EXECUTIVE COPY
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EXHIBIT 4.3
TRUST AGREEMENT
between
HEADLANDS MORTGAGE SECURITIES INC.
Sponsor
and
WILMINGTON TRUST COMPANY
Owner Trustee
Dated as of March 13, 1998
TABLE OF CONTENTS
Page
ARTICLE I. Definitions....................................................................................1
SECTION 1.1. Defined Terms..........................................................................1
SECTION 1.2. Other Definitional Provisions..........................................................3
SECTION 1.3. Action by or Consent of Noteholders and Certificateholders.............................4
ARTICLE II. Organization..................................................................................4
SECTION 2.1. Name...................................................................................4
SECTION 2.2. Office.................................................................................4
SECTION 2.3. Purposes and Powers....................................................................4
SECTION 1.4. Appointment of Owner Trustee...........................................................5
SECTION 2.5. Initial Capital Contribution of Trust Estate...........................................5
SECTION 2.6. Declaration of Trust...................................................................5
SECTION 2.7. Liability..............................................................................6
SECTION 2.8. Title to Trust Property................................................................6
SECTION 2.9. Situs of Trust.........................................................................6
SECTION 2.10. Representations and Warranties of the Sponsor..........................................6
SECTION 2.11. Federal Income Tax Allocations.........................................................7
SECTION 2.12. Covenants of the Sponsor...............................................................8
SECTION 2.13. Covenants of the Certificateholders....................................................8
ARTICLE III. Certificates and Transfer of Interests.......................................................9
SECTION 3.1. Initial Ownership......................................................................9
SECTION 3.2. The Certificates.......................................................................9
SECTION 3.3. Authentication of Certificates........................................................10
SECTION 3.4. Registration of Transfer and Exchange of Certificates.................................10
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates.....................................10
SECTION 3.6. Persons Deemed Certificateholders.....................................................11
SECTION 3.7. Access to List of Certificateholders' Names and Addresses.............................11
SECTION 3.8. Maintenance of Office or Agency.......................................................11
SECTION 3.9. ERISA Restrictions....................................................................11
SECTION 3.10. Restrictions on Transfer of Certificates..............................................12
SECTION 3.11. Acceptance of Obligations.............................................................13
SECTION 3.12. Distributions on Certificates.........................................................13
ARTICLE IV. Voting Rights and Other Actions..............................................................13
SECTION 4.1. Prior Notice to Holders with Respect to Certain Matters...............................13
SECTION 4.2. Action by Certificateholders with Respect to Certain Matters..........................14
SECTION 4.3. Action by Certificateholders with Respect to Bankruptcy...............................14
SECTION 4.4. Restrictions on Certificateholders' Power.............................................14
SECTION 4.5. Majority Control......................................................................15
SECTION 4.6. Rights of Credit Enhancer.............................................................15
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ARTICLE V. Certain Duties................................................................................15
SECTION 5.1. Accounting and Records to the Noteholders, Certificateholders, the
Internal Revenue Service and Others...................................................15
SECTION 5.2. Signature on Returns; Tax Matters Partner.............................................16
SECTION 5.3. Underwriting Agreement................................................................16
ARTICLE VI. Authority and Duties of Owner Trustee........................................................16
SECTION 6.1. General Authority.....................................................................16
SECTION 6.2. General Duties........................................................................17
SECTION 6.3. Action upon Instruction...............................................................17
SECTION 6.4. No Duties Except as Specified in this Agreement or in Instructions....................18
SECTION 6.5. No Action Except under Specified Documents or Instructions............................18
SECTION 6.6. Restrictions..........................................................................18
ARTICLE VII. Concerning the Owner Trustee................................................................18
SECTION 7.1. Acceptance of Trust and Duties........................................................18
SECTION 7.2. Furnishing of Documents...............................................................19
SECTION 7.3. Representations and Warranties........................................................20
SECTION 7.4. Reliance; Advice of Counsel...........................................................20
SECTION 7.5. Not Acting in Individual Capacity.....................................................20
SECTION 7.6. Owner Trustee Not Liable for Certificates or Mortgage Loans...........................20
SECTION 7.7. Owner Trustee May Own Certificates and Notes..........................................21
SECTION 7.8. Payments from Owner Trust Estate......................................................21
SECTION 7.9. Doing Business in Other Jurisdictions.................................................21
ARTICLE VIII. Compensation of Owner Trustee..............................................................22
SECTION 8.1. Owner Trustee's Fees and Expenses.....................................................22
SECTION 8.2. Indemnification.......................................................................22
SECTION 8.3. Payments to the Owner Trustee.........................................................22
SECTION 8.4. Non-recourse Obligations..............................................................22
ARTICLE IX. Termination of Trust Agreement...............................................................23
SECTION 9.1. Termination of Trust Agreement........................................................23
ARTICLE X. Successor Owner Trustees and Additional Owner Trustees........................................24
SECTION 10.1. Eligibility Requirements for Owner Trustee............................................24
SECTION 10.2. Resignation or Removal of Owner Trustee...............................................24
SECTION 10.3. Successor Owner Trustee...............................................................25
SECTION 10.4. Merger or Consolidation of Owner Trustee..............................................25
SECTION 10.5. Appointment of Co-Owner Trustee or Separate Owner Trustee.............................26
ARTICLE XI. Miscellaneous................................................................................27
SECTION 11.1. Supplements and Amendments............................................................27
SECTION 11.2. No Legal Title to Owner Trust Estate in Certificateholders............................28
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SECTION 11.3. Limitations on Rights of Others.......................................................28
SECTION 11.4. Notices...............................................................................28
SECTION 11.5. Severability..........................................................................28
SECTION 11.6. Separate Counterparts.................................................................28
SECTION 11.7. Assignments; Credit Enhancer..........................................................29
SECTION 11.8. No Petition...........................................................................29
SECTION 11.9. No Recourse...........................................................................29
SECTION 11.10. Headings..............................................................................29
SECTION 11.11. GOVERNING LAW.........................................................................29
SECTION 11.12. Servicer..............................................................................30
EXHIBITS
Exhibit A Form of Certificate
Exhibit B Form of Certificate of Trust
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TRUST AGREEMENT dated as of March 13, 1998 between HEADLANDS
MORTGAGE SECURITIES INC., a Delaware corporation (the "Sponsor"), and WILMINGTON
TRUST COMPANY, a Delaware banking corporation as Owner Trustee.
ARTICLE I.
Definitions
SECTION 1.1. Defined Terms. For the purposes of this
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Agreement, the following terms shall have the meanings set forth below. All
other capitalized terms used herein but not defined shall have the meanings set
forth in the Sale and Servicing Agreement.
"Affiliate" shall mean with respect to any specified Person, a
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, or owns, directly or
indirectly, 50% or more of, the Person specified.
"Agreement" shall mean this Trust Agreement, as the same may
be amended and supplemented from time to time.
"Basic Documents" shall mean this Agreement, the Certificate
of Trust, the Sale and Servicing Agreement, the Insurance and Indemnity
Agreement, the Management Agreement, the Indenture and the other documents and
certificates delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in
Section 3.9.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of
the Delaware Code, 12 Del. Code (S) 3801 et seq. as the same may be amended from
time to time.
"Certificate" means a trust certificate evidencing the
beneficial ownership interest of a Certificateholder in the Trust, substantially
in the form of Exhibit A attached hereto.
"Certificate of Trust" shall mean the Certificate of Trust in
the form of Exhibit B to be filed for the Trust pursuant to Section 3810(a) of
the Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean
the register maintained and the registrar respectively appointed pursuant to
Section 3.4.
"Collection Account" shall mean the account designated as such
as established and maintained pursuant to the Sale and Servicing Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and Treasury Regulations promulgated thereunder.
"Company" shall mean Headlands Mortgage Company.
"Corporate Trust Office" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee located at
▇▇▇▇▇▇ Square North, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇,
Attention: Corporate Trust Administration, or at such other address as the Owner
Trustee may designate by notice to the Certificateholders and the Sponsor, or
the principal
corporate trust office of any successor Owner Trustee (the address of which the
successor owner trustee will notify the Certificateholders and the Sponsor).
"Credit Enhancer" shall mean Ambac Assurance Corporation, or
its successor-in-interest.
"Definitive Certificates" shall mean Certificates issued in
certificated, fully registered form.
"ERISA" shall have the meaning assigned to such term in
Section 3.9.
"Expenses" shall have the meaning assigned to such term in
Section 8.2.
"Holder" or "Certificateholder" shall mean the Person in whose
name a Certificate is registered on the Certificate Register.
"Indemnification Agreement" shall mean the Indemnification
Agreement dated as of March 25, 1998 among the Credit Enhancer, the Company, the
Sponsor and Greenwich Capital Markets Inc.
"Indemnified Parties" shall have the meaning assigned to such
term in Section 8.2.
"Indenture" shall mean the Indenture dated as of March 1,
1998, among the Issuer and The First National Bank of Chicago, as Indenture
Trustee, as the same may be amended and supplemented from time to time.
"Indenture Trustee" shall mean, initially The First National
Bank of Chicago, in its capacity as indenture trustee, including its successors
in interest, until and unless a successor Person shall have become the Indenture
Trustee pursuant to the Sale and Servicing Agreement and thereafter "Indenture
Trustee" shall mean such successor Person.
"Instructing Party" shall have the meaning assigned to such
term in Section 6.3.
"Insurance and Indemnity Agreement" shall mean the Insurance
and Indemnity Agreement dated as of March 25, 1998 among the Credit Enhancer,
the Trust, the Sponsor, the Servicer, the Issuer, the Indenture Trustee and the
Company.
"Issuer" shall mean Headlands Home Equity Loan Trust 1998-1.
"Management Agreement" shall mean the agreement by and between
Headlands Mortgage Company and Headlands Home Equity Loan Trust 1998-1,
substantially in the form annexed as Exhibit E hereto, as such agreement may be
amended or supplemented.
"Manager" means the Person acting in such capacity pursuant to
the Management Agreement or its successors or assigns, which shall initially be
Headlands Mortgage Company.
"Owner Trust Estate" shall mean all right, title and interest
of the Trust in and to the property and rights assigned to the Trust pursuant to
Article II of the Sale and Servicing Agreement, all funds on deposit from time
to time in the Trust Accounts and the Collection Account and all other property
of the Trust from time to time, including any rights of the Owner Trustee and
the Trust pursuant to the Sale and Servicing Agreement.
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"Owner Trustee" shall mean Wilmington Trust Company, a
Delaware banking corporation, not in its individual capacity but solely as owner
trustee under this Agreement, and any successor Owner Trustee hereunder.
"Record Date" shall mean with respect to any Distribution
Date, the close of business on the last Business Day immediately preceding such
Distribution Date.
"Sale and Servicing Agreement" shall mean the Sale and
Servicing Agreement among the Trust, Headlands Mortgage Securities Inc., as
Sponsor, Headlands Mortgage Company, as Servicer and the Indenture Trustee,
dated as of March 13, 1998, as the same may be amended and supplemented from
time to time.
"Secretary of State" shall mean the Secretary of State of the
State of Delaware.
"Security Majority" means a majority by principal amount of
the Noteholders so long as the Notes are outstanding and a majority by principal
amount of the Certificateholders thereafter.
"Servicer" shall mean the Company, in its capacity as
Servicer.
"Sponsor" shall mean Headlands Mortgage Securities Inc. in its
capacity as Sponsor hereunder.
"Spread Account" shall mean the Spread Account established and
maintained pursuant to the Sale and Servicing Agreement.
"Treasury Regulations" shall mean regulations, including
proposed or temporary regulations, promulgated under the Code. References herein
to specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Accounts" shall have the meaning ascribed thereto in
the Sale and Servicing Agreement.
SECTION 1.2. Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined
have the meanings assigned to them in the Sale and Servicing Agreement or, if
not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under generally accepted accounting principles as in effect on the
date of this Agreement or any such certificate or other document, as applicable.
To the extent that the definitions of accounting terms in this Agreement or in
any such certificate or other document are inconsistent with the meanings of
such terms
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under generally accepted accounting principles, the definitions contained in
this Agreement or in any such certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms.
SECTION 1.3. Action by or Consent of Noteholders and
---------------------------------------
Certificateholders . Whenever any provision of this Agreement refers to action
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to be taken, or consented to, by Noteholders or Certificateholders, such
provision shall be deemed to refer to the Certificateholder or Noteholder, as
the case may be, of record as of the Record Date immediately preceding the date
on which such action is to be taken, or consent given, by Noteholders or
Certificateholders. Solely for the purposes of any action to be taken, or
consented to, by Noteholders or Certificateholders, any Note or Certificate
registered in the name of the Sponsor or any Affiliate thereof shall be deemed
not to be outstanding; provided, however, that, solely for the purpose of
determining whether the Indenture Trustee is entitled to rely upon any such
action or consent, only Notes or Certificates which the Owner Trustee, or the
Indenture Trustee, respectively, knows to be so owned shall be so disregarded.
ARTICLE II.
Organization
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SECTION 2.1. Name. There is hereby formed a trust to be known
----
as "Headlands Home Equity Loan Trust 1998-1", in which name the Owner Trustee
may conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and ▇▇▇ and be sued.
SECTION 2.2. Office. The office of the Trust shall be in care
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of the Owner Trustee at the Corporate Trust Office or at such other address as
the Owner Trustee may designate by written notice to the Certificateholders and
the Sponsor.
SECTION 2.3. Purposes and Powers.
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(a) The purpose of the Trust is, and the Trust shall have the
power and authority, to engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the
Certificates pursuant to this Agreement, and to sell the Notes;
(ii) with the proceeds of the sale of the Notes, to fund the
Spread Account, Funding Account and the Capitalized Interest
Account and to pay the organizational, start-up and
transactional expenses of the Trust and to pay the balance to
the Sponsor pursuant to the Sale and Servicing Agreement;
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(iii) to assign, grant, transfer, pledge, mortgage and convey
the Owner Trust Estate to the Indenture Trustee on behalf of the
Noteholders and for the benefit of the Credit Enhancer and to
hold, manage and distribute to the Certificateholders pursuant
to the terms of the Sale and Servicing Agreement any portion of
the Owner Trust Estate released from the Lien of, and remitted
to the Trust pursuant to, the Indenture;
(iv) to enter into and perform its obligations under the
Basic Documents to which it is a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected
therewith; and
(vi) subject to compliance with the Basic Documents, to
engage in such other activities as may be required in connection
with conservation of the Owner Trust Estate and the making of
distributions to the Certificateholders and the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the Basic
Documents.
SECTION 2.4. Appointment of Owner Trustee . The Sponsor hereby
----------------------------
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
SECTION 2.5. Initial Capital Contribution of Trust Estate . The
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Sponsor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Sponsor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Collection Account. On or prior to the Closing
Date, the Owner Trustee will also, upon receipt thereof, acknowledge on behalf
of the Trust receipt of the Mortgage Loans pursuant to the Mortgage Loan
Purchase Agreement. The Sponsor shall pay organizational expenses of the Trust
as they may arise or shall, upon the request of the Owner Trustee, promptly
reimburse the Owner Trustee for any such expenses paid by the Owner Trustee.
SECTION 2.6. Declaration of Trust . The Owner Trustee hereby
--------------------
declares that it will hold the Owner Trust Estate in trust upon and subject to
the conditions set forth herein for the use and benefit of the
Certificateholders, subject to the obligations of the Trust under the Basic
Documents. It is the intention of the parties hereto that the Trust constitute a
business trust under the Business Trust Statute and that this Agreement
constitute the governing instrument of such business trust. It is the intention
of the parties hereto that, solely for income tax purposes, the Trust shall be
treated as a branch; provided, however, that in the event Certificates are owned
by more than one Certificateholder, it is the intention of the parties hereto
that, solely for income and franchise tax purposes, the Trust shall then be
treated as a partnership and that, unless otherwise required by appropriate tax
authorities, only after such time the Trust will file or cause to be filed
annual or other necessary returns, reports and other forms consistent with the
characterization of the Trust as a partnership for such tax purposes. Effective
as of the date hereof, the Owner Trustee shall have all rights, powers and
duties set forth herein and to the extent not inconsistent herewith, in the
Business Trust Statute with respect to accomplishing the purposes of the Trust.
The Owner Trustee shall file the Certificate of Trust with the Secretary of
State.
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SECTION 2.7. Liability . No Holder shall have any personal
---------
liability for any liability or obligation of the Trust.
SECTION 2.8. Title to Trust Property.
-----------------------
(a) Legal title to all the Owner Trust Estate shall be vested at
all times in the Trust as a separate legal entity except where applicable law in
any jurisdiction requires title to any part of the Owner Trust Estate to be
vested in a trustee or trustees, in which case title shall be deemed to be
vested in the Owner Trustee, a co-trustee and/or a separate trustee, as the case
may be.
(b) The Holders shall not have legal title to any part of the
Trust Property. The Holders shall be entitled to receive distributions with
respect to their undivided ownership interest therein only in accordance with
Article IX. No transfer, by operation of law or otherwise, of any right, title
or interest by any Certificateholder of its ownership interest in the Owner
Trust Estate shall operate to terminate this Agreement or the trusts hereunder
or entitle any transferee to an accounting or to the transfer to it of legal
title to any part of the Trust Property.
SECTION 2.9. Situs of Trust . The Trust will be located and
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administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of New York. Payments will be received by the Trust only in Delaware or
New York and payments will be made by the Trust only from Delaware or New York.
The Trust shall not have any employees in any state other than Delaware;
provided, however, that nothing herein shall restrict or prohibit the Owner
Trustee, the Servicer or any agent of the Trust from having employees within or
without the State of Delaware. The only office of the Trust will be at the
Corporate Trust Office in Delaware.
SECTION 2.10. Representations and Warranties of the Sponsor .
---------------------------------------------
The Sponsor makes the following representations and warranties on which the
Owner Trustee relies in accepting the Owner Trust Estate in trust and issuing
the Certificates and upon which the Credit Enhancer relies in issuing the
Policy.
(a) The Sponsor is duly organized and validly existing as a
Delaware corporation with power and authority to own its properties and to
conduct its business as such properties are currently owned and such business is
presently conducted and is proposed to be conducted pursuant to this Agreement
and the Basic Documents;
(b) It is duly qualified to do business as a foreign corporation
in good standing, and has obtained all necessary licenses and approvals, in all
jurisdictions in which the ownership or lease of its property, the conduct of
its business and the performance of its obligations under this Agreement and the
Basic Documents requires such qualification;
(c) The Sponsor has the corporate power and authority to execute
and deliver this Agreement and to carry out its terms; the Sponsor has full
power and authority to sell and assign the property to be sold and assigned to
and deposited with the Trust and the Sponsor has duly authorized such sale and
assignment and deposit to the Trust by all necessary corporate action; and the
execution, delivery and performance of this Agreement has been duly authorized
by the Sponsor by all necessary corporate action;
(d) No consent, license, approval or authorization or
registration or declaration with, any Person or with any governmental authority,
bureau or agency is required in connection with the
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execution, delivery or performance of this Agreement and the Basic Documents,
except for such as have been obtained, effected or made;
(e) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with, result
in any breach of any of the terms and provisions of, or constitute (with or
without notice or lapse of time) a default under, the certificate of
incorporation or by-laws of the Sponsor, or any material indenture, agreement or
other instrument to which the Sponsor is a party or by which it is bound; nor
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument
(other than pursuant to the Basic Documents); nor violate any law or, to the
best of the Sponsor's knowledge, any order, rule or regulation applicable to the
Sponsor of any court or of any Federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over the
Sponsor or its properties; and
(f) There are no proceedings or investigations pending or, to
its knowledge threatened against it before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality having
jurisdiction over it or its properties (A) asserting the invalidity of this
Agreement or any of the Basic Documents, (B) seeking to prevent the issuance of
the Certificates or the Notes or the consummation of any of the transactions
contemplated by this Agreement or any of the Basic Documents, (C) seeking any
determination or ruling that might materially and adversely affect its
performance of its obligations under, or the validity or enforceability of, this
Agreement or any of the Basic Documents, or (D) seeking to adversely affect the
federal income tax or other federal, state or local tax attributes of the Notes
or the Certificates.
SECTION 2.11. Federal Income Tax Allocations . In the event that
------------------------------
the Trust is treated as a partnership for Federal income tax purposes, net
income of the Trust for any month as determined for Federal income tax purposes
(and each item of income, gain, loss, credit and deduction entering into the
computation thereof) shall be allocated:
(a) to the extent of available net income, among the
Certificateholders as of the first Record Date following the end of such month,
in proportion to their ownership of principal amount of Certificates on such
date; and
(b) to the Sponsor, to the extent of any remaining net income.
If the net income of the Trust for any month is insufficient for the allocations
described in clause (a) above, subsequent net income shall first be allocated to
make up such shortfall before being allocated as provided in clause (b). Net
losses of the Trust, if any, for any month as determined for Federal income tax
purposes (and each item of income, gain, loss, credit and deduction entering
into the computation thereof) shall be allocated among the Certificateholders as
of the Record Date in proportion to their ownership percentage of principal
amount of Certificates on such Record Date until the principal balance of the
Certificates is reduced to zero. The Sponsor is authorized to modify the
allocations in this paragraph if necessary or appropriate, in its sole
discretion, for the allocations to fairly reflect the economic income, gain or
loss to the Certificateholders, or as otherwise required by the Code.
SECTION 2.12. Covenants of the Sponsor . The Sponsor agrees and
------------------------
covenants for the benefit of each Certificateholder, the Credit Enhancer and the
Owner Trustee, during the term of this Agreement, and to the fullest extent
permitted by applicable law, that:
(a) it shall not create, incur or suffer to exist any
indebtedness or engage in any business, except, in each case, as permitted by
its certificate of incorporation and the Basic Documents;
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(b) it shall not, for any reason, institute proceedings for the
Trust to be adjudicated a bankrupt or insolvent, or consent to the institution
of bankruptcy or insolvency proceedings against the Trust, or file a petition
seeking or consenting to reorganization or relief under any applicable federal
or state law relating to the bankruptcy of the Trust, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Trust or a substantial part of the property of the
Trust or cause or permit the Trust to make any assignment for the benefit of
creditors, or admit in writing the inability of the Trust to pay its debts
generally as they become due, or declare or effect a moratorium on the debt of
the Trust or take any action in furtherance of any such action;
(c) it shall obtain from each counterparty to each Basic
Document to which it or the Trust is a party and each other agreement entered
into on or after the date hereof to which it or the Trust is a party, an
agreement by each such counterparty that prior to the occurrence of the event
specified in Section 9.1(e) such counterparty shall not institute against, or
join any other Person in instituting against, it or the Trust, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceedings under the laws of the United States or any state of the
United States; and
(d) it shall not, for any reason, withdraw or attempt to
withdraw from this Agreement, dissolve, institute proceedings for it to be
adjudicated a bankrupt or insolvent, or consent to the institution of bankruptcy
or insolvency proceedings against it, or file a petition seeking or consenting
to reorganization or relief under any applicable federal or state law relating
to bankruptcy, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of it or a
substantial part of its property, or make any assignment for the benefit of
creditors, or admit in writing its inability to pay its debts generally as they
become due, or declare or effect a moratorium on its debt or take any action in
furtherance of any such action.
SECTION 2.13. Covenants of the Certificateholders . Each
-----------------------------------
Certificateholder agrees:
(a) to be bound by the terms and conditions of the Certificates
and of this Agreement, including any supplements or amendments hereto and to
perform the obligations of a Certificateholder as set forth therein or herein,
in all respects as if it were a signatory hereto. This undertaking is made for
the benefit of the Trust, the Owner Trustee, the Credit Enhancer and all other
Certificateholders present and future;
(b) to hereby appoint the Sponsor as such Certificateholder's
agent and attorney-in-fact to sign any federal income tax information return
filed on behalf of the Trust, if any, and agree that, if requested by the Trust,
it will sign such federal income tax information return in its capacity as
holder of an interest in the Trust. Each Certificateholder also hereby agrees
that in its tax returns it will not take any position inconsistent with those
taken in any tax returns that may be filed by the Trust;
(c) if such Certificateholder is other than an individual or
other entity holding its Certificate through a broker who reports securities
sales on Form 1099-B, to notify the Owner Trustee of any transfer by it of a
Certificate in a taxable sale or exchange, within 30 days of the date of the
transfer; and
(d) until the completion of the events specified in Section
9.1(e), not to, for any reason, institute proceedings for the Trust or the
Sponsor to be adjudicated a bankrupt or insolvent, or consent to the institution
of bankruptcy or insolvency proceedings against the Trust, or file a petition
seeking or consenting to reorganization or relief under any applicable federal
or state law relating to bankruptcy, or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Sponsor or the Trust or a substantial part of its property, or
cause or permit
8
the Sponsor or the Trust to make any assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due, or declare or effect a moratorium on its debt or take any action in
furtherance of any such action.
Except as provided in Section 2.13, and notwithstanding any
other provision to the contrary in this Agreement, no Certificateholder other
than the Sponsor in its capacity as the "Sponsor" shall be deemed to have
adopted, be bound by, or succeed in any way to any representation by, or duty of
indemnification by or any other duty of, the Sponsor, including those contained
in Sections 2.10, 2.12, 3.6, 8.2 or elsewhere herein.
ARTICLE III.
Certificates and Transfer of Interests
--------------------------------------
SECTION 3.1. Initial Ownership . Upon the formation of the
-----------------
Trust by the contribution by the Sponsor pursuant to Section 2.5, the Owner
Trustee, contemporaneously therewith, having full power, authority, and
authorization to do so, has executed, authenticated, dated, issued, and
delivered, in the name and on behalf of the Trust, to the Sponsor, one (1) or
more Certificates representing in the aggregate a 100% interest in the Trust,
and has registered such Certificate(s) on the Certificate Register in the name
of the Sponsor. The Sponsor shall be the sole beneficiary of the Trust. Such
Certificate(s) are duly authorized, validly issued, and entitled to the benefits
of this Agreement. For so long as the Sponsor shall own such 100% interest in
the Trust, the Sponsor shall be the sole beneficial owner of the Trust. The
Sponsor shall at all times keep and own a Certificate or Certificates
representing no less than 1% interest, and at no time will the Sponsor sell or
alienate its interest represented by Certificate(s) in such a way as to reduce
its aggregate beneficial ownership in the Trust to less than 1%.
SECTION 3.2. The Certificates . The Certificates shall be
----------------
issued in denominations of $1,000 and integral multiples of $1000 in excess
thereof. The Certificates shall be executed on behalf of the Trust by manual or
facsimile signature of an authorized officer of the Owner Trustee. Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
when such signatures shall have been affixed, authorized to sign on behalf of
the Trust, shall be validly issued and entitled to the benefit of this
Agreement, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the authentication and delivery of such
Certificates or did not hold such offices at the date of authentication and
delivery of such Certificates. A transferee of a Certificate shall become a
Certificateholder, and shall be entitled to the rights and subject to the
obligations of a Certificateholder hereunder, upon due registration of such
Certificate in such transferee's name pursuant to Section 3.4.
SECTION 3.3. Authentication of Certificates . Concurrently
------------------------------
with the initial sale of the Mortgage Loans to the Trust pursuant to the Sale
and Servicing Agreement, the Owner Trustee shall cause the Certificates to be
executed on behalf of the Trust, authenticated and delivered to or upon the
written order of the Sponsor, signed by its chairman of the board, its president
or any vice president, its treasurer or any assistant treasurer without further
corporate action by the Sponsor, in authorized denominations. No Certificate
shall entitle its holder to any benefit under this Agreement, or shall be valid
for any purpose, unless there shall appear on such Certificate a certificate of
authentication substantially in the form set forth in Exhibit A, executed by the
Owner Trustee, by manual signature; such authentication shall constitute
conclusive evidence that such Certificate shall have been duly authenticated and
delivered hereunder. All Certificates shall be dated the date of their
authentication.
SECTION 3.4. Registration of Transfer and Exchange of
----------------------------------------
Certificates . The Certificate Registrar shall keep or cause to be kept, at the
------------
office or agency maintained pursuant to
9
Section 3.8, a Certificate Register in which, subject to such reasonable
regulations as it may prescribe, the Owner Trustee shall provide for the
registration of Certificates and of transfers and exchanges of Certificates as
herein provided. The Owner Trustee shall be the initial Certificate Registrar.
In furtherance of and not in limitation of the foregoing, each
Certificateholder, by acceptance of its Certificate, specifically acknowledges
that it has no right to or interest in any monies at any time held in the
Capitalized Interest Account, the Spread Account or the Funding Account or prior
to the release of such monies pursuant to Section 8.3(a)(xiv) of the Indenture,
such monies being held in trust for the benefit of the Noteholders and the
Credit Enhancer. Notwithstanding the foregoing, in the event that it is ever
determined that the monies held in the Capitalized Interest Account, the Spread
Account or the Funding Account constitute a pledge of collateral, then the
provisions of the Sale and Servicing Agreement shall be considered to constitute
a security agreement and the Sponsor and the Certificateholders hereby grant to
the Indenture Trustee and the Credit Enhancer a first priority perfected
security interest in such amounts. In addition, each Certificateholder, by
acceptance of its Certificate, hereby appoints the Sponsor as its agent to
pledge a first priority perfected security interest in the Capitalized Interest
Account, the Spread Account and the Funding Account, and any amounts held
therein from time to time to the Indenture Trustee and the Credit Enhancer and
agrees to execute and deliver such instruments of conveyance, assignment, grant,
confirmation, etc., as well as any financing statements, in each case as the
Credit Enhancer shall consider reasonably necessary in order to perfect the
Indenture Trustee's security interest in the Mortgage Loans.
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates.
-------------------------------------------------
If (a) any mutilated Certificate shall be surrendered to the Certificate
Registrar, or if the Certificate Registrar shall receive evidence to its
satisfaction of the destruction, loss or theft of any Certificate and (b) there
shall be delivered to the Certificate Registrar, the Owner Trustee and the
Credit Enhancer such security or indemnity as may be required by them to save
each of them harmless, then in the absence of notice that such Certificate shall
have been acquired by a bona fide purchaser, the Owner Trustee on behalf of the
Trust shall execute and the Owner Trustee shall 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 denomination. In
connection with the issuance of any new Certificate under this Section, the
Owner Trustee or the Certificate Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Certificate issued pursuant to this Section
shall constitute conclusive evidence of an ownership interest in the Trust, as
if originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
SECTION 3.6. Persons Deemed Certificateholders . Every Person
---------------------------------
by virtue of becoming a Certificateholder in accordance with this Agreement and
the rules and regulations of the Certificate Registrar shall be deemed to be
bound by the terms of this Agreement. Prior to due presentation of a Certificate
for registration of transfer, the Owner Trustee, the Certificate Registrar and
the Credit Enhancer and any agent of the Owner Trustee, the Certificate
Registrar and the Credit Enhancer, may treat the Person in whose name any
Certificate shall be registered in the Certificate Register as the owner of such
Certificate for the purpose of receiving distributions pursuant to the Sale and
Servicing Agreement and the Indenture and for all other purposes whatsoever, and
none of the Owner Trustee, the Certificate Registrar or the Credit Enhancer nor
any agent of the Owner Trustee, the Certificate Registrar or the Credit Enhancer
shall be bound by any notice to the contrary.
SECTION 3.7. Access to List of Certificateholders' Names and
-----------------------------------------------
Addresses . The Owner Trustee shall furnish or cause to be furnished to the
---------
Servicer, the Sponsor or the Credit Enhancer, within 15 days after receipt by
the Owner Trustee of a request therefor from such Person in writing, a list, of
the names and addresses of the Certificateholders as of the most recent Record
Date. If three or more Holders of Certificates or one or more Holders of
Certificates evidencing not less than 25% by Percentage
10
Interest apply in writing to the Owner Trustee, and such application states that
the applicants desire to communicate with other Certificateholders with respect
to their rights under this Agreement or under the Certificates and such
application is accompanied by a copy of the communication that such applicants
propose to transmit, then the Owner Trustee shall, within five Business Days
after the receipt of such application, afford such applicants access during
normal business hours to the current list of Certificateholders. Each Holder, by
receiving and holding a Certificate, shall be deemed to have agreed not to hold
any of the Sponsor, the Servicer, the Owner Trustee or the Credit Enhancer or
any agent thereof accountable by reason of the disclosure of its name and
address, regardless of the source from which such information was derived.
SECTION 3.8. Maintenance of Office or Agency . The Owner
-------------------------------
Trustee shall maintain in Wilmington, Delaware an office or offices or agency or
agencies where Certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Owner Trustee in respect
of the Certificates and the Basic Documents may be served. The Owner Trustee
initially designates its Corporate Trust Office for such purposes. The Owner
Trustee shall give prompt written notice to the Sponsor, the Certificateholders
and the Credit Enhancer of any change in the location of the Certificate
Register or any such office or agency.
SECTION 3.9. ERISA Restrictions . The Certificates may not be
------------------
acquired by or for the account of (i) an employee benefit plan (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) that is subject to the provisions of Title I of ERISA, (ii) a plan
described in Section 4975(e)(1) of the Internal Revenue Code of 1986, as
amended, or (iii) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity (each, a "Benefit Plan"). By
accepting and holding its beneficial ownership interest in its Certificate, the
Holder thereof shall be deemed to have represented and warranted that it is not
a Benefit Plan.
SECTION 3.10. Restrictions on Transfer of Certificates.
----------------------------------------
(a) The Certificates shall be assigned, transferred,
exchanged, pledged, financed, hypothecated or otherwise conveyed (collectively,
for purposes of this Section 3.10 and any other Section referring to the
Certificates, "transferred" or a "transfer") only in accordance with this
Section 3.10.
(b) No transfer of a 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. Except for the initial issuance of the
Certificate to the Sponsor and the pledge thereof by the Sponsor in connection
with its Yield Maintenance Certificates, Series 1998-1, the Indenture Trustee
shall require (i) the transferee to execute an investment letter acceptable to
and in form and substance satisfactory to the Indenture Trustee and the Credit
Enhancer certifying to the Indenture Trustee and the Credit Enhancer the facts
surrounding such transfer, which investment letter shall not be an expense of
the Indenture Trustee or the Credit Enhancer or (ii) if the investment letter is
not delivered, a written Opinion of Counsel acceptable to and in form and
substance satisfactory to the Indenture Trustee, the Credit Enhancer and the
Sponsor that such transfer may be made pursuant to an exemption, describing the
applicable exemption and the basis therefor from said Act or is being made
pursuant to said Act, which Opinion of Counsel shall not be an expense of the
Indenture Trustee, the Credit Enhancer or the Sponsor. The Holder of a
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Sponsor and the Credit Enhancer 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.
(c) Except for the pledge by the Sponsor in connection with
its Yield Maintenance Certificates, Series 1998-1, the Certificates and any
interest therein shall not be transferred except upon satisfaction of the
following conditions precedent: (i) the Person that acquires a Certificate shall
(A) be
11
organized and existing under the laws of the United States of America or
any state thereof or the District of Columbia; (B) expressly assume, by an
agreement supplemental hereto, executed and delivered to the Indenture Trustee
and the Credit Enhancer, the performance of every covenant and obligation of the
Sponsor hereunder and (C) as part of its acquisition of a Certificate, acquire
all rights of the Sponsor or any transferee under this Section 3.10(c) to
amounts payable to such Sponsor or such transferee under Sections 8.3(a)(xii)
and 8.3(g) of the Indenture; (ii) the Holder of the Certificates shall deliver
to the Indenture Trustee and the Credit Enhancer an Officer's Certificate
stating that such transfer and such supplemental agreement comply with this
Section 3.10(c) and that all conditions precedent provided by this Section
3.10(c) have been complied with and an Opinion of Counsel stating that all
conditions precedent provided by this Section 3.10(c) have been complied with,
and the Indenture Trustee may conclusively rely on such Officer's Certificate,
shall have no duty to make inquiries with regard to the matters set forth
therein and shall incur no liability in so relying; (iii) the Holder of the
Certificates shall deliver to the Indenture Trustee and the Credit Enhancer a
letter from each Rating Agency confirming that its rating of the Notes, after
giving effect to such transfer, will not be reduced or withdrawn without regard
to the Policy; (iv) the transferee of the Certificates shall deliver to the
Indenture Trustee and the Credit Enhancer an Opinion of Counsel to the effect
that (a) such transfer will not adversely affect the treatment of the Notes
after such transfer as debt for federal and applicable state income tax
purposes, (b) such transfer will not result in the Trust being subject to tax at
the entity level for federal or applicable state tax purposes, (c) such transfer
will not have any material adverse impact on the federal or applicable state
income taxation of a Noteholder or any Certificateholder and (d) such transfer
will not result in the arrangement created by this Agreement or any "portion" of
the Trust, being treated as a taxable mortgage pool as defined in Section
7701(i) of the Code; (v) all filings and other actions necessary to continue the
perfection of the interest of the Trust in the Mortgage Loans and the other
property conveyed hereunder shall have been taken or made and (vi) the Credit
Enhancer shall have consented to such transfer. Notwithstanding the foregoing,
the requirement set forth in subclause (i)(A) of this Section 3.10(c) shall not
apply in the event the Indenture Trustee shall have received a letter from each
Rating Agency confirming that its rating of the Notes, after giving effect to a
proposed transfer to a Person that does not meet the requirement set forth in
subclause (i)(A), shall not be reduced or withdrawn without regard to the
Policy. Notwithstanding the foregoing, the requirements set forth in this
paragraph (c) shall not apply to the initial issuance of the Certificates to the
Sponsor.
i) Except for the initial issuance of the Certificate to the
Sponsor and the pledge thereof by the Sponsor in connection with its Yield
Maintenance Certificates, Series 1998-1, no transfer of a Certificate shall be
made unless the Indenture Trustee and the Credit Enhancer shall have received a
representation letter from the transferee of such Certificate, acceptable to and
in form and substance satisfactory to the Indenture Trustee and the Credit
Enhancer, to the effect that such transferee is not an employee benefit plan
subject to Section 406 of ERISA, nor a Person acting on behalf of or using the
assets of any such plan, which representation letter shall not be an expense of
the Indenture Trustee or the Credit Enhancer.
(d) No transfer or pledge of the Certificates shall result in
more than 98 other holders of Certificates.
SECTION 3.11. Acceptance of Obligations . The Sponsor, by its
-------------------------
acceptance of the Certificates, agrees to be bound by and to perform all the
duties of the Sponsor set forth in this Agreement.
SECTION 3.12. Distributions on Certificates . The Holders of
-----------------------------
the Certificates will be entitled to distributions on each Distribution Date, as
provided in the Sale and Servicing Agreement and the Indenture.
12
ARTICLE IV.
Voting Rights and Other Actions
-------------------------------
SECTION 4.1. Prior Notice to Holders with Respect to Certain
-----------------------------------------------
Matters . With respect to the following matters, the Owner Trustee shall not
-------
take action unless at least 30 days before the taking of such action, the Owner
Trustee shall have notified the Certificateholders in writing of the proposed
action and the Certificateholders shall not have notified the Owner Trustee in
writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be filed under the
Business Trust Statute or unless such amendment would not materially and
adversely affect the interests of the Holders);
(b) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Noteholder is required;
(c) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the Certificateholders;
or
(d) except pursuant to Section 9.01 of the Sale and Servicing
Agreement, the amendment, change or modification of the Sale and Servicing
Agreement, except to cure any ambiguity or defect or to amend or supplement any
provision in a manner that would not materially adversely affect the interests
of the Certificateholders.
The Owner Trustee shall notify the Certificateholders in writing of any
appointment of a successor Note Registrar, or Certificate Registrar within five
Business Days thereof.
SECTION 4.2. Action by Certificateholders with Respect to
Certain Matters.
(a) The Owner Trustee shall not have the power, except upon
the direction of the Credit Enhancer, to (i) remove the Servicer under the Sale
and Servicing Agreement or (ii) except as expressly provided in the Basic
Documents, sell the Mortgage Loans after the termination of the Indenture. The
Owner Trustee shall take the actions referred to in the preceding sentence only
upon written instructions signed by the Credit Enhancer or the Securityholders,
and the furnishing of indemnification satisfactory to the Owner Trustee by the
Certificateholders.
(b) Upon the written request of any Certificateholder (a
"Proposer"), the Owner Trustee shall distribute promptly to all
Certificateholders any request for action or consent of Certificateholders
submitted by such Proposer, with a copy to the Manager. The Owner Trustee shall
provide a reasonable method for collecting responses to such request and shall
tabulate and report the results thereof to the Certificateholders and the
Manager. The Owner Trustee shall have no responsibility or duty to determine if
any such proposed action or consent is permitted under the terms of this
Agreement or applicable law.
SECTION 4.3. Action by Certificateholders with Respect to
--------------------------------------------
Bankruptcy . Until one year and one day following the day on which the Notes
----------
have been paid in full, the Owner Trustee shall not have the power to, and shall
not, commence any proceeding or other actions contemplated by Section 2.12(b)
relating to the Trust without the prior written consent of the Credit Enhancer.
Until one year and
13
one day following the day on which the Notes have been paid in full, all amounts
due to the Credit Enhancer under the Insurance Agreement have been paid in full,
the Policy has terminated and the Indenture Trustee has surrendered the Policy
to the Credit Enhancer, the Owner Trustee shall not have the power to, and shall
not, commence any proceeding or other actions contemplated by Section 2.12(b)
relating to the Trust without the prior written consent of all of the
Certificateholders and the delivery to the Owner Trustee by each such
Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that the Trust is insolvent.
SECTION 4.4. Restrictions on Certificateholders' Power.
(a) The Certificateholders shall not direct the Owner Trustee
to take or refrain from taking any action if such action or inaction would be
contrary to any obligation of the Trust or the Owner Trustee under this
Agreement or any of the Basic Documents or would be contrary to Section 2.3 or
otherwise contrary to law nor shall the Owner Trustee be obligated to follow any
such direction, if given.
(b) No Certificateholder (other than the Sponsor as sole
Certificateholder) shall have any right by virtue or by availing itself of any
provisions of this Agreement to institute any suit, action, or proceeding in
equity or at law upon or under or with respect to this Agreement or any Basic
Document, unless the Certificateholders are the Instructing Party pursuant to
Section 6.3 and unless a Certificateholder previously shall have given to the
Owner Trustee a written notice of default and of the continuance thereof, as
provided in this Agreement, and also unless Certificateholders evidencing not
less than 25% by Percentage Interest shall have made written request upon the
Owner Trustee to institute such action, suit or proceeding in its own name as
Owner Trustee under this Agreement and shall have offered to the Owner Trustee
such reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Owner Trustee, for 30
days after its receipt of such notice, request, and offer of indemnity, shall
have neglected or refused to institute any such action, suit, or proceeding, and
during such 30-day period no request or waiver inconsistent with such written
request has been given to the Owner Trustee pursuant to and in compliance with
this Section or Section 6.3; it being understood and intended, and being
expressly covenanted by each Certificateholder with every other
Certificateholder and the Owner Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatever by virtue or by
availing itself or themselves of any provisions of this Agreement to affect,
disturb, or prejudice the rights of the Holders of any other of the
Certificates, or to obtain or seek to obtain priority over or preference to any
other such Holder, or to enforce any right under this Agreement, except in the
manner provided in this Agreement and for the equal, ratable, and common benefit
of all Certificateholders. For the protection and enforcement of the provisions
of this Section 4.4, each and every Certificateholder and the Owner Trustee
shall be entitled to such relief as can be given either at law or in equity.
SECTION 4.5. Majority Control . No Certificateholder shall
----------------
have any right to vote or in any manner otherwise control the operation and
management of the Trust except as expressly provided in this Agreement. Except
as expressly provided herein, any action that may be taken by the
Certificateholders under this Agreement may be taken by the Holders of
Certificates evidencing not less than a majority interest in the Trust. Except
as expressly provided herein, any written notice of the Certificateholders
delivered pursuant to this Agreement shall be effective if signed by
Certificateholders evidencing not less than a majority interest in the Trust at
the time of the delivery of such notice.
SECTION 4.6. Rights of Credit Enhancer . Notwithstanding
-------------------------
anything to the contrary in the Basic Documents, without the prior written
consent of the Credit Enhancer the Owner Trustee shall not (i) remove the
Servicer, (ii) initiate any claim, suit or proceeding by the Trust or compromise
any claim, suit or proceeding brought by or against the Trust, other than with
respect to the enforcement of any Mortgage Loan or any rights of the Trust
thereunder, (iii) authorize the merger or consolidation of the
14
Trust with or into any other business trust or other entity, (iv) amend the
Certificate of Trust or (v) amend this Agreement in accordance with Section 11.1
of this Agreement.
ARTICLE V.
Certain Duties
--------------
SECTION 5.1. Accounting and Records to the Noteholders,
------------------------------------------
Certificateholders, the Internal Revenue Service and Others . Subject to
-----------------------------------------------------------
Sections 8.01(b)(iii) and 8.01(c) of the Sale and Servicing Agreement, the
Sponsor shall (a) maintain (or cause to be maintained) the books of the Trust on
a calendar year basis on the accrual method of accounting, including, without
limitation, the allocations of net income under Section 2.11 hereof, (b) deliver
(or cause to be delivered) to each Certificateholder, as may be required by the
Code and applicable Treasury Regulations, such information as may be required
(including Schedule K-1, if applicable) to enable each Certificateholder to
prepare its Federal and state income tax returns, (c) file or cause to be filed,
if necessary, such tax returns relating to the Trust (including a partnership
information return, Form 1065), and direct the Owner Trustee or the Servicer, as
the case may be, to make such elections as may from time to time be required or
appropriate under any applicable state or Federal statute or rule or regulation
thereunder so as to maintain the Trust's characterization as a branch, or if
applicable, as a partnership, for Federal income tax purposes and (d) collect or
cause to be collected any withholding tax as described in and in accordance with
Section 8.01(b)(ii) of the Sale and Servicing Agreement with respect to income
or distributions to Certificateholders and the appropriate forms relating
thereto. The Owner Trustee or the Servicer, as the case may be, shall make all
elections pursuant to this Section as directed in writing by the Sponsor. The
Owner Trustee shall sign all tax information returns, if any, filed pursuant to
this Section 5.1 and any other returns as may be required by law, and in doing
so shall rely entirely upon, and shall have no liability for information
provided by, or calculations provided by, the Sponsor or the Servicer. The
Sponsor will direct the Owner Trustee and the Owner Trustee shall elect under
Section 1278 of the Code to include in income currently any market discount that
accrues with respect to the Mortgage Loans. The Sponsor shall not direct the
Owner Trustee and the Owner Trustee shall not make the election provided under
Section 754 of the Code.
SECTION 5.2. Signature on Returns; Tax Matters Partner.
-----------------------------------------
(a) Notwithstanding the provisions of Section 5.1 and in the
event that the Trust is characterized as a partnership, the Owner Trustee shall
sign on behalf of the Trust the tax returns of the Trust, unless applicable law
requires a Certificateholder to sign such documents, in which case such
documents shall be signed by the Sponsor.
(b) In the event that the Trust is characterized as a
partnership, the Sponsor shall be the "tax matters partner" of the Trust
pursuant to the Code.
SECTION 5.3. Underwriting Agreement . The Servicer is hereby
----------------------
authorized to execute and deliver the Underwriting Agreement with respect to the
Notes and the Yield Maintenance Purchase Agreement with respect to the
Certificates.
15
ARTICLE VI.
Authority and Duties of Owner Trustee
-------------------------------------
SECTION 6.1. General Authority . The Owner Trustee is
-----------------
authorized and directed to execute and deliver the Basic Documents to which the
Trust is named as a party and each certificate or other document attached as an
exhibit to or contemplated by the Basic Documents to which the Trust is named as
a party and any amendment thereto, in each case, in such form as the Sponsor
shall approve as evidenced conclusively by the Owner Trustee's execution
thereof, and on behalf of the Trust, to direct the Indenture Trustee to
authenticate and deliver Class A Notes in the aggregate principal amount of
$191,584,000 and Class S Notes in the aggregate notional amount of $191,584,000.
In addition to the foregoing, the Owner Trustee is authorized, but shall not be
obligated, to take all actions required of the Trust pursuant to the Basic
Documents. The Owner Trustee is further authorized from time to time to take
such action as the Instructing Party recommends with respect to the Basic
Documents so long as such activities are consistent with the terms of the Basic
Documents. The Owner Trustee may rely on the Manager to carry out any action
that the Owner Trustee is authorized or directed to perform hereunder, to the
extent permitted by the Management Agreement.
SECTION 6.2. General Duties . It shall be the duty of the
--------------
Owner Trustee to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and to administer the
Trust in the interest of the Holders, subject to the Basic Documents and in
accordance with the provisions of this Agreement. Notwithstanding the foregoing,
the Owner Trustee shall be deemed to have discharged its duties and
responsibilities hereunder and under the Basic Documents to the extent the
Servicer has agreed in the Sale and Servicing Agreement to perform any act or to
discharge any duty of the Trust or the Owner Trustee hereunder or under any
Basic Document, and the Owner Trustee shall not be liable for the default or
failure of the Servicer to carry out its obligations under the Sale and
Servicing Agreement or the failure of the Manager to carry out its obligations
under the Management Agreement.
SECTION 6.3. Action upon Instruction.
-----------------------
(a) Subject to Article IV, the Credit Enhancer (the
"Instructing Party") shall have the exclusive right to direct the actions of the
Owner Trustee in the management of the Trust, so long as such instructions are
not inconsistent with the express terms set forth herein or in any Basic
Document. The Instructing Party shall not instruct the Owner Trustee in a manner
inconsistent with this Agreement or the Basic Documents. In acting in accordance
with the direction of the Credit Enhancer pursuant to this Section or pursuant
to Article IV, the Owner Trustee shall not be deemed to (i) owe any fiduciary
obligation to the Credit Enhancer or (ii) have violated any fiduciary
responsibility to the Certificateholders.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have reasonably
determined, or shall have been advised by counsel, that such action is likely to
result in liability on the part of the Owner Trustee or is contrary to the terms
hereof or of any Basic Document or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or any Basic Document, the Owner Trustee shall promptly give notice
(in such form as shall be appropriate under the circumstances) to the
Instructing Party requesting instruction as to the course of action to be
adopted, and to the extent the Owner Trustee acts in good faith in accordance
with any written instruction of the Instructing Party received, the Owner
Trustee shall not be liable on account of such action to any Person. If the
Owner
16
Trustee shall not have received appropriate instruction within ten days of such
notice (or within such shorter period of time as reasonably may be specified in
such notice or may be necessary under the circumstances) it may, but shall be
under no duty to, notwithstanding any other provision of this Agreement, take or
refrain from taking such action, not inconsistent with this Agreement or the
Basic Documents, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such action or
inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Basic Document or any such
provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the Instructing
Party requesting instruction and, notwithstanding any other provision of this
Agreement, to the extent that the Owner Trustee acts or refrains from acting in
good faith in accordance with any such instruction received, the Owner Trustee
shall not be liable, on account of such action or inaction, to any Person. If
the Owner Trustee shall not have received appropriate instruction within 10 days
of such notice (or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Basic Documents, as it shall deem to be
in the best interests of the Certificateholders, and shall have no liability to
any Person for such action or inaction.
SECTION 6.4. No Duties Except as Specified in this Agreement
-----------------------------------------------
or in Instructions . The Owner Trustee shall not have any duty or obligation to
------------------
manage, make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any document or written instruction received by the
Owner Trustee pursuant to Section 6.3; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Commission filing for the Trust or to
record this Agreement or any Basic Document. The Owner Trustee nevertheless
agrees that it will, at its own cost and expense, promptly take all action as
may be necessary to discharge any Liens on any part of the Owner Trust Estate
that result from actions by, or claims against, the Owner Trustee (solely in its
individual capacity) and that are not related to the ownership or the
administration of the Owner Trust Estate.
SECTION 6.5. No Action Except under Specified Documents or
---------------------------------------------
Instructions . The Owner Trustee shall not manage, control, use, sell, dispose
------------
of or otherwise deal with any part of the Owner Trust Estate except (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Agreement, (ii) in accordance with the Basic Documents
and (iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 6.3.
SECTION 6.6. Restrictions . The Owner Trustee shall not take
------------
any action (a) that is inconsistent with the purposes of the Trust set forth in
Section 2.3 or (b) that, to the actual knowledge of the Owner Trustee, would
result in the Trust's becoming taxable as a corporation or a publicly traded
partnership for Federal income tax purposes. The Certificateholders shall not
direct the Owner Trustee to take action that would violate the provisions of
this Section.
17
ARTICLE VII.
Concerning the Owner Trustee
----------------------------
SECTION 7.1. Acceptance of Trust and Duties . The Owner
------------------------------
Trustee accepts the trust hereby created and agrees to perform its duties
hereunder with respect to such trust but only upon the terms of this Agreement.
The Owner Trustee also agrees to disburse all monies actually received by it
constituting part of the Owner Trust Estate upon the terms of the Basic
Documents and this Agreement. The Owner Trustee shall not be answerable or
accountable hereunder or under any Basic Document under any circumstances,
except (i) for its own willful misconduct, bad faith or gross negligence, (ii)
in the case of the inaccuracy of any representation or warranty contained in
Section 7.3 expressly made by the Owner Trustee in its individual capacity,
(iii) for liabilities arising from the failure of the Owner Trustee to perform
obligations expressly undertaken by it in the last sentence of Section 6.4
hereof, or (v) for taxes, fees or other charges on, based on or measured by, any
fees, commissions or compensation received by the Owner Trustee. In particular,
but not by way of limitation (and subject to the exceptions set forth in the
preceding sentence):
(a) the Owner Trustee shall not be liable for any error of
judgment, not constituting gross negligence, made by a Responsible Officer of
the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it if such action or omission is in
accordance with the instructions of the Instructing Party, the Sponsor, the
Servicer or any Certificateholder pursuant to the terms hereof;
(c) or risk funds or otherwise incur any financial liability
in the performance of any of its rights or powers hereunder or under any Basic
Document if the Owner Trustee shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured or provided to it;
(d) by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in
respect of the validity or sufficiency of this Agreement or for the due
execution hereof by the Sponsor or for the form, character, genuineness,
sufficiency, value or validity of any of the Owner Trust Estate or for or in
respect of the validity or sufficiency of the Basic Documents, other than the
certificate of authentication on the Certificates, and the Owner Trustee shall
in no event assume or incur any liability, duty or obligation to the Sponsor,
the Credit Enhancer, Indenture Trustee, any Certificateholder, other than as
expressly provided for herein and in the Basic Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Sponsor, the Credit Enhancer, the Indenture Trustee, or the
Servicer under any of the Basic Documents or otherwise and the Owner Trustee
shall have no obligation or liability to perform the obligations under this
Agreement or the Basic Documents that are required to be performed by the
Sponsor under this Agreement, by the Indenture Trustee under the Indenture or
the Servicer under the Sale and Servicing Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or otherwise or in
relation to this Agreement or any Basic Document, at the request, order or
18
direction of the Instructing Party or any of the Certificateholders, unless such
Instructing Party or Certificateholders have offered to the Owner Trustee
security or indemnity satisfactory to it against the costs, expenses and
liabilities that may be incurred by the Owner Trustee therein or thereby. The
right of the Owner Trustee to perform any discretionary act enumerated in this
Agreement or in any Basic Document shall not be construed as a duty, and the
Owner Trustee shall not be answerable for other than its gross negligence, bad
faith or willful misconduct in the performance of any such act.
SECTION 7.2. Furnishing of Documents . The Owner Trustee shall
-----------------------
furnish to the Certificateholders promptly upon receipt of a written request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Owner Trustee under the Basic Documents.
SECTION 7.3. Representations and Warranties . The Owner
------------------------------
Trustee hereby represents and warrants, in its individual capacity, to the
Sponsor and the Holders (which shall have relied on such representations and
warranties in issuing the Policy), that:
(a) It is a Delaware banking corporation, duly organized and
validly existing in good standing under the laws of the State of Delaware. It
has all requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement.
(b) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to execute
and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated hereby
nor compliance by it with any of the terms or provisions hereof will contravene
any federal or Delaware state law, governmental rule or regulation governing the
banking or trust powers of the Owner Trustee or any judgment or order binding on
it, or constitute any default under its charter documents or by-laws or any
indenture, mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
SECTION 7.4. Reliance; Advice of Counsel.
---------------------------
(a) The Owner Trustee shall incur no liability to anyone in
acting upon any signature, instrument, notice, resolution, request, consent,
order, certificate, report, opinion, bond or other document or paper believed by
it to be genuine and believed by it to be signed by the proper party or parties.
The Owner Trustee may accept a certified copy of a resolution of the board of
directors or other governing body of any corporate party as conclusive evidence
that such resolution has been duly adopted by such body and that the same is in
full force and effect. As to any fact or matter the method of the determination
of which is not specifically prescribed herein, the Owner Trustee may for all
purposes hereof rely on a certificate, signed by the president or any vice
president or by the treasurer, secretary or other authorized officers of the
relevant party, as to such fact or matter, and such certificate shall constitute
full protection to the Owner Trustee for any action taken or omitted to be taken
by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder
and in the performance of its duties and obligations under this Agreement or the
Basic Documents, the Owner Trustee (i) may act directly or through its agents or
attorneys pursuant to agreements entered into with any of them, and (ii) may
consult with counsel, accountants and other skilled persons to be selected with
reasonable care and employed by it. The Owner Trustee shall not be liable for
anything done, suffered or omitted in good
19
faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such persons and according to such opinion not
contrary to this Agreement or any Basic Document.
SECTION 7.5. Not Acting in Individual Capacity . Except as
---------------------------------
provided in this Article VII, in accepting the trusts hereby created Wilmington
Trust Company acts solely as Owner Trustee hereunder and not in its individual
capacity and all Persons having any claim against the Owner Trustee by reason of
the transactions contemplated by this Agreement or any Basic Document shall look
only to the Owner Trust Estate for payment or satisfaction thereof.
SECTION 7.6. Owner Trustee Not Liable for Certificates or
--------------------------------------------
Mortgage Loans . The recitals contained herein and in the Certificates (other
--------------
than the signature and countersignature of the Owner Trustee on the
Certificates) shall be taken as the statements of the Sponsor and the Owner
Trustee assumes no responsibility for the correctness thereof. The Owner Trustee
makes no representations as to the validity or sufficiency of this Agreement, of
any Basic Document or of the Certificates (other than the signature and
countersignature of the Owner Trustee on the Certificates) or the Notes, or of
any Mortgage Loan or related documents. The Owner Trustee shall at no time have
any responsibility or liability for or with respect to the legality, validity
and enforceability of any Mortgage Loan, or the perfection and priority of any
security interest created by any Mortgage Loan or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the Owner
Trust Estate or its ability to generate the payments to be distributed to
Certificateholders under this Agreement or the Noteholders under the Indenture,
including, without limitation: the existence, condition and ownership of any
Mortgage Loan; the existence and enforceability of any insurance thereon; the
existence and contents of any Mortgage Loan on any computer or other record
thereof; the validity of the assignment of any Mortgage Loan to the Trust or of
any intervening assignment; the completeness of any Mortgage Loan; the
performance or enforcement of any Mortgage Loan; the compliance by the Sponsor,
the Servicer or any other Person with any warranty or representation made under
any Basic Document or in any related document or the accuracy of any such
warranty or representation or any action of the Indenture Trustee or the
Servicer or any subservicer taken in the name of the Owner Trustee.
SECTION 7.7. Owner Trustee May Own Certificates and Notes .
--------------------------------------------
The Owner Trustee in its individual or any other capacity may become the owner
or pledgee of Certificates or Notes and may deal with the Sponsor, the Indenture
Trustee and the Servicer in banking transactions with the same rights as it
would have if it were not Owner Trustee.
SECTION 7.8. Payments from Owner Trust Estate . All payments
--------------------------------
to be made by the Owner Trustee under this Agreement or any of the Basic
Documents to which the Trust or the Owner Trustee is a party shall be made only
from the income and proceeds of the Owner Trust Estate and only to the extent
that the Owner Trust shall have received income or proceeds from the Owner Trust
Estate to make such payments in accordance with the terms hereof. Wilmington
Trust Company, or any successor thereto, in its individual capacity, shall not
be liable for any amounts payable under this Agreement or any of the Basic
Documents to which the Trust or the Owner Trustee is a party.
SECTION 7.9. Doing Business in Other Jurisdictions .
-------------------------------------
Notwithstanding anything contained to the contrary, neither Wilmington Trust
Company or any successor thereto, nor the Owner Trustee shall be required to
take any action in any jurisdiction other than in the State of Delaware if the
taking of such action will, even after the appointment of a co-trustee or
separate trustee in accordance with Section 10.5 hereof, (i) require the consent
or approval or authorization or order of or the giving of notice to, or the
registration with or the taking of any other action in respect of, any state or
other governmental authority or agency of any jurisdiction other than the State
of Delaware ; (ii) result in any fee, tax or other governmental charge under the
laws of the State of Delaware becoming payable by Wilmington Trust Company (or
any successor thereto); or (iii) subject Wilmington Trust Company (or any
successor thereto) to personal jurisdiction in any jurisdiction other than the
State of Delaware for causes of action arising from acts unrelated to the
consummation of the transactions by Wilmington Trust Company (or
20
any successor thereto) or the Owner Trustee, as the case may be, contemplated
hereby.
ARTICLE VIII.
Compensation of Owner Trustee
-----------------------------
SECTION 8.1. Owner Trustee's Fees and Expenses . The Owner
---------------------------------
Trustee shall receive as compensation for its services hereunder such fees as
have been separately agreed upon between the Company and the Owner Trustee, and
the Owner Trustee shall be entitled to be reimbursed by the Sponsor for its
other reasonable expenses hereunder, including the reasonable compensation,
expenses and disbursements of such agents, representatives, experts and counsel
as the Owner Trustee may employ in connection with the exercise and performance
of its rights and its duties hereunder and under the Basic Documents.
SECTION 8.2. Indemnification . The Sponsor shall be liable as
---------------
primary obligor for, and shall indemnify the Owner Trustee (in its individual
and trust capacities) and its officers, directors, successors, assigns, agents
and servants (collectively, the "Indemnified Parties") from and against, any and
all liabilities, obligations, losses, damages, taxes, claims, actions and suits,
and any and all reasonable costs, expenses and disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may (in its trust or individual capacities) at
any time be imposed on, incurred by, or asserted against the Owner Trustee or
any Indemnified Party in any way relating to or arising out of this Agreement,
the Basic Documents, the Owner Trust Estate, the administration of the Owner
Trust Estate or the action or inaction of the Owner Trustee hereunder, except
only that the Sponsor shall not be liable for or required to indemnify the Owner
Trustee from and against Expenses arising or resulting from any of the matters
described in the third sentence of Section 7.1. The indemnities contained in
this Section and the rights under Section 8.1 shall survive the resignation or
termination of the Owner Trustee or the termination of this Agreement. In any
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Owner Trustee's choice of legal counsel shall be
subject to the approval of the Sponsor which approval shall not be unreasonably
withheld.
SECTION 8.3. Payments to the Owner Trustee . Any amounts paid
-----------------------------
to the Owner Trustee pursuant to this Article VIII shall be deemed not to be a
part of the Owner Trust Estate immediately after such payment.
SECTION 8.4. Non-recourse Obligations . Notwithstanding
------------------------
anything in this Agreement or any Basic Document, the Owner Trustee agrees in
its individual capacity and in its capacity as Owner Trustee for the Trust that
all obligations of the Trust to the Owner Trustee individually or as Owner
Trustee for the Trust shall be recourse to the Owner Trust Estate only and
specifically shall not be recourse to the assets of any Certificateholder.
21
ARTICLE IX.
Termination of Trust Agreement
------------------------------
SECTION 9.1. Termination of Trust Agreement.
------------------------------
(a) This Agreement and the Trust shall terminate and be of no
further force or effect upon the later of (i) the maturity or other liquidation
of the last Mortgage Loan (including the purchase by the Sponsor at its option
of the corpus of the Trust as described in Section 7.01(b) of the Sale and
Servicing Agreement) and the subsequent distribution of amounts in respect of
such Mortgage Loans as provided in the Basic Documents or (ii) the payment to
Certificateholders of all amounts required to be paid to them pursuant to this
Agreement and the payment to the Credit Enhancer of all amounts payable or
reimbursable to it pursuant to the Sale and Servicing Agreement and the
Insurance Agreement; provided, however, that the rights to indemnification under
Section 8.2 and the rights under Section 8.1 shall survive the termination of
the Trust. The Servicer shall promptly notify the Owner Trustee and the Credit
Enhancer of any prospective termination pursuant to this Section 9.1. The
bankruptcy, liquidation, dissolution, death or incapacity of any
Certificateholder shall not (x) operate to terminate this Agreement or the
Trust, nor (y) entitle such Certificateholder's legal representatives or heirs
to claim an accounting or to take any action or proceeding in any court for a
partition or winding up of all or any part of the Trust or Owner Trust Estate
nor (z) otherwise affect the rights, obligations and liabilities of the parties
hereto.
(b) Except as provided in clause (a), neither the Sponsor nor
any other Certificateholder shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the
Distribution Date upon which the Certificateholders shall surrender their
Certificates to the Indenture Trustee for payment of the final distribution and
cancellation, shall be given by the Owner Trustee by letter to
Certificateholders mailed within five Business Days of receipt of notice of such
termination from the Servicer given pursuant to Section 7.01(c) of the Sale and
Servicing Agreement, stating (i) the Distribution Date upon or with respect to
which final payment of the Certificates shall be made upon presentation and
surrender of the Certificates at the office of the Indenture Trustee therein
designated, (ii) the amount of any such final payment and (iii) that the Record
Date otherwise applicable to such Distribution Date is not applicable, payments
being made only upon presentation and surrender of the Certificates at the
office of the Indenture Trustee therein specified. The Owner Trustee shall give
such notice to the Certificate Registrar (if other than the Owner Trustee) and
the Indenture Trustee at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Certificates, the Indenture Trustee shall
cause to be distributed to Certificateholders amounts distributable on such
Distribution Date pursuant to Section 8.3(a)(xiv) of the Indenture.
In the event that all of the Certificateholders shall not
surrender their Certificates for cancellation within six months after the date
specified in the above-mentioned written notice, the Owner Trustee shall give a
second written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within one year after the second notice all the Certificates shall
not have been surrendered for cancellation, the Owner Trustee may take
appropriate steps, or may appoint an agent to take appropriate steps, to contact
the remaining Certificateholders concerning surrender of their Certificates, and
the cost thereof shall be paid out of the funds and other assets that shall
remain subject to this Agreement. Any funds remaining in the Trust after
exhaustion of such remedies shall be distributed, subject to applicable escheat
laws, by the Owner Trustee to the Sponsor and Holders shall look solely to the
Sponsor for payment.
22
(d) Any funds remaining in the Trust after funds for final
distribution have been distributed or set aside for distribution shall be
distributed by the Owner Trustee to the Sponsor.
(e) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810 of the Business Trust Statute.
ARTICLE X.
Successor Owner Trustees and Additional Owner Trustees
------------------------------------------------------
SECTION 10.1. Eligibility Requirements for Owner Trustee . The
------------------------------------------
Owner Trustee shall at all times be a corporation (i) satisfying the provisions
of Section 3807(a) of the Business Trust Statute; (ii) authorized to exercise
corporate trust powers; (iii) having a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by Federal or State
authorities; (iv) having (or having a parent which has) a rating of at least
Baa3 by ▇▇▇▇▇'▇ or A-1 by Standard & Poors; and (v) acceptable to the Credit
Enhancer in its sole discretion. If such corporation shall publish reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purpose of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. In case at any time the Owner Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Owner Trustee
shall resign immediately in the manner and with the effect specified in Section
10.2.
SECTION 10.2. Resignation or Removal of Owner Trustee . The
---------------------------------------
Owner Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice thereof to the Sponsor (or in the event that
the Sponsor is not the sole Certificateholder, the Holders of Certificates
evidencing not less than a majority in interest in the Trust), the Credit
Enhancer and the Servicer. Upon receiving such notice of resignation, the
Sponsor shall promptly appoint a successor Owner Trustee, meeting the
qualifications set forth in Section 10.1 herein, by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Owner Trustee and one copy to the successor Owner Trustee, provided that the
Sponsor shall have received written confirmation from each of the Rating
Agencies that the proposed appointment will not result in an increased capital
charge to the Credit Enhancer by either of the Rating Agencies. If no successor
Owner Trustee shall have been so appointed and have accepted appointment within
30 days after the giving of such notice of resignation, the resigning Owner
Trustee or the Credit Enhancer may petition any court of competent jurisdiction
for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Sponsor, or if at any time the Owner Trustee
shall be legally unable to act, or shall be adjudged bankrupt or insolvent, or a
receiver of the Owner Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Certificateholder with the consent of the Credit Enhancer
may remove the Owner Trustee. If the Certificateholder shall remove the Owner
Trustee under the authority of the immediately preceding sentence, the Sponsor
shall promptly appoint a successor Owner Trustee, meeting the qualifications set
forth in Section 10.1 herein, by written instrument, in duplicate, one copy of
which instrument shall be delivered to the outgoing Owner Trustee so removed,
one copy to the Credit Enhancer and one copy to the successor Owner Trustee and
the Sponsor shall pay all fees owed to the outgoing Owner Trustee, if not
previously paid by the Trust.
23
Any resignation or removal of the Owner Trustee and
appointment of a successor Owner Trustee pursuant to any of the provisions of
this Section shall not become effective until acceptance of appointment by the
successor Owner Trustee pursuant to Section 10.3 and payment of all fees and
expenses owed to the outgoing Owner Trustee. The Sponsor shall provide notice of
such resignation or removal of the Owner Trustee to each of the Rating Agencies.
Notwithstanding any other provision of this Agreement, and in
addition to any other method of removal of the Owner Trustee contained herein,
upon a proposal made pursuant to Section 4.2(b) and the subsequent consent of
Certificateholders representing no less than a 66-2/3% interest in the Trust,
the Owner Trustee may be removed as Owner Trustee , subject to the consent of
the Credit Enhancer, which consent is not to be unreasonably withheld. In the
event the Owner Trustee is removed pursuant to this paragraph, the provisions of
this Agreement, including Article X herein, shall apply as if the Owner Trustee
had resigned hereunder.
SECTION 10.3. Successor Owner Trustee . Any successor Owner
-----------------------
Trustee appointed pursuant to Section 10.2 shall execute, acknowledge and
deliver to the Sponsor, the Servicer, the Credit Enhancer and to its predecessor
Owner Trustee an instrument accepting such appointment under this Agreement, and
thereupon the resignation or removal of the predecessor Owner Trustee shall
become effective and such successor Owner Trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor under this Agreement, with like effect as if
originally named as Owner Trustee. The predecessor Owner Trustee shall upon
payment of its fees and expenses deliver to the successor Owner Trustee all
documents and statements and monies held by it under this Agreement; and the
Sponsor and the predecessor Owner Trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for fully and
certainly vesting and confirming in the successor Owner Trustee all such rights,
powers, duties and obligations.
No successor Owner Trustee shall accept appointment as
provided in this Section unless at the time of such acceptance such successor
Owner Trustee shall be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee
pursuant to this Section, the Servicer shall mail notice of the successor of
such Owner Trustee to all Certificateholders, the Indenture Trustee, the
Noteholders and the Rating Agencies. If the Servicer shall fail to mail such
notice within 10 days after acceptance of appointment by the successor Owner
Trustee, the successor Owner Trustee shall cause such notice to be mailed at the
expense of the Servicer.
SECTION 10.4. Merger or Consolidation of Owner Trustee . Any
----------------------------------------
corporation into which the Owner Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee
hereunder, provided such corporation shall be eligible pursuant to Section 10.1,
without the execution or filing of any instrument or any further act on the part
of any of the parties hereto, anything herein to the contrary notwithstanding;
provided, further, that the Owner Trustee shall mail notice of such merger or
-------- -------
consolidation to the Rating Agencies.
SECTION 10.5. Appointment of Co-Owner Trustee or Separate
-------------------------------------------
Owner 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 Owner Trust Estate or any Mortgaged Property may at the
time be located, the Servicer and the Owner Trustee acting jointly shall have
the power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Owner Trustee and the Credit Enhancer to act as co-
trustee, jointly with the Owner Trustee, or separate trustee or
24
separate trustees, of all or any part of the Owner Trust Estate, and to vest in
such Person, in such capacity, such title to the Trust, or any part thereof,
and, subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Servicer and the Owner 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, the
Owner Trustee subject to the approval of the Credit Enhancer (which approval
shall not be unreasonably withheld) shall have the power to make such
appointment. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3.
Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and
exercised or performed by the Owner 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 Owner 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, the
Owner Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Trust
or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-
trustee, but solely at the direction of the Owner Trustee;
(ii) no trustee under this Agreement shall be personally
liable by reason of any act or omission of any other trustee
under this Agreement; and
(iii) the Servicer and the Owner Trustee acting jointly 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 Owner
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
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 Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Servicer and the Credit Enhancer.
Any separate trustee or co-trustee may at any time appoint the
Owner 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 Owner Trustee, to the extent permitted by law, without the appointment of
a new or successor trustee.
25
ARTICLE XI.
Miscellaneous
-------------
SECTION 11.1. Supplements and Amendments.
--------------------------
(a) This Agreement may be amended by the Sponsor and the Owner
Trustee, with the prior written consent of the Credit Enhancer and with prior
written notice to the Rating Agencies, without the consent of any of the
Noteholders or, in the event that the Sponsor is not the sole Certificateholder,
the Certificateholders, (i) to cure any ambiguity or defect or (ii) to correct,
supplement or modify any provisions in this Agreement; provided, however, that
such action shall not, as evidenced by an Opinion of Counsel which may be based
upon a certificate of the Servicer, adversely affect in any material respect the
interests of any Noteholder or Certificateholder.
(b) This Agreement may also be amended from time to time, with
the prior written consent of the Credit Enhancer by the Sponsor and the Owner
Trustee, with prior written notice to the Rating Agencies, and, to the extent
such amendment materially and adversely affects the interests of the
Noteholders, with the consent of the Noteholders evidencing not less than a
majority of the Outstanding Amount of the Notes and, the consent of the
Certificateholders evidencing not less than a majority interest in the Trust
(which consent of any Holder of a Certificate or Note given pursuant to this
Section or pursuant to any other provision of this Agreement shall be conclusive
and binding on such Holder and on all future Holders of such Certificate or Note
and of any Certificate or Note issued upon the transfer thereof or in exchange
thereof or in lieu thereof whether or not notation of such consent is made upon
the Certificate or Note) for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Noteholders or the Certificateholders;
provided, however, that, subject to the express rights of the Credit Enhancer
-------- -------
under the Basic Documents, no such amendment shall (a) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments on Mortgage Loans or distributions that shall be required to be made
for the benefit of the Noteholders or the Certificateholders or (b) reduce the
aforesaid percentage of the Outstanding Amount of the Notes and the
Certificates, the Holders of which are required to consent to any such
amendment, without the consent of the Holders of all the outstanding Notes and
Holders of all outstanding Certificates.
Promptly after the execution of any such amendment or consent,
the Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee and each
of the Rating Agencies.
It shall not be necessary for the consent of
Certificateholders, the Noteholders or the Indenture Trustee pursuant to this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents (and any other consents of Certificateholders
provided for in this Agreement or in any other Basic Document) and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of Trust, the
Owner Trustee shall cause the filing of such amendment with the Secretary of
State.
Prior to the execution of any amendment to this Agreement or
the Certificate of Trust, the Owner Trustee shall be entitled to receive and
rely upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied. The Owner
Trustee may, but shall not be
26
obligated to, enter into any such amendment which affects the Owner Trustee's
own rights, duties or immunities under this Agreement or otherwise.
SECTION 11.2. No Legal Title to Owner Trust Estate in
---------------------------------------
Certificateholders . The Certificateholders shall not have legal title to any
------------------
part of the Owner Trust Estate. The Certificateholders shall be entitled to
receive distributions with respect to their undivided ownership interest therein
only in accordance with Article IX. No transfer, by operation of law or
otherwise, of any right, title or interest of the Certificateholders to and in
their ownership interest in the Owner Trust Estate shall operate to terminate
this Agreement or the trusts hereunder or entitle any transferee to an
accounting or to the transfer to it of legal title to any part of the Owner
Trust Estate.
SECTION 11.3. Limitations on Rights of Others . Except for
-------------------------------
Section 2.7, the provisions of this Agreement are solely for the benefit of the
Owner Trustee, the Sponsor, the Certificateholders, the Servicer and, to the
extent expressly provided herein, the Credit Enhancer, the Indenture Trustee and
the Noteholders, and nothing in this Agreement, whether express or implied,
shall be construed to give to any other Person any legal or equitable right,
remedy or claim in the Owner Trust Estate or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
SECTION 11.4. Notices.
-------
(a) Unless otherwise expressly specified or permitted by the
terms hereof, all notices shall be in writing and shall be deemed given upon
receipt personally delivered, delivered by overnight courier or mailed first
class mail or certified mail, in each case return receipt requested, and shall
be deemed to have been duly given upon receipt, if to the Owner Trustee,
addressed to the Corporate Trust Office; if to the Sponsor, addressed to
Headlands Mortgage Securities Inc., ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇; if to the Credit Enhancer, addressed to Credit
Enhancer, Ambac Assurance Corporation, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, Attention: Surveillance Department, Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇;
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party.
(b) Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder receives
such notice.
SECTION 11.5. Severability . Any provision of this Agreement
------------
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 11.6. Separate Counterparts . This Agreement may be
---------------------
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 11.7. Assignments; Credit Enhancer.
----------------------------
(a) This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. This Agreement shall also inure to the benefit of the Credit Enhancer.
Without limiting the generality of the foregoing, all covenants and
27
agreements in this Agreement which confer rights upon the Credit Enhancer shall
be for the benefit of and run directly to the Credit Enhancer, and the Credit
Enhancer shall be entitled to rely on and enforce such covenants, subject,
however, to the limitations on such rights provided in this Agreement and the
Basic Documents. The Credit Enhancer may disclaim any of its rights and powers
under this Agreement (but not its duties and obligations under the Policy) upon
delivery of a written notice to the Owner Trustee.
(b) In accepting instructions from the Credit Enhancer
pursuant to Article IV or Section 6.3 of this Agreement, and with respect to any
other obligations of the Owner Trustee to the Credit Enhancer under this
Agreement, the Owner Trustee undertakes to perform or observe only its express
obligations under this Agreement, and no implied obligations with respect to the
Credit Enhancer shall be read into this Agreement against the Owner Trustee. The
Owner Trustee shall not be deemed to owe any fiduciary duty to the Credit
Enhancer and it is expressly understood and agreed by the Credit Enhancer that
the Owner Trustee shall not be personally liable or responsible for the payment
of any amount owing on or with respect to the Basic Documents or for the failure
of the Trust to perform its obligations under the Basic Documents or any other
agreement with respect thereto.
SECTION 11.8. No Petition . The Owner Trustee (not in its
-----------
individual capacity but solely as Owner Trustee), by entering into this
Agreement, each Certificateholder, by accepting a Certificate, and the Indenture
Trustee and each Noteholder by accepting the benefits of this Agreement, hereby
covenants and agrees that they will not at any time institute against the
Sponsor, or join in any institution against the Sponsor of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Certificates, the Notes, this
Agreement or any of the Basic Documents.
SECTION 11.9. No Recourse . Each Certificateholder by
-----------
accepting a Certificate acknowledges that such Certificateholder's Certificates
represent beneficial interests in the Trust only and do not represent interests
in or obligations of the Servicer, the Sponsor, the Owner Trustee, the Indenture
Trustee, the Credit Enhancer or any Affiliate thereof and no recourse may be had
against such parties or their assets, except as may be expressly set forth or
contemplated in this Agreement, the Certificates or the Basic Documents.
SECTION 11.10. Headings . The headings of the various Articles
--------
and Sections herein are for convenience of reference only and shall not define
or limit any of the terms or provisions hereof.
SECTION 11.11. GOVERNING LAW . THIS AGREEMENT SHALL BE
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
SECTION 11.12. Servicer . The Servicer is authorized to
--------
prepare, or cause to be prepared, execute and deliver on behalf of the Trust all
such documents, reports, filings, instruments, certificates and opinions as it
shall be the duty of the Trust or Owner Trustee to prepare, file or deliver
pursuant to the Basic Documents. Upon written request, the Owner Trustee shall
execute and deliver to the Servicer a limited power of attorney appointing the
Servicer the Trust's agent and attorney-in-fact to prepare, or cause to be
prepared, execute and deliver all such documents, reports, filings, instruments,
certificates and opinions.
28
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized as of the day and year first above written.
WILMINGTON TRUST COMPANY
Owner Trustee
By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Vice President
HEADLANDS MORTGAGE SECURITIES INC.
Sponsor
By /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Vice President
Acknowledged and Agreed:
HEADLANDS MORTGAGE COMPANY
Servicer
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Executive Vice President
AMBAC ASSURANCE CORPORATION,
Credit Enhancer
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President & Assistant General Counsel
CERTIFICATE
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE REPRESENTS CERTAIN RESIDUAL RIGHTS TO PAYMENT TO THE EXTENT
DESCRIBED HEREIN AND IN THE TRUST AGREEMENT REFERRED TO HEREIN.
THIS CERTIFICATE MAY NOT BE HELD BY OR TRANSFERRED TO A NON-UNITED STATES
PERSON.
THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. ANY RESALE, TRANSFER
OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH REGISTRATION OR
QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT REQUIRE SUCH
REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION
3.10 OF THE TRUST AGREEMENT REFERRED TO HEREIN.
NO TRANSFER OF THIS CERTIFICATE MAY BE MADE UNLESS THE TRANSFEREE PROVIDES A
REPRESENTATION LETTER FROM THE TRANSFEREE OF SUCH CERTIFICATE, ACCEPTABLE TO AND
IN FORM AND SUBSTANCE SATISFACTORY TO THE INDENTURE TRUSTEE AND THE CREDIT
ENHANCER, TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN
SUBJECT TO SECTION 406 OF ERISA, NOR A PERSON ACTING ON BEHALF OF OR USING THE
ASSETS OF ANY SUCH PLAN, WHICH REPRESENTATION LETTER SHALL NOT BE AN EXPENSE OF
THE INDENTURE TRUSTEE OR THE CREDIT ENHANCER.
NO TRANSFER OF A 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. EXCEPT FOR THE INITIAL ISSUANCE OF THE CERTIFICATE TO THE SPONSOR AND THE
PLEDGE THEREOF BY THE SPONSOR IN CONNECTION WITH THE YIELD MAINTENANCE
CERTIFICATES, SERIES 1998-1, THE INDENTURE TRUSTEE SHALL REQUIRE (i) THE
TRANSFEREE TO EXECUTE AN INVESTMENT LETTER ACCEPTABLE TO AND IN FORM AND
SUBSTANCE SATISFACTORY TO THE INDENTURE TRUSTEE AND THE CREDIT ENHANCER
CERTIFYING TO THE INDENTURE TRUSTEE AND THE CREDIT ENHANCER THE FACTS
SURROUNDING SUCH TRANSFER, WHICH INVESTMENT LETTER SHALL NOT BE AN EXPENSE OF
THE INDENTURE TRUSTEE OR THE CREDIT ENHANCER OR (ii) IF THE INVESTMENT LETTER IS
NOT DELIVERED, A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO AND IN FORM AND
SUBSTANCE SATISFACTORY TO THE INDENTURE TRUSTEE, THE CREDIT ENHANCER AND THE
SPONSOR THAT SUCH TRANSFER MAY BE MADE PURSUANT TO AN EXEMPTION, DESCRIBING THE
APPLICABLE EXEMPTION AND THE BASIS THEREFOR, FROM SAID ACT OR IS BEING MADE
PURSUANT TO SAID ACT, WHICH OPINION OF COUNSEL SHALL NOT BE AN EXPENSE OF THE
INDENTURE TRUSTEE, THE CREDIT ENHANCER OR THE SPONSOR. THE HOLDER OF A
CERTIFICATE DESIRING TO EFFECT SUCH TRANSFER SHALL, AND DOES HEREBY AGREE TO,
INDEMNIFY THE SPONSOR AND THE CREDIT ENHANCER 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.
EXCEPT FOR THE PLEDGE BY THE SPONSOR IN CONNECTION WITH ITS YIELD MAINTENANCE
CERTIFICATES, SERIES 1998-1, THE CERTIFICATES AND ANY INTEREST THEREIN SHALL NOT
BE TRANSFERRED EXCEPT UPON SATISFACTION OF THE FOLLOWING CONDITIONS PRECEDENT:
(I) THE PERSON THAT ACQUIRES A CERTIFICATE SHALL (A) BE ORGANIZED AND EXISTING
UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR ANY STATE OR THE DISTRICT OF
COLUMBIA THEREOF, (B) EXPRESSLY ASSUME, BY AN AGREEMENT SUPPLEMENTAL HERETO,
EXECUTED AND DELIVERED TO THE INDENTURE TRUSTEE AND THE CREDIT ENHANCER, THE
PERFORMANCE OF EVERY COVENANT AND OBLIGATION OF THE SPONSOR UNDER THE TRUST
AGREEMENT AND (C) AS PART OF ITS ACQUISITION OF A CERTIFICATE, ACQUIRE ALL
RIGHTS OF THE SPONSOR OR ANY TRANSFEREE UNDER SECTION 3.10 OF THE TRUST
AGREEMENT TO AMOUNTS PAYABLE TO THE CERTIFICATE OR SUCH TRANSFEREE UNDER
SECTIONS 8.3(A)(XIV) AND 8.3(g) OF THE INDENTURE; (II) THE HOLDER OF THE
CERTIFICATES SHALL DELIVER TO THE INDENTURE TRUSTEE AND THE CREDIT ENHANCER AN
OFFICER'S CERTIFICATE STATING THAT SUCH TRANSFER AND SUCH SUPPLEMENTAL AGREEMENT
COMPLY WITH SECTION 3.10(C) OF THE TRUST AGREEMENT AND THAT ALL CONDITIONS
PRECEDENT PROVIDED BY SECTION 3.10(C) OF THE TRUST AGREEMENT HAVE BEEN COMPLIED
WITH AND AN OPINION OF COUNSEL STATING THAT ALL CONDITIONS PRECEDENT PROVIDED BY
SECTION 3.10(C) OF THE TRUST AGREEMENT HAVE BEEN COMPLIED WITH, AND THE
INDENTURE TRUSTEE MAY CONCLUSIVELY RELY ON SUCH OFFICER'S CERTIFICATE, SHALL
HAVE NO DUTY TO MAKE INQUIRIES WITH REGARD TO THE MATTERS SET FORTH THEREIN AND
SHALL INCUR NO LIABILITY IN SO RELYING; (III) THE HOLDER OF THE CERTIFICATES
SHALL DELIVER TO THE INDENTURE TRUSTEE AND THE CREDIT ENHANCER A LETTER FROM
EACH RATING AGENCY CONFIRMING THAT ITS RATING OF THE NOTES, AFTER GIVING EFFECT
TO SUCH TRANSFER, WILL NOT BE REDUCED OR WITHDRAWN WITHOUT REGARD TO THE POLICY;
(IV) THE TRANSFEREE OF THE CERTIFICATES SHALL DELIVER TO THE INDENTURE TRUSTEE
AND THE CREDIT ENHANCER AN OPINION OF COUNSEL TO THE EFFECT THAT (A) SUCH
TRANSFER WILL NOT ADVERSELY AFFECT THE TREATMENT OF THE NOTES AFTER SUCH
TRANSFER AS DEBT FOR FEDERAL AND APPLICABLE STATE INCOME TAX PURPOSES, (B) SUCH
TRANSFER WILL NOT RESULT IN THE TRUST BEING SUBJECT TO TAX AT THE ENTITY LEVEL
FOR FEDERAL OR APPLICABLE STATE TAX PURPOSES, (C) SUCH TRANSFER WILL NOT HAVE
ANY MATERIAL ADVERSE IMPACT ON THE FEDERAL OR APPLICABLE STATE INCOME TAXATION
OF A NOTEHOLDER OR ANY NOTE OWNER AND (D) SUCH TRANSFER WILL NOT RESULT IN THE
ARRANGEMENT CREATED BY THE TRUST AGREEMENT OR ANY "PORTION" OF THE TRUST, BEING
TREATED AS A TAXABLE MORTGAGE POOL AS DEFINED IN SECTION 7701(I) OF THE CODE;
(V) ALL FILINGS AND OTHER ACTIONS NECESSARY TO CONTINUE THE PERFECTION OF THE
INTEREST OF THE TRUST IN THE MORTGAGE LOANS AND THE OTHER PROPERTY CONVEYED
UNDER THE TRUST AGREEMENT SHALL HAVE BEEN TAKEN OR MADE AND (VI) THE CREDIT
ENHANCER SHALL HAVE CONSENTED TO SUCH TRANSFER.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
HEADLANDS HOME EQUITY LOAN TRUST
1998-1 CERTIFICATE
Percentage Interest: 100%
Date of Cut-Off Date:
March 12, 1998
First Distribution Date: Issue Date: March 25, 1998
April 15, 1998
No. 1
_________________________________
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned Trust
Agreement.
WILMINGTON TRUST COMPANY
not in its individual
capacity but solely as
Owner Trustee
by:____________________________________
Authenticating Agent
The Trust was created pursuant to a Trust Agreement dated as
of March 1, 1998 (the "Trust Agreement"), between the Sponsor and Wilmington
Trust Company, as owner trustee (the "Owner Trustee"), a summary of certain of
the pertinent provisions of which is set forth below. To the extent not
otherwise defined herein, the capitalized terms used herein have the meanings
assigned to them in the Trust Agreement.
This Certificate is one of the duly authorized Certificates
designated as Headlands Home Equity Loan "Asset Backed Certificates" (herein
called the "Certificates"). Also issued under the Indenture dated as of March
13, 1998, among the Trust and The First National Bank of Chicago, as indenture
trustee (the "Indenture Trustee") are two classes of Notes designated as Class A
Notes (the "Class A Notes") and Class S Notes (the "Class S Notes", together
with the Class A Notes, (the "Notes"). These Certificates are issued under and
are subject to the terms, provisions and conditions of the Trust Agreement, to
which Trust Agreement the holder of this Certificate by virtue of the acceptance
hereof
assents and by which such holder is bound. The property of the Trust includes a
pool of adjustable-rate home equity revolving credit line loans secured by first
or second deeds of trust or Mortgages on primarily one-to-four family
residential properties.
Under the Trust Agreement, there will be distributed on the
15th day of each month or, if such 15th day is not a Business Day, the next
Business Day (the "Distribution Date"), commencing on April 15, 1998, to the
Person in whose name this Certificate is registered at the close of business on
the Business Day preceding such Distribution Date (the "Record Date") such
Certificateholder's Percentage Interest in the amount to be distributed to
Certificateholders on such Distribution Date.
The holder of this Certificate acknowledges and agrees that
its rights to receive distributions in respect of this Certificate are
subordinated to the rights of the Noteholders as described in the Sale and
Servicing Agreement, the Indenture and the Trust Agreement, as applicable.
The holder of this Certificate, by acceptance of this
Certificate, specifically acknowledges that it has no right to or interest in
any monies at any time held pursuant to the Spread Account, Capitalized Interest
Account, the Funding Account or prior to the release of such monies pursuant to
Section 8.3(a)(xiv) of the Indenture, such monies being held in trust for the
benefit of the Noteholders and the Credit Enhancer. Notwithstanding the
foregoing, in the event that it is ever determined that the monies held in the
Spread Account, Capitalized Interest Account, the Funding Account constitute a
pledge of collateral, then the provisions of the Sale and Servicing Agreement
shall be considered to constitute a security agreement and the holder of this
Certificate hereby grants to the Indenture Trustee and the Credit Enhancer a
first priority perfected security interest in such amounts. In addition, each
Certificateholder, by acceptance of its Certificate, hereby appoints the Sponsor
as its agent to pledge a first priority perfected security interest in the
Spread Account, the Capitalized Interest Account and the Funding Account and
agrees to execute and deliver such instruments of conveyance, assignment, grant,
confirmation, etc., as well as any financing statements, in each case as the
Credit Enhancer shall consider reasonably necessary in order to perfect the
Indenture Trustee's security interest in the Trust Property.
It is the intent of the Sponsor, the Servicer, and the
Certificateholders that, for purposes of Federal income taxes, the Trust will be
treated as a branch. In the event that the Certificates are held by more than
one Holder, it is the intent of the Sponsor, the Servicer, and the
Certificateholders that, for purposes of Federal income taxes, the Trust will be
treated as a partnership and the Certificateholders will be treated as partners
in that partnership. The Sponsor and any other Certificateholders, by acceptance
of a Certificate, agree to treat, and to take no action inconsistent with the
treatment of, the Certificates for such tax purposes as partnership interests in
the Trust. Each Certificateholder, by its acceptance of a Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Trust or the Sponsor, or join in any institution against the Trust or the
Sponsor of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States Federal or
state bankruptcy or similar law in connection with any obligations relating to
the Certificates, the Notes, the Trust Agreement or any of the Basic Documents.
Distributions on this Certificate will be made as provided in
the Sale and Servicing Agreement and the Indenture by the Indenture Trustee by
wire transfer or check mailed to the Certificateholder of record in the
Certificate Register without the presentation or surrender of this Certificate
or the making of any notation hereon. Except as otherwise provided in the Trust
Agreement and notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Owner Trustee of the pendency
of such distribution and only upon presentation and surrender of this
Certificate at the office or agency maintained for the purpose by the Owner
Trustee in the Corporate Trust Office.
Reference is hereby made to the further provisions of this
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have
been executed by an authorized officer of the Owner Trustee, by manual
signature, this Certificate shall not entitle the holder hereof to any benefit
under the Trust Agreement or the Sale and Servicing Agreement or be valid for
any purpose.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust
and not in its individual capacity, has caused this Certificate to be duly
executed.
HEADLANDS HOME EQUITY LOAN
TRUST 1998-1
By: WILMINGTON TRUST COMPANY not in its individual
capacity but solely as Owner Trustee
Dated: March 25, 1998
By: ________________________________
Name:
Title:
(Reverse of Certificate)
The Certificates do not represent an obligation of, or an
interest in, the Company, the Sponsor, the Servicer, the Credit Enhancer, the
Owner Trustee or any Affiliates of any of them and no recourse may be had
against such parties or their assets, except as may be expressly set forth or
contemplated herein or in the Trust Agreement, the Indenture or the Basic
Documents. In addition, this Certificate is not guaranteed by any governmental
agency or instrumentality and is limited in right of payment to certain
collections with respect to the Mortgage Loans, as more specifically set forth
herein, in the Sale and Servicing Agreement and in the Indenture. A copy of each
of the Sale and Servicing Agreement and the Trust Agreement may be examined
during normal business hours at the principal office of the Sponsor, and at such
other places, if any, designated by the Sponsor, by any Certificateholder upon
written request.
The Trust Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of the Sponsor and the rights of the Certificateholders under the
Trust Agreement at any time by the Sponsor and the Owner Trustee with the prior
written consent of the Credit Enhancer and with the consent of the holders of
the Notes and the Certificates evidencing not less than a majority of the
outstanding Notes and the Certificates. Any such consent by the holder of this
Certificate shall be conclusive and binding on such holder and on all future
holders of this Certificate and of any Certificate issued upon the transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent is made upon this Certificate. The Trust Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of the
holders of any of the Certificates (other than the Sponsor or the Credit
Enhancer).
As provided in the Trust Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registerable
in the Certificate Register upon surrender of this Certificate for registration
of transfer at the offices or agencies of the Certificate Registrar maintained
by the Owner Trustee in the Corporate Trust Office, accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the holder hereof or such holder's
attorney duly authorized in writing, and thereupon one or more new Certificates
in authorized denominations evidencing the same aggregate interest in the Trust
will be issued to the designated transferee. The initial Certificate Registrar
appointed under the Trust Agreement is Wilmington Trust Company.
Except for Certificates issued to the Sponsor, the
Certificates are issuable only as registered Certificates without coupons in
denominations of $1,000 or integral multiples of $1,000 in excess thereof. As
provided in the Trust Agreement and subject to certain limitations therein set
forth, Certificates are exchangeable for new Certificates in authorized
denominations evidencing the same aggregate denomination, as requested by the
holder surrendering the same. No service charge will be made for any such
registration of transfer or exchange, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge payable in connection therewith.
The Owner Trustee, the Certificate Registrar, the Credit
Enhancer and any agent of the Owner Trustee, the Certificate Registrar, the
Credit Enhancer or the Credit Enhancer may treat the person in whose name this
Certificate is registered as the owner hereof for all purposes, and none of the
Owner Trustee, the Certificate Registrar, the Credit Enhancer nor any such agent
shall be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust
Agreement and the Trust created thereby shall terminate upon the payment to
Certificateholders of all amounts required to be paid to them
pursuant to the Trust Agreement, the Indenture and the Sale and Servicing
Agreement and the disposition of all property held as part of the Trust. The
Sponsor may at its option purchase the corpus of the Trust at a price specified
in the Sale and Servicing Agreement, and such purchase of the Mortgage Loans and
other property of the Trust will effect a transfer of the Certificates; however,
such right of purchase is exercisable, subject to certain restrictions, only on
any Distribution Date on or after the Distribution Date immediately prior to
which the Class A Note Principal Balance is less than 10% of the Original Class
A Note Principal Balance and all amounts due and owing to the Credit Enhancer
for unpaid premiums and unreimbursed draws on the Policy and all other amounts
due and owing to the Credit Enhancer pursuant to the Insurance Agreement,
together with interest thereon as provided under the Insurance Agreement, have
been paid.
The recitals contained herein shall be taken as the statements
of the Sponsor or the Servicer, as the case may be, and the Owner Trustee
assumes no responsibility for the correctness thereof. The Owner Trustee makes
no representations as to the validity or sufficiency of this Certificate or of
any Mortgage Loan or related document.
Unless the certificate of authentication hereon shall have
been executed by an authorized officer of the Owner Trustee, by manual or
facsimile signature, this Certificate shall not entitle the holder hereof to any
benefit under the Trust Agreement or the Sale and Servicing Agreement or be
valid for any purpose.
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
--------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
--------------------------------------------------------------------------------
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
____________________Attorney to transfer said Certificate on the books
of the Certificate Registrar, with full power of substitution in the premises.
Dated:
*
_______________________________
Signature Guaranteed:
*
_______________________________
_____________________
* NOTICE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within
Certificate in every particular, without alteration, enlargement or any
change whatever. Such signature must be guaranteed by an "eligible
guarantor institution" meeting the requirements of the Certificate
Registrar, which requirements include membership or participation in
STAMP or such other "signature guarantee program" as may be determined
by the Certificate Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended.
EXHIBIT B
CERTIFICATE OF TRUST OF
HEADLANDS HOME EQUITY LOAN TRUST 1998-1
This Certificate of Trust of Headlands Home Equity Loan Trust
1998-1 (the "Trust"), dated as of March __, 1998, is being duly executed and
filed by Wilmington Trust Company, a Delaware banking corporation, as trustee,
to form a business trust under the Delaware Business Trust Act (12 Del. Code,
(S) 3801 et seq.).
1. Name. The name of the business trust formed hereby is
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Headlands Home Equity Loan Trust 1998-1.
2. Delaware Trust. The name and business address of the Owner
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Trustee of the Trust in the State of Delaware is Wilmington Trust Company,
▇▇▇▇▇▇ Square North, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇.
Attn: Corporate Trust Administration.
3. This Certificate of Trust will be effective March __, 1998.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of
the Trust, has executed this Certificate of Trust as of the date first above
written.
WILMINGTON TRUST COMPANY
not in its individual capacity but
solely as Owner
Trustee of the Trust.
By:
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Name:
Title: