-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DlytoYjk//uxJKzx3ZmR6xSpg1UyjRZNUoQvkqTI23OoghlqjZgDIYLeqerQhOSt 4/S+FdxLSlfnhKHgukWxJQ== 0000950123-98-006866.txt : 19980727 0000950123-98-006866.hdr.sgml : 19980727 ACCESSION NUMBER: 0000950123-98-006866 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19980724 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANC ONE ABS CORP CENTRAL INDEX KEY: 0001013866 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-59845 FILM NUMBER: 98671212 BUSINESS ADDRESS: STREET 1: 201 NORTH CENTRAL AVE STREET 2: C/O BANK ONE ARIZONA N A CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6142486347 MAIL ADDRESS: STREET 1: 100 EAST BROAD ST CITY: COLUMBUS STATE: OH ZIP: 43271-0133 S-3 1 RESISTRATION STATEMENT ON FORM S-3 1 As filed with the Securities and Exchange Commission on July 24, 1998 Registration Statement No. 333-_________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Banc One ABS Corporation (Depositor of the Trusts described herein) (Exact names of registrants as specified in governing instruments) Ohio (States or other jurisdictions of incorporation or organization) None Available (I.R.S. Employer Identification Number) 100 East Broad Street Columbus, Ohio 43271-0158 (614) 248-5700 (Address of principal executive offices) Steven Alan Bennett, Esq. BANC ONE CORPORATION 100 East Broad Street Columbus, Ohio 43271-0158 (614) 248-5700 (Name and address of agent for service) Copies to: Joshua E. Raff, Esq. Charles F. Andrews, Esq. Orrick, Herrington & Sutcliffe LLP BANC ONE CORPORATION 666 Fifth Avenue 100 East Broad Street New York, New York 10103 Columbus, Ohio 43271-0158 Approximate date of commencement of proposed sale to public: As soon as practicable on or after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. |_| If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest plans, please check the following box. |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| ____________ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| ____________ If delivery of the prospectus is expected to be made pursuant to rule 434, please check the following box. |_| CALCULATION OF REGISTRATION FEE
Proposed Amount maximum offering Propose maximum Amount of Title to securities being per price aggregate registration being registered registered per unit (1) offering price fee ---------------- ---------- ------------ -------------- --- Banc One Home Equity Loan Asset Backed Securities $1,000,000 100% $1,000,000 $295
(1) Estimated solely for the purpose of calculating the registration fee. The Registrant hereby amends this Registration Statement on such date or dates as maybe necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 2(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ 2 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold without the delivery of a final Prospectus Supplement and Prospectus. This Prospectus Supplement and the accompanying Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION DATED JULY 22, 1998 PROSPECTUS SUPPLEMENT (To Prospectus dated ______________,_________) $_______________ Banc One Home Equity Loan Trust 199__-__ Revolving Home Equity Loan Asset-Backed Certificates, Series 199__-__ ___________________ ___________________ as Seller ----------- Bank One, N.A., as Servicer ----------- Banc One ABS Corporation, as Depositor ----------- Each Revolving Home Equity Loan Asset-Backed Certificate, Series 199_-_ (collectively, the "Certificates") will represent an undivided interest in the Banc One Home Equity Loan Trust 199_-_ (the "Trust") to be formed pursuant to a Pooling and Servicing Agreement among ____________, as Seller, Bank One, N.A. ("Bank One"), as Servicer, Banc One ABS Corporation, as Depositor, and _____________________, as Trustee. The property of the Trust will include a pool of adjustable rate home equity revolving credit line loans (sometimes referred to herein as "home equity loans") made or to be made in the future (the "Mortgage Loans") under certain home equity revolving credit line loan agreements. The Mortgage Loans are secured by first, second and third deeds of trust or mortgages on one- to four-family residential properties. The aggregate undivided interest in the Trust represented by the Certificates will, as of _________, 199_ (the "Cut-Off Date"), represent approximately ___% of the outstanding principal balances of the Mortgage Loans. The remaining undivided interest in the Trust not represented by the Certificates (the "Transferor Interest") will initially be equal to $_________, which as of the Cut-Off Date is approximately ___% of the outstanding principal balances of the Mortgage Loans. [The Transferor Interest will be initially retained by Bank One.] Only the Certificates are offered hereby. Distributions of principal and interest on the Certificates will be made on the [fifteenth] day of each month or, if such date is not a Business Day, then on the succeeding Business Day (each, a "Distribution Date"), commencing ___________, 199_. On each Distribution Date, holders of the Certificates will be entitled to receive, from and to the limited extent of funds available in the Collection Account (as defined herein), distributions with respect to interest and principal calculated as set forth herein. The Certificates are not guaranteed by the Depositor, Bank One or any affiliate thereof. [However, the Certificates will be unconditionally and irrevocably guaranteed as to the payment of the Guaranteed Distributions (as defined herein) on each Distribution Date pursuant to the terms of a financial guaranty insurance policy (the "Policy") to be issued by] There is currently no market for the Certificates offered hereby and there can be no assurance that such a market will develop or if it does develop that it will continue. See "RISK FACTORS" herein and in the Prospectus. ----------- Prospective investors should review the information set forth under "Risk Factors" beginning on page S-__ herein and on page __ in the accompanying Prospectus. ----------- THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, BANK ONE, THE TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT PROVIDED HEREIN. NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price to Underwriting Proceeds to the Public Discount (1) Depositor (2) Per Certificate............. % % % Total....................... $ $ $
(1) The Depositor has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) Before deducting expenses, estimated to be $ ----------- The Certificates are offered subject to prior sale and subject to the Underwriters' right to reject orders in whole or in part. It is expected that delivery of the Certificates will be made in book-entry form only through the facilities of The Depository Trust Company, Cedel Bank societe anonyme and the Euroclear System on or about ____________, 199__ (the "Closing Date"). ________________, 199__ 3 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. Until ninety days after the date of this Prospectus Supplement, all dealers effecting transactions in the Certificates, whether or not participating in this distribution, may be required to deliver a Prospectus Supplement and Prospectus. This is in addition to the obligation of dealers acting as underwriters to deliver a Prospectus Supplement and Prospectus with respect to their unsold allotments or subscriptions. The Certificates offered hereby constitute part of a separate series of Revolving Home Equity Loan Asset Backed Certificates being offered by Banc One ABS Corporation from time to time pursuant to its Prospectus dated __________, 199__. This Prospectus Supplement does not contain complete information about the offering of the Certificates. Additional information is contained in the Prospectus and investors are urged to read both this Prospectus Supplement and the Prospectus in full. Sales of the Certificates may not be consummated unless the purchaser has received both this Prospectus Supplement and the Prospectus. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE There are incorporated herein by reference all documents filed by the Depositor with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act, on or subsequent to the date of this Prospectus and prior to the termination of the offering of the Certificates made by this Prospectus Supplement. The Depositor will provide without charge to each person to whom this Prospectus Supplement and Prospectus are delivered, on request of such person, a copy of any or all of the documents incorporated herein by reference other than the exhibits to such documents (unless such exhibits are specifically incorporated by reference in such documents). Requests should be directed to Banc One ABS Corporation in writing at __________________, _______________ or by telephone at (___) ___-____. [In addition to the documents described above under "Incorporation of Certain Documents by Reference," the financial statements of the Certificate Insurer and subsidiaries included in, or as exhibits to, the following documents, which have been filed with the Securities and Exchange Commission by ___________________, are hereby incorporated by reference in this Prospectus Supplement: (a) Annual Report on Form 10-K for the period ended ___________, ____; and (b) Quarterly Report on Form IO-Q for the period ended ___________, ____. All financial statements of the Certificate Insurer included in documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act subsequent to the date of this Prospectus Supplement and prior to the termination of the offering of the Certificates shall be deemed to be incorporated by reference into this Prospectus Supplement and to be a part hereof from the respective dates of filing such documents.] S-2 4 [The Depositor hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the financial statements of the Certificate Insurer included in or as an exhibit to the documents of Holdings referred to above and filed pursuant to Section 13(a) or Section 15(d) of the 1934 Act that is incorporated by reference in the Registration Statement of which this Prospectus is a part shall be deemed to be a new registration statement relating to the Certificates offered hereby, and the offering of such Certificates at that time shall be deemed to be the initial bona fide offering thereof.] All reports and other documents filed by the Servicer, on behalf of the Trust, pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Certificates offered hereby shall be deemed incorporated by reference into this Prospectus and to be a part hereof. The Servicer will provide without charge to each person, including any beneficial owner of Certificates, to whom a copy of this Prospectus is delivered, on the written or oral request of any such person, a copy of any or all the documents incorporated herein by reference (other than exhibits to such documents). Written requests for such copies should be directed to BANC ONE CORPORATION, 100 East Broad Street, Columbus, Ohio 43271-0133, Attention: Structured Finance. Telephone requests for such copies should be directed to BANC ONE CORPORATION at (614) 248-6347. S-3 5 - -------------------------------------------------------------------------------- SUMMARY The following summary of certain pertinent information is qualified in its entirety by reference to the detailed information appearing elsewhere in this Prospectus Supplement and the accompanying Prospectus. Certain capitalized terms used in the Summary are defined elsewhere in the Prospectus Supplement or in the Prospectus. Reference is made to the Index of Defined Terms herein and the Glossary of Terms in the Prospectus for the definitions of certain capitalized terms. Trust...................... Banc One Home Equity Loan Trust 199_-_ (the "Trust") will be formed pursuant to a pooling and servicing agreement (the "Agreement") to be dated as of ______, 199_ (the "Cut-Off Date") among ___________, as Seller, Bank One, N.A. ("Bank One"), as servicer (together with any successor in such capacity, the "Servicer"), Banc One ABS Corporation, as depositor (the "Depositor"), and _____________, as trustee (the "Trustee"). The property of the Trust will include: a pool of adjustable rate home equity revolving credit line loans made or to be made in the future (the "Mortgage Loans"), under certain home equity revolving credit line loan agreements (the "Credit Line Agreements") and secured by either first, second or third mortgages on residential properties that are primarily one- to four-family properties (the "Mortgaged Properties"); the collections in respect of the Mortgage Loans received after the Cut-Off Date (exclusive of payments in respect of accrued interest due on or prior to the Cut-Off Date); property that secured a Mortgage Loan which has been acquired by foreclosure or deed in lieu of foreclosure; [an irrevocable and unconditional limited financial guaranty insurance policy (the "Policy")]; an assignment of the Depositor's rights under the Purchase Agreement (as defined herein); rights under certain hazard insurance policies covering the Mortgaged Properties; and certain other property, as described more fully herein. The Trust property will include the unpaid principal balance of each Mortgage Loan as of the Cut-Off Date (the "Cut-Off Date Principal Balance") plus any additions thereto as a result of new advances made pursuant to the applicable Credit Line Agreement (the "Additional Balances") during the life of the Trust. With respect to any date, the "Pool Balance" will be equal to the aggregate of the Principal Balances of all Mortgage Loans as of such date. The aggregate Cut-Off Date Principal Balance of the Mortgage Loans is $_____________ (the "Cut-Off Date - -------------------------------------------------------------------------------- S-4 6 - -------------------------------------------------------------------------------- Pool Balance"). The "Principal Balance" of a Mortgage Loan (other than a Liquidated Mortgage Loan) on any day is equal to its Cut-Off Date Principal Balance, plus (I) any Additional Balances in respect of such Mortgage Loan, minus (ii) all collections credited against the Principal Balance of such Mortgage Loan in accordance with the related Credit Line Agreement prior to such day. The Principal Balance of a Liquidated Mortgage Loan (as defined herein) after final recovery of related Liquidation Proceeds (as defined herein) shall be zero. Securities Offered......... Each of the Revolving Home Equity Loan Asset-Backed Certificates, Series 199_-_ offered hereby (the "Certificates") represents an undivided interest in the Trust. Each Certificate represents the right to receive payments of interest at the variable rate described below (the "Certificate Rate"), payable monthly, and payments of principal at such time and to the extent provided below. The aggregate undivided interest in the Trust represented by the Certificates as of the Closing Date will equal $____________ (the "Original Invested Amount"), which represents ___% of the Cut-Off Date Pool Balance. The "Original Certificate Principal Balance" will equal $____________. Following the Closing Date, the "Invested Amount" with respect to any date will be an amount equal to the Original Invested Amount minus (i) the amount of Investor Principal Collections (as defined herein) previously distributed to Certificateholders, and minus (ii) an amount equal to the product of the Investor Floating Allocation Percentage and the Liquidation Loss Amounts (each as defined herein). The Transferor (as described below) will own the remaining undivided interest (the "Transferor Interest") in the Mortgage Loans, which is equal to the Pool Balance minus the Invested Amount and will initially equal approximately __% of the Cut-Off Date Pool Balance. The Transferor (the "Transferor") as of any date is the owner of the Transferor Interest, which initially will be Bank One. The Certificates will be issued pursuant to the Agreement. The principal amount of the outstanding Certificates (the "Certificate Principal Balance") on any date is equal to the Original Certificate Principal Balance minus the aggregate of amounts actually distributed as principal to the Certificateholders. See "DESCRIPTION OF THE CERTIFICATES" herein. - -------------------------------------------------------------------------------- S-5 7 - -------------------------------------------------------------------------------- Removal of Certain Mortgage Loans; Additional Balances...... Subject to certain conditions, on any Distribution Date the Transferor may, but shall not be obligated to, remove from the Trust certain Mortgage Loans without notice to the Certificateholders. The Transferor is permitted to randomly designate the Mortgage Loans to be removed. Mortgage Loans so designated will only be removed upon satisfaction of certain conditions specified in the Agreement, including: (i) the Transferor Interest as of the Transfer Date (as defined herein) (after giving effect to such removal) exceeds the Minimum Transferor Interest (as defined below); (ii) the Transferor shall have delivered to the Trustee a "Mortgage Loan Schedule" containing a list of all Mortgage Loans remaining in the Trust after such removal; (iii) the Transferor shall represent and warrant that no selection procedures which are adverse to the interests of the Certificateholders or the Certificate Insurer were used by the Transferor in selecting such Mortgage Loans; (iv) in connection with any such retransfer of Mortgage Loans, the Rating Agencies (as defined herein) shall have been notified of the proposed transfer and prior to the Transfer Date the Rating Agencies shall have notified the Transferor in writing that such transfer will not result in a reduction or withdrawal of the ratings assigned to the Certificates without regard to the Policy; and (v) the Transferor shall have delivered to the Trustee and the Certificate Insurer an officer's certificate confirming the conditions set forth in clauses (i) through (iii) above. See "DESCRIPTION OF THE CERTIFICATES-Optional Transfers of Mortgage Loans to the Transferor." The "Minimum Transferor Interest" as of any date is an amount equal to the lesser of (a) __% of the Pool Balance on such date and (b) the Transferor Interest as of the Closing Date. During the term of the Trust, all Additional Balances will be transferred to and become property of the Trust. The Pool Balance at any time will generally fluctuate from day to day because the amount of Additional Balances and the amount of principal payments with respect to the Mortgage Loans will usually differ from day to day. Because the Transferor Interest is equal to the Pool Balance minus the Invested Amount, the amount of the Transferor Interest will fluctuate from day to day as draws are made with respect to the Mortgage - -------------------------------------------------------------------------------- S-6 8 - -------------------------------------------------------------------------------- Loans and as Principal Collections are received. The Mortgage Loans......... On the Closing Date, Bank One will sell the Mortgage Loans to the Depositor, pursuant to a purchase agreement (the "Purchase Agreement"). The Cut-Off Date Principal Balance of the Mortgage Loans was $____________. Weighted averages described below are weighted on the basis of the Cut-Off Date Principal Balance of all of the Mortgage Loans. The Mortgage Loans are secured by first, second or third mortgages on Mortgaged Properties located in ___ states and the District of Columbia. Approximately _____%, _____% and _____% of the Mortgage Loans are secured by Mortgaged Properties located in the states of _______, ________ and ________, respectively. The weighted average Combined Loan-to-Value Ratio of the Mortgage Loans was _____% as of the Cut-Off Date. The "Combined Loan-to-Value Ratio" or "CLTV" of each Mortgage Loan is the ratio, expressed as a percentage, of (a) the sum of (i) the greater of the Cut-Off Date Principal Balance or the Credit Limit and (ii) the principal balance of any senior mortgage loan as of the origination of such Mortgage Loan, over (b) the value (based on an appraisal or other acceptable valuation method) for the related Mortgaged Property determined at the origination of such Mortgage Loan. Interest accrues on each Mortgage Loan, payable monthly, on the daily outstanding Principal Balance thereof for each billing cycle at a variable rate per annum (the "Loan Rate") equal at any time to the sum of the applicable index, as described herein under "DESCRIPTION OF THE MORTGAGE LOANS Mortgage Loan Terms," as of the first day of each related billing cycle (each such date, an "Adjustment Date") plus a fixed percentage amount (the "Gross Margin") specified in the related Mortgage Note, computed on the basis of a 365 day year times actual days elapsed. The Gross Margins for the Mortgage Loans as of the Cut-off Date ranged from __% to ____%. The weighted average Gross Margins as of the Cut-Off Date for Mortgage Loans indexed to a "prime rate" and a "26 week T-Bill rate" were ____% and ____% respectively. All of the Mortgage Loans are subject to a maximum Loan Rate specified in the related Credit Line Agreements (each, a "Maximum Rate"). As of the Cut-off Date, the Maximum Rates ranged from _____% per annum to _____% per annum and the weighted average Maximum - -------------------------------------------------------------------------------- S-7 9 - -------------------------------------------------------------------------------- Rate was _____% per annum. As of the Cut-Off Date, _____% of the Mortgage Loans have a minimum Loan Rate of ____% per annum and _____% of the Mortgage Loans have a minimum Loan Rate of _____% per annum. The remaining Mortgage Loans do not have a minimum Loan Rate. As of the Cut-Off Date, the Loan Rates on the Mortgage Loans ranged from _____% per annum to _____% per annum and the weighted average Loan Rate was _____% per annum. The minimum Principal Balance of any Mortgage Loan as of the Cut-Off Date was $_____, the maximum Principal Balance of any Mortgage Loan as of the Cut-Off Date was $_________, and the average Principal Balance of any Mortgage Loan as of the Cut-Off Date was $_________. Approximately _____% of the Mortgage Loans were secured by first mortgages on the related Mortgaged Property, _____% were secured by second mortgages and _____% were secured by third mortgages. As of the Cut-Off Date, the Mortgage Loans had remaining terms to maturity ranging from ____ month to _____ months and the weighted average remaining term to scheduled maturity was ___ months. See "DESCRIPTION OF THE MORTGAGE LOANS" herein. Denominations.............. The Certificates will be offered for purchase in denominations of $1,000 and multiples of $1 in excess thereof. The interest in the Trust evidenced by a Certificate (the "Percentage Interest") will be equal to the percentage derived by dividing the denomination of such Certificate by the Original Certificate Principal Balance. Registration of Certificates............... The Certificates will initially be issued in book-entry form. Persons acquiring beneficial ownership interests in the Certificates ("Certificate Owners") may elect to hold their Certificate interests through The Depository Trust Company ("DTC"), in the United States, or Cedel Bank societe anonyme ("Cedel") or the Euroclear System ("Euroclear"), in Europe. Transfers within DTC, Cedel or Euroclear, as the case may be, will be in accordance with the usual rules and operating procedures of the relevant system. So long as the Certificates are Book-Entry Certificates (as defined herein), such Certificates will be evidenced by one or more Certificates registered in the name of Cede & Co. ("Cede"), as the nominee of DTC or one of the relevant depositories (collectively, the "European Depositaries"). Cross-market transfers - -------------------------------------------------------------------------------- S-8 10 - -------------------------------------------------------------------------------- between persons holding directly or indirectly through DTC, on the one hand, and counterparties holding directly or indirectly through Cedel or Euroclear, on the other, will be effected in DTC through Citibank N.A. ("Citibank") or Chemical Bank ("Chemical"), the relevant depositories of Cedel or Euroclear, respectively, and each a participating member of DTC. The Certificates will initially be registered in the name of Cede. The interests of the Certificateholders will be represented by book entries on the records of DTC and participating members thereof. No Certificate Owner will be entitled to receive a definitive certificate representing such person's interest, except in the event that Definitive Certificates (as defined herein) are issued under the limited circumstances described herein. All references in this Prospectus Supplement to any Certificates reflect the rights of Certificate Owners only as such rights may be exercised through DTC and its participating organizations for so long as such Certificates are held by DTC. See "RISK FACTORS-Book Entry Certificates," "DESCRIPTION OF THE CERTIFICATES-Book-Entry Certificates" and "ANNEX I" hereto. Depositor.................. Banc One ABS Corporation, a Delaware corporation. The principal executive offices of the Depositor are located at 100 East Broad Street, Columbus, Ohio 43271 (Telephone: (614) 248-5800). See "THE DEPOSITOR" in the Prospectus. Servicer of the Mortgage Loans...................... Bank One, N.A., a national banking association headquartered in Columbus, Ohio. The principal executive offices of the Servicer are located at 100 East Broad Street, Columbus, Ohio 43271 (Telephone: (614) 248-5800). See "SERVICING OF THE MORTGAGE LOANS-The Servicer" herein. Collections................ All collections on the Mortgage Loans will generally be allocated in accordance with the Credit Line Agreements between amounts collected in respect of interest and amounts collected in respect of principal. As to any Distribution Date, "Interest Collections" will be equal to (i) the amounts collected during the related Collection Period, including the portion of Net Liquidation Proceeds (as defined below) allocated to interest pursuant to the terms of the Credit Line Agreements less (ii) Servicing - -------------------------------------------------------------------------------- S-9 11 - -------------------------------------------------------------------------------- Fees for the related Collection Period. As to any Distribution Date, "Principal Collections" will be equal to the sum of (i) the amounts collected during the related Collection Period, including the portion of Net Liquidation Proceeds allocated to principal pursuant to the terms of the Credit Line Agreements and (ii) any Transfer Deposit Amounts (as defined herein). "Net Liquidation Proceeds" with respect to a Mortgage Loan are the proceeds (excluding amounts drawn on the Policy) received in connection with the liquidation of any Mortgage Loan, whether through trustee's sale, foreclosure sale or otherwise, reduced by related expenses, but not including the portion, if any, of such amount that exceeds the Principal Balance of the Mortgage Loan plus any accrued and unpaid interest thereon to the end of the Collection Period during which such Mortgage Loan became a Liquidated Mortgage Loan. With respect to any Distribution Date, the portion of Interest Collections allocable to the Certificates ("Investor Interest Collections") will equal the product of (a) Interest Collections for such Distribution Date and (b) the Investor Floating Allocation Percentage. With respect to any Distribution Date, the "Investor Floating Allocation Percentage" is the percentage equivalent of a fraction determined by dividing the Invested Amount at the close of business on the preceding Distribution Date (or at the Closing Date in the case of the first Distribution Date) by the Pool Balance at the beginning of the related Collection Period. The remaining amount of Interest Collections will be allocated to the Transferor Interest as more fully described herein. On each Distribution Date, the Investor Interest Collections will be applied in the following order of priority: (i) as payment to the Trustee for its fee for services rendered pursuant to the Agreement; (ii) as payment for the premium for the Policy; (iii) as payment for the accrued interest due and any overdue accrued interest (with interest thereon) on the Certificate Principal Balance of the Certificates; (iv) as payment for any Investor Loss Amount (as defined herein) for such Distribution Date; (v) as payment for any Investor Loss Amount for a previous Distribution Date that was not - -------------------------------------------------------------------------------- S-10 12 - -------------------------------------------------------------------------------- previously (a) funded by Investor Interest Collections allocable to the Certificateholders, (b) absorbed by the Overcollateralization Amount, (c) funded by amounts on deposit in the Spread Account or (d) funded by draws on the Policy; (vi) to reimburse prior draws made from the Policy (with interest thereon); (vii) to pay principal on the Certificates until the Invested Amount exceeds the Certificate Principal Balance by the Required Overcollateralization Amount, each as defined herein (such amount, if any, paid pursuant to this clause (vii) being referred to herein as the "Accelerated Principal Distribution Amount"); (viii) any other amounts required to be deposited in an account for the benefit of the Certificate Insurer and Certificateholders pursuant to the Agreement or amounts owed to the Certificate Insurer pursuant to the Insurance Agreement; (ix) certain amounts that may be required to be paid to the Servicer pursuant to the Agreement; and (x) to the Transferor to the extent permitted as described herein. Investor Interest Collections available after the payment of interest on the Certificates may be insufficient to cover any Investor Loss Amount. If such insufficiency results in the Certificate Principal Balance exceeding the Invested Amount, a draw in an amount equal to such difference will be made on the Policy in accordance with the terms of the Policy. The "Overcollateralization Amount" on any date of determination is the amount, if any, by which the Invested Amount exceeds the Certificate Principal Balance on such day. Payments to Certificateholders pursuant to clause (iii) above will be interest payments on the Certificates. Payments to Certificateholders pursuant to clauses (iv), (v) and (vii) will be principal payments on the Certificates and will therefore reduce the Certificate Principal Balance, however, payments pursuant to clause (vii) will not reduce the Invested Amount. The Accelerated Principal Distribution Amount is not guaranteed by the Policy. "Liquidation Loss Amount" means with respect to any Liquidated Mortgage Loan, the unrecovered Principal Balance thereof at the end of the related Collection Period in which such Mortgage Loan became a Liquidated Mortgage Loan, after giving effect to the Net Liquidation Proceeds received in connection therewith. The "Investor - -------------------------------------------------------------------------------- S-11 13 - -------------------------------------------------------------------------------- Loss Amount" shall be the product of the Investor Floating Allocation Percentage and the aggregate of the Liquidation Loss Amounts for such Distribution Date. See "DESCRIPTION OF THE CERTIFICATES Distributions on the Certificates." Principal Collections will be allocated between the Certificateholders and the Transferor ("Investor Principal Collections" and "Transferor Principal Collections," respectively) in accordance with their percentage interests in the Mortgage Loans of ____% and ____%, respectively, as of the Cut-Off Date (the "Fixed Allocation Percentage"), but a lesser amount of Principal Collections may be distributed to Certificateholders during the Managed Amortization Period, as described below. The "Investor Fixed Allocation Percentage" shall be ____%. The Servicer will deposit Interest Collections and Principal Collections in respect of the Mortgage Loans in an account established for such purpose under the Agreement (the "Collection Account"). See "DESCRIPTION OF THE CERTIFICATES-Payments on Mortgage Loans; Deposits to Collection Account." Collection Period.......... As to any Distribution Date other than the first Distribution Date, the "Collection Period" is the calendar month preceding the month of such Distribution Date. As to the first Distribution Date, the "Collection Period" is the period beginning on the day immediately following the Cut-Off Date and ending on __________, 199_. Interest................... Interest on the Certificates will be distributed monthly on the [fifteenth] day of each month or, if such day is not a Business Day, then the next succeeding Business Day (each, a "Distribution Date"), commencing on ______ 15, 199_, at the Certificate Rate for the related Interest Period (as defined below). The "Certificate Rate" for an Interest Period will generally equal the sum of (a) the London Interbank Offered Rate for one-month Eurodollar deposits ("LIBOR") appearing on the Telerate Screen Page 3750, as of the second LIBOR Business Day (as defined herein) prior to the first day of such Interest Period (or as of two LIBOR Business Days prior to the Closing Date, in the case of the first Interest Period) and (b) %. Notwithstanding the foregoing, in no event will the amount of interest required to be distributed in respect of - -------------------------------------------------------------------------------- S-12 14 - -------------------------------------------------------------------------------- the Certificates on any Distribution Date exceed a rate equal to the weighted average of the Loan Rates (net of the Servicing Fee Rate, the fee payable to the Trustee and the rate at which the premium payable to the Certificate Insurer is calculated) weighted on the basis of the daily balance of each Mortgage Loan during the related billing cycle prior to the Collection Period relating to such Distribution Date or in the case of the first Distribution Date, the weighted average loan rate as of the Cut-Off Date. Interest on the Certificates in respect of any Distribution Date will accrue from the preceding Distribution Date (or in the case of the first Distribution Date, from the date of the initial issuance of the Certificates (the "Closing Date") through the day preceding such Distribution Date (each such period, an "Interest Period") on the basis of the actual number of days in the Interest Period and a 360-day year. Interest for any Distribution Date due but not paid on such Distribution Date will be due on the next succeeding Distribution Date together with additional interest on such amount at a rate equal to the sum of the applicable Certificate Rate and 2% per annum. Interest payments on the Certificates will be funded from Investor Interest Collections, any funds on deposit in the Spread Account and from draws on the Policy. See "DESCRIPTION OF THE CERTIFICATES" herein. Principal Payments from Principal Collections...... For the period beginning on the first Distribution Date and, unless a Rapid Amortization Event (as defined herein) shall have earlier occurred, ending immediately following the Distribution Date in ______ 200_ (the "Managed Amortization Period"), the amount of Principal Collections payable to Certificateholders as of each Distribution Date during the Managed Amortization Period will equal, to the extent funds are available therefor, the Scheduled Principal Collections Distribution Amount for such Distribution Date. On any Distribution Date during the Managed Amortization Period, the "Scheduled Principal Collections Distribution Amount" shall equal the lesser of (i) the Maximum Principal Payment (as defined herein) and (ii) the Alternative Principal Payment (as defined herein). With respect to any Distribution Date, the "Maximum Principal Payment" will equal the product of the Investor Fixed Allocation Percentage and Principal Collections for such Distribution Date. With respect to any Distribution - -------------------------------------------------------------------------------- S-13 15 - -------------------------------------------------------------------------------- Date, the "Alternative Principal Payment" will equal the amount, but not less than zero, of Principal Collections for such Distribution Date less the aggregate of Additional Balances created during the related Collection Period. Beginning with the first Distribution Date following the end of the Managed Amortization Period, the amount of Principal Collections payable. to Certificateholders on each Distribution Date will be equal to the Maximum Principal Payment. See "DESCRIPTION OF THE CERTIFICATES -- Distributions on the Certificates." In addition, to the extent funds are available therefor [(including funds available under the Policy)], on the Distribution Date in _____ 202_, Certificateholders will be entitled to receive as payment of principal an amount equal to the outstanding Certificate Principal Balance. Distributions of Principal Collections based upon the Investor Fixed Allocation Percentage may result in distributions of principal to Certificateholders in amounts that are greater relative to the declining Pool Balance than would be the case if the Investor Floating Allocation Percentage were used to determine the percentage of Principal Collections distributed in respect of the Invested Amount. The aggregate distributions of principal to Certificateholders will not exceed the Original Certificate Principal Balance. [The Certificate Insurer... _______________________ (the "Certificate Insurer") is a ______________ insurance company engaged exclusively in the business of writing financial guaranty insurance, principally in respect of securities offered in domestic and foreign markets. The Certificate Insurer's claims-paying ability is rated ___ by Moody's Investors Service, Inc. ("Moody's") and ___ by Standard & Poor's Ratings Services ("Standard & Poor's"), Nippon Investors Service, Inc. and Standard & Poor's (Australia) Pty. Ltd. See "THE CERTIFICATE INSURER" in this Prospectus Supplement.] [Policy.................... On or before the Closing Date, the Policy will be issued by the Certificate Insurer pursuant to the provisions of the Insurance and Indemnity Agreement (the "Insurance Agreement") to be dated as of ________, 199_, among Bank One, the Depositor, the Trustee and the Certificate - -------------------------------------------------------------------------------- S-14 16 - -------------------------------------------------------------------------------- Insurer. The Policy will irrevocably and unconditionally guarantee payment on each Distribution Date to the Trustee for the benefit of the Certificateholders the full and complete payment of (i) the Guaranteed Principal Distribution Amount (as defined herein) with respect to the Certificates for such Distribution Date and (ii) accrued and unpaid interest due on the Certificates (together, the "Guaranteed Distributions"), with such Guaranteed Distributions having been calculated in accordance with the original terms of the Certificates or the Agreement except for amendments or modifications to which the Certificate Insurer has given its prior written consent. The effect of the Policy is to guarantee the timely payment of interest on, and the ultimate payment of the principal amount of, all of the Certificates. The "Guaranteed Principal Distribution Amount" for any Distribution Date shall be the amount by which the Certificate Principal Balance (after giving effect to all other amounts distributable and allocable to principal on the Certificates on such Distribution Date) exceeds the Invested Amount for such Distribution Date. In addition, the Policy will guarantee the payment of the outstanding Certificate Principal Balance on the Distribution Date in _______ 202_, (after giving effect to all other amounts distributable and allocable to principal on such Distribution Date). In accordance with the Agreement, the Trustee will be required to establish and maintain an account (the "Spread Account") for the benefit of the Certificate Insurer and the Certificateholders. The Trustee shall deposit the amounts into the Spread Account as required by the Agreement. The amount required to be deposited therein may be reduced or eliminated without consent of the Certificateholders. In the absence of payments under the Policy, Certificateholders will directly bear the credit and other risks associated with their undivided interest in the Trust. See "DESCRIPTION OF THE CERTIFICATES-The Policy."] Overcollateralization - -------------------------------------------------------------------------------- S-15 17 - -------------------------------------------------------------------------------- Amount..................... The distribution of Accelerated Principal Distribution Amounts, if any, to Certificateholders may result in the Invested Amount being greater than the Certificate Principal Balance, thereby creating the Overcollateralization Amount. The Overcollateralization Amount, if any, will be available to absorb any Investor Loss Amount not covered by Investor Interest Collections. [Payments of Accelerated Principal Distribution Amounts are not covered by the Policy. Any Investor Loss Amounts not covered by such overcollateralization, amounts on deposit in the Spread Account or Investor Interest Collections will be covered by draws on the Policy to the extent provided therein.] Record Date................ The last day preceding a Distribution Date or, if the Certificates are no longer Book-Entry Certificates, the last day of the month preceding a Distribution Date. Servicing.................. The Servicer will be responsible for servicing, managing and making collections on the Mortgage Loans. The Servicer will deposit all collections in respect of the Mortgage Loans into the Collection Account as described herein. See "DESCRIPTION OF THE CERTIFICATES-Payments on Mortgage Loans; Deposits to Collection Account." On the third Business Day prior to each Distribution Date (the "Determination Date"), the Servicer will calculate, and instruct the Trustee regarding the amounts to be paid, as described herein, to the Certificateholders on such Distribution Date. See "DESCRIPTION OF THE CERTIFICATES-Distributions on the Certificates." With respect to each Collection Period, the Servicer will receive from collections in respect of interest on the Mortgage Loans, on behalf of itself, a portion of such collections as a monthly servicing fee (the "Servicing Fee") in the amount of approximately ____% per annum (the "Servicing Fee Rate") on the aggregate Principal Balances of the Mortgage Loans as of the first day of each such Collection Period. See "DESCRIPTION OF THE CERTIFICATES-Servicing Compensation and Payment of Expenses." In certain limited circumstances, the Servicer may resign or be removed, in which event either the Trustee or a third-party servicer will be appointed as a successor Servicer. See "DESCRIPTION OF THE CERTIFICATES-Certain Matters Regarding the Servicer and the Transferor." - -------------------------------------------------------------------------------- S-16 18 - -------------------------------------------------------------------------------- Final Payment of Principal; Termination..... The Trust will terminate on the Distribution Date following the later of (A) payment in full of all amounts owing to the Certificate Insurer and (B) the earliest of (i) the Distribution Date on which the Certificate Principal Balance has been reduced to zero, (ii) the final payment or other liquidation of the last Mortgage Loan in the Trust, (iii) the optional retransfer to the Transferor of the Certificates, as described below and (iv) the Distribution Date in _____ 202_. The Certificates will be subject to optional retransfer to the Transferor on any Distribution Date after the Certificate Principal Balance is reduced to an amount less than or equal to $________ (____% of the Original Certificate Principal Balance) [and all amounts due and owing to the Certificate Insurer and unreimbursed draws on the Policy, together with interest thereon, as provided under the Insurance Agreement,] have been paid. The retransfer price will be equal to the sum of the outstanding Certificate Principal Balance and accrued and unpaid interest thereon at the Certificate Rate through the day preceding the final Distribution Date. See "DESCRIPTION OF THE CERTIFICATES-Termination; Retirement of the Certificates" herein and "DESCRIPTION OF THE SECURITIES-Optional Purchase or Termination" and "THE AGREEMENTS-Termination" in the Prospectus. In addition, the Trust may be liquidated as a result of certain events of bankruptcy, insolvency or receivership relating to the Transferor. See "DESCRIPTION OF THE CERTIFICATES-Rapid Amortization Events" herein. Trustee.................... _________________, a ______________ (the "Trustee"), will act as Trustee on behalf of the Certificateholders. Mandatory Retransfer of Certain Mortgage Loans..... The Seller will make certain representations and warranties in the Agreement with respect to the Mortgage Loans. If the Seller breaches certain of its representations and warranties with respect to any Mortgage Loan and such breach materially and adversely affects the interests of the Certificateholders or the Certificate Insurer and is not cured within the specified period, the Mortgage Loan will be removed from the Trust upon the expiration of a specified period from the date on which the Seller becomes aware or receives notice of such breach and will - -------------------------------------------------------------------------------- S-17 19 - -------------------------------------------------------------------------------- be reassigned to the Seller. See "DESCRIPTION OF THE CERTIFICATES-Assignment of Mortgage Loans" herein. Federal Tax Considerations............. [Subject to the qualifications set forth in "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" herein, special tax counsel to the Depositor is of the opinion that, under existing law, (i) a Certificate will be treated as a debt instrument for Federal income tax purposes as of the Closing Date and (ii) the Trust will not be characterized as an association (or publicly traded partnership) taxable as a corporation or as a taxable mortgage pool within the meaning of Section 7701 (i) of the Code. Under the Agreement, the Transferor, the Depositor and the Certificateholders will agree to treat the Certificates as indebtedness for Federal income tax purposes. See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" [herein and] in the Prospectus for additional information concerning the application of Federal income tax laws.] ERISA Considerations....... [The Certificates may be purchased by or on behalf of an employee benefit plan or other retirement arrangement that is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as any entity whose source of funds for the purchase of the Certificates includes plan assets by reason of a plan or account investing in such entity (each, a "Plan"), subject to the considerations described herein. Any Plan fiduciary considering whether to purchase any Certificate on behalf of a Plan should consult with its counsel regarding the applicability of the provisions of ERISA and the Code. See "ERISA CONSIDERATIONS" [herein and] in the Prospectus.] Legal Investment Considerations............. The Certificates will not constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"), because not all of the Mortgages securing the Mortgage Loans are first mortgages. Accordingly, many institutions with legal authority to invest in comparably rated securities based solely on first mortgages may not be legally authorized to invest in the Certificates. See "LEGAL INVESTMENT CONSIDERATIONS" herein and "LEGAL - -------------------------------------------------------------------------------- S-18 20 - -------------------------------------------------------------------------------- INVESTMENT" in the Prospectus. Certificate Rating......... It is a condition to the issuance of the Certificates that they be rated "___" by _____________ and "___" by ______ (each, a "Rating Agency"). In general, ratings address credit risk and do not address the likelihood of prepayments. See "RATINGS" herein and "RISK FACTORS-Rating of the Securities" in the Prospectus. - -------------------------------------------------------------------------------- S-19 21 RISK FACTORS Book-Entry Certificates. Issuance of the Certificates in book-entry form may reduce the liquidity of such Certificates in the secondary trading market since investors may be unwilling to purchase Certificates for which they cannot obtain physical certificates. See "DESCRIPTION OF THE CERTIFICATES-Book-Entry Certificates" herein. Since transactions in the Certificates can be effected only through DTC, Cedel, Euroclear, participating organizations, indirect participants and certain banks, the ability of a Certificate Owner to pledge a Certificate to persons or entities that do not participate in the DTC, Cedel or Euroclear system or otherwise to take actions in respect of such Certificates, may be limited due to lack of a physical certificate representing the Certificates. See "DESCRIPTION OF THE CERTIFICATES-Book-Entry Certificates" herein. Certificate Owners may experience some delay in their receipt of distributions of interest and principal on the Certificates since such distributions will be forwarded by the Trustee to DTC and DTC will credit such distributions to the accounts of its Participants (as defined herein) which will thereafter credit them to the accounts of Certificate Owners either directly or indirectly through indirect participants. See "DESCRIPTION OF THE CERTIFICATES-Book-Entry Certificates" herein. Cash Flow Considerations. Minimum monthly payments on the Mortgage Loans may be limited to accrued interest. Although borrowers under certain of the Mortgage Loans may choose to pay down all or a part of their outstanding principal balance prior to maturity, such borrowers are under no obligation to do so and, in the event such balances have not been substantially paid down prior to maturity, some borrowers may be unable to pay the required final payment. Even assuming that the Mortgaged Properties provide adequate security for the Mortgage Loans, substantial delays could be encountered in connection with the liquidation of Mortgage Loans that are delinquent and resulting shortfalls in distributions to Certificateholders could occur [if the Certificate Insurer were unable to perform on its obligations under the Policy.] Further, liquidation expenses (such as legal fees, real estate taxes, and maintenance and preservation expenses) will reduce the proceeds payable to Certificateholders and thereby reduce the security for the Mortgage Loans. In the event any of the Mortgaged Properties fail to provide adequate security for the related Mortgage Loans, Certificateholders could experience a loss [if the Certificate Insurer were unable to perform its obligations under the Policy]. Prepayment Considerations. Substantially all of the Mortgage Loans may be prepaid in whole or in part at any time without penalty. Home equity loans, such as the Mortgage Loans, have been originated in significant volume only during the past few years and neither the Depositor nor the Servicer is aware of any publicly available studies or statistics on the rate of prepayment of such loans. Generally, home equity loans are not viewed by borrowers as permanent financing. Accordingly, the Mortgage Loans may experience a higher rate of prepayment than traditional mortgage loans. The Trust's prepayment experience may be affected by a wide variety of factors, including general economic conditions, interest rates, the availability of alternative financing and homeowner mobility. In addition, substantially all of the S-20 22 Mortgage Loans contain due-on-sale provisions and the Servicer intends to enforce such provisions unless (i) such enforcement is not permitted by applicable law or (ii) the Servicer, in a manner consistent with reasonable commercial practice, permits the purchaser of the related Mortgaged Property to assume the Mortgage Loan. To the extent permitted by applicable law, such assumption will not release the original borrower from its obligation under any such Mortgage Loan. See "DESCRIPTION OF THE CERTIFICATES" herein and "CERTAIN LEGAL ASPECTS OF LOANS-`Due-on-Sale' Clauses" in the Prospectus for a description of certain provisions of the Credit Line Agreements that may affect the prepayment experience on the Mortgage Loans. Certificate Rating. The rating of the Certificates will depend primarily on an assessment by the Rating Agencies of the Mortgage Loans and [upon the claims-paying ability of the Certificate Insurer]. [Any reduction in a rating assigned to the claims-paying ability of the Certificate Insurer below the rating initially given to the Certificates may result in a reduction in the rating of the Certificates.] The rating by the Rating Agencies of the Certificates is not a recommendation to purchase, hold or sell the Certificates, inasmuch as such rating does not comment as to the market price or suitability for a particular investor. There is no assurance that the ratings will remain in place for any given period of time or that the ratings will not be lowered or withdrawn by the Rating Agencies. In general, the ratings address credit risk and do not address the likelihood of prepayments. The ratings of the Certificates do not address the possibility of the imposition of United States withholding tax with respect to non-U.S. persons. Legal Considerations. The Mortgage Loans are secured by mortgages (which are first, second or third mortgages) on the Mortgaged Properties. With respect to Mortgage Loans that are secured by first mortgages, the Servicer has the power under certain circumstances to consent to a new mortgage lien on the Mortgaged Property having priority over such Mortgage Loan. Mortgage Loans secured by junior mortgages are entitled to proceeds that remain from the liquidation or similar sale of the related Mortgaged Property after payment of liquidation expenses (such as legal fees, real estate taxes, and maintenance and preservation expenses) and payments of any related senior mortgage lien and prior statutory liens. In the event that such proceeds are insufficient to satisfy such liquidation expenses, senior loans and prior liens in the aggregate and the Certificate Insurer is unable to perform its obligations under the Policy, the Certificateholders will bear (i) the risk of delay in distributions while a deficiency judgment against the borrower is obtained and (ii) the risk of loss if the deficiency judgment cannot be obtained or cannot be realized upon. In addition, a junior mortgagee may not foreclose on the property securing a junior mortgage unless it forecloses subject to all senior liens. See "CERTAIN LEGAL ASPECTS OF LOANS" in the Prospectus. Under the terms of the Agreement, so long as Bank One's long-term senior unsecured debt is rated at least "___" by ________ and "___" by ________, the Servicer will be entitled to maintain possession of the documentation relating to each Mortgage Loan sold by it, including the Credit Line Agreements and the Related Documents or other evidence of indebtedness signed by the borrower, and the assignments of the related mortgages to the Trust will not be required to be recorded. Failure to deliver the Related Documents to the Trustee will have the result in most, if not all, of the states in which the Related Documents will be held, and failure to record the assignments of the related mortgages to the Trustee will have the result in certain states in which the Mortgaged Properties are located, of making the sale of the Cut-Off Date Principal S-21 23 Balances, Additional Balances and Related Documents potentially ineffective against (i) any creditors of Bank One, who may have been fraudulently or inadvertently induced to rely on the Mortgage Loans as assets of Bank One or (ii) any purchaser of a Mortgage Loan who had no notice of the prior conveyance to the Trust Fund if such purchaser perfects his interest in the Mortgage Loan by taking possession of the Related Documents or other evidence of indebtedness or otherwise. Bank One warrants in the Purchase Agreement that the transfer by it of all of its right, title and interest in and to the Mortgage Loans subject to the Agreement is either a valid transfer and assignment of the Mortgage Loans or the grant to the Trust of a security interest in the Mortgage Loans. If the transfer of Mortgage Loans to the Trust is deemed to create a security interest therein under the Uniform Commercial Code (the "UCC") of an applicable state, any tax or governmental lien on property of Bank One arising before any Mortgage Loan comes into existence might have priority over the Trust's interest in such Mortgage Loan. In addition, if the FDIC were appointed receiver of Bank One, the receiver's administrative expenses might also have priority over the Trust's interest in such Mortgage Loan. If an Insolvency Event were to occur with respect to Bank One, then a Rapid Amortization Event would occur and, pursuant to the terms of the Agreement, new Additional Balances would not be transferred to the Trust by Bank One. In addition, if Bank One were to be dissolved as a result of an Insolvency Event (other than pursuant to a merger, consolidation or sale of substantially all of its assets), the Trustee, unless otherwise instructed by more than 50% of the Certificateholders, would sell the Mortgage Loans in a commercially reasonable manner as described below under "Description of the Certificates-Rapid Amortization Events," thereby causing early termination of the Trust and a loss to Certificateholders if the net proceeds of such sale allocable to the Certificateholders were insufficient to pay such Certificateholders in full. The proceeds from the sale, disposition or liquidation of the Mortgage Loans will first be paid to the Certificate Insurer to the extent of unreimbursed draws under the Policy and other amounts owing to the Certificate Insurer pursuant to the Insurance Agreement. The Federal Deposit Insurance Act (as amended, "FDIA") sets forth certain powers that the FDIC could exercise if it were appointed conservator or receiver of Bank One. To the extent (i) Bank One grants a security interest in the Mortgage Loans to the Trust, (ii) such security interest is validly perfected before the occurrence of an Insolvency Event and (iii) such security interest was not taken in contemplation of insolvency or with the intent to hinder, delay or defraud Bank One or its creditors, such security interest should not be subject to avoidance by the FDIC if the FDIC is appointed as a conservator or receiver of Bank One. Subject to clarification by regulations or interpretations, positions taken by the staff of the FDIC prior to the passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (as amended "FIRREA") do not suggest that the FDIC, as receiver or conservator for Bank One, would interfere with the timely transfer to the Trust of payments collected on the Mortgage Loans. If, however, the FDIC were to assert a contrary position, certain provisions of the FDIA which, at the request of the FDIC, have been applied in recent lawsuits to avoid security interest in collateral granted by depository institutions, may permit the FDIC to avoid such security interest, thereby resulting in possible delays and reduction in payments to the Certificateholders. Further, if the FDIC were to require the Trustee to comply with certain administrative claims procedures under the FDIA before the Trust could collect, sell, dispose of or otherwise liquidate the Mortgage Loans or if the conservator or receiver were to obtain a stay of proceedings with S-22 24 respect to Bank One as provided in the FDIA, delays in payment and possible reductions in the amount of those payments could occur. Upon the occurrence of an Insolvency Event, if no Rapid Amortization Event other than such Insolvency Event exists, the FDIC may have the power to continue to require the Seller to transfer new Additional Balances to the Trust and to prevent the early sale, liquidation or disposition of the Mortgage Loans and the commencement of the Rapid Amortization Period. In addition, such receiver may have the power to cause the early sale of the Mortgage Loans and the early retirement of the Certificates notwithstanding instructions from the Certificateholders instructing the Trust not to sell the Mortgage Loans. In the event of an Event of Servicing Termination if a conservator, receiver or liquidator is appointed for the Servicer and no Event of Servicing Termination other than such conservatorship, receivership, liquidation or insolvency of the Servicer exists, the conservator, receiver or liquidator may have the power to prevent either the Trust or the Certificateholders from appointing a successor Servicer. Geographic Concentration. As of the Cut-Off Date, approximately ____%, ____% and _____% (by Cut-Off Date Pool Balance) of the Mortgaged Properties are located in the States of _________, __________ and _________, respectively. An overall decline in the residential real estate markets in these states could adversely affect the values of the Mortgaged Properties securing such Mortgage Loans such that the Principal Balances of the related Mortgage Loans, together with any primary financing on such Mortgaged Properties, could equal or exceed the value of such Mortgaged Properties. As the residential real estate market is influenced by many factors, including the general condition of the economy and interest rates, no assurances may be given that the residential real estate markets in these states will not weaken. If these residential real estate markets should experience an overall decline in property values after the dates of origination of the Mortgage Loans, the rates of losses on the Mortgage Loans would be expected to increase, and could increase substantially. Servicer's Ability to Change the Terms of the Mortgage Loans. The Servicer may agree to changes in the terms of a Credit Line Agreement, provided that such changes (i) do not adversely affect the interest of the Certificateholders or the Certificate Insurer, and (ii) are consistent with prudent business practice. There can be no assurance that changes in applicable law or the marketplace for home equity loans or prudent business practice will not result in changes in the terms of the Mortgage Loans. In addition, the Agreement permits the Servicer, within certain limitations described therein, to increase the Credit Limit of the related Mortgage Loan or reduce the Margin for such Mortgage Loan. [Delinquent Mortgage Loans. The Trust will include Mortgage Loans which are 89 or fewer days delinquent as of the Cut-Off Date. The Cut-Off Date Principal Balance of Mortgage Loans which are between 30 days and 89 days delinquent as of the Cut-Off Date was $_________. If there are not sufficient funds from the Investor Interest Collections to cover the Investor Loss Amounts for any Distribution Date, the Overcollateralization Amount and the amount on deposit in the Spread Account have been reduced to zero, and the Certificate Insurer fails to perform its obligations under the Policy, the aggregate amount of principal returned to the Certificateholders may be less than the Certificate Principal Balance on the day the Certificates are issued.] S-23 25 For a discussion of additional risks pertaining to the Certificates, see "RISK FACTORS" in the Prospectus. S-24 26 [THE CERTIFICATE INSURER] The following information set forth in this section has been provided by the Certificate Insurer. Accordingly, neither the Depositor nor the Servicer makes any representation as to the accuracy and completeness of such information. [INSERT IF APPLICABLE] S-25 27 THE SERVICER General The Servicer will service the Mortgage Loans in accordance with the terms set forth in the Agreement. As of the Closing Date, the Servicer will service the Mortgage Loans without subservicing arrangements. The Servicer may perform any of its obligations under the Agreement through one or more subservicers and is permitted under the Agreement to transfer servicing to affiliates, provided such affiliate meets certain standards specified in the Agreement. See "DESCRIPTION OF THE CERTIFICATES-Certain Matters Regarding the Servicer and the Transferor." Notwithstanding any subservicing arrangements, the Servicer will remain liable for its servicing duties and obligations under the Agreement as if the Servicer alone were servicing the Mortgage Loans. [Additional information to be added, if applicable] The Servicer Bank One, N.A. ("Bank One" and, in its capacity as servicer, the "Servicer") is a national banking association and an indirect, wholly-owned subsidiary of BANC ONE CORPORATION, an Ohio corporation. As of __________, 199_, Bank One had consolidated total assets of approximately $___ billion, total deposits of approximately $___ billion and total equity capital of approximately $___ million. The principal executive offices of Bank One are located at 100 East Broad Street, Columbus, Ohio. Servicing of the Mortgage Loans The Servicer has established standard policies for the servicing and collection of the home equity loans owned and serviced by it or serviced by it for others. Servicing includes: (a) the collection and aggregation of payments relating to the loans; (b) the supervision of delinquent loans, loss mitigation efforts, foreclosure proceedings and, if applicable, the disposition of mortgaged properties; and (c) the preparation of tax related information in connection with the loans. Billing statements are mailed monthly by the Servicer. The statement details all debits and credits and specifies the minimum payment due and the available credit line. Notice of changes in the applicable loan rate are provided by the Servicer to the borrower with such statements. Collections efforts are initiated once the loan becomes past due. Late fee notices are sent to borrowers within 16 days after the Due Date and a collector attempts to contact the borrower. It is the Servicer's policy to suspend drawing privileges on overdue loans until the borrower brings the loan current. Once the loan is 30 days delinquent, the Servicer reports the delinquency to credit reporting bureaus. During the period when the loan is 45 to 59 days delinquent, the S-26 28 Servicer sends a notice of default to the borrower informing the borrower of its intent to initiate foreclosure proceedings on the mortgaged property within 30 days. During this time, the Servicer contacts senior lienholders, if any, to determine the status of such liens. After a loan is 60 days past due, the Servicer orders a broker's price opinion and/or a drive-by appraisal and property inspection may be conducted. When the notice of default to the borrower expires (during the period 75 to 89 days after the loan has become due), the Servicer determines whether to initiate foreclosure proceedings on the mortgaged property after performing an equity position analysis on the borrower's loan to determine if there is sufficient equity in the underlying property to repay the senior mortgage, if any, the borrower's home equity loan and estimated foreclosure expenses. The general policy of the Servicer is to initiate foreclosure on the underlying property after the loan is ninety days or more delinquent if the Servicer has determined that no further action on its part will cause the default to be cured. The Servicer may terminate foreclosure proceedings if the delinquency is cured. Foreclosures initiated on a junior lien are subject to the payment of foreclosure expenses, the senior mortgage or mortgages and any outstanding property taxes and other statutory liens. Once foreclosure proceedings are initiated by the Servicer the loan is transferred to the Foreclosure Department. The Foreclosure Department uses a tracking system to monitor the progress of such proceedings. The tracking system includes parameters for each state in which mortgaged properties are located, which are used to monitor whether the foreclosure is progressing within a typical time frame for the state in which the mortgaged property is located. After foreclosure, if the loan is secured by a first mortgage lien, the Servicer may liquidate the mortgaged property and charge-off the home equity loan balance that was not recovered through proceeds of the liquidation, if any. If the mortgaged property was subject to a senior lien, the Servicer will either directly manage the foreclosure sale of the mortgaged property and satisfy such lien at the time of sale or take other action as it deems necessary to protect the interest in the mortgaged property. If, in the judgment of the Servicer, the cost of maintaining or purchasing the senior lien exceeds the economic benefit of such action, the Servicer will generally charge-off the entire unpaid principal amount of the loan, seek a judgment against the borrower and not pursue any recovery. At __________, 199_, the Servicer serviced a total portfolio of approximately ________ home equity loans having aggregate unpaid principal balances of approximately $____ billion. The foregoing figures include home equity loans that were originated or acquired by Bank One or its affiliates and are serviced on a contractual basis. Delinquency and Loss Experience. The following table summarizes the delinquency and loss experience of home equity loans owned by Bank One and its affiliates and serviced by the Servicer. The statistical information in such tables does not include home equity loans serviced by the Servicer for entities other than Bank One and its affiliates. The information in the tables below has not been adjusted to eliminate the effect of the unseasoned nature of the home equity loan portfolio during the period shown. Accordingly, loss and delinquency as percentages of aggregate principal S-27 29 balance of Mortgage Loans serviced for each period would be higher than those shown if a group of Mortgage Loans were artificially isolated at a point in time and the information showed the activity only in that isolated group. However, since most of the mortgage loans in Bank One's and its affiliates' home equity loan portfolio will not be fully seasoned and since the terms of most Mortgage Loans will not call for payment of principal in full prior to maturity, the delinquency and loss information for such an isolated group would also be distorted to some degree. The tables below present real estate revolving credit line loan data applicable to substantially all of the United States operations of Bank One and its affiliates, including loans managed in states which are not represented in the mortgage pool consisting of the Mortgage Loans currently serviced by Bank One and real estate acquired through foreclosure. Delinquency and Foreclosure Experience (Dollars in Thousands)
For the Four Year Ending ___________, Months -------------------------------------------------------------------- Ending _________, 199_ 199_ 199_ 199_ --------------------- --------------------- --------------------- --------------------- Principal Principal Principal Principal Balance Percentage Balance Percentage Balance Percentage Balance Percentage -------- ---------- -------- ---------- -------- ---------- -------- ---------- Portfolio(1) .......... Delinquency percentage(2) 30-59 days .......... 60-89 days .......... 90-119 days ......... 120 + days ......... Total (3).............. Foreclosure Rate (4)... REO properties (5).....
(1) [In 199_, the Servicer began servicing HELOC portfolios for _____ Bank One affiliates located in Ohio.] (2) The period of delinquency is based on the number of days payments are contractually past due. (3) Certain total percentages and dollar amounts may not equal the sum of the percentages and dollar amounts indicated in the columns due to differences in rounding. (4) "Foreclosure rate" is the dollar amount of mortgage loans in foreclosure as a percent of the total principal balance of mortgage loans outstanding as of the date indicated. (5) REO properties (i.e. "real estate owned" properties-properties related to mortgages foreclosed or for which deeds in lieu of foreclosure have been accepted) percentages are calculated using the total principal balance of mortgage loans. Loss Experience (Dollars in Thousands) S-28 30
For the Four Months Ending ____, Year Ending __________, ----------- -------------------------------- 199_ 199_ 199_ 199_ ----------- --------- --------- --------- Principal Principal Principal Principal Balance Balance Balance Balance ----------- --------- --------- --------- Average Amount Outstanding (1)(2) Net Losses(3) Net Losses as a percentage of average amount outstanding
- ---------- [(1) In 199_, the Servicer began servicing HELOC portfolios for seven Bank One affiliates located in Ohio.] (2) "Average Amount Outstanding" during the period is the arithmetic average of the principal balances of the mortgage loans outstanding on the last day of the period and on the first day of the period indicated. For 199_, the outstanding balance as of ___________, 199_ is used to calculate the Average Amount Outstanding. (3) "Net Losses" represents the difference between (i) the amounts which have been determined to be uncollectible relating to the mortgage loans for each respective period and (ii) recoveries from liquidation proceeds and deficiency judgments. (4) For the four month period ended ____________, 199_, Net Losses as a percentage of Average Amount Outstanding has been annualized. The delinquency and loss experience presented in the preceding tables represents the historical experience of the Servicer with respect to all home equity loans owned by Bank One and its affiliates and serviced by the Servicer. Such statistics are not indicative of the historical performance of the Mortgage Loans, which consist of home equity loans purchased by Bank One and its affiliates from third parties and which were not originated by Bank One utilizing its standard underwriting criteria, nor are such statistics indicative of the future performance of the Mortgage Loans or of all of the home equity loans serviced by the Servicer. The actual delinquency and loss experience with respect to the Mortgage Loans may be higher than the percentages indicated above and may be substantially higher, because historical experience may not be indicative of future performance and further, because a deterioration of the real estate market or a weakening of the economy in the regions in which the Mortgaged Properties are located may result in an increase in delinquencies of loans secured by real estate and a reduction in the value of real estate in such regions. S-29 31 DESCRIPTION OF THE MORTGAGE LOANS General All of the Mortgage Loans will be purchased on the Closing Date by the Depositor from the Seller, without recourse, pursuant to the Purchase Agreement. [The Seller acquired the Mortgage Loans from affiliated banks of the Seller.] All weighted averages described below are weighted on the basis of Cut-Off Date Principal Balance of the Mortgage Loans included in the Trust. The Mortgage Loans were originated between ____ and ____. The Cut-Off Date Principal Balance of the Mortgage Loans was $___________, which is equal to the aggregate Principal Balances of the Mortgage Loans as of the close of business on _________, 199_ (the "Cut-Off Date"). _____% of the Mortgage Loans were secured by a first Mortgage on the related Mortgaged Property, _____% of the Mortgage Loans were secured by second Mortgages and _____% of the Mortgage Loans were secured by third Mortgages. The minimum Principal Balance of the Mortgage Loans as of the Cut-Off Date was $____, the maximum Principal Balance of the Mortgage Loans as of the Cut-Off Date was $_________, and the average Principal Balance of the Mortgage Loans as of the Cut-Off Date was $__________. As of the Cut-Off Date, the Loan Rates on the Mortgage Loans ranged from _____% per annum to _____% per annum and the weighted average Loan Rate was _____% per annum. The weighted average (weighted by Credit Limit) Credit Limit Utilization Rate (defined below) of the Mortgage Loans was _____% as of the Cut-Off Date. The weighted average Combined Loan-to-Value Ratio (defined below) of the Mortgage Loans was _____% as of the Cut-Off Date and the weighted average junior mortgage ratio of the Mortgage Loans (computed by dividing the greater of the Credit Limit and the Cut-Off Date Principal Balance for each Mortgage Loan, provided such Mortgage Loan was in a junior lien position, by the sum of such Credit Limit or Cut-Off Date Principal Balance as applicable and the outstanding balances at the time such Mortgage Loan was originated of all senior mortgage loans affecting the Mortgaged Property) was approximately _____%. No Mortgage Loan had a Combined Loan-to-Value Ratio greater than ____%. The latest scheduled maturity of any Mortgage Loan is in ______ 20__. As of the Cut-Off Date, _____% of the Mortgage Loans were secured by Mortgaged Properties that are detached single-family residences, _____% of the Mortgage Loans were secured by Mortgage Properties that are two- to four-family residences, _____% of the Mortgage Loans are secured by Mortgaged Properties that are condominium units, and _____% of the Mortgage Loans are secured by Mortgaged Properties that are units in planned unit developments. As of the Cut-Off Date, _____% of the Mortgage Loans were secured by Mortgaged Properties that are owner-occupied, and _____% of the Mortgage Loans were secured by non-owner occupied Mortgaged Properties. Approximately _____%, _____% and _____% of the Mortgage Loans were secured by Mortgaged Properties in ____________, ___________ and __________, respectively. _____% of the Mortgage Loans were contractually delinquent 30 days or more. No Mortgage Loan was delinquent more than 89 days. The "Combined Loan-to-Value Ratio" or "CLTV" of each Mortgage Loan is the ratio, expressed as a percentage, of (a) the sum of (i) the greater of the Cut-Off Date Principal Balance S-30 32 or the Credit Limit and (ii) the principal balance of any senior mortgage loan as of the origination of such Mortgage Loan, over (b) the value (based on an appraised value or other acceptable valuation method) for the related Mortgaged Property determined in the origination of such Mortgage Loan. The "Credit Limit Utilization Rate" is determined by dividing the Cut-Off Date Principal Balance of a Mortgage Loan by the Credit Limit of such Mortgage Loan. Mortgage Loan Terms The Mortgage Loans were originated pursuant to loan agreements (the "Credit Line Agreements"). Under the Credit Line Agreements, the borrowers may receive advances (an "Additional Balance" or a "Draw") at any time either during the term of such Mortgage Loan or during a specified period (the "Draw Period"). Bank One does not require Draws be in a minimum amount. The maximum amount of each Draw with respect to any Mortgage Loan is equal to the excess, if any, of the Credit Limit over the Principal Balance outstanding under such Mortgage Note at the time of such Draw. The borrower's right to make a Draw under a Mortgage Loan may be suspended, or the Credit Limit may be reduced under a number of circumstances, including, but not limited to, a material adverse change in the borrower's financial circumstances, a significant decline in the Appraised Value of the Mortgaged Property or a non-payment default by the borrower. Generally, such suspension or reduction will not affect the payment terms for previously drawn balances. In the event of default under a Mortgage Loan, the right of the borrower to make a Draw may be terminated and the entire outstanding Principal Balance of such Mortgage Loan may be declared immediately due and payable. A "default" includes, but is not limited to, the borrower's failure to make any payment as required, any action or inaction by the borrower that adversely affects the Mortgaged Property or the rights in the Mortgaged Property or any fraud or material misrepresentation by a borrower in connection with the Mortgage Loan. The Credit Limit may also be increased, upon completion of satisfactory underwriting review, as described below. Interest (the "Finance Charge") accrues on each Mortgage Loan, payable monthly, on the related average daily outstanding Principal Balance for each Billing Cycle at a variable rate per annum (the "Loan Rate") equal at any time to the sum of the applicable Index (defined below) as of the first day of each related Billing Cycle (such date, the "Adjustment Date") as described below plus a fixed percentage amount (the "Gross Margin") specified in the related Mortgage Note, computed on the basis of a 365 day year times actual days elapsed. The "Billing Cycle" for each Mortgage Loan is the calendar month preceding each Due Date. The "Due Date" for payments under each Mortgage Loan is the twentieth day of each month. The Finance Charge accrued each month with respect to each Mortgage Loan adjusts based on an index (each, an "Index"). _____% of the Mortgage Loans bear interest at rates which adjust in accordance with the "prime rate" as published in the "Money Rates" table in The Wall Street Journal on the related Adjustment Date; _____% of the Mortgage Loans bear interest at rates which adjust in accordance with the rate announced by Citibank, N.A. as its "base rate" on the related Adjustment Date; _____% of the Mortgage Loans bear interest at rates which adjust based on the current coupon equivalent of the rate for 26-Week U.S. Treasury Bills in the calendar month immediately preceding the month in which the related Adjustment Date occurs, S-31 33 as published in The Wall Street Journal, and _____% of the Mortgage Loans bear interest at rates which adjust based on the current auction average of rates for 26-Week U.S. Treasury Bills as published in The Wall Street Journal. The Gross Margins for the Mortgage Loans as of the Cut-Off Date ranged from _____% to _____%. The weighted average Gross Margins as of the Cut-Off Date for Mortgage Loans indexed to a "prime rate" and a "26 week T-Bill rate" were _____% and _____% respectively. All of the Mortgage Loans are subject to a maximum Loan Rate specified in the related Credit Line Agreements (each, a "Maximum Rate"). As of the Cut-Off Date, the Maximum Rates ranged from _____% per annum to _____% per annum and the weighted average Maximum Rate was _____% per annum. As of the Cut-Off Date, _____% of the Mortgage Loans have a minimum Loan Rate of _____% per annum and _____% of the Mortgage Loans have a minimum Loan Rate of _____% per annum. The remaining Mortgage Loans do not have a minimum Loan Rate. No Mortgage Loan is subject to a periodic rate cap. The Mortgage Loans had original terms to maturity ranging from ____ years to ____ years. As of the Cut-Off Date, the Mortgage Loans had remaining terms to maturity ranging from ____ month to ____ months and a weighted average months remaining to scheduled maturity of ____ months. Payments made by or on behalf of the borrower for each Mortgage Loan are generally required to be applied, first, to any unpaid Finance Charges, second, to any other unpaid Additional Charges and third, to the Principal Balance outstanding with respect to such Mortgage Loan. With respect to certain of the Mortgage. Loans, payments are required to be applied to unpaid insurance premiums and late charges (in that order) prior to application to Finance Charges, as described above. The Mortgage Loans have various loan terms, draw periods, amortization periods and minimum monthly payment requirements as follows: S-32 34
Minimum Monthly Payment Loan Amortization Requirement Designation Loan Term Draw Period Period During Draw Period ----------- --------- ----------- ------ ------------------
- ---------- (1) Loan designation three has a maximum draw period of 20 years; however, after each five year period, the borrower's credit quality and recent payment history are reviewed to determine if Bank One will either renew the loan at the same rate and terms for an additional five years, (ii) convert the existing balance to a fixed term loan with regular monthly principal and interest payments sufficient to amortize the loan over the remaining period of the 20 year term, or (iii) to renew the note at a new rate, new index, and/or with such new terms that will be determined solely at the discretion of Bank One. (2) Following the 9.5 year draw period and subsequent three month interest-only period, loans originated under designation five will amortize monthly at the then applicable loan rate and remaining term to produce a payment sufficient to amortize the loan to zero over its remaining term. Additional Information with Respect to the mortgage Loans Set forth below is a description of certain characteristics of the Mortgage Loans. The sum of certain percentages set forth in the following tables may not equal exactly 100% due to differences in the rounding of percentages. COMBINED LOAN-TO-VALUE RATIOS(1)
Percent of Mortgage Pool Range of Combined Number of Cut-Off Date by Cut-Off Date Loan-to-Value Ratios Mortgage Loans Principal Balance Principal Balance - -------------------- -------------- ----------------- ----------------- 0.01% to 5.00%....... 5.01% to 10.00%....... 10.01% to 15.00%....... 15.01% to 20.00%....... 20.01% to 25.00%....... 25.01% to 30.00%....... 30.01% to 35.00%....... 35.01% to 40.00%....... 40.01% to 45.00%....... 45.01% to 50.00%....... 50.01% to 55.00%....... 55.01% to 60.00%....... 60.01% to 65.00%.......
S-33 35 65.01% to 70.00%....... 70.01% to 75.00%....... 75.01% to 80.00%....... 80.01% to 85.00%....... 85.01% to 90.00%....... 90.01% to 95.00%....... 95.01% to 100.00%....... Total ..............
- ---------- (1) The "Combined Loan-to-Value Ratio" or "CLTV" of each Mortgage Loan is the ratio, expressed as a percentage, of (a) the sum of (i) the greater of the Cut-Off Date Principal Balance or the Credit Limit and (ii) the principal balance of any senior mortgage loan as of the origination of such Mortgage Loan, over (b) the value (based on appraised value or other acceptable valuation method) for the related Mortgaged Property determined in the origination of such Mortgage Loan. LIEN PRIORITY
Percent of Mortgage Pool Number of Cut-Off Date by Cut-Off Date Lien Priority Mortgage Loans Principal Balance Principal Balance - ------------- -------------- ----------------- ----------------- First Lien...................... Second Lien..................... Third Lien...................... Total........................
PROPERTY TYPE
Percent of Mortgage Pool Number of Cut-Off Date by Cut-Off Date Property Type Mortgage Loans Principal Balance Principal Balance - ------------- -------------- ----------------- ----------------- Single Family................... Two to Four-Family.............. Condominium..................... PUD............................. Total........................
OWNER OCCUPANCY STATUS
Percent of Mortgage Pool Number of Cut-Off Date by Cut-Off Date Owner Occupancy Status Mortgage Loans Principal Balance Principal Balance - ---------------------- -------------- ----------------- ----------------- Primary Home.................... Investment...................... Total........................
S-34 36 PRINCIPAL BALANCES
Percent of Mortgage Pool Number of Cut-Off Date by Cut-Off Date Range of Principal Balances Mortgage Loans Principal Balance Principal Balance - --------------------------- -------------- ----------------- ----------------- $ 0.00 to $ 10,000.00 ... $ 10,000.01 to $ 20,000.00 ... $ 20,000.01 to $ 30,000.00 ... $ 30,000.01 to $ 40,000.00 ... $ 50,000.01 to $ 60,000.00 ... $ 60,000.01 to $ 70,000.00 ... $ 70,000.01 to $ 80,000.00 ... $ 80,000.01 to $ 90,000.00 ... $ 90,000.01 to $100,000.00 ... $100,000.01 to $125,000.00 ... $125,000.01 to $150,000.00 ... $150,000.01 to $175,000.00 ... $175,000.01 to $200,000.00 ... $200,000.01 to $225,000.00 ... $225,000.01 to $250,000.00 ... $250,000.01 and over.......... Total......................
CREDIT LIMITS
Percent of Mortgage Pool Number of Cut-Off Date by Cut-Off Date Range of Credit Limits Mortgage Loans Principal Balance Principal Balance - ---------------------- -------------- ----------------- ----------------- $ 0.00 to $ 10,000.00 ... $ 10,000.01 to $ 20,000.00 ... $ 20,000.01 to $ 30,000.00 ... $ 30,000.01 to $ 40,000.00 ... $ 50,000.01 to $ 60,000.00 ... $ 60,000.01 to $ 70,000.00 ... $ 70,000.01 to $ 80,000.00 ... $ 80,000.01 to $ 90,000.00 ... $ 90,000.01 to $100,000.00 ... $100,000.01 to $125,000.00 ... $125,000.01 to $150,000.00 ... $150,000.01 to $175,000.00 ... $175,000.01 to $200,000.00 ... $200,000.01 to $225,000.00 ... $225,000.01 to $250,000.00 ... $250,000.01 and over.......... Total......................
S-35 37 CREDIT LIMIT UTILIZATION RATES
Percent of Mortgage Pool Range of Credit Limit Number of Cut-Off Date by Cut-Off Date Utilization Rates Mortgage Loans Principal Balance Principal Balance - --------------------- -------------- ----------------- ----------------- 0.00% to 5.00%......... 5.01% to 10.00%......... 10.01% to 15.00%......... 15.01% to 20.00%......... 20.01% to 25.00%......... 25.01% to 30.00%......... 30.01% to 35.00%......... 35.01% to 40.00%......... 40.01% to 45.00%......... 45.01% to 50.00%......... 50.01% to 55.00%......... 55.01% to 60.00%......... 60.01% to 65.00%......... 65.01% to 70.00%......... 70.01% to 75.00%......... 75.01% to 80.00%......... 80.01% to 85.00%......... 85.01% to 90.00%......... 90.01% to 95.00%......... 95.01% to 100.00%......... 100.01% to 105.00%......... 105.01% to 110.00%......... Total.....................
ORIGINAL TERM
Percent of Mortgage Pool Number of Cut-Off Date by Cut-Off Date Original Term In Months Mortgage Loans Principal Balance Principal Balance - ----------------------- -------------- ----------------- ----------------- 120..................... 180..................... 240..................... 297..................... 360..................... Total................
S-36 38 MONTHS REMAINING TO SCHEDULED MATURITY
Percent of Mortgage Pool Range of Months Number of Cut-Off Date by Cut-Off Date Remaining to Scheduled Maturity Mortgage Loans Principal Balance Principal Balance - ------------------------------- -------------- ----------------- ----------------- 1 to 12..................... 13 to 24..................... 25 to 36..................... 36 to 48..................... 49 to 60..................... 61 to 72..................... 73 to 84..................... 85 to 96..................... 97 to 108..................... 109 to 120..................... 121 to 132..................... 133 to 144..................... 145 to 156..................... 157 to 168..................... 169 to 180..................... 181 to 192..................... 193 to 204..................... 205 to 216..................... 217 to 228..................... 229 to 240..................... 241 to 252..................... 253 to 264..................... 265 to 276..................... 277 to 288..................... Total.....................
LOAN DESIGNATION
Percent of Mortgage Pool Number of Cut-Off Date by Cut-Off Date Loan Designation(1) Mortgage Loans Principal Balance Principal Balance - ------------------- -------------- ----------------- ----------------- 1 2.......................... 3.......................... 4.......................... 5.......................... 6.......................... Total...................
- ---------- (1) The Loan Designation numbers correspond to the loan designation table set forth on page S-25. S-37 39 LOAN RATES
Percent of Mortgage Pool Range of Number of Cut-Off Date by Cut-Off Date Loan Rates Mortgage Loans Principal Balance Principal Balance - ---------- -------------- ----------------- ----------------- 7.001% to 8.000%......... 8.001% to 8.250%......... 8.251% to 8.500%......... 8.501% to 8.750%......... 8.751% to 9.000%......... 9.001% to 9.250%......... 9.251% to 9.500%......... 9.501% to 9.750%......... 9.751% to 10.000%......... 10.001% to 10.250%......... 10.251% to 10.500%......... 10.501% to 10.750%......... 10.751% to 11.000%......... 11.001% to 11.250%......... 11.251% to 11.500%......... 11.501% to 11.750%......... 12.001% to 12.250%......... 12.501% to 12.750%......... 12.751% to 13.000%......... 13.001%+................... Total...................
GROSS MARGIN
Percent of Mortgage Pool Range of Number of Cut-Off Date by Cut-Off Date Gross Margins Mortgage Loans Principal Balance Principal Balance - ------------- -------------- ----------------- ----------------- 0.000% to 0.500%............. 0.501% to 1.000%............. 1.501% to 2.000%............. 2.001% to 2.500%............. 2.501% to 3.000%............. 3.501% to 4.000%............. 4.001% to 4.500%............. 4.501% to 5.000%............. 5.001% to 5.500%............. 5.501% to 6.000%............. 6.001% to 6.500%............. Total.....................
S-38 40 MAXIMUM RATES
Percent of Mortgage Pool Range of Number of Cut-Off Date by Cut-Off Date Maximum Rates Mortgage Loans Principal Balance Principal Balance - ------------- -------------- ----------------- ----------------- 13.501% to 14.000%............. 14.001% to 14.500%............. 14.501% to 15.000%............. 15.001% to 15.500%............. 15.501% to 16.000%............. 16.001% to 16.500%............. 16.501% to 17.000%............. 17.001% to 17.500%............. 17.501% to 18.000%............. 18.001% to 18.500%............. 18.501% to 19.000%............. 19.001% to 19.500%............. 19.501% to 20.000%............. 20.001% to 20.500%............. 20.501% to 21.000%............. 21.501% to 25.000%............. Total.......................
INDEX
Percent of Mortgage Pool Number of Cut-Off Date by Cut-Off Date Index Mortgage Loans Principal Balance Principal Balance - ----- -------------- ----------------- ----------------- Prime Rates......................... Based upon the Wall Street Journal....................... Based upon Citibank "base rate".. 26 week Treasury Bill Rate.......... Auction Average Rate............. Coupon Equivalent Rate........... Total............................
ORIGINATING INSTITUTION
Percent of Mortgage Pool Number of Cut-Off Date by Cut-Off Date Originating Institution Mortgage Loans Principal Balance Principal Balance - ----------------------- -------------- ----------------- ----------------- Total........................
S-39 41 ORIGINATION YEAR
Percent of Mortgage Pool Number of Cut-Off Date by Cut-Off Date Origination Year Mortgage Loans Principal Balance Principal Balance - ---------------- -------------- ----------------- ----------------- 19__....................... 19__....................... 19__....................... 19__....................... 19__....................... 19__....................... 19__....................... 19__....................... 19__....................... 19__....................... Total...................
GEOGRAPHIC DISTRIBUTION(1)
Percent of Mortgage Pool Number of Cut-Off Date by Cut-Off Date State Mortgage Loans Principal Balance Principal Balance - ----- -------------- ----------------- ----------------- Alabama......................... Arizona......................... California...................... Colorado........................ Connecticut..................... Delaware........................ Florida......................... Georgia......................... Illinois........................ Indiana......................... Iowa............................ Louisiana....................... Maine........................... Maryland........................ Massachusetts................... Michigan........................ Minnesota....................... Missouri........................ Montana......................... Nevada.......................... New Hampshire................... New Jersey...................... New Mexico...................... New York........................ North Carolina.................. North Dakota.................... Ohio............................ Oregon.......................... Pennsylvania....................
S-40 42
Percent of Number of Cut-Off Date Mortgage Pool Mortgage Principal by Cut-Off Date State Loans Balance Principal Balance - ----- --------- ------------ ----------------- Rhode Island.................... South Carolina.................. Tennessee....................... Texas........................... Utah............................ Vermont......................... Virginia........................ Washington...................... Washington, D.C................. Wisconsin....................... Total........................
- ---------- (1) Geographic location is determined by the address of the Mortgaged Property securing the related Mortgage Loan. DELINQUENCY STATUS
Percent of Mortgage Pool Number of Cut-Off Date by Cut-Off Date Number of Days Delinquent Mortgage Loans Principal Balance Principal Balance - ------------------------- -------------- ----------------- ----------------- Current......................... 30 to 59........................ 60 to 89........................ Total........................
S-41 43 UNDERWRITING [Insert to describe differences with respect to specific Pool] MATURITY AND PREPAYMENT CONSIDERATIONS The Agreement, except as otherwise described herein, provides that the Certificateholders will be entitled to receive on each Distribution Date distributions of principal, in the amounts described herein, until the Certificate Principal Balance is reduced to zero. During the Managed Amortization Period, Certificateholders will receive amounts from Principal Collections based upon their Fixed Allocation Percentage subject to reduction as described below. During the Rapid Amortization Period, Certificateholders will receive amounts from Principal Collections based solely upon their Fixed Allocation Percentage. Because prior distributions of Investor Principal Collections to Certificateholders reduce the Investor Floating Allocation Percentage but do not change the Fixed Allocation Percentage, allocations of Principal Collections based on the Fixed Allocation Percentage may result in distributions of principal to the Certificateholders in amounts that are, in most cases, greater relative to the declining balance of the Mortgage Loans than would be the case if the Investor Floating Allocation Percentage were used to determine the percentage of Principal Collections distributed to Certificateholders. This is especially true during the Rapid Amortization Period when the Certificateholders are entitled to receive Investor Principal Collections and not a lesser amount. In addition, Investor Interest Collections may be distributed as principal to Certificateholders in connection with the Accelerated Principal Distribution Amount, if any. Moreover, to the extent of losses allocable to the Certificateholders, Certificateholders may also receive as payment of principal the Floating Allocation Percentage of the amount of such losses either from Investor Interest Collections or, in some instances, draws under the Policy. The level of losses may therefore affect the rate of payment of principal on the Certificates. To the extent obligors make more Draws than principal payments, the Transferor Interest may grow. Because during the Rapid Amortization Period the Certificateholders share of Principal Collections is based upon its Fixed Allocation Percentage (without reduction), an increase in the Transferor Interest due to additional Draws may also result in Certificateholders receiving principal at a greater rate than would otherwise occur if the Investor Floating Allocation Percentage were used to determine the percentage of Principal Collections distributed to Certificateholders. The Agreement permits the Transferor, at its option, but subject to the satisfaction of certain conditions specified in the Agreement, including the conditions described below, to remove certain Mortgage Loans from the Trust at any time during the life of the Trust, so long as the Transferor Interest (after giving effect to such removal) is not less than the Minimum Transferor Interest. Such removals may affect the rate at which principal is distributed to Certificateholders by reducing the overall Pool Balance and thus the amount of Principal Collections. See "DESCRIPTION OF THE CERTIFICATES-Optional Retransfers of Mortgage Loans to the Transferor." S-42 44 All of the Mortgage Loans may be prepaid in full or in part at any time without penalty. The prepayment experience with respect to the Mortgage Loans will affect the weighted average life of the Certificates. The rate of prepayment on the Mortgage Loans cannot be predicted. Neither the Depositor nor the Servicer is aware of any publicly available studies or statistics on the rate of prepayment of mortgage loans such as the Mortgage Loans. Generally, home equity revolving credit lines are not viewed by borrowers as permanent financing. Accordingly, the Mortgage Loans may experience a higher rate of prepayment than traditional first mortgage loans. On the other hand, because the Mortgage Loans amortize as described herein, rates of principal payment on the Mortgage Loans will generally be slower than those of traditional fully-amortizing first mortgages in the absence of prepayments on such Mortgage Loans. The prepayment experience of the Trust with respect to the Mortgage Loans may be affected by a wide variety of factors, including general economic conditions, prevailing interest rate levels, the availability of alternative financing, homeowner mobility, the frequency and amount of any future draws on the Credit Line Agreements and changes affecting the deductibility for Federal income tax purposes of interest payments on home equity credit lines. Substantially all of the Mortgage Loans contain "due-on-sale" provisions, and the Servicer intends to enforce such provisions, unless such enforcement is not permitted by applicable law. The enforcement of a "due-on-sale" provision will have the same effect as a prepayment of the related Mortgage Loan. See "CERTAIN LEGAL ASPECTS OF LOANS-'Due-on-Sale' Clauses" in the Prospectus. The yield to an investor who purchases the Certificates in the secondary market at a price other than par will vary from the anticipated yield if the rate of prepayment on the Mortgage Loans is actually different than the rate anticipated by such investor at the time such Certificates were purchased. Collections on the Mortgage Loans may vary because, among other things, borrowers may make payments during any month as low as the minimum monthly payment for such month or as high as the entire outstanding principal balance plus accrued interest and the fees and charges thereon. It is possible that borrowers may fail to make scheduled payments. Collections on the Mortgage Loans may vary due to seasonal purchasing and payment habits of borrowers. No assurance can be given as to the level of prepayments that will be experienced by the Trust and it can be expected that a portion of borrowers will not prepay their Mortgage Loans to any significant degree. See "DESCRIPTION OF THE SECURITIES-Weighted Average Life of the Certificates" in the Prospectus. POOL FACTOR AND TRADING INFORMATION The "Pool Factor" is a seven-digit decimal which the Servicer will compute monthly expressing the Certificate Principal Balance of the Certificates as of each Distribution Date (after giving effect to any distribution of principal on such Distribution Date) as a proportion of the Original Certificate Principal Balance. On the Closing Date, the Pool Factor will be 1.0000000. See "DESCRIPTION OF THE CERTIFICATES-Distributions on the Certificates." Thereafter, the Pool Factor will decline to reflect reductions in the related Certificate Principal Balance S-43 45 resulting from distributions of principal to the Certificates and the Invested Amount of any unreimbursed Liquidation Loss Amounts. Pursuant to the Agreement, monthly reports concerning the Invested Amount, the Pool Factor and various other items of information will be made available to the Certificateholders. In addition, within 60 days after the end of each calendar year, beginning with the ___ calendar year, information for tax reporting purposes will be made available to each person who has been a Certificateholder of record at any time during the preceding calendar year. See "DESCRIPTION OF THE CERTIFICATES-Book-Entry Certificates" and "-Reports to Certificateholders" herein. DESCRIPTION OF THE CERTIFICATES The Certificates will be issued pursuant to the Agreement. The form of the Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus Supplement and the Prospectus are a part. The following summaries describe certain provisions of the Agreement. The summaries do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of the Agreement. General The Certificates will be issued in denominations of $1,000 and multiples of $1 in excess thereof and will evidence specified undivided interests in the Trust. The property of the Trust will consist of, to the extent provided in the Agreement: (i) each of the Mortgage Loans that from time to time are subject to the Agreement (including any Additional Balances arising after the Cut-Off Date); (ii) collections on the Mortgage Loans received after the Cut-Off Date (exclusive of payments in respect of accrued interest due on or prior to the Cut-Off Date); (iii) Mortgaged Properties relating to the Mortgage Loans that are acquired by foreclosure or deed in lieu of foreclosure; (iv) the Collection Account and the Distribution Account (excluding net earnings thereon); [(v) the Policy]; (vi) the Spread Account (for the benefit of the Certificate Insurer and the Certificateholders); and (vii) an assignment of the Depositor's rights under the Purchase Agreement. Definitive Certificates (as defined below), if issued, will be transferable and exchangeable at the corporate trust office of the Trustee, which will initially act as Certificate Registrar. See "-Book-Entry Certificates" below. No service charge will be made for any registration of exchange or transfer of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge. The aggregate undivided interest in the Trust represented by the Certificates as of the Closing Date will equal $_________ (the "Original Invested Amount"), which represents _____% of the Cut-Off Date Pool Balance. The "Original Certificate Principal Balance" will equal $__________. Following the Closing Date, the "Invested Amount" with respect to any Distribution Date will be an amount equal to the Original Invested Amount minus (i) the amount of Investor Principal Collections previously distributed to Certificateholders, and minus (ii) an amount equal to the product of the Investor Floating Allocation Percentage and the Liquidation Loss Amounts (each as defined herein). The principal amount of the outstanding Certificates (the "Certificate Principal Balance") on any Distribution Date is equal to the Original Certificate S-44 46 Principal Balance minus the aggregate of amounts actually distributed as principal to the Certificateholders. See "-Distributions on the Certificates" below. Each Certificate represents the right to receive payments of interest at the Certificate Rate and payments of principal as described below. The Transferor will own the remaining undivided interest in the Mortgage Loans (the "Transferor Interest"), which is equal to the Pool Balance less the Invested Amount. The Transferor Interest will initially equal $_________, which represents approximately _____% of the Cut-Off Date Pool Balance. The Transferor as of any date is the owner of the Transferor Interest which initially will be the Seller. In general, the Pool Balance will vary each day as principal is paid on the Mortgage Loans, liquidation losses are incurred, Additional Balances are drawn down by borrowers and Mortgage Loans are transferred to the Trust. The Transferor has the right to sell or pledge the Transferor Interest at any time, provided (i) the Rating Agencies (as defined herein) have notified the Transferor and the Trustee in writing that such action will not result in the reduction or withdrawal of the ratings assigned to the Certificates, and (ii) certain other conditions specified in the Agreement are satisfied. Book-Entry Certificates The Certificates will be book-entry Certificates (the "Book-Entry Certificates"). Persons acquiring beneficial ownership interests in the Certificates ("Certificate Owners") may elect to hold their Certificates through the Depository Trust Company ("DTC") in the United States, or Cedel or Euroclear (in Europe) if they are participants of such systems, or indirectly through organizations which are participants in such systems. The Book-Entry Certificates will be issued in one or more certificates which equal the aggregate principal balance of the Certificates and will initially be registered in the name of Cede & Co., the nominee of DTC. Cedel and Euroclear will hold omnibus positions on behalf of their participants through customers' securities accounts in Cedel's and Euroclear's names on the books of their respective depositories which in turn will hold such positions in customers' securities accounts in the depositories' names on the books of DTC. Citibank will act as depositary for Cedel and Chemical will act as depositary for Euroclear (in such capacities, individually the "Relevant Depositary" and collectively the "European Depositaries"). Investors may hold such beneficial interests in the Book-Entry Certificates in minimum denominations representing Certificate Principal Balances of $1,000 and in multiples of $1 in excess thereof. Except as described below, no person acquiring a Book-Entry Certificate (each, a "beneficial owner") will be entitled to receive a physical certificate representing such Certificate (a "Definitive Certificate"). Unless and until Definitive Certificates are issued, it is anticipated that the only "Certificateholder" of the Certificates will be Cede & Co., as nominee of DTC. Certificate Owners will not be Certificateholders as that term is used in the Agreement. Certificate Owners are only permitted to exercise their rights indirectly through Participants and DTC. The beneficial owner's ownership of a Book-Entry Certificate will be recorded on the records of the brokerage firm, bank, thrift institution or other financial intermediary (each, a "Financial Intermediary") that maintains the beneficial owner's account for such purpose. In turn, the Financial Intermediary's ownership of such Book-Entry Certificate will be recorded on the records of DTC (or of a participating firm that acts as agent for the Financial Intermediary, S-45 47 whose interest will in turn be recorded on the records of DTC, if the beneficial owner's Financial Intermediary is not a DTC participant and on the records of Cedel or Euroclear, as appropriate). Certificate Owners will receive all distributions of principal of, and interest on, the Certificates from the Trustee through DTC and DTC participants. While the Certificates are outstanding (except under the circumstances described below), under the rules, regulations and procedures creating and affecting DTC and its operations (the "Rules"), DTC is required to make book-entry transfers among Participants on whose behalf it acts with respect to the Certificates and is required to receive and transmit distributions of principal of, and interest on, the Certificates. Participants and indirect participants with whom Certificate Owners have accounts with respect to Certificates are similarly required to make book-entry transfers and receive and transmit such distributions on behalf of their respective Certificate Owners. Accordingly, although Certificate Owners will not possess certificates, the Rules provide a mechanism by which Certificate Owners will receive distributions and will be able to transfer their interest. Certificate Owners will not receive or be entitled to receive certificates representing their respective interests in the Certificates, except under the limited circumstances described below. Unless and until Definitive Certificates are issued, Certificate Owners who are not Participants may transfer ownership of Certificates only through Participants and indirect participants by instructing such Participants and indirect participants to transfer Certificates, by book-entry transfer, through DTC for the account of the purchasers of such Certificates, which account is maintained with their respective Participants. Under the Rules and in accordance with DTC's normal procedures, transfers of ownership of Certificates will be executed through DTC and the accounts of the respective Participants at DTC will be debited and credited. Similarly, the Participants and indirect participants will make debits or credits, as the case may be, on their records on behalf of the selling and purchasing Certificate Owners. Because of time zone differences, credits of securities received in Cedel or Euroclear as a result of a transaction with a Participant will be made during subsequent securities settlement processing and dated the business day following the DTC settlement date. Such credits or any transactions in such securities settled during such processing will be reported to the relevant Euroclear or Cedel Participants on such business day. Cash received in Cedel or Euroclear as a result of sales of securities by or through a Cedel Participant (as defined below) or Euroclear Participant (as defined below) to a DTC Participant will be received with value on the DTC settlement date but will be available in the relevant Cedel or Euroclear cash account only as of the business day following settlement in DTC. For information with respect to tax documentation procedures relating to the Certificates, see "CERTAIN FEDERAL INCOME TAX CONSEQUENCES-Foreign Investors" and "Backup Withholding" herein and "GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES-Certain U.S. Federal Income Tax Documentation Requirements" in Annex I hereto. Transfers between Participants will occur in accordance with DTC rules. Transfers between Cedel Participants and Euroclear Participants will occur in accordance with their respective rules and operating procedures. Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Cedel Participants or Euroclear Participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of the relevant European international clearing system by the Relevant S-46 48 Depositary; however, such cross market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (European time). The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to the Relevant Depositary to take action to effect final settlement on its behalf by delivering or receiving securities in DTC, and making or receiving payment in accordance with normal procedures for same day funds settlement applicable to DTC. Cedel Participants and Euroclear Participants may not deliver instructions directly to the European Depositaries. DTC which is a New York-chartered limited purpose trust company, performs services for its participants, some of which (and/or their representatives) own DTC. In accordance with its normal procedures, DTC is expected to record the positions held by each DTC participant in the Book-Entry Certificates, whether held for its own account or as a nominee for another person. In general, beneficial ownership of Book-Entry Certificates will be subject to the rules, regulations and procedures governing DTC and DTC participants as in effect from time to time. Cedel is incorporated under the laws of Luxembourg as a professional depository. Cedel holds securities for its participating organizations ("Cedel Participants") and facilitates the clearance and settlement of securities transactions between Cedel Participants through electronic book-entry changes in accounts of Cedel Participants, thereby eliminating the need for physical movement of certificates. Transactions may be settled in Cedel in any of 28 currencies, including United States dollars. Cedel provides to its Cedel Participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Cedel interfaces with domestic markets in several countries. As a professional depository, Cedel is subject to regulation by the Luxembourg Monetary Institute. Cedel participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Indirect access to Cedel is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Cedel Participant, either directly or indirectly. Euroclear was created in 1968 to hold securities for participants of Euroclear ("Euroclear Participants") and to clear and settle transactions between Euroclear Participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates and any risk from lack of simultaneous transfers of securities and cash. Transactions may now be settled in any of 32 currencies, including United States dollars. Euroclear includes various other services, including securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described above. Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the "Cooperative"). All operations are conducted by the Euroclear Operator, and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear Operator, not the Cooperative. The Cooperative establishes policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries. Indirect access to Euroclear S-47 49 is also available to other firms that clear through or maintain a custodial relationship with a Euroclear Participant, either directly or indirectly. The Euroclear Operator is the Belgian branch of a New York banking corporation which is a member bank of the Federal Reserve System. As such, it is regulated and examined by the Board of Governors of the Federal Reserve System and the New York State Banking Department, as well as the Belgian Banking Commission. Securities clearance accounts and cash accounts with the Euroclear Operator are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System and applicable Belgian law (collectively, the "Terms and Conditions"). The Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payments with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. The Euroclear Operator acts under the Terms and Conditions only on behalf of Euroclear Participants, and has no record of or relationship with persons holding through Euroclear Participants. Distributions on the Book-Entry Certificates will be made on each Distribution Date by the Trustee to DTC. DTC will be responsible for crediting the amount of such payments to the accounts of the applicable DTC participants in accordance with DTC's normal procedures. Each DTC participant will be responsible for disbursing such payments to the beneficial owners of the Book-Entry Certificates that it represents and to each Financial Intermediary for which it acts as agent. Each such Financial Intermediary will be responsible for disbursing funds to the beneficial owners of the Book-Entry Certificates that it represents. Under a book-entry format, beneficial owners of the Book-Entry Certificates may experience some delay in their receipt of payments, since such payments will be forwarded by the Trustee to Cede. Distributions with respect to Certificates held through Cedel or Euroclear will be credited to the cash accounts of Cedel Participants or Euroclear Participants in accordance with the relevant system's rules and procedures, to the extent received by the Relevant Depositary. Such distributions will be subject to tax reporting in accordance with relevant United States tax laws and regulations. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES-Foreign Investors" and "-Backup Withholding" herein. Because DTC can only act on behalf of Financial Intermediaries, the ability of a beneficial owner to pledge Book-Entry Certificates to persons or entities that do not participate in the Depository system, or otherwise take actions in respect of such Book-Entry Certificates, may be limited due to the lack of physical certificates for such Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in book-entry form may reduce the liquidity of such Certificates in the secondary market since certain potential investors may be unwilling to purchase Certificates for which they cannot obtain physical certificates. Monthly and annual reports on the Trust provided by the Servicer to CEDE, as nominee of DTC, may be made available to beneficial owners upon request, in accordance with the rules, regulations and procedures creating and affecting the Depository, and to the Financial Intermediaries to whose DTC accounts the Book-Entry Certificates of such beneficial owners are credited. S-48 50 DTC has advised the Transferor and the Trustee that, unless and until Definitive Certificates are issued, DTC will take any action permitted to be taken by the holders of the Book-Entry Certificates under the Agreement only at the direction of one or more Financial Intermediaries to whose DTC accounts the Book-Entry Certificates are credited, to the extent that such actions are taken on behalf of Financial Intermediaries whose holdings include such Book-Entry Certificates. Cedel or the Euroclear Operator, as the case may be, will take any other action permitted to be taken by a Certificateholder under the Agreement on behalf of a Cedel Participant or Euroclear Participant only in accordance with its relevant rules and procedures and subject to the ability of the Relevant Depositary to effect such actions on its behalf through DTC. DTC may take actions, at the direction of the related Participants, with respect to some Certificates which conflict with actions taken with respect to other Certificates. Definitive Certificates will be issued to beneficial owners of the Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC or the Transferor advises the Trustee in writing that DTC is no longer willing, qualified or able to discharge properly its responsibilities as nominee and depository with respect to the Book-Entry Certificates and the Transferor or the Trustee is unable to locate a qualified successor, (b) the Transferor, at its sole option, elects to terminate a book-entry system through DTC or (c) after the occurrence of an Event of Servicing Termination (as defined herein), beneficial owners having Percentage Interests aggregating not less than 51 % of the Certificate Principal Balance of the Book-Entry Certificates advise the Trustee and DTC through the Financial Intermediaries and the DTC participants in writing that the continuation of a book-entry system through DTC (or a successor thereto) is no longer in the best interests of beneficial owners. Upon the occurrence of any of the events described in the immediately preceding paragraph, the Trustee will be required to notify all beneficial owners of the occurrence of such event and the availability through DTC of Definitive Certificates. Upon surrender by DTC of the global certificate or certificates representing the Book-Entry Certificates and instructions for re-registration, the Trustee will issue Definitive Certificates, and thereafter the Trustee will recognize the holders of such Definitive Certificates as Certificateholders under the Agreement. Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of Certificates among participants of DTC, Cedel and Euroclear, they are under no obligation to perform or continue to perform such procedures and such procedures may be discontinued at any time. Assignment of Mortgage Loans At the time of issuance of the Certificates, the Depositor will transfer to the Trust all of its right, title and interest in and to each Mortgage Loan (including any Additional Balances arising in the future), related Credit Line Agreements, mortgages and other related documents (collectively, the "Related Documents"), including all collections received on or with respect to each such Mortgage Loan after the Cut-Off Date (exclusive of payments in respect of accrued interest due on or prior to the Cut-Off Date). The Trustee, concurrently with such transfer, will deliver the Certificates to the Depositor and the Transferor Certificate (as defined in the Agreement) to the Transferor. Each Mortgage Loan transferred to the Trust will be identified on a schedule (the "Mortgage Loan Schedule") delivered to the Trustee pursuant to the Agreement. S-49 51 Such schedule will include information as to the Cut-Off Date Principal Balance of each Mortgage Loan, as well as information with respect to the Loan Rate. The Agreement will permit the Seller to maintain possession of the Related Documents and certain other documents relating to the Mortgage Loans (the "Mortgage Files") and assignments of the related mortgages to the Trustee will not be required to be recorded for so long as the long-term senior unsecured debt of Bank One is rated at least "____" by _________ and "____" by______. In the event that the Bank One long-term senior unsecured debt rating does not satisfy the above-described standards (an "Assignment Event"), Bank One will have 90 days to record assignments of the mortgages for each such Mortgage Loan in favor of the Trustee and will have 60 days to deliver the Mortgage File pertaining to each such Mortgage Loan to the Trustee (unless opinions of counsel satisfactory to the Rating Agencies and the Certificate Insurer to the effect that recordation of such assignments or delivery of such documentation is not required in the relevant jurisdiction to protect the interest of Bank One and the Trustee in the Mortgage Loans). In lieu of delivery of original documentation, Bank One may deliver documents which have been imaged optically upon delivery of an opinion of counsel that (i) such documents do not impair the enforceability of the transfer to the Trust of the Mortgage Loans and (ii) the optical image of such documents are enforceable in the relevant jurisdictions to the same extent as the original documents. Within 90 days of an Assignment Event, the Trustee will review the Mortgage Files and if any Related Document is found to be defective in any material respect and such defect is not cured within 90 days following notification thereof to the Seller and the Depositor by the Trustee, the Seller will be obligated to accept the transfer of such Mortgage Loan from the Trust. Upon such transfer, the Principal Balance of such Mortgage Loan will be deducted from the Pool Balance, thus reducing the amount of the Transferor Interest. If the deduction would cause the Transferor Interest to become less than the Minimum Transferor Interest at such time (a "Transfer Deficiency"), the Seller will be obligated to either substitute an Eligible Substitute Mortgage Loan or make a deposit into the Collection Account in the amount (the "Transfer Deposit Amount") equal to the amount by which the Transferor Interest would be reduced to less than the Minimum Transferor Interest at such time. Any such deduction, substitution or deposit, will be considered for the purposes of the Agreement a payment in full of such Mortgage Loan. Any Transfer Deposit Amount will be treated as a Principal Collection. No such transfer shall be considered to have occurred until the required deposit to the Collection Account is actually made. The obligation of the Seller to accept a transfer of a Defective Mortgage Loan is the sole remedy regarding any defects in the Mortgage File and Related Documents available to the Trustee or the Certificateholders. An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted by the Depositor for a Defective Mortgage Loan which must, on the date of such substitution, (i) have an outstanding Principal Balance (or in the case of a substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an aggregate Principal Balance) that is approximately equal to the Transfer Deficiency relating to such Defective Mortgage Loan; (ii) have a Loan Rate not less than the Loan Rate of the Defective Mortgage Loan and not more than ____% in excess of the Loan Rate of such Defective Mortgage Loan; (iii) have a Loan Rate based on the same Index with adjustments to such Loan Rate made on the same Interest Rate Adjustment Date as that of the Defective Mortgage Loan; (iv) have a Margin that is not less than the Margin of the S-50 52 Defective Mortgage Loan and not more than ____ basis points higher than the Margin for the Defective Mortgage Loan; (v) have a mortgage of the same or higher level of priority as the mortgage relating to the Defective Mortgage Loan; (vi) have a remaining term to maturity not more than six months earlier and not more than ____ months later than the remaining term to maturity of the Defective Mortgage Loan; (vii) comply with each representation and warranty as to the Mortgage Loans set forth in the Agreement (deemed to be made as of the date of substitution); (viii) in general, have an original Combined Loan-to-Value Ratio not greater than that of the Defective Mortgage Loan; and (ix) satisfy certain other conditions specified in the Agreement. To the extent the Principal Balance of an Eligible Substitute Mortgage Loan is less than the Principal Balance of the related Defective Mortgage Loan and to the extent that the Transferor Interest would be reduced below the Minimum Transferor Interest, the Seller will be required to make a deposit to the Collection Account equal to such difference. The Seller will make certain representations and warranties as to the accuracy in all material respects of certain information furnished to the Trustee with respect to each Mortgage Loan (e.g., Cut-Off Date Principal Balance and the Loan Rate). In addition, the Seller will represent and warrant on the Closing Date that at the time of transfer to the Depositor, the Seller has transferred or assigned all of its rights, title and interest in or granted a security interest in each Mortgage Loan and the Related Documents, free of any lien (subject to certain exceptions). Upon discovery of a breach of any such representation and warranty which materially and adversely affects the interests of the Certificateholders or the Certificate Insurer in the related Mortgage Loan and Related Documents, the Seller will have a period of 90 days after discovery or notice of the breach to effect a cure. If the breach cannot be cured within the 90-day period, the Seller will be obligated to accept a transfer of the Defective Mortgage Loan from the Trust. The same procedure and limitations that are set forth in the second preceding paragraph for the transfer of Defective Mortgage Loans will apply to the transfer of a Mortgage Loan that is required to be transferred because of such breach of a representation or warranty in the Agreement that materially and adversely affects the interests of the Certificateholders. Mortgage Loans required to be transferred to the Seller as described in the preceding paragraphs are referred to as "Defective Mortgage Loans." Pursuant to the Agreement, the Servicer will service and administer the Mortgage Loans as more fully set forth above. Amendments to Credit Line Agreements Subject to applicable law, the Servicer may change the terms of the Credit Line Agreements at any time provided that such changes (i) do not adversely affect the interest of the Certificateholders or the Certificate Insurer, and (ii) are consistent with prudent business practice. In addition, the Agreement permits the Servicer, within certain limitations described therein, to increase or reduce the Credit Limit of the related Mortgage Loan and increase or reduce the Margin for such Mortgage Loan. S-51 53 Optional Transfers of Mortgage Loans to the Transferor Subject to the conditions specified in the Agreement, on any Distribution Date the Transferor may, but shall not be obligated to, remove on such Distribution Date (the "Transfer Date") from the Trust, certain Mortgage Loans without notice to the Certificateholders. The Transferor is permitted to randomly designate the Mortgage Loans to be removed. Mortgage Loans so designated will only be removed upon satisfaction of certain conditions specified in the Agreement, including: (i) the Transferor Interest as of such Transfer Date (after giving effect to such removal) exceeds the Minimum Transferor Interest; (ii) the Transferor shall have delivered to the Trustee a "Mortgage Loan Schedule" containing a list of all Mortgage Loans remaining in the Trust after such removal; (iii) the Transferor shall represent and warrant that no selection procedures which the Transferor reasonably believes are adverse to the interests of the Certificateholders [or the Certificate Insurer] were used by the Transferor in selecting such Mortgage Loans; (iv) in connection with the first such retransfer of Mortgage Loans, the Rating Agencies shall have been notified of the proposed transfer and prior to the Transfer Date the Rating Agencies shall have notified the Transferor in writing that such transfer will not result in a reduction or withdrawal of the ratings assigned to the Certificates [without regard to the Policy;] and (v) the Transferor shall have delivered to the Trustee [and the Certificate Insurer] an officer's certificate confirming the conditions set forth in clauses (i) through (iii) above. (Section 2.06) As of any date of determination, the "Minimum Transferor Interest" is an amount equal to the lesser of (a) ____% of the Pool Balance on such date and (b) the Transferor Interest as of the Closing Date. Payments on Mortgage Loans; Deposits to Collection Account The Trustee shall establish and maintain on behalf of the Servicer an account (the "Collection Account") for the benefit of the Certificateholders and the Transferor, as their interests may appear. The Collection Account will be an Eligible Account (as defined herein). Subject to the investment provision described in the following paragraphs, within two days of receipt by the Servicer of amounts in respect of the Mortgage Loans (excluding amounts representing the Servicing Fee, administrative charges, annual fees, taxes, assessments, credit insurance charges, insurance proceeds to be applied to the restoration or repair of a Mortgaged Property or similar items), the Servicer will deposit such amounts in the Collection Account. Not later than the third Business Day prior to each Distribution Date (the "Determination Date"), the Servicer will notify the Trustee of the amount of such deposit to be included in funds available for the related Distribution Date. Notwithstanding the foregoing, under the terms of the Agreement, so long as Bank One's short-term obligations are rated at least "____" by Standard & Poor's and "____" by Moody's, all amounts collected in respect of the Mortgage Loans will be commingled with the general collections of the Servicer and amounts collected for a Collection Period will not be required to be deposited into the Collection Account until one Business Day prior to the related Distribution Date. Amounts so deposited may be invested in Eligible Investments (as described in the Agreement) maturing no later than one Business Day prior to the date on which the amount on deposit therein is required to be deposited in the S-52 54 Collection Account or on such Distribution Date if approved by the Rating Agencies and the Certificate Insurer. An "Eligible Account" is an account that is (i) maintained with a depository institution whose debt obligations at the time of any deposit therein have the highest short-term debt rating by the Rating Agencies, (ii) one or more accounts with a depository institution which accounts are fully insured by either the Savings Association Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation established by such fund with a minimum long-term unsecured debt rating of "____" by _____ and "____" by __________, (iii) a segregated trust account maintained with the Trustee or an Affiliate of the Trustee in its fiduciary capacity or (iv) otherwise acceptable to each Rating Agency and the Certificate Insurer as evidenced by a letter from each Rating Agency and the Certificate Insurer to the Trustee, without reduction or withdrawal of their then current ratings of the Certificates. Eligible Investments are specified in the Agreement and are limited to investments which meet the criteria of the Rating Agencies from time to time as being consistent with their then current ratings of the Certificates. Allocations and Collections All collections on the Mortgage Loans will generally be allocated in accordance with the Credit Line Agreements between amounts collected in respect of interest and amounts collected in respect of principal. As to any Distribution Date, "Interest Collections" will be equal to the amounts collected during the related Collection Period, including such portion of Net Liquidation Proceeds, allocated to interest pursuant to the terms of the Credit Line Agreements less Servicing Fees for the related Collection Period. As to any Distribution Date, "Principal Collections" will be equal to the sum of (i) the amounts collected during the related Collection Period, including such portion of Net Liquidation Proceeds allocated to principal pursuant to the terms of the Credit Line Agreements and (ii) any Transfer Deposit Amounts. "Net Liquidation Proceeds" with respect to a Mortgage Loan are equal to the Liquidation Proceeds, reduced by related expenses, but not including the portion, if any, of such amount that exceeds the Principal Balance of the Mortgage Loan plus accrued and unpaid interest thereon to the end of the Collection Period during which such Mortgage Loan became a Liquidated Mortgage Loan. "Liquidation Proceeds" ire the proceeds (excluding any amounts drawn on the Policy) received in connection with the liquidation of any Mortgage Loan, whether through trustee's sale, foreclosure sale or otherwise. With respect to any Distribution Date, the portion of Interest Collections allocable to the Certificates ("Investor Interest Collections") will equal the product of (a) Interest Collections for such Distribution Date and (b) the Investor Floating Allocation Percentage. With respect to any Distribution Date, the "Investor Floating Allocation Percentage" is the percentage equivalent of a fraction determined by dividing the Invested Amount at the close of business on the preceding Distribution Date (or the Closing Date in the case of the first Distribution Date) by the Pool Balance at the beginning of the related Collection Period. The remaining amount of Interest Collections will be allocated to the Transferor Interest. S-53 55 Principal Collections will be allocated between the Certificateholders and the Transferor ("Investor Principal Collections" and "Transferor Principal Collections", respectively) as described herein. The Trustee will deposit any amounts drawn under the Policy into the Collection Account. With respect to any date, the "Pool Balance" will be equal to the aggregate of the Principal Balances of all Mortgage Loans as of such date. The Principal Balance of a Mortgage Loan (other than a Liquidated Mortgage Loan) on any day is equal to the Cut-Off Date Principal Balance thereof, plus (i) any Additional Balances in respect of such Mortgage Loan minus (ii) all collections credited against the Principal Balance of such Mortgage Loan in accordance with the related Credit Line Agreement prior to such day. The Principal Balance of a Liquidated Mortgage Loan after final recovery of related Liquidation Proceeds shall be zero. Distributions on the Certificates Beginning with the first Distribution Date (which will occur on _____ 15, 199_), distributions on the Certificates will be made by the Trustee or the Paying Agent on each Distribution Date to the persons in whose names such Certificates are registered at the close of business on the day prior to each Distribution Date or, if the Certificates are no longer Book-Entry Certificates, at the close of business on the last day of the month preceding such Distribution Date (the "Record Date"). The term "Distribution Date" means the fifteenth day of each month or, if such day is not a Business Day, then the next succeeding Business Day. Distributions will be made by check or money order mailed (or upon the request of a Certificateholder owning Certificates having denominations aggregating at least $1,000,000, by wire transfer or otherwise) to the address of the person entitled thereto (which, in the case of Book-Entry Certificates, will be DTC or its nominee) as it appears on the Certificate Register in amounts calculated as described herein on the Determination Date. However, the final distribution in respect of the Certificates will be made only upon presentation and surrender thereof at the office or the agency of the Trustee specified in the notice to Certificateholders of such final distribution. For purposes of the Agreement, a "Business Day" is any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in the States of Ohio, _______ or _______ are required or authorized by law to be closed. Application of Interest Collections. On each Distribution Date, the Trustee or the Paying Agent will apply the Investor Interest Collections in the following manner and order of priority: (i) as payment to the Trustee for its fee for services rendered pursuant to the Agreement; (ii) as payment for the premium for the Policy; (iii) as payment for the accrued interest due and any overdue accrued interest (with interest thereon to the extent permitted by law) on the Certificate Principal Balance of the Certificates; S-54 56 (iv) to pay Certificateholders the Investor Loss Amount for such Distribution Date; (v) as payment for any Investor Loss Amount for a previous Distribution Date that was not previously (a) funded by Investor Interest Collections, (b) absorbed by the Overcollateralization Amount, (c) funded by amounts on deposit in the Spread Account or (d) funded by draws on the Policy; (vi) to reimburse prior draws made from the Policy (with interest thereon); (vii) to pay principal on the Certificates until the Invested Amount exceeds the Certificate Principal Balance by the Required Overcollateralization Amount (such amount so paid, the "Accelerated Principal Distribution Amount"); (viii)any other amounts required to be deposited in an account for the benefit of the Certificate Insurer and the Certificateholders or owed to the Certificate Insurer pursuant to the Insurance Agreement; (ix) certain amounts that may be required to be paid to the Servicer pursuant to the Agreement; and (x) to the Transferor to the extent permitted as described herein. Payments to Certificateholders pursuant to clause (iii) will be interest payments on the Certificates. Payments to Certificateholders pursuant to clauses (iv), (v) and (vii) will be principal payments on the Certificates and will reduce the Certificate Principal Balance; however, payments pursuant to clause (vii) will not reduce the Invested Amount. The Accelerated Principal Distribution Amount is not guaranteed by the Policy. To the extent that Investor Interest Collections are applied to pay the interest on the Certificates, Investor Interest Collections may be insufficient to cover Investor Loss Amounts. If such insufficiency results in the Certificate Principal Balance exceeding the Invested Amount, a draw will be made on the Policy in accordance with the terms of the Policy. The "Required Overcollateralization Amount" shall be an amount set forth in the Insurance Agreement. "Liquidation Loss Amount" means with respect to any Liquidated Mortgage Loan, the unrecovered Principal Balance thereof during the Collection Period in which such Mortgage Loan became a Liquidated Mortgage Loan, after giving effect to the Net Liquidation Proceeds received in connection therewith. The "Investor Loss Amount" shall be the product of the Investor Floating Allocation Percentage and the aggregate of the Liquidation Loss Amounts for such Distribution Date. A "Liquidated Mortgage Loan" means, as to any Distribution Date, any Mortgage Loan in respect of which the Servicer has determined, based on the servicing procedures specified in the Agreement, as of the end of the preceding Collection Period that all Liquidation Proceeds which it expects to recover with respect to the disposition of the related Mortgaged Property have been recovered. The Investor Loss Amount will be allocated to the Certificateholders. S-55 57 As to any Distribution Date other than the first Distribution Date, the "Collection Period" is the calendar month preceding each Distribution Date. As to the first Distribution Date, the "Collection Period" is the period beginning on the day after the Cut-Off Date and ending on __________, 199_. Interest will be distributed on each Distribution Date at the Certificate Rate for the related Interest Period (as defined below). The "Certificate Rate" for a Distribution Date will generally equal the sum of (a) LIBOR, determined as specified herein, as of the second LIBOR Business Day prior to the immediately preceding Distribution Date (or as of two LIBOR Business Days prior to the Closing Date, in the case of the first Distribution Date) plus (b) % per annum. Notwithstanding the foregoing, in no event will the amount of interest required to be distributed in respect of the Certificates on any Distribution Date exceed a rate equal to the weighted average of the Loan Rates (net of the Servicing Fee Rate, the fee payable to the Trustee and the rate at which the premium payable to the Certificate Insurer is calculated) weighted on the basis of the daily balance of each Mortgage Loan during the related billing cycle prior to the Collection Period relating to such Distribution Date or in the case of the first Distribution Date, the weighted average loan rate as of the Cut-Off Date. Interest on the Certificates in respect of any Distribution Date will accrue on the Certificate Principal Balance from the preceding Distribution Date (or in the case of the first Distribution Date, from the date of the initial issuance of the Certificates (the "Closing Date")) through the day preceding such Distribution Date (each such period, an "Interest Period") on the basis of the actual number of days in the Interest Period and a 360-day year. Interest payments on the Certificates will be funded from Investor Interest Collections [and, if necessary, from draws on the Policy]. Interest for any Distribution Date due but not paid on such Distribution Date will be due on the next succeeding Distribution Date together with additional interest on such amount at a rate equal to the sum of the applicable Certificate Rate and 2% per annum. Calculation of the LIBOR Rate. On each Distribution Date, LIBOR shall be established by the Trustee and as to any Interest Period, LIBOR will equal the rate for United States dollar deposits for one month which appears on the Telerate Screen Page 3750 as of 11:00 A.M., London time, on the second LIBOR Business Day prior to the first day of such Interest Period. "Telerate Screen Page 3750" means the display designated as page 3750 on the Telerate Service (or such other page as may replace page 3750 on that service for the purpose of displaying London interbank offered rates of major banks). If such rate does not appear on such page (or such other page as may replace that page on that service, or if such service is no longer offered, such other service for displaying LIBOR or comparable rates as may be selected by the Depositor after consultation with the Trustee), the rate will be the Reference Bank Rate. The "Reference Bank Rate" will be determined on the basis of the rates at which deposits in U.S. Dollars are offered by the reference banks (which shall be three major banks that are engaged in transactions in the London interbank market, selected by the Depositor after consultation with the Trustee) as of 11:00 A.M., London time, on the day that is two LIBOR Business Days prior to the immediately preceding Distribution Date to prime banks in the London interbank market for a period of one month in amounts approximately equal to the principal amount of the Certificates then outstanding. The Trustee 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 will be the arithmetic mean of the quotations. If on such date fewer than two quotations S-56 58 are provided as requested, the rate will be the arithmetic mean of the rates quoted by one or more major banks in New York City, selected by the Depositor after consultation with the Trustee, as of 11:00 A.M., New York City time, on such date for loans in U.S. Dollars to leading European banks for a period of one month in amounts approximately equal to the principal amount of the Certificates then outstanding. If no such quotations can be obtained, the rate will be LIBOR for the prior Distribution Date. "LIBOR Business Day" means any day other than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in the State of New York or in the city of London, England are required or authorized by law to be closed. Transferor Collections. Collections allocable to the Transferor Interest will be distributed to the Transferor only to the extent that such distribution will not reduce the amount of the Transferor Interest as of the related Distribution Date below the Minimum Transferor Interest. Amounts not distributed to the Transferor because of such limitations will be retained in the Collection Account until the Transferor Interest exceeds the Minimum Transferor Interest, at which time such excess shall be released to the Transferor. Overcollateralization. The distribution of the aggregate Accelerated Principal Distribution Amount, if any, to Certificateholders may result in the Invested Amount being greater than the Certificate Principal Balance, thereby creating overcollateralization. The Overcollateralization Amount, if any, will be available to absorb any Investor Loss Amount that is not covered by Investor Interest Collections. Distributions of Principal Collections. For the period beginning on the first Distribution Date and, unless a Rapid Amortization Event shall have earlier occurred, ending immediately after the Distribution Date in _____ 200_ (the "Managed Amortization Period"), the amount of Principal Collections payable to Certificateholders as of each Distribution Date during the Managed Amortization Period will equal, to the extent funds are available therefor, the Scheduled Principal Collections Distribution Amount for such Distribution Date. On any Distribution Date during the Managed Amortization Period, the "Scheduled Principal Collections Distribution Amount" shall equal the lesser of (i) the Maximum Principal Payment (as defined below) and (ii) the Alternative Principal Payment (as defined herein). With respect to any Distribution Date, the "Maximum Principal Payment" will equal the product of the Investor Fixed Allocation Percentage and Principal Collections for such Distribution Date. With respect to any Distribution Date, the "Alternative Principal Payment" will equal the amount, but not less than zero, of Principal Collections for such Distribution Date less the aggregate of Additional Balances created during the related Collection Period. The "Rapid Amortization Period" is the period beginning at the earlier of (i) the occurrence of a Rapid Amortization Event and (ii) immediately following the _____ 200_ Distribution Date and continuing until the earlier of when (i) the Certificate Principal Balance has been reduced to zero and (ii) the Trust is terminated. See "-Termination; Retirement of the Certificates." Beginning with the first Distribution Date of the Rapid Amortization Period, the amount of Principal Collections payable to Certificateholders on each Distribution Date will be equal to the Maximum Principal Payment. Distributions of Principal Collections based upon the Investor Fixed Allocation Percentage may result in distributions of principal to Certificateholders in amounts that are S-57 59 greater relative to the declining Pool Balance than would be the case if the Investor Floating Allocation Percentage were used to determine the percentage of Principal Collections distributed in respect of the Invested Amount. Principal Collections not allocated to the Certificateholders will be allocated to the Transferor Interest. The aggregate distributions of principal to the Certificateholders will not exceed the Original Certificate Principal Balance. In addition, to the extent of funds available therefor (including funds available under the Policy), on the Distribution Date in _____ 20__, Certificateholders will be entitled to receive as a payment of principal an amount equal to the outstanding Certificate Principal Balance. The Paying Agent. The Paying Agent shall initially be the Trustee, together with any successor thereto in such capacity (the "Paying Agent"). The Paying Agent shall have the revocable power to withdraw funds from the Collection Account for the purpose of making distributions to the Certificateholders. Rapid Amortization Events As described above, the Rapid Amortization Period will commence if a Rapid Amortization Event occurs. "Rapid Amortization Event" refers to any of the following events: (a) failure on the part of the Seller (i) to make a payment or deposit required under the Agreement within three Business Days after the date such payment or deposit is required to be made or (ii) to observe or perform in any material respect any other covenants or agreements of the Seller set forth in the Agreement, which failure continues unremedied for a period of 60 days after written notice; (b) any representation or warranty made by the Seller in the Agreement proves to have been incorrect in any material respect when made and continues to be incorrect in any material respect for a period of 60 days after written notice and as a result of which the interests of the Certificateholders are materially and adversely affected; provided, however, that a Rapid Amortization Event shall not be deemed to occur if the Seller has purchased or made a substitution for the related Mortgage Loan or Mortgage Loans if applicable during such period (or within an additional 60 days with the consent of the Trustee) in accordance with the provisions of the Agreement; (c) the occurrence of certain events of bankruptcy, insolvency or receivership relating to the Transferor; (d) the Trust becomes subject to regulation by the Securities and Exchange Commission as an investment company within the meaning of the Investment Company Act of 1940, as amended; or (e) the aggregate of all draws under the Policy exceeds 1% of the Cut-Off Date Pool Balance. In the case of any event described in clause (a) or (b), a Rapid Amortization Event will be deemed to have occurred only if, after the applicable grace period, if any, described in such clauses, either the Trustee or Certificateholders holding Certificates evidencing more than 51% of the Percentage Interests [or the Certificate Insurer (so long as there is no default by the S-58 60 Certificate Insurer in the performance of its obligations under the Policy)], by written notice to the Depositor, the Transferor and the Servicer (and to the Trustee, if given by the Certificateholders) declare that a Rapid Amortization Event has occurred as of the date of such notice. In the case of any event described in clause (c), (d) or (e), a Rapid Amortization Event will be deemed to have occurred without any notice or other action on the part of the Trustee or the Certificateholders immediately upon the occurrence of such event. In addition to the consequences of a Rapid Amortization Event discussed above, if the Transferor voluntarily files a bankruptcy petition or goes into liquidation or any person is appointed a receiver or bankruptcy trustee of the Transferor, on the day of any such filing or appointment no further Additional Balances will be transferred to the Trust, the Transferor will immediately cease to transfer Additional Balances to the Trust and the Transferor will promptly give notice to the Trustee of any such filing or appointment. Within 15 days, the Trustee will publish a notice of the liquidation or the filing or appointment stating that the Trustee intends to sell, dispose of or otherwise liquidate the Mortgage Loans in a commercially reasonable manner and to the best of its ability. Unless otherwise instructed within a specified period by Certificateholders representing undivided interests aggregating more than 51% of the aggregate principal amount of the Certificates, the Trustee will sell, dispose of or otherwise liquidate the Mortgage Loans in a commercially reasonable manner and on commercially reasonable terms. Any proceeds will be treated as collections allocable to the Certificateholders and the Investor Fixed Allocation Percentage of such remaining proceeds and will be distributed to the Certificateholders on the date such proceeds are received (the "Dissolution Distribution Date"). If the portion of such proceeds allocable to the Certificateholders are not sufficient to pay in full the remaining amount due on the Certificates, the Policy will cover such shortfall. Notwithstanding the foregoing, if a conservator, receiver or trustee-in-bankruptcy is appointed for the Transferor and no Rapid Amortization Event exists other than such conservatorship, receivership or insolvency of the Transferor, the conservator, receiver or trustee-in-bankruptcy may have the power to prevent the commencement of the Rapid Amortization Period or the sale of Mortgage Loans described above. The Policy [describe Policy if applicable] On or before the Closing Date, the Policy will be issued by the Certificate Insurer pursuant to the provisions of the Agreement and the Insurance and Indemnity Agreement (the "Insurance Agreement") to be dated as of _________, 199_, among Bank One, the Depositor, the Trustee and the Certificate Insurer. Reports to Certificateholders Concurrently with each distribution to the Certificateholders, the Servicer will forward to the Trustee for mailing to such Certificateholder a statement setting forth among other items: (i) the Investor Floating Allocation Percentage for the preceding Collection Period; S-59 61 (ii) the amount being distributed to Certificateholders; (iii) the amount of interest included in such distribution and the related Certificate Rate; (iv) the amount, if any, of overdue accrued interest included in such distribution (and the amount of interest thereon); (v) the amount, if any, of the remaining overdue accrued interest after giving effect to such distribution; (vi) the amount, if any, of principal included in such distribution; (vii) the amount, if any, of the reimbursement of previous Liquidation Loss Amounts included in such distribution; (viii)the amount, if any, of the aggregate unreimbursed Liquidation Loss Amounts after giving effect to such distribution; (ix) the Servicing Fee for such Distribution Date; (x) the Invested Amount and the Certificate Principal Balance, each after giving effect to such distribution; (xi) the Pool Balance as of the end of the preceding Collection Period; (xii) the number and aggregate Principal Balances of the Mortgage Loans as to which the minimum monthly payment is delinquent for 30-59 days, 60-89 days and 90 or more days, respectively, as of the end of the preceding Collection Period; (xiii)the book value of any real estate which is acquired by the Trust through foreclosure or grant of deed in lieu of foreclosure; and (xiv) the amount of any draws on the Policy. In the case of information furnished pursuant to clauses (iii), (iv), (v), (vi), (vii) and (viii) above, the amounts shall be expressed as a dollar amount per Certificate with a $1,000 denomination. Each year commencing in 1997, the Servicer will be required to forward to the Trustee a statement containing the information set forth in clauses (iii) and (vi) above aggregated for such calendar year. Collection and Other Servicing Procedures on Mortgage Loans The Servicer will make reasonable efforts to collect all payments called for under the Mortgage Loans and will, consistent with the Agreement, follow such collection procedures as it follows from time to time with respect to the home equity loans in its servicing portfolio S-60 62 comparable to the Mortgage Loans. Consistent with the above, the Servicer may in its discretion waive any late payment charge or any assumption or other fee or charge that may be collected in the ordinary course of servicing the Mortgage Loans. With respect to the Mortgage Loans, the Servicer may arrange with a borrower a schedule for the payment of interest due and unpaid for a period, provided that any such arrangement is consistent with the Servicer's policies with respect to the home equity mortgage loans it owns or services. In accordance with the terms of the Agreement, the Servicer may consent under certain circumstances to the placing of a subsequent senior lien in respect of a Mortgage Loan. Hazard Insurance The Agreement provides that the Servicer maintain certain hazard insurance on the Mortgaged Properties relating to the Mortgage Loans. While the terms of the related Credit Line Agreements generally require borrowers to maintain certain hazard insurance, the Servicer will not monitor the maintenance of such insurance. The Agreement requires the Servicer to maintain for any Mortgaged Property relating to a Mortgage Loan acquired upon foreclosure of a Mortgage Loan, or by deed in lieu of such foreclosure, hazard insurance with extended coverage in an amount equal to the lesser of (a) the maximum insurable value of such Mortgaged Property or (b) the outstanding balance of such Mortgage Loan plus the outstanding balance on any mortgage loan senior to such Mortgage Loan at the time of foreclosure or deed in lieu of foreclosure, plus accrued interest and the Servicer's good faith estimate of the related liquidation expenses to be incurred in connection therewith. The Agreement provides that the Servicer may satisfy its obligation to cause hazard policies to be maintained by maintaining a blanket policy insuring against losses on such Mortgaged Properties. If such blanket policy contains a deductible clause, the Servicer will be obligated to deposit in the Collection Account the sums which would have been deposited therein but for such clause. (Section 3.04) The Servicer will initially satisfy these requirements by maintaining a blanket policy. As set forth above, all amounts collected by the Servicer (net of any reimbursements to the Servicer) under any hazard policy (except for amounts to be applied to the restoration or repair of the Mortgaged Property) will ultimately be deposited in the Collection Account. In general, the standard form of fire and extended coverage policy covers physical damage to or destruction of the improvements on the property by fire, lightning, explosion, smoke, windstorm and hail, and the like, strike and civil commotion, subject to the conditions and exclusions specified in each policy. Although the policies relating to the Mortgage Loans will be underwritten by different insurers and therefore will not contain identical terms and conditions, the basic terms thereof are dictated by state laws and most of such policies typically do not cover any physical damage resulting from the following: war, revolution, governmental actions, floods and other water-related causes, earth movement (including earthquakes, landslides and mudflows), nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic animals, theft and, in certain cases vandalism. The foregoing list is merely indicative of certain kinds of uninsured risks and is not intended to be all-inclusive or an exact description of the insurance policies relating to the Mortgaged Properties. S-61 63 Realization Upon Defaulted Mortgage Loans The Servicer will foreclose upon or otherwise comparably convert to ownership Mortgaged Properties securing such of the Mortgage Loans as come into default when, in accordance with applicable servicing procedures under the Agreement, no satisfactory arrangements can be made for the collection of delinquent payments. In connection with such foreclosure or other conversion, the Servicer will follow such practices as it deems necessary or advisable and as are in keeping with its general subordinate mortgage servicing activities, provided the Servicer will not be required to expend its own funds in connection with foreclosure or other conversion, correction of default on a related senior mortgage loan or restoration of any property unless, in its sole judgment, such foreclosure, correction or restoration will increase Net Liquidation Proceeds. The Servicer will be reimbursed out of Liquidation Proceeds for advances of its own funds as liquidation expenses before any Net Liquidation Proceeds are distributed to Certificateholders or the Transferor. Servicing Compensation and Payment of Expenses With respect to each Collection Period, the Servicer will receive from interest collections in respect of the Mortgage Loans a portion of such interest collections as a monthly Servicing Fee in the amount equal to approximately _____% per annum ("Servicing Fee Rate") on the aggregate Principal Balances of the Mortgage Loans as of the first day of the related Collection Period (or at the Cut-Off Date for the first Collection Period). All assumption fees, late payment charges and other fees and charges, to the extent collected from borrowers, will be retained by the Servicer as additional servicing compensation. The Servicer will pay certain ongoing expenses associated with the Trust and incurred by it in connection with its responsibilities under the Agreement. In addition, the Servicer will be entitled to reimbursement for certain expenses incurred by it in connection with defaulted Mortgage Loans and in connection with the restoration of Mortgaged Properties, such right of reimbursement being prior to the rights of Certificateholders to receive any related Net Liquidation Proceeds. Evidence as to Compliance The Agreement provides for delivery on or before May 31 in each year, beginning in May 31, 1997, to the Trustee of an annual statement signed by an officer of the Servicer to the effect that the Servicer has fulfilled its material obligations under the Agreement throughout the preceding fiscal year, except as specified in such statement. Certain Matters Regarding the Servicer and the Transferor The Agreement provides that the Servicer may not resign from its obligations and duties thereunder, except in connection with a permitted transfer of servicing, unless (i) such duties and obligations are no longer permissible under applicable law or are in material conflict by reason of applicable law with any other activities of a type and nature presently carried on by it or its affiliate or (ii) upon the satisfaction of the following conditions: (a) the Servicer has proposed a S-62 64 successor servicer to the Trustee in writing and such proposed successor servicer is reasonably acceptable to the Trustee; (b) the Rating Agencies have confirmed to the Trustee that the appointment of such proposed successor servicer as the Servicer will not result in the reduction or withdrawal of the then current rating of the Certificates; and (c) such proposed successor servicer is reasonably acceptable to the Certificate Insurer. No such resignation will become effective until the Trustee or a successor servicer has assumed the Servicer's obligations and duties under the Agreement. Notwithstanding the foregoing, Bank One may transfer its servicing obligations to any other direct or indirect wholly-owned subsidiary of BANC ONE CORPORATION or another entity (which meets certain eligibility standards set forth in the Agreement) and be relieved of its obligations and duties under the Agreement and related agreements. The Servicer may perform any of its duties and obligations under the Agreement through one or more subservicers or delegates, which may be affiliates of the Servicer. Notwithstanding any such arrangement, the Servicer will remain liable and obligated to the Trustee and the Certificateholders for the Servicer's duties and obligations under the Agreement, without any diminution of such duties and obligations and as if the Servicer itself were performing such duties and obligations. Any person into which, in accordance with the Agreement, Bank One or the Servicer may be merged or consolidated or any person resulting from any merger or consolidation to which Bank One or the Servicer is a party, or any person succeeding to the business of Bank One or the Servicer, will be the successor to Bank One as servicer, or the Servicer, as the case may be, under the Agreement. The Agreement provides that the Servicer will indemnify the Trust and the Trustee from and against any loss, liability, expense, damage or injury suffered or sustained as a result of the Servicer's actions or omissions in connection with the servicing and administration of the Mortgage Loans which are not in accordance with the provisions of the Agreement. Under the Agreement, the Transferor will indemnify an injured party for the entire amount of any losses, claims, damages or liabilities arising out of or based on the Agreement (other than losses resulting from defaults under the Mortgage Loans). In the event of an Event of Servicing Termination (as defined below) resulting in the assumption of servicing obligations by a successor Servicer, the successor Servicer will indemnify the Transferor for any losses, claims, damages and liabilities of the Transferor as described in this paragraph arising from the successor Servicer's actions or omissions. The Agreement provides that neither the Depositor, the Transferor nor the Servicer nor their directors, officers, employees or agents will be under any other liability to the Trust, the Trustee, the Certificateholders or any other person for any action taken or for refraining from taking any action pursuant to the Agreement. However, neither the Depositor, the Transferor nor the Servicer will be protected against any liability which would otherwise be imposed by reason of willful misconduct, bad faith or gross negligence of the Depositor, the Transferor or the Servicer in the performance of its duties under the Agreement or by reason of reckless disregard of its obligations thereunder. In addition, the Agreement provides that the Servicer will not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its servicing responsibilities under the Agreement and which in its opinion may expose it to any expense or liability. The Servicer may, in its sole discretion, undertake any such legal action which it may deem necessary or desirable S-63 65 with respect to the Agreement and the rights and duties of the parties thereto and the interest of the Certificateholders thereunder. Any corporation into which the Servicer may be merged or consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Servicer shall be a party, or any corporation succeeding to the business of the Servicer shall be the successor of the Servicer hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything in the Agreement to the contrary notwithstanding. Events of Servicing Termination "Events of Servicing Termination" will consist of: (i) any failure by the Servicer to deposit in the Collection Account any deposit required to be made under the Agreement, which failure continues unremedied for five Business Days after the giving of written notice of such failure to the Servicer by the Trustee, or to the Servicer and the Trustee by the Certificate Insurer or Certificateholders evidencing an aggregate, undivided interest in the Trust of at least 25% of the Certificate Principal Balance; (ii) any failure by the Servicer duly to observe or perform in any material respect any other of its covenants or agreements in the Agreement which, in each case, materially and adversely affects the interests of the Certificateholders or the Certificate Insurer and continues unremedied for 60 days after the giving of written notice of such failure to the Servicer by the Trustee, or to the Servicer and the Trustee by the Certificate Insurer or Certificateholders evidencing an aggregate, undivided interest in the Trust of at least 25% of the Certificate Principal Balance; or (iii) certain events of insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings relating to the Servicer and certain actions by the Servicer indicating insolvency, reorganization or inability to pay its obligations. Under certain other circumstances, the Certificate Insurer with the consent of holders of Investor Certificates evidencing an aggregate, undivided interest in the Trust of at least 51% of the Certificate Principal Balance may deliver written notice to the Servicer terminating all the rights and obligations of the Servicer under the Agreement. Notwithstanding the foregoing, a delay in or failure of performance referred to under clause (i) above for a period of ten Business Days or referred to under clause (ii) above for a period of 60 Business Days, shall not constitute an Event of Servicing Termination if such delay or failure could not be prevented by the exercise of reasonable diligence by the Servicer and such delay or failure was caused by an act of God or other similar occurrence. Upon the occurrence of any such event the Servicer shall not be relieved from using its best efforts to perform its obligations in a timely manner in accordance with the terms of the Agreement and the Servicer shall provide the Trustee, the Depositor, the Transferor, the Certificate Insurer and the Certificateholders prompt notice of such failure or delay by it, together with a description of its efforts to so perform its obligations. Rights Upon an Event of Servicing Termination So long as an Event of Servicing Termination remains unremedied, either the Trustee, or Certificateholders evidencing an aggregate, undivided interest in the Trust of at least 51% of the Certificate Principal Balance [or the Certificate Insurer], may terminate all of the rights and S-64 66 obligations of the Servicer under the Agreement and in and to the Mortgage Loans, whereupon the Trustee will succeed to all the responsibilities, duties and liabilities of the Servicer under the Agreement and will be entitled to similar compensation arrangements. In the event that the Trustee would be obligated to succeed the Servicer but is unwilling or unable so to act, it may appoint, or petition a court of competent jurisdiction for the appointment of, a housing and home finance institution or other mortgage loan or home equity loan servicer with all licenses and permits required to perform its obligations under the Agreement and having a net worth of at least $__________ [and acceptable to the Certificate Insurer] to act as successor to the Servicer under the Agreement. Pending such appointment, the Trustee will be obligated to act in such capacity unless prohibited by law. Such successor will be entitled to receive the same compensation that the Servicer would otherwise have received (or such lesser compensation as the Trustee and such successor may agree). A receiver or conservator for the Servicer may be empowered to prevent the termination and replacement of the Servicer where the only Event of Servicing Termination that has occurred is an Insolvency Event. Amendment The Agreement may be amended from time to time by the Seller, the Transferor, the Servicer, the Depositor and the Trustee [and with the consent of the Certificate Insurer], but without the consent of the Certificateholders, to cure any ambiguity, to correct or supplement any provisions therein which may be inconsistent with any other provisions of the Agreement, to add to the duties of the Depositor, the Seller, the Transferor or the Servicer or to add or amend any provisions of the Agreement as required by the Rating Agencies in order to maintain or improve any rating of the Certificates (it being understood that, after obtaining the ratings in effect on the Closing Date, neither the Transferor, the Trustee nor the Servicer is obligated to obtain, maintain, or improve any such rating) or to add any other provisions with respect to matters or questions arising under the Agreement which shall not be inconsistent with the provisions of the Agreement, provided that such action will not, as evidenced by an opinion of counsel, materially and adversely affect the interests of any Certificateholder [or the Certificate Insurer]; provided, that any such amendment will not be deemed to materially and adversely affect the Certificateholders and no such opinion will be required to be delivered if the person requesting such amendment obtains a letter from the Rating Agencies stating that such amendment would not result in a downgrading of the then current rating of the Certificates. The Agreement may also be amended from time to time by the Seller, the Servicer, the Depositor, and the Trustee, with the consent of Certificateholders evidencing an aggregate, undivided interest in the Trust of at least 51% of the Certificate Principal Balance [and the Certificate Insurer] for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Agreement or of modifying in any manner the rights of the Certificateholders, provided that no such amendment will (i) reduce in any manner the amount of, or delay the timing of, collections of payments on the Certificates or distributions or payments under the Policy which are required to be made on any Certificate without the consent of the holder of such Certificate or (ii) reduce the aforesaid percentage required to consent to any such amendment, without the consent of the holders of all Certificates then outstanding. S-65 67 Termination; Retirement of the Certificates The Trust will terminate on the Distribution Date following the later of (A) payment in full of all amounts owing to the Certificate Insurer and (B) the earliest of (i) the Distribution Date on which the Certificate Principal Balance has been reduced to zero, (ii) the final payment or other liquidation of the last Mortgage Loan in the Trust, (iii) the optional transfer to the Transferor of the Certificates, as described below and (iv) the Distribution Date in _____ 20__. The Certificates will be subject to optional transfer to the Transferor on any Distribution Date after the Certificate Principal Balance is reduced to an amount less than or equal to _____% of the Original Certificate Principal Balance and all amounts due and owing to the Certificate Insurer and unreimbursed draws on the Policy, together with interest thereon, as provided under the Insurance Agreement, have been paid. The transfer price will be equal to the sum of the outstanding Certificate Principal Balance and accrued and unpaid interest thereon at the Certificate Rate through the day preceding the final Distribution Date. In no event, however, will the Trust created by the Agreement continue for more than 21 years after the death of certain individuals named in the Agreement. Written notice of termination of the Agreement will be given to each Certificateholder, and the final distribution will be made only upon surrender and cancellation of the Certificates at an office or agency appointed by the Trustee which will be specified in the notice of termination. In addition, the Trust may be liquidated as a result of certain events of bankruptcy, insolvency or receivership relating to the Transferor. See "-Rapid Amortization Events" herein. The Trustee ___________________________, a ______________________ with its principal place of business in ______________, has been named Trustee pursuant to the Agreement. The commercial bank or trust company serving as Trustee may own Certificates and have normal banking [and the Certificate Insurer] and/or their affiliates. relationships with the Depositor, the Servicer, the Seller [and the Certificate Insurer] and/or their affiliates. The Trustee may resign at any time, in which event the Depositor will be obligated to appoint a successor Trustee, as approved by the Certificate Insurer. The Depositor may also remove the Trustee if the Trustee ceases to be eligible to continue as such under the Agreement or if the Trustee becomes insolvent. Upon becoming aware of such circumstances, the Depositor will be obligated to appoint a successor Trustee, as approved by the Certificate Insurer. Any resignation or removal of the Trustee and appointment of a successor Trustee will not become effective until acceptance of the appointment by the successor Trustee. No holder of a Certificate will have any right under the Agreement to institute any proceeding with respect to the Agreement unless such holder previously has given to the Trustee written notice of default and unless Certificateholders evidencing an aggregate, undivided interest in the Trust of at least 51% of the Certificate Principal Balance have made written requests upon the Trustee to institute such proceeding in its own name as Trustee thereunder and have offered to the Trustee reasonable indemnity and the Trustee for 60 days has neglected or S-66 68 refused to institute any such proceeding. The Trustee will be under no obligation to exercise any of the trusts or powers vested in it by the Agreement or to make any investigation of matters arising thereunder or to institute, conduct or defend any litigation thereunder or in relation thereto at the request, order or direction of any of the Certificateholders, unless such Certificateholders have offered to the Trustee reasonable security or indemnity against the cost, expenses and liabilities which may be incurred therein or thereby. Certain Activities The Trust will not: (i) borrow money; (ii) make loans; (iii) invest in securities for the purpose of exercising control; (iv) underwrite securities; (v) except as provided in the Agreement, engage in the purchase and sale (or turnover) of investments; (vi) offer securities in exchange for property (except Certificates for the Mortgage Loans); or (vii) repurchase or otherwise reacquire its securities. See "-Evidence as to Compliance" above for information regarding reports as to the compliance by the Servicer with the terms of the Agreement. DESCRIPTION OF THE PURCHASE AGREEMENT The Mortgage Loans to be transferred to the Trust by the Depositor will be purchased by the Depositor from the Seller pursuant to the Purchase Agreement to be entered into between the Depositor, as purchaser of the Mortgage Loans, and ______________, as Seller of the Mortgage Loans. Under the Purchase Agreement, the Seller will agree to transfer the Mortgage Loans and related Additional Balances to the Depositor. Pursuant to the Agreement, the Mortgage Loans will be immediately transferred by the Depositor to the Trust, and the Depositor will assign its rights in, to and under the Purchase Agreement to the Trust. The following summary describes certain terms of the form of the Purchase Agreement and is qualified in its entirety by reference to the Purchase Agreement. Transfer of Mortgage Loans Pursuant to the Purchase Agreement, the Seller will transfer and assign to the Depositor, all of its right, title and interest in and to the Mortgage Loans and all of the Additional Balances thereafter created. The purchase price of the Mortgage Loans is a specified percentage of the face amount thereof as of the time of transfer. The purchase price of each Additional Balance comprising the Principal Balance of a Mortgage Loan is the amount of the related new advance. Representations and Warranties The Seller will represent and warrant to the Depositor that, among other things, as of the Closing Date, it is duly organized and in good standing and that it has the authority to consummate the transactions contemplated by the Purchase Agreement. The Seller will also represent and warrant to the Depositor that, among other things, immediately prior to the sale of the Mortgage Loans to the Depositor, the Seller was the sole owner and holder of the Mortgage Loans free and clear of any and all liens and security interests. The Seller will make similar representations and warranties in the Agreement. The Seller will also represent and warrant to the Depositor that, among other things, as of the Closing Date, (a) the Purchase Agreement S-67 69 constitutes a legal, valid and binding obligation of the Seller and (b) the Purchase Agreement constitutes a valid sale or security interest to the Depositor of all right, title and interest of the Seller in and to the Mortgage Loans and the proceeds thereof. Assignment to Trust The Seller expressly acknowledges and consents to the Depositor's transfer of its rights relating to the Mortgage Loans under the Agreement to the Trust. The Seller also agrees to perform its obligations under the Purchase Agreement for the benefit of the Trust. Termination The Purchase Agreement will terminate upon the termination of the Trust. USE OF PROCEEDS The net proceeds to be received from the sale of the Certificates will be applied by the Depositor towards the purchase of the Mortgage Loans. CERTAIN FEDERAL INCOME TAX CONSEQUENCES [Insert if applicable] STATE TAXES The Depositor makes no representations regarding the tax consequences of purchase, ownership or disposition of the Certificates under the tax laws of any state. Investors considering an investment in the Certificates should consult their own tax advisors regarding such tax consequences. All investors should consult their own tax advisors regarding the Federal, state, local or foreign income tax consequences of the purchase, ownership and disposition of the Certificates. ERISA CONSIDERATIONS [Insert as applicable] LEGAL INVESTMENT CONSIDERATIONS [Although, as a condition to their issuance, the Certificates will be rated in the highest rating category of the Rating Agencies,] the Certificates will not constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"), because not all of the Mortgages securing the Mortgage Loans are first mortgages. S-68 70 Accordingly, many institutions with legal authority to invest in comparably rated securities based on first mortgage loans may not be legally authorized to invest in the Certificates, which because they evidence interests in a pool that includes junior mortgage loans are not "mortgage related securities" under SMMEA. See "LEGAL INVESTMENT" in the Prospectus. UNDERWRITING Subject to the terms and conditions set forth in the underwriting agreement, dated _____ 199_ (the "Underwriting Agreement"), among the Depositor and _______________________ (the "Underwriters"), the Depositor has agreed to sell to the Underwriters, and the Underwriters have agreed to purchase from the Depositor all the Certificates. In the Underwriting Agreement, the Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all the Certificates offered hereby if any of the Certificates are purchased. The Depositor has been advised by the Underwriters that it proposes initially to offer the Certificates to the public in Europe and the United States at the offering price set forth herein and to certain dealers at such price less a discount not in excess of % of the Certificate denominations. The Underwriters may allow and such dealers may reallow a discount not in excess of % of the Certificate denominations to certain other dealers. After the initial public offering, the public offering price, such concessions and such discounts may be changed. The Underwriting Agreement provides that the Depositor will indemnify the Underwriters against certain civil liabilities, including liabilities under the Act. LEGAL MATTERS Certain legal matters with respect to the Certificates will be passed upon for _______________________________, for the Depositor by ______________________ and for the Underwriters by _________________. EXPERTS [The consolidated balance sheets of __________________________________ as of ________________, ____ and ____ and the related consolidated statements of income, changes in shareholder's equity, and cash flows for each of the three years in the period ended _____________, ____, incorporated by reference in this Prospectus Supplement, have been incorporated herein in reliance on the report of _________________________, independent accountants, given on the authority of that firm as experts in accounting and auditing. RATINGS It is a condition to issuance that the Certificates be rated "____" by Standard & Poor's and "____" by Moody's. S-69 71 A securities rating addresses the likelihood of the receipt by Certificateholders of distributions on the Mortgage Loans. The rating takes into consideration the characteristics of the Mortgage Loans and the structural, legal and tax aspects associated with the Certificates. The ratings on the Certificates do not, however, constitute statements regarding the likelihood or frequency of prepayments on the Mortgage Loans or the possibility that Certificateholders might realize a lower than anticipated yield. [The ratings assigned to the Certificates will depend primarily upon the creditworthiness of the Certificate Insurer. Any reduction in a rating assigned to the claims-paying ability of the Certificate Insurer below the ratings initially assigned to the Certificates may result in a reduction of one or more of the ratings assigned to the Certificates.] A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization. Each securities rating should be evaluated independently of similar ratings on different securities. S-70 72 ANNEX I GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES Except in certain limited circumstances, the globally offered Revolving Home Equity Loan Asset-Backed Certificates, Series 199_-_ (the "Global Securities") will be available only in book-entry form. Investors in the Global Securities may hold such Global Securities through any of The Depository Trust Company ("DTC"), Cedel or Euroclear. The Global Securities will be tradeable as home market instruments in both the European and U.S. domestic markets. Initial settlement and all secondary trades will settle in same-day funds. Secondary market trading between investors holding Global Securities through Cedel and Euroclear will be conducted in the ordinary way in accordance with their normal rules and operating procedures and in accordance with conventional eurobond practice (i.e., seven calendar day settlement). Secondary market trading between investors holding Global Securities through DTC will be conducted according to the rules and procedures applicable to U.S. corporate debt obligations and prior Home Equity Loan Asset-Backed Certificates issues. Secondary cross-market trading between Cedel or Euroclear and DTC Participants holding Certificates will be effected on a delivery-against-payment basis through the respective Depositaries of Cedel and Euroclear (in such capacity) and as DTC Participants. Non-U.S. holders (as described below) of Global Securities will be subject to U.S. withholding taxes unless such holders meet certain requirements and deliver appropriate U.S. tax documents to the securities clearing organizations or their participants. Initial Settlement All Global Securities will be held in book-entry form by DTC in the name of Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will be represented through financial institutions acting on their behalf as direct and indirect Participants in DTC. As a result, Cedel and Euroclear will hold positions on behalf of their participants through their respective Depositaries, which in turn will hold such positions in accounts as DTC Participants. Investors electing to hold their Global Securities through DTC will follow the settlement practices applicable to prior Home Equity Loan Asset-Backed Certificates issues. Investor securities custody accounts will be credited with their holdings against payment in same-day funds on the settlement date. Investors electing to hold their Global Securities through Cedel or Euroclear accounts will follow the settlement procedures applicable to conventional eurobonds, except that there will be no temporary global security and no "lock-up" or restricted period. Global Securities will I-1 73 be credited to the securities custody accounts on the settlement date against payment in same-day funds. Secondary Market Trading Since the purchaser determines the place of delivery, it is important to establish at the time of the trade where both the purchaser's and seller's accounts are located to ensure that settlement can be made on the desired value date. Trading between DTC Participants. Secondary market trading between DTC Participants will be settled using the procedures applicable to prior Home Equity Loan Asset-Backed Certificates issues in same-day funds. Trading between Cedel and/or Euroclear Participants. Secondary market trading between Cedel Participants or Euroclear Participants will be settled using the procedures applicable to conventional eurobonds in same-day funds. Trading between DTC seller and Cedel or Euroclear purchaser. When Global Securities are to be transferred from the account of a DTC Participant to the account of a Cedel Participant or a Euroclear Participant, the purchaser will send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at least one business day prior to settlement. Cedel or Euroclear will instruct the respective Depositary, as the case may be, to receive the Global Securities against payment. Payment will include interest accrued on the Global Securities from and including the last coupon payment date to and excluding the settlement date, on the basis of the actual number of days in such accrual period and a year assumed to consist of 360 days. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. Payment will then be made by the respective Depositary of the DTC Participant's account against delivery of the Global Securities. After settlement has been completed, the Global Securities will be credited to the respective clearing system and by the clearing system, in accordance with its usual procedures, to the Cedel Participant's or Euroclear Participant's account. The securities credit will appear the next day (European time) and the cash debt will be back-valued to, and the interest on the Global Securities will accrue from, the value date (which would be the preceding day when settlement occurred in New York). If settlement is not completed on the intended value date (i.e., the trade fails), the Cedel or Euroclear cash debt will be valued instead as of the actual settlement date. Cedel Participants and Euroclear Participants will need to make available to the respective clearing systems the funds necessary to process same-day funds settlement. The most direct means of doing so is to preposition funds for settlement, either from cash on hand or existing lines of credit, as they would for any settlement occurring within Cedel or Euroclear. Under this approach, they may take on credit exposure to Cedel or Euroclear until the Global Securities are credited to their accounts one day later. As an alternative, if Cedel or Euroclear has extended a line of credit to them, Cedel Participants or Euroclear Participants can elect not to preposition funds and allow that credit line to be drawn upon the finance settlement. Under this procedure, Cedel Participants or Euroclear Participants purchasing Global Securities would incur overdraft charges for one day, assuming S-2 74 they cleared the overdraft when the Global Securities were credited to their accounts. However, interest on the Global Securities would accrue from the value date. Therefore, in many cases the investment income on the Global Securities earned during that one-day period may substantially reduce or offset the amount of such overdraft charges, although this result will depend on each Cedel Participant's or Euroclear Participant's particular cost of funds. Since the settlement is taking place during New York business hours, DTC Participants can employ their usual procedures for sending Global Securities to the respective European Depositary for the benefit of Cedel Participants or Euroclear Participants. The sale proceeds will be available to the DTC seller on the settlement date. Thus, to the DTC Participants a cross-market transaction will settle no differently than a trade between two DTC Participants. Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to time zone differences in their favor, Cedel Participants and Euroclear Participants may employ their customary procedures for transactions in which Global Securities are to be transferred by the respective clearing system, through the respective Depositary, to a DTC Participant. The seller will send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at least one business day prior to settlement. In these cases Cedel or Euroclear will instruct the respective Depositary, as appropriate, to deliver the Global Securities to the DTC Participant's account against payment. Payment will include interest accrued on the Global Securities from and including the last coupon payment to and excluding the settlement date on the basis of the actual number of days in such accrual period and a year assumed to consist of 360 days. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. The payment will then be reflected in the account of the Cedel Participant or Euroclear Participant the following day, and receipt of the cash proceeds in the Cedel Participant's or Euroclear Participant's account would be back-valued to the value date (which would be the preceding day, when settlement occurred in New York). Should the Cedel Participant or Euroclear Participant have a line of credit with its respective clearing system and elect to be in debt in anticipation of receipt of the sale proceeds in its account, the back-valuation will extinguish any overdraft incurred over that one-day period. If settlement is not completed on the intended value date (i.e., the trade fails), receipt of the cash proceeds in the Cedel Participant's or Euroclear Participant's account would instead be valued as of the actual settlement date. Finally, day traders that use Cedel or Euroclear and that purchase Global Securities from DTC Participants for delivery to Cedel Participants or Euroclear Participants should note that these trades would automatically fail on the sale side unless affirmative action were taken. At least three techniques should be readily available to eliminate this potential problem: (a) borrowing through Cedel or Euroclear for one day (until the purchase side of the day trade is reflected in their Cedel or Euroclear accounts) in accordance with the clearing system's customary procedures; (b) borrowing the Global Securities in the U.S. from a DTC Participant no later than one day prior to settlement, which would give the Global Securities sufficient time to be reflected in their Cedel or Euroclear account in order to settle the sale side of the trade; or S-3 75 (c) staggering the value dates for the buy and sell sides of the trade so that the value date for the purchase from the DTC Participant is at least one day prior to the value date for the sale to the Cedel Participant or Euroclear Participant. Certain U.S. Federal Income Tax Documentation Requirements A beneficial owner of Global Securities holding securities through Cedel or Euroclear (or through DTC if the holder has an address outside the U.S.) will be subject to the 30% U.S. withholding tax that generally applies to payments of interest (including original issue discount) on registered debt issued by U.S. Persons, unless (i) each clearing system, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business in the chain of intermediaries between such beneficial owner and the U.S. entity required to withhold tax complies with applicable certification requirements and (ii) such beneficial owner takes one of the following steps to obtain an exemption or reduced tax rate: Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global Securities that are non-U.S. Persons can obtain a complete exemption from the withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If the information shown on Form W-8 changes, a new Form W-8 must be filed within 30 days of such change. Exemption for non-U.S. Persons with effectively connected income (Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S. branch, for which the interest income is effectively connected with its conduct of a trade or business in the United States, can obtain an exemption from the withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States). Exemption or reduced rate for non-U.S. Persons resident in treaty countries (Form 1001). Non-U.S. Persons that are Certificate Owners residing in a country that has a tax treaty with the United States can obtain an exemption or reduced tax rate (depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only for a reduced rate, withholding tax will be imposed at that rate unless the filer alternatively files Form W-8. Form 1001 may be filed by the Certificate Owners or his agent. Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete exemption from the withholding tax by filing Form W-9 (Payer's Request for Taxpayer Identification Number and Certification). U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files by submitting the appropriate form to the person through whom it holds (the clearing agency, in the case of persons holding directly on the books of the clearing agency). Form W-8 and Form 1001 are effective for three calendar years and Form 4224 is effective for one calendar year. The term "U.S. Person" means (i) a citizen or resident of the United States, (ii) a corporation or partnership organized in or under the laws of the United States or any political subdivision thereof or (iii) an estate or trust the income of which is includible in gross income for S-4 76 United States tax purposes, regardless of its source. This summary does not deal with all aspects of U.S. Federal income tax withholding that may be relevant to foreign holders of the Global Securities. Investors are advised to consult their own tax advisors for specific tax advice concerning their holding and disposing of the Global Securities. S-5 77 [This page intentionally left blank] 78 ================================================================================ No dealer, salesperson or other person has been authorized to give any information or to make any representation not contained in this Prospectus Supplement or the Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or Lehman Brothers. This Prospectus Supplement and the Prospectus do not constitute an offer of any securities other than those to which they relate or an offer to sell, or a solicitation of an offer to buy, to any person in any jurisdiction where such an offer or solicitation would be unlawful.. Neither the delivery of this Prospectus Supplement and the Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information herein is correct as of any time subsequent to their respective dates. ------------------- TABLE OF CONTENTS Page ---- Prospectus Supplement Incorporation of Certain Documents By Reference Summary Risk Factors The Certificate Insurer The Servicer Description of the Mortgage Loans Underwriting Maturity and Prepayment Considerations Pool Factor and Trading Information Description of the Certificates Description of the Purchase Agreement Use of Proceeds Certain Federal Income Tax Consequences State Taxes ERISA Considerations Legal Investment Considerations Underwriting Legal Matters Experts Ratings Annex I Prospectus Prospectus Supplement Available Information Reports to Holders Summary of Terms Risk Factors Description of the Securities The Trust Funds Credit Enhancement The Depositor, The Servicer and The Originators Servicing of Mortgage Loans The Agreements Certain Legal Aspects of Mortgage Loans Use of Proceeds Certain Federal Income Tax Considerations State Tax Considerations Legal Investment Plan of Distribution Legal Matters Glossary of Terms ================================================================================ ================================================================================ Banc One Home Equity Loan Trust 199_-_ $___________ Revolving Home Equity Loan Asset-Backed Certificates Series 199_-_ ______________ Seller Bank One, N.A. Servicer Banc One ABS Corporation, As Depositor PROSPECTUS SUPPLEMENT ______, 199_ ================================================================================ 79 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification. SUBJECT TO COMPLETION DATED JULY 23, 1998 PROSPECTUS BANC ONE ABS CORPORATION Asset-Backed Certificates Asset-Backed Notes (Issuable in Series) Banc One ABS Corporation (the "Depositor") may offer from time to time under this Prospectus and related Prospectus Supplements the Asset-Backed Notes (the "Notes") and the Asset-Backed Certificates (the "Certificates" and, together with the Notes, the "Securities") which may be sold from time to time in one or more series (each, a "Series"). A Series of Securities may consist of Notes, Certificates or both. As specified in the related Prospectus Supplement, the Certificates of a Series will evidence undivided interests in certain assets deposited into a trust (each, a "Trust Fund") by the Depositor pursuant to a Pooling and Servicing Agreement or a Trust Agreement, as described herein. As specified in the related Prospectus Supplement, the Notes of a Series will be issued and secured pursuant to an Indenture and will represent indebtedness of the related Trust Fund. The Trust Fund for a Series of Securities will include assets purchased from one or more bank or non-bank direct or indirect subsidiaries of BANC ONE CORPORATION ("BANC ONE") specified in the related Prospectus Supplement (each, a "Seller" and collectively, the "Sellers") composed of one or more pools of revolving home equity loans and lines of credit (collectively, the "Mortgage Loans"), secured by mortgages primarily on one- to four-family residential properties, (b) all monies due thereunder net, if and as provided in the related Prospectus Supplement, of certain amounts payable to Bank One, N.A., as servicer of the Mortgage Loans or other servicer specified in the related Prospectus Supplement (the "Servicer"), and (c) certain funds, Credit Enhancement (as defined herein) and other assets as described herein and in the related Prospectus Supplement. Each Series of Securities will be issued in one or more classes (each, a "Class"). Interest on and principal of the Securities of a Series will be payable on each Distribution Date specified in the related Prospectus Supplement, at the times, at the rates, in the amounts and in the order of priority set forth in the related Prospectus Supplement. If a Series includes multiple Classes, such Classes may vary with respect to the amount, percentage and timing of distributions of principal, interest or both and one or more Classes may be subordinated to other Classes with respect to distributions of principal, interest or both as described herein and in the related Prospectus Supplement. If so specified in the related Prospectus Supplement, the Mortgage Loans and other assets comprising the Trust Fund may be divided into one or more Asset Groups and each Class of the related Series will evidence beneficial ownership of the corresponding Asset Group, as applicable. The rate of reduction of the aggregate principal balance of each Class of a Series may depend principally upon the rate of payment (including prepayments) with respect to the Mortgage Loans. A rate of prepayment lower or higher than anticipated will affect the yield on the Securities of a Series in the manner described herein and in the related Prospectus Supplement. Under certain limited circumstances described herein and in the related Prospectus Supplement, a Series of Securities may be subject to termination or redemption under the circumstances described herein and in the related Prospectus Supplement. FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE SECURITIES, SEE "RISK FACTORS" ON PAGE 9. NOTES OF A SERIES REPRESENT OBLIGATIONS OF, AND CERTIFICATES OF A SERIES EVIDENCE BENEFICIAL INTERESTS IN, THE RELATED TRUST FUND ONLY AND ARE NOT DEPOSITS AND NEITHER THE NOTES OR THE CERTIFICATES ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR BY THE DEPOSITOR, ANY SELLER, THE TRUSTEE, THE SERVICER OR BY ANY OF THEIR RESPECTIVE AFFILIATES OR, UNLESS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY OTHER PERSON OR ENTITY. THE DEPOSITOR'S ONLY OBLIGATIONS WITH RESPECT TO ANY SERIES OF SECURITIES WILL BE PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES SET FORTH IN THE RELATED AGREEMENT AS DESCRIBED HEREIN OR IN THE RELATED PROSPECTUS SUPPLEMENT. - -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- The Securities offered by this Prospectus and by the related Prospectus Supplement are offered by the underwriters set forth in the related Prospectus Supplement, if any, subject to prior sale, to withdrawal cancellation or modification of the offer without notice, to delivery to and acceptance by such underwriters and certain further conditions. Retain this Prospectus for future reference. This Prospectus may not be used to consummate sales of the Securities offered hereby unless accompanied by a Prospectus Supplement. - -------------------------------------------------------------------------------- Prospectus dated , 199 80 PROSPECTUS SUPPLEMENT The Prospectus Supplement relating to a Series of Securities to be offered hereunder will, among other things, set forth with respect to such Series of Securities: (i) the aggregate principal amount, interest rate, and authorized denominations of each Class of such Securities; (ii) certain information concerning the Mortgage Loans, the Seller and any Servicer; (iii) the terms of any Credit Enhancement with respect to such Series; (iv) the terms of any insurance related to the Mortgage Loans; (v) information concerning any other assets in the related Trust Fund, including any Reserve Fund; (vi) the Final Scheduled Distribution Date of each Class of such Securities; (vii) the method to be used to calculate the amount of principal required to be applied to the Securities of each Class of such Series on each Distribution Date, the timing of the application of principal and the order of priority of the application of such principal to the respective Classes and the allocation of principal to be so applied; (viii) the Distribution Dates and any Assumed Reinvestment Rate (as defined herein); and (ix) additional information with respect to the plan of distribution of such Securities. To the extent that the terms of this Prospectus conflict or are otherwise inconsistent with the terms of any Prospectus Supplement, the terms of such Prospectus Supplement shall govern. AVAILABLE INFORMATION The Depositor has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement under the Securities Act of 1933, as amended, with respect to the Securities. This Prospectus, which forms a part of the Registration Statement, omits certain information contained in such Registration Statement pursuant to the Rules and Regulations of the Commission. The Registration Statement and the exhibits thereto may be inspected and copied at the public reference facilities maintained by the Commission at a 450 Fifth Street, N.W., Washington, D.C. 20549, and at its Regional Offices located as follows: Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and New York Regional Office, 7 World Trade Center, 3rd Floor, New York, New York 10007. Copies of such material may also be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission maintains a public access site on the Internet through the World Wide Web at which site reports, information statements and other information, including all electronic filings, regarding the Depositor may be viewed. The Internet address of such World Wide Web site is http://www.sec.gov. REPORTS TO HOLDERS Periodic and annual reports concerning the related Trust Fund for a Series of Securities are required under the related Agreement to be forwarded to Holders. Unless otherwise specified in the related Prospectus Supplement, such reports will not be examined and reported on by an independent public accountant. If so specified in the Prospectus Supplement for a Series of Securities, such Series or one or more Classes of such Series will be issued in book-entry form. In such event (i) owners of beneficial interests in such Securities will not be considered "Holders" under the Agreements and will not receive such reports directly from the related Trust Fund; rather, such reports will be furnished to such owners through the participants and indirect participants of the applicable book-entry system and (ii) references herein to the rights of "Holders" shall refer to the rights of such owners as they may be exercised indirectly through such participants. See "THE AGREEMENTS-Reports to Holders" herein. 81 SUMMARY OF TERMS The following summary is qualified in its entirety by reference to the detailed information appearing elsewhere in this Prospectus and by reference to the information with respect to each Series of Securities contained in the Prospectus Supplement to be prepared and delivered in connection with the offering of Securities of such Series. Capitalized terms used and not otherwise defined herein or in the related Prospectus Supplement shall have the meanings set forth in the "GLOSSARY OF TERMS". Securities Offered........... Asset-Backed Certificates (the "Certificates") and Asset-Backed Notes (the "Notes"). Certificates are issuable from time to time in Series pursuant to a Pooling and Servicing Agreement or Trust Agreement. Each Certificate of a Series will evidence an interest in the Trust Fund for such Series, or in an Asset Group specified in the related Prospectus Supplement. Notes are issuable from time to time in Series pursuant to an Indenture. Each Series of Securities will consist of one or more Classes, each of which may differ in, among other things, the amounts allocated to and the priority of principal and interest payments, Final Scheduled Distribution Dates, Distribution Dates and interest rates. The Securities of each Class will be issued in fully registered form in the denominations specified in the related Prospectus Supplement. If so specified in the related Prospectus Supplement, the Securities or certain Classes of such Securities offered thereby may be available in book-entry form only. Depositor.................... Banc One ABS Corporation (the "Depositor") was incorporated in the State of Ohio on May 7, 1996, and is a wholly-owned, special purpose subsidiary of BANC ONE CORPORATION ("BANC ONE"). None of BANC ONE, nor any other affiliate of the Depositor, the Servicer, the Trustee or any Seller has guaranteed or is otherwise obligated with respect to the Securities of any Series. See "THE DEPOSITOR." Sellers...................... One or more bank or non-bank, direct or indirect, subsidiaries of BANC ONE identified in the Prospectus Supplement for a Series of Securities, each of which is an affiliate of the Depositor (each, a "Seller" and together, the "Sellers"). Servicer..................... Bank One, N.A. ("Bank One"), an affiliate of the Depositor, or such other servicer as specified in the related Prospectus Supplement. Trustee...................... The Trustee for a Series of Securities identified in the related Prospectus Supplement. Interest Payments............ Interest payments on the Securities of a Series entitled by their terms to receive interest will be made on each Distribution Date, to the extent set forth in, and at the applicable rate specified in (or determined in the manner set forth in), the related Prospectus Supplement. The interest rate on Securities of a Series may be fixed or may be variable or change with changes in the rates of interest on the related Mortgage Loans and/or as prepayments occur with respect to such Mortgage Loans. Interest Only Securities may be assigned a "Notional Amount" set forth in the related Prospectus Supplement which is used solely for convenience in expressing the calculation of interest and for certain other purposes and does not represent the right to receive any distributions allocable to principal. Principal Only Securities may not be entitled to receive any interest payments or may be entitled to receive only nominal interest payments. Interest payable on the Securities of a Series on a Distribution Date will include all interest accrued during the period specified in the related Prospectus Supplement. See "DESCRIPTION OF THE SECURITIES--Payments of Interest." 3 82 Principal Payments........... All payments of principal of a Series of Securities will be made in an aggregate amount determined as set forth in the related Prospectus Supplement and will be paid at the times and will be allocated among the Classes of such Series in the order and amounts, and will be applied either on a pro rata or a random lot basis among all Securities of any such Class, all as specified in the related Prospectus Supplement. A Series of Securities may provide for a period during which no or only specified payments of principal are made except upon the occurrence of certain conditions, all as specified in the related Prospectus Supplement. Final Scheduled Distribution Date of the Securities.......... The Final Scheduled Distribution Date with respect to each Class of Notes is the date on or before which principal thereof will be fully paid and, with respect to each Class of Certificates, is the date after which no Certificates of such Class are expected to remain outstanding, in each case calculated on the basis of the assumptions applicable to such Series described in the related Prospectus Supplement. The Final Scheduled Distribution Date of a Class may equal the maturity date of the Mortgage Loan in the related Trust Fund which has the latest stated maturity or will be determined as described herein and in the related Prospectus Supplement. The actual final Distribution Date of the Securities of a Series will depend primarily upon the rate of payment (including prepayments, liquidations due to default, the receipt of proceeds from casualty insurance policies and repurchases) of the Mortgage Loans in the related Trust Fund. Unless otherwise specified in the related Prospectus Supplement, the actual final Distribution Date of any Security is likely to occur earlier and may occur substantially earlier or may occur later than its Final Scheduled Distribution Date as a result of the application of prepayments to the reduction of the principal balances of the Securities and as a result of defaults on the Mortgage Loans. The rate of payments on the Mortgage Loans in the Trust Fund for a Series will depend on a variety of factors, including certain characteristics of such Mortgage Loans and the prevailing level of interest rates from time to time, as well as on a variety of economic, demographic, tax, legal, social and other factors. No assurance can be given as to the actual prepayment experience with respect to a Series. See "RISK FACTORS-Prepayment and Yield Considerations" and "DESCRIPTION OF THE SECURITIES - Weighted Average Life of the Securities" herein. Optional Termination......... One or more Classes of Securities of any Series may be redeemed or repurchased in whole or in part, at the Depositor's or the Servicer's option, at such time and under the circumstances specified in the related Prospectus Supplement, at the price set forth therein. If so specified in the related Prospectus Supplement for a Series of Securities, the Depositor, the Servicer, or such other entity that is specified in the related Prospectus Supplement, may, at its option, cause an early termination of the related Trust Fund by repurchasing all of the Mortgage Loans remaining in the Trust Fund on or after a specified date, or on or after such time as the aggregate principal balance of the Securities of the Series or the Mortgage Loans relating to such Series, as specified in the related Prospectus Supplement, is less than the amount or percentage specified in the related Prospectus Supplement. See "DESCRIPTION OF THE SECURITIES-Optional Purchase or Termination." 4 83 In addition, the Prospectus Supplement may provide other circumstances under which Holders of Securities of a Series could be fully paid significantly earlier than would otherwise be the case if payments or distributions were solely based on the activity of the related Mortgage Loans. The Transferor Interest...... If so specified in the related Prospectus Supplement, interests in a Trust Fund not represented by the related Series of Securities may be represented by a Transferor Interest, which initially will be retained by the related Seller or an affiliate thereof and which will not be offered hereby. If so specified in the related Prospectus Supplement, the principal amount of the Transferor Interest will fluctuate as draws are made with respect to the Mortgage Loans and as Principal Collections are received. The related Prospectus Supplement may specify a minimum interest (the "Minimum Transferor Interest") required to be maintained with respect to a Trust Fund; provided that unless otherwise specified in the related Prospectus Supplement, the Minimum Transferor Interest may be reduced or eliminated without the consent of the Holders of the Securities of the applicable Series. The Trust Fund............... The Trust Fund for a Series of Securities will consist of one or more of the assets described below, as described in the related Prospectus Supplement. A. Mortgage Loans......... The Mortgage Loans for a Series will consist of revolving home equity loans and lines of credit originated or purchased by the Seller or Sellers specified in the related Prospectus Supplement, each of which is an affiliate of the Depositor, and sold each such Seller to the Depositor. Mortgage Loans may, as specified in the related Prospectus Supplement, have various payment characteristics, including balloon or other irregular payment features, and may accrue interest at a fixed rate or an adjustable rate. To the extent provided in the related Prospectus Supplement, additional Mortgage Loans may be periodically added to the Trust Fund, or may be removed from time to time if certain conditions are met, as described in the related Prospectus Supplement. If so specified in the related Prospectus Supplement, during the term of a Trust Fund, all Additional Balances will be transferred to and become Mortgaged Property of the Trust Fund. As a result, the Pool Balance of a Trust Fund may fluctuate from day to day because the amount of Additional Balances and the amount of principal payments with respect to the Mortgage Loans will usually differ from day to day. The Mortgage Loans will be secured by mortgages or deeds of trust or other similar security instruments creating a lien on a Mortgaged Property, which may be subordinated to one or more senior liens on the Mortgaged Property, as described in the related Prospectus Supplement. The related Prospectus Supplement will describe certain characteristics of the Mortgage Loans for a Series, including, without limitation, and to the extent relevant: (a) the aggregate unpaid principal balance of the Mortgage Loans (or the aggregate unpaid principal balance included in the Trust Fund for the related Series) and the average outstanding principal balance of the Mortgage Loans; (b) the weighted average Loan Rate on the Mortgage Loans as of the Cut-off Date; (c) the Combined Loan-to-Value Ratios or Loan-to-Value Ratios, as applicable, of the Mortgage Loans, computed in the manner described in the related Prospectus Supplement; (d) the percentage (by principal balance as of the Cut-off Date) of Mortgage Loans that accrue interest at adjustable or fixed interest rates; (e) any Credit Enhancement relating to the Mortgage Loans; (f) the geographic distribution of any 5 84 Mortgaged Properties securing the Mortgage Loans; (g) the lien priority of the Mortgage Loans; (h) the credit limit utilization rates of the Mortgage Loans; and (i) the delinquency status and year of origination of the Mortgage Loans. B. Collection and Distribution Accounts.............. Unless otherwise provided in the related Prospectus Supplement, all payments on or with respect to the Mortgage Loans for a Series will be remitted directly to an account (the "Collection Account") to be established for such Series with the Trustee or the Servicer, in the name of the Trustee. Unless otherwise provided in the related Prospectus Supplement, the Trustee shall be required to apply a portion of the amount in the Collection Account, together with reinvestment earnings from eligible investments specified in the related Prospectus Supplement, to the payment of certain amounts payable to the Servicer under the related Agreement and any other person specified in the Prospectus Supplement, and to deposit a portion of the amount in the Collection Account into a separate account (the "Distribution Account") to be established for such Series, each in the manner and at the times established in the related Prospectus Supplement. All amounts deposited in the Distribution Account will be available, unless otherwise specified in the related Prospectus Supplement, for (i) application to the payment of principal of and interest on such Series of Securities on the next Distribution Date, (ii) the making of adequate provision for future payments on certain Classes of Securities and (iii) any other purpose specified in the related Prospectus Supplement. After applying the funds in the Collection Account as described above, any funds remaining in the Collection Account may be paid over to the Servicer, the Depositor, any provider of Credit Enhancement with respect to such Series (a "Credit Enhancer") or any other person entitled thereto in the manner and at the times established in the related Prospectus Supplement. Credit Enhancement........... If specified in the Prospectus Supplement relating to a Series, the Depositor may obtain an irrevocable letter of credit, surety bond, securities insurance policy, pool or special hazard insurance policy or other form of credit support or will provide for overcollateralization or one or more classes of subordinate securities or reserve funds funded by an initial deposit and/or application of all or a part of excess cash flow for such Series (collectively, "Credit Enhancement") in favor of the Trustee on behalf of the Holders of such Series and any other person specified in such Prospectus Supplement from an institution acceptable to the rating agency or agencies identified in the related Prospectus Supplement as rating such Series of Securities (collectively, the "Rating Agency") for the purposes specified in such Prospectus Supplement. Credit Enhancement will support the payments on the Securities and may be used for other purposes, to the extent and under the conditions specified in such Prospectus Supplement. See "CREDIT ENHANCEMENT". Servicing.................... The Servicer will be responsible for servicing, managing and making collections on the Mortgage Loans for a Series. In addition, the Servicer, if so specified in the related Prospectus Supplement, will act as custodian and will be responsible for maintaining custody of the Mortgage Loans and related documentation on behalf of the Trustee. Advances with respect to delinquent payments of principal or interest on a Mortgage Loan will be made by the Servicer only to the extent described in the related Prospectus Supplement. Such advances will be 6 85 intended to provide liquidity only and, if required with respect to a Series, will generally be made only if the Servicer determines such Advances to be recoverable. Unless otherwise specified in the related Prospectus Supplement, will be reimbursable to the Servicer from scheduled payments of principal and interest, late collections, or from the proceeds of liquidation of the related Mortgage Loans or from other recoveries relating to such Mortgage Loans (including any insurance proceeds or payments from other credit support). Under certain limited circumstances, the Servicer may resign or be removed, in which event either the Trustee or a third-party servicer will be appointed as successor servicer. The Servicer will receive a periodic fee as servicing compensation (the "Servicing Fee") and may, as specified herein and in the related Prospectus Supplement, receive certain additional compensation. See "SERVICING OF LOANS--Servicing Compensation and Payment of Expenses". Federal Income Tax Considerations A. Debt Securities........ If so described in the related Prospectus Supplement, a Series of Securities will include one or more Classes of taxable debt obligations under the Internal Revenue Code of 1986, as amended (the "Code"). Stated interest with respect to such Classes of Securities will be reported by a Holder in accordance with the Holder's method of accounting. Certain Classes of Securities may, if specified in the related Prospectus Supplement, be issued with original issue discount that is not de minimis. In such cases, the Holder will be required to include original issue discount in gross income as it accrues, which may be prior to the receipt of cash attributable to such income. If a Security is issued at a premium, the Holder may be entitled to make an election to amortize such premium on a constant yield method. See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS." B. Grantor Trust.......... If so specified in the Prospectus Supplement, the Trust Fund will be treated as a grantor trust for federal income tax purposes. A Certificateholder, by its acceptance of a Certificate, will agree to treat the related Trust as a grantor trust in which such Certificateholder is a grantor for federal income tax purposes. C. Owner Trust Securities............. If so specified in the Prospectus Supplement, the Trust Fund will be treated as a partnership for purposes of federal income tax. Each Noteholder, by the acceptance of a Note of a given series, will agree to treat such Note as indebtedness, and each Certificateholder, by the acceptance of a Certificate of a given series, will agree to treat the related Trust as a partnership in which such Certificateholder is a partner for federal income tax purposes. In the event the Trust Fund will be treated as a partnership, the Certificates may not be transferred to non-U.S. holders, and any such transfer shall be void. Alternative characterizations of such Trust and such Certificates are possible. See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS." ERISA Considerations......... A fiduciary of any employee benefit or other plan subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code should carefully review with its own legal advisors whether the purchase or holding of Securities could give rise to a transaction prohibited or otherwise impermissible under ERISA or the Code. See "ERISA CONSIDERATIONS." Legal Investment............. Unless otherwise specified in the related Prospectus Supplement, Securities of each Series offered by this Prospectus and the related Prospectus Supplement will not constitute "mortgage related securities" 7 86 under the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). Investors whose investment authority is subject to legal restrictions should consult their own legal advisors to determine whether and to what extent the Securities constitute legal investments for them. See "LEGAL INVESTMENT." Use of Proceeds.............. The Depositor will use the net proceeds from the sale of each Series for one or more of the following purposes: (i) to purchase the related Mortgage Loans, (ii) to repay indebtedness which has been incurred to obtain funds to acquire such Mortgage Loans, (iii) to establish any Reserve Funds described in the related Prospectus Supplement and (iv) to pay costs of structuring and issuing such Securities, including the costs of obtaining Credit Enhancement, if any. If so specified in the related Prospectus Supplement, the purchase of the Mortgage Loans for a Series may be effected by an exchange of Securities with the Seller of such Mortgage Loans. See "USE OF PROCEEDS." Ratings...................... It will be a requirement for issuance of any Series that the Securities offered by this Prospectus and the related Prospectus Supplement be rated by at least one Rating Agency in one of its four highest applicable rating categories. The rating or ratings applicable to Securities of each Series offered hereby and by the related Prospectus Supplement will be as set forth in the related Prospectus Supplement. A securities rating should be evaluated independently of similar ratings on different types of securities. A securities rating does not address the effect that the rate of prepayments on Mortgage Loans for a Series may have on the yield to investors in the Securities of such Series. See "RISK FACTORS-Rating of Securities." 8 87 RISK FACTORS Investors should consider, among other things, the following factors in connection with the purchase of the Securities. Securities Limited Liquidity. There will be no market for the Securities of any Series prior to the issuance thereof, and there can be no assurance that a secondary market will develop or, if it does develop, that it will provide Holders with liquidity of investment or will continue for the life of the Securities of such Series. If so specified in the related Prospectus Supplement, the underwriters for a Series specified in the related Prospectus Supplement, may make a secondary market in the Securities, but have no obligation to do so. None of the Securities will be listed on any securities exchange. Issuance of any of the Securities in book-entry form may reduce the liquidity of such Securities in the secondary trading market because investors may be unwilling to purchase Securities for which they cannot obtain physical certificates. In addition, because transactions in Securities of a Series in book-entry form may be effected only through a depositary and its direct and indirect participants, the ability of a Holder to pledge Securities to persons or entities that do not participate in the depositary system may be limited. Limited Obligations. The Securities of a Series will not represent an interest in or an obligation of the Depositor, BANC ONE, any Seller, the Servicer or any of their affiliates and will be payable solely from the assets of the Trust Fund for such Securities. There will be no recourse to the Depositor or any other person for any default on the Notes or any failure to receive distributions on the Certificates. Consequently, Holders of Securities of each Series must rely solely upon payments with respect to the Mortgage Loans and the other assets constituting the Trust Fund for a Series of Securities, including, if applicable, any amounts available pursuant to any Credit Enhancement for such Series, for the payment of principal of and interest on the Securities of such Series. The Depositor does not have, nor is it expected to have, any significant assets. Holders of Notes will be required under the Indenture to proceed only against the Mortgage Loans and other assets constituting the related Trust Fund in the case of a default with respect to such Notes and may not proceed against any assets of the Depositor. If payments with respect to the Mortgage Loans and such other assets securing a Series of Notes, including any Credit Enhancement, were to become insufficient to make payments on such Notes, no other assets would be available for payment of the deficiency. The only obligations, if any, of the Depositor with respect to the Securities of any Series will be to purchase, or substitute substantially similar mortgage loans for, or cause the related Seller to purchase or substitute, any Mortgage Loans as to which there is defective documentation or a breach of certain representations and warranties. See "THE AGREEMENTS-Assignment of Mortgage Loans". The Depositor does not have, and is not expected in the future to have, any significant assets with which to meet any obligation to repurchase Mortgage Loans with respect to which there has been a breach of any representation or warranty. Credit Enhancement. Although Credit Enhancement, if any, with respect to a Series of Securities is intended to reduce the risk of delinquent payments or losses to Holders of the Class or Classes of Securities entitled to the benefit thereof, the amount of such Credit Enhancement will be limited, as set forth in the related Prospectus Supplement, and will decline and could be depleted under certain circumstances prior to the payment in full of the related Series of Securities, and as a result Holders may suffer losses. See "CREDIT ENHANCEMENT." Prepayment and Yield Considerations. The yield to maturity experienced by a Holder of Securities may be affected by the rate of payment of principal of the Mortgage Loans. The timing of principal payments of the Securities of a Series will be affected by a number of factors, including the following: (i) the extent of prepayments of the Mortgage Loans, which prepayments may be influenced by a variety of factors, (ii) the manner of allocating principal payments among the Classes of Securities of a Series as specified in the related Prospectus Supplement and (iii) the exercise by the party entitled thereto of any right of optional termination. See "DESCRIPTION OF THE SECURITIES- Weighted Average Life of Securities; Prepayment and Yield Considerations." Prepayments may also result from repurchases of loans due to material breaches of the Seller's or the Depositor's warranties. The effective yield to Holders will also be affected by the timing of interest accrual and payments and other factors specific to the Mortgage Loans underlying a Series or the structural characteristics of the Securities of a Series, all as more particularly described in the related Prospectus Supplement. The Depositor is not aware of any publicly available studies or statistics on the rate of prepayment of mortgage loans such as the Mortgage Loans. Generally, home equity loans and lines of credit are not viewed by 9 88 mortgagors as permanent financing. Accordingly, the Mortgage Loans may experience higher rates of prepayment than traditional mortgage loans. On the other hand, it may be expected that a portion of the borrowers will not prepay their Mortgage Loans to any significant degree. Rating of the Securities. It will be a condition to the issuance of a Series of Securities that they be rated in one of the four highest rating categories by one or more Rating Agencies identified in the related Prospectus Supplement. Any such rating would be based on, among other things, the adequacy of the value of the Mortgage Loans and any Credit Enhancement with respect to such Series. Such rating should not be deemed a recommendation to purchase, hold or sell Securities, inasmuch as it does not address market price or suitability for a particular investor. There is also no assurance that any such rating will remain in effect for any given period of time or may not be lowered or withdrawn entirely by the applicable Rating Agency if in its judgment circumstances in the future so warrant. In addition to being lowered or withdrawn due to any erosion in the adequacy of the value of the Mortgage Loans, such rating might also be lowered or withdrawn, among other reasons, because of an adverse change in the financial or other condition of an Enhancer or a change in the rating of such Enhancer's long term debt. Risks of the Mortgage Loans Nature of Mortgage Loans and Mortgaged Properties. The Mortgage Loans are expected to be secured by Mortgages which consist primarily of junior liens subordinate to the rights of the mortgagee under the related senior mortgage or mortgages. As a result, the proceeds from any liquidation, insurance or condemnation proceedings will be available to satisfy the outstanding balance of such Mortgage only to the extent that the claims of such senior mortgagees have been satisfied in full, including any related foreclosure costs. In addition, a junior mortgagee may not foreclose on the Mortgaged Property securing a junior mortgage unless it forecloses subject to the senior mortgages, in which case it must either pay the entire amount due on the senior mortgages to the senior mortgagees at or prior to the foreclosure sale or undertake the obligation to make payments on the senior mortgages in the event the mortgagor is in default thereunder. The Trust Fund will not have any source of funds to satisfy the senior mortgages or make payments due to the senior mortgagees. There are several factors that could adversely affect the value of Mortgaged Properties such that the outstanding balance of the related Mortgage Loan, together with any senior financing on the Mortgaged Properties, would equal or exceed the value of the Mortgaged Properties. Among such factors are an overall decline in the residential real estate market in the areas in which the Mortgaged Properties are located or a decline in the general condition of the Mortgaged Properties as a result of failure of borrowers to maintain adequately the Mortgaged Properties or of natural disasters that are not necessarily covered by insurance, such as earthquakes and floods. Any such decline could extinguish the value of a junior interest in a Mortgaged Property before having any effect on the related senior interest therein. If such a decline occurs, the actual rates of delinquencies, foreclosure and losses on the junior Mortgage Loans could be higher than those currently experienced in the mortgage lending industry in general. Minimum monthly payments on the Mortgage Loans may be limited to accrued interest. Although borrowers under certain of the Mortgage Loans may choose to pay down all or a part of their outstanding principal balance prior to maturity, such borrowers are under no obligation to do so and, if such balances have not been substantially paid down prior to maturity, some borrowers may be unable to pay the required final payment. Environmental Risks. Real Mortgaged Property pledged as security to a lender may be subject to certain environmental risks. Under the laws of certain states, contamination of a Mortgaged Property may give rise to a lien on the Mortgaged Property to assure the costs of clean-up. In several states, such a lien has priority over the lien of an existing mortgage or owner's interest against such Mortgaged Property. In addition, under the laws of some states and under the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), a lender may be liable, as an "owner" or "operator," for costs of addressing releases or threatened releases of hazardous substances that require remedy at a Mortgaged Property, if agents or employees of the lender have become sufficiently involved in the operations of the borrower, regardless of whether or not the environmental damage or threat was caused by a prior owner. A lender also risks such liability on foreclosure of the Mortgaged Property. Certain Other Legal Considerations Regarding the Mortgage Loans. Applicable state laws generally regulate interest rates and other charges and require certain disclosures. In addition, other state laws, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and debt 10 89 collection practices may apply to the origination, servicing and collection of the Mortgage Loans. Depending on the provisions of the applicable law and the specific facts and circumstances involved, violations of these laws, policies and principles may limit the ability of the Servicer to collect all or part of the principal of or interest on the Mortgage Loans, may entitle the borrower to a refund of amounts previously paid and, in addition, could subject the owner of the Mortgage Loan to damages and administrative enforcement. The Mortgage Loans are also subject to Federal laws, including: (i) the Federal Truth in Lending Act and Regulation Z promulgated thereunder, which require certain disclosures to the borrowers regarding the terms of the Mortgage Loans; (ii) the Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act, in the extension of credit; and (iii) the Americans with Disabilities Act, which, among other things, prohibits discrimination on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages or accommodations of any place of public accommodation; (iv) the Fair Credit Reporting Act, which regulates the use and reporting of information related to the borrower's credit experience. Violations of certain provisions of these Federal laws may limit the ability of the Servicer to collect all or part of the principal of or interest on the Mortgage Loans and in addition could subject the Trust Fund to damages and administrative enforcement. The Mortgage Loans may be subject to the Home Ownership and Equity Protection Act of 1994 (the "Act") which amended the Truth in Lending Act as it applies to mortgages subject to the Act. The Act requires certain additional disclosures, specifies the timing of such disclosures and limits or prohibits inclusion of certain provisions in mortgages subject to the Act. The Act also provides that any purchaser or assignee of a mortgage covered by the Act is subject to all of the claims and defenses which the borrower could assert against the original lender. The maximum damages that may be recovered under the Act from an assignee is the remaining amount of indebtedness plus the total amount paid by the borrower in connection with the Mortgage Loan. If the Trust Fund includes Mortgage Loans subject to the Act, it will be subject to all of the claims and defenses which the borrower could assert against the Seller. Any violation of the Act which would result in such liability would be a breach of the Seller's representations and warranties, and the Seller would be obligated to cure, repurchase or, if permitted by the Agreement, substitute for the Mortgage Loan in question. In addition, numerous other federal and state statutory provisions, including the federal bankruptcy laws, the Soldiers' and Sailors' civil Relief Act of 1940 and state debtor relief laws, also may adversely affect the Servicer's ability to collect the principal of or interest on the Mortgage Loans and also would affect the interests of the Holders in such Mortgage Loans if such laws result in the Mortgage Loans being uncollectible. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS". Transfer of Mortgage Loans. If so specified in the related Prospectus Supplement, the Servicer may be entitled to maintain possession of the documentation relating to each Mortgage Loan, including the Credit Line Agreements and related documents or other evidence of indebtedness signed by the borrower, and assignments of the related mortgage to the Trust Fund may not be required to be recorded, in each case until the occurrence of the events (generally related to the rating assigned to unsecured debt of the Servicer) specified in the related Prospectus Supplement. Failure to deliver such documents to the related Trustee (or a third-party custodian on behalf of the Trustee) will have the result in most, if not all, states, and failure to record the assignments of the related mortgages to the related Trustee will have the result in certain states in which the Mortgaged Properties are located, of making the sale of the Principal Balances as of the Cut-off Date, Additional Balances and related documents potentially ineffective against certain creditors of the related Seller or the purchaser of a Mortgage Loan who had no notice of the prior conveyance to the Trust Fund if such purchaser perfects his interest by taking possession of the evidence of indebtedness. Each Seller will be required to represent in the related Purchase Agreement that the transfer by it of all of its right, title and interest in the Mortgage Loans underlying a Series of Securities is either a valid transfer and assignment of such Mortgage Loans or the grant to the Trust Fund of a security interest in the Mortgage Loans. If the transfer of the related Mortgage Loans to the Trust Fund is deemed to create a security interest under the applicable Uniform Commercial Code ("UCC"), tax or other governmental liens on the Mortgaged Property of the Seller arising before any Mortgage Loan comes into existence may have priority over the Trust's interest in such 11 90 Mortgage Loan. In addition, if the FDIC were appointed receiver of a Seller, the receiver's administrative expenses might also have priority over the Trust Fund's interest in the Mortgage Loans, but under the Federal Deposit Insurance Act, to the extent such Seller grants a security interest in the related Mortgage Loans to the Trust Fund, such security interest is perfected prior to the insolvency of such Seller and such security interest was not taken in contemplation of insolvency or with the intent to hinder, delay or defraud creditors, such security interest should not be subject to avoidance by the FDIC, as conservator or receiver. The insolvency of a Seller may also have other potential consequences described in the related Prospectus Supplement, including, for example, an early termination of the related Trust Fund. Geographic Concentration and Local Real Estate Markets. The Prospectus Supplement related to a Series of Securities will contain information with respect to the geographic concentration of Mortgaged Properties securing the related Mortgage Loans. Any concentration of the Mortgage Loans relating to any Series of Securities in a particular region may present risk considerations in addition to those generally present for similar securities without such concentration. Certain geographic regions of the United States from time to time will experience weaker regional economic conditions and housing markets and consequently will experience higher rates of loss and delinquency on mortgage loans generally. Declines in values of the Mortgaged Properties in any region may particularly affect the position of a junior mortgagee, and could extinguish the interest of the holder of such junior lien. In many cases, home equity revolving credit line borrowers have primary residences with above average values, and those properties may experience greater relative declines in value than other properties with lower values. A rise in interest rates over a period of time and the general condition of the Mortgaged Property as well as other factors may have the effect of reducing the value of the Mortgaged Property from the appraised value at the time the Mortgage Loan was originated. Such reduction may reduce the likelihood of liquidation or other proceeds being sufficient to satisfy the related Mortgage Loan after satisfaction of any senior liens. In addition, if the borrower has an adjustable rate first mortgage loan, any increase in the interest rate thereon may adversely affect the borrower's ability to make payments on the related Mortgage Loan. Servicer's Ability to Change the Terms of the Mortgage Loans. If and under the terms specified in the related Prospectus Supplement, the Servicer may have the ability to agree to changes in the terms of a Credit Line Agreement or other document evidencing the Mortgage Loan indebtedness. No assurance can be given that changes in applicable law or the market for home equity loans or prudent business practice will not result in changes in the terms of the Mortgage Loans after transfer to the related Trust Fund. Other Considerations. There is no assurance that the market value of the Mortgage Loans or any other assets for a Series will at any time be equal to or greater than the aggregate principal amount of the Securities of such Series then outstanding, plus accrued interest thereon. Moreover, upon an event of default under the Indenture for a Series of Notes and a sale of the assets in the Trust Fund or upon a sale of the assets of a Trust Fund for a Series of Certificates, the Trustee, the Servicer, any Enhancer and any other service provider specified in the related Prospectus Supplement generally will be entitled to receive the proceeds of any such sale to the extent of unpaid fees and other amounts owing to such persons under the related Agreement prior to distributions to holders of Securities. Upon any such sale, the proceeds thereof may be insufficient to pay in full the principal of and interest on the Securities of such Series. Liquidation expenses with respect to defaulted loans do not vary directly with the outstanding principal balance of the loan at the time of default. Therefore, assuming that a servicer took the same steps in realizing upon a defaulted loan having a small remaining principal balance as it would in the case of a defaulted loan having a larger principal balance, the amount realized after expenses of liquidation would be smaller as a percentage of the outstanding principal balance of the smaller loan than would be the case with a larger loan. Because the average outstanding principal balances of the Mortgage Loans are small relative to the size of the loans in a typical pool of first mortgages, realizations net of liquidation expenses on defaulted Mortgage Loans may also be smaller as a percentage of the principal amount of the Mortgage Loans than would such net realizations in the case of a typical pool of first mortgage loans. 12 91 Further, foreclosure and similar actions are subject to delays and may take several years to complete, resulting in delays in the receipt of proceeds available for distribution to Holders of the related Securities. Such delays may depend upon, among other things, the required procedures for foreclosure in the jurisdiction in which the related Mortgaged Property is located, the availability of defenses to such action, the timing of the foreclosure action and other factors. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Foreclosure on Mortgages". 13 92 DESCRIPTION OF THE SECURITIES General Each Series of Notes will be issued pursuant to an indenture (the "Indenture") between the related Trust Fund and the entity named in the related Prospectus Supplement as trustee (the "Trustee") with respect to such Series. A form of Indenture has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The Certificates will also be issued in Series pursuant to separate agreements (each, a "Pooling and Servicing Agreement" or a "Trust Agreement") among the Depositor, the Servicer and the Trustee. A form of Pooling and Servicing Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. A Series may consist of Notes, Certificates or both. The applicable Seller or Sellers may agree to reimburse the Depositor for certain fees and expenses of the Depositor incurred in connection with the offering of the Securities. The following summaries describe certain provisions in the Agreements common to each Series of Securities. The summaries do not purport to be complete and are subject to, and are qualified in their entirety by reference to, the provisions of the Agreements and the Prospectus Supplement relating to each Series of Securities. Where particular provisions or terms used in the Agreements are referred to, the actual provisions (including definitions of terms) are incorporated herein by reference as part of such summaries. Each Series of Securities will consist of one or more Classes of Securities, one or more of which may be Subordinate Securities. The Securities of each Series will be issued only in fully registered form, without coupons, in the authorized denominations for each Class specified in the related Prospectus Supplement. Upon satisfaction of the conditions, if any, applicable to a Class of a Series, as described in the related Prospectus Supplement, the transfer of the Securities may be registered and the Securities may be exchanged at the office of the Trustee specified in the Prospectus Supplement without the payment of any service charge other than any tax or governmental charge payable in connection with such registration of transfer or exchange. If specified in the related Prospectus Supplement, one or more Classes of a Series may be available in book-entry form only. Unless otherwise provided in the related Prospectus Supplement, payments of principal of and interest on a Series of Securities will be made on the Distribution Dates specified in the Prospectus Supplement relating to such Series by check mailed to Holders of such Series, registered as such at the close of business on the record date specified in the related Prospectus Supplement applicable to such Distribution Dates at their addresses appearing on the security register, except that (a) payments may be made by wire transfer (at the expense of the Holder requesting payment by wire transfer) in certain circumstances described in the related Prospectus Supplement and (b) final payments of principal in retirement of each Security will be made only upon presentation and surrender of such Security at the office of the Trustee specified in the Prospectus Supplement. Notice of the final payment on a Security will be mailed to the Holder of such Security before the Distribution Date on which the final principal payment on any Security is expected to be made to the Holder of such Security. Payments of principal of and interest on the Securities will be made by the Trustee, or a paying agent on behalf of the Trustee, as specified in the related Prospectus Supplement. Unless otherwise provided in the related Prospectus Supplement, all payments with respect to the Mortgage Loans for a Series, together with reinvestment income thereon, amounts withdrawn from any Reserve Fund, and amounts available pursuant to any other Credit Enhancement will be deposited directly into the Collection Account and, net, if and as provided in the related Prospectus Supplement, of certain amounts payable to the related Servicer and any other person specified in the Prospectus Supplement will thereafter be deposited into the Distribution Account and will be available to make payments on Securities of such Series on the next Distribution Date, as the case may be. See "THE TRUST FUNDS-Collection and Distribution Accounts." Valuation of the Mortgage Loans If specified in the related Prospectus Supplement for a Series of Notes, each Mortgage Loan included in the related Trust Fund for a Series may be assigned an initial "Asset Value." Unless otherwise specified in the related Prospectus Supplement, at any time the Asset Value of the Mortgage Loans will be equal to the product of the Asset Value Percentage as set forth in the Indenture and the lesser of (a) the stream of remaining regularly scheduled payments on the Mortgage Loans, net, unless otherwise provided in the related Prospectus Supplement, of certain 14 93 amounts payable as expenses, together with income earned on each such scheduled payment received through the day preceding the next Distribution Date at the Assumed Reinvestment Rate, if any, discounted to present value at the highest interest rate on the Notes of such Series over periods equal to the interval between payments on the Notes, and (b) the then principal balance of the Mortgage Loans. Unless otherwise specified in the related Prospectus Supplement, the initial Asset Value of the Mortgage Loans will be at least equal to the principal amount of the Notes of the related Series at the date of issuance thereof. The "Assumed Reinvestment Rate", if any, for a Series will be the highest rate permitted by the Rating Agency or a rate insured by means of a surety bond, guaranteed investment contract, Deposit Agreement or other arrangement satisfactory to the Rating Agency. If the Assumed Reinvestment Rate is so insured, the related Prospectus Supplement will set forth the terms of such arrangement. The Transferor Interest If so specified in the related Prospectus Supplement, interests in a Trust Fund not represented by the related Series of Certificates may be represented by the Transferor Interest, which initially will be retained by the related Sellers or one or more affiliates thereof and which will not be offered hereby. If so specified in the related Prospectus Supplement, the principal amount of the Transferor Interest will fluctuate as draws are made with respect to the Mortgage Loans and as Principal Collections are received. The related Prospectus Supplement may specify a minimum interest (the "Minimum Transferor Interest") required to be maintained with respect to a Trust Fund. If so specified in the related Prospectus Supplement, the holder of the Transferor Interest may have the right to remove Mortgage Loans from the related Trust Fund, under the circumstances described therein. Allocations; Application of Collections The related Prospectus Supplement will describe the allocation or means of allocation of collections on the Mortgage Loans available to pay interest on and principal of a Series of Securities. In general, except as otherwise described in the related Prospectus Supplement, collections will generally be allocated in accordance with the related Credit Line Agreements or other Loan Documents between amounts collected in respect of interest ("Interest Collections") and amounts collected with respect to principal ("Principal Collections" and, with Interest Collections, "Collections"). With respect to a Series of Securities in which a Transferor Interest represents the interests in the related Trust Fund not represented by such Series of Securities, Collections will be allocated between the Transferor Interest and the Classes of such Series of Securities as specified in the related Prospectus Supplement. The related Prospectus Supplement will also describe the allocation or means of allocation of losses, if any, on the related Mortgage Loans, among the Classes of Securities and, if applicable, the Transferor Interest. Unless otherwise specified in the related Prospectus Supplement, the Transferor Interest in a Trust Fund will not be subordinated to the related Series of Securities. Interest Collections and Principal Collections on Mortgage Loans underlying a Series of Securities will each be applied in the manner and priority described in the related Prospectus Supplement. Certain fees and expenses of the Trust Fund or the Servicer may be payable prior to payments due on one or more Classes of a Series of Securities, as specified in the related Prospectus Supplement. Payments of Interest The Securities of each Class by their terms entitled to receive interest will bear interest (generally calculated as specified in the related Prospectus Supplement on the basis of a 360-day year of twelve 30-day months or a 360-day year and actual days elapsed) from the date and at the rate per annum specified, or calculated in the method described, in the related Prospectus Supplement. Interest on such Securities of a Series will be payable on the Distribution Date specified in the related Prospectus Supplement. The rate of interest on Securities of a Series may be fixed or may be variable or may change with changes in the annual percentage rates of the Mortgage Loans included in the related Trust Fund and/or as prepayments occur with respect to such Mortgage Loans. A Class of Securities may be entitled to receive interest distributions only, may not be entitled to receive any interest distributions or may be entitled to receive only nominal interest distributions, as specified in the related Prospectus Supplement. A Series of Securities may provide for a period during which no or a specified amount of principal is payable except upon the occurrence of certain events, as specified in the related Prospectus Supplement. Interest payable on the Securities on a Distribution Date will include all interest accrued during the period specified in the related Prospectus Supplement. In the event interest accrues during the calendar month preceding a 15 94 Distribution Date, the effective yield to Holders will be reduced from the yield that would otherwise be obtainable if interest payable on the Securities were to accrue through the day immediately preceding such Distribution Date. Payments of Principal On each Distribution Date for a Series, principal payments will be made to the Holders of the Securities of such Series on which principal is then payable, to the extent set forth in the related Prospectus Supplement. Such payments will be made in an aggregate amount determined as specified in the related Prospectus Supplement and will be allocated among the respective Classes of a Series in the manner, at the times and in the priority (which may, in certain cases, include allocation by random lot) set forth in the related Prospectus Supplement. Final Scheduled Distribution Date The Final Scheduled Distribution Date with respect to each Class of Notes of a Series is the date no later than which principal thereof will be fully paid and, with respect to each Class of a Series of Certificates, will be the date on which the entire aggregate principal balance of such Class is expected to be reduced to zero, in each case calculated on the- basis of the assumptions applicable to such Series described in the related Prospectus Supplement. The Final Scheduled Distribution Date for each Class of a Series will be specified in the related Prospectus Supplement. Since payments on the Mortgage Loans will be used to make distributions in reduction of the outstanding principal amount of the Securities, it is likely that the actual final Distribution Date of any such Class will occur earlier, and may occur substantially earlier, than its Final Scheduled Distribution Date. Furthermore, with respect to a Series of Certificates, unless otherwise specified in the related Prospectus Supplement, as a result of delinquencies, defaults and liquidations of the Mortgage Loans in the Trust Fund, the actual final Distribution Date of any Certificate may occur later than its Final Scheduled Distribution Date. No assurance can be given as to the actual prepayment experience with respect to a Series. See "--Weighted Average Life of the Securities; Maturity and Prepayment Considerations". Special Redemption If so specified in the Prospectus Supplement relating to a Series of Securities having other than monthly Distribution Dates, one or more Classes of Securities of such Series may be subject to special redemption, in whole or in part, on the day specified in the related Prospectus Supplement (a "Special Redemption Date") if, as a consequence of prepayments on the Mortgage Loans relating to such Securities or low yields then available for reinvestment, the entity specified in the related Prospectus Supplement determines, based on assumptions specified in the applicable Agreement, that the amount available for the payment of interest that will have accrued on such Securities (the "Available Interest Amount") through the designated interest accrual date specified in the related Prospectus Supplement is less than the amount of interest that will have accrued on such Securities to such date. In such event and as further described in the related Prospectus Supplement, the Trustee will redeem a principal amount of outstanding Securities of such Series as will cause the Available Interest Amount to equal the amount of interest that will have accrued through such designated interest accrual date for such Series of Securities outstanding immediately after such redemption. Optional Redemption, Purchase or Termination The Depositor or the Servicer may, at its option, redeem, in whole or in part, one or more Classes of Notes or purchase one or more Classes of Certificates of any Series, on any Distribution Date under the circumstances, if any, specified in the Prospectus Supplement relating to such Series. Alternatively, if so specified in the related Prospectus Supplement for a Series of Certificates, the Depositor, the Servicer, or another entity designated in the related Prospectus Supplement may, at its option, cause an early termination of a Trust Fund by repurchasing all of the Mortgage Loans from such Trust Fund on or after a date specified in the related Prospectus Supplement, or on or after such time as the aggregate outstanding principal amount of the Certificates or Mortgage Loans, as specified in the related Prospectus Supplement, is less than the amount or percentage specified in the related Prospectus Supplement. Notice of such redemption, purchase or termination must be given by the Depositor or the Trustee prior to the related date. The redemption, purchase or repurchase price will be set forth in the related Prospectus Supplement. 16 95 In addition, the Prospectus Supplement may provide other circumstances under which Holders of Securities of a Series could be fully paid significantly earlier than would otherwise be the case if payments or distributions were solely based on the activity of the related Mortgage Loans. Weighted Average Life of the Securities; Maturity and Prepayment Considerations Weighted average life refers to the average amount of time that will elapse from the date of issue of a security until each dollar of principal of such security will be repaid to the investor. Unless otherwise specified in the related Prospectus Supplement, the weighted average life of the Securities of a Class will be influenced by the rate at which the amount financed under the Mortgage Loans included in the Trust Fund for a Series is paid, which may be in the form of scheduled amortization or prepayments. Prepayments on loans and other receivables can be measured relative to a prepayment standard or model. The Prospectus Supplement for a Series of Securities will describe the prepayment standard or model, if any, used therein and may contain tables setting forth the projected weighted average life of each Class of Securities of such Series and the percentage of the original principal amount of each Class of Securities of such Series that would be outstanding on specified Distribution Dates for such Series based on the assumptions stated in such Prospectus Supplement, including assumptions that prepayments on the Mortgage Loans included in the related Trust Fund are made at rates corresponding to various percentages of the prepayment standard or model specified in such Prospectus Supplement. There is, however, no assurance that prepayment of the Mortgage Loans included in the related Trust Fund will conform to any level of any prepayment standard or model specified in the related Prospectus Supplement. The rate of principal prepayments on pools of loans is influenced by a variety of economic, demographic, geographic, legal, tax, social and other factors. The rate of prepayments of conventional housing loans and other receivables has fluctuated significantly in recent years. In general, however, if prevailing interest rates fall significantly below the interest rates on the Mortgage Loans for a Series, such loans are likely to prepay at rates higher than if prevailing interest rates remain at or above the interest rates home by such loans. In this regard, it should be noted that the Mortgage Loans for a Series may have different interest rates. In addition, the weighted average life of the Securities may be affected by the varying maturities of the Mortgage Loans. If any Mortgage Loans for a Series have actual terms-to-stated maturity of less than those assumed in calculating the Final Scheduled Distribution Date of the related Securities, one or more Classes of the Series may be fully paid prior to their respective Final Scheduled Distribution Dates, even in the absence of prepayments and a reinvestment return higher than the Assumed Reinvestment Rate. The related Prospectus Supplement may describe additional prepayment and yield considerations with respect to the characteristics of the Mortgage Loans included in the related Trust Fund and the Classes of Securities of the related Series offered thereby. 17 96 THE TRUST FUNDS General The Notes of each Series will be secured by the pledge of the assets of the related Trust Fund, and the Certificates of each Series will represent interests in the assets of the related Trust Fund. The Trust Fund of each Series will include assets purchased from the Seller composed of (i) the Mortgage Loans, (ii) amounts available from the reinvestment of payments on such Mortgage Loans at the Assumed Reinvestment Rate, if any, specified in the related Prospectus Supplement, (iii) any Credit Enhancement, (iv) any Mortgaged Property that secured a Mortgage Loan but which is acquired by foreclosure or deed in lieu of foreclosure or repossession and (v) the amount, if any, initially deposited in the Collection Account or Distribution Account for a Series as specified in the related Prospectus Supplement. The Securities will be non-recourse obligations of the related Trust Fund. The assets of the Trust Fund specified in the related Prospectus Supplement for a Series of Securities, unless otherwise specified in the related Prospectus Supplement, will serve as collateral only for that Series of Securities. Holders of a Series of Notes may only proceed against such collateral securing such Series of Notes in the case of a default with respect to such Series of Notes and may not proceed against any assets of the Depositor or the related Trust Fund not pledged to secure such Notes. The Mortgage Loans for a Series will be sold to the Depositor by one or more bank or non-bank direct or indirect subsidiaries of BANC ONE CORPORATION ("BANC ONE") specified in the related Prospectus Supplement (each, a "Seller" and collectively, the "Sellers") and will be transferred by the Depositor to the Trust Fund. The Mortgage Loans will be originated by the related Seller or purchased by such Seller in the open market or in privately negotiated transactions. Mortgage Loans relating to a Series will be serviced by Bank One, N.A. or other servicer, which may be the related Seller, specified in the related Prospectus Supplement (the "Servicer"), pursuant to a Pooling and Servicing Agreement, with respect to a Series of Certificates or a servicing agreement (each, a "Servicing Agreement") between the Trust Fund and Servicer, with respect to a Series of Notes. As used herein, "Agreement" means, with respect to a Series of Certificates, the Pooling and Servicing Agreement or Trust Agreement, and with respect to a Series of Notes, the Indenture and the Servicing Agreement, as the context requires. If so specified in the related Prospectus Supplement, a Trust Fund relating to a Series of Securities may be a business trust formed under the laws of the state specified in the related Prospectus Supplement pursuant to a trust agreement (each, a "Trust Agreement") between the Depositor and the trustee of such Trust Fund specified in the related Prospectus Supplement. With respect to each Trust Fund, prior to the initial offering of the related Series of Securities, the Trust Fund will have no assets or liabilities. No Trust Fund is expected to engage in any activities other than acquiring, managing and holding the related Mortgage Loans and other assets contemplated herein and in the related Prospectus Supplement and the proceeds thereof, issuing Securities and making payments and distributions thereon and certain related activities. No Trust Fund is expected to have any source of capital other than its assets and any related Credit Enhancement. The Mortgage Loans The Mortgage Loans for a Series will consist of revolving home equity loans and lines of credit (the "Mortgage Loans") secured by mortgages primarily on single family properties (the "Mortgaged Properties") which may be subordinated to other mortgages on the same Mortgaged Property. The Mortgage Loans may have fixed interest rates or adjustable interest rates and may provide for other payment characteristics, as described below and in the related Prospectus Supplement. As more fully described in the related Prospectus Supplement, interest on each Mortgage Loan, excluding introductory rates offered from time to time during promotional periods, may be computed and payable monthly on the average daily outstanding principal balance of such loan. Principal amounts on the Mortgage Loans may be drawn down (up to a maximum amount as set forth in the related Prospectus Supplement) or repaid under each Mortgage Loan from time to time. If so specified in the related Prospectus Supplement, new draws by borrowers under the Mortgage Loans will automatically become part of the Trust Fund for a Series. As a result, the aggregate 18 97 balance of the Mortgage Loans will fluctuate from day to day as new draws by borrowers are added to the Trust Fund and principal payments are applied to such balances and such amounts will usually differ each day, as more specifically described in the related Prospectus Supplement. Under certain circumstances, a borrower may choose an interest only payment option and is obligated to pay only the amount of interest which accrues on the loan during the billing cycle. An interest only payment option may be available for a specified period before the borrower must begin paying at least the minimum monthly payment of a specified percentage of the average outstanding balance of the loan or, if so specified in the related Prospectus Supplement, such interest only period may be extended for one or more additional periods. The Mortgaged Properties will include primarily one- to four-family residential housing, including Condominium Units and Cooperative Dwellings and may consist of detached individual dwellings, individual condominiums, townhouses, duplexes, row houses, individual units in planned unit developments and other attached dwelling units. Each Mortgaged Property will be located on land owned in fee simple by the borrower or on land leased by the borrower for a term at least ten years (unless otherwise provided in the related Prospectus Supplement) longer than the term of the related Mortgage Loan. Attached dwellings may include owner-occupied structures where each borrower owns the land upon which the unit is built, with the remaining adjacent land owned in common or dwelling units subject to a proprietary lease or occupancy agreement in a cooperatively owned apartment building. Unless otherwise specified in the related Prospectus Supplement, Mortgages on Cooperative Dwellings consist of a lien on the shares issued by such Cooperative Dwelling and the proprietary lease or occupancy agreement relating to such Cooperative Dwelling. The aggregate principal balance of Mortgage Loans secured by Mortgaged Properties that are owner-occupied will be disclosed in the related Prospectus Supplement. Unless otherwise specified in the Prospectus Supplement, the sole basis for a representation that a given percentage of the Mortgage Loans are secured by Mortgaged Property that is owner-occupied will be either (i) the making of a representation by the Mortgagor at origination of the Mortgage Loan either that the underlying Mortgaged Property will be used by the Mortgagor for a period of at least six months every year or that the Mortgagor intends to use the Mortgaged Property as a primary residence, or (ii) a finding that the address of the underlying Mortgaged Property is the Mortgagor's mailing address as reflected in the Servicer's records. To the extent specified in the related Prospectus Supplement, the Mortgaged Properties may include non-owner occupied investment properties and vacation and second homes. Unless otherwise specified in the related Prospectus Supplement, the initial Combined Loan-to-Value Ratio of a Mortgage Loan is computed in the manner described in the related Prospectus Supplement, taking into account the amounts of any related senior mortgage loans. Additional Information. The selection criteria which shall apply with respect to the Mortgage Loans for a Series, including, but not limited to, the Combined Loan-to-Value Ratios or Loan-to-Value Ratios, as applicable, original terms to maturity and delinquency information, will be specified in the related Prospectus Supplement. The Mortgage Loans for a Series may include Mortgage Loans that do not amortize their entire principal balance by their stated maturity in accordance with their terms and require a balloon payment of the remaining principal balance at maturity, as specified in the related Prospectus Supplement. As further described in the related Prospectus Supplement, the Mortgage Loans for a Series may include Mortgage Loans that do not have a specified stated maturity. The related Prospectus Supplement for each Series will provide information with respect to the Mortgage Loans as of the Cut-off Date, including, among other things, (a) the aggregate unpaid principal balance of the Mortgage Loans; (b) the range and weighted average Loan Rate on the Mortgage Loans and, in the case of adjustable rate Mortgage Loans, the range and weighted average of the current Loan Rates and the Lifetime Rate Caps, if any; (c) the range and average outstanding principal balance of the Mortgage Loans; (d) the weighted average original and remaining term-to-stated maturity of the Mortgage Loans and the range of original and remaining terms-to-stated maturity, if applicable; (e) the range and weighted average of Combined Loan-to-Value Ratios or Loan-to-Value Ratios for the Mortgage Loans, as applicable; (f) the percentage (by outstanding principal balance as of the Cut-off Date) of Mortgage Loans that accrue interest at adjustable or fixed interest rates; (g) any special hazard insurance policy or bankruptcy bond or other enhancement relating to the Mortgage Loans; (h) the geographic distribution of the Mortgaged Properties securing the Mortgage Loans; (i) the lien priority of the Mortgage Loans; (j) the credit limit utilization rate of the Mortgage Loans; and (k) the delinquency status and year 19 98 of origination of the Mortgage Loans. The related Prospectus Supplement will also specify any other limitations on the types or characteristics of Mortgage Loans for a Series. If information of the nature described above respecting the Mortgage Loans is not known to the Depositor at the time the Securities are initially offered, approximate or more general information of the nature described above will be provided in the Prospectus Supplement and additional information will be set forth in a Current Report on Form 8-K to be available to investors on the date of issuance of the related Series and to be filed with the Commission within 15 days after the initial issuance of such Securities. Collection and Distribution Accounts A separate Collection Account will be established by the Trustee or the Servicer, in the name of the Trustee, for each Series of Securities for receipt of the amount of cash, if any, specified in the related Prospectus Supplement to be initially deposited therein by the Depositor, all amounts received on or with respect to the Mortgage Loans and, unless otherwise specified in the related Prospectus Supplement, income earned thereon. Certain amounts on deposit in such Collection Account and certain amounts available pursuant to any Credit Enhancement, as provided in the related Prospectus Supplement, will be deposited in a related Distribution Account, which will also be established by the Trustee for each such Series of Securities, for distribution to the related Holders. Unless otherwise specified in the related Prospectus Supplement, the Trustee will invest the funds in the Collection and Distribution Accounts in Eligible Investments maturing, with certain exceptions, not later, in the case of funds in the Collection Account, than the day preceding the date such funds are due to be deposited in the Distribution Account or otherwise distributed and, in the case of funds in the Distribution Account, than the day preceding the next Distribution Date for the related Series of Securities. Eligible Investments include, among other investments, obligations of the United States and certain agencies thereof, federal funds, certificates of deposit, commercial paper, demand and time deposits and banker's acceptances, certain repurchase agreements of United States government securities and certain guaranteed investment contracts, in each case, acceptable to the Rating Agency. 20 99 CREDIT ENHANCEMENT If stated in the Prospectus Supplement relating to a Series of Securities, simultaneously with the assignment by the Depositor of the Mortgage Loans to the Trustee, the Depositor will obtain an irrevocable letter of credit, surety bond or insurance policy, issue Subordinate Securities or obtain any other form of enhancement or combination thereof (collectively, "Credit Enhancement") in favor of the Trustee on behalf of the holders of the related Series or designated Classes of such Series from an institution or by other means acceptable to the Rating Agency. The Credit Enhancement will support the payment of principal and interest on the Securities, and may be applied for certain other purposes to the extent and under the conditions set forth in such Prospectus Supplement. Credit Enhancement for a Series may include one or more of the following forms, or such other form as may be specified in the related Prospectus Supplement. If so specified in the related Prospectus Supplement, any of such Credit Enhancement may be structured so as to protect against losses relating to more than one Trust Fund, in the manner described therein. Subordinate Securities If specified in the related Prospectus Supplement, Credit Enhancement for a Series may consist of one or more Classes of Subordinate Securities. The rights of Holders of such Subordinate Securities to receive distributions on any Distribution Date will be subordinate in right and priority to the rights of Holders of Senior Securities of the Series, but only to the extent described in the related Prospectus Supplement. Financial Guaranty Insurance Policy If so specified in the related Prospectus Supplement, a financial guaranty insurance policy or surety bond (a "Securities Insurance Policy") may be obtained and maintained for a Class or Series of Securities. The issuer of the Securities Insurance Policy (the "Insurer") will be described in the related Prospectus Supplement and a copy of the form of Securities Insurance Policy will be filed with the related Current Report on Form 8-K. Unless otherwise specified in the related Prospectus Supplement, a Securities Insurance Policy will be unconditional and irrevocable and will guarantee to Holders of the applicable Securities that an amount equal to the full amount of distributions due to such Holders will be received by the Trustee or its agent on behalf of such Holders for distribution on each Payment Date. The specific terms of any Securities Insurance Policy will be set forth in the related Prospectus Supplement. A Securities Insurance Policy may have limitations and generally will not insure the obligation of the Depositors or any Originator to purchase or substitute for a defective Mortgage Loan and will not guarantee any specific rate of principal prepayments. Unless otherwise specified in the related Prospectus Supplement, the Insurer will be subrogated to the rights of each Holder to the extent the Insurer makes payments under the Securities Insurance Policy. Insurance If stated in the related Prospectus Supplement, Credit Enhancement for a Series may consist of special hazard insurance policies, bankruptcy bonds and other types of insurance relating to the Mortgage Loans, as described below and in the related Prospectus Supplement. Pool Insurance Policy. If so specified in the Prospectus Supplement relating to a Series of Securities, the Depositor will obtain a pool insurance policy for the Mortgage Loans in the related Trust Fund. The pool insurance policy will cover any loss (subject to the limitations described in a related Prospectus Supplement) by reason of default, but will not cover the portion of the principal balance of any Mortgage Loan that is required to be covered by any primary mortgage insurance policy. The amount and terms of any such coverage will be set forth in the related Prospectus Supplement. Special Hazard Insurance Policy. If so specified in the Prospectus Supplement relating to a Series of Securities, the Depositor will obtain a special hazard insurance policy for the Mortgage Loans in the related Trust Fund. Although the terms of such policies vary to some degree, a special hazard insurance policy typically provides that, where there has been damage to the Mortgaged Property securing a defaulted or foreclosed Mortgage Loan (title to which has been acquired by the insured) and to the extent such damage is not covered by the standard hazard 21 100 insurance policy or any flood insurance policy, if applicable, required to be maintained with respect to such Mortgaged Property, or in connection with partial loss resulting from the application of the coinsurance clause in a standard hazard insurance policy, the special hazard insurer will pay the lesser of (i) the cost of repair or replacement of such Mortgaged Property or (ii) upon transfer of such Mortgaged Property to the special hazard insurer, the unpaid principal balance of such Mortgage Loan at the time of acquisition of such Mortgaged Property by foreclosure or deed in lieu of foreclosure, plus accrued interest to the date of claim settlement and certain expenses incurred by the Servicer with respect to such Mortgaged Property. If the unpaid principal balance plus accrued interest and certain expenses is paid by the special hazard insurer, the amount of further coverage under the special hazard insurance policy will be reduced by such amount less any net proceeds from the sale of such Mortgaged Property. Any amount paid as the cost of repair of such Mortgaged Property will reduce coverage by such amount. Special hazard insurance policies typically do not cover losses occasioned by war, civil insurrection, certain governmental actions, errors in design, faulty workmanship or materials (except under certain circumstances), nuclear reaction, flood (if the Mortgaged Property is in a federally designated flood area), chemical contamination and certain other risks. Restoration of the Mortgaged Property with the proceeds described under (i) above is expected to satisfy the condition under any pool insurance policy that such Mortgaged Property be restored before a claim under such pool insurance policy may be validly presented with respect to the defaulted Mortgage Loan secured by such Mortgaged Property. The payment described under (ii) above will render unnecessary presentation of a claim in respect of such Mortgage Loan under any pool insurance policy. Therefore, so long as such pool insurance policy remains in effect, the payment by the special hazard insurer of the cost of repair or of the unpaid principal balance of the related Mortgage Loan plus accrued interest and certain expenses will not affect the total insurance proceeds paid to Holders of the Securities, but will affect the relative amounts of coverage remaining under the special hazard insurance policy and pool insurance policy. Bankruptcy Bond. In the event of a bankruptcy of a borrower, the bankruptcy court may establish the value of the Mortgaged Property securing the related Mortgage Loan at an amount less than the then outstanding principal balance of such Mortgage Loan. The amount of the secured debt could be reduced to such value, and the holder of such Mortgage Loan thus would become an unsecured creditor to the extent the outstanding principal balance of such Mortgage Loan exceeds the value so assigned to the Mortgaged Property by the bankruptcy court. In addition, certain other modifications of the terms of a Mortgage Loan can result from a bankruptcy proceeding. See "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS." If so provided in the related Prospectus Supplement, the Depositor or other entity, specified in the related Prospectus Supplement will obtain a bankruptcy bond or similar insurance contract (the "bankruptcy bond") covering losses resulting from proceedings with respect to borrowers under the Bankruptcy Code. The bankruptcy bond will cover certain losses resulting from a reduction by a bankruptcy court of scheduled payments of principal of and interest on a Mortgage Loan or a reduction by such court of the principal amount of a Mortgage Loan and will cover certain unpaid interest on the amount of such a principal reduction from the date of the filing of a bankruptcy petition. The bankruptcy bond will provide coverage in the aggregate amount specified in the related Prospectus Supplement for all Mortgage Loans in the Trust Fund for such Series. Such amount will be reduced by payments made under such bankruptcy bond in respect of such Mortgage Loans, unless otherwise specified in the related Prospectus Supplement, and will not be restored. Reserve Funds If so specified in the Prospectus Supplement relating to a Series of Securities, the Depositor will deposit into one or more funds to be established with the Trustee as part of the Trust Fund for such Series or for the benefit of any Enhancer with respect to such Series (the "Reserve Funds") cash, a letter or letters of credit, cash collateral accounts, Eligible Investments, or other instruments meeting the criteria of each Rating Agency rating any Series of the Securities in the amount specified in such Prospectus Supplement. In the alternative or in addition to such deposit, a Reserve Fund for a Series may be funded over time through application of all or a portion of the excess cash flow from the Mortgage Loans for such Series, to the extent described in the related Prospectus Supplement. If applicable, the initial amount of the Reserve Fund and the Reserve Fund maintenance requirements for a Series of Securities will be described in the related Prospectus Supplement. 22 101 Amounts withdrawn from any Reserve Fund will be applied by the Trustee to make payments on the Securities of a Series, to pay expenses, to reimburse any Enhancer or for any other purpose, in the manner and to the extent specified in the related Prospectus Supplement. Amounts deposited in a Reserve Fund will be invested by the Trustee, in Eligible Investments maturing no later than the day specified in the related Prospectus Supplement. Overcollateralization If so specified in the related Prospectus Supplement, Credit Enhancement may be provided by overcollateralization created by the application of a portion of interest collections to the payment of principal of the related Securities or otherwise. The reduction of the principal balance of the Securities relative to the outstanding balance of the underlying Mortgage Loans creates overcollateralization and provides additional protection to the Holders of such Securities. Other Credit Enhancement Credit enhancement may also be provided for a Series of Securities in the form of overcollateralization, surety bond, insurance policy or other type of credit enhancement approved by the applicable Rating Agencies to cover one or more risks with respect to the Mortgage Loans or the Securities, as specified in the related Prospectus Supplement. THE DEPOSITOR, THE SERVICER AND THE ORIGINATORS General The Depositor was incorporated in the State of Ohio on May 7, 1996 for the limited purpose of purchasing mortgage loans, automobile loans and other receivables, transferring such loans or receivables to third parties, forming trusts and engaging in related activities. All of the outstanding common stock of the Depositor is owned by BANC ONE. The Banc One Consumer Lending Division Home Equity Program BANC ONE, through its affiliated Banks, has originated variable rate home equity revolving lines of credit since the early 1980's. During the past several years BANC ONE has undertaken a transition from managing its business activities at the affiliate (legal entity) level to centralized management of such business activities by nationally focused lines of business. As part of this transition, all home equity lending originated directly with consumers was centralized in early 1997 and is currently managed by the Banc One Retail Group's Consumer Lending Division ("Consumer Lending"). Consumer Lending has created national business units including marketing, product management, risk management, credit underwriting, loan servicing and collections to manage its credit related activities. To the extent material, the related Prospectus Supplement will specify the amount of outstanding home equity revolving lines of credit and home equity loans managed by Consumer Lending. Home Equity Lines of Credit Home equity lines of credit ("HELOCs") consist of variable or fixed rate, open-ended, revolving lines of credit secured by a lien position against the available equity of a borrower's related residential real estate Mortgaged Property. A borrower may draw on a HELOC by writing a check, telephoning a customer service representative and requesting funds to be transferred to a pre-authorized depository account, requesting a cashier's check at a BANC ONE banking center, or, with respect to certain HELOCs, credit card purchase authorization. HELOCs originated by Consumer Lending are secured by a lien on the related Mortgaged Property subject to maximum loan-to-value ("LTV") limitations. Currently, Consumer Lending offers its customers credit lines that allow them to borrow against the value of the real estate up to either an 80% LTV (Option 1) or a 100% LTV (Option 2) limit. The contractual term of a HELOC consists of a revolving open-ended period (the "Draw Period"), during which borrowings may be made periodically, and a period during which the contract converts to a fixed payment, variable rate, amortizing closed-ended loan (the "Repayment Period"). The contractual term of the Draw Period is based upon the LTV provided by the HELOC loan agreement. For Mortgage Loans with LTVs equal to or 23 102 less than 80%, the Draw and Repayment Periods are 10 years and 10 years, respectively. For Mortgage Loans with LTVs greater than 80% and less than or equal to 100%, the Draw and Repayment Periods are 5 years and 10 years, respectively. Draw periods may, at the election of Consumer Lending, be extended. During the Draw Period, the required minimum monthly payment is equal to the greater of: i) 1% of the outstanding balance; ii) $100.00; or iii) the interest accrued plus any annual fee assessments, late charges, administrative charges, and credit or other insurance charges ("Assessed Fees"). At the beginning of the Repayment Period, the required monthly payment is calculated based on principal, interest, and Assessed Fees related to the amortization of the outstanding balance due using the APR. Although the monthly amount due will remain constant throughout the repayment period, the number of monthly payments can either increase or decrease according to fluctuations in the variable annual percentage rate and Assessed Fees. Payments are applied to a customer's account first to interest, then to principal due, and then to Assessed Fees. Accounts are generally identified as delinquent when less than 90% of the required payment is remitted to the servicing agent. Consumer Lending customers have several channels through which payments can be made to their account including i) payment by check to lockbox remittance processing centers, ii) payments by check submitted to tellers at the local BANC ONE banking center, iii) automated debits to pre-authorized depository accounts, and iv) automated teller machines. Interest rates for HELOCs are established at a product level and are the responsibility of a national pricing committee of Consumer Lending. Factors considered in the price setting process include, among other things, targeted product profitability and related returns, market competition, market penetration, trends in market interest rates, and potential credit losses. Pricing tiers are based on credit/bureau scoring techniques and the balance size of the account being originated. This accommodates setting prices based on credit risk characteristics ("risk-adjusted pricing") and the cost to acquire new customers. Consistent with industry practice, Consumer Lending utilizes introductory offerings including interest rates ("Promo Rates") and waiving closing costs to acquire new accounts. Promo rates are occasionally offered by Consumer Lending, which may either be a variable introductory discount or fixed introductory rate. The term of a Promo Rate may range from 1 to 12 months; however, the majority of Promo Rates are offered for 6 months beginning at the inception of the Mortgage Loan. In general, HELOCs bear interest at a variable rate and generally are subject to a maximum per annum interest rate of between 18% to 25%, depending upon governing state laws. The interest rate on all HELOCs originated after April 1,1997 adjusts monthly. The daily periodic rate is 1/365th (1/366th in the case of leap years) of the APR, which represents the sum of a contractual defined index (the "Index") plus a fixed percentage specified in the related Agreement (the "Gross Margin"). Interest is calculated at a rate applied to the daily balance of the account for each day of the billing cycle (the "Loan Rate"). The index for all loans originated after April 1, 1997 is the average weekly Bank Prime Loan Rate as published by the Board of Governors of the Federal Reserve System (the "Index"). When a variable introductory discount ("Promo Discount") is offered, the Promo Rate is equal to the Loan Rate less the Promo Discount. The HELOCs may permit the customer to convert either the entire outstanding balance due or any portion thereof, to a fixed rate closed-end loan ("Lock Feature"). The Lock Feature, if any, may be exercised during the Draw Period, subject to certain limitations. The Lock Feature allows for a repayment schedule of up to but not exceeding 10 years. When the Lock Feature is exercised, the utilized portion of the HELOC credit line is equal to the amortizing "locked" principal balance plus the revolving principal balance, the combination of which can not exceed the established credit limit under the loan. Product Management & Marketing Activities The Mortgage Loans were or will be originated by one or more of the Sellers (managed by Consumer Lending) utilizing a variety of marketing strategies and product delivery channels. Product management and marketing activities are conducted on a national level, with adjustments in response to local market competitive offerings and pricing practices as reported by field marketing managers and the banking center network. Marketing strategies are developed on an annual basis and may include a combination of television, radio, newspaper and outdoor media, direct mailings to existing and prospective customers, banking center merchandising and other sales supporting tools. Consumer Lending also develops various types of promotions to activate accounts or increase utilization, including special balance transfer offers, sweepstakes, promotional Lock Feature rates and related 24 103 programs. Loans may be originated through BANC ONE's banking center distribution network or Consumer Lending's Loan-by-Phone ("LBP") call centers. LBP centers are located in Milwaukee, Wisconsin, Houston, Texas, and Tempe, Arizona, and are intended to provide sales and service to Consumer Lending's customers, utilizing technology and scoring techniques to reduce turnaround time to approve applications, expedite processing and provide convenient customer-oriented closings. Additionally, Consumer Lending may originate HELOCs within the banking center distribution network or as part of a national equity lending program throughout the United States. Additionally, Consumer Lending may utilize a variety of brand names to promote its HELOC products, including Bank One or First USA. Underwriting HELOCs originated through Consumer Lending are subject to standardized underwriting criteria and approval processes. HELOCs are underwritten at a minimum of $5,001 up to $250,000, with LTVs up to 100%. Single family residences may be financed up to 100% LTV; attached single family (condo, townhouse, patio homes) residences may be financed up to 70% LTV; mobile homes and lots may be financed up to 80% LTV if the mobile homes are permanently affixed to the Mortgaged Property; and second homes may be financed up to 70% LTV. HELOCs are not available on any non-owner occupied properties or owner-occupied 2-4 family properties. Generally all HELOCs are in a second lien position; however, some non-purchase first position liens and third positions may exist. All third lien positions are reviewed by a senior lender. Each applicant for a HELOC is required to complete an application, which generally lists the applicant's mortgage liabilities, income, employment history and other demographic and personal information. A customer may submit an application through one of several distribution channels such as with a relationship banker at a local banking center, telephoning a LBP call center, or telephoning a customer service representative at a teleservicing center. If the application indicates sufficient income and equity in the related real estate Mortgaged Property to justify extending a HELOC, a further credit investigation will be conducted. This investigation is part of Consumer Lending's underwriting activities managed by Consumer Lending's Credit Services unit and performed at one of three processing sites located in Milwaukee, Wisconsin, Houston, Texas, or Tempe, Arizona, utilizing policies developed and monitored jointly with Consumer Lending's Risk Management group. The credit approval process utilizes credit scoring and related techniques and subjective assessments by experienced underwriters. Underwriters analyze the equity position of the requested loan (including both the priority of the lien and the combined loan-to-value ratio) and the applicant's creditworthiness. The evaluation of creditworthiness is designed to assess the applicant's ability and willingness to repay the loan. This evaluation primarily consists of (i) reviewing and verifying customer and demographic information; (ii) obtaining and reviewing an independent credit bureau report; (iii) reviewing the applicant's credit bureau score and, if applicable, a BANC ONE proprietary custom credit score; (iv) reviewing and verifying the applicant's employment and reported income through a review of recent W-2's, pay stubs or telephone verification by the applicant's current employer or assessments of tax returns and financial statements; (v) evaluating the applicant's gross debt to income ratio; (vi) reviewing the title status either by a written title search or insured title policy to ensure that all liens (including Mortgaged Property taxes), except for senior liens, are paid off prior to or at time of settlement of the loan; (vii) obtaining and evaluating the value of the real estate through independent appraisals or valuations; and (viii) evaluating flood risk and verifying flood insurance coverage, if applicable. Credit bureau information is reviewed for minimum acceptable credit scores and consistent record of timely payments and to identify any major negative events such as bankruptcy, repossession, foreclosure or a delinquency of greater than 90 days, that have occurred within the past 5 years. Minimum acceptable credit bureau scores are established by state through an on-going risk management and credit scoring process. Applicants with a recent negative event may be eligible for an exception, but any loans made pursuant to such exception are limited to a maximum LTV of 80%. In some regions, a custom scorecard is used in addition to credit bureau reports. Each area or region may have different cutoffs based on specific data or market indicators determined through risk analysis. The existing credit scoring process and related scorecards are reviewed on a regular basis. Beginning in April 1998 and staggered in phases thereafter, a national scorecard will be implemented, standardizing the data gathering and assigning scores. Each applicant is assigned a grade or tier based on their score(s) and associated risk. Most policies are linked to the tiers as a risk factor. Beginning in 1998, Consumer Lending implemented processes allowing certain applicants to receive final loan approval through expedited real estate appraisal, income, title searches and other related verifications 25 104 ("FASTRAC"). FASTRAC applications are identified during the initial process based on the completeness of documentation provided with the application. Although subject to all of the policies, procedures and authorization controls required by Consumer Lending underwriting standards, the process is intended to improve turnaround and overall customer service. The extent of required income verification is determined based on an applicant's assessed credit risk, loan amount, whether or not self-employed, and the extent of unearned income. If salaried, income is verified through W-2's or current pay stubs. For applicants with superior credit risk assessments (Tier A1), income is verified if the requested amount exceeds $250,000. Income verification is required for requests greater than $50,000 when an applicant's credit risk assessment meets pre-defined score cutoffs (Tier A2 or A3). Income for all other applicants is verified (Tier A4 or below). If unearned income is greater than 50% of declared income or if the source of income is self-employment and the requested loan amount exceeds $20,000, current year-to-date and two previous year's financial statements, accompanied by federal tax returns, are required. A gross debt to income ratio test is applied to each applicant by dividing the applicant's monthly payments on all existing obligations, including the proposed HELOC payment (based on a fully funded balance), by the applicant's gross monthly income. Maximum ratios are assigned by tier as follows: 55% (Tier A1); 50% (Tier A2); 45% (Tier A3); and 40% (Tier A4). Valuation methods are based upon the amount requested by the applicant and the expected loan-to-value ratio ("LTV"). Appraisal values are generally determined in one of several methods: (i) an appraisal completed on Fannie Mae ("FNMA") form 1004 ("Uniform Residential Appraisal Request" or "URAR"), consisting of a complete inspection by a qualified appraiser which is usually performed if the amount of the HELOC requested by the applicant is greater than $ 100,000 with an LTV of greater than 80% or for any HELOC if the amount requested is greater than $250,000 or is secured by certain types of Mortgaged Property, (ii) by reference to the assessed value of the related real estate Mortgaged Property shown on the tax records of applicable governing units, if the Mortgaged Property is located in a county and State in which Consumer Lending, in its discretion, has determined is a reliable indicator of the appraised value of the Mortgaged Property, (iii) a "drive-by" appraisal, completed on Freddie Mac ("FHLMC") form 704, consisting of an evaluation of comparable properties on the basis of a visual inspection of the exterior of the related real estate Mortgaged Property, (iv) a broker's opinion of value or HUD-1 Settlement Statement that are less than 12 months old; or (v) through automated appraisal techniques utilizing pre-approved national vendors to validate and verify valuations of the related real estate properties. To qualify for automated appraisals, the requested loan amount must be less than $100,000 and meet certain criteria, including Mortgaged Property type classification. A title search is performed covering at least the period from the conveyance of the related real estate Mortgaged Property to the applicant from the last owner before the applicant. A full title search may be requested depending upon the size of the amount requested by the applicant. Title insurance is not required to be obtained by the borrower unless title defects are identified or the requested loan amount exceeds $150,000. An insured title policy (ALTA policy or its equivalent) which insures title for both lender and owner is required on newly constructed homes less than six months old on which the lien will be in first position and on all purchase money transactions. Consumer Lending requires a flood determination on all improved Mortgaged Property. Flood insurance, with the appropriate Affiliated Bank named as loss payee, is required on all properties located in a Special Flood Hazard Area as determined by the Federal Emergency Management Agency (FEMA), in an amount at least equal to the lesser of the total encumbrances up to the maximum allowed under the National Flood Insurance Program (NFIP), or replacement coverage or value of the dwelling and improvements as defined by the evaluation method used. Proof of flood insurance is required by providing either a copy of the existing flood insurance policy or a copy of the application for flood insurance and related proof of payment. Any Mortgaged Property located in a flood zone is monitored until maturity. In addition, adequate fire and casualty insurance coverage is required on all dwellings and structural improvements with the appropriate Affiliated Bank named as loss payee on all policies. The minimum coverage is the lesser of total encumbrances or replacement coverage, or value of the dwelling and improvements. No HELOC may close without a properly completed agreement to provide insurance coverage. Verbal confirmation from the agent is required. Once verification has taken place, no additional monitoring or forced placement is performed. 26 105 Consumer Lending has implemented an internal quality control process to ensure adherence to policies and underwriting standards. The quality control process includes self-audits of underwriting decisions, real estate verification processes, documentation and other activities on samples of applications and approved loans. Credit policy exceptions are monitored regularly by senior management of Credit Services and Consumer Lending, as appropriate. Mortgage Loan Servicing As part of BANC ONE's transition from managing its business activities on an Affiliate (legal entity) level to centralized, nationally focused, lines of business, loan servicing activities were consolidated and centralized. Consumer Lending continues to standardize and redesign operational processes to improve customer service and internal controls. HELOCs are serviced by one of four regional processing centers operated by Banc One Services Corporation ("BOSC"), a wholly-owned subsidiary of BANC ONE, and located in Louisville and Lexington, Kentucky; Fort Worth, Texas; and Mesa, Arizona. BOSC carries out loan servicing operations for most BANC ONE subsidiaries under various servicing contracts between BOSC and the applicable subsidiary. Consumer Lending's Loan Servicing unit ("Custodial Operations") is currently responsible for management of the processing centers. Custodial Operations has established practices and procedures governing the servicing of owned and serviced accounts related to: funding and recordation of originated loans, note and collateral documentation, filing verification and control, statement and payment processing and preparation of tax related information. Billing statements are mailed monthly which detail an account credit limit, loan balance, interest rate applied, payment due date, minimum payment amount, past due amounts, interest rate changes, and the available credit line. Customers may utilize several payment methods such as by submitting checks to a lock-box located at one of the loan processing centers; submitting checks to a teller at a local banking center; pre-authorized automated debit from a depository account; wire transfers; or automated teller machines. Collections/Portfolio Management Collections of HELOCs originated by Consumer Lending through the Affiliated Banks is centrally managed by Consumer Lending's Portfolio Asset Management unit ("PAM") at three collection sites located in Akron, Ohio, Waukesha, Wisconsin and Tempe, Arizona. While the collection sites are managed by Consumer Lending, they are currently owned by each of Bank One, N.A., Bank One Wisconsin, and Bank One, Arizona, N.A., respectively. Collection management for receivables originated by Bank One, N.A. and its predecessor banks located in the state of Ohio are provided by Bank One, N.A. During the period from mid-1995 through early-1997, the collections functions for HELOCs originated by the Ohio banks was transferred to Bank One, N.A. Bank One, Wisconsin currently performs collections functions for HELOCs originated by Bank One, Wisconsin and its predecessor banks located in the state of Wisconsin, HELOCs originated by Bank One, Indiana, N.A. and its predecessor banks located in the state of Indiana, HELOCs originated by Bank One, Illinois, N.A. and its predecessor banks located in the state of Illinois, HELOCs originated by Bank One, Kentucky, N.A. and its predecessor banks located in the state of Kentucky and HELOCs originated by Bank One, Louisiana, N.A. and its predecessor banks located in the state of Louisiana. During the period from late 1995 through early 1998, the collections functions of the HELOCs originated by these Wisconsin, Indiana, Illinois, Kentucky and Louisiana banks was transferred to Bank One, Wisconsin. Bank One, Arizona, N.A. currently performs collections functions for HELOCs originated by Bank One, Arizona, N.A. and its predecessor banks located in the state of Arizona, HELOCs originated by Bank One, Oklahoma, N.A. and its predecessor banks located in the state of Oklahoma, HELOCs originated by Bank One, Utah, N.A. and its predecessor banks located in the state of Utah, HELOCs originated by Bank One, Colorado, N.A. and its predecessor banks located in the state of Colorado, and HELOCs originated by Bank One, Texas, N.A. and its predecessor banks located in the State of Texas. During 1997, the collections functions of HELOCs originated by the Arizona, Oklahoma, Utah, Colorado and Texas banks was transferred to Bank One, Arizona, N.A. The transfers of collection management functions are substantially complete. In addition, BANC ONE and its affiliates from time to time may acquire portfolios, which may be serviced by one of these affiliates. Although Consumer Lending does not contemplate any servicing disruptions developing as a result of these acquisitions, there can be no assurance that such interruptions will not occur. 27 106 The PAM has established standard policies governing the collection of owned and serviced loans. Collections management primarily includes the supervision of delinquent loans, loss mitigation efforts, foreclosure proceedings and, if applicable, the disposition of mortgaged properties. The PAM utilizes a variety of collections management programs and tools to monitor and collect delinquent accounts, mitigate account losses, and recover assets previously written off. Account monitoring begins once an account becomes past due. Collection efforts for delinquent accounts are initiated based on behavioral and credit risk scoring. PAM uses the Triad Collection Activity Prioritization System (the "Triad System") to manage the timing and extent of collection efforts. The Triad System uses customer and account information to define a variety of effective and efficient collection strategies by stratifying delinquent accounts as low, medium or high risk based on payment history, product type, and other account characteristics. Consumer Lending's policy is to suspend drawing privileges on overdue loans when collection efforts are initiated. Draw privileges are permanently suspended once an account becomes 60 days delinquent. Permanently suspended draw privileges may be reinstated with management approval. In accordance with industry practice, the Custodial Operations reports accounts that are 30 days past due to the credit reporting bureaus. During the period when the loan is 45 to 59 days delinquent, Consumer Lending sends notice of default informing the borrower of intent to initiate foreclosure proceedings on the Mortgaged Property within certain timeframes as allowed by law. Senior lien holders, if any, may be contacted to determine the status of those liens. Broker's price opinions, appraisals, and Mortgaged Property inspections may be conducted once an account reaches 60 days past due. When the notice of default to the borrower expires, the PAM determines whether to initiate foreclosure proceedings. Analyses are performed and, at 90 days past due, foreclosure proceedings are initiated, if appropriate. If accounts are determined to be collectable, collection managers may delay foreclosure proceedings. 28 107 SERVICING OF MORTGAGE LOANS General Customary servicing functions with respect to Mortgage Loans comprising the Mortgage Loans in the Trust Fund will be provided by the Servicer directly pursuant to the related Servicing Agreement or Pooling and Servicing Agreement, as the case may be, with respect to a Series of Securities. Collection Procedures; Escrow Accounts The Servicer will make reasonable efforts to collect all payments required to be made under the Mortgage Loans and will, consistent with the terms of the related Agreement for a Series and any applicable Credit Enhancement, follow such collection procedures as it follows with respect to comparable loans held in its own portfolio. Consistent with the above, the Servicer may, in its discretion, (i) waive any assumption fee, late payment charge, or other charge in connection with a Mortgage Loan and (ii) to the extent provided in the related HELOC agreement, arrange with an obligor a schedule for the liquidation of delinquencies by extending the Due Dates for Scheduled Payments on such Mortgage Loan. If specified in the related Prospectus Supplement, the Servicer, to the extent permitted by law, will establish and maintain escrow or impound accounts ("Escrow Accounts") with respect to Mortgage Loans in which payments by obligors to pay taxes, assessments, mortgage and hazard insurance premiums, and other comparable items will be deposited. Mortgage Loans may not require such payments under the loan related documents, in which case the Servicer would not be required to establish any Escrow Account with respect to such Mortgage Loans. Withdrawals from the Escrow Accounts are to be made to effect timely payment of taxes, assessments and mortgage and hazard insurance, to refund to obligors amounts determined to be overages, to pay interest to obligors on balances in the Escrow Account to the extent required by law, to repair or otherwise protect the Mortgaged Property securing the related Mortgage Loan and to clear and terminate such Escrow Account. The Servicer will be responsible for the administration of the Escrow Accounts and generally will make advances to such account when a deficiency exists therein. Deposits to and Withdrawals from the Collection Account Unless otherwise specified in the related Prospectus Supplement, the Trustee or the Servicer will establish a separate account (the "Collection Account") in the name of the Trustee. Unless otherwise indicated in the related Prospectus Supplement, the Collection Account will be an account maintained (i) at a depository institution, the unsecured debt obligations of which at the time of any deposit therein are rated by each Rating Agency rating the Securities of such Series at levels satisfactory to each Rating Agency or (ii) in an account or accounts the deposits in which are insured to the maximum extent available by the FDIC or which are secured in a manner meeting requirements established by each Rating Agency. Unless otherwise specified in the related Prospectus Supplement, the funds held in the Collection Account may be invested, pending remittance to the Trustee, in Eligible Investments. If so specified in the related Prospectus Supplement, the Servicer will be entitled to receive as additional compensation any interest or other income earned on funds in the Collection Account. Unless otherwise specified in the related Prospectus Supplement, the Servicer, the Depositor, the Trustee or the applicable Seller, as appropriate, will deposit into the Collection Account for each Series on the Business Day following the Closing Date any amounts representing Scheduled Payments due after the related Cut-off Date but received by the Servicer on or before the Closing Date, and thereafter, within two business days after the date of receipt thereof, the following payments and collections received or made by it (other than, unless otherwise provided in the related Prospectus Supplement, in respect of principal of and interest on the related Mortgage Loans due on or before such Cut-off Date): (i) All payments on account of principal, including prepayments, on such Mortgage Loans; (ii) All payments on account of interest on such Mortgage Loans after deducting therefrom, at the discretion of the Servicer but only to the extent of the amount permitted to be withdrawn or withheld 29 108 from the Collection Account in accordance with the related Agreement, the Servicing Fee in respect of such Mortgage Loans; (iii) All amounts received by the Servicer in connection with the liquidation of Mortgage Loans or Mortgaged Property acquired in respect thereof, whether through foreclosure sale, repossession or otherwise, including payments in connection with such Mortgage Loans received from the obligor, other than amounts required to be paid or refunded to the obligor pursuant to the terms of the applicable loan documents or otherwise pursuant to law ("Liquidation Proceeds"), exclusive of, in the discretion of the Servicer, but only to the extent of the amount permitted to be withdrawn from the Collection Account in accordance with the related Agreement, the Servicing Fee, if any, in respect of the related Primary Asset; (iv) All proceeds under any title insurance, hazard insurance or other insurance policy covering any Mortgage Loan, other than proceeds to be applied to the restoration or repair of the related Mortgaged Property or released to the obligor in accordance with the related Agreement; (v) All amounts required to be deposited therein from any applicable Reserve Fund for such Series pursuant to the related Agreement; (vi) All Advances made by the Servicer required pursuant to the related Agreement; and (vii) All repurchase prices of any such Mortgage Loans purchased or repurchased by the Depositor, the Servicer or the Seller pursuant to the related Agreement. Unless otherwise specified in the related Prospectus Supplement, the Servicer is permitted, from time to time, to make withdrawals from the Collection Account for each Series for the following purposes: (i) to reimburse itself for Advances for such Series made by it pursuant to the related Agreement; the Servicer's right to reimburse itself is limited to amounts received on or in respect of particular Mortgage Loans (including, for this purpose, Liquidation Proceeds and amounts representing proceeds of insurance policies covering the related Mortgaged Property) which represent late recoveries of Scheduled Payments respecting which any such Advance was made; (ii) to the extent provided in the related Agreement, to reimburse itself for any Advances for such Series that the Servicer determines in good faith it will be unable to recover from amounts representing late recoveries of Scheduled Payments respecting which such Advance was made or from Liquidation Proceeds or the proceeds of insurance policies; (iii) to reimburse itself from Liquidation Proceeds for liquidation expenses and for amounts expended by it in good faith in connection with the restoration of damaged Mortgaged Property and, in the event deposited in the Collection Account and not previously withheld, and to the extent that Liquidation Proceeds after such reimbursement exceed the outstanding principal balance of the related Mortgage Loan, together with accrued and unpaid interest thereon to the Due Date for such Mortgage Loan next succeeding the date of its receipt of such Liquidation Proceeds, to pay to itself out of such excess the amount of any unpaid Servicing Fee and any assumption fees, late payment charges, or other charges on the related Mortgage Loan; (iv) if it has elected not to pay itself the Servicing Fee out of the interest component of any Scheduled Payment, late payment or other recovery with respect to a particular Mortgage Loan prior to the deposit of such Scheduled Payment, late payment or recovery into the Collection Account, to pay to itself the Servicing Fee, as adjusted pursuant to the related Agreement, from any such Scheduled Payment, late payment or such other recovery, to the extent permitted by the related Agreement; (v) to reimburse itself for expenses incurred by and recoverable by or reimbursable to it pursuant to the related Agreement; (vi) to pay to the applicable person with respect to each Mortgage Loan or REO Mortgaged Property acquired in respect thereof that has been repurchased or removed from the Trust Fund by the Depositor, the Servicer or the Seller pursuant to the related Agreement, all amounts received thereon and not distributed as of the date on which the related repurchase price was determined; 30 109 (vii) to make payments to the Trustee of such Series for deposit into the Distribution Account, if any, or for remittance to the Holders of such Series in the amounts and in the manner provided for in the related Agreement; and (viii) to clear and terminate the Collection Account pursuant to the related Agreement. In addition, if the Servicer deposits in the Collection Account for a Series any amount not required to be deposited therein, it may, at any time, withdraw such amount from such Collection Account. Advances and Limitations Thereon The related Prospectus Supplement will describe the circumstances, if any, under which the Servicer will make Advances with respect to delinquent payments on Mortgage Loans. If specified in the related Prospectus Supplement, the Servicer will be obligated to make Advances, and such obligations may be limited in amount, or may not be activated until a certain portion of a specified Reserve Fund is depleted. Advances are intended to provide liquidity and, except to the extent specified in the related Prospectus Supplement, not to guarantee or insure against losses. Accordingly, any funds advanced are recoverable by the Servicer out of amounts received on particular Mortgage Loans which represent late recoveries of principal or interest, proceeds of insurance policies or Liquidation Proceeds respecting which any such Advance was made. If an Advance is made and subsequently determined to be nonrecoverable from late collections, proceeds of insurance policies, or Liquidation Proceeds from the related Mortgage Loan, the Servicer may be entitled to reimbursement from other funds in the Collection Account or Distribution Account, as the case may be, or from a specified Reserve Fund, as applicable, to the extent specified in the related Prospectus Supplement. Maintenance of Insurance Policies and Other Servicing Procedures Standard Hazard Insurance; Flood Insurance. Except as otherwise specified in the related Prospectus Supplement, the Servicer will be required to maintain or to cause the obligor on each Mortgage Loan to maintain a standard hazard insurance policy providing coverage of the standard form of fire insurance with extended coverage for certain other hazards as is customary in the state in which the related Mortgaged Property is located. The standard hazard insurance policies will provide for coverage at least equal to the applicable state standard form of fire insurance policy with extended coverage for Mortgaged Property of the type securing the related Mortgage Loans. In general, the standard form of fire and extended coverage policy will cover physical damage to, or destruction of, the related Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil commotion, subject to the conditions and exclusions particularized in each policy. Because the standard hazard insurance policies relating to the Mortgage Loans will be underwritten by different hazard insurers and will cover Properties located in various states, such policies will not contain identical terms and conditions. The basic terms, however, generally will be determined by state law and generally will be similar. Most such policies typically will not cover any physical damage resulting from war, revolution, governmental actions, floods and other water-related causes, earth movement (including earthquakes, landslides, and mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or domestic animals, theft and, in certain cases, vandalism. The foregoing list is merely indicative of certain kinds of uninsured risks and is not intended to be all inclusive. Uninsured risks not covered by a special hazard insurance policy or other form of Credit Enhancement may adversely affect distributions to Holders. When a Mortgaged Property securing a Mortgage Loan is located in a flood area identified by HUD pursuant to the Flood Disaster Protection Act of 1973, as amended, the Servicer will be required to cause flood insurance to be maintained with respect to such Mortgaged Property, to the extent available. The standard hazard insurance policies covering Properties securing Mortgage Loans typically will contain a coinsurance clause which, in effect, will require the insured at all times to carry hazard insurance of a specified percentage (generally 80% to 90%) of the full replacement value of the Mortgaged Property, including the improvements on any Mortgaged Property, in order to recover the full amount of any partial loss. If the insured's coverage falls below this specified percentage, such clause will provide that the hazard insurer's liability in the event of partial loss will not exceed the greater of (i) the actual cash value (the replacement cost less physical depreciation) of the Mortgaged Property, including the improvements, if any, damaged or destroyed or (ii) such proportion of the loss, without deduction for depreciation, as the amount of insurance carried bears to the specified percentage of the full replacement cost of such Mortgaged Property and improvements. Since the amount of hazard insurance to be maintained on the improvements securing the Mortgage Loans declines as the principal balances owing thereon decrease, and since the value of the Properties will fluctuate in value over time, the effect of this requirement in the 31 110 event of partial loss may be that hazard insurance proceeds will be insufficient to restore fully the damage to the affected Mortgaged Property. Unless otherwise specified in the related Prospectus Supplement, coverage will be in an amount at least equal to the greater of (i) the amount necessary to avoid the enforcement of any co-insurance clause contained in the policy or (ii) the outstanding principal balance of the related Mortgage Loan. Unless otherwise specified in the related Prospectus Supplement, the Servicer will also maintain on REO Mortgaged Property that secured a defaulted Mortgage Loan and that has been acquired upon foreclosure, deed in lieu of foreclosure, or repossession, a standard hazard insurance policy in an amount that is at least equal to the maximum insurable value of such REO Mortgaged Property. No earthquake or other additional insurance will be required of any obligor or will be maintained on REO Mortgaged Property acquired in respect of a defaulted Mortgage Loan, other than pursuant to such applicable laws and regulations as shall at any time be in force and shall require such additional insurance. Any amounts collected by the Servicer under any such policies of insurance (other than amounts to be applied to the restoration or repair of the Mortgaged Property, released to the obligor in accordance with normal servicing procedures or used to reimburse the Servicer for amounts to which it is entitled to reimbursement) will be deposited in the Collection Account. In the event that the Servicer obtains and maintains a blanket policy insuring against hazard losses on all of the Mortgage Loans, written by an insurer then acceptable to each Rating Agency which assigns a rating to such Series, it will conclusively be deemed to have satisfied its obligations to cause to be maintained a standard hazard insurance policy for each Mortgage Loan or related REO Mortgaged Property. This blanket policy may contain a deductible clause, in which case the Servicer will, in the event that there has been a loss that would have been covered by such policy absent such deductible clause, deposit in the Collection Account the amount not otherwise payable under the blanket policy because of the application of such deductible clause. Realization Upon Defaulted Mortgage Loans The Servicer will use its reasonable best efforts to foreclose upon, repossess or otherwise comparably convert the ownership of the Properties securing the related Mortgage Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments. In connection with such foreclosure or other conversion, the Servicer will follow such practices and procedures as it deems necessary or advisable and as are normal and usual in its servicing activities with respect to comparable loans serviced by it. However, the Servicer will not be required to expend its own funds in connection with any foreclosure or towards the restoration of any Mortgaged Property unless it determines that: (i) such restoration or foreclosure will increase the Liquidation Proceeds in respect of the related Mortgage Loan available to the Holders after reimbursement to itself for such expenses and (ii) such expenses will be recoverable by it either through Liquidation Proceeds or the proceeds of insurance. While the holder of a Mortgaged Property acquired through foreclosure can often maximize its recovery by providing financing to a new purchaser, the Trust Fund, if applicable, will have no ability to do so and neither the Servicer nor the Depositor will be required to do so. The Servicer may arrange with the obligor on a defaulted Mortgage Loan, a modification of such Mortgage Loan (a "Modification") to the extent provided in the related Prospectus Supplement. Such Modifications may only be entered into if they meet the underwriting policies and procedures employed by the Servicer in servicing receivables for its own account and meet the other conditions set forth in the related Prospectus Supplement. Enforcement of Due-On-Sale Clauses Unless otherwise specified in the related Prospectus Supplement for a Series, when any Mortgaged Property is about to be conveyed by the obligor, the Servicer will, to the extent it has knowledge of such prospective conveyance and prior to the time of the consummation of such conveyance, exercise its rights to accelerate the maturity of the related Mortgage Loan under the applicable "due-on-sale" clause, if any, unless it reasonably believes that such clause is not enforceable under applicable law or if the enforcement of such clause would result in loss of coverage under any primary mortgage insurance policy. In such event, the Servicer is authorized to accept from or enter into an assumption agreement with the person to whom such Mortgaged Property has been or is about to be conveyed, pursuant to which such person becomes liable under the Mortgage Loan and pursuant to which the original obligor is released from liability and such person is substituted as the obligor and becomes liable under the Mortgage Loan. Any fee collected in connection with an assumption will be retained by the Servicer as additional servicing compensation. The terms of a Mortgage Loan may not be changed in connection with an assumption. 32 111 Servicing Compensation and Payment of Expenses Except as otherwise provided in the related Prospectus Supplement, the Servicer will be entitled to a periodic fee as servicing compensation (the "Servicing Fee") in an amount to be determined as specified in the related Prospectus Supplement. The Servicing Fee may be fixed or variable, as specified in the related Prospectus Supplement. In addition, unless otherwise specified in the related Prospectus Supplement, the Servicer will be entitled to servicing compensation in the form of assumption fees, late payment charges and similar items, or excess proceeds following disposition of Mortgaged Property in connection with defaulted Mortgage Loans. Unless otherwise specified in the related Prospectus Supplement, the Servicer will pay certain expenses incurred in connection with the servicing of the Mortgage Loans, including, without limitation, the payment of the fees and expenses of the Trustee and independent accountants, payment of insurance policy premiums and the cost of credit support, if any, and payment of expenses incurred in preparation of reports to Holders. When an obligor makes a principal prepayment in full between Due Dates on the related Mortgage Loan, the obligor will generally be required to pay interest on the amount prepaid only to the date of prepayment. If and to the extent provided in the related Prospectus Supplement, in order that one or more Classes of the Holders of a Series will not be adversely affected by any resulting shortfall in interest, the amount of the Servicing Fee may be reduced to the extent necessary to include in the Servicer's remittance to the Trustee for deposit into the Distribution Account an amount equal to one month's interest on the related Mortgage Loan (less the Servicing Fee). If the aggregate amount of such shortfalls in a month exceeds the Servicing Fee for such month, a shortfall to Holders may occur. Unless otherwise specified in the related Prospectus Supplement, the Servicer will be entitled to reimbursement for certain expenses incurred by it in connection with the liquidation of defaulted Mortgage Loans. The related Holders will suffer no loss by reason of such expenses to the extent expenses are covered under related insurance policies or from excess Liquidation Proceeds. If claims are either not made or paid under the applicable insurance policies or if coverage thereunder has been exhausted, the related Holders will suffer a loss to the extent that Liquidation Proceeds, after reimbursement of the Servicer's expenses, are less than the outstanding principal balance of and unpaid interest on the related Mortgage Loan which would be distributable to Holders. In addition, the Servicer will be entitled to reimbursement of expenditures incurred by it in connection with the restoration of Mortgaged Property securing a defaulted Mortgage Loan, such right of reimbursement being prior to the rights of the Holders to receive any related proceeds of insurance policies, Liquidation Proceeds or amounts derived from other Credit Enhancement. The Servicer is generally also entitled to reimbursement from the Collection Account for Advances. Unless otherwise specified in the related Prospectus Supplement, the rights of the Servicer to receive funds from the Collection Account for a Series, whether as the Servicing Fee or other compensation, or for the reimbursement of Advances, expenses or otherwise, are not subordinate to the rights of Holders of such Series. Evidence as to Compliance If so specified in the related Prospectus Supplement, the applicable Agreement for each Series will provide that each year a firm of independent public accountants will furnish a statement to the Trustee to the effect that such firm has examined certain documents and records relating to the servicing of the Mortgage Loans by the Servicer and that, on the basis of such examination, such firm is of the opinion that the servicing has been conducted in compliance with such Agreement, except for (i) such exceptions as such firm believes to be immaterial and (ii) such other exceptions as are set forth in such statement. If so specified in the related Prospectus Supplement, the applicable Agreement for each Series will also provide for delivery to the Trustee for such Series of an annual statement signed by an officer of the Servicer to the effect that the Servicer has fulfilled its obligations under such Agreement, throughout the preceding calendar year. Certain Matters Regarding the Servicer The Agreement provides that the Servicer may resign from its obligations and duties thereunder, except in connection with a permitted transfer of servicing, unless (i) such duties and obligations are no longer permissible under applicable law or are in material conflict by reason of applicable law with any other activities of a type and nature presently carried on by it or its affiliate or (ii) upon the satisfaction of the following conditions: (a) the Servicer has proposed a successor servicer to the Trustee in writing and such proposed successor servicer is 33 112 reasonably acceptable to the Trustee; (b) the Rating Agencies have confirmed to the Trustee that the appointment of such proposed successor servicer as the Servicer will not result in the reduction or withdrawal of the then current rating of the Certificates; and (c) such proposed successor servicer is reasonably acceptable to the Enhancer, if any. No such resignation will become effective until the Trustee or a successor servicer has assumed the Servicer's obligations and duties under the Agreement. Notwithstanding the foregoing, Bank One may transfer its servicing obligations to any other direct or indirect wholly-owned subsidiary of BANC ONE or another entity (which meets certain eligibility standards set forth in the Agreement) and be relieved of its obligations and duties under the Agreement and related agreements. The Servicer may perform any of its duties and obligations under the Agreement through one or more subservicers or delegates, which may be affiliates of the Servicer. Notwithstanding any such arrangement, the Servicer will remain liable and obligated to the Trustee and the Certificateholders for the Servicer's duties and obligations under the Agreement, without any diminution of such duties and obligations and as if the Servicer itself were performing such duties and obligations. Any person into which, in accordance with the Agreement, the Servicer may be merged or consolidated or any person resulting from any merger or consolidation to which the Servicer is a party, or any person succeeding to the business of the Servicer, will be the successor to Bank One as servicer, under the Agreement. The Agreement provides that the Servicer will indemnify the Trust and the Trustee from and against any loss, liability, expense, damage or injury suffered or sustained as a result of the Servicer's actions or omissions in connection with the servicing and administration of the Mortgage Loans which are not in accordance with the provisions of the Agreement. Under the Agreement, the applicable Seller will indemnify an injured party for the entire amount of any losses, claims, damages or liabilities arising out of or based on the Agreement (other than losses resulting from defaults under the Mortgage Loans). The Agreement provides that neither the Depositor, any Seller nor the Servicer nor their directors, officers, employees or agents will be under any other liability to the Trust, the Trustee, the Certificateholders or any other person for any action taken or for refraining from taking any action pursuant to the Agreement. However, neither the Depositor, any Seller nor the Servicer will be protected against any liability which would otherwise be imposed by reason of willful misconduct, bad faith or gross negligence of the Depositor, such Seller or the Servicer in the performance of its duties under the Agreement or by reason of reckless disregard of its obligations thereunder. In addition, the Agreement provides that the Servicer will not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its servicing responsibilities under the Agreement and which in its opinion may expose it to any expense or liability. The Servicer may, in its sole discretion, undertake any such legal action which it may deem necessary or desirable with respect to the Agreement and the rights and duties of the parties thereto and the interest of the Certificateholders thereunder. Any corporation into which the Servicer may be merged or consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Servicer shall be a party, or any corporation succeeding to the business of the Servicer shall be the successor of the Servicer hereunder, without the execution or filing of any paper or any further act on the part of any of the parties. Events of Servicing Termination Unless otherwise specified in the related Prospectus Supplement, "Events of Servicing Termination" with respect to a Series will consist of (i) any failure by the Servicer to deposit in the Collection Account any deposit required to be made under the Agreement, which failure continues unremedied for five Business Days after the giving of written notice of such failure to the Servicer by the Trustee, or to the Servicer and the Trustee by the Enhancer, if any, or Holders owning in the aggregate at least 25% of the Principal Balance of all outstanding Securities; (ii) any failure by the Servicer duly to observe or perform in any material respect any other of its covenants or agreements in the Agreement which, in each case, materially and adversely affects the interests of the Holders or the Enhancer, if any, and continues unremedied for 60 days after the giving of written notice of such failure to the Servicer by the Trustee, or to the Servicer and the Trustee by the Enhancer, if any, or Holders owning in the aggregate at least 25% of the Principal Balance of all outstanding Securities; or (iii) certain events of insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings relating to the Servicer and certain actions by the Servicer indicating insolvency, reorganization or inability to pay its obligations. Under certain other circumstances, the Enhancer, if any, with the consent of Holders owning in the aggregate at least 51% of the Principal Balance of all outstanding Securities may deliver written notice to the Servicer terminating all the rights and obligations of the Servicer under the Agreement. 34 113 Notwithstanding the foregoing, the Agreement provides that a delay in or failure of performance referred to under clause (i) above for a period of ten Business Days or referred to under clause (ii) above for a period of 60 Business Days, will not constitute an Event of Servicing Termination if such delay or failure could not be prevented by the exercise of reasonable diligence by the Servicer or such delay or failure was caused by an act of God or other similar occurrence. Under the Agreement, upon the occurrence of any such event, the Servicer will not be relieved from using reasonable efforts to perform its obligations in a timely manner in accordance with the terms of the Agreement and the Servicer will provide the Trustee, the Depositor, the applicable Sellers, any Enhancer and the Holders prompt notice of such failure or delay by it, together with a description of its efforts to so perform its obligations. Rights Upon an Event of Servicing Termination Unless otherwise specified in the related Prospectus Supplement, so long as an Event of Servicing Termination remains unremedied, either the Trustee, or Holders owning in the aggregate at least 51% of the Principal Balance of all outstanding Securities or any Credit Enhancer, may terminate all of the rights and obligations of the Servicer under the Agreement and in and to the Mortgage Loans, whereupon the Trustee will succeed to all the responsibilities, duties and liabilities of the Servicer under the Agreement and will be entitled to similar compensation arrangements. If the Trustee would be obligated to succeed the Servicer but is unwilling or unable so to act, it may appoint, or petition a court of competent jurisdiction for the appointment of, a housing and home finance institution or other mortgage loan or home equity servicer with all licenses and permits required to perform its obligations under the Agreement and having a net worth of at least $15,000,000 and acceptable to any Credit Enhancer to act as successor to the Servicer under the Agreement. Pending such appointment, the Trustee will be obligated to act in such capacity unless prohibited by law. Such successor will be entitled to receive the same compensation that the Servicer would otherwise have received (or such lesser compensation as the Trustee and such successor may agree). A receiver or conservator for the Servicer may be empowered to prevent the termination and replacement of the Servicer where the only Event of Servicing Termination that has occurred is an Insolvency Event. 35 114 THE AGREEMENTS The following summaries describe certain provisions of the Agreements. The summaries do not purport to be complete and are subject to, and qualified in their entirety by reference to, the provisions of the Agreements. Where particular provisions or terms used in the Agreements are referred to, such provisions or terms are as specified in the related Agreements. Assignment of Mortgage Loans At the time of issuance of the Certificates, the Depositor will transfer to the Trust all of its right, title and interest in and to each Mortgage Loan (including any Additional Balances arising in the future), related Credit Line Agreements, mortgages and other related documents (collectively, the "Related Documents"), including all collections received on or with respect to each such Mortgage Loan after the Cut-off Date (exclusive of payments in respect of accrued interest due on or prior to the Cut-off Date). The Trustee, concurrently with such transfer, will deliver the Securities to the Depositor and any Transferor Certificate (as defined in the Agreement) to the related Seller or Sellers. Each Mortgage Loan transferred to the Trust will be identified on a schedule (the "Mortgage Loan Schedule") delivered to the Trustee pursuant to the Agreement. Such schedule will include information as to the Cut-off Date Principal Balance of each Mortgage Loan, as well as information with respect to the Loan Rate. Unless otherwise specified in the related Prospectus Supplement, the Agreement will permit the applicable Seller to maintain possession of the Related Documents and certain other documents relating to the Mortgage Loans (the "Mortgage Files") and assignments of the related mortgages to the Trustee will not be required to be recorded for so long as the senior unsecured debt of Bank One is rated at levels satisfactory to each Rating Agency rating the related Securities. If such rating does not satisfy such standards (an "Assignment Event"), Bank One will have 90 days to record assignments of the mortgages for each such Mortgage Loan in favor of the Trustee and will have 60 days to deliver the Mortgage File pertaining to each such Mortgage Loan to the Trustee (unless opinions of counsel satisfactory to the Rating Agencies and any Enhancer to the effect that recordation of such assignments or delivery of such documentation is not required in the relevant jurisdiction to protect the interest of the Trustee in the Mortgage Loans). In lieu of delivery of original documentation, Bank One may deliver documents which have been imaged optically upon delivery of an opinion of counsel that (i) such documents do not impair the enforceability of the transfer to the Trust of the Mortgage Loans and (ii) the optical image of such documents are enforceable in the relevant jurisdictions to the same extent as the original documents. Within 90 days of an Assignment Event, the Trustee will review the Mortgage Files and if any Related Document is found to be defective in any material respect and such defect is not cured within 90 days following notification thereof to the applicable Seller and the Depositor by the Trustee, the applicable Seller will be obligated to accept the transfer of such Mortgage Loan from the Trust. Upon such transfer, the Principal Balance of such Mortgage Loan will be deducted from the Pool Balance. If the related Series includes a Transferor Interest, such deduction would reduce the Transferor Interest. If the deduction would cause the Transferor Interest to become less than the Minimum Transferor Interest at such time (a "Transfer Deficiency"), the Seller will be obligated to either substitute an Eligible Substitute Mortgage Loan or make a deposit into the Collection Account in the amount (the "Transfer Deposit Amount") equal to the amount by which the Transferor Interest would be reduced to less than the Minimum Transferor Interest at such time. Any such deduction, substitution or deposit, will be considered for the purposes of the Agreement a payment in full of such Mortgage Loan. Any Transfer Deposit Amount will be treated as a Principal Collection. No such transfer shall be considered to have occurred until the required deposit to the Collection Account is actually made. The obligation of a Seller to accept a transfer of a Defective Mortgage Loan is the sole remedy regarding any defects in the Mortgage File and Related Documents available to the Trustee or the Certificateholders. Unless otherwise specified in the related Prospectus Supplement, an "Eligible Substitute Mortgage Loan" is a mortgage loan substituted by the Depositor for a Defective Mortgage Loan which must, on the date of such substitution, (i) have an outstanding Principal Balance (or in the case of a substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an aggregate principal Balance) that is approximately equal to the Transfer Deficiency relating to such Defective Mortgage Loan: (ii) have a Loan Rate not less than the Loan Rate of the Defective Mortgage Loan and not more than 1% in excess of the Loan Rate of such Defective Mortgage Loan; (iii) have a Loan Rate based on the same Index with adjustments to such Loan Rate made on the same Interest Rate Adjustment Date as that of the Defective Mortgage Loan; (iv) have a Margin that is not less than the Margin of the 36 115 Defective Mortgage Loan and not more than 100 basis points higher than the Margin for the Defective Mortgage Loan; (v) have a mortgage of the same or higher level of priority as the mortgage relating to the Defective Mortgage Loan; (vi) have a remaining term to maturity not more than six months earlier and not more than 60 months later than the remaining term to maturity of the Defective Mortgage Loan; (vii) comply with each representation and warranty as to the Mortgage Loans set forth in the Agreement (deemed to be made as of the date of substitution); (viii) in general, have an original Combined Loan-to-Value Ratio not greater than that of the Defective Mortgage Loan; and (ix) satisfy certain other conditions specified in the Agreement. To the extent the Principal Balance of an Eligible Substitute Mortgage Loan is less than the Principal Balance of the related Defective Mortgage Loan and to the extent that the Transferor Interest, if any, would be reduced below the Minimum Transferor Interest, the applicable Seller will be required to make a deposit to the Collection Account equal to such difference. The applicable Seller will make certain representations and warranties as to the accuracy in all material respects of certain information furnished to the Trustee with respect to each Mortgage Loan. In addition, the applicable Seller will represent and warrant on the Closing Date that at the time of transfer to the Depositor, such Seller has transferred or assigned all of its rights, title and interest in or granted a security interest in each Mortgage Loan sold by it and the Related Documents, free of any lien (subject to certain exceptions). Upon discovery of a breach of any such representation and warranty which materially and adversely affects the interests of the Holders or any Credit Enhancer in the related Mortgage Loan and Related Documents, the applicable Seller will have a period of 90 days after discovery or notice of the breach to effect a cure. If the breach cannot be cured within the 90-day period, such Seller will be obligated to accept a transfer of the Defective Mortgage Loan from the Trust. The same procedure and limitations that are set forth in the second preceding paragraph for the transfer of Defective Mortgage Loans will apply to the transfer of a Mortgage Loan that is required to be transferred because of such breach of a representation or warranty in the Agreement that materially and adversely affects the interests of the Certificateholders. Mortgage Loans required to be transferred to the Seller as described in the preceding paragraphs are referred to as "Defective Mortgage Loans." Reports to Holders The Trustee or other entity specified in the related Prospectus Supplement will prepare and forward to each Holder on each Distribution Date, or as soon thereafter as is practicable, a statement setting forth, to the extent applicable to any Series, among other things: (i) the amount of principal distributed to Holders of the related Securities and the outstanding principal balance of such Securities following such distribution; (ii) the amount of interest distributed to Holders of the related Securities and the current interest on such Securities; (iii) the amounts of (a) any overdue accrued interest included in such distribution, (b) any remaining overdue accrued interest with respect to such Securities or (c) any current shortfall in amounts to be distributed as accrued interest to holders of such Securities; (iv) the amounts of (a) any overdue payments of scheduled principal included in such distribution, (b) any remaining overdue principal amounts with respect to such Securities, (c) any current shortfall in receipt of scheduled principal payments on the related Mortgage Loans or (d) any realized losses or Liquidation Proceeds to be allocated as reductions in the outstanding principal balances of such Securities; (v) the amount received under any related Credit Enhancement, and the remaining amount available under such Credit Enhancement; (vi) the amount of any delinquencies with respect to payments on the related Mortgage Loans; (vii) the book value of any REO Mortgaged Property acquired by the related Trust Fund; and (viii) such other information as specified in the related Agreement. 37 116 In addition, within a reasonable period of time after the end of each calendar year the Trustee, unless otherwise specified in the related Prospectus Supplement, will furnish to each Holder of record at any time during such calendar year: (a) the aggregate of amounts reported pursuant to clauses (i), (ii), and (iv)(d) above for such calendar year and (b) such information specified in the related Agreement to enable Holders to prepare their tax returns including, without limitation, the amount of original issue discount accrued on the Securities, if applicable. Information in the Distribution Date and annual statements provided to the Holders will not have been examined and reported upon by an independent public accountant. However, the Servicer will provide to the Trustee a report by independent public accountants with respect to the Servicer's servicing of the Mortgage Loans. See "SERVICING OF LOANS--Evidence as to Compliance". Events of Default; Rights Upon Event of Default Pooling and Servicing Agreement; Servicing Agreement. Unless otherwise specified in the related Prospectus Supplement, Events of Default under the Pooling and Servicing Agreement or Servicing Agreement for each Series of Certificates are limited to the Events of Servicing Termination described under "Servicing of the Mortgage Loans-Events of Servicing Termination." Indenture. Unless otherwise specified in the related Prospectus Supplement, Events of Default under the Indenture for each Series of Notes include: (i) a default for thirty (30) days or more in the payment of any principal of or interest on any Note of such Series; (ii) failure to perform any other covenant of the Depositor or the Trust Fund in the Indenture which continues for a period of sixty (60) days after notice thereof is given in accordance with the procedures described in the related Prospectus Supplement; (iii) any representation or warranty made by the Depositor in the Indenture or in any certificate or other writing delivered pursuant thereto or in connection therewith with respect to or affecting such Series having been incorrect in a material respect of the time made, and such breach is not cured within sixty (60) days after notice thereof is given in accordance with the procedures described in the related Prospectus Supplement; (iv) certain events of bankruptcy, insolvency, receivership or liquidation of the Depositor or the Trust Fund; or (v) any other Event of Default provided with respect to Notes of that Series. If an Event of Default with respect to the Notes of any Series at the time outstanding occurs and is continuing, either the Trustee or the holders of a majority of the then aggregate outstanding amount of the Notes of such Series may declare the principal amount (or, if the Notes of that Series are Zero Coupon Securities, such portion of the principal amount as may be specified in the terms of that Series, as provided in the related Prospectus Supplement) of all the Notes of such Series to be due and payable immediately. Such declaration may, under certain circumstances, be rescinded and annulled by the Holders of a majority in aggregate outstanding amount of the Notes of such Series. If, following an Event of Default with respect to any Series of Notes, the Notes of such Series have been declared to be due and payable, the Trustee may, in its discretion, notwithstanding such acceleration, elect to maintain possession of the collateral securing the Notes of such Series and to continue to apply distributions on such collateral as if there had been no declaration of acceleration if such collateral continues to provide sufficient funds for the payment of principal of and interest on the Notes of such Series as they would have become due if there had not been such a declaration. In addition, the Trustee may not sell or otherwise liquidate the collateral securing the Notes of a Series following an Event of Default, other than a default in the payment of any principal or interest on any Note of such Series for thirty (30) days or more, unless (a) the Holders of 100% of the then aggregate outstanding amount of the Notes of such Series consent to such sale, (b) the proceeds of such sale or liquidation are sufficient to pay in full the principal of and accrued interest, due and unpaid, on the outstanding Notes of such Series at the date of such sale or (c) the Trustee determines that such collateral would not be sufficient on an ongoing basis to make all payments on such Notes as such payments would have become due if such Notes had not been declared due and payable, and the Trustee obtains the consent of the Holders of 66% of the then aggregate outstanding amount of the Notes of such Series. In the event that the Trustee liquidates the collateral in connection with an Event of Default involving a default for thirty (30) days or more in the payment of principal of or interest on the Notes of a Series, the Indenture provides that the Trustee will have a prior lien on the proceeds of any such liquidation for unpaid fees and expenses. As a result, upon the occurrence of such an Event of Default, the amount available for distribution to the Noteholders would be less than would otherwise be the case. However, the Trustee may not institute a proceeding for the enforcement of its lien except in connection with a proceeding for the enforcement of the lien of the Indenture for the benefit of the Noteholders after the occurrence of such an Event of Default. 38 117 Unless otherwise specified in the related Prospectus Supplement, in the event the principal of the Notes of a Series is declared due and payable, as described above, the holders of any such Notes issued at a discount from par may be entitled to receive no more than an amount equal to the unpaid principal amount thereof less the amount of such discount which is unamortized. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default shall occur and be continuing with respect to a Series of Notes, the Trustee shall be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders of Notes of such Series, unless such Holders offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in complying with such request or direction. Subject to such provisions for indemnification and certain limitations contained in the Indenture, the Holders of a majority of the then aggregate outstanding amount of the Notes of such Series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Notes of such Series, and the Holders of a majority of the then aggregate outstanding amount of the Notes of such Series may, in certain cases, waive any default with respect thereto, except a default in the payment of principal or interest or a default in respect of a covenant or provision of the Indenture that cannot be modified without the waiver or consent of all the Holders of the outstanding Notes of such Series affected thereby. The Trustee The identity of the commercial bank, savings and loan association or trust company named as the Trustee for each Series of Securities will be set forth in the related Prospectus Supplement. The entity serving as Trustee may have normal banking relationships with the Depositor or the Servicer. In addition, for the purpose of meeting the legal requirements of certain local jurisdictions, the Trustee will have the power to appoint co-trustees or separate trustees of all or any part of the Trust Fund relating to a Series of Securities. In the event of such appointment, all rights, powers, duties and obligations conferred or imposed upon the Trustee by the Agreement relating to such Series will be conferred or imposed upon the Trustee and each such separate trustee or co-trustee jointly, or, in any jurisdiction in which the Trustee shall be incompetent or unqualified to perform certain acts, singly upon such separate trustee or co-trustee who shall exercise and perform such rights, powers, duties and obligations solely at the direction of the Trustee. The Trustee may also appoint agents to perform any of the responsibilities of the Trustee, which agents shall have any or all of the rights, powers, duties and obligations of the Trustee conferred on them by such appointment; provided that the Trustee shall continue to be responsible for its duties and obligations under the Agreement. Duties of the Trustee The Trustee will make no representations as to the validity or sufficiency of the Agreement, the Securities or of any Mortgage Loan or related documents. If no Event of Default (as defined in the related Agreement) has occurred, the Trustee is required to perform only those duties specifically required of it under the Agreement. Upon receipt of the various certificates, statements, reports or other instruments required to be furnished to it, the Trustee is required to examine them to determine whether they are in the form required by the related Agreement; however, the Trustee will not be responsible for the accuracy or content of any such documents furnished by it or the Holders to the Servicer under the Agreement. The Trustee may be held liable for its own negligent action or failure to act, or for its own misconduct; provided, however, that the Trustee will not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Holders in an Event of Default. The Trustee is not required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under the Agreement, or in the exercise of any of its rights or powers, if it has reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Resignation of Trustee The Trustee may, upon written notice to the Depositor, resign at any time, in which event the Depositor will be obligated to use its best efforts to appoint a successor Trustee. If no successor Trustee has been appointed and has accepted the appointment within 30 days after giving such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for appointment of a successor Trustee. The Trustee may also be 39 118 removed at any time (i) if the Trustee ceases to be eligible to continue as such under the Agreement, (ii) if the Trustee becomes insolvent or (iii) by the Holders of Securities evidencing over 50% of the aggregate voting rights of the Securities in the Trust Fund upon written notice to the Trustee and to the Depositor. Any resignation or removal of the Trustee and appointment of a successor Trustee will not become effective until acceptance of the appointment by the successor Trustee. Amendment of Agreement Unless otherwise specified in the Prospectus Supplement, the Agreement for each Series of Securities may be amended by the Depositor, the Servicer (with respect to a Series relating to Mortgage Loans), and the Trustee with respect to such Series, without notice to or consent of the Holders (i) to cure any ambiguity, (ii) to correct any defective provisions or to correct or supplement any provision therein, (iii) to add to the duties of the Depositor, the Trust Fund or Servicer, (iv) to add any other provisions with respect to matters or questions arising under such Agreement or related Credit Enhancement, (v) to add or amend any provisions of such Agreement as required by a Rating Agency in order to maintain or improve the rating of the Securities, or (vi) to comply with any requirements imposed by the Code; provided that any such amendment except pursuant to clause (vi) above will not adversely affect in any material respect the interests of any Holders of such Series, as evidenced by an opinion of counsel. Any such amendment except pursuant to clause (vi) of the preceding sentence shall be deemed not to adversely affect in any material respect the interests of any Holder if the Trustee receives written confirmation from each Rating Agency rating such Securities that such amendment will not cause such Rating Agency to reduce the then current rating of each Class thereof. Unless otherwise specified in the Prospectus Supplement, the Agreement for each Series may also be amended by the Trustee, the Servicer, if applicable, and the Depositor with respect to such Series with the consent of the Holders possessing not less than 662/3% of the aggregate outstanding principal amount of the Securities of such Series or, if only certain Classes of such Series are affected by such amendment, 662/3% of the aggregate outstanding principal amount of the Securities of each Class of such Series affected thereby, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of such Agreement or modifying in any manner the rights of Holders of such Series; provided, however, that no such amendment may (a) reduce the amount or delay the timing of payments on any Security without the consent of the Holder of such Security; or (b) reduce the aforesaid percentage of the aggregate outstanding principal amount of Securities of each Class, the Holders of which are required to consent to any such amendment without the consent of the Holders of 100% of the aggregate outstanding principal amount of each Class of Securities affected thereby. Voting Rights The related Prospectus Supplement will set forth the method of determining allocation of voting rights with respect to a Series. List of Holders Upon written request of three or more Holders of record of a Series for purposes of communicating with other Holders with respect to their rights under the Agreement, which request is accompanied by a copy of the communication which such Holders propose to transmit, the Trustee will afford such Holders access during business hours to the most recent list of Holders of that Series held by the Trustee. No Agreement will provide for the holding of any annual or other meeting of Holders. Termination Pooling and Servicing Agreement; Trust Agreement. The obligations created by the Pooling and Servicing Agreement or Trust Agreement for a Series will terminate upon the distribution to Holders of all amounts distributable to them pursuant to such Agreement after the earlier of (i) the later of (a) the final payment or other liquidation of the last Mortgage Loan remaining in the Trust Fund for such Series and (b) the disposition of all Mortgaged Property acquired upon foreclosure or deed in lieu of foreclosure or repossession in respect of any Mortgage Loan or (ii) the repurchase, as described below, by the Servicer or other entity specified in the related Prospectus Supplement from the Trustee for such Series of all Mortgage Loans and other Mortgaged Property at that time subject to such Agreement. The Agreement for each Series permits, but does not require, the Servicer or other entity specified in the related Prospectus Supplement to purchase from the Trust Fund for such Series all remaining Mortgage Loans at a price equal to, unless otherwise specified in the related Prospectus Supplement, 100% of the 40 119 aggregate Principal Balance of such Mortgage Loans plus, with respect to any Mortgaged Property acquired in respect of a Mortgage Loan, if any, the outstanding Principal Balance of the related Mortgage Loan at the time of foreclosure, less, in either case, related unreimbursed Advances (in the case of the Mortgage Loans, only to the extent not already reflected in the computation of the aggregate Principal Balance of such Mortgage Loans) and unreimbursed expenses (that are reimbursable pursuant to the terms of the Pooling and Servicing Agreement) plus, in either case, accrued interest thereon at the weighted average rate on the related Mortgage Loans through the last day of the Due Period in which such repurchase occurs. The exercise of such right will effect early retirement of the Securities of such Series, but such entity's right to so purchase is subject to the aggregate Principal Balance of the Mortgage Loans at the time of repurchase being less than a fixed percentage, to be set forth in the related Prospectus Supplement, of the aggregate Principal Balance of the Mortgage Loans as of the Cut-off Date. In no event, however, will the trust created by the Agreement continue beyond the expiration of 21 years from the death of the last survivor of certain persons identified therein. For each Series, the Servicer or the Trustee, as applicable, will give written notice of termination of the Agreement to each Holder, and the final distribution will be made only upon surrender and cancellation of the Securities at an office or agency specified in the notice of termination. If so provided in the related Prospectus Supplement for a Series, the Depositor or another entity may effect an optional termination of the Trust Fund under the circumstances described in such Prospectus Supplement. See "DESCRIPTION OF THE SECURITIES--Optional Purchase or Termination". Indenture. The Indenture will be discharged with respect to a Series of Notes (except with respect to certain continuing rights specified in the Indenture) upon the delivery to the Trustee for cancellation of all the Notes of such Series or, with certain limitations, upon deposit with the Trustee of funds sufficient for the payment in full of all of the Notes of such Series. In addition to such discharge with certain limitations, the Indenture will provide that, if so specified with respect to the Notes of any Series, the related Trust Fund will be discharged from any and all obligations in respect of the Notes of such Series (except for certain obligations relating to temporary Notes and exchange of Notes, to register the transfer of or exchange Notes of such Series, to replace stolen, lost or mutilated Notes of such Series, to maintain paying agencies and to-hold monies for payment in trust) upon the deposit with the Trustee, in trust, of money and/or direct obligations of or obligations guaranteed by the United States of America which through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of and each installment of interest on the Notes of such Series on the Last Scheduled Distribution Date for such Notes and any installment of interest on such Notes in accordance with the terms of the Indenture and the Notes of such Series. In the event of any such defeasance and discharge of Notes of such Series, holders of Notes of such Series would be able to look only to such money and/or direct obligations for payment of principal and interest, if any, on their Notes until maturity. 41 120 CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS The following discussion contains summaries of certain legal aspects of mortgage loans which are general in nature. Because certain of such legal aspects are governed by applicable state law (which laws may differ substantially), the summaries do not purport to be complete nor reflect the laws of any particular state, nor encompass the laws of all states in which the properties securing the Mortgage Loans are situated. The summaries are qualified in their entirety by reference to the applicable federal and state laws governing the Mortgage Loans. Mortgages The Mortgage Loans for a Series will be secured by either mortgages or deeds of trust or deeds to secure debt, depending upon the prevailing practice in the state in which the Mortgaged Property subject to a mortgage loan is located. The filing of a mortgage, deed of trust or deed to secure debt creates a lien or title interest upon the real Mortgaged Property covered by such instrument and represents the security for the repayment of an obligation that is customarily evidenced by a promissory note. It is not prior to the lien for real estate taxes and assessments or other charges imposed under governmental police powers and may also be subject to other liens pursuant to the laws of the jurisdiction in which the Mortgaged Property is located. Priority with respect to such instruments depends on their terms, the knowledge of the parties to the mortgage and generally on the order of recording with the applicable state, county or municipal office. There are two parties to a mortgage, the mortgagor, who is the borrower/Mortgaged Property owner or the land trustee (as described below), and the mortgagee, who is the lender. Under the mortgage instrument, the mortgagor delivers to the mortgagee a note or bond and the mortgage. In the case of a land trust, there are three parties because title to the Mortgaged Property is held by a land trustee under a land trust agreement of which the borrower/Mortgaged Property owner is the beneficiary; at origination of a mortgage loan, the borrower executes a separate undertaking to make payments on the mortgage note. A deed of trust transaction normally has three parties, the trustor, who is the borrower/Mortgaged Property owner; the beneficiary, who is the lender, and the trustee, a third-party grantee. Under a deed of trust, the trustor grants the Mortgaged Property, irrevocably until the debt is paid, in trust, generally with a power of sale, to the trustee to secure payment of the obligation. The mortgagee's authority under a mortgage and the trustee's authority under a deed of trust are governed by the law of the state in which the real Mortgaged Property is located, the express provisions of the mortgage or deed of trust, and, in some cases, in deed of trust transactions, the directions of the beneficiary. Foreclosure on Mortgages Foreclosure of a mortgage is generally accomplished by judicial action. Generally, the action is initiated by the service of legal pleadings upon all parties having an interest of record in the real Mortgaged Property. Delays in completion of the foreclosure occasionally may result from difficulties in locating necessary parties defendant. When the mortgagee's right to foreclosure is contested, the legal proceedings necessary to resolve the issue can be time-consuming and expensive. After the completion of a judicial foreclosure proceeding, the court may issue a judgment of foreclosure and appoint a receiver or other officer to conduct the sale of the Mortgaged Property. In some states, mortgages may also be foreclosed by advertisement, pursuant to a power of sale provided in the mortgage. Foreclosure of a mortgage by advertisement is essentially similar to foreclosure of a deed of trust by non-judicial power of sale. Foreclosure of a deed of trust is generally accomplished by a non-judicial trustee's sale under a specific provision in the deed of trust which authorizes the trustee to sell the Mortgaged Property upon any default by the borrower under the terms of the note or deed of trust. In certain states, such foreclosure also may be accomplished by judicial action in the manner provided for foreclosure of mortgages. In some states, the trustee must record a notice of default and send a copy to the borrower-trustor and to any person who has recorded a request for a copy of the notice of sale. In addition, the trustee in some states must provide notice of default to any other individual having an interest in the real Mortgaged Property, including any junior lienholders. If the deed of trust is not reinstated within any applicable cure period, a notice of sale must be posted in a public place and, in most states, published for a specified period of time in one or more newspapers. In addition, some state laws require that a copy of the notice of sale be posted on the Mortgaged Property and sent to all parties having an interest of record in the Mortgaged Property. The trustor, borrower, or any person having a junior encumbrance on the real estate, may, during a reinstatement period, cure the default by paying the entire amount in arrears plus costs and expenses incurred in enforcing the obligation. Generally, state law controls the amount of foreclosure expenses and costs, 42 121 including attorney's fees, which may be recovered by a lender. If the deed of trust is not reinstated, a notice of sale must be posted in a public place and, in most states, published for a specified period of time in one or more newspapers. In addition, some state laws require that a copy of the notice of sale be posted on the Mortgaged Property, recorded and sent to all parties having an interest in the real Mortgaged Property. An action to foreclose a mortgage is an action to recover the mortgage debt by enforcing the mortgagee's rights under the mortgage. It is regulated by statutes and rules and subject throughout to the court's equitable powers. Generally, a mortgagor is bound by the terms of the related mortgage note and the mortgage as made and cannot be relieved from his default if the mortgagee has exercised his rights in a commercially reasonable manner. However, since a foreclosure action historically was equitable in nature, the court may exercise equitable powers to relieve a mortgagor of a default and deny the mortgagee foreclosure on proof that either the mortgagor's default was neither willful nor in bad faith or the mortgagee's action established a waiver, fraud, bad faith, or oppressive or unconscionable conduct such as to warrant a court of equity to refuse affirmative relief to the mortgagee. Under certain circumstances a court of equity may relieve the mortgagor from an entirely technical default where such default was not willful. A foreclosure action is subject to most of the delays and expenses of other lawsuits if defenses or counterclaims are interposed, sometimes requiring up to several years to complete. Moreover, a non-collusive, regularly conducted foreclosure sale may be challenged as a fraudulent conveyance, regardless of the parties' intent, if a court determines that the sale was for less than fair consideration and such sale occurred while the mortgagor was insolvent and within one year (or within the state statute of limitations if the trustee in bankruptcy elects to proceed under state fraudulent conveyance law) of the filing of bankruptcy. Similarly, a suit against the debtor on the related mortgage note may take several years and, generally, is a remedy alternative to foreclosure, the mortgagee being precluded from pursuing both at the same time. In the case of foreclosure under either a mortgage or a deed of trust, the sale by the referee or other designated officer or by the trustee is a public sale. However, because of the difficulty potential third party purchasers at the sale have in determining the exact status of title and because the physical condition of the Mortgaged Property may have deteriorated during the foreclosure proceedings, it is uncommon for a third party to purchase the Mortgaged Property at a foreclosure sale. Rather, it is common for the lender to purchase the Mortgaged Property from the trustee or referee for an amount which may be equal to the unpaid principal amount of the mortgage note secured by the mortgage or deed of trust plus accrued and unpaid interest and the expenses of foreclosure, in which event the mortgagor's debt will be extinguished or the lender may purchase for a lesser amount in order to preserve its right against a borrower to seek a deficiency judgment in states where such a judgment is available. Thereafter, subject to the right of the borrower in some states to remain in possession during the redemption period, the lender will assume the burdens of ownership, including obtaining hazard insurance, paying taxes and making such repairs at its own expense as are necessary to render the Mortgaged Property suitable for sale. The lender will commonly obtain the services of a real estate broker and pay the broker's commission in connection with the sale of the Mortgaged Property. Depending upon market conditions, the ultimate proceeds of the sale of the Mortgaged Property may not equal the lender's investment in the Mortgaged Property. Any loss may be reduced by the receipt of any mortgage guaranty insurance proceeds. Rights of Redemption In some states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the trustor or mortgagor and foreclosed junior lienors are given a statutory period in which to redeem the Mortgaged Property from the foreclosure sale. The right of redemption should be distinguished from the equity of redemption, which is a non-statutory right that must be exercised prior to the foreclosure sale. In some states, redemption may occur only upon payment of the entire principal balance of the loan, accrued interest and expenses of foreclosure. In other states, redemption may be authorized if the former borrower pays only a portion of the sums due. The effect of a statutory right of redemption is to diminish the ability of the lender to sell the foreclosed Mortgaged Property. The exercise of a right of redemption would defeat the title of any purchaser at a foreclosure sale, or of any purchaser from the lender subsequent to foreclosure or sale under a deed of trust. Consequently, the practical effect of a right of redemption is to force the lender to retain the Mortgaged Property and pay the expenses of ownership until the redemption period has run. In some states, there is no right to redeem Mortgaged Property after a trustee's sale under a deed of trust. 43 122 Junior Mortgages; Rights of Senior Mortgages The mortgage loans included in the Trust Fund for a Series will be secured by mortgages or deeds of trust which may be second or more junior mortgages to other mortgages held by other lenders or institutional investors. The rights of the Trust Fund (and therefore the Holders), as mortgagee under a junior mortgage, are subordinate to those of the mortgagee under the senior mortgage, including the prior rights of the senior mortgagee to receive hazard insurance and condemnation proceeds and to cause the Mortgaged Property securing the mortgage loan to be sold upon default of the mortgagor, thereby extinguishing the junior mortgagee's lien unless the junior mortgagee asserts its subordinate interest in the Mortgaged Property in foreclosure litigation and, possibly, satisfies the defaulted senior mortgage. A junior mortgagee may satisfy a defaulted senior loan in full and, in some states, may cure such default and bring the senior loan current, in either event adding the amounts expended to the balance due on the junior loan. In most states, absent a provision in the mortgage or deed of trust, no notice of default is required to be given to a junior mortgagee. The standard form of the mortgage used by most institutional lenders confers on the mortgagee the right both to receive all proceeds collected under any hazard insurance policy and all awards made in connection with condemnation proceedings, and to apply such proceeds and awards to any indebtedness secured by the mortgage, in such order as the mortgagee may determine. Thus, in the event improvements on the Mortgaged Property are damaged or destroyed by fire or other casualty, or in the event the Mortgaged Property is taken by condemnation, the mortgagee or beneficiary under underlying senior mortgages will have the prior right to collect any insurance proceeds payable under a hazard insurance policy and any award of damages in connection with the condemnation and to apply the same to the indebtedness secured by the senior mortgages. Proceeds in excess of the amount of senior mortgage indebtedness, in most cases, may be applied to the indebtedness of a junior mortgage. Another provision sometimes found in the form of the mortgage or deed of trust used by institutional lenders obligates the mortgagor to pay before delinquency all taxes and assessments on the Mortgaged Property and, when due, all encumbrances, charges and liens on the Mortgaged Property which appear prior to the mortgage or deed of trust, to provide and maintain fire insurance on the Mortgaged Property, to maintain and repair the Mortgaged Property and not to commit or permit any waste thereof, and to appear in and defend any action or proceeding purporting to affect the Mortgaged Property or the rights of the mortgagee under the mortgage. Upon a failure of the mortgagor to perform any of these obligations, the mortgagee is given the right under certain mortgages to perform the obligation itself, at its election, with the mortgagor agreeing to reimburse the mortgagee for any sums expended by the mortgagee on behalf of the mortgagor. All sums so expended by the mortgagee become part of the indebtedness secured by the mortgage. The form of credit line trust deed or mortgage used by most institutional lenders which make revolving home equity loans typically contains a "future advance" clause, which provides, in essence, that additional amounts advanced to or on behalf of the borrower by the beneficiary or lender are to be secured by the deed of trust or mortgage. The priority of the lien securing any advance made under the clause may depend in most states on whether the deed of trust or mortgage is called and recorded as a credit line deed of trust or mortgage. If the beneficiary or lender advances additional amounts, the advance is entitled to receive the same priority as amounts initially advanced under the trust deed or mortgage, notwithstanding the fact that there may be junior trust deeds or mortgages and other liens which intervene between the date of recording of the trust deed or mortgage and the date of the future advance, and notwithstanding that the beneficiary or lender had actual knowledge of such intervening junior trust deeds or mortgages and other liens at the time of the advance. In most states, the trust deed or mortgage lien securing mortgage loans of the type which includes revolving home equity credit lines applies retroactively to the date of the original recording of the trust deed or mortgage, provided that the total amount of advances under the home equity credit line does not exceed the maximum specified principal amount of the recorded trust deed or mortgage, except as to advances made after receipt by the lender of a written notice of lien from a judgment lien creditor of the trustor. Anti-Deficiency Legislation and Other Limitations on Lenders Certain states have imposed statutory prohibitions which limit the remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some states, statutes limit the right of the beneficiary or mortgagee to obtain a deficiency judgment against the borrower following foreclosure or sale under a deed of trust. A deficiency judgment is a personal judgment against the former borrower equal in most cases to the difference between the net amount realized upon the public sale of the real Mortgaged Property and the amount due to the lender. Other 44 123 statutes require the beneficiary or mortgagee to exhaust the security afforded under a deed of trust or mortgage by foreclosure in an attempt to satisfy the full debt before bringing a personal action against the borrower. In certain other states, the lender has the option of bringing a personal action against the borrower on the debt without first exhausting such security; however, in some of these states, the lender, following judgment on such personal action, may be deemed to have elected a remedy and may be precluded from exercising remedies with respect to the security. Consequently, the practical effect of the election requirement, when applicable, is that lenders will usually proceed first against the security rather than bringing a personal action against the borrower. Finally, other statutory provisions limit any deficiency judgment against the former borrower following a foreclosure sale to the excess of the outstanding debt over the fair market value of the Mortgaged Property at the time of the public sale. The purpose of these statutes is generally to prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment against the former borrower as a result of low or no bids at the foreclosure sale. In addition to laws limiting or prohibiting deficiency judgments, numerous other statutory provisions, including the federal bankruptcy laws, the Federal Soldiers' and Sailors' Civil Relief Act, and state laws affording relief to debtors, may interfere with or affect the ability of the secured lender to realize upon collateral and/or enforce a deficiency judgment. For example, with respect to federal bankruptcy law, the filing of a petition acts as a stay against the enforcement of remedies for collection of a debt. Moreover, a court with federal bankruptcy jurisdiction may permit a debtor through a Chapter 13 Bankruptcy Code rehabilitative plan to cure a monetary default with respect to a loan on a debtor's residence by paying arrearages within a reasonable time period and reinstating the original loan payment schedule even though the lender accelerated the loan and the lender has taken all steps to realize upon his security (provided no sale of the Mortgaged Property has yet occurred) prior to the filing of the debtor's Chapter 13 petition. Some courts with federal bankruptcy jurisdiction have approved plans, based on the particular facts of the reorganization case, that effected the curing of a loan default by permitting the obligor to pay arrearages over a number of years. Courts with federal bankruptcy jurisdiction have also indicated that the terms of a mortgage loan may be modified if the borrower has filed a petition under Chapter 13. These courts have suggested that such modifications may include reducing the amount of each monthly payment, changing the rate of interest, altering the repayment schedule and reducing the lender's security interest to the value of the residence, thus leaving the lender a general unsecured creditor for the difference between the value of the residence and the outstanding balance of the loan. Federal bankruptcy law and limited case law indicate that the foregoing modifications could not be applied to the terms of a loan secured by Mortgaged Property that is the principal residence of the debtor. In all cases, the secured creditor is entitled to the value of its security plus post-petition interest, attorney's fees and costs to the extent the value of the security exceeds the debt. In a Chapter 11 case under the Bankruptcy Code, the lender is precluded from foreclosing without authorization from the bankruptcy court. The lender's lien may be transferred to other collateral and/or be limited in amount to the value of the lender's interest in the collateral as of the date of the bankruptcy. The loan term may be extended, the interest rate may be adjusted to market rates and the priority of the loan may be subordinated to bankruptcy court-approved financing. The bankruptcy court can, in effect, invalidate due-on-sale clauses through confirmed Chapter 11 plans of reorganization. The Bankruptcy Code provides priority to certain tax liens over the lender's security. This may delay or interfere with the enforcement of rights in respect of a defaulted Mortgage Loan. In addition, substantive requirements are imposed upon lenders in connection with the organization and the servicing of mortgage loans by numerous federal and some state consumer protection laws. The laws include the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and related statutes and regulations. These federal laws impose specific statutory liabilities upon lenders who originate loans and who fail to comply with the provisions of the law. In some cases, this liability may affect assignees of the loans. Due-on-Sale Clauses in Mortgage Loans Due-on-sale clauses permit the lender to accelerate the maturity of the loan if the borrower sells or transfers, whether voluntarily or involuntarily, all or part of the real Mortgaged Property securing the loan without the lender's prior written consent. The enforceability of these clauses has been the subject of legislation or litigation in many states, and in some cases, typically involving single family residential mortgage transactions, their enforceability has been limited or denied. In any event, the Garn-St. Germain Depository Institutions Act of 1982 45 124 (the "Garn-St. Germain Act") preempts state constitutional, statutory and case law that prohibits the enforcement of due-on-sale clauses and permits lenders to enforce these clauses in accordance with their terms, subject to certain exceptions. As a result, due-on-sale clauses have become generally enforceable except in those states whose legislatures exercised their authority to regulate the enforceability of such clauses with respect to mortgage loans that were (i) originated or assumed during the "window period" under the Garn-St. Germain Act which ended in all cases not later than October 15, 1982, and (ii) originated by lenders other than national banks, federal savings institutions and federal credit unions. FHLMC has taken the position in its published mortgage servicing standards that, out of a total of eleven "window period states," five states (Arizona, Michigan, Minnesota, New Mexico and Utah) have enacted statutes extending, on various terms and for varying periods, the prohibition on enforcement of due-on-sale clauses with respect to certain categories of window period loans. Also, the Garn-St. Germain Act does "encourage" lenders to permit assumption of loans at the original rate of interest or at some other rate less than the average of the original rate and the market rate. In addition, under federal bankruptcy law, due-on-sale clauses may not be enforceable in bankruptcy proceedings and may, under certain circumstances, be eliminated in any modified mortgage resulting from such bankruptcy proceeding. Enforceability of Prepayment and Late Payment Fees Forms of notes, mortgages and deeds of trust used by lenders may contain provisions obligating the borrower to pay a late charge if payments are not timely made, and in some circumstances may provide for prepayment fees or penalties if the obligation is paid prior to maturity. In certain states, there are or may be specific limitations upon the late charges which a lender may collect from a borrower for delinquent payments. Certain states also limit the amounts that a lender may collect from a borrower as an additional charge if the loan is prepaid. Late charges and prepayment fees are typically retained by servicers as additional servicing compensation. Equitable Limitations on Remedies In connection with lenders' attempts to realize upon their security, courts have invoked general equitable principles. The equitable principles are generally designed to relieve the borrower from the legal effect of his defaults under the loan documents. Examples of judicial remedies that have been fashioned include judicial requirements that the lender undertake affirmative and expensive actions to determine the causes of the borrower's default and the likelihood that the borrower will be able to reinstate the loan. In some cases, courts have substituted their judgment for the lender's judgment and have required that lenders reinstate loans or recast payment schedules in order to accommodate borrowers who are suffering from temporary financial disability. In other cases, courts have limited the right of a lender to realize upon his security if the default under the security agreement is not monetary, such as the borrower's failure to adequately maintain the Mortgaged Property or the borrower's execution of secondary financing affecting the Mortgaged Property. Finally, some courts have been faced with the issue of whether or not federal or state constitutional provisions reflecting due process concerns for adequate notice require that borrowers under security agreements receive notices in addition to the statutorily-prescribed minimums. For the most part, these cases have upheld the notice provisions as being reasonable or have found that, in cases involving the sale by a trustee under a deed of trust or by a mortgagee under a mortgage having a power of sale, there is insufficient state action to afford constitutional protections to the borrower. Most conventional single-family mortgage loans may be prepaid in full or in part without penalty. The regulations of the Federal Home Loan Bank Board prohibit the imposition of a prepayment penalty or equivalent fee for or in connection with the acceleration of a loan by exercise of a due-on-sale clause. A mortgagee to whom a prepayment in full has been tendered may be compelled to give either a release of the mortgage or an instrument assigning the existing mortgage. The absence of a restraint on prepayment, particularly with respect to mortgage loans having higher mortgage rates, may increase the likelihood of refinancing or other early retirements of such mortgage loans. Applicability of Usury Laws Title V of the Depository Institutions Deregulation and Monetary Control Act of 1980, enacted in March 1980 ("Title V"), provides that state usury limitations shall not apply to certain types of residential first mortgage loans originated by certain lenders after March 31, 1980. Similar federal statutes were in effect with respect to mortgage loans made during the first three months of 1980. The Federal Home Loan Bank Board is authorized to 46 125 issue rules and regulations and to publish interpretations governing implementation of Title V. Title V authorizes any state to reimpose interest rate limits by adopting, before April 1, 1983, a state law, or by certifying that the voters of such state have voted in favor of any provision, constitutional or otherwise, which expressly rejects an application of the federal law. Fifteen states adopted such a law prior to the April 1, 1983 deadline. In addition, even where Title V is not so rejected, any state is authorized by the law to adopt a provision limiting discount points or other charges on mortgage loans covered by Title V. Soldiers' and Sailors' Civil Relief Act of 1940 Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of all branches of the military on active duty, including draftees and reservists in military service, (i) are entitled to have interest rates reduced and capped at 6% per annum, on obligations (including Mortgage Loans) incurred prior to the commencement of military service for the duration of military service, (ii) may be entitled to a stay of proceedings on any kind of foreclosure or repossession action in the case of defaults on such obligations entered into prior to military service for the duration of military service and (iii) may have the maturity of such obligations incurred prior to military service extended, the payments lowered and the payment schedule readjusted for a period of time after the completion of military service. However, the benefits of (i), (ii), or (iii) above are subject to challenge by creditors and if, in the opinion of the court, the ability of a person to comply with such obligations is not materially impaired by military service, the court may apply equitable principles accordingly. If a borrower's obligation to repay amounts otherwise due on a Mortgage Loan included in a Trust Fund for a Series is relieved pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940, none of the Trust Fund, the Servicer, the Depositor nor the Trustee will be required to advance such amounts, and any loss in respect thereof may reduce the amounts available to be paid to the Holders of the Securities of such Series. Unless otherwise specified in the related Prospectus Supplement, any shortfalls in interest collections on Mortgage Loans included in a Trust Fund for a Series resulting from application of the Soldiers' and Sailors' Civil Relief Act of 1940 will be allocated to each Class of Securities of such Series that is entitled to receive interest in respect of such Mortgage Loans in proportion to the interest that each such Class of Securities would have otherwise been entitled to receive in respect of such Mortgage Loans had such interest shortfall not occurred. 47 126 USE OF PROCEEDS The Depositor will apply all or substantially all of the net proceeds from the sale of each Series of Securities for one or more of the following purposes: (i) to purchase the related Mortgage Loans, (ii) to repay indebtedness which has been incurred to obtain funds to acquire such Mortgage Loans, (iii) to establish any Reserve Funds described in the related Prospectus Supplement and (iv) to pay costs of structuring and issuing such Securities, including the costs of obtaining Credit Enhancement, if any. If so specified in the related Prospectus Supplement, the purchase of the Mortgage Loans for a Series may be effected by an exchange of Securities with the Seller of such Mortgage Loans. 48 127 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS General The following is a summary of certain United States federal income tax consequences of an investment in the Securities by Holders that acquire their Securities in their initial offering. This summary is based on the Internal Revenue Code of 1986 (the "Code") as well as Treasury regulations and administrative and judicial rulings and practice. Legislative, judicial and administrative changes may occur, possibly with retroactive effect, that could alter or modify the continued validity of the statements and conclusions set forth herein. This summary does not purport to address all federal income tax matters that may be relevant to particular holders. For example, it generally is addressed only to original purchasers of the Securities that are U.S. holders" (as defined below), deals only with Securities held as capital assets within the meaning of Section 1221 of the Code, and does not address tax consequences to holders that may be relevant to investors subject to special rules, such as non-U.S. investors, banks, insurance companies, tax-exempt organizations, dealers in securities or currencies, electing large partnerships, mutual funds, REITs, RICs, natural persons, cash method taxpayers, S corporations, estates and trusts, investors that hold the Securities as part of a hedge, straddle or integrated or conversion transaction, or holders whose "functional currency" is not the United States dollar. Further, it does not address alternative minimum tax consequences or the indirect effects on the holders of equity interests in a Holder of Securities. Investors should consult their own tax advisors to determine the United States federal, state, local and other tax consequences of the purchase, ownership and disposition of the Securities. For these purposes, a U.S. holder is (i) a citizen or resident of the United States, (ii) a corporation or partnership organized in or under the laws of the United States, any state thereof or the District of Columbia (except, in the case of a partnership, to the extent provided in Treasury regulations) or (iii) an estate or trust defined in Section 7701(a)(30)(D) or (E) of the Code, respectively. "Non-U.S. holder" means any holder that is not a United States holder. Prospective investors should note that no rulings have been or will be sought from the Internal Revenue Service ("IRS") with respect to any of the U.S. federal income tax consequences discussed herein and opinions of counsel are not binding on the IRS or the courts. Thus, no assurance can be given that the IRS will not take positions contrary to those described below. The opinions of Orrick, Herrington & Sutcliffe LLP, special counsel to the Depositor, described herein will be based upon certain representations and assumptions, including, but not limited to, the assumption that all relevant parties will comply with the terms of the Trust Agreement and related documents. This summary is intended as an explanatory discussion of the possible effects of the classification of the Trust as a grantor trust or as a partnership for U.S. federal income tax purposes on investors generally and related tax matters affecting investors generally, but does not purport to furnish information in the level of detail or with the attention to the investor's specific tax circumstances that would be provided by an investor's own tax adviser. Accordingly, each investor is advised to consult its own advisers with regard to the tax consequences to it of investing in the Securities. For purposes of the following discussion, except as otherwise provided herein, the terms "Holder," "Noteholder" and "Certificateholder" refer, respectively, to the beneficial owner of a Note or Certificate. The federal income tax consequences to Holders will vary depending on whether (i) the Securities of a Series are classified as indebtedness; (ii) the Securities represent an ownership interest in some or all of the assets included in the Trust Fund for a Series; or (iii) the Trust Fund relating to a particular Series of Certificates is treated as a partnership. The Prospectus Supplement for each Series of Securities will specify how the Securities will be treated for federal income tax purposes. Taxation of Debt Securities Interest and Acquisition Discount. Interest (other than original issue discount) on Securities that are characterized as indebtedness for federal income tax purposes will be includible in income by holders thereof in accordance with their usual methods of accounting. Securities characterized as debt for federal income tax purposes will be referred to hereinafter collectively as "Debt Securities." 49 128 Debt Securities that are Compound Interest Securities will, and certain of the other Debt Securities may, be issued with "original issue discount" ("OID"). The following discussion is based in part on the rules governing OID which are set forth in Sections 1271-1275 of the Code and the Treasury regulations issued thereunder (the "OID Regulations"). A Holder should be aware, however, that the OID Regulations do not adequately address certain issues relevant to, and in some instances provide that they are not applicable to, prepayable securities such as the Debt Securities. In general, OID, if any, will equal the difference between the stated redemption price at maturity of a Debt Security and its issue price. A holder of a Debt Security must include such OID in gross income as ordinary interest income as it accrues. In general, OID is included in income in advance of (or concurrent with) the receipt of the cash representing that income. The amount of OID on a Debt Security will be considered to be zero if it is less than a de minimis amount determined under the Code. The issue price of a Debt Security is the first price at which a substantial amount of Debt Securities of that class are sold to the public (excluding sales to bond houses, brokers, underwriters or wholesalers). If less than a substantial amount of a particular class of Debt Securities is sold for cash on or prior to the Closing Date, the issue price for such class will be treated as the fair market value of such class on the Closing Date. The issue price of a Debt Security will also include the amount paid by an initial Debt Security holder for accrued interest that relates to a period prior to the issue date of the Debt Security. The stated redemption price at maturity of a Debt Security is equal to the total of all payments to be made on such Debt Security other than "qualified stated interest." In addition, that portion of the first interest payment in excess of interest accrued from the Closing Date to the first Distribution Date will be treated for federal income tax reporting purposes as includible in the stated redemption price at maturity, and as excludible from income when received as a payment of interest on the first Distribution Date (except to the extent of any accrued market discount as of that date). The OID Regulations suggest, however, that some or all of this pre-issuance accrued interest may be treated as a separate asset (and hence not includible in a Debt Securities' issue price or stated redemption price at maturity), whose cost is recovered entirely out of interest paid on the first Distribution Date. It is unclear how an election to do so would be made under the OID Regulations and whether such election could be unilaterally made by a Holder. Under the OID Regulations, qualified stated interest generally means interest payable at a single fixed rate that appropriately takes into account the length of the interval between payments or certain qualified variable rates provided that such interest payments are unconditionally payable at intervals of one year or less during the entire term of the Debt Security. In the case of Compound Interest Securities, certain Interest Weighted Securities, and certain of the other Debt Securities, none of the payments under the instrument will be considered qualified stated interest, and thus the aggregate amount of all payments will be included in the stated redemption price at maturity. Under the de minimis rule, OID on a Debt Security will be considered to be zero if such OID is less an 0.25% of the stated redemption price at maturity of the Debt Security multiplied by the weighted average maturity of the Debt Security. For this purpose, the weighted average maturity of the Debt Security is computed as the sum of the amounts determined by multiplying the number of full years (i.e., rounding down partial years) from the issue date until each distribution in reduction of stated redemption price at maturity is scheduled to be made by a fraction, the numerator of which is the amount of each distribution included in the stated redemption price at maturity of the Debt Security and the denominator of which is the stated redemption price at maturity of the Debt Security. The IRS may take the position that this rule should be applied taking into account the Prepayment Assumption (defined below). Under the OID Regulations, Debt Securities bearing only qualified stated interest except for any "teaser" rate, interest holiday or other similar provision are treated as subject to the de minimis rule if the greater of the foregone interest (as described in such regulations) or any excess of the Debt Securities' stated principal amount over their issue price is less than such de minimis amount. Holders generally must report de minimis OID pro rata as principal payments are received, and such income will be capital gain if the Debt Security is held as a capital asset. However, accrual method holders may elect to accrue all de minimis OID as well as market discount under a constant interest method. The holder of a Debt Security issued with OID must include in gross income, for all days during its taxable year on which it holds such Debt Security, the sum of the "daily portions" of such original issue discount. The amount of OID includible in income by a holder will be computed by allocating to each day during a taxable year a pro rata portion of the original issue discount that accrued during the relevant accrual period. In the case of a Debt Security the principal payments on which are not subject to acceleration resulting from prepayments on the Mortgage Loans, the amount of OID includible in income of a Holder for an accrual period (generally the period 50 129 over which interest accrues on the debt instrument) will equal the product of the yield to maturity of the Debt Security and the adjusted issue price of the Debt Security, reduced by any payments of qualified stated interest. The adjusted issue price is the sum of its issue price plus prior accruals or OID, reduced by the total payments made with respect to such Debt Security in all prior periods, other than qualified stated interest payments. The amount of OID to be included in income by a holder of a debt instrument, such as certain Classes of the Debt Securities, that is subject to acceleration due to prepayments on other debt obligations securing such instruments (a "Pay-Through Security"), is computed by taking into account the anticipated rate of prepayments assumed in pricing the debt instrument (the "Prepayment Assumption"). The amount of OID that will accrue during an accrual period on a Pay-Through Security is the excess (if any) of (i) the sum of (a) the present value of all payments remaining to be made on the Pay-Through Security as of the close of the accrual period and (b) the payments during the accrual period of amounts included in the stated redemption price of the Pay-Through Security, over (ii) the adjusted issue price of the Pay-Through Security at the beginning of the accrual period. The present value of the remaining payments referred to in the preceding sentence will be determined on the basis of three factors: (i) the original yield to maturity (giving effect to the Prepayment Assumption) of the Pay-Through Security (determined on the basis of compounding at the end of each accrual period and properly adjusted for the length of the accrual period), (ii) events (including actual prepayments) that have occurred before the end of the accrual period and (iii) the assumption that the remaining payments will be made in accordance with the original Prepayment Assumption. The effect of this method is to increase the portions of OID required to be included in income by a Holder to take into account prepayments with respect to the Mortgage Loans at a rate that exceeds the Prepayment Assumption, and to decrease (but not below zero for any period) the portions of original issue discount required to be included in income by a Holder of a Pay-Through Security to take into account prepayments with respect to the Mortgage Loans at a rate that is slower than the Prepayment Assumption. Although original issue discount will be reported to Holders of Pay-Through Securities based on the Prepayment Assumption, no representation is made to Holders that Mortgage Loans will be prepaid at that rate or at any other rate. A subsequent holder of a Debt Security will also be required to include OID in gross income, but such a holder who purchases a Debt Security for an amount that exceeds its adjusted issue price will be entitled (as will an initial holder who pays more than a Debt Security's issue price) to offset such OID by comparable economic accruals of portions of such excess. Effects of Defaults and Delinquencies. Holders will be required to report income with respect to the related Securities under an accrual method without giving effect to delays and reductions in distributions attributable to a default or delinquency on the Mortgage Loans, except possibly to the extent that it can be established that such amounts are uncollectible. As a result, the amount of income (including OID) reported by a holder of a Debt Security in any period could significantly exceed the amount of cash distributed to such holder in that period. The holder will eventually be allowed a loss (or will be allowed to report a lesser amount of income) to the extent that the aggregate amount of distributions on the Securities is reduced as a result of a Mortgage Loan default. However, the timing and character of such losses or reductions in income are uncertain and, accordingly, holders of Securities should consult their own tax advisors on this point. Interest Weighted Securities. It is not clear how income should be accrued with respect to Stripped Securities (as defined under "-Tax Status as a Grantor Trust; General" herein) the payments on which consist solely or primarily of a specified portion of the interest payments on mortgages held by the Trust Fund ("Interest Weighted Securities"). The Depositor intends to take the position that all of the income derived from an Interest Weighted Security should be treated as OID and that the amount and rate of accrual of such OID should be calculated by treating the Interest Weighted Security as a Compound Interest Security. Alternatively, the IRS could assert that an Interest Weighted Security should be taxable under the rules governing bonds issued with contingent payments. Variable Rate Debt Securities. In the case of Debt Securities bearing interest at a rate that varies directly, according to a fixed formula, with an objective index, it appears that (i) the yield to maturity of such Debt Securities and (ii) in the case of Pay-Through Securities, the present value of all payments remaining to be made on such Debt Securities, should be calculated as if the interest index remained at its value as of the issue date of such Securities. Because the proper method of adjusting accruals of OID on a variable rate Debt Security is uncertain, holders of variable rate Debt Securities should consult their own tax advisers regarding the appropriate treatment of such Securities for federal income tax purposes. Market Discount. A purchaser of a Security may be subject to the market discount rules of Sections 1276-1278 of the Code. A Holder that acquires a Debt Security with more than a prescribed de minimis amount of 51 130 "market discount" (generally, the excess of the principal amount of the Debt Security or, in the case of a Debt security issued with OID, the Debt Securities' adjusted issue price, over the purchaser's purchase price) will be required to include accrued market discount in income as ordinary income in each month, but limited to an amount not exceeding the principal payments on the Debt Security received in that month and, if the Securities are sold, the gain realized. Such market discount would accrue in a manner to be provided in Treasury regulations but, until such regulations are issued, such market discount would, in general, accrue either (i) on the basis of a constant yield, or (ii) in the ratio of (a) in the case of Securities (or in the case of a Pass-Through Security, as set forth below, the Mortgage Loans underlying such Security) not originally issued with original issue discount, stated interest payable in the relevant period to total stated interest remaining to be paid at the beginning of the period or (b) in the case of Securities (or, in the case of a Pass-Through Security, as described below, the Mortgage Loans underlying such Security) originally issued with original issue discount, OID in the relevant period to total OID remaining to be paid as of the beginning of such period. The Prepayment Assumption, if any, used in calculating the accrual of OID is to be used in calculating the accrual of market discount under any of the above methods. Section 1277 of the Code provides that the excess of interest paid or accrued to purchase or carry a Security (or, in the case of a Pass-Through Security, as described below, the underlying Mortgage Loans) with market discount over interest received on such Security is allowed as a current deduction only to the extent such excess is greater than the market discount that accrued during the taxable year in which such interest expense was incurred. In general, the deferred portion of any interest expense will be deductible when such market discount is included in income, including upon the sale, disposition, or repayment of the Security (or in the case of a Pass-Through Security, an underlying Mortgage Loan). A holder may elect to include market discount in income currently as it accrues, on all market discount obligations acquired by such holder during the taxable year such election is made and thereafter, in which case the interest deferral rule will not apply. Any such election is irrevocable without the consent of the IRS. Premium. A holder who purchases a Debt Security (other than an Interest Weighted Security at a cost greater than its stated redemption price at maturity, generally will be considered to have purchased the Security at a premium, which it may elect to amortize as an offset to interest income on such Security (and not as a separate deduction item) on a constant yield method. Although no regulations addressing the computation of premium accrual on securities similar to the Securities have been issued, the legislative history of the 1986 Act indicates that premium is to be accrued in the same manner as market discount. Accordingly, it appears that the accrual of premium on a Class of Pay-Through Securities will be calculated using the prepayment assumption (if any) used in pricing such Class. If a holder makes an election to amortize premium on a Debt Security, such election will apply to all taxable debt instruments (including all REMIC regular interests and all pass-through certificates representing ownership interests in a trust holding debt obligations) held by the holder at the beginning of the taxable year in which the election is made, and to all taxable debt instruments acquired thereafter by such holder, and will be irrevocable without the consent of the IRS. Purchasers who pay a premium for the Securities should consult their tax advisers regarding the election to amortize premium and the method to be employed. Election to Treat All Interest as Original Issue Discount. The OID Regulations permit a holder of a Debt Security to elect to accrue all interest, discount (including de minimis market or original issue discount) and premium in income as interest, based on a constant yield method. If such an election were to be made with respect to a Debt Security with market discount, the holder of the Debt Security would be deemed to have made an election to include in income currently market discount with respect to all other debt instruments having market discount that such holder of the Debt Security acquires during the year of the election or thereafter. Similarly, a holder of a Debt Security that makes this election for a Debt Security that is acquired at a premium will be deemed to have made an election to amortize bond premium with respect to all debt instruments having amortizable bond premium that such holder owns or acquires. The election to accrue interest, discount and premium on a constant yield method with respect to a Debt Security is irrevocable without the consent of the IRS. Tax Status as a Grantor Trust General. The related Prospectus Supplement may provide that Orrick, Herrington & Sutcliffe LLP, special counsel to the Depositor, will deliver an opinion generally to the effect that the Trust Fund relating to a Series of Securities will be classified for federal income tax purposes as a grantor trust under Subpart E, Part 1 of Subchapter J of the Code and not as an association taxable as (or a publicly traded partnership treated as) a corporation (the Securities of such Series, "Pass-Through Securities"). In some Series there will be no separation of the principal and interest payments on the Mortgage Loans. In such circumstances, a Holder will be considered to have 52 131 purchased a pro rata undivided interest in each of the Mortgage Loans. In other cases ("Stripped Securities"), sale of the Securities will produce a separation in the interest payments on the ownership of all or a portion of the principal payments from all or a portion of Mortgage Loans. Each Holder must report on its federal income tax return its share of the gross income derived from the Mortgage Loans (not reduced by the amount payable as fees to the Trustee and the Servicer and similar fees (collectively, the "Servicing Fee")), at the same time and in the same manner as such items would have been reported under the Holder's tax accounting method had it held its interest in the Mortgage Loans directly, received directly its share of the amounts received with respect to the Mortgage Loans, and paid directly its share of the Servicing Fees. In the case of Pass-Through Securities other than Stripped Securities, such income will consist of a pro rata share of all of the income derived from all of the Mortgage Loans and, in the case of Stripped Securities, such income will consist of a pro rata share of the income derived from each stripped bond or stripped coupon in which the Holder owns an interest. The holder of a Security will generally be entitled to deduct such Servicing Fees under Section 162 or Section 212 of the Code to the extent that such Servicing Fees represent "reasonable" compensation for the services rendered by the Trustee and the Servicer (or third parties that are compensated for the performance of services). In the case of a noncorporate holder, however, Servicing Fees (to the extent not otherwise disallowed, e.g., because they exceed reasonable compensation) will be deductible in computing such holder's regular tax liability only to the extent that such fees, when added to other miscellaneous itemized deductions, exceed 2% of adjusted gross income and may not be deductible to any extent in computing such holder's alternative minimum tax liability. Discount or Premium on Pass-Through Securities. The holder's purchase price of a Pass-Through Security is to be allocated among the Mortgage Loans in proportion to their fair market values, determined as of the time of purchase of the Securities. In the typical case, the Trustee (to the extent necessary to fulfill its reporting obligations) will treat each Mortgage Loan as having a fair market value proportional to the share of the aggregate principal balances of all of the Mortgage Loans that it represents, since the Securities, unless otherwise specified in the applicable Prospectus Supplement, will have a relatively uniform interest rate and other common characteristics. To the extent that the portion of the purchase price of a Pass-Through Security allocated to a Mortgage Loan (other than to a right to receive any accrued interest thereon and any undistributed principal payments) is less than or greater than the principal balance of the Mortgage Loan, the interest in the Mortgage Loan allocable to the Pass-Through Security will be deemed to have been acquired at a discount or premium, respectively. The treatment of any discount will depend on whether the discount represents OID or market discount. In the case of a Mortgage Loan with OID in excess of a prescribed de minimis amount or a Stripped Security (see below), a holder of a Security will be required to report as interest income in each taxable year its share of the amount of OID that accrues during that year in the manner described above. OID with respect to a Mortgage Loan could arise, for example, by virtue of the financing of points by the originator of the Mortgage Loan, or by virtue of the charging of points by the originator of the Mortgage Loan in an amount greater than a statutory de minimis exception, in circumstances under which the points are not currently deductible pursuant to applicable Code provisions. Any market discount or premium on a Mortgage Loan will be includible in income, generally in the manner described above, except that in the case of Pass-Through Securities, market discount is calculated with respect to the Mortgage Loans underlying the Certificate, rather than with respect to the Security. Stripped Securities. A Stripped Security may represent a right to receive only a portion of the interest payments on the Mortgage Loans, a right to receive only principal payments on the Mortgage Loans, or a right to receive certain payments of both interest and principal. Certain Stripped Securities ("Ratio Strip Securities") may represent a right to receive differing percentages of both the interest and principal on each Loan. Pursuant to Section 1286 of the Code, the separation of ownership of the right to receive some or all of the interest payments on an obligation from ownership of the right to receive some or all of the principal payments results in the creation of "stripped bonds" with respect to principal payments and "stripped coupons" with respect to interest payments. Section 1286 of the Code applies the OID rules to stripped bonds and stripped coupons. For purposes of computing original issue discount, a stripped bond or a stripped coupon is treated as a debt instrument issued on the date that such stripped interest is purchased with an issue price equal to its purchase price or, if more than one stripped interest is purchased, the ratable share of the purchase price allocable to such stripped interest. Servicing fees in excess of reasonable servicing fees ("excess servicing") will be treated under the stripped bond rules. Under such rules, excess servicing will be treated as a stripped coupon. If the excess servicing fee is no more than 100 basis points (i.e. 1% interest on the Mortgage Loan principal balance) or the Securities are initially 53 132 sold with a de minimis discount (assuming no prepayment assumption is required), any non-de minimis discount arising from a subsequent transfer of the Securities should be treated as market discount. The IRS appears to require that reasonable servicing fees be calculated on a Loan by Loan basis, which could result in some Mortgage Loans being treated as having more than 100 basis points of interest stripped off. The Code, OID Regulations and judicial decisions provide no direct guidance as to how the interest and original issue discount rules are to apply to Stripped Securities and other Pass-Through Securities. Under the method described above for Pay-Through Securities (the "Cash Flow Bond Method"), a prepayment assumption is used and periodic recalculations are made which take into account with respect to each accrual period the effect of prepayments during such period. It is believed, however, that the Cash Flow Bond Method is a reasonable method of reporting income for such Securities, and it is expected that OID will be reported on that basis unless otherwise specified in the related Prospectus Supplement. In applying the calculation to Pass-Through Securities, the Trustee will treat all payments to be received by a holder with respect to the underlying Mortgage Loans as payments on a single installment obligation. The IRS could, however, assert that original issue discount must be calculated separately for each Mortgage Loan underlying a Security. Under certain circumstances, if the Mortgage Loans prepay at a rate faster than the Prepayment Assumption, the use of the Cash Flow Bond Method may accelerate a Holder's recognition of income. If, however, the Mortgage Loans prepay at a rate slower than the Prepayment Assumption, the use of this method may decelerate a Holder's recognition of income. In the case of a Stripped Security that is an Interest Weighted Security, the Trustee intends, absent contrary authority, to report income to Security holders as OID, in the manner described above for Interest Weighted Securities. Possible Alternative Characterizations. The characterizations of the Stripped Securities described above are not the only possible interpretations of the applicable Code provisions. Given the variety of alternatives for treatment of the Stripped Securities and the different federal income tax consequences that result from each alternative, potential purchasers are urged to consult their own tax advisers regarding the proper, treatment of the Securities for federal income tax purposes. Sale or Exchange Subject to the discussion below with respect to Trust Funds treated as a partnership, a Holder's tax basis in its Security is the price such holder pays for a Security, plus amounts of original issue or market discount included in income and reduced by any payments received (other than qualified stated interest payments), and any amortized premium. Gain or loss recognized on a sale, exchange, or redemption of a Security, measured by the difference between the amount realized and the Security's basis as so adjusted, will generally be capital gain or loss, assuming that the Security is held as a capital asset. Tax Treatment of Foreign Investors Subject to the discussion below with respect to Trust Funds treated as a partnership, unless interest (including OID) paid on a Security is considered to be "effectively connected" with a trade or business conducted in the United States by a nonresident alien individual, foreign partnership or foreign corporation ("Nonresidents"), such interest will normally qualify as portfolio interest (except where (i) the recipient is a holder, directly or by attribution, of 10% or more of the capital or profits interest in the issuer or any of the beneficial owners of the issuer (or, with respect to any beneficial owner that is a corporation, 10% or more of the total combined voting power of all classes of stock entitled to vote), or (ii) the recipient is a controlled foreign corporation to which the issuer is a related person) and will be exempt from federal income tax. Upon receipt of appropriate ownership statements, the issuer normally will be relieved of obligations to withhold tax from such interest payments. These provisions supersede the generally applicable provisions of United States law that would otherwise require the issuer to withhold at a 30% rate (unless such rate were reduced or eliminated by an applicable tax treaty) on, among other things, interest and other fixed or determinable, annual or periodic income paid to Nonresidents. Interest and OID of Holders who are foreign persons are not subject to withholding if they are effectively connected with a United States business conducted by the Holder. They will, however, generally be subject to the regular United States income tax. 54 133 Tax Characterization of the Trust as a Partnership The related Prospectus Supplement may provide that Orrick, Herrington & Sutcliffe LLP, special counsel to the Depositor, will deliver its opinion generally to the effect that the Trust Fund relating to a specific Series of Securities will be a partnership (or possibly a grantor trust) and not an association (or publicly traded partnership) taxable as a corporation for federal income tax purposes. This opinion will be based on the assumption that the terms of the Trust Agreement and related documents will be complied with, and on counsel's conclusions that either the nature of the income of the Trust Fund will exempt it from the rule that certain publicly traded partnerships are taxable as corporations or the issuance of the Certificates has been structured as a private placement under an IRS safe harbor, so that the Trust Fund will not be characterized as a publicly traded partnership taxable as a corporation. If the Trust Fund were taxable as a corporation for federal income tax purposes, the Trust Fund would be subject to corporate income tax on its taxable income. The Trust Fund's taxable income would include all its income, possibly reduced by its interest expense on the Notes. Any such corporate income tax could materially reduce cash available to make payments on the Notes and distributions on the Certificates, and Certificateholders could be liable for any such tax that is unpaid by the Trust Fund. Tax Consequences to Holders of the Notes Treatment of the Notes as Indebtedness. The Trust Fund will agree, and the Noteholders will agree by their purchase of Notes, to treat the Notes as debt for federal income tax purposes. Special counsel to the Depositor will, except as otherwise provided in the related Prospectus Supplement, advise the Depositor that the Notes will be classified as debt for federal income tax purposes. The discussion below assumes this characterization of the Notes is correct. OID, Stripped Securities, etc. The discussion below assumes that all payments on the Notes are denominated in U.S. dollars, and that the Notes are not Stripped Securities. Moreover, the discussion assumes that the interest formula for the Notes meets the requirements for "qualified stated interest" under the OID regulations, and that any OID on the Notes does not exceed a de minimis amount, all within the meaning of the OID regulations. If these conditions are not satisfied with respect to any given series of Notes, additional tax considerations with respect to such Notes will be disclosed in the applicable Prospectus Supplement. Interest Income on the Notes. Based on the above assumptions, except as discussed in the following paragraph, the Notes will not be considered issued with OID. The stated interest thereon will be taxable to a Noteholder as ordinary interest income when received or accrued in accordance with such Noteholder's method of tax accounting. Under the OID regulations, a holder of a Note issued with a de minimis amount of OID must include such OID in income, on a pro rata basis, as principal payments are made on the Note. A purchaser who buys a Note for more or less than its principal amount will generally be subject, respectively, to the premium amortization or market discount rules of the Code. Sale or Other Disposition. If a Noteholder sells a Note, the holder will recognize gain or loss in an amount equal to the difference between the amount realized on the sale and the holder's adjusted tax basis in the Note. The adjusted tax basis of a Note to a particular Noteholder will equal the holder's cost for the Note, increased by any market discount, acquisition discount, OID and gain previously included by such Noteholder in income with respect to the Note and decreased by the amount of bond premium (if any) previously amortized and by the amount of principal payments previously received by such Noteholder with respect to such Note. Any such gain or loss will be capital gain or loss if the Note was held as a capital asset, except for gain representing accrued interest and accrued market discount not previously included in income. Capital losses generally may be used only to offset capital gains. Foreign Holders. Interest payments made (or accrued) to a Noteholder who is a nonresident alien, foreign corporation or other non-United States person (a "foreign person") generally will be considered "portfolio interest", and generally will not be subject to United States federal income tax and withholding tax, if the interest is not effectively connected with the conduct of a trade or business within the United States by the foreign person and the foreign person (i) is not actually or constructively a "10% shareholder" (within the meaning of Section 871(h)(3)(B) of the Code) of the Trust or of any beneficial owner therein or a "controlled foreign corporation" with respect to which the Trust or any beneficial owner is a "related person" within the meaning of the Code and (ii) provides the proper certifications. If such interest is not portfolio interest, then it will be subject to United States federal income and withholding tax at a rate of 30 percent, unless reduced or eliminated pursuant to an applicable tax treaty. 55 134 Any capital gain realized on the- sale, redemption, retirement or other taxable disposition of a Note by a foreign person will be exempt from United States federal income and withholding tax, provided that (i) such gain is not effectively connected with the conduct of a trade or business in the United States by the foreign person and (ii) in the case of an individual foreign person, the foreign person is not present in the United States for 183 days or more in the taxable year. Possible Alternative Treatments of the Notes. If, contrary to the opinion of special counsel to the Depositor, the IRS successfully asserted that one or more of the Notes did not represent debt for federal income tax purposes, the Notes might be treated as equity interests in the Trust Fund. If so treated, the Trust Fund might be a publicly traded partnership treated as a corporation, with the adverse consequences described above (and the publicly traded partnership would not be able to reduce its taxable income by deductions for interest expense on Notes recharacterized as equity). Further, treatment of the Notes as equity interests in such a publicly traded partnership could have adverse tax consequences to certain holders. For example, income to certain tax-exempt entities (including pension funds) would be "unrelated business taxable income", income to foreign holders generally would be subject to U.S. tax and U.S. tax return filing and withholding requirements, and individual holders might be subject to certain limitations on their ability to deduct their share of the Trust Fund's expenses. Tax Consequences to Holders of the Certificates Treatment of the Trust Fund as a Partnership. The Trust Fund and the Servicer will agree, and the Certificateholders will agree by their purchase of Certificates, to treat the Trust Fund as a partnership for purposes of federal and state income tax, franchise tax and any other tax measured in whole or in part by income, with the assets of the partnership being the assets held by the Trust Fund, the partners of the partnership being the Certificateholders, and the Notes being debt of the partnership. However, the proper characterization of the arrangement involving the Trust Fund, the Certificates, the Notes and the Servicer is not clear because there is no authority on transactions closely comparable to that contemplated herein. A variety of alternative characterizations are possible. For example, because the Certificates have certain features characteristic of debt, the Certificates (while unlikely) might be considered debt of the Trust Fund. The following discussion assumes that the Certificates represent equity interests in a partnership. Stripped Securities, etc. The following discussion assumes that all payments on the Certificates are denominated in U.S. dollars, none of the Certificates are Stripped Securities, and that a Series of Securities includes a single class of Certificates. If these conditions are not satisfied with respect to any given Series of Certificates, additional tax considerations with respect to such Certificates will be disclosed in the applicable Prospectus Supplement. Partnership Taxation. As a partnership, the Trust Fund will not be subject to federal income tax. Rather, each Certificateholder will be required to separately take into account such holder's allocated share of income, gains, losses, deductions and credits of the Trust Fund. Such items generally will have the same character (ordinary or capital, short-term or long-term) and source in the hands of each Certificateholder as they have in the hands of the Trust Fund. The Trust Fund's income will consist primarily of interest and finance charges earned on the Mortgage Loans (including appropriate adjustments for market discount, OID and bond premium) and any gain upon collection or disposition of Mortgage Loans. The Trust Fund's deductions will consist primarily of interest accruing with respect to the Notes, servicing and other fees, and losses or deductions upon collection or disposition of Mortgage Loans. The tax items of a partnership are allocable to the partners in accordance with the Code, Treasury regulations and the partnership agreement (here, the Trust Agreement and related documents). The Trust Agreement will provide, in general, that the Certificateholders will be allocated taxable income of the Trust Fund for each month equal to the sum of (i) the interest that accrues on the Certificates in accordance with their terms for such month, including interest accruing at the Pass Through Rate for such month and interest on amounts previously due on the Certificates but not yet distributed; (ii) any Trust Fund income attributable to discount on the Mortgage Loans that corresponds to any excess of the principal amount of the Certificates over their initial issue price; (iii) prepayment premium payable to the Certificateholders for such month; and (iv) any other amounts of income payable to the Certificateholders for such month. Such allocation will be reduced by any amortization by the Trust Fund of premium on Mortgage Loans that corresponds to any excess of the issue price of Certificates over their principal amount. All remaining taxable income of the Trust Fund may be allocated to the Depositor or may be allocated pro rata among the Certificateholders. Based on the economic arrangement of the parties, this approach 56 135 for allocating Trust Fund income should be permissible under applicable Treasury regulations, although no assurance can be given that the IRS would not require a greater amount of income to be allocated to the Certificateholders. Moreover, even under the foregoing method of allocation, Certificateholders may be allocated income equal to the entire Pass Through Rate plus the other items described above even though the Trust Fund might not have sufficient cash to make current cash distributions of such amount. Thus, cash basis holders will in effect be required to report income from the Certificates on the accrual basis and Certificateholders may become liable for taxes on Trust Fund income even if they have not received cash from the Trust Fund to pay such taxes. In addition, because tax allocations and tax reporting will be done on a uniform basis for all Certificateholders, but Certificateholders may be purchasing Certificates at different times and at different prices, Certificateholders may be required to report on their tax returns taxable income that is greater or less than the amount reported to them by the Trust Fund. In addition, if the Trust Fund's payments on the Certificates is payable to the Certificateholders without regard to the income of the Trust Fund, the Trust Fund's payment of such amounts to Certificateholders may be treated as "guaranteed payments" within the meaning of Section 707(c) of the Code, and not as a distributive share of the Trust Fund's income. Such guaranteed payments will constitute ordinary income to a Certificateholder but may not be considered interest income for U.S. federal income tax purposes. All of the taxable income allocated to a Certificateholder that is a pension, profit sharing or employee benefit plan or other tax-exempt entity (including an individual retirement account) will constitute "unrelated business taxable income generally taxable to such a holder under the Code. An individual taxpayer's share of expenses of the Trust Fund (including fees to the Servicer but not interest expense) would be miscellaneous itemized deductions. Such deductions might be disallowed to the individual in whole or in part and might result in such holder being taxed on an amount of income that exceeds the amount of cash actually distributed to such holder over the life of the Trust Fund. The Trust Fund intends to make all tax calculations relating to income and allocations to Certificateholders on an aggregate basis. If the IRS were to require that such calculations be made separately for each Mortgage Loan, the Trust Fund might be required to incur additional expense but it is believed that there would not be a material adverse effect on Certificateholders. Discount and Premium. The trust may have OID income, since the Mortgage Loans may have been issued with OID. In addition, the purchase price paid by the Trust Fund for the Mortgage Loans may be greater or less than the remaining principal balance of the Mortgage Loans at the time of purchase. If so, the Mortgage Loan will have been acquired at a premium or discount, as the case may be. (As indicated above, the Trust Fund will make this calculation on an aggregate basis, but might be required to recompute it on a Loan by Loan basis.) If the Trust Fund acquires the Mortgage Loans at a market discount or premium, the Trust Fund will elect to include any such discount in income currently as it accrues over the life of the Mortgage Loans or to offset any such premium against interest income on the Mortgage Loans. As indicated above, a portion of such market discount income or premium deduction may be allocated to Certificateholders. Section 708 Termination. Under Section 708 of the Code, the Trust Fund will be deemed to terminate for federal income tax purposes if 50% or more of the capital and profits interests in the Trust Fund are sold or exchanged within a 12-month period. If such a termination occurs, the Trust Fund will be considered to have transferred all of its assets and liabilities to a new partnership and then to have immediately liquidated and distributed the interests in the new partnership to the continuing Certificateholders. The Trust Fund will not comply with certain technical requirements that might apply when such a constructive termination occurs. As a result, the Trust Fund may be subject to certain tax penalties and may incur additional expenses if it is required to comply with those requirements. Furthermore, the Trust Fund might not be able to comply due to lack of data. Disposition of Certificates. Generally, capital gain or loss will be recognized on a sale of Certificates in an amount equal to the difference between the amount realized and the seller's tax basis in the Certificates sold. A Certificateholder's tax basis in a Certificate will generally equal the holder's cost increased by the holder's share of Trust Fund income and decreased by any distributions received with respect to such Certificate. In addition, both the tax basis in the Certificates and the amount realized on a sale of a Certificate would include the holder's share of the Notes and other liabilities of the Trust Fund. A holder acquiring Certificates at different prices may be required to maintain a single aggregate adjusted tax basis in such Certificates, and, upon sale or other disposition of some of the Certificates, allocate a portion of such aggregate tax basis to the Certificates sold (rather than maintaining a separate tax basis in each Certificate for purposes of computing gain or loss on a sale of that Certificate). 57 136 Any gain on the sale of a Certificate attributable to the holder's share of unrecognized accrued market discount on the Mortgage Loans would generally be treated as ordinary income to the holder and would give rise to special tax reporting requirements. The Trust Fund does not expect to have any other assets that would give rise to such special reporting requirements. Thus, to avoid those special reporting requirements, the Trust Fund will elect to include market discount in income as it accrues. If a Certificateholder is required to recognize an aggregate amount of income (not including income attributable to disallowed itemized deductions described above) over the life of the Certificates that exceeds the aggregate cash distributions with respect thereto, such excess will generally give rise to a capital loss upon the retirement of the Certificates. Allocations Between Transferors and Transferees. In general, the Trust Fund's taxable income and losses will be determined monthly and the tax items for a particular calendar month will be apportioned among the Certificateholders in proportion to the principal amount of Certificates owned by them as of the close of the last day of such month. As a result, a holder purchasing Certificates may be allocated tax items (which will affect its tax liability and tax basis) attributable to periods before it purchased its Certificates. The use of such a monthly convention may not be permitted by existing regulations. If a monthly convention is not allowed (or only applies to transfers of less than all of the partner's interest), taxable income or losses of the Trust Fund might be reallocated among the Certificateholders. The Trust Fund's method of allocation between transferors and transferees may be revised to conform to a method permitted by future regulations. Section 754 Election. In the event that a Certificateholder sells its Certificates at a profit (loss), the purchasing Certificateholder will have a higher (lower) basis in the Certificates than the selling Certificateholder had. The tax basis of the Trust Fund's assets will not be adjusted to reflect that higher (or lower) basis unless the Trust Fund were to file an election under Section 754 of the Code. In order to avoid the administrative complexities that would be involved in keeping accurate accounting records, as well as potentially onerous information reporting requirements, the Trust Fund will not make such election. As a result, Certificateholders might be allocated a greater or lesser amount of Trust Fund income than would be appropriate based on their own purchase price for Certificates. Administrative Matters. The Owner Trustee is required to keep or have kept complete and accurate books of the Trust Fund. Such books will be maintained for financial reporting and tax purposes on an accrual basis and the fiscal year of the Trust will be the calendar year. The Trustee will file a partnership information return (IRS Form 1065) with the IRS for each taxable year of the Trust Fund and will report each Certificateholder's allocable share of items of Trust Fund income and expense to holders and the IRS on Schedule K-1. The Trust Fund will provide the Schedule K-1 information to nominees that fail to provide the Trust Fund with the information statement described below and such nominees will be required to forward such information to the beneficial owners of the Certificates. Generally, holders must file tax returns that are consistent with the information return filed by the Trust Fund or be subject to penalties unless the holder notifies the IRS of all such inconsistencies. Under Section 6031 of the Code, any person that holds Certificates as a nominee at any time during a calendar year is required to furnish the Trust Fund with a statement containing certain information on the nominee, the beneficial owners and the Certificates so held. Such information includes (i) the name, address and taxpayer identification number of the nominee and (ii) as to each beneficial owner (x) the name, address and identification number of such person, (y) whether such person is a United States person, a tax-exempt entity or a foreign government, an international organization, or any wholly owned agency or instrumentality of either of the foregoing, and (z) certain information on Certificates that were held, bought or sold on behalf of such person throughout the year. In addition, brokers and financial institutions that hold Certificates through a nominee are required to furnish directly to the Trust Fund information as to themselves and their ownership of Certificates. A clearing agency registered under Section 17A of the Exchange Act is not required to furnish any such information statement to the Trust Fund. The information referred to above for any calendar year must be furnished to the Trust Fund on or before the following January 31. Nominees, brokers and financial institutions that fail to provide the Trust Fund with the information described above may be subject to penalties. It is expected that the Depositor will be designated as (or the attorney-in-fact for) the tax matters partner in the related Trust Agreement and, as such, will be responsible for representing the Certificateholders in any dispute with the IRS. The Code provides for administrative examination of a partnership as if the partnership was a separate and distinct taxpayer. Generally, the statute of limitations for partnership items does not expire before three years 58 137 after the date on which the partnership information return is filed. Any adverse determination following an audit of the return of the Trust Fund by the appropriate taxing authorities could result in an adjustment of the returns of the Certificateholders, and, under certain circumstances, a Certificateholder may be precluded from separately litigating a proposed adjustment to the items of the Trust Fund. An adjustment could also result in an audit of a Certificateholder's returns and adjustments of items not related to the income and losses of the Trust Fund. If and to the extent that the recognition of a Certificateholder's distributive share of the partnership's losses reduces the Certificateholder's adjusted tax basis in its Certificate below zero, the recognition of such losses by the Certificateholder will be deferred until such time as the recognition of such losses will not reduce its basis below zero. To the extent that the partnership's cash distributions (or constructive cash distributions, as described above) reduce a Certificateholder's adjusted tax basis in its Certificate below zero, such distributions will constitute income to such holder and will be treated as gain derived from the sale or exchange of the holder's interest in the partnership. Tax Consequences to Foreign Certificateholders. Under the terms of the Trust Agreement, the Certificates may not be acquired by or for the account of an individual or entity that is not a U.S. person as defined in Section 7701(a)(30) of the Code, and any transfer of a Certificate to a person that is not a U.S. person shall be void. STATE TAX CONSIDERATIONS In addition to the federal income tax consequences described in "Certain Federal Income Tax Considerations," potential investors should consider the state and local income tax consequences of the acquisition, ownership, and disposition of the Securities. State and local income tax law may differ substantially from the corresponding federal law, and this discussion does not purport to describe any aspect of the income tax laws of any state or locality. Therefore, potential investors should consult their own tax advisors with respect to the various state and local tax consequences of an investment in the Securities. ERISA CONSIDERATIONS The Employee Retirement Income Security Act of 1974, as amended ("ERISA") and Section 4975 of the Code impose certain restrictions on employee benefit plans subject to ERISA and on plans and other arrangements subject to Section 4975 of the Code ("Plans"), and on persons who are parties in interest or disqualified persons ("parties in interest") with respect to such Plans. Certain employee benefit plans, such as governmental plans and church plans (if no election has been made under Section 410(d) of the Code), are not subject to the restrictions of ERISA or Section 4975 of the Code , and assets of such plans may be invested in the Securities without regard to the ERISA considerations described below, subject to other applicable federal and state law. However, any such governmental or church plan which is qualified under Section 401(a) of the Code and exempt from taxation under Section 501(a) of the Code is subject to the prohibited transaction rules set forth in Section 503 of the Code. Investments by most Plans are subject to ERISA's general fiduciary requirements, including the requirement of investment prudence and diversification and the requirement that a Plan's investments be made in accordance with the documents governing the Plan. Section 406 of ERISA prohibits parties in interest with respect to a Plan from engaging in certain transactions ("prohibited transactions") involving a Plan and its assets unless a statutory or administrative exemption applies to the transaction. Section 4975 of the Code imposes certain excise taxes (or, in some cases, a civil penalty may be assessed pursuant to Section 502(i) of ERISA) on parties in interest which engage in nonexempt prohibited transactions. The United States Department of Labor ("DOL") has issued a final regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what constitutes the assets of a Plan. This regulation provides that, as a general rule, the underlying assets and properties of corporations, partnerships, trusts and certain other entities in which a Plan makes an investment in an "equity interest" will be deemed, for purposes of ERISA and Section 4975 of the Code to be assets of the Plan ("plan assets") unless certain exceptions apply. Under the terms of the DOL regulation, the Trust Fund may be deemed to hold plan assets by reason of a Plan's investment in a Security; such plan assets would include an undivided interest in the Mortgage Loans and any other assets held by the Trust Fund. In such an event, persons providing services with respect to the assets of the Trust Fund may be parties in interest, subject to the fiduciary responsibility provisions of ERISA, including the 59 138 prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Code, with respect to transactions involving such assets unless such transactions are subject to a statutory or administrative exemption. One such exception applies if the interest acquired by a Plan is treated as indebtedness under applicable local law and has no substantial equity features. Generally, a profits interest in a partnership, an undivided ownership interest in Mortgaged Property and a beneficial ownership interest in a trust are deemed to be "equity interests" under the DOL regulation. If Notes of a particular Series were deemed to be indebtedness under applicable local law without any substantial equity features, an investing Plan's assets would include such Notes, but not, by reason of the Plan's investment, the underlying assets of the Trust Fund. Another such exception applies if the class of equity interests in question is: (i) "widely held" (held by 100 or more investors who are independent of the Depositor and each other); (ii) freely transferable; and (iii) sold as part of an offering pursuant to (A) an effective registration statement under the Securities Act of 1933, and then subsequently registered under the Securities Exchange Act of 1934 or (B) an effective registration statement under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 ("Publicly Offered Securities"). In addition, the DOL regulation provides that if at all times more than 75% of the value of each class of equity interests in the Trust Fund are held by investors other than benefit plan investors (which is defined as including Plans, government, church and foreign plans and individual retirement accounts), the investing Plan's assets will not include any of the underlying assets of the Depositor or the Trust Fund. An additional exemption may also be available. The DOL has granted to many underwriters substantially similar administrative exemptions from certain of the prohibited transaction rules of ERISA and Section 4975 of the Code with respect to the initial purchase, the holding and the subsequent resale by Plans of securities representing interests in asset-backed pass-through trusts that consist of certain receivables, loans and other obligations that meet the conditions and requirements of the exemption. These securities may include the Certificates of a Series, and depending upon the particular characteristics of a Series, may include the Notes. The obligations covered by such exemptions include obligations such as the Mortgage Loans. The exemptions may apply to the acquisition, holding and resale of the Securities by a Plan, provided that certain conditions (certain of which are described below) are met. Among the conditions which must be satisfied for the exemptions to apply are the following: (i) The acquisition of the Securities by a Plan is on terms (including the price for the Securities) that are at least as favorable to the Plan as they would be in an arm's-length transaction with an unrelated party; (ii) The rights and interests evidenced by the Securities acquired by the Plan are not subordinated to the rights and interests evidenced by other securities of the Trust Fund; (iii) The Securities acquired by the Plan have received a rating at the time of such acquisition that is in one of the three highest generic rating categories from either Standard & Poor's Ratings Services ("Standard & Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("D&P") or Fitch IBCA, Inc. ("Fitch"); (iv) The sum of all payments made to the underwriter in connection with the distribution of the Securities represents not more than reasonable compensation for underwriting the Securities. The sum of all payments made to and retained by the Seller pursuant to the sale of the obligations to the Trust represents not more than the fair market value of such obligations. The sum of all payments made to and retained by the Servicer represents not more than reasonable compensation for the Servicer's services under the related servicing agreement and reimbursement of the Servicer's reasonable expenses in connection therewith; (v) The Trustee must not be an affiliate of any other member of the Restricted Group (as defined below); and (vi) The Plan investing in the Securities is an "accredited investor" as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission under the Securities Act of 1933. In order for the exemptions to apply, the Trust Fund also must meet the following requirements: (i) the corpus of the Trust Fund must consist solely of assets of the type which have been included in other investment pools; 60 139 (ii) securities in such other investment pools must have been rated in one of the three highest rating categories of Standard & Poor's, Moody's, D&P or Fitch for at least one year prior to the Plan's acquisition of securities; and (iii) securities evidencing interests in such other investment pools must have been purchased by investors other than Plans for at least one year prior to any Plan's acquisition of Securities. Moreover, the exemptions provide relief from certain self-dealing/conflict of interest prohibited transactions that may occur when the Plan fiduciary causes a Plan to acquire securities in a trust in which the fiduciary (or its affiliate) is an obligor on the receivables held in the trust, provided that, among other requirements, (i) in the case of an acquisition in connection with the initial issuance of Securities, at least fifty (50) percent of each Class of Securities in which Plans have invested is acquired by persons independent of the Restricted Group and at least fifty (50) percent of the aggregate interest in the trust is acquired by persons independent of the Restricted Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five (5) percent or less of the fair market value of the obligations contained in the trust; (iii) the Plan's investment in Securities does not exceed twenty-five (25) percent of all of the Securities issued by the Trust Fund outstanding after the acquisition; and (iv) no more than twenty-five (25) percent of the assets of the Plan are invested in securities representing an interest in one or more trusts containing assets sold or serviced by the same entity. The Exemption does not apply to Plans sponsored by the Depositor, the underwriters of the Securities, the Trustee, the Servicer, any obligor with respect to obligations included in a Trust Fund constituting more than five (5) percent of the aggregate unamortized principal balance of the assets in a Trust Fund, or any affiliate of such parties (the "Restricted Group"). Prospective Plan investors should consult with their legal advisors concerning the impact of ERISA and the Code, the potential application of the exemptions described above to the purchase and holding of the Securities, and the potential consequences to their specific circumstances, prior to making an investment in the Securities. Moreover, each Plan fiduciary should determine whether, under the general fiduciary standards of investment procedure and diversification, an investment in the Securities is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan's investment portfolio. LEGAL INVESTMENT Unless otherwise specified in the related Prospectus Supplement, the Securities will not constitute "mortgage-related securities" within the meaning of SMMEA. Accordingly, investors whose investment authority is subject to legal restrictions should consult their own legal advisors to determine whether and to what extent the Securities constitute legal investments for them. PLAN OF DISTRIBUTION The Depositor may offer each Series of Securities through one or more firms designated at the time of each offering of such Securities and identified in the related Prospectus Supplement. The Prospectus Supplement relating to each Series of Securities will set forth the specific terms of the offering of such Series of Securities and of each Class within such Series, the names of the underwriters, the purchase price of the Securities, the proceeds to the Depositor from such sale, any securities exchange on which the Securities may be listed, and, if applicable, the initial public offering prices, the discounts and commissions to the underwriters and any discounts and concessions allowed or reallowed to certain dealers. The place and time of delivery of each Series of Securities will also be set forth in the Prospectus Supplement relating to such Series. LEGAL MATTERS Unless otherwise specified in the related Prospectus Supplement, certain legal matters in connection with the Securities will be passed upon for the Company by Orrick, Herrington & Sutcliffe LLP, New York, New York. GLOSSARY OF TERMS The following are abbreviated definitions of certain capitalized terms used in this Prospectus. Unless otherwise provided in a "Supplemental Glossary" in the Prospectus Supplement for a Series, such definitions shall apply to capitalized terms used in such Prospectus Supplement. The definitions may vary from those in the related 61 140 Agreement for a Series and the related Agreement for a Series generally provides a more complete definition of certain of the terms. Reference should be made to the related Agreement for a Series for a more compete definition of such terms. "Advance" means cash advanced by the Servicer in respect of delinquent payments of principal of and interest on a Mortgage Loan, and for any other purposes specified in the related Prospectus Supplement. "Agreement" means, with respect to a Series of Certificates, the Pooling and Servicing Agreement or Trust Agreement, and, with respect to a Series of Notes, the Indenture and the Servicing Agreement, as the context requires. "Appraised Value" means, with respect to Mortgaged Property securing a Mortgage Loan, the lesser of the appraised value determined in an appraisal obtained at origination of the Mortgage Loan or sales price of such Mortgaged Property at such time. "Assumed Reinvestment Rate" means, with respect to a Series, the per annum rate or rates specified in the related Prospectus Supplement for a particular period or periods as the "Assumed Reinvestment Rate" for funds held in any fund or account for the Series. "Available Distribution Amount" means the amount in the Distribution Account (including amounts deposited therein from any reserve fund or other fund or account) eligible for distribution to Holders on a Distribution Date. "Bankruptcy Code" means the federal bankruptcy code, 11 United States Code 101 et seq., and related rules and regulations promulgated thereunder. "Business Day" means a day that, in the City of New York or in the city or cities in which the corporate trust office of the Trustee are located, is neither a legal holiday nor a day on which banking institutions are authorized or obligated by law, regulations or executive order to be closed. "Certificate" means the Asset-Backed Certificates. "Class" means a Class of Securities of a Series. "Closing Date" means, with respect to a Series, the date specified in the related Prospectus Supplement as the date on which Securities of such Series are first issued. "Code" means the Internal Revenue Code of 1986. "Collection Account" means, with respect to a Series, the account established in the name of the Servicer for the deposit by the Servicer of payments received from the Mortgage Loans. "Combined Loan-to-Value Ratio" means, with respect to a Mortgage Loan, the ratio determined as set forth in the related Prospectus Supplement taking into account the amounts of any related senior mortgage loans on the related Mortgaged Property. "Commission" means the Securities and Exchange Commission. "Condominium" means a form of ownership of real Mortgaged Property wherein each owner is entitled to the exclusive ownership and possession of his or her individual Condominium Unit and also owns a proportionate undivided interest in all parts of the Condominium Building (other than the individual Condominium Units) and all areas or facilities, if any, for the common use of the Condominium Units. "Condominium Association" means the person(s) appointed or elected by the Condominium Unit owners to govern the affairs of the Condominium. "Condominium Building" means a multi-unit building or buildings, or a group of buildings whether or not attached to each other, located on Mortgaged Property subject to Condominium ownership. "Condominium Loan" means a Loan secured by a Mortgage on a Condominium Unit (together with its appurtenant interest in the common elements). "Condominium Unit" means an individual housing unit in a Condominium Building. 62 141 "Cooperative" means a corporation owned by tenant-stockholders who, through the ownership of stock, shares or membership securities in the corporation, receive proprietary leases or occupancy agreements which confer exclusive rights to occupy specific units and which is described in Section 216 of the Code. "Cooperative Dwelling" means an individual housing unit in a building owned by a Cooperative. "Cooperative Loan" means a housing loan made with respect to a Cooperative Dwelling and secured by an assignment by the borrower (tenant-stockholder) or security interest in shares issued by the applicable Cooperative. "Credit Enhancement" means the enhancement for a Series, if any, specified in the related Prospectus Supplement. "Cut-off Date" means the date designated as such in the related Prospectus Supplement for a Series. "Debt Securities" means Securities characterized as indebtedness for federal income tax purposes, and Regular Interest Securities. "Deferred Interest" means the excess of the interest accrued on the outstanding principal balance of a Mortgage Loan during a specified period over the amount of interest required to be paid by an obligor on such Mortgage Loan on the related Due Date. "Depositor" means Banc One ABS Corporation. "Distribution Account" means, with respect to a Series, the account established in the name of the Trustee for the deposit of remittances received from the Servicer with respect to the Mortgage Loans. "Distribution Date" means, with respect to a Series or Class of Securities, each date specified as a distribution date for such Series or Class in the related Prospectus Supplement. "Due Date" means each date, as specified in the related Prospectus Supplement for a Series, on which any payment of principal or interest is due and payable by the obligor on any Primary Asset pursuant to the terms thereof. "Eligible Investments" means any one or more of the obligations or securities described as such in the related Agreement. "Enhancer" means the provider of the Credit Enhancement for a Series specified in the related Prospectus Supplement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Account" means an account, established and maintained by the Servicer for a Mortgage Loan, into which payments by borrowers to pay taxes, assessments, mortgage and hazard insurance premiums and other comparable items required to be paid to the mortgagee are deposited. "FHLMC" means the Federal Home Loan Mortgage Corporation. "Final Scheduled Distribution Date" means, with respect to a Class of Notes of a Series, the date no later than which principal thereof will be fully paid and with respect to a Class of Certificates of a Series, the date after which no Certificates of such Class will remain outstanding, in each case based on the assumptions set forth in the related Prospectus Supplement. "FNMA" means the Federal National Mortgage Association. "Holder" means the person or entity in whose name a Security is registered. "HUD" means the United States Department of Housing and Urban Development. "Indenture" means the indenture relating to a Series of Notes between the Trust Fund and the Trustee. "Index" means the index applicable to any adjustments in the Mortgage Loan Rates of any adjustable rate Mortgage Loans. "Insurance Policies" means certain mortgage insurance, hazard insurance and other insurance policies required to be maintained with respect to Mortgage Loans. 63 142 "Insurance Proceeds" means amounts paid by the insurer under any of the Insurance Policies covering any Mortgage Loan or Mortgaged Property. "Interest Only Securities" means a Class of Securities entitled solely or primarily to distributions of interest and which is identified as such in the related Prospectus Supplement. "IRS" means the Internal Revenue Service. "Lifetime Rate Cap" means the lifetime limit, if any, on the Mortgage Loan Rate during the life of each adjustable rate Mortgage Loan. "Liquidation Proceeds" means amounts received by the Servicer in connection with the liquidation of a Mortgage Loan, net of liquidation expenses. "Loan Rate" means, unless otherwise indicated herein or in the Prospectus Supplement, the interest rate borne by a Mortgage Loan. "Loan-to-Value Ratio" means, with respect to a Mortgage Loan, the ratio determined as set forth in the related Prospectus Supplement. "Minimum Rate" means the lifetime minimum Loan Rate during the life of each adjustable rate Mortgage Loan. "Modification" means a change in any term of a Mortgage Loan. "Mortgage" means the mortgage, deed of trust or other similar security instrument securing a Mortgage Note. "Mortgage Loan" means a revolving home equity loan or line of credit secured by a Mortgaged Property. "Mortgage Loan Group" means, with respect to the Mortgage Loans and other assets comprising the Trust Fund of a Series, a group of such Mortgage Loans and other assets having the characteristics described in the related Prospectus Supplement. "Mortgage Note" means the note or other evidence of indebtedness of a Mortgagor under the Mortgage Loan. "Mortgaged Property" means a Mortgaged Property securing a Mortgage Loan. "Mortgagor" means the obligor on a Mortgage Note. "1986 Act" means the Tax Reform Act of 1986. "Notes" means the Asset-Backed Notes. "Notional Amount" means the amount set forth in the related Prospectus Supplement for a Class of Interest Only Securities. "Participating Securities" means Securities entitled to receive payments of principal and interest and an additional return on investment as described in the related Prospectus Supplement. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust (including any beneficiary thereof), unincorporated organization, or government or any agency or political subdivision thereof. "Pooling and Servicing Agreement" means the pooling and servicing agreement relating to a Series of Certificates among the Depositor, the Servicer and the Trustee. "Principal Balance" means, with respect to a Mortgage Loan and as of a Due Date, the original principal amount of the Mortgage Loan, plus the amount of any Deferred Interest added to such principal amount, reduced by all payments, both scheduled or otherwise, received on such Mortgage Loan prior to such Due Date and applied to principal in accordance with the terms of the Mortgage Loan. "Principal Only Securities" means a Class of Securities entitled solely or primarily to distributions of principal and identified as such in the Prospectus Supplement. 64 143 "Qualified Insurer" means a mortgage guarantee or insurance company duly qualified as such under the laws of the states in which the Mortgaged Properties are located duly authorized and licensed in such states to transact the applicable insurance business and to write the insurance provided. "Rating Agency" means the nationally recognized statistical rating organization (or organizations) which was (or were) requested by the Depositor to rate the Securities upon the original issuance thereof. "REO Mortgaged Property" means real Mortgaged Property which secured a defaulted Mortgage Loan, beneficial ownership of which has been acquired upon foreclosure, deed in lieu of foreclosure, repossession or otherwise. "Reserve Fund" means, with respect to a Series, any Reserve Fund established pursuant to the related Agreement. "Retained Interest" means, with respect to a Mortgage Loan, the amount or percentage specified in the related Prospectus Supplement which is not included in the Trust Fund for the related Series. "Scheduled Payments" means the scheduled payments of principal and interest to be made by the borrower on a Mortgage Loan. "Securities" means the Notes or the Certificates. "Seller" means the seller of the Mortgage Loans to the Depositor identified in the related Prospectus Supplement for a Series. "Senior Securityholder" means a holder of a Senior Security. "Senior Securities" means a Class of Securities as to which the Holders' rights to receive distributions of principal and interest are senior to the rights of Holders of Subordinate Securities, to the extent specified in the related Prospectus Supplement. "Series" means a separate series of Securities sold pursuant to this Prospectus and the related Prospectus Supplement. "Servicer" means, with respect to a Series, the Person if any, designated in the related Prospectus Supplement to service Mortgage Loans for that Series, or the successors or assigns of such Person. "Single Family Mortgaged Property" means Mortgaged Property securing a Mortgage Loan consisting of one- to four-family attached or detached residential housing, including Cooperative Dwellings. "Subordinate Securityholder" means a Holder of a Subordinate Security. "Subordinated Securities" means a Class of Securities as to which the rights of holders to receive distributions of principal, interest or both is subordinated to the rights of holders of Senior Securities, and may be allocated losses and shortfalls prior to the allocation thereof to other Classes of Securities, to the extent and under the circumstances specified in the related Prospectus Supplement. "Trustee" means the trustee under the applicable Agreement and its successors. "Trust Fund" means, with respect to any Series of Securities, the trust holding all money, instruments, securities and other Mortgaged Property, including all proceeds thereof, which are, with respect to a Series of Certificates, held for the benefit of the Holders by the Trustee under the Pooling and Servicing Agreement or Trust Agreement, or, with respect to a Series of Notes, pledged to the Trustee under the Indenture as a security for such Notes, including, without limitation, the Mortgage Loans (except any Retained Interests), all amounts in the Distribution Account, Collection Account or Reserve Funds, distributions on the Mortgage Loans (net of servicing fees), and reinvestment earnings on such net distributions and any Credit Enhancement and all other Mortgaged Property and interests held by or pledged to the Trustee pursuant to the related Agreement for such Series. "UCC" means the Uniform Commercial Code. "Zero Coupon Security" means a Security entitled to receive payments of principal only. 65 144 [This page intentionally left blank] 66 145 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution. Set forth below are the expenses expected to be incurred by Banc One ABS Corporation (the "Registrant") in connection with the issuance and distribution of the securities being registered other than underwriting discounts and commissions and costs represented by the salaries and wages of regular employees and officers of the Registrants. All such expenses, other than the Filing Fee, are estimated expenses. Filing Fee for Registration Statement ............................. $ 295 Legal Fees and Expenses ........................................... $ 500,000 Accounting Fees and Expenses ...................................... $ 200,000 Trustees' Fees and Expenses (including counsel fees) ............. $ 75,000 Printing and Engraving Fees ....................................... $ 100,000 Rating Agency Fees ................................................ $ 250,000 Blue Sky and legal investment fees and expenses ................... $ 25,000 Miscellaneous ..................................................... $ 50,000 Total ...................................................... $1,200,295 ==========
Item 15. Indemnification of Directors and Officers. Neither any Pooling and Servicing Agreement to be entered into among any of the trusts to be formed, the Registrant, Bank One, N.A. as Servicer and the Trustee hereunder (the "Pooling and Servicing Agreement"), relating to the securities being registered, will provide for the indemnification of any director, officer, employee or agents of the Registrant or Bank One, N.A., in its capacity as Servicer thereunder, or in connection with any loss, liability or expense incurred in connection with legal action relating to the Pooling and Servicing Agreement and the securities issued pursuant thereto or related thereto. The Pooling and Servicing Agreement will provide that any director, officer, employee or agent of Bank One, N.A., in its capacity as Servicer thereunder, may rely on any document of any kind which it in good faith reasonably believes to be genuine and to have been adopted or signed by the proper authorities respecting any matters arising thereunder. Section 1701.13(E) of the Ohio General Corporation Law sets forth provisions which define the extent which a corporation may indemnify directors, officers and employees. Those provisions have been adopted by the Registrant in Article VI of Registrant's Code of Regulations, which provides as follows: The Corporation may indemnify any director or officer, any former director or officer of the Corporation and any person who is or has served at the request of the Corporation as a director, officer or trustee of any other corporation, partnership, joint venture, trust or other enterprise (and his heirs, executors and administrators) against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by him by reason of the fact that he is or was such director, officer or trustee in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to the full extent and according to the procedures and requirements set forth in the Ohio General Corporation Law as the same may be in effect from time to time. The indemnification provided for herein shall not be deemed to restrict the right of the Corporation to (i) indemnify employees, agents and others permitted by such Law, (ii) purchase and maintain insurance or provide similar protection on behalf of directors, officers or such other persons against liabilities asserted against them or expenses incurred by them 146 arising out of their service to the Corporation as contemplated herein, and (iii) enter into agreements with such directors, officers, employees, agents or others indemnifying them against any and all liabilities (or such lesser indemnification as may be provided in such agreement) asserted against them or incurred by them arising out of their service to the Corporation as contemplated herein. The Registrant's parent, BANC ONE CORPORATION, has entered into indemnification agreements with certain directors and executive officers of the Registrant that provide for indemnification unless the indemnitee's conduct is finally adjudged by a court be knowingly fraudulent, deliberately dishonest or willful misconduct. Item 16. Financial Statements and Exhibits. A list of exhibits included as part of this Registration Statement is set forth in the Exhibit Index which immediately precedes such exhibits and is hereby incorporated by reference herein. Item 17. Undertakings. (a) Undertaking pursuant to Rule 415: The Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or event arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrants pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post- effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 2 147 (b) Undertaking in respect of documents subsequently filed that are incorporated by reference: The Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the Registration Statement shall be deemed a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Undertaking in respect of indemnification Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 3 148 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Banc One ABS Corporation certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Columbus, State of Ohio, on the day of July, 1998. BANC ONE ABS CORPORATION By: /s/ Peter W. Atwater ------------------------ POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Peter W. Atwater, Suzanne Bachman and Charles F. Andrews, or any of them (with full power to each of them to act alone), as his or her true and lawful attorneys-in-fact and agents, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments and post-effective amendments to this Registration Statement, and to file the same with all exhibits thereto, unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them or their substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated: Name Title Date ---- ----- ---- /s/ Peter W. Atwater Director and President July __, 1998 -------------------- (Principal Executive, Financial Peter W. Atwater and Accounting Officer) /s/ Suzanne Bachman Director July __, 1998 -------------------- Suzanne Bachman /s/ Ted R. Schindler Director -------------------- Ted R. Schindler 4 149 INDEX TO EXHIBITS Sequentially Exhibit Number Numbered Page 1.1* - Form of Underwriting Agreement 3.1 - Articles of Incorporation of Banc One ABS Corporation 3.2 - Code of Regulations of Banc One ABS Corporation 4.1 - Form of Pooling and Servicing Agreement 4.2* - Form of Trust Agreement 4.3* - Form of Indenture 5.1 - Opinion of Orrick, Herrington & Sutcliffe LLP With Respect to Legality 8.1 - Opinion of Orrick, Herrington & Sutcliffe LLP With Respect to Certain Tax Matters 10.1* - Form of Purchase Agreement 23.1 - Consent of Orrick, Herrington & Sutcliffe LLP (included in its opinions filed as part of Exhibit 5.1 and Exhibit 8.1) 24.1 - Power of Attorney of Directors and Officers of Banc One ABS Corporation (included on signature page) - ------------------ * To be filed by amendment. EX-3.1 2 ARTICLES OF INCORPORATION 1 ARTICLES OF INCORPORATION OF BANC ONE ABS CORPORATION The undersigned, desiring to form a corporation for profit under the General Corporation Law of Ohio, do hereby certify that: FIRST. The name of said corporation (hereinafter called the "Corporation") shall be Banc One ABS Corporation. SECOND. The place in Ohio where its principal office is to be located is Columbus, Franklin County, Ohio. THIRD. The purposes for which the Corporation is formed are to engage in any lawful act or activity for which a corporation may be formed under Sections 1701.01 through 1701.98 of the Revised Code. FOURTH. The number of shares which the Corporation is authorized to have outstanding is five hundred (500) shares of common stock, all of which shall be without par value. FIFTH. The amount of stated capital with which the Corporation shall begin business is Five Hundred Dollars ($500.00). SIXTH. The Corporation may indemnify or agree to indemnify a director, officer or employee, or former director, officer or employee, or any person who is serving or has served at its request as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, against expenses, judgments, decrees, fines, penalties or amounts paid in settlement in connection with the defense of any pending or threatened action, suit or proceeding, criminal or civil, to which he is or may be made a party by reason of his having been such director, officer or employee provided that such indemnification or agreement to indemnify is in accordance with such terms and requirements as are prescribed by law. IN WITNESS WHEREOF, we, being all of the incorporators of the above named Corporation, have hereunto subscribed our names this 7th day of May, 1996. -------------------------------- Charles F. Andrews -------------------------------- Kenneth L. Wagner -------------------------------- Bruce Rigelman 2 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF BANC ONE ABS CORPORATION FIRST. The name of said corporation (hereinafter called the "Corporation") shall be BANC ONE ABS CORPORATION. SECOND. The place in Ohio where its principal office is to be located is Columbus, Franklin County, Ohio. THIRD. The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any of the following acts or activities: (a) to authorize, issue, sell, deliver, purchase and invest in (and enter into agreements in connection with), and/or to engage in the establishment of one or more trusts (each, a "Trust") which will issue and sell bonds, notes, debt or equity securities, obligations, and other securities and instruments (in one or more series, each of which series may consist of one or more classes) ("Securities"), which Securities will be collateralized or otherwise secured or backed by, or otherwise represent interests in, among other things, one or more pools of Receivables (as defined in Article Third (b) below) or other collateral (the Receivables and other collateral pledged as security for or otherwise supporting the Securities and the proceeds thereof are collectively referred to herein as the "Collateral"); in each case the Securities of a series which are distributed through one or more public offerings (with the exception of the Subordinated Securities (as defined in Article Third (c) below), which may or may not be rated) shall, when issued, be rated in one of the four highest rating categories by any one or more nationally recognized rating agencies; (b) in connection with the issuance and sale of the Securities or otherwise, to purchase or otherwise acquire, own, hold, transfer, convey, pledge, assign, sell (or otherwise dispose of), service, finance, refinance or otherwise deal in or with the Receivables (and any assets to which such Receivables relate) and related Collateral and to enter into contractual arrangements, transactions and agreements with respect to the Receivables and with the providers or obligors respecting such Collateral, including agreements with originators of Receivables, sellers or servicers of Receivables or dealers in any assets to which the Receivables relate; for purposes of these Articles of Incorporation, 3 the term "Receivables" means the right to payment hereunder, and other rights of a holder with respect to, various promissory notes, leases, loan agreements, installment sales contracts, drafts (including bank and commercial drafts), trade documents, certificates of participation, accounts receivable, accounts, account balances, certificates of beneficial ownership, bankers' acceptances and other agreements and instruments evidencing indebtedness or payment obligations, any or all of which may be secured or unsecured, that arise in connection with one or more of the following: (i) the sale or lease of automobiles, trucks or other motor vehicles, equipment, merchandise and other personal property and financings or re-financings secured thereby, (ii) credit card purchases or cash advances, (iii) the sale, licensing or other commercial provision of services, rights, intellectual properties and other intangibles, (iv) trade financing, with or without whole or partial guarantees of payment by the Export-Import Bank of the United States or any comparable domestic, foreign or international authority, (v) loans secured by first or junior mortgages on real estate, (vi) loans to employee stock ownership plans and (vii) any and all other commercial transactions and commercial, sovereign, student and consumer loans and indebtedness; (c) to arrange or otherwise provide for support for any series of Securities to be issued by the Corporation or any Trust by various forms of credit enhancement including collections and/or distributions on the Receivables which are to be remitted to certain accounts to be established under the indenture or participation, pooling or other similar agreements relating to such series, cash deposits, insurance policies, guaranteed investment contracts, investment agreements, guaranteed rate agreements, interest rate cap or swap agreements, currency exchange agreements, tax protection agreements, maturity liquidity facilities, letters of credit, minimum payment agreements, guarantees and other forms of credit enhancement including arrangements whereby for a given series, payments on one or more classes of Securities ("Subordinated Securities") are subordinated to, and constitute additional security for, payments due on one or more other classes of Securities in such series; (d) to invest certain proceeds from Receivables and related Collateral as determined by the Corporation's Board of Directors; and (e) to engage in any lawful act or activity and to exercise any powers permitted to corporations organized under the General Corporation Law of Ohio that are incidental to and necessary or convenient for the accomplishment of the -2- 4 above mentioned business and purposes. FOURTH. The number of shares which the Corporation is authorized to have outstanding is five hundred (500) shares of common stock, all of which shall be without par value. FIFTH. The amount of stated capital with which the Corporation shall begin business is Five Hundred Dollars ($500.00). SIXTH. (a) The affairs of the Corporation shall be managed by a board of directors consisting of three members. At all times on and after the date of issuance of Securities by any Trust, there shall be at least one director of the Corporation (the "Outside Director") who is not a director, officer or employee of, or direct or indirect beneficial owner of 10% or more of the voting securities of, or member of the immediate family of any such director, officer, employee or beneficial owner of the Corporation's parent, BANC ONE CORPORATION ("BANC ONE"), or any corporate affiliate of BANC ONE. Notwithstanding the foregoing, the Outside Director may be a director of one other corporation that is an affiliate of BANC ONE, provided such corporation is formed with purposes limited to those similar to the purposes of the Corporation. For the purposes of the foregoing, the "affiliate" of an entity is an entity controlling, controlled by or under common control with such entity. Should any Outside Director resign, die, become disabled or incapacitated, or be prevented from acting, the affairs of the Corporation shall and may be managed by the remaining directors, who shall promptly replace the aforementioned Outside Director with a person meeting the requirements set forth above. When voting on matters subject to the vote of the Corporation's Board of Directors, including those matters specified in this Article Sixth and in Article Seventh hereof, notwithstanding that the Corporation is not then insolvent, the Outside Director shall take into account the interests of the creditors of the Corporation as well as the interests of the Corporation. (b) The Corporation shall maintain a principal office through which its business shall be conducted, which office may be separately denoted space at the offices of BANC ONE. (c) The Corporation shall maintain corporate records and books of account and shall not commingle its corporate records and books of account with the corporate records and books of account of BANC ONE. (d) The Board of Directors of the Corporation shall hold appropriate meetings to -3- 5 authorize all of its corporate actions. Regular meetings of the Board of Directors shall be held not less frequently than three times per annum. (e) The funds and other assets of the Corporation shall not be commingled with those of any other corporation. (f) The Corporation shall pay its own expenses and shall not hold itself out as being liable for the debts of any other party. (g) The Corporation shall not form, or cause to be formed, any subsidiaries. (h) The Corporation shall act solely in its corporate name and through its duly authorized officers or agents in the conduct of its business, and shall conduct its business so as not to mislead others as to the identity of the entity with which they are concerned. (I) Meetings of the shareholders of the Corporation shall be held not less frequently than one time per annum. (j) The Corporation shall operate in such a manner that it would not be substantively consolidated in the trust estate of any other entity. SEVENTH. Notwithstanding any other provision of these Articles of Incorporation and any provision of law that otherwise so empowers the Corporation, the Corporation shall not do any of the following: (a) dissolve or liquidate, in whole or in part; (b) merge or consolidate with any other corporation other than a corporation wholly owned, directly or indirectly, by any entity owning 100% of the stock of the Corporation and having articles of incorporation containing provisions identical to the provisions of Articles Third and Sixth and this Article Seventh; (c) without the approval of the Outside Director, institute proceedings to be adjudicated a bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against it, or file a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy laws, or consent to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, conservator, sequestrator (or other similar official) of the Corporation or of any substantial part of the Corporation's property, or make an assignment for the benefit of creditors, or admit in writing its inability to pay its debts generally as they become due, or take corporate action in furtherance of any such action; or -4- 6 (d) amend these Articles of Incorporation to alter in any manner or delete Article Third or this Article Seventh or, without the consent of Moody's Investors Service, Inc. and Standard & Poor's, a Division of The McGraw-Hill Companies, or their respective successors, Article Sixth. EIGHTH. These Amended and Restated Articles of Incorporation take the place of and supersede the existing Articles of Incorporation as heretofore amended. -5- EX-3.2 3 CODE OF REGULATIONS 1 CODE OF REGULATIONS OF BANC ONE ABS CORPORATION (Herein called the "Corporation) ARTICLE I SHAREHOLDERS SECTION 1.01. ANNUAL MEETING. The annual meeting of shareholders for the election of Directors and the transaction of such other business as may properly come before it shall be held on the fourth Tuesday of January of each year. The annual meeting shall be at such hour and place as shall be fixed by resolution of the Board of Directors and stated in the written notice of the meeting. If the annual meeting for election of Directors is not held on the date designated therefor, the Directors shall cause the meeting to be held as soon thereafter as convenient. SECTION 1.02. SPECIAL MEETINGS. Special meetings of the shareholders for any purpose(s), may be called at any time by the Chairman, the President, the Board of Directors or any two members thereof. Special meetings of shareholders shall be held on such date and at such hour and place as shall be fixed by the person(s) calling the meeting and stated in the notice of the meeting. No business may be transacted at any such meeting except that referred to in such notice or in a supplemental notice given in compliance with this Code of Regulations. SECTION 1.03. NOTICE OF MEETING. Whenever shareholders are required or permitted to take any action at a meeting, a written notice stating the place, date, hour and purpose(s) of the shareholders' meeting shall be given to the shareholders. Said notice shall be given by or under the direction of the Secretary of the Corporation or such other Officer of the Corporation as is designated by the Board of Directors. Such written notice of any meeting shall be given, personally or by mail, postage prepaid, not less than ten nor more than fifty days before the date of the meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice shall be addressed to the shareholder at his address as it appears on the records of the Corporation. Any shareholder may waive any notice required to be given by law, the Articles of Incorporation, or this Code of Regulations. When a meeting is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken. Any business may be transacted at the adjourned meeting which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment the Board of Directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. 2 SECTION 1.04. QUORUM. Except as otherwise required by law, the Articles of Incorporation or this Code of Regulations, the holders of record of a majority of the issued and outstanding shares of the Corporation entitled to vote shall constitute a quorum at a meeting of shareholders for the transaction of any business. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders. The shareholders present may adjourn the meeting despite the absence of a quorum. At any such adjourned meeting at which the requisite amount of voting stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed. SECTION 1.05. RECORD DATE. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date which shall not be more than sixty nor less than ten days before the date of such meeting nor more than sixty days prior to any other action. SECTION 1.06. PROXIES. Each shareholder entitled to vote at a shareholders' meeting, or to express consent or dissent to corporate action in writing without a meeting, may authorize another person or persons, including a partnership or corporation, to act for him by proxy. Each such proxy shall be dated and if not dated by the shareholder, shall be dated as of the date of receipt thereof. No such proxy shall be valid after the final adjournment of any meeting for which it shall have been given. Every proxy shall be revocable at the pleasure of the shareholder executing it in accordance with the provisions of the General Corporation Law of Ohio. SECTION 1.07. SELECTION AND DUTIES OF JUDGES. The Board of Directors, in advance of any shareholders' meeting, may appoint one or more judges to act at the meeting or any adjournment thereof. If judges are not so appointed, the person presiding at a shareholders' meeting may and on the request of any shareholder entitled to vote thereat, or his proxy, shall appoint one or more judges. In case any person appointed fails to appear or to act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat. If there are three or more judges, the decision, act or certificate of a majority of them shall be effective in all respects as the decision, act or certificate of all. The judge(s) shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, receive votes, ballots, consents, waivers or releases; hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, consents, waivers and releases; determine and announce the result and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On the request of the person presiding at the meeting or any shareholder entitled to vote thereat, the judge(s) shall make a -2- 3 report in writing of any challenge, question or matter determined and execute a certificate of any fact found. Any report or certificate made shall be prima facie evidence of the facts stated therein and of the vote as certified by the judge(s). Unless appointed as above provided in this section, the judge(s) shall be dispensed with at all meetings of shareholders. SECTION 1.08. VOTE OF SHAREHOLDERS. Every shareholder of record, as of the record date fixed by the Board of Directors, shall, with respect to each matter submitted to vote at a shareholders' meeting, be entitled to one vote for every share of capital stock standing in his name on the record of shareholders. Directors shall be elected by a plurality of the votes cast by the holders of the outstanding shares of the Corporation which are represented at the meeting and entitled to vote in the election. Whenever any corporate action, other than the election of Directors, is to be taken by vote of the shareholders, such corporate action shall, except as otherwise required by law, the Articles of Incorporation or this Code of Regulations, be authorized by the affirmative votes of the holders of record of a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. SECTION 1.09. PRESIDING OFFICER. Meetings of the shareholders shall be presided over by the Chairman of the Board, if any, or if not present or there is no one filling that office by the President of the Corporation, or such other member of the Board as is designated by the Board. The Chairman, if any, and the President of the Corporation shall be members of the Board of Directors. The Secretary or such other officer or director as is designated by the Board of the Corporation shall record all the proceedings of the meetings of the shareholders and he shall act as Secretary of all meetings of the shareholders. In the absence of the Secretary or such other officer or director so designated, the presiding officer shall appoint another officer or a shareholder of the Corporation to act as Secretary of the meeting. ARTICLE II DIRECTORS SECTION 2.01. MANAGEMENT OF CORPORATION. The business of the Corporation shall be managed by its Board of Directors, each member of which shall have the qualifications prescribed by law, and shall have such further qualifications relating to age, business affiliation and employment by the Corporation as are from time to time adopted by the Board of Directors. SECTION 2.02. NUMBER AND ELECTION. Unless otherwise fixed by the Articles of Incorporation, the number of members of the Board of Directors shall be determined from time to time by the vote of the holders of a majority of the shares entitled to vote thereon at any annual meeting or special meeting called for the purpose of electing directors and, when so fixed, such number shall continue to be the authorized number of members of the Board of Directors until changed by the shareholders by vote as aforesaid. If the annual meeting for election of Directors is not held on the date designated therefor, the Directors shall cause the meeting to be held as soon thereafter as convenient. -3- 4 SECTION 2.03. TERM OF OFFICE. Directors shall hold office until the annual meeting next following their election and until their respective successors are elected and qualified or until their earlier resignation or removal from office. SECTION 2.04. VACANCIES. Vacancies and newly-created directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the members of the Board of Directors then in office, although such majority is less than a quorum, or by a sole remaining Director. SECTION 2.05. QUORUM. A majority of the total authorized number of Directors shall constitute a quorum for the transaction of business at a meeting of the Directors. The act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board except as otherwise provided by law, the Articles of Incorporation or this Code of Regulations. A majority of the Directors present, whether or not a quorum is present, may adjourn a meeting of the Directors to another time and place. Notice of any adjournment need not be given if such time and place are announced at the meeting. SECTION 2.06. ANNUAL MEETING. Immediately following the adjournment of the annual meeting of shareholders, the newly-elected Board of Directors, if a quorum thereof be present, shall meet for the purpose of organization, the election of officers and the transaction of any other business. Notice of such meeting need not be given. If for any reason such organizational meeting is not held at such time, a special meeting for such purpose shall be held at such other time and place as is determined by the Board and notice thereof shall not be necessary. SECTION 2.07. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held, without notice, on such date and at such hour and place as shall from time to time be fixed by the Board and no notice thereof shall be necessary. When the date fixed is a legal holiday, the regular meeting shall be held on the next succeeding business day or on such other day as the Board specifically designates at the next preceding Board meeting. SECTION 2.08. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called at any time by the Chairman, the President or by a majority of the Board of Directors. Special meetings shall be held on such date and at such hour and place as shall be fixed by the person(s) calling the meeting and stated in the notice or waiver of notice of the meeting. Unless waived, notice of each special meeting of the Directors, stating the date, hour and place of the meeting, shall be given to each Director, by personal communication either over the telephone or otherwise, not later than the second day prior to the meeting, or by mailed letter deposited in the United States mail with postage thereon prepaid not later than the seventh day prior to the meeting. Notices of special meetings of the Board of Directors and waivers thereof need not state the purpose or purposes of the meeting. Any business within the powers of the Board of Directors may be transacted at any meeting, whether or not stated in the notice. -4- 5 SECTION 2.09. WAIVER OF NOTICE. Any Director may waive any notice required to be given by law or this Code of Regulations. SECTION 2.10. COMPENSATION. Directors shall receive such compensation and expense reimbursement for attendance at each meeting of the Board of Directors or of any committee thereof and/or such salary as may be determined from time to time by the Board of Directors. Nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 2.11. COMMITTEES. The Board of Directors, by resolution adopted by a majority of the Board, may designate from among its members an Executive Committee and other committees, both standing and special, each consisting of two or more Directors. Each such committee, to the extent provided in the Board's resolution creating the committee, and consistent with such limitations as are contained in the Articles of Incorporation and the General Corporation Law of Ohio, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation. ARTICLE III OFFICERS SECTION 3.01. ELECTION. The officers of the Corporation shall include a Chairman, a President, a Secretary, a Treasurer and such number of Vice Presidents (which may include one or more Executive Vice Presidents and/or Senior Vice Presidents), Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers as are, in the judgment of the Board, required to transact the business of the Corporation. All officers of the Corporation may be elected and the compensation of all such officers may be fixed by the Board provided, however, that the President may appoint the Secretary, the Treasurer, and Vice Presidents of the Corporation and fix their salaries subject to approval of the Board. Any two or more offices may be held by the same person. Any officer may, but no officers except the President must be chosen from among the Board of Directors. The officers of the Corporation shall have the authority, perform the duties and exercise the powers in the management of the Corporation usually incident to the offices held by them respectively, and/or such other authority, duties and powers as may be assigned to them from time to time by the President. SECTION 3.02. TERM. The officers of the Corporation shall be elected or appointed to hold office until the meeting of the Board of Directors following the next annual or special meeting at which officers are elected or for such shorter periods as may be designated by the Board of Directors. Any officer may be removed at any time, with or without cause, by the Board of Directors. A vacancy in any office, however created, may be filled by the Board of Directors at any regular or special meeting. -5- 6 SECTION 3.03. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman, the President or by such other officer or agent of the Corporation so authorized by the President or the Board of Directors. Any such person may, in the name of and on behalf of the Corporation, take all such action as he may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which this Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time, confer like powers upon any other person or persons. ARTICLE IV CAPITAL STOCK SECTION 4.01. STOCK CERTIFICATES. The shares of stock of the Corporation shall be represented by certificates signed by the Chairman or the President and the Secretary, an Assistant Secretary or such other officer of the Corporation appointed by the Board of Directors for that purpose, to be known as an authorized officer. Such certificates may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the officers of the Corporation upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or by a registrar other than the Corporation itself or its employee. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. Each certificate shall set forth additional material as is requested by law. SECTION 4.02. TRANSFERS. The shares of stock of the Corporation shall be transferable in the manner prescribed by the laws of the State of Ohio. Transfers of stock shall be made on the share transfer books of the Corporation only by the person named in the certificate or by attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be canceled when the new certificate shall be issued. SECTION 4.03. REGISTERED HOLDERS. The Corporation shall be entitled to treat and shall be protected in treating persons in whose names shares or any warrants, rights or options stand on the records of shareholders, warrant holders, right holders or option holders, as the case may be, as the owners thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, any such share, warrant, right or option on the part of any other person, whether or not the Corporation shall have notice hereof. SECTION 4.04. NEW CERTIFICATES. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or -6- 7 destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify the Corporation and any transfer agent and/or registrar against any claim that may be made against it or them on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. A new certificate may be issued without requiring any bond when it is proper to do so. ARTICLE V MISCELLANEOUS SECTION 5.01. OFFICES. The principal office of the Corporation shall be in the City of Columbus, State of Ohio. The Corporation may have offices within and/or without the State of Ohio. SECTION 5.02. SEAL. The corporate seal shall be circular in form. The name of the Corporation and the year 1996 shall be engraved around the margin. The word "Seal" shall be engraved across the center. The Chairman, President, Secretary, Treasurer and such other officers so designated by the President shall have authority to affix the corporate seal to any document requiring such seal and to attest the same. SECTION 5.03. EXECUTION OF INSTRUMENTS. Agreements, indentures, mortgages, deeds, conveyances, transfers, certificates, declarations, receipts, discharges, releases, satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds, undertakings, proxies and other instruments or documents may be signed, executed, acknowledged, verified, delivered or accepted on behalf of the Corporation by the Chairman, President, Secretary, Treasurer, and such other officers as may be specifically authorized by the President or the Board of Directors. Employees of the Corporation may execute instruments and documents including but not limited to checks, notes and bills of exchange, on behalf of the Corporation to the extent specifically authorized by the President or the Board of Directors. SECTION 5.04. FISCAL YEAR. The fiscal year of the Corporation shall begin the first day of January in each year, and shall end on the thirty-first day of December of such year. SECTION 5.05. BOOKS AND RECORDS. The Corporation shall keep correct and complete books and records of accounts and of its transactions. It shall also keep minutes of the proceedings of its incorporators, shareholders, directors and committees of the Directors. The Corporation shall keep its share transfer books and other books and records in accordance with the requirements of law and prudent retention schedules. SECTION 5.06. AMENDMENT. This Code of Regulations may be added to, amended or repealed at any annual meeting of shareholders or at any special meeting called for that purpose by the affirmative votes of the holders of record of a majority of the shares entitled to vote on -7- 8 such proposal in person or by proxy, or without a meeting by the two-thirds of the voting power on such proposal. If the Regulations are amended or new regulations are adopted by such written consent, the Corporation shall mail a copy of the amendment or the new regulations to each shareholder entitled to vote thereon who did not participate in the adoption thereof. ARTICLE VI INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION 6.01. INDEMNIFICATION. The Corporation may indemnify any director or officer, any former director or officer of the Corporation and any person who is or has served at the request of the Corporation as a director, officer or trustee of another corporation, partnership, joint venture, trust or other enterprise (and his heirs, executors and administrators) against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by him by reason of the fact that he is or was such director, officer or trustee in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to the full extent and according to the procedures and requirements set forth in the Ohio General Corporation Law as the same may be in effect from time to time. The indemnification provided for herein shall not be deemed to restrict the right of the Corporation to (i) indemnify employees, agents and others as permitted by such Law, (ii) purchase and maintain insurance or provide similar protection on behalf of directors, officers or such other persons against liabilities asserted against them or expenses incurred by them out of their service to the Corporation as contemplated herein, and (iii) enter into agreements with such directors, officers, employees, agents or others indemnifying them against any and all liabilities (or such lesser indemnification as may be provided in such agreements) asserted against them or incurred by them arising out of their service to the Corporation as contemplated herein. -8- EX-4.1 4 FORM OF POOLING AND SERVICING AGREEMENT 1 ================================================================================ BANC ONE ABS CORPORATION, as Depositor, BANK ONE, N.A., as Servicer, and ________________________, as Trustee ------------------------ POOLING AND SERVICING AGREEMENT Dated as of ____ __, 1998 ------------------------ Revolving Home Equity Loan Asset-Backed Certificates Series 199_-_ ================================================================================ 2 TABLE OF CONTENTS Page ARTICLE I Definition...................................................1 Section 1.01. Definitions............................................1 Section 1.02. Interest Calculations.................................17 Section 2.01. Conveyance of Mortgage Loans; Retention of Obligation to Fund Advances Under Credit Line Agreements.......................................18 Section 2.03. Representations and Warranties Regarding the Servicer..........................................24 Section 2.04. Representations and Warranties of the Seller Regarding the Mortgage Loans; Retransfer of Certain Mortgage Loans.............................25 Section 2.05. Covenants of the Depositor............................30 Section 2.06. Retransfers of Mortgage Loans at Election of Transferor................................31 Section 2.07. Execution and Authentication of Certificates..........32 Section 2.09. Representations and Warranties of the Depositor.......33 ARTICLE III Administration and Servicing of Mortgage Loans..............34 Section 3.01. The Servicer..........................................34 Section 3.02. Collection of Certain Mortgage Loan Payments..........35 Section 3.03. Withdrawals from the Collection Account...............37 Section 3.04. Maintenance of Hazard Insurance; Property Protection Expenses...................................37 Section 3.05. Assumption and Modification Agreements................38 Section 3.06. Realization Upon Defaulted Mortgage Loans.............38 Section 3.07. Trustee to Cooperate..................................39 Section 3.08. Servicing Compensation; Payment of Certain Expenses by Servicer..................................40 Section 3.09. Annual Statement as to Compliance.....................40 Section 3.10. Annual Servicing Report...............................40 Section 3.11. RESERVED..............................................41 Section 3.12. Access to Certain Documentation and Information Regarding the Mortgage Loans..............41 Section 3.13. Maintenance of Certain Servicing Insurance Policies...41 Section 3.14. Reports to the Securities and Exchange Commission.....41 Section 3.15. Tax Returns...........................................41 Section 3.16. Information Required by the Internal Revenue Service Generally and Reports of Foreclosures and Abandonments of Mortgaged Property...42 -i- 3 ARTICLE IV Servicing Certificate.......................................42 Section 4.01. Servicing Certificate.................................42 Section 4.02. Claims upon the Policy; Policy Payments Account.......45 Section 4.03. Spread Account........................................46 Section 4.04. Effect of Payments by the Credit Enhancer; Subrogation.................................47 ARTICLE V Payments and Statements to Certificateholders; Rights of Certificateholders................................48 Section 5.01. Distributions.........................................48 Section 6.01. The Certificates......................................52 Section 6.02. Registration of Transfer and Exchange of Investor Certificates; Appointment of Registrar.............................................52 Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates.....54 Section 6.04. Persons Deemed Owners.................................54 Section 6.05. Restrictions on Transfer of Transferor Interest.......55 Section 6.06. Appointment of Paying Agent...........................56 Section 6.07. Acceptance of Obligations.............................57 ARTICLE VII The Servicer, the Seller and the Depositor..................58 Section 7.01. Liability of the Seller, the Servicer and the Depositor.....................................58 Section 7.02. Merger or Consolidation of, or Assumption of the Obligations of, the Servicer or the Depositor; Assignment of Servicing to an Affiliate.............................58 Section 7.03. Limitation on Liability of the Servicer and Others....58 Section 7.04. Servicer Not to Resign................................59 Section 7.05. Delegation of Duties..................................59 Section 7.06. Indemnification of the Trust by the Servicer..........59 Section 7.07. Indemnification of the Trust by the Transferor........60 Section 7.08. Limitation on Liability of the Transferor.............60 ARTICLE VIII Servicing Termination.......................................61 Section 8.01. Events of Servicing Termination.......................61 Section 8.02. Trustee to Act; Appointment of Successor..............62 Section 8.03. Notification to Certificateholders....................63 ARTICLE IX The Trustee.................................................64 Section 9.01. Duties of Trustee.....................................64 Section 9.02. Certain Matters Affecting the Trustee.................65 Section 9.03. Trustee Not Liable for Certificates or Mortgage Loans........................................66 Section 9.04. Trustee May Own Certificates..........................67 2 4 Section 9.05. Servicer to Pay Trustee's Fees and Expenses; Servicer to Indemnify.................................67 Section 9.06. Eligibility Requirements for Trustee..................67 Section 9.07. Resignation or Removal of Trustee.....................68 Section 9.08. Successor Trustee.....................................69 Section 9.09. Merger or Consolidation of Trustee....................69 Section 9.10. Appointment of Co-Trustee or Separate Trustee.........69 Section 9.11. Limitation of Liability...............................71 Section 9.12. Trustee May Enforce Claims Without Possession of Certificates............................71 Section 9.13. Suits for Enforcement.................................71 ARTICLE X Termination.................................................72 Section 10.01. Termination...........................................72 ARTICLE XI Rapid Amortization Event....................................75 Section 11.01. Rapid Amortization Events.............................75 Section 11.02. Additional Rights Upon the Occurrence of Certain Events.....................................76 ARTICLE XII Miscellaneous Provisions....................................78 Section 12.01. Amendment.............................................78 Section 12.02. Recordation of Agreement..............................79 Section 12.03. Limitation on Rights of Certificateholders............80 Section 12.04. Governing Law.........................................80 Section 12.05. Notices...............................................81 Section 12.06. Severability of Provisions............................81 Section 12.07. Assignment............................................81 Section 12.08. Certificates Nonassessable and Fully Paid.............81 Section 12.09. Third-Party Beneficiaries.............................81 Section 12.10. Counterparts..........................................82 Section 12.11. Effect of Headings and Table of Contents..............82 Section 12.12. Insurance Agreement...................................82 3 5 This Pooling and Servicing Agreement, dated as of _______ __, 199_, among Banc One ABS Corporation, as Depositor (the "Depositor"), Bank One, N.A., as Servicer (the "Servicer"), and _____________________, as Trustee (the "Trustee"), W I T N E S S E T H T H A T: In consideration of the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I Definition Section 1.01. Definitions. Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the meanings specified in this Article. Accelerated Principal Distribution Amount: With respect to any Distribution Date, the amount, if any, required to reduce the Investor Certificate Principal Balance (after giving effect to the distribution of all other amounts actually distributed on the Investor Certificates on such Distribution Date) so that the Invested Amount (immediately following such Distribution Date) exceeds the Investor Certificate Principal Balance (as so reduced) by the Required Overcollateralization Amount. Additional Balance: As to any Mortgage Loan and day, the aggregate amount of all Draws conveyed to the Trust pursuant to Section 2.01. Adjustment Date: With respect to any Interest Period, the second LIBOR Business Day preceding the first day of such Interest Period. 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. Agreement: This Pooling and Servicing Agreement and all amendments hereof and supplements hereto. Alternative Principal Payment: As to any Distribution Date, the amount (but not less than zero) equal to Principal Collections for such Distribution Date less the aggregate of Draws under the Credit Line Agreements during the related Collection Period. Asset Balance: As to any Mortgage Loan, other than a Liquidated Mortgage Loan, and day, the related Cut-Off Date Asset Balance, plus (i) any Additional Balance in respect of such Mortgage Loan, minus (ii) all collections credited as principal against the Asset Balance of any 1 6 such Mortgage Loan in accordance with the related Credit Line Agreement. For purposes of this definition, a Liquidated Mortgage Loan shall be deemed to have an Asset Balance equal to the Asset Balance of the related Mortgage Loan immediately prior to the final recovery of related Liquidation Proceeds and an Asset Balance of zero thereafter. Assignment of Mortgage: With respect to any Mortgage, an assignment, notice of transfer or equivalent instrument, in recordable form, sufficient under the laws of the jurisdiction in which the related Mortgaged Property is located to reflect the sale of the Mortgage to the Trustee, which assignment, notice of transfer or equivalent instrument may be in the form of one or more blanket assignments covering the Mortgage Loans secured by Mortgaged Properties located in the same jurisdiction. 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 and holidays. BIF: The Bank Insurance Fund, as from time to time constituted, created under the Financial Institutions Reform, Recovery and Enhancement Act of 1989, or if at any time after the execution of this instrument the Bank Insurance Fund is not existing and performing duties now assigned to it, the body performing such duties on such date. Billing Cycle: With respect to any Mortgage Loan , the period from the cycle date (5th, 10th, 15th, 20th and 25th) in the preceding month to the applicable cycle date in the current month. Book-Entry Certificate: Any Investor Certificate registered in the name of the Depository or its nominee, ownership of which is reflected on the books of the Depository or on the books of a Person maintaining an account with such Depository (directly or as an indirect participant in accordance with the rules of such Depository). Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in the State of New York or Ohio are required or authorized by law to be closed. Certificate: An Investor Certificate. Certificate Owner: The Person who is the beneficial owner of a Book-Entry Certificate. Certificate Register and Certificate Registrar: The register maintained and the registrar appointed pursuant to Section 6.02. Certificateholder or Holder: The Person in whose name a Certificate is registered in the Certificate Register, except that, solely for the purpose of giving any consent, direction, waiver or request pursuant to this Agreement, (x) any Investor Certificate registered in the name of the Transferor, or any Person known to a Responsible Officer to be an Affiliate of either the Depositor or the Transferor and (y) any Investor Certificate for which the Transferor, or any Person known to a Responsible officer to be an Affiliate of either the Transferor or the Depositor is the Certificate Owner shall be deemed not to be outstanding (unless to the knowledge of a Responsible Officer (i) the Transferor or the Depositor, or such Affiliate is acting as trustee or 2 7 nominee for a Person who is not an Affiliate of the Transferor or the Depositor and who makes the voting decision with respect to such Investor Certificate or (ii) the Transferor or the Depositor, or such Affiliate is the Certificate Owner of all the Investor Certificates) and the Percentage Interest evidenced thereby shall not be taken into account in determining whether the requisite amount of Percentage Interests necessary to effect any such consent, direction, waiver or request has been obtained. Closing Date: ____ __, 199_. Code: The Internal Revenue Code of 1986, as the same may be amended from time to time (or any successor statute thereto). Collection Account: The custodial account or accounts created and maintained for the benefit of the Investor Certificateholders and the Credit Enhancer pursuant to Section 3.02(b). The Collection Account shall be an Eligible Account. Collection Period: With respect to any Distribution Date (other than the first Distribution Date) and any Mortgage Loan, the calendar month preceding such Distribution Date. With respect to the first Distribution Date, the period from the first day immediately following the Cut-Off Date through ______ __, 199_. Combined Loan-to-Value Ratio: With respect to any Mortgage Loan as of any date, the percentage equivalent of the fraction, the numerator of which is (a) the sum of (i) the greater of the related Cut-Off Date Asset Balance or the Credit Limit and (ii) any outstanding principal balance of any senior mortgage loans as of the origination of such Mortgage Loan and the denominator of which is (b) the value based on a valuation of the related Mortgaged Property. Corporate Trust Office: The principal office of the Trustee at which at any particular time its corporate business shall be administered, which office on the Closing Date is located at _________________________, Attention:___________________. Credit Enhancement Draw Amount: As to any Distribution Date, an amount equal to the sum of (x) the amount by which the amount to be distributed to Investor Certificateholders pursuant to Section 5.01(a)(iii) exceeds the sum of (i) the amount of Investor Interest Collections on deposit in the Collection Account on the Business Day preceding such Distribution Date that is available to be applied therefor and (ii) any amount transferred from the Spread Account to the Collection Account pursuant to Section 4.03, (y) the Guaranteed Principal Distribution Amount and (z) any Preference Claim for such Distribution Date. Credit Enhancer:_______________, a New York monoline stock insurance company, any successor thereto or any replacement credit enhancer substituted pursuant to Section 4.03. Credit Enhancer Default: The failure by the Credit Enhancer to make a payment required under the Policy in accordance with the terms thereof. Credit Limit: As to any Mortgage Loan, the maximum Asset Balance permitted under the terms of the related Credit Line Agreement. 3 8 Credit Limit Utilization Rate: As to any Mortgage Loan, the percentage equivalent of a fraction the numerator of which is the Cut-Off Date Asset Balance for such Mortgage Loan and the denominator of which is the related Credit Limit. Credit Line Agreement: With respect to any Mortgage Loan, the related credit line account agreement executed by the related Mortgagor and any amendment or modification thereof. Custodial Agreement: Any Custodial Agreement between any Custodian and the Trustee, which is reasonably acceptable in form and substance to the Credit Enhancer, relating to the custody of the Mortgage Loans and the Related Documents. Custodian: Any custodian appointed by the Trustee under a Custodial Agreement to maintain all or a portion of the Mortgage Files pursuant to Section 2.01(b). Cut-Off Date: The end of business on____ __, 199_. Cut-Off Date Asset Balance: With respect to any Mortgage Loan, the unpaid principal balance thereof as of the Cut-off Date. Cut-Off Date Pool Balance: The Pool Balance calculated as of the Cut-Off Date. Cut-Off Date Weighted Average Gross Margin: The weighted average of the Gross Margins of the Mortgage Loans as of the Cut-Off Date, weighted on the basis of the Cut-Off Date Asset Balance. Defective Mortgage Loan: A Mortgage Loan subject to retransfer pursuant to Section 2.02 or 2.04. Definitive Certificates: As defined in Section 6.02(c). Delivery Event: As defined in Section 2.01. Depositor: Banc One ABS Corporation, or its successor in interest. Depository: The initial Depository shall be The Depository Trust Company, the nominee of which is Cede & Co., as the registered Holder of Investor Certificates evidencing $___________ in initial aggregate principal amount of the Investor Certificates. The Depository shall at all times be a "clearing corporation" as defined in Section 8-102(3) of the UCC of the State of New York. Depository Participant: A broker, dealer, bank or other financial institution or other 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 Distribution Date, the fourth Business Day prior to such Distribution Date. 4 9 Distribution Date: The ________ day of each month, or if such day is not a Business Day, then the next Business Day, beginning in the month immediately following the month of the initial issuance of the Certificates. Document Preparation Trigger: The rating of the Servicer's long-term unsecured debt obligations is reduced below __ and __ by ________ and _________ respectively. Draw: With respect to any Mortgage Loan, an additional borrowing by the Mortgagor subsequent to the Cut-Off Date in accordance with the related Mortgage Note. Due Date: As to any Mortgage Loan, the day on which payments under such Mortgage Loan are due. Electronic Ledger: The electronic master record of home equity credit line mortgage loans maintained by the Servicer [or the Seller, as appropriate]. Eligible Account: An account that is either (i) maintained with a depository institution whose (a) short-term debt obligations throughout the time of any deposit therein are rated in the highest short-term debt rating category by _________ and (b) short-term and long-term obligations throughout the time of any deposit therein are rated at least ___ and ___, respectively by _______, (ii) an account or accounts maintained with a depository institution with a minimum long term unsecured debt rating of _____ by ________ provided that the deposits in such account or accounts are fully insured by either the BIF or the SAIF, or (iii) a segregated trust account maintained (A) with the corporate trust department of the Trustee in its fiduciary capacity, or (B) with an institution with capital and surplus of not less than $50,000,000 and with a minimum long-term unsecured debt rating of at least ____ by _______ and _____ by ___________ or (iv) an account otherwise acceptable to each Rating Agency and the Credit Enhancer, as evidenced at closing by delivery of a rating letter by each Rating Agency and thereafter by delivery of a letter from each Rating Agency and the Credit Enhancer to the Trustee, within 30 days of receipt of notice of such deposit, to reduce or withdraw its then-current rating of the Certificates without regard to the Policy. Eligible Affiliate Servicer: Any Affiliate of Bank One, N.A. that has been assigned a rating that is at least equal to _____ and ____ by _________ and ___________, respectively. Eligible Investments: One or more of the following (excluding any callable investments purchased at a premium): (i) direct obligations of, or obligations fully guaranteed as to timely payment of principal and interest by, the United States or any agency or instrumentality thereof, provided that such obligations are backed by the full faith and credit of the United States; (ii) repurchase agreements on obligations specified in clause (i) maturing not more than three months from the date of acquisition thereof, provided that the short-term unsecured debt obligations of the party agreeing to repurchase such obligations are at the time rated by each Rating Agency in its highest short-term rating category (which is A-l+ for Standard & Poor's and P-1 for Moody's); 5 10 (iii) certificates of deposit, time deposits and bankers' acceptances (which, if Moody's is a Rating Agency shall each have an original maturity of not more than 90 days and, in the case of bankers' acceptances, shall in no event have an original maturity of more than 365 days) of any U.S. depository institution or trust company incorporated under the laws of the United States or any state thereof and subject to supervision and examination by federal and/or state banking authorities, provided that the unsecured short-term debt obligations of such depository institution or trust company at the date of acquisition thereof have been rated by each of Moody's and Standard & Poor's in its highest unsecured short-term debt rating category; (iv) commercial paper (having original maturities of not more than 270 days) of any corporation incorporated under the laws of the United States or any state thereof (including Bank One, N.A. or any related Affiliate) which on the date of acquisition has been rated by Standard & Poor's and Moody's in their highest short-term debt rating categories; (v) short term investment funds ("STIFS") sponsored by any trust company or national banking association incorporated under the laws of the United States or any state thereof which on the date of acquisition has been rated by Standard & Poor's and Moody's in their respective highest applicable rating category; and (vi) interests in any money market fund which at the date of acquisition of the interests in such fund and throughout the time such interests are held in such fund has a rating of Aaa by Moody's and either AAAm or AAAm-G by Standard & Poor's or such lower rating as will not result in the qualification, downgrading or withdrawal of the then-current rating assigned to the Certificates by each Rating Agency without regard to the Policy; (vii) other obligations or securities that are acceptable to each Rating Agency and the Credit Enhancer as an Eligible Investment hereunder and will not result in a reduction in the then current rating of the Certificates without regard to the Policy, as evidenced by a letter to such effect from such Rating Agency and the Credit Enhancer and with respect to which the Servicer has received confirmation that, for tax purposes, the investment complies with the last clause of this definition; provided that no instrument described hereunder shall evidence either the right to receive (a) only interest with respect to the obligations underlying such instrument or (b) both principal and interest payments derived from obligations underlying such instrument and the interest and principal payments with respect to such instrument provided a yield to maturity at par greater than 120% of the yield to maturity at par of the underlying obligations; and provided, further, that no instrument described hereunder may be purchased at a price greater than par if such instrument may be prepaid or called at a price less than its purchase price prior to its stated maturity. Eligible Substitute Mortgage Loan: A Mortgage Loan substituted [by the Seller] for a Defective Mortgage Loan which must, on the date of such substitution, (i) have an outstanding Asset Balance (or in the case of a substitution of more than one Mortgage Loan for a Defective 6 11 Mortgage Loan, an aggregate Asset Balance), that is approximately equal to the Transfer Deficiency, if any, relating to such Defective Mortgage Loan; (ii) have a Loan Rate not less than the Loan Rate of the Defective Mortgage Loan and not more than l% in excess of the Loan Rate of such Defective Mortgage Loan; (iii) have a Loan Rate based on the same Index with adjustments to such Loan Rate made on the same Interest Rate Adjustment Date as that of the Defective Mortgage Loan; (iv) have a Gross Margin that is not less than the Gross Margin of the Defective Mortgage Loan and not more than l% higher than the Gross Margin for the Defective Mortgage Loan; (v) have a Mortgage of the same or higher level of priority as the Mortgage relating to the Defective Mortgage Loan at the time such Mortgage was transferred to the Trust; (vi) have a remaining term to maturity not more than six months earlier and not more than sixty months later than the remaining term to maturity of the Defective Mortgage Loan; (vii) comply with each representation and warranty set forth in Section 2.04 (deemed to be made as of the date of substitution); and (viii) have an original Combined Loan-to-Value Ratio not greater than that of the Defective Mortgage Loan. More than one Eligible Substitute Mortgage Loan may be substituted for a Defective Mortgage Loan if such Eligible Substitute Mortgage Loans meet the foregoing attributes in the aggregate and such substitution is approved in writing in advance by the Credit Enhancer. Endorsement: As defined in the Policy. ERISA: Employee Retirement Income Security Act of 1974, as amended. Event of Servicing Termination: As defined in Section 8.01. FDIC: The Federal Deposit Insurance Corporation or any successor thereto. Fiscal Agent: As defined in the Policy. 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 Asset Balance (plus accrued and unpaid interest thereon at the applicable Loan 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. Gross Margin: As to any Mortgage Loan, the percentage set forth as the "Gross Margin" for such Mortgage Loan on Exhibit C hereto. Guaranteed Distribution: With respect to any Distribution Date, the sum of the (i) the Guaranteed Principal Distribution Amount and (ii) the amount to be distributed to Certificateholders pursuant to Section 5.01(a)(iii) for such Distribution Date. Guaranteed Principal Distribution Amount: With respect to any Distribution Date, (i) on any such Distribution Date, other than the Distribution Date in ____________, the amount, if any, required to reduce the Investor Certificate Principal Balance (after giving effect to the distributions of Interest Collections and Principal Collections that are allocable to principal on the Investor Certificates on such Distribution Date) to the Invested Amount immediately following such Distribution Date or (ii) on the Distribution Date in _____________ the amount by which the outstanding Investor Certificate Principal Balance (after giving effect to Interest 7 12 Collections allocable and distributable to principal on the Investor Certificates on such Distribution Date) exceeds the sum of the amounts on deposit in the Collection Account available to be distributed to the Investor Certificateholders pursuant to Section 5.01(b) hereof. Index: With respect to each Interest Rate Adjustment Date for a Mortgage Loan, the average Weekly Bank Prime Loan Rate as published by the Board of Governors of the Federal Reserve System in Statistical Release H.15 for the week which includes the 15th day of the month. Insolvency Event: As defined in Section 11.02. Insurance Agreement: The insurance and indemnity agreement dated as of _____ __, 199_ among the Depositor, [the Seller,] the Servicer, the Trustee and the Credit Enhancer, including any amendments and supplements thereto. Insurance Proceeds: Proceeds paid by any insurer (other than the Credit Enhancer) pursuant to any insurance policy covering a Mortgage Loan, or amounts required to be paid by the Servicer pursuant to the last sentence of Section 3.04, 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, (iii) released to the Mortgagor in accordance with the Servicer's normal servicing procedures or (iv) required to be paid to any holder of a mortgage senior to such Mortgage Loan. Interest Collections: As to any Distribution Date, the sum of all payments by or on behalf of Mortgagors and any other amounts constituting interest (including without limitation such portion of Insurance Proceeds and Net Liquidation Proceeds as is allocable to interest on the applicable Mortgage Loan) collected by the Servicer under the Mortgage Loans (excluding any fees (including annual fees) or late charges or similar administrative fees paid by Mortgagors) plus any gains and investment earnings from amounts on deposit in the Collection Account during the related Collection Period minus the Servicing Fee payable to the Servicer with respect to the related Collection Period. The terms of the related Credit Line Agreement shall determine the portion of each payment in respect of such Mortgage Loan that constitutes principal or interest. Interest Period: With respect to any Distribution Date other than the first Distribution Date, the period beginning on the preceding Distribution Date and ending on the day preceding such Distribution Date, and in the case of the first Distribution Date, the period beginning on the Closing Date and ending on the day preceding the first Distribution Date. Interest Rate Adjustment Date: With respect to each Mortgage Loan, any date on which the Loan Rate is adjusted in accordance with the related Credit Line Agreement. Invested Amount: With respect to any Distribution Date, an amount equal to the Original Invested Amount minus (i) the amount of Principal Collections previously distributed to Investor Certificateholders and minus (ii) the Investor Loss Amounts for prior Distribution Dates. Investor Certificate: Any certificate executed and authenticated by the Trustee substantially in the form set forth in Exhibit A hereto. 8 13 Investor Certificate Distribution Amount: As to any Distribution Date, the sum of all amounts to be distributed to the Holders of Investor Certificates pursuant to Article V and Article XI hereof. Investor Certificate Interest: With respect to any Distribution Date, interest for the related Interest Period at the applicable Investor Certificate Rate on the Investor Certificate Principal Balance as of the first day of such Interest Period (after giving effect to the distributions made on the first day of such Interest Period). Investor Certificate Principal Balance: With respect to any Distribution Date, (a) the Original Investor Certificate Principal Balance less (b) the aggregate of amounts actually distributed as principal on the Investor Certificates. Investor Certificate Rate: With respect to the first Interest Period, ______%, and for any subsequent Interest Period, the sum of (a) LIBOR as of the second LIBOR Business Day prior to the first day of such Interest Period and (b) ____%; provided, however, that in no event shall the Investor Certificate Rate with respect to any Interest Period exceed the Maximum Rate for such Interest Period. Investor Certificateholder: The Holder of an Investor Certificate. Investor Floating Allocation Percentage: With respect to any Distribution Date, the percentage equivalent of a fraction, the numerator of which is the Invested Amount at the close of business on the preceding Distribution Date (or at the Closing Date in the case of the first Distribution Date) and the denominator of which is the Pool Balance, calculated as of the beginning of the related Collection Period. Investor Fixed Allocation Percentage: __%. Investor Interest Collections: As to any Distribution Date the product of (i) the Interest Collections during the related Collection Period and (ii) the Investor Floating Allocation Percentage for such Distribution Date. Investor Loss Amount: With respect to any Distribution Date, an amount equal to the product of (i) the Investor Floating Allocation Percentage for such Distribution Date and (ii) the aggregate of the Liquidation Loss Amounts for such Distribution Date. Investor Loss Reduction Amount: With respect to any Distribution Date, the portion, if any, of the Investor Loss Amount for such Distribution Date and all prior Distribution Dates that has not been distributed to Investor Certificateholders on such Distribution Date pursuant to Section 5.01(a)(iv) or 5.01(a)(v) or by way of the Credit Enhancement Draw Amount. Investor Principal Collections: As to any Distribution Date, the Investor Fixed Allocation Percentage of Principal Collections in respect of such Distribution Date. LIBOR: As to any date, the rate for one month United States dollar deposits which appears on the Telerate Screen LIBOR Page 3750 as of 11:00 A.M., London time on such date. If such rate does not appear on such page (or such other page as may replace that page on that 9 14 service, or if such service is no longer offered, such other service for displaying LIBOR or comparable rates as may be reasonably selected by the Depositor after consultation with the Trustee), the rate will be the Reference Bank Rate. If no such quotations can be obtained and no Reference Bank Rate is available, LIBOR will be LIBOR applicable to the preceding Distribution Date. 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 New York 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; provided, however, that any assignment pursuant to Section 7.02 hereof shall not be deemed to constitute a Lien. Lifetime Rate Cap: With respect to each Mortgage Loan with respect to which the related Mortgage Note provides for a lifetime rate cap, the maximum Loan Rate permitted over the life of such Mortgage Loan under the terms of the related Credit Line Agreement, as set forth on Exhibit C hereto. Liquidated Mortgage Loan: As to any Distribution Date, any Mortgage Loan in respect of which the Servicer has determined, in accordance with the servicing procedures specified herein, as of the end of the related Collection Period, that all Liquidation Proceeds which it expects to recover with respect to the disposition of such Mortgage Loan or the related REO have been recovered. Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead) which are incurred by the Servicer in connection with the liquidation of any Mortgage Loan and not recovered under any insurance policy, including, without limitation, legal fees and expenses, any unreimbursed amount expended pursuant to Section 3.06 (including, without limitation, amounts advanced to correct defaults on any Mortgage Loan which is senior to such Mortgage Loan and amounts advanced to keep current or pay off a Mortgage Loan that is senior to such Mortgage Loan) respecting the related Mortgage Loan and any related and unreimbursed expenditures with respect to real estate property taxes, water or sewer taxes, condominium association dues, property restoration or preservation or insurance against casualty, loss or damage. Liquidation Loss Amount: With respect to any Distribution Date and any Mortgage Loan that becomes a Liquidated Mortgage Loan during the related Collection Period, the unrecovered Asset Balance thereof at the end of such Collection Period, after giving effect to the Net Liquidation Proceeds applied in reduction of such Asset Balance. 10 15 Liquidation Proceeds: Proceeds (including Insurance Proceeds but not including amounts drawn under the Policy) received in connection with the liquidation of any Mortgage Loan or related REO, whether through trustee's sale, foreclosure sale or otherwise. Loan Rate: With respect to any Mortgage Loan and as of any day, the per annum rate of interest applicable under the related Credit Line Agreement to the calculation of interest for such day on the Asset Balance of such Mortgage Loan. Loan Rate Cap: With respect to each Mortgage Loan, the lesser of (i) the Lifetime Rate Cap, if any, or (ii) the applicable state usury ceiling, if any. Managed Amortization Period: The period from the Closing Date to and including the Rapid Amortization Commencement Date. Maximum Principal Payment: With respect to any Distribution Date, the product of the Investor Fixed Allocation Percentage and the Principal Collections for such Distribution Date. Maximum Rate: As to any Interest Period, the Weighted Average Net Loan Rate for the Collection Period during which such Interest Period begins (adjusted to an effective rate reflecting accrued interest calculated on the basis of the actual number of days in the Collection Period commencing in the month in which such Interest Period commences and a year assumed to consist of 360 days). Minimum Monthly Payment: With respect to any Mortgage Loan and any month, the minimum amount required to be paid by the related Mortgagor in that month. Minimum Transferor Interest: With respect to any date, an amount equal to the lesser of (a) _% of the Pool Balance on such date and (b) the Transferor Principal Balance as of the Closing Date. [Moody's: Moody's Investors Service, Inc. or its successor in interest.] Mortgage: The mortgage, deed of trust or other instrument creating a first, second or third lien on an estate in fee simple interest in real property securing a Mortgage Loan. Mortgage File: The mortgage documents listed in Section 2.01 pertaining to a particular Mortgage Loan and any additional documents required to be added to the Mortgage File pursuant to this Agreement. Mortgage Loan Schedule: With respect to any date, the schedule of Mortgage Loans included in the Trust on such date. The initial schedule of Mortgage Loans as of the Cut-Off Date is the schedule set forth herein as Exhibit C, which schedule sets forth as to each Mortgage Loan (i) the Cut-Off Date Asset Balance, (ii) the Credit Limit, (iii) the Gross Margin, (iv) the Lifetime Rate Cap, (v) the account number, (vi) the current Loan Rate, (vii) the date of origination, (viii) the original term to maturity, (ix) State in which the Mortgaged Property is located; and (x) the originator. The Mortgage Loan Schedule will be deemed to be amended from time to time to reflect Additional Balances. 11 16 Mortgage Loans: The mortgage loans, including Additional Balances with respect thereto, that are transferred and assigned to the Trustee pursuant to Section 2.01, together with the Related Documents, exclusive of Mortgage Loans that are retransferred to the Depositor, the Servicer [or the Seller] from time to time pursuant to Section 2.02, 2.04, 2.06 or 3.01 as from time to time are held as a part of the Trust. The mortgage loans originally so held are identified in the Mortgage Loan Schedule delivered on the Closing Date. The Mortgage Loans shall also include any Eligible Substitute Mortgage Loan substituted by [the Seller] for a Defective Mortgage Loan pursuant to Sections 2.02 and 2.04. Mortgage Note: With respect to a Mortgage Loan, the Credit Line Agreement pursuant to which the related Mortgagor agrees to pay the indebtedness evidenced thereby and secured by the related Mortgage. Mortgaged Property: The underlying property, including any real property and improvements thereon, securing a Mortgage Loan. Mortgagor: The obligor or obligors under a Credit Line Agreement. Net Liquidation Proceeds: With respect to any Liquidated Mortgage Loan, Liquidation Proceeds net of Liquidation Expenses. Net Loan Rate: With respect to any Mortgage Loan and as to any day, the Loan Rate less the Servicing Fee Rate, the Premium Fee Rate and the Trustee Fee Rate. Officer's Certificate: A certificate signed by the President, an Executive Vice President, a Senior Vice President, a Vice President, an Assistant Vice President, the Treasurer, Assistant Treasurer, Controller or Assistant Controller of the Depositor, the Servicer or the Transferor, as the case may be, and delivered to the Trustee. Opinion of Counsel: A written opinion of counsel acceptable to the Trustee, who may be in-house counsel for the Depositor, [the Seller,] the Servicer or the Transferor (except that any opinion pursuant to Section 7.04 or relating to taxation must be an opinion of independent outside counsel) and who, in the case of opinions delivered to the Credit Enhancer and the Rating Agency, is reasonably acceptable to it. Original Invested Amount: $____________. Original Investor Certificate Principal Balance: $___________. Overcollateralization Amount: At the time of reference thereto, the amount, if any, by which the Invested Amount exceeds the Investor Certificate Principal Balance. Paying Agent: Any paying agent appointed pursuant to Section 6.06. Percentage Interest: As to any Investor Certificate, the percentage obtained by dividing the principal denomination of such Investor Certificate by the aggregate of the principal denominations of all Investor Certificates. 12 17 Person: Any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Policy: The financial guaranty insurance policy number , and all endorsements thereto, dated as of the Closing Date, issued by the Credit Enhancer to the Trustee for the benefit of the Investor Certificateholders. Policy Payments Account: As defined in Section 4.02. Pool Balance: With respect to any date, the aggregate of the Asset Balances of all Mortgage Loans as of such date. Pool Factor: With respect to any Distribution Date, the percentage, carried to seven places, obtained by dividing the Investor Certificate Principal Balance for such Distribution Date by the Original Investor Certificate Principal Balance. Preference Claim: As defined in Section 4.02. Premium Fee Rate: As described in the Insurance Agreement. Principal Collections: As to any Distribution Date, the sum of all payments by or on behalf of Mortgagors and any other amounts constituting principal (including but not limited to any portion of Insurance Proceeds or Net Liquidation Proceeds allocable to principal of the applicable Mortgage Loan, and Transfer Deposit Amounts, but excluding Foreclosure Profits) collected by the Servicer under the Mortgage Loans during the related Collection Period. The terms of the related Credit Line Agreement shall determine the portion of each payment in respect of a Mortgage Loan that constitutes principal or interest. Purchase Agreement: The Mortgage Loan Purchase Agreement, dated as of the Cut-off Date, between ________________, as Seller, and the Depositor, as purchaser, with respect to the Mortgage Loans. Rapid Amortization Commencement Date: The earlier of (i) the Distribution Date in _______ and (ii) the Distribution Date next succeeding the Collection Period in which a Rapid Amortization Event is deemed to occur pursuant to Section 11.01. Rapid Amortization Event: As defined in Section 11.01. Rapid Amortization Period: The period following the Managed Amortization Period until the termination of the Trust pursuant to Section 10.01. Rating Agency: Any statistical credit rating agency, or its successor, that rated the Investor Certificates at the request of the Depositor at the time of the initial issuance of the Certificates. If such agency or a successor is no longer in existence, "Rating Agency" shall be such statistical credit rating agency, or other comparable Person, designated by the Depositor and the Credit Enhancer, notice of which designation shall be given to the Trustee. References herein to the highest short term unsecured rating category of a Rating Agency shall mean ____ or 13 18 better in the case of __________ and ____ or better in the case of ________ and in the case of any other Rating Agency shall mean the ratings such other Rating Agency deems equivalent to the foregoing ratings. References herein to the highest long-term rating category of a Rating Agency shall mean "____" in the case of __________ and "___" in the case of _____ and in the case of any other Rating Agency, the rating such other Rating Agency deems equivalent to the foregoing ratings. Recalculated Weighted Average Gross Margin: The Cut-off Date Weighted Average Gross Margin recalculated based upon the assumption that each Mortgage Loan that has had a reduction to its Gross Margin pursuant to Section 3.01 had such reduced Gross Margin as of the Cut-off Date. Record Date: The last day preceding the related Distribution Date; provided, however, that following the date on which the Definitive Certificates are available pursuant to Section 6.02(c) the Record Date shall be the last day of the calendar month preceding the month in which the related Distribution Date occurs. Reference Bank Rate: As to any Interest Period as follows: the arithmetic mean (rounded upwards, if necessary, to the nearest one sixteenth of a percent) of the offered rates for one month United States dollar deposits which are offered by the Reference Banks as of 11:00 A.M., London time, on the second LIBOR Business Day prior to the first day of such Interest Period to prime banks in the London interbank market in amounts approximately equal to the Outstanding Investor Certificate Principal Balance; provided that at least two such Reference Banks provide such rate. If fewer than two offered rates appear, the Reference Bank Rate will be the arithmetic mean of the rates quoted by one or more major banks in New York City, selected by the Depositor after consultation with the Trustee, as of 11:00 A.M., New York City time, on such date for loans in U.S.. Dollars to leading European Banks for a period of one month in amounts approximately equal to the outstanding Investor Certificate Principal Balance. If no such quotations can be obtained, the Reference Bank Rate shall be the Reference Bank Rate applicable to the preceding Interest Period. Reference Banks: Three major banks that are engaged in the London interbank market, selected by the Depositor after consultation with the Trustee. Related Documents: As defined in Section 2.01. REO: A Mortgaged Property that is acquired by the Trust in foreclosure or by deed in lieu of foreclosure. Required Overcollateralization Amount: As defined in the Insurance Agreement. Responsible Officer: When used with respect to the Trustee, any officer of the Trustee with direct responsibility for the administration of this Agreement 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. 14 19 Revolving Period: With respect to each Mortgage Loan, the period specified for such Mortgage Loan in the related Credit Line Agreement, during which the Mortgagor is permitted to make Draws. SAIF: The Savings Association Insurance Fund, as from time to time constituted, created under the Financial Institutions Reform, Recovery and Enhancement Act of 1989, or if at any time after the execution of this instrument the Savings Association Insurance Fund is not existing and performing duties now assigned to it, the body performing such duties on such date. Scheduled Principal Collections Distribution Amount: With respect to any Distribution Date during the Managed Amortization Period and the Investor Certificates, an amount equal to the lesser of (i) the Maximum Principal Payment and (ii) the Alternative Principal Payment. With respect to any Distribution Date during a Rapid Amortization Period, the Maximum Principal Payment. Seller: ________________________ and any successor thereto. Servicer: Bank One, N.A., a national banking association and any successor hereunder. Servicing Certificate: A certificate completed and executed by a Servicing Officer in accordance with Section 4.01. Servicing Fee: With respect to any Distribution Date, the product of (i) the Servicing Fee Rate divided by 12 and (ii) the aggregate Asset Balance of the Mortgage Loans on the first day of the Collection Period preceding such Distribution Date (or at the Cut-Off Date with respect to the first Distribution Date). Servicing Fee Rate: ____% 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 Trustee (with a copy to the Credit Enhancer) by the Servicer on the Closing Date, as such list may be amended from time to time. Spread Account: The account created pursuant to Section 4.03 and maintained pursuant to the Insurance Agreement. Spread Account Requirement: As defined in the Insurance Agreement. [Standard & Poor's: Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, or its successor in interest.] Telerate Screen Page 3750: The display designated as page 3750 on the Telerate Service (or such other page as may replace page 3750 on that service for the purpose of displaying London interbank offered rates of major banks). Transfer Date: As defined in Section 2.06. 15 20 Transfer Deficiency: As defined in Section 2.02. Transfer Deposit Amount: As defined in Section 2.02. Transfer Notice Date: As defined in Section 2.06. Transferor: The Holder of the Transferor Interest. Transferor Collections: As to any period, the sum of Transferor Interest Collections and Transferor Principal Collections for such period. Transferor Interest: The interest of the Transferor in the Trust issued by the Trustee pursuant to Section 6.01. Transferor Interest Collections: Interest Collections that are not Investor Interest Collections. Transferor Principal Balance: As of any date of determination, the amount equal to (i) the Pool Balance at the end of the day next preceding such date of determination less (ii) the Invested Amount as of the close of business on the preceding Distribution Date. Transferor Principal Collections: On any Distribution Date, Principal Collections received during the related Collection Period minus the amount of such Principal Collections required to be distributed to Investor Certificateholders pursuant to Section 5.01(b). Trust: The trust created by this Agreement, the corpus of which consists of the Mortgage Loans, such other assets as shall from time to time be identified as deposited in the Collection Account in accordance with this Agreement, property that secured a Mortgage Loan and that has become REO, the interest of the Depositor in certain hazard insurance policies maintained by the Mortgagors or the Servicer in respect of the Mortgage Loans, the Policy, the Spread Account, an assignment of the Depositor's rights under the Purchase Agreement and all proceeds of each of the foregoing. Trustee: _____________________ or any successor Trustee appointed in accordance with this Agreement that has accepted such appointment in accordance with this Agreement. Trustee Fee: A fee which is separately agreed to between the Servicer and the Trustee. Trustee Fee Rate: The per annum rate at which the Trustee Fee is calculated. UCC: The Uniform Commercial Code, as amended from time to time, as in effect in any specified jurisdiction. Unpaid Investor Certificate Interest Shortfall: With respect to any Distribution Date, the aggregate amount, if any, of Investor Certificate Interest that was accrued in respect of a prior Distribution Date and has not been distributed to Investor Certificateholders. 16 21 Valuation: With respect to any Mortgaged Property and valuation made prior to the Closing Date, either (a) an appraisal (Uniform Residential Appraisal Report or FHLMC 704/Single Page/Short Form/FNMA 2055) conducted by an independent appraiser or (b) a valuation based upon any one of the following (in order of priority): (i) HUD-1 Settlement Statement (if prepared within the twelve months preceding the date of origination, (ii) tax assessment, (iii) electronic valuation and (iv) any other valuation (e.g. based on comparable sales, broker's opinion, drive-by appraisal and/or interior inspection. With respect to any Mortgaged Property and valuation made on or after the Closing Date, an appraisal conducted on a form approved by FNMA. Weighted Average Net Loan Rate: As to any Collection Period other than the first Collection Period, the average of the daily Net Loan Rate for each Mortgage Loan for each day during the related Billing Cycle, weighted on the basis of the daily average of the related Asset Balances outstanding for each day in such Billing Cycle for each Mortgage Loan as determined by the Servicer in accordance with the Servicer's normal servicing procedures and in the case of the first Collection Period, the weighted average of the Net Loan Rates for each Mortgage Loan as of the Cut-Off Date weighted on the basis of the Cut-Off Date Asset Balance. Section 1.02. Interest Calculations. All calculations of interest hereunder that are made in respect of the Asset Balance of a Mortgage Loan shall be made on a daily basis using a 365-day year. All calculations of interest on the Investor Certificates shall be made on the basis of the actual number of days in an Interest Period and a year assumed to consist of 360 days. The calculation of the Servicing Fee shall be made on the basis of a 360-day year consisting of twelve 30-day months. All dollar amounts calculated hereunder shall be rounded to the nearest penny with one-half of one penny being rounded down. 17 22 ARTICLE II Conveyance of Mortgage Loans; Original Issuance of Certificates; Tax Treatment Section 2.01. Conveyance of Mortgage Loans; Retention of Obligation to Fund Advances Under Credit Line Agreements. (a) The Depositor, concurrently with the execution and delivery of this Agreement, does hereby transfer, assign, set over and otherwise convey to the Trust without recourse (subject to Sections 2.02 and 2.04) all of its right, title and interest in and to (i) each Mortgage Loan, including its Asset Balance (including all Additional Balances) and all collections in respect thereof received after the Cut-Off Date; (ii) property that secured a Mortgage Loan that is acquired by foreclosure or deed in lieu of foreclosure; (iii) the Depositor's rights under the Purchase Agreement; (iv) the Depositor's rights under the hazard insurance policies, (v) the Spread Account and (vi) all other assets included or to be included in the Trust for the benefit of Certificateholders; provided, however, neither the Trustee nor the Trust assumes the obligation under any Credit Line Agreement that provides for the funding of future advances to the Mortgagor thereunder, and neither the Trust nor the Trustee shall be obligated or permitted to fund any such future advances. Additional Balances shall be part of the related Asset Balance and are hereby transferred to the Trust on the Closing Date pursuant to this Section 2.01, and therefore part of the Trust property. In addition, on or prior to the Closing Date, the Depositor shall cause the Credit Enhancer to deliver the Policy to the Trustee for the benefit of the Investor Certificateholders. The foregoing transfer, assignment and conveyance to the Trust shall be made to the Trustee, on behalf of the Trust, and each reference in this Agreement to such transfer, assignment and conveyance shall be construed accordingly. The Depositor agrees to take or cause to be taken such actions and execute such documents (including without limitation the filing of all necessary continuation statements for the UCC-1 financing statements filed in the State of New York (which shall have been filed within 90 days of the Closing Date) describing the Cut-Off Date Asset Balances and Additional Balances and naming the Depositor as debtor and the Trustee as secured party and any amendments to UCC-1 financing statements required to reflect a change in the name or corporate structure of the Depositor or the filing of any additional UCC-1 financing statements due to the change in the principal office of the Depositor (within 90 days of any event necessitating such filing) as are necessary to perfect and protect the Certificateholders' and Credit Enhancer's interests in each Cut-Off Date Asset Balance and Additional Balances and the proceeds thereof (other than maintaining possession by the Trustee of the Mortgage Loans and the Mortgage Files, which possession will, subject to the terms hereof, be maintained by the Servicer as custodian and bailee of the Trustee). (b) In connection with such transfer and assignment by the Depositor, the Servicer acknowledges that it is holding as custodian and bailee for the Trustee the following documents or instruments (the "Related Documents") with respect to each Mortgage Loan: (i) the original Mortgage Note; 18 23 (ii) the original recorded Mortgage or, if, in connection with any Mortgage Loan, the original recorded Mortgage with evidence of recording thereon cannot be delivered on or prior to the Closing Date because of a delay caused by the public recording office where such original Mortgage has been delivered for recordation or because such original Mortgage has been lost, the Seller, at the direction of the Depositor, shall deliver or cause to be delivered to the Custodian, as agent for the Trustee, a true and correct copy of such Mortgage, together with an officer's Certificate of the Seller stating that such original Mortgage has been dispatched to the appropriate public recording official or has been lost; (iii) if applicable, the original intervening assignments, if any ("Intervening Assignments"), with evidence of recording thereon, showing a complete chain of title to the Mortgage from the originator to the Depositor or, if any such original Intervening Assignment has not been returned from the applicable recording office or has been lost, a true and correct copy thereof, together with an Officer's Certificate of the Seller stating that such original Intervening Assignment has been dispatched to the appropriate public recording official for recordation or has been lost; (iv) for each Mortgage Loan either a title insurance policy or a title search or guaranty of title with respect to the related Mortgaged Property to the extent in possession of the Seller or its Affiliates; (v) the original of any guaranty executed in connection with the Mortgage Note; (vi) the original of each assumption, modification, consolidation or substitution agreement, if any, relating to the Mortgage Loan; and (vii) any security agreement, chattel mortgage or equivalent instrument executed in connection with the Mortgage; and (viii) within 90 days of a Document Preparation Trigger, the original Mortgage Note, endorsed in blank and an original Assignment of Mortgage endorsed in blank prepared in recordable form, in each case as required by Section 2.01(b). provided, however, that as to any Mortgage Loan, if (a) as evidenced by an opinion of Counsel delivered to and in form and substance satisfactory to the Trustee and the Credit Enhancer, (x) an optical image or other representation of the related documents specified in clauses (i) through (viii) above are enforceable in the relevant jurisdictions to the same extent as the original of such document and (y) such optical image or other representation does not impair the ability of an owner of such Mortgage Loan to transfer its interest in such Mortgage Loan, and (b) the retention of such documents in such format will not result in a reduction in the then current rating of the Investor Certificates, without regard to the Policy, such optical image or other representation may be held by the Servicer, as custodian for the Trustee or assignee in lieu of the physical documents specified above. [The Seller hereby confirms to the Trustee that it has caused the portions of the Electronic Ledgers relating to the Mortgage Loans to be clearly and unambiguously marked, and 19 24 has made the appropriate entries in its general accounting records, to indicate that such Mortgage Loans have been transferred to the Trust at the direction of the Depositor.] The Servicer hereby confirms to the Trustee that it has clearly and unambiguously made appropriate entries in its general accounting records indicating that such Mortgage Loans constitute part of the Trust and are serviced by it on behalf of the Trust in accordance with the terms hereof. [The Seller and] Servicer agree not to notify the obligors on the Mortgage Loans of the transfer of the Mortgage Loans to the Trust, unless required by the terms of the Mortgage Loans or applicable law. It is the express intent of the parties hereto that the conveyance of the Mortgage Loans by the Depositor to the Trustee as provided in this Agreement be, and be construed as, a sale of all of the Depositor's right, title and interest in the Mortgage Loans by the Depositor to the Trustee. It is, further, not the intention of the parties that such conveyance be deemed a pledge of the Mortgage Loans by the Depositor to the Trustee to secure a debt or other obligation of the Depositor. However, in the event, that notwithstanding the intent of the parties, the Mortgage Loans are held to be property of the Depositor, or if for any reason this Agreement is held or deemed to create a security interest in the Mortgage Loans, then, (a) this Agreement shall also be deemed to be a security agreement within the meaning of Articles 8 and 9 of the Uniform Commercial Code in effect in the applicable state; (b) the conveyance provided for in this Agreement shall be deemed to be a grant by the Depositor to the Trustee of a security interest in and to all of the Depositor's right, title, and interest, whether now owned or hereafter acquired, in and to: (I) All accounts, contract rights, general intangibles, chattel paper, instruments, documents, money, deposit accounts, certificates of deposit, goods, letters of credit, advices of credit, certificated securities and uncertificated securities consisting of, arising from or relating to any of the property described in (A) through (D) below: (A) each Mortgage Loan, including (a) the Mortgage Note and the related Mortgage and (b) its Asset Balance and all Additional Balances and all collections in respect thereof received on or after the Cut-Off Date, identified on the Mortgage Loan Schedule as defined herein, including all Eligible Substitute Mortgage Loans, (B) property that secured a Mortgage Loan that is acquired by foreclosure or deed in lieu of foreclosure; (C) the Purchase Agreement, (D) any hazard insurance policies in respect of the Mortgage Loans; and (E) the Spread Account; and (II) All proceeds of the collateral described in (I). (c) the possession by the Trustee or its designee of the Mortgage Notes, the Mortgages and such other goods, letters of credit, advices of credit, instruments, money, documents, chattel paper or certificated securities shall be deemed to be "possession by the secured party," or possession by a purchaser or a person designated by him or her, for purposes of perfecting the security interest pursuant to the Uniform Commercial Code (including, without limitation, Sections 9-305, 8-313 or 8-321 thereof) as in force in the relevant jurisdiction; and (d) notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed to be notifications to, or acknowledgments, 20 25 receipts or confirmations from, financial intermediaries, bailees or agents (as applicable) of the Trustee or its designee for the purpose of perfecting such security interest under applicable law. Subject to the provisions herein permitting the Servicer (i) to retain possession of the Mortgage Files and (ii) to commingle amounts collected with respect to the Mortgage Loans with other general collections of the Servicer, the Depositor and the Trustee at the direction of the Depositor to the extent consistent with this Agreement, shall take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Mortgage Loans and the proceeds thereof, such security interest would be deemed to be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of the Agreement. In connection herewith, the Trustee shall have all of the rights and remedies of a secured party and creditor under the Uniform Commercial Code as in force in the relevant jurisdiction. Except as hereinafter provided, the Servicer shall be entitled to maintain possession of all of the foregoing documents and instruments and shall not be required to deliver any of them to the Trustee. If possession of any of such documents or instruments is required by any Person (including the Trustee) acting as successor servicer pursuant to Section 7.04 or 8.02 in order to carry out the duties of Servicer hereunder, then such successor shall be entitled to request delivery of such documents or instruments by and at the expense of the Servicer and to retain such documents or instruments for servicing purposes; provided that the Trustee or such servicers shall maintain such documents at such offices as may be required by any regulatory body having jurisdiction over such Mortgage Loans. The Servicer's right to maintain possession of the documents enumerated above shall continue so long as the long term unsecured debt of Bank One, N.A., is assigned ratings of at least "___" by ________ and "____" by _________. At such time as the condition specified in the preceding sentence is not satisfied, as promptly as practicable but in no event more than 90 days in the case of clause (i) below and 60 days in the case of clause (ii) below following the occurrence of such event (a "Delivery Event"), the Servicer shall, at its expense, (i) either (x) record an Assignment of Mortgage in favor of the Trustee (which may be a blanket assignment if permitted by applicable law) in the appropriate real property or other records or (y) deliver to the Trustee the assignment of such Mortgage in favor of the Trustee in form for recordation, together with an opinion of Counsel addressed to the Trustee and the Credit Enhancer to the effect that recording is not required to protect the Trustee's right, title and interest in and to the related Mortgage Loan or, in case a court should recharacterize the sale of the Mortgage Loans as a financing, to perfect a first priority security interest in favor of the Trustee in the related Mortgage Loan, which Opinion of Counsel also shall be reasonably acceptable to each of the Rating Agencies (as evidenced in writing) and the Credit Enhancer, and (ii) unless an opinion of Counsel, reasonably acceptable to the Trustee, the Rating Agencies (as evidenced in writing) and the Credit Enhancer, is delivered to the Trustee and the Credit Enhancer to the effect that delivery of the Mortgage Files is not necessary to protect the Trustee's right, title and interest in the related Mortgage Loans and that the lack of delivery will not result in a reduction in the then current rating of the Investor Certificates, without regard to the Policy, deliver the related Mortgage Files to the Trustee or to a custodian located in the State of New York appointed by the Trustee and acceptable to the Rating Agencies and the Credit Enhancer to be held by the Custodian on behalf of the Trustee in trust, upon the terms herein set forth, for the use and benefit of all present and future Certificateholders and the Custodian on behalf of the Trustee 21 26 shall retain possession thereof except to the extent the Servicer requires any Mortgage Files for normal servicing as contemplated by Section 3.07. The Trustee is hereby appointed as the attorney-in-fact of the Servicer with the power to prepare, execute and record Assignments of Mortgages in the event that the Servicer fails to do so on a timely basis as provided in this paragraph. Within 90 days following delivery, if any, of the Mortgage Files to the Trustee pursuant to the preceding paragraph, the Trustee shall review each such Mortgage File to ascertain that all required documents set forth in this Section 2.01 have been executed and received, and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule and in so doing the Trustee may rely on the purported due execution and genuineness of any signature thereon. If within such 90-day period the Trustee finds any document constituting a part of a Mortgage File not to have been executed or received or to be unrelated to the Mortgage Loans identified in said Mortgage Loan Schedule or, if in the course of its review, the Trustee determines that such Mortgage File is otherwise defective in any material respect, the Trustee shall promptly upon the conclusion of its review notify the Seller and the Credit Enhancer, and the Seller shall have a period of 90 days after such notice within which to correct or cure any such defect. The Trustee shall have no responsibility for reviewing any Mortgage File except as expressly provided in this Section 2.01. In reviewing any Mortgage File pursuant to this Section, the Trustee shall have no responsibility for determining whether any document is valid and binding, whether the text of any assignment or endorsement is in proper or recordable form (except, if applicable, to determine if the Trustee is the assignee or endorsee), whether any document has been recorded in accordance with the requirements of any applicable jurisdiction, or whether a blanket assignment is permitted in any applicable jurisdiction, whether any Person executing any document is authorized to do so or whether any signature thereon is genuine, but shall only be required to determine whether a document has been executed, that it appears to be what it purports to be, and, where applicable, that it purports to be recorded. (b) Within 90 days after an occurrence of a Document Preparation Trigger, the Servicer shall prepare for each Mortgage Loan an endorsement in blank of the original Mortgage Note, and an original Assignment of Mortgage in blank prepared in recordable form. Section 2.02. Acceptance by Trustee; Retransfer of Mortgage Loans. (a) The Trustee hereby acknowledges its receipt of the Policy and the Mortgage Loans, and declares that the Trustee holds and will hold such instrument, and to the extent that any documents are delivered to it pursuant to Section 2.01, will hold such documents, and all amounts received by it thereunder and hereunder, in trust, upon the terms herein set forth, for the use and benefit of all present and future Certificateholders and the Credit Enhancer. If the time to cure any defect in respect of any Mortgage Loan of which the Trustee has notified the Seller and the Depositor following the review pursuant to Section 2.01 has expired or if at any time any loss is suffered by the Trustee on behalf of the Certificateholders or the Credit Enhancer, in respect of any Mortgage Loan as a result of (i) a defect in any document constituting a part of its Mortgage File or (ii) an Assignment of Mortgage to the Trustee not having been recorded as required by Section 2.01, then on the next succeeding Business Day upon the deposit to the Collection Account of the Transfer Deposit Amount, if any, and upon satisfaction of the applicable 22 27 conditions described herein, all right, title and interest of the Trust in and to such Mortgage Loan shall be deemed to be retransferred, reassigned and otherwise reconveyed, without recourse, representation or warranty, to the Seller on such Business Day and the Asset Balance of such Mortgage Loan shall be deducted from the Pool Balance; provided, however, that interest accrued on the Asset Balance of such Mortgage Loan to the end of the related Collection Period shall be the property of the Trust. The Trustee shall determine if the reduction of such Asset Balance from the Pool Balance in accordance with the preceding sentence would cause the Transferor Principal Balance to be less than the Minimum Transferor Interest ("Transfer Deficiency"), in which event the Trustee shall deliver written notice of such deficiency to the Seller, and within five Business Days after the Business Day of such retransfer the Seller shall either (i) substitute an Eligible Substitute Mortgage Loan or (ii) deposit into the Collection Account an amount (the "Transfer Deposit Amount") in immediately available funds equal to the Transfer Deficiency or a combination of both (i) and (ii) above. Such reduction or substitution and the actual payment of any Transfer Deposit Amount, if any, shall be deemed to be payment in full for such Mortgage Loan. Upon receipt of any Eligible Substitute Mortgage Loan or of written notification signed by a Servicing Officer to the effect that the Transfer Deposit Amount in respect of a Defective Mortgage Loan has been deposited into the Collection Account or, if the Transferor Principal Balance is not reduced below the Minimum Transferor Interest as a result of the deemed retransfer of a Defective Mortgage Loan, then as promptly as practicable following such deemed transfer, the Trustee shall execute such documents and instruments of transfer presented by the Seller, in each case without recourse, representation or warranty, and take such other actions as shall reasonably be requested by the Seller to effect such transfer by the Trust of such Defective Mortgage Loan pursuant to this Section. It is understood and agreed that the obligation of the Seller to accept a transfer of a Defective Mortgage Loan and to either convey an Eligible Substitute Mortgage Loan or to make a deposit of any related Transfer Deposit Amount into the Collection Account shall constitute the sole remedy respecting such defect available to Certificateholders, the Trustee and the Credit Enhancer against the Seller. The Servicer, promptly following the transfer of a Defective Mortgage Loan from or the transfer of an Eligible Substitute Mortgage Loan to the Trust pursuant to this Section, shall amend the Mortgage Loan Schedule and make appropriate entries in its general account records to reflect such transfer. The Servicer shall, following such retransfer, appropriately mark its records to indicate that it is no longer servicing such Mortgage Loan on behalf of the Trust. The Seller, promptly following such transfer, shall appropriately mark its Electronic Ledger and make appropriate entries in its general account records to reflect such retransfer. Notwithstanding any other provision of this Section, a retransfer of a Defective Mortgage Loan to the Seller pursuant to this Section that would cause the Transferor Principal Balance to be less than the Minimum Transferor Interest shall not occur if either the Seller fails to convey an Eligible Substitute Mortgage Loan or to deposit into the Collection Account any related Transfer Deposit Amount required by this Section with respect to the transfer of such Defective Mortgage Loan. (b) As to any Eligible Substitute Mortgage Loan or Loans, the Seller shall, if a Delivery Event has occurred, deliver to the Trustee with respect to such Eligible Substitute Mortgage Loan or Loans such documents and agreements as are required to be held by the Trustee in accordance with Section 2.01. For any Collection Period during which the Seller 23 28 substitutes one or more Eligible Substitute Mortgage Loans, the Servicer shall determine the Transfer Deposit Amount which amount shall be deposited by the Seller in the Collection Account at the time of substitution. Any amounts received in respect of the Eligible Substitute Mortgage Loan or Loans during the Collection Period in which the circumstances giving rise to such substitution occur shall not be a part of the Trust Fund and shall not be deposited by the Servicer in the Collection Account. All amounts received by the Servicer during the Collection Period in which the circumstances giving rise to such substitution occur in respect of any Defective Mortgage Loan so removed by the Trust Fund shall be deposited by the Servicer in the Collection Account. Upon such substitution, the Eligible Substitute Mortgage Loan or Loans shall be subject to the terms of this Agreement in all respects, and the Seller shall be deemed to have made with respect to such Eligible Substitute Mortgage Loan or Loans, as of the date of substitution, the covenants, representations and warranties set forth in Section 2.04. The procedures applied by the Seller in selecting each Eligible Substitute Mortgage Loan shall not be materially adverse to the interests of the Trustee, the Certificateholders and the Credit Enhancer. Section 2.03. Representations and Warranties Regarding the Servicer. The Servicer represents and warrants to the Trustee and the Credit Enhancer that as of the Closing Date: (i) The Servicer is duly organized and validly existing as a national banking association and has the corporate power to own its assets and to transact the business in which it is currently engaged. The Servicer is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the character of the business transacted by it or any properties owned or leased by it requires such qualification and in which the failure so to qualify would have a material adverse effect on the business, properties, assets, or financial condition (or other) of the Servicer; (ii) The Servicer has the corporate power and authority to make, execute, deliver and perform this Agreement and all of the transactions contemplated under the Agreement, and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement. When executed and delivered, this Agreement will constitute the legal, valid and binding obligation of the Seller enforceable in accordance with its terms, except as enforcement of such terms may be limited by bankruptcy, insolvency moratorium, fraudulent conveyance, reorganization and similar laws affecting the enforcement of the rights of creditors of national banking associations, the deposits of which are insured by the FDIC, and subject to general principles of equity, (whether applied in a proceeding at law or in equity or of creditors' rights generally); (iii) The Servicer is not required to obtain the consent of any other party or any consent, license, approval or authorization from, or registration or declaration with, any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity or enforceability of this Agreement (other than such consents, licenses, approvals or authorizations from, or registrations or declarations with, any governmental authority, bureau or agency that, individually or in the aggregate, would not have a material adverse effect on the transactions contemplated by this Agreement), except for such consent, license, approval or authorization, or registration or declaration, as shall have been obtained or filed, as the case may be, prior to the Closing Date; 24 29 (iv) The execution, delivery and performance of this Agreement by the Servicer will not violate any provision of any existing law or regulation or any order or decree of any court applicable to the Servicer or any provision of the articles of association or bylaws of the Servicer, or constitute a material breach of any mortgage, indenture, contract or other agreement to which the Service is a party or by which the Servicer may be bound (other than violations of such laws, regulations, orders, decrees, mortgages, contracts or other agreements that, individually or in the aggregate, would not have a material adverse effect on the transactions contemplated by this Agreement); and (v) No litigation or administrative proceeding of or before any court, tribunal or governmental body is currently pending, or to the knowledge of the Servicer threatened, against the Servicer or any of its properties or with respect to this Agreement or the Investor Certificates or the Transferor Interest, which in the opinion of the Servicer has a reasonable likelihood of resulting in a material adverse effect on the transactions contemplated by this Agreement. The representations and warranties set forth in this Section shall survive the sale and assignment of the Mortgage Loans to the Trust. Upon discovery of a breach of any representations and warranties which materially and adversely affects the interests of the Certificateholders or the Credit Enhancer, the person discovering such breach shall give prompt written notice to the other parties and to the Credit Enhancer. Within 90 days of its discovery or its receipt of notice of breach, or, with the prior written consent of a Responsible Officer of the Trustee, such longer period specified in such consent, the Servicer shall cure such breach in all material respects. Section 2.04. Representations and Warranties of the Seller Regarding the Mortgage Loans; Retransfer of Certain Mortgage Loans. (a) The Seller hereby represents and warrants to the Trustee and the Credit Enhancer that as of the Cut-Off Date, unless otherwise specifically set forth herein: (i) As of the Closing Date, this Agreement constitutes a legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, except as enforcement of such terms may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights generally and by the availability of equitable remedies; (ii) As of the Closing Date with respect to the Mortgage Loans and as of the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan, either (A) the Purchase Agreement constitutes a valid transfer and assignment to the Depositor of all right, title and interest of the Seller in and to each Mortgage Loan (including its Cut-Off Date Asset Balance), all monies due or to become due with respect thereto, and all proceeds of such Cut-Off Date Asset Balances with respect to the Mortgage Loans and such funds as are from time to time deposited in the Collection Account (excluding any investment earnings thereon) and all other property specified in the definition of "Asset" as being part of the corpus of the Trust conveyed to the Trust by the Depositor, and (upon payment for the Additional Balances), will constitute a valid transfer and assignment to the Trustee of all right, title and interest of the Seller in and to the Additional Balances, all monies due or to become due with respect thereto, and all proceeds of such Additional 25 30 Balances and all other property specified in the definition of "Asset" relating to the Additional Balances or (B) the Purchase Agreement or this Agreement, as appropriate, constitutes a grant of a security interest (as defined in the UCC as in effect in Ohio) in such property to the Trustee on behalf of the Trust. If this Agreement constitutes the grant of a security interest to the Trust in such property, and if the Trustee obtains and maintains possession of the Mortgage File for each Mortgage Loan, the Trust shall have a first priority perfected security interest in such property, subject to the effect of Section 9-306 of the UCC with respect to collections on the Mortgage Loans that are deposited in the Collection Account in accordance with the next to last paragraph of Section 3.02(b); provided, however, that nothing in this clause (ii) shall be construed to obligate the Servicer to deliver any Mortgage Files other than as set forth in Section 2.01 hereof; (iii) As of the Closing Date with respect to the Mortgage Loans and the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan and as of the date any Additional Balance is created, the information set forth in the Mortgage Loan Schedule for such Mortgage Loans is true and correct in all material respects; (iv) The applicable Cut-Off Date Asset Balance has not been assigned or pledged, and the Seller is the sole owner and holder of such Cut-Off Date Asset Balance free and clear of any and all liens, claims, encumbrances, participation interests, equities, pledges, charges or security interests of any nature, and has full right and authority, under all governmental and regulatory bodies having jurisdiction over the ownership of the applicable Mortgage Loan, to sell, assign or transfer the same pursuant to the Purchase Agreement; (v) As of the Closing Date with respect to the Mortgage Loans and the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan, the related Mortgage Note and the Mortgage with respect to each Mortgage Loan have not been assigned or pledged, and the Seller is the sole owner and holder of the Mortgage Loan free and clear of any and all liens, claims, encumbrances, participation interests, equities, pledges, charges or security interests of any nature, and has full right and authority, under all governmental and regulatory bodies having jurisdiction over the ownership of the applicable Mortgage Loans, to sell, assign or transfer the same pursuant to the Purchase Agreement; (vi) As of the Closing Date with respect to the Mortgage Loans and the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan, the related Mortgage is a valid and subsisting first, second or more junior lien, as set forth on the Mortgage Loan Schedule with respect to each related Mortgage Loan, on the property therein described, and as of the applicable Cut-off Date the related Mortgaged Property is free and clear of all encumbrances and liens having priority over the first, second or more junior lien, as applicable, of such Mortgage except for liens for (i) real estate taxes and special assessments not yet delinquent; (ii) income taxes, (iii) any first or similar mortgage loan secured by such Mortgaged Property and specified on the Mortgage Loan Schedule; (iv) covenants, conditions and restrictions, rights of way, easements and other matters of public record as of the date of recording that are acceptable to mortgage lending institutions generally; and (v) other matters to which like properties are 26 31 commonly subject that do not materially interfere with the benefits of the security intended to be provided by such Mortgage; (vii) As of the Closing Date with respect to the Mortgage Loans and the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan, there is no valid offset, defense or counterclaim of any obligor under any Credit Line Agreement or Mortgage that has been asserted or threatened; (viii) To the best knowledge of the Seller, as of the Closing Date with respect to the Mortgage Loans and the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan, there are no delinquent recordings or other tax or fee or assessment liens against any related Mortgaged Property; (ix) As of the Closing Date with respect to the Mortgage Loans and the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan, there is no proceeding pending nor has the Seller received notice of such proceeding being threatened for the total or partial condemnation of the related Mortgaged Property, and to the best knowledge of the Seller, such property is free of material damage; (x) To the best knowledge of the Seller, as of the Closing Date with respect to the Mortgage Loans and the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan, there are no mechanics' or similar liens or claims which have been filed for work, labor or material affecting the related Mortgaged Property which are, or may be, liens prior or equal to the lien of the related Mortgage, except liens which are fully insured against by the title insurance policy; (xi) No Minimum Monthly Payment is more than [89] days delinquent (measured on a contractual basis); and with respect to the Mortgage Loans no more than _____% (by Cut-Off Date Pool Balance) were [30-59] days delinquent (measured on contractual basis) and no more than ____% (by Cut-Off Date Pool Balance) were [60-89] days delinquent (measured on a contractual basis); (xii) As of the Closing Date with respect to the Mortgage Loans and the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan, for each Mortgage Loan, the related Mortgage File contains each of the documents and instruments specified to be included therein; (xiii) To the best knowledge of the Seller, the related Mortgage at origination complied in all material respects with applicable state and federal laws, including, without limitation, usury, truth in lending, real estate settlement procedures, consumer credit protection, equal credit opportunity or disclosure laws applicable to the Mortgage Loan; (xiv) To the best knowledge of the Seller, either a lender's title insurance policy or binder was issued on the date of origination of the Mortgage Loan and each such policy is valid and remains in full force and effect, or a title search or guaranty of title customary in the relevant jurisdiction was obtained with respect to a Mortgage Loan and to which no title insurance policy or binder was issued; 27 32 (xv) As of the Closing Date with respect to the Mortgage Loans and the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan, none of the Mortgaged Properties is a mobile home or a manufactured housing unit that is not considered or classified as part of the real estate under the laws of the jurisdiction in which it is located; (xvi) No more than ____% of the Mortgage Loans, by aggregate principal balance, are secured by Mortgaged Properties located in one United States postal zip code; (xvii) The Combined Loan-to-Value Ratio for each Mortgage Loan was not in excess of 100%; (xviii) No selection procedure reasonably believed by the Seller to be adverse to the interests of the Certificateholders or the Credit Enhancer was utilized in selecting the Mortgage Loans; (xix) The Seller has not transferred the Mortgage Loans to the Trust with any intent to hinder, delay or defraud any of its creditors; (xx) The Minimum Monthly Payment with respect to any Mortgage Loan is not less than the interest accrued at the applicable Loan Rate on the daily Asset Balance during the interest period relating to the date on which such Minimum Monthly Payment is due; (xxi) Within 90 days of the Closing Date with respect to the Mortgage Loans and, to the extent not already included in such filing with respect to the Mortgage Loans, the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan, the Seller will file UCC-1 financing statements with respect to the Mortgage Loans; (xxii) As of the Closing Date with respect to the Mortgage Loans and the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan, each Credit Line Agreement and each Mortgage Loan is an enforceable obligation of the related Mortgagor, except as the enforceability thereof may be limited by the bankruptcy, insolvency or similar laws affecting creditors' rights generally; (xxiii) As of the Closing Date with respect to the Mortgage Loans and the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan, the Seller has not received a notice of default of any senior mortgage loan related to a Mortgaged Property that has not been cured by party other than the Servicer; (xxiv) The definition of the applicable index in each Credit Line Agreement relating to each Mortgage Loan does not differ materially from the Index as set forth on Exhibit C; (xxv) The weighted average remaining term to maturity of the Mortgage Loans on a contractual basis for the Mortgage Loans is approximately ___ months and no Mortgage Loan will mature according to its terms later than____ _____. Over the term 28 33 of each Mortgage Loan, the Loan Rate may not exceed the related Loan Rate Cap, if any. The Loan Rate Caps range between _____% and __% per annum. The Margins range between ___% and _____%. The Loan Rates on such Mortgage Loans range between ____% and _____% per annum and the weighted average Loan Rate is approximately ____% per annum; (xxvi) As of the Closing Date with respect to the Mortgage Loans and the applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan, each Mortgaged Property consists of a single parcel of real property with a one-to-four unit single family residence erected thereon, an individual condominium unit, planned unit development unit or townhouse; (xxvii) No more than ____% (by Cut-Off Date Pool Balance) of the Mortgage Loans are secured by real property improved by individual condominium units, planned development units, townhouses or two-to-four family residences erected thereon, and at least _____% (by Cut-Off Date Pool Balance) of the Mortgage Loans are secured by real property with a detached one-family residence erected thereon; (xxviii) The Credit Limits on the Mortgage Loans range between $______ and $_______ with an average of Credit Limit approximately $________. No Mortgage Loan had a principal balance in excess of approximately $__________ and the average principal balance of the Mortgage Loans is equal to approximately $__________; and (xxix) Approximately ________%, _______% and ______% of the Mortgage Loans, by aggregate principal balance as of the Cut-Off Date for the Mortgage Loans, are first, second or more junior liens, respectively. With respect to the representations and warranties set forth in Section 2.04(a) that are made to the best knowledge of the Seller, if it is discovered by the Seller, the Depositor, the Servicer or a Responsible Officer of the Trustee that the substance of such representation and warranty is inaccurate and such inaccuracy materially and adversely affects the value of the related Mortgage Loan then, notwithstanding the Seller's lack of knowledge with respect to the substance of such representation and warranty being inaccurate at the time the representation or warranty was made, such inaccuracy shall be deemed a breach of the applicable representation or warranty and subject the Seller to the obligations set forth in Section 2.04(b). (b) It is understood and agreed that the representations and warranties set forth in this Section 2.04 shall survive delivery of the respective Mortgage Files to the Trustee pursuant to Section 2.01 and the termination of the rights and obligations of the Servicer pursuant to Section 7.04 or 8.02. Upon discovery by the Seller, the Depositor, the Servicer, the Credit Enhancer or a Responsible Officer of the Trustee of a breach of any of the foregoing representations and warranties which materially and adversely affects the interests of the Trust or the Investor Certificateholders or the Credit Enhancer in the related Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties and the Credit Enhancer. Within 90 days of its discovery or its receipt of notice of such breach, the Seller shall use all reasonable efforts to cure such breach in all material respects or shall, not later than the Business Day next preceding the Distribution Date in the month following the Collection Period in which any such 29 34 cure period expired (or such later date that is acceptable to the Trustee and the Credit Enhancer as evidenced by their written consents), either (a) accept a transfer of such Mortgage Loan from the Trust or (b) substitute an Eligible Substitute Mortgage Loan in the same manner and subject to the same conditions as set forth in Section 2.02; provided, however, that the cure for any breach of a representation and warranty relating to the characteristics of the Mortgage Loans in the aggregate shall be a repurchase of or substitution for only the Mortgage Loans necessary to cause such characteristics to be in compliance with the related representation and warranty. Upon accepting such transfer and making any required deposit into the Collection Account or substitution of an Eligible Substitute Mortgage Loan, as the case may be, the Seller shall be entitled to receive an instrument of assignment or transfer from the Trustee to the same extent as set forth in Section 2.02 with respect to the transfer of Mortgage Loans under that Section. It is understood and agreed that the obligation of the Seller to accept a transfer of a Mortgage Loan as to which a breach has occurred and is continuing and to make any required deposit in the Collection Account or to substitute an Eligible Substitute Mortgage Loan, as the case may be, shall constitute the sole remedy against the Seller respecting such breach available to Investor Certificateholders, the Trustee on behalf of Investor Certificateholders and the Credit Enhancer. Notwithstanding the foregoing, with regard to any breach of the representation and warranty set forth in Section 2.04(a)(v), the sale and assignment of the affected Mortgage Loans to the Trust shall be deemed void and the Seller shall pay to the Trust the sum of the amount of the related Asset Balances, plus unpaid accrued interest on each such Asset Balance at the applicable Loan Rate to the date of payment. Section 2.05. Covenants of the Depositor. The Depositor hereby covenants that: (a) Security Interests. Except for the transfer hereunder, the Depositor will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Mortgage Loan, whether now existing or hereafter created, or any interest therein; the Depositor will notify the Trustee of the existence of any Lien on any Mortgage Loan immediately upon discovery thereof; and the Depositor will defend the right, title and interest of the Trust in, to and under the Mortgage Loans, whether now existing or hereafter created, against all claims of third parties claiming through or under the Depositor; provided, however, that nothing in this Section 2.05(a) shall prevent or be deemed to prohibit the Depositor from suffering to exist upon any of the Mortgage Loans any Liens for municipal or other local taxes and other governmental charges if such taxes or governmental charges shall not at the time be due and payable or if the Depositor shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto. (b) Negative Pledge. The Depositor hereby agrees not to transfer, assign, exchange, pledge, finance, hypothecate, grant a security interest in or otherwise convey the Transferor Interest except in accordance with Sections 6.05 and 7.02. (c) Additional Indebtedness. So long as the Investor Certificates are outstanding the Depositor will not incur any debt other than debt that (i) is non-recourse to the assets of the Depositor other than the Mortgage Loans specifically pledged as security for such debt, or (ii) is subordinated in right of payment to the rights of the Investor Certificateholders or (iii) is 30 35 assigned a rating by each of the Rating Agencies that is the same as the then current rating of the Investor Certificates. (d) Downgrading. The Depositor will not engage in an activity which would result in a downgrading of the Investor Certificates. (e) Amendment to Certificate of Incorporation. The Depositor will not amend its Certificate of Incorporation without prior written notice to the Rating Agencies and the Credit Enhancer. (f) Principal Place of Business. The Depositor's principal place of business is in Ohio and it will not change its principal place of business without prior written notice to the Rating Agencies. Section 2.06. Retransfers of Mortgage Loans at Election of Transferor. Subject to the conditions set forth below, the Transferor may, but shall not be obligated to, require the retransfer of Mortgage Loans from the Trust to the Transferor as of the close of business on a Distribution Date (the "Transfer Date"). On the fifth Business Day (the "Transfer Notice Date") prior to the Transfer Date designated in such notice, the Transferor shall give the Trustee and the Servicer a notice of the proposed retransfer that contains a list of the Mortgage Loans to be retransferred. Such retransfers of Mortgage Loans shall be permitted upon satisfaction of the following conditions: (i) No Rapid Amortization Event has occurred; (ii) On the Transfer Notice Date the Transferor Principal Balance (after giving effect to the removal from the Trust of the Mortgage Loans proposed to be retransferred) is at least equal to the Minimum Transferor Interest; (iii) The transfer of any Mortgage Loans on any Transfer Date during the Managed Amortization Period shall not, in the reasonable belief of the Transferor, cause a Rapid Amortization Event to occur or an event which with notice or lapse of time or both would constitute a Rapid Amortization Event; (iv) On or before the Transfer Date, the Transferor shall have delivered to the Trustee a revised Mortgage Loan Schedule, reflecting the proposed transfer and the Transfer Date, and the Servicer shall have marked the Electronic Ledger to show that the Mortgages Loans transferred to the Transferor are no longer owned by the Trust; (v) The Transferor shall represent and warrant that no selection procedures reasonably believed by the Transferor to be adverse to the interests of the Investor Certificateholders or the Credit Enhancer were utilized in the selection of the Mortgage Loans to be removed from the Trust; (vi) In connection with the first retransfer of Mortgage Loans pursuant to this Section, each Rating Agency shall have received on or prior to the related Transfer Notice Date notice from the Transferor of such proposed retransfer of Mortgage Loans and, prior to the Transfer Date, shall have notified the Trustee in writing that such 31 36 retransfer of Mortgage Loans would not result in a reduction or withdrawal of its then current rating of the Investor Certificates without regard to the Policy; (vii) The Transferor shall have delivered to the Trustee and the Credit Enhancer an officer's Certificate certifying that the items set forth in subparagraphs (i) through (vi), inclusive, have been performed or are true and correct, as the case may be. The Trustee may conclusively rely on such Officer's Certificate, shall have no duty to make inquiries with regard to the matters set forth therein and shall incur no liability in so relying. Upon receiving the requisite information from the Transferor, the Servicer shall perform in a timely manner those acts required of it, as specified above. Upon satisfaction of the above conditions, on the Transfer Date the Trustee shall deliver, or cause to be delivered, to the Transferor the Mortgage File for each Mortgage Loan being so transferred, and the Trustee shall execute and deliver to the Transferor such other documents prepared by the Transferor as shall be reasonably necessary to transfer such Mortgage Loans to the Transferor. Any such transfer of the Trust's right, title and interest in and to Mortgage Loans shall be without recourse, representation or warranty by or of the Trustee or the Trust to the Transferor. Section 2.07. Execution and Authentication of Certificates. The Trustee, on behalf of the Trust, has caused to be executed, authenticated and delivered to or upon the order of the Depositor, in exchange for the corpus of the Trust, concurrently with the sale, assignment and conveyance to the Trustee of the corpus of the Trust, Investor Certificates in authorized denominations and the Transferor Interest, together evidencing the ownership of the entire Trust. Section 2.08. Tax Treatment. It is the intention of the Depositor, the Transferor and the Investor Certificateholders that the Investor Certificates will be indebtedness for federal, state and local income and franchise tax purposes and for purposes of any other tax imposed on or measured by income. The terms of the Agreement shall be interpreted to further the intent of the parties hereto. The Transferor, the Depositor, the Trustee and each Investor Certificateholder (or Certificate Owner) by acceptance of its Investor Certificate (or, in the case of a Certificate Owner, by virtue of such Certificate Owner's acquisition of a beneficial interest therein) agrees to treat the Investor Certificates (or beneficial interest therein), for purposes of federal, state and local income or franchise taxes and any other tax imposed on or measured by income, as indebtedness of the Transferor secured by the assets of the Trust and to report the transactions contemplated by this Agreement on all applicable tax returns in a manner consistent with such treatment. Each Investor Certificateholder agrees that it will cause any Certificate Owner acquiring an interest in an Investor Certificate through it to comply with this Agreement as to treatment of the Investor Certificates as indebtedness for federal, state and local income and franchise tax purposes and for purposes of any other tax imposed on or measured by income. The Trustee will prepare and file all tax reports required hereunder. Section 2.09. Representations and Warranties of the Depositor. The Depositor represents and warrants to the Trustee on behalf of the Certificateholders and the Credit Enhancer as follows: (i) This Agreement constitutes a legal, valid and binding obligation of the Depositor, enforceable against the Depositor in accordance with its terms, except as 32 37 enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity); (ii) Immediately prior to the sale and assignment by the Depositor to the Trustee of each Mortgage Loan, the Depositor was the sole beneficial owner of each Mortgage Loan (insofar as such title was conveyed to it by the Seller) subject to no prior lien, claim, participation interest, mortgage, security interest, pledge, charge or other encumbrance or other interest of any nature; (iii) As of the Closing Date, the Depositor has transferred all right, title and interest in the Mortgage Loans to the Trustee; and (iv) The Depositor has not transferred the Mortgage Loans to the Trustee with any intent to hinder, delay or defraud any of its creditors. 33 38 ARTICLE III Administration and Servicing of Mortgage Loans Section 3.01. The Servicer. (a) The Servicer shall service and administer the Mortgage Loans in a manner consistent with the terms of this Agreement and with general industry practice and shall have full power and authority, acting alone or through a subservicer, to do any and all things in connection with such servicing and administration which it may deem necessary or desirable, it being understood, however, that the Servicer shall at all times remain responsible to the Trustee, the Certificateholders, the Transferor and the Credit Enhancer for the performance of its duties and obligations hereunder in accordance with the terms hereof. Any amounts received by any subservicer in respect of a Mortgage Loan shall be deemed to have been received by the Servicer whether or not actually received by it. Without limiting the generality of the foregoing, the Servicer shall continue, and is hereby authorized and empowered by the Trustee, to execute and deliver, on behalf of itself, the Certificateholders and the Trustee, or any of them, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge and all other comparable instruments, with respect to the Mortgage Loans and with respect to the Mortgaged Properties. The Trustee shall, upon the written request of a Servicing officer, furnish the Servicer with any powers of attorney and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder. The Servicer in such capacity may also consent to the placing of a lien senior to that of any Mortgage on the related Mortgaged Property, provided that (x) such Mortgage became a first lien mortgage after the related Mortgage Loan was conveyed to the Trust and, immediately following the placement of such senior lien, such Mortgage is a second lien mortgage and the outstanding principal amount of the mortgage loan secured by such senior lien is no greater than the outstanding principal amount of the senior mortgage loan secured by the Mortgaged Property as of the date the related Mortgage Loan was originated; or (y) the Mortgage relating to such Mortgage Loan was in a second lien position as of the Cut-Off Date and the new senior lien secures a mortgage loan that refinances an existing first mortgage loan and the outstanding principal amount of the replacement first mortgage loan immediately following such refinancing is not greater than the outstanding principal amount of such existing first mortgage loan at the date of origination of such Mortgage Loan; provided further, that such senior mortgage does not secure a note that provides for negative amortization. The Servicer may also, without prior approval from the Rating Agencies or the Credit Enhancer, increase the Credit Limits on Mortgage Loans provided that (i) based upon a new appraisal, the Combined Loan-to-Value Ratios of the Mortgage Loans after giving effect to such increase are no greater than __%, (ii) such increases are consistent with the Servicer's 34 39 underwriting policies and (iii) the aggregate Credit Limits of such Mortgage Loans does not exceed __% of the aggregate of the Credit Limits as of the Cut-Off Date. Furthermore, the Servicer may, without prior approval from the Rating Agencies and the Credit Enhancer solicit or receive requests from Mortgagors for a reduction in Loan Rates; provided that the aggregate of such reductions shall not cause the difference between the Cut-Off Date Weighted Average Gross Margin and the Recalculated Weighted Average Gross Margin to exceed ____%. Upon the prior written consent of each of the Rating Agencies, all of the percentages in the immediately preceding two paragraphs may be modified. In addition, the Servicer may agree to changes in the terms of a Mortgage Loan at the request of the Mortgagor provided that such changes (i) do not materially and adversely affect the interests of Certificateholders or the Credit Enhancer and (ii) are consistent with prudent and customary business practice as evidenced by a certificate signed by a Servicing Officer delivered to the Trustee and the Credit Enhancer. In addition to the foregoing, the Servicer may solicit Mortgagors to change any other terms of the related Mortgage Loans, provided that such changes (i) do not materially and adversely affect the interest of Certificateholders or the Credit Enhancer and (ii) are consistent with prudent and customary business practice as evidenced by a certificate signed by a Servicing officer delivered to the Trustee and the Credit Enhancer. Nothing herein shall limit the right of the Servicer to solicit Mortgagors with respect to new loans (including mortgage loans) that are not Mortgage Loans. The relationship of the Servicer (and of any successor to the Servicer as servicer under this Agreement) to the Trustee under this Agreement is intended by the parties to be that of an independent contractor and not that of a joint venturer, partner or agent. (b) In the event that the rights, duties and obligations of the Servicer are terminated hereunder, any successor to the Servicer in its sole discretion may, to the extent permitted by applicable law, terminate the existing subservicer arrangements with any subservicer or assume the terminated Servicer's rights under such subservicing arrangements which termination or assumption will not violate the terms of such arrangements. Section 3.02. Collection of Certain Mortgage Loan Payments. (a) The Servicer shall make reasonable efforts to collect all payments called for under the terms and provisions of the Mortgage Loans, and shall, to the extent such procedures shall be consistent with this Agreement, follow such collection procedures as it follows with respect to mortgage loans in its servicing portfolio comparable to the Mortgage Loans. Consistent with the foregoing, and without limiting the generality of the foregoing, the Servicer may in its discretion (i) waive any late payment charge or any assumption fees or other fees which may be collected in the ordinary course of servicing such Mortgage Loan and (ii) arrange with a Mortgagor a schedule for the payment of interest due and unpaid; provided that such arrangement is 35 40 consistent with the Servicer's policies with respect to the mortgage loans it owns and services; provided, further, that notwithstanding such arrangement such Mortgage Loans will be included in the information regarding delinquent Mortgage Loans set forth in the Servicing Certificate and monthly statement to Certificateholders pursuant to Section 5.03. (b) The Servicer shall establish and maintain a trust account (the "Collection Account") titled "___________, as Trustee, in trust for the registered holders of Banc One ABS Corporation Revolving Home Equity Loan Asset-Backed Certificates, Series 199_-_ and [Credit Enhancer]." The Collection Account shall be an Eligible Account. The Servicer shall on the Closing Date deposit any amounts representing payments on, and any collections in respect of, the Mortgage Loans received after the Cut-off Date and prior to the Closing Date, and thereafter the Servicer, or the Seller, as the case may be, shall deposit within two Business Days following receipt thereof the following payments and collections received or made by it (without duplication): (i) all collections on and in respect of the Mortgage Loans; (ii) Net Liquidation Proceeds net of any related Foreclosure Profit; (iii) Insurance Proceeds (including, for this purpose any amount required to be credited by the Servicer pursuant to the last sentence of Section 3.04 and excluding the portion thereof, if any, that has been applied to the restoration or repair of the related Mortgaged Property or released to the related Mortgagor in accordance with the normal servicing procedures of the Servicer); and (iv) any amounts required to be deposited therein pursuant to Section 10.01; provided, however, that with respect to each Collection Period, the Servicer shall be permitted to retain from payments in respect of interest on the Mortgage Loans, the Servicing Fee for such Collection Period. The foregoing requirements respecting deposits to the Collection Account are exclusive, it being understood that, without limiting the generality of the foregoing, the Servicer need not deposit in the Collection Account amounts representing Foreclosure Profits, fees or late charge penalties payable by Mortgagors, or amounts received by the Servicer for the accounts of Mortgagors for application towards the payment of taxes, insurance premiums, assessments, excess pay off amounts and similar items. The Servicer shall remit all Foreclosure Profits to the Seller. Notwithstanding the forgoing, so long as the Servicer's short-term obligations are rated at least "___" and "___" by __________ and ________ respectively, all amounts collected by the Servicer may be commingled with other general collections of the Servicer and amounts collected on the Mortgage Loans for each Collection Period shall be deposited in same-day funds into the Collection Account no later than one Business Day prior to the related Distribution Date. The Trustee shall hold amounts deposited in the Collection Account as trustee for the Certificateholders and for the Credit Enhancer. In addition, the Servicer shall notify the Trustee an the Credit Enhancer in writing on each Determination Date of the amount of payments and collections in the Collection Account allocable to Interest Collections and Principal Collections 36 41 for the related Distribution Date. Following such notification, the Servicer shall be entitled to withdraw from the Collection Account and retain any amounts that constitute income and gain realized from the investment of such payments and collections. All income and gain realized from any investment in Eligible Investments of funds in the Collection Account shall be for the benefit of the Certificateholders. The amount of any losses incurred in respect of the principal amount of any such investments shall be deemed not to be on deposit in the Collection Account. Section 3.03. Withdrawals from the Collection Account. From time to time, withdrawals may be made from the Collection Account by the Servicer for the following purposes: (i) To the Servicer as payment for its Servicing Fee pursuant to Section 3.08; (ii) To pay to the Servicer amounts on deposit in the Account that are not to be included in the distributions and payments pursuant to Section 5.01 to the extent provided by the second to the last and the last paragraph of Section 3.02(b); (iii) To make or to permit the Paying Agent to make distributions and payments pursuant to Section 5.01; and (iv) Prior to the Collection Period preceding the Rapid Amortization Commencement Date, to pay to the Seller, the amount of any Additional Balances as and when created during the related Collection Period, provided, that the aggregate amount so paid to the Seller in respect of Additional Balances at any time during any Collection Period shall not exceed the amount of Principal Collections theretofore received for such Collection Period. If the Servicer deposits in the Collection Account any amount not required to be deposited therein or any amount in respect of payments by Mortgagors made by checks subsequently returned for insufficient funds or other reason for non-payment it may at any time withdraw such amount from the Collection Account, and any such amounts shall not be included in the amounts to be deposited in the Collection Account pursuant to Section 3.02(b), any provision herein to the contrary notwithstanding. Section 3.04. Maintenance of Hazard Insurance; Property Protection Expenses. The Servicer shall cause to be maintained for each Mortgage Loan hazard insurance naming the Servicer or the related subservicer as loss payee thereunder providing extended coverage in an amount which is at least equal to the lesser of (i) the replacement value of the improvements securing such Mortgage Loan from time to time or (ii) the combined principal balance owing on such Mortgage Loan and any mortgage loan senior to such Mortgage Loan from time to time. The Servicer shall also maintain on property acquired upon foreclosure, or by deed in lieu of foreclosure, hazard insurance with extended coverage in an amount which is at least equal to the lesser of (i) the replacement value from time to time of the improvements which are a part of such property or (ii) the combined principal balance owing on such Mortgage Loan and any mortgage loan senior to such Mortgage Loan at the time of such foreclosure or deed in lieu of 37 42 foreclosure plus accrued interest and the good-faith estimate of the Servicer of related Liquidation Expenses to be incurred in connection therewith. Amounts collected by the Servicer under any such policies shall be deposited in the Collection Account to the extent called for by Section 3.02. In cases in which any Mortgaged Property is located in a federally designated flood area, the hazard insurance to be maintained for the related Mortgage Loan shall include flood insurance. All such flood insurance shall be in such amounts as are required under applicable guidelines of the Federal Flood Emergency Act. The Servicer shall be under no obligation to require that any Mortgagor maintain earthquake or other additional insurance and shall be under no obligation itself to maintain any such additional insurance on property acquired in respect of a Mortgage Loan, other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. If the Servicer shall obtain and maintain a blanket insurance policy consistent with prudent industry standards insuring against hazard losses on all of the Mortgage Loans in an aggregate amount prudent under industry standards, it shall conclusively be deemed to have satisfied its obligations as set forth in the first sentence of this Section 3.04. Such blanket insurance policy may provide for a deductible. In the event a loss on a Mortgage Property occurs which would have been covered by the hazard insurance policy required by the first sentence of this Section 3.04, the Servicer shall deposit into the Collection Account, the amount not payable under the blanket policy because of such deductible. Section 3.05. Assumption and Modification Agreements. In any case in which a Mortgaged Property has been or is about to be conveyed by the Mortgagor, the Servicer shall exercise its right to accelerate the maturity of such Mortgage Loan consistent with the then current practice of the Servicer and without regard to the inclusion of such Mortgage Loan in the Trust. If it elects not to enforce its right to accelerate or if it is prevented from doing so by applicable law, the Servicer (so long as such action conforms with the underwriting standards generally acceptable in the industry at the time for new origination) is authorized to take or enter into an assumption and modification agreement from or with the Person to whom such Mortgaged Property has been or is about to be conveyed, pursuant to which such Person becomes liable under the Credit Line Agreement and, to the extent permitted by applicable law, the Mortgagor remains liable thereon. The Servicer shall notify the Trustee that any assumption and modification agreement has been completed by delivering to the Trustee an Officer's Certificate certifying that such agreement is in compliance with this Section 3.05 and by forwarding to the applicable Custodian, as agent for the Trustee, the original copy of such assumption and modification agreement. Any such assumption and modification agreement shall, for all purposes, be considered a part of the related Mortgage File to the same extent as all other documents and instruments constituting a part thereof. No change in the terms of the related Credit Line Agreement may be made by the Servicer in connection with any such assumption to the extent that such change would not be permitted to be made in respect of the original Credit Line Agreement pursuant to the fourth paragraph of Section 3.01(a). Any fee collected by the Servicer for entering into any such agreement will be retained by the Servicer as additional servicing compensation. Section 3.06. Realization Upon Defaulted Mortgage Loans. The Servicer shall foreclose upon or otherwise comparably convert to ownership Mortgaged Properties securing such of the Mortgage Loans as come into and continue in default when, in the opinion of the Servicer based upon the practices and procedures referred to in the following sentence, no satisfactory 38 43 arrangements can be made for collection of delinquent payments pursuant to Section 3.02; provided that if the Servicer has actual knowledge or reasonably believes that any Mortgaged Property is affected by hazardous or toxic wastes or substances and that the acquisition of such Mortgaged Property would not be commercially reasonable, then the Servicer will not cause the Trust to acquire title to such Mortgaged Property in a foreclosure or similar proceeding. In connection with such foreclosure or other conversion, the Servicer shall follow such practices (including, in the case of any default on a related senior mortgage loan, the advancing of funds to correct such default) and procedures as it shall deem necessary or advisable and as shall be normal and usual in its general mortgage servicing activities. The foregoing is subject to the proviso that the Servicer shall not be required to expend its own funds in connection with any foreclosure or towards the correction of any default on a related senior mortgage loan or restoration of any property unless it shall determine that such expenditure will increase Net Liquidation Proceeds. If title to any Mortgaged Property is acquired in foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be issued to the Trustee, or to its nominee on behalf of Certificateholders. Section 3.07. Trustee to Cooperate. On or before each Distribution Date, the Servicer will notify the Trustee of the payment in full of the Asset Balance of any Mortgage Loan during the preceding Collection Period, which notification shall be by a certification (which certification shall include a statement to the effect that all amounts received in connection with such payment which are required to be deposited in the Collection Account pursuant to Section 3.02 have been so deposited or credited) of a Servicing Officer. Upon any such payment in full, the Servicer is authorized to execute, pursuant to the authorization contained in Section 3.01, if the assignments of Mortgage have been recorded as required hereunder, an instrument of satisfaction regarding the related Mortgage, which instrument of satisfaction shall be recorded by the Servicer if required by applicable law and be delivered to the Person entitled thereto. It is understood and agreed that no expenses incurred in connection with such instrument of satisfaction or transfer shall be reimbursed from amounts deposited in the Collection Account. If the Trustee is holding the Mortgage Files, from time to time and as appropriate for the servicing or foreclosure of any Mortgage Loan, or in connection with the payment in full of the Asset Balance of any Mortgage Loan, the Trustee shall, upon request of the Servicer and delivery to the Trustee of a Request for Release substantially in the form attached hereto as Exhibit [_] signed by a Servicing officer, release the related Mortgage File to the Servicer and the Trustee shall execute such documents, in the forms provided by the Servicer, as shall be necessary to the prosecution of any such proceedings or the taking of other servicing actions. Such trust receipt shall obligate the Servicer to return the Mortgage File to the Trustee when the need therefor by the Servicer no longer unless the Mortgage Loan shall be liquidated, in which case, upon receipt of a certificate of a Servicing Officer similar to that hereinabove specified, the trust receipt shall be released by the Trustee or such Custodian to the Servicer. In order to facilitate the foreclosure of the Mortgage securing any Mortgage Loan that is in default following recordation of the assignments of Mortgage in accordance with the provisions hereof, the Trustee shall, if so requested in writing by the Servicer, execute an appropriate assignment in the form provided to the Trustee by the Servicer to assign such Mortgage Loan for the purpose of collection to the Servicer or to the related subservicer (any 39 44 such assignment shall unambiguously indicate that the assignment is for the purpose of collection only), and, upon such assignment, the Servicer will thereupon bring all required actions in its own name and otherwise enforce the terms of the Mortgage Loan and deposit the Net Liquidation Proceeds, exclusive of Foreclosure Profits, received with respect thereto in the Collection Account. In the event that all delinquent payments due under any such Mortgage Loan are paid by the Mortgagor and any other defaults are cured, then the Servicer shall promptly reassign such Mortgage Loan to the Trustee and return the related Mortgage File to the place where it was being maintained. Section 3.08. Servicing Compensation; Payment of Certain Expenses by Servicer. The Servicer shall be entitled to receive the Servicing Fee pursuant to Section 3.03 as compensation for its services in connection with servicing the Mortgage Loans. Moreover, additional servicing compensation in the form of late payment charges or other receipts not required to be deposited in the Collection Account (other than Foreclosure Profits) shall be retained by the Servicer. The Servicer shall be required to pay all expenses incurred by it in connection with its activities hereunder (including payment of all other fees and expenses not expressly stated hereunder to be for the account of the Certificateholders) and shall not be entitled to reimbursement therefor except as specifically provided herein. Liquidation Expenses are reimbursable to the Servicer solely from related Liquidation Proceeds. Section 3.09. Annual Statement as to Compliance. (a) The Servicer will deliver to the Trustee, the Credit Enhancer and the Rating Agencies, on or before _____ ____of each year, beginning_________, 199_, an Officer's Certificate stating that (i) a review of the activities of the Servicer during the preceding fiscal year (or such shorter period as is applicable in the case of the first report) and of its performance under this Agreement has been made under such officer's supervision and (ii) to the best of such officer's knowledge, based on such review, the Servicer has fulfilled all of its material obligations under this Agreement throughout such fiscal year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such officer and the nature and status thereof. (b) The Servicer shall deliver to the Trustee, the Credit Enhancer and each of the Rating Agencies, promptly after having obtained knowledge thereof, but in no event later than five Business Days thereafter, written notice by means of an Officer's Certificate of any event which with the giving of notice or the lapse of time or both, would become an Event of Servicing Termination. Section 3.10. Annual Servicing Report. On or before ______ of each year, beginning ______ __, 199_, the Servicer, at its expense, shall cause a firm of nationally recognized independent public accountants (who may also render other services to the Servicer) to furnish a report to the Trustee, the Credit Enhancer and each Rating Agency to the effect that such firm has examined certain documents and records relating to the servicing of mortgage loans during the most recent fiscal year then ended under pooling and servicing agreements (substantially similar to this Agreement, including this Agreement) that such examination, was conducted substantially in compliance with the Uniform Single Audit Program for Mortgage Bankers and that such examination has disclosed no items of noncompliance with the provisions of this 40 45 Agreement which, in the opinion of such firm, are material, except for such items of noncompliance as shall be set forth in such report. Section 3.11. RESERVED Section 3.12. Access to Certain Documentation and Information Regarding the Mortgage Loans. (a) The Servicer shall provide to the Trustee, the Credit Enhancer, any Investor Certificateholders that are federally insured savings and loan associations, the Office of Thrift Supervision, successor to the Federal Home Loan Bank Board, the FDIC and the supervisory agents and examiners of the office of Thrift Supervision access to the documentation regarding the Mortgage Loans required by applicable regulations of the office of Thrift Supervision and the FDIC (acting as operator of the SAIF or the BIF), such access being afforded without charge but only upon reasonable request and during normal business hours at the offices of the Servicer. Nothing in this Section 3.12 shall derogate from the obligation of the Servicer to observe any applicable law prohibiting disclosure of information regarding the Mortgagors and the failure of the Servicer to provide access as provided in this Section 3.12 as a result of such obligation shall not constitute a breach of this Section 3.12. (b) The Servicer shall supply information in such form as the Trustee shall reasonably request to the Trustee and the Paying Agent, on or before the start of the Determination Date preceding the related Distribution Date, as is required in the Trustee's reasonable judgment to enable the Paying Agent or the Trustee, as the case may be, to make required distributions and to furnish the required reports to Certificateholders and to make any claim under the Policy. Section 3.13. Maintenance of Certain Servicing Insurance Policies. The Servicer shall during the term of its service as servicer maintain in force (i) a policy or policies of insurance covering errors and omissions in the performance of its obligations as master servicer hereunder and (ii) a fidelity bond in respect of its officers, employees or agents. Each such policy or policies and bond together shall comply with the requirements from time to time of the Federal National Mortgage Association for persons performing servicing for mortgage loans purchased by such Association. Section 3.14. Reports to the Securities and Exchange Commission. The Trustee shall, on behalf of the Trust, cause to be filed with the Securities and Exchange Commission any periodic reports required to be filed under the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission thereunder. Upon the request of the Trustee, each of the Seller, the Servicer, the Depositor and the Transferor shall cooperate with the Trustee in the preparation of any such report and shall provide to the Trustee in a timely manner all such information or documentation as the Trustee may reasonably request in connection with the performance of its duties and obligations under this Section. Section 3.15. Tax Returns. In accordance with Section 2.08 hereof, the Trustee shall prepare and file any Federal, State or local income and franchise tax return for the Trust as well as any other applicable return and apply for a taxpayer identification number on behalf of the 41 46 Trust. The Transferor shall treat the Mortgage Loans as its property for all Federal, State or local tax purposes and shall report all income earned thereon (including amounts payable as fees to the Servicer) as its income for income tax purposes. In the event the Trust shall be required pursuant to an audit or administrative proceeding or change in applicable regulations to file Federal, State or local tax returns, the Trustee shall prepare and file or shall cause to be prepared and filed any tax returns required to be filed by the Trust; the Trustee shall promptly sign such returns and deliver such returns after signature to the Servicer and such returns shall be filed by the Servicer. The Trustee shall also prepare or shall cause to be prepared all tax information required by law to be distributed to Investor Certificateholders. In no event shall the Trustee or the Servicer be liable for any liabilities, costs or expenses of the Trust, the Investor Certificateholders, the Holders of the Transferor Interest or the Certificate Owners arising under any tax law, including without limitation Federal, State or local income and franchise or excise taxes or any other tax imposed on or measured by income (or any interest or penalty with respect thereto or arising from a failure to comply therewith. Section 3.16. Information Required by the Internal Revenue Service Generally and Reports of Foreclosures and Abandonments of Mortgaged Property. The Servicer shall prepare and deliver all federal and state information reports when and as required by all applicable state and federal income tax laws including without limitation those under Sections 6050M, 6050J and 6050P of the Code. In particular, with respect to the requirement under Section 6050J of the Code to the effect that the Servicer shall make reports of foreclosures and abandonments of any mortgaged property for each year beginning in 199_, the Servicer shall file reports relating to each instance occurring during the previous calendar year in which the Servicer (i) on behalf of the Trustee acquires an interest in any Mortgaged Property through foreclosure or other comparable conversion in full or partial satisfaction of a Mortgage Loan, or (ii) knows or has reason to know that any Mortgaged Property has been abandoned. The report from the Servicer shall be in form and substance sufficient to meet the reporting requirements imposed by Section 6050J. ARTICLE IV Servicing Certificate Section 4.01. Servicing Certificate. Not later than each Determination Date, the Servicer shall deliver (a) to the Trustee, the Statement to Certificateholders required to be prepared pursuant to Section 5.03 and (b) to the Trustee, the Seller, the Depositor, the Paying Agent, the Credit Enhancer and each Rating Agency a Servicing Certificate (in written form or the form of computer readable media or such other form as may be agreed to by the Trustee and the Servicer), together with an Officer's Certificate to the effect that such Servicing Certificate is true and correct in all material respects, stating the related Collection Period, Distribution Date, the series number of the Certificates, the date of this Agreement, and: (i) the aggregate amount of collections received from the Mortgage Loans on or prior to the Determination Date in respect of such Collection Period; (ii) the aggregate amount of (a) Interest Collections and (b) Principal Collections for such Collection Period; 42 47 (iii) the Investor Floating Allocation Percentage and the Investor Fixed Allocation Percentage for such Collection Period; (iv) the Investor Interest Collections and Investor Principal Collections for such Collection Period; (v) the Transferor Interest Collections and Transferor Principal Collections for such Collection Period; (vi) Investor Certificate Interest and the Investor Certificate Rate for the related Interest Period; (vii) the amount, if any, of such Investor Certificate Interest that is not payable on account of insufficient Investor Interest Collections; (viii) the portion of the Unpaid Investor Certificate Interest Shortfall, if any, the amount of interest on such shortfall at the Certificate Rate applicable from time to time (separately stated) to be distributed on such Distribution Date; (ix) the Unpaid Investor Certificate Interest Shortfall, if any, to remain after the distribution on such Distribution Date; (x) the Accelerated Principal Distribution Amount and the portion thereof that will be distributed pursuant to Section 5.01(a)(vii); (xi) the Scheduled Principal Collections Distribution Amount, separately stating the components thereof; (xii) the amount of any Transfer Deposit Amount paid by the Seller or the Depositor pursuant to Section 2.02 or 2.04; (xiii) any accrued and unpaid Servicing Fees for previous Collection Periods and the Servicing Fee for such Collection Period; (xiv) the Investor Loss Amount for such Collection Period; (xv) the aggregate amount, if any, of Investor Loss Reduction Amounts for previous Distribution Dates that have not been previously reimbursed to Investor Certificateholders pursuant to 5.01(a)(v); (xvi) the aggregate Asset Balance of the Mortgage Loans as of the end of the preceding Collection Period and as of the end of the second preceding Collection Period; (xvii) the Pool Balance as of the end of the preceding Collection Period and as of the end of the second preceding Collection Period; (xviii) the Invested Amount as of the end of the preceding Collection Period; 43 48 (xix) the Investor Certificate Principal Balance and Pool Factor after giving effect to the distribution on such Distribution Date and to any reduction on account of the Investor Loss Amount; (xx) the Transferor Principal Balance after giving effect to the distribution on such Distribution Date; (xxi) the aggregate amount of Additional Balances created during the previous Collection Period; (xxii) the number and aggregate Asset Balances of Mortgage Loans (x) as to which the Minimum Monthly Payment is delinquent for 30-59 days, 60-89 days and 90 or more days, respectively and (y) that have become REO, in each case as of the end of the preceding Collection Period; (xxiii) whether a Rapid Amortization Event has occurred since the prior Determination Date, specifying each such Rapid Amortization Event if one has occurred; and (xxiv) whether an Event of Servicing Termination has occurred since the prior Determination Date, specifying each such Event of Servicing Termination if one has occurred; (xxv) the amount to be distributed to the Credit Enhancer pursuant to Section 5.01(a)(vi) and Section 5.01(a)(viii)(ii), stated separately; (xxvi) the amount to be distributed to the Spread Account pursuant to Section 5.01(a)(viii)(i); (xxvii) the Guaranteed Principal Distribution Amount for such Distribution Date; (xxviii) the Credit Enhancement Draw Amount, if any, for such Distribution Date; (xxix) the amount to be distributed to the Transferor pursuant to Section 5.01(a)(x); (xxx) the amount to be paid to the Servicer pursuant to Section 5.01(a)(ix); (xxxi) the Maximum Rate for the related Collection Period and the Weighted Average Net Loan Rate; (xxxii) the total amount of funds on deposit in the Spread Account and the applicable Spread Account Requirement; (xxxiii) the Overcollateralization Amount after giving to the distribution to be made on such Distribution Date; 44 49 (xxxiv) the number and principal balances of any Mortgage Loans retransferred to the Transferor pursuant to Section 2.06; and (xxxv) the Recalculated Weighted Average Gross Margin. The Trustee shall conclusively rely upon the information contained in a Servicing Certificate for purposes of making distributions pursuant to Section 5.01, shall have no duty to inquire into such information and shall have no liability in so relying. The format and content of the Servicing Certificate may be modified by the mutual agreement of the Servicer, the Trustee and the Credit Enhancer. The Servicer shall give notice of any such change to the Rating Agencies. Section 4.02. Claims upon the Policy; Policy Payments Account. (a) If, by the close of business on the third Business Day prior to a Distribution Date, the sum of the funds then on deposit in the Collection Account for the related Collection Period which are payable to the Investor Certificateholders pursuant to Sections 5.01(a) and (b) (after giving effect to the distribution of the Trustee Fee and the Premium) and the amount on deposit in the Spread Account is insufficient to pay the Guaranteed Distribution on such Distribution Date, then the Trustee shall give notice to the Credit Enhancer by telephone or telecopy of the amount equal to the Credit Enhancement Draw Amount. Such notice of such sum shall be confirmed in writing in the form set forth as Exhibit A to the Endorsement of the Policy, to the Credit Enhancer and the Fiscal Agent, if any, at or before 10:00 a.m., New York City time, on the second Business Day prior to such Distribution Date. Following receipt by the Credit Enhancer of such notice in such form, the Credit Enhancer or the Fiscal Agent will pay any amount payable under the Policy on the later to occur of (i) 12:00 noon, New York City time, on the Business Day following such receipt and (ii) 12:00 noon, New York City time, on the Distribution Date to which such deficiency relates, as provided in the Endorsement to the Policy. (b) The Trustee shall establish a separate special purpose trust account, which account shall be an Eligible Account, for the benefit of Holders of the Investor Certificates and the Credit Enhancer referred to herein as the "Policy Payments Account" over which the Trustee shall have exclusive control and sole right of withdrawal. The Trustee shall deposit any amount paid under the Policy in the Policy Payments Account and distribute such amount only for purposes of payment to Holders of the Investor Certificates of the Guaranteed Distribution for which a claim was made and such amount may not be applied to satisfy any costs, expenses or liabilities of the Servicer, the Trustee or the Trust Fund. Amounts paid under the Policy shall be transferred to the Collection Account in accordance with the next succeeding paragraph and disbursed by the Trustee to Holders of Investor Certificates in accordance with Section 5.01. It shall not be necessary for such payments to be made by checks or wire transfers separate from the checks or wire transfers used to pay the Guaranteed Distribution with other funds available to make such payment. However, the amount of any payment of principal of or interest on the Investor Certificates to be paid from funds transferred from the Policy Payments Account shall be noted as provided in paragraph (c) below in the Certificate Register and in the statement to be furnished to Holders of the Investor Certificates pursuant to Section 5.03. Funds held in the Policy Payments Account shall not be invested. 45 50 On any Distribution Date with respect to which a claim has been made under the Policy, the amount of any funds received by the Trustee as a result of any claim under the Policy, to the extent required to make the Guaranteed Distribution on such Distribution Date, shall be withdrawn from the Policy Payments Account and deposited in the Collection Account and applied by the Trustee, together with the other funds to be withdrawn from the Collection Account pursuant to Section 5.01 directly to the payment in full of the Guaranteed Distribution due on the Investor Certificates. Any funds received by the Trustee shall be used solely for payment to the Holders of Investor Certificates and may not be applied to satisfy any costs, expenses or liabilities of the Servicer, the Trustee or the Trust. Any funds remaining in the Policy Payments Account on the first Business Day following a Distribution Date shall be remitted to the Credit Enhancer, pursuant to the instructions of the Credit Enhancer, by the end of such Business Day. (c) The Trustee shall keep a complete and accurate record of the amount of interest and principal paid in respect of any Investor Certificate from moneys received under the Policy. The Credit Enhancer shall have the right to inspect such records at reasonable times during normal business hours upon one Business Day's prior notice to the Trustee. (d) The Trustee shall promptly notify the Credit Enhancer and Fiscal Agent of any proceeding or the institution of any action, of which a Responsible Officer of the Trustee has actual knowledge, seeking the avoidance as a preferential transfer under applicable bankruptcy, insolvency, receivership or similar law (a "Preference Claim") of any distribution made with respect to the Investor Certificates. Each Investor Certificateholder, by its purchase of Investor Certificates, the Servicer and the Trustee hereby agree that, the Credit Enhancer (so long as no Credit Enhancer Default exists) may at any time during the continuation of any proceeding relating to a Preference Claim direct all matters relating to such Preference Claim, including, without limitation, (i) the direction of any appeal of any order relating to such Preference Claim and (ii) the posting of any surety, supersede as or performance bond pending any such appeal. In addition and without limitation of the foregoing, the Credit Enhancer shall be subrogated to the rights of the Servicer, the Trustee and each Investor Certificateholder in the conduct of any such Preference Claim, 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 Preference Claim. Section 4.03. Spread Account. (a) The Trustee shall establish and maintain a separate trust account (the "Spread Account") titled "_______________, as Trustee, in trust for the registered holders of Banc One ABS Corporation Revolving Home Equity Loan Asset Backed Certificates, Series 199_-_ and [Credit Enhancer]." The Spread Account shall be an Eligible Account. Amounts on deposit in the Spread Account will, at the direction of the Transferor, be invested in either Eligible Investments maturing no later than the day before the next Distribution Date or in the commercial paper (maturing no later than the day before the next Distribution Date) of Bank One, N.A. or any of its Affiliates, provided that such commercial paper's or other short-term obligation's short-term rating is no lower than "___" and "___"by ______ and _______, respectively, and the long-term unsecured debt of Bank One, N.A. is rated at least "___" and 46 51 "___" by ______ and ________, respectively, or such lower rating as is agreed to by the Rating Agencies as evidenced by a letter from each such Rating Agency. All income and gain realized from any investment of funds in the Spread Account shall be for the benefit of the Transferor and shall be subject to its withdrawal from time to time. The amount of any losses incurred in respect of the principal amount of any such investments shall be deemed not to be on deposit in the Spread Account. (b) On each Determination Date the Trustee shall determine (i) the extent to which Investor Interest Collections applied in the order specified in Section 5.01(a) are insufficient to make distributions as provided in clauses (iii) and (iv) of Section 5.01(a) and (ii) the Guaranteed Principal Distribution Amount for the related Distribution Date. On each Distribution Date the Trustee shall withdraw from the Spread Account and deposit into the Collection Account the lesser of the amount on deposit in the Spread Account and an amount equal to the sum of the amounts, if any, determined in clauses (i) and (ii) of the preceding sentence. (c) Following the termination of the Trust pursuant to Section 10.01 or 11.02 hereof, the Trustee shall withdraw all amounts then on deposit in the Spread Account and distribute such amounts first to any amounts due and owing to the Credit Enhancer and then to the Transferor. If on any Distribution Date the amount on deposit in the Spread Account exceeds the Spread Account Requirement, the Trustee shall withdraw such excess and distribute it to the Transferor. Section 4.04. Effect of Payments by the Credit Enhancer; Subrogation. Anything herein to the contrary notwithstanding, any payment with respect to principal of or interest on any of the Investor Certificates which is made with monies received pursuant to the terms of the Policy shall not be considered payment of such Investor Certificates from the Trust and shall not result in the payment of or the provision for the payment of the principal of or interest on such Investor Certificates within the meaning of Section 5.01. The Depositor, the Servicer and the Trustee acknowledge, and each Holder by its acceptance of an Investor Certificate agrees, that without the need for any further action on the part of the Credit Enhancer, the Depositor, the Servicer, the Trustee or the Certificate Registrar (a) to the extent the Credit Enhancer makes payments, directly or indirectly, on account of principal of or interest on any Investor Certificates to the Holders of such Certificates, the Credit Enhancer will be fully subrogated to the rights of such Holders to receive such principal and interest from the Trust and (b) the Credit Enhancer shall be paid such principal and interest but only from the sources and in the manner provided herein for the Payment of such principal and interest. The Trustee and the Servicer shall cooperate in all respects with any reasonable request by the Credit Enhancer for action to preserve or enforce the Credit Enhancer's rights or interests under this Agreement without limiting the rights or affecting the interests of the Holders as otherwise set forth herein. 47 52 ARTICLE V Payments and Statements to Certificateholders; Rights of Certificateholders Section 5.01. Distributions. (a) Distributions of Investor Interest Collections and Investment Proceeds. Subject to Section 11.02(b), on each Distribution Date, the Trustee or the Paying Agent, as the case may be, shall distribute out of the Collection Account to the extent of Investor Interest Collections collected during the related Collection Period and the amounts transferred from the Spread Account as determined pursuant to Section 4.03(b), the following amounts and in the following order of priority to the following Persons (based on the information set forth in the Servicing Certificate): (i) the Trustee Fee for such Distribution Date to the Trustee; (ii) the premium pursuant to the Insurance Agreement to the Credit Enhancer; (iii) the Investor Certificate Interest for such Distribution Date to the Investor Certificateholders and the Unpaid Investor Certificate Interest Shortfall, if any, for such Distribution Date to the Investor Certificateholders plus, to the extent legally permissible, interest thereon at the Investor Certificate Rate plus _% per annum; (iv) the Investor Loss Amount for such Collection Period to the Investor Certificateholders as principal in reduction of the Investor Certificate Principal Balance; (v) to Investor Certificateholders as principal in reduction of the Investor Certificate Principal Balance the aggregate amount of the Investor Loss Reduction Amounts, in any, for previous Distribution Dates that have not been previously reimbursed to Investor Certificateholders pursuant to this clause (v); (vi) to reimburse the Credit Enhancer for previously unreimbursed Credit Enhancement Draw Amounts together with interest thereon at the applicable rate set forth in the Insurance Agreement; (vii) the Accelerated Principal Distribution Amount, if any, to the Investor Certificateholders; (viii) (i) to the Trustee to deposit to the Spread Account up to the Spread Account Requirement and (ii) to the Credit Enhancer for any amounts owed to the Credit Enhancer pursuant to the Insurance Agreement; (ix) any amount required to be paid to the Servicer pursuant to Section 7.03 which has not been previously paid to the Servicer; and (x) any remaining amount to the Transferor. 48 53 (b) Distribution of Principal Collections. Subject to Section 11.02(b) and except on the Distribution Date in ______ on each Distribution Date, the Trustee shall distribute out of the Collection Account to the Investor Certificateholders the Principal Collections (including amounts transferred thereto from the Spread Account pursuant to Section 4.03(b) in respect of the amount determined pursuant to Section 4.03(b)(ii) up to the Scheduled Principal Collections Distribution Amount but not in excess of the Investor Certificate Principal Balance. On the Distribution Date in ______ the Trustee shall distribute to Investor Certificateholders Principal Collections up to the Investor Certificate Principal Balance. (c) Reserved. (d) Distribution of the Credit Enhancement Draw Amount. With respect to any Distribution Date, to the extent that Investor Interest Collections and amounts transferred from the Spread Account on the related Distribution Date in respect of the amount determined pursuant to Section 4:03(b)(i) applied in the order specified in Section 5.01(a) are insufficient to make distributions as provided in clause (iii) of Section 5.01(a) above, the Trustee will make such payments (the "Deficiency Amount") from the amount drawn under the Policy for such Distribution Date pursuant to Section 4.02. For any Distribution Date as to which there is a Guaranteed Principal Distribution Amount, the Trustee shall distribute the Guaranteed Principal Distribution Amount to Certificateholders from the amount drawn under the Policy for such Distribution Date pursuant to Section 4.02. The aggregate amount of principal distributed to the Investor Certificateholders under this Agreement shall not exceed the Original Investor Certificate Principal Balance. (e) Method of Distribution. The Trustee shall make distributions in respect of a Distribution Date to each Investor Certificateholder of record on the related Record Date (other than as provided in Section 10.01 respecting the final distribution) by check or money order mailed to such Investor Certificateholder at the address appearing in the Certificate Register, or upon written request by an Investor Certificateholder delivered to the Trustee at least five Business Days prior to such Record Date, by wire transfer (but only if such Certificateholder is the Depository or such Certificateholder owns of record one or more Investor Certificates having principal denominations aggregating at least $1,000,000), or by such other means of payment as such Investor Certificateholder and the Trustee shall agree. Distributions among Investor Certificateholders shall be made in proportion to the Percentage Interests evidenced by the Investor Certificates held by such Investor Certificateholders. (f) Distributions on Book-Entry Certificates. Each distribution with respect to a Book-Entry Certificate shall be paid to the Depository, which shall credit the amount of such distribution to the accounts of its Depository Participants in accordance with its normal procedures. Each Depository Participant shall be responsible for disbursing such distribution to the Certificate Owners that it represents and to each indirect participating brokerage firm (a "brokerage firm" or "indirect participating firm") for which it acts as agent. Each brokerage firm shall be responsible for disbursing funds to the Certificate Owners that it represents. All such credits and disbursements with respect to a Book-Entry Certificate are to be made by the Depository and the Depository Participants in accordance with the provisions of the Investor Certificates. None of the Trustee, the Paying Agent, the Certificate Registrar, the Depositor, the 49 54 Credit Enhancer or the Servicer shall have any responsibility therefor except as otherwise provided by applicable law. (g) Distributions to Holders of Transferor Interest. On each Distribution Date, the Trustee shall, based upon the information set forth in the Servicing Certificate for such Distribution Date, distribute to the Transferor (i) the Transferor Interest Collections for the related Collection Period and (ii) the portion of Transferor Principal Collections for the related Collection Period in excess of Additional Balances created during such Collection Period; provided that collections allocable to the Transferor Interest will be distributed to the Transferor only to the extent that such distribution will not reduce the amount of the Transferor Principal Balance as of the related Distribution Date below the Minimum Transferor Interest. Amounts not distributed to the Transferor because of such limitations will be retained in the Collection Account until the Transferor Principal Balance exceeds the Minimum Transferor Interest, at which time such excess shall be released to the Transferor. Section 5.02. Calculation of the Investor Certificate Rate. On the second LIBOR Business Day immediately preceding each Distribution Date, the Trustee shall determine LIBOR for the Interest Period commencing on such Distribution Date and inform the Servicer (at the facsimile number given to the Trustee in writing) of such rates. On each Determination Date, the Trustee shall determine the applicable Investor Certificate Rate for the related Distribution Date. Section 5.03. Statements to Certificateholders. Concurrently with each distribution to Investor Certificateholders, the Trustee shall forward to each Investor Certificateholder, the Servicer and each Rating Agency a statement prepared by the Servicer pursuant to Section 4.01 with respect to such distribution setting forth: (i) the Investor Floating Allocation Percentage for the preceding Collection Period; (ii) the Investor Certificate Distribution Amount; (iii) the amount of Investor Certificate Interest in such distribution and the related Investor Certificate Rate; (iv) the amount, if any, of any Unpaid Investor Certificate Interest Shortfall in such distribution; (v) the amount, if any, of the remaining Unpaid Investor Certificate Interest Shortfall after giving effect to such distribution; (vi) the amount, if any, of principal in such distribution, separately stating the components thereof; (vii) the amount, if any, of the reimbursement of previous Investor Loss Reduction Amounts in such distribution; (viii) the amount, if any, of the aggregate of unreimbursed Investor Loss Reduction Amounts after giving effect to such distribution; 50 55 (ix) the Servicing Fee for such Distribution Date; (x) the Invested Amount, the Investor Certificate Principal Balance and the Pool Factor, each after giving effect to such distribution; (xi) the Pool Balance as of the end of the preceding Collection Period and the aggregate of the Asset Balances of the Mortgage Loans at the close of business on the last day of the related Collection Period; (xii) the Credit Enhancement Draw Amount, if any; (xiii) the number and aggregate Asset Balances of Mortgage Loans as to which the Minimum Monthly Payment is delinquent for 30-59 days, 60-89 days and 90 or more days, respectively, as of the end of the preceding Collection Period; (xiv) the book value (within the meaning of 12 C.F.R Section 571.13 or comparable provision) of any real estate acquired through foreclosure or grant of a deed in lieu of foreclosure; (xv) the Investor Certificate Rate applicable to the distribution on the following Distribution Date; (xvi) the number and principal balances of any Mortgage Loans retransferred to the Transferor pursuant to (a) Section 2.04 and (b) Section 2.06. In the case of information furnished pursuant to clauses (ii), (iii) in respect of Investor Certificate Interest, (iv) and (viii) above, the amounts shall be expressed as a dollar amount per Investor Certificate with a $1,000 denomination. Within 60 days after the end of each calendar year, the Servicer shall prepare or cause to be prepared and shall forward to the Trustee the information set forth in clauses (iii) and (vi) above aggregated for such calendar year. Such obligation of the Servicer shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Servicer or a Paying Agent pursuant to any requirements of the Code. The Trustee shall prepare or cause to be prepared (in a manner consistent with the treatment of the Investor Certificates as indebtedness of the Transferor, or as may be otherwise required by Section 3.15) Internal Revenue Service Form 1099 (or any successor form) and any other tax forms required to be filed or furnished to Certificateholders in respect of distributions by the Trustee (or the Paying Agent) on the Investor Certificates and shall file and distribute such forms as required by law. Section 5.04. Rights of Certificateholders and Holder of the Transferor Interest. The Investor Certificates shall represent fractional undivided interests in the Trust, including the benefits of the Collection Account and the right to receive Investor Interest Collections, Principal Collections and other amounts at the times and in the amounts specified in this Agreement; the Transferor Interest shall represent the remaining interest in the Trust. 51 56 ARTICLE VI The Certificates Section 6.01. The Certificates. The Investor Certificates shall be substantially in the forms set forth in Exhibit A and shall, on original issue, be executed, authenticated and delivered by the Trustee to or upon the order of the Depositor concurrently with the sale and assignment to the Trustee of the Trust. The Investor Certificates shall be initially evidenced by one or more certificates representing the entire original Investor Certificate Principal Balance and shall be held in minimum dollar denominations of $1,000 and integral dollar multiples in excess thereof, except that one Investor Certificate may be in a different denomination of less than $1,000 so that the sum of the denominations of all outstanding Investor Certificates shall equal the Original Investor Certificate Principal Balance. The sum of the denominations of all outstanding Investor Certificates shall equal the Original Investor Certificate Principal Balance. The Transferor Interest initially shall be an uncertificated interest issued upon the order of the Depositor to the Trustee concurrently with the sale and assignment to the Trustee of the Trust. The Transferor Interest may be certificated pursuant to Section 6.02(a). The Transferor Interest shall represent the entire interest in the assets of the Trust other than that represented by the Investor Certificates and shall initially be issued to the Seller. The Certificates shall be executed by manual or facsimile signature on behalf of the Trustee by an authorized officer under its seal imprinted thereon. Certificates bearing the manual or facsimile signatures of individuals who were, at the time when such signatures were affixed, authorized to sign on behalf of the Trustee shall bind the Trust, notwithstanding that such individuals or any of them have ceased to be so authorized prior to the authentication and delivery of such Certificates or did not hold such offices at the date of such Certificates. No Certificate shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless such Certificate shall have been manually authenticated by the Trustee substantially in the form provided for herein, and such authentication upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication. Subject to Section 6.02(c), the Investor Certificates shall be Book-Entry Certificates. The Transferor Interest shall not be Book-Entry Certificates. Section 6.02. Registration of Transfer and Exchange of Investor Certificates; Appointment of Registrar. (a) The Certificate Registrar shall cause to be kept at the Corporate Trust Office a Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Certificate Registrar shall provide for the registration of Investor Certificates and the Transferor Interest and of transfers and exchanges of Investor Certificates and the Transferor Interest as herein provided. The Trustee shall initially serve as Certificate Registrar for the purpose of registering Investor Certificates and the Transferor Interest and transfers and exchanges of Investor Certificates and the Transferor Interest as herein provided. Upon surrender for registration of transfer of any Investor Certificate at any office or agency of the Certificate Registrar maintained for such purpose pursuant to the foregoing 52 57 paragraph, the Trustee on behalf of the Trust shall execute, authenticate and deliver, in the name of the designated transferee or transferees, one or more new Investor Certificates of the same aggregate Percentage Interest. Upon direction by the Transferor to the Trustee and the Certificate Registrar, the Trustee shall issue the Transferor Interest in a certificated form substantially in a form as set forth in Exhibit B. Upon notification by the Transferor to the Certificate Registrar of a transfer of the Transferor Interest and subject to Section 6.05, the Trustee on behalf of the Trust shall note on the Certificate Register the transfer of the Transferor Interest. At the option of the Investor Certificateholders, Investor Certificates may be exchanged for other Investor Certificates in authorized denominations and the same aggregate Percentage Interests, upon surrender of the Investor Certificates to be exchanged at any such office or agency. Whenever any Investor Certificates are so surrendered for exchange, the Trustee shall execute and authenticate and deliver the Investor Certificates which the Investor Certificateholder making the exchange is entitled to receive. Every Investor Certificate presented or surrendered for transfer or exchange shall (if so required by the Trustee or the Certificate Registrar) be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing. (b) Except as provided in paragraph (c) below, the Book-Entry Certificates shall at all times remain registered in the name of the Depository or its nominee and at all times: (i) registration of the Investor Certificates may not be transferred by the Trustee except to another Depository; (ii) the Depository shall maintain book-entry records with respect to the Certificate Owners and with respect to ownership and transfers of such Investor Certificates; (iii) ownership and transfers of registration of the Investor Certificates on the books of the Depository shall be governed by applicable rules established by the Depository; (iv) the Depository may collect its usual and customary fees, charges and expenses from its Depository Participants; (v) the Trustee shall deal with the Depository as representative of the Certificate Owners of the Investor Certificates for purposes of exercising the rights of Holders under this Agreement, and requests and directions for and votes of such representative shall not be deemed to be inconsistent if they are made with respect to different Certificate Owners; and (vi) the Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its Depository Participants and furnished by the Depository Participants with respect to indirect participating firms and Persons shown on the books of such indirect participating firms as direct or indirect Certificate Owners. All transfers by Certificate Owners of Book-Entry Certificates shall be made in accordance with the procedures established by the Depository Participant or brokerage firm representing such Certificate Owners. Each Depository Participant shall only transfer Book-Entry Certificates of Certificate Owners that it represents or of brokerage firms for which it acts as agent in accordance with the Depository's normal procedures. The parties hereto are hereby authorized to execute a Letter of Representations with the Depository or take such other action as may be necessary or desirable to register a Book-Entry Certificate to the Depository. In the event of any conflict between the terms of any such Letter of Representation and this Agreement the terms of this Agreement shall control. 53 58 (c) If (i)(x) the Depository or the Depositor advises the Trustee in writing that the Depository is no longer willing or able to discharge properly its responsibilities as Depository, and (y) the Trustee or the Depositor is unable to locate a qualified successor, (ii) the Depositor, at its sole option, with the consent of the Trustee, elects to terminate the book-entry system through the Depository or (iii) after the occurrence of an Event of Servicing Termination, the Depository, at the direction of Certificate Owners representing Percentage Interests aggregating not less than 51%. advises the Trustee in writing that the continuation of a book-entry system through the Depository to the exclusion of definitive, fully registered Investor Certificates (the "Definitive Certificates") to Certificate Owners is no longer in the best interests of the Certificate Owners. Upon surrender to the Certificate Registrar of the Investor Certificates by the Depository, accompanied by registration instructions from the Depository for registration, the Trustee shall execute and authenticate the Definitive Certificates. Neither the Depositor nor the 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 Certificates, all references herein to obligations imposed upon or to be performed by the Depository shall be deemed to be imposed upon and performed by the Trustee, to the extent applicable with respect to such Definitive, Certificates and the Trustee, the Certificate Registrar, the Servicer and the Depositor shall recognize the Holders of the Definitive Certificates as Certificateholders hereunder. No service charge shall be made for any registration of transfer or exchange of Investor Certificates, but the Certificate Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Certificates. All Investor Certificates surrendered for registration of transfer or exchange shall be cancelled by the Certificate Registrar and disposed of pursuant to its standard procedures. Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates. If (i) any mutilated Certificate is surrendered to the Certificate Registrar or the Certificate Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Certificate, and (ii) there is delivered to the Trustee, the Depositor and the Certificate Registrar such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Trustee or the Certificate Registrar that such Certificate has been acquired by a bona fide purchaser, the Trustee shall execute, authenticate and deliver in exchange for or in lieu of any such mutilated, destroyed, last or stolen Certificate, a new Certificate of like tenor and Percentage Interest. Upon the issuance of any new Certificate under this Section 6.03, the Trustee or the Certificate Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and the Certificate Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section 6.03, shall constitute complete and indefeasible evidence of ownership in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 6.04. Persons Deemed Owners. Prior to due presentation of a Certificate or the Transferor Interest for registration of transfer, the Servicer, the Depositor, the Trustee, the Certificate Registrar, any Paying Agent and any agent of the Servicer, the Depositor, the Trustee, 54 59 any Paying Agent or the Certificate Registrar may treat the Person, including a Depository, in whose name any Certificate or the Transferor Interest is registered as the owner of such Certificate or Transferor Interest for the purpose of receiving distributions pursuant to Section 5.01 and for all other purposes whatsoever, and none of the Servicer, the Depositor, the Trustee the Certificate Registrar, any Paying Agent or any agent of any of them shall be affected by notice to the contrary. Section 6.05. Restrictions on Transfer of Transferor Interest. (a) The Transferor Interest shall be assigned, transferred, exchanged, pledged, financed, hypothecated or otherwise conveyed (collectively, for purposes of this Section 6.05 and any other Section referring to the Transferor Interest, "transferred" or a "transfer") only in accordance with this Section 6.05. (b) No transfer of a Transferor Interest shall be made unless such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws or is made in accordance with said Act and laws. Except for the initial issuance of the Transferor Interest to the Transferor, the Trustee shall require (i) the transferee to execute an investment letter acceptable to and in form and substance satisfactory to the Trustee certifying to the Trustee the facts surrounding such transfer, which investment letter shall not be an expense of the Trustee or (ii) if the investment letter is not delivered, a written Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee and the Depositor that such transfer may be made pursuant to an exemption, describing the applicable exemption and the basis therefor, from said Act or is being made pursuant to said Act, which Opinion of Counsel shall not be an expense of the Trustee or the Depositor. The Holder of a Transferor Interest desiring to effect such transfer shall, and does hereby agree to, indemnify the Transferor against any liability that may result if the transfer is not so exempt or is not made in accordance with such federal and state laws. (c) The Transferor Interest and any interest therein shall not be transferred except upon satisfaction of the following conditions precedent: (i) the Person that acquires a Transferor Interest shall (A) be organized and existing under the laws of the United States of America or any state or the District of Columbia thereof, (B) expressly assume, by an agreement supplemental hereto, executed and delivered to the Trustee, the performance of every covenant and obligation of the Transferor hereunder and (C) as part of its acquisition of a Transferor Interest, acquire all rights of the Transferor or any transferee under this Section 6.05(c) to amounts payable to such Transferor or such transferee under Sections 5.01(a)(x) and 5.01(g); (ii) the Holder of the Transferor Interest shall deliver to the Trustee an Officer's Certificate stating that such transfer and such supplemental agreement comply with this Section 6.05(c) and that all conditions precedent provided by this subsection 6.05(c) have been complied with and an Opinion of Counsel stating that all conditions precedent provided by this subsection 6.05(c) have been complied with, and the Trustee may conclusively rely on such Officer's Certificate, shall have no duty to make inquiries with regard to the matters set forth therein and shall incur no liability in so relying; (iii) the Holder of the Transferor Interest shall deliver to the Trustee a letter from each Rating Agency confirming that its rating of the Investor Certificates, after giving effect to such transfer, will not be reduced or withdrawn without regard to the Policy; (iv) the transferee of the Transferor Interest shall deliver to the Trustee an Opinion of Counsel to the 55 60 effect that (a) such transfer will not adversely affect the treatment of the Investor Certificates after such transfer as debt for federal and applicable state income tax purposes, (b) such transfer will not result in the Trust being subject to tax at the entity level for federal or applicable state tax purposes, (c) such transfer will not have any material adverse impact on the federal or applicable state income taxation of an Investor Certificateholder or any Certificate Owner and (d) such transfer will not result in the arrangement created by this Agreement or any "portion" of the Trust, being treated as a taxable mortgage pool as defined in Section 7701(i) of the Code; (v) all filings and other actions necessary to continue the perfection of the interest of the Trust in the Mortgage Loans and the other property conveyed hereunder shall have been taken or made and (vi) the transferee shall have assumed the obligations of the Transferor pursuant to Section 7.07 hereof. Notwithstanding the foregoing, the requirement set forth in subclause (i)(A) of this Section 6.05(c) shall not apply in the event the Trustee shall have received a letter from each Rating Agency confirming that its rating of the Investor Certificates, after giving effect to a proposed transfer to a Person that does not meet the requirement set forth in subclause (i)(A), shall no be reduced or withdrawn. Notwithstanding the foregoing, the requirements set forth in this paragraph (c) shall not apply to the initial issuance of the Transferor Interest to the Transferor. (d) Except for the initial issuance of the Transferor Interest to the Transferor, no transfer of a Transferor Interest shall be made unless the Trustee shall have received either (i) a representation letter from the transferee of such Certificate, acceptable to and in form and substance satisfactory to the Trustee, to the effect that such transferee is not an employee benefit plan subject to Section 406 of ERISA, nor a Person acting on behalf of any such plan, which representation letter shall not be an expense of the Trustee, (ii) if the purchaser is an insurance company, a representation that the purchaser is an insurance company which is purchasing such Certificates with funds contained in an "insurance company general account" (as such term is defined in Section V(e) of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the purchase and holding of such Certificates are covered under PTCE 95-60, or (iii) in the case of any Transferor Interest presented for registration in the name of an employee benefit plan subject to ERISA, and Section 4975 of the Code (or comparable provisions of any subsequent enactment's), or a trustee of any such plan, an Opinion of Counsel to the effect that the purchase or holding of such Certificate will not result in the assets of the Trust being deemed to be "plan assets" and subject to the prohibited transaction provisions of ERISA and the Code and will not subject the Trustee to any obligation in addition to those undertaken in this Agreement, which Opinion of Counsel shall not be an expense of the Trustee or the Depositor. Section 6.06. Appointment of Paying Agent. (a) The Paying Agent shall make distributions to Investor Certificateholders from the Collection Account pursuant to Section 5.01 and shall report the amounts of such distributions to the Trustee. The duties of the Paying Agent may include the obligation (i) to withdraw funds from the Collection Account pursuant to Section 3.03 and for the purpose of making the distributions referred to above and (ii) to distribute statements and provide information to Certificateholders as required hereunder. The Paying Agent hereunder shall at all times be a corporation duly incorporated and validly existing under the laws of the United States of America or any state thereof, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by federal or state authorities. The Paying Agent shall 56 61 initially be the Trustee. The Trustee may appoint a successor to act as Paying Agent, which appointment shall be reasonably satisfactory to the Depositor. (b) The Trustee shall cause the Paying Agent (if other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee that such Paying Agent shall hold all sums, if any, held by it for payment to the Investor Certificateholders in trust for the benefit of the Investor Certificateholders entitled thereto until such sums shall be paid to such Certificateholders and shall agree that it shall comply with all requirements of the Code regarding the withholding of payments in respect of Federal income taxes due from Certificate Owners and otherwise comply with the provisions of this Agreement applicable to it. Section 6.07. Acceptance of Obligations. The Transferor, by its acceptance of the Transferor Interest, agrees to be bound by and to perform all the duties of the Transferor set forth in this Agreement. ARTICLE VII The Servicer, the Seller and the Depositor Section 7.01. Liability of the Seller, the Servicer and the Depositor. The Seller and the Servicer shall be liable in accordance herewith only to the extent of the obligations specifically imposed upon and undertaken by the Seller or Servicer, as the case may be, herein. The Depositor shall be liable in accordance herewith only to the extent of the obligations specifically imposed upon and undertaken by the Depositor. Section 7.02. Merger or Consolidation of, or Assumption of the Obligations of, the Servicer or the Depositor; Assignment of Servicing to an Affiliate. Any corporation into which the Servicer or the Depositor may be merged or consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Servicer or the Depositor shall be a party, or any corporation succeeding to the business of the Servicer or the Depositor, shall be the successor of the Servicer or the Depositor, as the case may be, hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. In addition, so long as Bank One, N.A. or an Affiliate thereof is the Servicer, upon delivery of prior written notice to the Rating Agencies and the Credit Enhancer, the Servicer may assign all of its rights and obligations hereunder to any Eligible Affiliate Servicer provided that such Eligible Affiliate Servicer agrees to be bound by the obligations of the Servicer under the Insurance Agreement. Section 7.03. Limitation on Liability of the Servicer and Others. Neither the Servicer nor any of the directors or officers or employees or agents of the Servicer shall be under any liability to the Trust or the Certificateholders for any action taken or for refraining from the taking of any action by the Servicer in good faith pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Servicer or any such Person against any liability which would otherwise be imposed by reason of willful misfeasance, 57 62 bad faith or gross negligence in the performance of duties of the Servicer or by reason of reckless disregard of obligations and duties of the Servicer hereunder. The Servicer and any director or officer or employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Servicer and any director or officer or employee or agent of the Servicer shall be indemnified by the Trust and held harmless against any loss, liability or expense incurred in connection with any legal action relating to this Agreement or the Certificates, other than any loss, liability or expense related to any specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense shall be otherwise reimbursable pursuant to this Agreement) and any loss, liability or expense incurred by reason of its willful misfeasance, bad faith or gross negligence in the performance of duties hereunder or by reason of its reckless disregard of obligations and duties hereunder. The Servicer shall not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to duties to service the Mortgage Loans in accordance with this Agreement, and which in its opinion may involve it in any expense or liability; provided, however, that the Servicer may in its sole discretion undertake any such action which it may deem necessary or desirable in respect of this Agreement, and the rights and duties of the parties hereto and the interests of the Certificateholders hereunder. In such event, the reasonable legal expenses and costs of such action and any liability resulting therefrom shall be expenses, costs and liabilities of the Trust and the Servicer shall only be entitled to be reimbursed therefor pursuant to Section 5.01(a)(ix). The Servicer's right to indemnity or reimbursement pursuant to this Section 7.03 shall survive any resignation or termination of the Servicer pursuant to Section 7.04 or 8.01 with respect to any losses, expenses, costs or liabilities arising prior to such resignation or termination (or arising from events that occurred prior to such resignation or termination). Section 7.04. Servicer Not to Resign. Subject to the provisions of Section 7.02, the Servicer shall not resign from the obligations and duties hereby imposed on it except (i) upon determination that the performance of its obligations or duties hereunder are no longer permissible under applicable law or are in material conflict by reason of applicable law with any other activities carried on by it or its subsidiaries or Affiliates, the other activities of the Servicer so causing such a conflict being of a type and nature carried on by the Servicer or its subsidiaries or Affiliates at the date of this Agreement, (ii) appointment of an Eligible Affiliate Servicer pursuant to Section 7.02, or (iii) upon satisfaction of the following conditions: (a) the Servicer has proposed a successor servicer to the Trustee in writing and such proposed successor servicer is reasonably acceptable to the Trustee; (b) each Rating Agency shall have delivered a letter to the Trustee prior to the appointment of the successor servicer stating that the proposed appointment of such successor servicer as Servicer hereunder will not result in the reduction or withdrawal of the then current rating of the Investor Certificates without regard to the Policy; and (c) such proposed successor servicer is reasonably acceptable to the Credit Enhancer, as evidenced by a letter to the Trustee; provided, however, that no such resignation by the Servicer shall become effective until the Trustee or successor servicer designated by the Servicer as provided above shall have assumed the Servicer's responsibilities and obligations hereunder or the Trustee shall have designated a successor servicer in accordance with Section 8.02. An such resignation shall not relieve the Servicer of responsibility for any of the obligations specified in Sections 8.01 and 8.02 as obligations that survive the resignation or termination of the Servicer. Any such determination permitting the resignation of the Servicer pursuant to clause (i) above shall be evidenced by an Opinion of Counsel to such effect delivered to the Trustee and the 58 63 Credit Enhancer. The Servicer shall have no claim (whether by subrogation or otherwise) or other action against any Certificateholders or the Credit Enhance for any amounts paid by the Servicer pursuant to any provision of this Agreement. Section 7.05. Delegation of Duties. In the ordinary course of business, the Servicer at any time may delegate any of its duties hereunder to any Person, including any of its Affiliates, or any subservicer referred to in Section 3.01, who agrees to conduct such duties in accordance with standards comparable to those with which the Servicer complies pursuant to Section 3.01. Such delegation shall not relieve the Servicer of its liabilities and responsibilities with respect to such duties and shall not constitute a resignation within the meaning of Section 7.04. Section 7.06. Indemnification of the Trust by the Servicer. The Servicer shall indemnify and hold harmless the Trust and the Trustee from and against any loss, liability, expense, damage or injury suffered or sustained by reason of the Servicer's activities or omissions in servicing or administering the Mortgage Loans that are not in accordance with this Agreement, including, but not limited to, any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim. Any such indemnification shall not be payable from the assets of the Trust. The provisions of this indemnity shall run directly to and be enforceable by an injured party subject to the limitations hereof. The provisions of this Section 7.06 shall survive termination of this Agreement. Section 7.07. Indemnification of the Trust by the Transferor. Notwithstanding anything to the contrary contained herein, the Transferor (i) agrees to be liable directly to the injured party without the party necessarily making a prior claim against the Trust for the entire amount of any losses, claims, damages, liabilities and expenses of the Trust (other than those attributable to an Investor Certificateholder in the capacity as an investor in the Investor Certificates as a result of defaults on the Mortgage Loans) to the extent that the Transferor would be liable if the Trust were a partnership under the Delaware Revised Uniform Limited Partnership Act in which the Transferor was a general partner and (ii) shall indemnify and hold harmless the Trust and the Trustee from and against any loss, liability, expense, damage, claim or injury (other than those attributable to an Investor Certificateholder in the capacity as an investor in the Investor Certificates as a result of defaults on the Mortgage Loans) arising out of or based on this Agreement by reason of any acts, omissions, or alleged acts or omissions arising out of activities of the Trust or the Trustee, or the actions of the Servicer including, but not limited to, amounts payable to the Servicer pursuant to Section 7.03, any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim; provided that the Transferor shall not indemnify the Trustee (but shall indemnify any other injured party) if such loss, liability, expense, damage or injury is due to the Trustee's willful malfeasance, bad faith or gross negligence or by reason of the Trustee's reckless disregard of its obligations hereunder. The provisions of this indemnity shall run directly to and be enforceable by an injured party subject to the limitations hereof. Section 7.08. Limitation on Liability of the Transferor. None of the directors or officers or employees or agents of the Transferor shall be under any liability to the Trust, the Trustee or the Certificateholders, it being expressly understood that all such liability is expressly waived and released as a condition of, and as consideration for, the execution of this Agreement and the 59 64 issuance of the Certificates; provided, however, that this provision shall not protect any such Person against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of the duties hereunder. Except as provided in Section 7.07, the Transferor shall not be under any liability to the Trust, the Trustee or the Certificateholders for any action taken or for refraining from the taking of any action in its capacity as Transferor pursuant to this Agreement whether arising from express or implied duties under this Agreement; provided, however, that this provision shall not protect the Transferor against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of reckless disregard of its obligations and duties hereunder. The Transferor and any director or officer or employee or agent of the Transferor may rely in good faith on an document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. ARTICLE VIII Servicing Termination Section 8.01. Events of Servicing Termination. If any one of the following events ("Events of Servicing Termination") shall occur and be continuing: (i) Any failure by the Servicer to deposit in the Collection Account any deposit required to be made under the terms of this Agreement which continues unremedied for a period of five Business Days after the date upon which written notice of such failure shall have been given to the Servicer by the Trustee or to the Servicer and the Trustee by the Credit Enhancer or Holders of Investor Certificates evidencing Percentage Interests aggregating not less than 25%; or (ii) Failure on the part of the Servicer duly to observe or perform in any material respect any other covenants or agreements of the Servicer set forth in the Certificates or in this Agreement, which failure continues unremedied for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, and stating that such notice is a "Notice of Default" hereunder, shall have been given to the Servicer by the Trustee or to the Servicer and the Trustee by the Credit Enhancer or the Holders of Investor Certificates evidencing Percentage Interests aggregating not less than 25%; or (iii) The entry against the Servicer of a decree or order by a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a trustee, conservator, receiver or liquidator in any insolvency, conservatorship, receivership, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (iv) The consent by the Servicer to the appointment of a trustee, conservator, receiver or liquidator in any insolvency, conservatorship, receivership, readjustment of 60 65 debt, marshalling of assets and liabilities or similar proceedings of or relating to the Servicer or of or relating to substantially all of its property; or the Servicer shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors, or voluntarily suspend payment of its obligations; then, and in each and every such case, so long as an Event of Servicing Termination shall not have been remedied by the Servicer, either the Trustee, the Credit Enhancer or the Holders of Investor Certificates evidencing Percentage Interests aggregating not less than 51%, by notice then given in writing to the Servicer (and to the Trustee if given by the Credit Enhancer or the Holders of Investor Certificates) may terminate all of the rights and obligations of the Servicer as servicer under this Agreement. Any such notice to the Servicer shall also be given to each Rating Agency and the Credit Enhancer. On or after the receipt by the Servicer of such written notice, all authority and power of the Servicer under this Agreement, whether with respect to the Certificates or the Mortgage Loans or otherwise, shall pass to and be vested in the Trustee pursuant to and under this Section 8.01; and, without limitation, the Trustee is hereby authorized and empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement of each Mortgage Loan and related documents, or otherwise. The Servicer agrees to cooperate with the Trustee in effecting the termination of the responsibilities and rights of the Servicer hereunder, including, without limitation, the transfer to the Trustee for the administration by it of all cash amounts that shall at the time be held by the Servicer and to be deposited by it in the Collection Account, or that have been deposited by the Servicer in the Collection Account or thereafter received by the Servicer with respect to the Mortgage Loans. All reasonable costs and expenses (including attorneys' fees) incurred in connection with transferring the Mortgage Files to the successor Servicer and amending this Agreement to reflect such succession as Servicer pursuant to this Section 8.01 shall be paid by the predecessor Servicer (or if the predecessor Servicer is the Trustee, the initial Servicer) upon presentation of reasonable documentation of such costs and expenses. Notwithstanding the foregoing, a delay in or failure of performance under Section 8.01(i) for a period of ten Business Days or under Section 8.01(ii) for a period of 60 Business Days, shall not constitute an Event of Servicing Termination if such delay or failure could not be prevented by the exercise of reasonable diligence by the Servicer and such delay or failure was caused by an act of God or the public enemy, acts of declared or undeclared war, public disorder, rebellion or sabotage, epidemics, landslides, lightning, fire, hurricanes, earthquakes, floods or similar causes. The preceding sentence shall not relieve the Servicer from using its best efforts to perform its respective obligations in a timely manner in accordance with the terms of this Agreement and the Servicer shall provide the Trustee, the Transferor, the Credit Enhancer and the Investor Certificateholders with an Officers' Certificate giving prompt notice of such failure or delay by it, together with a description of its efforts to so perform its obligations. The Servicer shall immediately notify the Trustee in writing of any Events of Servicing Termination. 61 66 Section 8.02. Trustee to Act; Appointment of Successor. (a) On and after the time the Servicer receives a notice of termination pursuant to Section 8.01 or 7.04, the Trustee shall be the successor in all respects to the Servicer in its capacity as servicer under this Agreement and the transactions set forth or provided for herein and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof. Notwithstanding the above, if the Trustee becomes the Servicer hereunder, it shall have no responsibility or obligation (i) of repurchase or substitution with respect to any Mortgage Loan, (ii) with respect to any representation or warranty of the Servicer, and (iii) for any act or omission of either a predecessor or successor Servicer other than the Trustee. As compensation therefor, the Trustee shall be entitled to such compensation as the Servicer would have been entitled to hereunder if no such notice of termination had been given. In addition, the Trustee will be entitled to compensation with respect to its expenses in connection with conversion of certain information, documents and record keeping, as provided in Section 7.04(b). Notwithstanding the above, (i) if the Trustee is unwilling to act as successor Servicer, or (ii) if the Trustee is legally unable so to act, the Trustee may (in the situation described in clause (i)) or shall (in the situation described in clause (ii)) appoint or petition a court of competent jurisdiction to appoint, any established housing and home finance institution, bank or other mortgage loan or home equity loan servicer having a net worth of not less than $15,000,000 as the successor to the Servicer hereunder in the assumption of all or any part of the responsibilities, duties or liabilities of the Servicer hereunder; provided that any such successor Servicer shall be acceptable to the Credit Enhancer, as evidenced by the Credit Enhancer's prior written consent, which consent shall not be unreasonably withheld; and provided further that the appointment of any such successor Servicer will not result in the qualification, reduction or withdrawal of the ratings assigned to the Certificates by the Rating Agencies without regard to the Policy. Pending appointment of a successor to the Servicer hereunder, unless the Trustee is prohibited by law from so acting, the Trustee shall act in such capacity as hereinabove provided. In connection with such appointment and assumption, the successor shall be entitled to receive compensation out of payments on Mortgage Loans in an amount equal to the compensation which the Servicer would otherwise have received pursuant to Section 3.08 (or such lesser compensation as the Trustee and such successor shall agree). The Trustee and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. (b) Any successor, including the Trustee, to the Servicer as servicer shall during the term of its service as servicer (i) continue to service and administer the Mortgage Loans for the benefit of Certificateholders and the Credit Enhancer and (ii) maintain in force a policy or policies of insurance covering errors and omissions in the performance of its obligations as Servicer hereunder and a fidelity bond in respect of its officers, employees and agents to the same extent as the Servicer is so required pursuant to Section 3.12. The appointment of a successor Servicer shall not affect any liability of the predecessor Servicer which may have arisen under this Agreement prior to its termination as Servicer (including, without limitation, any deductible under an insurance policy pursuant to Section 3.04), nor shall any successor Servicer be liable for an acts or omissions of the predecessor Servicer or for any breach by such Servicer of any of their representations or warranties contained herein. 62 67 Section 8.03. Notification to Certificateholders. Upon any termination or appointment of a successor to the Servicer pursuant to this Article VIII or Section 7.04, the Trustee shall give prompt written notice thereof to the Certificateholders at their respective addresses appearing in the Certificate Register, the Credit Enhancer and each Rating Agency. ARTICLE IX The Trustee Section 9.01. Duties of Trustee. The Trustee, prior to the occurrence of an Event of Servicing Termination and after the curing or waiver of all Events of Servicing Termination which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. If an Event of Servicing Termination has occurred (which has not been cured or waived) of which a Responsible Officer has knowledge, the Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs; provided, however, that if the Trustee is acting as Servicer it shall use the same degree of care and skill as is required of the Servicer under this Agreement. The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Agreement, shall examine them to determine whether they conform to the requirements of this Agreement. No provision of this Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct; provided, however, that: (i) prior to the occurrence of an Event of Servicing Termination of which a Responsible Officer of the Trustee has knowledge, and after the curing or waiver of all such Events of Servicing Termination which may have occurred, the duties and obligations of the Trustee shall be determined solely by the express provisions of this Agreement, the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement, no implied covenants or obligations shall be read into this Agreement against the Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Agreement; (ii) the Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining or investigating the facts related thereto; (iii) the Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the consent or 63 68 direction of the Credit Enhancer or in accordance with the direction of the Holders of Investor Certificates evidencing Percentage Interests aggregating not less than 51% relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Agreement; and (iv) the Trustee shall not be charged with knowledge of any failure by the Servicer to comply with the obligations of the Servicer referred to in clauses (i) and (ii) of Section 8.01 or of the occurrence of a Rapid Amortization Event unless a Responsible Officer of the Trustee at the Corporate Trust Office obtains actual knowledge of such failure or the Trustee receives written notice of such failure from the Servicer, the Credit Enhancer or the Holders of Investor Certificates evidencing Percentage Interests aggregating not less than 51%. The Trustee shall not be required 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 there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. None of the provisions contained in this Agreement shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any of the obligations of the Servicer under this Agreement, except during such time, if any, as the Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Servicer in accordance with the terms of this Agreement and in no event shall it be required to perform or accept responsibility for the obligations of the Depositor, the Seller or the Transferor. Section 9.02. Certain Matters Affecting the Trustee. Except as otherwise provided in Section 9.01: (i) the Trustee may request and rely upon, and shall be protected in acting or refraining from acting upon, any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (ii) the Trustee may consult with counsel and any written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (iii) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Certificateholders or the Credit Enhancer, pursuant to the provisions of this Agreement, unless such Certificateholders or the Credit Enhancer shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; the right of the Trustee to perform any discretionary act enumerated in this Agreement shall not be construed as a duty, and the Trustee shall not 64 69 be answerable for other than its negligence or willful misconduct in the performance of any such act; nothing contained herein shall, however, relieve the Trustee of the obligations, upon the occurrence of an Event of Servicing Termination (which has not been cured or waived) of which a Responsible Officer has knowledge, to exercise such of the rights and powers vested in it by this Agreement, and to use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs, unless it is acting as Servicer; (iv) the Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or owners conferred upon it by this Agreement; (v) prior to the occurrence of an Event of Servicing Termination and after the curing or waiver of all Events of Servicing Termination which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or documents, unless requested in writing to do so by Holders of Investor Certificates evidencing Percentage Interests aggregating not less than 51%; provided, however, that if the payment within a reasonable time to the 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 Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Agreement, the Trustee may require reasonable indemnity against such cost, expense or liability as a condition to such proceeding. The reasonable expense of every such examination shall be paid by the Servicer or, if paid by the Trustee, shall be reimbursed by the Servicer upon demand. Nothing in this clause (v) shall derogate from the obligation of the Servicer to observe any applicable law prohibiting disclosure of information regarding the Mortgagors; (vi) the Trustee shall not be accountable, shall have no liability and makes no representation as to any acts or omissions hereunder of the Servicer until such time as the Trustee may be required to act as Servicer pursuant to Section 8.02; and (vii) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through an Affiliate, agents or attorneys or a custodian. Section 9.03. Trustee Not Liable for Certificates or Mortgage Loans. The recitals contained herein and in the Certificates (other than the authentication of the Trustee on the Certificates) shall be taken as the statements of the Depositor, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Agreement or of the Certificates (other than the signature and authentication of the Trustee on the Certificates) or of any Mortgage Loan or Related Document. The Trustee shall not be accountable for the use or application by the Depositor of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Depositor or the Servicer in respect of the Mortgage Loans or deposited in or withdrawn from the Collection Account by the Servicer. The Trustee shall at no time have any responsibility or liability for or with respect to the legality, validity and enforceability of any 65 70 Mortgage or any Mortgage Loan, or the perfection and priority of any Mortgage or the maintenance of any such perfection and priority, or for or with respect to the sufficiency of the Trust or its ability to generate the payments to be distributed to Certificateholders under this Agreement, including, without limitation: the existence, condition and ownership of any Mortgaged Property; the existence and enforceability of any hazard insurance thereon (other than if the Trustee shall assume the duties of the Servicer pursuant to Section 8.02); the validity of the assignment of any Mortgage Loan to the Trustee or of any intervening assignment; the completeness of any Mortgage Loan; the performance or enforcement of any Mortgage Loan (other than if the Trustee shall assume the duties of the Servicer pursuant to Section 8.02); the compliance by the Depositor, the Seller or the Servicer with any warranty or representation made under this Agreement or in any related document or the accuracy of any such warranty or representation prior to the Trustee's receipt of notice or other discovery of any non-compliance therewith or any breach thereof; any investment of monies by or at the direction of the Servicer or any loss resulting therefrom, it being understood that the Trustee shall remain responsible for any Trust property that it may hold in its individual capacity; the acts or omissions of any of the Depositor, the Servicer (other than if the Trustee shall assume the duties of the Servicer pursuant to Section 8.02), any subservicer or any Mortgagor; any action of the Servicer (other than if the Trustee shall assume the duties of the Servicer pursuant to Section 8.02), or any subservicer taken in the name of the Trustee; the failure of the Servicer or any subservicer to act or perform any duties required of it as agent of the Trustee hereunder; or any action by the Trustee taken at the instruction of the Servicer (other than if the Trustee shall assume the duties of the Servicer pursuant to Section 8.02); provided, however, that the foregoing shall not relieve the Trustee of its obligation to perform its duties under this Agreement. The Trustee shall have no responsibility for filing any financing or continuation statement in any public office at any time or to otherwise perfect or maintain the perfection of any security interest or lien granted to it hereunder (unless the Trustee shall have become the successor Servicer) or to prepare or file any Securities and Exchange Commission filing for the Trust or to record this Agreement. Section 9.04. Trustee May Own Certificates. The Trustee in its individual or any other capacity may become the owner or pledgee of Certificates with the same rights as it would have if it were not Trustee and may transact any banking and trust business with the Seller, the Servicer, the Credit Enhancer or the Depositor. Section 9.05. Servicer to Pay Trustee's Fees and Expenses; Servicer to Indemnify. To the extent not otherwise paid pursuant to Section 5.01(a)(i), the Servicer covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and the Servicer will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Agreement (including the reasonable compensation and the expenses and disbursements of its counsel and of all Persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith or which is the responsibility of Certificateholders hereunder. The Servicer covenants and agrees to indemnify the Trustee from, and hold it harmless against, any and all losses, liabilities, damages, claims or expenses other than those resulting from the negligence or bad faith of the Trustee. This section 66 71 shall survive termination of this Agreement or the resignation or removal of any Trustee hereunder. Section 9.06. Eligibility Requirements for Trustee. The Trustee hereunder shall at all times be a corporation duly incorporated and validly existing under the laws of the United States of America or any state thereof, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 9.06, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The principal office of the Trustee (other than the initial Trustee) shall be in a state with respect to which an Opinion of Counsel has been delivered to such Trustee at the time such Trustee is appointed Trustee to the effect that the Trust will not be a taxable entity under the laws of such state. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 9.06, the Trustee shall resign immediately in the manner and with the effect specified in Section 9.07. Section 9.07. Resignation or Removal of Trustee. The Trustee may at any time resign and be discharged from the trusts hereby created by giving written notice thereof to the Transferor, the Depositor, the Servicer, the Credit Enhancer and each Rating Agency. Upon receiving such notice of resignation, the Transferor shall promptly appoint a successor Trustee (approved in writing by the Credit Enhancer, so long as such approval is not unreasonably withheld) by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee (who shall deliver a copy to the Servicer) and one copy to the successor Trustee; provided, however, that any such successor Trustee shall be subject to the prior written approval of the Transferor. If no successor Trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 9.06 and shall fail to resign after written request therefor by the Transferor or the Credit Enhancer, or if at any time the Trustee shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, or if a tax is imposed or threatens with respect to the Trust Fund by any state in which the Trustee or the Trust Fund is located (which tax cannot be vacated by the appointment of a co-Trustee or separate trustee pursuant to Section 9.10), then the Transferor or the Credit Enhancer may remove the Trustee. If the Transferor or the Credit Enhancer removes the Trustee under the authority of the immediately preceding sentence, the Transferor shall promptly appoint a successor Trustee (approved in writing by the Credit Enhancer, which approval shall not be unreasonably withheld) by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor Trustee. 67 72 The Holders of Investor Certificates evidencing Percentage Interests aggregating over 50% of all Investor Certificates may at any time remove the Trustee by written instrument or instruments delivered to the Servicer, the Transferor and the Trustee; the Transferor shall thereupon use its best efforts to appoint a successor trustee in accordance with this Section. Any resignation or removal of the Trustee and appointment of a successor Trustee pursuant to any of the provisions of this Section 9.07 shall not become effective until acceptance of appointment by the successor Trustee as provided in Section 9.08. Section 9.08. Successor Trustee. Any successor Trustee appointed as provided in Section 9.07 shall execute, acknowledge and deliver to the Transferor, the Depositor, the Servicer, the Credit Enhancer and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Trustee. The Transferor, the Depositor, the Servicer and the predecessor Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor Trustee all such rights, powers, duties and obligations. No successor Trustee shall accept appointment as provided in this Section 9.08 unless at the time of such acceptance such successor Trustee shall be eligible under the provisions of Section 9.06. Upon acceptance of appointment by a successor Trustee as provided in this Section 9.08, the successor Trustee shall mail notice of the succession of such Trustee hereunder to all Holders of Certificates at their addresses as shown in the Certificate Register and to each Rating Agency. If the Servicer fails to mail such notice within 30 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Servicer. Section 9.09. Merger or Consolidation of Trustee. Any Person into which the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to all or substantially all of the business of the Trustee, shall be the successor of the Trustee hereunder, provided such Person shall be eligible under the provisions of Section 9.06, without the execution or filing of any paper or any further act on the part of any of the parties hereto, any thing herein to the contrary notwithstanding. Section 9.10. Appointment of Co-Trustee or Separate Trustee. Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust or any Mortgaged Property may at the time be located, the Transferor and the Trustee acting jointly shall have the power and shall execute and deliver all instruments necessary to appoint one or more Persons approved by the Credit Enhancer to act as co-trustee or co-trustees, jointly with the Trustee, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Certificateholders, such title to the Trust, or any part thereof, 68 73 and, subject to the other provisions of this Section 9.10, such powers, duties, obligations, rights and trusts as the Transferor and the Trustee may consider necessary or desirable. Any such co-trustee or separate trustee shall be subject to the written approval of the Servicer. If the Transferor shall not have joined in such appointment within 15 days after the receipt by it of a request so to do, or in the case an Event of Servicing Termination shall have occurred and be continuing, the Trustee alone shall have the power to make such appointment. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 9.06 and no notice to Certificateholders of the appointment of any co-trustee or separate trustee shall be required under Section 9.08. The Servicer shall be responsible for the fees of any co-trustee or separate trustee appointed hereunder. Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Trustee; (ii) no trustee hereunder shall be held personally liable by reason of any act or omission of any other trustee hereunder; and (iii) the Servicer and the Trustee acting jointly may at any time accept the resignation of or remove any separate trustee or co-trustee except that following the occurrence of an Event of Servicing Termination, the Trustee acting alone may accept the resignation or remove any separate trustee or co-trustee. Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively 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 IX. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provide therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Transferor and the Servicer. Any separate trustee or co-trustee may, at any time, constitute the Trustee, its agent or attorney-in-fact, with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate 69 74 trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of it estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor Trustee. Section 9.11. Limitation of Liability. The Certificates are executed by the Trustee, not in its individual capacity but solely as Trustee of the Trust, in the exercise of the powers an authority conferred and vested in it by the Trust Agreement. Each of the undertakings and agreements made on the part of the Trustee in the Certificates is made and intended not as a personal undertaking or agreement by the Trustee but is made and intended for the purpose of binding only the Trust. Section 9.12. Trustee May Enforce Claims Without Possession of Certificates. All rights of action and claims under this Agreement or the Certificates may be prosecuted and enforced by the Trustee without the possession of any of the Certificates or the production thereof in any proceeding relating thereto, and such proceeding instituted by the Trustee shall be brought in it own name or in its capacity as Trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursement and advances of the Trustee, its agents and counsel, be for the ratable benefit or the Certificateholders in respect of which such judgment has been recovered. Section 9.13. Suits for Enforcement. In case an Event of Servicing Termination or other default by the Servicer, the Transferor, the Depositor or the Seller hereunder shall occur an be continuing, the Trustee, in its discretion, may proceed to protect and enforce its rights and the rights of the Investor Certificateholders under this Agreement by a suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Agreement or in aid of the execution of any power granted in this Agreement or for the enforcement of any other legal, equitable or other remedy, as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Trustee and the Certificateholder. 70 75 ARTICLE X Termination Section 10.01. Termination. (a) The respective obligations and responsibilities of the Seller, the Servicer, the Depositor, the Transferor and the Trustee created hereby (other than the obligation of the Trustee to make certain payments to Certificateholders after the final Distribution Date and the obligation of the Servicer to send certain notices as hereinafter set forth) shall terminate upon the last action required to be taken by the Trustee on the final Distribution Date pursuant to this Article X following the later of (A) payment in full of all amounts owing to the Credit Enhancer and (B) the earliest of (i) the transfer, under the conditions specified in Section 10.01(b), to the Transferor of the Investor Certificateholders' interest in each Mortgage Loan and all property acquired in respect of any Mortgage Loan remaining in the Trust for an amount equal to the sum of (w) the Investor Certificate Principal Balance, (x) accrued and unpaid Investor Certificate Interest through the day preceding the final Distribution Date, and (y) interest accrued on any Unpaid Investor Certificate Interest Shortfall, to the extent legally permissible, (ii) the day following the Distribution Date on which the distribution made to Investor Certificateholders has reduced the Investor Certificate Principal Balance to zero, (iii) the final payment or other liquidation of the last Mortgage Loan remaining in the Trust (including without limitation the disposition of the Mortgage Loans pursuant to Section 10.02) or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan (iv) the Distribution Date in____ _____; provided, however, that in no event shall the trust created hereby continue beyond the expiration of 21 years from the date of the last survivor descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, living on the date hereof. Upon termination in accordance with clause (i) or (ii) of this Section 10.01, the Trustee shall execute such documents and instruments of transfer presented by the Transferor, in each case without recourse, representation or warranty, and take such other actions as the Transferor may reasonably request to effect the transfer of the Mortgage Loans to the Transferor. (b) The Transferor shall have the right to exercise the option to effect the transfer to the Transferor of each Mortgage Loan pursuant to Section 10.01(a) above on any Distribution Date on or after the Distribution Date immediately prior to which the Investor Certificate Principal Balance is less than ____ percent (_%) of the Original Investor Certificate Principal Balance and all amounts due and owing to the Credit Enhancer for unpaid premiums and unreimbursed draws on the Policy, together with interest thereon as provided under the Insurance Agreement, have been paid. (c) Notice of any termination, specifying the Distribution Date (which shall be a date that would otherwise be a Distribution Date) upon which the Investor Certificateholders may surrender their Investor Certificates to the Trustee for payment of the final distribution and cancellation, shall be given promptly by the Trustee (upon receipt of written directions from the Transferor, if the Transferor is exercising its right to transfer of the Mortgage Loans, given not later than the first day of the month preceding the month of such final distribution) to the Credit Enhancer and to the Servicer by letter to Investor Certificateholders mailed not earlier than the 71 76 15th day and not later than the 25th day of the month next preceding the month of such final distribution specifying (i) the Distribution Date upon which final distribution of the Investor Certificates will be made upon presentation and surrender of Investor Certificates at the office or agency of the Trustee therein designated, (ii) the amount of any such final distribution and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable, distributions being made only upon presentation and surrender of the Investor Certificates at the office or agency of the Trustee therein specified. In the event written directions are delivered by the Transferor to the Trustee as described in the preceding sentence, the Transferor shall deposit in the Collection Account on or before the Distribution Date for such final distribution in immediately available funds an amount which, when added to the funds on deposit in the Collection Account that are payable to the Investor Certificateholders, will be equal to the retransfer amount for the Mortgage Loans computed as above provided. (d) Upon presentation and surrender of the Investor Certificates, the Trustee shall cause to be distributed to the Holders of Investor Certificates on the Distribution Date for such final distribution, in proportion to the Percentage Interests of their respective Investor Certificates and to the extent that funds are available for such purpose, an amount equal to (i) if such final distribution is not being made pursuant to the transfer to the Transferor pursuant to Section 10.01(a)(i), the amount required to be distributed to Investor Certificateholders pursuant to Section 5.01 for such Distribution Date and (ii) if such final distribution is being made pursuant to such retransfer, the amount specified in Section 10.01(a)(i). The distribution on such final Distribution Date pursuant to a retransfer pursuant to Section 10.01(a)(i) shall be in lieu of the distribution otherwise required to be made on such Distribution Date in respect of the Certificates. On the final Distribution Date prior to having made the distributions called for above, the Trustee shall, based upon the information set forth in the Servicing Certificate for such Distribution Date, withdraw from the Collection Account and remit to the Credit Enhancer the lesser of (x) the amount available for distribution on such final Distribution Date, net of any portion thereof necessary to pay the amounts described in clauses (d)(i) and (ii) above and (y) the unpaid amounts due and owing to the Credit Enhancer for unpaid premiums and unreimbursed draws on the Policy, together with interest thereon as provided under the Insurance Agreement. (e) In the event that all of the Investor Certificateholders shall not surrender their Investor Certificates for final payment and cancellation on or before such final Distribution Date, the Trustee shall on such date cause all funds in the Collection Account not distributed in final distribution to Investor Certificateholders to be withdrawn therefrom and credited to the remaining Investor Certificateholders by depositing such funds in a separate escrow account for the benefit of such Investor Certificateholders and the Transferor (if the Transferor has exercised its right to transfer the Mortgage Loans) or the Trustee (in any other case) shall give a second written notice to the remaining Investor Certificateholders to surrender their Investor Certificates for cancellation and receive the final distribution with respect thereto. If within one year after the second notice all the Investor Certificates shall not have been surrendered for cancellation, the Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining Investor Certificateholders concerning surrender of their Investor Certificates, and the cost thereof shall be aid out of the funds on deposit in such escrow account. 72 77 (f) Upon payment of all amounts owed under the Policy and cancellation of the Investor Certificates, the Trustee shall provide the Credit Enhancer notice of cancellation of the Investor Certificates and surrender the Policy to the Credit Enhancer. ARTICLE XI Rapid Amortization Event Section 11.01. Rapid Amortization Events. If any one of the following events shall occur during the Managed Amortization Period: (a) failure on the part of the Seller (i) to make any payment or deposit required by the terms of this Agreement, on or before the date occurring three Business Days after the date such payment or deposit is required to be made herein, or (ii) duly to observe or perform in any material respect the covenants of the Seller set forth in Section 2.04(a) or (iii) duly to observe or perform in any material respect any other covenants or agreements of the Seller set forth in this Agreement, which failure, in each case, materially and adversely affects the interests of the Certificateholders or the Credit Enhancer and which, in the case of clause (iii), continues unremedied and continues to affect materially and adversely the interests of the Certificateholders for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Trustee, or to the Seller and the Trustee by the Holders of Investor Certificates evidencing Percentage Interests aggregating not less than 51%; (b) any representation or warranty made by the Seller or the Depositor in this Agreement shall prove to have been incorrect in any material respect when made, as a result of which the interests of the Investor Certificateholders or the Credit Enhancer are materially and adversely affected and which continues to be incorrect in any material respect and continues to affect materially and adversely the interests of the Certificateholders or the Credit Enhancer for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller or the Depositor, as the case may be, by the Trustee, or to the Seller, the Depositor and the Trustee by either the Credit Enhancer or the Holders of Investor Certificates evidencing Percentage Interests aggregating not less than 51%; provided, however, that a Rapid Amortization Event pursuant to this subparagraph (b) shall not be deemed to have occurred hereunder if the Transferor has accepted retransfer of the related Mortgage Loan or Mortgage Loans during such period (or such longer period (not to exceed an additional 60 days) as the Trustee may specify) in accordance with the provisions hereof; (c) the Transferor or the Depositor shall go into liquidation, consent to the appointment of a conservator or receiver or liquidator or similar person in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to the Transferor or the Depositor, or of or relating to all or substantially all of such Person's property, or a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator, receiver, liquidator or similar person in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Transferor or the Depositor and such decree or order shall have remained in force undischarged or unstayed for 73 78 a period of 30 days; or the Transferor or the Depositor shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors or voluntarily suspend payment of its obligations; (d) the Trust shall become subject to registration as an "investment company" under the Investment Company Act of 1940, as amended; or (e) the aggregate of all draws under the Policy exceeds __% of the Cut-Off Date Pool Balance; then, in the case of any event described in subparagraph (a) or (b) after the applicable grace period, if any, set forth in such subparagraphs, either the Trustee, the Credit Enhancer or the Holders of Investor Certificates evidencing Percentage Interests aggregating more than 51%, by notice given in writing to the Transferor, the Depositor and the Servicer (and to the Trustee if given by either the Credit Enhancer or the Investor Certificateholders) may declare that an early amortization event (a "Rapid Amortization Event") has occurred as of the date of such notice, and in the case of any event described in subparagraph (c), (d) or (e), a Rapid Amortization Event shall occur without any notice or other action on the part of the Trustee, the Credit Enhancer or the Investor Certificateholders, immediately upon the occurrence of such event. Section 11.02. Additional Rights Upon the Occurrence of Certain Events. (a) If the Transferor goes into liquidation or consents to the appointment of a conservator or receiver or liquidator or similar person in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to the Transferor or of or relating to all or substantially all its property, or a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator or receiver or liquidator or similar person in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Transferor and such decree shall have remained in force undischarged or unstayed for a period of 30 days; or the Transferor shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors or voluntarily suspend payment of its obligations (such voluntary liquidation, appointment, entering of such decree, admission, filing, making, suspension or violation or other event described above, an "Insolvency Event"), the Transferor shall on the day of such appointment, liquidation, entering of such decree, admission, filing, making, suspension or inability, as the case may be (the "Appointment Day"), promptly give notice to the Trustee, the Servicer and the Credit Enhancer of such Insolvency Event. Within 15 days of the receipt by the Trustee of the Transferor's notice of an Insolvency Event, the Trustee shall (i) publish a notice in Authorized Newspapers that an Insolvency Event has occurred and that the Trustee intends to direct the Servicer to sell, dispose of or otherwise liquidate the Mortgage Loans in a commercially reasonable manner and (ii) send written notice to the Investor Certificateholders describing the provisions of this Section 11.02, which notice shall inform Investor Certificateholders that unless more than 50% of all Investor Certificateholders advise the Trustee in writing that they wish the Trustee to instruct the Servicer not to sell, dispose of or otherwise 74 79 liquidate the Mortgage Loans within 90 days from the day notice pursuant to clause (i) above is first published (the "Publication Date"), the Trustee shall instruct the Servicer to proceed to sell, dispose of, or otherwise liquidate the Mortgage Loans in a commercially reasonable manner and on commercially reasonable terms, which shall include the solicitation of competitive bids, and shall proceed to consummate the sale, liquidation or disposition of the Mortgage Loans as provided above with the highest bidder for the Mortgage Loans. The Transferor shall be permitted to bid for the Mortgage Loans. The Trustee may obtain a prior determination from such conservator or receiver that the terms and manner of any proposed sale, disposition or liquidation are commercially reasonable. The provisions of Sections 11.01 and 11.02 shall not be deemed to be mutually exclusive. (b) The proceeds from the sale, disposition or liquidation of the Mortgage Loans pursuant to Section 11.02(a) above shall be treated as collections on the Mortgage Loans received during the Rapid Amortization Period; provided, however, that such proceeds will, based on amounts specified in writing by the Servicer to the Trustee, first be paid to the Credit Enhancer to reimburse the Credit Enhancer for previously unreimbursed Credit Enhancement Draw Amounts and other amounts owing under the Insurance Agreement; and provided, further, that the Certificateholders, Fixed Allocation Percentage of such remaining proceeds shall be paid to Investor Certificateholders in the following amounts and order of priority: (i) all accrued and unpaid interest on the Investor Certificate Principal Balance through the Interest Period immediately preceding the Distribution Date on which such proceeds are distributed to the Investor Certificateholders; and (ii) an amount of principal up to the Investor Certificate Principal Balance. The Policy shall cover any shortfall in the event such proceeds are insufficient to make the distributions to Investor Certificateholders pursuant to Section 11.02(b). On the day following the Distribution Date on which such proceeds are distributed to the Investor Certificateholders the Trust shall terminate. ARTICLE XII Miscellaneous Provisions Section 12.01. Amendment. This Agreement may be amended from time to time by the Seller, the Servicer, the Transferor, the Depositor and the Trustee, in each case without the consent of any of the Certificateholders, but only with the consent of the Credit Enhancer (which consent shall not be unreasonably withheld), (i) to cure any ambiguity, (ii) to correct any defective provisions or to correct or supplement any provisions herein that may be inconsistent with any other provisions herein, (iii) to add to the duties of the Transferor or the Servicer, (iv) to add any other provisions with respect to matters or questions arising under this Agreement or the Policy, as the case may be, which shall not be inconsistent with the provisions of this Agreement, (v) to add or amend any provisions of this Agreement as required by any Rating Agency or any other nationally recognized statistical rating organization in order to maintain or improve any rating of the Investor Certificates (it being understood that, after obtaining the ratings in effect on the Closing Date, neither the Trustee, the Seller, the Depositor nor the Servicer is obligated to 75 80 obtain, maintain or improve any such rating), (vi) to add or amend any provisions of this Agreement to correct or cure any defective provision or ambiguity as a result of a transfer of the Transferor Interest pursuant to Section 6.05, or (vii) to comply with any requirement imposed by the Code; provided, however, that such action shall not, as evidenced by an Opinion of Counsel, materially and adversely affect the interests of any Certificateholder or the Credit Enhancer; and provided, further, that the amendment shall not be deemed to adversely affect in any material respect the interests of the Certificateholders and no opinion referred to in the preceding proviso shall be required to be delivered if the Person requesting the amendment obtains a letter from each Rating Agency stating that the amendment would not result in the downgrading or withdrawal of the respective ratings then assigned to the Investor Certificates without regard to the Policy. Notwithstanding the foregoing, any amendment pursuant to clause (viii) above shall be permissible only upon receipt of a letter from each Rating Agency stating that the amendment would not result in the downgrading or withdrawal of the respective ratings then assigned to the Investor Certificateholders without regard to the Policy. This Agreement also may be amended from time to time by the Servicer, the Seller, the Depositor and the Trustee, and the Servicer and the Credit Enhancer, may from time to time consent to the amendment of the Policy with the consent of the Holders of the Investor Certificates evidencing Percentage Interests aggregating not less than 51%, and in the case of an amendment to this Agreement, with the consent of the Credit Enhancer for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Certificateholders; provided, however, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, payments on the Certificates or distributions or payments under the Policy which are required to be made on any Certificate without the consent of the Holder of such Certificate or (ii) reduce the aforesaid percentage required to consent to any such amendment, without the consent of the Holders of all Certificates then outstanding or (iii) adversely effect in any material respect the interests of the Credit Enhancer. In the event that Treasury Regulations Sections 301-7701 et. seq. are amended to permit the Trust to qualify as other than an association taxable as a corporation (if the Trust is not otherwise treated as a security device) and the Trustee receives an Officer's Certificate from the Servicer of such amendment, the Trust will make an election and Sections 7.07 and 11.02(a) shall not be given effect. Notwithstanding the foregoing, the Agreement may not be amended unless, in connection with such amendment, an Opinion of Counsel is furnished to the Trustee that such amendment will not (i) adversely affect the status of the Investor Certificates as debt; (ii) result in the Trust being taxable at the entity level; or (iii) result in the Trust being classified as a taxable mortgage pool (as defined in Section 7701(i) of the Code). Following the execution and delivery of any such amendment hereto or to the Policy to which the Credit Enhancer was require to consent, either the Transferor, if the Transferor requested the amendment, or the Servicer, if the Servicer requested the amendment, shall reimburse the Credit Enhancer for the reasonable out-of-pocket costs and expenses incurred by the Credit Enhancer in connection with such amendment. 76 81 Prior to the execution of any such amendment, the party hereto requesting any such amendment shall furnish written notification of the substance of such amendment to each Rating Agency. In addition, promptly after the execution of any such amendment made with the consent of the Investor Certificateholders, the Trustee shall furnish written notification of the substance of such amendment to each Investor Certificateholder and fully executed original counterparts of the instruments effecting such amendment to the Credit Enhancer. It shall not be necessary for the consent of Investor Certificateholders under this Section 12.01 to approve the particular form of any proposed amendment or consent, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Certificateholders shall be subject to such reasonable requirements as the Trustee may prescribe. In executing any amendment permitted by this Section 12.01, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that such amendment is authorized or permitted hereby and that all conditions precedent to the execution and delivery of such amendment have been satisfied. The Trustee may, but shall not be obligated to, enter into any such amendment which affects the Trustee's own rights, duties or immunities under this Agreement or otherwise. Section 12.02. Recordation of Agreement. This Agreement is subject to recordation in all appropriate public offices for real property records in all the counties or other comparable jurisdictions in which any or all of the properties subject to the Mortgages are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Trustee, but only upon direction of Investor Certificateholders accompanied by an Opinion of Counsel to the effect that such recordation materially and beneficially affects the interests of Investor Certificateholders. The Investor Certificateholders requesting such recordation shall bear all costs and expenses of such recordation. The Trustee shall have no obligation to ascertain whether such recordation so affects the interests of the Certificateholders. For the purpose of facilitating the recordation of this Agreement as herein provided and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument. Section 12.03. Limitation on Rights of Certificateholders The death or incapacity of any Investor Certificateholder shall not operate to terminate this Agreement or the Trust, nor entitle such Investor Certificateholder's legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the Trust, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. No Certificateholder shall have any right to vote (except as provided in Sections 8.01, 9.01, 9.02, 11.01 and 12.01) or in any manner otherwise control the operation and management of the Trust, or the obligations of the parties hereto, nor shall any thing herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Investor 77 82 Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. No Certificateholder shall have any right by virtue or by availing itself of any provisions of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Holder previously shall have given to the Trustee a written notice of default and of the continuance thereof, as hereinbefore provided, and unless also the Holders of Investor Certificates evidencing Percentage Interests aggregating not less than 51% shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or more Holders of Certificates shall have any right in any manner whatever by virtue or by availing itself or themselves of any provisions of this Agreement to affect, disturb or prejudice the rights of the Holders of any other of the Certificates, or to obtain or seek to obtain priority over or preference to any other such Holder, or to enforce any right under this Agreement, except in the manner herein provided and for the equal, ratable and common benefit of all Certificateholders. For the protection and enforcement of the provisions of this Section 12.03, each and every Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. By accepting its Investor Certificate, each Investor Certificateholder agrees that unless a Credit Enhancer Default exists, the Credit Enhancer shall have the right to exercise all rights of the Investor Certificateholders under this Agreement without an further consent of the Investor Certificateholders. Section 12.04. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 12.05. Notices. All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by certified mail, return receipt requested, to (a) in the case of the Depositor, 100 East Broad Street, Columbus, OH 43271-0138, Attention ___________, (b) in the case of the Servicer, Bank One, N.A., 100 East Broad Street, Columbus, OH 43271-0138, (c) in the case of the Trustee, at the Corporate Trust Office, (d) in the case of the Credit Enhancer, _________________, Attention: _______________, [(e) in the case of Moody's, Residential Loan Monitoring Group, 4th Floor, 99 Church Street, New York, New York 10007, and (f) in the case of Standard & Poor's, 26 Broadway, New York, New York 10004,] or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. Any notice required or permitted to be mailed to a Certificateholder shall be given by first class mail, postage prepaid, at the address of such Holder as shown in the Certificate Register. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. Any notice or other document required 78 83 to be delivered or mailed by the Trustee to any Rating Agency shall be given on a best efforts basis and only as a matter of courtesy and accommodation and the Trustee shall have no liability for failure to deliver such notice or document to any Rating Agency. Section 12.06. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or the rights of the Holders thereof. Section 12.07. Assignment. Notwithstanding anything to the contrary contained herein, except as provided in Sections 6.05, 7.02 and 7.04, this Agreement may not be assigned by the Depositor or the Servicer without the prior written consent of the Credit Enhancer and Holders of the Investor Certificates evidencing Percentage Interests aggregating not less than 66%. Section 12.08. Certificates Nonassesable and Fully Paid. The parties agree that the Investor Certificateholders shall not be personally liable for obligations of the Trust, that the beneficial ownership interests represented by the Certificates shall be nonassessable for any losses or expenses of the Trust or for any reason whatsoever, and that the Certificates upon execution, authentication and delivery thereof by the Trustee pursuant to Section 2.08 or 6.02 are and shall be deemed full paid. Section 12.09. Third-Party Beneficiaries. This Agreement will inure to the benefit of and be binding upon the parties hereto, the Certificateholders, the Certificate Owners, the Credit Enhancer and their respective successors and permitted assigns. Except as otherwise provided in this Agreement, no other Person will have any right or obligation hereunder. Section 12.10. Counterparts. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Section 12.11. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 12.12. Insurance Agreement. The Trustee is authorized and directed to execute and deliver the Insurance Agreement and to perform the obligations of the Trustee thereunder. 79 84 IN WITNESS WHEREOF, the Depositor, the Seller, the Servicer and the Trustee have caused this Agreement to be duly executed by their respective officers all as of the day and year first above written. BANC ONE ABS CORPORATION, As Depositor By ----------------------------- Title: BANK ONE, N.A., As Servicer By ----------------------------- Title: _____________________________________, As Trustee By ----------------------------- Title: 80 85 State of NEW YORK ) ) ss.: County of NEW YORK ) On the __th day of ____, 199_ before me, a notary public in and for the State of New York, personally appeared_________, known to me who, being by me duly sworn, did depose and say that he resides at ________________; that he is ___________of Banc One ABS Corporation, a Delaware corporation, one of the parties that executed the foregoing 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. -------------------------------- Notary Public [Notarial Seal] 81 86 State of NEW YORK ) ) ss.: County of NEW YORK ) On the __th day of _____, 199_ before me, a notary public in and for the State of New York, personally appeared__________, known to me who, being by me duly sworn, did depose and say that he resides at Bank One, 100 East Broad Street, Columbus, Ohio 43271-0138; that he is the __________ of Bank One, N.A., a national banking association, one of the parties that executed the foregoing 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. 82 EX-5.1 5 OPINION OF ORRICK, HERRINGTON & SUTCLIFFE LLP 1 Exhibit 5.1 Opinion of Orrick, Herrington & Sutcliffe LLP With Respect to Securities Being Registered 2 Exhibit 5.1 [Letterhead of Orrick, Herrington & Sutcliffe LLP] July 22, 1998 Banc One ABS Corporation 100 East Broad Street Columbus, Ohio 43271-0158 Ladies and Gentlemen: We have acted as special counsel to Banc One ABS Corporation (the "Registrant"), in connection with the preparation and filing with the Securities and Exchange Commission (the "Commission") on July 22, 1998 of a Registration Statement on Form S-3 (the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended (the "Act") of Asset-Backed Securities (the "Securities"). The Securities are issuable in series (each, a "Series") under either a separate Pooling and Servicing Agreement, Trust Agreement or Indenture (each, an "Agreement") by and among the Registrant, the Servicer named therein and the Trustee named therein. The Securities of each Series are to be sold as set forth in the Registration Statement, any amendment thereto, and the prospectus and prospectus supplement relating to such Series. We have examined such instruments, documents and records as we deemed relevant and necessary as a basis of our opinion hereinafter expressed. In such examination, we have assumed the following: (a) the authenticity of original documents and the genuineness of all signatures; (b) the conformity to the originals of all documents submitted to us as copies; and (c) the truth, accuracy and completeness of the information, representations and warranties contained in the records, documents, instruments and certificates we have reviewed. Based on such examination, we are of the opinion that when the issuance of each Series of Securities has been duly authorized by appropriate corporate action and the Securities of such Series have been duly executed, authenticated and delivered in accordance with the Agreement relating to such Series and sold in the manner described in the Registration Statement and the prospectus and prospectus supplement relating thereto, the Securities of such Series will be legally issued, fully paid, binding obligations of the trust created by each Agreement and the holders of the Securities of such Series will be entitled to the benefits of the related Agreement, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium, or other laws relating to or affecting the rights of creditors generally and 3 Banc One ABS Corporation July 22, 1998 Page 2 general principles of equity, including without limitation, concepts of materiality, reasonableness, good faith and fair dealing, and the possible unavailability of specific performance or injunctive relief, regardless of whether such enforceability is considered in a proceeding in equity or at law. In rendering the foregoing opinions, we express no opinion as to the laws of any jurisdiction other than the State of New York and the Federal laws of the United States of America. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name wherever appearing in the Registration Statement and the prospectus contained therein, as supplemented by the prospectus supplement related to a series of Securities. In giving such consent, we do not consider that we are "experts," within the meaning of the term as used in the Act or the rules and regulations of the Commission issued thereunder, with respect to any part of the Registration Statement, including this opinion as an exhibit or otherwise. Very truly yours, /s/ ORRICK, HERRINGTON & SUTCLIFFE LLP ORRICK, HERRINGTON & SUTCLIFFE LLP EX-8.1 6 OPINION OF ORRICK, HERRINGTON & SUTCLIFFE LLP 1 Exhibit 8.1 Opinion of Orrick, Herrington & Sutcliffe LLP With Respect to Certain Tax Matters 2 Exhibit 8.1 [Letterhead of Orrick, Herrington & Sutcliffe LLP] July 22, 1998 Banc One ABS Corporation 100 East Broad Street Columbus, Ohio 43271-0158 Ladies and Gentlemen: We have advised Banc One ABS Corporation (the "Registrant") with respect to certain federal income tax aspects of the issuance by the Registrant of its Asset-Backed Securities, issuable in series (the "Securities"). In connection therewith we have reviewed the description of selected federal income tax consequences to holders of the Securities that appears under the heading "Certain Federal Income Tax Consequences" in the prospectus (the "Prospectus") forming a part of the Registration Statement on Form S-3 filed on July 22, 1998 (the "Registration Statement") with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). Such description does not purport to discuss all possible income tax ramifications of the proposed issuance, but with respect to those tax consequences which are discussed, in our opinion, to the extent the description is a discussion of law or legal conclusions, such description is true and correct in all material respects. This opinion is based on the facts and circumstances set forth in the Prospectus and in the other documents reviewed by us. Our opinion as to the matters set forth herein could change with respect to a particular series of Securities as a result of changes in facts and circumstances, changes in the terms of the documents reviewed by us, or changes in the law subsequent to the date hereof. As the Registration Statement contemplates series of Securities with numerous different characteristics, the particular characteristics of each series of Securities must be considered in determining the applicability of this opinion to a particular series of Securities. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name wherever appearing in the Registration Statement and the Prospectus contained therein, as supplemented by the prospectus supplement relating to a series of Securities. In giving such consent, we do not consider that we are "experts," 3 Banc One ABS Corporation July 22, 1998 Page 2 within the meaning of the term as used in the Act or the rules and regulations of the Commission issued thereunder, with respect to any part of the Registration Statement, (including this opinion) as an exhibit or otherwise. Very truly yours, /s/ ORRICK, HERRINGTON & SUTCLIFFE LLP ORRICK, HERRINGTON & SUTCLIFFE LLP -----END PRIVACY-ENHANCED MESSAGE-----