<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1998
PRE-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION NO. 333-46893 AND
POST-EFFECTIVE AMENDMENT NO. 2 TO REGISTRATION NO. 333-21219
REGISTRATION NO. 333-46893
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
AND
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-3
UNDER
THE SECURITIES ACT OF 1933
<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 95-4438859 DELAWARE 95-4619902
(STATE OF (I.R.S. EMPLOYER IDENTIFICATION (STATE OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION) NO.) INCORPORATION) NO.)
350 SOUTH GRAND AVENUE 350 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071 LOS ANGELES, CALIFORNIA 90071
213/210-5000 213/210-5270
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES) OFFICES)
BARBARA S. POLSKY, ESQ. BARBARA S. POLSKY, ESQ.
AAMES CAPITAL CORPORATION AAMES CAPITAL ACCEPTANCE CORP.
350 SOUTH GRAND AVENUE 350 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071 LOS ANGELES, CALIFORNIA 90071
213/210-5000 213/210-5000
(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>
COPIES TO:
DAVID J. JOHNSON, ESQ. OR DANIEL L. PASSAGE, ESQ.
O'MELVENY & MYERS LLP
400 SOUTH HOPE STREET
LOS ANGELES, CA 90071
213/669-6000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
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 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>
<S> <C> <C> <C> <C>
============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF
TITLE OF SHARES TO BE REGISTERED REGISTERED(1) PRICE PER UNIT(2) PRICE(2) REGISTRATION FEE(3)
- ----------------------------------------------------------------------------------------------------------------------------
Asset-Backed Certificates and Bonds..... $2,000,000,000 100% $2,000,000,000 $509,996.59
(Each Issuable in Series)
============================================================================================================================
</TABLE>
(1) Includes $271,198,000 of principal amount of Asset-Backed Certificates and
Bonds previously registered under the Registrants' Registration Statement on
Form S-3 (Registration No. 333-21219). As permitted by Rule 429 of the
Securities Act of 1933, as amended, the Prospectus filed 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) $295.00 of which was previously paid. The registration fee specified in the
table has been computed on the basis of the $1,728,802,000 of principal
amount of securities covered hereby (excluding previously registered and
unsold securities referred to in footnote 1 as to which appropriate
Registration Fees already have been paid).
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THE PROSPECTUSES
INCLUDED IN THIS REGISTRATION STATEMENT ARE COMBINED PROSPECTUSES AND RELATE TO
REGISTRATION STATEMENT NOS. 333-46893 AND 333-21219 AS PREVIOUSLY FILED BY THE
REGISTRANTS ON FORM S-3. THIS PRE-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION
STATEMENT (NO. 333-46893) ALSO CONSTITUTES POST-EFFECTIVE AMENDMENT NO. 2 TO
REGISTRATION STATEMENT NO. 333-46893 AND SUCH POST-EFFECTIVE AMENDMENT SHALL
HEREAFTER BECOME EFFECTIVE CONCURRENTLY WITH THE EFFECTIVENESS OF THIS
REGISTRATION STATEMENT AND IN ACCORDANCE WITH SECTION 8(C) OF THE SECURITIES ACT
OF 1933, AS AMENDED.
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.
PROSPECTUS
DATED FEBRUARY 25, 1998
$2,000,000,000
ASSET-BACKED CERTIFICATES AND BONDS
(EACH ISSUABLE IN SERIES)
AAMES CAPITAL CORPORATION
AAMES CAPITAL ACCEPTANCE CORP.
(INCLUDING CERTAIN LIMITED PURPOSE ENTITIES FORMED
BY AAMES CAPITAL ACCEPTANCE CORP. FROM TIME TO TIME IN
CONNECTION WITH THE ISSUANCE OF SERIES OF ASSET-BACKED BONDS)
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"), Aames Capital Acceptance
Corp. ("ACAC") or a special purpose entity formed in connection with a Series of
Certificates or Bonds (together with ACC and ACAC, 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)
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING HEREIN
UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 19 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, if specified in the
related Prospectus Supplement, (i) 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 Prospectus
Supplement. Prior to issuance, there will have been no market for the Securities
of any
2
<PAGE> 4
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.
3
<PAGE> 5
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.
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.
4
<PAGE> 6
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.
5
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY................................... 8
RISK FACTORS.............................. 19
Limited Liquidity....................... 19
Limited Assets; Limited Obligations..... 19
Nature of the Security for Mortgage
Loans................................ 19
Risks Associated with Prepayment of the
Mortgage Loans....................... 22
Environmental Statutes Affecting
Security Interests................... 23
Risks Associated With Certain
Origination Fees..................... 23
Legal Considerations.................... 23
Yield, Maturity and Prepayment
Considerations....................... 24
Limitations on Interest Payments and
Foreclosures......................... 26
Security Rating......................... 26
Book-Entry Registration................. 26
Funds Available for Redemptions at the
Request of Bondholders............... 27
THE TRUSTS AND TRUST ESTATES.............. 27
The Mortgage Loans -- General........... 28
Negative Amortization................... 30
Forward Commitments; Prefunding
Accounts; Capitalized Interest
Accounts............................. 30
USE OF PROCEEDS........................... 31
AAMES CAPITAL CORPORATION................. 31
AAMES CAPITAL ACCEPTANCE CORP............. 31
THE SERVICER.............................. 32
General................................. 32
Mortgage Loan Delinquency and
Foreclosure Experience............... 32
THE ORIGINATORS........................... 33
Underwriting Guidelines................. 33
Representations by Originators and the
Transferors.......................... 34
DESCRIPTION OF THE SECURITIES............. 35
General................................. 35
Form of Securities...................... 36
Distributions and Payments on
Securities........................... 38
Revolving Period and Amortization
Period; Transferor Interest.......... 41
Reports to Securityholders.............. 41
CREDIT ENHANCEMENT........................ 43
Subordination........................... 43
Overcollateralization Feature........... 44
Reserve Accounts........................ 44
Financial Guaranty Insurance Policies... 44
Mortgage Pool Insurance Policies........ 45
Special Hazard Insurance Policies....... 46
Bankruptcy Bonds........................ 46
Cross Support........................... 46
Other Insurance, Guarantees and Similar
Instruments or Agreements............ 47
Maintenance of Credit Enhancement....... 47
MATURITY, PREPAYMENT AND YIELD
CONSIDERATIONS.......................... 48
THE POOLING AND SERVICING AGREEMENT....... 50
Assignment of Mortgage Loans............ 50
Payments on the Mortgage Loans.......... 53
Investment of Accounts.................. 53
Permitted Investments................... 53
Monthly Advances and Compensating
Interest............................. 54
Realization upon Defaulted Mortgage
Loans................................ 55
General Servicing Procedures............ 56
Sub-Servicers........................... 56
Servicing and Other Compensation and
Payment of Expenses.................. 56
Maintenance of Hazard Insurance......... 57
Enforcement of Due-on-Sale Clauses...... 57
Voting.................................. 58
Amendments.............................. 58
Certificate Events of Default........... 59
Rights upon Certificate Events of
Default.............................. 59
Termination; Optional Termination....... 60
Evidence as to Compliance............... 60
Indemnification of Officers and
Directors of the Transferors......... 60
The Trustee............................. 61
THE INDENTURE............................. 61
General................................. 61
Modification of Indenture............... 61
Bond Events of Default.................. 62
Rights upon Bond Events of Default...... 63
List of Bondholders..................... 63
Annual Compliance Statement............. 63
Trustee's Annual Report................. 64
Satisfaction and Discharge of
Indenture............................ 64
Redemption of Bonds..................... 64
Reports by Trustee to Bondholders....... 64
Limitation on Suits..................... 64
CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS AND RELATED MATTERS............... 64
Nature of the Mortgage Loans............ 65
Foreclosure/Repossession................ 65
Rights of Redemption.................... 66
Certain Provisions of California Deeds
of Trust............................. 66
</TABLE>
6
<PAGE> 8
<TABLE>
<S> <C>
Anti-deficiency Legislation and Other
Limitations on Lenders............... 67
Enforceability of Due-on-Sale Clauses... 68
Prepayment Charges...................... 68
Applicability of Usury Laws............. 68
Soldiers' and Sailors' Civil Relief
Act.................................. 69
Environmental Considerations............ 69
CERTAIN FEDERAL INCOME TAX CONSEQUENCES... 70
Taxation of Certificates................ 70
General................................. 70
Taxation of Debt Certificates (Including
Regular Certificates)................ 70
Taxation of Certificates as to Which a
REMIC Election Has Been Made......... 76
Taxation of the REMIC and its Holders... 76
REMIC Expenses; Single Class REMICs..... 77
Taxation of the REMIC................... 77
Taxation of Holders of Residual
Certificates......................... 79
Administrative Matters.................. 81
Tax Status as a Grantor Trust........... 81
Tax Characterization of the Trust as a
Partnership; Tax Consequences to
Holders
of the Certificates Issued By a
Partnership.......................... 84
Certain Certificates Treated as
Indebtedness......................... 88
Taxation of Bonds....................... 90
Miscellaneous Tax Aspects............... 90
Tax Treatment of Foreign Investors...... 91
STATE TAX CONSIDERATIONS.................. 92
ERISA CONSIDERATIONS...................... 92
Plan Asset Regulations.................. 93
Prohibited Transaction Class
Exemption............................ 93
LEGAL INVESTMENT CONSIDERATIONS........... 95
SMMEA................................... 95
FFIEC Policy Statement.................. 95
General................................. 95
METHOD OF DISTRIBUTION.................... 96
LEGAL MATTERS............................. 96
FINANCIAL INFORMATION..................... 96
RATING.................................... 97
INDEX OF PRINCIPAL TERMS.................. 98
</TABLE>
7
<PAGE> 9
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 $2,000,000,000 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"), Aames Capital
Acceptance Corp., a Delaware corporation ("ACAC")
and a wholly owned limited purpose finance
subsidiary of AFC or a special purpose entity
formed in connection with a Series of Certificates
or Bonds (together with ACC and ACAC, the
"Transferors"). The principal offices of ACAC and
ACC are 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,
8
<PAGE> 10
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
9
<PAGE> 11
manufactured housing (which is permanently affixed
to and treated as real property under local law),
but excluding cooperatives 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
10
<PAGE> 12
Mortgage Rates borne by the Mortgage Loans and
(viii) the geographic distribution of the Mortgaged
Properties on a state-by-state basis.
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
11
<PAGE> 13
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, 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, as 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
12
<PAGE> 14
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 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
13
<PAGE> 15
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.
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
14
<PAGE> 16
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").
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. 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.
15
<PAGE> 17
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.
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 includable 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
16
<PAGE> 18
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 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 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 and
the excise tax provisions of Section 4975 of the
Code, and to determine whether a prohibited
transaction exemption granted by the Department of
Labor is 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
17
<PAGE> 19
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.
18
<PAGE> 20
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 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
19
<PAGE> 21
Mortgaged Properties has declined, could be higher than those historically
experienced by the mortgage lending industry in general.
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
20
<PAGE> 22
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 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
21
<PAGE> 23
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.
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.
RISKS ASSOCIATED WITH PREPAYMENT OF THE MORTGAGE LOANS
All of the Mortgage Loans may be prepaid in full or in part at any time,
generally upon the payment to the Servicer of a prepayment charge. 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 state and federal
income tax policies, interest rates, the availability of alternative financing
and homeowner mobility. Therefore, no assurance can be given as to the level of
prepayments that the Trust or the Trust Estate will experience. A number of
factors suggest that the prepayment behavior of the Mortgage Pool may be
significantly different from that of a pool of conventional first lien
residential mortgage loans with equivalent interest rates and maturities. One
such factor is that the principal balance of the average Mortgage Loan is
smaller than that of the average conventional first lien mortgage loan. A
smaller principal balance may be easier for a borrower to prepay than a larger
balance and, therefore, a higher prepayment rate may result for the Mortgage
Pool than for a pool of conventional first lien mortgage loans, irrespective of
the relative average interest rates and the general interest rate environment.
In addition, in order to refinance a first lien mortgage loan, the borrower must
generally repay any junior mortgage loans. However, a small principal balance
may make refinancing a Mortgage Loan at a lower interest rate less attractive to
the borrower as the perceived impact to the borrower of lower interest rates on
the size of the monthly payment may not be significant. Other factors that might
be expected to affect the prepayment rate of the Mortgage Pool include general
economic conditions, possible future changes affecting the deductibility for
federal income tax purposes of interest payments on mortgage loans, the amounts
of and interest rates on the underlying senior mortgage loans and the tendency
of borrowers to use first lien mortgage loans as long-term financing for home
purchase and junior mortgage loans as shorter-term financing for a variety of
purposes, including home improvement, education expenses, debt consolidation and
purchases of consumer durables such as automobiles. Accordingly, the Mortgage
Loans may experience higher rates of prepayment than traditional first lien
mortgage loans. See "Maturity, Prepayment and Yield Considerations".
Prepayments may result from voluntary early payments by borrowers
(including payments in connection with refinancing of any related senior
mortgage loans), sales of Mortgaged Properties subject to "due-on-sale" clauses
as to which the Servicer exercises its rights thereunder and liquidations due to
default, as well as the receipt of proceeds from hazard, credit life and
disability insurance policies. In addition, repurchases or purchases of Mortgage
Loans in a Mortgage Loan Group required or permitted to be made by the Sponsor,
the Servicer and, under certain limited circumstances, as applicable, the
Certificate Insurer under the related Pooling and Servicing Agreement or
Servicing Agreement will have the same effect on Securityholders as a prepayment
of the related Mortgage Loans. Prepayments and such repurchases and purchases
will accelerate the receipt of distributions of monthly principal on the
Certificates or the Bonds, as applicable. See "The Pooling and Servicing
Agreement -- Assignment of Mortgage Loans" and "-- Termination; Optional
Termination" and "Certain Legal Aspects of the Mortgage Loans and Related
Matters -- Enforceability of Due-on-Sale Clauses" herein. The Servicer's
practice of soliciting refinancings from existing borrowers under loans
originated by Affiliated Originators may have the effect of increasing the rate
of prepayment, due to
22
<PAGE> 24
refinancings, on the Mortgage Loans. See "Origination and Servicing of the
Mortgage Loans -- Servicing of the Mortgage Loans" herein.
ENVIRONMENTAL STATUTES AFFECTING SECURITY INTERESTS
A substantial portion of the Mortgage Loans are secured by Mortgaged
Properties located in states that may impose a statutory lien for associated
costs on property that is the subject of a clean-up action by the state on
account of hazardous wastes or hazardous substances released or disposed of on
the property. Such a lien generally will have priority over all subsequent liens
on the property, although in some states, including California, it will not have
priority over prior recorded liens, including the lien of a mortgage. In
addition, under federal environmental statutes and under the laws of many
states, including California, 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 that may lead to
contamination of a property, may be liable for the costs of cleaning up a
contaminated site. These costs, which could be substantial, could be a liability
of the Trust or the 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. Any such
liens or costs imposed in connection with a clean-up action by the state may
impede the ability of the Servicer to foreclose on or sell the related Mortgaged
Property or to obtain Net Liquidation Proceeds sufficient to repay all amounts
due on the related Mortgage Loan. Any resulting losses will be covered by funds
made available through operation of the overcollateralization or
cross-collateralization features described herein.
RISKS ASSOCIATED WITH CERTAIN ORIGINATION FEES
Fees earned on the origination of loans, placement of related insurance and
other services provided by the Sponsor and Affiliated Originators are often paid
by the borrower out of related loan proceeds. From time to time, in the ordinary
course of their businesses, originators of home equity loans have been named in
legal actions brought by mortgagors challenging the amount or method of imposing
or disclosing such fees. To date, no such action has been decided against the
Sponsor or any Affiliated Originator. If such an action against any Originator
with respect to any Mortgage Loan were successful, a court might require that
the principal balances of the related Mortgage Loans be reduced by the amount of
contested fees or charges. Any such reductions could result in substantial
Realized Losses during one or more Collection Periods, potentially requiring
accelerated distributions in reduction of the Principal Balances of Bonds or
Certificates.
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
23
<PAGE> 25
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 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.
24
<PAGE> 26
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.
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
25
<PAGE> 27
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 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
26
<PAGE> 28
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.
(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
27
<PAGE> 29
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 the earlier of the
completion of such Mortgage Pool and the end of the Prefunding Period (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
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.
28
<PAGE> 30
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 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.
29
<PAGE> 31
NEGATIVE AMORTIZATION
If so specified in the related Prospectus Supplement, a Mortgage Pool may
include Mortgage Loans that provide for the temporary or permanent deferral of
all or any portion of one or more specified Monthly Payments in respect of
interest either for an initial period from the origination date of such Mortgage
Loans or during the term of such Mortgage Loans. The provisions governing such
deferred payments of interest may provide that such deferral will result in a
decrease in the rate of amortization of such Mortgage Loan such that in any
month in which interest is so deferred, the interest due during that period (the
"Deferred Interest") would be added to the principal balance of the related
Mortgage Loan ("Negative Amortization"). Each such Mortgage Loan will provide
that all Deferred Interest will bear interest at the Mortgage Loan rate until
paid. Negative Amortization may affect the overall rate of amortization of the
Mortgage Loan and in the aggregate may effect the payment and prepayment
experience of the related Mortgage Pool.
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
permitting Forward Commitments pursuant to which the related Transferor will
agree to transfer additional Mortgage Loans into the related Mortgage Pool
during the Funding Period following the date on which the related Securities are
issued. 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 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 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
30
<PAGE> 32
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 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 Aames
Financial Corporation ("AFC"). ACC is primarily engaged in acquiring, owning,
transferring and servicing Mortgage Loans. ACC maintains its principal offices
at 350 South Grand Avenue, Los Angeles, California 90071 and its telephone
number is (213) 210-5000. 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 AFC. ACAC's principal office is located at 350 South Grand
Avenue, Los Angeles, California 90071 and its telephone number is (213)
210-5270. 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.
31
<PAGE> 33
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.
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
----------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Percentage of dollar amount of delinquent loans to loans
serviced
(period end)(1)(2)
One Month................................................. 3.9% 4.9% 4.3%
Two Months................................................ 1.6% 1.8% 1.9%
Three or More Months:
Not Foreclosed(3)...................................... 5.0% 8.0% 8.1%
Foreclosed(4).......................................... 1.5% 1.0% 1.0%
------ ------- -------
Total.................................................. 11.9% 15.7% 15.3%
====== ======= =======
Percentage of dollar amount of loans foreclosed to loans
serviced
(period end)(2)........................................... 1.2% 1.1% 1.5%
Number of loans foreclosed.................................. 159 221 560
Principal amount at time of foreclosure of foreclosed loans
(in thousands)............................................ $6,675 $14,349 $48,029
Losses on foreclosed loans included in pools of loans
securitized
(in thousands)............................................ $ 322 $ 1,342 $ 5,747
</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.
32
<PAGE> 34
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, 1997. While 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, management expects loss rates to increase as
each Sponsor originates and/or purchases a larger portion of higher credit grade
loans which generally carry higher loan to value ratios. See "The
Originators -- Underwriting Guidelines" and "Risk Factors -- Nature of the
Security for Mortgage Loans" herein.
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 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. Unless otherwise specified in the related Prospectus
Supplement, Mortgage Loans originated by Unaffiliated Originators are
reunderwritten in accordance with the applicable Aames Guidelines. In connection
with certain purchases of Mortgage Loans from Unaffiliated Originators, ACC may
decide, after evaluating a number of factors, including ACC's previous
experiences with a particular seller, the size of the loan portfolio and other
relevant information to complete such purchase without re-underwriting the
entire loan portfolio. In such cases, ACC will re-underwrite a statistically
significant sample of the loans in that portfolio to confirm compliance with the
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. 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
33
<PAGE> 35
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 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 (subject to any escrow
for repairs) 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
34
<PAGE> 36
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 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: 350 South Grand
Avenue, Los Angeles, California 90071, 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
35
<PAGE> 37
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; (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").
36
<PAGE> 38
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 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
37
<PAGE> 39
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 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
38
<PAGE> 40
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;
(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
39
<PAGE> 41
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.
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
40
<PAGE> 42
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.
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
41
<PAGE> 43
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;
(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.
42
<PAGE> 44
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 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
43
<PAGE> 45
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.
OVERCOLLATERALIZATION FEATURE
If so specified in the related Prospectus Supplement, credit enchancement
may include overcollateralization resulting from (i) the application of excess
cash on specified Distribution Dates to the reduction of the principal balances
of the Certificates and/or Bonds, as applicable, so that over time the
outstanding principal balance of the related Mortgage Loans will exceed the
aggregate of the principal balances of the Certificates and/or Bonds, as
applicable, or (ii) collateral securing the Mortgage Loans having a value at the
Closing Date in excess of the aggregate of the principal balances of the
Certificates and/or Bonds, as applicable (any such feature, an
"Overcollateralization Feature"). Any Overcollateralization Feature will be
described more fully in the related Prospectus Supplement.
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.
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.
44
<PAGE> 46
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 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.
45
<PAGE> 47
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 United States
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 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.
46
<PAGE> 48
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 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
47
<PAGE> 49
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.
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.
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
48
<PAGE> 50
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.
With respect to Mortgage Loans that provide for Negative Amortization, the
related mortgagor has the option to defer payments of interest for periods
specified in such Mortgage Loan. In the aggregate, deferral of interest may
result in reduced collections during one or more Collection Periods, although
collections in future Collection Periods may be relatively greater because (i)
interest not paid during such period will be added to the principal balance of
the related Mortgage Loan to be repaid over time and (ii) such Deferred Interest
will bear interest at the interest rate specified in the Mortgage Loan each
month until paid, increasing the aggregate amount of interest to be paid by the
related mortgagor over time. In the aggregate, Negative Amortization of Mortgage
Loans may have the effect of reducing the overall payment and repayment rate
experience of a Mortgage Pool.
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.
49
<PAGE> 51
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.
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;
50
<PAGE> 52
(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
(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
51
<PAGE> 53
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 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.
52
<PAGE> 54
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 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.
53
<PAGE> 55
(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-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
54
<PAGE> 56
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 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 subject to
certain limitations set forth in the Prospectus Supplement. Any such Mortgage
Loan so reacquired will be withdrawn from the related Mortgage Pool on a Deposit
Date at the Loan Withdrawal Amount thereof.
55
<PAGE> 57
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 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. Beginning in November 1996, the Servicer began to expand the
number of states in which it services loans directly. During fiscal 1998, the
Servicer expects to service directly substantially all loans it has originated
or purchased. 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
56
<PAGE> 58
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 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 voluntarily 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
57
<PAGE> 59
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.
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.
58
<PAGE> 60
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 levels, and for periods 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 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
59
<PAGE> 61
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 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.
60
<PAGE> 62
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 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
61
<PAGE> 63
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 interest on any Bond of such Series when and as due
and such failure continues for a period of two days; (b) a failure to pay the
Bonds of such Series in full on or before the date specified as the Final
Maturity Date in the related Prospectus Supplement; (c) 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; (d) 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 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; (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.
62
<PAGE> 64
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.
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.
63
<PAGE> 65
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.
64
<PAGE> 66
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
65
<PAGE> 67
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 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
66
<PAGE> 68
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 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 judgments, 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
67
<PAGE> 69
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 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, or voluntarily 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.
68
<PAGE> 70
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 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.
69
<PAGE> 71
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 O'Melveny & Myers LLP, 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, as amended (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 includable 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 January 27, 1994, as amended on June 11, 1996
(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
70
<PAGE> 72
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.
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. Because
interest on the Debt Certificates must in any event be accounted for under an
accrual method, applying either analysis would result in only a slight
difference in the timing of the inclusion of income of the yield on the Debt
Certificates. Nevertheless, 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
includable 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 includable
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
71
<PAGE> 73
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
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.
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
72
<PAGE> 74
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).
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
73
<PAGE> 75
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 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 includable 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 includable 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
74
<PAGE> 76
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 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. If such an election were made with respect to a Debt
Certificate with market discount, the Certificateholder would be deemed to have
made an election to include currently market discount in income with respect to
all other debt instruments having market discount that such Certificateholder
acquires during the taxable year of the election or thereafter and possibly
previously acquired instruments. Similarly, a Certificateholder that made this
election for a Certificate that is acquired at a premium would be deemed to have
made an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such Certificateholder owns or acquires.
See "-- Premium" and "-- Election to Treat all Interest as Original Issue
Discount" below. Each of these elections to accrue interest, discount and
premium with respect to a Certificate on a constant yield method or as interest
would be irrevocable.
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
75
<PAGE> 77
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 except with the approval of the IRS.
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 includable 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 includable 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
includable in income, the applicable Code provision contains no such limitation.
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 O'Melveny & Myers LLP, 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. Moreover, 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
76
<PAGE> 78
extent that the principal amount of a Mortgage Loan exceeds the value of the
property securing the Mortgage Loan, it is unclear and O'Melveny & Myers LLP 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, Section 68 of the Code provides
that the amount of itemized deductions otherwise allowable for the taxable year
for an individual whose adjusted gross income exceeds a specified amount 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 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
77
<PAGE> 79
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 yield 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.
Prohibited Transactions and Other Possible Taxes. 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.
REMICs also are subject to federal income tax at the highest corporate rate
on "net income from foreclosure property," determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of foreclosure property that is
inventory property, and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
78
<PAGE> 80
anticipated that any REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
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.
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. Further, if the holder of a Residual
Interest
79
<PAGE> 81
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 Interest
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.
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.
The Small Business Job Protection Act ("SBJPA") of 1996 has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to use
net operating losses and other allowable deductions to offset their excess
inclusion income from Residual Interest Certificates that have "significant
value" within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to Residual Interest
Certificates continuously held by thrift institutions since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
holder of a Residual Interest Certificate. First, alternative minimum taxable
income cannot be less than excess inclusions. Second, the alternative minimum
taxable income of a holder of a Residual Interest Certificate for a taxable year
cannot be less than the excess inclusions for the year. Third, the amount of any
alternative minimum tax net operating loss deduction must be computed without
regard to any excess inclusions. These rules are effective for taxable years
beginning after December 31, 1986, unless a holder of a Residual Interest
Certificate elects to have such rules apply only to taxable years beginning
after August 20, 1996.
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 Interest
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 acting on behalf of
a Disqualified Organization.
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
80
<PAGE> 82
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 O'Melveny & Myers LLP 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.
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
81
<PAGE> 83
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
O'Melveny & Myers LLP 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, Sec-
82
<PAGE> 84
tion 1272(a)(6) of the Code requires that OID be accrued based on a 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 O'Melveny & Myers LLP 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
83
<PAGE> 85
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 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 O'Melveny & Myers LLP 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 "-- Tax
Characterization of the Trust as a Partnership; Tax Consequences To Holders of
the Certificates Issued by a Partnership -- Disposition of 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. O'Melveny & Myers LLP
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 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
84
<PAGE> 86
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.
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.
85
<PAGE> 87
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 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
contribute its assets to a new partnership, and the Trust (as part of the
termination) would be treated as distributing the newly-created partnership
interests to the partners in liquidation. 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 (includable 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
86
<PAGE> 88
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 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
87
<PAGE> 89
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 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, O'Melveny & Myers LLP 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 expect 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. O'Melveny & Myers LLP 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, O'Melveny & Myers LLP 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, O'Melveny & Myers LLP will
88
<PAGE> 90
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 O'Melveny
& Myers LLP with respect to the Certificates will not be binding on the 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 O'Melveny & Myers LLP 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 would differ to the degree 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 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
89
<PAGE> 91
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, O'Melveny & Myers LLP, 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 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 "loanssecured 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 Certificates -- 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 based 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 -- 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
90
<PAGE> 92
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
(defined below). 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 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 Foreign Investor, 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. For purposes of this summary, the
term "United States holder" means a holder who is a citizen or resident of the
United States, a corporation or partnership including an entity treated as a
corporation or partnership for United States tax purposes or other entity
created or organized under the laws of the United States or any political
subdivision thereof, an estate whose income is includable in gross income for
United States federal income tax purposes regardless of its source, or a trust
if (i) a court within the United States is able to exercise primary supervision
over the administration of the trust, and (ii) one or more United States persons
have authority to control all substantial decisions of the trust. The term
"Foreign Investor" means a holder who is for United Stated federal income tax
purposes, a nonresident alien individual, a foreign corporation, a foreign
partnership or a foreign estate or trust. 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) United States withholding tax. 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
91
<PAGE> 93
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.
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 church or governmental plan that is a Qualified
Retirement Plan and exempt from taxation under Sections 401(a) and 501(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.
92
<PAGE> 94
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") describing whether or
not a Plan's assets will 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 underlying 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 then any party exercising management or discretionary control regarding
those assets may be deemed to be a Plan "fiduciary," and 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
93
<PAGE> 95
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 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, sales 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 to PTCE 83-1, the DOL has granted to certain underwriters
and/or placement agents individual prohibited transaction exemptions, commonly
referred to as the Underwriter Exemptions, PTE 97-34, which may be applicable to
avoid certain of the prohibited transaction rules of ERISA with 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 84-14, regarding investments effected by "qualified plan asset managers,"
PTCE 90-1, regarding investments by insurance company pooled separate accounts,
PTCE 91-38, regarding investments by bank collective investment funds, PTCE
95-60, regarding investments by insurance company general accounts and PTCE
96-23, regarding investments effected by "in-house asset managers." However,
even if the conditions specified in 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.
94
<PAGE> 96
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.
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.
95
<PAGE> 97
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, as amended, 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 O'Melveny & Myers LLP.
FINANCIAL INFORMATION
The Transferors have determined that their financial statements are not
material to the offering made hereby.
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
96
<PAGE> 98
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.
97
<PAGE> 99
INDEX OF PRINCIPAL TERMS
Unless the context indicates otherwise, the following capitalized terms
shall have the meanings set forth on the pages indicated below:
1933 Act...................................................................4, 96
Aames Guidelines..............................................................33
ACAC....................................................................1, 8, 31
ACC.....................................................................1, 8, 31
Accounts......................................................................36
Accrual Certificates..........................................................40
AFC........................................................................8, 31
Affiliated Originators........................................................33
Amortization Period.......................................................11, 41
Appraised Value...............................................................29
ARM...........................................................................83
ARM Loans.....................................................................25
Available Funds...............................................................39
Balloon Loans.................................................................20
Balloon payment...............................................................20
Bankruptcy Bond...........................................................14, 46
Bond Account..................................................................38
Bond Event of Default.........................................................62
Bondholders................................................................9, 35
Bond Issuer.................................................................1, 8
Bond Rate.....................................................................40
Bonds.......................................................................1, 8
Buydown Funds.................................................................76
Capitalized Interest Account..................................................12
Cash flow investments.........................................................77
Cede......................................................................18, 36
CERCLA........................................................................69
Certificate Account...........................................................38
Certificate Event of Default..................................................59
Certificate Rate..............................................................40
Certificateholders.........................................................8, 35
Certificates................................................................1, 8
Class...................................................................2, 8, 35
Closing Date..................................................................30
Code......................................................................16, 70
Collection Account............................................................53
Collection Period.............................................................39
Combined Loan-to-Value Ratio..................................................29
Commission.....................................................................4
Compensating Interest Payment.................................................55
Cut-off Date..................................................................10
Debt Certificates.............................................................70
Deferred Interest.............................................................30
Definitive Securities.....................................................17, 36
Deleted Mortgage Loan.........................................................52
Deposit Date..................................................................53
Detailed Description..........................................................28
Disqualified Organization.....................................................80
Disqualified Persons..........................................................92
Distribution Date..........................................................2, 38
DOL...........................................................................93
DOL Regulations...............................................................93
DTC.......................................................................18, 36
EPA...........................................................................69
ERISA.....................................................................17, 92
ERISA Plans...................................................................92
Exchange Act...................................................................4
Financial Guaranty Insurance Policy.......................................13, 44
Foreign Investors.............................................................91
Forward Commitment............................................................11
Funding Period................................................................11
Garn-St. Germain Act..........................................................68
Indenture...............................................................1, 8, 35
Indirect Participant..........................................................36
Insurance Proceeds............................................................39
Insured Amount............................................................14, 45
Interest Weighted Class.......................................................25
IRAs..........................................................................92
Junior Loan...................................................................20
Liquidated Mortgage Loan......................................................55
Liquidation Proceeds..........................................................39
Loan Schedule.................................................................50
Loan Withdrawal Amount........................................................52
Lockout periods...............................................................28
Monthly Advance...............................................................54
Mortgage File.................................................................50
Mortgage Loans..............................................................2, 9
Mortgage Note..............................................................9, 38
Mortgage Pool..............................................................9, 17
Mortgage Pool Insurance Policy............................................14, 45
Mortgage Pool Insurer.........................................................45
Mortgaged Property........................................................10, 26
Mortgaged Properties..........................................................28
Mortgagor.................................................................13, 19
Multiple Variable Rate Debt Certificate.......................................74
Negative Amortization.........................................................30
Net Liquidation Proceeds......................................................39
OID...........................................................................70
OID Regulations...............................................................70
Objective Rate................................................................73
Originators................................................................2, 33
Overcollateralization Feature.................................................44
Participants..................................................................36
Parties in Interest...........................................................92
Pass-Through Certificates.....................................................81
Payment Date...........................................................2, 36, 38
Pay-Through Certificate.......................................................72
Permitted Investments.........................................................53
98
<PAGE> 100
Plan Asset Regulations........................................................17
Plan(s)...................................................................17, 92
Policy Statement..............................................................95
Pool Balance..................................................................42
Pool Factor...................................................................42
Pooling and Servicing Agreement............................................8, 35
Prefunding Account............................................................12
Prefunding Amount.........................................................12, 30
Prepayment Assumption.........................................................72
Presumed Single Qualified Floating Rate.......................................73
Presumed Single Variable Rate.................................................75
Principal Prepayments.........................................................40
Principal Weighted Class......................................................25
PTCE 83-1.....................................................................93
Qualified floating rate.......................................................73
Qualified inverse floating rate...............................................73
Qualified Replacement Mortgage Loan...........................................52
Qualified Retirement Plans....................................................92
Rating Agency.............................................................15, 97
Regular Certificates......................................................16, 70
Relief Act....................................................................24
REMIC......................................................................2, 70
REMIC Certificates............................................................76
REMIC Regulations.............................................................70
REO Property..................................................................54
Reserve Account...........................................................13, 44
Residual Certificates.....................................................16, 29
Residual Interest Certificate.................................................79
Retail Bond...................................................................90
Revolving Period..........................................................11, 41
Riegle Act................................................................24, 68
SBJPA.........................................................................80
Securities..................................................................1, 8
Securities Insurer............................................................44
Security Register.............................................................38
Securityholders.........................................................2, 9, 35
Security Principal Balance....................................................40
Senior Certificates........................................................8, 36
Senior Lien...................................................................20
Series......................................................................1, 8
Servicer................................................................1, 8, 32
Servicing Advance.............................................................56
Servicing Agreement............................................................2
Single Variable Rate Debt Certificate.........................................73
SMMEA.........................................................................17
Special Hazard Insurance Policy...........................................14, 46
Special Hazard Insurer........................................................46
Standard Hazard Insurance Policies............................................28
Startup Day...................................................................78
Sub-Servicer...................................................................8
Subordinated Classes..........................................................36
Subordinated Certificates......................................................8
Tax-Favored Plans.............................................................92
Thrift institutions...........................................................80
Tiered REMICS.................................................................77
Title V.......................................................................68
Transferor(s)...............................................................1, 8
Transferor Interest...........................................................11
Trust.......................................................................1, 8
Trust Estate................................................................1, 8
Trustee.....................................................................1, 8
Unaffiliated Originators......................................................33
Underwriters..................................................................96
Variable Rate Debt Certificate................................................72
Variable Rate Debt Instrument.................................................72
Variable Rate Pass-Through Certificates.......................................83
99
<PAGE> 101
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........................................ $ 509,996.59**
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.................................................. $2,134,996.59
</TABLE>
- ---------------
* Provided for each series of securities on the cover page of the related
Prospectus Supplement.
** $295.00 of which was previously paid.
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> 102
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement (REMIC)*
1.2 Form of Underwriting Agreement (debt for tax)*
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Indenture*
5.1 Opinion of O'Melveny & Myers LLP regarding legality
(certificates)*
5.2 Opinion of O'Melveny & Myers LLP regarding legality (bonds)*
8.1 Opinion of O'Melveny & Myers LLP as to tax matters*
23.1 Consent of O'Melveny & Myers LLP (included in Exhibits 5.1,
5.2 and 8.1)*
24.1 Powers of Attorney
25.1 Form T-1 Statement of Eligibility and Qualification of
Trustee***
99.1 Form of Prospectus Supplement (Pass-Through Certificates)**
99.2 Form of Prospectus Supplement (Owner Trust)**
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
*** To be filed by amendment or incorporated by reference in connection with the
offering of 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.
(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.
II-2
<PAGE> 103
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> 104
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
amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on April 16, 1998.
AAMES CAPITAL CORPORATION
By: /s/ CARY H. THOMPSON
--------------------------------------
Name: Cary H. Thompson
Title: Chief Executive Officer and
Director
AAMES CAPITAL ACCEPTANCE CORP.
By: /s/ CARY H. THOMPSON
--------------------------------------
Name: Cary H. Thompson
Title: Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ CARY H. THOMPSON Chief Executive Officer April 16, 1998
- --------------------------------------------------- (Principal Executive Officer)
Cary H. Thompson and
Director of Aames Capital
Corporation
/s/ DAVID A. SKLAR Executive Vice President -- April 16, 1998
- --------------------------------------------------- Finance,
David A. Sklar Chief Financial and Accounting
Officer
(Principal Financial and
Accounting Officer) and
Director of Aames Capital
Corporation
/s/ BARBARA S. POLSKY* Executive Vice President, April 16, 1998
- --------------------------------------------------- General Counsel and Director of
Barbara S. Polsky Aames Capital Corporation
*By: /s/ DAVID A. SKLAR
---------------------------------------------
David A. Sklar
Attorney-in-fact
</TABLE>
II-4
<PAGE> 105
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ CARY H. THOMPSON President and Chief Executive April 16, 1998
- --------------------------------------------------- Officer (Principal Executive
Cary H. Thompson Officer) of Aames Capital
Acceptance Corp.
/s/ DAVID A. SKLAR Executive Vice President -- April 16, 1998
- --------------------------------------------------- Finance, Chief Financial and
David A. Sklar Accounting Officer (Principal
Financial and Accounting
Officer) and Director of Aames
Capital Acceptance Corp.
/s/ MARK E. ELBAUM* Director of Aames Capital April 16, 1998
- --------------------------------------------------- Acceptance Corp.
Mark E. Elbaum
/s/ DONALD J. PUGLISI* Director of Aames Capital April 16, 1998
- --------------------------------------------------- Acceptance Corp.
Donald J. Puglisi
*By: /s/ DAVID A. SKLAR
---------------------------------------------
David A. Sklar
Attorney-in-fact
</TABLE>
II-5
<PAGE> 106
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <S>
1.1 Form of Underwriting Agreement (REMIC)*
1.2 Form of Underwriting Agreement (debt for tax)*
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Indenture*
5.1 Opinion of O'Melveny & Myers LLP regarding legality
(certificates)*
5.2 Opinion of O'Melveny & Myers LLP regarding legality (bonds)*
8.1 Opinion of O'Melveny & Myers LLP as to tax matters*
23.1 Consent of O'Melveny & Myers LLP (included in Exhibits 5.1,
5.2 and 8.1)*
24.1 Powers of Attorney
25.1 Form T-1 Statement of Eligibility and Qualification of
Trustee***
99.1 Form of Prospectus Supplement (Pass-Through Certificates)**
99.2 Form of Prospectus Supplement (Owner Trust)**
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
*** To be filed by amendment or incorporated by reference or in connection with
the offering of the applicable securities.
<PAGE> 1
Exhibit 1.2
[TRANSFEROR]
AND
THE UNDERWRITERS
UNDERWRITING AGREEMENT
FOR
AAMES CAPITAL OWNER TRUSTS
ASSET-BACKED BONDS,
ISSUABLE IN SERIES
[ DATE ]
<PAGE> 2
[DATE]
[Underwriter]
as Representative of the several
Underwriters named in Schedule I to the
Pricing Agreement [c/o Credit Suisse
First Boston Corporation]
[Underwriter/Address]
The [transferor] (the "Transferor") proposes, from time to time, to
enter into one or more pricing agreements (each a "Pricing Agreement") in the
form of Annex A hereto, with such additions and deletions as the parties thereto
may determine, and, subject to the terms and conditions stated herein and
therein, to cause a Trust (each, a "Trust") to be formed pursuant to an
applicable trust agreement (a "Trust Agreement") to be dated as of the
applicable Cut-off Date (as defined in the Pricing Agreement), among the
Transferor and [Name of Trustee] owner as owner trustee ( the "Owner Trustee")
to issue in series (each a "Series") and to sell to the Underwriters (as
hereinafter defined), Asset-Backed Bonds (the "Bonds"), each Series of which is
to be issued pursuant to an applicable indenture (an "Indenture") to be dated as
of the applicable Cut-off Date (as defined in the Pricing Agreement), between
the Trust and [Name of Indenture Trustee], as indenture trustee (the "Indenture
Trustee"). [Name of Underwriter], will act as underwriter and as Representative
(in such capacity, the "Representative") of the several underwriters named in
Schedule I hereto (the "Underwriters"). Each Series of Certificates (the
"Certificates" and, together with the Bonds, the "Securities") issued pursuant
to a Trust Agreement will evidence an undivided beneficial ownership interest in
the related Trust consisting primarily of a pool (the "Pool") of mortgage loans
(the "Mortgage Loans") conveyed by the Transferor to the related Trust pursuant
to an applicable mortgage loan contribution agreement (a "Mortgage Loan
Contribution Agreement") to be dated as of the applicable Cut-off Date (as
defined in the Pricing Agreement) between the Transferor and the Trust. The
Mortgage Loans and other property sold by the Transferor to the Trust will be
acquired by the Transferor from Aames Capital Corporation ("ACC") pursuant to an
applicable initial mortgage loan conveyance agreement (an "Initial Mortgage Loan
Conveyance Agreement") to be dated as of the applicable Cut-Off Date (as defined
in the Pricing Agreement) between the Transferor and ACC. The Mortgage Loans
will be serviced by ACC (in such capacity, the "Servicer") pursuant to a
servicing agreement (a "Servicing Agreement") to be dated as of the applicable
Cut-Off Date (as defined in the Pricing Agreement) among the Trust, the Servicer
and the Indenture Trustee. The Securities will be issued in one or more classes
(each a "Class"), which may be divided into one or more subclasses (each a
"Subclass"). Any rights of holders of Securities of a particular Class or
Subclass to receive certain distributions with respect to the Mortgage Loans
that are senior to such rights of holders of Securities of any other Class or
Subclass of the same Series shall be specified in the Pricing Agreement. The
Bonds of a Series to be purchased pursuant to a Pricing Agreement will be
described more fully in the Base Prospectus dated [_______]and the related
Prospectus Supplement (defined below) which the Transferor will furnish to the
Underwriters.
<PAGE> 3
On or prior to the date of issuance of the Securities of any Series, if
specified in the Pricing Agreement, the Transferor will obtain one or more
certificate guaranty insurance policies (each a "Policy") issued by an insurance
provider specified in the Pricing Agreement (the "Insurer") which will
unconditionally and irrevocably guarantee for the benefit of the holders of each
Class of Bonds to be purchased pursuant to this Agreement, full and complete
payment of the amounts payable on the Bonds of the related Series.
As used herein, the term "Execution Time" shall mean the date and
time that the Pricing Agreement is executed and delivered by the parties
thereto; the term "Agreement," "this Agreement" and terms of similar import
shall mean this Underwriting Agreement including the Pricing Agreement; and the
term "Closing Date" shall mean the Closing Date specified in the Pricing
Agreement. All capitalized terms used but not otherwise defined herein have the
respective meanings set forth in the form of Servicing Agreement or Indenture
heretofore delivered to the Representative.
1. Securities. Unless otherwise specified in the Pricing Agreement, the
Securities of each Series will be issued in classes as follows: (i) a class of
Bonds with respect to each Mortgage Loan Group (which may include two or more
subclasses) and the Certificates (which may include two or more subclasses).
2. Representations and Warranties of the Transferor. [The Transferor]
represents and warrants to, and covenants with, each Underwriter that:
A. A registration statement on Form S-3 (Registration No. [_____])
including a prospectus and a form of prospectus supplement that contemplates the
offering of securities backed by mortgage loans from time to time, has been
filed by Aames Capital Acceptance Corp. ("ACAC") and ACC with the Securities and
Exchange Commission (the "Commission"), pursuant to the Securities Act of 1933,
as amended and the rules and regulations of the Commission thereunder
(collectively, the "1933 Act"), and as amended from time to time by one or more
amendments, including post-effective amendments, has been declared effective by
the Commission prior to the date of the Pricing Agreement. [The Transferor] will
cause to be filed with the Commission, after effectiveness of such registration
statement (and any such post-effective amendments), a final prospectus in
accordance with Rules 415 and 424(b)(2) under the 1933 Act, relating to the
Bonds.
As used herein, the term "Effective Date" shall mean the date that the
Registration Statement (including the most recently filed post-effective
amendment, if any) became effective. "Registration Statement" shall mean the
registration statement referred to in the preceding paragraph, including the
exhibits thereto and any documents incorporated by reference therein pursuant to
Item 12 of Form S-3 under the 1933 Act specifically relating to the terms of the
Securities or the Pool and filed with the Commission pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), except that if the
Registration Statement is amended by the filing with the Commission of a
post-effective amendment thereto, the term "Registration Statement" shall mean
collectively the Registration Statement, as amended by the most recently filed
post-effective amendment thereto, in the form in which it was declared effective
by the
2
<PAGE> 4
Commission. The prospectus dated the date specified in the Pricing
Agreement (which if not so specified shall be the date of such Pricing
Agreement), which constitutes a part of the Registration Statement, together
with the prospectus supplement dated the date specified in the Pricing Agreement
(which if not so specified shall be the date of such Pricing Agreement) (the
"Prospectus Supplement"), relating to the offering of Bonds, including any
document incorporated therein by reference pursuant to the Exchange Act, are
hereinafter referred to collectively as the "Prospectus," except that if the
Prospectus is thereafter amended or supplemented pursuant to Rule 424(b), the
term "Prospectus" shall mean the prospectus, as so amended or supplemented
pursuant to Rule 424(b), from and after the date on which such amended
prospectus or supplement is filed with the Commission. Any preliminary form of
the Prospectus Supplement which has heretofore been filed pursuant to Rule
402(a) or Rule 424 is hereinafter called a "Preliminary Prospectus Supplement."
Any reference herein to the terms "amend," "amendment" or "supplement" with
respect to the Registration Statement, the Prospectus or the Prospectus
Supplement shall be deemed to refer to and include the filing of any document
under the Exchange Act after the effective date of the Registration Statement or
the issue date of the Prospectus or Prospectus or Prospectus Supplement, as the
case may be, incorporated therein by reference. The Indenture, Trust Agreement,
Servicing Agreement, [Initial Mortgage Loan Conveyance Agreement] and [Mortgage
Loan Contribution Agreement] with respect to any Series shall be referred to
herein together as the "Basic Documents."
B. As of the date hereof, and as of the dates when the Registration
Statement became effective, when the Prospectus Supplement is first filed
pursuant to Rule 424(b) under the 1933 Act, when, prior to the Closing Date, any
other amendment to the Registration Statement becomes effective, and when any
supplement to the Prospectus is filed with the Commission, and at the Closing
Date, (i) the Registration Statement, as amended, as of any such time, and the
Prospectus, as amended or supplemented as of any such time, complied or will
comply in all material respects with the applicable requirements of the 1933
Act, and (ii) the Registration Statement, as amended as of any such time, did
not and will not contain any untrue statement of a material fact and did not and
will not omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and the Prospectus, as
amended or supplemented as of any such time, did not and will not contain an
untrue statement of a material fact and did not and will not omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that [the Transferor] makes no representations or warranties as to the
information contained in or omitted from (i) the Registration Statement or the
Prospectus in reliance upon and in conformity with written information furnished
to [the Transferor] by or on behalf of the Underwriters as set forth in this
Agreement or the Pricing Agreement specifically for use in connection with the
preparation of the Registration Statement or the Prospectus and (ii) the Form
8-K - Computational Materials (as defined in Section 5K below) or Form 8-K - ABS
Term Sheets (as defined in Section 5L below), or in any amendment thereof or
supplement thereto, incorporated by reference in such Registration Statement or
such Prospectus (or any amendment thereof or supplement thereto).
C. [The Transferor] is duly organized, validly existing and in good
standing under the laws of the State of [Delaware], has full power and authority
(corporate and other) to
3
<PAGE> 5
own its properties and conduct its business as now conducted by it, and as
described in the Prospectus, and is duly qualified to do business in each
jurisdiction in which it owns or leases real property (to the extent such
qualification is required by applicable law) or in which the conduct of its
business requires such qualification except where the failure to be so qualified
does not involve (i) a material risk to, or a material adverse effect on, the
business, properties, financial position, operation or results of operations of
[the Transferor] or (ii) any risk whatsoever as to the enforceability of any
Mortgage Loan.
D. There are no actions, proceedings or investigations pending, or,
to the knowledge of [the Transferor], threatened, before any court, governmental
agency or body or other tribunal (i) asserting the invalidity of this Agreement,
the Securities, the Indemnification Agreement dated as of the Execution Time
(the "Indemnification Agreement") among the Transferor, the Insurer and the
Underwriters, or of the Basic Documents, (ii) seeking to prevent the issuance of
the Securities or the consummation of any of the transactions contemplated by
this Agreement or the Basic Documents, (iii) which may, individually or in the
aggregate, materially and adversely affect the validity or enforceability of,
this Agreement, the Securities or the Basic Documents, or the performance by
[the Transferor] or ACC of their respective obligations under this Agreement or
any of the Basic Documents to which either is a party or (iv) which may affect
adversely the federal income tax attributes of the Bonds as described in the
Prospectus.
E. The execution and delivery by [the Transferor] of this Agreement,
the Indemnification Agreement and the Basic Documents to which it is a party,
the direction by [the Transferor] to the Owner Trustee and the Indenture
Trustee, as applicable to execute, countersign, authenticate and deliver the
Securities and the transfer and delivery of the Mortgage Loans to the Trust by
[the Transferor] are within the corporate power of [the Transferor] and have
been, or will be, prior to the Closing Date duly authorized by all necessary
corporate action on the part of [the Transferor] and the execution and delivery
of such instruments, the consummation of the transactions therein contemplated
and compliance with the provisions thereof will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any statute or any agreement or instrument to which [the Transferor] or any of
its affiliates is a party or by which it or any of them is bound or to which any
of the property of [the Transferor] or any of its affiliates is subject, the
[Transferor's] [certificate] of incorporation or bylaws, or any order, rule or
regulation of any court, governmental agency or body or other tribunal having
jurisdiction over [the Transferor], any of its affiliates or any of its or their
properties; and no consent, approval, authorization or order of, or filing with,
any court or governmental agency or body or other tribunal is required for the
consummation of the transactions contemplated by this Agreement or the
Prospectus in connection with the sale of the Bonds by [the Transferor]. Neither
[the Transferor] nor any of its affiliates is a party to, bound by or in breach
or violation of any indenture or other agreement or instrument, or subject to or
in violation of any statute, order, rule or regulation of any court,
governmental agency or body or other tribunal having jurisdiction over [the
Transferor] or any of its affiliates, which materially and adversely affects, or
may in the future materially and adversely affect, (i) the ability of either
[the Transferor] or ACC to perform their respective obligations under the Basic
Documents to which either is a party, this Agreement or the Indemnification
Agreement or (ii) the business,
4
<PAGE> 6
operations, results of operations, financial position, income, properties or
assets of [the Transferor] or ACC.
F. This Agreement and the Indemnification Agreement have been
duly and validly authorized, executed and delivered by [the Transferor]. The
Basic Documents to which it is a party will be duly executed and delivered by
[the Transferor] and will constitute the legal, valid and binding obligations of
[the Transferor] enforceable in accordance with their respective terms, except
as enforceability may be limited by (i) bankruptcy, insolvency, liquidation,
receivership, moratorium, reorganization or other similar laws affecting the
enforcement of the rights of creditors, and (ii) general principles of equity,
whether enforcement is sought in a proceeding at law or in equity.
G. The Bonds will conform in all material respects to the
description thereof contained in the Prospectus and, when the Bonds have been
duly and validly executed by the Owner Trustee or an agent thereof on behalf of
the Trust and when executed and authenticated in accordance with the Indenture
and delivered to and paid for by the Underwriters as provided herein and the
Pricing Agreement, the Bonds will be legal, valid and binding obligations of the
Trust pursuant to the terms of the Indenture, entitled to the benefits of the
Indenture.
H. At the Closing Date, the Mortgage Loans will conform in all
material respects to the description thereof contained in the Prospectus and the
representations and warranties contained in this Agreement will be true and
correct in all material respects. The representations and warranties set out in
the Basic Documents are hereby made to the Underwriters as though set out
herein, and at the dates specified in the Basic Documents, such representations
and warranties were or will be true and correct in all material respects.
I. The transfer of the Mortgage Loans by ACC to the Transferor at
the Closing Date will be treated by ACC for financial accounting and reporting
purposes as a sale of assets and not as a pledge of assets to secure debt.
J. [The Transferor] possesses all material licenses,
certificates, permits or other authorizations issued by the appropriate state,
federal or foreign regulatory agencies or bodies necessary to conduct the
business now operated by it and as described in the Prospectus and there are no
proceedings, pending or, to the best knowledge of [the Transferor], threatened,
relating to the revocation or modification of any such license, certificate,
permit or other authorization which singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would materially and adversely
affect the business, operations, results of operations, financial position,
income, property or assets of [the Transferor].
K. Any taxes, fees and other governmental charges in connection
with the execution and delivery of this Agreement, the Indemnification Agreement
and the Basic Documents, or the execution and issuance of the Securities have
been or will be paid at or prior to the Closing Date.
5
<PAGE> 7
L. There has not been any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of [the
Transferor], its parent company or its subsidiaries or affiliates, taken as a
whole, from the date of the end of the most recent fiscal quarter of ACC for
which financial statements (whether audited or unaudited) have been made
publicly available (the "Date of Recent ACC Financial Statements"), to the date
hereof.
M. The Basic Documents will conform in all material respects to
the description thereof contained in the Prospectus.
N. [The Transferor] is not aware of (i) any request by the
Commission for any further amendment of the Registration Statement or the
Prospectus or for any additional information with respect to the offering of the
Bonds, (ii) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or threatening of
any proceeding for that purpose or (iii) any notification with respect to the
suspension of the qualification of the Bonds for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose.
O. Each assignment of Mortgage required to be prepared pursuant
to the Basic Documents is based on forms recently utilized by ACC with respect
to mortgaged properties located in the appropriate jurisdiction and used in the
regular course of ACC's business. Based on ACC's experience with such matters it
is reasonable to believe that upon execution each such assignment will be in
recordable form and will be sufficient to effect the assignment of the Mortgage
to which it relates as provided in the Indenture.
P. Neither [the Transferor], ACC nor the Trust will be subject to
registration as an "investment company" under the Investment Company Act of
1940, as amended (the "Investment Company Act"). Neither the Trust Agreement nor
the Servicing Agreement is required to be qualified under the Trust Indenture
Act of 1939, as amended.
Q. [In connection with the offering of the Securities in the
State of Florida, [the Transferor] hereby certifies that it has complied with
all provisions of Section 5.17.075 of the Florida Securities and Investor
Protection Act.]
Any certificate signed by any officer of [the Transferor] and delivered
to the Underwriters in connection with the sale of the Bonds to such
Underwriters shall be deemed a representation and warranty as to the matters
covered thereby by the Transferor to each person to whom the representations and
warranties in this Section 2 are made.
3. Agreements of the Underwriters.
The several Underwriters agree with the Transferor that upon the
execution of the Pricing Agreement and authorization by the Underwriters of the
release of the Bonds of the related Series, the Underwriters shall offer such
Bonds for sale upon the terms and conditions set forth in the prospectus as
amended or supplemented.
6
<PAGE> 8
Each Underwriter severally represents and agrees that:
(i) it has not offered or sold and will not offer or sell, prior to
the date six months after their date of issuance, any Bonds to
persons in the United Kingdom, except to persons whose activities
involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted
in and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities
Regulations 1995;
(ii) it has complied and will comply with all applicable provisions of
the Financial Services Act of 1986 with respect to anything done
by it in relation to the Bonds in, from or otherwise involving
the United Kingdom;
(iii) it has only issued or passed on and will only issue or pass on to
any person in the United Kingdom any document received by it in
connection with the issuance of the Bonds only if that person is
of a kind described in Article 11(3) of the Financial Services
Act of 1986 (Investment Advertisements) (Exemptions) Order 1997
or such person is one to whom the document can lawfully be issued
or passed on;
(iv) no action has been or will be taken by such Underwriter that
would permit a public offering of the Bonds or distribution of
the Prospectus or Prospectus Supplement or any Computational
Materials or any other offering material in relation to the Bonds
in any non-U.S. jurisdiction where action for that purpose is
required unless the Transferor has agreed to such actions and
such actions have been taken; and
(v) it understands that, in connection with the issuance, offer and
sale of the Bonds and with the distribution of the Prospectus or
Prospectus Supplement or any Computational Materials or any other
offering material in relation to the Bonds in, to or from any
non-U.S. jurisdiction, the Transferor has not taken and will not
take any action, and such Underwriter will not offer, sell or
deliver any Bonds or distribute the Prospectus or Prospectus
Supplement or any Computational Materials or any other offering
material relating to the Bonds in, to or from any non-U.S.
jurisdiction except under circumstances which will result in
compliance with applicable laws and regulations and which will
not impose any liability, obligation or responsibility on the
Transferor or the other Underwriters.
4. Purchase, Sale and Delivery of the Bonds. The Transferor hereby
agrees, subject to the terms and conditions hereof, to sell or cause the Trust
to sell, the Bonds specified in the Pricing Agreement to the Underwriters, who,
upon the basis of the representations and warranties herein contained, but
subject to the conditions hereinafter stated, hereby agree, severally and not
jointly, to purchase the entire aggregate principal amount of the Bonds in the
amounts set forth in
7
<PAGE> 9
Schedule I to such Pricing Agreement. At the time of issuance of the Bonds, the
Mortgage Loans will be conveyed by the Transferor to the Trust pursuant to the
Mortgage Loan Contribution Agreement. ACC will be obligated, under the Servicing
Agreement, to service the Mortgage Loans either directly or through
subservicers.
The Bonds to be purchased by the Underwriters will be delivered to the
Underwriters (which delivery shall be made through the facilities of The
Depository Trust Company ("DTC") or Cedel Bank, societe anonyme or the Euroclear
System) against payment of the purchase price therefor, in an amount equal to
the percentage of the aggregate original principal amount thereof as specified
in the Pricing Agreement, plus interest accrued, if any, at the rate on the
aggregate original principal amount thereof from the date specified in such
Pricing Agreement to, but not including, the Closing Date, by a same day federal
funds wire payable to the order of the Transferor.
Settlement shall take place at the specified offices of
[______________], at [____], [New York City] time, on the date specified in the
Pricing Agreement, or at such other place and at such other time thereafter
(such time being herein referred to as the "Closing Date"), in each case as the
Underwriters and the Transferor shall determine. The Bonds will be prepared in
definitive form and in such authorized denominations as the Underwriters may
request, registered in the name of Cede & Co., as nominee of DTC.
The Transferor agrees to have the Bonds available for inspection and
review by the Underwriters in Los Angeles not later than [_______] [New York
City] time on the business day prior to the Closing Date.
5. Covenants of the Transferor. The Transferor covenants and agrees
with each Underwriter that:
A. The Transferor will promptly advise the Representative and counsel
to the Underwriters (i) when any amendment to the Registration Statement
relating to the offering of the Bonds shall have become effective, (ii) of any
request by the Commission for any amendment to the Registration Statement or the
Prospectus or for any additional information to the extent applicable to the
offering of the Bonds, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (iv) or the receipt by the
Transferor of any notification with respect to the suspension of the
qualification of the Bonds for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. The Transferor will not file,
and it will use its best efforts to prevent ACC from filing, any amendment to
the Registration Statement or supplement to the Prospectus after the date of the
Pricing Agreement and prior to the related Closing Date for the Bonds unless the
Transferor has furnished the Representative and counsel to the Underwriters
copies of such amendment or supplement for their review prior to filing and will
not file any such proposed amendment or supplement to which the Representative
reasonably and promptly objects, unless such filing is required by law. The
Transferor will use its best efforts to prevent the issuance of any stop order
suspending the
8
<PAGE> 10
effectiveness of the Registration Statement and, if issued, to obtain as soon as
possible the withdrawal thereof.
B. If, at any time during the period in which the Prospectus is
required by law to be delivered, any event occurs as a result of which the
Prospectus as then amended or supplemented would include any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it shall be necessary to amend or supplement the
Prospectus to comply with the 1933 Act or the rules under the 1933 Act, the
Transferor will promptly prepare and file with the Commission and shall use its
best efforts to cause ACC to promptly prepare and file, subject to Paragraph A
of this Section 5, an amendment or supplement that will correct such statement
or omission or an amendment that will effect such compliance and, if such
amendment or supplement is required to be contained in a post-effective
amendment to the Registration Statement, will use its best efforts to cause such
post-effective amendment of the Registration Statement to become effective as
soon as possible, provided, however, that the Transferor will not be required to
file any such amendment or supplement with respect to any Computational
Materials or ABS Term Sheets incorporated by reference in the Prospectus other
than any amendments or supplements of such Computational Materials or ABS Term
Sheets that are furnished to the Transferor by the Underwriters pursuant to
Section 9A hereof which the Transferor is required to file in accordance with
Section 5K or 5L.
C. The Transferor will furnish to the Underwriters, without charge,
copies of the Registration Statement (including exhibits thereto), any documents
incorporated therein by reference, and, so long as delivery of a prospectus by
the Underwriters or a dealer may be required by the 1933 Act, as many copies of
the Prospectus, as amended or supplemented, and any amendments and supplements
thereto as the Underwriters may reasonably request. The Transferor will pay the
expenses of printing all offering documents relating to the offering of the
Bonds.
D. As soon as practicable, but not later than sixteen months after the
effective date of the Registration Statement, the Transferor will cause the
Trust to make generally available to holders of Bonds statements of the Trust
collectively covering a period of at least 12 months beginning after the
effective date of the Registration Statement. Such statements will be filed with
the Commission pursuant to the provisions of the Exchange Act.
E. During a period of 20 calendar days from the Execution Time, neither
the Transferor nor any affiliate of the Transferor will, without the
Representative's prior written consent (which consent shall not be unreasonably
withheld), enter into any agreement to offer or sell securities backed by
mortgage loans, except pursuant to this Agreement.
F. So long as any of the Bonds are outstanding, the Transferor will
cause to be delivered to the Underwriters, (i) all documents required to be
distributed to the holders of the Bonds, (ii) from time to time, any other
information concerning the Trust filed with any government or regulatory
authority that is otherwise publicly available, as the Underwriters may
reasonably request, (iii) the annual statement as to compliance delivered to the
Owner Trustee or
9
<PAGE> 11
Indenture Trustee pursuant to the Basic Documents, (iv) the annual statement of
a firm of independent public accountants furnished to the Owner Trustee or
Indenture Trustee pursuant to the Basic Documents as soon as such statement is
filed by the Transferor with the Commission and (v) any information required to
be delivered by the Transferor or the Servicer pursuant to Section 3.01 of the
Servicing Agreement heretofore delivered to the Representative.
G. The Transferor, whether or not the transactions contemplated
hereunder are consummated or this Agreement or the Pricing Agreement is
consummated, will pay all expenses in connection with the transactions
contemplated herein, including but not limited to (i) the expenses of printing
(or otherwise reproducing) all documents relating to the offering and the fees
and disbursements of its counsel incurred in connection with the issuance and
delivery of the Bonds, (ii) the preparation of all documents specified in this
Agreement, (iii) any fees and expenses of the Owner Trustee, the Indenture
Trustee, the Insurer and any other credit support provider (including legal
fees) that are not payable by or from the Trust, (iv) any accounting fees and
disbursements relating to the offering of Bonds, (v) any fees charged by rating
agencies for rating the Bonds, (vi) any reasonable fees and disbursements of
counsel to the Underwriters relating to Blue Sky undertakings (vii) any
reasonable fees and disbursements of counsel to the Underwriters in an amount
not to exceed $[5,000] per Series relating to the representation of the
Underwriters with respect to the offering of the Bonds of such Series and (viii)
the fees and charges related to the filing with the Commission of such Current
Reports on Form 8-K and such other materials as are contemplated hereby, whether
pursuant to EDGAR or otherwise. Subject to the provisions of Section 7 hereof,
the Transferor will not pay the fees and expenses of the Underwriters or their
counsel except as specified above.
H. The Transferor will enter into the Basic Documents to which it is a
party and all related agreements on or prior to the Closing Date.
I. The Transferor will endeavor to qualify the Bonds for sale to the
extent necessary under any state securities or Blue Sky laws in any jurisdiction
as may be reasonably requested by the Underwriters, if any, and will pay all
expenses (including reasonable fees and disbursements of counsel to the
Underwriters) in connection with such qualification and in connection with the
determination of the eligibility of the Bonds for investment under the laws of
such jurisdiction as the Underwriters may reasonably designate, if any.
J. The Transferor will file or cause to be filed with the Commission
within fifteen days of the termination of the Funding Period, a Current Report
on Form 8-K setting forth specific information concerning the description of the
Mortgage Pool (the "Form 8-K Mortgage Pool"). Without limiting the generality of
any other provision hereof, such Form 8-K - Mortgage Pool shall be deemed to be
a part of the Registration Statement and Prospectus from and after the date it
is first filed with the Commission.
K. The Transferor will cause any Computational Materials (as defined in
Section 9A hereof) with respect to the Bonds which are delivered by any
Underwriter to the Transferor pursuant to Section 9A hereof to be filed with the
Commission on a Current Report on Form 8-K (the "Form 8-K - Computational
Materials") at or before the time of filing of the Prospectus
10
<PAGE> 12
pursuant to Rule 424(b) under the 1933 Act; provided, however, that the
Transferor shall have no obligation to file any such materials which, in the
reasonable determination of the Transferor after consultation with such
Underwriter (i) are not, based upon the advice of outside counsel to the
Transferor, required to be filed pursuant to the Kidder Letters (as defined in
Section 9A hereof or (ii) contain any erroneous information or untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; it being
understood, however, that the Transferor shall have no obligation to review or
pass upon the accuracy or adequacy of, or to correct, any Computational
Materials provided by any Underwriter to the Transferor pursuant to Section 9A
hereof. The parties hereto agree that the Transferor shall have no liability for
any failure to file such Computational Materials on such date if the related
Underwriter has not delivered such materials to the Transferor one business day
prior to the date such filing is to be made.
L. The Transferor will cause any ABS Term Sheets (as defined in Section
9A hereof with respect to the Bonds which are delivered by any Underwriter to
the Transferor pursuant to Section 9A hereof to be filed with the Commission on
one or more Current Reports on Form 8-K (collectively, the "Form 8-K - ABS Term
Sheets") (i) at or before the time of filing of the Prospectus pursuant to Rule
424(b) under the 1933 Act, in the case of Structural Term Sheets (as defined in
Section 9A hereof) and (ii) within two business days of first use in the case of
Collateral Term Sheets (as defined in Section 9A hereof); provided, however,
that the Transferor shall have no obligation to file any such materials which,
in the reasonable determination of the Transferor after consultation with such
Underwriter (i) are not, based upon advice of outside counsel to the Transferor,
required to be filed pursuant to the PSA Letter (as defined in Section 9A
hereof), (ii) do not contain the legends required by the PSA Letter or (iii)
contain erroneous information or contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; it being understood, however, that
the Transferor shall have no obligation to review or pass upon the accuracy or
adequacy of, or to correct, any ABS Term Sheets provided by any Underwriter to
the Transferor pursuant to Section 9A hereof. The parties hereto agree that the
Transferor shall have no liability for any failure to file such ABS Term Sheets
on such dates if the related Underwriter has not delivered such materials to the
Transferor one business day prior to the date such filing is to be made.
6. Conditions of the Underwriters' Obligation. The obligation of the
Underwriters to purchase and pay for the Bonds of a Series as provided herein
and the Pricing Agreement shall be subject to the accuracy as of the date
hereof, the Execution Time and the applicable Closing Date (as if made at such
Closing Date) of the representations and warranties of the Transferor contained
herein (including those representations and warranties set forth in the Basic
Documents to which it is a party and incorporated herein), to the accuracy of
the statements of the Transferor made in any certificate or other document
delivered pursuant to the provisions hereof, to the performance by the
Transferor of its obligations hereunder, and to the following additional
conditions:
A. The Registration Statement shall have become effective no later than
the date hereof, and no stop order suspending the effectiveness of the
Registration Statement shall have
11
<PAGE> 13
been issued and no proceedings for that purpose shall have been instituted or
threatened, and the Prospectus shall have been filed pursuant to Rule 424(b) of
the 1933 Act as shall be required pursuant to such Rule.
B. The Underwriters shall have received the Basic Documents and the
Bonds in form and substance satisfactory to the Underwriters, duly executed by
all signatories required pursuant to respective terms thereof.
C. (1) The Underwriters hall have received the favorable opinion of
[____________], special counsel to the Transferor, or of such other counsel to
the Transferor as shall be acceptable to the Underwriters, such opinion or
opinions, dated the Closing Date, in form and substance satisfactory to the
Underwriters, and collectively covering the substantive matters referred to in
Appendix A attached hereto.
(2) The Underwriters shall have received the favorable opinion of
[____________], special counsel to the Underwriters, dated the Closing Date,
with respect to the Basic Documents, the Bonds of such Series, the due
authorization, execution and delivery of this Agreement and the Pricing
Agreement, and such other matters as the Underwriters may reasonably request.
In rendering their opinions, the counsel described in this
Paragraph C may rely, as to matters of fact, on certificates of responsible
officers of the Transferor, the Owner Trustee, the Indenture Trustee and public
officials. Such opinions may also assume the due authorization, execution and
delivery of the instruments and documents referred to therein by the parties
thereto other than the Transferor.
D. The Underwriters shall have received a letter from [ ], dated the
date of the Prospectus Supplement, in form and substance satisfactory to the
Underwriters, to the effect that they have performed certain specified
procedures requested by the Underwriters with respect to the information set
forth in the Prospectus and certain matters relating to the Transferor.
E. The Bonds shall have been rated in the highest rating category by
Standard & Poor's Corporation, a division of the McGraw-Hill Companies, Inc.
("S&P") and Moody's Investors Service, Inc. ("Moody's"), and such ratings shall
not have been rescinded. The Underwriters and counsel for the Underwriters shall
have received copies, addressed to the Underwriters and upon which they may
rely, of any opinions of counsel supplied to the rating organizations relating
to any matters with respect to the Bonds. Any such opinions shall be dated the
Closing Date.
F. The Underwriters shall have received from the Transferor a
certificate, signed by the president, an executive vice president or a vice
president of the Transferor, dated the Closing Date, to the effect that the
signer of such certificate has carefully examined the Registration Statement
(excluding Form 8-K - Computational Materials and Form 8-K ABS Term Sheets), the
Basic Documents and this Agreement and that, to the best of his or her knowledge
based
12
<PAGE> 14
upon reasonable investigation, the representations and warranties of the
Transferor in this Agreement, as of the Closing Date, in the Basic Documents and
in all related agreements, as of the date specified in such agreements, are true
and correct, the Transferor has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to the
Closing Date and that no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or, to the best of his or her knowledge, are contemplated by the
Commission.
The Transferor shall attach to such certificate an incumbency
certificate and shall certify in an officer's certificate a true and correct
copy of its articles of incorporation and bylaws which are in full force and
effect as of each relevant date and on the date of such certificate and a
certified true copy of the resolutions of its Board of Directors with respect to
the transactions contemplated herein.
G. The Underwriters shall have received from ACC a certificate, signed
by the president, an executive vice president or a vice president of ACC, dated
the Closing Date, to the effect that the signer of such certificate has
carefully examined the Basic Documents to which it is a party and that, to the
best of his or her knowledge based upon reasonable investigation, the
representations and warranties of ACC in the Basic Documents to which it is a
party and in all related agreements, as of the date specified in such
agreements, are true and correct, ACC has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date, that there has not been any material adverse change,
or any development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or operations of
ACC, its parent company or its subsidiaries or affiliates, taken as a whole,
from the Date of Recent ACC Financial Statements to the date hereof, that the
transfer of the Mortgage Loans by ACC to the Transferor at the Closing Date will
be treated by ACC for financial accounting and reporting purposes as a sale of
assets and not as a pledge of assets to secure debt, and that no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or, to the best of his or
her knowledge, are contemplated by the Commission.
ACC shall attach to such certificate an incumbency certificate and shall
certify in an officer's certificate a true and correct copy of its articles of
incorporation and bylaws which are in full force and effect as of each relevant
date and on the date of such certificate.
H. The Underwriters shall have received a favorable opinion of counsel
to the Indenture Trustee, dated the Closing Date, in form and substance
satisfactory to the Underwriters and covering the substantive matters referred
to in Appendix B attached hereto.
In rendering such opinion, such counsel may rely, as to matters of fact,
on certificates of responsible officers of the Transferor, the Indenture Trustee
and public officials. Such opinion may also assume the due authorization,
execution and delivery of the instruments and documents referred to therein by
the parties thereto other than the Indenture Trustee.
13
<PAGE> 15
I. The Underwriters shall have received from the Indenture Trustee a
certificate, signed by the president, a senior vice president or a vice
president of the Indenture Trustee, dated the Closing Date, to the effect that
each person who, as an officer or representative of the Indenture Trustee,
signed or signs the Securities, the Basic Documents or any other document
delivered pursuant hereto, on the Execution Time or on the Closing Date, in
connection with the transactions described in the Basic Documents was, at the
respective times of such signing and delivery, and is now, duly elected or
appointed, qualified and acting as such officer or representative, and the
signatures of such persons appearing on such documents are their genuine
signatures.
J. The Underwriters shall have received a favorable opinion of counsel
to the Owner Trustee, dated the Closing Date, in form and substance satisfactory
to the Underwriters and covering the substantive matters referred to in Appendix
C attached hereto.
In rendering such opinion, such counsel may rely, as to matters of fact,
on certificates of responsible officers of the Transferor, the Owner Trustee and
public officials. Such opinion may also assume the due authorization, execution
and delivery of the instruments and documents referred to therein by the parties
thereto other than the Owner Trustee.
K. The Underwriters shall have received from the Owner Trustee a
certificate, signed by the president, a senior vice president or a vice
president of the Owner Trustee, dated the Closing Date, to the effect that each
person who, as an officer or representative of the Owner Trustee, signed or
signs the Securities, the Basic Documents or any other document delivered
pursuant hereto, on the Execution Time or on the Closing Date, in connection
with the transactions described in the Basic Documents was, at the respective
times of such signing and delivery, and is now, duly elected or appointed,
qualified and acting as such officer or representative, and the signatures of
such persons appearing on such documents are their genuine signatures.
L. The Underwriters shall have received a favorable opinion of counsel
to the Trust, dated the Closing Date, in form and substance satisfactory to the
Underwriters and covering the substantive matters referred to in Appendix D
attached hereto.
In rendering such opinion, such counsel may rely, as to matters of fact,
on certificates of responsible officers of the Transferor and public officials.
Such opinion may also assume the due authorization, execution and delivery of
the instruments and documents referred to therein by the parties thereto other
than the Trust.
M. The Policy relating to the Bonds of such Series shall have been duly
executed and issued at or prior to the Closing Date and shall conform in all
material respects to the description thereof in the Prospectus.
N. The Underwriters shall have received a favorable opinion of counsel
to the Insurer, dated the Closing Date, in form and substance satisfactory to
the Underwriters and covering the substantive matters referred to in Appendix E
attached hereto.
14
<PAGE> 16
In rendering such opinion, such counsel may rely, as to matters of fact,
on certificates of responsible officers of the Transferor, the Owner Trustee,
the Indenture Trustee, the Insurer and public officials. Such opinion may assume
the due authorization, execution and delivery of the instruments and documents
referred to therein by the parties thereto other than the Insurer.
O. On or prior to the Closing Date, there has been no downgrading, nor
has any notice been given of (i) any intended or potential downgrading or (ii)
any review or possible changes in rating the direction of which has not been
indicated, in the rating accorded and originally requested by the Transferor,
ACC or their affiliates relating to any previously issued securities backed by
mortgage loans of the Transferor, ACC or their affiliates by any "nationally
recognized statistical rating organization" (as such term is defined for
purposes of the Exchange Act).
P. On or prior to the Closing Date there shall not have occurred any
downgrading, nor shall any notice have been given of (i) any intended or
potential downgrading or (ii) any review or possible change in rating the
direction of which has not been indicated, in the rating accorded the Insurer's
claims paying ability by any "nationally recognized statistical rating
organization" (as such term is defined for purposes of the Exchange Act).
Q. There has not occurred any change, or any development involving a
prospective change, in the condition, financial or otherwise, or in the
earnings, business or operations, since the Date of Recent ACC Financial
Statements, of (i) the Transferor, its parent company, ACC or its subsidiaries
or (ii) the Insurer, that is in the Representative's judgment material and
adverse and that makes it in the Representative's judgment impracticable to
market the Bonds on the terms and in the manner contemplated in the Prospectus.
R. The Underwriters and counsel for the Underwriters shall have received
copies of any separate opinions of counsel to the Transferor or the Insurer
supplied to the Owner Trustee, the Indenture Trustee or either of S&P or Moody's
relating to matters with respect to the Securities or the Policy, and such
opinions shall be dated the Closing Date.
S. The Underwriters shall have received such further information,
certificates and documents as the Underwriters may reasonably have requested not
less than one (1) full business day prior to the Closing Date.
T. [There shall have been executed and delivered by [ ], the
corporate parent of the Transferor, a letter agreement with the Underwriters,
pursuant to which AFC agrees to become jointly and severally liable with the
Transferor for the payment of the Joint and Several Obligations (as defined in
such letter agreement). Such letter agreement with the Underwriters is
substantially in the form of Exhibit A hereto.]
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects, as determined by the Representative and
counsel for the Underwriters, when and as provided in this Agreement, this
Agreement and/or Pricing Agreement and all obligations
15
<PAGE> 17
of the Underwriters hereunder and thereunder, may be canceled on, or at any time
prior to, the Closing Date by the Representative. Notice of such cancellation
shall be given to the Transferor in writing, or by telephone or telegraph
confirmed in writing.
The Underwriters shall receive, subsequent to the Closing Date, a letter
from [_____________], dated on or before the filing of the Form 8-K - Mortgage
Pool in form and substance satisfactory to the Underwriters, to the effect that
they have performed certain specified procedures requested by the Underwriters
with respect to the information set forth in such Form 8-K - Mortgage Pool.
7. Expenses. If the sale of the Bonds of any Series provided for herein
is not consummated by reason of a default by the Transferor in its obligations
hereunder (including the failure to satisfy any of the conditions specified in
Section 6), except in the case of a termination of this Agreement in accordance
with Section 12 hereof, then the Transferor will reimburse the Underwriters,
upon demand, for all reasonable out-of-pocket expenses (including, but not
limited to, the reasonable fees and expenses of their counsel) that shall have
been incurred by them in connection with their investigation with regard to the
Transferor and the Bonds and the proposed purchase and sale of the Bonds.
8. Indemnification and Contribution.
A. Regardless of whether any Bonds are sold, the Transferor will
indemnify and hold harmless each Underwriter, each of their respective officers
and directors and each person who controls any Underwriter within the meaning of
the 1933 Act or the Exchange Act, against any and all losses, claims, damages,
or liabilities (including the cost of any investigation, legal and other
expenses incurred in connection with and amounts paid in settlement of any
action, suit, proceeding or claim asserted), joint or several, to which they or
any of them may become subject, under the 1933 Act, the Exchange Act or other
federal or state law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained (i) in the Registration Statement or arise out of or are
based upon the omission or alleged omission (and in the case of any
Computational Materials, as to which a Mortgage Pool Error (as defined below)
occurred) to state therein a material fact necessary to make the statements
therein not misleading or (ii) in the Prospectus or arise out of or are based
upon the omission or alleged omission (and in the case of any Computational
Materials, as to which a Mortgage Pool Error occurred) to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and will reimburse
each such indemnified party for any legal or other expenses reasonably incurred
by it in connection with investigating or defending against such loss, claim,
damage, liability or action; provided, however, that (a) the Transferor shall
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made therein (x) in reliance
upon and in conformity with written information furnished to the Transferor by
or on behalf of an Underwriter, as described (and to the extent described) in
Section 9A of this Agreement, or (y) in the Form 8-K Computational Materials or
in any Form 8-K - ABS Term Sheet, or any
16
<PAGE> 18
amendment or supplement thereof, except to the extent that any untrue statement
or alleged untrue statement therein results (or is alleged to have resulted)
directly from, in the case of the Form 8-K Computational Materials, any Mortgage
Pool Error, or, in the case of any Form 8-K - ABS Term Sheets, any error in
Transferor Provided Information that was used in the preparation of (X) any
Computational Materials or ABS Term Sheets (or amendments or supplements
thereof) included in the Form 8-K - Computational Materials or Form 8-K - ABS
Term Sheets (or amendment or supplement thereof), or (Y) any written or
electronic materials furnished to prospective investors on which the
Computational Materials or Collateral Term Sheets (or amendments or supplements)
were based, (b) such indemnity with respect to any Corrected Statement (as
defined below) in such Prospectus (or supplement thereto) shall not inure to the
benefit of such Underwriter (or any person controlling such Underwriter) from
whom the person asserting any loss, claim, damage or liability purchased the
Bonds that are the subject thereof if such person did not receive a copy of a
supplement to such Prospectus at or prior to the confirmation of the sale of
such Bonds and the untrue statement or omission of a material fact contained in
such Prospectus (or supplement thereto) was corrected (a "Corrected Statement")
in such other supplement and such supplement timely was furnished by the
Transferor to such Underwriter within a reasonable time prior to the delivery of
such confirmation, and (c) such indemnity with respect to any error in
Transferor Provided Information or any Mortgage Pool Error shall not inure to
the benefit of such Underwriter (or any person controlling such Underwriter)
from whom the person asserting any loss, claim, damage or liability received any
Computational Materials or ABS Term Sheets (or any written or electronic
materials on which the Computational Materials or any ABS Term Sheets are based)
that were prepared on the basis of such erroneous Transferor Provided
Information or Mortgage Pool Error, if, within a reasonable time prior to the
time of confirmation of the sale of the applicable Bonds to such person, the
Transferor notified such Underwriter in writing of such error or provided in
written or electronic form information superseding or correcting such error (in
any such case, a "Corrected Error"), and such Underwriter failed to notify such
person thereof or to actually or constructively deliver to such person corrected
Computational Materials or ABS Term Sheets (or underlying written or electronic
materials). This indemnity agreement will be in addition to any liability which
the Transferor may otherwise have. "Mortgage Pool Error" shall mean any error or
omission in the information concerning the characteristics of the Mortgage Loans
furnished by or on behalf of the Transferor to any of the Underwriters in
writing or by electronic transmission.
B. Regardless of whether any Bonds are sold, each Underwriter, will
severally indemnify and hold harmless the Transferor, each of its officers and
directors and each person, if any, who controls the Transferor within the
meaning of the 1933 Act or the Exchange Act against any losses, claims, damages
or liabilities to which they or any of them become subject under the 1933 Act,
the Exchange Act or other federal or state law or regulation, at common law or
otherwise, to the same extent as the foregoing indemnity, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in (i) the Registration Statement or arise out of or are
based upon the omission or alleged omission to state therein a material fact
necessary to make the statements therein not misleading or in (ii) the
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein a material fact necessary to make the statements therein, in light
of the circumstances under which they were
17
<PAGE> 19
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made therein (a) in reliance upon and in conformity with written
information relating to such Underwriter furnished to the Transferor by or on
behalf of such Underwriter, as described in Section 9A of this Agreement,
specifically for use in the preparation thereof and so acknowledged in writing,
or (b) any Computational Materials or ABS Term Sheet (or amendments or
supplements thereof) furnished to the Transferor by such Underwriter pursuant to
Section 9A hereof and incorporated by reference in such Registration Statement
or the related Prospectus or any amendment or supplement thereof (except that no
such indemnity shall be available for any losses, claims, damages or
liabilities, or actions in respect thereof resulting from any error in
Transferor Provided Information or any Mortgage Pool Error, other than a
Corrected Error), and such Underwriter or the Underwriters, as the case may be,
will reimburse the Transferor for any legal or other expenses reasonably
incurred by the Transferor in connection with investigating or defending against
such loss, claim, damage, liability or action.
C. In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Paragraphs A and B above, such person (hereinafter called the
indemnified party) shall promptly notify the person against whom such indemnity
may be sought (hereinafter called the indemnifying party) in writing thereof;
but the omission to notify the indemnifying party shall not relieve such
indemnifying party from any liability which it may have to any indemnified party
otherwise than under such Paragraph. The indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such proceeding
any indemnified party shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel, or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them or because different defenses are available to such
parties. It is understood that the indemnifying party shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the fees and expenses of more than one separate firm (in addition to any
local counsel) for all such indemnified parties, and that all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by the Representative in the case of parties indemnified pursuant to
Paragraph A and by the Transferor in the case of parties indemnified pursuant to
Paragraph B. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent, but if settled with such
consent or if there is a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated above, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered
18
<PAGE> 20
into more than 30 days after receipt by such indemnifying party of the aforesaid
request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
D. If the indemnification provided for in this Section 8 is unavailable
to an indemnified party in respect of any losses, claims, damages or liabilities
referred to herein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall:
(i) in the case of any such losses, claims, damages or liabilities
which do not arise out of or are not based upon any untrue
statement or omission of a material fact in any Computational
Materials or ABS Term Sheet (or any amendments or supplements
thereof) contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the
relative benefits received by the Transferor and the Underwriters
from the sale of the Bonds; and
(ii) in the case of any such losses, claims, damages or liabilities
which arise out of or are based upon any untrue statements or
omissions of a material fact in any Computational Materials or
ABS Term Sheet (or any amendments or supplements thereof),
contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities
in such proportion as is appropriate to reflect both the relative
benefits received by the Transferor and the Underwriters from the
sale of the Bonds and the relative fault of the Transferor and of
the applicable Underwriter or Underwriters in connection with the
statements or omissions that resulted in such losses, claims,
damages or liabilities as well as any other relevant equitable
considerations.
The relative benefits received by the Transferor and the Underwriters
shall be deemed to be in such proportion so that the Underwriters are
responsible for that portion determined by multiplying the total amount of such
losses, claims, damages or liabilities, including legal and other expenses, by a
fraction, the numerator of which is (x) the excess of the Aggregate Resale Price
of the Bonds of the related Series over the aggregate purchase price of the
Bonds specified in the Pricing Agreement and the denominator of which is (y) the
Aggregate Resale Price of such Bonds, and the Transferor is responsible for the
balance, provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of the immediately preceding sentence, the
"Aggregate Resale Price" of the Bonds at the time of any determination shall be
the weighted average of the purchase prices (in each case expressed as a
percentage of the aggregate principal amount of the Bonds so purchased),
determined on the basis of such principal amounts, paid to the
19
<PAGE> 21
Underwriters by all initial purchasers of the Bonds from the Underwriters. The
relative fault of the Transferor and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact of the omission or alleged omission to state a material fact
relates to information supplied by the Transferor or by the applicable
Underwriter or Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Underwriters' obligations in this Paragraph D to contribute are several in
proportion to their respective underwriting obligations and are not joint.
E. The Transferor and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in Paragraph D. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in Paragraph D shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of Section 8D(i), no Underwriter
shall be required to contribute any amount by which the difference between the
Aggregate Resale Price and the aggregate purchase price of the Bonds specified
in the Pricing Agreement exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission.
F. The Transferor and the Underwriters each expressly waive, and agree
not to assert, any defense to their respective indemnification and contribution
obligations under this Section 8 which they might otherwise assert based upon
any claim that such obligations are unenforceable under federal or state
securities laws or by reasons of public policy.
G. The obligations of the Transferor under this Section 8 shall be in
addition to any liability which the Transferor may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
the Underwriters within the meaning of the 1933 Act or the Exchange Act; and the
obligations of the Underwriters under this Section 8 shall be in addition to any
liability that the Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each director of the Transferor and to each
person, if any, who controls the Transferor within the meaning of the 1933 Act
or the Exchange Act; provided, however, that in no event shall the Transferor or
the Underwriters be liable for double indemnification.
9. Information Supplied by Underwriters; Representations and Warranties
of the Underwriters.
The Underwriters and the Transferor agree that the following constitute
the only information furnished by or on behalf of the Underwriters to the
Transferor for the purposes of Sections 2B and 8A hereof:
20
<PAGE> 22
(i) the statements set forth in the last paragraph on the front
cover page of the Prospectus Supplement regarding market making,
and information under the heading "Underwriting" in the
Prospectus Supplement, to the extent such information relates to
all of the Underwriters and not to any particular Underwriter or
affiliate of any particular Underwriter, have been supplied by or
on behalf of all of the Underwriters jointly;
(ii) the information under the heading "Underwriting" in the
Prospectus Supplement, to the extent such information relates to
a particular Underwriter or affiliate of such Underwriter, and
the information contained in any Form 8-K - Computational
Materials and in any Form 8-K - ABS Term Sheets to the extent
supplied to the Transferor by or on behalf of such Underwriter to
be filed in the related Current Report on Form 8-K, in each case
excluding any Transferor Provided Information and only to the
extent not substantially identical in form, substance, scope,
content and context to any information set forth in the
Prospectus, has been supplied by such Underwriter and shall
relate to and be the several responsibility of such Underwriter
and no other Underwriter.
"Computational Materials" shall mean those materials delivered by an
Underwriter to the Transferor within the meaning of the no-action letter dated
May 20, 1994 issued by the Division of Corporation Finance of the Commission to
Kidder, Peabody Acceptance Corporation I, Kidder, Peabody & Co. Incorporated,
and Kidder Structured Asset Corporation and the no-action letter dated May 27,
1994 issued by the Division of Corporation Finance of the Commission to the
Public Securities Association (together, the "Kidder Letters") for which the
filing of such material is a condition of the relief granted in such letters.
"ABS Term Sheet" shall mean those materials delivered by an Underwriter to the
Transferor in the form of "Structural Term Sheets" or "Collateral Term Sheets,"
in each case within the meaning of the no-action letter dated February 13, 1995
issued by the Division of Corporation Finance of the Commission to the Public
Securities Association (the "PSA Letter") for which the filing of such material
is a condition of the relief granted in such letter. "Transferor Provided
Information" shall mean any information presented in any ABS Term Sheet (or
underlying materials) provided to the Underwriters by or on behalf of the
Transferor specifically for use in ABS Term sheets in writing or through
electronic or magnetic data storage or transmission methods, in tabular, graphic
or textual form, regardless of whether or not such information is presented in
any ABS Term Sheets in the same format in which such information was provided to
the Underwriters, but shall not include (i) any such information to the extent
that, as presented in any ABS Term Sheet, such information contains, or is
alleged to contain, any untrue statement of a material fact or omits, or is
alleged to omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading due to any (a)
typographical or similar error or (b) stylistic, contextual or other
presentational considerations with respect to such ABS Term Sheets, including
the format of tables, the phraseology of text or the placement or juxtaposition
of such information in relation to any other information presented therein
(whether or not Transferor Provided Information), in each case, not present in
such information (in the aggregate), or in the manner of presentation or
communication thereof to the Underwriters, when provided to the Underwriters by
the Transferor or (ii) any information set forth in an ABS Term Sheet to the
21
<PAGE> 23
extent that such information, as presented in the Prospectus is not
substantially identical in form, substance, scope, content or context thereto.
Each Underwriter shall deliver to the Transferor (or counsel to the Transferor)
a complete copy of all materials (which, if reasonably requested by the
Transferor, shall be on computer compatible disk or such other acceptable
electronic form) provided by such Underwriter to prospective investors in such
Bonds which constitute or are deemed to constitute Computational Materials or
ABS Term Sheets, at least one business day before the date or dates on which the
related Form 8-K - Computational Materials or Form 8-K - ABS Term Sheets
relating to the Bonds are required to be filed by the Transferor with the
Commission pursuant to Section 5K or 5L hereof.
Each Underwriter severally represents and warrants to and agrees with
the Transferor, that, as of the date of the related Closing Date:
(i) any Computational Materials and ABS Term Sheets furnished by it
to the Transferor pursuant to Section 9A hereof constitute
(either in original, aggregated or consolidated form) all of the
materials furnished by it to prospective investors prior to the
time of delivery thereof to the Transferor and that it reasonably
believes that such materials constitute the type of materials
contemplated by the Kidder Letters and the PSA Letter; and
(ii) on the date of delivery of any such Computational Materials or
ABS Term Sheets to the Transferor pursuant to this Section 9 and
on the related Closing Date such Computational Materials and ABS
Term Sheets (or materials) did not and will not include any
untrue statement of a material fact, or, when read in conjunction
with the related Prospectus and Prospectus Supplement, omit to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
Notwithstanding the foregoing, the Underwriters make no representation
or warranty as to whether any Computational Materials or ABS Term Sheets (or any
written or electronic materials on which such Computational Materials or ABS
Term Sheets are based) included or will include any untrue statement resulting
directly from any Mortgage Pool Error or, in the case of an ABS Term Sheet, any
error in Transferor Provided Information.
Each Underwriter agrees that it will not represent to investors that any
Computational Materials or ABS Term Sheets delivered thereto were prepared by,
or disseminated on behalf of, the Transferor.
10. Notices. All communications hereunder shall be in writing and, if
sent to the Underwriters, shall be mailed or delivered or telecopied and
confirmed in writing to the Representative and, if sent to the Transferor, shall
be mailed, delivered or telegraphed and confirmed in writing to the Transferor
at [3731 Wilshire Boulevard, Los Angeles, California 90010, Attention:________];
with a copy addressed to [________________________________________________].
22
<PAGE> 24
11. Survival. All representations, warranties, covenants and agreements
of the Transferor contained herein or in agreements or certificates delivered
pursuant hereto, the agreements of the Underwriters and the Transferor contained
in Section 8 hereof, and the representations, warranties and agreements of the
Underwriters contained in Section 3 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
Underwriters or any controlling persons, or any subsequent purchaser or the
Transferor or any of its officers, directors or any controlling persons, and
shall survive delivery of and payment for the Bonds. The provisions of Sections
5, 7 and 8 hereof shall survive the termination or cancellation of this
Agreement or any Pricing Agreement.
12. Termination. The Underwriters shall have the right to terminate this
Agreement and/or the Pricing Agreement by giving notice as hereinafter specified
at any time at or prior to the applicable Closing Date if (a) trading generally
shall have been suspended or materially limited on or by, as the case may be,
any of the New York Stock Exchange, the American Stock Exchange, the Nasdaq
National Market, the Chicago Board Options Exchange, the Chicago Board of Trade
or the London Stock Exchange Limited, (b) trading of any securities of the
Transferor or AFC shall have been suspended on any exchange or in any
over-the-counter market, (c) a general moratorium on commercial banking
activities shall have been declared by any of the federal, [California or New
York State] authorities, (d) there shall have occurred any outbreak or
escalation of hostilities or any change in the national or international
financial markets or any calamity or crisis which, in the Representative's
reasonable judgment, is material and adverse, and, in the case of any of the
events specified in clauses (a) through (d), such event singly or together with
any other such event makes it in the Representative's reasonable judgment
impractical to market the Bonds. Any such termination shall be without liability
of any other party except that the provisions of Paragraph G of Section 5
(except with respect Section 5G(vii)) and Section 8 hereof shall at all times be
effective. If the Underwriters elect to terminate this Agreement and/or the
Pricing Agreement as provided in this Section 12, the Transferor shall be
notified promptly by the Representative by telephone, telegram or facsimile
transmission, in any case, confirmed by letter.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns
(which successors and assigns do not include any person on purchasing a Bond
from the Underwriters), and the officers and directors and controlling persons
referred to in Section 8 hereof and their respective successors and assigns, and
no other persons will have any right or obligations hereunder.
14. Applicable Law; Venue. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York. Any
action or proceeding brought to enforce or arising out of any provision of this
Agreement shall be brought only in a state or federal court located in the
Borough of Manhattan, New York City, New York, and the parties hereto expressly
consent to the jurisdiction of such courts and agree to waive any defense or
claim of forum non conveniens they may have with respect to any such action or
proceeding brought.
23
<PAGE> 25
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall together constitute but one and the same
instrument.
16. Amendments and Waivers. This Agreement may be amended, modified,
altered or terminated, and any of its provisions waived, only in a writing
signed on behalf of the parties hereto.
Very truly yours,
TRANSFEROR
By:
-------------------------------------------
Name:
Title:
[NAME OF UNDERWRITER]
By:
-------------------------------------
Name:
Title:
For itself and as
Representative of the several
Underwriters named in Schedule I
to the Pricing Agreement
24
<PAGE> 26
EXHIBIT A
[ Date ]
[Name of Underwriter]
as Representative of the several Underwriters
named in Schedule I to the Pricing Agreement
c/o [Underwriter/Address]
Re: Underwriting Agreement for Aames Capital Owner Trusts, dated [_____]
(the "Underwriting Agreement") between [Transferor] (the
"Transferor") and [Underwriter] as Representative of the several
Underwriters named in Schedule I to the Pricing Agreement dated
[_____________] (the "Pricing Agreement")
Ladies and Gentlemen:
Pursuant to the Underwriting Agreement and Pricing Agreement
(collectively, the "Designated Agreement"), the Transferor has undertaken
certain financial obligations with respect to the indemnification of the
Underwriters with respect to the Registration Statement, and the Prospectus
described in the Designated Agreement. Any financial obligations of the
Transferor under the Designated Agreement, whether or not specifically
enumerated in this paragraph, are hereinafter referred to as the "Joint and
Several Obligations"; provided, however, that "Joint and Several Obligations"
shall mean only the financial obligations of the Transferor under the Designated
Agreement (including the payment of money damages for a breach of any of the
Transferor's obligations under the Designated Agreement, whether financial or
otherwise) but shall not include any obligations not relating to the payment of
money.
As a condition of its execution of the Designated Agreement, the
Underwriters have required the undersigned, [Parent ("Parent")], the parent
corporation of the Transferor, to acknowledge its joint and several liability
with the Transferor for the payment of the Joint and Several Obligations under
the Designated Agreement.
Now, therefore, the Underwriters and the Parent do hereby agree that:
(i) the Parent hereby agrees to be absolutely and unconditionally
jointly and severally liable with the Transferor to the
Underwriters for the payment of the Joint and Several Obligations
under the Designated Agreement.
Exhibit A
<PAGE> 27
(ii) the Parent may honor its obligations hereunder either by direct
payment of any Joint and Several Obligations or by causing any
Joint and Several Obligations to be paid to the Underwriters by
the Transferor or another affiliate of the Parent.
Capitalized terms used herein and not defined herein shall have their
respective meanings as set forth in the Designated Agreement.
Very truly yours,
[PARENT]
By:
---------------------------------------
Name:
Title:
[NAME OF UNDERWRITER]
By:
-------------------------------------
Name:
Title:
For itself and as
Representative of the several
Underwriters named in Schedule I
to the Pricing Agreement
Exhibit A
<PAGE> 28
APPENDIX A
FORM OF OPINION OF
COUNSEL TO THE COMPANY
The Transferor is a corporation duly organized, validly existing and in
good standing under the laws of the State of [Delaware].
ACC is a corporation duly organized, validly existing and in good
standing under the laws of the State of California.
AFC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
The Transferor has full corporate power and corporate authority to own
its assets and to conduct its business as described in the Prospectus and to
enter into and perform its obligations under the Basic Documents, the
Underwriting Agreement and Pricing Agreement and the Indemnification Agreement
(the "Documents").
ACC has full corporate power and corporate authority to own its assets
and to conduct its business as now being conducted and to enter into and perform
its obligations under the Documents to which it is a party.
AFC has full corporate power and corporate authority to own its assets
and to conduct its business as now being conducted and to enter into and perform
its obligations under the Letter Agreement.
Each of ACC and the Transferor is duly qualified as a foreign
corporation and is in good standing under the laws of each jurisdiction where it
owns or leases any real property or has any permanently located employees.
Each of ACC and the Transferor has all material licenses, franchises and
permits of and from all public, regulatory or governmental officials or bodies,
necessary to (i) conduct its business as now being conducted and as described in
the Prospectus, and (ii) perform its obligations under the Documents to which it
is a party.
The execution, acknowledgment, delivery and performance by ACC and the
Transferor of the Documents to which it is a party have been duly authorized by
all requisite corporate action. The execution, acknowledgment, delivery and
performance by AFC of the Letter Agreement have been duly authorized by all
requisite corporate action.
The Transferor has duly authorized and executed the written order to the
Owner Trustee to execute and deliver the Issuer Order to the Indenture Trustee.
The Transferor has duly
Appendix A
<PAGE> 29
authorized and executed the written order to the Owner Trustee to execute and
deliver the Certificates.
Neither the execution or delivery of, nor the performance by the
Transferor of its obligations under, the Documents to which it is a party, nor
the offer, issuance, sale or delivery of the Securities (i) violates any of the
provisions of the Transferor's Articles of Incorporation or By-laws, (ii)
violates any judgment, decree, writ, injunction, award, determination or order
known to such counsel which is applicable to Transferor or any of its
properties, or by which the Transferor or any of its properties are bound or
affected, (iii) conflicts with, or results in a breach of, or constitutes a
default under, any of the provisions of any of the Transferor's material
contracts, or (iv) results in the creation or imposition of any lien on any of
its properties pursuant to the terms of any of the Transferor material
contracts.
Neither the execution or delivery of, nor the performance by ACC of its
obligations under, the Documents to which it is a party (i) violates any of the
provisions of ACC's Certificate of Incorporation or By-laws, (ii) violates any
judgment, decree, writ, injunction, award, determination or order known to such
counsel which is applicable to ACC or any of its properties, or by which ACC or
any of its properties are bound or affected, (iii) conflicts with, or results in
a breach of, or constitutes a default under, any of the provisions of any of
ACC's material contracts, or (iv) results in the creation or imposition of any
lien on any of its properties pursuant to the terms of any of ACC's material
contracts.
Neither the execution or delivery of, nor the performance by AFC of its
obligations under, the Letter Agreement (i) violates any of the provisions of
AFC's Certificate of Incorporation or By-laws, (ii) violates any judgment,
decree, writ, injunction, award, determination or order known to such counsel
which is applicable to AFC or any of its properties, or by which AFC or any of
its properties are bound or affected, (iii) conflicts with, or results in a
breach of, or constitutes a default under, any of the provisions of any of AFC's
material contracts, or (iv) results in the creation or imposition of any lien on
any of its properties pursuant to the terms of any of AFC's material contracts.
No consent, approval or authorization from, or registration or filing
with or notice to, any court or governmental body is required to be obtained,
made or given by the Transferor in connection with its authorization, execution,
delivery of, or performance of its obligations under the Documents or in
connection with the issuance, sale or delivery of the Securities.
No consent, approval or authorization from, or registration or filing
with or notice to, any court or governmental body is required to be obtained,
made or given by ACC in connection with its authorization, execution, delivery
of, or performance of its obligations under Documents.
No consent, approval or authorization from, or registration or filing
with or notice to, any court or governmental body is required to be obtained,
made or given by AFC in connection with its authorization, execution, delivery
of, or performance of its obligations under the Letter Agreement.
Appendix A
<PAGE> 30
Based upon such counsel's knowledge, there is no pending or threatened
action, suit, proceeding or investigation before or by any court, administrative
agency, arbitrator or governmental body against or affecting the Transferor or
ACC which, if decided adversely, would materially and adversely affect (i) the
ability of the Transferor or ACC to perform its obligations under, or the
validity or enforceability of, the Documents, (ii) any mortgaged property or
title of any mortgagor to such mortgaged property, or (iii) the Indenture
Trustee's ability to foreclose or otherwise enforce the liens of the mortgage
loans.
The Registration Statement is effective under the 1933 Act and, to the
best of such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued, or proceeding for that purpose
instituted or threatened by the Commission. The Registration Statement as of its
effective date and the Prospectus as of the date there of, other than the
Computational Materials, numerical, financial and statistical data included or
incorporated by reference in the Registration Statement and the Prospectus, as
to which such counsel need not express an opinion, complied as to form in all
material respects with the requirements of the 1933 Act and the rules
thereunder.
The execution and delivery of each of the Underwriting Agreement, the
Pricing Agreement and the Indemnification Agreement has been duly authorized by
all necessary corporate action of the Transferor and each of the Underwriting
Agreement, the Pricing Agreement and the Indemnification Agreement has been duly
executed and delivered by the Transferor; the execution and delivery of the
Letter Agreement has been duly authorized by all necessary corporate action of
AFC and the Letter Agreement has been duly executed and delivered by AFC.
The execution and delivery of the Documents to which it is a party have
been duly authorized by the Transferor and each of the Documents to which it is
a party have been duly executed and delivered by the Transferor and constitutes
the valid, legal and binding agreements of the Transferor, enforceable against
the Transferor 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.
The execution and delivery of the Documents to which it is a party have
been duly authorized by ACC and each of the Documents to which it is a party
have been duly executed and delivered by ACC and constitutes a valid, legal and
binding agreement of ACC, enforceable against ACC 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.
The execution and delivery of the Insurance and Indemnity Agreement has
been duly authorized by the Transferor and the Insurance and Indemnity Agreement
has been duly executed
Appendix A
<PAGE> 31
and delivered by the Transferor and constitutes a valid, legal and binding
agreement of the Transferor, enforceable against the Transferor in accordance
with its terms except (i) 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, and (ii) as
the rights to indemnification or contribution thereunder may be limited by
federal or state securities laws.
The Bonds will, when duly executed and authenticated as specified in the
Indenture and delivered by the Owner Trustee on behalf of the Trust in exchange
for the Mortgage Loans and the other assets conveyed by the Transferor to the
Trust pursuant to the Basic Documents, be validly issued, outstanding and
entitled to the benefits of the Indenture.
The Bonds and the Documents conform in all material respects to the
descriptions thereof contained in the Prospectus.
The statements in the Base Prospectus and the Prospectus Supplement, as
the case may be, under the headings Risk Factors," "Certain Legal Aspects of the
Mortgage Loans," "Certain Federal Income Tax Considerations," and "ERISA
Considerations," to the extent that they constitute matters of California, New
York or federal law or legal conclusions with respect thereto, are correct in
all material respects to the extent of those consequences or aspects that are
discussed.
The Bonds will be treated as debt for federal income tax purposes. The
Trust will not be treated as an association taxable as a corporation or as a
publicly traded partnership taxable as a corporation.
Neither the Trust Agreement nor the Initial Mortgage Loan Conveyance
Agreement is required to be qualified under the Trust Indenture Act of 1939, as
amended, and the Trust is not required to be registered, and neither the
Transferor, ACC nor AFC is an "investment company" as such term is defined,
under the Investment Company Act of 1940, as amended.
The form of Indenture has been qualified under the Trust Indenture Act
of 1939, as amended.
Neither the transfer of the Mortgage Loans to the Trust, the issuance
and sale of the Bonds to the Underwriters pursuant to the Underwriting
Agreement, the compliance by the Transferor with other provisions of the
Underwriting Agreement, the Documents and the Securities, nor the consummation
of the transactions therein contemplated as to the transfer of the Mortgage
Loans and the sale of the Bonds by the Transferor require the consent, approval,
authorization, order, registration or qualification of or with any court or
governmental authority, except such as have been obtained or effected under the
1933 Act (and except with respect to any consent, approval, authorization,
registration or qualification which may be required under state securities or
Blue Sky laws as to which matters such counsel need not express an opinion) and
such other approvals as have been obtained, or conflict with or result in a
breach or violation of
Appendix A
<PAGE> 32
any of the terms and provisions of, or constitute a default under, the charter
or bylaws of the Transferor, or any statute or regulation applicable to the
Transferor or, to the best of such counsel's knowledge, any judgment, decree or
order applicable to the Transferor of any court, regulatory body, administrative
agency or other governmental authority.
Assuming compliance with the provisions of the Basic Documents, and
subject to the limitations and conditions set forth therein, the Trust and ACC,
acting in its capacity as Servicer under the terms of the Servicing Agreement,
will be entitled to enforce the terms of each Note and Mortgage in accordance
with their respective terms, except to the extent such enforcement 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.
The Indenture creates in favor of the Indenture Trustee a security
interest in the [Trust Estate] in favor of the Indenture Trustee on behalf of
the Noteholders to the extent that a security interest in such [Trust Estate]
can be created under Article 9 of the UCC as currently in effect in the State of
California. Upon delivery of the Mortgage Notes to the Indenture Trustee, the
Indenture Trustee will have a first priority perfected security interest in the
Mortgage Notes.
The Indenture is effective to create a valid security interest in the
Trust Account Property which constitutes "money" as defined in Section 1-201(24)
of the UCC ("Money") and "instruments" as defined in Section 9-105(1)(i) of the
UCC (but excluding any instruments constituting Certificated Securities)
("Instruments") in favor of the Indenture Trustee for the benefit of the
Noteholders, to secure the obligations of the Trust, as set forth in the
Indenture. The security interest of the Indenture Trustee in that portion of the
Trust Account Property which constitutes Money or Instruments will be perfected
upon delivery thereof to the Indenture Trustee in the State of California. Upon
such delivery, no other security interest of any other creditor of the Trust
will be equal or prior to the security interest of the Indenture Trustee in such
Money or Instruments.
In the case of Trust Account Property which constitutes Clearing
Corporation Securities, Certificated Securities, Uncertificated Securities and
Federal Book-Entry Securities, the "transfer" (within the meaning of Section
8-313 of the UCC) of such securities to the Indenture Trustee, together with the
Indenture, is effective to create a valid and perfected security interest in
such securities. Upon such transfers no other security interest of any other
creditor of the Trust or the Transferor, respectively, will be equal or prior to
the security interest of the Indenture Trustee in the related securities.
"Transfer" of the related securities to the Indenture Trustee will occur upon
Delivery thereof as provided in the Documents.
In addition, such counsel shall state that nothing has come to their
attention that would lead them to believe that the Registration Statement (other
than the Computational Materials, the financial, numerical, statistical and
quantitative information included or incorporated by reference therein, as to
which such counsel need not make any statement), at the Effective Time,
contained an untrue statement of a material fact or omitted to state a material
fact required to be
Appendix A
<PAGE> 33
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus (other than the Computational Materials, the financial,
numerical, statistical and quantitative information included or incorporated by
reference therein, and the information with respect to the Certificate Insurer,
as to which such counsel need not make any statement), at its issue date or at
the date of the Closing, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
Appendix A
<PAGE> 34
APPENDIX B
FORM OF OPINION OF COUNSEL TO INDENTURE TRUSTEE
1. The Indenture Trustee is a national banking association with trust
powers, duly organized and validly existing in good standing under the laws of
the United States of America, and has all requisite power and authority to enter
into the Indenture and perform the obligations of trustee thereunder.
2. The Indenture has been duly authorized, executed, and delivered by
the Indenture Trustee and constitutes the legal, valid, and binding obligation
of the Indenture Trustee enforceable against the Indenture Trustee in accordance
with its terms, except as enforceability may be limited by applicable bankruptcy
and insolvency laws and other similar laws affecting the enforcement of
creditors' rights generally and by general equity principles.
3. The execution and delivery of the Indenture by the Indenture Trustee
and the performance by the Indenture Trustee of its terms do not conflict with
or result in a violation (A) of any law or regulation of the United States of
America or the State of California governing the banking or trust powers of the
Indenture Trustee, or (B) the Articles of Association or By-laws of the
Indenture Trustee.
4. No approval, authorization, or other action by, or filing with, any
governmental authority of the United States of America or the State of
California having jurisdiction over the banking or trust powers of the Indenture
Trustee is required in connection with its execution and delivery of the
Indenture or the performance by the Indenture Trustee of the terms of the
Indenture.
5. The Indenture Trustee has the power and authority to perform its
duties pursuant to Sections 6.01 and 6.02 of the Servicing Agreement to act as a
successor servicer, including the making of advances as described in Sections
6.01 and 6.02 of the Servicing Agreement.
6. The Bonds have been duly executed, authenticated and delivered by the
Indenture Trustee.
Appendix B
<PAGE> 35
APPENDIX C
FORM OF OPINION OF
COUNSEL TO THE OWNER TRUSTEE
1. The Owner Trustee is duly incorporated and validly existing as a
____________under the laws of the ______________ and has the power and authority
to execute and deliver the Trust Agreement.
2. The execution and delivery of the Trust Agreement by the Owner
Trustee and the performance by the Owner Trustee of its obligations under the
Trust Agreement have been duly authorized by all necessary action of the Owner
Trustee and the Trust Agreement has been duly executed and delivered by the
Owner Trustee.
3. The Trust Agreement constitutes valid and binding obligations of the
Owner Trustee enforceable against the Owner Trustee in accordance with its
terms, except as the enforceability thereof may be (a) limited by bankruptcy,
insolvency, reorganization, moratorium, liquidation or other similar laws
affecting the rights of creditors generally, and (b) subject to general
principals of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4. The execution and delivery by the Owner Trustee of the Trust
Agreement and the transactions contemplated thereby do not require any consent,
approval or authorization of, or any registration or filing with, any applicable
governmental authority of the State of Delaware which has not been obtained or
done.
5. Neither the consummation by the Owner Trustee of the transactions
contemplated in the Trust Agreement, nor the fulfillment of the terms thereof by
the Owner Trustee will conflict with, result in a breach or violation of, or
constitute a default under the charter or the other organizational documents of
the Owner Trustee.
Appendix C
<PAGE> 36
APPENDIX D
FORM OF OPINION OF
COUNSEL TO THE TRUST
1. The Trust Agreement is the legal, valid and binding agreement of the
Owner Trustee and the Transferor, enforceable against the Owner Trustee, and the
Transferor in accordance with its terms subject to (i) applicable bankruptcy,
insolvency, moratorium, receivership, reorganization, fraudulent conveyance and
similar laws relating to and affecting the rights and remedies of creditors
generally, (ii) principles of equity (regardless of whether considered and
applied in a proceeding in equity or at law), and (iii) the effect of applicable
public policy on the enforceability of provisions relating to indemnification or
contribution.
2. The Certificate of Trust has been duly filed with the Secretary of
State of the State of Delaware. The Trust has been duly formed and is validly
existing as a business trust under the Delaware Business Trust Act.
3. The Trust has the power and authority under the Trust Agreement and
the Delaware Business Trust Act to execute, deliver and perform its obligations
under the Basic Documents to which it is a party, the Bonds and the
Certificates, and to issue the Bonds and the Certificates.
4. The Trust has duly authorized and executed the Basic Documents to
which it is a party, the Bonds and the Certificates.
5. The Trust has the power under the Trust Agreement and the Delaware
Business Trust Act to pledge the Trust Estate to the Indenture Trustee as
security for the Bonds.
6. The Certificates have been executed, authenticated and delivered by
the Owner Trustee upon the order of the Transferor in accordance with the Trust
Agreement and when delivered to and paid for, the Certificates will be validly
issued and outstanding, and the holder of record of any such Certificates will
be entitled to the benefits accorded by the Trust Agreement subject to (i)
applicable bankruptcy, insolvency, moratorium, receivership, reorganization,
fraudulent conveyance and similar laws relating to and affecting the rights and
remedies of creditors generally, (ii) principles of equity (regardless of
whether considered and applied in a proceeding in equity or at law), and (iii)
the effect of applicable public policy on the enforceability of provisions
relating to indemnification or contribution.
7. The Bonds have been executed, authorized and delivered by the Owner
Trustee upon the order of the Transferor in accordance with the Trust Agreement
and the Indenture.
8. Under Section 3805(b) of the Delaware Business Trust Act, no creditor
of any Certificateholder shall have any right to obtain possession of, or
otherwise exercise legal or equitable remedies with respect to, the property of
the Trust except in accordance with the terms
Appendix D
<PAGE> 37
of the Trust Agreement subject to (i) applicable bankruptcy, insolvency,
moratorium, receivership, reorganization, fraudulent conveyance and similar laws
relating to and affecting the rights and remedies of creditors generally, (ii)
principles of equity (regardless of whether considered and applied in a
proceeding in equity or at law), and (iii) the effect of applicable public
policy on the enforceability of provisions relating to indemnification or
contribution.
9. The execution and delivery by the Owner Trustee of the Trust
Agreement and, on behalf of the Trust, of the Indenture, the Mortgage Loan
Contribution Agreement and the Servicing Agreement do not require any consent,
approval or authorization of, or any registration or filing with, any
governmental authority of the State of Delaware, except for the filing of the
Certificate of Trust with the Secretary of State.
10. Neither the consummation by the Owner Trustee of the transactions
contemplated by the Trust Agreement or, on behalf of the Trust, the transactions
contemplated by the Trust Agreement, Indenture, Mortgage Loan Contribution
Agreement and the Servicing Agreement nor the fulfillment of the terms thereof
by the Owner Trustee will conflict with or result in a breach or violation of
any law of the State of Delaware.
Such opinion may contain such assumptions, qualifications and
limitations as are customary in opinions of this type and are reasonably
acceptable to counsel to the Underwriters. In rendering such opinion, such
counsel may state that they express no opinion as to the laws of any
jurisdiction other than the Federal law of the United States of America and the
laws of the State of Delaware.
Appendix D
<PAGE> 38
APPENDIX E
FORM OF OPINION OF COUNSEL TO INSURER
1. The Insurer is a stock insurance company duly organized, validly
existing and authorized to conduct financial guaranty insurance business under
the laws of the State of New York.
2. The Policy, the Insurance and Indemnity Agreement and the
Indemnification Agreement (the "Agreements") have been duly authorized, executed
and delivered by the Insurer.
3. The Policy and the Agreements constitute valid and binding
obligations of the Insurer, enforceable against the Insurer in accordance with
their terms subject, as to the enforcement of remedies, bankruptcy, insolvency,
reorganization, rehabilitation, moratorium and other similar laws affecting the
enforceability of creditors' rights generally applicable in the event of the
bankruptcy or insolvency of the Insurer and to the application of general
principles of equity and subject, in the case of the Indemnification Agreement,
to principles of public policy limiting the right to enforce the indemnification
provision contained therein insofar as they relate to indemnification for
liabilities arising under applicable securities laws.
4. The Policy is exempt from registration under the 1933 Act.
5. Neither the execution or delivery by the Insurer of the Policy or the
Agreements, nor the performance by the Insurer of its obligations thereunder,
will conflict with any provision of the certificate of incorporation or the
by-laws of the Insurer or, to the best of such counsel's knowledge, result in a
breach of, or constitute a default under any agreement or other instrument to
which the Insurer is a party to which it or any of its property is bound, or to
the best of such counsel's knowledge, violate any consent, order to decree
applicable to the Insurer of any governmental or regulatory body, administrative
agency, court or arbitrator having jurisdiction over the Insurer (except that in
the published opinion of the Commission the indemnification provisions of the
Indemnification Agreement, insofar as they relate to indemnification or
liabilities arising under the 1933 Act, are against public policy as expressed
in the 1933 Act and are therefore unenforceable).
In addition, please be advised such counsel has reviewed the description
of the Insurer under the caption "Certificate Insurer" in the Prospectus
Supplement (the "Offering Document") of the Transferor with respect to the
securities. The information provided in the Offering Document with respect to
the Insurer is limited and does not purport to provide the scope of disclosure
required to be included in a prospectus with respect to a registrant under the
1933 Act in connection with the public offer and sale of securities of such
registrant. Within such limited scope of disclosure, however, there has not come
to such counsel's attention any information which would cause such counsel to
believe that the description of the Insurer referred to above, as of the date of
the Offering Document or as of the date of such opinion, contained or contains
any untrue statement of a material fact or omitted or omits to state a material
fact necessary to
Appendix E
<PAGE> 39
make the statements therein, in the light of the circumstances under which they
are made, not misleading (except that such counsel need not express an opinion
with respect to any financial statements or other financial information
contained or referred to therein).
Appendix E
<PAGE> 40
ANNEX A
AAMES CAPITAL ACCEPTANCE CORP.
Adjustable Rate Asset Backed Bonds
PRICING AGREEMENT
[ Date ]
[Name of Undewriter]
as Representative of the several Underwriters
named in Schedule I hereto
[c/o Underwriter/Address]
Ladies and Gentlemen:
Transferor (the "Transferor") proposes, subject to the terms and
condition stated herein and the Underwriting Agreement, dated [__________] (the
"Underwriting Agreement"), between the Transferor and [Underwriter], as
underwriter and as Representative (in such capacity, the "Representative" of the
several underwriters named in Schedule I hereto (together with the
Representative, the "Underwriters"), to issue and sell to the Underwriters the
series of asset-backed bonds specified in Schedule II hereto (the "Bonds"). Each
of the provisions of the Underwriting Agreement is incorporated herein by
reference in its entirety, and shall be deemed to be a part of this Agreement to
the same extent as if such provisions had been set forth in full herein; and
each of the representations and warranties set forth therein shall be deemed to
have been made at and as of the date of this Pricing Agreement, except that each
representation and warranty with respect to the Prospectus in Section 1 of the
Underwriting Agreement shall be deemed to be a representation or warranty as of
the date of the Underwriting Agreement in relation to the Prospectus (as therein
defined), and also a representation and warranty as of the date of this Pricing
Agreement in relation to the Prospectus as amended or supplemented with respect
to the Bonds. Each reference to Representative contained in the Underwriting
Agreement shall be deemed to refer to the Representative named herein. Unless
otherwise defined herein, terms in the Underwriting Agreement are used herein as
therein defined.
An amendment to the Registration Statement, or a supplement to the
Prospectus, as the case may be, relating to the Bonds in the form heretofore
delivered to you is now proposed to be filed or, in the case of a supplement,
mailed for filing with the Commission.
Subject to the terms and conditions set forth herein and in the
Underwriting Agreement incorporated herein by reference, the Transferor agrees
to issue and sell to the Underwriters, and the Underwriters, severally and not
jointly, agree to purchase from the Transferor, at the time and
Annex A
<PAGE> 41
at the purchase price set forth in Schedule II hereto, the aggregate amount of
each Class of Bonds set forth opposite the name of such Underwriter set forth in
Schedule I hereto.
If the foregoing is in accordance with your understanding, please sign
and return to us five counterparts hereof, and upon acceptance hereof by you,
this letter and such acceptance hereof, including the provisions of the
Underwriting Agreement incorporated herein by reference, shall constitute a
binding agreement between the Underwriters and the Transferor.
Very truly yours,
[TRANSFEROR]
By:
---------------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
[NAME OF UNDERWRITER]
By:
-------------------------------------
Name:
Title:
For itself and as
Representative of the several
Underwriters named in
Schedule I hereto
Annex A
<PAGE> 42
SCHEDULE I
UNDERWRITER PRINCIPAL AMOUNT OF BONDS
Total $
Schedule I
<PAGE> 43
SCHEDULE II
Registration Statement No. [___________]
Base Prospectus [Date]
Prospectus Supplement dated [__________]
Amount of Bonds: [_________] (approximate)
Initial Interest Rate: LIBOR plus .[__%]
Purchase Price Percentage: [__%]
Cut-off Date:
Closing:
Denominations: [________________________________].
Representative with respect to the Bonds [Name of Underwriter]
Insurer:
Location of Settlement:
Schedule II
<PAGE> 1
Exhibit 1.1
AAMES CAPITAL CORPORATION
AND
THE UNDERWRITERS
UNDERWRITING AGREEMENT
FOR
AAMES MORTGAGE TRUSTS
MORTGAGE PASS-THROUGH CERTIFICATES,
ISSUABLE IN SERIES
[DATE]
<PAGE> 2
[Date]
[Underwriter]
as Representative of the several Underwriters
named in Schedule I to the Pricing Agreement
c/o [Underwriter/Address]
Aames Capital Corporation (the "Company") proposes, from time to time,
to enter into one or more pricing agreements (each a "Pricing Agreement") in the
form of Annex A hereto, with such additions and deletions as the parties thereto
may determine, and, subject to the terms and conditions stated herein and
therein, to issue in series (each a "Series") and to sell to the Underwriters
(as hereinafter defined), mortgage pass-through certificates, each Series of
which is to be issued pursuant to an applicable pooling and servicing agreement
(a "Pooling and Servicing Agreement") to be dated as of the applicable Cut-off
Date (as defined in the Pricing Agreement), between the Company, as seller and
servicer, and [ ], as trustee (the "Trustee"). [Underwriter] will act as
underwriter and as Representative (in such capacity, the "Representative") of
the several underwriters named in Schedule I hereto (the "Underwriters"). Each
Series of Certificates (as defined below) will evidence an undivided beneficial
ownership interest in a separate Trust (as defined in the related Pooling and
Servicing Agreement) consisting primarily of a pool (the "Pool") of mortgage
loans (the "Mortgage Loans") listed in an attachment to such Pooling and
Servicing Agreement. The Certificates will be issued in one or more classes
(each a "Class"), which may be divided into one or more subclasses (each a
"Subclass"). Any rights of holders of Certificates of a particular Class or
Subclass to receive certain distributions with respect to the Mortgage Loans
that are senior to such rights of holders of Certificates of any other Class or
Subclass of the same Series shall be specified in the Pricing Agreement. The
Certificates of a Series to be purchased pursuant to a Pricing Agreement will be
described more fully in the base Prospectus and the related Prospectus
Supplement (each of which terms is defined below) which the Company will furnish
to the Underwriters.
On or prior to the date of issuance of the Certificates of any Class, if
specified in the Pricing Agreement, the Company will obtain a certificate
guaranty insurance policy satisfying the description thereof in the Offering
Document.
As used herein, the term "Execution Time" shall mean the date and time
that the Pricing Agreement is executed and delivered by the parties thereto; the
term "Agreement," "this Agreement" and terms of similar import shall mean this
Underwriting Agreement including the Pricing Agreement; and the term "Closing
Date" shall mean the Closing Date specified in the Pricing Agreement. All
capitalized terms used but not otherwise defined herein have the
<PAGE> 3
respective meanings set forth in the form of Pooling and Servicing Agreement
heretofore delivered to the Representative.
1. Securities. Unless otherwise specified in the Pricing Agreement, the
Certificates of each Series will be issued in classes as follows: (i) a senior
class (which may include two or more subclasses) with respect to each Mortgage
Loan Group (collectively, the "Class A Certificates"), (ii) one or more
mezzanine classes (which may include two or more subclasses) with respect to the
Fixed Rate Group (collectively, the "Class M Certificates"), (iii) a subordinate
class (which may include two or more subclasses) with respect to the Fixed Rate
Group (collectively, the "Class B Certificates"), (iv) the Class C Certificates
(the "Class C Certificates"), and (v) a residual class with respect to each
REMIC election made with respect to the Trust (the "Class R Certificates). The
Class A Certificates, the Class M Certificates and the Class B Certificates
specified in the Pricing Agreement are hereinafter referred to as the "Offered
Certificates." The Offered Certificates, the Class C Certificates and the Class
R Certificates are hereinafter referred to as the "Certificates."
2. Representations and Warranties of the Company. The Company represents
and warrants to, and covenants with, each Underwriter that:
A. A registration statement on Form S-3 (Registration No. [ ]),
including a prospectus and a form of prospectus supplement that
contemplates the offering of mortgage pass-through certificates from
time to time, has been filed by the Company and Aames Capital Acceptance
Corp. ("ACAC") with the Securities and Exchange Commission (the
"Commission"), pursuant to the Securities Act of 1933, as amended and
the rules and regulations of the Commission thereunder (collectively,
the "1933 Act"), and as amended from time to time by one or more
amendments, including post-effective amendments, has been declared
effective by the Commission prior to the date of the Pricing Agreement.
The Company will cause to be filed with the Commission, after
effectiveness of such registration statement (and any such
post-effective amendments), a final prospectus in accordance with Rules
415 and 424(b)(2) under the 1933 Act, relating to the Offered
Certificates.
As used herein, the term "Effective Date" shall mean the
date that the Registration Statement (including the most recently filed
post-effective amendment, if any) became effective. "Registration
Statement" shall mean the registration statement referred to in the
preceding paragraph, including the exhibits thereto and any documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under
the 1933 Act specifically relating to the terms of the Offered
Certificates or the Pool and filed with the Commission pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
except that if the Registration Statement is amended by the filing with
the Commission of a post-effective amendment thereto, the term
"Registration Statement" shall mean collectively the Registration
Statement, as amended by the most recently filed post-effective
amendment thereto, in the form in which it was declared effective by
the Commission. The prospectus dated the date specified in the Pricing
Agreement (which if not so specified shall be the date of such Pricing
Agreement),
2
<PAGE> 4
which constitutes a part of the Registration Statement, together with
the prospectus supplement dated the date specified in the Pricing
Agreement (which if not so specified shall be the date of such Pricing
Agreement) (the "Prospectus Supplement"), relating to the offering of
the Offered Certificates, including any document incorporated therein by
reference pursuant to the Exchange Act, are hereinafter referred to
collectively as the "Prospectus," except that if the Prospectus is
thereafter amended or supplemented pursuant to Rule 424(b), the term
"Prospectus" shall mean the prospectus, as so amended or supplemented
pursuant to Rule 424(b), from and after the date on which such amended
prospectus or supplement is filed with the Commission. Any preliminary
form of the Prospectus Supplement which has heretofore been filed
pursuant to Rule 402(a) or Rule 424 is hereinafter called a "Preliminary
Prospectus Supplement." Any reference herein to the terms "amend,"
"amendment" or "supplement" with respect to the Registration Statement,
the Prospectus or the Prospectus Supplement shall be deemed to refer to
and include the filing of any document under the Exchange Act after the
effective date of the Registration Statement or the issue date of the
Prospectus or Prospectus or Prospectus Supplement, as the case may be,
incorporated therein by reference.
B. As of the date hereof, and as of the dates when the
Registration Statement became effective, when the Prospectus Supplement
is first filed pursuant to Rule 424(b) under the 1933 Act, when, prior
to the Closing Date, any other amendment to the Registration Statement
becomes effective, and when any supplement to the Prospectus is filed
with the Commission, and at the Closing Date, (i) the Registration
Statement, as amended, as of any such time, and the Prospectus, as
amended or supplemented as of any such time, complied or will comply in
all material respects with the applicable requirements of the 1933 Act,
and (ii) the Registration Statement, as amended as of any such time, did
not and will not contain any untrue statement of a material fact and did
not and will not omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
the Prospectus, as amended or supplemented as of any such time, did not
and will not contain an untrue statement of a material fact and did not
and will not omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the Company
makes no representations or warranties as to the information contained
in or omitted from (i) the Registration Statement or the Prospectus in
reliance upon and in conformity with written information furnished to
the Company by or on behalf of the Underwriters as set forth in this
Agreement or the Pricing Agreement specifically for use in connection
with the preparation of the Registration Statement or the Prospectus and
(ii) the Form 8-K - Computational Materials (as defined in Section 5K
below) or Form 8-K - ABS Term Sheets (as defined in Section 5L below),
or in any amendment thereof or supplement thereto, incorporated by
reference in such Registration Statement or such Prospectus (or any
amendment thereof or supplement thereto).
C. The Company is duly organized, validly existing and in good
standing under the laws of the State of California, has full power and
authority (corporate and
3
<PAGE> 5
other) to own its properties and conduct its business as now conducted
by it, and as described in the Prospectus, and is duly qualified to do
business in each jurisdiction in which it owns or leases real property
(to the extent such qualification is required by applicable law) or in
which the conduct of its business requires such qualification except
where the failure to be so qualified does not involve (i) a material
risk to, or a material adverse effect on, the business, properties,
financial position, operation or results of operations of the Company or
(ii) any risk whatsoever as to the enforceability of any Mortgage Loan.
D. There are no actions, proceedings or investigations pending,
or, to the knowledge of the Company, threatened, before any court,
governmental agency or body or other tribunal (i) asserting the
invalidity of this Agreement, the Certificates or of the Pooling and
Servicing Agreement, (ii) seeking to prevent the issuance of the
Certificates or the consummation of any of the transactions contemplated
by this Agreement or the Pooling and Servicing Agreement, (iii) which
may, individually or in the aggregate, materially and adversely affect
the validity or enforceability of, this Agreement, the Certificates or
the Pooling and Servicing Agreement, or the performance by the Company
of its obligations under this Agreement or the Pooling and Servicing
Agreement or (iv) which may affect adversely the federal income tax
attributes of the Offered Certificates as described in the Prospectus.
E. The execution and delivery by the Company of this Agreement
and the Pooling and Servicing Agreement, the direction by the Company to
the Trustee to execute, countersign, authenticate and deliver the
Certificates and the transfer and delivery of the Mortgage Loans to the
Trust by the Company are within the corporate power of the Company and
have been, or will be, prior to the Closing Date duly authorized by all
necessary corporate action on the part of the Company and the execution
and delivery of such instruments, the consummation of the transactions
therein contemplated and compliance with the provisions thereof will not
result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any statute or any agreement or
instrument to which the Company or any of its affiliates is a party or
by which it or any of them is bound or to which any of the property of
the Company or any of its affiliates is subject, the Company's articles
of incorporation or bylaws, or any order, rule or regulation of any
court, governmental agency or body or other tribunal having jurisdiction
over the Company, any of its affiliates or any of its or their
properties; and no consent, approval, authorization or order of, or
filing with, any court or governmental agency or body or other tribunal
is required for the consummation of the transactions contemplated by
this Agreement or the Prospectus in connection with the sale of the
Certificates by the Company. Neither the Company nor any of its
affiliates is a party to, bound by or in breach or violation of any
indenture or other agreement or instrument, or subject to or in
violation of any statute, order, rule or regulation of any court,
governmental agency or body or other tribunal having jurisdiction over
the Company or any of its affiliates, which materially and adversely
affects, or may in the future materially and adversely affect, (i) the
ability of the Company to perform its obligations under the Pooling and
Servicing Agreement or this Agreement or (ii) the
4
<PAGE> 6
business, operations, results of operations, financial position, income,
properties or assets of the Company.
F. This Agreement has been duly and validly authorized, executed
and delivered by the Company. The Pooling and Servicing Agreement will
be duly executed and delivered by the Company and will constitute the
legal, valid and binding obligation of the Company enforceable in
accordance with its terms, except as enforceability may be limited by
(i) bankruptcy, insolvency, liquidation, receivership, moratorium,
reorganization or other similar laws affecting the enforcement of the
rights of creditors, and (ii) general principles of equity, whether
enforcement is sought in a proceeding at law or in equity.
G. The Offered Certificates will conform in all material respects
to the description thereof contained in the Prospectus, and the
direction by the Company to the Trustee to execute, countersign,
authenticate and deliver the Certificates will be duly and validly
authorized and, when the Offered Certificates have been duly and validly
executed, authenticated, issued and delivered in accordance with the
Pooling and Servicing Agreement and sold to the Underwriters as provided
herein and the Pricing Agreement, the Offered Certificates have been
validly issued and outstanding and entitled to the benefits of the
Pooling and Servicing Agreement.
H. At the Closing Date, the Mortgage Loans will conform in all
material respects to the description thereof contained in the Prospectus
and the representations and warranties contained in this Agreement will
be true and correct in all material respects. The representations and
warranties set out in the Pooling and Servicing Agreement are hereby
made to the Underwriters as though set out herein, and at the dates
specified in the Pooling and Servicing Agreement, such representations
and warranties were or will be true and correct in all material
respects.
I. The transfer of the Mortgage Loans to the Trust created by the
related Pooling and Servicing Agreement (the "Trust") at the Closing
Date will be treated by the Company for financial accounting and
reporting purposes as a sale of assets and not as a pledge of assets to
secure debt.
J. The Company possesses all material licenses, certificates,
permits or other authorizations issued by the appropriate state, federal
or foreign regulatory agencies or bodies necessary to conduct the
business now operated by it and as described in the Prospectus and there
are no proceedings, pending or, to the best knowledge of the Company,
threatened, relating to the revocation or modification of any such
license, certificate, permit or other authorization which singly or in
the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect the business, operations,
results of operations, financial position, income, property or assets of
the Company.
5
<PAGE> 7
K. Any taxes, fees and other governmental charges in connection
with the execution and delivery of this Agreement and the Pooling and
Servicing Agreement, or the execution and issuance of the Certificates
have been or will be paid at or prior to the Closing Date.
L. There has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company, its parent company or its subsidiaries, taken
as a whole, from the date of the end of the most recent fiscal quarter
of the Company for which financial statements (whether audited or
unaudited) have been made publicly available (the "Date of Recent
Company Financial Statements"), to the date hereof.
M. The Pooling and Servicing Agreement will conform in all
material respects to the description thereof contained in the
Prospectus.
N. The Company is not aware of (i) any request by the Commission
for any further amendment of the Registration Statement or the
Prospectus or for any additional information with respect to the
offering of the Offered Certificates, (ii) the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any
proceeding for that purpose or (iii) any notification with respect to
the suspension of the qualification of the Offered Certificates for sale
in any jurisdiction or the initiation or threatening of any proceeding
for such purpose.
O. Each assignment of Mortgage required to be prepared pursuant
to the Pooling and Servicing Agreement is based on forms recently
utilized by the Company with respect to mortgaged properties located in
the appropriate jurisdiction and used in the regular course of the
Company's business. Based on the Company's experience with such matters
it is reasonable to believe that upon execution each such assignment
will be in recordable form and will be sufficient to effect the
assignment of the Mortgage to which it relates as provided in the
Pooling and Servicing Agreement.
P. Neither the Company nor the Trust will be subject to
registration as an "investment company" under the Investment Company Act
of 1940, as amended (the "Investment Company Act"). The Pooling and
Servicing Agreement is not required to be qualified under the Trust
Indenture Act of 1939, as amended, and the Trust is not required to be
registered.
Q. [In connection with the offering of the Certificates in the
State of Florida, the Company hereby certifies that it has complied with
all provisions of Section 5.17.075 of the Florida Securities and
Investor Protection Act.]
Any certificate signed by any officer of the Company and delivered to
the Underwriters in connection with the sale of the Offered Certificates to such
Underwriters shall be deemed a
6
<PAGE> 8
representation and warranty as to the matters covered thereby by the Company to
each person to whom the representations and warranties in this Section 2 are
made.
3. Agreements of the Underwriters.
A. The several Underwriters agree with the Company that upon the
execution of the Pricing Agreement and authorization by the Underwriters
of the release of the Offered Certificates of the related Series, the
Underwriters shall offer such Offered Certificates for sale upon the
terms and conditions set forth in the prospectus as amended or
supplemented.
B. Each Underwriter severally represents and agrees that:
(i) it has not offered or sold and will not offer or
sell, prior to the date six months after their date
of issuance, any Offered Certificates to persons in
the United Kingdom, except to persons whose
activities involve them in acquiring, holding,
managing or disposing of investments (as principal
or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted
in and will not result in an offer to the public in
the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995;
(ii) it has complied and will comply with all applicable
provisions of the Financial Services Act of 1986
with respect to anything done by it in relation to
the Offered Certificates in, from or otherwise
involving the United Kingdom;
(iii) it has only issued or passed on and will only issue
or pass on to any person in the United Kingdom any
document received by it in connection with the
issuance of the Offered Certificates only if that
person is of a kind described in Article 11(3) of
the Financial Services Act of 1986 (Investment
Advertisements) (Exemptions) Order 1997, or such
person is one to whom the document can lawfully be
issued or passed on;
(iv) no action has been or will be taken by such
Underwriter that would result in a public offering
of the Offered Certificates or distribution of the
Prospectus or Prospectus Supplement or any
Computational Materials or any other offering
material in relation to the Offered Certificates in
any non-U.S. jurisdiction where action for that
purpose is required unless the Company has agreed
to such actions and such actions have been taken;
and
7
<PAGE> 9
(v) it understands that, in connection with the
issuance, offer and sale of the Offered
Certificates and with the distribution of the
Prospectus or Prospectus Supplement or any
Computational Materials or any other offering
material in relation to the Offered Certificates
in, to or from any non-U.S. jurisdiction, the
Company has not taken and will not take any action,
and such Underwriter will not offer, sell or
deliver any Offered Certificates or distribute the
Prospectus or Prospectus Supplement or any
Computational Materials or any other offering
material relating to the Offered Certificates in,
to or from any non-U.S. jurisdiction except under
circumstances which will result in compliance with
applicable laws and regulations and which will not
impose any liability, obligation or responsibility
on the Company or the other Underwriters.
4. Purchase, Sale and Delivery of the Offered Certificates. The Company
hereby agrees, subject to the terms and conditions hereof, to sell the Offered
Certificates specified in the Pricing Agreement to the Underwriters, who, upon
the basis of the representations and warranties herein contained, but subject to
the conditions hereinafter stated, hereby agree, severally and not jointly, to
purchase the entire aggregate principal amount of the Offered Certificates in
the amounts set forth in Schedule I to such Pricing Agreement. At the time of
issuance of the Certificates, the Mortgage Loans will be sold by the Company to
the Trust pursuant to the Pooling and Servicing Agreement. The Company will be
obligated, under the Pooling and Servicing Agreement, to service the Mortgage
Loans either directly or through subservicers.
The Offered Certificates to be purchased by the Underwriters will be
delivered by the Company to the Underwriters (which delivery shall be made
through the facilities of The Depository Trust Company ("DTC") or Cedel Bank,
societe anonyme or the Euroclear System) against payment of the purchase price
therefor, in an amount equal to the percentage of the aggregate original
principal amount thereof as specified in the Pricing Agreement, plus interest
accrued, if any, at the rate on the aggregate original principal amount thereof
from the date specified in such Pricing Agreement to, but not including, the
Closing Date, by a same day federal funds wire payable to the order of the
Company.
Settlement shall take place at the specified offices of [ ] at
[ ], [New York City] time, on the date specified in the Pricing Agreement, or
at such other place and at such other time thereafter (such time being herein
referred to as the "Closing Date"), in each case as the Underwriters and the
Company shall determine. The Offered Certificates will be prepared in definitive
form and in such authorized denominations as the Underwriters may request,
registered in the name of Cede & Co., as nominee of DTC.
It is a condition to the purchase and sale of each Class of Offered
Certificates that the purchase and sale of each other Class of Offered
Certificates occurs simultaneously.
8
<PAGE> 10
The Company agrees to have the Offered Certificates available for
inspection and review by the Underwriters in [Los Angeles] not later than [ ]
[New York City] time on the business day prior to the Closing Date.
5. Covenants of the Company. The Company covenants and agrees with each
Underwriter that:
A. The Company will promptly advise the Representative and
counsel to the Underwriters (i) when any amendment to the Registration
Statement relating to the offering of the Offered Certificates shall
have become effective, (ii) of any request by the Commission for any
amendment to the Registration Statement or the Prospectus or for any
additional information to the extent applicable to the offering of the
Offered Certificates, (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
the institution or threatening of any proceeding for that purpose and
(iv) or the receipt by the Company of any notification with respect to
the suspension of the qualification of the Offered Certificates for sale
in any jurisdiction or the initiation or threatening of any proceeding
for such purpose. The Company will not file, and will use its
commercially reasonable efforts to prevent ACAC from filing, any
amendment to the Registration Statement or supplement to the Prospectus
after the date of the Pricing Agreement and prior to the related Closing
Date for the Offered Certificates unless the Company has furnished the
Representative and counsel to the Underwriters copies of such amendment
or supplement for their review prior to filing and will not file any
such proposed amendment or supplement to which the Representative
reasonably and promptly objects, unless such filing is required by law.
The Company will use its commercially reasonable efforts to prevent the
issuance of any stop order suspending the effectiveness of the
Registration Statement and, if issued, to obtain as soon as possible the
withdrawal thereof.
B. If, at any time during the period in which the Prospectus is
required by law to be delivered, any event occurs as a result of which
the Prospectus as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it shall
be necessary to amend or supplement the Prospectus to comply with the
1933 Act or the rules under the 1933 Act, the Company will promptly
prepare and file with the Commission and shall use its commercially
reasonable efforts to cause ACAC to promptly prepare and file, subject
to Paragraph A of this Section 5, an amendment or supplement that will
correct such statement or omission or an amendment that will effect such
compliance and, if such amendment or supplement is required to be
contained in a post-effective amendment to the Registration Statement,
will use its commercially reasonable efforts to cause such
post-effective amendment of the Registration Statement to become
effective as soon as possible, provided, however, that the Company will
not be required to file any such amendment or supplement with respect to
any Computational Materials or ABS Term Sheets incorporated by reference
in the Prospectus other than any amendments or supplements of such
Computational Materials or ABS Term Sheets that are furnished to
9
<PAGE> 11
the Company by the Underwriters pursuant to Section 9A hereof which the
Company is required to file in accordance with Section 5K or 5L.
C. The Company will furnish to the Underwriters, without charge,
copies of the Registration Statement (including exhibits thereto), any
documents incorporated therein by reference, and, so long as delivery of
a prospectus by the Underwriters or a dealer may be required by the 1933
Act, as many copies of the Prospectus, as amended or supplemented, and
any amendments and supplements thereto as the Underwriters may
reasonably request. The Company will pay the expenses of printing all
offering documents relating to the offering of the Offered Certificates.
D. As soon as practicable, but not later than sixteen months
after the effective date of the Registration Statement, the Company will
cause the Trust to make generally available to holders of Offered
Certificates statements of the Trust collectively covering a period of
at least 12 months beginning after the effective date of the
Registration Statement. Such statements will be filed with the
Commission pursuant to the provisions of the Exchange Act.
E. During a period of 20 calendar days from the Execution Time,
neither the Company nor any affiliate of the Company will, without the
Representative's prior written consent (which consent shall not be
unreasonably withheld), enter into any agreement to offer or sell
mortgage pass-through certificates backed by mortgage loans, except
pursuant to this Agreement.
F. So long as any of the Offered Certificates are outstanding,
the Company will cause to be delivered to the Underwriters, (i) all
documents required to be distributed to the holders of the Offered
Certificates, (ii) from time to time, any other information concerning
the Trust filed with any government or regulatory authority that is
otherwise publicly available, as the Underwriters may reasonably
request, (iii) the annual statement as to compliance delivered to the
Trustee pursuant to the Pooling and Servicing Agreement, (iv) the annual
statement of a firm of independent public accountants furnished to the
Trustee pursuant to the Pooling and Servicing Agreement as soon as such
statement is filed by the Company with the Commission and (v) any
information required to be delivered by the Company or the Servicer
pursuant to Section 4.01 of the form of Pooling and Servicing Agreement
heretofore delivered to the Representative.
G. The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement or the Pricing Agreement is
consummated, will pay all expenses in connection with the transactions
contemplated herein, including but not limited to (i) the expenses of
printing (or otherwise reproducing) all documents relating to the
offering and the fees and disbursements of its counsel incurred in
connection with the issuance and delivery of the Offered Certificates,
(ii) the preparation of all documents specified in this Agreement, (iii)
any fees and expenses of the Trustee (including legal fees) that are not
payable by or from the Trust, (iv) any accounting fees and disbursements
relating to the offering of Offered Certificates, (v) any fees charged
by
10
<PAGE> 12
rating agencies for rating the Offered Certificates, (vi) any reasonable
fees and disbursements of counsel to the Underwriters relating to Blue
Sky undertakings (vii) any reasonable fees and disbursements of counsel
to the Underwriters in an amount not to exceed [$5,000] per Series
relating to the representation of the Underwriters with respect to the
offering of the Offered Certificates of such Series and (viii) the fees
and charges related to the filing with the Commission of such Current
Reports on Form 8-K and such other materials as are contemplated hereby,
whether pursuant to EDGAR or otherwise. Subject to the provisions of
Section 7 hereof, the Company will not pay the fees and expenses of the
Underwriters or their counsel except as specified above.
H. The Company will enter into the Pooling and Servicing
Agreement and all related agreements on or prior to the Closing Date.
I. The Company will endeavor to qualify the Offered Certificates
for sale to the extent necessary under any state securities or Blue Sky
laws in any jurisdiction as may be reasonably requested by the
Underwriters, if any, and will pay all expenses (including reasonable
fees and disbursements of counsel to the Underwriters) in connection
with such qualification and in connection with the determination of the
eligibility of the Offered Certificates for investment under the laws of
such jurisdiction as the Underwriters may reasonably designate, if any.
J. The Company will file or cause to be filed with the Commission
within fifteen days of the termination of the Commitment Period (as such
term is defined in the related Pooling and Servicing Agreement), a
Current Report on Form 8-K setting forth specific information concerning
the description of the Mortgage Pool (the "Form 8-K - Mortgage Pool").
Without limiting the generality of any other provision hereof, such Form
8-K - Mortgage Pool shall be deemed to be a part of the Registration
Statement and Prospectus from and after the date it is first filed with
the Commission.
K. The Company will cause any Computational Materials (as defined
in Section 9A hereof) with respect to the Offered Certificates which are
delivered by any Underwriter to the Company pursuant to Section 9A
hereof to be filed with the Commission on a Current Report on Form 8-K
(the "Form 8-K - Computational Materials") at or before the time of
filing of the Prospectus pursuant to Rule 424(b) under the 1933 Act;
provided, however, that the Company shall have no obligation to file any
such materials which, in the reasonable determination of the Company
after consultation with such Underwriter (i) are not, based upon the
advice of outside counsel to the Company, required to be filed pursuant
to the Kidder Letters (as defined in Section 9A hereof) or (ii) contain
any erroneous information or untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; it being understood,
however, that the Company shall have no obligation to review or pass
upon the accuracy or adequacy of, or to correct, any Computational
Materials provided by any Underwriter to the Company pursuant to Section
9A hereof. The Company will notify the Underwriters promptly in the
event that the Company does not make any such filing. The parties hereto
agree that the Company
11
<PAGE> 13
shall have no liability for any failure to file such Computational
Materials on such date if the related Underwriter has not delivered such
materials to the Company one business day prior to the date such filing
is to be made.
L. The Company will cause any ABS Term Sheets (as defined in
Section 9A hereof) with respect of the Offered Certificates which are
delivered by any Underwriter to the Company pursuant to Section 9A
hereof to be filed with the Commission on one or more Current Reports on
Form 8-K (collectively, the "Form 8-K -ABS Term Sheets") (i) at or
before the time of filing of the Prospectus pursuant to Rule 424(b)
under the 1933 Act, in the case of Structural Term Sheets (as defined in
Section 9A hereof) and (ii) within two business days of first use in the
case of Collateral Term Sheets (as defined in Section 9A hereof);
provided, however, that the Company shall have no obligation to file any
such materials which, in the reasonable determination of the Company
after consultation with such Underwriter (i) are not, based upon advice
of outside counsel to the Company, required to be filed pursuant to the
PSA Letter (as defined in Section 9A hereof), (ii) do not contain the
legends required by the PSA Letter or (iii) contain erroneous
information or contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; it being understood,
however, that the Company shall have no obligation to review or pass
upon the accuracy or adequacy of, or to correct, any ABS Term Sheets
provided by any Underwriter to the Company pursuant to Section 9A
hereof. The Company will notify the Underwriters promptly in the event
that the Company does not make any such filing. The parties hereto agree
that the Company shall have no liability for any failure to file such
ABS Term Sheets on such dates if the related Underwriter has not
delivered such materials to the Company one business day prior to the
date such filing is to be made.
6. Conditions of the Underwriters' Obligation. The obligation of the
Underwriters to purchase and pay for the Offered Certificates of a Series as
provided herein and the Pricing Agreement shall be subject to the accuracy as of
the date hereof, the Execution Time and the applicable Closing Date (as if made
at such Closing Date) of the representations and warranties of the Company
contained herein (including those representations and warranties set forth in
the Pooling and Servicing Agreement and incorporated herein), to the accuracy of
the statements of the Company made in any certificate or other document
delivered pursuant to the provisions hereof, to the performance by the Company
of its obligations hereunder, and to the following additional conditions:
A. The Registration Statement shall have become effective no
later than the date hereof, and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been instituted or
threatened, and the Prospectus shall have been filed pursuant to Rule
424(b) of the 1933 Act as shall be required pursuant to such Rule.
B. The Underwriters shall have received the Pooling and Servicing
Agreement and the Offered Certificates in form and substance
satisfactory to the
12
<PAGE> 14
Underwriters, duly executed by all signatories required pursuant to
respective terms thereof.
C. (1) The Underwriters hall have received the favorable opinion
of [ ], special counsel to the Company, or of such other counsel to the
Company as shall be acceptable to the Underwriters, such opinion or
opinions, dated the Closing Date, in form and substance satisfactory to
the Underwriters, and collectively covering the substantive matters
referred to in Appendix A attached hereto.
(2) The Underwriters shall have received the favorable opinion
of [ ], special counsel to the Underwriters, dated the Closing Date,
with respect to the Pooling and Servicing Agreement, the Certificates of
such Series, the due authorization, execution and delivery of this
Agreement and the Pricing Agreement, and such other matters as the
Underwriters may reasonably request.
In rendering their opinions, the counsel described in this
Paragraph C may rely, as to matters of fact, on certificates of
responsible officers of the Company, the Trustee and public officials.
Such opinions may also assume the due authorization, execution and
delivery of the instruments and documents referred to therein by the
parties thereto other than the Company.
D. The Underwriters shall have received a letter from [ ], dated
the date of the Prospectus Supplement, in form and substance
satisfactory to the Underwriters, to the effect that they have performed
certain specified procedures requested by the Underwriters with respect
to the information set forth in the Prospectus and certain matters
relating to the Company.
E. The Fixed Rate Group Class A Certificates shall have been
rated in the highest rating category by Moody's Investors Service, Inc.
("Moody's") and Fitch IBCA, Inc. ("Fitch"), and such ratings shall not
have been rescinded. The Class M-1F Certificates shall have been rated
"Aa2" by Moody's and "AA" by Fitch, and such ratings shall not have been
rescinded. The Class M-2F Certificates shall have been rated "A2" by
Moody's and "A" by Fitch, and such ratings shall not have been
rescinded. The Class B-1F Certificates shall have been rated "Baa2" by
Moody's and "BBB" by Fitch, and such ratings shall not have been
rescinded. The Class A-1A Certificates and the Class A-2A Certificates
shall have been rated in the highest ratings category by Moody's, Fitch
and "AAA" by Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc. ("S&P") and such ratings shall not have been
rescinded. The Underwriters and counsel for the Underwriters shall have
received copies, addressed to the Underwriters and upon which they may
rely, of any opinions of counsel supplied to the rating organizations
relating to any matters with respect to the Certificates. Any such
opinions shall be dated the Closing Date.
F. The Underwriters shall have received from the Company a
certificate, signed by the president, an executive vice president or a
vice president of the Company,
13
<PAGE> 15
dated the Closing Date, to the effect that the signer of such
certificate has carefully examined the Registration Statement (excluding
Form 8-K - Computational Materials and Form 8-K ABS Term Sheets), the
Pooling and Servicing Agreement and this Agreement and that, to the best
of his or her knowledge based upon reasonable investigation, the
representations and warranties of the Company in this Agreement, as of
the Closing Date, in the Pooling and Servicing Agreement and in all
related agreements, as of the date specified in such agreements, are
true and correct, and the Company has complied with all the agreements
and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date and that no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or, to
the best of his or her knowledge, are contemplated by the Commission.
The Company shall attach to such certificate an incumbency
certificate and shall certify in an officer's certificate a true and
correct copy of its articles of incorporation and bylaws which are in
full force and effect as of each relevant date and on the date of such
certificate and a certified true copy of the resolutions of its Board of
Directors with respect to the transactions contemplated herein.
G. The Underwriters shall have received a favorable opinion of
counsel to the Trustee, dated the Closing Date, in form and substance
satisfactory to the Underwriters and covering the substantive matters
referred to in Appendix B attached hereto.
In rendering such opinion, such counsel may rely, as to matters
of fact, on certificates of responsible officers of the Company, the
Trustee and public officials. Such opinion may also assume the due
authorization, execution and delivery of the instruments and documents
referred to therein by the parties thereto other than the Trustee.
H. The Underwriters shall have received from the Trustee a
certificate, signed by the president, a senior vice president or a vice
president of the Trustee, dated the Closing Date, to the effect that
each person who, as an officer or representative of the Trustee, signed
or signs the Certificates, the Pooling and Servicing Agreement or any
other document delivered pursuant hereto, on the Execution Time or on
the Closing Date, in connection with the transactions described in the
Pooling and Servicing Agreement was, at the respective times of such
signing and delivery, and is now, duly elected or appointed, qualified
and acting as such officer or representative, and the signatures of such
persons appearing on such documents are their genuine signatures.
I. The Policy relating to the Adjustable Rate Group Certificates
of such Series shall have been duly executed and issued at or prior to
the Closing Date and shall conform in all material respects to the
description thereof in the Prospectus.
14
<PAGE> 16
The Underwriters shall have received a favorable opinion of
counsel to the Insurer, dated the Closing Date, in form and substance
satisfactory to the Underwriters and covering the substantive matters
referred to in Appendix C attached hereto.
In rendering such opinion, such counsel may rely, as to matters
of fact, on certificates of responsible officers of the Company, the
Trustee, the Insurer and public officials. Such opinion may assume the
due authorization, execution and delivery of the instruments and
documents referred to therein by the parties thereto other than the
Insurer.
J. On or prior to the Closing Date, there has been no
downgrading, nor has any notice been given of (i) any intended or
potential downgrading or (ii) any review or possible changes in rating
the direction of which has not been indicated, in the rating accorded
and originally requested by the Company relating to any previously
issued mortgage pass-through securities of the Company by any
"nationally recognized statistical rating organization" (as such term is
defined for purposes of the Exchange Act).
K. On or prior to the Closing Date there has been no downgrading,
nor shall any notice have been given of (i) any intended or potential
downgrading or (ii) any review or possible change in rating the
direction of which has not been indicated, in the rating accorded the
Insurer's claims paying ability by any "nationally recognized
statistical rating organization" (as such term is defined for purposes
of the Exchange Act).
L. There has not occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, in the earnings, business or operations (i) of the Company,
since the date of the Company's Recent Financial Statements, filed with
the Commission or (ii) the Insurer, that is in the Representative's
judgment material and adverse and that makes it in the Representative's
judgment impractical to market the Offered Certificates on the terms and
in the manner contemplated in the Prospectus.
M. The Underwriters and counsel for the Underwriters shall have
received copies of any separate opinions of counsel to the Company or
the Insurer supplied to the Trustee or any of S&P, Moody's or Fitch
relating to matters with respect to the Offered Certificates or the
Policy, and such opinions shall be dated the Closing Date and addressed
to the Underwriters and upon which they may rely.
N. The Underwriters shall have received such further information,
certificates and documents as the Underwriters may reasonably have
requested not less than one (1) full business day prior to the Closing
Date.
O. There shall have been executed and delivered by Aames
Financial Corporation, the corporate parent of the Company ("AFC"), a
letter agreement with the Underwriters, pursuant to which AFC agrees to
become jointly and severally liable with the Company for the payment of
the Joint and Several Obligations (as defined in such
15
<PAGE> 17
letter agreement). Such letter agreement with the Underwriters is
substantially in the form of Exhibit A hereto.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects, as determined by the Representative and
counsel to the Underwriters, when and as provided in this Agreement, this
Agreement and/or Pricing Agreement and all obligations of the Underwriters
hereunder and thereunder, may be canceled on, or at any time prior to, the
Closing Date by the Representative. Notice of such cancellation shall be given
to the Company in writing, or by telephone or telegraph confirmed in writing.
The Underwriters and the Company shall receive, subsequent to the
Closing Date, a letter from [ ], dated on or before the filing of the
Form 8-K Mortgage Pool in form and substance satisfactory to the Underwriters,
to the effect that they have performed certain specified procedures requested by
the Underwriters with respect to the information set forth in such Form 8-K -
Mortgage Pool.
7. Expenses. If the sale of the Certificates of any Series provided for
herein is not consummated by reason of a default by the Company in its
obligations hereunder (including the failure to satisfy any of the conditions
specified in Section 6), except in the case of a termination of this Agreement
in accordance with Section 12 hereof, then the Company will reimburse the
Underwriters, upon demand, for all reasonable out-of-pocket expenses (including,
but not limited to, the reasonable fees and expenses of their counsel) that
shall have been incurred by them in connection with their investigation with
regard to the Company and the Offered Certificates and the proposed purchase and
sale of the Offered Certificates.
8. Indemnification and Contribution.
A. Regardless of whether any Offered Certificates are sold, the
Company will indemnify and hold harmless each Underwriter, each of their
respective officers and directors and each person who controls any
Underwriter within the meaning of the 1933 Act or the Exchange Act,
against any and all losses, claims, damages, or liabilities (including
the cost of any investigation, legal and other expenses incurred in
connection with and amounts paid in settlement of any action, suit,
proceeding or claim asserted), joint or several, to which they or any of
them may become subject, under the 1933 Act, the Exchange Act or other
federal or state law or regulation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained (i) in the Registration
Statement or arise out of or are based upon the omission or alleged
omission (and in the case of any Computational Materials, as to which a
Mortgage Pool Error (as defined below) occurred) to state therein a
material fact necessary to make the statements therein not misleading or
(ii) in the Prospectus or arise out of or are based upon the omission or
alleged omission (and in the case of any Computational Materials, as to
which a Mortgage Pool Error occurred) to state therein a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and will reimburse each such
indemnified party
16
<PAGE> 18
for any legal or other expenses reasonably incurred by it in connection
with investigating or defending against such loss, claim, damage,
liability or action; provided, however, that (a) the Company shall not
be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made therein
(x) in reliance upon and in conformity with written information
furnished to the Company by or on behalf of an Underwriter, as described
(and to the extent described) in Section 9A of this Agreement, or (y) in
the Form 8-K - Computational Materials or in any Form 8-K - ABS Term
Sheet, or any amendment or supplement thereof, except to the extent that
any untrue statement or alleged untrue statement therein results (or is
alleged to have resulted) directly from, in the case of the Form 8-K -
Computational Materials, any Mortgage Pool Error, or, in the case of any
Form 8-K - ABS Term Sheets, any error in Company Provided Information
that was used in the preparation of (X) any Computational Materials or
ABS Term Sheets (or amendments or supplements thereof) included in the
Form 8-K - Computational Materials or Form 8-K - ABS Term Sheets (or
amendment or supplement thereof), or (Y) any written or electronic
materials furnished to prospective investors on which the Computational
Materials or Collateral Term Sheets (or amendments or supplements) were
based, (b) such indemnity with respect to any Corrected Statement (as
defined below) in such Prospectus (or supplement thereto) shall not
inure to the benefit of such Underwriter (or any person controlling such
Underwriter) from whom the person asserting any loss, claim, damage or
liability purchased the Offered Certificates that are the subject
thereof if such person did not receive a copy of a supplement to such
Prospectus at or prior to the confirmation of the sale of such Offered
Certificates and the untrue statement or omission of a material fact
contained in such Prospectus (or supplement thereto) was corrected (a
"Corrected Statement") in such other supplement and such supplement
timely was furnished by the Company to such Underwriter within a
reasonable time prior to the delivery of such confirmation, and (c) such
indemnity with respect to any error in Company Provided Information or
any Mortgage Pool Error shall not inure to the benefit of such
Underwriter (or any person controlling such Underwriter) from whom the
person asserting any loss, claim, damage or liability received any
Computational Materials or ABS Term Sheets (or any written or electronic
materials on which the Computational Materials or any ABS Term Sheets
are based) that were prepared on the basis of such erroneous Company
Provided Information or Mortgage Pool Error, if, within a reasonable
time prior to the time of confirmation of the sale of the applicable
Offered Certificates to such person, the Company notified such
Underwriter in writing of such error or provided in written or
electronic form information superseding or correcting such error (in any
such case, a "Corrected Error"), and such Underwriter failed to notify
such person thereof or to actually or constructively deliver to such
person corrected Computational Materials or ABS Term Sheets (or
underlying written or electronic materials). This indemnity agreement
will be in addition to any liability which the Company may otherwise
have. "Mortgage Pool Error" shall mean any error or omission in the
information concerning the characteristics of the Mortgage Loans
furnished by or on behalf of the Company to any of the Underwriters in
writing or by electronic transmission.
17
<PAGE> 19
B. Regardless of whether any Offered Certificates are sold, each
Underwriter will severally indemnify and hold harmless the Company, each
of its officers and directors and each person, if any, who controls the
Company within the meaning of the 1933 Act or the Exchange Act against
any losses, claims, damages or liabilities to which they or any of them
become subject under the 1933 Act, the Exchange Act or other federal or
state law or regulation, at common law or otherwise, to the same extent
as the foregoing indemnity, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in (i) the Registration Statement or arise out of or are based
upon the omission or alleged omission to state therein a material fact
necessary to make the statements therein not misleading or in (ii) the
Prospectus or arise out of or are based upon the omission or alleged
omission to state therein a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made therein (a) in reliance upon and
in conformity with written information relating to such Underwriter
furnished to the Company by or on behalf of such Underwriter, as
described in Section 9A of this Agreement, specifically for use in the
preparation thereof and so acknowledged in writing, or (b) any
Computational Materials or ABS Term Sheet (or amendments or supplements
thereof) furnished to the Company by such Underwriter pursuant to
Section 9A hereof and incorporated by reference in such Registration
Statement or the related Prospectus or any amendment or supplement
thereof (except that no such indemnity shall be available for any
losses, claims, damages or liabilities, or actions in respect thereof
resulting from any error in Company Provided Information or any Mortgage
Pool Error, other than a Corrected Error), and such Underwriter or the
Underwriters, as the case may be, will reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection
with investigating or defending against such loss, claim, damage,
liability or action.
C. In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to Paragraphs A and B above, such
person (hereinafter called the indemnified party) shall promptly notify
the person against whom such indemnity may be sought (hereinafter called
the indemnifying party) in writing thereof; but the omission to notify
the indemnifying party shall not relieve such indemnifying party from
any liability which it may have to any indemnified party otherwise than
under such Paragraph. The indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In
any such proceeding any indemnified party shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of
such counsel, or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party
and the indemnified party and
18
<PAGE> 20
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them or because different defenses are available to such parties. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable
for the fees and expenses of more than one separate firm (in addition to
any local counsel) for all such indemnified parties, and that all such
fees and expenses shall be reimbursed as they are incurred. Such firm
shall be designated in writing by the Representative in the case of
parties indemnified pursuant to Paragraph A and by the Company in the
case of parties indemnified pursuant to Paragraph B. The indemnifying
party shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if
there is a final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified party for
fees and expenses of counsel as contemplated above, the indemnifying
party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement
is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall
not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party,
effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject
matter of such proceeding.
D. If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims,
damages or liabilities referred to herein, then each indemnifying party,
in lieu of indemnifying such indemnified party, shall:
(i) in the case of any such losses, claims, damages or
liabilities which do not arise out of or are not
based upon any untrue statement or omission of a
material fact in any Computational Materials or ABS
Term Sheet (or any amendments or supplements
thereof) contribute to the amount paid or payable
by such indemnified party as a result of such
losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the
relative benefits received by the Company and the
Underwriters from the sale of the Offered
Certificates; and
(ii) in the case of any such losses, claims, damages or
liabilities which arise out of or are based upon
any untrue statements or omissions of a material
fact in any Computational Materials or ABS Term
Sheet (or any amendments or supplements thereof),
contribute to
19
<PAGE> 21
the amount paid or payable by such indemnified
party as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate
to reflect both the relative benefits received by
the Company and the Underwriters from the sale of
the Offered Certificates and the relative fault of
the Company and of the applicable Underwriter or
Underwriters in connection with the statements or
omissions that resulted in such losses, claims,
damages or liabilities as well as any other
relevant equitable considerations.
The relative benefits received by the Company and the
Underwriters shall be deemed to be in such proportion so that the
Underwriters are responsible for that portion determined by multiplying
the total amount of such losses, claims, damages or liabilities,
including legal and other expenses, by a fraction, the numerator of
which is (x) the excess of the Aggregate Resale Price of the Offered
Certificates of the related Series over the aggregate purchase price of
the Offered Certificates specified in the Pricing Agreement and the
denominator of which is (y) the Aggregate Resale Price of such Offered
Certificates, and the Company is responsible for the balance, provided,
however, that no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of the immediately preceding sentence,
the "Aggregate Resale Price" of the Offered Certificates at the time of
any determination shall be the weighted average of the purchase prices
(in each case expressed as a percentage of the aggregate principal
amount of the Offered Certificates so purchased), determined on the
basis of such principal amounts, paid to the Underwriters by all initial
purchasers of the Offered Certificates from the Underwriters. The
relative fault of the Company and the Underwriters shall be determined
by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact of the omission or alleged omission
to state a material fact relates to information supplied by the Company
or by the applicable Underwriter or Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Underwriters'
obligations in this Paragraph D to contribute are several in proportion
to their respective underwriting obligations and are not joint.
E. The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to
in Paragraph D. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in
Paragraph D shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of Section 8D(i), no
Underwriter shall be required to contribute any amount by which the
difference between the Aggregate Resale Price and the aggregate purchase
price of the Offered Certificates specified in the Pricing Agreement
exceeds the amount of any damages that
20
<PAGE> 22
such Underwriter has otherwise been required to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission.
F. The Company and the Underwriters each expressly waive, and
agree not to assert, any defense to their respective indemnification and
contribution obligations under this Section 8 which they might otherwise
assert based upon any claim that such obligations are unenforceable
under federal or state securities laws or by reasons of public policy.
G. The obligations of the Company under this Section 8 shall be
in addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if
any, who controls the Underwriters within the meaning of the 1933 Act or
the Exchange Act; and the obligations of the Underwriters under this
Section 8 shall be in addition to any liability that the Underwriters
may otherwise have and shall extend, upon the same terms and conditions,
to each director of the Company and to each person, if any, who controls
the Company within the meaning of the 1933 Act or the Exchange Act;
provided, however, that in no event shall the Company or the
Underwriters be liable for double indemnification.
9. Information Supplied by Underwriters; Representations and Warranties
of the Underwriters.
A. The Underwriters and the Company agree that the following
constitute the only information furnished by or on behalf of the
Underwriters to the Company for the purposes of Sections 2B and 8A
hereof:
(i) the statements set forth in the last paragraph on
the front cover page of the Prospectus Supplement
regarding market making, and information under the
heading "Underwriting" in the Prospectus
Supplement, to the extent such information relates
to all of the Underwriters and not to any
particular Underwriter or affiliate of any
particular Underwriter, have been supplied by or on
behalf of all of the Underwriters jointly;
(ii) the information under the heading "Underwriting" in
the Prospectus Supplement, to the extent such
information relates to a particular Underwriter or
affiliate of such Underwriter, and the information
contained in any Form 8-K - Computational Materials
and in any Form 8-K - ABS Term Sheets to the extent
supplied to the Company by or on behalf of such
Underwriter to be filed in the related Current
Report on Form 8-K, in each case excluding any
Company Provided Information and only to the extent
not substantially identical in form, substance,
scope, content and context to any information set
forth in the Prospectus, has been
21
<PAGE> 23
supplied by such Underwriter and shall relate to
and be the several responsibility of such
Underwriter and no other Underwriter.
"Computational Materials" shall mean those materials delivered by an
Underwriter to the Company within the meaning of the no-action letter dated May
20, 1994 issued by [the Division of Corporation Finance of the Commission to
Kidder, Peabody Acceptance Corporation I, Kidder, Peabody & Co. Incorporated,
and Kidder Structured Asset Corporation] and the no-action letter dated May 27,
1994 issued by [the Division of Corporation Finance of the Commission to the
Public Securities Association (together, the "Kidder Letters")] for which the
filing of such material is a condition of the relief granted in such letters.
"ABS Term Sheet" shall mean those materials delivered by an Underwriter to the
Company in the form of "Structural Term Sheets" or "Collateral Term Sheets", in
each case within the meaning of the no-action letter dated February 13, 1995
issued by [the Division of Corporation Finance of the Commission to the Public
Securities Association (the "PSA Letter")] for which the filing of such material
is a condition of the relief granted in such letter. "Company Provided
Information" shall mean any information presented in any ABS Term Sheet (or
underlying materials) provided to the Underwriters by or on behalf of the
Company specifically for use in ABS Term Sheets in writing or through electronic
or magnetic data storage or transmission methods, in tabular, graphic or textual
form, regardless of whether or not such information is presented in any ABS Term
Sheets in the same format in which such information was provided to the
Underwriters, but shall not include (i) any such information to the extent that,
as presented in any ABS Term Sheet, such information contains, or is alleged to
contain, any untrue statement of a material fact or omits, or is alleged to
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading due to any (a) typographical or
similar error caused by any party other than the Company or (b) stylistic,
contextual or other presentational considerations with respect to such ABS Term
Sheets, including the format of tables, the phraseology of text or the placement
or juxtaposition of such information in relation to any other information
presented therein (whether or not Company Provided Information), in each case,
not present in such information (in the aggregate), or in the manner of
presentation or communication thereof to the Underwriters, when provided to the
Underwriters by the Company or (ii) any information set forth in an ABS Term
Sheet to the extent that such information, as presented in the Prospectus is not
substantially identical in form, substance, scope, content or context thereto.
Each Underwriter shall deliver to the Company (or counsel to the Company) a
complete copy of all materials (which, if reasonably requested by the Company,
shall be on computer compatible disk or such other acceptable electronic form)
provided by such Underwriter to prospective investors in such Offered
Certificates which constitute or are deemed to constitute Computational
Materials or ABS Term Sheets, at least one business day before the date or dates
on which the related Form 8-K - Computational Materials or Form 8-K - ABS Term
Sheets relating to the Offered Certificates are required to be filed by the
Company with the Commission pursuant to Section 5K or 5L hereof.
B. Each Underwriter severally represents and warrants to and
agrees with the Company, that, as of the date of the related Closing
Date:
22
<PAGE> 24
(i) any Computational Materials and ABS Term Sheets
furnished by it to the Company pursuant to Section
9A hereof constitute (either in original,
aggregated or consolidated form) all of the
materials furnished by it to prospective investors
prior to the time of delivery thereof to the
Company and that it reasonably believes that such
materials constitute the type of materials
contemplated by the [Kidder Letters and the PSA
Letter]; and
(ii) on the date of delivery of any such Computational
Materials or ABS Term Sheets to the Company
pursuant to this Section 9 and on the related
Closing Date such Computational Materials and ABS
Term Sheets (or materials) did not and will not
include any untrue statement of a material fact,
or, when read in conjunction with the related
Prospectus and Prospectus Supplement, omit to state
a material fact required to be stated therein or
necessary to make the statements therein not
misleading.
Notwithstanding the foregoing, the Underwriters make no representation
or warranty as to whether any Computational Materials or ABS Term Sheets (or any
written or electronic materials on which such Computational Materials or ABS
Term Sheets are based) included or will include any untrue statement resulting
directly from any Mortgage Pool Error or, in the case of an ABS Term Sheet, any
error in Company Provided Information.
Each Underwriter agrees that it will not represent to investors that any
Computational Materials or ABS Term Sheets delivered thereto were prepared by,
or disseminated on behalf of, the Company.
10. Notices. All communications hereunder shall be in writing and, if
sent to the Underwriters, shall be mailed or delivered or telecopied and
confirmed in writing to the Representative at [One New York Plaza, 15th Floor,
New York, New York 10038, Attention: Asset-Backed Finance Group], and, if sent
to the Company, shall be telegraphed and confirmed in writing to the Company at
[350 South Grand Avenue, Los Angeles, California 90071, Attention: Gregory J.
Witherspoon]; with a copy addressed to [ ].
11. Survival. All representations, warranties, covenants and agreements
of the Company contained herein or in agreements or certificates delivered
pursuant hereto, the agreements of the Underwriters and the Company contained in
Section 8 hereof, and the representations, warranties and agreements of the
Underwriters contained in Section 3 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
Underwriters or any controlling persons, or any subsequent purchaser or the
Company or any of its officers, directors or any controlling persons, and shall
survive delivery of and payment for the Certificates. The provisions of Sections
5, 7 and 8 hereof shall survive the termination or cancellation of this
Agreement or any Pricing Agreement.
23
<PAGE> 25
12. Termination. The Underwriters shall have the right to terminate this
Agreement and/or the Pricing Agreement by giving notice as hereinafter specified
at any time at or prior to the applicable Closing Date if (a) trading generally
shall have been suspended or materially limited on or by, as the case may be,
any of the New York Stock Exchange, the American Stock Exchange, the Nasdaq
National Market, the Chicago Board Options Exchange, the Chicago Board of Trade
or the London Stock Exchange Limited, (b) trading of any securities of the
Company or AFC shall have been suspended on any exchange or in any
over-the-counter market, (c) a general moratorium on commercial banking
activities shall have been declared by any of the federal, California or New
York State authorities, (d) there shall have occurred any outbreak or escalation
of hostilities or any change in the national or international financial markets
or any calamity or crisis which, in the Representative's reasonable judgment, is
material and adverse, and, in the case of any of the events specified in clauses
(a) through (d), such event singly or together with any other such event makes
it in the Representative's reasonable judgment impractical to market the Offered
Certificates. Any such termination shall be without liability of any other party
except that the provisions of Paragraph G of Section 5 (except with respect
Section 5G(vii)) and Section 8 hereof shall at all times be effective. If the
Underwriters elect to terminate this Agreement and/or the Pricing Agreement as
provided in this Section 12, the Company shall be notified promptly by the
Representative by telephone, telegram or facsimile transmission, in any case,
confirmed by letter.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns
(which successors and assigns do not include any person on purchasing a
Certificate from the Underwriters), and the officers and directors and
controlling persons referred to in Section 8 hereof and their respective
successors and assigns, and no other persons will have any right or obligations
hereunder.
14. Applicable Law; Venue. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York. Any
action or proceeding brought to enforce or arising out of any provision of this
Agreement shall be brought only in a state or federal court located in the
Borough of Manhattan, New York City, New York, and the parties hereto expressly
consent to the jurisdiction of such courts and agree to waive any defense or
claim of forum non conveniens they may have with respect to any such action or
proceeding brought.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall together constitute but one and the same
instrument.
24
<PAGE> 26
16. Amendments and Waivers. This Agreement may be amended, modified,
altered or terminated, and any of its provisions waived, only in a writing
signed on behalf of the parties hereto.
Very truly yours,
AAMES CAPITAL CORPORATION
By:
-----------------------------------
Name:
Title:
[NAME OF UNDERWRITER]
By:
-----------------------------------
Name:
Title:
For itself and as
Representative of the several
Underwriters named in Schedule I
to the Pricing Agreement
<PAGE> 27
EXHIBIT A
[DATE]
[ ]
as Representative of the several Underwriters
named in Schedule I to the Pricing Agreement
c/o [ ]
Re: Underwriting Agreement for Aames Mortgage Trust, dated [ ] (the
"Underwriting Agreement") between Aames Capital Corporation ("Aames")
and [ ], as Representative of the several Underwriters named in
Schedule I to the Pricing Agreement dated [ ] (the "Pricing
Agreement")
Ladies and Gentlemen:
Pursuant to the Underwriting Agreement and Pricing Agreement
(collectively, the "Designated Agreement"), Aames has undertaken certain
financial obligations with respect to the indemnification of the Underwriters
with respect to the Registration Statement, and the Prospectus described in the
Designated Agreement. Any financial obligations of Aames under the Designated
Agreement, whether or not specifically enumerated in this paragraph, are
hereinafter referred to as the "Joint and Several Obligations;" provided,
however, that "Joint and Several Obligations" shall mean only the financial
obligations of Aames under the Designated Agreement (including the payment of
money damages for a breach of any of Aames' obligations under the Designated
Agreement, whether financial or otherwise) but shall not include any obligations
not relating to the payment of money.
As a condition of its execution of the Designated Agreement, the
Underwriters have required the undersigned, Aames Financial Corporation ("AFC"),
the parent corporation of Aames, to acknowledge its joint and several liability
with Aames for the payment of the Joint and Several Obligations under the
Designated Agreement.
Now, therefore, the Underwriters and AFC do hereby agree that:
(i) AFC hereby agrees to be absolutely and unconditionally jointly
and severally liable with Aames to the Underwriters for the
payment of the Joint and Several Obligations under the Designated
Agreement.
Exhibit A-1
<PAGE> 28
(ii) AFC may honor its obligations hereunder either by direct payment
of any Joint and Several Obligations or by causing any Joint and
Several Obligations to be paid to the Underwriters by Aames or
another affiliate of AFC; provided however that this subparagraph
shall not require the Underwriters to seek satisfaction from any
party other than Aames or AFC with respect to the Joint and
Several Obligations under the Designated Agreement.
Exhibit A-2
<PAGE> 29
Capitalized terms used herein and not defined herein shall have their
respective meanings as set forth in the Designated Agreement.
Very truly yours,
AAMES FINANCIAL CORPORATION
By:
--------------------------------------
Name:
Title:
[NAME OF UNDERWRITER]
By:
-----------------------------------
Name:
Title:
For itself and as
Representative of the several
Underwriters named in Schedule I
to the Pricing Agreement
Exhibit A-3
<PAGE> 30
APPENDIX A
FORM OF OPINION OF
COUNSEL TO THE COMPANY
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California.
2. AFC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
3. The Company has full corporate power and corporate authority to own
its assets and to conduct its business as described in the Prospectus and to
enter into and perform its obligations under the Pooling and Servicing
Agreement, the Underwriting Agreement and Pricing Agreement (the "Documents").
4. AFC has full corporate power and corporate authority to own its
assets and to conduct its business as now being conducted and to enter into and
perform its obligations under the Letter Agreement.
5. The Company is duly qualified as a foreign corporation and is in good
standing under the laws of each jurisdiction where it owns or leases any real
property or has any permanently located employees.
6. The Company has all material licenses, franchises and permits of and
from all public, regulatory or governmental officials or bodies, necessary to
(i) conduct its business as now being conducted and as described in the
Prospectus, and (ii) perform its obligations under the Documents.
7. The execution, acknowledgment, delivery and performance by the
Company of the Documents have been duly authorized by all requisite corporate
action.
8. The execution, acknowledgment, delivery and performance by AFC of the
Letter Agreement have been duly authorized by all requisite corporate action.
9. Neither the execution or delivery of, nor the performance by the
Company of its obligations under, the Documents, nor the offer, issuance, sale
or delivery of the Certificates (i) violates any of the provisions of the
Company's Articles of Incorporation or By-laws, (ii) violates any judgment,
decree, writ, injunction, award, determination or order known to such counsel
which is applicable to Company or any of its properties, or by which the Company
or any of its properties are bound or affected, (iii) conflicts with, or results
in a breach of, or constitutes a default under, any of the provisions of any of
the Company's material contracts, or (iv) results in the creation or imposition
of any lien on any of its properties pursuant to the terms of any of the Company
material contracts.
Appendix A-1
10. Neither the execution or delivery of, nor the performance by AFC of
its obligations under, the Letter Agreement (i) violates any of the provisions
of AFC's Certificate of Incorporation or By-laws, (ii) violates any judgment,
decree, writ, injunction, award, determination or order known to such counsel
which is applicable to AFC or any of its properties, or by which AFC or any of
its properties are bound or affected, (iii) conflicts with, or results in a
breach of, or constitutes a default under, any of the provisions of any of AFC's
material contracts, or (iv) results in the creation or imposition of any lien on
any of its properties pursuant to the terms of any of AFC's material contracts.
11. No consent, approval or authorization from, or registration or
filing with or notice to, any court or governmental body is required to be
obtained, made or given by the Company in connection with its authorization,
execution, delivery of, or performance of its obligations under the Documents or
in connection with the issuance, sale or delivery of the Offered Certificates.
12. No consent, approval or authorization from, or registration or
filing with or notice to, any court or governmental body is required to be
obtained, made or given by AFC in connection with its authorization, execution,
delivery of, or performance of its obligations under the Letter Agreement.
13. Based upon such counsel's knowledge, there is no pending or
threatened action, suit, proceeding or investigation before or by any court,
administrative agency, arbitrator or governmental body against or affecting the
Company which, if decided adversely, would materially and adversely affect (i)
the ability of the Company to perform its obligations under, or the validity or
enforceability of, the Documents, (ii) any mortgaged property or title of any
mortgagor to such mortgaged property, or (iii) the Trustee's ability to
foreclose or otherwise enforce the liens of the mortgage loans.
14. The Registration Statement is effective under the 1933 Act and, to
the best of such counsel's knowledge, no stop order suspending the effectiveness
of the Registration Statement has been issued, or proceeding for that purpose
instituted or threatened by the Commission.
15. The Registration Statement as of its effective date and the
Prospectus as of the date there of, other than the Computational Materials,
numerical, financial and statistical data included or incorporated by reference
in the Registration Statement and the Prospectus, as to which such counsel need
not express an opinion, appeared on its face to be appropriately responsive in
all material respects to the applicable requirements of the 1933 Act and the
rules and regulations thereunder, except that such counsel need not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus except for those as
contemplated by paragraph 20 and 21 below.
16. The execution and delivery of each of the Underwriting Agreement and
the Pricing Agreement has been duly authorized by all necessary corporate action
of the Company and each of the Underwriting Agreement and the Pricing Agreement
has been duly executed and delivered by the Company; the execution and delivery
of the Letter Agreement has been duly authorized by all necessary corporate
action of AFC and the Letter Agreement has been duly executed and delivered by
AFC.
Appendix A-2
<PAGE> 31
17. The execution and delivery of the Pooling and Servicing Agreement
has been duly authorized by the Company and the Agreement has been duly executed
and delivered by the Company and constitutes a valid, legal and binding
agreement of the Company, enforceable against the Company 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.
18. The Offered Certificates will, when duly executed and authenticated
as specified in the Pooling and Servicing Agreement and delivered by the Trustee
on behalf of the Trust in exchange for the Mortgage Loans in the related
Mortgage Loan Group and the other assets conveyed by the Company to the Trust
pursuant to the Pooling and Servicing Agreement, be entitled to the benefits of
the Pooling and Servicing Agreement afforded to the related Class.
19. The Offered Certificates and the Pooling and Servicing Agreement
conform in all material respects to the descriptions thereof contained in the
Prospectus.
20. The statements in the base Prospectus and the Prospectus Supplement,
as the case may be, under the headings "Risk Factors," "Certain Legal Aspects of
the Mortgage Loans," "Certain Federal Income Tax Considerations," and "ERISA
Considerations," to the extent that they constitute matters of California, New
York or federal law or legal conclusions with respect thereto, are correct in
all material respects to the extent of those consequences or aspects that are
discussed.
21. Each of the REMIC Pools as described in the Pooling and Servicing
Agreement will qualify as a "real estate mortgage investment conduit" ("REMIC")
within the meaning of Section 860D of the Internal Revenue Code of 1986, as
amended (the "Code"), the Offered Certificates and Class C Certificates
described in the Prospectus and issued pursuant to the Pooling and Servicing
Agreement will be treated as "regular interests" in the REMIC for purposes of
Code Section 860G(a)(1) and the Class R Certificates issued pursuant to the
Pooling and Servicing Agreement will be treated as the "residual interest" in
the REMIC for purposes of Code Section 860G(a)(2), assuming: (i) an election is
made to treat each REMIC Pool as a REMIC, (ii) compliance with the Pooling and
Servicing Agreement and compliance with changes in the law, including any
amendments to the Code or applicable Treasury regulations thereunder. None of
the REMIC Pools will be subject to California income or franchise tax in effect
on the date of such opinion, as long as such REMIC Pool complies with any
changes in the statutory and regulatory requirements of California law. Such
counsel may state that a REMIC Pool may, however, be subject to California
income or franchise tax in certain circumstances where federal income tax is
also imposed, such as in the case of net income from foreclosure property; and
in addition, a REMIC Pool may be subject to the minimum tax imposed under the
California Revenue and Taxation Code Sections specified therein.
22. The Pooling and Servicing Agreement is not required to be qualified
under the Trust Indenture Act of 1939, as amended, and the Trust created thereby
is not required to be registered,
Appendix A-3
<PAGE> 32
and neither the Company nor AFC is an "investment company" as such term is
defined, under the Investment Company Act of 1940, as amended.
23. Neither the transfer of the Mortgage Loans to the Trust, the
issuance and sale of the Offered Certificates to the Underwriters pursuant to
the Underwriting Agreement, the compliance by the Company with other provisions
of the Underwriting Agreement, the Pooling and Servicing Agreement and the
Certificates, nor the consummation of the transactions therein contemplated as
to the transfer of the Mortgage Loans and the sale of the Offered Certificates
by the Company require the consent, approval, authorization, order, registration
or qualification of or with any court or governmental authority, except such as
have been obtained or effected under the 1933 Act (and except with respect to
any consent, approval, authorization, registration or qualification which may be
required under state securities or Blue Sky laws or with respect to the purchase
and sale of the retained Certificates, as to which matters such counsel need not
express an opinion) and such other approvals as have been obtained, or conflict
with or result in a breach or violation of any of the terms and provisions of,
or constitute a default under, the charter or bylaws of the Company, or any
statute or regulation applicable to the Company or, to the best of such
counsel's knowledge, any judgment, decree or order applicable to the Company of
any court, regulatory body, administrative agency or other governmental
authority.
24. Assuming compliance with the provisions of the Pooling and Servicing
Agreement, and subject to the limitations and conditions set forth therein, the
Trustee and the Company, acting in its capacity as Servicer under the terms of
the Pooling and Servicing Agreement, will be entitled to enforce the terms of
each Note and Mortgage in accordance with their respective terms, except to the
extent such enforcement 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 addition, such counsel shall state that nothing has come to their
attention that would lead them to believe that the Registration Statement (other
than the Computational Materials, the financial, numerical, statistical and
quantitative information included or incorporated by reference therein, as to
which such counsel need not make any statement), at the Effective Time,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or that the Prospectus (other than the Computational Materials,
the financial, numerical, statistical and quantitative information included or
incorporated by reference therein, and the information with respect to the
Certificate Insurer, as to which such counsel need not make any statement), at
its issue date or at the date of the Closing, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Appendix A-4
<PAGE> 33
APPENDIX B
FORM OF OPINION OF COUNSEL TO TRUSTEE
1. The Trustee is a national banking association with trust powers, duly
organized and validly existing in good standing under the laws of the United
States of America, and has all requisite power and authority to enter into the
Pooling and Servicing Agreement and perform the obligations of trustee
thereunder.
2. The Pooling and Servicing Agreement has been duly authorized,
executed, and delivered by the Trustee and constitutes the legal, valid, and
binding obligation of the Trustee enforceable against the Trustee in accordance
with its terms, except as enforceability may be limited by applicable bankruptcy
and insolvency laws and other similar laws affecting the enforcement of
creditors' rights generally and by general equity principles.
3. The execution and delivery of the Pooling and Servicing Agreement by
the Trustee and the performance by the Trustee of its terms do not conflict with
or result in a violation (A) of any law or regulation of the United States of
America or the State of California governing the banking or trust powers of the
Trustee, or (B) the Articles of Association or By-laws of the Trustee.
4. No approval, authorization, or other action by, or filing with, any
governmental authority of the United States of America or the State of
California having jurisdiction over the banking or trust powers of the Trustee
is required in connection with its execution and delivery of the Pooling and
Servicing Agreement or the performance by the Trustee of the terms of the
Pooling and Servicing Agreement.
5. The Trustee has the power and authority to perform its duties
pursuant to Sections [8.01] and [8.02] of the Pooling and Servicing Agreement to
act as a successor servicer, including the making of advances as described in
Sections [8.01] and [8.02] of the Pooling and Servicing Agreement.
6. The Certificates have been duly executed, authenticated and delivered
by the Trustee.
Appendix B-1
<PAGE> 34
APPENDIX C
FORM OF OPINION OF COUNSEL TO INSURER
1. The Insurer is a stock insurance company duly organized, validly
existing and authorized to conduct financial guaranty insurance business under
the laws of the State of New York.
2. The Policy, the Insurance and Indemnity Agreement and the
Indemnification Agreement (the "Agreements") have been duly authorized, executed
and delivered by the Insurer.
3. The Policy and the Agreements constitute valid and binding
obligations of the Insurer, enforceable against the Insurer in accordance with
their terms subject, as to the enforcement of remedies, bankruptcy, insolvency,
reorganization, rehabilitation, moratorium and other similar laws affecting the
enforceability of creditors' rights generally applicable in the event of the
bankruptcy or insolvency of the Insurer and to the application of general
principles of equity and subject, in the case of the Indemnification Agreement,
to principles of public policy limiting the right to enforce the indemnification
provision contained therein insofar as they relate to indemnification for
liabilities arising under applicable securities laws.
4. The Policy is exempt from registration under the 1933 Act.
5. Neither the execution or delivery by the Insurer of the Policy or the
Agreements, nor the performance by the Insurer of its obligations thereunder,
will conflict with any provision of the certificate of incorporation or the
by-laws of the Insurer or, to the best of such counsel's knowledge, result in a
breach of, or constitute a default under any agreement or other instrument to
which the Insurer is a party to which it or any of its property is bound, or to
the best of such counsel's knowledge, violate any consent, order to decree
applicable to the Insurer of any governmental or regulatory body, administrative
agency, court or arbitrator having jurisdiction over the Insurer (except that in
the published opinion of the Commission the indemnification provisions of the
Indemnification Agreement, insofar as they relate to indemnification or
liabilities arising under the 1933 Act, are against public policy as expressed
in the 1933 Act and are therefore unenforceable).
In addition, please be advised such counsel has reviewed the description
of the Insurer under the caption "Certificate Insurer" in the Prospectus
Supplement (the "Offering Document") of the Transferor with respect to the
securities. The information provided in the Offering Document with respect to
the Insurer is limited and does not purport to provide the scope of disclosure
required to be included in a prospectus with respect to a registrant under the
1933 Act in connection with the public offer and sale of securities of such
registrant. Within such limited scope of disclosure, however, there has not come
to such counsel's attention any information which would cause such counsel to
believe that the description of the Insurer referred to above, as of the date of
the Offering Document or as of the date of such opinion, contained or contains
any untrue statement of a material fact or omitted or omits to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they are made, not
Appendix C-1
<PAGE> 35
misleading (except that such counsel need not express an opinion with respect to
any financial statements or other financial information contained or referred to
therein).
Appendix C-2
<PAGE> 36
ANNEX A
AAMES CAPITAL CORPORATION
Mortgage Pass-Through Certificates
PRICING AGREEMENT
[DATE]
[ ]
as Representative of the several Underwriters
named in Schedule I hereto
c/o [Underwriter/Address]
Ladies and Gentlemen:
Aames Capital Corporation (the "Company") proposes, subject to the terms
and condition stated herein and the Underwriting Agreement, dated [ ] (the
"Underwriting Agreement"), between the Company and [ ], as underwriter and as
Representative (in such capacity, the "Representative" of the several
underwriters named in Schedule I hereto (together with the Representative, the
"Underwriters"), to issue and sell to the Underwriters the series of mortgage
pass-through certificates specified in Schedule II hereto (the "Certificates").
Each of the provisions of the Underwriting Agreement is incorporated herein by
reference in its entirety, and shall be deemed to be a part of this Agreement to
the same extent as if such provisions had been set forth in full herein; and
each of the representations and warranties set forth therein shall be deemed to
have been made at and as of the date of this Pricing Agreement, except that each
representation and warranty with respect to the Prospectus in Section 1 of the
Underwriting Agreement shall be deemed to be a representation or warranty as of
the date of the Underwriting Agreement in relation to the Prospectus (as therein
defined), and also a representation and warranty as of the date of this Pricing
Agreement in relation to the Prospectus as amended or supplemented with respect
to the Certificates. Each reference to Representative contained in the
Underwriting Agreement shall be deemed to refer to the Representative named
herein. Unless otherwise defined herein, terms in the Underwriting Agreement are
used herein as therein defined.
An amendment to the Registration Statement, or a supplement to the
Prospectus, as the case may be, relating to the Certificates in the form
heretofore delivered to you is now proposed to be filed or, in the case of a
supplement, mailed for filing with the Commission.
Annex A-1
<PAGE> 37
Subject to the terms and conditions set forth herein and in the
Underwriting Agreement incorporated herein by reference, the Company agrees to
issue and sell to the Underwriters, and the Underwriters, severally and not
jointly, agree to purchase from the Company, at the time and at the purchase
price set forth in Schedule II hereto, the aggregate amount of each Class of
Certificates set forth opposite the name of such Underwriter set forth in
Schedule I hereto plus, in the case of the [ ] Certificates, accrued interest
at the applicable Pass-Through Rate from [ ].
Annex A-2
<PAGE> 38
If the foregoing is in accordance with your understanding, please sign
and return to us five counterparts hereof, and upon acceptance hereof by you,
this letter and such acceptance hereof, including the provisions of the
Underwriting Agreement incorporated herein by reference, shall constitute a
binding agreement between the Underwriters and the Company.
Very truly yours,
AAMES CAPITAL CORPORATION
By:
--------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
[NAME OF UNDERWRITER]
By:
----------------------------------
Name:
Title:
For itself and as
Representative of the several
Underwriters named in
Schedule I hereto
Annex A-3
<PAGE> 39
SCHEDULE I
<TABLE>
<CAPTION>
Principal Principal Principal Principal
Amount of Amount of Amount of Amount of
[ ] [ ] [ ] [ ]
Underwriter Certificates Certificates Certificates Certificates
<S> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Principal Principal Principal Principal
Amount of Amount of Amount of Amount of
[ ] [ ] [ ] [ ]
Underwriter Certificates Certificates Certificates Certificates
<S> <C> <C> <C>
</TABLE>
<PAGE> 40
SCHEDULE II
Registration Statement No. [ ]
Base Prospectus [DATE]
Prospectus Supplement dated [ ]
Mortgage Pass-Through Certificates, Series [ ]
Title of Certificates: Class A-1F
Amount of Certificates:
Pass-Through Rate:
Purchase Price Percentage:
Cut-off Date:
Closing:
Denominations:
Representative with respect to the
Offered Certificates: [ ]
Location of Settlement: [ ]
<PAGE> 1
EXHIBIT 4.1
================================================================================
AAMES CAPITAL CORPORATION
as Seller and Servicer
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
as Trustee
POOLING AND SERVICING AGREEMENT
Dated as of [ ]
Aames Mortgage Trust 199[ ]-[ ]
Mortgage Pass-Through Certificates,
Series 199[ ]-[ ]
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE ONE DEFINITIONS......................................................................1
Section 1.01. Definitions................................................................1
Section 1.02. Interest Calculations.....................................................45
ARTICLE TWO CONVEYANCE OF THE TRUST; ORIGINAL ISSUANCE OF CERTIFICATES......................46
Section 2.01. Conveyance of the Trust...................................................46
Section 2.02. Conveyance of the Subsequent Mortgage Loans; Fixed Price Contract.........48
Section 2.03. Acceptance by the Trustee; Repurchase or Substitution of Mortgage Loans...51
Section 2.04. Representations and Warranties Regarding the Servicer and the Seller......54
Section 2.05. Representations and Warranties of the Seller Regarding the Mortgage
Loans.....................................................................55
Section 2.06. Execution and Authentication of Certificates..............................65
Section 2.07. [Reserved]................................................................66
Section 2.08. Indemnification of the Trust..............................................66
ARTICLE THREE ADMINISTRATION AND SERVICING OF MORTGAGE LOANS; CERTIFICATE ACCOUNT...........66
Section 3.01. The Servicer and the Sub-Servicers........................................66
Section 3.02. Collection of Certain Mortgage Loan Payments; Collection Account and
Certificate Account.......................................................68
Section 3.03. Additional Servicing Responsibilities for the Adjustable Rate
Mortgage Loans............................................................70
Section 3.04. Hazard Insurance Policies.................................................71
Section 3.05. Enforcement of Due-on-Sale Clauses; Assumption and Modification
Agreements................................................................71
Section 3.06. Realization upon Liquidated Mortgage Loans................................72
Section 3.07. Trustee to Cooperate; Release of Mortgage Files...........................74
Section 3.08. Servicing Compensation; Payment of Certain Expenses by the Servicer.......75
Section 3.09. Annual Statement as to Compliance.........................................75
Section 3.10. Annual Independent Public Accountants' Servicing Report...................76
Section 3.11. Access to Certain Documentation and Information Regarding the Mortgage
Loans.....................................................................76
Section 3.12. Maintenance of Fidelity Bond and Errors and Omission Policy...............76
Section 3.13. Notices to the Rating Agencies and the Trustee............................77
Section 3.14. Reports of Foreclosures and Abandonment of Mortgaged Properties...........77
Section 3.15. Sub-Servicers and Sub-Servicing Agreements................................77
Section 3.16. Prefunding Account........................................................78
Section 3.17. Capitalized Interest Account..............................................79
Section 3.18. Supplemental Interest Reserve Fund........................................80
Section 3.19. Payments on the Financial Guaranty Insurance Policy.......................81
Section 3.20. Rights of the Financial Guaranty Insurer to Exercise Rights of
Adjustable Rate Group Certificateholders..................................84
Section 3.21. Trust and Accounts Held for Benefit of the Certificateholders and
Financial Guaranty Insurer................................................84
ARTICLE FOUR REMITTANCE REPORT..............................................................85
Section 4.01. Servicer Remittance Report................................................85
Section 4.02. Trustee Distribution Date Statement.......................................85
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE FIVE PAYMENTS AND STATEMENTS TO CERTIFICATEHOLDERS.................................87
Section 5.01. Distributions.............................................................87
Section 5.02. Monthly Advances; Servicing Advances......................................92
Section 5.03. Statements to Certificateholders..........................................93
Section 5.04. Applied Realized Loss Amount..............................................95
ARTICLE SIX THE CERTIFICATES................................................................96
Section 6.01. The Certificates..........................................................96
Section 6.02. Registration of Transfer and Exchange of Certificates.....................96
Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates........................101
Section 6.04. Persons Deemed Owners....................................................101
Section 6.05. Actions of Certificateholders............................................102
ARTICLE SEVEN THE SERVICER AND THE SELLER..................................................102
Section 7.01. Liability of the Servicer................................................102
Section 7.02. Merger or Consolidation of, or Assumption of the Obligations of, the
Servicer.................................................................102
Section 7.03. Limitation on Liability of the Servicer and Others.......................102
Section 7.04. Servicer Not to Resign...................................................103
Section 7.05. Merger or Consolidation of the Seller....................................103
ARTICLE EIGHT DEFAULT......................................................................104
Section 8.01. Events of Default........................................................104
Section 8.02. Trustee to Act; Appointment of Successor.................................106
Section 8.03. Notifications to Certificateholders......................................106
Section 8.04. Assumption or Termination of Sub-Servicing Agreements by the Trustee
or any Successor Servicer................................................107
ARTICLE NINE THE TRUSTEE...................................................................107
Section 9.01. Duties of the Trustee....................................................107
Section 9.02. Certain Matters Affecting the Trustee....................................108
Section 9.03. Trustee Not Liable for Certificates or Mortgage Loans....................110
Section 9.04. Trustee May Own Certificates.............................................110
Section 9.05. Payment of the Trustee's Fees and Expenses...............................110
Section 9.06. Eligibility Requirements for the Trustee.................................111
Section 9.07. Resignation or Removal of the Trustee....................................111
Section 9.08. Successor Trustee........................................................112
Section 9.09. Merger or Consolidation of the Trustee...................................112
Section 9.10. Appointment of Co-Trustee or Separate Trustee............................112
Section 9.11. Compliance with REMIC Provisions.........................................114
Section 9.12. Trustee May Enforce Claims Without Possession of Certificates............114
Section 9.14. Tax Returns..............................................................115
Section 9.15. Taxpayer Identification Number...........................................116
Section 9.16. Miscellaneous REMIC Provisions...........................................116
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE TEN TERMINATION....................................................................124
Section 10.01. Termination Upon Purchase or Liquidation of Mortgage Loans..............124
Section 10.02. Additional Termination Requirements.....................................126
ARTICLE ELEVEN MISCELLANEOUS PROVISIONS....................................................127
Section 11.01. Amendment...............................................................127
Section 11.02. Recordation of Agreement................................................128
Section 11.03. Limitation on Rights of Certificateholders..............................128
Section 11.04. Governing Law...........................................................129
Section 11.05. Notices.................................................................129
Section 11.06. Severability of Provisions..............................................130
Section 11.07. Assignment..............................................................130
Section 11.08. Certificates Nonassessable and Fully Paid...............................130
</TABLE>
iii
<PAGE> 5
SCHEDULES AND EXHIBITS
Schedule I List of Sub-Servicers
Exhibit A Forms of Certificates
Exhibit B Mortgage Loan Schedule
Exhibit C Form of Annual Statement as to Compliance
Exhibit D Form of Transfer Affidavit
Exhibit E Form of Payoff Notice
Exhibit F Form of Liquidation Report
Exhibit G Form of Officer's Certificate as to Charge-offs
Exhibit H Form of Transferor Affidavit
Exhibit I Form of Subsequent Transfer Agreement
Exhibit J Form of Financial Guaranty Insurance Policy
Exhibit K Form of Notice of Claim and Certificate
Exhibit L Form of Insurance and Indemnity Agreement
iv
<PAGE> 6
THIS POOLING AND SERVICING AGREEMENT (this "Agreement"), dated as of [ ],
between Aames Capital Corporation, as seller (in such capacity, the "Seller")
and as servicer (in such capacity, together with permitted successors hereunder,
the "Servicer"), and Bankers Trust Company of California, N.A., as trustee (the
"Trustee"),
W I T N E S S E T H T H A T:
In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:
ARTICLE ONE
DEFINITIONS
Section 1.01. Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
meanings specified in this Article.
Accrued Certificate Interest: With respect to any Class and Distribution
Date, means the amount of interest due for any Class of Offered Certificates in
respect of any Interest Period at the applicable Pass-Through Rate, less the
related pro rata share of Interest Shortfalls. All calculations of interest on
the Fixed Rate Group Certificates other than the Class A-1F Certificates will be
made on the basis of a 360-day year assumed to consist of twelve 30-day months,
and all calculations of interest on the Class A-1F Certificates and the
Adjustable Rate Group Certificates will be made on the basis of the actual
number days elapsed in the related Interest Period and a year of 360 days.
Addition Notice: With respect to the transfer of Subsequent Mortgage Loans
to the Trust pursuant to Section 2.02 of this Agreement, notice of the Seller's
designation of Subsequent Mortgage Loans to be sold to the Trust separated by
Mortgage Loan Group and the aggregate Subsequent Cut-off Date Principal Balance
of such Subsequent Mortgage Loans in each Mortgage Loan Group, which notice
shall be given to the Trustee and Financial Guaranty Insurer not later than one
Business Day prior to the related Subsequent Transfer Date.
Adjustable Rate Group: The Mortgage Loan Group comprised of all Mortgage
Loans identified in the Mortgage Loan Schedule as having been assigned to the
Adjustable Rate Group, including any Qualified Replacement Mortgage Loans
delivered in replacement thereof.
Adjustable Rate Group Available Funds Cap: With respect to any
Distribution Date, the per annum rate expressed as the percentage obtained by
(A) dividing (x) the amount of interest that accrued on the Mortgage Loans in
the Adjustable Rate Group in respect of the related Collection Period at the
weighted average of the related Mortgage Loan Rates applicable to Monthly
Mortgage Payments due on such Mortgage Loans during such Collection Period,
reduced by (i) the Monthly Servicing Fee and the Financial Guaranty Insurer
Premium for the related Collection Period and (ii) after the first six
Distribution Dates, one-twelfth of 1.00% of the Adjustable Rate Group Balance as
of the first day of the related Collection Period, by (y) the product of (i) the
Adjustable Rate Group
<PAGE> 7
Balance as of the first day of the related Interest Period and (ii) the actual
number of days elapsed during such Interest Period divided by 360 and (B)
multiplying the result by 100.
Adjustable Rate Group Balance: With respect to any Distribution Date the
sum of the aggregate of the Principal Balances of the Mortgage Loans in the
Adjustable Rate Group as of the end of the related Collection Period plus in the
case of any Distribution Date relating to a Collection Period that includes any
part of the Funding Period, any portion of the Adjustable Rate Group Prefunding
Account Deposit remaining on deposit in the Prefunding Account or Certificate
Account as of the related Determination Date.
Adjustable Rate Group Capitalized Interest Account Deposit: The amount
deposited in the Capitalized Interest Account for the benefit of the Adjustable
Rate Group Certificateholders, which amount will be $0 if the Subsequent
Mortgage Loans are purchased on the Closing Date.
Adjustable Rate Group Certificates: The Class [ ] Certificates and the
[ ] A Certificates.
Adjustable Rate Group Principal Distribution Amount: With respect to any
Distribution Date, generally means the sum, without duplication, of (i)
Principal Distribution Amount with respect to the Adjustable Rate Group and the
related Collection Period, (ii) any related Extra Principal Distribution Amount
as more fully described in Section 5.01(d), (iii) the principal portion of any
Insured Amount, and (iv) any optional payment by the Financial Guaranty Insurer
of Realized Losses with respect to the Adjustable Rate Group during the related
Collection Period.
Adjustable Rate Group Prefunding Account Deposit: The amount deposited in
the Prefunding Account that is allocated for the purchase of Subsequent Mortgage
Loans having adjustable Mortgage Loan Rates to be included in the Adjustable
Rate Group, which amount is $[ ] or $0 if the Subsequent Mortgage Loans are
purchased on the Closing Date.
Adjustable Rate Mortgage Loan: Any Mortgage Loan with a Mortgage Loan Rate
that is adjustable at regular periodic intervals, based on the Index plus the
related Gross Margin subject to any Minimum Rate, Maximum Rate and any periodic
limitations on adjustment from time to time, all as set forth in the Mortgage
Loan Schedule. All Adjustable Rate Mortgage Loans will be included in the
Adjustable Rate Group.
Adjustment Date: With respect to any Adjustable Rate Mortgage Loan, the
date on which a change to the Mortgage Loan Rate on a Mortgage Loan becomes
effective.
2
<PAGE> 8
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 or otherwise, and the terms "controlling" and
"controlled" have meanings corresponding to the foregoing.
Aggregate Certificate Principal Balance: With respect to any Distribution
Date means the sum of the Certificate Principal Balances of all Classes of the
Offered Certificates. The Aggregate Certificate Principal Balance for a
particular Mortgage Loan Group is the sum of the Certificate Principal Balances
of all Classes of the Offered Certificates relating to such Group.
Agreement: This Pooling and Servicing Agreement and all amendments hereof
and supplements hereto.
Annual Statement of Compliance: The annual statement to be prepared and
delivered by the Servicer in accordance with Section 3.09.
Applied Realized Loss Amount: With respect to the Fixed Rate Group and any
Distribution Date, means the excess of the related Realized Losses over the
amount, if any by which the related Overcollateralization Amount exceeds zero
after taking into account the application of the Fixed Rate Group Principal
Distribution Amount, as appropriate, on such Distribution Date and the
application of any Monthly Excess Cashflow Amount available from the Adjustable
Rate Group to cover such Realized Losses as set forth in Section 5.01(d).
Appraised Value: The appraised value of any Mortgaged Property based upon
the appraisal made at the time of origination of the related Mortgage Loan or,
in the case of a Mortgage Loan that is a purchase money mortgage loan, the sales
price of the related Mortgaged Property if such sales price is less than such
appraised value.
Book-Entry Certificate: Any Certificate registered in the name of the
Depository or its nominee, ownership of which is reflected on the books of the
Depository or on the books of a person maintaining an account with such
Depository (directly or as an indirect participant in accordance with the rules
of such Depository). As of the Closing Date, only the Offered Certificates
constitute Book-Entry Certificates.
Book-Entry Nominee: As defined in Section 6.02(c).
Business Day: Any day other than (a) a Saturday or a Sunday or (b) a day
on which banking institutions in the State of California or the State of New
York are required or authorized by law, executive order or governmental decree
to be closed.
Capitalized Interest Account: The segregated account, which, if utilized,
shall be an Eligible Account, established and maintained pursuant to Section
3.17 and entitled "Bankers Trust
3
<PAGE> 9
Company of California, N.A., as Trustee for Aames Mortgage Trust 199[ ]-[ ]
Mortgage Pass-Through Certificates, Series 199[ ]-[ ], Capitalized Interest
Account".
Capitalized Interest Account Deposit: $0 if all of the Subsequent Mortgage
Loans are purchased by the Trust on the Closing Date.
Certificate: Any Fixed Rate Group, Adjustable Rate Group, Subordinate or
Retained Certificate.
Certificate Account: The segregated account, which shall be an Eligible
Account, established and maintained pursuant to Section 3.02(e) and entitled
"Bankers Trust Company of California, N.A., as Trustee for Aames Mortgage Trust
199[ ]-[ ] Mortgage Pass-Through Certificates, Series 199[ ]-[ ], Certificate
Account".
Certificate Owner: With respect to any Book-Entry Certificate, the Person
who is the beneficial owner thereof.
Certificate Principal Balance: With respect to the Class A- Certificates,
the Class A-1F Certificate Principal Balance; with respect to the Class A-2F
Certificates, the Class A-2F Certificate Principal Balance; with respect to the
Class A-3F Certificates, the Class A-3F Certificate Principal Balance; with
respect to the Class A-4F Certificates, the Class A-4F Certificate Principal
Balance; with respect to the Class A-5F Certificates, the Class A-5F Certificate
Principal Balance; with respect to the Class A-6F Certificates, the Class A-6F
Certificate Principal Balance; with respect to the Class M-1F Certificates, the
Class M-1F Certificate Principal Balance; with respect to the Class M-2F
Certificates, the Class M-2F Certificate Principal Balance; with respect to the
Class B-1F Certificates, the Class B-1F Certificate Principal Balance; with
respect to the Class A-1A Certificates, the Class A-1A Certificate Principal
Balance; with respect to the Class A-2A Certificates, the Class A-2A Certificate
Principal Balance. The Class C Certificates have a Certificate Principal Balance
only the extent described in Section 9.16. The Class R Certificates do not have
a Certificate Principal Balance. With respect to any other designation (e.g. the
Fixed Rate Group Certificate Principal Balance), the sum of the Certificate
Principal Balances of each Class contemplated by such designation, in each case
excluding the Certificate Principal Balances of the Class C Certificates and
Class R Certificates.
Certificate Register: The register maintained pursuant to Section 6.02.
Certificateholder or Holder: The Person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purpose of
taking any action under Article Eight or giving any consent pursuant to this
Agreement, any Certificate registered in the name of the Seller or the Servicer
or any Person actually known to a Responsible Officer of the Trustee to be an
Affiliate of the Seller or the Servicer shall be deemed not to be outstanding
and the Percentage Interest evidenced thereby shall not be taken into account in
determining whether Holders of the requisite Percentage Interests necessary to
take any such action or effect any such consent have acted or consented unless
the Seller, the Servicer or any such Person is an owner of record of all of the
Certificates of any Class.
4
<PAGE> 10
Class: All of the Class A-1F Certificates, Class A-2F Certificates, Class
A-3F Certificates, Class A-4F Certificates, Class A-5F Certificates, Class A-6F
Certificates, Class M-1F Certificates, Class M-2F Certificates, Class B-1F
Certificates, Class A-1A Certificates, the Class A-2A Certificates, Class C
Certificates or the Class R Certificate, as the case may be, taken as a whole.
Class A Certificate Principal Balance: With respect to any Distribution
Date and the Fixed Rate Group Class A Certificates means the aggregate of the
Initial Certificate Principal Balances of each such Class as reduced by the sum
of all Principal Distribution Amounts and Extra Principal Distribution Amounts
actually distributed to the related A Certificateholders on all prior
Distribution Dates.
Class A Principal Distribution Amount: With respect to the Fixed Rate
Group and each Distribution Date on or after the Stepdown Date, the excess of
(x) the aggregate of the Certificate Principal Balances of the Fixed Rate Group
Class A Certificates immediately prior to such Distribution Date over (y) the
lesser of (A) the product of (i) the lesser of (1) the Stepped Up Enhancement
percentage and (2) [ ]% and (ii) the aggregate of the principal balances of the
Mortgage Loans in the Fixed Rate Group as of the last day of the related
Collection Period (plus any portion of the Fixed Rate Group Prefunding Account
Deposit remaining on deposit in the Prefunding Account or Escrow Account as of
such date allocable to the Fixed Rate Group), and (B) the excess of the
aggregate amount described in clause (ii) over [$ ].
Class A-1A Certificate: Any one of the Class A-1A Certificates executed by
the Trustee on behalf of the Trust, not in its individual capacity, but solely
as Trustee, authenticated by the Trustee and in substantially the form set forth
with respect thereto in Exhibit A.
Class A-1A Certificate Principal Balance: As to any Distribution Date, the
Class A-1A Initial Certificate Principal Balance less the sum of all Fixed Rate
Group and Adjustable Rate Group Principal Distribution Amounts and Extra
Principal Distribution Amounts actually distributed to Holders of Class A-1A
Certificates on previous Distribution Dates.
Class A-1A Coverage Deficit: As to any Distribution Date, an amount equal
to the product of (i) the Coverage Deficit with respect to such Distribution
Date and (ii) the percentage equivalent of a fraction, the numerator of which is
the Class A-1A Certificate Principal Balance and the denominator of which is the
sum of the Class A-1A Certificate Principal Balance and the Class A-2A
Certificate Principal Balance.
Class A-1A Formula Pass-Through Rate: The interest rate described in
clause (a) of the definition of Class A-1A Pass-Through Rate.
Class A-1A Pass-Through Rate: With respect to the period from [ ] through
[ ], [ %] per annum; with respect to each subsequent week (from Saturday through
Friday) during any Interest Period, a per annum rate equal to the lesser of (a)
the Fed Funds Average Rate plus [ %] and (b) the Adjustable Rate Group Available
Funds Cap.
5
<PAGE> 11
Class A-1A Principal Percentage: With respect to any Distribution Date to
and including that in which the Class A-1A Certificate Principal Balance is
reduced to zero, [50%], and thereafter, [0%].
Class A-1A Supplemental Interest Amount: As of any Distribution Date, the
excess, if any, of (x) the sum of (i) the excess, if any, of (a) the amount of
interest that would have accrued on the Class A-1A Certificates during the
related Interest Period at the Class A-1A Formula Pass-Through Rate over (b) the
amount of interest accrued and distributed thereon at the Class A-1A
Pass-Through Rate, and (ii) the sum of the amount described in clause (i) for
each preceding Distribution Date (together with interest thereon at the related
Formula Pass-Through Rate), over (y) all Class A-1A Supplemental Interest
Payment Amounts actually funded on all prior Distribution Dates.
Class A-1A Supplemental Interest Payment Amount: With respect to the Class
A-1A Certificates and any Distribution Date, an amount equal to the lesser of
(i) the amount of any accrued and unpaid Class A-1A Supplemental Interest Amount
and (ii) the product of (x) the amount deposited in the Supplemental Interest
Reserve Fund pursuant to Section 5.01(d) (ii) and (y) a fraction, the numerator
of which is the accrued and unpaid Class A-1A Supplemental Interest Amount, and
the denominator of which is the sum of the accrued and unpaid Class A-1A
Supplemental Interest Amount plus the accrued and unpaid Class A-2A Supplemental
Interest Amount.
Class A-1F Certificate: Any one of the Class A-1F Certificates executed by
the Trustee on behalf of the Trust, not in its individual capacity, but solely
as Trustee, authenticated by the Trustee and in substantially the form set forth
with respect thereto in Exhibit A.
Class A-1F Certificate Principal Balance: As to any Distribution Date, the
Class A-1F Initial Certificate Principal Balance less the sum of all Principal
Distribution Amounts and Extra Principal Distribution Amounts actually
distributed to Holders of Class A-1F Certificates on previous Distribution
Dates.
Class A-1F Pass-Through Rate: With respect to the Interest Period relating
to the [ ] Distribution Date, [ ]% per annum. With respect to each subsequent
Interest Period, the per annum rate equal to the lesser of (x) LIBOR plus [ ]%
per annum and (y) the product of the Fixed Rate Net WAC and a fraction, the
numerator of which is 30 and the denominator of which is the actual number of
days in the related Interest Period.
Class A-2A Certificate: Any one of the Class A-2A Certificates executed by
the Trustee on behalf of the Trust, not in its individual capacity, but solely
as Trustee, authenticated by the Trustee and in substantially the form set forth
with respect thereto in Exhibit A.
Class A-2A Certificate Principal Balance: As to any Distribution Date, the
Class A-2A Initial Certificate Principal Balance less the sum of all Principal
Distribution Amounts and Extra Principal Distribution Amounts actually
distributed to Holders of Class A-2A Certificates on previous Distribution
Dates.
6
<PAGE> 12
Class A-2A Coverage Deficit: As to any Distribution Date, an amount equal
to the product of (i) the Coverage Deficit with respect to such Distribution
Date and (ii) the percentage equivalent of a fraction, the numerator of which is
the Class A-2A Certificate Principal Balance and the denominator of which is the
sum of the Class A-1A Certificate Principal Balance and the Class A-2A
Certificate Principal Balance.
Class A-2A Formula Pass-Through Rate: The interests rate described in
clause (a) of the definition of Class A-2A Pass-Through Rate.
Class A-2A Pass-Through Rate: With respect to the initial Interest Period
and the [ ] Distribution Date, [ ]% per annum; with respect to each subsequent
Interest Period, a per annum rate equal to the lesser of (a) with respect to
Distribution Dates occurring prior to the Clean-up Call Date, LIBOR plus [ ]%
and, with respect to Distribution Dates occurring on or after the Clean-up Call
Date, LIBOR plus [ ]% and (b) the Adjustable Rate Group Available Funds Cap.
Class A-2A Principal Percentage: With respect to any Distribution Date,
100% minus the Class A-1A Percentage for such Distribution Date.
Class A-2A Supplemental Interest Amount: As of any Distribution Date, the
excess, if any, of (x) the sum of (i) the excess, if any, of (a) the amount of
interest that would have accrued on the Class A-2A Certificates during the
related Interest Period at the Class A-2A Formula Pass-Through Rate over (b) the
amount of interest accrued and distributed thereon (1) at the Class A-2A
Pass-Through, and (ii) the sum of the amount described in clause for each
preceding Distribution Date (together with interest thereon at the related
Formula Pass-Through Rate), over (y) all Class A-2A Supplemental Interest
Payment Amounts actually funded on all prior Distribution Dates.
Class A-2A Supplemental Interest Payment Amount: With respect to the Class
A-2A Certificates and any Distribution Date, an amount equal to the lesser of
(i) the amount of any accrued and unpaid Class A-2A Supplemental Interest Amount
and (ii) the product of (x) the amount deposited in the Supplemental Interest
Reserve Fund pursuant to Section 5.01(d) (ii) and (y) a fraction, the numerator
of which is the accrued and unpaid Class A-2A Supplemental Interest Amount, and
the denominator of which is the sum of the accrued and unpaid Class A-1A
Supplemental Interest Amount plus the accrued and unpaid Class A-2A Supplemental
Interest Amount.
Class A-2F Certificate: Any one of the Class A-2F Certificates executed by
the Trustee on behalf of the Trust, not in its individual capacity, but solely
as Trustee, authenticated by the Trustee and in substantially the form set forth
with respect thereto in Exhibit A.
Class A-2F Certificate Principal Balance: As to any Distribution Date, the
Class A-2F Initial Certificate Principal Balance less the sum of all Principal
Distribution Amounts and Extra
7
<PAGE> 13
Principal Distribution Amounts actually distributed to Holders of Class A-2F
Certificates on previous Distribution Dates.
Class A-2F Pass-Through Rate: With respect to any Interest Period, [ ]%
per annum.
Class A-3F Certificate: Any one of the Class A-3F Certificates executed by
the Trustee on behalf of the Trust, not in its individual capacity, but solely
as Trustee, authenticated by the Trustee and in substantially the form set forth
with respect thereto in Exhibit A.
Class A-3F Certificate Principal Balance: As to any Distribution Date, the
Class A-3F Initial Certificate Principal Balance less the sum of all Principal
Distribution Amounts and Extra Principal Distribution Amounts actually
distributed to Holders of Class A-3F Certificates on previous Distribution
Dates.
Class A-3F Pass-Through Rate: With respect to any Interest Period, [ ]%
per annum.
Class A-4F Certificate: Any one of the Class A-4F Certificates executed by
the Trustee on behalf of the Trust, not in its individual capacity, but solely
as Trustee, authenticated by the Trustee and in substantially the form set forth
with respect thereto in Exhibit A.
Class A-4F Certificate Principal Balance: As to any Distribution Date, the
Class A-4F Initial Certificate Principal Balance less the sum of all Principal
Distribution Amounts and Extra Principal Distribution Amounts actually
distributed to Holders of Class A-4F Certificates on previous Distribution
Dates.
Class A-4F Pass-Through Rate: With respect to any Interest Period, [ ]%
per annum.
Class A-5F Certificate: Any one of the Class A-5F Certificates executed by
the Trustee on behalf of the Trust, not in its individual capacity, but solely
as Trustee, authenticated by the Trustee and in substantially the form set forth
with respect thereto in Exhibit A.
Class A-5F Certificate Principal Balance: As to any Distribution Date, the
Class A-5F Initial Certificate Principal Balance less the sum of all Principal
Distribution Amounts and Extra Principal Distribution Amounts actually
distributed to Holders of Class A-5F Certificates on previous Distribution
Dates.
Class A-5F Pass-Through Rate: With respect to any Interest Period, the
lesser of (i) [ ]% per annum and (ii) the Fixed Rate Net WAC..
Class A-6F Certificate: Any one of the Class A-6F Certificates executed by
the Trustee on behalf of the Trust, not in its individual capacity, but solely
as Trustee, authenticated by the Trustee and in substantially the form set forth
with respect thereto in Exhibit A.
Class A-6F Certificate Principal Balance: As to any Distribution Date, the
Class A-6F Initial Certificate Principal Balance less the sum of all Principal
Distribution Amounts and Extra
8
<PAGE> 14
Principal Distribution Amounts actually distributed to Holders of Class A-6F
Certificates on previous Distribution Dates.
Class A-6F Lockout Distribution Amount: With respect to any Distribution
Date means the lesser of (a) product of (i) the applicable Class A-6F Lockout
Percentage for such Distribution Date and (ii) the Class A-6F Lockout Pro Rata
Distribution Amount for such Distribution Date, not to exceed the related Class
A Principal Distribution Amount or (b) the Class A Principal Distribution
Amount.
Class A-6F Lockout Percentage: With respect to each Distribution Date
occurring during the indicated periods means the indicated percentage:
Class A-6F
Period Lockout Percentage
------ ------------------
Class A-6F Lockout Pro Rata Distribution Amount: With respect to any
Distribution Date means an amount equal to the product of (x) a fraction, the
numerator of which is the Certificate Principal Balance of the Class A-6F
Certificates immediately prior to such Distribution Date and the denominator of
which is the Aggregate Certificate Principal Balance of the Fixed Rate Group
Class A Certificates immediately prior to such Distribution Date, and (y) the
related Class A Principal Distribution Amount for such Distribution Date.
Class A-6F Pass-Through Rate: With respect to any Interest Period, the
lesser of (i) [ ]% per annum and (ii) the Fixed Rate Net WAC.
Class B-1F Applied Realized Loss Amount: With respect to any Distribution
Date, the lesser of (x) the related Class B-1F Certificate Principal Balance
(after taking into account the distribution of the sum of the related Principal
Distribution Amount and Extra Principal Distribution Amount on such Distribution
Date, but prior to the application of the Class B-1F Applied Realized Loss
Amount, if any, on such Distribution Date) and (y) the related Applied Realized
Loss Amount as of such Distribution Date.
Class B-1F Certificate Principal Balance: With respect to any Distribution
Date means the Initial Class B-1F Certificate Principal Balance as reduced by
the sum of (x) the sum of all Principal Distribution Amounts and Extra Principal
Distribution Amounts actually distributed to the Class B-1F Certificateholders
on all prior Distribution Dates and (y) the aggregate cumulative amount of Class
B-1F Applied Realized Loss Amounts on all prior Distribution Dates.
Class B-1F Principal Distribution Amount: With respect to any Distribution
Date on or after the Stepdown Date, means the excess of (x) the sum of (i) the
Aggregate Certificate Principal
9
<PAGE> 15
Balances of the Fixed Rate Group Class A Certificates (after application of the
related Class A Principal Distribution Amount on such Distribution Date), (ii)
the Class M-1F Certificate Principal Balance (after application of the Class
M-1F Principal Distribution Amount on such Distribution Date), (iii) the Class
M-2F Certificate Principal Balance (after application of the Class M-2F
Principal Distribution Amount on such Distribution Date) and (iv) the Class B-1F
Certificate Principal Balance immediately prior to such Distribution Date, over
(y) the lesser of (i) [ ]% of the aggregate of the outstanding Principal
Balances of the Mortgage Loans in the Fixed Rate Group as of the last day of the
related Collection Period (plus any portion of the Fixed Rate Group Prefunding
Account Deposit remaining on deposit in the Prefunding Account or Escrow Account
as of such date allocable to the Fixed Rate Group) and (ii) the excess of the
aggregate amount described in clause (i) over $[ ].
Class B-1F Realized Loss Amortization Amount With respect to any
Distribution Date, the lesser of (x) the Class B-1F Unpaid Realized Loss Amount
as of such Distribution Date and (y) the related Monthly Excess Cashflow Amount
remaining after distribution of any Class A Interest Carry Forward Amount, the
related Extra Principal Distribution Amount, the Class M-1F Realized Loss
Amortization Amount, the related Class M-2F Realized Loss Amortization Amount,
the related Class M-1F Interest Carry Forward Amount, the related Class M-2F
Interest Carry Forward Amount and the related Class B-1F Interest Carry Forward
Amount, in each case for such Distribution Date.
Class B-1F Certificates: Any one of the Class B-1F Certificates executed
by the Trustee on behalf of the Trust, not in its individual capacity, but
solely as Trustee, authenticated by the Trustee and in substantially the form
set forth with respect thereto in Exhibit A.
Class B-1F Pass Though Rate: With respect to any Interest Period, the
lesser of (i) [ ]% per annum and (ii) the Fixed Rate Net WAC.
Class C Certificates: Any one of the Class C Certificates executed by the
Trustee on behalf of the Trust, not in its individual capacity, but solely as
Trustee, authenticated by the Trustee and in substantially the form set forth
with respect thereto in Exhibit A.
Class C Carryforward Amount: With respect to any Distribution Date, means
the amount by which the aggregate of the amount by which the Class C
Distribution Amount for each prior Distribution Date exceeded the amount
actually distributed in respect of the Class C Distribution Amount on each such
date, reduced by the aggregate of the amounts distributed in respect of the
Class C Carryforward Amount on each such prior Distribution Dates, and reduced
by the aggregate of the amounts of Realized Losses that have resulted in the
reduction of the Overcollateralization Amount on each such prior Distribution
Date.
Class C Distribution Amount: With respect to any Distribution Date, means
the interest allocated to the Class C Certificates as separate components in
accordance with Section 9.16 with respect to such Distribution Date.
Class M Certificates:Collectively, the Class M-1F and Class M-2F
Certificates.
10
<PAGE> 16
Class M-1F Applied Realized Loss Amount: With respect to any Distribution
Date, means the lesser of (x) the Class M-1F Certificate Principal Balance
(after taking into account the distribution of the related Principal
Distribution Amount on such Distribution Date, but prior to the application of
the Class M-1F Applied Realized Loss Amount, if any, on such Distribution Date),
and (y) the excess of (i) the related Applied Realized Loss Amount over (ii) the
sum of the Class M-2F Applied Realized Loss Amount and Class B-1F Applied
Realized Loss Amounts, in each case as of such Distribution Date.
Class M-1F Certificates: Any one of the Class M-1F Certificates executed
by the Trustee on behalf of the Trust, not in its individual capacity, but
solely as Trustee, authenticated by the Trustee and in substantially the form
set forth with respect thereto in Exhibit A.
Class M-1F Certificate Principal Balance: With respect to any date of
determination, means the Initial Class M-1F Certificate Principal Balance as
reduced by the sum of (x) the sum of all Principal Distribution Amounts and
Extra Principal Distribution Amounts actually distributed to the Class M-1F
Certificateholders on all prior Distribution Dates and (y) the aggregate
cumulative amount of related Class M-1F Applied Realized Loss Amounts on all
prior Distribution Dates.
Class M-1F Pass-Through Rate: With respect to any Interest Period, the
lesser of (i) [ ]% per annum and (ii) the Fixed Rate Net WAC.
Class M-1F Principal Distribution Amount: With respect to each
Distribution Date on or after the Stepdown Date, the excess of (x) the sum of
(i) the Aggregate Certificate Principal Balance of the Fixed Rate Group Class A
Certificates (after application of the related Class A Principal Distribution
Amount on such Distribution Date and (ii) the related Class M-1F Certificate
Principal Balance immediately prior to such Distribution Date over (y) the
lesser of (i) [ ]% of the aggregate of the outstanding Principal Balances of the
Mortgage Loans in the Fixed Rate Group as of the last day of the related
Collection Period (plus any portion of the Fixed Rate Group Prefunding Account
Deposit remaining on deposit in the Prefunding Account or Escrow Account as of
such date allocable to the Fixed Rate Group) and (ii) the excess of the
aggregate amount described in clause (i) over $[ ].
Class M-1F Realized Loss Amortization Amount: With respect to any
Distribution Date means the lesser of (x) the Class M-1F Unpaid Realized Loss
Amount and (y) the related Monthly Excess Cashflow Amount remaining after
distribution of the related Class A Interest Carry Forward Amount, the related
Extra Principal Distribution Amount and the related Class M-1F Interest Carry
Forward Amount.
Class M-2F Applied Realized Loss Amount: With respect to any Distribution
Date means the lesser of (x) the Class M-2F Certificate Principal Balance (after
taking into account the distribution of the related Principal Distribution
Amount, but prior to the application of the Class M-2F Applied Realized Loss
Amount, if any, on such Distribution Date) and (y) the excess of (i) the related
Applied Realized Loss Amount over (ii) the Class B-1F Applied Realized Loss
Amounts, in each case as of such Distribution Date.
11
<PAGE> 17
Class M-2F Certificates: Any one of the Class M-2F Certificates executed
by the Trustee on behalf of the Trust, not in its individual capacity, but
solely as Trustee, authenticated by the Trustee and in substantially the form
set forth with respect thereto in Exhibit A.
Class M-2F Certificate Principal Balance: With respect to any date of
determination means, the Initial Class M-2F Certificate Principal Balance as
reduced by the sum of (x) the sum of all Principal Distribution Amounts and
Extra Principal Distribution Amounts actually distributed to the Class M-2F
Certificateholders on all prior Distribution Dates and (y) the aggregate,
cumulative amount of related Class M-2F Applied Realized Loss Amounts on all
prior Distribution Dates.
Class M-2F Pass-Through Rate: With respect to any Interest Period, the
lesser of (i) [ ]% per annum and the Fixed Rate Net WAC.
Class M-2F Principal Distribution Amount: With respect to any Distribution
Date on or after the related Stepdown Date means the excess of (x) the sum of
(i) the Aggregate Certificate Principal Balance of the Fixed Rate Group Class A
Certificates (after application of the related Class A Principal Distribution
Amount on such Distribution Date), (ii) the Class M-1F Certificate Principal
Balance (after application of the M-1F Principal Distribution Amount on such
Distribution Date) and (iii) the related Class M-2F Certificate Principal
Balance immediately prior to such Distribution Date over (y) the lesser of (i) [
]% of the aggregate of the outstanding Principal Balances of the Mortgage Loans
in the Fixed Rate Group as of the last day of the related Collection Period
(plus any portion of the Fixed Rate Group Prefunding Account Deposit remaining
on deposit in the Prefunding Account or Escrow Account as of such date allocable
to the Fixed Rate Group) and (ii) the excess of the aggregate amount described
in clause (i) over $[ ].
Class M-2F Realized Loss Amortization Amount: With respect to any
Distribution Date, means the lesser of (x) the Class M-2F Unpaid Realized Loss
Amount and (y) the related Monthly Excess Cashflow Amount remaining after
distribution of the related Class A Interest Carry Forward, the related Extra
Principal Distribution Amount, the Class M-1F Realized Loss Amortization Amount,
the Class M-1F Interest Carry Forward Amount and the Class M-2F Interest Carry
Forward Amount.
Class R Certificate: Any one of the Class R-I, Class R-II or Class R-III
Certificates.
Class R-I Certificates: That certificate representing certain residual
rights to distribution from the REMIC I in substantially the form set forth as
Exhibit A hereto.
Class R-II Certificates: That certificate representing certain residual
rights to distribution from the REMIC II in substantially the form set forth as
Exhibit A hereto.
Class R-III Certificates: That certificate representing certain residual
rights to distribution from the REMIC III in substantially the form set forth as
Exhibit A hereto.
12
<PAGE> 18
Clean-up Call Date: The first Distribution Date on which the aggregate of
the Principal Balances of the Mortgage Loans is less than [ ]% of the sum of the
aggregate of such Principal Balances as of the close of business on the Closing
Date plus the Prefunding Account Deposit Amount.
Closing Date: [ ].
Closing Date Deposit: The aggregate amount deposited by the Seller in the
Collection Account on or prior to the Closing Date pursuant to Section 2.01,
which amount shall be the aggregate of the amounts of interest that would have
accrued (at the related Mortgage Loan Rate net of the Servicing Fee Rate) on
each Initial Mortgage Loan for each 30-day period from the Cut-off Date through
the end of the last Collection Period preceding the Collection Period in which
such Mortgage Loan has its first Monthly Payment Due.
Code: The Internal Revenue Code of 1986, as amended.
Collection Account: The segregated account, which shall at all times be an
Eligible Account, established and maintained pursuant to Section 3.02(a) and
entitled "[Servicer], in trust for the benefit of Holders of Aames Mortgage
Trust [ ]-[ ] Mortgage Pass-Through Certificates, Series [ ]-[ ], Collection
Account". References herein to the Collection Account shall include any
Sub-Servicing Account as the context requires.
Collection Period: As to any Distribution Date, the period beginning on
the first day of the calendar month immediately preceding the month in which
such Distribution Date occurs and ending on the last day of such calendar month.
Combined Loan-to-Value Ratio: With respect to a Mortgage Loan, the ratio
(expressed as a percentage) of (i) the sum of the Original Principal Amount of
such related Mortgage Loan plus the outstanding principal balance (at the time
of origination of such Mortgage Loan) of each mortgage loan secured by the
related Mortgaged Property that is senior to such Mortgage Loan to (ii) the
Appraised Value of the related Mortgaged Property determined by the Seller at
the time of origination of such Mortgage Loan.
Company: Aames Capital Corporation, a California corporation.
Compensating Interest: As to any Distribution Date and each Mortgage Loan
Group, an amount equal to the lesser of (a) the related Monthly Servicing Fee
for the related Collection Period and (b) the difference between (i) 30 days'
interest (at the related Mortgage Loan Rates, net of the Servicing Fee Rate) on
the Principal Balance of each Mortgage Loan in such Mortgage Loan Group as to
which a Principal Prepayment was received and that became a Liquidated Mortgage
Loan or that was otherwise charged-off (before giving effect to any related
reduction in the Principal Balance of such Mortgage Loan) by the Servicer during
the related Collection Period and (ii) the amount of interest actually collected
by the Servicer for such Mortgage Loans in such Mortgage Loan Group during such
Collection Period.
13
<PAGE> 19
Corporate Trust Office: The principal office of the Trustee at which at
any particular time its corporate trust business with respect to this Agreement
shall be principally administered, which office at the date of the execution of
this Agreement is located at [3 Park Plaza, Irvine, California 92614] Attention:
Aames Mortgage Loan Pass-Through Certificates, Series [ ]-[ ].
Coverage Deficit: With respect to the Adjustable Rate Group and any
Distribution Date, means the excess, if any, of (i) the aggregate of the Class
A-1A Certificate Principal Balance and the Class A-2A Certificate Principal
Balance (after taking into account all distributions thereto in respect of
principal on such Distribution Date other than any amounts paid by the Financial
Guaranty Insurer) over (ii) the Adjustable Rate Group Balance as of the last day
of the related Collection Period (plus, in the case of any Collection Period
during the Funding Period, the portion of the Adjustable Rate Group Prefunding
Account Deposit remaining on deposit in the Prefunding Account as of such date).
Cut-off Date: [ ]or, in the case of Initial Mortgage Loans originated
prior to the Closing Date, the related origination date of each such Initial
Mortgage Loan.
Cut-off Date Pool Balance: The aggregate of the Cut-off Date Principal
Balances of the Initial Mortgage Loans.
Cut-off Date Principal Balance: As to any Mortgage Loan, its Principal
Balance as of the open of business on the Cut-off Date.
Defective Mortgage Loan: Any Mortgage Loan that is required to be
repurchased or substituted by the Seller pursuant to Section 2.03 or 2.05.
Definitive Certificates: As defined in Section 6.02(f).
Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced by a
Qualified Replacement Mortgage Loan.
Delinquency Percentage: As to any Distribution Date and (a) the Fixed Rate
Group, the percentage equivalent of the fraction obtained by dividing (i) the
aggregate of the Principal Balances of all Mortgage Loans in such Mortgage Loan
Group, as the case may be, that were then [60] days contractually delinquent as
of the end of the related Collection Period or were either foreclosed upon or
transferred pursuant to Section 3.06 during such Collection Period, by (ii) the
Principal Balance of the Mortgage Loans included in such Mortgage Loan Group as
of the last day of such Collection Period or (b) the Adjustable Rate Group, the
percentage equivalent of the fraction obtained by dividing (i) the aggregate of
the Principal Balances of all Mortgage Loans in such Mortgage Loan Group, as the
case may be, that were then [90] days contractually delinquent as of the end of
the related Collection Period or were either foreclosed upon or transferred
pursuant to Section 3.06 during such Collection Period, by (ii) the Principal
Balance of the Mortgage Loans included in such Mortgage Loan Group as of the
last day of such Collection Period.
14
<PAGE> 20
Deposit Date: As to any Distribution Date, the third Business Day prior to
such Distribution Date.
Depository: The initial depository shall be The Depository Trust Company,
the nominee of which is Cede & Co. The Depository shall at all times be a
"clearing corporation" as defined in Section 8102(3) of the Uniform Commercial
Code of the State of California, as amended, or any successor provisions
thereto.
Depository Participant: A broker, dealer, bank or other financial
institution or other person for which, from time to time, the Depository effects
book-entry transfers and pledges of securities deposited with such Depository.
Determination Date: As to any Distribution Date, the last day of the
calendar month immediately preceding the calendar month in which such
Distribution Date occurs.
Disqualified Organization: Any Person that is (i) the United States, any
state or any political subdivision thereof, any possession of the United States,
or any agency or instrumentality of any of the foregoing (other than an
instrumentality that is a corporation if all of its activities are subject to
tax and a majority of its board of directors is not selected by any such
governmental unit), (ii) a foreign government, international organization or any
agency or instrumentality of either of the foregoing (other than an
instrumentality that is a corporation if all of its activities are subject to
tax and a majority of its board of directors is not selected by any such
governmental unit), (iii) an organization (except certain farmers' cooperatives
described in Code Section 521) exempt from tax imposed by Chapter 1 of the Code
(including the tax imposed by Code Section 511 on unrelated business taxable
income) on any excess inclusions (as defined in Code Section 860E(c)(1)) with
respect to any Class R Certificate, (iv) rural electric and telephone
cooperatives described in Code Section 1381(a)(2)(C), and (v) any other Person
so designated by the Trustee based upon an Opinion of Counsel that the holding
of an ownership interest in a Class R Certificate by such Person may cause any
REMIC Pool or any Person having an ownership interest in any Class R
Certificate, other than such Person, to incur a liability for any tax imposed
under the Code that would not otherwise be imposed but for the transfer of an
ownership interest in a Class R Certificate to such Person. The terms "United
States", "state" and "international organization" shall have the meanings set
forth in Code Section 7701 or successor provisions.
Distribution Date: The [ ] day of each month or, if such day is not a
Business Day, the Business Day immediately following such [ ] day, beginning
[ ].
Eligible Account: Either (A) a segregated account or accounts maintained
with an institution the deposits of which are insured by the Bank Insurance Fund
or the Savings Association Insurance Fund of the FDIC, the unsecured and
uncollateralized debt obligations of which shall be rated "A" or better by
Standard & Poor's and "A2" or better by Moody's and in the highest short term
rating category by Standard & Poor's and Moody's, and that is either (i) a
federal savings and loan association duly organized, validly existing and
15
<PAGE> 21
in good standing under the federal banking laws, (ii) an institution duly
organized, validly existing and in good standing under the applicable banking
laws of any state, (iii) a national banking association duly organized, validly
existing and in good standing under the federal banking laws and (iv) a
principal subsidiary of a bank holding company, or (B) segregated account
maintained with the trust department of a federal or state chartered depository
institution or trust company, having capital and surplus of not less than
$50,000,000, acting in its fiduciary capacity, the unsecured and
uncollateralized debt obligations of which shall be rated "Baa3" or better by
Moody's. Any Eligible Accounts maintained with the Trustee shall conform to the
preceding clause (B).
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
ERISA Plan: Any Person that is an employee benefit plan within the meaning
of Section 3(3) of ERISA or any Person that is an individual retirement account
or employee benefit plan, trust or account subject to Section 4975 of the Code.
ERISA Prohibited Holder: As defined in Section 6.02(c).
Escrow Account: The segregated account, which shall be an Eligible
Account, established and maintained pursuant to Section 3.19(d) and entitled
"Bankers Trust Company of California, N.A., as Trustee for Aames Mortgage Trust
[ ] Mortgage Pass-Through Certificates, Series 199[ ]-[ ], 199[ ]-[ ] Reserve
Fund held on behalf of Financial Security Assurance Inc." which will constitute
a "qualified reserve fund" as defined in the REMIC Provisions.
Escrowed Amount: With respect to each Subsequent Mortgage Loan that is an
Adjustable Rate Mortgage Loan, [ ]% of the related Subsequent Purchase Price,
which amount will be withdrawn from the Prefunding Account on the related
Subsequent Transfer Date for deposit in the Escrow Account pursuant to Section
3.19(d) for the period from the related Subsequent Transfer Date until the date
released therefrom to the Company or to the Trust, as described in Section
3.19(d).
Event of Default: As defined in Section 8.01.
Excess Spread Trigger: With respect to any Distribution Date on or after
the thirteenth Distribution Date and the Adjustable Rate Group Certificates, the
related Monthly Excess Cashflow Amount is less than one-twelfth of [ ]% of the
sum of the Class A-1A Certificate Principal Balance and the Class A-2A
Certificate Principal Balance as of the close of business on such Distribution
Date (without giving effect to any Overcollateralization Release Amount on such
Distribution Date).
Extra Principal Distribution Amount: With respect to a Mortgage Loan Group
and any Distribution Date, means the lesser of (x) the amount, if any, of
Monthly Interest remaining in the Certificate Account with respect to such
Mortgage Loan Group after application with respect to the priorities set forth
in Section 5.01(a), clause First through Fifth and (y) the related
Overcollateralization Deficiency.
FDIC: The Federal Deposit Insurance Corporation and its successors in
interest.
16
<PAGE> 22
FEMA: The Federal Emergency Management Agency and its successors in
interest.
Fed Funds Average Rate: (a) for the period from [ ] through [ ], [ ]% and
(b) for any subsequent week during any Interest Period (excluding any day during
such week that is not included in such Interest Period), (i) the sum of (A) the
Fed Funds Rate on each Fed Funds Interest Reset Date during the applicable Fed
Funds Calculation Period and (B) for each day during such Fed Funds Calculation
Period that is not a Fed Funds Interest Reset Date, the Fed Funds Rate in effect
on the immediately preceding Fed Funds Interest Reset Date, divided by (ii) the
number of days in such applicable Fed Funds Calculation Period. The Trustee will
determine the Fed Funds Average Rate for each week (from Saturday through
Friday) during each Interest Period after the period from [ ] through [ ]. All
percentages resulting from a calculation with respect to the Fed Funds Average
Rate or the Class A-2A Formula Pass-Through Rate based on the Fed Funds Average
Rate for any Interest Period will be rounded to the nearest one
hundred-thousandth of a percentage point, with five one-millionths of a
percentage point rounded upwards (e.g., 9.876545% (or .09876545) would be
rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting
from such calculation will be rounded to the nearest cent, with one-half cent
rounded upwards. The establishment of the Fed Funds Rate on any Fed Funds Reset
Date or of the Fed Funds Average Rate for any Interest Period by the Trustee and
the Trustee's calculation of the rate of interest applicable to the Class A-1A
Adjustable Rate Certificates for the related Interest Period shall (in the
absence of manifest error) be final and binding. Each such rate of interest may
be obtained by telephoning the Trustee at [ ].
Fed Funds Business Day: Means any day other than a Saturday or Sunday or a
day on which banking institutions in The City of New York are authorized or
required by law, regulation or executive order to close.
Fed Funds Calculation Period: With respect to any week (from Saturday
through Friday) during any Interest Period, the period commencing on the Monday
of the third preceding week, and ending on the Friday of the third preceding
week.
Fed Funds Interest Determination Date: Means each Fed Funds Interest Reset
Date and, with respect to each day during a Fed Funds Calculation Period that is
not a Fed Funds Interest Reset Date, the next succeeding Fed Funds Interest
Reset Date.
Fed Funds Interest Reset Date: Means each Fed Funds Business Day during
the relevant Fed Funds Calculation Period.
Fed Funds Rate: With respect to a Fed Funds Interest Reset Date, means (in
the following order of priority):
(a) the rate with respect to each Fed Funds Interest Reset Date
(expressed as a percentage per annum) that appears opposite the caption
"Federal Funds Effective" on
17
<PAGE> 23
Telerate page 120 as of 11:00 a.m., New York City time on such Fed Funds
Interest Reset Date;
(b) if such rate does not appear on Telerate Page 120 as of 11:00
a.m., New York City time, on such Fed Funds Interest Reset Date, then the
Fed Funds Rate with respect to such Fed Funds Interest Reset Date will be
the rate with respect to the related Fed Funds Interest Determination Date
(expressed as a percentage per annum) that appears on Reuters Screen NYAA
Page (as defined below) as of 11:00 a.m., New York City time, on such Fed
Funds Interest Reset Date.
(c) if such rate does not appear on Reuters Screen NYAA Page as of
11:00 a.m., New York City time, on such Fed Funds Interest Reset Date,
then the Trustee will request three leading brokers of Federal Funds
transactions in The City of New York to provide the rate (expressed as a
percentage per annum) for the last transaction in overnight Federal Funds
arranged by such broker on the related Fed Funds Interest Determination
Date. If rates are provided by such three brokers, then the Fed Funds Rate
with respect to such Fed Funds Interest Reset Date will be the arithmetic
mean (rounded to the nearest one hundred-thousandth of one percentage
point with five one-millionths of one percentage point rounded upwards) of
such rates; and
(d) if fewer than three such rates are provided, then the Fed
Funds Rate with respect to such Fed Funds Interest Determination Date will
be the Fed Funds Rate for the preceding Fed Funds Interest Reset Date (or,
in the case of the first Fed Funds Interest Date, the immediately
preceding Fed Funds Business Day on which a rate appeared on Telerate Page
120 as described in (a) above).
If a rate that initially appears on Telerate Page 120 or Reuters Screen
NYAA Page, as the case may be, as of 11:00 a.m., New York City Time, on the
applicable Fed Funds Interest Reset Date is superseded on Telerate Page 120 or
Reuters Screen NYAA page, as the case may be, by a corrected rate before 12:00
noon, New York City time, on such Fed Funds Interest Reset Date, such corrected
rate as so superseded on the applicable page shall be the applicable rate for
calculating the applicable Fed Funds Rate for such Fed Funds Interest
Determination Date.
FHLMC: The Federal Home Loan Mortgage Corporation and its successors in
interest.
FNMA: The Federal National Mortgage Association and its successors in
interest.
Final Scheduled Distribution Date: with respect to each Class of Offered
Certificates shall mean:
Class Final Scheduled Distribution Date
----- ---------------------------------
Class A-1F Certificates
Class A-2F Certificates
Class A-3F Certificates
Class A-4F Certificates
18
<PAGE> 24
Class A-5F Certificates
Class A-6F Certificates
Class M-1F Certificates
Class M-2F Certificates
Class B-1F Certificates
Class A-1A Certificates
Class A-2A Certificates
Financial Guaranty Insurance Policy: The Financial Guaranty Insurance
Policy (No. [ ]), dated [ ], including any endorsements thereto, issued by the
Financial Guaranty Insurer for the benefit of the Holders of the Adjustable Rate
Group Certificates, pursuant to which the Financial Guaranty Insurer guarantees
payment of the Insured Amounts. A form of the Financial Guaranty Insurance
Policy is attached hereto as Exhibit J.
Financial Guaranty Insurer: Financial Security Assurance Inc., a stock
insurance company organized and created under the laws of the State of New York,
and any successors thereto.
Financial Guaranty Insurer Default: The existence and continuance of any
of the following:
(a) the Financial Guaranty Insurer fails to make a payment required
under the Financial Guaranty Insurance Policy in accordance with its terms;
(b) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Financial Guaranty Insurer in an
involuntary case or proceeding under any applicable United States federal or
state bankruptcy, insolvency, rehabilitation, reorganization or other similar
law of (ii) a decree or order adjudging the Financial Guaranty Insurer bankrupt
or insolvent, or approving as properly filed a petition seeking reorganization,
rehabilitation, arrangement, adjustment or composition of or in respect of the
Financial Guaranty Insurer under any applicable United States federal or state
law, or appointing a custodian, receiver, liquidator, rehabilitator, assignee,
trustee, sequestrator or other similar official of the Financial Guaranty
Insurer or of any substantial part of its property, or ordering the winding-up
or liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a period
of 60 consecutive days; or
(c) the commencement by the Financial Guaranty Insurer of a voluntary
case or proceeding under any applicable United States federal or state
bankruptcy, insolvency, reorganization or other similar law or of any other case
or proceeding to be adjudicated bankrupt or insolvent, or the consent of the
Financial Guaranty Insurer to the entry of a decree or order for relief in
respect of the Financial Guaranty Insurer in an involuntary case or proceeding
under any applicable United States federal or state bankruptcy, insolvency case
or proceeding against Financial Guaranty Insurer, or the filing by the
Certificate Insurer of a petition or answer or consent seeking reorganization or
relief under any applicable United States federal or state law, or the consent
by the Financial Guaranty Insurer to the filing of such petition or to the
19
<PAGE> 25
appointment of or the taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Financial Guaranty
Insurer or of any substantial part of its property, or the failure by the
Financial Guaranty Insurer to pay debts generally as they become due, or the
admission by the Certificate Insurer in writing of its inability to pay its
debts generally as they become due, or the taking of corporate action by the
Financial Guaranty Insurer in furtherance of any such action.
Financial Guaranty Insurer Parties: The Financial Guaranty Insurer or its
respective agents, representatives, directors, officers or employees.
Financial Guaranty Insurer Premium: With respect to the Adjustable Rate
Group, the premium due to the Financial Guaranty Insurer on each Distribution
Date, which amount shall be equal to 1/12 of the product of the applicable
Insurer Premium Rate and the sum of the Class A-1A Certificate Principal Balance
and the Class A-2A Certificate Principal Balance immediately prior to such
Distribution Date.
Fitch: Fitch IBCA, Inc.
Fixed Rate Class A Certificates: Any or all of the Class A-2F
Certificates, Class A-3F Certificates, Class A-4F Certificates, Class A-5F
Certificates or Class A-6F Certificates, as the case may be.
Fixed Rate Group: The group of Mortgage Loans comprised of fixed rate
mortgage loans identified in the Mortgage Loan Schedule as having been assigned
to the Fixed Rate Group, including any Qualified Replacement Mortgage Loans
delivered in replacement thereof.
Fixed Rate Group Balance: As to any Distribution Date, the sum of the
aggregate of the Principal Balances of the Mortgage Loans in the Fixed Rate
Group as of the end of the related Collection Period plus in the case of any
Distribution Date relating to a Collection Period that includes any part of the
Funding Period, any portion of the Fixed Rate Group Prefunding Account Deposit
remaining on deposit in the Prefunding Account or Certificate Account as of the
last day of such Collection Period.
Fixed Rate Group Capitalized Interest Account Deposit: The amount
deposited in the Capitalized Interest Account for the benefit of the Fixed Rate
Class A Certificateholders, which amount is $0 if the Subsequent Mortgage Loans
are purchased on the Closing Date.
Fixed Rate Group Certificates: Collectively, the Fixed Rate Group Class A
Certificates and the Subordinate Certificates.
Fixed Rate Group Class A Certificates: Any or all of the Class A-1F
Certificates, Class A-2F Certificates, Class A-3F Certificates, Class A-4F
Certificates, Class A-5F Certificates or Class A-6F Certificates, as the case
may be.
20
<PAGE> 26
Fixed Rate Group Principal Distribution Amount: With respect to any
Distribution Date, generally means the sum, without duplication, of (i) the
Principal Distribution Amount with respect to the Fixed Rate Group and the
related Collection Period and (ii) under certain circumstances described in
Section 5.01(c) any related Extra Principal Distribution Amount.
Fixed Rate Group Prefunding Account Deposit: The amount deposited in the
Prefunding Account that is allocated for the purchase of Subsequent Mortgage
Loans having fixed Mortgage Loan Rates to be included in the Fixed Rate Group,
which amount is $[ ] or $0 if the Subsequent Mortgage Loans are purchased on the
Closing Date.
Fixed Rate Group Subsequent Purchase Price: With respect to any Subsequent
Mortgage Loan to be included in the Fixed Rate Group, means an amount equal to
100% of the Principal Balance of such Subsequent Mortgage Loan.
Fixed Rate Net WAC: With respect to any Distribution Date, means the
weighted average Mortgage Loan Rate of the Mortgage Loans in the Fixed Rate
Group as of the first day of the related Collection Period less the Servicing
Fee Rate.
Foreign Person: A Person that is not a citizen or resident of the United
States, a corporation, partnership, or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, an
estate that is subject to United States federal income tax regardless of the
source of its income or a trust if (a) a court within the United States is able
to exercise primary supervision of the Administration thereof and (b) one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust.
Formula Pass-Through Rate: With respect to (a) the Class A-1F
Certificates, the Class A-1F Pass-Through Rate in effect for such Class if the
Fixed Rate Net WAC is disregarded and (b) any Class of Adjustable Rate Group
Certificates, the Pass-Through Rate in effect for such Class if the Adjustable
Rate Group Available Funds Cap is disregarded.
Funding Period: The period beginning on the Closing Date and ending on the
earlier of (a) the date on which the amount on deposit in the Prefunding Account
is zero and (b) the close of business on [ ].
Gross Margin: With respect to an Adjustable Rate Mortgage Loan, the fixed
percentage amount set forth in the related Mortgage Note, which amount is added
to the Index in accordance with the terms of the related Mortgage Note to
determine the Mortgage Loan Rate.
Group Balance: As of any date of determination, the related Fixed Rate
Group Balance or Adjustable Rate Group Balance.
Group Factor: As to any Distribution Date and each Mortgage Loan Group,
the percentage (carried to eight places, rounded down) obtained by dividing the
aggregate Principal Balances of the Mortgage Loans in the related Mortgage Loan
Group (after giving effect to any distribution of principal on the related
Certificates on such Distribution Date) by the sum of the aggregate
21
<PAGE> 27
Principal Balances of the Mortgage Loans in the related Mortgage Loan Group as
of the Cut-off Date and the Fixed Rate Group Prefunding Account Deposit or
Adjustable Rate Group Prefunding Account Deposit, as applicable.
Index: With respect to any Adjustable Rate Mortgage Loan, the applicable
index for computing the Mortgage Loan Rate as specified in the Mortgage Note.
Initial Certificate Principal Balance: With respect to each Class of
Certificates that has a Certificate Principal Balance, means:
Initial Certificate
Class Principal Balance
----- -------------------
Class A-1F Certificates
Class A-2F Certificates
Class A-3F Certificates
Class A-4F Certificates
Class A-5F Certificates
Class A-6F Certificates
Class M-1F Certificates
Class M-2F Certificates
Class B-1F Certificates
Class A-1A Certificates
Class A-2A Certificates
Initial Mortgage Loan: Means any Mortgage Loan in either Mortgage Loan
Group included in the assets of the Trust as of the Closing Date that is
indicated as such on the Mortgage Loan Schedule.
Insurance and Indemnity Agreement: The Insurance and Indemnity Agreement,
dated as of [ ], between the Financial Guaranty Insurer and the Company, a copy
of which is attached hereto as Exhibit L.
Insurance Proceeds: With respect to any Distribution Date, proceeds paid
by any insurer and received by the Servicer during the related Collection Period
pursuant to any insurance policy covering a Mortgage Loan or the related
Mortgaged Property (excluding the Financial Guaranty Insurance Policy),
including any deductible payable by the Servicer with respect to a blanket
insurance policy pursuant to Section 3.04 and the proceeds from any fidelity
bond or errors and omission policy pursuant to Section 3.12 (to the extent such
payments compensate for losses that would otherwise be payable to
Certificateholders pursuant to this Agreement), net of any component thereof
covering any expenses incurred by or on behalf of the Servicer and specifically
reimbursable under this Agreement.
22
<PAGE> 28
Insured Amount: With respect to the Adjustable Rate Group and any
Distribution Date, the amount to be paid by the Financial Guaranty Insurer under
the Financial Guaranty Insurance Policy (in the manner described in Section
3.19) pursuant to a Notice of Claim presented by the Trustee. The Insured Amount
as of any Distribution Date shall be equal to the sum of (i) the amount by which
the Accrued Certificate Interest with respect to each Class of Adjustable Rate
Group Certificates exceeds (a) the Monthly Interest with respect to the
Adjustable Rate Group available therefor pursuant to Section 5.01(a) and (b) the
amount of any Monthly Excess Cashflow Amount with respect to either Mortgage
Loan Group available to cover any Interest Carry Forward Amount with respect to
either Class of Adjustable Rate Group Certificates pursuant to Section 5.01(d)
clause (1) with respect to the Adjustable Rate Group, (ii) the Class A-1A
Coverage Deficit and Class A-2A Coverage Deficit with respect to such
Distribution Date, if any, after giving effect to all distributions of principal
(including any Excess Principal Distribution Amount and any Monthly Excess
Cashflow Amounts available therefor from the Fixed Rate Group), (iii) on the
Final Scheduled Distribution Date for the Class A-2A Certificates, the
outstanding Class A-2 Certificate Principal Balance (after giving effect to all
others distributions thereto) and (iv) the Preference Amount for the Adjustable
Rate Group Certificates with respect to such Distribution Date, if any, in each
case as determined by the Trustee on the date a Notice of Claim is required to
be made in respect of such Distribution Date. Pursuant to the Financial Guaranty
Insurance Policy, the Financial Guaranty Insurer also has the option, but not
the obligation, to fund any Realized Losses with respect to the Adjustable Rate
Group and the related Collection Period, which amounts will not be "Insured
Amounts" as used herein.
Insurer Premium Rate: With respect to each Collection Period, [ ]%;
provided, however, that if on any Distribution Date subsequent to the Clean-up
Call Date the Overcollateralization Amount is less than the Targeted
Overcollateralization Amount, the Insurer Premium Rate with respect to the
following Collection Period and the related Distribution Date shall be [ ]%.
Interest Carry Forward Amount: With respect to any Class of Offered
Certificates on any Distribution Date, means the amount, if any, by which (i)
the Accrued Certificate Interest on such Class as of such Distribution Date plus
any outstanding Interest Carry Forward Amount with respect to such Class from
the preceding Distribution Date (together with interest on such outstanding
Interest Carry Forward Amount at the related Pass-Through Rate for the related
Interest Period to the extent lawful) exceeds (ii) the amount of Monthly
Interest actually distributed to the holders of such Certificates on such
Distribution Date.
Interest Period: With respect to the Fixed Rate Group Certificates other
than the Class A-1F Certificates, the calendar month preceding the month in
which such Distribution Date occurs; and with respect to any Adjustable Rate
Group Certificate and any Class A-1F Certificate and the first Interest Period,
the period beginning on the Closing Date and ending on the day preceding the
Distribution Date in [ ], and as to any subsequent Distribution Date, the period
beginning on the immediately preceding Distribution Date and ending on the day
prior to the related Distribution Date.
23
<PAGE> 29
Interest Shortfall: As to any Distribution Date, the amount of any
Prepayment Interest Shortfall and Relief Act Shortfall for the related Mortgage
Loan Group.
Investment Company Act: The Investment Company Act of 1940, as amended.
Junior Mortgage Loan: Any Mortgage Loan secured by a Mortgage with a lien
of other than first priority.
LIBOR: With respect to the [ ] Distribution Date, [ ]% per annum. With
respect to any subsequent Distribution Date, the per annum rate determined by
the Trustee on the related LIBOR Determination Date on the basis of the offered
rates of the Reference Banks for one-month U.S. dollar deposits as such rates
appear on the Dow Jones Telerate Service Page 3750 (or any replacement page on
that service for the purpose of displaying London Interbank offered rates of
major banks) as of 11:00 a.m. (London time) on such LIBOR Determination Date. On
each LIBOR Determination Date, LIBOR will be established by the Trustee as
follows:
(i) if on such LIBOR Determination Date two or more Reference Banks
provide such offered quotations, LIBOR shall be the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 0.0625%) of such offered
quotations.
(ii) if on such LIBOR Determination Date, fewer than two Reference Banks
provide such offered quotations, LIBOR shall be the greater of (x) LIBOR as
determined on the previous LIBOR Determination Date and (y) the Reserve Interest
Rate.
LIBOR Determination Date: With respect to any Interest Period after the
first Interest Period, the second London Business Day immediately preceding the
first day of such Interest Period.
Liquidated Mortgage Loan: As to any Distribution Date, any Mortgage Loan
as to which the Servicer has determined, in accordance with the servicing
procedures specified herein, during the related Collection Period that all
Liquidation Proceeds that it expects to recover from or on account of such
Mortgage Loan have been recovered.
Liquidation Expenses: Expenses that are incurred by the Servicer in
connection with the liquidation of any Mortgage Loan and not recovered under any
insurance policy or from any Mortgagor. Such expenses shall include, without
limitation, legal fees and expenses, real estate brokerage commissions, any
unreimbursed amount expended by the Servicer pursuant to Section 3.06 respecting
the related Mortgage Loan (including, without limitation, amounts voluntarily
advanced to correct defaults on each mortgage loan that is senior to such
Mortgage Loan), any other related and previously unreimbursed Servicing Advances
and any related and previously unreimbursed Property Protection Expenses.
Liquidation Proceeds: Cash (other than Insurance Proceeds) received in
connection with the liquidation of any Mortgaged Property, whether through
trustee's sale, foreclosure sale, condemnation, taking by eminent domain or
otherwise received in respect of any Mortgage Loan
24
<PAGE> 30
foreclosed upon as described in Section 3.06 (including, without limitation,
proceeds from the rental of the related Mortgaged Property).
Liquidation Report: A liquidation report in the form of Exhibit F attached
hereto.
Loan-to-Value Ratio: The Original Principal Amount of a Mortgage Loan as a
percentage of the Appraised Value of the related Mortgaged Property determined
by the Seller at the time of origination of such Mortgage Loan.
London Business Day: A day on which banks are open for dealing in foreign
currency and exchange in London and New York City.
Loss Percentage: As to any Distribution Date and either Mortgage Loan
Group, the percentage equivalent of the fraction obtained by dividing (i) the
principal amount of cumulative Realized Losses on Mortgage Loans in such
Mortgage Loan Group from the Cut-off Date through the end of the related
Collection Period by (ii) the aggregate of the Principal Balances of the
Mortgage Loans in such Mortgage Loan Group as of the Cut-off Date and the amount
deposited in the Prefunding Account with respect to such Mortgage Loan Group on
the Closing Date.
Maximum Rate: With respect to an Adjustable Rate Mortgage Loan, any
absolute maximum Mortgage Loan Rate set by provisions in the related Mortgage
Note.
Minimum Rate: With respect to an Adjustable Rate Mortgage Loan, any
absolute minimum Mortgage Loan Rate, set by provisions in the related Mortgage
Note, subject to the initial Mortgage Loan Rate first adjusting to a level in
excess of such minimum Mortgage Loan Rate in accordance with the terms of the
Mortgage Note.
Monthly Advance: As defined in Section 5.02(a).
Monthly Excess Cashflow Amount: With respect to either Mortgage Loan Group
and any Distribution Date means the sum of (x) the amount, if any, of Monthly
Interest remaining in the Certificate Account with respect to such Mortgage Loan
Group after application with respect to the priorities set forth in Section
5.01(a), clause First through Fifth, plus (y) the amount of any
Overcollateralization Release Amount with respect to such Mortgage Loan Group
for such Distribution Date.
Monthly Excess Interest Amount: With respect to either Mortgage Loan Group
and any Distribution Date means the excess, if any, of the interest accrued on
the related Mortgage Loans at weighted average net Mortgage Loan Rate for the
Mortgage Loans in such Mortgage Loan Group over the Accrued Certificate Interest
for the related Offered Certificates during the related Interest Period.
Monthly Interest: With respect to either Mortgage Loan Group and any
Distribution Date, means the aggregate of the following amounts in respect of
interest and such Mortgage Loan Group:
25
<PAGE> 31
(i) all payments in respect of or allocable to interest received or
deemed to have been received during the related Collection Period, net of
amounts representing interest accrued in respect of any period prior to the
Cut-off Date or related Subsequent Cut-off Date;
(ii) all Trust Insurance Proceeds received during the related Collection
Period;
(iii) all Net Liquidation Proceeds received during the related Collection
Period (excluding any amount distributed to the Holders of the Class C
Certificates pursuant to Section 3.06)
(iv) the aggregate of the amounts deposited in the Certificate Account on
the related Deposit Date by the Seller or the Servicer, as applicable, in
connection with any purchase, repurchase, shortage or substitution pursuant to
Section 2.03, 2.05, 3.01, 3.03 or 3.06;
(v) the aggregate of the amounts deposited in the Certificate Account by
the Servicer in connection with a purchase pursuant to Section 10.01;
(vi) the amount of Monthly Advances made by the Servicer in respect of
such Distribution Date pursuant to Section 5.02(a);
(vii) the amount of any Compensating Interest paid by the Servicer in
respect of such Distribution Date;
(viii) the amount deposited in the Certificate Account from the
Capitalized Interest Account on the [ ] Distribution Date in respect of the
Fixed Rate Group Capitalized Interest Account Deposit or Adjustable Rate Group
Capitalized Interest Account Deposit, as the case may be; and
(ix) in the case of the [ ] Distribution Date, the amount deposited in
the Certificate Account in respect of the Closing Date Deposit, and in the case
of the [ ] Distribution Date, the amount deposited in the Certificate Account in
respect of any Subsequent Closing Date Deposit;
reduced by the sum of:
(X) the Monthly Servicing Fee and any other compensation payable to the
Servicer pursuant to Section 3.08 for the related Collection Period (without
regard to any Compensating Interest payable therefrom) to the extent not
previously paid to the Servicer;
(Y) the aggregate amount of Monthly Advances and Servicing Advances
(other than those included in the Liquidation Expenses for any Liquidated
Mortgage Loan and reimbursed from the related Liquidation Proceeds) reimbursable
to the Servicer on such Distribution Date pursuant to the provisions of this
Agreement; and
26
<PAGE> 32
(Z) the aggregate amounts (i) deposited into the Collection Account or
Certificate Account that may not be withdrawn therefrom pursuant to a final and
nonappealable order of a United States bankruptcy court of competent
jurisdiction imposing a stay pursuant to Section 362 of the United States
Bankruptcy Code and that would otherwise have been included in Monthly Interest
on such Distribution Date and (ii) received by the Trustee that are recoverable
and sought to be recovered from the Trustee as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code in
accordance with a final, nonappealable order of a court of competent
jurisdiction.
Monthly Mortgage Payment: With respect to any Mortgage Note, the amount of
each monthly payment (other than any final balloon payment) payable under such
Mortgage Note in accordance with its terms, including one month's accrued
interest on the related Principal Balance at then applicable Mortgage Loan Rate
but net of any portion of such monthly payment that represents late payment
charges, prepayment or extension fees or collections allocable to payments to be
made by Mortgagors for payment of insurance premiums or similar items.
Monthly Servicing Fee: With respect to any Collection Period and each
Mortgage Loan Group, 1/12 of the product of the Servicing Fee Rate and the
aggregate Principal Balances of the Mortgage Loans in such Mortgage Loan Group
as of the close of business on the Determination Date occurring in the preceding
month (or, in the case of the first Collection Period, the Principal Balance of
the related Mortgage Loans as of the Closing Date. The Monthly Servicing Fee
shall be payable on the following Deposit Date to the Servicer as servicing
compensation hereunder pursuant to Section 3.08.
Moody's: Moody's Investors Service, Inc. and its successors in interest.
Mortgage: The mortgage, deed of trust or other instrument creating a
first, second or third lien on an estate in fee simple in real property securing
a Mortgage Loan.
Mortgage File: The mortgage documents listed in Section 2.01 pertaining to
a particular Mortgage Loan and any additional documents required to be added to
such Mortgage File pursuant to this Agreement.
Mortgage Loan: Each of the Mortgage Loans transferred and assigned to the
Trustee pursuant to Section 2.01 or 2.02 that from time to time comprise part of
the Trust, the Mortgage Loans originally so held being identified in the
Mortgage Loan Schedule attached hereto as Exhibit B.
Mortgage Loan Group: Either the Fixed Rate Group or the Adjustable Rate
Group. References herein to any Class or Classes of Certificates being related
to a Mortgage Loan Group, shall mean (A) in the case of the Fixed Rate Group,
the Fixed Rate Group Class A Certificates, the Subordinate Certificates, the
Class C Certificates and the Class R-III Certificates and (B) in the case of the
Adjustable Rate Group, the Class A-1A and Class A-2A Certificates, the Class C
Certificates and the Class R-III Certificates.
27
<PAGE> 33
Mortgage Loan Rate: With respect to any Adjustable Rate Mortgage Loan, the
per annum rate of interest computed in accordance with the provisions of the
related Mortgage Note as the sum of the Index and the Gross Margin, subject to
any Minimum Rate, the Maximum Rate or periodic limitation on adjustments to such
rate applicable from time to time to the calculation of interest thereon. As to
any other Mortgage Loan, the fixed per annum rate of interest applicable to the
calculation of interest thereon specified in the related Mortgage Note.
Mortgage Loan Schedule: As of any date, the schedule of Mortgage Loans
separated by Mortgage Loan Group. The initial schedule of Mortgage Loans as of
the Cut-off Date is attached hereto as Exhibit B and sets forth as to each such
Mortgage Loan, among other things, (a) its identifying number and the name of
the related Mortgagor; (b) the street address of the related Mortgaged Property
including the state, county and zip code; (c) its date of origination; (d) the
original number of months to stated maturity; (e) its original stated maturity;
(f) its Original Principal Amount; (g) its Cut-off Date Principal Balance; (h)
the related Mortgage Loan Rate as of the Cut-off Date and, with respect to any
Adjustable Rate Mortgage Loan, the related Index, Gross Margin, Minimum Rate,
Maximum Rate and any periodic limitations on adjustment; (i) the scheduled
Monthly Mortgage Payment; (j) the date in each month on which the related
Monthly Mortgage Payments are due; (k) its Combined Loan-to-Value Ratio or the
ratio, expressed as a percentage, of the Original Principal Amount of such
Mortgage Loan to the Appraised Value of the related Mortgaged Property, as
applicable; (l) the lien status of the related Mortgage and, with respect to any
Junior Mortgage Loan, the principal amount (as of the date of origination) of
all related Senior Liens; (m) whether the related Mortgaged Property is
owner-occupied or non-owner-occupied; (n) whether the related Mortgaged Property
is a single-family residence, a two- to four-family residence or a unit in a
condominium or planned unit development; (o) whether the Mortgage Loan has been
originated by an Affiliate of the Company; and (p) whether the Mortgage Loan is
being serviced by a Sub-Servicer and, if so, the identity of such Sub-Servicer.
Mortgage Note: The note or other instrument evidencing the indebtedness of
a Mortgagor under the related Mortgage Loan.
Mortgaged Property: The underlying property securing a Mortgage Loan.
Mortgagor: The obligor under a Mortgage Note.
Net Liquidation Proceeds: As to any Mortgage Loan, Liquidation Proceeds
net of Liquidation Expenses. For all purposes of this Agreement, Net Liquidation
Proceeds shall be allocated first to accrued and unpaid interest on the related
Mortgage Loan and then to the Principal Balance thereof.
Non-permitted Foreign Holder: As defined in Section 6.02(c).
Nonrecoverable Advance: Any Servicing Advance that, in the Servicer's
reasonable judgment, would not be ultimately recoverable by the Servicer from
late collections, Insurance Proceeds or Liquidation Proceeds on the related
Mortgage Loan or otherwise, as evidenced by an
28
<PAGE> 34
Officer's Certificate delivered to the Trustee no later than the Business Day
following the Servicer's determination thereof.
Notice of Claim: The notice required to be furnished by the Trustee to the
Financial Guaranty Insurer in the event an Insured Amount is required to be paid
under the Financial Guaranty Insurance Policy with respect to any Distribution
Date, in the form set forth as Exhibit K hereto.
Offered Certificates:The Certificates other than the Retained
Certificates.
Officer's Certificate: A certificate signed by the Chairman of the Board,
the Vice Chairman of the Board, the President or a Vice President of the Seller
or the Servicer, as the case may be, and delivered to the Trustee or each Rating
Agency, as the case may be.
Opinion of Counsel: A written opinion of counsel reasonably acceptable to
the Trustee (and the Financial Guaranty Insurer, if such opinion is to be
delivered thereto), who may be in-house counsel for the Seller or the Servicer
(except with respect to any opinion with respect to or concerning the REMIC
status of any REMIC Pool). Any expense related to obtaining an Opinion of
Counsel for an action requested by a party shall be borne by the party required
to obtain such opinion or seeking to effect the action that requires the
delivery of such Opinion of Counsel.
Original Adjustable Rate Group Balance: $[ ]
Original Fixed Rate Group Balance: $[ ]
Original Pool Balance: $[ ]
Original Principal Amount: With respect to any Mortgage Loan, the original
principal amount due under the related Mortgage Note as of its date of
origination.
Overcollateralization Amount: With respect to a Mortgage Loan Group and as
of any Distribution Date means the excess of (x) the aggregate of the
outstanding principal balances of the Mortgage Loans in such Mortgage Loan Group
as of the last day of the immediately preceding Collection Period (plus, in the
case of Collection Periods during the Funding Period, the portion, if any, of
the Prefunding Account Deposit relating to such Mortgage Loan Group remaining on
deposit in the Prefunding Account of such date) over (y) the Aggregate
Certificate Principal Balance of the related Offered Certificates (after taking
into account all distributions in respect of principal collections and all
amounts paid by the Financial Guaranty Insurer in respect of principal on such
Distribution Date).
Overcollateralization Deficiency: With respect to either Mortgage Loan
Group and any Distribution Date, means the excess, if any, of (x) the related
Targeted Overcollateralization Amount over (y) the related Overcollateralization
Amount, calculated for this purpose after taking into account the reduction on
such Distribution Date of the Certificate Principal Balances of all related
Classes of Offered Certificates resulting from principal distributions (other
than reductions
29
<PAGE> 35
resulting from the distribution of any related Extra Principal Distribution
Amount), but before taking into account any related Applied Realized Loss Amount
or amount paid by the Financial Guaranty Insurer in respect of principal for
such Distribution Date.
Overcollateralization Release Amount: With respect to either Mortgage Loan
Group and any Distribution Date, means, the lesser of (x) the related Fixed Rate
Group or Adjustable Rate Group Principal Distribution Amount (other than any
related Extra Principal Distribution Amount), ignoring clause (Z) of the
definition thereof in the case of the Fixed Rate Group, and (y) the excess of
(i) the related Overcollateralization Amount, assuming that 100% of such related
Principal Distribution Amount (excluding the application of any Extra Principal
Distribution Amount) is applied to the payment of principal on the related
Offered Certificates on such Distribution Date over (ii) the related Targeted
Overcollateralization Amount.
Pass-Through Rate: As indicated by the context, the Class A-1F
Pass-Through Rate, Class A-2F Pass-Through Rate, Class A-3F Pass-Through Rate,
Class A-4F Pass-Through Rate, Class A-5F Pass-Through Rate, Class A-6F
Pass-Through Rate, Class M-1F Pass-Through Rate, Class M-2F Pass-Through Rate,
Class B-1F Pass-Through Rate, Class A-1A Pass-Through Rate or Class A-2A
Pass-Through Rate.
Payment Ahead: Any payment of one or more Monthly Mortgage Payments
remitted by a Mortgagor with respect to a Mortgage Note in excess of the Monthly
Mortgage Payment due during such Collection Period with respect to such Mortgage
Note, which sums the related Mortgagor has instructed the Servicer to apply to
Monthly Mortgage Payments due in one or more subsequent Collection Periods. A
Monthly Mortgage Payment that was a Payment Ahead shall, for purposes of
computing certain amounts under this Agreement, be deemed to have been received
by the Servicer on the date in the related Collection Period on which such
Monthly Mortgage Payment would have been due if such Monthly Mortgage Payment
was not a Payment Ahead.
Payoff Notice: The certification delivered by the Servicer in connection
with any payment in full of the outstanding principal balance of a Mortgage Loan
pursuant to Section 3.07, to be substantially in the form of Exhibit E.
Percentage Interest: With respect to any Certificate, the undivided
percentage interest (carried to eight places, rounded down) obtained by dividing
the original principal balance of such Certificate by the Initial Certificate
Principal Balance of the related Class, as applicable, and multiplying the
result by 100; provided that with respect to a Class C Certificate or Class R
Certificate, Percentage Interest means the undivided percentage interest set
forth on the face of such Class R Certificate, which in the aggregate shall not
exceed 100%.
30
<PAGE> 36
Permitted Investments: One or more of the following obligations,
instruments and securities:
(a) direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and
interest by, the United States or any agency or instrumentality thereof,
provided such obligations are backed by the full faith and credit of the
United States;
(b) Federal Housing Administration debentures, FHLMC senior debt
obligations and FNMA senior debt obligations, but excluding any of such
securities whose terms do not provide for payment of a fixed dollar amount
upon maturity or call for redemption or that are not rated in one of the
two highest long-term rating categories by each Rating Agency;
(c) federal funds, certificates of deposit, time and demand
deposits and banker's acceptances (in each case having original maturities
of not more than 365 days) of any bank or trust company incorporated under
the laws of the United States or any state thereof, provided that the
short-term debt obligations of such bank or trust company at the date of
acquisition thereof have been rated "A-1" or better by Standard & Poor's
and Prime-1 by Moody's;
(d) deposits of any bank or savings and loan association that has
combined capital, surplus and undivided profits of at least $100,000,000
which deposits are held up to the applicable limits insured by the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC;
(e) commercial paper (having original maturities of not more than
180 days) that has the highest short term rating of each of Standard &
Poor's and Moody's;
(f) investments in money market funds rated "AAAm" or "AAAm-G" by
Standard & Poor's and Aaa by Moody's; and
(g) investments approved in writing by each of the Rating
Agencies;
provided that no investment described hereunder shall evidence either the right
to receive (i) only interest with respect to obligations underlying such
instrument or (ii) both principal and interest payments derived from obligations
underlying such instrument and the principal and interest payments with respect
to such instrument provided a yield to maturity at par greater than [ ]% of the
yield to maturity of the underlying obligations; and provided, further, that no
instrument described hereunder may be purchased at a price greater than par if
such instrument may be prepaid or called at a price less than its purchase price
prior to stated maturity. Permitted Investments shall mature not later than the
Business Day prior to the date on which such monies will be needed to make
payments, or in the case of Permitted Investments held in the Prefunding
Account, shall be available on the Business Day next succeeding the date the
Trustee receives the Addition Notice that such monies will be needed.
Notwithstanding the foregoing, with respect to investment of amounts in any
account, any of the foregoing obligations, instruments or securities will not be
31
<PAGE> 37
Permitted Investments to the extent that an investment therein will cause then
outstanding principal amount thereof in which such funds are then invested to
exceed $[ ] (such investments being valued at par).
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Policy Payments Account: The segregated account, which shall be an
Eligible Account, established and maintained pursuant to Section 3.19(a) and
entitled "Bankers Trust Company of California, N.A., as Trustee for Aames
Mortgage Trust 199[ ]-[ ] Mortgage Pass-Through Certificates, Series 199[ ]-[ ],
Policy Payments Account".
Pool Balance: As to any Distribution Date, the sum of the Fixed Rate Group
Balance and the Adjustable Rate Group Balance.
Preference Amount: With respect to any Distribution Date and any Class of
Certificates, any amounts included in previous distributions that are recovered
from the related Certificateholders as a voidable preference by a trustee in
bankruptcy pursuant to the United States Bankruptcy Code in accordance with a
final, nonappealable order of a court having competent jurisdiction and that
have not therefore been repaid to such Certificateholders, provided such
Certificateholders have complied with the provisions of Section 3.19(b).
Prefunding Account: The segregated account, which, if utilized shall be an
Eligible Account, established and maintained pursuant to Section 3.16 and
entitled "Bankers Trust Company of California, N.A., as Trustee for Aames
Mortgage Trust 199[ ]-[ ] Mortgage Pass-Through Certificates, Series 199[ ]-[ ],
Prefunding Account".
Prefunding Account Deposit: $[ ] or, if all of the Subsequent Mortgage
Loans are purchased by the Trust on the Closing Date, $0.
Prefunding Account Release: Means the amount to be released from the
Prefunding Account (or, if the Subsequent Mortgage Loans are purchased by the
Trust on the Closing Date, from the Certificate Account) on the Distribution
Date in [ ], equal to the portion of the Prefunding Account Deposit not used to
purchase Subsequent Mortgage Loans on the Closing Date.
Prepayment Interest Shortfall: As to any Distribution Date and either
Mortgage Loan Group, the amount, if any, by which the amount described in clause
(b) of the definition of Compensating Interest for such Distribution Date
exceeds the Monthly Servicing Fee for such Mortgage Loan Group and the related
Collection Period.
Principal Balance: As to any Mortgage Loan and any Determination Date, the
actual outstanding principal amount thereof as of the close of business on the
Determination Date in the preceding month (or, in the case of the first
Determination Date, as of the Cut-off Date) less (i) any
32
<PAGE> 38
Principal Payments received in respect of such Mortgage Loan during the related
Collection Period, (ii) Net Liquidation Proceeds and Trust Insurance Proceeds
allocable to principal recovered or collected in respect of such Mortgage Loan
during the related Collection Period, (iii) the portion of the Purchase Price
allocable to principal to be remitted by the Seller or the Servicer to the
Trustee on the next succeeding Deposit Date in connection with a purchase or
repurchase of such Mortgage Loan pursuant to Section 2.03, 2.05, 3.01, 3.06 or
10.01, to the extent such amount is actually received by the Trustee on such
Deposit Date, (iv) the amount to be remitted by the Seller to the Trustee on the
next succeeding Deposit Date in connection with a substitution of a Qualified
Replacement Mortgage Loan for such Mortgage Loan pursuant to Section 2.03 or
2.05, to the extent such amount is actually received by the Trustee on such
Deposit Date and (v) the amount to be remitted to the Trustee on the next
succeeding Deposit Date in connection with a purchase of such Mortgage Loan
pursuant to Section 10.01; provided, however that a Mortgage Loan that has
become a Liquidated Mortgage Loan since the preceding Determination Date (or, in
the case of the first Determination Date, since the Cut-off Date) will be deemed
to have a Principal Balance of zero on the current Determination Date.
Principal Distribution Amount: With respect to either Mortgage Loan Group
and any Distribution Date, means the aggregate of the following amounts in
respect of principal and such Mortgage Loan Group:
(i) Principal Payments received or deemed to have been received during
the related Collection Period;
(ii) all Trust Insurance Proceeds received during the related Collection
Period;
(iii) all Net Liquidation Proceeds received during the related Collection
Period (excluding any amount distributed to the Holders of the Class C
Certificates pursuant to Section 3.06)
(iv) the aggregate of the amounts deposited in the Certificate Account on
the related Deposit Date by the Seller or the Servicer, as applicable, in
connection with any purchase, repurchase, shortage or substitution pursuant to
Section 2.03, 2.05, 3.01, 3.03 or 3.06;
(v) the aggregate of the amounts deposited in the Certificate Account by
the Servicer in connection with a purchase pursuant to Section 10.01;
(vi) the amount of Monthly Advances made by the Servicer in respect of
such Distribution Date pursuant to Section 5.02(a); and
(vii) in the case of the [ ] Distribution Date, the amount, if any,
remaining on deposit in the Prefunding Account (net of any investment income
with respect thereto) or the Escrow Account;
reduced by the sum of:
33
<PAGE> 39
(X) the aggregate amount of Servicing Advances (other than those
included in the Liquidation Expenses for any Liquidated Mortgage Loan and
reimbursed from the related Liquidation Proceeds) reimbursable to the Servicer
on such Distribution Date pursuant to the provisions of this Agreement;
(Y) the aggregate amounts (i) deposited into the Collection Account or
Certificate Account that may not be withdrawn therefrom pursuant to a final and
nonappealable order of a United States bankruptcy court of competent
jurisdiction imposing a stay pursuant to Section 362 of the United States
Bankruptcy Code and that would otherwise have been included in Monthly Interest
on such Distribution Date and (ii) received by the Trustee that are recoverable
and sought to be recovered from the Trustee as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code in
accordance with a final, nonappealable order of a court of competent
jurisdiction; and
(Z) in the case of the Fixed Rate Group, the related
Overcollateralization Release Amount.
Principal Payment: As to any Mortgage Loan and Collection Period, all
amounts received or, in the case of the principal portion of any Payment Ahead,
deemed to have been received by the Servicer from or on behalf of the related
Mortgagor during such Collection Period (including Principal Prepayments) that,
at the time of receipt or, in the case of any Payment Ahead, at the time such
Payment Ahead is deemed to have been received, were applied or were required to
be applied by the Servicer in reduction of the Principal Balance of such
Mortgage Loan.
Principal Prepayment: As to any Mortgage Loan and Collection Period, any
payment by a Mortgagor or other recovery in respect of principal on a Mortgage
Loan (including Net Liquidation Proceeds) that, in the case of a payment by a
Mortgagor, is received in advance of its scheduled due date and is not a Payment
Ahead.
Property Protection Expenses: Expenses (exclusive of overhead expenses)
reasonably paid or incurred by or for the account of the Servicer in connection
with the preservation or protection of a Mortgaged Property or the security of a
Mortgaged Property, including (a) hazard insurance policy premiums, (b) real
estate taxes and property repair, replacement, protection and preservation
expenses, (c) amounts expended to cure or prevent any default with respect to
any mortgage loan senior to the related Mortgage Loan and (d) similar expenses
reasonably paid or incurred to preserve or protect the value of such Mortgaged
Property or security (including but not limited to reasonable legal fees and
expenses).
Purchase Price: With respect to (a) any Defective Mortgage Loan or (b) any
Mortgage Loan to be purchased by the Servicer pursuant to Section 3.01 or
Section 3.06, an amount equal to (i) the sum of (A) the Principal Balance of
such Mortgage Loan or Defective Mortgage Loan, as the case may be, as of the
beginning of the Collection Period next preceding the Deposit Date on which such
repurchase or purchase is required to occur, (B) interest computed at the
applicable Mortgage Loan Rate on such Principal Balance from the date to which
interest was last paid by the Mortgagor
34
<PAGE> 40
to the last day of the Collection Period immediately preceding the Deposit Date
on which such repurchase or purchase occurs and (C) any previously unreimbursed
Servicing Advances made on or in respect of such Defective Mortgage Loan or
Mortgage Loan, as the case may be, less (ii) any payments of principal and
interest in respect of such Defective Mortgage Loan or Mortgage Loan, as the
case may be, made by or on behalf of the related Mortgagor during such
Collection Period; provided that the Purchase Price with respect to any
Restricted Mortgage Loan to be purchased by the Servicer pursuant to Section
3.06 will be the fair market value of the related Mortgaged Property as
described in such Section 3.06.
Qualified Replacement Mortgage Loan: A Mortgage Loan that is substituted
for a Deleted Mortgage Loan pursuant to Section 2.03 or Section 2.05 that must,
at the end of the Collection Period preceding the date of such substitution, (i)
have an outstanding principal balance (when taken together with any other
Qualified Replacement Mortgage Loan being substituted for such Deleted Mortgage
Loan), not in excess of and not substantially less than the unpaid principal
balance of the Deleted Mortgage Loan at the end of the Collection Period
preceding the date of substitution, (ii) if the Deleted Mortgage Loan is an
Adjustable Rate Mortgage Loan, have the Mortgage Loan Rate computed on the same
basis as the Mortgage Loan Rate on the related Mortgage Loan, utilizing the same
Index and having a Gross Margin or Minimum Rate not less than (and not more than
one percentage point in excess of) the Gross Margin and Minimum Rate applicable
to the Deleted Mortgage Loan and if the Deleted Mortgage Loan is not an
Adjustable Rate Mortgage Loan, have a Mortgage Loan Rate not less than (and not
more than one percentage point in excess of) the Mortgage Loan Rate of the
Deleted Mortgage Loan, (iii) have a remaining term to maturity not greater than
(and not more than one year less than) that of the Deleted Mortgage Loan, (iv)
have a Combined Loan-to-Value Ratio equal to or lower than the Combined
Loan-to-Value Ratio of the Deleted Mortgage Loan, (v) satisfy the criteria set
forth from time to time in the definition "qualified replacement mortgage" at
Section 860G(a)(4) of the Code, (vi) have the same or a superior lien priority
as the Deleted Mortgage Loan, (vii) comply as of the date of substitution with
each representation and warranty set forth in Section 2.05, (viii) have the same
or better property type as the Deleted Mortgage Loan and (ix) have the same or
better occupancy status. In the event that one or more mortgage loans are
proposed to be substituted for one or more Deleted Mortgage Loans, the foregoing
tests may be met on a weighted average basis or other aggregate basis (which, in
the case of the Adjustable Rate Mortgage Loans, must be acceptable to the
Financial Guaranty Insurer), except that the requirements of clauses (iv)
through (ix) hereof must be satisfied as to each Qualified Replacement Mortgage
Loan.
Rating Agencies: Moody's, Fitch and, with respect to the Adjustable Rate
Group Certificates, S&P (each, a "Rating Agency"). If either such agency or a
successor is no longer in existence, "Rating Agency" shall be such nationally
recognized statistical credit rating agency, or other comparable Person,
designated by the Servicer, notice of which designation shall be given to the
Trustee.
Realized Loss: With respect to any Liquidated Mortgage Loan, the amount,
if any, by which the Principal Balance of such Mortgage Loan and accrued and
unpaid interest thereon (determined as of the Determination Date immediately
prior to such Mortgage Loan becoming a Liquidated Mortgage Loan) exceeds the Net
Liquidation Proceeds, if any, in respect of such
35
<PAGE> 41
Mortgage Loan, which amount shall in no event exceed the Principal Balance of
such Mortgage Loan (determined as of the Determination Date immediately prior to
such Mortgage Loan becoming a Liquidated Mortgage Loan).
Record Date: As to any Distribution Date, the close of business, if
applicable, on the last Business Day of the calendar month immediately preceding
such Distribution Date.
Reference Banks: [Bankers Trust Company, Barclay's Bank PLC and National
Westminster Bank PLC]; provided that, if any of the foregoing banks are deemed
by the Servicer (as indicated in writing to the Trustee) not suitable to serve
as a Reference Bank, then any leading banks selected by the Trustee and engaged
in transactions in Eurodollar deposits in the international Eurocurrency market
(i) with an established place of business in London, (ii) whose quotations
appear on the Dow Jones Telerate Service Page 3750 on the LIBOR Determination
Date in question, (iii) that have been designated as such by the Trustee and
(iv) not controlling, controlled by, or under common control with the Company or
any originator.
Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
Relief Act Shortfall: As to any Distribution Date and either Mortgage Loan
Group, the amount of any reduction of interest collectible on any Mortgage Loan
in either Mortgage Loan Group for the related Collection Period due to the
application of the Relief Act.
REMIC: A "real estate mortgage investment conduit" as defined in Code
Section 860D, and in particular, any of the REMIC I, REMIC II and REMIC III as
indicated by the context.
REMIC Pool: With respect to the REMIC I, the REMIC I Pool which shall be
the assets of the Trust attributable to the Fixed Rate Group and Adjustable Rate
Group, other than the Prefunding Account, Capitalized Interest Account, Escrow
Account and Supplemental Interest Reserve Fund, the REMIC I Regular Interests
and the REMIC II Regular Interests; with respect to the REMIC II, the REMIC II
Pool which shall be the REMIC I Regular Interests; and with respect to REMIC
III, the REMIC III Pool which shall be the REMIC II Regular Interests.
REMIC Provisions: Provisions of the federal income tax law relating to
REMICs that appear at Sections 860A through 860G of Part IV of Subchapter M of
Chapter 1 of Subtitle A of the Code, and related provisions, and U.S. Department
of the Treasury proposed, temporary or final regulations and rulings promulgated
thereunder, as the foregoing may be in effect from time to time.
REO Property: As defined in Section 5.02(a).
Reserve Interest Rate: With respect to any LIBOR Determination Date, the
rate per annum that the Trustee determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 0.0625%) of the
one-month U.S. dollar lending rates that New York City banks selected by the
Trustee are quoting on the relevant LIBOR Determination Date to the principal
London offices of leading banks in the London interbank market or (ii) in the
event that
36
<PAGE> 42
the Trustee can determine no such arithmetic mean, the lowest one-month U.S.
dollar lending rate that New York City banks selected by the Trustee are quoting
on such LIBOR Determination Dates to leading European banks.
Responsible Officer: When used with respect to the Trustee, any Vice
President or Assistant Vice President, any Assistant Secretary, any Assistant
Treasurer or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and to whom,
with respect to a particular matter, such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
Restricted Mortgage Loan: A Mortgage Loan that as of the Closing Date was
90 or more days contractually delinquent.
Restricted Mortgaged Property: With respect to any Restricted Mortgage
Loan, means the Mortgaged Property securing such Restricted Mortgage Loan.
Retained Certificates: Collectively, each of the Class C Certificates and
Class R Certificates.
Reuters Screen NYAA Page: The display designated as page "Reuters Screen
NYAA Page" on the Reuters Monitor Money Rates Service (or such other page
selected by the Trustee as may replace the NYAA page on that service for the
purpose of displaying Federal Funds rates).
Rolling Delinquency Percentage: For any Distribution Date and either
Mortgage Loan Group, the average of the Delinquency Percentages for such
Mortgage Loan Group as of the last day of each of the three (or one or two in
the case of the first three Distribution Dates, as applicable) most recently
ended Collection Periods.
Rolling Loss Percentage: With respect to either Mortgage Loan Group and
any Distribution Date, the percentage equivalent of a fraction, the numerator of
which is the aggregate amount of Realized Losses incurred with respect to such
Mortgage Loan Group during the preceding twelve Collection Periods, and the
denominator of which is the related Group Balance as of the first day of such
twelfth preceding Collection Period.
Securities Act: The Securities Act of 1933, as amended.
S&P: Standard and Poor's Corporation.
Seller: The Company.
Senior Enhancement Percentage: With respect to the Fixed Rate Group and
any Distribution Date means the percentage obtained by dividing (x) the sum of
(i) the Aggregate Certificate Principal Balance of the Fixed Rate Group
Certificates (or, after the Certificate Principal Balance of each Class of Fixed
Rate Group Class A Certificates has been reduced to zero, the
37
<PAGE> 43
Aggregate Certificate Principal Balance of the Subordinate Certificates other
than the most senior Class of such Subordinate Certificates then outstanding)
and (ii) the related Overcollateralization Amount, in each case after taking
into account distributions in respect of the Fixed Rate Group Principal
Distribution Amount to the related Offered Certificateholders on such
Distribution Date by (y) the aggregate of the outstanding Principal Balances of
the Mortgage Loans in the Fixed Rate Group as of the last day of the related
Collection Period (plus, in the case of Collection Periods during the Funding
Period, the portion, if any, of the Fixed Rate Group Prefunding Account Deposit
remaining on deposit in the Prefunding Account or escrow Account).
Senior Lien: With respect to any Junior Mortgage Loan, any liens on the
related Mortgaged Property of higher priority.
Servicer: The Company or any successor servicer appointed as provided
pursuant to this Agreement.
Servicer Cumulative Loss Rate Event: With respect to the Adjustable Rate
Group and any Distribution Date occurring during the periods indicated in the
following table, the Loss Percentage exceeds the percentage indicated
percentage:
from and including: to but excluding Loss Percentage
and, with respect to any Distribution Date in [ ] or thereafter, the Loss
Percentage exceeds [ ]%.
Servicer Delinquency Rate Event: With respect to the Adjustable Rate
Group, on any Distribution Date the Rolling Delinquency Percentage for such
Mortgage Loan Group equals or exceeds [ ]%.
Servicer Remittance Report: The monthly report prepared by the Servicer
and delivered to the Trustee and Financial Guaranty Insurer pursuant to Section
4.01.
Servicer Rolling Loss Rate Event: With respect to the Adjustable Rate
Group, on any Distribution Date on or after [ ] the Rolling Loss Percentage for
such Mortgage Loan Group exceeds [ ]%.
Servicing Advances: All reasonable and customary "out-of-pocket" costs and
expenses incurred in the performance by the Servicer of its servicing
obligation, including, but not limited to, the cost of (i) the preservation,
restoration and protection of the Mortgaged Property, including without
limitation advances in respect of real estate taxes and assessments and
insurance premiums on fire, hazard and, if applicable, flood insurance policies,
(ii) any enforcement or judicial
38
<PAGE> 44
proceedings, including foreclosures, (iii) the management and liquidation of any
REO Property, (iv) compliance with the obligations under Section 3.04 and (v)
expenditures relating to the correction of a default on any Senior Lien pursuant
to Section 3.06 in connection with the liquidation of a Mortgage Loan.
Servicing Fee Rate: With respect to each Mortgage Loan Group and each
Collection Period, [ ]%.
Servicing Officer: Any officer of the Servicer involved in, or responsible
for, the administration and servicing of the Mortgage Loans whose name and
specimen signature appear on a list of servicing officers annexed to an
Officer's Certificate furnished to the Trustee by the Servicer, as such list may
from time to time be amended.
Specified Senior Enhancement Percentage: With respect to any date of
determination, [ ]%.
Startup Day: As defined in Section 2.07.
Statement to Certificateholders: As defined in Section 5.03.
Stepdown Date: The later to occur of (x) the Distribution Date in [ ] or
(y) the first Distribution Date on which the Senior Enhancement Percentage
(after taking into account distributions on such Distribution Date in respect of
principal collections) is greater than or equal to the Specified Senior
Enhancement Percentage.
Step Down Cumulative Loss Test: With respect to any Distribution Date and
the Adjustable Rate Group, a determination as to whether: (i) for the
Distribution Dates occurring in [ ] through and including [ ], the Loss
Percentage for such Mortgage Loan Group and Distribution Date is [ ]% or less,
(ii) for the Distribution Dates occurring in [ ] through and including [ ], the
Loss Percentage for such Mortgage Loan Group and such Distribution Date is [ ]%
or less, (iii) for the Distribution Dates occurring in [ ] through and including
[ ], the Loss Percentage for such Mortgage Loan Group and such Distribution Date
is [ ]% or less, (iv) for any Distribution Date occurring in or [ ] through and
including [ ], the Loss Percentage for such Mortgage Loan Group and such
Distribution Date is [ ]% or less and (v) for any Distribution Date occurring in
or after [ ], the Loss Percentage for such Mortgage Loan Group and such
Distribution Date is [ ] or less.
Step Down Rolling Delinquency Test: On any relevant Distribution Date and
with respect to the Adjustable Rate Group, the related Rolling Delinquency
Percentage is less than [ ]%.
Step Down Rolling Loss Test: On any relevant Distribution Date and with
respect to the Adjustable Rate Group, the related Rolling Loss Percentage is
less than [ ]%.
39
<PAGE> 45
Stepped Down Targeted Overcollateralization Amount: With respect to the
Adjustable Rate Group and any Distribution Date, the product of the Adjustable
Rate Group Balance and the Stepped Down Targeted Overcollateralization
Percentage (or, if an Excess Spread Trigger has occurred, the Stepped Down
Targeted Overcollateralization Percentage (Excess Spread Trigger)).
Stepped Down Targeted Overcollateralization Percentage: With respect to
the Adjustable Rate Group and any Distribution Date on or after the twenty-fifth
Distribution Date on which the related Step Down Trigger has occurred a
percentage equal to the difference, if positive, of (i) the percentage
equivalent of a fraction, the numerator of which is [ ]% of the Original
Adjustable Rate Group Balance plus the Adjustable Rate Group Prefunding Account
Deposit and the denominator of which is the Adjustable Rate Group Balance as of
such Distribution Date, minus (ii) the percentage equivalent of a fraction, the
numerator of which is the product of (A) the percentage calculated under clause
(i) above minus [ ]%, multiplied by (B) the number of consecutive Distribution
Dates through and including the Distribution Date for which such calculation is
made, up to a maximum of twelve, from and including the twenty-fifth
Distribution Date, and the denominator of which is twelve.
Stepped Down Targeted Overcollateralization Percentage (Excess Spread
Trigger): With respect to the Adjustable Rate Group and any Distribution Date on
or after the twenty-fifth Distribution Date on which the related Step Down
Trigger has occurred a percentage equal to the difference, if positive, of (i)
the percentage equivalent of a fraction, the numerator of which is [ ]% of the
Original Adjustable Rate Group Balance plus the Adjustable Rate Group Prefunding
Account Deposit and the denominator of which is the Adjustable Rate Group
Balance as of such Distribution Date, minus (ii) the percentage equivalent of a
fraction, the numerator of which is the product of (A) the percentage calculated
under clause (i) above minus [ ]%, multiplied by (B) the number of consecutive
Distribution Dates through and including the Distribution Date for which such
calculation is made, up to a maximum of twelve, from and including the
twenty-fifth Distribution Date, and the denominator of which is twelve.
Step Down Trigger: With respect to any Distribution Date and the
Adjustable Rate Group, the Step Down Trigger will have occurred if each of the
Step Down Rolling Delinquency Test, Step Down Rolling Loss Test and Step Down
Cumulative Loss Test is satisfied.
Step Up Cumulative Loss Test: With respect to the Adjustable Rate Group
and any Distribution Date, a determination as to whether: (i) for any
Distribution Date occurring prior to [ ], the Loss Percentage for such Mortgage
Loan Group and Distribution Date is greater than [ ]%; (ii) for any Distribution
Date occurring in or after [ ] but prior to [ ], the Loss Percentage for such
Mortgage Loan Group and Distribution Date is greater than [ ]%; (iii) for any
Distribution Date occurring in or after [ ] but prior to [ ], the Loss
Percentage for such Mortgage Loan Group and Distribution Date is greater than [
]%; (iv) for any Distribution Date occurring in or after [ ] but prior to [ ],
the Loss Percentage for such Mortgage Loan Group and Distribution Date is
greater than [ ]%; and (v) for any Distribution Date occurring in or after [ ],
the Loss Percentage for such Mortgage Loan Group and Distribution Date is
greater than [ ]%.
40
<PAGE> 46
Stepped Up Enhancement Percentage: With respect to the Fixed Rate Group on
any Distribution Date, a percentage equal to (x) 100% minus (y) [ ] times the
Rolling Delinquency Percentage.
Step Up Rolling Delinquency Test: With respect to the Adjustable Rate
Group and any Distribution Date, a determination that the Rolling Delinquency
Percentage is more than [ ]%.
Step Up Rolling Loss Test: With respect to the Adjustable Rate Group and
any Distribution Date, a determination that the Rolling Loss Percentage is equal
to or greater than [ ]%.
Subordinate Certificates: The Class M-1F, Class M-2F and Class B-1F
Certificates.
Sub-Servicer: Any Person, including an Affiliate of the Servicer, with
whom the Servicer has entered into a Sub-Servicing Agreement and who satisfies
the requirements set forth in Section 3.15 hereof in respect of the
qualification of a Sub-Servicer. The Sub-Servicers with respect to any of the
Mortgage Loans as of the Cut-off Date are listed on Schedule I attached to this
Agreement.
Sub-Servicing Account: Any segregated account, which shall at all times be
an Eligible Account, established and maintained pursuant to Section 3.02(b) and
entitled "[Sub-Servicer], in trust for the benefit of Holders of Aames Mortgage
Trust [ ]-[ ] Mortgage Pass-Through Certificates, Series [ ], Collection
Account". References herein to the Collection Account shall include any
Sub-Servicing Account as the context requires.
Sub-Servicing Agreement: A written contract between the Servicer and any
Sub-Servicer relating to the servicing and/or administration of certain Mortgage
Loans.
Supplemental Interest Amount: With respect to either Class of Adjustable
Rate Group Certificates on any Distribution Date, the positive excess, if any,
of the amount of interest that would have accrued thereon during the related
Interest Period at the related Formula Pass-Through Rate over the amount of
interest that did accrue thereon at the Adjustable Rate Group Available Funds
Cap (and in the case of any such excess remaining unpaid from a prior
Distribution Date, interest thereon at the related Formula Pass-Through Rate, to
the extent lawful).
Supplemental Interest Reserve Fund: The Supplemental Interest Reserve Fund
established and maintained as described in Sections 3.18 and 9.16(x).
Subsequent Cut-off Date: With respect to any Subsequent Mortgage Loan, the
date specified as such in the related Subsequent Mortgage Loan Schedule.
41
<PAGE> 47
Subsequent Cut-off Date Principal Balance: As to any Subsequent Mortgage
Loan, the actual outstanding principal balance due thereunder from the Mortgagor
in the related Addition Notice.
Subsequent Mortgage Loan: A Mortgage Loan sold to the Trust pursuant to
Section 2.02 of this Agreement, which shall be listed on the Subsequent Mortgage
Loan Schedule attached to a Subsequent Transfer Agreement.
Subsequent Mortgage Loan Schedule: As of any Subsequent Transfer Date, the
schedule of Subsequent Mortgage Loans separated by Mortgage Loan Group as of the
related Subsequent Cut-off Date being transferred to the Trust on such
Subsequent Transfer Date pursuant to a Subsequent Transfer Agreement. Each
Subsequent Mortgage Loan Schedule shall contain information regarding the
related Subsequent Mortgage Loans of the type included in, and shall be
substantially in the form of, the Mortgage Loan Schedule attached hereto as
Exhibit B.
Subsequent Purchase Price: As of any Subsequent Transfer Date, with
respect to the Subsequent Mortgage Loans to be included in either Mortgage Loan
Group, an amount equal to the Principal Balances as of the Subsequent Cut-off
Date of such Subsequent Mortgage Loans listed in the related Subsequent Transfer
Agreement.
Subsequent Transfer Agreement: With respect to any Subsequent Mortgage
Loan, the agreement pursuant to which such Subsequent Mortgage Loan is
transferred to the Trust, in substantially the form attached hereto as Exhibit
I.
Subsequent Transfer Date: The date specified in each Subsequent Transfer
Agreement, but no later than [ ].
Subsequent Transfer Deposit: The amount deposited by the Seller in the
Collection Account in connection with each conveyance of Subsequent Mortgage
Loans pursuant to Section 2.02, which amount shall be the aggregate of the
amounts of interest that would have accrued (at the related Mortgage Loan Rates
net of the Servicing Fee Rate) on each such Subsequent Mortgage Loan for each
30-day period from the related Subsequent Transfer Date through the end of the
last Collection Period preceding the Collection Period in which such Mortgage
Loan has its first Monthly Payment Due. Each Subsequent Transfer Deposit shall
be allocated to the Fixed Rate Group or the Adjustable Rate Group, as
appropriate.
Targeted Overcollateralization Amount: (a) With respect to the Fixed Rate
Group (i) prior to the Stepdown Date, [ ]% of the aggregate of the Certificate
Principal Balances of the Fixed Rate Group Certificates as of the Cut-off Date,
and (ii) on and after the Stepdown Date, the greater of (A) [ ]% of Fixed Rate
Group Balance as of the last day of the related Collection Period and (B) $[ ];
and
(b) With respect to the Adjustable Rate Group on any Distribution Date
on which an Excess Spread Trigger has not occurred, (i) [ ]% of the sum of the
Original Adjustable Rate Group Balance and the Adjustable Rate Group Prefunding
Account Deposit, and (ii) on each
42
<PAGE> 48
Distribution Date as to which the Step Down Trigger has occurred, an amount
equal to the greater of (A) $[ ] and (B) the lesser of (x) [ ]% of the sum of
the Original Adjustable Rate Group Balance and the Adjustable Rate Group
Prefunding Account Deposit and (y) the product of the Stepped Down Targeted
Overcollateralization Percentage and the Adjustable Rate Group Balance as of the
last day of the related Collection Period, except that on any Distribution Date
in or after [ ] as to which any of the Step Up Cumulative Loss Test, Step Up
Rolling Delinquency Test or Step Up Rolling Loss Test is satisfied, and through
the Distribution Date on which each such test is no longer met, the Targeted
Overcollateralization Amount for the Adjustable Rate Group will be the sum of
(i) the product of [ ]% and the Adjustable Rate Group Balance and (ii) the
product of [ ] and the aggregate of the Principal Balances of all Adjustable
Rate Mortgage Loans that are 90 or more days contractually delinquent (including
Mortgage Loans as to which the related Mortgagor is in bankruptcy proceedings or
the related Mortgaged Property is an REO Property); and
(c) With respect to the Adjustable Rate Group on any Distribution Date
on which an Excess Spread Trigger has occurred, (i) [ ]% of the sum of the
Original Adjustable Rate Group Balance and the Adjustable Rate Group Prefunding
Account Deposit, and (ii) on each Distribution Date as to which the Step Down
Trigger has occurred, an amount equal to the greater of (A) $[ ] and (B) the
lesser of (x) [ ]% of the sum of the Original Adjustable Rate Group Balance and
the Adjustable Rate Group Prefunding Account Deposit and (y) the product of the
Stepped Down Targeted Overcollateralization Percentage and the Adjustable Rate
Group Balance as of the last day of the related Collection Period, except that
on any Distribution Date in or after [ ] as to which the Step Up Cumulative Loss
test, Step Up Rolling Delinquency Test or Step Up Rolling Loss Test is
satisfied, and through the Distribution Date on which each such test is no
longer met, the Targeted Overcollateralization Amount for the Adjustable Rate
Group will be the sum of (i) the product of [ ]% and the Adjustable Rate Group
Balance and (ii) the product of [ ] and the aggregate of the Principal Balances
of all Adjustable Rate Mortgage Loans that are 90 or more days contractually
delinquent (including Mortgage Loans as to which the related Mortgagor is in
bankruptcy proceedings or the related Mortgaged Property is an REO Property);
provided, however, that if a Trigger Event has occurred and is continuing for
either Mortgage Loan Group, the applicable Targeted Overcollateralization Amount
for such Mortgage Loan Group will not be reduced to less than the applicable
Targeted Overcollateralization Amount in effect on the Distribution Date
preceding the occurrence of such Trigger Event.
Targeted Overcollateralization Loss Event: With respect to any
Distribution Date during the indicated period and the Fixed Rate Group, means
that the related Loss Percentage equals or exceeds the indicated Loss
Percentage.
Period Loss Percentage
------ ---------------
43
<PAGE> 49
Telerate Page 120: The display designated as "Page 120" on the Dow Jones
Telerate Service (or such other page selected by the Servicer as may replace
Page 120 on that service for the purpose of displaying daily Federal Funds
rates).
Transfer Affidavit: The affidavit to be delivered by any transferee of an
interest in a Class R Certificate pursuant to Section 6.02(b), to be
substantially in the form attached hereto as Exhibit D.
Transferor Affidavit: The affidavit to be delivered by any transferor of
an interest in a Class R Certificate pursuant to Section 6.02(c), to be
substantially in the form attached hereto as Exhibit H.
Trigger Event: With respect to the Fixed Rate Group and any Distribution
Date, means (a) on such Distribution Date the Rolling Delinquency Percentage
equals or exceeds [ ]% of the Senior Enhancement Percentage or (b) the
occurrence and continuance of a Targeted Overcollateralization Loss Event with
respect to the Fixed Rate Group; provided that, notwithstanding the foregoing,
with respect to clause (a), a Trigger Event will not be in effect on any
Distribution Date as to which the percentage equivalent of a fraction, the
numerator of which is the aggregate Certificate Principal Balance of the Fixed
Rate Group Class A Certificates and the denominator of which is the Fixed Rate
Group Balance as of the last day of the related Collection Period is less than
or equal to the related Stepped Up Enhancement Percentage after all
distributions thereon in respect of principal. With respect to the Adjustable
Rate Group and any Distribution Date, means that any of the Step Down Rolling
Loss Test, the Step Down Rolling Delinquency Test or the Step Down Cumulative
Loss Test is not satisfied.
Trust: The trust created by this Agreement and the corpus thereof, which
consists of, to the extent described herein, the Mortgage Loans, such assets as
shall from time to time be identified or shall be required by this Agreement to
be deposited in the Collection Account, the Certificate Account, the Prefunding
Account or the Capitalized Interest Account or invested in Permitted Investments
in accordance with this Agreement, all rights under any insurance policy
covering a Mortgage Loan or the related Mortgaged Property and property and any
proceeds thereof that secured a Mortgage Loan and that has been acquired by
foreclosure, deed in lieu of foreclosure or by a comparable conversion.
Trust Insurance Proceeds: Insurance Proceeds that (a) are applied by the
Servicer to reduce the Principal Balance of the related Mortgage Loan and (b)
not applied to the restoration or repair of the related Mortgaged Property or
released to the related Mortgagor in accordance with the Servicer's normal
servicing procedures or the terms of the related Mortgage Loan.
Trust Parties: As defined in Section 5.04.
Trustee: Bankers Trust Company of California, N.A., a national banking
association, and its successors in interest or any successor trustee appointed
as provided pursuant to this Agreement.
44
<PAGE> 50
Trustee Fee: The annual fee of the Trustee, which shall be $[ ], and any
annual file access fees or other fees and expenses, payable by the Servicer
pursuant to Section 9.05.
Unpaid Realized Loss Amount: With respect to any Class of the Subordinate
Certificates and as to any Distribution Date means, the excess of (x) the
aggregate cumulative amount of related Applied Realized Loss Amounts with
respect to such Class for all prior Distribution Dates over (y) the aggregate
cumulative amount of related Realized Loss Amortization Amounts with respect to
such Class for all prior Distribution Dates.
Vice President: Any vice president, whether or not designated by a number
or a word or words added before or after the title "vice president".
Voting Interest: With respect to any provisions hereof providing for the
action, consent or approval of the Holders of all Certificates evidencing
specified Voting Interests in the Trust, the Holders of the Offered Certificates
will collectively be entitled to 100% of the aggregate Voting Interests
represented by all Certificates. Voting Interests will be allocated to the
Certificateholders of each Class pro rata, based on the respective Certificate
Principal Balances thereof. 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 Percentage Interest in such Class represented by
such Holder's Certificates. With respect to any provision hereof providing for
action, consent or approval of each Class of Certificates or specified Classes
of Certificates, each Certificateholder of a Class will have a Voting Interest
in such Class equal to such Holder's Percentage Interest in such Class.
Section 1.02. Interest Calculations. All calculations of interest at the
Mortgage Loan Rate that are made in respect of the Principal Balance of a
Mortgage Loan, shall be made on a daily basis using a 360-day year of twelve
30-day months. All calculations of interest on the Fixed Rate Group Certificates
other than the Class A-1F Certificate will be computed on the basis of a 360-day
year of twelve 30-day months. All calculations of interest on the Adjustable
Rate Group Certificates and the Class A-1F Certificates will be computed on the
basis of the actual number of days elapsed in the related Interest Period and a
year of 360 days.
45
<PAGE> 51
ARTICLE TWO
CONVEYANCE OF THE TRUST;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01. Conveyance of the Trust. The Seller, concurrently with the
execution and delivery of this Agreement, does hereby irrevocably sell,
transfer, assign, set over and otherwise convey to the Trustee, in trust for the
benefit of the Certificateholders, without recourse (except as otherwise
explicitly provided for herein), all of its right, title and interest in and to
the Trust, including specifically, without limitation, the Mortgage Loans, the
Mortgages, the Mortgage Files and the Mortgage Notes, including all interest and
principal (whether in the form of payments by Mortgagors or other proceeds)
received or deemed to be received by the Seller on or with respect to the
Mortgage Loans on or after the Cut-off Date net of amounts in respect of
interest accrued on the Mortgage Loans in periods prior to the Cut-off Date
(whether in the nature of amounts held by the Seller for application on behalf
of the related Mortgagor as a Monthly Mortgage Payment that is due on any date
on or after the Cut-off Date or otherwise), together with all of its right,
title and interest in and to the proceeds received on or after the Cut-off Date
of any related insurance policies. In addition, on or prior to the Closing Date
the Seller shall (i) cause the Financial Guaranty Insurance Policy to be
delivered to the Trustee and (ii) deposit the Closing Date Deposit in the
Collection Account.
In the event that, notwithstanding the intent of the parties hereto to
effect a sale and assignment of the Trust by the Seller to the Trustee, such
sale and assignment is deemed to constitute a pledge of security for a loan, it
is the intent of this Agreement that the Seller shall be deemed to have granted
to the Trustee for the benefit of the Certificateholders a first priority
perfected security interest in all of the Seller's right, title and interest in
and to the Mortgage Loans, the Mortgages, the Mortgage Files and the Mortgage
Notes, all payments of principal or interest on the Mortgage Loans received on
or after the Cut-off Date net of amounts in respect of interest accrued on the
Mortgage Loans in periods prior to the Cut-off Date, all other payments
(exclusive of assumption fees, late payment charges, charges for checks returned
for insufficient funds, prepayment fees, if any, and extension and other
administrative charges) made in respect of such Mortgage Loans on or after the
Cut-off Date and all proceeds of any thereof, including all amounts on deposit
in the Certificate Account, the Collection Account, the Prefunding Account and
the Capitalized Interest Account and amounts invested in Permitted Investments
(but excluding all investment income with respect to the Prefunding Account and
Capitalized Interest Account), and that this Agreement shall constitute a
security agreement under applicable law.
The Company confirms to the Trustee that it has caused its computer
records relating to the Mortgage Loans to indicate by a code that the Mortgage
Loans have been sold to the Trustee on behalf of the Trust and constitute part
of the Trust in accordance with the terms of the Trust and that the Company will
treat the transaction contemplated by such sale and assignment as a sale in
accordance with generally accepted accounting principles and will reflect such
sale on its primary accounting records.
46
<PAGE> 52
In connection with such sale and assignment, the Company, in its capacity
as Seller hereunder, does hereby deliver to, and deposit with, the Trustee the
originals of the following documents or instruments with respect to each
Mortgage Loan so assigned:
(a) The original Mortgage Note, with all intervening endorsements
sufficient to show a complete chain of endorsement to the Seller, endorsed
(which endorsement may be by manual or facsimile signature) by the Seller
without recourse to the order of the Trustee in the following form: "Pay
to the order of Bankers Trust Company of California, N.A., in trust for
the benefit of holders of Aames Mortgage Trust [ ]-[ ] Mortgage
Pass-Through Certificates, Series [ ]-[ ], without recourse"; except that
with respect to 3 Mortgage Loans identified to the Trustee by loan number,
an original lost note affidavit has been supplied in lieu of the original
Mortgage Note;
(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 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 Seller
or one of its Affiliates; and
(f) Original lender's title insurance policy issued on the date of
the origination of such Mortgage Loan.
As promptly as practicable subsequent to the Closing Date, and in any
event, within 30 days thereafter, the Company, in its capacity as Servicer shall
(i) affix the Trustee's name to each assignment of Mortgage, as the assignee
thereof, (ii) cause such assignment to be in proper form for recording in the
appropriate public office for real property records, and (iii) cause to be
delivered for recording in the appropriate public office for real property
records the assignments of the Mortgages to the Trustee, except that, with
respect to any assignments of Mortgage as to which the Servicer has not received
the information required to prepare such assignment in recordable form, the
Servicer shall be obligated to prepare and to deliver such assignment for such
recording as soon as practicable after receipt of such information and in any
event within 30 days after receipt thereof (and in no event more than one year
after the Closing Date) and that the Servicer need not cause to be recorded any
assignment that relates to a Mortgage Loan in any jurisdiction under the laws of
which, as evidenced by an Opinion of Counsel delivered or advice of counsel
satisfactory to the Trustee rendered to the Trustee by independent counsel (in
each case at the Seller's expense), to the effect that the recordation of such
assignment is not necessary to protect the Trustee's and the Certificateholders'
interest in the related Mortgage Loan.
47
<PAGE> 53
If the Company cannot deliver the original Mortgage or any intervening
mortgage assignment to the benefit of the Seller or one of its affiliates with
evidence of recording thereon concurrently with the execution and delivery of
this Agreement solely because of a delay caused by the public recording office
where such original Mortgage or mortgage assignment has been delivered for
recordation, the Company shall deliver to the Trustee an Officer's Certificate,
with a photocopy of such Mortgage or mortgage assignment, as the case may be,
attached thereto, stating that such original Mortgage or mortgage assignment has
been delivered to the appropriate public recording official for recordation. The
Company shall promptly deliver to the Trustee any such original Mortgage or
intervening mortgage assignment with evidence of recording indicated thereon
upon receipt thereof from the public recording official. If the Company within
six months from the Closing Date shall not have received such original Mortgage
or intervening 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 costs relating to the delivery of the documents specified in this
Section shall be borne by the Seller.
Section 2.02. Conveyance of the Subsequent Mortgage Loans; Fixed Price
Contract. Subject to the conditions set forth in the paragraphs below, in
consideration of the Trustee's delivery on the Closing Date or related
Subsequent Transfer Dates to or upon the order of the Seller of the Subsequent
Purchase Price of the related Subsequent Mortgage Loans from amounts on deposit
in the Prefunding Account (or other amounts payable to the Company if such
purchases of all Subsequent Mortgage Loans occur on the Closing Date) with
respect to the related Mortgage Loan Group, the Seller shall, from time to time,
on any Subsequent Transfer Date sell, transfer, assign, set over and otherwise
convey without recourse, to the Trustee, all right, title and interest of the
Seller in and to each Subsequent Mortgage Loan identified on the Subsequent
Mortgage Loan Schedule attached to the related Subsequent Transfer Agreement
delivered by the Seller on the Closing Date or such Subsequent Transfer Date,
including all of its right, title and interest in and to principal and interest
(whether in the form of payments by Mortgagors or other proceeds) received or
deemed to be received by the Seller on each such Subsequent Mortgage Loan on and
after the related Subsequent Cut-off Date, net of amounts in respect of interest
accrued on such Subsequent Mortgage Loans in periods prior to the related
Subsequent Cut-off Date (whether in the nature of amounts held by the Seller for
application on behalf of the related Mortgagor as a Monthly Mortgage Payment
that is due on any date on or after the related Subsequent Cut-off Date or
otherwise), plus any Subsequent Transfer Deposit relating to such Subsequent
Mortgage Loan and all items with respect to such Subsequent Mortgage Loan to be
delivered pursuant to Section 2.01 and other items in the related Mortgage File;
provided, however, that the Seller reserves and retains all of its right, title
and interest in and to principal (including prepayments) and interest collected
on each such Subsequent Mortgage Loan prior to the related Subsequent Cut-off
Date (except for amounts held by the Seller for application on or after the
related Subsequent Cut-off Date). The transfer by the Seller of the Subsequent
Mortgage Loans set forth on the Subsequent Mortgage Loan Schedule to the Trustee
shall be absolute and shall be intended by the parties hereto to be treated as a
sale by the Seller. On or before the last day of the Funding Period, the Seller
shall
48
<PAGE> 54
convey to the Trustee pursuant to this Section 2.02 the lesser of: (i) all
Mortgage Loans then in its possession that satisfy the requirements of this
Section 2.02 or (ii) the maximum principal balance of Mortgage Loans as
determined by Seller that satisfy the requirements of this Section 2.02 whose
aggregate Subsequent Purchase Price does not exceed the Prefunding Account
Deposit. Subsequent Mortgage Loans to be conveyed on a given Subsequent Transfer
Date must have an aggregate Subsequent Cut-off Date Principal Balance of not
less than $[ ]; provided, however, that the Subsequent Mortgage Loans to be
conveyed on the final Subsequent Transfer Date may have an aggregate Subsequent
Cut-off Date Principal Balance of less than $[ ]. In connection with each
conveyance of Subsequent Mortgage Loans, the Seller shall deposit any applicable
Subsequent Transfer Deposit in the Collection Account on the related Subsequent
Transfer Date.
In the event that, notwithstanding the intent of the parties hereto to
effect a sale and assignment of the Subsequent Mortgage Loans on the related
Subsequent Transfer Date by the Seller to the Trustee, such sale and assignment
will be deemed to constitute a pledge of security for a loan, it is the intent
of this Agreement that the Seller shall be deemed to have granted to the Trustee
for the benefit of the Certificateholders a first priority perfected security
interest in all of the Seller's right, title and interest in and to the
Subsequent Mortgage Loans, the Mortgages, the Mortgage Files and the Mortgage
Notes, all payments of principal and interest on the Subsequent Mortgage Loans
received on or after their respective Subsequent Cut-off Dates, net of amounts
in respect of interest accrued on such Subsequent Mortgage Loans in periods
prior to the related Subsequent Cut-off Date, all other payments (exclusive of
assumption fees, late payment charges, charges for checks returned for
insufficient funds, prepayment fees, if any, and extension and other
administrative charges) made in respect of such Subsequent Mortgage Loans on or
after the related Subsequent Cut-off Date, plus any Subsequent Transfer Deposit
relating to such Subsequent Mortgage Loan and all proceeds of any thereof, and
that this Agreement and the related Subsequent Transfer Agreement shall each
constitute a security agreement with respect to the related Subsequent Mortgage
Loans under applicable law.
The amount released to the Seller from the Prefunding Account on any
Subsequent Transfer Date (or from other amounts payable to the Company on the
Closing Date) in connection with any conveyance of Subsequent Mortgage Loans to
be included in the Fixed Rate Group shall be equal to the aggregate of the
Subsequent Purchase Prices for such Subsequent Mortgage Loans, which amounts, in
the aggregate, shall not exceed the Fixed Rate Group Prefunding Account Deposit.
The amount released to the Seller from the Prefunding Account on any Subsequent
Transfer Date (or from other amounts payable to the Company on the Closing Date)
in connection with any conveyance of Subsequent Mortgage Loans to be included in
the Adjustable Rate Group shall be equal to the aggregate of the Subsequent
Purchase Prices for such Subsequent Mortgage Loans, which amounts, in the
aggregate, shall not exceed the Adjustable Rate Group Prefunding Account
Deposit. The amounts so released to the Seller in connection with any conveyance
of Subsequent Mortgage Loans shall, for federal income tax purposes, be
considered cash contributed to the related REMIC I Pool by the Seller and used
by the Trustee to acquire the related Subsequent Mortgage Loans pursuant to a
fixed price contract established pursuant to this Section 2.02.
On the Closing Date or other related Subsequent Transfer Date, the Seller
shall transfer to the Trustee the Subsequent Mortgage Loans and the other
property and rights related thereto
49
<PAGE> 55
described in the first paragraph in this section only upon the satisfaction of
each of the following conditions on or prior to the related Subsequent Transfer
Date:
(a) the Seller shall provide the Trustee and Financial Guaranty
Insurer with an Addition Notice and shall provide any information reasonably
requested by the Trustee with respect to the Subsequent Mortgage Loans;
(b) the Seller shall deliver to the Trustee, the Financial
Guaranty Insurer and the Rating Agencies a duly executed Subsequent Transfer
Agreement and any other related documentation in the forms of the exhibits
listed thereon;
(c) the Seller shall deposit in the Collection Account all
collections in respect of the Subsequent Mortgage Loans received or deemed
received by the Seller on or after the related Subsequent Cut-off Date (whether
in the nature of amounts held by the Seller for later application on behalf of
the related Mortgagor in respect of a Monthly Payment due after the related
Subsequent Cut-off Date or otherwise);
(d) the Seller shall certify that, as of such date, the Seller was
not insolvent, was not made insolvent by such transfer and is not aware of any
pending insolvency;
(e) the Seller shall certify that such addition of Subsequent
Mortgage Loans will not result in a material adverse tax consequence to the
Trust or the Certificateholders;
(f) the Funding Period shall not have expired;
(g) the Seller shall make the representations and warranties set
forth in Section (A) of Schedule II to this Agreement with respect to such
Subsequent Mortgage Loans; and
(h) on such date, the Seller shall deposit any applicable
Subsequent Transfer Deposit in the Collection Account.
In addition, the Seller will provide the Trustee and Moody's with data
regarding all Subsequent Mortgage Loans to be transferred to the Trust on any
Subsequent Transfer Date at least 10 Business Days prior to the end of the
Funding Period or, if such Subsequent Transfer Data is the Closing Date, on the
Closing Date. No later than the end of the Funding Period, the following
conditions shall have been satisfied with respect to all Subsequent Mortgage
Loans to be transferred to the Trust on any Subsequent Transfer Date:
(a) the Seller shall have delivered to the Trustee an Officer's
Certificate confirming the satisfaction of each condition precedent specified in
this Section 2.02 and in the related Subsequent Transfer Agreements;
(b) the Seller shall have delivered to the Trustee Opinions of
Counsel with respect to the transfer of all of the Subsequent Mortgage Loans to
the Trust on any Subsequent Transfer
50
<PAGE> 56
Date substantially in the form of the Opinions of Counsel delivered to the
Trustee on the Closing Date regarding bankruptcy, corporate and tax matters;
(c) the Trustee shall deliver to the Rating Agencies and the
Seller an Opinion of Counsel with respect to each of the Subsequent Transfer
Agreements substantially in the form of the Opinion of Counsel delivered to the
Seller on the Closing Date;
(d) the Seller shall make the representations and warranties set
forth in Section B of Schedule II to this Agreement; and
(e) the Financial Guaranty Insurer shall deliver to the Seller,
the Trustee and the Rating Agencies a written notice confirming the Financial
Guaranty Insurer's consent and approval to the addition of all Subsequent
Mortgage Loans purchased by the Trust for inclusion in the Adjustable Rate Group
on any Subsequent Transfer Date.
The Seller shall certify that the Subsequent Mortgage Loans will be
transferred to the Trust in accordance with the foregoing and that all mortgage
loans identified in the Subsequent Mortgage Loan Schedule satisfy the
requirements of Subsequent Mortgage Loans as set forth in this Section 2.02 as
of the related Subsequent Transfer Date. On or before the last day of the
Funding Period, the Seller will also cause to be delivered to the Trustee (with
copies to the Certificate Insurer and each Rating Agency) a letter from
independent accountants confirming certain characteristics of the Subsequent
Mortgage Loans.
Subject to Section 3.16(d), if all of the Subsequent Mortgage Loans are
transferred to the Trust on the Closing Date, then the remaining portion of each
of the Fixed Rate Group Prefunding Account Deposit and the Adjustable Rate Group
Prefunding Account Deposit will be deposited into the Certificate Account and
held there, without investment thereof, until the first Distribution Date. On
such first Distribution Date, such amounts will be deemed to comprise a portion
of the Fixed Rate Group Principal Distribution Amount or Adjustable Rate Group
Principal Distribution Amount, as appropriate, and will be distributable to the
Certificateholders.
Section 2.03. Acceptance by the Trustee; Repurchase or Substitution of
Mortgage Loans. The Trustee acknowledges the sale and assignment to the Trust
and receipt by it of the original Mortgage Notes, Assignments and Mortgages
pursuant to this Agreement and the delivery to it, subject to (i) the provisions
of the penultimate paragraph of Section 2.01, (ii) the review provided for in
this Section of the documents referred to in clauses (a) through (f) of Section
2.01 and (iii) delivery of the Officer's Certificates pursuant to Section 2.01,
declares that it will hold the Trust in trust upon the terms herein set forth
for the use and benefit of all present and future Certificateholders. The
Trustee agrees, for the benefit of Certificateholders, to review each Mortgage
File within 45 days after the Closing Date (or, 45 days after the Subsequent
Transfer Date, with respect to the Subsequent Mortgage Loans) to determine
whether the documents described in Section 2.01(a)-(c), (e) and (f) have been
executed and received, and whether such documents relate to the Mortgage Loans
identified in the Mortgage Loan Schedule, or the Subsequent Mortgage Loan
Schedule, as applicable, and in so doing the Trustee may rely on the purported
due execution and genuineness of any such document and on the purported
genuineness
51
<PAGE> 57
of any signature thereon. If within such 45-day period the Trustee finds any
document constituting a part of a Mortgage File not to have been executed or
received or to be unrelated to the Mortgage Loans identified in the Mortgage
Loan Schedule, or the Subsequent Mortgage Loan Schedule, as applicable, the
Trustee shall promptly notify the Seller of such findings. The Seller shall have
a period of 60 days from the date of such notice to correct or cure any such
defect. Notwithstanding the second paragraph of Section 9.01, the Trustee shall
be under no duty or obligation to inspect, review or examine any such documents,
instruments, certificates or other papers to determine that they are genuine,
enforceable, or appropriate for the represented purpose or that they have
actually been recorded or that they are other than what they purport to be on
their face.
If the Trustee has notified the Seller of a defect in a Mortgage File that
materially and adversely affects the interests of the Certificateholders in the
related Mortgage Loan, and such defect remains uncured after such 60-day period,
the Seller shall, (i) in the case of a defect consisting solely of the failure
of the Company to deliver the original Mortgage or any intervening mortgage
assignment with evidence of recording thereon for reasons set forth in Section
2.01, on the first Deposit Date occurring after the expiration of eight months
from the Closing Date, and (ii) in the case of all other defects (and in any
case that the Servicer at any time becomes aware or the Trustee has actual
knowledge that a lost note affidavit is fraudulent or will not be enforceable),
on the Deposit Date occurring not later than 60 days after receipt of notice of
such defect (or the Servicer becomes aware of or the Trustee comes to have
actual knowledge of such defect and gives notice thereof to the Servicer) as the
case may be, either (I) repurchase the related Mortgage Loan (including any
property acquired in respect thereof and any insurance policy or current or
future insurance proceeds with respect thereto) from the Trust at a price equal
to the Purchase Price, which shall be accomplished by deposit of monies by the
Seller in the Certificate Account on such Deposit Date, or (II) substitute one
or more Qualified Replacement Mortgage Loan for the related Mortgage Loan.
Upon receipt by the Trustee of an Officer's Certificate of the Servicer to
the effect that the Purchase Price for a Defective Mortgage Loan (other than a
Defective Mortgage Loan that is a Deleted Mortgage Loan) has been deposited in
the Certificate Account, and upon confirmation by the Trustee that such Purchase
Price has been received by it, the Trustee shall execute and deliver such
instrument of transfer or assignment presented to it by the Seller, in each case
without recourse, as shall be necessary to vest in the Seller legal and
beneficial ownership of such repurchased Defective Mortgage Loan (including any
property acquired in respect thereof or insurance policy or current or future
insurance proceeds with respect thereto).
Payments received with respect to Qualified Replacement Mortgage Loans in
the Collection Period prior to the Deposit Date on which such substitution
occurs will not be part of the Trust and will be retained by the Seller. For the
Distribution Date following the Deposit Date on which such substitution occurs,
distributions to Certificateholders will reflect the payments received on such
Deleted Mortgage Loan in the related Collection Period representing amounts due
or accrued thereon prior to such Deposit Date, and the Seller shall thereafter
be entitled to retain all amounts subsequently received in respect of such
Deleted Mortgage Loan. In the case of a Qualified Replacement Mortgage Loan, the
Mortgage File relating thereto shall be delivered to the Trustee and the amount,
if any, by which the Principal Balance of the related Deleted Mortgage Loan as
of
52
<PAGE> 58
the related Deposit Date exceeds the Principal Balance of the Qualified
Replacement Mortgage Loan as of the first day of the related Collection Period
shall be remitted by the Seller to the Trustee for deposit in the Certificate
Account on the Deposit Date on which the substitution occurs. For purposes of
this Agreement, any such amount so deposited in the Certificate Account shall be
deemed a prepayment of the related Deleted Mortgage Loan received by the
Servicer as of the prior Determination Date. Upon receipt by the Trustee of an
Officer's Certificate certifying that the Qualified Replacement Mortgage Loan
conforms to the requirements of this Agreement and (a) written notification of
such deposit signed by a Servicing Officer and (b) the new Mortgage File
(containing all of the documents referred to in clauses (a), (b), (c), (d), (e)
and (f) of Section 2.01), the Trustee shall release or cause to be released to
the Seller the Mortgage File related to the Deleted Mortgage Loan or property
and shall execute and deliver or cause to be executed and delivered such
instrument of transfer or assignment presented to it by the Seller, without
recourse, as shall be necessary to vest in the Seller all of the legal and
beneficial ownership of such Deleted Mortgage Loan or property and the Trustee
shall have no further responsibility with respect to said Mortgage File. It is
understood and agreed that the obligation of the Seller to substitute a
Qualified Replacement Mortgage Loan for or repurchase any Defective Mortgage
Loan (or any property acquired in respect thereof or insurance policy or current
or future insurance proceeds with respect thereto) shall constitute the sole
remedy against it respecting such defect available to the Certificateholders or
the Trustee, and such obligation on the part of the Seller shall survive any
resignation or termination of the Company as Servicer under this Agreement.
Notwithstanding the foregoing, a substitution by the Seller for a defect in a
constituent document will not be made unless the Trustee receives an Officer's
Certificate certifying that the Qualified Replacement Mortgage Loan conforms to
the requirements of this Agreement and an Opinion of Counsel that such
substitution will not be a "prohibited transaction" as defined in Section
860F(a)(2) of the Code. Any substitution must be effected not later than two
years after the Closing Date, or within such longer period of time as may be
permitted under the REMIC Provisions for substitution of mortgage loans.
On or prior to [ ] ([ ] in the case of the Subsequent Mortgage Loans), the
Trustee shall certify to the Servicer that it has received all of the documents
referred to in clauses (a) (b), (c), (e) and (f) of Section 2.01 and that all
corrections or curative actions required to be taken by the Seller within the
60-day period referred to in the first paragraph of this Section have been
completed or effected, or the related Mortgage Loans have been repurchased or
substituted, in accordance with the provisions of this Section or, if any
deficiencies in the Mortgage Files or other omissions of the Seller with respect
to the Mortgage Files are known to the Trustee at the time of such
certification, the Trustee shall make such certification only with respect to
those Mortgage Loans as to which no such defects or omissions are known, and
shall qualify such certification with respect to the remaining Mortgage Loans,
identifying the related defects or omissions. Thereafter, the Trustee shall
provide the Seller and the Servicer with monthly exception reports indicating
the status of any exceptions until all such exceptions have been eliminated.
Such monthly exception reports shall be distributed by the Trustee on the
related Distribution Date with the Statement to Certificateholders.
53
<PAGE> 59
Section 2.04. Representations and Warranties Regarding the Servicer and
the Seller. The Company, as Seller and Servicer hereby represents and warrants
to the Trustee and the Certificateholders that, as of the Closing Date:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California. The
Company is in compliance with the laws of each state in which it is acting
as Servicer with respect to a Mortgage Loan to the extent necessary to
perform all servicing obligations with respect to the related Mortgaged
Property hereunder. Each Sub-Servicer is in compliance with the laws of
each state where the Mortgaged Properties under the applicable
Sub-Servicing Agreement are located to the extent necessary to perform the
servicing obligations hereunder; the Company has the power and authority
to execute and deliver this Agreement and to perform its obligations in
accordance herewith; the execution, delivery and performance of this
Agreement (including all instruments of transfer to be delivered pursuant
to this Agreement) by the Company and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action; this Agreement evidences the valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally or the application of equitable principles in
any proceeding, whether at law or in equity; and the consummation of the
transactions contemplated hereby will not result in the breach of any
terms or provisions of the articles of incorporation or by-laws of the
Company or result in the breach of any term or provision of, or conflict
with or constitute a default under or result in the acceleration of any
obligation under, any material agreement, indenture or loan or credit
agreement or other material instrument to which the Company or its
property is subject, or result in the violation of any law, rule,
regulation, order, judgment or decree to which the Company or its property
is subject. Each Sub-Servicer has all requisite corporate power and
authority to conduct its business and perform the obligations under the
Sub-Servicing Agreement to which such Sub-Servicer is a party;
(ii) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from
any federal, state or other governmental authority or agency, that are
necessary in connection with the execution and delivery by the Company of
this Agreement, have been duly taken, given or obtained, as the case may
be, are in full force and effect, are not subject to any pending
proceedings or appeals (administrative, judicial or otherwise) and either
the time within which any appeal therefrom may be taken or review thereof
may be obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement on the part of the Company and
the performance by the Company of its obligations as Servicer under this
Agreement;
(iii) There is no action, suit, proceeding or investigation pending
or, to the best of the Company's knowledge, threatened against the Company
that, either in any one instance or in the aggregate, may result in any
material adverse change in the business, operations,
54
<PAGE> 60
financial condition, properties or assets of the Company or in any
material impairment of the right or ability of the Company to carry on its
business substantially as now conducted, or in any material liability on
the part of the Company or that would draw into question the validity of
this Agreement or the Mortgage Loans or of any action taken or to be taken
in connection with the obligations of the Company, in its capacity as
Servicer, contemplated herein, or that would be likely to impair the
ability of the Company to perform under the terms of this Agreement;
(iv) The Company is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of the Company or its properties or
might have consequences that would adversely affect its performance as
Servicer hereunder;
(v) The transfer, assignment and conveyance of the Mortgage Loans
by the Company, as Seller, pursuant to this Agreement are not subject to
the bulk transfer laws or any similar statutory provisions in effect in
any applicable jurisdiction;
(vi) The collection practices used by the Company and any
Sub-Servicer are in all material respects legal, proper, prudent and
customary in the home equity mortgage loan servicing business; and
(vii) Each Sub-Servicer engaged by the Servicer has obtained all
licenses and approvals required under state or federal law to service the
Mortgage Loans specified in the Sub-Servicing Agreement to which the
Sub-Servicer is a party.
The representations and warranties set forth in this Section shall survive the
sale and assignment of the Mortgage Loans to the Trust and the issuance, sale
and delivery of the Certificates. Upon discovery of a breach of any of the
foregoing representations and warranties that materially and adversely affects
the interests of the Certificateholders, the party discovering such breach shall
give prompt written notice to the other parties. Within 60 days of its discovery
or its receipt of notice of breach, the Company shall cure such breach in all
material respects.
Section 2.05. Representations and Warranties of the Seller Regarding the
Mortgage Loans. The Seller represents and warrants to the Trustee and the
Certificateholders as of the Closing Date and, with respect to any Subsequent
Mortgage Loan, as of the Subsequent Transfer Date (in either case except as
otherwise expressly stated), that as to each Mortgage Loan conveyed to the Trust
by it:
(i) The information with respect to each Mortgage Loan set forth
in the Mortgage Loan Schedule or Subsequent Mortgage Loan Schedule is true
and correct as of the Cut-off Date or related Subsequent Transfer Date;
(ii) All of the original or certified documentation set forth in
Section 2.01 (including all material documents related thereto), with
respect to each Mortgage Loan has
55
<PAGE> 61
been or will be delivered to the Trustee on the Closing Date or as
otherwise provided in Section 2.01 or Section 2.02, as applicable;
(iii) Except with respect to one Mortgaged Property comprised of
vacant land securing a Mortgage Loan with a Principal Balance as of the
Cut-off Date of not more than $[ ], each related Mortgaged Property is
improved by a one- to four-family residential dwelling owned by the
related Mortgagor in fee simple, which may include condominiums,
townhouses and manufactured housing or modular homes that are permanently
affixed to the land and constitute real property under the laws of the
state in which the Mortgaged Property is located but shall not include
co-operatives or mobile homes;
(iv) As of the Cut-off Date or Subsequent Cut-off Date, as
appropriate, no Mortgage Loan included in the Fixed Rate Group has a
Combined Loan-to-Value Ratio in excess of [ ]% and no Mortgage Loan
included in the Adjustable Rate Group has a Loan-to-Value Ratio in excess
of [ ]%, except that two Mortgage Loans representing not more than [ ]% of
the initial Fixed Rate Group Balance have Combined Loan-to-Value Ratios of
up to [ ]%, and four Mortgage Loans representing not more than [ ]%, of
the Original Adjustable Rate Group Balance have Combined Loan-to-Value
Ratios of up to [ ]%;
(v) Each Mortgage Loan was originated by an Affiliate of the
Company or by an originator not affiliated with the Company authorized to
originate such Mortgage Loan and is being serviced by the Company;
(vi) Each Mortgage Loan included in the Fixed Rate Group as of the
Cut-off Date bears a fixed Mortgage Loan Rate of at least [ ]% per annum
and each Mortgage Loan included in the Adjustable Rate Group as of the
Cut-off Date is an Adjustable Rate Mortgage Loan that has a Minimum Rate
of not less than [ ]% per annum and a Mortgage Loan Rate as of the Cut-off
Date of not less than [ ]% per annum; the terms of each Mortgage Loan
included in the Adjustable Rate Group require that adjustments in the
related Mortgage Loan Rate be made employing the related Index measured as
of a date not more than three months prior to the related adjustment date;
(vii) Each Mortgage Note provides for a schedule of substantially
level and equal Monthly Mortgage Payments (subject, in the case of an
Adjustable Rate Mortgage Loan, to periodic adjustments relating to changes
in the Mortgage Loan Rate) that are sufficient to amortize fully the
principal balance of such Mortgage Note on or before its maturity date,
except that, Mortgage Notes with respect to Mortgage Loans in the Fixed
Rate Group representing not more than [ ]% of the initial Fixed Rate Group
Balance, provide for level and equal Monthly Mortgage Payments that are
sufficient to amortize fully the principal balances of such Notes over a
period not exceeding [ ] years, with "balloon" payments at stated maturity
that are substantially in excess of the Monthly Mortgage Payments;
56
<PAGE> 62
(viii) Each Mortgage is a valid and subsisting lien of record on the
Mortgaged Property having the priority indicated on the Mortgage Loan
Schedule, subject, in the case of any Junior Mortgage Loan, only to any
Senior Lien or Senior Liens on such Mortgaged Property and subject in all
cases to the exceptions to title set forth in the title insurance policy
with respect to the related Mortgage Loan, which exceptions are generally
acceptable to home equity mortgage lending institutions, and such other
exceptions to which similar properties are commonly subject and that do
not individually, or in the aggregate, materially and adversely affect the
benefits of the security intended to be provided by such Mortgage;
(ix) Immediately prior to the sale, transfer and assignment herein
contemplated, the Company held good and indefeasible title to, and was the
sole owner of, each Mortgage Loan conveyed by the Company subject to no
liens, charges, mortgages, encumbrances or rights of others, except with
respect to liens that will be released simultaneously with such transfer
and assignment; and immediately upon the transfer and assignment herein
contemplated, the Trustee will hold good and indefeasible title to, and be
the sole owner of, each Mortgage Loan subject to no liens, charges,
mortgages, encumbrances or rights of others;
(x) The Mortgage Loan Rate for each Adjustable Rate Mortgage Loan
will be adjustable on each related Adjustment Date and will equal the sum,
rounded upward to the nearest three decimal places, of the Index plus the
related Gross Margin, subject to any related Minimum Rates, Maximum Rates
or any limitations or periodic adjustments, in each case as specified in
the related Mortgage Loan Schedule. No Mortgage Loan is subject to
negative amortization. The Mortgage Notes relating to not more than [ ]%
of the Mortgage Loans in the Adjustable Rate Group, by Original Adjustable
Rate Group Balance or by the Adjustable Rate Group Balance as of the
Closing Date, provide for initial Adjustment Dates that are more than one
year and less than three years from the Cut-off Date;
(xi) With respect to any Adjustable Rate Mortgage Loan, no mortgage
document in the Mortgage File contains any provision permitting or
requiring conversion of the Mortgage Loan to a fixed interest rate nor is
the Mortgage Loan Rate conditioned upon Mortgagor maintaining accounts
with Seller;
(xii) As of the Cut-off Date or Subsequent Cut-off Date, as
appropriate (a) no Mortgage Loan had two or more Monthly Mortgage Payments
past due and not more than [ ]% of the Mortgage Loans (by Cut-off Date
Principal Balance) had one Monthly Payments past due, (b) no Mortgage Loan
has been 60 or more days contractually delinquent more than once during
the 12-month period immediately preceding the Cut-off Date and (c) no
Mortgage Loan has been 90 or more days delinquent in the 12 months
preceding the Cut-off Date;
(xiii) As of the Cut-off Date or Subsequent Cut-off Date, as
appropriate, there is no delinquent tax or assessment lien on any
Mortgaged Property, and, to the best knowledge
57
<PAGE> 63
of the Company, each Mortgaged Property is free of damage and is in good
repair and is not affected by hazardous or toxic wastes or substances;
(xiv) There is no offset, right of rescission, counterclaim or
defense, including the defense of usury, with respect to any Mortgage Note
or Mortgage, nor will the operation of any of the terms of the Mortgage
Note or the Mortgage, or the exercise of any right thereunder, render
either the Mortgage Note or the Mortgage unenforceable in whole or in
part, or subject to any right to rescission, set-off, counterclaim or
defense, including the defense of usury, and no such right of rescission,
set-off, counterclaim or defense has been asserted with respect thereto;
(xv) As of the Cut-off Date or Subsequent Cut-off Date, as
appropriate, there is no mechanic's lien or claim for work, labor or
material affecting any Mortgaged Property that is or may be a lien prior
to, or equal to or on a parity with, the lien of the related Mortgage
except those that are insured against by any title insurance policy
referred to in paragraph (xvii) below;
(xvi) To the best of the Seller's knowledge, each Mortgage Loan at
the time it was made complied in all material respects with applicable
local, state and federal laws and regulations, including, without
limitation, the federal Truth-in-Lending Act and other consumer protection
laws, real estate settlement procedure, usury, equal credit opportunity,
disclosure and recording laws;
(xvii) With respect to each Mortgage Loan, a lender's title
insurance policy (issued in standard form by a title insurance company
authorized to transact business in the state where the related Mortgaged
Property is located), in an amount at least equal to the Original
Principal Amount of such Mortgage Loan insuring the mortgagee's interest
under the related Mortgage Loan as the holder of a valid lien of record on
the real property described in the related Mortgage (subject only to
exceptions of the character referred to in paragraph (viii) above), was
effective on the date of the origination of such Mortgage Loan, and, as of
the Closing Date, such policy is in full force and effect and thereafter
such policy shall continue in full force and effect and shall inure to the
benefit of the Certificateholders upon consummation of the transactions
contemplated by this Agreement;
(xviii) As of the Cut-off Date or Subsequent Cut-off Date, as
appropriate, either (a) the improvements upon each Mortgaged Property are
covered by a valid and existing hazard insurance policy (which may be a
blanket policy) with a generally acceptable carrier that provides for fire
and extended coverage representing coverage not less than the least of (a)
the outstanding principal balance of the related Mortgage Loan (together,
in the case of a Junior Mortgage Loan, with the outstanding principal
balance of the Senior Lien), (b) the minimum amount required to compensate
for damage or loss on a replacement cost basis or (c) the full insurable
value of the Mortgaged Property or (b) in the case of a Junior Mortgage
Loan, a policy has been issued by a generally acceptable carrier that will
cover the full Principal Balance of such Junior Mortgage Loan in the event
of a loss covered by a hazard typically insured against by the type of
policy referred to in clause (xviii)(a);
58
<PAGE> 64
(xix) If any Mortgaged Property is in an area identified in the
Federal Register by FEMA as having special flood hazards, a flood
insurance policy in a form meeting the requirements of the current
guidelines of the Federal Insurance Administration, if obtainable with
respect to such Mortgaged Property, is in effect with respect to such
Mortgaged Property with a generally acceptable carrier in an amount
representing coverage not less than the least of (A) the outstanding
principal balance of the related Mortgage Loan (together, in the case of a
Junior Mortgage Loan, with the outstanding principal balance of the Senior
Lien), (B) the minimum amount required to compensate for damage or loss on
a replacement cost basis or (C) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973;
(xx) Each Mortgage and Mortgage Note is the legal, valid and
binding obligation of the maker thereof and is enforceable in accordance
with its terms, except only as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (whether considered in a proceeding or action in
equity or at law), and all parties to each Mortgage Loan had full legal
capacity to execute all documents relating to such Mortgage Loan and
convey the estate therein purported to be conveyed; with respect to each
Mortgage Loan, only one original Mortgage Note exists;
(xxi) The Seller has caused and will cause to be performed any and
all acts required to be performed to preserve the rights and remedies of
the Trustee in any insurance policies applicable to each Mortgage Loan,
including any necessary notifications of insurers, assignments of policies
or interests therein, and establishment of co-insured, joint loss payee
and mortgagee rights in favor of the Trustee;
(xxii) As of the Cut-off Date no more than [ ]% of the Original
Fixed Rate Group Balance is secured by Mortgaged Properties located within
any single zip code area and no more than [ ]% of the Original Adjustable
Rate Group Balance is secured by Mortgaged Properties located within any
single zip code area;
(xxiii) Each original Mortgage has been recorded or is in the
process of being recorded, and all subsequent assignments of the original
Mortgage (other than the assignment from the Seller to the Trustee and any
assignment to the Seller or an affiliate thereof) have been recorded in
the appropriate jurisdictions as to which no Opinion of Counsel was
delivered pursuant to Section 2.01 or 2.02, as applicable, or such
Mortgages and assignments are in the process of being recorded);
(xxiv) The terms of each Mortgage Note and each Mortgage have not
been impaired, altered or modified in any respect, except by a written
instrument that has been recorded, if necessary, to protect the interest
of the Certificateholders and that has been delivered to the Trustee. The
substance of any such alteration or modification is reflected on the
Mortgage Loan Schedule and has been approved by the primary mortgage
guaranty insurer, if any;
59
<PAGE> 65
(xxv) The proceeds of each Mortgage Loan have been fully disbursed,
and there is no obligation on the part of the mortgagee to make future
advances thereunder. Any and all requirements as to completion of any
on-site or off-site improvements and as to disbursements of any escrow
funds therefor either have been complied with or are not yet required to
be complied with but will be complied with as and when required. All
costs, fees and expenses incurred in making or closing or recording such
Mortgage Loans were paid;
(xxvi) No Mortgage Note is or has been secured by any collateral,
pledged account or other security other than the lien of the corresponding
Mortgage;
(xxvii) No Mortgage Loan was originated under a buydown plan;
(xxviii) No Mortgage Loan has a shared appreciation feature or other
contingent interest feature;
(xxix) Each Mortgaged Property consists of one or more contiguous
parcels of real property with a residential dwelling erected thereon
(except as described in (iii) above);
(xxx) Each Mortgage Loan contains a provision for the acceleration
of the payment of the unpaid principal balance of such Mortgage Loan in
the event the related Mortgaged Property is sold without the prior consent
of the mortgagee thereunder;
(xxxi) Any advances made to the Mortgagor after the date of
origination of a Mortgage Loan but prior to the Cut-off Date or Subsequent
Cut-off Date, as appropriate have been consolidated with the outstanding
principal amount secured by the related Mortgage, and the secured
principal amount, as consolidated, bears a single interest rate and single
repayment term reflected on the Mortgage Loan Schedule. The consolidated
principal amount as of the Cut-off Date or Subsequent Cut-off Date, as
appropriate, does not exceed the original principal amount of the related
Mortgage Loan and is reflected as the current principal amount of such
Mortgage Loan on the Mortgage Loan Schedule;
(xxxii) To the best knowledge of the Seller, there is no proceeding
pending or threatened for the total or partial condemnation of any
Mortgaged Property, nor is such a proceeding currently occurring;
(xxxiii) To the best knowledge of the Seller, all of the
improvements that were included for the purposes of determining the
Appraised Value of any Mortgaged Property lie wholly within the boundaries
and building restriction lines of such Mortgaged Property, and no
improvements on adjoining properties encroach upon such Mortgaged Property
except those that are identified in the related title insurance policy and
affirmatively insured;
(xxxiv) To the best knowledge of the Seller, no improvement located
on or being part of any Mortgaged Property is in violation of any
applicable zoning law or regulation,
60
<PAGE> 66
all inspections, licenses and certificates required to be made or issued
with respect to all occupied portions of each Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been
made or obtained from the appropriate authorities and such Mortgaged
Property is lawfully occupied under applicable law;
(xxxv) With respect to each Mortgage that is a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the
Certificateholders or the Trust to any trustee under any deed of trust,
except in connection with a trustee's sale after default by the related
Mortgagor;
(xxxvi) With respect to each Junior Mortgage Loan, either (A) no
consent for such Mortgage Loan was required by the holder of the related
Senior Lien prior to the making of such Mortgage Loan or (B) such consent
has been obtained and is contained in the related Mortgage File;
(xxxvii) Each Mortgage contains customary and enforceable provisions
that render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security, including by trustee's sale and by judicial foreclosure and
there is no homestead or other exemption available to the related
Mortgagor that would materially interfere with the right to sell the
related Mortgaged Property at a trustee's sale or the right to foreclose
upon the related Mortgaged Property;
(xxxviii) There is no default, breach, violation or event of
acceleration existing under any Mortgage or the related Note and no event
that, with the passage of time or with notice and the expiration of any
grace or cure period, would constitute a default, breach, violation or
event of acceleration; and the Seller has not waived any default, breach
violation or event of acceleration;
(xil) No instrument of release or waiver has been executed in
connection with any Mortgage Loan, and no Mortgagor has been released, in
whole or in part, except in connection with an assumption agreement that
has been approved by the primary mortgage guaranty insurer, if any, and
the Financial Guaranty Insurer, and that has been delivered to the
Trustee;
(xl) The maturity date of each Junior Mortgage Loan is at least 12
months prior to the maturity date of the related Senior Lien if such
Senior Lien provides for a balloon payment;
(xli) At least [ ]% of the Mortgage Loans in the Fixed Rate Group
(by Original Fixed Rate Group Balance) and at least [ ]% of the Mortgage
Loans in the Adjustable Rate Group (by Original Adjustable Rate Group
Balance) are secured by Mortgaged Properties that are maintained by the
related Mortgagors as primary residences;
61
<PAGE> 67
(xlii) There are no defaults (other than delinquencies) in complying
with the terms of the Mortgage, and all taxes, governmental assessments,
insurance premiums, water, sewer and municipal charges, leasehold payments
or ground rents that previously became due and owing have been paid, or an
escrow of funds has been established in an amount sufficient to pay for
every such item that remains unpaid; the Company has not advanced funds,
or induced, solicited or knowingly received any advance of funds by a
party other than the Mortgagor, directly or indirectly, for the payment of
any amount required by the Mortgage, other than interest accruing from the
date of the Mortgage Note or date of disbursement of the Mortgage
proceeds, whichever is greater, to the date that precedes by one month the
due date of the first installment of principal and interest;
(xliii) To the best of the Seller's knowledge, all parties that have
had any interest in the Mortgage Loan, whether as mortgagee, assignee,
pledgee or otherwise during the period in which they held and disposed of
such interest, were and either are now or, in the case of subclause (1) of
this clause (xliii), will be within 30 days of the Closing Date or
Subsequent Cut-off Date, as appropriate, (1) in compliance with any and
all applicable licensing requirements of the laws of the state wherein the
Mortgaged Property is located, and (2) (A) organized under the laws of
such state, or (B) qualified to do business in such state, or (C) federal
savings and loan associations or national banks having principal offices
in such state, or (D) not doing business in such state so as to require
qualification or licensing;
(xliv) No Mortgage Loan was selected by the Seller for inclusion in
the Trust on any basis intended to adversely affect the Trust;
(xlv) A full appraisal of each Mortgaged Property was performed in
connection with the origination of the related Mortgage Loan, and such
appraisal is the appraisal referred to in determining the Appraised Value
of such Mortgaged Property;
(xlvi) With respect to each Junior Mortgage Loan, the related Senior
Lien requires equal monthly payments or, if such Senior Lien bears an
adjustable interest rate, the monthly payments for such Senior Lien may be
adjusted no more frequently than monthly;
(xlvii) With respect to any Junior Mortgage Loan with a related
Senior Lien that provides for negative amortization or an open-end feature
that permits additional borrowings, the balance of such Senior Lien
reflected on the Mortgage Loan Schedule and used to calculate the Combined
Loan-to-Value Ratio for such Junior Mortgage Loan is based on the maximum
amount of negative amortization, deferred interest or maximum amount of
borrowings permitted under such Senior Lien;
(xlviii) The Seller has not required the Mortgagor to sign a letter
in connection with the origination of any Mortgage Loan in which such
Mortgagor indicates its inability to repay such Mortgage Loan in
accordance with the terms of the related Mortgage Note;
62
<PAGE> 68
(xlix) Each Adjustable Rate Mortgage Loan that (i) has a first
Adjustment Date within six months of its origination date was underwritten
or re-underwritten as though such Mortgage Loan would bear a rate of
interest equal to related Index plus the related Gross Margin and (ii) has
a first Adjustment Date more than six months after its origination date
was underwritten or re-underwritten as though such Mortgage Loan would
bear a rate of interest equal to its specified initial interest rate;
(l) As of the Cut-off Date or Subsequent Cut-off Date, as
appropriate, no Mortgage Loan in the Fixed Rate Group or the Adjustable
Rate Group was secured by more than one Mortgaged Property;
(li) With respect to each Adjustable Rate Mortgage Loan, all of the
terms of the Mortgage pertaining to interest rate adjustments, payment
adjustments and adjustments of the outstanding principal balance are
enforceable; such adjustments will not affect the priority of the Mortgage
lien and all of the adjustments have been properly calculated, recorded,
reported and applied in accordance with the Mortgage and applicable law;
(lii) All insurance policies are the valid and binding obligation of
the insurer and contain a standard mortgagee clause naming the originator,
its successors and assigns, as mortgagee. Such insurance policies require
prior notice to the insured of termination or cancellation and no such
notice has been received, each Mortgage obligates the Mortgagor thereunder
to maintain all such insurance at the Mortgagor's cost and expense, and
upon the Mortgagor's failure to do so, authorizes the holder of the
Mortgage to obtain and maintain such insurance at the Mortgagor's cost and
expense and to seek reimbursement therefor from the Mortgagor;
(liii) None of the Mortgage Loans is subject to a plan of bankruptcy
and no Mortgagor has sought protection or relief under any state or
federal bankruptcy or insolvency law during the term of the related
Mortgage;
(liv) Each Mortgage Loan has a Monthly Mortgage Payment due during
the first Collection Period commencing after the calendar month during
which such Mortgage Loan is included in the Trust;
(lv) All Mortgage Loans were underwritten or re-underwritten in
accordance with the underwriting guidelines of the Seller;
(lvi) To the knowledge of the Seller, no misrepresentation,
negligence, fraud or similar occurrence with respect to a Mortgage Loan
has taken place on the part of the Mortgagor, any appraiser, any builder
or developer, or any other party having statutory or common law
liabilities with respect to the origination of the Mortgage Loan or in any
related application for insurance in relation to such Mortgage Loan;
(lvii) To the knowledge of the Seller, certain Mortgage Loans are
secured by Mortgaged Properties upon which are affixed manufactured
housing or modular homes,
63
<PAGE> 69
provided that it is the intent and agreement of the parties hereto that
this representation shall be deemed breached if any Mortgage Loan is
determined to be secured by a Mortgaged Property upon which is affixed
manufactured housing or a modular home and such Mortgage Loan is subject
to a foreclosure which results in a Realized Loss; and
(lviii) Mortgage Loans in the Fixed Rate Group representing not less
than [ ]% of the aggregate Principal Balance thereof were assigned a
credit grade of "A-" by the Seller at the time such Mortgage Loans were
originated or acquired, as applicable, by the Seller; Mortgage Loans in
the Fixed Rate Group representing not less than [ ]% of the aggregate
Principal Balance thereof were assigned a credit grade of "B" by the
Seller at the time such Mortgage Loans were originated or acquired, as
applicable, by the Seller; Mortgage Loans in the Fixed Rate Group
representing not less than [ ]% of the aggregate Principal Balance thereof
were assigned a credit grade of "C" by the Seller at the time such
Mortgage Loans were originated or acquired, as applicable, by the Seller;
Mortgage Loans in the Fixed Rate Group representing not more than [ ]% of
the aggregate Principal Balance thereof were assigned a credit grade of
"C-" by the Seller at the time such Mortgage Loans were originated or
acquired, as applicable, by the Seller; and Mortgage Loans in the Fixed
Rate Group representing not more than [ ]% of the aggregate Principal
Balance thereof were assigned a credit grade of "D" by the Seller at the
time such Mortgage Loans were originated or acquired, as applicable, by
the Seller. Mortgage Loans in the Adjustable Rate Group representing not
less than [ ]% of the aggregate Principal Balance thereof were assigned a
credit grade of "A-" by the Seller at the time such Mortgage Loans were
originated or acquired, as applicable, by the Seller; Mortgage Loans in
the Adjustable Rate Group representing not less than [ ]% of the aggregate
Principal Balance thereof were assigned a credit grade of "B" by the
Seller at the time such Mortgage Loans were originated or acquired, as
applicable, by the Seller; Mortgage Loans in the Adjustable Rate Group
representing not less than [ ]% of the aggregate Principal Balance thereof
were assigned a credit grade of "C" by the Seller at the time such
Mortgage Loans were originated or acquired, as applicable, by the Seller;
Mortgage Loans in the Adjustable Rate Group representing not more than
[ ] % of the aggregate Principal Balance thereof were assigned a credit
grade of "C-" by the Seller at the time such Mortgage Loans were
originated or acquired, as applicable, by the Seller; and Mortgage Loans
in the Adjustable Rate Group representing not more than [ ]% of the
aggregate Principal Balance thereof were assigned a credit grade of "D" by
the Seller at the time such Mortgage Loans were originated or acquired, as
applicable, by the Seller. Each credit grade so assigned to any Mortgage
Loan has been determined in accordance with the Seller's internal credit
grading system and not pursuant to any other scale or objective standard.
It is understood and agreed that the representations and warranties set
forth in this Section shall survive the sale and assignment of the Mortgage
Loans to the Trust and the issuance, sale and delivery of the Certificates. Upon
discovery by the Seller, the Servicer or a Responsible Officer of the Trustee of
a breach of any of the foregoing representations and warranties, without regard
to any limitation set forth in such representation or warranty concerning the
knowledge of the Seller as to the facts stated therein, which breach materially
and adversely affects the interests of the
64
<PAGE> 70
Certificateholders in the related Mortgage Loan or Mortgage Loans, the party
discovering such breach shall give prompt written notice to the other parties
hereto and to each of the Rating Agencies.
Within 60 days of its discovery or its receipt of notice of such breach,
the Seller shall use all reasonable efforts to cure such breach in all material
respects. Unless, prior to the expiration of such 60-day period, such breach has
been cured in all material respects or otherwise does not exist or continue to
exist, the Seller shall, not later than the Deposit Date in the month following
the related Collection Period in which any such cure period expired, but in all
events within 90 days of the earlier of its discovery or receipt of notice of
breach (or at the election of the Seller, an earlier Collection Period), either
(I) repurchase such Mortgage Loan (or, in the case of any representation and
warranty stated above in terms of minimum or maximum aggregate percentage
amounts, repurchase Mortgage Loans such that, after giving effect to such
repurchase, the related representation and warranty would be complied with)
(including any property acquired in respect thereof and any insurance policy or
insurance proceeds with respect thereto) from the Trust in the same manner and
subject to the same conditions as set forth in Section 2.03 or (II) remove such
Mortgage Loan and substitute in its place a Qualified Replacement Mortgage Loan
(or, in the case of any representation and warranty stated above in terms of
minimum or maximum aggregate percentage amounts, remove such Mortgage Loans and
substitute in their place Qualified Replacement Mortgage Loans such that, after
giving effect to such substitution, the related representation and warranty
would be complied with) in the same manner and subject to the same conditions as
set forth in Section 2.03. Upon making any such repurchase or substitution, the
Seller shall be entitled to receive an instrument of assignment or transfer from
the Trustee, without recourse to the Trustee, to the same extent as set forth in
Section 2.03 with respect to the repurchase of or substitution for Defective
Mortgage Loans under that Section. It is understood and agreed that the
obligation of the Seller to repurchase or substitute any such Defective Mortgage
Loan (or property acquired in respect thereof or insurance policy or current or
future insurance proceeds with respect thereto) shall constitute the sole remedy
against it respecting such breach of the foregoing representations or warranties
available to the Certificateholders or the Trustee, as the case may be, and such
obligation shall survive any resignation or termination of the Company as
Servicer under this Agreement.
Notwithstanding the foregoing, a substitution of a Mortgage Loan by the
Seller for a breach will not be made unless the Trustee receives an Officer's
Certificate certifying that the Qualified Replacement Mortgage Loan conforms to
the requirements of this Agreement and an Opinion of Counsel that such
substitution will not be a "prohibited transaction" as defined in Section
860F(a)(2) of the Code. Any substitution must be effected not later than two
years after the Closing Date, or within such longer period of time as may be
permitted under the REMIC Provisions for substitution of mortgage loans.
Section 2.06. Execution and Authentication of Certificates. The Trustee
shall deliver to or upon the order of the Seller, in exchange for the Mortgage
Loans and the other assets comprising the Trust, simultaneously with the sale,
assignment and transfer to the Trustee of the Mortgage Loans, Certificates duly
executed by the Trustee, on behalf of the Trust, not in its individual capacity
but solely as Trustee, and authenticated by the Trustee, pursuant to Section
6.01, in
65
<PAGE> 71
authorized denominations, equaling, 100% of the Percentage Interests in each
Class, and collectively evidencing the entire ownership of the Trust.
Section 2.07. [Reserved].
Section 2.08. Indemnification of the Trust. The Seller shall indemnify the
Trust for any liability incurred thereby as a result of a breach of the
representation and warranty set forth in clause (xvi) of Section 2.05. This
indemnity obligation shall be in addition to any other obligation the Seller may
have in connection with any such breach.
ARTICLE THREE
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS;
CERTIFICATE ACCOUNT
Section 3.01. The Servicer and the Sub-Servicers. (a) Acting directly or
through one or more Sub-Servicers as provided in Section 3.15, the Servicer, as
servicer, shall administer the Mortgage Loans with reasonable care, using that
degree of skill and attention that the Servicer exercises with respect to all
comparable home equity mortgage loans that it services for itself or others. The
duties of the Servicer shall include collecting and posting of all payments,
responding to inquiries of Mortgagors or by federal, state or local government
authorities with respect to the Mortgage Loans, investigating delinquencies,
reporting tax information to Mortgagors in accordance with its customary
practices and accounting for collections and furnishing monthly and annual
statements to the Trustee with respect to distributions and making Monthly
Advances and Servicing Advances pursuant to Section 5.02. The Servicer shall
follow its customary standards, policies and procedures in performing its duties
as Servicer, to the extent not in conflict with the provisions of this
Agreement. Notwithstanding the appointment of any Sub-Servicer, the Servicer
shall remain liable for the performance of all of the servicing obligations and
responsibilities under this Agreement. The Servicer shall maintain all licenses
and qualifications necessary to perform the servicing obligations hereunder in
the jurisdictions in which it services Mortgage Loans. If the Servicer commences
directly to service a material number or principal amount of Mortgage Loans with
related Mortgaged Properties located in any other state, the Servicer will use
its reasonable efforts promptly to obtain, and thereafter to maintain, all
licenses and qualifications necessary to perform its servicing obligations
hereunder in each such state. Each Sub-Servicer shall maintain all licenses and
qualifications necessary to perform its servicing obligations in the states
where the Mortgaged Properties to which the applicable Sub-Servicing Agreement
relates are located. The Servicer shall cooperate with the Trustee and furnish
to the Trustee such information in its possession as may be necessary or
appropriate to enable the Trustee to perform its tax reporting duties hereunder.
The Trustee shall furnish the Servicer with any powers of attorney and other
documents necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties hereunder.
Without limiting the generality of the foregoing, the Servicer (i) shall
continue, and is hereby authorized and empowered by the Trustee, to execute and
deliver, on behalf of itself, the Certificateholders and the Trustee or any of
them, any and all instruments of satisfaction or
66
<PAGE> 72
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 related Mortgaged Properties (ii) may consent to any modification of the
terms of any Mortgage Note not expressly prohibited hereby if the effect of any
such modification will not be to materially and adversely affect the security
afforded by the related Mortgaged Property or to decrease or slow (other than as
permitted by Section 3.02(a)(ii)) the timing of receipt of any payments required
thereunder and (iii) shall not consent to the placing of a lien senior to or on
parity with that of the Mortgage on the related Mortgaged Property. In the event
that notwithstanding the provisions of clause (iii) above the Servicer shall
consent to the placing of a lien senior to or on a parity with that of the
Mortgage on a Mortgaged Property, the Servicer shall purchase on the next
Deposit Date such Mortgage Loan (including any property acquired in respect
thereof and any insurance policy or insurance proceeds with respect thereto)
from the Trust at a price equal to the Purchase Price and deposit such amount in
the Certificate Account on such Deposit Date pursuant to Section 3.02. For
purposes of this Agreement, any such purchase shall be deemed to be a prepayment
of such Mortgage Loan. It is understood and agreed that the obligation of the
Servicer to purchase any Mortgage Loan (or property acquired in respect thereof
or insurance policy or insurance proceeds with respect thereto) pursuant to the
second immediately preceding sentence shall constitute the sole remedy against
it respecting such breach available to the Certificateholders or the Trustee and
such obligation shall survive any resignation or termination of the consenting
Servicer under this Agreement.
The Servicer may sue to enforce or collect on any of the Mortgage Loans or
any insurance policy covering a Mortgage Loan, in its own name if possible, or
on behalf of the Trust. If the Servicer commences a legal proceeding to enforce
a Mortgage Loan or any such insurance policy, the Trustee shall thereupon be
deemed to have automatically assigned the Mortgage Loan or the rights under such
insurance policy to the Servicer for purposes of collection only. If, however,
in any suit or legal proceeding for enforcement, it is held that the Servicer
may not enforce or collect on a Mortgage Loan or any insurance policy covering a
Mortgage Loan on the ground that it is not a real party in interest or a holder
entitled to enforce such Mortgage Loan or such insurance policy, as the case may
be, then the Trustee shall, upon the written request of a Servicing Officer,
furnish the Servicer with such powers of attorney and other documents as are
necessary or appropriate to enable the Servicer to enforce such Mortgage Loan or
insurance policy, as the case may be.
The relationship of the Servicer to the Trustee under this Agreement is
intended by the parties to be that of an independent contractor and not that of
a joint venturer, partner or agent.
(b) The parties intend that each REMIC Pool shall constitute a REMIC,
and that the affairs of each REMIC Pool shall be conducted so as to qualify it
as a REMIC. In furtherance of such intention, the Servicer covenants and agrees
that it shall act as agent (and the Servicer is hereby appointed to act as
agent) on behalf of each REMIC Pool, and that in such capacity it shall: (a) use
its best efforts to conduct the affairs of such REMIC Pool at all times that any
Certificates are outstanding so as to maintain the status thereof as a REMIC
under the REMIC Provisions; (b) not knowingly or intentionally take any action
or omit to take any action that would cause the termination of the REMIC status
of any REMIC Pool or that would subject such REMIC Pool to tax, including the
modification of a qualified mortgage that would subject such REMIC Pool to tax;
(c) exercise reasonable care not to allow such REMIC Pool to receive income from
the performance
67
<PAGE> 73
of services or from assets not permitted under the REMIC Provisions to be held
by a REMIC; (d) pay the amount of any federal income tax, including, without
limitation, prohibited transaction taxes, taxes on net income from foreclosure
property, and taxes on certain contributions to a REMIC after the Startup Day,
imposed on any REMIC Pool when and as the same shall be due and payable (but
such obligation shall not prevent the Servicer or any other appropriate Person
from contesting any such tax in appropriate proceedings and shall not prevent
the Servicer from withholding or depositing payment of such tax, if permitted by
law, pending the outcome of such proceedings); and (e) pay the amount of any and
all taxes imposed on any REMIC Pool pursuant to Section 24874 of the California
Revenue and Taxation Code. The Servicer shall not be entitled to reimbursement
for any taxes paid pursuant to this Section.
Section 3.02. Collection of Certain Mortgage Loan Payments; Collection
Account and Certificate Account. (a) The Servicer shall, to the extent such
procedures shall be consistent with this Agreement, follow such collection
procedures as it follows from time to time with respect to home equity mortgage
loans in its servicing portfolio that are comparable to the Mortgage Loans;
provided that the Servicer shall always at least follow collection procedures
that are consistent with or better than standard industry practices. Consistent
with the foregoing, the Servicer may in its discretion (i) waive any assumption
fees, late payment charges, charges for checks returned for insufficient funds,
prepayment fees, if any, or other fees that may be collected in the ordinary
course of servicing the Mortgage Loans, (ii) if a Mortgagor is in default or
about to be in default because of a Mortgagor's financial condition, arrange
with the Mortgagor a schedule for the payment of delinquent payments due on the
related Mortgage Loan, or (iii) modify payments of monthly principal and
interest on any Mortgage Loan becoming subject to the terms of the Relief Act in
accordance with the Servicer's general policies for comparable home equity
mortgage loans subject to such Act.
(b) The Servicer shall establish and maintain, or cause to be
established and maintained, one or more Eligible Accounts that in the aggregate
are the Collection Account. All amounts held in the Collection Account shall be
invested by the depository institution or trust company then maintaining the
account at the written direction of the Servicer in Permitted Investments that
mature not later than the Deposit Date next succeeding the date of investment.
No Permitted Investment shall be sold or disposed of at a gain prior to maturity
unless the Servicer has obtained an Opinion of Counsel that such sale or
disposition will not cause any REMIC Pool to be subject to the tax on income
from prohibited transactions imposed by Code Section 860F(a)(1), or otherwise
subject any REMIC Pool to tax or cause any REMIC Pool to fail to qualify as a
REMIC. The Servicer shall not retain any cash or investment in the Collection
Account for a period in excess of 12 months and cash therein shall be considered
transferred to Certificate Account on a first-in, first-out basis. All net
income and gain realized from any such investment shall be for the benefit of
the Servicer as additional servicing compensation and shall be subject to its
withdrawal or order from time to time. Any losses realized in connection with
any such investment shall be for the account of the Servicer and the Servicer
shall deposit or cause to be deposited the amount of such loss (to the extent
not offset by income from other investments) in the Collection Account
immediately upon the realization of such loss.
68
<PAGE> 74
(c) Subject to Section 3.02(d), the Servicer shall deposit in the
Collection Account each of the following payments on and collections in respect
of the Mortgage Loans as soon as practicable, but in no event later than the
close of business on the second Business Day after its receipt thereof:
(i) all payments in respect of or allocable to interest on the
Mortgage Loans (including any net income from REO Properties);
(ii) all Principal Payments;
(iii) all Payments Ahead;
(iv) all Net Liquidation Proceeds; and
(v) all Trust Insurance Proceeds (including, for this purpose, any
amounts required to be credited by the Servicer pursuant to the last
sentence of Section 3.04).
The Servicer shall replace all amounts previously withdrawn from the
Collection Account and applied by the Servicer towards the payment of a Monthly
Advance pursuant to Section 5.02(a) or towards the payment of a Servicing
Advance pursuant to Section 5.02(b) by depositing into the Collection Account on
or prior to the Deposit Date immediately following such withdrawal an amount
equal to the total of all such amounts so applied since the immediately
preceding Deposit Date.
The foregoing requirements respecting deposits to the Collection Account
are exclusive, it being understood that, without limiting the generality of the
foregoing, the Servicer need not deposit in the Collection Account amounts
representing fees, late payment charges, charges for checks returned for
insufficient funds, prepayment fees, if any, or extension or other
administrative charges paid by Mortgagors or amounts received by the Servicer
for the account of Mortgagors for application towards the payment of taxes,
insurance premiums, assessments and similar items. The amounts deposited in the
Collection Account are subject to withdrawal, from time to time, to make
deposits into the Certificate Account pursuant to Section 3.02(e), to pay itself
the Monthly Servicing Fee pursuant to Section 3.08 and to make Servicing
Advances or to reimburse itself for Servicing Advances, as applicable, in either
case in accordance with Section 5.02(b), to make Monthly Advances in accordance
with Section 5.02(a) or to reimburse itself for payments of Monthly Advances to
the extent of recoveries of interest relating to the Mortgage Loans that were
the subject of such Monthly Advances. In addition, if the Servicer deposits in
the Collection Account any amount not required to be so deposited or any amount
in respect of payments by Mortgagors made by checks subsequently returned for
insufficient funds or other reason for non-payment, it may at any time withdraw
such amount from the Collection Account, any provision herein to the contrary
notwithstanding.
(d) Upon such terms as the Rating Agencies may approve, the Servicer may
make the deposits to the Collection Account referred to in Section 3.02(c) on a
later day than the second Business Day after receipt of the amounts required to
be so deposited, which terms and later day shall be specified by the Rating
Agencies and confirmed to the Trustee and the Servicer in writing.
69
<PAGE> 75
(e) The Trustee shall establish and maintain the Certificate Account.
The Certificate Account shall be an Eligible Account segregated on the books of
the Trustee and held by the Trustee in trust, and the Certificate Account and
the amounts deposited therein shall not be subject to any claim, liens or
encumbrances of any creditors or depositors of the Trustee or the Company
(whether made directly or indirectly through a liquidator, receiver or trustee
in bankruptcy of the Trustee or the Company). At or before [11:00 a.m. Los
Angeles time] on each Deposit Date, the Servicer shall withdraw from the
Collection Account all amounts on deposit therein that constitute any portion of
Available Funds for a Mortgage Loan Group and the related Distribution Date
(including any amounts therein that are being held for distribution on a
subsequent Distribution Date and are applied toward the Monthly Advance for the
related Distribution Date pursuant to Section 5.02(a)) and remit such amounts to
the Trustee for deposit in the Certificate Account. In addition, any
Compensating Interest and Monthly Advances required to be made by the Servicer
for the related Mortgage Loan Group in respect of the related Distribution Date
and any amounts required to be deposited into the Certificate Account in
connection with a purchase or repurchase of any Mortgage Loans or any shortage
on Mortgage Loans in such Mortgage Loan Group by the Seller or the Servicer
pursuant to Section 2.03, 2.05, 3.01, 3.03, 3.06 or 10.01 or a substitution of a
Qualified Replacement Mortgage Loan pursuant to Section 2.03 or 2.05, shall be
remitted to the Trustee for deposit in the Certificate Account on the applicable
Deposit Date. Any amounts held in the Certificate Account may be invested at the
written direction of the Servicer in Permitted Investments upon the same terms
and conditions as those specified in clause (b) above with respect to the
Collection Account except that such investments shall mature not later than the
Business Day preceding the Distribution Date next succeeding the date of
investment, and in the absence of such direction the Trustee shall invest in
Permitted Investments described in clause (f) of the definition of Permitted
Investments. All net income and gain realized from any such investment shall be
for the benefit of the Servicer as additional servicing compensation and shall
be subject to its withdrawal or order from time to time. Any losses realized in
connection with any such investment shall be for the account of the Servicer and
the Servicer shall deposit or cause to be deposited the amount of such loss (to
the extent not offset by income from other investments) in the Certificate
Account immediately upon the realization of such loss.
Section 3.03. Additional Servicing Responsibilities for the Adjustable
Rate Mortgage Loans. The Servicer shall enforce each Adjustable Rate Mortgage
Loan and shall timely calculate, record, report and apply all Mortgage Loan Rate
adjustments in accordance with the related Mortgage Note. The Servicer's record
shall, at all times, reflect then-current Mortgage Loan Rate and Monthly
Mortgage Payment and the Servicer shall timely notify the Mortgagor of any
changes to the Mortgage Loan Rate and the Monthly Mortgage Payment. If the
Servicer fails to adjust the Mortgage Loan Rate or the Monthly Mortgage Payment
in accordance with the terms of the Mortgage Note for the related Adjustable
Rate Mortgage Loan, or if the Servicer fails to notify the related Mortgagor of
any such adjustment as required under the terms of such Mortgage Note, or if any
liability, claim or defense arises with respect to any Adjustable Rate Mortgage
Loan solely as a result of any such failure, the Servicer shall pay, from its
own funds and without right of reimbursement therefor, any shortage in amounts
collected or collectible on the related Adjustable Rate Mortgage Loan that
results. The Servicer shall deposit any amounts in respect of such
70
<PAGE> 76
shortage in the Certificate Account on the Deposit Date with respect to the
related Collection Period.
Section 3.04. Hazard Insurance Policies. The Servicer shall cause to be
maintained for each Mortgage Loan (including Mortgage Loans as to which the
related Mortgaged Property has been acquired by the Trust upon foreclosure, by
deed in lieu of foreclosure or comparable conversion), hazard insurance
(including flood insurance coverage, if obtainable, to the extent such property
is located in a federally designated flood area in such amount as is required
under applicable FEMA guidelines) with extended coverage in an amount that is
not less than the least of (i) the maximum insurable value from time to time of
the improvements that are a part of such property, or (ii) the combined
principal balance of such Mortgage Loan and the principal balance of each
mortgage loan senior to such Mortgage Loan at the time of such foreclosure plus
accrued interest and the good-faith estimate of the Servicer of related
Liquidation Expenses to be incurred in connection therewith; provided, further
that such hazard insurance shall be in an amount not less than such amount as is
necessary to avoid the application of any coinsurance clause contained in the
related hazard insurance policy. Each such hazard insurance policy shall contain
a standard mortgagee clause naming the originator, its successors and assigns,
as mortgagee and shall require prior notice to the insured of termination or
cancellation. The Servicer shall be under no obligation to require that any
Mortgagor maintain earthquake or other additional insurance and shall be under
no obligation itself to maintain any such additional insurance on property
acquired in respect of a Mortgage Loan, other than pursuant to such applicable
laws and regulations as shall at any time be in force and as shall require such
additional insurance. Amounts collected by the Servicer under any such policies
shall be deposited in the Collection Account or Certificate Account, as the case
may be, in accordance with Section 3.02 to the extent that they constitute Net
Liquidation Proceeds or Trust Insurance Proceeds. If the Servicer shall obtain
and maintain a blanket policy, issued by an insurer acceptable to each Rating
Agency, insuring against such hazard losses, it shall conclusively be deemed to
have satisfied its obligations as set forth in the first sentence of this
Section, it being understood and agreed that such policy may contain a
deductible clause that is in form and substance consistent with standard
industry practice, in which case the Servicer shall, in the event that there
shall not have been maintained on the related Mortgaged Property a policy
complying with the first sentence of this Section, and there shall have been a
loss that would have been covered by such policy, deposit in the Collection
Account in accordance with Section 3.02 the amount not otherwise payable under
the blanket policy because of such deductible clause.
Section 3.05. Enforcement of Due-on-Sale Clauses; Assumption and
Modification Agreements. In any case in which property subject to a Mortgage is
conveyed by the Mortgagor, the Servicer shall enforce any due-on-sale clause
contained in the related Mortgage Note or Mortgage, to the extent permitted by
such Mortgage Note or Mortgage, applicable law and governmental regulations, but
only to the extent that such enforcement will not adversely affect or jeopardize
coverage under any related insurance policy or result in legal action by the
Mortgagor. The Servicer may take or enter into an assumption and modification
agreement from or with the Person to whom such Mortgaged Property has been or is
about to be conveyed, pursuant to which such Person becomes liable under the
related Mortgage Note and the Mortgagor remains liable thereon or, if the Person
to whom such Mortgaged Property has been or is about to be conveyed satisfies
the Servicer's then-current underwriting standards for home equity mortgage
loans similar
71
<PAGE> 77
to the Mortgage Loans, and the Servicer in its reasonable judgment finds it
appropriate, is released from liability thereon. If the Trustee is holding the
Mortgage Files, the Servicer shall notify the Trustee that any assumption and
modification agreement has been completed by delivering to the Trustee an
Officer's Certificate certifying that such agreement is in compliance with this
Section and the Servicer shall forward to the Trustee the original of such
assumption and modification agreement. Such assumption and modification
agreement shall, for all purposes, be considered a part of the related Mortgage
File to the same extent as all other documents and instruments constituting a
part thereof. In connection with any such agreement, the Mortgage Loan Rate
shall not be reduced (but may be increased), the Principal Balance of such
Mortgage Loan shall not be changed and the term of such Mortgage Loan will not
be extended beyond the existing term of such Mortgage Loan. Any fee collected by
the Servicer for entering into any such agreement shall be retained by the
Servicer as additional servicing compensation.
Notwithstanding the foregoing paragraph of this Section 3.05 or any other
provision of this Agreement, the Servicer shall not be deemed to be in default,
breach or any other violation of its obligations hereunder by reasons of any
assumption of a Mortgage Loan, or transfer of any Mortgaged Property without the
assumption thereof, by operation of law or any assumption or transfer that the
Servicer reasonably believes it may be restricted by law from preventing, for
any reason whatsoever.
Section 3.06. Realization upon Liquidated Mortgage Loans. Subject to the
limitations set forth in this Section 3.06 with respect to Restricted Mortgage
Properties, the Servicer, on behalf of the Trust, shall foreclose upon or
otherwise comparably convert to ownership Mortgaged Properties securing such of
the Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 3.02(a); provided that if the Servicer has actual knowledge
or reasonably believes that any Mortgaged Property is affected by hazardous or
toxic wastes or substances, then the Servicer shall not cause the Trust to
acquire title to such Mortgaged Property in a foreclosure or similar proceeding.
In connection with such foreclosure or other conversion, the Servicer shall
follow such practices (including, in the case of any default on a related Senior
Lien, the advancing of funds to correct such default) and procedures as it shall
deem necessary or advisable and as shall be normal and usual in its general
first, second and third lien one- to four-family mortgage loan servicing
activities. The foregoing is subject to the proviso that neither the Servicer
nor the Trustee shall be required to expend its own funds in connection with any
foreclosure or towards the correction of any default on a related Senior Lien or
restoration of any Mortgaged Property unless, in the reasonable judgment of the
Servicer, such foreclosure, correction or restoration will increase Net
Liquidation Proceeds (taking into account any unreimbursed Monthly Advances made
or expected to be made with respect to such Mortgage Loan).
To the extent the Net Liquidation Proceeds derived from any such
foreclosure or conversion exceed the unpaid Principal Balance of the related
Mortgage Loan and accrued interest thereon at the applicable Mortgage Loan Rate
to the related due date during the Collection Period in which such foreclosure
or conversion occurs (net of any related Monthly Advances or Servicing Advances
that were unreimbursed prior to the receipt of such Net Liquidation Proceeds),
such excess shall be paid to the Holder of the Class R Certificate.
72
<PAGE> 78
Neither the Trust nor the Trustee on behalf of the Trust shall complete
foreclosure proceedings with respect to any Restricted Mortgage Loan that has
not, at any time after the Cut-off Date, been brought current, or take title to
any Mortgaged Property securing a Restricted Mortgage Loan (each, a "Restricted
Mortgaged Property"), if, as a result of such foreclosure or taking of title,
the aggregate value of the Restricted Mortgaged Properties (computed on the
basis of the outstanding Principal Balance of such Restricted Mortgage Loan
immediately prior to such foreclosure or taking of title) then owned by the
Trust or the Trustee on behalf of the Trust would exceed [ ]% of the aggregate
of the Principal Balances of the Mortgage Loans as of the preceding
Determination Date.
If at any time the Trust or the Trustee on behalf of the Trust holds title
to Restricted Mortgaged Properties that have an aggregate value (computed on the
basis of the outstanding Principal Balance of each related Restricted Mortgage
Loan immediately prior to the time the Trust or the Trustee on behalf of the
Trust acquired title to the related Restricted Mortgaged Property) that exceeds
[ ]% of the aggregate of the Principal Balance of the Mortgage Loans as of the
preceding Determination Date, then the Seller shall, on or prior to the next
succeeding Deposit Date, purchase one or more of such Restricted Mortgaged
Properties at a price equal to the fair market value of the related Restricted
Mortgaged Property (calculated by the Servicer in a manner consistent with the
Servicer's customary practice of making valuation determinations in foreclosure
proceedings relating to residential mortgage loans in its servicing portfolio at
the time of such purchase) so that the aggregate value of such Restricted
Mortgaged Properties (calculated as specified above) then owned by the Trust or
the Trustee on behalf of the Trust after such purchase or purchases does not
exceed [ ]% of the then aggregate of the Principal Balance of the Mortgage
Loans.
Such purchase price shall be deposited in the Certificate Account on the
date of such purchase in the manner described in Section 2.03. For purposes of
this Agreement, any purchase effected in accordance with this paragraph shall be
deemed to be a prepayment of the related Restricted Mortgage Loan. Upon receipt
of the related purchase price and written notification of such deposit signed by
a Servicing Officer, the Trustee shall release or cause to be released to the
Seller the related Mortgage File and other property (including any insurance
policy or related present or future insurance proceeds with respect thereto) and
shall execute and deliver or cause to be executed and delivered such instruments
of transfer or assignment presented to it by the Seller, without recourse, as
shall be necessary to vest in the Seller, all of the legal and beneficial
ownership of each such Restricted Mortgaged Property and the Trustee shall have
no further responsibility with respect to said Mortgage File.
Notwithstanding the foregoing, the Servicer, with the consent of the
Financial Guaranty Insurer, may purchase from the Trust on any Deposit Date any
Mortgage Loan as to which the related Mortgagor has failed to make full Monthly
Mortgage Payments as required under the related Mortgage Note for three
consecutive months at any time following the Cut-off Date and prior to such
Deposit Date at a price equal to the Purchase Price by depositing such amount in
the Certificate Account on such Deposit Date pursuant to Section 3.02; provided,
however, that the aggregate Principal Balances of the Mortgage Loans purchased
by the Servicer pursuant to the
73
<PAGE> 79
exercise of the option granted in this sentence shall not exceed 5% of the sum
of the Original Pool Balance and the Prefunding Account Deposit. In addition,
the Servicer, with the consent of the Financial Guaranty Insurer, may purchase
from the Trust on any Deposit Date occurring during the 90-day period following
the Closing Date any Mortgage Loan as to which a Monthly Mortgage Payment
becomes 60 or more days contractually delinquent at any time following the
Cut-off Date and prior to such Deposit Date at a price equal to the Purchase
Price by depositing such amount in the Certificate Account on such Deposit Date
pursuant to Section 3.02; provided, however, that the aggregate Principal
Balances of the Mortgage Loans purchased by the Servicer pursuant to the
exercise of the option granted in this sentence shall not exceed [ ]% of the sum
of the Original Pool Balance and the Prefunding Account Deposit. For purposes of
this Agreement, any purchase effected in accordance with this paragraph shall be
deemed to be a prepayment of each Mortgage Loan so purchased.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Trustee, or to its nominee, on behalf of the
Certificateholders, and the Servicer shall manage, conserve, protect and operate
each such Mortgaged Property for the Certificateholders solely for the purpose
of its prompt disposition and sale. The Servicer shall use its best efforts to
dispose of each such Mortgaged Property as expeditiously as possible consistent
with the goal of maximizing Net Liquidation Proceeds (taking into account any
unreimbursed Monthly Advances made or expected to be made with respect to such
Mortgage Loan). Neither the Trustee nor the Servicer, acting on behalf of the
Trust, shall provide financing from the Trust to any purchaser of any such
Mortgaged Property.
In the event that the Trust acquires any Mortgaged Property as aforesaid
or otherwise in connection with a default or imminent default on a Mortgage
Loan, such Mortgaged Property shall be disposed of by the Servicer on behalf of
the Trust before the last day of the third calendar year following the year in
which the foreclosure occurred unless (i) the Servicer on behalf of the REMIC
Pool has applied for and received an extension of such three-year period
pursuant to Code Sections 856(e)(3) and 860G(a)(8)(A), in which case the
Servicer shall sell such Mortgaged Property within the applicable extension
period or (ii) the Trustee shall have received an Opinion of Counsel to the
effect that the holding by the Trust of such Mortgaged Property subsequent to
two years after its acquisition will not result in a tax on prohibited
transactions imposed by Code Section 860F(a)(1), or otherwise subject the REMIC
Pool to tax or cause the REMIC Pool to fail to qualify as a REMIC at any time
that any Certificates are outstanding. The Servicer shall further ensure that
the Mortgaged Property is administered so that it constitutes "foreclosure
property" within the meaning of Code Section 860G(a)(8) at all times, that the
sale of such property does not result in the receipt by the REMIC Pool of any
income from non-permitted assets as described in Code Section 860F(a)(2)(B), and
that the REMIC Pool does not derive any "net income from foreclosure property"
within the meaning of Code Section 860G(c)(2) with respect to such property.
Section 3.07. Trustee to Cooperate; Release of Mortgage Files. Upon the
payment in full of the principal balance of any Mortgage Loan, if the Trustee is
holding the Mortgage Files, the Servicer shall notify the Trustee by a
certification in the form of Exhibit E hereto (which certification shall include
a statement to the effect that all amounts received in connection with such
payment which are required to be deposited to the Collection Account pursuant to
Section 3.02
74
<PAGE> 80
have been so deposited) of a Servicing Officer. Such notification shall be made
each month at the time that the Servicer delivers its Servicer Remittance Report
to the Trustee pursuant to Section 4.01. Upon any such payment in full, the
Servicer is authorized to procure from such trustee under the Mortgage that
secured the related Mortgage Note a deed of full reconveyance covering the
related Mortgaged Property encumbered by such Mortgage, which deed, except as
otherwise provided in Section 2941(c) of the California Civil Code or other
applicable law, shall be recorded by such trustee in the office of the County
Recorder in which the Mortgage is recorded, or, as the case may be, to procure
from such trustee an instrument of satisfaction or, if the related Mortgagor so
requests, an assignment without recourse, in each case prepared by the Servicer
at its expense and executed by the Trustee, which deed of reconveyance,
instrument of satisfaction or assignment shall be delivered by the Servicer to
the Person entitled thereto, it being understood and agreed that no expenses
incurred in connection with such deed of reconveyance, assignment or instrument
of satisfaction shall be reimbursed from amounts at the time on deposit in the
Collection or Certificate Account. From time to time and as appropriate for the
servicing or foreclosure of any Mortgage Loan, the Trustee shall, upon written
request of the Servicer and delivery to the Trustee of a trust receipt signed by
a Servicing Officer, release the related Mortgage File to the Servicer and shall
execute such documents prepared by the Servicer as shall be necessary to the
prosecution of any such proceedings. Such trust receipt shall obligate the
Servicer to return the Mortgage File to the Trustee when the need therefor by
the Servicer no longer exists unless the Mortgage Loan shall be liquidated, in
which case, upon receipt of a certificate of a Servicing Officer similar to that
herein above specified, the trust receipt shall be released by the Trustee to
the Servicer.
Section 3.08. Servicing Compensation; Payment of Certain Expenses by the
Servicer. On each Deposit Date, the Servicer shall be entitled to receive, by
withdrawal by the Servicer from the Collection Account, out of collections of
interest on the Mortgage Loans in the related Mortgage Loan Group for the
related Collection Period, as servicing compensation for such Collection Period,
the Monthly Servicing Fee for such Mortgage Loan Group. Additional servicing
compensation shall be assumption fees, late payment charges, charges for checks
returned for insufficient funds, prepayment fees, if any, or extension and other
administrative charges received by the Servicer and any earnings on investment
by the Servicer of amounts held in escrow accounts established thereby on behalf
of Mortgagors (any such investment to be made in compliance with applicable
law). The Servicer is obligated to pay Compensating Interest for the related
Mortgage Loan Group out of the related Monthly Servicing Fee on each Deposit
Date, to the extent of the amount of the Monthly Servicing Fee, and shall not be
entitled to reimbursement therefor. The Servicer shall be required to pay all
expenses incurred by it in connection with its activities hereunder (including
payment of the fees and expenses relating to the Annual Independent Public
Accountant's Servicing Report described in Section 3.10, and all other fees and
expenses not otherwise expressly stated hereunder for the account of the
Certificateholders) and shall not be entitled to reimbursement therefor except
as specifically provided herein.
Section 3.09. Annual Statement as to Compliance. (a) The Servicer will
deliver to the Trustee, the Financial Guaranty Insurer and each Rating Agency,
on or before September 30 of each year, beginning with [ ], an Officer's
Certificate of the Servicer substantially in the form set forth in Exhibit C
hereto stating that (a) a review of the activities of the Servicer during the
preceding calendar year (or since the Closing Date in the case of the first such
statement)
75
<PAGE> 81
and of its performance under this Agreement has been made under such officer's
supervision and (b) to the best of such officer's knowledge, based on such
review, the Servicer has fulfilled all its material obligations under this
Agreement throughout such year (or since the Closing Date in the case of the
first such statement), or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof.
(b) The Servicer shall deliver to the Trustee, with a copy to each
Rating Agency, promptly after having obtained knowledge thereof, but in no event
later than five Business Days thereafter, written notice by means of an
Officer's Certificate of any event that with the giving of notice or the lapse
of time, or both, would become an Event of Default.
Section 3.10. Annual Independent Public Accountants' Servicing Report. On
or before [ ] of each year, beginning with [ ], the Servicer at its expense
shall cause a firm of nationally recognized independent public accountants (who
may also render other services to the Servicer) to furnish a report to the
Trustee, the Financial Guaranty Insurer and each Rating Agency to the effect
that such firm has examined certain documents and records (including the
Servicer Remittance Reports delivered by the Servicer during the period covered
by such reports) relating to the servicing activities of the Servicer (which
would include servicing of Mortgage Loans under this Agreement) for the period
covered by such report, and that such examination (which will have been
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers to the extent that the procedures in such audit
guide are applicable to the servicing obligations set forth in this Agreement),
has disclosed no exceptions or errors in records relating to the servicing
activities of the Servicer, including servicing of Mortgage Loans subject to
this Agreement, that, in the opinion of such firm, are material, except for such
exceptions as shall be set forth in such report.
Section 3.11. Access to Certain Documentation and Information Regarding
the Mortgage Loans. (a) The Servicer shall provide to Certificateholders that
are federally insured savings associations and the FDIC and its supervisory
agents and examiners access to the documentation regarding the Mortgage Loans
required by applicable regulations of the Office of Thrift Supervision, and to
the Trustee all documentation relating to the Mortgage Loans that is in the
possession of the Servicer, such access being afforded without charge but only
upon reasonable request and during normal business hours at the offices of the
Servicer. Nothing in this Section shall derogate from the obligation of the
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Mortgagors and the failure of the Servicer to provide access as
provided in this Section as a result of such obligation shall not constitute a
breach of this Section.
(b) The Servicer shall supply information to the Trustee in such form as
the Trustee shall reasonably request, by the start of the third Business Day
preceding each Distribution Date, as is required in the Trustee's reasonable
judgment to enable the Trustee to make required distributions and to furnish the
certificates, statements and reports to Certificateholders required pursuant to
this Agreement.
Section 3.12. Maintenance of Fidelity Bond and Errors and Omission Policy.
The Servicer shall during the term of its service as Servicer maintain in force
a (a) policy or policies of
76
<PAGE> 82
insurance covering errors and omissions in the performance of its obligations as
Servicer hereunder and (b) fidelity bond in respect of its officers, employees
and agents, in each case having coverage amounts that satisfy FNMA or FHLMC
requirements for mortgage loan originators and sellers.
Section 3.13. Notices to the Rating Agencies and the Trustee. In addition
to the other notices required to be given to the Rating Agencies and the Trustee
by the provisions of this Agreement, the Servicer shall give notice to each
Rating Agency, the Financial Guaranty Insurer and the Trustee of (a) any
amendment to this Agreement, (b) the final distribution on the Offered
Certificates, (c) the occurrence of an Event of Default and (d) the repurchase,
purchase or substitution, as applicable, of any Mortgage Loan pursuant to
Section 2.03, 2.05, 3.01 or 3.06 by the Seller or Servicer, as the case may be.
Section 3.14. Reports of Foreclosures and Abandonment of Mortgaged
Properties. Each calendar year beginning in [ ] the Servicer shall make the
reports of foreclosures and abandonments of any Mortgaged Property required by
Code Section 6050J. In order to facilitate this reporting process, the Servicer,
on or before [ ] of each year, shall provide to the Internal Revenue Service and
the Trustee reports relating to each instance occurring during the previous
calendar year in which the Servicer (i) on behalf of the Trustee acquired an
interest in a Mortgaged Property through foreclosure or other comparable
conversion in full or partial satisfaction of a Mortgage Loan, or (ii) knows or
has reason to know that a Mortgaged Property has been abandoned. The reports
from the Servicer shall be in form and substance sufficient to meet the
reporting requirements imposed by such Section 6050J.
Section 3.15. Sub-Servicers and Sub-Servicing Agreements. (a) The Servicer
may enter into Sub-Servicing Agreements for any servicing and administration of
Mortgage Loans with any institution that is in compliance with the laws of each
state necessary to enable it to perform its obligations under such Sub-Servicing
Agreement. The Servicer shall not enter into any Sub-Servicing Agreement that
does not provide for the servicing of the Mortgage Loans specified therein on a
basis consistent with the terms of this Agreement or that otherwise violates the
provisions of this Agreement. The Servicer may enter into, and make amendments
to, any Sub-Servicing Agreement or enter into different forms of Sub-Servicing
Agreements; provided, however, that any such amendments or forms shall be
consistent with and not violate the provisions of this Agreement.
(b) For purposes of this Agreement the Servicer shall be deemed to have
received payments on Mortgage Loans when any Sub-Servicer has received such
payments. With respect to the Servicer's obligations under Section 3.01 to make
deposits in the Collection Account, the Servicer shall be deemed to have made
such deposits when any Sub-Servicer has made such deposits into a Sub-Servicing
Account if permitted by the related Sub-Servicing Agreement.
(c) Any Sub-Servicing Agreement and any other transactions or services
relating to the Mortgage Loans involving a Sub-Servicer shall be deemed to be
between the Sub-Servicer and the Servicer alone and the Trustee shall not be
deemed party thereto and shall have no claims, rights, obligations, duties or
liabilities with respect to any Sub-Servicer, except that the Trustee shall have
such claims or rights that arise as a result of any funds held by a Sub-Servicer
in trust for or on
77
<PAGE> 83
behalf of the Trust. Notwithstanding the execution of any Sub-Servicing
Agreement, the Servicer shall not be relieved of any liability hereunder and
shall remain obligated and liable for the servicing and administration of the
Mortgage Loans.
Section 3.16. Prefunding Account. (a) The Trustee will establish and
maintain the Prefunding Account. No later than the Closing Date, the Trustee
will deposit in the Prefunding Account: (i) the Fixed Rate Group Prefunding
Account Deposit from the proceeds of the sale of the Fixed Rate Group
Certificates and (ii) the Adjustable Rate Group Prefunding Account Deposit from
the proceeds of the sale of the Adjustable Rate Group Certificates. Subject to
Section 3.16(d), upon the conveyance of Subsequent Mortgage Loans to the Trust
on any Subsequent Transfer Date, the Seller shall instruct the Trustee to
withdraw from the Prefunding Account (i) an amount equal to the Fixed Rate Group
Subsequent Purchase Price for the Subsequent Mortgage Loans bearing fixed
Mortgage Loan Rates to be included in the Fixed Rate Group and make a
corresponding reduction in the amount of the Fixed Rate Group Prefunding Account
Deposit and (ii) an amount equal to the Adjustable Rate Group Subsequent
Purchase Price for the Subsequent Mortgage Loans bearing adjustable Mortgage
Loan Rates to be included in the Adjustable Rate Group and make a corresponding
reduction in the amount of the Adjustable Rate Group Prefunding Account Deposit,
and to pay such amount to or upon the order of the Seller upon satisfaction of
the conditions set forth in Section 2.02 of this Agreement with respect to such
transfer.
(b) The Prefunding Account will be part of the Trust but not part of any
REMIC Pool. Amounts held in the Prefunding Account shall be invested in
Permitted Investments of the type specified in clause (f) of the definition of
Permitted Investments. The Trustee shall not be liable for any losses on amounts
invested in accordance with the provisions hereof. Any losses realized in
connection with any such investment shall be for the account of the Seller and
the Seller shall deposit the amount of such loss (to the extent not offset by
income from other investments) in the Prefunding Account immediately upon the
realization of such loss. All interest and any other investment earnings on
amounts held in the Prefunding Account shall be taxed to the Seller and for
federal and state income tax purposes the Seller shall be deemed to be the owner
of the Prefunding Account. All interest and any other investment earnings on
amounts held in the Prefunding Account shall be paid by the Trustee to the
Seller on the [ ] Distribution Date.
(c) On the Distribution Date in [ ], any amounts remaining in the
Prefunding Account (i) in respect of the Fixed Rate Group Prefunding Account
Deposit at such time (net of reinvestment earnings payable to the Seller) shall
be deposited at such time into the Certificate Account for distribution as part
of the Fixed Rate Group Principal Distribution Amount on the [ ] Distribution
Date and (ii) in respect of the Adjustable Rate Group Prefunding Account Deposit
at such time (net of reinvestment earnings payable to the Seller) shall be
deposited at such time into the Certificate Account for distribution as part of
the Adjustable Rate Group Principal Distribution Amount on the [ ] Distribution
Date.
(d) The Trustee will establish and maintain the Escrow Account as an
Eligible Account for the benefit of the Adjustable Rate Group Certificateholders
and the Financial Guaranty Insurer. The Trustee shall deposit or cause to be
deposited any Escrowed Amounts withdrawn from the Prefunding Account in respect
of the Mortgage Loans on the related
78
<PAGE> 84
Subsequent Transfer Date. Thereafter, (a) 100% of the Escrowed Amounts with
respect to the Fixed Rate Mortgage Loans will be released to the Company upon
completion of the Trustee of its review of the related Subsequent Mortgage Loans
and Mortgage Loan Documents and its determination that the conditions set forth
in Section 2.02 for inclusion of such Mortgage Loans in the Trust have been
satisfied as therein described, (b) [ ]% of the Escrowed Amounts with respect to
the Adjustable Rate Mortgage Loans will be released to the Company upon (i)
completion of the Trustee of its review of the related Subsequent Mortgage Loan
and Mortgage Loan Documents and its determination that the conditions set forth
in Section 2.02 for inclusion of such Mortgage Loans in the Trust have been
satisfied as therein described, (ii) each of S&P and Moody's shall have issued
an investment grade "shadow rating" of the Adjustable Rate Group Certificates
(i.e., a rating thereof that does not consider the delivery or effect of the
Financial Guaranty Insurance Policy) and (iii) the Financial Guaranty Insurer
shall have received original copies of all documents and instruments executed by
the parties hereto in form and substance reasonably satisfactory to the
Financial Guaranty Insurer that it has requested of the Seller and (b) the
remaining [ ]% of the Escrowed Amounts with respect to such Adjustable Rate
Group Mortgage Loans will be released to the Company upon receipt by the Trustee
from the Financial Guaranty Insurer of notice that the Financial Guaranty
Insurer has completed its review of the related Subsequent Mortgage Loans and
Mortgage Loan Documents and is satisfied that such Subsequent Mortgage Loan
satisfies the conditions established by the Financial Guaranty Insurer for
inclusion in the Adjustable Rate Group; provided, however, that any amount not
released to the Company as described above will be deposited into the
Certificate Account on [ ], for distribution to the Adjustable Rate Group
Certificateholders as a portion of the Adjustable Rate Group Principal
Distribution Amount on [ ]. The Escrow Account will be an asset of the Trust but
not of any REMIC. Amounts held in the Escrow Account will not be invested in
Permitted Investments or otherwise.
Section 3.17. Capitalized Interest Account. (a) Unless all Subsequent
Mortgage Loans are purchased by the Trust on the Closing Date, the Trustee shall
establish and maintain the Capitalized Interest Account. On the Closing Date,
the Trustee will deposit the Capitalized Interest Account Deposit in the
Capitalized Interest Account or, if all Subsequent Mortgage Loans are purchased
on the Closing Date, in the Certificate Account. The Trustee shall hold the
Fixed Rate Group Capitalized Interest Account Deposit for the benefit of the
Fixed Rate Group Certificateholders and the Adjustable Rate Group Capitalized
Interest Account Deposit for the benefit of the Adjustable Rate Group
Certificateholders. If none or less than all of the Subsequent Mortgage Loans
are transferred to the Trust on the Closing Date, then on the [ ] Deposit Date,
amounts equal to (i) the Fixed Rate Group Capitalized Interest Account Deposit
and (ii) the Adjustable Rate Group Capitalized Interest Account Deposit shall be
withdrawn from the Capitalized Interest Account and deposited into the
Certificate Account in respect of the related Monthly Interest for the Fixed
Rate Group and the Adjustable Rate Group, respectively, for such Distribution
Date. If all of the Subsequent Mortgage Loans are transferred to the Trust on
the Closing Date, then the sum of the Fixed Rate Group Capitalized Interest
Account Deposit and the Adjustable Rate Group Capitalized Interest Account
Deposit will be deposited into the Certificate Account on the Closing Date and
held there until the Distribution Date in [ ]. On such first Distribution Date,
such amounts will be deemed to be available in respect of Monthly Interest for
the Fixed Rate Group or Adjustable Rate Group, as appropriate, and will be
distributable to the Certificateholders.
79
<PAGE> 85
Any amounts so deposited in the Certificate Account shall not be invested in
Permitted Investments or otherwise.
(b) The Capitalized Interest Account will be part of the Trust but not
part of any REMIC Pool. Amounts held in the Capitalized Interest Account prior
to the first Deposit Date shall be invested in Permitted Investments of the type
specified in clause (e) of the definition of Permitted Investments, which
Permitted Investments shall mature no later than the Deposit Date in [ ]. The
Trustee shall not be liable for any losses on amounts invested in accordance
with the provisions hereof. All interest and other investment earnings on
amounts held in the Capitalized Interest Account (and any other amounts
remaining on deposit therein in excess of the amounts to be so withdrawn and
deposited into the Certificate Account) shall be paid or released by the Trustee
to the Seller on the [ ] Distribution Date and for federal and state income tax
purposes the Seller shall be deemed to be the owner of the Capitalized Interest
Account. Any losses realized in connection with any such investment shall be for
the account of the Seller and the Seller shall deposit the amount of such loss
(to the extent not offset by income from other investments) in the Capitalized
Interest Account immediately upon the realization of such loss. All amounts
earned on deposit in the Capitalized Interest Account shall be taxed to the
Seller.
Section 3.18. Supplemental Interest Reserve Fund. The Trustee will
establish the Supplemental Interest Reserve Fund on the Closing Date. On the
Closing Date, the Class C Certificateholders will deposit, or cause to be
deposited, into the Supplemental Interest Reserve Fund $[ ]. On each
Distribution Date as to which there is a Class A-1A Supplemental Interest Amount
or a Class A-2A Supplemental Interest Amount, the Trustee has been directed by
the Class C Certificateholders to, and therefor will, deposit into the
Supplemental Interest Reserve Fund the amounts described in Section 5.01(d)
clause (11) with respect to the Fixed Rate Group and clause (7) with respect to
the Adjustable Rate Group, rather than distributing such amounts to the Class C
Certificateholders. On each such Distribution Date, the Trustee shall hold all
such amounts for the benefit of the Adjustable Rate Group Certificateholders,
and will distribute such amounts to the Adjustable Rate Group Certificateholders
pursuant to subclause (ii) of clause Second of Section 5.01(a). For federal and
state income tax purposes, the Class C Certificateholders will be deemed to be
the owners of the Supplemental Interest Reserve Fund except that, to the extent
distributions are to be made therefrom to the Adjustable Rate Group
Certificateholders, such Certificateholders will be deemed to be the owners
thereof. Amounts held in the Supplemental Interest Reserve Fund and not
distributable to the Adjustable Rate Group Certificateholders on any
Distribution Date will be invested by the Trustee in investments designated by
the Class C Certificateholders having maturities on or prior to the next
succeeding Distribution Date on which such amounts will be distributable to the
Adjustable Rate Group Certificateholders. Upon the termination of the Trust, or
the payment in full of each Class of Adjustable Rate Group Certificates, all
amounts remaining on deposit in the Supplemental Interest Reserve Fund will be
released from the lien of the Trust and distributed to the Class C
Certificateholders or their designee. The Supplemental Interest Reserve Fund
will be part of the Trust but not part of any REMIC Pool.
80
<PAGE> 86
Section 3.19. Payments on the Financial Guaranty Insurance Policy. (a) The
Trustee will establish and maintain the Policy Payments Account, a separate
special purpose trust account for the benefit of the Adjustable Rate Group
Certificateholders and the Financial Guaranty Insurer. The Trustee shall deposit
or cause to be deposited any Insured Amounts paid under the Financial Guaranty
Insurance Policy in the Policy Payments Accounts and distribute such amounts
only for the purpose of payment to the related Adjustable Rate Group
Certificateholders of the related Insured Amounts and such amounts may not be
used to satisfy any costs, expenses or liabilities of the Servicer, the Trustee
or the Trust. Insured Amounts deposited in the Policy Payments Account shall not
be invested in Permitted Investments or otherwise, and shall be transferred to
the Certificate Account on the related Distribution Date and disbursed by the
Trustee to the related Adjustable Rate Group Certificateholders in accordance
with Section 5.01.
As soon as possible, and in no event later than [ ] on the third Business
Day immediately preceding the related Distribution Date, the Trustee shall
determine whether an Insured Amount is required to be paid under the Financial
Guaranty Insurance Policy with respect to such Distribution Date and, if so,
shall immediately notify the Servicer by telephone, which notice shall be
confirmed in writing by facsimile transmission, of the Trustee's intention so to
file the applicable Notice of Claim. If by the close of business in Los Angeles
on such date an Insured Amount is still required to be paid under the Financial
Guaranty Insurance Policy with respect to such Distribution Date, the Trustee
shall furnish the Financial Guaranty Insurer with a completed Notice of Claim in
respect of such Insured Amount by [ ] on the next succeeding Business Day and
shall provide a copy thereof to the Servicer at or prior to the time such Notice
of Claim is received by the Financial Guaranty Insurer. The Notice of Claim
shall constitute a claim therefor pursuant to the Financial Guaranty Insurance
Policy. In the event any funds are received by the Trustee from the Servicer
prior to the close of business in Los Angeles on the Business Day following the
transmission of a Notice of Claim to the Financial Guaranty Insurer, and such
funds reduce the amount of the Insured Amount to which such Notice of Claim
relates, the Insured Amount to which such Notice of Claim relates shall be
reduced by a corresponding amount, and the Notice of Claim shall be deemed to
have been rescinded to the extent of the reduction of the Insured Amount.
Notification of any such reduction in the Insured Amount shall be given to the
Financial Guaranty Insurer by the Trustee by no later than [ ], on the related
Distribution Date. The Financial Guaranty Insurer shall, pursuant to the
Financial Guaranty Insurance Policy, pay to the Trustee the Insured Amount by [
], on the later of (i) the Business Day following receipt of such Notice of
Claim and (ii) such Distribution Date. The Trustee shall deposit or cause to be
deposited such Insured Amount in the Certificate Account.
(b) Each Adjustable Rate Group Certificateholder shall promptly notify
the Trustee in writing upon the receipt of a court order as described in the
definition of Preference Amount and shall enclose a copy of such order with such
notice to the Trustee. The Trustee shall promptly notify the Financial Guaranty
Insurer upon its receipt of any such court order. If the payment of any portion
of Insured Amount distributable to an Adjustable Rate Group Certificateholder on
any Distribution Date is avoided as a preference pursuant to a final,
nonappealable order under the Bankruptcy Code (the "Order"), the Financial
Guaranty Insurer shall cause such payment to
81
<PAGE> 87
be made on the later of (a) the date when due to be paid pursuant to the Order
or (b) the first to occur of (i) the [fourth] Business Day following receipt by
the Financial Guaranty Insurer from the Trustee of (A) a copy of the final
nonappealable order of the court pursuant to the United States Bankruptcy Code
to the effect that the related Certificateholder is required to return
distributions paid on a Certificate held thereby during the term of the
Financial Guaranty Insurance Policy because such payments were avoidable as
preference payments pursuant to an Order, (B) a certificate of such
Certificateholder that the Order has been entered and is not subject to any stay
and (C) an assignment duly executed and delivered by such Certificateholder in
such form as is reasonably required by the Financial Guaranty Insurer and
provided thereto by the Financial Guaranty Insurer, irrevocably assigning to the
Financial Guaranty Insurer all rights and claims of (i) such Certificateholder
relating to or arising under the Certificate held thereby against the debtor
that made such preference payment or otherwise with respect to such preference
payment or (ii) the date of receipt by the Financial Guaranty Insurer from the
Trustee of the items referred to in clauses (A), (B) and (C) above if, at least
[four] Business Days prior to such date of receipt, the Financial Guaranty
Insurer shall have received written notice from the Trustee that such items were
to be delivered on such date and such date was specified in the notice. Such
payment shall be disbursed to the receiver, conservator, debtor-in-possession or
trustee in named in the Order and not to the Trustee or any Adjustable Rate
Group Certificateholder directly (unless an Adjustable Rate Group
Certificateholder has previously paid such amount to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order, in which case
such payment shall be disbursed to the Trustee for distribution to such
Certificateholder upon proof of such payment reasonably satisfactory to the
Financial Guaranty Insurer).
(c) The Trustee shall receive, as attorney-in-fact for each Adjustable
Rate Group Certificateholder, any Insured Amount allocable to the Class A-1A or
Class A-2A Certificate held thereby, from the Financial Guaranty Insurer and
disburse the same in accordance with the provisions of Section 5.01. Any portion
of the distributions made by the Trustee in respect of any Accrued Certificate
Interest, Class A-1A Coverage Deficit or Class A-2A Coverage Deficit, Class A-2A
Certificate Principal Balance as of the Class A-2A Financial Scheduled
Distribution Date or other voluntary payment of Realized Losses by the Financial
Guaranty Insurer from proceeds of the Financial Guaranty Insurance Policy shall
not be considered payment by the Trust, nor shall such payments discharge the
obligation of the Trust with respect to such Certificateholders, and the
Financial Guaranty Insurer shall become the owner of such unpaid amounts in
respect of the Adjustable Rate Group Certificates with respect to which they are
made. The Trustee hereby agrees on behalf of each Adjustable Rate Group
Certificateholder for the benefit of the Financial Guaranty Insurer that it
recognizes that: (i) to the extent the Financial Guaranty Insurer pays any
Insured Amounts in respect of the Class A-1A Certificates, either directly or
indirectly (as by paying through the Trustee), to the Class A-1A
Certificateholders, the Financial Guaranty Insurer will be subrogated to the
rights of the Class A-1A Certificateholders with respect to such Insured Amounts
paid in respect of such Certificateholders, shall be deemed to the extent of the
Insured Amounts so paid in respect of such Certificateholders, to be a
registered Class A-1A Certificateholder and shall be entitled to receive all
future distributions on the Class A-1A Certificates until all such Insured
Amounts (together with interest thereon at the Class A-1A Pass-Through Rate from
the date paid until the
82
<PAGE> 88
date of reimbursement thereof) have been fully reimbursed; and (ii) to the
extent the Certificate Insurer pays any Insured Amounts in respect of the Class
A-2A Certificates, either directly or indirectly (as by paying through the
Trustee), to the Class A-2A Certificateholders, the Financial Guaranty Insurer
will be subrogated to the rights of the Class A-2A Certificateholders with
respect to such Insured Amounts paid in respect of such Certificateholders,
shall be deemed to the extent of the Insured Amounts so paid in respect of such
Certificateholders, to be a registered Class A-2A Certificateholder and shall be
entitled to receive all future distributions on the Class A-2A Certificates
until all such Insured Amounts (together with interest thereon at the Class A-2A
Pass-Through Rate from the date paid until the date of reimbursement thereof)
have been fully reimbursed, in each case subject to the following paragraph. To
evidence such subrogation, the Trustee shall note the Financial Guaranty
Insurer's rights as subrogee on the registration books maintained by the
Trustee. Except as otherwise described herein, the Financial Guaranty Insurer
shall not acquire any voting rights hereunder as a result of such subrogation.
The effect of the foregoing provisions is that, to the extent of any Insured
Amount made by it on each Distribution Date, the Financial Guaranty Insurer
shall be paid before any other distributions are made to the related Adjustable
Rate Group Certificateholders, in each case subject to the following paragraph.
Notwithstanding the provisions of the preceding paragraph, it is
understood and agreed that the intention of the parties is that the Financial
Guaranty Insurer shall not be entitled to reimbursement on any Distribution Date
for amounts previously paid by it (i) in respect of the Class A-1A Certificates
unless on such Distribution Date the Class A-1A Certificateholders shall also
have received the full amount of the Class A-1A Monthly Interest and the amount
of any Extra Principal Distribution Amount or Realized Losses sufficient to fund
any related Overcollateralization Deficit allocated for distribution to such
Class A-2A Certificateholders for such Distribution Date and (ii) in respect of
the Class A-2A Certificates unless on such Distribution Date the Class A-2A
Certificateholders shall also have received the full amount of the Class A-2A
Monthly Interest and the amount of any Extra Principal Distribution Amount or
Realized Losses sufficient to fund any related Overcollateralization Deficit
allocated for distribution to such Class A-2A Certificateholders for such
Distribution Date, as applicable.
(d) The Trustee shall be entitled to enforce on behalf of the Adjustable
Rate Group Certificateholders the obligations of the Financial Guaranty Insurer
under the Financial Guaranty Insurance Policy. The Class A Certificateholders
are not entitled to institute proceedings directly against the Financial
Guaranty Insurer. Each Adjustable Rate Group Certificateholder, by its purchase
of a Class A-1A or Class A-2 Certificate, the Servicer and the Trustee hereby
agree that the Financial Guaranty Insurer may at any time during the
continuation of any proceeding relating to a preference claim direct all matters
relating to such preference claim, including, without limitation, the direction
of any appeal of any order relating to such preference claim and the posting of
any surety, supersedeas or performance bond pending any such appeal. In addition
and without limitation of the foregoing, the Financial Guaranty Insurer shall be
subrogated to the rights of the Servicer, the Trustee and each Adjustable rate
Group Certificateholder in the conduct of any such preference claim, including,
without limitation, all rights of any party to an adversary proceeding action
with respect to any court order issued in connection with any such preference
claim.
83
<PAGE> 89
(e) The Trustee shall keep a complete and accurate record of the amount
of interest and principal paid in respect of any Class A-1A or Class A-2A
Certificate from monies received under the Financial Guaranty Insurance Policy.
The Financial Guaranty Insurer shall have the right to inspect such records at
reasonable times during normal business hours upon one Business Day's notice to
the Trustee.
Section 3.20. Rights of the Financial Guaranty Insurer to Exercise Rights
of Adjustable Rate Group Certificateholders. By accepting its Certificate, each
Adjustable Rate Group Certificateholder agrees that unless a Financial Guaranty
Insurer Default exists, the Financial Guaranty Insurer shall have the right to
exercise all rights of the Adjustable Rate Group Certificateholders under this
Agreement without any further consent of the Adjustable Rate Group
Certificateholders, including, without limitation:
(i) the right to direct foreclosures upon Mortgage Loans upon failure of
the Servicer to do so;
(ii) the right to require the Seller to repurchase or substitute for, or
to require the Servicer to purchase, Mortgage Loans pursuant to Sections 2.03
and 2.05; and
(iii) the right to direct the actions of the Trustee during the
continuance of an Event of Default.
In addition, each Adjustable Rate Group Certificateholder agrees that, unless a
Certificate Insurer Default exists, the rights specifically set forth above may
be exercised by the Adjustable Rate Group Certificateholders only with the prior
written consent of the Financial Guaranty Insurer.
Moreover, by accepting its Certificate, each Fixed rate Group
Certificateholder agrees that unless a Financial Guaranty Insurer Default
exists, (i) the Fixed Rate Group Certificateholders may not exercise their
rights under this Agreement to give notices of any breach or to terminate the
rights and obligations of the Servicer with respect to the Fixed Rate Group in
the event of a Servicer Event of Default without the prior consent of the
Financial Guaranty Insurer, (ii) the Financial Guaranty Insurer, rather than
such Certificateholders, will have the right to direct the actions of the
Trustee during the continuance of any Servicer Event of Default, (iii) the
consent of the Financial Guaranty Insurer will be required in order for the
appointment of any successor Servicer to become effective and (iv) the consent
of the Financial Guaranty Insurer will be required in connection with any
amendment of this Agreement.
Section 3.21. Trust and Accounts Held for Benefit of the
Certificateholders and Financial Guaranty Insurer. Provided there does not
84
<PAGE> 90
exist a Financial Guaranty Insurer Default, the Trustee shall hold the Trust and
the Mortgage Files for the benefit of the Certificateholders and the Financial
Guaranty Insurer and all references in this Agreement (including, without
limitation, in Sections 2.01, 2.02 and 2.03) and in the Certificates to the
benefit of Holders of the Certificates shall be deemed to include the Financial
Guaranty Insurer. Provided there does not exist a Financial Guaranty Insurer
Default, the Servicer hereby acknowledges and agrees that it shall service and
administer the Mortgage Loans and any REO Properties, and shall maintain the
Collection Account for the benefit of the Certificateholders and for the benefit
of the Financial Guaranty Insurer, and all references in this Agreement to the
benefit of or actions on behalf of the Certificateholders shall be deemed to
include the Financial Guaranty Insurer. All notices, statements, reports,
certificates or opinions required by this Agreement to be sent to any other
party hereto or to the Certificateholders shall also be sent to the Financial
Guaranty Insurer.
ARTICLE FOUR
REMITTANCE REPORT
Section 4.01. Servicer Remittance Report. With respect to each
Distribution Date, not later than the fifth Business Day prior to the related
Deposit Date the Servicer shall deliver to the Trustee a computer-readable
magnetic tape containing the Servicer Remittance Report relating to the Fixed
Rate Group and the Servicer Remittance Report relating to the Adjustable Rate
Group detailing the payments and collections received in respect of the Mortgage
Loans in the related Mortgage Loan Group during the immediately preceding
Collection Period. The computer-readable magnetic tape shall include
loan-by-loan information that specifies account number, borrower name,
outstanding principal balance and activity since the last Distribution Date.
Such tape shall be in the form and have the specifications as may be agreed to
between the Servicer and the Trustee from time to time.
In addition to the foregoing, the Servicer shall provide the Trustee at
the time the tape is delivered to the Trustee a Liquidation Report for the Fixed
Rate Group, with respect to each Mortgage Loan in the Fixed Rate Group that
became a Liquidated Mortgage Loan during the related Collection Period and a
Liquidation Report for the Adjustable Rate Group, with respect to each Mortgage
Loan in the Adjustable Rate Group that became a Liquidated Mortgage Loan during
the related Collection Period, in either case substantially in the form of
Exhibit F hereto.
Section 4.02. Trustee Distribution Date Statement. The Trustee shall, not
later than the Business Day prior to each Deposit Date, furnish by telecopy to
the Servicer, Financial Guaranty Insurer and each Rating Agency a statement
derived from information on the Servicer Remittance Report for each Mortgage
Loan Group and the related Offered Certificates, relating to the next succeeding
Distribution Date:
(a) the total amount of payments in respect of or allocable to
interest on the Mortgage Loans received or deemed to have been received
from the related Mortgagors by the Servicer during such Collection Period
(including any net income from REO Properties received during the related
Collection Period);
(b) the aggregate amount of all Principal Prepayments received
from the related Mortgagors by the Servicer during such Collection Period;
85
<PAGE> 91
(c) the aggregate amount of all Principal Payments received or
deemed to have been received from the related Mortgagors by the Servicer
during such Collection Period;
(d) the total amount of Payments Ahead received during the related
Collection Period;
(e) the aggregate of any Trust Insurance Proceeds received by the
Servicer during such Collection Period;
(f) the aggregate of any Net Liquidation Proceeds received by the
Servicer during such Collection Period;
(g) the total amount of Compensating Interest payments to be paid
by the Servicer pursuant to Section 3.08;
(h) the aggregate Purchase Prices for (i) any Defective Mortgage
Loans that the Seller is required to repurchase on the related Deposit
Date pursuant to Section 2.03 or 2.05 and (ii) any Mortgage Loan that the
Servicer is required to purchase on the related Deposit Date pursuant to
Section 3.01 or 3.06;
(i) any amounts required to be deposited by the Seller on the
related Deposit Date in connection with the substitution of a Qualified
Replacement Mortgage Loan pursuant to Section 2.03 or 2.05;
(j) the amount of Monthly Advances to be made by the Servicer
pursuant to Section 5.02(a);
(k) the related Monthly Servicing Fee attributable to the Mortgage
Loans in the related Mortgage Loan Group;
(l) the amount of Monthly Advances reimbursable to the Servicer in
such Collection Period pursuant to Section 5.02(a) and not previously
reimbursed;
(m) the amount of any Servicing Advance made by the Servicer
pursuant to Section 5.02(b) and not previously reimbursed;
(n) the amount of any Interest Shortfall for the related
Distribution Date; and
(o) the number and Principal Balance of Mortgage Loans in each
Mortgage Loan Group that, as of the related Determination Date were (i) 30
or more days contractually delinquent, (ii) 60 or more days contractually
delinquent, (iii) 90 or more days contractually delinquent, (iv) in
foreclosure, (v) as to which the Mortgages has in bankruptcy proceedings
to the knowledge of the Servicer, or (vi) as to which the relate Mortgaged
Property was an REO Property.
86
<PAGE> 92
ARTICLE FIVE
PAYMENTS AND STATEMENTS TO
CERTIFICATEHOLDERS
Section 5.01. Distributions. On each Distribution Date, the Trustee shall
distribute to each Certificateholder of record on the related Record Date (other
than as provided in Section 10.01 respecting the final distribution to
Certificateholders if the termination of the Trust is in connection with a
purchase of the assets of the Trust by the Servicer pursuant to Section 10.01)
by check or money order mailed to such Certificateholder at the address
appearing in the Certificate Register, or upon written request by a Holder of a
Certificate, by wire transfer (in the event such Certificateholder owns of
record one or more Certificates that have principal denominations aggregating at
least $[ ] and has given the Trustee, at least five Business Days prior to the
related Record Date, written instruction for making such wire transfer to a bank
account maintained in the United States), or by such other means of payment as
such Certificateholder and the Trustee shall agree, such Certificateholder's
Percentage Interest of the following amounts (to the extent applicable to the
Class of such Holder's Certificate) and in the following orders of priority with
respect to each Mortgage Loan Group. Notwithstanding such priorities, the
aggregate of amounts distributed on all Distribution Dates in reduction of the
Certificate Principal Balance of any Class shall not exceed the Certificate
Principal Balance of such Class as of the Closing Date.
(a) On each Distribution Date interest distributions will be made in the
following order of priority:
First, with respect to the Adjustable Rate Group and related collections
only, if no Financial Guaranty Insurer Default has occurred or is continuing, to
the Financial Guaranty Insurer the amount of any unreimbursed payments of the
Insured Amounts (together with interest thereon at the Class A-1A Pass-Through
Rate or Class A-2A Pass-Through Rate, as specified in Section 3.19(c) if such
amounts remain unpaid from any prior Distribution Date) and any accrued and
unpaid Financial Guaranty Insurer Premium;
Second, (i) to the Fixed Rate Group Class A Certificateholders and
Adjustable Rate Group Certificateholders, Monthly Interest with respect to the
related Mortgage Loan Group on a pro rata basis based on the aggregate amount of
Accrued Certificate Interest to the holders of the Certificate of each such
Class, up to the amount of Accrued Certificate Interest with respect to such
Class plus any outstanding Interest Carry Forward Amount with respect to such
Class, and then (ii) with respect only to the Adjustable Rate Group
Certificates, from amounts deposited in the Supplemental Interest Reserve Fund
on such Distribution Date pursuant to Section 5.01(d), any related Class A-1A
Supplemental Interest Payment Amount and any related Class A-2A Supplemental
Interest Payment Amount on a pro rata basis, based on the amount of any Class
A-1A Supplemental Interest Payment Amount and Class A-2A Supplemental Interest
Payment Amount;
87
<PAGE> 93
Third, to the Class M-1F Certificateholders, Monthly Interest with respect
to the Fixed Rate Group then remaining, up to the amount of Accrued Certificate
Interest with respect to such Class;
Fourth, to the Class M-2F Certificateholders, Monthly Interest with
respect to the Fixed Rate Group then remaining, up to the amount of Accrued
Certificate Interest with respect to such Class;
Fifth, to the Class B-1F Certificateholders, Monthly Interest with respect
to the Fixed Rate Group then remaining, up to the amount of Accrued Certificate
Interest with respect to such Class; and
Sixth, any Monthly Excess Cash Flow Amount will be applied as set forth in
Section 5.01(d).
(b) With respect to the Fixed Rate Group and any Distribution Date
before the Stepdown Date, the Fixed Rate Group Certificateholders will be
entitled to receive 100% of the Fixed Rate Group Principal Distribution Amount
for such Distribution Date as follows: first, to the Class A-6F
Certificateholders, the Class A-6F Lockout Distribution Amount, and then to all
Fixed Rate Group Certificateholders, by Class in sequential order until the
Certificate Principal Balance of each such Class has been reduced to zero.
With respect to the Fixed Rate Group and each Distribution Date on or
after the Stepdown Date, the related Certificateholders will be entitled to
receive payments of principal in the order of priority and amounts set forth
below up to the Fixed Rate Group Principal Distribution Amount:
First, the Fixed Rate Group Principal Distribution Amount, not to exceed
the Class A Principal Distribution Amount, shall be distributed to the Class
A-6F Certificateholders up to the Class A-6F Lockout Distribution Amount, and
any remaining amount thereof shall be distributed to the Fixed Rate Class A
Certificateholders, in sequential order by Class, until the Certificate
Principal Balance of each such Class has been reduced to zero;
Second, any remaining Fixed Rate Group Principal Distribution Amount, not
to exceed the Class M-1F Principal Distribution Amount, shall be distributed to
the Class M-1F Certificateholders, until the Certificate Principal Balance
thereof has been reduced to zero;
Third, any remaining Fixed Rate Group Principal Distribution Amount, not
to exceed the related Class M-2F Principal Distribution Amount, shall be
distributed to the Class M-2F Certificateholders, until the Certificate
Principal Balance thereof has been reduced to zero;
Fourth, any remaining Fixed Rate Group Principal Distribution Amount, not
to exceed the related Class B-1F Principal Distribution Amount, shall be
distributed to the Class B-1F Certificateholders, until the Certificate
Principal Balance thereof has been reduced to zero; and
88
<PAGE> 94
Fifth, any remaining Fixed Rate Group Principal Distribution Amount shall
be distributed as part of the Monthly Excess Cashflow Amount with respect to
such Mortgage Loan Group as set forth in Section 5.01(d).
On any Distribution Date on which the sum of the Certificate Principal
Balances of the Subordinate Certificates and the related Overcollateralization
Amount is zero, any amounts of principal payable to the Fixed Rate Group Class A
Certificateholders on such Distribution Date shall instead be distributed pro
rata based on the outstanding Certificate Principal Balances of each such Class.
(c) with respect to the Adjustable Rate Group and any Distribution Date,
the Adjustable Rate group Certificateholders will be entitled to receive
payments of principal in the order of priority and amounts set forth below up to
the Adjustable Rate Group Principal Distribution Amount:
First, the Adjustable Rate Group Principal Distribution Amount shall be
distributed to the Class A-1A Certificateholders and Class A-2A
Certificateholders on a pro rata basis, based on the Class A-1A Principal
Percentage and Class A-2A Principal Percentage, respectively until the
Certificate Principal Balances thereof have been reduced to zero;
Second, any remaining Adjustable Rate Group Principal Distribution Amount
shall be distributed as part of the Monthly Excess Cashflow Amount with respect
to such Mortgage Loan Group as set forth in Section 5.01(d).
(d) The Monthly Excess Cashflow Amount with respect to each Mortgage
Loan Group shall be applied in the following order of priority on any
Distribution Date:
Any Monthly Excess Cash Flow Amount with respect to the Fixed Rate
Group shall be applied in the following order of priority on any Distribution
Date:
(1) to fund any Interest Carry Forward Amount for the Fixed Rate
Class A Certificates;
(2) to fund the related Extra Principal Distribution Amount for
such Distribution Date;
(3) to fund any Interest Carry Forward Amount for the Class M-1F
Certificates;
(4) to fund any Class M-1F Realized Loss Amortization Amount;
(5) to fund any Interest Carry Forward Amount for the Class M-2F
Certificates;
(6) to fund any Class M-2F Realized Loss Amortization Amount;
(7) to fund any Interest Carry Forward Amount for the Class B-1F
Certificates;
89
<PAGE> 95
(8) to fund any Class B-1F Realized Loss Amortization;
(9) if a Trigger Event has occurred and is continuing, an amount
equal to the excess of the Fixed Rate Group Principal Distribution Amount over
the sum of the Class A Principal Distribution Amount, the Class M-1F Principal
Distribution Amount, the Class M-2F Principal Distribution Amount and the Class
B-1F Principal Distribution Amount will be distributed to the Class B-1F
Certificateholders, Class M-2F Certificateholders and Class M-1F
Certificateholders, in that order, until the Certificate Principal Balance of
the related Class of Certificates has been reduced to zero;
(10) to the Servicer to the extent of any unreimbursed Monthly
Advances or Servicing Advances;
(11) to fund the amounts, if any, described in clauses (1) through
(5) below with respect to the Adjustable Rate Group, to the extent that such
amounts have not been funded in full through the application of any Monthly
Excess Cashflow Amount with respect to the Adjustable Rate Group on such
Distribution Date;
(12) to fund a distribution to Class C Certificateholders of the
Class C Distribution Amount plus any Class C Carryforward Amount; provided that,
pursuant to Section 5.01(e) hereof, on any Distribution Date as to which there
is any unpaid Class A-1A Supplemental Interest Amount or Class A-2A Supplemental
Interest Amount, the Trustee will deposit all such amounts that would otherwise
be distributable to the Class C Certificateholders into the Supplemental
Interest Reserve Fund for application pursuant to clause (ii) of Clause Second
of Section 5.01(a), and such deposit will constitute payment in full of and
satisfaction of all obligations hereunder to distribute such amounts to the
Class C Certificateholders, including for purposes of Section 9.16, and the
Trustee, Servicer and Class C Certificateholders agree hereby appropriately to
report any such deposit as if a corresponding distribution to the Class C
Certificateholders for federal income tax and accounting purposes; and
(13) to fund a distribution to the Class R-III Certificates.
Any Monthly Excess Cash Flow Amount with respect to the Adjustable
Rate Group shall be applied in the following order of priority on any
Distribution Date:
(1) to fund any Interest Carry Forward Amount for the Adjustable
Rate Group Certificates;
(2) If no Financial Guaranty Insurer Default has occurred or is
continuing, to reimburse the Financial Guaranty Insurer for any unreimbursed
Insured Amounts (together with interest thereon at the Class A-1A Pass-Through
Rate or Class A-2A Pass-Through Rate, as specified in Section 3.19(c) if such
amounts remain unpaid from any prior Distribution Date) and any accrued and
unpaid Financial Guaranty Insurer Premium;
(3) to fund the related Extra Principal Distribution for such
Distribution Date;
90
<PAGE> 96
(4) to reimburse the Financial Guaranty Insurer for any other
amounts due and owing under the Financial Guaranty Insurance Agreement;
(5) to the Servicer to the extent of any unreimbursed Monthly
Advances or Servicing Advances with respect to the Adjustable Rate Group;
(6) to fund any amounts described in clauses (2), (4), (6) and (8)
above for such Distribution Date and the Fixed Rate Group, to the extent such
amounts have not been funded in full through the application of any Monthly
Excess Cashflow Amount with respect to the Fixed Rate Group on such Distribution
Date; provided that any portion of Monthly Excess Cashflow Amount with respect
to the Adjustable Rate Group Certificates that consists of amounts paid by the
Financial Guaranty Insurer will be excluded from such funding;
(7) to fund a distribution to Class C Certificateholders of the
Class C Distribution Amount plus any Class C Carryforward Amount; provided that,
pursuant to Section 5.01(e) hereof, on any Distribution Date as to which there
is any unpaid Class A-1A Supplemental Interest Payment Amount or Class A-2A
Supplemental Interest Payment Amount, the Trustee will deposit all such amounts
that would otherwise be distributable to the Class C Certificateholders into the
Supplemental Interest Reserve Fund for application pursuant to clause (ii) of
clause Second of Section 5.01(a), and such deposit will constitute payment in
full of and satisfaction of all obligations hereunder to distribute such amounts
to the Class C Certificateholders, including for purposes of Section 9.16, and
the Trustee, Servicer and Class C Certificateholders agree hereby appropriately
to report any such deposit as if a corresponding distribution to the Class C
Certificateholders for federal income tax and accounting purposes; and
(8) to fund a distribution of one or more of the Class R-III
Certificateholders.
(e) By accepting a Class C Certificate, each Class C Certificateholder
hereby agrees to direct the Trustee, and the Trustee hereby is directed, to
deposit into the Supplemental Interest Reserve Fund the amounts described in
Section 5.01(d) clause (12) with respect to the Fixed Rate Group and clause (7)
with respect to the Adjustable Rate Group for the benefit of the Adjustable Rate
Group Certificates on each Distribution Date as to which there is any Class A-1A
Supplemental Interest Amount or Class A-2A Supplemental Interest Payment Amount
rather than distributing such amounts to the Class C Certificateholders. By
accepting a Class C Certificate, each Class C Certificateholder further agrees
that such direction is given for good and valuable consideration, the receipt
and sufficiency of which is acknowledged by such acceptance.
(f) In addition to the foregoing, on each Distribution Date the Trustee
shall include in the distribution (i) to each Class A-1A and Class A-2A
Certificateholder, such Certificateholder's Percentage Interest of any Insured
Amount allocable to Class A-1A or Class A-2A Certificates, as the case may be,
received from the Financial Guaranty Insurer in respect of such Distribution
Date, first to cover any shortfalls in the Monthly Interest available to cover
distributions in respect of Accrued Certificate Interest with respect thereto
for such Distribution Date and then to reduce the Certificate Principal Balances
of the Adjustable Rate Group
91
<PAGE> 97
Certificates on a pro rata basis (based on their respective outstanding
Certificate Principal Balances) by an amount equal to the Coverage Deficit with
respect to such Distribution Date.
Notwithstanding any of the foregoing, the aggregate of amounts distributed
on all Distribution Dates in reduction of the Certificate Principal Balance of
any Class of Certificates shall not exceed the Certificate Principal Balance of
such Class as of the Closing Date.
Amounts to be paid to the Financial Guaranty Insurer by the Trustee under
this Agreement will be paid by wire transfer of same day funds.
Section 5.02. Monthly Advances; Servicing Advances. (a) On or before each
Deposit Date, the Servicer will deposit in the Certificate Account in respect of
the Fixed Rate Group and the Adjustable Rate Group, in same day funds, an
amount, if any (a "Monthly Advance"), equal to the sum of (i) with respect to
all Mortgage Loans that are delinquent as of the close of business on the
related Determination Date, the aggregate of the interest portions of each
Monthly Mortgage Payment in respect of the related Mortgage Loan Group due
during the related Collection Period (net of the aggregate of the Monthly
Servicing Fees for each Mortgage Loan Group attributable to such Mortgage
Loans), inclusive of those amounts representing the interest portions of Monthly
Mortgage Payments due during the first Collection Period, plus (ii) with respect
to all Mortgage Loans that are not delinquent Mortgage Loans as of the close of
business on the last day of such Collection Period, an amount equal to the
amount of interest that would accrue yon each such Mortgage Loan at the related
Mortgage Loan Rate (net of the aggregate of the Monthly Servicing Fees for each
Mortgage Loan Group attributable to such Mortgage Loans) in a period of 30 days
minus the number of days from the first day of such Collection Period to the
related due date for such Mortgage Loan during such Collection Period, plus
(iii) with respect to each Mortgaged Property that was acquired in foreclosure
or similar action (each, an "REO Property") during or prior to the related
Collection Period and as to which a final sale did not occur during the related
Collection Period, an amount equal to the excess, if any, of interest on the
Principal Balance of such REO Property at the related Mortgage Interest Rate
(net of the Monthly Servicing Fee attributable to such REO Property) over the
net income from such REO Property transferred to the Collection Account or the
Certificate Account, as the case may be, for such Distribution Date; provided,
however, that in no case will the Servicer be required to make advances with
respect to any period or portion of any Collection Period following the final
due date with respect to any Mortgage Loan. All or a portion of any Monthly
Advance required to be made on a Deposit Date may be paid out of amounts on
deposit in the Collection Account in respect of the related Mortgage Loan Group
that are not required to be deposited on such Deposit Date in the Certificate
Account as any portion of Monthly Interest for such Mortgage Loan Group and the
related Distribution Date; provided, however, that the Servicer shall be
required to replace any such amounts by deposit to the Collection Account on or
before the next Deposit Date and the amount of such deposit shall thereafter be
considered a Monthly Advance for purposes of reimbursement under this Agreement.
The Servicer may recover Monthly Advances, if not theretofore recovered from the
Mortgagor on whose behalf such Monthly Advance was made, from collections on the
related Mortgage Loan, 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 or, as provided in
92
<PAGE> 98
clause (10) of Section 5.01(d), from amounts in respect of the related Mortgage
Loan Group that would otherwise be distributed to the Class C Certificateholder
on such Distribution Date.
(b) The Servicer shall from time to time during the term of this
Agreement make such Servicing Advances as the Servicer shall deem appropriate or
advisable under the circumstances and are required pursuant to the terms of this
Agreement. Servicing Advances may be paid by the Servicer out of amounts on
deposit in the Collection Account in respect of the related Mortgage Loan Group
from time to time; provided, however, that the Servicer shall be required to
replace any such amounts by deposit to the Collection Account in respect of the
related Mortgage Loan Group on or before the first Deposit Date occurring after
the payment of a Servicing Advance with such amounts, and the amount of such
deposit shall thereafter be considered a Servicing Advance for purposes of
reimbursement under this Agreement. All Servicing Advances made by the Servicer
shall be reimbursable from collections or recoveries relating to the Mortgage
Loans in respect of which such Servicing Advances have been made or, as provided
in clause (10) of Section 5.01(d) with respect to the Adjustable Rate Group
Mortgage Loans, from amounts that would otherwise be distributed to the Class C
Certificateholder on a Distribution Date. Notwithstanding anything herein to the
contrary, no Servicing Advances need by made hereunder if such Servicing Advance
would, if made, constitute a Nonrecoverable Advance.
Section 5.03. Statements to Certificateholders. Concurrently with each
distribution charged to the Certificate Account on a Distribution Date the
Trustee shall forward to the Financial Guaranty Insurer and each Rating Agency
and shall mail to each Holder of a Certificate, a written statement setting
forth the following information with respect to the applicable Class of Offered
Certificates to which such statement (a "Statement to Certificateholders")
relates:
(a) the amount of the distribution with respect to each Class of
Certificates;
(b) the amount of such distributions allocable to principal on the
related Mortgage Loans in each Mortgage Loan Group, separately identifying
the aggregate amount of any Prepayments or other recoveries of principal
included therein;
(c) the amount of such distributions allocable to interest;
(d) the Interest Carry Forward Amount for each Class;
(e) the outstanding Certificate Principal Balance of each Class of
Offered Certificates which will be outstanding after giving effect to any
payment of principal on such Distribution Date;
(f) the aggregate of the Principal Balances of all Mortgage Loans
after giving effect to any payments of principal on such Distribution Date
by Mortgage Loan Group and for the entire Trust, and each Group Factor;
93
<PAGE> 99
(g) based upon information furnished by the Sponsor, such
information as may be required by Section 6049(d)(7)(C) of the Code and
the regulations promulgated thereunder to assist the Certificateholders in
computing their market discount;
(h) the total of all amounts paid by the Sponsor and the Servicer
during the related Collection Period in connection with purchases or
repurchases from the Trust of Mortgage Loans and substitutions for
Mortgage Loans of Qualified Replacement Mortgage Loans with respect to
each Mortgage Loan Group and by reason for such purchase;
(i) the weighted average Mortgage Loan Rate of the Mortgage Loans
with respect to each Mortgage Loan Group;
(j) whether a Trigger Event has occurred and, if so, what event;
(k) the Senior Enhancement Percentage;
(l) the amount of any Extra Principal Distribution Amount included
in such distribution;
(m) the related Overcollateralization Amount and Targeted
Overcollateralization Amount for each Mortgage Loan Group and all
delinquency and loss information necessary to calculate the Targeted
Overcollateralization Amount for each Mortgage Loan Group;
(n) the amount, if any, of Insured Amounts distributable to each
Class of Adjustable Rate Group Certificates on such Distribution Date, the
Financial Guaranty Insurer Premium paid on such Distribution Date, and the
aggregate amount of Insured Amounts, interest thereon and previously
unpaid Financial Guaranty Insurer Premiums paid on Such Distribution date
and remaining to be paid on such Distribution date or any future
Distribution Date;
(o) the amount of any Applied Realized Loss Amount, Realized Loss
Amortization Amount and Unpaid Realized Loss Amount for each Class of
Fixed Rate Group Certificates as of the close of such Distribution Date;
and
(p) such other information as the Certificate Insurer may
reasonably request to the extent such information is available to the
Trustee from the Servicer and is produced by the Servicer in the ordinary
course of the Servicer's business.
In the case of information furnished pursuant to subclauses (a), (b)
and (c) above, the amounts shall be expressed as a dollar amount per
Certificate with a $1,000 principal denomination.
Within [90 days] after the end of each calendar year, the Trustee
shall mail such report to [ ] (which report shall include, in addition to
the information contained in reports to others
94
<PAGE> 100
hereunder, the total amount of interest on the Mortgage Loans for the
period covered by such report), and to each Person who at any time during
the calendar year was an Offered Certificateholder, a statement for each
Certificateholder containing the information set forth in subclauses (a)
through (c) above, aggregated for such calendar year or, in the case of
each Person who was an Offered Certificateholder for a portion of such
calendar year, setting forth such information for each month thereof for
the portion of the year during which such Person was a Certificateholder.
The Servicer shall provide any other information necessary in order to
report income in respect of the Certificateholders for federal income tax
purposes.
Section 5.04. Applied Realized Loss Amount. On each Distribution Date,
based on the information furnished by the Servicer, the Trustee shall determine
the total Applied Realized Loss Amounts for the Fixed Rate Group for such
Distribution Date. Such Applied Realized Loss Amounts shall be applied by
reducing the Certificate Principal Balance of each Class of Subordinate
Certificates beginning with the Class B-1F Certificates, and then the Class M
Certificates then outstanding with the highest numerical Class designation, in
each case until the respective Certificate Principal Balance thereof is reduced
to zero. Any Applied Realized Loss Amount allocated to a Class of Certificates
shall be allocated among the Certificates of such Class in proportion to their
respective Percentage Interests.
Section 5.05. Financial Guaranty Insurer's Use of Information. The Company
and the Trustee on behalf of Certificateholders and the Trust (the "Trust
Parties") hereby authorize the Financial Guaranty Insurer to include the
information contained in reports provided to the Certificate Insurer hereunder
(the "Information") on Bloomberg, or in other electronic or print information
services. The Trust Parties agree not to commence any actions or proceedings, or
otherwise assert any claims, against the Financial Guaranty Insurer or its
Affiliates or any of the Financial Guaranty Insurer Parties, arising out of, or
related to or in connection with the dissemination and/or use of any information
by the Certificate Insurer as contemplated in this Section, including, but not
limited to, claims based on allegations of inaccurate, incomplete or erroneous
transfer of information by the Financial Guaranty Insurer to Bloomberg or
otherwise (other than in connection with the Financial Guaranty Insurer's gross
negligence or willful misconduct). The Trust Parties waive their rights to
assert any such claims against the Financial Guaranty Insurer Parties and fully
and finally release the Financial Guaranty Insurer Parties from any and all such
claims, demands, obligations, actions and liabilities (other than in connection
with the Financial Guaranty Insurer's gross negligence or willful misconduct).
The Financial Guaranty Insurer makes no representations or warranties, expressed
or implied, of any kind whatsoever with respect to the accuracy, adequacy,
timeliness, completeness, merchantability or fitness for any particular purpose
of any Information in any form or manner. The Financial Guaranty Insurer
reserves the right at any time to withdraw or suspend the dissemination of the
Information by the Financial Guaranty Insurer. The authorizations, covenants and
obligations of the Trust Parties under this section shall be irrevocable and
shall survive the termination of this Agreement.
95
<PAGE> 101
ARTICLE SIX
THE CERTIFICATES
Section 6.01. The Certificates. (a) The Certificates of each Class shall
be substantially in the forms set forth with respect thereto in Exhibit A
hereto, respectively, and shall, on original issue, be executed and delivered by
the Trustee on behalf of the Trust, not individually but solely as Trustee to or
upon the order of the Seller concurrently with the sale and assignment to the
Trustee of the Trust.
(b) The Book-Entry Certificates will be evidenced by one or more
certificates, beneficial ownership of which will be held (i) in the case of the
Fixed Rate Group Class A Certificates and the Adjustable Rate Group
Certificates, in minimum dollar denominations of $[ ] and integral multiples of
$1 in excess thereof; and (ii) in the case of the Subordinate Certificates, in
minimum dollar denominations of $[ ] and integral multiples of $1 in excess
thereof. Each of the Class C Certificates shall be issuable with a face amount
expressed as a Percentage Interest not less than [ ]%. Each of the Class R
Certificates shall be issuable solely as a single Class R Certificate evidencing
the entire Percentage Interest of such Class R Certificates.
(c) The Certificates shall be executed by manual or facsimile
signature by the Trustee on behalf of the Trust (not in its individual capacity
but solely as Trustee) by an authorized officer of the Trustee. Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
when such signatures were affixed, authorized to sign on behalf of the Trustee
shall bind the Trust, notwithstanding that such individuals or any of them have
ceased to be so authorized prior to the countersigning and delivery of such
Certificates or did not hold such offices at the date of such Certificate. No
Certificate shall be entitled to any benefit under this Agreement, or be valid
for any purpose, unless such Certificate shall have been manually authenticated
by the Trustee substantially in the form provided for herein, and such signature
upon any Certificate shall be conclusive evidence, and the only evidence, that
such Certificate has been duly authenticated and delivered hereunder. All
Certificates shall be dated the date of their authentication.
Section 6.02. Registration of Transfer and Exchange of Certificates. (a)
The Trustee shall cause to be kept at the Corporate Trust Office a Certificate
Register in which, subject to such reasonable regulations as it may prescribe,
the Trustee shall provide for the registration of Certificates and of transfers
and exchanges of Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate at any
office or agency of the Trustee maintained for such purpose pursuant to the
foregoing paragraph and upon satisfaction of the conditions set forth in Section
6.02(b) and (c), the Trustee shall execute, authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Certificates
of the same Class and of a like aggregate Percentage Interest.
At the option of the Certificateholders, Certificates may be exchanged for
other Certificates of authorized denominations of the same Class and of a like
aggregate Percentage Interest, upon
96
<PAGE> 102
surrender of the Certificates to be exchanged at any such office or agency.
Whenever any Certificates are so surrendered for exchange the Trustee shall
execute, authenticate and deliver the Certificates that the Certificateholder
making the exchange is entitled to receive.
Every Certificate presented or surrendered for transfer or exchange shall
(if so required by the Company or the Trustee) be duly endorsed by, 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 to a Certificateholder for any transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of certificates.
All Certificates surrendered for transfer or exchange shall be canceled by
the Trustee in accordance with its standard procedures.
(b) No transfer of a Class R Certificate shall be made unless, as
evidenced by an Opinion of Counsel and Transfer Affidavit delivered to the
Trustee, each in form and substance satisfactory to the Trustee, such transfer
is not subject to registration under the Securities Act or any applicable state
securities laws. Any such Opinion of Counsel and Transfer Affidavit shall not be
obtained at the expense of the Trustee, the Trust, the Seller or the Servicer.
The Holder of a Class R Certificate desiring to effect such transfer shall, and
does hereby agree to, indemnify the Trustee, the Seller and the Servicer against
any liability that may result if the transfer is not so exempt or is not made in
accordance with the Securities Act and such state laws. Neither the Seller, the
Servicer nor the Trustee or the Trust is under an obligation to register the
Class R Certificates under the Securities Act or any state securities law.
The Class R Certificates, this Agreement and related documents may be
amended or supplemented from time to time to modify restrictions on and
procedures for resale and other transfer of such Class R Certificate to reflect
any change in applicable law or regulation (or the interpretation thereof) or
practices relating to the resale or transfers of restricted securities
generally.
No legal or beneficial interest in all or any of the Class R Certificates
may be transferred directly or indirectly to: (i) a Disqualified Organization or
an agent of a Disqualified Organization (including a broker, nominee or
middleman), (ii) to an entity that holds REMIC residual securities as nominee to
facilitate the clearance and settlement of such securities through electronic
book-entry changes in accounts of participating organizations (a "Book-Entry
Nominee"), (iii) an individual, corporation, partnership or other Person unless
such transferee (A) is not a Foreign Person or (B) is a Foreign Person that will
hold such Class R Certificate in connection with the conduct of a trade or
business within the United States and has furnished the transferor and the
Trustee with an effective Internal Revenue Service Form 4224 or (C) is a Foreign
Person that has delivered (at the expense of the Transferee) to both the
transferor and the Trustee an opinion of a nationally recognized tax counsel to
the effect that the transfer of the Class R Certificate to it is in
97
<PAGE> 103
accordance with the requirements of the Code and the regulations promulgated
thereunder and that such transfer of the Class R Certificate will not be
disregarded for federal income tax purposes (any such Person who is not covered
by clause (A), (B) or (C) above being referred to herein as a "Non-permitted
Foreign Holder") or (iv) to an ERISA Plan or an entity, including an insurance
company separate account or general account, whose underlying assets include
ERISA Plan assets by reason of an ERISA Plan's investment in the entity or a
Person investing the assets of an ERISA Plan or such an entity, whether as
nominee, trustee, agent or otherwise (such plan, entity or Person, an "ERISA
Prohibited Holder"), and any such purported transfer shall be void and have no
effect.
The Trustee shall not execute, and shall not authenticate and deliver, a
new Class R Certificate in connection with any registration of transfer to a
Person known to a Responsible Officer of the Trustee to be a Disqualified
Organization or agent thereof (including a broker, nominee or middleman), to a
Book-Entry Nominee, a Non-permitted Foreign Holder or an ERISA Prohibited
Holder, and the Trustee shall not accept a surrender for the registration of
transfer or register the transfer of, any Class R Certificate, unless the
transferor shall have provided to the Trustee a Transfer Affidavit substantially
in the form attached as Exhibit D hereto, signed by the transferee, to the
effect that the transferee is not a Disqualified Organization and is not a
nominee for a beneficial owner of the Class R Certificate from which the
transferee has not received a substantially similar affidavit, a Book-Entry
Nominee, a Non-permitted Foreign Holder or an ERISA Prohibited Holder. Such
Transferor Affidavit shall contain (i) the consent of the transferee to any such
amendments of this Agreement as may be required to further effectuate the
foregoing restrictions on transfer of the Class R Certificates to Disqualified
Organizations, Book-Entry Nominees, Non-permitted Foreign Holders or ERISA
Prohibited Holders and (ii) a representation from the transferee that such
transferee does not have the intent or purpose to impede the assessment or
collection of any federal, state or local income taxes legally required to be
paid with respect to the Class R Certificates. Such Transferor Affidavit, if not
executed in connection with the initial issuance of the Class R Certificates,
also shall be accompanied by a Transferor Affidavit, substantially in the form
attached hereto as Exhibit H, signed by the transferor to the effect that as of
the time of the transfer, the transferor has no actual knowledge that such
affidavit is false and that the transferor does not have the intent or purpose
to impede the assessment or collection of any federal, state or local income
taxes legally required to be paid with respect to the Class R Certificate.
Each Class R Certificate shall bear a legend referring to the foregoing
restrictions. Any Person acquiring the Class R Certificate, or beneficial
ownership thereof, agrees to give the Servicer written notice that it is a
"pass-through interest holder" within the meaning of Treasury Regulation Section
1.67-3T(a)(2)(i)(A) immediately upon acquiring the Class R Certificate, or
beneficial ownership thereof, if it is, or is acquiring the Class R Certificate
on behalf of, a "pass-through interest holder."
Upon notice to the Servicer that any legal or beneficial interest in any
Class R Certificate has been transferred, directly or indirectly, to a
Disqualified Organization in contravention of the foregoing restrictions or to a
pass-through entity as defined in the REMIC Provisions an interest of which is
held by a Disqualified Organization, the Servicer agrees to furnish to any
transferor of the
98
<PAGE> 104
Class R Certificate or such agent or such pass-through entity such as may be
required to be delivered thereto by the Code as necessary to the application of
Code Section 860E(e) including, but not limited to, the present value of the
total anticipated excess inclusions with respect to the Class R Certificate (or
portion thereof) for periods after such transfer. At the election of the
Servicer, the cost to the Servicer of computing and furnishing such information
may be charged to the transferor or such agent referred to above; provided,
however, that the Servicer shall in no event be excused from furnishing such
information.
(d) No transfer of a Subordinate Certificate or Class C Certificate, or
beneficial interest therein, shall be made unless the Trustee shall have
received a representation from the transferee thereof to the effect that:
(i) such transferee (A) is not an employee benefit plan or
arrangement subject to Section 406 of ERISA or a plan subject to Section
4975 of the Code (a "Plan"), nor a person acting on behalf of a Plan nor
using the assets of a Plan to effect such transfer, or (B) is an insurance
company purchasing a Class B Certificate or Class C Certificate with funds
contained in an "insurance company general account" (as defined in Section
V(e) of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60"))
satisfying Section III of PTCE 95-60; or
(ii) such transferee is a Plan or a person acting on behalf of a
Plan or using the assets of a Plan to effect such transfer, or is an
insurance company purchasing such Certificate with funds contained in an
insurance company general account, having attached thereto an opinion of
counsel satisfactory to the Trustee, which opinion shall not be an expense
of either the Trustee or the Trust, addressed to the Trustee, the Seller
and the Servicer, to the effect that the purchase or holding of such
Certificate will not result in the assets of the Trust being deemed to be
"plan assets" and subject to the prohibited transaction provisions of
ERISA and the Code and will not subject the Trustee, the Seller or the
Servicer to any obligation in addition to those expressly undertaken in
this Agreement or to any liability.
For purposes of the preceding sentence, with respect to a Subordinate
Certificate that is a Book-Entry Certificate, the representations contained in
clause (i) above shall be deemed to have been made to the Trustee by the
transferee's (including an initial acquiror's) acceptance of such Certificate.
Notwithstanding anything else to the contrary herein, any purported transfer of
a Subordinate Certificate or Class C Certificate, or a beneficial interest
therein, to or on behalf of an employee benefit plan subject to ERISA or to the
Code or a person acting on behalf of a Plan or using the assets of a Plan to
effect such transfer or to an insurance company purchasing with funds from a
general account not exempt pursuant to PTCE 95-60 without the delivery to the
Trustee of an opinion of counsel described in clause (ii) above shall be void
and of no effect.
To the extent permitted under applicable law (including, but not limited
to, ERISA), the Trustee shall be under no liability to any Person for any
registration of transfer of any Subordinate Certificate or Class C Certificate
that is in fact not permitted by Section 6.02(d) or for making any payments due
on such Certificate to the Holder thereof or taking any other action with
respect to
99
<PAGE> 105
such Holder under the provisions of the Pooling and Servicing Agreement so long
as the transfer was registered by the Trustee in accordance with the foregoing
requirements.
The Subordinate Certificates and Class C Certificates, this Agreement and
related documents may be amended or supplemented from time to time to modify
restrictions on and procedures for resale and other transfer of such Subordinate
Certificates and Class C Certificates to reflect any change in applicable law or
regulation (or the interpretation thereof) or practices relating to the resale
or transfers of restricted securities generally.
(e) The Book-Entry Certificates shall, subject to Section 6.02(e), at
all times remain registered in the name of the Depository or its nominee and at
all times: (i) registration thereof may not be transferred by the Trustee except
to another Depository; (ii) the Depository shall maintain book-entry records
with respect to the Certificate Owners and with respect to ownership and
transfers of such Certificates; (iii) ownership and transfers of registration of
the Certificates issued in book-entry form on the books of the Depository shall
be governed by applicable rules established by the Depository and the rights of
Certificate Owners with respect to Book-Entry Certificates shall be governed by
applicable law and agreements between such Certificate Owners and the
Depository, Depository Participants, and indirect participating firms; (iv) the
Depository may collect its usual and customary fees, charges and expenses from
its Depository Participants; (v) the Trustee shall deal with the Depository as
the authorized representative of the Certificate Owners of the Book-Entry
Certificates for all purposes including the making of payments due on the
Book-Entry Certificates and exercising the rights of Holders of Book-Entry
Certificates under this Agreement; (vi) the Trustee may rely and shall be fully
protected in relying upon information furnished by the Depository; (vii)
Certificate Owners shall not be entitled to certificates for the Book-Entry
Certificates and (viii) the Trustee may establish a reasonable record date in
connection with solicitations of consents from or voting by holders of
Book-Entry Certificates and give notice to the Depository of such record date.
All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository Participant
or brokerage firm representing such Certificate Owner. Each Depository
Participant shall only transfer Book-Entry Certificates of Certificate Owners it
represents or of brokerage firms for which it acts as agent in accordance with
the Depository's normal procedures.
(f) If (x)(i) the Company or the Depository advises the Trustee in
writing that the Depository is no longer willing, qualified or able to properly
discharge its responsibilities as Depository, and (ii) the Trustee or the
Company is unable to locate a qualified successor, (y) the Company at its option
advises the Trustee in writing that it elects to terminate the book-entry system
through the Depository or (z) after the occurrence of an Event of Default,
Certificate Owners representing not less than 51% of the aggregate Class A
Certificate Principal Balance of the Book-Entry Certificates together advise the
Trustee and the Depository in writing that the continuation of a book-entry
system through the Depository is no longer in the best interests of the
Certificate Owners, the Trustee shall notify all Certificate Owners, through the
Depository, of the occurrence of any such event and of the availability of
definitive, fully registered Certificates ("Definitive Certificates") to
Certificate Owners requesting the same. Upon surrender to the
100
<PAGE> 106
Trustee of such Certificates by the Depository, accompanied by registration
instructions from the Depository for registration, the Trustee shall issue the
Definitive Certificates and the expense of any such issuance shall be reimbursed
by the Trust pursuant to Section 9.05. Neither the Company 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 the
issuance of Definitive Certificates all references herein to obligations imposed
upon or to be performed by the Depository shall be deemed applicable with
respect to such Definitive Certificates and the Certificates as
Certificateholders hereunder.
(g) On or prior to the Closing Date, there shall be delivered to the
Depository one certificate for each Class of Book-Entry Certificates registered
in the name of the Depository's nominee, Cede & Co. The face amount of each such
Certificate shall be equal to the Principal Balance thereof. Each Certificate
issued in book-entry form shall bear the following legend:
"Unless this Certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to Issuer or its
agent for registration of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein."
Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates. If (a)
any mutilated Certificate is surrendered to the Trustee or the Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (b) there is delivered to the Trustee, the Servicer, the Seller
and, in the case of the Adjustable Rate Group Certificates, the Financial
Guaranty Insurer, such security or indemnity as may be required by them to save
each of them harmless, then, in the absence of notice to the Trustee that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute, authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
Class and Percentage Interest. Upon the issuance of any new Certificate under
this Section, the Trustee may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Trustee) connected
therewith. Any duplicate Certificate issued pursuant to this Section shall
constitute complete and indefeasible evidence of ownership of the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
Section 6.04. Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Servicer, the Seller, the Trustee,
the Financial Guaranty Insurer and any of their respective agents may treat the
Person in whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving distributions pursuant to Section 5.01
and for all other purposes whatsoever, and neither the Servicer, the Seller, the
Trustee or the Financial Guaranty Insurer, nor any of their respective agents
shall be affected by notice to the contrary.
101
<PAGE> 107
Section 6.05. Actions of Certificateholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Agreement to be given or taken by Certificateholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Certificateholders in person or by 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, in
the case of the Adjustable Rate Group Certificates, also to the Financial
Guaranty Insurer, and, when required, to the Seller or the Servicer. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Agreement and conclusive in favor of the
Trustee, the Financial guaranty Insurer, the Seller and the Servicer, if made in
the manner provided in this Section.
(b) The fact and date of the execution by any Certificateholder of any
such instrument or writing may be proved in any reasonable manner that the
Trustee deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Certificateholder shall bind every Holder of every
Certificate issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Trustee, the Seller, the Servicer or the Financial Guaranty Insurer in
reliance thereon, whether or not notation of such action is made upon such
Certificate.
ARTICLE SEVEN
THE SERVICER AND THE SELLER
Section 7.01. Liability of the Servicer. The Servicer shall be liable in
accordance herewith only to the extent of the obligations specifically imposed
upon and undertaken by the Servicer herein.
Section 7.02. Merger or Consolidation of, or Assumption of the Obligations
of, the Servicer. Any corporation or other entity (i) into which the Servicer
may be merged or consolidated, (ii) that may result from any merger, conversion
or consolidation to which the Servicer shall be a party, or (iii) that may
succeed to all or substantially all of the business of the Servicer, which
corporation or other entity shall, in any case where an assumption shall not be
effected by operation of law, execute an agreement of assumption to perform
every obligation of the Servicer under this Agreement, shall be the successor to
the Servicer under this Agreement without the execution or filing of any
document or any further act by any of the parties to this Agreement; except that
if the Servicer is not the surviving entity, then the surviving entity shall
execute and deliver to the Trustee an agreement of assumption to perform every
obligation of the Servicer hereunder.
Section 7.03. Limitation on Liability of the Servicer and Others. Neither
the Servicer nor any of its directors, officers, employees or agents shall be
under any liability to the Trustee, the Trust or the Certificateholders for any
action taken or for refraining from the taking of any action by the Servicer
pursuant to this Agreement, or for errors in judgment; provided, however,
102
<PAGE> 108
that this provision shall not protect the Servicer or any such person against
any liability that would otherwise be imposed by reason of willful misfeasance,
bad faith or negligence in the performance of the duties of the Servicer or by
reason of reckless disregard of the obligations and duties of the Servicer
hereunder. The Servicer and any director, officer, employee or agent of the
Servicer may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
The Servicer shall not be under any obligation to appear in, prosecute or defend
any legal action that is not incidental to its duties to service the Mortgage
Loans in accordance with this Agreement, and that in its opinion may involve it
in any expense or liability.
Section 7.04. Servicer Not to Resign. Subject to the provisions of Section
7.02 regarding the merger or consolidation of the Servicer into or with another
entity, the Servicer shall not resign from the obligations and duties hereby
imposed on it except upon determination that the performance of its duties or
obligations hereunder is no longer permissible under applicable law or
regulation or are in material conflict by reason of applicable law or regulation
with any other activities carried on by it at the date of this Agreement. Any
such determination permitting the resignation of the Servicer pursuant to this
Section shall be evidenced by an Opinion of Counsel to such effect delivered to
the Trustee. No resignation pursuant to this Section 7.04 (a) shall become
effective until the Trustee or a successor servicer shall have assumed the
responsibilities and obligations of the Servicer in accordance with Section 8.02
or (b) shall relieve the Servicer of responsibility for any obligations pursuant
to this Agreement that specifically survive the resignation or termination of
the Servicer. Each of the Rating Agencies shall be given written notice of a
resignation of the Servicer pursuant to this Section.
Section 7.05. Merger or Consolidation of the Seller. Any corporation or
other entity (i) into which the Seller may be merged or consolidated, (ii) that
may result from any merger, conversion or consolidation to which the Seller
shall be a party, or (iii) that may succeed to all or substantially all of the
business of the Seller, which corporation or other entity shall, in any case
where an assumption shall not be effected by operation of law, execute an
agreement of assumption to perform every obligation of the Seller under this
Agreement, shall be the successor to the Seller hereunder without the execution
or filing of any document or any further act by any of the parties to this
Agreement, except that if the Seller in any of the foregoing cases is not the
surviving entity, then the surviving entity shall execute and deliver to the
Trustee an agreement of assumption to perform every obligation of the Seller
hereunder.
Section 7.06. Term To Term Servicing. (a) Upon the occurrence and
continuance of any Event of Default, if the Servicer is not removed as provided
in Section 8.01, the Servicer shall act as servicer under this Agreement,
subject to the continuing right of removal set forth in Section 8.01, in the
case of the Adjustable Rate Group for (a) an initial period commencing on the
date of such Event of Default through the end of the quarter that includes such
date and ends on [ ], [ ], [ ] or [ ], as the case may be, and (b) if the
Servicer receives from the Financial Guaranty Insurer (or Trustee if their shall
exist any Financial Guaranty Insurer Default) at least fifteen days prior to the
end of such term or any subsequent term notice of renewal of its right to act as
Servicer, such term shall be extended for one or more succeeding quarterly
periods thereafter commencing on the last day of the preceding quarterly period
as specified in such
103
<PAGE> 109
notice, but any such extension shall be revocable at any time by the Financial
Guaranty Insurer (or Trustee if their shall exist any Financial Guaranty Insurer
Default), but absent delivery of such notice, the Servicer will be removed at
the end of such quarterly term pursuant to Section 8.01.
(b) The Financial Guaranty Insurer agrees to use its best efforts o
inform the Trustee of any materially adverse information regarding the
Servicer's servicing activities that comes to the attention of the Financial
Guaranty Insurer from time to time.
ARTICLE EIGHT
DEFAULT
Section 8.01. Events of Default. If any one of the following events (each
an "Event of Default") shall occur and be continuing:
(a) Any failure by the Servicer to (i) make a Monthly Advance on
any Deposit Date or (ii) deposit in the Collection Account or the
Certificate Account any other amount required to be deposited therein
under this Agreement or failure to pay the Trustee Fee, which failure, in
the case of only clause (ii) hereof, continues unremedied for a period of
five Business Days after the date upon which written notice of such
failure shall have been given to the Servicer by the Trustee or the
Financial Guaranty Insurer or to the Servicer and the Trustee by Holders
of Certificates evidencing Voting Interests represented by all
Certificates aggregating not less than 51%;
(b) Failure on the part of the Servicer duly to observe or perform
in any material respect any other covenants or agreements of the Servicer
set forth in the Certificates or in this Agreement, which failure (i)
materially and adversely affects the Certificateholders and (ii) continues
unremedied for a period of [30] days after the date on which written
notice of such failure (which notice shall refer specifically to this
Section), requiring the same to be remedied, shall have been given to the
Servicer by the Trustee or the Financial Guaranty Insurer, or to the
Servicer and the Trustee by the Holders of Certificates evidencing Voting
Interests represented by all Certificates aggregating not less than 51%;
(c) The entry against the Servicer of a decree or order by a court
or agency or supervisory authority having jurisdiction in the premises for
the appointment of a trustee, conservator, receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding up or liquidation of its affairs,
and the continuance of any such decree or order unstayed and in effect for
a period of 60 consecutive days;
(d) The consent by the Servicer to the appointment of a trustee,
conservator or receiver or liquidator in any bankruptcy, insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to the Servicer or of or relating to
substantially all of its property; or the Servicer shall admit in writing
its inability to pay its
104
<PAGE> 110
debts generally as they become due, file a petition to take advantage of
any applicable bankruptcy, insolvency or reorganization statute, make an
assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations;
(e) For so long as the Seller is the Servicer, failure on the part
of the Seller duly to observe or perform in any material respect any
covenants or agreements of the Seller set forth in the Certificates or in
this Agreement, which failure (i) materially and adversely affects the
Certificateholders and (ii) continues unremedied for a period of [30] days
after the date on which written notice of such failure (which notice shall
refer specifically to this Section), requiring the same to be remedied,
shall have been given to the Servicer by the Trustee or the Financial
Guaranty Insurer, or to the Servicer and the Trustee by the Holders of
Certificates evidencing Voting Interests represented by all Certificates
aggregating not less than 51%;
(f) The occurrence of a material default of the Servicer under
this Agreement or the Insurance and Indemnity Agreement or the occurrence
of a Servicer Delinquency Rate Event, a Servicer Cumulative Loss Rate
Event or a Servicer Rolling Loss Rate Event; or
(g) the Financial Guaranty Insurer shall be obligated to pay any
Insured Amount.
then, and in each and every such case, so long as such Event of Default shall
not have been remedied by the Servicer, either (1) Trustee or (2) with the prior
written consent of the Financial Guaranty Insurer, the Holders of Certificates
evidencing Voting Interests Fixed Rate Group Certificate or Adjustable Rate
Group Certificates aggregating not less than 51%, by notice then given in
writing to the Servicer with a copy to the Trustee, may terminate all of the
rights, responsibilities and obligations of the Servicer as servicer under this
Agreement with respect to the related Mortgage Loan Group, provided that if a
Financial Guaranty Insurer Default has not occurred or is not continuing, any
such termination will not be effective without the prior written consent of the
Financial Guaranty Insurer. On or after the receipt by the Servicer of such
written notice, all authority and power of the Servicer under this Agreement,
whether with respect to the affected Certificates or the Mortgage Loans or
otherwise, shall pass to and be vested in the Trustee pursuant to and under this
Section and, without limitation, the Trustee is hereby authorized and empowered
to execute and deliver, on behalf of the Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorsement of the
Mortgage Loans and related documents, or otherwise. The Servicer agrees to
cooperate with the Trustee in effecting the termination of its responsibilities
and rights as Servicer hereunder with respect to either or both Mortgage Loan
Groups, including, without limitation, the transfer to the Trustee for the
administration by it of all cash amounts that shall at the time be held by the
Servicer that have been deposited by the Servicer in the Collection Account or
the Certificate Account with respect thereto or thereafter received by the
Servicer with respect to the affected Mortgage Loans.
All reasonable costs and expenses (including attorneys' fees) incurred in
connection with transferring the Mortgage Files to a successor Servicer,
amending this Agreement to reflect the
105
<PAGE> 111
appointment of a successor as Servicer pursuant to this Section 8.01 or
otherwise in connection with the assumption by a successor Servicer of the
duties of the predecessor Servicer hereunder shall be paid by the predecessor
Servicer upon presentation of reasonable documentation of such costs and
expenses.
Section 8.02. Trustee to Act; Appointment of Successor. On and after the
time the Servicer receives a notice of full or partial termination pursuant to
Section 8.01, the Trustee shall be the successor in all respects to the Servicer
in its capacity as servicer under this Agreement with respect to the whole Trust
or the affected Mortgage Loan Group, as appropriate and the transactions set
forth or provided for herein and shall be subject to all the responsibilities,
duties and liabilities relating thereto placed on the Servicer by the terms and
provisions hereof, including without limitation, the obligation to make Monthly
Advances and to pay Compensating Interest. As compensation therefor, the Trustee
shall be entitled to such compensation as the Servicer would have been entitled
to hereunder if no such notice of termination had been given. Notwithstanding
the foregoing, the Trustee may, if it shall be unwilling so to act, or shall, if
it is legally unable so to act, promptly appoint, or petition a court of
competent jurisdiction to appoint, any established housing and home finance
institution or any institution that regularly services home equity loans that is
then servicing a home equity loan portfolio and having all licenses, permits and
approvals required by applicable law, and having a net worth of not less than
$[ ] as the successor to the Servicer hereunder with respect to the whole Trust
or the affected Mortgage Loan Group, as appropriate, in the assumption of all or
any part of the responsibilities, duties or liabilities of the Servicer
hereunder; provided that any such successor Servicer shall be acceptable to the
Financial Guaranty Insurer, which acceptance shall not be unreasonably withheld
and provided further that the appointment of any such successor Servicer will
not result in the qualification, reduction or withdrawal of the rating assigned
to any Class of related Offered Certificates by any Rating Agency. Pending
appointment of a successor to the Servicer hereunder, unless the Trustee is
prohibited by law from so acting, the Trustee shall act in such capacity as
hereinabove provided. In connection with such appointment and assumption, the
Trustee may make such arrangements for the compensation of such successor out of
payments on Mortgage Loans as it and such successor shall agree; provided,
however, that no such compensation shall be in excess of that permitted the
Servicer hereunder. The Trustee and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession. The appointment of a successor Servicer shall not affect any
liability of the predecessor Servicer that may have arisen under this Agreement
prior to its termination as Servicer (including without limitation, any amount
for a deductible amount pursuant to the last sentence of Section 3.04), nor
shall any successor Servicer be liable for any acts or omissions of the
predecessor Servicer or for any breach by such Servicer or the Seller of any of
its representations or warranties contained herein or in any related document or
agreement. Each of the Rating Agencies shall be given written notice of the
appointment of a successor Servicer pursuant to this Section.
Section 8.03. Notifications to Certificateholders. Upon any termination or
appointment of a successor to the Servicer pursuant to this Article Eight, the
Trustee shall give prompt written notice thereof to the Financial Guaranty
Insurer and to the Certificateholders at their respective addresses appearing in
the Certificate Register and to each Rating Agency.
106
<PAGE> 112
Within [60] days of obtaining actual knowledge of the occurrence of any
Event of Default that remains uncured, the Trustee shall transmit by mail to all
Certificateholders and the Financial Guaranty Insurer notice of such Event of
Default.
Section 8.04. Assumption or Termination of Sub-Servicing Agreements by the
Trustee or any Successor Servicer. Upon the termination of the Servicer as
servicer under this Agreement, the Trustee as successor to the Servicer
hereunder or any other successor to the Servicer hereunder may, subject to the
terms of any related Sub-Servicing Agreement, in its sole and absolute
discretion elect to assume or terminate any Sub-Servicing Agreement then in
force and effect between the Servicer and the Sub-Servicer. Notwithstanding the
foregoing, any termination fee due to a Sub-Servicer because of its termination
by the Trustee hereunder shall be the responsibility of the terminated Servicer
and not the Trustee. Upon the assumption of any Sub-Servicing Agreement, the
Servicer agrees to deliver to the assuming party any and all documents and
records relating to the applicable Sub-Servicing Agreement and an accounting of
amounts collected and held by it and otherwise use its best reasonable efforts
to effectuate the orderly transfer of the Sub-Servicing Agreement.
ARTICLE NINE
THE TRUSTEE
Section 9.01. Duties of the Trustee. The Trustee, prior to the occurrence
of an Event of Default and after the curing of all Events of Default that may
have occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement. If an Event of Default of which a
Responsible Officer of the Trustee shall have actual knowledge shall have
occurred (which has not been cured) and subject to the provisions of Section
9.13, the Trustee shall exercise such of the rights and powers vested in it by
this Agreement, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee that are specifically required to be furnished pursuant to any provision
of this Agreement, shall examine them to determine whether they substantially
conform to the requirements of this Agreement. If any such document or
instrument is found not to conform to the requirements of this Agreement in a
material manner, the Trustee shall, subject to the provisions of Section 9.13,
take such action as it deems appropriate to have the document or instrument
corrected, and if it is not corrected to the Trustee's reasonable satisfaction,
the Trustee will provide notice thereof to the Certificateholders.
No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own misconduct; provided, however, that:
(a) prior to the occurrence of an Event of Default, and after the
curing of all such Events of Default that may have occurred, the duties and
obligations of the Trustee shall be
107
<PAGE> 113
determined solely by the express provisions of this Agreement, the Trustee shall
not be liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement, no implied covenants or obligations
shall be read into this Agreement against the Trustee and, in the absence of bad
faith on the part of the Trustee, the Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed therein,
upon any certificates, filings or opinions furnished to the Trustee and
conforming to the requirements of this Agreement;
(b) the Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining the pertinent
facts;
(c) the Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in accordance
with the direction of the Holders of Certificates evidencing Voting Interests
represented by all Certificates (or all affected Certificates, as appropriate)
aggregating not less than 51% relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under this Agreement; and
(d) the Trustee shall not be charged with knowledge of any failure
by the Servicer to comply with the obligations of the Servicer referred to in
clauses (a) and (b) of Section 8.01 unless a Responsible Officer obtains actual
knowledge of such failure or the Trustee receives written notice of such failure
from the Servicer, the Holders of Certificates evidencing Voting Interests
represented by all Certificates aggregating not less than 51% or he Financial
Guaranty Insurer, as the case may be.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of, any
of the obligations of the Servicer under this Agreement, except during such
time, if any, as the Trustee shall be the successor to, and be vested with the
rights, duties, powers and privileges of, the Servicer in accordance with the
terms of this Agreement.
Section 9.02. Certain Matters Affecting the Trustee. Except as otherwise
provided in Section 9.01:
(a) The Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officer's Certificate, certificate of auditors
or any other certificate, statement, instrument, opinion, report, notice,
request, consent, order, appraisal, bond or other paper or document believed by
it to be genuine and to have been signed or presented by the proper party or
parties;
108
<PAGE> 114
(b) The Trustee may consult with counsel and any advice obtained from
counsel or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted by it hereunder
in good faith and in accordance with such advice or Opinion of Counsel;
(c) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement, or to institute, conduct or
defend any litigation hereunder or in relation hereto, at the request, order or
direction of any of the Certificateholders or the Financial Guaranty Insurer,
pursuant to the provisions of this Agreement, unless the Person so requesting,
ordering or directing same shall have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities that may be incurred
therein or thereby; the right of the Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the Trustee
shall not be answerable for other than its negligence or willful misconduct in
the performance of any such act; nothing contained herein shall, however,
relieve the Trustee of the obligations, upon the occurrence of an Event of
Default known to a Responsible Officer of the Trustee (which has not been
cured), to exercise such of the rights and powers vested in it by this
Agreement, subject to the provisions of Section 9.13, and to use the same 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;
(d) The Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith in accordance with the direction of
Holders of Certificates evidencing Voting Interests representing all
Certificates (or all affected Certificates, as appropriate) aggregating not less
than 51% provided that such action has been approved by the Financial Guaranty
Insurer;
(e) Prior to the occurrence of an Event of Default and after the curing
of all Events of Default that may have occurred, the Trustee shall not be bound
to make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, approval, bond or other paper or documents, unless requested in writing
to do so by the Financial Guaranty Insurer or Holders of Certificates evidencing
Voting Interests represented by all Certificates (or all affected Certificates,
as appropriate) aggregating not less than 51% with the consent of the Financial
Guaranty Insurer; provided, however, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to be incurred
by it in the making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the terms of
this Agreement, the Trustee may require reasonable indemnity against such cost,
expense or liability as a condition to such proceeding; the reasonable expense
of every such examination shall be paid by the Servicer or, if paid by the
Trustee, shall be reimbursed by the Servicer upon demand; and nothing in this
clause (e) shall derogate from the obligation of the Servicer to observe any
applicable law prohibiting disclosure of information regarding the Mortgagors;
and
(f) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian. The Trustee shall not be liable or responsible for the
misconduct of the custodian of the Mortgage Files appointed with due care by the
Trustee hereunder.
109
<PAGE> 115
Section 9.03. Trustee Not Liable for Certificates or Mortgage Loans. The
recitals contained herein and in the Certificates (other than the signature and
authentication of the Trustee on the Certificates) shall be taken as the
statements of the Servicer, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representations as to the validity
or sufficiency of this Agreement or of the Certificates (other than the
signature and authentication of the Trustee on the Certificates and the
signature of the Trustee on this Agreement) or of any Mortgage, Mortgage Loan or
related document. The Trustee shall not be accountable for the use or
application by the Servicer of any of the Certificates or of the proceeds of
such Certificates, or for the use or application of any funds paid to the
Servicer in respect of the Mortgage Loans or deposited in or withdrawn from the
Collection Account by the Servicer.
Section 9.04. Trustee May Own Certificates. The Trustee in its individual
or any other capacity may become the owner or pledgee of Certificates with the
same rights as it would have if it were not Trustee.
Section 9.05. Payment of the Trustee's Fees and Expenses. (a) On or before
each Distribution Date occurring in [ ], beginning with the [ ] Distribution
Date, the Servicer shall pay to the Trustee without any right of reimbursement
from the Trust or otherwise, an amount equal to the Trustee Fee, any reasonable
expenses as agreed to by the Servicer and Trustee (including any fees and
expenses of a co-trustee or separate trustee appointed under Section 9.10) and,
with respect to the [ ] Distribution Date, all loan file review fees, as
compensation for all services rendered by the Trustee (and any such co-trustee
or separate trustee) in the execution of the trusts hereby created and in the
exercise and performance of any of the powers and duties hereunder of the
Trustee (and any such co-trustee or separate trustee). The Trustee Fee and such
expenses and loan file review fees (including any fees and expenses of a
co-trustee or separate trustee appointed under Section 9.10) are an obligation
solely of the Servicer and neither the Trustee nor any co-trustee or separate
trustee appointed hereunder has or will have any lien on the Trust for payment
of any such fees or expenses. It is anticipated that the Servicer will utilize a
portion of the Monthly Servicing Fee for payment of such fees and expenses.
(b) The Trust shall pay or reimburse the Trustee upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any of the provisions of this Agreement (including
the reasonable compensation and the expenses and disbursements of its counsel
and of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or bad faith or that is
otherwise reimbursable to the Trustee by the Servicer pursuant to Section
9.05(a) above; provided, however, that the Trustee shall not refuse to perform
any of its duties hereunder solely as a result of the failure of the Trust to
pay or reimburse such expenses, disbursements or advances. The right of the
Trustee to recover such amounts from the Trust shall be subordinate to the
rights of the Financial Guaranty Insurer and the Holders of the Offered
Certificates under this Agreement including, without limitation, to the prior
payment in full of all amounts payable as of any Distribution Date.
(c) The Servicer agrees to indemnify the Trustee and its employees,
officers, directors and agents from, and hold it harmless against, any and all
losses and liabilities, damages, claims or
110
<PAGE> 116
expenses (including reasonable attorneys' fees) arising in respect of its acts
or omissions in connection with this Agreement or the Certificates except to the
extent the negligence, bad faith or intentional misconduct of the Trustee
contributes to the loss, liability, damage, claim or expense.
(d) This Section 9.05 shall survive the termination of this Agreement or
the resignation or removal of the Trustee as regards rights accrued prior to
such resignation or removal.
Section 9.06. Eligibility Requirements for the Trustee. The Trustee
hereunder shall at all times be a bank or other depository institution doing
business under the laws of the United States or any state thereof, authorized
under such laws to exercise corporate trust powers, having a combined capital
and surplus of at least $100,000,000 and subject to supervision or examination
by federal or state authority and rated at least BBB by Standard & Poor's and
Baa2 by Moody's. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the manner
and with the effect specified in Section 9.07.
Section 9.07. Resignation or Removal of the Trustee. The Trustee may at
any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Servicer and each Rating Agency. Upon receiving
such notice of resignation, the Servicer shall promptly appoint a successor
trustee satisfying the criteria set forth in Section 9.06 (approved by the
Financial Guaranty Insurer, which approval shall not be unreasonably withheld)
by written instrument original copies of which instrument shall be delivered to
the Financial Guaranty Insurer, the resigning Trustee, the successor trustee and
the Servicer. If no successor trustee shall have been so appointed and having
accepted appointment within [30] days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 9.06 and shall fail to resign after written request
therefor by the Servicer or Financial Guaranty Insurer, or if at any time the
Trustee shall be legally unable to act, 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, or the Trustee shall fail to perform its obligations under this
Agreement, then the Servicer shall remove the Trustee and appoint a successor
trustee satisfying the criteria set forth in Section 9.06 (approved by the
Financial Guaranty Insurer, which approval shall not be unreasonably withheld)
by written instrument, original copies of which instrument shall be delivered to
the Financial Guaranty Insurer, the Trustee so removed and the successor
trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section shall not become
effective until acceptance of appointment
111
<PAGE> 117
by the successor trustee as provided in Section 9.08. The provisions of Section
9.05 shall survive any such resignation or removal.
Section 9.08. Successor Trustee. Any successor trustee appointed as
provided in Section 9.07 shall execute, acknowledge and deliver to the Servicer
and to its predecessor Trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor Trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Trustee. The Seller, the Servicer and the predecessor Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Trustee all such rights, powers, duties and obligations.
No successor Trustee shall accept appointment as provided in this Section
unless at the time of such acceptance it shall be eligible under the provisions
of Section 9.06.
Upon acceptance of appointment by a successor trustee as provided in this
Section, the Servicer shall mail notice of the succession of such trustee
hereunder to the Financial Guaranty Insurer and to all Holders of Certificates
at their addresses as shown in the Certificate Register and to each Rating
Agency. If the Servicer fails to mail such notice within [10] days after
acceptance of appointment by the successor trustee, the successor trustee shall
cause such notice to be mailed at the expense of the Servicer.
Section 9.09. Merger or Consolidation of the 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 the business of the Trustee or substantially all of the Trustee's
trust business, shall be the successor of the Trustee hereunder, provided such
corporation shall be eligible under the provisions of Section 9.06, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
Section 9.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Mortgaged Property may at the time be located, the Servicer
and the Trustee acting jointly, with the prior written consent of the Financial
Guaranty Insurer, shall have the power and shall execute and deliver all
instruments to appoint one or more Persons approved by the Trustee to act as
co-trustee or co-trustees, jointly with the Trustee, or separate trustee or
separate trustees, of all or any part of the Trust, and to vest in such Person
or Persons, in such capacity and for the benefit of the Certificateholders, such
title to the Trust, or any part thereof, and, subject to the other provisions of
this Section, such powers, duties, obligations, rights, indemnities and trusts
as the Servicer and the Trustee may consider necessary or desirable. If the
Servicer shall not have joined in such appointment within [15] days after the
receipt by it of a request so to do, or in the case an Event of Default shall
have occurred and be continuing, the Trustee alone and with the prior consent of
the Financial Guaranty Insurer shall have the power to make such appointment. No
co-trustee or separate trustee hereunder shall be required to meet the
112
<PAGE> 118
terms of eligibility as a successor trustee under Section 9.06 and no notice to
Certificateholders of the appointment of any co-trustee or separate trustee
shall be required under Section 9.08. The Financial Guaranty Insurer and each of
the Rating Agencies shall be given written notice of the appointment of a
co-trustee or a separate trustee pursuant to this Section.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised
or performed by the Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is
not authorized to act separately without the Trustee joining in such act),
except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed (whether as Trustee hereunder
or as successor to the Servicer hereunder), the Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the Trust or any portion thereof in any such jurisdiction) shall
be exercised and performed singly by such separate trustee or co-trustee,
but solely at the direction of the Trustee;
(b) No trustee hereunder shall be held personally liable by reason
of any act or omission of any other trustee hereunder; and
(c) The Servicer and the Trustee acting jointly may at any time
accept the resignation of or remove any separate trustee or co-trustee,
except that following the occurrence of an Event of Default that has not
been cured, the Trustee, acting alone may accept the resignation of or
remove any separate or co-trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of then separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and copies thereof given to the
Servicer and the Financial Guaranty Insurer.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
113
<PAGE> 119
No appointment of any separate trustee or co-trustee shall absolve the
Trustee of its duties and obligations under this Agreement.
Section 9.11. Compliance with REMIC Provisions. The Trustee shall at all
times act in such a manner in the performance of its duties hereunder as shall
be necessary to prevent any REMIC Pool from failing to qualify as a REMIC and to
prevent the imposition of a tax on the REMIC Pool. The Trustee shall: (a)
prepare and file, or cause to be prepared and filed, such federal, state and
local income tax and information returns or reports using the calendar year as
the taxable year for the REMIC Pool when and as required by the REMIC Provisions
and other applicable federal, state and local income tax laws, which returns or
reports shall be signed by the Trustee or such other person as may be required
thereby; (b) make an election, on behalf of each REMIC Pool, to be treated as a
REMIC and make the appropriate designations, if applicable, in accordance with
Section 9.16 on the federal income tax return of each REMIC Pool for its first
taxable year, in accordance with the REMIC Provisions; (c) prepare and forward,
or cause to be prepared and forwarded, to the Certificateholders all information
reports, or furnish or cause to be furnished by telephone, mail, publication or
other appropriate method such information, as and when required to be provided
to them in accordance with the Code; (d) exercise reasonable care not to allow
the creation of any "interests" in any REMIC Pool within the meaning of Code
Section 860D(a)(2) other than the interests represented by the REMIC III
Certificates in the case of the REMIC III Pool, the REMIC II Interests in the
case of the REMIC II Pool or the REMIC I Interests in the case of the REMIC I
Pool; and (e) within [30] days of the Startup Day, furnish or cause to be
furnished to the Internal Revenue Service, on Form 8811 or as may otherwise be
required by the Code, the name, title, address, and telephone number of the
person that Certificateholders may contact for tax information relating to their
Certificates (and the Trustee shall act as the representative of each REMIC Pool
for this purpose), together with such additional information as may be required
by such Form, and shall update such information at the time and in the manner
required by the Code. Each Class R Certificateholder shall designate the
Servicer, if permitted by the Code and applicable law, to act as "tax matters
person" for the related REMIC Pool within the meaning of Treasury regulations
Section 1.860F-4(d), and the Servicer is hereby designated as agent of each
Class R Certificateholder for such purpose (or if the Servicer is not so
permitted, the Holder of the related Class R Certificate shall be the tax
matters person in accordance with the REMIC Provisions).
Section 9.12. Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceedings relating thereto(including in respect of the Financial Guaranty
Insurer's rights of subrogation), and any such proceeding instituted by the
Trustee shall be brought in its own name or in its capacity as Trustee. Any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Certificateholders in respect of
which such judgment has been recovered (or the Financial Guaranty Insurer in
respect of any right or interest as to which the Financial Guaranty Insurer is
subrogated) in accordance with the terms of this Agreement.
114
<PAGE> 120
Section 9.13. Exercise of Trustee Powers by Financial Guaranty Insurer and
Certificateholders. The Financial Guaranty Insurer, in the case of the
Adjustable Rate Group Certificate or the Holders of Certificates evidencing
Voting Interests represented by all Certificates aggregating not less than 51%
of the Voting Interests with respect to the Fixed Rate Group Certificates or
Adjustable Rate Group Certificates, as the case may be, in each case with the
consent of the Financial Guaranty Insurer (which consent may not be unreasonably
withheld) may direct the time, method and place of conducting any proceeding
relating to the related Mortgage Loan Group or the Trust, as appropriate, or the
Fixed Rate Group Certificates or Adjustable Rate Group Certificates, as the case
may be, or for any remedy available to the Trustee with respect to the Fixed
Rate Group Certificates or Adjustable Rate Group Certificates, as the case may
be, or exercising any trust or power conferred on the Trustee with respect to
the Fixed Rate Group Certificates or Adjustable Rate Group Certificates, as the
case may be, of the Trust provided that:
(i) such direction shall not be in conflict with any rule of law
or with this Agreement;
(ii) the Trustee shall have been provided with indemnity
satisfactory to it; and
(iii) the Trustee may take any other action deemed proper by the
Trustee that is not inconsistent with such direction; provided, however, that
the Trustee need not take any action that it determines might involve it in
liability or may be unjustly prejudicial to the Holders not so directing.
Section 9.14. Tax Returns. The Trustee shall maintain all information in
its possession as may be required in connection with the preparation of all
federal and, if applicable, state and local income tax and information returns
of each REMIC Pool (including, but not limited to, tax reporting under the REMIC
Provisions for each REMIC Pool, exclusive of the Prefunding Account and the
Capitalized Interest Account), and pursuant to Section 24874 of the California
Revenue and Taxation Code and its successors, and shall prepare, execute and
file as required all such returns. The Trustee shall include in the first
federal income tax return the information required to be included therein under
the REMIC Provisions, including, but not limited to, Treas. Reg.
Section1.860D-I(d)2) and Treas. Reg. Section1.860F-4(b)(2). The Servicer shall
report all required tax information to Mortgagors in accordance with applicable
law.
The Prepayment Assumption (as such term is defined in the Prospectus,
dated as of [ ]) for the Certificates shall be [ ]% HEP with respect to the
Fixed Rate Group Certificates and 27% HEP with respect to the Adjustable Rate
Group Certificates, as described in the Prospectus Supplement dated [ ] relating
to the Offered Certificates.
Section 9.15. Taxpayer Identification Number. The Trustee shall prepare
and file with the Internal Revenue Service, on behalf of each REMIC Pool within
the time period prescribed therefor, an application on IRS Form SS-4 for such
REMIC Pool. The Trustee, upon receipt from the Internal Revenue Service of the
Notice of Taxpayer Identification Number assigned to each REMIC Pool, shall
promptly forward a copy of such notice to the Servicer.
115
<PAGE> 121
Section 9.16 Miscellaneous REMIC Provisions.
(i) The Trustee shall elect that REMIC I, REMIC II, and REMIC III shall
be treated as REMICs under Section 860D of the Code, as described in Section
9.11. Any inconsistencies or ambiguities in this Agreement or in the
administration of the Trust shall be resolved in a manner that preserves the
validity of such REMIC elections.
(ii) REMIC I will be evidenced by (y)(A) the Class LT-FM, Class LT-A1F,
Class LT-A2F, Class LT-A3F, Class LT-A4F, Class LT-A5F, Class LT-A6F, Class
LT-M1F, Class LT-M2F, and Class LT-B1F (the "LTF Regular Interests"), and (B)
the Class LT-A1A, Class LT-A2A and Class LT-AM (the "LTA Regular Interests",
and, together with the LTF Regular Interests, the "REMIC I Regular Interests"),
which will be uncertificated and non-transferable and are hereby designated at
the "regular interests" in REMIC I, and (2) the Class R-1 Certificate, which is
hereby designated as the single "residual interest" in REMIC I (the "REMIC I
Regular Interests" and, together with the Class R-1 Certificate, the "REMIC I
Interests"). The REMIC I Regular Interests shall be recorded on the records of
REMIC I as being issued to and held by the Trustee on behalf of REMIC II.
(iii) REMIC II will be evidenced by (y)(A) the Class MT-FM, Class MT-A1F,
Class MT-A2F, Class MT-A3F, Class MT-A4F, Class MT-A5F, Class MT-A6F, Class
MT-M1F, Class MT-M2F, Class MT-B1F and Class MT-FI0 (the "MTF Regular
Interests") and (ii) the Class MT-AM, Class MT-A1A, Class MT-A2A and Class
MT-AIO Certificates (the "MTA Regular Interests" and together with the MTF
Regular Interests, the "REMIC II Regular Interests"), which will be
uncertificated and non-transferable and are hereby designated as the "regular
interests" in REMIC II, and (2) the Class R-2 Certificate, which is hereby
designated as the single "residual interest" in REMIC II (the "REMIC II Regular
Interests and, together with the Class R-2 Certificate, the "REMIC II
Interests"). The REMIC II Regular Interests shall be recorded on the records of
REMIC II as being issued to and held by the Trustee on behalf of REMIC III.
(iv) The Class A-1F, Class A-2F, Class A-3F, Class A-4F, Class A-5F,
Class A-6F, Class M-1F, Class M-2F, Class B-1F, Class A-1A, Class A-2A and Class
C Certificates, consisting of two components (the Class C-F Component and the
Class C-A Component as defined in clause (vii) below), are hereby designated as
"regular interests" with respect to the REMIC III and the Class R-III
Certificate is hereby designated as the single "residual interest" with respect
to the REMIC III. The Class R-III Certificate shall have no pass-through rate
and shall have no principal balance.
(v) REMIC I Interests. The REMIC I Interests will have the following
designations and pass-through rates, and distributions of principal and interest
thereon shall be allocated to the Certificates in the following manner:
116
<PAGE> 122
LTF Regular Interests
<TABLE>
<CAPTION>
LTF Regular Interest Initial Balance Pass-Through Rate Corollary REMIC III Certificate
- -------------------- --------------- ----------------- -------------------------------
<S> <C> <C> <C>
LT-FM None
LT-A1F A-1F
LT-A2F A-2F
LT-A3F A-3F
LT-A4F A-4F
LT-A5F A-5F
LT-A6F A-6F
LT-M1F M-1F
LT-M2F M-2F
LT-B1F B-1F
Total
</TABLE>
(1) The pass-through rate ("Pass-Through Rate") on each of the LTF
Regular Interests shall at any time of determination equal the
weighted average Mortgage Loan Rate in the Fixed Rate Group. If
there are any prepayment interest shortfalls with respect to the
Fixed Rate Group not covered by Compensating Interest for the Fixed
Rate Group, such shortfall will proportionally reduce the interest
accrual on these Certificates.
Except as provided below with respect to the "Fixed Rate Turbo Amount,"
payments of interest from the Fixed Rate Group on any Distribution Date shall be
allocated to the LTF Regular Interests in proportion to their respective
principal balances.
The "Fixed Rate Turbo Amount" means, with respect to any Distribution
Date, the amount of the Extra Principal Distribution Amount for the Fixed Rate
Group for such Distribution Date. On each Distribution Date, an amount of
interest received on the Fixed Rate Group equal to one percent ([ ]%) of the
Fixed Rate Turbo Amount for such Distribution Date shall not be paid as
described above, but instead will be payable as a reduction of the principal
balances of the LT-A1F, LT-A2F, LT-A3F, LT-A4F, LT-A5F, LT-A6F, LT-M1F, LT-M2F,
and LT-B1F Regular Interests in the same manner in which the Fixed Rate Turbo
Amount is allocated to the Corollary REMIC III Certificate for each such REMIC I
Regular Interest. Amounts not paid to the LT-FM Regular Interest as a result of
the preceding sentence shall be accrued and added to the principal of the LT-FM
Regular Interest.
117
<PAGE> 123
Principal payments on the Fixed Rate Group shall be allocated (i) [ ]% to
the Class LT-FM, and (ii) [ ]% to the other LTF Regular Interests, apportioned
among such Classes in the same manner in which principal is payable with respect
to the Corollary REMIC III Certificate for each such Class; provided, however,
that any principal payments on the Fixed Rate Group that are attributable to an
Overcollateralization Release Amount with respect to the Fixed Rate Group (other
than any such amount distributed pursuant to clause (9) of Section 5.01(d))
shall be allocated exclusively to the Class LT-FM Regular Interest.
Realized Losses on the Fixed Rate Group shall be applied such that after
all distributions have been made on such Distribution Date each LTF Regular
Interest other than the LT-FM Regular Interest shall have an principal balance
equal to one percent ([ ]%) of the Certificate Principal Balance of its
Corollary REMIC III Certificate, and the LT-FM Regular Interest shall have a
principal balance equal to the excess of the principal balance of the Fixed Rate
Group less the sum of the principal balance of the other LTF Regular Interests.
<TABLE>
<CAPTION>
LTA Regular Interests
LTA Regular Interest Initial Balance Pass-Through Rate Corollary REMIC III Certificate
- -------------------- --------------- ----------------- -------------------------------
<S> <C> <C> <C>
LT-AM None
LT-A1A A-1A
LT-A2A A-2A
Total
</TABLE>
(1) The pass-through rate ("Pass-Through Rate") on each of the LTA
Regular Interests shall at any time of determination equal the
weighted average Mortgage Loan Rate in the Adjustable Rate Group. If
there are any prepayment interest shortfalls with respect to the
Adjustable Rate Group not covered by Compensating Interest for the
Adjustable Rate Group, such shortfall will proportionally reduce the
interest accrual on these Certificates.
Except as provided below with respect to the"Adjustable Rate Turbo
Amount," payments of interest from the Fixed Rate Group on any Distribution Date
shall be allocated to the LTA Regular Interests in proportion to their
respective principal balances.
The "Adjustable Rate Turbo Amount" means, with respect to any Distribution
Date, the amount of the Extra Principal Distribution Amount for the Adjustable
Rate Group for such Distribution Date. On each Distribution Date, an amount of
interest received on the Adjustable Rate Group equal to one percent ([ ]%) of
the Adjustable Rate Turbo Amount for such Distribution Date shall not be paid as
described above, but instead will be payable as a reduction of the principal
balances of the LT-A1A and LT-A2A Regular Interests in the same manner in which
the Adjustable Rate Turbo Amount is allocated to the Corollary REMIC III
Certificate for each such REMIC I Regular Interest. Amounts not paid to the
LT-AM Regular Interest as a result of the preceding sentence shall be accrued
and added to the principal of the LT-AM Regular Interest.
118
<PAGE> 124
Principal payments on the Adjustable Rate Group shall be allocated (i)
[ ]% to the Class LT-AM, and (ii) [ ]% to the other LTA Regular Interests,
apportioned among such Classes in the same manner in which principal is payable
with respect to the Corollary REMIC III Certificate for each such Class;
provided, however, that any principal payments on the Adjustable Rate Group that
are attributable to an Overcollateralization Release Amount with respect to the
Adjustable Rate Group shall be allocated exclusively to the Class LT-AM Regular
Interest.
Realized Losses on the Adjustable Rate Group shall be applied such that
after all distributions have been made on such Distribution Date each LTA
Regular Interest other than the LT-AM Regular Interest shall have an principal
balance equal to one percent ([ ]%) of the Certificate Principal Balance of its
Corollary REMIC III Certificate, and the LT-AM Regular Interest shall have a
principal balance equal to the excess of the principal balance of the Adjustable
Rate Group less the sum of the principal balance of the other LTA Regular
Interests.
On each Distribution Date, available funds, if any, remaining in REMIC I
after payments of interest and principal, as designated above, will be
distributed to the Class R-1 Certificate.
(vi) REMIC II Interests. The REMIC II Interests will have the following
designations and pass-through rates, and distributions of principal and interest
thereon shall be allocated to the REMIC II Interests in the following manner:
MTF Regular Interests
Each MTF Regular Interest shall be considered to have a Corollary REMIC I
Regular Interest and a Corollary REMIC III Certificate as follows:
<TABLE>
<CAPTION>
MTF Regular Interest Corollary REMIC I Regular Interest Corollary REMIC III Certificate
-------------------- ---------------------------------- -------------------------------
<S> <C> <C>
MT-FM LT-FM None
MT-A1F LT-A1F A-1F
MT-A2F LT-A2F A-2F
MT-A3F LT-A3F A-3F
MT-A4F LT-A4F A-4F
MT-A5F LT-A5F A-5F
MT-A6F LT-A6F A-6F
MT-M1F LT-M1F M-1F
MT-A2F LT-M2F M-2F
MT-B1F LT-B1F B-1F
</TABLE>
119
<PAGE> 125
<TABLE>
<S> <C> <C>
MT-FIO None None
</TABLE>
The Initial Balance of each MTF Regular Interest other than the MT-FIO
Regular Interest shall equal the Initial Balance of the Corollary REMIC I
Regular Interest for such MTF Regular Interest. The Initial Balance of the
MT-FIO Regular Interest shall equal zero.
The Pass-through Rate on each MTF Regular Interest other than the MT-FM
Regular Interest and the MT-FIO Regular Interest shall equal weighted average
rate payable on the LT-A1F, LT-A2F, LT-A3F, LT-A4F, LT-A5F, LT-A6F, LT-M1F,
LT-M2F and LT-B1F Regular Interests; provided, however, that prior to
calculating such weighted average rate each such LTF Regular Interest shall be
subject to a cap equal to the Pass-Through Rate on the Corollary REMIC III
Certificate with respect to such LTF Regular Interest. The Pass-Through Rate on
the MT-FM Regular Interest shall equal the Pass-Through Rate on the LT-FM
Regular Interest.
The MT-FIO Regular Interest shall be entitled to interest accruing on each
of the LT-A1F, LT-A2F, LT-A3F, LT-A4F, LT-A5F, LT-A6F, LT-M1F, LT-M2F and LT-B1F
Regular Interests in excess of the Pass-Through Rates of the MT-A1F, MT-A2F,
MT-A3F, MT-A4F, MT-A5F, MT-A6F, MT-M1F, MT-M2F and MT-B1F Regular Interests,
respectively.
Each MTF Regular Interest other than the MT-FIO shall be allocated the
principal payments received on its Corollary REMIC I Regular Interest. Except as
described in the preceding paragraph, each MTF Regular Interest shall be
allocated the interest payments received on its Corollary REMIC I Regular
Interest.
MTA Regular Interests
Each MTA Regular Interest shall be considered to have a Corollary REMIC I
Regular Interest and a Corollary REMIC III Certificate as follows:
<TABLE>
<CAPTION>
MTA Regular Interest Corollary REMIC I Regular Interest Corollary REMIC III Certificate
-------------------- ---------------------------------- -------------------------------
<S> <C> <C>
MT-AM LT-AM None
MT-A1A LT-A1A A-1A
MT-A2A LT-A2A A-2A
MT-AIO None None
</TABLE>
The Initial Balance of each MTA Regular Interest other than the MT-AIO
Regular Interest shall equal the Initial Balance of the Corollary REMIC I
Certificate for such MTA Regular Interest. The Initial Balance of the MT-AIO
Regular Interest shall equal zero.
The Pass-through Rate on each MTA Regular Interest other than the MT-AM
Regular Interest and the MT-AIO Regular Interest shall equal the weighted
average rate payable on the LT-
120
<PAGE> 126
A1A and LT-A2A Regular Interests; provided, however, that prior to calculating
such weighted average rate each such LTA Regular Interest shall be subject to a
cap equal to the Pass-Through Rate on the Corollary REMIC III Certificate with
respect to such LTA Regular Interest. The Pass-Through Rate on the MT-AM Regular
Interest shall equal the Pass-Through Rate on the LT-AM Regular Interest.
The MT-AIO shall be entitled to interest accruing on each of the LT-A1A
and LT-A2A Regular Interests in excess of the Pass-Through Rates of the MT-A1A
and MT-A2A Regular Interests, respectively.
Each MTA Regular Interest other than the MT-AIO Regular Interest shall be
allocated the principal payments received on its Corollary REMIC I Regular
Interest. Except as described in the preceding paragraph, each MTA Regular
Interest shall be allocated the interest payments received on its Corollary
REMIC I Regular Interest.
On each Distribution Date, available funds, if any, remaining in REMIC II
after payments of interest and principal, as designated above, will be
distributed to the Class R-2 Certificate.
(vii) REMIC III Interests. The REMIC III Interests will have the following
designations and pass-through rates, and distributions of principal and interest
thereon shall be allocated to the Certificates as follows:
Except as described below with respect to the Class C Certificates,
interest on the MTF Regular Interests shall be allocated among the Class A-1F,
Class A-2F, Class A-3F, Class A-4F, Class A-5F, Class A-6F, Class M-1F, Class
M-2F and Class B-1F Certificates in the same proportion as interest is payable
on such Certificates pursuant to Section 5.01(a). Similarly, except as described
below with respect to the Class C Certificates, interest on the MTA Regular
Interests shall be allocated among the Class A-1A and Class A-2A Certificates in
the same proportion as interest is payable on such Certificates pursuant to
Section 5.01(a).
Principal on the MTF Regular Interests will be allocated to and
apportioned among the Class A-1F, Class A-2F, Class A-3F, Class A-4F, Class
A-5F, Class A-6F, Class M-1F, Class M-2F and Class B-1F Certificates in the same
proportion as principal is payable with respect to such Certificates pursuant to
Section 5.01, except that a portion of such principal in an amount equal to the
Overcollateralization Release Amount related to the Fixed Rate Group shall be
allocated to the Class C Certificates until the balance thereof is zero and then
to the Class R-3 Certificate and all principal will be allocated to the Class C
Certificates after the Certificate Principal Balance of the Fixed Rate
Certificates has been reduced to zero until its Certificate Principal Balance is
reduced to zero, and then to the Class R-3 Certificate. Similarly, principal on
the MTA Regular Interests will be allocated to and apportioned among the Class
A-1A and Class A-2A Certificates in the same proportion as principal is payable
with respect to such Certificates pursuant to Section 5.01, except that a
portion of such principal in an amount equal to the Overcollateralization
Release Amount related to the Adjustable Rate Group shall be allocated to the
Class C Certificates until the balance thereof is zero and then to the Class R-3
Certificate and all principal will be allocated to the Class C Certificates
after the Certificate Principal Balance of the Adjustable Rate Certificates has
been
121
<PAGE> 127
reduced to zero until its Certificate Principal Balance is reduced to zero, and
then to the Class R-3 Certificate.
The Class C Certificates will consist of two components, the Class C-F
Component and the Class C-A Component, determined as follows:
(A) The "Class C-F Component" shall equal the sum of (1) amounts
payable on the MT-FIO Regular Interest, and (2) with respect to each of the
MT-FM, MT-A1F, MT-A2F, MT-A3F, MT-A4F, MT-A5F, MT-A6F, MT-M1F, MT-M2F AND MT-B1F
Regular Interests, interest payable on such REMIC II Regular Interest in excess
of the product of (i) one hundred (100) times the weighted average coupon of the
MT-FM, MT-A1F, MT-A2F, MT-A3F, MT-A4F, MT-A5F MT-6F, MT-M1F, MT-M2F and MT-B1F
Regular Interests, where the MT-MF Regular Interest is first subject to a cap
equal to 0%, and (ii) the principal balance of such REMIC II Regular Interest.
(B) The "Class C-A Component" shall equal the sum of (1) amounts
payable on the MT-AIO Regular Interest, and (2) with respect to each of the
MT-AM, MT-A1A and MT-A2A Regular Interests, interest payable on such REMIC II
Regular Interest in excess of the product of (i) one hundred (100) times the
weighted average coupon of the MT-MA, MT-A1A and MT-A2A Regular Interests, where
the MT-AM Certificate is subject to a cap equal to 0%, and (ii) the principal
balance of such REMIC II Regular Interest.
On each Distribution Date, to the extent that any Monthly Excess Interest
Amount with respect to a Mortgage Loan Group is applied to cover Carry Forward
Shortfalls on any Certificates and the interest allocable to the related Class C
Component is not otherwise reduced for such amount due to an allocation of
Realized Losses, the related Class C Component shall be reduced.
On each Distribution Date, available funds, if any, remaining in REMIC III
after payments of interest and principal, as designated above, will be
distributed to the Class R-3 Certificate.
(viii) The Startup Day is hereby designated as the "startup day" of each
of REMIC I, REMIC II and REMIC III within the meaning of Section 860G(a)(9) of
the Code. The "latest possible maturity date" for purposes of Treasury
Regulation Section 1.860G-1(a)(4)(iii) for the regular interests are as follows:
with respect to each of the REMIC III Regular Interests, the Final Scheduled
Distribution Date of such Certificates, and with respect to each of the REMIC I
Regular Interests and the REMIC II Regular Interests, [ ].
(ix) The Supplemental Interest Reserve Fund will be part of the Trust
Fund but not part of any REMIC. For federal and state income tax purposes the
Class C Certificateholders shall be deemed to be the owners of the Supplemental
Interest Reserve Fund. Any amounts transferred by a REMIC to the Supplemental
Interest Reserve Fund shall be treated as amounts distributed by such REMIC to
the Class C Certificateholders. Any amounts remaining in the Supplemental
Interest Reserve Fund upon termination of the Trust shall be paid to the Class
A-1A Certificateholders and the Class A-2A Certificateholders on a pro rata
basis, based on the amount of any outstanding Class A-1A Supplemental Interest
Amount or Class A-2A Supplemental Interest Amount, and thereafter to the Class C
Certificateholders.
122
<PAGE> 128
ARTICLE TEN
TERMINATION
Section 10.01. Termination Upon Purchase or Liquidation of Mortgage Loans.
Subject to Section 10.02, the respective obligations and responsibilities
hereunder of the Servicer, the Seller and the Trustee (other than the obligation
of the Trustee to make certain payments to Certificateholders after the final
Distribution Date and the obligation of the Seller to send certain notices as
hereinafter set forth) and the Trust created hereby shall terminate with respect
to all Certificates upon the last action required to be taken by the Trustee on
the final Distribution Date pursuant to this Article following the earlier of
(a) the purchase by the Servicer of all Mortgage Loans then remaining in the
Trust and all property acquired in respect of any such Mortgage Loan at a price
equal to the sum of (x) 100% of the Principal Balance of each such Mortgage Loan
(other than any Mortgage Loan as to which title to the underlying Mortgaged
Property has been acquired and whose fair market value is included pursuant to
clause (y) below) as of the final Distribution Date, and (y) the fair market
value of such acquired Mortgaged Property (determined as described below), plus
accrued and unpaid interest at the applicable Mortgage Loan Rate on the
Principal Balance of each such Mortgage Loan (including any Mortgage Loan as to
which title to the underlying Mortgaged Property has been acquired) through the
end of the Collection Period preceding the date of repurchase and the aggregate
amount of unreimbursed Servicing Advances made in respect of any such Mortgage
Loan, less any payments of principal and interest received during such
Collection Period in respect of each such Mortgage Loan, or (b) the final
payment or other liquidation of the Principal Balance of the last Mortgage Loan
remaining in the Trust or the disposition of all property remaining in the Trust
acquired upon foreclosure or deed in lieu of foreclosure of any such Mortgage
Loan; [provided, however, that in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the last survivor
of the descendants of Joseph P. Kennedy, the late ambassador of the United
States to the Court of St. James, who are living on the Closing Date]. The fair
market value of Mortgaged Properties pursuant to the foregoing clause (y) shall
be determined by the Servicer as of the close of business on the third Business
Day next preceding the date upon which notice of any such termination is
furnished to Certificateholders pursuant to the third paragraph of this Section
10.01. Such determination shall not be effective unless consented to in writing
by the Financial Guaranty Insurer, which consent shall not be unreasonably
withheld. In the event that the Certificate Insurer does not consent to the fair
market value determined by the Servicer within three business days of receiving
notice of such determination, the Financial Guaranty Insurer and the Servicer
shall appoint a mutually agreed appraiser to make a determination as to such
fair market value whose determination shall be final and binding on the
Financial Guaranty Insurer and the Servicer, the expense of such appraisal being
borne equally by the Servicer and the Certificate Insurer and not being an
expense of the Trust.
The right of the Servicer to purchase all outstanding Mortgage Loans
pursuant to clause (a) above is exercisable only on or after the related
Clean-up Call Date. If such right is exercised, the Servicer shall remit the
purchase price specified in this Section to the Trustee for
123
<PAGE> 129
deposit in the Certificate Account pursuant to Section 3.02 (e) on or before the
related Deposit Date and the Trustee, if it has received the Mortgage Files
pursuant to Section 2.01, shall, promptly following remittance of such purchase
price, release to the Servicer the Mortgage Files pertaining to the Mortgage
Loans being purchased and all other documents furnished by the Servicer as are
necessary to transfer the Trustee's interest in the Mortgage Loans to the
Servicer.
Notice of any termination, specifying the Distribution Date (which shall
be a date that would otherwise be a Distribution Date) upon which the related
Certificateholders may surrender their Certificates to the Trustee for payment
of the final distribution and cancellation shall be given promptly by the
Trustee (upon receipt of written directions from the Servicer, if the Servicer
is exercising its right to purchase such assets of the Trust as provided above,
given not later than the [ ] day of the month preceding the month of such final
distribution) by letter to the Certificateholders mailed not earlier than the
first day and not later than the [ ] day of the month of such final distribution
specifying (a) the Distribution Date upon which final distribution of the
related Certificates will be made upon presentation and surrender of the
Certificates at the office or agency of the Trustee therein designated, (b) the
amount of any the final distribution and (c) that the Record Date otherwise
applicable to such Distribution Date is not applicable, distributions being made
only upon presentation and surrender of such Certificates at the office or
agency of the Trustee therein specified. In the event written directions are
delivered by the Servicer to the Trustee as described in the preceding sentence,
the Servicer shall deposit in the Certificate Account on or before the related
Deposit Date for such final distribution in immediately available funds an
amount equal to the purchase price for such assets of the Trust computed as
above provided. Any such deposit by the Servicer shall be in lieu of the deposit
otherwise required to be made in respect of such Distribution Date pursuant to
Section 3.02 and the related distribution thereof to the Certificateholders.
In connection with a termination of the Trust under this Section, the
Trustee shall cause to be distributed to Certificateholders on the final
Distribution Date an amount equal to (i) as to the Fixed Rate Group
Certificates, and upon presentation and surrender of the related Certificates,
in proportion to their respective Percentage Interests the related Aggregate
Certificate Principal Balance, and the Monthly Interest, and/or (ii) as to the
Adjustable Rate Group Certificates, and upon presentation and surrender of the
related Certificates, in proportion to their respective Percentage Interests,
the related Aggregate Certificate Principal Balance and Monthly Interest, (iii)
as to the Financial Guaranty Insurer, any amounts necessary to reimburse the
Financial Guaranty Insurer for any unreimbursed Insured Amounts, together with
interest thereon, and any accrued and unpaid Financial Guaranty Insurer Premium
after application pursuant to clauses (i) and (ii) above and (iv) as to the
Servicer, any additional servicing compensation with respect to such
Distribution Date (other than amounts retained to meet claims) after application
pursuant to the clauses (i) and (ii) above and payment to the Servicer of any
amounts to which it is entitled as reimbursement hereunder and (iv) as to the
Class C Certificateholders and upon presentation and surrender of the Class C
Certificate, any amounts remaining after application pursuant to the preceding
clauses (i) through (iii); provided, however, that if the fair market value of
any acquired property referred to in, or covered by, clause (a)(y) of the first
paragraph of this Section is less than the Principal Balance of the related
Mortgage Loan, then the excess of such Principal Balance over such fair market
value shall be allocated in
124
<PAGE> 130
reduction of the amounts otherwise distributable on the final Distribution Date
in the following order of priority: first, to the Holders of the Class R
Certificates, second to the Holders of the Class C Certificate and third to the
Holders of the related Offered Certificates, pro rata based on the Certificate
Principal Balances thereof on such Distribution Date. The distribution on the
final Distribution Date in connection with the purchase by the Servicer of the
assets in the Trust shall be in lieu of the distribution otherwise required to
be made on such Distribution Date in respect of each Class of Certificates. The
Servicer shall provide in writing to the Trustee and the Financial Guaranty
Insurer the information with respect to the amounts so to be paid.
In the event that all of the relevant Certificateholders shall not
surrender their Certificates for final payment and cancellation on or before the
fifth day following such final Distribution Date, the Trustee shall on such date
cause all funds in the Certificate Account not distributed in the final
distribution to Certificateholders to be withdrawn therefrom and credited to the
remaining Certificateholders by holding such funds uninvested in a separate
escrow account for the benefit of such Certificateholders and the Servicer (if
the Servicer exercised its right to purchase the assets of the Trust as provided
above) or the Trustee (in any other case) shall give a second written notice to
the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
one year after the second notice all the Certificates shall not have been
surrendered for cancellation, any funds deposited in such escrow account and
remaining unclaimed shall be paid by the Trustee to the Servicer and thereafter
Certificateholders shall look only to the Servicer with respect to any claims in
respect of such funds.
Section 10.02. Additional Termination Requirements. In the event the
Servicer exercises its purchase option as provided in Section 10.01, each
relevant REMIC Pool shall be terminated in accordance with the following
additional requirements, and the Trustee shall receive an Opinion of Counsel to
the effect that the termination of such REMIC Pool (i) will constitute a
"qualified liquidation" of such REMIC Pool within the meaning of Code Section
860F(a)(4)(A), and (ii) will not subject such REMIC Pool to tax or cause such
REMIC Pool to fail to qualify as a REMIC at any time that any Certificates are
outstanding.
(i) Within [ ] days prior to the final Distribution Date set forth
in the notice of intention to purchase the Mortgage Loans of a Mortgage
Loan given by the Servicer under Section 10.01, the Trustee, at the
direction of the Servicer, shall adopt a plan of complete liquidation of
each REMIC Pool being liquidated on behalf of the related REMIC within the
meaning of Code Section 860F(a)(4)(A)(8), which shall be evidenced by such
notice; and
(ii) At or after the time of adoption of such a plan of complete
liquidation and at or prior to the final Distribution Date, the Trustee
shall sell all of the assets of each REMIC Pool being liquidated to the
Servicer for cash at the purchase price specified in Section 10.01 and
shall distribute such cash in the manner specified in Section 10.01.
125
<PAGE> 131
ARTICLE ELEVEN
MISCELLANEOUS PROVISIONS
Section 11.01. Amendment. This Agreement may be amended from time to time
by the Servicer, the Seller and the Trustee, without the consent of any of the
Certificateholders but with the prior written consent of the Financial Guaranty
Insurer (which consent shall not be unreasonably withheld), (a) to cure any
error or any ambiguity or to correct or supplement any provisions herein which
may be inconsistent with any other provisions herein; (b) to add to the duties
or obligations of the Servicer hereunder; (c) to maintain or improve any rating
then assigned by any Rating Agency to any of the Certificates; or (d) to add any
other provisions with respect to matters or questions arising under this
Agreement or the Financial Guaranty Insurance Policy, as the case may be
(including specifically amendments or supplements pursuant to the second
paragraph of Section 6.02(b)); (e) to modify, eliminate or add to any of its
provisions to such extent as shall be necessary to maintain the qualification of
any REMIC Pool as a REMIC at all times that any Certificates are outstanding or
to avoid or minimize the risk of the imposition of any tax on any REMIC Pool
pursuant to the Code that would be a claim against such REMIC Pool, provided
that in the case of this clause (e) the Trustee has received an Opinion of
Counsel to the effect that such action is necessary or desirable to maintain
such qualification or to avoid or minimize the risk of the imposition of any
such tax; or (f) to modify, eliminate or add to the provisions of Section
6.02(c) or any other provisions hereof restricting transfer of Class R
Certificates; provided that in all such cases the Trustee has obtained written
confirmation from each Rating Agency that any such modifications to this
Agreement will not result in a qualification, reduction or withdrawal of the
rating assigned to any Class of Offered Certificates by such Rating Agency and
has received an Opinion of Counsel to the effect that any such modifications to
this Agreement do not give rise to a risk that any REMIC Pool or any of the
Certificateholders will be subject to a tax caused by a transfer to a
Disqualified Organization; provided, further, that in all such cases such action
shall not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interests of any Certificateholder or the Financial
Guaranty Insurer.
This Agreement may also be amended from time to time by the Servicer, the
Seller and the Trustee, with the consent of the Financial Guaranty Insurer
(which consent shall not be unreasonably withheld) and the Holders of
Certificates evidencing Voting Interests of each Class affected thereby
aggregating not less than 51%, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement,
or of modifying in any manner the rights of the Holders of Certificates of such
Class; provided, however, that no such amendment shall (a) reduce in any manner
the amount of, or delay the timing of, collections of payments on Mortgage Loans
or distributions which are required to be made on any Certificate without the
consent of the Holder of such Certificate or (b) reduce the aforesaid percentage
of each Class the Holders of which are required to consent to any such
amendment, without the consent of the Holders of all Certificates of such Class
then outstanding.
126
<PAGE> 132
Promptly after the execution of any such amendment or consent pursuant to
the next preceding paragraph, the Trustee shall furnish written notification of
the substance of such amendment to each affected Certificateholder and each
Rating Agency.
It shall not be necessary for the consent of Certificateholders under this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Financial Guaranty Insurer and Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
Prior to the execution of any amendment to this Agreement the Trustee and
the Financial Guaranty Insurer shall be entitled to receive and rely upon an
Opinion of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement. The Trustee may, but shall not be obligated to,
enter into any such amendment that affects the Trustee's own rights, duties or
immunities under this Agreement.
Section 11.02. Recordation of Agreement. This Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
Mortgaged Properties are situated, and in any other appropriate public recording
office or elsewhere, such recordation to be effected by the Servicer, at its
expense but only upon, determination of the Servicer accompanied by an Opinion
of Counsel to the effect that such recordation is legally required to protect
the Trustee's interest in the Mortgage Loans.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
Section 11.03. Limitation on Rights of Certificateholders. The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement, the Trust or any REMIC established pursuant to Section 3.01, nor
entitle such Certificateholder's legal representatives or heirs to claim an
accounting or to take any action or commence any proceeding in any court for a
partition or winding up of the Trust or any REMIC established pursuant to
Section 3.01, nor otherwise affect the rights, obligations and liabilities of
the parties hereto or any of them.
Except as otherwise expressly provided herein, no Certificateholder,
solely by virtue of its status as a Certificateholder, shall have any right to
vote or in any manner otherwise control the operation and management of the
Trust or any REMIC established pursuant to Section 3.01, or the obligations of
the parties hereto, nor shall anything herein set forth, or contained in the
terms of the Certificates, be construed so as to constitute the
Certificateholders from time to time as partners or members of an association;
nor shall any Certificateholder be under any liability to any third person by
reason of any action taken by the parties to this Agreement pursuant to any
provision hereof.
127
<PAGE> 133
No Certificateholder, solely by virtue of its status as a
Certificateholder, shall have any right by virtue or by availing itself of any
provisions of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a written notice of default
and of the continuance thereof, as hereinbefore provided, and unless also the
Holders of Certificates evidencing Voting Interests represented by all
Certificates (or all affected Certificates, as appropriate) aggregating not less
than 51% shall have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for [60] days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding; it being understood and intended, and being expressly covenanted by
each Certificateholder with every other Certificateholder and the Trustee, that
no one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provision of this
Agreement to affect, disturb or prejudice the rights of the Holders of any other
Certificates, or to obtain or seek to obtain priority over or preference to any
other such Holder, or to enforce any right under this Agreement, except in the
manner herein provided and for the equal, ratable and common benefit of all
Certificateholders. For the protection and enforcement of the provisions of this
Section, each and every Certificateholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
Section 11.04. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of California (without regard to conflict
of laws principles and the application of the laws of any other jurisdiction),
and the obligations, rights and remedies of the parties hereunder shall be
determined in accordance with such laws.
Section 11.05. Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given when
delivered to (a) in the case of the Seller and the Servicer, at [350 South Grand
Avenue, Los Angeles, California 90071, Attention: David J. Sklar]; (b) in the
case of the Trustee, at the Corporate Trust Office at [3 Park Plaza, 16th Floor,
Irvine, California 92614, Attention: Aames Capital Corporation, Series 199[ ]-
[ ]]; (c) in the case of [ ]; (d) in the case of [Moody's, to Moody's
Investors Service Inc., 99 Church Street, New York, New York 10007, Attention:
Residential Mortgage Pass-Through Monitoring]; (e) in the case of [S&P, to
Standard & Poor's, 25 Broadway, 12th Floor, New York, New York 10004, Attention:
Mortgage Surveillance Group]; and (f) in the case of the [ ]; or, as to
each party, at such other address as shall be designated by such party in a
written notice to each other party. Any notice required or permitted to be
mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at its address shown in the Certificate Register. Any notice so mailed
within the time prescribed in this Agreement shall be conclusively presumed to
have been duly given, whether or not the Certificateholder receives such notice.
Any notice or other document required to be delivered or mailed by the Trustee
to any Rating Agency shall be given on a best efforts basis and only as a matter
of courtesy and accommodation and the Trustee shall have no liability for
failure to deliver such notice or document to any such Rating Agency.
128
<PAGE> 134
Section 11.06. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
Section 11.07. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 7.02, 7.04 and 7.05, this
Agreement may not be assigned by the Seller or the Servicer without the prior
written consent of the Financial Guaranty Insurer and Holders of Certificates
evidencing not less than [ ]% of the Voting Interests of all Certificates.
Section 11.08. Certificates Nonassessable and Fully Paid. The parties
agree that the Certificateholders shall not be personally liable for obligations
of the Trust, that the beneficial ownership interests represented by the
Certificates shall be nonassessable for any losses or expenses of the Trust or
for any reason whatsoever, and that Certificates upon execution, authentication
and delivery thereof by the Trustee pursuant to Section 2.06 are and shall be
deemed fully paid.
Section 11.09. Third Party Beneficiary; Rating. (a) The Financial Guaranty
Insurer is an intended third-party beneficiary of this Agreement. This Agreement
shall be binding upon and inure to the benefit of the Financial Guaranty
Insurer; provided that, notwithstanding the foregoing, for so long as a
Financial Guaranty Insurer Default is continuing under its obligations under the
Financial Guaranty Insurance Policy, the Adjustable Rate Group
Certificateholders shall succeed to the Financial Guaranty Insurer's rights
hereunder. Without limiting the generality of the foregoing, all covenants and
agreements in this Agreement that expressly confer rights upon the Financial
Guaranty Insurer shall be for the benefit of and run directly to the Financial
Guaranty Insurer, and the Financial Guaranty Insurer shall be entitled to rely
on and enforce such covenants to the same extent as if it were a party to this
Agreement.
(b) In the event the rating of the Financial Guaranty Insurer by any of
the Rating Agencies is reduced to a rating that is below "investment grade" (as
that term is then commonly used), the Servicer shall, at its own expense, seek
to obtain ratings of each Class of Adjustable Rate Group Certificates (apart
from the rating related to the Financial Guaranty Insurance Policy) from such
Rating Agency.
[Signatures follow.]
129
<PAGE> 135
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers, all as of the day and year first
above written.
AAMES CAPITAL CORPORATION,
as Seller and Servicer
By: _____________________________________
Name:
Title:
BANKERS TRUST COMPANY
OF CALIFORNIA, N.A.,
as Trustee and not in its
individual capacity
By: _____________________________________
Name:
Title:
<PAGE> 136
State of California )
) ss.:
County of Los Angeles )
On the day of [ ], before me, a notary public in and for of
the State of California, personally appeared Mark Elbaum, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in the capacity or capacities indicated in the within
instrument, and that by his signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
----------------------------------------------
Notary Public
[Notary Seal]
<PAGE> 137
State of California )
) ss.:
County of Los Angeles )
On the day of [ ], before me, a notary public in and for of
the State of California, personally appeared Whitney Iger, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that
she executed the same in the capacity or capacities indicated in the within
instrument, and that by her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
----------------------------------------------
Notary Public
[Notary Seal]
<PAGE> 138
Schedule I
List of Sub-Servicers
A-1
<PAGE> 139
Schedule II
Representations and Warranties With Respect
to Subsequent Mortgage Loans
A. The Seller represents and warrants to the Trustee, the Financial Guaranty
Insurer and the Certificateholders as of any Subsequent Transfer Date (except as
otherwise expressly stated) that as to each Subsequent Mortgage Loan conveyed to
the Trust by it:
(i) no Subsequent Mortgage Loan provides for negative amortization;
(ii) with respect to the Adjustable Rate Group and each Subsequent Mortgage (a)
if such Mortgage Loan has an initial Adjustment Date not more than [ ] from the
date of origination, then the related Mortgage Note provides for a rate cap of [
]% to [ ]% every [ ] months, (b) if such Mortgage Loan has an initial Adjustment
Date of [ ] months, [ ], [ ], [ ], [ ], or [ ] from the date of origination,
then the related Mortgage Note provides for a rate cap as to its first
Adjustment Date of from [ ]% to [ ]% and a rate cap as to each subsequent
Adjustment Date of from [ ]% to [ ]%;
(iii) no Subsequent Mortgage Loan has a Gross Margin less than [ ]%;
(iv) each Subsequent Mortgage Loan will have been serviced by the Servicer or a
Sub-Servicer since origination or purchase by the Servicer;
(v) no Subsequent Mortgage Loan has been originated for the purpose of
facilitating the purchase of real estate owned by the originator; and
(vi) no Subsequent Mortgage Loan will have a Cut-off Date of later than [ ].
B. The Seller represents and warrants to the Trustee, the Financial Guaranty
Insurer and the Certificateholders, that following the purchase of all
Subsequent Mortgage Loans by the Trust and the assignment of such Subsequent
Mortgage Loans to the appropriate Mortgage Loan Group, as of the end of the
Funding Period:
(i) the Mortgage Loans in the Fixed Rate Group (including the Subsequent
Mortgage Loans):
(a) will have a weighted average Mortgage Loan Rate of at least [ ]%;
(b) will have a weighted average original term to stated maturity of not more
than [ ] months;
(c) will have a weighted average Combined Loan-to-Value Ratio of not more than
[ ]% and a weighted average second loan-to-value ratio of not more than [ ]%;
A-2
<PAGE> 140
(d) will have no Mortgage Loan with a Principal Balance less than $[ ] or
greater than $[ ];
(e) will not have in excess of [ ]% by Aggregate Principal Balance of Mortgage
Loans secured by non-owner occupied Mortgaged Properties;
(f) will not have a concentration in a single ZIP code in excess of [ ]% by
Aggregate Principal Balance;
(g) will not have an aggregate concentration in excess of [ ]% by Aggregate
Principal Balance in ZIP codes beginning with the following three digits: [ ];
(h) will not have a concentration in a single State, [other than California,
Florida or New York] in excess of [ ]% by Aggregate Principal Balance;
(i) will not have a concentration in California in excess of [ ]%, in Florida
in excess of [ ]%, in New York in excess of [ ]% by Aggregate Principal Balance;
(j) will not have in excess of [ ]% or 3.75% by Aggregate Principal Balance of
Mortgage Loans secured by Mortgaged Properties that are two family properties or
condominiums (less than four stories), three and four family properties or
condominiums (greater than four stories), respectively, and will have none
secured by mobile homes treated as real estate under applicable state law;
(k) will have at least [ ]% by Aggregate Principal Balance of Mortgage Loans
secured by fee simple interests in detached single family dwelling units
(including units in de minimis planned unit developments);
(l) will have no more than [ ]% by Aggregate Principal Balance Mortgage Loans
that are based on a [ ]-month amortization schedule with balloon payments prior
to month [ ];
(m) will have no more than [ ]% by Aggregate Principal Balance of Mortgage
Loans that are based on a [ ]-month amortization schedule and have a balloon
payment between month [ ]-[ ];
(n) will have no more than [ ]% by Aggregate Principal Balance of Mortgage
Loans that are based on a [ ]-month amortization schedule and have a balloon
payment between month [ ]-[ ]; and
(o) will have no more than [ ]% by Aggregate Principal Balance of Mortgage
Loans that are based on a [ ]-month amortization schedule and have a balloon
payment between month [ ]-[ ];
A-3
<PAGE> 141
(p) will have no less than [ ]% by Aggregate Principal Balance of Mortgage
Loans that provide for the payment of principal and interest on a level basis to
fully amortize such Mortgage Loan over its stated maturity; and
(q) will have a weighted average term since origination not in excess of [ ]
months.
(ii) the Mortgage Loans in The Adjustable Rate Group (including the Subsequent
Mortgage Loans):
(a) will have a weighted average Mortgage Loan Rate of at least [ ]%;
(b) will have a weighted average original term to stated maturity of not more
than [ ] months;
(c) will have a weighted average Loan-to-Value Ratio of not more than [ ]%;
(d) will have no Mortgage Loan with a Principal Balance less than $[ ] or more
than $[ ];
(e) will have not in excess of [ ]% by Aggregate Principal Balance of Mortgage
Loans secured by non-owner occupied Mortgage Properties;
(f) will not have a concentration in a single ZIP code in excess of [ ]% by
Aggregate Principal Balance;
(g) will not have an aggregate concentration in excess of [ ]% in ZIP codes
beginning with the following three digits:[ ];
(h) will not have a concentration in a single State, [OTHER THAN CALIFORNIA,
FLORIDA OR WASHINGTON] in excess of [ ]% by Aggregate Principal Balance;
(i) will not have a concentration in California in excess of [ ]%, in Florida
in excess of [ ]%, or in Washington in excess of [ ]% by Aggregate Principal
Balance;
(j) will not have in excess of [ ]% or [ ]% by Aggregate Principal Balance
Mortgage Loans secured by Mortgaged Properties that are two family properties or
condominiums (less than four stories) and three and four family properties or
condominiums (greater than four stories), respectively, and none will be secured
by mobile homes or manufactured housing treated as real estate under applicable
state law;
(k) will have at least [ ]% by Aggregate Principal Balance Mortgage Loans
secured by fee simple interests in detached single family dwelling units
(including units in de minimis planned unit developments);
A-4
<PAGE> 142
(l) will have a weighted average margin of at least [ ]%;
(m) will contain no Mortgage Loans that are not based on a [ ]-month
amortization schedule of level payments;
(n) will have a weighted average term since origination not in excess of [ ]
months.
For purposes of this Schedule II, "Aggregate Principal Balance" means the
aggregate of the Principal Balances of the Mortgage Loans (determined as of the
Cut-off Date for the Initial Mortgage Loans and as of the Subsequent Cut-off
Date for the Subsequent Mortgage Loans) in the related Mortgage Loan
Group.
A-5
<PAGE> 143
Schedule III
Schedule of Restricted Mortgage Loans
A-6
<PAGE> 144
EXHIBIT A
FORMS OF CERTIFICATES
OMITTED
B-1
<PAGE> 145
EXHIBIT B
MORTGAGE LOAN SCHEDULE
C-1
<PAGE> 146
EXHIBIT C
FORM OF ANNUAL STATEMENT AS TO COMPLIANCE
The undersigned, _________________________________, __________________ of
Aames Capital Corporation (the "Servicer"), in its capacity as Servicer under
that certain Pooling and Servicing Agreement dated as of [ ] (the "Pooling and
Servicing Agreement") between Aames Capital Corporation, as Seller and Servicer,
and Bankers Trust Company of California, N.A., as Trustee, does hereby certify
pursuant to Section 3.09 of the Pooling and Servicing Agreement that as of the
[ ] day of [ ]:
(a) a review of the activities of the Servicer for the year ended
[ ] and of its performance under the Pooling and Servicing Agreement
has been made under my supervision, and
(b) to the best of my knowledge, based on such review, the
Servicer has fulfilled all of its material obligations under the
Pooling and Servicing Agreement throughout such year.
IN WITNESS WHEREOF, I have hereunto signed my name as of this [ ] day
of [ ].
-----------------------------------------
Name:
Title:
D-1
<PAGE> 147
EXHIBIT D
FORM OF AFFIDAVIT PURSUANT TO SECTION 860E(e)(4)
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
STATE OF ___________________________ )
) ss.:
COUNTY OF __________________________ )
[NAME OF OFFICER], being first duly sworn, deposes and says:
1. That he is [Title of Officer] of [Name of Investor] (the
"Investor"), a [savings institution] [corporation] duly organized
and existing under the laws of [the State of ] [the United
States], on behalf of which he makes this affidavit. Capitalized
terms used but not defined herein shall have the meanings ascribed
to such terms in the Agreement as defined in the Class [R-IA] [R-IF]
[R-II] [R-III] (the "Class R Certificate").
2. That the Investor's Taxpayer Identification Number is [ ].
3. That the Investor is not a "Disqualified Organization" within the
meaning of Section 860E(e)(5) of the Internal Revenue Code of 1986, as amended
(the "Code"), or an agent of a Disqualified Organization (including a broker,
nominee or middleman) and will not be a "Disqualified Organization" as of [date
of transfer], and that the Investor is not acquiring a Class R Certificate of
the Aames Mortgage Trust 1997-D Mortgage Loan Pass-Through Certificates, (the
"Class R Certificate") for the account of, or as an agent (including a broker,
nominee or middleman) of any entity as to which the Investor has not received an
affidavit substantially in the form of this affidavit. For these purposes, a
"Disqualified Organization" means the United States, any state or political
subdivision thereof, any foreign government, any international organization, any
agency or instrumentality of any of the foregoing (other than an instrumentality
if all of its activities are subject to tax and a majority of its board of
directors is not selected by such governmental entity), any cooperative
organization furnishing electrical energy or providing telephone service to
persons in rural areas as described in Code Section 1381(a)(2)(c), or any
organization (other than a farmers' cooperative described in Code Section 521)
that is exempt from federal income tax unless such organization is subject to
the tax on unrelated business income imposed by Code Section 511.
4. That the Investor is not (i) an entity that holds Class R
Certificates as nominee to facilitate the clearance and settlement of such Class
R Certificates through electronic book-entry changes in accounts of
participating organizations (a "Book-Entry Nominee"), (ii) an individual,
corporation, partnership or other person unless such transferee (A) is not a
Foreign Person or (B) is a Foreign Person that will hold such Class R
Certificate in connection with the conduct of a trade or business within the
United States and has furnished the transferor and the Trustee with an effective
Internal Revenue Service Form 4224 or (C) is a Foreign Person that has delivered
to both the transferor and the Trustee an opinion of a nationally recognized tax
counsel to the effect
E-1
<PAGE> 148
that the transfer of a Class R Certificate to it is in accordance with the
requirements of the Code and the regulations promulgated thereunder and that
such transfer of a Class R Certificate will not be disregarded for federal
income tax purposes (any such person who is not covered by clause (A), (B) or
(C) above being referred to herein as a "Non-permitted Foreign Holder") or (iii)
a Person that is an employee benefit plan within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended, or any Person
that is an individual retirement account or employee benefit plan, trust or
account subject to Section 4975 of the Code (an "ERISA Plan") or an entity,
including an insurance company separate account or general account, whose
underlying assets include ERISA Plan assets by reason of an ERISA Plan's
investment in the entity or a Person investing the assets of an ERISA Plan or
such an entity, whether as nominee, trustee, agent or otherwise (an "ERISA
Prohibited Holder").
5. That the Investor agrees to any such amendments of the Pooling and
Servicing Agreement as may be required to further effectuate the restrictions on
transfer of the Class R Certificate to such a Disqualified Organization or a
Book-Entry Nominee or a Non-permitted Foreign Holder or an ERISA Prohibited
Holder.
6. That the Investor has no intent or purpose to impede the assessment
or collection of any federal, state or local income taxes legally required to be
paid with respect to the Class R Certificate and will not transfer the Class R
Certificate to any Person that it has reason to believe has the intention to
impede the assessment or collection of such taxes.
7. The Investor has been advised of, understands and acknowledges that
under the Code, a substantial tax would be imposed on a "pass-through entity"
holding a Class R Certificate if at any time during the taxable year of the
pass-through entity a Person that is a Disqualified Organization is the record
holder of an interest in such entity. (For this purpose, a "pass-through entity"
includes a regulated investment company, a real estate investment trust or
common trust fund, a partnership, trust or estate, and certain cooperatives and,
except as may be provided in Treasury Regulations, persons holding interests in
pass through entities as a nominee for another Person). A pass-through entity
shall be relieved of liability for the tax if it had received from such Person
an affidavit (in substantially the same form as this affidavit) that such Person
is not a Disqualified Organization and the entity had no actual knowledge that
the affidavit was false. The Investor will advise the Trustee and the Servicer
if it becomes a pass-through entity or if it is a pass-through entity, if any of
the interest holders are or become Disqualified Persons.
8. The Investor has reviewed the provisions of Section 6.02 of the
Agreement and understands the legal consequences of the acquisition of a Class R
Certificate including, without limitation, the restrictions on subsequent
transfers. The Investor expressly agrees to be bound by and to abide by the
provisions of Section 6.02 of the Agreement, as such Section may be amended from
time to time.
9. The Investor agrees to require an affidavit substantially similar to
this affidavit from any Person to whom the Investor attempts to transfer its
Class R Certificate including any Person with respect to which the Investor is
then acting as nominee, trustee or agent, and in connection with any transfer by
a Person for whom the Investor is acting as nominee, trustee or agent, and
E-2
<PAGE> 149
the Investor will not transfer its Class R Certificate to be transferred to any
Person that the Investor knows is a Disqualified Organization.
10. The Investor is acquiring the Class R Certificate either (i) for its
own account or (ii) as nominee, trustee or agent for another Person and has
attached hereto an affidavit from such Person in substantially the same form as
this affidavit. If clause (ii) of the preceding sentence is applicable, such
Person is not a Disqualified Organization and the Investor has no knowledge that
any such affidavit from such Person is false.
E-3
<PAGE> 150
IN WITNESS WHEREOF, the Investor has caused this instrument to be executed
on its behalf, pursuant to authority of its Board of Directors, by its [Title of
Officer] and its corporate seal to be hereunto attached, attested by its
[Assistant] Secretary, this ____ day of _________, 199_.
[NAME OF INVESTOR]
By:______________________________________
Name:
Title:
Personally appears before me the above-named [Name of Officer], known or
proved to me to be the same person who executed the foregoing instrument and to
be the [Title of Officer] of the Investor, and acknowledged to me that he
executed the same as his free act and deed and the free act and deed of the
Investor.
Subscribed and sworn before me this [ ] day of [ ].
- -------------------------------------
NOTARY PUBLIC
COUNTY OF _____________
STATE OF _____________________
My Commission expires the ________ day of __________, 19__.
E-4
<PAGE> 151
EXHIBIT E
FORM OF NOTICE REGARDING PAYMENT IN FULL
OF PRINCIPAL BALANCE OF MORTGAGE LOAN
Bankers Trust Company of California, N.A.,
as Trustee
[3 Park Plaza, 16th Floor]
[Irvine, California 92714]
Attention: Corporate Trust Administration
Re: Mortgage Loan Pass-Through Certificates, Series[ ]-[ ]
Ladies and Gentlemen:
Reference is made to Section 3.07 of the Pooling and Servicing Agreement
dated as of [ ] (the "Pooling and Servicing Agreement") between Aames Capital
Corporation, as Seller and Servicer, and Bankers Trust Company of California,
N.A., as Trustee. All capitalized terms used but not defined herein shall have
the meanings given to such terms in the Pooling and Servicing Agreement.
The undersigned hereby certifies that the Principal Balance of the
Mortgage Loan(s) listed on Schedule A annexed hereto has been paid in full and
that all amounts received in connection with the payment of such Mortgage
Loan(s) that were required to be deposited or credited in the Certificate
Account pursuant to Section 3.02 of the Pooling and Servicing Agreement have
been so deposited or credited.
The undersigned further certifies that he is a Servicing Officer of the
Servicer holding the office set forth beneath his signature and that he is duly
authorized to execute this certificate on behalf of the Servicer.
AAMES CAPITAL CORPORATION
Date: ______________________ By: _____________________________________
Name:
Title:
F-1
<PAGE> 152
EXHIBIT F
FORM OF LIQUIDATION REPORT
1. Type of Liquidation (REO disposition/charge-off/short pay-off)
- Date Last Paid
- Date of Foreclosure
- Date of REO
- Date of REO Disposition
- Property Sale Price; Estimated Market Value at Disposition
2. Liquidation Proceeds
- Principal Prepayment $__________
- Property Sale Proceeds __________
- Insurance Proceeds __________
- Other (itemize) __________
TOTAL $
==========
3. Liquidation Expenses
- Servicing Advances $__________
- Monthly Advances __________
- Contingency Fees __________
- Servicing Fees __________
- Annual Expense Escrow Amount __________
- Supplemental Fee (if any) __________
- Additional Interest (if any) __________
- Monthly Sponsor Fee (if any) __________
TOTAL $
==========
4. Net Liquidation Proceeds* $__________
(Total of Item 2 minus total of Item 3)
5. Accrued and Unpaid Interest on Mortgage Loan $__________
6. Principal Balance of Mortgage Loan $__________
7. Realized Loss on Mortgage Loan $__________
(Item 5 plus Item 6 minus Item 4, with
a Realized Loss resulting only if the total
of this calculation is a positive number)
*Applied first to Item 5 and then to Item 6.
G-1
<PAGE> 153
EXHIBIT G
OFFICER'S CERTIFICATE
I, _____________________, hereby certify that I am the duly elected
_____________________ of Aames Capital Corporation (the "Company") acting as
servicer pursuant to a Pooling and Servicing Agreement dated as of [ ] by and
among the Company and Bankers Trust Company of California, N.A., as Trustee, and
further certify, to the best of my knowledge and after due inquiry that the
following is a summary of the facts and circumstances surrounding the
"charge-off" of any Mortgage Loans during the Collection Period from _____ 1
through _____ 30/31, 199_;
[Insert the following information for each "charged-off" Mortgage Loan]
Loan #
Borrower Name
Property Address
Date of "charge-off"
Original Principal Balance
Outstanding Principal Balance
Mortgage Loan Rate
Accrued Interest at time of "charge off"
Unreimbursed Servicing Advances at time of "charge off" Unreimbursed
Delinquency Advances at time of "charge off" # of days in default at
time of "charge off" Original Appraised Value Current appraised value
based upon "drive by" Amount of outstanding first lien Estimate of
Foreclosure Costs
Broker Fees
Legal Fees
Repair and Miscellaneous Expenses
Projected Marketing Period
Estimate of Loss on Foreclosure and Liquidation
Capitalized terms not otherwise defined herein have the meanings set forth in
the Pooling and Servicing Agreement.
IN WITNESS WHEREOF, I have hereunto signed by name and affixed the seal of
the Servicer.
Dated: ____________________ _____________________________________
Name:
Title:
H-1
<PAGE> 154
EXHIBIT H
FORM OF TRANSFEROR AFFIDAVIT
[LETTERHEAD OF TRANSFEROR]
________________, 199_
Bankers Trust Company of California, N.A.,
as Trustee
[3 Park Plaza, 16th Floor]
[Irvine, California 92714]
Attention: Corporate Trust Administration
Re: Aames Mortgage Trust [ ]
Mortgage Pass-Through Certificates, Series [ ]
Ladies and Gentlemen:
We have reviewed the attached affidavit of [NAME OF TRANSFEREE] and have
no actual knowledge that such affidavit is not true and has no reason to believe
that the requirements set forth in paragraph 3, paragraph 4(i) or paragraph
4(ii) are not satisfied and have no reason to believe that the transferee has
the intention to impede the assessment or collection of any federal, state or
local taxes legally required to be paid with respect to a Class R Certificate.
In addition, we have conducted a reasonable investigation at the time of the
transfer and found that the transferee had historically paid its debts as they
came due and found no significant evidence to indicate that the transferee will
not continue to pay its debts as they become due.
Very truly yours,
-----------------------------------------
By: _____________________________________
Name:
Title:
I-1
<PAGE> 155
EXHIBIT I
FORM OF SUBSEQUENT TRANSFER AGREEMENT
Pursuant to this Subsequent Transfer Agreement, dated as of [ , ] by and
between Aames Capital Corporation (the "Seller") and Bankers Trust Company of
California, N.A., in its capacity as trustee for Aames Mortgage Trust [ ]-[ ]
(the "Trustee"), and pursuant to that certain Pooling and Servicing Agreement,
dated as of [ ] (the "Pooling and Servicing Agreement"), by and between the
Seller, as seller and servicer, and the Trustee, as trustee, the Seller and the
Trustee agree to the sale by the Seller and the purchase by the Trustee of
additional mortgage loans (the "Subsequent Mortgage Loans") to be included in
the Fixed Rate Group or the Adjustable Rate Group as listed on the Mortgage Loan
Schedule attached hereto as Schedule A.
Capitalized terms used and not defined herein shall have their respective
meanings as set forth in the Pooling and Servicing Agreement.
Section 1. Purchase and Conveyance of Subsequent Mortgage Loans.
(a) The Seller does hereby sell, transfer, assign, set over and convey
to the Trustee:
(i) all right, title and interest of such Seller in and to the
Subsequent Mortgage Loans owned by it and listed on Schedule A hereto, including
without limitation, the related Mortgages, Mortgage Files and Mortgage Notes,
and all payments on, and proceeds with respect to, such Subsequent Mortgage
Loans received on and after the Subsequent Cut-off Date except such payments and
proceeds as the Servicer is entitled to retain pursuant to the express
provisions of the Pooling and Servicing Agreement;
(ii) all right, title and interest of such Seller in the Mortgages
on the properties securing the Subsequent Mortgage Loans, including any related
Mortgaged Property acquired by or on behalf of the Trust by foreclosure or deed
in lieu of foreclosure or otherwise;
(iii) all right, title and interest of such Seller in and to any
rights in or proceeds from any insurance policies (including title insurance
policies) covering the Subsequent Mortgage Loans, the related Mortgaged
Properties or Mortgagors and any amounts recovered from third parties in respect
of any Subsequent Mortgage Loans that became Liquidated Mortgage Loans; and
(iv) the proceeds of all of the foregoing.
(b) With respect to each Subsequent Mortgage Loan, the Seller,
contemporaneously with the delivery of this Agreement, has delivered or caused
to be delivered to the Trustee, each item set forth in Section 2.01 of the
Pooling and Servicing Agreement. The transfer to the Trustee by the Seller of
the Subsequent Mortgage Loans identified on the Schedule A hereto
I-2
<PAGE> 156
shall be absolute and is intended by the Seller, the Servicer, the Trustee and
the Certificateholders to constitute and to be treated as a sale by the Seller.
(c) The expenses and costs relating to the delivery of the Subsequent
Mortgage Loans, this Agreement and the Pooling and Servicing Agreement shall be
borne by the Seller.
(d) Additional terms of the sale, including the purchase price, are set
forth on Attachments A and B hereto separated by Mortgage Loan Group.
Section 2. Representations and Warranties; Conditions Precedent.
(a) The Seller hereby affirms the representations and warranties set
forth in Section 2.05 of the Pooling and Servicing Agreement that relate to the
Subsequent Mortgage Loans as of the date hereof. The Seller hereby confirms that
each of the conditions set forth in Section 2.02 of the Pooling and Servicing
Agreement (except such conditions that are required to be satisfied as of the
end of the Funding Period) are satisfied as of the date hereof.
(b) All terms and conditions of the Pooling and Servicing Agreement are
hereby ratified and confirmed; provided however, that in the event of any
conflict the provisions of this Agreement shall control over the conflicting
provisions of the Pooling and Servicing Agreement.
Section 3. Recordation of Agreement.
This Agreement is subject to recordation in all appropriate public offices
for real property records in all the counties or other comparable jurisdictions
in which any or all of the Mortgaged Properties are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Servicer and at its expense in the event such recordation
materially and beneficially affects the interests of Certificateholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
Section 4. Governing Law.
This Agreement shall be construed in accordance with the laws of the State
of California (without regard to conflict of laws principles and the application
of the laws of any other jurisdiction), and the obligations, rights and remedies
of the parties hereunder shall be determined in accordance with such laws.
I-2
<PAGE> 157
Section 5. Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Seller and the Purchaser and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers, all as of the day and year first
above written.
AAMES CAPITAL CORPORATION,
as Seller
By: _______________________________
Name:
Title:
BANKERS TRUST COMPANY
OF CALIFORNIA, N.A., as Trustee
for Aames Mortgage Trust [ ]-[ ]
By: _______________________________
Name:
Title:
I-3
<PAGE> 158
EXHIBIT J
FORM OF FINANCIAL GUARANTY INSURANCE POLICY
I-4
<PAGE> 159
EXHIBIT K
FORM OF NOTICE OF CLAIM AND CERTIFICATE
I-5
<PAGE> 160
EXHIBIT L
FORM OF INSURANCE AND INDEMNITY AGREEMENT
I-6
<PAGE> 161
SCHEDULE A
SUBSEQUENT MORTGAGE LOAN SCHEDULE
I-7
<PAGE> 1
EXHIBIT 4.2
INDENTURE
BETWEEN
[ISSUER],
AS ISSUER,
AND
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
AS TRUSTEE
Dated as of [ ]
Relating to
[ISSUER]
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
Condemnation Proceeds................................................................8
Corporate Trust Office...............................................................8
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
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
Mortgage Pool.......................................................................13
Mortgage Rate.......................................................................13
Mortgaged Property..................................................................13
Mortgagor...........................................................................13
Net Monthly P&I.....................................................................13
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
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
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
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
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
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
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
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
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
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
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
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
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
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>
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
<PAGE> 9
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, as amended.*
<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)
</TABLE>
- ----------
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 10
<TABLE>
<CAPTION>
Trust Indenture Act of 1939 Indenture Section
--------------------------- -----------------
<S> <C>
(c).................................... 11.05
(d).................................... 7.03(b)
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
.......................................
.......................................
</TABLE>
- ----------
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 11
<TABLE>
<S> <C>
Section 315
(a).................................... 6.01(b)
....................................... 6.01(c)(1)
(b).................................... 6.02
....................................... 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>
- ----------
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 12
THIS INDENTURE, dated as of [ ], 199[ ] (as amended or supplemented from
time to time as permitted hereby, this "Indenture"), is between [ISSUER], 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
<PAGE> 13
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.
2
<PAGE> 14
"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;
3
<PAGE> 15
(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.
4
<PAGE> 16
"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.
5
<PAGE> 17
"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 [ .]
"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": [ ], 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.
"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.
6
<PAGE> 18
"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": [ ].
"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.
"Eligible Investments": Any one or more of the following obligations,
instruments and securities:
7
<PAGE> 19
(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 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
8
<PAGE> 20
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.
"Individual Bond": A Bond of an original principal amount of $[ ]; a Bond
of an original principal amount in excess of $[ ] shall be deemed to be a number
of Individual Bonds equal to the quotient obtained by dividing such original
principal amount by $[ ].
9
<PAGE> 21
"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": Issuer, 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 [ ], 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.
"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
10
<PAGE> 22
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 [Issuer] Asset-Backed Bonds,
Series [ ]-[ ], 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 [Issuer] Asset-Backed
Bonds, Series [ ]-[ ]"; (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 [Issuer] Asset-Backed Bonds, Series [ ]-[ ]"; (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 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
11
<PAGE> 23
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 [ ], between Aames Capital Corporation and
[Issuer], 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.
"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.
12
<PAGE> 24
"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 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
13
<PAGE> 25
(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 [ ].
"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
(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
14
<PAGE> 26
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;
(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
15
<PAGE> 27
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 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.
16
<PAGE> 28
"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 [ ].
"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.
"Required Subordination Level": With respect to any Payment Date, the
amount determined according to the following schedule:
Aggregate Stated Balance of
Mortgage Loans with Respect to
such Payment Date Required Subordination Level
------------------------------- ----------------------------
$____________ and above ____%
$____________ to $____________ ____%
$____________ to $____________ ____%
$____________ to $____________ ____%
"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.
17
<PAGE> 29
"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 [ ] 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 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
18
<PAGE> 30
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 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
19
<PAGE> 31
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.
Section 2.02 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
[ ]-[ ]" of the Issuer.
20
<PAGE> 32
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>
- ------------------ ------------------ -------------------- ---------------------
Designation Original Bond Stated Maturity of
Principal Interest Final Installment
Amount Rate of Principal
- ------------------ ------------------ -------------------- ---------------------
<S> <C> <C> <C>
Series [ -[ ] [ $] [ %] [ ]
- ------------------ ------------------ -------------------- ---------------------
</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.
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 $[ ] and integral multiples of $[ ] in excess thereof.
21
<PAGE> 33
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 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
22
<PAGE> 34
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 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
23
<PAGE> 35
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 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 $[ ] 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.
24
<PAGE> 36
(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.
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;
25
<PAGE> 37
(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.
In the case of information furnished pursuant to subclauses (i) and
(ii) above, the amounts will be expressed as a dollar amount per $[ ]
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
26
<PAGE> 38
the extent that substantially comparable information is provided pursuant
to any requirements of the Code as are from time to time in force.
Sction 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.
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.
27
<PAGE> 39
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 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
28
<PAGE> 40
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 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;
29
<PAGE> 41
(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 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.
30
<PAGE> 42
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 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
31
<PAGE> 43
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;
(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.
32
<PAGE> 44
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 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
33
<PAGE> 45
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 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
34
<PAGE> 46
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.
(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
35
<PAGE> 47
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;
(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
36
<PAGE> 48
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
(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
37
<PAGE> 49
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.
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
38
<PAGE> 50
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 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
39
<PAGE> 51
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
(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
40
<PAGE> 52
representing at least [ ]% 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.
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 [ ]% 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
41
<PAGE> 53
[ ]% 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, 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.
42
<PAGE> 54
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:
(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
43
<PAGE> 55
(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;
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
44
<PAGE> 56
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 [ ]% 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 [ ]% 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.
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 [ ]% 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.
45
<PAGE> 57
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.
46
<PAGE> 58
Section 5.13 Control by Bondholders.
The Holders of Bonds representing more than [ ]% 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 [ ]% 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.
47
<PAGE> 59
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 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 [ ]% 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:
48
<PAGE> 60
(1) the Holders of Bonds representing not less than [ ]% 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.
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 $[ ] 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
49
<PAGE> 61
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 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.
50
<PAGE> 62
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 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
51
<PAGE> 63
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 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.
52
<PAGE> 64
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.
(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.
53
<PAGE> 65
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.
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;
54
<PAGE> 66
(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 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).
55
<PAGE> 67
Section 6.09 Trustee's Capital and Surplus.
The Trustee shall at all times have a combined capital and surplus of at
least $[ ] 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 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
56
<PAGE> 68
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 [ ]% 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 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.
57
<PAGE> 69
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.
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.
58
<PAGE> 70
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 [ ]% 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 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.
59
<PAGE> 71
(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 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
60
<PAGE> 72
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.
61
<PAGE> 73
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
62
<PAGE> 74
Section 313(b)(2); and, the Trustee shall also mail to Holders of Bonds
any reports 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
63
<PAGE> 75
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 [ ]% 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.
64
<PAGE> 76
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
65
<PAGE> 77
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.
66
<PAGE> 78
(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.
67
<PAGE> 79
(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.
68
<PAGE> 80
(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.
69
<PAGE> 81
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 $[ ]; (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
70
<PAGE> 82
reasonable requirements that the Issuer may from time to time deem necessary to
protect the 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
71
<PAGE> 83
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";
72
<PAGE> 84
(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.
73
<PAGE> 85
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.
74
<PAGE> 86
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
77
<PAGE> 89
effective date of such certificate or report (as the case may be), of the facts
and opinions stated in such document shall in such case be conditions precedent
to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the 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
78
<PAGE> 90
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.
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.
80
<PAGE> 92
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.
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.
81
<PAGE> 93
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.
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.
[ISSUER]
By:
Name:
Title:
<Notarized>
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:
Name:
Title:
<Notarized>
<PAGE> 95
SCHEDULE A
MORTGAGE LOAN SCHEDULE
Schedule A
<PAGE> 96
EXHIBIT A
FORM OF BOND
<PAGE> 97
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.
[ISSUER]
ASSET-BACKED BONDS
SERIES [ ]-[ ]
DUE: [ ]
ACCRUAL DATE: [ ]
ISSUE DATE: [ ]
Bond Interest Rate [ ]%
$[ ] CUSIP NO. [ ]
CERTIFICATE NUMBER 001
[ISSUER], 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
[ ] $[ ] and interest on the unpaid
<PAGE> 98
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
IN WITNESS WHEREOF, [ISSUER] has caused this Bond to be duly executed this
____ day of ________, 199__.
ISSUER
By: _____________________________________
Name:
Title:
Attest:
By: __________________________________
Name:
Title:
<PAGE> 100
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> 101
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> 102
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> 103
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> 104
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.
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)
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.
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
<PAGE> 105
EXHIBIT B
MORTGAGE LOAN CONVEYANCE AGREEMENT
<PAGE> 106
EXHIBIT C
LETTER OF REPRESENTATIONS TO THE DEPOSITORY TRUST COMPANY
<PAGE> 107
EXHIBIT D
TRUSTEE'S FINAL CERTIFICATION
<PAGE> 1
Exhibit 5.1
April 16, 1998
Aames Capital Corporation
Aames Capital Acceptance Corp.
350 South Grand Avenue
Los Angeles, California 90071
Re: Aames Capital Corporation
Aames Capital Acceptance Corp.
Registration Statement on Form S-3
Registration No. 333-46893
Ladies and Gentlemen:
We have acted as special counsel to Aames Capital Corporation ("ACC"), a
California corporation, 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 $2,000,000,000
aggregate principal amount of asset-backed certificates (the "Certificates") to
be offered pursuant to a registration statement on Form S-3 (such registration
statement as amended, 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 form of Certificates included in such form of
Pooling and Servicing Agreement, the prospectus (the "Prospectus") and the forms
of prospectus supplement filed 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 the
related Transferor, the Servicer, the Trustee and any
<PAGE> 2
other party thereto for such Series, such Pooling and Servicing Agreement will
constitute a legally valid and binding agreement of such Transferor, enforceable
against such Transferor, in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally (including, without limitation, fraudulent
conveyance laws), and general principles of equity, including without
limitation, concepts of materiality, reasonableness, good faith and fair dealing
and the possible unavailability of specific performance or injunction relief,
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 validly issued, fully paid and nonassessable
and the holders thereof will be entitled to the benefits of the related Pooling
and Servicing Agreement, enforceable against the related Transferor, in
accordance with their terms, subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally (including, without limitation, fraudulent conveyance laws), and
general principles of equity, including without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunction relief, regardless of
whether such enforceability is considered in a proceeding in equity or at law.
The opinions expressed above are limited to the federal laws of the
United States of America and the laws of the States of California and Delaware
(excluding choice of law principles therein). We express no opinion herein as to
the laws of any other jurisdiction and no opinion regarding the statutes,
administrative decisions, rules, regulations or requirements of any county,
municipality, subdivision or local authority of any jurisdiction.
We 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 or regulations of the Securities
and Exchange Commission thereunder, with respect to any part of the Registration
Statement, including this exhibit.
Respectfully submitted,
/s/O'Melveny & Myers LLP
<PAGE> 1
Exhibit 5.2
April 16, 1998
Aames Capital Corporation
Aames Capital Acceptance Corp.
350 South Grand Avenue
Los Angeles, California 90071
Re: Aames Capital Corporation
Aames Capital Acceptance Corp.
Registration Statement on Form S-3
Registration No. 333-46893
Ladies and Gentlemen:
We have acted as special 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 $2,000,000,000 aggregate principal amount of
asset-backed bonds (the "Bonds") to be offered pursuant to a registration
statement on Form S-3 (such registration statement as amended, 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 (the "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 incorporated by reference as an exhibit to the Registration Statement,
the form of Bonds included in such form of Indenture, the prospectus (the
"Prospectus") and the forms of prospectus supplement (the "Prospectus
Supplements") 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 legally valid and binding agreement of the related Bond Issuer,
enforceable against the related Bond Issuer, in accordance with its terms,
subject to
<PAGE> 2
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally (including, without
limitation, fraudulent conveyance laws), and general principles of equity,
including without limitation, concepts of materiality, reasonableness, good
faith and fair dealing and the possible unavailability of specific performance
or injunction relief, 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 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,
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally (including, without
limitation, fraudulent conveyance laws), and general principles of equity,
including without limitation, concepts of materiality, reasonableness, good
faith and fair dealing and the possible unavailability of specific performance
or injunction relief, regardless of whether such enforceability is considered in
a proceeding in equity or at law.
The opinions expressed above are limited to the federal laws of the
United States of America and the laws of the States of California and Delaware
(excluding choice of law principles therein). We express no opinion herein as to
the laws of any other jurisdiction and no opinion regarding the statutes,
administrative decisions, rules, regulations or requirements of any county,
municipality, subdivision or local authority of any jurisdiction.
We 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 or regulations of the Securities
and Exchange Commission thereunder, with respect to any part of the Registration
Statement, including this exhibit.
Respectfully submitted,
/s/O'Melveny & Myers LLP
<PAGE> 1
Exhibit 8.1
April 16, 1998
Aames Capital Corporation
Aames Capital Acceptance Corp.
350 South Grand Avenue
Los Angeles, California 90071
Re: Aames Capital Corporation
Aames Capital Acceptance Corp.
Registration Statement on Form S-3
Registration No. 333-46893
Ladies and Gentlemen:
We have acted as special tax 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 $2,000,000,000
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 as amended, 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 an indenture (the "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).
In connection with rendering this opinion letter, we have examined the
Prospectus contained in the Registration Statement (the "Prospectus"), the forms
of prospectus supplement, and such other documents, records and instruments as
we have deemed necessary. As to matters of fact, we have examined and relied
upon representations or certifications of officers of the Transferors or public
officials. We have assumed the authenticity of all documents submitted to us as
originals, the genuiness of all signatures, the legal capacity of natural
persons and the conformity to the originals of all documents.
<PAGE> 2
In arriving at the opinion expressed below, we have assumed that (i)
each Pooling and Servicing Agreement and each Indenture will be duly and validly
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, (ii) each Pooling and Servicing Agreement and each Indenture 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
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 (iii) the Certificates or the Bonds will be sold in
the manner described in the Registration Statement.
In rendering this opinion letter, we express no opinion as to the laws
of any jurisdiction other than the United States Internal Revenue Code of 1986,
as amended, (the "Code") nor do we express any opinion, either implicitly or
otherwise, or any issue not expressly addressed below. In rendering this opinion
letter, we have not passed upon and do not pass upon the application of "doing
business" or the securities laws of any jurisdiction.
As special tax counsel to ACC and ACAC, we have advised ACC and ACAC
with respect to certain federal income tax aspects of the proposed issuance of
each Series of Certificate or Bonds after the date hereof as described in the
Registration Statement. Such advice has formed the basis for the description of
selected federal income tax consequences for holders of such Certificates or
Bonds that appears under the heading "Certain Federal Income Tax Consequences"
in the Prospectus. Such description does not purport to discuss all possible
federal income tax ramifications of the proposed issuance of the Certificates or
the Bonds, but with respect to those federal income tax consequences which are
discussed, in our opinion, the description is accurate.
This opinion set forth above is based on relevant provisions of the
Code, Treasury Regulations thereunder, and interpretations of the foregoing as
expressed in court decisions, administrative determinations, and legislative
history as of the date hereof. These provisions and interpretations are subject
to change, which may or may not be retroactive in effect, that might result in
modifications of our opinion.
We 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 or
regulations of the Securities and Exchange Commission thereunder, with respect
to any part of the Registration Statement, including this exhibit.
Respectfully submitted,
/s/O'Melveny & Myers LLP
