SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 25, 1997
MERIT Securities Corporation
(Exact name of registrant as specified in charter)
Virginia 03992 54-1736551
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
10900 Nuckols Road, 3rd Floor, Glen Allen, Virginia 23060
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 967-7400
<PAGE>
Item 1. Changes in Control of Registrant.
Not Applicable.
Item 2. Acquisition or Disposition of Assets.
Not Applicable.
Item 3. Bankruptcy or Receivership.
Not Applicable.
Item 4. Changes in Registrant's Certifying Accountant.
Not Applicable.
Item 5. Other Events.
On June 25, 1997, the Registrant issued $983,669,000 initial principal
balance of its Collateralized Bonds, Series 9, Class A-1, Class A-2, Class A-3,
Class B-1, Class B-2 and Class B-3 Bonds (the "Bonds") pursuant to the Series 9
Supplement dated as of June 1, 1997 (the "Series 9 Supplement"), attached hereto
as Exhibit 4.1, to the Indenture dated as of June 1, 1997, attached as an
exhibit to the Issuer's registratiion staement (the "Original Indenture" and,
collectively with the Series 9 Supplement, the "Indenture"), between the
Registrant and Texas Commerce Bank National Association, as trustee (the
"Trustee"). Capitalized terms used but not defined herein shall have the
meanings assigned to them in the Indenture. The Bonds were issued with the
initial principal amount as set forth below. The Class Interest Rates and the
Stated Maturities of the Bonds are as follows:
Original Class Interest Stated
Designation Principal Amount Rate Maturity
Class A-1 Bonds $766,000,000 (1) June 28, 2031
Class A-2 Bonds $119,200,000 (1) June 28, 2031
Class A-3 Bonds $30,520,000 (1) June 28, 2031
Class B-1 Bonds $42,791,000 (2) June 28, 2031
Class B-2 Bonds $15,095,000 (1) June 28, 2031
Class B-3 Bonds $10,063,000 (1) June 28, 2031
(1) The Class Interest Rates for the Class A-1, Class A-2, Class B-2 and
Class B-3 Bonds will initially equal, subject to the Applicable Cap,
the per annum rate equal to One-Month LIBOR, as determined on the
applicable Floating Rate Determination Date, plus, in each case, the
Applicable Spread, accrued during the applicable Accrual Period on the
outstanding principal balance of the Class A-1, Class A-2, Class B-2
and Class B-3 Bonds, respectively, immediately prior to the applicable
Payment Date. The Applicable Spread is initially 0.40% for the Class
A-1 Bonds, 0.55% for the Class A-2 Bonds, 1.00% for the Class B-2 Bonds
and 1.75% for the Class B-3 Bonds. The Applicable Cap is 10.00% per
annum for the Class A-1 and Class A-2 Bonds, 10.50% per annum for the
Class B-2 Bonds and 11.00% per annum for the Class B-3 Bonds. For the
initial Payment Date, the Class Interest Rates per annum will be
6.0875% for the Class A-1 Bonds, 6.2375% for the Class A-2 Bonds,
6.6875% for the Class B-2 Bonds, and 7.4375% for the Class B-3 Bonds
(2) The Class Interest Rates for the Class A-3 and Class B-1 Bonds will
equal, subject to a cap of 14% per annum, the per annum rate equal to
the sum of (a) the per annum rate, subject to a cap of 10.00%, equal to
1
<PAGE>
One-Month LIBOR, as determined on the applicable Floating Rate
Determination Date, plus 0.55% for the Class A-3 Bonds and 0.65% for
the Class B-1 Bonds (1.05% and 1.15%, respectively, if the Issuer does
not exercise its option to redeem the Bonds when first permitted to do
so), accrued during the applicable Accrual Period on the outstanding
principal balance of the Class A-3 and Class B-1 Bonds, respectively,
immediately prior to the applicable Payment Date and (b) the excess of
(i) twelve times the amount of interest at the per annum rate equal to
the excess of (x) the weighted average (by principal balance) of the
Net Rates on the Loans over (y) the weighted average (by principal
balance) of the Class Interest Rates on the Bonds (calculated, in the
case of the Class A-3 and Class B-1 Bonds, solely by reference to
clause (a) above) applicable to such Payment Date, accrued during the
applicable Accrual Period on a notional principal balance equal to the
aggregate outstanding principal balance of the Bonds immediately prior
to such Payment Date over (ii) the sum of the Interest Carryover
Amounts for all Classes of Bonds for the prior Payment Date, divided by
(iii) the sum of the outstanding principal balances of the Class A-3
and Class B-1 Bonds immediately prior to such Payment Date
As security for the Bonds, the Registrant pledged a pool of
conventional, one- to four-family, fully amortizing first lien mortgage loans
and manufactured housing installment sales contracts to the Trustee pursuant to
the Indenture. The Mortgage Loans were purchased by the Registrant in a
privately-negotiated transaction with Issuer Holding Corp. ("IHC") pursuant to a
Sales Agreement dated June 20, 1997, between the Registrant and IHC.
The Class A-1, Class A-2 and Class B-2 Bonds have been sold by the
Registrant to Lehman Brothers Inc. and Wheat, First Securities, Inc. (the
"Underwriters") pursuant to an Underwriting Agreement dated as of June 20, 1997,
between the Underwriters, and the Registrant and IHC. The Class A-3 and Class
B-1 Bonds have been sold by the Registrant to MSC I, L.P., a Virginia limited
partnership ("MSC"), pursuant to a Purchase Agreement dated as of June 20, 1997,
between MSC and the Registrant. The Issuer has retained the Class B-3 Bonds.
The description of the Collateral pledged to the Trustee pursuant to
the Series 9 Supplement begins on the following page. The amounts contained in
the following tables have been rounded to the nearest dollar amount or
percentage, as applicable. Asterisks (*) in the following tables indicate values
between 0.0% and 0.5%.
Item 6. Resignation of Registrant's Directors.
Not Applicable.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
4.1 Series 9 Supplement dated as of June 1, 1997 to Indenture
dated as of November 1, 1994 by and between MERIT Securities
Corporation, as Issuer and Texas Commerce Bank National
Association, as Trustee.
2
<PAGE>
<TABLE>
1) Current Scheduled Principal Balance
<CAPTION>
<S> <C>
Current Scheduled Percent of Scheduled
Principal Balances ($) Principal Balance (%)
- - ---------------------- ---------------------
1-100,000 11%
100,001-150,000 3%
150,001-203,150 4%
203,151-250,000 11%
250,001-300,000 12%
300,001-350,000 9%
350,001-400,000 8%
400,001-450,000 5%
450,001-500,000 5%
500,001-550,000 3%
550,001-600,000 5%
600,001-650,000 5%
650,001-700,000 2%
700,001-800,000 3%
800,001-900,000 3%
900,001-1,000,000 6%
1,000,001-2,000,000 5%
2,000,001-3,300,000 1%
Totals: 100%
The average Scheduled Principal Balance for the Loans is $191,329.
The maximum Scheduled Principal Balance of the Loans is approximately $3,300,000.
The minimum Scheduled Principal Balance of the Mortgage Loans is approximately $2,804. .
2) Gross Margin on Arm Mortgage Loans
<CAPTION>
Percent of Scheduled
Gross Margins (%) Principal Balance (%)
- - ----------------- ---------------------
.000-1.749 *
1.750-2.749 29%
2.750-2.999 50%
3.00-3.249 19%
3.250-3.499 *
3.500-3.749 *
3.750-4.501 1%
4.500-5.999 1%
Totals: 100%
The weighted average Gross Margin of the ARM Loans is approximately 2.61% per annum.
3) Current Note Rates
<CAPTION>
Percent of Scheduled
Current Note Rate (%) Principal Balance (%)
- - --------------------- ---------------------
4.375-5.999 5%
6.00-6.249 5%
6.250-6.499 9%
6.500-6.749 11%
6.750-6.999 17%
7.000-7.249 9%
7.250-7.499 3%
7.5-7.7499 7%
7.750-7.999 5%
8.00-8.249 1%
8.250-8.499 11%
8.500-8.749 6%
8.750-8.999 3%
9.000-11.249 6%
11.250-13.499 1%
Totals: 100%
The weighted average current Note Rate of the Loans is approximately 7.39% per annum.
The weighted average current Note Rate of the Fixed Loans and the ARM Loans is
approximately 9.78% and 7.16% per annum, respectively.
4) Remaining Term to Stated Maturity
<CAPTION>
Percent of Scheduled
Remaining Term (Months) Principal Balance (%)
- - ----------------------- ---------------------
0-320 19%
321-325 6%
326-330 2%
331-335 3%
336-340 2%
341-345 4%
346-350 16%
351-355 44%
356-360 4%
Totals: 100%
The weighted average remaining term to stated Maturity of the Loans is approximately 333 months.
5) Loan-to-Value given effect of additional Collateral (1)
<CAPTION>
Loan-to-Value given Percent of Scheduled
effect of additional Collateral Principal Balance (%)
- - ------------------------------- ---------------------
50.00-below 10%
50.01-55.00 3%
55.01-60.00 4%
60.01-65.00 7%
65.01-70.00 9%
70.01-75.00 15%
75.01-80.00 35%
80.01-85.00 2%
85.01-90.00 9%
90.01-100.00 6%
Totals: 100%
The weighted average Loan-to-Value given effect of additioanl Collateral is approximately 73%
6) State Distribution
<CAPTION>
Percent of Scheduled
State Principal Balance (%)
----- ---------------------
California 49%
Massachusetts 6%
Michigan 5%
New York 4%
Colorodo 4%
Illinois 3%
Pennsylvania 3%
Georgia 2%
Texas 2%
Florida 2%
North Carolina 2%
Virginia 2%
Maryland 2%
South Carolina 2%
Washington 2%
Connecticut 2%
Others* 10%
Totals: 100%
*Others Includes
Alabama, Alaska, Arizona, Arkansas, Delaware, Hawaii, Idaho, Indiana, , Kansas, Kentucky,
Louisiana, Maine, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada
New Hampshire,New Jersey,New Mexico, Ohio,Oklahoma, Oregon, Rhode Island, South Dakota,
Tennessee,Utah,Washington DC,West Virginia, Wisconsin, Wyoming
</TABLE>
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
June 25, 1997
MERIT SECURITIES CORPORATION
By: /s/Lisa R. Cooke
-----------------
Lisa R. Cooke, Vice President
4
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
4.1 Series 9 Supplement dated as of June 1, 1997 to
Indenture dated as of November 1, 1994 by and between
MERIT Securities Corporation, as Issuer and Texas
Commerce Bank National Association, as Trustee.
MERIT SECURITIES CORPORATION,
as Issuer,
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Trustee
-------------
SERIES 9 SUPPLEMENT
Dated as of June 1, 1997
TO
INDENTURE
Dated as of November 1, 1994
-------------
COLLATERALIZED BONDS
Series 9
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SERIES 9 SUPPLEMENT...............................................................................................1
PRELIMINARY STATEMENT.............................................................................................1
GRANTING CLAUSES..................................................................................................1
Section 1. Certain Defined Terms...............................................................................1
Section 2. Designation; Principal Amount; Maturity.............................................................7
Section 3. Date of the Bonds...................................................................................8
Section 4. Book-Entry Bonds....................................................................................8
Section 5. Denominations.......................................................................................9
Section 6. Determination of Interest Payments..................................................................9
Section 7. Application of Funds; Collateralization Fund.......................................................10
Section 8. Places for Payment.................................................................................11
Section 9. Redemption.........................................................................................11
Section 10. Modification of Mortgage Certificates.............................................................11
Section 11. Subordinated Bonds................................................................................12
Section 12. Default...........................................................................................12
Section 13. Repurchase of Directly Held Mortgage Loans........................................................13
Section 14. Additional Obligations and Covenants of the Trustee...............................................13
Section 15. Notice to the Rating Agencies.....................................................................14
Section 16. Monthly Remittance Report.........................................................................14
Section 17. Purchase of Delinquent Directly Held Mortgage Loans by Issuer.....................................14
Section 18. Amendments to Indenture...........................................................................14
Section 19. Additional Covenants of the Issuer................................................................18
Section 20. Ratification of Indenture.........................................................................18
Section 21. Form of Bonds.....................................................................................18
Section 22. Schedules.........................................................................................18
Section 23. Counterparts......................................................................................18
Section 24. Governing Law.....................................................................................18
</TABLE>
SCHEDULE I MORTGAGE LOANS AND MORTGAGE CERTIFICATES
SCHEDULE II INTEREST FUND LOANS
SCHEDULE III COLLATERALIZATION FUND LOANS
EXHIBIT A-1 FORM OF CLASS A-1 BONDS
EXHIBIT A-2 FORM OF CLASS A-2 BONDS
EXHIBIT A-3 FORM OF CLASS A-3 BONDS
EXHIBIT B-1 FORM OF CLASS B-1 BONDS
EXHIBIT B-2 FORM OF CLASS B-2 BONDS
EXHIBIT B-3 FORM OF CLASS B-3 BONDS
<PAGE>
SERIES 9 SUPPLEMENT
THIS SERIES 9 SUPPLEMENT (this "Series Supplement"), dated as of June
1, 1997, by and between MERIT SECURITIES CORPORATION, a Virginia corporation
(the "Issuer"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking
association, as trustee (the "Trustee"), under an Indenture dated as of November
1, 1994 (the "Original Indenture" and, as supplemented by this Series
Supplement, the "Indenture"), recites and provides as follows:
PRELIMINARY STATEMENT
Sections 4.01, 4.02 and 10.01 of the Original Indenture provide, among
other things, that the Issuer, when authorized by its Board of Directors, and
the Trustee may at any time and from time to time enter into an indenture
supplemental to the Original Indenture for the purpose of authorizing a Series
of Bonds and to specify certain terms of each Series of Bonds. The Board of
Directors of the Issuer has duly authorized the creation of a Series of Bonds
with an aggregate principal amount of $983,669,000 to be known as the
Collateralized Bonds, Series 9 (the "Bonds"), which will consist of six Classes
of Bonds designated as provided herein.
GRANTING CLAUSES
(a) To secure the payment of the principal of and interest on the Bonds
in accordance with their terms, all the sums payable under the Original
Indenture and this Series Supplement with respect to the Bonds and the
performance of the covenants with respect to the Bonds contained in the Original
Indenture and this Series Supplement, the Issuer hereby Grants to the Trustee,
in trust and as collateral security as provided in the Original Indenture and
this Series Supplement, for the benefit of the Bondholders, all the Issuer's
right, title and interest in and to any and all benefits accruing to the Issuer
from (i) the Directly Held Mortgage Loans (and all substitutions therefor as
provided by Section 3.11 of the Original Indenture), together with the related
Mortgage Loan Documents and the Issuer's interest in any Mortgaged Premises or
Manufactured Home that secures a Directly Held Mortgage Loan, but that is
acquired by foreclosure or deed in lieu of foreclosure after the Delivery Date,
all Monthly Payments due after June 1, 1997 and all Curtailments or other
principal prepayments received with respect to the Directly Held Mortgage Loans
during any Prepayment Period, (ii) any Substitute Loans, (iii) the Sales
Agreement, except that the Issuer shall retain its right to fees under Section 9
thereof and shall retain and assign its right to indemnification under Section
13 thereof, respectively, (iv) the Servicing Agreements (including the
Additional Loan Collateral held pursuant to the TBC Servicing Agreement), (v)
the Master Servicing Agreement, (vi) any sub-servicing agreements, (vii) the
Custody Agreement, (viii) the Standard Hazard Insurance Policies and the Primary
Mortgage Insurance Policies, if any, for the Directly Held Mortgage Loans, (ix)
the Title Insurance Policies, or other evidence of title permitted by the terms
of the Custody Agreement, for the Directly Held Mortgage Loans, if any, (x) the
Collateral Proceeds Account, the Collateralization Fund, the Custodial Reserve
Fund and the Surplus Account, whether in the form of cash, instruments,
securities or other properties, (xi) the Mortgage Certificates and all payments
and distributions with respect to the Mortgage Certificates for which the record
date therefor is after the Delivery Date and the Underlying Mortgage Loans with
respect to the Mortgage Certificates and (xii) the proceeds of all the foregoing
(including, but not by way of limitation, all cash, proceeds, accounts, accounts
receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts,
rights to payment of any and every kind and other forms of obligations and
receivables that at any time constitute all, or part of, or are included in the
proceeds of, any of the foregoing) (items (i) through (xii) collectively, the
"Trust Estate") to secure the Bonds.
(b) The Trustee acknowledges such Grant, accepts the trusts hereunder
in accordance with the provisions hereof and of the Original Indenture and
agrees to perform the duties herein or therein required in accordance with
Article Seven of the Original Indenture to the end that the interests of the
Bondholders may be adequately and effectively protected.
Section 1. Certain Defined Terms.
With respect to the Bonds and in addition to the definitions set forth
in Section 1.01 of the Original Indenture, the following provisions shall govern
the defined terms set forth below. Capitalized words and phrases used herein but
not defined herein or in the Original Indenture shall have the meanings set
forth in the Standard Provisions.
<PAGE>
"Accrual Period": With respect to each Payment Date, the period
commencing on the 28th day of the preceding month through the 27th day of the
month in which such Payment Date is deemed to occur (except that the first
Accrual Period will be the period from the Closing Date through July 27, 1997).
"Additional Loan Collateral": Collateral held with respect to certain
Directly Held Mortgage Loans pursuant to the TBC Servicing Agreement.
"Adjustable Rate Loans": ARM Loans listed in Schedule I to this Series
Supplement.
"Administrative Cost Rate": For each Mortgage Loan, the sum of (i) the
related Servicing Fee Rate, (ii) the related Master Servicing Fee Rate, (iii)
the rate used to calculate premiums, if any, on mortgage pool and other
insurance policies and certain other administrative expenses, if any, applicable
to such Mortgage Loan, (iv) the Bond Administration Fee Rate and (v) the fees of
any Special Servicer, in each case attributable to that Mortgage Loan.
"Available Funds": On each Payment Date the sum of (a) all payments or
distributions received in respect of the Mortgage Certificates and deposited in
the Collateral Proceeds Account (which represent substantially all the principal
and interest (at the Net Rate) received in respect of the Underlying Mortgage
Loans during the related Due Period) and (b) the sum of the following:
(i) all payments of interest (including payments of Month End
Interest) and principal with respect to the Directly Held
Mortgage Loans and any amounts in respect of any REO
(including Liquidation Proceeds (net of liquidation expenses)
and Insurance Proceeds) collected with respect to the related
Due Period (or applicable Prepayment Period, in the case of
unscheduled payments and other Liquidation Proceeds) with
respect to Directly Held Mortgage Loans and deposited in the
Collateral Proceeds Account;
(ii) any Advance of principal or interest due on a Directly Held
Mortgage Loan during the related Due Period with respect to
Directly Held Mortgage Loans deposited in the Collateral
Proceeds Account (Advances with respect to interest only in
the case of the Directly Held Mortgage Loans subject to the
Dynex Services Servicing Agreement);
(iii) any Scheduled Payments with respect to the Directly Held
Mortgage Loans due during, but collected prior to, the related
Due Period; and
(iv) all amounts received in connection with (A) the purchase of
any Directly Held Mortgage Loan due to the delivery of
defective mortgage loan documentation or otherwise or (B) the
purchase of a converted Directly Held Mortgage Loan;
less (c) the sum of the following:
(i) one-twelfth of the Administrative Cost Rate multiplied by the
Scheduled Principal Balance of each Directly Held Mortgage
Loan (excluding the Servicing Fee Rate with respect to the
Directly Held Mortgage Loans subject to the Dynex Services
Servicing Agreement);
(ii) all amounts required as reimbursement for any Advances
previously made on a Directly Held Mortgage Loan upon the
Liquidation of such Directly Held Mortgage Loan;
(iii) all amounts required to be reimbursed for any Non-Recoverable
Advances with respect to the Directly Held Mortgage Loans; and
(i) from and after the occurrence of an Event of Default, all sums
due under the Indenture to the Trustee associated with the
disposition of all or a portion of the Trust Estate or the
exercise of any of the other remedies set forth in Article Six
of the Indenture.
"Bond Administrator": Dynex as part of its responsibilities as Master
Servicer.
"Bond Administration Fee Rate": For each Loan, 0.02% per annum, which
shall include the Trustee Fee Rate and, with respect to the Directly Held
Mortgage Loans, shall include the Master Servicing Fee.
2
<PAGE>
"Bond Payment Percentage": On each Payment Date, 100%; except that,
upon the approval of the Issuer, if on any Payment Date (a) the
Overcollateralization Amount is greater than or equal to the Target
Overcollateralization Amount but only to the extent that the
Overcollateralization Amount continues to equal or exceed the Target
Overcollateralization Amount and (b) over the prior six months, the average
Unpaid Principal Balance of the Directly Held Mortgage Loans delinquent 60 days
or more (including for this purpose any Directly Held Mortgage Loans in
foreclosure and REO) has not exceeded 6% of the average aggregate Unpaid
Principal Balance of all Directly Held Mortgage Loans, then the Bond Payment
Percentage for such Payment Date will be the Bond Percentage for such Payment
Date.
"Bond Percentage": On each Payment Date, the aggregate outstanding
principal balance of the Bonds divided by the sum of (i) the then aggregate
Scheduled Principal Balance of the Loans and (ii) the balance in the
Overcollateralization Fund, in each case as of such Payment Date (but not more
than 100%).
"Bonds": The Class A-1, Class A-2, Class A-3, Class B-1, Class B-2 and
Class B-3 Bonds.
"Chase Mortgage": Chase Manhattan Mortgage Corporation.
"Chase Mortgage Servicing Agreement": Purchase, Warranties and
Servicing Agreement dated as of May 1, 1997 (Whole Loan Series FRM 1997 WL-3),
among Chase Securities, Inc., Purchaser, The Chase Manhattan Bank, Seller, and
Chase Mortgage, Servicer and June 1, 1997 (Whole Loan Series FRM 1997 WL-5),
among Lehman Capital, a Division of Lehman Brothers Holdings, Inc., Purchaser,
The Chase Manhattan Bank, Seller, and Chase Mortgage, Servicer.
"Class A-1 Interest Rate": The Class A-1 Interest Rate is the per annum
rate equal to One-Month LIBOR, as determined on the applicable Floating Rate
Determination Date, plus 0.40%, subject to a cap of 10.00%, accrued during the
applicable Accrual Period on the outstanding principal balance of the Class A-1
Bonds immediately prior to such Payment Date, except that (i) for the initial
Payment Date, the Class A-1 Interest Rate is 6.0875% per annum; and (ii) the
Class A-1 Interest Rate for any Payment Date following the first Payment Date on
which the Issuer has the option to redeem the Bonds is the per annum rate equal
to One-Month LIBOR, as determined on the applicable Floating Rate Determination
Date, plus 0.80% subject to a cap of 10.40%; provided that, if the Issuer
redeems the Class A-1 Bonds through an Affiliate and the Class A-1 Bonds remain
outstanding following such purchase, the Class A-1 Interest Rate shall not be
increased as provided in this clause (ii).
"Class A-2 Interest Rate": The Class A-2 Interest Rate is the per annum
rate equal to One-Month LIBOR, as determined on the applicable Floating Rate
Determination Date, plus 0.55%, subject to a cap of 10.00%, accrued during the
applicable Accrual Period on the outstanding principal balance of the Class A-2
Bonds immediately prior to such Payment Date, except that (i) for the initial
Payment Date, the Class A-2 Interest Rate is 6.2375% per annum; and (ii) the
Class A-2 Interest Rate for any Payment Date following the first Payment Date on
which the Issuer has the option to redeem the Bonds is the per annum rate equal
to One-Month LIBOR, as determined on the applicable Floating Rate Determination
Date, plus 1.05% subject to a cap of 10.50%; provided that, if the Issuer
redeems the Class A-2 Bonds through are Affiliate and the Class A-2 Bonds remain
outstanding following such purchase, the Class A-2 Interest Rate shall not be
increased as provided in this clause (ii).
"Class A-3 Interest Rate": The Class Interest Rate for the Class A-3
Bonds will equal, subject to a cap of 14.00% per annum, the per annum rate equal
to the sum of (a) the per annum rate, subject to a cap of 10.00%, equal to
One-Month LIBOR, as determined on the applicable Floating Rate Determination
Date, plus 0.55% (1.05% if the Issuer does not exercise its option to redeem the
Bonds when first permitted to do so; provided that, if the Issuer redeems the
Class A-3 Bonds through an Affiliate and the Class A-3 Bonds remain outstanding
following such purchase, the Class A-3 Interest Rate shall not be increased as
provided in this parenthetical), accrued during the applicable Accrual Period on
the outstanding principal balance of the Class A-3 Bonds immediately prior to
such Payment Date and (b) the excess of (i) twelve times the amount of interest
at the per annum rate equal to the excess of (x) the weighted average (by
principal balance) of the Net Rates on the Loans over (y) the weighted average
(by principal balance) of the Class Interest Rates on the Bonds (calculated, in
the case of the Class A-3 and Class B-1 Bonds, solely by reference to clause (a)
applicable to such Payment Date, accrued during the applicable Accrual Period on
a notional principal balance equal to the aggregate outstanding principal
balance of the Bonds immediately prior to such Payment Date over (ii) the sum of
the Interest Carryover Amounts for all Classes of Bonds for the prior Payment
Date, divided by (iii) the sum of the outstanding principal balance of the Class
A-3 and Class B-1 Bonds immediately prior to such Payment Date.
3
<PAGE>
"Class B-1 Interest Rate": The Class Interest Rate for the Class B-1
Bonds will equal, subject to a cap of 14% per annum, the per annum rate equal to
the sum of (a) the per annum rate, subject to a cap of 10.00%, equal to
One-Month LIBOR, as determined on the applicable Floating Rate Determination
Date, plus 0.65% (1.15% if the Issuer does not exercise its option to redeem the
Bonds when first permitted to do so; provided that, if the Issuer redeems the
Class B-1 Bonds through an Affiliate and the Class B-1 Bonds remain outstanding
following such purchase, the Class B-1 Interest Rate shall not be increased as
provided in this parenthetical), accrued during the applicable Accrual Period on
the outstanding principal balance of the Class B-1 Bonds immediately prior to
such Payment Date and (b) the excess of (i) twelve times the amount of interest
at the per annum rate equal to the excess of (x) the weighted average (by
principal balance) of the Net Rates on the Loans over (y) the weighted average
(by principal balance) of the Class Interest Rates on the Bonds (calculated, in
the case of the Class A-3 and Class B-1 Bonds, solely by reference to clause (a)
applicable to such Payment Date, accrued during the applicable Accrual Period on
a notional principal balance equal to the aggregate outstanding principal
balance of the Bonds immediately prior to such Payment Date over (ii) the sum of
the Interest Carryover Amounts for all Classes of Bonds for the prior Payment
Date, divided by (iii) the sum of the outstanding principal balances of the
Class A-3 and Class B-1 Bonds immediately prior to such Payment Date.
"Class B-2 Interest Rate": The Class B-2 Interest Rate is the per annum
rate equal to One-Month LIBOR, as determined on the applicable Floating Rate
Determination Date, plus 1.00%, subject to a cap of 10.50%, accrued during the
applicable Accrual Period on the outstanding principal balance of the Class B-2
Bonds immediately prior to such Payment Date, except that (i) for the initial
Payment Date, the Class B-2 Interest Rate is 6.6875% per annum, and (ii) the
Class B-2 Interest Rate for any Payment Date following the first Payment Date on
which the Issuer has the option to redeem the Bonds shall be the per annum rate
equal to One-Month LIBOR, as determined on the applicable Floating Rate
Determination Date, plus 1.50% subject to a cap of 11.00%; provided that, if the
Issuer redeems the Class B-2 Bonds through an Affiliate and the Class B-2 Bonds
remain outstanding following such purchase, the Class B-2 Interest Rate shall
not be increased as provided in this clause (ii).
"Class B-3 Interest Rate": The Class B-3 Interest Rate is the per annum
rate equal to One-Month LIBOR, as determined on the applicable Floating Rate
Determination Date, plus 1.75%, subject to a cap of 11%, accrued during the
applicable Accrual Period on the outstanding principal balance of the Class B-3
Bonds immediately prior to such Payment Date, except that (i) for the initial
Payment Date, the Class B-3 Interest Rate is 7.4375% per annum; and (ii) the
Class B-3 Interest Rate for any Payment Date following the first Payment Date on
which the Issuer has the option to redeem the Bonds shall be the per annum rate
equal to One-Month LIBOR, as determined on the applicable Floating Rate
Determination Date, plus 2.25% subject to a cap of 11.50%; provided that, if the
Issuer redeems the Class B-3 Bonds through an Affiliate and the Class B-3 Bonds
remain outstanding following such purchase, the Class B-3 Interest Rate shall
not be increased as provided in this clause (ii).
"Class Interest Rates": The Class A-1, Class A-2, Class A-3, Class
B-1, Class B-2 and Class B-3 Interest Rates.
"Class Interest Rate": With respect to a Payment Date, the Class A-1,
Class A-2, Class A-3, Class B-1, Class B-2 and Class B-3 Interest Rate, as
applicable.
"Clearing Agency": The Depository Trust Company or any successor
depository selected by the Issuer.
"Collateral": The Directly Held Mortgage Loans, the Mortgage
Certificates and the Collateralization Fund.
"Collateral Value": With respect to each Directly Held Mortgage Loan
that is not a Discount Loan, the Scheduled Principal Balance of such Directly
Held Mortgage Loan, and, with respect to each Discount Loan, the Scheduled
Principal Balance of such Loan multiplied by a fraction, the numerator of which
will equal the Net Rate of such Loan and the denominator of which will equal
10%.
"Collateralization Deposit": On each Payment Date an amount equal to
the excess of (i) the aggregate of the Discount Principal Amounts for the
immediately preceding Payment Date (or the Cut-off Date, in the case of the
first Payment Date) over (ii) the aggregate of the Discount Principal Amounts
for such Payment Date.
"Collateralization Fund": The account established pursuant to Section
7(f).
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"Converted Loan": An Adjustable Rate Mortgage Loan with respect to
which the Borrower has complied with the applicable requirements to convert the
rate to a fixed rate of interest, and such conversion has been processed by the
applicable Servicer.
"Current Interest": With respect to each Class of Bonds and each
Payment Date, the sum of (i) the interest accrued at the applicable Class
Interest Rate for the applicable Accrual Period on the outstanding principal
balance of such Class, (ii) the excess of (A) interest accrued at the applicable
Class Interest Rate with respect to prior Payment Dates over (B) the amount
actually paid to such Class with respect to interest on such prior Payment Dates
and (iii) interest on such excess at the applicable Class Interest Rate for such
Accrual Period less (iv) the Interest Carryover Amount for such Class.
"CPR": Constant Prepayment Rate, as calculated in accordance with
industry standards.
"Curtailment": Any partial prepayment of principal on a Directly Held
Mortgage Loan which otherwise is current.
"Custody Agreement": The custody agreement dated as of June 25, 1997,
between the Issuer and Texas Commerce Bank National Association, as custodian.
"Cut-off Date": June 1, 1997.
"Delivery Date": June 25, 1997.
"Directly Held Mortgage Loans": The Mortgage Loans and Manufactured
Home Loans listed in Schedule II to this Series Supplement.
"Discount Loan": Each Level Payment Loan with a Net Rate less than 10%
per annum identified as such on Schedule I hereto.
"Discount Principal Amount": With respect to each Discount Loan on each
Payment Date, an amount equal to the amount by which the Scheduled Principal
Balance of such Discount Loan exceeds its Collateral Value.
"Dynex": Dynex Capital, Inc., a Virginia corporation.
"Dynex Services": Dynex Financial, Inc., a Virginia corporation, doing
business as Dynex Services.
"Dynex Services Servicing Agreement": The servicing agreement dated as
of June 1, 1997, by and between the Issuer and Dynex Services, which
incorporates therein the Standard Terms to Servicing.
"Eligible Investments": For purposes of the definition of Eligible
Investments in the Indenture, references to long-term debt ratings in one of the
two highest applicable categories from each Rating Agency shall be deemed to be
ratings of "Aaa" or higher by Moody's Investors Service, Inc., and "AAA" or
higher by Fitch Investors Service, L.P., and references to commercial paper or
short-term debt ratings in the highest applicable category from each Rating
Agency shall be deemed to be "P-1" by Moody's Investors Service, Inc. and "F-1"
by Fitch Investors Service, L.P.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"Floating Rate Determination Date": For each Accrual Period, the second
London Banking Day prior to the commencement of such Accrual Period.
"Harbourton": Harbourton Mortgage Co., L.P., a limited partnership.
"Harbourton Agreement: The servicing agreement dated as of June 1,
1997, by and between the Issuer and Harbourton.
"IHC": Issuer Holding Corp., a Virginia corporation.
"Interest Carryover Amount": With respect to each Class of Bonds and
each Payment Date, the sum of (i) the product of (x) the outstanding principal
balance of such Class and (y) one twelfth of the excess of (A) the Class
Interest Rate for such Class over (B) the weighted average (by principal
balance) of the Net Rates on the Loans, in each case with respect to such
Payment Date, and (ii) any such product remaining outstanding with respect to
prior Payment Dates, together with interest thereon at the applicable Class
Interest Rate.
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"Interest Payment Amount": On each Payment Date, the sum of (i) the
portion of Available Funds attributable to interest on the Mortgage Loans and
(ii) any interest earnings on the Collateralization Fund to the extent required
to be used to pay Current Interest and any Interest Carryover Amount on the
Bonds.
"Level Payment Loans": Directly Held Mortgage Loans listed in Schedule
I to this Series Supplement that are not Adjustable Rate Mortgage Loans.
"London Banking Day": Any day on which commercial banks and foreign
exchange markets settle payments in London and New York City.
"Master Servicer": With respect to the Directly Held Mortgage Loans,
Dynex, its permitted successors and assigns and, with respect to the Underlying
Mortgage Loans, the person designated as master servicer (or administrator) in
the documents with respect to the related Mortgage Certificates.
"Master Servicing Agreement": The master servicing agreement dated as
of June 1, 1997, by and between the Issuer and Dynex, which incorporates therein
the Standard Terms to the Master Servicing Agreement, June 1995 Edition.
"Master Servicing Fee Rate": For each Underlying Mortgage Loan, the
rate per annum designated as the master servicing (or administrator) rate for
such Underlying Mortgage Loan in the documents with respect to the related
Mortgage Certificates. For each Directly Held Mortgage Loan, the Master
Servicing Rate is included in the Bond Administration Fee Rate.
"Mortgage Certificates": The mortgage securities listed in Schedule I
to this Series Supplement.
"Mortgage Loans": The Directly Held Mortgage Loans and the Underlying
Mortgage Loans.
"Norwest": Norwest Mortgage, Inc.
"Norwest Servicing Agreement": Seller's Warranties and Servicing
Agreement dated as of January 1, 1997, between Lehman Capital, a Division of
Lehman Brothers Holdings Inc., and Norwest.
"One-Month LIBOR": For each applicable Accrual Period, the per annum
rate established in accordance with the provisions of Section 6(b) hereof.
"Overcollateralization Amount": On each Payment Date, before giving
effect to any payments to be made on such Payment Date, the excess, if any, of
(i) the sum of (A) the aggregate Scheduled Principal Balance of the Mortgage
Loans and (B) the balance in the Collateralization Fund over (ii) the aggregate
outstanding principal balance of the Bonds.
"Principal Payment Amount": On each Payment Date, the sum of (i) the
excess of (A) the portion of Available Funds attributable to principal of the
Mortgage Loans over (B) the Collateralization Deposit and (ii) any amount in the
Collateralization Fund to the extent required to be used to pay principal of the
Bonds.
"Prospectus": The Prospectus Supplement dated June 20, 1997, and the
Prospectus dated June 20, 1997, of the Issuer with respect to the offer and sale
of the Bonds.
"Purchase Price": With respect to a Directly Held Mortgage Loan
purchased from the Trust Estate in accordance with Section 13 hereof, an amount
equal to the Unpaid Principal Balance of the Directly Held Mortgage Loan plus
(i) if such Directly Held Mortgage Loan is repurchased during a Prepayment
Period under the applicable Servicing Agreement that ends during the calendar
month in which the repurchase occurs, accrued and unpaid interest thereon at the
applicable Net Rate to the date of purchase, or (ii) if such Directly Held
Mortgage Loan is repurchased during a Prepayment Period that does not end during
the calendar month in which the repurchase occurs, accrued and unpaid interest
thereon at the applicable Net Rate through the end of the calendar month in
which the purchase occurs. With respect to a Mortgage Certificate purchased from
the Trust Estate in accordance with Section 7(b) of the Sales Agreement, an
amount equal to the outstanding balance thereof plus accrued and unpaid interest
thereon to the date of purchase at the applicable Mortgage Certificate's
interest rate.
"Rating Agency": Each of Moody's Investors Service, Inc., and Fitch
Investors Service, L.P.
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"Redemption Price": An amount equal to 100% of the aggregate
Outstanding principal balance of the Class of Bonds redeemed plus accrued and
unpaid interest through the applicable Accrual Date.
"Sales Agreement": The Sales Agreement dated as of June 1, 1997,
relating to the Directly Held Mortgage Loans and the Mortgage Certificates (and
the Underlying Mortgage Loans), between the Issuer and IHC.
"Senior Bonds": The Class A-1, Class A-2 and Class A-3 Bonds and, after
the Class A-1, Class A-2 and Class A-3 Bonds have been paid in full, as provided
in the definition of Subordinated Bonds.
"Series Year Reporting Date": June 1 of each year, commencing June 1,
1998.
"Servicing Agreements": With respect to the Directly Held Mortgage
Loans, the Chase Mortgage Servicing Agreement, the Dynex Services Servicing
Agreement, the Harbourton Servicing Agreement, the Norwest Servicing Agreement
and the TBC Servicing Agreement. With respect to the Underlying Mortgage Loans,
the servicing agreements provided for with respect to the related Mortgage
Certificates.
"Servicing Fee Rate": For each Underlying Mortgage Loan, the rate per
annum designated as the servicing rate for such Underlying Mortgage Loan in the
documents with respect to the related Mortgage Certificates. For each Directly
Held Mortgage Loan, the rate per annum designated as the Servicing Fee Rate in
the applicable Servicing Agreement.
"Subordinated Bonds": The Class B-1, Class B-2 and Class B-3 Bonds and
any additional Subordinated Bonds hereafter issued; provided, however, that 91
days after the Class A-1 , Class A-2 and Class A-3 Bonds are paid in full, the
Class B-1 Bonds shall be Senior Bonds; and 91 days after the Class B-1 Bonds are
paid in full, the Class B-1 Bonds shall be Senior Bonds; 91 days after the Class
B-2 Bonds are paid in full, the Series B-3 Bonds shall be Senior Bonds.
"TBC Servicing Agreement": The Mortgage Loan Sale, Warranties and
Servicing Agreements dated as of April 1, 1997, and June 1, 1997, between Boston
Safe Deposit and Trust Company and Lehman Capital, a Division of Lehman Brothers
Holding, Inc., together with the Additional Pledged Collateral Custodial
Agreement dated as of April 1, 1996, between Lehman Capital, a Division of
Lehman Brothers Holding, Inc., and Boston Safe Deposit and Trust Company and the
Assignment and Assumption dated June 25, 1997, between Lehman Capital, a
Division of Lehman Brothers Holding, Inc. and Resource.
"Target Overcollateralization Amount": On any Payment Date, an amount
equal to the greater of (i) the product of (a) twice the percentage represented
by the initial Overcollateralization Amount and (b) the aggregate Scheduled
Principal Balance of the Mortgage Loans and (ii) $100,000.
"Trustee Fee Rate": The rate of .002% per annum for each Mortgage
Loan.
"Underlying Mortgage Loans": The Mortgage Loans related to the
Mortgage Certificates.
Section 2. Designation; Principal Amount; Maturity.
The Bonds shall be designated generally as the Issuer's Collateralized
Bonds, Series 9. The aggregate principal amount of Bonds that may be
authenticated and delivered under this Series Supplement is limited to
$983,669,000, except for Bonds authenticated and delivered upon registration of,
transfer of or in exchange for, or in lieu of, other Bonds pursuant to Sections
3.04, 3.05 or 3.06 of the Original Indenture. The aggregate principal amount of
Bonds shall be divided among six Classes, having designations, initial principal
amounts, designations as Senior Bonds or Subordinated Bonds, Bond Interest Rates
and Stated Maturities as follows:
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Initial Principal Senior/ Bond Interest Stated
Designation Amount Subordinated Rate Maturity
Class A-1 $766,000,000 Senior (1) June 28, 2031
Class A-2 $119,200,000 Senior (2) June 28, 2031
Class A-3 $30,520,000 Senior (3) June 28, 2031
Class B-1 $42,791,000 Subordinate (4) June 28, 2031
Class B-2 $15,095,000 Subordinate (5) June 28, 2031
Class B-3 $10,063,000 Subordinate (6) June 28, 2031
(1) The Class A-1 Interest Rate.
(2) The Class A-2 Interest Rate.
(3) The Class A-3 Interest Rate.
(4) The Class B-1 Interest Rate.
(5) The Class B-2 Interest Rate.
(6) The Class B-3 Interest Rate.
Section 3. Date of the Bonds.
The Bonds that are authenticated and delivered by the Trustee to or
upon the order of the Issuer on the Delivery Date shall be dated the Delivery
Date. All other Bonds that are authenticated after the Delivery Date for any
other purpose under the Indenture shall be dated the date of their
authentication or as otherwise provided in the indenture supplement authorizing
their issuance.
Section 4. Book-Entry Bonds.
The Bonds (other than the Class B-3 Bonds) shall be Book-Entry Bonds
and shall be issued initially as one or more certificates in the name of the
Clearing Agency or its nominee. Initially the Class B-3 Bonds shall be
Certificated Bonds but may be converted to Book-Entry Bonds. For all purposes,
the Trustee shall deal with the Clearing Agency as the owner of such Book-Entry
Bonds in accordance with Section 3.08 of the Original Indenture. The rights of
Beneficial Owners of the Book-Entry Bonds shall be limited to those established
by law and agreements between such Beneficial Owners and the Clearing Agency and
Clearing Agency Participants. The Beneficial Owners of the Book- Entry Bonds
shall not be entitled to certificated securities for the Book-Entry Bonds as to
which they are the Beneficial Owners, except as provided below. Requests and
directions from, and votes of, the Clearing Agency, as Holder, shall not be
deemed to be inconsistent if they are made with respect to different Beneficial
Owners. Without the consent of the Issuer and the Trustee, a Book-Entry Bond may
not be transferred by the Clearing Agency except to another Clearing Agency that
agrees to hold the Book-Entry Bond for the account of the respective Clearing
Agency Participants and Beneficial Owners.
None of the Issuer, the Bond Administrator, any Master Servicer or the
Trustee will have any liability for any aspect of the records relating to or
payment made on account of Beneficial Owners of the Book-Entry Bonds held by the
Clearing Agency, or for maintaining, supervising or reviewing any records
relating to such Beneficial Owners.
The Book-Entry Bonds will be issued in fully registered, certificated
form to Beneficial Owners of Book- Entry Bonds or their nominees, rather than to
the Clearing Agency or its nominee, only if (a) the Issuer advises the Trustee
in writing that the Clearing Agency is no longer willing or able to discharge
properly its responsibilities as depository with respect to the Book-Entry Bonds
and the Issuer is unable to locate a qualified successor within 30 days or (b)
the Issuer, at its option, elects to terminate the book-entry system operating
through the Clearing Agency.
Upon the occurrence of either event described in the immediately
preceding paragraph, the Trustee is required to notify the Clearing Agency,
which in turn will notify all Beneficial Owners of Book-Entry Bonds through
Clearing Agency Participants, of the availability of Certificated Bonds. Upon
surrender by the Clearing Agency of the certificates representing the Book-Entry
Bonds and receipt of instructions for re-registration, the Trustee will reissue
the Book-Entry Bonds as Certificated Bonds to the Beneficial Owners identified
in writing by the Clearing Agency. Such Certificated Bonds shall not constitute
Book-Entry Bonds.
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Section 5. Denominations.
The Bonds will be registered in one or more certificates in the name of
a nominee of the Clearing Agency, and beneficial interests will be held by
investors through the book-entry facilities of the Clearing Agency in minimum
denominations of $100,000 and increments of $1,000 in excess thereof, except
that one Bond of each Class may be issued in a different denomination and except
that the Class B-3 Bonds may be registered in the name of the person specified
by the Issuer as a single certificated Bond at the option of the Issuer.
Section 6. Determination of Interest Payments.
(a) Each Class of Bonds will be entitled to receive on each Payment
Date an amount equal to the Current Interest and Interest Carryover Amount for
such Class for such Payment Date.
(b) One-Month LIBOR shall be determined as follows:
On each Floating Rate Determination Date, the Bond Administrator will
determine the arithmetic mean of the London Interbank Offered Rate ("LIBOR")
quotations for one-month Eurodollar deposits ("One-Month LIBOR") for the
succeeding Accrual Period on the basis of the offered LIBOR quotations provided
to the Bond Administrator as of 11:00 a.m. (London time) on such Floating Rate
Determination Date. As used herein with respect to a Floating Rate Determination
Date, "Reference Banks" means four leading banks 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
Bloomberg Screen LIUS01M Index Page on the Floating Rate Determination Date in
question and (iii) which have been designated as such by the Bond Administrator
and are able and willing to provide such quotations to the Bond Administrator on
each Floating Rate Determination Date; and "Bloomberg Screen LIUS01M Index Page"
means the display designated as page "LIUS01M" on the Bloomberg Financial
Markets Commodities News (or such other pages as may replace such page on that
service for the purpose of displaying LIBOR quotations of major banks). If any
Reference Bank should be removed from the Bloomberg Screen LIUS01M Index Page or
in any other way fails to meet the qualifications of a Reference Bank, the Bond
Administrator may, in its sole discretion, designate an alternative Reference
Bank.
On each Floating Rate Determination Date, One-Month LIBOR for the next
succeeding Accrual Period will be established by the Bond Administrator as
follows:
(i) If on any Floating Rate Determination Date two or more
of the Reference Banks provide offered One-Month LIBOR quotations on
the Bloomberg Screen LIUS01M Index Page, One-Month LIBOR for the next
Accrual Period will be the arithmetic mean of such offered quotations
(rounding such arithmetic mean if necessary to the nearest five
decimal places).
(ii) If on any Floating Rate Determination Date only one or
none of the Reference Banks provides such offered quotations,
One-Month LIBOR for the next Accrual Period will be the higher of (x)
One-Month LIBOR as determined on the previous Floating Rate
Determination Date and (y) the Reserve Interest Rate. The "Reserve
Interest Rate" will be the rate per annum that the Bond Administrator
determines to be either (A) the arithmetic mean (rounding such
arithmetic mean if necessary to the nearest five decimal places) of
the one-month Eurodollar lending rate that New York City banks
selected by the Bond Administrator are quoting, on the relevant
Floating Rate Determination Date, to the principal London offices of
at least two leading banks in the London interbank market or (B) in
the event that the Bond Administrator can determine no such
arithmetic mean, the lowest one-month Eurodollar lending rate that
the New York City banks selected by the Bond Administrator are
quoting on such Floating Rate Determination Date to leading European
banks.
(iii) If on any Floating Rate Determination Date the Bond
Administrator is required but is unable to determine the Reserve
Interest Rate in the manner provided in paragraph (ii) above,
One-Month LIBOR for the next applicable Accrual Period will be
One-Month LIBOR as determined on the previous Floating Rate
Determination Date.
Notwithstanding the foregoing, One-Month LIBOR for the next
succeeding Accrual Period shall not be based on One-Month LIBOR for the previous
Accrual Period for two consecutive Floating Rate Determination Dates.
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If, under the priorities described above, One-Month LIBOR for the next
succeeding Accrual Period would be based on One-Month LIBOR for the previous
Floating Rate Determination Date for the second consecutive Floating Rate
Determination Date, the Bond Administrator shall select an alternative index
(over which the Bond Administrator has no control) used for determining
one-month Eurodollar lending rates that is calculated and published (or
otherwise made available) by an independent third party.
The establishment of One-Month LIBOR (or an alternative index) by the
Bond Administrator and the Bond Administrator's subsequent calculation of the
applicable Class Interest Rates for the relevant Accrual Period, in the absence
of manifest error, will be final and binding.
Section 7. Application of Funds.
(a) On each Payment Date, the Interest Payment Amount will be applied
to pay interest on the Bonds in the following order of priority:
1, to pay Current Interest and any Interest Carryover Amount with
respect to the Senior Bonds; provided, however, that, if the Interest
Payment Amount is not sufficient to pay the full amount of Current
Interest and any Interest Carryover Amount on the Senior Bonds, the
Interest Payment Amount will be applied pro rata based on the Current
Interest and any Interest Carryover Amount otherwise payable to each
Class of the Senior Bonds;
2, to pay Current Interest and any Interest Carryover Amount with
respect to the Class B-1 Bonds;
3, to pay Current Interest and any Interest Carryover Amount with
respect to the Class B-2 Bonds;
4, to pay Current Interest and any Interest Carryover Amount with
respect to the Class B-3 Bonds;
5, to pay the Servicing Fee with respect to the Directly Held Mortgage
Loans subject to the Dynex Services Servicing Agreement; and
6, any remainder to be released to the Issuer as Surplus.
(b) On each Payment Date, the product of the Bond Payment Percentage
and the Principal Payment Amount will be applied to pay principal of the Bonds
in the following order of priority:
1, to pay principal of the Senior Bonds, such principal to be paid
sequentially to the Class A-1, Class A-2 and Class A-3 Bonds, in that
order, so that no such payment will be made to any such Class until all
Classes with a lower numeral designation have been paid in full;
provided, however, that, on any Payment Date on which the aggregate
principal balance of the Senior Bonds is equal to or greater than the
sum of (i) the aggregate Scheduled Principal Balance of the Mortgage
Loans and (ii) the amount in the Collateralization Fund, the Principal
Payment Amount will be paid pro rata to the Senior Bonds (based on
principal balances) and not sequentially;
2, to pay principal of the Class B-1 Bonds until paid in full;
3, to pay principal of the Class B-2 Bonds until paid in full;
4, to pay principal of the Class B-3 Bonds until paid in full; and
5, any remainder of the Principal Payment Amount to be released to the
Issuer as Surplus.
(c) All payments made with respect to each Class of Bonds on each
Payment Date shall be allocated pro rata among the Outstanding Bonds of such
Class.
(d) All payments or allocations of amounts in the Collateral Proceeds
Account, Custodial Reserve Fund, Collateralization Fund and Surplus Account and
all payments made by the Trustee under any section hereof or under the Original
Indenture shall be made in accordance with written instructions of the Issuer or
its designee.
(e) On the Closing Date, the Issuer will establish a fund (the
"Collateralization Fund") and deposit therein, as additional security for the
Bonds, the assets listed on Schedule III hereto with a principal balance equal
to $13,505,974. The Issuer may substitute Eligible Investments for the assets
initially deposited in the Collateralization Fund. The Issuer will not have any
other obligation to make deposits to the Collateralization Fund. Except as
provided in Section 7(g), all receipts with respect to the foregoing deposit to
the Collateralization Fund will be retained in the Collateralization Fund.
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(f) On each Payment Date, the Trustee is required: (a) to deposit in
the Collateralization Fund from the principal portion of the Available Funds an
amount equal to the Collateralization Deposit; (b) to apply interest earnings on
the loans or Eligible Investments on deposit in the Collateralization Fund to
pay interest on the Bonds if the portion of Available Funds attributable to
interest is less than the sum of the Current Interest and any Interest Carryover
Amounts on all Classes of the Bonds; (c) to apply amounts in the
Collateralization Fund to the payment of principal of the Bonds if, after giving
effect to the application of the portion of Available Funds attributable to
principal to pay the principal of the Bonds, the aggregate principal balance of
the Bonds equals or exceeds the aggregate Scheduled Principal Balance of the
Loans; and (d) to release from the Collateralization Fund to the Issuer: (i) any
interest earnings on loans or Eligible Investments on deposit in the
Collateralization Fund not required to be applied as set forth in clause (b)
above and (ii) the amount, if any, by which the excess of (x) the sum of (A) the
aggregate Scheduled Principal Balance of the Mortgage Loans and (B) the balance
in the Collateralization Fund over (y) the principal balance of the Bonds
exceeds the Target Overcollateralization Amount.
(g) On any Payment Date on which the Overcollateralization Amount has
been reduced to zero, any Realized Loss on the Collateral shall be allocated,
after giving effect to all payments made on such Payment Date, in reduction of
the principal balance of the Bonds, first, to the Class B-3 Bonds, until the
principal balance thereof has been reduced to zero, second, to the Class B-2
Bonds, until the principal balance thereof has been reduced to zero, third, to
the Class B-1 Bonds, until the principal balance thereof has been reduced to
zero, and fourth, to the Classes of Senior Bonds, pro rata on the basis of their
respective principal balances, until the principal balance of each Class of
Senior Bonds has been reduced to zero. Any Realized Losses allocated to any
Class of Bonds shall be allocated among the Bonds of such Class in proportion to
their respective principal balances.
Section 8. Places for Payment.
Payments to the Holders of each Class of Bonds on any Payment Date will
be made to the Holders of record of the respective Class on the related Record
Date. Payments on the Book-Entry Bonds shall be made to the Clearing Agency by
wire transfer. The Trustee may charge any Holder its standard wire transfer fee
for any payments made by wire transfer.
Section 9. Redemption.
The Issuer may, at its option, redeem any Class of Bonds, in whole, but
not in part, on any Payment Date on or after the earlier of (i) June 28, 2004,
and (ii) the Payment Date on which, after taking into account payments of
principal to be made on such Payment Date, the aggregate Outstanding principal
balance of the Bonds is less than 35% of the aggregate principal balance of the
Bonds issued on the Delivery Date. In addition, the Issuer may redeem a Class or
Classes of Bonds in whole, but not in part, at any time upon a determination by
the Issuer, based upon an Opinion of Counsel, which Opinion of Counsel shall not
be an expense of the Trust Estate, that a substantial risk exists that Bonds of
the Class to be redeemed will not be treated for federal income tax purposes as
evidences of indebtedness. Until each Class of Bonds is retired, any optional
redemption of a Class of Bonds shall be treated as a purchase of such Bonds,
with the result that there will be no acceleration of principal payments on any
Class of Bonds not redeemed. Any redemption of a Class of Bonds shall be made at
the Redemption Price for such Class.
Section 10. Modification of Mortgage Certificates.
The Issuer may direct the Trustee to take any action the Issuer deems
appropriate to cause the "REMICs" with respect to which the Mortgage
Certificates constitute the "regular" and "residual" interests to effect a
"qualified liquidation" (as defined in section 860F of the Internal Revenue Code
of 1986) provided that the Issuer shall have furnished to the Trustee:
(i) an Opinion of Counsel to the effect that the action to be
taken at the direction of the Issuer constitutes a qualified
liquidation; and
(ii) an Officer's Certificate to the effect that such action will
not materially impair the security provided by the Mortgage
Certificates.
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Section 11. Subordinated Bonds.
(a) The Issuer may issue one or more classes of additional bonds
secured by the Trust Estate that are subordinated ("Subordinated Bonds") to the
Bonds originally issued on the Delivery Date; provided, however, that the
issuance thereof will be subject to satisfaction of the following conditions:
(i) confirmation by each Rating Agency that the issuance of the Subordinated
Bonds will not result in the downgrading of the credit rating of any outstanding
Class of Bonds and (ii) delivery to the Trustee of an Opinion of Counsel to the
effect that: (A) such Subordinated Bonds will be treated as indebtedness for
federal income and franchise tax purposes, (B) such issuance will not adversely
affect the characterization of any Outstanding Bonds for federal income or
franchise tax purposes and (C) such issuance will not cause a taxable event to
the Holders of any Outstanding Bonds.
(b) The issuance of Subordinated Bonds shall be evidenced by a
supplement to this Indenture Supplement. The Trustee shall be authorized to
issue such Subordinated Bonds upon (i) receipt of an Issuer Order accompanied by
a form of supplement and the written consent of each Rating Agency; (ii) receipt
of an Opinion of Counsel to the general effect set forth in Section 4.01(3) of
the Original Indenture; and (iii) receipt of an Opinion of Counsel as to various
tax matters as described in clause (iii) of Section 10(a) above.
Section 12. Default.
An Event of Default with respect to a Senior Bond means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) On any Payment Date, Default in the payment of Current
Interest on any Senior Bond when the same shall become due and
payable, which Default shall continue for a period of five
days; or
(ii) On the applicable Stated Maturity Date, Default in the payment
in full of the outstanding principal balance of any Senior
Bond.
An Event of Default with respect to the all the Bonds means any one of
the following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) Default in the performance, or breach, of any covenant or
warranty of the Issuer in the Indenture (other than a Default in the
performance of or breach of any covenant or warranty referred to in the
preceding paragraph) or in Article Nine of the Original Indenture, and
continuance of such Default or breach for a period of 60 days after
there shall have been given, by registered or certified mail, to the
Issuer by the Trustee or by the Holders of at least 66b% of the then
outstanding principal balance of the Bonds, a written notice specifying
such Default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" under the Indenture; or
(ii) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Issuer bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect
of the Issuer under the Federal Bankruptcy Code or any other applicable
federal or state law, or appointing a receiver, liquidator, assignee,
or sequestrator (or other similar official) of the Issuer 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 unstayed and in effect for a period of 90 consecutive days; or
(iii) the institution by the Issuer of proceedings to be
adjudicated as bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization
or relief under the Federal Bankruptcy Code or any other similar
applicable federal or state law, or the consent by it to the filing of
any such petition or to the appointment of a receiver, liquidator,
assignee, trustee or sequestrator (or other similar official) of the
Issuer or of any substantial part of its property, or the making by it
of an assignment for the benefit of creditors, or the admission by it
in writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Issuer in furtherance of
any such action.
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Upon the occurrence of a Default with respect to any Class of Bonds
(without regard to the passage of time or giving of notice, or both) and the
continuance of such Default for 60 days, the Trustee is required to resign as
trustee for the Subordinated Bonds. The Issuer is required in such circumstances
to appoint one or more separate trustees for the Holders of the Subordinated
Bonds; provided, however, that if the Issuer fails to appoint such separate
trustees within 15 days thereafter, the Trustee shall immediately petition a
court of competent jurisdiction to appoint such separate trustees.
Each Bondholder shall be deemed to have agreed, by its acceptance of
its Bond, not to file, or join in filing, any petition in bankruptcy or commence
any similar proceeding in respect of the Issuer and to treat its Bonds as debt
instruments for purposes of federal and state income tax, franchise tax and any
other tax measured in whole or in part by income.
Section 13. Repurchase of Directly Held Mortgage Loans.
The Trustee shall release from the lien of the Indenture any Directly
Held Mortgage Loan that has been repurchased in accordance with the terms of the
Sales Agreement. In order to obtain such release, the Issuer must remit, or
cause to be remitted, to the Trustee the amount of the Purchase Price for such
Directly Held Mortgage Loan, which the Trustee shall treat as a prepayment in
full of such Directly Held Mortgage Loan. Upon the conversion of any Directly
Held Mortgage Loan that is an Adjustable Rate Mortgage Loan to a fixed rate, the
Issuer shall either cause such Directly Held Mortgage Loan to be repurchased or
shall cause such Mortgage Loan to be treated as partially repurchased by giving
notice to the Trustee of that election and of the portion of the principal
amount of such Mortgage Loan to be treated as prepaid (the portion to be prepaid
being the Scheduled Principal Balance of such Mortgage Loan multiplied by a
fraction the number of which is 10% less the fixed Net Rate on such Mortgage
Loan and the denominator of which is 10%). Any such Mortgage Loan shall not be
released but the Scheduled Principal Balance of such Mortgage Loan shall be
treated as reduced by the amount so treated as prepaid; all subsequent interest
payments on such Mortgage Loan shall be deposited in the Collateral Proceeds
Account and all subsequent principal payments on such Mortgage Loan shall be
applied pro rata to (i) payment of the remaining principal amount of such
Mortgage Loan by depositing such amounts in the Collateral Proceeds Account and
(ii) payment to or upon the order of the Issuer directly in reduction of the
principal amount treated as prepaid.
Section 14. Additional Obligations and Covenants of the Trustee.
(a) The Trustee shall be obligated to demand payments or distributions
due in respect of the Mortgage Certificates and to make Advances with respect to
the Directly Held Mortgage Loans in accordance with the terms of the Master
Servicing Agreement if the Master Servicer or Bond Administrator fails to make a
required Advance; provided, however, that the Trustee shall not be obligated to
make an Advance that it deems unrecoverable. The Trustee is entitled to rely
upon any determination by the Bond Administrator that an Advance is
unrecoverable.
(b) The Trustee shall exercise all rights and remedies available to it
as third-party beneficiary of the Sales Agreement, including but not limited to,
enforcing the obligation of IHC to repurchase (or substitute) Directly Held
Mortgage Loans in accordance with Section 7 thereof.
(c) The Trustee acknowledges that the Bond Administrator, and not the
Issuer, is obligated to pay its compensation and reimbursement pursuant to
Section 7.07 of the Original Indenture.
(d) Any statement or requirement as to the value of Additional Loan
Collateral, or any requirement that such value be marked to market, shall be
solely the responsibility of The Boston Company.
(e) So long as any debt instrument issued by the Issuer is outstanding
and for 91 days thereafter, the Trustee will not file any involuntary petition
or otherwise institute any bankruptcy, reorganization, arrangement, insolvency
or liquidation proceeding or other proceedings under any federal or state
bankruptcy or similar law against the Issuer.
(f) The Trustee shall enter into a letter agreement with the Issuer
with respect to the Class B-3 Bonds.
Section 15. Notice to the Rating Agencies.
The Issuer shall use its best efforts promptly to provide notice to the
Rating Agencies of any of the following events of which it has actual knowledge:
(a) any material change to or amendment of this Series Supplement
or the Original Indenture;
(b) the occurrence of any Default or Event of Default that has not
been cured;
(c) the resignation or termination of the Trustee;
(d) the substitution of Collateral; and
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(e) the final payment to Bondholders.
In addition, the Issuer shall provide to the Rating Agencies (i) each
month a copy of the Monthly Remittance Report and (ii) within 90 days after the
end of each calendar year a report on delinquencies and foreclosures occurring
with respect to the Directly Held Mortgage Loans during such calendar year.
Section 16. Monthly Remittance Report.
The Monthly Remittance Report required pursuant to Section 12.09 of the
Original Indenture shall also contain the following information with respect to
each Payment Date:
(a) Available Funds;
(b) the Principal Payment Amount and the Interest Payment Amount;
(c) the Overcollateralization Amount; and
(d) the extent to which the Principal Payment Amount is derived
from a transfer from the Collateralization Fund.
Section 17. Purchase of Delinquent Directly Held Mortgage Loans by Issuer.
The Issuer may, but is not obligated to, purchase on any Payment Date
any Directly Held Mortgage Loan that is delinquent in payment by 90 days or more
for a price equal to the Unpaid Principal Balance of such Directly Held Mortgage
Loan plus accrued and unpaid interest thereon at the related Net Rate through
the Payment Date following the date of purchase.
Section 18. Amendments to Indenture.
Only for the purposes of this Series Supplement and only with respect
to the Bonds, the following amendments to the Original Indenture are hereby
made:
(a) Section 1.01 of the Original Indenture is amended by
deleting the definition of "Corporate Trust Office" and inserting in
lieu thereof the following:
"Corporate Trust Office": The principal corporate
trust office of the Trustee presently located at 600 Travis,
8th Floor, Houston, Texas 77002, Attention: Global Trust
Services for purposes of Section 9.02, the office of Texas
Commerce Trust Company of New York, 55 Water Street, North
Building, Room 234, Windows 20 and 21, New York, New York
10041, 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.
(b) Section 1.01 of the Original Indenture is amended by
inserting before the period at the end of the definition of "Mortgaged
Premises" the following:
or, in the case of a Mortgage Loan that is a Coop Loan, the
shares and the leasehold interest securing that Coop Loan and,
in either case, any Additional Collateral held pursuant to the
TBC Servicing Agreement or, in the case of a Mortgage Loan
that is a Manufactured Home Loan, the Manufactured Home
securing such Manufactured Home Loan.
(c) Section 1.01 of the Original Indenture is amended by
inserting before the period at the end of the definition of "Note Rate"
the following:
as reduced by the application of any Soldiers' and Sailors'
Shortfall.
(e) Section 1.01 of the Original Indenture is amended by
deleting in the definition of "Prepayment Period" and substituting
therefor the following:
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"Prepayment Period": For each Payment Date with respect to
each Mortgage Loan: (a) with respect to Liquidations and other
prepayments in full, the "prepayment period" specified in the
Servicing Agreement pursuant to which such Mortgage Loan is
serviced, which prepayment period ends not later than 5 days
prior to such Payment Date except in the case of the first
Payment Date, in which case the Prepayment Period will include
the period from and including the Cut-off Date (except for any
prepayments received after the Cut-off Date but in the
aggregate Scheduled Principal Balance of the Mortgage Loans as
of the Cut-off Date) and (b) with respect to all other
unscheduled payments of principal or recoveries on the
Mortgage Loans, the calendar month preceding the month in
which the Payment Date is deemed to occur.
(f) Section 1.01 of the Original Indenture is amended by
inserting in the first line of the definition of "Mortgage Loan" after
the words "mortgage loan", the phrase "or Manufactured Home Loan".
(g) Section 1.01 of the Original Indenture is amended by
inserting at the end of the definition of "Realized Loss" the
following:
With respect to any Mortgage Certificate, the amount
by which, under the documents relating theteto, the
equivalent of Realized Losses with respect to the
Underlying Mortgage Loans are allocated to the
Mortgage Certificates so as to reduce the certificate
principal balances thereof without distributing an
equivalent amount allocated to principal in respect
of the Mortgage Certificates.
(h) Section 1.01 of the Original Indenture is amended by
deleting the definition of "Record Date" and substituting therefor the
following:
"Record Date": With respect to any Payment Date, the
last Business Day of the month preceding the month in
which such Payment Date is deemed to occur.
(i) Section 1.01 of the Original Indenture is amended by
inserting before the period at the end of the definition of "Eligible
Investments;
Eligible Investment may include, without limitation,
those investments for which the Trustee or an
affiliate thereof provides services.
(j) Section 1.01 of the Original Indenture is amended by
adding the following additional definitions:
"Coop Loan": A Directly Held Mortgage Loan secured by
a lien against (i) shares issued by a cooperative housing
corporation and (ii) the Borrower's leasehold interest in a
cooperative dwelling unit owned by the cooperative housing
corporation.
"Loan Rate": With respect to an item of Collateral,
the interest rate payable by the Borrower or other obligator
according to the terms of the related Mortgage Loan, as
reduced by the application of any Soldiers' and Sailors'
Shortfall.
"Manufactured Home": A unit of manufactured housing
which meets the requirements of Section 25(e) (10) of the
code, including all accessions thereto, securing the
indebtedness of the Borrower under the related Manufactured
Home Loan
"Manufactured Home Loan: A manufactured home
installment sales contract listed in Schedule I to this Series
Supplement.
"Original Directly Held MortgageLoan": A Directly
Held Mortgage Loan initially pledged to the Trustee to secure
the Bonds.
"Substitute Directly Held Mortgage Loan": A Directly
Held Mortgage Loan pledged to the Trustee to secure a Series
of Bonds in substitution for a defaulted Directly Held
Mortgage Loan initially pledged to the Trustee to secure such
Bonds or the related REO.
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(k) Section 3.11 of the Original Indenture is amended as
follows:
(i) Subsection (c) is hereby deleted in
its entirety and the following is substituted
therefor:
(c) Any item of Substitute
Collateral substituted pursuant to
subsection (a) hereof must be a Qualified
Substitute Mortgage Loan if the item of
Original Collateral so substituted for was a
Directly Held Mortgage Loan.
(ii) The following new subsection is
added to the end of Section 3.11:
(d) Unless otherwise provided in the
related Series Supplement, on any Subsequent
Delivery Date for any Series, the Issuer
will have the option to pledge to the
Trustee under a Series Supplement as
security for the Series, in substitution for
a defaulted Original Directly Held Mortgage
Loan or REO securing such Series, a
Substitute Directly Held Mortgage Loan, to
the extent that the Master Servicer has
determined, in its reasonable business
judgment, that the present value of any
potential Realized Loss on such defaulted
Original Directly Held Mortgage Loan or REO
will be reduced through the substitution of
a Substitute Directly Held Mortgage Loan for
such defaulted Original Directly Held
Mortgage Loan or REO, and provided that such
Substitute Directly Held Mortgage Loan (i)
is secured by the Mortgaged Premises that
secure the defaulted Directly Held Mortgage
Loan or by such REO, (ii) has a Note Rate
that is not less than the then current
market rate for a mortgage loan having
similar characteristics (provided, however,
that a Substitute Directly Held Mortgage
Loan may have a Note Rate less than the then
current market rate so long as the aggregate
Scheduled Principal Balance of all such
Substitute Directly Held Mortgage Loans on
their respective dates of substitution does
not exceed 1.00% of the initial aggregate
Scheduled Principal Balance of all the
Directly Held Mortgage Loans initially
pledged to secure such Series), and (iii)
has a maturity date that is not later than
nine months prior to the Stated Maturity of
the Series of Bonds. Substitute Directly
Held Mortgage Loans substituted under this
Section 3.11(d) for a defaulted Directly
Held Mortgage Loan or REO are not required
to satisfy the requirements applicable to
Substitute Mortgage Collateral contained in
Section 3.11 (a) and (c) hereof.
On the Subsequent Delivery Date, the
Issuer shall have the right to deliver and
pledge to the Trustee as security for the
Series in exchange for each Original
Directly Held Mortgage Loan a Substitute
Directly Held Mortgage Loan plus cash in an
amount equal to the payment of principal and
interest paid or to be paid on such
Substitute Directly Held Mortgage Loan
during the month of the Subsequent Delivery
Date.
Upon such substitution, all the
Issuer's right, title and interest to the
Substitute Directly Held Mortgage Loan shall
be assigned to the Trustee pursuant to
Section 4.02(2) or (3) of this Indenture,
and the Issuer shall receive (1) the
Original Directly Held Mortgage Loan for
which the Substitute Directly Held Mortgage
Loan was substituted and (2) all Proceeds
received on the Due Date in the month of the
Subsequent Delivery Date by the Trustee on
the Original Directly Held Mortgage Loan
delivered to the Issuer.
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The Trustee shall receive, not later
than the Subsequent Delivery Date, an
Officer's Certificate of the Issuer and of
the Master Servicer to the effect that:
(1) all instruments
furnished to the Trustee in
connection with such substitution
conform to the requirements of this
Indenture and the related Series
Supplement and constitute sufficient
authority hereunder for the Trustee
to permit the substitution then
applied for;
(2) all conditions
precedent provided for in this
Indenture and the related Series
Supplement relating to the
substitution then applied for have
been complied with and the Issuer is
duly entitled to effect such
substitution;
(3) each Substitute
Directly Held Mortgage Loan has been
duly and validly assigned to the
Trustee free and clear of any lien,
mortgage, pledge, charge, security
interest or other encumbrance that
is prior to the lien of the
Indenture;
(4) the Master Servicer has
determined, in its reasonable
business judgment, that the present
value of any potential Realized Loss
on the defaulted Directly Held
Mortgage Loan or REO will be reduced
through the substitution of the
Substitute Directly Held Mortgage
Loan for such defaulted Directly
Held Mortgage Loan or REO; and
(5) if the Note Rate on the
Substitute Directly Held Mortgage
Loan is less than the then current
market rate for mortgage loans
having similar characteristics, the
aggregate Scheduled Principal
Balance of all such Substitute
Directly Held Mortgage Loans on
their respective dates of
substitution does not exceed 1.00%
of the initial aggregate Scheduled
Principal Balance of all the
Directly Held Mortgage Loans
initially pledged to secure such
Series.
(l) Section 6.17 of the Original Indenture is amended by
deleting the first paragraph thereof and substituting therefor the
following:
Each Holder of a Bond shall be deemed, by its
acceptance of such Bond, to have agreed (to the extent that
such Holder may legally do so) not to file, join in the
filing, or cause a filing against the Issuer of an involuntary
petition under any bankruptcy or receivership law.
(m) Section 6.08 of the Original Indenture is amended by
deleting clause THIRD thereof and substituting the following:
(i) the Senior Bonds; and
(ii) the Subordinated Bonds provided that, if there
shall be more than one Class of Subordinated Bonds, payment
shall be made in order of subordination so that payment of the
unpaid principal of and interest on a more senior Class of the
Subordinated Bonds shall be made before any payment is made to
a Class of Subordinated Bonds which is subordinated to such
more senior Class.
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(n) Notwithstanding the provisions of Section 13.01(d) of the
Original Indenture, the Issuer's obligation to deliver to the Trustee a
Yearly Accountants' Certificate may be modified, eliminated or limited
to the extent permitted by the Rating Agencies.
Section 19. Additional Covenants of the Issuer.
(a) The Issuer shall not suffer to exist any claim against it on a
recourse basis, which in its reasonable judgment giving due regard to the
likelihood of success on the merits of such claim as well as any reserves or
other arrangements which have been made to assure the payment of any such
claims, creates a risk of insolvency proceedings against the Issuer.
(b) The Issuer shall maintain its status as a "qualified REIT
subsidiary" under Section 856(i)(2) of the Code unless it shall have received
the prior written consent of the Rating Agencies to change or terminate such
status.
Section 20. Ratification of Indenture.
As supplemented by this Series Supplement, the Original Indenture is in
all respects ratified and confirmed, and the Original Indenture as so
supplemented by this Series Supplement shall be read, taken and construed as one
and the same instrument.
Section 21. Form of Bonds.
The Class A-1 Bonds shall be substantially in the form of Exhibit A-1
attached hereto. The Class A-2 Bonds shall be substantially in the form of
Exhibit A-2 attached hereto. The Class A-3 Bonds shall be substantially in the
form of Exhibit A-3 attached hereto. The Class B-1 Bonds shall be substantially
in the form of Exhibit B-1 attached hereto. The Class B-2 Bonds shall be
substantially in the form of Exhibit B-2 attached hereto. The Class B-3 Bonds
shall be substantially in the form of Exhibit B-3 attached hereto.
Section 22. Schedules.
Schedule I, Schedule II and Schedule III are attached hereto as
contemplated by the Indenture.
Section 23. Counterparts.
This Series Supplement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original, but all of
such counterparts shall together constitute but one and the same instrument.
Section 24. Governing Law.
THIS SERIES SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED THEREIN.
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<PAGE>
IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Series
Supplement to be duly executed by their respective officers thereunto duly
authorized and, in the case of the Issuer, its respective signature duly
attested all as of June 1, 1997.
MERIT SECURITIES CORPORATION
By: /s/ Lisa R. Cooke
-----------------
Lisa R. Cooke, Vice President
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ Rafael Herrera
------------------
Rafael Herrera, Vice President
19
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
SCHEDULE I MORTGAGE LOANS AND MORTGAGE CERTIFICATES
SCHEDULE II INTEREST FUND LOANS
SCHEDULE III COLLATERALIZATION FUND MORTGAGE LOANS
EXHIBIT A-1 FORM OF Class A-1 BONDS
EXHIBIT A-2 FORM OF Class A-2 BONDS
EXHIBIT A-3 FORM OF Class A-3 BONDS
EXHIBIT B-1 FORM OF Class B-1 BONDS
EXHIBIT B-2 FORM OF Class B-2 BONDS
EXHIBIT B-3 FORM OF Class B-3 BONDS
20
<PAGE>
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO MERIT SECURITIES
CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE PRINCIPAL OF THIS BOND IS SUBJECT TO PREPAYMENT FROM TIME TO TIME WITHOUT
SURRENDER OF OR NOTATION ON THIS BOND. ACCORDINGLY, THE UNPAID PRINCIPAL BALANCE
OF THIS BOND MAY BE LESS THAN THE AMOUNT SET FORTH BELOW. ANYONE ACQUIRING THIS
BOND MAY ASCERTAIN ITS CURRENT PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS BOND MAY NOT BE TRANSFERRED EXCEPT UPON COMPLIANCE WITH THE TERMS OF THE
WITHIN-REFERENCED INDENTURE.
No. A-1-1 AGGREGATE INITIAL PRINCIPAL BALANCE
OF THE CLASS A-1 BONDS AS OF
DENOMINATION: $200,000,000 THE DELIVERY DATE: $766,000,000
MERIT SECURITIES CORPORATION
COLLATERALIZED BONDS, SERIES 9, CLASS A-1
DUE JUNE 28, 2031
CUSIP NO. 589962 BB4
MERIT Securities Corporation, a corporation duly organized and existing
under the laws of the Commonwealth of Virginia (herein referred to as the
"Issuer"), for value received, hereby promises to pay to
CEDE & CO.
or registered assigns, from proceeds of the Collateral pledged under the
Indenture referred to within, the principal sum of TWO HUNDRED MILLION AND
00/100 DOLLARS as hereinafter described and interest on the unpaid principal
balance hereof in the manner hereinafter described until this Bond shall have
been paid in full.
This Bond is a "Book-Entry Bond" as described in Section 3.12 of the
within-mentioned Indenture, and this Bond is being registered in the name CEDE &
Co., as nominee of The Depository Trust Company, a Clearing Agency. Subject to
the terms of the Indenture, the Bonds will be registered as one or more
certificates held by a Clearing Agency or its nominee, and beneficial interests
will be held by Beneficial Owners through the book-entry facilities of such
Clearing Agency or its nominee in minimum denominations of $100,000 and
increments of $1,000 in excess thereof, except that one Bond of this Class may
be issued in a different denomination.
The interest on and principal of this Bond shall be payable in lawful
money of the United States in the following manner:
A-1-1-1
<PAGE>
(a) The Class Interest Rate for this Bond for the period from
the Delivery Date through July 27, 1997, will be 6.0875% per annum.
Interest on this Bond will accrue (computed as if each year consisted
of 360 days and each month consisted of 30 days) during the applicable
Accrual Period with respect to a Payment Date (each as hereinafter
defined) on the outstanding principal balance of this Bond immediately
prior to each Payment Date at a per annum rate, subject to a cap of
10%, equal to One-Month LIBOR, as determined on the applicable Floating
Rate Determination Date, plus 0.40%; provided, however, that, if the
Issuer does not exercise its option to redeem this Bond when it is
first permitted to do so, interest will accrue at a per annum rate,
subject to a cap of 10.40%, equal to One-Month LIBOR, as determined on
the Applicable Floating Rate Determination Date, plus 0.80%. As used
herein, "Accrual Period" means, with respect to each Payment Date, the
period commencing on the 28th day of the preceding month through the
27th day of the month in which such Payment Date is deemed to occur
(except that the first Accrual Period will be the period from the
Delivery Date through July 27, 1997). The Holder of this Bond will be
entitled to receive on the 28th day of each month, or, if such day is
not a Business Day, then on the next succeeding Business Day (each a
"Payment Date"), commencing on July 28, 1997, an amount equal to this
Bond's pro rata share of the Interest Payment Amount for such Payment
Date. For accounting purposes the Payment Date will be deemed to occur
on the 28th day of the month without regard to whether such day is a
Business Day.
(b) Payments of principal shall be due and payable on the
Class A-1 Bonds on each Payment Date to the extent and in the manner
described in the Indenture. Payments of principal, if any, due and
payable on this Bond on any Payment Date shall be in an amount equal to
this Bond's pro rata share of the aggregate installments of principal
due and payable on the Bonds of this Class as of such Payment Date,
with a final installment due and payable on the maturity of this Bond
equal to its unpaid principal balance, all as provided in the
Indenture.
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as the Collateralized Bonds, Series 9, issued in aggregate principal
amount of $983,669,000, as specifically set forth in an indenture dated as of
November 1, 1994 (the "Original Indenture"), as amended and supplemented by the
Series 9 Supplement dated as of June 1, 1997 (the "Series 9 Supplement" and,
together with the Original Indenture, the "Indenture"), between the Issuer and
Texas Commerce Bank National Association (the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and indentures
supplemental thereto 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 that are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
Each payment on this Bond, when made, shall be applied first to the
payment of interest accrued and unpaid on this Bond and then to the payment of
principal on this Bond.
The principal and interest so payable on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Bond is
registered on the regular Record Date for such Payment Date, which shall be the
close of business on the last Business Day of the month next preceding the month
in which such Payment Date is deemed to occur, commencing on July 28, 1997. Any
such interest not so punctually paid or duly provided for shall forthwith cease
to be payable to the Holder as of the Record Date and may be paid to the Holder
of this Bond as of a Special Record Date, to be fixed by the Trustee, for the
payment of such defaulted interest, notice whereof shall be given to Bondholders
not less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Bonds of this Series may be listed, and upon
such notice as may be required by such exchange, all as more fully provided in
the Indenture.
A-1-1-2
<PAGE>
So long as this Bond is registered in the name of a Clearing Agency or
its nominee, the Trustee will make payments of principal of and interest on this
Bond by wire transfers of immediately available funds to the Clearing Agency or
its nominee. Notwithstanding the above, the final distribution on this Bond will
be made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Bond at its principal Corporate
Trust Office or such other offices or agencies appointed by the Trustee for that
purpose and such other locations provided in the Indenture.
The Class A-1 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 earlier of
(i) July 28, 2004, or (ii) the Payment Date on which, after giving effect to
payments of principal to be made on such date, the aggregate principal balance
of Bonds then Outstanding is less than 35% of the original aggregate principal
amount of the Bonds. In addition, the Issuer may redeem the Bonds in whole, but
not in part, at any time upon a determination by the Issuer, based upon an
Opinion of Counsel, that a substantial risk exists that the Bonds will not be
treated for federal income tax purposes as evidences of indebtedness. Any such
redemption of the Bonds will be at the Redemption Price set forth in the
Indenture.
Certain Events of Default will entitle the Trustee to declare the
principal of all or a portion of the Bonds to be due and payable or to take
possession of and retain the Trust Estate intact in either case in the manner
and with the effect provided in the Indenture.
Anything in the Indenture or in any other instrument referenced therein
to the contrary notwithstanding, the Holder hereof, by accepting delivery of
this Bond, recognizes that this Bond is a non-recourse obligation of the Issuer
and agrees to look solely to the Trust Estate for the Bonds for the payment of
all sums due hereunder and under the terms of the Indenture, and the Issuer
shall not be liable for any deficiency or other personal money judgment with
respect to the payment of such sums. The Holder of this Bond shall be deemed to
have agreed, by its acceptance of this Bond, not to file or join in filing any
petition of bankruptcy or commence any similar proceeding in respect of the
Issuer and to treat this Bond as a debt instrument for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income.
As provided in the Indenture and subject to any limitations on transfer
of this Bond by a Clearing Agency or its nominee and certain limitations set
forth in the Indenture, the transfer of this Bond is registrable in the Bond
Register upon surrender of this Bond for registration of transfer at the
principal Corporate Trust Office of the Trustee or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Indenture, duly endorsed by, or accompanied by an assignment in
the form below or other written instrument of transfer in form satisfactory to
the Trustee and the Bond Registrar duly executed by, the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Bonds of the same Class in the same aggregate principal balance will be issued
to the designated transferee or transferees.
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions of
the Code, including individual retirement accounts and annuities, Keogh Plans,
and collective investment funds in which such plans, accounts, or arrangements
are invested (any of the foregoing, a "Plan"), persons acting on behalf of a
Plan, or persons using the assets of Plan ("Plan Investors"), should review
carefully with their legal advisors whether the purchase or holding of this Bond
could give rise to a transaction that is prohibited under ERISA or the Code or
cause the Collateral securing the Bonds to be regarded as "plan assets" for
purposes of the Plan Asset Regulations. The Issuer believes that the Class A-1
Bonds will be treated as debt obligations without significant equity features
for purposes of the Plan Asset Regulations. Accordingly, a Plan that acquires a
Class A-1 Bond should not be treated as having acquired a direct interest in the
assets of the Issuer. Nevertheless, there can be no complete assurance that the
Class A-1 Bonds will be treated as debt obligations without significant equity
features for purposes of the Plan Asset Regulations.
Prior to 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 as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, 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.
A-1-1-3
<PAGE>
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 Holders of a majority in aggregate
principal balance of Bonds at the time Outstanding. The Indenture also contains
provisions permitting the holders of specified percentages in aggregate
principal balance of specified Classes of 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 of
this Bond 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 term "Issuer" as used in this Bond includes any successor thereof
under the Indenture.
This Bond and the Indenture shall be construed in accordance with, and
governed by, the laws of the State of New York, without regard to conflict of
laws rules.
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.
A-1-1-4
<PAGE>
IN WITNESS WHEREOF, MERIT Securities Corporation has caused this Bond
to be signed by the true or facsimile signature of its Vice President and
attested by the true or facsimile signature of its Assistant Secretary.
MERIT SECURITIES CORPORATION
By: _____________________________
Lisa R. Cooke, Vice President
Attest:
By: _______________________________________
Wayne K. Brockwell, Assistant Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is a Class A-1 Bond referred to in the within-mentioned Indenture.
Date of Authentication:
June 25, 1997
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: ______________________________
A-1-1-5
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this Bond, shall be construed as though they were written out in full according
to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--....Custodian.....
TEN ENT--as tenants by the entireties (Cus) (Minor)
Under Uniform Gifts to Minors Act ...
JT TEN--as joint tenants with rights of survivorship (State)
and not as Tenants in Common
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- - --------------------------------------------------------------------------------
Please print or typewrite name and address of assignee
- - --------------------------------------------------------------------------------
Please insert Social Security or other identifying Number of Assignee
the within Bond of MERIT Securities Corporation and does hereby irrevocably
constitute and appoint ______________________________________________________,
Attorney, to transfer the said Bond on the books of the within named
Corporation, with full power of substitution in the premises.
Date: ____________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of this Bond in every
particular without alteration or
enlargement or any change whatever.
- - ----------------------------------
SIGNATURE GUARANTEED:
The signature must be guaranteed by a
commercial bank or trust company or by a
member firm of the New York Stock
Exchange or another national securities
exchange. Notarized or witnessed
signatures are not acceptable.
PAYMENT INSTRUCTIONS
The assignee should include the following for purposes of payment:
Payment shall be made, by wire transfer or otherwise, in immediately
available funds, to ____________________, for the account of
___________________, account number ________________, or, if mailed by check, to
__________________________. Applicable reports and statements should be mailed
to ______________________. This information is provided by __________________,
the assignee named above, or ______________________, as its agent.
A-1-1-6
<PAGE>
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO MERIT SECURITIES
CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE PRINCIPAL OF THIS BOND IS SUBJECT TO PREPAYMENT FROM TIME TO TIME WITHOUT
SURRENDER OF OR NOTATION ON THIS BOND. ACCORDINGLY, THE UNPAID PRINCIPAL BALANCE
OF THIS BOND MAY BE LESS THAN THE AMOUNT SET FORTH BELOW. ANYONE ACQUIRING THIS
BOND MAY ASCERTAIN ITS CURRENT PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS BOND MAY NOT BE TRANSFERRED EXCEPT UPON COMPLIANCE WITH THE TERMS OF THE
WITHIN-REFERENCED INDENTURE.
No. A-2-1 AGGREGATE INITIAL PRINCIPAL BALANCE
OF THE CLASS A-2 BONDS AS OF
DENOMINATION: $119,200,000 THE DELIVERY DATE: $119,200,000
MERIT SECURITIES CORPORATION
COLLATERALIZED BONDS, SERIES 9, CLASS A-2
DUE JUNE 28, 2031
CUSIP NO. 589962 BC2
MERIT Securities Corporation, a corporation duly organized and existing
under the laws of the Commonwealth of Virginia (herein referred to as the
"Issuer"), for value received, hereby promises to pay to
CEDE & CO.
or registered assigns, from proceeds of the Collateral pledged under the
Indenture referred to within, the principal sum of ONE HUNDRED NINETEEN MILLION
TWO HUNDRED THOUSAND AND 00/100 DOLLARS as hereinafter described and interest on
the unpaid principal balance hereof in the manner hereinafter described until
this Bond shall have been paid in full.
This Bond is a "Book-Entry Bond" as described in Section 3.12 of the
within-mentioned Indenture, and this Bond is being registered in the name CEDE &
Co., as nominee of The Depository Trust Company, a Clearing Agency. Subject to
the terms of the Indenture, the Bonds will be registered as one or more
certificates held by a Clearing Agency or its nominee, and beneficial interests
will be held by Beneficial Owners through the book-entry facilities of such
Clearing Agency or its nominee in minimum denominations of $100,000 and
increments of $1,000 in excess thereof, except that one Bond of this Class may
be issued in a different denomination.
A-2-1-1
<PAGE>
The interest on and principal of this Bond shall be payable in lawful
money of the United States in the following manner:
(a) The Class Interest Rate for this Bond for the period from
the Delivery Date through July 27, 1997, will be 6.2375% per annum.
Interest on this Bond will accrue (computed as if each year consisted
of 360 days and each month consisted of 30 days), during the applicable
Accrual Period with respect to a Payment Date (each as hereinafter
defined) on the outstanding principal balance of this Bond immediately
prior to each Payment Date at a per annum rate, subject to a cap of
10%, equal to One-Month LIBOR, as determined on the applicable Floating
Rate Determination Date, plus 0.55%; provided, however, that, if the
Issuer does not exercise its option to redeem this Bond when it is
first permitted to do so, interest will accrue at a per annum rate,
subject to a cap of 10.50%, equal to One-Month LIBOR, as determined on
the Applicable Floating Rate Determination Date, plus 1.05%. As used
herein, "Accrual Period" means, with respect to each Payment Date, the
period commencing on the 28th day of the preceding month through the
27th day of the month in which such Payment Date is deemed to occur
(except that the first Accrual Period will be the period from the
Delivery Date through July 27, 1997). The Holder of this Bond will be
entitled to receive on the 28th day of each month, or, if such day is
not a Business Day, then on the next succeeding Business Day (each a
"Payment Date"), commencing on July 28, 1997, an amount equal to this
Bond's pro rata share of the Interest Payment Amount for such Payment
Date. For accounting purposes the Payment Date will be deemed to occur
on the 28th day of the month without regard to whether such day is a
Business Day.
(b) Payments of principal shall be due and payable on the
Class A-2 Bonds on each Payment Date to the extent and in the manner
described in the Indenture. Payments of principal, if any, due and
payable on this Bond on any Payment Date shall be in an amount equal to
this Bond's pro rata share of the aggregate installments of principal
due and payable on the Bonds of this Class as of such Payment Date,
with a final installment due and payable on the maturity of this Bond
equal to its unpaid principal balance, all as provided in the
Indenture.
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as the Collateralized Bonds, Series 9, issued in aggregate principal
amount of $983,669,000, as specifically set forth in an indenture dated as of
November 1, 1994 (the "Original Indenture"), as amended and supplemented by the
Series 9 Supplement dated as of June 1, 1997 (the "Series 9 Supplement" and,
together with the Original Indenture, the "Indenture"), between the Issuer and
Texas Commerce Bank National Association (the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and indentures
supplemental thereto 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 that are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
Each payment on this Bond, when made, shall be applied first to the
payment of interest accrued and unpaid on this Bond and then to the payment of
principal on this Bond.
The principal and interest so payable on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Bond is
registered on the regular Record Date for such Payment Date, which shall be the
close of business on the last Business Day of the month next preceding the month
in which such Payment Date is deemed to occur, commencing on July 28, 1997. Any
such interest not so punctually paid or duly provided for shall forthwith cease
to be payable to the Holder as of the Record Date and may be paid to the Holder
of this Bond as of a Special Record Date, to be fixed by the Trustee, for the
payment of such defaulted interest, notice whereof shall be given to Bondholders
not less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Bonds of this Series may be listed, and upon
such notice as may be required by such exchange, all as more fully provided in
the Indenture.
A-2-1-2
<PAGE>
So long as this Bond is registered in the name of a Clearing Agency or
its nominee, the Trustee will make payments of principal of and interest on this
Bond by wire transfers of immediately available funds to the Clearing Agency or
its nominee. Notwithstanding the above, the final distribution on this Bond will
be made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Bond at its principal Corporate
Trust Office or such other offices or agencies appointed by the Trustee for that
purpose and such other locations provided in the Indenture.
The Class A-2 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 earlier of
(i) July 28, 2004, or (ii) the Payment Date on which, after giving effect to
payments of principal to be made on such date, the aggregate principal balance
of Bonds then Outstanding is less than 35% of the original aggregate principal
amount of the Bonds. In addition, the Issuer may redeem the Bonds in whole, but
not in part, at any time upon a determination by the Issuer, based upon an
Opinion of Counsel, that a substantial risk exists that the Bonds will not be
treated for federal income tax purposes as evidences of indebtedness. Any such
redemption of the Bonds will be at the Redemption Price set forth in the
Indenture.
Certain Events of Default will entitle the Trustee to declare the
principal of all or a portion of the Bonds to be due and payable or to take
possession of and retain the Trust Estate intact in either case in the manner
and with the effect provided in the Indenture.
Anything in the Indenture or in any other instrument referenced therein
to the contrary notwithstanding, the Holder hereof, by accepting delivery of
this Bond, recognizes that this Bond is a non-recourse obligation of the Issuer
and agrees to look solely to the Trust Estate for the Bonds for the payment of
all sums due hereunder and under the terms of the Indenture, and the Issuer
shall not be liable for any deficiency or other personal money judgment with
respect to the payment of such sums. The Holder of this Bond shall be deemed to
have agreed, by its acceptance of this Bond, not to file or join in filing any
petition of bankruptcy or commence any similar proceeding in respect of the
Issuer and to treat this Bond as a debt instrument for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income.
As provided in the Indenture and subject to any limitations on transfer
of this Bond by a Clearing Agency or its nominee and certain limitations set
forth in the Indenture, the transfer of this Bond is registrable in the Bond
Register upon surrender of this Bond for registration of transfer at the
principal Corporate Trust Office of the Trustee or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Indenture, duly endorsed by, or accompanied by an assignment in
the form below or other written instrument of transfer in form satisfactory to
the Trustee and the Bond Registrar duly executed by, the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Bonds of the same Class in the same aggregate principal balance will be issued
to the designated transferee or transferees.
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions of
the Code, including individual retirement accounts and annuities, Keogh Plans,
and collective investment funds in which such plans, accounts, or arrangements
are invested (any of the foregoing, a "Plan"), persons acting on behalf of a
Plan, or persons using the assets of Plan ("Plan Investors"), should review
carefully with their legal advisors whether the purchase or holding of this Bond
could give rise to a transaction that is prohibited under ERISA or the Code or
cause the Collateral securing the Bonds to be regarded as "plan assets" for
purposes of the Plan Asset Regulations. The Issuer believes that the Class A-2
Bonds will be treated as debt obligations without significant equity features
for purposes of the Plan Asset Regulations. Accordingly, a Plan that acquires a
Class A-2 Bond should not be treated as having acquired a direct interest in the
assets of the Issuer. Nevertheless, there can be no complete assurance that the
Class A-2 Bonds will be treated as debt obligations without significant equity
features for purposes of the Plan Asset Regulations.
Prior to 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 as the owner hereof for the purpose
of
A-2-1-3
<PAGE>
receiving payment as herein provided and for all other purposes, 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 Holders of a majority in aggregate
principal balance of Bonds at the time Outstanding. The Indenture also contains
provisions permitting the holders of specified percentages in aggregate
principal balance of specified Classes of 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 of
this Bond 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 term "Issuer" as used in this Bond includes any successor thereof
under the Indenture.
This Bond and the Indenture shall be construed in accordance with, and
governed by, the laws of the State of New York, without regard to conflict of
laws rules.
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.
A-2-1-4
<PAGE>
IN WITNESS WHEREOF, MERIT Securities Corporation has caused this Bond
to be signed by the true or facsimile signature of its Vice President and
attested by the true or facsimile signature of its Assistant Secretary.
MERIT SECURITIES CORPORATION
By: _____________________________
Lisa R. Cooke, Vice President
Attest:
By: _______________________________________
Wayne K. Brockwell, Assistant Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is a Class A-2 Bond referred to in the within-mentioned Indenture.
Date of Authentication:
June 25, 1997
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: ______________________________
A-2-1-5
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this Bond, shall be construed as though they were written out in full according
to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--....Custodian.....
TEN ENT--as tenants by the entireties (Cus) (Minor)
Under Uniform Gifts to Minors Act ...
JT TEN--as joint tenants with rights of survivorship (State)
and not as Tenants in Common
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- - -------------------------------------------------------------------------------
Please print or typewrite name and address of assignee
- - -------------------------------------------------------------------------------
Please insert Social Security or other identifying Number of Assignee
the within Bond of MERIT Securities Corporation and does hereby irrevocably
constitute and appoint ______________________________________________________,
Attorney, to transfer the said Bond on the books of the within named
Corporation, with full power of substitution in the premises.
Date: ____________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of this Bond in every
particular without alteration or
enlargement or any change whatever.
- - ----------------------------------
SIGNATURE GUARANTEED:
The signature must be guaranteed by a
commercial bank or trust company or by a
member firm of the New York Stock
Exchange or another national securities
exchange. Notarized or witnessed signatures
are not acceptable.
PAYMENT INSTRUCTIONS
The assignee should include the following for purposes of payment:
Payment shall be made, by wire transfer or otherwise, in immediately
available funds, to ____________________, for the account of
___________________, account number ________________, or, if mailed by check, to
__________________________. Applicable reports and statements should be mailed
to ______________________. This information is provided by __________________,
the assignee named above, or ______________________, as its agent.
A-2-1-6
<PAGE>
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO MERIT SECURITIES
CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE PRINCIPAL OF THIS BOND IS SUBJECT TO PREPAYMENT FROM TIME TO TIME WITHOUT
SURRENDER OF OR NOTATION ON THIS BOND. ACCORDINGLY, THE UNPAID PRINCIPAL BALANCE
OF THIS BOND MAY BE LESS THAN THE AMOUNT SET FORTH BELOW. ANYONE ACQUIRING THIS
BOND MAY ASCERTAIN ITS CURRENT PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS BOND MAY NOT BE TRANSFERRED EXCEPT UPON COMPLIANCE WITH THE TERMS OF THE
WITHIN-REFERENCED INDENTURE.
No. A-3-1 AGGREGATE INITIAL PRINCIPAL BALANCE
OF THE CLASS A-3 BONDS AS OF
DENOMINATION: $30,520,000 THE DELIVERY DATE: $30,520,000
MERIT SECURITIES CORPORATION
COLLATERALIZED BONDS, SERIES 9, CLASS A-3
DUE JUNE 28, 2031
CUSIP NO. 589962 BD0
MERIT Securities Corporation, a corporation duly organized and existing
under the laws of the Commonwealth of Virginia (herein referred to as the
"Issuer"), for value received, hereby promises to pay to
CEDE & CO.
or registered assigns, from proceeds of the Collateral pledged under the
Indenture referred to within, the principal sum of THIRTY MILLION FIVE HUNDRED
TWENTY THOUSAND AND 00/100 DOLLARS as hereinafter described and interest on the
unpaid principal balance hereof in the manner hereinafter described until this
Bond shall have been paid in full.
This Bond is a "Book-Entry Bond" as described in Section 3.12 of the
within-mentioned Indenture, and this Bond is being registered in the name CEDE &
Co., as nominee of The Depository Trust Company, a Clearing Agency. Subject to
the terms of the Indenture, the Bonds will be registered as one or more
certificates held by a Clearing Agency or its nominee, and beneficial interests
will be held by Beneficial Owners through the book-entry facilities of such
Clearing Agency or its nominee in minimum denominations of $100,000 and
increments of $1,000 in excess thereof, except that one Bond of this Class may
be issued in a different denomination.
A-3-1-1
<PAGE>
The interest on and principal of this Bond shall be payable in lawful
money of the United States in the following manner:
(a) Interest on this Bond will accrue (computed as if each
year consisted of 360 days and each month consisted of 30 days) during
the applicable Accrual Period with respect to a Payment Date (each as
hereinafter defined) on the outstanding principal balance of this Bond
immediately prior to each Payment Date at a per annum rate equal to,
subject to a cap of 14% per annum, the sum of (a) the per annum rate,
subject to a cap of 10.00%, equal to One-Month LIBOR, as determined on
the applicable Floating Rate Determination Date, plus 0.55% (1.05% if
the Issuer does not exercise its option to redeem the Bonds when first
permitted to do so), accrued during the applicable Accrual Period on
the outstanding principal balance of this Bond, immediately prior to
such Payment Date and (b) the excess of (i) twelve times the amount of
interest at the per annum rate equal to the excess of (x) the weighted
average (by principal balance) of the Net Rates on the Loans over (y)
the weighted average (by principal balance) of the Class Interest Rates
on the Bonds (calculated, in the case of the Class A-3 and Class B-1
Bonds, solely by reference to clause (a) of the respective definitions
of the Class Interest Rates) applicable to such Payment Date, accrued
during the applicable Accrual Period on a notional principal balance
equal to the aggregate outstanding principal balance of the Bonds
immediately prior to such Payment Date over (ii) the sum of the
Interest Carryover Amounts for the prior Payment Date, divided by (iii)
the sum of the outstanding principal balances of the Class A-3 and
Class B-1 Bonds immediately prior to such Payment Date.
(b) Payments of principal shall be due and payable on the
Class A-3 Bonds on each Payment Date to the extent and in the manner
described in the Indenture. Payments of principal, if any, due and
payable on this Bond on any Payment Date shall be in an amount equal to
this Bond's pro rata share of the aggregate installments of principal
due and payable on the Bonds of this Class as of such Payment Date,
with a final installment due and payable on the maturity of this Bond
equal to its unpaid principal balance, all as provided in the
Indenture.
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as the Collateralized Bonds, Series 9, issued in aggregate principal
amount of $983,669,000, as specifically set forth in an indenture dated as of
November 1, 1994 (the "Original Indenture"), as amended and supplemented by the
Series 9 Supplement dated as of June 1, 1997 (the "Series 9 Supplement" and,
together with the Original Indenture, the "Indenture"), between the Issuer and
Texas Commerce Bank National Association (the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and indentures
supplemental thereto 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 that are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
Each payment on this Bond, when made, shall be applied first to the
payment of interest accrued and unpaid on this Bond and then to the payment of
principal on this Bond.
The principal and interest so payable on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Bond is
registered on the regular Record Date for such Payment Date, which shall be the
close of business on the last Business Day of the month next preceding the month
in which such Payment Date is deemed to occur, commencing on July 28, 1997. Any
such interest not so punctually paid or duly provided for shall forthwith cease
to be payable to the Holder as of the Record Date and may be paid to the Holder
of this Bond as of a Special Record Date, to be fixed by the Trustee, for the
payment of such defaulted interest, notice whereof shall be given to Bondholders
not less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Bonds of this Series may be listed, and upon
such notice as may be required by such exchange, all as more fully provided in
the Indenture.
This Bond was issued on June 25, 1997, at a price equal to (i) 112% of
its original principal amount plus (ii) accrued interest at closing equal to 0%
of such principal amount. Under Treasury regulations (the "OID Regulations"),
all interest payments to be received on this Bond (based upon the assumption
that this Bond pays in
A-3-1-2
<PAGE>
accordance with the prepayment assumptions used in pricing this Bond) are
treated as part of this Bond's stated redemption price at maturity (i.e.,
principal). Accordingly, this Bond was issued with original issue discount
("OID") for federal income tax purposes in an amount equal to approximately
336.3993% of its original principal amount. The monthly yield to maturity of
this Bond expressed on an annual basis is approximately 12.6254%. In computing
both the monthly yield to maturity and the OID amounts specified above, the
Issuer has used (i) a method embodying an economic accrual of income, (ii) a
prepayment assumption equal to 21% CPR (as defined in the Prospectus), and (iii)
a 30 days per month/360 days per year accounting convention. This actual yield
to maturity and OID may differ from the projected amounts. The Holder of this
Bond should be aware that the methodology for accruing OID on this Bond is not
entirely clear under current law.
So long as this Bond is registered in the name of a Clearing Agency or
its nominee, the Trustee will make payments of principal of and interest on this
Bond by wire transfers of immediately available funds to the Clearing Agency or
its nominee. Notwithstanding the above, the final distribution on this Bond will
be made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Bond at its principal Corporate
Trust Office or such other offices or agencies appointed by the Trustee for that
purpose and such other locations provided in the Indenture.
The Class A-3 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 earlier of
(i) July 28, 2004, or (ii) the Payment Date on which, after giving effect to
payments of principal to be made on such date, the aggregate principal balance
of Bonds then Outstanding is less than 35% of the original aggregate principal
amount of the Bonds. In addition, the Issuer may redeem the Bonds in whole, but
not in part, at any time upon a determination by the Issuer, based upon an
Opinion of Counsel, that a substantial risk exists that the Bonds will not be
treated for federal income tax purposes as evidences of indebtedness. Any such
redemption of the Bonds will be at the Redemption Price set forth in the
Indenture.
Certain Events of Default will entitle the Trustee to declare the
principal of all or a portion of the Bonds to be due and payable or to take
possession of and retain the Trust Estate intact in either case in the manner
and with the effect provided in the Indenture.
Anything in the Indenture or in any other instrument referenced therein
to the contrary notwithstanding, the Holder hereof, by accepting delivery of
this Bond, recognizes that this Bond is a non-recourse obligation of the Issuer
and agrees to look solely to the Trust Estate for the Bonds for the payment of
all sums due hereunder and under the terms of the Indenture, and the Issuer
shall not be liable for any deficiency or other personal money judgment with
respect to the payment of such sums. The Holder of this Bond shall be deemed to
have agreed, by its acceptance of this Bond, not to file or join in filing any
petition of bankruptcy or commence any similar proceeding in respect of the
Issuer and to treat this Bond as a debt instrument for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income.
As provided in the Indenture and subject to any limitations on transfer
of this Bond by a Clearing Agency or its nominee and certain limitations set
forth in the Indenture, the transfer of this Bond is registrable in the Bond
Register upon surrender of this Bond for registration of transfer at the
principal Corporate Trust Office of the Trustee or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Indenture, duly endorsed by, or accompanied by an assignment in
the form below or other written instrument of transfer in form satisfactory to
the Trustee and the Bond Registrar duly executed by, the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Bonds of the same Class in the same aggregate principal balance will be issued
to the designated transferee or transferees.
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions of
the Code, including individual retirement accounts and annuities, Keogh Plans,
and collective investment funds in which such plans, accounts, or arrangements
are invested (any of the foregoing, a "Plan"), persons acting on behalf of a
Plan, or persons using the assets of Plan ("Plan Investors"), should review
A-3-1-3
<PAGE>
carefully with their legal advisors whether the purchase or holding of this Bond
could give rise to a transaction that is prohibited under ERISA or the Code or
cause the Collateral securing the Bonds to be regarded as "plan assets" for
purposes of the Plan Asset Regulations. The Issuer believes that the Class A-3
Bonds will be treated as debt obligations without significant equity features
for purposes of the Plan Asset Regulations. Accordingly, a Plan that acquires a
Class A-3 Bond should not be treated as having acquired a direct interest in the
assets of the Issuer. Nevertheless, there can be no complete assurance that the
Class A-3 Bonds will be treated as debt obligations without significant equity
features for purposes of the Plan Asset Regulations.
Prior to 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 as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, 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 Holders of a majority in aggregate
principal balance of Bonds at the time Outstanding. The Indenture also contains
provisions permitting the holders of specified percentages in aggregate
principal balance of specified Classes of 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 of
this Bond 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 term "Issuer" as used in this Bond includes any successor thereof
under the Indenture.
This Bond and the Indenture shall be construed in accordance with, and
governed by, the laws of the State of New York, without regard to conflict of
laws rules.
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.
A-3-1-4
<PAGE>
IN WITNESS WHEREOF, MERIT Securities Corporation has caused this Bond to
be signed by the true or facsimile signature of its Vice President and attested
by the true or facsimile signature of its Assistant Secretary.
MERIT SECURITIES CORPORATION
By: _____________________________
Lisa R. Cooke, Vice President
Attest:
By: _______________________________________
Wayne K. Brockwell, Assistant Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is a Class A-3 Bond referred to in the within-mentioned Indenture.
Date of Authentication:
June 25, 1997
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: ______________________________
A-3-1-5
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this Bond, shall be construed as though they were written out in full according
to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--....Custodian.....
TEN ENT--as tenants by the entireties (Cus) (Minor)
Under Uniform Gifts to Minors Act ...
JT TEN--as joint tenants with rights of survivorship (State)
and not as Tenants in Common
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- - -------------------------------------------------------------------------------
Please print or typewrite name and address of assignee
- - -------------------------------------------------------------------------------
Please insert Social Security or other identifying Number of Assignee
the within Bond of MERIT Securities Corporation and does hereby irrevocably
constitute and appoint ______________________________________________________,
Attorney, to transfer the said Bond on the books of the within named
Corporation, with full power of substitution in the premises.
Date: ____________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of this Bond in every
particular without alteration or
enlargement or any change whatever.
- - ----------------------------------
SIGNATURE GUARANTEED:
The signature must be guaranteed by a
commercial bank or trust company or by a
member firm of the New York Stock
Exchange or another national securities
exchange. Notarized or witnessed signatures
are not acceptable.
PAYMENT INSTRUCTIONS
The assignee should include the following for purposes of payment:
Payment shall be made, by wire transfer or otherwise, in immediately
available funds, to ____________________, for the account of
___________________, account number ________________, or, if mailed by check, to
__________________________. Applicable reports and statements should be mailed
to ______________________. This information is provided by __________________,
the assignee named above, or ______________________, as its agent.
A-3-1-6
<PAGE>
THIS BOND IS SUBORDINATE IN RIGHT OF DISTRIBUTION TO CERTAIN CLASSES OF THE
BONDS AS SET FORTH IN THE WITHIN-REFERENCED INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO MERIT SECURITIES
CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE PRINCIPAL OF THIS BOND IS SUBJECT TO PREPAYMENT FROM TIME TO TIME WITHOUT
SURRENDER OF OR NOTATION ON THIS BOND. ACCORDINGLY, THE UNPAID PRINCIPAL BALANCE
OF THIS BOND MAY BE LESS THAN THE AMOUNT SET FORTH BELOW. ANYONE ACQUIRING THIS
BOND MAY ASCERTAIN ITS CURRENT PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS BOND MAY NOT BE TRANSFERRED EXCEPT UPON COMPLIANCE WITH THE TERMS OF THE
WITHIN-REFERENCED INDENTURE.
No. B-1-1 AGGREGATE INITIAL PRINCIPAL BALANCE
OF THE CLASS B-1 BONDS AS OF
DENOMINATION: $42,791,000 THE DELIVERY DATE: $42,791,000
MERIT SECURITIES CORPORATION
COLLATERALIZED BONDS, SERIES 9, CLASS B-1
DUE JUNE 28, 2031
CUSIP NO. 589962 BE8
MERIT Securities Corporation, a corporation duly organized and existing
under the laws of the Commonwealth of Virginia (herein referred to as the
"Issuer"), for value received, hereby promises to pay to
CEDE & CO.
or registered assigns, from proceeds of the Collateral pledged under the
Indenture referred to within, the principal sum of FORTY-TWO MILLION SEVEN
HUNDRED NINETY-ONE THOUSAND AND 00/100 DOLLARS as hereinafter described and
interest on the unpaid principal balance hereof in the manner hereinafter
described until this Bond shall have been paid in full.
This Bond is a "Book-Entry Bond" as described in Section 3.12 of the
within-mentioned Indenture, and this Bond is being registered in the name CEDE &
Co., as nominee of The Depository Trust Company, a Clearing Agency. Subject to
the terms of the Indenture, the Bonds will be registered as one or more
certificates held by a Clearing Agency or its nominee, and beneficial interests
will be held by Beneficial Owners through the book-entry facilities of such
Clearing Agency or its nominee in minimum denominations of $100,000 and
increments of $1,000 in excess thereof, except that one Bond of this Class may
be issued in a different denomination.
B-1-1-1
<PAGE>
The interest on and principal of this Bond shall be payable in lawful
money of the United States in the following manner:
(a) Interest on this Bond will accrue (computed as if each
year consisted of 360 days and each month consisted of 30 days) during
the applicable Accrual Period with respect to a Payment Date (each as
hereinafter defined) on the outstanding principal balance of this Bond
immediately prior to each Payment Date at a per annum rate equal to,
subject to a cap of 14% per annum, the sum of (a) the per annum rate,
subject to a cap of 10.00%, equal to One-Month LIBOR, as determined on
the applicable Floating Rate Determination Date, plus 0.65% (1.15% if
the Issuer does not exercise its option to redeem the Bonds when first
permitted to do so), accrued during the applicable Accrual Period on
the outstanding principal balance of this Bond, immediately prior to
such Payment Date and (b) the excess of (i) twelve times the amount of
interest at the per annum rate equal to the excess of (x) the weighted
average (by principal balance) of the Net Rates on the Loans over (y)
the weighted average (by principal balance) of the Class Interest Rates
on the Bonds (calculated, in the case of the Class A-3 and Class B-1
Bonds, solely by reference to clause (a) of the respective definitions
of the Class Interest Rates) applicable to such Payment Date, accrued
during the applicable Accrual Period on a notional principal balance
equal to the aggregate outstanding principal balance of the Bonds
immediately prior to the prior Payment Date over (ii) the sum of the
Interest Carryover Amounts for such Payment Date, divided by (iii) the
sum of the outstanding principal balances of the Class A-3 and Class
B-1 Bonds immediately prior to such Payment Date.
(b) Payments of principal shall be due and payable on the
Class B-1 Bonds on each Payment Date to the extent and in the manner
described in the Indenture. Payments of principal, if any, due and
payable on this Bond on any Payment Date shall be in an amount equal to
this Bond's pro rata share of the aggregate installments of principal
due and payable on the Bonds of this Class as of such Payment Date,
with a final installment due and payable on the maturity of this Bond
equal to its unpaid principal balance, all as provided in the
Indenture.
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as the Collateralized Bonds, Series 9, issued in aggregate principal
amount of $983,669,000, as specifically set forth in an indenture dated as of
November 1, 1994 (the "Original Indenture"), as amended and supplemented by the
Series 9 Supplement dated as of June 1, 1997 (the "Series 9 Supplement" and,
together with the Original Indenture, the "Indenture"), between the Issuer and
Texas Commerce Bank National Association (the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and indentures
supplemental thereto 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 that are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
Each payment on this Bond, when made, shall be applied first to the
payment of interest accrued and unpaid on this Bond and then to the payment of
principal on this Bond.
The principal and interest so payable on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Bond is
registered on the regular Record Date for such Payment Date, which shall be the
close of business on the last Business Day of the month next preceding the month
in which such Payment Date is deemed to occur, commencing on July 28, 1997. Any
such interest not so punctually paid or duly provided for shall forthwith cease
to be payable to the Holder as of the Record Date and may be paid to the Holder
of this Bond as of a Special Record Date, to be fixed by the Trustee, for the
payment of such defaulted interest, notice whereof shall be given to Bondholders
not less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Bonds of this Series may be listed, and upon
such notice as may be required by such exchange, all as more fully provided in
the Indenture.
B-1-1-2
<PAGE>
This Bond was issued on June 25, 1997, at a price equal to (i) 112% of
its original principal amount plus (ii) accrued interest at closing equal to 0%
of such principal amount. Under Treasury regulations (the "OID Regulations"),
all interest payments to be received on this Bond (based upon the assumption
that this Bond pays in accordance with the prepayment assumptions used in
pricing this Bond) are treated as part of this Bond's stated redemption price at
maturity (i.e., principal). Accordingly, this Bond was issued with original
issue discount ("OID") for federal income tax purposes in an amount equal to
approximately 305.1604% of its original principal amount. The monthly yield to
maturity of this Bond expressed on an annual basis is approximately 12.2933%. In
computing both the monthly yield to maturity and the OID amounts specified
above, the Issuer has used (i) a method embodying an economic accrual of income,
(ii) a prepayment assumption equal to 21% CPR (as defined in the Prospectus),
and (iii) a 30 days per month/360 days per year accounting convention. This
actual yield to maturity and OID may differ from the projected amounts. The
Holder of this Bond should be aware that the methodology for accruing OID on
this Bond is not entirely clear under current law.
So long as this Bond is registered in the name of a Clearing Agency or
its nominee, the Trustee will make payments of principal of and interest on this
Bond by wire transfers of immediately available funds to the Clearing Agency or
its nominee. Notwithstanding the above, the final distribution on this Bond will
be made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Bond at its principal Corporate
Trust Office or such other offices or agencies appointed by the Trustee for that
purpose and such other locations provided in the Indenture.
The Class B-1 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 earlier of
(i) July 28, 2004, or (ii) the Payment Date on which, after giving effect to
payments of principal to be made on such date, the aggregate principal balance
of Bonds then Outstanding is less than 35% of the original aggregate principal
amount of the Bonds. In addition, the Issuer may redeem the Bonds in whole, but
not in part, at any time upon a determination by the Issuer, based upon an
Opinion of Counsel, that a substantial risk exists that the Bonds will not be
treated for federal income tax purposes as evidences of indebtedness. Any such
redemption of the Bonds will be at the Redemption Price set forth in the
Indenture.
Certain Events of Default will entitle the Trustee to declare the
principal of all or a portion of the Bonds to be due and payable or to take
possession of and retain the Trust Estate intact in either case in the manner
and with the effect provided in the Indenture.
Anything in the Indenture or in any other instrument referenced therein
to the contrary notwithstanding, the Holder hereof, by accepting delivery of
this Bond, recognizes that this Bond is a non-recourse obligation of the Issuer
and agrees to look solely to the Trust Estate for the Bonds for the payment of
all sums due hereunder and under the terms of the Indenture, and the Issuer
shall not be liable for any deficiency or other personal money judgment with
respect to the payment of such sums. The Holder of this Bond shall be deemed to
have agreed, by its acceptance of this Bond, not to file or join in filing any
petition of bankruptcy or commence any similar proceeding in respect of the
Issuer and to treat this Bond as a debt instrument for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income.
As provided in the Indenture and subject to any limitations on transfer
of this Bond by a Clearing Agency or its nominee and certain limitations set
forth in the Indenture, the transfer of this Bond is registrable in the Bond
Register upon surrender of this Bond for registration of transfer at the
principal Corporate Trust Office of the Trustee or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Indenture, duly endorsed by, or accompanied by an assignment in
the form below or other written instrument of transfer in form satisfactory to
the Trustee and the Bond Registrar duly executed by, the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Bonds of the same Class in the same aggregate principal balance will be issued
to the designated transferee or transferees.
B-1-1-3
<PAGE>
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions of
the Code, including individual retirement accounts and annuities, Keogh Plans,
and collective investment funds in which such plans, accounts, or arrangements
are invested (any of the foregoing, a "Plan"), persons acting on behalf of a
Plan, or persons using the assets of Plan ("Plan Investors"), should review
carefully with their legal advisors whether the purchase or holding of this Bond
could give rise to a transaction that is prohibited under ERISA or the Code or
cause the Collateral securing the Bonds to be regarded as "plan assets" for
purposes of the Plan Asset Regulations. The Class B-1 Bonds are Subordinated
Bonds. Each person acquiring a Subordinated Bond will be deemed to represent to
the Issuer, the Trustee, and the Master Servicer that such person is not a Plan
subject to ERISA or Section 4975 of the Code.
Prior to 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 as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, 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 Holders of a majority in aggregate
principal balance of Bonds at the time Outstanding. The Indenture also contains
provisions permitting the holders of specified percentages in aggregate
principal balance of specified Classes of 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 of
this Bond 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.
Prior to the time that all Bonds senior to the Class B-1 Bonds in right
of payment are paid in full, the failure to pay interest on or principal of the
Class B-1 Bonds will not constitute an Event of Default.
The term "Issuer" as used in this Bond includes any successor thereof
under the Indenture.
This Bond and the Indenture shall be construed in accordance with, and
governed by, the laws of the State of New York, without regard to conflict of
laws rules.
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.
B-1-1-4
<PAGE>
IN WITNESS WHEREOF, MERIT Securities Corporation has caused this Bond
to be signed by the true or facsimile signature of its Vice President and
attested by the true or facsimile signature of its Assistant Secretary.
MERIT SECURITIES CORPORATION
By: _____________________________
Lisa R. Cooke, Vice President
Attest:
By: ______________________________
Wayne K. Brockwell, Assistant Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is a Class B-1 Bond referred to in the within-mentioned Indenture.
Date of Authentication:
June 25, 1997
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: ______________________________
B-1-1-5
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this Bond, shall be construed as though they were written out in full according
to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--....Custodian.....
TEN ENT--as tenants by the entireties (Cus) (Minor)
Under Uniform Gifts to Minors Act ....
JT TEN--as joint tenants with rights of survivorship (State)
and not as Tenants in Common
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- - -------------------------------------------------------------------------------
Please print or typewrite name and address of assignee
- - --------------------------------------------------------------------------------
Please insert Social Security or other identifying Number of Assignee
the within Bond of MERIT Securities Corporation and does hereby irrevocably
constitute and appoint ______________________________________________________,
Attorney, to transfer the said Bond on the books of the within named
Corporation, with full power of substitution in the premises.
Date: ____________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of this Bond in every
particular without alteration or
enlargement or any change whatever.
- - ----------------------------------
SIGNATURE GUARANTEED:
The signature must be guaranteed by a
commercial bank or trust company or by a
member firm of the New York Stock
Exchange or another national securities
exchange. Notarized or witnessed signatures
are not acceptable.
PAYMENT INSTRUCTIONS
The assignee should include the following for purposes of payment:
Payment shall be made, by wire transfer or otherwise, in immediately
available funds, to ____________________, for the account of
___________________, account number ________________, or, if mailed by check, to
__________________________. Applicable reports and statements should be mailed
to ______________________. This information is provided by __________________,
the assignee named above, or ______________________, as its agent.
B-1-1-6
<PAGE>
THIS BOND IS SUBORDINATE IN RIGHT OF DISTRIBUTION TO CERTAIN CLASSES OF THE
BONDS AS SET FORTH IN THE WITHIN-REFERENCED INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO MERIT SECURITIES
CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE PRINCIPAL OF THIS BOND IS SUBJECT TO PREPAYMENT FROM TIME TO TIME WITHOUT
SURRENDER OF OR NOTATION ON THIS BOND. ACCORDINGLY, THE UNPAID PRINCIPAL BALANCE
OF THIS BOND MAY BE LESS THAN THE AMOUNT SET FORTH BELOW. ANYONE ACQUIRING THIS
BOND MAY ASCERTAIN ITS CURRENT PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS BOND MAY NOT BE TRANSFERRED EXCEPT UPON COMPLIANCE WITH THE TERMS OF THE
WITHIN-REFERENCED INDENTURE.
No. B-2-1 AGGREGATE INITIAL PRINCIPAL BALANCE
OF THE CLASS B-2 BONDS AS OF
DENOMINATION: $15,095,000 THE DELIVERY DATE: $15,095,000
MERIT SECURITIES CORPORATION
COLLATERALIZED BONDS, SERIES 9, CLASS B-2
DUE JUNE 28, 2031
CUSIP NO. 589962 BF5
MERIT Securities Corporation, a corporation duly organized and existing
under the laws of the Commonwealth of Virginia (herein referred to as the
"Issuer"), for value received, hereby promises to pay to
CEDE & CO.
or registered assigns, from proceeds of the Collateral pledged under the
Indenture referred to within, the principal sum of FIFTEEN MILLION NINETY-FIVE
THOUSAND AND 00/100 DOLLARS as hereinafter described and interest on the unpaid
principal balance hereof in the manner hereinafter described until this Bond
shall have been paid in full.
This Bond is a "Book-Entry Bond" as described in Section 3.12 of the
within-mentioned Indenture, and this Bond is being registered in the name CEDE &
Co., as nominee of The Depository Trust Company, a Clearing Agency. Subject to
the terms of the Indenture, the Bonds will be registered as one or more
certificates held by a Clearing Agency or its nominee, and beneficial interests
will be held by Beneficial Owners through the book-entry facilities of such
Clearing Agency or its nominee in minimum denominations of $100,000 and
increments of $1,000 in excess thereof, except that one Bond of this Class may
be issued in a different denomination.
B-2-1-1
<PAGE>
The interest on and principal of this Bond shall be payable in lawful
money of the United States in the following manner:
(a) The Class Interest Rate for this Bond for the period from
the Delivery Date through July 27, 1997, will be 6.6875% per annum.
Interest on this Bond will accrue (computed as if each year consisted
of 360 days and each month consisted of 30 days) during the applicable
Accrual Period with respect to a Payment Date (each as hereinafter
defined) on the outstanding principal balance of this Bond immediately
prior to each Payment Date at a per annum rate equal, subject to a cap
of 10.50% to One-Month LIBOR, as determined on the applicable Floating
Rate Determination Date, plus 1.00%; provided, however, that, if the
Issuer does not exercise its option to redeem this Bond when it is
first permitted to do so, interest will accrue at a per annum rate,
subject to a cap equal to 11.00%, equal to One-Month LIBOR, as
determined on the Applicable Floating Rate Determination Date, plus
1.50%. As used herein, "Accrual Period" means, with respect to each
Payment Date, the period commencing on the 28th day of the preceding
month through the 27th day of the month in which such Payment Date is
deemed to occur (except that the first Accrual Period will be the
period from the Delivery Date through July 27, 1997). The Holder of
this Bond will be entitled to receive on the 28th day of each month,
or, if such day is not a Business Day, then on the next succeeding
Business Day (each a "Payment Date"), commencing on July 28, 1997, an
amount equal to this Bond's pro rata share of the Interest Payment
Amount for such Payment Date. For accounting purposes the Payment Date
will be deemed to occur on the 28th day of the month without regard to
whether such day is a Business Day.
(b) Payments of principal shall be due and payable on the
Class B-2 Bonds on each Payment Date to the extent and in the manner
described in the Indenture. Payments of principal, if any, due and
payable on this Bond on any Payment Date shall be in an amount equal to
this Bond's pro rata share of the aggregate installments of principal
due and payable on the Bonds of this Class as of such Payment Date,
with a final installment due and payable on the maturity of this Bond
equal to its unpaid principal balance, all as provided in the
Indenture.
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as the Collateralized Bonds, Series 9, issued in aggregate principal
amount of $983,669,000, as specifically set forth in an indenture dated as of
November 1, 1994 (the "Original Indenture"), as amended and supplemented by the
Series 9 Supplement dated as of June 1, 1997 (the "Series 9 Supplement" and,
together with the Original Indenture, the "Indenture"), between the Issuer and
Texas Commerce Bank National Association (the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and indentures
supplemental thereto 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 that are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
Each payment on this Bond, when made, shall be applied first to the
payment of interest accrued and unpaid on this Bond and then to the payment of
principal on this Bond.
The principal and interest so payable on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Bond is
registered on the regular Record Date for such Payment Date, which shall be the
close of business on the last Business Day of the month next preceding the month
in which such Payment Date is deemed to occur, commencing on July 28, 1997. Any
such interest not so punctually paid or duly provided for shall forthwith cease
to be payable to the Holder as of the Record Date and may be paid to the Holder
of this Bond as of a Special Record Date, to be fixed by the Trustee, for the
payment of such defaulted interest, notice whereof shall be given to Bondholders
not less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Bonds of this Series may be listed, and upon
such notice as may be required by such exchange, all as more fully provided in
the Indenture.
B-2-1-2
<PAGE>
So long as this Bond is registered in the name of a Clearing Agency or
its nominee, the Trustee will make payments of principal of and interest on this
Bond by wire transfers of immediately available funds to the Clearing Agency or
its nominee. Notwithstanding the above, the final distribution on this Bond will
be made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Bond at its principal Corporate
Trust Office or such other offices or agencies appointed by the Trustee for that
purpose and such other locations provided in the Indenture.
The Class B-2 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 earlier of
(i) July 28, 2004, or (ii) the Payment Date on which, after giving effect to
payments of principal to be made on such date, the aggregate principal balance
of Bonds then Outstanding is less than 35% of the original aggregate principal
amount of the Bonds. In addition, the Issuer may redeem the Bonds in whole, but
not in part, at any time upon a determination by the Issuer, based upon an
Opinion of Counsel, that a substantial risk exists that the Bonds will not be
treated for federal income tax purposes as evidences of indebtedness. Any such
redemption of the Bonds will be at the Redemption Price set forth in the
Indenture.
Certain Events of Default will entitle the Trustee to declare the
principal of all or a portion of the Bonds to be due and payable or to take
possession of and retain the Trust Estate intact in either case in the manner
and with the effect provided in the Indenture.
Anything in the Indenture or in any other instrument referenced therein
to the contrary notwithstanding, the Holder hereof, by accepting delivery of
this Bond, recognizes that this Bond is a non-recourse obligation of the Issuer
and agrees to look solely to the Trust Estate for the Bonds for the payment of
all sums due hereunder and under the terms of the Indenture, and the Issuer
shall not be liable for any deficiency or other personal money judgment with
respect to the payment of such sums. The Holder of this Bond shall be deemed to
have agreed, by its acceptance of this Bond, not to file or join in filing any
petition of bankruptcy or commence any similar proceeding in respect of the
Issuer and to treat this Bond as a debt instrument for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income.
As provided in the Indenture and subject to any limitations on transfer
of this Bond by a Clearing Agency or its nominee and certain limitations set
forth in the Indenture, the transfer of this Bond is registrable in the Bond
Register upon surrender of this Bond for registration of transfer at the
principal Corporate Trust Office of the Trustee or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Indenture, duly endorsed by, or accompanied by an assignment in
the form below or other written instrument of transfer in form satisfactory to
the Trustee and the Bond Registrar duly executed by, the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Bonds of the same Class in the same aggregate principal balance will be issued
to the designated transferee or transferees.
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions of
the Code, including individual retirement accounts and annuities, Keogh Plans,
and collective investment funds in which such plans, accounts, or arrangements
are invested (any of the foregoing, a "Plan"), persons acting on behalf of a
Plan, or persons using the assets of Plan ("Plan Investors"), should review
carefully with their legal advisors whether the purchase or holding of this Bond
could give rise to a transaction that is prohibited under ERISA or the Code or
cause the Collateral securing the Bonds to be regarded as "plan assets" for
purposes of the Plan Asset Regulations. The Class B-2 Bonds are Subordinated
Bonds. Each person acquiring a Subordinated Bond will be deemed to represent to
the Issuer, the Trustee, and the Master Servicer that such person is not a Plan
subject to ERISA or Section 4975 of the Code.
Prior to 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 as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, 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.
B-2-1-3
<PAGE>
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 Holders of a majority in aggregate
principal balance of Bonds at the time Outstanding. The Indenture also contains
provisions permitting the holders of specified percentages in aggregate
principal balance of specified Classes of 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 of
this Bond 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.
Prior to the time that all Bonds senior to the Class B-2 Bonds in right
of payment are paid in full, the failure to pay interest on or principal of the
Class B-2 Bonds will not constitute an Event of Default.
The term "Issuer" as used in this Bond includes any successor thereof
under the Indenture.
This Bond and the Indenture shall be construed in accordance with, and
governed by, the laws of the State of New York, without regard to conflict of
laws rules.
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.
B-2-1-4
<PAGE>
IN WITNESS WHEREOF, MERIT Securities Corporation has caused this Bond
to be signed by the true or facsimile signature of its Vice President and
attested by the true or facsimile signature of its Assistant Secretary.
MERIT SECURITIES CORPORATION
By: _____________________________
Lisa R. Cooke, Vice President
Attest:
By: ______________________________
Wayne K. Brockwell, Assistant Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is a Class B-2 Bond referred to in the within-mentioned Indenture.
Date of Authentication:
June 25, 1997
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: ______________________________
B-2-1-5
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this Bond, shall be construed as though they were written out in full according
to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--....Custodian.....
TEN ENT--as tenants by the entireties (Cus) (Minor)
Under Uniform Gifts to Minors Act ....
JT TEN--as joint tenants with rights of survivorship (State)
and not as Tenants in Common
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- - --------------------------------------------------------------------------------
Please print or typewrite name and address of assignee
- - --------------------------------------------------------------------------------
Please insert Social Security or other identifying Number of Assignee
the within Bond of MERIT Securities Corporation and does hereby irrevocably
constitute and appoint ______________________________________________________,
Attorney, to transfer the said Bond on the books of the within named
Corporation, with full power of substitution in the premises.
Date: ____________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of this Bond in every
particular without alteration or
enlargement or any change whatever.
- - ----------------------------------
SIGNATURE GUARANTEED:
The signature must be guaranteed by a
commercial bank or trust company or by a
member firm of the New York Stock
Exchange or another national securities
exchange. Notarized or witnessed signatures
are not acceptable.
PAYMENT INSTRUCTIONS
The assignee should include the following for purposes of payment:
Payment shall be made, by wire transfer or otherwise, in immediately
available funds, to ____________________, for the account of
___________________, account number ________________, or, if mailed by check, to
__________________________. Applicable reports and statements should be mailed
to ______________________. This information is provided by __________________,
the assignee named above, or ______________________, as its agent.
B-2-1-6
<PAGE>
THIS BOND MAY NOT BE TRANSFERRED TO ANY PERSON OTHER THAN DYNEX CAPITAL, INC.,
OR ANY AFFILIATE OF DYNEX THAT IS A "QUALIFIED REIT SUBSIDIARY" OF DYNEX WITHIN
THE MEANING OF SECTION 856(1)(2) OF THE INTERNAL REVENUE CODE OF 1986, AS
PROVIDED IN AN AGREEMENT DATED JUNE 25, 1997 BETWEEN THE ISSUER AND THE TRUSTEE.
THIS BOND IS SUBORDINATE IN RIGHT OF DISTRIBUTION TO CERTAIN CLASSES OF THE
BONDS AS SET FORTH IN THE WITHIN-REFERENCED INDENTURE.
THE PRINCIPAL OF THIS BOND IS SUBJECT TO PREPAYMENT FROM TIME TO TIME WITHOUT
SURRENDER OF OR NOTATION ON THIS BOND. ACCORDINGLY, THE UNPAID PRINCIPAL BALANCE
OF THIS BOND MAY BE LESS THAN THE AMOUNT SET FORTH BELOW. ANYONE ACQUIRING THIS
BOND MAY ASCERTAIN ITS CURRENT PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
No. B-3-1 AGGREGATE INITIAL PRINCIPAL BALANCE
OF THE CLASS B-3 BONDS AS OF
DENOMINATION: $10,063,000 THE DELIVERY DATE: $10,063,000
MERIT SECURITIES CORPORATION
COLLATERALIZED BONDS, SERIES 9, CLASS B-3
DUE JUNE 28, 2031
CUSIP NO. 589962 BG3
MERIT Securities Corporation, a corporation duly organized and existing
under the laws of the Commonwealth of Virginia (herein referred to as the
"Issuer"), for value received, hereby promises to pay to
MERIT SECURITIES CORPORATION
or registered assigns, from proceeds of the Collateral pledged under the
Indenture referred to within, the principal sum of TEN MILLION SIXTY-THREE
THOUSAND AND 00/100 DOLLARS as hereinafter described and interest on the unpaid
principal balance hereof in the manner hereinafter described until this Bond
shall have been paid in full.
This Bond is a "Book-Entry Bond" as described in Section 3.12 of the
within-mentioned Indenture, and this Bond is being registered in the name CEDE &
Co., as nominee of The Depository Trust Company, a Clearing Agency. Subject to
the terms of the Indenture, the Bonds will be registered as one or more
certificates held by a Clearing Agency or its nominee, and beneficial interests
will be held by Beneficial Owners through the book-entry facilities of such
Clearing Agency or its nominee in minimum denominations of $100,000 and
increments of $1,000 in excess thereof, except that one Bond of this Class may
be issued in a different denomination.
The interest on and principal of this Bond shall be payable in lawful
money of the United States in the following manner:
(a) The Class Interest Rate for this Bond for the period from
the Delivery Date through July 27, 1997, will be 7.4375% per annum.
Interest on this Bond will accrue (computed as if each year consisted
of 360 days and each month consisted of 30 days) during the applicable
Accrual Period with respect to a Payment Date (each as hereinafter
defined) on the outstanding principal balance of this Bond immediately
prior to each Payment Date at a per annum rate equal, subject to a cap
of 11.00% to One-Month LIBOR, as
B-3-1-1
<PAGE>
determined on the applicable Floating Rate Determination Date, plus
1.75%; provided, however, that, if the Issuer does not exercise its
option to redeem this Bond when it is first permitted to do so,
interest will accrue at a per annum rate equal, subject to a cap equal
to 11.50%, to One-Month LIBOR, as determined on the Applicable Floating
Rate Determination Date, plus 2.25%. As used herein, "Accrual Period"
means, with respect to each Payment Date, the period commencing on the
28th day of the preceding month through the 27th day of the month in
which such Payment Date is deemed to occur (except that the first
Accrual Period will be the period from the Delivery Date through July
27, 1997). The Holder of this Bond will be entitled to receive on the
28th day of each month, or, if such day is not a Business Day, then on
the next succeeding Business Day (each a "Payment Date"), commencing on
July 28, 1997, an amount equal to this Bond's pro rata share of the
Interest Payment Amount for such Payment Date. For accounting purposes
the Payment Date will be deemed to occur on the 28th day of the month
without regard to whether such day is a Business Day.
(b) Payments of principal shall be due and payable on the
Class B-3 Bonds on each Payment Date to the extent and in the manner
described in the Indenture. Payments of principal, if any, due and
payable on this Bond on any Payment Date shall be in an amount equal to
this Bond's pro rata share of the aggregate installments of principal
due and payable on the Bonds of this Class as of such Payment Date,
with a final installment due and payable on the maturity of this Bond
equal to its unpaid principal balance, all as provided in the
Indenture.
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as the Collateralized Bonds, Series 9, issued in aggregate principal
amount of $983,669,000, as specifically set forth in an indenture dated as of
November 1, 1994 (the "Original Indenture"), as amended and supplemented by the
Series 9 Supplement dated as of June 1, 1997 (the "Series 9 Supplement" and,
together with the Original Indenture, the "Indenture"), between the Issuer and
Texas Commerce Bank National Association (the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and indentures
supplemental thereto 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 that are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
Each payment on this Bond, when made, shall be applied first to the
payment of interest accrued and unpaid on this Bond and then to the payment of
principal on this Bond.
The principal and interest so payable on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Bond is
registered on the regular Record Date for such Payment Date, which shall be the
close of business on the last Business Day of the month next preceding the month
in which such Payment Date is deemed to occur, commencing on July 28, 1997. Any
such interest not so punctually paid or duly provided for shall forthwith cease
to be payable to the Holder as of the Record Date and may be paid to the Holder
of this Bond as of a Special Record Date, to be fixed by the Trustee, for the
payment of such defaulted interest, notice whereof shall be given to Bondholders
not less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Bonds of this Series may be listed, and upon
such notice as may be required by such exchange, all as more fully provided in
the Indenture.
So long as this Bond is registered in the name of a Clearing Agency or
its nominee, the Trustee will make payments of principal of and interest on this
Bond by wire transfers of immediately available funds to the Clearing Agency or
its nominee. Notwithstanding the above, the final distribution on this Bond will
be made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Bond at its principal Corporate
Trust Office or such other offices or agencies appointed by the Trustee for that
purpose and such other locations provided in the Indenture.
B-3-1-2
<PAGE>
The Class B-3 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 earlier of
(i) July 28, 2004, or (ii) the Payment Date on which, after giving effect to
payments of principal to be made on such date, the aggregate principal balance
of Bonds then Outstanding is less than 35% of the original aggregate principal
amount of the Bonds. In addition, the Issuer may redeem the Bonds in whole, but
not in part, at any time upon a determination by the Issuer, based upon an
Opinion of Counsel, that a substantial risk exists that the Bonds will not be
treated for federal income tax purposes as evidences of indebtedness. Any such
redemption of the Bonds will be at the Redemption Price set forth in the
Indenture.
Certain Events of Default will entitle the Trustee to declare the
principal of all or a portion of the Bonds to be due and payable or to take
possession of and retain the Trust Estate intact in either case in the manner
and with the effect provided in the Indenture.
Anything in the Indenture or in any other instrument referenced therein
to the contrary notwithstanding, the Holder hereof, by accepting delivery of
this Bond, recognizes that this Bond is a non-recourse obligation of the Issuer
and agrees to look solely to the Trust Estate for the Bonds for the payment of
all sums due hereunder and under the terms of the Indenture, and the Issuer
shall not be liable for any deficiency or other personal money judgment with
respect to the payment of such sums. The Holder of this Bond shall be deemed to
have agreed, by its acceptance of this Bond, not to file or join in filing any
petition of bankruptcy or commence any similar proceeding in respect of the
Issuer and to treat this Bond as a debt instrument for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income.
As provided in the Indenture and subject to any limitations on transfer
of this Bond by a Clearing Agency or its nominee and certain limitations set
forth in the Indenture, the transfer of this Bond is registrable in the Bond
Register upon surrender of this Bond for registration of transfer at the
principal Corporate Trust Office of the Trustee or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Indenture, duly endorsed by, or accompanied by an assignment in
the form below or other written instrument of transfer in form satisfactory to
the Trustee and the Bond Registrar duly executed by, the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Bonds of the same Class in the same aggregate principal balance will be issued
to the designated transferee or transferees.
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements that are subject to ERISA or corresponding provisions of
the Code, including individual retirement accounts and annuities, Keogh Plans,
and collective investment funds in which such plans, accounts, or arrangements
are invested (any of the foregoing, a "Plan"), persons acting on behalf of a
Plan, or persons using the assets of Plan ("Plan Investors"), should review
carefully with their legal advisors whether the purchase or holding of this Bond
could give rise to a transaction that is prohibited under ERISA or the Code or
cause the Collateral securing the Bonds to be regarded as "plan assets" for
purposes of the Plan Asset Regulations. The Class B-3 Bonds are Subordinated
Bonds. Each person acquiring a Subordinated Bond will be deemed to represent to
the Issuer, the Trustee, and the Master Servicer that such person is not a Plan
subject to ERISA or Section 4975 of the Code.
Prior to 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 as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, 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 Holders of a majority in aggregate
principal balance of Bonds at the time Outstanding. The Indenture also contains
provisions permitting the holders of specified percentages in aggregate
principal balance of specified Classes of 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
B-3-1-3
<PAGE>
and their consequences. Any such consent or waiver by the Holder of this Bond
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.
Prior to the time that all Bonds senior to the Class B-3 Bonds in right
of payment are paid in full, the failure to pay interest on or principal of the
Class B-3 Bonds will not constitute an Event of Default.
B-3-1-4
<PAGE>
The term "Issuer" as used in this Bond includes any successor thereof
under the Indenture.
This Bond and the Indenture shall be construed in accordance with, and
governed by, the laws of the State of New York, without regard to conflict of
laws rules.
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.
B-3-1-5
<PAGE>
IN WITNESS WHEREOF, MERIT Securities Corporation has caused this Bond
to be signed by the true or facsimile signature of its Vice President and
attested by the true or facsimile signature of its Assistant Secretary.
MERIT SECURITIES CORPORATION
By: _____________________________
Lisa R. Cooke, Vice President
Attest:
By: ______________________________
Wayne K. Brockwell, Assistant Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is a Class B-3 Bond referred to in the within-mentioned Indenture.
Date of Authentication:
June 25, 1997
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: ______________________________
B-3-1-6
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this Bond, shall be construed as though they were written out in full according
to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--....Custodian.....
TEN ENT--as tenants by the entireties (Cus) (Minor)
Under Uniform Gifts to Minors Act ...
JT TEN--as joint tenants with rights of survivorship (State)
and not as Tenants in Common
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- - -------------------------------------------------------------------------------
Please print or typewrite name and address of assignee
- - -------------------------------------------------------------------------------
Please insert Social Security or other identifying Number of Assignee
the within Bond of MERIT Securities Corporation and does hereby irrevocably
constitute and appoint ______________________________________________________,
Attorney, to transfer the said Bond on the books of the within named
Corporation, with full power of substitution in the premises.
Date: ____________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of this Bond in every
particular without alteration or
enlargement or any change whatever.
- - ----------------------------------
SIGNATURE GUARANTEED:
The signature must be guaranteed by a
commercial bank or trust company or by a
member firm of the New York Stock
Exchange or another national securities
exchange. Notarized or witnessed signatures
are not acceptable.
PAYMENT INSTRUCTIONS
The assignee should include the following for purposes of payment:
Payment shall be made, by wire transfer or otherwise, in immediately
available funds, to ____________________, for the account of
___________________, account number ________________, or, if mailed by check, to
__________________________. Applicable reports and statements should be mailed
to ______________________. This information is provided by __________________,
the assignee named above, or ______________________, as its agent.
B-3-1-7
