EXHIBIT 4.3
NOVASTAR MORTGAGE FUNDING TRUST, SERIES _________,
as Issuer
_______________________________________________,
as Bond Administrator
and
_______________________________________________,
as Indenture Trustee
INDENTURE
Dated as of ___________________
relating to
NOVASTAR MORTGAGE FUNDING TRUST, SERIES _________
NOVASTAR HOME EQUITY LOAN ASSET-BACKED BONDS, SERIES _________
TABLE OF CONTENTS
Page
ARTICLE I Definitions..............................................................................................
Section 1.01. Definitions...................................................................................
Section 1.02. Incorporation by Reference of Trust Indenture Act.............................................
Section 1.03. Rules of Construction.........................................................................
ARTICLE II Original Issuance of Bonds..............................................................................
Section 2.01. Forms of the Bonds............................................................................
Section 2.02. Execution, Authentication and Delivery........................................................
Section 2.03. Acceptance of Mortgage Loans by ▇▇▇▇ Administrator on behalf of the Indenture Trustee.........
Section 2.04. REMIC Matters.................................................................................
ARTICLE III Covenants..............................................................................................
Section 3.01. Collection of Payments with respect to the Mortgage Loans.....................................
Section 3.02. Maintenance of Office or Agency...............................................................
Section 3.03. Money for Payments To Be Held in Trust; Paying Agent..........................................
Section 3.04. Existence.....................................................................................
Section 3.05. Payment of Principal and Interest.............................................................
Section 3.06. Protection of Trust Estate....................................................................
Section 3.07. Opinions as to Trust Estate...................................................................
Section 3.08. Performance of Obligations....................................................................
Section 3.09. Negative Covenants............................................................................
Section 3.10. Annual Statement as to Compliance.............................................................
Section 3.11. Reserved......................................................................................
Section 3.12. Representations and Warranties Concerning the Mortgage Loans..................................
Section 3.13. Amendments to Servicing Agreement.............................................................
Section 3.14. Servicer as Agent and Bailee of the Indenture Trustee.........................................
Section 3.15. Investment Company Act........................................................................
Section 3.16. Issuer May Consolidate, etc...................................................................
Section 3.17. Successor or Transferee.......................................................................
Section 3.18. No Other Business.............................................................................
Section 3.19. No Borrowing..................................................................................
Section 3.20. Guarantees, Loans, Advances and Other Liabilities.............................................
Section 3.21. Capital Expenditures..........................................................................
Section 3.22. Purchase of Mortgage Loans Pursuant to the Servicing Agreement................................
Section 3.23. Restricted Payments...........................................................................
Section 3.24. Notice of Events of Default...................................................................
Section 3.25. Further Instruments and Acts..................................................................
Section 3.26. Statements to Bondholders.....................................................................
Section 3.27. Determination of Bond Interest Rate of Class A-1 and Class A-2 Bonds..........................
Section 3.28. Policy Payments Account.......................................................................
Section 3.29. Servicing and Administration of the MI Policies...............................................
Section 3.30. Insolvency Proceedings........................................................................
ARTICLE IV The Bonds; Satisfaction and Discharge of Indenture......................................................
Section 4.01. The Bonds.....................................................................................
Section 4.02. Registration of and Limitations on Transfer and Exchange of Bonds; Appointment of
Bond Registrar.............................................................................
Section 4.03. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, Lost or Stolen Bonds....................................................
Section 4.04. Persons Deemed Owners.........................................................................
Section 4.05. Cancellation..................................................................................
Section 4.06. Book-Entry Bonds..............................................................................
Section 4.07. Notices to Depository.........................................................................
Section 4.08. Definitive Bonds..............................................................................
Section 4.09. Reserved......................................................................................
Section 4.10. Satisfaction and Discharge of Indenture.......................................................
Section 4.11. Application of Trust Money....................................................................
Section 4.12. Effect of Payments by the Bond Insurer; Subrogation...........................................
Section 4.13. Repayment of Monies Held by Paying Agent......................................................
Section 4.14. Temporary Bonds...............................................................................
ARTICLE V Default and Remedies.....................................................................................
Section 5.01. Events of Default.............................................................................
Section 5.02. Acceleration of Maturity; Rescission and Annulment............................................
Section 5.03. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.....................
Section 5.04. Remedies; Priorities..........................................................................
Section 5.05. Optional Preservation of the Trust Estate.....................................................
Section 5.06. Limitation of Suits...........................................................................
Section 5.07. Unconditional Rights of Bondholders To Receive Principal and Interest.........................
Section 5.08. Restoration of Rights and Remedies............................................................
Section 5.09. Rights and Remedies Cumulative................................................................
Section 5.10. Delay or Omission Not a Waiver................................................................
Section 5.11. Control by Bond Insurer.......................................................................
Section 5.12. Waiver of Past Defaults.......................................................................
Section 5.13. Undertaking for Costs.........................................................................
Section 5.14. Waiver of Stay or Extension Laws..............................................................
Section 5.15. Sale of Trust Estate..........................................................................
Section 5.16. Action on Bonds...............................................................................
Section 5.17. Performance and Enforcement of Certain Obligations............................................
ARTICLE VI The Indenture Trustee and the Bond Administrator........................................................
Section 6.01. Duties of the Indenture Trustee and the Bond Administrator....................................
Section 6.02. Rights of Indenture Trustee and Bond Administrator............................................
Section 6.03. Individual Rights of Indenture Trustee and Bond Administrator.................................
Section 6.04. Indenture Trustee's and ▇▇▇▇ Administrator's Disclaimer.......................................
Section 6.05. Notice of Event of Default....................................................................
Section 6.06. Tax Administration of the Issuer..............................................................
Section 6.07. Compensation and Indemnity....................................................................
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Section 6.08. Replacement of Indenture Trustee or Bond Administrator........................................
Section 6.09. Successor Indenture Trustee or Bond Administrator by ▇▇▇▇▇▇...................................
Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee.............................
Section 6.11. Eligibility; Disqualification.................................................................
Section 6.12. Preferential Collection of Claims Against Issuer..............................................
Section 6.13. Representations and Warranties................................................................
Section 6.14. Directions to Indenture Trustee and Bond Administrator........................................
Section 6.15. The Agents....................................................................................
ARTICLE VII Bondholders' Lists and Reports.........................................................................
Section 7.01. Issuer To Furnish Bond Administrator Names and Addresses of Bondholders.......................
Section 7.02. Preservation of Information; Communications to Bondholders....................................
Section 7.03. Reports by the Bond Administrator ; Issuer Fiscal Year........................................
Section 7.04. Reports by Indenture Trustee..................................................................
Section 7.05. Statements to Bondholders.....................................................................
Section 7.06. Books and Records.............................................................................
ARTICLE VIII Accounts, Disbursements and Releases..................................................................
Section 8.01. Collection of Money...........................................................................
Section 8.02. Trust Accounts................................................................................
Section 8.03. Officer's Certificate.........................................................................
Section 8.04. Termination Upon Distribution to Bondholders..................................................
Section 8.05. Release of Trust Estate.......................................................................
Section 8.06. Surrender of Bonds Upon Final Payment.........................................................
Section 8.07. Optional Redemption of the Bonds..............................................................
Section 8.08. Pre-Funding Account...........................................................................
Section 8.09. Interest Coverage Account.....................................................................
ARTICLE IX Supplemental Indentures.................................................................................
Section 9.01. Supplemental Indentures Without Consent of Bondholders........................................
Section 9.02. Supplemental Indentures With Consent of Bondholders...........................................
Section 9.03. Execution of Supplemental Indentures..........................................................
Section 9.04. Effect of Supplemental Indenture..............................................................
Section 9.05. Conformity with Trust Indenture Act...........................................................
Section 9.06. Reference in Bonds to Supplemental Indentures.................................................
ARTICLE X Miscellaneous............................................................................................
Section 10.01. Compliance Certificates and Opinions, etc.....................................................
Section 10.02. Form of Documents Delivered to Indenture Trustee or Bond Administrator........................
Section 10.03. Acts of Bondholders...........................................................................
Section 10.04. Notices, etc., to Indenture Trustee, Bond Administrator, Issuer, ▇▇▇▇ Insurer and
Rating Agencies............................................................................
Section 10.05. Notices to Bondholders; Waiver................................................................
Section 10.06. Conflict with Trust Indenture Act.............................................................
Section 10.07. Effect of Headings............................................................................
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Section 10.08. Successors and Assigns........................................................................
Section 10.09. Separability..................................................................................
Section 10.10. Benefits of Indenture.........................................................................
Section 10.11. Legal Holidays................................................................................
Section 10.12. Governing Law.................................................................................
Section 10.13. Counterparts..................................................................................
Section 10.14. Recording of Indenture........................................................................
Section 10.15. Issuer Obligation.............................................................................
Section 10.16. No Petition...................................................................................
Section 10.17. Inspection....................................................................................
Section 10.18. Limitation of Liability.......................................................................
APPENDIX A Definitions
iv
This Indenture, dated as of ______________ (the "Indenture"), among
NovaStar Mortgage Funding Trust, Series ________, a Delaware business trust, as
Issuer (the "Issuer"), _______________________, a __________________________, as
Bond Administrator (the "Bond Administrator"), and
_____________________________, a _________________ banking corporation, as
Indenture Trustee (the "Indenture Trustee").
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of each other party and
for the benefit of the Holders of the NovaStar Mortgage Funding Trust, Series
____________ Home Equity Loan Asset-Backed Bonds, Series _________ (the
"Bonds"), and the Bond Insurer.
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the Closing Date, as
trustee for the benefit of the Holders of the Bonds and the Bond Insurer, all of
the Issuer's right, title and interest in and to whether now existing or
hereafter created by (a) the Initial Mortgage Loans, the Subsequent Mortgage
Loans, the Eligible Substitute Mortgage Loans (and, in each case, the related MI
Policies) and the proceeds thereof and all rights under the Related Documents
(including the related Mortgage Files) and any title and hazard insurance
policies with respect to the Mortgaged Properties; (b) all funds on deposit from
time to time in the Collection Account allocable to the Mortgage Loans excluding
any investment income from such funds; (c) all funds on deposit from time to
time in the Payment Account and in all proceeds thereof, including any income on
funds deposited in, or investments made with funds deposited in, the Payment
Account, which income shall belong to, and be for the account of, the Bond
Administrator or the Indenture Trustee as provided herein; (d) all funds on
deposit from time to time in the Interest Coverage Account and the Pre-Funding
Account in each case including any income on funds deposited in, or investments
made with funds deposited in such accounts; (e) all rights under the (i)
Purchase Agreement as assigned to the Issuer and each Subsequent Transfer
Instrument, (ii) the Servicing Agreement and any Subservicing Agreements and
(iii) the MI Policies; and (f) all present and future claims, demands, causes
and choses in action in respect of any or all of the foregoing and all payments
on or under, and all proceeds of every kind and nature whatsoever in respect of,
any or all of the foregoing and all payments on or under, and all proceeds of
every kind and nature whatsoever in the conversion thereof, voluntary or
involuntary, into cash or other liquid property, all cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, checks, deposit accounts,
rights to payment of any and every kind, and other forms of obligations and
receivables, instruments and other property which at any time constitute all or
part of or are included in the proceeds of any of the foregoing (collectively,
the "Trust Estate" or the "Collateral").
The foregoing Grant is made in trust to secure (i) the payment of principal
of and interest on, and any other amounts owing in respect of, the Bonds, (ii)
the payment of all other amounts payable under this Indenture and (iii)
compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as trustee on behalf of the Holders of the Bonds and
the Bond Insurer, acknowledges such Grant, accepts the trust under this
Indenture in accordance
with the provisions hereof and agrees to perform its duties as Indenture Trustee
as required herein. The Bond Administrator, on behalf of the Indenture Trustee,
agrees that it will hold the Bond Insurance Policy in trust and that it will
hold any proceeds of any claim made upon the Bond Insurance Policy solely for
the use and benefit of the Holders of the Bonds in accordance with the terms
hereof and the terms of the Bond Insurance Policy.
The Indenture Trustee further acknowledges that in the event (i) the
transfer of the Initial Mortgage Loans from the Seller to the Company or from
the Company to the Issuer is determined to be a financing, and/or (ii) the
transfer of the Subsequent Mortgage Loans by the Seller to the Company and the
Company to the Issuer is determined to constitute a financing, then in each case
the Bond Administrator, on behalf of the Indenture Trustee, and the Indenture
Trustee hold the Mortgage Loans as the designee and bailee of the Company and
the Issuer, respectively, subject however, in each case, to a prior lien in
favor of the Bondholders and the Bond Insurer pursuant to the terms of this
Indenture.
ARTICLE I
Definitions
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Section 1.01. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided herein or unless the context otherwise requires, capitalized terms not
otherwise defined herein shall have the meanings assigned to such terms in the
definitions attached hereto as Appendix A, which is incorporated by reference
herein. All other capitalized terms used herein shall have the meanings
specified herein.
Section 1.02. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the Trust Indenture
Act of 1939, as amended (the "TIA"), the provision is incorporated by reference
in and made a part of this Indenture. The following TIA terms used in this
Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"Indenture securities" means the Bonds.
"Indenture security holder" means a Bondholder.
"Indenture to be qualified" means this Indenture.
"Indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"Obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA by reference to another statute or defined by Commission
rules, have the meanings assigned to them by such definitions.
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Section 1.03. Rules of Construction.
---------------------
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles as in effect
from time to time;
(c) "or" is not exclusive;
(d) "including" means including without limitation;
(e) words in the singular include the plural and words in the plural
include the singular; and
(f) any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
Original Issuance of Bonds
--------------------------
Section 2.01. Forms of the Bonds.
-------------------
The Class-A-1 Bonds, the Class A-2 Bonds, the Class A-3 Bonds, the
Class A-4 Bonds, the Class B Bonds and the Class IO Bonds, together with the
related certificate of authentication, by the Bond Registrar as authenticating
agent on behalf of the Indenture Trustee, shall be in substantially the forms
set forth in Exhibits A-F hereto, respectively, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture.
The Bonds shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders).
Section 2.02. Execution, Authentication and Delivery.
--------------------------------------
The Bonds shall be executed in the name of and on behalf of the Issuer
by an Authorized Officer. The signature of any such Authorized Officer on the
Bonds may be manual or facsimile.
Bonds bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers shall bind the Issuer, notwithstanding that
such individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Bonds or did not hold such offices at the
date of such Bonds.
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The Indenture Trustee shall upon Issuer Request cause the Bond
Registrar to authenticate and deliver six classes of Bonds for original issue,
Class A-1 Bonds in an aggregate principal amount of $_______________, Class A-2
Bonds in an aggregate principal amount of $_________________, Class A-3 Bonds in
an aggregate principal amount of $______________, Class A-4 Bonds in an
aggregate principal amount of $_________________, Class B Bonds in an aggregate
principal amount of $_________________ and Class IO Bonds in an aggregate
notional amount of $___________________.
Each Bond shall be dated the date of its authentication. The Bonds
shall be issuable as registered Class A-1 Bonds, Class A-2 Bonds, Class A-3
Bonds, Class A-4 Bonds, Class B Bonds and Class IO Bonds and shall be issuable
in a minimum initial Bond Principal Balance, or IO Notional Balance, as the case
may be, of $25,000 and in integral multiples of $1,000 in excess thereof.
No Bond shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Bond a
certificate of authentication substantially in the form provided for herein
executed by the Bond Registrar by the manual signature of one of its authorized
signatories, and such certificate upon any Bond shall be conclusive evidence,
and the only evidence, that such ▇▇▇▇ has been duly authenticated and delivered
hereunder.
Section 2.03. Acceptance of Mortgage Loans by Bond Administrator on
-----------------------------------------------------
behalf of the Indenture Trustee.
-------------------------------
(a) The Bond Administrator, on behalf of the Indenture Trustee,
acknowledges receipt of, subject to the review described below and any
exceptions it notes pursuant to the procedures described below, the documents
(or certified copies thereof) referred to in Section 2.1(b) of the Purchase
Agreement and declares that it holds and will continue to hold those documents
and any amendments, replacements or supplements thereto and all other assets of
the Trust Estate in trust for the use and benefit of all present and future
Holders of the Bonds and the Bond Insurer. No later than 45 days after the
Closing Date and each Subsequent Transfer Date (or, with respect to any Eligible
Substitute Mortgage Loan, within 5 Business Days after the receipt by the Bond
Administrator, on behalf of the Indenture Trustee, thereof and, with respect to
any documents received beyond 45 days after the Closing Date, promptly
thereafter), the Bond Administrator, on behalf of the Indenture Trustee, agrees,
for the benefit of the Bondholders and the Bond Insurer, to review each Mortgage
File delivered to it and to execute and deliver, or cause to be executed and
delivered, to the Seller and the Bond Insurer an initial certification in the
form annexed hereto as Exhibit G. In conducting such review, the Bond
Administrator, on behalf of the Indenture Trustee, will ascertain whether all
required documents described in Section 2.1(b) of the Purchase Agreement have
been executed and received and whether those documents relate, determined on the
basis of the Mortgagor name, original principal balance and loan number, to the
Mortgage Loans it has received, as identified in Exhibit L to this Indenture, as
supplemented (provided, however, that with respect to those documents described
-------- -------
in subclause (b)(vi) of such section, the Bond Administrator's obligations shall
extend only to documents actually delivered pursuant to such subclause). In
performing any such review, the Bond Administrator, on behalf of the Indenture
Trustee, may conclusively rely on the purported due execution and genuineness of
any such document and on the purported
4
genuineness of any signature thereon. If the Bond Administrator, on behalf of
the Indenture Trustee, finds that any document constituting part of the Mortgage
File not to have been executed or received, or to be unrelated to the Mortgage
Loans identified in Exhibit L or Attachment B to Exhibit 2 of the Purchase
Agreement or to appear to be defective on its face, the Bond Administrator, on
behalf of the Indenture Trustee, shall promptly notify the Seller and the Bond
Insurer of such finding and the Seller's obligation to cure such defect or
repurchase or substitute for the related Mortgage Loan.
Pursuant to Section 5.11 of this Indenture, the Bond Insurer, so long
as no Bond Insurer Default exists, has the right to exercise any trust or power
conferred on the Indenture Trustee or the Bond Administrator. In connection with
the acceptance of the Subsequent Mortgage Loans by the Bond Administrator on
behalf of the Indenture Trustee, the Bond Insurer shall provide a certificate
(the "FSA Certificate") stating that the Subsequent Mortgage Loans are
acceptable to the Bond Insurer. Since the Bond Insurer is acting on behalf of
the Bondholders, the FSA Certificate will be binding upon those Bondholders. The
Bond Administrator on behalf of the Indenture Trustee shall not agree to any
transfer of Subsequent Mortgage Loans to it without (i) receipt of the FSA
Certificate and (ii) confirmation from the Rating Agencies that the purchase of
such Subsequent Mortgage Loans will not result in a downgrade, withdrawal or
qualification of the ratings then in effect for the Outstanding Bonds (without
regard to the Bond Insurance Policy).
(b) No later than 180 days after the Closing Date, the Bond
Administrator, on behalf of the Indenture Trustee, will review, for the benefit
of the Bondholders and the Bond Insurer, the Mortgage Files and will execute and
deliver or cause to be executed and delivered to the Seller and the Bond
Insurer, a final certification in the form annexed hereto as Exhibit H. In
conducting such review, the Bond Administrator, on behalf of the Indenture
Trustee, will ascertain whether an original of each document described in
subclauses (b)(ii)-(iv) of Section 2.1 of the Purchase Agreement required to be
recorded has been returned from the recording office with evidence of recording
thereon or a certified copy has been obtained from the recording office. If the
Bond Administrator, on behalf of the Indenture Trustee, finds any document
constituting part of the Mortgage File has not been received, or to be
unrelated, determined on the basis of the Mortgagor name, original principal
balance and loan number, to the Mortgage Loans identified in Exhibit L or
Attachment B to Exhibit 2 of the Purchase Agreement or to appear defective on
its face, the Bond Administrator, on behalf of the Indenture Trustee, shall
promptly notify the Seller and the Bond Insurer of such finding and the Seller's
obligation to cure such defect or repurchase or substitute for the related
Mortgage Loan.
(c) Upon deposit of the Repurchase Price in the Collection Account
and notification of the Bond Administrator, on behalf of the Indenture Trustee,
by a certification signed by a Servicing Officer (which certification shall
include a statement to the effect that the Repurchase Price has been deposited
in the Collection Account), the Bond Administrator, on behalf of the Indenture
Trustee, shall cause to be released to the Seller the related Mortgage File and
shall cause to be executed and delivered all instruments of transfer or
assignment, without recourse, furnished to it by the Seller as are necessary to
vest in the Seller title to and rights under the related Mortgage Loan. Such
purchase shall be deemed to have occurred on the date on which certification of
the deposit of the Repurchase Price in the Payment Account was received by the
Indenture Trustee. The Bond Administrator, on behalf of the Indenture Trustee,
5
shall amend the applicable Mortgage Loan Schedule to reflect such repurchase and
shall promptly notify the Servicer, the Bond Insurer and the Rating Agencies of
such amendment. The Indenture Trustee agrees to provide the Bond Administrator
with such power of attorneys as are necessary for the Bond Administrator to
fulfill its obligations under this Section 2.03 and otherwise under the Basic
Documents.
Section 2.04. REMIC Matters.
-------------
(a) The Class A-1 Bonds, the Class A-2 Bonds, the Class A-3 Bonds,
the Class A-4 Bonds, the B-1 Component, the B-2 Component, the B-3 Component,
the B-4 Component, the IO-1 Component, the IO-2 Component, the IO-3 Component
and the IO-4 Component are hereby designated as the "regular interests", and the
Certificates are designated the single class of "residual interests" in the
REMIC Trust for the purposes of the REMIC Provisions.
(b) The Closing Date will be the "startup day of the REMIC Trust
within the meaning of Section 860G(a)(9) of the Code.
(c) It is intended that the REMIC Trust formed under the Trust
Agreement shall constitute, and that the affairs of the REMIC Trust shall be
conducted so as to qualify it as, a REMIC as defined in and in accordance with
the REMIC Provisions. In furtherance of such intention, the Indenture Trustee
and the Servicer agree to provide to the Bond Administrator, as agent for the
REMIC Trust's Tax Matters Person, at the Tax Matters Person's expense, any
information actually in the possession of the Indenture Trustee or within the
control of the Servicer necessary for the Bond Administrator, on behalf of the
Tax Matters Person, to complete its duties set forth in Section 5.03 of the
Trust Agreement.
(d) In the event that any tax is imposed on "prohibited transactions"
of the REMIC as defined in Section 860F(a)(2) of the Code, on the "net income
from foreclosure property" of the REMIC as defined in Section 860G(c) of the
Code, on any contribution to the REMIC after the Startup Day pursuant to Section
860G(d) of the Code, or any other tax is imposed, such tax shall be paid by (i)
the Indenture Trustee, if such tax arises out of or results from the negligence
or willful breach or misconduct by the Indenture Trustee in the performance of
any of its obligations under the Basic Documents to which it is a party, (ii)
the Owner Trustee, if such tax arises out of or results from the gross
negligence or willful breach or misconduct by the Owner Trustee in the
performance of any of its obligations under the Basic Documents to which it is a
party, (iii) the Bond Administrator, if such tax arises out of or results from
the negligence or willful breach or misconduct by the Bond Administrator in the
performance of any of its obligations set forth under this Indenture, (iv) the
Servicer, if such tax arises out of or results from the negligence or willful
breach or misconduct by the Servicer in performance of any of its obligations
under the Basic Documents to which it is a party, or (v) the Holders of the
Subordinate Bonds, in proportion to their Percentage Interests. To the extent
such tax is chargeable against the Holders of the Subordinate Bonds, the Bond
Administrator, on behalf of the Indenture Trustee, is hereby authorized to
retain from amounts otherwise distributable to the Holders of the Subordinate
Bonds on any Distribution Date sufficient funds to reimburse the Bond
Administrator, on behalf of the Indenture Trustee, for the payment of such tax
(to the
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extent that the Bond Administrator, on behalf of the Indenture Trustee, has not
been previously reimbursed or indemnified therefor).
(e) Following the Startup Day and at any time that any Bonds are
outstanding, (x) neither the Indenture Trustee nor the Bond Administrator shall
knowingly accept any contribution of assets to the REMIC Trust, unless such
contribution is accompanied by an Opinion of Counsel (at the expense of the
Seller or the Servicer) to the effect that the inclusion of such assets in the
REMIC Trust will not cause the REMIC Trust to fail to qualify as a REMIC or
subject the REMIC Trust to any tax under the REMIC Provisions or other
applicable provisions of federal, state and local law or ordinances and (y) the
Bond Administrator shall not release any assets unless it shall have received a
properly executed Request for Release from the Servicer.
ARTICLE III
Covenants
---------
Section 3.01. Collection of Payments with respect to the Mortgage
---------------------------------------------------
Loans.
-----
Each of the Indenture Trustee and the Bond Administrator, on behalf of
the Indenture Trustee, shall establish and maintain an Eligible Account (each a
"Payment Account"), held in the name of the Indenture Trustee in trust for the
benefit of the Bondholders and the Bond Insurer. The Bond Administrator, shall,
subject to the terms of this paragraph, deposit in the Payment Account
established by it, (i) on the date of receipt (if received prior to 3:00 p.m.
Eastern Standard Time, and if not, then on the Business Day following receipt)
from the Servicer, each remittance received by the Bond Administrator with
respect to the Mortgage Loans and all other amounts required to be deposited in
such Payment Account, and (ii) amounts transferred from the Pre-Funding Account
and the Interest Coverage Account pursuant to Section 8.08 and 8.09 hereof. On
the Business Day prior to each Payment Date, the Bond Administrator shall remit
all amounts in the Payment Account established by it (other than any investment
income thereon, which shall be retained by the Bond Administrator as additional
compensation) to the Indenture Trustee for deposit in the Payment Account
established by the Indenture Trustee. The Indenture Trustee shall make all
payments of principal of and interest on the Bonds, subject to Section 3.03, as
provided in Section 3.05 to the extent of monies on deposit in the Payment
Account established by it (other than any investment income thereon, which shall
be retained by the Indenture Trustee as additional compensation).
Section 3.02. Maintenance of Office or Agency.
-------------------------------
The Issuer will maintain within the United States of America, an
office or agency where, subject to satisfaction of conditions set forth herein,
Bonds may be surrendered for registration of transfer or exchange, and where
notices and demands to or upon the Issuer in respect of the Bonds and this
Indenture may be served. The Issuer hereby initially appoints the Bond
Administrator to serve as its agent for the foregoing purposes. If at any time
the Issuer shall fail to maintain any such office or agency or shall fail to
furnish the Bond Administrator with the address thereof, such surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Bond Administrator, and the Issuer hereby appoints the Bond Administrator as its
agent to receive all such surrenders, notices and demands.
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Section 3.03. Money for Payments To Be Held in Trust; Paying Agent.
----------------------------------------------------
(a) As provided in Section 3.01, all payments of amounts due and
payable with respect to any Bonds that are to be made from amounts withdrawn
from the Payment Account pursuant to Section 3.01 shall be made on behalf of the
Issuer by the Indenture Trustee or by the Paying Agent, and no amounts so
withdrawn from the Payment Account for payments of Bonds shall be paid over to
the Issuer except as provided in this Section 3.03.
(b) The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee, an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Bonds in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and pay such sums to such Persons as herein provided;
(ii) give the Indenture Trustee and the Bond Insurer notice of any
default by the Issuer of which it has actual knowledge in the making of any
payment required to be made with respect to the Bonds;
(iii) at any time during the continuance of any such default, upon the
written request of the Indenture Trustee, forthwith pay to the Indenture
Trustee, all sums so held in trust by such Paying Agent;
(iv) immediately resign as Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment of Bonds if
at any time it ceases to meet the standards required to be met by a Paying
Agent at the time of its appointment;
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Bonds of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith; and
(vi) not commence a bankruptcy proceeding against the Issuer in
connection with this Indenture.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Request direct any Paying Agent to pay to the Indenture Trustee, all sums held
in trust by such Paying Agent, such sums to be held by the Indenture Trustee
upon the same trusts as those upon which the sums were held by such Paying
Agent; and upon such payment by any Paying Agent to the Indenture Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Bond (other than amounts paid under the Bond
Insurance Policy) and remaining
8
unclaimed for one year after such amount has become due and payable shall be
discharged from such trust and be paid to the Issuer upon receipt of an Issuer
Request; and the Holder of such Bond shall thereafter, as an unsecured general
creditor, look only to the Issuer for payment thereof (but only to the extent of
the amounts so paid to the Issuer), and all liability of the Indenture Trustee,
or such Paying Agent with respect to such trust money shall thereupon cease;
provided, however, that the Indenture Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense and direction of the
Issuer cause to be published once, in an Authorized Newspaper, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Indenture
Trustee, with the consent of the Bond Insurer, so long as no Bond Insurer
Default exists, may also adopt and employ, at the expense and direction of the
Issuer, any other reasonable means of notification of such repayment (including,
but not limited to, mailing notice of such repayment to Holders whose Bonds have
been called but have not been surrendered for redemption or whose right to or
interest in monies due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address of
record for each such Holder).
Section 3.04. Existence.
----------
The Issuer will keep in full effect its existence, rights and
franchises as a business trust under the laws of the State of Delaware (unless
it becomes, or any successor Issuer hereunder is or becomes, organized under the
laws of any other state or of the United States of America, in which case the
Issuer will keep in full effect its existence, rights and franchises under the
laws of such other jurisdiction) and will obtain and preserve its qualification
to do business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Bonds, the Mortgage Loans and each other instrument or agreement included in the
Trust Estate.
Section 3.05. Payment of Principal and Interest.
---------------------------------
(a) On each Payment Date from amounts on deposit with respect to a
Group in the Payment Account in accordance with Section 8.02 hereof, the
Indenture Trustee (based solely on the information provided to the Indenture
Trustee by the Bond Administrator pursuant to Section 3.26 hereof) shall pay,
with respect to the related Class of Bonds, to the Bondholders and to other
Persons the amounts to which they are entitled in the priority set forth below;
provided, however, that any amounts representing payments from the Bond Insurer
-------- -------
shall only be used to pay interest and principal to the related Class A
Bondholders pursuant to clauses (iii) and (iv):
(i) to the Bond Administrator, the Bond Administrator Fee (net of the
Indenture Trustee Fee, which the Indenture Trustee will retain), each with
respect to such Group;
(ii) to the Bond Insurer, the Bond Insurance Premium for the related
Class of Class A Bonds;
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(iii) to the related Class A Bondholders, the related Interest Payment
Amount with respect to such Payment Date;
(iv) to the related Class A Bondholders, the related Principal Payment
Amount with respect to such Payment Date;
(v) to the holders of each other Class of Class A Bonds, the related
Interest Cross-Collateralization Amount with respect to other Groups, subject to
the provisions of Section 3.05(b) below;
(vi) to the holders of each other Class of Class A Bonds, the Principal
Cross-Collateralization Amount with respect to other Groups, subject to the
provisions of Section 3.05(b) below;
(vii) to the Bond Insurer, the Reimbursement Amount with respect to the
related Group;
(viii) to the Bond Insurer, the Reimbursement Cross-Collateralization
Amount with respect to other Groups, subject to the provisions of Section
3.05(b) below;
(ix) to the related Class A Bondholders, in reduction of the related Bond
Principal Balance, the Subordination Increase Amount with respect to the related
Group;
(x) to the holders of each other Class of Class A Bonds, in reduction of
the related Bond Principal Balance, the Subordination Increase Cross-
Collateralization Amount with respect to other Groups, subject to the provisions
of Section 3.05(b) below;
(xi) to the Class A-1 and Class A-2 Bondholders only, any related Carry-
Forward Amount;
(xii) to the Class A-1 and Class A-2 Bondholders only, the Carry-Forward
Cross-Collateralization Amount with respect to other Groups, subject to the
provisions of Section 3.05(b) below;
(xiii) to the Indenture Trustee and to the Bond Administrator, any
amounts owing to the Indenture Trustee and to the Bond Administrator relating to
the Mortgage Loans in the related Group under any Basic Documents remaining
unpaid;
(xiv) to the Servicer, any amounts owing to the Servicer pursuant to the
Servicing Agreement in connection with the indemnity by the Issuer thereunder,
and in the event there is a successor servicer, additional compensation, if
necessary, pursuant to Section 6.02(a) of the Servicing Agreement;
(xv) to the holders of the Class B Bonds, the Interest Payment Amount on
the related Class B Component, and in reduction of the related Bond Principal
Balance on the related Class B Component, the related Principal Payment Amount
on the related Class B Component; and
10
(xvi) to the holders of the Class IO Bonds, the related Interest
Payment Amount for each IO Component; and
(xvii) any remaining amounts, to the Certificate Paying Agent for the
Certificateholders.
(b) The waterfall provisions stated in subparagraphs (v), (vi),
(viii), (x) and (xii) of paragraph (a) above provide for limited cross-
collateralization (the "Cross-Collateralization Provisions"), in which excess
funds from one or more Groups may be used to make payments otherwise due from
one or more other Groups. At each step in the waterfall containing Cross-
Collateralization Provisions, the Bond Administrator, on behalf of the Indenture
Trustee, shall determine with respect to each Group whether there is (x) excess
cash available from such Group for application with respect to payments due from
other Groups (an "Excess Group") or (y) a shortfall of cash available from such
Group required to make payments due from such Group (a "Shortfall Group"). If
the aggregate amount of cash required by all Shortfall Groups is greater than
the aggregate amount of cash available from all Excess Groups, then the
available excess cash will be applied to each Shortfall Group on a pro rata
basis, in accordance with the amount of the shortfall for each Shortfall Group.
Alternatively, if the aggregate amount of cash available from all Excess Groups
is greater than the aggregate amount of cash required by all Shortfall Groups,
then the aggregate amount of cash required by the Shortfall Groups will be
applied from each of the Excess Groups on a pro rata basis, in accordance with
the amount of excess cash available from each Excess Group. This process shall
be followed at each step in the waterfall containing Cross-Collateralization
Provisions.
(c) On each Payment Date, the Certificate Paying Agent shall deposit
in the Certificate Distribution Account all amounts it received pursuant to this
Section 3.05 for the purpose of distributing such funds to the
Certificateholders after payment of trust expenses to the Owner Trustee or the
Indenture Trustee pursuant to the Trust Agreement.
(d) Interest will accrue on the Class A-1 and Class A-2 Bonds during
an Interest Period on the basis of the actual number of days in such Interest
Period and a year assumed to consist of 360 days. Interest will accrue on the
Class A-3 and Class A-4 Bonds during an Interest Period on the basis of twelve
30-day months in a 360-day year. Interest will accrue on each component of the
Class B Bonds and the Class IO Bonds on the same basis as the Classes of the
Class A Bonds to which such component relates.
(e) Any installment of interest or principal, if any, payable on any
Class A Bond that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall, so long as such Class A Bonds are Book-Entry
Bonds registered in the name of the Depository or its nominee, be paid by wire
transfer to the Depository or its nominee. In the case of the Subordinated
Bonds and the Class A Bonds if such Class A Bonds are no longer Book-Entry
Bonds, if the related Holder shall have so requested at least five Business Days
prior to the related Record Date and, in the case of the Class A Bonds, such
Holder holds such Class A Bonds of an aggregate initial Bond Principal Balance
of at least $_________________, such installment shall be paid on such Payment
Date to each Holder of record on such Record Date, by wire transfer to an
account specified in writing by such Holder reasonably satisfactory to the
Indenture Trustee, and in all other cases or if no such instructions have been
delivered to the
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Indenture Trustee, by check to such Bondholder mailed to such ▇▇▇▇▇▇'s address
as it appears in the Bond Register in the amount required to be distributed to
such Holder on such Payment Date; provided, however, that the Indenture Trustee
shall not pay to such Holders any amount required to be withheld from a payment
to such Holder by the Code. The Indenture Trustee may deduct a reasonable wire
transfer fee from any payment made by wire transfer.
(f) The principal of each Bond shall be due and payable in full on
the Final Scheduled Payment Date for such Bond. All principal payments on the
Bonds shall be made to the Bondholders entitled thereto in accordance with the
Percentage Interests represented by such Bonds. Upon notice to the Indenture
Trustee, by the Issuer, the Indenture Trustee shall notify the Person in whose
name a Bond is registered at the close of business on the Record Date preceding
the Final Scheduled Payment Date or other final Payment Date (including any
final Payment Date resulting from any redemption pursuant to Section 8.07
hereof). Such notice shall to the extent practicable be mailed no later than
five Business Days prior to such Final Scheduled Payment Date or other final
Payment Date and shall specify that payment of the principal amount and any
interest due with respect to such Bond at the Final Scheduled Payment Date or
other final Payment Date will be payable only upon presentation and surrender of
such Bond and shall specify the place where such Bond may be presented and
surrendered for such final payment. No interest shall accrue on the Bonds on or
after the Final Scheduled Payment Date or any such other final Payment Date.
Section 3.06. Protection of Trust Estate.
--------------------------
(a) The Issuer will from time to time prepare, execute and deliver
all such supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) Grant more effectively all or any portion of the Trust Estate;
(ii) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(iii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iv) cause the Issuer or the Servicer to enforce any of their rights
with respect to the Mortgage Loans or the Related Documents; and
(v) preserve and defend title to the Trust Estate and the rights of
the Indenture Trustee, the Bond Insurer and the Bondholders in such Trust
Estate against the claims of all persons and parties.
Except as otherwise provided in this Indenture, neither the Bond
Administrator, on behalf of the Indenture Trustee, nor the Indenture Trustee
shall remove any portion of the Trust Estate that consists of money or is
evidenced by an instrument, certificate or other writing from the jurisdiction
in which it was held at the date of the most recent Opinion of Counsel delivered
pursuant to Section 3.07 hereof, unless the Bond Administrator and the Indenture
12
Trustee shall have first received an Opinion of Counsel to the effect that the
lien and security interest created by this Indenture with respect to such
property will continue to be maintained after giving effect to such action or
actions.
The Issuer hereby designates the Bond Administrator, on behalf of the
Indenture Trustee, its agent and attorney-in-fact to sign any financing
statement, continuation statement or other instrument required to be signed
pursuant to this Section 3.06 upon the Issuer's preparation thereof and delivery
to the Bond Administrator, on behalf of the Indenture Trustee.
Section 3.07. Opinions as to Trust Estate.
---------------------------
On the Closing Date, the Issuer shall furnish to the Indenture
Trustee, the Bond Administrator, the Bond Insurer and the Owner Trustee an
Opinion of Counsel either stating that, in the opinion of such counsel, such
action has been taken with respect to the recording and filing of this
Indenture, any indentures supplemental hereto, and any other requisite
documents, and with respect to the execution and filing of any financing
statements and continuation statements, as are necessary to perfect and make
effective the lien and first priority security interest in the Collateral and
reciting the details of such action, or stating that, in the opinion of such
counsel, no such action is necessary to make such lien and first priority
security interest effective.
On or before ______________ in each calendar year, beginning in
____________, the Issuer shall furnish to the Indenture Trustee, the Bond
Administrator and the Bond Insurer an Opinion of Counsel at the expense of the
Issuer either stating that, in the opinion of such counsel, such action has been
taken with respect to the recording, filing, re-recording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite documents
and with respect to the execution and filing of any financing statements and
continuation statements as is necessary to maintain the lien and first priority
security interest in the Collateral and reciting the details of such action or
stating that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest. Such Opinion of Counsel shall also
describe the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and the
execution and filing of any financing statements and continuation statements
that will, in the opinion of such counsel, be required to maintain the lien and
security interest in the Collateral until _________________ in the following
calendar year.
Section 3.08. Performance of Obligations.
--------------------------
The Issuer will punctually perform and observe all of its obligations
and agreements contained in this Indenture, the Basic Documents and in the
instruments and agreements included in the Trust Estate.
The Issuer, with the consent of the Bond Insurer so long as no Bond
Insurer Default exists, may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee or the Bond Administrator in an
Officer's Certificate of the Issuer shall be deemed to be action taken by the
Issuer.
13
The Issuer will not take any action or permit any action to be taken
by others which would release any Person from any of such Person's covenants or
obligations under any of the documents relating to the Mortgage Loans or under
any instrument included in the Trust Estate, or which would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any of the documents relating to the Mortgage
Loans or any such instrument, except such actions as the Servicer is expressly
permitted to take in the Servicing Agreement. The Bond Administrator, on behalf
of the Indenture Trustee, as pledgee of the Mortgage Loans, shall with the
consent of, or direction of, the Bond Insurer, so long as no Bond Insurer
Default exists, be able to exercise the rights of the Issuer to direct the
actions of the Servicer pursuant to the Servicing Agreement.
Section 3.09. Negative Covenants.
------------------
So long as any Bonds are Outstanding, the Issuer shall not:
(a) except as expressly permitted by this Indenture, sell, transfer,
exchange or otherwise dispose of the Trust Estate, unless directed to do so by
the Bond Insurer or the Bond Administrator, on behalf of the Indenture Trustee,
with the consent of the Bond Insurer, so long as no Bond Insurer Default exists;
(b) claim any credit on, or make any deduction from the principal or
interest payable in respect of, the Bonds (other than amounts properly withheld
from such payments under the Code) or assert any claim against any present or
former Bondholder by reason of the payment of the taxes levied or assessed upon
any part of the Trust Estate;
(c) permit the validity or effectiveness of this Indenture to be
impaired, or permit the lien of this Indenture to be amended, hypothecated,
subordinated, terminated or discharged, or permit any Person to be released from
any covenants or obligations with respect to the Bonds under this Indenture
except as may be expressly permitted hereby, permit any lien, charge, excise,
claim, security interest, mortgage or other encumbrance (other than the lien of
this Indenture) to be created on or extend to or otherwise arise upon or burden
the Trust Estate or any part thereof or any interest therein or the proceeds
thereof or permit the lien of this Indenture not to constitute a valid first
priority security interest in the Trust Estate; or
(d) waive or impair, or fail to assert rights under, the Mortgage
Loans, or impair or cause to be impaired the Issuer's interest in the Mortgage
Loans, the Mortgage Loan Purchase Agreement or any other Basic Document, if any
such action would materially and adversely affect the interests of the
Bondholders or the Bond Insurer.
Section 3.10. Annual Statement as to Compliance.
---------------------------------
The Issuer will deliver to the Indenture Trustee, the Bond
Administrator and the Bond Insurer, within 90 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year _____), an Officer's
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that:
14
(a) a review of the activities of the Issuer during such year and of
its performance under this Indenture has been made under such Authorized
Officer's supervision; and
(b) to the best of such Authorized Officer's knowledge, based on such
review, the Issuer has complied with all conditions and covenants under this
Indenture throughout such year, or, if there has been a default in its
compliance with any such condition or covenant, specifying each such default
known to such Authorized Officer and the nature and status thereof.
Section 3.11. Reserved
--------
Section 3.12. Representations and Warranties Concerning the Mortgage
------------------------------------------------------
The Indenture Trustee, as pledgee of the Mortgage Loans (and the
related MI Policies), has the benefit of the representations and warranties made
by the Seller in the Purchase Agreement concerning the Seller and the Mortgage
Loans (and the related MI Policies) to the same extent as though such
representations and warranties were made directly to the Indenture Trustee and
the Indenture Trustee and the Bond Administrator, on behalf of the Indenture
Trustee, have the right to enforce the remedies against the Seller provided in
such Purchase Agreement to the same extent as though such representations and
warranties were made directly to the Indenture Trustee. If a Responsible Officer
of the Indenture Trustee or the Bond Administrator has actual knowledge of any
breach of any representation or warranty made by the Seller in the Mortgage Loan
Purchase Agreement, the Indenture Trustee or the Bond Administrator, as the case
may be, shall promptly notify the Seller and the Bond Insurer of such finding
and the Seller's obligation to cure such breach or repurchase or substitute for
the related Mortgage Loan.
Section 3.13. Amendments to Servicing Agreement.
---------------------------------
The Issuer covenants with the Indenture Trustee, the Bond
Administrator and the Bond Insurer that it will not enter into any amendment or
supplement to the Servicing Agreement without the prior written consent of the
Indenture Trustee, the Bond Administrator and the Bond Insurer. The Indenture
Trustee, as pledgee of the Mortgage Loans, and the Bond Administrator, may, with
the consent of the Bond Insurer so long as no Bond Insurer Default exists,
decline to enter into or consent to any such supplement or amendment if the Bond
Insurer's or Bondholders' rights, duties or immunities would be materially and
adversely affected thereby. The Indenture Trustee and/or the Bond Administrator
may, but shall not be obligated to, enter into any amendment or supplement to
the Servicing Agreement that affects the Indenture Trustee's and/or the Bond
Administrator's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
Section 3.14. Servicer as Agent and Bailee of the Indenture Trustee.
-----------------------------------------------------
Solely for purposes of perfection under Section 9-305 of the Uniform
Commercial Code or other similar applicable law, rule or regulation of the state
in which such property is held by the Servicer, the Issuer, the Bond
Administrator and the Indenture Trustee hereby acknowledge that the Servicer is
acting as agent and bailee of the Indenture Trustee in holding amounts on
deposit in the Collection Account, as well as its agent and bailee in holding
15
any Related Documents released to the Servicer, and any other items constituting
a part of the Trust Estate which from time to time come into the possession of
the Servicer. It is intended that, by the Servicer's acceptance of such agency,
the Indenture Trustee, as a secured party of the Mortgage Loans, will be deemed
to have possession of such Related Documents, such monies and such other items
for purposes of Section 9-305 of the Uniform Commercial Code of the state in
which such property is held by the Servicer.
Section 3.15. Investment Company Act.
----------------------
The Issuer shall not become an "investment company" or under the
"control" of an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended (or any successor or amendatory statute), and
the rules and regulations thereunder (taking into account not only the general
definition of the term "investment company" but also any available exceptions to
such general definition); provided, however, that the Issuer shall be in
compliance with this Section 3.15 if it shall have obtained an order exempting
it from regulation as an "investment company" so long as it is in compliance
with the conditions imposed in such order.
Section 3.16. Issuer May Consolidate, etc.
---------------------------
The Issuer shall not consolidate or merge with or into any other
Person, unless:
(a) the Person (if other than the Issuer) formed by or surviving such
consolidation or merger shall be a Person organized and existing under the laws
of the United States of America or any state or the District of Columbia and
shall expressly assume, by an indenture supplemental hereto, executed and
delivered to the Indenture Trustee, in form reasonably satisfactory to the
Indenture Trustee, the Bond Administrator and the Bond Insurer, the due and
punctual payment of the principal of and interest on all Bonds and to the
Certificate Paying Agent, on behalf of the Certificateholders, and the payment
of the Bond Insurance Premium and all other amounts payable to the Bond Insurer
and the performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as provided
herein;
(b) immediately after giving effect to such transaction, no Event of
Default shall have occurred and be continuing;
(c) the Rating Agencies shall have notified the Issuer that such
transaction shall not cause the rating of the Bonds to be reduced, suspended or
withdrawn or to be considered by either Rating Agency to be below investment
grade without taking into account the Bond Insurance Policy;
(d) the Issuer and the Bond Insurer shall have received an Opinion of
Counsel (and shall have delivered a copy thereof to the Indenture Trustee and to
the Bond Administrator) to the effect that such transaction will not (A)
adversely affect the status of the Bonds as indebtedness for federal income tax
purposes, or (B) cause the Trust to be subject to an entity level tax for
federal income tax purposes;
16
(e) any action that is necessary to maintain the lien and security
interest created by this Indenture shall have been taken;
(f) the Issuer shall have delivered to the Indenture Trustee, the
Bond Administrator and the Bond Insurer an Officer's Certificate and an Opinion
of Counsel each stating that such consolidation or merger and such supplemental
indenture comply with this Article III and that all conditions precedent herein
provided for relating to such transaction have been complied with (including any
filing required by the Exchange Act); and
(g) the Bond Insurer, so long as no Bond Insurer Default exists,
shall have given its prior written consent.
The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of which is
hereby restricted shall be a United States citizen or a Person organized
and existing under the laws of the United States of America or any state,
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Indenture Trustee in form satisfactory to the Bond
Administrator and the Indenture Trustee, the due and punctual payment of
the principal of and interest on all Bonds and to the Certificate Paying
Agent, on behalf of the Certificateholders, the payment of the Bond
Insurance Premium and all other amounts payable to the Bond Insurer, the
payment of the MI Premium and all other amounts payable to the MI Insurer
and the performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein, expressly agree by means of such supplemental indenture
that all right, title and interest so conveyed or transferred shall be
subject and subordinate to the rights of the Holders of the Bonds and the
Bond Insurer, unless otherwise provided in such supplemental indenture,
expressly agree to indemnify, defend and hold harmless the Issuer, the
Indenture Trustee, the Bond Administrator and the Bond Insurer against and
from any loss, liability or expense arising under or related to this
Indenture and the Bonds and expressly agree by means of such supplemental
indenture that such Person (or if a group of Persons, then one specified
Person) shall make all filings with the Commission (and any other
appropriate Person) required by the Exchange Act in connection with the
Bonds;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer that such
transaction shall not cause the rating of the Bonds, or the rating of the
Bonds without taking into account the Bond Insurance Policy, to be reduced,
suspended or withdrawn;
(iv) the Issuer and the Bond Insurer shall have received an Opinion
of Counsel (and shall have delivered a copy thereof to the Indenture
Trustee and the Bond Administrator) to the effect that such transaction
will not (A) adversely affect the status
17
of the Bonds as indebtedness for federal income tax purposes, or (B) cause
the Trust to be subject to an entity level tax for federal income tax
purposes;
(v) any action that is necessary to maintain the lien and security
interest created by this Indenture shall have been taken;
(vi) the Issuer shall have delivered to the Indenture Trustee, the
Bond Administrator and the Bond Insurer an Officer's Certificate and an
Opinion of Counsel each stating that such conveyance or transfer and such
supplemental indenture comply with this Article III and that all conditions
precedent herein provided for relating to such transaction have been
complied with (including any filing required by the Exchange Act); and
(vii) the Bond Insurer, so long as no Bond Insurer Default exists,
shall have given its prior written consent.
Section 3.17. Successor or Transferee.
-----------------------
Upon any consolidation or merger of the Issuer in accordance with
Section 3.16(a), the Person formed by or surviving such consolidation or merger
(if other than the Issuer) shall succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under this Indenture with the same
effect as if such Person had been named as the Issuer herein.
Upon a conveyance or transfer of all the assets and properties of the
Issuer pursuant to Section 3.16(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Bonds immediately upon the delivery of written
notice to the Indenture Trustee, the Bond Administrator and the Bond Insurer of
such conveyance or transfer and approval of such transaction given by the Bond
Insurer to the Indenture Trustee or the Bond Administrator, on behalf of the
Indenture Trustee.
Section 3.18. No Other Business.
-----------------
The Issuer shall not engage in any business other than financing,
purchasing, owning, selling and managing the Mortgage Loans and the issuance of
the Bonds and Certificates in the manner contemplated by this Indenture and the
Basic Documents and all activities incidental thereto.
Section 3.19. No Borrowing.
-------------
The Issuer shall not issue, incur, assume, guarantee or otherwise
become liable, directly or indirectly, for any indebtedness except for the Bonds
and amounts due to the Bond Insurer under this Indenture and the Insurance
Agreement.
Section 3.20. Guarantees, Loans, Advances and Other Liabilities.
-------------------------------------------------
Except as contemplated by this Indenture or the Basic Documents, the
Issuer shall not make any loan or advance or credit to, or guarantee (directly
or indirectly or by an
18
instrument having the effect of assuring another's payment or performance on any
obligation or capability of so doing or otherwise), endorse or otherwise become
contingently liable, directly or indirectly, in connection with the obligations,
stocks or dividends of, or own, purchase, repurchase or acquire (or agree
contingently to do so) any stock, obligations, assets or securities of, or any
other interest in, or make any capital contribution to, any other Person.
Section 3.21. Capital Expenditures.
--------------------
The Issuer shall not make any expenditure (by long-term or operating
lease or otherwise) for capital assets (either realty or personalty).
Section 3.22. Purchase of Mortgage Loans Pursuant to the Servicing
----------------------------------------------------
Agreement.
---------
(a) Upon deposit of the Repurchase Price for a defaulted Mortgage Loan
in the Collection Account pursuant to Section 3.18 of the Servicing Agreement
and notification of the Bond Administrator, on behalf of the Indenture Trustee,
by a certification signed by a Servicing Officer (which certification shall
include a statement to the effect that the Repurchase Price has been deposited
in the Collection Account), the Bond Administrator, on behalf of the Indenture
Trustee, shall cause to be released to the Servicer the related Mortgage File
and shall cause to be executed and delivered all instruments of transfer or
assignment, without recourse, furnished to it by the Servicer as are necessary
to vest in the Servicer title to and rights under the related Mortgage Loan.
Such purchase shall be deemed to have occurred on the date on which
certification of the deposit of the Repurchase Price in the Collection Account
was received by the Bond Administrator, on behalf of the Indenture Trustee. The
Bond Administrator, on behalf of the Indenture Trustee, shall amend the
applicable Mortgage Loan Schedule to reflect such repurchase and shall promptly
notify the Servicer, the Indenture Trustee and the Bond Insurer of such
amendment.
(a) Upon deposit of the Repurchase Price for such Converted Mortgage
Loan in the Collection Account pursuant to Section 3.20 of the Servicing
Agreement and the Converted Loan Purchase Agreement and notification of the Bond
Administrator, on behalf of the Indenture Trustee, by a certification signed by
a Servicing Officer (which certification shall include a statement to the effect
that the Repurchase Price has been deposited in the Collection Account), the
Bond Administrator, on behalf of the Indenture Trustee, shall cause to be
released to the Servicer or its assignee the related Mortgage File and shall
cause to be executed and delivered all instruments of transfer or assignment,
without recourse, furnished to it by the Servicer or its assignee as are
necessary to vest in the Servicer or its assignee title to and rights under the
related Mortgage Loan. Such purchase shall be deemed to have occurred on the
date on which certification of the deposit of the Repurchase Price in the
Collection Account was received by the Bond Administrator, on behalf of the
Indenture Trustee. The Bond Administrator, on behalf of the Indenture Trustee,
shall amend the applicable Mortgage Loan Schedule to reflect such purchase and
shall promptly notify the Servicer, the Indenture Trustee and the Bond Insurer
of such amendment.
19
Section 3.23. Restricted Payments.
-------------------
The Issuer shall not, directly or indirectly, (i) pay any dividend or
make any distribution (by reduction of capital or otherwise), whether in cash,
property, securities or a combination thereof, to the Owner Trustee or any owner
of a beneficial interest in the Issuer or otherwise with respect to any
ownership or equity interest or security in or of the Issuer, (ii) redeem,
purchase, retire or otherwise acquire for value any such ownership or equity
interest or security or (iii) set aside or otherwise segregate any amounts for
any such purpose; provided, however, that the Issuer may make, or cause to be
made, (x) distributions to the Owner Trustee and the Certificateholders as
contemplated by, and to the extent funds are available for such purpose under
this Indenture and the Trust Agreement and (y) payments to the Servicer pursuant
to the terms of the Servicing Agreement. The Issuer will not, directly or
indirectly, make payments to or distributions from the Collection Account except
in accordance with this Indenture and the Basic Documents.
Section 3.24. Notice of Events of Default.
---------------------------
The Issuer shall give the Indenture Trustee, the Bond Insurer, the
Bond Administrator and the Rating Agencies prompt written notice of each Event
of Default hereunder and under the Trust Agreement.
Section 3.25. Further Instruments and Acts.
----------------------------
Upon request of the Indenture Trustee, the Bond Administrator or the
Bond Insurer, the Issuer will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
Section 3.26. Statements to Bondholders.
-------------------------
No later than noon on the Business Day prior to each Payment Date, the
Bond Administrator shall forward, by facsimile transmission, the statement
prepared pursuant to Section 7.05 of this Indenture, together with all other
information reasonably necessary to make the distributions pursuant to Section
3.05 of this Indenture, to the Indenture Trustee. On each Payment Date, the
Indenture Trustee and the Certificate Registrar shall forward by mail to each
Bondholder and Certificateholder, respectively, the statement prepared pursuant
to Section 7.05 of this Indenture. Neither the Indenture Trustee nor the Bond
Administrator, shall have any responsibility to (i) verify information provided
by the Servicer to be included in such statement or (ii) include any information
required to be included in such statement if the Servicer has failed to timely
produce such information to the Bond Administrator, as required pursuant to the
Servicing Agreement.
Section 3.27. Determination of Bond Interest Rate of Class A-1 and
----------------------------------------------------
Class A-2 Bonds.
---------------
On the Interest Determination Date, the Bond Administrator, on behalf
of the Indenture Trustee, shall determine One-Month LIBOR and as soon as
practical thereafter shall determine the Class A-1 Bond Interest Rate and the
Class A-2 Bond Interest Rate for the Interest
20
Period following such Interest Determination Date and shall inform the Issuer
and, the Servicer at their respective facsimile numbers given to the Bond
Administrator in writing thereof.
Section 3.28. Policy Payments Account.
------------------------
(a) If, on the second Business Day prior to the related Payment Date
there is not on deposit in the Payment Account an amount sufficient to pay
Scheduled Payments on the Class A Bonds due on such Payment Date, the Bond
Administrator shall give notice to the Bond Insurer by telephone or telecopy of
the amount of such deficiency by 12:00 noon, _____________ time, on such
Business Day
(b) At the time of the execution and delivery of this Indenture, and
for the purposes of this Indenture, the Indenture Trustee shall establish a
separate special purpose trust account in the name of the Indenture Trustee for
the benefit of Holders of the Class A Bonds referred to herein as the "Policy
Payments Account" and over which the Indenture Trustee shall have exclusive
control and sole right of withdrawal. The Indenture Trustee shall deposit any
amount paid under the Bond Insurance Policy in the Policy Payments Account and
distribute such amount only for purposes of making the Scheduled Payments for
which a claim was made. Such amounts shall be disbursed by the Indenture Trustee
to Holders pursuant to Section 3.05(a) hereof. It shall not be necessary for
such payments to be made by checks or wire transfers separate from the check or
wire transfer used to make payments on the Bonds with other funds available to
make such payments. However, the amount of any payment of principal of or
interest on the Bonds to be paid from the Policy Payments Account shall be noted
as provided in (d) below in the Payment Date Statement to be furnished to
Holders of the Bonds. Funds held in the Policy Payments Account shall not be
invested by the Indenture Trustee.
(c) Any funds received by the Indenture Trustee as a result of any
claim under the Bond Insurance Policy shall be applied by the Indenture Trustee,
together with the funds, if any, to be withdrawn from the Payment Account,
directly to the payment in full of the Scheduled Payments due on the Class A
Bonds (including Class A Bonds held for the Indenture Trustee's own account).
Funds received by the Indenture Trustee as a result of any claim under the Bond
Insurance Policy shall be deposited by the Indenture Trustee in the Policy
Payments Account and used solely for payment to the Holders of Class A Bonds and
may not be applied to satisfy any costs, expenses or liabilities of the
Indenture Trustee. Any funds remaining in the Policy Payments Account following
a Payment Date shall promptly be remitted to the Bond Insurer.
(d) The Indenture Trustee shall keep a complete and accurate record of
all funds deposited by the Bond Insurer into the Policy Payments Account and the
allocation of such funds to payment of interest on and principal paid in respect
of any Class A Bond. The Bond Insurer shall have the right to inspect such
records at reasonable times upon one Business Day's prior notice to the
Indenture Trustee.
(e) Subject to and conditioned upon payment of any interest or
principal with respect to the Class A Bonds by or on behalf of the Bond Insurer,
the Indenture Trustee shall assign to the Bond Insurer all rights to the payment
of interest or principal on the Class A Bonds which are then due for payment to
the extent of all payments made by the Bond Insurer and the Bond Insurer may
exercise any option, vote, right, power or the like with respect to the Class A
21
Bonds to the extent it has made a principal payment pursuant to the Bond
Insurance Policy. The Indenture Trustee agrees that the Bond Insurer shall be
subrogated to all of the rights to payment of the Holders of the Obligations or
in relation thereto to the extent that any payment of principal or interest was
made to such Holders with payments made under the Bond Insurance Policy by the
Bond Insurer.
Section 3.29. Servicing and Administration of the MI Policies.
-----------------------------------------------
The Bond Administrator, on behalf of the Indenture Trustee, agrees
that it will hold the MI Policies and the Issuer's rights thereunder, and all
payments received under the MI Policies, in trust solely for the use and benefit
of the Bondholders and the Bond Insurer in accordance with the terms hereof and
the terms of the Servicing Agreement. Subject to the provisions of Section 3.05
hereof, the Bond Administrator, on behalf of the Indenture Trustee, shall take
all such actions on behalf of the Issuer as are necessary to service and
administer the MI Policies and to perform the Issuer's obligations and enforce
the Issuer's rights under the MI Policies, which actions shall conform to the
standards of an institution prudently administering the MI Policies for its own
account; provided, however, that so long as no Servicing Default has occurred
and is continuing, the Servicer shall act as agent for the Indenture Trustee
with respect to the servicing and administering of the MI Policies pursuant to
Section 3.22 of the Servicing Agreement.
Section 3.30. Insolvency Proceedings.
----------------------
(a) In the event that the Indenture Trustee, or the Bond Administrator
on behalf of the Indenture Trustee, has received a certified copy of an order of
the appropriate court that any scheduled payment of principal of or interest on
a Class A Bond has been voided in whole or in part as a preference payment under
applicable bankruptcy law, the Indenture Trustee, or the Bond Administrator on
behalf of the Indenture Trustee, shall so notify the Bond Insurer, shall comply
with the provisions of the Bond Insurance Policy to obtain payment by the Bond
Insurer of such voided scheduled payment, and shall, at the time it provides
notice to the Bond Insurer, notify, by mail to Holders of the Class A Bonds
that, in the event that any Holder's scheduled payment is so recovered, such
Holder will be entitled to payment pursuant to the terms of the Bond Insurance
Policy, a copy of which shall be made available through the Indenture Trustee,
the Bond Insurer or the Fiscal Agent, if any, and the Indenture Trustee shall
furnish to the Bond Insurer or its Fiscal Agent, if any, its records evidencing
the payments of principal of and interest on the Class A Bonds, if any, which
have been made by the Indenture Trustee and subsequently recovered from Holders,
and the dates on which such payments were made.
(b) The Indenture Trustee shall promptly notify the Bond Insurer of
either of the following as to which it has actual knowledge: (i) the
commencement of any proceeding by or against the Issuer commenced under the
United States Bankruptcy Code or any other applicable bankruptcy, insolvency,
receivership, rehabilitation or similar law (an "Insolvency Proceeding") and
(ii) the making of any claim in connection with any Insolvency Proceeding
seeking the avoidance as a preferential transfer (a "Preference Claim") of any
payment of principal of, or interest on, the Class A Bonds. Each Holder, by its
purchase of Bonds, and the Indenture Trustee hereby agree that, so long as a the
Bond Insurer Default shall not have occurred and be continuing, the Bond Insurer
may at any time during the continuation of an
22
Insolvency Proceeding direct all matters relating to such Insolvency Proceeding,
including, without limitation, (i) all matters relating to any Preference Claim,
(ii) the direction of any appeal of any order relating to any Preference Claim
at the expense of the Bond Insurer but subject to reimbursement as provided in
the Insurance Agreement and (iii) the posting of any surety, supersedeas or
performance bond pending any such appeal. In addition, and without limitation of
the foregoing, as set forth in Section 4.12, the Bond Insurer shall be
subrogated to, and each Holder and the Indenture Trustee hereby delegate and
assign, to the fullest extent permitted by law the rights of the Indenture
Trustee and each Holder in the conduct of any Insolvency Proceeding, including,
without limitation, all rights of any party to an adversary proceeding action
with respect to any court order issued in connection with any such Insolvency
Proceeding.
(c) The Indenture Trustee shall furnish to the Bond Insurer or its
Fiscal Agent its records evidencing the Scheduled Payments of principal of and
interest on the Class A Bonds which have been made by the Indenture Trustee and
subsequently recovered from Bondholders, and the dates on which such payments
were made.
ARTICLE IV
The Bonds; Satisfaction and Discharge of Indenture
--------------------------------------------------
Section 4.01. The Bonds.
---------
The Class A Bonds shall be registered in the name of a nominee
designated by the Depository. Beneficial Owners will hold interests in the Class
A Bonds through the book-entry facilities of the Depository in minimum initial
Bond Principal Balances of $25,000 and integral multiples of $1,000 in excess
thereof. The Subordinated Bonds will not be held through the book-entry
facilities of the Depository. Pursuant to Section 4.08(a), the Subordinated
Bonds will be issued in the form of Definitive Bonds and, with respect to the
Class B Bonds, in minimum initial Bond Principal Balances of $25,000 and
integral multiples of $1,000 in excess thereof, and, with respect to the Class
IO Bonds, in minimum initial Percentage Interests of 10% and integral multiples
of 10% in excess thereof.
Subject to the last sentence of Section 4.12, the Bond Administrator
and the Indenture Trustee may for all purposes (including the making of payments
due on the Class A Bonds) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Class A Bonds for
the purposes of exercising the rights of Holders of Class A Bonds hereunder. In
addition, subject to the last sentence of Section 4.12, except as provided in
the next succeeding paragraph of this Section 4.01, the rights of Beneficial
Owners with respect to the Class A Bonds shall be limited to those established
by law and agreements between such Beneficial Owners and the Depository and
Depository Participants. Except as provided in Section 4.08 hereof, Beneficial
Owners shall not be entitled to definitive certificates for the Class A Bonds as
to which they are the Beneficial Owners. Requests and directions from, and votes
of, the Depository as Holder of the Class A Bonds shall not be deemed
inconsistent if they are made with respect to different Beneficial Owners. The
Bond Administrator, on behalf of the Indenture Trustee, may establish a
reasonable record date in connection with solicitations of consents from or
voting by Bondholders and give notice to the Depository of such record date.
Without the consent of the Issuer and the Bond Administrator, on behalf of the
Indenture
23
Trustee, no Class A Bond may be transferred by the Depository except to a
successor Depository that agrees to hold such Class A Bond for the account of
the Beneficial Owners.
In the event The Depository Trust Company resigns or is removed as
Depository, the Bond Administrator, on behalf of the Indenture Trustee, with the
approval of the Issuer may appoint a successor Depository. If no successor
Depository has been appointed within 30 days of the effective date of the
Depository's resignation or removal, each Beneficial Owner shall be entitled to
certificates representing the Class A Bonds it beneficially owns in the manner
prescribed in Section 4.08.
The Bonds shall, on original issue, be executed on behalf of the Issuer by
the Owner Trustee, not in its individual capacity but solely as Owner Trustee,
authenticated by the Bond Registrar and delivered by the Bond Administrator on
behalf of the Indenture Trustee to or upon the order of the Issuer.
Section 4.02. Registration of and Limitations on Transfer and
-----------------------------------------------
Exchange of Bonds; Appointment of Bond Registrar.
------------------------------------------------
The Issuer shall cause the Bond Administrator, as Bond Registrar, to
keep at the Corporate Trust Office of the Bond Registrar, a Bond Register in
which, subject to such reasonable regulations as it may prescribe, the Bond
Registrar shall provide for the registration of Bonds and of transfers and
exchanges of Bonds as herein provided.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Bond at the Corporate Trust Office
of the Bond Registrar, the Issuer shall execute and the Bond Registrar shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Bonds in authorized initial Bond Principal Balances
evidencing the same aggregate Percentage Interests.
Subject to the foregoing, at the option of the Bondholders, Bonds may
be exchanged for other Bonds of the same class and in authorized initial Bond
Principal Balances evidencing the same aggregate Percentage Interests upon
surrender of the Bonds to be exchanged at the Corporate Trust Office of the Bond
Registrar. Whenever any Bonds are so surrendered for exchange, the Issuer shall
execute and the Bond Registrar shall authenticate and deliver the Bonds which
the Bondholder making the exchange is entitled to receive. Each Bond presented
or surrendered for registration of transfer or exchange shall (if so required by
the Bond Registrar) be duly endorsed by, or be accompanied by a written
instrument of transfer in form reasonably satisfactory to the Bond Registrar
duly executed by the Holder thereof or his attorney duly authorized in writing
with such signature guaranteed by a commercial bank or trust company located or
having a correspondent located in the City of ________ or the city in which any
Corporate Trust Office of the Bond Registrar is located. Bonds delivered upon
any such transfer or exchange will evidence the same obligations, and will be
entitled to the same rights and privileges, as the Bonds surrendered.
No service charge shall be made for any registration of transfer or
exchange of Bonds, but the Bond Registrar shall require payment of a sum
sufficient to cover any tax or
24
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Bonds.
The Issuer hereby appoints the Bond Administrator to keep at its
Corporate Trust Office a Bond Register in which, subject to such reasonable
regulations as it may prescribe, the Bond Registrar shall provide for the
registration of Bonds and of transfers and exchanges thereof pursuant to this
Section. The Bond Administrator hereby accepts such appointment.
No transfer of any Subordinate Bond shall be made unless such transfer
is made in a transaction which does not require registration or qualification
under the Securities Act or qualification under any state securities or "Blue
Sky" laws. If such a transfer is to be made in reliance upon an exemption from
the Securities Act other than Rule 144A thereunder, (A) the Indenture Trustee
and the Bond Administrator shall receive an Opinion of Counsel that such
transfer may be made pursuant to an exemption from the Securities Act,
describing the applicable exemption and the basis therefor, which Opinion of
Counsel shall not be an expense of the Seller, the Company, the Servicer, the
Trust, the Bond Administrator, the Owner Trustee or the Indenture Trustee or (B)
the Bond Registrar shall require the transferee to execute a certification,
substantially in the form of Exhibit I hereto, setting forth the facts
surrounding such transfer. In the event that a transfer is to be made in
reliance on Rule 144A under the Securities Act, the Subordinate Bondholder shall
cause its prospective transferee to execute and deliver a certificate
substantially in the form of Exhibit I hereto; provided, however, that with
-------- -------
respect to any sale of a Subordinate Bond by an investment company registered
under the Investment Company Act of 1940, as amended, made in reliance on Rule
144A, the Subordinate Bondholder may (in lieu of delivering a certificate in the
form of Exhibit I) deliver to the Bond Registrar a certificate in the form of
Exhibit J hereto with a copy of a Qualified Institutional Buyer Certificate in
the form of Addendum 1 thereto. The Servicer promptly shall furnish to any
Holder, or any prospective purchaser designated by a Holder, the information
required to be delivered to Holders and prospective purchasers of Subordinate
Bonds in connection with the resale of the Subordinate Bonds to permit
compliance with Rule 144A in connection with such resale. No Subordinate Bond
may be subdivided for resale or other transfer into a unit smaller than a unit
the initial offering price of which would have been in the aggregate $1,000,000.
No resale or other transfer of the Subordinate Bonds may be made to a
nonresident alien individual, foreign corporation or other non-United States
person.
The Bond Registrar shall not register the transfer of any Subordinated
Bond unless the transferee has executed and delivered to the Bond Registrar, a
certification to the effect that the transferee is not (A) an employee benefit
plan (as defined in Section 3(3) of ERISA) that is subject to the provisions of
Title I of ERISA or (B) a plan (as defined in Section 4975(e)(1) of the Code)
that is subject to Section 4975 of the Code (each of the foregoing, a "Benefit
Plan"), and is not acting on behalf of or investing the assets of a Benefit
Plan.
Notwithstanding any other provisions of this Section 4.02, on the
Closing Date, the Issuer will issue the Subordinated Bonds to the Company and
the Company will sell the Subordinated Bonds to NRFC, in each case without
complying with the foregoing provisions of this Section 4.02. On the Closing
Date, the Subordinated Bonds shall be issued and registered in the name of NRFC.
25
Section 4.03. Mutilated, Destroyed, Lost or Stolen Bonds.
------------------------------------------
If (i) any mutilated Bond is surrendered to the Bond Registrar, or the
Bond Registrar, receives evidence to its satisfaction of the destruction, loss
or theft of any Bond, and (ii) there is delivered to the Bond Registrar, such
security or indemnity as may be required by it to hold the Issuer, the Bond
Insurer, the Bond Administrator and the Indenture Trustee harmless, then, in the
absence of notice to the Issuer, the Bond Registrar, the Bond Administrator or
the Indenture Trustee that such Bond has been acquired by a bona fide purchaser,
and provided that the requirements of Section 8-405 of the UCC are met, the
Issuer shall execute and, upon its request, the Bond Registrar shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Bond, a replacement Bond; provided, however, that if
-------- -------
any such destroyed, lost or stolen Bond, but not a mutilated Bond, shall have
become or within seven days shall be due and payable, instead of issuing a
replacement Bond, the Issuer may pay such destroyed, lost or stolen Bond when so
due or payable without surrender thereof. If, after the delivery of such
replacement Bond or payment of a destroyed, lost or stolen Bond pursuant to the
proviso to the preceding sentence, a bona fide purchaser of the original Bond in
lieu of which such replacement Bond was issued presents for payment such
original Bond, the Issuer, the Bond Insurer, the Bond Administrator and the
Indenture Trustee shall be entitled to recover such replacement Bond (or such
payment) from the Person to whom it was delivered or any Person taking such
replacement Bond from such Person to whom such replacement Bond was delivered or
any assignee of such Person, except a bona fide purchaser, and shall be entitled
to recover upon the security or indemnity provided therefor to the extent of any
loss, damage, cost or expense incurred by the Issuer, the Bond Insurer, the Bond
Administrator or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Bond under this Section 4.03, the
Issuer may require the payment by the Holder of such Bond of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Bond Administrator and the Indenture Trustee) connected therewith.
Every replacement Bond issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Bond shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Bond shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Bonds duly issued hereunder.
The provisions of this Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Bonds.
Section 4.04. Persons Deemed Owners.
---------------------
Prior to due presentment for registration of transfer of any Bond, the
Issuer, the Bond Insurer, the Indenture Trustee, the Bond Administrator and any
agent of the Issuer, the Bond Insurer, the Indenture Trustee or the Bond
Administrator may treat the Person in whose name any Bond is registered (as of
the day of determination) as the owner of such Bond for the
26
purpose of receiving payments of principal of and interest, if any, on such Bond
and for all other purposes whatsoever, whether or not such Bond be overdue, and
neither the Issuer, the Bond Insurer, the Indenture Trustee, the Bond
Administrator nor any agent of the Issuer, the Bond Insurer, the Indenture
Trustee or the Bond Administrator shall be affected by notice to the contrary.
Section 4.05. Cancellation.
------------
All Bonds surrendered for payment, registration of transfer, exchange
or redemption shall, if surrendered to any Person other than the Bond Registrar,
be delivered to the Bond Registrar, and shall be promptly canceled by the Bond
Registrar. The Issuer may at any time deliver to the Bond Registrar for
cancellation any Bonds previously authenticated and delivered hereunder which
the Issuer may have acquired in any manner whatsoever, and all Bonds so
delivered shall be promptly canceled by the Bond Registrar. No Bonds shall be
authenticated in lieu of or in exchange for any Bonds canceled as provided in
this Section 4.05, except as expressly permitted by this Indenture. All canceled
Bonds may be held or disposed of by the Bond Registrar in accordance with its
standard retention or disposal policy as in effect at the time unless the Issuer
shall direct by an Issuer Request that they be destroyed or returned to it;
provided, however, that such Issuer Request is timely and the Bonds have not
been previously disposed of by the Indenture Trustee.
Section 4.06. Book-Entry Bonds.
----------------
The Class A Bonds, upon original issuance, will be issued in the form
of definitive Bonds representing the Book-Entry Bonds, to be delivered to The
Depository Trust Company, the initial Depository, by, or on behalf of, the
Issuer. Such Class A Bonds shall initially be registered on the Bond Register in
the name of Cede & Co., the nominee of the initial Depository, and no Beneficial
Owner will receive a Definitive Bond representing such Beneficial Owner's
interest in such Bond, except as provided in Section 4.08. Unless and until
definitive, fully registered Bonds (the "Definitive Bonds") have been issued to
Beneficial Owners pursuant to Section 4.08:
(a) the provisions of this Section 4.06 shall be in full force and
effect;
(b) the Bond Registrar, the Bond Insurer and the Indenture Trustee,
shall be entitled to deal with the Depository for all purposes of this Indenture
(including the payment of principal of and interest on the Class A Bonds and the
giving of instructions or directions hereunder) as the sole holder of the Class
A Bonds, and shall have no obligation to the Beneficial Owners of Class A Bonds;
(c) to the extent that the provisions of this Section 4.06 conflict
with any other provisions of this Indenture, the provisions of this Section 4.06
shall control;
(d) subject to the last sentence of Section 4.12, the rights of
Beneficial Owners shall be exercised only through the Depository and shall be
limited to those established by law and agreements between such Beneficial
Owners of Class A Bonds and the Depository and/or the Depository Participants.
Unless and until Definitive Bonds are issued pursuant to Section 4.08, the
initial Depository will make book-entry transfers among the Depository
27
Participants and receive and transmit payments of principal of and interest on
the Class A Bonds to such Depository Participants; and
(e) subject to the last sentence of Section 4.12, whenever this
Indenture requires or permits actions to be taken based upon instructions or
directions of Holders of Class A Bonds evidencing a specified percentage of the
Bond Principal Balances of the Class A Bonds, the Depository shall be deemed to
represent such percentage only to the extent that it has received instructions
to such effect from Beneficial Owners and/or Depository Participants owning or
representing, respectively, such required percentage of the beneficial interest
in the Class A Bonds and has delivered such instructions to the Bond
Administrator or the Indenture Trustee.
Section 4.07. Notices to Depository.
---------------------
Whenever a notice or other communication to the Bondholders is
required under this Indenture, unless and until Definitive Bonds shall have been
issued to Beneficial Owners pursuant to Section 4.08, the Indenture Trustee or
the Bond Administrator, on behalf of the Indenture Trustee, as the case may be,
shall give all such notices and communications specified herein to be given to
Holders of the Class A Bonds to the Depository, and shall have no obligation to
the Beneficial Owners.
Section 4.08. Definitive Bonds.
----------------
(a) The Subordinate Bonds will be issued in the form of Definitive
Bonds.
(b) If (i) the Bond Administrator or the Indenture Trustee determines
that the Depository is no longer willing or able to properly discharge its
responsibilities with respect to the Class A Bonds and the Bond Administrator,
on behalf of the Indenture Trustee, is unable to locate a qualified successor,
(ii) the Bond Administrator or the Indenture Trustee elects to terminate the
book-entry system through the Depository or (iii) after the occurrence of an
Event of Default, Beneficial Owners of Class A Bonds representing beneficial
interests aggregating at least a majority of the Bond Principal Balances of the
Class A Bonds advise the Depository in writing that the continuation of a book-
entry system through the Depository is no longer in the best interests of the
Beneficial Owners, then the Depository shall notify all Beneficial Owners and
the Bond Registrar of the occurrence of any such event and of the availability
of Definitive Bonds to Beneficial Owners requesting the same. Upon surrender to
the Bond Registrar of the typewritten Bonds representing the Book-Entry Bonds by
the Depository, accompanied by registration instructions, the Issuer shall
execute and the Bond Registrar shall authenticate the Definitive Bonds in
accordance with the instructions of the Depository. None of the Issuer, the Bond
Registrar, the Bond Administrator, or the Indenture Trustee shall be liable for
any delay in delivery of such instructions and may conclusively rely on, and
shall be protected in relying on, such instructions. Upon the issuance of
Definitive Bonds, the Bond Administrator, the Indenture Trustee and the Bond
Registrar shall recognize the Holders of the Definitive Bonds as Bondholders.
The Bond Administrator, on behalf of the Indenture Trustee, shall notify the
Bond Insurer and the Indenture Trustee upon the issuance of Definitive Bonds.
28
Section 4.09. Reserved
--------
Section 4.10. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall cease to be of further effect with respect to the
Bonds, except as to (i) rights of registration of transfer and exchange, (ii)
substitution of mutilated, destroyed, lost or stolen Bonds, (iii) rights of
Bondholders (and the Bond Insurer, as subrogee of the Bondholders) to receive
payments of principal thereof and interest thereon, (iv) Sections 3.03, 3.04,
3.06, 3.09, 3.16, 3.18 and 3.19, (v) the rights, obligations and immunities of
the Indenture Trustee and the Bond Administrator hereunder (including the rights
of the Indenture Trustee and the Bond Administrator under Section 6.07 and the
obligations of the Indenture Trustee and the Bond Administrator under Section
4.11) and (vi) the rights of Bondholders as beneficiaries hereof with respect to
the property so deposited with the Indenture Trustee payable to all or any of
them, and the Bond Administrator, on behalf of the Indenture Trustee, on demand
of and at the expense of the Issuer, shall cause to be executed proper
instruments acknowledging satisfaction and discharge of this Indenture with
respect to the Bonds and shall release and deliver the Collateral to or upon the
order of the Issuer, when either:
(a) all Bonds theretofore authenticated and delivered (other than (i)
Bonds that have been destroyed, lost or stolen and that have been replaced or
paid as provided in Section 4.03 hereof and (ii) Bonds for whose payment money
has theretofore been deposited in trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer or discharged from such trust, as
provided in Section 3.03) have been delivered to the Bond Registrar for
cancellation; or
(b) all Bonds not theretofore delivered to the Bond Registrar for
cancellation have become due and payable, will become due and payable at the
Final Scheduled Payment Date within one year, or
(c) have been called for early redemption pursuant to Section 8.07
hereof, and the Issuer, in the case of (a) or (b) above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture Trustee, cash
or direct obligations of or obligations guaranteed by the United States of
America (which will mature prior to the date such amounts are payable), in trust
for such purpose, in an amount sufficient to pay and discharge the entire
indebtedness on such Bonds then outstanding not theretofore delivered to the
Indenture Trustee for cancellation when due on the Final Scheduled Payment Date
or other final Payment Date and has delivered to the Bond Administrator, the
Indenture Trustee, and the Bond Insurer a verification report from a nationally
recognized accounting firm certifying that the amounts deposited with the
Indenture Trustee are sufficient to pay and discharge the entire indebtedness of
such Bonds, or, in the case of (c) above, the Issuer shall have complied with
all requirements of Section 8.07 hereof;
(d) the Issuer has paid or caused to be paid all other sums payable
hereunder and under the Insurance Agreement by the Issuer as evidenced by the
written consent of the Bond Insurer; and
(e) the Issuer has delivered to the Indenture Trustee, the Bond
Administrator and the Bond Insurer an Officer's Certificate and an Opinion of
Counsel, each meeting the
29
applicable requirements of Section 10.01 hereof, each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with and, if the Opinion of
Counsel relates to a deposit made in connection with Section 4.10(A)(2)b. above,
such opinion shall further be to the effect that such deposit will constitute an
"in-substance defeasance" within the meaning of Revenue Ruling 85-42, 1985-1
C.B. 36, and in accordance therewith, the Issuer will be the owner of the assets
deposited in trust for federal income tax purposes.
Section 4.11. Application of Trust Money.
--------------------------
All monies deposited with the Indenture Trustee pursuant to Section
4.10 hereof shall be held in trust and applied by it, in accordance with the
provisions of the Bonds and this Indenture, to the payment, either directly or
through any Paying Agent or the Issuer, Certificate Paying Agent as designee of
the Issuer or the Bond Insurer, as applicable, as the Indenture Trustee may
determine, to the Holders of Bonds, of all sums due and to become due thereon
for principal and interest or otherwise; but such monies need not be segregated
from other funds except to the extent required herein or required by law.
Section 4.12. Effect of Payments by the Bond Insurer; Subrogation
---------------------------------------------------
(a) Anything herein to the contrary notwithstanding, any payment with
respect to the principal of or interest on the Class A Bonds which is made with
moneys received pursuant to the terms of the Bond Insurance Policy shall not be
considered payment by the Issuer of the Class A Bonds, shall not discharge the
Issuer in respect of its obligation to make such payment and shall not result in
the payment of or the provision for the payment of the principal of or interest
on the Class A Bonds within the meaning of Section 4.10 hereof. The Issuer and
the Indenture Trustee acknowledge that without the need for any further action
on the part of the Bond Insurer, the Issuer, the Indenture Trustee or the Bond
Registrar (i) to the extent the Bond Insurer makes payments, directly or
indirectly, on account of principal of or interest on the Class A Bonds to the
Holders of such Class A Bonds, the Bond Insurer will be fully subrogated to the
rights of such Holders to receive such principal and interest from the Issuer,
and (ii) the Bond Insurer shall be paid such principal and interest in its
capacity as a Holder of Class A Bonds but only from the sources and in the
manner provided herein for the payment of such principal and interest in each
case only after the Holders of the Class A Bonds have received payment of all
scheduled payments of principal and interest due thereon.
(b) Without limiting the provisions of Article V hereof or the rights
or interests of the Holders as otherwise set forth herein, so long as no Bond
Insurer Default exists, the Indenture Trustee shall cooperate in all respects
with any reasonable request by the Bond Insurer for action to preserve or
enforce the Bond Insurer's rights or interests under this Indenture, including,
without limitation, upon the occurrence and continuance of an Event of Default,
a request to take any one or more of the following actions:
(i) institute proceedings for the collection of all amounts then
payable on the Bonds, or under this Indenture in respect to the Bonds,
enforce any judgment obtained and collect from the Issuer moneys adjudged
due;
30
(ii) institute proceedings from time to time for the complete or
partial foreclosure of this Indenture; and
(iii) exercise remedies of a secured party under the Uniform
Commercial Code and take any other appropriate action to protect and
enforce the rights and remedies of the Bond Insurer hereunder.
Section 4.13. Repayment of Monies Held by Paying Agent.
----------------------------------------
In connection with the satisfaction and discharge of this Indenture
with respect to the Bonds, all monies then held by any Person other than the
Indenture Trustee under the provisions of this Indenture with respect to such
Bonds shall, upon demand of the Issuer, be paid to the Indenture Trustee to be
held and applied according to Section 3.05 and thereupon such Person shall be
released from all further liability with respect to such monies.
Section 4.14. Temporary Bonds.
---------------
Pending the preparation of any Definitive Bonds, the Issuer may
execute and upon its written direction, the Bond Registrar may authenticate and
make available for delivery, temporary Bonds that are printed, lithographed,
typewritten, photocopied or otherwise produced, in any denomination,
substantially of the tenor of the Definitive Bonds in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Bonds may reasonably determine, as
evidenced by their execution of such Bonds.
If temporary Bonds are issued, the Issuer will cause Definitive Bonds
to be prepared without unreasonable delay. After the preparation of the
Definitive Bonds, the temporary Bonds shall be exchangeable for Definitive Bonds
upon surrender of the temporary Bonds at the office or agency of the Bond
Registrar, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Bonds, the Issuer shall execute and the Indenture Trustee
shall authenticate and make available for delivery, in exchange therefor,
Definitive Bonds of authorized denominations and of like tenor and aggregate
principal amount. Until so exchanged, such temporary Bonds shall in all respects
be entitled to the same benefits under this Indenture as Definitive Bonds.
ARTICLE V
Default and Remedies
--------------------
Section 5.01. Events of Default.
------------------
The Issuer shall deliver to the Indenture Trustee, the Bond
Administrator and the Bond Insurer, within five days after learning of the
occurrence of a Default or an Event of Default, written notice in the form of an
Officer's Certificate of the occurrence of such Default or Event of Default, its
status and what action the Issuer is taking or proposes to take with respect
thereto.
31
Section 5.02. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default should occur and be continuing, then and in
every such case the Indenture Trustee may (with the prior written consent of the
Bond Insurer), and, at the written direction of the Bond Insurer or if a Bond
Insurer Default exists, the Holders of Bonds representing not less than a
majority of the Bond Principal Balances of all Bonds, shall, declare the Bonds
to be immediately due and payable, by a notice in writing to the Issuer (and to
the Indenture Trustee if given by Bondholders), and upon any such declaration
the unpaid Bond Principal Balance of the Bonds, together with accrued and unpaid
interest thereon through the date of acceleration, shall become immediately due
and payable.
At any time after such declaration of acceleration of maturity with
respect to an Event of Default has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, the Bond Insurer or, if a Bond Insurer
Default exists, the Holders of Bonds representing a majority of the Bond
Principal Balances of all Bonds, by written notice to the Issuer, the Bond
Administrator and the Indenture Trustee, may waive the related Event of Default
and rescind and annul such declaration and its consequences if:
(a) the Issuer or the Bond Insurer has paid or deposited with the
Indenture Trustee, a sum sufficient to pay:
(i) all payments of principal and interest on the Bonds and all other
amounts that would then be due hereunder or upon the Class A Bonds if the
Event of Default giving rise to such acceleration had not occurred; and
(ii) all sums reasonably paid or advanced by the Indenture Trustee or
the Bond Administrator hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee or the Bond
Administrator and their respective agents and counsel; and
(b) all Events of Default, other than the nonpayment of the principal
of the Bonds that has become due solely by such acceleration, have been cured or
waived as provided in Section 5.12;
provided, however, the Bond Insurer, so long as no Bond Insurer Default exists,
-------- -------
may waive an Event of Default regardless of Section 5.02(a) (i) or (ii) above.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Indenture Trustee.
-----------------
The Issuer covenants that if (i) default is made in the payment of any
interest (including the Interest Payment Amount) on any Bond when the same
becomes due and payable, and such default continues for a period of five days,
or (ii) default is made in the payment of the principal (including the Principal
Payment Amount and the Subordination Increase Amount) of,
32
or any installment of the principal of, any Bond when the same becomes due and
payable, the Issuer shall, upon demand of the Indenture Trustee, at the
direction of the Bond Insurer, so long as no Bond Insurer Default exists, pay to
the Indenture Trustee, for the benefit of the Holders of Bonds and of the Bond
Insurer, the whole amount then due and payable on the Bonds for principal and
interest, with interest at the Bond Interest Rate upon the overdue principal,
and in addition thereto such further amount as shall be sufficient to cover the
reasonable costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Indenture Trustee or
the Bond Administrator and their respective agents and counsel.
In case the Issuer shall fail forthwith to pay such amounts upon such
demand, the Indenture Trustee, in its own name and as trustee of an express
trust, and at the direction of the Bond Insurer, so long as no Bond Insurer
Default exists, subject to the provisions of Section 10.16 hereof, may institute
a Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer or other obligor upon the Bonds and collect in the manner provided by
law out of the property of the Issuer or other obligor the Bonds, wherever
situated, the monies adjudged or decreed to be payable.
If an Event of Default occurs and is continuing, the Indenture
Trustee, at the direction of the Bond Insurer, so long as no Bond Insurer
Default exists, subject to the provisions of Section 10.16 hereof may, as more
particularly provided in Section 5.04 hereof, in its discretion, proceed to
protect and enforce its rights and the rights of the Bondholders and the Bond
Insurer, by such appropriate Proceedings as the Indenture Trustee, at the
direction of the Bond Insurer, so long as no Bond Insurer Default exists, shall
deem most effective to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy
or legal or equitable right vested in the Indenture Trustee by this Indenture or
by law; provided, however, that reasonable indemnity is provided to the
Indenture Trustee by the Bond Insurer.
In case there shall be pending, relative to the Issuer or any other
obligor upon the Bonds or any Person having or claiming an ownership interest in
the Trust Estate, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Bonds, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, at the direction of the Bond
Insurer, so long as no Bond Insurer Default exists, irrespective of whether the
principal of any Bonds shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such Proceedings or otherwise:
(a) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Bonds and to file such
other papers or documents as
33
may be necessary or advisable in order to have the claims of the Indenture
Trustee (including any claim for reasonable compensation to the Indenture
Trustee and each predecessor Indenture Trustee, and their respective agents,
attorneys and counsel, and for reimbursement of all reasonable expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee, except as a result of negligence or bad faith),
the Bond Administrator, the Bond Insurer and of the Bondholders allowed in such
Proceedings;
(b) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of Bonds in any election of a trustee, a standby trustee
or Person performing similar functions in any such Proceedings;
(c) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Bondholders, the Bond Insurer, the Bond
Administrator and the Indenture Trustee on their behalf; and
(d) to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Indenture Trustee,
the Bond Insurer, the Bond Administrator or the Holders of Bonds allowed in any
judicial proceedings relative to the Issuer, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Bondholders to make
payments to the Indenture Trustee or the Bond Administrator, and, in the event
that the Indenture Trustee, with the consent of the Bond Insurer, so long as no
Bond Insurer Default exists, shall consent to the making of payments directly to
such Bondholders, to pay to the Indenture Trustee or the Bond Administrator such
amounts as shall be sufficient to cover reasonable compensation to the Indenture
Trustee or Bond Administrator, each predecessor Indenture Trustee or Bond
Administrator and their respective agents, attorneys and counsel, all other
reasonable expenses and liabilities incurred and all advances made by the
Indenture Trustee or Bond Administrator and each predecessor Indenture Trustee
or Bond Administrator , except as a result of negligence or bad faith, and all
amounts due to the Bond Insurer.
Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Bondholder any plan of reorganization, arrangement, adjustment or
composition affecting the Bonds or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Bondholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.
All rights of action and of asserting claims under this Indenture, or
under any of the Bonds, may be enforced by the Indenture Trustee without the
possession of any of the Bonds or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the reasonable
expenses, disbursements and compensation of the Indenture Trustee, each
predecessor Indenture Trustee
34
and their respective agents and attorneys, shall be for the ratable benefit of
the Holders of the Bonds and the Bond Insurer, subject to Section 5.05 hereof.
In any Proceedings brought by the Indenture Trustee with the consent
of the Bond Insurer, so long as no Bond Insurer Default exists (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Bonds, and it shall not be necessary to
make any Bondholder a party to any such Proceedings.
Section 5.04. Remedies; Priorities.
--------------------
If an Event of Default shall have occurred and be continuing and if an
acceleration has been declared and not rescinded pursuant to Section 5.02
hereof, the Indenture Trustee, subject to the provisions of Section 10.16 hereof
and with the consent of the Bond Insurer so long as no Bond Insurer Default
exists, may and, at the direction of the Bond Insurer so long as no Bond Insurer
Default exists, shall, do one or more of the following (subject to Section 5.05
hereof):
(a) institute Proceedings in its own name and as trustee of an express
trust for the collection of all amounts then payable on the Bonds or under this
Indenture with respect thereto, whether by declaration or otherwise, and all
amounts payable under the Insurance Agreement, enforce any judgment obtained,
and collect from the Issuer and any other obligor upon such Bonds monies
adjudged due;
(b) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Trust Estate;
(c) exercise any remedies of a secured party under the UCC and take
any other appropriate action to protect and enforce the rights and remedies of
the Indenture Trustee, the Holders of the Bonds and the Bond Insurer; and
(d) sell the Trust Estate or any portion thereof or rights or interest
therein, at one or more public or private sales called and conducted in any
manner permitted by law;
provided, however, that so long as a Bond Insurer Default exists, the Indenture
Trustee may not sell or otherwise liquidate the Trust Estate following an Event
of Default, unless the Indenture Trustee obtains the consent of the Holders of
100% of the aggregate Bond Principal Balance of the Class A Bonds, the proceeds
of such sale or liquidation distributable to the Holders of the Class A Bonds
are sufficient to discharge in full all amounts then due and unpaid upon the
Class A Bonds for principal and interest and to reimburse the Bond Insurer for
any amounts drawn under the Bond Insurance Policy and any other amounts due to
the Bond Insurer under the Insurance Agreement or the Indenture Trustee
determines that the Mortgage Loans will not continue to provide sufficient funds
for the payment of principal of and interest on the Class A Bonds as they would
have become due if the Class A Bonds had not been declared due and payable, and
the Indenture Trustee obtains the consent of the Holders of a majority of the
aggregate Bond Principal Balance. In determining such sufficiency or
insufficiency with respect to clause (B) and (C), the Indenture Trustee may, but
shall not be required to, obtain and rely upon an opinion of an Independent
investment banking or accounting firm of national reputation
35
as to the feasibility of such proposed action and as to the sufficiency of the
Trust Estate for such purpose.
If the Indenture Trustee collects any money or property with respect
to any Group pursuant to this Article V, it shall pay out the money or property
with respect to each related Class of Bonds, to the Bondholders and to other
Persons the amounts to which they are entitled, in the priority set forth below;
provided, however, that any amounts representing Scheduled Payments from the
-----------------
Bond Insurer under the Bond Insurance Policy shall only be used to pay interest
and principal to the related Class A Bondholders pursuant to clauses THIRD
-----
through SIXTH below:
-----
FIRST: to the Indenture Trustee and the Bond Administrator for
amounts due under Section 6.07 hereof with respect to the related
Class of Bonds;
SECOND: to the Bond Insurer, with respect to any Bond Insurance
Premium then due;
THIRD: to the Class A Bondholders for amounts due and unpaid on
the Class A Bonds with respect to interest, ratably, without
preference or priority of any kind within each such Class, based on
the related Interest Payment Amount due and payable on each such Class
(but not including any Prepayment Interest Shortfalls, any Relief Act
Shortfalls and the Carry-Forward Amount for such Class) from amounts
available in the Trust Estate from the Group relating to such Class;
FOURTH: : to the Class A Bondholders for amounts due and unpaid
on the related Class of Class A Bonds with respect to interest,
ratably, without preference or priority of any kind within each such
Class, based on the related Interest Payment Amount due and payable on
each such Class (but not including any Prepayment Interest Shortfalls,
any Relief Act Shortfalls and the Carry-Forward Amount for such Class
) from amounts available in the Trust Estate from any Group,
determined in accordance with the procedures set forth in Section
3.05(b);
FIFTH: to the Class A Bondholders for amounts due and unpaid on
the related Class of Class A Bonds with respect to principal
(including, but not limited to, any Principal Payment Amount), from
amounts available in the Trust Estate from the Group relating to such
Class, ratably, without preference or priority of any kind within each
such Class, based on the Bond Principal Balance of the related Class
of Class A Bonds, until the Bond Principal Balance of each such Class
of Bonds is reduced to zero;
SIXTH: to the Class A Bondholders for amounts due and unpaid on
the related Class of Class A Bonds with respect to principal
(including, but not limited to, any Principal Payment Amount), from
amounts available in the Trust Estate from any Group, determined in
accordance with the procedures set forth in Section 3.05(b), ratably,
without preference or priority of any kind within each
36
such Class, based on the Bond Principal Balance of the related Class
of Class A Bonds, until the Bond Principal Balance of each such Class
of Bonds is reduced to zero;
SEVENTH: to the Bond Insurer, the sum of (a) all payments
previously paid by the Bond Insurer under the Bond Insurance Policy
which have not previously been reimbursed, (b) any other amounts due
to the Bond Insurer pursuant to the Insurance Agreement, to the extent
not previously paid or reimbursed and (c) interest on the foregoing as
set forth in the Insurance Agreement from the date such amounts become
due until paid in full (including any Bond Insurance Premium not paid
pursuant to clause SECOND above);
------
EIGHTH: to the Bondholders of the Class A-1 Bonds and the Class
A-2 Bonds for amounts due and unpaid on each such Class with respect
to each related Carry-Forward Amount, ratably, without preference or
priority of any kind, based on the Carry-Forward Amount for each such
Class.
NINTH: to the Servicer, any amounts due and unpaid to the
Servicer pursuant to Section 5.03 of the Servicing Agreement in
connection with the indemnity by the Issuer thereunder, and in the
event there is a successor servicer, additional compensation, if
necessary, pursuant to Section 6.02(a) of the Servicing Agreement;
TENTH: to the holders of the Class B Bonds, for amounts due and
payable as interest thereon based on the Interest Payment Amount
thereof;
ELEVENTH: to the holders of the Class B Bonds, for amounts due
and payable as principal thereon, based on the Principal Payment
Amount thereof;
TWELFTH: to the holders of the Class IO Bond for amounts due and
payable as interest thereon based on the Class IO Interest Payment
Amount; and
THIRTEENTH: any remainder to the Certificate Paying Agent for
distribution to the Certificateholders.
The Indenture Trustee may fix a record date and payment date for any
payment to Bondholders pursuant to this Section 5.04. With respect to any
acceleration at the direction of the Bond Insurer, the first payment date after
the acceleration shall be the first Payment Date after the acceleration. At
least 15 days before such record date, the Indenture Trustee shall mail to each
Bondholder a notice that states the record date, the payment date and the amount
to be paid.
Section 5.05. Optional Preservation of the Trust Estate.
-----------------------------------------
If the Bonds have been declared to be due and payable under Section
5.02 following an Event of Default and such declaration and its consequences
have not been rescinded and annulled, the Indenture Trustee may, with the
consent of the Bond Insurer, and shall, at the
37
direction of the Bond Insurer, so long as no Bond Insurer Default exists, elect
to take and maintain possession of the Trust Estate. It is the desire of the
parties hereto and the Bondholders that there be at all times sufficient funds
for the payment of principal of and interest on the Bonds (although the parties
hereto understand that there exists the possibility of a shortfall in
collections of the related Mortgage Loans) and other obligations of the Issuer
including payment to the Bond Insurer, and the Indenture Trustee shall take such
desire into account when determining whether or not to take and maintain
possession of the Trust Estate. In determining whether to take and maintain
possession of the Trust Estate, the Indenture Trustee may, but shall not be
required to, obtain and rely upon an opinion of an Independent investment
banking or accounting firm of national reputation as to the feasibility of such
proposed action and as to the sufficiency of the Trust Estate for such purpose.
Section 5.06. Limitation of Suits.
-------------------
No Holder of any Bond shall have any right to institute any
Proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
subject to the provisions of Section 10.16 hereof:
(a) such Holder has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% of the Bond Principal Balances of
the Class A Bonds have made a written request to the Indenture Trustee to
institute such Proceeding in respect of such Event of Default in its own name as
Indenture Trustee hereunder;
(c) such Holder or Holders have offered to the Indenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in complying with such request;
(d) the Indenture Trustee for 60 days after its receipt of such notice
of request and offer of indemnity has failed to institute such Proceedings;
(e) no direction inconsistent with such written request has been given
to the Indenture Trustee during such 60-day period by the Holders of a majority
of the Bond Principal Balances of the Class A Bonds; and
(f) such Holder or Holders have the consent of the Bond Insurer,
unless a Bond Insurer Default exists.
It is understood and intended that no one or more Holders of Bonds
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Class A Bonds or to obtain or to seek to obtain priority or
preference over any Class A Holders or to enforce any right under this
Indenture, except in the manner herein provided.
38
Section 5.07. Unconditional Rights of Bondholders To Receive
----------------------------------------------
Principal and Interest.
----------------------
Except as otherwise set forth herein, the Holder of any Bond shall
have the right, which is absolute and unconditional, to receive payment of the
principal of and interest, if any, on such Bond on or after the respective due
dates thereof expressed in such Bond or in this Indenture to the extent funds
are available therefor from the Trust Estate and to institute suit for the
enforcement of any such payment, and such right shall not be impaired without
the consent of such Holder.
Section 5.08. Restoration of Rights and Remedies.
----------------------------------
If the Indenture Trustee or any Bondholder has instituted any
Proceeding to enforce any right or remedy under this Indenture and such
Proceeding has been discontinued or abandoned for any reason or has been
determined adversely to the Indenture Trustee, the Bond Administrator, the Bond
Insurer or to such Bondholder, then and in every such case the Issuer, the
Indenture Trustee, the Bond Administrator, the Bond Insurer and the Bondholders
shall, subject to any determination in such Proceeding, be restored severally
and respectively to their former positions hereunder, and thereafter all rights
and remedies of the Indenture Trustee, the Bond Administrator, the Bond Insurer
and the Bondholders shall continue as though no such Proceeding had been
instituted.
Section 5.09. Rights and Remedies Cumulative.
------------------------------
No right or remedy herein conferred upon or reserved to the Indenture
Trustee, the Bond Administrator, the Bond Insurer or to the Bondholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.10. Delay or Omission Not a Waiver.
------------------------------
No delay or omission of the Indenture Trustee, the Bond Administrator,
the Bond Insurer or any Holder of any Bond to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Indenture
Trustee, the Bond Administrator, the Bond Insurer or to the Bondholders may be
exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee, the Bond Administrator, the Bond Insurer or by the
Bondholders, as the case may be.
Section 5.11. Control by Bond Insurer.
-----------------------
The Bond Insurer, or if a Bond Insurer Default exists, the Holders of
a majority of the Bond Principal Balances of Class A Bonds shall have the right
(subject to the provisions of Section 5.06) to direct the time, method and place
of conducting any Proceeding for any
39
remedy available to the Indenture Trustee with respect to the Bonds or
exercising any trust or power conferred on the Indenture Trustee; provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture ;
(b) if a Bond Insurer Default exists, subject to the express terms of
Section 5.04, any direction to the Indenture Trustee to sell or liquidate the
Trust Estate shall be by Holders of Class A Bonds representing 100% of the Bond
Principal Balances of the Class A Bonds;
(c) if the conditions set forth in Section 5.05 hereof have been
satisfied and the Indenture Trustee, with the consent of the Bond Insurer, so
long as no Bond Insurer Default exists, elects to retain the Trust Estate
pursuant to such Section, then any direction to the Indenture Trustee by Holders
of Class A Bonds (other than with respect to the Bond Insurer exercising the
rights of Bondholders pursuant to the last sentence of Section 4.12) to sell or
liquidate the Trust Estate shall be of no force and effect; and
(d) if a Bond Insurer Default exists, the Indenture Trustee may take
any other action deemed proper by the Indenture Trustee that is not inconsistent
with such direction.
Notwithstanding the rights of Bondholders set forth in this Section,
subject to Section 6.01, the Indenture Trustee need not take any action that it
determines might involve it in liability or, if a Bond Insurer Default exists,
might materially adversely affect the rights of any Bondholders not consenting
to such action.
Section 5.12. Waiver of Past Defaults.
-----------------------
Prior to the declaration of the acceleration of the maturity of the
Bonds as provided in Section 5.02 hereof, the Bond Insurer, or if a Bond Insurer
Default exists, the Holders of Bonds of not less than a majority of the Bond
Principal Balances of the Bonds, may waive any past Event of Default and its
consequences except an Event of Default with respect to payment of principal of
or interest on any of the Bonds or in respect of a covenant or provision hereof
which cannot be modified or amended without the consent of the Holder of each
Bond or the waiver of which would materially and adversely affect the interests
of the Bond Insurer or modify its obligation under the Bond Insurance Policy. In
the case of any such waiver, the Issuer, the Indenture Trustee, the Bond
Administrator and the Holders of the Bonds shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Event of Default or impair any right consequent thereto.
Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.
40
Section 5.13. Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Bond by
such ▇▇▇▇▇▇'s acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Indenture Trustee for
any action taken, suffered or omitted by it as Indenture Trustee, the filing by
any party litigant in such suit of an undertaking to pay the costs of such suit,
and that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section 5.13 shall not apply to (a) any
suit instituted by the Indenture Trustee or the Bond Insurer, (b) any suit
instituted by any Bondholder, or group of Bondholders, in each case holding in
the aggregate more than 10% of the Bond Principal Balances of the Bonds or (c)
any suit instituted by any Bondholder for the enforcement of the payment of
principal of or interest on any Bond on or after the respective due dates
expressed in such Bond and in this Indenture.
Section 5.14. Waiver of Stay or Extension Laws.
--------------------------------
The Issuer covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead or in any manner whatsoever, claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, that may affect the covenants or the
performance of this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not hinder, delay or impede the execution of
any power herein granted to the Indenture Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
Section 5.15. Sale of Trust Estate.
--------------------
(a) The power to effect any sale or other disposition (a "Sale") of
any portion of the Trust Estate pursuant to Section 5.04 hereof is expressly
subject to the provisions of Section 5.05 hereof and this Section 5.15. The
power to effect any such Sale shall not be exhausted by any one or more Sales as
to any portion of the Trust Estate remaining unsold, but shall continue
unimpaired until the entire Trust Estate shall have been sold or all amounts
payable on the Bonds and under this Indenture and under the Insurance Agreement
shall have been paid. The Indenture Trustee with the consent of the Bond
Insurer, so long as no Bond Insurer Default exists, may from time to time
postpone any public Sale by public announcement made at the time and place of
such Sale. The Indenture Trustee hereby expressly waives its right to any amount
fixed by law as compensation for any Sale.
The Indenture Trustee shall not in any private Sale sell the Trust
Estate, or any portion thereof, unless
First: the Bond Insurer or, if a Bond Insurer Default exists,
the Holders of all Class A Bonds, consent to or direct the Indenture
Trustee to make, such Sale, or
41
Second: unless the Bond Insurer otherwise consents, the proceeds
of such Sale would be not less than the entire amount which would be
payable to the Bondholders under the Class A Bonds and the Bond
Insurer in respect of amounts drawn under the Bond Insurance Policy
and any other amounts due to the Bond Insurer under the Insurance
Agreement, in full payment thereof in accordance with Section 5.02
hereof, on the Payment Date next succeeding the date of such Sale, or
Third: the Indenture Trustee determines with the consent of the
Bond Insurer, so long as no Bond Insurer Default exists, that the
conditions for retention of the Trust Estate set forth in Section 5.05
hereof cannot be satisfied (in making any such determination, the
Indenture Trustee may rely upon an opinion of an Independent
investment banking firm obtained and delivered as provided in Section
5.05 hereof), and the Bond Insurer consents to such Sale, or if a Bond
Insurer Default exists, the Holders of Class A Bonds representing at
least 66-2/3% of the Bond Principal Balances of the Class A Bonds
consent to such Sale.
The purchase by the Indenture Trustee of all or any portion of the
Trust Estate at a private Sale shall not be deemed a Sale or other disposition
thereof for purposes of this Section 5.15(b).
(b) In connection with a Sale of all or any portion of the Trust
Estate,
(i) any Holder or Holders of Bonds may bid for and with the consent
of the Bond Insurer purchase the property offered for Sale, and upon
compliance with the terms of sale may hold, retain and possess and dispose
of such property, without further accountability, and may, in paying the
purchase money therefor, deliver any Bonds or claims for interest thereon
in lieu of cash up to the amount which shall, upon distribution of the net
proceeds of such sale, be payable thereon, and such Bonds, in case the
amounts so payable thereon shall be less than the amount due thereon, shall
be returned to the Holders thereof after being appropriately stamped to
show such partial payment;
(ii) the Indenture Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the
Trust Estate in connection with a Sale thereof;
(iii) the Indenture Trustee is hereby irrevocably appointed the agent
and attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Estate in connection with a Sale thereof, and to
take all action necessary to effect such Sale; and
(iv) no purchaser or transferee at such a Sale shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction
of any conditions precedent or see to the application of any monies.
42
Section 5.16. Action on Bonds.
----------------
The Indenture Trustee's right to seek and recover judgment on the
Bonds or under this Indenture shall not be affected by the seeking, obtaining or
application of any other relief under or with respect to this Indenture. Neither
the lien of this Indenture nor any rights or remedies of the Indenture Trustee,
the Bond Administrator, the Bond Insurer or the Bondholders shall be impaired by
the recovery of any judgment by the Indenture Trustee against the Issuer or by
the levy of any execution under such judgment upon any portion of the Trust
Estate or upon any of the assets of the Issuer. Any money or property collected
by the Indenture Trustee shall be applied in accordance with Section 5.04(b)
hereof.
Section 5.17. Performance and Enforcement of Certain Obligations.
--------------------------------------------------
Promptly following a request from the Indenture Trustee to do so, the
Issuer, in its capacity as holder of the Mortgage Loans, shall take all such
lawful action as the Indenture Trustee or the Bond Insurer may request to cause
the Issuer to compel or secure the performance and observance by the Seller, the
Company and the Servicer, as applicable, of each of their obligations to the
Issuer under or in connection with the Purchase Agreement and the Servicing
Agreement, and to exercise any and all rights, remedies, powers and privileges
lawfully available to the Issuer under or in connection with the Purchase
Agreement and the Servicing Agreement to the extent and in the manner directed
by the Indenture Trustee, with the consent of the Bond Insurer, so long as no
Bond Insurer Default exists, as pledgee of the Mortgage Loans, including the
transmission of notices of default on the part of the Seller, the Company or the
Servicer thereunder and the institution of legal or administrative actions or
proceedings to compel or secure performance by the Seller, the Company or the
Servicer of each of their obligations under the Purchase Agreement and the
Servicing Agreement. So long as no Bond Insurer Default exists, the Bond
Insurer shall have the right to approve or reject any proposed successor to the
Servicer (other than the Indenture Trustee) under the Servicing Agreement.
The Indenture Trustee, as pledgee of the Mortgage Loans, subject to
the rights of the Bond Insurer under this Agreement and the Servicing Agreement
may, and at the direction (which direction shall be in writing or by telephone
(confirmed in writing promptly thereafter)) of the Bond Insurer or, if a Bond
Insurer Default exists, the Holders of 66-2/3% of the Bond Principal Balances of
the Class A Bonds (except as otherwise set forth in the Indenture), shall
exercise all rights, remedies, powers, privileges and claims of the Issuer
against the Seller, the Company or the Servicer under or in connection with the
Purchase Agreement and the Servicing Agreement, including the right or power to
take any action to compel or secure performance or observance by the Seller, the
Company or the Servicer, as the case may be, of each of their obligations to the
Issuer thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Purchase Agreement and the Servicing Agreement, as
the case may be, and any right of the Issuer to take such action shall not be
suspended.
43
ARTICLE VI
The Indenture Trustee and the Bond Administrator
------------------------------------------------
Section 6.01. Duties of the Indenture Trustee and the Bond
--------------------------------------------
Administrator.
-------------
If an Event of Default has occurred and is continuing, each of the
Indenture Trustee and the Bond Administrator shall exercise the rights and
powers vested in each of them by this Indenture and use the same degree of care
and skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(a) Except during the continuance of an Event of Default:
(i) each of the Indenture Trustee and the Bond Administrator
undertake to perform such duties and only such duties as are specifically
set forth in this Indenture with respect to the Indenture Trustee and the
Bond Administrator, respectively, and no implied covenants or obligations
shall be read into this Indenture against the Indenture Trustee or the Bond
Administrator; and
(ii) in the absence of bad faith on its part, each of the Indenture
Trustee and the Bond Administrator, as the case may be, may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the Indenture
Trustee and/or the Bond Administrator, as applicable, and conforming to the
requirements of this Indenture; provided, however, that each of the
Indenture Trustee and the Bond Administrator, as the case may be, shall
examine the certificates and opinions delivered to it to determine whether
or not they conform to the requirements of this Indenture; provided,
further, however, that the Indenture Trustee shall have no duty or
responsibility to review any document, certificate, instrument or opinion
delivered solely to the Bond Administrator.
(b) Neither the Indenture Trustee nor the Bond Administrator may be
relieved from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section 6.01;
(ii) the Indenture Trustee and the Bond Administrator shall not be
liable for any error of judgment made in good faith by its respective
Responsible Officer unless it is proved that the Indenture Trustee or the
Bond Administrator, respectively, was negligent in ascertaining the
pertinent facts; and
(iii) neither the Indenture Trustee nor the Bond Administrator shall
be liable with respect to any action it takes or omits to take in good faith in
accordance with a direction received by it (A) pursuant to Sections 5.11 or 5.15
or (B) from the Bond Insurer, which it is entitled to give under any of the
Basic Documents.
Neither the Indenture Trustee nor the Bond Administrator shall be
liable for interest on any money received by the Indenture Trustee or the Bond
Administrator, as the case
44
may be, except as the Indenture Trustee or the Bond Administrator, respectively,
may agree in writing with the Issuer.
Money held in trust by the Indenture Trustee or the Bond Administrator
need not be segregated from other trust funds except to the extent required by
law or the terms of this Indenture or the Trust Agreement.
No provision of this Indenture shall require the Indenture Trustee or
the Bond Administrator to expend or risk its own funds or otherwise incur
financial liability in the performance of any of its duties hereunder or in the
exercise of any of its rights or powers, if it shall have reasonable grounds to
believe that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
Subject to the other provisions of this Agreement and without limiting
the generality of this Section 6.01, the Indenture Trustee shall have no duty
(A) to see to any recording, filing or depositing of this Agreement or any
agreement referred to herein or any financing statement or continuation
statement evidencing a security interest, or to see to the maintenance of any
such recording or filing or depositing or to any rerecording, refiling or
redepositing of any thereof, (B) to see to any insurance, (C) to see to the
payment or discharge of any tax, assessment, or other governmental charge or any
lien or encumbrance of any kind owing with respect to, assessed or levied
against, any part of the Trust Fund other than from funds available in the
Payment Account, or (D) to confirm or verify the contents of any reports or
certificates of the Servicer delivered to the Bond Administrator or the
Indenture Trustee believed by the Bond Administrator or the Indenture Trustee to
be genuine and to have been signed or presented by the proper party or parties.
Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Indenture Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
(c) The Bond Administrator shall act in accordance with Sections 6.03
and 6.04 of the Servicing Agreement and shall act as successor Servicer to the
extent provided in Section 6.02 of the Servicing Agreement.
(d) For all purposes under this Indenture, neither the Indenture
Trustee nor the Bond Administrator shall be deemed to have notice or knowledge
of any Default or Event of Default unless a Responsible Officer assigned to and
working in the Indenture Trustee's or the Bond Administrator's, respectively,
corporate trust department has actual knowledge thereof or unless written notice
of any event which is in fact such an Event of Default or Default is received by
the Indenture Trustee or the Bond Administrator, respectively, at the Corporate
Trust Office, and such notice references the Bonds generally, the Issuer, the
Trust Estate or this Indenture.
The Indenture Trustee and the Bond Administrator are hereby authorized
to execute and shall execute the Servicing Agreement, the Purchase Agreement,
the Insurance Agreement and the Converted Loan Purchase Agreement, and shall
perform their respective duties and satisfy their respective obligations
thereunder. Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
45
or the Bond Administrator shall apply to the Indenture Trustee's and the Bond
Administrator's execution of the Servicing Agreement, the Purchase Agreement,
the Insurance Agreement and the Converted Loan Purchase Agreement, and the
performance of their respective duties and satisfaction of its obligations
thereunder.
Notwithstanding any term or provision in this Indenture to the
contrary, the rights and obligations of the Indenture Trustee as Indenture
Trustee under this Agreement shall not be diminished by the fact that the
Indenture Trustee may employ the services of the Bond Administrator to
accomplish the duties of the Indenture Trustee hereunder. Accordingly, any
references in this Indenture or the other Basic Documents alluding to a right or
obligation of the Bond Administrator (other than the obligation of the Bond
Administrator to act as successor Servicer pursuant to Section 6.02 of the
Servicing Agreement in the event of a Servicer Event of Default) shall be
construed to mean such right or obligation of the Indenture Trustee, which right
or obligation may be accepted or performed by the Bond Administrator on behalf
of the Indenture Trustee.
Section 6.02. Rights of Indenture Trustee and Bond Administrator.
-------------------------------------------------
Each of the Indenture Trustee and the Bond Administrator may rely and
shall be protected in acting or refraining from acting on any resolution,
officer's certificate, opinion of counsel, certificate of auditors or other
certificate, statement, instrument, or document believed by it to be genuine and
to have been signed or presented by the proper person. The Indenture Trustee and
the Bond Administrator need not investigate any fact or matter stated in the
document.
Before either the Indenture Trustee or the Bond Administrator acts or
refrains from acting, it may require an Officer's Certificate or an Opinion of
Counsel reasonably satisfactory in form and substance to the Indenture Trustee
or the Bond Administrator, as the case may be, which Officer's Certificate or
Opinion of Counsel shall not be at the expense of the Indenture Trustee, the
Bond Administrator or the Trust Estate (except in the priority set forth in
Section 3.05(a)(xiv)). Neither the Indenture Trustee nor the Bond Administrator
shall be liable for any action either of them takes or omits to take in good
faith in reliance on an Officer's Certificate or Opinion of Counsel.
The Indenture Trustee may execute any of its trusts or powers
hereunder and both the Indenture Trustee and the Bond Administrator may perform
any of their respective duties hereunder either directly or by or through agents
or attorneys or a custodian or nominee.
Neither the Indenture Trustee nor the Bond Administrator shall be
liable for any action either of them takes or omits to take in good faith which
it believes to be authorized or within its rights or powers; provided, however,
that the Indenture Trustee's conduct or the Bond Administrator's conduct, as the
case may be, does not constitute willful misconduct, negligence or bad faith.
Each of the Indenture Trustee and the Bond Administrator may consult
with counsel chosen by it with due care, and the advice or opinion of counsel
with respect to legal matters relating to this Indenture and the Bonds shall be
full and complete authorization and
46
protection from liability in respect to any action taken, omitted or suffered by
either of them hereunder in good faith and in accordance with the advice or
opinion of such counsel.
The Indenture Trustee shall be under no obligation to exercise any of
the trusts or powers vested in it by this Indenture or to institute, conduct or
defend any litigation hereunder or in relation hereto at the request, order or
direction of any of the Bondholders, pursuant to the provisions of this
Indenture, unless such Bondholders shall have offered to the Indenture Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby (which in the case of the Majority
Bondholders will be deemed to be satisfied by a letter agreement with respect to
such costs from such Majority Bondholders); nothing contained herein shall,
however, relieve the Indenture Trustee of the obligation, upon the occurrence of
a Servicer Event of Default of which a Responsible Officer of the Indenture
Trustee shall have actual knowledge (which has not been cured), to exercise such
of the rights and powers vested in it by this Indenture, and to use the same
degree of care and skill in their exercise, as a prudent person would exercise
or use under the circumstances in the conduct of such person's own affairs.
The Indenture Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing to do by the Majority
Bondholders; provided, however, that if the payment within a reasonable time to
the Indenture Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion of the
Indenture Trustee, not reasonably assured to the Indenture Trustee by the
security afforded to it by the terms of this Agreement, the Indenture Trustee
may require reasonable indemnity against such cost, expense or liability as a
condition to taking any such action. The reasonable expense of every such
examination shall be paid by the Servicer or, if paid by the Indenture Trustee,
shall be repaid by the Servicer upon demand from the Servicer's own funds.
The rights of the Indenture Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the Indenture
Trustee shall not be answerable for other than its negligence or willful
misconduct in the performance of such act.
The Indenture Trustee shall not be required to give any bond or surety
in respect of the execution of the Trust Fund created hereby or the powers
granted hereunder.
Section 6.03. Individual Rights of Indenture Trustee and Bond
-----------------------------------------------
Administrator.
-------------
Each of the Indenture Trustee and the Bond Administrator in its
individual or any other capacity may become the owner or pledgee of Bonds and
may otherwise deal with the Issuer or its Affiliates with the same rights it
would have if it were not Indenture Trustee or Bond Administrator, as
applicable. Any Bond Registrar, co-registrar or co-paying agent may do the same
with like rights. However, the Indenture Trustee and the Bond Administrator must
comply with Section 6.11 hereof.
47
Section 6.04. Indenture Trustee's and Bond Administrator's
--------------------------------------------
Disclaimer.
----------
Neither the Indenture Trustee nor the Bond Administrator shall be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Bonds, neither the Indenture Trustee nor the Bond
Administrator shall be accountable for the Issuer's use of the proceeds from the
Bonds, and neither the Indenture Trustee nor the Bond Administrator shall be
responsible for any statement of the Issuer in the Indenture or in any document
issued in connection with the sale of the Bonds or in the Bonds other than the
Bond Registrar's certificate of authentication.
Section 6.05. Notice of Event of Default.
---------------------------
If an Event of Default occurs and is continuing and if it is known to
a Responsible Officer of the Indenture Trustee, the Indenture Trustee shall give
notice thereof to the Bond Insurer. The Indenture Trustee or the Bond
Administrator on behalf of the Indenture Trustee shall mail to each Bondholder
notice of the Event of Default within 10 days after a Responsible Officer has
actual knowledge thereof unless such Event of Default shall have been waived or
cured. Except in the case of an Event of Default in payment of principal of or
interest on any Bond, the Indenture Trustee may withhold the notice if and so
long as it in good faith determines that withholding the notice is in the
interests of Bondholders.
Section 6.06. Tax Administration of the Issuer.
--------------------------------
The Bond Administrator, on behalf of the Issuer, based solely on
information timely provided by the Servicer, shall prepare and file (or cause to
be prepared and filed), on behalf of the Issuer, all tax returns and information
reports, tax elections and such annual or other reports of the Issuer as are
necessary for preparation of tax returns and information reports as provided in
Section 5.03 of the Trust Agreement, including without limitation Form 1099.
All tax returns and information reports shall be signed by the Owner Trustee, in
the name and on behalf of the Issuer upon presentation of such tax returns and
reports by the Bond Administrator to the Owner Trustee as provided in Section
5.03 of the Trust Agreement.
Section 6.07. Compensation and Indemnity.
--------------------------
The Issuer shall pay to the Indenture Trustee and to the Bond
Administrator on each Payment Date reasonable compensation for their respective
services. The amount of the Bond Administrator Fee (net of the Indenture Trustee
Fee) shall be paid to the Bond Administrator on each Payment Date pursuant to
Section 3.05(a)(i) of this Indenture, and all amounts owing to the Indenture
Trustee and to the Bond Administrator hereunder in excess of such amount shall
be paid solely as provided in Section 3.05(a)(xiii) hereof and Section 5.06 of
the Servicing Agreement. On each Payment Date, the Indenture Trustee shall be
entitled to retain the Indenture Trustee Fee from amounts otherwise
distributable to the Bond Administrator pursuant to Section 3.05(a)(i). The
Indenture Trustee's compensation and the Bond Administrator's compensation shall
not be limited by any law on compensation of a trustee of an express trust. The
Issuer shall reimburse the Indenture Trustee and the Bond Administrator for all
reasonable out-of-pocket expenses incurred or made by it hereunder or under any
of the other Bond Documents, including costs of collection, in addition to
compensation for its services,
48
subject to the priorities established by Sections 3.05(a)(xiii) and 5.04 of this
Indenture. Such expenses shall include reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's and the Bond
Administrator's respective agents, counsel, accountants and experts. Subject to
the priorities established in Section 3.05(a) and Section 5.04 of this
Indenture, the Issuer shall indemnify the Indenture Trustee and the Bond
Administrator against any and all loss, liability or expense (including
reasonable attorneys' fees) incurred by it in connection with the administration
of this Trust Estate and the performance of its duties hereunder, including
without limitation, any such loss, liability or expense incurred by the
Indenture Trustee or the Bond Administrator in connection with any legal action.
The Indenture Trustee or the Bond Administrator, as the case may be, shall
notify the Issuer promptly of any claim for which it may seek indemnity. Failure
by the Indenture Trustee or the Bond Administrator to so notify the Issuer shall
not relieve the Issuer of its obligations hereunder. The Issuer shall defend any
such claim, and the Indenture Trustee and the Bond Administrator may have
separate counsel and the Issuer shall pay the reasonable fees and expenses of
such counsel. The Issuer is not obligated to reimburse any expense or indemnify
against any loss, liability or expense incurred by the Indenture Trustee or the
Bond Administrator through the Indenture Trustee's or the Bond Administrator's
own willful misconduct, negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee and the Bond
Administrator pursuant to this Section 6.07 shall survive the discharge of this
Indenture. When the Indenture Trustee or the Bond Administrator incurs expenses
after the occurrence of an Event of Default with respect to the Issuer, the
expenses are intended to constitute expenses of administration under Title 11 of
the United States Code or any other applicable federal or state bankruptcy,
insolvency or similar law.
Section 6.08. Replacement of Indenture Trustee or Bond Administrator.
------------------------------------------------------
No resignation or removal of the Indenture Trustee or the Bond
Administrator and no appointment of a successor Indenture Trustee or successor
▇▇▇▇ Administrator shall become effective until the acceptance of appointment by
the successor Indenture Trustee or successor ▇▇▇▇ Administrator pursuant to this
Section 6.08. The Indenture Trustee or the Bond Administrator may resign at any
time by so notifying the Issuer, the Indenture Trustee, the Bond Administrator
and the Bond Insurer. The Bond Insurer or, if a Bond Insurer Default exists, the
Holders of a majority of Bond Principal Balances of the Bonds may remove the
Indenture Trustee or the Bond Administrator by so notifying the Issuer and the
Indenture Trustee or the Bond Administrator, as applicable, and the Bond Insurer
and may appoint a successor Indenture Trustee or successor Bond Administrator.
The Issuer shall, with the consent of the Bond Insurer, so long as no Bond
Insurer Default exists, remove the Indenture Trustee or the Bond Administrator,
as the case may be, if:
(a) the Indenture Trustee or the Bond Administrator fails to comply
with Section 6.11 hereof;
(b) the Indenture Trustee or the Bond Administrator is adjudged a
bankrupt or insolvent;
49
(c) a receiver or other public officer takes charge of the Indenture
Trustee or the Bond Administrator or its respective property; or
(d) the Indenture Trustee or the Bond Administrator otherwise becomes
incapable of acting.
If the Indenture Trustee or the Bond Administrator resigns or is
removed or if a vacancy exists in the office of the Indenture Trustee or the
Bond Administrator for any reason (the Indenture Trustee or the Bond
Administrator, as applicable, in such event being referred to herein as the
retiring Indenture Trustee or the retiring Bond Administrator), the Issuer
shall, with the consent of the Bond Insurer, so long as no Bond Insurer Default
exists, promptly appoint a successor Indenture Trustee or Bond Administrator
reasonably acceptable to the Bond Insurer.
A successor Indenture Trustee or successor ▇▇▇▇ Administrator shall
deliver a written acceptance of its appointment to the retiring Indenture
Trustee or retiring Bond Administrator, the Bond Insurer, the Indenture Trustee,
the Bond Administrator and the Issuer. Thereupon, the resignation or removal of
the retiring Indenture Trustee or retiring Bond Administrator shall become
effective, and the successor Indenture Trustee or successor Bond Administrator
shall have all the rights, powers and duties of the Indenture Trustee or the
Bond Administrator under this Indenture. The successor Indenture Trustee or
successor ▇▇▇▇ Administrator shall mail a notice of its succession to the
Bondholders. The retiring Indenture Trustee or retiring Bond Administrator shall
promptly transfer all property held by it as Indenture Trustee or Bond
Administrator to the successor Indenture Trustee or successor Bond
Administrator.
Subject to the foregoing provisions of this Section 6.08, the
Indenture Trustee may terminate the Bond Administrator at any time for failure
to perform its obligations hereunder or under the Basic Documents provided it or
a Bond Administrator acceptable to the Bond Insurer assumes the obligations of
the Bond Administrator.
If a successor Indenture Trustee or successor ▇▇▇▇ Administrator does
not take office within 60 days after the retiring Indenture Trustee or retiring
▇▇▇▇ Administrator resigns or is removed, the retiring Indenture Trustee or
retiring Bond Administrator, as the case may be, the Issuer, the Bond Insurer,
the Indenture Trustee, the Bond Administrator or the Holders of a majority of
Bond Principal Balances of the Bonds may petition any court of competent
jurisdiction for the appointment of a successor Indenture Trustee or successor
▇▇▇▇ Administrator.
Notwithstanding the replacement of the Indenture Trustee or the Bond
Administrator pursuant to this Section, the Issuer's obligations under Section
6.07 shall continue for the benefit of the retiring Indenture Trustee or
retiring Bond Administrator.
Section 6.09. Successor Indenture Trustee or Bond Administrator by
----------------------------------------------------
Merger.
------
If the Indenture Trustee or the Bond Administrator consolidates with,
merges or converts into, or transfers all or substantially all of its corporate
trust business or assets to, another corporation or banking association, the
resulting, surviving or transferee corporation, without any further act, shall
be the successor Indenture Trustee or successor ▇▇▇▇
50
Administrator, as applicable; provided, that such corporation or banking
association shall be otherwise qualified and eligible under Section 6.11 hereof.
If at the time such successor or successors by merger, conversion or
consolidation to the Indenture Trustee or the Bond Administrator, as the case
may be, shall succeed to the trusts created by this Indenture and any of the
Bonds shall have been authenticated but not delivered, any such successor to the
Indenture Trustee or the Bond Administrator, as the case may be, may adopt the
certificate of authentication of any predecessor trustee and deliver such Bonds
so authenticated; and if at that time any of the Bonds shall not have been
authenticated, any successor to the Indenture Trustee or the Bond Administrator,
as the case may be, may authenticate such Bonds either in the name of any
predecessor hereunder or in the name of the successor to the Indenture Trustee
or the Bond Administrator, as the case may be; and in all such cases such
certificates shall have the full force as the Bonds or this Indenture provide
that such certificates of the Indenture Trustee or the Bond Administrator, as
the case may be, shall have.
Section 6.10. Appointment of Co-Indenture Trustee or Separate
-----------------------------------------------
Indenture Trustee.
-----------------
Notwithstanding any other provisions of this Indenture, at any time,
for the purpose of meeting any legal requirement of any jurisdiction in which
any part of the Trust Estate may at the time be located, the Indenture Trustee
shall have the power and may execute and deliver all instruments to appoint one
or more Persons to act as a co-trustee or co-trustees, or separate trustee or
separate trustees, of all or any part of the Trust Estate, and to vest in such
Person or Persons, in such capacity and for the benefit of the Bondholders and
the Bond Insurer, such title to the Trust Estate, or any part hereof, and,
subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Indenture Trustee or the Bond Insurer may
consider necessary or desirable. No co-trustee or separate trustee hereunder
shall be required to meet the terms of eligibility as a successor trustee under
Section 6.11 hereof and notice to, and the consent of, the Bond Insurer (but not
the Bondholders) of the appointment of any co-trustee or separate trustee shall
be required.
Every separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and conditions:
(a) all rights, powers, duties and obligations conferred or imposed
upon the Indenture Trustee shall be conferred or imposed upon and exercised or
performed by the Indenture 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 Indenture 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 Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to the
Trust Estate or any portion thereof in any such jurisdiction) shall be exercised
and performed singly by such separate trustee or co-trustee, but solely at the
direction of the Indenture Trustee;
(b) no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder; and
51
(c) the Indenture Trustee 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 Indenture 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 VI. 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
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
Any separate trustee or co-trustee may at any time constitute the
Indenture 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 Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. Eligibility; Disqualification.
-----------------------------
Each of the Indenture Trustee and the Bond Administrator shall at all
times be reasonably acceptable to the Bond Insurer and authorized to exercise
corporate trust powers. Each of the Indenture Trustee and the Bond Administrator
shall have a combined capital and surplus of at least $______________ as set
forth in its most recent published annual report of condition and it or its
parent shall have a long-term debt rating of Baa3 or better by [▇▇▇▇▇'▇] and BBB
or better by [Standard & Poor's]. The Indenture Trustee shall also satisfy the
requirements of TIA (S)310(a). The Indenture Trustee shall comply with TIA (S)
310(b), including the optional provision permitted by the second sentence of TIA
(S) 310(b)(9); provided, however, that there shall be excluded from the
operation of TIA (S) 310(b)(1) any indenture or indentures under which other
securities of the Issuer are outstanding if the requirements for such exclusion
set forth in TIA (S) 310(b)(1) are met. If at any time the Indenture Trustee or
the Bond Administrator shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect specified in Section 6.08 hereof.
Section 6.12. Preferential Collection of Claims Against Issuer.
------------------------------------------------
The Indenture Trustee shall comply with TIA (S) 311(a), excluding any
creditor relationship listed in TIA (S) 311(b). An Indenture Trustee who has
resigned or been removed shall be subject to TIA (S) 311(a) to the extent
indicated.
Section 6.13. Representations and Warranties.
-------------------------------
(a) The Indenture Trustee hereby represents that:
52
(i) The Indenture Trustee is duly organized and validly existing as
a __________ banking corporation in good standing under the laws of the
State of ___________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;
(ii) The Indenture Trustee has the power and authority to execute and
deliver this Indenture and to carry out its terms; and the execution,
delivery and performance of this Indenture have been duly authorized by the
Indenture Trustee by all necessary corporate action;
(iii) The consummation of the transactions contemplated by this
Indenture 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 articles of
organization or bylaws of the Indenture Trustee or any agreement or other
instrument to which the Indenture Trustee is a party or by which it is
bound; and
(iv) To the Indenture Trustee's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Indenture Trustee or its
properties: (A) asserting the invalidity of this Indenture, (B) seeking to
prevent the consummation of any of the transactions contemplated by this
Indenture or (C) seeking any determination or ruling that might materially
and adversely affect the performance by the Indenture Trustee of its
obligations under, or the validity or enforceability of, this Indenture.
(b) The Bond Administrator hereby represents that:
(i) The Bond Administrator is duly organized and validly existing as
a national banking association in good standing under the laws of the
United States 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;
(ii) The Bond Administrator has the power and authority to execute
and deliver this Indenture and to carry out its terms; and the execution,
delivery and performance of this Indenture have been duly authorized by the
Bond Administrator by all necessary corporate action;
(iii) The consummation of the transactions contemplated by this
Indenture 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 articles of
organization or bylaws of the Bond Administrator or any agreement or other
instrument to which the Bond Administrator is a party or by which it is
bound; and
(iv) To the Bond Administrator's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Bond Administrator or its
properties: (A) asserting the invalidity of this Indenture, (B) seeking
53
to prevent the consummation of any of the transactions contemplated by this
Indenture or (C) seeking any determination or ruling that might materially
and adversely affect the performance by the Bond Administrator of its
obligations under, or the validity or enforceability of, this Indenture.
Section 6.14. Directions to Indenture Trustee and Bond Administrator.
------------------------------------------------------
The Indenture Trustee or the Bond Administrator on behalf of the
Indenture Trustee, as the case may be, is hereby directed:
(a) to accept the pledge of the Mortgage Loans and hold the assets of
the Owner Trust Estate in trust for the Bondholders and the Bond Insurer;
(b) to authenticate and deliver the Class A-1 Bonds, the Class A-2
Bonds, the Class A-3 Bonds, the Class A-4 Bonds, the Class B Bonds and the Class
IO Bonds substantially in the form prescribed by Exhibits A, B, C, D, E and F,
respectively, in accordance with the terms of this Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
Section 6.15. The Agents.
----------
The provisions of this Indenture relating to the limitations of the
Indenture Trustee's and the Bond Administrator's liability and to its indemnity
shall inure also to the Paying Agent, the Bond Registrar, the Certificate Paying
Agent and the Certificate Registrar.
ARTICLE VII
Bondholders' Lists and Reports
------------------------------
Section 7.01. Issuer To Furnish Bond Administrator Names and
----------------------------------------------
Addresses of Bondholders.
------------------------
The Issuer will furnish or cause to be furnished to the Bond
Administrator and the Indenture Trustee (a) not more than five days after each
Record Date, a list, in such form as the Bond Administrator and the Indenture
Trustee may reasonably require, of the names and addresses of the Holders of
Bonds as of such Record Date, (b) at such other times as the Bond Administrator,
the Indenture Trustee and the Bond Insurer may request in writing, within 30
days after receipt by the Issuer of any such request, a list of similar form and
content as of a date not more than 10 days prior to the time such list is
furnished; provided, however, that so long as the Bond Administrator is the Bond
Registrar, no such list shall be required to be furnished to the Bond
Administrator.
Section 7.02. Preservation of Information; Communications to
----------------------------------------------
Bondholders.
-----------
The Bond Administrator shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Bonds
contained in the most recent list furnished to the Bond Administrator as
provided in Section 7.01 hereof and the names and
54
addresses of Holders of Bonds received by the Bond Administrator in its capacity
as Bond Registrar. The Bond Administrator may destroy any list furnished to it
as provided in such Section 7.01 upon receipt of a new list so furnished.
Bondholders may communicate pursuant to TIA (S)312(b) with other
Bondholders with respect to their rights under this Indenture or under the
Bonds.
The Issuer, the Indenture Trustee and the Bond Registrar shall have
the protection of TIA (S) 312(c).
Section 7.03. Reports by the Bond Administrator ; Issuer Fiscal Year.
------------------------------------------------------
The Bond Administrator, on behalf of the Issuer, shall:
(a) file with the Commission, on behalf of the Issuer, the annual
reports and information, documents and other reports (or copies of such portions
of any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) that the Issuer may be required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act. Such filings
shall be as follows: within 15 days after each Payment Date, the Bond
Administrator, on behalf of the Issuer, shall file with the Commission via the
Electronic Data Gathering, Analysis and Retrieval System, a Form 8-K with a copy
of the statement to Bondholders for such Payment Date as an exhibit thereto.
Prior to _____________________, the Bond Administrator, shall file a Form 15
Suspension Notification with respect to the Trust Fund, if applicable. Prior to
___________________, the Bond Administrator, on behalf of the Issuer, shall file
a Form 10-K, in substance conforming to industry standards, with respect to the
Trust Fund. The Issuer hereby grants to the Bond Administrator, a limited
power of attorney to execute and file each such document on behalf of the
Issuer. Such power of attorney shall continue until the earlier of (i) receipt
by the Bond Administrator, on behalf of the Issuer, from the Issuer of written
termination of such power of attorney and (ii) the termination of the Trust
Fund. The Bond Administrator, on behalf of the Issuer, shall deliver to the
Seller, the Indenture Trustee and the Bond Insurer within three Business Days
after filing any Form 8-K or Form 10-K pursuant to this Section 7.03 a copy of
such Form 8-K or Form 10-K, as the case may be; and
(b) file with the Commission (with copies to the Seller and the Bond
Insurer) in accordance with rules and regulations prescribed from time to time
by the Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants of this
Indenture as may be required from time to time by such rules and regulations.
Unless the Issuer otherwise notifies the Bond Administrator, the
fiscal year of the Issuer shall end on ______________________ of each year.
Section 7.04. Reports by Indenture Trustee.
----------------------------
If required by TIA (S) 313(a), within 60 days after each
___________________ beginning with _____________________, the Bond Administrator
on behalf of the Indenture Trustee shall mail to each Bondholder as required by
TIA (S) 313(c) and to the Bond Insurer a
55
brief report dated as of such date that complies with ▇▇▇ (S) 313(a). The Bond
Administrator, on behalf of the Indenture Trustee, also shall comply with TIA
(S) 313(b).
A copy of each report at the time of its mailing to Bondholders shall
be filed by the Bond Administrator, on behalf of the Indenture Trustee, with the
Commission and each stock exchange, if any, on which the Bonds are listed. The
Issuer shall notify the Indenture Trustee, the Bond Administrator and the Bond
Insurer if and when the Bonds are listed on any stock exchange.
Section 7.05. Statements to Bondholders.
-------------------------
(a) Subject to Section 3.26 of this Indenture, with respect to each
Payment Date, the Bond Administrator, on behalf of the Indenture Trustee, shall
deliver to each Certificateholder and Bondholder, the Bond Insurer, the
Indenture Trustee, the Seller, the Owner Trustee, the Certificate Paying Agent
and each Rating Agency, a statement setting forth the following information with
respect to each Group and each Class of Bonds, to the extent applicable:
(i) the aggregate amount of collections with respect to the Mortgage
Loans in each Group with respect to such Payment Date;
(ii) the Interest Payment Amount and the Principal Payment Amount for
each Class of Bonds for such Payment Date, and, with respect to the Class
A-1 and Class A-2 Bonds, the Carry-Forward Amount for such Payment Date,
and the aggregate unpaid Carry-Forward Amount for all prior Payment Dates;
(iii) the amount of the aggregate distributions on the Class A-1
Bonds, the Class A-2 Bonds, the Class A-3 Bonds, the Class A-4 Bonds, the
Class B Bonds and the Class IO Bonds for such Payment Date;
(iv) the Scheduled Payments, if any, paid by the Bond Insurer under
the Bond Insurance Policy for such Payment Date and the aggregate Scheduled
Payments for all prior Payment Dates paid by the Bond Insurer under the
Bond Insurance Policy and not yet reimbursed;
(v) the aggregate Principal Balance of the Mortgage Loans in each
Group as of the end of the preceding Due Period;
(vi) the number and aggregate Principal Balances of Mortgage Loans in
each Group (a) as to which the Monthly Payment is delinquent for 30-59
days, 60-89 days and 90 or more days (excluding any Mortgage Loans in
foreclosure or that have become REO Property), respectively, (b) in
foreclosure and (c) that have become REO Property, in each case as of the
end of the preceding Due Period; provided, however, that such information
will not be provided on the statements relating to the first Payment Date;
(vii) the Weighted Average Mortgage Rate for each Group for the
related Payment Date;
56
(viii) the related Required Subordination Amount, Subordination
Amount, Subordination Increase Amount, Net Monthly Excess Cashflow and
Subordination Reduction Amount for each Class of Class A Bonds on such
Payment Date;
(ix) the amount of any Advances and Compensating Interest payments
for such Payment Date for each Group;
(x) the aggregate Realized Losses with respect to the related
Payment Date and cumulative Realized Losses since the Closing Date for each
Group;
(xi) the amount of any unpaid accrued interest on the Class A-1
Bonds, the Class A-2 Bonds, the Class A-3 Bonds, the Class A-4 Bonds, the
Class B Bonds and the Class IO Bonds after such Payment Date;
(xii) the Bond Principal Balance of each Class of Bonds (IO Notional
Balance, in the case of the Class IO Bonds) after giving effect to the
distribution of principal on such Payment Date;
(xiii) the Bond Interest Rate for each Class of Bonds (or, in the
case of the Subordinated Bonds, each Component) and such Payment Date;
(xiv) the number and aggregate Principal Balance of Mortgage Loans
repurchased pursuant to the Purchase Agreement for the related Payment Date
and cumulatively since the Closing Date;
(xv) the Cumulative Loss Percentage, Delinquency Percentage,
Delinquency Amount and Rolling Delinquency Percentage for such Payment
Date;
(xvi) the amount of any Prepayment Interest Shortfalls or Relief Act
Shortfalls for such Payment Date;
(xvii) the aggregate number and Principal Balance of Converted
Mortgage Loans purchased pursuant to the Converted Loan Purchase Agreement
for the related Payment Date and cumulatively since the Closing Date;
(xviii) the aggregate number and Principal Balance of Converted
Mortgage Loans remaining as of the related Payment Date;
(xix) the aggregate amount collected with respect to any prepayment
penalties on the Mortgage Loans for such Payment Date;
(xx) the aggregate number, Principal Balance and percentage of
Mortgage Loans for which claims were submitted to the MI Insurer and the
aggregate number, Principal Balance and percentage of Mortgage Loans for
which claims were rejected by the MI Insurer for the related Payment Date
and cumulatively since the Closing Date; and
(xxi) if a MI Insurer Insolvency Event has occurred.
57
In addition, by _______________ of each calendar year following any
year during which the Bonds are outstanding, the Bond Administrator, on behalf
of the Indenture Trustee, shall furnish a report to each Bondholder of record if
so requested in writing at any time during each calendar year as to the amounts
reported pursuant to (ii) and (iii) with respect to the Bonds for such calendar
year.
The Bond Administrator, on behalf of the Indenture Trustee, in the
absence of manifest error may conclusively rely upon the Determination Date
Report provided by the Servicer pursuant to Section 4.01 of the Servicing
Agreement in its preparation of its Statement to the Bondholders pursuant to
this Section 7.05.
Section 7.06. Books and Records.
-----------------
The Issuer hereby covenants with the Indenture Trustee, the Bond
Administrator and the Bond Insurer that, so long as any of the Bonds remain
Outstanding, it shall:
(a) at all times cause to be kept proper books of account and allow
the Indenture Trustee, the Bond Administrator and the Bond Insurer and any
person appointed by them, to whom the Issuer shall have no reasonable objection,
access to the books of account of the Issuer at all reasonable times, on
reasonable prior notice and during normal business hours;
(b) at all times conduct and continue to conduct business in its own
corporate name;
(c) at all times act and continue to act through its duly authorized
officers and agents; and
(d) so far as permitted by law, at all times cause to be given to the
Indenture Trustee, the Bond Administrator and the Bond Insurer such information
as it shall reasonably require for the purpose of the discharge of the duties,
powers, trusts, authorities and discretions vested in it by this Indenture or by
operation of law.
ARTICLE VIII
Accounts, Disbursements and Releases
------------------------------------
Section 8.01. Collection of Money.
-------------------
Except as otherwise expressly provided herein, the Indenture Trustee
and the Bond Administrator, on behalf of the Indenture Trustee, may demand
payment or delivery of, and shall receive and collect, directly and without
intervention or assistance of any fiscal agent or other intermediary, all money
and other property payable to or receivable by the Indenture Trustee or the Bond
Administrator, on behalf of the Indenture Trustee, respectively, pursuant to
this Indenture. The Indenture Trustee, shall apply all such money received by it
as provided in this Indenture. Except as otherwise expressly provided in this
Indenture, if any default occurs in the making of any payment or performance
under any agreement or instrument that is part of the Trust Estate, the
Indenture Trustee may take such action as may be appropriate to enforce such
payment or performance, including the institution and prosecution of appropriate
Proceedings.
58
Any such action shall be without prejudice to any right to claim a Default or
Event of Default under this Indenture and any right to proceed thereafter as
provided in Article V.
Section 8.02. Trust Accounts.
--------------
On or prior to the Closing Date, the Issuer shall cause each of the
Indenture Trustee and the Bond Administrator on behalf of the Indenture Trustee,
to establish and maintain, in the name of the Indenture Trustee, for the benefit
of the Bondholders and the Bond Insurer, a Payment Account as provided in
Section 3.01 hereof.
All monies deposited from time to time in the Payment Account (other
than investments made with such monies including all income or other gain from
such investments pursuant to this Indenture), including assumption fees and
prepayment penalties, and all deposits therein pursuant to this Indenture are
for the benefit of the Bondholders and the Bond Insurer.
By noon on the Business Day prior to each Payment Date, the Bond
Administrator shall remit funds in the Payment Account established by it to the
Indenture Trustee in accordance with Section 3.01.
On each Payment Date, the Indenture Trustee, shall distribute all
amounts on deposit in the Payment Account established by it to Bondholders in
respect of the Bonds and to such other persons in the order of priority set
forth in Section 3.05 hereof (except as otherwise provided in Section 5.04(b)
hereof).
Each of the Indenture Trustee and the Bond Administrator may invest
any funds in the Payment Account (other than the proceeds of the Bond Insurance
Policy) established by it in Eligible Investments, in its discretion, maturing
no later than the Business Day preceding each Payment Date (provided, however,
that with respect to Eligible Investments that consist of obligations of the
Indenture Trustee or their respective affiliates, such Eligible Investments may
mature on the related Payment Date) and in the case of the Bond Administrator,
no later than the Business Day preceding each Payment Date. Such Eligible
Investments shall not be sold or disposed of prior to their maturity. All income
or other gain from such investments may be released from the Payment Account and
paid to the Indenture Trustee or the Bond Administrator, as applicable, from
time to time as part of its compensation for acting as Indenture Trustee and
Bond Administrator, respectively.
Section 8.03. Officer's Certificate.
---------------------
The Indenture Trustee shall receive at least seven days' notice when
requested by the Issuer to take any action pursuant to Section 8.05(a) hereof,
accompanied by copies of any instruments to be executed, and the Indenture
Trustee shall also require, as a condition to such action, an Officer's
Certificate, in form and substance reasonably satisfactory to the Indenture
Trustee, stating the legal effect of any such action, outlining the steps
required to complete such action, and concluding that all conditions precedent
to the taking of such action have been complied with.
59
Section 8.04. Termination Upon Distribution to Bondholders.
--------------------------------------------
This Indenture and the respective obligations and responsibilities of
the Issuer, the Bond Administrator and the Indenture Trustee (other than those
obligations and responsibilities which by their terms should survive the
termination of this Indenture) created hereby shall terminate upon the
distribution to Bondholders, the Bond Insurer, the Certificate Paying Agent on
behalf of the Certificateholders, the Bond Administrator and the Indenture
Trustee of all amounts required to be distributed pursuant to Article III;
provided, however, that in no event shall the trust created hereby continue
beyond the expiration of 21 years from the death of the survivor of the
descendants of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, the late ambassador of the United States to
the Court of St. ▇▇▇▇▇, living on the date hereof.
Section 8.05. Release of Trust Estate.
-----------------------
Subject to the payment of its reasonable fees and expenses, the
Indenture Trustee may, and when required by the provisions of this Indenture
shall, execute instruments to release property from the lien of this Indenture,
or convey the Indenture Trustee's interest in the same, in a manner and under
circumstances that are not inconsistent with the provisions of this Indenture.
(a) The Indenture Trustee shall, at such time as (i) there are no
Bonds Outstanding, (ii) all sums due to the Indenture Trustee and to the Bond
Administrator pursuant to this Indenture have been paid, and (iii) all sums due
to the Bond Insurer have been paid, release any remaining portion of the Trust
Estate that secured the Bonds from the lien of this Indenture.
(b) The Indenture Trustee shall release property from the lien of
this Indenture pursuant to this Section 8.05 only upon receipt of a request from
the Issuer accompanied by an Officers' Certificate and an Opinion of Counsel
stating that all applicable requirements have been satisfied, and a letter from
the Bond Insurer stating that the Bond Insurer has no objection to such request
from the Issuer.
Section 8.06. Surrender of Bonds Upon Final Payment.
-------------------------------------
By acceptance of any ▇▇▇▇, the Holder thereof agrees to surrender such
▇▇▇▇ to the Bond Registrar, on behalf of the Indenture Trustee, promptly, prior
to such Bondholder's receipt of the final payment thereon.
Section 8.07. Optional Redemption of the Bonds.
--------------------------------
(a) Pursuant to Section 3.23 of the Servicing Agreement, the
Servicer shall have the option to purchase 100% of the Mortgage Loans, and cause
a redemption of the Bonds on or after any Payment Date on which the aggregate
Principal Balance of the Mortgage Loans in all four Groups is reduced to less
than 10% of the Maximum Collateral Amount. The aggregate purchase price for the
Mortgage Loans in each Group will be equal to the unpaid Bond Principal Balance
of the related Class of Bonds (or B Components in the case of the Class B Bonds)
as of the Payment Date on which the proposed redemption will take place in
accordance with the foregoing, together with accrued and unpaid interest thereon
(and on the Class IO Bonds) at the related Bond Interest Rate through such
Payment Date (including any related Carry-Forward Amount), plus an amount
sufficient to pay in full all amounts owing to the Bond
60
Insurer, the Bond Administrator and the Indenture Trustee under this Indenture
and the Insurance Agreement and the Servicer under the Servicing Agreement
(which amounts shall be specified in writing upon request of the Issuer by the
Indenture Trustee, the Bond Administrator and the Bond Insurer). Such redemption
must constitute a "qualified liquidation" of the REMIC established by the Issuer
under Section 860F of the Code including, without limitation, the requirement
that the qualified liquidation takes place over a period not to exceed 90 days.
(b) In order to exercise the foregoing option, the Servicer shall,
not less than 30 days prior to the proposed Payment Date on which such
redemption is to be made shall provide written notice of its exercise of such
option to the Bond Administrator, the Indenture Trustee, the Bond Insurer, the
Owner Trustee and the Issuer. Following receipt of the notice pursuant to the
foregoing, the Bond Administrator on behalf of the Indenture Trustee shall
provide notice to the Bondholders of the final payment on the Bonds, conduct a
qualified liquidation of the Trust Estate, and the Indenture Trustee shall apply
funds from such liquidation to make final payments of principal and interest on
the Bonds in accordance with Section 3.05(a) hereof, and this Indenture shall be
discharged, subject to the provisions of Section 4.10 hereof.
Section 8.08. Pre-Funding Account.
-------------------
(a) No later than the Closing Date, the Bond Administrator, on
behalf of the Indenture Trustee, shall establish and maintain in the name of the
Indenture Trustee one or more Eligible Accounts, which shall be titled "Pre-
Funding Account, ________________________ as Indenture Trustee, on behalf of the
registered Bondholders of NovaStar Mortgage Funding Trust, Series _________ Home
Equity Loan Asset-Backed Bonds" (the "Pre-Funding Account"). On the Closing
Date, the Original Pre-Funded Amount with respect to each Group shall be
deposited in the Pre-Funding Account from the proceeds of the sale of the Bonds
and retained therein. Funds deposited in the Pre-Funding Account shall be held
in the Pre-Funding Account, on behalf of the Indenture Trustee, for the Holders
of the Bonds and the Bond Insurer for the uses and purposes set forth in the
Indenture and the Purchase Agreement. If the Bond Administrator, on behalf of
the Indenture Trustee, shall not have received an investment direction from the
Issuer, the Bond Administrator, on behalf of the Indenture Trustee, will invest
funds deposited in the Pre-Funding Account in Eligible Investments of the kind
described in clause (vii) of the definition of Eligible Investments. The Issuer
shall be the owner of the Pre-Funding Account and shall report all items of
income, deduction, gain or loss arising therefrom. All income and gain realized
from investment of funds deposited in the Pre-Funding Account shall be
transferred to the Interest Coverage Account on each Payment Date.
(b) Amounts on deposit in the Pre-Funding Account shall be
withdrawn by the Bond Administrator, on behalf of the Indenture Trustee, as
follows:
(i) On any Subsequent Transfer Date, the Bond Administrator, on
behalf of the Indenture Trustee, shall withdraw from the Pre-Funding
Account an amount with respect to each Group equal to 100% of the Principal
Balances of the Subsequent Mortgage Loans for such Group transferred and
assigned to the Indenture Trustee on such Subsequent Transfer Date and pay
such amount to or upon the order of the Company upon satisfaction of the
conditions set forth in Section 2.2 of the Purchase Agreement with respect
to such transfer and assignment; and
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(ii) If the Pre-Funded Amount with respect to a Group has not been
reduced to zero during the Funding Period, on the Business Day prior to the
Payment Date following the end of the Funding Period, the Bond
Administrator shall deposit into the Payment Account established by the
Indenture Trustee any amounts remaining in the Pre-Funding Account with
respect to such Group.
Section 8.09. Interest Coverage Account.
-------------------------
(a) No later than the Closing Date, the Bond Administrator, on
behalf of the Indenture Trustee, shall establish and maintain in the name of the
Indenture Trustee one or more Eligible Accounts, titled "Interest Coverage
Account, _______________________, as Indenture Trustee, on behalf of the
registered Bondholders of NovaStar Mortgage Funding Trust, Series ___________
Home Equity Loan Asset-Backed Bonds" (the "Interest Coverage Account"). On the
Closing Date, the Interest Coverage Amount with respect to each Group shall be
deposited into the Interest Coverage Account and retained therein. In addition,
the Bond Administrator, on behalf of the Indenture Trustee, shall deposit into
the Interest Coverage Account all income and gain on investments in the Pre-
Funding Account pursuant to Section 8.08. Funds deposited in the Interest
Coverage Account shall be held in the Interest Coverage Account, on behalf of
the Indenture Trustee, for the Holders of the Bonds and the Bond Insurer for the
uses and purposes set forth herein. The Issuer shall be the owner of the
Interest Coverage Account and shall report all items of income, deduction, gain
or loss arising therefrom.
(b) On the Business Day prior to each Payment Date during the
Funding Period, the Bond Administrator, on behalf of the Indenture Trustee,
shall withdraw from the Interest Coverage Account and transfer to the Indenture
Trustee for deposit into the Payment Account established by the Indenture
Trustee the applicable Interest Coverage Addition with respect to each Group.
(c) Upon the earlier of (i) termination of the Trust Fund in
accordance with Section 8.01 of the Trust Agreement and (ii) the Business Day
prior to the Payment Date following the end of the Funding Period, any amount
remaining on deposit in the Interest Coverage Account with respect to each Group
shall be withdrawn by the Bond Administrator and transferred to the Indenture
Trustee for deposit in the Payment Account established by the Indenture Trustee.
ARTICLE IX
Supplemental Indentures
-----------------------
Section 9.01. Supplemental Indentures Without Consent of Bondholders.
------------------------------------------------------
(a) Without the consent of the Holders of any Bonds but with the
prior written consent of the Bond Insurer and prior notice to the Rating
Agencies, the Issuer, the Bond Administrator and the Indenture Trustee, when
authorized by an Issuer Request, at any time and from time to time, may enter
into one or more indentures supplemental hereto (which shall conform to the
provisions of the TIA as in force at the date of the execution thereof), in form
reasonably satisfactory to the Bond Administrator, the Indenture Trustee and the
Bond Insurer, for any of the following purposes:
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(i) to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Indenture Trustee any property subject or required to be
subjected to the lien of this Indenture, or to subject to the lien of this
Indenture additional property;
(ii) to evidence the succession, in compliance with the applicable
provisions hereof, of another person to the Issuer, and the assumption by
any such successor of the covenants of the Issuer herein and in the Bonds
contained;
(iii) to add to the covenants of the Issuer, for the benefit of the
Holders of the Bonds, or to surrender any right or power herein conferred
upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property
to or with the Indenture Trustee;
(v) to cure any ambiguity or to correct or supplement any
provision herein or in any supplemental indenture that may be inconsistent
with any other provision herein or in any supplemental indenture;
(vi) to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental indenture;
provided, that such action shall not materially and adversely affect the
interests of the Holders of the Bonds;
(vii) to evidence and provide for the acceptance of the appointment
hereunder by a successor Indenture Trustee or a successor ▇▇▇▇
Administrator with respect to the Bonds and to add to or change any of the
provisions of this Indenture as shall be necessary to facilitate the
administration of the trusts hereunder by more than one trustee, pursuant
to the requirements of Article VI hereof; or
(viii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the qualification
of this Indenture under the TIA or under any similar federal statute
hereafter enacted and to add to this Indenture such other provisions as may
be expressly required by the TIA;
provided, however, that no such supplemental indenture shall be entered into
unless the Indenture Trustee and the Bond Administrator shall have received an
Opinion of Counsel that entering into such supplemental indenture will not (A)
result in a "substantial modification" of the Bonds under Treasury Regulation
Section 1.1001.3 or adversely affect the status of the Bonds as indebtedness for
federal income tax purposes or (B) cause the Trust to be subject to an entity
level tax.
The Indenture Trustee and the Bond Administrator are hereby authorized
to join in the execution of any such supplemental indenture and to make any
further appropriate agreements and stipulations that may be therein contained.
(b) The Issuer, the Bond Administrator and the Indenture Trustee,
when authorized by an Issuer Request, may, also without the consent of any of
the Holders of the Bonds but with the prior written consent of the Bond Insurer
and prior notice to the Rating
63
Agencies, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Holders of the Bonds under this Indenture; provided, however, that
such action shall not, as evidenced by an Opinion of Counsel (or, in the
alternative, with respect to clause (i), as evidenced by a rating letter
confirming the existing ratings on the Bonds (without taking into account the
Bond Insurance Policy)) (i) adversely affect in any material respect the
interests of any Bondholder or (ii) if the Bond Insurance Policy is outstanding,
cause the Issuer to be subject to an entity level tax for federal income tax
purposes.
Section 9.02. Supplemental Indentures With Consent of Bondholders.
---------------------------------------------------
The Issuer, the Bond Administrator and the Indenture Trustee, when
authorized by an Issuer Request, also may, with prior notice to the Rating
Agencies and with the prior written consent of the Bond Insurer and the consent
of the Holders of not less than a majority of the Bond Principal Balances of the
Bonds affected thereby, by Act (as defined in Section 10.03 hereof) of such
Holders delivered to the Issuer, the Bond Administrator and the Indenture
Trustee, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Holders of the Bonds under this Indenture; provided, however, that
no such supplemental indenture shall, without the consent of the Holder of each
Bond affected thereby:
(i) change the date of payment of any installment of principal of
or interest on any Bond, or reduce the principal amount thereof or the
interest rate thereon, change the provisions of this Indenture relating to
the application of collections on, or the proceeds of the sale of, the
Trust Estate to payment of principal of or interest on the Bonds, or change
any place of payment where, or the coin or currency in which, any Bond or
the interest thereon is payable, or impair the right to institute suit for
the enforcement of the provisions of this Indenture requiring the
application of funds available therefor, as provided in Article V, to the
payment of any such amount due on the Bonds on or after the respective due
dates thereof;
(ii) reduce the percentage of the Bond Principal Balances of the
Bonds, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is required
for any waiver of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided for in this
Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding" or modify or alter the exception in
the definition of the term "Bondholder";
(iv) reduce the percentage of the Bond Principal Balances of the
Bonds required to direct the Indenture Trustee to direct the Issuer to sell
or liquidate the Trust Estate pursuant to Section 5.04 hereof;
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(v) modify any provision of this Section 9.02 except to increase
any percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified or
waived without the consent of the Holder of each Bond affected thereby;
(vi) modify any of the provisions of this Indenture in such manner
as to affect the calculation of the amount of any payment of interest or
principal due on any Bond on any Payment Date (including the calculation of
any of the individual components of such calculation); or
(vii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Trust Estate or, except as otherwise permitted or contemplated herein,
terminate the lien of this Indenture on any property at any time subject
hereto or deprive the Holder of any Bond of the security provided by the
lien of this Indenture; and provided, further, that such action shall not,
as evidenced by an Opinion of Counsel, cause the Issuer to be subject to an
entity level tax.
The Indenture Trustee, may, with the consent of the Bond Insurer, so
long as no Bond Insurer Default exists, in its discretion determine whether or
not any Bonds would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Bonds, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Bondholders under this
Section 9.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Promptly after the execution by the Issuer, the Bond Administrator and
the Indenture Trustee of any supplemental indenture pursuant to this Section
9.02, the Bond Administrator, on behalf of the Indenture Trustee, shall mail to
the Holders of the Bonds to which such amendment or supplemental indenture
relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Bond Administrator, on behalf of the
Indenture Trustee, to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture.
Section 9.03. Execution of Supplemental Indentures.
-------------------------------------
In executing, or permitting the additional trusts created by, any
supplemental indenture permitted by this Article IX or the modification thereby
of the trusts created by this Indenture, the Indenture Trustee and the Bond
Administrator shall be entitled to receive, and subject to Sections 6.01 and
6.02 hereof, shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. Each of the Indenture Trustee and the Bond
Administrator may, but shall not be obligated to, enter into any such
supplemental indenture that affects the Indenture Trustee's or the Bond
Administrator's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
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Section 9.04. Effect of Supplemental Indenture.
---------------------------------
Upon the execution of any supplemental indenture pursuant to the
provisions hereof, this Indenture shall be, and shall be deemed to be, modified
and amended in accordance therewith with respect to the Bonds affected thereby,
and the respective rights, limitations of rights, obligations, duties,
liabilities and immunities under this Indenture of the Indenture Trustee, the
Bond Administrator, the Issuer and the Holders of the Bonds shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
Section 9.05. Conformity with Trust Indenture Act.
------------------------------------
Every amendment of this Indenture and every supplemental indenture
executed pursuant to this Article IX shall conform to the requirements of the
Trust Indenture Act as then in effect so long as this Indenture shall then be
qualified under the Trust Indenture Act.
Section 9.06. Reference in Bonds to Supplemental Indentures.
---------------------------------------------
Bonds authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and if required by the
Indenture Trustee shall, bear a notation in form approved by the Indenture
Trustee as to any matter provided for in such supplemental indenture. If the
Issuer or the Bond Administrator, on behalf of the Indenture Trustee, shall so
determine, new Bonds so modified as to conform, in the opinion of the Bond
Administrator, on behalf of the Indenture Trustee, and the Issuer, to any such
supplemental indenture may be prepared and executed by the Issuer and
authenticated and delivered by the Bond Registrar in exchange for Outstanding
Bonds.
ARTICLE X
Miscellaneous
-------------
Section 10.01. Compliance Certificates and Opinions, etc.
-----------------------------------------
Upon any application or request by the Issuer to the Indenture Trustee
or to the Bond Administrator to take any action under any provision of this
Indenture, the Issuer shall furnish to the Indenture Trustee, the Bond
Administrator and the Bond Insurer an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each signatory of such certificate or opinion
has read or has caused to be read such covenant or condition and the definitions
herein relating thereto;
66
(b) brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary to enable
such signatory to express an informed opinion as to whether or not such covenant
or condition has been complied with;
(d) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with; and
(e) if the signatory of such certificate or opinion is required to
be Independent, the statement required by the definition of the term
"Independent".
(i) Except with respect to the substitution of Mortgage Loans
pursuant to Section 2.1 of the Purchase Agreement, prior to the deposit of any
Collateral or other property or securities with the Bond Administrator, on
behalf of the Indenture Trustee, that is to be made the basis for the release of
any property or securities subject to the lien of this Indenture, the Issuer
shall, in addition to any obligation imposed in Section 10.01(a) or elsewhere in
this Indenture, furnish to the Indenture Trustee, the Bond Administrator and the
Bond Insurer an Officer's Certificate certifying or stating the opinion of each
person signing such certificate as to the fair value (within 90 days of such
deposit) to the Issuer of the Collateral or other property or securities to be
so deposited and a report from a nationally recognized accounting firm verifying
such value.
(ii) Whenever the Issuer is required to furnish to the Indenture
Trustee, the Bond Administrator and the Bond Insurer an Officer's Certificate
certifying or stating the opinion of any signer thereof as to the matters
described in clause (i) above, the Issuer shall also deliver to the Indenture
Trustee and the Bond Administrator an Independent Certificate from a nationally
recognized accounting firm as to the same matters, if the fair value to the
Issuer of the securities to be so deposited and of all other such securities
made the basis of any such withdrawal or release since the commencement of the
then-current fiscal year of the Issuer, as set forth in the certificates
delivered pursuant to clause (i) above and this clause (ii), is 10% or more of
the Bond Principal Balances of the Bonds, but such a certificate need not be
furnished with respect to any securities so deposited, if the fair value thereof
to the Issuer as set forth in the related Officer's Certificate is less than
$25,000 or less than one percent of the Bond Principal Balances of the Bonds.
(iii) Except with respect to the substitution of Mortgage Loans
pursuant to Section 2.1 of the Purchase Agreement, whenever any property or
securities are to be released from the lien of this Indenture, the Issuer shall
also furnish to the Indenture Trustee, the Bond Administrator and the Bond
Insurer an Officer's Certificate certifying or stating the opinion of each
person signing such certificate as to the fair value (within 90 days of such
release) of the property or securities proposed to be released and stating that
in the opinion of such person the proposed release will not impair the security
under this Indenture in contravention of the provisions hereof.
67
(iv) Whenever the Issuer is required to furnish to the Indenture
Trustee, the Bond Administrator and the Bond Insurer an Officer's Certificate
certifying or stating the opinion of any signer thereof as to the matters
described in clause (iii) above, the Issuer shall also furnish to the Indenture
Trustee and the Bond Administrator an Independent Certificate as to the same
matters if the fair value of the property or securities and of all other
property, other than securities released from the lien of this Indenture since
the commencement of the then-current calendar year, as set forth in the
certificates required by clause (iii) above and this clause (iv), equals 10% or
more of the Bond Principal Balances of the Bonds, but such certificate need not
be furnished in the case of any release of property or securities if the fair
value thereof as set forth in the related Officer's Certificate is less than
$25,000 or less than one percent of the then Bond Principal Balances of the
Bonds.
Section 10.02. Form of Documents Delivered to Indenture Trustee or
---------------------------------------------------
Bond Administrator.
------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Seller or the Issuer, stating that the information with respect to such
factual matters is in the possession of the Seller or the Issuer, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 10.03. Acts of Bondholders.
-------------------
Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Bondholders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Bondholders in person or by agents duly appointed
in writing; and except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the Bond
Administrator, Indenture Trustee, and, where it is hereby expressly required, to
the Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Bondholders signing such instrument or
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instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01 hereof) conclusive in favor of the Bond
Administrator, Indenture Trustee and the Issuer, if made in the manner provided
in this Section 10.03.
The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Bond Administrator or
the Indenture Trustee, as the case may be, deems sufficient.
The ownership of Bonds shall be proved by the Bond Registrar.
Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Bonds shall bind the Holder of every Bond
issued upon the registration thereof or in exchange therefor or in lieu thereof,
in respect of anything done, omitted or suffered to be done by the Indenture
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Bond.
Section 10.04. Notices, etc., to Indenture Trustee, Bond
-----------------------------------------
Administrator, Issuer, Bond Insurer and Rating Agencies.
--------------------------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Bondholders or other documents provided or permitted by this Indenture
shall be in writing and if such request, demand, authorization, direction,
notice, consent, waiver or Act of Bondholders is to be made upon, given or
furnished to or filed with:
(a) the Indenture Trustee by any Bondholder or by the Issuer, the
Bond Administrator or the Bond Insurer shall be sufficient for every purpose
hereunder if made, given, furnished or filed in writing to or with the Indenture
Trustee at the Indenture Trustee's Corporate Trust Office. The Indenture Trustee
shall promptly transmit any notice received by it from the Bondholders to the
Issuer; or
(b) the Bond Administrator by any Bondholder or by the Issuer, the
Indenture Trustee or the Bond Insurer shall be sufficient for every purpose
hereunder if made, given, furnished or filed in writing to or with the Bond
Administrator at the Bond Administrator's Corporate Trust Office. The Bond
Administrator shall promptly transmit any notice received by it from the
Bondholders to the Issuer; or
(c) the Issuer by the Indenture Trustee, the Bond Administrator or
by any Bondholder or the Bond Insurer shall be sufficient for every purpose
hereunder if in writing and mailed first-class, postage prepaid, to the Issuer
addressed to: NovaStar Mortgage Funding Trust, Series __________, in care of
____________________________________________________, as Owner Trustee,
__________________________________________________: Attention:
_________________________ (telecopy number (___) ___-____), or at any other
address previously furnished in writing to the Bond Administrator, on behalf of
the Indenture Trustee, by the Issuer. The Issuer shall promptly transmit any
notice received by it from the Bondholders to the Indenture Trustee and to the
Bond Administrator; or
69
(d) the Company by the Indenture Trustee, the Bond Administrator or by any
Bondholder or the Bond Insurer shall be sufficient for every purpose hereunder
if in writing and mailed first-class, postage prepaid, to the Company addressed
to: NovaStar Mortgage Funding Corporation, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (telecopy number (913) 362-
1011), or at any other address previously furnished in writing to the Bond
Administrator, on behalf of the Indenture Trustee, by the Company. The Company
shall promptly transmit any notice received by it from the Bondholders to the
Indenture Trustee and to the Bond Administrator; or
(e) the Seller and Servicer by the Indenture Trustee, the Bond
Administrator or by any Bondholder or the Bond Insurer shall be sufficient for
every purpose hereunder if in writing and mailed first-class, postage prepaid,
to the Issuer addressed to: NovaStar Mortgage, Inc., ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (telecopy number (913)
362-1011), or at any other address previously furnished in writing to the Bond
Administrator, on behalf of the Indenture Trustee, by the Seller and Servicer.
The Seller and Servicer shall promptly transmit any notice received by it from
the Bondholders to the Indenture Trustee and to the Bond Administrator; or
(f) the Bond Insurer by the Issuer, the Indenture Trustee or by any
Bondholders shall be sufficient for every purpose hereunder if in writing and
mailed, the Bond Administrator first-class, postage pre-paid, or personally
delivered or telecopied to: _________________________________________________,
Attention: ___________________ (NovaStar Mortgage Funding Trust, Series _____)
(telecopy number (___) ___-____).
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee, the Bond Administrator or the Owner Trustee shall be in
writing, personally delivered or mailed first-class postage pre-paid, to (i) in
the case of [Moody's], at the following address: [▇▇▇▇▇'▇ Investors Service,
Inc., Residential Mortgage Monitoring Department, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇] and (ii) in the case of [Standard & Poor's], at the following
address: [Standard & Poor's Ratings Group, ▇▇ ▇▇▇▇▇▇▇▇ (▇▇▇▇ ▇▇▇▇▇), ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention of Asset Backed Surveillance Department]; or as to
each of the foregoing, at such other address as shall be designated by written
notice to the other parties.
Section 10.05. Notices to Bondholders; Waiver.
------------------------------
Where this Indenture provides for notice to Bondholders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed first-class, postage prepaid, to each Bondholder
affected by such event, at such Person's address as it appears on the Bond
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Bondholders is given by mail, neither the failure to mail such notice nor any
defect in any notice so mailed to any particular Bondholder shall affect the
sufficiency of such notice with respect to other Bondholders, and any notice
that is mailed in the manner herein provided shall conclusively be presumed to
have been duly given regardless of whether such notice is in fact actually
received.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by any Person entitled to receive such notice, either before
or after the event,
70
and such waiver shall be the equivalent of such notice. Waivers of notice by
Bondholders shall be filed with the Bond Administrator and the Indenture
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a result of
a strike, work stoppage or similar activity, it shall be impractical to mail
notice of any event to Bondholders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Bond Administrator and the Indenture
Trustee, shall be deemed to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies, failure
to give such notice shall not affect any other rights or obligations created
hereunder, and shall not under any circumstance constitute an Event of Default.
Section 10.06. Conflict with Trust Indenture Act.
---------------------------------
If any provision hereof limits, qualifies or conflicts with another
provision hereof that is required to be included in this Indenture by any of the
provisions of the Trust Indenture Act, such required provision shall control.
The provisions of TIA (S)(S) 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 10.07. Effect of Headings.
------------------
The Article and Section headings herein are for convenience only and shall
not affect the construction hereof.
Section 10.08. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture and the Bonds by the Issuer
shall bind its successors and assigns, whether so expressed or not. All
agreements of the Indenture Trustee and the Bond Administrator in this Indenture
shall bind their respective successors, co-trustees and agents.
Section 10.09. Separability.
------------
In case any provision in this Indenture or in the Bonds shall be invalid,
illegal or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 10.10. Benefits of Indenture.
---------------------
The Bond Insurer and its successors and assigns shall be a third-party
beneficiary to the provisions of this Indenture. To the extent that this
Indenture confers upon or gives or grants to the Bond Insurer any right, remedy
or claim under or by reason of this
71
Indenture, the Bond Insurer may enforce any such right, remedy or claim
conferred, given or granted hereunder. Nothing in this Indenture or in the
Bonds, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Bondholders and the Bond Insurer,
any benefit or any legal or equitable right, remedy or claim under this
Indenture.
Section 10.11. Legal Holidays.
--------------
In any case where the date on which any payment is due shall not be a
Business Day, then (notwithstanding any other provision of the Bonds or this
Indenture) payment need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date on
which nominally due, and no interest shall accrue for the period from and after
any such nominal date.
Section 10.12. Governing Law.
-------------
THIS INDENTURE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF ________, 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 10.13. Counterparts.
-------------
This Indenture may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
Section 10.14. Recording of Indenture.
----------------------
If this Indenture is subject to recording in any appropriate public
recording offices, such recording is to be effected by the Issuer and at its
expense accompanied by an Opinion of Counsel (which may be counsel to the Bond
Administrator or to the Indenture Trustee or any other counsel reasonably
acceptable to the Bond Administrator or to the Indenture Trustee) to the effect
that such recording is necessary either for the protection of the Bondholders or
any other Person secured hereunder or for the enforcement of any right or remedy
granted to the Indenture Trustee under this Indenture.
Section 10.15. Issuer Obligation.
-----------------
No recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer, the Owner Trustee, the Bond Administrator or the
Indenture Trustee on the Bonds or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Bond Administrator, the Indenture Trustee or the Owner Trustee in its individual
capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any
partner, owner, beneficiary, agent, officer, director, employee or agent of, the
Bond Administrator, Indenture Trustee or the Owner Trustee in its individual
capacity, any holder of a beneficial interest in the
72
Issuer, the Owner Trustee, the Bond Administrator or the Indenture Trustee or of
any successor or assign of the Bond Administrator, the Indenture Trustee or the
Owner Trustee in its individual capacity, except as any such Person may have
expressly agreed (it being understood that the Bond Administrator, the Indenture
Trustee and the Owner Trustee have no such obligations in their individual
capacity) and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity. For all purposes of this Indenture, in the performance of
any duties or obligations of the Issuer hereunder, the Owner Trustee as such,
and in its individual capacity, shall be subject to, and entitled to the
benefits of, the terms and provisions of the Trust Agreement.
Section 10.16. No Petition.
-----------
The Indenture Trustee and the Bond Administrator, by entering into this
Indenture, and each Bondholder, by accepting a Bond, hereby covenant and agree
that they will not at any time institute against the Seller or the Issuer, or
join in any institution against the Seller or the Issuer 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 Bonds, this Indenture or any
of the Basic Documents. This Section 10.16 will survive for one year and one day
following the termination of this Indenture.
Section 10.17. Inspection.
----------
The Issuer agrees that, on reasonable prior notice, it shall permit any
representative of the Indenture Trustee, the Bond Administrator and the Bond
Insurer, during the Issuer's normal business hours, to examine all the books of
account, records, reports and other papers of the Issuer, to make copies and
extracts therefrom, to cause such books to be audited by Independent certified
public accountants, and to discuss the Issuer's affairs, finances and accounts
with the Issuer's officers, employees, and Independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Indenture Trustee, the Bond Administrator and the Bond Insurer
shall cause their representatives to hold in confidence all such information
except to the extent disclosure may be required by law (and all reasonable
applications for confidential treatment are unavailing) and except to the extent
that the Indenture Trustee or the Bond Administrator may reasonably determine
that such disclosure is necessary to perform its obligations hereunder.
Section 10.18. Limitation of Liability.
-----------------------
Notwithstanding any other provision herein or elsewhere, this Indenture has
been executed and delivered by the Owner Trustee, not in its individual
capacity, but solely in its capacity as Owner Trustee of the Issuer. In no event
shall the Owner Trustee have any liability in respect to the representations,
warranties or obligations of the Issuer hereunder or under any other Basic
Document, as to all of which recourse shall be had solely to the assets of the
Trust, and for all purposes of this Indenture and each other Basic Document, the
Owner Trustee shall be entitled to the benefits of the Trust Agreement.
73
IN WITNESS WHEREOF, the Issuer, the Bond Administrator and the Indenture
Trustee have caused their names to be signed hereto by their respective officers
thereunto duly authorized, all as of the day and year first above written.
NOVASTAR MORTGAGE FUNDING TRUST,
SERIES ________, as Issuer
By: _______________________________,
not in its individual capacity
but solely as Owner Trustee
By: ___________________________,
Name:
Title:
___________________________________,
not in its individual capacity but
solely as Bond Administrator and as
Bond Registrar
By: _______________________________,
Name:
Title:
___________________________________,
as Indenture Trustee
By: _______________________________,
Name:
Title:
74
STATE OF ______________ )
) ss.:
COUNTY OF _____________ )
On this ______ day of ____________, _____ before me personally appeared
___________________, to me known, who being by me duly sworn, did depose and
say, that his office is located at
____________________________________________________________, he is an
Authorized Officer of _____________________________, not in its individual
capacity, but solely as Owner Trustee, one of the corporations described in and
which executed the above instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
WITNESS my hand and official seal.
________________________
Notary Public
[NOTARIAL SEAL]
75
STATE OF _________________ )
) ss.:
COUNTY OF ________________ )
On this _____ day of ______________, ____ before me personally appeared
___________________, to me known, who being by me duly sworn, did depose and
say, that his office is located at ___________________________________________,
he is the ______________________________ of the Bond Administrator, one of the
corporations described in and which executed the above instrument; that he knows
the seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation; and that he signed his name thereto by like order.
WITNESS my hand and official seal.
__________________________
Notary Public
[NOTARIAL SEAL]
76
STATE OF ____________ )
) ss.:
COUNTY OF ___________ )
On this ____ day of _____________, ____ before me personally appeared
___________________, to me known, who being by me duly sworn, did depose and
say, that his office is located at ____________________________________________,
he is a ___________________________ of the Indenture Trustee, one of the
corporations described in and which executed the above instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the Board of Directors
of said corporation; and that he signed his name thereto by like order.
IN WITNESS WHEREOF, I have hereunto set my name and affixed my official
seal the day and year in this Certificate first above written.
__________________________
Notary Public
[NOTARIAL SEAL]
77
APPENDIX A
DEFINITIONS
Addition Notice: With respect to the transfer of Subsequent Mortgage
---------------
Loans to the Issuer pursuant to Section 2.02(b) of the Mortgage Loan Purchase
Agreement, a notice given to the Rating Agencies, the Bond Administrator, the
Indenture Trustee, the Bond Insurer and the Owner Trustee, which shall be given
not later than six Business Days prior to the related Subsequent Transfer Date,
of the Seller's and the Transferor's designation of Subsequent Mortgage Loans to
be sold to the Trust and the aggregate principal balance as of the Subsequent
Cut-off Date of such Subsequent Mortgage Loans.
Adjustable Rate Initial Mortgage Loan: Each of the Adjustable Rate
-------------------------------------
Mortgage Loans transferred to the Trust on the Closing Date.
Adjustable Rate Mortgage Loan: Each of the Mortgage Loans identified in
-----------------------------
the Mortgage Loan Schedule as having a Mortgage Rate that is subject to
adjustment.
Adjustment Date: As to each Adjustable Rate Mortgage Loan, each date set
---------------
forth in the related Mortgage Note on which an adjustment to the interest rate
on such Mortgage Loan becomes effective.
Administrative Fee: With respect to each Group (and related Class or
------------------
Component), the Bond Insurance Premium, together with the MI Premium, the
Servicing Fee and the Bond Administrator Fee with respect to such Group (and
Class or Component).
Administrative Fee Rate: As to each Mortgage Loan, the sum of (i) the
-----------------------
Bond Administrator Fee Rate, (ii) the Servicing Fee Rate, (iii) the MI Insurance
Premium on the applicable Mortgage Loans and (iv) the Bond Insurance Premium.
Advance: As to any Mortgage Loan, any advance made by the Servicer
-------
pursuant to Section 4.02 of the Servicing Agreement.
Affiliate: With respect to any Person, any other Person controlling,
---------
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of a
Person, directly or indirectly, whether through ownership of voting securities,
by contract or otherwise and "controlling" and "controlled" shall have meanings
correlative to the foregoing.
Annual Loss Percentage (Rolling Six Month): With respect to any Payment
------------------------------------------
Date, the product of (x) two and (y) a fraction, expressed as a percentage, the
numerator of which is the aggregate of the Realized Losses as of the last day of
each Due Period for the six immediately preceding Due Periods and the
denominator of which is the outstanding Principal Balance of the Mortgage Loans
as of the first day of the sixth preceding Due Period.
Annualized Periodic Spread: The percentage equivalent of a fraction, the
--------------------------
numerator of which is the product of (x) 12 and (y) the aggregate Net Monthly
Excess Cash Flow on the Class
A-1
A-1 Bonds and the Class A-2 Bonds and the denominator of which is the aggregate
Principal Balance of the Mortgage Loans in Group I and Group II.
Appraised Value: The appraised value of a Mortgaged Property based upon
---------------
the lesser of (i) the appraisal made at the time of the origination of the
related Mortgage Loan, or (ii) the sales price of such Mortgaged Property at
such time of origination. With respect to a Mortgage Loan the proceeds of which
were used to refinance an existing mortgage loan, the appraised value of the
Mortgaged Property based upon the appraisal (as reviewed and approved by the
Seller) obtained at the time of refinancing.
Assignment of Mortgage: An assignment of Mortgage, notice of transfer or
----------------------
equivalent instrument, in recordable form, which is sufficient under the laws of
the jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.
Authorized Newspaper: A newspaper of general circulation in the Borough
--------------------
of Manhattan, The City of New York, printed in the English language and
customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays.
Authorized Officer: With respect to the Issuer, any officer of the Owner
------------------
Trustee who is authorized to act for the Owner Trustee in matters relating to
the Issuer and who is identified on the list of Authorized Officers delivered by
the Owner Trustee to the Bond Administrator and the Indenture Trustee on the
Closing Date (as such list may be modified or supplemented from time to time
thereafter).
Available Funds: As to each Class of Class A Bonds and related
---------------
Component of the Subordinated Bonds, and any Payment Date, an amount equal to
the amount on deposit in the Payment Account with respect to such class,
representing the sum of (i) the aggregate amount of scheduled payments on the
related Mortgage Loans due on the related Due Date and received on or prior to
the related Determination Date, (ii) any amounts representing interest on
amounts in the Payment Account and miscellaneous fees and collections, including
assumption fees and prepayment penalties with respect to the Mortgage Loans in
the related Group (but excluding late fees), (iii) any unscheduled payments and
receipts, including Mortgagor prepayments on the related Mortgage Loans,
received during the related Prepayment Period and proceeds of repurchases, and
adjustments in the case of substitutions and terminations, Net Liquidation
Proceeds, Insurance Proceeds, MI Insurance Proceeds and proceeds from the sale
of Converted Mortgage Loans from the related Group, (iv) all Advances made for
such Payment Date in respect of the related Mortgage Loans, (v) on the Payment
Date relating to the Due Period in which the termination of the Funding Period
occurred, the amount on deposit in the Pre-Funding Account with respect to such
Class at such time, and (vi) on each Payment Date on or prior to the Payment
Date in _______________, the amount, if any, withdrawn from the Interest
Coverage Account for such Class (minus (i) the Administrative Fee for the
related Group, and (ii) if the Bonds have been declared due and payable
following an Event of Default on such Payment Date, any amounts owed to the Bond
Administrator and the Indenture Trustee by the Issuer pursuant to
A-2
Section 6.07 of the Indenture and any amounts owed to the Bond Issuer by the
Issuer pursuant to clause SECOND of Section 5.04 of the Indenture).
Available Funds Cap Rate: With respect to each Class of Class A Bonds and
------------------------
the related B Components for any Payment Date is a rate per annum equal to the
fraction, expressed as a percentage, the numerator and denominator of which are
as follows:
(i) the numerator of which is an amount equal to the product of (x) the
weighted average Mortgage Rate on the Mortgage Loans in the related Group and
(y) 1/12 of the aggregate Principal Balance of the Mortgage Loans in the related
Group less the Administrative Fee for such Group; and
----
(ii) the denominator of which is an amount equal to the product of the
related Bond Principal Balance and the number of days elapsed in the related
Interest Period divided by 360;
less, in the case of the Class A-1 and Class A-2 Bonds, ______%.
----
B Components: Collectively, the B-1 Component, the B-2 Component, the B-
------------
3 Component and the B-4 Component.
B-1 Component: The component of the Class B Bonds relating to Group I.
-------------
B-2 Component: The component of the Class B Bonds relating to Group II.
-------------
B-3 Component: The component of the Class B Bonds relating to Group III.
-------------
B-4 Component: The component of the Class B Bonds relating to Group IV.
-------------
Bankruptcy Code: The Bankruptcy Code of 1978, as amended.
---------------
Base Prospectus: The base Prospectus, dated ___________________, with
---------------
respect to the Bonds.
Basic Documents: The Trust Agreement, the Certificate of Trust, the
---------------
Indenture, the Purchase Agreement, each Subsequent Transfer Instrument, the
Insurance Agreement, the Side Indemnity Letter, the Indemnification Agreement,
the Servicing Agreement, the REMIC Interests Sale Agreement, the Converted Loan
Purchase Agreement, the Underwriting Agreement, and the other documents and
certificates delivered in connection with any of the above.
Beneficial Owner: With respect to any Class A Bond, the Person who is the
----------------
beneficial owner of such Class A Bond as reflected on the books of the
Depository or on the books of a Person maintaining an account with such
Depository (directly as a Depository Participant or indirectly through a
Depository Participant, in accordance with the rules of such Depository).
Bond Administrator: _________________________, a national banking
------------------
association, and any successor thereto.
A-3
Bond Administrator Fee: With respect to each Payment Date, the product
----------------------
of (i) the Bond Administrator Fee Rate divided by 12 and (ii) the sum of the
Principal Balance of the Mortgage Loans and the Pre-Funded Amount as of such
date.
Bond Administrator Fee Rate: __________% per annum.
---------------------------
Bond Insurance Policy: The financial guaranty insurance policy number
---------------------
_________, issued by the Bond Insurer to the Indenture Trustee for the benefit
of the Bondholders.
Bond Insurance Premium: The premium and the premium supplement (if any)
----------------------
payable to the Bond Insurer, as specified in the Insurance Agreement.
Bond Insurer: ________________________, a ____________ insurance
------------
company, or any successor thereto.
Bond Insurer Default: The existence and continuance of any of the
--------------------
following: (a) a failure by the Bond Insurer to make a payment required under
the Bond Insurance Policy in accordance with its terms; or (b)(i) the Bond
Insurer (A) files any petition or commences any case or proceeding under any
provision or chapter of the Bankruptcy Code or any other similar federal or
state law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (B) makes a general assignment for the benefit of its creditors,
or (C) has an order for relief entered against it under the Bankruptcy Code or
any other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation or reorganization which is final and nonappealable;
or (ii) a court of competent jurisdiction, the New York Department of Insurance
or other competent regulatory authority enters a final and nonappealable order,
judgment or decree (A) appointing a custodian, trustee, agent or receiver for
the Bond Insurer or for all or any material portion of its property or (B)
authorizing the taking of possession by a custodian, trustee, agent or receiver
of the Bond Insurer (or the taking of possession of all or any material portion
of the property of the Bond Insurer).
Bond Interest Rate: With respect to each Class of Class A Bonds and each
------------------
Payment Date, an amount equal to the lesser of (i) the applicable Stated Rate
and (ii) the applicable Available Funds Cap Rate.
With respect to each B Component and each Payment Date, the same annual
rate of interest that is payable on such Payment Date on the related Class of
Class A Bonds.
With respect to each IO Component and each Payment Date, the remainder of
(a) the sum of (i) the Available Funds Cap Rate for the related Class of the
Class A Bonds on such Payment Date, plus (ii) in the case of the IO-1 Component
and the IO-2 Component, _____%, minus (b) the Bond Interest Rate for the
related Class of the Class A Bonds on such Payment Date.
Bond Owner: The Beneficial Owner of a Class A Bond and the record owner
----------
of the Class B Bonds and the Class IO Bonds.
Bond Percentage: With respect to any Payment Date and any Bond, the
---------------
ratio expressed as a percentage of the Bond Principal Balance (or IO Component
Notional Balance, in the case
A-4
of the Class IO Bond) of such Bond to the aggregate Bond Principal Balance (or
IO Component Notional Balance) of all Bonds immediately prior to such Payment
Date.
Bond Principal Balance: With respect to each Class of Class A Bonds and
----------------------
each B Component, as of any date of determination, the initial principal balance
of such Class of Bonds or Component as of the Closing Date reduced by all
payments of principal thereon prior to such determination date. With respect to
the Class B Bonds, the sum of the principal balances of the B Components.
Bond Register: The register maintained by the Bond Registrar in which
-------------
the Bond Registrar shall provide for the registration of Bonds and of transfers
and exchanges of Bonds.
Bond Registrar: The Bond Administrator, in its capacity as Bond
--------------
Registrar.
Bondholder or Holder: The Person in whose name a Bond is registered in
--------------------
the Bond Register, except that, any Bond registered in the name of the Seller,
the Company, the Issuer, the Indenture Trustee or the Bond Administrator or any
Affiliate of any of them shall be deemed not to be a Bondholder or Holder, nor
shall any Bond so owned be considered outstanding, for purposes of giving any
request, demand, authorization, direction, notice, consent or waiver under the
Indenture or the Trust Agreement, provided that, in determining whether the
Indenture Trustee or the Bond Administrator shall be protected in relying upon
any such request, demand, authorization, direction, notice, consent or waiver,
only Bonds that the Indenture Trustee or the Bond Administrator, as applicable,
knows to be so owned shall be so disregarded. Pledgees of Bonds that have been
pledged in good faith may be regarded as Holders if the pledgee establishes to
the satisfaction of the Indenture Trustee or the Bond Administrator the
pledgee's right so to act with respect to such Bonds and that the pledgee is not
the Issuer, any other obligor upon the Bonds or any Affiliate of any of the
foregoing Persons. Any Bonds on which payments are made under the Bond Insurance
Policy shall be deemed Outstanding until the Bond Insurer has been reimbursed
with respect thereto and the Bond Insurer shall be deemed the Bondholder thereof
to the extent of such unreimbursed payment.
Bonds: NovaStar Mortgage Funding Trust, Series _________, Home Equity
-----
Loan Asset-Backed Bonds, Series ______, designated as the "Bonds" in the
Indenture, issued in six classes, the Class A-1 Bonds in an aggregate principal
amount of $__________, the Class A-2 Bonds in an aggregate principal amount of
$___________, the Class A-3 Bonds in an aggregate principal amount of
$___________, the Class A-4 Bonds in the aggregate principal amount of
$___________, the Class B Bonds in the aggregate principal amount of
$____________ and the Class IO Bonds in the amount of the IO Component Notional
Balance.
Book-Entry Bonds: Beneficial interests in the Class A Bonds, ownership
----------------
and transfers of which shall be made through book entries by the Depository as
described in Section 4.06 of the Indenture.
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
------------
day on which banking institutions in the City of ________, Delaware, California
or Kansas or in the city in which the corporate trust offices of the Indenture
Trustee and the Bond Administrator or the principal office of the Bond Insurer
are located, are required or authorized by law to be closed.
A-5
Business Trust Statute: Chapter 38 of Title 12 of the Delaware Code 12
----------------------
Del. Code (S)(S) 3801 et seq., as the same may be amended from time to time.
-- ----
Carry-Forward Amount: With respect to the Class A-1 Bonds and the Class
--------------------
A-2 Bonds and any Payment Date, an amount equal to any amount by which the
related Interest Payment Amount was reduced by application of the related
Available Funds Cap Rate, together with all unreimbursed Carry-Forward Amounts
from all prior Payment Dates and interest thereon at the related Bond Interest
Rate.
Carry-Forward Cross-Collateralization Amount: With respect to Class A-1
--------------------------------------------
and Class A-2 and any Payment Date, an amount to be paid to the holders of the
other Class of Bonds (Class A-1 or Class A-2, respectively) with respect to any
shortfall in the Carry-Forward Amount for such other Class, as determined in
accordance with Section 3.05(b) of the Indenture.
Cash Liquidation: As to any defaulted Mortgage Loan other than a
----------------
Mortgage Loan as to which an REO Acquisition occurred, a determination by the
Servicer that it has received all Liquidation Proceeds and other payments or
cash recoveries which the Servicer reasonably and in good faith expects to be
finally recoverable with respect to such Mortgage Loan.
Certificate Distribution Account: The account or accounts created and
--------------------------------
maintained pursuant to Section 3.10 of the Trust Agreement. The Certificate
Distribution Account shall be an Eligible Account.
Certificate Paying Agent: The meaning specified in Section 3.10 of the
------------------------
Trust Agreement.
Certificate Percentage Interest: With respect to each Certificate, the
-------------------------------
Certificate Percentage Interest on the face thereof.
Certificate Register: The register maintained by the Certificate
--------------------
Registrar in which the Certificate Registrar shall provide for the registration
of Certificates and of transfers and exchanges of Certificates.
Certificate Registrar: Initially, the Bond Administrator, in its
---------------------
capacity as Certificate Registrar, or any successor to the Bond Administrator in
such capacity.
Certificates Sale Agreement: The Certificates Sale Agreement, dated as
---------------------------
of ____________, _____, between NovaStar Mortgage Funding Corporation and
NovaStar REMIC Financing Corp.
Certificate of Trust: The Certificate of Trust filed for the Trust
--------------------
pursuant to Section 3810(a) of the Business Trust Statute.
Certificates: The NovaStar Mortgage Funding Trust, Series _______, Home
------------
Equity Loan Asset-Backed Certificates, evidencing the beneficial ownership
interest in the Issuer, designated as the "residual interest" in the Trust for
purposes of the REMIC Provisions, and executed by the Owner Trustee in
substantially the form set forth in Exhibit A to the Trust Agreement.
A-6
Certificateholder: The Person in whose name a Certificate is registered
-----------------
in the Certificate Register. Pledgees of Certificates that have been pledged in
good faith may be regarded as Certificateholders if the pledgee establishes to
the satisfaction of the Certificate Paying Agent or the Owner Trustee, as the
case may be, the pledgee's right so to act with respect to such Certificates and
that the pledgee is not the Issuer, any other obligor upon the Certificates or
any Affiliate of any of the foregoing Persons.
Class: Each Class of Bonds: Class A-1, Class A-2, Class A-3, Class A-4,
-----
Class B and Class IO.
Class A Bonds: Collectively, the Class A-1 Bonds, the Class A-2 Bonds,
-------------
the Class A-3 Bonds and the Class A-4 Bonds.
Class A-1 Bonds: The Class of Bonds identified as the "Class A-1 Bonds"
---------------
in the Indenture, substantially in the form of Exhibit A to the Indenture.
Class A-2 Bonds: The Class of Bonds identified as the "Class A-2 Bonds"
---------------
in the Indenture, substantially in the form of Exhibit B to the Indenture.
Class A-3 Bonds: The Class of Bonds identified as the "Class A-3 Bonds"
---------------
in the Indenture, substantially in the form of Exhibit C thereto.
Class A-4 Bonds: The Class of Bonds identified as the "Class A-4 Bonds"
---------------
in the Indenture, substantially in the form of Exhibit D thereto.
Class B Bonds: The Class of Bonds identified as the "Class B Bonds" in
-------------
the Indenture, substantially in the form of Exhibit E thereto.
Class IO Bonds: The Class of Bonds identified as the "Class IO Bonds" in
--------------
the Indenture, substantially in the form of Exhibit F thereto.
Closing Date: ________________.
------------
Code: The Internal Revenue Code of 1986, as amended, and the rules and
----
regulations promulgated thereunder.
Collateral: The meaning specified in the Granting Clause of the
----------
Indenture.
Collection Account: The account or accounts created and maintained
------------------
pursuant to Section 3.06(d) of the Servicing Agreement. The Collection Account
shall be an Eligible Account.
Combined Loan-to-Value Ratio: With respect to any Mortgage Loan which is
----------------------------
secured by a second lien on the related Mortgaged Property at any given time
generally will be the ratio, expressed as a percentage, the numerator of which
is the sum of (i) the original principal balance of the Mortgage Loan plus (ii)
the unpaid principal balance of any first lien on the related Mortgaged Property
as of such date, and the denominator of which is the lesser of (i) the appraised
value of the related Mortgaged Property as of the date of the appraisal used by
or on
A-7
behalf of the Seller to underwrite such Mortgage Loan or (ii) the sale price of
the related Mortgaged Property if such a sale occurred at origination of the
Mortgage Loan.
Company: NovaStar Mortgage Funding Corporation, a Delaware corporation,
-------
and its successors and assigns.
Compensating Interest: With respect to any Determination Date, an amount
---------------------
equal to the lesser of (i) the aggregate amount of Prepayment Interest Shortfall
for the related Prepayment Period and (ii) the Servicing Fee for the related
Payment Date.
Component: Any of the B Components or IO Components.
---------
Conversion Date: The date on which a Convertible Mortgage Loan becomes a
---------------
Converted Mortgage Loan according to the terms of the related Mortgage Note.
Converted Loan Purchase Agreement: The Converted Loan Purchase
---------------------------------
Agreement, dated as of ______________, among the Converted Loan Purchaser, the
Bond Administrator, the Indenture Trustee, the Servicer and the Issuer.
Converted Loan Purchaser: NovaStar Capital, Inc., a Delaware
------------------------
corporation, and any successor thereto.
Converted Mortgage Loan: Any Convertible Mortgage Loan as to which the
-----------------------
Mortgagor has exercised the option to convert to a fixed Mortgage Rate and
satisfied all of the conditions to conversion set forth in the Mortgage Note.
Convertible Mortgage Loans: Any Mortgage Loan evidenced by a Mortgage
--------------------------
Note that according to its terms is convertible at the option of the Mortgagor
from a variable Mortgage Rate to a fixed Mortgage Rate, subject to satisfaction
of the conditions set forth in such note.
Corporate Trust Office: With respect to the Indenture Trustee and the
----------------------
Paying Agent, the principal corporate trust office at which at any particular
time its corporation trust business shall be administered, which office at the
date of execution of the Indenture is located at
________________________________, Attention: ______________________________,
__________________. With respect to the Owner Trustee, the principal corporate
trust office of the Owner Trustee at which at any particular time its corporate
trust business shall be administered, which office at the date of the execution
of the Trust Agreement is located at
_____________________________________________________________________________,
Attention: __________________________. With respect to the Bond Administrator,
Bond Registrar, Certificate Registrar and Certificate Paying Agent, the
principal corporate trust office at which at any particular time its corporate
trust business shall be administered, which office at the date of the execution
of this instrument is located at ____________________________
___________________________, Attention: _________________________.
Cumulative Loss Percentage: As to any Payment Date and the Mortgage
--------------------------
Loans, the percentage equivalent of the fraction obtained by dividing (i) the
aggregate of Realized Losses on the Mortgage Loans (without giving any effect to
coverage provided by any MI Policy) from
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the Cut-off Date through such Payment Date by (ii) the sum of the aggregate
Principal Balance of the Initial Mortgage Loans as of the Cut-off Date and the
Pre-Funded Amount.
Cumulative Loss Test: The Cumulative Loss Test for each Payment Date in
--------------------
the period indicated below is satisfied if the Cumulative Loss Percentage for
such Payment Date does not exceed the percentage set out for such Payment Date
below:
Monthly Remittance Dates Cumulative
from and including to and including Loss Percentage
------------------ ---------------- ---------------
_______________ ______________ _____________
_______________ ______________ _____________
_______________ and thereafter
Cut-off Date: __________________.
------------
Cut-off Date Principal Balance: With respect to any Initial Mortgage
------------------------------
Loan, the unpaid principal balance thereof as of the opening of business on the
last day of the related Due Period immediately prior to the Cut-off Date, and
with respect to the Initial Mortgage Loans in each Group, as set forth below:
Group Amount
----- ------
I $___________
II $___________
III $___________
IV $___________
Debt Service Reduction: With respect to any Mortgage Loan, a reduction
----------------------
in the scheduled Monthly Payment for such Mortgage Loan by a court of competent
jurisdiction in a proceeding under the Bankruptcy Code, except such a reduction
constituting a Deficient Valuation or any reduction that results in a permanent
forgiveness of principal.
Default: Any occurrence which is or with notice or the lapse of time or
-------
both would become an Event of Default.
Deficient Valuation: With respect to any Mortgage Loan, a valuation by a
-------------------
court of competent jurisdiction of the Mortgaged Property in an amount less than
the then outstanding indebtedness under the Mortgage Loan, or any reduction in
the amount of principal to be paid in connection with any scheduled Monthly
Payment that constitutes a permanent forgiveness of principal, which valuation
or reduction results from a proceeding under the Bankruptcy Code.
Definitive Bonds: The meaning specified in Section 4.08 of the
----------------
Indenture.
Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced with
---------------------
an Eligible Substitute Mortgage Loan.
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Delinquency Percentage: As of the last day of any Due Period and with
----------------------
respect to the Mortgage Loans, the percentage equivalent of a fraction, the
numerator of which equals the aggregate Principal Balance of the Mortgage Loans
that are 90 or more days delinquent, in foreclosure or converted to REO
Properties as of such last day of such Due Period, and the denominator of which
is the aggregate Principal Balance of the Mortgage Loans as of the last day of
such Due Period.
Depository or Depository Agency: The Depository Trust Company or a
-------------------------------
successor appointed by the Indenture Trustee with the approval of the Issuer.
Any successor to the Depository shall be an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act and the
regulations of the Securities and Exchange Commission thereunder.
Depository Participant: A Person for whom, from time to time, the
----------------------
Depository effects book-entry transfers and pledges of securities deposited with
the Depository.
Determination Date: With respect to any Payment Date, the 15/th/ day of
------------------
the related month, or if the 15th day of such month is not a Business Day, the
immediately preceding Business Day.
Determination Date Report: The meaning specified in Section 4.01 of the
-------------------------
Servicing Agreement.
Disqualified Organization: "Disqualified Organization" shall have the
-------------------------
meaning set forth from time to time in the definition thereof at Section
860E(e)(5) of the Code (or any successor statute thereto) and applicable to the
Trust.
Due Date: The first day of the month of the related Payment Date.
--------
Due Period: With respect to any Mortgage Loan and Due Date, the period
----------
commencing on the second day of the month preceding the month of such Payment
Date (or, with respect to the first Due Period, the day following the Cut-off
Date) and ending on the related Due Date.
Eligible Account: An account that is either: (A) a segregated account
----------------
or accounts maintained with an institution whose deposits are insured by the
FDIC, the unsecured and uncollateralized long-term debt obligations of which
institution shall be rated AA or higher by [Standard & Poor's] and Aa2 or higher
by [▇▇▇▇▇'▇] and in the highest short-term rating category by each of the Rating
Agencies, and which is (i) a federal savings and loan association duly
organized, validly existing and in good standing under the federal banking laws,
(ii) an institution duly organized, validly existing and in good standing under
the applicable banking laws of any state, (iii) a national banking association
duly organized, validly existing and in good standing under the federal banking
laws, (iv) a principal subsidiary of a bank holding company or (v) approved in
writing by the Bond Insurer and each Rating Agency or (B) a segregated trust
account or accounts maintained with the trust department of a federal or state
chartered depository institution acceptable to the Bond Insurer and each Rating
Agency, having capital and surplus of not less than $______________, acting in
its fiduciary capacity.
Eligible Investments: One or more of the following:
--------------------
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(i) direct obligations of, and obligations fully guaranteed by, the United
States of America, any of the Federal Home Mortgage Corporation, the Federal
National Mortgage Association, the Federal Home Loan Banks or any agency or
instrumentality of the United States of America the obligations of which are
backed by the full faith and credit of the United States of America;
(ii) (A) demand and time deposits in, certificates of deposit of, banker's
acceptances issued by or federal funds sold by any depository institution or
trust company (including the Indenture Trustee, the Bond Administrator or their
agents acting in their respective commercial capacities) incorporated under the
laws of the United States of America or any State thereof and subject to
supervision and examination by federal and/or state authorities, so long as at
the time of such investment or contractual commitment providing for such
investment, such depository institution or trust company has a short-term
unsecured debt rating in the highest available rating category of each of the
Rating Agencies and provided that each such investment has an original maturity
of no more than 365 days, and (B) any other demand or time deposit or deposit
which is fully insured by the Federal Deposit Insurance Corporation;
(iii) repurchase obligations with a term not to exceed 30 days with respect
to any security described in clause (i) above and entered into with a depository
institution or trust company (acting as a principal) rated "A" or higher by
[Standard &Poor's] and A2 or higher by [▇▇▇▇▇'▇]; provided, however, that
collateral transferred pursuant to such repurchase obligation must (A) be valued
daily at current market price plus accrued interest, (B) pursuant to such
valuation, equal, at all times, 105% of the cash transferred in exchange for
such collateral and (C) be delivered in such a manner as to accomplish
perfection of a security interest in the collateral by possession of
certificated securities.
(iv) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or any
State thereof which has a long-term unsecured debt rating in the highest
available rating category of each of the Rating Agencies at the time of such
investment;
(v) commercial paper having an original maturity of less than 365 days and
issued by an institution having a short-term unsecured debt rating in the
highest available rating category of each of the Rating Agencies at the time of
such investment;
(vi) a guaranteed investment contract approved by each of the Rating
Agencies and the Bond Insurer and issued by an insurance company or other
corporation having a long-term unsecured debt rating in the highest available
rating category of each of the Rating Agencies at the time of such investment;
(vii) money market funds having ratings in the highest available long-term
rating category of each of the Rating Agencies at the time of such investment;
any such money market funds which provide for demand withdrawals being
conclusively deemed to satisfy any maturity requirement for Eligible Investments
set forth in the Indenture; and
(viii) any investment approved in writing by each of the Rating Agencies
and the Bond Insurer;
A-11
provided, however, that each such instrument shall be acquired in an
arm's-length transaction and no such instrument shall be an Eligible Investment
if it represents, either (1) the right to receive only interest payments with
respect to the underlying debt instrument or (2) the right to receive both
principal and interest payments derived from obligations underlying such
instrument and the principal and interest payments with respect to such
instrument provide a yield to maturity greater than 120% of the yield to
maturity at par of such underlying obligations; provided, further, however, that
each such instrument acquired shall not be acquired at a price in excess of par.
The Bond Administrator may purchase from or sell to itself or an
affiliate, as principal or agent, the Eligible Investments listed above.
Eligible Substitute Mortgage Loan: A Mortgage Loan substituted by the
---------------------------------
Seller for a Deleted Mortgage Loan which must, on the date of such substitution,
as confirmed in an Officer's Certificate delivered to the Bond Administrator and
the Bond Insurer, (i) have an outstanding principal balance, after deduction of
the principal portion of the monthly payment due in the month of substitution
(or in the case of a substitution of more than one Mortgage Loan for a Deleted
Mortgage Loan, an aggregate outstanding principal balance, after such
deduction), not in excess of the outstanding principal balance of the Deleted
Mortgage Loan (the amount of any shortfall to be deposited by the Seller in the
Collection Account in the month of substitution); (ii) comply in all material
respects with each representation and warranty set forth in clauses (ii) through
(lxviii) of Section 3.01(b) of the Purchase Agreement other than clauses (iii),
(v)-(xiv), (xlii), (xlv), (lvi), (lvii), (lx) and (lxiii); (iii) have a Mortgage
Rate and, with respect to an Adjustable Rate Mortgage Loan, a Gross Margin no
lower than and not more than 1% per annum higher than the Mortgage Rate and
Gross Margin, respectively, of the Deleted Mortgage Loan as of the date of
substitution; (iv) have a Loan-to-Value Ratio and Combined Loan-to-Value Ratio,
if applicable, at the time of substitution no higher than that of the Deleted
Mortgage Loan at the time of substitution; (v) have a remaining term to stated
maturity not greater than (and not more than one year less than) that of the
Deleted Mortgage Loan; (vi) not be 30 days or more delinquent; (vii) not be a
negative amortization loan; (viii) have a lien priority equal to or superior to
the lien priority of the Deleted Mortgage Loan; and (ix) be a Qualified
Replacement Mortgage.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
-----
Event of Default: With respect to the Indenture, any one of the
----------------
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) a default by the Issuer in the payment of (a) any Interest Payment
Amount or Principal Payment Amount with respect to the Class A Bonds on such
Payment Date or (b) the Subordination Increase Amount or the Carry-Forward
Amount, but only, with respect to clause (b), to the extent funds are available
to make such payment as provided in the Indenture (provided that for purposes of
this clause, a remittance by the Indenture Trustee from proceeds of the Bond
Insurance Policy shall not be considered payment by the Issuer with respect to
the Class A Bonds); or
A-12
(ii) the failure by the Issuer on the Final Scheduled Payment Date to
reduce the Bond Principal Balance of the Class A Bonds to zero (provided that
for purposes of this clause, a remittance by the Indenture Trustee from proceeds
of the Bond Insurance Policy shall not be considered payment by the Issuer with
respect to the Bonds); or
(iii) there occurs a default in the observance or performance of any
covenant or agreement of the Issuer made in the Indenture, or any representation
or warranty of the Issuer made in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith proving to have
been incorrect in any material respect as of the time when the same shall have
been made, and such default shall continue or not be cured, or the circumstance
or condition in respect of which such representation or warranty was incorrect
shall not have been eliminated or otherwise cured, for a period of 30 days after
there shall have been given, by registered or certified mail, to the Issuer by
the Indenture Trustee or the Bond Administrator or to the Issuer, the Indenture
Trustee and the Bond Administrator by the Bond Insurer, or if a Bond Insurer
Default exists, the Holders of at least 25% of the aggregate Bond Principal
Balance of the Bonds, a written notice specifying such default or incorrect
representation or warranty and requiring it to be remedied and stating that such
notice is a notice of default hereunder; or
(iv) there occurs the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Issuer or any substantial
part of the Trust Estate in an involuntary case under any applicable federal or
state bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer or for any substantial part of the Trust Estate,
or ordering the winding-up or liquidation of the Issuer's affairs, and such
decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or
(v) there occurs the commencement by the Issuer of a voluntary case under
any applicable federal or state bankruptcy, insolvency or other similar law now
or hereafter in effect, or the consent by the Issuer to the entry of an order
for relief in an involuntary case under any such law, or the consent by the
Issuer to the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Issuer or
for any substantial part of the assets of the Trust Estate, or the making by the
Issuer of any general assignment for the benefit of creditors, or the failure by
the Issuer generally to pay its debts as such debts become due, or the taking of
any action by the Issuer in furtherance of any of the foregoing.
Event of Servicer Termination: With respect to the Servicing Agreement,
-----------------------------
a Servicing Default as defined in Section 6.01 of the Servicing Agreement.
Excess Subordination Amount: With respect to a Class of Class A Bonds
---------------------------
and any Payment Date, the excess, if any, of (a) the related Subordination
Amount that would apply on such Payment Date after taking into account all
distributions to be made on such Payment Date (exclusive of any reductions
thereto attributable to Subordination Reduction Amounts on such Payment Date)
over (b) the related Required Subordination Amount for such Payment Date.
A-13
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
------------
rules and regulations promulgated thereunder.
Expense Adjusted Coupon Rate: With respect to each Group and a Payment
----------------------------
Date, the weighted average Mortgage Rate of the Mortgage Loans in such Group
less the related Administrative Fee Rate.
Expenses: The meaning specified in Section 7.02 of the Trust Agreement.
--------
FDIC: The Federal Deposit Insurance Corporation or any successor
----
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, or any successor
-----
thereto.
Final Scheduled Payment Date: With respect to each Class of Bonds, the
----------------------------
Payment Date occurring in _____________.
Fixed Rate Initial Mortgage Loan: Each of the Fixed Rate Mortgage Loans
--------------------------------
transferred to the Trust on the Closing Date.
Fixed Rate Mortgage Loan: Each of the Mortgage Loans identified in the
------------------------
Mortgage Loan Schedule as having a Mortgage Rate that is fixed.
FNMA: The Federal National Mortgage Association, or any successor
----
thereto.
Foreclosure Profit: With respect to a Liquidated Mortgage Loan, the
------------------
amount, if any, by which (i) the aggregate of its Net Liquidation Proceeds
exceeds (ii) the related Principal Balance (plus accrued and unpaid interest
thereon at the applicable Mortgage Rate from the date interest was last paid
through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.
Funding Period: The period beginning on the Closing Date and ending on
--------------
the earlier of the date on which (a) the amount on deposit in the Pre-Funding
Account is less than $10,000 or (b) the close of business on ______________.
Grant: Pledge, bargain, sell, warrant, alienate, remise, release,
-----
convey, assign, transfer, create, and ▇▇▇▇▇ ▇ ▇▇▇▇ upon and a security interest
in and right of set-off against, deposit, set over and confirm pursuant to the
Indenture. A Grant of the Collateral or of any other agreement or instrument
shall include all rights, powers and options (but none of the obligations) of
the granting party thereunder, including the immediate and continuing right to
claim for, collect, receive and give receipt for principal and interest payments
in respect of such collateral or other agreement or instrument and all other
moneys payable thereunder, to give and receive notices and other communications,
to make waivers or other agreements, to exercise all rights and options, to
bring proceedings in the name of the granting party or otherwise, and generally
to do and receive anything that the granting party is or may be entitled to do
or receive thereunder or with respect thereto.
A-14
Gross Margin: With respect to any Mortgage Loan, the percentage set
------------
forth as the "Gross Margin" for such Mortgage Loan on the Mortgage Loan
Schedule, as adjusted from time to time in accordance with the terms of the
Servicing Agreement.
Group: Each of Mortgage Loan Groups I, II, III and IV.
-----
Group I: A group of Mortgage Loans consisting of adjustable rate
-------
mortgage loans and identified as such on the Mortgage Loan Schedule, which loans
"relate" to the Class A-1 Bonds, B-1 Component and IO-1 Component for purposes
of the Basic Documents.
Group II: A group of Mortgage Loans consisting of adjustable rate
--------
mortgage loans and identified as such on the Mortgage Loan Schedule, which loans
"relate" to the Class A-2 Bonds, B-2 Component and IO-2 Component for purposes
of the Basic Documents.
Group III: A group of Mortgage Loans consisting of fixed rate mortgage
---------
loans and identified as such on the Mortgage Loan Schedule, which loans "relate"
to the Class A-3 Bonds, B-3 Component and IO-3 Component for purposes of the
Basic Documents.
Group IV: A group of Mortgage Loans consisting of fixed rate mortgage
--------
loans and identified as such on the Mortgage Loan Schedule, which loans "relate"
to the Class A-4 Bonds, B-4 Component and IO-4 Component for purposes of the
Basic Documents.
Indemnification Agreement: The Indemnification Agreement, dated as of
-------------------------
___________________, among the Bond Insurer, the Seller, the Company, the Issuer
and the Underwriter, including any amendments and supplements thereto.
Indemnified Party: The meaning specified in Section 7.02 of the Trust
-----------------
Agreement.
Indenture: The indenture, dated as of _______________, among the Issuer,
---------
as debtor, the Indenture Trustee, and the Bond Administrator.
Indenture Trustee: ________________________, a ________________
-----------------
corporation, and its successors and assigns or any successor indenture trustee
appointed pursuant to the terms of the Indenture.
Indenture Trustee Fee: With respect to each Payment Date, the product of
---------------------
(i) the Indenture Trustee Fee Rate divided by 12 and (ii) the sum of the
Principal Balance of the Mortgage Loans and the Pre-Funded Amount as of such
date, which fee shall be payable from the Bond Administration Fee.
Indenture Trustee Fee Rate: ________% per annum.
--------------------------
Independent: When used with respect to any specified Person, the Person
-----------
(i) is in fact independent of the Issuer, any other obligor on the Bonds, the
Seller, the Company, the Servicer and any Affiliate of any of the foregoing
Persons, (ii) does not have any direct financial interest or any material
indirect financial interest in the Issuer, any such other obligor, the Seller,
the Company, the Servicer, the Issuer or any Affiliate of any of the foregoing
Persons and (iii) is not connected with the Issuer, any such other obligor, the
Seller, the Company, the Servicer, the
A-15
Issuer, or any Affiliate of any of the foregoing Persons as an officer,
employee, promoter, underwriter, trustee, partner, director or person performing
similar functions.
Independent Certificate: A certificate or opinion to be delivered to the
-----------------------
Bond Administrator and the Indenture Trustee under the circumstances described
in, and otherwise complying with, the applicable requirements of Section 10.01
of the Indenture, made by an Independent appraiser or other expert appointed by
the Issuer and approved by Bond Administrator on behalf of the Indenture Trustee
in the exercise of reasonable care, and such opinion or certificate shall state
that the signer has read the definition of "Independent" in this Indenture and
that the signer is Independent within the meaning thereof.
Index: With respect to any Adjustable Rate Mortgage Loan, the index for
-----
the adjustment of the Mortgage Rate set forth as such on the related Mortgage
Note.
Initial Mortgage Loan: A Mortgage Loan transferred and conveyed by the
---------------------
Depositor to the Issuer on the Closing Date, as listed on the Mortgage Loan
Schedule.
Insurance Agreement: The Insurance and Indemnity Agreement, dated as of
-------------------
________________, among the Servicer, the Seller, the Company, the Issuer and
the Bond Insurer, including any amendments and supplements thereto.
Insurance Proceeds: Proceeds paid by any insurer (excluding the Bond
------------------
Insurer) pursuant to any insurance policy covering a Mortgage Loan which are
required to be remitted to the Servicer, including MI Insurance Proceeds in the
case of Mortgage Loans covered under a MI Policy, or amounts required to be paid
by the Servicer pursuant to the Servicing Agreement, net of any component
thereof (i) covering any expenses incurred by or on behalf of the Servicer in
connection with obtaining such proceeds, (ii) that is applied to the restoration
or repair of the related Mortgaged Property or (iii) released to the Mortgagor
in accordance with the Servicer's normal servicing procedures.
Interest Coverage Account: The account established and maintained in the
-------------------------
name and on behalf of the Indenture Trustee by the Bond Administrator pursuant
to Section 8.09 of the Indenture.
Interest Coverage Addition: As to each Class of Class A Bonds and any
--------------------------
Payment Date during the Funding Period, an amount, not less than $0.00, equal to
the remainder of (x) the product of (A) the Original Pre-Funded Amount with
respect to such Class and (B) a rate equal to the sum of (i) the related Bond
Interest Rate for the related Interest Period, (ii) the rate used to calculate
the Bond Insurance Premium and (iii) the rate used to calculate the Bond
Administrator Fee (all rates calculated as one-twelfth of the annual rate) minus
(y) interest collected on all Subsequent Mortgage Loans during the related
Interest Period (and after the related Subsequent Cut-off Date with respect to
any Subsequent Mortgage Loans transferred during such Interest Period).
Interest Coverage Amount: With respect to each Class of Class A Bonds,
------------------------
the amount to be paid from proceeds received from the sale of the Bonds for
deposit into the Interest Coverage Account pursuant to Section 8.09 of the
Indenture, which amount on the Closing Date shall be as set forth below:
A-16
Class Amount
------
A-1 $_________
A-2 $_________
A-3 $_________
A-4 $_________
Interest Cross-Collateralization Amount: With respect to a Class of
---------------------------------------
Class A Bonds and any Payment Date, an amount to be paid to the holders of each
other Class of Class A Bonds with respect to any shortfall in the Interest
Payment Amount for such other Class, as determined in accordance with Section
3.05(b) of the Indenture.
Interest Determination Date: With respect to any Interest Period, the
---------------------------
second London Business Day preceding the commencement of such Interest Period.
Interest Payment Amount: With respect to each Class of Bonds (or B
-----------------------
Component or IO Component) and any Payment Date, an amount equal to interest
accrued on the related Bond Principal Balance or the IO Component Notional
Amount immediately prior to such Payment Date at the related Bond Interest Rate
for the related Interest Period.
Interest Period: With respect to a Payment Date, the Interest Period for
---------------
the Class A-1 and Class A-2 Bonds and the B-1, B-2, IO-1 and IO-2 Components is
the prior Payment Date through and including the day preceding the related
Payment Date; provided that the Interest Period with respect to the first
Payment Date is the Closing Date through and including the day preceding such
Payment Date. Interest will accrue on the Class A-1 and Class A-2 Bonds and the
B-1, B-2, IO-1 and IO-2 Components on the basis of the actual number of days in
the Interest Period and a 360 day year. With respect to a Payment Date, the
Interest Period for the Class A-3 and Class A-4 Bonds and the B-3, B-4, IO-3 and
IO-4 Components is the calendar month preceding the related Payment Date.
Interest will accrue on the Class A-3 and Class A-4 Bonds and the B-3, B-4, IO-3
and IO-4 Components on the basis of twelve 30-day months and a 360 day year.
Interest Rate Adjustment Date: With respect to each Adjustable Rate
-----------------------------
Mortgage Loan, the date or dates on which the Mortgage Rate is adjusted in
accordance with the related Mortgage Note.
Initial Required Subordination Amount: $_____________, with respect to
-------------------------------------
Group I, $_________ with respect to Group II, $___________ with respect to Group
III and $__________ with respect to Group IV.
Investment Company Act: The Investment Company Act of 1940, as amended,
----------------------
and any amendments thereto.
IO-1 Component: The component of the Class IO Bonds relating to Group I.
--------------
IO-2 Component: The component of the Class IO Bonds relating to Group
--------------
II.
IO-3 Component: The component of the Class IO Bonds relating to Group
--------------
III.
A-17
IO-4 Component: The component of the Class IO Bonds relating to Group
--------------
IV.
IO Component Payment Amount: For any IO Component and any Payment Date,
---------------------------
the product of (a) the related IO Component Notional Balance and (b) the Bond
Interest Rate for such IO Component (but only to the extent that funds are
available to pay such amounts on such Payment Date in accordance with the terms
of this Indenture).
IO Components: Collectively, the IO-1 Component, the IO-2 Component, the
-------------
IO-3 Component, and the IO-4 Component.
IO Component Notional Balance: With respect to each IO Component and
-----------------------------
each Payment Date, the sum of (i) the aggregate Principal Balance of the
Mortgage Loans in the related Group and (ii) the remaining Pre-Funded Amount (if
any), in each case as of the first day of the Due Period.
IO Notional Balance: With respect to the IO Bond and any Payment Date,
-------------------
the aggregate of the IO Component Notional Balances for each IO Component.
Issuer: NovaStar Mortgage Funding Trust, Series _________, a Delaware
------
business trust, or its successor in interest.
Issuer Request: A written order or request signed in the name of the
--------------
Issuer by any one of its Authorized Officers and approved in writing by the Bond
Insurer, so long as no Bond Insurer Default exists, and delivered to the Bond
Administrator on behalf of the Indenture Trustee.
LIBOR Business Day: Any day other than (i) a Saturday or a Sunday or
------------------
(ii) a day on which banking institutions in the State of ________ or in the city
of London, England are required or authorized by law to be closed.
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
----
assignment, participation, deposit arrangement, encumbrance, lien (statutory or
other), preference, priority right or interest or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC (other than
any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing.
Lifetime Rate Cap: With respect to each Adjustable Rate Mortgage Loan
-----------------
with respect to which the related Mortgage Note provides for a lifetime rate
cap, the maximum Mortgage Rate permitted over the life of such Mortgage Loan
under the terms of such Mortgage Note, as set forth on the Mortgage Loan
Schedule and initially as set forth on Exhibit A to the Servicing Agreement.
Limited Net Monthly Cashflow: With respect to any Payment Date on which
----------------------------
the Stepup Rolling Delinquency Test is not satisfied (and the Stepup Rolling
Loss Test and Stepup Cumulative Loss Test are satisfied and no MI Insurer
Insolvency Event is then continuing), the amount of Net Monthly Excess Cashflow
which would otherwise be remaining after reduction of
A-18
the Subordination Deficiency to zero, if the Required Subordination Amount did
not increase due to the failure of the Stepup Rolling Delinquency Test.
Liquidated Mortgage Loan: With respect to any Payment Date, (i) any
------------------------
Mortgage Loan in respect of which the Servicer has determined, in accordance
with the servicing procedures specified in the Servicing Agreement, as of the
end of the related Prepayment Period that substantially all Liquidation Proceeds
which it reasonably expects to recover with respect to the disposition of the
related Mortgaged Property or REO Property have been recovered and, (ii) any
Mortgage Loan secured by a second lien of which any portion of a scheduled
monthly payment of principal and interest is in excess of 180 days past due.
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead)
--------------------
which are incurred by or on behalf of the Servicer in connection with the
liquidation of any Mortgage Loan and not recovered under any insurance policy,
such expenses, including, without limitation, legal fees and expenses, any
unreimbursed amount expended respecting the related Mortgage Loan and any
related and unreimbursed expenditures for real estate property taxes or for
property restoration, preservation or insurance against casualty loss or damage.
Liquidation Proceeds: Proceeds (including Insurance Proceeds but not
--------------------
including amounts received under the Bond Insurance Policy) received in
connection with the liquidation of any Mortgage Loan or related REO Property,
including any proceeds received on second lien Mortgage Loans in excess of 180
days past due, whether through trustee's sale, foreclosure sale or otherwise.
Loan-to-Value Ratio: With respect to any Mortgage Loan, as of any date
-------------------
of determination, a fraction expressed as a percentage, the numerator of which
is the then current principal amount of the Mortgage Loan, and the denominator
of which is the lesser of the Purchase Price or the Appraised Value of the
related Mortgaged Property.
Loan Year: With respect to any Mortgage Loan, the one year period
---------
commencing on the day succeeding the origination of such Mortgage Loan and
ending on the anniversary date of such Mortgage Loan, and each annual period
thereafter.
London Business Day: Any day on which banks in the City of London,
-------------------
England are open and conducting transactions in United States dollars.
Majority Bondholders: Holders of Class A and Class B Bonds representing
--------------------
not less than a majority of the Bond Principal Balance of all Outstanding Class
A and Class B Bonds.
Maximum Collateral Amount: The sum of the Principal Balance as of the
-------------------------
Cut-off Date of the Initial Mortgage Loans in such Group and the Original Pre-
Funded Amount.
Maximum Mortgage Rate: With respect to each Adjustable Rate Mortgage
---------------------
Loan, the maximum Mortgage Rate specified in the related Mortgage Note.
MI Insurance Agreement: Collectively, (i) the Master Policy, dated as of
----------------------
____________, between Seller and the MI Insurer, (ii) the Letter Agreement,
dated _______________, between
A-19
Seller and the MI Insurer, (iii) all exhibits and schedules attached to any of
the foregoing and (iv) all amendments or supplements to any of the foregoing.
MI Insurance Proceeds: Proceeds paid by the MI Insurer pursuant to a MI
---------------------
Policy.
MI Insurer: ____________________, a _______________ mortgage insurance
----------
company, and its successors and assigns.
MI Insurer Insolvency Event: (A) The determination by the applicable
---------------------------
regulatory or supervisory agency having jurisdiction over the MI Insurer that
the MI Insurer is insolvent or unable to pay its obligations as they mature, (B)
following the failure of the MI Insurer to pay any claim under the MI Policy,
the joint determination by the Bond Insurer and the Servicer that the MI Insurer
is insolvent or unable to pay its obligations as they become due, (C) the
failure of the MI Insurer to pay claims during any 12 calendar months under any
number of MI Policies, (i) prior to the time the aggregate Principal Balance of
the Mortgage Loans is less than 50% of the Maximum Collateral Amount, in an
aggregate amount that exceeds the product of 0.25% and the Maximum Collateral
Amount, or (ii) after the time the aggregate Principal Balance of the Mortgage
Loans is less than 50% of the Maximum Collateral Amount, in an aggregate amount
that exceeds the product of the aggregate Principal Balance of the Mortgage
Loans (at the end of such 12 month period) and 0.50% and (D) the long-term
rating on the claims paying ability of the MI Insurer shall be lowered by
[Moody's] below A-2, if the MI Insurer is then rated by [Moody's], or shall be
lowered by [Standard & Poor's] below A, if the MI Insurer is then rated by
[Standard & Poor's]; provided, however, that with respect to (C) above, any
-------- -------
claim that is denied by the MI Insurer on the grounds of fraud and with respect
to which the Servicer, after further review, concurs with the MI Insurer's
denial on the grounds of fraud shall not be counted under such tests as a
failure of the MI Insurer to pay such claim.
MI Policy: The private mortgage insurance policy underwritten by the MI
---------
Insurer with respect to an individual Mortgage Loan, issued pursuant to the MI
Insurance Agreement.
MI Premium: The primary mortgage insurance premium for each MI Policy,
----------
payable annually to the MI Insurer, as specified in the MI Insurance Agreement,
and with respect to each monthly premium payment, 1/12 of the annual premium.
Minimum Mortgage Rate: With respect to each Adjustable Rate Mortgage
---------------------
Loan, the minimum Mortgage Rate.
Monthly Payment: With respect to any Mortgage Loan (including any REO
---------------
Property) and any Due Date, the payment of principal and interest due thereon in
accordance with the amortization schedule at the time applicable thereto (after
adjustment, if any, for partial Principal Prepayments and for Deficient
Valuations occurring prior to such Due Date but before any adjustment to such
amortization schedule by reason of any bankruptcy, other than a Deficient
Valuation, or similar proceeding or any moratorium or similar waiver or grace
period).
[Moody's: ▇▇▇▇▇'▇ Investors Service, Inc. or its successor in interest.]
--------
Mortgage: The mortgage, deed of trust or other instrument creating a
--------
first lien on an estate in fee simple interest in real property securing a
Mortgage Loan.
A-20
Mortgage File: The file containing the Related Documents pertaining to a
-------------
particular Mortgage Loan and any additional documents required to be added to
the Mortgage File pursuant to the Mortgage Loan Purchase Agreement or the
Servicing Agreement.
Mortgage Loan Schedule: With respect to any date, the schedule of
----------------------
Mortgage Loans pledged under the Indenture on such date. The schedule of
Initial Mortgage Loans as of the Cut-off Date is the schedule set forth in
Exhibit E of the Indenture and the schedule or schedules of Subsequent Mortgage
Loans, if any, as of the Subsequent Cut-off Date, which schedules set forth as
to each Mortgage Loan
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the Mortgaged
Property;
(iii) the Mortgage Rate at origination;
(iv) with respect to an Adjustable Rate Mortgage Loan, the Maximum
Rate and the Minimum Rate;
(v) the maturity date;
(vi) the original principal balance;
(vii) the first payment date;
(viii) the type of Mortgaged Property;
(ix) the Monthly Payment in effect as of the Cut-off Date (with
respect to an Initial Mortgage Loan) or Subsequent Cut-off Date (with respect to
a Subsequent Mortgage Loan);
(x) the Principal Balance as of the Cut-off Date (with respect to an
Initial Mortgage Loan) or Subsequent Cut-off Date (with respect to a Subsequent
Mortgage Loan);
(xi) with respect to an Adjustable Rate Mortgage Loan, the Index, the
Gross Margin; the Lifetime Rate Cap and the Periodic Rate Cap;
(xii) with respect to an Adjustable Rate Mortgage Loan, the first
Adjustment Date and next Adjustment Date, if any;
(xiii) with respect to an Adjustable Rate Mortgage Loan, the Adjustment
Date frequency and Payment Date frequency;
(xiv) the occupancy status;
(xv) the purpose of the Mortgage Loan;
(xvi) the Appraised Value of the Mortgaged Property;
(xvii) the original term to maturity;
A-21
(xviii) the paid-through date of the Mortgage Loan;
(xix) the Loan-to-Value Ratio;
(xx) whether the Mortgage Loan is an Adjustable Rate Mortgage Loan or
a Fixed Rate Mortgage Loan;
(xxi) whether or not the Mortgage Loan was underwritten pursuant to a
limited documentation program;
(xxii) whether or not the Mortgage Loan is a Convertible Mortgage Loan;
and
(xxiii) whether the Mortgage Loan is covered by a MI Policy.
The Mortgage Loan Schedule shall set forth the total of the amounts
described under (ix) above for all of the Mortgage Loans. The Mortgage Loan
Schedule shall set forth separately the above information as to each Group of
Mortgage Loans.
Mortgage Loans: At any time, collectively, all Mortgage Loans that have
--------------
been transferred and conveyed to the Issuer, in each case together with the
Related Documents, and that remain subject to the terms of the Indenture. As
applicable, Mortgage Loan shall be deemed to refer to the related REO Property
and both Initial Mortgage Loans and Subsequent Mortgage Loans.
Mortgage Note: The note or other evidence of the indebtedness of a
-------------
Mortgagor under a Mortgage Loan.
Mortgage Rate: With respect to any Mortgage Loan, the annual rate at
-------------
which interest accrues on such Mortgage Loan.
Mortgaged Property: The underlying property, including real property and
------------------
improvements thereon, securing a Mortgage Loan.
Mortgagor: The obligor or obligors under a Mortgage Note.
---------
Net Liquidation Proceeds: With respect to any Liquidated Mortgage Loan,
------------------------
Liquidation Proceeds net of Liquidation Expenses.
Net Monthly Excess Cashflow: With respect to each Class of Class A Bonds
---------------------------
any Payment Date, the amount of Available Funds remaining after distributions
pursuant to clauses (i) through (viii) of Section 3.05(a) of the Indenture.
Net Mortgage Rate: With respect to any Mortgage Loan and any day, the
-----------------
related Mortgage Rate less the sum of the related Servicing Fee Rate and the
Bond Administrator Fee Rate.
NFI: NovaStar Financial, Inc., a Maryland corporation, and its
---
successors and assigns.
A-22
NRFC: NovaStar REMIC Financing Corporation, a Delaware corporation, and
----
its successors and assigns.
Net Weighted Average Mortgage Rate: With respect to any Group and Due
----------------------------------
Period, the weighted average Net Mortgage Rate (weighted by Principal Balances)
of the related Mortgage Loans, calculated at the opening of business on the
first day of such Due Period.
Nonrecoverable Advance: With respect to any Mortgage Loan, any Advance
----------------------
(i) which was previously made or is proposed to be made by the Servicer; and
(ii) which, in the good faith judgment of the Servicer, will not or, in the case
of a proposed Advance, would not, be ultimately recoverable by the Servicer from
Liquidation Proceeds, Insurance Proceeds, Repurchase Price or future payments on
such Mortgage Loan.
One-Month LIBOR: With respect to any Interest Period, the rate
---------------
determined by the Bond Administrator on the related Interest Determination Date
on the basis of the offered rates of the Reference Banks for one-month United
States dollar deposits, as such rates appear on the Telerate Page 3750, as of
11:00 a.m. (London time) on such Interest Determination Date. If such rate does
not appear on Telerate Page 3750, the rate for that day will be determined on
the basis of the rates at which deposits in United States dollars are offered by
the Reference Banks at approximately 11:00 a.m., London time, on that day to
prime banks in the London interbank market for a period equal to the relevant
Interest Period (commencing on the first day of such Interest Period). The Bond
Administrator will request the principal London office of each of the Reference
Banks to provide a quotation of its rate. If at least two such quotations are
provided, the rate for that day will be the arithmetic mean of the quotations.
If fewer than two quotations are provided as requested, the rate for that day
will be the arithmetic mean of the rates quoted by major banks in _____________
selected by the Bond Administrator, at approximately 11:00 a.m., _____________
time, on that day for loans in United States dollars to leading European banks
for a period equal to the relevant Interest Period (commencing on the first day
of such Interest Period).
The establishment of One-Month LIBOR on each Interest Determination Date
by the Bond Administrator and the Bond Administrator's calculation of the rate
of interest applicable to the Bonds for the related Interest Period shall (in
the absence of manifest error) be final and binding.
Opinion of Counsel: A written opinion of counsel acceptable to the Bond
------------------
Insurer, who may be in-house counsel for the Servicer if acceptable to the Bond
Administrator on behalf of the Indenture Trustee, the Bond Insurer and the
Rating Agencies or counsel for the Company, as the case may be.
Original Pre-Funded Amount: With respect to each Group, the amount
--------------------------
deposited (from the Bond proceeds) in the Pre-Funding Account for such Group on
the Closing Date, which amount is set forth below:
Group Amount
----- ------
I $_________
A-23
II $_________
III $_________
IV $_________
Original Value: Except in the case of a refinanced Mortgage Loan, the
--------------
lesser of the Appraised Value or sales price of Mortgaged Property at the time a
Mortgage Loan is closed, and for a refinanced Mortgage Loan, the Original Value
is the value of such property set forth in an appraisal acceptable to the
Servicer.
Outstanding: With respect to the Bonds, as of the date of determination,
-----------
all Bonds theretofore executed, authenticated and delivered under the Indenture
except:
Bonds theretofore canceled by the Bond Registrar or delivered to the Bond
Administrator for cancellation; and
Bonds in exchange for or in lieu of which other Bonds have been executed,
authenticated and delivered pursuant to the Indenture unless proof satisfactory
to the Bond Registrar or the Bond Administrator is presented that any such Bonds
are held by a holder in due course.
All Bonds that have been paid with funds provided under the Bond
Insurance Policy shall be deemed to be Outstanding until the Bond Insurer has
been reimbursed with respect thereto.
Owner Trust Estate: The corpus of the Issuer created by the Trust
------------------
Agreement which consists of items referred to in Section 2.05 of the Trust
Agreement.
Owner Trustee: ________________________, and its successors and assigns,
-------------
not in its individual capacity, but solely as owner trustee, or any successor
owner trustee, appointed pursuant to the terms of the Trust Agreement.
Owner Trustee Fee: The initial and annual fees payable to
-----------------
_______________________ for its services as Owner Trustee under the Trust
Agreement, as provided in a separate fee agreement among
________________________, the Company and the Servicer.
Paying Agent: Any paying agent or co-paying agent appointed pursuant to
------------
Section 3.03 of the Indenture, which initially shall be the Indenture Trustee
Payment Account: The account or accounts established by the Indenture
---------------
Trustee or the Bond Administrator in the name of and on behalf of the Indenture
Trustee pursuant to Section 3.01 of the Indenture. The Payment Account shall be
an Eligible Account.
Payment Adjustment Date: With respect to each negative amortization
-----------------------
loan, the date set forth in the related Mortgage Note on which the Monthly
Payment may change each month. The first Payment Adjustment Date as to each
negative amortization loan is set forth in the Mortgage Loan Schedule.
A-24
Payment Cap: With respect to each negative amortization loan and each
-----------
Payment Adjustment Date, the amount (expressed as a percentage) by which the
Monthly Payment on such negative amortization loan due in the month preceding
such Payment Adjustment Date is multiplied for purposes of calculating the
maximum amount to which the Monthly Payment may be adjusted, as identified as
such on the Mortgage Loan Schedule.
Payment Date: The 25th day of each month, or if such day is not a
------------
Business Day, then the next Business Day, commencing on ____________________.
Percentage Interest: With respect to any Bond, the percentage obtained
-------------------
by dividing the Bond Principal Balance of such Bond by the aggregate of the Bond
Principal Balances of all Bonds. With respect to any Certificate, the
percentage on the face thereof.
Periodic Rate Cap: With respect to any Adjustable Rate Mortgage Loan,
-----------------
the maximum rate, if any, by which the Mortgage Rate on such Mortgage Loan can
adjust on any Adjustment Date, as stated in the related Mortgage Note or
Mortgage.
Person: Any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Pool Balance: With respect to any date, the sum of the aggregate of the
------------
Principal Balances of all Mortgage Loans and the Pre-Funded Amount as of such
date.
Pre-Funded Amount: With respect to each Group any date of determination,
-----------------
the related Original Pre-Funded Amount as reduced by the amount thereof used to
purchase Subsequent Mortgage Loans for such Group.
Pre-Funding Account: The account established and maintained by the Bond
-------------------
Administrator in the name of and on behalf of the Indenture Trustee pursuant to
Section 8.08 of the Indenture.
Preference Amount: Any amount previously distributed to a Holder on the
-----------------
Bonds that is recoverable and sought to be recovered as a voidable preference by
a trustee in bankruptcy pursuant to the United States Bankruptcy Code (11
U.S.C.), as amended from time to time, in accordance with a final nonappealable
order of a court having competent jurisdiction.
Prepayment Interest Shortfall: As to any Payment Date and any Mortgage
-----------------------------
Loan (other than a Mortgage Loan relating to an REO Property) that was the
subject of (a) a Principal Prepayment in full during the related Prepayment
Period, an amount equal to the excess of interest accrued during the related
Prepayment Period at the Mortgage Rate (net of the Servicing Fee) on the
Principal Balance of such Mortgage Loan over the amount of interest (adjusted to
the Mortgage Rate (net of the Servicing Fee)) paid by the Mortgagor for such
Prepayment Period to the date of such Principal Prepayment in full or (b) a
partial Principal Prepayment during the prior calendar month, an amount equal to
interest accrued during the related Prepayment Period at the Mortgage Rate (net
of the Servicing Fee) on the amount of such partial Prepayment.
A-25
Prepayment Period: As to any Payment Date, the calendar month preceding
-----------------
the month of such Payment Date.
Principal Balance: With respect to any Mortgage Loan or related REO
-----------------
Property, at any given time, (i) the Principal Balance of the Mortgage Loan as
of the Cut-off Date or Subsequent Cut-off Date, as applicable, minus (ii) the
sum of (a) the principal portion of the Monthly Payments due with respect to
such Mortgage Loan or REO Property during each Due Period ending prior to the
most recent Payment Date which were received or with respect to which an Advance
was made, and (b) all Principal Prepayments with respect to such Mortgage Loan
or REO Property, and all Insurance Proceeds, Liquidation Proceeds and REO
Proceeds, to the extent applied by the Servicer as recoveries of principal in
accordance with the Servicing Agreement with respect to such Mortgage Loan or
REO Property, and (c) the principal portion of any Realized Loss with respect
thereto for any previous Payment Date.
Principal Cross-Collateralization Amount: With respect to a Class of
----------------------------------------
Class A Bonds and any Payment Date, an amount to be paid to each other Class of
Class A Bonds with respect to any shortfall in the Principal Payment Amount for
such other Class, as determined in accordance with Section 3.05(b) of the
Indenture.
Principal Payment Amount: (I)(a) With respect to each Class of Class A
------------------------
Bonds and any Payment Date, other than the Final Scheduled Payment Date, the
lesser of (a) the sum of (x) the Available Funds with respect to the related
Group remaining after distributions pursuant to clauses (i) through (iii) of
Section 3.05 of the Indenture and (y) any portion of any Scheduled Payment for
such Payment Date representing a Subordination Deficit and (b) the sum of:
(1) the principal portion of all Monthly Payments received and Advances
made with respect to the Mortgage Loans in the related Group during the related
Due Period (and with respect to the first Payment Date, received since the Cut-
off Date) on each related Mortgage Loan;
(2) the Principal Balance of any Mortgage Loan in the related Group
repurchased during the related Prepayment Period pursuant to the Mortgage Loan
Purchase Agreement or Sections 3.12 or 3.18 of the Servicing Agreement and the
amount of any Substitution Adjustment Amounts received during the related
Prepayment Period (and with respect to the first Payment Date, since the Cut-off
Date);
(3) the principal portion of all other unscheduled collections received
during the related Prepayment Period (or deemed to be received during the
related Prepayment Period) (including, without limitation and without
duplication, Principal Prepayments in full, partial Principal Prepayments,
Insurance Proceeds, Liquidation Proceeds and REO Proceeds) to the extent applied
by the Servicer as payments or recoveries of principal of a Mortgage Loan in the
related Group;
(4) any Scheduled Payment paid with respect to any Subordination Deficit
with respect to such Class; and
(5) with respect to the Payment Date immediately following the end of the
Funding Period, any amounts in the related Pre-Funding Account and the Interest
Coverage Account
A-26
relating to the Group securing such Class after giving effect to any purchase of
related Subsequent Mortgage Loans;
minus
-----
(6) the amount of any Subordination Reduction Amount with respect to
such Class for such Payment Date;
and (b) with respect to the Final Scheduled Payment Date, the amount
necessary to reduce the related Bond Principal Balance to zero.
(II) In regard to each B Component, the Principal Payment Amount shall be
an amount equal to the Subordination Reduction Amount on the related class of
Class A Bonds; and in regard to the Class B Bonds, the Principal Payment Amount
shall be the aggregate of the Principal Payment Amount on each B Component.
Principal Prepayment: Any payment of principal made by the Mortgagor on
--------------------
a Mortgage Loan which is received in advance of its scheduled Due Date and which
is not accompanied by an amount of interest representing scheduled interest due
on any date or dates in any month or months subsequent to the month of
prepayment.
Proceeding: Any suit in equity, action at law or other judicial or
----------
administrative proceeding.
Prohibited Transaction: The meaning set forth from time to time in the
----------------------
definition thereof at Section 860F(a)(2) of the Code (or any successor statute
thereto) and applicable to the Trust.
Prospectus: The Prospectus Supplement together with the Base Prospectus
----------
attached thereto with respect to the Class A Bonds.
Prospectus Supplement: The Prospectus Supplement dated
---------------------
__________________, with respect to the Class A Bonds.
Purchase Agreement: The Mortgage Loan Purchase Agreement, dated as of
------------------
__________________, among the Seller, the Company, the Indenture Trustee, the
Bond Administrator and the Issuer.
Purchase Price: The meaning specified in Section 2.01(a) of the Purchase
--------------
Agreement.
Qualified Liquidation: The meaning set forth from time to time in the
---------------------
definition thereof at Section 860F(a)(4) of the Code (or any successor statute
thereto) and applicable to the Trust.
Qualified Mortgage: The meaning set forth from time to time in the
------------------
definition thereof at Section 860G(a)(3) of the Code (or any successor statute
thereto) and applicable to the Trust and the Mortgage Loan Groups.
Qualified Replacement Mortgage: A Mortgage Loan substituted for another
------------------------------
pursuant to Section 3.01 of the Purchase Agreement and that satisfies all of the
criteria set forth from time to
A-27
time in the definition thereof at Section 860G(a)(4) of the Code (or any
successor statute thereto) and applicable to the Trust, all as evidenced by an
Officer's Certificate of the Seller delivered to the Bond Administrator on
behalf of the Indenture Trustee prior to any such substitution.
Rate Stepup Date: The Payment Date on which the aggregate Principal
----------------
Balance of the Mortgage Loans is reduced to equal to or less than 10% of the
Maximum Collateral Amount.
Rating Agency: Any nationally recognized statistical rating
-------------
organization, or its successor, that rated the Class A Bonds at the request of
the Company at the time of the initial issuance of the Class A Bonds. Initially
such rating agencies shall consist of [▇▇▇▇▇'▇] and [Standard & Poor's]. If
such organization or a successor is no longer in existence, "Rating Agency"
shall be such nationally recognized statistical rating organization, or other
comparable Person, designated by the Bond Insurer so long as no Bond Insurer
Default exists, notice of which designation shall be given to the Bond
Administrator and the Indenture Trustee. References herein to the highest short-
term unsecured rating category of a Rating Agency shall mean A-1 or better in
the case of [Standard & Poor's] and P-1 or better in the case of [▇▇▇▇▇'▇] and
in the case of any other Rating Agency shall mean such equivalent rating.
References herein to the highest long-term rating category of a Rating Agency
shall mean "AAA" in the case of [Standard & Poor's] and "Aaa" in the case of
[▇▇▇▇▇'▇] and in the case of any other Rating Agency, such equivalent rating.
Realized Loss: With respect to each Mortgage Loan (or REO Property) as
-------------
to which a Cash Liquidation or REO Disposition has occurred, an amount (not less
than zero) equal to (i) the Principal Balance of the Mortgage Loan (or REO
Property) as of the date of Cash Liquidation or REO Disposition, plus (ii)
interest (and REO Imputed Interest, if any) at the Net Mortgage Rate from the
Due Date as to which interest was last paid or advanced to Bondholders up to the
last day of the month in which the Cash Liquidation (or REO Disposition)
occurred on the Principal Balance of such Mortgage Loan (or REO Property)
outstanding during each Due Period that such interest was not paid or advanced,
minus (iii) Net Liquidation Proceeds, if any, received with respect to such Cash
Liquidation (or REO Disposition), minus the portion thereof reimbursable to the
Servicer or any Subservicer with respect to related Advances or expenses as to
which the Servicer or Subservicer is entitled to reimbursement thereunder but
which have not been previously reimbursed. With respect to each Mortgage Loan
which has become the subject of a Deficient Valuation, the difference between
the principal balance of the Mortgage Loan outstanding immediately prior to such
Deficient Valuation and the principal balance of the Mortgage Loan as reduced by
the Deficient Valuation. With respect to each Mortgage Loan which has become
the object of a Debt Service Reduction, the amount of such Debt Service
Reduction.
Record Date: For the Class A-1 and Class A-2 Bonds, the Business Day
-----------
prior to the related Payment Date, and for the Class A-3, Class A-4 Bonds,
Class B and Class IO Bonds and any Class A-1 and A-2 Bonds that become
Definitive Bonds, the last day of the calendar month prior to the related
Payment Date.
Reference Banks: [Bankers Trust Company, ▇▇▇▇▇▇▇'▇ Bank PLC, The Bank of
---------------
Tokyo-Mitsubishi, LTD. and National Westminster Bank PLC] and their successors
in interest; provided that if any of the foregoing banks are not suitable to
serve as a Reference Bank, then any leading
A-28
banks selected by the Bond Administrator which are engaged in transactions in
Eurodollar deposits in the international Eurocurrency market (i) with an
established place of business in London, (ii) not controlling, under the control
of or under common control with the Seller or any Affiliate thereof, (iii) whose
quotations appear on the Reuters Screen LIBO Page on the relevant Interest
Determination Date and (iv) which have been designated as such by the Bond
Administrator.
Registered Holder: The Person in whose name a Bond is registered in the
-----------------
Bond Register on the applicable Record Date.
Reimbursement Amount: With respect to a Group, the sum of all (a)
--------------------
payments previously paid by the Bond Insurer under the Bond Insurance Policy
with respect to the related Class of Bonds which have not previously been
reimbursed, (b) any other amounts due to the Bond Insurer with respect to such
Group pursuant to the Insurance Agreement plus the pro rata portion of any other
amounts due to the Bond Insurer that are not allocable to a particular Group, to
the extent not previously reimbursed and (c) interest on the foregoing as set
forth in the Insurance Agreement from the date such amounts become due until
paid in full.
Reimbursement Cross-Collateralization Amount: With respect to a Class of
--------------------------------------------
Class A Bonds and any Payment Date an amount to be paid to the Bond Insurer for
each other Class of Class A Bonds with respect to any shortfall in the
Reimbursement Amount for such other Class, as determined in accordance with
Section 3.05(b) of the Indenture.
Related Documents: With respect to each Mortgage Loan, the documents
-----------------
specified in Section 2.01(c) of the Purchase Agreement and any documents
required to be added to such documents pursuant to the Purchase Agreement, any
Subsequent Transfer Instrument, the Trust Agreement, the Indenture or the
Servicing Agreement.
Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940, as
----------
amended.
Relief Act Shortfall: As to any Payment Date and any Mortgage Loan
--------------------
(other than a Mortgage Loan relating to an REO Property), any shortfalls
relating to the Relief Act or similar legislation or regulations.
REMIC: A "real estate mortgage investment conduit" within the meaning of
-----
Section 860D of the Code.
REMIC Provisions: Provisions of the federal income tax law relating to
----------------
real estate mortgage investment conduits, which appear at Sections 860A through
860G of the Code, and related provisions, and regulations and rulings
promulgated thereunder, as the foregoing may be in effect from time to time.
REMIC Interests Sale Agreement: The REMIC Interests Sale Agreement,
------------------------------
dated as of ___________________, between the Company and NRFC.
REMIC Residual Interest: A "residual interest" within the meaning set
-----------------------
forth from time to time in the definition thereof at Section 860G(a)(2) of the
Code or any successor statute thereto.
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REMIC Trust: The segregated pool of assets consisting of the Trust
-----------
Estate.
REO Acquisition: The acquisition by the Servicer on behalf of the
---------------
Indenture Trustee for the benefit of the Bondholders and the Bond Insurer of any
REO Property pursuant to Section 3.13 of the Servicing Agreement.
REO Disposition: As to any REO Property, a determination by the Servicer
---------------
that it has received substantially all Insurance Proceeds, Liquidation Proceeds,
REO Proceeds and other payments and recoveries (including proceeds of a final
sale) which the Servicer expects to be finally recoverable from the sale or
other disposition of the REO Property.
REO Imputed Interest: As to any REO Property, for any period, an amount
--------------------
equivalent to interest (at the Net Mortgage Rate that would have been applicable
to the related Mortgage Loan had it been outstanding net, with respect to a
negative amortization loan, of amounts that would have been Deferred Interest,
if any) on the unpaid principal balance of the Mortgage Loan as of the date of
acquisition thereof for such period as such balance is reduced pursuant to
Section 3.13 of the Servicing Agreement by any income from the REO Property
treated as a recovery of principal and with respect to a negative amortization
loan, as such balance is increased by the addition of Deferred Interest.
REO Proceeds: Proceeds, net of expenses, received in respect of any REO
------------
Property (including, without limitation, proceeds from the rental of the related
Mortgaged Property), which proceeds are required to be deposited into the
Collection Account within two days of receipt by the Servicer.
REO Property: A Mortgaged Property that is acquired by the Issuer by
------------
foreclosure or by deed in lieu of foreclosure.
Repurchase Event: With respect to any Mortgage Loan, either (i) a
----------------
discovery that, as of the Closing Date the related Mortgage was not a valid lien
on the related Mortgaged Property subject only to (A) the lien of real property
taxes and assessments not yet due and payable, (B) covenants, conditions, and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of such Mortgage and such other permissible title
exceptions as are permitted and (C) other matters to which like properties are
commonly subject which do not materially adversely affect the value, use,
enjoyment or marketability of the related Mortgaged Property or (ii) with
respect to any Mortgage Loan as to which the Seller delivers an affidavit
certifying that the original Mortgage Note has been lost or destroyed, a
subsequent default on such Mortgage Loan if the enforcement thereof or of the
related Mortgage is materially and adversely affected by the absence of such
original Mortgage Note.
Repurchase Price: With respect to any Mortgage Loan (i) required to be
----------------
repurchased on any date by the Seller pursuant to the Purchase Agreement, (ii)
permitted to be purchased by the Servicer pursuant to the Servicing Agreement or
(iii) required to be purchased by the Converted Loan Purchaser pursuant to the
Converted Loan Purchase Agreement, an amount equal to the sum, without
duplication, of (i) 100% of the Principal Balance thereof (without reduction for
any amounts charged off) and (ii) unpaid accrued interest at the Mortgage Rate
on the outstanding principal balance thereof from the Due Date to which interest
was last paid by the Mortgagor (or
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with respect to which an Advance was last made by the Servicer) to the first day
of the month following the month of purchase plus (iii) the amount of any
unreimbursed Servicing Advances or unreimbursed Advances made with respect to
such Mortgage Loan plus (iv) any other amounts owed to the Servicer or the
Subservicer pursuant to Section 3.07 of the Servicing Agreement and not included
in clause (iii) of this definition.
Required Subordination Amount: With respect to a Class of Class A Bonds
-----------------------------
and as of any Payment Date (x) prior to the Stepdown Date, the amount which is
equal to the Initial Required Subordination Amount for the related Group and (y)
on and after the Stepdown Date (i) if the Stepdown Requirement is satisfied, the
lesser of (A) the greatest of (i) an amount equal to the Stepped Down Required
Subordination Amount for such Group and Payment Date and (ii) 0.50% of the
Maximum Collateral Amount and (iii) the aggregate Principal Balance of the three
largest Mortgage Loans then included in such Group or (B) the Initial Required
Subordination Amount or (ii) if the Stepdown Requirement is not satisfied, the
amount which is equal to the Initial Required Subordination Amount; provided,
however, that if on any Payment Date either of the Stepup Rolling Loss Test or
the Stepup Cumulative Loss Test is not satisfied or if a MI Insurer Insolvency
Event is then continuing, then the Required Subordination Amount for each Class
of Class A Bonds will be unlimited during the period that such Stepup Rolling
Loss Test or Stepup Cumulative Loss Test is not satisfied or such MI Insurer
Insolvency Event is continuing; provided, further, however, that, if on any
Payment Date, the Stepup Rolling Delinquency Test is not satisfied (and both the
Stepup Rolling Loss Test and Stepup Cumulative Loss Test are satisfied and no MI
Insurer Insolvency Event is then continuing), then the Required Subordination
Amount for each Class of Class A Bonds shall equal the sum of (A) the Initial
Required Subordination Amount for the related Group plus (B) the product of (x)
a fraction (not greater than one or less than zero), expressed as a percentage,
the numerator of which is the excess of (i) the Rolling Delinquency Percentage
for such Payment Date over (ii) _____% and the denominator of which is _____%
and (y) the Limited Net Monthly Excess Cash Flow; provided, further, however,
that, if on any Payment Date in or after _______________, the Stepup Spread
Squeeze Test is not satisfied, then the Required Subordination Amount for the
Class A-1 Bonds and the Class A-2 Bonds shall each increase by their respective
share of the Stepup Spread Increase Amount, allocated between the Class A-1
Bonds and the Class A-2 Bonds on a pro rata basis in proportion to the aggregate
Principal Balance of the Mortgage Loans in Group I and Group II, respectively;
provided, further, that the Required Overcollateralization Amount may be amended
by the Bond Insurer and the Servicer without the consent of the Indenture
Trustee or any Bondholder.
Responsible Officer: With respect to the Indenture Trustee or the Bond
-------------------
Administrator, any officer thereof with direct responsibility for the
administration of the Indenture and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
Rolling Delinquency Percentage: For any Payment Date, the average of the
------------------------------
Delinquency Percentages for the Mortgage Loans as of the last day of each of the
three (or 1 and 2 in the case of the first two Payment Dates, as applicable)
most recently ended Due Periods.
Sale: The meaning assigned in Section 5.15 of the Indenture.
----
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Scheduled Payment: Shall have the meaning set forth in the Bond
-----------------
Insurance Policy.
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations promulgated thereunder.
Security: Any of the Certificates or Bonds.
--------
Securityholder or Holder: Any Bondholder or a Certificateholder.
-------------- ------
Security Instrument: A written instrument creating a valid first lien on
-------------------
a Mortgaged Property securing a Mortgage Note, which may be any applicable form
of mortgage, deed of trust, deed to secure debt or security deed, including any
riders or addenda thereto.
Seller: NovaStar Mortgage, Inc., a Virginia corporation, and its
------
successors and assigns.
Servicer: NovaStar Mortgage, Inc., a Virginia corporation, and its
--------
successors and assigns.
Servicing Account: The separate trust account created and maintained by
-----------------
the Servicer or each Subservicer with respect to the Mortgage Loans or REO
Property, which shall be an Eligible Account, for collection of taxes,
assessments, insurance premiums and comparable items as described in Section
3.08 of the Servicing Agreement.
Servicing Advances: All customary, reasonable and necessary "out of
------------------
pocket" costs and expenses incurred in connection with a default, delinquency or
other unanticipated event in the performance by the Servicer of its servicing
obligations, including, without duplication, but not limited to, the cost of (i)
the preservation, restoration and protection of a Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of any REO Property and (iv) compliance with the
obligations under Section 3.13 of the Servicing Agreement.
Servicing Agreement: The Servicing Agreement, dated as of __________,
-------------------
among the Servicer, the Bond Administrator, the Indenture Trustee and the
Issuer.
Servicing Default: The meaning assigned in Section 6.01 of the Servicing
-----------------
Agreement.
Servicing Fee: With respect to the Mortgage Loans and any Payment Date,
-------------
the product of (i) the Servicing Fee Rate divided by 12 and (ii) the Principal
Balance of such Mortgage Loans as of such Payment Date.
Servicing Fee Rate: With respect to any Mortgage Loan, 0.50% per annum.
------------------
Servicing Officer: Any officer of the Servicer involved in, or
-----------------
responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers furnished to
the Bond Administrator (with a copy to the Bond Insurer) by the Servicer or a
Subservicer, as such list may be amended from time to time.
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Side Indemnity Letter: The Side Indemnity Letter dated _________________
---------------------
among the Company, the Seller and NFI.
[Standard & Poor's: Standard & Poor's Ratings Services, a division of
------------------
The McGraw Hill Companies, Inc., or its successor in interest.]
Stated Rate: With respect to the Class A-1 Bonds, an annual rate of
-----------
interest equal to, for each Payment Date prior to the Rate Stepup Date, One-
Month LIBOR plus ____% and thereafter, One-Month LIBOR plus ____%. With respect
to the Class A-2 Bonds, an annual rate of interest equal to, for each Payment
Date prior to the Rate Stepup Date, One-Month LIBOR plus ____% and thereafter,
One-Month LIBOR plus ____%. With respect to the Class A-3 Bonds, an annual rate
of interest equal to, for each Payment Date prior to the Rate Stepup Date, ____%
and thereafter, ____%. With respect to the Class A-4 Bonds, an annual rate of
interest equal to, for each Payment Date prior to the Rate Stepup Date, ____%
and thereafter, ____%. For each Class of Class A Bonds, the related Bond
Interest Rate may be no greater than the related Available Funds Cap Rate.
With respect to each of the B Components and each Payment Date, the same
annual rate of interest that is payable on such Payment Date on the related
Class of Class A Bonds.
With respect to each IO Component and each Payment Date, the remainder, if
any, of (a) the sum of (i) the Available Funds Cap Rate for the related Class of
Class A Bonds on such Payment Date, plus, in the case of the IO-1 and IO-2
Components, (ii) 0.50%, minus (b) the Bond Interest Rate for the related Class
of the Class A Bonds on such Payment Date.
Stepdown Date: The Payment Date occurring in ____________.
-------------
Stepped Down Required Subordination Amount: With respect to any Payment
------------------------------------------
Date after the Stepdown Date, the Stepped Down Required Subordination Percentage
multiplied by the aggregate Principal Balance of the Mortgage Loans in the
applicable Group as of the end of the immediately preceding Due Period.
Stepped Down Required Subordination Percentage: With respect to any
----------------------------------------------
Payment Date and the related Class of Class A Bonds after the Stepdown Date, a
percentage equal to (i) the percentage equivalent of a fraction, the numerator
of which is, ____%, with respect to the Class A-1 Bonds and the Class A-2 Bonds,
and, ____%, with respect to the Class A-3 Bonds and the Class A-4 Bonds, of the
applicable Maximum Collateral Amount and the denominator of which is the
aggregate Principal Balance of the Mortgage Loans in the applicable Group as of
the end of the immediately preceding Due Period, minus (ii) the percentage
equivalent of a fraction, the numerator of which is the product of (A) the
percentage calculated under clause (i) above minus ____%, with respect to the
Class A-1 Bonds and Class A-2 Bonds, and ____% with respect to the Class A-3
Bonds and the Class A-4 Bonds multiplied by (B) the number of consecutive
Payment Dates through and including the Payment Date for which the Stepped Down
Required Subordination Amount is being calculated, up to a maximum of ______,
from and including the Payment Date immediately following the Stepdown Date, and
the denominator of which is ______.
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Stepdown Requirement: The Stepdown Requirement is satisfied on any Payment
--------------------
Date on or after the Payment Date in August 2001 if, as of such Payment Date,
(x) the Rolling Delinquency Percentage is less than ____%, (y) the Cumulative
Loss Test is satisfied and (z) the Annual Loss Percentage (Rolling Six Month)
is not greater than or equal to ____%.
Stepup Cumulative Loss Test: The Stepup Cumulative Loss Test for each
---------------------------
period indicated below is satisfied if the Cumulative Loss Percentage for such
Payment Date does not exceed the percentage set out for such Payment Date below:
Monthly Remittance Dates Cumulative
from and including to and including Loss Percentage
------------------ ---------------- ---------------
_______________ _____________ _______________
_______________ _____________ _______________
_______________ _____________ _______________
_______________ and thereafter
Stepup Rolling Delinquency Test: The Stepup Rolling Delinquency Test will
-------------------------------
be satisfied with respect to a Payment Date, if the Rolling Delinquency
Percentage for such Payment Date is ____% or less.
Stepup Rolling Loss Test: The Stepup Rolling Loss Test shall be satisfied
------------------------
with respect to a Payment Date, if the Annual Loss Percentage (Rolling Six
Month) for such Payment Date is ____% or less.
Stepup Spread Increase Amount: For any Payment Date occurring in and
-----------------------------
after ____________ through the Payment Date in _____________, on which the
Stepup Spread Squeeze Test has not been met, an amount equal to the product
obtained by multiplying (i) _____ times (ii) the excess, if any, of (x) ____%
over (y) the Annualized Periodic Spread as of such Payment Date times (iii) the
aggregate Principal Balance of the Adjustable Rate Mortgage Loans as of the
Closing Date plus the aggregate Principal Balance of all Subsequent Mortgage
Loans that are Adjustable Rate Mortgage Loans as of their respective Subsequent
Transfer Dates. For any Payment Date occurring in and after ______________, on
which the Stepup Spread Squeeze Test has not been met, an amount equal to the
product obtained by multiplying (i) three times (ii) the excess, if any, of (x)
____% over the (y) the Annualized Periodic Spread as of such Payment Date times
(iii) the aggregate Principal Balance of the Adjustable Rate Mortgage Loans as
of the Closing Date plus the aggregate Principal Balance of all Subsequent
Mortgage Loans that are Adjustable Rate Mortgage Loans as of their respective
Subsequent Transfer Dates.
Stepup Spread Squeeze Test: With respect to any Payment Date occurring in
--------------------------
and after ______________ through the Payment Date in _____________, the Setup
Spread Squeeze Test will not be met if the Annualized Periodic Spread as of such
Payment Date, is less than ______%. With respect to any Payment Date occurring
in and after ____________, the Stepup Spread Squeeze Test will not be met if the
Annualized Periodic Spread as of such Payment Date, is less than _____%.
Subordinated Bonds: Collectively, the Class B Bonds and the Class IO
------------------
Bonds.
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Subordination Amount: With respect to a Class of Class A Bonds and as of
--------------------
any Payment Date, the excess, if any, of (x) the aggregate Principal Balance of
the Mortgage Loans in the related Group as of the close of business on the last
day of the related Due Period, over (y) the Bond Principal Balance of the Bonds
of such Class as of such Payment Date (and following the making of all
distributions on such Payment Date).
Subordination Deficiency: With respect to any Class A Bond on any
------------------------
Payment Date, the amount by which the Requirement Subordination Amount for such
Class A Bond on such Payment Date exceeds the Subordination Amount for such
Class A Bond prior to the application of payments to be made on such Payment
Date.
Subordination Deficit: With respect to all Class A Bonds and any Payment
---------------------
Date, the amount, if any, by which (x) the aggregate Bond Principal Balance of
all Classes of Class A Bonds as of such Payment Date, and following the making
of all distributions to be made on such Payment Date (except for any payment to
be made as to principal from proceeds of the Bond Insurance Policy), exceeds (y)
the aggregate Principal Balance of all the Mortgage Loans as of the close of
business on the related Due Date for such Payment Date.
Subordination Increase Amount: With respect to a Class of Class A Bonds
-----------------------------
and any Payment Date, the amount of any related Net Monthly Excess Cashflow
available in the Payment Account to increase the related Subordination Amount up
to the related Required Subordination Amount.
Subordination Increase Cross-Collateralization Amount: With respect to a
-----------------------------------------------------
Class of Class A Bonds and any Payment Date, an amount to be paid to such other
Class of Class A Bonds with respect to any shortfall in the Subordination
Increase Amount for such other Class, as determined in accordance with Section
3.05(b) of the Indenture.
Subordination Reduction Amount: With respect to a Class of Class A Bonds
------------------------------
and any Payment Date, an amount equal to the lesser of (a) the related Excess
Subordination Amount and (b) the principal collections for such Group received
by the Servicer with respect to the prior Due Period.
Subsequent Cut-off Date: With respect to those Subsequent Mortgage Loans
-----------------------
which are sold to the Trust pursuant to a Subsequent Transfer Instrument, one
Business Day prior to the Subsequent Transfer Date.
Subsequent Mortgage Loan: A Mortgage Loan sold by the Seller to the
------------------------
Transferor, who in turn sold such Mortgage Loan to the Trust, pursuant to
Section 2.02 of the Purchase Agreement, such Mortgage Loan being identified on
the Mortgage Loan Schedule attached to a Subsequent Transfer Instrument.
Subsequent Transfer Date: With respect to each Subsequent Transfer
------------------------
Instrument, the date on which the related Subsequent Mortgage Loans are sold to
the Trust.
Subsequent Transfer Instrument: Each Subsequent Transfer Instrument
------------------------------
dated as of a Subsequent Transfer Date executed by the Seller and the Company
substantially in the form of Exhibit 2(A) to the Purchase Agreement, by which
Subsequent Mortgage Loans are sold to the
A-35
Company and each Subsequent Transfer Instrument dated as of a Subsequent
Transfer Date executed by the Company and the Issuer substantially in the form
of Exhibit 2(B) to the Purchase Agreement, by which Subsequent Mortgage Loans
are sold to the Issuer.
Subservicer: Any Person with whom the Servicer has entered into a
-----------
Subservicing Agreement as a Subservicer.
Subservicing Account: An Eligible Account established or maintained by a
--------------------
Subservicer as provided for in Section 3.06(e) of the Servicing Agreement.
Subservicing Agreement: The written contract between the Servicer and
----------------------
any Subservicer relating to servicing and administration of certain Mortgage
Loans as provided in Section 3.02 of the Servicing Agreement.
Subservicing Fee: With respect to each Mortgage Loan and any Payment
----------------
Date, the portion of the Servicing Fee paid to a Subservicer.
Substitution Adjustment Amount: With respect to any Eligible Substitute
------------------------------
Mortgage Loan, the amount as defined in Section 2.03 of the Servicing Agreement.
Superior Lien: With respect to any Mortgage Loan which is secured by a
-------------
second lien, the mortgage loan(s) having a superior priority on the related
Mortgaged Property.
Tax Matters Person: The Bond Administrator, appointed pursuant to
------------------
Section 5.03 of the Trust Agreement.
Telerate Page 3750: The display page currently so designated on the Dow
------------------
▇▇▇▇▇ Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices) and "Reference
Banks" means leading banks selected by the Bond Administrator and engaged in
transactions in European deposits in the international Eurocurrency market.
Treasury Regulations: 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: The NovaStar Mortgage Funding Trust, Series _________, a Delaware
-----
business trust, to be created pursuant to the Trust Agreement.
Trust Agreement: The Trust Agreement, dated as of _____________ between
---------------
the Owner Trustee and the Company.
Trust Estate: The meaning specified in the Granting Clause of the
------------
Indenture.
Trust Indenture Act or TIA: The Trust Indenture Act of 1939, as amended
--------------------------
from time to time, as in effect on any relevant date.
A-36
UCC: The Uniform Commercial Code, as amended from time to time, as in
---
effect in any specified jurisdiction.
Underwriter: ___________________________________, and its successors and
-----------
assigns.
Underwriting Agreement: The Underwriting Agreement dated as of
----------------------
_____________ between the Underwriter and the Company with respect to the offer
and sale of the Class A Bonds, as the same may be amended from time to time.
Underwriting Guidelines: The underwriting guidelines set forth in the
-----------------------
Prospectus Supplement under the heading "Description of the Mortgage Pool--
Underwriting Standards for Mortgage Loans".
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