept in force and other
protection and preservation expenses have been paid.
The terms of any Special Hazard Insurance Policy will be described in
the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
because each Special Hazard Insurance Policy will be designed to permit full
recovery under the Mortgage Pool Insurance Policy in circumstances in which
such recoveries would otherwise be unavailable because property has been
damaged by a cause not insured against by a standard hazard policy and thus
would not be restored, each Pooling and Servicing Agreement and Servicing
Agreement will provide that, if the related Mortgage Pool Insurance Policy
shall have been terminated or been exhausted through payment of claims, the
Servicer will be under no further obligation to maintain such Special Hazard
Insurance Policy.
BANKRUPTCY BONDS
If so specified in the related Prospectus Supplement, a bankruptcy
bond or bonds (each, a "Bankruptcy Bond") for proceedings under the federal
Bankruptcy Code will be issued by an insurer named in such Prospectus
Supplement. A Bankruptcy Bond will cover certain losses resulting from a
reduction by a bankruptcy court of scheduled payments of principal and interest
on a Mortgage Loan or a reduction by such court of the principal amount of a
Mortgage Loan and will cover certain unpaid interest on the amount of such a
principal reduction from the date of the filing of a bankruptcy petition. The
level of coverage and other terms of a Bankruptcy Bond will be set forth in the
related Prospectus Supplement.
CROSS SUPPORT
If so specified in a Prospectus Supplement relating to a given Series
of Certificates, the beneficial interests of separate Trusts or separate groups
of assets in a single Trust may be evidenced by separate Classes of the
Certificates of such Series. In such case, credit support may be provided by a
cross-support feature which requires that distributions be made with respect to
Certificates evidencing a beneficial interest in other asset groups within the
same Trust. The Prospectus Supplement for a Series of Certificates which
includes a cross-support feature will describe the manner and conditions for
applying such cross-support feature.
If so specified in a Prospectus Supplement relating to a given Series
of Certificates, the coverage provided by one or more other forms of credit
enhancement, such as Financial Guaranty Insurance Policies or Reserve Accounts,
may apply concurrently to two or more separate Trusts, without priority among
such Trusts, until the
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credit support is exhausted. If applicable, the Prospectus Supplement will
identify the Trusts to which such credit enhancement relates and the manner of
determining the amount of the coverage provided thereby and the application of
such coverage to the identified Trusts or asset groups.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If so specified in the related Prospectus Supplement, a Trust or Trust
Estate, as applicable, may include, in addition to or in lieu of some or all of
the foregoing, letters of credit, third party guarantees and other arrangements
for maintaining timely payments or providing additional protection against
losses on the assets included in such Trust or Trust Estate, as applicable,
paying administrative expenses or accomplishing such other purpose. The
related Prospectus Supplement will describe any such arrangements, including
information as to the extent of coverage and any conditions or limitations
thereto. The related Trust or Trust Estate, as applicable, may include a
guaranteed investment contract or reinvestment agreement pursuant to which
funds held in one or more accounts will be invested at a specified rate. Any
such arrangement must be acceptable to each Rating Agency named in the related
Prospectus Supplement.
MAINTENANCE OF CREDIT ENHANCEMENT
To the extent that the related Prospectus Supplement expressly
provides for credit enhancement and maintenance arrangements, the following
paragraphs shall apply.
If a form of credit enhancement has been obtained for a Series of
Securities, the related Transferor or the Servicer will be obligated to
exercise its reasonable efforts to keep or cause to be kept such form of credit
support in full force and effect throughout the term of the related Pooling and
Servicing Agreement, Indenture or Servicing Agreement, as applicable, unless
coverage thereunder has been exhausted through payment of claims or otherwise,
or substitution therefor is made as described below.
In lieu of the obligation to maintain a particular form of credit
enhancement, the related Transferor or the Servicer may obtain a substitute or
alternate form of credit enhancement. If the related Transferor obtains such a
substitute form of credit enhancement, such form of credit enhancement will be
maintained and kept in full force and effect as provided herein. Prior to its
obtaining any substitute or alternate form of credit enhancement, the related
Transferor or the Servicer will obtain written confirmation from each
applicable Rating Agency that the substitution or alternate form of credit
enhancement for the existing credit enhancement will not adversely affect the
then current ratings assigned to such Securities by each applicable Rating
Agency.
The Servicer will provide the Trustee information required for the
Trustee to draw under a Financial Guaranty Insurance Policy or any letter of
credit, will present claims to any Mortgage Pool Insurer, any Special Hazard
Insurer and to any provider of a Bankruptcy Bond, and will take such reasonable
steps as are necessary to permit recovery under such Financial Guaranty
Insurance Policy, letter of credit, Bankruptcy Bond, Special Hazard Insurance
Policy, Mortgage Pool Insurance Policy or other applicable forms of credit
enhancement. Additionally, the Servicer will present such claims and take such
steps as are reasonably necessary to provide for the performance by another
party of its obligations to withdraw Mortgage Loans from the related Mortgage
Pool pursuant to the terms of the related Agreement or Indenture, as
applicable. All collections by the Servicer under any Mortgage Pool Insurance
Policy or any Bankruptcy Bond and, where the related property has not been
restored, any Special Hazard Insurance Policy, are to be deposited initially in
the Collection Account and ultimately in the Certificate Account or Bond
Account, as applicable, subject to withdrawal. Unless otherwise specified in
the related Prospectus Supplement, all draws under any Financial Guaranty
Insurance Policy or letter of credit will be deposited directly in the
Certificate Account or Bond Account, as applicable.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy or any applicable
Special Hazard Insurance Policy are insufficient to restore the damaged
property to a condition sufficient to permit recovery under any applicable form
of credit enhancement, the Servicer is not required to expend its own funds to
restore the damaged property unless it determines (i) that such restoration
will increase the proceeds to Securityholders on liquidation of the Mortgage
Loan after reimbursement to the Servicer for its expenses and (ii) that such
expenses will be recoverable out of related Liquidation Proceeds or Insurance
Proceeds. If recovery under any applicable form of credit enhancement is not
available because the
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Servicer has been unable to make the above determinations or has made such
determinations incorrectly or recovery is not available for any other reason,
the Servicer is nevertheless obligated to follow such normal practices and
procedures (subject to the preceding sentence) as it deems necessary or
advisable to realize upon the defaulted Mortgage Loan and in the event such
determination has been incorrectly made, is entitled to reimbursement of its
expenses in connection with such restoration.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The yields to maturity of the Securities will be affected by the
amount and timing of principal payments on or in respect of the Mortgage Loans
included in the related Mortgage Pools, the allocation of available funds to
the Securities, the Certificate Rate for various Classes of a Series of
Certificates or the Bond Rate for various Series of Bonds, as applicable, and
the purchase price paid for the Securities.
The original terms to maturity of the Mortgage Loans in a given
Mortgage Pool will vary depending upon the type of Mortgage Loans included
therein. Each Prospectus Supplement will contain information with respect to
the type and maturities of the Mortgage Loans in the related Mortgage Pool.
Unless otherwise specified in the related Prospectus Supplement, Mortgage Loans
may be prepaid without penalty in full or in part at any time, although a
prepayment fee or penalty may be imposed in connection therewith.
The rate of prepayments with respect to mortgage loans has fluctuated
significantly in recent years. In general, if prevailing rates fall
appreciably below the Mortgage Rates borne by the Mortgage Loans, such Mortgage
Loans are likely to be subject to higher prepayment rates than if prevailing
interest rates remain at or above such Mortgage Rates. Conversely, if
prevailing interest rates rise appreciably above the Mortgage Rates borne by
the Mortgage Loans, such Mortgage Loans are likely to experience a lower
prepayment rate than if prevailing rates remain at or below such Mortgage
Rates. However, there can be no assurance that such will be the case.
Prepayments are influenced by a variety of economic, geographical,
social, tax, legal and additional factors. The rate of prepayments on Mortgage
Loans may be affected by changes in a Mortgagor's housing needs, job transfers,
unemployment, Mortgagor's net equity in the related Mortgaged Property, the
enforcement of due-on- sale clauses and other servicing decisions. Adjustable
rate mortgage loans, bi-weekly mortgage loans, graduated payment mortgage
loans, growing equity mortgage loans, reverse mortgage loans, buy-down mortgage
loans and mortgage loans with other characteristics may experience a rate of
principal prepayments which is different from that of fixed rate, monthly pay,
fully amortizing mortgage loans.
Generally, mortgage loans secured by junior liens have smaller average
principal balances than senior or first mortgage loans and are not viewed by
borrowers as permanent financing. Accordingly, such mortgage loans may
experience a higher rate of prepayment than mortgage loans which represent
first liens. In addition, any future limitations on the right of borrowers to
deduct interest payments on second mortgage loans for federal income tax
purposes may result in a higher rate of prepayment of such mortgage loans. The
obligation of the Servicer to enforce due-on-sale provisions of the mortgage
loans may also increase prepayments. The prepayment experience of the Mortgage
Pools may be affected by a wide variety of factors, including general and local
economic conditions, mortgage market interest rates, the availability of
alternative financing and homeowner mobility. The Transferors are unaware of
any reliable studies that would accurately project the prepayment risks
associated with the mortgage loans.
Unless otherwise provided in the related Prospectus Supplement, all of
the Mortgage Loans will contain due-on-sale provisions permitting the mortgagee
to accelerate the maturity of the Mortgage Loan upon sale or certain transfers
by the Mortgagor of the underlying Mortgaged Property. Unless otherwise
provided in the related Prospectus Supplement, the Servicer generally will
enforce any due-on-sale or due-on-encumbrance clause, to the extent it has
knowledge of the conveyance or further encumbrance or the proposed conveyance
or proposed further encumbrance of the Mortgaged Property and reasonably
believes that it is entitled to do so under applicable law; provided, however,
that the Servicer will not take any enforcement action that would materially
increase the risk of default or delinquency on, or materially decrease the
security for, such Mortgage Loan. See "The Pooling and Servicing Agreement --
Enforcement of Due-on-Sale Clauses" herein.
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The weighted average lives of Securities will also be affected by the
amount and timing of delinquencies and defaults on the Mortgage Loans and the
liquidations of defaulted Mortgage Loans. Delinquencies and defaults will
generally slow the rate of payment of principal to the Securityholders.
However, this effect will be offset to the extent that lump sum recoveries on
defaulted Mortgage Loans and foreclosed Mortgaged Properties result in
principal payments on the Mortgage Loans that are faster than otherwise
scheduled.
When a full prepayment occurs on a Mortgage Loan, the Mortgagor will
be charged interest on the principal amount of the Mortgage Loan so prepaid
only for the number of days in the month actually elapsed up to the date of the
prepayment rather than for a full month. Interest shortfalls also could result
from the application of the Relief Act, as described under "Certain Legal
Aspects of the Mortgage Loans and Related Matters -- Soldiers' and Sailors'
Civil Relief Act" herein. Unless otherwise specified in the related Prospectus
Supplement, in the event that less than 30 days' interest is collected on a
Mortgage Loan during a Collection Period, the Servicer or any Sub- Servicer, if
applicable, will be obligated to make a Compensating Interest Payment with
respect thereto, but only to the extent of the aggregate Servicing Fee for the
related Distribution Date or Payment Date, as applicable. To the extent such
shortfalls exceed the amount of the Compensating Interest Payment that the
Servicer or any Sub-Servicer is obligated to pay, the yield on the Securities
could be adversely affected. Partial prepayments in a given month may be
applied to the outstanding principal balances of the Mortgage Loans so prepaid
on the first day of the month of receipt or the month following receipt. In
the latter case, partial prepayments will not reduce the amount of interest
passed through in such month.
Under certain circumstances, the related Transferor, the Servicer or
certain other entities specified in the Prospectus Supplement relating to a
Series of Certificates may have the option to acquire the Mortgage Loans and
other assets of a Trust, thereby effecting early retirement of the related
Series of Certificates, subject to the principal balance of the related
Mortgage Loans being less than the percentage specified in the related
Prospectus Supplement of the aggregate principal balance of the Mortgage Loans
at the Cut-off Date for the related Series. Typically, the related Transferor,
the Servicer or such other entity will cause the retirement of a Series of
Certificates at the point at which servicing of the remaining relatively small
pool of Mortgage Loans becomes inefficient. See "The Pooling and Servicing
Agreement -- Termination; Optional Termination" herein. Under certain
circumstances, a Series of Bonds may be (i) redeemed at the request of holders
of such Bonds; (ii) redeemed at the option of the related Bond Issuer or
another party specified in the Prospectus Supplement relating to such Series of
Bonds; or (iii) subject to special redemption under certain circumstances. The
circumstances and terms under which the Bonds of a Series may be redeemed will
be described in the related Prospectus Supplement. See "The Indenture --
Redemption of Bonds" herein.
Unless otherwise specified in the related Prospectus Supplement, the
effective yield to Securityholders will be slightly lower than the yield
otherwise produced by the applicable Certificate Rate or Bond Rate and purchase
price, because while interest generally will accrue on the Securities from the
first day of each month, the distribution or payment, as applicable, of such
interest will not be made earlier than a specified date in the month following
the month of accrual.
The timing of payments on the Mortgage Loans may significantly affect
an investor's yield. In general, the earlier a prepayment of principal on the
Mortgage Loans, the greater will be the effect on an investor's yield to
maturity. As a result, the effect on an investor's yield of principal
prepayments occurring at a rate faster (or slower) than the rate anticipated by
the investor during the period immediately following the issuance of the
Securities will not be offset by a subsequent like reduction (or increase) in
the rate of principal payments.
The Prospectus Supplement relating to a Series of Securities may
discuss in greater detail the effect of the rate and timing of principal
payments (including prepayments) on the yield, weighted average lives and
maturities of such Securities, including the effect of prepayments and
allocation of realized losses on the Mortgage Loans as they relate to specific
Classes of Certificates. Factors other than those identified herein and in the
related Prospectus Supplement could significantly affect principal prepayments
at any time and over the lives of the Securities. The relative combination of
the various factors affecting prepayment may also vary from time to time.
There can be no assurance as to the rate of payment of principal of the
Mortgage Loans at any time or over the lives of the Securities.
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THE POOLING AND SERVICING AGREEMENT
Set forth below is a summary of the material provisions of each
Pooling and Servicing Agreement that are not described elsewhere in this
Prospectus. The summary does not purport to describe all provisions of each
Pooling and Servicing Agreement, and is subject to, and qualified in its
entirety by reference to, the provisions of each Pooling and Servicing
Agreement. Where provisions or terms used in a particular Pooling and
Servicing Agreement are different than as described herein, a description of
such provisions or terms will be included in the related Prospectus Supplement.
The Mortgage Loans to be included in a Mortgage Pool for a Series of
Bonds will be assigned to the Trustee pursuant to provisions included in the
related Indenture that are substantially the same as, and the obligations of
ACAC, as Transferor (or the related Bond Issuer, if a different entity, to the
extent described in the related Prospectus Supplement), and the Trustee with
respect to the Mortgage Loans so conveyed will be substantially similar to,
those described under "-- Assignment of Mortgage Loans" below. In addition,
the Mortgage Loans included in a Mortgage Pool for a Series of Bonds will be
serviced pursuant to the terms of a Servicing Agreement and any such Servicing
Agreement will contain provisions governing the servicing of such Mortgage
Loans that are substantially similar to the provisions included in each Pooling
and Servicing Agreement relating to servicing and collection procedures with
respect to the related Mortgage Loans as described below. See "The Indenture
- -- General" herein.
ASSIGNMENT OF MORTGAGE LOANS
Assignment of the Mortgage Loans. At the Closing Date for a Series of
Certificates, the related Transferor will cause the Mortgage Loans that will
comprise the related Trust to be assigned to the Trustee, without recourse,
together with all principal and interest received by or on behalf of the
related Transferor on or with respect to such Mortgage Loans on or after the
Cut-off Date, other than principal and interest due before the Cut-off Date.
The Trustee will, concurrently with such assignment, deliver the Certificates
to the related Transferor in exchange for the Mortgage Loans.
Each Mortgage Loan assigned to the Trustee will be identified in a
schedule appearing as an exhibit to the related Pooling and Servicing Agreement
(a "Loan Schedule"). The Loan Schedule will include information as to the
outstanding principal balance of each Mortgage Loan after application of
payments due on the Cut-off Date, as well as information regarding the Mortgage
Rate, the maturity date of the Mortgage Loan, the Combined Loan-to-Value Ratio
at origination and certain other information.
In connection with the assignment, the related Transferor will be
required to deliver or cause to be delivered to the Trustee certain specified
items (collectively, with respect to each Mortgage Loan, the "Mortgage File").
Unless otherwise specified in the related Prospectus Supplement each Mortgage
File will be required to include:
(a) the original Mortgage Note, with all intervening
endorsements sufficient to show a complete chain of endorsement to the
related Transferor, endorsed by the related Transferor, without
recourse, to the order of the Trustee;
(b) the original Mortgage with evidence of recording
indicated thereon;
(c) the original executed assignment of the Mortgage in
recordable form;
(d) originals of all assumption, modification and
substitution agreements, if any, in those instances where the terms or
provisions of a Mortgage or Mortgage Note have been modified or such
Mortgage or Mortgage Note has been assumed;
(e) originals of all intervening mortgage assignments with
evidence of recording indicated thereon sufficient to show a complete
chain of assignment from the originator of the Mortgage Loan to the
related Transferor; and
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(f) the original lender's title insurance policy issued on
the date of the origination of such Mortgage Loan.
Unless otherwise specified in the related Prospectus Supplement, the
related Transferor will promptly cause the assignments of the related Mortgage
Loans to be recorded in the appropriate public office for real property
records, except in states in which, in the opinion of counsel acceptable to the
Trustee, such recording is not required to protect the trustee's interest in
such loans against the claim of any subsequent transferee or any successor to
or creditor of the related Transferor or the Originator of such Mortgage Loans.
If the related Transferor cannot deliver the original Mortgage or
mortgage assignment with evidence of recording thereon on the Closing Date
solely because of a delay caused by the public recording office where such
original Mortgage or mortgage assignment has been delivered for recordation,
such Transferor shall deliver to the Trustee an Officer's Certificate, with a
photocopy of such Mortgage attached thereto, stating that such original
Mortgage or mortgage assignment has been delivered to the appropriate public
recording official for recordation. The related Transferor shall promptly
deliver to the Trustee such original Mortgage or mortgage assignment with
evidence of recording indicated thereon upon receipt thereof from the public
recording official. If the related Transferor within six months from the
Closing Date shall not have received such original Mortgage or mortgage
assignment from the public recording official, it shall obtain, and deliver to
the Trustee within eight months from the Closing Date, a copy of such original
Mortgage or mortgage assignment certified by such public recording official to
be a true and complete copy of such original Mortgage or mortgage assignment as
recorded by such public recording office.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the Mortgage Loans as agent of the Trustee.
Review of the Mortgage File. The Trustee will agree, for the benefit
of the Certificateholders, to review each Mortgage File and the specified items
delivered by or on behalf of the related Transferor within 45 days after the
Closing Date, to determine if the documents described in clauses (a) through
(f) above have been executed and received, and that such documents relate to
the Mortgage Loans in the Loan Schedule. The Trustee is 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, nor is the Trustee under any duty to determine
independently whether there are any intervening assignments or assumption or
modification agreements with respect to any Mortgage Loan.
If within such 45-day period the Trustee finds that any document
constituting a part of a Mortgage File is not properly executed, has not been
received or is unrelated to the Mortgage Loans identified in the related Loan
Schedule, or that any Mortgage Loan does not conform in a material respect to
the description thereof as set forth in the related Loan Schedule, the Trustee
will be required to promptly notify the related Transferor of any defect. Such
Transferor will use reasonable efforts to remedy a material defect in a
document constituting part of a Mortgage File within 60 days after the
Trustee's notice. Thereafter, the Trustee shall also certify that it has
received all of the documents referred to in clauses (a) through (f) and that
all corrections or curative actions required to be taken by the related
Transferor within the 60-day period have been completed or effected, or that
the related Mortgage Loans will be withdrawn or substituted, as specified
below.
Withdrawal or Substitution of Mortgage Loans. Unless otherwise
specified in the related Prospectus Supplement, if, within 60 days after the
Trustee's notice of defect, the related Transferor has not remedied the defect
and the defect materially and adversely affects the interest of the
Certificateholders in the related Mortgage Loan, such Transferor will be
required to, prior to the next Distribution Date, at its option, (i) substitute
in lieu of such Mortgage Loan another Mortgage Loan of like kind (a "Qualified
Replacement Mortgage Loan") or (ii) withdraw such Mortgage Loan from the
related Mortgage Property by paying an amount equal to its Principal Balance
together with one month's interest at the Mortgage Rate, less any payments
received during the related Collection Period ("Loan Withdrawal Amount").
If as provided above, the related Transferor, rather than withdrawing
the Mortgage Loan, removes a Mortgage Loan (a "Deleted Mortgage Loan") from the
related Trust and substitutes in its place a Qualified Replacement Mortgage
Loan, such substitution must be effected within 90 days of the date of the
initial issuance of
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the Certificates of a Series with respect to which no REMIC election is made.
With respect to a Trust for which a REMIC election is to be made, except as
otherwise provided in the related Prospectus Supplement, such substitution of a
defective Mortgage Loan must be effected within two years of the date of the
initial issuance of the Certificates, and may not be made if such substitution
would cause the Trust to not qualify as a REMIC or result in a prohibited
transaction tax under the Code. Except as otherwise provided in the related
Prospectus Supplement, any Qualified Replacement Mortgage Loan generally will,
on the date of substitution, (i) have an outstanding principal balance, after
deduction of all scheduled payments due in the month of substitution, not in
excess of and not substantially less than the outstanding principal balance of
the Deleted Mortgage Loan (the amount of any shortfall to be paid by or at the
direction of the related Transferor to the related Trust in the month of
substitution for distribution to the Certificateholders as a reduction of
principal), (ii) have a Mortgage Rate neither one percentage point or more less
than nor one percentage point or more greater than the Mortgage Rate of the
Deleted Mortgage Loan as of the date of substitution, (iii) have a remaining
term to maturity neither one year or more earlier than nor one year or more
later than that of the Deleted Mortgage Loan and (iv) comply with all of the
representations and warranties set forth in the related Pooling and Servicing
Agreement as of the date of substitution. The related Pooling and Servicing
Agreement may include additional provisions relating to meeting the foregoing
requirements on an aggregate basis where a number of substitutions occur
contemporaneously.
Additionally, unless otherwise specified in the related Prospectus
Supplement, the related Transferor will have made representations and
warranties in respect of the Mortgage Loans assigned by such Transferor and
evidenced by a Series of Certificates. Such representations and warranties
generally include, among other things: (i) that title insurance (or in the case
of Mortgaged Properties located in areas where such policies are generally not
available, an attorney's certificate of title) was in effect on the Closing
Date; (ii) that such Transferor had title to each such Mortgage Loan and such
Mortgage Loan was subject to no offsets, defenses or counterclaims; (iii) that
each Mortgage Loan constituted a valid first or junior lien on the Mortgaged
Property (subject only to permissible title insurance exceptions, if
applicable, and certain other exceptions described in the Pooling and Servicing
Agreement) and that the Mortgaged Property was free from damage and was in
acceptable condition; (iv) that there were no delinquent tax or assessment
liens against the Mortgaged Property; (v) that no required payment on a
Mortgage Loan was more than thirty days delinquent as of the related Cut-off
Date; and (vi) that each Mortgage Loan was made in compliance with, and,
subject to certain limitations, is enforceable under, all applicable state and
federal laws and regulations in all material respects. Upon the discovery by
the related Transferor or the Trustee that the representations in the
applicable Pooling and Servicing Agreement are untrue in any material respect
as of the dates specified therein, with the result that the interests of the
Certificateholders in the related Mortgage Loan are materially and adversely
affected, the party discovering such breach is required to give prompt written
notice to the other parties. Upon the earliest to occur of the related
Transferor's discovery, its receipt of notice of breach from any of the other
parties or such time as a situation resulting from a representation which is
untrue and materially and adversely affects the interests of the
Certificateholders, such Transferor is required promptly to cure such breach in
all material respects or such Transferor will (or will cause the applicable
Originator to) on the Distribution Date next succeeding such discovery, receipt
of notice or such other time, withdraw, or provide a Qualified Replacement
Mortgage Loan, as set forth above. The obligation of the related Transferor so
to cure, substitute or withdraw any Mortgage Loan as to which breach has not
been remedied constitutes the sole remedy available to the Certificateholders
or the Trustee respecting such breach.
Any agreements pursuant to which the related Transferor acquires
certain Mortgage Loans to be deposited in a Trust will contain representations
and obligations of the related Originators that are similar to those described
in the preceding paragraph. The related Transferor may enforce any obligations
of the related Originators in connection with its efforts to cure any breach of
a representation pursuant to the related Pooling and Servicing Agreement. See
"The Originators -- Representations by Originators and the Transferors" herein.
PAYMENTS ON THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, the
Pooling and Servicing Agreement will require the Servicer to establish and
maintain one or more accounts (each, a "Collection Account") at one or more
institutions meeting the requirements set forth in the related Pooling and
Servicing Agreement. Pursuant to the related Pooling and Servicing Agreement,
the Servicer will be required to deposit all collections (other than amounts
escrowed for taxes and insurance) related to the Mortgage Loans into the
Collection Account no later than the second business day after receipt. All
funds in the Collection Accounts will be required to be invested in
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instruments designated as Permitted Investments. Any investment earnings on
funds held in the Collection Accounts are for the benefit of the Servicer.
The Servicer may make withdrawals from the Collection Account only for
the following purposes: (a) to make deposits into the Certificate Account as
set forth below; (b) to pay itself any monthly Servicing Fees; (c) to make any
Servicing Advance or to reimburse itself for any Servicing Advance or Monthly
Advance previously made; (d) to withdraw amounts that have been deposited to
the Collection Account in error; and (e) to clear and terminate the Collection
Account.
Unless otherwise specified in the related Prospectus Supplement, not
later than the third day prior to any Distribution Date (the "Deposit Date"),
the Servicer will be required to wire transfer to the Trustee for deposit in
the Certificate Account the sum (without duplication) of all amounts on deposit
in the Collection Account that constitute any portion of Available Funds for
the related Distribution Date. See "Description of Securities -- Distributions
and Payments on Securities -- Available Funds" herein.
INVESTMENT OF ACCOUNTS
Unless otherwise specified in the related Prospectus Supplement, all
or a portion of any Account, including the Collection Account, may be invested
and reinvested in one or more Permitted Investments bearing interest or sold at
a discount. The Trustee or any affiliate thereof may be the obligor on any
investment in any Account which otherwise qualifies as a Permitted Investment.
No investment in the Collection Account may mature later than the Deposit Date
next succeeding the date of investment.
The Trustee will not in any way be held liable by reason of any
insufficiency in any Account resulting from any loss on any Permitted
Investment included therein.
Unless otherwise specified in the related Prospectus Supplement, all
income or other gain from investments in any Account will be held in such
Account for the benefit of the Servicer and will be subject to withdrawal from
time to time as permitted by the related Pooling and Servicing Agreement. Any
loss resulting from such investments will be for the account of the Servicer.
The Servicer will be required to deposit the amount of any such loss
immediately upon the realization of such loss to the extent such loss is not
offset by other income or gain from investments in such Account and then
available for such application.
PERMITTED INVESTMENTS
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will define "Permitted Investments" generally
as follows:
(a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States, the
timely payment or the guarantee of which constitutes a full faith and
credit obligation of the United States.
(b) Federal Housing Administration debentures, but excluding
any such securities whose terms do not provide for payment of a fixed
dollar amount upon maturity or call for redemption.
(c) Federal Home Loan Mortgage Corporation senior debt
obligations, but excluding any such securities whose terms do not
provide for payment of a fixed dollar amount upon maturity or call for
redemption.
(d) Federal National Mortgage Association senior debt
obligations, but excluding any such securities whose terms do not
provide for payment of a fixed dollar amount upon maturity or call for
redemption.
(e) Federal funds, certificates of deposit, time and demand
deposits, and bankers' acceptances (having original maturities of not
more than 365 days) of any domestic bank or trust company, the short-
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term debt obligations of which have been assigned a minimum rating
specified in the related Pooling and Servicing Agreement by the
applicable Rating Agency.
(f) Deposits of any bank or savings and loan association
which has combined capital, surplus and undivided profits of at least
$50,000,000 which deposits are not in excess of the applicable limits
insured by the Bank Insurance Fund or the Savings Association
Insurance Fund of the Federal Deposit Insurance Corporation, provided
that the long-term deposits of such bank or savings and loan
association are assigned a minimum rating specified in the related
Pooling and Servicing Agreement by the applicable Rating Agency.
(g) Commercial paper (having original maturities of not more
than 180 days) assigned a minimum rating specified in the related
Pooling and Servicing Agreement by the applicable Rating Agency.
(h) Investments in money market funds assigned a minimum
rating specified in the related Pooling and Servicing Agreement by the
applicable Rating Agency.
(i) Other investments acceptable to the applicable Rating
Agency.
No instrument described above is permitted to evidence either the right to
receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations, and no instrument
described above may be purchased at a price greater than par if such instrument
may be prepaid or called at a price less than its purchase price prior to
stated maturity.
MONTHLY ADVANCES AND COMPENSATING INTEREST
In order to maintain a regular flow of scheduled interest to
Certificateholders (rather than to guarantee or insure against losses), unless
otherwise provided in the related Prospectus Supplement, each Pooling and
Servicing Agreement will require that, on each Distribution Date, the Servicer
or any Sub-Servicer deposit in the Collection Account an amount of its own
funds (a "Monthly Advance"). Unless otherwise specified in the related
Prospectus Supplement, a "Monthly Advance" will be equal to the sum of the
interest portions of the aggregate amount of monthly payments (net of the
Servicing Fee) due on the Mortgage Loans during the related Collection Period,
but delinquent as of the close of business on the last day of the related
Collection Period, plus, with respect to each Mortgaged Property which was
acquired in foreclosure or similar action (each, an "REO Property") during or
prior to the related Collection Period and as to which final sale did not occur
during the related Collection Period, an amount equal to the excess, if any, of
interest on the outstanding principal balance of the Mortgage Loan relating to
such REO Property for the related Collection Period at the related Mortgage
Rate (net of the Servicing Fee) over the net income from the REO Property
transferred to the Certificate Account for such Distribution Date.
The Servicer or any Sub-Servicer, if applicable, may recover Monthly
Advances, if not recovered from the Mortgagor on whose behalf such Monthly
Advance was made, from late collections on the related Mortgage Loans,
including Liquidation Proceeds, insurance proceeds and such other amounts as
may be collected by the Servicer from the Mortgagor or otherwise relating to
the Mortgage Loan. To the extent the Servicer, in its good faith business
judgment, determines that any Monthly Advance will not be ultimately
recoverable from late collections, insurance proceeds, Liquidation Proceeds on
the related Mortgage Loans or otherwise, the Servicer may reimburse itself or a
Sub-Servicer, if applicable, on the next Distribution Date from Available Funds
remaining in the Certificate Account after making required payments on such
Distribution Date.
With respect to each Mortgage Loan as to which a prepayment is
received, that becomes a Liquidated Mortgage Loan or is otherwise charged-off
during the Collection Period related to a Distribution Date, unless otherwise
specified in the related Prospectus Supplement, the Servicer will be required
with respect to such Distribution Date to remit to the Trustee, from amounts
otherwise payable to the Servicer as the Servicing Fee, an amount generally
representing the excess of interest on the principal balance of such Mortgage
Loan prior to such prepayment, liquidation or charge-off over the amount of
interest actually received on the related Mortgage Loan
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during the applicable Collection Period (each such amount, a "Compensating
Interest Payment"). The Servicer will not be entitled to be reimbursed from
collections on the Mortgage Loans or any assets of the Trust for any
Compensating Interest Payments made. If the Servicing Fee in respect of such
Collection Period is insufficient to make the entire required Compensating
Interest Payment, the resulting shortfall will reduce the amount of interest
payable to the Certificateholders on such Distribution Date and such reduction
will not be recoverable thereafter.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, the
Servicer is required to foreclose upon or otherwise comparably effect the
ownership in the name of the Servicer, on behalf of the Trustee, of Mortgaged
Properties relating to defaulted Mortgage Loans as to which no satisfactory
arrangements can be made for collection of delinquent payments and which the
related Transferor or the Servicer has not reacquired pursuant to the option
described below, unless the Servicer reasonably believes that Liquidation
Proceeds with respect to such Mortgage Loan would not be increased as a result
of such foreclosure or other action, in which case the Mortgage Loan will be
charged off and will be liquidated (a "Liquidated Mortgage Loan"). In
connection with such foreclosure or other conversion, the Servicer is required
to exercise or use foreclosure procedures with the same degree of care and
skill as it would ordinarily exercise or use under the circumstances in the
conduct of its own affairs. Any amounts advanced in connection with such
foreclosure or other action will constitute Servicing Advances.
Unless otherwise specified in the related Prospectus Supplement, if a
REMIC election has been made, the Servicer will be required to sell REO
Property within two years of its acquisition by the Trustee, unless an opinion
of counsel experienced in federal income tax matters, addressed to the Trustee,
the related Transferor and the Servicer is obtained to the effect that the
holding by the Trust of such REO Property for a greater specified period will
not result in the imposition of taxes on "prohibited transactions" of the Trust
as defined in Section 860F of the Code or cause the Trust to fail to qualify as
a REMIC.
In servicing the Mortgage Loans, the Servicer is required to
determine, with respect to each defaulted Mortgage Loan, when it has recovered,
whether through trustee's sale, foreclosure sale or otherwise, all amounts, if
any, it expects to recover from or on account of such defaulted Mortgage Loan,
whereupon such Mortgage Loan shall become a Liquidated Mortgage Loan.
Unless otherwise specified in the related Prospectus Supplement, the
related Transferor or the Servicer may have the right and the option under the
related Pooling and Servicing Agreement, but not the obligation, to reacquire
for its own account any Mortgage Loan which becomes delinquent, in whole or in
part, as to three consecutive monthly installments or any Mortgage Loan as to
which enforcement proceedings have been brought by the Servicer. Any such
Mortgage Loan so reacquired will be withdrawn from the related Mortgage Pool on
a Deposit Date at the Loan Withdrawal Amount thereof.
GENERAL SERVICING PROCEDURES
The Servicer will service the Mortgage Loans, either directly or
through Sub-Servicers, in accordance with the provisions of each related
Pooling and Servicing Agreement and the policies and procedures customarily
employed by the Servicer in servicing other comparable mortgage loans.
Servicing includes, but is not limited to, post-origination loan processing,
customer service, remittance handling, collections and liquidations.
The Servicer, in its own name or in the name of any Sub-Servicer, will
be authorized and empowered pursuant to the related Pooling and Servicing
Agreement (i) to execute and deliver 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 Mortgage Loans and with respect to
the Mortgaged Properties, (ii) to institute foreclosure proceedings or obtain a
deed in lieu of foreclosure so as to effect ownership of any Mortgaged Property
in its own name on behalf of the Trustee and (iii) to hold title in its own
name to any Mortgaged Property upon such foreclosure or deed in lieu of
foreclosure on behalf of the Trustee.
During a foreclosure, any expenses incurred by the Servicer are added
to the amount owed by the Mortgagor, as permitted by applicable law. Upon
completion of the foreclosure, the property is sold to an outside bidder, or
passes to the mortgagee, in which case the Servicer will proceed to liquidate
the asset. Servicing and
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charge-off policies and collection practices may change over time in accordance
with the Servicer's business judgment, changes in its real estate loan
portfolio and applicable laws and regulations.
SUB-SERVICERS
The Servicer will be permitted under the related Pooling and Servicing
Agreement to enter into sub-servicing arrangements with certain mortgage
servicing institutions meeting the requirements of such Pooling and Servicing
Agreement (each, a "Sub-Servicer") to service the Mortgage Loans in a Mortgage
Pool. Any such sub-servicing arrangements will not relieve the Servicer of
any liability associated with servicing the Mortgage Loans. Compensation for
the services of the Sub-Servicer with respect to the Mortgage Loans will be
paid by the Servicer. See "-- Servicing and Other Compensation and Payment of
Expenses" below.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related Prospectus Supplement, as
compensation for its servicing activities under a Pooling and Servicing
Agreement, the Servicer will be entitled to retain the amount of the Servicing
Fee (as defined in the related Pooling and Servicing Agreement) with respect to
each Mortgage Loan. Additional servicing compensation in the form of prepayment
charges, release fees, bad check charges, assumption fees, extension fees, late
payment charges and any other servicing-related fees, Net Liquidation Proceeds
not required to be deposited in the Collection Account and similar items may,
to the extent collected from Mortgagors, be retained by the Servicer.
The Servicer will be required to pay all reasonable and customary
"out-of-pocket" costs and expenses incurred in the performance of its servicing
obligations, including, but not limited to, the cost of (i) the preservation,
restoration and protection of the Mortgaged Properties, (ii) any enforcement or
judicial proceedings, including foreclosures and (iii) the management and
liquidation of Mortgaged Properties acquired in satisfaction of the related
Mortgage Loans. Such expenditures (each, a "Servicing Advance") may include
costs of collection efforts, reappraisals, forced placement of hazard insurance
if a borrower allows his hazard policy to lapse, legal fees in connection with
foreclosure actions, advancing payments due under any Senior Lien, if any,
advancing delinquent property taxes, and upkeep and maintenance of the
Mortgaged Property if it is acquired through foreclosure and similar types of
expenses. The Servicer will be obligated to make the Servicing Advances
incurred in the performance of its servicing obligations. Unless otherwise
specified in the related Prospectus Supplement, the Servicer will be entitled
to recover Servicing Advances, if not theretofore recovered from the Mortgagor
on whose behalf such Servicing Advance was made, from late collections on the
related Mortgage Loans, including Liquidation Proceeds, insurance proceeds and
such other amounts. Servicing Advances will be reimbursable to the Servicer
from the sources described above out of the funds on deposit in the Collection
Account. The Servicer is not required to make any Servicing Advance that it
determines would be nonrecoverable.
In addition, a Sub-Servicer may be entitled to a monthly servicing fee
in a minimum amount set forth in the related Prospectus Supplement. The
Sub-Servicer may also be entitled to collect and retain, as part of its
servicing compensation, any late charges or prepayment penalties provided in
the Mortgage Note or related instruments. The Sub-Servicer will be reimbursed
by the Servicer for certain expenditures that it makes, generally to the same
extent that the Servicer would be reimbursed for such expenditures under the
related Pooling and Servicing Agreement. Compensation for the services of the
Sub-Servicer shall be paid by the Servicer as a general corporate obligation of
the Servicer.
MAINTENANCE OF HAZARD INSURANCE
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will be required to cause to be maintained fire and hazard insurance
with extended coverage customary in the area where each Mortgaged Property is
located in an amount which is at least equal to the least of (i) the
outstanding principal balance owing on the Mortgage Loan and the related Senior
Lien, if any, (ii) the full insurable value of the related Mortgaged Property
and (iii) the minimum amount required to compensate for damage or loss on a
replacement cost basis. Unless otherwise specified in the related Prospectus
Supplement, if the Mortgaged Property is in an area identified in the Federal
Register by the Flood Emergency Management Agency as having special flood
hazards, the Servicer will be required to cause to be purchased a flood
insurance policy with a generally acceptable insurance carrier, in an
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amount representing coverage not less than the least of (a) the outstanding
principal balance of the Mortgage Loan and the Senior Lien, if any, (b) the
minimum amount required to compensate for damages or loss on a replacement cost
basis or (c) the maximum amount of insurance available under the National Flood
Protection Act of 1973, as amended, provided that such flood insurance is
available. The Servicer will also be required to maintain fire, hazard and, if
applicable, flood insurance on each REO Property in the respective amounts
described above, as well as liability insurance, in each case to the extent
such insurance is available. Any amounts collected by the Servicer under any
such policies (other than amounts to be applied to the restoration or repair of
the Mortgaged Property, or to be released to the Mortgagor in accordance with
customary mortgage servicing procedures) are required to be deposited by the
Servicer in the Collection Account.
In the event that the Servicer obtains and maintains a blanket policy
insuring against fire and hazards of extended coverage on all of the Mortgage
Loans, then, to the extent such policy names the Trustee as loss payee and
provides coverage in an amount equal to the aggregate unpaid principal balances
of the Mortgage Loans without co- insurance, and otherwise complies with the
requirements of the preceding paragraph, the Servicer will be deemed
conclusively to have satisfied its obligations with respect to fire and hazard
insurance coverage. If such blanket policy contains a deductible clause, the
Servicer will be required to pay to the Trustee the difference between the
amount that would have been payable under a policy described in the preceding
paragraph and the amount paid under the blanket policy.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement, when
a Mortgaged Property has been or is about to be conveyed by the Mortgagor, the
Servicer, on behalf of the Trustee, in performing its servicing functions, to
the extent it has knowledge of such conveyance or prospective conveyance, will
be required to enforce the rights of the Trustee as the mortgagee of record to
accelerate the maturity of the related Mortgage Loan under any due-on-sale
clause contained in the related Mortgage or Mortgage Note; provided, however,
that the Servicer will not be required to exercise any such right if the
due-on-sale clause, in the reasonable belief of the Servicer, is not
enforceable under applicable law or if such enforcement would materially
increase the risk of default or delinquency on, or materially decrease the
security for, such Mortgage Loan. In such event, the Servicer will attempt to
enter into an assumption and modification agreement with the person to whom
such property has been or is about to be conveyed, pursuant to which such
person becomes liable under the Mortgage Note and, to the extent permitted by
applicable law or the mortgage documents, the Mortgagor remains liable thereon.
The Servicer also will be authorized to enter into a substitution of liability
agreement with such person, pursuant to which the original Mortgagor is
released from liability and such person is substituted as Mortgagor and becomes
liable under the Mortgage Note. The Servicer will not enter into an assumption
agreement unless permitted by applicable law and unless such assumption
agreement would not materially increase the risk of default or delinquency on,
or materially decrease the security for, such Mortgage Loan.
VOTING
Unless otherwise specified in the related Pooling and Servicing
Agreement, with respect to any provisions of the Pooling and Servicing
Agreement providing for the action, consent or approval of the holders of all
Certificates evidencing specified "Voting Interests" in the Trust, the holders
of any Class of Certificates will collectively be entitled to the
then-applicable percentage of such Class of Certificates of the aggregate
Voting Interests represented by all Certificates. Each Certificateholder of a
Class will have a Voting Interest equal to the product of the Voting Interest
to which such Class is collectively entitled and the Certificateholder's
Percentage Interest (as such term is defined in the related Pooling and
Servicing Agreement) in such Class. With respect to any provisions of the
Pooling and Servicing Agreement providing for action, consent or approval of a
specified Class or Classes of Certificates, each Certificateholder of such
specified Class will have a Voting Interest in such Class equal to such
Certificateholder's Percentage Interest in such Class. Any Certificate
registered in the name of the related Transferor or any affiliate thereof will
be deemed not to be outstanding and the Percentage Interest evidenced thereby
shall not be taken into account in determining whether the requisite amount of
Percentage Interests necessary to take any such action, or effect any such
consent, has been obtained.
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AMENDMENTS
Unless otherwise specified in the related Prospectus Supplement, at
any time and from time to time, without the consent of the Certificateholders,
the Trustee, the related Transferor and the Servicer may amend the related
Pooling and Servicing Agreement for the purposes of (a) curing any ambiguity or
correcting or supplementing any provision of such agreement that may be
inconsistent with any other provision of such agreement, (b) if a REMIC
election has been made and if accompanied by an approving opinion of counsel
experienced in federal income tax matters, removing the restriction against the
transfer of a Residual Certificate to a Disqualified Organization (as such term
is defined in the Code) or (c) complying with the requirements of the Code;
provided, however, that such action shall not, as evidenced by an opinion of
counsel delivered to the Trustee, materially and adversely affect the interests
of any Certificateholder.
Unless otherwise specified in the related Prospectus Supplement, the
related Pooling and Servicing Agreement may also be amended by the Trustee, the
related Transferor and the Servicer, at any time and from time to time, with
the prior written approval of not less than a majority of the Percentage
Interests represented by each affected Class of Certificates then outstanding,
for the purpose of adding any provisions or changing in any manner or
eliminating any of the provisions thereof or of modifying in any manner the
rights of the Certificateholders thereunder; provided, however, that no such
amendment shall (a) change in any manner the amount of, or delay the timing of,
payments which are required to be distributed to any Certificateholder without
the consent of such Certificateholder or (b) change the aforesaid percentages
of Percentage Interests which are required to consent to any such amendments,
without the consent of the Certificateholders of all Certificates of the Class
or Classes affected then outstanding. If a REMIC election has been made with
respect to the related Trust, any such amendment must be accompanied by an
opinion of tax counsel as to REMIC matters.
The Trustee will be required to furnish a copy of any such amendment
to each Certificateholder in the manner set forth in the related Pooling and
Servicing Agreement.
CERTIFICATE EVENTS OF DEFAULT
Unless otherwise specified in the related Prospectus Supplement,
events of default with respect to Certificates (each, a "Certificate Event of
Default") under a Pooling and Servicing Agreement will consist of (a) any
failure by the Servicer to make a Monthly Advance as required; (b) any failure
by the Servicer to deposit in the Collection Account or Certificate Account any
amount (other than an amount representing a Monthly Advance) required to be so
deposited under the related Pooling and Servicing Agreement, which failure
continues unremedied for one Business Day after the giving of written notice of
such failure to the Servicer by the Trustee or to the Servicer and the Trustee
by Certificateholders evidencing Voting Interests represented by all
Certificates aggregating not less than 51%; (c) any failure by the Servicer to
duly observe or perform in any material respect any other of its covenants or
agreements in the Pooling and Servicing Agreement which materially and
adversely affects the rights of Certificateholders and continues unremedied for
30 days after the giving of written notice of such failure to the Servicer by
the Trustee or the Certificateholders evidencing Voting Interests represented
by all Certificates aggregating not less than 51%; (d) certain events of
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings regarding the Servicer and certain actions by the Servicer
indicating its insolvency or inability to pay its obligations; (e) the
occurrence of delinquencies and/or losses in respect of the Mortgage Loans in
excess of a level, and for a period of time, as specified in the Pooling and
Servicing Agreement; and (f) if the related Transferor and the Servicer are the
same entity (i.e., ACC), any failure of the Transferor to duly observe or
perform in any material respect any of its covenants or agreements in the
related Pooling and Servicing Agreement that materially and adversely affects
the rights of Certificateholders and continues unremedied for 30 days after the
giving of a written notice of such failure to such Transferor by the Trustee or
to the Servicer and the Trustee by Certificateholders evidencing Voting
Interests represented by all Certificates aggregating not less than 51%.
RIGHTS UPON CERTIFICATE EVENTS OF DEFAULT
Unless otherwise specified in the related Prospectus Supplement, upon
the occurrence of a Certificate Event of Default, Certificateholders evidencing
Voting Interests represented by all Certificates aggregating not less than 51%
or the Trustee may terminate all of the rights and obligations of the Servicer
under the related Pooling and Servicing Agreement, whereupon the Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under the related Pooling and
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Servicing Agreement and will be entitled to such compensation as the Servicer
would have been entitled to thereunder. In the event that the Trustee would be
obligated to succeed the Servicer but is unwilling or legally unable to act, it
may appoint, or petition a court of competent jurisdiction for the appointment
of, any established housing and home finance institution or any institution
that regularly services home equity loans that is currently servicing a home
equity loan portfolio that has all licenses, permits and approvals required by
applicable law and a net worth of at least $10,000,000 to act as successor to
the Servicer under the related Pooling and Servicing Agreement, provided that
the appointment of any such successor Servicer will not result in the
qualification, reduction or withdrawal of the rating assigned to the
Certificates by any applicable Rating Agency. Pending appointment of a
successor Servicer, unless the Trustee is prohibited by law from so acting, the
Trustee shall be obligated to act as Servicer. The Trustee and such successor
Servicer may agree upon the servicing compensation to be paid, which in no
event may be greater than the compensation described above.
Unless otherwise specified in the related Prospectus Supplement, no
Certificateholder, solely by virtue of its status as a Certificateholder, will
have any right under the related Pooling and Servicing Agreement to institute
any action, suit or proceeding with respect to the related Pooling and
Servicing Agreement unless such Certificateholder previously has given to the
Trustee written notice of default and unless Certificateholders evidencing
Voting Interests represented by all Certificates aggregating not less than 51%
have made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity for costs, expenses and liabilities to be
incurred, and the Trustee for 60 days has neglected or refused to institute any
such action, suit or proceeding. However, the Trustee will be under no
obligation to exercise any of the rights or powers vested in it by the related
Pooling and Servicing Agreement or to institute, conduct or defend any
litigation thereunder or in relation thereto at the request, order or direction
of any of the Certificateholders, unless such Certificateholders have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
TERMINATION; OPTIONAL TERMINATION
Unless otherwise specified in the related Pooling and Servicing
Agreement, the obligations created by each Pooling and Servicing Agreement for
each Series of Certificates will terminate upon the payment to the related
Certificateholders of all amounts held in any Accounts or by the Servicer, and
required to be paid to them pursuant to such Pooling and Servicing Agreement
following the later of (i) the final payment or other liquidation of the last
of the Mortgage Loans subject thereto or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any such Mortgage
Loans remaining in the Trust and (ii) the acquiring by the related Transferor,
the Servicer or other entity specified in the related Prospectus Supplement
including, if REMIC treatment has been elected, the holder of the residual
interest in the REMIC (see "Certain Federal Income Tax Consequences" below),
from the related Trust of all of the remaining Mortgage Loans and all property
acquired in respect of such Mortgage Loans. Unless otherwise specified in the
related Prospectus Supplement, any such acquisition of Mortgage Loans and
property acquired in respect of Mortgage Loans evidenced by a Series of
Certificates will be made at the option of the related Transferor, the Servicer
or other entity at a price, and in accordance with the procedures, specified in
the Prospectus Supplement. The exercise of such right will effect early
retirement of the Certificates of that Series, but the right of the related
Transferor, the Servicer or other entity to so acquire is subject to the
principal balance of the related Mortgage Loans being less than the percentage
specified in the related Prospectus Supplement of the aggregate principal
balance of such Mortgage Loans at the Cut-off Date for the Series. The
foregoing is subject to the provisions that if a REMIC election is made with
respect to a Trust, any reacquisition pursuant to clause (ii) above will be
made only in connection with a "qualified liquidation" of the REMIC within the
meaning of Section 860F(g)(4) of the Code.
EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will provide that on or before a specified date
in each year, a firm of independent public accountants will furnish a statement
to the Trustee to the effect that on the basis of certain procedures
substantially in conformance with the Uniform Single Audit Program for Mortgage
Bankers (to the extent the procedures are applicable to the servicing
obligations set forth in the Pooling and Servicing Agreement), the servicing by
or on behalf of the Servicer of the related Mortgage Loans, under agreements
substantially similar to each other (including the related Pooling and
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Servicing Agreement) was conducted in compliance with such agreements and such
procedures have disclosed no exceptions or errors in records relating to the
Mortgage Loans subject to the related Pooling and Servicing Agreement which, in
the opinion of such firm, are material, except for such exceptions as will be
referred to in the report. Unless otherwise specified in the related
Prospectus Supplement, each Pooling and Servicing Agreement will provide that
the Servicer will be required to deliver to the Trustee, on or before a
specified date in each year, an annual statement signed by an officer of the
Servicer to the effect that the Servicer has fulfilled its material obligations
under the related Pooling and Servicing Agreement throughout the preceding
year.
INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE TRANSFERORS
The related Pooling and Servicing Agreement will provide that neither
the related Transferor nor any of its directors, officers, employees or agents
shall have any liability to the related Trust created thereunder or to any of
the Certificateholders, except with respect to liabilities resulting from
willful malfeasance, bad faith or gross negligence or from the reckless
disregard of obligations or duties arising under the related Pooling and
Servicing Agreement. The related Pooling and Servicing Agreement will further
provide that, with the exceptions stated above, the related Transferor and its
directors, officers, employees and agents are entitled to be indemnified and
held harmless by the related Trust against any loss, liability or expense
incurred in connection with legal actions relating to such Pooling and
Servicing Agreement or the Certificates.
THE TRUSTEE
Each Prospectus Supplement will name the Trustee under the related
Pooling and Servicing Agreement. The Pooling and Servicing Agreement will
provide that the Trustee may resign at any time, upon notice to the related
Transferor, the Servicer and any Rating Agency, in which event such Transferor
will be obligated to appoint a successor Trustee. The related Transferor may
remove the Trustee if the Trustee ceases to be eligible to continue as such
under the Pooling and Servicing Agreement or if the Trustee becomes insolvent.
Any resignation or removal of the Trustee and appointment of a successor
Trustee will not become effective until acceptance of the appointment by the
successor Trustee. Each Pooling and Servicing Agreement will provide that the
Trustee is under no obligation to exercise any of the rights or powers vested
in it by the Pooling and Servicing Agreement at the request or direction of any
of the Certificateholders, unless such Certificateholders shall have offered to
the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction. The Trustee may execute any of the rights or powers granted by the
Pooling and Servicing Agreement or perform any duties thereunder either
directly or by or through agents or attorneys, and the Trustee is responsible
for any misconduct or negligence on the part of any agent or attorney appointed
and supervised with due care by it thereunder. Pursuant to the Pooling and
Servicing Agreement, the Trustee is not liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized by an
authorized officer of any person or within its rights or powers under the
Pooling and Servicing Agreement. The Trustee and any director, officer,
employee or agent of the Trustee may rely and will be protected in acting or
refraining from acting in good faith in reliance on any certificate, notice or
other document of any kind prima facie properly executed and submitted by the
authorized officer of any person respecting any matters arising under the
Pooling and Servicing Agreement.
THE INDENTURE
GENERAL
Each Series of Bonds will be issued pursuant to an Indenture to be
entered into between the related Bond Issuer and the related Trustee. The
Mortgage Loans to be included in the related Mortgage Pool will be assigned to
the Trustee pursuant to provisions included in the related Indenture that are
substantially the same as, and the obligations of ACAC, as Transferor (or the
related Bond Issuer, if a different entity, to the extent described in the
related Prospectus Supplement), and the Trustee with respect to the Mortgage
Loans so conveyed will be substantially similar to, those described under "The
Pooling and Servicing Agreement -- Assignment of Mortgage Loans" herein. In
addition, the Mortgage Loans included in the Mortgage Pool for any Series of
Bonds will be serviced by the Servicer pursuant to the terms of a Servicing
Agreement to be entered into among the Bond Issuer, ACC, as Servicer, and the
related Trustee, which will contain provisions substantially similar to the
servicing and collection provisions included in each Pooling and Servicing
Agreement and described under "The Pooling and
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Servicing Agreement" herein. Where provisions or terms used in a particular
Indenture or Servicing Agreement differ from those provided herein, a
description of such provisions or terms will be included in the related
Prospectus Supplement.
The following summaries describe certain provisions of the Indenture
not described elsewhere in this Prospectus. Where particular provisions or
terms used in the Indenture are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of such summaries.
The description set forth below is subject to modification in the Prospectus
Supplement for a Series of Bonds to describe the terms and provisions of the
particular Indenture relating to such Series of Bonds.
MODIFICATION OF INDENTURE
With the consent of the holders of not less than 51% of the then
aggregate principal amount of the outstanding Bonds of any Series issued under
an Indenture, the related Trustee and the related Bond Issuer may execute a
supplemental indenture to add provisions to, or change in any manner or
eliminate any provisions of, the Indenture with respect to such Series or
modify (except as provided below) in any manner the rights of the holders of
such Bonds.
Without the consent of the holder of each outstanding Bond of such
Series affected thereby, however, no supplemental indenture shall (a) change
the final Payment Date of the principal of, or any installment of interest on,
any Bond of such Series or reduce the principal amount thereof, the Bond Rate
specified thereon (except as provided in the related Indenture with respect to
Bonds that have an adjustable Bond Rate), the redemption price with respect
thereto or the earliest date on which any Bonds of such Series may be redeemed
at the option of the related Bond Issuer, or change any place of payment where,
or the coin or currency in which, any Bond of such Series or any interest
thereon is payable, or impair the right to institute suit for the enforcement
of certain provisions of the Indenture regarding payment, (b) reduce the
percentage of the aggregate principal amount of the outstanding Bonds of such
Series, the consent of the holders of which is required for any such
supplemental indenture, or the consent of the holders of which is required for
any waiver of compliance with certain provisions of the Indenture or of certain
defaults thereunder and their consequences as provided for in the Indenture,
(c) modify the provisions of the Indenture specifying the circumstances under
which such a supplemental indenture may not change the provisions of the
Indenture without the consent of the holders of each outstanding Bond of such
Series affected thereby, or the provisions of the Indenture with respect to
certain remedies available in a Bond Event of Default (as described below),
except to increase any percentage specified therein or to provide that certain
other provisions of the Indenture cannot be modified or waived without the
consent of the holder of each outstanding Bond affected thereby, (d) modify or
alter the provisions of the Indenture regarding the voting of Bonds held by the
related Bond Issuer or an affiliate of the related Bond Issuer, (e) permit the
creation of any lien ranking prior to or on the parity with the lien of the
Indenture with respect to any part of the property subject to a lien under the
Indenture or terminate the lien of the Indenture on any property at any time
subject thereto or deprive the holder of any Bond of such Series of the
security afforded by the lien of the Indenture, or (f) modify any of the
provisions of the Indenture in such manner as to affect the rights of the
holders of Bonds of such Series to the benefits of any provisions for the
redemption at the request of holders of Bonds of such Series contained therein.
The related Bond Issuer and the respective Trustee may also enter into
supplemental indentures, without obtaining the consent of Bondholders of such
Series, to cure ambiguities or make minor corrections, to provide for the
issuance of Bonds in bearer or registered form or for the conversion of any
outstanding Bonds to or from bearer form and to do such other things as would
not adversely affect the interests of the Bondholders of such Series.
BOND EVENTS OF DEFAULT
Unless otherwise specified in the Prospectus Supplement relating to a
given Series of Bonds, a "Bond Event of Default" with respect to any Series of
Bonds will be defined in the respective Indenture under which such Bonds are
issued as: (a) unless otherwise specified in the Prospectus Supplement for
such Series, a default in the payment of principal of any Bond of such Series
or a default for a specified period in the payment of any interest on any Bond
of such Series; (b) a default in the observance of certain negative covenants
in the Indenture or in the observance of certain covenants relating to
redemptions of Bonds of such Series; (c) a default in the observance of any
other covenant of the Indenture, and the continuation of any such default for a
specified period after notice to
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the related Bond Issuer by the Trustee or to the related Bond Issuer and the
Trustee by the holders of at least 25% in principal amount of the Bonds of such
Series then outstanding; (d) the failure of the lien of the Indenture to
constitute a valid first priority security interest in the Trust Estate; (e)
any representation or warranty made by the related Bond Issuer in the Indenture
or in any certificate delivered pursuant thereto having been incorrect in a
material respect as of the time made, and the circumstance in respect of which
such representation or warranty is incorrect not having been cured within a
specified period after notice thereof is given to the related Bond Issuer by
the Trustee or by the holders of at least 25% in principal amount of the Bonds
of such Series then outstanding; or (f) certain events of bankruptcy,
insolvency, receivership or reorganization of the related Bond Issuer.
RIGHTS UPON BOND EVENTS OF DEFAULT
Unless otherwise specified in the Prospectus Supplement relating to a
given Series of Bonds, in case a Bond Event of Default should occur and be
continuing with respect to a Series of Bonds, the Trustee may, and on request
of holders of not less than 51% in principal amount of the Bonds of such Series
then outstanding shall, declare the principal of such Series of Bonds to be due
and payable. Such declaration may under certain circumstances be rescinded by
the holders of a majority in principal amount of the Bonds of such Series then
outstanding.
If, following a Bond Event of Default, a Series of Bonds has been
declared to be due and payable, the Trustee may, in its discretion (provided
that the holders of the Bonds of such Series have not directed the Trustee to
sell the assets included in the related Trust Estate), refrain from selling
such assets and continue to apply all amounts received on such assets to
payments due on the Bonds of such Series in accordance with their terms,
notwithstanding the acceleration of the maturity of such Bonds. The Trustee,
however, must sell the assets included in the related Trust Estate for such
Series if collections in respect of such assets are determined to be
insufficient to make all scheduled payments on Bonds of such Series, in which
case payments will be made on the Bonds in the same manner as described in the
next sentence with regard to instances in which such assets are sold. In
addition, upon a Bond Event of Default the Trustee may, in its discretion
(provided that, unless the Bond Event of Default relates to a default in
payment of principal or interest, the Trustee must receive the consent of the
holders of all outstanding Bonds of such Series, and certain other conditions
must be met), sell the assets included in the related Trust Estate for such
Series, in which event the Bonds of such Series will be payable pro rata out of
the collections on, or the proceeds from the sale of, such assets and any
overdue installments of interest on the Bonds will, to the extent permitted by
applicable law, bear interest at the highest stated interest rate borne by any
Bond of such Series.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case a Bond Event of Default shall occur and be continuing, the
Trustee shall be under no obligation to exercise any of the rights and powers
under the Indenture at the request or direction of any of the Bondholders,
unless such Bondholders have offered to the Trustee reasonable security or
indemnity satisfactory to it against the costs, expenses and liabilities which
might be incurred by it in compliance with such request or direction. Subject
to such provisions for indemnification and certain limitations contained in the
Indenture, the holders of a majority in principal amount of the outstanding
Bonds of a Series shall have the right to direct the time, method, and place of
conducting any proceeding or any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Bonds of such
Series; and the holders of a majority in principal amount of the Bonds of a
Series then outstanding may, in certain cases, waive any default with respect
thereto, except a default in the payment of principal or interest or a default
in respect of a covenant or provision of the Indenture that cannot be modified
without the waiver or consent of the holder of each outstanding Bond affected
thereby.
LIST OF BONDHOLDERS
Unless otherwise specified in the Prospectus Supplement relating to a
given Series of Bonds, three or more holders of the Bonds of any Series (each
of whom has owned a Bond of such Series for at least six months) may, by
written request to the Trustee, obtain access to the list of all Bondholders of
such Series maintained by the Trustee for the purpose of communicating with
other such Bondholders with respect to their rights under the Indenture. The
Trustee may elect not to afford the requesting Bondholders access to the list
of Bondholders if it agrees to mail the desired communication or proxy, on
behalf of the requesting Bondholders, to all Bondholders.
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ANNUAL COMPLIANCE STATEMENT
The related Bond Issuer will be required to file annually with the
Trustee a written statement as to the fulfillment of its obligations under the
Indenture.
TRUSTEE'S ANNUAL REPORT
The Trustee will be required to mail each year to all Bondholders a
brief report relating to its eligibility and qualifications to continue as the
Trustee under the Indenture, any amounts advanced by it under the Indenture,
the amount, interest rate and maturity date of certain indebtedness owing by
the related Bond Issuer to it in the Trustee's individual capacity, the
property and funds physically held by the Trustee as such, any release, or
release and substitution, of property subject to the lien of the Indenture that
has not been previously reported, any additional Series of Bonds not previously
reported and any action taken by it which materially affects the Bonds and
which has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the assets securing
the Bonds of a Series upon the delivery to the Trustee for cancellation of all
of the Bonds of such Series or, with certain limitations, upon deposit with the
Trustee of funds sufficient for the payment in full of all of the Bonds of such
Series.
REDEMPTION OF BONDS
To the extent provided in the related Prospectus Supplement, the Bonds
of any Series may be (i) redeemed at the request of holders of such Bonds; (ii)
redeemed at the option of the related Bond Issuer or another party specified in
the related Prospectus Supplement; or (iii) subject to special redemption under
certain circumstances. The circumstances and terms under which the Bonds of a
Series may be redeemed will be described in the related Prospectus Supplement.
REPORTS BY TRUSTEE TO BONDHOLDERS
On each Payment Date, the Trustee will send a report to each
Bondholder setting forth, among other things, the amount of such payment
representing interest, the amount thereof, if any, representing principal and
the outstanding principal amount of an individual Bond after giving effect to
the payments made on such Payment Date.
LIMITATION ON SUITS
Unless otherwise specified in the Prospectus Supplement relating to a
given Series of Bonds, no Bondholder of any Series will have any right to
institute any proceedings with respect to the Indenture unless (1) such holder
has previously given written notice to the Trustee of a continuing Bond Event
of Default with respect to such Series; (2) the holders of at least 25% in
principal amount of the Bonds of such Series then outstanding have made written
request to the Trustee to institute proceedings in respect of such Bond Event
of Default in its own name as Trustee; (3) such holders have offered to the
Trustee reasonable indemnity satisfactory to it against the costs, expenses and
liabilities to be incurred in compliance with such request; (4) for a specified
period after its receipt of such notice, request and offer of indemnity the
Trustee has failed to institute any such proceedings; and (5) no direction
inconsistent with such written request has been given to the Trustee during
such period by the holders of not less than 51% in principal amount of the
Bonds of such Series then outstanding.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND RELATED MATTERS
The following discussion contains summaries, which are general in
nature, of material legal matters relating to the Mortgage Loans. Because such
legal aspects are governed primarily by applicable state law (which laws may
differ substantially), the summaries do not purport to be complete or to
encompass the laws of all states in which Mortgaged Properties are situated.
The summaries are qualified in their entirety by reference to the appropriate
laws of the states in which Mortgage Loans may be originated.
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NATURE OF THE MORTGAGE LOANS
The Mortgage Loans will be secured by mortgages, deeds of trust,
security deeds or deeds to secure debt, depending upon the prevailing practice
in the state in which the Mortgaged Property is located. In California, for
example, Mortgage Loans are secured by deeds of trust. In other states, a
mortgage creates a lien upon the real property encumbered by the mortgage,
which lien is generally not prior to the lien for real estate taxes and
assessments and other charges under governmental police powers. Priority
between mortgages depends on their terms and generally on the order of
recording in the appropriate state or county office. There are two parties to
a mortgage: the mortgagor, who is the borrower and owner of the mortgaged
property, and the mortgagee, who is the lender. The mortgagor delivers to the
mortgagee a note or bond and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust has three parties: the borrower property owner
called the trustor (similar to a mortgagor), the lender (similar to a
mortgagee) called the beneficiary, and a third-party grantee called the
trustee. Under a deed of trust, the borrower grants the property, irrevocably
until the debt is paid, in trust, generally with a power of sale, to the
trustee to secure payment of the borrower's obligation to the lender. A
security deed and a deed to secure debt are special types of deeds that
indicate on their face that they are granted to secure an underlying debt. By
executing a security deed or deed to secure debt, the grantor conveys title to,
as opposed to merely creating a lien upon, the subject property to the grantee
until such time as the underlying debt is repaid. The mortgagee's authority
under a mortgage, the trustee's authority under a deed of trust and the
grantee's authority under a security deed or deed to secure debt are governed
by law and, with respect to some deeds of trust, the directions of the
beneficiary.
Certain of the Mortgage Loans may be loans secured by condominium
units. The condominium building may be a multi-unit building or buildings, or
a group of buildings whether or not attached to each other, located on property
subject to condominium ownership. Condominium ownership is a form of ownership
of a real property wherein each owner is entitled to the exclusive ownership
and possession of his or her individual condominium unit and also owns a
proportionate undivided interest in all parts of the condominium building
(other than the individual condominium units) and all areas or facilities, if
any, for the common use of the condominium units. The condominium unit owners
appoint or elect the condominium association to govern the affairs of the
condominium.
FORECLOSURE/REPOSSESSION
Foreclosure of a deed of trust is generally accomplished by a
non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In addition to
this non-judicial remedy, a deed of trust may be judicially foreclosed. In
addition to any notice requirements contained in a deed of trust, in some
states the trustee must record a notice of default and send a copy to the
borrower-trustor, to any person who has recorded a request for a copy of any
notice of default and notice of sale, to any successor-in-interest to the
borrower-trustor, to the beneficiary of any junior deed of trust and to certain
other persons. Before such non-judicial sale takes place, typically a notice
of sale must be posted in a public place and published during a specific period
of time in one or more newspapers, posted on the property and sent to parties
having an interest of record in the property.
Foreclosure of a mortgage is generally accomplished by judicial
action. Generally, the action is initiated by the service of legal pleadings
upon all parties having an interest in the real property. Delays in completion
of the foreclosure may occasionally result from difficulties in locating
necessary parties. When the mortgagee's right to foreclosure is contested, the
legal proceedings necessary to resolve the issue can be time-consuming. After
the completion of a judicial foreclosure proceeding, the court generally issues
a judgment of foreclosure and appoints a referee or other court officer to
conduct the sale of the property.
In some states, the borrower under a mortgage or a deed of trust will
have the right to reinstate the loan at any time following default until
shortly before the foreclosure sale. In such states, the borrower, or any
other person having a junior encumbrance on the real estate, may, during a
statutorily prescribed reinstatement period, cure a monetary default by paying
the entire amount in arrears plus other designated costs and expenses incurred
in enforcing the obligation. Generally, state law controls the amount of
foreclosure expenses and costs, including attorney's fees, which may be
recovered by a lender. After the reinstatement period has expired without the
default having been cured, the borrower or junior lienholder no longer has the
right to reinstate the loan and must pay the loan in full to prevent the
scheduled foreclosure sale. If the mortgage or deed of trust is not
reinstated, a notice of
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sale must be posted in a public place and, in most states, published for a
specific period of time in one or more newspapers. In addition, some state
laws require that a copy of the notice of sale be posted on the property and
sent to all parties having an interest in the real property.
Although foreclosure sales are typically public sales, frequently no
third-party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus, the foreclosing lender often purchases the property from the
trustee or referee for an amount equal to the principal amount outstanding
under the loan, accrued and unpaid interest and the expenses of foreclosure.
Thereafter, the lender will assume the burden of ownership, including obtaining
hazard insurance and making such repairs at its own expense as are necessary to
render the property suitable for sale. The lender will commonly obtain the
services of a real estate broker and pay the broker's commission in connection
with the sale of the property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's investment in
the property, in which event the lender may be entitled to a deficiency
judgment in certain states. Any loss may be reduced by the receipt of any
mortgage insurance proceeds.
Courts have imposed general equitable principles upon foreclosure,
which are generally designed to mitigate the legal consequences to the borrower
of the borrower's defaults under the loan documents. Some courts have been
faced with the issue of whether federal or state constitutional provisions
reflecting due process concerns for fair notice require that borrowers under
deeds of trust receive notice earlier than that prescribed by statute. For the
most part, these cases have upheld the notice provisions as being reasonable or
have found that the sale by a trustee under a deed of trust does not involve
sufficient state action to afford constitutional protection to the borrower.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure
of a mortgage, the borrower and foreclosed junior lienholders are given a
statutory period in which to redeem the property from the foreclosure sale. In
some states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays only a portion
of the sums due. The effect of a statutory right of redemption would defeat
the title of any purchaser from the lender subsequent to foreclosure or sale
under a deed of trust. Consequently, the practical effect of the redemption
right is to force the lender to retain the property and pay the expenses of
ownership until the redemption period has run. In some states, such as
California, there is no right to reclaim property after a trustee's sale under
a deed of trust.
CERTAIN PROVISIONS OF CALIFORNIA DEEDS OF TRUST
Most institutional lenders in California, including the Affiliated
Originators originating loans secured by real property in California, use a
form of deed of trust that confers on the beneficiary the right both to receive
all proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards made in connection with any condemnation proceedings to any indebtedness
secured by the deed of trust, in such order as the beneficiary may determine;
provided, however, that the beneficiary is prohibited (under California law)
from applying insurance and condemnation proceeds to the indebtedness secured
by the deed of trust unless the beneficiary's security has been impaired by the
casualty or condemnation, and, if such security has been impaired, permits such
proceeds to be so applied only to the extent of such impairment. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, and, as a
result thereof, the beneficiary's security is impaired, the beneficiary may
apply any award received in respect of such damages or in connection with such
condemnation to the indebtedness secured by the first deed of trust. Proceeds
in excess of the amount of indebtedness secured by a first deed of trust will,
in most cases, be applied to the indebtedness of a junior deed of trust.
Another provision typically found in the forms of deed of trust used
by most institutional lenders in California obligates the trustor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which are senior to the deed of
trust, to provide and maintain
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fire and hazard insurance on the property, to maintain and repair the property
and not to commit or permit any waste thereof, and to appear in and defend any
action or proceeding purporting to affect the property or the rights of the
beneficiary under the deed of trust. Upon a failure of the trustor to perform
any of these obligations, the beneficiary is given the right under the deed of
trust to perform the obligation itself, at its election, with the trustor
agreeing to reimburse the beneficiary for any sums expended by the beneficiary
on behalf of the trustor. All sums so expended by the beneficiary become part
of the indebtedness secured by the deed of trust.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states, including California, have adopted statutory
prohibitions restricting the right of the beneficiary or mortgagee to obtain a
deficiency judgment against borrowers financing the purchase of their residence
or following sale under a deed of trust or certain other foreclosure
proceedings. A deficiency judgment is a personal judgment against the borrower
equal in most cases to the difference between the amount due to the lender and
the net amount received by the lender at the foreclosure sale. As a result of
these prohibitions, it is anticipated that in many instances the Servicer will
not seek deficiency judgments against defaulting Mortgagors.
In addition to laws limiting or prohibiting deficiency judgements,
numerous other federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon collateral
or enforce a deficiency judgment. For example, with respect to federal
bankruptcy law, a court with federal bankruptcy jurisdiction may permit a
debtor through his or her Chapter 11 or Chapter 13 rehabilitative plan to cure
a monetary default in respect of a mortgage loan on the debtor's residence by
paying arrearages within a reasonable time period and reinstating the original
mortgage loan payment schedule even though the lender accelerated the mortgage
loan and final judgment of foreclosure had been entered in state court
(provided no sale of the residence had yet occurred) prior to the filing of the
debtor's petition. Some courts with federal bankruptcy jurisdiction have
approved plans, based on the particular facts of the reorganization case, that
effected the curing of a mortgage loan default by paying arrearages over a
number of years.
Courts with federal bankruptcy jurisdiction also have indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of
each monthly payment, changing the rate of interest, altering the repayment
schedule, forgiving all or a portion of the debt and reducing the lender's
security interest to the value of the residence, thus leaving the lender a
general unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan.
California courts have imposed general equitable principles upon
judicial foreclosure. These equitable principles are generally designed to
relieve the borrower from the legal effect of the borrower's default under the
related loan documents. Examples of judicial remedies that have been fashioned
include judicial requirements that the lender undertake affirmative and
expensive actions to determine the causes for the borrower's default and the
likelihood that the borrower will be able to reinstate the loan. In some
cases, California courts have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disabilities. In other cases, such courts have limited the
right of the lender to foreclose if the default under the loan is not monetary,
such as the borrower's failure to adequately maintain the property or the
borrower's execution of a second deed of trust affecting the property.
Federal and local real estate tax laws provide priority to certain tax
liens over the lien of a mortgage or secured party. Numerous federal and state
consumer protection laws impose substantive requirements upon mortgage lenders
in connection with the origination, servicing and enforcement of such loans.
These laws include the federal Truth in Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act and related statutes and regulations. These federal and
state laws impose specific statutory liabilities upon lenders who fail to
comply with the provisions of the law. In some cases, this liability may
affect assignees of the loans.
It is possible that some of the Mortgage Loans will be subject to the
Riegle Community Development and Regulatory Improvement Act of 1994 (the
"Riegle Act") which incorporates the Home Ownership and Equity Protection Act
of 1994. The Riegle Act adds certain additional provisions to Regulation Z,
the implementing
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regulation of the Truth-in-Lending Act. These provisions impose additional
disclosure and other requirements on creditors with respect to nonpurchase
money mortgage loans with high interest rates or high up-front fees and
charges. In general, mortgage loans within the purview of the Riegle Act have
annual percentage rates over 10% greater than the yield on Treasury Securities
of comparable maturity and/or fees and points which exceed the greater of 8% of
the total loan amount or $400. The provisions of the Riegle Act apply on a
mandatory basis to all mortgage loans originated on or after October 1, 1995.
The provisions can impose specific statutory liabilities upon creditors who
fail to comply with their provisions and may affect the enforceability of the
related loans. In addition, any assignee of the creditor would generally be
subject to all claims and defenses that the consumer could assert against the
creditor, including, without limitation, the right to rescind the mortgage
loan.
ENFORCEABILITY OF DUE-ON-SALE CLAUSES
Unless otherwise provided in the related Prospectus Supplement, each
Mortgage Loan will contain a due-on-sale clause which will generally provide
that if the Mortgagor sells, transfers or conveys the Mortgaged Property, the
Mortgage Loan may be accelerated by the mortgagee. The Garn-St. Germain
Depository Institutions Act of 1982 (the "Garn-St. Germain Act"), subject to
certain exceptions, preempts state constitutional, statutory and case law
prohibiting the enforcement of due-on-sale clauses. As to loans secured by an
owner-occupied residence, the Garn-St. Germain Act sets forth nine specific
instances in which a mortgagee covered by such Act may not exercise its rights
under a due-on-sale clause, notwithstanding the fact that a transfer of the
property may have occurred. The inability to enforce a due-on-sale clause may
result in transfer of the related Mortgaged Property to an uncreditworthy
person, which could increase the likelihood of default.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed at all
or after a certain period of time following origination of the mortgage loans
with respect to prepayments on mortgage loans secured by liens encumbering
owner-occupied residential properties. Because many of the Mortgaged
Properties will be owner-occupied, it is anticipated that prepayment charges
may not be imposed with respect to many of the Mortgage Loans. The absence of
such a restraint on prepayment may increase the likelihood of refinancing or
other early retirement of such Mortgage Loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential first
mortgage loans originated by certain lenders after March 31, 1980. The Office
of Thrift Supervision, as successor to the Federal Home Loan Bank Board, is
authorized to issue rules and regulations and to publish interpretations
governing implementation of Title V. The statute authorized the states to
reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision which expressly rejects an application of the federal
law. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V. Certain states have taken action
to reimpose interest rate limits and/or to limit discount points or other
charges.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Relief Act, a Mortgagor who enters
military service after the origination of the related Mortgage Loan (including
a Mortgagor who is a member of the National Guard or is in reserve status at
the time of the origination of the Mortgage Loan and is later called to active
duty) may not be charged interest above an annual rate of 6% during the period
of such borrower's active duty status, unless a court orders otherwise upon
application of the lender. It is possible that such interest rate limitation
could have an effect, for an indeterminate period of time, on the ability of
the Servicer to collect full amounts of interest on certain of the Mortgage
Loans. Unless otherwise provided in the applicable Prospectus Supplement, any
shortfall in interest collections resulting from the application of the Relief
Act could result in losses to Securityholders. In addition, the Relief Act
imposes limitations which would impair the ability of the Servicer to foreclose
on an affected Mortgage Loan during the Mortgagor's period of active duty
status. Thus, in the event that such a Mortgage Loan goes into
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default, there may be delays and losses occasioned by the inability to realize
upon the Mortgaged Property in a timely fashion.
ENVIRONMENTAL CONSIDERATIONS
Real property pledged as security to a lender may be subject to
unforeseen environmental risks. Under the laws of certain states,
contamination of a property may give rise to a lien on the property to assure
the payment of the costs of clean-up. In several states such a lien has
priority over the lien of an existing mortgage against such property. In
addition, under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), the United States Environmental
Protection Agency (the "EPA") may impose a lien on property where the EPA has
incurred cleanup costs. However, a CERCLA lien is subordinate to pre-existing,
perfected security interests.
Under the laws of some states, and under CERCLA, it is conceivable
that a lender may be held liable, as an "owner" or "operator," for costs of
addressing releases or threatened releases of hazardous substances at a
Mortgaged Property, regardless of whether or not the environmental damage or
threat was caused by a prior owner or operator. CERCLA imposes liability on
any and all "responsible parties" (which term includes, among others, the
property owner and operator) for the cost of clean-up of releases of hazardous
substances. However, CERCLA excludes from the definition of "owner or
operator" secured creditors who hold indicia of ownership for the purpose of
protecting their security interest, but "without participating in the
management of the facility."
Court decisions, such as United States v. Fleet Factors, 901 F.2d 1550
(11th Cir. 1990), cert. denied, 498 US 1049 (1991) (CERCLA liability may be
imposed on a secured lender if it has the ability to participate in
management), and Kelley v. EPA, 15 F.3d 1100 (DC Cir. 1994) cert. denied sub
nom, Kelley v. Am. Bankers Ass'n., 115 S. Ct. 900 (1995) (invalidated the
Lender Liability Rule issued by the EPA in 1992) created considerable
uncertainty about the scope and availability of the secured lender's exemption
from liability. In September 1996, however, Congress passed the Asset
Conservation, Lender Liability, and Deposit Insurance Protection Act of 1996 to
address this uncertainty in federal law. This statute adopted EPA's Lender
Liability Rule into law and, among other things, clarified the exemption by
defining more clearly the circumstances under which a lender will be deemed to
have participated in management. Similar legislation has been enacted in some
states. In the jurisdictions in which such enactments are in effect, the
environmental liability risks associated with protecting a security interest in
property have been reduced, although not completely eliminated.
The costs associated with environmental clean-up may be substantial.
If the related Trustee or Servicer is deemed to have participated in management
of a contaminated property that is part of the Trust or Trust Estate, as
applicable, it is likely that remedial costs would become a liability of that
Trust or Trust Estate, as applicable, and in certain circumstances, of the
Trustee. Such an occurrence could occasion a loss to Securityholders. If a
lender is or becomes liable, it can bring an action for contribution against
any other "responsible parties," including a previous owner or operator, who
created the environmental hazard, but those persons or entities may be bankrupt
or otherwise judgment proof.
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Unless otherwise specified in the related Prospectus Supplement, at
the time the Mortgage Loans were originated, no environmental assessment or a
very limited environmental assessment of the Mortgaged Properties was
conducted.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
Securities is based on the advice of Andrews & Kurth L.L.P., counsel to the
Transferors. This summary is based on laws, regulations, including the real
estate mortgage investment conduit ("REMIC") regulations promulgated by the
Treasury Department on December 23, 1992 (the "REMIC Regulations"), rulings and
decisions now in effect or (with respect to regulations) proposed, all of which
are subject to change either prospectively or retroactively. This summary does
not address the federal income tax consequences of an investment in Securities
applicable to all categories of investors, some of which (for example, banks
and insurance companies) may be subject to special rules. Prospective
investors should consult their tax advisors regarding the federal, state, local
and any other tax consequences to them of the purchase, ownership and
disposition of Securities.
I. TAXATION OF CERTIFICATES
A. GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether (i) the Certificates of a Series are classified as
indebtedness for federal income tax purposes; (ii) an election is made to treat
the Trust (or certain assets of the Trust) relating to a particular Series of
Certificates as a REMIC under the Internal Revenue Code of 1986 (the "Code");
(iii) the Certificates represent an ownership interest for federal income tax
purposes in some or all of the assets included in the Trust for a Series; or
(iv) for federal income tax purposes the Trust relating to a particular Series
of Certificates is classified as a partnership. The Prospectus Supplement for
each Series of Certificates will specify how the Certificates will be treated
for federal income tax purposes and will specify whether a REMIC election will
be made with respect to such Series.
B. TAXATION OF DEBT CERTIFICATES (INCLUDING REGULAR CERTIFICATES)
Interest and Acquisition Discount. Certificates representing regular
interests in a REMIC ("Regular Certificates") are generally taxable to holders
in the same manner as evidences of indebtedness issued by the REMIC. Stated
interest on the Regular Certificates will be taxable as ordinary income and
taken into account using the accrual method of accounting, regardless of the
holder's normal accounting method. Interest (other than original issue
discount) on Certificates (other than Regular Certificates) that are
characterized as indebtedness for federal income tax purposes will be
includible in income by holders thereof in accordance with their usual methods
of accounting. Non-REMIC Certificates characterized as debt for federal income
tax purposes and Regular Certificates will be referred to hereinafter
collectively as "Debt Certificates." For non-REMIC Certificates treated as
debt for federal income tax purposes, see also "Certain Certificates Treated as
Indebtedness" herein.
Debt Certificates that are Accrual Certificates will, and certain of
the other Debt Certificates may, be issued with "original issue discount"
("OID"). The following discussion is based in part on the rules governing OID
that are set forth in Sections 1271-1275 of the Code and the Treasury
Department regulations issued thereunder on February 2, 1994 (the "OID
Regulations"). A Certificateholder should be aware, however, that the OID
Regulations do not adequately address certain issues relevant to prepayable
securities, such as the Debt Certificates.
In general, OID, if any, will equal the excess of the stated
redemption price at maturity of a Debt Certificate over its issue price. A
holder of a Debt Certificate must include such OID in gross income as ordinary
interest income as it accrues under a prescribed method which takes into
account an economic accrual of the discount. In general, OID must be included
in income in advance of the receipt of the cash representing that income. The
amount of OID on a Debt Certificate will be considered to be zero if it is less
than a de minimis amount as determined under the Code.
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The issue price of a Debt Certificate is the first price at which a
substantial amount of Debt Certificates of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Certificates is sold for cash
on or prior to the Closing Date, the issue price for such class will be treated
as the fair market value of such class on the Closing Date. The stated
redemption price at maturity of a Debt Certificate includes the original
principal amount of the Debt Certificate, but generally will not include
distributions of interest if such distributions constitute "qualified stated
interest."
Under the OID Regulations, interest payments will not be qualified
stated interest unless the interest payments are "unconditionally payable."
The OID Regulations state that interest is unconditionally payable if late
payment of interest (other than late payment that occurs within a reasonable
grace period) or nonpayment of interest is expected to be penalized or
reasonable remedies exist to compel payment. The meaning of "penalized" under
the OID regulations is unclear particularly in the case of obligations based on
other debt obligations. Interest payments on Debt Certificates that do not
have reasonable remedies to compel timely payment of interest may not be
qualified stated interest, and such Debt Certificates may have OID.
Certain Debt Certificates will provide for distributions of interest
based on a period that is the same length as the interval between Distribution
Dates but ends prior to each Distribution Date. Any interest that accrues
prior to the Closing Date may be treated under the OID Regulations either (i)
as part of the issue price and the stated redemption price at maturity of the
Debt Certificates or (ii) as not included in the issue price or stated
redemption price. The OID Regulations provide a special application of the de
minimis rule for debt instruments with long first accrual periods where the
interest payable for the first period is at a rate which is effectively less
than that which applies in all other periods. In such cases, for the sole
purpose of determining whether original issue discount is de minimis, the OID
Regulations provide that the stated redemption price is equal to the
instrument's issue price plus the greater of the amount of foregone interest or
the excess (if any) of the instrument's stated principal amount over its issue
price.
Under the de minimis rule, OID on a Debt Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the Debt Certificate multiplied by the weighted average
maturity of the Debt Certificate. For this purpose, the weighted average
maturity of the Debt Certificate is computed as the sum of the amounts
determined by multiplying the number of full years (i.e., rounding down partial
years) from the issue date until each distribution in reduction of stated
redemption price at maturity is scheduled to be made by a fraction, the
numerator of which is the amount of each distribution included in the stated
redemption price at maturity of the Debt Certificate and the denominator of
which is the stated redemption price at maturity of the Debt Certificate.
Holders generally must report de minimis OID pro rata as principal payments are
received, and such income will be capital gain if the Debt Certificate is held
as a capital asset. However, holders may elect to accrue all de minimis OID as
well as market discount under a constant interest method. See "-- Election to
Treat All Interest as Original Issue Discount" herein.
The holder of a Debt Certificate issued with OID must include in gross
income, for all days during its taxable year on which it holds such Debt
Certificate, the sum of the "daily portions" of such OID. The amount of OID
includible in income by a holder will be computed by allocating to each day
during a taxable year a pro rata portion of the OID that accrued during the
relevant accrual period. In the case of a Debt Certificate that is not a
Regular Certificate and the principal payments on which are not subject to
acceleration resulting from prepayments on the Mortgage Loans, the amount of
OID includible in income of a holder for an accrual period (generally the
period over which interest accrues on the debt instrument) will equal the
product of the yield to maturity of the Debt Certificate and the adjusted issue
price of the Debt Certificate, reduced by any payments of qualified stated
interest. The adjusted issue price is the sum of its issue price plus prior
accruals of OID, reduced by the total payments made with respect to such Debt
Certificate in all prior periods, other than qualified stated interest
payments.
The amount of OID to be included in income by a holder of a debt
instrument, such as certain Classes of the Debt Certificates, that is subject
to acceleration due to prepayments on other debt obligations securing such
instruments (a "Pay-Through Certificate") is computed by taking into account
the anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption"). The amount of OID that will accrue during an accrual
period on a Pay-Through Certificate is the excess (if any) of the sum of (a)
the present value of all payments remaining to be made on the Pay-Through
Certificate as of the close of the accrual period and (b) the payments during
the accrual period of amounts included in the stated redemption price of the
Pay-Through Certificate, over the adjusted issue price of the Pay-Through
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Certificate at the beginning of the accrual period. The present value of the
remaining payments is to be determined on the basis of three factors: (i) the
original yield to maturity of the Pay-Through Certificate (determined on the
basis of compounding at the end of each accrual period and properly adjusted
for the length of the accrual period), (ii) events which have occurred before
the end of the accrual period and (iii) the assumption that the remaining
payments will be made in accordance with the original Prepayment Assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a holder of a Pay-Through Certificate to take into
account prepayments with respect to the Mortgage Loans at a rate that exceeds
the Prepayment Assumption, and to decrease (but not below zero for any period)
the portions of OID required to be included in income by a holder of a
Pay-Through Certificate to take into account prepayments with respect to the
Mortgage Loans at a rate that is slower than the Prepayment Assumption.
Although OID will be reported to holders of Pay-Through Certificates based on
the Prepayment Assumption, no representation is made to such holders that
Mortgage Loans will be prepaid at that rate or at any other rate.
The related Transferor may adjust the accrual of OID on a Class of
Regular Certificates (or other regular interests in a REMIC) in a manner that
it believes to be appropriate to take account of realized losses on the
Mortgage Loans, although the OID Regulations do not provide for such
adjustments. If the Internal Revenue Service (the "IRS") were to require that
OID be accrued without such adjustments or if the related Transferor determines
not to make such adjustments, the rate of accrual of OID for a Class of Regular
Certificates could increase.
Certain classes of Regular Certificates may represent more than one
class of REMIC regular interests. Unless the applicable Prospectus Supplement
specifies otherwise, the Trustee intends, based on the OID Regulations, to
calculate OID on such Certificates as if, solely for the purposes of computing
OID, the separate regular interests were a single debt instrument.
A subsequent holder of a Debt Certificate will also be required to
include OID in gross income, but such a holder who purchases such Debt
Certificate for an amount that exceeds its adjusted issue price will be
entitled (as will an initial holder who pays more than a Debt Certificate's
issue price) to offset such OID by comparable economic accruals of portions of
such excess.
Effects of Defaults and Delinquencies. Holders will be required to
report income with respect to the related Certificates under an accrual method
without giving effect to delays and reductions in distributions attributable to
a default or delinquency on the Mortgage Loans, except possibly to the extent
that it can be established that such amounts are uncollectible. As a result,
the amount of income (including OID) reported by a holder of such a Certificate
in any period could significantly exceed the amount of cash distributed to such
holder in that period. The holder will eventually be allowed a loss (or will
be allowed to report a lesser amount of income) to the extent that the
aggregate amount of distributions on the Certificates is reduced as a result of
a Mortgage Loan default. However, the timing and character of such losses or
reductions in income are uncertain and, accordingly, holders should consult
their own tax advisors on this point.
Interest-Only Debt Certificates. The Trust intends to report income
from interest-only classes of Debt Certificates to the IRS and to holders of
interest-only Debt Certificates based on the assumption that the stated
redemption price at maturity is equal to the sum of all payments determined
under the applicable prepayment assumption. As a result, such interest-only
Debt Certificates will be treated as having original issue discount.
Variable Rate Debt Certificates. Under the OID Regulations, Debt
Certificates paying interest at a variable rate (a "Variable Rate Debt
Certificate") are subject to special rules. A Variable Rate Debt Certificate
will qualify as a "variable rate debt instrument" if (i) its issue price does
not exceed the total noncontingent principal payments due under the Variable
Rate Debt Certificate by more than a specified de minimis amount, (ii) it
provides for stated interest, paid or compounded at least annually, at (a) one
or more qualified floating rates, (b) a single fixed rate and one or more
qualified floating rates, (c) a single objective rate or (d) a single fixed
rate and a single objective rate that is a qualified inverse floating rate, and
(iii) it provides that each qualified floating or objective rate is set at a
current value of that rate (one occurring in the interval beginning three
months before and ending one year after the rate is first in effect on the
Variable Rate Debt Certificate).
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A "qualified floating rate" is any variable rate where variations in
the value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate Debt Certificate is denominated. A multiple of a qualified
floating rate will generally not itself constitute a qualified floating rate
for purposes of the OID Regulations. However, a variable rate equal to (i) the
product of a qualified floating rate and a fixed multiple that is greater than
zero but not more than 1.35 or (ii) the product of a qualified floating rate
and a fixed multiple that is greater than zero but not more than 1.35,
increased or decreased by a fixed rate will constitute a qualified floating
rate for purposes of the OID Regulations. In addition, under the OID
Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Variable Rate Debt Certificate will be treated as a single qualified floating
rate (a "Presumed Single Qualified Floating Rate"). Two or more qualified
floating rates with values within 25 basis points of each other as determined
on the Variable Rate Debt Certificate's issue date will be conclusively
presumed to be a Presumed Single Qualified Floating Rate. Notwithstanding the
foregoing, a variable rate that would otherwise constitute a qualified floating
rate but which is subject to one or more restrictions such as a cap or floor
will not be a qualified floating rate for purposes of the OID Regulations
unless the restriction is fixed throughout the term of the Variable Rate Debt
Certificate or the restriction will not significantly affect the yield of the
Variable Rate Debt Certificate.
An "objective rate" is a rate that is not itself a qualified floating
rate but that is determined using a single fixed formula and which is based
upon (i) one or more qualified floating rates, (ii) one or more rates where
each rate would be a qualified floating rate for a debt instrument denominated
in a currency other than the currency in which the Variable Rate Debt
Certificate is denominated, (iii) either the yield or changes in the price of
one or more items of actively traded personal property or (iv) a combination of
rates described in (i), (ii) and (iii). The OID Regulations also provide that
other variable rates may be treated as objective rates if so designated by the
IRS in the future. Despite the foregoing, a variable rate of interest on a
Variable Rate Debt Certificate will not constitute an objective rate if it is
reasonably expected that the average value of such rate during the first half
of the Variable Rate Debt Certificate's term will be either significantly less
than or significantly greater than the average value of the rate during the
final half of the Variable Rate Debt Certificate's term. An objective rate
will qualify as a "qualified inverse floating rate" if such rate is equal to a
fixed rate minus a qualified floating rate, and variations in the rate can
reasonably be expected to reflect inversely contemporaneous variations in the
cost of newly borrowed funds. The OID Regulations also provide that if a
Variable Rate Debt Certificate provides for stated interest at a fixed rate for
an initial period of less than one year followed by a variable rate that is
either a qualified floating rate or an objective rate and if the variable rate
on the Variable Rate Debt Certificate's issue date is intended to approximate
the fixed rate, then the fixed rate and the variable rate together will
constitute either a single qualified floating rate or objective rate, as the
case may be (a "Presumed Single Variable Rate"). If the value of the variable
rate and the initial fixed rate are within 25 basis points of each other as
determined on the Variable Rate Debt Certificate's issue date, the variable
rate will be conclusively presumed to approximate the fixed rate.
For Variable Rate Debt Certificates that qualify as a "variable rate
debt instrument" under the OID Regulations and provide for interest at either a
single qualified floating rate, a single objective rate, a Presumed Single
Qualified Floating Rate or a Presumed Single Variable Rate throughout the term
(a "Single Variable Rate Debt Certificate"), original issue discount is
computed as described above based on the following : (i) stated interest on the
Single Variable Rate Debt Certificate which is unconditionally payable in cash
or property (other than debt instruments of the issuer) at least annually will
constitute qualified stated interest and (ii) by assuming that the variable
rate on the Single Variable Debt Certificate is a fixed rate equal to: (a) in
the case of a Single Variable Rate Debt Certificate with a qualified floating
rate or a qualified inverse floating rate, the value of, as of the issue date,
the qualified floating rate or the qualified inverse floating rate or (b) in
the case of a Single Variable Rate Debt Certificate with an objective rate
(other than a qualified inverse floating rate), a fixed rate which reflects the
reasonably expected yield for such Single Variable Debt Certificate.
In general, any Variable Rate Debt Certificate other than a Single
Variable Rate Debt Certificate (a "Multiple Variable Rate Debt Certificate")
that qualifies as a "variable rate debt instrument" will be converted into an
"equivalent" fixed rate debt instrument for purposes of determining the amount
and accrual of original issue discount and qualified stated interest on the
Multiple Variable Rate Debt Certificate. The OID Regulations generally require
that such a Multiple Variable Rate Debt Certificate be converted into an
"equivalent" fixed rate debt instrument by substituting any qualified floating
rate or qualified inverse floating rate provided for under the terms of the
Multiple Variable Rate Debt Certificate with a fixed rate equal to the value of
the qualified floating rate
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or qualified inverse floating rate, as the case may be, as of the Multiple
Variable Rate Debt Certificate's issue date. Any objective rate (other than a
qualified inverse floating rate) provided for under the terms of the Multiple
Variable Rate Debt Certificate is converted into a fixed rate that reflects the
yield that is reasonably expected for the Multiple Variable Rate Debt
Certificate. In the case of a Multiple Variable Rate Debt Certificate that
qualifies as a "variable rate debt instrument" and provides for stated interest
at a fixed rate in addition to either one or more qualified floating rates or a
qualified inverse floating rate, the fixed rate is initially converted into a
qualified floating rate (or a qualified inverse floating rate, if the Multiple
Variable Rate Debt Certificate provides for a qualified inverse floating rate).
Under such circumstances, the qualified floating rate or qualified inverse
floating rate that replaces the fixed rate must be such that the fair market
value of the Multiple Variable Rate Debt Certificate as of the Multiple
Variable Rate Debt Certificate's issue date is approximately the same as the
fair market value of an otherwise identical debt instrument that provides for
either the qualified floating rate or qualified inverse floating rate rather
than the fixed rate. Subsequent to converting the fixed rate into either a
qualified floating rate or a qualified inverse floating rate, the Multiple
Variable Rate Debt Certificate is then converted into an "equivalent" fixed
rate debt instrument in the manner described above.
Once the Multiple Variable Rate Debt Certificate is converted into an
"equivalent" fixed rate debt instrument pursuant to the foregoing rules, the
amount of original issue discount and qualified stated interest, if any, are
determined for the "equivalent" fixed rate debt instrument by applying the
original issue discount rules to the "equivalent" fixed rate debt instrument in
the manner described above. A holder of the Multiple Variable Rate Debt
Certificate will account for such original issue discount and qualified stated
interest as if the holder held the "equivalent" fixed rate debt instrument.
Each accrual period appropriate adjustments will be made to the amount of
qualified stated interest or original issue discount assumed to have been
accrued or paid with respect to the "equivalent" fixed rate debt instrument in
the event that such amounts differ from the accrual amount of interest accrued
or paid on the Multiple Variable Rate Debt Certificate during the accrual
period.
The OID Regulations do not clearly address the treatment of a Variable
Rate Debt Certificate that is based on a weighted average of the interest rates
on underlying Mortgage Loans. Under the OID Regulations, interest payments on
such a Variable Rate Debt Certificate may be characterized as qualified stated
interest which is includible in income in a manner similar to that described in
the previous paragraph. However, it is also possible that interest payments on
such a Variable Rate Debt Certificate would be treated as contingent interest
(possibly includible in income when the payments become fixed) or in some other
manner.
If a Variable Rate Debt Certificate does not qualify as a "variable
rate debt instrument" under the OID Regulations, then the Variable Rate Debt
Certificate would be treated as a contingent payment debt obligation. It is
not clear under current law how a Variable Rate Debt Certificate would be taxed
if such Debt Certificate were treated as a contingent payment debt obligation.
Market Discount. A purchaser of a Certificate may be subject to the
market discount rules of Sections 1276-1278 of the Code. A holder that
acquires a Debt Certificate with more than a prescribed de minimis amount of
"market discount" (generally, the excess of the principal amount of the Debt
Certificate over the purchaser's purchase price) will be required to include
accrued market discount in income as ordinary income in each month, but limited
to an amount not exceeding the principal payments on the Debt Certificate
received in that month and, if the Certificates are sold, the gain realized.
Such market discount would accrue in a manner to be provided in Treasury
Department regulations but, until such regulations are issued, such market
discount would in general accrue either (i) on the basis of a constant yield
(in the case of a Pay-Through Certificate, taking into account a prepayment
assumption) or (ii) in the ratio of (a) in the case of Certificates (or in the
case of a Pass-Through Certificate, as set forth below, the Mortgage Loans
underlying such Certificate) not originally issued with original issue
discount, stated interest payable in the relevant period to total stated
interest remaining to be paid at the beginning of the period or (b) in the case
of Certificates (or, in the case of a Pass-Through Certificate, as described
below, the Mortgage Loans underlying such Certificate) originally issued at a
discount, OID in the relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination
date of the Debt Certificate (or, in the case of a Pass-Through Certificate,
the Mortgage Loans), the excess of interest paid or accrued to purchase or
carry a Certificate (or, in the case of a Pass-Through Certificate, as
described below, the underlying Mortgage Loans) with market discount over
interest received on such Certificate is allowed as a current deduction only to
the extent
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such excess is greater than the market discount that accrued during the taxable
year in which such interest expense was incurred. In general, the deferred
portion of any interest expense will be deductible when such market discount is
included in income, including upon the sale, disposition, or repayment of the
Certificate (or in the case of a Pass-Through Certificate, an underlying
Mortgage Loan). A holder may elect to include market discount in income
currently as it accrues, on all market discount obligations acquired by such
holder during the taxable year such election is made and thereafter, in which
case the interest deferral rule will not apply.
Premium. A holder who purchases a Debt Certificate at a cost greater
than its stated redemption price at maturity generally will be considered to
have purchased the Certificate at a premium, which it may elect to amortize as
an offset to interest income on such Certificate (and not as a separate
deduction item) on a constant yield method. Although no regulations addressing
the computation of premium accrual on securities similar to the Certificates
have been issued, the legislative history of the Tax Reform Act of 1986 (the
"1986 Act") indicates that premium is to be accrued in the same manner as
market discount. Accordingly, it appears that the accrual of premium on a
Class of Pay-Through Certificates will be calculated using the prepayment
assumption used in pricing such Class. If a holder makes an election to
amortize premium on a Debt Certificate, such election will apply to all taxable
debt instruments (including all REMIC regular interests and all pass-through
certificates representing ownership interests in a trust holding debt
obligations) held by the holder at the beginning of the taxable year in which
the election is made, and to all taxable debt instruments acquired thereafter
by such holder, and will be irrevocable without the consent of the IRS.
Purchasers who pay a premium for the Certificates should consult their tax
advisors regarding the election to amortize premium and the method to be
employed.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a holder of a Debt Certificate to elect to accrue all
interest, discount (including de minimis market or OID) and premium in income
as interest, based on a constant yield method for Debt Certificates acquired on
or after April 4, 1994. If such an election were to be made with respect to a
Debt Certificate with market discount, the holder of the Debt Certificate would
be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
such holder of the Debt Certificate acquires during the year of the election or
thereafter. Similarly, a holder of a Debt Certificate that makes this election
for a Debt Certificate that is acquired at a premium will be deemed to have
made an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such holder owns or acquires. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Debt Certificate is irrevocable.
Sale or Exchange. A holder's adjusted tax basis in its Debt
Certificate is the price such holder pays for a Debt Certificate, plus amounts
of OID or market discount included in income and reduced by any payments
received (other than qualified stated interest payments) and any amortized
premium. Except as described in "-- Interest and Acquisition Discount" and "--
Market Discount," gain or loss recognized on a sale, exchange, or redemption of
a Debt Certificate, measured by the difference between the amount realized and
the Debt Certificate's basis as so adjusted, will generally be capital gain or
loss, assuming that the Debt Certificate is held as a capital asset. In the
case of a Debt Certificate held by a bank, thrift or similar institution
described in Section 582 of the Code, however, gain or loss realized on the
sale or exchange of a Debt Certificate will be taxable as ordinary income or
loss. Gain from the disposition of a Debt Certificate that might otherwise be
capital gain will be treated as ordinary income (i) if a Debt Certificate is
held as part of a "conversion transaction" as defined in Code Section 1258(c),
up to the amount of interest that would have accrued on the Debt
Certificateholder's net investment in the conversion transaction at 120% of the
appropriate applicable Federal rate under Code Section 1274(d) in effect at the
time the taxpayer entered into the transaction minus any amount previously
treated as ordinary income with respect to any prior disposition of property
that was held as part of such transaction, (ii) in the case of a non-corporate
taxpayer, to the extent such taxpayer has made an election under Code Section
163(d)(4) to have net capital gains taxed as investment income at ordinary
income rates, or (iii) in the case of a Regular Certificate to the extent that
such gain does not exceed the excess, if any, of (a) the amount that would have
been includible in the gross income of the holder if his yield on such Regular
Certificate were 110% of the applicable Federal rate under Code Section 1274(d)
as of the date of purchase, over (b) the amount of income actually includible
in the gross income of such holder with respect to the Regular Certificate.
Although the legislative history to the 1986 Act indicates that the portion of
the gain from disposition of a Regular Certificate that will be recharacterized
as ordinary income under clause (iii) is limited to the amount of OID (if any)
on the Regular Certificate that was not previously includible in income, the
applicable Code provision contains no such limitation.
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C. TAXATION OF CERTIFICATES AS TO WHICH A REMIC ELECTION HAS BEEN
MADE
1. TAXATION OF THE REMIC AND ITS HOLDERS
General. In the opinion of Andrews & Kurth L.L.P., if a REMIC
election is made with respect to a Series of Certificates, then the arrangement
by which the Certificates of that Series are issued will be treated as a REMIC
as long as all of the provisions of the applicable Pooling and Servicing
Agreement are complied with and the statutory and regulatory requirements are
satisfied. Certificates will be designated as "Regular Interests" or "Residual
Interests" in a REMIC, as specified in the related Prospectus Supplement.
Status of Regular Certificates as Real Property Loans.
Regular Certificates and Certificates representing a residual interest
in a REMIC (both types of securities collectively referred to as "REMIC
Certificates") will be "qualifying real property loans" within the meaning of
Section 593(d) of the Code, "real estate assets" for purposes of Section
856(c)(5)(A) of the Code and assets described in Section 7701(a)(19)(C) of the
Code (assets qualifying under one or more of those sections, applying each
section separately, "qualifying assets") to the extent that the REMIC's assets
are qualifying assets. However, if at least 95% of the REMIC's assets are
qualifying assets, then 100% of the REMIC Certificates will be qualifying
assets. Similarly, income on the REMIC Certificates will be treated as
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, subject to the limitations of the
preceding two sentences. In addition to Mortgage Loans, the REMIC's assets
will include payments on Mortgage Loans held pending distribution to holders of
REMIC Certificates, amounts in reserve accounts (if any), other credit
enhancements (if any) and possibly buydown funds ("Buydown Funds"). The
Mortgage Loans generally will be qualifying assets under all three of the
foregoing sections of the Code. However, Mortgage Loans that are not secured
by residential real property or real property used primarily for church
purposes may not constitute qualifying assets under Section 7701 (a)(19)(C)(v)
of the Code, and Mortgage Loans that are not secured by improved real property
or real property which is to be improved using Mortgage Loan proceeds will not
constitute qualifying assets under Section 593(d) of the Code. In addition, to
the extent that the principal amount of a Mortgage Loan exceeds the value of
the property securing the Mortgage Loan, it is unclear and Andrews & Kurth
L.L.P. is unable to opine whether the Mortgage Loans will be qualifying assets.
The REMIC Regulations treat credit enhancements as part of the mortgage or pool
of mortgages to which they relate, and therefore credit enhancements generally
should be qualifying assets. Regulations issued in conjunction with the REMIC
Regulations provide that amounts paid on Mortgage Loans and held pending
distribution to holders of Regular Certificates ("cash flow investments") will
be treated as qualifying assets. It is unclear whether reserve funds or
Buydown Funds would also constitute qualifying assets under any of those
provisions.
2. REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be
taken into account by holders of the Residual Certificates. In the case of a
"single class REMIC," however, the expenses will be allocated, under Treasury
Department regulations, among the holders of the Regular Certificates and the
holders of the Residual Certificates on a daily basis in proportion to the
relative amounts of income accruing to each holder on that day. In the case of
a holder of a Regular Certificate who is an individual or a "pass-through
interest holder" (including certain pass-through entities but not including
real estate investment trusts), such expenses will be deductible only to the
extent that such expenses, plus other "miscellaneous itemized deductions" of
the holder, exceed 2% of such holder's adjusted gross income and such holder
may not be able to deduct such fees and expenses to any extent in computing
such holder's alternative minimum tax liability. In addition, the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the applicable amount (for 1996, such
amount is $117,950 for all taxpayers except married taxpayers filling
separately, for whom such amount is $58,975) will be reduced by the lesser of
(i) 3% of the excess of adjusted gross income over the applicable amount, or
(ii) 80% of the amount of itemized deductions otherwise allowable for such
taxable year. The reduction or disallowance of this deduction may have a
significant impact on the yield of the Regular Certificate to such a holder.
In general terms, a single class REMIC is one that either (i) would qualify,
under existing Treasury Department regulations, as a grantor trust if it were
not a REMIC (treating all interests as ownership interests, even if they would
be classified as debt for federal income tax purposes) or (ii) is similar to
such a trust and which is structured with the principal purpose of avoiding the
single class REMIC rules. Unless otherwise stated in the
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applicable Prospectus Supplement, the expenses of the REMIC will be allocated
to holders of the related Residual Certificates.
3. TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal
income tax purposes, a REMIC is not generally subject to entity-level tax.
Rather, the taxable income or net loss of a REMIC is taken into account by the
holders of residual interests. As described above, the regular interests are
generally taxable as debt of the REMIC.
Tiered REMIC Structures. For certain Series of Certificates,
two or more separate elections may be made to treat designated portions of the
related Trust as REMICs ("Tiered REMICs") for federal income tax purposes.
Upon the issuance of any such Series of Certificates, counsel to the
Transferors will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the related Pooling and Servicing Agreement,
the Tiered REMICs will each qualify as a REMIC and the REMIC Certificates
issued by the Tiered REMICs, respectively, will be considered to evidence
ownership of Regular Certificates or Residual Certificates in the related REMIC
within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC
Certificates will be "qualifying real property loans" under Section 593(d) of
the Code, "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code, and "loans secured by an interest in real property" under Section
7701(a)(19)(C) of the Code, and whether the income on such Certificates is
interest described in Section 856(c)(3)(B) of the Code, the Tiered REMICs will
be treated as one REMIC.
Calculation of REMIC Income. The taxable income or net loss
of a REMIC is determined under an accrual method of accounting and in the same
manner as in the case of an individual, with certain adjustments. In general,
the taxable income or net loss will be the difference between (i) the gross
income produced by the REMIC's assets, including stated interest and any
original issue discount or market discount on loans and other assets, and (ii)
deductions, including stated interest and original issue discount accrued on
Regular Interest Certificates, amortization of any premium with respect to
Mortgage Loans, and servicing fees and other expenses of the REMIC. A holder
of a Residual Interest Certificate that is an individual or a "pass-through
interest holder" (including certain pass-through entities, but not including
real estate investment trusts) will be unable to deduct servicing fees payable
on the Mortgage Loans or other administrative expenses of the REMIC for a given
taxable year, to the extent that such expenses, when aggregated with such
holder's other miscellaneous itemized deductions for that year, do not exceed
2% of such holder's adjusted gross income and such holder may not be able to
deduct such fees and expenses to any extent in computing such holder's
alternative minimum tax liability.
For purposes of computing its taxable income or net loss, the
REMIC should have an initial aggregate tax basis in its assets equal to the
aggregate fair market value of the regular interests and the residual interests
on the "Startup Day" (generally, the day that the interests are issued). Such
aggregate basis will be allocated among the assets of the REMIC in proportion
to their respective fair market values.
The OID provisions of the Code apply to loans of individuals
originated on or after March 2, 1984, and the market discount provisions apply
to loans. Subject to possible application of the de minimis rules, the method
of accrual by the REMIC of OID income on such loans will be equivalent to the
method under which holders of Pay-Through Certificates accrue original issue
discount (i.e., under the constant yield method taking into account the
Prepayment Assumption). The REMIC will deduct OID on the Regular Certificates
in the same manner that the holders of the Regular Certificates include such
discount in income, but without regard to the de minimis rules. See " --
Taxation of Debt Certificates (Including Regular Certificates)" above.
However, a REMIC that acquires loans at a market discount must include such
market discount in income currently, as it accrues, on a constant interest
basis.
To the extent that the REMIC's basis allocable to loans that
it holds exceeds their principal amounts, the resulting premium, if
attributable to mortgages originated after September 27, 1985, will be
amortized over the life of the loans (presumably taking into account the
Prepayment Assumption) on a constant yield method. Although the law is somewhat
unclear regarding recovery of premium attributable to loans originated on or
before such date, it is possible that such premium may be recovered in
proportion to payments of loan principal.
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Prohibited Transactions and Contributions Tax. The REMIC will
be subject to a 100% tax on any net income derived from a "prohibited
transaction." For this purpose, net income will be calculated without taking
into account any losses from prohibited transactions or any deductions
attributable to any prohibited transaction that resulted in a loss. In
general, prohibited transactions include: (i) subject to limited exceptions,
the sale or other disposition of any qualified mortgage transferred to the
REMIC; (ii) subject to a limited exception, the sale or other disposition of a
cash flow investment; (iii) the receipt of any income from assets not permitted
to be held by the REMIC pursuant to the Code; or (iv) the receipt of any fees
or other compensation for services rendered by the REMIC. It is anticipated
that a REMIC will not engage in any prohibited transactions in which it would
recognize a material amount of net income. In addition, subject to a number of
exceptions, a tax is imposed at the rate of 100% on amounts contributed to a
REMIC after the Startup Day. The holders of Residual Certificates will
generally be responsible for the payment of any such taxes imposed on the
REMIC. To the extent not paid by such holders or otherwise, however, such
taxes will be paid out of the Trust and will be allocated pro rata to all
outstanding Classes of Certificates of such REMIC.
4. TAXATION OF HOLDERS OF RESIDUAL CERTIFICATES
The holder of a Certificate representing a residual interest
(a "Residual Interest Certificate") will take into account the "daily portion"
of the taxable income or net loss of the REMIC for each day during the taxable
year on which such holder held the Residual Interest Certificate. The daily
portion is determined by allocating to each day in any calendar quarter its
ratable portion of the taxable income or net loss of the REMIC for such
quarter, and by allocating that amount among the holders (on such day) of the
Residual Certificates in proportion to their respective holdings on such day.
The holder of a Residual Interest Certificate must report its
proportionate share of the taxable income of the REMIC whether or not it
receives cash distributions from the REMIC attributable to such income or loss.
The reporting of taxable income without corresponding distributions could
occur, for example, in certain REMIC issues in which the Mortgage Loans held by
the REMIC were issued or acquired at a discount, since mortgage prepayments
cause recognition of discount income, while the corresponding portion of the
prepayment could be used in whole or in part to make principal payments on
REMIC Regular Interests issued without any discount or at an insubstantial
discount. (If this occurs, it is likely that cash distributions will exceed
taxable income in later years.) Taxable income may also be greater in earlier
years of certain REMIC issues as a result of the fact that interest expense
deductions, as a percentage of outstanding principal on REMIC Regular
Certificates, will typically increase over time as lower yielding Certificates
are paid, whereas interest income with respect to loans will generally remain
constant over time as a percentage of loan principal.
In any event, because the holder of a residual interest is
taxed on the net income of the REMIC, the taxable income derived from a
Residual Interest Certificate in a given taxable year will not be equal to the
taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pretax yield.
Therefore, the after-tax yield on the Residual Interest Certificate may be less
than that of such a bond or instrument.
Limitation on Losses. The amount of the REMIC's net loss that
a holder may take into account currently is limited to the holder's adjusted
basis at the end of the calendar quarter in which such loss arises. A holder's
basis in a Residual Interest Certificate will initially equal such holder's
purchase price, and will subsequently be increased by the amount of the REMIC's
taxable income allocated to the holder, and decreased (but not below zero) by
the amount of distributions made and the amount of the REMIC's net loss
allocated to the holder. Any disallowed loss may be carried forward
indefinitely, but may be used only to offset income of the REMIC generated by
the same REMIC. The ability of holders of Residual Certificates to deduct net
losses may be subject to additional limitations under the Code, as to which
such holders should consult their tax advisors.
Distributions. Distributions on a Residual Interest
Certificate (whether at their scheduled times or as a result of prepayments)
will generally not result in any additional taxable income or loss to a holder
of a Residual Interest Certificate. If the amount of such payment exceeds a
holder's adjusted basis in the Residual Interest Certificate, however, the
holder will recognize gain (treated as gain from the sale of the Residual
Interest Certificate) to the extent of such excess.
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Sale or Exchange. A holder of a Residual Interest Certificate
will recognize gain or loss on the sale or exchange of a Residual Interest
Certificate equal to the difference, if any, between the amount realized and
such holder's adjusted basis in the Residual Interest Certificate at the time
of such sale or exchange. Except to the extent provided in regulations, which
have not yet been issued, any loss upon disposition of a Residual Interest
Certificate will be disallowed if the selling holder acquires any residual
interest in a REMIC or similar mortgage pool within six months before or after
such disposition.
Excess Inclusions. The portion of the REMIC taxable income of
a holder of a Residual Interest Certificate consisting of "excess inclusion"
income may not be offset by other deductions or losses, including net operating
losses, on such holder's federal income tax return. An exception applies to
organizations to which Code Section 593 applies (generally, certain thrift
institutions); however, such exception will not Apply if the aggregate value of
the Residual Certificates is not considered to be "significant," as described
below. Further, if the holder of a Residual Interest Certificate is an
organization subject to the tax on unrelated business income imposed by Code
Section 511, such holder's excess inclusion income will be treated as unrelated
business taxable income of such holder. In addition, under Treasury Department
regulations yet to be issued, if a real estate investment trust, a regulated
investment company, a common trust fund, or certain cooperatives were to own a
Residual Interest Certificate, a portion of dividends (or other distributions)
paid by the real estate investment trust (or other entity) would be treated as
excess inclusion income. If a Residual Certificate is owned by a foreign
person, excess inclusion income is subject to tax at a rate of 30% which may
not be reduced by treaty, is not eligible for treatment as "portfolio interest"
and is subject to certain additional limitations. See "Tax Treatment of
Foreign Investors" herein. Regulations provide that a Residual Interest
Certificate has significant value only if (i) the aggregate issue price of the
Residual Interest Certificate is at least 2% of the aggregate of the issue
prices of all Regular Certificates and Residual Certificates in the REMIC and
(ii) the anticipated weighted average life (determined as specified in the
REMIC Regulations) of the Residual Certificates is at least 20% of the weighted
average life of the REMIC. Although not entirely clear, the regulations
indicate that the significant value determination is made only on the Closing
Date.
The excess inclusion portion of a REMIC's income is generally
equal to the excess, if any, of REMIC taxable income for the quarterly period
allocable to a Residual Interest Certificate, over the daily accruals for such
quarterly period of (i) 120% of the long term applicable federal rate on the
Startup Day multiplied by (ii) the adjusted issue price of such Residual
Interest Certificate at the beginning of such quarterly period. The adjusted
issue price of a Residual Interest Certificate at the beginning of each
calendar quarter will equal its issue price (calculated in a manner analogous
to the determination of the issue price of a Regular Certificate), increased by
the aggregate of the daily accruals for prior calendar quarters, and decreased
(but not below zero) by the amount of loss allocated to a holder and the amount
of distributions made on the Residual Interest Certificate before the beginning
of the quarter. The long-term federal rate, which is announced monthly by the
Treasury Department, is an interest rate that is based on the average market
yield of outstanding marketable obligations of the United States government
having remaining maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances,
transfers of Residual Certificates may be disregarded. See "-- Restrictions on
Ownership and Transfer of Residual Certificates" and "-- Tax Treatment of
Foreign Investors" below.
Restrictions on Ownership and Transfer of Residual
Certificates. As a condition to qualification as a REMIC, reasonable
arrangements must be made to prevent the ownership of a REMIC residual interest
by any "Disqualified Organization." Disqualified Organizations include the
United States, any State or political subdivision thereof, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, a rural electric or telephone cooperative described in
Section 1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
Sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income. Accordingly, the applicable Pooling and Servicing
Agreement will prohibit Disqualified Organizations from owning a Residual
Interest Certificate. In addition, no transfer of a Residual Interest
Certificate will be permitted unless the proposed transferee shall have
furnished to the Trustee an affidavit representing and warranting that it is
neither a Disqualified Organization nor an agent or nominee acing on behalf of
a Disqualified Organization.
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If a Residual Interest Certificate is transferred to a
Disqualified Organization (in violation of the restrictions set forth above), a
substantial tax will be imposed on the transferor of such Residual Interest
Certificate at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity (including, among
others, a partnership, trust, real estate investment trust, regulated
investment company, or any person holding as nominee an interest in a
pass-through entity) that owns a Residual Interest Certificate, the pass-
through entity will be required to pay an annual tax on its allocable share of
the excess inclusion income of the REMIC.
The REMIC Regulations provide that a transfer of a
"noneconomic residual interest" will be disregarded for all federal income tax
purposes unless impeding the assessment or collection of tax was not a
significant purpose of the transfer. A residual interest will be treated as a
"noneconomic residual interest" unless, at the time of the transfer (i) the
present value of the expected future distributions on the residual interest at
least equals the product of (x) the present value of all anticipated excess
inclusions with respect to the residual interest and (y) the highest corporate
tax rate, currently 35%, and (ii) the transferor reasonably expects that for
each anticipated excess inclusion, the transferee will receive distributions
from the REMIC, at or after the time at which taxes on such excess inclusion
accrue, sufficient to pay the taxes thereon. A significant purpose to impede
the assessment or collection of tax exists if the transferor, at the time of
the transfer, either knew or should have known (had "improper knowledge") that
the transferee would be unwilling or unable to pay taxes due on its share of
the taxable income of the REMIC. A transferor will be presumed not to have
improper knowledge if (i) the transferor conducts, at the time of the transfer,
a reasonable investigation of the financial condition of the transferee and, as
a result of the investigation, the transferor finds that the transferee has
historically paid its debts as they came due and finds no significant evidence
to indicate that the transferee will not continue to pay its debts as they come
due in the future, and (ii) the transferee represents to the transferor that
(a) the transferee understands that it might incur tax liabilities in excess of
any cash received with respect to the residual interest and (b) the transferee
intends to pay the taxes associated with owning the residual interest as they
come due. A different formulation of this rule applies to transfers of
Residual Interest Certificate by or to foreign transferees. See "Tax Treatment
to Foreign Investors" herein.
Mark to Market Rules. Any REMIC Residual Interest acquired
after January 3, 1995 cannot be marked to market by securities dealers,
regardless of the value of such REMIC residual interest.
5. ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis
and the REMIC must file an annual federal income tax return. The REMIC will
also be subject to the procedural and administrative rules of the Code
applicable to partnerships, including the determination of any adjustments to,
among other things, items of REMIC income, gain, loss, deduction or credit, by
the IRS in a unified administrative proceeding.
D. TAX STATUS AS A GRANTOR TRUST
General. As specified in the related Prospectus Supplement, if a
REMIC or partnership election is not made and the Certificates are not treated
as debt for federal income tax purposes, an opinion of Andrews & Kurth L.L.P.
will be obtained that the Trust relating to a Series of Certificates will be
classified for federal income tax purposes as a grantor trust under Subpart E,
Part I of Subchapter J of Chapter 1 of Subtitle A of the Code and not as an
association taxable as a corporation (the Certificates of such Series,
"Pass-Through Certificates"). Accordingly, each holder of a Pass-Through
Certificate is treated for federal income tax purposes as the owner of an
undivided interest in the Mortgage Loans included in the Trust. As further
described below, each holder of a Pass-Through Certificate therefore must
report on its federal income tax return the gross income from the portion of
the Mortgage Loans that is allocable to such Pass-Through Certificate and may
deduct the portion of the expenses incurred or accrued by the Trust that is
allocable to such Pass-Through Certificate, at the same time and to the same
extent as such items would be reported by such holder if it had purchased and
held directly such interest in the Mortgage Loans and received or accrued
directly its share of the payments on the Mortgage Loans and incurred or
accrued directly its share of expenses incurred or accrued by the Trust when
those amounts are received, incurred or accrued by the Trust.
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A holder of a Pass-Through Certificate that is an individual, estate,
or trust will be allowed deductions for such expenses only to the extent that
the sum of those expenses and the holder's other miscellaneous itemized
deductions exceeds 2% of such holder's adjusted gross income. Moreover, a
holder of a Pass-Through Certificate that is not a corporation cannot deduct
such expenses for purposes of the alternative minimum tax (if applicable). Such
deductions will include servicing, guarantee and administrative fees paid to
the servicer of the Mortgage Loans. As a result, the Trust will report
additional taxable income to holders of Pass-Through Certificates in an amount
equal to their allocable share of such deductions, and individuals, estates, or
trusts holding Pass-Through Certificates may have taxable income in excess of
the cash received.
Status of the Pass-Through Certificates as Real Property Loans. The
Pass-Through Certificates will be "qualifying real property loans" within the
meaning of Section 593(d) of the Code, "real estate assets" for purposes of
Section 856(c)(5)(A) of the Code and "loans ... secured by an interest in real
property" within the meaning of Section 7701(a)(19)(C)(v) of the Code (assets
qualifying under one or more of those sections, applying each section
separately, "qualifying assets") to the extent that the Trust's assets are
qualifying assets. The Pass-Through Certificates may not be qualifying assets
under any of the foregoing sections of the Code to the extent that the Trust's
assets include Buydown Funds, reserve funds, or payments on mortgages held
pending distribution to Certificateholders. Further, the Pass-Through
Certificates may not be "qualifying real property loans" to the extent Mortgage
Loans held by the Trust are not secured by improved real property or real
property which is to be improved using the Mortgage Loan proceeds, may not be
"real estate assets" to the extent Mortgage Loans held by the trust are not
secured by real property, and may not be "loans ... secured by an interest in
real property" to the extent Mortgage Loans held by the trust are not secured
by residential real property or real property used primarily for church
purposes. In addition, to the extent that the principal amount of a Mortgage
Loan exceeds the value of the property securing the Mortgage Loan, it is
unclear and Andrews & Kurth L.L.P. is unable to opine whether the Mortgage
Loans will be qualifying assets.
Taxation of Pass-Through Certificates Under Stripped Bond Rules. The
federal income tax treatment of the Pass-Through Certificates will depend on
whether they are subject to the rules of Section 1286 of the Code (the
"stripped bond rules"). The Pass-Through Certificates will be subject to those
rules if stripped interest-only Certificates are issued. In addition, whether
or not stripped interest-only Certificates are issued, the IRS may contend that
the stripped bond rules apply on the ground that the Servicer's servicing fee,
or other amounts, if any, paid to (or retained by) the Servicer or its
affiliates, as specified in the applicable Prospectus Supplement, represent
greater than an arm's length consideration for servicing the Mortgage Loans and
should be characterized for federal income tax purposes as an ownership
interest in the Mortgage Loans. The IRS has concluded in Revenue Ruling 91-46
that a retained interest in excess of reasonable compensation for servicing is
treated as a "stripped coupon" under the rules of Code Section 1286.
If interest retained for the Servicer's servicing fee or other
interest is treated as a "stripped coupon," the Pass-Through Certificates will
be subject to the OID rules and/or the market discount rules. A holder of a
Pass-Through Certificate generally will account for any discount on the
Pass-Through Certificate that is attributable to a Mortgage Loan that is
secured by real property as market discount rather than OID if either (i) the
amount of OID attributable to such Mortgage Loan was treated as zero under the
OID de minimis rule when such Mortgage Loan was stripped or (ii) no more than
100 basis points (including any amount of servicing in excess of reasonable
servicing) is stripped off from such Mortgage Loan. If neither of the above
exceptions applies, the OID rules will apply to such discount. Discount
attributable to an unsecured Mortgage Loan will not be eligible for treatment
as market discount, and it is unclear whether discount attributable to a
stripped Mortgage Loan the principal amount of which exceeds the value of real
property securing the Mortgage Loan will be eligible for treatment as market
discount.
If the OID rules apply, the holder of a Pass-Through Certificate
(whether a cash or accrual method taxpayer) will be required to report interest
income from the Pass-Through Certificate in each taxable year equal to the
income that accrues on the Pass-Through Certificate in that year calculated
under a constant yield method based on the yield of the Pass-Through
Certificate (or, possibly, the yield of each Mortgage Loan underlying such
Pass-Through Certificate) to such holder. Such yield would be computed at the
rate (assuming monthly compounding) that, if used in discounting the holder's
share of the payments on the Mortgage Loans, would cause the present value of
those payments to equal the price at which the holder purchased the
Pass-Through Certificate. With respect to certain categories, of debt
instruments, Section 1272(a)(6) of the Code requires that OID be accrued based
on a
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prepayment assumption determined in a manner prescribed by forthcoming
regulations. It is unclear whether such regulations would apply this rule to
the Pass-Through Certificates, whether Section 1272(a)(6) might apply to the
Pass-Through Certificates in the absence of such regulations, or whether the
IRS could require use of a reasonable prepayment assumption based on other tax
law principles, and Andrews & Kurth L.L.P. is unable to opine with respect to
this issue. If required to report interest income on the Pass-Through
Certificates to the IRS under the stripped bond rules, it is anticipated that
the Trustee will calculate the yield of the Pass-Through Certificates based on
a representative initial offering price of the Pass-Through Certificates and a
reasonable assumed rate of prepayment of the Mortgage Loans (although such
yield may differ from the yield to any particular holder that would be used in
calculating the interest income of such holder). The Prospectus Supplement for
each series of Pass-Through Certificates will describe the prepayment
assumption that will be used for this purpose, but no representation is made
that the Mortgage Loans will prepay at that rate or at any other rate.
Assuming that holders are not taxed as directly owning the Mortgage
Loans, in the case of a Pass-Through Certificate acquired at a price equal to
the principal amount of the Mortgage Loans allocable to the Pass-Through
Certificate, the use of a reasonable prepayment assumption would not have any
significant effect on the yield used in calculating accruals of interest
income. In the case, however, of a Pass-Through Certificate acquired at a
discount or premium (that is, at a price less than or greater than such
principal amount, respectively), the use of a reasonable prepayment assumption
would increase or decrease such yield, and thus accelerate or decelerate the
reporting of interest income, respectively.
If a Mortgage Loan is prepaid in full, the holder of a Pass-Through
Certificate acquired at a discount or premium generally will recognize ordinary
income or loss equal to the difference between the portion of the prepaid
principal amount of the Mortgage Loan that is allocable to the Pass-Through
Certificate and the portion of the adjusted basis of the Pass-Through
Certificate (see "Sales of Pass-Through Certificates" below) that is allocable
to the Mortgage Loan. The method of allocating such basis among the Mortgage
Loans may differ depending on whether a reasonable prepayment assumption is
used in calculating the yield of the Pass-Through Certificates for purposes of
accruing OID. It is not clear whether any other adjustments would be required
to reflect differences between the prepayment rate that was assumed in
calculating yield and the actual rate of prepayments.
Pass-Through Certificates of certain series ("Variable Rate
Pass-Through Certificates") may provide for a Pass-Through Rate based on the
weighted average of the interest rates of the Mortgage Loans held by the Trust,
which interest rates may be fixed or variable. In the case of a Variable Rate
Pass-Through Certificate that is subject to the OID rules, the daily portions
of OID generally will be calculated under the principles discussed in "--
Taxation of Debt Certificates (Including Regular Certificates) -- Variable Rate
Debt Certificates" herein.
Taxation of Pass-Through Certificates If Stripped Bond Rules Do Not
Apply. If the stripped bond rules do not apply to a Pass-Through Certificate,
then the holder will be required to include in income its share of the interest
payments on the Mortgage Loans in accordance with its tax accounting method.
In addition, if the holder purchased the Pass-Through Certificate at a discount
or premium, the holder will be required to account for such discount or premium
in the manner described below. The treatment of any discount will depend on
whether the discount is OID as defined in the Code and, in the case of discount
other than OID, whether such other discount exceeds a de minimis amount. In
the case of OID, the holder (whether a cash or accrual method taxpayer) will be
required to report as additional interest income in each month the portion of
such discount that accrues in that month, calculated based on a constant yield
method. In general it is not anticipated that the amount of OID) to be accrued
in each month, if any, will be significant relative to the interest paid
currently on the Mortgage Loans. However, OID could arise with respect to a
Mortgage Loan that provides for interest at a rate equal to the sum of an index
of market interest rates and a fixed number ("ARM"). The OID for ARMs
generally will be determined under the principles discussed in "-- Taxation of
Debt Certificates (Including Regular Certificates) -- Variable Rate Debt
Certificates" herein.
If discount other than OID exceeds a de minimis amount (described
below), the holder will also generally be required to include in income in each
month the amount of such discount accrued through such month and not previously
included in income, but limited, with respect to the portion of such discount
allocable to any Mortgage Loan, to the amount of principal on such Mortgage
Loan received by the Trust in that month. Because the Mortgage Loans will
provide for monthly principal payments, such discount may be required to be
included in income at a rate that is not significantly slower than the rate at
which such discount accrues (and therefore at a rate
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not significantly slower than the rate at which such discount would be included
in income if it were OID). The holder may elect to accrue such discount under
a constant yield method based on the yield of the Pass-Through Certificate to
such holder (or possibly based on the yields of each Mortgage Loan). In the
absence of such an election, it may be necessary to accrue such discount under
a more rapid straight-line method. Under the de minimis rule, market discount
with respect to a Pass-Through Certificate will be considered to be zero if it
is less than the product of (i) 0.25% of the principal amount of the Mortgage
Loans allocable to the Pass-Through Certificate and (ii) the weighted average
life (in complete years) of the Mortgage Loans remaining at the time of
purchase of the Pass-Through Certificate.
If a holder purchases a Pass-Through Certificate at a premium, such
holder may elect under Section 171 of the Code to amortize the portion of such
premium that is allocable to a Mortgage Loan under a constant yield method
based on the yield of the Mortgage Loan to such holder, provided that such
Mortgage Loan was originated after September 27, 1985. Premium allocable to a
Mortgage Loan originated on or before that date should be allocated among the
principal payments on the Mortgage Loan and allowed as an ordinary deduction as
principal payments are made or, perhaps, upon termination.
It is not clear whether the foregoing adjustments for discount or
premium would be made based on the scheduled payments on the Mortgage Loans or
taking account of a reasonable prepayment assumption, and Andrews & Kurth
L.L.P. is unable to opine on this issue.
If a Mortgage Loan is prepaid in full, the holder of a Pass-Through
Certificate acquired at a discount or premium will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal
amount of the Mortgage Loan that is allocable to the Pass-Through Certificate
and the portion of the adjusted basis of the Pass-Through Certificate (see
"Sales of Pass-Through Certificates" below) that is allocable to the Mortgage
Loan. The method of allocating such basis among the Mortgage Loans may differ
depending on whether a reasonable prepayment assumption is used in calculating
the yield of the Pass-Through Certificates for purposes of accruing OID. Other
adjustments might be required to reflect differences between the prepayment
rate that was assumed in accounting for discount or premium and the actual rate
of prepayments.
E. TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP; TAX
CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A
PARTNERSHIP
Tax Characterization of the Trust as a Partnership. Andrews & Kurth
L.L.P. will deliver its opinion that a Trust which is intended to be a
partnership for federal income tax purposes will not be an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes. This opinion will be based on the assumption that the terms of the
Pooling and Servicing Agreement and related documents will be complied with,
and on counsel's conclusions that (i) the Trust will not have certain
characteristics necessary for a business trust to be classified as an
association taxable as a corporation and (ii) the nature of the income of the
Trust will exempt it from the rule that certain publicly traded partnerships
are taxable as corporations or the issuance of the Certificates has been
structured as a private placement under an IRS safe harbor, so that the Trust
will not be characterized as a publicly traded partnership taxable as a
corporation.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income. Any such
corporate income tax could materially reduce cash available to make
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust. In additions, a distributions to the
Certificateholders would be taxable as dividends.
Treatment of the Trust as a Partnership. In the case of a Trust
intended to qualify as a partnership for federal income tax purposes, the Trust
and the related Transferor will agree, and the Certificateholders will agree by
their purchase of Certificates, to treat the Trust as a partnership for
purposes of federal and state income tax, franchise tax and any other tax
measured in whole or in part by income, with the assets of the partnership
being the assets held by the Trust and the partners of the partnership being
the Certificateholders. However, the proper characterization of the
arrangement involving the Trust, the Certificates and the Servicer is not clear
because there is no authority on transactions closely comparable to that
contemplated herein.
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A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust. Any such characterization
would not result in materially adverse tax consequences to Certificateholders
as compared to the consequences from treatment of the Certificates as equity in
a partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
Indexed Certificates, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates have interest rates which would qualify as contingent interest
under the OID regulations, and that a Series of Certificates includes a single
Class of Certificates. If these conditions are not satisfied with respect to
any given Series of Certificates, additional tax considerations with respect to
such Certificates will be disclosed in the applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such Certificateholder's allocated share of
income, gains, losses, deductions and credits of the Trust. The Trust's income
will consist primarily of interest and finance charges earned on the Mortgage
Loans (including appropriate adjustments for market discount, OID and bond
premium) and any gain upon collection or disposition of Mortgage Loans. The
Trust's deductions will consist primarily of servicing and other fees, and
losses or deductions upon collection or disposition of Mortgage Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury Department regulations and the partnership
agreement (here, the Pooling and Servicing Agreement and related documents).
The Pooling and Servicing Agreement will provide, in general, that the
Certificateholders will be allocated taxable income of the Trust for each month
equal to the sum of (i) the interest that accrues on the Certificates in
accordance with their terms for such month, including interest accruing at the
Pass Through Rate for such month and interest on amounts previously due on the
Certificates but not yet distributed; (ii) any Trust income attributable to
discount on the Mortgage Loans that corresponds to any excess of the principal
amount of the Certificates over their initial issue price; (iii) prepayment
premium payable to the Certificateholders for such month; and (iv) any other
amounts of income payable to the Certificateholders for such month. Such
allocation will be reduced by any amortization by the Trust of premium on
Mortgage Loans that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the related Transferor. Based on the economic
arrangement of the parties, this approach for allocating Trust income should be
permissible under applicable Treasury Department regulations, although no
assurance can be given that the IRS would not require a greater amount of
income to be allocated to Certificateholders. Moreover, even under the
foregoing method of allocation, Certificateholders may be allocated income
equal to the entire Pass-Through Rate plus the other items described above even
though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis holders will in effect be
required to report income from the Certificates on the accrual basis and
Certificateholders may become liable for taxes on Trust income even if they
have not received cash from the Trust to pay such taxes. In addition, because
tax allocations and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
An individual taxpayer's share of expenses of the Trust (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or
in part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Mortgage Loan, the
Trust might be required to incur additional expense, but it is believed that
there would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Mortgage Loans were not
issued with OID and, therefore, the Trust should not have OID income. However,
the purchase price paid by the Trust for the Mortgage Loans may be greater or
less than the remaining principal balance of the Mortgage Loans at the time of
purchase. If so, the Mortgage Loan will have been acquired at a premium or
discount, as the case may be. (As indicated above, the
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Trust will make this calculation on an aggregate basis, but might be required
to recompute it on a Mortgage Loan by Mortgage Loan basis.)
If the Trust acquires the Mortgage Loans at a market discount or
premium, the Trust will elect to include any such discount in income currently
as it accrues over the life of the Mortgage Loans or to offset any such premium
against interest income on the Mortgage Loans. As indicated above, a portion
of such market discount income or premium deduction may be allocated to
Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates
sold. A Certificateholder's adjusted tax basis in a Certificate will generally
equal the Certificateholder's cost increased by the Certificateholder's share
of Trust income (includible in income) and decreased by any distributions
received with respect to such Certificate. In addition, both the adjusted tax
basis in the Certificates and the amount realized on a sale of a Certificate
would include the Certificateholder's share of liabilities of the Trust. A
holder acquiring Certificates at different prices may be required to maintain a
single aggregate adjusted tax basis in such Certificates, and, upon sale or
other disposition of some of the Certificates, allocate a portion of such
aggregate adjusted tax basis to the Certificates sold (rather than maintaining
a separate adjusted tax basis in each Certificate for purposes of computing
gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Mortgage Loans would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Trust does not expect to have any
other assets that would give rise to such special reporting requirements.
Thus, to avoid those special reporting requirements, the Trust will elect to
include market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the
Certificateholders in proportion to the principal amount of Certificates owned
by them as of the close of the last day of such month. As a result, a holder
purchasing Certificates may be allocated tax items (which will affect its tax
liability and tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Trust's
method of allocation between transferors and transferees may be revised to
conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets would not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would
be involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the Trust currently does not intend
to make such election. As a result, Certificateholders might be
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allocated a greater or lesser amount of Trust income than would be appropriate
based on their own purchase price for Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of
Trust income and expense to Certificateholders and the IRS on Schedule K-1.
The Trust will provide the Schedule K-I information to nominees that fail to
provide the Trust with the information statement described below and such
nominees will be required to forward such information to the beneficial owners
of the Certificates. Generally, holders must file tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as
a nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such
person, (y) whether such person is a United States person, a tax-exempt entity
or a foreign government, an international organization, or any wholly owned
agency or instrumentality of either of the foregoing, and (z) certain
information on Certificates that were held, bought or sold on behalf of such
person throughout the year. In addition, brokers and financial institutions
that hold Certificates through a nominee are required to furnish directly to
the Trust information as to themselves and their ownership of Certificates. A
clearing agency registered under Section 17A of the Exchange Act is not
required to furnish any such information statement to the Trust. The
information referred to above for any calendar year must be furnished to the
Trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the Trust with the information described
above may be subject to penalties.
The related Transferor will be designated as the tax matters partner
in the related Pooling and Servicing Agreement and, as such, will be
responsible for representing the Certificateholders in any dispute with the
IRS. The Code provides for administrative examination of a partnership as if
the partnership were a separate and distinct taxpayer. Generally, the statute
of limitations for partnership items does not expire before three years after
the date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder may
be precluded from separately litigating a proposed adjustment to the items of
the Trust. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the income
and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear
whether the Trust would be considered to be engaged in a trade or business in
the United States for purposes of federal withholding taxes with respect to
non-U.S. persons because them is no clear authority dealing with that issue
under facts substantially similar to those described herein. Although it is
not expected that the Trust would be engaged in a trade or business in the
United States for such purposes, the Trust will withhold as if it were so
engaged In order to protect the Trust from possible adverse consequences of a
failure to withhold. The Trust expects to withhold on the portion of its
taxable income that is allocable to foreign Certificateholders pursuant to
Section 1446 of the Code, as if such income were effectively connected to a
U.S. trade or business, at a rate of 35% for foreign holders that are taxable
as corporations and 39.6% for all other foreign holders. Subsequent adoption
of Treasury Department regulations or the issuance of other administrative
pronouncements may require the Trust to change its withholding procedures.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each foreign holder
must obtain a taxpayer identification number from the IRS and submit that
number to the Trust on Form W-8 in order to assure appropriate crediting of the
taxes withheld. A foreign holder generally would be entitled to file with the
IRS a claim for refund with respect to taxes withheld by the Trust taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, interest payments made (or accrued) to a
Certificateholder who is a foreign person generally will be considered
guaranteed payments to the extent such payments are determined without regard
to the income of the Trust. If these interest payments are properly
characterized as
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guaranteed payments, then the interest probably will not be considered
"portfolio interest." As a result, Certificateholders will be subject to
United States federal income tax and withholding tax at a rate of 30%, unless
reduced or eliminated pursuant to an applicable treaty. In such case, a
foreign holder would only be entitled to claim a refund for that portion of the
taxes, if any, in excess of the taxes that should be withheld with respect to
the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt
recipient under applicable provisions of the Code.
F. CERTAIN CERTIFICATES TREATED AS INDEBTEDNESS
Upon the issuance of Certificates which are intended to be treated as
indebtedness for federal income tax purposes, Andrews & Kurth L.L.P. will opine
that based upon its analysis of the factors discussed below, the Certificates
will be characterized as indebtedness for federal income tax purposes of the
related Transferor that is secured by the Mortgage Loans. Opinions of counsel
are not binding on the IRS, however, and there can be no assurance that the IRS
could not successfully challenge this conclusion.
The related Transferor will express in the Pooling and Servicing
Agreement its intent that the Certificates be indebtedness secured by the
Mortgage Loans for federal, state and local income or franchise tax purposes.
The related Transferor, by entering into the Pooling and Servicing Agreement,
has agreed and each Certificateholder, by the acceptance of a Certificate, will
agree to treat the Certificates as indebtedness for federal, state and local
income or franchise tax purposes. However, because different criteria are used
to determine the non-tax accounting characterization of the transactions
contemplated by the Pooling and Servicing Agreements, the Transferors expects
to treat such transactions, for financial accounting purposes, as a transfer of
an ownership interest in the Mortgage Loans and not as a debt obligation.
A basic premise of federal income tax law is that the economic
substance of a transaction generally determines the tax consequences. The form
of a transaction, while a relevant factor, is not conclusive evidence of its
economic substance. In appropriate circumstances, the courts have allowed
taxpayers, as well as the IRS, to treat a transaction in accordance with its
economic substance, as determined under federal income tax law, notwithstanding
that the participants characterize the transaction differently for non-tax
purposes. In some instances, however, courts have held that a taxpayer is
bound by the particular form it has chosen for a transaction, even if the
substance of the transaction does not accord with its form. Andrews & Kurth
L.L.P. believes that the rationale of those cases will not apply to the
issuance of the Certificates.
The determination of whether the economic substance of a transfer of
an interest in property is a sale or a loan secured by the transferred property
depends on numerous factors that indicate whether the transferor has
relinquished (and the transferee has obtained) substantial incidents of
ownership in the property. Among the primary factors considered are whether
the transferee has obtained the opportunity for gain if the property increases
in value and has assumed the risk of loss if the property decreases in value.
Based upon its analysis of such factors, Andrews & Kurth L.L.P. will conclude
that the Certificateholders do not own or have an equity interest in the
Mortgage Loans for federal income tax purposes. As a result, Andrews & Kurth
L.L.P. will opine that the Certificates will properly be characterized for
federal income tax purposes as indebtedness. Contrary characterizations that
could be asserted by the IRS are described under "-- Possible Characterization
of the Transaction as a Partnership or as an Association Taxable as a
Corporation" below. In this regard, it should be noted that the IRS has
recently issued a notice stating that, upon examination, it will scrutinize
instruments treated as debt for federal income tax purposes but as equity for
regulatory, rating agency or financial accounting purposes to determine if
their purported status as debt for federal income tax purposes is appropriate.
Certificateholders as the holders of debt instruments for federal tax
purposes will be taxed in the manner described above in "-- Taxation of Debt
Certificates (Including Regular Certificates)" for Debt Certificates that are
not Regular Certificates.
Possible Characterization of the Transaction as a Partnership or as
Association Taxable as a Corporation. As stated above, the opinion of Andrews &
Kurth L.L.P. with respect to the Certificates will not be binding on the
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courts or the IRS, and no assurance can be given that the characterization of
the Certificates as debt would prevail. It is possible that the IRS would
assert that, for purposes of the Code, the transaction described herein
constitutes a transfer of the Mortgage Loans (or an interest therein) to the
Certificateholders and that the proper classification of the legal relationship
between the related Transferor and the Certificateholders resulting from the
transaction is that of a partnership, a publicly traded partnership taxed as a
corporation, or an association taxable as a corporation. Because it is
anticipated that Andrews & Kurth L.L.P. will advise that the Certificates will
be treated as indebtedness for federal income tax purposes, the Transferors
generally will not attempt to comply with the federal income tax reporting
requirements that would apply if Certificates were treated as interests in a
partnership, a publicly traded partnership or a corporation.
If a partnership were deemed to be created between the related
Transferor and the Certificateholders, the partnership itself would not be
subject to federal income tax (unless it were to be characterized as a publicly
traded partnership taxable as a corporation); rather, the partners of such
partnership, including the Certificateholders, would be taxed individually on
their respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and deduction
of a Certificateholder could differ if the Certificates were held to constitute
partnership interests, rather than indebtedness. Moreover, an individual's
share of expenses of the partnership would be miscellaneous itemized deductions
that, in the aggregate, are allowed as deductions only to the extent they
exceed 2% of the individual's adjusted gross income, and would be subject to
reduction under Section 68 of the Code if the individual's adjusted gross
income exceeded certain limits. As a result, the individual might be taxed on
a greater amount of income than would be the case if the Certificates were
treated as a debt instrument.
If it were determined that the transaction created an entity
classified as an association or as a publicly traded partnership taxable as a
corporation, the Trust would be subject to federal income tax at corporate
income tax rates on the income it derives from the Mortgage Loans, which would
reduce the amounts available for distribution to the Certificateholders. Such
classification may also have adverse state and local tax consequences that
would reduce amounts available for distribution to Certificateholders.
Moreover, distributions on the Certificates would most likely not be deductible
in computing the entity's taxable income, and cash distributions to the
Certificateholders generally would be treated as dividends for tax purposes to
the extent of such entity's earnings and profits.
Foreign Investors. If the IRS were to contend successfully that the
Certificates are interests in a partnership and if such partnership were
considered to be engaged in a trade or business in the United States, the
partnership would be subject to a withholding tax on distributions to (or, at
its election, income allocable to) a foreign investor, and such holder would be
credited for his or her share of the withholding tax paid by the Partnership.
In such case, the holder generally would be subject to United States federal
income tax at regular federal income tax rates, and possibly a branch profits
tax in the case of a corporate holder.
Alternatively, although there may be arguments to the contrary, if
such a partnership is not considered to be engaged in a trade or business
within the United States and if income with respect to the Certificates is not
otherwise effectively connected with the conduct of a trade or business in the
United States by the foreign investor, the foreign investor would be subject to
United States federal income tax and withholding at a rate of 30% (unless
reduced by an applicable tax treaty) on the holder's distributive share of the
partnership's interest income.
If the Trust were taxable as a corporation, distributions to foreign
investors, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced or eliminated by
an applicable income tax treaty.
II. TAXATION OF BONDS
With respect to each Series of Bonds, no regulations, published
rulings, or judicial decisions exist that discuss the characterization for
federal income tax purposes of securities with terms substantially the same as
the Bonds. However, Andrews & Kurth L.L.P., counsel to the Transferors, will
deliver their opinion that the Bonds will be treated for federal income tax
purposes as indebtedness, and not as an ownership interest in the Mortgage
Loans, or as an equity interest in the related Bond Issuer or in a separate
association taxable as a corporation. The following summary of the anticipated
federal income tax consequences of the purchase, ownership and disposition
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of Bonds, to the extent it relates to matters of law or legal conclusions with
respect thereto, is based on such opinion. Such statements do not purport to
furnish information in the level of detail or with the attention to an
investor's specific tax circumstances that would be provided by an investor's
own tax advisor. Accordingly, each investor is advised to consult its own tax
advisors with regard to the tax consequences to it of investing in Bonds.
For federal income tax purposes, (i) Bonds held by a thrift
institution taxed as a "mutual savings bank" or "domestic building and loan
association" will not represent interests in "qualifying real property loans"
within the meaning of Code Section 593(d)(1); (ii) Bonds held by a thrift
institution taxed as a domestic building and loan association will not
constitute "loans . . . secured by an interest in real property" within the
meaning of Code Section 7701(a)(19)(C)(v); (iii) interest on Bonds held by a
real estate investment trust will not be treated as "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Code Section 856(c)(3)(B); (iv) Bonds held by a real estate
investment trust will not constitute "real estate assets" or "Government
securities" within the meaning of Code Section 856(c)(5)(A); and (v) Bonds held
by a regulated investment company will not constitute "Government securities"
within the meaning of Code Section 851(b)(4)(A)(i).
Bonds will be subject to the same rules of taxation as Debt
Certificates, as described above under the heading "Certain Federal Income Tax
Consequences --Taxation of Debt Certificates (Including Regular Certificates),"
except that income reportable on Bonds is not required to be reported under the
accrual method unless the Bondholder otherwise uses the accrual method.
In the case of a Bond subject to the request of a holder for
redemption (a "Retail Bond"), the yield to maturity of such Bond will be
determined base upon the anticipated payment characteristics of the Bonds under
the related Prepayment Assumption. In general, the OID accruing on each Retail
Bond in a full accrual period would be its allocable share of the OID with
respect to the entire Series, determined as described in "-- Taxation of
Certificates -- General -- Taxation of Debt Certificates (Including Regular
Certificates) -- Interest and Acquisition Discount" herein. However, in the
case of a payment of the entire principal amount of any Retail Bond (or portion
thereof), (a) the remaining unaccrued OID allocable to such Bond (or to such
portion) will accrue at the time of such payment and (b) the accrual of OID
allocable to each remaining Bond of such Series (or the remaining principal
amount of a Retail Bond after a payment in reduction of a portion of its
principal amount has been received) will be adjusted by reducing the present
value of the remaining payments on such Series and the adjusted issue price of
such Series to the extent attributable to the portion of the principal amount
thereof that was paid.
III. MISCELLANEOUS TAX ASPECTS
Backup Withholding. A holder, other than a holder of a Residual
Interest Certificate, may, under certain circumstances, be subject to "backup
withholding" at a rate of 31 % with respect to distributions or the proceeds of
a sale of Securities to or through brokers that represent interest or original
issue discount on the Securities. This withholding generally applies if the
holder of a Security (i) fails to furnish the Trustee with its taxpayer
identification number ("TIN"); (ii) furnishes the Trustee an incorrect TIN;
(iii) fails to report properly interest, dividends or other "reportable
payments" as defined in the Code; or (iv) under certain circumstances, fails to
provide the Trustee or such holder's securities broker with a certified
statement, signed under penalty of perjury, that the TIN provided is its
correct number and that the holder is not subject to backup withholding.
Backup withholding will not apply, however, with respect to certain payments
made to holders, including payments to certain exempt recipients (such as
exempt organizations) and to certain Foreign Investors. Holders should consult
their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining the exemption.
The Trustee will report to the holders and to the Servicer for each
calendar year the amount of any "reportable payments" during such year and the
amount of tax withheld, if any, with respect to payments on the Securities.
IV. TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to Trusts that are
treated as partnerships for federal income tax purposes and with respect to
Certificates treated as debt for federal income tax purposes, unless interest
(including
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OID) paid on a Security (other than a Residual Interest Certificate) is
considered to be "effectively connected" with a trade or business conducted in
the United States by a nonresident alien individual, foreign partnership,
foreign corporation or other non-United States person ("Foreign Investors"),
such interest will normally qualify as portfolio interest (except where (i) the
recipient is a holder, directly or by attribution, of 10% or more of the
capital or profits interest in the issuer, or (ii) the recipient is a
controlled foreign corporation to which the issuer is a related person) and
will be exempt from federal income tax. See "-- Tax Consequences to Holders of
the Certificates Issued by a Partnership -- Tax Consequences to Foreign
Certificateholders" and "-- Certain Certificates Treated as Indebtedness --
Foreign Investors" herein. Upon receipt of appropriate ownership statements,
the issuer normally will be relieved of obligations to withhold tax from such
interest payments. These provisions supersede the generally applicable
provisions of United States law that would otherwise require the issuer to
withhold at a 30% rate (unless such rate were reduced or eliminated by an
applicable tax treaty) on, among other things, interest and other fixed or
determinable, annual or periodic income paid to Foreign Investors. Holders of
Pass-Through Certificates however, may be subject to withholding to the extent
that the Mortgage Loans were originated on or before July 18, 1984.
Interest and OID of holders who are foreign persons are not subject to
withholding if they are effectively connected with a United States business
conducted by the holder and timely provide an IRS Form 4224. They will,
however, generally be subject to the regular United States income tax.
Payments to holders of Residual Certificates who are foreign persons
will generally be treated as interest for purposes of the 30% (or lower treaty
rate) United States withholding tax. Holders should assume that such income
does not qualify for exemption from United States withholding tax as "portfolio
interest." It is clear that, to the extent that a payment represents a portion
of REMIC taxable income that constitutes excess inclusion income, a holder of a
Residual Interest Certificate will not be entitled to an exemption from or
reduction of the 30% (or lower treaty rate) withholding tax rule. If the
payments are subject to United States withholding tax, they generally will be
taken into account for withholding tax purposes only when paid or distributed
(or when the Residual Interest Certificate is disposed of). The Treasury
Department has statutory authority, however, to promulgate regulations which
would require such amounts to be taken into account at an earlier time in order
to prevent the avoidance of tax. Such regulations could, for example, require
withholding prior to the distribution of cash in the case of Residual
Certificates that do not have significant value. Under the REMIC Regulations,
if a Residual Interest Certificate has tax avoidance potential, a transfer of a
Residual Interest Certificate to a Foreign Investor will be disregarded for all
federal tax purposes. A Residual Interest Certificate has tax avoidance
potential unless, at the time of the transfer, the transferor reasonably
expects that the REMIC will distribute to the transferee residual interest
holder amounts that will equal at least 30% of each excess inclusion, and that
such amounts will be distributed at or after the time at which the excess
inclusions accrue and not later than the calendar year following the calendar
year of accrual. If a Foreign Investor transfers a Residual Interest
Certificate to a United States person, and if the transfer has the effect of
allowing the transferor to avoid tax on accrued excess inclusions, then the
transfer is disregarded and the transferor continues to be treated as the owner
of the Residual Interest Certificate for purposes of the withholding tax
provisions of the Code. See "Taxation of Holders of Residual Interest
Securities -- Excess Inclusions" herein.
Subject to the discussion in the previous paragraph, any capital gain
realized on the sale, redemption, retirement or other taxable disposition of a
Security by a foreign person will be exempt from United States federal income
and withholding tax, provided that (i) such gain is not effectively connected
with the conduct of a trade or business in the United States by the foreign
person and (ii) in the case of an individual foreign person, the foreign person
is not present in the United States for 183 days or more in the taxable year.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described herein
under "Certain Federal Income Tax Consequences," potential investors should
consider the state income tax consequences of the acquisition, ownership, and
disposition of the Securities. State and local income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or locality.
Therefore, potential investors should consult their own tax advisors with
respect to the various tax consequences of investments in the Securities.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain fiduciary and prohibited transaction restrictions on
employee pension and welfare benefit plans subject to ERISA ("ERISA Plans").
Section 4975 of the Code imposes essentially the same prohibited transaction
restrictions on tax-qualified retirement plans described in Section 401(a) of
the Code ("Qualified Retirement Plans") and on Individual Retirement Accounts
("IRAs") described in Section 408 of the Code (collectively, "Tax-Favored
Plans"). ERISA Plans and Tax-Favored Plans are collectively referred to herein
as "Plans."
Certain employee benefit plans, such as governmental plans (as defined
in Section 3(32) of ERISA) and certain church plans (as defined in Section
3(33) of ERISA), are not subject to the ERISA requirements discussed herein.
Accordingly, assets of such plans may be invested in Securities without regard
to the ERISA considerations described below, subject to the provisions of
applicable federal and state law. Any such plan that is a Qualified Retirement
Plan and exempt from taxation under Sections 401(a) and 502(a) of the Code,
however, is subject to the prohibited transaction rules set forth in Section
503 of the Code.
Section 404 of ERISA imposes general fiduciary requirements, including
those of investment prudence and diversification and the requirement that the
investments of ERISA Plans be made in accordance with the documents governing
the ERISA Plan. In addition, Section 406 of ERISA and Section 4975 of the Code
prohibit a broad range of transactions involving Plan assets and persons
("Parties in Interest" under ERISA or "Disqualified Persons" under the Code)
who have certain specified relations to the Plans, unless a statutory or
administrative exemption is available. Certain Parties in Interest (or
Disqualified Persons that participate in a prohibited transaction may be
subject to a penalty (or an excise tax) imposed pursuant to Section 502(i) of
ERISA or Section 4975 of the Code, unless a statutory or administrative
exemption is available.
PLAN ASSET REGULATIONS
A Plan's investment in the Securities may cause the Mortgage Loans
included in a Mortgage Pool to be deemed Plan assets. The U.S. Department of
Labor (the "DOL") has promulgated regulations (the "DOL Regulations")
concerning whether or not a Plan's assets would be deemed to include an
interest in the underlying assets of an entity (such as a Trust), for purposes
of applying the general fiduciary responsibility provisions of ERISA and the
prohibited transaction provisions of ERISA and the Code, when a Plan acquires
an "equity interest" (such as a Certificate) in such entity. Because of the
factual nature of certain of the rules set forth in the DOL Regulations, an
investing Plan's assets either may be deemed to include an interest in the
assets included in a Trust or Trust Estate, as applicable, or a Transferor (or
a Bond Issuer, if applicable) or may be deemed merely to include its interest
in the Securities. Bonds treated as indebtedness under applicable local law
and that have no substantial equity features do not constitute equity
interests.
The prohibited transaction provisions of Section 406 of ERISA and
Section 4975 of the Code may apply to a Trust or a Transferor (or a Bond
Issuer, if applicable) and cause the related Transferor (or a Bond Issuer, if
applicable), the Servicer, any Sub-Servicer, the Trustee, the obligor under any
credit enhancement mechanism or certain affiliates thereof, to be considered or
become Parties in Interest or Disqualified Persons with respect to an investing
Plan. If so, the acquisition or holding of Securities by or on behalf of the
investing Plan could also give rise to a prohibited transaction under ERISA and
the Code, unless some statutory or administrative exemption is available.
Securities acquired by a Plan would be assets of that Plan. Special caution
should be exercised before the assets of a Plan are used to acquire a Security
in such circumstances, especially if, with respect to such assets, the related
Transferor (or a Bond Issuer, if applicable), the Servicer, any Sub-Servicer,
the Trustee, the obligor under any credit enhancement mechanism or an affiliate
thereof either (i) has investment discretion with respect to the investment of
Plan assets; or (ii) has authority or responsibility to give (or regularly
gives) investment advice with respect to Plan assets for a fee pursuant to an
agreement or understanding that such advice will serve as a primary basis for
investment decisions with respect to such assets.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides
investment advice with respect to such assets for a fee (in the manner
described above), is a fiduciary of the investing Plan. If the Mortgage Loans
were to constitute Plan assets than any party exercising management or
discretionary control regarding those assets may be deemed to be a Plan
"fiduciary," and
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thus subject to the fiduciary requirements of ERISA and the prohibited
transaction provisions of ERISA and Section 4975 of the Code with respect to
the investing Plan. In addition, if the Mortgage Loans were to constitute Plan
assets, then the acquisition or holding of Securities by a Plan, as well as the
operation of the Trust or a Transferor (or a Bond Issuer, if applicable)
issuing Bonds, may constitute or involve a prohibited transaction under ERISA
and the Code.
PROHIBITED TRANSACTION CLASS EXEMPTION
The DOL has issued an administrative exemption, Prohibited Transaction
Class Exemption 83-1 ("PTCE 83-1"), which, under certain conditions, exempts
from the application of the prohibited transaction provisions of ERISA and
Section 4975 of the Code transactions involving a Plan in connection with the
operation of a "mortgage pool" and the purchase, sale and holding of "mortgage
pool pass-through certificates." A "mortgage pool" is defined as an investment
pool, consisting solely of interest bearing obligations secured by first or
second mortgages or deeds of trust on single family residential property,
property acquired in foreclosure and undistributed cash. A "mortgage pool
pass-through certificate" is defined as a certificate which represents a
beneficial undivided interest in a mortgage pool which entitles the holder to
pass-through payments of principal and interest from the mortgage loans.
For the exemption to apply, PTCE 83-1 requires that (i) the related
Transferor and the Trustee maintain a system of insurance or other protection
for the Mortgage Loans and the property securing such Mortgage Loans, and for
indemnifying holders of Certificates against reductions in pass-through
payments due to defaults in loan payments or property damage in an amount at
least equal to the greater of 1% of the aggregate principal balance of the
Mortgage Loans, or 1% of the principal balance of the largest covered pooled
Mortgage Loan, (ii) the Trustee may not be an affiliate of the related
Transferor; and (iii) the payments made to and retained by the related
Transferor in connection with the Trust, together with all funds inuring to its
benefit for administering the Trust, represent no more than "adequate
consideration" for assigning the Mortgage Loans, plus reasonable compensation
for services provided to the Trust.
In addition, PTCE 83-1 exempts the initial sale of Certificates to a
Plan with respect to which the related Transferor, the Servicer, the Trustee or
the Securities Insurer, if any, is a party in interest if the Plan does not pay
more than fair market value for such Certificates and the rights and interests
evidenced by such Certificates are not subordinated to the rights and interests
evidenced by other Certificates of the same pool. PTCE 83-1 also exempts from
the prohibited transaction rules and transactions in connection with the
servicing and operation of the Mortgage Pool, provided that any payments made
to the related Transferor in connection with the servicing of the Trust are
made in accordance with a binding agreement, copies of which must be made
available to prospective investors.
In the case of any Plan with respect to which the Servicer, the
related Transferor, the Trustee or a Securities Insurer, if any, is a
fiduciary, PTCE 83-1 will only apply if, in addition to the other requirements:
(i) the initial sale, exchange or transfer of Certificates is expressly
approved by an independent fiduciary who has authority to manage and control
those plan assets being invested in Certificates; (ii) the Plan pays no more
for the Certificates than would be paid in an arm's length transaction; (iii)
no investment management, advisory or underwriting fee, sale commission, or
similar compensation is paid to the Servicer with regard to the sale, exchange
or transfer of Certificates to the Plan; (iv) the total value of the
Certificates purchased by such Plan does not exceed 25% of the amount issued;
and (v) at least 50% of the aggregate amount of Certificates is acquired by
persons independent of the related Transferor, the Trustee, the Servicer, and
the Securities Insurer, if any.
Before purchasing Certificates, a fiduciary of a Plan should confirm
that the Trust is a "mortgage pool," that the Certificates constitute "mortgage
pool pass-through certificates," and that the conditions set forth in PTCE 83-1
would be satisfied. In addition to making its own determination as to the
availability of the exemptive relief provided in PTCE 83-1, the Plan fiduciary
should consider the availability of any other prohibited transaction
exemptions. The Plan fiduciary also should consider its general fiduciary
obligations under ERISA in determining whether to purchase any Certificates on
behalf of a Plan.
In addition, the DOL has granted to certain underwriters and/or
placement agents individual prohibited transaction exemptions which may be
applicable to avoid certain of the prohibited transaction rules of ERISA with
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<PAGE> 87
respect to the initial purchase, the holding and the subsequent resale in the
secondary market by Plans of pass-through certificates representing a
beneficial undivided interest in the assets of a trust that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of the exemption which may be applicable to the Certificates.
One or more other prohibited transaction exemptions issued by the DOL
may be available to a Plan investing in Securities, depending in part upon the
type of Plan fiduciary making the decision to acquire Securities and the
circumstances under which such decision is made, including but not limited to
PTCE 90-1, regarding investments by insurance company pooled separate account,
and PTCE 91-38, regarding investments by bank collective investment funds.
However, even if the conditions specified in the exemption or one or more of
these other exemptions are met, the scope of the relief provided might or might
not cover all acts which might be construed as prohibited transactions.
Any Plan fiduciary considering the purchase of a Security should
consult with its counsel with respect to the potential applicability of ERISA
and the Code to such investment. Moreover, each Plan fiduciary should
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the Securities is appropriate for the
Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio. Special caution should be
exercised before a Plan purchases a Security in such circumstances.
LEGAL INVESTMENT CONSIDERATIONS
SMMEA
Unless otherwise specified in the related Prospectus Supplement, the
Securities will not constitute "mortgage related securities" for purposes of
SMMEA. Accordingly, many institutions with legal authority to invest in
comparably rated securities based on first mortgage loans or deeds of trust may
not be legally authorized to invest in the Securities. No representation is
made herein as to whether the Securities will constitute legal investments for
any entity under any applicable statute, law, rule, regulation or order.
Prospective purchasers are urged to consult with their counsel concerning the
status of the Securities as legal investments for such purchasers prior to
investing in any Securities of a given Series.
FFIEC POLICY STATEMENT
The Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Comptroller of the Currency and the Office
of Thrift Supervision have adopted the Federal Financial Institutions
Examination Council's Supervisory Policy Statement on Certificates Activities
(the "Policy Statement"). Although the National Credit Union Administration
has not yet adopted the Policy Statement, it has adopted other regulations
affecting mortgage-backed securities and is expected to consider adoption of
the Policy Statement. The Policy Statement, among other things, places
responsibility on a depository institution to develop and monitor appropriate
policies and strategies regarding the investment, sale and trading of
securities and restricts an institution's ability to engage in certain types of
transactions.
The Policy Statement provides that a depository institution must
ascertain and document prior to purchase and no less frequently than annually
thereafter that a non-high-risk mortgage security held for investment remains
outside the high-risk category. If an institution is unable to make these
determinations through internal analysis, it must use information derived from
a source that is independent of the party from whom the product is being
purchased. The institution is responsible for ensuring that the assumptions
underlying the analysis and resulting calculations are reasonable. Reliance on
analyses and documentation from a securities dealer or other outside party
without internal analyses by the institution is unacceptable.
A "high-risk mortgage security" is not suitable as an investment
portfolio holding for a depository institution. A high-risk mortgage security
must be reported in the trading account at market value or as an asset held for
sale at the lower of cost or market value and generally may only be acquired to
reduce an institution's interest rate risk. However, an institution with
strong capital and earnings and adequate liquidity that has a closely
supervised trading department is not precluded from acquiring high-risk
mortgage securities for trading purposes.
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<PAGE> 88
The Policy Statement and any applicable modifications or supplements
thereto should be reviewed prior to the purchase of any Securities by a
depository institution. The summary of the Policy Statement contained herein
does not purport to be complete and should not be relied upon for purposes of
making any regulatory determinations. In addition, any regulator may adopt
modifications or supplements to the Policy Statement or additional restrictions
on the purchase of mortgage-backed or other securities. Investors are urged to
consult their own legal advisors prior to making any determinations with
respect to the Policy Statement or other regulatory requirements.
GENERAL
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Securities, to purchase
Securities representing more than a specified percentage of the investor's
assets, or to purchase certain types of Certificates, such as residual
interests or stripped mortgage-backed securities. Investors should consult
their own legal advisors in determining whether and to what extent the
Securities of a given Series constitute legal investments for such investors
and comply with any other applicable requirements.
METHOD OF DISTRIBUTION
The Securities offered hereby and by the Prospectus Supplement will be
offered in Series, either directly by the related Transferor or through one or
more underwriters or underwriting syndicates ("Underwriters"). The Prospectus
Supplement for each Series will set forth the terms of the offering of the
Securities of such Series, including the name or names of the Underwriters, the
proceeds to the related Transferor (in the case of a Series of Certificates) or
to the related Bond Issuer (in the case of a Series of Bonds), and either the
initial public offering price, the discounts and commissions to the
Underwriters and any discounts or concessions allowed or reallowed to certain
dealers, or the method by which the price at which the Underwriters will sell
the Securities will be determined.
The Securities may be acquired by Underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. It is anticipated that the underwriting
agreement pertaining to the sale of any Series of Securities will provide that
the obligations of any Underwriters will be subject to certain conditions
precedent, and such Underwriters will be severally obligated to purchase all of
a Series of Securities described in the related Prospectus Supplement, if they
are purchased and that in limited circumstances the related Transferor will
indemnify any Underwriters against certain civil liabilities, including
liabilities under the Securities Act of 1933, or will contribute to payments
any Underwriters may be required to make in respect thereof.
If Securities of a Series are offered other than through Underwriters,
the related Prospectus Supplement will contain information regarding the nature
of such offering and any agreements to be entered into between the seller and
purchasers of Securities of such Series.
The Transferors anticipate that the Securities will be sold primarily
to institutional investors. Purchasers of Securities, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with reoffers and sales by them of Securities. Securityholders should consult
with their legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Securities of
each Series, including certain federal income tax consequences with respect
thereto, will be passed upon by Andrews & Kurth L.L.P., Washington, D.C.
FINANCIAL INFORMATION
The Transferors have determined that their financial statements are
not material to the offering made hereby.
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<PAGE> 89
A new Trust will be formed to hold the Mortgage Loans in connection
with each Series of Certificates. Each such Trust will have no assets or
obligations prior to the issuance of the Certificates and will not engage in
any activities other than those described herein. Accordingly, no financial
statements with respect to such Trusts will be included in this Prospectus or
any Prospectus Supplement.
Although the Bonds of any Series will represent obligations of the
related Bond Issuer, such obligations will be non-recourse and the proceeds of
the assets included in the related Trust Estate will be the sole source of
payments on the Bonds of such Series. The Bond Issuer for any Series of Bonds
(whether it is ACAC or a trust, partnership, limited liability company or
corporation formed by ACAC solely for the purpose of issuing the Bonds of such
Series) will not have, nor be expected in the future to have, any significant
assets available for payments on such Series of Bonds other than the assets
included in the related Trust Estate. Accordingly, the investment
characteristics of a Series of Bonds will be determined by the assets included
in the related Trust Estate and will not be affected by the identity of the
obligor with respect to such Series of Bonds. Accordingly, no capitalization
information or any historical or pro forma ratio of earnings to fixed charges
or any other financial information with respect to ACAC or any trust,
partnership, limited liability company or corporation formed for the purpose of
issuing a Series of Bonds has been or will be included herein or in the related
Prospectus Supplement.
RATING
Unless otherwise specified in the related Prospectus Supplement, it is
a condition to the issuance of the Securities of each Series offered hereby
that they shall have been rated in one of the four highest rating categories by
the nationally recognized statistical rating agency or agencies specified in
the related Prospectus Supplement (each, a "Rating Agency").
Ratings on asset-backed securities address the likelihood of receipt
by the related securityholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such securities, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on asset-backed
securities do not represent any assessment of the likelihood of principal
prepayments by mortgagors or of the degree by which such prepayments might
differ from those originally anticipated. As a result, the related the related
securityholders might suffer a lower than anticipated yield, and, in addition,
holders of stripped securities in extreme cases might fail to recoup their
underlying investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
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<PAGE> 90
INDEX OF PRINCIPAL TERMS
Unless the context indicates otherwise, the following capitalized
terms shall have the meanings set forth on the pages indicated below:
<TABLE>
<S> <C>
1933 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1986 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Aames Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . 28
ACAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6, 26
ACC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6, 26
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Accrual Certificates . . . . . . . . . . . . . . . . . . . . . . . 34
AFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 26, 28
Affiliated Originators . . . . . . . . . . . . . . . . . . . . . . 28
Amortization Period . . . . . . . . . . . . . . . . . . . . . . .9, 35
Appraised Value . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
ARM Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Balloon Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Balloon payment . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Bankruptcy Bond . . . . . . . . . . . . . . . . . . . . . . . . 12, 40
Bond Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Bond Event of Default . . . . . . . . . . . . . . . . . . . . . . . 55
Bondholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Bond Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Bond Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Buydown Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Capitalized Interest Account . . . . . . . . . . . . . . . . . 10,25
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,31
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Certificate Account . . . . . . . . . . . . . . . . . . . . . . . . 33
Certificate Event of Default . . . . . . . . . . . . . . . . . . . 52
Certificate Rate . . . . . . . . . . . . . . . . . . . . . . . . . 34
Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . 30
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6, 30
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 63
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . 46
Collection Period . . . . . . . . . . . . . . . . . . . . . . . . . 33
Combined Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . 24
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Compensating Interest Payments . . . . . . . . . . . . . . . . . . 49
Cut-off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Debt Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 63
Definitive Securities . . . . . . . . . . . . . . . . . . . . . 15, 31
Deleted Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . 45
Deposit Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Detailed Description . . . . . . . . . . . . . . . . . . . . . . . 23
Disqualified Organization . . . . . . . . . . . . . . . . . . . . . 72
Disqualified Persons . . . . . . . . . . . . . . . . . . . . . . . 84
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . 2, 32
DOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
DOL Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . 84
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 31
EPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 89
ERISA Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Financial Guaranty Insurance Policy . . . . . . . . . . . . . . 11, 39
Foreign Investors . . . . . . . . . . . . . . . . . . . . . . . . 82
Forward Commitment . . . . . . . . . . . . . . . . . . . . . . .9, 25
Funding Period . . . . . . . . . . . . . . . . . . . . . . . . .9, 25
Garn-St. Germain Act . . . . . . . . . . . . . . . . . . . . . . . 61
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6, 30
Indirect Participant . . . . . . . . . . . . . . . . . . . . . . . 31
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
-89-
<PAGE> 91
<TABLE>
<S> <C>
Insured Amount . . . . . . . . . . . . . . . . . . . . . . . . 11, 39
Interest Weighted Class . . . . . . . . . . . . . . . . . . . . . . 21
IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Junior Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Liquidated Mortgage Loan . . . . . . . . . . . . . . . . . . . . . 49
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . 34
Loan Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Loan Withdrawal Amount . . . . . . . . . . . . . . . . . . . . . . 45
Lockout periods . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Monthly Advance . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Mortgage File . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . 2, 7
Mortgage Note . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 7
Mortgage Pool Insurance Policy . . . . . . . . . . . . . . . . 11, 39
Mortgage Pool Insurer . . . . . . . . . . . . . . . . . . . . . . . 39
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . 23
Mortgaged Property . . . . . . . . . . . . . . . . . . . . . . . . 8
Mortgagor . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 16
Multiple Variable Rate Debt Certificate . . . . . . . . . . . . . . 66
Net Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . 34
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Originators . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 28
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . 84
Pass-Through Certificates . . . . . . . . . . . . . . . . . . . . . 73
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . 2, 32
Pay-Through Certificate . . . . . . . . . . . . . . . . . . . . . . 64
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . 47
Plan Asset Regulations . . . . . . . . . . . . . . . . . . . . . . 15
Plan(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 83
Policy Statement . . . . . . . . . . . . . . . . . . . . . . . . . 86
Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Pool Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Pooling and Servicing Agreement . . . . . . . . . . . . . . . 1, 6, 30
Prefunding Account . . . . . . . . . . . . . . . . . . . . . . 9, 25
Prefunding Amount . . . . . . . . . . . . . . . . . . . . . . . 10, 25
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . 64
Presumed Single Qualified Floating Rate . . . . . . . . . . . . . . 66
Presumed Single Variable Rate . . . . . . . . . . . . . . . . . . . 65
Principal Prepayments . . . . . . . . . . . . . . . . . . . . . . . 35
Principal Weighted Class . . . . . . . . . . . . . . . . . . . . . 21
PTCE 83-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Qualified Replacement Mortgage Loan . . . . . . . . . . . . . . . . 45
Qualified Retirement Plans . . . . . . . . . . . . . . . . . . . . 83
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . 12, 88
Regular Certificates . . . . . . . . . . . . . . . . . . . . . 13, 63
Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 62
REMIC Certificates . . . . . . . . . . . . . . . . . . . . . . . . 68
REMIC Regulations . . . . . . . . . . . . . . . . . . . . . . . 2, 62
REO Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Reserve Account . . . . . . . . . . . . . . . . . . . . . . . . 11, 38
Residual Certificates . . . . . . . . . . . . . . . . . . . . . . . 13
Residual Interest Certificate . . . . . . . . . . . . . . . . . . . 71
Retail Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Revolving Period . . . . . . . . . . . . . . . . . . . . . . . 9, 35
Riegle Act . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 60
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Securities Insurer . . . . . . . . . . . . . . . . . . . . . . . . 39
Security Register . . . . . . . . . . . . . . . . . . . . . . . . . 32
Securityholders . . . . . . . . . . . . . . . . . . . . . . . . 2, 30
</TABLE>
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<PAGE> 92
<TABLE>
<S> <C>
Security Principal Balance . . . . . . . . . . . . . . . . . . . . 35
Senior Certificates . . . . . . . . . . . . . . . . . . . . . . . . 6
Senior Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6, 26
Servicing Advance . . . . . . . . . . . . . . . . . . . . . . . . . 50
Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . 2
Single Variable Rate Debt Certificate . . . . . . . . . . . . . . . 66
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 16
Special Hazard Insurance Policy . . . . . . . . . . . . . . . . 12, 40
Special Hazard Insurer . . . . . . . . . . . . . . . . . . . . . . 40
Standard Hazard Insurance Policies . . . . . . . . . . . . . . 23
Startup Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Stripped bond rules . . . . . . . . . . . . . . . . . . . . . . . . 74
Sub-Servicer . . . . . . . . . . . . . . . . . . . . . . . . . 6, 50
Subordinated Classes . . . . . . . . . . . . . . . . . . . . . . . 30
Subordinated Certificates . . . . . . . . . . . . . . . . . . . .6, 30
Tax-Favored Plans . . . . . . . . . . . . . . . . . . . . . . . . . 83
Tiered REMICS . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
TIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Title V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Transferor Interest . . . . . . . . . . . . . . . . . . . . . . . . 9
Transferors . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Trust Estate . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Unaffiliated Originators . . . . . . . . . . . . . . . . . . . . . 28
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Variable Rate Debt Certificate . . . . . . . . . . . . . . . . . . 65
Voting Interests . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
-91-
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses expected to be
incurred by the Registrants in connection with the issuance and distribution of
the securities being registered, other than underwriting discounts and
commissions(*):
<TABLE>
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 730,712.12
Trustee's Fees and Expenses (including counsel fees) . . . . . . . . . . . . . . . . . . . 200,000.00
Printing and Engraving Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000.00
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000.00
Blue Sky and Legal Investment Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . 75,000.00
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000.00
Rating Agency Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000.00
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000.00
--------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,355,712.12
==============
</TABLE>
- --------------
(*) Provided for each series of securities on the cover page of the related
Prospectus Supplement.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Aames Capital Corporation's Articles of Incorporation eliminate the
liability of the directors of the corporation to the fullest extent permitted
by California law and provide for indemnification of the officers and directors
in excess of that expressly provided by and to the full extent permitted under
California law. Aames Capital Acceptance Corp.'s Certificate of Incorporation
eliminates the liability of the directors of the corporation to the fullest
extent permitted by Delaware law and provides for indemnification of the
officers and directors in excess of that expressly provided by and to the full
extent permitted under Delaware law.
Each Pooling and Servicing Agreement will provide that neither the
related Registrant nor any of its directors, officers, employees or agents
shall have any liability to the Trust created thereunder or to any of the
Certificateholders, except with respect to liabilities resulting from willful
malfeasance, bad faith or gross negligence or from the reckless disregard of
obligations or duties arising under the related Pooling and Servicing
Agreement. Each such Pooling and Servicing Agreement will further provide that,
with the exceptions stated above, the related Registrant and its directors,
officers, employees and agents are entitled to be indemnified and held harmless
by said Trust against any loss, liability or expense incurred in connection
with legal actions relating to such Pooling and Servicing Agreement or the
Certificates.
Each Indenture will provide that neither the related Registrant nor
any of its directors, officers, employees or agents shall have any liability to
the Trust created thereunder or to any of the Bondholders, except with respect
to liabilities resulting from willful malfeasance, bad faith or gross
negligence or from the reckless disregard of obligations or duties arising
under the related Indenture. Each such Indenture will further provide that,
with the exceptions stated above, the related Registrant and its directors,
officers, employees and agents are entitled to be indemnified and held harmless
by said Trust against any loss, liability or expense incurred in connection
with legal actions relating to such Indenture or the Bonds.
The form of Underwriting Agreement incorporated by reference as
Exhibit 1.1 to this Registration Statement provides, under certain
circumstances, for indemnification of the related Registrant and other persons.
II-1
<PAGE> 94
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement*
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Indenture**
5.1 Opinion of Andrews & Kurth L.L.P. regarding the legality of the securities
(Asset-Backed Certificates)**
5.2 Opinion of Andrews & Kurth L.L.P. regarding the legality of the securities
(Asset-Backed Bonds)**
8.1 Opinion of Andrews & Kurth L.L.P. as to tax matters**
23.1 Consent of Andrews & Kurth L.L.P. (included in Exhibits 5.1, 5.2 and 8.1)
24.1 Powers of Attorney (included on pages II-4 and II-5 of this Registration
Statement)
25.1 Form T-1 Statement of Eligibility of the Trustee***
99.1 Form of Prospectus Supplement*
</TABLE>
- ---------------------------
* Incorporated by reference to Aames Capital Corporation's Amendment No. 1 to
Registration Statement on Form S-3 (Registration No. 33-99458) filed on
December 1, 1995.
** Filed herewith.
*** To be filed by amendment or incorporated by reference in connection with
the offering of the applicable securities.
ITEM 17. UNDERTAKINGS.
A. Each undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
provided, however, that paragraphs (i) and (ii) above do not apply if this
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment to those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrants pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Registration
Statement.
II-2
<PAGE> 95
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
B. Each undersigned Registrant undertakes that, for purposes of determining
any liability under the Act, each filing of such Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of each Registrant as
specified in Item 15 above or otherwise, Registrants have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrants of expenses incurred or paid by a director,
officer or controlling person of the Registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, each
Registrant will, unless in the opinion of such Registrant's counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, each Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 (notwithstanding
the fact that a security rating pursuant to Transaction Requirement B.5. has
not yet been obtained, which security rating requirement, in the reasonable
belief of each Registrant, will be met by the time of any sale) and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on February 5, 1997.
AAMES CAPITAL CORPORATION
By: /s/ Gregory J. Witherspoon
-------------------------------------
Name: Gregory J. Witherspoon
Title: Executive Vice President - Finance
and Chief Financial Officer
AAMES CAPITAL ACCEPTANCE CORP.
By: /s/ Gregory J. Witherspoon
-------------------------------------
Name: Gregory J. Witherspoon
Title: Executive Vice President - Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. Each officer and
director of Aames Capital Corporation whose signature appears below constitutes
and appoints Gregory J. Witherspoon, Mark E. Elbaum and Bobbie J. Burroughs and
each of them, his or her true and lawful attorney-in-fact and agent, acting
together or alone, with full powers of substitution and resubstitution, for
them and in their name, place and stead, to sign any or all amendments to this
Registration Statement (including any pre-effective or post-effective
amendment), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, acting together or alone, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intents and
purposes as they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, acting together or alone, or other
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gary K. Judis Chairman of the Board, President and February 5, 1997
- ----------------------------------------- Chief Executive Officer (Principal
Gary K. Judis Executive Officer) of Aames Capital
Corporation
/s/ Gregory J. Witherspoon Executive Vice President - Finance, February 5, 1997
- ----------------------------------------- Chief Financial Officer (Principal
Gregory J. Witherspoon Financial Officer) and Director of Aames
Capital Corporation
/s/ Mark E. Elbaum Senior Vice President - Finance February 5, 1997
- ----------------------------------------- (Principal Accounting Officer) of Aames
Mark E. Elbaum Capital Corporation
/s/ Bobbie J. Burroughs Executive Vice President - February 5, 1997
- ----------------------------------------- Administration, Secretary and Director
Bobbie J. Burroughs of Aames Capital Corporation
/s/ Cary H. Thompson Chief Operating Officer and Director of February 5, 1997
- ------------------------------------------ Aames Capital Corporation
Cary H. Thompson
</TABLE>
II-4
<PAGE> 97
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. Each officer and
director of Aames Capital Acceptance Corp. whose signature appears below
constitutes and appoints Gregory J. Witherspoon, Mark E. Elbaum and Bobbie J.
Burroughs and each of them, his or her true and lawful attorney-in-fact and
agent, acting together or alone, with full powers of substitution and
resubstitution, for them and in their name, place and stead, to sign any or all
amendments to this Registration Statement (including any pre-effective or
post-effective amendment), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, acting together or
alone, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, acting together or
alone, or other substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gary K. Judis President and Chief Executive Officer February 5, 1997
- --------------------------------------- (Principal Executive Officer) of Aames
Gary K. Judis Capital Acceptance Corp.
/s/ Gregory J. Witherspoon Executive Vice President - Finance and February 5, 1997
- --------------------------------------- Chief Financial Officer (Principal
Gregory J. Witherspoon Financial Officer) of Aames Capital
Acceptance Corp.
/s/ Mark E. Elbaum Senior Vice President - Finance February 5, 1997
- --------------------------------------- (Principal Accounting Officer) and
Mark E. Elbaum Director of Aames Capital Acceptance
Corp.
/s/ Bobbie J. Burroughs Executive Vice President - February 5, 1997
- --------------------------------------- Administration, Secretary and Director
Bobbie J. Burroughs of Aames Capital Acceptance Corp.
Director of Aames Capital Acceptance February 5, 1997
- --------------------------------------- Corp.
Donald J. Puglisi
</TABLE>
II-5
<PAGE> 98
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
1.1 Form of Underwriting Agreement*
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Indenture**
5.1 Opinion of Andrews & Kurth L.L.P. regarding the legality of the securities
(Asset-Backed Certificates)**
5.2 Opinion of Andrews & Kurth L.L.P. regarding the legality of the securities
(Asset-Backed Bonds)**
8.1 Opinion of Andrews & Kurth L.L.P. as to tax matters**
23.1 Consent of Andrews & Kurth L.L.P. (included in Exhibits 5.1, 5.2 and 8.1)
24.1 Powers of Attorney (included on pages II-4 and II-5 of this Registration Statement)
25.1 Form T-1 Statement of Eligibility of the Trustee***
99.1 Form of Prospectus Supplement*
</TABLE>
- ----------------------------------
* Incorporated by reference to Aames Capital Corporation's Amendment No. 1
to Registration Statement on Form S-3 (Registration No. 33-99458) filed on
December 1, 1995.
** Filed herewith.
*** To be filed by amendment or incorporated by reference in connection
with the offering of the applicable securities.
<PAGE> 1
EXHIBIT 4.2
- --------------------------------------------------------------------------------
INDENTURE
BETWEEN
AAMES CAPITAL ACCEPTANCE CORP.,
AS ISSUER,
AND
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
AS TRUSTEE
Dated as of _________ __, 199_
- --------------------------------------------------------------------------------
Relating to
AAMES CAPITAL ACCEPTANCE CORP.
ASSET-BACKED BONDS, SERIES 199_-__
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I.
DEFINITIONS
-----------
Section 1.01 General Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Accountant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Aggregate Stated Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Assumed Scheduled Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Authorized Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Balloon Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Balloon Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Bond Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Bond Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Bondholder or Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Bond Interest Payment Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Bond Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Bond Principal Payment Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Bond Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Bond Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Bond Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Book Entry Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Book Entry Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Clearing Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Clearing Agency Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Collection Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
ii
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condemnation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Corporate Trust Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Current Bond Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Cut-off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Cut-off Date Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Debt Service Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Defaulted Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Definitive Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Full Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Highest Lawful Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Independent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Individual Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Interest Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Issuer Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Issuer Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Letter Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Liquidation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Liquidation Principal Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Loan Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Monthly Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Monthly Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Mortgage File . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Mortgage Loan Conveyance Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Mortgage Loan Provider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Mortgage Loan Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Mortgage Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
iii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Mortgaged Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Mortgagor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Net Monthly P&I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Net Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Net Principal Distribution Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Nonrecoverable Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Officers' Certificate of the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Opinion of Independent Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Optional Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Original Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Payment Date Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Permitted Encumbrance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Predecessor Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Prepayment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Prepayment Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Principal Distribution Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Realized Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Reimbursement Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Remittance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Remittance Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
REO Disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
REO Disposition Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
REO Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Required Subordination Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Responsible Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Scheduled Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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Servicer Reporting Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Servicing Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Stated Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Stated Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Subordination Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Trigger Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Trust Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Trust Indenture Act or TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Trustee's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE II.
THE BONDS
---------
Section 2.01 Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.02 Forms of Certificate of Authentication . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.03 General Provisions With Respect to Principal and Interest Payments . . . . . . . . 22
Section 2.04 Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.05 Execution, Authentication, Delivery and Dating . . . . . . . . . . . . . . . . . . 23
Section 2.06 Registration, Registration of Transfer and Exchange . . . . . . . . . . . . . . . 24
Section 2.07 Mutilated, Destroyed, Lost or Stolen Bonds . . . . . . . . . . . . . . . . . . . . 25
Section 2.08 Payments of Principal and Interest . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.09 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.10 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.11 Authentication and Delivery of Bonds . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.12 Book Entry Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.13 Termination of Book Entry System . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE III.
COVENANTS
---------
Section 3.01 Payment of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 3.02 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 3.03 Money for Bond Payments to Be Held in Trust . . . . . . . . . . . . . . . . . . . 32
Section 3.04 Existence of Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3.05 Protection of Trust Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.06 Opinions as to Trust Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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Section 3.07 Performance of Obligations; Servicing Agreement . . . . . . . . . . . . . . . . . 36
Section 3.08 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.09 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.10 Annual Statement as to Compliance . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.11 Recording of Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE IV.
SATISFACTION AND DISCHARGE
--------------------------
Section 4.01 Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . 40
Section 4.02 Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE V.
DEFAULTS AND REMEDIES
---------------------
Section 5.01 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 5.02 Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . 43
Section 5.03 Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . 43
Section 5.04 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 5.05 Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 5.06 Trustee May Enforce Claims Without Possession of Bonds . . . . . . . . . . . . . . 45
Section 5.07 Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 5.08 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 5.09 Unconditional Rights of Bondholders to Receive Principal and Interest . . . . . . 47
Section 5.10 Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 5.11 Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 5.12 Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 5.13 Control by Bondholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 5.14 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 5.15 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 5.16 Waiver of Stay or Extension Laws . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 5.17 Sale of Trust Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 5.18 Action on Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 5.19 No Recourse to Other Trust Estates or Other Assets of the Issuer . . . . . . . . . 51
Section 5.20 Application of the Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE VI.
THE TRUSTEE
-----------
Section 6.01 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.02 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
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Section 6.03 Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.04 Not Responsible for Recitals or Issuance of Bonds . . . . . . . . . . . . . . . . 54
Section 6.05 May Hold Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.06 Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.07 Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 6.08 Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 6.09 Trustee's Capital and Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 6.10 Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . 56
Section 6.11 Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . 58
Section 6.12 Merger, Conversion, Consolidation or Succession to Business of Trustee . . . . . . 58
Section 6.13 Preferential Collection of Claims Against Issuer . . . . . . . . . . . . . . . . . 59
Section 6.14 Co-Trustees and Separate Trustees . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 6.15 Authenticating Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 6.16 Review of Mortgage Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE VII.
BONDHOLDERS' LISTS AND REPORTS
------------------------------
Section 7.01 Issuer to Furnish Trustee Names and Addresses of Bondholders . . . . . . . . . . . 62
Section 7.02 Preservation of Information; Communications to Bondholders . . . . . . . . . . . . 62
Section 7.03 Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 7.04 Reports by Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE VIII.
ACCOUNTS, PAYMENTS OF INTEREST AND PRINCIPAL, AND RELEASES
----------------------------------------------------------
Section 8.01 Collection of Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 8.02 Bond Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 8.03 General Provisions Regarding the Bond Account and Mortgage Loans . . . . . . . . . 66
Section 8.04 Releases of Defective Mortgage Loans Withdrawn by Servicer . . . . . . . . . . . . 67
Section 8.05 Reports by Trustee to Bondholders; Access to Certain Information . . . . . . . . . 68
Section 8.06 Trust Estate Mortgage Files . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 8.07 Amendment to Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 8.08 Delivery of the Mortgage Files Pursuant to Servicing Agreement . . . . . . . . . . 69
Section 8.09 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 8.10 Servicer as Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.11 Termination of Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.12 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.13 Appointment of Custodians . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
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ARTICLE IX.
SUPPLEMENTAL INDENTURES
-----------------------
Section 9.01 Supplemental Indentures Without Consent of Bondholders . . . . . . . . . . . . . . 71
Section 9.02 Supplemental Indentures With Consent of Bondholders . . . . . . . . . . . . . . . 72
Section 9.03 Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . 73
Section 9.04 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 9.05 Conformity With Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . 74
Section 9.06 Reference in Bonds to Supplemental Indentures . . . . . . . . . . . . . . . . . . 74
Section 9.07 Amendments to Governing Documents . . . . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE X.
REDEMPTION OF BONDS
-------------------
Section 10.01 Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 10.02 Form of Redemption Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 10.03 Bonds Payable on Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE XI.
MISCELLANEOUS
-------------
Section 11.01 Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . 76
Section 11.02 Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . . 77
Section 11.03 Acts of Bondholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 11.04 Notices, etc. to Trustee and Issuer . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11.05 Notices and Reports to Bondholders; Waiver of Notices . . . . . . . . . . . . . . 79
Section 11.06 Rules by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 11.07 Conflict With Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 11.08 Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . 80
Section 11.09 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 11.10 Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 11.11 Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 11.12 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 11.13 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 11.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 11.15 Recording of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 11.16 Issuer Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 11.17 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 11.18 Usury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
</TABLE>
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SCHEDULES AND EXHIBITS
Schedule A Mortgage Loan Schedule
Exhibit A Form of Bond
Exhibit B Mortgage Loan Conveyance Agreement
Exhibit C Letter of Representations to The Depository Trust Company
Exhibit D Trustee's Final Certification
ix
<PAGE> 10
CROSS-REFERENCE TABLE
Cross-reference sheet showing the location in the Indenture of the
provisions inserted pursuant to Sections 310 through 318(a) inclusive of the
Trust Indenture Act of 1939.*
<TABLE>
<CAPTION>
Trust Indenture Act of 1939 Indenture Section
--------------------------- -----------------
<S> <C>
Section 310
(a) (1) . . . . . . . . . . . . . . . . . . 6.08
(a) (2) . . . . . . . . . . . . . . . . . . 6.09
(a) (3) . . . . . . . . . . . . . . . . . . 6.14
(a) (4) . . . . . . . . . . . . . . . . . . Not Applicable
(b). . . . . . . . . . . . . . . . . . . . . 6.08
. . . . . . . . . . . . . . . . . . . . . 6.10(d)(2)
(c) . . . . . . . . . . . . . . . . . . . . Not Applicable
Section 311
(a) . . . . . . . . . . . . . . . . . . . . 6.13
(b) . . . . . . . . . . . . . . . . . . . . 6.13
(c) . . . . . . . . . . . . . . . . . . . . Not Applicable
Section 312
(a) . . . . . . . . . . . . . . . . . . . . 7.01(a)
. . . . . . . . . . . . . . . . . . . . . 7.02(a)
(b) . . . . . . . . . . . . . . . . . . . . 7.02(b)
(c) . . . . . . . . . . . . . . . . . . . . 7.02(c)
Section 313
(a) . . . . . . . . . . . . . . . . . . . . 7.03(a)
(b) . . . . . . . . . . . . . . . . . . . . 7.03(a)
(c) . . . . . . . . . . . . . . . . . . . . 11.05
(d) . . . . . . . . . . . . . . . . . . . . 7.03(b)
</TABLE>
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*This Cross-Reference Table is not part of the Indenture.
<PAGE> 11
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Trust Indenture Act of 1939 Indenture Section
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<S> <C>
Section 314
(a) . . . . . . . . . . . . . . . . . . . . 7.04
(b)(1) . . . . . . . . . . . . . . . . . . 2.11(c)(viii)
(b)(2) . . . . . . . . . . . . . . . . . . 3.06
(c)(1) . . . . . . . . . . . . . . . . . . 2.11(d)
. . . . . . . . . . . . . . . . . . . . . 4.01
. . . . . . . . . . . . . . . . . . . . . 8.02(d)
. . . . . . . . . . . . . . . . . . . . . 11.01
(c)(2) . . . . . . . . . . . . . . . . . . 2.11(c)(ii)
. . . . . . . . . . . . . . . . . . . . . 4.01
. . . . . . . . . . . . . . . . . . . . . 8.02(d)
. . . . . . . . . . . . . . . . . . . . . 11.01
(c)(3) . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . 2.11(e)
. . . . . . . . . . . . . . . . . . . . . 8.02(d)
(d)(1) . . . . . . . . . . . . . . . . . . 11.01(b)
(d)(2) . . . . . . . . . . . . . . . . . . 11.01(c)
(d)(3) 11.01(d)
(e) . . . . . . . . . . . . . . . . . . . . 11.01
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Section 315
(a) . . . . . . . . . . . . . . . . . . . . 6.01(b)
. . . . . . . . . . . . . . . . . . . . . 6.01(c)(1)
(b) . . . . . . . . . . . . . . . . . . . . 6.02
</TABLE>
- -----------------------------------
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 12
<TABLE>
<CAPTION>
Trust Indenture Act of 1939 Indenture Section
--------------------------- -----------------
<S> <C>
. . . . . . . . . . . . . . . . . . . . . 11.05
(c) . . . . . . . . . . . . . . . . . . . . 6.01(a)
(d)(1) . . . . . . . . . . . . . . . . . . 6.01(b)
. . . . . . . . . . . . . . . . . . . . . 6.01(c)
(d)(2) . . . . . . . . . . . . . . . . . . 6.01(c)(2)
(d)(3) . . . . . . . . . . . . . . . . . . 6.01(c)(3)
(e) . . . . . . . . . . . . . . . . . . . . 5.15
Section 316
(a) . . . . . . . . . . . . . . . . . . . . 5.20(a)
(b) . . . . . . . . . . . . . . . . . . . . 5.09
(c) . . . . . . . . . . . . . . . . . . . . 5.20(b)
. . . . . . . . . . . . . . . . . . . . . 1.01
Section 317
(a)(1) . . . . . . . . . . . . . . . . . . 5.03
(a)(2) . . . . . . . . . . . . . . . . . . 5.05
(b) . . . . . . . . . . . . . . . . . . . . 3.03
Section 318
(a) . . . . . . . . . . . . . . . . . . . . 11.07
</TABLE>
<PAGE> 13
THIS INDENTURE, dated as of ________ __, 199__ (as amended or
supplemented from time to time as permitted hereby, this "Indenture"), is
between AAMES CAPITAL ACCEPTANCE CORP., a Delaware corporation (together with
its permitted successors and assigns, the "Issuer") and BANKERS TRUST COMPANY
OF CALIFORNIA, N.A., a national banking association, as trustee (together with
its permitted successors in the trusts hereunder, the "Trustee").
Preliminary Statement
The Issuer has duly authorized the execution and delivery of this
Indenture to provide for its Asset-Backed Bonds, Series 199__-__ (the "Bonds"),
issuable as provided in this Indenture. All covenants and agreements made by
the Issuer herein are for the benefit and security of the Holders of the Bonds.
The Issuer is entering into this Indenture, and the Trustee is accepting the
trusts created hereby, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged.
All things necessary to make this Indenture a valid agreement of the
Issuer in accordance with its terms have been done.
Granting Clause
The Issuer hereby Grants to the Trustee, for the exclusive benefit of
the Holders of the Bonds, all of the Issuer's right, title and interest in and
to (a) the Mortgage Loans listed in Schedule A to this Indenture, including the
related Mortgage Files, that the Issuer has caused to be delivered to the
Trustee herewith and all payments of Net Monthly P&I due thereon after the
Cut-off Date whenever received, whether before or after the date hereof, all
Prepayments thereof received after the Cut-off Date, and all other proceeds
received in respect of such Mortgage Loans (other than payments of Monthly
Payments due on or prior to the Cut-off Date), (b) the Servicing Agreement, (c)
each Mortgage Loan Conveyance Agreement, (d) the Insurance Policies, (e) all
cash, instruments or other property held or required to be deposited in the
Collection Account or the Bond Account, including all investments made with
funds in the Collection Account or the Bond Account (but not including any
income on funds deposited in, or investments made with funds deposited in, the
Collection Account which income shall belong to and be for the account of the
Servicer, and not including any income on funds deposited in, or investments
made with funds deposited in, the Bond Account which income shall belong to and
be for the account of the Trustee), and (g) all proceeds of the conversion,
voluntary or involuntary, of any of the foregoing into cash or other liquid
assets, including, without limitation, all insurance proceeds and condemnation
awards. Such Grants are made, however, in trust, to secure the Bonds equally
and ratably without prejudice, priority or distinction between any Bond and any
other Bond by reason of difference in time of issuance or otherwise, and to
secure (i) the payment of all amounts due on the Bonds in accordance with their
terms, (ii) the payment of all other sums payable under this Indenture and
(iii) compliance with the provisions of this
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<PAGE> 14
Indenture, all as provided in this Indenture. All terms used in the foregoing
granting clauses that are defined in Section 1.01 are used with the meanings
given in said Section.
The Trustee acknowledges such Grant, accepts the trusts hereunder in
accordance with the provisions of this Indenture and agrees to perform the
duties herein required to the end that the interests of the Holders of the
Bonds may be adequately and effectively protected.
ARTICLE I.
DEFINITIONS
Section 1.01 General Definitions.
Except as otherwise specified or as the context may otherwise require,
the following terms have the respective meanings set forth below for all
purposes of this Indenture, and the definitions of such terms are applicable to
the singular as well as to the plural forms of such terms and to the masculine
as well as to the feminine genders of such terms. Whenever reference is made
herein to an Event of Default or a Default known to the Trustee or of which the
Trustee has notice or knowledge, such reference shall be construed to refer
only to an Event of Default or Default of which the Trustee is deemed to have
notice or knowledge pursuant to Section 6.01(d). All other terms used herein
that are defined in the Trust Indenture Act (as hereinafter defined), either
directly or by reference therein, have the meanings assigned to them therein.
"Accountant": A Person engaged in the practice of accounting who
(except when this Indenture provides that an Accountant must be Independent)
may be employed by or affiliated with the Issuer or an Affiliate of the Issuer.
"Act": With respect to any Bondholder, as defined in Section 11.03.
"Advance": Any Monthly Advance or Servicing Advance.
"Affiliate": 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 specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract, relation to individuals or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent": Any Bond Registrar, Paying Agent, Authenticating Agent or
Custodian.
"Aggregate Stated Balance": With respect to any Determination Date,
an amount equal to the aggregate of the Stated Principal Balances of the
Mortgage Loans included in the Mortgage Pool as of the end of the immediately
preceding Collection Period.
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<PAGE> 15
"Assignments": Collectively (i) the original instrument of assignment
of a Mortgage, the Mortgage Note secured thereby and all other documents
securing such Mortgage Note, including any interim assignments from the
originator or any other holder of any Mortgage Loan to the Issuer, (ii) the
original instrument of assignment of each agreement creating any leases, rents,
income or profits derived from the ownership, operation or disposition of all
or a portion of the related Mortgaged Property (if such item is separate from
the Mortgage) and (iii) the original instrument of assignment of such Mortgage,
Mortgage Note and other documents (described in clauses (i) and (ii)) made by
the Issuer to the Trustee (that in each case may, to the extent permitted by
the laws of the state in which the related Mortgaged Property is located, be a
blanket instrument of assignment covering other Mortgages and Mortgage Notes as
well and that may also be an instrument of assignment running directly from the
mortgagee of record under the related Mortgage to the Trustee).
["Assumed Scheduled Payment": With respect to any Mortgage Loan that
has a Balloon Payment and that is delinquent in respect of its Balloon Payment
beyond the first Determination Date that follows its Stated Maturity Date, an
amount deemed to be due for such Mortgage Loan on its Stated Maturity Date and
on each successive related Due Date that it remains or is deemed to remain
outstanding equal to the Scheduled Payment that would have been due thereon on
such date if the related Balloon Payment had not come due but rather such
Mortgage Loan had continued to amortize in accordance with such Mortgage Loan's
amortization schedule, if any, in effect prior to its Stated Maturity Date.
With respect to any delinquent Balloon Loan that provides for Monthly Payments
of interest only prior to its Stated Maturity Date, the Assumed Scheduled
Payment for such Balloon Loan will equal zero.]
"Authenticating Agent": The Person, if any, appointed as
Authenticating Agent by the Trustee at the request of the Issuer pursuant to
Section 6.15, until any successor Authenticating Agent for the Bonds is named,
and thereafter "Authenticating Agent" shall mean such successor. The initial
Authenticating Agent shall be the Trustee.
"Authorized Officer": Chairman, President, or any Vice President of
the Issuer.
"Available Funds": With respect to each Payment Date, an amount equal
to the sum of the following amounts:
(i) scheduled payments of principal and interest due on
the Mortgage Loans during the related Collection Period and collected
prior to or during the related Collection Period;
(ii) all Monthly Advances made with respect to such
Payment Date;
(iii) with respect to each Mortgage Loan, all partial and
full Prepayments received on that Mortgage Loan during the related
Prepayment Period;
4
<PAGE> 16
(iv) all other proceeds received on or in respect of the
Mortgage Loans during the related Prepayment Period; and
(v) any other amounts required under the Indenture to be
deposited into the Bond Account during the related Collection Period
or with respect to such Payment Date (including, without limitation,
deposits pursuant to Section 8.04 in connection with breaches of
representations and warranties by the Mortgage Loan Provider and
deposits pursuant to Section 4.01, Section 8.01, Section 8.04(c) and
Section 10.01);
but net of the following amounts:
(a) the Servicing Fee and the Trustee's Fee paid
during or with respect to the related Collection Period;
(b) amounts applied to reimburse Monthly Advances
for prior Payment Dates or other previously unreimbursed
Servicing Advances (and interest thereon at the related
Reimbursement Rate), and all other amounts permitted to be
withdrawn from the Collection Account in accordance with the
terms of the Servicing Agreement; and
(c) any late payment fees, escrow payments and
Prepayment Premiums paid by Mortgagors.
"Balloon Loan": A Mortgage Loan whose amortization schedule includes
a Balloon Payment.
"Balloon Payment": With respect to any Mortgage Loan that is not
fully amortizing over its term to maturity, a lump-sum payment, equal to the
unpaid principal balance due on the Stated Maturity Date thereof.
"Best Efforts": Efforts determined to be in good faith and reasonably
diligent by the Person performing such efforts, specifically the Issuer or the
Servicer, as the case may be, in its reasonable discretion. Such efforts do
not require the Issuer or the Servicer, as the case may be, to enter into any
litigation, arbitration or other legal or quasi-legal proceeding, nor do they
require the Issuer or the Servicer, as the case may be, to advance or expend
fees or sums of money in addition to those specifically set forth in this
Indenture and the Servicing Agreement.
"Bond Account": The trust account or accounts created and maintained
pursuant to Section 8.02.
"Bond Balance": With respect to all of the Bonds the aggregate of the
Current Bond Balances of all Bonds Outstanding at the time of determination.
5
<PAGE> 17
"Bondholder" or "Holder": The Person in whose name a Bond is
registered in the Bond Register.
"Bond Interest Payment Amount": With respect to each Payment Date,
one month's interest at the Bond Interest Rate on the Bond Balance on the
related Determination Date as provided in Section 2.03.
"Bond Interest Rate": With respect to the Bonds, the annual rate at
which interest accrues on the Bonds as specified in the Bonds and in Section
2.03.
"Bond Principal Payment Amount":
[(i) with respect to each Payment Date for which a
Trigger Event does not exist and with respect to each Payment
Date on which the Subordination Level will be (after taking
into account the principal payments that are to be made on the
Bonds on such Payment Date, if made in an amount determined
pursuant to this clause (i)) equal to or greater than the
Required Subordination Level for such Payment Date, the lesser
of (a) __% of the Net Principal Distribution Amount for such
Payment Date plus the Liquidation Principal Amount for such
Payment Date; and (b) the Bond Balance immediately prior to
such Payment Date; and
(ii) with respect to any other Payment Date, the
lesser of (a) 100% of the Principal Distribution Amount for
such Payment Date and (b) the Bond Balance immediately prior
to such Payment Date.]
"Bond Owner": With respect to a Book Entry Bond, the Person who is
the beneficial owner of such Bond as reflected on the books of the Clearing
Agency for the Bonds or on the books of a Person maintaining an account with
such Clearing Agency (directly or as an indirect participant, in accordance
with the rules of such Clearing Agency).
"Bond Register": As defined in Section 2.06.
"Bond Registrar": As defined in Section 2.06.
"Bonds": Any bonds authorized by, and authenticated and delivered
under, this Indenture.
"Book Entry Bonds": Bonds that are issued in book entry form and held
in the form of one or more certificates issued in the name of a Clearing Agency
registered with the Commission.
"Book Entry Termination": The time at which the book entry
registration of the Book Entry Bonds shall terminate, as specified in Section
2.13.
6
<PAGE> 18
"Borrower": The original Mortgagor under a Mortgage Loan.
"Business Day": Any day other than (i) a Saturday or Sunday or (ii) a
day that is either a legal holiday or a day on which banking institutions in
the State of New York or the State of California are authorized or obligated by
law, regulation or executive order to be closed.
"Certificate of Incorporation": The Issuer's Certificate of
Incorporation filed with the Secretary of State of the State of Delaware on
February 4, 1997.
"Clearing Agency": An organization registered as a "clearing agency"
pursuant to Section 17A of the Securities and Exchange Act of 1934, as amended,
and the regulations of the Commission thereunder and shall initially be The
Depository Trust Company of New York, the nominee for which is Cede & Co.
"Clearing Agency Participants": The entities for whom the Clearing
Agency will maintain book entry records of ownership and transfer of Book Entry
Bonds, which may include securities brokers and dealers, banks and trust
companies and clearing corporations and certain other organizations.
"Closing Date": ___________ __, 199__, the date of initial issuance
of the Bonds.
"Code": The Internal Revenue Code of 1986, as amended, and as may be
further amended from time to time, as successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form and proposed regulations thereunder to the extent that,
by reason of their proposed effective date, such proposed regulations would
apply.
"Collection Account": As defined in Article I of the Servicing
Agreement.
"Collection Period": With respect to a Payment Date, the period
commencing on the _____ day of the month preceding the month in which such
Payment Date occurs (except that, in the case of the first Payment Date, the
related Collection Period will commence on the day following the Cut-off Date)
and ending on the _____ day of the month in which such Payment Date occurs.
"Commission": The Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or if at
any time such Commission is not existing and performing the duties now assigned
to it under the Trust Indenture Act, then the body performing such duties at
such time under the Trust Indenture Act or similar legislation replacing the
Trust Indenture Act.
7
<PAGE> 19
"Condemnation Proceeds": All awards or settlements in respect of a
Mortgaged Property, whether permanent or temporary, partial or entire, by
exercise of the power of eminent domain or condemnation.
"Corporate Trust Office": The principal corporate trust office of the
Trustee located at 3 Park Plaza, 16th Floor, Irvine, California 92714, or at
such other address as the Trustee may designate from time to time by notice to
the Bondholders and the Issuer, or the principal corporate trust office of any
successor Trustee.
"Current Bond Balance": With respect to any Bond as of any date of
determination, the original principal amount of such Bond, reduced by all prior
payments, if any, made with respect to principal of such Bond.
"Custodian": A Person who is at any time appointed by the Trustee
pursuant to Section 8.13 as a document custodian for the Mortgage Files, which
Person shall not be the Issuer or an Affiliate of the Issuer.
"Cut-off Date": _____________ __, 199_.
"Cut-off Date Balance": With respect to any Mortgage Loan, the
outstanding principal balance of such Mortgage Loan as of the Cut-off Date,
after the application of all principal payments due on or before such date,
whether or not received.
"Debt Service Requirement": With respect to a particular Payment
Date, the sum of:
(a) the Bond Interest Payment Amount for such Payment
Date; and
(b) the Bond Principal Payment Amount for such Payment
Date.
"Default": Any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
"Defaulted Mortgage Loan": The meaning specified in Section 8.04(c).
"Definitive Bonds": Bonds other than Book Entry Bonds.
"Determination Date": With respect to any Payment Date, the first
Business Day following the end of the related Collection Period.
"Due Date": With respect to any Mortgage Loan, the date each month on
which the Monthly Payment is due.
8
<PAGE> 20
"Eligible Investments": Any one or more of the following obligations,
instruments and securities:
(i) obligations of the United States or any agency
thereof, provided such obligations are backed by the full faith and
credit of the United States;
(ii) general obligations of, or obligations guaranteed by,
any state of the United States or the District of Columbia receiving
one of the two highest ratings of the Rating Agency;
(iii) commercial paper that is then rated in the highest
commercial paper rating category of the Rating Agency;
(iv) certificates of deposit, demand or time deposits,
federal funds or bankers' acceptances issued by any depository
institution or trust company incorporated under the laws of the United
States or of any state thereof and subject to supervision and
examination by federal and/or state banking authorities; provided that
the commercial paper and/or long-term debt obligations of such
depository institution or trust company (or in the case of the
principal depository institution in a holding company system, the
commercial paper or long-term debt obligations of such holding
company) are then rated in the highest rating category of the Rating
Agency, in the case of commercial paper, or in the two highest
categories in the case of long-term debt obligations;
(v) demand or time deposits or certificates of deposit
issued by any bank or trust company or savings and loan association
and fully insured by the FDIC;
(vi) repurchase obligations with respect to any security
described in (i) and (ii) above or any other security issued or
guaranteed by an agency or instrumentality of the United States, in
either case entered into with a depository institution or trust
company (acting as principal) described in (iv) above; or
(vii) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the United
States or any state thereof that, at the time of such investment or
contractual commitment providing for such investments, are then rated
in one of the two highest categories of the Rating Agency.
"Event of Default": The meaning specified in Section 5.01.
"Full Prepayment": With respect to any Mortgage Loan, when any one of
the following occurs: (i) payment is made by the Mortgagor to the Trustee or
the Servicer of 100% of the outstanding principal balance of such Mortgage
Loan, together with all accrued and unpaid interest thereon at the Net Mortgage
Rate, (ii) payment is made to the Trustee of the cash purchase price of such
Mortgage Loan in connection with the purchase of such Mortgage Loan
9
<PAGE> 21
by the Mortgage Loan Provider, (iii) payment is made to the Servicer or the
Trustee of all Insurance Proceeds, Liquidation Proceeds, Condemnation Proceeds
and REO Disposition Proceeds, and other payments, if any, that have been
determined by the Servicer in accordance with the provisions of the Servicing
Agreement to be finally recoverable, in the Servicer's reasonable judgment, in
respect of such Mortgage Loan, or (iv) payment by the Issuer to the Trustee
pursuant to Section 8.04(c) of the amount specified therein with respect to a
Defaulted Mortgage Loan.
"Grant": To grant, bargain, sell, warrant, alienate, remise, release,
convey, assign, transfer, mortgage, pledge, create and grant a security
interest in, deposit, set-over and confirm. A Grant of a Mortgage Loan and
related Mortgage Files, an Eligible Investment, the Servicing Agreement, a
Mortgage Loan Conveyance Agreement, an Insurance Policy or any other instrument
shall include all rights, powers and options (but none of the obligations) of
the Granting party thereunder, including without limitation the immediate and
continuing right to claim for, collect, receive and give receipts for principal
and interest payments thereunder, insurance proceeds, Condemnation Proceeds,
purchase prices and all other moneys payable thereunder and all proceeds
thereof, to give and receive notices and other communications, to make waivers
or other agreements, to exercise all rights and options, to bring Proceedings
in the name of the Granting party or otherwise, and generally to do and receive
anything that the Granting party is or may be entitled to do or receive
thereunder or with respect thereto.
"Highest Lawful Rate": The meaning specified in Section 11.18.
"Indenture" or "this Indenture": This instrument as originally
executed and, if from time to time supplemented or amended by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof, as so supplemented or amended. All references in this
instrument to designated "Articles", "Sections", "Subsections" and other
subdivisions are to the designated Articles, Sections, Subsections and other
subdivisions of this instrument as originally executed. The words "herein",
"hereof", "hereunder" and other words of similar import refer to this Indenture
as a whole and not to any particular Article, Section, Subsection or other
subdivision.
"Independent": When used with respect to any specified Person means
such a Person who (i) is in fact independent of the Issuer and any other
obligor upon the Bonds, (ii) does not have any direct financial interest or any
material indirect financial interest in the Issuer or in any such other obligor
or in an Affiliate of the Issuer or such other obligor, and (iii) is not
connected with the Issuer or any such other obligor as an officer, employee,
promoter, underwriter, trustee, partner, director or person performing similar
functions. Whenever it is herein provided that any Independent Person's
opinion or certificate shall be furnished to the Trustee, such Person shall be
appointed by an Issuer Order and such opinion or certificate shall state that
the signer has read this definition and that the signer is Independent within
the meaning hereof.
10
<PAGE> 22
"Individual Bond": A Bond of an original principal amount of $1,000;
a Bond of an original principal amount in excess of $1,000 shall be deemed to
be a number of Individual Bonds equal to the quotient obtained by dividing such
original principal amount by $1,000.
"Insurance Policies": All insurance policies insuring any Mortgage
Loan or Mortgaged Property, to the extent the Issuer or the Trustee has any
interest therein.
"Insurance Proceeds": As defined in Article I of the Servicing
Agreement.
"Interest Accrual Period": With respect to a Payment Date, the one
month period ending on the last day of the month preceding each Payment Date.
"Issuer": Aames Capital Acceptance Corp., a Delaware corporation,
until a successor Person shall have become the Issuer pursuant to the
applicable provisions of this Indenture, and thereafter "Issuer" shall mean
such successor Person.
"Issuer Order" and "Issuer Request": A written order or request of
the Issuer signed by the Chairman, President, any Vice President, Secretary or
any Assistant Secretary of the Issuer and delivered to the Trustee.
"Letter Agreement": The Letter of Representations to The Depository
Trust Company from the Trustee and the Issuer dated ________ __, 199__,
attached hereto as Exhibit C.
"Liquidation Date": With respect to any Mortgage Loan, the date of
the final receipt of all Liquidation Proceeds, Condemnation Proceeds, Insurance
Proceeds, REO Disposition Proceeds or other payments with respect to such
Mortgage Loan.
"Liquidation Principal Amount": With respect to any Payment Date, the
aggregate of all Liquidation Proceeds, Insurance Proceeds, REO Disposition
Proceeds, Condemnation Proceeds and proceeds of Mortgage Loan repurchases that
were received on or in respect of Mortgage Loans during the related Prepayment
Period and that were identified and applied as recoveries of principal, in each
case net of any portion of such amounts that represents a recovery of the
principal portion of any Scheduled Payment (other than a Balloon Payment) due
or of the principal portion of any Assumed Scheduled Payment deemed due in
respect of the related Mortgage Loan on a Due Date during or prior to the
related Prepayment Period and not previously recovered.
"Liquidation Proceeds": Cash (other than REO Disposition Proceeds,
Condemnation Proceeds and Insurance Proceeds) received in connection with the
liquidation of a Defaulted Mortgage Loan, whether through the sale or
assignment of the Mortgage Loan, trustee's sale, foreclosure sale or otherwise.
11
<PAGE> 23
"Loan Number": With respect to any Mortgage Loan, the number assigned
to such Mortgage Loan by the Servicer, which number is set forth in the
Mortgage Loan Schedule.
"Maturity": With respect to any Bond, the date on which the entire
unpaid principal amount of such Bond becomes due and payable as therein or
herein provided, whether at the Stated Maturity of the final installment of
such principal or by declaration of acceleration, call for redemption or
otherwise.
"Monthly Advance": As defined in Article I of the Servicing
Agreement.
"Monthly Payment": The scheduled monthly payment of principal and
interest on a Mortgage Loan (including any Balloon Payment) that is payable by
a Mortgagor from time to time under the related Mortgage Note.
"Mortgage": The original mortgage, deed of trust or other security
instrument that creates a first lien in the Mortgaged Property securing a
Mortgage Loan.
"Mortgage File": With respect to each Mortgage Loan, (i) the original
Mortgage Note, endorsed, in the form "Pay to the order of Bankers Trust Company
of California, N.A., as Trustee for the benefit of Aames Capital Acceptance
Corp. Asset-Backed Bonds, Series 199__-__, without recourse"; (ii) the original
of the Mortgage, together with an original or of any intervening assignments of
the Mortgage, in each case with evidence of recording indicated thereon; (iii)
the original of any related assignment of leases (if such item is a document
separate from the Mortgage), with evidence of recording indicated thereon; (iv)
an original recorded assignment of the Mortgage in the form "Pay to the order
of Bankers Trust Company of California, N.A., as Trustee for the benefit of
Aames Capital Acceptance Corp. Asset-Backed Bonds, Series 199__-__"; (v) an
original recorded assignment of any related assignment of leases (if such item
is a document separate from the Mortgage) in the form "Pay to the order of
Bankers Trust Company of California, N.A., as Trustee for the benefit of Aames
Capital Acceptance Corp. Asset-Backed Bonds, Series 199__-__"; (vi) originals
or copies of all written modification agreements in those instances in which
the terms or provisions of the Mortgage or Mortgage Note have been modified;
(vii) the original or a copy of the policy or certificate of lender's title
insurance issued on the date of the origination of such Mortgage Loan, or, if
such policy has not been issued, an irrevocable, binding commitment to issue
such title insurance policy or an attorneys' title opinion, if customary in the
related jurisdiction where the Mortgaged Property is located; and (viii) any
file copies of any UCC financing statements in the possession of the Mortgage
Loan Provider; if the original of any document described in clause (ii), (iii),
(iv), (v) or (vi) has been retained by the recording office in which such
document was recorded, then a copy thereof duly certified as true and correct
by a duly authorized representative of such recording office shall be included
as part of the Mortgage File for the related Mortgage Loan.
"Mortgage Loan": A mortgage loan Granted to the Trustee under this
Indenture as security for the Bonds. The term "outstanding Mortgage Loans" as
of any date means the
12
<PAGE> 24
Mortgage Loans other than those that have been the subject of Full Prepayments
as of or prior to such date. Notwithstanding that any Mortgaged Property may
be acquired by the Servicer, on behalf of the Trust Estate through foreclosure,
deed in lieu of foreclosure or otherwise, the related Mortgage Loan will be
treated, for purposes of determining the Available Funds, the Principal
Distribution Amount and the amount of Servicing Fees and Trustee's Fees payable
with respect to such Mortgage Loan, as having remained outstanding until the
related REO Property is liquidated. In connection therewith, operating
revenues and other proceeds derived from such REO Property (exclusive of
related operating costs) will be applied by the Servicer as principal, interest
and other amounts due on such Mortgage Loan, and the Servicer will make Monthly
Advances in respect of such Mortgage Loan, in all cases as if such Mortgage
Loan had remained outstanding.
"Mortgage Loan Conveyance Agreement": That certain Mortgage Loan
Conveyance Agreement, dated as of __________ __, 199__, between Aames Capital
Corporation and Aames Capital Acceptance Corporation, relating to the sale of
the Mortgage Loans, a copy of which agreement is attached hereto as Exhibit B.
"Mortgage Loan Provider": Aames Capital Corporation.
"Mortgage Loan Schedule": Schedule A hereto identifying the Mortgage
Loans being Granted to the Trustee on the Closing Date.
"Mortgage Note": The original note, bond or other evidence of
indebtedness executed by a Borrower that evidences the indebtedness of such
Borrower under a Mortgage Loan.
"Mortgage Pool": As of any date all of the outstanding Mortgage Loans
on such date.
"Mortgage Rate": With respect to each Mortgage Loan, the adjustable
rate per annum set forth in the related Mortgage Note from time to time at
which interest accrues on such Mortgage Loan as of the most recent interest
rate adjustment pursuant to the related Mortgage Note, in each case after
giving effect to any modification of a Mortgage Loan for any period in
connection with a bankruptcy or similar proceeding involving the related
Mortgagor or a modification, waiver or amendment of such Mortgage Loan granted
or agreed to by the Servicer in accordance with the Servicing Agreement.
"Mortgaged Property": The real property and improvements thereon
securing a Mortgage Note.
"Mortgagor": Each Person who is indebted under a Mortgage Note or who
has acquired real property subject to the Mortgage securing a Mortgage Note.
"Net Monthly P&I": With respect to any Mortgage Loan for any Due
Date, the Monthly Payment for such Due Date net of the Servicing Fee.
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<PAGE> 25
"Net Mortgage Rate": The Mortgage Rate of a Mortgage Loan net of the
Servicing Fee (expressed in a comparable manner) on such Mortgage Loan.
"Net Principal Distribution Amount": With respect to any Payment
Date, the excess of the Principal Distribution Amount for such Payment Date
over the Liquidation Principal Amount for such Payment Date.
"Nonrecoverable Advance": As defined in Article I of the Servicing
Agreement.
"Officers' Certificate": A certificate signed by the Chairman, the
President or a Vice President, and by the Treasurer, an Assistant Treasurer,
the Controller, an Assistant Controller, the Secretary or an Assistant
Secretary of the Issuer or of such other Person as is delivering such
certificate, and delivered to the Trustee. Unless otherwise specified, any
reference in this Indenture to an Officers' Certificate shall be to an
Officers' Certificate as defined in the previous sentence.
"Officers' Certificate of the Servicer": A certificate signed by two
authorized officers of the Servicer.
"Opinion of Counsel": A written opinion of counsel who may, except as
otherwise expressly provided in this Indenture, be counsel for the Issuer and
who shall be reasonably satisfactory to the Trustee.
"Opinion of Independent Counsel": An Opinion of Counsel rendered by
counsel that is Independent.
"Optional Redemption Date": With respect to the Bonds that are
subject to optional redemption, any Payment Date on or after the Payment Date
on which the Bond Balance is less than __% of the initial Bond Balance.
"Original Mortgage Loans": The Mortgage Loans listed on the Mortgage
Loan Schedule and Granted to the Trustee on the Closing Date.
"Outstanding": As of the date of determination, all Bonds theretofore
authenticated and delivered under this Indenture except:
(i) Definitive Bonds theretofore canceled by the Bond
Registrar or delivered to the Bond Registrar for cancellation;
(ii) Bonds or portions thereof for whose payment or
redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the Issuer)
in trust for the Holders of such Bonds; provided, however, that if
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<PAGE> 26
such Bonds are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor, satisfactory to
the Trustee, has been made;
(iii) Bonds in exchange for or in lieu of which other Bonds
have been authenticated and delivered pursuant to this Indenture
unless proof satisfactory to the Trustee is presented that any such
Bonds are held by a bona fide purchaser (as defined by the Uniform
Commercial Code of the applicable jurisdiction); and
(iv) Bonds alleged to have been destroyed, lost or stolen
that have been paid as provided for in Section 2.07;
provided, however, that in determining whether the Holders of the requisite
percentage of the Bond Balance of the Outstanding Bonds have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Bonds
owned by the Issuer, any other obligor upon the Bonds or any Affiliate of the
Issuer or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Bonds that the Trustee knows to be so owned shall be so
disregarded. Bonds so owned that have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Bonds and that the
pledgee is not the Issuer, any other obligor upon the Bonds or any Affiliate of
the Issuer or such other obligor.
"Paying Agent": The Trustee or any other depository institution or
trust company that is authorized by the Issuer pursuant to Section 3.03 to pay
the principal of, or interest on, any Bonds on behalf of the Issuer.
"Payment Date": The __ day of each month (or if any such day is not a
Business Day, the next succeeding Business Day) beginning _____________ __,
199__.
"Payment Date Statement": The meaning specified in Section 2.08(d).
"Permitted Encumbrance": Any lien, charge, security interest,
mortgage or other encumbrance (other than the lien of this Indenture) Granted
by the Issuer in any portion of the Trust Estate, provided that:
(i) such lien, charge, security interest, mortgage or
encumbrance extends only to a portion of the Trust Estate that is
limited to cash deliverable or payable to the Issuer pursuant to
Section 8.01 or Section 8.02(d);
(ii) such lien, charge, security interest, mortgage or
other encumbrance secures indebtedness that the Issuer is permitted to
incur under the terms of this Indenture; and
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<PAGE> 27
(iii) the beneficiary of such lien, charge, security
interest, mortgage or other encumbrance has agreed that in connection
with the enforcement thereof it will not bring any Proceeding seeking,
or that would result in, the sale of any portion of the Trust Estate
and will not file any petition for the commencement of insolvency
proceedings with respect to the Issuer under the federal bankruptcy
laws, as now or hereafter in effect, or any other present or future
federal or state bankruptcy, insolvency or similar law, or for the
appointment of any receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Issuer or of any of its
property or seeking an order for the winding up or liquidation of the
affairs of the Issuer until not less than 91 days after payment in
full of all Outstanding Bonds.
"Person": Any individual, corporation, partnership, joint venture,
association, joint- stock company, trust (including any beneficiary thereof),
unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Bonds": With respect to any particular Bond, every
previous Bond evidencing all or a portion of the same debt as that evidenced by
such particular Bond; and, for the purpose of this definition, any Bond
authenticated and delivered under Section 2.07 in lieu of a lost, destroyed or
stolen Bond shall be deemed to evidence the same debt as the lost, destroyed or
stolen Bond.
"Prepayment": Any payment or other recovery of principal on a
Mortgage Loan that is received in advance of its scheduled Due Date, including
any Prepayment Premium thereon, and is not accompanied by an amount as to
interest representing scheduled interest due on any date or dates in any month
or months subsequent to the month in which it is received.
"Prepayment Period": With respect to a Payment Date, the calendar
month preceding the month in which such Payment Date occurs, except that, in
the case of the first Payment Date, the related Prepayment Period will commence
on the Cut-off Date.
"Prepayment Premium": With respect to any Mortgage Loan that permits
voluntary Prepayments, an amount, if any, required to be paid under the terms
of the Mortgage Loan in excess of the Prepayment.
"Principal Distribution Amount": With respect to each Payment Date,
an amount equal the excess of (i) the aggregate of the following:
(a) the aggregate of the principal portions of
all Scheduled Payments (other than Balloon Payments) due and
any Assumed Scheduled Payments deemed due on or in respect of
the Mortgage Loans for their respective Due Dates occurring
during the related Collection Period;
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<PAGE> 28
(b) the aggregate of all Prepayments received on
the Mortgage Loans during the related Prepayment Period;
(c) with respect to any Mortgage Loan as to which
the related Stated Maturity Date occurred during or prior to
the related Collection Period, any payment of principal made
by or on behalf of the related Mortgagor during the related
Collection Period, net of any portion of such payment that
represents a recovery of the principal portion of any
Scheduled Payment (other than a Balloon Payment) due or the
principal portion of any Assumed Scheduled Payment deemed due
in respect of such Mortgage Loan on a Due Date during or prior
to the related Collection Period and previously recovered; and
(d) the Liquidation Principal Amount for such
Payment Date, over
(ii) the amount, if any, by which interest due and
payable on the Bonds on such Payment Date exceeds the
aggregate amount of interest collected or received in respect
of the Mortgage Loans in the Mortgage Pool during the related
Collection Period.
If, in any month, the payment received with respect to a Mortgage Loan
is less than the payment of principal and interest due in that month, the
amount received will be allocated first to interest and then to principal
unless the related Mortgage Loan provides otherwise.
"Proceeding": Any suit in equity, action at law or other judicial or
administrative proceeding.
"Rating Agency": ________________________ and its successors so long
as they shall be engaged in the business of rating debt securities similar to
the Bonds.
"Realized Loss": As to any liquidated Mortgage Loan (or related REO
Property), the excess, if any, of (a) the actual outstanding principal balance
thereof on the Liquidation Date plus (i) accrued and unpaid interest thereon
(without consideration of any Monthly Advances) at the Mortgage Rate to but not
including the Due Date in the Collection Period in which the Liquidation Date
occurs and (ii) related unreimbursed Servicing Advances, over (b) the aggregate
amount of related Liquidation Proceeds, Insurance Proceeds, Condemnation
Proceeds and REO Disposition Proceeds, if any, recovered in connection with
such liquidation. A Realized Loss shall also include any portion of the amount
due under a Mortgage Loan that is forgiven, whether in connection with a
modification, waiver or amendment granted or agreed to by the Servicer or in
connection with the bankruptcy or similar proceeding involving the related
Mortgagor.
"Record Date": With respect to any Payment Date, the date on which
the Persons entitled to receive any payment of principal of or interest on any
Bonds (or notice of a payment in full of
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<PAGE> 29
principal) due and payable on such Payment Date are determined; such date shall
be the last Business Day of the month preceding the month of such Payment Date.
With respect to a vote of Bondholders required or allowed hereunder, the Record
Date shall be the later of (i) 30 days prior to the first solicitation of
consents or (ii) the date of the most recent list of Bondholders furnished to
the Trustee pursuant to Section 7.01(a) prior to such solicitation.
"Redemption Price": With respect to any Bond to be redeemed in whole
or in part, an amount equal to 100% of the Current Bond Balance of the Bond to
be so redeemed, together with accrued and unpaid interest on such amount at the
Bond Interest Rate through the last day of the month preceding the month in
which the applicable Optional Redemption Date occurs.
"Reimbursement Rate": As defined in Article I of the Servicing
Agreement.
"Remittance": With respect to any one or more Mortgage Loans for any
particular date or period, the Net Monthly P&I and the net amount of all
Prepayments, Insurance Proceeds, Liquidation Proceeds, Condemnation Proceeds
and REO Disposition Proceeds for such date or period and all other amounts
required to be remitted by the Servicer to the Trustee for deposit in the Bond
Account in accordance with Section ____ of the Servicing Agreement.
"Remittance Date": The date each month on which funds on deposit in
the Collection Account are remitted by the Servicer to the Trustee for deposit
into the Bond Account, which date shall be with respect to any Payment Date,
the Business Day that is two Business Days prior to such Payment Date,
commencing in ____________ 199__.
"REO Disposition": The final sale by the Servicer of any REO Property
pursuant to the Servicing Agreement.
"REO Disposition Proceeds": All amounts received with respect to an
REO Disposition in accordance with the Servicing Agreement.
"REO Property": A Mortgaged Property acquired by the Servicer on
behalf and in the name of the Trustee through foreclosure, acceptance of a
deed-in-lieu of foreclosure or otherwise in accordance with the Servicing
Agreement and applicable law in connection with the default or imminent default
of a Mortgage Loan.
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"Required Subordination Level": With respect to any Payment Date, the
amount determined according to the following schedule:
<TABLE>
<CAPTION>
Aggregate Stated Balance of
Mortgage Loans with Respect to
such Payment Date Required Subordination Level
----------------- ----------------------------
<S> <C>
$____________ and above ____%
$____________ to $____________ ____%
$____________ to $____________ ____%
$____________ to $____________ ____%
</TABLE>
"Responsible Officer": With respect to the Trustee, 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, any assistant vice president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer, the cashier, any trust
officer or assistant trust officer, the controller, 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, with respect
to a particular corporate trust matter, any other officer to whom such matter
is referred because of his knowledge of and familiarity with the particular
subject.
"Sale": The meaning specified in Section 5.17.
"Scheduled Payment": With respect to any Mortgage Loan and any Due
Date for such Mortgage Loan the amount of the Monthly Payment that would have
been due thereon on such date, without regard to any waiver, modification or
amendment of such Mortgage Loan granted or agreed to by the Servicer or
otherwise resulting in connection with a bankruptcy or similar proceeding
involving the related Mortgagor, and assuming that each prior Scheduled Payment
has been made in a timely manner and notwithstanding that the Mortgaged
Property securing any such Mortgage Loan is acquired by the Servicer through
foreclosure or otherwise.
"Servicer": With respect to any Mortgage Loan, Aames Capital
Corporation, as Servicer under the Servicing Agreement, and its permitted
successors and assigns thereunder, including any successor servicers appointed
pursuant to Section ____ of the Servicing Agreement.
"Servicer Reporting Date": With respect to a Payment Date the [third]
Business Day after the related Determination Date but not later than the
[third] Business Day before such Payment Date.
"Servicing Advance": As defined in Article I of the Servicing
Agreement.
"Servicing Agreement": The servicing agreement dated as of __________
__, 199__ among the Issuer, the Servicer and the Trustee, providing, among
other things, for the servicing of the Mortgage Loans, as such agreement may be
amended or supplemented from time to time
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<PAGE> 31
as permitted hereby and thereby. Such term shall also include any servicing
agreement entered into with a successor servicer.
"Servicing Fee": As defined in Article I of the Servicing Agreement.
"Stated Maturity": With respect to any installment of principal of or
interest on any Bond, the date specified in such Bond as the fixed date on
which such installment is due and payable.
"Stated Maturity Date": With respect to any Mortgage Loan, the month
in which the last payment of principal of such Mortgage Loan shall be due and
payable after taking into account all partial Prepayments received prior to the
date of determination, without regard to any change in or modification of such
terms in connection with a bankruptcy or similar proceeding involving the
related Mortgagor or a modification, waiver or amendment of such Mortgage Loan
granted or agreed to by the Servicer.
"Stated Principal Balance": With respect to each Mortgage Loan
outstanding at the date of determination, the principal balance of such
Mortgage Loan ultimately due and payable by the related Mortgagor and equal to
the Cut-off Date Balance thereof reduced (to not less than zero) by
(i) any Scheduled Payments of such Mortgage Loan actually
received during all prior complete Collection Periods and all other
collections of principal actually received during all prior complete
Prepayment Periods;
(ii) the principal portions of all Scheduled Payments
(other than any Balloon Payment) due but not received, and the
principal portion of any Assumed Scheduled Payment deemed due, during
all prior Collection Periods; and
(iii) the principal portion of any Realized Loss incurred
in respect of such Mortgage Loan during all prior Prepayment Periods;
[provided, however, that solely for purposes of determining the Subordination
Level for any Payment Date or the existence of a Trigger Event with respect to
any Payment Date, each Mortgage Loan that either is delinquent with respect to
any Balloon Payment at the end of the immediately preceding Collection Period
or 60 or more days delinquent with respect to any other Scheduled Payment at
the end of such Collection Period shall be deemed to have a Stated Principal
Balance of one-half of the amount computed above.]
"Subordination Level": With respect to any Payment Date, the result,
expressed as a percentage, obtained by dividing (i) the excess of the Aggregate
Stated Balance of the Mortgage Pool for the related Determination Date over the
Bond Balance (computed after taking into
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<PAGE> 32
account the principal payment to be made on such Payment Date) by (ii) the
Aggregate Stated Balance of the Mortgage Pool for the related Determination
Date.
"Trigger Event": With respect to any Payment Date, the occurrence as
of the related Determination Date of either of the following: (i) ___ or fewer
Mortgage Loans (not counting any Mortgage Loan that is delinquent with respect
to any Balloon Payment or 60 or more days delinquent with respect to any other
Scheduled Payment) remain in the Mortgage Pool or (ii) the Aggregate Stated
Balance of the Mortgage Pool is equal to or less than $___________.
"Trust Estate": All money, instruments and other property subject or
intended to be subject to the lien of this Indenture for the benefit of the
Bondholders as of any particular time (including, without limitation, all
property and interests Granted to the Trustee), including all proceeds thereof.
"Trust Indenture Act" or "TIA": The Trust Indenture Act of 1939 as it
may be amended from time to time.
"Trustee": Bankers Trust Company of California, N.A., a national
banking association, and any Person resulting from or surviving any
consolidation or merger to which it may be a party until a successor Person
shall have become the Trustee pursuant to the applicable provisions of this
Indenture, and thereafter "Trustee" shall mean such successor Person.
"Trustee's Fee": The fee payable to the Trustee on a monthly basis as
provided in Section 6.07 and calculated as an amount equal to
________________________.
"Vice President": With respect to the Trustee, any vice president,
whether or not designated by a number or a word or words added before or after
the title "vice president".
ARTICLE II.
THE BONDS
Section 2.01 Forms Generally.
The Bonds shall be in substantially the form set forth on Exhibit A
attached hereto. Each Bond may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange on which the Bonds
may be listed, or as may, consistently herewith, be determined by the officers
executing such Bonds, as evidenced by their execution thereof. Any portion of
the text of any Bond may be set forth on the reverse thereof with an
appropriate reference on the face of the Bond.
The Definitive Bonds may be produced in any manner determined by the
officers executing such Bonds, as evidenced by their execution thereof.
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Section 2.2 Forms of Certificate of Authentication.
The form of the Trustee's certificate of authentication is as follows:
This is one of the Bonds referred to in the within-mentioned
Indenture.
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:
---------------------------------------
Authorized Signatory
Section 2.03 General Provisions With Respect to Principal and
Interest Payments.
The Bonds shall be designated generally as the "Asset-Backed Bonds,
Series 199__-__" of the Issuer.
The aggregate principal amount of Bonds that may be authenticated and
delivered under the Indenture is limited to $___________, except for the Bonds
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Bonds pursuant to Sections 2.06, 2.07 or 9.06 of this
Indenture. The Bonds shall consist of one and only one class having an
original principal amount, Bond Interest Rate and Stated Maturity of its final
installment of principal as follows
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Original Bond Stated Maturity of
Principal Interest Final Installment
Designation Amount Rate of Principal
----------- ------ ---- ------------
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series 199__-__ $ % ________________
----------------------------------------------------------------------------------------------
</TABLE>
The Bonds shall be issued in the form specified in Section 2.01.
Subject to the provisions of Section 3.01, Section 5.09 and Section
8.02(d), the principal of the Bonds shall be payable in installments ending no
later than the Stated Maturity of the final installment of the principal
thereof unless the unpaid principal of such Bonds become due and payable at an
earlier date by declaration of acceleration or call for redemption or
otherwise.
The aggregate amount of principal of and interest on the Bonds due and
payable on each Payment Date shall be equal to the Debt Service Requirement for
such Payment Date. All payments made with respect to any Bond shall be applied
first to the interest then due and payable on such Bond and then to the
principal thereof. All computations of interest accrued on any Bond shall be
made as if each year consisted of twelve months of 30 days each.
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<PAGE> 34
Interest on the Bonds shall accrue at the Bond Interest Rate during
each Interest Accrual Period on the Current Bond Balance, as of the
Determination Date immediately following such Interest Accrual Period, of each
Outstanding Bond. Interest accrued during an Interest Accrual Period shall be
payable on the next following Payment Date.
All payments of principal of and interest on any Bond shall be made in
the manner specified in Section 2.08.
Notwithstanding any of the foregoing provisions with respect to
payments of principal of and interest on the Bonds, if the Bonds have become or
been declared due and payable following an Event of Default and such
acceleration of maturity and its consequences have not been rescinded and
annulled, then payments of principal of and interest on the Bonds shall be made
in accordance with Section 5.07.
Section 2.04 Denominations.
The Bonds shall be issuable only as registered Bonds in the minimum
denomination of $100,000 and integral multiples of $1,000 in excess thereof.
Section 2.05 Execution, Authentication, Delivery and Dating.
The Bonds shall be executed on behalf of the Issuer by the Chairman,
President or one of the Vice Presidents of the Issuer. The signature of such
officer on the Bonds may be manual or facsimile.
Bonds bearing the manual or facsimile signature of an individual who
was at any time a proper officer of the Issuer shall bind the Issuer,
notwithstanding that such individual has ceased to hold such office prior to
the authentication and delivery of such Bonds or did not hold such office at
the date of such Bonds.
At any time and from time to time after the execution and delivery of
this Indenture, the Issuer may deliver Bonds executed on behalf of the Issuer
to the Trustee for authentication; and the Trustee shall authenticate and
deliver such Bonds as in this Indenture provided and not otherwise.
Each Bond authenticated on the Closing Date shall be dated the Closing
Date. All other Bonds that are authenticated after the Closing Date for any
other purpose hereunder shall be dated the date of their authentication.
No Bond shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Bond a
certificate of authentication substantially in the form provided for herein
executed by the Trustee or by any Authenticating Agent by the manual signature
of one of its authorized officers or employees, and such certificate upon any
Bond shall
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<PAGE> 35
be conclusive evidence, and the only evidence, that such Bond has been duly
authenticated and delivered hereunder.
Section 2.06 Registration, Registration of Transfer and Exchange.
The Issuer shall cause to be kept a register (the "Bond Register") in
which, subject to such reasonable regulations as it may prescribe, the Issuer
shall provide for the registration of Bonds and the registration of transfers
of Bonds. The Trustee is hereby initially appointed "Bond Registrar" for the
purpose of registering Bonds and transfers of Bonds as herein provided. Upon
any resignation of any Bond Registrar appointed by the Issuer, the Issuer shall
promptly appoint a successor or, in the absence of such appointment, shall
assume the duties of Bond Registrar.
At any time the Trustee is not also the Bond Registrar, the Trustee
shall be a co-Bond Registrar. The Issuer shall cause each co-Bond Registrar to
furnish the Bond Registrar promptly after each authentication of a Bond by it
appropriate information with respect thereto for entry by the Bond Registrar
into the Bond Register. If the Trustee shall at any time not be authorized to
keep and maintain the Bond Register, the Trustee shall have the right to
inspect such Bond Register at all reasonable times and to rely conclusively
upon a certificate of the Person in charge of the Bond Register as to the names
and addresses of the Holders of the Bonds and the principal amounts and numbers
of such Bonds as held.
Upon surrender for registration of transfer of any Bond at the office
or agency of the Issuer to be maintained as provided in Section 3.02, the
Issuer shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Bonds of any
authorized denominations and of a like aggregate principal amount.
At the option of the Holder, Bonds may be exchanged for other Bonds of
any authorized denominations, and of a like aggregate initial principal amount,
upon surrender of the Bonds to be exchanged at such office or agency. Whenever
any Bonds are so surrendered for exchange, the Issuer shall execute, and the
Trustee shall authenticate and deliver, the Bonds that the Bondholder making
the exchange is entitled to receive.
All Bonds issued upon any registration of transfer or exchange of
Bonds shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Bonds
surrendered upon such registration of transfer or exchange.
Every Bond presented or surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Trustee duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Bonds, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge
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<PAGE> 36
as may be imposed in connection with any registration of transfer or exchange
of Bonds, other than exchanges pursuant to Section 2.07 not involving any
transfer.
Section 2.07 Mutilated, Destroyed, Lost or Stolen Bonds.
If (1) any mutilated Bond is surrendered to the Trustee or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Bond, and (2) there is delivered to the Trustee such security or indemnity as
may be required by the Trustee to save each of the Issuer and the Trustee
harmless, then, in the absence of notice to the Issuer or the Trustee that such
Bond has been acquired by a bona fide purchaser, the Issuer shall execute and
upon its request the Trustee shall authenticate and deliver, in exchange for or
in lieu of any such mutilated, destroyed, lost or stolen Bond, a new Bond or
Bonds of the same tenor and aggregate initial principal amount bearing a number
not contemporaneously outstanding. If, after the delivery of such new Bond, a
bona fide purchaser of the original Bond in lieu of which such new Bond was
issued presents for payment such original Bond, the Issuer and the Trustee
shall be entitled to recover such new Bond from the person to whom it was
delivered or any person taking therefrom, except a bona fide purchaser, and
shall be entitled to recover upon the security or indemnity provided therefor
to the extent of any loss, damage, cost or expenses incurred by the Issuer or
the Trustee in connection therewith. If any such mutilated, destroyed, lost or
stolen Bond shall have become or shall be about to become due and payable, or
shall have become subject to redemption in full, instead of issuing a new Bond,
the Issuer may pay such Bond without surrender thereof, except that any
mutilated Bond shall be surrendered.
Upon the issuance of any new Bond under this Section, the Issuer or
the Bond Registrar may require the payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation thereto and any
other reasonable expenses (including the fees and expenses of the Trustee or
the Bond Registrar) connected therewith.
Every new Bond issued pursuant to this Section in lieu of any
destroyed, lost or stolen Bond shall constitute an original additional
contractual obligation of the Issuer, whether or not the destroyed, lost or
stolen Bond shall be at any time enforceable by anyone, and shall be entitled
to all the benefits of this Indenture equally and proportionately with any and
all other Bonds duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Bonds.
Section 2.08 Payments of Principal and Interest.
(a) Payments on Bonds issued as Book Entry Bonds will be
made by or on behalf of the Trustee to the Clearing Agency or its
nominee. Any installment of interest or principal payable on any
Definitive Bonds that is punctually paid or duly provided for
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<PAGE> 37
by the Issuer on the applicable Payment Date shall be paid to the
Person in whose name such Bond (or one or more Predecessor Bonds) is
registered at the close of business on the Record Date for such Payment
Date by either (i) check mailed to such Person's address as it appears
in the Bond Register on such Record Date, or (ii) by wire transfer of
immediately available funds to the account of a Bondholder, if such
Bondholder (A) is the registered holder of Definitive Bonds having an
initial principal amount of at least $1,000,000 and (B) has provided
the Trustee with wiring instructions in writing by five days prior to
the related Record Date or has provided the Trustee with such
instructions for any previous Payment Date, except for the final
installment of principal payable with respect to such Bond (or the
Redemption Price for any Bond called for redemption, if such redemption
will result in payment of the then entire unpaid principal amount of
such Bond), which shall be payable as provided in subsection (b) below
of this Section 2.08. A fee may be charged by the Trustee to a
Bondholder of Definitive Bonds for any payment made by wire transfer.
Any installment of interest or principal not punctually paid or duly
provided for shall be payable as soon as funds are available to the
Trustee for payment thereof, or if Section 5.07 applies, pursuant to
Section 5.07.
(b) All reductions in the principal amount of a Bond (or
one or more Predecessor Bonds) effected by payments of installments of
principal made on any Payment Date shall be binding upon all Holders
of such Bond and of any Bond issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof, whether or not
such payment is noted on such Bond. The final installment of
principal of each Bond (including the Redemption Price of any Bond
called for optional redemption, if such optional redemption will
result in payment of the entire unpaid principal amount of such Bond)
shall be payable only upon presentation and surrender thereof on or
after the Payment Date therefor at the Trustee's presenting office in
[the Borough of Manhattan, the City of New York, State of New York],
pursuant to Section 3.02.
Whenever the Trustee expects that the entire remaining unpaid
principal amount of any Bond will become due and payable on the next
Payment Date other than pursuant to a redemption pursuant to Section
10.02, it shall, no later than two days prior to such Payment Date,
telecopy or hand deliver to each Person in whose name a Bond to be so
retired is registered at the close of business on such otherwise
applicable Record Date a notice to the effect that:
(i) the Trustee expects that funds sufficient to
pay such final installment will be available in the Bond
Account on such Payment Date; and
(ii) if such funds are available, (A) such final
installment will be payable on such Payment Date, but only
upon presentation and surrender of such Bond at the office or
agency of the Trustee maintained for such purpose pursuant to
Section 3.02 (the address of which shall be set forth in such
notice) and (B) no interest shall accrue on such Bond after
such Payment Date.
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Notices in connection with redemptions of Bonds shall be
mailed to Bondholders in accordance with Section 10.02.
(c) Subject to the foregoing provisions of this Section,
each Bond delivered under this Indenture upon registration of transfer
of or in exchange for or in lieu of any other Bond shall carry the
rights to unpaid principal and interest that were carried by such
other Bond. Any checks mailed pursuant to subsection (a) of this
Section 2.08 and returned undelivered shall be held in accordance with
Section 3.03.
(d) Not later than each Payment Date, the Trustee shall
prepare and deliver to the Issuer a statement (a "Payment Date
Statement") with respect to such Payment Date setting forth:
(i) the amount of interest paid to Bondholders on
such Payment Date;
(ii) the amount of principal paid to Bondholders
on such Payment Date and the Bond Balance after giving effect
to such payment;
(iii) the amount of Servicing Fees and other
servicing compensation and such other customary information as
the Trustee deems necessary or desirable, or that a Bondholder
reasonably requests, in respect of servicing expense;
(iv) the amount of Monthly Advances to be made by
the Servicer or the Trustee;
(v) the amount, if any, of Monthly Advances
reimbursable to the Servicer or the Trustee, as applicable,
and not previously reimbursed;
(vi) the Aggregate Stated Balance of the Mortgage
Loans as of the related Determination Date;
(vii) the aggregate amount of Prepayments made on
the Mortgage Loans during the related Prepayment Period;
(viii) the aggregate of any Insurance Proceeds,
Liquidation Proceeds, Condemnation Proceeds and REO
Disposition Proceeds received in respect of any Mortgage Loan
during the related Prepayment Period; and
(ix) the Subordination Level and the current
Required Subordination Level remaining in the Mortgage Pool,
in each case, at the close of business on such Payment Date.
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In the case of information furnished pursuant to subclauses
(i) and (ii) above, the amounts will be expressed as a dollar amount
per $1,000 denomination of Bonds.
Each Payment Date Statement will be delivered by the Trustee
only in the event it receives the related Servicer report required
under Section ___ of the Servicing Agreement on or prior to the
Servicer Reporting Date. Each Payment Date Statement shall be
delivered by the Trustee to the Issuer and the Rating Agency and shall
also be delivered to each Bondholder as the statement required
pursuant to Section 8.05. The Trustee shall have no responsibility to
recalculate, verify or recompute information contained in any such
Servicer's report.
Within a reasonable period of time after the end of each
calendar year, the Trustee will be required to furnish to each person
who at any time during the calendar year was a Bondholder a statement
containing the information set forth in subclauses (i) and (ii) above,
aggregated for such calendar year or the applicable portion thereof
during which such person was a Bondholder. Such obligation will be
deemed to have been satisfied to the extent that substantially
comparable information is provided pursuant to any requirements of the
Code as are from time to time in force.
Section 2.09 Persons Deemed Owners.
Prior to due presentment for registration of transfer of any Bond, the
Issuer, the Trustee, any Agent and any other agent of the Issuer or the Trustee
may treat the Person in whose name any Bond is registered as the owner of such
Bond (a) on the applicable Record Date for the purpose of receiving payments of
the principal of and interest on such Bond and (b) on any other date for all
other purposes whatsoever, and neither the Issuer, the Trustee, any Agent nor
any other agent of the Issuer or the Trustee shall be affected by notice to the
contrary.
Section 2.10 Cancellation.
All Bonds surrendered for payment, registration of transfer, exchange
or redemption shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly canceled by it. The Issuer may
at any time deliver to the Trustee for cancellation any Bond previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Bonds so delivered shall be promptly canceled by the
Trustee. No Bonds shall be authenticated in lieu of or in exchange for any
Bonds canceled as provided in this Section, except as expressly permitted by
this Indenture. All canceled Bonds held by the Trustee shall be held by the
Trustee in accordance with its standard retention policy, unless the Issuer
shall direct by an Issuer Order that they be destroyed or returned to it.
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Section 2.11 Authentication and Delivery of Bonds.
The Bonds may be executed by the Issuer and delivered to the Trustee
for authentication, and thereupon the same shall be authenticated and delivered
by the Trustee, upon Issuer Request and upon receipt by the Trustee of the
following:
(a) an Issuer Order authorizing the execution,
authentication and delivery of the Bonds and specifying the Stated
Maturity of the final installment of principal, the principal amount
and the Bond Interest Rate of such Bonds to be authenticated and
delivered;
(b) an Issuer Order authorizing the execution and
delivery of this Indenture; and
(c) one or more Opinions of Counsel addressed to the
Trustee, complying with the requirements of Section 11.01, reasonably
satisfactory in form and substance to the Trustee and the Rating
Agency.
In rendering the opinions set forth above, such counsel may
rely upon officer's certificates of the Issuer, the Servicer and the
Trustee, without independent confirmation or verification with respect
to factual matters relevant to such opinions. In rendering the
opinions set forth above, such counsel need express no opinion as to
(A) the existence of, or the priority of the security interest created
by the Indenture against, any liens or other interests that arise by
operation of law and that do not require any filing or similar action
in order to take priority over a perfected security interest or (8)
the priority of the security interest created by this Indenture with
respect to any claim or lien in favor of the United States or any
agency or instrumentality thereof (including federal tax liens and
liens arising under Title IV of the Employee Retirement Income
Security Act of 1974).
The acceptability to the Rating Agency of the Opinion of
Counsel delivered to the Trustee at the Closing Date shall be
conclusively evidenced by the delivery at the Closing of such Rating
Agency's rating letter.
(d) an Officers' Certificate complying with the
requirements of Section 11.01 and stating that:
(i) the Issuer is not in Default under this
Indenture and the issuance of the Bonds will not result in any
breach of any of the terms, conditions or provisions of, or
constitute a default under, the Issuer's Certificate of
Incorporation or bylaws or any indenture, mortgage, deed of
trust or other agreement or instrument to which the Issuer is
a party or by which it is bound, or any order of any court or
administrative agency entered in any proceeding to which the
Issuer is a party or by which it may be bound or to which it
may be
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subject, and that all conditions precedent provided in this
Indenture relating to the authentication and delivery of the
Bonds have been complied with;
(ii) the Issuer is the owner of each Mortgage
Loan, free and clear of any lien, security interest or charge,
has not assigned any interest or participation in any such
Mortgage Loan (or, if any such interest or participation has
been assigned, it has been released) and has the right to
Grant each such Mortgage Loan to the Trustee:
(iii) the information set forth in the Mortgage
Loan Schedule attached as Schedule A to this Indenture is
correct;
(iv) the Issuer has Granted to the Trustee all of
its right, title and interest in each Mortgage Loan;
(v) as of the Closing Date, no lien in favor of
the United States described in Section 6321 of the Code, or
lien in favor of the Pension Benefit Guaranty Corporation
described in Section 4068(a) of the Employee Retirement Income
Security Act of 1974, as amended, has been filed as described
in subsections 6323(f) and 6323(g) of the Code upon any
property belonging to the Issuer; and
(vi) attached thereto is a true and correct copy
of a letter signed by the Rating Agency confirming that the
Bonds have been rated ["___"] by such Rating Agency.
(e) An executed counterpart of the Servicing Agreement.
Section 2.12 Book Entry Bonds.
The Bonds will be issued initially as one or more certificates in the
name of the Cede & Co., as nominee for the Clearing Agency maintaining book
entry records with respect to ownership and transfer of such Bonds, and
registration of the Bonds may not be transferred by the Trustee or Bond
Registrar except upon Book Entry Termination. In such case, the Trustee shall
deal with the Clearing Agency and Clearing Agency Participants as
representatives of the Bond Owners of such Bonds for purposes of exercising the
rights of Bondholders hereunder. Each payment of principal of and interest on a
Book Entry Bond shall be paid to the Clearing Agency, which shall credit the
amount of such payments to the accounts of its Clearing Agency Participants in
accordance with its normal procedures. Each Clearing Agency Participant shall
be responsible for disbursing such payments to the Bond Owners of the Book
Entry Bonds that it represents and to each indirect participating brokerage
firm (a "brokerage firm" or "indirect participating firm") for which it acts as
agent. Each brokerage firm shall be responsible for disbursing funds to the
Bond Owners of the Book Entry Bonds that it represents. All such
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credits and disbursements are to be made by the Clearing Agency and the
Clearing Agency Participants in accordance with the provisions of the Bonds.
None of the Trustee, the Bond Registrar, if any, the Issuer, or any Agents
shall have any responsibility therefor except as otherwise provided by
applicable law. Requests and directions from, and votes of, such
representatives shall not be deemed to be inconsistent if they are made with
respect to different Bond Owners.
Section 2.13 Termination of Book Entry System.
(a) The book entry system through the Clearing Agency
with respect to the Book Entry Bonds may be terminated upon the
happening of any of the following:
(i) The Clearing Agency or the Issuer advises the
Trustee that the Clearing Agency is no longer willing or able
to properly discharge its responsibilities under the Letter
Agreement and the Issuer is unable to locate a qualified
successor clearing agency satisfactory to the Trustee and the
Issuer;
(ii) The Issuer, in its sole discretion but with
the consent of the Trustee, elects to terminate the book entry
system by notice to the Clearing Agency and the Trustee; or
(iii) After the occurrence of an Event of Default
(at which time the Trustee shall use all reasonable efforts to
promptly notify each Bond Owner through the Clearing Agency of
such Event of Default) when such notice shall be given
pursuant to Section 6.02, the Bond Owners of a majority in
Bond Balance of the Book Entry Bonds advise the Trustee in
writing, through the related Clearing Agency Participants and
the Clearing Agency, that the continuation of a book entry
system through the Clearing Agency to the exclusion of any
Definitive Bonds being issued to any person other than the
Clearing Agency or its nominee is no longer in the best
interests of the Bond Owners.
(b) Upon the occurrence of any event described in
subsection (a) above, the Trustee shall use all reasonable efforts to
notify all Bond Owners, through the Clearing Agency, of the occurrence
of such event and of the availability of Definitive Bonds to Bond
Owners requesting the same, in an aggregate Current Bond Balance
representing the interest of each, making such adjustments and
allowances as it may find necessary or appropriate as to accrued
interest and previous calls for redemption. Definitive Bonds shall be
issued only upon surrender to the Trustee of the global Bond by the
Clearing Agency, accompanied by registration instructions for the
Definitive Bonds. Neither the Issuer nor the Trustee shall be liable
for any delay in delivery of such instructions and may conclusively
rely on, and shall be protected in relying on, such instructions.
Upon issuance of the Definitive Bonds, all references herein to
obligations imposed upon or to
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be performed by the Clearing Agency shall cease to be applicable and
the provisions relating to Definitive Bonds shall be applicable.
ARTICLE III.
COVENANTS
Section 3.01 Payment of Bonds.
The Issuer will pay or cause to be duly and punctually paid the
principal of, and interest on, the Bonds in accordance with the terms of the
Bonds and this Indenture. The Bonds shall be non-recourse obligations of the
Issuer and shall be limited in right of payment to amounts available from the
Trust Estate as provided in this Indenture and the Issuer shall not otherwise
be liable for payments on the Bonds. No person shall be personally liable for
any amounts payable under the Bonds. If any other provision of this Indenture
conflicts or is deemed to conflict with the provisions of this Section 3.01,
the provisions of this Section 3.01 shall control.
Section 3.02 Maintenance of Office or Agency.
The Issuer will cause the Trustee to maintain its corporate trust
office as a location where Bonds may be surrendered for registration of
transfer or exchange, and where notices and demands to or upon the Issuer in
respect of the Bonds and this Indenture may be served. [In addition, the
Trustee has appointed _________________________________________ as the
presenting agent for such purpose and for the purpose of presentment or
surrender for payment of the Bonds and such agency shall be maintained at the
Trustee's expense.]
The Issuer may also from time to time at its own expense designate one
or more other offices or agencies (in or outside the City of New York) where
the Bonds may be presented or surrendered for any or all such purposes and may
from time to time rescind such designations; provided, however, that (i) no
such designation or rescission shall in any manner relieve the Issuer of its
obligation to maintain an office or agency in the Borough of Manhattan, the
City of New York, the State of New York, for the purposes set forth in the
preceding paragraph, (ii) presentations or surrenders of Bonds for payment may
be made only in the City of New York, the State of New York and (iii) any
designation of an office or agency for payment of Bonds shall be subject to
Section 3.03. The Issuer will give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
Section 3.03 Money for Bond Payments to Be Held in Trust.
All payments of amounts due and payable with respect to any Bonds that
are to be made from amounts withdrawn from the Bond Account pursuant to Section
8.02(c) or Section 5.07 shall be made on behalf of the Issuer by the Trustee or
by a Paying Agent, and no amounts so
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withdrawn from the Bond Account for payments of Bonds shall be paid over to the
Issuer under any circumstances except as provided in this Section 3.03 or in
Section 5.07.
If the Issuer shall have a Paying Agent that is not also the Bond
Registrar, it shall furnish, or cause the Bond Registrar to furnish, no later
than the fifth calendar day after each Record Date, a list, in such form as
such Paying Agent may reasonably require, of the names and addresses of the
Holders of Bonds and of the number of Individual Bonds held by each such
Holder.
Whenever the Issuer shall have a Paying Agent other than the Trustee,
it will, on or before the Business Day next preceding each Payment Date direct
the Trustee to deposit with such Paying Agent an aggregate sum sufficient to
pay the amounts then becoming due (to the extent funds are then available for
such purpose in the Bond Account), such sum to be held in trust for the benefit
of the Persons entitled thereto. Any moneys deposited with a Paying Agent in
excess of an amount sufficient to pay the amounts then becoming due on the
Bonds with respect to which such deposit was made shall, upon Issuer Order, be
paid over by such Paying Agent to the Trustee for application in accordance
with Article VIII.
Any Paying Agent other than the Trustee shall be appointed by Issuer
Order and at the expense of the Issuer. The Issuer shall not appoint any
Paying Agent (other than the Trustee) that is not, at the time of such
appointment, a depository institution or trust company whose obligations would
be Eligible Investments pursuant to clause (ii) of the definition of the term
"Eligible Investments". The Issuer will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee (and if the Trustee acts as Paying
Agent, it hereby so agrees), subject to the provisions of this Section, that
such Paying Agent will:
(1) allocate all sums received for payment to the Holders
of Bonds on each Payment Date among such Holders in the proportion
specified in the applicable Payment Date Statement, in each case to
the extent permitted by applicable law;
(2) hold all sums held by it for the payment of amounts
due with respect to the Bonds in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(3) if such Paying Agent is not the Trustee, immediately
resign as a Paying Agent and forthwith pay to the Trustee all sums
held by it in trust for the payment of the Bonds if at any time it
ceases to meet the standards set forth above required to be met by a
Paying Agent at the time of its appointment;
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(4) if such Paying Agent is not the Trustee, give the
Trustee notice of any Default by the Issuer (or any other obligor upon
the Bonds) in the making of any payment required to be made with
respect to any Bonds for which it is acting as Paying Agent;
(5) if such Paying Agent is not the Trustee, at any time
during the continuance of any such Default, upon the written request
of the Trustee, forthwith pay to the Trustee all sums so held in trust
by such Paying Agent; and
(6) comply with all requirements of the Code, and all
regulations thereunder, with respect to the withholding taxes from any
payments made by it on any Bonds of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting
requirements in connection therewith; provided, however, that with
respect to withholding and reporting requirements applicable to
original issue discount (if any) on any of the Bonds, the Issuer has
provided the calculations pertaining thereto to the Trustee.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or any other purpose, by Issuer
Order direct any Paying Agent, if other than the Trustee, to pay to the Trustee
all sums held in trust by such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by such
Paying Agent; and upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money held by the Trustee or any Paying Agent in trust for the
payment of any amount due with respect to any Bond and remaining unclaimed for
two and one-half years after such amount has become due and payable to the
Holder of such Bond (or if earlier, three months before the date on which such
amount would escheat to a governmental entity under applicable law) shall be
discharged from such trust and paid to the Issuer; and the Holder of such Bond
shall thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Trustee or such Paying Agent with respect to such
trust money shall thereupon cease. The Trustee may adopt and employ, at the
expense of the Issuer, any reasonable means of notification of such repayment
(including, but not limited to, mailing notice of such repayment to Holders
whose Bonds have been called but have not been surrendered for redemption or
whose right to or interest in moneys due and payable but not claimed is
determinable from the records of the Trustee or any Agent, at the last address
of record for each such Holder).
Section 3.04 Existence of Issuer.
(a) Subject to Sections 3.04(b) and (c), the Issuer will
keep in full effect its existence, rights and franchises as a
corporation under the laws of the State of Delaware or under the laws
of any other state or the United States of America, and will obtain
and preserve its qualification to do business as a foreign corporation
in each jurisdiction in
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which such qualification is or shall be necessary to protect the
validity and enforceability of this Indenture or the Bonds.
(b) Subject to Section 3.09(vii), any corporation into
which the Issuer may be merged or with which it may be consolidated,
or any corporation resulting from any merger or consolidation to which
the Issuer shall be a party, shall be the successor Issuer under this
Indenture without the execution or filing of any paper, instrument or
further act to be done on the part of the parties hereto, anything in
any agreement relating to such merger or consolidation, by which any
such Issuer may seek to retain certain powers, rights and privileges
therefore obtaining for any period of time following such merger or
consolidation to the contrary notwithstanding (other than Section
3.09(vii)).
(c) Upon any consolidation or merger of or other
succession to the Issuer in accordance with this Section 3.04, the
Person formed by or surviving such consolidation or merger (if other
than the Issuer) may exercise every right and power of, the Issuer
under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
Section 3.05 Protection of Trust Estate.
(a) The Issuer will from time to time execute and deliver
all such supplements and amendments hereto and all such financing
statements, continuation statements, instruments of further assurance
and other instruments, and will take such other action as may be
necessary or advisable to:
(i) Grant more effectively all or any portion of
the Trust Estate;
(ii) maintain or preserve the lien of this
Indenture or carry out more effectively the purposes hereof;
(iii) perfect, publish notice of or protect the
validity of any Grant made or to be made by this Indenture;
(iv) enforce any of the Mortgage Files; or
(v) preserve and defend title to the Trust Estate
and the rights of the Trustee, and of the Bondholders, in the
Mortgage Loans and the other property held as part of the
Trust Estate against the claims of all Persons and parties.
The Issuer hereby designates the Trustee its agent and
attorney-in-fact to execute any financing statement, continuation
statement or other instrument required pursuant to this Section 3.05;
provided, however, that such designation shall not be deemed to create
a duty in the Trustee to monitor the compliance of the Issuer with the
foregoing
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covenants; and provided further, however, that the duty of the Trustee
to execute any instrument required pursuant to this Section 3.05 shall
arise only if the Trustee has knowledge pursuant to Section 6.01(d) of
the occurrence of a failure of the Issuer to comply with the
provisions of this Section 3.05.
(b) The Trustee shall not remove any portion of the Trust
Estate that consists of money or is evidenced by an instrument,
certificate or other writing from the jurisdiction in which it was
held at the date of the most recent Opinion of Counsel delivered
pursuant to Section 3.06 (or from the jurisdiction in which it was
held, or to which it is intended to be removed, as described in the
Opinion of Counsel delivered at the Closing Date pursuant to Section
2.11(c), if no Opinion of Counsel has yet been delivered pursuant to
Section 3.06) or cause or permit ownership or the pledge of any
portion of the Trust Estate that consists of book-entry securities to
be recorded on the books of a Person located in a different
jurisdiction from the jurisdiction in which such ownership or pledge
was recorded at such time unless the Trustee shall have first received
an Opinion of Independent Counsel to the effect that the lien and
security interest created by this Indenture with respect to such
property will continue to be maintained after giving effect to such
action or actions.
Section 3.06 Opinions as to Trust Estate.
On or before ___________ in each calendar year, beginning with the
first calendar year commencing after the Closing Date, the Issuer shall furnish
to the Trustee an Opinion of Independent Counsel reasonably satisfactory in
form and substance to the Trustee either stating that, in the opinion of such
counsel, such action has been taken as is necessary to maintain the lien and
security interest created by this Indenture and reciting the details of such
action or stating that in the opinion of such counsel no such action is
necessary to maintain such lien and security interest. Such Opinion of
Independent Counsel shall also describe all such action, if any, that will, in
the opinion of such counsel, be required to be taken to maintain the lien and
security interest of this Indenture with respect to the Trust Estate until
____________ in the following calendar year.
Section 3.07 Performance of Obligations; Servicing Agreement.
(a) The Issuer shall not take any action and will use its
Best Efforts not to permit any action to be taken by others that would
release any Person from any of such Person's covenants or obligations
under any of the Mortgage Files or under any instrument included in
the Trust Estate, or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any of the Mortgage Files, except as
expressly provided as permitted in this Indenture, the Servicing
Agreement or such document included in the Mortgage File or other
instrument or unless such action will not adversely affect the
interests of the Holders of the Bonds.
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(b) The Issuer shall monitor the performance of the
Servicer under the Servicing Agreement, and shall use its Best Efforts
to cause the Servicer duly and punctually to perform all of its duties
and obligations thereunder. Upon the occurrence of an event of default
of which an Authorized Officer has actual knowledge under the
Servicing Agreement, the Issuer shall promptly notify the Trustee
thereof, and shall specify in such notice the action the Issuer is
taking in respect of such event of default.
(c) Upon any termination of the Servicer's rights and
powers pursuant to the Servicing Agreement, the rights and powers of
the Servicer with respect to the Mortgage Loans shall vest in the
Trustee, and the Trustee shall be the successor in all respects to the
Servicer in its capacity as Servicer with respect to such Mortgage
Loans under the Servicing Agreement, until the Trustee shall have
appointed, with the consent of the Issuer and the Rating Agency, a new
servicer to serve as successor to the Servicer under the Servicing
Agreement. Upon appointment of a successor Servicer, the Trustee, the
Issuer and such Servicer shall enter into a Servicing Agreement in a
form substantially similar to the Servicing Agreement. In connection
with any such appointment, the Trustee may make such arrangements for
the compensation of such successor as it and such successor shall
agree, but in no event shall such compensation of the successor
Servicer (including the Trustee) be in excess of that payable to the
original Servicer under the Servicing Agreement without the consent of
the Rating Agency.
(d) Upon any termination of the Servicer's rights and
powers pursuant to the Servicing Agreement, the Trustee shall promptly
notify the Rating Agency. As soon as any successor Servicer is
appointed, the Trustee shall notify the Rating Agency, specifying in
such notice the name and address of such successor Servicer.
Section 3.08 Investment Company Act.
The Issuer shall at all times conduct its operations so as not to be
subject to, or shall comply with, the requirements of the Investment Company
Act of 1940, as amended (or any successor statute), and the rules and
regulations thereunder.
Section 3.09 Negative Covenants.
The Issuer shall not:
(i) sell, transfer, exchange or otherwise dispose of any
portion of the Trust Estate except as expressly permitted by this
Indenture or the Servicing Agreement;
(ii) claim any credit on, or make any deduction from, the
principal of, or interest on, any of the Bonds by reason of the
payment of any taxes levied or assessed upon any portion of the Trust
Estate;
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(iii) engage in any business or activity other than in
connection with, or relating to, the issuance of the Bonds pursuant to
this Indenture or amend Articles THIRD, SIXTH, SEVENTH or NINTH of the
Issuer's Certificate of Incorporation, as in effect on the Closing
Date without, in each case, the written consent of the majority of the
Holders of the Bonds (with respect to the Bond Balance of the Bonds
then Outstanding);
(iv) issue bonds under any other indenture unless such
bonds are non-recourse obligations of the Issuer;
(v) incur, assume, guaranty or agree to indemnify any
Person with respect to any indebtedness of any Person, except for such
indebtedness as may be incurred by the Issuer in connection with the
issuance of the Bonds pursuant to this Indenture or as permitted under
clause (iv) above or indebtedness that, if consisting of indebtedness
other than Bonds or indebtedness permitted under clause (iv) above,
(a) shall either be (1) subordinate to the Bonds or (2) secured by
collateral other than the Trust Estate and to which the creditor with
respect to such indebtedness has recourse only to such collateral and
not to any other assets of the Issuer and (b) shall provide that the
holder thereof may not file a petition in any bankruptcy or insolvency
proceeding with respect to the Issuer until not less than 91 days
after payment in full of all Outstanding Bonds issued pursuant to this
Indenture;
(vi) incur any indebtedness, other than the Bonds, for
which the timing or amount of the payments on such indebtedness are in
part determined by the timing or amount of payments or projected
payments on assets in the Trust Estate or that would cause the Issuer
or the Trust Estate to be treated as a "taxable mortgage pool" within
the meaning of Code Section 7701(i).
(vii) dissolve or liquidate in whole or in part;
(viii) merge or consolidate with any entity except as
provided Article SEVENTH of the Issuer's Certificate of Incorporation,
any such merger or consolidation with an Affiliate of the Issuer to be
subject to the following conditions:
(1) the surviving or resulting corporation (if
other than the Issuer) shall expressly assume by an indenture
supplemental hereto all of the Issuer's obligations hereunder;
(2) the consummation of such merger or
consolidation shall not result in the lowering of any rating
of the Outstanding Bonds by the Rating Agency;
(3) immediately after consummation of the merger
or consolidation no Default shall exist with respect to the
Bonds; and
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(4) the Issuer shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Independent
Counsel each stating that such merger or consolidation and
such supplemental indenture comply with this Article and that
all conditions precedent provided for relating to this
transaction have been complied with; or
(ix) (1) permit the validity or effectiveness of this
Indenture or any Grant to be impaired, or permit the lien of this
Indenture to be amended, hypothecated, subordinated, terminated or
discharged, or permit any Person to be released from any covenants or
obligations under this Indenture, except as may be expressly permitted
hereby, (2) permit any lien, charge, security interest, mortgage or
other encumbrance (other than the lien of this Indenture or any
Permitted Encumbrance) to be created on or extend to or otherwise
arise upon or burden the Trust Estate or any part thereof or any
interest therein or the proceeds thereof, or (3) permit the lien of
this Indenture not to constitute a valid perfected first priority
security interest in the Trust Estate.
Section 3.10 Annual Statement as to Compliance.
On or before 120 days after the end of the first fiscal year of the
Issuer that ends more than three months after the Closing Date, and each fiscal
year thereafter, the Issuer shall deliver to the Trustee a written statement,
signed by an Authorized Officer, stating that:
(1) a review of the fulfillment by the Issuer during such
year of its obligations under this Indenture has been made under such
officer's supervision; and
(2) to the best of such officer's knowledge, based on
such review, the Issuer has complied with all conditions and covenants
under this Indenture throughout such year, or, if there has been a
Default in the fulfillment of any such covenant or condition,
specifying each such Default known to such officer and the nature and
status thereof.
Section 3.11 Recording of Assignments.
Not later than 90 days after the Closing Date, at the Issuer's expense
the Trustee will cause the Assignments of the Mortgage Loans securing the Bonds
to be duly recorded in the public records in which the related Mortgage shall
have been recorded unless the Issuer provides the Trustee with an Opinion of
Counsel to the effect that such recording is not necessary to protect the
interests of the Trustee and the Bondholders in the related Mortgage Loan.
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ARTICLE IV.
SATISFACTION AND DISCHARGE
Section 4.01 Satisfaction and Discharge of Indenture.
Whenever the following conditions shall have been satisfied:
(1) either
(A) all Bonds theretofore authenticated and
delivered (other than (i) Bonds that have been destroyed, lost
or stolen and that have been replaced or paid as provided in
Section 2.07, and (ii) Bonds for whose payment money has
theretofore been deposited in trust and thereafter repaid to
the Issuer, as provided in Section 3.03) have been delivered
to the Trustee for cancellation; or
(B) all Bonds not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at the
Stated Maturity of the final installment of the
principal thereof within one year, or
(iii) are to be called for redemption
within one year under irrevocable arrangements
satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the
expense, of the Issuer,
and the Issuer, in the case of clauses (B)(i), (B)(ii) or
(B)(iii) above, has deposited or caused to be deposited with
the Trustee, in trust for such purpose, an amount sufficient
to pay and discharge the entire indebtedness on such Bonds not
theretofore delivered to the Trustee for cancellation, for
principal and interest to the Stated Maturity of their entire
unpaid principal amount or to the applicable Optional
Redemption Date, as the case may be, and in the case of Bonds
that were not paid at the Stated Maturity of their entire
unpaid principal amount, for all overdue principal and all
interest payable on such Bonds to the next succeeding Payment
Date therefor;
(2) the Issuer has paid or caused to be paid all other
sums payable hereunder by the Issuer; and
(3) the Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Independent Counsel satisfactory in form
and substance to the Trustee each
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stating that all conditions precedent herein providing for the
satisfaction and discharge of this Indenture have been complied with;
then, upon Issuer Request, this Indenture and the lien, rights and interests
created hereby and thereby shall cease to be of further effect, and the Trustee
and each co-trustee and separate trustee, if any, then acting as such hereunder
shall, at the expense of the Issuer, execute and deliver all such instruments
as may be necessary to acknowledge the satisfaction and discharge of this
Indenture and shall pay, or assign or transfer and deliver, to the Issuer or
upon Issuer Order all cash, securities and other property held by it as part of
the Trust Estate remaining after satisfaction of the conditions set forth in
clauses (1) and (2) above.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer to the Trustee under Section 6.07, the obligations of
the Trustee to the Issuer and the Holders of Bonds under Section 3.03, the
obligations of the Trustee to the Holders of Bonds under Section 4.02 and the
provisions of Section 2.07 with respect to lost, stolen, destroyed or mutilated
Bonds, registration of transfers of Bonds and rights to receive payments of
principal of and interest on the Bonds shall survive.
Section 4.02 Application of Trust Money.
All money deposited with the Trustee pursuant to Sections 3.03 and
4.01 shall be held in trust and applied by it, in accordance with the
provisions of the Bonds and this Indenture, to the payment, either directly or
through any Paying Agent, as the Trustee may determine, to the Persons entitled
thereto, of the principal and interest for whose payment such money has been
deposited with the Trustee.
ARTICLE V.
DEFAULTS AND REMEDIES
Section 5.01 Event of Default.
"Event of Default", wherever used herein, means, with respect to Bonds
issued hereunder, any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body):
(1) if the Issuer shall
(A) default in the payment when and as due of any
installment of principal of or interest on any Bond or a
failure to pay the Bonds in full on or before the Payment Date
in ________________; or
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(B) default in the payment of the Redemption
Price of any Bond that has been called for optional redemption
pursuant to Article X; and
(C) except in the case of any such default in the
payment of principal, such default or failure shall continue
for a period of two days;
(2) if the Issuer shall breach or default in the due
observance of any one or more of the covenants set forth in clauses
(i) through (ix) of Section 3.09;
(3) if the Issuer shall breach, or default in the due
observance or performance of, any other of its covenants in this
Indenture, and such Default shall continue for a period of 30 days
after there shall have been given, by registered or certified mail, to
the Issuer by the Trustee, or to the Issuer and the Trustee by the
Holders of Bonds representing at least 25% of the Bond Balance of the
Outstanding Bonds, a written notice specifying such Default and
requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder;
(4) if any representation or warranty of the Issuer made
in this Indenture or any certificate or other writing delivered
pursuant hereto or in connection herewith shall prove to be incorrect
in any material respect as of the time when the same shall have been
made and, within 30 days after there shall have been given, by
registered or certified mail, written notice thereof to the Issuer by
the Trustee, or to the Issuer and the Trustee by the Holders of Bonds
representing at least 25% of the Bond Balance of the Outstanding
Bonds, the circumstance or condition in respect of which such
representation or warranty was incorrect shall not have been
eliminated or otherwise cured;
(5) the entry of a decree or order for relief by a court
having jurisdiction in respect of the Issuer in an involuntary case
under the federal bankruptcy laws, as now or hereafter in effect, or
any other present or future federal or state bankruptcy, insolvency or
similar law, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Issuer or of
any substantial part of its property, or ordering the winding up or
liquidation of the affairs of the Issuer and the continuance of any
such decree or order unstayed and in effect for a period of 60
consecutive days; or
(6) the commencement by the Issuer of a voluntary case
under the federal bankruptcy laws, as now or hereafter in effect, or
any other present or future federal or state bankruptcy, insolvency or
similar law, or the consent by the Issuer to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Issuer or of
any substantial part of its property or the making by the Issuer of an
assignment for the benefit of creditors or the failure by the Issuer
generally to pay its debts as such debts become due or the taking of
corporate action by the Issuer in furtherance of any of the foregoing.
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Section 5.02 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default occurs and is continuing, then and in every
such case the Trustee or the Holders of Bonds representing not less than 25% of
the Bond Balance of the Outstanding Bonds may declare all the Bonds to be
immediately due and payable by a notice in writing to the Issuer (and to the
Trustee if given by Bondholders), and upon any such declaration such Bonds, in
an amount equal to the Bond Balance of such Bonds, together with accrued and
unpaid interest thereon to the date of such acceleration, shall become
immediately due and payable.
At any time after such a declaration of acceleration of maturity of
the Bonds has been made and before a judgment or decree for payment of the
money due has been obtained by the Trustee as hereinafter in this Article
provided, the Holders of Bonds representing more than 50% of the Bond Balance
of the Outstanding Bonds, by written notice to the Issuer and the Trustee, may
rescind and annul such declaration and its consequences if:
(1) the Issuer has paid or deposited with the Trustee a
sum sufficient to pay:
(A) all payments of principal of, and interest
on, all Bonds and all other amounts that would then be due
hereunder or upon such Bonds if the Event of Default giving
rise to such acceleration had not occurred; and
(B) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default, other than the nonpayment of
the principal of Bonds that have become due solely by such
acceleration, have been cured or waived as provided in Section 5.14.
No such rescission shall affect any subsequent Default or impair any
right consequent thereon.
Section 5.03 Collection of Indebtedness and Suits for Enforcement
by Trustee.
Subject to the provisions of Section 3.01 and the following sentence,
if an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Bondholders by any Proceedings the Trustee deems appropriate to protect and
enforce any such rights, whether for the specific enforcement of any covenant
or agreement in this Indenture or in aid of the exercise of any power granted
herein, or enforce any other proper remedy. Any proceedings brought by the
Trustee on behalf of the Bondholders or any Bondholder against the Issuer shall
be limited to the preservation, enforcement and foreclosure of the liens,
assignments, rights and security interests under the Indenture and no
attachment, execution or other unit or process shall be sought, issued or
levied upon any assets,
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properties or funds of the Issuer, other than the Trust Estate relative to the
Bonds in respect of which such Event of Default has occurred. If there is a
foreclosure of any such liens, assignments, rights and security interests under
this Indenture, by private power of sale or otherwise, no judgment for any
deficiency upon the indebtedness represented by the Bonds may be sought or
obtained by the Trustee or any Bondholder against the Issuer. The Trustee
shall be entitled to recover the costs and expenses expended by it pursuant to
this Section 5.03 including reasonable compensation, expenses, disburse
advances of the Trustee, its agents and counsel.
Section 5.04 Remedies.
If an Event of Default shall have occurred and be continuing and the
Bonds have been declared due and payable and such declaration and its
consequences have not been rescinded and annulled, the Trustee (subject to
Section 5.17, to the extent applicable) may do one or more of the following:
(a) institute Proceedings for the collection of all
amounts then payable on the Bonds, or under this Indenture, whether by
declaration or otherwise, enforce any judgment obtained, and collect
from the Issuer moneys adjudged due, subject in all cases to the
provisions of Sections 3.01 and 5.03;
(b) in accordance with Section 5.17, sell the Trust
Estate or any portion thereof or rights or interest therein, at one or
more public or private Sales called and conducted in any manner
permitted by law;
(c) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to the
Trust Estate;
(d) exercise any remedies of a secured party under the
Uniform Commercial Code and take any other appropriate action to
protect and enforce the rights and remedies of the Trustee or the
Holders of the Bonds hereunder; and
(e) refrain from selling the Trust Estate and apply all
Remittances pursuant to Section 5.07.
Section 5.05 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, composition or other judicial
Proceeding relative to the Issuer or any other obligor upon any of the Bonds or
the property of the Issuer or of such other obligor or their creditors, the
Trustee (irrespective of whether the Bonds shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of whether
the Trustee shall have made any demand on the Issuer for the payment of any
overdue principal or interest) shall be entitled and empowered, by intervention
in such Proceeding or otherwise to:
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(i) file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the Bonds and
file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and of the Bondholders allowed in
such Proceeding, and
(ii) collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, or sequestrator (or
other similar official) in any such Proceeding is hereby authorized by
each Bondholder to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly
to the Bondholders, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee
under Section 6.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Bondholder any plan
of reorganization, arrangement, adjustment or composition affecting any of the
Bonds or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Bondholder in any such Proceeding.
Section 5.06 Trustee May Enforce Claims Without Possession of
Bonds.
All rights of action and claims under this Indenture or any of the
Bonds may be prosecuted and enforced by the Trustee without the possession of
any of the Bonds or the production thereof in any Proceeding relating thereto,
and any such Proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall be for
the ratable benefit of the Holders of the Bonds in respect of which such
judgment has been recovered after payment of amounts required to be paid
pursuant to Section 5.07, Clauses First and Second.
Section 5.07 Application of Money Collected.
If the Bonds have been declared due and payable following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, any money collected by the Trustee with respect to such Bonds
pursuant to this Article or otherwise and any other monies that may then be
held or thereafter received by the Trustee as security for such Bonds shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of the entire amount due on account of principal
of, and interest on, such Bonds, upon presentation and surrender thereof:
First: To the payment of all amounts due the Trustee under
Section 6.07;
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Second: To the payment (on a pro rata basis) of amounts then
due and unpaid to the Trustee or Servicer in respect of Nonrecoverable
Advances made by the Trustee or Servicer;
Third: To the payment of amounts then due and unpaid upon the
Outstanding Bonds for interest on the Bond Balance of such Bonds
through the end of the calendar month preceding the month in which
such payment is made at the Bond Interest Rate; and
Fourth: To the payment of the Bond Balance of the Bonds,
their respective Current Bond Balances, ratably, without preference or
priority of any kind; and
Fifth: To the payment of the remainder, if any, to the Issuer
or any other Person legally entitled thereto.
Section 5.08 Limitation on Suits.
No Holder of a Bond shall have any right to institute any Proceedings,
judicial or otherwise, with respect to this Indenture, or for the appointment
of a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to
the Trustee of a continuing Event of Default;
(2) the Holders of Bonds representing not less than 25%
of the Bond Balance of the Outstanding Bonds shall have made written
request to the Trustee to institute Proceedings in respect of such
Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
indemnity in full against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any
such Proceeding; and
(5) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the Holders
of Bonds representing more than 50% of the Bond Balance of the
Outstanding Bonds;
it being understood and intended that no one or more Holders of Bonds shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Bonds or to obtain or to seek to obtain priority or preference
over any other Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all the
Holders of Bonds.
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In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Holders of Bonds, each
representing less than 50% of the Bond Balances of the Outstanding Bonds, the
Trustee in its sole discretion may determine what action, if any, shall be
taken notwithstanding any other provision herein to the contrary.
Section 5.09 Unconditional Rights of Bondholders to Receive
Principal and Interest.
Subject to the provisions in this Indenture (including Sections 3.01
and 5.03) limiting the right to recover amounts due on a Bond to recovery from
amounts in the Trust Estate, the Holder of any Bond shall have the right, to
the extent permitted by applicable law, which right is absolute and
unconditional, to receive payment of each installment of interest on such Bond
on the respective Stated Maturities of such installments of interest, to
receive payment of each installment of principal of such Bond when due (or, in
the case of any Bond called for redemption, on the date fixed for such
redemption) and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
Section 5.10 Restoration of Rights and Remedies.
If the Trustee or any Bondholder has instituted any Proceeding to
enforce any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Bondholder, then and in every such case the Issuer, the
Trustee and the Bondholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Bondholders shall continue as though no such Proceeding had been instituted.
Section 5.11 Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the Trustee or
to the Bondholders is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
Section 5.12 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Bond to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by
law to the Trustee or to the Bondholders may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the Bondholders,
as the case may be.
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Section 5.13 Control by Bondholders.
The Holders of Bonds representing more than 50% of the Bond Balance of
the Outstanding Bonds on the applicable Record Date shall have the right to
direct the time, method and place of conducting any Proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee; provided that:
(1) such direction shall not be in conflict with any rule
of law or with this Indenture;
(2) any direction to the Trustee to undertake a Sale of
the Trust Estate shall be by the Holders of Bonds representing the
percentage of the Bond Balance of the Outstanding Bonds specified in
Section 5.17(b) (1), unless Section 5.17(b) (2) is applicable; and
(3) the Trustee may take any other action deemed proper
by the Trustee that is not inconsistent with such direction; provided,
however, that, subject to Section 6.01, the Trustee need not take any
action that it determines might involve it in liability or be unjustly
prejudicial to the Bondholders not consenting.
Section 5.14 Waiver of Past Defaults.
The Holders of Bonds representing more than 50% of the Bond Balance of
the Outstanding Bonds on the applicable Record Date may on behalf of the
Holders of all the Bonds waive any past Default hereunder and its consequences,
except a Default:
(1) in the payment of any installment of principal of,
or interest on, any Bond; or
(2) in respect of a covenant or provision hereof that
under Section 9.02 cannot be modified or amended without the consent
of the Holder of each Outstanding Bond affected.
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 5.15 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Bond by
his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit
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of an undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Bondholder, or group of Bondholders,
holding in the aggregate Bonds representing more than 10% of the Bond Balance
of the Outstanding Bonds, or to any suit instituted by any Bondholder for the
enforcement of the payment of any installment of interest on any Bond on or
after the Stated Maturity thereof expressed in such Bond or for the enforcement
of the payment of any installment of principal of any Bond when due (or, in the
case of any Bond called for redemption, on or after the applicable Optional
Redemption Date).
Section 5.16 Waiver of Stay or Extension Laws.
The Issuer covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension of law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants in, or the performance of, this Indenture; and the Issuer (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
Section 5.17 Sale of Trust Estate.
(a) The power to effect any sale (a "Sale") of any
portion of the Trust Estate pursuant to Section 5.04 shall not be
exhausted by any one or more Sales as to any portion of the Trust
Estate remaining unsold, but shall continue unimpaired until the
entire Trust Estate shall have been sold or all amounts payable on the
Bonds and under this Indenture with respect thereto shall have been
paid. The Trustee may from time to time postpone any public Sale by
public announcement made at the time and place of such Sale.
(b) To the extent permitted by law, the Trustee shall not
in any private Sale sell or otherwise dispose of the Trust Estate, or
any portion thereof, unless:
(1) the Holders of Bonds representing not less
than 50% of the Bond Balance of the Bonds then Outstanding
consent to or direct the Trustee to make such Sale; or
(2) the proceeds of such Sale would be not less
than the entire amount that would be distributable to the
Holders of the Bonds, in full payment thereof in accordance
with Section 5.07, on the Payment Date next succeeding the
date of such Sale.
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The purchase by the Trustee of all or any portion of the Trust
Estate at a private Sale shall not be deemed a Sale or disposition
thereof for purposes of this Section 5.17(b).
(c) Unless the Holders of all Outstanding Bonds have
otherwise consented or directed the Trustee, at any public Sale of all
or any portion of the Trust Estate at which a minimum bid equal to or
greater than the amount described in paragraph (2) of subsection (b)
of this Section 5.17 has not been established by the Trustee and no
Person bids an amount equal to or greater than such amount, the
Trustee shall prevent such sale and bid an amount at least $1.00 more
than the highest other bid in order to preserve the Trust Estate.
(d) In connection with a Sale of all or any portion of
the Trust Estate:
(1) any Holder or Holders of Bonds may bid for
and purchase the property offered for Sale, and upon
compliance with the terms of sale may hold, retain and possess
and dispose of such property, without further accountability,
and may, in paying the purchase money therefor, deliver any
Outstanding Bonds or claims for interest thereon in lieu of
cash up to the amount that shall, upon distribution of the net
proceeds of such Sale, be payable thereon, and such Bonds, in
case the amounts so payable thereon shall be less than the
amount due thereon, shall be returned to the Holders thereof
after being appropriately stamped to show such partial
payment;
(2) the Trustee may bid for and acquire the
property offered for Sale in connection with any public Sale
thereof, and, in lieu of paying cash therefor, may make
settlement for the purchase price by crediting the gross Sale
price against the sum of (A) the amount that would be
distributable to the Holders of the Bonds as a result of such
Sale in accordance with Section 5.07 on the Payment Date next
succeeding the date of such Sale and (B) the expenses of the
Sale and of any Proceedings in connection therewith which are
reimbursable to it, without being required to produce the
Bonds in order to complete any such Sale or in order for the
net Sale price to be credited against such Bonds, and any
property so acquired by the Trustee shall be held and dealt
with by it in accordance with the provisions of this
Indenture;
(3) the Trustee shall execute and deliver an
appropriate instrument of conveyance transferring its interest
in any portion of the Trust Estate in connection with a Sale
thereof;
(4) the Trustee is hereby irrevocably appointed
the agent and attorney-in-fact of the Issuer to transfer and
convey its interest in any portion of the Trust
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Estate in connection with a Sale thereof, and to take all
action necessary to effect such Sale; and
(5) no purchaser or transferee at such a Sale
shall be bound to ascertain the Trustee's authority, inquire
into the satisfaction of any conditions precedent or see to
the application of any moneys.
(e) Notwithstanding anything in this Indenture to the
contrary, if an Event of Default specified in Section 5.01(l) is the
Event of Default, or one of the Events of Default, on the basis of
which the Bonds have been declared due and payable, then the Trustee
may, in its sole discretion, sell the Trust Estate without compliance
with this Section 5.17.
Section 5.18 Action on Bonds.
The Trustee's right to seek and recover judgment under this Indenture
shall not be affected by the seeking, obtaining or application of any other
relief under or with respect to this Indenture. Neither the lien of this
Indenture nor any rights or remedies of the Trustee or the Holders of Bonds
shall be impaired by the recovery of any judgment by the Trustee against the
Issuer or by the levy of any execution under such judgment upon any portion of
the Trust Estate.
Section 5.19 No Recourse to Other Trust Estates or Other Assets of
the Issuer.
The Trust Estate Granted to the Trustee as security for the Bonds
serves as security only for the Bonds. Holders of the Bonds shall have no
recourse against the trust estate granted as security for any other series of
bonds issued by the Issuer, and no judgment against the Issuer for any amount
due with respect to the Bonds may be enforced against either the trust estate
securing any other series or any other assets of the Issuer, nor may any
prejudgment lien or other attachment be sought against any such other trust
estate or any other assets of the Issuer.
Section 5.20 Application of the Trust Indenture Act.
Pursuant to Section 316(a) of the TIA, all provisions automatically
provided for in Section 316(a) are hereby expressly excluded.
ARTICLE VI.
THE TRUSTEE
Section 6.01 Duties of Trustee.
(a) If an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same
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degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own
affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties
that are specifically set forth in this Indenture and no others and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) 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 this Indenture. The Trustee shall, however, examine
such certificates and opinions to determine whether they conform to
the requirements of this Indenture.
(c) 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:
(1) This paragraph does not limit the effect of
subsection (b) of this Section 6.01;
(2) The Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(3) 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 Section 5.13 or 5.17 or
exercising any trust or power conferred upon the Trustee under this
Indenture.
(d) Except with respect to duties of the Trustee
prescribed by the TIA, as to which this Section 6.01(d) shall not
apply, for all purposes under this Indenture, the Trustee shall not be
deemed to have notice or knowledge of any Event of Default described
in Section 5.01(2), 5.01(5) or 5.01(6) or any Default described in
Section 5.01(3) or 5.01(4) unless a Responsible Officer assigned to
and working in the Trustee's corporate trust department has actual
knowledge thereof or unless written notice of any event that is in
fact such an Event of Default or Default is received by the Trustee at
the Corporate Trust Office, and such notice references the Bonds
generally, the Issuer, the Trust Estate or this Indenture.
(e) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its
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duties hereunder, or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it. In determining that such repayment or
indemnity is not reasonably assured to it, the Trustee must consider
not only the likelihood of repayment or indemnity by or on behalf of
the Issuer but also the likelihood of repayment or indemnity from
amounts payable to it from the Trust Estate pursuant to Sections 6.07
and 8.02(d).
(f) Every provision of this Indenture that in any way
relates to the Trustee is subject to the provisions of this Section.
(g) Notwithstanding any extinguishment of all right,
title and interest of the Issuer in and to the Trust Estate following
an Event of Default and a consequent declaration of acceleration of
the Maturity of the Bonds, whether such extinguishment occurs through
a Sale of the Trust Estate to another Person, the acquisition of the
Trust Estate by the Trustee or otherwise, the rights, powers and
duties of the Trustee with respect to the Trust Estate (or the
proceeds thereof) and the Bondholders and the rights of Bondholders
shall continue to be governed by the terms of this Indenture.
(h) The Trustee shall at all times retain possession of
the Mortgage Files in the State of California, except for those
Mortgage Files or portions thereof, released to the Servicer pursuant
to this Indenture or the Servicing Agreement.
Section 6.02 Notice of Default.
Within 90 days after the occurrence of any Default known to the
Trustee, the Trustee shall transmit by mail to all Holders of Bonds notice of
each such Default, unless such Default shall have been cured or waived;
provided, however, that except in the case of a Default of the type described
in Section 5.01(l), the Trustee shall be protected in withholding such notice
if and so long as the board of directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determine that the withholding of such notice is in the interests of the
Holders of the Bonds; and provided, further, that in the case of any Default of
the character specified in Section 5.01(3) or 5.01(4) no such notice to Holders
of the Bonds shall be given until at least 30 days after the occurrence
thereof. Concurrently with the mailing of any such notice to the Holders of
the Bonds, the Trustee shall transmit by mail a copy of such notice to the
Rating Agency.
Section 6.03 Rights of Trustee.
(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.
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(b) Before the Trustee acts or refrains from acting, it
may require an Officers' Certificate or an Opinion of Counsel
reasonably satisfactory in form and substance to the Trustee. The
Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on any such Certificate or Opinion.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith that it believes to be authorized
or within its rights or powers.
Section 6.04 Not Responsible for Recitals or Issuance of Bonds.
The recitals contained herein and in the Bonds, except the
certificates of authentication on the Bonds, shall be taken as the statements
of the Issuer, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations with respect to the Trust Estate or as to
the validity or sufficiency of this Indenture or of the Bonds. The Trustee
shall not be accountable for the use or application by the Issuer of the Bonds
or the proceeds thereof or any money paid to the Issuer or upon Issuer Order
pursuant to the provisions hereof.
Section 6.05 May Hold Bonds.
The Trustee, any Agent, or any other agent of the Issuer, in its
individual or any other capacity, may become the owner or pledgee of Bonds and,
subject to Sections 6.08 and 6.13, may otherwise deal with the Issuer or any
Affiliate of the Issuer with the same rights it would have if it were not
Trustee, Agent or such other agent.
Section 6.06 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by this Indenture or by law.
The Trustee shall be under no liability for interest on any money received by
it hereunder except as otherwise agreed with the Issuer and except to the
extent of income or other gain on investments that are obligations of the
Trustee, in its commercial capacity, and income or other gain actually received
by the Trustee on investments, which are obligations of others.
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Section 6.07 Compensation and Reimbursement.
(a) The Issuer agrees:
(1) to pay the Trustee Fee to the Trustee on a monthly
basis, such Trustee Fee to be withdrawn from the Bond Account in
accordance with the provisions hereof for all services rendered by it
hereunder (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee and its agents for, and to
hold them harmless against, any loss, liability or expense incurred
without negligence or bad faith on their part, arising out of, or in
connection with, the acceptance or administration of this trust,
including the costs and expenses of defending themselves against any
claim in connection with the exercise or performance of any of their
powers or duties hereunder, provided that:
(i) with respect to any such claim, the Trustee
shall have given the Issuer written notice thereof promptly
after the Trustee shall have knowledge thereof;
(ii) while maintaining absolute control over its
own defense, the Trustee shall cooperate and consult fully
with the Issuer in preparing such defense; and
(iii) notwithstanding anything to the contrary in
this Section 6.07(a)(3), the Issuer shall not be liable for
settlement of any such claim by the Trustee entered into
without the prior consent of the Issuer.
(b) The Issuer may remit payment for such fees and expenses to the
Trustee or, in the absence thereof, the Trustee may reimburse itself from time
to time pursuant to Section 8.02(c) hereof for payments of its fees and
expenses hereunder from moneys on deposit in the Bond Account.
(c) As security for the payment obligations of the Issuer pursuant
to the foregoing provisions of this Section 6.07, the Issuer hereby Grants to
the Trustee a lien ranking at all times senior to the lien of the Bonds with
respect to which any claim of the Trustee under this
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Section arose and senior to all other liens, if any, upon all property and
funds held or collected as part of the Trust Estate for such Bonds by the
Trustee in its capacity as such. The Trustee shall not (i) exercise or enforce
such senior lien in any manner, or (ii) institute any Proceeding against the
Issuer for any payments, reimbursements, or indemnifications to the Trustee or
to enforce such lien, in either case unless (i) the Bonds have been declared
due and payable following an Event of Default pursuant to Section 5.02, (ii)
such acceleration of Maturity and its consequences have not been rescinded and
annulled, and (iii) moneys collected by the Trustee are being applied in
accordance with Section 5.07.
(d) Subject to the last sentence of Section 6.07(c), nothing in
this Section 6.07 shall be construed to limit (except as otherwise expressly
provided in subsection (c) of this Section 6.07) the exercise by the Trustee of
any right or remedy permitted under the Indenture or otherwise in the event of
the Issuer's failure to pay the amounts due the Trustee pursuant to this
Section 6.07.
Section 6.08 Eligibility; Disqualification.
Irrespective of whether this Indenture is qualified under the TIA,
this Indenture shall always have a Trustee who satisfies the requirements of
TIA Sections 310(a)(1) and 310(a)(5). The Trustee shall always have a combined
capital and surplus as stated in Section 6.09. The Trustee shall be subject to
TIA Section 310(b).
Section 6.09 Trustee's Capital and Surplus.
The Trustee shall at all times have a combined capital and surplus of
at least $50,000,000 or shall be a member of a bank holding company system, the
aggregate combined capital and surplus of which is at least $50,000,000;
provided, however, that the Trustee's separate capital and surplus shall at all
times be at least the amount required by TIA Section 310(a)(2). If the Trustee
publishes annual reports of condition of the type described in TIA Section
310(a)(1), its combined capital and surplus for purposes of this Section 6.09
shall be as set forth in the latest such report. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
6.09 and TIA Section 310(a)(2), it shall resign immediately in the manner and
with the effect hereinafter specified in this Article.
Section 6.10 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor
Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving written
notice thereof to the Issuer. If an instrument of acceptance by a
successor Trustee shall not have been delivered to the Trustee within
30 days after the giving of such notice of resignation, the
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resigning Trustee may petition any court of competent jurisdiction for
the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders representing more than 50% of the Bond Balance of the
Outstanding Bonds, delivered to the Trustee and to the Issuer.
(d) If at any time:
(1) the Trustee shall have a conflicting interest
prohibited by Section 6.08 and shall fail to resign or
eliminate such conflicting interest in accordance with Section
6.08 after written request therefor by the Issuer or by any
Bondholder; or
(2) the Trustee shall cease to be eligible under
Section 6.09 or shall become incapable of acting or shall be
adjudged a 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, in any such case, (i) the Issuer by an
Issuer Order may remove the Trustee, and the Issuer shall join
with the Trustee in the execution, delivery and performance of
all instruments and agreements necessary or proper to appoint
a successor Trustee and to vest in such successor Trustee any
property, title, right or power deemed necessary or desirable,
subject to the other provisions of this Indenture; provided,
however, if the Issuer does not join in such appointment
within fifteen (15) days after the receipt by it of a request
to do so, or in case an event of default has occurred and is
continuing, the Trustee may petition a court of competent
jurisdiction to make such appointment, or (ii) subject to
Section 5.15, and, in the case of a conflicting interest as
described in clause (1) above, unless the Trustee's duty to
resign has been stayed as provided in TIA Section 310(b), any
Bondholder who has been a bona fide Holder of a Bond for at
least six months may, on behalf of himself and all others
similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the
Trustee for any cause, the Issuer, by an Issuer Order shall promptly
appoint a successor Trustee. If within one year after such
resignation, removal or incapability or the occurrence of such vacancy
a successor Trustee shall be appointed by Act of the Holders of Bonds
representing more than 50% of the Bond Balance of the Outstanding
Bonds delivered to the Issuer and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor
Trustee appointed by the Issuer. If no successor Trustee shall have
been so appointed by the
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Issuer or Bondholders and shall have accepted appointment in the
manner hereinafter provided, any Bondholder who has been a bona fide
Holder of a Bond for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Issuer shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor
Trustee to the Holders of Bonds. Each notice shall include the name of
the successor Trustee and the address of its Corporate Trust Office.
Section 6.11 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Issuer and the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee. Notwithstanding the foregoing, on request of
the Issuer or the successor Trustee, such retiring Trustee shall, upon payment
of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee,
and shall duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder subject nevertheless
to its lien, if any, provided for in Section 6.07. Upon request of any such
successor Trustee, the Issuer shall execute and deliver any and all instruments
for more fully and certainly vesting in and confirming to such successor
Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 6.12 Merger, Conversion, Consolidation or Succession to
Business 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 otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Bonds have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Bonds so authenticated with the same effect as
if such successor Trustee had authenticated such Bonds.
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Section 6.13 Preferential Collection of Claims Against Issuer.
The Trustee (and any co-trustee or separate trustee) shall be subject
to TIA Section 311(a), excluding any creditor relationship listed in TIA
Section 311(b), and a Trustee (and any co-trustee or separate trustee) who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated.
Section 6.14 Co-Trustees and Separate Trustees.
At any time or times, for the purpose of meeting the legal
requirements of the TIA or of any jurisdiction in which any of the Trust Estate
may at the time be located, the Issuer and the Trustee shall have power to
appoint, and, upon the written request of the Trustee or of the Holders of
Bonds representing more than 50% of the Bond Balance of the Outstanding Bonds
with respect to which a co-trustee or separate trustee is being appointed, the
Issuer shall for such purpose jointly with the Trustee in the execution,
delivery and performance of all instruments and agreements necessary or proper
to appoint, one or more Persons approved by the Trustee either to act as
co-trustee, jointly with the Trustee, of all or any part of the Trust Estate,
or to act as separate trustee of any such property, in either case with such
powers as may be provided in the instrument of appointment, and to vest in such
Person or Persons in the capacity aforesaid, any property, title, right or
power deemed necessary or desirable, subject to the other provisions of this
Section. If the Issuer does not join in such appointment within 15 days after
the receipt by it of a request to do so, or in case an Event of Default has
occurred and is continuing, the Trustee alone shall have power to make such
appointment. All fees and expenses of any co-trustee or separate trustee shall
be payable by the Issuer.
Should any written instrument from the Issuer be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right or power, any and
all such instruments shall, on request, be executed, acknowledged and delivered
by the Issuer.
Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms:
(1) The Bonds shall be authenticated and delivered and
all rights, powers, duties and obligations hereunder in respect of the
custody of securities, cash and other personal property held by, or
required to be deposited or pledged with, the Trustee hereunder, shall
be exercised, solely by the Trustee.
(2) The rights, powers, duties and obligations hereby
conferred or imposed upon the Trustee in respect of any property
covered by such appointment shall be conferred or imposed upon and
exercised or performed by the Trustee or by the Trustee and such
co-trustee or separate trustee jointly, as shall be provided in the
instrument appointing such co-trustee or separate trustee, except to
the extent that under any law of
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any jurisdiction in which any particular act is to be performed, the
Trustee shall be incompetent or unqualified to perform such act, in
which event such rights, powers, duties and obligations shall be
exercised and performed by such co-trustee or separate trustee.
(3) The Trustee at any time, by an instrument in writing
executed by it, with the concurrence of the Issuer evidenced by an
Issuer Order, may accept the resignation of or remove any co-trustee
or separate trustee appointed under this Section, and, in case an
Event of Default has occurred and is continuing, the Trustee shall
have power to accept the resignation of, or remove, any such
co-trustee or separate trustee without the concurrence of the Issuer
upon the written request of the Trustee, the Issuer shall join with
the Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any co-trustee or separate
trustee so resigned or removed may be appointed in the manner provided
in this Section.
(4) No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Trustee, or
any other such trustee hereunder.
(5) Any Act of Bondholders delivered to the Trustee shall
be deemed to have been delivered to each such co-trustee and separate
trustee.
Section 6.15 Authenticating Agents.
Upon the request of the Issuer and at the expense of the Issuer, the
Trustee shall appoint an Authenticating Agent with power to act on its behalf
and subject to its direction in the authentication and delivery of the Bonds
designated for such authentication by the Issuer and containing provisions
therein for such authentication (or with respect to which the Issuer has made
other arrangements, satisfactory to the Trustee and such Authenticating Agent,
for notation on the Bonds of the authority of an Authenticating Agent appointed
after the initial authentication and delivery of such Bonds) in connection with
transfers and exchanges under Section 2.06, as fully to all intents and
purposes as though the Authenticating Agent had been expressly authorized by
that Section to authenticate and deliver Bonds. For all purposes of this
Indenture (other than in connection with the authentication and delivery of
Bonds pursuant to Sections 2.05 and 2.11 in connection with their initial
issuance and for purposes of Section 2.07), the authentication and delivery of
Bonds by the Authenticating Agent pursuant to this Section shall be deemed to
be the authentication and delivery of Bonds "by the Trustee." Such
Authenticating Agent shall at all times be a Person that both meets the
requirements of Section 6.09 for the Trustee hereunder and has an office for
presentation of Bonds in the Borough of Manhattan, City and State of New York.
The Trustee shall initially be the Authenticating Agent and shall be the Bond
Registrar as provided in Section 2.06. The office from which the Trustee shall
perform its duties as Bond Registrar and Authenticating Agent shall be the
Corporate Trust Office. Any Authenticating Agent appointed by the Trustee
pursuant to the terms of this Section
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6.15 or pursuant to the terms of any supplemental indenture shall deliver to
the Trustee as a condition precedent to the effectiveness of such appointment
an instrument accepting the trusts, duties and responsibilities of
Authenticating Agent and of Bond Registrar or co-Bond Registrar and
indemnifying the Trustee for and holding the Trustee harmless against, any
loss, liability or expense (including reasonable attorneys' fees) incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance, administration of the trust or exercise of authority by
such Authenticating Agent, Bond Registrar or co-Bond Registrar.
Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate trust business
of any Authenticating Agent, shall be the successor of the Authenticating Agent
hereunder, if such successor corporation is otherwise eligible under this
Section, without the execution or filing of any further act on the part of the
parties hereto or the Authenticating Agent or such successor corporation.
Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and the Issuer. The Trustee may at any
time terminate the agency of any Authenticating Agent by giving written notice
of termination to such Authenticating Agent and the Issuer. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any Authenticating Agent shall cease to be eligible under this Section, the
Trustee shall promptly appoint a successor Authenticating Agent, shall give
written notice of such appointment to the Issuer and shall mail notice of such
appointment to all Holders of Bonds.
The Trustee agrees, subject to Section 6.01(e), to pay to any
Authenticating Agent from time to time reasonable compensation for its services
and the Trustee shall be entitled to be reimbursed for such payments, subject
to Section 6.07. The provisions of Sections 2.09, 6.04 and 6.05 shall be
applicable to any Authenticating Agent.
Section 6.16 Review of Mortgage Files.
The Trustee agrees, for the benefit of the Holders of the Bonds, to
review, within 90 days after the Closing Date, the Mortgage Files delivered to
it in connection with the Grant of the Original Mortgage Loans as security for
the Bonds and after completion of such review to provide a Final Certification
in the form attached hereto as Exhibit D. The Trustee's review shall be
limited to a determination that all documents referred to in the definition of
the term Mortgage Files have been delivered with respect to each such Mortgage
Loan, that all such documents have been executed, and that all such documents
relate to the Original Mortgage Loans. In performing such review the Trustee
may rely upon the purported genuineness and due execution of any such document
and on the purported genuineness of any signature thereon. If the Trustee
discovers any defect or omission in the Mortgage Files or that any document
required to be delivered to it has not been delivered or that any document so
delivered does not relate to any of the Original Mortgage Loans, it shall
promptly notify the Issuer and the Servicer of such Mortgage Loan.
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ARTICLE VII.
BONDHOLDERS' LISTS AND REPORTS
SECTION 7.01 Issuer to Furnish Trustee Names and Addresses of
Bondholders.
(a) The Issuer shall furnish or cause to be furnished to
the Trustee (i) semi-annually, not less than 45 days nor more than 60
days after the Payment Date occurring closest to six months after the
Closing Date and each Payment Date occurring at six-month intervals
thereafter, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders of Bonds, and (ii)
at such other times, as the Trustee may request in writing, within 30
days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 10 days prior to
the time such list is furnished; provided, however, that so long as
the Trustee is the Bond Registrar, no such list shall be required to
be furnished.
(b) In addition to furnishing to the Trustee the
Bondholder lists, if any, required under subsection (a), the Issuer
shall also furnish all Bondholder lists, if any, required under
Section 3.03 at the times required by said Section 3.03.
Section 7.02 Preservation of Information; Communications to
Bondholders.
(a) The Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of
Bonds contained in the most recent list, if any, furnished to the
Trustee as provided in Section 7.01 and the names and addresses of the
Holders of Bonds received by the Trustee in its capacity as Bond
Registrar. The Trustee may destroy any list furnished to it as
provided in Section 7.01 upon receipt of a new list so furnished.
(b) Bondholders may communicate pursuant to TIA Section
312(b) with other Bondholders with respect to their rights under this
Indenture or under the Bonds.
(c) The Issuer, the Trustee and the Bond Registrar shall
have the protection of TIA Section 312(c).
Section 7.03 Reports by Trustee.
(a) Within 60 days after ___________ of each year (the
"reporting date"), commencing with the year after the issuance of the
Bonds, (i) the Trustee shall mail to all Holders a brief report dated
as of such reporting date that complies with TIA Section 313(a); (ii)
the Trustee shall, to the extent not set forth in the Payment Date
Statement pursuant to Section 2.08(d), also mail to Holders of Bonds
with respect to which it has made advances, any reports with respect
to such advances that are required by TIA Section 313(b)(2); and, the
Trustee shall also mail to Holders of Bonds any reports
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required by TIA Section 313(b)(1). For purposes of the information
required to be included in any such reports pursuant to TIA Sections
313(a)(2), 313(b)(1) (if applicable), or 313(b)(2), the principal
amount of indenture securities outstanding on the date as of which
such information is provided shall be the Bond Balance of the then
Outstanding Bonds covered by the report.
(b) A copy of each report required under this Section
7.03 shall, at the time of such transmission to Holders of Bonds be
filed by the Trustee with the Commission and with each securities
exchange upon which the Bonds are listed. The Issuer will notify the
Trustee when the Bonds are listed on any securities exchange.
Section 7.04 Reports by Issuer.
The Issuer (a) shall deliver to the Trustee within 15 days after the
Issuer is required to file the same with the Commission copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules and regulations
prescribe) that the Issuer is required to file with the Commission pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and (b)
shall also comply with the other provisions of TIA Section 314(a).
ARTICLE VIII.
ACCOUNTS, PAYMENTS OF INTEREST AND PRINCIPAL, AND RELEASES
Section 8.01 Collection of Moneys.
Except as otherwise expressly provided herein, the Trustee may demand
payment or delivery of, and shall receive and collect, directly and without
intervention or assistance of any fiscal agent or other intermediary, all money
and other property payable to or receivable by the Trustee pursuant to this
Indenture. The Trustee shall hold all such money and property received by it
as part of the Trust Estate and shall apply it as provided in this Indenture.
If the Trustee shall not have received a Remittance by close of
business on any related Remittance Date, the Trustee shall, unless the Issuer
shall have made provisions satisfactory to the Trustee for delivery to the
Trustee of an amount equal to such Remittance, deliver a notice to the Issuer
and the Servicer of their failure to make such Remittance and that such
failure, if not remedied by [2:00 p.m. Eastern Time] on the Business Day
immediately preceding the related Payment Date shall constitute an Event of
Default. If the Trustee shall subsequently receive any such Remittance by
[2:00 p.m. Eastern Time] on the Business Day immediately preceding the related
Payment Date, such Event of Default shall not be deemed to have occurred.
Notwithstanding any other provision hereof, the Trustee shall deliver to the
Issuer or its designee or assignee any Remittance received with respect to a
Mortgage Loan after the related Remittance Date to the extent that the Issuer
previously made payment or provision for payment
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with respect to such Remittance in accordance with this Section 8.01, and any
Remittance shall not be deemed part of the Trust Estate.
Except as otherwise expressly provided in this Indenture, if,
following delivery by the Trustee of the notice described above, the Servicer
shall fail to make such Remittance, the Trustee shall deliver a second notice
to the Servicer and the Issuer by [9:00 a.m. Eastern Time] on the related
Payment Date terminating the Servicer. Thereupon, the Trustee shall make a
deposit in the Bond Account of such Remittance for such Payment Date (provided,
however, that the Trustee's responsibility to make such deposit shall be
limited to the Trustee's determination, in its sole discretion, that such
deposit if made would be recoverable) and, pursuant to Section 8.11 hereof and
Section ____ of the Servicing Agreement, assume the duties of the Servicer. In
addition, if a default occurs in any other performance required under the
Servicing Agreement or any Insurance Policy, the Trustee may, and upon the
request of the Holders of Bonds representing more than 50% of the Bond Balance
of the Outstanding Bonds shall, take such action as may be appropriate to
enforce such payment or performance including the institution and prosecution
of appropriate Proceedings. Any such action shall be without prejudice to any
right to claim a Default or Event of Default under this Indenture and to
proceed thereafter as provided in Article V.
Section 8.02 Bond Account.
(a) On or before the Closing Date, the Issuer shall
direct the Trustee in writing to open, at the Corporate Trust Office
one or more accounts that shall collectively be the "Bond Account".
The Trustee shall promptly deposit in the Bond Account (i) all
Remittances received by it from the Servicer pursuant to the Servicing
Agreement, (ii) any other funds from any deposits to be made by the
Servicer pursuant to the Servicing Agreement, (iii) any amount
required to be deposited in the Bond Account pursuant to Section 8.01,
(iv) all amounts received pursuant to Section 8.04 and (v) all other
amounts received for deposit in the Bond Account. All amounts that
are deposited from time to time in the Bond Account, and all
investments, if any, made with such moneys shall be held by the
Trustee in the Bond Account as part of the Trust Estate as herein
provided, subject to withdrawal by the Trustee for the purposes set
forth in subsections (c) and (d) of this Section 8.02, except that the
Trustee shall be entitled to all income or other gain from such
investments. All funds withdrawn from the Bond Account pursuant to
subsection (c) of this Section 8.02 for the purpose of making payments
to the Holders of Bonds shall be applied in accordance with Section
3.03.
(b) So long as no Default or Event of Default shall have
occurred and be continuing, all or a portion of the Bond Account may
be invested and reinvested by the Trustee at the Trustee's discretion
in one or more Eligible Investments bearing interest or sold at
discount. The Trust is not required to invest any portion of the Bond
Account.
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All income or other gains, if any, from investment of moneys
deposited in the Bond Account shall be withdrawn and retained by the
Trustee in the Bond Account immediately upon receipt, and any loss
resulting from such investment shall be reimbursed to the Bond Account
by the Trustee.
(c) Unless the Bonds have been declared due and payable
pursuant to Section 5.02 and moneys collected by the Trustee are being
applied in accordance with Section 5.07, amounts on deposit in the
Bond Account on any Payment Date or Optional Redemption Date shall be
withdrawn from the Bond Account, in the amounts required, for
application as follows:
on any Payment Date,
first, to the payment of any unpaid amount
due the Trustee pursuant to Section 6.07,
second, to the payment of amounts then due
and payable, in the following order of priority, to
the Trustee or Servicer in respect of Nonrecoverable
Advances made by the Trustee or Servicer,
third, to the payment of any installments of
interest then due on any Bonds,
fourth, to the payment, pro rata, of any
installments of principal then due and payable on the
then Outstanding Bonds, and
fifth, to the payment of any unpaid
surveillance fees payable by the Issuer to the
Rating Agency,
sixth, to the repayment to the Trustee of any
amounts deposited by it pursuant to Section 8.01,
each such amount being the amount thereof set forth in the applicable
Payment Date Statement.
(d) On or after each Payment Date, so long as the Trustee
shall have prepared a Payment Date Statement in respect of such
Payment Date and (i) shall have made, or, in accordance with Section
3.03, set aside from amounts in the Bond Account an amount sufficient
to make, the payment of principal of and interest on the Bonds then
required to be made as indicated in such Payment Date Statement, (ii)
shall have made any reimbursement required to be made to the Trustee
or Servicer in respect of Nonrecoverable Advances made by the Trustee
or Servicer and (iii) shall have set aside any amounts that have been
deposited in the Bond Account prior to such time that
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represent amounts that are to be used to make payments on the Bonds on
the next succeeding Payment Date, the cash balance, if any, then
remaining in the Bond Account, less the amount of Remittances due with
respect to the Mortgage Loans but not received during the prior
Collection Period, shall be withdrawn from the Bond Account by the
Trustee and shall be released from the lien of this Indenture and paid
by the Trustee to the Issuer or, upon Issuer Order, to its assignee,
subject to satisfaction of the following conditions:
(i) no Default or Event of Default shall have
occurred and be continuing;
(ii) the Issuer shall have delivered to the
Trustee an Officers' Certificate stating that all conditions
precedent to such release specified in this subsection (d)
have been satisfied; and
(iii) the Issuer shall have delivered to the
Trustee an Opinion of Counsel reasonably satisfactory in form
and substance to the Trustee to the effect that all Officers'
Certificates delivered to the Trustee in connection with such
release comply as to form with the requirements of this
subsection (d) and all conditions precedent to such release
specified in this subsection (d) have been satisfied.
Section 8.03 General Provisions Regarding the Bond Account and
Mortgage Loans.
(a) The Bond Account shall relate solely to the Bonds and
to the Mortgage Loans, Eligible Investments and other property
securing the Bonds. Funds and other property in the Bond Account
shall not be commingled with any other moneys or property of the
Issuer or any Affiliate thereof. Notwithstanding the foregoing, the
Trustee may hold any funds or other property received or held by it as
part of the Bond Account in collective accounts maintained by it in
the normal course of its business and containing funds or property
held by it for other Persons (which may include the Issuer or an
Affiliate), provided that such accounts are under the sole control of
the Trustee and the Trustee maintains adequate records indicating the
ownership of all such funds or property and the portions thereof held
for credit to the Bond Account.
(b) If any amounts are needed for disbursement from the
Bond Account and sufficient uninvested funds are not available therein
to make such disbursement, the Trustee shall cause to be sold or
otherwise converted to cash a sufficient amount of the investments in
the Bond Account.
(c) Subject to Section 6.01, the Trustee shall not in any
way be held liable by reason of any insufficiency in the Bond Account
except for losses on investments.
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(d) All investments of funds in the Bond Account and all
sales or investments held in the Bond Account shall, except as
provided below, be made by the Trustee in its discretion in Eligible
Investments.
(e) The Trustee shall, at all times while any Bonds are
Outstanding, maintain in its possession, or in the possession of an
agent whose actions with respect to such items are under the sole
control of the Trustee, all certificates or other instruments, if any,
evidencing any investment of funds in the Bond Account. The Trustee
shall relinquish possession of such items, or direct its agent to do
so, only for purposes of collecting the final payment receivable on
such investment or certificate or, in connection with the sale of any
investment held in the Bond Account, against delivery of the amount
receivable in connection with any sale.
(f) The Trustee shall not invest any part of the Trust
Estate in Eligible Investments that constitute uncertificated
securities (as defined in Section 8-102 of the Uniform Commercial
Code, as enacted in the relevant jurisdiction) or in any other
book-entry securities unless it has received an Opinion of Counsel
reasonably satisfactory in form and substance to the Trustee setting
forth, with respect to each type of security for which authority to
invest is being sought, the procedures that must be followed to
maintain the lien and security interest created by this Indenture with
respect to the Trust Estate.
Section 8.04 Releases of Defective Mortgage Loans Withdrawn by
Servicer.
(a) If any of the representations or warranties of the
Mortgage Loan Provider set forth in Sections 2(c) and 3(b) of the
Mortgage Loan Conveyance Agreement was materially incorrect or
otherwise misleading with respect to any Mortgage Loan as of the time
made, the Issuer shall cause the Mortgage Loan Provider to either (i)
within 90 days after the Issuer receives actual knowledge of such
incorrectness, eliminate or otherwise cure the circumstance or
condition in respect of which such representation or warranty was
incorrect as of the time made, or (ii) withdraw such Mortgage Loan
from the lien of this Indenture following the expiration of such
90-day period by depositing to the Bond Account an amount equal to the
actual principal balance of such Mortgage Loan, plus accrued interest
thereon (without consideration of any Monthly Advances) to the date of
deposit.
(b) If the Mortgage Loan Provider shall purchase any
Mortgage Loan it is required to purchase pursuant to the Mortgage Loan
Conveyance Agreement and remit the purchase price therefor to the
Trustee for deposit in the Bond Account on the next Servicer Reporting
Date, then the Issuer shall be deemed to have complied with all
requirements imposed upon it by this Section 8.04 with respect to such
Mortgage Loan.
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(c) The Issuer shall have the right, as to any Mortgage
Loan on which four or more payments of Monthly Payments are delinquent
or with respect to which title to the related Mortgaged Property has
been obtained (a "Defaulted Mortgage Loan"), to treat such Mortgage
Loan as having been the subject of a Full Prepayment and request the
release thereof from the lien of this Indenture pursuant to Section
8.06. In connection therewith, the Issuer shall deliver to the
Trustee for deposit in the Bond Account an amount equal to the actual
principal balance of such Mortgage Loan plus accrued interest thereon
(without consideration of any Monthly Advances) to the date of such
deposit.
Section 8.05 Reports by Trustee to Bondholders; Access to Certain
Information.
On each Payment Date, the Trustee shall deliver the written report
required by Section 2.08(d) to Bondholders of record as of the related Record
Date (including the Clearing Agency, if any). Any Bondholder that does not
receive information through the Clearing Agency or a Clearing Agency
Participant may request that Trustee reports required to be delivered under
this Indenture be mailed directly to it by written request to the Trustee
(accompanied by verification of such Bondholder's ownership interest) at the
Trustee's Corporate Trust Office.
The Trustee shall make available at its Corporate Trust Office, during
normal business hours, for review by any Bondholder or any person identified to
the Trustee as a prospective Bondholder, originals or copies of the following
items: (a) the Indenture and any amendments thereto, (b) all Payment Date
Statements delivered to the Issuer since the Closing Date, (c) any Officers'
Certificates and any Officers' Certificate of the Servicer delivered to the
Trustee since the Closing Date as described in the Indenture, (d) any
Accountants' reports delivered to the Trustee since the Closing Date as
required under the Servicing Agreement, (e) any and all modifications, waivers
and amendments of the terms of a Mortgage Loan entered into by the Servicer and
delivered to the Trustee and (f) any and all Officers' Certificates of the
Servicer and other evidence delivered to the Trustee to support the Servicer's
determination that any Advance was not or, if made, would not be recoverable.
Copies of any and all of the foregoing items will be available from the Trustee
upon request; however, the Trustee will be permitted to require payment of a
sum sufficient to cover the reasonable costs and expenses of providing such
copies.
Section 8.06 Trust Estate Mortgage Files.
(a) The Trustee may, and when required by the provisions
of this Indenture shall, execute such instruments or powers of
attorney as are prepared and delivered to it by the Servicer to
release property from the lien of this Indenture, or convey the
Trustee's interest in the same, in a manner and under circumstances
that are not inconsistent with the provisions of this Indenture. No
party relying upon an instrument executed by the Trustee as provided
in this Article VIII shall be bound to ascertain the Trustee's
authority, inquire into the satisfaction of any conditions precedent
or see to the application of any moneys.
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(b) Upon request of the Servicer accompanied by an
Officers' Certificate to the effect that a Mortgage Loan has been the
subject of a Full Prepayment (other than a prepayment pursuant to
clause (ii) of the definition of "Full Prepayment") and a release in a
form acceptable to the Trustee, the Trustee shall promptly release the
related Mortgage Files as the Servicer may request to evidence
satisfaction and discharge of such Mortgage Loan. In exchange for the
release of the Mortgage Files, the Servicer shall deliver to the
Trustee a trust receipt reasonably satisfactory to the Trustee and
signed by an officer of the Servicer. If such Mortgage Loan shall be
liquidated and the Trustee receives a certificate from the Servicer as
provided above, then, upon request of the Issuer, the Trustee shall
release the trust receipt to or upon the order of the Issuer.
(c) The Trustee shall, at such time as there are no Bonds
outstanding, release all of the Trust Estate to the Issuer (other than
any cash held for the payment of the Bonds pursuant to Section 3.03 or
4.02), subject, however, to the rights of the Trustee under Section
6.07.
Section 8.07 Amendment to Servicing Agreement.
The Trustee may, without the consent of any Holder, enter into or
consent to any amendment or supplement to the Servicing Agreement for the
purpose of increasing the obligations or duties of any party other than the
Trustee or the Holders of the Bonds. The Trustee may, in its discretion,
decline to enter into or consent to any such supplement or amendment: (i)
unless the Trustee receives an Opinion of Counsel that the position of the
Holders would not be materially adversely affected or (ii) if its own rights,
duties or immunities would be adversely affected.
Section 8.08 Delivery of the Mortgage Files Pursuant to Servicing
Agreement.
As is appropriate for the servicing or foreclosure of any Mortgage
Loan, the Trustee shall deliver to the Servicer of such Mortgage the Mortgage
Files for such Mortgage Loan upon receipt by the Trustee on or prior to the
date such release is to be made of:
(a) such Officers' Certificates as are required by the
Servicing Agreement; and
(b) a trust receipt in the form prescribed by the
Servicing Agreement, executed by the Servicer, providing that the
Servicer will hold or retain the Mortgage Files in trust for the
benefit of the Trustee and the Holders of Bonds.
Section 8.09 Records.
In order to facilitate the servicing of the Mortgage Loans by the
Servicer, the Issuer shall cause Servicer to retain certain records in
accordance with the provisions of the Servicing Agreement and this Indenture.
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Section 8.10 Servicer as Agent.
In order to facilitate the servicing of the Mortgage Loans by the
Servicer of such Mortgage Loans, the Servicer of the Mortgage Loans has been
appointed by the Issuer to retain, in accordance with the provisions of the
Servicing Agreement and this Indenture, all Remittances on such Mortgage Loans
prior to the time they are deposited into the Bond Account.
Section 8.11 Termination of Servicer.
If the Servicer materially breaches or fails to perform or observe any
obligations or conditions in the Servicing Agreement, the Trustee may terminate
the Servicer. The Trustee shall not terminate the Servicer without cause or
incur any termination fee unless such action can reasonably be expected to
benefit the Holders of the Bonds by increasing ultimate cash proceeds available
to discharge the Bonds. If the Trustee terminates the Servicer, the Trustee
shall pursuant to Section ____ of the Servicing Agreement assume the duties of
the Servicer or appoint a successor servicer acceptable to the Issuer and the
Rating Agency and meeting the requirements set forth in the Servicing
Agreement.
Section 8.12 Opinion of Counsel.
The Trustee shall be entitled to receive at least five Business Days'
notice of any action to be taken pursuant to Section 8.06(a) (other than in
connection with releases of Mortgage Loans that were the subject of a Full
Prepayment of the type described in clause (i) of the definition of the term
"Full Prepayment") and 8.07, accompanied by copies of any instruments involved,
and the Trustee shall be entitled to receive an Opinion of Independent Counsel,
in form and substance reasonably satisfactory to the Trustee, stating the legal
effect of any such action, outlining the steps required to complete the same,
and concluding that all conditions precedent to the taking of such action have
been complied with. Counsel rendering any such opinion may rely, without
independent investigation, on the accuracy and validity of any certificate or
other instrument delivered to the Trustee in connection with any such action.
Section 8.13 Appointment of Custodians.
The Trustee may, at no additional cost to the Issuer, with the consent
of the Issuer, appoint one or more Custodians to hold all or a portion of the
Mortgage Files as agent for the Trustee. Each Custodian shall (i) be a
financial institution supervised and regulated by the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, the Office of
Thrift Supervision, or the Federal Deposit Insurance Corporation; (ii) have
combined capital and surplus of at least $10,000,000; (iii) be equipped with
secure, fireproof storage facilities, and have adequate controls on access to
assure the safety and security of the Mortgage Files; (iv) utilize in its
custodial function employees who are knowledgeable in the handling of mortgage
documents and of the functions of a mortgage document custodian; and (v)
satisfy any other reasonable requirements that the Issuer may from time to time
deem necessary to protect the
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interests of Bondholders in the Mortgage Files. Each Custodian shall be
subject to the same obligations and standard of care as would be imposed on the
Trustee hereunder assuming the Trustee retained the Mortgage Files directly.
The appointment of one or more Custodians shall not relieve the Trustee from
any of its obligations hereunder, and the Trustee shall remain responsible for
all acts and omissions of any Custodian. If the Servicer is appointed as a
Custodian in accordance with this Section 8.13, it shall fulfill its servicing
and custodial duties and obligations through separate departments and, if it
maintains a trust department, shall fulfill its custodial duties and
obligations through such trust department.
ARTICLE IX.
SUPPLEMENTAL INDENTURES
Section 9.01 Supplemental Indentures Without Consent of
Bondholders.
Without the consent of the Holders of any Bonds, the Issuer and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(1) to correct or amplify the description of any property
at any time subject to the lien of this Indenture, or better to
assure, convey and confirm unto the Trustee any property subject or
required to be subjected to the lien of this Indenture, or to subject
to the lien of this Indenture additional property;
(2) to add to the conditions, limitations and
restrictions on the authorized amount, terms and purposes of the
issuance, authentication and delivery of any Bonds, as herein set
forth, additional conditions, limitations and restrictions thereafter
to be observed;
(3) to evidence the succession of another Person to the
Issuer, and the assumption by any such successor of the covenants of
the Issuer herein and in the Bonds contained;
(4) to add to the covenants of the Issuer, for the
benefit of the Holders of all Bonds or to surrender any right or power
herein conferred upon the Issuer;
(5) to cure any ambiguity, to correct or supplement any
provision herein that may be defective or inconsistent with any other
provision herein, or to amend any other provisions with respect to
matters or questions arising under this Indenture, which shall not be
inconsistent with the provisions of this Indenture, provided that such
action shall not adversely affect in any material respect the
interests of the Holders of the Bonds; and provided, further, that the
amendment shall not be deemed to adversely affect in any material
respect the interests of the Holders of the Bonds if the Person
requesting the
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amendment obtains a letter from the Rating Agency that the amendment
would not result in the downgrading or withdrawal of the ratings then
assigned to the Bonds;
(6) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted, and to add to this Indenture such
other provisions as may be expressly required by the TIA.
Section 9.02 Supplemental Indentures With Consent of Bondholders.
With the consent of the Holders of Bonds representing not less than
two-thirds of the Bond Balance of all Outstanding Bonds by Act of said Holders
delivered to the Issuer and the Trustee, the Issuer and the Trustee may enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Bonds under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Bond affected thereby:
(1) change the Stated Maturity of the final installment
of the principal of, or any installment of interest on, the Bonds or
reduce the principal amount thereof, the Bond Interest Rate thereon or
the Redemption Price with respect thereto, change the earliest date on
which any Bond may be redeemed at the option of the Issuer, change any
place of payment where, or the coin or currency in which, any Bond or
any interest thereon is payable, or impair the right to institute suit
for the enforcement of the payment of any installment of interest due
on any Bond on or after the Stated Maturity thereof or for the
enforcement of the payment of the entire remaining unpaid principal
amount of any Bond on or after the Stated Maturity of the final
installment of the principal thereof (or, in the case of redemption,
on or after the applicable Optional Redemption Date);
(2) reduce the percentage of the Bond Balance of the
Outstanding Bonds, the consent of the Holders of which is required for
any such supplemental indenture, or the consent of the Holders of
which is required for any waiver of compliance with provisions of this
Indenture or Defaults hereunder and their consequences provided for in
this Indenture;
(3) modify any of the provisions of this Section, Section
5.13 or Section 5.17(b), except to increase any percentage specified
therein or to provide that certain other provisions of this Indenture
cannot be modified or waived without the consent of the Holder of each
Outstanding Bond affected thereby;
(4) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
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(5) permit the creation of any lien other than the lien
of this Indenture with respect to any part of the Trust Estate (except
for Permitted Encumbrances) or terminate the lien of this Indenture on
any property at any time subject hereto or deprive the Holder of any
Bond of the security afforded by the lien of this Indenture;
(6) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the Debt Service
Requirement for any Payment Date (including the calculation of any of
the individual components of such Debt Service Requirement) or to
affect rights of the Holders of the Bonds to the benefits of any
provisions for the mandatory redemption of Bonds contained herein; or
(7) incur any indebtedness, other than the Bonds, for
which the timing or amount of the payments on such indebtedness are in
part determined by the timing or amount of payments or projected
payments on assets in the Trust Estate or that would cause the Issuer
or the Trust Estate to be treated as a "taxable mortgage pool" within
the meaning of Code Section 7701(i).
The Trustee may in its discretion determine whether or not any Bonds
would be affected by any supplemental indenture and any such determination
shall be conclusive upon the Holders of all Bonds, whether theretofore or
thereafter authenticated and delivered hereunder. The Trustee shall not be
liable for any such determination made in good faith.
It shall not be necessary for any Act of Bondholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to this Section, the Trustee shall mail to the
Holders of the Bonds to which such supplemental indenture relates a notice
setting forth in general terms the substance of such supplemental indenture.
Any failure of the Trustee to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any such supplemental
indenture.
Section 9.03 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 6.01) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture that
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
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Section 9.04 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Bonds to which such supplemental indenture relates that have
theretofore been or thereafter are authenticated and delivered hereunder shall
be bound thereby.
Section 9.05 Conformity With Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the TIA as then in effect so long as this
Indenture shall then be qualified under the TIA.
Section 9.06 Reference in Bonds to Supplemental Indentures.
Bonds authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and if required by the
Trustee shall, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Issuer shall so determine,
new Bonds so modified as to conform, in the opinion of Trustee and the Issuer,
to any such supplemental indenture may be prepared and executed by the Issuer
and authenticated and delivered by the Trustee in exchange for Outstanding
Bonds.
Section 9.07 Amendments to Governing Documents.
The Trustee shall, upon Issuer Request, consent to any proposed
amendment to the Issuer's governing documents, or an amendment to or waiver of
any provision of any other document relating to the Issuer's governing
documents, such consent to be given without the necessity of obtaining the
consent of the Holders of any Bonds upon receipt by the Trustee of:
(i) an Opinion of Independent Counsel to the effect that
such amendment or waiver will not adversely affect the interests of
the Holders of the Bonds and that all conditions precedent to such
consent specified in this Section 9.07 have been satisfied;
(ii) an Officers' Certificate, to which such proposed
amendment or waiver shall be attached, stating that such attached copy
is a true copy of the proposed amendment or waiver and that all
conditions precedent to such consent specified in this Section 9.07
have been satisfied; and
(iii) written confirmation from the Rating Agency that the
implementation of the proposed amendment or waiver will not adversely
affect its rating of the Bonds.
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Notwithstanding the foregoing, the Trustee may decline to consent to a
proposed waiver or amendment that adversely affects its own rights, duties or
immunities under this Indenture or otherwise.
Nothing in this Section 9.07 shall be construed to require that any
Person obtain the consent of the Trustee to any amendment or waiver or any
provision of any document where the making of such amendment or the giving of
such waiver without obtaining the consent of the Trustee is not prohibited by
this Indenture or by the terms of the document that is the subject of the
proposed amendment or waiver.
ARTICLE X.
REDEMPTION OF BONDS
Section 10.01 Redemption.
(a) All the Bonds may be redeemed in whole, but not in
part, at the option of the Issuer, on each Optional Redemption Date at
the Redemption Price provided, however, that funds in an amount equal
to the Redemption Price must have been deposited with the Trustee
prior to the Trustee's giving notice of such redemption pursuant to
Section 10.02 or the Issuer shall have complied with the requirements
for satisfaction and discharge of the Bonds specified in Section 4.01.
If the Issuer shall elect to redeem the Bonds pursuant to this Section
10.01, it shall furnish notice of such election to the Trustee not
later than thirty (30) days prior to the Payment Date selected for
such redemption, whereupon all such Bonds shall be due and payable on
such Payment Date upon the furnishing of a notice pursuant to Section
10.02 to each Holder of such Bonds.
(b) Upon receipt of the notice from Issuer of its
election to redeem the Bonds pursuant to Section 10.01(a), the Trustee
shall prepare and deliver to the Issuer, no later than the related
Optional Redemption Date, a Payment Date Statement stating therein
that it has determined that the conditions to redemption at the option
of the Issuer have been satisfied and setting forth the amount, if
any, to be withdrawn from the Bond Account and paid to the Servicer as
reimbursement for Nonrecoverable Advances and such other information
as may be required to accomplish such redemption.
Section 10.02 Form of Redemption Notice.
Notice of redemption shall be given by the Trustee in the name of and
at the expense of the Issuer by first class mail, postage prepaid, mailed not
less than ten days prior to the Optional Redemption Date to each Holder of
Bonds to be redeemed, such Holders being determined as of the Record Date for
such Payment Date
75
<PAGE> 87
All notices of redemption shall state:
(1) the Optional Redemption Date;
(2) the Redemption Price at which the Bonds of such
Series will be redeemed,
(3) the fact of payment in full on such Bonds, the place
where such Bonds are to be surrendered for payment of the Redemption
Price (which shall be the office or agency of the Issuer to be
maintained as provided in Section 3.02), and that no interest shall
accrue on such Bond for any period after the date fixed for
redemption.
Failure to give notice of redemption, or any defect therein, to any Holder of
any Bond selected for redemption shall not impair or affect the validity of the
redemption of any other Bond.
Section 10.03 Bonds Payable on Optional Redemption.
Notice of redemption having been given as provided in Section 10.02,
the Bonds to be redeemed shall, on the applicable Optional Redemption Date,
become due and payable at the Redemption Price and (unless the Issuer shall
default in the payment of the Redemption Price) no interest shall accrue on
such Redemption Price for any period after such Optional Redemption Date.
ARTICLE XI.
MISCELLANEOUS
Section 11.01 Compliance Certificates and Opinions.
(a) Upon any application or request by the Issuer to the Trustee
to take any action under any provision of this Indenture, the Issuer shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
(b) Every certificate, opinion or letter with respect to
compliance with a condition or covenant provided for in this Indenture,
including one furnished pursuant to specific requirements of this Indenture
relating to a particular application or request (other than certificates
provided pursuant to TIA Section 314(a)(4)) shall include and shall be deemed
to include (regardless of whether specifically stated therein) the following:
76
<PAGE> 88
(1) a statement that each individual signing such
certificate, opinion or letter has read such covenant or condition and
the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate, opinion or letter are based;
(3) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each
such individual, such condition or covenant has been complied with.
Section 11.02 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of the Issuer may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless such officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous. Any
Opinion of Counsel may be based on the written opinion of other counsel, in
which event such Opinion of Counsel shall be accompanied by a copy of such
other counsel's opinion and shall include a statement to the effect that such
counsel believes that such counsel and the Trustee may reasonably rely upon the
opinion of such other counsel.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Wherever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the granting of such application or at
the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not,
77
<PAGE> 89
however, be construed to affect the Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Section 6.01(b)(2).
Whenever in this Indenture it is provided that the absence of the
occurrence and continuation of a Default or Event of Default is a condition
precedent to the taking of any action by the Trustee at the request or
direction of the Issuer, then, notwithstanding that the satisfaction of such
condition is a condition precedent to the Issuer's right to make such request
or direction, the Trustee shall be protected in acting in accordance with such
request or direction if it does not have knowledge of the occurrence and
continuation of such Default or Event of Default as provided in Section
6.01(d).
Section 11.03 Acts of Bondholders.
(a) Any request, demand, authorization, direction,
notice, consent, waiver or other action provided by this Indenture to
be given or taken by Bondholders may be embodied in and evidenced by
one or more instruments of substantially similar tenor signed by such
Bondholders in person or by an agent duly appointed in writing; and,
except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to
the Trustee, and, where it is hereby expressly required, to the
Issuer. Such instrument or instruments (and the action embodied
therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Bondholders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing
any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01) conclusive in favor of the Trustee and
the Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of
any such instrument or writing may be proved by the affidavit of a
witness of such execution or by the certificate of any notary public
or other officer authorized by law to take acknowledgments of deeds,
certifying that the individual signing such instrument or writing
acknowledged to him the execution thereof. Whenever such execution is
by an officer of a corporation or a member of a partnership on behalf
of such corporation or partnership, such certificate or affidavit
shall also constitute sufficient proof of his authority.
(c) The ownership of Bonds shall be proved by the Bond
Register.
(d) Any request, demand, authorization, direction,
notice, consent, waiver or other action by the Holder of any Bonds
shall bind the Holder of every Bond issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof, in
respect of anything done, omitted or suffered to be done by the
Trustee or the Issuer in reliance thereon, whether or not: notation
of such action is made upon such Bonds.
78
<PAGE> 90
Section 11.04 Notices, etc. to Trustee and Issuer.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Bondholders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(1) the Trustee by any Bondholder or by the Issuer shall
be sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with and received by the Trustee at its
Corporate Trust Office; or
(2) the Issuer by the Trustee or by any Bondholder shall
be sufficient for every purpose hereunder (except as provided in
Section 5.01(3) and (4)) if in writing and mailed, first-class postage
prepaid, to the Issuer addressed to it at 3731 Wilshire Boulevard, Los
Angeles, California 90010, or at any other address previously
furnished in writing to the Trustee by the Issuer.
Section 11.05 Notices and Reports to Bondholders; Waiver of
Notices.
Where this Indenture provides for notice to Bondholders of any event
or the mailing of any report to Bondholders, such notice or report shall be
sufficiently given (unless otherwise herein expressly provided) if mailed,
first-class postage prepaid, to each Bondholder affected by such event or to
whom such report is required to be mailed, at the address of such Bondholder as
it appears on the Bond Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice or the
mailing of such report. In any case where a notice or report to Bondholders is
mailed in the manner provided above, neither the failure to mail such notice or
report, nor any defect in any notice or report so mailed, to any particular
Bondholder shall affect the sufficiency of such notice or report with respect
to other Bondholders, and any notice or report that is mailed in the manner
herein provided shall be conclusively presumed to have been duly given or
provided.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Bondholders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Bondholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
79
<PAGE> 91
Section 11.06 Rules by Trustee.
The Trustee may make reasonable rules for any meeting of Bondholders.
Section 11.07 Conflict With Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another
provision hereof that is required to be included in this Indenture by any of
the provisions of the TIA, such required provision shall control.
Section 11.08 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 11.09 Successors and Assigns.
All covenants and agreements in this Indenture by the Issuer shall
bind its successors and assigns, whether so expressed or not.
Section 11.10 Separability.
In case any provision in this Indenture or in the Bonds shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.11 Benefits of Indenture.
Nothing in this Indenture or in the Bonds, expressed or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, any separate trustee or Co-trustee appointed under Section 6.14 and
the Bondholders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
Section 11.12 Legal Holidays.
In any case where the date of any Payment Date, Optional Redemption
Date or any other date on which principal of or interest on any Bond is
proposed to be paid shall not be a Business Day, then (notwithstanding any
other provision of the Bonds or this Indenture) payment need not be made on
such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the nominal date of any such Payment Date,
Optional Redemption Date or other date for the payment of principal of or
interest on any Bond and no interest shall accrue for the period from and after
any such nominal date, provided such payment is made in full on such next
succeeding Business Day.
80
<PAGE> 92
Section 11.13 Governing Law.
IN VIEW OF THE FACT THAT BONDHOLDERS ARE EXPECTED TO RESIDE IN MANY
STATES AND OUTSIDE THE UNITED STATES AND THE DESIRE TO ESTABLISH WITH CERTAINTY
THAT THIS INDENTURE WILL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAW OF A STATE HAVING A WELL-DEVELOPED BODY OF COMMERCIAL
AND FINANCIAL LAW RELEVANT TO TRANSACTIONS OF THE TYPE CONTEMPLATED HEREIN,
THIS INDENTURE AND EACH BOND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF [CALIFORNIA] APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED THEREIN.
Section 11.14 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 11.15 Recording of Indenture.
This Indenture is subject to recording in any appropriate public
recording offices, such recording to be effected by the Issuer and at its
expense in compliance with any Opinion of Counsel delivered pursuant to Section
2.11(c) or 3.06.
Section 11.16 Issuer Obligation.
No recourse may be taken, directly or indirectly, against any
organizer, the Issuer or the Trustee or of any predecessor or successor of the
Issuer or the Trustee with respect to the Issuer's obligations with respect to
the Bonds or the obligations of the Issuer or the Trustee under this Indenture
or any certificate or other writing delivered in connection herewith or
therewith.
Section 11.17 Inspection.
The Issuer agrees that, on reasonable prior notice, it will permit any
representative of the Trustee, during the Issuer's normal business hours, to
examine all of books of account, records, reports and other papers of the
Issuer, to make copies and extracts therefrom, to cause such books to be
audited by Independent Accountants selected by the Trustee, and to discuss its
affairs, finances and accounts with its officers, employees and Independent
Accountants (and by this provision the Issuer hereby authorizes its Accountants
to discuss with such representatives such affairs, finances and accounts), all
at such reasonable times and as often as may be reasonably requested. Any
expense incident to the exercise by the Trustee of any right under this Section
11.17 shall be borne by the Issuer.
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<PAGE> 93
Section 11.18 Usury.
The amount of interest payable or paid on any Bond under the terms of
this Indenture shall be limited to an amount that shall not exceed the maximum
nonusurious rate of interest allowed by the applicable laws of the United
States or the State of California (whichever shall permit the higher rate),
that could lawfully be contracted for, charged or received (the "Highest Lawful
Rate"). In the event any payment of interest on any Bond exceeds the Highest
Lawful Rate, the Issuer stipulates that such excess amount will be deemed to
have been paid as a result of an error on the part of both the Trustee, acting
on behalf of the Holder of such Bond, and the Issuer, and the Holder receiving
such excess payment shall promptly, upon discovery of such error or upon notice
thereof from the Issuer or the Trustee, refund the amount of such excess or, at
the option of the Trustee, apply the excess to the payment of principal of such
Bond, if any, remaining unpaid. In addition, all sums paid or agreed to be
paid to the Trustee for the benefit of Holders of Bonds for the use,
forbearance or detention of money shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
such Bonds.
*****
[SIGNATURES TO FOLLOW]
82
<PAGE> 94
IN WITNESS WHEREOF, the Issuer and the Trustee and the have caused
this Indenture to be duly executed by their respective officers thereunto duly
authorized, all as of the day and year first above written.
AAMES CAPITAL ACCEPTANCE CORP.
By:
----------------------------------------
Name:
Title:
{Notarized}
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:
----------------------------------------
Name:
Title:
{Notarized}
<PAGE> 95
SCHEDULE A
MORTGAGE LOAN SCHEDULE
<PAGE> 96
EXHIBIT A
FORM OF BOND
<PAGE> 97
[SPECIMEN]
Series 199__-__/Facing Page 1
UNLESS THIS BOND 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 BOND ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUIRED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
THIS BOND IS A NON-RECOURSE OBLIGATION OF THE ISSUER, AND IS LIMITED
IN RIGHT OF PAYMENT TO AMOUNTS AVAILABLE FROM THE TRUST ESTATE AS PROVIDED IN
THE INDENTURE REFERRED TO ON THE REVERSE HEREOF, AND THE ISSUER IS NOT
OTHERWISE LIABLE FOR PAYMENTS ON THIS BOND.
THIS BOND IS A GLOBAL BOND REPRESENTING THE OWNERSHIP OF THE ENTIRE
CLASS OF SECURITIES REFERRED TO BELOW. REGISTRATION OF ANY TRANSFER OF
OWNERSHIP OF THIS BOND MAY BE MADE ONLY IN WHOLE AND ONLY TO AN ENTITY THAT IS
A "CLEARING CORPORATION" AS DEFINED IN SECTION 8-102(3) OF THE UNIFORM
COMMERCIAL CODE AS IN EFFECT IN THE STATE OF NEW YORK.
AAMES CAPITAL COMMERCIAL CORP.
ASSET-BACKED BONDS
SERIES 199__-__
DUE: ____________ __, ____
ACCRUAL DATE: ____________ __, 199__
ISSUE DATE: ____________ __, 199__
Bond Interest Rate ____%
$___________________ CUSIP NO. ___________
CERTIFICATE NUMBER 001
AAMES CAPITAL COMMERCIAL CORP., a corporation duly organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received hereby promises to pay to CEDE & CO. or
registered assigns, solely from proceeds of the Trust Estate as provided in the
Indenture, the principal sum of _____________________________
<PAGE> 98
[SPECIMEN]
Series 199__-__/Facing Page 2
($__________) and interest on the unpaid principal amount thereof in monthly
installments on the ____________ day of each month or, if such day is not a
Business Day, on the next succeeding Business Day (each a "Payment Date"),
commencing in _____________ and ending on or before _________________ (the
"Stated Maturity" of such final installment of principal), each such
installment to be in the amount of (i) this Bond's entitlement from the Bond
Principal Payment Amount on the related Payment Date, and (ii) interest
(computed on the basis of a 360-day year of twelve 30-day months) accrued at
the per annum rate of ____% during the related Interest Accrual Period on the
Current Bond Balance, as of the Determination Date immediately following such
Interest Accrual Period.
Capitalized terms used in this Bond shall bear the same meaning as
ascribed thereto in the Indenture referred to on the reverse hereof.
This Bond is a non-recourse obligation of the Issuer. Principal of
and interest on this Bond are due and payable out of Available Funds on each
Payment Date as described in the Indenture. No amounts shall be due or payable
from the Issuer on any Payment Date except out of Available Funds, as described
more fully on the reverse hereof.
The principal of, and interest on, this Bond are payable in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the
Issuer with respect to this Bond shall be applied as set forth in the
Indenture. No interest shall accrue or be payable on any installment of
principal or interest which is not paid when and as due, except as provided in
the Indenture referred to on the reverse hereof.
Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Bond shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
<PAGE> 99
[SPECIMEN]
Series 199__-__/Facing Page 3
IN WITNESS WHEREOF, AAMES CAPITAL ACCEPTANCE CORP. has caused this
Bond to be duly executed this ____ day of ________, 199__.
AAMES CAPITAL ACCEPTANCE CORP.
By:
------------------------------------
Name:
Title:
Attest:
By:
--------------------------------------
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Bonds referred to in the within-mentioned Indenture.
BANKERS TRUST OF CALIFORNIA, N.A., as Trustee
By:
----------------------------------------------
<PAGE> 100
[SPECIMEN]
Series 199__-__/Reverse Page 1
This Bond is one of a duly authorized issue of non-recourse Bonds of
the Issuer, designated as its Asset-Backed Bonds, Series 199__-__ (herein
called the "Bonds"), issued or to be issued under the Issuer's Indenture dated
as of ________ __, 199__, (herein called the "Indenture") between the Issuer
and Bankers Trust Company of California, N.A., as trustee (the "Trustee", which
term includes any successor Trustee under the Indenture), to which Indenture
reference is hereby made for a statement of the respective rights thereunder of
the Issuer, the Trustee, and the Holders of the Bonds and the terms upon which
the Bonds are, and are to be, authenticated and delivered.
All terms used in this Bond which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
This Bond does not purport to summarize the Indenture and reference
should be made to the Indenture for the interests, rights and limitations of
rights, benefits, obligations and duties of the Holders of the Bonds
thereunder, and the rights, duties and immunities of the Trustee.
Payments of interest and principal, if any, on the Bonds will be made
on each Payment Date, commencing in ___________ 199__ out of Available Funds on
such Payment Date in the manner and in accordance with the priorities provided
in the Indenture to the Holders of record on the Record Date preceding such
Payment Date. The "Interest Accrual Period" with respect to a Payment Date is
the one month period ending on the last day of the month preceding each Payment
Date.
The entire unpaid principal amount of the Bonds shall be due and
payable, if not then previously paid, on the Stated Maturity.
The Bonds are non-recourse obligations of the Issuer, as described in
the Indenture. The Issuer shall not be liable upon the indebtedness evidenced
by the Bonds except to the extent of all of the Trust Estate which constitutes
security for the payment of the Bonds. All payments of principal of and
interest on the Bonds shall be made only from Available Funds on each Payment
Date and the Trust Estate granted as security for the Bonds. Each Holder
hereof, by its acceptance of this Bond, agrees that it will have recourse
solely against such Trust Estate for payments on the Bonds and that (i) the
Issuer shall not otherwise be liable for any amounts payable under the Bonds
and (ii) neither the Issuer nor any of its agents, officers, directors,
employees or successors or assigns shall be liable for any amounts payable, or
performance due, under this Bond or the Indenture (except for amounts payable
solely from such Trust Estate).
If an Event of Default as defined in the Indenture shall occur and be
continuing, the Bonds may become or be declared due and payable in the manner
and with the effect provided in the Indenture. Following the acceleration of
the maturity of the Bonds, all amounts collected as proceeds of the Trust
Estate will be applied as described in the Indenture.
<PAGE> 101
[SPECIMEN]
Series 199__-__/Reverse Page 2
The Bonds are not prepayable or redeemable at the option or direction
of the Issuer except that the Bonds are subject to redemption in whole, but not
in part, at the option of the Issuer on any Payment Date on or after the
Payment Date on which the Bond Balance is less than ___% of the initial Bond
Balance. Any such redemption at the option of the Issuer shall be at a price
equal to 100% of the Current Bond Balance of the Bond to be so redeemed,
together with accrued interest and unpaid interest on such amount through the
last day of the month preceding the month in which such optional redemption
occurs.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Bond may be registered on the Bond
Register of the Issuer, upon surrender of this Bond for registration of
transfer at the office or agency designated by the Issuer pursuant to the
Indenture, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Trustee duly executed by the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Bonds of
authorized denominations and in the same aggregate initial principal amount,
will be issued to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this
Bond, the Issuer, the Trustee and any agent of the Issuer or the Trustee may
treat the Person in whose name this Bond is registered (i) on any Record Date,
for purposes of making payments, and (ii) on any other date for any other
purpose, as the owner hereof, whether or not this Bond be overdue, and neither
the Issuer, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Bonds under the Indenture at any
time by the Issuer with the consent of the majority of the Holders of the Bonds
(with respect to the Bond Balance of all Bonds at the time Outstanding). The
Indenture also contains similar provisions permitting the majority of the
Holders of Bonds (with respect to the Bond Balance of the Bonds at the time
Outstanding) on behalf of the Holders of all the Bonds, to waive compliance by
the Issuer with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder, at the time of the giving thereof, of this Bond (or any one or more
Predecessor Bonds) shall be conclusive and binding upon such Holder and upon
all future holders of this Bond and of any Bond issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent or waiver is made upon this Bond. The Indenture also
permits the Trustee to amend or waive certain terms and conditions set forth in
the Indenture without the consent of the Holders of the Bonds.
The Bonds are "Book Entry Bonds" which will be available to investors
only through the book entry facilities of The Depository Trust Company, and
Definitive Bonds will be available only under certain limited circumstances as
described in the Indenture.
<PAGE> 102
[SPECIMEN]
Series 199__-__/Reverse Page 3
AS PROVIDED IN THE INDENTURE, THIS BOND AND THE INDENTURE CREATING THE
BONDS SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE
STATE OF [CALIFORNIA] APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
THEREIN.
<PAGE> 103
[SPECIMEN]
Series 199__-__/Reverse Page 4
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as tenants
in common
UNIF GIFT MIN ACT - Custodian
----------
----------
(Cust)
(Minor)
under Uniform Gifts to Minors Act
------------------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used
though not in the above list.
FOR VALUE RECEIVED, the undersigned hereby
sell(s), assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING
NUMBER OF ASSIGNEE
-------------------------------
--------------------------------------------------
--------------------------------------------------
Please print or typewrite name and address
including postal zip code of assignee
the within Bond and all rights thereunder, hereby irrevocably constituting and
appointing _____________________________________ attorney to transfer said Bond
on the books of the Issuer, with full power of substitution in the premises.
<TABLE>
<S> <C>
Dated:
------------------- -------------------------------------------------------------------------
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the within instrument in every particular,
without alteration or enlargement or any change whatsoever
Authorized Signatory
</TABLE>
<PAGE> 104
EXHIBIT B
MORTGAGE LOAN CONVEYANCE AGREEMENT
<PAGE> 105
EXHIBIT C
LETTER OF REPRESENTATIONS TO THE DEPOSITORY TRUST COMPANY
<PAGE> 106
EXHIBIT D
TRUSTEE'S FINAL CERTIFICATION
<PAGE> 1
Exhibit 5.1
ANDREWS & KURTH L.L.P.
A REGISTERED LIMITED LIABILITY PARTNERSHIP
ATTORNEYS
1701 PENNSYLVANIA AVENUE, N.W.
OTHER OFFICES: SUITE 200
HOUSTON WASHINGTON, D.C. 20006-5805
DALLAS TELEPHONE: (202) 662-2700
LOS ANGELES TELECOPIER: (202) 662-2739
NEW YORK TELEX: 79-1208
THE WOODLANDS
LONDON
February 5, 1997
Aames Capital Corporation
Aames Capital Acceptance Corp.
3731 Wilshire Boulevard, 10th Floor
Los Angeles, California 90010
Re: Aames Capital Corporation and Aames Capital Acceptance Corp.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Aames Capital Corporation, a California
corporation ("ACC"), and Aames Capital Acceptance Corp., a Delaware corporation
("ACAC"), in connection with the authorization and proposed issuance from time
to time after the date hereof in one or more series (each, a "Series") of up to
$2,800,000,000 aggregate principal amount of asset-backed certificates (the
"Certificates") to be offered pursuant to a registration statement on Form S-3
(such registration statement, the "Registration Statement") relating to the
Certificates. The Registration Statement has been filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the "1933
Act"), and the rules and regulations promulgated thereunder. As set forth in
the Registration Statement, each Series of Certificates will be issued under
and pursuant to the conditions of a separate pooling and servicing agreement
(each, a "Pooling and Servicing Agreement") among either ACC or ACAC, as
applicable, as transferor (the "Transferor" for such Series), ACC, as servicer
(in such capacity, the "Servicer") and a trustee to be identified in the
prospectus supplement for such Series of Certificates (the "Trustee" for such
Series).
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of the organizational documents of ACC and ACAC, the form of
Pooling and Servicing Agreement incorporated by reference as an exhibit to the
Registration Statement, the forms of Certificates included in such form of
Pooling and Servicing Agreement, the prospectus (the "Prospectus") and a form
of prospectus supplement (the "Prospectus Supplement") incorporated by
reference as an exhibit to the Registration Statement, and such other records,
documents and statutes as we have deemed necessary for the purpose of this
opinion.
Based upon the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a Series of Certificates
has been duly and validly authorized by all necessary action on the part of the
related Transferor and has been duly executed and delivered by such Transferor,
the Servicer, the Trustee and any other party thereto for such Series, such
Pooling and Servicing Agreement will constitute a legal, valid and binding
agreement of such Transferor, enforceable against such Transferor, in
accordance with its terms, except as
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Aames Capital Corporation
Aames Capital Acceptance Corp.
February 5, 1997
Page 2
enforcement thereof may be limited by (a) bankruptcy, insolvency
reorganization, liquidation, receivership, moratorium or other similar laws
relating to or affecting creditors' rights generally or (b) general principles
of equity or public policy, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
2. When a Series of Certificates has been duly authorized by all
necessary action on the part of the related Transferor (subject to the terms
thereof being otherwise in compliance with applicable law at such time), duly
executed and authenticated by the Trustee for such Series in accordance with
the terms of the related Pooling and Servicing Agreement, and issued and
delivered against payment therefor as contemplated in the Registration
Statement, the Certificates of such Series will be legally and validly issued,
fully paid and nonassessable, and the holders thereof will be entitled to the
benefits of the related Pooling and Servicing Agreement.
In rendering the foregoing opinions, we express no opinion to the laws of
any jurisdiction other than the General Corporate Law of the State of Delaware,
the laws of the State of California (excluding choice of law principles
therein) and the federal laws of the United States of America.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus, without admitting that we are "experts"
within the meaning of the 1933 Act or the rules and regulations promulgated
thereunder with respect to any part of the Registration Statement, including
this exhibit.
Sincerely,
/s/ ANDREWS & KURTH L.L.P.
<PAGE> 1
Exhibit 5.2
ANDREWS & KURTH L.L.P.
A REGISTERED LIMITED LIABILITY PARTNERSHIP
OTHER OFFICES: ATTORNEYS
HOUSTON 1701 PENNSYLVANIA AVENUE, N.W. TELEPHONE: (202) 662-2700
DALLAS SUITE 200 TELECOPIER: (202) 662-2739
LOS ANGELES WASHINGTON, D.C. 20006-5805 TELEX: 79-1208
NEW YORK
THE WOODLANDS
LONDON
February 5, 1997
Aames Capital Acceptance Corp.
3731 Wilshire Boulevard, 10th Floor
Los Angeles, California 90010
Re: Aames Capital Corporation and Aames Capital Acceptance Corp.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Aames Capital Corporation, a California
corporation, and Aames Capital Acceptance Corp., a Delaware corporation (the
"Transferor"), in connection with the authorization and proposed issuance from
time to time after the date hereof in one or more series (each, a "Series") of
up to $2,800,000,000 aggregate principal amount of asset-backed bonds (the
"Bonds") to be offered pursuant to a registration statement on Form S-3 (such
registration statement, the "Registration Statement") relating to the Bonds.
The Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "1933 Act"), and
the rules and regulations promulgated thereunder. As set forth in the
Registration Statement, each Series of Bonds will be issued under and pursuant
to the conditions of an indenture (an "Indenture") between the Transferor or a
trust, partnership, limited liability company or corporation formed by the
Transferor solely for the purpose of issuing the related series of Bonds (the
Transferor or any such entity, as applicable, the "Bond Issuer") and
a trustee to be identified in the prospectus supplement for such Series of
Bonds (the "Trustee" for such Series).
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of the Transferor's organizational documents, the form of
Indenture filed as an exhibit to the Registration Statement, the form of Bonds
included in such form of Indenture, the prospectus (the "Prospectus") and such
other records, documents and statutes as we have deemed necessary for the
purpose of this opinion.
Based upon the foregoing, we are of the opinion that:
1. When an Indenture for a Series of Bonds has been duly and validly
authorized by all necessary action on the part of the related Bond Issuer and
has been duly executed and delivered by the related Bond Issuer and the Trustee
and any other party thereto for such Series, such Indenture will constitute a
legal, valid and binding agreement of the related Bond Issuer, enforceable
against the related Bond Issuer, in accordance with its terms, except as
enforcement thereof may be limited by (a) bankruptcy, insolvency
reorganization, liquidation, receivership, moratorium or other similar laws
relating to or affecting creditors' rights generally or (b) general principles
of equity or public policy, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
2. When a Series of Bonds has been duly authorized by all necessary
action on the part of the related Bond Issuer (subject to the terms thereof
being otherwise in compliance with applicable law at such time), duly executed
and authenticated by the Trustee for such Series in accordance with the terms
of the
<PAGE> 2
Aames Capital Acceptance Corp.
February 5, 1997
Page 2
related Indenture, and issued and delivered against payment therefor as
contemplated in the Registration Statement, the Bonds of such Series will be
valid and binding non-recourse obligations of the related Bond Issuer,
enforceable against the related Bond Issuer, in accordance with their terms,
except as enforcement thereof may be limited by (a) bankruptcy, insolvency
reorganization, liquidation, receivership, moratorium or other similar laws
relating to or affecting creditors' rights generally or (b) general principles
of equity or public policy, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
In rendering the foregoing opinions, we express no opinion to the laws of
any jurisdiction other than the General Corporate Law of the State of Delaware,
the laws of the State of California (excluding choice of law principles
therein) and the federal laws of the United States of America.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus, without admitting that we are "experts"
within the meaning of the 1933 Act or the rules and regulations promulgated
thereunder with respect to any part of the Registration Statement, including
this exhibit.
Sincerely,
/s/ ANDREWS & KURTH L.L.P.
<PAGE> 1
Exhibit 8.1
ANDREWS & KURTH L.L.P.
A REGISTERED LIMITED LIABILITY PARTNERSHIP
ATTORNEYS
OTHER OFFICES: 1701 PENNSYLVANIA AVENUE, N.W.
HOUSTON SUITE 200 TELEPHONE: (202) 662-2700
DALLAS WASHINGTON, D.C. 20006-5805 TELECOPIER: (202) 662-2739
LOS ANGELES TELEX: 79-1208
NEW YORK
THE WOODLANDS
LONDON
February 5, 1997
Aames Capital Corporation
Aames Capital Acceptance Corp.
3731 Wilshire Boulevard, 10th Floor
Los Angeles, California 90010
Re: Aames Capital Corporation and Aames Capital Acceptance Corp.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Aames Capital Corporation, a California
corporation ("ACC"), and Aames Capital Acceptance Corp., a Delaware corporation
("ACAC" and, together with ACC, the "Transferors"), in connection with the
authorization and proposed issuance from time to time after the date hereof in
one or more series (each, a "Series") of up to $2,800,000,000 aggregate
principal amount of asset-backed certificates (the "Certificates") and
asset-backed bonds (the "Bonds") to be offered pursuant to a registration
statement on Form S-3 (such registration statement, the "Registration
Statement") relating to the Certificates and the Bonds. The Registration
Statement has been filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act"), and the rules and
regulations promulgated thereunder. As set forth in the Registration Statement,
each Series of Certificates will be issued under and pursuant to the conditions
of a separate pooling and servicing agreement (each, a "Pooling and Servicing
Agreement") among one of the Transferors, as transferor, Aames Capital
Corporation, as servicer (in such capacity, the "Servicer") and a trustee to be
identified in the prospectus supplement for such Series of Certificates (the
"Trustee" for such Series of Certificates); each Series of Bonds will be issued
under and pursuant to the conditions of indenture (an "Indenture") between ACAC
or a trust, partnership, limited liability company or corporation formed by the
Transferor solely for the purpose of issuing the related series of Bonds (the
Transferor or any such entity, as applicable, the "Bond Issuer") and a trustee
to be identified in the prospectus supplement for such Series of Bonds (the
"Trustee" for such Series of Bonds).
We have examined the prospectus contained in the Registration Statement
(the "Prospectus") and such other documents, records and instruments as we have
deemed necessary for the purpose of this opinion.
In arriving at the opinion expressed below, we have assumed that each
Pooling and Servicing Agreement and each Indenture will be duly authorized by
all necessary corporate action on the part of the related Transferor, or Bond
Issuer, as applicable, the related Trustee, the Servicer, as applicable, and
any other party thereto for the related Series of Certificates or Bonds and
will be duly executed and delivered by the related Transferor, or Bond Issuer,
as applicable, the related Trustee, the Servicer, as applicable, and any other
party thereto substantially in the form filed as an exhibit to the Registration
Statement, that the Certificates or the Bonds of each Series will be duly
<PAGE> 2
Aames Capital Acceptance Corp.
February 5, 1997
Page 2
executed and delivered substantially in the forms set forth in the form of
Pooling and Servicing Agreement incorporated by reference as an exhibit to the
Registration Statement or the form of Indenture filed as an exhibit to the
Registration Statement and that the Certificates or the Bonds will be sold in
the manner described in the Registration Statement.
Based upon such examination and the qualifications set forth herein and in
reliance thereon, we are of the opinion that the information in the Prospectus
under the caption "Certain Federal Income Tax Consequences," to the extent it
constitutes matters of law or legal conclusions, is correct in all material
respects.
The opinion herein is based upon our interpretations of current law,
including court authority and existing final and temporary treasury
regulations, which are subject to change both prospectively and retroactively,
and upon the facts and assumptions discussed herein. This opinion letter is
limited to the matters set forth herein, and no opinions are intended to be
implied or may be inferred beyond those expressly stated herein. Our opinions
are rendered as of the date hereof and we assume no obligation to update or
supplement these opinions or any matter related to these opinions to reflect
any change of fact, circumstances or law after the date hereof. In addition,
our opinions are based on the assumption that the matter, if litigated, will be
properly presented to the applicable court. Furthermore, our opinions are not
binding on the Internal Revenue Service or a court. Our opinion represents
merely our best legal judgment on the matters presented; others may disagree
with our conclusion. There can be no assurance that the Internal Revenue
Service will not take a contrary position or that a court would agree with our
opinion if litigated. In the event any one of the statements, representations
or assumptions we have relied upon to issue this opinion is incorrect, our
opinion might be adversely affected and may not be relied upon.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Certain Federal Income Tax Consequences" in the Prospectus, without admitting
that we are "experts" within the meaning of the 1933 Act or the rules and
regulations promulgated thereunder, with respect to any part of the
Registration Statement, including this exhibit.
Sincerely,
/s/ ANDREWS & KURTH L.L.P.
