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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 12 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 23, 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) 217-5800
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<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 December 23, 1997, the Registrant issued $1,310,017,530 initial
principal balance of its Collateralized Bonds, Series 10, Class 1-A1, Class
1-A2, Class 2-A1, Class 2-A2, Class B-1, Class B-2 and Class B-3 Bonds (the
"Bonds") pursuant to the Series 10 Supplement dated as of December 1, 1997 (the
"Series 10 Supplement"), to the Indenture dated as of December 1, 1997 (the
"Original Indenture" and, collectively with the Series 10 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:
<TABLE>
<CAPTION>
Original Class Interest Stated
Designation Principal Amount Rate Maturity
<S> <C>
Class 1-A1 Bonds $237,500,000 (1) December 28, 2016
Class 1-A2 Bonds $394,001,020 (1) November 28, 2025
Class 2-A1 Bonds $397,995,120 (1) May 28, 2025
Class 2-A2 Bonds $207,000,000 (1) June 28, 2030
Class B-1 Bonds $43,444,460 (1) December 28, 2031
Class B-2 Bonds $20,051,280 (1) December 28, 2031
Class B-3 Bonds $10,025,650 (1) December 28, 2031
</TABLE>
(1) With respect to each Payment Date, the Class Interest Rates per annum
will initially equal, subject to the Applicable Cap, One-Month LIBOR,
as determined on the applicable Floating Rate Determination Date, plus,
in each case, the Applicable Spread. The Applicable Spread is initially
0.26% for the Class 1-A1 Bonds, 0.50% for the Class 1-A2 Bonds, 0.33%
for the Class 2-A1 Bonds, 0.56% for the Class 2-A2 Bonds, 0.75% for the
Class B-1 Bonds, 1.00% for the Class B-2 Bonds and 1.75% for the Class
B-3 Bonds. The Applicable Cap per annum is 10.00% for the Class 1-A1,
Class 1-A2, Class 2-A1 and Class 2-A2 Bonds, 10.25% for the Class B-1
Bonds, 10.50% for the Class B-2 Bonds and 11.25% for the Class B-3
Bonds. For the initial Payment Date, the Class Interest Rates per annum
will be 6.22% for the Class 1-A1 Bonds, 6.46% for the Class 1-A2 Bonds,
6.29% for the Class 2-A1 Bonds, 6.52%, for the Class 2-A2 Bonds, 6.71%
for the Class B-1 Bonds, 6.96%, for the Class B-2 Bonds and 7.71% for
the Class B-3 Bonds. If the Issuer does not exercise its option to
redeem the Bonds when it is first permitted to do so, the Applicable
Spread and Cap will be increased as described herein
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. Substantially all the loans and contracts were purchased by the
Registrant in a privately-negotiated transaction with Issuer Holding Corp.
("IHC") pursuant to a Sales Agreement dated December 17, 1997, between the
Registrant and IHC; the remainder were owned by the Registrant. In the case of
certain of the loans, the Registrant pledge mortgage certificates representing
substantially the entire interest in such loans.
The Bonds have been sold by the Registrant to Lehman Brothers Inc.,
Greenwich Capital Markets, Inc., and Wheat, First Securities, Inc. (the
"Underwriters") pursuant to an Underwriting Agreement dated as of December 17,
1997, between the Underwriters, and the Registrant and IHC.
The description of the Collateral pledged to the Trustee pursuant to
the Indenture 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%.
1) Current Scheduled Principal Balance
Group I Group II
Current Scheduled Percent of Scheduled Percent of Schedule
Principal Balances ($) Principal Balance (%) Principal Balance (%)
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1-100,000 7% 22%
100,001-150,000 20% 4%
150,001-203,150 20% 5%
203,151-250,000 18% 12%
250,001-300,000 11% 15%
300,001-350,000 7% 10%
350,001-400,000 5% 10%
400,001-450,000 3% 5%
450,001-500,000 3% 6%
500,001-550,000 2% 3%
550,001-600,000 1% 2%
600,001-650,000 1% 3%
650,001-700,000 1% *
700,001-800,000 * 1%
800,001-900,000 * *
900,001-1,000,000 * 1%
1,000,001-2,000,000 * *
Totals: 100% 100%
The average Scheduled Principal Balance for the Loans is $150,428, $182,601 for
the Group I Loans and $127,587 for the Group II Loans.
The maximum Scheduled Principal Balance is $1,708,109 for the Loans, $1,126,497
for the Group I Loans and $1,708,109 for the Group II Loans.
The minimum Scheduled Principal Balance is $1,986 for the Loans, $21,184 for the
Group I Loans and $1,986 for the Group II Loans.
<PAGE>
2) Current Loan Rates Group I Group II
Percent of Scheduled Percent of Schedule
Current Note Rate (%) Principal Balance (%) Principal Balance (%)
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5.000-5.999 * 4%
6.000-6.249 * 8%
6.250-6.499 * 15%
6.500-6.749 * 18%
6.750-6.999 * 16%
7.000-7.249 * 5%
7.250-7.499 * 1%
7.500-7.749 * 1%
7.750-7.999 * 2%
8.000-8.249 * *
8.250-8.499 1% 2%
8.500-8.749 43% 1%
8.750-8.999 44% 3%
9.000-11.249 12% 18%
11.250-15.749 * 5%
Totals: 100% 100%
The weighted average current Loan Rate is 8.18% per annum for the Loans, 8.81%
for the Group I Loans and 7.55% for the Group II Loans.
The weighted average current Loan Rate of the Level Payment Loans and the
Adjustable Rate Group II Loans is 9.60% and 6.98%, respectively.
<PAGE>
3) Gross Margin on Adjustable Rate Loans
Group I Group II
Percent of Scheduled Percent of Scheduled
Gross Margins (%) Principal Balance (%) Principal Balance (%)
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2.625-2.749 * *
2.750-2.999 72% 81%
3.000-3.249 26% 6%
3.250-3.499 1% 2%
3.500-3.749 * 2%
3.750-4.999 * 4%
5.000-8.125 * 5%
Totals: 100% 100%
The weighted average Gross Margin of the ARM Loans is approximately 2.97% per
annum.
<PAGE>
4) Remaining Term to Stated Maturity
Group I Group II
Percent of Scheduled Percent of Schedule
Remaining Term (Months) Principal Balance (%) Principal Balance (%)
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44-290 12% 7%
291-300 82% 3%
301-310 7% *
310-320 * 4%
321-325 * 4%
326-330 * 1%
331-335 * *
336-340 * *
341-345 * 1%
346-350 * 2%
351-355 * 34%
356-360 * 42%
Totals: 100% 100%
The weighted average remaining term to stated maturity is 316 months for the
Loans, 293 months for the Group I Loans and 340 months for the Group II Loans.
<PAGE>
5) Original Loan-to-Value Ratio
Group I Group II
Percent of Scheduled Percent of Scheduled
Loan-to-Value Ratio Principal Balance (%) Principal Balance (%)
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50.00-below 3% 6%
50.01-55.00 2% 3%
55.01-60.00 2% 6%
60.01-65.00 5% 8%
65.01-70.00 7% 12%
70.01-75.00 10% 13%
75.01-80.00 23% 27%
80.01-85.00 29% 3%
85.01-90.00 6% 11%
90.01-100.00 13% 11%
Totals: 100% 100%
The weighted average Loan-to-Value ratio is 75.86%
<PAGE>
6) State Distribution
Group I Group II
Percent of Scheduled Percent of Scheduled
State Principal Balance (%) Principal Balance (%)
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Arizona * 3%
California 90% 26%
Colorodo * 5%
Florida 2% 1%
Georgia * 4%
Illinois * 9%
Indiana * 1%
Maryland 1% 3%
Massachusetts * 3%
Michigan * 13%
Minnesota * 1%
Missouri * 1%
New Jersey * 1%
North Carolina * 3%
Ohio * 2%
Oregon 1% 1%
Pennsylvania * 1%
South Carolina * 3%
Tennesse * 1%
Texas * 5%
Utah * 1%
Virginia 2% 3%
Washington 2% 2%
Washington DC * 1%
West Virginia * 1%
Others* 1% 5%
Totals: 100% 100%
*Others Includes
Alabama, Alaska, Arkansas, Connecticut, Delaware, Hawaii, Idaho, Iowa, Kansas,
Kentucky, Louisiana, Maine, Mississippi, Montana, Nebraska, Nevada, New
Hampshire, New Mexico, New York, Oklahoma, Rhode Island, South Dakota, Utah,
Wisconsin, Wyoming
<PAGE>
Item 6. Resignations of Registrant's Directors.
Not Applicable.
Item 7. Financial Statements, Pro Forma, Financial Information and Exhibits
(a) Not Applicable.
(b) Not Applicable.
(c) Exhibits
4.1 Series 10 Supplement dated December 1, 1997, between
the Registrant and Texas Commerce Bank National
Association, as Trustee.
4.2 First Supplemental Indenture dated as of December 1,
1997, between the Registrant and Texas Commerce Bank
National Association, as Trustee.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
<S> <C>
Exhibit
4.1 Series 10 Supplement dated as of December 1, 1997, between Registrant and Texas
Commerce Bank National Association.............................................................
4.2 First Supplemental Indenture dated as of December 1, 1997, between Registrant and
Texas Commerce Bank National Association.......................................................
</TABLE>
<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.
December 23, 1997
MERIT SECURITIES CORPORATION
By: _____________________________
Lisa R. Cooke, Vice President
MERIT SECURITIES CORPORATION,
as Issuer,
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Trustee
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SERIES 10 SUPPLEMENT
Dated as of December 1, 1997,
TO
INDENTURE
Dated as of November 1, 1994,
as amended,
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COLLATERALIZED BONDS
Series 10
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SERIES 10 SUPPLEMENT..............................................................................................1
PRELIMINARY STATEMENT.............................................................................................1
GRANTING CLAUSES..................................................................................................1
Section 1. Certain Defined Terms...............................................................................1
Section 2. Designation; Principal Amount; Maturity.............................................................8
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.........................................................................................12
Section 10. Modification of Mortgage Certificates.............................................................12
Section 11. Subordinated Bonds................................................................................12
Section 12. Default...........................................................................................13
Section 13. Repurchase of Directly Held Mortgage Loans........................................................14
Section 14. Additional Obligations and Covenants of the Trustee...............................................14
Section 15. Notice to the Rating Agencies.....................................................................14
Section 16. Monthly Remittance Report.........................................................................15
Section 17. Purchase of Delinquent Directly Held Loans by Issuer..............................................15
Section 18. Amendments to Indenture...........................................................................15
Section 19. Additional Covenants of the Issuer................................................................18
Section 20. Ratification of Indenture.........................................................................19
Section 21. Form of Bonds.....................................................................................19
Section 22. Schedules.........................................................................................19
Section 23. Counterparts......................................................................................19
Section 24. Governing Law.....................................................................................19
</TABLE>
SCHEDULE I A. MORTGAGE CERTIFICATES
B. GROUP II LOANS
C. COLLATERALIZATION FUND LOANS
SCHEDULE II LOSS REIMBURSEMENT AGREEMENT
EXHIBIT 1-A1 FORM OF CLASS 1-A1 BONDS
EXHIBIT 1-A2 FORM OF CLASS 1-A2 BONDS
EXHIBIT 2-A1 FORM OF CLASS 2-A1 BONDS
EXHIBIT 2-A2 FORM OF CLASS 2-A2 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 10 SUPPLEMENT
THIS SERIES 10 SUPPLEMENT (this "Series Supplement"), dated as of
December 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, as amended by a First Supplemental Indenture dated
as of December 1, 1997 (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 $1,310,017,530 to be known as the
Collateralized Bonds, Series 10 (the "Bonds"), which will consist of seven
Classes of Bonds designated as provided herein to be secured by Mortgage
Certificates and Trust Certificates representing Loans with an Aggregate
Scheduled Principal Balance of $1,331,190,633.
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 Group II Loans (and all substitutions therefor as provided by
Section 3.11 of the Original Indenture), together with the related Loan
Documents and the Issuer's interest in any Mortgaged Premises or Manufactured
Home that secures a Group II Loan and that is acquired by foreclosure or deed in
lieu of foreclosure after the Delivery Date, all Monthly Payments due after
December 1, 1997, and all Curtailments or other principal prepayments received
with respect to the Group II 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 not assign its
right to indemnification under Section 13 thereof, respectively, (iv) the
Servicing Agreements, (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, and the Pool
Insurance Policies, if any, for the Group II Loans and the Loss Reimbursement
Agreement, (ix) the Title Insurance Policies, or other evidence of title
permitted by the terms of the Custody Agreement, for the Group II Loans, if any,
(x) the Collateral Proceeds Account, the Collateralization Fund and the Surplus
Account, whether in the form of cash, instruments, securities or other
properties, (xi) the Trust Agreement, (xii) 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 (xiii) 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
(xiii) collectively, the "Trust Estate") to secure the Bonds; provided, however,
that the Issuer shall evidence all its right, title and interest in the items
listed in clauses (i) through (ix) in the form of one or more Trust
Certificates.
(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 January 27,
1998).
"Administrative Cost Rate": For each 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
Loan, (iv) the Bond Administration Fee Rate and (v) the fees of any Special
Servicer, in each case attributable to that Loan.
"Aggregate Scheduled Principal Balance of the Loans": On any Payment
Date, the sum of (i) the product of (A) the principal balance of each Group I
Loan and (B) a fraction the numerator of which is equal to the principal balance
of the related Mortgage Certificates and the denominator of which is equal to
the aggregate principal balance of all mortgage certificates of the series of
mortgage certificates of which such Mortgage Certificates are a part and (ii)
the aggregate Scheduled Principal Balance of the Group II Loans.
"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 Group I 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 Group II 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 Group
II Loans and deposited in the Collateral Proceeds Account;
(ii) any Advance of principal or interest due on a Group II Loan
during the related Due Period with respect to Group II Loans
deposited in the Collateral Proceeds Account (Advances with
respect to interest only in the case of the Manufactured Home
Loans subject to the Dynex Services Servicing Agreement);
(iii) any Scheduled Payments with respect to the Group II Loans due
during, but collected prior to, the related Due Period; and
(iv) all amounts received in connection with (A) the purchase of
any Group II Loan due to the delivery of defective Loan
documentation or otherwise or (B) the purchase of a converted
Group II Loan;
less (c) the sum of the following:
(i) one-twelfth of the Administrative Cost Rate multiplied by the
Scheduled Principal Balance of each Group II Loan (excluding
the Servicing Fee Rate with respect to the Manufactured Home
Loans subject to the Dynex Services Servicing Agreement);
(ii) all amounts required as reimbursement for any Advances
previously made on a Group II Loan upon the Liquidation of
such Group II Loan;
(iii) all amounts required to be reimbursed for any Non-Recoverable
Advances with respect to the Group II Loans; and
(iv) 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.
"Aurora": Aurora Loan Services Inc.
"Aurora Servicing Agreement": Servicing agreement dated as of September
1, 1997, between Aurora and Lehman Capital, a Division of Lehman Brothers
Holdings Inc., as assigned by Lehman Brothers Holdings Inc. to Dynex, by Dynex
to IHC and by IHC to the Issuer.
"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 Group II Loans
covered by the Dynex Master Servicing Agreement, shall include the Master
Servicing Fee.
"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 Group II Loans delinquent 60 days or more
(including for this purpose any Group II Loans in foreclosure and REO) has not
exceeded 6% of the average aggregate Unpaid Principal Balance of all Group II
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 then Aggregate Scheduled Principal
Balance of the Loans, in each case as of such Payment Date (but not more than
100%).
"Bonds": The Class 1-A1, Class 1-A2, Class 2-A1, Class 2-A2, Class B-1,
Class B-2 and Class B-3 Bonds.
"Class A Certificates": The Trust Certificates identified as Class A
Certificates.
"Class B Certificates": The Trust Certificates identified as Class B
Certificates.
"Class 1-A1 Interest Rate": With respect to each Payment Date, the
Class 1-A1 Interest Rate per annum is One-Month LIBOR, as determined on the
applicable Floating Rate Determination Date, plus 0.26%, subject to a cap of
10.00%, except that (i) for the initial Payment Date, the Class 1-A1 Interest
Rate is 6.22% per annum; and (ii) the Class 1-A1 Interest Rate per annum for any
Payment Date following the first Payment Date on which the Issuer has the option
to redeem the Bonds is One-Month LIBOR, as determined on the applicable Floating
Rate Determination Date, plus 0.52% subject to a cap of 10.26%; provided that,
if the Issuer redeems the Class 1-A1 Bonds through an Affiliate and the Class
1-A1 Bonds remain outstanding following such purchase, the Class 1-A1 Interest
Rate shall not be increased as provided in this clause (ii).
"Class 1-A2 Interest Rate": With respect to each Payment Date, the
Class 1-A2 Interest Rate per annum is One-Month LIBOR, as determined on the
applicable Floating Rate Determination Date, plus 0.50%, subject to a cap of
10.00%, except that (i) for the initial Payment Date, the Class 1-A2 Interest
Rate is 6.46% per annum; and (ii) the Class 1-A2 Interest Rate per annum for any
Payment Date following the first Payment Date on which the Issuer has the option
to redeem the Bonds is One-Month LIBOR, as determined on the applicable Floating
Rate Determination Date, plus 1.00% subject to a cap of 10.50%; provided that,
if the Issuer redeems the Class 1-A2 Bonds through an Affiliate and the Class
1-A2 Bonds remain outstanding following such purchase, the Class 1-A2 Interest
Rate shall not be increased as provided in this clause (ii).
"Class 2-A1 Interest Rate": With respect to each Payment Date, the
Class 2-A1 Interest Rate per annum is One-Month LIBOR, as determined on the
applicable Floating Rate Determination Date, plus 0.33%, subject to a cap of
10.00%, except that (i) for the initial Payment Date, the Class 2-A1 Interest
Rate is 6.29% per annum; and (ii) the Class 2-A1 Interest Rate per annum for any
Payment Date following the first Payment Date on which the Issuer has the option
to redeem the Bonds is One-Month LIBOR, as determined on the applicable Floating
Rate Determination Date, plus 0.66% subject to a cap of 10.33%; provided that,
if the Issuer redeems the Class 2-A1 Bonds through an Affiliate and the Class
2-A1 Bonds remain outstanding following such purchase, the Class 2-A1 Interest
Rate shall not be increased as provided in this clause (ii).
"Class 2-A2 Interest Rate": With respect to each Payment Date, the
Class 2-A2 Interest Rate per annum is One-Month LIBOR, as determined on the
applicable Floating Rate Determination Date, plus 0.56%, subject to a cap of
10.00%, except that (i) for the initial Payment Date, the Class 2-A2 Interest
Rate is 6.52% per annum; and (ii) Class 2-A2 Interest Rate per annum for any
Payment Date following the first Payment Date on which the Issuer has the option
to redeem the Bonds is One-Month LIBOR, as determined on the applicable Floating
Rate Determination Date, plus 1.12% subject to a cap of 10.56%; provided that,
if the Issuer redeems the Class 2-A2 Bonds through an Affiliate and the Class
2-A2 Bonds remain outstanding following such purchase, the Class 2-A2 Interest
Rate shall not be increased as provided in this clause (ii).
"Class B-1 Interest Rate": With respect to each Payment Date, the Class
B-1 Interest Rate per annum is One-Month LIBOR, as determined on the applicable
Floating Rate Determination Date, plus 0.75%, subject to a cap of 10.25%, except
that (i) for the initial Payment Date, the Class B-1 Interest Rate is 6.71% per
annum; and (ii) the Class B-1 Interest Rate per annum for any Payment Date
following the first Payment Date on which the Issuer has the option to redeem
the Bonds is One-Month LIBOR, as determined on the applicable Floating Rate
Determination Date, plus 1.25% subject to a cap of 10.75%; 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 clause (ii).
"Class B-2 Interest Rate": With respect to each Payment Date, the Class
B-2 Interest Rate per annum is One-Month LIBOR, as determined on the applicable
Floating Rate Determination Date, plus 1.00%, subject to a cap of 10.50%, except
that (i) for the initial Payment Date, the Class B-2 Interest Rate is 6.96% per
annum; and (ii) the Class B-2 Interest Rate per annum for any Payment Date
following the first Payment Date on which the Issuer has the option to redeem
the Bonds is 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": With respect to each Payment Date, the Class
B-3 Interest Rate per annum is One-Month LIBOR, as determined on the applicable
Floating Rate Determination Date, plus 1.75%, subject to a cap of 11.25%, except
that (i) for the initial Payment Date, the Class B-3 Interest Rate is 7.71% per
annum; and (ii) the Class B-3 Interest Rate per annum for any Payment Date
following the first Payment Date on which the Issuer has the option to redeem
the Bonds is One-Month LIBOR, as determined on the applicable Floating Rate
Determination Date, plus 2.25% subject to a cap of 11.75%; 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, such Class B-3 Interest Rate shall
not be increased as provided in this clause (ii).
"Class Interest Rates": The Class 1-A1, Class 1-A2, Class 2-A1, Class
2-A2, Class B-1, Class B-2 and Class B-3 Interest Rates.
"Class Interest Rate": With respect to a Payment Date, the Class 1-A1,
Class 1-A2, Class 2-A1, Class 2-A2, 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 Group II Loans (as evidenced by the Class A
Certificates), the Mortgage Certificates and the Collateralization Fund (as
evidenced initially by the Class B Certificates).
"Collateral Value": With respect to each Group II Loan that is not a
Discount Loan, the Scheduled Principal Balance of such Group II 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(e) hereof.
"Converted Loan": An Adjustable Rate 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.
"Countrywide": Countrywide Homes, Inc.
"Countrywide Servicing Agreement": Seller's warranties and servicing
agreement dated as of September 1, 1997, between Greenwich Capital Financial
Products, Inc., and Countrywide assigned by Greenwich Capital Financial
Products, Inc., to Dynex, by Dynex to IHC and by IHC to the Issuer.
"CPR": Constant Prepayment Rate, as calculated in accordance with
industry standards.
"Curtailment": Any partial prepayment of principal on a Group II Loan
which otherwise is current.
"Custody Agreement": The custody agreement dated as of December 23,
1997, between Texas Commerce Bank National Association, as trustee under the
Trust Agreement, and Texas Commerce Bank National Association, as custodian.
"Cut-off Date": As of the close of business on December 1, 1997.
"Delivery Date": December 23, 1997.
"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 Master Servicing Agreement": The master servicing agreement
dated as of December 1, 1997, by and between the Issuer and Dynex, which
incorporates therein the Standard Terms to the Master Servicing Agreement, June
1995 Edition.
"Dynex Services": Dynex Financial, Inc., a Virginia corporation, doing
business as Dynex Services.
"Dynex Services Servicing Agreement": The servicing agreement dated as
of December 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 IBCA, Inc. 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 IBCA,
Inc.
"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.
"Group I Loans": The Loans related to the Mortgage Certificates.
"Group II Loans": The Mortgage Loans and Manufactured Home Loans listed
on Schedule I hereto.
"Group I Principal Payment Amount": On each Payment Date, the sum of
(i) the portion of Available Funds attributable to principal of the Group I
Loans and (ii) to the extent required to be used to pay principal of the Bonds,
a pro rata portion (based on principal balances of the Group I Senior Bonds and
Group II Senior Bonds) of (a) a portion of the Interest Payment Amount to the
extent provided in clause Sixth of Section 7(a) hereof and (b) any amount in the
Collateralization Fund.
"Group II 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 Group II Loans over (B) the Collateralization Deposit with respect to
Group II Loans and (ii) to the extent required to be used to pay principal of
the Bonds a pro rata portion (based on principal balances of the Group I Senior
Bonds and Group II Senior Bonds) of (a) a portion of the Interest Payment Amount
to the extent provided in clause Sixth of Section 7(a) hereof and (b) any amount
in the Collateralization Fund.
"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.
"Interest Payment Amount": On each Payment Date, the sum of (i) the
portion of Available Funds attributable to interest on the 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 Loan": A Group II Loan listed on Schedule I hereto that
is not an ARM Loan.
"Loans": The Group I Loans and the Group II Loans.
"London Banking Day": Any day on which commercial banks and foreign
exchange markets settle payments in London and New York City.
"Loss Reimbursement Agreement": Loss Reimbursement Agreement dated May
12, 1996, among Dominion Capital, Inc., Meritech Mortgage Services, Inc., Dynex
(under its former name Resource Mortgage Capital, Inc., and the Issuer, a copy
of which is attached as Schedule II.
"Master Servicer": With respect to the Group II Loans covered by the
Dynex Master Servicing Agreement, Dynex, its permitted successors and assigns;
with respect to the Group II Loans covered by the RFC Master Servicing
Agreement, RFC, its permitted successors and assigns with Dynex as "Master"
Master Servicer; and, with respect to the Group I Loans, the person designated
under the documents with respect to the related Mortgage Certificates.
"Master Servicing Fee Rate": For each Group I Loan, the rate per annum
designated as the master servicing (or administrator) rate for such Group I Loan
in the documents with respect to the related Mortgage Certificates. For each
Group II Loan covered by the Dynex Master Servicing Agreement, the Master
Servicing Fee Rate is included in the Bond Administration Fee Rate; and for each
Group II Loan covered by the RFC Master Servicing Agreement, the Master
Servicing Fee Rate is included in the Servicing Fee Rate.
"Mortgage Certificates": The mortgage certificates listed in Schedule I
to this Series Supplement.
"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 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 the Group I
Principal Payment Amount and the Group II Principal Payment Amount.
"Prospectus": The Prospectus Supplement dated December 17, 1997, and
the Prospectus dated December 8, 1997, of the Issuer with respect to the offer
and sale of the Bonds.
"Purchase Price": With respect to a Group II Loan purchased from the
Trust Estate in accordance with Section 13 hereof, an amount equal to the Unpaid
Principal Balance of the Group II Loan plus (i) if such Group II Loan is
repurchased during a Prepayment Period 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 Group II 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 principal balance of the Group I Loans represented thereby 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 IBCA,
Inc.
"Redemption Price": An amount equal to 100% of the aggregate
Outstanding principal balance of the Class of Bonds redeemed plus accrued and
unpaid interest (including any Interest Carryover Amount) through the applicable
Accrual Date.
"RFC": Residential Funding Corporation.
"RFC Master Servicing Agreement": Collectively, the sale and servicing
agreements dated as of September 30, 1997, and as of November 25, 1997, between
RFC and Dynex, as assigned by Dynex to IHC and by IHC to the Issuer.
"Sales Agreement": The Sales Agreement dated as of December 17, 1997,
between the Issuer and IHC relating to the Collateral.
"Senior Bonds": The Class 1-A1 and Class 1-A2 (collectively the "Group
I Senior Bonds") and the Class 2-A1 and Class 2-A2 Bonds (collectively the
"Group II Senior Bonds"); provided, however, that, for purposes of Section 12,
after all such Senior Bonds have been paid in full, as provided in the
definition of Subordinated Bonds.
"Senior Overcollateralization Percentage": On the Delivery Date or any
Payment Date, (x) the excess of (a) the sum of (A) the Aggregate Scheduled
Principal Balance of the Loans and (B) the balance in the Collateralization Fund
over (b) the aggregate outstanding principal balance of the Senior Bonds divided
by (y) the aggregate outstanding principal balance of the Senior Bonds.
"Senior Overcollateralization Test": The Senior Overcollateralization
Test is met on any Payment Date if the Senior Overcollateralization Percentage
on such Payment Date is at least twice the Senior Overcollateralization
Percentage on the Delivery Date.
"Series Year Reporting Date": December 1 of each year, commencing
December 1, 1998.
"Servicing Agreement": With respect to the Group II Loans, the Aurora
Servicing Agreement, the Countrywide Servicing Agreement and the Dynex Services
Servicing Agreement. With respect to the Group I Loans, the servicing agreements
provided for with respect to the related Mortgage Certificates.
"Servicing Fee Rate": For each Group I Loan, the rate per annum
designated as the servicing rate for such Group I Loan in the documents with
respect to the related Mortgage Certificates. For each Group II 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;
provided, however, for purposes of Section 12 hereof, that 91 days after the
Senior Bonds are paid in full, the Class B-1 Bonds shall be Senior Bonds; 91
days after the Class B-1 Bonds are paid in full, the Class B-2 shall be Senior
Bonds; and 91 days after the Class B-2 Bonds are paid in full, the Class B-3
Bonds shall be Senior Bonds.
"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 Loans and (ii) $100,000.
"Trust Agreement": Trust Agreement dated as of December 1, 1997, among
the Issuer, as depositor, Dynex Capital, Inc., as Master Servicer, and Texas
Commerce Bank National Association, as trustee.
"Trust Certificates": Trust Certificates issued pursuant to the Trust
Agreement representing, in the case of the Class A Certificates, 100% of the
ownership of the Group II Loans and, in the case of the Class B Certificates,
100% of the ownership of the loans to be deposited in the Collateralization Fund
on the Delivery Date.
"Trustee Fee Rate": The rate of 0.0018% per annum for each Loan.
Section 2. Designation; Principal Amount; Maturity.
The Bonds shall be designated generally as the Issuer's Collateralized
Bonds, Series 10. The aggregate principal amount of Bonds that may be
authenticated and delivered under this Series Supplement is limited to
$1,310,017,530, 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 seven Classes, having designations,
initial principal amounts, designations as Senior Bonds or Subordinated Bonds,
Bond Interest Rates and Stated Maturities as follows:
<TABLE>
<CAPTION>
Initial Principal Senior/ Bond Interest Stated
Designation Amount Subordinated Rate Maturity
<S> <C>
Class 1-A1 $237,500,000 Senior (1) December 28, 2016
Class 1-A2 $394,001,020 Senior (2) November 28, 2025
Class 2-A1 $397,995,120 Senior (3) May 28, 2025
Class 2-A2 $207,000,000 Senior (4) June 28, 2030
Class B-1 $43,444,460 Subordinated (5) December 28, 2031
Class B-2 $20,051,280 Subordinated (6) December 28, 2031
Class B-3 $10,025,650 Subordinated (7) December 28, 2031
</TABLE>
(1) The Class 1-A1 Interest Rate.
(2) The Class 1-A2 Interest Rate.
(3) The Class 2-A1 Interest Rate.
(4) The Class 2-A2 Interest Rate.
(5) The Class B-1 Interest Rate.
(6) The Class B-2 Interest Rate.
(7) 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.
Section 4. Book-Entry Bonds.
The 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. 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.
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.
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. 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
in the following order of priority:
First, 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 Current
Interest and any Interest Carryover Amount otherwise payable with
respect to the Senior Bonds;
Second, to pay Current Interest and any Interest Carryover Amount with
respect to the Class B-1 Bonds;
Third, to pay Current Interest and any Interest Carryover Amount with
respect to the Class B-2 Bonds;
Fourth, to pay Current Interest and any Interest Carryover Amount with
respect to the Class B-3 Bonds;
Fifth, to pay the Servicing Fee with respect to the Manufactured Home
Loans subject to the Dynex Services Servicing Agreement;
Sixth, to be applied to the Group I Principal Payment Amount and Group II
Principal Payment Amount pro rata to the extent necessary to cause the
Overcollateralization Amount to be not less than the product of 1.6% and
the Outstanding Principal Amount of the Bonds; and
Seventh, any remainder to be released to the Issuer as Surplus.
(b) On each Payment Date, the product of the Bond Payment Percentage
and the Group I Principal Payment Amount will be applied in the following order
of priority:
First, to pay principal of the Class 1-A1 and Class 1-A2 Bonds, such
principal to be paid sequentially in that order so that no such payment
will be made to the Class 1-A2 Bonds until the Class 1-A1 Bonds 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 Loans and (ii) the amount in the Collateralization Fund,
the Group I Principal Payment Amount will be paid pro rata to the Class
1-A1 and Class 1-A2 Bonds (based on principal balances) and not
sequentially;
Second, to pay principal of the Class 2-A1 and Class 2-A2 Bonds (on the
same basis as the Group II Principal Payment is applied to pay such
Bonds) to the extent required to cause the Senior Overcollateralization
Test to be met;
Third, to pay principal of the Class B-1 Bonds until paid in full;
Fourth, to pay principal of the Class B-2 Bonds until paid in full;
Fifth, to pay principal of the Class B-3 Bonds until paid in full; and
Sixth, any remainder to be released to the Issuer as Surplus.
(c) On each Payment Date, the product of the Bond Payment Percentage
and the Group II Principal Payment Amount will be applied in the following order
or priority:
First, to pay principal of the Class 2-A1 and Class 2-A2 Bonds, such
principal to be paid sequentially in that order so that no such payment
will be made to Class 2-A2 Bonds until the Class 2-A1 Bonds 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
Loans and (ii) the amount in the Collateralization Fund, the Group II
Principal Payment Amount will be paid pro rata to the Class 2-A1 and
Class 2-A2 Bonds (based on principal balances) and not sequentially;
Second, to pay principal of the Class 1-A1 and Class 1-A2 Bonds (on the
same basis as the Group I Principal Payment is applied to pay such
Bonds) to the extent required to cause the Senior Overcollateralization
Test to be met;
Third, to pay principal of the Class B-1 Bonds until paid in full;
Fourth, to pay principal of the Class B-2 Bonds until paid in full;
Fifth, to pay principal of the Class B-3 Bonds until paid in full; and
Sixth, any remainder to be released to the Issuer as Surplus.
(d) 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. All payments or allocations of amounts in the Collateral Proceeds
Account, 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 Bond Administrator.
(e) On the Delivery Date, the Issuer will establish a fund (the
"Collateralization Fund") with the Trustee and deposit therein the Class B
Certificates and any payments thereon. On each Payment Date, the Trustee is
required based on written information provided to the Trustee by the Bond
Administrator at least two Business Days prior to such Payment Date: (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 Eligible Investments and the Class B Certificates on
deposit in the Collateralization Fund: (i) first, 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 and (ii) second, to pay principal of the Bonds to the extent necessary to
cause the Overcollateralization Amount to be not less than the product of 1.62%
and the Outstanding Principal Amount 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 Eligible Investments and the Class B Certificates 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 Loans and (B) the
balance in the Collateralization Fund over (y) the principal balance of the
Bonds exceeds the Target Overcollateralization Amount (calculated after all
payments have been made on the Bonds for such Payment Date).
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) December 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.
(a) 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.
(b) Neither the Trustee nor the Issuer shall take any action to redeem
the Mortgage Certificates or Trust Certificates prior to the earliest date on
which the Issuer is permitted to redeem the Bonds (without giving effect to any
redemption of the Mortgage Certificates or Trust Certificates); provided,
however, that the Trustee, at the direction of the Issuer, shall dissolve or
otherwise eliminate the trust agreements pursuant to which any of the Mortgage
Certificates or Trust Certificates were issued and hold the collateral therefor
directly if (i) the Trustee receives an Officer's Certificate to the effect that
the Trustee will continue to be the beneficiary of all credit enhancement for
such collateral to the same extent as it was as the holder of any such Mortgage
Certificates or Trust Certificates or (ii) the Rating Agencies confirm that
dissolving or eliminating the trust agreements will not adversely affect the
ratings on the Bonds.
(c) The Trustee as the registered holder or beneficial owner of the
Mortgage Certificates or the Trust Certificates may not give any consents or
instructions with respect thereto without the prior written direction of the
Issuer.
Section 11. Subordinated Bonds.
(a) The Issuer may issue one or more classes of additional bonds
secured by the Trust Estate that are fully 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) satisfaction of the conditions described in
Section 10(a) hereof.
Section 12. Default.
An Event of Default 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; or
(iii) on any Payment Date, the sum of (A) the Aggregate Scheduled
Principal Balance of the Loans and (B) the balance in the
Collateralization Fund is less than the outstanding principal
balance of the Senior Bonds; or
(iv) 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 66% 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
(v) 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
(vi) 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.
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 for a period of one year and one
day following the payment in full of the Bonds and any other bonds 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 Group II Loans.
The Trustee shall release from the lien of the Indenture any Group II
Loan, Mortgage Certificate or Trust Certificate 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 therefor, which the Trustee shall treat as a
prepayment in full thereof. Upon the conversion of any Group II Loan that is an
ARM Loan to a fixed rate, the Issuer shall either cause such Group II Loan to be
repurchased or shall cause such 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 Loan to be treated as prepaid (the portion to be
prepaid being the Scheduled Principal Balance of such Loan multiplied by a
fraction the number of which is 10% less the fixed Net Rate on such Loan and the
denominator of which is 10%). Any such Loan shall not be released but the
Scheduled Principal Balance of such Loan shall be treated as reduced by the
amount so treated as prepaid; all subsequent interest payments on such Loan
shall be deposited in the Collateral Proceeds Account and all subsequent
principal payments on such Loan shall be applied pro rata to (i) payment of the
remaining principal amount of such 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.
The Issuer shall cooperate with the Trustee in assuring the enforcement
by the Trustee of the Loss Reimbursement Agreement.
Section 14. Additional Obligations and Covenants of and Protection for
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 Group II Loans in accordance with the terms of the Master Servicing
Agreement if Dynex as 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) Group II 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) 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.
(e) The Trustee shall not be liable for the acts of Dynex Services, as
Servicer for the Manufactured Home Loans.
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
(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 Group II 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 Interest Payment Amount, the Principal Payment Amount and, so
long as any Senior Bonds remain outstanding, the Group I Principal Payment
Amount and the Group II Principal 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 Group II Loans by Issuer.
The Issuer may, but is not obligated to, purchase on any Payment Date
any Group II Loan that is delinquent in payment by 90 days or more for a price
equal to the Unpaid Principal Balance of such Group II 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,
10th Floor, Houston, Texas 77002, Attention: Global Trust
Services MERIT 10 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 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:
"Prepayment Period": For each Payment Date with respect to
each Loan: (a) with respect to Liquidations and other
prepayments in full, the "prepayment period" specified in the
Servicing Agreement pursuant to which such 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 Loans as of the
Cut-off Date) and (b) with respect to all other unscheduled
payments of principal or recoveries on the 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 "Loan" after the words
"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 thereto, the
equivalent of Realized Losses with respect to the
Group I 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 but which
otherwise meets the requirements for an "Eligible
Investment";
(j) Section 1.01 of the Original Indenture is amended by
adding the following additional definitions:
"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 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 the
Series Supplement.
"Original Group II Loan": A Group II Loan initially
pledged to the Trustee to secure the Bonds.
"Substitute Group II Loan": A Group II Loan pledged
to the Trustee to secure a Series of Bonds in substitution for
a defaulted Group II Loan initially pledged to the Trustee to
secure such Bonds or the related REO.
(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 Loan if the item of Original
Collateral so substituted for was a Group II
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 Group II Loan or REO
securing such Series, a Substitute Group II
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 Group II Loan or REO will be
reduced through the substitution of a
Substitute Group II Loan for such defaulted
Original Group II Loan or REO, and provided
that such Substitute Group II Loan (i) is
secured by the Mortgaged Premises that
secure the defaulted Group II Loan or by
such REO, (ii) has a Note Rate that is not
less than the then current market rate for a
Loan having similar characteristics
(provided, however, that a Substitute Group
II 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 Group II Loans on their
respective dates of substitution does not
exceed 1.00% of the initial aggregate
Scheduled Principal Balance of all the Group
II 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 Group II Loans substituted under
this Section 3.11(d) for a defaulted Group
II 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 Group
II Loan a Substitute Group II Loan plus cash
in an amount equal to the payment of
principal and interest paid or to be paid on
such Substitute Group II Loan during the
month of the Subsequent Delivery Date.
Upon such substitution, all the
Issuer's right, title and interest to the
Substitute Group II 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 Group II Loan
for which the Substitute Group II 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
Group II Loan delivered to the Issuer.
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 Group
II 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) Dynex as Master
Servicer and Bond Administrator has
determined, in its reasonable
business judgment, that the present
value of any potential Realized Loss
on the defaulted Group II Loan or
REO will be reduced through the
substitution of the Substitute Group
II Loan for such defaulted Group II
Loan or REO; and
(5) if the Note Rate on the
Substitute Group II Loan is less
than the then current market rate
for Loans having similar
characteristics, the aggregate
Scheduled Principal Balance of all
such Substitute Group II Loans on
their respective dates of
substitution does not exceed 1.00%
of the initial aggregate Scheduled
Principal Balance of all the Group
II 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 for a period
of one year and one day following the payment of the Bonds and
any other bonds of the Issuer.
(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.
(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.
(o) All references in the Original Indenture to "Master
Servicer" shall be deemed to refer to and mean Dynex as Master Servicer
or "Master" Master Servicer or Bond Administrator.
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 1-A1 Bonds shall be substantially in the form of Exhibit 1-A1
attached hereto. The Class 1-A2 Bonds shall be substantially in the form of
Exhibit 1-A2 hereto. The Class 2-A1 Bonds shall be substantially in the form of
Exhibit 2-A1 attached hereto. The Class 2-A2 Bonds shall be substantially in the
form of Exhibit 2-A2 hereto. The Class B-1 Bonds shall be substantially in the
form of Exhibit B-1 hereto. The Class B-2 Bonds shall be substantially in the
form of Exhibit B-2 hereto. The Class B-3 Bonds shall be substantially in the
form of Exhibit B-3 hereto.
Section 22. Schedules.
Schedule I is 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.
<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 December 1, 1997.
MERIT SECURITIES CORPORATION
By: _________________________________
Lisa R. Cooke, Vice President
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Trustee
By: _________________________________
Rafael Herrera, Vice President
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
SCHEDULE I A. LOANS AND MORTGAGE CERTIFICATES
B. GROUP II LOANS
C. COLLATERALIZATION FUND LOANS
SCHEDULE II LOSS REIMBURSEMENT AGREEMENT
EXHIBIT 1-A1 FORM OF CLASS 1-A1 BONDS
EXHIBIT 1-A2 FORM OF CLASS 1-A2 BONDS
EXHIBIT 2-A1 FORM OF CLASS 2-A1 BONDS
EXHIBIT 2-A2 FORM OF CLASS 2-A2 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
MERIT SECURITIES CORPORATION,
Issuer
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
Trustee
----------------------------
Supplemental Indenture
Dated as of December 1, 1997,
to
INDENTURE
Dated as of November 1, 1994
----------------------------
COLLATERALIZED MORTGAGE BONDS
Issuable in Series
<PAGE>
This FIRST SUPPLEMENTAL INDENTURE dated as of December 1, 1997, is
between MERIT Securities Corporation, a Virginia corporation (the "Issuer"), and
Texas Commerce Bank National Association, a national banking corporation, as
trustee (the "Trustee") under an Indenture dated as of November 1, 1997 (the
"Indenture"), between the Issuer and the Trustee.
PRELIMINARY STATEMENT
The Issuer executed and delivered the Indenture to provide for one or
more Series of Bonds, issuable as provided therein under Supplements to the
Indenture duly executed and delivered by the Issuer and the Trustee and limited
to the amount prescribed in each such Supplements. All covenants and agreements
made by the Issuer in the Indenture are for the benefit and security of the
Bondholders.
At the request of the Issuer, the Trustee and the Issuer are entering
into this Supplemental Indenture pursuant to Section 10.01(8) of the Indenture,
which provides, in relevant part, for the amendment of any provisions of the
Indenture without the consent of the Bondholders provided that such amendment
does not adversely affect the interests of the Holders of the Outstanding Bonds
of any Series or Class. Section 11.05 of the Indenture is to be amended to
provide that the deposit of funds to effect a redemption of Bonds may be made
not later than the Business Day prior to the Redemption Date. The Trustee has in
its discretion determined that the rights of the Holders of Bonds would not be
adversely affected thereby.
Accordingly, the Issuer and the Trustee agree as follows:
Section 11.05 of the Indenture is amended to read as follows:
Section 11.05. Deposit of Redemption Price for Optional Redemptions.
In the case of all redemptions, on or before the Business Day
next preceding the Redemption Date, the Issuer shall deposit with the
Trustee cash, Certificates of Depositor or a Letter of Credit in an
amount sufficient to provide for payment of the Redemption Price of all
of the Bonds of the affected Series that are to be redeemed on such
Redemption Date (unless such payment is to be made from the Collateral
Proceeds Account or the Reserve Fund for such Series).
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Trustee have caused this
Indenture, dated as of November 1, 1994, to be duly executed by their respective
officers thereunto duly authorized and in the case of the Issuer attested, all
as of the 1st day of December, 1997.
MERIT Securities Corporation
By: _____________________________________
Vice President
Attest:
- ------------------------------
Assistant Secretary
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
as Trustee
By: ___________________________________
Vice President and Trust Officer
