- --------------------------------------------------------------------------------
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) November 22, 1996
EquiVantage Home Equity Loan Trust 1996-4
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 33-99364 Application Pending
- --------------------------------- ---------------- -----------------------
(State or Other Jurisdiction of (Commission File (I.R.S. Employer
Incorporation) Number) Identification No.)
c/o EquiVantage Acceptance Corp. 77040
Attention: John E. Smith ----------------------
13111 Northwest Freeway (Zip Code)
Houston, Texas
- ----------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code (713) 895-1957
No change
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
- --------------------------------------------------------------------------------
Item 5. Other Events
In connection with the offering of EquiVantage Home Equity Loan
Trust 1996-4 Home Equity Loan Asset-Backed Certificates, Series 1996-4,
described in a Prospectus Supplement dated November 19, 1996 to the Prospectus
dated May 7, 1996, certain executed agreements relating to the issuance of such
Certificates.
1.1 Underwriting Agreement among EquiVantage Acceptance Corp.,
EquiVantage Inc. and the Representative named therein, dated
November 19, 1996.
4.1 Pooling and Servicing Agreement among EquiVantage
Acceptance Corp., EquiVantage Inc. and Norwest Bank
Minnesota, National Association, as Trustee, dated as of
November 1, 1996.
4.2 Indemnification Agreement among Financial Guaranty Insurance
Company, EquiVantage Acceptance Corp. and the Representative
named therein, dated as of November 1, 1996.
4.3 Insurance and Indemnity Agreement among Financial Guaranty
Insurance Company, EquiVantage Acceptance Corp. and
EquiVantage Inc., dated as of November 1, 1996.
<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 hereunto duly authorized.
EQUIVANTAGE HOME EQUITY LOAN TRUST 1996-4
By: EquiVantage Acceptance Corp., as Sponsor
By: /s/ John E. Smith
---------------------------------
Name: John E. Smith
Title: President
Dated: November 22, 1996
<PAGE>
Exhibit Index
Description of Exhibit
Exhibit No. Description
- ----------- -----------
1.1 Underwriting Agreement among EquiVantage Acceptance Corp.,
EquiVantage Inc. and the Representative named therein, dated
November 19, 1996.
4.1 Pooling and Servicing Agreement among EquiVantage
Acceptance Corp., EquiVantage Inc. and Norwest Bank
Minnesota, National Association, as Trustee, dated as of
November 1, 1996.
4.2 Indemnification Agreement among Financial Guaranty Insurance
Company, EquiVantage Acceptance Corp. and the Representative
named therein, dated as of November 1, 1996.
4.3 Insurance and Indemnity Agreement among Financial Guaranty
Insurance Company, EquiVantage Acceptance Corp. and
EquiVantage Inc., dated as of November 1, 1996.
Exhibit 1.1
<PAGE>
EQUIVANTAGE ACCEPTANCE CORP.
EQUIVANTAGE INC.
AND
PRUDENTIAL SECURITIES INCORPORATED
As Representative of the Several Underwriters
UNDERWRITING AGREEMENT
FOR
EQUIVANTAGE HOME EQUITY LOAN TRUST 1996-4
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES,
CLASS A FIXED RATE CERTIFICATES
November 19, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION I. Representations and Warranties of the Company............... 2
SECTION II. Purchase and Sale........................................... 6
SECTION III. Delivery and Payment........................................ 6
SECTION IV. Offering by the Underwriters................................ 6
SECTION V. Covenants of the Company.................................... 6
SECTION VI. Condition to the Underwriters' Obligations.................. 9
SECTION VII. Payment of Expenses......................................... 19
SECTION VIII. Indemnification and Contribution............................ 20
SECTION IX. Representations, Warranties and Agreements to
Survive Delivery.......................................... 24
SECTION X. Default by One or More of the Underwriters.................. 24
SECTION XI. Termination of Agreement.................................... 25
SECTION XII. Notices..................................................... 25
SECTION XIII. Persons Entitled to the Benefit of this Agreement........... 25
SECTION XIV. Survival.................................................... 25
SECTION XV. Definition of the Term "Business Day"....................... 25
SECTION XVI. Governing Law; Submission to Jurisdiction................... 25
SECTION XVII. Counterparts................................................ 26
SECTION XVIII. Headings.................................................... 26
SECTION XIX. Amendments and Waivers...................................... 26
i
<PAGE>
EQUIVANTAGE HOME EQUITY LOAN TRUST 1996-4
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES,
CLASS A FIXED RATE CERTIFICATES
UNDERWRITING AGREEMENT
November 19, 1996
Prudential Securities Incorporated
as Representative of the
several Underwriters
1 New York Plaza
26th Floor
New York, New York 10292
Dear Ladies and Gentlemen:
EquiVantage Acceptance Corp. (the "Company"), a Delaware
corporation, has authorized the issuance and sale of Home Equity Loan
Asset-Backed Certificates, Class A (the "Offered Certificates"), Class B (the
"Class B Certificates") and the Class R Certificates (the "Class R
Certificates," together with the Class B Certificates, the "Subordinated
Certificates," and collectively with the Offered Certificates, the
"Certificates"), evidencing interests in a pool of home equity loans (the "Home
Equity Loans"). The Home Equity Loans are secured primarily by first lien deeds
of trust or mortgages on one- to four-family residential properties.
Only the Offered Certificates are being purchased by the
Underwriters named in Schedule A hereto, and the Underwriters are purchasing,
severally, only the Offered Certificates set forth opposite their names in
Schedule A, except that the amounts purchased by the Underwriters may change in
accordance with Section X of this Agreement. Prudential Securities Incorporated
is acting as representative of the several Underwriters and in such capacity, is
hereinafter referred to as the "Representative."
The Certificates will be issued under a pooling and servicing
agreement (the "Pooling and Servicing Agreement'), dated as of November 1, 1996
among the Company, as Seller (the "Seller"), EquiVantage Inc. (a corporation
organized under the laws of Delaware, ("EquiVantage Inc.")) as Servicer (the
"Servicer") and Norwest Bank Minnesota, National Association, as trustee (the
"Trustee"). The Certificates will evidence fractional undivided interests in the
trust (the "Trust"). The assets of the Trust will initially include, among other
things, a pool of Home Equity Loans and such amounts as may be held by the
Trustee in the Certificate Account (the "Certificate Account"), the Principal
and Interest Account (the "P&I Account") and any other accounts held by the
Trustee for the Trust. The Home Equity Loans
1
<PAGE>
will be acquired from EquiVantage Inc. pursuant to a Master Loan Transfer
Agreement dated November 1, 1996, and related Conveyance Agreement dated
November 22, 1996 (the "Conveyance Agreement," together the "Purchase
Agreements"). The Offered Certificates will initially represent an undivided
ownership interest in the pool of Home Equity Loans in an amount of $80,000,000
(approximate) as of the close of business on November 1, 1996, or if any Home
Equity Loan was originated subsequent to November 1, 1996 but prior to the
Closing Date, the date of origination of such Home Equity Loan (the "Cut-Off
Date"). The Offered Certificates will also have the benefit of a Certificate
Insurance Policy (the "Certificate Insurance Policy") issued by Financial
Guaranty Insurance Corporation, a New York stock insurance company (the
"Certificate Insurer"). The Certificate Insurance Policy will be issued pursuant
to the insurance and indemnity agreement (the "Insurance Agreement") dated as of
November 1, 1996 among the Certificate Insurer, the Company, the Servicer and
the Trustee. A form of the Pooling and Servicing Agreement has been filed as an
exhibit to the Registration Statement (hereinafter defined).
The Certificates are more fully described in a Registration
Statement which the Company has furnished to the Underwriters. Capitalized terms
used but not defined herein shall have the meanings given to them in the Pooling
and Servicing Agreement.
SECTION I. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with the Underwriters that:
A. A Registration Statement on Form S-3 (No. 33-99364), has (i) been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933 (the "Securities Act") and the rules and regulations (the "Rules and
Regulations") of the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under the
Securities Act and (iii) become effective under the Securities Act. Copies of
such Registration Statement have been delivered by the Company to the
Representative. As used in this Agreement, "Effective Time" means the date and
the time as of which such Registration Statement, or the most recent
post-effective amendment thereto, if any, was declared effective by the
Commission; "Effective Date" means the date of the Effective Time; "Registration
Statement" means such registration statement, at the Effective Time, including
any documents incorporated by reference therein at such time; "Basic Prospectus"
means such final prospectus dated May 7, 1996; and "Prospectus Supplement" means
the final prospectus supplement relating to the Offered Certificates, to be
filed with the Commission pursuant to paragraphs (2), (3) or (5) of Rule 424(b)
of the Rules and Regulations. "Prospectus" means the Basic Prospectus together
with the Prospectus Supplement. Reference made herein to the Prospectus shall be
deemed to refer to and include any documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the Securities Act as of the date of the
Prospectus, any reference to any amendment or supplement to the Prospectus shall
be deemed to refer to and include any document filed under the Securities
Exchange Act of 1934 (the "Exchange Act") after the date of the Prospectus and
incorporated by reference in the Prospectus, and any reference to any amendment
to the Registration Statement shall be deemed to include any report of the
Company filed with the Commission pursuant to section 13(a) or 15(d) of the
Exchange Act after the Effective Time that is incorporated by reference in the
Registration Statement. The Commission has not issued any order preventing or
suspending the use of the Prospectus. There are not contracts or documents of
the Company which are required to be filed as exhibits to the Registration
Statement pursuant to the Securities Act or the Rules and Regulations which have
not been so filed or incorporated by reference therein on or prior to the
Effective Date of the Registration Statement other than such documents or
materials, if any, as any Underwriter delivers to the Company pursuant to
Section VIII D hereof for filing on Form 8-K.
2
<PAGE>
B. The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the Commission, as
the case may be, conform in all respects to the requirements of the Securities
Act and the Rules and Regulations. The Registration Statement, as of the
Effective Date thereof and of any amendment thereto, did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Prospectus as of its date, and as amended or supplemented as of the Closing Date
does not and will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided
that no representation or warranty is made as to information contained in or
omitted from the Registration Statement or the Prospectus in reliance upon and
in conformity with written information furnished to the Company in writing by
the Underwriters expressly for use therein.
C. The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may be,
conformed in all material respects to the requirements of the Securities Act or
the Exchange Act, as applicable, and the rules and regulations of the Commission
thereunder, and none of such documents contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and any further
documents so filed and incorporated by reference in the Prospectus, when such
documents become effective or are filed with the Commission, as the case may be,
will conform in all material respects to the requirements of the Securities Act
or the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided that no representation
is made as to documents deemed to be incorporated by reference in the Prospectus
as the result of filing a Form 8-K at the request of the Underwriters except to
the extent such documents reflect information furnished by the Company to the
Underwriters for the purpose of preparing such documents.
D. Since the respective dates as of which information is given in
the Prospectus, there has not been any material adverse change, or any
development involving a prospective material adverse change, in the general
affairs, management, financial condition, or results of operations of the
Company, otherwise than as set forth or contemplated in the Prospectus as
supplemented or amended as of the Closing Date.
E. The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification, and has all
power and authority necessary to own or hold its properties, to conduct the
business in which it is engaged and to enter into and perform its obligations
under this Agreement, the Pooling and Servicing Agreement and the Insurance
Agreement or the Purchase Agreements and to cause the Certificates to be issued.
F. There are no actions, proceedings or investigations pending with
respect to which the Company has received service of process before or
threatened by any court, administrative agency or other tribunal to which the
Company is a party or of which any of its properties is the subject (a) which if
determined adversely to the Company would have a material adverse effect on the
business or financial condition of the Company, (b) asserting the invalidity of
this Agreement, the Pooling and Servicing Agreement, the Insurance Agreement or
the Certificates, or the Purchase Transfer Agreements, (c) seeking to prevent
the issuance of the Certificates or the consummation by the Company of any of
the transactions
3
<PAGE>
contemplated by the Pooling and Servicing Agreement, the Insurance Agreement or
this Agreement, or the Purchase Transfer Agreement, as the case may be, (d)
which might individually or in the aggregate materially and adversely affect the
performance by the Company of its obligations under, or the validity or
enforceability of, the Pooling and Servicing Agreement, this Agreement, and the
Insurance Agreement or the Certificates or the Purchase Agreements or (e) which
might adversely affect the federal income tax attributes of the Certificates as
described in the Prospectus.
G. This Agreement has been, and the Pooling and Servicing Agreement,
the Purchase Agreements and the Insurance Agreement, when executed and delivered
as contemplated hereby and thereby will have been, duly authorized, executed and
delivered by the Company, and this Agreement constitutes, and the Pooling and
Servicing Agreement and the Insurance Agreement when executed and delivered as
contemplated herein, will constitute legal, valid and binding instruments
enforceable against the Company in accordance with their respective terms,
subject as to enforceability to (x) applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting creditors' rights
generally, (y) general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law), and (z) with respect to rights
of indemnity under this Agreement and the Insurance Agreement, limitations of
public policy under applicable securities laws.
H. The execution, delivery and performance of this Agreement, the
Pooling and Servicing Agreement, the Purchase Agreements and the Insurance
Agreement by the Company and the consummation of the transactions contemplated
hereby and thereby, compliance with the provisions thereof, and the issuance and
delivery of the Certificates do not and will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company is a party, by which the Company is
bound or to which any of the properties or assets of the Company or any of its
subsidiaries is subject, which breach or violation would have a material adverse
effect on the business, operations or financial condition of the Company, nor
will such actions result in any violation of the provisions of the articles of
incorporation or by-laws of the Company or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of its properties or assets, which breach or violation would
have a material adverse effect on the business, operations or financial
condition of the Company. The Company is not a party to, bound by, or in breach
or violation of, any indenture or other agreement or instrument, or subject to
or in violation of any statute, order, rule or regulation of any court,
governmental agency or body or other tribunal having jurisdiction over the
Company, which materially and adversely affects, or is reasonably likely in the
future to materially and adversely affect, (i) the ability of the Company to
perform its obligations under this Agreement and the Insurance Agreement or (ii)
the business, operations, results of operations, financial position, income,
properties or assets of the Company.
I. The Company has no reason to know that KPMG Peat Marwick LLP are
not independent public accountants with respect to the Company as required by
the Securities Act and the Rules and Regulations.
J. The direction by the Company to the Trustee to execute,
authenticate, issue and deliver the Certificates has been duly authorized by the
Company, and assuming the Trustee has been duly authorized to do so, when
executed, authenticated, issued and delivered by the Trustee in accordance with
the Pooling and Servicing Agreement, the Certificates will be validly issued and
outstanding and will be entitled to the benefits provided by the Pooling and
Servicing Agreement.
4
<PAGE>
K. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States is required for the issuance of the Certificates and the sale of the
Offered Certificates to the Underwriters, or the consummation by the Company of
the other transactions contemplated by this Agreement, the Pooling and Servicing
Agreement, the Purchase Agreements and the Insurance Agreement, except such
consents, approvals, authorizations, registrations or qualifications as may be
required under State securities or Blue Sky laws in connection with the purchase
and distribution of the Offered Certificates by the Underwriters or as have been
obtained.
L. The Company possesses all material licenses, certificates,
authorities or permits issued by the appropriate state, Federal or foreign
regulatory agencies or bodies necessary to conduct the business now conducted by
it and as described in the Prospectus, and there are no proceedings pending with
respect to which the Company has received service of process or, to the best
knowledge of the Company threatened, relating to the revocation or modification
of any such license, certificate, authority or permit which if decided adversely
to the Company would, singly or in the aggregate, materially and adversely
affect the conduct of its business, operations or financial condition.
M. At the time of execution and delivery of the Pooling and
Servicing Agreement, the Company will: (i) have good title to the Home Equity
Loans conveyed by the Seller, free and clear of any lien, mortgage, pledge,
charge, encumbrance, adverse claim or other security interest (collectively,
"Liens"); (ii) not have assigned to any person any of its right or title in the
Home Equity Loans, in the Pooling and Servicing Agreement or in the Certificates
being issued pursuant thereto; and (iii) have the power and authority to sell
its interest in the Home Equity Loans to the Trustee and to sell the Offered
Certificates to the Underwriters. Upon execution and delivery of the Pooling and
Servicing Agreement by the Trustee, the Trustee will have acquired beneficial
ownership of all of the Company's right, title and interest in and to the Home
Equity Loans. Upon delivery to the Underwriters of the Offered Certificates, the
Underwriters will have good title to the Offered Certificates, free of any
Liens.
N. As of the Cut-Off Date, each of the Home Equity Loans will meet
the eligibility criteria described in the Prospectus and will conform to the
descriptions thereof contained in the Prospectus in all material respects.
O. Neither the Company nor the Trust created by the Pooling and
Servicing Agreement is an "investment company" within the meaning of such term
under the Investment Company Act of 1940 (the "1940 Act") and the rules and
regulations of the Commission thereunder.
P. At the Closing Date, the Offered Certificates, the Purchase
Agreements and the Pooling and Servicing Agreement will conform in all material
respects to the descriptions thereof contained in the Prospectus. The Offered
Certificates will be duly and validly authorized and, when duly and validly
executed, authenticated, issued and delivered in accordance with the Pooling and
Servicing Agreement and sold to the Underwriters as provided herein, will be
validly issued and outstanding and entitled to the benefits of the Pooling and
Servicing Agreement.
Q. At the Closing Date, the Offered Certificates shall have been
rated in the highest rating category by at least two nationally recognized
rating agencies.
R. Any taxes, fees and other governmental charges in connection with
the execution, delivery and issuance of this Agreement, the Pooling and
Servicing Agreement, the Insurance Agreement and the Certificates have been paid
or will be paid at or prior to the Closing Date.
5
<PAGE>
S. At the Closing Date, each of the representations and warranties
of the Company set forth in the Pooling and Servicing Agreement and the
Insurance Agreement will be true and correct in all material respects.
T. The transfer of the Home Equity Loans to the Trust at the Closing
Date will be treated by the Company for financial accounting and reporting
purposes as a sale of assets and not as a pledge of assets to secure debt.
U. The Company is not aware of (i) any request by the Commission for
any further amendment of the Registration Statement or the Prospectus or for any
additional information, or (ii) any notification with respect to the suspension
of the qualification of the Certificates for sale in any jurisdiction or the
initiating or threatening of any proceeding for such purpose.
Any certificate signed by an officer of the Company and delivered to
the Representative or counsel for the Representative in connection with an
offering of the Offered Certificates shall be deemed, and shall state that it
is, a representation and warranty as to the matters covered thereby to each
person to whom the representations and warranties in this Section I are made.
SECTION II. Purchase and Sale. The commitment of the Underwriters to
purchase the Offered Certificates pursuant to this Agreement shall be deemed to
have been made on the basis of the representations and warranties herein
contained and shall be subject to the terms and conditions herein set forth. The
Company agrees to instruct the Trustee to issue the Offered Certificates and
agrees to sell to the Underwriters, and the Underwriters agree (except as
provided in Sections X and XI hereof) severally and not jointly to purchase from
the Company the aggregate initial principal amounts or percentage interests of
the Class A Certificates set forth opposite their names on Schedule A, at the
purchase price or prices set forth in Schedule A.
SECTION III. Delivery and Payment. Delivery and payment for the
Offered Certificates to be purchased by the Underwriters shall be made at the
offices of Dewey Ballantine, or at such other place as shall be agreed upon by
the Company at 10:00 a.m. New York City time on November 22, 1996 or at such
other time or date as shall be agreed upon in writing by the Representative and
the Company (such date being referred to as the "Closing Date"). Payment shall
be made to the Company by wire transfer of same day funds payable to the account
of the Company. Delivery of the Offered Certificates shall be made to the
Representative for the accounts of the Underwriters against payment of the
purchase price thereof. The Certificates shall be in such authorized
denominations and registered in such names as the Underwriters may request in
writing at least two business days prior to the Closing Date. The Offered
Certificates will be made available for examination by the Representative no
later than 2:00 p.m. New York City time on the first business day prior to the
Closing Date.
SECTION IV. Offering by the Underwriters. It is understood that,
subject to the terms and conditions hereof, the Underwriters propose to offer
the Offered Certificates for sale to the public as set forth in the Prospectus.
SECTION V. Covenants of the Company. The Company agrees as follows:
A. To prepare the Prospectus in a form approved by the Underwriters
and to file such Prospectus pursuant to Rule 424(b) under the Securities Act not
later than the Commission's close of business on the second business day
following the availability of the Prospectus to the Underwriters; to make no
further amendment or any supplement to the Registration Statement or to the
Prospectus prior
6
<PAGE>
to the Closing Date except as permitted herein; to advise the Underwriters,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective prior to the Closing
Date or any supplement to the Prospectus or any amended Prospectus has been
filed prior to the Closing Date and to furnish the Underwriters with copies
thereof; to file promptly all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
the Prospectus and, for so long as the delivery of a prospectus is required in
connection with the offering or sale of the Offered Certificates; to promptly
advise the Underwriters of its receipt of notice of the issuance by the
Commission of any stop order or of: (i) any order preventing or suspending the
use of the Prospectus; (ii) the suspension of the qualification of the Offered
Certificates for offering or sale in any jurisdiction; (iii) the initiation of
or threat of any proceeding for any such purpose; (iv) any request by the
Commission for the amending or supplementing of the Registration Statement or
the Prospectus or for additional information. In the event of the issuance of
any stop order or of any order preventing or suspending the use of the
Prospectus or suspending any such qualification, the Company promptly shall use
its best efforts to obtain the withdrawal of such order by the Commission.
B. To furnish promptly to the Underwriters and to counsel for the
Underwriters a signed copy of the Registration Statement as originally filed
with the Commission, and of each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith.
C. To deliver promptly to the Underwriters such number of the
following documents as the Underwriters shall reasonably request: (i) conformed
copies of the Registration Statement as originally filed with the Commission and
each amendment thereto (in each case including exhibits); (ii) the Prospectus
and any amended or supplemented Prospectus; and (iii) any document incorporated
by reference in the Prospectus (including exhibits thereto). If the delivery of
a prospectus is required at any time prior to the expiration of nine months
after the Effective Time in connection with the offering or sale of the Offered
Certificates, and if at such time any events shall have occurred as a result of
which the Prospectus as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such same period to amend or
supplement the Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus in order to comply with the
Securities Act or the Exchange Act, the Company shall notify the Underwriters
and, upon any Underwriter's request, shall file such document and prepare and
furnish without charge to the Underwriters and to any dealer in securities as
many copies as the Underwriters may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which corrects such
statement or omission or effects such compliance, and in case the Underwriters
are required to deliver a Prospectus in connection with sales of any of the
Offered Certificates at any time nine months or more after the Effective Time,
upon the request of an Underwriter but at its expense, the Company shall prepare
and deliver to such Underwriter as many copies as such Underwriter may
reasonably request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Securities Act. If such amendment or supplement to the
Prospectus is required to be contained in a post-effective amendment to the
Registration Statement, the Company will use its best efforts to cause such
amendment of the Registration Statement to be made effective as soon as
possible.
D. To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the Prospectus
that may, in the judgment of the Company or the Underwriters, be required by the
Securities Act or requested by the Commission.
7
<PAGE>
E. To furnish the Underwriters and counsel for the Underwriters,
prior to filing with the Commission, and to obtain the consent of the
Underwriters for the filing of the following documents relating to the
Certificates: (i) amendment to the Registration Statement or supplement to the
Prospectus, or document incorporated by reference in the Prospectus, or (ii)
Prospectus pursuant to Rule 424 of the Rules and Regulations.
F. To make generally available to holders of the Offered
Certificates as soon as practicable, but in any event not later than 90 days
after the close of the period covered thereby, a statement of earnings of the
Trust (which need not be audited) complying with Section 11(a) of the Securities
Act and the Rules and Regulations (including, at the option of the Company, Rule
158) and covering a period of at least twelve consecutive months beginning not
later than the first day of the first fiscal quarter following the Closing Date.
G. To use its best efforts, in cooperation with the Underwriters, to
qualify the Offered Certificates for offering and sale under the applicable
securities laws of such states and other jurisdictions of the United States or
elsewhere as the Underwriters may designate, and maintain or cause to be
maintained such qualifications in effect for as long as may be required for the
distribution of the Offered Certificates. The Company will file or cause the
filing of such statements and reports as may be required by the laws of each
jurisdiction in which the Offered Certificates have been so qualified.
H. So long as the Offered Certificates shall be outstanding the
Company shall cause the Trustee, pursuant to the Pooling and Servicing
Agreement, to deliver to the Underwriters as soon as such statements are
furnished to the Trustee: (i) the annual statement as to compliance delivered to
the Trustee pursuant to Section 8.16 of the Pooling and Servicing Agreement;
(ii) the annual statement of a firm of independent public accountants furnished
to the Trustee pursuant to Section 8.17 of the Pooling and Servicing Agreement;
(iii) the monthly servicing report furnished to the Trustee pursuant to Section
7.8 and Section 8.1 of the Pooling and Servicing Agreement; (iv) the monthly
reports furnished to the Certificateholders pursuant to Section 7.8 of the
Pooling and Servicing Agreement; and (v) from time to time, any other
information concerning the Trust filed with any government or regulatory
authority that is otherwise publicly available, as the Representative may
reasonably request.
I. To apply the net proceeds from the sale of the Offered
Certificates in the manner set forth in the Prospectus.
J. During a period of seven calendar days from the Closing Date,
neither the Company nor any trust established, directly or indirectly, by the
Company will, without the Representative's prior written consent (which consent
shall not be unreasonably withheld), offer or sell mortgage pass-through
certificates backed by mortgage loans, except pursuant to this Agreement.
K. The Company will enter into the applicable agreements, to which
it is a party pursuant to the Pooling and Servicing Agreement, on or prior to
the Closing Date and will cause to be delivered to the Trustee the Insurance
Policy issued by the Certificate Insurer.
L. The Company will cause the Computational Materials (as defined in
Section VIII(D) below) with respect to the Certificates which are delivered to
the Company as provided in Section VIII(D) below to be filed with the Commission
on a Current Report on Form 8-K (the "Current Report") not later than the date
on which such materials are required to be filed pursuant to the Kidder/PSA
Letters (as defined in Section VIII(D) below).
8
<PAGE>
SECTION VI. Condition to the Underwriters' Obligations. The
obligations of the Underwriters to purchase the Offered Certificates pursuant to
this Agreement are subject to: (i) the accuracy on and as of the Closing Date of
the representations and warranties on the part of the Company herein contained
(including those representations and warranties set forth in the Pooling and
Servicing Agreement and incorporated herein); (ii) the performance by the
Company of all of its obligations hereunder; (iii) the accuracy of the
statements of the Company made in any certificate or other document delivered
pursuant to the provisions hereof; and (iv) the following conditions as of the
Closing Date:
A. The Underwriters shall have received confirmation of the
effectiveness of the Registration Statement. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission. Any request of the Commission for inclusion of
additional information in the Registration Statement or the Prospectus shall
have been complied with. The Prospectus shall have been filed pursuant to Rule
424(b).
B. The Underwriters shall not have discovered and disclosed to the
Company on or prior to the Closing Date that the Registration Statement or the
Prospectus or any amendment or supplement thereto contains an untrue statement
of a fact or omits to state a fact which, in the opinion of Dewey Ballantine,
counsel for the Underwriters, is material and is required to be stated therein
or is necessary to make the statements therein not misleading.
C. All corporate proceedings and other legal matters relating to the
authorization, form and validity of this Agreement, the Pooling and Servicing
Agreement, the Insurance Agreement, the Purchase Agreements, the Certificates,
the Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall be
satisfactory in all respects to counsel for the Underwriters, and the Company
shall have furnished to such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters. The Representative
shall have received the Pooling and Servicing Agreement and the Offered
Certificates in form and substance satisfactory to the Representative, duly
executed by all signatories required pursuant to the respective terms thereof.
D. Dewey Ballantine, shall have furnished to the Underwriters their
written opinion, as counsel to the Company, addressed to the Underwriters and
dated the Closing Date, in form and substance satisfactory to the Underwriters,
to the effect that:
1. The conditions to the use by the Company of a registration
statement on Form S-3 under the Securities Act, as set forth in the
General Instructions to Form S-3, have been satisfied with respect to the
Registration Statement and the Prospectus.
2. The Registration Statement and any amendments thereto have
become effective under the 1993 Act; to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the Registration
Statement has been issued and not withdrawn and no proceedings for that
purpose have been instituted or threatened and not terminated; and the
Registration Statement, the Prospectus and each amendment or supplement
thereto, as of their respective effective or issue dates (other than the
financial and statistical information contained therein, as to which such
counsel need express no opinion), complied as to form in all material
respects with the applicable requirements of the 1933 Act and the rules
and regulations thereunder, and such counsel does not know of any
amendment to the Registration Statement required to be filed.
9
<PAGE>
3. There are no material contracts, indentures or other
documents of a character required to be described or referred to in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement other than those described or referred to therein
or filed or incorporated by reference as exhibits thereto.
4. The statements set forth in the Basic Prospectus under the
caption "Description of the Securities" and in the Prospectus Supplement
under the captions "Description of the Certificates" and "The Pooling and
Servicing Agreement," to the extent such statements purport to summarize
certain provisions of the Certificates or of the Pooling and Servicing
Agreement, are fair and accurate in all material respects.
5. The statements set forth in the Basic Prospectus and the
Prospectus Supplement under the captions "ERISA Considerations," "Certain
Federal Income Tax Consequences," "Legal Investment Matters" and "Certain
Legal Aspects of Mortgage Loans and Related Matters," to the extent that
they constitute matters of federal law, provide a fair and accurate
summary of such law or conclusions.
6. The Pooling and Servicing Agreement and the Purchase
Agreements conform in all material respects to the description thereof
contained in the Prospectus and the Pooling and Servicing Agreement is not
required to be qualified under the Trust Indenture Act of 1939, as
amended, and the Trust is not required to be registered under the
Investment Company Act of 1940, as amended.
7. Assuming that the Trustee causes certain assets of the
Trust Estate, as the Trustee has covenanted to do in the Pooling and
Servicing Agreement, to be treated as a "real estate mortgage investment
conduit" ("REMIC"), as such term is defined in the Internal Revenue Code
of 1986, as amended (the "Code"), and the parties to the Pooling and
Servicing Agreement comply with the terms thereof, such assets of the
Trust Estate will be treated as a REMIC, the Offered Certificates and the
Class B Certificates will be treated as the "regular interests" in the
Trust and the Class R Certificates will be treated as the sole "residual
interest" in the REMIC. Neither the Trust nor certain assets and accounts
are subject to tax upon its income or assets by any taxing authority of
the State of New York or the City of New York.
8. To the best of such counsel's knowledge, there are no
actions, proceedings or investigations pending that would adversely affect
the status of the Trust Estate as a REMIC.
9. As a consequence of the qualification of the Trust Estate
as a REMIC, the Offered Certificates will be treated as "qualifying real
property loans" under Section 593(d) of the Code, "regular. . .interest(s)
in a REMIC" under Section 7701(a)(19)(C) of the Code and "real estate
assets" under Section 856(c) of the Code in the same proportion that the
assets in the Trust consist of qualifying assets under such Sections. In
addition, as a consequence of the qualification of the Trust Estate as a
REMIC, interest on the Offered Certificates will be treated as "interest
on obligations secured by mortgages on real property" under Section 856(c)
of the Code to the extent that such Offered Certificates are treated as
"real estate assets" under Section 856(c) of the Code.
10. The Certificates will, when issued, conform to the
description thereof contained in the Prospectus.
10
<PAGE>
Such counsel shall also have furnished to the Underwriters a written
statement, addressed to the Underwriters and dated the Closing Date, in form and
substance satisfactory to the Underwriters to the effect that no facts have come
to the attention of such counsel which lead them to believe that: (a) the
Registration Statement, at the time such Registration Statement became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein misleading (except as to financial or statistical data
contained in the Registration Statement); (b) the Prospectus, as of its date and
as of the Closing Date, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (except as to
statements set forth in the Prospectus Supplement under the caption "The
Certificate Insurer"); or (c) any document incorporated by reference in the
Prospectus or any further amendment or supplement to any such incorporated
document made by the Company prior to the Closing Date (other than any document
filed at the request of an Underwriter to the extent such document relates to
Computational Materials) contained, as of the time it became effective or was
filed with the Commission, as the case may be, an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion or making such statement, such counsel may
rely, as to matters of fact, on certificates of responsible officers of the
Company. Such opinions and written statements may also assume the due
authorization, execution and delivery of the instruments and documents referred
to therein by the parties thereto other than the Company.
E. The Underwriters have received the favorable opinion, dated the
Closing Date, of Dewey Ballantine, special counsel to the Company, addressed to
the Company and satisfactory to the Certificate Insurer, Standard & Poor's, A
Division of The McGraw-Hill Companies, Moody's Investors Service Inc. and the
Underwriters, with respect to certain matters relating to the transfer of the
Home Equity Loans to the Company and from the Company to the Trust, and such
counsel shall have consented to reliance on such opinion by the Certificate
Insurer, Standard & Poor's, A Division of The McGraw-Hill Companies, Moody's
Investors Service, Inc. and the Underwriters as though such opinion had been
addressed to each such party.
F. Karen Crawford, Esq., counsel to the Servicer, shall have
furnished to the Underwriters her written opinion, as counsel to the Servicer,
addressed to the Underwriters and the Company and dated the Closing Date, in
form and substance satisfactory to the Underwriters, to the effect that:
1. The Servicer is validly existing in good standing as a
corporation under the laws of its State of incorporation.
2. The Servicer has full corporate power and authority to
serve in the capacity of servicer of the related Home Equity Loans as
contemplated in the Pooling and Servicing Agreement.
3. The Pooling and Servicing Agreement and the Insurance
Agreement have been duly authorized, executed and delivered by the
Servicer, and, assuming the due authorization, execution and delivery of
such agreements by the other parties thereto, constitute the legal, valid
and binding agreements of the Servicer, enforceable against it in
accordance with their terms, subject as to enforceability to (x)
bankruptcy, insolvency, reorganization, moratorium, receivership
11
<PAGE>
or other similar laws now or hereafter in effect relating to creditors'
rights generally and (y) the qualification that the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion, with respect to such
remedies, of the court before which any proceedings with respect thereto
may be brought.
4. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body having
jurisdiction over the Servicer is required for the consummation by either
of them of the transactions contemplated by the Pooling and Servicing
Agreement and the Insurance Agreement, except such consents, approvals,
authorizations, registrations and qualifications as have been obtained.
5. The execution, delivery or performance by the Servicer of
the Pooling and Servicing Agreement or the Insurance Agreement and the
transactions contemplated thereby do not (A) conflict with or result in a
breach of, or constitute a default under, (i) any term or provision of the
certificate of incorporation or by-laws of the Servicer; (ii) any term or
provision of any material agreement, deed of trust, mortgage loan
agreement, contract, instrument or indenture, or other agreement to which
the Servicer is a party or is bound or to which any of the property or
assets of the Servicer or any of its subsidiaries is subject; (iii) to the
best of the Servicer's knowledge without independent investigation any
order, judgment, writ, injunction or decree of any court or governmental
authority having jurisdiction over the Servicer; or (iv) any law, rule or
regulations applicable to the Servicer; or (B) to the best of such firm's
knowledge without independent investigation, results in the creation or
imposition of any lien, charge or encumbrance upon the Trust Estate or
upon the Certificates.
6. There are no actions, proceedings or investigations pending
with respect to which the Servicer has received service of process before,
or to the best of such counsel's knowledge without independent
investigation, threatened against the Servicer by any court,
administrative agency or other tribunal (a) asserting the validity of the
Pooling and Servicing Agreement, the Insurance Agreement or the
Certificates, (b) seeking to prevent the consummation of any of the
transactions contemplated by the Pooling and Servicing Agreement or (c)
which would materially adversely affect the performance by the Servicer of
its obligations under, or the validity or enforceability of, the Pooling
and Servicing Agreement, or the Insurance Agreement.
G. Karen Crawford, Esq., counsel to the Company shall have furnished
to the Underwriters such counsel's written opinion, addressed to the
Underwriters and dated the Closing Date, in form and substance satisfactory to
the Underwriters, to the effect that:
1. The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware
and is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification
(except where any such failure would not have a material adverse effect on
the Company's ability to perform its obligations under this Agreement, the
Pooling and Servicing Agreement or the Insurance Agreement), and has all
power and authority necessary to own or hold its properties and to conduct
the business in which it is engaged and to enter into and perform its
obligations under this Agreement, the Pooling and Servicing Agreement and
the Insurance Agreement, and cause the Certificates to be issued.
12
<PAGE>
2. The Company is not in violation of its articles of
incorporation or by-laws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company is a party or by which it or its
properties may be bound, which default might result in any material
adverse change in the financial condition of the Company or which might
materially and adversely affect the properties or assets, taken as a
whole, of the Company.
3. This Agreement, the Pooling and Servicing Agreement, the
Indemnification Agreement, the Insurance Agreement and the Purchase
Agreements have been duly authorized, executed and delivered by the
Company and, assuming the due authorization, execution and delivery of
such agreements by the other parties thereto, such agreements constitute
valid and binding obligations, enforceable against the Company in
accordance with their respective terms, subject as to enforceability to
(x) bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally,
(y) general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and (z) with respect to rights
of indemnity under this Agreement and the Insurance Agreement, limitations
of public policy under applicable securities laws.
4. The execution, delivery and performance of this Agreement,
the Pooling and Servicing Agreement, the Insurance Agreement and the
Purchase Agreements by the Company, the consummation of the transactions
contemplated hereby and thereby, and the issuance and delivery of the
Certificates (i) do not and will not conflict with or result in a breach
or violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company is a party or by which the
Company is bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, which breach or violation would
have a material adverse effect on the business, operations or financial
condition of the Company, (ii) nor will such actions result in a violation
of the provisions of the articles of incorporation or by-laws of the
Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of
its properties or assets, which breach or violation would have a material
adverse effect on the business, operations or financial condition of the
Company, and (iii) nor will such actions result in the creation or
imposition of any lien, charge or encumbrance upon the Trust Estate or
upon the Certificates, except as otherwise contemplated by the Pooling and
Servicing Agreement.
5. The direction by the Company to the Trustee to execute,
issue, authenticate and deliver the Certificates has been duly authorized
by the Company and, assuming that the Trustee has been duly authorized to
do so, when executed by the Company and authenticated and delivered by the
Trustee in accordance with the Pooling and Servicing Agreement, the
Certificates will be validly issued and outstanding and will be entitled
to the benefits of the Pooling and Servicing Agreement.
6. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the
United States is required for the issuance of the Certificates, and the
sale of the Offered Certificates to the Underwriters, or the consummation
by the Company of the other transactions contemplated by this Agreement,
the Pooling and Servicing Agreement and the Insurance Agreement, except
such consents, approvals, authorizations, registrations or qualifications
as may be required under the 1933 Act or State
13
<PAGE>
securities or Blue Sky laws in connection with the purchase and
distribution of the Offered Certificates by the Underwriters or as have
been previously obtained.
7. There are no actions, proceedings or investigations pending
with respect to which the Company has received service of process before
or, to the best of such counsel's knowledge, without independent
investigation, threatened by any court, administrative agency or other
tribunal to which the Company is a party or of which any of its properties
is the subject: (a) which if determined adversely to the Company would
have a material adverse effect on the business, results of operations or
financial condition of the Company; (b) asserting the invalidity of the
Pooling and Servicing Agreement, the Insurance Agreement or the
Certificates; (c) seeking to prevent the issuance of the Certificates or
the consummation by the Company of any of the transactions contemplated by
the Pooling and Servicing Agreement, the Insurance Agreement or this
Agreement, as the case may be; or (d) which might materially and adversely
affect the performance by the Company of its obligations under, or the
validity or enforceability of, the Pooling and Servicing Agreement, the
Insurance Agreement, this Agreement or the Certificates.
8. The Certificates have been duly and validly authorized and
issued, and, immediately prior to the sale of the Offered Certificates to
the Underwriters, such Certificates are owned by the Company, free and
clear of all Liens.
9. The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware
and is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification, and
has all power and authority necessary to own or hold its properties and to
conduct the business in which it is engaged and to enter into and perform
its obligations under the Purchase Agreements.
10. The Company is not in violation of its articles of
incorporation or by-laws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company is a party or by which it or its
properties may be bound, which default might result in any material
adverse changes in the financial condition, earnings, affairs or business
of the Company or which might materially and adversely affect the
properties or assets, taken as a whole, of the Company.
11. The Purchase Agreements have been duly authorized,
executed and delivered by the Company and, assuming the due authorization,
execution and delivery of such agreements by the parties thereto, such
agreements will constitute valid and binding obligations, enforceable
against the Company in accordance with their respective terms, subject as
to enforceability to (x) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, (y) general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law).
12. The execution, delivery and performance of the Purchase
Agreements by the Company and the consummation of the transactions
contemplated thereby do not and will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which the Company is a party or by which
the Company is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, which breach or
14
<PAGE>
violation would have a material adverse effect on the business, operations
or financial condition of the Company, nor will such actions result in a
violation of the provisions of the articles of incorporation or by-laws of
the Company or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or any
of its properties or assets, which breach or violation would have a
material adverse effect on the business, operations or financial condition
of the Company.
H. The Underwriters shall have received the favorable opinion of
counsel (which may be in-house counsel) to the Trustee, dated the Closing Date,
addressed to the Underwriters and in form and scope satisfactory to counsel to
the Underwriters, to the effect that:
1. The Trustee is a banking association duly incorporated and
validly existing under the laws of the United States of America.
2. The Trustee has the full corporate trust power to execute,
deliver and perform its obligations under the Pooling and Servicing
Agreement.
3. The execution and delivery by the Trustee of the Pooling
and Servicing Agreement and the performance by the Trustee of its
obligations under the Pooling and Servicing Agreement have been duly
authorized by all necessary corporate actions of the Trustee.
4. The Pooling and Servicing Agreement is a valid and legally
binding obligation of the Trustee enforceable against the Trustee.
5. The execution and delivery by the Trustee of the Pooling
and Servicing Agreement does not (a) violate the organization certificate
of the Trustee or the By-laws of the Trustee, (b) to such counsel's
knowledge, violate any judgment, decree or order of any Minnesota or
United States federal court or other Minnesota or United States federal
governmental authority by which the Trustee is bound or (c) assuming the
non-existence of any judgment, decree or order of any court or other
governmental authority that would be violated by such execution and
delivery, violate any Minnesota or United States federal statute, rule or
regulation or require any consent, approval or authorization of any
Minnesota or United States federal court or other Minnesota or United
States federal governmental authority.
6. The Certificates have been duly authenticated, executed and
delivered by the Trustee.
7. If the Trustee were acting in the stead of the Servicer
under the Pooling and Servicing Agreement as of the date of such opinion,
the Trustee would have the full corporate trust power to perform the
obligations of the Servicer under the Pooling and Servicing Agreement; and
8. To the best of such counsel's knowledge, there are no
actions, proceedings or investigations pending or threatened against or
affecting the Trustee before or by any court, arbitrator, administrative
agency or other governmental authority which, if decided adversely to the
Trustee, would materially and adversely affect the ability of the Trustee
to carry out the transactions contemplated in the Pooling and Servicing
Agreement.
15
<PAGE>
I. The Underwriters shall have received a favorable opinion or
opinions, dated the date of the Closing Date, of counsel for the Underwriters,
with respect to the issue and sale of the Offered Certificates, this Agreement,
the Prospectus and such other related matters as the Underwriters may reasonably
require.
J. The Underwriters shall have received the favorable opinion dated
the Closing Date, from in-house counsel to the Certificate Insurer in form and
scope satisfactory to counsel for the Underwriters, substantially to the effect
that:
1. The Certificate Insurer is a stock insurance corporation
duly incorporated, validly existing, and in good standing under the laws
of the State of New York. The Certificate Insurer is validly licensed and
authorized to issue the Certificate Insurance Policy and perform its
obligations under the Insurance Agreement in accordance with the terms
thereof, under the laws of the State of New York.
2. The Certificate Insurer has the corporate power to execute
and deliver, and to take all action required of it under the Insurance
Agreement and the Certificate Insurance Policy.
3. The execution, delivery and performance by the Certificate
Insurer of the Certificate Insurance Policy, the Insurance Agreement and
the Indemnification Agreement is within the corporate power of the
Certificate Insurer and has been authorized by all necessary corporate
action on the part of the Certificate Insurer, and does not require the
consent or approval of, the giving of notice to, the prior registration
with, or the taking of any other action in respect of any state or other
governmental agency or authority which has not previously been obtained or
effected.
4. The Certificate Insurance Policy, the Insurance Agreement
and the Indemnification Agreement have been duly authorized, executed and
delivered by the Certificate Insurer and constitute the legal, valid and
binding agreement of the Certificate Insurer, enforceable against the
Certificate Insurer in accordance with its terms subject, as to
enforcement, to (x) bankruptcy, reorganization, insolvency, moratorium and
other similar laws relating to or affecting the enforcement of creditors'
rights generally, including, without limitation, laws relating to
fraudulent transfer or conveyances, preferential transfers and equitable
subordination, presently or from time to time in effect and general
principles of equity (regardless of whether such enforcement is considered
in a proceeding in equity or at law), as such laws may be applied in any
such proceeding with respect to the Certificate Insurer and (y) the
qualification that the remedy of specific performance and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceedings with respect thereto
may be brought.
5. To the extent the Certificate Insurance Policy constitutes
a security within the meaning of Section 2(l) of the Securities Act, it is
a security that is exempt from the registration requirements of the Act.
6. The information set forth under the caption "THE
CERTIFICATE INSURER" in the Prospectus Supplement, insofar as such
information constitutes a description of the Certificate Insurance Policy,
accurately summarizes the Certificate Insurance Policy.
16
<PAGE>
K. The Company shall have furnished to the Underwriters a
certificate, dated the Closing Date and signed by the Chairman of the Board, the
President or a Vice President of the Company to the extent that the signer of
such certificate has carefully examined the Registration Statement (excluding
any documents incorporated therein by reference), the Pooling and Servicing
Agreement and this Agreement and that, to the best of his or her knowledge based
upon reasonable investigation:
1. The representations and warranties of the Company in this
Agreement, the Pooling and Servicing Agreement and all related agreements
are true and correct as of the Closing Date; and the Company has complied
with all agreements and satisfied all the conditions on its part which are
to have been complied with on or prior to the Closing Date.
2. There has been no amendment or other document filed
affecting the certificate of incorporation or bylaws of the Company since
September 30, 1996 and no such amendment has been authorized. No event has
occurred since November 19, 1996 which has affected the good standing of
the Company under the laws of the State of Delaware.
3. There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company from September 30, 1996.
4. There are no actions, suits or proceedings pending with
respect to which it has received service of process or, to the best of
such officer's knowledge, threatened against or affecting the Company
which if adversely determined, individually or in the aggregate, would be
reasonably likely to adversely affect the Company's obligations under the
Pooling and Servicing Agreement or this Agreement in any material way; and
no merger, liquidation, dissolution or bankruptcy of the Company is
pending or contemplated.
L. The Trustee shall have furnished to the Underwriters a
certificate of the Trustee, signed by one or more duly authorized officers of
the Trustee, dated the Closing Date, as to the due authorization, execution and
delivery of the Pooling and Servicing Agreement by the Trustee and the
acceptance by the Trustee of the trusts created thereby and the due execution,
authentication and delivery of the Certificates by the Trustee thereunder and
such other matters as the Representative shall reasonably request.
M. The Certificate Insurance Policy and the Insurance Agreement
shall have been issued by the Certificate Insurer and shall have been duly
authenticated by an authorized agent of the Certificate Insurer, if so required
under applicable state law or regulations.
N. The Offered Certificates shall have been rated "AAA" by
Standard & Poor's and "Aaa" by Moody's Investors Service.
O. The Company shall, by the Closing Date, have furnished to the
Underwriters such further information, certificates and documents as the
Underwriters may reasonably have requested pursuant to a request made not less
than three full business days prior to the Closing Date.
P. Prior to the Closing Date, counsel for the Underwriters shall
have been furnished with such documents and opinions as they may reasonably
require for the purpose of enabling them to pass upon the issuance and sale of
the Certificates as herein contemplated and related proceedings or in order to
evidence the accuracy and completeness of any of the representations and
warranties, or the
17
<PAGE>
fulfillment of any of the conditions, herein contained, and all proceedings
taken by the Company in connection with the issuance and sale of the
Certificates as herein contemplated shall be satisfactory in form and substance
to the Underwriters and counsel for the Underwriters.
Q. Subsequent to the execution and delivery of this Agreement none
of the following shall have occurred: (i) trading in securities generally on the
New York Stock Exchange, the American Stock Exchange or the over-the-counter
market shall have been suspended or minimum prices shall have been established
on either of such exchanges or such market by the Commission, by such exchange
or by any other regulatory body or governmental authority having jurisdiction;
(ii) a banking moratorium shall have been declared by Federal or state
authorities; (iii) the United States shall have become engaged in hostilities,
there shall have been an escalation of hostilities involving the United States
or there shall have been a declaration of a national emergency or war by the
United Stats; or (iv) there shall have occurred such a material adverse change
in general economic, political or financial conditions (or the effect of
international conditions on the financial markets of the United States shall be
such) as to make it in each of the instances set forth in clauses (i), (ii),
(iii) and (iv) herein, in the reasonable judgment of the Underwriters,
impractical or inadvisable to proceed with the public offering or delivery of
the Certificates on the terms and in the manner contemplated in the Prospectus.
R. The Representative shall have received a letter from KPMG Peat
Marwick, LLP, dated on or before the Closing Date, in form and substance
satisfactory to the Representative and special counsel for the Underwriters,
addressed to each of the Underwriters to the effect that they have performed
certain specified procedures requested by the Representative with respect to the
information set forth in the Prospectus and certain matters relating to the
Company.
S. The Representative and special counsel for the Underwriters shall
have received copies of any opinions of counsel supplied to the rating
organizations relating to any matters with respect to the Certificates. Any such
opinions shall be dated the Closing Date and addressed to each of the
Underwriters or accompanied by reliance letters to the Representative or shall
state that each of the Underwriters may rely upon them.
T. On or prior to the Closing Date there shall not have occurred any
downgrading, nor shall any notice have been given of (A) any intended or
potential downgrading or (B) any review or possible change in rating the
direction of which has not been indicated, in the rating accorded the
Certificate Insurer's claims paying ability by any "nationally recognized
statistical rating organization," as such term is defined for purposes of the
Securities Act.
U. There has not occurred any change, or any development involving a
prospective change, in a condition, financial or otherwise, or in the earnings,
business or operations, since June 30, 1996, of (A) the Company and its
subsidiaries or (B) the Certificate Insurer, that is, in the Representative's
judgment, material and adverse and that makes it, in the Representative's
judgment, impracticable to market the Offered Certificates on the terms and in
the manner contemplated in the Prospectus.
If any conditions specified in this Section VI shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Underwriters by notice to the Company at any time at or prior to the
Closing Date, and such termination shall be without liability of any party to
any other party except as provided in Section VII.
18
<PAGE>
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonable satisfactory
to counsel for the Underwriters.
SECTION VII. Payment of Expenses. If the transaction closes, or if
the transaction fails to close other than as a result of a failure of the
Underwriters to perform hereunder, the Company agrees to pay: (a) the costs
incident to the authorization, issuance, sale and delivery of the Certificates
and any taxes payable in connection therewith; (b) the costs incident to the
preparation, printing and filing under the Securities Act of the Registration
Statement and any amendments and exhibits thereto (including the Prospectus);
(c) the costs of distributing the Registration Statement as originally filed and
each amendment thereto and any post-effective amendments thereof (including, in
each case, exhibits), the Prospectus and any amendment or supplement to the
Prospectus or any document incorporated by reference therein, all as provided in
this Agreement; (d) the costs of reproducing and distributing this Agreement;
(e) the fees and expenses of qualifying the Certificates under the securities
laws of the several jurisdictions as provided in Section V(G) hereof and of
preparing, printing and distributing a Blue Sky Memorandum (including related
fees and expenses of counsel to the Representative); (f) any fees charged by
securities rating services for rating the Offered Certificates; (g) the cost of
the accountant's letter relating to the Prospectus; (h) the fees and expenses of
the Certificate Insurer (other than the fees payable pursuant to the Pooling and
Servicing Agreement); and (i) all other costs and expenses incident to the
performance of the obligations of the Company (including costs and expenses of
its counsel); provided that, except as provided in this Section VII, the
Underwriters shall pay their own costs and expenses, including the costs and
expenses of their counsel, any transfer taxes on the Offered Certificates which
they may sell and the expenses of advertising any offering of the Offered
Certificates made by the Underwriters, and the Underwriters shall pay the cost
of any accountant's comfort letters which such Underwriters choose to request
relating to any Computational Materials (as defined herein).
If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section VI or Section XI, whether or not the transactions
contemplated hereunder are consummated, the Company shall cause the Underwriters
to be reimbursed for all reasonable out-of-pocket expenses, including fees and
disbursements of Dewey Ballantine, counsel for the Underwriters, except that the
Company shall not be obligated under this Agreement to reimburse the
Underwriters for reasonable out-of-pocket expenses, excluding fees and
disbursements of Dewey Ballantine, counsel for the Underwriters, if this
Agreement is terminated by the Underwriters in accordance with Section VI(Q)
herein.
SECTION VIII. Indemnification and Contribution. A. The Company
agrees to indemnify and hold harmless each Underwriter and each person, if any,
who controls such Underwriter within the meaning of Section 15 of the Securities
Act or Section 12 of the Exchange Act from and against any and all loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of the Offered Certificates), to which such
Underwriter or any such controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, or
any amendment thereof or supplement thereto, (ii) the omission or alleged
omission to state in the Registration Statement a material fact required to be
stated therein or necessary to make the statements therein not misleading, (iii)
any untrue statement or alleged untrue statement of a material fact contained in
the Prospectus, or any amendment thereof or supplement thereto, or (iv) the
omission or alleged omission to state in the Prospectus a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading and shall
reimburse, as provided herein, such Underwriter and each such
19
<PAGE>
controlling person promptly upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of, or is
based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in the Prospectus, or any amendment thereof or supplement
thereto, or the Registration Statement, or any amendment thereof or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Underwriter specifically for inclusion
therein (except to the extent that any untrue statement or alleged untrue
statement or omission or alleged omission is a result of Seller Provided
Information which is not accurate and complete in all material respects). The
foregoing indemnity agreement is in addition to any liability which the Company
may otherwise have to any Underwriter or any controlling person of any such
Underwriter.
B. Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act against any and all loss, claim, damage or liability, joint or several, or
any action in respect thereof, (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of the Offered
Certificates), to which the Company or any such director, officer or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus, or any amendment thereof or supplement thereto, or
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements in the Prospectus, when
considered in conjunction with the Prospectus, and in the light of the
circumstances under which they were made, not misleading, but in each case only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Underwriter
specifically for inclusion therein, and shall reimburse, as provided herein, the
Company and any such director, officer or controlling person for any legal or
other expenses reasonably incurred by the Company or any director, officer or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred. The foregoing indemnity agreement is in addition to any
liability which any Underwriter may otherwise have to the Company or any such
director, officer or controlling person.
C. Promptly after receipt by any indemnified party under this
Section VIII of notice of any claim or the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section VIII, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section VIII except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify any indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under this Section
VIII except as otherwise provided by law.
If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, except to the extent
provided in the next following paragraph, the indemnifying party shall not be
liable
20
<PAGE>
to the indemnified party under this Section VIII for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
Any indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such indemnified
party unless: (i) the employment thereof has been specifically authorized by the
indemnifying party in writing; (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and such indemnifying party shall have been advised by such
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the indemnifying party and in
the reasonable judgment of such counsel it is advisable for such indemnified
party to employ separate counsel; or (iii) the indemnifying party has failed to
assume the defense of such action and employ counsel reasonably satisfactory to
the indemnified party within a reasonably prompt period following the receipt of
notification in writing from the indemnified party, in which case, if such
indemnified party notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, it being understood, however, the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to one local counsel per jurisdiction) which counsel shall be
reasonably acceptable to the indemnifying party at any time for all such
indemnified parties, which firm shall be designated in writing by the related
Underwriter, if the indemnified parties under this Section VIII consist of one
or more Underwriters or any of its or their controlling persons, or the Company,
if the indemnified parties under this Section VIII consist of the Company or any
of the Company's directors, officers or controlling persons.
Each indemnified party, as a condition of the indemnity agreements
contained in Section VIII(A) and (B), shall use its best efforts to cooperate
with the indemnifying party in the defense of any such action or claim. No
indemnifying party shall be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a final
judgment for the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
Notwithstanding the foregoing paragraph, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as required by this
Agreement, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, (which consent shall not be unreasonably
withheld), effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
D. Computational Materials. Not later than 10:30 a.m. New York City
time, on the business day before the date on which the Current Report relating
to the Certificates is required to be filed
21
<PAGE>
by the Company with the Commission pursuant to Section V(L) hereof, each
Underwriter shall deliver to the Company five complete copies of all materials,
if any, provided by such Underwriter to prospective investors in such
Certificates which constitute "Computational Materials" within the meaning of
the no-action letter dated May 20, 1994, issued by the Division of Corporation
Finance of the Commission to Kidder, Peabody Acceptance Corporation I, Kidder,
Peabody & Co. Incorporated, and Kidder Structured Asset Corporation, the
no-action letter dated May 27, 1994, issued by the Division of Corporation
Finance of the Commission to the Public Securities Association and the no-action
letter of February 17, 1995 issued by the Commission to the Public Securities
Association (collectively, the "Kidder/PSA Letters") and the filing of which is
a condition of the relief granted in such letters (such materials being the
"Computational Materials"). Each delivery of Computational Materials to the
Company pursuant to this paragraph (a) shall be effected by delivering four
copies of such material to counsel for the Company on behalf of the Company and
one copy of such materials to the Company.
E. Each Underwriter severally and not jointly agrees, except to the
extent that the Seller Provided Information is not accurate and complete in all
material respects, to indemnify and hold harmless the Company, each of the
Company's officers and directors and each person who controls the Company within
the meaning of Section 15 of the Securities Act and Section 12 of the Exchange
Act against any and all losses, claims, damages or liabilities, joint or
several, to which they may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) (including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of the Offered Certificates), arise out
of or are based upon any untrue statement of a material fact contained in the
Computational Materials provided by such Underwriter, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, when
considered in conjunction with the Prospectus, and in the light of the
circumstances under which they were made, not misleading, except to the extent
that such untrue statement or omission is based upon the Seller Provided
Information and agrees to reimburse each such indemnified party for any legal or
other expenses reasonably incurred by him, her or it in connection with
investigating or defending or preparing to defend any such loss, claim, damage,
liability or action as such expenses are incurred. The obligations of an
Underwriter under this Section VIII(E) shall be in addition to any liability
which such Underwriter may otherwise have.
The procedures set forth in Section VIII(C) shall be equally
applicable to this Section VIII(E).
F. If the indemnification provided for in this Section VIII shall
for any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section VIII(A), (B) or (E) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the related Underwriters on the
other from the offering of the related Offered Certificates or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and the related Underwriter on the other with respect to the
statements or omissions which resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
considerations.
The relative benefits of an Underwriter and the Company shall be
deemed to be in such proportion as the total net proceeds from the offering
(before deducting expenses) received by the
22
<PAGE>
Company bear to the total underwriting discounts and commissions received by the
related Underwriter from time to time in negotiated sales of the related Offered
Certificates.
The relative fault of an Underwriter and the Company shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied or prepared by the Company or by such Underwriter, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission and other equitable
considerations.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section VIII(F) were to be
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purposes) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim, damage
or liability, or action in respect thereof, referred to above in this Section
VIII(F) shall be deemed to include, for purposes of this Section VIII(F), any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
For purposes of this Section VIII, in no case shall any Underwriter
(except with respect to any document (other than the Computational Materials)
incorporated by reference into the Registration Statement or Prospectus at the
request of such Underwriter and except as may be provided in any agreement among
the Underwriters relating to the offering of the Offered Certificates) be
responsible for any amount in excess of (x) the amount received by such
Underwriter in connection with its resale of the Offered Certificates over (y)
the amount paid by such Underwriter to the Company for the Offered Certificates
by such Underwriter hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
"Seller Provided Information" means any computer tape (or other
information provided to Underwriter for the purpose of preparation of the
Prospectus Supplement or Computational Materials) furnished to any Underwriter
by the Company concerning the assets comprising the Trust.
G. The Underwriters confirm that the information set forth in the
last paragraph on the front cover page of the Prospectus Supplement, the
information under the heading "Underwriting" therein and the Computational
Materials are correct, and the Company acknowledges that such information
constitutes the only information furnished in writing to the Company by or on
behalf of any Underwriter specifically for inclusion in the Registration
Statement and the Prospectus.
SECTION IX. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or contained in agreements delivered pursuant hereto or certificates
of officers of the Company submitted pursuant hereto shall remain operative and
in full force and effect, regardless of any investigation made by or on behalf
of the Underwriters or controlling persons thereof, or by or on behalf of the
Company and shall survive delivery of any Offered Certificates to the
Underwriters.
SECTION X. Default by One or More of the Underwriters. If one or
more of the Underwriters participating in the public offering of the Offered
Certificates shall fail at the Closing Date to purchase the Offered Certificates
which it is (or they are) obligated to purchase hereunder (the "Defaulted
Certificates"), then the non-defaulting Underwriters shall have the right,
within 48 hours
23
<PAGE>
thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Certificates in such amounts as may be agreed upon and upon the
terms herein set forth (as used in this Agreement, the term "Underwriter"
includes any underwriter substituted for an Underwriter under this Section X).
If, however, the Underwriters have not completed such arrangements within such
48-hour period, then:
(i) if the aggregate original principal amount of Defaulted
Certificates does not exceed 10% of the aggregate original principal
amount of the Offered Certificates to be purchased pursuant to this
Agreement, the non-defaulting Underwriters named in this Agreement shall
be obligated to purchase the full amount thereof in the proportions that
their respective obligations hereunder bear to the underwriting
obligations of all such non-defaulting Underwriters, or
(ii) if the aggregate original principal amount of Defaulted
Certificates exceeds 10% of the aggregate original principal amount of the
Offered Certificates to be purchased pursuant to this Agreement, this
Agreement shall terminate, without any liability on the part of any
non-defaulting Underwriters.
No action taken pursuant to this Section X shall relieve any
defaulting Underwriter from the liability with respect to any default of such
Underwriter under this Agreement.
In the event of a default by any Underwriter as set forth in this
Section X, each of the Underwriters and the Company shall have the right to
postpone the Closing Date for a period not exceeding seven Business Days in
order that any required changes in the Registration Statement or Prospectus or
in any other documents or arrangements may be effected.
SECTION XI. Termination of Agreement. The Underwriters may terminate
this Agreement immediately upon notice to the Company, at any time at or prior
to the Closing Date if any of the events or conditions described in Section
VI(Q) of this Agreement shall occur and be continuing. In the event of any such
termination, the provisions of Section VII, the indemnity agreement set forth in
Section VIII, and the provisions of Sections IX and XIV shall remain in effect.
SECTION XII. Notices. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(i) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to the Representative at its address set
forth above;
(ii) if to the Company, shall be delivered or sent by overnight mail
or facsimile transmission to 13111 Northwest Freeway, Suite 301, Houston,
TX 77040, Attn.: General Counsel, Fax No. (713) 895-3870.
SECTION XIII. Persons Entitled to the Benefit of this Agreement.
This Agreement shall inure to the benefit and be binding upon the Underwriters
and the Company, and their respective successors. This Agreement and the terms
and provisions hereof are for the sole benefit of only those persons, except
that the representations, warranties, indemnities and agreements contained in
this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control any of the Underwriters within the meaning of
Section 15 of the Securities Act, and for the benefit of directors of the
Company, officers of the Company who have signed the Registration Statement and
any person controlling the Company within the meaning of Section 15 of the
Securities Act. Nothing in this
24
<PAGE>
Agreement is intended or shall be construed to give any person, other than the
persons referred to in this Section XIII, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision contained
herein.
SECTION XIV. Survival. The respective indemnities, representations,
warranties and agreements of the Company and the Underwriters contained in this
Agreement, or made by or on behalf of them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Certificates and
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any of them or any person controlling any of them. The
provisions of Sections V, VII and VIII hereof shall survive the termination or
cancellation of this Agreement.
SECTION XV. Definition of the Term "Business Day". For purposes of
this Agreement, "Business Day" means any day on which the New York Stock
Exchange, Inc. is open for trading.
SECTION XVI. Governing Law; Submission to Jurisdiction. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York without giving effect to the conflict of law rules thereof.
The parties hereto submit to the jurisdiction of the United States
District Court for the Southern District of New York and any court in the State
of New York located in the City and County of New York, and appellate court from
any thereof, in any action, suit or proceeding brought against it or in
connection with this Agreement or any of the related documents or the
transactions contemplated hereunder or for recognition or enforcement of any
judgment, and the parties hereto hereby agree that all claims in respect of any
such action or proceeding may be heard or determined in New York State court or,
to the extent permitted by law, in such federal court.
SECTION XVII. Counterparts. This Agreement may be executed in
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
SECTION XVIII. Headings. The headings herein are inserted for
convenience of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.
SECTION XIX. Amendments and Waivers. This Agreement may be amended,
modified, altered or terminated, and any of its provisions waived, only in a
writing signed on behalf of the Company and the Representative.
25
<PAGE>
If the foregoing correctly sets forth the agreement between the
Company and the Underwriters, please indicate your acceptance in the space
provided for the purpose below.
Very truly yours,
EQUIVANTAGE ACCEPTANCE CORP.
By:_____________________________________
Name: John E. Smith
Title: President
CONFIRMED AND ACCEPTED, as of the date first above written:
PRUDENTIAL SECURITIES INCORPORATED,
Acting on its own behalf and as Representative
of the several Underwriters referred to in the
foregoing Agreement
By: ______________________________
Name:
Title:
[Underwriting Agreement]
<PAGE>
SCHEDULE A
Principal
Class of Amount of
Certificates Certificates Purchase
Name of Purchased by the Purchased by Price
Underwriter Underwriters Underwriters (% of Par)
- ----------- ---------------- ------------ ----------
Prudential Securities Incorporated A $40,000,000 99.684375%
Salomon Brothers, Inc A $40,000,000 99.684375%
<PAGE>
November 19, 1996
Prudential Securities Incorporated,
as Representative of the Several
Underwriters
One New York Plaza, 26th Floor
New York, New York 10292
Ladies and Gentlemen:
This Guaranty is made by EquiVantage Inc., a Delaware corporation
with its principal office at 13111 Northwest Freeway, Suite 300, Houston, Texas
77040 ("EquiVantage"), in favor of Prudential Securities Incorporated, in its
capacity as Representative Underwriter (the "Representative") of the several
Underwriters (the "Several Underwriters") in connection with the underwriting of
the Class A Certificates, with its principal office at 1 New York Plaza, 26th
Floor, New York, New York 10292.
As an inducement to you and in consideration of EquiVantage
Acceptance Corp. (the "Company") entering into the Underwriting Agreement
referred to below, EquiVantage Inc. hereby absolutely, unconditionally and
irrevocably guarantees the prompt performance of the obligations, including any
payment obligations, of the Company, a Delaware corporation with its principal
office at 13111 Northwest Freeway, Suite 301, Houston, Texas 77040, under
Section VIII of the Underwriting Agreement, dated November 19, 1996, between the
Company and the Representative. This Guaranty is a guaranty of performance and
payment and not of collection. The obligations of EquiVantage Inc. hereunder
shall not be impaired by failure of Company to provide notice to EquiVantage
Inc. of any modification or amendment of said contract agreed to by the parties
thereto. This Guaranty shall exist notwithstanding the validity or
enforceability of any instrument evidencing any such obligations by reason of
the dissolution, liquidation, reorganization of the Company, or the commencement
against the Company of a case in bankruptcy or any other law affecting
creditors' rights generally or the seeking of a trustee, receiver, liquidator,
custodian or other similar official. EquiVantage Inc. hereby waives any
requirement that the Representative shall take legal action against the Company
before enforcing this Guaranty. This Guaranty may be amended only by an
instrument in writing executed by the undersigned and accepted in writing by the
Representative.
This Guaranty shall be governed by the laws of the State of New York
applicable to agreements made and to be performed in the State of New York
without giving effect to the conflict of law rules thereof.
<PAGE>
IN WITNESS WHEREOF, EquiVantage Inc. has caused this Guaranty to be
executed by duly authorized corporate officers the day and year first above
written.
EQUIVANTAGE INC.
By: ____________________________________
Name: Karen S. Crawford
Title: Senior Vice President
ACCEPTED this 19th day
of November, 1996
Prudential Securities Incorporated,
as Representative of the Several Underwriters
By:_________________________________
Name:
Title:
Exhibit 4.1
<PAGE>
POOLING AND SERVICING AGREEMENT
Relating to
EQUIVANTAGE HOME EQUITY LOAN TRUST
1996-4
Among
EQUIVANTAGE ACCEPTANCE CORP.,
as Sponsor,
EQUIVANTAGE INC.,
as Servicer,
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
Dated as of November 1, 1996
<PAGE>
TABLE OF CONTENTS
(Not a Part of this Agreement)
Page
----
Parties..................................................................... 1
Recitals.................................................................... 1
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION................... 2
1.1. Definitions................................................... 2
Account........................................................... 2
Aggregate Loan Balance............................................ 2
Agreement......................................................... 2
Appraised Value................................................... 2
Assignment Opinion................................................ 2
Authorized Officer................................................ 2
Available Funds................................................... 2
Available Funds Shortfall......................................... 2
Balloon Loan...................................................... 2
Base Subordinated Amount.......................................... 2
Business Day...................................................... 3
Certificate....................................................... 3
Certificate Account............................................... 3
Certificate Insurance Policy...................................... 3
Certificate Insurer............................................... 3
Certificate Insurer Default....................................... 3
Certificate Principal Balance..................................... 3
Class............................................................. 3
Class A Certificate............................................... 3
Class A Certificate Principal Balance............................. 3
Class A Certificate Termination Date.............................. 3
Class A Distribution Amount....................................... 4
Class A Formula Distribution Amount............................... 4
Class A Interest Carry-Forward Amount............................. 4
Class A Interest Distribution Amount.............................. 4
Class A Pass-Through Rate......................................... 4
Class A Principal Carry-Forward Amount............................ 4
Class A Principal Distribution Amount............................. 4
Class B Certificates.............................................. 5
Class B Carry-Forward Amount...................................... 5
i
<PAGE>
Page
----
Class B Distribution Amount....................................... 5
Class B Interest.................................................. 5
Class B Interest Distribution Amount.............................. 5
Class B Interest Rate............................................. 5
Class B Principal Balance......................................... 5
Class LT Certificates............................................. 6
Class RL Certificates............................................. 6
Class RU Certificates............................................. 6
Clean-Up Call Date................................................ 6
Code.............................................................. 6
Combined Loan-to-Value Ratio...................................... 6
Compensating Interest............................................. 6
Corporate Trust Office............................................ 6
Coupon Rate....................................................... 6
Cumulative Loss Amount............................................ 6
Cut-Off Date...................................................... 7
Delinquency Advance............................................... 7
Delinquency Ratio................................................. 7
Delinquent........................................................ 7
Delivery Order.................................................... 7
Depository........................................................ 7
Designated Depository Institution................................. 7
Determination Date................................................ 8
"Direct Participant" or "DTC Participant"......................... 8
Disqualified Organization......................................... 8
Document Delivery Requirements.................................... 8
Eligible Investments.............................................. 8
ERISA............................................................. 8
Escrow Loans...................................................... 8
Event of Default.................................................. 9
Excess Subordinated Amount........................................ 9
FDIC.............................................................. 9
FHLMC............................................................. 9
File.............................................................. 9
Final Certification............................................... 9
Final Determination............................................... 9
First Mortgage Loan............................................... 9
FNMA.............................................................. 9
Highest Lawful Rate............................................... 9
Indemnification Agreement......................................... 9
Indirect Participant.............................................. 10
Initial Premium................................................... 10
Insurance Agreement............................................... 10
ii
<PAGE>
Page
----
Insurance Policy.................................................. 10
Insurance Proceeds................................................ 10
Insured Distribution Amount....................................... 10
Insured Interest Distribution Amount.............................. 10
Insured Payment................................................... 10
Insured Principal Distribution Amount............................. 10
Interest Accrual Period........................................... 10
Liquidated Loan................................................... 10
Liquidation Expenses.............................................. 10
Liquidation Proceeds.............................................. 11
Loan Balance...................................................... 11
Loan Purchase Price............................................... 11
Lower-Tier Interests.............................................. 11
Lower-Tier REMIC.................................................. 11
Majority Owners................................................... 11
Master Transfer Agreement......................................... 11
Monthly Remittance Amount......................................... 11
Monthly Trustee Fee Amount........................................ 12
Moody's........................................................... 12
Mortgage.......................................................... 12
Mortgage Loans.................................................... 12
Mortgagor......................................................... 12
Net Liquidation Proceeds.......................................... 12
Net Weighted Average Coupon Rate.................................. 12
Note.............................................................. 12
Officer's Certificate............................................. 12
Operative Documents............................................... 13
Original Aggregate Loan Balance................................... 13
Original Class A Certificate Principal Balance.................... 13
Original Principal Amount......................................... 13
Originator........................................................ 13
Outstanding....................................................... 13
Owner............................................................. 13
Payment Date...................................................... 13
Percentage Interest............................................... 14
Person............................................................ 14
Pool Certification................................................ 14
Preference Amount................................................. 14
Premium Amount.................................................... 14
Premium Percentage................................................ 14
Prepaid Installment............................................... 14
Prepayment........................................................ 14
Preservation Expenses............................................. 15
iii
<PAGE>
Page
----
Primary Parcel.................................................... 15
Principal Distribution Amount..................................... 15
Principal and Interest Account.................................... 16
Principal Remittance Amount....................................... 16
Prohibited Transaction............................................ 16
Property.......................................................... 16
Prospectus........................................................ 16
Purchase Option Period............................................ 16
Qualified Liquidation............................................. 16
Qualified Mortgage................................................ 16
Qualified Replacement Mortgage.................................... 16
Realized Loss..................................................... 17
Record Date....................................................... 17
Register.......................................................... 17
Registrar......................................................... 17
Registration Statement............................................ 17
Reimbursable Advances............................................. 17
Reimbursement Amount.............................................. 17
REMIC............................................................. 18
REMIC Provisions.................................................. 18
Remittance Date................................................... 18
Remittance Period................................................. 18
REO Property...................................................... 18
Replacement Cut-Off Date.......................................... 18
Representation Letter............................................. 18
Representations and Warranties.................................... 18
Required Escrow Document.......................................... 18
Residual Certificate.............................................. 18
Rolling Three Month Delinquency Rate.............................. 19
S&P .............................................................. 19
Schedule of Mortgage Loans........................................ 19
Second Mortgage Loan.............................................. 19
Securities Act.................................................... 19
Senior Lien....................................................... 19
Servicer.......................................................... 19
Servicer Affiliate................................................ 19
Servicer's Trust Receipt.......................................... 19
Servicing Advance................................................. 19
Servicing Fee..................................................... 19
Servicing Fee Rate................................................ 20
Servicing Standards............................................... 20
Specified Subordinated Amount..................................... 20
Sponsor........................................................... 20
iv
<PAGE>
Page
----
Startup Day....................................................... 20
Step-up Payment Date.............................................. 20
Subordinated Amount............................................... 20
Subordination Deficiency Amount................................... 20
Subordination Deficit............................................. 20
Subordination Increase Amount..................................... 20
Subordination Reduction Amount.................................... 21
Sub-Servicer...................................................... 21
Sub-Servicing Agreement........................................... 21
Substitution Amount............................................... 21
Tax Matters Person................................................ 21
Termination Notice................................................ 21
Termination Price................................................. 21
Transaction Documents............................................. 21
Transferor........................................................ 21
Trust............................................................. 21
Trust Estate...................................................... 21
Trustee........................................................... 22
Trustee Fee Rate.................................................. 22
Underwriter....................................................... 22
Unrecoverable Delinquency Advance................................. 22
Unregistered Certificate.......................................... 22
Upper-Tier REMIC.................................................. 22
1.2. Use of Words and Phrases...................................... 22
1.3. Captions; Table of Contents................................... 22
1.4. Opinions...................................................... 22
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST............... 23
2.1. Establishment of the Trust.................................... 23
2.2. Office........................................................ 23
2.3. Purposes and Powers........................................... 23
2.4. Appointment of the Trustee; Declaration of Trust.............. 23
2.5. Expenses of the Trust......................................... 23
2.6. Ownership of the Trust........................................ 24
2.7. Receipt of Trust Estate....................................... 24
2.8. Miscellaneous REMIC Provisions................................ 24
2.9. Grant of Security Interest.................................... 25
v
<PAGE>
Page
----
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SPONSOR AND THE SERVICER;
COVENANT OF SPONSOR TO CONVEY MORTGAGE LOANS............... 26
3.1. Representations and Warranties of the Sponsor................ 26
3.2. Representations and Warranties of the Servicer............... 28
3.3. Representations and Warranties of the Sponsor with
Respect to the Mortgage Loans.............................. 31
3.4. Covenants of Sponsor to Take Certain Actions with
Respect to the Mortgage Loans In Certain Situations........ 32
3.5. Conveyance of the Mortgage Loans............................. 34
3.6. Acceptance by Trustee; Certain Substitutions of
Mortgage Loans; Certification by Trustee................... 38
3.7. Cooperation Procedures....................................... 39
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES..................... 40
4.1. Issuance of Certificates..................................... 40
4.2. Sale of Certificates......................................... 40
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS................... 40
5.1. Terms........................................................ 40
5.2. Forms........................................................ 41
5.3. Execution, Authentication and Delivery....................... 41
5.4. Registration and Transfer of Certificates.................... 42
5.5. Mutilated, Destroyed, Lost or Stolen Certificates............ 44
5.6. Persons Deemed Owners........................................ 45
5.7. Cancellation................................................. 45
5.8. Limitation on Transfer of Ownership Rights................... 45
5.9. Assignment of Rights......................................... 46
vi
<PAGE>
Page
----
ARTICLE VI
COVENANTS................................ 46
6.1. Distributions................................................ 46
6.2. Money for Distributions to be Held in Trust; Withholding..... 46
6.3. Protection of Trust Estate................................... 47
6.4. Performance of Obligations................................... 48
6.5. Negative Covenants........................................... 48
6.6. No Other Powers.............................................. 49
6.7. Limitation of Suits.......................................... 49
6.8. Unconditional Rights of Owners to Receive Distributions...... 50
6.9. Rights and Remedies Cumulative............................... 50
6.10. Delay or Omission Not Waiver................................. 50
6.11. Control by Owners............................................ 50
ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES................... 51
7.1. Collection of Money.......................................... 51
7.2. Establishment of Certificate Account......................... 51
7.3. The Certificate Insurance Policy............................. 51
7.4. [Reserved]................................................... 54
7.5. Flow of Funds................................................ 54
7.6. Investment of Accounts....................................... 56
7.7. Eligible Investments......................................... 57
7.8. Reports by Trustee........................................... 58
7.9. Additional Reports by Trustee................................ 61
7.10. Allocation of Realized Losses................................ 61
ARTICLE VIII
SERVICING AND ADMINISTRATION
OF MORTGAGE LOANS............................. 62
8.1. Servicer and Sub-Servicers................................... 62
8.2. Collection of Certain Mortgage Loan Payments................. 65
8.3. Sub-Servicing Agreements Between Servicer and Sub-
Servicers.................................................. 65
8.4. Successor Sub-Servicers...................................... 66
8.5. Liability of Servicer........................................ 66
vii
<PAGE>
Page
----
8.6. No Contractual Relationship Between Sub-Servicer
and Trustee or the Owners.................................. 66
8.7. Assumption or Termination of Sub-Servicing Agreement by
Trustee.................................................... 66
8.8. Principal and Interest Account............................... 67
8.9. Delinquency Advances, Compensating Interest and Servicing
Advances................................................... 69
8.10. Purchase of Mortgage Loans................................... 70
8.11. Maintenance of Insurance..................................... 70
8.12. Due-on-Sale Clauses; Assumption and Substitution
Agreements................................................. 71
8.13. Realization Upon Defaulted Mortgage Loans.................... 72
8.14. Trustee to Cooperate; Release of Files....................... 73
8.15. Servicing Compensation....................................... 74
8.16. Annual Statement as to Compliance............................ 75
8.17. Annual Independent Certified Public Accountants' Reports;
Annual Financial Statements of the Sub-Servicer............ 75
8.18. Access to Certain Documentation and Information Regarding
the Mortgage Loans......................................... 76
8.19. Assignment of Agreement...................................... 76
8.20. Removal of Servicer; Resignation of Servicer................. 76
8.21. Inspections by Certificate Insurer; Errors and Omissions
Insurance.................................................. 81
8.22. Merger, Conversion, Consolidation or Succession to Business
of Servicer................................................ 81
8.23. Financial Statements......................................... 82
8.24. REMIC........................................................ 82
8.25. The Designated Depository Institution........................ 82
8.26. Appointment of Custodian..................................... 82
8.27. Indemnification by the Sponsor and Servicer.................. 83
ARTICLE IX
TERMINATION OF TRUST........................... 83
9.1. Termination of Trust......................................... 83
9.2. Termination Upon Option of Class RL Certificate Owners and
Servicer................................................... 83
9.3. Termination Upon Loss of REMIC Status........................ 84
9.4. Disposition of Proceeds...................................... 86
9.5. Netting of Amounts........................................... 86
viii
<PAGE>
Page
----
ARTICLE X
THE TRUSTEE............................. 86
10.1. Certain Duties and Responsibilities....................... 86
10.2. Removal of Trustee for Cause.............................. 89
10.3. Certain Rights of the Trustee............................. 90
10.4. Not Responsible for Recitals or Issuance of Certificates.. 91
10.5. May Hold Certificates..................................... 92
10.6. Money Held in Trust....................................... 92
10.7. Compensation and Reimbursement; No Lien for Fees.......... 92
10.8. Corporate Trustee Required; Eligibility................... 92
10.9. Resignation and Removal; Appointment of Successor......... 92
10.10. Acceptance of Appointment by Successor Trustee............ 93
10.11. Merger, Conversion, Consolidation or Succession to
Business of the Trustee................................. 94
10.12. Reporting; Withholding.................................... 94
10.13. Liability of the Trustee.................................. 95
10.14. Appointment of Co-Trustee or Separate Trustee............. 96
ARTICLE XI
MISCELLANEOUS............................ 97
11.1. Compliance Certificates and Opinions...................... 97
11.2. Form of Documents Delivered to the Trustee................ 98
11.3. Acts of Owners............................................ 98
11.4. Notices, etc., to Trustee................................. 99
11.5. Notices and Reports to Owners; Waiver of Notices.......... 99
11.6. Rules by Trustee and Sponsor.............................. 100
11.7. Successors and Assigns.................................... 100
11.8. Severability.............................................. 100
11.9. Benefits of Agreement..................................... 100
11.10. Legal Holidays............................................ 100
11.11. Governing Law............................................. 100
11.12. Counterparts.............................................. 101
11.13. Usury..................................................... 101
11.14. Amendment................................................. 101
11.15. REMIC Status; Taxes....................................... 102
11.16. Additional Limitation on Action and Imposition of Tax..... 104
11.17. Appointment of Tax Matters Person......................... 104
11.18. The Certificate Insurer................................... 105
ix
<PAGE>
Page
----
11.19. Notices................................................... 105
SCHEDULE I -- Schedule of Mortgage Loans
EXHIBIT A -- Form of Class A Certificate
EXHIBIT B -- Form of Class B Certificate
EXHIBIT C-1 -- Form of Class RL Certificate
EXHIBIT C-2 -- Form of Class RU Certificate
EXHIBIT D -- Form of Certificate Re: Mortgage Loans Prepaid in Full After the
Cut-Off Date
EXHIBIT E -- Form of Trustee's Receipt
EXHIBIT F -- Form of Pool Certification
EXHIBIT G -- Form of Delivery Order
EXHIBIT H -- Form of Class R Tax Matters Transfer Certificate
EXHIBIT I -- Form of Monthly Report
EXHIBIT J -- Form of Servicer's Trust Receipt
EXHIBIT K -- Liquidation Report
EXHIBIT L -- Form of Special Power of Attorney
x
<PAGE>
POOLING AND SERVICING AGREEMENT, relating to EQUIVANTAGE HOME EQUITY
LOAN TRUST 1996-4, dated as of November 1, 1996 by and among EQUIVANTAGE
ACCEPTANCE CORP., a Delaware corporation, in its capacity as Sponsor of the
Trust (the "Sponsor"), EquiVantage Inc., a Delaware
corporation, in its capacity as servicer (the "Servicer"), and Norwest Bank
Minnesota, National Association, in its capacity as trustee (the "Trustee").
WHEREAS, the Sponsor wishes to establish a trust which provides for
the allocation and sale of the beneficial interests therein and the maintenance
and distribution of the trust estate;
WHEREAS, the Servicer has agreed to service the Mortgage Loans,
which constitute the principal assets of the trust estate;
WHEREAS, all things necessary to make the Certificates, when
executed and authenticated by the Trustee valid instruments, and to make this
Agreement a valid agreement, in accordance with their and its terms, have been
done;
WHEREAS, Norwest Bank Minnesota, National Association is willing to
serve in the capacity of Trustee hereunder; and
WHEREAS, Financial Guaranty Insurance Company (the "Certificate
Insurer") is intended to be a third party beneficiary of this Agreement and is
hereby recognized by the parties hereto to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Sponsor, the Servicer and the Trustee hereby
agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.1. Definitions. For all purposes of this Agreement, the
following terms shall have the meanings set forth below, unless the context
clearly indicates otherwise:
"Account": Any account established in accordance with Section 7.2 or
8.8 hereof.
"Aggregate Loan Balance": As of any date, the aggregate Loan Balance
of all Mortgage Loans as of such date.
"Agreement": This Pooling and Servicing Agreement, as it may be
amended from time to time, and including the Exhibits hereto.
"Appraised Value": The appraised value of any Property based upon
the appraisal or other valuation made at the time of the origination of the
related Mortgage Loan, or, in the case of a Mortgage Loan which is a purchase
money mortgage, the sales price of the Property at such time of origination, if
such sales price is less than such appraised value or, in the case of an
appraised value or purchase price determined by the related Originator to be
excessive, such appraised value adjusted downward.
"Assignment Opinion": As defined in Section 3.5(b)(ii) hereof.
"Authorized Officer": With respect to any Person, any individual who
is authorized to act for such Person in matters relating to this Agreement, and
whose action is binding upon such Person and, with respect to the Trustee, the
Sponsor and the Servicer, initially including those individuals whose names
appear on the lists of Authorized Officers delivered on the Startup Day.
"Available Funds": As defined in Section 7.3(a) hereof. The term
"Available Funds" does not include Insured Payments and does not include any
amounts that cannot be distributed to the Owners of the Certificates by the
Trustee as a result of proceedings under the United States Bankruptcy Code.
"Available Funds Shortfall": As defined in Section 7.3(b) hereof.
"Balloon Loan": Any Mortgage Loan which has an amortization schedule
which extends beyond its maturity date, resulting in a relatively large
unamortized principal balance due in a single payment at maturity.
"Base Subordinated Amount": As defined in the Insurance and
Indemnity Agreement.
2
<PAGE>
"Business Day": Any day that is not a Saturday, Sunday or other day
on which commercial banking institutions in the State of New York, the State of
Texas or in the city in which the Corporate Trust Office of the Trustee is
located, which initially is Minneapolis, Minnesota, are authorized or obligated
by law or executive order to be closed.
"Certificate": Any one of the Class A Certificates, Class B
Certificates or the Residual Certificates, each representing the interests and
the rights described in this Agreement.
"Certificate Account": The Certificate Account established in
accordance with Section 7.2 hereof and maintained by the Trustee.
"Certificate Insurance Policy": The certificate guaranty surety bond
number 96010657, issued by the Certificate Insurer to the Trustee for the
benefit of the Owners of the Class A Certificates.
"Certificate Insurer": Financial Guaranty Insurance Company, a New
York stock insurance company, and any successor thereto.
"Certificate Insurer Default": The failure by the Certificate
Insurer to make a payment required under the Certificate Insurance Policy in
accordance with its terms.
"Certificate Principal Balance": As to the Class A Certificates, the
Class A Certificate Principal Balance. As to any particular Class A Certificate,
the product of the Percentage Interest evidenced thereby and the Certificate
Principal Balance. The Class B Certificates and the Residual Certificates do not
have a "Certificate Principal Balance".
"Class": All of the Class A Certificates, all of the Class B
Certificates or all of the Residual Certificates, as the case may be.
"Class A Certificate": Any Certificate designated as a "Class A
Certificate" on the face thereof, in the form of Exhibit A hereto. The Class A
Certificates shall be issued with an initial aggregate Certificate Principal
Balance equal to the Original Class A Certificate Principal Balance therefor.
"Class A Certificate Principal Balance": As of any time of
determination, the Original Class A Certificate Principal Balance less any
amounts actually distributed as part of the Class A Distribution Amount pursuant
to Section 7.5(b)(iv) hereof with respect to principal thereon on all prior
Payment Dates.
"Class A Certificate Termination Date": The Payment Date on which
the Class A Certificate Principal Balance is reduced to zero.
3
<PAGE>
"Class A Distribution Amount": With respect to the Class A
Certificates for any Payment Date, the amount actually distributed to the Owners
of the Class A Certificates on such Payment Date, applied first to interest and
then to principal, which amount shall be the lesser of (x) the Class A Formula
Distribution Amount for such Payment Date and (y) the amount (including any
applicable portion of any Insured Payment) available for distribution on account
of the Class A Certificates for such Payment Date.
"Class A Formula Distribution Amount": With respect to the Class A
Certificates for any Payment Date, the sum of the Class A Interest Distribution
Amount and the Class A Principal Distribution Amount.
"Class A Interest Carry-Forward Amount": With respect to any Payment
Date, the sum of (i) the amount, if any, by which (x) the Class A Interest
Distribution Amount as of the immediately preceding Payment Date exceeded (y)
the amount of the actual distribution, exclusive of any Insured Payment, made to
the Owners of the Class A Certificates on such immediately preceding Payment
Date on account of the Class A Interest Distribution Amount pursuant to Section
7.5(b)(iv) and (ii) 30 days' interest on such excess at the Class A Pass-Through
Rate.
"Class A Interest Distribution Amount": With respect to the Class A
Certificates for any Payment Date the sum of:
(i) the aggregate amount of interest accrued on the Class A
Certificate Principal Balance immediately prior to such Payment Date
during the related Interest Accrual Period at the Class A Pass-Through
Rate (based on a 360-day year of 12 30-day months); and
(ii) the Class A Interest Carry-Forward Amount.
"Class A Pass-Through Rate": As to any Payment Date which occurs (x)
prior to the Step-Up Payment Date, 6.75% and (y) on or after the Step-Up Payment
Date, 7.25% per annum.
"Class A Principal Carry-Forward Amount": As of any Payment Date,
the amount, if any, by which (x) the Class A Principal Distribution Amount as of
the immediately preceding Payment Date exceeded (y) the amount of the actual
distribution, exclusive of any portion of any Insured Payment, made to the
Owners of the Class A Certificates on such immediately preceding Payment Date
and allocable to the Class A Principal Distribution Amount on such immediately
preceding Payment Date.
"Class A Principal Distribution Amount": With respect to the Class A
Certificates for any Payment Date, the lesser of (x) the Principal Distribution
Amount for such Payment Date, and (y) the Class A Certificate Principal Balance
as of such Payment Date.
4
<PAGE>
On the Class A Certificate Termination Date, any excess of (a) the
amount described in clause (x) of the preceding paragraph over (b) the amount
described in clause (y) of the preceding paragraph shall be distributed as
principal with respect to the Class RL Certificates.
"Class B Certificates": Those certificates in substantially the form
set forth in Exhibit B hereto.
"Class B Carry-Forward Amount": As of any Payment Date, the amount,
if any, by which (x) the Class B Distribution Amount as of the immediately
preceding Payment Date exceeded (y) the amount of the actual distribution to the
Owners of the Class B Certificates on such immediately preceding Payment Date.
"Class B Distribution Amount": As of any Payment Date, the sum of
(i) the Class B Interest Distribution Amount for such Payment Date and (ii) the
Class B Principal Distribution Amount for such Payment Date.
"Class B Interest": As of any Payment Date, the product of (x)
one-twelfth of the Class B Interest Rate for such Payment Date and (y) the
Aggregate Loan Balance as of the opening of business on the first day of the
immediately preceding Remittance Period.
"Class B Interest Distribution Amount": As of any Payment Date, the
Class B Interest for such Payment Date minus the amount of any Subordination
Increase Amount actually paid to the Owners of the Class A Certificates on such
Payment Date from such Class B Interest pursuant to Section 7.5(c) hereof as all
or a portion of the Subordination Increase Amount on such Payment Date.
"Class B Interest Rate": As of any Payment Date, the Net Weighted
Average Coupon Rate of the Mortgage Loans for the immediately preceding
Remittance Period minus the Class A Pass-Through Rate for such Payment Date.
"Class B Principal Balance": The Class B Principal Balance shall
initially be $24,426.13 and shall be (x) increased on each Payment Date by the
amounts, if any, of the Class B Interest actually paid to the Owners of the
Class A Certificates on such Payment Date as all or a portion of the Insured
Principal Distribution Amount or as all or a portion of the Subordination
Increase Amount on such Payment Date and (y) decreased on each Payment Date by
the amounts of (i) any Subordination Reduction Amount paid to the Owners of the
Class B Certificates on such Payment Date, and (ii) the amount of any Allocable
Losses allocated as a reduction of the Class B Principal Balance on such Payment
Date pursuant to Section 7.10 hereof. The Class B Principal Balance shall in no
event be less than zero.
5
<PAGE>
"Class B Principal Distribution Amount": As of any Payment Date, the
sum of (i) the Subordination Reduction Amount, if any, for such Payment Date and
(ii) the Class B Carry-Forward Amount, if any, as of such Payment Date.
"Class LT Certificates": The uncertificated class of interests in
the Lower-Tier REMIC, as described in and designated in Section 2.8 hereof.
"Class RL Certificates": Those certificates representing certain
residual rights to distributions from the Lower-Tier REMIC in substantially the
form set forth as Exhibit C-1 hereto.
"Class RU Certificates": Those certificates representing certain
residual rights to distributions from the Upper-Tier REMIC in substantially the
form set forth as Exhibit C-2 hereto.
"Clean-Up Call Date": The first Remittance Date following the date
on which the aggregate Loan Balances of all Mortgage Loans has declined to 10%
or less of the Original Aggregate Loan Balance.
"Code": The Internal Revenue Code of 1986, as amended and any
successor statute.
"Combined Loan-to-Value Ratio": With respect to any First Mortgage
Loan, the percentage equal to the Original Principal Amount of the related Note
divided by the Appraised Value of the related Property and with respect to any
Second Mortgage Loan, the percentage equal to (a) the sum of (i) the remaining
principal balance, as of origination of the Second Mortgage Loan of the Senior
Lien note(s) relating to such Second Mortgage Loan and (ii) the Original
Principal Amount of the Note relating to such Second Mortgage Loan divided by
(b) the Appraised Value.
"Compensating Interest": As defined in Section 8.9(b) hereof.
"Corporate Trust Office": The principal corporate trust office of
the Trustee at which, at any particular time, its corporate trust business shall
be administered, which office at the date hereof is located at Sixth Street and
Marquette Avenue, Minneapolis, Minnesota 55479-0070, Attention: Corporate Trust
Services. The telecopy number for the Corporate Trust Office on the Closing Date
is (612) 667-3539.
"Coupon Rate": The rate of interest borne by each Note.
"Cumulative Loss Amount": With respect to any Payment Date, an
amount equal to the aggregate of all Realized Losses incurred in all prior
Remittance Periods.
6
<PAGE>
"Cut-Off Date": The close of business on November 1, 1996, or in the
event any Mortgage Loan was originated subsequent to the Cut-Off Date but prior
to the Startup Day, the date of origination of such Mortgage Loan.
"Delinquency Advance": With respect to any Delinquent Mortgage Loan
and Remittance Period, the interest (calculated at the Mortgage Loan Coupon Rate
net of the Servicing Fee Rate) due, but not collected, with respect to such
Mortgage Loan during such Remittance Period.
"Delinquency Ratio": With respect to any Payment Date, a fraction
expressed as a percentage (a) the numerator of which equals the aggregate Loan
Balance of all Mortgage Loans that are 90 or more days Delinquent (excluding
Mortgage Loans relating to Mortgagors in bankruptcy or insolvency proceedings
under the United States Bankruptcy Code which limit the ability of the Servicer
to pursue collection of such loans), in foreclosure or converted to REO
Properties, as the case may be, as of the last day of the immediately preceding
calendar month and (b) the denominator of which is the aggregate Loan Balance of
all of the Mortgage Loans as of the last day of such immediately preceding
calendar month.
"Delinquent": A Mortgage Loan is "delinquent" if any payment due
thereon is not made by the close of business on the day such payment is
scheduled to be due. A Mortgage Loan is "30 days delinquent" if such payment has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days delinquent," "90
days delinquent" and so on. For purposes of this definition, Mortgage Loans
relating to Mortgagors in bankruptcy or insolvency proceedings under the United
States Bankruptcy Code which limit the ability of the Servicer to pursue
collection of such loans shall be excluded from being reported as "Delinquent."
"Delivery Order": The delivery order in the form set forth as
Exhibit G hereto and delivered by the Sponsor to the Trustee on the Startup Day
pursuant to Section 4.1 hereof.
"Depository": The Depository Trust Company, 7 Hanover Square, New
York, New York 10004 and any successor Depository hereafter named.
"Designated Depository Institution": With respect to each Account,
an institution whose deposits are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the FDIC, the long-term deposits of which
shall be rated (x) A or better by S&P and (y) A2 or better by Moody's and in one
of the two highest short-term ratings of each of S&P and Moody's, unless
otherwise approved in writing by the Certificate Insurer and each of Moody's and
S&P, and which is any of the following:
7
<PAGE>
(i) a federal savings and loan association duly organized, validly existing and
in good standing under the federal banking laws, (ii) an institution duly
organized, validly existing and in good standing under the applicable banking
laws of any state, (iii) a national banking association duly organized, validly
existing and in good standing under the federal banking laws, (iv) a principal
subsidiary of a bank holding company, or (v) approved in writing by the
Certificate Insurer, Moody's and S&P, and, in each case acting or designated by
the Servicer as the depository institution for such Account; provided, however,
that any such institution or association shall have combined capital, surplus
and undivided profits of at least $100,000,000. Notwithstanding the foregoing,
an Account may be held by an institution otherwise meeting the preceding
requirements except that the only applicable rating requirement shall be that
the unsecured and uncollateralized debt obligations thereof shall be rated Baa3
or better by Moody's if such institution has trust powers and the Account is
held by such institution in its trust capacity and not in its commercial
capacity.
"Determination Date": As to each Payment Date, the third Business
Day next preceding such Payment Date or such earlier day as shall be agreed by
the Certificate Insurer and Trustee.
"Direct Participant" or "DTC Participant": Any broker-dealer, bank
or other financial institution for which the Depository holds Class A
Certificates from time to time as a securities depository.
"Disqualified Organization": "Disqualified Organization" shall have
the meaning set forth from time to time in the definition thereof at Section
860E(e)(5) of the Code (or any successor statute thereto) and applicable to the
Trust.
"Document Delivery Requirements": The Sponsor's obligations to
deliver certain legal documents, to prepare and record certain Mortgage
assignments or to deliver certain opinions relating to Mortgage assignments, in
each case with respect to the Mortgage Loans and as set forth in Section 3.5
hereof.
"Eligible Investments": Those investments so designated pursuant to
Section 7.7 hereof.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Loans": Any Mortgage Loan all or a portion of the proceeds
of which were originally paid into an escrow account pending completion of
improvements to be made to the related Property, but excluding any Mortgage Loan
for which $5,000 or less was paid into an escrow account for a period not
exceeding 90 days after the date of origination of the Mortgage Loan to cover
the cost of specified deferred maintenance on the related Property. The Escrow
Loans will be identified in a schedule to be prepared
8
<PAGE>
by the Originator and delivered to the Sponsor, the Certificate Insurer and the
Trustee pursuant to Section 3.5(j) hereof.
"Event of Default": Any event described in clause (a) of Section
8.20 hereof.
"Excess Interest": As of any Payment Date, the sum of the Residual
Interest and the Class B Interest.
"Excess Subordinated Amount": With respect to any Payment Date, the
amount, if any, by which (x) the Subordinated Amount on such Payment Date after
taking into account the payment of principal made pursuant to clause (a) through
clause (e) of the Principal Distribution Amount on such Payment Date to the
Owners of the Class A Certificates exceeds (y) the Specified Subordinated Amount
for such Payment Date.
"FDIC": The Federal Deposit Insurance Corporation, or any successor
thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970, as amended, or any successor thereof.
"File": The documents delivered to the Trustee pursuant to Section
3.5 hereof pertaining to a particular Mortgage Loan and any additional documents
required to be added to the File pursuant to this Agreement.
"Final Certification": As defined in Section 3.6(b) hereof.
"Final Determination": As defined in Section 9.3(a) hereof.
"Financing Statements": UCC-1 Financing Statements naming the
Originator and the Sponsor as debtor and the Trustee as secured party, filed
with the Secretary of State of each of Texas and Minnesota.
"First Mortgage Loan": A Mortgage Loan secured by a first priority
mortgage lien with respect to any Property.
"FNMA": FNMA, a federally-chartered and privately-owned corporation
existing under the Federal National Mortgage Association Charter Act, as
amended, or any successor thereof.
"Highest Lawful Rate": As defined in Section 11.13.
"Indemnification Agreement": The Indemnification Agreement dated as
of November 1, 1996 among the Sponsor, the Underwriter and the Certificate
Insurer.
9
<PAGE>
"Indirect Participant": Any financial institution for whom any
Direct Participant holds an interest in a Class A Certificate.
"Initial Premium": The initial premium payable by the Sponsor on
behalf of the Trust to the Certificate Insurer in consideration of the delivery
to the Trustee of the Certificate Insurance Policy.
"Insurance Agreement": The Insurance and Indemnity Agreement dated
as of November 1, 1996 among the Sponsor, the Servicer and the Certificate
Insurer, as it may be amended from time to time.
"Insurance Policy": Any hazard, title or primary mortgage insurance
policy relating to a Mortgage Loan.
"Insurance Proceeds": The proceeds of any Insurance Policy relating
to a Mortgage Loan, a Property or a REO Property, net of proceeds to be applied
to the repair of the Property or released to the Mortgagor and net of expenses
reimbursable therefrom, but excluding any Insured Payment.
"Insured Distribution Amount": As to any Payment Date, the sum of
(x) Insured Interest Distribution Amount for such Payment Date, (y) the Insured
Principal Distribution Amount for such Payment Date and (z) any Preference
Amounts with respect to which affected Owners have complied with the provisions
of Section 7.3(e) hereof
"Insured Interest Distribution Amount": As of any Payment Date, the
Class A Interest Distribution Amount for such Payment Date.
"Insured Payment": As of each Payment Date, an amount equal to the
Available Funds Shortfall as of such Payment Date.
"Insured Principal Distribution Amount": As of any Payment Date, the
Subordination Deficit as of such Payment Date.
"Interest Accrual Period": With respect to the Class A Certificates
and any Payment Date, the calendar month immediately preceding such Payment
Date.
"Liquidated Loan": As defined in Section 8.13(b) hereof. A Mortgage
Loan which is purchased from the Trust pursuant to Section 3.3, 3.4, 3.6(b) or
8.10 hereof is not a "Liquidated Loan".
"Liquidation Expenses": Expenses which are incurred by the Servicer
or any Sub-Servicer in connection with the liquidation of any defaulted Mortgage
Loan, such expenses, including, without limitation, reasonable legal fees and
expenses, and any unreimbursed Servicing Advances expended by the Servicer or
any Sub-Servicer pursuant to Section 8.9(c) with respect to the related Mortgage
Loan.
10
<PAGE>
"Liquidation Proceeds": With respect to any Liquidated Loan, any
amounts (including the proceeds of any Insurance Policy) recovered by the
Servicer in connection with such Liquidated Loan, whether through trustee's
sale, foreclosure sale or otherwise.
"Loan Balance": With respect to each Mortgage Loan, as of any date
of determination, the outstanding principal balance thereof on the Cut-Off Date,
less any related principal collections or recoveries relating to such Mortgage
Loan received by the Servicer as of such date, as reported by the Servicer in
its report to the Trustee pursuant to Section 7.8(b) and/or Section 8.8(d)(ii)
hereof, as applicable; provided, however, that the Loan Balance for any Mortgage
Loan which has become a Liquidated Loan shall be zero following the date on
which such Mortgage Loan becomes a Liquidated Loan, and at all times thereafter.
The Loan Balance of any Mortgage Loan as of the Cut-Off Date shall be the
balance of such Mortgage Loan as of the Cut-Off Date; provided, however, that
with respect to any Mortgage Loan originated after the Cut-Off Date but prior to
the Startup Date, the Loan Balance of such Mortgage Loan as of the Cut-Off Date
shall be the original balance of such Mortgage Loan as of the date of
origination of such Mortgage Loan.
"Loan Purchase Price": With respect to any Mortgage Loan purchased
from the Trust on a Remittance Date pursuant to Section 3.3, 3.4, 3.6(b) or 8.10
hereof, an amount equal to the Loan Balance of such Mortgage Loan as of the date
of purchase, plus one month's interest on the outstanding Loan Balance thereof
as of the beginning of the preceding Remittance Period computed at the related
Coupon Rate less, if the Servicer is the purchasing party, the Servicing Fee
Rate, together with, without duplication, the aggregate amount of (i) all
delinquent interest and all unreimbursed Reimbursable Advances, (ii) all
Delinquency Advances which the Servicer or any Sub-Servicer has theretofore
failed to remit with respect to such Mortgage Loan and (iii) any Reimbursement
Amount relating to such Mortgage Loan.
"Lower-Tier Distribution Amount": As of any Payment Date, the
Available Funds.
"Lower-Tier Interests": As defined in Section 2.8(c) hereof.
"Lower-Tier REMIC": The segregated pool of assets held by the Trust
consisting of the Mortgage Loans.
"Majority Owners": The Owner or Owners of Class A Certificates
evidencing Percentage Interests in excess of 51% in the aggregate.
"Master Transfer Agreement": The Master Loan Transfer Agreement
between the Sponsor and the Transferor dated as of November 1, 1996.
"Monthly Remittance Amount": As defined in Section 8.8(d)(iii)
hereof.
11
<PAGE>
"Monthly Trustee Fee Amount": As of any Payment Date the sum of (A)
the product of (x) one-twelfth of the Trustee Fee Rate and (y) the Class A
Certificate Principal Balance as of the day preceding such Payment Date and (B)
one twelfth of $2,500.
"Moody's": Moody's Investors Service, Inc.
"Mortgage": The mortgage, deed of trust or other instrument creating
a first or second lien on an estate in fee simple interest in real property
securing a Note.
"Mortgage Loans": Such of the mortgage loans transferred and
assigned to the Trust pursuant to Section 3.5(a) hereof, together with any
Qualified Replacement Mortgages substituted therefor in accordance with this
Agreement, as from time to time are held as a part of the Trust Estate, the
Mortgage Loans originally so held being identified in the Schedule of Mortgage
Loans. The term "Mortgage Loan" includes the terms "First Mortgage Loan", and
"Second Mortgage Loan". The term "Mortgage Loan" includes any Mortgage Loan
which is Delinquent, which relates to a foreclosure or which relates to a
Property which is a REO Property prior to such Property's disposition by the
Trust. Any mortgage loan which, although intended by the parties hereto to have
been, and which purportedly was, transferred and assigned to the Trust by the
Sponsor, in fact was not transferred and assigned to the Trust for any reason
whatsoever shall nevertheless be considered a "Mortgage Loan" for all purposes
of this Agreement.
"Mortgagor": The obligor on a Note.
"Net Liquidation Proceeds": As to any Liquidated Loan, Liquidation
Proceeds net of, without duplication, Liquidation Expenses and unreimbursed
Servicing Advances, unreimbursed Delinquency Advances and accrued and unpaid
Servicing Fees through the date of liquidation relating to such Liquidated Loan.
In no event shall Net Liquidation Proceeds with respect to any Liquidated Loan
be less than zero.
"Net Weighted Average Coupon Rate": With respect to any Remittance
Period, the weighted average Coupon Rates (weighted by Principal Balances) of
the related Mortgage Loans, calculated at the opening of business on the first
day of such Remittance Period, less the rate at which the Servicing Fee is then
calculated and less the Trustee Fee Rate and Premium Percentage.
"Note": The note or other evidence of indebtedness evidencing the
indebtedness of a Mortgagor under a Mortgage Loan.
"Officer's Certificate": A certificate signed by any Authorized
Officer of any Person delivering such certificate and delivered to the Trustee.
12
<PAGE>
"Operative Documents": Collectively, this Agreement, the Master Loan
Transfer Agreement, the Certificate Insurance Policy, the Certificates, the
Indemnification Agreement, the Insurance Agreement and the Sub-Servicing
Agreement.
"Original Aggregate Loan Balance": The aggregate Loan Balances of
all Mortgage Loans as of the Cut-Off Date, i.e., $80,024,426.13.
"Original Class A Certificate Principal Balance": As of the Startup
Day, $80,000,000.
"Original Principal Amount": With respect to each Note, the
principal amount of such Note or the mortgage note relating to a Senior Lien, as
the case may be, on the date of origination thereof.
"Originator": EquiVantage Inc., a Delaware corporation, and its
successors and assigns.
"Outstanding": With respect to all Certificates of a Class, as of
any date of determination, all such Certificates theretofore executed and
delivered hereunder except:
(i) Certificates theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Certificates or portions thereof for which full and final
payment money in the necessary amount has been theretofore deposited with
the Trustee in trust for the Owners of such Certificates;
(iii) Certificates in exchange for or in lieu of which other
Certificates have been executed and delivered pursuant to this Agreement,
unless proof satisfactory to the Trustee is presented that any such
Certificates are held by a bona fide purchaser; and
(iv) Certificates alleged to have been destroyed, lost or
stolen for which replacement Certificates have been issued as provided for
in Section 5.5 hereof.
Any Certificates in which the Certificate Insurer has an interest
pursuant to its right of subrogation shall be "Outstanding Certificates."
"Owner": The Person in whose name a Certificate is registered in the
Register, to the extent described in Section 5.4.
"Payment Date": Any date on which the Trustee is required to make
distributions to the Owners, which shall be the 25th day of each month (or, if
such 25th
13
<PAGE>
day is not a Business Day, the next succeeding Business Day), commencing in the
month immediately following the month in which the Startup Day occurs.
"Percentage Interest": As to any Class A Certificate, that
percentage, expressed as a fraction, the numerator of which is the Certificate
Principal Balance of such Certificate as of the Cut-Off Date and the denominator
of which is the Original Certificate Principal Balance of all Certificates of
the same Class; and as to any Class B Certificate or Residual Certificate, that
Percentage Interest set forth on such Class B Certificate or Residual
Certificate.
"Person": Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Pool Certification": As defined in Section 3.6(a) hereof.
"Preference Amount": As to any Payment Date, with respect to the
Class A Certificates, any amounts included in previous distributions to Class A
Certificate Owners of Class A Distribution Amounts (exclusive of Insured
Payments) which are recovered from such Class A Certificate Owners as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code in accordance with a final, nonappealable order of a court having competent
jurisdiction and which have not theretofore been repaid to such Class A
Certificate Owners provided such Class A Certificate Owners have complied with
the provisions of Section 7.3(e).
"Premium Amount": As to any Payment Date, the difference between (i)
the product of (x) one-twelfth of the Premium Percentage and (y) the Class A
Certificate Principal Balance on such Payment Date (before taking into account
any distributions of principal to the Owners of the Class A Certificates to be
made on such Payment Date) and (ii) (a) with respect to the initial Payment
Date, zero and (b) with respect to each Payment Date thereafter, the product of
(x) one-twelfth of the Premium Percentage and (y) the Principal Distribution
Amount with respect to the immediately preceding Payment Date.
"Premium Percentage": As defined in the Insurance and Indemnity
Agreement.
"Prepaid Installment": With respect to any Mortgage Loan, any
installment of principal thereof and interest thereon received prior to the
scheduled due date for such installment, intended by the Mortgagor as an early
payment thereof and not as a Prepayment with respect to such Mortgage Loan.
"Prepayment": Any payment of principal of a Mortgage Loan which is
received by the Servicer in advance of the scheduled due date for the payment of
such principal (other than the principal portion of any Prepaid Installment),
and the proceeds
14
<PAGE>
of any Insurance Policy which are to be applied as a payment of principal on the
related Mortgage Loan shall be deemed to be Prepayments for all purposes of this
Agreement.
"Preservation Expenses": Expenditures made by the Servicer or any
Sub-Servicer in connection with a foreclosed Mortgage Loan prior to the
liquidation thereof, including, without limitation, expenditures for real estate
property taxes, hazard insurance premiums, property restoration or preservation.
"Primary Parcel": With respect to any Property with multiple
parcels, the parcel having the greatest Appraised Value.
"Principal Distribution Amount": With respect to any Payment Date,
the sum of:
(a) the Class A Principal Carry-Forward Amount, if any,
(b) the scheduled or unscheduled principal (other than the principal
portion of Prepaid Installments) due and received with respect to the
Mortgage Loans during the related Remittance Period and actually collected
by the Servicer during the related Remittance Period, in each case to the
extent actually received by the Trustee on the related Remittance Date,
(c) the Loan Balance of each Mortgage Loan that either was
repurchased by the Originator or by the Sponsor or purchased by the
Servicer on the related Remittance Date, to the extent such Loan Balance
is actually received by the Trustee on the related Remittance Date,
(d) any Substitution Amounts delivered by the Sponsor on the related
Remittance Date in connection with a substitution of a Mortgage Loan, to
the extent such Substitution Amounts are actually received by the Trustee
on the related Remittance Date,
(e) all Net Liquidation Proceeds and net insurance proceeds actually
collected by the Servicer with respect to the Mortgage Loans during the
related Remittance Period (to the extent such Net Liquidation Proceeds and
net insurance proceeds relate to principal and are actually received by
the Trustee on the related Remittance Date),
(f) any Subordination Deficit for such Payment Date,
(g) the proceeds of any termination of the Trust received by the
Trustee on the related Remittance Date (to the extent such proceeds
related to principal of the Mortgage Loans),
(h) any Subordination Increase Amount for such Payment Date,
15
<PAGE>
minus
(i) any Subordination Reduction Amount for such Payment Date.
"Principal and Interest Account": Collectively, each principal and
interest account created by the Servicer or any Sub-Servicer pursuant to Section
8.8(a) hereof, or pursuant to any Sub-Servicing Agreement.
"Principal Remittance Amount": With respect to any Remittance
Period, the amount remitted to the Trustee by the Servicer on the related
Remittance Date with respect to principal collections on the Mortgage Loans for
such Remittance Period.
"Prohibited Transaction": "Prohibited transaction" shall have the
meaning set forth from time to time in the definition thereof at Section
860F(a)(2) of the Code (or any successor statute thereto) and applicable to the
Trust.
"Property": The underlying property on which a lien is granted
securing a Mortgage Loan.
"Prospectus": Any prospectus (including any prospectus supplement)
relating to the Registration Statement pursuant to which the Class A
Certificates are offered.
"Purchase Option Period": As defined in Section 9.3(b) hereof.
"Qualified Liquidation": "Qualified liquidation" shall have the
meaning set forth from time to time in the definition thereof at Section
860F(a)(4) of the Code (or any successor statute thereto) and applicable to the
Trust.
"Qualified Mortgage": "Qualified mortgage" shall have the meaning
set forth from time to time in the definition thereof at Section 860G(a)(3) of
the Code (or any successor statute thereto) and applicable to the Trust.
"Qualified Replacement Mortgage": A Mortgage Loan substituted for
another pursuant to Section 3.3, 3.4 or 3.6(b) hereof, which (i) bears a fixed
rate of interest, (ii) has a Coupon Rate at least equal to the Coupon Rate of
the Mortgage Loan being replaced, (iii), in the discretion of the Certificate
Insurer, is of the same or better property type and the same or better occupancy
status as the replaced Mortgage Loan, (iv) shall be of the same or better credit
quality classification at origination of the Mortgage Loan (determined in
accordance with the Sponsor's credit underwriting guidelines) as the Mortgage
Loan being replaced, (v) shall mature no later than June 1, 2027, (vi) has a
Combined Loan-to-Value Ratio as of the Cut-Off Date no higher than the Combined
Loan-to-Value Ratio of the replaced Mortgage Loan at such time and shall relate
to a Mortgagor having a debt-to-income ratio no higher than the debt-to-income
ratio of the Mortgagor whose Mortgage Loan is being replaced, (vii) has a Loan
Balance
16
<PAGE>
as of the related Replacement Cut-Off Date equal to or less than the Loan
Balance of the replaced Mortgage Loan as of such Replacement Cut-Off Date,
(viii) satisfies the criteria set forth from time to time in the definition
thereof at Section 860G(a)(4) of the Code (or any successor statute thereto) and
applicable to the Trust, all as evidenced by an Officer's Certificate of the
Sponsor delivered to the Trustee and the Certificate Insurer prior to any such
substitution, (ix) is a valid First Mortgage Loan and (x) if such Qualified
Replacement Mortgage is an Escrow Loan, all Required Escrow Documents with
respect thereto are delivered to the Trustee within one year of the related
Replacement Cut-Off Date. In the event that one or more mortgage loans are
proposed to be substituted for one or more Mortgage Loans, the Certificate
Insurer may allow the foregoing tests to be met on a weighted average basis or
other aggregate basis acceptable to the Certificate Insurer, as evidenced by a
written approval delivered to the Trustee by the Certificate Insurer, except
that the requirement of clause (viii) hereof must be satisfied as to each
Qualified Replacement Mortgage.
"Realized Loss": As to any Liquidated Loan, the amount, if any, by
which the Loan Balance thereof, accrued and unpaid interest and unreimbursed
advances as of the date of liquidation is in excess of Net Liquidation Proceeds
realized thereon.
"Record Date": With respect to each Payment Date, for each of the
Class A Certificates, the last day of the calendar month immediately preceding
the calendar month in which such Payment Date occurs, whether or not such day is
a Business Day.
"Register": The register maintained by the Trustee in accordance
with Section 5.4 hereof, in which the names of the Owners are set forth.
"Registrar": The Trustee, acting in its capacity as Trustee
appointed pursuant to Section 5.4 hereof, or any duly appointed and eligible
successor thereto.
"Registration Statement": The Registration Statement filed by the
Sponsor with the Securities and Exchange Commission, including all amendments
thereto and including the Prospectus relating to the Class A Certificates
constituting a part thereof.
"Reimbursable Advances": As to any Mortgage Loan, all Delinquency
Advances and Servicing Advances made by the Servicer with respect thereto, to
the extent not previously paid to or withheld by the Servicer.
"Reimbursement Amount": As of any Payment Date, the sum of (a)(i)
all Insured Payments previously paid by the Certificate Insurer and all
preference payments (as described in the Certificate Insurance Policy)
previously paid by the Certificate Insurer and in each case not previously
repaid to the Certificate Insurer pursuant to 7.5(b)(iii) hereof plus (ii)
interest accrued on each such Insured Payment and such preference payments not
previously repaid calculated at the Class A Pass-Through Rate in each case from
the date the Certificate Insurer paid the related Insured Payment or the
preference payment, as the case may be, and (b)(i) any amounts then due and
owing to the
17
<PAGE>
Certificate Insurer under the Insurance Agreement, as certified to the Trustee
by the Certificate Insurer plus (ii) interest on such amounts at the rate
specified in the Insurance Agreement. The Certificate Insurer shall notify in
writing the Trustee and the Sponsor of the amount of any Reimbursement Amount.
"REMIC": A "real estate mortgage investment conduit" within the
meaning of Section 860D of the Code.
"REMIC Provisions": Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of the Code, and related provisions, and regulations and
rulings promulgated thereunder, as the foregoing may be in effect from time to
time.
"Remittance Date": Any date on which the Servicer is required to
remit monies on deposit in the Principal and Interest Account to the Trustee,
which shall be the eighteenth day of each calendar month, commencing in
December, 1996 (or, if such eighteenth day is not a Business Day, the next
succeeding Business Day).
"Remittance Period": The period (inclusive) beginning at the opening
of business on the second day of the calendar month immediately preceding the
month in which a Remittance Date occurs and ending at the close of business on
the first day of the calendar month in which a Remittance Date occurs.
"REO Property": A Property acquired by the Servicer or any
Sub-Servicer on behalf of the Trust through foreclosure or deed-in-lieu of
foreclosure in connection with a defaulted Mortgage Loan.
"Replacement Cut-Off Date": With respect to any Qualified
Replacement Mortgage, the close of business on the first day of the calendar
month in which such Qualified Replacement Mortgage is conveyed to the Trust.
"Representation Letter" shall mean letters to, or agreements with,
the Depository to effectuate a book entry system with respect to the Class A
Certificates registered in the Register under the nominee name of the
Depository.
"Representations and Warranties": The representations and warranties
relating to the Mortgage Loans, as set forth in Section 5 of the Master Loan
Transfer Agreement and Section 3.3(a) hereof, together with any Additional
Representations and Warranties (as defined in the Master Loan Transfer
Agreement).
"Required Escrow Document": As defined in Section 3.5(k) hereof.
"Residual Certificate": Any Class RL Certificate or any Class RU
Certificate.
18
<PAGE>
"Residual Interest": As of any Payment Date, the portion of the
Monthly Remittance Amount transferred by the Servicer to the Trustee pursuant to
Section 8.8(d)(iii) on the related Remittance Date which represents interest
collections on the Mortgage Loans for the immediately preceding Remittance
Period (including, without limitation, Compensating Interest and the interest
portion of any Delinquency Advances and Servicing Advances) minus the sum of (i)
the Insured Interest Distribution Amount for such Payment Date, (ii) the Class B
Interest for such Payment Date, (iii) the Servicing Fee for such Payment Date,
(iv) the Monthly Trustee Fee Amount for such Payment Date and (v) the Premium
Amount for such Payment Date.
"Rolling Three Month Delinquency Rate": As of any Payment Date, the
fraction, expressed as a percentage, equal to the average of the Delinquency
Ratio for each of the three (or one and two, in the case of the first and second
Payment Dates) immediately preceding Remittance Periods.
"S&P": Standard & Poor's Ratings Services, a division of The McGraw-
Hill Companies, Inc.
"Schedule of Mortgage Loans": The Schedule of Mortgage Loans
attached hereto as Schedule I.
"Second Mortgage Loan": A Mortgage Loan which is secured by a second
priority mortgage lien with respect to the related Property.
"Securities Act": The Securities Act of 1933, as amended.
"Senior Lien": With respect to any Second Mortgage Loan, the
mortgage loan relating to the corresponding Property having a first priority
lien.
"Servicer": EquiVantage Inc., a Delaware corporation, and its
permitted successors and assigns.
"Servicer Affiliate": A Person (i) controlling, controlled by or
under common control with the Servicer and (ii) which is qualified to service
residential mortgage loans.
"Servicer's Trust Receipt": The Servicer's trust receipt in the form
set forth as Exhibit J hereto.
"Servicing Advance": As defined in Section 8.9(c) and Section
8.13(a) hereof.
"Servicing Fee": With respect to any Mortgage Loan, the monthly
amount retained by the Servicer or by any successor thereto as compensation for
servicing and administration duties relating to such Mortgage Loan pursuant to
Section 8.15 hereof and
19
<PAGE>
equal to the product of (x) one-twelfth of the related Servicing Fee Rate and
(y) the outstanding Loan Balance of such Mortgage Loan as of the opening of
business on the first day of the immediately preceding Remittance Period.
"Servicing Fee Rate": With respect to each First Mortgage Loan, .50%
per annum. With respect to each Second Mortgage Loan, .75% per annum.
"Servicing Standards": As defined in Section 8.1(a) hereof.
"Specified Subordinated Amount": As defined in the Insurance and
Indemnity Agreement.
"Sponsor": EquiVantage Acceptance Corp., a Delaware corporation.
"Startup Day": November 22, 1996.
"Step-up Payment Date": The second Payment Date which follows the
Clean-Up Call Date.
"Subordinated Amount": As of any Payment Date, the excess, if any,
of (x) the Aggregate Loan Balance as of the close of business on the last day of
the related Remittance Period over (y) the Class A Certificate Principal Balance
as of such Payment Date (after taking into account the payment of principal made
pursuant to clause (a) through clause (e) of the definition of the Principal
Distribution Amount to the Owners of the Class A Certificates on such Payment
Date, except for any portion thereof related to an Insured Payment on such
Payment Date or on any prior Payment Date and not previously reimbursed to the
Certificate Insurer pursuant to Section 7.3(e) hereof).
"Subordination Deficiency Amount": With respect to any Payment Date,
the excess, if any, of (i) the Specified Subordinated Amount applicable to such
Payment Date over (ii) the Subordinated Amount applicable to such Payment Date
prior to taking into account the payment of any Subordination Increase Amount on
such Payment Date.
"Subordination Deficit": As of any Payment Date, the excess, if any,
of (x) the Class A Certificate Principal Balance, after taking into account the
payment of the Principal Distribution Amount (other than any portion thereof
constituting a Subordination Deficit) on such Payment Date, over (y) the
Aggregate Loan Balance as of the close of business on the last day of the
immediately preceding Remittance Period.
"Subordination Increase Amount": With respect to any Payment Date,
the lesser of the (x) Subordination Deficiency Amount for such Payment Date and
(y) the Excess Interest for such Payment Date.
20
<PAGE>
"Subordination Reduction Amount": With respect to any Payment Date,
an amount equal to the lesser of (x) the Excess Subordinated Amount for such
Payment Date and (y) the Principal Remittance Amount for the related Remittance
Period.
"Sub-Servicer": Transworld Mortgage Corporation, a Texas
corporation, and its permitted successors and assigns, or any Person with whom
the Servicer has entered into a Sub-Servicing Agreement and who satisfies any
requirements set forth in Section 8.3 hereof in respect of the qualification of
a Sub-Servicer.
"Sub-Servicing Agreement": The written contract between the Servicer
and any Sub-Servicer relating to servicing and/or administration of certain
Mortgage Loans as permitted by Section 8.3.
"Substitution Amount": In connection with the delivery of any
Qualified Replacement Mortgage, if the outstanding principal amount of such
Qualified Replacement Mortgage as of the applicable Replacement Cut-Off Date is
less than the Loan Balance of the Mortgage Loan being replaced as of such
Replacement Cut-Off Date, an amount equal to such difference together with
accrued and unpaid interest on such amount calculated at the Coupon Rate less,
if the Servicer is the replacing party, the Servicing Fee Rate of the Mortgage
Loan being replaced.
"Tax Matters Person": The Tax Matters Person appointed pursuant to
Section 11.17 hereof.
"Termination Notice": As defined in Section 9.3(b) hereof.
"Termination Price": As defined in Section 9.2(a) hereof.
"Transaction Documents": Collectively this Agreement, the Insurance
Agreement, the Underwriting Agreement relating to the Class A Certificates, any
Sub-Servicing Agreement, the Indemnification Agreement relating to the
Prospectus, the Registration Statement and the Certificates.
"Transferor": EquiVantage Inc., a Delaware corporation, and its
permitted successors and assigns.
"Trust": EquiVantage Home Equity Loan Trust 1996-4, the trust
created under this Agreement.
"Trust Estate": Collectively, all money, instruments and other
property, to the extent such money, instruments and other property are subject
or intended to be held in trust, and in the subtrusts, for the benefit of the
Owners, including all proceeds thereof, including, without limitation, (i) the
Mortgage Loans, (ii) such amounts, including Eligible Investments, as from time
to time may be held in all Accounts, (iii) any Property, the ownership of which
has been effected on behalf of the Trust as a result of foreclosure or
21
<PAGE>
acceptance by the Servicer of a deed in lieu of foreclosure and that has not
been withdrawn from the Trust, (iv) any Insurance Policies relating to the
Mortgage Loans and any rights of the Sponsor under any Insurance Policies, (v)
Net Liquidation Proceeds with respect to any Liquidated Loan, (vi) rights under
the Certificate Insurance Policy and (vii) the Sponsor's rights under the Master
Loan Transfer Agreement.
"Trustee": Norwest Bank Minnesota, National Association, located on
the date of execution of this Agreement at the Corporate Trust Office, not in
its individual capacity but solely as Trustee under this Agreement, and any
successor hereunder.
"Trustee Fee Rate": .025% per annum.
"Underwriter": Prudential Securities Incorporated, as representative
of the several underwriters.
"Unrecoverable Delinquency Advance": Any Delinquency Advance which
the Servicer, in its good faith business judgment, believes will not ultimately
be recovered from the related Mortgage Loan.
"Unregistered Certificates": Certificates which are not registered
as evidenced by inclusion in the Register.
"Upper-Tier REMIC": The segregated pool of assets held by the Trust
consisting of the Lower Tier Interests (except for the RL Lower-Tier Interest,
as set forth in the chart in Section 2.8(c) hereof) and the Certificate
Insurance Policy.
Section 1.2. Use of Words and Phrases. "Herein", "hereby",
"hereunder", "hereof", "hereinbefore", "hereinafter" and other equivalent words
refer to this Agreement as a whole and not solely to the particular section of
this Agreement in which any such word is used. The definitions set forth in
Section 1.1 hereof include both the singular and the plural. Whenever used in
this Agreement, any pronoun shall be deemed to include both singular and plural
and to cover all genders.
Section 1.3. Captions; Table of Contents. The captions or headings
in this Agreement and the Table of Contents are for convenience only and in no
way define, limit or describe the scope and intent of any provisions of this
Agreement.
Section 1.4. Opinions. Each opinion with respect to the validity,
binding nature and enforceability of documents or Certificates may be qualified
to the extent that the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
considered in a proceeding or action in equity or at law) and may state that no
opinion is expressed on the availability of the remedy of specific enforcement,
injunctive relief or any other equitable remedy. Any opinion required to be
furnished by any Person hereunder must be delivered by counsel upon
22
<PAGE>
whose opinion the addressee of such opinion may reasonably rely, and such
opinion may state that it is given in reasonable reliance upon an opinion of
another, a copy of which must be attached, concerning the laws of a foreign
jurisdiction.
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST
Section 2.1. Establishment of the Trust. The parties hereto do
hereby create and establish, pursuant to the laws of the State of New York and
this Agreement, the Trust, which, for convenience, shall be known as
"EquiVantage Home Equity Loan Trust 1996-4".
Section 2.2. Office. The office of the Trust shall be in care of the
Trustee, addressed to the Corporate Trust Office, or at such other address as
the Trustee may designate by notice to the Sponsor, the Servicer, the Owners and
to the Certificate Insurer.
Section 2.3. Purposes and Powers. The purpose of the Trust is to
engage in the following activities, and only such activities: (i) the issuance
of the Certificates and the acquiring, owning and holding of Mortgage Loans and
the Trust Estate in connection therewith; (ii) activities that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto or
connected therewith, including the investment of moneys in accordance with this
Agreement; and (iii) such other activities as may be required in connection with
conservation of the Trust Estate and distributions to the Owners; provided,
however, that nothing contained herein shall require or permit the Trustee to
take any action which would result in the loss of REMIC status for the Trust.
Section 2.4. Appointment of the Trustee; Declaration of Trust. The
Sponsor hereby appoints the Trustee as trustee of the Trust effective as of the
Startup Day, to have all the rights, powers and duties set forth herein. The
Trustee hereby acknowledges and accepts such appointment, represents and
warrants its eligibility as of the Startup Day to serve as Trustee pursuant to
Section 10.8 hereof and declares that it will hold the Trust Estate in trust
upon and subject to the conditions set forth herein for the benefit of the
Owners and the Certificate Insurer, as their interests may appear.
Section 2.5. Expenses of the Trust. On each Payment Date the Trustee
shall receive the Monthly Trustee Fee Amount, as provided in Section 7.5(b)(ii)
hereof. Any other expenses of the Trust that have been reviewed and approved by
the Sponsor or the Servicer (which approval shall not be unreasonably withheld),
including the reasonable expenses of the Trustee, its agents and counsel, shall
be paid directly by the Sponsor or the Servicer to the Trustee or to such other
Person to whom such amounts may be due. Failure by the Sponsor to pay any such
fees or other expenses shall not relieve the Trustee of its obligations
hereunder. The Trustee hereby covenants with the
23
<PAGE>
Owners that every material contract or other material agreement entered into by
the Trustee on behalf of the Trust shall expressly state therein that no Owner
shall be personally liable in connection with such contract or agreement.
Section 2.6. Ownership of the Trust. On the Startup Day the
ownership interests in the Trust and the subtrusts shall be transferred as set
forth in Section 4.2 hereof, such transfer to be evidenced by sale of the
Certificates as described therein. Thereafter, transfer of any ownership
interest shall be governed by Sections 5.4 and 5.8 hereof.
Section 2.7. Receipt of Trust Estate. The Sponsor hereby directs the
Trustee to accept the property conveyed to it pursuant to Section 3.5 hereof in
connection with the establishment of the Trust, and the Trustee hereby
acknowledges receipt of such property. The Sponsor further directs the Trustee
to issue the Certificates, to hold the Class A Certificates as transfer agent
for the Depository as provided in Section 5.4, and to deliver the Class B
Certificates and the Residual Certificates to the Sponsor.
Section 2.8. Miscellaneous REMIC Provisions. (a) The Trust shall
elect that the Upper-Tier REMIC and the Lower-Tier REMIC shall be treated as
REMICS under Section 860D of the Code, as described in Section 11.15. Any
inconsistencies or ambiguities in this Agreement or in the administration of the
Trust shall be resolved in a manner that preserves the validity of such REMIC
elections.
(b) The Class A Certificates and the Class B Certificates are hereby
designated as "regular interests" with respect to the Upper-Tier REMIC and the
Class RU Certificates are hereby designated as the single Class of "residual
interest" with respect to the Upper-Tier REMIC. The Class LT Certificates are
hereby designated as "regular interests" with respect to the Lower-Tier REMIC
and the Class RL Certificates are hereby designated as the single class of
"residual interest" with respect to the Lower-Tier REMIC.
(c) The beneficial ownership interest of the Lower-Tier REMIC shall
be evidenced by the interests (the "Lower-Tier Interests") having the
characteristics and terms as follows:
Original
Class Companion Principal Interest Final Scheduled
Designation Classes Balance Rate Payment Date
- ------------ ------------ --------------- -------- -------------------
LT A, B $80,000,000 (1) January 25, 2028
RL N/A (2) (2) January 25, 2028
(1) The Net Weighted Average Coupon Rate of the Mortgage Loans.
(2) The RL Certificate has no principal balance and does not bear interest.
The Lower-Tier Interests shall be issued as non-certificated interests and
recorded on the records of the Lower-Tier REMIC as being issued to and held by
the Trustee on behalf of the Upper-Tier REMIC.
24
<PAGE>
On each Payment Date, the Lower Tier Distribution Amount shall be
applied as principal and interest of particular Lower Tier Interests, other than
the RL Certificate, in amounts corresponding to the aggregate respective amounts
required to be applied as principal and interest of their related Companion
Classes (as set forth above) pursuant to the priorities set forth in section 7.5
hereof.
No distributions will be made on the Class RL Certificate, except
that any distribution of the proceeds of the final remaining assets of the Lower
Tier REMIC shall be distributed to the holder thereof upon presentation and
surrender of the Class RL Certificate.
(d) The Startup Day is hereby designated as the "startup day" of the
Trust within the meaning of Section 860G(a)(9) of the Code.
Section 2.9. Grant of Security Interest. (a) Except with respect to
the REMIC Provisions, it is the intention of the parties hereto that the
conveyance by the Sponsor of the Trust Estate to the Trustee on behalf of the
Trust shall constitute a purchase and sale of such Trust Estate and not a loan.
In the event, however, that a court of competent jurisdiction were to hold that
the transaction evidenced hereby constitutes a loan and not a purchase and sale,
it is the intention of the parties hereto that this Agreement shall constitute a
security agreement under applicable law, and that the Sponsor shall be deemed to
have granted to the Trustee, on behalf of the Owners and the Certificate
Insurer, a first priority perfected security interest in all of the Sponsor's
right, title and interest in, to and under the Trust Estate. The conveyance by
the Sponsor of the Trust Estate to the Trustee on behalf of the Trust shall not
constitute and is not intended to result in an assumption by the Trustee or any
Owner of any obligation of the Originators or any other Person in connection
with the Trust Estate.
(b) The Sponsor and the Servicer shall take no action inconsistent
with the Trust's ownership of the Trust Estate and shall indicate or shall cause
to be indicated in their records and records held on their behalf that ownership
of each Mortgage Loan and the assets in the Trust Estate are held by the Trustee
on behalf of the Owners and the Certificate Insurer. In addition, the Sponsor
and the Servicer shall respond to any inquiries from third parties with respect
to ownership of a Mortgage Loan or any other asset in the Trust Estate by
stating that it is not the owner of such asset and that ownership of such
Mortgage Loan or other Trust Estate asset is held by the Trustee on behalf of
the Trust; provided that this paragraph shall not be construed to prohibit the
Servicer from appearing as lienholder of record of the Mortgage Loans on behalf
of the Trustee for the purpose of receiving notices, executing release and
modification documents and taking other actions related to the Servicing of the
Mortgage Loans, so long as such actions are consistent with Article VIII hereof.
25
<PAGE>
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SPONSOR AND THE SERVICER;
COVENANT OF SPONSOR TO CONVEY MORTGAGE LOANS
Section 3.1. Representations and Warranties of the Sponsor. The
Sponsor hereby represents, warrants and covenants to the Trustee, the Servicer,
the Certificate Insurer and to the Owners as of the Startup Day that:
(a) The Sponsor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and is in
good standing as a foreign corporation in each jurisdiction in which the
nature of its business, or the properties owned or leased by it make such
qualification necessary. The Sponsor has all requisite corporate power and
authority to own and operate its properties, to carry out its business as
presently conducted and as proposed to be conducted and to enter into and
discharge its obligations under this Agreement and the other Operative
Documents to which it is a party.
(b) The execution and delivery of this Agreement and the other
Operative Documents to which the Sponsor is a party by the Sponsor and its
performance and compliance with the terms of this Agreement and of the
other Operative Documents to which it is a party have been duly authorized
by all necessary corporate action on the part of the Sponsor and will not
violate the Sponsor's Certificate of Incorporation or Bylaws or constitute
a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the breach of, any material
contract, agreement or other instrument to which the Sponsor is a party or
by which the Sponsor is bound, or violate any statute or any order, rule
or regulation of any court, governmental agency or body or other tribunal
having jurisdiction over the Sponsor or any of its properties.
(c) This Agreement and the other Operative Documents to which the
Sponsor is a party, assuming due authorization, execution and delivery by
the other parties hereto and thereto, each constitutes a valid, legal and
binding obligation of the Sponsor, enforceable against it in accordance
with the terms hereof and thereof, except as the enforcement hereof and
thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and by general principles of equity (whether considered
in a proceeding or action in equity or at law).
(d) The Sponsor is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which might have consequences
that would materially and adversely affect the condition (financial or
other) or operations of the Sponsor or its properties or might have
consequences that would materially and adversely
26
<PAGE>
affect its performance hereunder and under the other Operative Documents
to which it is a party.
(e) No litigation is pending or, to the best of the Sponsor's
knowledge, threatened against the Sponsor which litigation might have
consequences that would prohibit its entering into this Agreement or any
other Operative Document to which it is a party, or issuing the
Certificates, or that would materially and adversely affect the condition
(financial or otherwise) or operations of the Sponsor or its properties or
might have consequences that would materially and adversely affect its
performance hereunder and under the other Operative Documents to which it
is a party.
(f) No certificate of an officer, statement furnished in writing or
report delivered pursuant to the terms hereof by the Sponsor contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the certificate, statement or report not misleading.
(g) The statements contained in the Registration Statement which
describe the Sponsor or matters or activities for which the Sponsor is
responsible in accordance with the Operative Documents or which are
attributed to the Sponsor therein are true and correct in all material
respects, and the Registration Statement does not contain any untrue
statement of a material fact with respect to the Sponsor or omit to state
a material fact required to be stated therein or necessary in order to
make the statements contained therein with respect to the Sponsor not
misleading. To the best of the Sponsor's knowledge and belief, the
Registration Statement does not contain any untrue statement of a material
fact required to be stated therein or omit to state any material fact
required to be stated therein or necessary to make the statements
contained therein not misleading.
(h) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be, by
or from any federal, state or other governmental authority or agency
(other than any such actions, approvals, etc. under any state securities
laws, real estate syndication or "Blue Sky" statutes, as to which the
Sponsor makes no such representation or warranty), that are necessary or
advisable in connection with the purchase and sale of the Certificates and
the execution and delivery by the Sponsor of the Operative Documents to
which it is a party, have been duly taken, given or obtained, as the case
may be, are in full force and effect on the date hereof, are not subject
to any pending proceedings or appeals (administrative, judicial or
otherwise) and either the time within which any appeal therefrom may be
taken or review thereof may be obtained has expired or no review thereof
may be obtained or appeal therefrom taken, and are adequate to authorize
the consummation of the transactions contemplated by this Agreement and
the other Operative Documents on the part
27
<PAGE>
of the Sponsor and the performance by the Sponsor of its obligations under
this Agreement and such of the other Operative Documents to which it is a
party.
(i) The transactions contemplated by this Agreement and the Other
Operative Documents to which the Sponsor is a party are in the ordinary
course of business of the Sponsor.
(j) The Sponsor received fair consideration and reasonably
equivalent value in exchange for the sale of the interests in the Mortgage
Loans evidenced by the Certificates.
(k) The Sponsor did not sell any interest in any Mortgage Loan
evidenced by the Certificates with any intent to hinder, delay or defraud
any of its respective creditors.
(l) The Sponsor is solvent and the Sponsor will not be rendered
insolvent as a result of the sale of the Mortgage Loans to the Trust or
the sale of the Certificates.
It is understood and agreed that the representations and warranties
set forth in this Section 3.1 shall survive delivery of the Mortgage Loans to
the Trustee.
Upon discovery by any of the Servicer, the Sponsor, the Certificate
Insurer or the Trustee of a breach of any of the representations and warranties
set forth in Section 3.1 which materially and adversely affects the interests of
the Owners or of the Certificate Insurer, the party discovering such breach
shall give prompt written notice to the other parties. Within 30 days of its
discovery or its receipt of notice of breach the Sponsor shall cure such breach
in all material respects; provided, however, that if the Sponsor can demonstrate
to the reasonable satisfaction of the Certificate Insurer that it is diligently
pursuing remedial action, then the cure period may be extended with the written
approval of the Certificate Insurer and with notice to each of Moody's and S&P.
Section 3.2. Representations and Warranties of the Servicer. The
Servicer hereby represents, warrants and covenants to the Trustee, the Sponsor,
the Certificate Insurer and to the Owners as of the Startup Day that:
(a) The Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and is, or a
Sub-Servicer is, in compliance with the laws of each state in which any
Property is located to the extent necessary to enable it to perform its
obligations hereunder and is in good standing as a foreign corporation in
each jurisdiction in which the nature of its business, or the properties
owned or leased by it make such qualification necessary. The Servicer has
all requisite corporate power and authority to own and operate its
properties, to carry out its business as presently conducted and as
proposed to be conducted and to enter into and discharge, either directly
or
28
<PAGE>
through Sub-Servicers, its obligations under this Agreement and the other
Operative Documents to which it is a party. The Servicer has equity of at
least $10,000,000, as determined in accordance with generally accepted
accounting principles. Any Sub-Servicer appointed by the Servicer will
have all requisite corporate power and authority to own and operate its
properties, to carry out its business as presently conducted and as
proposed to be conducted.
(b) The execution and delivery of this Agreement by the Servicer and
its performance and compliance with the terms of this Agreement, any
Sub-Servicing Agreement and the other Operative Documents to which it is a
party have been duly authorized by all necessary corporate action on the
part of the Servicer and will not violate the Servicer's Articles of
Incorporation or Bylaws or constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, or
result in the breach of, any material contract, agreement or other
instrument to which the Servicer is a party or by which the Servicer is
bound or violate any statute or any order, rule or regulation of any
court, governmental agency or body or other tribunal having jurisdiction
over the Servicer or any of its properties.
(c) This Agreement, any Sub-Servicing Agreement and the other
Operative Documents to which the Servicer is a party, assuming due
authorization, execution and delivery by the other parties hereto and
thereto, each constitutes a valid, legal and binding obligation of the
Servicer, enforceable against it in accordance with the terms hereof,
except as the enforcement hereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity (whether
considered in a proceeding or action in equity or at law).
(d) The Servicer is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which might have consequences
that would materially and adversely affect the condition (financial or
other) or operations of the Servicer or its properties or might have
consequences that would materially and adversely affect its performance
hereunder, under any Sub-Servicing Agreement and under the other Operative
Documents to which the Servicer is a party.
(e) No litigation is pending or, to the best of the Servicer's
knowledge, threatened against the Servicer which litigation might have
consequences that would prohibit its entering into this Agreement, any
Sub-Servicing Agreement or any other Operative Document to which it is a
party or that would materially and adversely affect the condition
(financial or otherwise) or operations of the Servicer or its properties
or might have consequences that would materially and adversely affect its
performance hereunder and under the other Operative Documents to which the
Servicer is a party.
29
<PAGE>
(f) No certificate of an officer, statement furnished in writing or
report delivered pursuant to the terms hereof by the Servicer contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the certificate, statement or report not misleading.
(g) The statements contained in the Registration Statement which
describe matters or activities for which the Servicer is responsible in
accordance with the Operative Documents or which are attributable to the
Servicer, either directly or through any Sub-Servicer, therein are true
and correct in all material respects, and the Registration Statement does
not contain any untrue statement of a material fact with respect to the
Servicer or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein with respect to the
Servicer not misleading. To the best of the Servicer's knowledge and
belief, the Registration Statement does not contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements contained therein not
misleading.
(h) The Servicing Fee is a "current (normal) servicing fee rate" as
that term is used in Statement of Financial Accounting Standards No. 65
issued by the Financial Accounting Standards Board. Neither the Servicer
nor any affiliate thereof will report on any financial statements any part
of the Servicing Fee as an adjustment to the sales price of the Mortgage
Loans.
(i) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be, by
or from any federal, state or other governmental authority or agency
(other than any such actions, approvals, etc. under any state securities
laws, real estate syndication or "Blue Sky" statutes, as to which the
Servicer makes no such representation or warranty), that are necessary or
advisable in connection with the execution and delivery by the Servicer of
the Operative Documents to which it is a party, have been duly taken,
given or obtained, as the case may be, are in full force and effect on the
date hereof and on the Startup Day, are not subject to any pending
proceedings or appeals (administrative, judicial or otherwise) and either
the time within which any appeal therefrom may be taken or review thereof
may be obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement and the other Operative
Documents on the part of the Servicer and the performance by the Servicer,
either directly or through a Sub-Servicer, of its obligations under this
Agreement, any Sub-Servicing Agreement and such of the other Operative
Documents to which it is a party.
(j) The collection practices used by the Servicer, or any
Sub-Servicer, with respect to the Mortgage Loans directly serviced by it
have been, in all
30
<PAGE>
material respects, legal, proper, prudent and customary in the mortgage
loan servicing business.
(k) The transactions contemplated by this Agreement are in the
ordinary course of business of the Servicer.
It is understood and agreed that the representations and warranties
set forth in this Section 3.2 shall survive delivery of the Mortgage Loans to
the Trustee.
Upon discovery by any of the Servicer, the Sponsor, the Certificate
Insurer or the Trustee of a breach of any of the representations and warranties
set forth in this Section 3.2 which materially and adversely affects the
interests of the Owners or of the Certificate Insurer, the party discovering
such breach shall give prompt written notice to the other parties. Within 30
days of its discovery or its receipt of notice of breach, the Servicer shall
cure such breach in all material respects and, upon the Servicer's continued
failure to cure such breach, may thereafter be removed by the Trustee pursuant
to Section 8.20 hereof; provided, however, that if the Servicer can demonstrate
to the reasonable satisfaction of the Certificate Insurer that it is diligently
pursuing remedial action, then the cure period may be extended with the written
approval of the Certificate Insurer and notice to each of Moody's and S&P.
Section 3.3. Representations and Warranties of the Sponsor with
Respect to the Mortgage Loans.
(a) The Sponsor makes the following representations and warranties
as to the Mortgage Loans on which the Trustee relies in accepting the Mortgage
Loans in trust and executing and authenticating the Certificates and on which
the Certificate Insurer relies in issuing the Certificate Insurance Policy. Such
representations and warranties speak as of the Startup Day (unless otherwise
specified), but shall survive the sale, transfer, and assignment of the Mortgage
Loans to the Trustee on behalf of the Trust:
(i) The information with respect to each Mortgage Loan set
forth in the Schedule of Mortgage Loans is true and correct as of the
Cut-Off Date;
(ii) All of the original or certified documentation set forth
in Section 3.5 (including all material documents related thereto) with
respect to each Mortgage Loan has been or will be delivered to the Trustee
on the Startup Day, or as otherwise provided in Section 3.5;
(iii) Each Mortgage Loan is being serviced by the Servicer or
a Person controlling, controlled by or under common control with the
Servicer and qualified to service the Mortgage Loans serviced by it;
31
<PAGE>
(iv) Each Mortgage Loan conforms, and all such Mortgage Loans
in the aggregate conform, in all material respects to the description
thereof set forth in the Registration Statement;
(v) The credit underwriting guidelines applicable to each
Mortgage Loan conform in all material respects to the description thereof
set forth in the Prospectus; and
(vi) Except as disclosed in the Master Loan Transfer Agreement
and the related Conveyance Agreement, none of the Mortgage Loans are
subject to Section 32 of the Federal Truth-in-Lending Act.
(b) The Sponsor hereby assigns to the Trustee for the benefit of the
Owners of the Certificates and the Certificate Insurer all of its right, title
and interest (but none of its obligations, other than those set forth herein) in
respect of the Master Transfer Agreement, except for such rights to
indemnification thereunder for losses actually incurred only by the Sponsor.
Insofar as the Master Transfer Agreement provides for representations and
warranties and remedies thereunder for any breach of such representations and
warranties, the remedies with respect to such breaches may be enforced by the
Servicer or by the Trustee on behalf of the Owners and the Certificate Insurer
against the Person making such representation and warranty, and any rights to
indemnification for any breaches of such representations and warranties are
hereby assigned by the Sponsor to the Trustee for the benefit of the Owners of
the Certificates and the Certificate Insurer, except for such rights to
indemnification thereunder only for losses actually incurred only by the
Sponsor. Upon the discovery by the Sponsor, the Servicer, the Certificate
Insurer or the Trustee of a breach of any of the representations and warranties
made in the Master Transfer Agreement in respect of any Mortgage Loan which
materially and adversely affects the interests of the Owners or of the
Certificate Insurer in such Mortgage Loan, the party discovering such breach
shall give prompt written notice to the other parties and each of Moody's and
S&P. The Servicer shall promptly notify the Originator of such breach and
request that the Originator cure such breach or take the actions described in
Section 3.4(a) hereof within the time periods required thereby, and (i) if the
Originator does not cure such breach in all material respects, the Sponsor shall
cure such breach or take such actions and (ii) if the Originator does not
purchase such Mortgage Loan, the Sponsor shall purchase such Mortgage Loan. The
obligations of the Sponsor or Servicer, as the case may be, set forth herein
with respect to any Mortgage Loan as to which such a breach has occurred and is
continuing shall constitute the sole obligations of the Sponsor and of the
Servicer in respect of such breach.
Section 3.4. Covenants of Sponsor to Take Certain Actions with
Respect to the Mortgage Loans In Certain Situations. (a) Upon the earliest to
occur of the Sponsor's discovery, its receipt of notice of breach from any one
of the other parties hereto or from the Certificate Insurer or such time as a
breach of any Representation and Warranty materially and adversely affects the
interests of the Owners or of the Certificate
32
<PAGE>
Insurer as set forth above, the Sponsor shall promptly cure (or cause the
Originator to cure) such breach in all material respects or it shall (or shall
cause the Originator to), subject to the further requirements of this paragraph,
on the second Remittance Date next succeeding such discovery, receipt of notice
or such other time (i) substitute in lieu of each Mortgage Loan which has given
rise to the requirement for action by the Sponsor a Qualified Replacement
Mortgage and deliver the Substitution Amount applicable thereto, together with
the aggregate amount of all unreimbursed Delinquency Advances and unreimbursed
Servicing Advances theretofore made with respect to such Mortgage Loan, to the
Servicer for deposit in the Principal and Interest Account or (ii) purchase such
Mortgage Loan from the Trust at a purchase price equal to the Loan Purchase
Price thereof, which purchase price shall be delivered to the Servicer for
deposit in the Principal and Interest Account. In connection with any such
proposed purchase or substitution, the Sponsor at its expense, shall cause to be
delivered to the Trustee and to the Certificate Insurer an opinion of counsel
experienced in federal income tax matters stating whether or not such a proposed
purchase or substitution would constitute a Prohibited Transaction for the Trust
or would jeopardize the REMIC status of the Trust as a REMIC, and unless
otherwise directed by the Certificate Insurer the Sponsor shall only be required
to take either such action to the extent such action would not constitute a
Prohibited Transaction for the Trust or would not jeopardize the status of the
Trust as a REMIC. It is understood and agreed that the obligation of the Sponsor
to cure the defect, or substitute for, or purchase any Mortgage Loan as to which
a Representation or Warranty is untrue in any material respect and has not been
remedied shall constitute the sole remedy available to the Owners, the Trustee
or the Certificate Insurer.
(b) In the event that any Qualified Replacement Mortgage is
delivered by the Sponsor to the Trust pursuant to Section 3.3, Section 3.4 or
Section 3.6 hereof, the Originator and the Sponsor shall be obligated to take
the actions described in Section 3.4(a) with respect to such Qualified
Replacement Mortgage upon the discovery by any of the Owners, the Sponsor, the
Servicer, the Certificate Insurer, or the Trustee that the Representations and
Warranties applicable to such Qualified Replacement Mortgage are untrue in any
material respect on the date such Qualified Replacement Mortgage is conveyed to
the Trust such that the interests of the Owners or the Certificate Insurer in
the related Qualified Replacement Mortgage are materially and adversely
affected; provided, however, that for the purposes of this subsection (b) any of
the Representations and Warranties referring to items "as of the Cut-Off Date"
or "as of the Startup Day" shall be deemed to refer to such items as of the date
such Qualified Replacement Mortgage is conveyed to the Trust.
(c) The Sponsor acknowledges that a breach of any of the
Representations and Warranties (x) relating to marketability of title sufficient
to transfer unencumbered title to a Mortgage Loan, (y) relating to
enforceability of the Mortgage Loan against the related Mortgagor or Property or
(z) set forth in clause (a)(v) of Section 3.3 above constitutes a breach of a
representation or warranty which "materially and adversely affects the interests
of the Owners or of the Certificate Insurer" in such Mortgage Loan.
33
<PAGE>
(d) It is understood and agreed that the representations, warranties
and covenants set forth in this Section 3.4 shall survive delivery of the
respective Mortgage Loans (including Qualified Replacement Mortgage Loans) to
the Trustee.
Section 3.5. Conveyance of the Mortgage Loans. (a) The Sponsor,
concurrently with the execution and delivery hereof, hereby transfers, sells,
assigns, sets over and otherwise conveys without recourse, to the Trustee on
behalf of the Trust, all right, title and interest of the Sponsor in and to each
Mortgage Loan listed on the Schedule of Mortgage Loans delivered by the Sponsor
on the Startup Day, all its right, title and interest in and to payments of
principal and interest (including Prepaid Installments) due after the Cut-Off
Date, and all payments of principal collected after the Cut-Off Date, together
with all of its right, title and interest in and to all related Insurance
Policies. The transfer by the Sponsor of the Mortgage Loans set forth on the
Schedule of Mortgage Loans to the Trustee on behalf of the Trust is absolute and
is intended by the Owners and all parties hereto to be treated as a sale by the
Sponsor.
(b) In connection with the transfer, sale and assignment of the
Mortgage Loans, the Sponsor agrees to:
(i) cause to be delivered, on the Startup Day with respect to the
Mortgage Loans, without recourse, to the Trustee (A) the original Notes,
endorsed without recourse by the related Originator "For value received, I
hereby transfer, endorse and assign to Norwest Bank Minnesota, National
Association, as Trustee for EquiVantage Home Equity Loan Trust 1996-4, the
Note and Deed of Trust or Mortgage securing the same, so far as the same
pertains to said Note, without recourse"; (B) originals or certified
copies of all intervening assignments, if any, showing a complete chain of
assignment from origination to the Originator, including warehousing
assignments, with evidence of recording or certification of filing for
recordation thereon; (C) originals of all assumption and modification
agreements, if any; (D) either: (1) the original Mortgage, with evidence
of recording thereon, (2) a true and accurate copy of the Mortgage where
the original Mortgage has been transmitted for recording, until such time
as the original Mortgage is returned by the public recording office, or
(3) a copy of the Mortgage certified by the public recording office in
those instances where the original recorded Mortgage has been lost; (E)
the original mortgage title insurance policy, title commitment, binder or
attorney's opinion of title and abstract of title; provided that, in the
event a copy of any mortgage, title policy or title commitment was
originally delivered to the Trustee pursuant to this Section 3.5(b)(i)(E),
the Sponsor shall cause the related original mortgage, title policy, or
title commitment to be delivered to the Trustee within one year of the
Startup Day; and (F) an assignment in blank of each Mortgage executed by
the record holder of such Mortgage, which assignment shall be in
recordable form;
(ii) cause, within 30 days following the Startup Day, assignments of
the Mortgages from the Sponsor or the related Originator, if the
Originator is the
34
<PAGE>
record holder of such Mortgage to "Norwest Bank Minnesota, National
Association, as Trustee of EquiVantage Home Equity Loan Trust 1996-4 under
the Pooling and Servicing Agreement dated as of November 1, 1996", to be
submitted for recording in the appropriate jurisdictions wherein such
recordation is necessary to perfect the lien thereof as against creditors
of or purchasers from the Sponsor to the Trustee on behalf of the Trust;
provided, however, that the Sponsor shall not be required to record an
assignment for any Mortgage (x) until such original recording information
is available or (y) as to which the Sponsor furnishes, within such 30-day
period, at the Sponsor's expense, an opinion of counsel to the Trustee
("Assignment Opinion") which opines that recording is not necessary to
perfect the rights of the Trustee in the related Mortgage (in form and
substance satisfactory to the Certificate Insurer, Moody's and S&P).
Following the expiration of such 30-day period and except with respect to
Mortgages covered by the Assignment Opinions, the Sponsor shall cause to
be recorded a Mortgage assignment for any Mortgage for which original
recording information is subsequently received by the related Originator,
and shall promptly deliver a copy of such Mortgage assignment to the
Trustee; and
(iii) cause, within five Business Days following the expiration of
such 30-day period referred to in clause (ii) above, to be delivered to
the Trustee certified copies of all Mortgage assignments submitted for
recording, together with a list (which list also shall be delivered to the
Certificate Insurer) of (x) all Mortgages for which no Mortgage assignment
has yet been submitted for recording by the Sponsor and (y) reasons why
the Sponsor has not yet submitted such Mortgage assignments for recording.
With respect to any Mortgage assignment set forth on the aforementioned
list which has not been submitted for recording for a reason other than a
lack of original recording information or with respect to Mortgages
covered by the Assignment Opinions, the Trustee shall make an immediate
demand on the Sponsor to cause such Mortgage assignments to be recorded,
and shall inform the Certificate Insurer of the Sponsor's failure to cause
such Mortgage assignments to be recorded. Thereafter, the Trustee shall,
with respect to any assignment on the aforementioned list, upon the
request of the Certificate Insurer (which request shall be made only if
(i) applicable law requires such recordation to perfect the rights of the
Trustee in the related Mortgage or (ii) the Certificate Insurer has
removed the Servicer pursuant to Section 8.20), complete and cause to be
submitted for recording the assignment of Mortgage referred to in clause
(F) of Section 3.5(b)(i).
In furtherance of the foregoing, the Sponsor agrees to cause to be
delivered on the Startup Day an original executed power of attorney, executed by
the Sponsor, substantially in the form of Exhibit L, authorizing the Trustee to
complete and record the assignments of Mortgage described in clause (F) of
Section 3.5(b)(i) above, and if necessary, to execute a new assignment of
Mortgage for any Mortgage Loan if the original assignment of Mortgage delivered
by the Sponsor to the Trustee is not in
35
<PAGE>
recordable form at such time as the assignment of Mortgage is to be recorded by
the Trustee.
All Mortgage assignments as to which an acceptable Assignment
Opinion has not been delivered shall be accomplished within twelve months of the
Startup Day (including any assignments not originally recorded due to lack of
recordation information), unless the Certificate Insurer agrees to extend such
period, at the expense of the Originator or of the Sponsor. Notwithstanding
anything to the contrary contained in this Section 3.5, in those instances as
identified by the Sponsor where the public recording office retains the original
Mortgage, the assignment of a Mortgage or the intervening assignments of the
Mortgage after it has been recorded, the Sponsor shall be deemed to have
satisfied its obligations hereunder upon delivery to the Trustee of a copy of
such Mortgage, such assignment or assignments of Mortgage certified by the
public recording office to be a true copy of the recorded original thereof.
If the Servicer is removed pursuant to Section 8.20, the Trustee or
other successor Servicer shall submit all assignments for recording; the costs
of such assignments shall be paid by the Servicer.
Copies of all Mortgage assignments received by the Trustee shall be
kept in the related File.
The Servicer hereby acknowledges that the Financing Statements have
been duly submitted for filing. From time to time hereafter, the Servicer shall
take or cause to be taken such actions and execute such documents as are
necessary to perfect and protect the Trust's and the Owners' interests in the
Files against all other Persons, including, without limitation, the filing of
financing statements, amendments thereto and continuation statements.
(c) In the case of Mortgage Loans which have been prepaid in full on
or after the Cut-Off Date and prior to the Startup Day, the Sponsor, in lieu of
the foregoing, will deliver within 15 Business Days after the Startup Day to the
Trustee a certification of an Authorized Officer in the form set forth in
Exhibit D.
(d) The Sponsor shall transfer, sell, assign, set over and otherwise
convey without recourse, to the Trustee on behalf of the Trust all right, title
and interest of the Sponsor in and to any Qualified Replacement Mortgage
delivered to the Trustee on behalf of the Trust by the Sponsor pursuant to
Section 3.3, Section 3.4 or Section 3.6 hereof and all its right, title and
interest to unscheduled payments of principal (including Prepayments) collected
on and after the applicable Replacement Cut-Off Date, together with all payments
of principal collected and interest due after the applicable Replacement Cut-Off
Date, and all of its right, title and interest in and to all related Insurance
Policies.
(e) As to each Mortgage Loan released from the Trust in connection
with the conveyance of a Qualified Replacement Mortgage therefor, the Sponsor
will prepare
36
<PAGE>
and deliver to the Trustee an appropriate instrument for execution by the
Trustee, and the Trustee will transfer, assign, set over and otherwise convey
without representation, warranty or recourse, on the Sponsor's order, all of its
right, title and interest in and to such released Mortgage Loan and all the
Trust's right, title and interest to unscheduled payments of principal
(including Prepayments) collected on and after the applicable Replacement
Cut-Off Date, together with all payments of principal collected and interest due
after the applicable Replacement Cut-Off Date, and all of its right, title and
interest in and to all related Insurance Policies.
(f) In connection with any transfer, sale and assignment of a
Qualified Replacement Mortgage to the Trustee on behalf of the Trust, the
Sponsor agrees to cause to be delivered to the Trustee the items described in
Section 3.5(b) on the date of such transfer, sale and assignment or, if a later
delivery time is permitted by Section 3.5(b), then no later than such later
delivery time.
(g) As to each Mortgage Loan released from the Trust in connection
with the conveyance of a Qualified Replacement Mortgage the Trustee shall
deliver on the date of conveyance of such Qualified Replacement Mortgage and on
the order of the Sponsor (i) the original Note, or the certified copy, relating
thereto, if the certified copy is a legal substitute for an otherwise
unavailable original Note endorsed without recourse, to the Sponsor and (ii)
such other documents as constituted the File with respect thereto.
(h) If a Mortgage assignment is lost during the process of
recording, or is returned from the recorder's office unrecorded due to a defect
therein, the Sponsor shall prepare a substitute assignment or cure such defect,
as the case may be, and thereafter cause each such assignment to be duly
recorded.
(i) The Sponsor shall reflect on its records that the Mortgage Loans
have been sold to the Trust.
(j) The Sponsor shall deliver to the Servicer, the Certificate
Insurer and the Trustee a schedule of the Escrow Loans.
(k) With respect to each Escrow Loan, the Sponsor shall deliver to
the Trustee within one year after the Closing Date the following documents
related to such Escrow Loan: (i) escrow agreement, (ii) disbursement ledger,
(iii) Mortgagor's certification as to completion, (iv) if applicable,
contractor's certification as to completion and (v) if applicable, appraiser's
unqualified certification as to final completion pursuant to which the appraiser
(or, if the original appraiser has since died, retired, has been certified as an
incompetent, has gone insane or otherwise is unable to perform, a suitable
substitute appraiser) confirms that the Appraised Value of the Property upon
completion of the improvement (disregarding intervening changes, if any, in
market value) is at least equal to such appraiser's original estimate of such
Appraised Value (each such document, a "Required Escrow Document"). The Trustee
shall hold each Required Escrow Document so delivered in the related File. No
later than the end of the thirteenth month
37
<PAGE>
following the Startup Day, the Trustee shall report to the Sponsor, the
Originator, the Servicer and the Certificate Insurer whether all Required Escrow
Documents relating to the Escrow Loans have been received by the Trustee. If
such report indicates that any Required Escrow Document has not been received,
the Sponsor shall be required to take the actions set forth in Section 3.6(b) if
the lack of such Required Escrow Document materially and adversely affects the
interest of the Owners or of the Certificate Insurer in the related Escrow Loan.
Section 3.6. Acceptance by Trustee; Certain Substitutions of
Mortgage Loans; Certification by Trustee. (a) The Trustee agrees to execute and
deliver on the Startup Day an acknowledgment of receipt of the Notes delivered
by the Sponsor in the form attached as Exhibit E hereto, and declares that it
will hold the related File, together with any amendments, replacements or
supplements thereto, as well as any other assets included in the definition of
Trust Estate and delivered to the Trustee, as Trustee in trust upon and subject
to the conditions set forth herein for the benefit of the Owners and the
Certificate Insurer. The Trustee further agrees to review the documents
contained in each such File and any other documents delivered by the Sponsor
within 90 days after the Startup Day (or within 90 days with respect to any
Qualified Replacement Mortgage after the assignment thereof) and to deliver to
the Sponsor, the Servicer and the Certificate Insurer a pool certification in
the form attached hereto as Exhibit F (the "Pool Certification") to the effect
that, except as described in such certification, as to each Mortgage Loan listed
in the Schedule of Mortgage Loans (other than any Mortgage Loan paid in full or
any Mortgage Loan specifically identified in such Pool Certification as not
covered by such Pool Certification), (i) all documents required to be delivered
to it pursuant to this Agreement are in its possession, (ii) such documents have
been reviewed by it and have not been mutilated, damaged, torn or otherwise
physically altered and relate to such Mortgage Loan and (iii) based on its
examination and only as to the foregoing documents, the information set forth on
the Schedule of Mortgage Loans accurately reflects the information set forth in
the related File; provided, however, that such Pool Certification shall not be
delivered prior to 90 days after the Startup Day. The Trustee shall be under no
duty or obligation to inspect, review or examine any such documents,
instruments, certificates or other papers to determine that they are genuine,
enforceable, or appropriate for the represented purpose or that they are other
than what they purport to be on their face, nor shall the Trustee be under any
duty to determine independently whether there are any intervening assignments or
assumption or modification agreements with respect to any Mortgage Loan.
(b) If the Trustee during such 90-day period finds any document
constituting a part of a File which is not properly executed, has not been
received within the specified period, or is unrelated to the Mortgage Loans
identified in the Schedule of Mortgage Loans, or that any Mortgage Loan does not
conform in a material respect to the description thereof as set forth in the
Schedule of Mortgage Loans, the Trustee shall promptly so notify the Sponsor and
the Certificate Insurer. In performing any such review, the Trustee may
conclusively rely on the Sponsor as to the purported genuineness of any such
document and any signature thereon. It is understood that the scope of the
38
<PAGE>
Trustee's review of the items delivered by the Sponsor pursuant to Section
3.5(b)(i) is limited solely to confirming that the documents listed in Section
3.5(b)(i) have been executed and received, relate to the Files identified in the
Schedule of Mortgage Loans and conform materially to the description thereof in
the Schedule of Mortgage Loans. The Sponsor agrees to use reasonable efforts to
remedy a material defect in a document constituting part of a File of which it
is so notified by the Trustee. If, however, within 60 days after the Trustee's
notice to it respecting such defect the Sponsor has not remedied or caused to be
remedied the defect and the defect materially and adversely affects the interest
in the related Mortgage Loan of the Owners or of the Certificate Insurer, the
Sponsor will (or will cause the Originator or an affiliate of the Sponsor to) on
the next succeeding Remittance Date (i) substitute in lieu of such Mortgage Loan
a Qualified Replacement Mortgage and, deliver the Substitution Amount applicable
thereto to the Servicer for deposit in the Principal and Interest Account or
(ii) purchase such Mortgage Loan at a purchase price equal to the Loan Purchase
Price thereof, which purchase price shall be delivered to the Servicer for
deposit in the Principal and Interest Account. In connection with any such
proposed purchase or substitution the Sponsor shall cause at the Sponsor's
expense to be delivered promptly to the Trustee and to the Certificate Insurer
an opinion of counsel experienced in federal income tax matters stating whether
or not such a proposed purchase or substitution would constitute a Prohibited
Transaction for the Trust or would jeopardize the status of the Trust as a
REMIC, and the Sponsor shall only be required to take either such action to the
extent such action would not constitute a Prohibited Transaction for the Trust
or would not jeopardize the status of the Trust as a REMIC. Within 375 days
after the Closing Date, the Trustee shall deliver to the Certificate Insurer a
final certification (the "Final Certification") evidencing the completeness of
the Files acquired by the Trustee on behalf of the Trust. To the extent that the
Final Certification reflects any exceptions, the Seller and Trustee shall
continue to deliver to the Certificate Insurer a monthly certification
reflecting the status of any exceptions until all such exceptions have been
cured.
Section 3.7. Cooperation Procedures. (a) The Sponsor shall, in
connection with the delivery of each Qualified Replacement Mortgage to the
Trustee, provide the Trustee with the information set forth in the Schedule of
Mortgage Loans with respect to such Qualified Replacement Mortgage.
(b) The Sponsor, the Servicer and the Trustee covenant to provide
each other, the Certificate Insurer and each of Moody's and S&P with all data
and information required to be provided by them hereunder at the times required
hereunder, and additionally covenant reasonably to cooperate with each other in
providing any additional information required by any of them, the Certificate
Insurer or either Moody's and S&P in connection with their respective duties
hereunder.
(c) The Trustee shall have no duty hereunder with respect to any
complaint, claim, demand, notice or other document it may receive or which may
be alleged to have been delivered to or served upon it by third parties as a
consequence of the assignment of any Mortgage Loan hereunder, and the Servicer
hereby expressly
39
<PAGE>
releases, indemnifies and agrees to hold the Trustee harmless from any losses to
the Trustee or Trust Fund resulting therefrom; provided, however, that the
Trustee shall use commercially reasonable efforts to deliver to the Servicer any
such complaint, claim, demand, notice or other document which is delivered to
the Corporate Trust Office of the Trustee and contains sufficient information to
enable the Trustee to identify it as pertaining to a Mortgage Loan.
(d) The Trustee shall file on behalf of the Trust all reports
required to be filed with the Securities and Exchange Commission or any exchange
or association of securities dealers pursuant to the Securities and Exchange Act
of 1934, as amended, or any rules and regulations thereunder.
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES
Section 4.1. Issuance of Certificates. On the Startup Day, upon the
Trustee's receipt from the Sponsor of an executed Delivery Order in the form set
forth as Exhibit G hereto, the Trustee shall execute, authenticate and deliver
the Certificates on behalf of the Trust in accordance with the directions set
forth in such Delivery Order.
Section 4.2. Sale of Certificates. At 11:00 a.m. New York City time
on the Startup Date, at the offices of Dewey Ballantine, 1301 Avenue of the
Americas, New York, New York, the Sponsor will sell and convey the Mortgage
Loans and the money, instruments and other property related thereto to the
Trustee, and the Trustee will (i) deliver to the Underwriter, the Class A
Certificates with an aggregate Percentage Interest in each Class equal to 100%,
registered in the name of Cede & Co. or in such other names as the Underwriter
shall direct, against payment of the purchase price thereof by wire transfer of
immediately available funds to the Trustee and (ii) deliver to the Sponsor, the
Class B Certificates and the Residual Certificates, with an aggregate Percentage
Interest equal to 100%, registered as the Sponsor shall request. Upon receipt of
the proceeds of the sale of the Certificates, the Trustee shall, from the
proceeds of the sale of the Certificates, pay such fees and expenses as are
identified by the Sponsor, and pay to the Sponsor the balance after deducting
such amounts. The Sponsor shall pay directly to the Certificate Insurer the
Initial Premium.
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS
Section 5.1. Terms. (a) The Certificates are pass-through securities
having the rights described therein and herein. Notwithstanding references
herein or therein with respect to the Certificates as to "principal" and
"interest" no debt of any
40
<PAGE>
Person is represented thereby, nor are the Certificates or the underlying Notes
guaranteed by any Person (except that the Notes may be recourse to the
Mortgagors thereof to the extent permitted by law and except for the rights of
the Trustee with respect to the Certificate Insurance Policy). Distributions on
the Certificates are payable solely from payments received on or with respect to
the Mortgage Loans (other than the Servicing Fees), moneys in the Principal and
Interest Account and the Certificate Account, except as otherwise provided
herein, from earnings on moneys and the proceeds of property held as a part of
the Trust Estate upon the occurrence of certain events, from Insured Payments,
Delinquency Advances and Compensating Interest made by the Servicer or otherwise
held by the Servicer in Trust for the Owners, except as otherwise provided
herein. Each Certificate entitles the Owner thereof to receive monthly on each
Payment Date, in order of priority of distributions with respect to such Class
of Certificates, a specified portion of such payments with respect to the
Mortgage Loans, certain related Insured Payments, pro rata in accordance with
such Owner's Percentage Interest.
(b) Each Owner is required, and hereby agrees, to return to the
Trustee any Certificate with respect to which the Trustee has made the final
distribution due thereon. Any such Certificate as to which the Trustee has made
the final distribution thereon shall be deemed cancelled and shall no longer be
Outstanding for any purpose of this Agreement, whether or not such Certificate
is ever returned to the Trustee.
Section 5.2. Forms. The Class A Certificates, the Class B
Certificates, the Class RL Certificates and the Class RU Certificates shall be
in substantially the forms set forth in Exhibits A, B, C-1 and C-2 hereof,
respectively, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Agreement or as may in the
Sponsor's judgment be necessary, appropriate or convenient to comply, or
facilitate compliance, with applicable laws, and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with the rules of any applicable securities laws.
Section 5.3. Execution, Authentication and Delivery. Each
Certificate shall be executed on behalf of the Trust, by the manual or facsimile
signature of one of the Trustee's Authorized Officers and shall be authenticated
by the manual signature of one of the Trustee's Authorized Officers.
Certificates bearing the signature of individuals who were at any
time the proper officers of the Trustee shall, upon proper authentication by the
Trustee, bind the Trust, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the execution and delivery of such
Certificates or did not hold such offices at the date of authentication of such
Certificates.
The initial Certificates shall be dated as of the Startup Day and
delivered at the Closing to the parties specified in Section 4.2 hereof.
41
<PAGE>
No Certificate shall be valid until executed and authenticated as
set forth above.
Section 5.4. Registration and Transfer of Certificates. (a) The
Trustee, as registrar, shall cause to be kept a register (the "Register") in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and the registration of
transfer of Certificates. The Trustee is hereby appointed registrar for the
purpose of registering Certificates and transfers of Certificates as herein
provided. The Owners shall have the right to inspect the Register at all
reasonable times and to obtain copies thereof.
(b) Subject to the provisions of Section 5.8 hereof, upon surrender
for registration of transfer of any Certificate at the office designated as the
location of the Register, the Trustee shall execute, authenticate and deliver,
in the name of the designated transferee or transferees, one or more new
Certificates of a like Class and in the aggregate Certificate Principal Balance
of the Certificate so surrendered.
(c) At the option of any Owner, Certificates of any Class owned by
such Owner may be exchanged for other Certificates authorized of like Class,
tenor and a like aggregate Certificate Principal Balance and bearing numbers not
contemporaneously outstanding, upon surrender of the Certificates to be
exchanged at the office designated as the location of the Register. Whenever any
Certificate is so surrendered for exchange, the Trustee shall execute,
authenticate and deliver the Certificate or Certificates which the Owner making
the exchange is entitled to receive.
(d) All Certificates issued upon any registration of transfer or
exchange of Certificates shall be valid evidence of the same ownership interests
in the Trust and entitled to the same benefits under this Agreement as the
Certificates surrendered upon such registration of transfer or exchange.
(e) Every Certificate presented or surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by the
Owner thereof or his attorney duly authorized in writing.
(f) No service charge shall be made to an Owner for any registration
of transfer or exchange of Certificates, but the Trustee may require payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Certificates; any other expenses in connection with such transfer or exchange
shall be an expense of the Trust. The Trustee shall not be liable for any
expenses in connection with the issuance of Certificates pursuant to this
Section 5.4.
(g) It is intended that the Class A Certificates be registered so as
to participate in a global book-entry system with the Depository, as set forth
herein. The
42
<PAGE>
Class A Certificates shall, except as otherwise provided in the next paragraph,
be initially issued in the form of a single fully registered Class A Certificate
with a denomination equal to the related Original Class A Certificate Principal
Balance. Upon initial issuance, the ownership of each such Class A Certificate
shall be registered in the Register in the name of Cede & Co., or any successor
thereto, as nominee for the Depository.
The minimum denominations shall be $1,000 for any Class A
Certificate, and 10% Percentage Interest for any Class B Certificate or any
Residual Certificate.
The Sponsor and the Trustee are hereby authorized to execute and
deliver the Representation Letter with the Depository.
With respect to Class A Certificates registered in the Register in
the name of Cede & Co., as nominee of the Depository, the Sponsor, the Servicer,
the Certificate Insurer and the Trustee shall have no responsibility or
obligation to Direct or Indirect Participants or beneficial owners for which the
Depository holds Class A Certificates from time to time as a Depository. Without
limiting the immediately preceding sentence, the Sponsor, the Servicer, the
Certificate Insurer and the Trustee shall have no responsibility or obligation
with respect to (i) the accuracy of the records of the Depository, Cede & Co.,
or any Direct or Indirect Participant with respect to the ownership interest in
the Class A Certificates, (ii) the delivery to any Direct or Indirect
Participant or any other Person, other than a registered Owner of a Class A
Certificate as shown in the Register, of any notice with respect to the Class A
Certificates or (iii) the payment to any Direct or Indirect Participant or any
other Person, other than a registered Owner of a Class A Certificate as shown in
the Register, of any amount with respect to any distribution of principal or
interest on the Class A Certificates. No Person other than a registered Owner of
a Class A Certificate as shown in the Register shall receive a certificate
evidencing such Class A Certificate.
Upon delivery by the Depository to the Trustee of written notice to
the effect that the Depository has determined to substitute a new nominee in
place of Cede & Co., and subject to the provisions hereof with respect to the
payment of interest by the mailing of checks or drafts to the registered Owners
of Class A Certificates appearing as registered Owners in the registration books
maintained by the Trustee at the close of business on a Record Date, the name
"Cede & Co." in this Agreement shall refer to such new nominee of the
Depository.
(h) In the event that (i) the Depository or the Sponsor advises the
Trustee in writing that the Depository is no longer willing or able to discharge
properly its responsibilities as nominee and depository with respect to the
Class A Certificates and the Sponsor is unable to locate a qualified successor
or (ii) the Sponsor at its sole option elects to terminate the book-entry system
through the Depository, the Class A Certificates shall no longer be restricted
to being registered in the Register in the name of Cede & Co. (or a successor
nominee) as nominee of the Depository. At that time, the Sponsor may determine
that the Class A Certificates shall be registered in the name of and deposited
43
<PAGE>
with a successor depository operating a global book-entry system, as may be
acceptable to the Sponsor, or such depository's agent or designee but, if the
Sponsor does not select such alternative global book-entry system, then the
Class A Certificates may be registered in whatever name or names registered
Owners of Class A Certificates transferring Class A Certificates shall
designate, in accordance with the provisions hereof.
(i) Notwithstanding any other provision of this Agreement to the
contrary, so long as any Class A Certificate is registered in the name of Cede &
Co., as nominee of the Depository, all distributions of principal or interest on
such Class A Certificates as the case may be and all notices with respect to
such Class A Certificates as the case may be shall be made and given,
respectively, in the manner provided in the Representation Letter.
Section 5.5. Mutilated, Destroyed, Lost or Stolen Certificates. If
(i) any mutilated Certificate is surrendered to the Trustee, or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (ii) in the case of any mutilated Certificate, such mutilated
Certificate shall first be surrendered to the Trustee, and in the case of any
destroyed, lost or stolen Certificate, there shall be first delivered to the
Trustee such security or indemnity as may be reasonably required by it to hold
the Trust and the Trustee harmless (provided, that with respect to an Owner
which is an insurance company of investment grade credit rating, a letter of
indemnity furnished by it shall be sufficient for this purpose), then, in the
absence of notice to the Trustee that such Certificate has been acquired by a
bona fide purchaser, the Trustee shall execute, authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like Class, tenor and aggregate Certificate
Principal Balance, bearing a number not contemporaneously outstanding.
Upon the issuance of any new Certificate under this Section, the
Trustee may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto; any other expenses
in connection with such issuance shall be an expense of the Trust. The Trustee
shall not be liable for any expenses in connection with the issuance of
Certificates pursuant to this Section 5.5.
Every new Certificate issued pursuant to this Section in exchange
for or in lieu of any mutilated, destroyed, lost or stolen Certificate shall
constitute evidence of a substitute interest in the Trust, and shall be entitled
to all the benefits of this Agreement equally and proportionately with any and
all other Certificates of the same Class duly issued hereunder and such
mutilated, destroyed, lost or stolen Certificate shall not be valid for any
purpose.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Certificates.
44
<PAGE>
Section 5.6. Persons Deemed Owners. The Trustee and the Certificate
Insurer and any of their respective agents may treat the Person in whose name
any Certificate is registered as the Owner of such Certificate for the purpose
of receiving distributions with respect to such Certificate and for all other
purposes whatsoever, and neither the Trustee, the Certificate Insurer nor any of
their respective agents shall be affected by notice to the contrary.
Section 5.7. Cancellation. All Certificates surrendered for
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. No Certificate shall be authenticated in lieu of or in exchange for any
Certificate cancelled as provided in this Section, except as expressly permitted
by this Agreement. All cancelled Certificates may be held or destroyed by the
Trustee in accordance with its standard policy. The Sponsor, the Servicer, the
Certificate Insurer and any Originator may at any time deliver any Certificate
to the Trustee for cancellation, and the Trustee is hereby authorized to cancel
any such Certificate.
Section 5.8. Limitation on Transfer of Ownership Rights. (a) No sale
or other transfer of any Class A Certificate shall be made to the Sponsor or any
of its respective affiliates, the Servicer, any Sub-Servicer or the Trust.
(b) No sale or other transfer of record or beneficial ownership of
any Residual Certificate (whether pursuant to a purchase, a transfer resulting
from a default under a secured lending agreement or otherwise) shall be made to
a Disqualified Organization or agent of a Disqualified Organization. The
transfer, sale or other disposition of any Residual Certificate (whether
pursuant to a purchase, a transfer resulting from a default under a secured
lending agreement or otherwise) to a Disqualified Organization shall be deemed
to be of no legal force or effect whatsoever and such transferee shall not be
deemed to be an Owner for any purpose hereunder, including, but not limited to,
the receipt of distributions on such Residual Certificate. Furthermore, in no
event shall the Trustee accept surrender for transfer, registration of transfer,
or register the transfer, of any Residual Certificate nor authenticate and make
available any new Residual Certificate unless the Trustee has received an
affidavit from the proposed transferee substantially in the form attached hereto
as Exhibit G. Each holder of any Residual Certificate, by his acceptance
thereof, shall be deemed for all purposes to have consented to the provisions of
this Section 5.8(b).
(c) No other sale or other transfer of record or beneficial
ownership of a Unregistered Certificate shall be made unless such transfer is
exempt from the registration requirements of the Securities Act of 1933, as
amended, and any applicable state securities laws or is made in accordance with
said Act and laws. In the event such a transfer is to be made, (i) the Trustee
or the Sponsor shall require a written opinion of counsel acceptable to and in
form and substance satisfactory to the Sponsor that such transfer may be made
pursuant to an exemption, describing the applicable exemption and the basis
therefor, from said Act and laws or is being made pursuant to said Act and laws,
which
45
<PAGE>
opinion of counsel shall not be an expense of the Trustee or the Sponsor, and
(ii) the Trustee shall require the Transferee to execute an investment letter
acceptable to and in form and substance satisfactory to the Sponsor certifying
to the Trustee and the Sponsor the facts surrounding such transfer, which
investment letter shall not be an expense of the Trustee. The Owner of a
Unregistered Certificate desiring to effect such transfer shall, and does hereby
agree to, indemnify the Trustee and the Sponsor against any liability that may
result if the transfer is not so exempt or is not made in accordance with such
federal and state laws.
(d) Notwithstanding the foregoing, no sale or other transfer of
record or beneficial ownership of a Class B Certificate or a Residual
Certificate shall be made unless the Trustee shall have received a
representation letter from the transferee of such Certificate, acceptable to and
in form and substance satisfactory to the Trustee, to the effect that such
transferee is not an employee benefit plan subject to Section 406 of ERISA nor a
plan nor other arrangement subject to Section 4975 of the Code (collectively, a
"Plan"), nor is acting on behalf of any Plan nor using the assets of any Plan to
affect such transfer.
Section 5.9. Assignment of Rights. An Owner may pledge, encumber,
hypothecate or assign all or any part of its right to receive distributions
hereunder, but such pledge, encumbrance, hypothecation or assignment shall not
constitute a transfer of an ownership interest sufficient to render the
transferee an Owner of the Trust without compliance with the provisions of
Section 5.4 and Section 5.8 hereof.
ARTICLE VI
COVENANTS
Section 6.1. Distributions. The Trustee will duly and punctually pay
distributions with respect to the Certificates from the Trust Estate in
accordance with the terms of the Certificates and this Agreement based on the
related Servicer's report. Such distributions shall be made (i) by check mailed
on each Payment Date or (ii) if requested by any Owner, to such Owner by wire
transfer to an account within the United States designated no later than five
Business Days prior to the related Record Date, made on each Payment Date, in
each case to each Owner of record on the immediately preceding Record Date;
provided, however, that an Owner of a Class A Certificate shall only be entitled
to payment by wire transfer if such Owner owns Class A Certificates with an
Original Certificate Principal Balance of at least $5,000,000.
Section 6.2. Money for Distributions to be Held in Trust;
Withholding. (a) All payments of amounts due and payable with respect to any
Certificate that are to be made from amounts withdrawn from the Certificate
Account pursuant to Section 7.5 hereof or from Insured Payments shall be made by
the Trustee on behalf of the Trust, and no amounts so withdrawn from the
Certificate Account for payments of the Certificates
46
<PAGE>
and no Insured Payment shall be paid over to the Trustee except as provided in
this Section.
(b) The Trustee on behalf of the Trust shall comply with all
requirements of the Code and applicable state and local law with respect to the
withholding from any distributions made by it to any Owner of any applicable
withholding taxes imposed thereon and with respect to any applicable reporting
requirements in connection therewith.
(c) Any money held by the Trustee in trust for the payment of any
amount due with respect to any Class A Certificate, Class B Certificate or
Residual Certificate and remaining unclaimed by the Owner of such Certificate
for the period then specified in the escheat laws of the State of New York after
such amount has become due and payable shall be discharged from such trust and
be paid first to the Owners of the Class A Certificates, second, to the
Certificate Insurer on account of any Reimbursement Amounts, third, to the
Owners of the Class B Certificates and fourth to the Owners of the Residual
Certificates; and the Owner of such Certificate shall thereafter, as an
unsecured general creditor, look only to the Certificate Insurer or the Sponsor
for payment thereof (but only to the extent of the amounts so paid to the
Certificate Insurer or the Sponsor), and all liability of the Trustee with
respect to such trust money shall thereupon cease; provided, however, that the
Trustee, before being required to make any such payment, shall at the expense of
the Trust cause to be published once, in the eastern edition of The Wall Street
Journal, notice that such money remains unclaimed and that, after a date
specified therein, which shall be not fewer than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be paid to
the Certificate Insurer (to the extent of any Reimbursement Amount then owing to
it) or the Sponsor. The Trustee shall, at the direction of the Sponsor, also
adopt and employ, at the expense of the Sponsor, any other reasonable means of
notification of such payment (including but not limited to mailing notice of
such payment to Owners whose right to or interest in moneys due and payable but
not claimed is determinable from the Register at the last address of record for
each such Owner).
Section 6.3. Protection of Trust Estate. (a) The Trustee will hold
the Trust Estate in trust for the benefit of the Owners and the Certificate
Insurer, and with the consent of the Certificate Insurer, at the request and
expense of the Sponsor, will from time to time execute and deliver all such
supplements and amendments hereto pursuant to Section 11.14 hereof and all
instruments of further assurance and other instruments, and will take such other
action upon such request to:
(i) more effectively hold in trust all or any portion of the Trust
Estate;
(ii) perfect, publish notice of, or protect the validity of any
grant made or to be made by this Agreement;
(iii) enforce any of the Mortgage Loans; or
47
<PAGE>
(iv) preserve and defend title to the Trust Estate and the rights of
the Trustee, and the ownership interests of the Owners represented
thereby, in such Trust Estate against the claims of all Persons and
parties.
The Trustee shall send copies of any request received from the
Certificate Insurer or the Sponsor to take any action pursuant to this Section
6.3 to the other party.
(b) The Trustee shall have the power to enforce, and shall enforce
the obligations of the other parties to this Agreement and of the Certificate
Insurer, by action, suit or proceeding at law or equity, and shall also have the
power to enjoin, by action or suit in equity, any acts or occurrences which may
be unlawful or in violation of the rights of the Owners; provided, however, that
nothing in this Section shall require any action by the Trustee unless the
Trustee shall first (i) have been furnished indemnity satisfactory to it and
(ii) when required by this Agreement, have been requested to take such action by
a majority of the Percentage Interests represented by the Class A Certificates
then Outstanding or, if there are no longer any Class A Certificates then
outstanding, by such majority of the Percentage Interests represented by the
Class B Certificates.
(c) The Trustee shall execute any instrument reasonably required
pursuant to this Section so long as such instrument does not conflict with this
Agreement or with the Trustee's fiduciary duties.
Section 6.4. Performance of Obligations. The Trustee will not take
any action that would release the Sponsor, the Servicer, the Originator or the
Certificate Insurer from any of their respective covenants or obligations under
any instrument or document relating to the Trust Estate or the Certificates or
which would result in the amendment, hypothecation, subordination, termination
or discharge of, or impair the validity or effectiveness of, any such instrument
or document, except as expressly provided in this Agreement or such other
instrument or document.
The Trustee may contract with other Persons to assist it in
performing its duties hereunder.
Section 6.5. Negative Covenants. The Trustee will not, to the extent
within the control of the Trustee, take any of the following actions:
(i) sell, transfer, exchange or otherwise dispose of any of the
Trust Estate except as expressly permitted by this Agreement;
(ii) claim any credit on or make any deduction from the
distributions payable in respect of, the Certificates (other than amounts
properly withheld from such payments under the Code) or assert any claim
against any present or former Owner by reason of the payment of any taxes
levied or assessed upon any of the Trust Estate;
48
<PAGE>
(iii) incur, assume or guaranty on behalf of the Trust any
indebtedness of any Person except pursuant to this Agreement;
(iv) dissolve or liquidate the Trust Estate in whole or in part,
except pursuant to Article IX hereof; or
(v) (A) impair the validity or effectiveness of this Agreement, or
release any Person from any covenants or obligations with respect to the
Trust or to the Certificates under this Agreement, except as may be
expressly permitted hereby or (B) create or extend any lien, charge,
adverse claim, security interest, mortgage or other encumbrance to or upon
the Trust Estate or any part thereof or any interest therein or the
proceeds thereof except as may be expressly permitted herein.
Section 6.6. No Other Powers. The Trustee will not, to the extent
within the control of the Trustee, permit the Trust to engage in any business
activity or transaction other than those activities permitted by Section 2.3
hereof.
Section 6.7. Limitation of Suits. No Owner shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Agreement
or the Certificate Insurance Policy or for the appointment of a receiver or
trustee, or for any other remedy hereunder, unless:
(1) such Owner has previously given written notice to the Sponsor and
the Trustee of such Owner's intention to institute such proceeding;
(2) the Owners of not less than 25% of the Percentage Interests
represented by the Class A Certificates then Outstanding or, if
there are no Class A Certificates then Outstanding, by such
percentage of the Percentage Interests represented by the Class B
Certificates, shall have made written request to the Trustee to
institute such proceeding in respect of such Event of Default;
(3) such Owner or Owners have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute such proceeding;
(5) as long as any Class A Certificates are Outstanding, the Certificate
Insurer consented in writing thereto; and
(6) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Certificate Insurer
or by the
49
<PAGE>
Owners of a majority of the Percentage Interests represented by the
Class A Certificates or, if there are no Class A Certificates then
Outstanding, by such majority of the Percentage Interests
represented by the Class B Certificates;
it being understood and intended that no one or more Owners shall have any right
in any manner whatever by virtue of, or by availing themselves of, any provision
of this Agreement to affect, disturb or prejudice the rights of any other Owner
of the same Class or to obtain or to seek to obtain priority or preference over
any other Owner of the same Class or to enforce any right under this Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more Classes of Owners, each representing
less than a majority of the applicable Class of Certificates, the Trustee shall
act at the direction of the Certificate Insurer.
Section 6.8. Unconditional Rights of Owners to Receive
Distributions. Notwithstanding any other provision in this Agreement, the Owner
of any Certificate shall have the right, which is absolute and unconditional, to
receive distributions to the extent provided herein and therein with respect to
such Certificate or to institute suit for the enforcement of any such
distribution, and such right shall not be impaired without the consent of such
Owner.
Section 6.9. Rights and Remedies Cumulative. Except as otherwise
provided herein, no right or remedy herein conferred upon or reserved to the
Trustee, the Certificate Insurer or to the Owners is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
Except as otherwise provided herein, the assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 6.10. Delay or Omission Not Waiver. No delay of the Trustee,
the Certificate Insurer or any Owner of any Certificate to exercise any right or
remedy under this Agreement to any Event of Default shall impair any such right
or remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article VI or by law to the
Trustee, the Certificate Insurer or to the Owners may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee, the Certificate
Insurer or by the Owners, as the case may be.
Section 6.11. Control by Owners. The Certificate Insurer or the
Majority Owners, with the consent of the Certificate Insurer (which may not be
unreasonably withheld) may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee with respect to the
Certificates or exercising any trust or
50
<PAGE>
power conferred on the Trustee with respect to the Certificates or the Trust
Estate, including, but not limited to, those powers set forth in Section 6.3,
Section 8.20 and Section 11.20 hereof; provided that:
(1) such direction shall not be in conflict with any rule of law or with
this Agreement;
(2) the Trustee shall have been provided with indemnity satisfactory to
it; and
(3) the Trustee may take any other action deemed proper by the Trustee,
which is not inconsistent with such direction; provided, however,
that the Trustee need not take any action which it determines might
involve it in liability or may be unjustly prejudicial to the Owners
not so directing.
ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 7.1. Collection of Money. Except as otherwise expressly
provided herein, the Trustee may demand payment or delivery of all money and
other property payable to or receivable by the Trustee pursuant to this
Agreement, including (a) all payments due on the Mortgage Loans in accordance
with the respective terms and conditions of such Mortgage Loans and required to
be paid over to the Trustee by the Servicer or by any Sub-Servicer and (b)
Insured Payments in accordance with the terms of the Certificate Insurance
Policy. The Trustee shall hold all such money and property received by it, other
than pursuant to or as contemplated by Section 6.2(b) hereof, as part of the
Trust Estate and shall apply it as provided in this Agreement.
Section 7.2. Establishment of Certificate Account. The Sponsor shall
establish and maintain, at the corporate trust office of the Trustee, a
Certificate Account to be held by the Trustee as a segregated trust account in
the name of the Trust so long as the Trustee qualifies as a Designated
Depository Institution and if the Trustee does not qualify, then by any
Designated Depository Institution for the benefit of the Owners of the
Certificates and the Certificate Insurer, as their interests may appear.
Section 7.3. The Certificate Insurance Policy.
(a) By 12:00 noon New York City time on each Determination Date the
Trustee shall determine with respect to the immediately following Payment Date
the amount (after taking into account investment earnings) to be on deposit in
the Certificate Account on such Payment Date with respect to the Class A
Certificates excluding any amounts payable under Section 7.5(b)(iii) and
excluding an amount equal to the sum of Premium Amount and the Monthly Trustee
Fee Amount for the related Payment Date. The amount described in the preceding
sentence with respect to each Payment Date, after
51
<PAGE>
taking into account the portion of the Principal Distribution Amount to be
actually distributed on such Payment Date without regard to any Insured Payment
to be made with respect to such Payment Date, is the "Available Funds."
(b) If the Insured Distribution Amount for any Payment Date exceeds
the Available Funds for such Payment Date (such event being an "Available Funds
Shortfall"), the Trustee shall complete a Notice in the form of Exhibit A
attached to the Certificate Insurance Policy and submit such notice to the
Certificate Insurer no later than 5:00 p.m. New York City time on the
Determination Date as a claim for an Insured Payment in an amount equal to such
Available Funds Shortfall. The Notice shall specify the amount of the Insured
Payment and shall constitute a claim for an Insured Payment pursuant to the
Certificate Insurance Policy.
(c) The Trustee shall report to the Sponsor, the Certificate Insurer
and the Servicer with respect to the amounts then held in each Account held by
the Trustee and the identity of the investments included therein, as the
Sponsor, the Certificate Insurer or the Servicer may from time to time request.
Without limiting the generality of the foregoing, the Trustee shall, at the
request of the Sponsor, the Certificate Insurer or the Servicer, transmit
promptly to the Certificate Insurer, the Sponsor and the Servicer copies of all
accountings of receipts in respect of the Mortgage Loans furnished to it by the
Servicer.
(d) The Trustee shall (i) receive as attorney-in-fact of the Owners
of the Class A Certificates any Insured Payment from the Certificate Insurer and
(ii) disburse the same to such Owners as set forth in Section 7.5(b)(iv).
Insured Payments disbursed by the Trustee from proceeds of the Certificate
Insurance Policies shall not be considered payment by the Trust with respect to
the Class A Certificates, and the Certificate Insurer shall become the owner of
such unpaid amounts due from the Trust in respect of Insured Payments as the
deemed assignee of such Owners, as hereinafter provided. The Trust and the
Trustee hereby agree on behalf of each Owner of Class A Certificates for the
benefit of the Certificate Insurer that they recognize that to the extent the
Certificate Insurer pays Insured Payments, either directly or indirectly (as by
paying through the Trustee), to the Owners of the Class A Certificates, the
Certificate Insurer will be entitled to receive the amount of any Class A
Interest Carry-Forward Amount and Class A Principal Carry-Forward Amount and
will be subrogated to the rights of the Owners of the Class A Certificates with
respect to such Insured Payment, shall be deemed to the extent of the payments
so made to be an Owner of such Class A Certificates and shall receive future
distributions of the Class A Distribution Amount until all such Insured Payments
by the Certificate Insurer have been fully reimbursed, as described in the
following paragraph. To evidence such subrogation, the Trustee shall note the
Certificate Insurer's rights as subrogee on the Register upon receipt from the
Certificate Insurer of proof of the payment of any Insured Payment, after making
the distribution on any such future Payment Date to Owners of the Class A
Certificates other than to the Certificate Insurer.
52
<PAGE>
It is understood and agreed that the intention of the parties is
that the Certificate Insurer shall not be entitled to reimbursement on any
Payment Date for amounts previously paid by it unless on such Payment Date the
Owners of the Class A Certificates shall also have received the full amount of
the Class A Distribution Amount (exclusive of any Class A Interest Carry-Forward
Amount and Class A Principal Carry Forward Amount, representing amounts
previously paid to the Owners of the Class A Certificates as Insured Payments)
for such Payment Date.
The Certificate Insurer shall be entitled to receive the related
Reimbursement Amount pursuant to Sections 7.5(b)(iii) hereof with respect to
each Insured Payment made by the Certificate Insurer. The Trustee hereby agrees
on behalf of each Owner of Class A Certificates and the Trust for the benefit of
the Certificate Insurer that it recognizes that to the extent the Certificate
Insurer makes Insured Payments, either directly or indirectly (as by paying
through the Trustee), to the Owners of such Class A Certificates, the
Certificate Insurer will be entitled to receive the related Reimbursement Amount
pursuant to Sections 7.5(b)(iii).
(e) Each Owner of a Class A Certificate which pays any Preference
Amounts theretofore received by such Owner on account of such Class A
Certificate will be entitled to receive reimbursement for such amounts from the
Certificate Insurer in accordance with the terms of the Certificate Insurance
Policy, but only after (i) delivering a copy to the Certificate Insurer of a
final, nonappealable order (a "Preference Order") of a court having competent
jurisdiction under the United States Bankruptcy Code demanding payment of such
amount to the bankruptcy court, (ii) irrevocably assigning such Owner's rights
and claim with respect to such Preference Order to the Certificate Insurer in
such form as is required by the Certificate Insurer, and (iii) appointing the
Certificate Insurer as such Certificateholder's agent in respect of such claim
or amount in such form as required by the Certificate Insurer. In no event,
however, shall any Class A Certificateholder be entitled to reimbursement for
any payment avoided under a Preference Order as to which the Certificate Insurer
previously has made a payment under the Certificate Insurance Policy, nor is the
Certificate Insurer obligated to make any payment in respect of any payment
avoided under a Preference Order which represents a payment of the principal
amount of the Class A Certificates prior to the time the Certificate Insurer
otherwise would have been required to make a payment in respect of such
principal.
The Trustee, for itself and on behalf of the Owners, agrees that the
Certificate Insurer may at any time during the continuation of any proceeding
relating to a Preference Order direct all matters relating to such Preference
Order, including, without limitation, the direction of any appeal of any order
relating to such Preference Order and the posting of any surety, supersedeas or
performance bond pending any such appeal. In addition and without limitation of
the foregoing, the Certificate Insurer shall be subrogated, to the extent of
Insured Payments, to the rights of the Sponsor, the Servicer, the Trustee and
each Owner in the conduct of any such preference claim, including
53
<PAGE>
without limitation, all rights of any party to any adversarial proceeding or
action with respect to any court order issued in connection with any such
preference claim.
(f) The Trustee shall keep a complete and accurate record of the
amount of interest and principal paid in respect of any Certificate from moneys
received under the Certificate Insurance Policy. The Certificate Insurer shall
have the right to inspect such records at reasonable times during normal
business hours upon one Business Day's prior notice to the Trustee.
Section 7.4. [Reserved]
Section 7.5. Flow of Funds. (a) The Trustee shall deposit to the
Certificate Account, without duplication, upon receipt, any Insured Payments,
the proceeds of any liquidation of the assets of the Trust, the Monthly
Remittance Amount remitted by the Servicer or any Sub-Servicer, together with
any Substitution Amounts and any Loan Purchase Price amounts received by the
Trustee.
(b) With respect to the Certificate Account, on each Payment Date,
the Trustee shall, based upon the information set forth in a report provided by
the Servicer and based upon a calculation made by the Trustee, make the
following allocations, disbursements and transfers in the following order of
priority, and each such allocation, transfer and disbursement shall be treated
as having occurred only after all preceding allocations, transfers and
disbursements have occurred:
(i) first, to the Certificate Insurer, from amounts then on deposit in
the Certificate Account, the Premium Amount for such Payment Date;
(ii) second, to the Trustee, from amounts then on deposit in the
Certificate Account, the Monthly Trustee Fee Amount and expenses (to
the extent not paid by the Sponsor or the Servicer pursuant to
Section 2.5) for such Payment Date;
(iii) third, on each Payment Date, the Trustee shall pay to the
Certificate Insurer an amount equal to the lesser of (x) the excess
of (i) the amount then on deposit in the Certificate Account over
(ii) the Insured Distribution Amount for such Payment Date and (y)
the Reimbursement Amount as of such Payment Date.
(iv) fourth, on each Payment Date, the Trustee shall distribute the
amount, if any, remaining on deposit in the Certificate Accounts
after the allocations described in clauses (i) through (iii) above,
to the Owners of the Class A Certificates, the Class A Distribution
Amount for such Payment Date;
(v) fifth, on each Payment Date, the Trustee shall distribute from the
amount, if any, remaining on deposit in the Certificate Account
after the allocations
54
<PAGE>
described in clause (i) through (iv) above, to the Owners of the
Class B Certificates, the lesser of (x) such remaining available
funds and (y) the Class B Interest Distribution Amount;
(vi) sixth, on each Payment Date, the Trustee shall distribute from the
amount, if any, remaining on deposit in the Certificate Account
after the allocations described in clause (i) through (v) above, to
the Owners of the Class B Certificates, the lesser of (x) such
remaining available funds and (y) the Class B Principal Distribution
Amount as of such Payment Date, applied as a distribution of
principal on account of the Class B Certificates, until the Class B
Principal Balance has been reduced to zero;
(vii) seventh, from the amount, if any, remaining on deposit in the
Certificate Account following the making by the Trustee of all
allocations, transfers and disbursements described above under
Section 7.3 hereof and the prior clauses of this Section 7.5
(including any related Insured Payment with respect to the Class A
Certificates), the Trustee shall pay to the Servicer, to the extent
the Servicer has not otherwise withheld such amounts pursuant to
Sections 8.8(c) and (d), any unreimbursed Delinquency Advances,
unreimbursed Servicing Advances and accrued and unpaid Servicing
Fees, in each case as certified to the Trustee by the Servicer to be
owing to it as of such Payment Date, and/or to the Trustee, any
reimbursable amounts then unpaid to the Trustee;
(viii)eighth, on each Payment Date, the Trustee shall apply the amount, if
any, remaining after the allocations described in clauses (i)
through (vii) above, to the Owners of the RU Certificates;
provided, however, that if, on any Payment Date, (x) the Certificate Insurer is
then in default under the Certificate Insurance Policy relating to the Mortgage
Loans and (y) a Subordination Deficit exists, then any distribution of the Class
A Formula Distribution Amount on such Payment Date shall be made pro rata to the
Owners of each of the Class A Certificates. Notwithstanding any of the
distributions or allocations set forth in clause (vi) above, no money will be
allocated or distributed to the Owners of the Class B Certificates on any
Payment Date unless the Subordinated Amount is equal to or greater than the
required Specified Subordinated Amount as determined after distributions in
clauses (i) through (iv) for such Payment Date.
(c) In determining the amount, if any, of Excess Interest allocated
on any Payment Date to cover the Subordination Increase Amount, if any, to be
paid to the Owners of the Class A Certificates on such Payment Date, the amount
of the Residual Interest, if any, as of such Payment Date shall first be deemed,
for purposes hereof, to have been allocated to cover such Subordination Increase
Amount and any shortfall remaining thereafter shall be deemed, for purposes
hereof, to have been allocated from
55
<PAGE>
the Class B Interest to be otherwise distributed to the Owners of the Class B
Certificates on such Payment Date.
(d) Notwithstanding clause (b)(iv) above, the aggregate amounts
distributed on all Payment Dates to the Owners of the Class A Certificates on
account of principal shall not exceed the Original Class A Certificate Principal
Balance.
(e) Any amounts properly distributed to the Owners of the Class B
Certificates or to the Owners of the Residual Certificates pursuant to the terms
of this Agreement shall be distributed free of the subordination described
herein, and any such amounts shall in no event be required to be returned to the
Trustee or paid over to the Owners of the Class A Certificates.
(f) Whenever, during the administration of the Trust, there comes
into the possession of the Trustee any money or property which this Agreement
does not otherwise require to be distributed on account of the Class A
Certificates or the Class B Certificates, the Trustee shall distribute such
money or other property to the Owners of the Class RU Certificates.
Section 7.6. Investment of Accounts. (a) So long as no event
described in Sections 8.20(a) hereof shall have occurred and be continuing, and
consistent with any requirements of the Code, all or a portion of the Accounts
held by the Trustee shall be invested and reinvested by the Trustee in the name
of the Trustee for the benefit of the Owners, as directed in writing by the
Servicer, in one or more Eligible Investments bearing interest or sold at a
discount. No investment in any Account shall mature later than the Payment Date.
(b) If any amounts are needed for disbursement from any Account held
by the Trustee and sufficient uninvested funds are not available to make such
disbursement, the Trustee shall cause to be sold or otherwise converted to cash
a sufficient amount of the investments in such Account. No investments will be
liquidated prior to maturity unless the proceeds thereof are needed for
disbursement.
(c) Subject to Section 10.1 hereof, the Trustee shall not in any way
be held liable by reason of any insufficiency in any Account held by the Trustee
resulting from any loss on any Eligible Investment included therein (except to
the extent that the bank serving as Trustee is the obligor thereon).
(d) The Trustee shall hold funds in the Accounts held by the Trustee
uninvested upon the occurrence of either of the following events:
(i) the Servicer or the Certificate Insurer, as the case may
be, shall have failed to give investment directions to the Trustee within
ten days after receipt of a written request for such directions from the
Trustee; or
56
<PAGE>
(ii) the Servicer or the Certificate Insurer, as the case may
be, shall have failed to give investment directions to the Trustee during
the ten-day period described in clause (i) preceding, by 11:15 a.m. New
York time (or such other time as may be agreed by the Servicer or the
Certificate Insurer, as the case may be, and the Trustee) on any Business
Day (any such investment by the Trustee pursuant to this clause (ii) to
mature on the next Business Day after the date of such investment).
(e) For purposes of investment, the Trustee may but shall not be
required to aggregate all amounts on deposit in the Accounts. All income or
other gain from investments in the Accounts shall be deposited in the related
Account immediately on receipt.
Section 7.7. Eligible Investments. The following are Eligible
Investments:
(a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States fully and
unconditionally guaranteed, the timely payment or the guarantee of which
constitutes a full faith and credit obligation of the United States.
(b) Federal Housing Administration debentures, but excluding any
such securities whose terms do not provide for payment of a fixed dollar amount
upon maturity or call for redemption.
(c) FHLMC senior debt obligations, but excluding any such securities
whose terms do not provide for payment of a fixed dollar amount upon maturity or
call for redemption.
(d) FNMA senior debt obligations, but excluding any such securities
whose terms do not provide for payment of a fixed dollar amount upon maturity or
call for redemption.
(e) Federal funds, certificates of deposit, time and demand
deposits, and bankers' acceptances (having original maturities of not more than
365 days) of any domestic bank, the short-term debt obligations of which have
been rated A-1 or better by S&P and P-1 by Moody's.
(f) Deposits of any bank or savings and loan association which has
combined capital, surplus and undivided profits of at least $50,000,000 which
deposits are not in excess of the applicable limits insured by the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC, provided
that the long-term deposits of such bank or savings and loan association are
rated at least "BBB" by S&P and "Baa3" by Moody's.
57
<PAGE>
(g) Commercial paper (having original maturities of not more than
270 days) rated A-1 or better by S&P and P-1 or better by Moody's.
(h) Investments in money market or common trust funds rated AAAm or
AAAm-G by S&P and Aaa by Moody's.
(i) Such other investments as have been approved in writing by S&P,
Moody's and the Certificate Insurer;
provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity. Any Eligible Investment may be purchased by or
through the Trustee or any of its affiliates.
Section 7.8. Reports by Trustee. (a) On each Payment Date, the
Trustee shall provide to each Owner, to the Servicer, to the Certificate
Insurer, to the Underwriter, to the Sponsor, to S&P and to Moody's a written
report in substantially the form set forth as Exhibit I hereto, as such form may
be revised by the Trustee, the Servicer, Moody's and S&P from time to time, but
in every case setting forth the information requested on Exhibit I hereto and
the following information, in each case as of such Payment Date:
(i) the amount of the distribution with respect to the Class A
Certificates, the Class B Certificates and the Residual Certificates;
(ii) the amount of such distributions allocable to principal
on the related Certificates, separately identifying the aggregate amount
of regularly scheduled installment payments of principal, any Prepayments
or other unscheduled recoveries of principal included therein and
separately identifying any Subordination Increase Amount;
(iii) the amount of such distributions allocable to interest
on the related Certificates;
(iv) the Monthly Remittance Amount, separately identifying the
Mortgage interest and principal collections;
(v) the Class A Certificate Principal Balance, together with
the principal amount of the Class A Certificates (based on a Certificate
in an original principal amount of $1,000) then outstanding, in each case
after giving effect to any payment of principal on such Payment Date;
58
<PAGE>
(vi) the Class B Principal Balance, together with the
principal amount of the Class B Certificates (based on a Certificate in an
original principal amount of $1,000) then outstanding, in each case after
giving effect to any payment of principal on such Payment Date;
(vii) the amounts described in Sections 7.5(b)(iii) and (vii);
(viii) the amount of any Insured Payment included in the
amounts distributed on the Class A Certificates on such Payment Date, and
the aggregate unreimbursed Insured Payments outstanding since the Closing
Date;
(ix) information furnished by the Sponsor pursuant to Section
6049(d)(7)(C) of the Code and the regulations promulgated thereunder to
assist the Owners in computing their market discount;
(x) the total of any Substitution Amounts and any Loan
Purchase Price amounts included in such distribution;
(xi) the amount of any Subordination Reduction Amount;
(xii) the amounts, if any, of any Realized Losses for the
related Remittance Period and the Aggregate Loan Balance of Mortgage loans
which experienced such Realized Losses, the Cumulative Loss Amount and the
Rolling Three Month Delinquency Rate, in each case as of such Payment
Date;
(xiii) a number with respect to the Class A Certificates (the
"Pool Factor") computed by dividing the Class A Certificate Principal
Balance (after giving effect to any distribution of principal to be made
on such Payment Date) by the Original Class A Certificate Principal
Balance;
(xiv) the aggregate of any Insurance Proceeds received by the
Servicer during the related Remittance Period;
(xv) the Specified Subordinated Amount, and the Subordinated
Amount;
(xvi) the weighted average Coupon Rate of the Mortgage Loans,
and the weighted average maturity of the Mortgage Loans; and
(xvii) the Aggregate Loan Balance.
Items (i) through (iii) above shall, with respect to the Class A
Certificates, be presented on the basis of a Certificate having a $1,000
denomination. In addition, by January 31 of each calendar year following any
year during which the Certificates are outstanding, the Trustee shall furnish a
report to each Owner of record at any time during
59
<PAGE>
each calendar year as to the aggregate of amounts reported pursuant to (i), (ii)
and (iii) with respect to the Certificates for such calendar year.
(b) In addition, on each Payment Date, the Trustee will distribute
to each Owner, to the Certificate Insurer, to the Underwriter, to the Servicer,
to the Sponsor, to S&P and to Moody's, together with the information described
in Subsection (a) preceding, the following information as of the close of
business on the last Business Day of the prior calendar month, which is hereby
required to be prepared by the Servicer and furnished to the Trustee for such
purpose on or prior to the related Remittance Date:
(i) the total number of Mortgage Loans and the Aggregate Loan
Balance thereof, together with the number, aggregate principal balances of
the Mortgage Loans and the percentage of all Mortgage Loans (a) 30-59 days
Delinquent, (b) 60-89 days Delinquent and (c) 90 or more days Delinquent;
(ii) the number, Aggregate Loan Balance of all Mortgage Loans
and percentage of the Aggregate Loan Balance of such Mortgage Loans in
foreclosure proceedings (and whether any such Mortgage Loans are also
included in any of the statistics described in the foregoing clause (i));
(iii) the number, Aggregate Loan Balance of all Mortgage Loans
and percentage of the Aggregate Loan Balance of such Mortgage Loans
relating to Mortgagors in bankruptcy proceedings (and whether any such
Mortgage Loans are also included in any of the statistics described in the
foregoing clause (i));
(iv) the number, Aggregate Loan Balance of all Mortgage Loans
and percentage of the Aggregate Loan Balance of such Mortgage Loans
relating to REO Properties (and whether any such Mortgage Loans are also
included in any of the statistics described in the foregoing clause (i));
(v) the book value of any REO Property;
(vi) the number and amount of all Prepayments (and separately
setting forth the number and amount of any voluntary Prepayments in full);
(vii) the number and Aggregate Loan Balance of all Mortgages
subject to losses;
(viii) the number and Aggregate Loan Balance of Mortgages
outstanding; and
(ix) a Form of Liquidation Report, substantially in the form
of Exhibit K hereto, for each Mortgage Loan which has experienced a
Realized Loss during the Remittance Period.
60
<PAGE>
Section 7.9. Additional Reports by Trustee. (a) The Trustee shall
report to the Sponsor, the Servicer and the Certificate Insurer with respect to
the amount then held in each Account (including investment earnings accrued or
scheduled to accrue) held by the Trustee and the identity of the investments
included therein, as the Sponsor, the Servicer or the Certificate Insurer may
from time to time request. Without limiting the generality of the foregoing, the
Trustee shall, at the request of the Sponsor, the Servicer or the Certificate
Insurer, transmit promptly to the Sponsor, the Servicer and the Certificate
Insurer copies of all accountings of receipts in respect of the Mortgage Loans
furnished to it by the Servicer. The content of reports by the Trustee pursuant
to this subsection shall consist of its trust accounting system statements.
(b) The Trustee is hereby authorized to execute purchases and sales
directed by the Servicer through the facilities of its own trading or capital
markets operations. The Trustee shall send statements to the servicer monthly
reflecting activity for each account created hereunder for the preceding month.
Although the Servicer recognizes that it may obtain a broker confirmation or
written statement containing comparable information at no additional cost, the
Servicer hereby agrees that confirmations of investments are not required to be
issued by the Trustee for each month in which a monthly statement is rendered.
No statement need be rendered pursuant to the provision hereof if no activity
occurred in the account for such month.
(c) From time to time, at the request of the Certificate Insurer,
the Trustee shall report to the Certificate Insurer and each of Moody's and S&P
with respect to its actual knowledge, without independent investigation, of any
breach of any of the Representations and Warranties. On the date that is
eighteen months after the Startup Day, the Trustee shall provide the Certificate
Insurer with a written report of all of such inaccuracies to such date of which
it has actual knowledge, without independent investigation, and of the action
taken by the Originator under the related Master Transfer Agreement or by the
Sponsor under Section 3.4(a) hereof with respect thereto.
Section 7.10. Allocation of Realized Losses. If, on any Payment
Date, and following the making of all allocations, transfers and distributions
(other than as provided in this Section) on such Payment Date (x) the Class A
Principal Balance exceeds (y) the Aggregate Loan Balance as of the close of
business on the last day of the related Remittance Period (any such excess,
"Allocable Losses"), such Allocable Losses shall be applied as a reduction of
the Class B Principal Balance until the Class B Principal Balance has been
reduced to zero.
61
<PAGE>
ARTICLE VIII
SERVICING AND ADMINISTRATION
OF MORTGAGE LOANS
Section 8.1. Servicer and Sub-Servicers. (a) Acting directly or
through one or more Sub-Servicers as provided in Section 8.3, the Servicer, as
master servicer, shall service and administer the Mortgage Loans for the
benefit, and in the best interests of, the Owners and, to the extent not
conflicting with the best interests of the Owners, the interest of the
Certificate Insurer in accordance with this Agreement and applicable law and
with reasonable care, and using that degree of skill and attention that the
Servicer exercises with respect to comparable mortgage loans that it services
for itself or others, and shall have full power and authority, acting alone, to
do or cause to be done any and all things in connection with such servicing and
administration which it may deem necessary or desirable. To the extent
consistent with the foregoing, the Servicer shall seek to maximize the timely
and complete recovery of principal of and interest on the Mortgage Loans.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Servicer shall not have any duties, responsibilities, or fiduciary relationship
with the Trustee except those expressly set forth herein.
(b) The duties of the Servicer shall include collecting and posting
of all payments, responding to inquiries of Mortgagors or by federal, state or
local government authorities with respect to the Mortgage Loans, investigating
delinquencies, reporting tax information to Mortgagors in accordance with its
customary practices and accounting for collections and furnishing monthly and
annual statements to the Trustee with respect to distributions, paying
Compensating Interest and making Delinquency Advances and Servicing Advances
pursuant hereto. The Servicer and any Sub-Servicer shall follow its customary
standards, policies and procedures in performing its duties as Servicer or
Sub-Servicer, as applicable. The Servicer shall cooperate with the Trustee and
furnish to the Trustee with reasonable promptness information in its possession
as may be necessary or appropriate to enable the Trustee to perform its duties
hereunder. The Trustee shall furnish the Servicer and any Sub-Servicer with any
powers of attorney and other documents reasonably necessary or appropriate to
enable the Servicer and any Sub-Servicer to carry out its servicing and
administrative duties hereunder.
(c) Without limiting the generality of the foregoing, the Servicer
(i) shall continue, and is hereby authorized and empowered by the Trustee,
subject to Section 8.1(a), to execute and deliver, on behalf of itself, the
Owners and the Trustee or any of them, any and all instruments of satisfaction
or cancellation, or of partial release, subject to the provisions of Section
8.1(i) below, or full release or discharge and all other comparable instruments,
with respect to the Mortgage Loans and with respect to the related Properties;
(ii) may consent to any modification of the terms of any Note not expressly
prohibited hereby if the effect of any such modification (x) will not be to
affect materially and adversely the security afforded by the related Property,
the timing of receipt or amounts of any payments required hereby or the
interests of the Certificate
62
<PAGE>
Insurer and (y) will not cause the Trust to fail to qualify as a REMIC;
provided, however, that the Servicer shall not consent to any such modifications
without the prior consent of the Certificate Insurer if the Aggregate Loan
Balance of all Mortgage Loans which have been subject to modifications pursuant
to this Section 8.1(d) exceeds 5% of the Original Aggregate Loan Balance.
(d) The parties intend that the Trust shall constitute, and that the
affairs of the Trust shall be conducted so as to qualify the Trust as a REMIC.
In furtherance of such intention, the Servicer covenants and agrees that it
shall act as agent (and the Servicer is hereby appointed to act as agent) on
behalf of the Trust and that in such capacity it shall: (i) use its best efforts
to conduct the affairs of the Trust at all times that any Class of Certificates
are outstanding so as to maintain the status of the Trust as a REMIC under the
REMIC Provisions; (ii) not knowingly or intentionally take any action or omit to
take any action that would cause the termination of the REMIC status of the
Trust or that would subject the Trust to tax and (iii) exercise reasonable care
not to allow the Trust to receive income from the performance of services or
from assets not permitted under the REMIC Provisions to be held by a REMIC.
(e) The Servicer may, and is hereby authorized to, perform any or
all of its servicing responsibilities with respect to all or certain of the
Mortgage Loans through a Sub-Servicer as it may from time to time designate, but
no such designation of a Sub-Servicer shall serve to release the Servicer from
any of its obligations under this Agreement. Such Sub-Servicer shall have all
the rights and powers of the Servicer with respect to such Mortgage Loans under
this Agreement.
(f) Without limiting the generality of the foregoing, but subject to
Sections 8.13 and 8.14, the Servicer in its own name or in the name of a
Sub-Servicer may be authorized and empowered pursuant to a power of attorney
executed and delivered by the Trustee to execute and deliver, and may be
authorized and empowered by the Trustee, to execute and deliver, on behalf of
itself, the Owners and the Trustee or any of them, (i) any and all instruments
of satisfaction or cancellation or of partial or full release or discharge and
all other comparable instruments with respect to the Mortgage Loans and with
respect to the Properties, (ii) and to institute foreclosure proceedings or
obtain a deed in lieu of foreclosure so as to effect ownership of any Property
on behalf of the Trust, and (iii) to hold title to any Property upon such
foreclosure or deed in lieu of foreclosure on behalf of the Trust. Section
8.14(a) shall constitute a power of attorney from the Trustee to the Servicer to
execute an instrument of satisfaction (or assignment of mortgage without
recourse) with respect to any Mortgage Loan paid in full (or with respect to
which payment in full has been escrowed). Subject to Sections 8.13 and 8.14, the
Trustee shall furnish the Servicer with any powers of attorney and other
documents as the Servicer or such Sub-Servicer shall reasonably request to
enable the Servicer and such Sub-Servicer to carry out their respective
servicing and administrative duties hereunder.
63
<PAGE>
(g) The Servicer shall give prompt notice to the Trustee and the
Certificate Insurer of any action, of which the Servicer has actual knowledge,
to (i) assert a claim against the Trust or (ii) assert jurisdiction over the
Trust.
(h) Unreimbursed Servicing Advances incurred by the Servicer or any
Sub-Servicer in connection with the servicing of the Mortgage Loans (including
any penalties in connection with the payment of any taxes and assessments or
other charges) on any Property shall be recoverable by the Servicer or such
Sub-Servicer to the extent described in Section 8.9(c) and in Section
7.5(b)(vii) hereof.
(i) The Servicer shall have the right to approve requests of
Mortgagors for consent to partial releases or division of Mortgaged Properties.
No such request shall be approved by the Servicer unless: (A) (w) the provisions
of the related Note and Mortgage have been complied with, (x) the loan-to-value
ratio (which may, for this purpose be determined at the time of any such action
in a manner reasonably acceptable to the Certificate Insurer) after any release
does not exceed the loan-to-value ratio set forth for such Mortgage Loan in the
related Schedule of Mortgage Loans, and (y) the lien priority of the related
Mortgage is not affected; or (B) the Certificate Insurer shall have approved the
granting of such request.
(j) Each of the Sponsor and the Servicer may make loans to and
generally engage in any kind of business with the Mortgagors and/or any other
obligors under the Mortgage Loans as though either the Sponsor or the Servicer
were not a party to this Agreement; provided, that the foregoing shall not have
a material adverse effect on the transactions contemplated by this Agreement.
Each of the Sponsor and the Servicer may have other existing loans and in the
future may make additional loans to any of the Mortgagors and/or to other
obligors under the Mortgage Loans, which other and/or additional loans may not
be sold, or a loan participation therein granted, to the Trustee. The Servicer
shall collect payments under the Mortgage Loans in the same preference and
priority as the collection and/or enforcement of any other and/or additional
loans by the Servicer.
(k) Each of the Sponsor, the Servicer and the Trustee shall be
entitled to rely, and shall be fully protected in relying, upon any promissory
note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document reasonably believed by it to be genuine and correct and to have
been signed, sent or made by the proper person or persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Mortgagor(s)), independent accountants and other experts selected by the Sponsor
or the Trustee. The Servicer shall be fully justified in failing or refusing to
take any action under this Agreement for which it has sought and failed to
receive instructions from the Trustee provided that the Servicer is entitled to
receive instructions from the Trustee hereunder. The Servicer shall in all cases
be fully protected in acting, or in refraining from acting, under this Agreement
and the Mortgage Loans in accordance with
64
<PAGE>
an express written request of the Trustee, and such request and any action taken
or failure to act pursuant thereto shall be binding upon the Sponsor and
Trustee.
(l) The relationship of the Servicer (and of any successor to the
Servicer as servicer under this Agreement) to the Trustee under this Agreement
is intended by the parties to be that of an independent contractor and not that
of a joint venturer, partner or agent of the Trustee.
Section 8.2. Collection of Certain Mortgage Loan Payments. (a) The
Servicer may in its discretion (i) waive any assumption fees, late payment
charges, charges for checks returned for insufficient funds, prepayment fees, if
any, or other fees which may be collected in the ordinary course of servicing
the Mortgage Loans, (ii) if a Mortgagor is in default or about to be in default
because of a Mortgagor's financial condition, arrange with the Mortgagor a
schedule for the payment of delinquent payments due on the related Mortgage
Loan, (iii) modify payments of monthly principal and interest on any Mortgage
Loan becoming subject to the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended, in accordance with the Servicer's general policies for
comparable mortgage loans subject to such Act, (iv) extend the due date for
payments due on a Note for a period (with respect to each payment as to which
the due date is extended) not greater than 125 days after the initially
scheduled due date for such payment, (v) amend any Note to extend the maturity
thereof, provided that no maturity shall be extended by more than three (3)
months and that no more than 5.0% of the Original Aggregate Loan Balance shall
be modified to have a maturity date which has been extended beyond the maturity
date thereof as of the Cut-Off Date without the prior consent of the Certificate
Insurer. With respect to clause (v) above, the Certificate Insurer shall respond
within three (3) Business Days of the Servicer's request for such consent, and
if the Certificate Insurer fails to so respond, the Servicer shall assume that
the consent of the Certificate Insurer has been given.
(b) The Servicer shall hold in escrow in the Principal and Interest
Account on behalf of the related Mortgagor all Prepaid Installments received by
it, and shall apply such Prepaid Installments as directed by such Mortgagor and
as set forth in the related Note.
Section 8.3. Sub-Servicing Agreements Between Servicer and
Sub-Servicers. The Servicer may enter into Sub-Servicing Agreements for any
servicing and administration of Mortgage Loans with any institution which is in
compliance with the laws of each state necessary to enable it to perform its
obligations under such Sub-Servicing Agreement and which is acceptable to the
Certificate Insurer and is experienced in serving loans of a type similar to the
Mortgage Loans and has equity of at least $2,500,000, as determined in
accordance with generally accepted accounting principles. The Servicer shall
give notice to the Certificate Insurer, the Trustee, Moody's and S&P of the
appointment of any Sub-Servicer and shall furnish to the Certificate Insurer,
the Trustee, Moody's and S&P a copy of the Sub-Servicing Agreement. For purposes
of this Agreement, the Servicer shall be deemed to have received payments on
Mortgage Loans
65
<PAGE>
when any Sub-Servicer has received such payments. Any such Sub-Servicing
Agreement shall be consistent with and not violate the provisions of this
Agreement. Any such Sub-Servicing Agreement may be terminated by the Trustee
with the written consent of the Certificate Insurer (which consent shall not be
unreasonably withheld), provided that the Servicer has been terminated
hereunder. As of the Startup Day the only Sub-Servicer is Transworld Mortgage
Corporation.
Section 8.4. Successor Sub-Servicers. Each Sub-Servicing Agreement
shall expressly provide that the Servicer may terminate any Sub-Servicing
Agreement in accordance with the terms and conditions of such Sub-Servicing
Agreement and either directly service the related Mortgage Loans itself or enter
into a Sub-Servicing Agreement with a successor Sub-Servicer that qualifies
under Section 8.3. The Trustee shall have no duty or obligation to monitor or
supervise the performance of any Sub-Servicer.
Section 8.5. Liability of Servicer. The Servicer shall not be
relieved of its obligations under this Agreement notwithstanding any
Sub-Servicing Agreement or any of the provisions of this Agreement relating to
agreements or arrangements between the Servicer and a Sub-Servicer or otherwise,
and the Servicer shall be obligated to the same extent and under the same terms
and conditions as if it alone were servicing and administering the Mortgage
Loans. The Servicer shall be entitled to enter into any agreement with a
Sub-Servicer for indemnification of the Servicer by such Sub-Servicer and
nothing contained in such Sub-Servicing Agreement shall be deemed to limit or
modify this Agreement. The Trust shall have no liability to the Servicer except
for payment of the Servicing Fee and reimbursement of Delinquency Advances and
Servicing Advances as expressly contemplated in this Agreement. The Trust shall
have no obligation to indemnify the Servicer for costs or expenses, except with
respect to the preceding sentence. The Trust shall not indemnify the Servicer
for any losses due to the Servicer's negligence.
Section 8.6. No Contractual Relationship Between Sub-Servicer and
Trustee or the Owners. Any Sub-Servicing Agreement and any other transactions or
services relating to the Mortgage Loans involving a Sub-Servicer shall be deemed
to be between the Sub-Servicer and the Servicer alone and the Certificate
Insurer, the Trustee and the Owners shall not be deemed parties thereto and
shall have no claims, rights, obligations, duties or liabilities with respect to
any Sub-Servicer except as set forth in Section 8.7.
Section 8.7. Assumption or Termination of Sub-Servicing Agreement by
Trustee. In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of the Servicer hereunder by
the Trustee pursuant to Section 8.20, the Servicer's rights and obligations
under any Sub-Servicing Agreement then in force between the Servicer and a
Sub-Servicer may be assumed or terminated by the Trustee at the Trustee's
option, in each case after consultation with the Certificate Insurer.
66
<PAGE>
The Servicer shall, upon request of the Trustee, but at the expense
of the Servicer, deliver to the assuming party documents and records relating to
each Sub-Servicing Agreement and an accounting of amounts collected and held by
it and otherwise use its best reasonable efforts to effect the orderly and
efficient transfer of the Sub-Servicing Agreements to the assuming party.
Section 8.8. Principal and Interest Account.
(a) The Servicer and/or each Sub-Servicer shall establish in the
name of the Trust for the benefit of the Owners of the Certificates and the
Certificate Insurer and maintain at one or more Designated Depository
Institutions the Principal and Interest Account.
Subject to Subsection (c) below, the Servicer and any Sub-Servicer
shall deposit all receipts related to the Mortgage Loans to the Principal and
Interest Account on a daily basis (but no later than the second Business Day
after receipt).
On the Startup Day, the Sponsor and/or the Servicer shall deposit to
the Principal and Interest Account all payments of principal and interest due
and received, and all Prepayments received after the Cut-Off Date.
(b) All funds in the Principal and Interest Account may only be held
(i) uninvested, up to the limits insured by the FDIC or (ii) invested in
Eligible Investments. The Principal and Interest Account shall be held in trust
in the name of the Trust and for the benefit of the Owners of the Certificates
and the Certificate Insurer. Any investment earnings on funds held in the
Principal and Interest Account shall be for the account of the Servicer and may
only be withdrawn from the Principal and Interest Account by the Servicer
immediately following the remittance of the Monthly Remittance Amounts by the
Servicer. Any references herein to amounts on deposit in the Principal and
Interest Account shall refer to amounts net of such investment earnings. The
amount of any losses on investments in the Principal and Interest Account, to
the extent not offset by earnings on other investments held therein, shall be
deposited in the Principal and Interest Account by the Servicer promptly upon
the recognition of such net losses.
(c) The Servicer shall deposit to the Principal and Interest Account
all payments of principal and interest (including Prepaid Installments) due
after the Cut-Off Date, and all payments of principal collected after the
Cut-Off Date, any Prepayments and Net Liquidation Proceeds, all Loan Purchase
Prices and Substitution Amounts received or paid by the Servicer with respect to
the Mortgage Loans, other recoveries or amounts related to the Mortgage Loans
received by the Servicer, Compensating Interest and Delinquency Advances
together with any amounts which are reimbursable from the Principal and Interest
Account, amounts on account of net investment losses and any condemnation
proceeds, but net of (i) the Servicing Fee with respect to each Mortgage Loan
and other servicing compensation to the Servicer as permitted by Section 8.15
hereof, and (ii) Net Liquidation Proceeds to the extent such Net Liquidation
Proceeds
67
<PAGE>
exceed the sum of (A) the Loan Balance of the related Mortgage Loan plus (B)
accrued and unpaid interest on such Mortgage Loan at the Coupon Rate (net of any
Servicing Fee) to the date of such liquidation. Amounts described in clause (ii)
of the preceding sentence shall be retained by the Servicer as additional
servicing compensation or paid over to the related Mortgagor if required by law.
(d)(i) The Servicer may make withdrawals from the Principal and
Interest Account only for the following purposes:
(A) to effect the timely remittance to the Trustee of the Monthly
Remittance Amounts due on each Remittance Date;
(B) to reimburse itself pursuant to Section 8.9 hereof for any
unreimbursed Reimbursable Advances;
(C) to withdraw investment earnings on amounts on deposit in the
Principal and Interest Account;
(D) to withdraw amounts that have been deposited to the Principal
and Interest Account in error; and
(E) to clear and terminate the Principal and Interest Account
following the termination of the Trust pursuant to Article IX.
(ii) On each Remittance Date, the Servicer shall send to the Trustee
a report, in print and/or electronic form, detailing the payments on the
Mortgage Loans during the prior Remittance Period. Such report shall be in the
form and have the specifications as may be agreed to between the Servicer and
the Trustee from time to time. The Trustee shall have no duty or obligation with
respect to the accuracy of the information contained in the report referred to
in this Section 8.8(d)(ii).
(iii) On each Remittance Date, the Servicer shall remit to the
Trustee by wire transfer, or otherwise make funds available in immediately
available funds all amounts then on deposit in the Principal and Interest
Account which relate to collections on or with respect to the Mortgage Loans
with respect to the immediately preceding Remittance Period, including the
amount of any Delinquency Advance, any Compensating Interest, Loan Purchase
Prices and Substitution Amounts; such amount being the "Monthly Remittance
Amount."
(e) The Servicer shall furnish the Trustee monthly statements of the
Principal and Interest Account, if it is not held by the Trustee.
(f) Notwithstanding any other provisions of this Agreement, the
Servicer shall be entitled to reimburse itself for any previously unreimbursed
expense otherwise reimbursable pursuant to the terms of this Agreement,
including, but not limited to, any
68
<PAGE>
Delinquency Advance, any Servicing Advance, and any Liquidation Expense, that
the Servicer determines (as evidenced by an Officer's Certificate) to be
otherwise nonrecoverable by withdrawal from the Principal and Interest Account
of amounts on deposit therein attributable to any of the Mortgage Loans on any
Business Day prior to the Payment Date succeeding the date of any such
determination.
Section 8.9. Delinquency Advances, Compensating Interest and
Servicing Advances. (a) On each Remittance Date the Servicer shall make a
Delinquency Advance with respect to delinquent interest on each Mortgage Loan
which was a Delinquent Mortgage Loan with respect to the related Remittance
Period; provided, however, that the Servicer will not be required to make any
Delinquency Advance if it determines that such Delinquency Advance would be an
Unrecoverable Delinquency Advance.
The Servicer shall be permitted to reimburse itself for any
Delinquency Advance from any subsequent collections or recoveries on the
Mortgage Loans. If not theretofore recovered by the Servicer, Delinquency
Advances shall be recoverable pursuant to Section 7.5(b)(vii) hereof.
(b) On or prior to each Remittance Date, the Servicer shall deposit
in the Principal and Interest Account with respect to any full or partial
Prepayment received on a Mortgage Loan during the related Remittance Period, out
of its own funds without any right of reimbursement therefor, an amount equal to
the difference between (x) 30 days' interest at the related Coupon Rate less the
Servicing Fee Rate on the Loan Balance of such Mortgage Loan as of the first day
of the related Remittance Period and (y) to the extent not previously advanced,
the interest (less the Servicing Fee) actually paid by the Mortgagor with
respect to the Mortgage Loan during such Remittance Period (any such amount paid
by the Servicer, "Compensating Interest"). The Servicer shall in no event be
required to pay Compensating Interest with respect to any Remittance Period in
an amount in excess of the aggregate Servicing Fee received by the Servicer with
respect to all Mortgage Loans for the related Remittance Period.
(c) The Servicer will pay all reasonable and customary
"out-of-pocket" costs and expenses (including reasonable legal fees) incurred in
the performance of its servicing obligations, including, but not limited to, the
cost of (i) Preservation Expenses, (ii) any enforcement or judicial proceedings,
including foreclosures, (iii) the management and liquidation of REO Property
(including, without limitation, realtor's commissions), and (iv) advances made
for taxes, insurance and other charges against the Property, each such
expenditure under clauses (i) - (iv) constituting a Servicing Advance, but the
Servicer is only required to pay such costs and expenses to the extent the
Servicer reasonably believes such costs and expenses will increase Net
Liquidation Proceeds on the related Mortgage Loan. Each such amount so paid will
constitute a "Servicing Advance".
The Servicer may recover Servicing Advances from the Mortgagors to
the extent permitted by the Mortgage Loans and from Net Liquidation Proceeds,
6 69
<PAGE>
condemnation proceeds or other insurance proceeds with respect to the related
Mortgage Loan.
Section 8.10. Purchase of Mortgage Loans. The Servicer may, but is
not obligated to, purchase for its own account any Mortgage Loan which becomes
Delinquent, in whole or in part, as to four consecutive monthly installments or
any Mortgage Loan as to which enforcement proceedings have been brought by the
Servicer or by any Sub-Servicer pursuant to Section 8.13. Any such Loan so
purchased shall be purchased by the Servicer on a Remittance Date at a purchase
price equal to the Loan Purchase Price thereof, which purchase price shall be
deposited in the Certificate Account simultaneously with the purchase of such
Mortgage Loan.
Section 8.11. Maintenance of Insurance. (a) The Servicer shall cause
to be maintained with respect to each Mortgage Loan a hazard insurance policy
with a generally acceptable carrier licensed in the state in which the Property
is located that provides for fire and extended coverage, and which provides for
a recovery by the Servicer on behalf of the Trust of insurance proceeds relating
to such Mortgage Loan in an amount not less than the least of (i) the
outstanding Loan Balance of the Mortgage Loan, (ii) the minimum amount required
to compensate for damage or loss on a replacement cost basis and (iii) the full
insurable value of the premises but in any event in an amount not less than such
amount as is necessary to avoid the application of any coinsurance clause
contained in the related insurance policy. No amounts advanced by the Servicer
for force-placed insurance shall be added to the Loan Balance of a Mortgage Loan
for any purpose under this Agreement.
(b) If the Mortgage Loan at the time of origination relates to a
Property in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards, the Servicer will cause to be
maintained with respect thereto a flood insurance policy in a form meeting the
requirements of the current guidelines of the Federal Insurance Administration
with a generally acceptable carrier in an amount representing coverage, and
which provides for a recovery by the Servicer on behalf of the Trust of
insurance proceeds relating to such Mortgage Loan of not less than the least of
(i) the outstanding Loan Balance of the Mortgage Loan, (ii) the minimum amount
required to compensate for damage or loss on a replacement cost basis and (iii)
the maximum amount of insurance that is available under the Flood Disaster
Protection Act of 1973. The Servicer shall indemnify the Trust and the
Certificate Insurer out of the Servicer's own funds for any loss to the Trust
and the Certificate Insurer resulting from the Servicer's failure to maintain
the insurance required by this Section.
(c) In the event that the Servicer shall obtain and maintain a
blanket policy from an insurer rated at least "A:X" or better in Best's Key
Rating Guide insuring against fire, flood and hazards of extended coverage on
all of the Mortgage Loans, then, to the extent such policy names the Servicer as
loss payee and provides coverage in an amount equal to the aggregate unpaid
principal balance on the Mortgage Loans without co-insurance, and otherwise
complies with the requirements of this Section 8.11, the
70
<PAGE>
Servicer shall be deemed conclusively to have satisfied its obligations with
respect to fire and hazard insurance coverage under this Section 8.11, it being
understood and agreed that such blanket policy may contain a deductible clause,
in which case the Servicer shall, in the event that there shall not have been
maintained on the related Property a policy complying with the preceding
paragraphs of this Section 8.11, and there shall have been a loss which would
have been covered by such policy, deposit in the Principal and Interest Account
from the Servicer's own funds the difference, if any, between the amount that
would have been payable under a policy complying with the preceding paragraphs
of this Section 8.11 and the amount paid under such blanket policy, including
the amount in the deductible clause. Upon the request of the Trustee or the
Certificate Insurer, the Servicer shall cause to be delivered to the Trustee or
the Certificate Insurer, a certified true copy of such policy.
Section 8.12. Due-on-Sale Clauses; Assumption and Substitution
Agreements. When a Property has been or is about to be conveyed by the
Mortgagor, the Servicer shall, to the extent it has knowledge of such conveyance
or prospective conveyance, exercise its rights to accelerate the maturity of the
related Mortgage Loan under any "due-on-sale" clause contained in the related
Mortgage or Note; provided, however, that the Servicer shall not exercise any
such right if (i) the "due-on-sale" clause, in the reasonable belief of the
Servicer, is not enforceable under applicable law or (ii) the Servicer
reasonably believes that to permit an assumption of the Mortgage Loan would not
materially and adversely affect the interest of the Owners or of the Certificate
Insurer and the Certificate Insurer provides its prior written consent. In such
event, the Servicer shall enter into an assumption and modification agreement
with the person to whom such Property has been or is about to be conveyed,
pursuant to which such person becomes liable under the Note and, unless
prohibited by such Note or applicable law, the Mortgagor remains liable thereon.
If the foregoing is not permitted under applicable law, the Servicer is
authorized to enter into a substitution of liability agreement with such person,
pursuant to which the original Mortgagor is released from liability and such
person is substituted as Mortgagor and becomes liable under the Note; provided,
however, that any such substitution of liability agreement must be delivered by
the Servicer pursuant to its usual procedures for mortgage loans held in its own
portfolio and the Servicer shall, prior to executing and delivering such
agreement, obtain the prior written consent of the Certificate Insurer. The
Mortgage Loan, as assumed, shall conform in all respects to the requirements,
representations and warranties of this Agreement and any related agreement. The
Servicer shall notify the Trustee that any such assumption or substitution
agreement has been completed by forwarding to the Trustee the original copy of
such assumption or substitution agreement, which copy shall be added by the
Trustee to the related File and which shall, for all purposes, be considered a
part of such File to the same extent as all other documents and instruments
constituting a part thereof. The Servicer shall be responsible for recording any
such assumption or substitution agreements. In connection with any such
assumption or substitution agreement, the required monthly payment on the
related Mortgage Loan shall not be changed but shall remain as in effect
immediately prior to the assumption or substitution, the stated maturity or
outstanding principal amount of such Mortgage Loan shall not be changed, the
Coupon
71
<PAGE>
Rate shall not be changed nor shall any required monthly payments of principal
or interest be deferred or forgiven. Any fee collected by the Servicer or the
Sub-Servicer for consenting to any such conveyance or entering into an
assumption or substitution agreement shall be retained by or paid to the
Servicer as additional servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of
this Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Mortgage Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
Section 8.13. Realization Upon Defaulted Mortgage Loans. (a) The
Servicer shall foreclose upon or otherwise comparably effect the ownership on
behalf of the Trust of Properties relating to defaulted Mortgage Loans as to
which no satisfactory arrangements can be made for collection of Delinquent
payments and which the Servicer has not purchased pursuant to Section 8.10,
unless the Servicer reasonably believes as evidenced by an Officer's Certificate
that Net Liquidation Proceeds with respect to such Mortgage Loan would not be
increased as a result of such foreclosure or other action, in which case such
Mortgage Loan will be charged-off and will become a Liquidated Loan. The
Servicer shall have no obligation to purchase any property at any foreclosure
sale. The Servicer will give notice of any such charge-off to the Certificate
Insurer and each of Moody's and S&P by delivery of a Liquidation Report in the
form attached as Exhibit K hereto. In connection with such foreclosure or other
conversion, the Servicer shall exercise such of the rights and powers vested in
it hereunder, and use the same degree of care and skill in their exercise or
use, as prudent mortgage lenders would exercise or use under the circumstances
in the conduct of their own affairs, including, but not limited to, advancing
funds for the payment of taxes, amounts due with respect to Senior Liens, and
insurance premiums. Any amounts so advanced shall constitute "Servicing
Advances" within the meaning of Section 8.9(c) hereof.
The Servicer shall sell any REO Property within 23 months of its
acquisition by the Trust, unless the Servicer obtains for the Trustee an opinion
of counsel experienced in federal income tax matters, addressed to the Trustee,
the Certificate Insurer and the Servicer, to the effect that the holding by the
Trust of such REO Property for any greater period will not result in the
imposition of taxes on "Prohibited Transactions" of the REMIC Trust as defined
in Section 860F of the Code or cause the Trust to fail to qualify as a REMIC
under the REMIC Provisions at any time that any Certificates are outstanding, in
which case the Servicer shall sell any REO Property by the end of any extended
period specified in any such opinion.
Notwithstanding the generality of the foregoing provisions, the
Servicer shall manage, conserve, protect and operate each REO Property for the
Owners solely for the purpose of its prompt disposition and sale in a manner
which does not cause such REO Property to fail to qualify as "foreclosure
property" within the meaning of Section
72
<PAGE>
860G(a)(8) of the Code or result in the receipt by the REMIC Trust of any
"income from non-permitted assets" within the meaning of Section 860F(a)(2)(B)
of the Code or any "net income from foreclosure property" which is subject to
taxation under the REMIC Provisions. Pursuant to its efforts to sell such REO
Property, the Servicer shall either itself or through an agent selected by the
Servicer protect and conserve such REO Property in the same manner and to such
extent as is customary in the locality where such REO Property is located and
may, incident to its conservation and protection of the interests of the Owners,
rent the same, or any part thereof, as the Servicer deems to be in the best
interest of the Owners for the period prior to the sale of such REO Property.
The Servicer shall take into account the existence of any hazardous
substances, hazardous wastes or solid wastes, as such terms are defined in the
Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act of 1976, or other federal, state or local
environmental legislation, on a Property in determining whether to foreclose
upon or otherwise comparably convert the ownership of such Property. To the
extent that the Servicer has actual knowledge of any such substance or waste, it
shall consult with the Certificate Insurer and the Trustee regarding the
appropriate course of action. The Servicer shall not institute foreclosure
actions with respect to a property containing substance or waste as described
above if it reasonably believes that such action would not be consistent with
its servicing standards, and in no event shall the Servicer manage, operate or
take any other action with respect thereto which the Servicer in good faith
believes will result in "clean-up" or other liability under applicable law. The
net income from the rental or sale of a REO property shall be deposited in the
Principal and Interest Account within two (2) Business Days after receipt
thereof by the Servicer.
(b) The Servicer shall determine, with respect to each defaulted
Mortgage Loan, when it has recovered, whether through trustee's sale,
foreclosure sale or otherwise, all amounts it expects to recover from or on
account of such defaulted Mortgage Loan, whereupon such Mortgage Loan shall
become a "Liquidated Loan".
Section 8.14. Trustee to Cooperate; Release of Files. (a) Upon the
payment in full of any Mortgage Loan (including the repurchase of any Mortgage
Loan or any liquidation of such Mortgage Loan through foreclosure or otherwise),
or the receipt by the Servicer of a notification that payment in full will be
escrowed in a manner customary for such purposes, the Servicer shall deliver to
the Trustee a Servicer's Trust Receipt. Upon receipt of such Servicer's Trust
Receipt, the Trustee shall promptly release the related File, in trust to (i)
the Servicer, (ii) an escrow agent or (iii) any employee, agent or attorney of
the Trustee, in each case pending its release by the Servicer, such escrow agent
or such employee, agent or attorney of the Trustee, as the case may be. Upon any
such payment in full, or the receipt of such notification that such funds have
been placed in escrow, the Servicer is authorized to give, as attorney-in-fact
for the Trustee and the mortgagee under the Mortgage which secured the Note, an
instrument of satisfaction (or assignment of Mortgage without recourse)
regarding the Property relating to such Mortgage, which instrument of
satisfaction or assignment, as the case may be,
73
<PAGE>
shall be delivered to the Person or Persons entitled thereto against receipt
therefor of payment in full. No expense incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Principal and Interest Account. In lieu of executing any such
satisfaction or assignment, as the case may be, the Servicer may prepare and
submit to the Trustee, a satisfaction (or assignment without recourse, if
requested by the Person or Persons entitled thereto) in form for execution by
the Trustee with all requisite information completed by the Servicer; in such
event, the Trustee shall execute and acknowledge such satisfaction or
assignment, as the case may be, and deliver the same with the related File, as
aforesaid. In connection with a foreclosure, the Servicer may prepare and submit
to the Trustee an assignment of mortgage to the Servicer, in form for execution
by the Trustee with all requisite information completed by the Servicer; in such
event, the Trustee shall execute and acknowledge such assignment, and deliver
the same with the related File to the Servicer.
(b) From time to time and as appropriate in the servicing of any
Mortgage Loan, including, without limitation, foreclosure or other comparable
conversion of a Mortgage Loan or collection under any applicable Insurance
Policy, the Trustee shall (except in the case of the payment or liquidation
pursuant to which the related File is released to an escrow agent or an
employee, agent or attorney of the Trustee), upon request of the Servicer and
delivery to the Trustee of a Servicer's Trust Receipt, release the related File
to the Servicer and shall execute such documents as shall be reasonably
necessary to the prosecution of any such proceedings, including, without
limitation, an assignment without recourse of the related Mortgage to the
Servicer; provided that there shall not, without the prior written consent of
the Certificate Insurer, be released and unreturned at any one time more than
10% of the entire number of Files then on deposit with the Trustee. Such receipt
by the Servicer shall obligate the Servicer to return the File to the Trustee
when the need therefor by the Servicer no longer exists unless the Mortgage Loan
shall be liquidated, in which case, upon receipt of the liquidation information,
in physical or electronic form, the Servicer's Trust Receipt shall be released
by the Trustee to the Servicer.
(c) In all cases where the Servicer determines that it is necessary
for the Trustee to sign any document or to authorize the release of a File
within a limited period of time, the Servicer shall notify an Authorized Officer
of the Trustee by telephone or facsimile transmission of such need and the
Trustee shall thereupon use its best efforts to comply with the Servicer's
needs, but in any event will comply within two Business Days of such request
with respect to the release of a File or the execution of a release or
assignment provided such request shall be received by 12:00 noon on the second
Business Day prior to such release, execution or assignment.
Section 8.15. Servicing Compensation. As compensation for its
activities hereunder, the Servicer shall be entitled to retain the amount of the
Servicing Fee from the interest collections with respect to each Mortgage Loan.
Additional servicing compensation in the form of prepayment charges, release
fees, bad check charges, assumption fees, late payment charges, or any other
servicing-related fees, Net Liquidation
74
<PAGE>
Proceeds not required to be deposited in the Principal and Interest Account
pursuant to Section 8.8(c), and similar items may, to the extent collected from
Mortgagors, be retained by the Servicer.
The Servicer may not sell, pledge or transfer its right to the
Servicing Fee or any servicing compensation, under this Agreement (in whole or
in part), except to a successor servicer hereunder, without the consent of the
Certificate Insurer. Any pledge of the Servicing Fee hereunder shall be
expressly subordinate to the rights of the Trustee under this Agreement.
Section 8.16. Annual Statement as to Compliance. The Servicer, at
its own expense, will deliver to the Trustee, Certificate Insurer, S&P and
Moody's, on or before the last day of April of each year, commencing in 1997, an
Officer's Certificate stating, as to each signer thereof, that (i) a review of
the activities of each of the Servicer and the Sub-Servicer during such
preceding calendar year and of performance under this Agreement has been made
under such officers' supervision, and (ii) to the best of such officers'
knowledge, based on such review, each of the Servicer and the Sub-Servicer has
fulfilled all its obligations under this Agreement for such year, or, if there
has been a default in the fulfillment of all such obligations, specifying each
such default known to such officers and the nature and status thereof including
the steps being taken by the Servicer or the Sub-Servicer as applicable, to
remedy such defaults. Any Sub-Servicer which is not a Servicer Affiliate shall
also deliver an annual statement as to compliance in the form described above or
the Servicer shall cover such Sub-Servicer's performance in its own statement.
These statements shall be available to Owners upon written request.
Section 8.17. Annual Independent Certified Public Accountants'
Reports; Annual Financial Statements of the Sub-Servicer. (a) On or before the
last day of April of each year, commencing in 1997, the Sub-Servicer, at its own
expense, shall cause to be delivered to the Trustee, the Certificate Insurer,
S&P and Moody's a letter or letters of a firm of independent, nationally
recognized certified public accountants reasonably acceptable to the Certificate
Insurer stating that such firm has, with respect to the Sub-Servicer's overall
servicing operations (i) performed applicable tests in accordance with the
compliance testing procedures as set forth in Appendix 3 of the Audit Guide for
Audits of HUD Approved Nonsupervised Mortgagees or (ii) examined such operations
in accordance with the requirements of the Uniform Single Audit Program for
Mortgage Bankers, and in either case stating such firm's conclusions relating
thereto.
(b) The Servicer shall furnish or caused to be furnished to the
Trustee as soon as available, and in any event within 90 days after the close of
each fiscal year of the Servicer, the audited balance sheet of the Servicer and
the audited profit and loss statement and statement of cash flows of the
Servicer for such year, all in reasonable detail and stating in comparative form
the respective figures for the corresponding date and period in the preceding
year, prepared in accordance with generally accepted accounting principles,
consistently applied, and accompanied by the certificate of the Servicer's
independent accountants (who shall be a nationally recognized firm).
75
<PAGE>
(c) The Trustee shall have no duty or obligation with respect to the
information provided pursuant to this Section 8.17.
Section 8.18. Access to Certain Documentation and Information
Regarding the Mortgage Loans. The Servicer shall provide to the Trustee, the
Certificate Insurer and the supervisory agents and examiners of each of the
foregoing access to the documentation regarding the Mortgage Loans required by
applicable state and federal regulations, such access being afforded without
charge but only upon reasonable request and during normal business hours at the
offices of the Servicer designated by it.
Upon any change in the format of the computer diskette or other form
of report maintained by the Servicer in respect of the Mortgage Loans, the
Servicer shall deliver a copy of such new format to the Trustee.
Section 8.19. Assignment of Agreement. The Servicer may not assign
its obligations under this Agreement, in whole or in part, unless it shall have
first obtained the written consent of the Trustee and Certificate Insurer, which
such consent shall not be unreasonably withheld; provided, however, that any
assignee must meet the eligibility requirements set forth in Section 8.20(g)
hereof for a successor servicer. Notice of any such assignment shall be given by
the Servicer to the Trustee, the Certificate Insurer and Moody's.
Section 8.20. Removal of Servicer; Resignation of Servicer. (a) The
Certificate Insurer (or, with the consent of the Certificate Insurer, the
Majority Owners) may remove the Servicer upon the occurrence of any of the
following events (each, an "Event of Default"); provided in the event of an
Event of Default pursuant to clauses (ix), (x) or (xi) below, the Certificate
Insurer may consider whether such Event of Default is related to the Servicer's
performance, the credit quality of the Mortgage Loans or economic conditions
beyond the control of the Servicer:
(i) The Servicer shall (A) apply for or consent to the appointment
of a receiver, trustee, liquidator or custodian or similar entity with
respect to itself or its property, (B) admit in writing its inability to
pay its debts generally as they become due, (C) make a general assignment
for the benefit of creditors, (D) be adjudicated a bankrupt or insolvent,
(E) commence a voluntary case under the federal bankruptcy laws of the
United States of America or file a voluntary petition or answer seeking
reorganization, an arrangement with creditors or an order for relief or
seeking to take advantage of any insolvency law or file an answer
admitting the material allegations of a petition filed against it in any
bankruptcy, reorganization or insolvency proceeding or (F) cause corporate
action to be taken by it for the purpose of effecting any of the
foregoing; or
(ii) If without the application, approval or consent of the
Servicer, a proceeding shall be instituted in any court of competent
jurisdiction, under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking in
76
<PAGE>
respect of the Servicer an order for relief or an adjudication in
bankruptcy, reorganization, dissolution, winding up, liquidation, a
composition or arrangement with creditors, a readjustment of debts, the
appointment of a trustee, receiver, conservator, liquidator or custodian
or similar entity with respect to the Servicer or of all or any
substantial part of its assets, or other like relief in respect thereof
under any bankruptcy or insolvency law, and, if such proceeding is being
contested by the Servicer in good faith, the same shall (A) result in the
entry of an order for relief or any such adjudication or appointment or
(B) continue undismissed or pending and unstayed for any period of thirty
(30) consecutive days; or
(iii) The Servicer shall fail to perform any one or more of its
obligations hereunder (other than its obligations referenced in clauses
(vi) and (vii) below) and shall continue in default thereof for a period
of thirty (30) days after the earlier to occur of (x) the date on which an
Authorized Officer of the Servicer knows or reasonably should know of such
failure or (y) receipt by the Servicer of a written notice from the
Trustee, any Owner, the Sponsor or the Certificate Insurer of said
failure; or
(iv) The Servicer shall fail to cure any breach of any of its
representations and warranties set forth in Section 3.2 which materially
and adversely affects the interests of the Owners or Certificate Insurer
for a period of thirty (30) days after the earlier of (x) the date on
which an Authorized Officer of the Servicer knows or reasonably should
know of such breach or (y) receipt by the Servicer of a written notice
from the Trustee, any Owner, the Sponsor or the Certificate Insurer of
such breach; or
(v) If the Certificate Insurer pays out any money under the
Certificate Insurance Policy, or if the Certificate Insurer otherwise
funds any shortfall with its own money, because the amounts available to
the Trustee (other than from the Certificate Insurer) are insufficient to
make required distributions on the Class A Certificates; or
(vi) The failure by the Servicer to make any required Servicing
Advance for a period of 30 days following the earlier of (x) the date on
which an Authorized Officer of the Servicer knows or reasonably should
know of such failure or (y) receipt by the Servicer of a written notice
from the Trustee, any Owner, the Sponsor or the Certificate Insurer of
such failure; or
(vii) The failure by the Servicer to make any required Delinquency
Advance, to pay any Compensating Interest or to pay over any Monthly
Remittance Amount or other amounts required to be remitted by the Servicer
pursuant to this Agreement; or
77
<PAGE>
(viii) If on any Payment Date the net worth of the Servicer is less
than $10,000,000, as determined in accordance with generally accepted
accounting principals; or
(ix) If (a) on any Payment Date occurring before January 1, 1998,
the Rolling Three Month Delinquency Rate exceeds 4.0%, (b) on any Payment
Date on or after January 1, 1998 and before January 1, 1999, the Rolling
Three Month Delinquency Rate exceeds 5.0%, (c) on any Payment Date on or
after January 1, 1999 and before January 1, 2000, the Rolling Three Month
Delinquency Rate exceeds 6.5%, (d) on any Payment Date on or after January
1, 2000 and before January 1, 2001, the Rolling Three Month Delinquency
Rate exceeds 8.0%, or (e) on any Payment Date on or after January 1, 2001,
the Rolling Three Month Delinquency Rate exceeds 12.0%; or
(x) If on any Payment Date occurring in December of any year,
commencing in December, 1997, the aggregate Cumulative Loss Amounts over
the prior twelve month period exceed 1.05% of the average Aggregate Loan
Balance as of the close of business on the last day of each of the twelve
preceding Remittance Periods; or
(xi) If (a) on any Payment Date occurring before January 1, 1998,
the Cumulative Loss Amount exceeds 1.3%, (b) on any Payment Date on or
after January 1, 1998 and before January 1, 1999, the Cumulative Loss
Amount exceeds 1.65%, (c) on any Payment Date on or after January 1, 1999
and before January 1, 2000, the Cumulative Loss Amount exceeds 2.10%, (d)
on any Payment Date on or after January 1, 2000 and before January 1,
2001, the Cumulative Loss Amount exceeds 2.60%, or (e) on any Payment Date
on or after January 1, 2001, the Cumulative Loss Amount exceeds 3.15%; or
(xii) The Certificate Insurer determines that the performance of the
Servicer (or any Sub-Servicer) is not in compliance with the Servicing
Standards, which non-compliance is reasonably likely to have a material
adverse effect on the servicing of the Mortgage Loans; or
(xiii) The Servicer shall enter into any merger, consolidation or
other corporate transaction pursuant to which (x) the Servicer is not the
surviving entity, (y) the long-term unsecured debt rating of the surviving
entity is below investment grade or (z) the Certificate Insurer determines
that the servicing capabilities of such surviving entity as successor
Servicer could materially adversely affect the servicing of the Mortgage
Loans;
provided, however, that (A) prior to any removal of the Servicer pursuant to
clauses (iii) and (iv), the Certificate Insurer, in its sole discretion, may
extend the 30-day cure period upon the Servicer's prompt and diligent pursuit of
such cure, (B) prior to any removal of the Servicer pursuant to clauses (iii),
(iv) and (vi) of this Section 8.20(a), any applicable
78
<PAGE>
grace period granted by any such clause shall have expired prior to the time
such occurrence shall have been remedied and (C) in the event of the refusal or
inability of the Servicer to comply with its obligations described in clause
(vii) above, such removal shall be effective (without the requirement of any
action on the part of the Sponsor the Certificate Insurer or of the Trustee) at
4 p.m. New York City time on the second Business Day following the day on which
the Trustee or the Certificate Insurer notifies an Authorized Officer of the
Servicer that a required amount described in clause (vii) above has not been
received by the Trustee, unless the required amount described in clause (vii)
above is paid by the Servicer prior to such time. Upon the Trustee's obtaining
actual knowledge that a required amount described in clause (vii) above has not
been made by the Servicer, the Trustee shall so notify an Authorized Officer of
the Servicer, the Certificate Insurer and each of Moody's and S&P as soon as is
reasonably practical.
(b) The Servicer shall not resign from the obligations and duties
hereby imposed on it, except upon determination that its duties hereunder are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by it, the other activities
of the Servicer so causing such a conflict being of a type and nature carried on
by the Servicer at the date of this Agreement. Any such determination permitting
the resignation of the Servicer shall be evidenced by an opinion of counsel to
such effect which shall be delivered to the Trustee, the Sponsor and the
Certificate Insurer.
(c) No removal or resignation of the Servicer shall become effective
until the Trustee or a successor servicer shall have assumed the Servicer's
responsibilities and obligations in accordance with this Section.
(d) Upon removal or resignation of the Servicer, the Servicer also
shall promptly deliver or cause to be delivered to a successor servicer or the
Trustee all the books and records (including, without limitation, records kept
in electronic form) that the Servicer has maintained for the Mortgage Loans,
including all tax bills, assessment notices, insurance premium notices and all
other documents as well as all original documents then in the Servicer's
possession.
(e) Any collections received by the Servicer after removal or
resignation shall be endorsed by it to the Trustee and remitted directly and
immediately to the Trustee or the successor Servicer.
(f) Upon removal or resignation of the Servicer, the Trustee shall
act as the successor Servicer. If, at the time the Servicer is removed or
resigns, the Trustee is unable to act as successor Servicer, then the Trustee
(x) may solicit bids for a successor Servicer as described below, and (y)
pending the appointment of a successor Servicer as a result of soliciting such
bids, shall serve as Servicer. The Trustee shall, if it is unable to obtain a
qualifying bid and is prevented by law from acting as Servicer, appoint, or
petition a court of competent jurisdiction to appoint, any housing and home
finance
79
<PAGE>
institution, bank or mortgage servicing institution which is acceptable to the
Certificate Insurer and is experienced in servicing loans of a type similar to
the Mortgage Loans and has equity of not less than $10,000,000, as determined in
accordance with generally accepted accounting principles, and acceptable to the
Certificate Insurer as the successor to the Servicer hereunder in the assumption
of all or any part of the responsibilities, duties or liabilities of the
Servicer hereunder.
The compensation of any successor servicer (including, without
limitation, the Trustee) so appointed shall be the aggregate Servicing Fees,
together with the other servicing compensation in the form of assumption fees,
late payment charges or otherwise as provided in Section 8.15.
(g) In the event the Trustee solicits bids as provided above, the
Trustee shall solicit, by public announcement, bids from housing and home
finance institutions, banks and mortgage servicing institutions meeting the
qualifications set forth above. Such public announcement shall specify that the
successor Servicer shall be entitled to the full amount of the aggregate
Servicing Fees as servicing compensation, together with the other servicing
compensation in the form of assumption fees, late payment charges or otherwise
as provided in Section 8.15. Within thirty days after any such public
announcement, the Trustee shall, with the consent of the Certificate Insurer,
negotiate and effect the sale, transfer and assignment of the servicing rights
and responsibilities hereunder to the qualified party submitting the highest
satisfactory bid. The Trustee shall deduct from any sum received by the Trustee
from the successor to the Servicer in respect of such sale, transfer and
assignment all costs and expenses of any public announcement and of any sale,
transfer and assignment of the servicing rights and responsibilities hereunder.
After such deductions, the remainder of such sum shall be paid by the Trustee to
the Servicer at the time of such sale, transfer and assignment to the Servicer's
successor.
(h) The Trustee and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession, and the Servicer shall bear all the costs of transferring all files
and records related to the Mortgage Loans and other reasonable costs necessary
to effect such succession. The Servicer agrees to cooperate with the Trustee and
any successor Servicer in effecting the termination of the Servicer's servicing
responsibilities and rights hereunder and shall promptly provide the Trustee or
such successor Servicer, as applicable, all documents and records reasonably
requested by it to enable it to assume the Servicer's functions hereunder and
shall promptly also transfer to the Trustee or such successor Servicer, as
applicable, all amounts which then have been or should have been deposited in
the Principal and Interest Account by the Servicer or which are thereafter
received with respect to the Mortgage Loans. Neither the Trustee nor any other
successor Servicer shall be held liable by reason of any failure to make, or any
delay in making, any distribution hereunder or any portion thereof caused by (i)
the failure of the Servicer to deliver, or any delay in delivering, cash,
documents or records to it, or (ii) restrictions imposed by any regulatory
authority having jurisdiction over the Servicer.
80
<PAGE>
(i) The Trustee or any other successor Servicer, upon assuming the
duties of Servicer hereunder, shall immediately make all Delinquency Advances
and pay all Compensating Interest which the Servicer has theretofore failed to
remit with respect to the Mortgage Loans; provided, however, that if the Trustee
is acting as successor Servicer, the Trustee shall only be required to make
Delinquency Advances (including the Delinquency Advances described in this
clause (j)) if, in the Trustee's reasonable good faith judgment, such
Delinquency Advances will ultimately be recoverable from the related Mortgage
Loans.
(j) The Servicer which is being removed or is resigning shall give
notice to the Mortgagors and to each of Moody's and S&P of the transfer of the
servicing to the successor.
(k) Any successor Servicer shall assume all rights and obligations
of the predecessor Servicer under this Agreement, except those arising before
succession (other than the obligation to make Delinquency Advances) and under
Section 3.
(l) If the Servicer is removed pursuant to Section 8.20(a) hereof
the Servicer shall remain entitled to reimbursement for Reimbursable Advances to
the extent that the related amounts are thereafter recovered with respect to the
related Mortgage Loans.
(m) The Certificate Insurer shall respond within five Business Days
to any Servicer request for the Certificate Insurer's consent under this Section
8.20, which consent relates to the Servicer's servicing activities.
Section 8.21. Inspections by Certificate Insurer; Errors and
Omissions Insurance. (a) At any reasonable time and from time to time upon
reasonable notice, the Certificate Insurer, the Trustee, or any agents or
representatives thereof may inspect the Servicer's servicing operations and
discuss the servicing operations of the Servicer with any of its officers or
directors. The costs and expenses incurred by the Servicer or its agents or
representatives in connection with any such examinations or discussions shall be
paid by the Servicer.
(b) The Servicer agrees to maintain (and to cause each Sub-Servicer
to maintain) errors and omissions coverage and a fidelity bond, each at least to
the extent generally maintained by prudent mortgage loan servicers having
servicing portfolios of a similar size.
Section 8.22. Merger, Conversion, Consolidation or Succession to
Business of Servicer. Any corporation into which the Servicer may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Servicer shall be a
party, or any corporation succeeding to all or substantially all of the business
of the Servicer, shall be the successor of the Servicer hereunder, without the
execution or filing of any paper or any further act
81
<PAGE>
on the part of any of the parties hereto, provided (x) that such corporation
meets the qualifications set forth in Section 8.20(g) and (y) that any successor
Servicer must meet the qualifications set forth in Section 8.20(g).
Section 8.23. Financial Statements. The Servicer understands that,
in connection with the transfer of the Certificates, Owners may request that the
Servicer make available to prospective Owners any quarterly unaudited financial
statement of the Servicer for the then-current fiscal year and annual audited
financial statements of the Servicer for one or more of the most recently
completed five fiscal years for which such statements are available, which
request shall not be unreasonably denied. Such financial statements shall also
be supplied to the Certificate Insurer and each of Moody's and S&P.
The Servicer also agrees to make available on a reasonable basis to
the Sponsor, the Trustee, the Certificate Insurer, any Owner or any prospective
Owner a knowledgeable financial or accounting officer for the purpose of
answering reasonable questions respecting recent developments affecting the
Servicer or Sub-Servicer or the financial statements of the Servicer or
Sub-Servicer and to permit the Sponsor, the Trustee, the Certificate Insurer,
any Owner or any prospective Owner to inspect the Sub-Servicer's servicing
facilities during normal business hours for the purpose of satisfying the
Sponsor, the Trustee, the Certificate Insurer, any Owner or such prospective
Owner that the Servicer has the ability to service the Mortgage Loans in
accordance with this Agreement.
Section 8.24. REMIC. The Servicer covenants and agrees for the
benefit of the Owners (i) to take no action which would result in the
termination of REMIC status for the Trust, (ii) not to engage in any "prohibited
transaction", as such term is defined in Section 860F(a)(2) of the Code and
(iii) not to engage in any other action which may result in the imposition of
any other taxes under the Code.
Section 8.25. The Designated Depository Institution. The Servicer
shall give the Sponsor, the Trustee and the Certificate Insurer (a) at least
thirty days' prior written notice of any anticipated change of the Designated
Depository Institution at which any Account is maintained and (b) written notice
of any change in the ratings of such Designated Depository Institution of which
the Servicer is aware, within two Business Days after discovery.
Section 8.26. Appointment of Custodian. If the Servicer in good
faith determines that the Trustee is unable to deliver Files to the Servicer as
required pursuant to Section 8.14 hereof, the Servicer shall so notify the
Sponsor, the Certificate Insurer, S&P, Moody's and the Trustee, and make request
that a custodian acceptable to the Servicer and the Certificate Insurer be
appointed to retain custody of the Files on behalf of the Trustee. The Trustee
and the Sponsor agree to co-operate reasonably with the Servicer in connection
with the appointment of such custodian.
82
<PAGE>
Section 8.27. Indemnification by the Sponsor and Servicer. The
Sponsor and Servicer each jointly and severally agrees to indemnify and hold the
Trust, harmless against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments and any other costs, fees
and expenses that the Trust may sustain in any way related to (i) the breach of
any representation or warranty made by the Sponsor or the Servicer under this
Agreement or the Master Transfer Agreement or (ii) the failure of the Sponsor or
the Servicer to perform their respective duties in compliance with the terms of
this Agreement or the Master Transfer Agreement. The provisions of this section
shall survive the termination of this Agreement and the payment of the
outstanding Certificates.
ARTICLE IX
TERMINATION OF TRUST
Section 9.1. Termination of Trust. The Trust created hereunder and
all obligations created by this Agreement will terminate upon the earlier of (i)
the payment to the Owners of all Certificates from amounts other than those
available under the Certificate Insurance Policy of all amounts held by the
Trustee and required to be paid to such Owners pursuant to this Agreement upon
the later to occur of (a) the final payment or other liquidation (or any advance
made with respect thereto) of the last Mortgage Loan in the Trust Estate or (b)
the disposition of all property acquired in respect of any Mortgage Loan
remaining in the Trust Estate, (ii) at any time when a Qualified Liquidation of
the REMIC Trust is effected as described below or (iii) as described in Section
9.2, 9.3 and 9.4 hereof. To effect a termination of this Agreement pursuant to
clause (ii) above, the Owners of all Certificates then Outstanding shall (x)
unanimously direct the Trustee on behalf of the Trust to adopt a plan of
complete liquidation for the REMIC Trust, as contemplated by Section 860F(a)(4)
of the Code and (y) provide to the Trustee an opinion of counsel experienced in
federal income tax matters to the effect that such liquidation constitutes a
Qualified Liquidation, and the Trustee either shall sell the Mortgage Loans and
distribute the proceeds of the liquidation of the Trust Estate, or shall
distribute equitably in kind all of the assets of the Trust Estate to the
remaining Owners of the Certificates based on their interests in the Trust, each
in accordance with such plan, so that the liquidation or distribution of the
Trust Estate, the distribution of any proceeds of the liquidation and the
termination of this Agreement occur no later than the close of the 90th day
after the date of adoption of the plan of liquidation and such liquidation
qualifies as a Qualified Liquidation. In no event, however, will the Trust
created by this Agreement continue beyond the expiration of twenty-one (21)
years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late Ambassador of the United States to the United Kingdom, living
on the date hereof. The Trustee shall give written notice of termination of the
Agreement to each Owner in the manner set forth in Section 11.5.
Section 9.2. Termination Upon Option of Class RL Certificate Owners
and Servicer. (a) On any Remittance Date on or after the Remittance Date on
which the
83
<PAGE>
then-outstanding aggregate Loan Balances of the Mortgage Loans in the Trust
Estate is less than or equal to ten percent of the sum of the aggregate Loan
Balances of all Mortgage Loans in the Trust Estate as of the Cut-Off Date, the
Owners of the Class RL Certificates and the Servicer, acting directly or through
one or more affiliates, may determine to purchase and may cause the purchase
from the Trust of all (but not fewer than all) Mortgage Loans in the Trust
Estate and all property theretofore acquired in respect of any such Mortgage
Loan by foreclosure, deed in lieu of foreclosure, or otherwise then remaining in
the Trust Estate at a price equal to the sum of (w) the greater of (i) 100% of
the aggregate Loan Balances of the related Mortgage Loans and related accrued
interest as of the day of purchase minus the amount actually remitted by the
Servicer representing the related Monthly Remittance Amount on such Remittance
Date for the related Remittance Period and (ii) the fair market value of such
Mortgage Loans (disregarding accrued interest), (x) the amount of any difference
between the Monthly Remittance Amount actually remitted by the Servicer on such
Remittance Date and the Monthly Remittance Amount due on such Remittance Date
and (y) the Reimbursement Amount, if any, as of such Remittance Date (such
amount, the "Termination Price"). The right of the Owners of the Class RL
Certificates so to exercise such optional purchase right is superior to such
right of the Servicer. The Servicer may only exercise such optional right if the
Owners of the Class RL Certificates decline to do so. In connection with such
purchase, the Servicer shall remit to the Trustee all amounts then on deposit in
the Principal and Interest Account for deposit to the Certificate Account, which
deposit shall be deemed to have occurred immediately preceding such purchase.
(b) In connection with any such purchase, the Servicer shall provide
to the Trustee and the Certificate Insurer an opinion of counsel, at the expense
of the Servicer, experienced in federal income tax matters to the effect that
such purchase constitutes a Qualified Liquidation of the REMIC Trust.
(c) Promptly following any such purchase, the Trustee will release
the Files to the Servicer, or otherwise upon their order, in a manner similar to
that described in Section 8.14 hereof.
(d) If the Servicer does not exercise its option pursuant to this
Section 9.2 with respect to the Trust Estate, then the Certificate Insurer may
do so on the same terms.
Section 9.3. Termination Upon Loss of REMIC Status. (a) Following a
final determination by the Internal Revenue Service, or by a court of competent
jurisdiction, in either case from which no appeal is taken within the permitted
time for such appeal, or if any appeal is taken, following a final determination
of such appeal from which no further appeal can be taken, to the effect that the
REMIC Trust does not and will no longer qualify as a "REMIC" pursuant to Section
860D of the Code (the "Final Determination"), on any Remittance Date on or after
the date which is 30 calendar days following such Final Determination, (i) the
Owners of a majority in Percentage Interest represented by the Class A
Certificates then Outstanding may direct the Trustee to adopt a plan of complete
liquidation with respect to the Trust Estate and (ii) the Certificate
84
<PAGE>
Insurer may notify the Trustee of the Certificate Insurer's determination to
purchase from the Trust all (but not fewer than all) Mortgage Loans in the Trust
Estate and all property theretofore acquired by foreclosure, deed in lieu of
foreclosure, or otherwise in respect of any Mortgage Loan then remaining in the
Trust Estate at a price equal to the Termination Price. In connection with such
purchase, the Servicer shall remit to the Trustee all amounts then on deposit in
the Principal and Interest Account for deposit in the Certificate Account, which
deposit shall be deemed to have occurred immediately preceding such purchase.
(b) Upon receipt of such direction from the Owners of such Class A
Certificates or such notice from the Certificate Insurer, the Trustee shall
notify the holders of the Class RL Certificates of such election to liquidate or
such determination to purchase, as the case may be, (the "Termination Notice").
The Owners of a majority of the Percentage Interest of the Class RL Certificates
then Outstanding may, on any Remittance Date, within 60 days from the date of
receipt of the Termination Notice (the "Purchase Option Period"), at their
option, purchase from the Trust all (but not fewer than all) Mortgage Loans in
the Trust Estate, and all property theretofore acquired by foreclosure, deed in
lieu of foreclosure, or otherwise in respect of any Mortgage Loan then remaining
in the Trust Estate at a purchase price equal to the Termination Price.
(c) If, during the Purchase Option Period, the Owners of the Class
RL Certificates have not exercised the option described in the immediately
preceding paragraph, then upon the expiration of the Purchase Option Period (i)
in the event that the Owners of the Class A Certificates have given the Trustee
the direction described in clause (a)(i) above, the Trustee shall sell the
Mortgage Loans and distribute the proceeds of the liquidation of the Trust
Estate, such that, if so directed, the liquidation of the Trust Estate and the
distribution of the proceeds of such liquidation occur no later than the close
of the 60th day, or such later day as the Owners of the Class A Certificates
shall permit or direct in writing, after the expiration of the Purchase Option
Period and (ii) in the event that the Certificate Insurer has given the Trustee
notice of the Certificate Insurer's determination to purchase the Mortgage Loans
in the Trust Estate described in clause (a)(ii) preceding, the Certificate
Insurer shall, on any Remittance Date within 60 days after such notice, purchase
all (but not fewer than all) Mortgage Loans in the Trust Estate, and all
property theretofore acquired by foreclosure, deed in lieu of foreclosure or
otherwise in respect of any Mortgage Loan then remaining in the Trust Estate. In
connection with such purchase, the Servicer shall remit to the Trustee all
amounts then on deposit in the Principal and Interest Account for deposit to the
Certificate Account, which deposit shall be deemed to have occurred immediately
preceding such purchase.
(d) Following a Final Determination, the Owners of a majority of the
Percentage Interest of the Class RL Certificates then Outstanding may, at their
option on any Remittance Date and upon delivery to the Owners of the Class A
Certificates and the Certificate Insurer of an opinion of counsel experienced in
federal income tax matters selected by the Owners of such Class RL Certificates
which opinion shall be reasonably satisfactory in form and substance to a
majority of the Percentage Interests represented
85
<PAGE>
by the Class A Certificates then Outstanding and the Certificate Insurer, to the
effect that the effect of the Final Determination is to increase substantially
the probability that the gross income of the Trust will be subject to federal
taxation, purchase from the Trust all (but not fewer than all) Mortgage Loans in
the Trust Estate, and all property theretofore acquired by foreclosure, deed in
lieu of foreclosure, or otherwise in respect of any Mortgage Loan then remaining
in the Trust Estate at a purchase price equal to the Termination Price. In
connection with such purchase, the Servicer shall remit to the Trustee all
amounts then on deposit in the Principal and Interest Account for deposit to the
Certificate Account, which deposit shall be deemed to have occurred immediately
preceding such purchase. The foregoing opinion shall be deemed satisfactory
unless the Owners of a majority of the Percentage Interest represented by the
Class A Certificates then Outstanding or the Certificate Insurer give the Owners
of a majority of the Percentage Interest of the Class RL Certificates notice
that such opinion is not satisfactory within thirty days after receipt of such
opinion.
Section 9.4. Disposition of Proceeds. The Trustee shall, upon
receipt thereof, deposit the proceeds of any liquidation of the Trust Estate
pursuant to this Article IX to the Certificate Account; provided, however, that
any amounts representing Servicing Fees, unreimbursed Delinquency Advances or
unreimbursed Servicing Advances theretofore funded by the Servicer from the
Servicer's own funds shall be paid by the
Trustee to the Servicer from such proceeds.
Section 9.5. Netting of Amounts. If any Person paying the
Termination Price would receive a portion of the amount so paid, such Person may
net any such amount against the Termination Price otherwise payable.
ARTICLE X
THE TRUSTEE
Section 10.1. Certain Duties and Responsibilities.
(a) The Trustee (i) except during the continuance of an Event of
Default, undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Trustee and (ii) in
the absence of bad faith on its part, may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished pursuant to and conforming to the
requirements of this Agreement; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be furnished
to the Trustee, shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Agreement.
86
<PAGE>
During the continuance of an Event of Default, the Trustee shall
exercise such of the rights and powers vested in it by this Agreement, and use
the same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances with respect to such person's property
or affairs.
(b) Notwithstanding the appointment of the Servicer hereunder, the
Trustee is hereby empowered, but prior to the Trustee assuming the duties of the
Servicer pursuant to Section 8.20, shall not be obligated or otherwise
responsible to perform the duties of the Servicer. Specifically, and not in
limitation of the foregoing, the Trustee shall have the power (but not the
obligation if prior to the Trustee assuming the duties of the Servicer pursuant
to Section 8.20):
(i) to collect Mortgagor payments;
(ii) to foreclose on defaulted Mortgage Loans;
(iii) to enforce due-on-sale clauses and to enter into
assumption and substitution agreements as permitted by
Section 8.12 hereof;
(iv) to deliver instruments of satisfaction pursuant to
Section 8.14 hereof;
(v) to make Delinquency Advances and Servicing Advances and
to pay Compensating Interest, all as provided in this
Agreement; and
(vi) to enforce the Mortgage Loans.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:
(i) this subsection shall not be construed to limit the
effect of subsection (a) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by an Authorized Officer,
unless it shall be proved that the Trustee was negligent
in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action taken, suffered or omitted to be taken by it in
good faith in accordance with the direction of the
Sponsor, the Certificate Insurer or, with the
Certificate Insurer's consent, of the Owners of a
majority in Percentage Interest of the Certificates of
the
87
<PAGE>
affected Class or Classes and the Certificate Insurer
relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the
Trustee, under this Agreement relating to such
Certificates;
(iv) the Trustee shall not be required to take notice or be
deemed to have notice or knowledge of any default by the
Servicer unless the Trustee shall have received written
notice thereof. In the absence of actual receipt of such
notice, the Trustee may conclusively assume that there
is no such default; and
(v) subject to the other provisions of this Agreement and
without limiting the generality of this Section, the
Trustee shall have no duty (A) to see to any recording,
filing, or depositing of this Agreement, any Mortgage or
any agreement referred to herein or any financing
statement or continuation statement evidencing a
security interest, or to see to the maintenance of any
such recording or filing or depositing or to any
rerecording, refiling or redepositing of any thereof,
(B) to see to any insurance, (C) to see the payment or
discharge of any tax, assessment, or other governmental
charge or any lien or encumbrance of any kind owing with
respect to, assessed or levied against, any property of
the Trust, (D) to confirm or verify the contents of any
reports or certificates of the Servicer delivered to the
Trustee pursuant to this Agreement believed by the
Trustee to be genuine and to have been signed or
presented by the proper party or parties.
(d) Whether or not therein expressly so provided, every provision of
this Agreement relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
(e) No provision of this Agreement shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it and none of the provisions contained in this
Agreement shall in any event require the Trustee to perform, or be responsible
for the manner of performance of, any of the obligations of the Servicer under
this Agreement except during such time, if any, as the Trustee shall be the
successor to, and be vested with the rights, duties and powers and privileges
of, the Servicer in accordance with the terms of this Agreement.
88
<PAGE>
(f) The permissive right of the Trustee to take actions enumerated
in this Agreement shall not be construed as a duty and the Trustee shall not be
answerable for other than its own negligence or willful misconduct.
(g) The Trustee shall be under no obligation to institute any suit,
or to take any remedial proceeding under this Agreement, or to take any steps in
the execution of the trusts hereby created or in the enforcement of any rights
and powers hereunder until it shall be indemnified to its reasonable
satisfaction against any and all costs and expenses, outlays and counsel fees
and other reasonable disbursements and against all liability, except liability
which is adjudicated to have resulted from its negligence or willful misconduct,
in connection with any action so taken.
Section 10.2. Removal of Trustee for Cause. (a) The Trustee may be
removed pursuant to paragraph (b) hereof upon the occurrence of any of the
following events (whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) the Trustee shall fail to distribute to the Owners entitled thereto
on any Payment Date amounts available for distribution in accordance
with the terms hereof; or
(2) the Trustee shall cease to be eligible in accordance with Section
10.8 hereof or fail in the performance of, or breach, any covenant
or agreement of the Trustee in this Agreement, or if any
representation or warranty of the Trustee made in this Agreement or
in any certificate or other writing delivered pursuant hereto or in
connection herewith shall prove to be incorrect in any material
respect as of the time when the same shall have been made, and such
failure or breach shall continue or not be cured for a period of 30
days after there shall have been given, by registered or certified
mail, to the Trustee by the Sponsor, the Certificate Insurer or by
the Owners of at least 25% of the aggregate Percentage Interests
represented by the Class A Certificates, or, if there are no Class A
Certificates then Outstanding, by such Percentage Interests
represented by the Class B Certificates, a written notice specifying
such failure or breach and requiring it to be remedied; or
(3) a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver
or liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, shall have been entered
against the Trustee, and such decree or order shall have remained in
force undischarged or unstayed for a period of 60 days; or
89
<PAGE>
(4) a conservator or receiver or liquidator or sequestrator or custodian
of the property of the Trustee is appointed in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Trustee or relating to all
or substantially all of its property; or
(5) the Trustee shall become insolvent (however insolvency is
evidenced), generally fail to pay its debts as they come due, file
or consent to the filing of a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment
for the benefit of its creditors, voluntarily suspend payment of its
obligations, or take corporate action for the purpose of any of the
foregoing.
(b) The Sponsor and the Trustee shall give notice to Moody's and
S&P, to each other, to the Certificate Insurer and to each Owner if it becomes
aware that an event described in subsection (a) has occurred and is continuing.
(c) If any event described in paragraph (a) occurs and is
continuing, then and in every such case (i) the Sponsor or the Certificate
Insurer or (ii) with the written consent of the Certificate Insurer, the
Majority Owners, or, if there are no Class A Certificates then Outstanding, by a
majority of the Class B Certificates then Outstanding, may, whether or not the
Trustee resigns pursuant to Section 10.9 hereof, immediately, concurrently with
the giving of notice to the Trustee, and without delaying the 30 days required
for notice therein, appoint a successor trustee pursuant to the terms of Section
10.9 hereof.
Section 10.3. Certain Rights of the Trustee. Except as otherwise
provided in Section 10.1 hereof:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, note or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;
(b) any request or direction of the Sponsor, the Servicer or the
Owners of any Class of Certificates mentioned herein shall be sufficiently
evidenced in writing;
(c) whenever in the administration of this Agreement the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officer's Certificate;
90
<PAGE>
(d) the Trustee may consult with counsel, and the written advice of
such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good
faith and in reasonable reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement at the request or
direction of any of the Owners pursuant to this Agreement, unless such
Owners shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, note or other paper or document, but the Trustee in its discretion
may make such further inquiry or investigation into such facts or matters
as it may see fit;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(h) the Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized by the
Authorized Officer of any Person or within its rights or powers under this
Agreement other than as to validity and sufficiency of its authentication
of the Certificates. The Trustee shall at no time have any responsibility
for or with respect to (i) the legality, validity, sufficiency or
enforceability of any Mortgages and the Mortgage Loans, including the
perfection or priority thereof, (ii) the ability of the Mortgage Loans to
pay any portion of the Certificates, (iii) the validity of the assignment
of any of the Mortgages and the Mortgage Loans, (iv) the review of any
Mortgage or Mortgage Loan, except as provided herein, (v) the compliance
by the Sponsor or any Mortgagor with any covenant contained hereunder or
in the Mortgages and the Mortgage Loans, (vi) the breach by the Sponsor or
the Servicer of any warranty or representation made hereunder or the
accuracy of any such warranty or representation, (vii) the use or
application by the Sponsor of the proceeds of the Certificates, (viii) any
offering materials used to sell the Certificates and (ix) the acts or
omissions of the Servicer.
Section 10.4. Not Responsible for Recitals or Issuance of
Certificates. The recitals contained herein and in the Certificates, except any
such recitals relating to the Trustee, shall be taken as the statements of the
Sponsor, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representation as to the validity or sufficiency of this
Agreement or of the Certificates other than as to validity and sufficiency of
its authentication of the Certificates.
91
<PAGE>
Section 10.5. May Hold Certificates. The Trustee or any other agent
of the Trust, in its individual or any other capacity, may become an Owner or
pledgee of Certificates and may otherwise deal with the Trust with the same
rights it would have if it were not Trustee or such other agent.
Section 10.6. Money Held in Trust. Money held by the Trustee in
trust hereunder need not be segregated from other trust funds except to the
extent required herein or required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Sponsor and except to the extent of income or other gain on
investments which are deposits in or certificates of deposit of the Trustee in
its commercial capacity and income or other gain actually received by the
Trustee on Eligible Investments.
Section 10.7. Compensation and Reimbursement; No Lien for Fees. The
Trustee shall receive compensation for fees and reimbursement pursuant to
Section 2.5 hereof and Section 7.5(b)(ii) hereof. The Trustee shall have no lien
on the Trust Estate for the payment of any fees or expenses (prior to an Event
of Default).
Section 10.8. Corporate Trustee Required; Eligibility. There shall
at all times be a Trustee hereunder which shall be a corporation or association
organized and doing business under the laws of the United States of America or
of any State authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $100,000,000, subject to
supervision or examination by the United States of America, having a rating or
ratings acceptable to the Certificate Insurer and having a long-term deposit
rating of at least BBB from S&P (or such lower rating as may be acceptable to
S&P) and Baa-2 from Moody's. If such Trustee publishes reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation or association shall be deemed
to be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall, upon the request of
the Sponsor or of the Certificate Insurer, resign immediately in the manner and
with the effect hereinafter specified in this Article X.
Section 10.9. Resignation and Removal; Appointment of Successor. (a)
No resignation or removal of the Trustee and no appointment of a successor
trustee pursuant to this Article X shall become effective until the acceptance
of appointment by the successor trustee under Section 10.10 hereof.
(b) The Trustee, or any trustee or trustees hereafter appointed, may
resign at any time by giving written notice of resignation to the Certificate
Insurer and to the Sponsor and by mailing notice of resignation by first-class
mail, postage prepaid, to the Owners at their addresses appearing on the
Register. A copy of such notice shall be sent by the resigning Trustee to
Moody's and S&P. Upon receiving notice of resignation, the Sponsor shall
promptly appoint a successor trustee or trustees satisfying the eligibility
92
<PAGE>
requirements of Section 10.8 and acceptable to the Certificate Insurer by
written instrument, in duplicate, executed on behalf of the Trust by an
Authorized Officer of the Sponsor, one copy of which instrument shall be
delivered to the Trustee so resigning and one copy to the successor trustee or
trustees. If no successor trustee shall have been appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Owner may, on behalf of himself and
all others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor trustee.
(c) If at any time the Trustee shall cease to be eligible under
Section 10.8 hereof and shall fail to resign after written request therefor by
the Sponsor or by the Certificate Insurer, the Sponsor or the Certificate
Insurer may remove the Trustee and appoint a successor trustee by written
instrument, in duplicate, executed on behalf of the Trust by an Authorized
Officer of the Sponsor or the Certificate Insurer, one copy of which instrument
shall be delivered to the Trustee so removed and one copy to the successor
trustee.
(d) The Majority Owners, or, if there are no Class A Certificates
then Outstanding, by a majority of the Class B Certificates then Outstanding,
may at any time remove the Trustee and appoint a successor trustee acceptable to
the Certificate Insurer by delivering to the Trustee to be removed, to the
successor trustee so appointed, to the Sponsor and to the Certificate Insurer,
copies of the record of the act taken by the Owners, as provided for in Sections
11.3 and 11.4 hereof.
(e) If the Trustee fails to perform its duties in accordance with
the terms of this Agreement or becomes ineligible to serve as Trustee, the
Sponsor, the Seller or the Certificate Insurer may remove the Trustee and
appoint a successor trustee by written instrument, in triplicate, signed by the
Sponsor, the Seller or the Certificate Insurer duly authorized, one complete set
of which instruments shall be delivered to each of the Sponsor, the Seller and
to the Trustee so removed and one complete set to the successor trustee so
appointed.
(f) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any cause,
the Sponsor shall promptly appoint a successor trustee satisfying the
eligibility requirements of Section 10.8.
(g) The Sponsor shall give notice of any removal of the Trustee by
mailing notice of such event by first-class mail, postage prepaid to the Owners
as their names and addresses appear in the Register. Each notice shall include
the name of the successor trustee and the address of its corporate trust office.
Section 10.10. Acceptance of Appointment by Successor Trustee. Every
successor trustee appointed hereunder shall execute, acknowledge and deliver to
the
93
<PAGE>
Sponsor on behalf of the Trust and to its predecessor Trustee an instrument
accepting such appointment hereunder and stating its eligibility to serve as
Trustee hereunder, and thereupon the resignation or removal of the predecessor
Trustee shall become effective and such successor trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers,
trusts, duties and obligations of its predecessor hereunder; but, on request of
the Sponsor or the successor trustee, such predecessor Trustee shall, upon
payment of its charges then unpaid, execute and deliver an instrument
transferring to such successor trustee all of the rights, powers and trusts of
the Trustee so ceasing to act, and shall duly assign, transfer and deliver to
such successor trustee all property and money held by such Trustee so ceasing to
act hereunder. Upon request of any such successor trustee, the Sponsor on behalf
of the Trust shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor trustee all such rights, powers and
trusts.
Upon acceptance of appointment by a successor trustee as provided in
this Section, the Sponsor shall mail notice thereof by first-class mail, postage
prepaid, to the Owners at their last addresses appearing upon the Register. The
Sponsor shall send a copy of such notice to Moody's and S&P. If the Sponsor
fails to mail such notice within ten days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Sponsor.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor shall be qualified and eligible under this
Article X.
Section 10.11. Merger, Conversion, Consolidation or Succession to
Business of the Trustee. Any corporation or association into which the Trustee
may be merged or converted or with which it may be consolidated, or any
corporation or association resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation or
association succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, however, that such corporation or
association shall be otherwise qualified and eligible under this Article X. In
case any Certificates have been executed, but not delivered, by the Trustee then
in office, any successor by merger, conversion or consolidation to such Trustee
may adopt such execution and deliver the Certificates so executed with the same
effect as if such successor Trustee had itself executed such Certificates.
Section 10.12. Reporting; Withholding. (a) The Trustee shall timely
provide to the Owners the Internal Revenue Service's Form 1099 and any other
statement required by applicable Treasury regulations as determined by the
Sponsor, and shall withhold, as required by applicable law, federal, state or
local taxes, if any, applicable to distributions to the Owners, including, but
not limited to, backup withholding under Section 3406 of the Code and the
withholding tax on distributions to foreign investors under Sections 1441 and
1442 of the Code.
94
<PAGE>
(b) The Trustee shall timely file all reports required to be filed
by the Trust with any federal, state or local governmental authority having
jurisdiction over the Trust, including other reports that must be filed with the
Owners, such as the Internal Revenue Service's Form 1066 and Schedule Q and the
form required under Section 6050K of the Code, if applicable. Furthermore, the
Trustee shall report to Owners, if required, with respect to the allocation of
expenses pursuant to Section 212 of the Code in accordance with the specific
instructions to the Trustee by the Sponsor with respect to such allocation of
expenses. The Trustee shall collect any forms or reports from the Owners
determined by the Sponsor to be required under applicable federal, state and
local tax laws.
(c) The Trustee shall provide to the Internal Revenue Service and to
persons described in section 860(e)(3) and (6) of the Code the information
described in Treasury Regulation section 1.860D-1(b)(5)(ii), or any successor
regulation thereto. Such information will be provided in the manner described in
Treasury Regulation section 1.860E-2(a)(5), or any successor regulation thereto.
(d) The Servicer covenants and agrees that it shall provide, or
cause to be provided, to the Trustee any information necessary to enable the
Trustee to meet its obligations under subsections (a), (b) and (c) above.
Section 10.13. Liability of the Trustee. Except during the
continuance of an Event of Default, the Trustee shall be liable in accordance
herewith only to the extent of the obligations specifically imposed upon and
undertaken by the Trustee herein. Neither the Trustee nor any of the directors,
officers, employees or agents of the Trustee shall be under any liability on any
Certificate or otherwise to any Account, the Certificate Insurer, the Sponsor,
the Servicer or any Owner for any action taken or for refraining from the taking
of any action in good faith pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the Trustee
or any such Person against any liability which would otherwise be imposed by
reason of negligent action, negligent failure to act or bad faith in the
performance of duties or by reason of reckless disregard of obligations and
duties hereunder. Subject to the foregoing sentence, the Trustee shall not be
liable for losses on investments of amounts in any Account (except for any
losses on obligations on which the bank serving as Trustee is the obligor). In
addition, the Sponsor and Servicer covenant and agree to indemnify the Trustee,
and when the Trustee is acting as Servicer, the Servicer, from, and hold it
harmless against, any and all losses, liabilities, damages, claims or expenses
(including all reasonable and documented legal fees and expenses) other than
those resulting from the negligence or bad faith of the Trustee. The Trustee and
any director, officer, employee or agent of the Trustee may rely and shall be
protected in acting or refraining from acting in good faith on any certificate,
notice or other document of any kind prima facie properly executed and submitted
by the Authorized Officer of any Person respecting any matters arising
hereunder. The provisions of this Section 10.13 shall survive the termination of
this Agreement and the payment of the Outstanding Certificates.
95
<PAGE>
Section 10.14. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Estate or any Property may at the time be located, the Servicer and
the Trustee acting jointly and with the consent of the Certificate Insurer shall
have the power and shall execute and deliver all instruments to appoint one or
more Persons approved by the Trustee to act as co-Trustee or co-Trustees,
jointly with the Trustee, of all or any part of the Trust Estate or separate
Trustee or separate Trustees of any part of the Trust Estate, and to vest in
such Person or Persons, in such capacity and for the benefit of the Owners, such
title to the Trust Estate, or any part thereof, and, subject to the other
provisions of this Section 10.14, such powers, duties, obligations, rights and
trusts as the Servicer and the Trustee may consider necessary or desirable. If
the Servicer shall not have joined in such appointment within 15 days after the
receipt by it of a request so to do, or in the case any event indicated in
Sections 8.20(a) shall have occurred and be continuing, the Trustee alone (with
the consent of the Certificate Insurer) shall have the power to make such
appointment. No co-Trustee or separate Trustee hereunder shall be required to
meet the terms of eligibility as a successor Trustee under Section 10.8 and no
notice to Owners of the appointment of any co-Trustee or separate Trustee shall
be required under Section 10.8.
Every separate Trustee and co-Trustee shall, to the extent
permitted, be appointed and act subject to the following provisions and
conditions:
(i) All rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised
or performed by the Trustee and such separate Trustee or co-Trustee
jointly (it being understood that such separate Trustee or co-Trustee is
not authorized to act separately without the Trustee joining in such act),
except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed (whether as Trustee hereunder
or as successor to the Servicer hereunder), the Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the Trust Estate or any portion thereof in any such jurisdiction)
shall be exercised and performed singly by such separate Trustee or
co-Trustee, but solely at the direction of the Trustee;
(ii) No co-Trustee hereunder shall be held personally liable by
reason of any act or omission of any other co-Trustee hereunder; and
(iii) The Servicer and the Trustee acting jointly and with the
consent of the Certificate Insurer may at any time accept the resignation
of or remove any separate Trustee or co-Trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate Trustees and co-Trustees,
as effectively
96
<PAGE>
as if given to each of them. Every instrument appointing any separate Trustee or
co-Trustee shall refer to this Agreement and the conditions of this Section
10.14. Each separate Trustee and co-Trustee, upon its acceptance of the trusts
conferred, shall be vested with the estates or property specified in its
instrument of appointment, either jointly with the Trustee or separately, as may
be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicer.
Any separate Trustee or co-Trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate Trustee or co-Trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor Trustee.
The Trustee shall give to Moody's, the Sponsor and the Certificate
Insurer notice of the appointment of any co-Trustee or separate Trustee.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Compliance Certificates and Opinions. Upon any
application or request by the Sponsor, the Servicer, the Certificate Insurer or
the Owners to the Trustee to take any action under any provision of this
Agreement, the Sponsor, the Servicer, the Certificate Insurer or the Owners, as
the case may be, shall furnish to the Trustee a certificate stating that all
conditions precedent, if any, provided for in this Agreement relating to the
proposed action have been complied with, except that in the case of any such
application or request as to which the furnishing of any documents is
specifically required by any provision of this Agreement relating to such
particular application or request, no additional certificate need be furnished.
Except as otherwise specifically provided herein, each certificate
or opinion with respect to compliance with a condition or covenant provided for
in this Agreement shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based; and
97
<PAGE>
(c) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 11.2. Form of Documents Delivered to the Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate of an Authorized Officer of the Sponsor, the
Servicer or the Trustee may be based, insofar as it relates to legal matters,
upon an opinion of counsel, unless such Authorized Officer knows, or in the
exercise of reasonable care should know, that the opinion is erroneous. Any such
certificate of an Authorized Officer or any opinion of counsel may be based,
insofar as it relates to factual matters upon a certificate or opinion of, or
representations by, one or more Authorized Officers of the Sponsor or of the
Servicer, stating that the information with respect to such factual matters is
in the possession of the Sponsor or of the Servicer, unless such Authorized
Officer or counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to such matters
are erroneous. Any opinion of counsel may also be based, insofar as it relates
to factual matters, upon a certificate or opinion of, or representations by, an
Authorized Officer of the Sponsor, the Servicer or the Trustee, stating that the
information with respect to such matters is in the possession of such Person,
unless such counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to such matters
are erroneous. Any opinion of counsel may be based on the written opinion of
other counsel, in which event such opinion of counsel shall be accompanied by a
copy of such other counsel's opinion and shall include a statement to the effect
that such counsel believes that such counsel and the addressee thereof may
reasonably rely upon the opinion of such other counsel.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Agreement, they may, but need not, be consolidated and
form one instrument.
Section 11.3. Acts of Owners. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Agreement to be given or taken by the Owners may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Owners in person or by an agent duly appointed in writing; and, except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee, and, where it is
hereby expressly required, to the Sponsor. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "act" of the Owners signing such instrument or instruments. Proof of
execution
98
<PAGE>
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and conclusive in favor of the
Trustee and the Trust, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by an officer of a corporation or a member of a partnership on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority.
(c) The ownership of Certificates shall be proved by the Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Owner of any Certificate shall bind the Owner of
every Certificate issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done, omitted or
suffered to be done by the Trustee or the Trust in reliance thereon, whether or
not notation of such action is made upon such Certificates.
Section 11.4. Notices, etc., to Trustee. Any request, demand,
authorization, direction, notice, consent, waiver or act of the Owners or other
documents provided or permitted by this Agreement to be made upon, given or
furnished to, or filed with the Trustee by any Owner, the Certificate Insurer or
by the Sponsor shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with and received by the Trustee at its
corporate trust office as set forth in Section 2.2 hereof.
Section 11.5. Notices and Reports to Owners; Waiver of Notices.
Where this Agreement provides for notice to Owners of any event or the mailing
of any report to Owners, such notice or report shall be sufficiently given
(unless otherwise herein expressly provided) if mailed, first-class postage
prepaid, to each Owner affected by such event or to whom such report is required
to be mailed, at the address of such Owner as it appears on the Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice or the mailing of such report. In any case where a
notice or report to Owners is mailed in the manner provided above, neither the
failure to mail such notice or report nor any defect in any notice or report so
mailed to any particular Owner shall affect the sufficiency of such notice or
report with respect to other Owners, and any notice or report which is mailed in
the manner herein provided shall be conclusively presumed to have been duly
given or provided.
Where this Agreement provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by
99
<PAGE>
Owners shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Owners when such notice is required to be given
pursuant to any provision of this Agreement, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Agreement provides for notice to any rating agency that
rated any Certificates, failure to give such notice shall not affect any other
rights or obligations created hereunder.
Section 11.6. Rules by Trustee and Sponsor. The Trustee may make
reasonable rules for any meeting of Owners. The Sponsor may make reasonable
rules and set reasonable requirements for its functions.
Section 11.7. Successors and Assigns. All covenants and agreements
in this Agreement by any party hereto shall bind its successors and assigns,
whether so expressed or not.
Section 11.8. Severability. In case any provision in this Agreement
or in the Certificates shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 11.9. Benefits of Agreement. Nothing in this Agreement or in
the Certificates, expressed or implied, shall give to any Person, other than the
Owners, the Certificate Insurer and the parties hereto and their successors
hereunder, any benefit or any legal or equitable right, remedy or claim under
this Agreement.
Section 11.10. Legal Holidays. In any case where the date of any
Remittance Date, any Payment Date, any other date on which any distribution to
any Owner is proposed to be paid, or any date on which a notice is required to
be sent to any Person pursuant to the terms of this Agreement shall not be a
Business Day, then (notwithstanding any other provision of the Certificates or
this Agreement) payment or mailing need not be made on such date, but may be
made on the next succeeding Business Day with the same force and effect as if
made or mailed on the nominal date of any such Remittance Date, such Payment
Date, or such other date for the payment of any distribution to any Owner or the
mailing of such notice, as the case may be, and no interest shall accrue for the
period from and after any such nominal date, provided such payment is made in
full on such next succeeding Business Day.
Section 11.11. Governing Law. In view of the fact that Owners are
expected to reside in many states and outside the United States and the desire
to establish
100
<PAGE>
with certainty that this Agreement will be governed by and construed and
interpreted in accordance with the law of a state having a well-developed body
of commercial and financial law relevant to transactions of the type
contemplated herein, this Agreement and each Certificate 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.
Section 11.12. Counterparts. This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 11.13. Usury. The amount of interest payable or paid on any
Certificate under the terms of this Agreement shall be limited to an amount
which shall not exceed the maximum nonusurious rate of interest allowed by the
applicable laws of the State of New York or any applicable law of the United
States permitting a higher maximum nonusurious rate that preempts such
applicable New York laws, which could lawfully be contracted for, charged or
received (the "Highest Lawful Rate"). In the event any payment of interest on
any Certificate exceeds the Highest Lawful Rate, the Trust stipulates that such
excess amount will be deemed to have been paid to the Owner of such Certificate
as a result of an error and the Owner receiving such excess payment shall
promptly, upon discovery of such error or upon notice thereof from the Trustee
on behalf of the Trust, refund the amount of such excess or, at the option of
such Owner, apply the excess to the payment of principal of such Certificate, if
any, remaining unpaid. In addition, all sums paid or agreed to be paid to the
Trustee for the benefit of Owners of Certificates for the use, forbearance or
detention of money shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
Certificates.
Section 11.14. Amendment. (a) The Trustee, the Sponsor and the
Servicer, may at any time and from time to time, with the prior written approval
of the Certificate Insurer but without the giving of notice to or the receipt of
the consent of the Owners, amend this Agreement, and the Trustee shall consent
to such amendment, for the purpose of (i) curing any ambiguity, or correcting or
supplementing any provision hereof which may be inconsistent with any other
provision hereof, or to add provisions hereto which are not inconsistent with
the provisions hereof, (ii) upon receipt of an opinion of counsel, the cost of
which shall be paid by the Servicer, experienced in federal income tax matters
to the effect that no entity-level tax will be imposed on the Trust or upon the
transferor of a Residual Certificate as a result of the ownership of any
Residual Certificate by a Disqualified Organization, removing the restriction on
transfer set forth in Section 5.8(b) hereof or (iii) complying with the
requirements of the Code and the regulations proposed or promulgated thereunder;
provided, however, that any such action shall not, as evidenced by an opinion of
counsel delivered to the Trustee, materially and adversely affect the interests
of any Owner (without its written consent).
(b) The Trustee, the Sponsor and the Servicer may, at any time and
from time to time, with the prior written approval of the Certificate Insurer
but without the
101
<PAGE>
giving of notice to or the receipt of the consent of the Owners, amend this
Agreement, and the Trustee is hereby authorized to accept and execute such
amendment, for the purpose of changing the definition of "Specified Subordinated
Amount".
(c) This Agreement may also be amended by the Trustee, the Sponsor,
and the Servicer at any time and from time to time, with the prior written
approval of the Certificate Insurer and not less than a majority of the
Percentage Interest represented by each affected Class of Certificates then
Outstanding, for the purpose of adding any provisions or changing in any manner
or eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Owners hereunder; provided, however, that no such
amendment shall (i) change in any manner the amount of, or change the timing of,
payments which are required to be distributed to any Owner without the consent
of the Owner of such Certificate or (ii) reduce the aforesaid percentages of
Percentage Interests which are required to consent to any such amendments,
without the consent of the Owners of all Certificates of the Class or Classes
affected then Outstanding.
(d) Each proposed amendment to this Agreement shall be accompanied
by an opinion of counsel nationally recognized in federal income tax matters
addressed to the Trustee and to the Certificate Insurer to the effect that such
amendment would not adversely affect the status of the Trust as a REMIC.
(e) The Sponsor shall provide the Certificate Insurer, the Owners,
Moody's and S&P with copies of any amendments to this Agreement, together with
copies of any opinions or other documents or instruments executed in connection
therewith.
(f) The Trustee shall not be required to enter into any amendment
which affects its rights or obligations hereunder.
Section 11.15. REMIC Status; Taxes. (a) The Tax Matters Person, at
its own expense, shall prepare and file or cause to be filed with the Internal
Revenue Service Federal tax or information returns with respect to the Trust and
the Certificates containing such information and at the times and in such manner
as may be required by the Code or applicable Treasury regulations, and shall
furnish to Owners such statements or information at the times and in such manner
as may be required thereby. For this purpose, the Tax Matters Person may, but
need not, rely on any proposed regulations of the United States Department of
the Treasury. The Tax Matters Person shall indicate the election to treat the
Trust as a REMIC (which election shall apply to the taxable period ending
December 31, 1996 and each calendar year thereafter) in such manner as the Code
or applicable Treasury regulations may prescribe. The Trustee, as Tax Matters
Person appointed pursuant to Section 11.17 hereof shall sign all tax information
returns filed pursuant to this Section 11.15. The Tax Matters Person shall
provide information necessary for the computation of tax imposed on the transfer
of a Residual Certificate to a Disqualified Organization, or an agent of a
Disqualified Organization, or a pass-through entity in which a Disqualified
Organization is the record holder of an interest. The Tax
102
<PAGE>
Matters Person shall provide the Trustee with copies of any Federal tax or
information returns filed, or caused to be filed, by the Tax Matters Person with
respect to the Trust or the Certificates.
(b) The Tax Matters Person, at its own expense, shall timely file
all reports required to be filed by the Trust with any federal, state or local
governmental authority having jurisdiction over the Trust, including other
reports that must be filed with the Owners, such as the Internal Revenue
Service's Form 1066 and Schedule Q and the form required under Section 6050K of
the Code, if applicable to REMICs. Furthermore, the Tax Matters Person shall
report to Owners, if required, with respect to the allocation of expenses
pursuant to Section 212 of the Code in accordance with the specific instructions
to the Tax Matters Person by the Sponsor with respect to such allocation of
expenses. The Tax Matters Person shall collect any forms or reports from the
Owners determined by the Sponsor to be required under applicable federal, state
and local tax laws.
(c) The Tax Matters Person, at its own expense, shall provide to the
Internal Revenue Service and to persons described in Section 860E(e)(3) and (6)
of the Code the information described in Proposed Treasury Regulation Section
1.860D- 1(b)(5)(ii), or any successor regulation thereto. Such information will
be provided in the manner described in Proposed Treasury Regulation Section
1.860E(2)(a)(5), or any successor regulation thereto.
(d) The Sponsor covenants and agrees that within ten Business Days
after the Startup Day it shall provide to the Trustee any information necessary
to enable the Trustee to meet its obligations under subsections (b) and (c)
above.
(e) The Trustee, the Sponsor and the Servicer each covenants and
agrees for the benefit of the Owners (i) to take no action which would result in
the termination of "REMIC" status for the Trust, (ii) not to engage in any
"prohibited transaction", as such term is defined in Section 860F(a)(2) of the
Code and (iii) not to engage in any other action which may result in the
imposition on the REMIC Trust of any other taxes under the Code.
(f) The Trust shall, for federal income tax purposes, maintain books
on a calendar year basis and report income on an accrual basis.
(g) Except as otherwise permitted by Section 7.6(b), no Eligible
Investment shall be sold prior to its stated maturity (unless sold pursuant to a
plan of liquidation in accordance with Article IX hereof).
(h) Neither the Sponsor nor the Trustee shall enter into any
arrangement by which the Trustee will receive a fee or other compensation for
services rendered pursuant to this Agreement, which fee or other compensation is
paid from the Trust Estate, other than as expressly contemplated by this
Agreement.
103
<PAGE>
(i) Notwithstanding the foregoing clauses (g) and (h), the Trustee
or the Sponsor may engage in any of the transactions prohibited by such clauses,
provided that the Trustee shall have received (not at the expense of the Trust
or the Trustee) an opinion of counsel experienced in federal income tax matters
to the effect that such transaction does not result in a tax imposed on the
Trust or cause a termination of REMIC status for the Trust; provided, however,
that such transaction is otherwise permitted under this Agreement.
Section 11.16. Additional Limitation on Action and Imposition of
Tax. (a) Any provision of this Agreement to the contrary notwithstanding, the
Trustee shall not, without having obtained (not at the expense of the Trust or
the Trustee) an opinion of counsel experienced in federal income tax matters to
the effect that such transaction does not result in a tax imposed on the Trust
or cause a termination of REMIC status for the Trust, (i) sell any assets in the
Trust Estate, (ii) accept any contribution of assets after the Startup Day or
(iii) agree to any amendment of this Agreement under Section 11.14 hereof.
(b) In the event that any tax is imposed on "prohibited
transactions" of the Trust as defined in Section 860F(a)(2) of the Code, on the
"net income from foreclosure property" as defined in Section 860G(c) of the
Code, on any contribution to the Trust after the Startup Day pursuant to Section
860G(d) of the Code, or any other tax is imposed, such tax shall be paid by (i)
the Trustee, if such tax arises out of or results from a material breach by the
Trustee of any of its obligations under this Agreement, (ii) the Servicer, if
such tax arises out of or results from a breach by the Servicer of any of its
obligations under this Agreement, or otherwise (iii) the Owners of the Class B
Certificates in proportion to their Percentage Interests. To the extent such tax
is chargeable against the Owners of the Class B Certificates, notwithstanding
anything to the contrary contained herein, the Trustee is hereby authorized to
retain from amounts otherwise distributable to the Owners of the Class B
Certificates on any Payment Date sufficient funds to reimburse the Trustee for
the payment of such tax (to the extent that the Trustee has not been previously
reimbursed or indemnified therefor). The Trustee agrees to first seek
indemnification for any such tax payment from any indemnifying parties before
reimbursing itself from amounts otherwise distributable to the Owners of the
Class B Certificates.
Section 11.17. Appointment of Tax Matters Person. A Tax Matters
Person will be appointed for Trust for all purposes of the Code and such Tax
Matters Person will perform, or cause to be performed, without any right of
reimbursement, such duties and take, or cause to be taken, such actions as are
required to be performed or taken by the Tax Matters Person under the Code,
including, but not limited to, the representation of the Trust in any tax audit
(including any administrative or judicial proceedings with respect thereto that
involve the Internal Revenue Service or state tax authorities). The Owners of
the Class B Certificates hereby designate the Trustee, acting as their agent, to
be the Tax Matters Person for the Trust.
104
<PAGE>
Section 11.18. The Certificate Insurer. (a) The Certificate Insurer
is a third-party beneficiary of this Agreement. Any right conferred to the
Certificate Insurer shall be suspended during occurrence and continuance of a
Certificate Insurer Default. During any period of suspension the Certificate
Insurer's rights hereunder shall vest in the Owners of the Class A Certificates
and shall be exercisable by the Owners of at least a majority in Percentage
Interest of the Class A Certificates then Outstanding or if there are no Class A
Certificates then Outstanding, by such Percentage Interest represented by the
Class B Certificates then Outstanding. At such time as the Class A Certificates
are no longer Outstanding hereunder and the Certificate Insurer has been
reimbursed for all Insured Payments to which it is entitled hereunder, the
Certificate Insurer's rights hereunder shall terminate.
Section 11.19. Notices. All notices hereunder shall be given as
follows, until any superseding instructions are given to all other Persons
listed below:
The Trustee: Norwest Bank Minnesota,
National Association
Sixth Street & Marquette Avenue
Minneapolis, Minnesota 55479-0070
Attention: Corporate Trust Services
Re: EquiVantage Home Equity
Loan Trust 1996-4
Tel: (612) 667-7167
Fax: (612) 667-3539
with a copy to:
Norwest Bank Minnesota, N.A.
11000 Broken Land Parkway
Columbia, Maryland 21044
Attention: Corporate Trust Services
Re: EquiVantage Home Equity Loan Trust
1996-4
Tel: (410) 884-2000
Fax: (410) 884-2363
105
<PAGE>
The Sponsor: EquiVantage Acceptance Corp.
13111 Northwest Freeway, Suite 301
Houston, Texas 77040
Attention: President
Tel: (713) 895-1957
Fax: (713) 895-1999
with a copy addressed to the attention of
the General Counsel at the same address.
The Servicer: EquiVantage Inc.
13111 Northwest Freeway, Suite 300
Houston, Texas 77040
Attention: President
Tel: (713) 895-1900
Fax: (713) 895-3870
with a copy addressed to the attention of
the General Counsel at the same address.
The Certificate
Insurer: Financial Guaranty Insurance Company
115 Broadway
New York, NY 10006
Attention: Research and Risk
Management Department
Re: EquiVantage Home Equity
Loan Trust 1996-4
Confirmation: (212) 312-3000
Fax: (212) 312-3093
Moody's: Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: The Mortgage Monitoring
Department
106
<PAGE>
S&P: Standard & Poor's Ratings Services
26 Broadway
15th Floor
New York, New York 10004
Attention: Surveillance Dept.
Underwriter: Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Attention: Asset Backed Securities Group
107
<PAGE>
IN WITNESS WHEREOF, the Sponsor, the Servicer and the Trustee have
caused this Agreement to be duly executed by their respective officers thereunto
duly authorized, all as of the day and year first above written.
EQUIVANTAGE ACCEPTANCE CORP.,
as Sponsor
By:________________________________
Name: John E. Smith
Title: President
EQUIVANTAGE INC.,
as Servicer
By:_________________________________
Name: Karen S. Crawford
Title: Senior Vice President
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Trustee
By: /s/ Patrick G. Bassett
--------------------------------
Name: Patrick G. Bassett
Title: Vice President
[Pooling and Servicing Agreement]
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ___th day of November, 1996, before me personally came John
E. Smith, to me known, who, being by me duly sworn, did depose and say that his
address is 13111 Northwest Freeway, Suite 301, Houston, Texas 77040; that he is
the President of EquiVantage Acceptance Corp.; which corporation is described in
and which executed the above instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
__________________
Notary Public
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ___th day of November, 1996, before me personally came Karen
S. Crawford, to me known, who, being by me duly sworn, did depose and say that
her address is 13111 Northwest Freeway, Suite 301, Houston, Texas 77040; that
she is the Senior Vice President of EquiVantage Inc.; which corporation is
described in and which executed the above instrument; and that she signed her
name thereto by order of the Board of Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
__________________
Notary Public
<PAGE>
STATE OF MINNESOTA )
: ss.:
COUNTY OF HENNEPIN )
On the ___th day of November, 1996, before me personally came
______________________, to me known, who, being by me duly sworn, did depose and
say that his address is Norwest Center, Sixth Street and Marquette Avenue,
Minneapolis, Minnesota 55479-0070; that he is the ____________________ of
Norwest Bank Minnesota, National Association; which is described in and which
executed the above instrument; and that he signed his name thereto by order of
the Board of Directors of said association.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
__________________
Notary Public
<PAGE>
SCHEDULE I
SCHEDULE OF MORTGAGE LOANS
<PAGE>
EXHIBIT A
FORM OF
EQUIVANTAGE HOME EQUITY LOAN TRUST 1996-4
HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
CLASS A FIXED RATE CERTIFICATES
(6.75% Class A Certificate)
Representing Certain Interests Relating to a Pool of
Mortgage Loans in the EquiVantage Home Equity Loan Trust 1996-4
formed by EquiVantage Acceptance Corp., as Sponsor, and Serviced by
EQUIVANTAGE INC.
Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to Issuer or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as 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.
(This certificate does not represent an interest in, or an
obligation of, nor are the underlying Mortgage Loans insured or guaranteed by,
EquiVantage Acceptance Corp., EquiVantage Inc., an Originator or any of their
subsidiaries and affiliates. This certificate represents a fractional ownership
interest in Class A described herein, moneys in certain Accounts created
pursuant to the Pooling and Servicing Agreement and certain other rights
relating thereto and is payable only from amounts received by the Trustee (i)
relating to the Mortgage Loans held by the Trust, (ii) moneys held in such
Accounts and (iii) pursuant to the Certificate Insurance Policy.)
No.: A-1 November 22, 1996 29476YAP4
----------------- ---------
Date CUSIP
$80,000,000 January 25, 2028
- ------------------------- ----------------------------
Original Principal Amount Final Scheduled Payment Date
CEDE & CO.
Registered Owner
A-1
<PAGE>
The registered Owner named above is the registered Owner of a
fractional interest in (i) a pool of fixed rate, closed-end mortgage loans (the
"Mortgage Loans") which will be formed by EquiVantage Acceptance Corp.
("EquiVantage" or the "Sponsor"), a Delaware corporation and sold by the Sponsor
to Norwest Bank Minnesota, National Association, a national banking association,
as trustee (the "Trustee") on behalf of EquiVantage Home Equity Loan Trust
1996-4 the "Trust") pursuant to that certain Pooling and Servicing Agreement
dated as of November 1, 1996 (the "Pooling and Servicing Agreement") by and
among the Sponsor, the Trustee and EquiVantage Inc., as Servicer (the
"Servicer"), (ii) such amounts, including Eligible Investments and the proceeds
of payments under the Certificate Insurance Policy, as from time to time may be
held in the related Accounts (except as otherwise provided in the Pooling and
Servicing Agreement), each created pursuant to the Pooling and Servicing
Agreement, (iii) any Mortgaged Property, the ownership of which has been
effected in the name of the Servicer on behalf of the Trust as a result of
foreclosure or acceptance by the Servicer of a deed in lieu of foreclosure and
that has not been withdrawn from the Trust Estate, (iv) any Insurance Policies
and any rights of the Sponsor in any Insurance Policies and (v) Net Liquidation
Proceeds.
The Original Principal Amount set forth above is equal to the
product of (i) the Percentage Interest represented by this Certificate and (ii)
the aggregate original principal amount of the Class A Certificates on November
22, 1996 (the "Startup Date"), which aggregate amount as of November 22, 1996
was $80,000,000 (the "Original Principal Amount"). The Owner hereof is entitled
to principal payments on each Payment Date, as hereinafter described, which will
fully amortize such Original Principal Amount over the period from the date of
initial delivery hereof to the final Payment Date of the Class A Certificates.
Therefore, the actual outstanding principal amount of this Certificate, on any
date subsequent to December 26, 1996 (the first Payment Date) will be less than
the Original Principal Amount set forth above.
Upon receiving the final distribution hereon, the Owner hereof is
required to send this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS
AN INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE
INVESTMENT CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
SECTION 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), ASSUMING COMPLIANCE WITH THE REMIC PROVISIONS OF THE CODE.
A-2
<PAGE>
THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
This Certificate is one of a Class of duly-authorized Certificates
designated as EquiVantage Home Equity Loan Trust 1996-4, Home Equity Loan
Asset-Backed Certificates, Class A Fixed Rate Certificates (the "Class A
Certificates") and issued under and subject to the terms, provisions and
conditions of the Pooling and Servicing Agreement, to which Pooling and
Servicing Agreement the Owner of this Certificate by virtue of acceptance hereof
assents and by which such Owner is bound. Also issued under the Pooling and
Servicing Agreement are the Class B Certificates and the Residual Certificates;
all such Certificates are collectively referred to herein as the "Certificates."
Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.
On the 25th day of each month, or, if such day is not a Business
Day, then the next succeeding Business Day (each such day being a "Payment
Date") commencing December 26, 1996, the Owners of the Class A Certificates as
of the close of business on the last business day of the calendar month
immediately preceding the calendar month in which such Payment Date occurs (or,
with respect to the First Payment Date, the close of business on November 22,
1996) (the "Record Date") will be entitled to receive the Class A Distribution
Amount relating to such Payment Date. Distributions will be made in immediately
available funds to such Owners, by wire transfer or otherwise, to the account of
an Owner at a domestic bank or other entity having appropriate facilities
therefor, if such Owner has so notified the Trustee at least five business days
prior to the related record date, or by check mailed to the address of the
person entitled thereto as it appears on the Register.
Each Owner of Record of a Class A Certificate will be entitled to
receive such Owner's Percentage Interest in the amounts distributed on such
Payment Date to the Owners of the Class A Certificates. The Percentage Interest
of each Class A Certificate as of any date of determination will be equal to the
percentage obtained by dividing the Original Principal Amount set forth on such
Class A Certificate by $80,000,000.
Pursuant to the Certificate Insurance Policy, the Certificate
Insurer is required, to the extent of any insufficiency in Available Funds, to
make Insured Payments available to the Trustee necessary to distribute the full
amount of the Insured Distribution Amount with respect to the Class A
Certificates on each Payment Date.
A-3
<PAGE>
Upon receipt of amounts under the Certificate Insurance Policy on
behalf of the Owners of the Class A Certificates, the Trustee shall distribute
in accordance with the Pooling and Servicing Agreement to the Owners of the
Class A Certificates any portion thereof to which such Owners may be entitled.
The Trustee is required to duly and punctually pay distributions
with respect to this Certificate in accordance with the terms hereof and the
Pooling and Servicing Agreement. Amounts properly withheld under the Code or
applicable to any Owner shall be considered as having been paid by the Trustee
to such Owner for all purposes of the Pooling and Servicing Agreement.
The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any Sub-Servicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.
This Certificate does not represent a deposit or other obligation
of, or an interest in, nor are the underlying Mortgage Loans insured or
guaranteed by, EquiVantage Acceptance Corp., EquiVantage Inc., any Originator or
any of their subsidiaries and affiliates and are not insured or guaranteed by
the Federal Deposit Insurance Corporation, the Government National Mortgage
Association, or any other governmental agency. This Certificate is limited in
right of payment to certain collections and recoveries and amounts on deposit in
the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) and payments received by the Trustee pursuant to the Certificate
Insurance Policy, all as more specifically set forth hereinabove and in the
Pooling and Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial
or otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms hereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Owner.
The Pooling and Servicing Agreement additionally provides that (i)
the Owners of the Class RL Certificates, or, if such Owners decline to exercise,
the Servicer or, if the Servicer declines to exercise, the Certificate Insurer,
may, at their respective options, purchase from the Trust all (but not fewer
than all) remaining Mortgage Loans and other property then constituting the
Trust Estate, and thereby effect early retirement
A-4
<PAGE>
of the Class A Certificates, on any Remittance Date when the aggregate
outstanding Loan Balances of the Mortgage Loans in the Trust Estate is 10% or
less of the sum of the original aggregate Loan Balance of the Mortgage Loans in
the Trust Estate as of the CutOff Date and (ii) under certain circumstances
relating to the qualification of the Trust as a REMIC under the Code, the
Mortgage Loans may be sold, thereby affecting the early retirement of the Class
A Certificates.
The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each Owner in the manner set forth therein.
The Owners of a majority of the Percentage Interests represented by
the Class A Certificates, upon compliance with the requirements set forth in the
Pooling and Servicing Agreement, have the right, with the consent of the
Certificate Insurer, to exercise any trust or power set forth in the Pooling and
Servicing Agreement with respect to the Certificates or the Trust Estate.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registrable in the Register upon surrender of
this Certificate for registration of transfer at the office designated as the
location of the Register, and thereupon one or more new Certificates of like
Class, tenor and a like Percentage Interest will be issued to the designated
transferee or transferees.
The Trustee is required to furnish certain information on each
Payment Date to the Owner of this Certificate, as more fully described in the
Pooling and Servicing Agreement.
The Class A Certificates are issuable only as registered
Certificates in denominations of $1,000 original principal amount and integral
multiples of $1,000 (except for one odd Certificate). As provided in the Pooling
and Servicing Agreement and subject to certain limitations therein set forth,
Class A Certificates are exchangeable for new Class A Certificates of authorized
denominations evidencing the same aggregate principal amount.
The Trustee and any agent of the Trustee may treat the Person in
whose name this Certificate is registered as the owner hereof for all purposes,
and neither the Trustee or any such agent shall be affected by notice to the
contrary.
A-5
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
duly executed on behalf of the Trust.
EQUIVANTAGE HOME EQUITY
LOAN TRUST 1996-4
By: Norwest Bank Minnesota,
National Association, as Trustee
By:_______________________________
Name:
Title:
Trustee Authentication
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
By:_______________________________
Name:
Title:
Dated: _______________________, 199_
A-6
<PAGE>
EXHIBIT B
FORM OF
EQUIVANTAGE HOME EQUITY LOAN TRUST 1996-4
HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
CLASS B
Representing Certain Interests Relating to a Pool
of Mortgage Loans in the EquiVantage Home Equity Loan Trust 1996-4
Formed by EquiVantage
Acceptance Corp. and Serviced by
EQUIVANTAGE INC.
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF CERTAIN PAYMENTS TO THE
CLASS A CERTIFICATES AS DESCRIBED IN THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN. DISTRIBUTIONS HEREON ARE SUBJECT TO THE PRIOR RIGHT OF THE
CLASS A CERTIFICATE OWNERS.
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE IN
RELIANCE UPON EXEMPTIONS PROVIDED BY THE SECURITIES ACT AND SUCH STATE
SECURITIES LAWS. NO RESALE OR OTHER TRANSFER OF THIS CERTIFICATE MAY BE MADE
UNLESS SUCH RESALE OR TRANSFER (A) IS MADE IN ACCORDANCE WITH SECTION 5.8 OF THE
POOLING AND SERVICING AGREEMENT, (B) IS MADE (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (ii) IN A TRANSACTION EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, (iii) TO THE SELLER OR (iv) TO A PERSON WHO THE TRANSFEROR
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT THAT IS AWARE THAT THE RESALE OR OTHER
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A AND (C) UPON THE SATISFACTION OF
CERTAIN OTHER REQUIREMENTS SPECIFIED IN THE AGREEMENT. NONE OF THE SELLER, THE
SERVICER, THE TRUST OR THE TRUSTEE IS OBLIGATED TO REGISTER THE CERTIFICATES
UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS.
This Certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, EquiVantage
Acceptance Corp., EquiVantage Inc., any Originator or any of their subsidiaries
and affiliates. This
B-1
<PAGE>
Certificate represents a fractional ownership interest in the assets of the
Trust described herein, moneys in certain Accounts created pursuant to the
Pooling and Servicing Agreement and certain other rights relating thereto and is
payable only from amounts received by the Trustee relating to the Trust Estate.
No: B-1 Date: November 22, 1996
Percentage Interest: 100% January 25, 2028
----------------------------
Final Scheduled Payment Date
EQUIVANTAGE ACCEPTANCE CORP.
Registered Owner
The registered Owner named above is the registered Owner of a
fractional interest in (i) a pool of fixed rate, closed-end mortgage loans (the
"Mortgage Loans") which will be formed by EquiVantage Acceptance Corp. (the
"Sponsor"), a Delaware corporation, and sold by the Sponsor to Norwest Bank
Minnesota, National Association, a national banking association, as trustee (the
"Trustee") on behalf of EquiVantage Home Equity Loan Trust 1996-4 (the "Trust")
pursuant to that certain Pooling and Servicing Agreement dated as of November 1,
1996 (the "Pooling and Servicing Agreement") by and among the Sponsor, the
Trustee and EquiVantage Inc., as Servicer (the "Servicer"), (ii) such amount,
including Eligible Investments, as from time to time may be held in the Accounts
created pursuant to the Pooling and Servicing Agreement, (iii) any Property
relating to the Mortgage Loans, the ownership of which has been effected in the
name of the Servicer on behalf of the Trust as a result of foreclosure or
acceptance by the Servicer of a deed-in-lieu of foreclosure and that has not
been withdrawn from the Trust, (iv) Net Liquidation Proceeds relating to the
Mortgage Loans and (v) any Insurance Policies relating to the Mortgage Loans and
any rights of the Sponsor in any Insurance Policies relating to such Mortgage
Loans. Such Mortgage Loans and other amounts and property enumerated above are
hereinafter referred to as the "Trust Estate".
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS
AN INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE
INVESTMENT CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
SECTION 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), ASSUMING COMPLIANCE WITH THE REMIC PROVISIONS OF THE CODE.
THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY.
B-2
<PAGE>
NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
This Certificate is one of a Class of duly authorized Certificates
designated as EquiVantage Home Equity Loan Trust 1996-4, Home Equity Loan
Asset-Backed Certificates, Class B Certificates (the "Class B Certificates") and
issued under and subject to the terms, provisions and conditions of the Pooling
and Servicing Agreement, to which Pooling and Servicing Agreement the Owner of
this Certificate by virtue of acceptance hereof assents and by which such Owner
is bound. Also issued under the Pooling and Servicing Agreement are Class A
Certificates, Class RL Certificates and Class RU Certificates (together with the
Class B Certificates, the "Certificates").
Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.
On the 25th day of each month or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Payment Date"),
commencing December 25, 1996, to the persons in whose names the Class B
Certificates are registered at the close of business on the last business day of
the calendar month immediately preceding the calendar month in which such
Payment Date occurs (the "Record Date"), the Trustee will distribute to each
Owner of the Class B Certificates such Owner's Percentage Interest in the Class
B Distribution Amount due on such Payment Date. The Class B Distribution Amount
as of any date of determination will be determined as set forth in the Pooling
and Servicing Agreement. Distributions will be made in immediately available
funds, by wire transfer or otherwise, to the account of such Owner at a domestic
bank or other entity having appropriate facilities therefor, if such Owner has
so notified the Trustee at least five business days prior to the related record
date, or by check mailed to the address of the person entitled thereto as it
appears on the Register.
Upon receiving the final distribution hereon, the Owner hereof is
required to send this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.
The Trustee is required to duly and punctually pay distributions
with respect to this Certificate in accordance with the terms hereof and the
Pooling and Servicing Agreement. Amounts properly withheld under the Code or
applicable state or local law by any Person from a distribution to any Owner
shall be considered as having been paid by the Trustee to such Owner for all
purposes of the Pooling and Servicing Agreement.
B-3
<PAGE>
The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any Sub-Servicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.
This Certificate does not represent a deposit or other obligation
of, or an interest in, nor are the underlying Mortgage Loans insured or
guaranteed by, the Sponsor, EquiVantage Inc. or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans, all as more
specifically set forth hereinabove and in the Pooling and Servicing Agreement.
No Owner shall have the right to institute any proceeding, judicial
or otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Owner.
The Pooling and Servicing Agreement provides that the obligations
created thereby will terminate upon the earlier of (i) the payment to the Owners
of all Certificates from amounts other than those available under the
Certificate Insurance Policies of all amounts held by the Trustee and required
to be paid to such Owners pursuant to the Pooling and Servicing Agreement upon
the later to occur of (a) the final payment or other liquidation (or any advance
made with respect thereto) of the last Mortgage Loan in the Trust Estate or (b)
the disposition of all property acquired in respect of any Mortgage Loan
remaining in the Trust Estate or (ii) at any time when a Qualified Liquidation
of the Upper-Tier REMIC and the Lower-Tier REMIC is effected as described in the
Pooling and Servicing Agreement.
The Pooling and Servicing Agreement additionally provides that (i)
the Owners of the Class RL Certificates, or, if such Owners decline to exercise,
the Servicer or, if the Servicer declines to exercise, the Certificate Insurer,
may, at their respective options, purchase from the Trust all (but not fewer
than all) Mortgage Loans and other property then constituting the Trust Estate,
and thereby effect early retirement of the Certificates, on any Remittance Date
when the aggregate outstanding Loan Balances of the Mortgage Loans in the Trust
Estate is 10% or less of the original aggregate Loan Balance of the Mortgage
Loans as of the Cut-Off Date and (ii) under certain
B-4
<PAGE>
circumstances relating to the qualification of the Trust as a REMIC under the
Code the Mortgage Loans may be sold, thereby affecting the early retirement of
the Certificates.
The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each Owner in the manner set forth therein.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registrable in the Register upon surrender of
this Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in the form required by the Pooling and Servicing
Agreement duly executed by, the Owner hereof or his attorney duly authorized in
writing, and thereupon one or more new Certificates of like Class, tenor and a
like aggregate fractional undivided interest in the Trust Estate will be issued
to the designated transferee or transferees.
Notwithstanding the foregoing, no sale or other transfer of record
or beneficial ownership of a Class B Certificate shall be made unless the
Trustee shall have received a representation letter from the transferee of such
Class B Certificate, acceptable to and in form and substance satisfactory to the
Trustee, to the effect that such transferee is not an employee benefit plan
subject to Section 406 of the Employee Retirement Income Security Act nor a plan
nor other arrangement subject to Section 4975 of the Code (collectively, a
"Plan"), nor is acting on behalf of any Plan nor using the assets of any Plan to
affect such transfer.
The Trustee is required to furnish certain information on each
Payment Date to the Owner of this Certificate, as more fully described in the
Pooling and Servicing Agreement.
The Class B Certificates are issuable only as registered
Certificates in minimum denomination of $100,000 original principal amount and
integral multiples of $1,000 in excess thereof. As provided in the Pooling and
Servicing Agreement and subject to certain limitations therein set forth, Class
B Certificates are exchangeable for new Class B Certificates evidencing the same
Percentage Interest as the Class B Certificates exchanged.
No service charge will be made for any such registration of transfer
or exchange, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in
whose name this Certificate is registered as the owner hereof for all purposes,
and neither the Trustee nor any such agent shall be affected by notice to the
contrary.
B-5
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
duly executed on behalf of the Trust.
EQUIVANTAGE HOME EQUITY
LOAN TRUST 1996-4
By: Norwest Bank Minnesota,
National Association, as Trustee
By:_________________________________
Name:
Title:
Trustee's Authentication
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
as Trustee
By:_____________________________
Name:
Title:
Dated: ________________, 199_
B-6
<PAGE>
EXHIBIT C-1
FORM OF CLASS RL CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). ANY RESALE OR TRANSFER OF THIS CERTIFICATE WITHOUT
REGISTRATION THEREOF UNDER THE ACT MAY BE MADE ONLY IN A TRANSACTION EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH THE PROVISIONS
OF SECTION 5.8 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS
AN INTEREST IN THE ONLY "RESIDUAL INTEREST" IN A "REAL ESTATE MORTGAGE
INVESTMENT CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
SECTION 860G and 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), ASSUMING COMPLIANCE WITH THE REMIC PROVISIONS OF THE CODE.
TRANSFER OF THIS CLASS RL CERTIFICATE IS RESTRICTED AS SET FORTH IN
THE POOLING AND SERVICING AGREEMENT. NO TRANSFER OF THIS CLASS RL CERTIFICATE
MAY BE MADE TO A "DISQUALIFIED ORGANIZATION" AS DEFINED IN SECTION 860E(e)(5) OF
THE CODE. SUCH TERM INCLUDES THE UNITED STATES, ANY STATE OR POLITICAL
SUBDIVISION THEREOF, ANY FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, ANY
AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN CERTAIN TAXABLE
INSTRUMENTALITIES), ANY COOPERATIVE ORGANIZATION FURNISHING ELECTRIC ENERGY OR
PROVIDING TELEPHONE SERVICE TO PERSONS IN RURAL AREAS, OR ANY ORGANIZATION
(OTHER THAN A FARMERS' COOPERATIVE) THAT IS EXEMPT FROM FEDERAL INCOME TAX
UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX ON UNRELATED BUSINESS INCOME. NO
TRANSFER OF THIS CLASS RL CERTIFICATE WILL BE REGISTERED BY THE TRUSTEE UNLESS
THE PROPOSED TRANSFEREE HAS DELIVERED AN AFFIDAVIT AFFIRMING, AMONG OTHER
THINGS, THAT THE PROPOSED TRANSFEREE IS NOT A DISQUALIFIED ORGANIZATION AND IS
NOT ACQUIRING THE CLASS RL CERTIFICATE FOR THE ACCOUNT OF A DISQUALIFIED
ORGANIZATION. A COPY OF THE FORM OF AFFIDAVIT REQUIRED OF EACH PROPOSED
TRANSFEREE IS ON FILE AND AVAILABLE FROM THE TRUSTEE.
C-1-1
<PAGE>
A TRANSFER IN VIOLATION OF THE APPLICABLE RESTRICTIONS MAY GIVE RISE
TO A SUBSTANTIAL TAX UPON THE TRANSFEROR OR, IN CERTAIN CASES, UPON AN AGENT
ACTING FOR THE TRANSFEREE. A PASS-THRU ENTITY THAT HOLDS THIS CLASS RL
CERTIFICATE AND THAT HAS A DISQUALIFIED ORGANIZATION AS A RECORD OWNER IN ANY
TAXABLE YEAR GENERALLY WILL BE SUBJECT TO A TAX FOR EACH SUCH YEAR EQUAL TO THE
PRODUCT OF (A) THE AMOUNT OF EXCESS INCLUSIONS WITH RESPECT TO THE PORTION OF
THIS CERTIFICATE OWNED THROUGH SUCH PASS-THRU ENTITY BY SUCH DISQUALIFIED
ORGANIZATION, AND (B) THE HIGHEST MARGINAL FEDERAL TAX RATE ON CORPORATIONS. FOR
PURPOSES OF THE PRECEDING SENTENCE, THE TERM "PASS-THRU" ENTITY INCLUDES
REGULATED INVESTMENT COMPANIES, REAL ESTATE INVESTMENT TRUSTS, COMMON TRUST
FUNDS, PARTNERSHIPS, TRUSTS, ESTATES, COOPERATIVES TO WHICH PART I OF SUBCHAPTER
I OF THE CODE APPLIES AND, EXCEPT AS PROVIDED IN REGULATIONS, NOMINEES.
EQUIVANTAGE HOME EQUITY LOAN TRUST 1996-4
MORTGAGE LOAN PASS-THROUGH CERTIFICATE
CLASS RL
Representing Certain Interests Relating to a Pool of Mortgage Loans Formed by
EquiVantage Acceptance Corp. and Serviced by
EQUIVANTAGE INC.
(This Certificate does not represent an interest in, or an
obligation of, nor are the underlying Mortgage Loans insured or guaranteed by,
EquiVantage Acceptance Corp., EquiVantage Inc., any Originator or any of their
subsidiaries and affiliates. This Certificate represents a fractional residual
ownership interest in the Lower-Tier REMIC described in the Pooling Agreement.)
No: RL-1 Date: November 22, 1996
Percentage Interest: 100% January 25, 2028
----------------------------
Final Scheduled Payment Date
EQUIVANTAGE ACCEPTANCE CORP.
----------------------------
Registered Owner
C-1-2
<PAGE>
THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
This Certificate is one of a Class of duly-authorized Certificates
designated as EquiVantage Home Equity Loan Trust 1996-4, Mortgage Loan
Pass-Through Certificates, Class RL (the "Class RL Certificates") and issued
under and subject to the terms, provisions and conditions of the Pooling
Agreement, to which Pooling Agreement the Owner of this Certificate by virtue of
acceptance hereof assents and by which such Owner is bound. Also issued under
the Pooling Agreement are Certificates designated as Class A Certificates, Class
B Certificates, and Class RU Certificates (together with the Class RL
Certificates, the "Certificates.")
Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling Agreement.
On the 25th day of each month, or, if such day is not a Business
Day, then the next succeeding Business Day (each such day being a "Payment
Date"), commencing December 26, 1996, to the Owners of the Class RL Certificates
as of the close of business on the first Business Day of the calendar month in
which such Payment Date occurs (the "Record Date"), the Trustee will distribute
to each Owner of the Class RL Certificates such Owner's Percentage Interest
multiplied by the amounts then available to be distributed to the Owners of the
Class RL Certificates. No significant distributions are anticipated to be made.
Upon receiving the final distribution hereon, the Owner hereof is
required to send this Certificate to the Trustee. The Pooling Agreement provides
that, in any event, upon the making of the final distribution due on this
Certificate, this Certificate shall be deemed cancelled for all purposes under
the Pooling Agreement.
The Trustee is required to duly and punctually pay distributions
with respect to this Certificate in accordance with the terms hereof and the
Pooling Agreement. Amounts properly withheld under the Code or applicable state
or local law by any Person from a distribution to any Owner shall be considered
as having been paid by the Trustee to such Owner for all purposes of the Pooling
Agreement.
EquiVantage Inc., as Master Servicer, pursuant to the related
Servicing Agreement will each service the Mortgage Loans. The Pooling and
Servicing Agreement permits the Master Servicer to enter into Sub-Servicing
Agreements with certain institutions eligible for appointment as Sub-Servicers
for the servicing and administration
C-1-3
<PAGE>
of the Mortgage Loans. No appointment of any Sub-Servicer shall release the
Servicer from any of its obligations under either Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial
or otherwise, with respect to the Pooling Agreement, or for the appointment of a
receiver or trustee, or for any other remedy under the Pooling Agreement except
in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling Agreement, the
Owner of any Certificate shall have the right which is absolute and
unconditional to receive distributions to the extent provided in the Pooling
Agreement with respect to such Certificate or to institute suit for the
enforcement of any such distribution, and such right shall not be impaired
without the consent of such Owner.
The Pooling and Servicing Agreement provides that the obligations
created thereby will terminate upon the earlier of (i) the payment to the Owners
of all Certificates of all amounts held by the Trustee and required to be paid
to such Owners pursuant to the Pooling and Servicing Agreement upon the later to
occur of (a) the final payment or other liquidation (or any advance made with
respect thereto) of the last Mortgage Loan in the Trust Estate or (b) the
disposition of all property acquired in respect of any Mortgage Loan remaining
in the Trust Estate or (ii) at any time when a Qualified Liquidation of the
Upper-Tier REMIC and the Lower-Tier REMIC is effected as described in the
Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that (i) the Owners of
the Class RL Certificates, or, if such Owners decline to exercise, the Servicer
or, if the Servicer declines to exercise, the Certificate Insurer, may, at their
respective options, purchase from the Trust all (but not fewer than all)
remaining Mortgage Loans and other property then constituting the Trust Estate,
and thereby effect early retirement of the Certificates, on any Remittance Date
when the aggregate outstanding Loan Balances of the Mortgage Loans in the Trust
Estate is 10% or less of the original aggregate Loan Balance of the Mortgage
Loans as of the Cut-Off Date and (ii) under certain circumstances relating to
the qualification of the Trust as a REMIC under the Code, the Mortgage Loans may
be sold, thereby affecting the early retirement of the Certificates.
The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each Owner in the manner set forth therein.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registrable in the Register upon surrender of
this Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in the form set forth in the Pooling and Servicing
Agreement duly executed by, the Owner hereof or his attorney duly authorized
C-1-4
<PAGE>
in writing, and thereupon one or more new Certificates of like Class, tenor and
a like Percentage Interest will be issued to the designated transferee or
transferees.
Notwithstanding the foregoing, no sale or other transfer of record
or beneficial ownership of a Class RL Certificate shall be made unless the
Trustee shall have received a representation letter from the transferee of such
Class RL Certificate, acceptable to and in form and substance satisfactory to
the Trustee, to the effect that such transferee is not an employee benefit plan
subject to Section 406 of the Employee Retirement Income Security Act nor a plan
nor other arrangement subject to Section 4975 of the Code (collectively, a
"Plan"), nor is acting on behalf of any Plan nor using the assets of any Plan to
affect such transfer.
The Trustee is required to furnish certain information on each
Payment Date to the Owner of this Certificate, as more fully described in the
Pooling and Servicing Agreement.
The Class RL Certificates are issuable only as registered
Certificates. As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class RL Certificates are exchangeable
for new Class RL Certificates evidencing the same Percentage Interest as the
Class RL Certificates exchanged.
No service charge will be made for any such registration of transfer
or exchange, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in
whose name this Certificate is registered as the owner hereof for all purposes,
and neither the Trustee or any such agent shall be affected by notice to the
contrary.
C-1-5
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
duly executed on behalf of the Trust.
EQUIVANTAGE HOME EQUITY
LOAN TRUST 1996-4
By: Norwest Bank Minnesota,
National Association, as Trustee
By:_______________________________
Name:
Title:
Trustee Authentication
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
By:_______________________________
Name:
Title:
Dated: _______________________, 199_
C-1-6
<PAGE>
EXHIBIT C-2
FORM OF CLASS RU CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). ANY RESALE OR TRANSFER OF THIS CERTIFICATE WITHOUT
REGISTRATION THEREOF UNDER THE ACT MAY BE MADE ONLY IN A TRANSACTION EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH THE PROVISIONS
OF SECTION 5.8 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS
AN INTEREST IN THE ONLY "RESIDUAL INTEREST" IN A "REAL ESTATE MORTGAGE
INVESTMENT CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
SECTION 860G and 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), ASSUMING COMPLIANCE WITH THE REMIC PROVISIONS OF THE CODE.
TRANSFER OF THIS CLASS RU CERTIFICATE IS RESTRICTED AS SET FORTH IN
THE POOLING AND SERVICING AGREEMENT. NO TRANSFER OF THIS CLASS RU CERTIFICATE
MAY BE MADE TO A "DISQUALIFIED ORGANIZATION" AS DEFINED IN SECTION 860E(e)(5) OF
THE CODE. SUCH TERM INCLUDES THE UNITED STATES, ANY STATE OR POLITICAL
SUBDIVISION THEREOF, ANY FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, ANY
AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN CERTAIN TAXABLE
INSTRUMENTALITIES), ANY COOPERATIVE ORGANIZATION FURNISHING ELECTRIC ENERGY OR
PROVIDING TELEPHONE SERVICE TO PERSONS IN RURAL AREAS, OR ANY ORGANIZATION
(OTHER THAN A FARMERS' COOPERATIVE) THAT IS EXEMPT FROM FEDERAL INCOME TAX
UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX ON UNRELATED BUSINESS INCOME. NO
TRANSFER OF THIS CLASS RU CERTIFICATE WILL BE REGISTERED BY THE TRUSTEE UNLESS
THE PROPOSED TRANSFEREE HAS DELIVERED AN AFFIDAVIT AFFIRMING, AMONG OTHER
THINGS, THAT THE PROPOSED TRANSFEREE IS NOT A DISQUALIFIED ORGANIZATION AND IS
NOT ACQUIRING THE CLASS RU CERTIFICATE FOR THE ACCOUNT OF A DISQUALIFIED
ORGANIZATION. A COPY OF THE FORM OF AFFIDAVIT REQUIRED OF EACH PROPOSED
TRANSFEREE IS ON FILE AND AVAILABLE FROM THE TRUSTEE.
C-2-1
<PAGE>
A TRANSFER IN VIOLATION OF THE APPLICABLE RESTRICTIONS MAY GIVE RISE
TO A SUBSTANTIAL TAX UPON THE TRANSFEROR OR, IN CERTAIN CASES, UPON AN AGENT
ACTING FOR THE TRANSFEREE. A PASS-THRU ENTITY THAT HOLDS THIS CLASS RU
CERTIFICATE AND THAT HAS A DISQUALIFIED ORGANIZATION AS A RECORD OWNER IN ANY
TAXABLE YEAR GENERALLY WILL BE SUBJECT TO A TAX FOR EACH SUCH YEAR EQUAL TO THE
PRODUCT OF (A) THE AMOUNT OF EXCESS INCLUSIONS WITH RESPECT TO THE PORTION OF
THIS CERTIFICATE OWNED THROUGH SUCH PASS-THRU ENTITY BY SUCH DISQUALIFIED
ORGANIZATION, AND (B) THE HIGHEST MARGINAL FEDERAL TAX RATE ON CORPORATIONS. FOR
PURPOSES OF THE PRECEDING SENTENCE, THE TERM "PASS-THRU" ENTITY INCLUDES
REGULATED INVESTMENT COMPANIES, REAL ESTATE INVESTMENT TRUSTS, COMMON TRUST
FUNDS, PARTNERSHIPS, TRUSTS, ESTATES, COOPERATIVES TO WHICH PART I OF SUBCHAPTER
I OF THE CODE APPLIES AND, EXCEPT AS PROVIDED IN REGULATIONS, NOMINEES.
EQUIVANTAGE HOME EQUITY LOAN TRUST 1996-4
MORTGAGE LOAN PASS-THROUGH CERTIFICATE
CLASS RU
Representing Certain Interests Relating to a Pool of Mortgage Loans Formed by
EquiVantage Acceptance Corp. and Serviced by
EQUIVANTAGE INC.
(This Certificate does not represent an interest in, or an
obligation of, nor are the underlying Mortgage Loans insured or guaranteed by
EquiVantage Acceptance Corp., EquiVantage Inc., any Originator or any of their
subsidiaries and affiliates. This Certificate represents a fractional residual
ownership interest in the Upper-Tier REMIC described in the Pooling and
Servicing Agreement.)
No: RU-1 Date: November 22, 1996
Percentage Interest: 100% January 25, 2028
----------------------------
Final Scheduled Payment Date
EQUIVANTAGE ACCEPTANCE CORP.
----------------------------
Registered Owner
C-2-2
<PAGE>
THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
This Certificate is one of a Class of duly-authorized Certificates
designated as EquiVantage Home Equity Loan Trust 1996-4, Mortgage Loan
Pass-Through Certificates, Class RU (the "RU Certificates") and issued under and
subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which Pooling and Servicing Agreement the Owner of this
Certificate by virtue of acceptance hereof assents and by which such Owner is
bound. Also issued under the Pooling and Servicing Agreement are Certificates
designated as Class A Certificates, Class B Certificates and Class RL
Certificates (together with the Class RU Certificates, the "Certificates.")
Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.
On the 25th day of each month, or, if such day is not a Business
Day, then the next succeeding Business Day (each such day being a "Payment
Date"), commencing December 26, 1996, to the Owners of the Class RU Certificates
as of the close of business on the first Business Day of the calendar month
immediately preceding the calendar month in which such Payment Date occurs (the
"Record Date"), the Trustee will distribute to each Owner of the Class RU
Certificates such Owner's Percentage Interest multiplied by the amounts then
available to be distributed to the Owners of the Class RU Certificates. No
significant distributions are anticipated to be made.
Upon receiving the final distribution hereon, the Owner hereof is
required to send this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.
The Trustee is required to duly and punctually pay distributions
with respect to this Certificate in accordance with the terms hereof and the
Pooling and Servicing Agreement. Amounts properly withheld under the Code or
applicable state or local law by any Person from a distribution to any Owner
shall be considered as having been paid by the Trustee to such Owner for all
purposes of the Pooling and Servicing Agreement.
EquiVantage Inc., as Master Servicer, pursuant to the Pooling and
Servicing Agreement will service the Mortgage Loans. The Pooling and Servicing
Agreement
C-2-3
<PAGE>
permits the Master Servicer to enter into Sub-Servicing Agreements with certain
institutions eligible for appointment as Sub-Servicers for the servicing and
administration of the Mortgage Loans. No appointment of any Sub-Servicer shall
release the Servicer from any of its obligations under the Pooling and Servicing
Agreement.
No Owner shall have any right to institute any proceeding, judicial
or otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Owner.
The Pooling and Servicing Agreement provides that the obligations
created thereby will terminate upon the earlier of (i) the payment to the Owners
of all Certificates of all amounts held by the Trustee and required to be paid
to such Owners pursuant to the Pooling and Servicing Agreement upon the later to
occur of (a) the final payment or other liquidation (or any advance made with
respect thereto) of the last Mortgage Loan in the Trust Estate or (b) the
disposition of all property acquired in respect of any Mortgage Loan remaining
in the Trust Estate or (ii) at any time when a Qualified Liquidation of the
Upper-Tier REMIC and the Lower-Tier REMIC is effected as described in the
Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that (i) the Owners of
the Class RL Certificates, or, if such Owners decline to exercise, the Servicer
or, if the Servicer decline to exercise, the Certificate Insurer, may, at their
respective options, purchase from the Trust all (but not fewer than all)
remaining Mortgage Loans and other property then constituting the Trust Estate,
and thereby effect early retirement of the Certificates, on any Remittance Date
when the aggregate outstanding Loan Balances of the Mortgage Loans is 10% or
less of the original aggregate Loan Balance of the Mortgage Loans as of the
Cut-Off Date and (ii) under certain circumstances relating to the qualifications
of the Trust as a REMIC under the Code, the Mortgage Loans may be sold, thereby
affecting the early retirement of the Certificates.
The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each Owner in the manner set forth therein.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registrable in the Register upon surrender of
this Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in the form set forth in the Pooling and
C-2-4
<PAGE>
Servicing Agreement duly executed by, the Owner hereof or his attorney duly
authorized in writing, and thereupon one or more new Certificates of like Class,
tenor and a like Percentage Interest will be issued to the designated transferee
or transferees.
Notwithstanding the foregoing, no sale or other transfer of record
or beneficial ownership of a Class RU Certificate shall be made unless the
Trustee shall have received a representation letter from the transferee of such
Class RU Certificate, acceptable to and in form and substance satisfactory to
the Trustee, to the effect that such transferee is not an employee benefit plan
subject to Section 406 of the Employee Retirement Income Security Act nor a plan
nor other arrangement subject to Section 4975 of the Code (collectively, a
"Plan"), nor is acting on behalf of any Plan nor using the assets of any Plan to
affect such transfer.
The Trustee is required to furnish certain information on each
Payment Date to the Owner of this Certificate, as more fully described in the
Pooling and Servicing Agreement.
The Class RU Certificates are issuable only as registered
Certificates. As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class RU Certificates are exchangeable
for new Class RU Certificates evidencing the same Percentage Interest as the
Class RU Certificates exchanged.
No service charge will be made for any such registration of transfer
or exchange, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in
whose name this Certificate is registered as the owner hereof for all purposes,
and neither the Trustee or any such agent shall be affected by notice to the
contrary.
C-2-5
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
duly executed on behalf of the Trust.
EQUIVANTAGE HOME EQUITY
LOAN TRUST 1996-4
By: Norwest Bank Minnesota,
National Association, as Trustee
By:_______________________________
Name:
Title:
Trustee Authentication
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
By:_______________________________
Name:
Title:
Dated: _______________________, 199_
C-2-6
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE RE: PREPAID LOANS
I, John E. Smith, President of EquiVantage Acceptance Corp., a
Delaware corporation, as sponsor (the "Sponsor"), hereby certify that between
the "Cut-Off Date" (as defined in the Pooling and Servicing Agreement dated as
of November 1, 1996 among the Sponsor, EquiVantage Inc., a Delaware corporation,
as servicer, and Norwest Bank Minnesota, National Association, as trustee) and
the date hereof the following schedule of "Mortgage Loans" (each as defined in
the Pooling and Servicing Agreement) has been prepaid in full.
Dated: November 22, 1996
By:___________________________
John E. Smith
President
D-1
<PAGE>
EXHIBIT E
FORM OF TRUSTEE'S ACKNOWLEDGMENT OF RECEIPT
Norwest Bank Minnesota, National Association, a national banking
corporation, in its capacity as trustee (the "Trustee") under that certain
Pooling and Servicing Agreement dated as of November 1, 1996 (the "Pooling and
Servicing Agreement") by and among EquiVantage Acceptance Corp., a Delaware
corporation, as sponsor (the "Sponsor"), EquiVantage Inc., a Delaware
corporation, as servicer, and the Trustee, hereby acknowledges receipt of the
items delivered to it by the Sponsor with respect to the Mortgage Loans of the
Pooling and Servicing Agreement.
The Schedule of Mortgage Loans is attached to this Receipt.
The Trustee hereby additionally acknowledges that it shall review
such items as required by Section 3.6(a) of the Pooling and Servicing Agreement
and shall otherwise comply with Section 3.6(b) of the Pooling and Servicing
Agreement as required thereby.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Trustee
By:___________________________
Name:
Title:
Dated: November 22, 1996
E-1
<PAGE>
[SEE SCHEDULE I - SCHEDULE OF MORTGAGE LOANS]
E-2
<PAGE>
EXHIBIT F
FORM OF POOL CERTIFICATION
WHEREAS, the undersigned is an Authorized Officer of Norwest Bank
Minnesota, National Association, a national banking association, acting in its
capacity as trustee (the "Trustee") of a certain pool of mortgage loans (the
"Pool") heretofore conveyed in trust to the Trustee, pursuant to that certain
Pooling and Servicing Agreement dated as of November 1, 1996 (the "Pooling and
Servicing Agreement") by and among EquiVantage Acceptance Corp., a Delaware
corporation, as sponsor (the "Sponsor"), EquiVantage Inc., a Delaware
corporation, as Servicer, and the Trustee; and
WHEREAS, the Trustee is required, pursuant to Section 3.6(a) of the
Pooling and Servicing Agreement, to review the Files relating to the Pool within
a specified period following the Startup Day and to notify the Sponsor promptly
of any defects with respect to the Pool, and the Sponsor is required to remedy
such defects or take certain other action, all as set forth in Section 3.6(b) of
the Pooling and Servicing Agreement; and
WHEREAS, Section 3.6(a) of the Pooling and Servicing Agreement
requires the Trustee to deliver this Pool Certification upon the satisfaction of
certain conditions set forth therein.
NOW, THEREFORE, the Trustee hereby certifies that it has determined
that all required documents (or certified copies of documents listed in Section
3.5 of the Pooling and Servicing Agreement) have been executed or received, and
that such documents relate to the Mortgage Loans identified in the Schedule of
Mortgage Loans pursuant to Section 3.5(a) of the Pooling and Servicing Agreement
or, in the event that such documents have not been executed and received or do
not so relate to such Mortgage Loans, any remedial action by the Sponsor
pursuant to Section 3.6(b) of the Pooling and Servicing Agreement has been
completed, except as noted in the list of exceptions attached. The Trustee makes
no certification hereby, however, with respect to any intervening assignments or
assumption and modification agreements.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
By:______________________________
Name: ________________________
Title:________________________
Dated: _________________, 199__
F-1
<PAGE>
EXHIBIT G
FORM OF DELIVERY ORDER
November 22, 1996
Norwest Bank Minnesota,
National Association
Norwest Center
Sixth Street & Marquette Avenue
Minneapolis, Minnesota 55479-0070
Attention: Corporate Trust Services
Ladies and Gentlemen:
Pursuant to Article IV of the Pooling and Servicing Agreement, dated
as of November 1, 1996 (the "Pooling and Servicing Agreement") by and among
EquiVantage Acceptance Corp., a Delaware corporation, as sponsor (the
"Sponsor"), EquiVantage Inc., a Delaware corporation, as servicer, and Norwest
Bank Minnesota, National Association, as trustee, the Sponsor HEREBY CERTIFIES
that all conditions precedent to the issuance of EquiVantage Home Equity Loan
Trust 1996-4, Home Equity Loan Asset-Backed Certificates, Class A, Class B and
the Residual Certificates (the "Certificates"), HAVE BEEN SATISFIED and HEREBY
REQUESTS YOU TO AUTHENTICATE AND DELIVER said Certificates, and to RELEASE said
Certificates to the Owners thereof, or otherwise upon their order.
Very truly yours,
EQUIVANTAGE ACCEPTANCE CORP.
By:___________________________
Name: John E. Smith
Title: President
G-1
<PAGE>
EXHIBIT H
FORM OF CLASS R TAX MATTERS TRANSFER CERTIFICATE
AFFIDAVIT PURSUANT TO SECTION
860E(e) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED
STATE OF )
) ss:
COUNTY OF )
[NAME OF OFFICER], being first duly sworn, deposes and says:
1. That [s/he] is [Title of Officer] of [Name of Investor] (the
"Investor"), a [savings institution] [corporation] duly organized and existing
under the laws of [the State of __________] [the United States], on behalf of
which [s/he] makes this affidavit.
2. That (i) the Investor is not a "disqualified organization" and
will not be a "disqualified organization" as of [date of transfer] (For this
purpose, a "disqualified organization" means the United States, any state or
political subdivision thereof, any foreign government, any international
organization, any agency or instrumentality of any of the foregoing (other than
certain taxable instrumentalities), any cooperative organization furnishing
electric energy or providing telephone service to persons in rural areas, or any
organization (other than a farmers' cooperative) that is exempt from federal
income tax unless such organization is subject to the tax on unrelated business
income); (ii) it is not acquiring the Class R Certificates for the account of a
disqualified organization; (iii) it consents to any amendment of the Pooling and
Servicing Agreement that shall be deemed necessary by the Trustee (upon advice
of counsel) to constitute a reasonable arrangement to ensure that the Class R
Certificates will not be owned directly or indirectly by a disqualified
organization; and (iv) it will not transfer any such Class R Certificate unless
(a) it has received from the transferee an affidavit in substantially the same
form as this affidavit containing these same four representations and (b) as of
the time of the transfer, it does not have actual knowledge that such affidavit
is false.
H-1
<PAGE>
IN WITNESS WHEREOF, the Investor has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
[Title of Officer] and its corporate seal to be hereunto attached, attested by
its [Assistant] Secretary, this __ day of __________, ____.
[NAME OF INVESTOR]
By:___________________________
[Name of Officer]
[Title of Officer]
[Corporate Seal]
Attest:
- ---------------------------
[Assistant] Secretary
Personally appeared before me the above-named [Name of Officer],
known or proved to be the same person who executed the foregoing instrument and
to be the [Title of Officer] of the Investor, and acknowledged to me that he
executed the same as his free act and deed and the free act and deed of the
Investor.
Subscribed and sworn before me this ____ day of _______, ____.
___________________________
NOTARY PUBLIC
COUNTY OF ________________
STATE OF _________________
My commission expires the ____ day of _______________, ____.
H-2
<PAGE>
EXHIBIT I
Form of
Monthly Report
EquiVantage Acceptance Corp.
Home Equity Loan Asset-Backed Certificates
Series 1996-4
Statement to Owners
<TABLE>
<CAPTION>
INTEREST
ORIGINAL BEGINNING INTEREST TOTAL CARRY ENDING
CERTIFICATE CERTIFICATE PRINCIPAL DISTRI- DISTRI- FORWARD CERTIFICATE
CLASS FACE VALUE BALANCE DISTRIBUTION BUTION BUTION AMOUNT BALANCE
- ----- ---------- ------- ------------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
A $
B $
RU
TOTAL
- -----
<CAPTION>
AMOUNT PER $1000 UNIT
BEGINNING INTEREST TOTAL CURRENT ENDING
CERTIFICATE PRINCIPAL DISTRI- DISTRI- PRINCIPAL CERTIFICATE
CLASS CUSIP BALANCE DISTRIBUTION BUTION BUTION BALANCE BALANCE
- ----- ----- ------- ------------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
A
B
RU
</TABLE>
I-1
<PAGE>
PASS THROUGH RATES
ORIGINAL PASS- CURRENT PASS
CLASS THROUGH RATE THROUGH RATE CLASS RECORD DATE
----- ------------ ------------ ----- -----------
A % % A
B % % B
RU % %
SPONSOR: EquiVantage Acceptance Corp.
SERVICER: EquiVantage Inc.
SUB-SERVICER: Transworld Mortgage Corporation
LEAD UNDERWRITER: Prudential Securities Incorporated
RECORD DATE:
DISTRIBUTION DATE: FACTOR INFORMATION: _____________
PLEASE DIRECT ANY QUESTIONS OR COMMENTS TO THE FOLLOWING ADMINISTRATOR:
Trust Administrator
Norwest Bank Minnesota, National Association
Sixth Street & Marquette Avenue
Minneapolis, Minnesota 55479-0070
Attention: Corporate Trust Services
(612) 667-5786
I-2
<PAGE>
Distribution Period:
Information pursuant to Section 7.8(a) of the
Pooling and Servicing Agreement dated November 1, 1996
i) Distribution to Class A Certificates
ii) Principal Distributions to the Certificates: Class A
Scheduled Principal
Prepayments
Paid-in-Full Loans
Other Unscheduled Recoveries of Principal
Substitution Amounts
Loan Repurchases
Principal Portion of Liquidation Proceeds
Total Principal
iii) Interest distributions to the Class A Certificate Owners
iv) Certificate Principal Balances
v) Insured Payment included in distributions to the
Owners
Aggregate unreimbursed Insured Payments since the
Closing Date
vi) Information furnished by the Sponsor pursuant to
Section 6049(d)(7)(c)
vii) Substitution Amounts and Loan Purchase Price
Amounts included in the distribution
viii) Subordination Reduction Amount
ix) Realized Losses
Cumulative Loss Amount
Rolling Three Month Delinquency Rate
x) Certificate Factors
I-3
<PAGE>
Distribution Period:
As to all Mortgage Loans
Delinquency Advances Made
Paid-In-Full Compensating Interest
Accrued Servicing Fees
Servicing Fees Retained
Trustee Fees
Premium Amount
Current Next
Distribution Distribution
Date Date
---- ----
Available Funds
Available Funds
Available Funds Shortfall
Amortized Subordinated Amount
Requirement
Excess Subordinated Amount
Specified Subordinated Amount
Subordinated Amount
Subordination Deficiency Amount
Subordination Deficit
Subordination Increase Amount
Subordination Reduction Amount
Principal Carry Forward Amount
Principal Distribution Amount
Reimbursement Amount
Balance of Largest Loan
I-4
<PAGE>
EquiVantage Inc.
Transworld Mortgage Corporation
Monthly Delinquency Summary Report
EquiVantage Mortgage Loan Trust 1996-4
Dates as of ______________
Class A Certificates
Ending Number of Loans:
Ending Principal Balance:
DELINQUENT LOANS Count Percent Principal Bal. Percent
GROSS Delinquent Loans -
Status
1. 30 - 59 Days
Delinquent
2. 60 - 89 Days
Delinquent
3. 90 or More Days
Delinquent
GROSS Total Delinquencies
Foreclosure Loans - Status Count Percent Principal Bal. Percent
1. Current
2. 30 - 59 Days
Delinquent
3. 60 - 89 Days
Delinquent
4. 90 or More Days
Delinquent
Total Foreclosures
Bankruptcy Loans - Status Count Percent Principal Bal. Percent
1. Current
2. 30 - 59 Days
Delinquent
3. 60 - 89 Days
Delinquent
4. 90 or More Days
Delinquent
Total Bankruptcies
<TABLE>
<CAPTION>
REO Loans - Status from Count Percent Principal Bal. Percent Book Value
Foreclosure
<C> <S> <C> <C> <C> <C> <C>
1. 30 - 59 Days
2. 60 - 89 Days
3. 90 or More Days
Total REO
</TABLE>
NET DELINQUENCY (Gross Delinquent less Foreclosure, Bankruptcy, REO)
I-5
<PAGE>
Count Percent Principal Bal. Percent
1. 30 - 59 Days
Delinquent
2. 60 - 89 Days
Delinquent
3. 90 or More Days
Delinquent
NET DELINQUENCY
TOTALS
I-6
<PAGE>
EXHIBIT J
FORM OF SERVICER'S TRUST RECEIPT
To: Norwest Bank Minnesota, National Association
Sixth Street & Marquette Avenue
Minneapolis, Minnesota 55479-0070
Attn: Corporate Trust Services
Date:
In connection with the administration of the mortgage loans held by
you as Trustee under a certain Pooling and Servicing Agreement dated as of
November 1, 1996 and by and among EquiVantage Inc., as Servicer, and you, as
Trustee (the "Agreement"), the Servicer hereby requests a release of the File
held by you as Trustee with respect to the following described Mortgage Loan for
the reason indicated below:
Mortgagor's Name:
Loan No.:
Reason for requesting file:
_______ 1. Mortgage Loan paid in full.
(The Servicer hereby certifies that all amounts received
in connection with the loan have been or will be
credited to the Certificate Account (whichever is
applicable) pursuant to the Agreement.)
_______ 2. Mortgage Loan repurchased pursuant to Section 3.3, 3.4, 3.6(b) or
8.10(b) of the Agreement.
(The Servicer hereby certifies that the Loan Purchase
Price has been or will be paid to the Certificate
Account pursuant to the Agreement.)
_______ 3. Mortgage Loan substituted.
(The Servicer hereby certifies that a Qualified
Replacement Mortgage has been or will be assigned and
delivered to you along with the related File pursuant to
the Agreement.)
J-1
<PAGE>
_______ 4. The Mortgage Loan is being foreclosed.
_______ 5. Other. (Describe)
Total Number of Mortgage Loans currently held under the Agreement:______________
Total Number of Files now held by the Servicer:_________________________________
The undersigned (i) acknowledges that the above File will be held by the
undersigned in accordance with the provisions of the Agreement and will be
returned to you, except if the Mortgage Loan has been paid in full, foreclosed,
repurchased or substituted for by a Qualified Replacement Mortgage (in which
case the File will be retained by us permanently), and (ii) certifies that all
conditions precedent for delivery of the File requested by this Trust Receipt
have been satisfied.
Capitalized terms used herein shall have the meanings ascribed to them in
the Agreement.
EquiVantage Inc.
By:______________________________
Name: _______________________
Title: _________________________
J-2
<PAGE>
EXHIBIT K
FORM OF LIQUIDATION REPORT
1. Type of Liquidation (REO disposition/charge-off/short pay-off)
- Date last paid
- Date of foreclosure
- Date of REO
- Date of REO disposition
- Property sale price/estimated market value at disposition
2. Liquidation Proceeds
Principal Prepayment $______________
Property Sale Proceeds ______________
Insurance Proceeds ______________
Other (itemize) ______________
3. Liquidation expenses
Servicing Advances $______________
Delinquency Advances ______________
Contingency Fees ______________
Servicing Fees ______________
Annual Expense Escrow Amount ______________
Supplemental Fee (if any) ______________
Additional Interest (if any) ______________
4. Net Liquidation Proceeds $______________
(Item 2 minus item 3)
5. Principal Balance of Mortgage Loan $______________
K-1
<PAGE>
EXHIBIT L
SPECIAL POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, ____________, ____________ of
EquiVantage Inc. (the "Originator"), do hereby constitute and appoint Norwest
Bank Minnesota, National Association, as the true and lawful attorney, for the
Originator and its name, place and stead, to record the assignments of mortgage
with respect to the Mortgage Loans transferred to the Norwest Bank Minnesota,
National Association, as trustee (the "Trustee"), under that Pooling and
Servicing Agreement dated as of November 1, 1996 by and among EquiVantage
Acceptance Corp., as Sponsor, the Originator, as Servicer, and the Trustee, and
to do and perform all other things and acts relating to such assignments of
mortgage as may be necessary to effectuate the transfer of such Mortgage Loans
to the Trustee, including the execution and delivery of new assignments of
mortgage where necessary to comply with applicable real estate recording laws at
the time of recordation.
This power of attorney is irrevocable and is coupled with an interest in
the Mortgage Loans, and it may at all times be relied upon by any person, firm
or corporation dealing with the attorney named herein as remaining in full force
and effect, and such person, firm or corporation shall have no liability to the
Originator with respect thereto.
WITNESS the following signature this ___ day of November, 1996.
EQUIVANTAGE INC.
By:_____________________
Name:___________________
Title:__________________
STATE OF NEW YORK
COUNTY OF NEW YORK, to-wit:
I, ______________, a Notary Public in and for the jurisdiction aforesaid,
do hereby certify that _______________, who acknowledged himself to be the
__________________ of EquiVantage Inc., a Delaware corporation, personally
appeared before me in the jurisdiction aforesaid and that he as such
________________ executed the foregoing instrument on behalf of said corporation
for the purposes therein contained.
Witness my hand and official seal this ____ day of November, 1996.
_____________________(SEAL)
Notary Public
My Commission Expires:
L-1
Exhibit 4.2
<PAGE>
INDEMNIFICATION AGREEMENT
This Agreement, dated as of November 1, 1996, is by and among
Financial Guaranty Insurance Company (the "Insurer"), as the Insurer under the
certificate guaranty surety bonds (the "Policy") to be issued in connection with
the Certificates described below, EquiVantage Acceptance Corp. (the "Issuer")
and Prudential Securities Incorporated, as Representative (the "Representative")
of itself and Salomon Brothers Inc (collectively, the "Underwriters").
1. Definitions. As used in this Agreement, the following terms shall
have the respective meanings stated below:
"Act" means the Securities Act of 1933, as amended, together with
all related rules and regulations.
"Agreement" means this Indemnification Agreement by and among the
Insurer, the Issuer and the Underwriters.
"Certificates" means the EquiVantage Home Equity Loan Asset-Backed
Certificates, Series 1996-4, Class A Fixed Rate issued pursuant to a
Pooling and Servicing Agreement (the "Pooling and Servicing Agreement")
dated as of November 1, 1996 among the Issuer, as Sponsor, EquiVantage
Inc., as Servicer and Norwest Bank Minnesota, National Association, as
Trustee.
"Indemnified Party" means any party entitled to any indemnification
pursuant to Section 5 below, as the context requires.
"Indemnifying Party" means any party required to provide
indemnification pursuant to Section 5 below, as the context requires.
"Insurer Party" means the Insurer and its respective parents,
subsidiaries and affiliates, and any shareholder, director, officer,
employee, agent or any "controlling person" (as such term is used in the
Act) of any of the foregoing.
"Issuer Party" means the Issuer, each of its parents, subsidiaries
and affiliates, and any shareholder, director, officer, employee, agent or
any "controlling person" (as such term is used in the Act) of any of the
foregoing.
"Losses" means (i) any actual out-of-pocket loss paid by the party
entitled to indemnification or contribution hereunder, and (ii) any actual
out-of-pocket
<PAGE>
costs and expenses paid by such party, including reasonable fees and
expenses of its counsel, to the extent not paid, satisfied or reimbursed
from funds provided by any other Person (provided that the foregoing shall
not create or imply any obligation to pursue recourse against any such
other Person).
"Person" means any individual, partnership, joint venture,
corporation, trust or unincorporated organization or any government or
agency or political subdivision thereof.
"Prospectus" means the form of final Prospectus, dated May 7, 1996
as supplemented by the Prospectus Supplement included in the Registration
Statement on each date that the Registration Statement and any
post-effective amendment or amendments thereto became effective.
"Prospectus Supplement" means the form of final Prospectus
Supplement, dated November 19, 1996 relating to the offer and sale of the
Certificates.
"Registration Statement" means the registration statement on Form
S-3 of the Issuer (Registration No. 33-99364) relating to the Certificates
in the form in which it has become effective.
"State Securities Law" means any state, local or foreign statute,
and any rule or regulation thereunder, regulating (i) transactions and
dealings in securities, (ii) any person or entity engaging in such
transactions or advising with respect to securities or (iii) investment
companies.
"Underwriting Agreement" means the Underwriting Agreement by and
among the Issuer, EquiVantage Inc. and the Representative, dated November
19, 1996.
"Underwriter Party" means the Underwriter and its parents,
subsidiaries and affiliates and any shareholder, director, officer,
employee, agent or "controlling person" (as such term is used in the Act)
of any of the foregoing.
2. Representations and Warranties of the Insurer. The Insurer
represents and warrants to the Underwriter and the Issuer as follows:
(a) Organization and Licensing. The Insurer is a duly
incorporated and existing New York stock insurance company licensed to do
business in the State of New York.
(b) Corporate Power. The Insurer has the corporate power and
authority to issue the Policy and execute and deliver this Agreement and
to perform all of its obligations hereunder and thereunder.
2
<PAGE>
(c) Authorization; Approvals. The issuance of the Policy and
the execution, delivery and performance of this Agreement have been duly
authorized by all necessary corporate proceedings. No further approvals or
filings of any kind, including, without limitation, any further approvals
of or further filing with any governmental agency or other governmental
authority, or any approval of the Insurer's board of directors or
stockholders, are necessary for the Policy and this Agreement to
constitute the legal, valid and binding obligations of the Insurer.
(d) No Conflicts. The execution and delivery of this Agreement
and consummation of the transactions contemplated hereunder will not
result in the breach of any terms or provisions of the certificate of
incorporation or by-laws of Insurer, or result in the breach of a term or
provision of, or conflict with or constitute a default under or result in
the acceleration of any obligation under, any material agreement or other
material instrument to which the Insurer or its property is subject, or
result in the violation of any law, rule, regulation, order, judgment or
decree to which the Insurer or any of its property is subject or result in
the creation of any lien on any of Insurer's assets or property (other
than pursuant to this Agreement).
(e) Enforceability. The Policy, when issued, and this
Agreement, will each constitute a legal, valid and binding obligation of
the Insurer, enforceable in accordance with its terms subject to
applicable laws affecting the enforceability of creditors' rights
generally and general principles of equity.
(f) Financial Information. The balance sheet of the Insurer as
of December 31, 1995 and the related statements of income, stockholders'
equity and cash flows for the fiscal year then ended, and the accompanying
footnotes, together with an opinion thereon dated January 19, 1996 of KPMG
Peat Marwick LLP, independent certified public accountants, a copy of
which is attached as Appendix A to the Prospectus, and the unaudited
balance sheets of the Insurer as of September 30, 1996 and the related
statements of income and cash flows for the six months then ended, and the
accompanying footnotes, a copy of which is attached as Appendix B to the
Prospectus (collectively, the "Insurer Financial Statements"), fairly
present in all material respects the financial condition of the Insurer as
of such date and for the period covered by such statements in accordance
with generally accepted accounting principles consistently applied, except
for year-end changes and revisions required with respect to the unaudited
information, and, since September 30, 1996, there has been no material
change in such financial condition of the Insurer which would materially
and adversely affect its ability to perform its obligations under the
Policy.
(g) Insurer Information. The information in the Prospectus as
of the date hereof under the captions "The Certificate Insurer" and "The
Certificate Insurance Policy" (collectively, the "Insurer Information") is
true and correct in
3
<PAGE>
all material respects and does not contain any untrue statement of a fact
that is material to the Insurer's ability to perform its obligations under
the Policy.
(h) Limitations. Nothing in this Agreement shall be construed
as a representation or undertaking by the Insurer concerning maintenance
of the rating currently assigned to its claims-paying ability by Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P"), or any other rating agency (collectively, the "Rating Agencies").
The Rating Agencies, in assigning such rating, may take into account facts
and assumptions not described in the Prospectus, and the facts and
assumptions which are considered by the Rating Agencies are subject to
change over time. The Insurer has not attempted to disclose all facts and
assumptions which the Rating Agencies deem relevant in assigning a rating
within a particular rating category to the Insurer's claims-paying
ability. Notwithstanding the foregoing, the Insurer is not aware of any
facts that, if disclosed to Moody's, or S&P, would be reasonably expected
to result in a downgrade of the rating of the claims-paying ability of the
Insurer by either of such Rating Agencies.
(i) No Litigation. There are no actions, suits, proceedings or
investigations pending, or to the best of the Insurer's knowledge,
threatened against it at law or in equity or before or by any court,
governmental agency, board or commission or any arbitrator which, if
decided adversely, would materially and adversely affect its condition
(financial or otherwise) or operations of it or would materially and
adversely affect its ability to perform its obligations under this
Agreement or the Policy.
(j) 1933 Act Registration. The Policy is exempt from
registration under the Act.
3. Agreements, Representations and Warranties of the Underwriters.
Each of the Underwriters severally represents and warrants to and agrees with
the Issuer and the Insurer that the statements contained in the Prospectus under
the caption "Underwriting" and relating to such Underwriter (referred to herein
as the "Underwriters Information") are true and correct in all material
respects.
4. Agreements, Representations and Warranties of the Issuer. The
Issuer represents and warrants to and agrees with the Insurer and the
Underwriters as follows:
(a) Registration Statement. The information in the
Registration Statement, other than the Insurer Information, is true and
correct in all material respects and does not contain any untrue statement
of a fact that is material or omit to state a fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
4
<PAGE>
(b) Organization. The Issuer is duly incorporated and existing
under the laws of the State of Delaware and is in good standing as a
foreign corporation in each jurisdiction in which the nature of its
business, or the properties owned or leased by it make such qualification
necessary.
(c) Corporate Power. The Issuer has the corporate power and
authority to execute and deliver this Agreement, the Underwriting
Agreement, the Pooling and Servicing Agreement and to perform all of its
obligations hereunder and thereunder.
(d) Authorization; Approvals. The execution, delivery and
performance of this Agreement, the Underwriting Agreement and the Pooling
and Servicing Agreement by the Issuer have been duly authorized by all
necessary corporate proceedings. No further approvals or filings of any
kind, including, without limitation, any further approvals of or further
filing with any governmental agency or other governmental authority, or
any approval of the Issuer's board of directors or stockholders, are
necessary for this Agreement, the Underwriting Agreement and the Pooling
and Servicing Agreement to constitute the legal, valid and binding
obligations of the Issuer.
(e) No Conflicts. The execution and delivery of this Agreement
and consummation of the transactions contemplated hereunder will not
result in the breach of any terms or provisions of the certificate of
incorporation or by-laws of Issuer or result in the breach of a term or
provision of, or conflict with or constitute a default under or result in
the acceleration of any obligation under, any material agreement or other
material instrument to which the Issuer or its property is subject, or
result in the violation of any law, rule, regulation, order, judgment or
decree to which the Issuer or any of its property is subject or result in
the creation of any lien on any of Issuer's assets or property (other than
pursuant to this Agreement).
(f) Enforceability. This Agreement, the Pooling and Servicing
Agreement and the Underwriting Agreement, will each constitute a legal,
valid and binding obligation of the Issuer, enforceable in accordance with
its terms subject, as to the enforcement of remedies, to bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting
the enforceability of creditors' rights generally applicable in the event
of the bankruptcy, insolvency or reorganization of the Issuer and to
general principles of equity.
(g) No Litigation. There are no actions, suits, proceedings or
investigations pending, or to the best of the Issuer's knowledge,
threatened against it at law or in equity or before any court,
governmental agency, board or commission or any arbitrator which, if
decided adversely, would materially and adversely affect its condition
(financial or otherwise) or operations of it or would
5
<PAGE>
materially and adversely affect its ability to perform its obligations
under this Agreement, the Underwriting Agreement or the Pooling and
Servicing Agreement.
5. Indemnification.
(a) The Insurer hereby agrees, upon the terms and subject to
the conditions of this Agreement, to indemnify, defend and hold harmless
each Issuer Party and each Underwriter Party against any and all Losses
incurred by them with respect to the offer and sale of the Certificates
and resulting from the Insurer's breach of any of its representations and
warranties set forth in Section 2 of this Agreement.
(b) The Underwriters hereby severally and not jointly agree,
upon the terms and subject to the conditions of this Agreement, to
indemnify, defend and hold harmless each Insurer Party against any and all
Losses incurred by them which arise out of or are based upon (i) any
untrue statement or alleged untrue statement of a material fact in the
Underwriters Information or (ii) the omission or alleged omission to state
in the Underwriters Information a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(c) The Issuer hereby agrees, upon the terms and subject to
the conditions of this Agreement, to indemnify, defend and hold harmless
each Insurer Party against any and all losses incurred by them with
respect to the offer and sale of the Certificates and resulting from the
Issuer's breach of any of its representations and warranties set forth in
Section 4 of this Agreement.
(d) Upon the incurrence of any Losses entitled to
indemnification hereunder, the Indemnifying Party shall reimburse the
Indemnified Party promptly upon establishment by the Indemnified Party to
the Indemnifying Party of the Losses incurred.
6. Insurer Undertaking. The Insurer hereby agrees that, for so long
as the Underwriters are required under the Act to deliver a Prospectus in
connection with the sale of the Certificates, the Insurer will furnish to either
the Representative or the Issuer, or both, upon written request of such party or
parties and at the expense of the Underwriters or the Issuer, as the case may
be, copies of the Insurer's most recent financial statements (annual or interim,
as the case may be) prepared in accordance with generally accepted accounting
principles (subject, as to interim statements, to normal year-end adjustments
and to the absence of footnotes) within a reasonable time after they are
available.
7. Notice to be Given to the Insurer. Except as provided in Section
10 below with respect to contribution, the indemnification provided herein by
the Insurer shall be the exclusive remedy of the Underwriter Party or Issuer
Party for the Losses
6
<PAGE>
resulting from the Insurer's breach of a representation, warranty or agreement
hereunder; provided, however, that the Underwriter Party or Issuer Party shall
be entitled to pursue any other remedy at law or in equity for any such breach
so long as the damages sought to be recovered shall not exceed the Losses
incurred thereby resulting from such breach. In the event that any action or
regulatory proceeding shall be commenced or claim asserted which may entitle the
Underwriter Party or Issuer Party to be indemnified under this Agreement, such
party shall give the Insurer written or telegraphic notice of such action or
claim reasonably promptly after receipt of written notice thereof. The Insurer
shall be entitled to participate in the defense of any such action or claim in
reasonable cooperation with, and with the reasonable cooperation of, the Issuer
Party or Underwriter Party, as the case may be. The Indemnified Party will have
the right to employ its own counsel in any such action in addition to counsel
for the Insurer, but the fees and expenses of such counsel will be at the
expense of such Indemnified Party unless (1) the employment of counsel by the
Indemnified Party at its expense has been authorized in writing by the Insurer,
or (2) the Insurer has not in fact employed counsel to assume the defense of
such action within a reasonable time after receiving notice of the commencement
of the action, or (3) the named parties to any such action include the Insurer
on the one hand, and, on the other hand, the Indemnified Party, and such
Indemnified Party shall have been advised by counsel that there may be one or
more legal defenses available to it which are different from or additional to
those available to the Insurer (in which case, if such Indemnified Party
notifies the Insurer in writing that it elects to employ separate counsel at the
expense of the Insurer, the Insurer shall not have the right to assume the
defense of such action or proceeding on such Indemnified Party's behalf), in
each of which cases the reasonable fees and expenses of counsel (including local
counsel) will be at the expense of the Insurer and all such fees and expenses
will be reimbursed promptly as they are incurred but, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, the
Insurer shall not be liable for the fees and expenses of more than one counsel
for all Issuer Parties and more than one counsel for all Underwriter Parties.
The Underwriter Parties and Issuer Parties shall cooperate with the Insurer
Parties in resolving any event which would give rise to an indemnity obligation
pursuant to Section 5(a) hereof in the most efficient manner. No settlement of
any such claim or action shall be entered into without the consent of the Issuer
Party or Underwriter Party, as the case may be, who is subject to such claim or
action, on the one hand and the Insurer Party who is subject to such claim or
action on the other hand; provided, however, that the consent of such Issuer
Party or such Underwriter Party, as applicable, shall not be required if such
settlement fully discharges, with prejudice against the plaintiff, the claim or
action against such Issuer Party or Underwriter Party. Any failure by an Issuer
Party or Underwriter Party, as the case may be, to comply with the provisions of
this Section shall relieve the Insurer of liability only if such failure is
materially prejudicial to any legal pleadings, grounds, defenses or remedies in
respect thereof or the Insurer's financial liability hereunder and then only to
the extent of such prejudice.
7
<PAGE>
8. Notice to be Given to the Representative. Except as provided
below in Section 10 with respect to contribution, the indemnification provided
herein by the Underwriters shall be the exclusive remedy of any Insurer Party
for the Losses resulting from the Underwriter's breach of a representation,
warranty or agreement hereunder; provided, however, that the Insurer Party shall
be entitled to pursue any other remedy at law or in equity for any such breach
so long as the damages sought to be recovered shall not exceed the Losses
incurred thereby resulting from such breach. In the event that any action or
regulatory proceeding shall be commenced or claim asserted which may entitle an
Insurer Party to be indemnified under this Agreement, such party shall give the
Representative written or telegraphic notice of such action or claim reasonably
promptly after receipt of written notice thereof. The Underwriters shall be
entitled to participate in the defense of any such action or claim in reasonable
cooperation with, and with the reasonable cooperation of, the Insurer Party. The
Indemnified Party will have the right to employ its own counsel in any such
action in addition to counsel for the Underwriters, but the fees and expenses of
such counsel will be at the expense of such Indemnified Party unless (1) the
employment of counsel by the Indemnified Party at its expense has been
authorized in writing by the Representative, or (2) the Underwriters have not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, or (3) the named
parties to any such action include the Underwriters on the one hand, and on the
other hand, the Indemnified Party, and such Indemnified Party shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to the Underwriters
(in which case, if such Indemnified Party notifies the Representative in writing
that it elects to employ separate counsel at the expense of the Underwriters,
the Underwriters shall not have the right to assume the defense of such action
or proceeding on such Indemnified Party's behalf), in each of which cases the
reasonable fees and expenses of counsel will be at the expense of the
Underwriters and all such fees and expenses will be reimbursed promptly as they
are incurred but, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, the Underwriters shall not be
liable for the fees and expenses of more than one counsel for all Insurer
Parties. The Insurer Party shall cooperate with the Underwriter Party and the
Issuer Party in resolving any event which would give rise to an indemnification
obligation pursuant to Section 5(b) hereof in the most efficient manner. No
settlement of any such claim or action shall be entered into without the consent
of the Insurer Party who is subject to such claim or action, on the one hand and
the Underwriter Party who is subject to such claim or action on the other hand;
provided, however, that the consent of such Insurer Party shall not be required
if such settlement fully discharges, with prejudice against the plaintiff, the
claim or action against such Insurer Party. Any failure by an Insurer Party to
comply with the provisions of this Section shall relieve the Underwriters of
liability only if such failure is materially prejudicial to any legal pleadings,
grounds, defenses or remedies in respect thereof or the Underwriters' liability
hereunder and then only to the extent of such prejudice.
8
<PAGE>
9. Notice to be Given to the Issuer. Except as provided below in
Section 10 with respect to contribution, the indemnification provided herein by
the Issuer shall be the exclusive remedy of any Insurer Party for the Losses
resulting from the Issuer's breach of a representation, warranty or agreement
hereunder; provided, however, that the Insurer Party shall be entitled to pursue
any other remedy at law or in equity for any such breach so long as the damages
sought to be recovered shall not exceed the Losses incurred thereby resulting
from such breach. In the event that any action or regulatory proceeding shall be
commenced or claim asserted which may entitle an Insurer Party to be indemnified
under this Agreement, such party shall give the Issuer written or telegraphic
notice of such action or claim reasonably promptly after receipt of written
notice thereof. The Issuer shall be entitled to participate in the defense of
any such action or claim in reasonable cooperation with, and with the reasonable
cooperation of, the Insurer Party. The Indemnified Party will have the right to
employ its own counsel in any such action in addition to counsel for the Issuer,
but the fees and expenses of such counsel will be at the expense of such
Indemnified Party unless (1) the employment of counsel by the Indemnified Party
at its expense has been authorized in writing by the Issuer, or (2) the Issuer
has not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, or (3)
the named parties to any such action include the Issuer on the one hand, and on
the other hand, the Indemnified Party, and such Indemnified Party shall have
been advised by counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the Issuer
(in which case, if such Indemnified Party notifies the Issuer in writing that it
elects to employ separate counsel at the expense of the Issuer, the Issuer shall
not have the right to assume the defense of such action or proceeding on such
Indemnified Party's behalf), in each of which cases the reasonable fees and
expenses of counsel will be at the expense of the Issuer and all such fees and
expenses will be reimbursed promptly as they are incurred but, in connection
with any one action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, the Issuer shall not be liable for the fees and expenses of more
than one counsel for all Insurer Parties. The Insurer Party shall cooperate with
the Issuer Party and the Underwriter Party in resolving any event which would
give rise to an indemnification obligation pursuant to Section 5(c) hereof in
the most efficient manner. No settlement of any such claim or action shall be
entered into without the consent of the Insurer Party, who is subject to such
claim or action, on the one hand and the Issuer Party on the other hand;
provided, however, that the consent of such Insurer Party shall not be required
if such settlement fully discharges, with prejudice against the plaintiff, the
claim or action against such Insurer Party. Any failure by an Insurer Party to
comply with the provisions of this Section shall relieve the Issuer of liability
only if such failure is materially prejudicial to any legal pleadings, grounds,
defenses, or remedies in respect thereof or the Issuer's liability hereunder and
then only to the extent of such prejudice.
10. Contribution.
9
<PAGE>
(a) To provide for just and equitable contribution if the
indemnification provided by the Insurer is determined to be unavailable
for any Underwriter Party or Issuer Party (other than pursuant to Section
5 or 7 of this Agreement), the Insurer shall contribute to the aggregate
costs of liabilities arising from any breach of a representation or
warranty set forth in this Agreement on the basis of the relative fault of
all Underwriter Parties, all Issuer Parties and all Insurer Parties,
respectively.
(b) To provide for just and equitable contribution if the
indemnification provided by the Issuer is determined to be unavailable for
any Insurer Party (other than pursuant to Section 5 or 9 of this
Agreement), the Issuer shall contribute to the aggregate costs of
liabilities arising from any breach of a representation or warranty set
forth in this Agreement on the basis of the relative fault of all
Underwriter Parties, all Issuer Parties and all Insurer Parties.
(c) To provide for just and equitable contribution if the
indemnification provided by the Underwriters is determined to be
unavailable for any Insurer Party (other than pursuant to Section 5 or 8
of this Agreement), the Underwriters shall contribute to the aggregate
costs of liabilities arising from (i) any untrue statement or alleged
untrue statement of a material fact in the Underwriters Information or
(ii) the omission or alleged omission to state in the Underwriters
Information a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading on the basis of the relative fault of all
Underwriter Parties, all Issuer Parties and all Insurer Parties; provided
however, that the Underwriter Party shall not be liable for any amount in
excess of (i) the excess of the sales prices of the Certificates to the
public over the prices paid therefor by the Underwriters, over (ii) the
aggregate amount of any damages which the Underwriter Party has been
otherwise required to pay in respect of the same or any substantially
similar claim.
(d) The relative fault of each Indemnifying Party, on the one
hand, and of each Indemnified Party, on the other, shall be determined by
reference to, among other things, whether the breach of, or alleged breach
of, any of its representations and warranties set forth in Section 2, 3 or
4 of this Agreement relates to information supplied by, or action within
the control of, the Indemnifying Party or the Indemnified Party and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such breach.
(e) The parties agree that the Insurer shall be solely
responsible for the Insurer Information and for the Insurer Financial
Statements, that the Underwriters shall be solely responsible for the
Underwriters Information and that the Issuer shall be responsible for all
other information in the Registration Statement and in the Prospectus.
10
<PAGE>
(f) No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
(g) The indemnity and contribution agreements contained in
this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any
Underwriter Party, any Issuer Party or any Insurer Party, (ii) the
issuance of the Certificates or the Policy or (iii) any termination of
this Agreement.
(h) Upon the incurrence of any Losses entitled to contribution
hereunder, the contributor shall reimburse the party entitled to
contribution promptly upon establishment by the party entitled to
contribution to the contributor of the Losses incurred.
It is understood and agreed that the indemnities set forth in this
Agreement shall service the execution and delivery of this Agreement and the
issuance, sale and delivery of the Certificates.
11. Notices. All notices and other communications provided for under
this Agreement shall be addressed to the address set forth below as to each
party or at such other address as shall be designated by a party in a written
notice to the other party.
If to the Insurer: Financial Guaranty Insurance Company
115 Broadway
New York, New York 10006
Attention: General Counsel
If to the Issuer: EquiVantage Acceptance Corp.
13111 Northwest Freeway,
Suite 301
Houston, Texas 77040
If to the Underwriter: Prudential Securities Incorporated
1 New York Plaza, 26th Floor
New York, New York 10292
Attn: Legal Department
12. Governing Law, Etc. This Agreement shall be deemed to be a
contract under the laws of the State of New York and shall be governed by and
construed in accordance with the laws of the State of New York without regard to
its conflicts of laws provisions. This Agreement may not be assigned by any
party without the express written consent of each other party. Amendments of
this Agreement shall be in writing signed by each party. This Agreement shall
not be effective until executed by each of the Insurer, the Issuer and the
Representative.
11
<PAGE>
13. Underwriting Agreement; Pooling and Servicing Agreement. This
Agreement in no way limits or otherwise affects the indemnification obligations
of the Issuer under (a) the Underwriting Agreement or (b) the Pooling and
Servicing Agreement.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall together constitute but one and the same
instrument.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized, all as of the date first above written.
FINANCIAL GUARANTY INSURANCE
COMPANY
By:__________________________
Name:
Title:
EQUIVANTAGE ACCEPTANCE
CORP.
By:__________________________
Name: John E. Smith
Title: President
PRUDENTIAL SECURITIES
INCORPORATED
By:__________________________
Name:
Title:
[Indemnification Agreement]
Exhibit 4.3
<PAGE>
- --------------------------------------------------------------------------------
INSURANCE AND INDEMNITY AGREEMENT
by and among
FINANCIAL GUARANTY INSURANCE COMPANY,
EQUIVANTAGE ACCEPTANCE CORP.
and
EQUIVANTAGE INC.
Dated as of November 1, 1996
$80,000,000
EquiVantage Home Equity Loan Trust 1996-4
Home Equity Loan Asset-Backed Certificates
Series 1996-4, Class A
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; LIMITED RECOURSE
Section 1.01. Definitions..................................... 1
Section 1.02. Limited Recourse................................ 1
ARTICLE II REPRESENTATIONS, WARRANTIES AND
COVENANTS
Section 2.01. Representations and Warranties of the Sponsor... 2
Section 2.02. Representations and Warranties of the Company... 5
Section 2.03. Affirmative Covenants of the Sponsor............ 8
Section 2.04. Affirmative Covenants of the Company............ 11
Section 2.05. Negative Covenants of the Sponsor............... 14
Section 2.06. Negative Covenants of the Company............... 15
ARTICLE III THE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section 3.01. Issuance of the Policy.......................... 16
Section 3.02. Payment of Fees and Premium..................... 16
Section 3.03. Reimbursement and Additional Payment Obligation. 17
Section 3.04. Indemnification................................. 17
Section 3.05. Subrogation..................................... 20
ARTICLE IV FURTHER AGREEMENTS
Section 4.01. Effective Date; Term of Agreement............... 20
Section 4.02. Obligations Absolute............................ 20
Section 4.03. Assignments; Reinsurance; Third-Party Rights.... 22
Section 4.04. Liability of FGIC............................... 22
Section 4.05. Waiver of FGIC Rights........................... 23
ARTICLE V EVENTS OF DEFAULT; REMEDIES
Section 5.01. Events of Default............................... 23
Section 5.02. Remedies; Waivers............................... 24
ARTICLE VI MISCELLANEOUS
Section 6.01. Amendments, Etc................................. 25
Section 6.02. Notices......................................... 25
i
<PAGE>
Section 6.03. Payment Procedure............................... 26
Section 6.04. Severability.................................... 27
Section 6.05. Governing Law................................... 27
Section 6.06. Consent to Jurisdiction......................... 27
Section 6.07. Consent of FGIC................................. 28
Section 6.08. Counterparts.................................... 28
Section 6.09. Trial by Jury Waived............................ 28
Section 6.10 Limited Liability............................... 29
Section 6.11. Entire Agreement................................ 29
Appendix I -- Definitions
Appendix II -- Opinions of Counsel
Annex I -- Form of Financial Guaranty Insurance Policy
Appendix A -- Conditions Precedent to Issuance of the Policy
ii
<PAGE>
INSURANCE AND INDEMNITY AGREEMENT
INSURANCE AND INDEMNITY AGREEMENT dated as of November 1, 1996, by and
among FINANCIAL GUARANTY INSURANCE COMPANY ("FGIC"), EQUIVANTAGE ACCEPTANCE
CORP. (the "Sponsor") and EQUIVANTAGE INC.
(the "Company").
INTRODUCTORY STATEMENTS
The Sponsor intends to deposit the Mortgage Loans in the Trust, which
shall issue Home Equity Loan Asset-Backed Certificates, Series 1996-4, Class A
pursuant to a Pooling and Servicing Agreement dated as of November 1, 1996 among
the Sponsor, the Company, as servicer, and the Trustee.
The Sponsor has requested that FGIC issue a financial guaranty insurance
policy guarantying certain distributions on the Securities (including any such
distributions subsequently avoided as a preference under applicable United
States bankruptcy law) upon the terms and subject to the conditions provided
herein and subject to compliance with certain procedures set forth in the
Pooling and Servicing Agreement.
The parties hereto desire to specify the conditions precedent to the
issuance of the Policy by FGIC, the payment of premium in respect of the Policy,
the indemnity and reimbursement to be provided to FGIC in respect of amounts
paid by FGIC under the Policy or otherwise and certain other matters.
In consideration of the premises and of the agreements herein contained,
FGIC, the Sponsor and the Company hereby agree as follows:
ARTICLE I
DEFINITIONS; LIMITED RECOURSE
Section 1.01. Definitions. Capitalized terms used herein shall have the
meanings provided in Appendix I hereto unless the context otherwise requires.
Section 1.02. Limited Recourse. Notwithstanding any provision of this
Agreement to the contrary, the payment obligations set forth herein (other than
those set forth in Sections 3.02(a), 3.02(b)(i) and 3.04) shall be non-recourse
obligations with respect to the Sponsor and the Company and shall be payable
only from monies available for such payment in accordance with the provisions of
the Pooling and Servicing Agreement.
<PAGE>
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01. Representations and Warranties of the Sponsor. The Sponsor
represents, warrants and covenants, as of the date hereof and as of the Date of
Issuance, as follows:
(a) Due Organization and Qualification. The Sponsor is a
corporation, duly organized, validly existing and in good standing under
the laws of the State of Delaware. The Sponsor is duly qualified to do
business, is in good standing and has obtained all necessary licenses,
permits, charters, registrations and approvals (together, "approvals")
necessary for the conduct of its business as currently conducted and as
described in the Offering Document and the performance of its obligations
under the Transaction Documents, in each jurisdiction in which the failure
to be so qualified or to obtain such approvals would render any Mortgage
Loan unenforceable in any respect or would otherwise have a material
adverse effect upon the Transaction.
(b) Power and Authority. The Sponsor has all necessary corporate
power and authority to conduct its business as currently conducted and as
described in the Offering Document, to execute, deliver and perform its
obligations under the Transaction Documents and to consummate the
Transaction.
(c) Due Authorization. The execution, delivery and performance of
the Transaction Documents by the Sponsor have been duly authorized by all
necessary corporate action and do not require any additional approvals or
consents or other action by or any notice to or filing with any Person,
including, without limitation, any governmental entity or the Sponsor's
stockholders.
(d) Noncontravention. Neither the execution and delivery of the
Transaction Documents by the Sponsor, the consummation of the transactions
contemplated thereby nor the satisfaction of the terms and conditions of
the Transaction Documents,
(i) conflicts with or results in any breach or violation of
any provision of the certificate of incorporation or by-laws of the
Sponsor or any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award currently in effect
having applicability to the Sponsor or any of its properties,
including regulations issued by an administrative agency or other
governmental authority having supervisory powers over the Sponsor,
(ii) constitutes a default by the Sponsor under or a breach of
any provision of any loan agreement, mortgage, indenture or other
2
<PAGE>
agreement or instrument to which the Sponsor is a party or by which
it or any of its properties is or may be bound or affected, or
(iii) results in or requires the creation of any Lien upon or
in respect of any of the Sponsor's assets except as otherwise
expressly contemplated by the Transaction Documents.
(e) Legal Proceedings. There is no action, proceeding or
investigation by or before any court, governmental or administrative
agency or arbitrator against or affecting all or any of the Mortgage
Loans, or the Sponsor, or any properties or rights of the Sponsor, pending
or, to the Sponsor's knowledge after reasonable inquiry, threatened,
which, in any case, if decided adversely to the Sponsor, would result in a
Material Adverse Change with respect to the Sponsor or any Mortgage Loan.
(f) Valid and Binding Obligations. The Transaction Documents, when
executed and delivered by the Sponsor, will constitute the legal, valid
and binding obligations of the Sponsor, enforceable in accordance with
their respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equitable principles.
The Securities, when executed, authenticated and delivered in accordance
with the Pooling and Servicing Agreement, will be validly issued and
outstanding and entitled to the benefits of the Pooling and Servicing
Agreement and, together with the Class R Certificates, will evidence the
entire beneficial ownership interest in the Trust Fund.
(g) Financial Statements. The Financial Statements of the Company
(which includes the Sponsor's assets and operations), copies of which have
been furnished to FGIC by the Company, (i) are, as of the dates and for
the periods referred to therein, complete and correct in all material
respects, (ii) present fairly the financial condition and results of
operations of the Company as of the dates and for the periods indicated
and (iii) have been prepared in accordance with generally accepted
accounting principles consistently applied, except as noted therein
(subject as to interim statements to normal year-end adjustments). Since
the date of the most recent Financial Statements, there has been no
material adverse change in such financial condition or results of
operations. Except as disclosed in the Financial Statements, the Company
is not subject to any contingent liabilities or commitments that,
individually or in the aggregate, have a material possibility of causing a
Material Adverse Change in respect of the Sponsor.
(h) ERISA. The Sponsor is in compliance with ERISA and has not
incurred and does not reasonably expect to incur liabilities to the PBGC
under ERISA in connection with any Plan or Multiemployer Plan.
3
<PAGE>
(i) Accuracy of Information. None of the Provided Documents contain
any statement of a material fact with respect to the Sponsor or the
Transaction that was untrue or misleading in any material respect when
made. Since the furnishing of the Provided Documents, there has been no
change, nor any development or event involving a prospective change known
to the Sponsor, that would render any of the Provided Documents untrue or
misleading in any material respect. There is no fact known to the Sponsor
which has a material possibility of causing a Material Adverse Change with
respect to the Sponsor or the Mortgage Loans.
(j) Compliance With Securities Laws. The offer and sale of the
Securities comply in all material respects with all requirements of law,
including all registration requirements of applicable securities laws.
Without limitation of the foregoing, the Offering Document does not
contain any untrue statement of a material fact and does not omit to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they
were made, not misleading. Neither the Trust nor the Trust Fund is
required to be registered as an "investment company" under the Investment
Company Act. The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act.
(k) Transaction Documents. Each of the representations and
warranties of the Sponsor contained in the Transaction Documents is true
and correct in all material respects and the Sponsor hereby makes each
such representation and warranty to, and for the benefit of, FGIC as if
the same were set forth in full herein.
(l) Compliance With Law, Etc. No practice, procedure or policy
employed or proposed to be employed by the Sponsor in the conduct of its
business violates any law, regulation, judgment, agreement, order or
decree applicable to the Sponsor which, if enforced, would result in a
Material Adverse Change with respect to the Sponsor.
(m) Good Title; Absence of Liens; Security Interest. The Sponsor is
the owner of, and has good and marketable title to, the Mortgage Loans
free and clear of all Liens and Restrictions on Transferability, and has
full right, corporate power and lawful authority to assign, transfer and
pledge the Mortgage Loans. In the event that, in contravention of the
intention of the parties, the transfer of the Mortgage Loans by the
Sponsor to the Trust is characterized as other than a sale, such transfer
shall be characterized as a secured financing, and the Trustee shall, for
the benefit of the Certificateholders and FGIC, have a valid and perfected
first priority security interest in the Mortgage Loans free and clear of
all Liens and Restrictions on Transferability.
4
<PAGE>
(n) Taxes. The Sponsor has filed all federal and state tax returns
which are required to be filed and paid all taxes, including, any
assessments received by it, to the extent that such taxes have become due.
Any taxes, fees and other governmental charges payable by the Sponsor in
connection with the Transaction, the execution and delivery of the
Transaction Documents and the issuance of the Securities have been paid or
shall have been paid at or prior to the Date of Issuance.
(o) Solvency; Fraudulent Conveyance. The Sponsor is solvent and will
not be rendered insolvent by the transactions contemplated by the
Transaction Documents and, after giving effect to such transactions, the
Sponsor will not be left with an unreasonably small amount of capital with
which to engage in its business. The Sponsor does not intend to incur, or
believe that it has incurred, debts beyond its ability to pay such debts
as they mature. The Sponsor does not contemplate the commencement of
insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of the Sponsor or any of its assets. The amount of
consideration being received by the Sponsor upon the sale of the
Securities to the Underwriters constitutes reasonably equivalent value and
fair consideration for the interest in the Mortgage Loans evidenced by the
Securities. The Sponsor is not transferring the Mortgage Loans to the
Trust or selling the Securities to the Underwriters, as provided in the
Transaction Documents, with any intent to hinder, delay or defraud any of
the Sponsor's creditors.
Section 2.02. Representations and Warranties of the Company. The Company
represents, warrants and covenants, as of the date hereof and as of the Date of
Issuance, as follows:
(a) Due Organization and Qualification. The Company is a
corporation, duly organized, validly existing and in good standing under
the laws of the State of Delaware. The Company and each of its
Subsidiaries is duly qualified to do business, is in good standing and has
obtained all necessary licenses, permits, charters, registrations and
approvals (together, "approvals") necessary for the conduct of its
business as currently conducted and as described in the Offering Document
and the performance of its obligations under the related Transaction
Documents, in each jurisdiction in which the failure to be so qualified or
to obtain such approvals would have a material adverse effect upon the
Transaction.
(b) Power and Authority. The Company has all necessary power and
authority to conduct its business as currently conducted, to execute,
deliver and perform its obligations under the related Transaction
Documents and to consummate the Transaction.
5
<PAGE>
(c) Due Authorization. The execution, delivery and performance of
the related Transaction Documents by the Company have been duly authorized
by all necessary action and do not require any additional approvals or
consents or other action by or any notice to or filing with any Person,
including, without limitation, any governmental entity.
(d) Noncontravention. Neither the execution and delivery of the
related Transaction Documents by the Company, the consummation of the
transactions contemplated thereby nor the satisfaction of the terms and
conditions of the related Transaction Documents,
(i) conflicts with or results in any breach or violation of
any provision of the Certificate of Incorporation or Bylaws of the
Company or any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award currently in effect
having applicability to the Company or any of its properties,
including regulations issued by an administrative agency or other
governmental authority having supervisory powers over the Company,
(ii) constitutes a default by the Company under or a breach of
any provision of any loan agreement, mortgage, indenture or other
agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which it or any of its or their
properties is or may be bound or affected, or
(iii) results in or requires the creation of any Lien upon or
in respect of any of the Company's assets except as otherwise
expressly contemplated by the related Transaction Documents.
(e) Legal Proceedings. There is no action, proceeding or
investigation by or before any court, governmental or administrative
agency or arbitrator against or affecting all or any of the Mortgage
Loans, or the Company or any properties or rights of the Company pending
or, to the Company's knowledge after reasonable inquiry, threatened,
which, in any case, if decided adversely to the Company, would result in a
Material Adverse Change with respect to the Company or any Mortgage Loan.
(f) Valid and Binding Obligations. The related Transaction
Documents, when executed and delivered by the Company, will constitute the
legal, valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and general equitable
principles.
6
<PAGE>
(g) Financial Statements. The Financial Statements of the Company
(which includes the Sponsor's assets and operations), copies of which have
been furnished to FGIC by the Company, (i) are, as of the dates and for
the periods referred to therein, complete and correct in all material
respects, (ii) present fairly the financial condition and results of
operations of the Company as of the dates and for the periods indicated
and (iii) have been prepared in accordance with generally accepted
accounting principles consistently applied, except as noted therein
(subject as to interim statements to normal year-end adjustments). Since
the date of the most recent Financial Statements, there has been no
material adverse change in such financial condition or results of
operations. Except as disclosed in the Financial Statements, the Company
is not subject to any contingent liabilities or commitments that,
individually or in the aggregate, have a material possibility of causing a
Material Adverse Change in respect of the Company.
(h) ERISA. No Accumulated Funding Deficiency, whether or not waived,
has occurred with respect to any Plan. No Plan has been terminated, and no
Commonly Controlled Entity has withdrawn from any Multiemployer Plan which
could result in any liability under ERISA of a Commonly Controlled Entity.
No Reportable Event or other event or condition has occurred which could
result in the termination of any Plan by the PBGC. No Plan has an
Underfunding greater than $100,000. The aggregate amount of Underfunding
for all Underfunded Plans does not exceed $100,000. The liability to which
the Commonly Controlled Entities would become subject under ERISA if they
were to withdraw completely from all Multiemployer Plans as of the most
recent valuation date is not in excess of $100,000. The Multiemployer
Plans are neither in Reorganization (as defined in Section 4241 of ERISA)
nor Insolvent (as defined in Section 4245 of ERISA).
(i) Accuracy of Information. None of the Provided Documents contain
any statement of a material fact with respect to the Company or the
Transaction that was untrue or misleading in any material respect when
made. Since the furnishing of the Provided Documents, there has been no
change, nor any development or event involving a prospective change known
to the Company, that would render any of the Provided Documents untrue or
misleading in any material respect. There is no fact known to the Company
which has a material possibility of causing a Material Adverse Change with
respect to the Company or the Mortgage Loans.
(j) Transaction Documents. Each of the representations and
warranties of the Company contained in the related Transaction Documents
is true and correct in all material respects and the Company hereby makes
each such representation and warranty to, and for the benefit of, FGIC as
if the same were set forth in full herein.
7
<PAGE>
(k) Compliance With Law, Etc. No practice, procedure or policy
employed or proposed to be employed by the Company in the conduct of its
business violates any law, regulation, judgment, agreement, order or
decree applicable to the Company which, if enforced, would result in a
Material Adverse Change with respect to the Company.
(l) Good Title; Absence of Liens; Security Interest. Immediately
prior to the sale of the Mortgage Loans to the Sponsor, the Company was
the owner of, and had good and marketable title to, the Mortgage Loans
free and clear of all Liens and Restrictions on Transferability, and had
full right, corporate power and lawful authority to assign, transfer and
pledge the Mortgage Loans to the Sponsor.
(m) Taxes. The Company, has filed all federal and state tax returns
which are required to be filed and paid all taxes, including any
assessments received by it, to the extent that such taxes have become due.
Any taxes, fees and other governmental charges payable by the Company in
connection with the Transaction, the execution and delivery of the
Transaction Documents and the issuance of the Securities have been paid or
shall have been paid at or prior to the Date of Issuance.
(n) Solvency; Fraudulent Conveyance. The Company is solvent and will
not be rendered insolvent by the transactions contemplated by the
Transaction Documents and, after giving effect to such transactions, the
Company will not be left with an unreasonably small amount of capital with
which to engage in its business. The Company does not intend to incur, or
believe that it has incurred, debts beyond its ability to pay such debts
as they mature. The Company does not contemplate the commencement of
insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of the Company or any of its assets. The amount of
consideration being received by the Company upon the sale of the Mortgage
Loans to the Sponsor constitutes reasonably equivalent value and fair
consideration for the Mortgage Loans. The Company is not transferring the
Mortgage Loans to the Sponsor as provided in the Transaction Documents,
with any intent to hinder, delay or defraud any of the Company's
creditors.
Section 2.03. Affirmative Covenants of the Sponsor. The Sponsor hereby
agrees that during the Term of the Agreement, unless FGIC shall otherwise
expressly consent in writing:
(a) Compliance With Agreements and Applicable Laws. The Sponsor
shall perform each of its obligations under the Transaction Documents and
shall comply with all material requirements of, and the Securities shall
be offered and sold in accordance with, any law, rule or regulation
applicable to it or thereto,
8
<PAGE>
or that are required in connection with its performance under any of the
Transaction Documents.
(b) Other Information.
(i) The Sponsor shall provide or cause to be provided to FGIC,
promptly upon receipt thereof, copies of all reports, statements,
certifications, schedules, or other similar items delivered to or by
the Sponsor pursuant to the terms of the Transaction Documents and,
promptly upon request, such other data as FGIC may reasonably
request; provided, however, that the Sponsor shall not be required
to deliver any such items if provision by some other party to FGIC
is required under the Transaction Documents unless such other party
wrongfully fails to deliver such item and FGIC requests the Sponsor
to deliver such item. The Sponsor shall, upon the request of FGIC,
permit FGIC or its authorized agents (A) to inspect the books and
records of the Sponsor as they may relate to the Securities, the
Mortgage Loans, the obligations of the Sponsor under the Transaction
Documents, the Transaction and the Sponsor's business; (B) to
discuss the affairs, finances and accounts of the Sponsor with the
President or Senior Vice President of the Sponsor; and (C) to
discuss the affairs, finances and accounts of the Sponsor with the
Sponsor's independent accountants, provided that the Chief Financial
Officer of the Sponsor shall have the right to be present during
such discussions. Such inspections and discussions shall be
conducted during normal business hours and shall not unreasonably
disrupt the business of the Sponsor. The books and records of the
Sponsor will be maintained at the address of the Sponsor designated
herein for receipt of notices, unless the Sponsor shall otherwise
advise the parties hereto in writing.
(ii) The Sponsor shall provide or cause to be provided to FGIC
an executed original copy of each document executed in connection
with the transaction within 30 days after the date of closing.
(c) Compliance Certificate. The Sponsor shall deliver to FGIC,
concurrently with the Company's compliance certificate delivered pursuant
to Section 2.04(c), a certificate signed by the President or a Senior Vice
President of the Sponsor stating that:
(i) a review of the Sponsor's performance under the
Transaction Documents during such period has been made under such
officer's supervision; and
(ii) to the best of such individual's knowledge following
reasonable inquiry, no Trigger Event, Default or Event of Default
has occurred, or if a Trigger Event, Default or Event of Default has
occurred,
9
<PAGE>
specifying the nature thereof and, if the Sponsor has a right to
cure any such Default or Event of Default pursuant to Section 5.01,
stating in reasonable detail the steps, if any, being taken by the
Sponsor to cure such Default or Event of Default or to otherwise
comply with the terms of the agreement to which such Default or
Event of Default relates.
(d) Notice of Material Events. The Sponsor shall promptly inform
FGIC in writing of the occurrence of any of the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation (A)
against the Sponsor pertaining to the Mortgage Loans in general, (B)
with respect to a material portion of the Mortgage Loans or (C) in
which a request has been made for certification as a class action
(or equivalent relief) that would involve a material portion of the
Mortgage Loans;
(ii) any change in the location of the Sponsor's principal
office or any change in the location of the Sponsor's books and
records;
(iii) the occurrence of any Trigger Event, Default or Event of
Default;
(iv) any other event, circumstance or condition that has
resulted, or has a material possibility of resulting, in a Material
Adverse Change in respect of the Sponsor; or
(v) a change of (A) ownership or (B) executive management of
the Sponsor.
(e) Further Assurances. The Sponsor shall, upon the request of FGIC,
from time to time, execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, within thirty (30) days of such
request, such amendments hereto and such further instruments and take such
further action as may be reasonably necessary to effectuate the intention,
performance and provisions of the Transaction Documents or to protect the
interest of the Trustee, for the benefit of the Certificateholders and
FGIC, in the Mortgage Loans, free and clear of all Liens and Restrictions
on Transferability except those in favor of the Trustee, for the benefit
of the Certificateholders and FGIC, imposed by the Pooling and Servicing
Agreement. In addition, the Sponsor agrees to cooperate with S&P and
Moody's in connection with any review of the Transaction which may be
undertaken by S&P and Moody's after the date hereof.
(f) Retirement of Securities. The Sponsor shall cause the Trustee,
upon retirement of the Securities pursuant to the Pooling and Servicing
Agreement or otherwise, to furnish to FGIC a notice of such retirement,
and,
10
<PAGE>
upon retirement of the Securities and the expiration of the term of the
Policy, to surrender the Policy to FGIC for cancellation.
(g) Corporate Existence. The Sponsor shall maintain its corporate
existence and shall at all times continue to be duly organized under the
laws of the State of Delaware and duly qualified and duly authorized (as
described in Sections 2.01(a), (b) and (c) hereof) and shall conduct its
business in accordance with the terms of its certificate of incorporation
and by-laws.
(h) Third-Party Beneficiary. The Sponsor agrees that FGIC shall have
all rights of a third-party beneficiary in respect of the Pooling and
Servicing Agreement and hereby incorporates and restates its
representations, warranties and covenants as set forth therein for the
benefit of FGIC.
Section 2.04. Affirmative Covenants of the Company. The Company hereby
agrees that during the Term of the Agreement, unless FGIC shall otherwise
expressly consent in writing:
(a) Compliance With Agreements and Applicable Laws. The Company
shall perform each of its obligations under the Transaction Documents and
any credit agreements and shall comply with all material requirements of
any law, rule or regulation applicable to it or thereto, or that are
required in connection with its performance under any of the Transaction
Documents.
(b) Financial Statements; Accountants' Reports; Other Information.
The Company shall keep or cause to be kept in reasonable detail books and
records of account of the Company's assets and business. The Company shall
furnish or cause to be furnished to FGIC:
(i) Annual Financial Statements. As soon as available, and in
any event within 90 days after the close of each year of the
Company, the audited balance sheet of the Company and the audited
profit and loss statement and statement of cash flows of the Company
for such year, all in reasonable detail and stating in comparative
form the respective figures for the corresponding date and period in
the preceding year, prepared in accordance with generally accepted
accounting principles, consistently applied, and accompanied by the
certificate of the Company's independent accountants (who shall be a
nationally recognized firm or otherwise acceptable to FGIC).
(ii) Quarterly Financial Statements. As soon as available, and
in any event within 45 days after the close of each of the first
three quarters of each year of the Company, unaudited balance sheet
of the Company and the unaudited profit and loss statement and
statement of cash flows of the Company for the portion of the year
then ended, all in
11
<PAGE>
reasonable detail and stating in comparative form the respective
figures for the corresponding date and period in the preceding year,
prepared in accordance with generally accepted accounting
principles, consistently applied (subject to normal year-end
adjustments).
(iii) Accountants' Reports. If a Trigger Event has occurred,
copies of any reports submitted to the Company by its independent
accountants in connection with any examination of the financial
statements of the Company, promptly upon receipt thereof.
(iv) Other Information. Promptly upon receipt thereof, copies
of all reports, statements, certifications, schedules, or other
similar items delivered to or by the Company pursuant to the terms
of the Transaction Documents and, promptly upon request, such other
data as FGIC may reasonably request; provided, however, that the
Company shall not be required to deliver any such items if provision
by some other party to FGIC is required under the Transaction
Documents unless such other party wrongfully fails to deliver such
item and FGIC requests the Company to deliver such item. The Company
shall, upon the request of FGIC, permit FGIC or its authorized
agents (A) to inspect the books and records of the Company as they
may relate to the obligations of the Company under the Transaction
Documents, the Transaction and the Company's business; (B) to
discuss the affairs, finances and accounts of the Company with the
President or Senior Vice President of the Company, no more
frequently than annually; and (C) to discuss the affairs, finances
and accounts of the Company with the Company's independent
accountants, provided that the Chief Financial Officer of the
Company shall have the right to be present during such discussions.
Such inspections and discussions shall be conducted during normal
business hours and shall not unreasonably disrupt the business of
the Company. In addition, the Company shall promptly (but in no case
more than 30 days following issuance or receipt by the Commonly
Controlled Entity) provide to FGIC a copy of all correspondence
between a Commonly Controlled Entity and the PBGC, IRS, Department
of Labor or the administrators of a Multiemployer Plan relating to
any Reportable Event or the underfunded status, termination or
possible termination of a Plan or a Multiemployer Plan. The books
and records of the Company will be maintained at the address of the
Company designated herein for receipt of notices, unless the Company
shall otherwise advise the parties hereto in writing.
(v) The Company shall provide or cause to be provided to FGIC
an executed original copy of each document executed in connection
with the Transaction within 30 days after the date of closing.
12
<PAGE>
(vi) The Company shall promptly inform FGIC in writing (A) if
the Company's current shareholders of the Company's voting common
stock cease to own 51% or a greater share of such stock or (B) of
the occurrence of a change of executive management of the Company.
All financial statements specified in clauses (i) and (ii) above shall be
furnished in consolidated form for the Company and all Subsidiaries in the
event the Company shall consolidate its financial statements with its
Subsidiaries.
(c) Compliance Certificate. The Company shall deliver to FGIC
concurrently with the delivery of the financial statements required
pursuant to Section 2.04(b)(i) hereof (and concurrently with the delivery
of the financial statements required pursuant to Section 2.04(b)(ii)
hereof, if a Trigger Event has occurred), a certificate signed by the
President or Senior Vice President of the Company stating that:
(i) a review of the Company's performance under the
Transaction Documents during such period has been made under such
officer's supervision;
(ii) to the best of such individual's knowledge following
reasonable inquiry, no Trigger Event, Default or Event of Default
has occurred, or if a Trigger Event, Default or Event of Default has
occurred, specifying the nature thereof and, if the Company has a
right to cure any such Default or Event of Default pursuant to
Section 5.01, stating in reasonable detail the steps, if any, being
taken by the Company to cure such Default or Event of Default or to
otherwise comply with the terms of the agreement to which such
Default or Event of Default relates; and
(iii) the attached financial reports submitted in accordance
with Section 2.04(b)(i) or (ii) hereof, as applicable, are complete
and correct in all material respects and present fairly the
financial condition and results of operations of the Company as of
the dates and for the periods indicated, in accordance with
generally accepted accounting principles consistently applied
(subject as to interim statements to normal year-end adjustments).
(d) Notice of Material Events. The Company shall promptly inform
FGIC in writing of the occurrence of any of the following:
(i) any change in the location of the Company's principal
office or any change in the location of the Company's books and
records;
(ii) the occurrence of any Trigger Event, Default or Event of
Default; or
13
<PAGE>
(iii) any other event, circumstance or condition that has
resulted, or has a material possibility of resulting, in a Material
Adverse Change in respect of the Company.
(e) Further Assurances. The Company shall, upon the request of FGIC,
from time to time, execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, within thirty (30) days of such
request, such amendments hereto and such further instruments and take such
further action as may be reasonably necessary to effectuate the intention,
performance and provisions of the Transaction Documents or to protect the
interest of the Trustee, for the benefit of the Certificateholders and
FGIC, in the Mortgage Loans, free and clear of all Liens and Restrictions
on Transferability except those in favor of the Trustee, for the benefit
of the Certificateholders and FGIC, imposed by the Pooling and Servicing
Agreement. In addition, the Company agrees to cooperate with S&P and
Moody's in connection with any review of the Transaction which may be
undertaken by S&P and Moody's after the date hereof.
(f) Existence. The Company shall maintain its corporate existence
and shall at all times continue to be duly organized under the laws of the
State of Delaware and duly qualified and duly authorized (as described in
Sections 2.02(a), (b) and (c) hereof) and shall conduct its business in
accordance with the terms of its certificate of incorporation and by-laws.
(g) Third-Party Beneficiary. The Company agrees that FGIC shall have
all rights of a third-party beneficiary in respect of the Pooling and
Servicing Agreement and hereby incorporates and restates its
representations, warranties and covenants as set forth therein for the
benefit of FGIC.
(h) Maintenance of Equity. The Company has and shall maintain equity
of at least $10,000,000, as determined in accordance with generally
accepted accounting principles, for the term of this Agreement.
(i) Management Changes. If John E. Smith should cease to serve as an
executive officer of the Company, within 30 days thereafter the Company
shall appoint as his replacement a person who is (i) qualified and
experienced in the Servicer's type of business, (ii) experienced in a
similar executive position and (iii) competent to serve in such capacity.
Section 2.05. Negative Covenants of the Sponsor. The Sponsor hereby agrees
that during the Term of the Agreement, unless FGIC shall otherwise expressly
consent in writing:
(a) Restrictions on Liens. The Sponsor shall not (i) create, incur
or suffer to exist, or agree to create, incur or suffer to exist, or
consent to cause or permit in the future (upon the happening of a
contingency or otherwise) the
14
<PAGE>
creation, incurrence or existence of any Lien or Restriction on
Transferability on the Mortgage Loans except for those in favor of the
Trustee, for the benefit of the Certificateholders and FGIC, imposed by
the Pooling and Servicing Agreement or (ii) sign or file under the Uniform
Commercial Code of any jurisdiction any financing statement which names
the Sponsor as a debtor, or sign any security agreement authorizing any
secured party thereunder to file such financing statement, with respect to
the Mortgage Loans, except in each case any such instrument solely
securing the rights and preserving the Lien of the Trustee, for the
benefit of the Certificateholders and FGIC.
(b) Impairment of Rights. The Sponsor shall not take any action, or
fail to take any action, except with the prior written approval of FGIC,
if such action or failure to take action is likely to (i) interfere with
the enforcement of any rights under the Transaction Documents that are
material to the rights, benefits or obligations of the Trustee, the
Certificateholders or FGIC, (ii) result in a Material Adverse Change in
respect of any Mortgage Loan or (iii) impair the ability of the Sponsor to
perform its obligations under the Transaction Documents.
(c) Waiver, Amendments, Etc. The Sponsor shall not waive, modify or
amend, or consent to any waiver, modification or amendment of, any of the
provisions of any of the Transaction Documents, except with the prior
written approval of FGIC.
Section 2.06. Negative Covenants of the Company. The Company hereby agrees
that during the Term of the Agreement, unless FGIC shall otherwise expressly
consent in writing:
(a) Restrictions on Liens. The Company shall not (i) create, incur
or suffer to exist, or agree to create, incur or suffer to exist, or
consent to cause or permit in the future (upon the happening of a
contingency or otherwise) the creation, incurrence or existence of any
Lien or Restriction on Transferability on the Mortgage Loans except for
the Lien in favor of the Trustee, for the benefit of the
Certificateholders and FGIC, and the Restrictions on Transferability
imposed by the Pooling and Servicing Agreement or (ii) sign or file under
the Uniform Commercial Code of any jurisdiction any financing statement
which names the Company as a debtor, or sign any security agreement
authorizing any secured party thereunder to file such financing statement,
with respect to the Mortgage Loans, except in each case any such
instrument solely securing the rights and preserving the Lien of the
Trustee, for the benefit of the Certificateholders and FGIC.
(b) Impairment of Rights. The Company shall not take any action, or
fail to take any action, except with the prior written approval of FGIC,
if such action or failure to take action is likely to (i) interfere with
the enforcement of
15
<PAGE>
any rights under the Transaction Documents that are material to the
rights, benefits or obligations of the Trustee, the Certificateholders or
FGIC, (ii) result in a Material Adverse Change in respect of any Mortgage
Loan or (iii) impair the ability of the Company to perform its obligations
under the Transaction Documents, including any consolidation, merger with
any Person or any transfer of all or any material amount of the Company's
assets to any other Person if such consolidation, merger or transfer would
materially impair the net worth of the Company or any successor Person
obligated, after such event, to perform the Company's obligations under
the Transaction Documents.
(c) Waiver, Amendments, Etc. The Company shall not waive, modify or
amend, or consent to any waiver, modification or amendment of, any of the
provisions of any of the Transaction Documents, except with the prior
written approval of FGIC.
(d) Successor Sub-Servicer. The Company shall not terminate or
designate, or consent to the termination or designation of, a sub-servicer
or any successor thereto without the prior written consent of FGIC.
ARTICLE III
THE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section 3.01. Issuance of the Policy. FGIC agrees to issue the Policy
subject to satisfaction of the conditions precedent set forth in Appendix A
hereto.
Section 3.02. Payment of Fees and Premium.
(a) Inducement Letter Fees and Expenses. On the Date of Issuance,
the Company shall pay or cause to be paid the amounts specified with
respect to fees, expenses and disbursements in the Inducement Letter,
unless otherwise agreed between the Company and FGIC. All periodic and
subsequent fees of S&P or Moody's with respect to, and directly allocable
to, the Securities shall be for the account of, and shall be billed to,
the Company. The fees for any other rating agency shall be paid by the
party requesting such other agency's rating, unless such other agency is a
substitute for S&P or Moody's in the event that S&P or Moody's is no
longer rating the Securities, in which case the cost for such agency shall
be paid by the Company.
(b) Premium. In consideration of the issuance by FGIC of the Policy,
FGIC shall be entitled to receive the Premium as and when due in
accordance with the terms of the Inducement Letter (i) in the case of
Premium due on or before the Date of Issuance, directly from the Company
and (ii) in the case of the Premium due after the Date of Issuance,
pursuant to Section 7.5(b)(i) of the
16
<PAGE>
Pooling and Servicing Agreement. The Premium paid hereunder or under the
Pooling and Servicing Agreement shall be nonrefundable without regard to
whether FGIC makes any payment under the Policy or any other circumstances
relating to the Securities or provision being made for payment of the
Securities prior to maturity.
Section 3.03. Reimbursement and Additional Payment Obligation. The Sponsor
and the Company agree to pay to FGIC the following amounts as and when incurred:
(a) a sum equal to the total of all amounts paid by FGIC under the
Policy;
(b) any and all out-of-pocket charges, fees, costs and expenses
which FGIC may reasonably pay or incur, including, but not limited to,
attorneys' and accountants' fees and expenses, in connection with (i) in
the event of payments under the Policy, any accounts established to
facilitate payments under the Policy, to the extent FGIC has not been
immediately reimbursed on the date that any amount is paid by FGIC under
the Policy, or other administrative expenses relating to such payments
under the Policy, (ii) the enforcement, defense or preservation of any
rights in respect of any of the Transaction Documents, including
defending, monitoring or participating in any litigation or proceeding
(including any insolvency or bankruptcy proceeding in respect of any
Transaction participant or any affiliate thereof) relating to any of the
Transaction Documents, any party to any of the Transaction Documents or
the Transaction, (iii) any amendment, waiver or other action with respect
to, or related to, any Transaction Document whether or not executed or
completed, (iv) any review or investigation made by FGIC in those
circumstances where its approval or consent is sought under any of the
Transaction Documents;
(c) interest on any and all amounts described in Section 3.03(a)
from the date due to FGIC pursuant to the provisions hereof until payment
thereof in full, payable to FGIC at the Late Payment Rate per annum; and
(d) any payments made by FGIC on behalf of, or advanced to, the
Sponsor or the Company, including, without limitation, any amounts payable
by the Sponsor or the Company pursuant to the Securities or any other
Transaction Documents; and any payments made by FGIC as, or in lieu of,
any servicing, management, trustee, custodial or administrative fees
payable, in the sole discretion of FGIC to third parties in connection
with the Transaction.
Section 3.04. Indemnification.
(a) Indemnification by the Sponsor. In addition to any and all
rights of reimbursement, indemnification, subrogation and any other rights
pursuant hereto or under law or in equity, the Sponsor agrees to pay, and
to protect,
17
<PAGE>
indemnify and save harmless, FGIC and its officers, directors,
shareholders, employees, agents and each Person, if any, who controls FGIC
within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act from and against any and all claims, losses,
liabilities (including penalties), actions, suits, judgments, demands,
damages, costs or expenses (including, without limitation, fees and
expenses of attorneys, consultants and auditors and reasonable costs of
investigations) of any nature arising out of or relating to the
transactions contemplated by the Transaction Documents by reason of:
(i) the negligence, bad faith, willful misconduct,
misfeasance, malfeasance or theft committed by any director,
officer, employee or agent of the Sponsor;
(ii) the breach by the Sponsor of any representation, warranty
or covenant under any of the Transaction Documents or the
occurrence, in respect of the Sponsor, under any of the Transaction
Documents of any "event of default" or any event which, with the
giving of notice or the lapse of time or both, would constitute any
"event of default"; or
(iii) any untrue statement or alleged untrue statement of a
material fact contained in any Offering Document or any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, except insofar as such claims arise out of or are based
upon any untrue statement or omission in information included in an
Offering Document and furnished by FGIC in writing expressly for use
therein (all such information so furnished being referred to herein
as "FGIC Information"), it being understood that, in respect of the
initial Offering Document, the FGIC Information is limited to the
information included under the caption "The Certificate Insurer" and
the financial statements of FGIC appended thereto.
(b) Indemnification by the Company. In addition to any and all
rights of reimbursement, indemnification, subrogation and any other rights
pursuant hereto or under law or in equity, the Company agrees to pay, and
to protect, indemnify and save harmless, FGIC and its officers, directors,
shareholders, employees, agents and each Person, if any, who controls FGIC
within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act from and against any and all claims, losses,
liabilities (including penalties), actions, suits, judgments, demands,
damages, costs or expenses (including, without limitation, fees and
expenses of attorneys, consultants and auditors and reasonable costs of
investigations) of any nature arising out of or relating to the
transactions contemplated by the Transaction Documents by reason of:
18
<PAGE>
(i) the negligence, bad faith, willful misconduct,
misfeasance, malfeasance or theft committed by any director,
officer, employee or agent of the Company;
(ii) the breach by the Company of any representation, warranty
or covenant under any of the Transaction Documents or the
occurrence, in respect of the Company, under any of the Transaction
Documents of any "event of default" or any event which, with the
giving of notice or the lapse of time or both, would constitute any
"event of default"; or
(iii) any untrue statement or alleged untrue statement of a
material fact contained in any Offering Document or any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, except insofar as such claims arise out of or are based
upon any untrue statement or omission in the FGIC Information.
(c) Conduct of Actions or Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted
against FGIC, any officer, director, shareholder, employee or agent of
FGIC or any Person controlling FGIC (individually, an "Indemnified Party"
and, collectively, the "Indemnified Parties") in respect of which
indemnity may be sought from the Sponsor or the Company (the "Indemnifying
Party") hereunder, FGIC shall promptly notify the Indemnifying Party in
writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to FGIC and
the payment of all expenses. An Indemnified Party shall have the right to
employ separate counsel in any such action and to participate in the
defense thereof at the expense of the Indemnified Party; provided,
however, that the fees and expenses of such separate counsel shall be at
the expense of the Indemnifying Party only if (i) the Indemnifying Party
has agreed to pay such fees and expenses, (ii) the Indemnifying Party
shall have failed to assume the defense of such action or proceeding and
employ counsel satisfactory to FGIC in any such action or proceeding or
(iii) the named parties to any such action or proceeding (including any
impleaded parties) include both the Indemnified Party and the Indemnifying
Party, and the Indemnified Party shall have been advised by counsel that
(A) there may be one or more legal defenses available to it which are
different from or additional to those available to the Indemnifying Party
and (B) the representation of the Indemnifying Party and the Indemnified
Party by the same counsel would be inappropriate or contrary to prudent
practice (in which case, if the Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not
have the right to assume the defense of such action or proceeding on
behalf of such Indemnified Party, it being understood, however, that the
Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings
19
<PAGE>
in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any time for the Indemnified Parties,
which firm shall be designated in writing by FGIC). The Indemnifying Party
shall not be liable for any settlement of any such action or proceeding
effected without its written consent to the extent that any such
settlement shall be prejudicial to the Indemnifying Party, but, if settled
with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding with respect to which the
Indemnifying Party shall have received notice in accordance with this
subsection (c), the Indemnifying Party agrees to indemnify and hold the
Indemnified Parties harmless from and against any loss or liability by
reason of such settlement or judgment.
(d) Contribution. To provide for just and equitable contribution if
the indemnification provided by the Indemnifying Party is determined to be
unavailable for any Indemnified Party (other than due to application of
this Section), the Indemnifying Party shall contribute to the losses
incurred by the Indemnified Party on the basis of the relative fault of
the Indemnifying Party, on the one hand, and the Indemnified Party, on the
other hand.
Section 3.05. Subrogation. Subject only to the priority of payment
provisions of the Pooling and Servicing Agreement, the Sponsor and the Company
acknowledge that, to the extent of any payment made by FGIC pursuant to the
Policy, the rights of FGIC are to be fully subrogated to the extent of such
payment and any additional interest due on any late payment, to the rights of
the Certificateholders to any moneys paid or payable in respect of the
Securities under the Transaction Documents or otherwise. The Sponsor and the
Company agree to such subrogation and, further, agree to execute such
instruments and to take such actions as, in the sole judgment of FGIC, are
necessary to evidence such subrogation and to perfect the rights of FGIC to
receive any moneys paid or payable in respect of the Securities under the
Transaction Documents or otherwise.
ARTICLE IV
FURTHER AGREEMENTS
Section 4.01. Effective Date; Term of Agreement. This Agreement shall take
effect on the Date of Issuance and shall remain in effect until the later of (a)
such time as FGIC is no longer subject to a claim under the Policy and the
Policy shall have been surrendered to FGIC for cancellation and (b) all amounts
payable to FGIC and the Certificateholders under the Transaction Documents and
under the Securities have been paid in full; provided, however, that the
provisions of Sections 3.02, 3.03 and 3.04 hereof shall survive any termination
of this Agreement.
Section 4.02. Obligations Absolute.
20
<PAGE>
(a) The payment obligations of the Sponsor and the Company
hereunder shall be absolute and unconditional, and shall be paid strictly
in accordance with this Agreement under all circumstances irrespective of
(i) any lack of validity or enforceability of, or any amendment or other
modifications of, or waiver with respect to, any of the Transaction
Documents, the Securities or the Policy; (ii) any exchange or release of
any other obligations hereunder; (iii) the existence of any claim, setoff,
defense, reduction, abatement or other right which the Sponsor or the
Company may have at any time against FGIC or any other Person; (iv) any
document presented in connection with the Policy proving to be forged,
fraudulent, invalid or insufficient in any respect, including any failure
to strictly comply with the terms of the Policy, or any statement therein
being untrue or inaccurate in any respect; (v) any failure of the Sponsor
to receive the proceeds from the sale of the Securities; (vi) any breach
by the Sponsor or the Company of any representation, warranty or covenant
contained in any of the Transaction Documents; or (vii) any other
circumstances, other than payment in full, which might otherwise
constitute a defense available to, or discharge of, the Sponsor or the
Company in respect of any Transaction Document.
(b) The Sponsor and the Company and any and all others who are now
or may become liable for all or part of the obligations of the Sponsor or
the Company under this Agreement agree to be bound by this Agreement and
(i) to the extent permitted by law, waive and renounce any and all
redemption and exemption rights and the benefit of all valuation and
appraisement privileges against the indebtedness, if any, and obligations
evidenced by any Transaction Document or by any extension or renewal
thereof; (ii) waive presentment and demand for payment, notices of
nonpayment and of dishonor, protest of dishonor and notice of protest;
(iii) waive all notices in connection with the delivery and acceptance
hereof and all other notices in connection with the performance, default
or enforcement of any payment hereunder except as required by the
Transaction Documents; (iv) waive all rights of abatement, diminution,
postponement or deduction, or to any defense other than payment, or to any
right of setoff or recoupment arising out of any breach under any of the
Transaction Documents, by any party thereto or any beneficiary thereof, or
out of any obligation at any time owing to the Sponsor or the Company; (v)
agree that any consent, waiver or forbearance hereunder with respect to an
event shall operate only for such event and not for any subsequent event;
(vi) consent to any and all extensions of time that may be granted by FGIC
with respect to any payment hereunder or other provisions hereof and to
the release of any security at any time given for any payment hereunder,
or any part thereof, with or without substitution, and to the release of
any Person or entity liable for any such payment; and (vii) consent to the
addition of any and all other makers, endorsers, guarantors and other
obligors for any payment hereunder, and to the acceptance of any and all
other security for any payment hereunder, and agree that the addition of
any such obligors or security shall not affect the liability of the
parties hereto for any payment hereunder.
21
<PAGE>
(c) Nothing herein shall be construed as prohibiting the Sponsor or
the Company from pursuing any rights or remedies it may have against any
Person other than FGIC in a separate legal proceeding.
Section 4.03. Assignments; Reinsurance; Third-Party Rights.
(a) This Agreement shall be a continuing obligation of the parties
hereto and shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Neither the
Sponsor nor the Company may assign its rights under this Agreement, or
delegate any of its duties hereunder, without the prior written consent of
FGIC. Any assignment made in violation of this Agreement shall be null and
void.
(b) FGIC shall have the right to give participations in its rights
under this Agreement and to enter into contracts of reinsurance with
respect to the Policy upon such terms and conditions as FGIC may in its
discretion determine; provided, however, that no such participation or
reinsurance agreement or arrangement shall relieve FGIC of any of its
obligations hereunder or under the Policy.
(c) In addition, FGIC shall be entitled to assign or pledge to any
bank or other lender providing liquidity or credit with respect to the
Transaction or the obligations of FGIC in connection therewith any rights
of FGIC under the Transaction Documents or with respect to any real or
personal property or other interests pledged to FGIC, or in which FGIC has
a security interest, in connection with the Transaction.
(d) Except as provided herein with respect to participants and
reinsurers, nothing in this Agreement shall confer any right, remedy or
claim, express or implied, upon any Person, including, particularly, any
Certificateholder, other than FGIC, against the Sponsor or the Company,
and all the terms, covenants, conditions, promises and agreements
contained herein shall be for the sole and exclusive benefit of the
parties hereto and their successors and permitted assigns. Neither the
Trustee nor any Certificateholder shall have any right to payment from any
premiums paid or payable hereunder or from any other amounts paid by the
Sponsor or the Company pursuant to Section 3.02, 3.03 or 3.04 hereof.
Section 4.04. Liability of FGIC. Neither FGIC nor any of its officers,
directors or employees shall be liable or responsible for: (a) the use which may
be made of the Policy by the Trustee or for any acts or omissions of the Trustee
in connection therewith or (b) the validity, sufficiency, accuracy or
genuineness of documents delivered to FGIC (or its Fiscal Agent) in connection
with any claim under the Policy, or of any signatures thereon, even if such
documents or signatures should in fact prove to be in any or all respects
invalid, insufficient, fraudulent or forged (unless FGIC had actual knowledge
22
<PAGE>
thereof). In furtherance and not in limitation of the foregoing, FGIC (or its
Fiscal Agent) may accept documents that appear on their face to be in order,
without responsibility for further investigation.
Section 4.05. Waiver of FGIC Rights. With respect to its rights under any
of the Transaction Documents, FGIC shall give notice to each of the Rating
Agencies of any intent by FGIC to waive: (i) any Servicer Event of Default, (ii)
any rights to require a repurchase of Mortgage Loans, (iii) its right to give
consent. In the event of any such waiver by FGIC, each Rating Agency shall have
confirmed in writing that no additional capital requirement is necessary as a
result of such waiver.
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
Section 5.01. Events of Default. The occurrence of any of the following
events shall constitute an Event of Default hereunder with respect to the
Sponsor or the Company, severally and not jointly:
(a) any representation or warranty made by the Sponsor or the
Company under any of the Transaction Documents, or in any certificate or
report furnished under any of the Transaction Documents, shall prove to be
untrue or incorrect in any material respect; provided, however, that if
the Sponsor or the Company effectively cures any such defect in any
representation or warranty under any Transaction Document, or certificate
or report furnished under any Transaction Document, within the time period
specified in the relevant Transaction Document as the cure period
therefor, such defect shall not in and of itself constitute an Event of
Default hereunder;
(b)(i) the Sponsor or the Company shall fail to pay when due any
amount payable by the Sponsor under any of the Transaction Documents
unless such amounts are paid in full within any applicable cure period
explicitly provided for under the relevant Transaction Document; (ii) the
Sponsor or the Company shall have asserted that any of the Transaction
Documents to which it is a party is not valid and binding on the parties
thereto; or (iii) any court, governmental authority or agency having
jurisdiction over any of the parties to any of the Transaction Documents
or any property thereof shall find or rule that any material provision of
any of the Transaction Documents is not valid and binding on the parties
thereto;
(c) the Sponsor or the Company shall fail to perform or observe any
other covenant or agreement contained in any of the Transaction Documents
(except for the obligations described under clause (b) above) and such
failure shall
23
<PAGE>
continue for a period of 30 days after written notice given to it;
provided, however, that, if such failure shall be of a nature that it
cannot be cured within 30 days, such failure shall not constitute an Event
of Default hereunder if within such 30-day period the Sponsor or the
Company, as the case may be, shall have given notice to FGIC of corrective
action it proposes to take, which corrective action is agreed in writing
by FGIC to be satisfactory and the Sponsor or the Company shall thereafter
pursue such corrective action diligently until such default is cured;
(d) the Sponsor or the Company shall fail to pay its debts generally
as they come due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of
creditors, or shall institute any proceeding seeking to adjudicate the
Sponsor or the Company insolvent or seeking a liquidation, or shall take
advantage of any insolvency act, or shall commence a case or other
proceeding naming the Sponsor or the Company as debtor under the United
States Bankruptcy Code or similar law, domestic or foreign, or a case or
other proceeding shall be commenced against the Sponsor or the Company
under the United States Bankruptcy Code or similar law, domestic or
foreign, or any proceeding shall be instituted against the Sponsor or the
Company seeking liquidation of the Sponsor's or the Company's assets and
the Sponsor or the Company, as the case may be, shall fail to take
appropriate action resulting in the withdrawal or dismissal of such
proceeding within 60 days or there shall be appointed or the Sponsor or
the Company, as the case may be, shall consent to, or acquiesce in, the
appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of the Sponsor or the Company or the whole or any
substantial part of its properties or assets or the Sponsor shall take any
corporate action in furtherance of any of the foregoing;
(e) the occurrence of an "event of default" under any of the
Transaction Documents; and
(f) with respect to the Company, a breach of the covenant set forth
in Section 2.04(h) hereof, that is not cured within 15 days after the
Company becomes aware of such breach.
Section 5.02. Remedies; Waivers.
(a) Upon the occurrence of an Event of Default, FGIC may exercise
any one or more of the rights and remedies set forth below:
(i) exercise any rights and remedies available under the
Transaction Documents in its own capacity or in its capacity as the
Person entitled to exercise the rights of the Certificateholders in
respect of the Securities; or
24
<PAGE>
(ii) take whatever action at law or in equity may appear
necessary or desirable in its judgment to enforce performance of any
obligation of the Sponsor under the Transaction Documents.
(b) Unless otherwise expressly provided, no remedy herein conferred
upon or reserved is intended to be exclusive of any other available
remedy, but each remedy shall be cumulative and shall be in addition to
other remedies given under the Transaction Documents or existing at law or
in equity. No delay or failure to exercise any right or power accruing
under any Transaction Document upon the occurrence of any Event of Default
or otherwise shall impair any such right or power or shall be construed to
be a waiver thereof, but any such right and power may be exercised from
time to time and as often as may be deemed expedient. In order to entitle
FGIC to exercise any remedy reserved to FGIC in this Article, it shall not
be necessary to give any notice, other than such notice as may be
expressly required in this Article.
(c) If any proceeding has been commenced to enforce any right or
remedy under this Agreement and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to FGIC, then
and in every such case the parties hereto shall, subject to any
determination in such proceeding, be restored to their respective former
positions hereunder, and, thereafter, all rights and remedies of FGIC
shall continue as though no such proceeding had been instituted.
(d) FGIC shall have the right, to be exercised in its complete
discretion, to waive any covenant, Default or Event of Default by a
writing setting forth the terms, conditions and extent of such waiver
signed by FGIC and delivered to the Sponsor. Any such waiver may only be
effected in writing duly executed by FGIC, and no other course of conduct
shall constitute a waiver of any provision hereof. Unless such writing
expressly provides to the contrary, any waiver so granted shall extend
only to the specific event or occurrence so waived and not to any other
similar event or occurrence.
ARTICLE VI
MISCELLANEOUS
Section 6.01. Amendments, Etc. This Agreement may be amended, modified or
terminated only by written instrument or written instruments signed by the
parties hereto. No act or course of dealing shall be deemed to constitute an
amendment, modification or termination hereof.
Section 6.02. Notices. All demands, notices and other communications to be
given hereunder shall be in writing (except as otherwise specifically provided
herein) and
25
<PAGE>
shall be mailed by registered mail or personally delivered or telecopied to the
recipient as follows:
(a) To FGIC: Financial Guaranty Insurance Company
115 Broadway
New York, NY 10006
Attention: Research and Risk
Management Department
Re: EquiVantage Acceptance Corp.
Home Equity Loan Trust 1996-4
Confirmation: (212) 312-3000
Fax: (212) 312-3093
(b) To the Sponsor: EquiVantage Acceptance Corp.
13111 Northwest Freeway, Suite 301
Houston, Texas 77040
Attention: John E. Smith
Tel: (713) 895-1957
Fax: (713) 895-1999
(c) To the Company: EquiVantage Inc.
13111 Northwest Freeway, Suite 300
Houston, Texas 77040
Attention: Chief Financial Officer
Tel: (713) 895-1900
Fax: (713) 895-3870
(d) To the Trustee: Norwest Bank Minnesota,
National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department
Re: EquiVantage Home Equity Loan
Trust 1996-4
Tel: (612) 667-5786
Fax: (612) 667-9825
A party may specify an additional or different address or addresses by
writing mailed or delivered to the other party as aforesaid. All such notices
and other communications shall be effective upon receipt.
Section 6.03. Payment Procedure. In the event of any payment by FGIC for
which it is entitled to be reimbursed or indemnified as provided above, each of
the Sponsor and the Company agrees to accept the voucher or other evidence of
payment as
26
<PAGE>
prima facie evidence of the propriety thereof and the liability therefor to
FGIC. All payments to be made to FGIC under this Agreement shall be made to FGIC
in lawful currency of the United States of America in immediately available
funds to the account number provided in the Inducement Letter before 1:00 p.m.
(New York, New York time) on the date when due or as FGIC shall otherwise direct
by written notice to the Sponsor or the Company. In the event that the date of
any payment to FGIC or the expiration of any time period hereunder occurs on a
day which is not a Business Day, then such payment or expiration of time period
shall be made or occur on the next succeeding Business Day with the same force
and effect as if such payment was made or time period expired on the scheduled
date of payment or expiration date. Payments to be made to FGIC under this
Agreement shall bear interest at the Late Payment Rate from the date due to the
date paid.
Section 6.04. Severability. In the event that any provision of this
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, the parties hereto agree that such holding shall not invalidate or
render unenforceable any other provision hereof. The parties hereto further
agree that the holding by any court of competent jurisdiction that any remedy
pursued by any party hereto is unavailable or unenforceable shall not affect in
any way the ability of such party to pursue any other remedy available to it.
Section 6.05. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 6.06. Consent to Jurisdiction.
(a) THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION
OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
AND ANY COURT IN THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF
NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH ANY OF THE
TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY
SUCH ACTION OR PROCEEDING MAY BE HEARD OR DETERMINED IN SUCH NEW YORK
STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE
PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION, SUIT OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS
BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, THE
27
<PAGE>
PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT
THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT
THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THE
TRANSACTION DOCUMENTS OR THE SUBJECT MATTER THEREOF MAY NOT BE LITIGATED
IN OR BY SUCH COURTS.
(b) To the extent permitted by applicable law, the parties hereto
shall not seek and hereby waive the right to any review of the judgment of
any such court by any court of any other nation or jurisdiction which may
be called upon to grant an enforcement of such judgment.
(c) Each of the Sponsor and the Company hereby irrevocably appoints
and designates Prentice-Hall Corporation System, Inc., whose address is 15
Columbus Circle, New York, New York 10023, as its true and lawful attorney
and duly authorized agent for acceptance of service of legal process. Each
of the Sponsor and the Company agrees that service of such process upon
such Person shall constitute personal service of such process upon it.
(d) Nothing contained in this Agreement shall limit or affect FGIC's
right to serve process in any other manner permitted by law or to start
legal proceedings relating to any of the Transaction Documents against the
Sponsor or its property in the courts of any jurisdiction.
Section 6.07. Consent of FGIC. In the event that FGIC's consent is
required under any of the Transaction Documents, the determination whether to
grant or withhold such consent shall be made by FGIC in its sole discretion
without any implied duty towards any other Person, except as otherwise expressly
provided therein and herein.
Section 6.08. Counterparts. This Agreement may be executed in counterparts
by the parties hereto, and all such counterparts shall constitute one and the
same instrument.
Section 6.09. Trial by Jury Waived. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION
WITH ANY OF THE TRANSACTION DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREUNDER. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
28
<PAGE>
(B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION
DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THIS WAIVER.
Section 6.10 Limited Liability. No recourse under any Transaction Document
shall be had against, and no personal liability shall attach to, any officer,
employee, director, affiliate or shareholder of any party hereto, as such, by
the enforcement of any assessment or by any legal or equitable proceeding, by
virtue of any statute or otherwise in respect of any of the Transaction
Documents, the Securities or the Policy, it being expressly agreed and
understood that each Transaction Document is solely a corporate obligation of
each party hereto, and that any and all personal liability, either at common law
or in equity, or by statute or constitution, of every such officer, employee,
director, affiliate or shareholder for breaches by any party hereto of any
obligations under any Transaction Document is hereby expressly waived as a
condition of and in consideration for the execution and delivery of this
Agreement.
Section 6.11. Entire Agreement. This Agreement, the Inducement Letter, the
Inducement Letter and the Policy set forth the entire agreement between the
parties with respect to the subject matter thereof, and this Agreement
supersedes and replaces any agreement or understanding that may have existed
between the parties prior to the date hereof in respect of such subject matter.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement, all as of the day and year first above written.
FINANCIAL GUARANTY INSURANCE
COMPANY
By __________________________________
Name:
Title:
EQUIVANTAGE ACCEPTANCE CORP.
By __________________________________
Name: John E. Smith
Title: President
EQUIVANTAGE INC.
By __________________________________
Name: Karen S. Crawford
Title: Senior Vice President
[Insurance and Indemnity Agreement]
<PAGE>
APPENDIX I
DEFINITIONS
"Accumulated Funding Deficiency" shall have the meaning provided in
Section 412 of the Code and Section 302 of ERISA, whether or not waived.
"Base Subordinated Amount" means (i) with respect to the first six Payment
Dates immediately following the Startup Day, $500,000 and (ii) with respect to
each Payment Date thereafter, an amount equal to the product of (a) the Original
Aggregate Loan Balance, as defined in the Pooling and Servicing Agreement, and
(b) 2.70%.
"Business Day" means any day other than (a) a Saturday or Sunday or (b) a
day on which banking institutions in New York, New York, Houston, Texas, or
Minneapolis, Minnesota are authorized or obligated by law or executive order to
be closed.
"Certificateholders" means registered holders of the Securities.
"Class R Certificates" means the Home Equity Loan Asset-Backed
Certificates, Series 1996-4, Class R Certificates issued under the Pooling and
Servicing Agreement together with the Securities.
"Code" means the Internal Revenue Code of 1986, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Commission" means the Securities and Exchange Commission.
"Commonly Controlled Entity" means the Company and each entity, whether or
not incorporated, which is affiliated with the Sponsor pursuant to Section
414(b), (c), (m) or (o) of the Code.
"Company" or "Servicer" means EquiVantage Inc.
"Date of Issuance" means the date on which the Policy is issued as
specified therein.
"Default" means any event which results, or which with the giving of
notice or the lapse of time or both would result, in an Event of Default.
"ERISA" means the Employee Retirement Income Security Act of 1974,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Event of Default" means any event of default specified in Section 5.01 of
this Insurance Agreement.
I-1
<PAGE>
"Exchange Act" means the Exchange Act of 1934, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Expiration Date" means the final date of the Term of the Policy, as
specified in the Policy.
"FGIC" means Financial Guaranty Insurance Company, a New York stock
insurance company, its successors and assigns.
"Financial Statements" means with respect to the Company, the audited
balance sheets as of December 31, 1995 and the notes thereto.
"Fiscal Agent" means the Fiscal Agent, if any, designated pursuant to the
terms of the Policy.
"Indemnification Agreement" means the Indemnification Agreement dated as
of November 1, 1996 among FGIC, the Sponsor and the Representative, as the same
may be amended from time to time.
"Inducement Letter" means the letter dated November 22, 1996 from FGIC to
EquiVantage Inc. .
"Insurance Agreement" means this Insurance and Indemnity Agreement dated
as of November 1, 1996, by and among FGIC, the Sponsor and the Company, as the
same may be amended from time to time.
"Investment Company Act" means the Investment Company Act of 1940,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"IRS" means the Internal Revenue Service.
"Late Payment Rate" means the lesser of (a) the greater of (x) the then
applicable highest rate of interest on the Securities or (y) the prime rate as
published in the Wall Street Journal on the related due date of amounts owned to
FGIC under the Insurance Agreement (including such amounts owed pursuant to
Section 3.03(c) thereof) and (b) the maximum rate permissible under applicable
usury or similar laws limiting interest rates. The Late Payment Rate shall be
computed on the basis of the actual number of days elapsed over a year of 360
days.
"Lien" means, as applied to the property or assets (or the income or
profits therefrom) of any Person, in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or
otherwise: (a) any mortgage, lien, pledge, attachment, charge, lease,
conditional sale or other title retention agreement, or other security interest
or encumbrance of any kind or (b) any arrangement, express
I-2
<PAGE>
or implied, under which such property or assets are transferred, sequestered or
otherwise identified for the purpose of subjecting or making available the same
for the payment of debt or performance of any other obligation in priority to
the payment of the general, unsecured creditors of such Person.
"Master Loan Transfer Agreement" means the Master Loan Transfer Agreement
between the Sponsor and the Company dated as of November 1, 1996.
"Material Adverse Change" means, (a) in respect of any Person, a material
adverse change in (i) the business, financial condition, results of operations
or properties of such Person or any of its Subsidiaries or (ii) the ability of
such Person to perform its obligations under any of the Transaction Documents to
which it is a party and (b) in respect of any Mortgage Loan, a material adverse
change in (i) the value or marketability of such Mortgage Loan or (ii) the
probability that amounts now or hereafter due in respect of such Mortgage Loan
will be collected on a timely basis.
"Moody's" means Moody's Investors Service, Inc., a Delaware corporation,
and any successor thereto, and, if such corporation shall for any reason no
longer perform the functions of a securities rating agency, "Moody's" shall be
deemed to refer to any other nationally recognized rating agency designated by
FGIC.
"Mortgage Documents" means the Mortgage Notes, Mortgages, assignments of
Mortgages and other related documents required to be delivered to the Trustee
pursuant to Section 3.5 of the Pooling and Servicing Agreement.
"Mortgage Loan" has the meaning provided in the Pooling and Servicing
Agreement.
"Multiemployer Plan" means a multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity
makes contributions or has liability.
"Notice of Claim" means a Notice of Claim and Certificate in the form
attached to the Policy.
"Offering Document" means the Prospectus, dated May 7, 1996, of the
Sponsor, in respect of the Securities and any amendment or supplement thereto in
respect of the Securities and any other offering document in respect of the
Securities that makes reference to the Policy.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency, corporation or instrumentality of the United States to which the duties
and powers of the Pension Benefit Guaranty Corporation are transferred.
I-3
<PAGE>
"Person" means an individual, joint stock company, trust, unincorporated
association, joint venture, corporation, business or owner trust, partnership or
other organization or entity (whether governmental or private).
"Plan" means any pension plan (other than a Multiemployer Plan) covered by
Title IV of ERISA, which is maintained by a Commonly Controlled Entity or in
respect of which a Commonly Controlled Entity has liability.
"Policy" means the financial guaranty insurance policy, including any
endorsements thereto, issued by FGIC with respect to the Securities,
substantially in the form attached as Annex I to this Agreement.
"Pooling and Servicing Agreement" means the Pooling and Servicing
Agreement dated as of November 1, 1996 among the Sponsor, as sponsor, the
Company, as servicer, and the Trustee on behalf of FGIC and the
Certificateholders, pursuant to which the Securities are to be issued and the
Mortgage Loans are to be serviced and administered, as the same may be amended
from time to time.
"Premium" means the premium payable in accordance with Section 3.02 of the
Insurance Agreement.
"Premium Percentage" 0.16% per annum.
"Prospectus" means the form of prospectus, as supplemented, relating to
the Securities, as first filed with the Commission pursuant to Rule 424 under
the Securities Act.
"Provided Documents" means the Transaction Documents together with all
exhibits and schedules attached thereto, the portfolio data tape and the
Financial Statements furnished to FGIC by or on behalf of the Sponsor or the
Company with respect to itself or the Transaction.
"Registration Statement" means the registration statement on Form S-3 (No.
33-99364), including a form of prospectus, relating to the Securities, as
amended to the date hereof.
"Rating Agency" has the meaning set forth in the Pooling and Servicing
Agreement.
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder.
"Representative" means Prudential Securities Incorporated as
representative of itself and Salomon Brothers Inc collectively as Underwriters.
I-4
<PAGE>
"Restrictions on Transferability" means, as applied to the property or
assets (or the income or profits therefrom) of any Person, in each case whether
the same is consensual or nonconsensual or arises by contract, operation of law,
legal process or otherwise, any material condition to, or restriction on, the
ability of such Person or any transferee therefrom to sell, assign, transfer or
otherwise liquidate such property or assets in a commercially reasonable time
and manner or which would otherwise materially deprive such Person or any
transferee therefrom of the benefits of ownership of such property or assets.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and any successor thereto, and, if such corporation
shall for any reason no longer perform the functions of a securities rating
agency, "S&P" shall be deemed to refer to any other nationally recognized rating
agency designated by FGIC.
"Securities" means the $80,000,000 of Home Equity Loan Asset-Backed
Certificates, Series 1996-4, Class A, issued by the EquiVantage Home Equity Loan
Trust 1996-4 pursuant to the Pooling and Servicing Agreement.
"Securities Act" means the Securities Act of 1933, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Servicer Prior 12 Month Loss Test" means the event as set forth in
Section 8.20(x) of the Pooling and Servicing Agreement.
"Servicer Termination Delinquency Test" means the events as set forth in
Section 8.20(ix) of the Pooling and Servicing Agreement.
"Servicer Termination Event" means the Servicer Termination Delinquency
Test, the Servicer Termination Loss Test and the Servicer Prior 12 Month Loss
Test.
"Servicer Termination Loss Test" means the events as set forth in Section
8.20(xi) of the Pooling and Servicing Agreement.
"Specified Subordinated Amount" means:
(a) each of the first 36 Payment Dates following the Startup Day,
the greater of (i) the Base Subordinated Amount and (ii) the product of
(x) the excess, if any, of (1) the Rolling Three Month Delinquency Rate
for such Payment Date over (2) 5.40% and (y) the Aggregate Loan Balance as
of the close of business on the last day of the preceding Remittance
Period; and
(b) after the first 36 Payment Dates following the Startup Day, the
greatest of (i) the lesser of (x) the Base Subordinated Amount and (y) the
product of (a) 5.40% and (b) the Aggregate Loan Balance as of the close of
business on the last day of the preceding Remittance Period, (ii) the
product of (x) the excess,
I-5
<PAGE>
if any, of (1) the Rolling Three Month Delinquency Rate for such Payment
Date over (2) 2% and (y) the Aggregate Loan Balance as of the close of
business on the last day of the preceding Remittance Period and (iii) 1%
times the Original Aggregate Loan Balance;
provided, however, that the Specified Subordinated Amount will not be
reduced on any Payment Date pursuant to the operation of clause (b) (i)(y)
above if either (I) aggregate Cumulative Loss Amounts over the prior
twelve month period exceed 1% of the average Aggregate Loan Balance during
such period or (II) aggregate Cumulative Loss Amounts for all prior
Remittance Periods since the Startup Day exceed 4% of the Original
Aggregate Loan Balance.
"Sponsor" means EquiVantage Acceptance Corp.
"Startup Day" means November 22, 1996.
"Subsidiary" means, with respect to any Person, any corporation of which a
majority of the outstanding shares of capital stock having ordinary voting power
for the election of directors is at the time owned by such Person directly or
through one or more Subsidiaries.
"Term of the Agreement" shall be determined as provided in Section 4.01 of
the Insurance Agreement.
"Term of the Policy" has the meaning provided in the Policy.
"Transaction" means the transactions contemplated by the Transaction
Documents, including the transactions described in the Offering Document.
"Transaction Documents" means the Insurance Agreement, the Indemnification
Agreement, the Pooling and Servicing Agreement, the Underwriting Agreement, the
Inducement Letter, the Master Loan Transfer Agreement and the Conveyance
Agreement.
"Trigger Event" means the occurrence of any one of the following: (a) an
Event of Default under the Insurance Agreement has occurred and is continuing,
(b) any legal proceeding or binding arbitration is instituted with respect to
the Transaction or (c) any governmental or administrative investigation, action
or proceeding is instituted that would, if adversely decided, result in a
Material Adverse Change in respect of the Sponsor, the Company or of a material
portion of the Mortgage Loans.
"Trust" means the EquiVantage Home Equity Loan Trust 1996-4 created under
the Pooling and Servicing Agreement.
I-6
<PAGE>
"Trustee" means Norwest Bank Minnesota, National Association, as trustee
under the Pooling and Servicing Agreement, and any successor thereto as trustee
under the Pooling and Servicing Agreement.
"Trust Fund" has the meaning provided in the Pooling and Servicing
Agreement.
"Trust Indenture Act" means the Trust Indenture Act of 1939, including,
unless the context otherwise requires, the rules and regulations thereunder, as
amended from time to time.
"Underfunded Plan" means any Plan that has an Underfunding.
"Underfunding" means, with respect to any Plan, the excess, if any, of (a)
the present value of all benefits under the Plan (based on the assumptions used
to fund the Plan pursuant to Section 412 of the Code) as of the most recent
valuation date over (b) the fair market value of the assets of such Plan as of
such valuation date.
"Underwriters" means Prudential Securities Incorporated and Salomon
Brothers Inc.
"Underwriting Agreement" means the Underwriting Agreement between the
Sponsor, the Company and the Representative with respect to the offer and sale
of the Securities, as the same may be amended from time to time.
I-7
<PAGE>
APPENDIX II
OPINIONS OF COUNSEL
There shall be delivered to FGIC, Moody's and S&P opinions of counsel as
follows:
(i) opinions to the effect that the Securities have been duly issued, and
the Transaction Documents have been duly executed and delivered, and each
constitutes legal, valid and binding obligations, enforceable in accordance with
their respective terms;
(ii) opinions as to compliance with applicable securities laws, including,
but not limited to, opinions to the effect that:
(A) to the best of counsel's knowledge, no filing or registration
with or notice to or consent, approval, authorization or order of any
court or governmental authority or agency is required for the consummation
of the Transaction, except such as may be required and have been obtained
under the Securities Act and state securities or "blue sky" laws;
(B) the Registration Statement is effective under the Securities Act
and, to the best of counsel's knowledge and information, no stop order
suspending the effectiveness of the Registration Statement has been issued
under the Securities Act or proceedings therefor initiated or threatened
by the Commission;
(C) neither the Trust nor the Trust Fund is required to be
registered under the Investment Company Act; and
(D) the Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act;
(iii) an opinion to the effect that (A) the Trustee is the owner of the
Mortgage Loans, holding good and marketable title thereto; (B) the Mortgage
Loans would not be included as part of the estate of the Sponsor in the event of
any receivership or insolvency proceedings in respect thereof; and (C) the
transfer of the Mortgage Loans would be characterized by a court of competent
jurisdiction as a sale of such Mortgage Loans and not as a borrowing by the
Sponsor or a relationship of joint ownership, partnership, joint venture or
similar arrangement; and
(iv) an opinion to the effect that (A) the Trust Fund qualifies as a REMIC
for federal income tax purposes and for state and local tax purposes; and (B)
the Trust Fund will not be subject to income, franchise or tangible or
intangible personal property taxes in the State of Delaware.
II-1
<PAGE>
ANNEX I
TO
INSURANCE AND INDEMNITY AGREEMENT
FORM OF FINANCIAL GUARANTY INSURANCE POLICY
<PAGE>
APPENDIX A
TO INSURANCE AND INDEMNITY AGREEMENT
CONDITIONS PRECEDENT TO ISSUANCE OF THE POLICY
(a) Payment of Initial Premium and Expenses; Inducement Letter. FGIC shall
have been paid, by or on behalf of Sponsor, a nonrefundable Premium and shall
have been reimbursed, by or on behalf of the Sponsor, for other fees and
expenses identified in Section 3.02 of the Insurance Agreement as payable at
closing and FGIC shall have received a fully executed copy of the Inducement
Letter.
(b) Transaction Documents. FGIC shall have received a copy of each of the
Transaction Documents, in form and substance satisfactory to FGIC, duly
authorized, executed and delivered by each party thereto. Without limiting the
foregoing, the provisions of the Pooling and Servicing Agreement relating to the
payment to FGIC of Premium due on the Policy and the reimbursement to FGIC of
amounts paid under the Policy shall be in form and substance acceptable to FGIC
in its sole discretion.
(c) Certified Documents, Resolutions and Consents. FGIC shall have
received a copy of (i) the certificate of incorporation and bylaws of the
Sponsor, (ii) the resolutions of the Sponsor's Board of Directors authorizing
the issuance of the Securities and the execution, delivery and performance by
the Sponsor of the Transaction Documents and the transactions contemplated
thereby, certified by the Secretary or an Assistant Secretary of the Sponsor
(which certificate shall state that such certificate of incorporation, bylaws
and resolutions are in full force and effect without modification on the Date of
Issuance), (iii) the certificate of incorporation and bylaws of the Company,
(iv) written consents of the Company's shareholders authorizing the sale of the
Mortgage Loans to the Sponsor and the execution, delivery and performance by the
Company of the Transaction Documents and the transactions contemplated thereby,
certified by a Secretary or Assistant Secretary of the Company (which
certificate shall state that such certificate of incorporation, bylaws and
written consents are in full force and effect without modification on the Date
of Issuance).
(d) Incumbency Certificates. FGIC shall have received a certificate of the
Secretary or an Assistant Secretary of the Sponsor certifying the name and
signatures of the officers of the Sponsor authorized to execute and deliver the
Transaction Documents and that shareholder consent to the execution and delivery
of such documents is not necessary.
(e) Representations and Warranties; Certificate. The representations and
warranties of the Sponsor and the Company in the Insurance Agreement shall be
true and correct as of the Date of Issuance as if made on the Date of Issuance
and FGIC shall have received a certificate of appropriate officers of each of
the Sponsor and the Company to that effect.
III-1
<PAGE>
(f) Opinions of Counsel. FGIC shall have received opinions of counsel
addressed to FGIC, Moody's and S&P in respect of the Sponsor, the Company, the
other parties to the Transaction Documents and the Transaction in form and
substance satisfactory to FGIC, addressing such matters as FGIC may reasonably
request, including without limitation, the items set forth in Appendix II
hereto, and the counsel providing each such opinion shall have been instructed
by its client to deliver such opinion to the addressees thereof.
(g) Approvals, Etc. FGIC shall have received true and correct copies of
all approvals, licenses and consents, if any, including, without limitation, the
approval of the shareholders of the Sponsor and shareholders of the Company
required in connection with the Transaction.
(h) No Litigation, Etc. No suit, action or other proceeding,
investigation, or injunction or final judgment relating thereto, shall be
pending or threatened before any court or governmental agency in which it is
sought to restrain or prohibit or to obtain damages or other relief in
connection with any of the Transaction Documents or the consummation of the
Transaction.
(i) Legality. No statute, rule, regulation or order shall have been
enacted, entered or deemed applicable by any government or governmental or
administrative agency or court which would make the transactions contemplated by
any of the Transaction Documents illegal or otherwise prevent the consummation
thereof.
(j) Satisfaction of Conditions of Underwriting Agreement. All conditions
in the Underwriting Agreement relating to the Underwriters' obligation to
purchase the Securities shall have been satisfied.
(k) Issuance of Ratings. FGIC shall have received confirmation that the
risk secured by the Policy constitutes an investment grade risk by S&P and
Moody's and that the Securities, when issued, will be rated "AAA" by S&P and
"Aaa" by Moody's.
(l) Delivery of Mortgage Documents. FGIC shall have received evidence
satisfactory to it that: (i) delivery has been made to the Trustee or to a
Custodian of the Mortgage Documents required to be so delivered pursuant to
Section 3.5 of the Pooling and Servicing Agreement; and (ii) each Mortgage Note
is endorsed as provided in Section 3.5 of the Pooling and Servicing Agreement.
(m) No Default. No Default or Event of Default shall have occurred.
(n) Additional Items. FGIC shall have received such other documents,
instruments, approvals or opinions requested by FGIC as may be reasonably
necessary to effect the Transaction, including but not limited to evidence
satisfactory to FGIC that all conditions precedent, if any, in the Transaction
Documents have been satisfied.
III-2
<PAGE>
CERTIFICATE OF OFFICER
The undersigned, Elizabeth Folk, Senior Vice President and Chief Financial
Officer of EquiVantage Acceptance Corp., a Delaware corporation (the "Sponsor"),
hereby certifies as follows:
1. A review of the Sponsor's performance under the Transaction Documents
has been made under my supervision; and
2. To the best of my knowledge, following reasonable inquiry, no Trigger
Event or Event of Default has occurred; and
3. The attached financial reports submitted in accordance with Section
2.03(b)(i) or (ii) hereof, as applicable, are complete and correct in all
material respects and present fairly the financial condition and results of
operations of the Sponsor as of the dates and for the periods indicated, in
accordance with generally accepted accounting principles consistently applied
(subject as to interim statements to normal year-end adjustments).
Executed this ____ of _______________, ____.
___________________________________
Name:
Title:
EquiVantage Acceptance Corp.
III-3
<PAGE>
[SLIP SHEET -- EQUIVANTAGE ACCEPTANCE CORP. FINANCIAL REPORTS]
III-4
<PAGE>
CERTIFICATE OF OFFICER
The undersigned, Elizabeth Folk, Senior Vice President and Chief Financial
Officer of EquiVantage Inc., a Delaware corporation (the "Corporation"), hereby
certifies as follows:
1. A review of the Corporation's performance under the Transaction
Documents has been made under my supervision; and
2. To the best of my knowledge, following reasonable inquiry, no Trigger
Event or Event of Default has occurred; and
3. The attached financial reports submitted in accordance with Section
2.04(b)(i) or (ii) hereof, as applicable, are complete and correct in all
material respects and present fairly the financial condition and results of
operations of the Corporation as of the dates and for the periods indicated, in
accordance with generally accepted accounting principles consistently applied
(subject as to interim statements to normal year-end adjustments).
Executed this ____ of ________________, ____.
___________________________________
Name:
Title:
EquiVantage Acceptance Corp.
III-5
<PAGE>
[SLIP SHEET -- EQUIVANTAGE INC. FINANCIAL REPORTS]
III-6
