Document:

Exhibit 10.3

                           LOAN AND SECURITY AGREEMENT

      This Loan and Security Agreement (as it may be amended,  this "Agreement")
is  entered  into  on  November  21,  1997,  between   NATIONSCREDT   COMMERICAL
CORPORATION,  THROUGH ITS NATIONSCREDTT  COMMERCIAL FUNDING DIVISION ("Lender"),
having an address at 1177 Avenue of the Americas, 36th Floor, New York, New York
10036 and COFFEE HOLDING CO., INC. ("Borrower"), whose chief executive office is
located  at 4401  First  Avenue,  Brooklyn,  New  York  11232-0005  ("Borrower's
Address").  The  Schedules  to  this  Agreement  are an  integral  part  of this
Agreement and are incorporated herein by reference.  Terms used, but not defined
elsewhere, in this Agreement are defined in Schedule B.

1.    LOANS AND CREDIT ACCOMMODATIONS.

      1.1   Amount.  Subject  to the  terms  and  conditions  contained  in this
            Agreement, Lender will:

            (a)  Revolving  Loans and Credit  Accommodations.  From time to time
during  the  Term at  Borrower's  request,  make  revolving  loans  to  Borrower
("Revolving Loans"),  and make letters of credit,  bankers acceptances and other
credit accommodations  ("Credit  Accommodations")  available to Borrower in each
case to the extent  that there is  sufficient  Availability  at the time of such
request to cover,  dollar for dollar,  the  requested  Revolving  Loan or Credit
Accommodation;  provided,  that after giving  effect to such  Revolving  Loan or
Credit  Accommodation,  (x) the outstanding balance of all monetary  Obligations
(including the principal balance of any Term Loan and, solely for the purpose of
determining  compliance with this provision,  the Credit Accommodation  Balance)
will not  exceed  the  Maximum  Facility  Amount  set forth in  Section I (a) of
Schedule  A and (y) none of the other  Loan  Limits  set  forth in  Section I of
Schedule A will be exceeded. For this purpose, "Availability" means:

                  (i) the aggregate  amount of Eligible  Accounts  (less maximum
existing or asserted taxes, discounts, credits and allowances) multiplied by the
Accounts  Advance  Rate set forth in Section  1(b)(i)  of  Schedule A but not to
exceed the Accounts Sublimit set forth in Section 1(c) of Schedule A,

                                      plus

                  (ii) the lower of cost or market  value of Eligible  Inventory
multiplied  by the  Inventory  Advance  Rates) set forth in Section  1(b)(ii) of
Schedule  A, but not to exceed the  Inventory  Sublimit(s)  set forth in Section
1(d) of Schedule A;

                                      minus

                  (iii) all Reserves  which Lender has  established  pursuant to
Section 1.2 (including  those to be established in connection with the requested
Revolving Loan or Credit Accommodation);

                                      minus

                  (iv)  the   outstanding   balance  of  all  of  the   monetary
Obligations  (excluding  the  Credit  Accommodation  Balance  and the  principal
balance of the Term Loan); and

                                      plus

                  (v) the Overadvance  Amount, if any, set forth .n Section 1(g)
of Schedule A.

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            (b) Term Loan. On the date of this Agreement, make (i) an advance to
Borrower  computed  with respect to the value of Borrower's  Eligible  Equipment
(the ("Equipment Advance") in the principal amount, if any, set forth in Section
2(a)(i) of Schedule A, and (ii) an advance to Borrower  computed with respect to
the value of Borrower's  Eligible Real Property (the "Real Property Advance') in
the principal  amount,  if any, set forth in Section 2(a)(ii) of Schedule A. The
Equipment Advance and the Real Property Advance are collectively  referred to as
the "Term Loan. "

      1.2  Reserves.  Lender may from time to time  establish  and  revise  such
reserves as Lender deems  appropriate  in its sole  discretion  ("Reserves")  to
reflect  (i) events,  conditions,  contingencies  or risks  which  affect or may
affect (A) the  Collateral  or its value,  or the security  interests  and other
rights of Lender in the  Collateral or (B) the assets,  business or prospects of
Borrower or any Obligor,  (ii) Lender's  good faith concern that any  Collateral
report or  financial  information  furnished  by or on behalf of Borrower or any
Obligor to Lender is or may have been  incomplete,  inaccurate  or misleading in
any material respect,  (iii) any fact or circumstance which Lender determines in
good faith  constitutes,  or could constitute,  a Default or Event of Default or
(iv) any other events or  circumstances  which Lender  determines  in good faith
make the  establishment or revision of a Reserve  prudent.  Without limiting the
foregoing,  Lender shall (x) in the case of each Credit Accommodation issued for
the  purchase of Inventory  (a) which meets the criteria for Eligible  Inventory
set  forth in  clauses  (i),  (ii),  (iii),  (v) and (vi) of the  definition  of
Eligible  Inventory,  (b) which is or will be in transit to one of the locations
set forth in Section 9(d) of Schedule A, (c) which is fully  insured in a manner
satisfactory  to Lender and (d) with respect to which Lender is in possession of
all bills of lading and all other documentation which Lender has requested,  all
in form and substance satisfactory to Lender in its sole discretion, establish a
Reserve equal to the cost of such Inventory  (plus all duties,  freight,  taxes,
insurance,  costs  and  other  charges  and  expenses  relating  to such  Credit
Accommodation  or such Eligible  Inventory)  multiplied by a percentage equal to
100% minus the Inventory  Advance Rate applicable to Eligible  Inventory and (y)
in the case of any other Credit Accommodation issued for any purpose,  establish
a Reserve equal to the full amount of such Credit  Accommodation  plus all costs
and other  charges  and  expenses  relating  to such  Credit  Accommodation.  In
addition, (x) Lender shall establish a permanent Reserve in the amount set forth
in Section 1(f) of Schedule A, and (y) if the outstanding  principal  balance of
the Term Loan advance with respect to Eligible  Equipment exceeds the percentage
set forth in  Section  2(a)(i)  of  Schedule  A of the  appraised  value of such
Eligible Equipment,  Lender may establish an additional Reserve in the amount of
such excess (and,  for this  purpose,  if payments of principal on the Term Loan
advances  against  Eligible  Equipment  and  Real  Property  are not  calculated
separately,  payments of  principal  of the Term Loan made by Borrower  shall be
deemed to apply to the Term Loan advance with respect to Eligible  Equipment and
Real Property,  respectively, in proportion to the original principal amounts of
such advances). Lender may, in its discretion,  establish and revise Reserves by
deducting them in determining Availability or by reclassifying Eligible Accounts
or Eligible  Inventory as ineligible.  In no event shall the  establishment of a
Reserve in respect  of a  particular  actual or  contingent  liability  obligate
Lender to make advances  hereunder to pay such  liability or otherwise  obligate
Lender with respect thereto.

      1.3 Other Provisions Applicable to Credit  Accommodations.  Lender may, in
its sole  discretion  and on terms and  conditions  acceptable  to Lender,  make
Credit  Accommodations  available  to  Borrower  either by issuing  them,  or by
causing other financial institutions to issue them supported by Lenders guaranty
or  indemnification;   provided,   that  after  giving  effect  to  each  Credit
Accommodation,  the  Credit  Accommodation  Balance  will not  exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit  Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable,  in the same manner as a Revolving Loan.  Borrower agrees to execute
all documentation  required by Lender or the issuer of any Credit  Accommodation
in connection with any such Credit Accommodation.

<PAGE>

      1.4  Repayment.  Accrued  interest on all  monetary  Obligations  shall be
payable  on the first day of each  month.  Principal  of the Term Loan  shall be
repaid as set forth in  Section  2(b) of  Schedule  A. If at any time any of the
Loan Limits are exceeded,  Borrower will  immediately pay to Lender such amounts
(or provide cash  collateral to Lender with respect to the Credit  Accommodation
Balance in the manner set forth in Section 7.3),  as shall cause  Borrower to be
in full  compliance with all of the Loan Limits.  Notwithstanding  the foregoing
Lender may, in its sole  discretion,  make or permit  Revolving  Loans, the Tern
Loan,  any Credit  Accommodations  or any other  monetary  Obligations  to be in
excess of any of the Loan Limits;  provided,  that Borrower shall, upon Lender's
demand,  pay to  Lender  such  amounts  as shall  cause  Borrower  to be in full
compliance with all of the Loan Limits. All unpaid monetary Obligations shall be
payable in full on the Maturity Date (as defined in Section 7.1) or, if earlier,
the date of any early termination pursuant to Section 7.2.

      1.5  Minimum  Borrowing.  Subject  to the  terns  and  conditions  of this
Agreement,  Borrower  agrees  to (i)  borrow  sufficient  amounts  to cause  the
outstanding  principal  balance  of the Loans to equal or  exceed,  at all times
prior to the  Maturity  Date,  the Minimum Loan Amount set forth in Section 4 of
Schedule A and (ii) maintain  Availability  sufficient to enable  Borrower to do
so.  However,  Lender shall not be  obligated to loan  Borrower the Minimum Loan
Amount other than in  accordance  with all of the terms and  conditions  of this
Agreement.

2.    INTEREST AND FEES.

      2.1 Interest. All Loans and other monetary Obligations shall bear interest
at the  Interest  Rate(s) set forth in Section 3 of  Schedule  A,  except  where
expressly set forth to the contrary in this  Agreement or another Loan Document;
provided,  that after the occurrence of an Event of Default, all Loans and other
monetary  Obligations  shall,  at Lender's  option,  bear interest at a rate per
annum  equal to two  percent  (2 %) in excess of the rate  otherwise  applicable
thereto (the "Default  Rate") until paid in full  (notwithstanding  the entry of
any  judgment  against  Borrower or the exercise of any other right or remedy by
Lender),  and all such  interest  shall be  payable  on  demand.  Changes in the
Interest Rate shall be effective as of the date of any change in the Prime Rate.
Notwithstanding  anything  to the  contrary  contained  in this  Agreement,  the
aggregate  of all  amounts  deemed  to be  interest  hereunder  and  charged  or
collected by Lender is not intended to exceed the highest rate permissible under
any  applicable  law, but if it should,  such interest  shall  automatically  be
reduced to the extent  necessary to comply with  applicable  law and Lender will
refund to Borrower any such excess interest received by Lender.

      2.2 Fees and Warrants.  Borrower shall pay Lender the following  fees, and
issue Lender the following  warrants,  which are in addition to all interest and
other sums  payable by  Borrower  to Lender  under this  Agreement,  and are not
refundable:

            (a)  Closing  Fee. A closing  fee in the amount set forth in Section
6(a) of Schedule A, which shall be deemed to be fully  earned as of, and payable
on, the date hereof.

            (b) Facility Fees. A facility fee for the Initial Term in the amount
set forth in Section  6(b)(i) of Schedule A (which  shall be fully  earned as of
the date of this  Agreement  and shall be  payable  in equal  installments  due,
respectively,  on the date of this  Agreement  and on each  anniversary  thereof
during the Initial Term), and a facility fee for each Renewal Term in the amount
set forth in Section  6(b)(ii) of Schedule A (which  shall be fully earned as of
the first day of such  Renewal  Term and shall be payable in equal  installments
due, respectively, on the first day of such Renewal Term and on each anniversary
thereof during such Renewal Term).

            (c) Servicing  Fee. A monthly  servicing fee in the amount set forth
in Section 6(c) of Schedule A, in consideration of Lender's  administration  and
other services for each month (or part thereof),

<PAGE>

which  shall be fully  earned as of, and payable in advance on, the date of this
Agreement  and on the first date of each month  thereafter so long as any of the
Obligations are outstanding.

            (d)  Unused  Line  Fee.  An unused  line fee at a rate  equal to the
percentage  per annum set forth in Section  6(d) of  Schedule A of the amount by
which  the  Maximum  Facility  Amount  exceeds  the  average  dally  outstanding
principal balance of the Loans and the Credit  Accommodation  Balance during the
immediately  preceding month (or part thereof),  which fee shall be payable,  in
arrears,  on the first day of each month so long as any of the  Obligations  are
outstanding and on the Maturity Date.

            (e)  Minimum  Borrowing  Fee. A minimum  borrowing  fee equal to the
excess, if any, of (i) interest which would have been payable in respect of each
period set forth in Section  6(e)(i) of Schedule A if, at all times  during such
period,  the principal balance of the Loans was equal to the Minimum Loan Amount
over (ii) the actual interest payable in respect of such period, which fee shall
be fully  earned as of the last day of such  period and  payable on the date set
forth in Section  6(e)(ii) of Schedule A and on the  Maturity  Date,  commencing
with the immediately following period.

            (f)  Success  Fee. A success  fee in the amount set forth in Section
6(f) of Schedule A, which shall be fully earned as of the date of this Agreement
and payable as set forth in Section 6(f) of Schedule A.

            (g) Warrants.  Warrants to acquire the capital stock of Borrower, as
summarized  in  Section  6(g) of  Schedule  A and as more  fully  set forth in a
separate  warrant  agreement  executed by Borrower  contemporaneously  with this
Agreement.

            (h) Credit  Accommodation  Fees.  All of the fees relating to Credit
Accommodations set forth in Section 6(i) of Schedule A.

      2.3  Computation  of Interest  and Fees.  All  interest  and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number  of days  elapsed  in a year of 360 days.  For  purposes  of  calculating
interest and fees, if the outstanding  daily principal  balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.

      2.4 Loan  Account;  Monthly  Accountings.  Lender  shall  maintain  a loan
account for Borrower  reflecting  all advances,  charges,  expenses and payments
made pursuant to this Agreement (the "Loan Account"), and shall provide Borrower
with a monthly  accounting  reflecting  the activity in the Loan  Account.  Each
accounting  shall be deemed  correct,  accurate  and binding on Borrower  and an
account  stated  (except for reverses and  reapplications  of payments  made and
corrections of errors discovered by Lender),  unless Borrower notifies Lender in
writing to the  contrary  within  sixty days  after  such  account is  rendered,
describing  the nature of any alleged errors or  admissions.  However,  Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding  nature of the  Obligations.  Interest,  fees and
other monetary  Obligations  due and owing under this Agreement  (including fees
and other  amounts paid by Lender to issuers of Credit  Accommodations)  may, in
Lender's  discretion,  be charged to the Loan  Account,  and will  thereafter be
deemed to be  Revolving  Loans and will bear  interest at the same rate as other
Revolving Loans.

3.    SECURITY INTEREST.

      3.1 To secure the full payment and performance of all of the  Obligations,
Borrower  hereby  grants  to Lender a  continuing  security  interest  in all of
Borrower's  property and interests in property,  whether tangible or intangible,
now owned or in existence or hereafter  acquired or arising,  wherever  located,
including  Borrower's interest in all of the following,  whether or not eligible
for lending purposes: (i) all Accounts,  Chattel Paper, Instruments,  Documents,
Goods  (including  Inventory,  Equipment,  farm  products and  consumer  goods),

<PAGE>

Investment Property,  General Intangibles,  Deposit Accounts and money, (ii) all
proceeds  and  products  of all  of the  foregoing  (including  proceeds  of any
insurance  policies,  proceeds of proceeds and claims  against third parties for
loss or my  destruction  of my of the foregoing) and (iii) all books and records
relating to my of the foregoing.

4.    ADMINISTRATION.

      4.1 Lock  Boxes and  Blocked  Accounts.  Borrower  will,  at its  expense,
establish  (and  revise  from time to time as  Lender  may  require)  collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks,  wire transfers and other proceeds of Accounts ("Account  Proceeds"),
which my include (i)  directing  all Account  Debtors to send all such  proceeds
directly  to a post  office  box  designated  by  Lender  either  in the name of
Borrower (but as to which Lender has exclusive  access) or, at Lender's  option,
in the name of Lender (a "Lock Box") or (ii)  depositing  all  Account  Proceeds
received by Borrower into one or more bank accounts maintained in Borrowers name
(each, a "Blocked  Account"),  under an arrangement  acceptable to Lender with a
depository bank acceptable to Lender, pursuant to which all funds deposited into
each Blocked  Account are to be transferred  to Lender in such manner,  and with
such frequency, as Lender shall specify or (iii) a combination of the foregoing.
Borrower agrees to execute,  and to cause its depository banks to execute,  such
Lock Box and Blocked Account agreements and other  documentation as Lender shall
require from time to time in connection with the foregoing.  On the date of this
Agreement,  Borrower  will  execute  and  deliver  to Lender a  Blocked  Account
agreement, in form and substance satisfactory to Lender.

      4.2  Remittance  of  Proceeds.  Except as  provided  in Section  4.1,  all
proceeds  arising from the sale or other  disposition of my Collateral  shall be
delivered, in kind, by Borrower to Lender in the original form in which received
by Borrower not later than the following Business Day after receipt by Borrower.
Until so delivered to Lender,  Borrower  shall hold such  proceeds  separate and
apart from  Borrowers  other funds and property in an express  trust for Lender.
Nothing in this  Section  4.2 shall limit the  restrictions  on  disposition  of
Collateral set forth elsewhere in this Agreement.

      4.3 Application of Payments.  Lender may, in its sole  discretion,  apply,
reverse and  re-apply  all cash and  non-cash  proceeds of  Collateral  or other
payments  received with respect to the Obligations,  in such order and manner as
Lender  shall  determine,  whether or not the  Obligations  are due, and whether
before or after the occurrence of a Default or an Event of Default. For purposes
of determining  Availability,  such amounts will be credited to the Loan Account
and the Collateral balances to which they relate upon Lender's receipt of advice
from  Lender's Bank (set forth in Section 11 of Schedule A) that such items have
been credited to Lender's  account at Lender's  Bank (or upon  Lender's  deposit
thereof at Lender's Bank in the case of payments received by Lender in kind), in
each case  subject to final  payment and  collection.  However,  for purposes of
computing  interest on the  Obligations,  such items shall be deemed  applied by
Lender three Business Days after Lender's  receipt of advice of deposit  thereof
at Lender's Bank.

      4.4 Notification;  Verification.  Lender or its designee may, from time to
time,  whether  or not a Default or Event of Default  has  occurred:  (i) verify
directly  with the  Account  Debtors  the  validity,  amount  and other  matters
relating to the  Accounts  and Chattel  Paper,  by means of mail,  telephone  or
otherwise, either in the name of Borrower or Lender or such other name as Lender
may choose;  and (ii) notify Account Debtors that Lender has a security interest
in the Accounts and that payment thereof is to be made directly to Lender.  Upon
the  occurrence  of a Default or Event of Default,  Lender or its designee  may,
from time to time,  demand,  collect or  enforce  payment  of any  Accounts  and
Chattel Paper (but without any duty to do so).

      4.5 Power of Attorney.  Borrower  hereby  grants to Lender an  irrevocable
power of attorney,  coupled with an interest,  authorizing and permitting Lender
(acting  through any of its officers,  employees,  attorneys or agents),  at any
time  (whether  or not a  Default  or  Event  of  Default  has  occurred  and is
continuing,

<PAGE>

except as expressly provided below), at Lender's option, but without obligation,
with or without notice to Borrower,  and at Borrowers expense,  to do any or all
of the  following,  in  Borrowers  name or  otherwise:  (i) execute on behalf of
Borrower any documents that Lender may, in its sole  discretion,  deem advisable
in order to perfect and maintain Lenders  security  interests in the Collateral,
to  exercise a right of  Borrower  or  Lender,  or to fully  consummate  all the
transactions  contemplated  by this  Agreement  and  the  other  Loan  Documents
(including such financing statements and continuation financing statements,  and
amendments  thereto,  as Lender shall deem necessary or appropriate) and to file
as a financing  statement any copy of this Agreement or any financing  statement
signed by Borrower;  (ii) execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase,  sell or otherwise  dispose of
or lease (as lessor or lessee)  any real or personal  property  which is part of
the  Collateral  or in which Lender has an interest;  (iii) execute on behalf of
Borrower any invoices  relating to any  Accounts,  any draft against any Account
Debtor,  any proof of claim in bankruptcy,  any notice of Lien or claim, and any
assignment or  satisfaction  of mechanic's,  materialman's  or other Lien;  (iv)
execute on behalf of Borrower any notice to any Account Debtor,  (v) receive and
otherwise take control in any manner of any cash or non-cash items of payment or
proceeds of  Collateral;  (vi) endorse  Borrower's  name on all checks and other
forms of remittances  received by Lender;  (vii) pay contest or settle any Lien,
charge,  encumbrance,  security  interest and adverse  claim in or to any of the
Collateral,  or any judgment  based  thereon,  or  otherwise  take any action to
terminate or discharge  the same;  (viii) after the  occurrence  of a Default or
Event of Default,  grant extensions of time to pay,  compromise  claims relating
to, and settle  Accounts,  Chattel Paper and General  Intangibles  for less than
face value and execute all releases and other documents in connection therewith;
(ix) pay any sums  required  on  account  of  Borrowers  taxes or to secure  the
release of any Liens  therefor;  (x) pay any  amounts  necessary  to obtain,  or
maintain in effect, any of the insurance  described in Section 5.12; (xi) settle
and adjust, and give releases of, any insurance claim that relates to any of the
Collateral  and obtain payment  therefor;  (xii) instruct any third party having
custody or  control  of any  Collateral  or books or  records  belonging  to, or
relating to,  Borrower to give Lender the same rights of access and other rights
with respect  thereto as Lender has under this  Agreement;  and (xiii) after the
occurrence of a Default or Event of Default,  change the address for delivery of
Borrower's mail and receive and open all mail addressed to Borrower. Any and all
sums  paid,  and any and  all  costs,  expenses,  liabilities,  obligations  and
reasonable  attorneys'  fees  incurred,  by Lender with respect to the foregoing
shall  be added to and  become  part of the  Obligations,  shall be  payable  on
demand,  and shall bear  interest at a rate equal to the highest  interest  rate
applicable to any of the Obligations. Borrower agrees that Lender's rights under
the  foregoing  power of  attorney or any of Lender's  other  rights  under this
Agreement or the other Loan  Documents  shall not be construed to indicate  that
Lender is in control of the business, management or properties of Borrower.

      4.6 Disputes.  Borrower  shall  promptly  notify Lender of all disputes or
claims  relating  to Accounts  and Chattel  Paper.  Borrower  will not,  without
Lender's  prior  written  consent,  compromise  or settle any Account or Chattel
Paper for less than the full  amount  thereof,  grant any  extension  of time of
payment  of any  Account  or Chattel  Paper,  release  (in whole or in part) any
Account  Debtor or other person liable for the payment of any Account or Chattel
Paper  or  grant  any  credits,  discounts,   allowances,   deductions,   return
authorizations or the like with respect to any Account or Chattel Paper;  except
that prior to the  occurrence  of an Event of Default,  Borrower may take any of
such actions in the ordinary  course of its  business,  provided  that  Borrower
promptly reports the same to Lender.

      4.7 Invoices.  At Lender's  request,  Borrower will cause all invoices and
statements  which it sends to  Account  Debtors  or other  third  parties  to be
marked,  in a manner  satisfactory,  to  Lender,  to  reflect  Lenders  security
interest therein.

      4.8 Inventory.

            (a) Returns.  Provided  that no Event of Default has occurred and is
continuing,  if any  Account  Debtor  returns any  Inventory  to Borrower in the
ordinary course of its business, Borrower will

<PAGE>

promptly  determine  the reason  for such  return  and  promptly  issue a credit
memorandum to the Account Debtor in the  appropriate  amount  (sending a copy to
Lender). After the occurrence of an Event of Default, Borrower will (i) hold the
returned  Inventory in trust for Lender,  (ii) segregate all returned  Inventory
from all of Borrower's other property;  (iii)  conspicuously  label the returned
Inventory as Lenders property;  and (iv) immediately notify Lender of the return
of such  Inventory,  specifying  the reason for such  return,  the  location and
condition  of the  returned  Inventory  and, at Lender's  request,  deliver such
returned Inventory to Lender at an address specified by Lender.

            (b) Other  Covenants.  Borrower  will not,  without  Lender's  prior
written  consent,  (i) store any Inventory with any  warehouseman or other third
party other than as set forth in Section  9(d) of Schedule A and on Schedule 4.8
hereto;  provided, that the Inventory stored at the locations listed on Schedule
4.8 hereto must not exceed, in the aggregate,  20% of Borrower's total Inventory
at any one time,  or (ii) sell any  Inventory  on a  sale-or-return,  guaranteed
sale,  consignment,  or other  contingent  basis.  All of the Inventory has been
produced  only in accordance  with the Fair Labor  Standards Act of 1938 and all
rules, regulations and orders promulgated thereunder, if applicable.

      4.9 Access to Collateral,  Books and Records.  At reasonable times, and on
one Business  Day's notice,  prior to the occurrence of a Default or an Event of
Default,  and at any time and with or without  notice after the  occurrence of a
Default or an Event of  Default,  Lender or its  agents  shall have the right to
inspect the Collateral,  and the right to examine and copy Borrower's  books and
records. Lender shall take reasonable steps to keep confidential all information
obtained in any such inspection or examination,  but Lender shall have the right
to disclose any such information to its auditors, regulatory agencies, attorneys
and participants,  and pursuant to any subpoena or other legal process. Borrower
agrees to give  Lender  access to any or all of  Borrower's  premises  to enable
Lender to conduct  such  inspections  and  examinations.  Such  inspections  and
examinations  shall be at Borrower's  expense and the charge  therefor  shall be
$750 per person per day (or such higher amount as shall represent  Lender's then
current standard charge), plus reasonable out-of-pocket expenses. Lender may, at
Borrower's  expense,  use Borrower's  personnel,  computer and other  equipment,
programs,  printed output and computer readable media, supplies and premises for
the collection, sale or other disposition of Collateral to the extent Lender, in
its sole discretion,  deems appropriate.  Borrower hereby irrevocably authorizes
all  accountants  and third  parties to  disclose  and  deliver  to  Lender,  at
Borrower's expense, all financial  information,  books and records, work papers,
management reports and other information in their possession regarding Borrower.
Borrower will not enter into any agreement  with any  accounting  firm,  service
bureau or third party to store Borrower's books or records at any location other
than Borrowers  Address without first obtaining  Lender's written consent (which
consent may be conditioned  upon such accounting  firm,  service bureau or other
third party  agreeing  to give Lender the same rights with  respect to access to
books and records and related rights as Lender has under this Agreement).

5.    REPRESENTATIONS, WARRANTIES AND COVENANTS.

      To  induce  Lender  to enter  into this  Agreement,  Borrower  represents,
warrants  and  covenants  as  follows  (it being  understood  that (i) each such
representation  and warranty  will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation  by, Lender,  and (ii) the accuracy of
each such representation, warranty and covenant will be a condition to each Loan
and Credit Accommodation).

      5.1 Existence and Authority.  Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its  incorporation or
formation.   Borrower  is   qualified   and  licensed  to  do  business  in  all
jurisdictions in which any failure to do so would have a material adverse effect
on  Borrower.  The  execution,  delivery  and  performance  by  Borrower of this
Agreement  and all of the  other  Loan  Documents  have  been  duly and  validly
authorized,  do not violate Borrower's articles or certificate of incorporation,
by-laws or

<PAGE>

other organizational documents, or any law or any agreement or instrument or any
court order which is binding upon  Borrower or its property,  do not  constitute
grounds for  acceleration of any  indebtedness or obligation under any agreement
or instrument which is binding upon Borrower or its property, and, except as set
forth on  Schedule  5.1 hereto,  do not require the consent of any Person.  This
Agreement  and such other Loan  Documents  have been duly executed and delivered
by, and are  enforceable  against,  Borrower,  and all other  Obligors  who have
signed them, in accordance with their respective terms (except as enforceability
may be limited by bankruptcy,  insolvency,  reorganization,  moratorium or other
laws  relating  to or  limiting  creditors'  rights or by  equitable  principles
generally  (regardless  of whether  enforcement is sought in equity or at law)).
Sections 9(g) and 9(h) of Schedule A set forth the ownership of Borrower and the
names and ownership of Borrower's Subsidiaries as of the date of this Agreement.

      5.2 Name;  Trade Names and Styles.  The name of Borrower  set forth in the
heading to this  Agreement is its correct and complete legal name as of the date
hereof. Listed in Sections 9(a), 9(b) and 9(c) of Schedule A are all prior names
of Borrower and all of Borrower's present and prior trade names.  Borrower shall
give Lender at least thirty days' prior written notice before  changing its name
or doing  business  under any other name.  Borrower has  complied  with all laws
relating to the conduct of business under a fictitious  business name.  Borrower
represents  and  warrants  that (i) each  trade  name does not refer to  another
corporation  or other legal entity;  (ii) all Accounts  invoiced  under any such
trade names are owned  exclusively  by Borrower  and are subject to the security
interest  of  Lender  and the  other  terms of this  Agreement;  and  (iii)  all
schedules of Accounts,  including any sales made or services  rendered using any
trade name shall show Borrower's name as assignor.

      5.3 Title to Collateral; Permitted Liens. Borrower has good and marketable
title to, or a valid leasehold interest in, the Collateral. All Equipment leased
by Borrower is listed on Schedule  5.3 hereto,  which  Schedule 5.3 sets forth a
complete  description of such leased  Equipment.  The Collateral now is and will
remain  free  and  clear  of any and all  liens,  charges,  security  interests,
encumbrances and adverse claims, except for Permitted Liens. Lender now has, and
will  continue to have, a  first-priority  perfected  and  enforceable  security
interest in all of the  Collateral,  subject only to the  Permitted  Liens,  and
Borrower will at all times defend Lender and the  Collateral  against all claims
of others.  None of the  Collateral  which is Equipment is or will be affixed to
any real property in such a manner, or with such intent, as to become a fixture.
Except for leases or  subleases as to which  Borrower has  delivered to Lender a
landlord's waiver in form and substance satisfactory to Lender,  Borrower is not
a lessee or sublessee  under any real  property,  lease or sublease  pursuant to
which the lessor or  sublessor  may obtain any rights in any of the  Collateral,
and no such lease or sublease now prohibits,  restrains,  impairs or conditions,
or will prohibit, restrain, impair or condition,  Borrower's right to remove any
Collateral  from the premises.  Whenever any Collateral is located upon premises
in  which  any  third  party  has an  interest  (whether  as  owner,  mortgagee,
beneficiary under a deed of trust, lien or otherwise),  Borrower shall, whenever
requested  by  Lender,  cause each such third  party to execute  and  deliver to
Lender,  in  form  and  substance   acceptable  to  Lender,   such  waivers  and
subordinations as Lender shall specify,  so as to ensure that Lender's rights in
the Collateral  are, and will continue to be, superior to the rights of any such
third party.  Borrower will keep in full force and effect,  and will comply with
all the terms of, any lease of real property  where any of the Collateral now or
in the future may be located.

      5.4 Accounts and Chattel Paper. As of each date reported by Borrower,  all
Accounts which Borrower has reported to Lender as being Eligible Accounts comply
in all respects with the criteria for  eligibility  established by Lender and in
effect at such time.  All  Accounts  and  Chattel  Paper are  genuine and in all
respects  what  they  purport  to be,  arise out of a  completed,  bona fide and
unconditional  and  non-contingent  sale and  delivery of goods or  rendition of
services by Borrower in the ordinary  course of its  business and in  accordance
with the  terms  and  conditions  of all  purchase  orders,  contracts  or other
documents  relating thereto,  each Account Debtor thereunder had the capacity to
contract at the time any contract or other document giving

<PAGE>

rise to such  Accounts and Chattel  Paper were  executed,  and the  transactions
giving rise to such Accounts and Chattel Paper comply with all  applicable  laws
and governmental rules and regulations.

      5.5 Investment  Property.  Borrower will take any and all actions required
or  requested  by  Lender,  from  time to time,  to (i)  cause  Lender to obtain
exclusive  control of any Investment  Property in a manner  acceptable to Lender
and (ii) obtain from any issuers of  Investment  Property and such other Persons
as Lender shall  specify,  for the benefit of Lender,  written  confirmation  of
Lenders  exclusive  control  over such  Investment  Property and take such other
actions as Lender may  request to perfect  Lender's  security  interest  in such
Investment  Property.  For  purposes  of this  Section  5.5,  Lender  shall have
exclusive  control  of  Investment  Property  if (A)  such  Investment  Property
consists of  certificated  securities  and Borrower  delivers such  certificated
securities  to  Lender  (with  appropriate  endorsements  if  such  certificated
securities are in registered  form);  (B) such Investment  Property  consists of
uncertificated  securities  and either (x) Borrower  delivers such  uncerticated
securities to Lender or (y) the issuer thereof agrees, pursuant to documentation
in  form  and  substance  satisfactory  to  Lender,  that it  will  comply  with
instructions  originated by Lender without further consent by Borrower;  and (C)
such Investment Property consists of security entitlements and either (x) Lender
becomes  the   entitlement   holder  thereof  or  the   appropriate   securities
intermediary   agrees,   pursuant  to   documentation   in  form  and  substance
satisfactory to Lender,  that it will comply with entitlement  orders originated
by Lender without further consent by Borrower.

      5.6 Place of  Business;  Location  or  Collateral.  Borrowers  Address  is
Borrower's chief executive office and the location of its books and records.  In
addition, except as provided in the immediately following sentence, Borrower has
places of business and  Collateral  located only at the  locations  set forth on
Sections  9(d) and 9(e) of Schedule A. Borrower will give Lender at least thirty
days' prior written  notice  before  opening any  additional  place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's  Address or one
of the  locations  set forth in  Sections  9(d) and 9(e) of Schedule A, and will
execute and deliver all financing  statements and other agreements,  instruments
and documents which Lender shall require as a result thereof.

      5.7 Financial Condition,  Statements and Reports. All financial statements
delivered to Lender by or on behalf of Borrower have been prepared in conformity
with GAAP and completely and fairly reflect the financial condition of Borrower,
at the times and for the periods therein  stated.  Between the last date covered
by any such financial statement provided to Lender and the date hereof (or, with
respect to the remaking of this  representation in connection with the making of
any Loan or the  providing  of any Credit  Accommodation,  the date such Loan is
made or such  Credit  Accommodation  is  provided),  there has been no  material
adverse change in the financial  condition or business of Borrower.  Borrower is
solvent and able to pay its debts as they come due, and has  sufficient  capital
to carry on its business as now conducted  and as proposed to be conducted.  All
schedules, reports and other information and documentation delivered by Borrower
to Lender with respect to the Collateral are, or will be, when delivered,  true,
correct and complete as of the date delivered or the date specked therein.

      5.8 Tax Returns and Payments;  Pension Contributions.  Borrower has timely
filed all tax returns and reports  required by  applicable  law, has timely paid
all applicable taxes, assessments,  deposits and contributions owing by Borrower
and will timely pay all such items in the future as they became due and payable.
Borrower may,  however,  defer payment of any contested  taxes;  provided,  that
Borrower  (i) in good  faith  contests  Borrower's  obligation  to such taxes by
appropriate  proceedings promptly and diligently instituted and conducted;  (ii)
notifies Lender in writing of the commencement of, and any material  development
in, the proceedings; (iii) posts bonds or takes any other steps required to keep
the  contested  taxes from becoming a Lien upon any of the  Collateral  and (iv)
maintains  adequate  reserves  therefor  in  conformity  with GAAP.  Borrower is
unaware of any claims or  adjustments  proposed for any of Borrower's  prior tax
years  which  could  result in  additional  taxes  becoming  due and  payable by
Borrower.  Borrower has paid, and shall continue to pay

<PAGE>

all amounts necessary to fund all present and future pension, profit sharing and
deferred compensation plans in accordance with their terms, and Borrower has not
withdrawn from  participation in, permitted partial or complete  termination of,
or permitted  the  occurrence  of any other event with respect to, any such plan
which could result in any liability of Borrower,  including any liability to the
Pension Benefit Guaranty Corporation or any other governmental agency.

      5.9 Compliance with Laws.  Borrower has complied in all material  respects
with all  provisions of all applicable  laws and  regulations,  including  those
relating to Borrower's  ownership of real or personal property,  the conduct and
licensing of Borrowers business, the payment and withholding of taxes, ERISA and
other employee matters, safety and environmental matters.

      5.10  Litigation.  Section  9(f)  of  Schedule  A  discloses  all  claims,
proceedings,  litigation or investigations  pending or (to the best of Borrowers
knowledge)  threatened against Borrower.  There is no claim,  suit,  litigation,
proceeding or  investigation  pending or (to the best of  Borrower's  knowledge)
threatened  by or  against  or  affecting  Borrower  in any court or before  any
governmental  agency (or any basis therefor known to Borrower) which may result,
either  separately or in the  aggregate,  in any material  adverse change in the
financial  condition or business of Borrower,  or in any material  impairment in
the  ability of  Borrower to carry on its  business  in  substantially  the same
manner as it is now being  conducted.  Borrower will  promptly  inform Lender in
writing of any claim,  proceeding,  litigation  or  investigation  in the future
threatened or instituted by or against Borrower.

      5.11 Use of  Proceeds.  All  proceeds of all Loans will be used solely for
lawful business purposes.

      5.12 Insurance.  Borrower will at all times carry property,  liability and
other insurance,  with insurers  acceptable to Lender, in such form and amounts,
and with such  deductibles and other  provisions,  as Lender shall require,  and
Borrower will provide  evidence of such  insurance to Lender,  so that Lender is
satisfied that such insurance is, at all times,  in full force and effect.  Each
property  insurance  policy shall name Lender as loss payee and shall  contain a
lender's loss payable  endorsement in form acceptable to Lender,  each liability
insurance policy shall name Lender as an additional  insured,  and each business
interruption  insurance policy shall be collaterally  assigned to Lender, all in
form and  substance  satisfactory  to Lender.  All policies of  insurance  shall
provide that they may not be cancelled or changed  without at least thirty days'
prior written notice to Lender,  shall contain breach of warranty coverage,  and
shall otherwise be in form and substance satisfactory to Lender. Upon receipt of
the  proceeds  of any such  insurance,  Lender  shall  apply  such  proceeds  in
reduction of the Obligations as Lender shall  determine in its sole  discretion.
Borrower will promptly deliver to Lender copies of all reports made to insurance
companies.

      5.13  Financial and  Collateral  Reports.  Borrower has kept and will keep
adequate  records and books of account with  respect to its business  activities
and the  Collateral  in which proper  entries are made in  accordance  with GAAP
reflecting  all its  financial  transactions,  and will cause to be prepared and
furnished to Lender the following  (all to be prepared in accordance  with GAAP,
unless Borrowers  certified public  accountants concur in any change therein and
such change is disclosed to Lender):

            (a)  Collateral  Reports.  On or before  the  fifteenth  day of each
month, an aging of Borrower's Accounts,  Chattel Paper and notes receivable, and
monthly Inventory  reports,  all in such form, and together with such additional
certificates,  schedules and other information with respect to the Collateral or
the business of Borrower or any Obligor, as Lender shall request; provided, that
Borrower's  failure to execute  and  deliver  the same shall not affect or limit
Lender's security  interests and other rights in any of the Accounts,  nor shall
Lender's  failure to advance or lend against a specific  Account affect or limit
Lender's  security  interest and other rights  therein.  Together with each such
schedule,  Borrower shall furnish  Lender with copies (or, at Lender's  request,
originals) of all contracts,  orders, invoices, and other similar documents, and
all original shipping

<PAGE>

instructions,  delivery  receipts,  bills  of  lading,  and  other  evidence  of
delivery,  for any  goods  the sale or  disposition  of which  gave rise to such
Accounts,  and Borrower  warrants the  genuineness of all of the  foregoing.  In
addition,  Borrower  shall deliver to Lender the  originals of all  Instruments,
Chattel Paper, security agreements,  guaranties and other documents and property
evidencing or securing any Accounts, immediately upon receipt thereof and in the
same form as received,  with all necessary  endorsements.  Lender may destroy or
otherwise  dispose of all  documents,  schedules  and other papers  delivered to
Lender pursuant to this Agreement (other than originals of Instruments,  Chattel
Paper,  security  agreements,  guaranties  and  other  documents  and  property,
evidencing  or securing any  Accounts)  six months after Lender  receives  them,
unless  Borrower  requests  their  return in writing in advance and arranges for
their return to Borrower at Borrower's expense.

            (b) Annual Statements. Not later than ninety days after the close of
each fiscal year of  Borrower,  unqualified  (except for a  qualification  for a
change in  accounting  principles  with which the  accountant  concurs)  audited
financial  statements  of Borrower  and its  Subsidiaries  as of the end of such
year,  on a  consolidated  and  consolidating  basis,  certified  by a  firm  of
independent  certified  public  accountants of recognized  standing  selected by
Borrower but acceptable to Lender, together with a copy of any management letter
issued in connection therewith and a letter from such accountants  acknowledging
that Lender is relying on such financial statements;

            (c) Interim Statements.  Not later than twenty days after the end of
each month hereafter,  and sixty days after the last month of Borrower's  fiscal
year, unaudited interim financial statements of Borrower and its Subsidiaries as
of the end of such  month and of the  portion  of  Borrower's  fiscal  year then
elapsed, on a consolidated and consolidating  basis,  certified by the principal
financial  officer of Borrower as  prepared in  accordance  with GAAP and fairly
presenting  the  consolidated  financial  position and results of  operations of
Borrower and its  Subsidiaries for such month and period subject only to changes
from audit and year-end  adjustments  and except that such  statements  need not
contain notes;

            (d)  Projections,  Etc.  Such  business  projections,   Availability
projections,  business plans,  budgets and cash flow statements for Borrower and
its Subsidiaries as Lender shall request from time to time;

            (e) Shareholder  Reports,  Etc. Promptly after the sending or filing
thereof,  as the  case  may  be,  copies  of any  proxy,  statements,  financial
statements or reports which Borrower has made available to its  shareholders and
copies of any regular,  periodic and special reports or registration  statements
which  Borrower  files  with  the  Securities  and  Exchange  Commission  or any
governmental  authority  which  may be  substituted  therefor,  or any  national
securities exchange;

            (f) ERISA  Reports.  Upon  request by  Lender,  copies of any annual
report to be filed pursuant to the requirements of ERISA in connection with each
plan subject thereto, and

            (g) Other  Information.  Such other data and information  (financial
and otherwise) as Lender,  from time to time, may  reasonably  request,  bearing
upon or related to the  Collateral  or  Borrowers  and each of its  Subsidiary's
financial condition or results of operations.

      5.14 Litigation Cooperation.  Should any third-party suit or proceeding be
instituted by or against  Lender with respect to any Collateral or in any manner
relating to Borrower,  Borrower shall, without expense to Lender, make available
Borrower  and its  officers,  employees  and agents,  and  Borrower's  books and
records,  without  charge,  to the extent that  Lender may deem them  reasonably
necessary in order to prosecute or defend any such suit or proceeding.

      5.15  Maintenance  of Collateral,  Etc.  Borrower will maintain all of its
Equipment  in good  working  condition,  ordinary  wear and tear  excepted,  and
Borrower will not use the  Collateral  for any unlawful  purpose.

<PAGE>

Borrower  will  immediately  advise  Lender in writing of any  material  loss or
damage to the Collateral and of any investigation,  action, suit,  proceeding or
claim  relating to the  Collateral or which may result in an adverse impact upon
Borrower's business, assets or financial condition.

      5.16  Notification  of Changes.  Borrower will  promptly  notify Lender in
writing of any change in its officers or directors,  the opening of any new bank
account or other deposit account, or any material adverse change in the business
or  financial  affairs of Borrower or the  existence of any  circumstance  which
would make any  representation  or warranty of Borrower  untrue in any  material
respect or constitute a material breach of any covenant of Borrower.

      5.17  Further  Assurances.  Borrower  agrees at its  expense,  to take all
actions,  and  execute  or cause to be  executed  and  delivered  to Lender  all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees,  subordination  and  intercreditor  agreements and
other  agreements,  instruments and documents as Lender may request from time to
time to perfect and maintain Lender's  security  interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.

      5.18 Negative Covenants.  Except as set forth in Section 13 of Schedule A,
Borrower  will  not,  without  Lender's  prior  written  consent,  (i)  merge or
consolidate with another Person, form any new Subsidiary or acquire any interest
in any Person; (ii) acquire any assets except in the ordinary course of business
and as otherwise permitted by this Agreement and the other Loan Documents; (iii)
enter into any transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral or other assets,  except that Borrower may sell finished
goods Inventory in the ordinary  course of its business;  (v) make any loans to,
or  investments  in, any Affiliate or other Person in the form of money or other
assets;  (vi) incur any debt  outside the  ordinary  course of  business;  (vii)
guaranty or otherwise  become liable with respect to the  obligations of another
party or entity;  (viii) pay or declare any dividends or other  distributions on
Borrower's  stock,  if Borrower is a corporation  (except for dividends  payable
solely in capital stock of Borrower) or with respect to any equity interests, if
Borrower is not a  corporation;  (ix)  redeem,  retire,  purchase  or  otherwise
acquire, directly or indirectly, any of Borrower's capital stock or other equity
interests; (x) make any change in Borrower's capital structure; (xi) dissolve or
elect to dissolve; (xii) pay any principal or interest on any indebtedness owing
to an Affiliate;  (xiii) enter into any transaction with an Affiliate other than
on arms-length terms; or (xiv) agree to do any of the foregoing.

      5.19 Financial Covenants.

            (a)  Capital  Expenditures.  Borrower  will not  expend or commit to
expend,  directly or indirectly,  for capital  expenditures  (including  capital
lease obligations) in excess of the amount set forth in Section 8(a) of Schedule
A as the Capital Expenditure Limitation in any fiscal year.

            (b) Net Worth. Borrower will at all times maintain a net worth of at
least the amount set forth in Section 8(b) of Schedule A.

            (c)  Tangible  Net  Worth.  Borrower  will at all times  maintain  a
minimum  tangible  net worth of at least the amount set forth in Section 8(c) of
Schedule A.

            (d) Working  Capital.  Borrower will at all times  maintain  working
capital of at least the amount set forth in Section 8(d) of Schedule A.

            (e) Net Losses.  Borrower will not permit its cumulative net loss to
exceed the amount set forth in Section 8(e) of Schedule A.

<PAGE>

            (f) Net Income.  Borrower will not permit its  cumulative net income
to be less than the amount set forth in Section 8(f) of Schedule A.

            (g)  Leverage.  Borrower  will not  permit  the  ratio of its  total
liabilities  to its net worth to  exceed,  at any  time,  the ratio set forth in
Section 8(g) of Schedule A.

            (h)  Other  Financial  Covenants.  Borrower  will  comply  with  any
additional financial covenants set forth in Section 8(j) of Schedule A.

6.    RELEASE AND INDEMNITY.

      6.1 Release.  Borrower hereby releases Lender and its Affiliates and their
respective directors,  officers,  employees,  attorneys and agents and any other
Person affiliated with or representing  Lender (the "Released Parties") from any
and all  liability  arising  from acts or  omissions  under or  pursuant to this
Agreement, whether based on errors of judgment or mistake of law or fact, except
for those arising from willful misconduct.  However, in no circumstance will any
of the  Released  Parties  be  liable  for  lost  profits  or other  special  or
consequential  damages.  Such release is made on the date hereof and remade upon
each request for a Loan or Credit  Accommodation  by Borrower.  Without limiting
the foregoing:

            (a) Lender shall not be liable for (i) any  shortage or  discrepancy
in,  damage  to,  or loss or  destruction  of,  any  goods,  the  sale or  other
disposition of which gave rise to an Account:  (ii) any error, act, omission, or
delay of any kind occurring in the settlement,  failure to settle, collection or
failure to collect any  Account;  (iii)  settling  any Account in good faith for
less than the full amount thereof;  or (iv) any of Borrower's  obligations under
any contract or agreement giving rise to an Account; and

            (b) In  connection  with  Credit  Accommodations  or any  underlying
transaction,  Lender shall not be responsible for the conformity of any goods to
the documents  presented,  the validity or genuineness of any documents,  delay,
default or fraud by Borrower,  shippers and/or any other Person. Borrower agrees
that any action taken by Lender,  if taken in good faith, or any action taken by
an issuer of any Credit  Accommodation,  under or in connection  with any Credit
Accommodation,  shall be binding on Borrower and shall not create any  resulting
liability to Lender.  In furtherance  thereof,  Lender shall have the full right
and authority to clear and resolve any questions of non-compliance of documents,
to give any  instructions  as to  acceptance  or rejection  of any  documents or
goods, to execute for Borrower's  account any and all applications for steamship
or airway guaranties, indemnities or delivery orders, to grant any extensions of
the maturity of, time of payment  for, or time of  presentation  of, any drafts,
acceptances or documents, and to agree to any amendments,  renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation  pertaining
thereto.

      6.2 Indemnity.  Borrower  hereby agrees to indemnify the Released  Parties
and hold them harmless from and against any and all claims, debts,  liabilities,
demands,  obligations,  actions, causes of action, penalties, costs and expenses
(including  attorneys fees), of every nature,  character and description,  which
the  Released  Parties  may sustain or incur based upon or arising out of any of
the  transactions  contemplated by this Agreement or the other Loan Documents or
any of the Obligations,  including any  transactions or occurrences  relating to
the issuance of any Credit  Accommodation,  the Collateral relating thereto, any
drafts  thereunder and any errors or omissions  relating thereto  (including any
loss or claim due to any  action or  inaction  taken by the issuer of any Credit
Accommodation)  (and for this  purpose  any  charges  to Lender by any issuer of
Credit Accommodations shall be conclusive as to their appropriateness and may be
charged to the Loan  Account),  or any other matter,  cause or thing  whatsoever
occurred, done, omitted or suffered to be done by Lender relating to Borrower or
the Obligations  (except any such amounts sustained or incurred as the result of
the willful

<PAGE>

misconduct  of the  Released  Parties).  Notwithstanding  any  provision in this
Agreement to the  contrary,  the  indemnity  agreement set forth in this Section
shall survive any termination of this Agreement.

7.    TERM.

      7.1 Maturity Date. Lender's obligation to make Loans and to provide Credit
Accommodations under this Agreement shall initially continue in effect until the
Initial  Maturity Date set forth in Section 7 of Schedule A (the "Initial Term")
provided,  that such date shall  automatically be extended (the Initial Maturity
Date, as it may be so extended,  being  referred to as the "Maturity  Date") for
successive  additional terms of three years each (each a "Renewal Term"), unless
one party gives written  notice to the other,  not less than sixty days prior to
the Maturity Date,  that such party elects not to extend the Maturity Date. This
Agreement and the other Loan  Documents and Lender's  security  interests in and
Liens upon the Collateral, and all representations,  warranties and covenants of
Borrower  contained  herein and  therein,  shall remain in full force and effect
after the Maturity Date until all of the monetary  Obligations are  indefeasibly
paid in full.

      7.2 Early  Termination.  Lenders  obligation  to make Loans and to provide
Credit  Accommodations  under  this  Agreement  may be  terminated  prior to the
Maturity Date as follows: (i) by Borrower,  effective thirty business days after
written  notice of  termination is given to Lender or (ii) by Lender at any time
after  the  occurrence  of  an  Event  of  Default,  without  notice,  effective
immediately;  provided,  that if any  Affiliate of Borrower is also a party to a
financing  arrangement with Lender,  no such early  termination under clause (i)
above shall be effective  unless such  Affiliate  simultaneously  terminates its
financing  arrangement  with Lender.  If so  terminated  under this Section 7.2,
Borrower  shall  pay  to  Lender  (i)  an  early  termination  fee  (the  "Early
Termination  Fee") in the amount set forth in  Section  6(h) of  Schedule A plus
(ii) any earned but unpaid  Facility  Fee.  Such fee shall be due and payable on
the effective date of termination  and thereafter  shall bear interest at a rate
equal to the highest rate applicable to any of the Obligations.  In addition, if
Borrower so terminates and repays the Obligations without having provided Lender
with at least thirty days' prior written notice  thereof,  an additional  amount
equal to thirty days of interest al the applicable  Interest  Rate(s),  based on
the  average  outstanding  amount of the  Obligations  for the six month  period
immediately preceding the date of termination.

      7.3  Payment  of  Obligations.  On the  Maturity  Date  or on any  earlier
effective  date of  termination,  Borrower  shall  pay in full all  Obligations,
whether or not all or any part of such  Obligations  are otherwise  then due and
payable.  Without limiting the generality of the foregoing,  if, on the Maturity
Date or on any earlier effective date of termination,  there are any outstanding
Credit  Accommodations,  then on such date Borrower shall provide to Lender cash
collateral  in an amount  equal to 110% of the Credit  Accommodation  Balance to
secure all of the  Obligations  (including  estimated  attorneys' fees and other
expenses)  relating to said Credit  Accommodations or such greater percentage or
amount  as  Lender  reasonably  deems  appropriate,  pursuant  to a cash  pledge
agreement in form and substance satisfactory to Lender.

      7.4 Effect of Termination. No termination shall affect or impair any right
or remedy of Lender or relieve  Borrower of any of the Obligations  until all of
the monetary  Obligations  have been  indefeasibly and irrevocably paid in full.
Upon indefeasible and irrevocable  payment and performance in full of all of the
monetary  Obligations  (and the provision of cash collateral with respect to any
Credit Accommodation Balance as required by Section 7.3) and termination of this
Agreement,  Lender shall promptly  deliver to Borrower  termination  statements,
requests  for  reconveyances  and  such  other  documents  as may be  reasonably
required to terminate Lender's security interests in the Collateral.

8.    EVENTS OF DEFAULT AND REMEDIES.

      8.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this  Agreement,  and Borrower shall give
Lender immediate  written notice thereof:  (i) if any

<PAGE>

warranty, representation,  statement, report or certificate made or delivered to
Lender by Borrower or any of Borrower's officers,  employees or agents is untrue
or misleading;  (ii) if Borrower fails to pay when due any principal or interest
on any Loan or any other  monetary  Obligation;  (iii) if Borrower  breaches any
covenant or  obligation  contained  in (a) any of the first  sentence of Section
5.1,  Section 5.5,  Section 5.8, clauses (b), (c), (d) or (f) of Section 5.13 or
Section  5.14 of this  Agreement  and such breach has not been cured to Lender's
satisfaction  within 10 days' of the  occurrence  thereof or (b) any  Section of
this  Agreement,  other  than  those  listed in clause  (a),  or any other  Loan
Document  or fails to perform  any other  non-monetary  Obligation;  (iv) if any
levy,  assessment,  attachment,  seizure,  lien  or  encumbrance  (other  than a
Permitted  Lien)  is  made  or  permitted  to  exist  on all or any  part of the
Collateral;  (v) if one or more judgments  aggregating in excess of $25,000,  or
any injunction or attachment,  is obtained against Borrower or any Obligor which
remains  unstayed for more than ten days or is enforced;  (vi) the occurrence of
any  default  under  any  financing  agreement,   security  agreement  or  other
agreement,  instrument or document  executed and delivered by (A) Borrower with,
or in favor of, any Person other than Lender or (B) Borrower or any Affiliate of
Borrower  with,  or in favor of,  Lender or any  Affiliate of Lender;  (vii) the
dissolution,  death,  termination of existence in good  standing,  insolvency or
business  failure or suspension or cessation of business as usual of Borrower or
any  Obligor  (or of any  general  partner of Borrower or any Obligor if it is a
partnership) or the  appointment of a receiver,  trustee or custodian for all or
any part of the  property of, or an  assignment  for the benefit of creditors by
Borrower or any Obligor,  or the  commencement  of any proceeding by Borrower or
any  Obligor  under any  reorganization,  bankruptcy,  insolvency,  arrangement,
readjustment  of  debt,  dissolution  or  liquidation  law  or  statute  of  any
jurisdiction,  now or in the future in effect,  or if Borrower  makes or sends a
notice of a bulk transfer or calls a meeting of its creditors;  provided that in
the event of the death or bankruptcy of any Obligor,  Borrower shall have thirty
days from the date of such  occurrence  to replace  such  Obligor  with a Person
acceptable to Lender; (viii) the commencement of any proceeding against Borrower
or any Obligor under any reorganization,  bankruptcy,  insolvency,  arrangement,
readjustment  of  debt,  dissolution  or  liquidation  law  or  statute  of  any
jurisdiction,  now or in the  future in  effect;  (ix) the  actual or  attempted
revocation or  termination  of, or limitation or denial of liability  upon,  any
guaranty of the Obligations,  or any security document securing the Obligations,
by any Obligor; (x) if Borrower makes any payment on account of any indebtedness
or  obligation  which has been  subordinated  to the  Obligations  other than as
permitted in the applicable  subordination  agreement,  or if any Person who has
subordinated such indebtedness or obligations attempts to limit or terminate its
subordination agreement; (xi) if there is any actual or threatened indictment of
Borrower or any Obligor under any criminal statute or commencement or threatened
commencement of criminal or civil  proceedings  against Borrower or any Obligor,
pursuant  to which the  potential  penalties  or  remedies  sought or  available
include  forfeiture of any property of Borrower or such Obligor;  (xii) if there
is a change in the record or  beneficial  ownership of an aggregate of more than
49 % of  the  outstanding  shares  of  stock  of  Borrower  (or  partnership  or
membership  interests if it is a partnership or limited liability  company),  in
one or more  transactions,  compared to the ownership of  outstanding  shares of
stock (or  partnership  or  membership  interests)  of  Borrower  as of the date
hereof,  without the prior written consent of Lender, which consent shall not be
unreasonably  withheld;  (xiii) if there is any  change  in the chief  executive
officer,  chief operating officer or chief financial officer of Borrower;  (xiv)
if an Event of Default  occurs  under any Loan and  Security  Agreement  between
Lender and an Affiliate of Borrower;  or (xv) if Lender determines in good faith
that the Collateral is  insufficient to fully secure the Obligations or that the
prospect of payment of performance of the Obligations is impaired.

      8.2  Remedies.  Upon  the  occurrence  of any  Default,  and  at any  time
thereafter, Lender, at its option, may cease making Loans or otherwise extending
credit to Borrower  under this  Agreement or any other Loan  Document.  Upon the
occurrence of any Event of Default,  and at any time thereafter,  Lender, at its
option,  and  without  notice or  demand  of any kind  (all of which are  hereby
expressly  waived by  Borrower),  may do any one or more of the  following:  (i)
cease  making  Loans or  otherwise  extending  credit  to  Borrower  under  this
Agreement or any other Loan  Document;  (ii)  accelerate  and declare all or any
part  of  the  Obligations  to be

<PAGE>

immediately  due,  payable  and  performable,  notwithstanding  any  deferred or
installment payments allowed by any instrument  evidencing or relating to any of
the Obligations;  (iii) take possession of any or all of the Collateral wherever
it may be found, and for that purpose Borrower hereby authorizes Lender, without
judicial process, to enter onto any of Borrower's premises without  interference
to search for, take possession of, keep, store, or remove any of the Collateral,
and remain (or cause a custodian to remain) on the premises in exclusive control
thereof,  without charge for so long as Lender deems it reasonably  necessary in
order to complete  the  enforcement  of its rights  under this  Agreement or any
other agreement; provided, that if Lender seeks to take possession of any of the
Collateral by court process, Borrower hereby irrevocably waives (A) any bond and
any surety,  or security relating thereto required by law as an incident to such
possession,  (B) any demand for possession prior to the commencement of any suit
or action to recover  possession  thereof  and (C) any  requirement  that Lender
retain  possession of, and not dispose of any such Collateral  until after trial
or  final  judgment;  (iv)  require  Borrower  to  assemble  any  or  all of the
Collateral  and make it available to Lender at one or more places  designated by
Lender which are reasonably convenient to Lender and Borrower, and to remove the
Collateral  to such  locations  as Lender may deem  advisable;  (v) complete the
processing,  manufacturing  or repair of any  Collateral  prior to a disposition
thereof and, for such purpose and for the purpose of removal,  Lender shall have
the right to use Borrower's premises, vehicles and other Equipment and all other
property  without charge;  (vi) sell,  lease or otherwise  dispose of any of the
Collateral,  in its  condition at the time Lender  obtains  possession  of it or
after  further  manufacturing,  processing  or repair,  at one or more public or
private sales, in lots or in bulk, for cash,  exchange or other property,  or on
credit (a "Sale"), and to adjourn any such Sale from time to time without notice
other than oral  announcement at the time scheduled for Sale (and, in connection
therewith,  (A) Lender shall have the right to conduct  such Sale on  Borrower's
premises without charge, for such times as Lender deems reasonable,  on Lender's
premises.  or elsewhere,  and the Collateral need not be located at the place of
Sale; (B) Lender may directly or through any of its Affiliates purchase or lease
any of the Collateral at any such public  disposition,  and if permissible under
applicable law, at any private  disposition and (C) any Sale of Collateral shall
not relieve  Borrower of any  liability  Borrower may have if any  Collateral is
defective  as to title,  physical  condition  or otherwise at the time of sale);
(vii) demand payment of and collect any Accounts, Chattel Paper, Instruments and
General  Intangibles  included in the Collateral  and, in connection  therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's name on all
collections,  receipts,  Instruments and other documents,  to take possession of
and open mail  addressed to Borrower  and remove  therefrom  payments  made with
respect to any item of  Collateral  or proceeds  thereof  and, in Lender's  sole
discretion,  to grant  extensions of time to pay,  compromise  claims and settle
Accounts,  General Intangibles and the like for less than face value; and (viii)
demand and receive  possession of any of Borrower's federal and state income tax
returns  and the  books and  records  utilized  in the  preparation  thereof  or
relating thereto. In addition to the foregoing remedies,  upon the occurrence of
any Event of Default  resulting from a breach of any of the financial  covenants
set forth in Section  5.19,  Lender may,  at its option,  upon not less than ten
days' prior notice to Borrower, reduce any or all of the Advance Rates set forth
in Section  1(b) of  Schedule A to the extent  Lender,  in its sole  discretion,
deems  appropriate.  In addition  to the rights and  remedies  set forth  above,
Lender  shall have all the other rights and  remedies  accorded a secured  party
after default under the UCC and under all other  applicable  laws, and under any
other Loan  Document,  and all of such rights and  remedies are  cumulative  and
non-exclusive.  Exercise  or  partial  exercise  by Lender of one or more of its
rights or remedies shall not be deemed an election or bar Lender from subsequent
exercise or partial  exercise of any other  rights or  remedies.  The failure or
delay of Lender to exercise any rights or remedies shall not operate as a waiver
thereof,  but all rights and  remedies  shall  continue in full force and effect
until all of the  Obligations  have been fully paid and performed.  If notice of
any sale or other  disposition of Collateral is required by law, notice at least
seven days prior to the sale  designating the time and place of sale in the case
of a public sale or the time after which any private  sale or other  disposition
is to be made shall be deemed to be reasonable  notice,  and Borrower waives any
other notice.  If any  Collateral is sold or leased by Lender on credit terms or
for future  delivery,  the Obligations  shall not be reduced as a result thereof
until payment is collected by Lender.

<PAGE>

      8.3 Application of Proceeds.  Subject to any application  required by law,
all  proceeds  realized  as the result of any Sale shall be applied by Lender to
the Obligations in such order as Lender shall determine in its sole  discretion.
Any  surplus  shall be paid to  Borrower  or  other  persons  legally,  entitled
thereto;  but Borrower  shall  remain  liable to Lender for any  deficiency.  If
Lender,  in its sole discretion,  directly or indirectly  enters into a deferred
payment or other credit transaction with any purchaser at any Sale, Lender shall
have the option,  exercisable  at any time,  in its sole  discretion,  of either
reducing  the  Obligations  by the  principal  amount of the  purchase  price or
deferring the reduction of the Obligations until the actual receipt by Lender of
the cash therefor.

9.    GENERAL PROVISIONS.

      9.1  Notices.  All  notices to be given under this  Agreement  shall be in
writing and shall be given  either  personally,  by reputable  private  delivery
service, by regular first-class mail or certified mail return receipt requested,
addressed  to Lender or  Borrower  at the  address  shown in the heading to this
Agreement,  or by  facsimile  to the  facsimile  number shown in Section 9(i) of
Schedule  A,  or at  any  other  address  (or  to any  other  facsimile  number)
designated  in writing by one party to the other party in the manner  prescribed
in this  Section  9.1.  All  notices  shall be deemed to have  been  given  when
received or when delivery is refused by the recipient.

      9.2 Severability.  If any provision of this Agreement,  or the application
thereof to or circumstance, is held to be void or unenforceable by any, court of
competent  jurisdiction,  such  defect  shall not affect the  remainder  of this
Agreement, which shall continue in full force and effect.

      9.3 Integration. This Agreement and the other Loan Documents represent the
final,  entire and complete  agreement between Borrower and Lender and supersede
all prior and contemporaneous negotiations, oral representations and agreements,
all of which are merged and integrated  into this  Agreement.  THERE ARE NO ORAL
UNDERSTANDINGS,  REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.

      9.4  Waivers.  The  failure  of  Lender  at any time or  times to  require
Borrower to strictly  comply with any of the provisions of this Agreement or any
other Loan  Documents  shall not waive or diminish  any right of Lender later to
demand and receive strict compliance therewith.  Any waiver of any default shall
not waive or affect any other default, whether prior or subsequent,  and whether
or not  similar.  None of the  provisions  of this  Agreement  or any other Loan
Document  shall be deemed to have been waived by any act or  knowledge of Lender
or its agents or employees,  but only by a specific  written waiver signed by an
authorized officer of Lender and delivered to Borrower.  Borrower waives demand,
protest, notice of protest and notice of default or dishonor,  notice of payment
and nonpayment,  release,  compromise,  settlement,  extension or renewal of any
commercial paper,  Instrument,  Account, General Intangible,  Document,  Chattel
Paper,  Investment  Property  or  guaranty  at any time  held by Lender on which
Borrower  is or may in any way be  liable,  and  notice of any  action  taken by
Lender,  unless expressly  required by this Agreement,  and notice of acceptance
hereof.

      9.5  Amendment.  The terms and  provisions  of this  Agreement  may not be
amended  or  modified  except  in a  writing  executed  by  Borrower  and a duly
authorized officer of Lender.

      9.6 Time of Essence. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement and the other Loan Documents.

      9.7 Attorneys  Fees and Cents.  Borrower  shall  reimburse  Lender for all
reasonable  attorneys' and paralegals'  fees (including  in-house  attorneys and
paralegals  employed  by  Lender)  and  all  filing,  recording,  search,  title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection  with,  or  relating  to this  Agreement,  including  all  reasonable
attorneys'  fees and costs Lender incurs to prepare and

<PAGE>

negotiate this Agreement and the other Loan Documents; to obtain legal advice in
connection  with this  Agreement and the other Loan Documents or Borrower or any
Obligor,  to administer  this Agreement and the other Loan Documents  (including
the cost of periodic financing statement,  tax lien and other searches conducted
by Lender); to enforce, or seek to enforce, any of its rights; prosecute actions
against,  or defend actions by, Account Debtors;  to commence,  intervene in, or
defend any action or proceeding; to initiate any complaint to be relieved of the
automatic stay in bankruptcy; to file or prosecute any probate claim, bankruptcy
claim,  third-party claim, or other claim; to examine,  audit, copy, and inspect
any of the Collateral or any of Borrower's books and records; to protect, obtain
possession  of,  lease,  dispose  of, or  otherwise  enforce  Lender's  security
interests  in,  the  Collateral,  and  to  otherwise  represent  Lender  in  any
litigation relating to Borrower.  If either Lender or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable  costs and attorneys'
fees, including reasonable attorneys' fees and costs incurred in the enforcement
of,  execution  upon or defense of any order,  decree,  award or  judgment.  All
attorneys'  fees and costs to which  Lender  may be  entitled  pursuant  to this
Section  shall  immediately  become  part of the  Obligations,  shall  be due on
demand,  and shall bear  interest at a rate equal to the highest  interest  rate
applicable to any of the Obligations.

      9.8 Benefit of Agreement;  Assignability. The provisions of this Agreement
shall be binding  upon and inure to the  benefit of the  respective  successors,
assigns,  heirs,  beneficiaries  and  representatives  of  Borrower  and Lender;
provided,  that Borrower may not assign or transfer any of its rights under this
Agreement  without  the prior  written  consent  of Lender,  and any  prohibited
assignment  shall be void. No consent by Lender to any assignment  shall release
Borrower from its liability  for any of the  Obligations.  Lender shall have the
right  to  assign  all or any of its  rights  and  obligations  under  the  Loan
Documents,  and to sell participating  interests  therein,  to one or more other
Persons,  and  Borrower  agrees  to  execute  all  agreements,  instruments  and
documents  requested  by Lender in  connection  with  each such  assignment  and
participation.

      9.9 Headings;  Construction.  Section and subsection  headings are used in
this Agreement only for  convenience.  Borrower and Lender  acknowledge that the
headings  may not  describe  completely  the  subject  matter of the  applicable
Sections or  subsections,  and the  headings  shall not be used in any manner to
construe,  limit,  define or interpret any term or provision of this  Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty  or ambiguity in any term or  provision of this  Agreement  shall be
construed  strictly against Lender or Borrower under any role of construction or
otherwise.

      9.10  GOVERNING  LAW;  CONSENT  TO FORUM,  ETC.  THIS  AGREEMENT  HAS BEEN
NEGOTIATED,  EXECUTED AND DELIVERED,  AND SHALL, BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK,  NEW YORK,  AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE  WITH
THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY
IN SUCH STATE.  BORROWER  HEREBY  CONSENTS AND AGREES THAT THE STATE AND FEDERAL
COURTS IN NEW YORK,  NEW YORK OR THE  STATE IN WHICH  ANY OF THE  COLLATERAL  IS
LOCATED SHALL HAVE  NON-EXCLUSIVE  JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT,  ANY OTHER
LOAN  DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION  IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,  AND WAIVES ANY
OBJECTION WHICH BORROWER HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE OR FORUM NON  CONVENIENTS.  BORROWER ALSO AGREES THAT ANY CLAIM OR DISPUTE
BROUGHT BY BORROWER  AGAINST LENDER PURSUANT TO THIS  AGREEMENT,  ANY OTHER LOAN
DOCUMENT OR ANY MATTER  ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT

<PAGE>

SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL COURTS OF NEW YORK COUNTY.
BORROWER  HEREBY  WAIVES  PERSONAL  SERVICE OF THE SUMMONS,  COMPLAINT AND OTTER
PROCESS  ISSUED  IN ANY SUCH  ACTION OR SUIT AND  AGREES  THAT  SERVICE  OF SUCH
SUMMONS,  COMPLAINT  AND OTHER  PROCESS  MAY BE MADE IN THE  MANNER AND SHALL BE
DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE EXTENT PERMITTED
BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT
OF LENDER TO SERVE LEGAL  PROCESS IN ANY OTHER  MANNER  PERMITTED  BY LAW, OR TO
PRECLUDE THE  ENFORCEMENT  BY LENDER OF ANY  JUDGMENT OR ORDER  OBTAINED IN SUCH
FORUM OR THE TAKING OF ANY ACTION  UNDER THIS  AGREEMENT  TO ENFORCE THE SAME IN
ANY OTHER APPROPRIATE FORUM OR JURISDICTION.

      9.11 WAIVER OF JURY TRIAL,  ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT,  PROCEEDING OR COUNTERCLAIM
OF ANY  KIND  ARISING  OUT OF OR  RELATED  TO ANY  OF THE  LOAN  DOCUMENTS,  THE
OBLIGATIONS  OR THE  COLLATERAL  OR ANY CONDUCT,  ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN  CONTRACT,  TORT OR  OTHERWISE;  (ii) THE  RIGHT  TO  INTERPOSE  ANY  CLAIMS,
DEDUCTIONS,  SETOFFS OR  COUNTERCLAIMS  OF ANY KIND IN ANY ACTION OR  PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN  DOCUMENTS OR ANY MATTER  RELATING
THERETO,  EXCEPT FOR  COMPULSORY  COUNTERCLAIMS;  (iii) NOTICE PRIOR TO LENDER'S
TAKING  POSSESSION OR CONTROL OF THE  COLLATERAL  OR ANY BOND OR SECURITY  WHICH
MIGHT BE  REQUIRED BY ANY COURT  PRIOR TO  ALLOWING  LENDER TO  EXERCISE  ANY OF
LENDER'S  REMEDIES  AND (iv) THE  BENEFIT  OF ALL  VALUATION,  APPRAISEMENT  AND
EXEMPTION LAWS. BORROWER  ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S  ENTERING INTO THIS  AGREEMENT AND THAT LENDER IS RELYING
UPON THE  FOREGOING  WAIVERS  IN ITS FUTURE  DEALINGS  WITH  BORROWER.  BORROWER
WARRANTS AND  REPRESENTS  THAT IT HAS REVIEWED  THE  FOREGOING  WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY  AND  VOLUNTARILY  WAIVED IT'S JURY TRIAL RIGHTS
FOLLOWING  CONSULTATION  WITH LEGAL COUNSEL.  IN THE EVENT OF  LITIGATION,  THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

<PAGE>

      IN WITNESS  WHEREOF,  Borrower and Lender have signed this Agreement as of
the date set forth in the heading.

Borrower:                                       Lender:
COFFEE HOLDING CO., INC.                        NATIONSCREDIT COMMERCIAL
                                                CORPORATION, THROUGH ITS
                                                NATIONSCREDIT FUNDING
                                                DIVISION

By_______________________                       By___________________________
Name_____________________                       Its Authorized Signatory
Title____________________

<PAGE>

                                   SCHEDULE A

                          Description of Certain Terms

      This  Schedule  is an  integral  part of the Loan and  Security  Agreement
between  COFFEE  HOLDING CO.,  INC. and  NATIONSCREDTT  COMMERCIAL  CORPORATION,
THROUGH ITS NATIONSCREDTT COMMERCIAL FUNDING DIVISION (the "Agreement").

1.    Loan Limits for Revolving
      Loans:

      (a)   Maximum Facility
            Amount:                                  $5,000,000

      (b)   Advance Rates:

            (i)   Accounts                           85%; provided,  that if the
                  Advance Rate:                      Dilution Percentage exceeds
                                                     4%, such  advance rate will
                                                     be reduced by the number of
                                                     full or partial  percentage
                                                     points of such  excess

            (ii)  Inventory
                  Advance
                  Rate(s):

            (A)   Finished
                  goods:                             60 %

            (B)   Raw
                  materials:                         60 %

            (C)   Work in
                  process:                           Not Applicable

      (c)   Accounts Sublimit:                       Not Applicable

      (d)   Inventory
            Sublimit(s):

      (i)   Overall sublimit on                      $750,000  or, if less,  the
            advances against                         aggregate  advances against
            Eligible Inventory                       Accounts  at  any  time  of
                                                     determination

      (ii)  Sublimit on advances                     Not Applicable
            against finished goods

      (iii) Sublimit on advances                     Not Applicable
            against raw materials

<PAGE>

      (e)   Credit                                   $500,000
            Accommodation
            Limit:

      (f)   Permanent Reserve                        Not Applicable
            Amount:

      (g)   Overadvance Amount:                      Not Applicable

2.    Loan Limits for Term Loan:

      (a)   Principal Amount:

            (i)   Equipment                          The lesser of $500,000  and
                  Advance:                           80%   of   the    appraised
                                                     auction   sale   value   of
                                                     Borrower's         Eligible
                                                     Equipment

            (ii)  Real Property                      Not Applicable
                  Advance:

      (b)   Repayment Schedule:

            (i)   Equipment                          The Equipment Advance shall
                  Advance:                           be    repaid    in    equal
                                                     consecutive         monthly
                                                     installments amortized over
                                                     60  months  payable  on the
                                                     first day of each  calendar
                                                     month commencing January 1,
                                                     1998,   with   the   entire
                                                     unpaid   balance   due  and
                                                     payable  on  the   Maturity
                                                     Date

            (ii)  Real Property                      Not Applicable
                  Advance:

3.    Interest Rates:

      (a)   Revolving Loans:                         1 % per  annum in excess of
                                                     the Prime Rate

      (b)   Term Loan:                               1 % per  annum in excess of
                                                     the Prime Rate

4.    Minimum Loan Amount:                           $2,750,000

5.    Maximum Days:

      (a)   Maximum days after
            original invoice date
            for Eligible Accounts:                   90 days

      (b)   Maximum  days  after
            original invoice date
            due   date for Eligible

<PAGE>

            Accounts:                                60 days

6.    Fees:

            (a)   Closing Fee:                       Not Applicable

            (b)   Facility Fee:

                  (i)   Initial Term:                $50,000

                  (ii)  Renewal
                        Term(s)                      $75,000

            (c)   Servicing Fee:                     $300 per month

            (d)   Unused Line Fee:                   Not Applicable

            (e)   Minimum Borrowing
                  Fee:

                  (i)   Applicable                   Each Year
                        period:

                  (ii)  Date payable:                Each   anniversary  of  the
                                                     date of the Agreement

            (f)   Success Fee:                       Not Applicable

            (g)   Warrants:                          Not Applicable

            (h)   Early Termination
                  Fee:                               3% of the Maximum  Facility
                                                     Amount if terminated during
                                                     the first year of the Term,
                                                     2% of the Maximum  Facility
                                                     Amount if terminated during
                                                     the  second   year  of  the
                                                     Term,   and  1  %  of   the
                                                     Maximum  Facility Amount if
                                                     terminated  thereafter  and
                                                     prior to the Maturity Date;
                                                     provided   that  the  Early
                                                     Termination   Fee  will  be
                                                     waived    by    Lender   if
                                                     Borrower    transfers   the
                                                     Loans  and all of its other
                                                     Obligations   hereunder  to
                                                     another     division     of
                                                     NationsCredit    Commercial
                                                     Corporation or NationsBank,
                                                     N.A.

            (i)   Fees for letters of                1% per  annum  of the  face
                  credit and other Credit            amount of each open  Credit
                  Accommodations (or                 Accommodation,   plus   all
                  guaranties thereof by              costs and fees  charged  by
                  Lender):                           the issuer

7.    Initial Maturity Date:                         November 20, 2000

8.    Financial Covenants:

<PAGE>

      (a)   Capital Expenditure
            Limitation:                              Not Applicable

      (b)   Minimum Net Worth
            Requirement:                             Not Applicable

      (c)   Minimum Tangible
            Net   Worth:                             Not Applicable

      (d)   Minimum Working
            Capital:                                 Not Applicable

      (e)   Maximum Cumulative
            Net   Loss:                              Not Applicable

      (f)   Minimum Cumulative
            Net   Income:                            Not Applicable

      (g)   Maximum Leverage
            Ratio:                                   Not Applicable

      (I)   Limitation on
            Equipment Leases:                        Not Applicable

      (h)   Limitation on
            Purchase Money                           Not Applicable
            Security Interests:                      Not Applicable

      (j)   Additional Financial
            Covenants:                               Not Applicable

9.    Borrower Information:

      (a)   Prior Names of                           None
            Borrower:

      (b)   Prior Trade Names of                     None
            Borrower:

      (c)   Existing Trade Names                     None
            of    Borrower

      (d)   Inventory Locations:                     54A Hackensack Avenue
                                                     River Terminal
                                                     Kearny, New Jersey 09032

      (e)   Other Locations:                         4425a First Avenue
                                                     Brooklyn, New York 11232

<PAGE>

      (f)   Litigation:                              Borrower    is    currently
                                                     involved   in  a  workmen's
                                                     compensation claim which is
                                                     not    material    to   the
                                                     financial    condition   or
                                                     operation  of the  business
                                                     of Borrower

      (g)   Ownership of                             Andrew Gordon - 21%
            Borrower:                                David Gordon - 21%
                                                     Rachelle Gordon - 58%
                                                     Grantor Retained
                                                     Annuity Trust

      (h)   Subsidiaries (and                        None
            ownership thereof):

      (i)   Facsimile Numbers:

            Borrower:                                718-832-0892

            Lender:                                  212-597-1666

10.   Description of Real Property:                  None

11.   Lender's Bank:                                 First Chicago NBD

12.   Other Covenants:                               None

13.   Exceptions to Negative                         None
      Covenants:

      IN WITNESS WHEREOF,  Borrower and Lender have signed this Schedule A as of
the date set forth in the heading to the Agreement.

Borrower:                                       Lender:

COFFEE HOLDING CO., INC.                        NAITIONSCREDIT COMMERCIAL
                                                CORPORATION, THROUGH ITS
                                                NATIONSCREDIT COMMERCIAL
                                                FUNDING DIVISION

By_______________________                       By_________________________
Name_____________________                       Its Authorized Signatory
Title____________________

<PAGE>

                                   Schedule B

                                   Definitions

      This  Schedule  is an  integral  pan of the  Loan and  Security  Agreement
between  COFFEE  HOLDING CO.,  INC. and  NATIONSCREDTT  COMMERCIAL  CORPORATION,
THROUGH ITS NATIONSCREDTT COMMERCIAL FUNDING DIVISION ("Agreement")

      As used in the Agreement. the following terms have the following meanings:

      "Account"  means any  right to  payment  for  Goods  sold or leased or for
services  rendered  which is not evidenced by an  Instrument  or Chattel  Paper;
whether or not it has been earned by performance.

      "Account Debtor" means the obligor on an Account or Chattel Paper.

      "Account Proceeds" has the meaning set forth in Section 4.1.

      "Affiliate"  means,  with  respect to any  Person,  a  relative,  partner,
shareholder, member, manager, director, officer, or employee of such Person, any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person or any other Person  affiliated,  directly
or  indirectly,  by  virtue  of  family  membership,  ownership,  management  or
otherwise.

      "Agreement" and "this  Agreement" mean the Loan and Security  Agreement of
which this Schedule B is a part and the Schedules thereto.

      "Availability" has the meaning set forth in Section 1.1(a).

      "Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.ss.101
et seq.), as the same may be amended from time to time.

      "Blocked Account" has the meaning set forth in Section 4.1.

      "Borrower" has the meaning set forth in the heading to the Agreement.

      "Borrower's  Address"  has the  meaning  set forth in the  heading  to the
Agreement.

      "Business  Day" means a day other  than a Saturday  or Sunday or any other
day on which Lender or banks in New York are authorized to close.

      "Chattel Paper" has the meaning set forth in the UCC.

      "Collateral"  means all  property and  interests  in property,  in or upon
which a security interest or other Lien is granted pursuant to this Agreement or
the other Loan Documents.

      "Credit Accommodation" has the meaning set forth in Section 1.1(a).

<PAGE>

      "Credit Accommodation  Balance" means the sum of (i) the aggregate undrawn
face amount of all outstanding Credit Accommodations and (ii) all interest, fees
and costs due or, in  Lenders  estimation,  likely to become  due in  connection
therewith.

      "Default"  means any event which with notice or passage of time,  or both,
would constitute an Event of Default.

      "Default Rate" has the meaning set forth in Section 2.1.

      "Deposit Account" has the meaning set forth in the UCC.

      "Dilution  Percentage" means the gross amount of all returns,  allowances,
discounts, credits, write-offs and similar items relating to Borrower's Accounts
computed as a percentage of Borrower's gross sales,  calculated on a ninety (90)
day rolling average.

      "Document" has the meaning set forth in the UCC.

      "Early Termination Fee" has the meaning set forth in Section 7.2.

      "Eligible  Account" means, at any time of determination,  an Account which
satisfies the general criteria set forth below and which is otherwise acceptable
to Lender (provided, that Lender may, in its sole discretion, change the general
criteria for  acceptability  of Eligible  Accounts  upon at least  fifteen days'
prior  notice to  Borrower).  An  Account  shall be  deemed to meet the  current
general  criteria if (1) neither the Account Debtor nor any of its Affiliates is
an Affiliate,  creditor or supplier of Borrower;  (ii) it does not remain unpaid
more than the  earlier  to occur of (A) the  number of days  after the  official
invoice  date set forth in Section  5(a) of Schedule A or (B) the number of days
after the  original  invoice  due date set forth in Section  5(b) of Schedule A;
(iii) the Account  Debtor or its  Affiliates  are not past due on other Accounts
owing to  Borrower  comprising  more  than 50% of all of the  Accounts  owing to
Borrower by such Account  Debtor or its  Affiliates;  (iv) all Accounts owing by
the  Account  Debtor or its  Affiliates  do not  represent  more than 20% of all
otherwise  Eligible  Accounts  (except  in the  case of the  Preferred  Products
Account,  which  Account  may  represent  up to 25% of  all  otherwise  Eligible
Accounts)  (provided,  that Accounts which are deemed to be ineligible solely by
reason of this clause (iv) shall be considered  Eligible  Accounts to the extent
of the  amount  thereof  which does not  exceed  20% of all  otherwise  Eligible
Accounts);  (v) no  covenant,  representation  or  warranty  contained  in  this
Agreement with respect to such Account (including any of the representations set
forth in Section 5.4) has been breached;  (vi) the Account is not subject to any
contra relationship,  counterclaim,  dispute or set-off (provided, that Accounts
which are deemed to be ineligible  solely by reason of this clause (vi) shall be
considered  Eligible  Accounts to the extent of the amount  thereof which is not
affected by such contra  relationships,  counterclaims,  disputes or  set-offs);
(vii) the Account Debtor's chief executive office or principal place of business
is located in the United  States or  Provinces  of Canada which have adopted the
Personal  Property  Security Act or a similar act,  unless (A) the sale is fully
backed by a letter of credit, guaranty or acceptance acceptable to Lender in its
sole discretion,  and if backed by a letter of credit, such letter of credit has
been issued or confined by a bank satisfactory to Lender, is sufficient to cover
such Account,  and if required by Lender,  the original of such letter of credit
has been delivered to Lender or Lenders agent and the issuer thereof notified of
the  assignment  of the  proceeds of such letter of credit to Lender or (B) such
Account is subject to credit  insurance  payable to Lender  issued by an insurer
and on terms and in an amount  acceptable  to  Lender;  (viii) it is  absolutely
owing to Borrower and does not arise from a sale on a bill-and-hold,  guarantied
sale,  sale-or-return,  sale-on-approval,  consignment,  retainage  or any other
repurchase  or return basis or consist of progress  billings;  (ix) Lender shall
have verified the Account in a manner  satisfactory  to Lender;  (x) the Account
Debtor is not the United States of America or any state or political subdivision
(or any  department,

<PAGE>

agency  or  instrumentality  thereof  unless  Borrower  has  compiled  with  the
Assignment of Claims Act of 1940 (31 U.S.C. ss. 203 et seq.) or other applicable
similar state or local law in a manner  satisfaction,  to Lender;  (xi) it is at
all times subject to Lenders duly perfected, fast priority security interest and
to no other Lien that is not a Permitted Lien, and the goods giving rise to such
Account (A) were not, at the time of sale,  subject to any Lien except Permitted
Liens and (B) have been delivered to and accepted by the Account Debtor,  or the
services  giving  rise to such  Account  have been  performed  by  Borrower  and
accepted by the Account  Debtor;  (xii) the Account is not  evidenced by Chattel
Paper or an Instrument of any kind and has not been reduced to judgment;  (xiii)
the Account  Debtor's total  indebtedness to Borrower does not exceed the amount
of any credit limit  established by Borrower or Lender and the Account Debtor is
otherwise deemed to be creditworthy by Lender (provided, that Accounts which are
deemed  to be  ineligible  solely  by  reason  of this  clause  (xiii)  shall be
considered  Eligible Accounts to the extent the amount of such Accounts does not
exceed  the  lower  of  such  credit  limits);  (xiv)  there  are  no  facts  or
circumstances existing, or which could reasonably be anticipated to occur, which
might result in any adverse change in the Account Debtor's  financial  condition
or impair or delay the  collectibility  of all or any  portion of such  Account;
(xv)  Lender  has  been  furnished  with all  documents  and  other  information
pertaining  to such Account  which Lender has  requested,  or which  Borrower is
obligated to deliver to Lender,  pursuant to this Agreement;  (xvi) Borrower has
not made an  agreement  with the  Account  Debtor to extend  the time of payment
thereof beyond the time periods set forth in clause (ii) above without the prior
written consent of Lender,  and (xvii) Borrower has not posted a surety or other
bond in respect of the contract under which such Account arose.

      "Eligible Equipment" means, at any time of determination,  Equipment owned
by Borrower  which  Lender,  in its sole  discretion,  deems to be eligible  for
borrowing purposes.

      "Eligible Inventory" means, at any time of determination, Inventory (other
than packaging  materials and supplies) which satisfies the general criteria set
forth below and which is otherwise  acceptable to Lender (provided,  that Lender
may, in its sole discretion,  change the general  criteria for  acceptability of
Eligible  Inventory  upon  at  least  fifteen  days'  prior  written  notice  to
Borrower). Inventory shall be deemed to meet the current general criteria if (i)
it consists of raw  materials  or finished  goods,  or  work-in-process  that is
readily  marketable  in its current form;  (ii) it is in good,  new and saleable
condition;  (iii) it is not slow-moving  obsolete,  unmerchantable,  returned or
repossessed;  (iv) it is not in the  possession  of a  processor,  consignee  or
bailee,  or located on premises leased or subleased to Borrower,  or on premises
subject  to a  mortgage  in favor of a Person  other than  Lender,  unless  such
processor,  consignee,  bailee or  mortgagee  or the lessor or sublessor of such
premises, as the case may be, has executed and delivered all documentation which
Lender  shall  require to evidence  the  subordination  or other  limitation  or
extinguishment  of such  Person's  rights  with  respect to such  Inventory  and
Lender's right to gain access thereto; (v) it meets all standards imposed by any
governmental  agency or  authority;  (vi) it  conforms  in all  respects  to any
covenants,  warranties and representations set forth in the Agreement;  (vii) it
is at all times subject to Lender's duly  perfected,  first  priority  security,
interest and no other Lien except a Permitted Lien; and (viii) it is situated at
an Inventory  Location listed in Section 9(d) of Schedule A or other location of
which Lender has been notified as required by Section 5.6.

      "Eligible  Real  Property"  means,  at any  time  of  determination,  Real
Property owned by Borrower  which Lender,  in its sole  discretion,  deems to be
eligible for borrowing purposes.

      "Equipment"  means all Goods which are used or bought for use primarily in
business  (including farming or a profession) or by a Person who is a non-profit
organization or governmental subdivision or agency, and which are not Inventory,
farm products or consumer goods, including all machinery,  molds, machine tools,
motors,  furniture,  equipment,  furnishings,  fixtures,  trade fixtures,  motor
vehicles,  tools,  pans,  dies  and  jigs,  and  all  attachments,  accessories,
accessions, replacements,  substitutions, additions or improvements to, or spare
parts for, any of the foregoing.

<PAGE>

      "Equipment Advance" has the meaning set forth in Section 1.1(b).

      "ERISA" means the Employee  Retirement Income Security Act of 1974 and all
roles, regulations and orders promulgated thereunder.

      "Event of Default" has the meaning set forth in Section 8.1.

      "GAAP" means generally  accepted  accounting  principles as in effect from
time to time, consistently applied.

      "General  Intangibles"  has the meaning set forth in the UCC, and includes
all books and  records  pertaining  to the  Collateral  and other  business  and
financial records in the possession of Borrower or any other Person, inventions,
designs,  drawings,  blueprints,   patents,  patent  applications,   trademarks,
trademark applications (other than "intent to use" applications until a verified
statement of use is filed with respect to such applications) and the goodwill of
the business  symbolized thereby,  names, trade names, trade secrets,  goodwill,
copyrights,  registrations,  licenses, franchises,  customer lists, security and
other deposits, causes of action and other rights in all litigation presently or
hereafter  pending  for  any  cause  or  claim  (whether  in  contract,  tort or
otherwise),  and all judgments  now or hereafter  arising  therefrom,  rights to
purchase or sell real or personal  property  rights  licensor or licensee of any
kind, telephone numbers, internet addresses, proprietary,  information, purchase
orders, and all insurance policies and claims (including life insurance, key man
insurance, credit insurance,  liability insurance,  property insurance and other
insurance),  tax refunds and claims, letters of credit, banker's acceptances and
guaranties,  computer programs, discs, tapes and tape files in the possession of
Borrower or any other Person,  claims under  guaranties,  security  interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature.

      "Goods"  means all  things  which  are  movable  at the time the  security
interest   attaches  or  which  are  fixtures  (other  than  money,   Documents,
Instruments,  Investment Property Accounts,  Chattel Paper, General Intangibles,
or minerals or the like  (including oil and gas) before  extraction),  including
standing  timber which is to be cut and removed  under a conveyance  or contract
for sale, the unborn young of animals, and growing crops.

      "Initial Term" has the meaning set forth in Section 7.1.

      "Instrument" has the meaning set forth in the UCC.

      "Inventory"  means all Goods held for sale or lease or  furnished or to be
furnished  under  contracts of service,  including  all raw  materials,  work in
process,  finished goods,  goods in transit and materials and supplies which are
or  might be used or  consumed  in a  business  or used in  connection  with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all  products  of the  foregoing,  and  shall  include  interests  in  goods
represented by Accounts,  returned, reclaimed or repossessed goods and rights as
an unpaid vendor.

      "Investment  Property"  shall mean all of Borrower's  securities,  whether
certificated or uncertificated,  securities  entitlements,  securities accounts,
commodity contracts and commodity accounts.

      "Lender" has the meaning set forth in the heading to the Agreement.

<PAGE>

      "Lien" means any interest in property securing an obligation owed to, or a
claim by, a Person other than the owner of the  property,  whether such interest
is based on common law,  statute or contract,  including rights of sellers under
conditional  sales  contracts or title  retention  agreements and  reservations,
exceptions,  encroachments,  easements,  rights-of-way,  covenants,  conditions,
restrictions,  leases and other  title  exceptions  and  encumbrances  affecting
property. For the purpose of this Agreement,  Borrower shall be deemed to be the
owner of any property  which it has acquired or holds  subject to a  conditional
sale agreement or other arrangement  pursuant to which title to the property has
been retained by or vested in some other Person for security purposes.

      "Lien" has the meaning set forth in Section 2.4.

      "Loan  Account"  means the  Agreement and all notes,  Agreement,  security
agreements,  certificates,  landlord's agreements,  Lock Box and Blocked Account
agreements and all other agreements,  documents and instruments now or hereafter
executed or  delivered  by Borrower or any  Obligor in  connection  with,  or to
evidence the transactions contemplated by this Agreement.

      "Loan Limits" means,  collectively,  the Availability limits and all other
limits  on the  amount  of Loans  and  Credit  Accommodations  set forth in this
Agreement.

      "Loans" means, collectively, the Revolving Loans and any Term Loan.

      "Lock Box" has the meaning set forth in Section 4.1.

      "Maturity Date" has the meaning set forth in Section 7.1.

      "Obligations"  means  all  present  and  future  Loans,  advances,  debts,
liabilities,  obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Lender,  whether  evidenced  by this  Agreement or any
other Loan Document,  whether arising from an extension of credit,  opening of a
Credit  Accommodation,  guaranty,  indemnification  or otherwise  (including all
fees,  costs  and  other  amounts  which  may be  owing  to  issuers  of  Credit
Accommodations  and all  taxes,  duties,  freight,  insurance,  costs  and other
expenses,  costs or amounts payable in connection with Credit  Accommodations or
the underlying goods),  whether direct or indirect  (including those acquired by
assignment and any participation by Lender in Borrower's  indebtedness  owing to
others),  whether  absolute or  contingent,  whether  due or to become due,  and
whether  arising  before or after the  commencement  of a  proceeding  under the
Bankruptcy  Code  or any  similar  statute,  including  all  interest,  charges,
expenses,  fees,  attorney's fees,  expert witness fees,  audit fees,  letter of
credit fees, loan fees, Early Termination  Fees,  Minimum Borrowing Fees and any
other sums  chargeable to Borrower  under this Agreement or under any other loan
Document.

      "Obligor" means any guarantor,  endorser, acceptor, surety or other person
liable  on,  or with  respect  to,  the  Obligations  or who is the owner of any
property which is security for the Obligations, other than Borrower.

      "Permitted Liens" means: (i) purchase money security interests in specific
items of Equipment  in an aggregate  amount net to exceed the limit set forth in
Section  8(h) of Schedule A; (ii) leases of specific  items of  Equipment  in an
aggregate  amount not to exceed the limit set forth in Section  8(i) of Schedule
A; (iii) Liens for taxes not yet due and payable;  (iv)  additional  Liens which
are fully  subordinate to the security  interests of Lender and are consented to
in writing by Lender; (v) security interests being terminated  concurrently with
the  execution  of  this  Agreement;  (vi)  Liens  of  materialmen,   mechanics,
warehousemen or carriers arising in the ordinary course of business and securing
obligations  which are not  delinquent;  (vii) Liens

<PAGE>

incurred  in  connection  with the  extension,  renewal  or  refinancing  of the
indebtedness secured by Liens of the type described in clause (i) or (ii) above;
provided,  that any  extension,  renewal or  replacement  Lien is limited to the
property  encumbered  by the  existing  Lien  and the  principal  amount  of the
indebtedness  being extended,  renewed or refinanced  does not increase;  (viii)
Liens in favor of  customs  and  revenue  authorities  which  secure  payment of
customs  duties in  connection  with the  importation  of goods;  (ix)  security
deposits posted in connection with real property,  leases or subleases;  and (x)
Liens existing on the date of this Agreement which are listed,  and the property
subject thereto  described,  in Schedule C but only to the,  respective date, if
any, set forth in such  Schedule C for the removal and  termination  of any such
Liens.  Lender  will have the right to require,  as a  condition  to its consent
under  clause  (iv)  above,  that the  holder  of the  additional  Lien  sign an
interereditor  agreement in form and substance  satisfactory  to Lender,  in its
sole  discretion,  acknowledging  that the Lien is  subordinate  to the security
interests  of  Lender,  and  agreeing  not to take any  action  to  enforce  its
subordinate  Lien  so long  as any  Obligations  remain  outstanding,  and  that
Borrower  agree  that any  uncured  default  in any  obligation  secured  by the
subordinate lien shall also constitute an Event of Default under this Agreement.

      "Person" means an, individual,  sole  proprietorship,  partnership,  joint
venture,   limited  liability  company,  trust,   unincorporated   organization,
association,  corporation,  government  or  any  agency  or  political  division
thereof, or any other entity.

      "Prime  Rate"  means,  at any given time,  the prime rate as quoted in The
Wall Street  Journal as the base rate on corporate  loans posted as of such time
by at least 75% of the nation's 30 largest banks (which rate is not  necessarily
the lowest rate offered by such banks).

      "Real  Property"  means  the real  property  described  in  Section  10 of
Schedule A.

      "Real Property Advance" has the meaning set forth in Section 1.1(b).

      "Released Parties" has the meaning set forth in Section 6.1.

      "Renewal Terms" has the meaning set forth in Section 7.1.

      "Reserves" has the meaning set forth in Section 1.2.

      "Revolving Loans" has the meaning set forth in Section 1.1(a).

      "Sale" has the meaning set forth in Section 8.2.

      "Subsidiary" means any corporation or other entity of which a Person owns,
directly or indirectly,  through one or more  intermediaries,  more than 50 % of
the capital stock or other equity interest at the time of determination.

      "Term"  means the  period  commencing  on the date of this  Agreement  and
ending on the Maturity Date.

      "Term Loan" has the meaning set forth in Section 1.1(b).

      "UCC" means, at any given time, the Uniform Commercial Code as adopted and
in effect at such time in the State of New York.

<PAGE>

      All accounting terms used in this Agreement,  unless otherwise  indicated,
shall have the meanings  given to such terms in accordance  with GAAP. All other
terms contained in this Agreement,  unless otherwise  indicated,  shall have the
meanings provided by the UCC, to the extent such terms are defined therein.  The
term "including," whenever used in this Agreement, shall mean "including but not
limited to." The singular  form of any term shall  include the plural form,  and
vice versa,  when the context so requires.  References to Sections,  subsections
and  Schedules  are to  Sections  and  subsections  of, and  Schedules  to, this
Agreement.   All  references  to  agreements  and  statutes  shall  include  all
amendments thereto and successor statutes in the case of statutes.

      IN WITNESS WHEREOF,  Borrower and Lender have signed this Schedule B as of
the date set forth in the heading to the Agreement.

Borrower:                                       Lender:

COFFEE HOLDING CO., INC.                        NATIONSCREDIT COMMERCIAL
                                                CORPORATION, THROUGH ITS
                                                NATIONSCREDIT COMMERCIAL
                                                FUNDING DIVISION

By_______________________                       By_________________________
Name_____________________                       Its Authorized Signatory
Title____________________

<PAGE>

      IN WITNESS WHEREOF,  Borrower and Lender have signed this Schedule C as of
the date set forth in the heading to the Agreement.

Borrower:                                       Lender:

COFFEE HOLDING CO., INC.                        NATIONSCREDIT COMMERCIAL
                                                CORPORATION, THROUGH ITS
                                                NATIONSCREDIT COMMERCIAL
                                                FUNDING DIVISION

By_______________________                       By_________________________
Name_____________________                       Its Authorized Signatory
Title____________________<PAGE>   1
                                                                     Exhibit 4.1

===============================================================================

                       FLEET HOME EQUITY LOAN CORPORATION,
                                  as Depositor

                                       and

                                      [ ],
                             as Seller and Servicer

                                       and

                                      [ ],
                                   as Trustee

                             -----------------------

                         POOLING AND SERVICING AGREEMENT

                                 Dated as of [ ]

                             ----------------------

                 [ ] Home Equity Loan Asset-Backed Certificates

                                  Series 200_-_

===============================================================================
<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                      PAGE

                                   ARTICLE I.
                                   Definitions
<S>                                                                                                     <C>
Section 1.01  Definitions...........................................................................      1
Section 1.02  Interest Calculations.................................................................     17

                                   ARTICLE II.
Conveyance of Mortgage Loans; Original Issuance of Certificates; Tax Treatment

Section 2.01  Conveyance of Mortgage Loans..........................................................     17
Section 2.02  Acceptance by Trustee.................................................................     20
Section 2.03  Representations and Warranties Regarding the Seller and the Servicer..................     21
Section 2.04  Representations and Warranties of the Seller Regarding the Mortgage Loans.............     23
Section 2.05  Representations and Warranties of the Depositor.......................................     28
Section 2.06  Substitution of Mortgage Loans........................................................     29
Section 2.07  Execution and Authentication of Certificates..........................................     30

                                  ARTICLE III.
                 Administration and Servicing of Mortgage Loans

Section 3.01  The Servicer..........................................................................     30
Section 3.02  Collection of Certain Mortgage Loan Payments..........................................     32
Section 3.03  Withdrawals from the Collection Account...............................................     33
Section 3.04  Maintenance of Hazard Insurance; Property Protection Expenses.........................     34
Section 3.05  Maintenance of Mortgage Impairment Insurance..........................................     35
Section 3.06  [Reserved]............................................................................     35
Section 3.07  Management and Realization Upon Defaulted Mortgage Loans..............................     35
Section 3.08  Trustee to Cooperate..................................................................     36
Section 3.09  Servicing Compensation; Payment of Certain Expenses by Servicer.......................     37
Section 3.10  Annual Statement as to Compliance.....................................................     37
Section 3.11  Annual Servicing Report...............................................................     38
Section 3.12  Access to Certain Documentation and Information Regarding the Mortgage Loans..........     38
Section 3.13  [Reserved]............................................................................     38
Section 3.14  [Reserved]............................................................................     38
Section 3.15  Reports of Foreclosures and Abandonments of Mortgaged Properties,
              Returns Relating to Mortgage Interest Received from Individuals
              and Returns Relating to Cancellation of Indebtedness. ................................     38
Section 3.16  Advances by the Servicer..............................................................     38
Section 3.17  [Reserved]............................................................................     39
Section 3.18  Assumption Agreements.................................................................     39
</TABLE>

                                       i
<PAGE>   3
<TABLE>
<S>                                                                                                      <C>
Section 3.19  Payment of Taxes, Insurance and Other Charges.........................................     39
Section 3.20  Optional Purchase of Defaulted Mortgage Loans.........................................     39
Section 3.21  Compensating Interest.................................................................     40

                                   ARTICLE IV.
                        [The Certificate Insurance Policy

Section 4.01  The Certificate Insurance Policy......................................................     40
Section 4.02  [Reserved]............................................................................     41
Section 4.03  Claims Upon the Certificate Insurance Policy..........................................     41

                                   ARTICLE V.
  Payments and Statements to Certificateholders; Rights of Certificateholders

Section 5.01  Distributions.........................................................................     41
Section 5.02  [Reserved]............................................................................     43
Section 5.03  Statements............................................................................     43
Section 5.04  Distribution Account..................................................................     46
Section 5.05  Investment of Accounts................................................................     46

                                   ARTICLE VI.
                                The Certificates

Section 6.01  The Certificates......................................................................     47
Section 6.02  Registration of Transfer and Exchange of Certificates.................................     47
Section 6.03  Mutilated, Destroyed, Lost or Stolen Certificates.....................................     49
Section 6.04  Persons Deemed Owners.................................................................     50
Section 6.05  Appointment of Paying Agent...........................................................     50
Section 6.06  Restrictions on Transfer of Ownership Interest........................................     50

                                  ARTICLE VII.
                   The Seller, the Servicer and the Depositor

Section 7.01  Liability of the Seller, the Servicer and the Depositor...............................     52
Section 7.02  Merger or Consolidation of, or Assumption of the Obligations of,
              the Seller, the Servicer or the Depositor. ..........................................      52
Section 7.03  Limitation on Liability of the Servicer and Others....................................     52
Section 7.04  Servicer Not to Resign................................................................     53
Section 7.05  Delegation of Duties..................................................................     53
Section 7.06  Indemnification of the Trust by the Servicer..........................................     53

                                  ARTICLE VIII.
                                     Default

Section 8.01  Events of Default.....................................................................     54
Section 8.02  Trustee to Act; Appointment of Successor..............................................     56
Section 8.03  Waiver of Defaults....................................................................     57
</TABLE>

                                       ii
<PAGE>   4
<TABLE>
<S>                                                                                                      <C>
Section 8.04  Notification to Certificateholders....................................................     57
Section 8.05  Rights of the Certificate Insurer to Exercise Rights of Class A Certificateholders....     57
Section 8.06  Trustee to Act Solely with Consent of the Certificate Insurer.........................     58
Section 8.07  Mortgage Loans, Trust and Accounts Held for Benefit of the Certificate Insurer........     58
Section 8.08  Certificate Insurer Default...........................................................     59

                                   ARTICLE IX.
                                   The Trustee

Section 9.01  Duties of Trustee.....................................................................     59
Section 9.02  Certain Matters Affecting the Trustee.................................................     61
Section 9.03  Trustee Not Liable for Certificates or Mortgage Loans.................................     62
Section 9.04  Trustee May Own Certificates..........................................................     63
Section 9.05  Servicer to Pay Trustee Fees and Expenses.............................................     63
Section 9.06  Eligibility Requirements for Trustee..................................................     64
Section 9.07  Resignation or Removal of Trustee.....................................................     64
Section 9.08  Successor Trustee.....................................................................     65
Section 9.09  Merger or Consolidation of Trustee....................................................     65
Section 9.10  Appointment of Co-Trustee or Separate Trustee.........................................     66
Section 9.11  Limitation of Liability...............................................................     67
Section 9.12  Trustee May Enforce Claims Without Possession of Certificates; Inspection.............     67
Section 9.13  Suits for Enforcement.................................................................     68
Section 9.14  Reports to the Commission.............................................................     68

                                   ARTICLE X.
                                   Termination

Section 10.01 Termination...........................................................................     68

                                   ARTICLE XI.
                            Miscellaneous Provisions

Section 11.01 Amendment.............................................................................     70
Section 11.02 Recordation of Agreement..............................................................     71
Section 11.03 Limitation on Rights of Certificateholders............................................     71
Section 11.04 Governing Law.........................................................................     72
Section 11.05 Notices...............................................................................     72
Section 11.06 Severability of Provisions............................................................     73
Section 11.07 Assignment............................................................................     74
Section 11.08 Certificates Nonassessable and Fully Paid.............................................     74
Section 11.09 Third-Party Beneficiaries.............................................................     74
Section 11.10 Counterparts..........................................................................     74
Section 11.11 Effect of Headings and Table of Contents..............................................     74
</TABLE>

                                      iii
<PAGE>   5
<TABLE>
<S>                                                                                                     <C>
EXHIBIT A      FORM OF REGULAR CERTIFICATE.......................................................          A-1
EXHIBIT B   -  [Reserved]........................................................................          B-1
EXHIBIT C   -  MORTGAGE LOAN SCHEDULE............................................................          C-1
EXHIBIT D   -  MONTHLY INFORMATION DELIVERED TO TRUSTEE..........................................          D-1
EXHIBIT E   -  [Reserved]
EXHIBIT F   -  LETTER OF REPRESENTATIONS.........................................................          F-1
EXHIBIT G   -  FORM OF REQUEST FOR RELEASE.......................................................          G-1
EXHIBIT H   -  [Reserved]
EXHIBIT I   -  [Reserved]
EXHIBIT J   -  LIST OF SERVICING OFFICERS........................................................          J-1
EXHIBIT K   -  CLOSING LETTER....................................................................          K-1
EXHIBIT L   -  FORM OF CERTIFICATE INSURANCE POLICY..............................................          L-1
EXHIBIT M-1    CERTIFICATION AS TO ASSIGNMENTS...................................................        M-1-1
EXHIBIT M-2    CERTIFICATION AS TO MORTGAGE FILE
               (OTHER THAN ASSIGNMENTS)..........................................................        M-2-1
</TABLE>

                                       iv
<PAGE>   6
         This Pooling and Servicing Agreement, dated as of [ ], among Fleet Home
Equity Loan Corporation, as Depositor (the "Depositor"), and [ ], as Seller (in
such capacity, the "Seller") and as Servicer (in such capacity, the "Servicer"),
and [ ], as Trustee (the "Trustee").

         In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:

                                   ARTICLE I.

                                   Definitions

         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.

         Accounts: Collectively, the Collection Account and the Distribution
Account.

         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 and exhibits hereto.

         Appraised Value: The appraised value of the Mortgaged Property based
upon the appraisal made by or for the originator at the time of the origination
of the related Mortgage Loan.

         Assignment Event: The th day following either (i) the occurrence and
continuance of an Event of Default, (ii) a Rating Downgrade Event, [(iii) the
declaration of an Assignment Event by the Certificate Insurer, pursuant to
Section 2.01] or (iv) with respect to a particular Mortgage Loan, the occurrence
of a foreclosure proceeding or the insolvency of the related Mortgagor.

         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.

         Available Funds: As to any Distribution Date, the sum of (A) the sum of
all amounts described in clauses (i) through (vii) inclusive, of Section 3.02(b)
received by the Servicer (including any amounts paid by the Servicer and the
Seller and excluding (a) any amounts not required to be deposited in the
Collection Account pursuant to Section 3.02(b) and (b) any

                                       1
<PAGE>   7
amounts paid to the Servicer or withdrawn by the Trustee pursuant to Sections
3.03(ii), (iii), (iv), (v), (vi), (vii) and (viii) in respect of the Mortgage
Loans) during the related Due Period and deposited into the Collection Account,
(B) Insured Payments, if any, and (C) any Termination Price with respect to the
Mortgage Loans deposited to the Distribution Account pursuant to Section
10.01(a). No amount included in this definition by virtue of being described by
any component of the definition thereof shall be included twice by virtue of
also being described by any other component or otherwise.

         [Balloon Loans: Any Mortgage Loan that provided for monthly payments
which would not be sufficient to fully amortize its Principal Balance on the
related maturity date.]

         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 Agreement the Bank Insurance Fund
is not existing and performing duties now assigned to it, the body performing
such duties on such date.

         Book-Entry Certificate: The Class A Certificates 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 States of New York, or the state in
which the Corporate Trust Office is located are required or authorized by law or
executive order to be closed.

         Certificate: Any Class A.

         [Certificate Insurance Policy: The Certificate Guaranty Insurance
Policy (No. [ ]) with respect to the Class A Certificates and all endorsements
thereto dated the Closing Date, issued by the Certificate Insurer to the Trustee
for the benefit of the Holders of each Class of Class A Certificates, a copy of
which is attached hereto as Exhibit L.]

         [Certificate Insurer: [ ], a stock insurance company organized and
created under the laws of the State of [ ], or any successor thereto.]

         [Certificate Insurer Default: (i) Any failure of the Certificate
Insurer to make a payment required under the Certificate Insurance Policy in
accordance with its terms; (ii) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Certificate
Insurer in an involuntary case or proceeding under any applicable United States
federal or state bankruptcy, insolvency, rehabilitation, reorganization or other
similar law or (B) a decree or order adjudging the Certificate Insurer as
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, rehabilitation, arrangement, adjustment or composition of or in
respect of the Certificate Insurer under any applicable United States federal or
state law, or appointing a custodian, receiver, liquidator, rehabilitator,
assignee, trustee, sequestrator or other similar official of the Certificate
Insurer or of any substantial part of its

                                       2
<PAGE>   8
property, or ordering the winding-up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other decree or
order unstayed and in each case in effect for a period of 60 consecutive days;
or (iii) the commencement by the Certificate Insurer of a voluntary case or
proceeding under any applicable United States federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated as bankrupt or insolvent, or the consent by the
Certificate Insurer to the entry of a decree or order for relief in respect of
the Certificate Insurer in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or insolvency case
or proceeding against the Certificate Insurer, or the filing by the Certificate
Insurer of a petition or answer or consent seeking reorganization or relief
under any applicable United States federal or state law, or the consent by the
Certificate Insurer to the filing of such petition or to the appointment of or
the taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Certificate Insurer or of any
substantial part of its property, or the making by the Certificate Insurer of an
assignment for the benefit of its creditors, or the failure by the Certificate
Insurer to pay debts generally as they become due, or the admission by the
Certificate Insurer in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Certificate Insurer in
furtherance of any such action.]

         Certificate Owner: The Person who is the beneficial owner of a
Book-Entry Certificate.

         Certificate Rate: [ ].

         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 Certificates registered in the name of the Depositor, the Seller, the
Servicer or any Person actually known to a Responsible Officer of the Trustee to
be an Affiliate of the Depositor, the Seller or the Servicer and (y) any
Certificates for which the Depositor, the Seller, the Servicer or any Person
actually known to a Responsible Officer of the Trustee to be an Affiliate of the
Depositor, the Seller or the Servicer is the Certificate Owner or Holder shall
be deemed not to be outstanding (unless to the actual knowledge of a Responsible
Officer of the Trustee (i) the Depositor, the Seller or the Servicer or such
Affiliate is acting as trustee or nominee for a Person who is not an Affiliate
of the Depositor, the Seller or the Servicer and who makes the voting decision
with respect to such Class of Certificates or (ii) the Depositor, the Seller or
the Servicer or such Affiliate is the Certificate Owner or Holder of all the
Certificates of a Class, but only with respect to the Class as to which the
Depositor, the Seller or the Servicer or such Affiliate owns all the
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.

                                       3
<PAGE>   9
         Civil Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940,
as amended.

         Civil Relief Act Interest Shortfall: With respect to any Distribution
Date, for any Mortgage Loan as to which there has been a reduction in the amount
of interest collectible thereon for the most recently ended Due Period as a
result of the application of the Civil Relief Act, the amount by which (i)
interest collectible on such Mortgage Loan during such Due Period is less than
(ii) one month's interest on the Principal Balance of such Mortgage Loan at the
Net Loan Rate for such Mortgage Loan before giving effect to the application of
the Civil Relief Act.

         Class A Certificate: Any Certificate executed and authenticated by the
Trustee and substantially in the form attached hereto as Exhibit A Certificate
pursuant to Section 6.01.

         Class A Certificateholder: A Holder of a Class A Certificate.

         Class A Monthly Principal Distributable Amount: [ ].

         Class A Principal Distribution Amount: [ ].

         Class Interest Carryover Shortfall: With respect to any Class A
Certificates and any Distribution Date, the amount by which the Class Interest
Distribution for each prior Distribution Date exceeded the amount of interest
actually distributed on such prior Distribution Dates.

         Class Interest Distribution: With respect to any Distribution Date and
Class A Certificates, the sum of (i) the Class Monthly Interest Distributable
Amount for such Class on such Distribution Date and (ii) the Outstanding Class
Interest Carryover Shortfall on such Distribution Date.

         Class Monthly Interest Distributable Amount: [ ].

         Class Principal Balance: As of any date of determination, the Original
Class Certificate Principal Balance reduced by .

         Closing Date:  [ ].

         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 pursuant to Section 3.02(b). The Collection Account shall be an
Eligible Account.

         Combined Loan-to-Value Ratio or CLTV: With respect to any Mortgage
Loan, (i) the sum of the original principal balance of such Mortgage Loan and
the outstanding principal balance of the First Lien, if any, as of the date of
origination of the Mortgage Loan, divided by the (ii) the lesser of (a)
Appraised Value or (b) the related purchase price for the related Mortgaged
Property, as applicable.

                                       4
<PAGE>   10
         Commission: The Securities and Exchange Commission.

         Compensating Interest: As to any Distribution Date, the amount
calculated pursuant to Section 3.21.

         Corporate Trust Office: The office of the Trustee at which at any
particular time its corporate business shall be principally administered, which
office on the Closing Date is located at [ ].

         CPR: The Constant Prepayment Rate, which represents an assumed constant
rate of prepayment each month, expressed as a per annum percentage principal
balance of the pool of Mortgage Loans for that month.

         Curtailment: With respect to a Mortgage Loan, any payment of principal
received during a Due Period as part of a payment that is in excess of the
amount of the Monthly Payment due for such Due Period and which is not intended
to satisfy the Mortgage Loan in full, nor is intended to cure a delinquency or
to be applied for subsequent Monthly Payments as and when the same come due
pursuant to directions from the Mortgagor to such effect.

         Cut-Off Date: The commencement of business on [ ].

         Cut-Off Date Pool Principal Balance: $[ ], which equals, as of the
Closing Date, the Pool Principal Balance.

         Cut-Off Date Principal Balance: With respect to any Mortgage Loan, the
unpaid principal balance thereof as of the Cut-Off Date (or as of the applicable
date of substitution with respect to an Eligible Substitute Mortgage Loan
pursuant to Section 2.02 or 2.04).

         Debt Service Reduction: As to any Mortgage Loan and any Determination
Date, the excess of (i) the installment of principal and interest due on the
related Due Date under the terms of such Mortgage Loan over (ii) the amount of
the monthly payment of principal and/or interest required to be paid by the
Mortgagor as established by a court of competent jurisdiction (pursuant to an
order which has become final and nonappealable) as a result of a proceeding
initiated by or against the related Mortgagor under the Bankruptcy Code, as
amended from time to time (11 U.S.C.).

         Defective Mortgage Loan: Any Mortgage Loan subject to repurchase or
substitution by the Seller pursuant to Section 2.02 or 2.04.

         Definitive Certificates: As defined in Section 6.02(c).

         Delinquency Percentage:

         Deposit Event: The lowering of the Servicer's short-term debt rating
below "P-1" by Moody's or "A-1" by S&P.

                                       5
<PAGE>   11
         Depositor: [Fleet Home Equity Loan Corporation], a Delaware
Corporation, or any successor thereto.

         Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is Cede & Co., as the registered Holder of Class A
Certificates evidencing $[ ], in initial aggregate principal amount of such
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 a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.

         Determination Date: With respect to the first Distribution Date, the
Closing Date and with respect to any other Distribution Date, the day of the
month in which such Distribution Date occurs (or if such day is not a Business
Day, the Business Day immediately succeeding such eighteenth day).

         Distributable Excess Spread: As to any Distribution Date, the lesser of
(i) the portion of Available Funds for such Distribution Date remaining after
the application thereof pursuant to Section 5.01 (a)(i)-(iv).

         Distribution Account: The account established by the Trustee pursuant
to Section 5.04. The Distribution Account shall be an Eligible Account.

         Distribution Date: The day of each month or, if such day is not a
Business Day, then the next Business Day, beginning in [ ] 200_.

         Due Date: As to any Mortgage Loan, the day of the month on which the
Monthly Payment is due from the Mortgagor exclusive of any days of grace.

         Due Period: With respect to each Distribution Date, the calendar month
preceding the month in which such Distribution Date occurs.

         Eligible Account:

         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 30 days from the date of acquisition
         thereof, provided however, that collateral

                                       6
<PAGE>   12
         transferred pursuant to such repurchase obligation must be of the type
         described in clause (a) above and must (i) be valued daily at current
         market price plus accrued interest, (ii) pursuant to such valuation, be
         equal, at all times, to 105% of the cash transferred by the Trustee in
         exchange for such collateral and (iii) be delivered to the Trustee or,
         if the Trustee is supplying the collateral, an agent for the Trustee,
         in such a manner as to accomplish perfection of a security interest in
         the collateral by possession of certified securities;

                  (iii) federal funds, certificates of deposit, time deposits
         and bankers' acceptances 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 S&P and Moody's in their
         respective highest unsecured short-term debt rating category and that
         each such investment has an original maturity of not more than 365
         days;

                  (iv) commercial paper (having original maturities of not more
         than 90 days) of any corporation incorporated under the laws of the
         United States or any state thereof which on the date of acquisition
         have been rated by S&P and Moody's in their respective highest
         short-term 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 S&P and Moody's in their respective
         highest rating category;

                  (vi) interests in any money market fund which at the date of
         acquisition of the interests in such fund and throughout the time as
         the interest is held in such fund has a rating of "AAA" by S&P and a
         rating of "Aaa" by Moody's; and

                  (vii) other obligations or securities that are acceptable to
         each Rating Agency and the Certificate Insurer as an Eligible
         Investment hereunder and will not result in a reduction in the then
         current rating of the Certificates, as evidenced by a letter to such
         effect from such Rating Agency and the Certificate Insurer and with
         respect to which the Servicer and the Trustee have 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.]

                                       7
<PAGE>   13
         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 Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not in excess of and not more than % less than the
Principal Balance of the 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 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; (iv) have
a remaining term to maturity not more than months earlier and not later than the
remaining term to maturity of the Defective Mortgage Loan; (v) comply with each
representation and warranty set forth in Section 2.04 (deemed to be made as of
the date of substitution); (vi) have an original Combined Loan-to-Value Ratio
[not greater] than that of the Defective Mortgage Loan; and (vii) be of the same
type of Mortgaged Property as the Defective Mortgage Loan or a detached single
family residence. 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.

         ERISA-Restricted Certificate: As defined in Section 6.02.

         Event of Default: As defined in Section 8.01.

         Excess Overcollateralization Amount: As to any Distribution Date, the
amount by which (i) the Overcollateralization Amount for such Distribution Date
exceeds (ii) the Targeted Overcollateralization Amount for such Distribution
Date.

         Exchange Act: The Securities Exchange Act of 1934, as amended.

         FDIC: The Federal Deposit Insurance Corporation or any successor
thereto.

         Fannie Mae: Fannie Mae, formerly known as The Federal National Mortgage
Association, or any successor thereto.

         Freddie Mac: Freddie Mac, formerly known as The Federal Home Loan
Mortgage Corporation, or any successor thereto.

         Final Scheduled Distribution Date: With respect to the Class A
Certificates, the Distribution Dates on: _________.

         First Lien: With respect to any Mortgage Loan which is a second
priority lien, the mortgage loan relating to the corresponding Mortgaged
Property having a first priority lien.

         Fiscal Agent: As defined in the Certificate Insurance Policy.

         Foreclosure Profits: With respect to a Liquidated Mortgage Loan, the
amount, if any, by which (i) the aggregate of its Net Liquidation Proceeds
exceeds (ii) the related Principal Balance

                                       8
<PAGE>   14
(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.

         [Guaranteed Principal Amount: For any Distribution Date (other than the
Distribution Date in [ ] 200_), the amount, if any, by which the Class Principal
Balance (after giving effect to all distributions of principal on the Class A
Certificates on such Distribution Date) exceeds the [Pool Principal Balance] at
the end of the previous month. For the Distribution Date in [ ] 200_, an amount
equal to the Class Principal Balance (after giving effect to all other
distributions of principal on the Class A Certificates on such Distribution
Date).]

         [Insurance Agreement: The Insurance Agreement dated as of [ ] among the
Depositor, the Seller, the Trustee, the Servicer and the Certificate Insurer,
including any amendments and supplements thereto.]

         Insurance Proceeds: Proceeds paid by any insurer [(other than the
Certificate Insurer)] pursuant to any insurance policy covering a Mortgage Loan
or Mortgaged Property, net of any component thereof (i) covering any expenses
incurred by or on behalf of the Servicer in connection with obtaining such
proceeds, (ii) 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.

         [Insured Payment: With respect to any Distribution Date, the sum of (i)
any Deficiency Amount and (ii) any Preference Amount.]

         Interest Period:

         [Late Payment Rate: As defined in the Insurance Agreement.]

         Liquidation Loan Losses: For each Liquidated Mortgage Loan, the amount,
if any, by which the Principal Balance thereof plus accrued and unpaid interest
thereon plus unreimbursed Servicing Advances is in excess of the Net Liquidation
Proceeds realized thereon.

         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 Due Period,
that all Liquidation Proceeds which it expects to recover with respect to the
liquidation of the Mortgage Loan or disposition of the related REO Property have
been recovered.

         Liquidation Proceeds: Proceeds (including Insurance Proceeds [but not
including amounts drawn under the Certificate Insurance Policy]) received in
connection with the liquidation of any Mortgage Loan or related REO Property,
whether through trustee's sale, foreclosure sale or otherwise (including rental
income).

                                       9
<PAGE>   15
         Loan Rate: With respect to any Mortgage Loan as of any day, the per
annum rate of interest applicable under the related Mortgage Note to the
calculation of interest for such day on the Principal Balance.

         [Loss Trigger Event: A Loss Trigger Event with respect to any
Distribution Date has occurred if cumulative Liquidation Loan Losses as of such
Distribution Date exceed the percentages of the Cut-Off Date Pool Principal
Balance set forth below with respect to such Distribution Date:

                                                      Percentage of the
                                                      Cut-Off Date Pool
Due Period                                            Principal Balance

         Lost Note Affidavit: The lost note affidavit signed by the Seller.

         Majority Certificateholder: The Holder or Holders of Class A
Certificates evidencing Percentage Interests in excess of 51%.

         Maximum Rate:

         Monthly Advance: An advance made by the Servicer pursuant to Section
3.16.

         Monthly Payment: The scheduled monthly payment of principal and/or
interest required to be made by a Mortgagor on the related Mortgage Loan.

         Monthly Report:  As defined in Section 5.03.

         Moody's: Moody's Investors Service, Inc., or its successors in
interest.

         Mortgage: The mortgage, deed of trust or other instrument creating a
first or second lien on an estate in fee simple interest in real property
securing a 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 constituting assets of the Trust. The Mortgage Loan Schedule is
the schedule set forth herein as Exhibit C, which schedule sets forth as to each
Mortgage Loan: (i) the Cut-Off Date Principal Balance, (ii) the account number,
(iii) the original principal amount, (iv) the name of the borrower, (v) the
interest rate, (vi) lien position, (vii) property state, (viii) property zip
code, (ix) property type and (x) Combined Loan-to-Value Ratio. The Mortgage Loan
Schedule will be

                                       10
<PAGE>   16
amended from time to time to reflect the substitution of an Eligible Substitute
Mortgage Loan for a Defective Mortgage Loan from time to time hereunder.

         Mortgage Loans: The mortgage loans that are transferred and assigned to
the Trustee on behalf of the Trust pursuant to Sections 2.01 and 2.06, together
with the Related Documents, exclusive of Mortgage Loans that are transferred to
the Seller, from time to time pursuant to Sections 2.02 and 2.06, as from time
to time are held as a part of the Trust, such mortgage loans originally so held
being identified in the Mortgage Loan Schedule delivered on the Closing Date.

         Mortgage Note: With respect to a Mortgage Loan, the note or other
evidence of indebtedness pursuant to which the related Mortgagor agrees to pay
the indebtedness evidenced thereby which is secured by the related Mortgage.

         Mortgaged Property: The underlying property, including real property
and improvements thereon, securing a Mortgage Loan.

         Mortgagor: The obligor or obligors under a Mortgage Note.

         Net Liquidation Proceeds: With respect to any Liquidated Mortgage Loan,
Liquidation Proceeds net of unreimbursed Servicing Fees, Servicing Advances and
Monthly Advances with respect thereto.

         Net Loan Rate: With respect to any Mortgage Loan as to any day, the
Loan Rate less the sum of the Servicing Fee Rate, [the Premium Percentage] and
the Trustee Fee Rate.

         [90 Day Delinquency Amount: For any Due Period, the aggregate of the
Principal Balances of all Mortgage Loans that are 90 or more days delinquent, in
bankruptcy, in foreclosure or REO Property as of the end of such Due Period.]

         [90 Day+ Rolling Average: With respect to any Distribution Date, the
average of the applicable 90 Day Delinquency Amounts for each of the [ ]
immediately preceding Due Periods.]

         Nonrecoverable Advances: With respect to any Mortgage Loan, (i) any
Servicing Advance or Monthly Advance previously made and not reimbursed pursuant
to Section 3.03(ii) or (ii) a Servicing Advance or Monthly Advance proposed to
be made in respect of a Mortgage Loan or REO Property which, in the good faith
business judgment of the Servicer, as evidenced by an Officer's Certificate
delivered to the [Certificate Insurer], the Seller and the Trustee no later than
the Business Day following such determination, would not be ultimately
recoverable pursuant to Sections 3.03(ii) or 3.03(vii).

         Officer's Certificate: A certificate signed by the President, an
Executive Vice President, a Senior Vice President, a First Vice President, a
Vice President, Assistant Vice President, the Treasurer, Assistant Treasurer,
the Secretary, an Assistant Secretary, Comptroller or Assistant

                                       11
<PAGE>   17
Comptroller or any other authorized officer of the Servicer or the Seller, as
the case may be, and delivered to the Trustee.

         Opinion of Counsel: A written opinion of counsel reasonably acceptable
to the Trustee, who may be in-house counsel for the Servicer, Seller or its
Affiliate (except that any opinion relating to the status of the Trust for
federal tax purposes must be an opinion of independent outside counsel) and who,
in the case of opinions delivered to each of the Rating Agencies and the
Certificate Insurer, is reasonably acceptable to each of them.

         Original Class Certificate Principal Balance: With respect to the Class
A Certificates, $[ ].

         Outstanding Class Interest Carryover Shortfall: With respect to the
Class A Certificates and any Distribution Date, the amount of Class Interest
Carryover Shortfall for such Distribution Date plus one month's interest
thereon, at the related Certificate Rate, to the extent permitted by law.

         Overcollateralization Amount: As to any Distribution Date, the excess,
if any, of (a) the [Pool Principal Balance,] as of the close of business on the
last day of the related Due Period over (b) the Class Principal Balance (after
giving effect to amounts available in respect of the Class A Monthly Principal
Distributable Amount for such Distribution Date).

         Overcollateralization Release Amount: As to any Distribution Date, an
amount equal to the lesser of (i) the related Excess Overcollateralization
Amount for such Distribution Date and (ii) Available Funds remaining after
making the distributions required to be made pursuant to Section 5.01(a)(i) and
(ii) on such Distribution Date.

         Ownership Interest: As to any Certificate or security interest in such
Certificate, any interest in such Certificate as the Holder thereof and any
other interest therein, whether direct or indirect, legal or beneficial, as
owner or as pledgee.

         Paying Agent:  Any paying agent appointed pursuant to Section 6.05.

         Percentage Interest: As to any Class of Regular Certificates, the
percentage obtained by dividing the principal denomination of such Certificate
by the aggregate of the principal denominations of all Certificates of the same
Class.

         Permitted Transferee:  Any Person other than _______.

         Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.

         Pool Principal Balance: With respect to any date, the aggregate of the
Principal Balances of all Mortgage Loans as of such date.

                                       12
<PAGE>   18
         [Preference Amount:  As defined in the Certificate Insurance Policy.]

         [Premium Amount: As to any Distribution Date, the product of the
Premium Percentage and the Aggregate Class Principal Balance after giving effect
to distributions to be made on such Distribution Date.]

         [Premium Percentage: As defined in the Insurance Agreement.]

         Prepayment Assumption: The prepayment assumption described in the
Prospectus Supplement under "Prepayment and Yield Considerations."

         Prepayment Interest Shortfall: With respect to any Distribution Date,
for each Mortgage Loan that was the subject during the related Due Period of a
Principal Prepayment, an amount equal to the excess, if any, of (i) 30 days'
interest on the Principal Balance of such Mortgage Loan at the Loan Rate (or at
such lower rate as may be in effect for such Mortgage Loan pursuant to
application of the Civil Relief Act or as reduced by any Debt Service Reduction)
minus the Servicing Fee for such Mortgage Loan over (ii) the amount of interest
actually remitted by the Mortgagor in connection with such Principal Prepayment
less the Servicing Fee for such Mortgage Loan in such month.

         Principal Balance: As to any Mortgage Loan and any day, other than a
Liquidated Mortgage Loan, the related Cut-Off Date Principal Balance, minus all
collections credited against the Principal Balance of any such Mortgage Loan.
For purposes of this definition, a Liquidated Mortgage Loan shall be deemed to
have a Principal Balance equal to the Principal Balance of the related Mortgage
Loan as of the final recovery of related Liquidation Proceeds and a Principal
Balance of zero thereafter.

         Principal Distribution Amount: With respect to any Distribution Date
[(other than the Distribution Date in [ ] 200_)], the lesser of (a) the Class
Principal Balance for such Distribution Date and (b) the Class A Principal
Distribution Amount for such Distribution Date. [With respect to the
Distribution Date in [ ] 200_, the Principal Distribution Amount shall be the
Class Principal Balance.]

         Principal Prepayment: Any payment or other recovery of principal on a
Mortgage Loan equal to the outstanding principal balance thereof, received in
advance of the final scheduled Due Date which is intended to satisfy a Mortgage
Loan in full.

         Prospectus: The base prospectus of the Depositor dated [ ], 200_.

         Prospectus Supplement: The prospectus supplement dated [ ], relating to
the offering of the Regular Certificates.

         Purchase Agreement: The Mortgage Loan Purchase Agreement, dated as of
[     ], among the Seller, as seller, and the Depositor, as purchaser, with
respect to the Mortgage Loans.

                                       13
<PAGE>   19
         Purchase Price: As to any Mortgage Loan purchased from the Trust on any
date pursuant to Section 2.02, 2.04 or 3.20 an amount equal to the sum of (i)
the unpaid Principal Balance thereof as of the date of purchase, (ii) the
greater of (a) all unpaid accrued interest thereon to the end of the Due Period
preceding the Distribution Date on which such Purchase Price is included in
Available Funds and (b) 30 days' interest thereon, computed at the applicable
Loan Rate; provided, however, that if at the time of repurchase the Seller is an
affiliate of the Servicer, the amount described in clause (ii) shall be computed
at the Net Loan Rate and, (iii) (x) if the Servicer is not an Affiliate of the
Seller, any unreimbursed Servicing Advances with respect to such Mortgage Loan
and (y) expenses reasonably incurred or to be incurred by the Servicer or the
Trustee in respect of the breach or defect giving rise to the purchase
obligation.

         Purchaser: The Depositor in its capacity as purchaser under the
Purchase Agreement.

         Rating Agency: Any statistical credit rating agency, or its successor,
that rated the Class A 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 acceptable
to [the Certificate Insurer,] 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 "A-1" or better in the case of S&P and "P-1" or
better in the case of Moody's and in the case of any other Rating Agency shall
mean such equivalent ratings. References herein to the highest long-term rating
category of a Rating Agency shall mean "AAA" in the case of S&P and "Aaa" in the
case of Moody's and in the case of any other Rating Agency, such equivalent
rating.

         Rating Downgrade Event: The day on which the senior, unsecured
long-term debt rating of the Seller is less than " " by Moody's or " " by S&P.

         Record Date: [With respect to each Distribution Date (other than the
first Distribution Date), the last Business Day of the month immediately
preceding the month in which the related Distribution Date occurs. With respect
to the first Distribution Date, the Closing Date.]

         [Reimbursement Amount: As of any Distribution Date, the sum of (x)(i)
Insured Payments previously received by the Trustee and not previously re-paid
to the Certificate Insurer pursuant to Section 5.01(a)(iv) plus (ii) interest
accrued on such Insured Payment not previously repaid, calculated at the Late
Payment Rate (as defined in the Insurance Agreement) from the date the Trustee
received such Insured Payment and (y)(i) the amount of any Premium Amount not
paid on the date due plus (ii) interest on such amount at the Late Payment Rate
from the date such premium was due.]

         Related Documents:  As defined in Section 2.01.

         Released Mortgaged Property Proceeds: As to any Mortgage Loan, proceeds
received by the Servicer in connection with (a) a taking of an entire Mortgaged
Property by exercise of the power of eminent domain or condemnation or (b) any
release of part of the Mortgaged Property

                                       14
<PAGE>   20
from the lien of the related Mortgage, whether by partial condemnation, sale or
otherwise, which are not released to the Mortgagor in accordance with applicable
law, mortgage servicing standards the Servicer would use in servicing mortgage
loans for its own account and this Agreement.

         REO Property: A Mortgaged Property that is acquired by the Servicer on
behalf of the Trustee in foreclosure or by deed in lieu of foreclosure.

         [Replacement Event: As defined in Section 4.02.]

         Residential Dwelling: A one- to four-family dwelling, mobile home or
manufactured home, a unit in a planned unit development, a unit in a condominium
development or a townhouse.

         Responsible Officer: When used with respect to the Trustee, any officer
of the Trustee within the Corporate Trust Office of the Trustee including any
vice president or assistant vice president, assistant treasurer, assistant
secretary, senior trust officer or trust officer or, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Seller or the Servicer, the
President or any Vice President, Assistant Vice President, Treasurer or
Assistant Treasurer or any Secretary or Assistant Secretary or any other
authorized officer of the Seller or the Servicer.

         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 Agreement
the Savings Association Insurance Fund is not existing and performing duties now
assigned to it, the body performing such duties on such date.

         Second Lien: With respect to any Mortgage Loan which is a second
priority lien, the mortgage loan relating to the corresponding Mortgaged
Property having a second priority lien.

         S&P: Standard & Poor's Ratings Services, or its successors in interest.

         Seller: [ ], a national banking association, or any successor thereto,
as seller under the Purchase Agreement.

         Servicer: [ ], a national banking association, or any successor thereto
or any successor hereunder.

         Servicing Advances: All reasonable and customary "out of pocket" costs
and expenses incurred in the performance by the Servicer of its servicing
obligations, including, but not limited to, the cost of (i) the preservation,
restoration and protection of the Mortgaged Property, (ii) any enforcement or
judicial proceedings, including foreclosures, (iii) the management and
liquidation of the REO Property, including reasonable fees paid to any
independent contractor in connection therewith, (iv) compliance with the
obligations under Section 3.07 and (v) in connection with the

                                       15
<PAGE>   21
liquidation of a Mortgage Loan, expenditures relating to the purchase or
maintenance of the First Lien pursuant to Section 3.17, all of which reasonable
and customary out-of-pocket costs and expenses are reimbursable to the Servicer
to the extent provided in Sections 3.03(ii) and 3.03(vii) and 3.07.

         Servicing Certificate: A certificate completed and executed by a
Servicing Officer on behalf of the Servicer.

         Servicing Fee: As to each Distribution Date and each Mortgage Loan, the
annual fee payable to the Servicer as provided herein, which subject to Section
3.21 is calculated as an amount equal to the product of the Servicing Fee Rate
and the Principal Balance thereof at the beginning of the related Due Period.

         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 Certificate Insurer)] by the Servicer, as such
list may be amended from time to time, initially set forth in Exhibit J hereto.

         Stepdown Date: The date which is the later of the date on which
principal in the amount of [ ] of the Cut-Off Date Pool Principal Balance has
been received by the Class A Certificateholders and the [ ] Distribution Date
following the Closing Date.

         Substitution Adjustment: As to any date on which a substitution occurs
pursuant to Section 2.06, the sum of (a) the excess of (i) the aggregate
Principal Balances of all Defective Mortgage Loans to be replaced by Eligible
Substitute Mortgage Loans (after application of principal payments received on
or before the date of substitution of any Eligible Substitute Mortgage Loans as
of the date of substitution) over (ii) the Principal Balance of such Eligible
Substitute Mortgage Loans and (b) the greater of (x) accrued and unpaid interest
(accruing at the Loan Rate for such Defective Mortgage Loan) on such excess
through the Due Period relating to the Distribution Date for which such
Substitution Adjustment will be included as part of Available Funds and (y) 30
days' interest on such excess calculated on a 360-day year in each case at the
Loan Rate (or Net Loan Rate if the Seller is an affiliate of the Servicer) and
(c) if the Servicer is not the Seller, the amount of any unreimbursed Servicing
Advances made by the Servicer with respect to such Defective Mortgage Loan.

         Supplemental Mortgage Loan Schedule: As defined in Section 2.06(b).

         Targeted Overcollateralization Amount:

         (A)      With respect to any Distribution Date on or prior to the
                  Stepdown Date, the product of [ ]% and the [Cut-Off Date Pool
                  Principal Balance;]

                                       16
<PAGE>   22
         (B)      For any Distribution Date after the Stepdown Date, the greater
                  of (i) the product of [ ]% and the [Pool Principal Balance] as
                  of the last day of the related Due Period and (ii)(a) if, with
                  respect to such Distribution Date, the Delinquency Percentage
                  exceeds [ ]%, [ ]% of the aggregate Principal Balance of the
                  Mortgage Loans that are [60] or more days past due or
                  delinquent, or in bankruptcy or foreclosure or REO Property or
                  (b) if, with respect to such Distribution Date, the
                  Delinquency Percentage is equal to or greater than [ ]% but
                  less than [ ]%, [ ]% of the aggregate Principal Balance of all
                  Mortgage Loans that are [90] or more days past due or
                  delinquent or in bankruptcy or foreclosure or an REO Property;

         (C)      Notwithstanding clauses (A) above, for any Distribution Date
                  on or prior to the Stepdown Date, (1) if the Delinquency
                  Percentage, with respect to such Distribution Date, is equal
                  to or greater than [ ]%, the Targeted Overcollateralization
                  Amount will be the greater of (i) the product of [ ]% and the
                  [Cut-Off Date Pool Principal Balance] and (ii) [ ]% of the
                  aggregate Principal Balance of all Mortgage Loans which are
                  [60] or more days past due or delinquent, or in bankruptcy or
                  in foreclosure or REO Property and (2) if the Delinquency
                  Percentage, with respect to such Distribution Date, is greater
                  than or equal to [ ]% but less than [ ]%, the Targeted
                  Overcollateralization Amount shall be the greater of (i) the
                  product of [ ]% and the Cut-Off Date Pool Principal Balance
                  and (ii) [ ]% of the aggregate Principal Balance of all
                  Mortgage Loans which are [90] or more days past due or
                  delinquent, in bankruptcy or in foreclosure or REO Property.

         Transfer Date: The Closing Date.

         Transferor Interest: The interest in the Trust that is not represented
by the Class A Certificates.

         Trigger Event: A Trigger Event occurs on a Distribution Date if any of
the following has occurred and is continuing on such Distribution Date:

         (i)      a Loss Trigger Event has occurred in respect of such
                  Distribution Date;

         (ii)     with respect to any Distribution Date, cumulative Liquidation
                  Loan Losses for the Mortgage Loans for any -month period
                  exceed [ ]% of the Cut-off Date Pool Principal Balance;

         (iii)    the Delinquency Percentage for such Distribution Date exceeds
                  [ ]%.

         Trust: The trust created by this Agreement which shall be entitled "[ ]
Home Equity Loan Trust 200_-_," the corpus of which consists of the Mortgage
Loans, such assets as shall from time to time be deposited in the Collection
Account and the Distribution Account in accordance with this Agreement, property
that secured a Mortgage Loan and that has become REO Property, [the Certificate
Insurance Policy,] certain hazard insurance policies maintained

                                       17
<PAGE>   23
by the Mortgagors or the Servicer in respect of the Mortgage Loans and an
assignment of the Depositor's rights under the Purchase Agreement and all
proceeds of each of the foregoing.

         Trustee Fee: The fee owed to the Trustee pursuant to a letter agreement
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.

         Voting Rights: The portion of the aggregate voting rights of all the
Certificates evidenced by a Certificate. At all times during the term of this
Agreement, the Voting Rights shall be allocated among Holders of the Regular
Certificates in proportion to the Original Class Certificate Principal Balances
of their respective Classes. Voting Rights allocated to a Class of Certificates
shall be allocated among the Certificates of each such Class in accordance with
their respective Percentage Interests. The Holders of the Class R Certificates
shall have no Voting Rights.

         Section 1.02 Interest Calculations. All calculations of interest that
are made in respect of the Principal Balance of a Simple Interest Loan shall be
made on the basis of a 365-day year and the actual number of days elapsed. All
calculations of interest that are made in respect of the Principal Balance of
each Mortgage Loan (other than Simple Interest Loans) shall be made on the basis
of a 360-day year consisting of twelve 30-day months. The Certificate Rate for
the Regular Certificates shall be calculated on the basis of a 360-day year
consisting of twelve 30-day months. The calculation of the Servicing Fee and the
Trustee 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.

                                  ARTICLE II.

                          Conveyance of Mortgage Loans;
                       Original Issuance of Certificates;
                                  Tax Treatment

         Section 2.01 Conveyance of Mortgage Loans. The Depositor, concurrently
with the execution and delivery of this Agreement, does hereby transfer, assign,
sell, set over and otherwise convey to the Trustee for the benefit of the
Certificateholders without recourse (subject to Sections 2.02 and 2.04) (i) all
of its right, title and interest in and to each Mortgage Loan, including the
Cut-Off Date Principal Balance, and all collections in respect of interest and
principal received on or after the Cut-Off Date; (ii) property which secured
such Mortgage Loan and which has been acquired by foreclosure or deed in lieu of
foreclosure; (iii) its interest in any insurance policies in respect of the
Mortgage Loans; (iv) all proceeds of any of the foregoing; and (v) the
Depositor's rights under the Purchase Agreement with respect to the
representations and warranties of the Seller thereunder together with all rights
of the Depositor to require the

                                       18
<PAGE>   24
Seller to cure any breach thereof or to repurchase or substitute for any
affected Mortgage Loan in accordance with the Purchase Agreement. [In addition,
on or prior to the Closing Date, the Seller shall cause the Certificate Insurer
to deliver the Certificate Insurance Policy to the Trustee.]

         Within     days of an Assignment Event, the Seller shall deliver to the
Trustee, the following documents or instruments with respect to each Mortgage
Loan (the "Related Documents"), on or prior to the Closing Date the Seller shall
deliver to the Trustee the Mortgage Loan Schedule in computer readable format:

                  (i) the original Mortgage Note, endorsed in blank, with all
         intervening endorsements showing a complete chain of title from the
         originator of such Mortgage Loan to the Seller or a copy of such
         original Mortgage Note with an accompanying Lost Note Affidavit;

                  (ii) the original Mortgage, with evidence of recording
         thereon, provided that if the original Mortgage has been delivered for
         recording to the appropriate public recording office of the
         jurisdiction in which the Mortgaged Property is located but has not yet
         been returned to the Seller by such recording office, the Seller shall
         deliver to the Trustee a certified true copy of such original Mortgage
         to be so certified by the applicable originator, together with a
         certificate of the Seller certifying that such original Mortgage has
         been so delivered to such recording office; in all such instances, the
         Seller shall deliver or cause to be delivered the original recorded
         Mortgage to the Trustee promptly upon receipt of the original recorded
         Mortgage; provided that an Assignment Event shall have occurred;

                  (iii) the original Assignment of Mortgage, from the Seller in
         blank or to "[ ], as Trustee for [ ] Home Equity Loan Trust 200_-_",
         which assignment shall be in form and substance acceptable for
         recording;

                  (iv) the original attorney's opinion of title or the original
         policy of title insurance, provided that if any such original policy of
         title insurance has not yet been received by the Seller, the Seller
         shall deliver to the Trustee a copy of such policy or a title insurance
         binder or commitment for the issuance of such policy;

                  (v) originals of all intervening assignments of Mortgage, with
         evidence of recording thereon, showing a complete chain of title from
         the originator to the Seller, provided that if any such original
         intervening assignment of Mortgage has been delivered for recording to
         the appropriate public recording office of the jurisdiction in which
         the Mortgaged Property is located but has not yet been returned to the
         Seller by such recording office, the Seller shall deliver to the
         Trustee a certified true copy of such original assignment of Mortgage
         to be so certified by the applicable originator, together with a
         certificate of the Seller certifying that such original assignment of
         Mortgage has been so delivered to such recording office; in all such
         instances, the Seller shall deliver or

                                       19
<PAGE>   25
         cause to be delivered any such original assignments to the Trustee
         promptly upon receipt thereof, provided that an Assignment Event shall
         have occurred; and

                  (vi) originals of all assumption and modification agreements,
         if any.

         Except as herein provided, the Seller shall, as custodian and for the
benefit of the Trustee, the Certificateholders [and the Certificate Insurer,] be
entitled to maintain possession of the foregoing documents and instruments
described above and shall not be required to deliver any of them to the Trustee.
In the event, however, that possession of any such documents or instruments is
required by any Person (including the Trustee) acting as successor Servicer
pursuant to Section 8.02 in order to carry out the duties of the Servicer
hereunder, then such successor servicer shall be entitled to request delivery,
at the expense of the Servicer, of such documents or instruments by the Servicer
and to retain such documents or instruments for servicing purposes; provided
that the Trustee or such successor servicers shall maintain such documents at
such offices as may be required by any regulatory body having jurisdiction over
such Mortgage Loans.

         The Seller hereby confirms to the Trustee that it has made the
appropriate entries in its general accounting records, to indicate that such
Mortgage Loans have been transferred to the Trustee and constitute part of the
Trust in accordance with the terms of the trust created hereunder.

         [The Certificate Insurer shall have the right to declare an Assignment
Event if, in its judgment, it is necessary to declare an Assignment Event in
order to protect its interest.]

         The Trustee agrees, for the benefit of Certificateholders, within
      days following the receipt of the Mortgage Files after an Assignment
Event, to certify (in the form of Exhibit M-2) to the Seller, the Depositor,
[the Certificate Insurer] and the Servicer that it has reviewed each Mortgage
File and that, as to each Mortgage Loan listed in the Mortgage Loan Schedule
(other than any Mortgage Loan paid in full or any Mortgage Loan specifically
identified in the certification as not covered by such certification), (i) all
documents constituting part of such Mortgage File required to be delivered to it
pursuant to paragraphs (i) - (iv) of Section 2.01(a) are in its possession, (ii)
such documents have been reviewed by it, appear to be what they purport to be
and relate to such Mortgage Loan, (iii) based on its examination and only as to
the foregoing, the information set forth in the Mortgage Loan Schedule which
corresponds to items (ii), (iii) and (iv) of the definition of "Mortgage Loan
Schedule" accurately reflects information set forth in the Mortgage File. If
within such -day period, the Trustee finds any document constituting a part of
the 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 notify the
parties, and the Seller shall have a period of days after such notice (subject
to Section 2.02) within which to correct or cure any such defect or to purchase
such Mortgage Loan at the related Purchase Price or substitute on Eligible
Substitute Mortgage Loan therefor pursuant to Section 2.06.

                                       20
<PAGE>   26
         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.

         Within      days of an Assignment Event, the Servicer shall, with
respect to each Mortgage Loan with respect to which the related Mortgaged
Property is located in ____________, at its expense, 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 an Opinion of Counsel addressed to
the Trustee and the Certificate Insurer 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, a copy of which shall be delivered to the Trustee) and the Certificate
Insurer. The Trustee is hereby appointed as the attorney-in-fact of the Servicer
with the power (subject to Section 9.03) 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.

         Section 2.02 Acceptance by Trustee. The Trustee hereby acknowledges the
sale and assignment of the Mortgage Loans. The Trustee hereby acknowledges its
receipt of the Certificate Insurance Policy. If the Seller is given notice of an
omission or defect under Section 2.01 and if the Seller does not correct or cure
such omission or defect within the 60-day period following such notice, the
Seller shall purchase the related Mortgage Loan from the Trust or substitute an
Eligible Substitute Mortgage Loan for such Mortgage Loan on the Determination
Date in the month following the month in which such 60-day period expired at the
Purchase Price of such Mortgage Loan or in accordance with Section 2.06, as
applicable. The Purchase Price for the purchased Mortgage Loan which is
purchased as described in the preceding sentence shall be deposited in the
Collection Account no later than the Business Day prior to the next succeeding
Distribution Date after such obligation arises; provided that, upon receipt by
the Trustee of written notification of such deposit signed by an officer of the
Seller, the Trustee shall release to the Seller the related Mortgage File and
the Trustee shall execute and deliver such instruments of transfer or
assignment, prepared by and at the expense of the Seller, in each case without
recourse, representation or warranty as shall be necessary to vest in the Seller
or its designee any Mortgage Loan released pursuant hereto. It is understood and
agreed that the obligation of the Seller to purchase any Mortgage Loan or
substitute an Eligible Substitute Mortgage Loan for such Mortgage Loan as to
which a material defect in or omission of a

                                       21
<PAGE>   27
constituent document exists shall constitute the sole remedy against the Seller
respecting such defect or omission available to the Certificate Insurer, the
Certificateholders or the Trustee on behalf of Certificateholders. An Opinion of
Counsel to the effect set forth in Section 2.06(d) shall be delivered to the
Trustee in connection with any such repurchase.

         The Servicer, promptly following the transfer of (i) a Defective
Mortgage Loan from or (ii) an Eligible Substitute Mortgage Loan to the Trust
pursuant to this Section 2.02 and Section 2.06, as the case may be, shall amend
the Mortgage Loan Schedule and deliver a copy of such amended Schedule to the
Trustee and make appropriate entries in its general account records to reflect
such transfer and the addition of any Eligible Substitute Mortgage Loan, if
applicable.

         Section 2.03 Representations and Warranties Regarding the Seller and
the Servicer. (a) The Seller and the Servicer each represent and warrant each as
to itself that, as of the Transfer Date:

                  (i) [Each of the Seller and the Servicer is a national banking
         association, validly existing under the laws of the United States and
         continues to hold a valid certificate to do business as such, and has
         the power to own its assets and to transact the business in which it is
         currently engaged. Each of the Seller and the Servicer is duly
         authorized to transact business 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 authorization and in
         which the failure to be so authorized would have a material adverse
         effect on the business, properties, assets, or condition (financial or
         other) of each of the Seller and the Servicer and their respective
         subsidiaries, considered as one enterprise;

                  (ii) Each of the Seller and the Servicer has the 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 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 each of the
         Seller and the Servicer enforceable in accordance with its terms,
         except as enforcement of such terms may be limited by bankruptcy,
         insolvency or similar laws affecting the enforcement of creditors'
         rights generally and by the availability of equitable remedies and
         except as enforcement of such terms may be limited by receivership,
         conservatorship and supervisory powers of bank regulatory agencies
         generally;

                  (iii) Each of the Seller and 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, 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;

                                       22
<PAGE>   28
                  (iv) The execution, delivery and performance of this Agreement
         by each of the Seller and the Servicer will not violate any provision
         of any existing law or regulation or any order or decree of any court
         applicable to each of the Seller and the Servicer or any provision of
         the articles of association or bylaws of the Seller or the Servicer, as
         appropriate, or constitute a material breach of any mortgage,
         indenture, contract or other agreement to which the Seller or the
         Servicer is a party or by which it may be bound;

                  (v) No litigation or administrative proceeding of or before
         any court, tribunal or governmental body is currently pending, or to
         the knowledge of the Seller or the Servicer threatened, against either
         the Seller or the Servicer or any of their respective properties or
         with respect to this Agreement which in the opinion of either the
         Seller or the Servicer has a reasonable likelihood of resulting in a
         material adverse effect on the transactions contemplated by this
         Agreement;

                  (vi) No certificate of an officer, statement furnished in
         writing or report delivered pursuant to the terms hereof by the Seller
         or the Servicer contains any untrue statement of a material fact or
         omits to state any material fact necessary to make the certificate,
         statement or report not misleading;

                  (vii) The transactions contemplated by this Agreement are in
         the ordinary course of the Seller's and the Servicer's business;

                  (viii) Neither the Seller nor the Servicer is insolvent, nor
         will the Seller or the Servicer be made insolvent by the transfer of
         the Mortgage Loans, nor is the Seller or the Servicer aware of any
         pending insolvency;

                  (ix) [Reserved]

                  (x) There are no actions or proceedings against, or
         investigations of it, pending or, to its knowledge, threatened, before
         any court, administrative agency or other tribunal (A) that, if
         determined adversely, would prohibit the Seller or the Servicer from
         entering into this Agreement, (B) seeking to prevent the consummation
         of any of the transactions contemplated by this Agreement or (C) that,
         if determined adversely, would prohibit or materially and adversely
         affect the Seller's and the Servicer's performance of any of their
         respective obligations under, or the validity or enforceability of,
         this Agreement;

                  (xi) The Servicer represents and warrants that the collection
         practices used by the Servicer with respect to the Mortgage Loans have
         been, in all material respects, legal, proper, prudent and customary in
         the home equity mortgage servicing business;

                  (xii) The Seller represents and warrants that it did not sell
         the Mortgage Loans to the [Depositor] as Purchaser under the Purchase
         Agreement with any intent to hinder, delay or defraud any of its
         creditors; and the Seller will not be rendered insolvent as a result of
         the sale of the Mortgage Loans under the Purchase Agreement;

                                       23
<PAGE>   29
                  (xiii) The Seller represents and warrants that it acquired
         title to the Mortgage Loans in good faith, without notice of any
         adverse claim; and

                  (xiv) The Seller represents and warrants that the transfer,
         assignment and conveyance of the Mortgage Notes and the Mortgages by
         the Seller pursuant to the Purchase Agreement are not subject to the
         bulk transfer laws or any similar statutory provisions in effect in any
         applicable jurisdiction.

         (b) 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 Certificate
Insurer,] the Person discovering such breach shall give prompt written notice to
the other parties [and the Certificate Insurer]. Within 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 Seller or the Servicer, as appropriate, shall cure such breach in
all material respects.

         Section 2.04 Representations and Warranties of the Seller Regarding the
Mortgage Loans. (a) The Seller represents and warrants to the Trust, [the
Certificate Insurer] and the Trustee on behalf of the Certificateholders as
follows as of the Transfer Date:

                  (i) All information set forth as to the Mortgage Loans in the
         Mortgage Loan Schedule attached hereto as Exhibit C, is complete, true
         and correct in all material respects; the Mortgage File delivered by
         the Seller to the Purchaser or its designee includes all of the
         Seller's records and documents with respect to the Mortgage Loans; and
         at the time of origination the Mortgage Loans conformed to the
         Underwriting Guidelines as set forth in the Prospectus Supplement;

                  (ii) All payments required under the terms of the Mortgage
         Notes to have been made up to 30 days prior to the Closing Date have
         been made, other than with respect to [ ]% of the Mortgage Loans (by
         Cut-off Date Principal Balance) which are between [ ] and [ ] days past
         due. No Mortgage Loan is more than 59 days past due;

                  (iii) No Mortgage Note or Mortgage has been assigned or
         pledged, and the Seller has good and marketable title thereto and is
         the sole owner thereof and has the full right to transfer and sell the
         Mortgage Loans to the Purchaser free and clear of any encumbrance,
         equity, lien, pledge, charge, claim or security interest. Immediately
         upon the transfer and assignment herein contemplated, the Seller shall
         have transferred all of its right, title and interest in and to each
         Mortgage Loan to the Purchaser (or its assignee) and the Purchaser (or
         its assignee) will hold good, marketable and indefeasible title, to and
         be the sole owner of each Mortgage Loan subject to no Liens;

                  (iv) All parties to the Mortgage Notes and the Mortgages had
         legal capacity to enter into the Mortgage Notes and the Mortgages and
         to execute and deliver such Mortgage Note and Mortgage; the Mortgage
         Notes and the Mortgages have been duly

                                       24
<PAGE>   30
         and properly executed and delivered by such parties; the Mortgage Notes
         and the Mortgages are in every respect genuine and are the legal,
         valid, binding and enforceable obligations of the related Mortgagor;
         and the Mortgage Notes and the Mortgages contain customary, valid,
         legal and enforceable provisions which render the rights and remedies
         of the holder thereof adequate for the realization against the
         Mortgaged Property of the benefits of the security, including, (i) in
         the case of a Mortgage designated as a deed of trust, by trustee's
         sale, and (ii) otherwise by judicial or non-judicial foreclosure;

                  (v) The proceeds of the Mortgage Loans, including any escrows
         of such proceeds, have been fully disbursed; the Mortgage Notes and the
         Mortgages are not subject to any right of rescission, set-off,
         counterclaim or defense, including the defense of usury, nor will the
         operation of any of the terms of the Mortgage Notes or the Mortgages,
         or the exercise of any right thereunder, render the Mortgage Notes or
         Mortgages unenforceable, or subject to any right of rescission,
         set-off, counterclaim or defense, including the defense of usury, and
         no such right of rescission, set-off, counterclaim or defense has been
         asserted with respect thereto;

                  (vi) No Mortgagor has been released from liability on any
         Mortgage Note and no property has been released from the related
         Mortgage;

                  (vii) Any and all requirements of any federal, state or local
         law including without limitation, usury, truth in lending, real estate
         settlement procedures, consumer credit protection, equal credit
         opportunity or disclosure laws applicable to the Mortgage Loans and the
         transfer thereof hereunder (including notice of transfer of servicing
         to the Servicer) have been complied with, in all material respects, in
         the origination, servicing and collection of the Mortgage Loans;

                  (viii) Each Mortgagor has executed a statement to the effect
         that such Mortgagor has received all disclosure materials including the
         notice of the right of cancellation or rescission required by
         applicable law with respect to the making of the Mortgage Loan and any
         waiver of any right of cancellation or rescission exercised by the
         Mortgagor was in accordance with applicable law and is binding on the
         Mortgagor;

                  (ix) Each Mortgage was recorded in the appropriate public
         office of land evidence records concurrently with the origination of
         such Mortgage Loan so as to perfect the lien of the Mortgage under the
         law of the jurisdiction in which the Mortgaged Property is located; and
         each Mortgage is a valid, subsisting and enforceable lien on such
         Mortgaged Property, including all improvements on the Mortgaged
         Property securing all advances made through the Closing Date, subject
         only to (a) the permitted prior encumbrance under the terms of the
         Mortgage Note, (b) the lien of current real property taxes and
         assessments not yet due and payable, (c) covenants, conditions and
         restrictions, rights of way, easements and other matters of the public
         record as of the date of recording acceptable to mortgage lending
         institutions generally and which do not adversely affect the use, value
         or marketability of the Mortgaged Properties, and (d) other matters to

                                       25
<PAGE>   31
         which like properties are commonly subject which do not materially
         interfere with or adversely affect the benefits of the security
         intended to be provided by the Mortgage or the use, enjoyment, value or
         marketability of the related Mortgaged Property;

                  (x) The Seller has not received notice of: (1) any proceeding
         for the total or partial condemnation of any Mortgaged Property, (2)
         any subsequent, intervening mortgage, lien, attachment, lis pendens or
         other encumbrance affecting any Mortgaged Property or (3) or any
         default under any mortgage, lien or other encumbrance senior to each
         Mortgage;

                  (xi) To the best of Seller's knowledge, no Mortgagor in
         respect of a Mortgage Loan is deceased; there is no proceeding pending
         for relief by or against any such Mortgagor under the Federal
         Bankruptcy Code or any state insolvency law, except with respect to
         ___% of the Mortgage Loans by Cut-off Date Pool Principal Balance; and
         there are no circumstances or conditions with respect to a Mortgaged
         Property or any such Mortgagor that can reasonably be expected to cause
         the Mortgage Loan to become delinquent or to affect adversely the value
         or marketability of the Mortgaged Property;

                  (xii) Where required or customary in the jurisdiction in which
         the Mortgaged Property is located, the original lender has filed for
         record a request for notice of any action by a senior lienholder under
         a senior lien, and the original lender has notified any senior
         lienholder in writing of the existence of the Mortgage Loan and
         requested notification of any action to be taken against the Mortgagor
         by the senior lienholder;

                  (xiii) [Reserved]

                  (xiv) The appraisal made in connection with each Mortgage Loan
         was performed by a qualified appraiser in accordance with the
         requirements of the Financial Institutions Reform, Recovery and
         Enforcement Act of 1989 applicable to federally related mortgage loans;

                  (xv) To the best of the Seller's knowledge, all improvements
         which were considered in determining the appraised value of a Mortgaged
         Property lay wholly within the boundaries and building restriction
         lines of the Mortgaged Property, and no improvements on adjoining
         properties encroach upon the Mortgaged Property;

                  (xvi) If a Mortgage is a deed of trust, a trustee, duly
         qualified under applicable law to serve as such, has been properly
         designated and currently so serves and is named in the applicable
         Mortgage, and no fees or expenses are or will become payable by
         Purchaser to the trustee under the deed of trust, except in connection
         with a trustee's sale after default by a Mortgagor;

                  (xvii) Each Mortgage Note and Mortgage contains a provision (a
         "due-on-sale clause") for the acceleration of the payment of the unpaid
         principal balance of the Mortgage Loan in the event the related
         Mortgaged Property is sold without the prior

                                       26
<PAGE>   32
         consent of the mortgagee thereunder, unless prohibited by the law of
         the jurisdiction in which the Mortgaged Property is located;

                  (xviii) The Mortgaged Properties consist of real property with
         a detached single family residence erected thereon, or a two-to-four
         family dwelling, which may be a mobile home or a manufactured home
         treated as real property, or an individual condominium unit or an
         individual unit in a planned unit development none of which is a
         cooperative apartment and is lawfully occupied under applicable law;
         and all inspections, licenses and certificates required to be made or
         issued with respect to all occupied portions of the Mortgaged Property
         and, with respect to the use and occupancy of the same, including but
         not limited to certificates of occupancy, have been made or obtained
         from the appropriate authorities;

                  (xix) To the best of the Seller's knowledge, each Mortgaged
         Property is free of material damage and is in good repair;

                  (xx) To the best of the Seller's knowledge, there is no
         proceeding pending or threatened for the total or partial condemnation
         of any Mortgaged Property, nor is such a proceeding currently
         occurring;

                  (xxi) To the best of the Seller's knowledge, all parties which
         have had any interest in the Mortgage Loan, whether as originator,
         mortgagee, assignee, pledgee, servicer or otherwise, are (or, during
         the period in which they held and disposed of such interest, were) (i)
         in compliance with any and all applicable licensing requirements of the
         laws of the state wherein the Mortgaged Property is located and (ii)(A)
         organized under the laws of such state, or (B) qualified to do business
         in such state, or (C) federal savings and loan associations or national
         banks having principal offices in such state, or (D) not doing business
         in such state so as to require qualification or licensing;

                  (xxii) As of the Closing Date, the Mortgage File relating to
         each Mortgage Loan contains each of the documents and instruments
         specified to be included therein;

                  (xxiii) Each Mortgage Note in respect of a Mortgage Loan
         provides for level monthly payments sufficient to fully amortize the
         principal balance of such Mortgage Note on its maturity date. No
         Mortgage Loan provides for negative amortization;

                  (xxiv) With respect to each Mortgage Loan, either (i) a
         lenders title insurance policy, issued in standard American Land Title
         Association or California Land Title Association form, or other form
         acceptable in a particular jurisdiction, by a title insurance company
         authorized to transact business in the state in which the related
         Mortgaged Property is situated in an amount at least equal to the
         original principal balance of such Mortgage Loan insuring the
         mortgagees interest under the related Mortgage Loan as the holder of a
         valid first or second mortgage lien of record on the real property
         described in the Mortgage, was valid and in full force and effect on
         the date of the origination of such

                                       27
<PAGE>   33
         Mortgage Loan and as of the Closing Date or (ii) an attorneys opinion
         of title was prepared in connection with the origination of such
         Mortgage Loan;

                  (xxv) No more than [ ]% of the Mortgage Loans (by the Cut-Off
         Date Pool Principal Balance) are secured by Mortgaged Properties
         located within any single zip code area;

                  (xxvi) No Mortgage Loan is subject to the Home Ownership and
         Equity Protection Act of 1994;

                  (xxvii) The Mortgage Loans were not selected by the Seller for
         inclusion in the Trust on any basis intended to adversely affect the
         Trust [or the Certificate Insurer;]

                  (xxviii) Each Mortgage Loan was purchased by the Seller and
         underwritten pursuant to terms consistent with the guidelines set forth
         in the Prospectus Supplement;

                  (xxix) (a) No more than [ ]% of the Mortgage Loans (by Cut-Off
         Date Pool Principal Balance), are secured by real property improved by
         two- to four-family dwellings, (b) no more than [ ]% of the Mortgage
         Loans (by the Cut-Off Date Pool Principal Balance) are secured by
         condominiums and (c) at least [ ]% of the Mortgage Loans (by Cut-Off
         Date Pool Principal Balance), are secured by real property with a
         one-family residence erected thereon;

                  (xxx) No Mortgage Loan had a Combined Loan-to-Value Ratio at
         the time of origination of more than [ ]%;

                  (xxxi) No more than [ ]% of the Mortgage Loans (by Cut-Off
         Date Pool Principal Balance), are secured by Mortgaged Properties that
         are non-owner occupied properties;

                  (xxxii) [Reserved]

                  (xxxiii) As of the Closing Date, the Seller has not received a
         notice of default of a First Lien which has not been cured;

                  (xxxiv) The Seller has not transferred the Mortgage Loans to
         the Purchaser with any intent to hinder, delay or defraud any of its
         creditors;

                  (xxxv) No Mortgagor has requested relief under the Soldiers'
         and Sailors' Civil Relief Act of 1940, as amended;

                  (xxxvi) No more than [ ]% of the Mortgage Loans (by the
         Cut-Off Date Pool Principal Balance) are subject to a ground lease;

                                       28
<PAGE>   34
                  (xxxvii) The transfer, assignment and conveyance of the
         Mortgage Notes and the Mortgages by the Depositor pursuant to this
         Agreement are not subject to the bulk transfer laws or any similar
         statutory provisions in effect in any applicable jurisdiction;

                  (xxxviii) No First Lien or Second Lien provides for negative
         amortization;

                  (xxxix) None of the Mortgage Loans are retail installment
         contracts for goods or services or are home improvement loans for goods
         or services, which would be either "consumer credit contracts" or
         "purchase money loans" as such terms are defined in 16 C.F.R. Section
         433.1;

                  (xl) To the best of the Seller's knowledge, no Mortgaged
         Property was, as of the Cut-Off Date, located within a one-mile radius
         of any site listed in the National Priorities List as defined under the
         Comprehensive Environmental Response, Compensation and Liability Act of
         1980, as amended, or on any similar state list of hazardous waste sites
         which are known to contain any hazardous substance or hazardous waste;

                  (xli) To the best knowledge of the Seller, no improvement
         located on or being part of the Mortgaged Property is in violation of
         any applicable zoning law or regulation;

                  (xlii) This Agreement is and shall remain at all times prior
         to the termination hereof an official record of the Seller as referred
         to in Section 13(e) of the Federal Deposit Insurance Act, as amended by
         12 U.S.C. Section 1823(e); and

         With respect to the representations and warranties set forth in this
Section that are made to the best of the Seller's knowledge or as to which the
Seller has no knowledge, if it is discovered by the Depositor, the Seller, the
Servicer, [the Certificate Insurer] or 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 the Seller shall cure such breach, repurchase the
related Mortgage Loan at the Purchase Price or substitute an Eligible Substitute
Mortgage Loan therefor pursuant to Section 2.06 hereof.

         (b) It is understood and agreed that the representations and warranties
set forth in this Section shall survive the conveyance of the Mortgage Loans and
the delivery of the respective Mortgage Files to the Trustee and the termination
of the rights and obligations of the Servicer pursuant to Section 7.04 or 8.01.
Upon discovery by the Depositor, the Seller, the Servicer, [the Certificate
Insurer] or the Trustee of a breach of any of the foregoing representations and
warranties, without regard to any limitation set forth therein concerning the
knowledge of the Seller as to the facts stated therein, which materially and
adversely affects the value of the related Mortgage Loan or the interests of the
Trust, the Certificateholders or the [Certificate

                                       29
<PAGE>   35
Insurer] in such Mortgage Loan, the party discovering such breach shall give
prompt written notice to the other parties [and the Certificate Insurer]. Within
days of its discovery or its receipt of notice of breach, the Seller shall use
all reasonable efforts to cure such breach in all material respects or shall
purchase such Mortgage Loan from the Trust or substitute an Eligible Substitute
Mortgage Loan as provided in Section 2.06 for such Mortgage Loan. Any such
purchase by the Seller shall be at the Purchase Price and in each case shall be
accomplished in the manner set forth in Section 2.02. It is understood and
agreed that the obligation of the Seller to cure, substitute or purchase any
Mortgage Loan as to which such a breach has occurred and is continuing shall
constitute the sole remedies against the Seller respecting such breach available
to Certificateholders or the Trustee on behalf of Certificateholders.

         Section 2.05 Representations and Warranties of the Depositor. (a) The
Depositor represents and warrants to the Trust and the Trustee on behalf of the
Certificateholders 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 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 on behalf of the Trust of each Mortgage Loan,
         the Depositor had good and equitable title to 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 on
         behalf of the Trust;

                  (iv) The Depositor has not transferred the Mortgage Loans to
         the Trustee on behalf of the Trust with any intent to hinder, delay or
         defraud any of its creditors; and

                  (v) The Depositor has been duly incorporated and is validly
         existing as a corporation in good standing under the laws of Delaware,
         with full corporate power and authority to own its assets and conduct
         its business as presently being conducted.

         Section 2.06 Substitution of Mortgage Loans. (a) On a Determination
Date which is on or before the date on which the Seller would otherwise be
required to repurchase a Mortgage Loan under Section 2.02 or 2.04, the Seller
may deliver to the Trustee one or more Eligible Substitute Mortgage Loans in
substitution for any one or more of the Defective Mortgage Loans which the
Seller would otherwise be required to repurchase pursuant to Sections 2.02 or
2.04. In connection with any such substitution, the Seller shall calculate the
Substitution Adjustment, if any, and shall deposit such amount to the Collection
Account on or before the Business Day

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<PAGE>   36
prior to the Distribution Date in the month succeeding the calendar month during
which the related Mortgage Loan became required to be purchased or replaced
hereunder.

         (b) The Seller shall notify the Servicer, the Depositor and the Trustee
in writing not less than five Business Days before the related Determination
Date which is on or before the date on which the Seller would otherwise be
required to repurchase such Mortgage Loan pursuant to Section 2.02 or 2.04 of
its intention to effect a substitution under this Section 2.06. On such
Determination Date (the "Substitution Date"), the Seller shall deliver to the
Trustee (1) the Eligible Substitute Mortgage Loans to be substituted for the
Defective Mortgage Loans, (2) a list of the Defective Mortgage Loans to be
substituted for by such Eligible Substitute Mortgage Loans, (3) an Officer's
Certificate (A) stating that no failure by the Servicer described in Section
8.01 shall have occurred and be continuing, (B) stating that the aggregate
Principal Balance of all Eligible Substitute Mortgage Loans (determined with
respect to each Eligible Substitute Mortgage Loan as of the Determination Date
on which it was substituted) including the principal balance of Eligible
Substitute Mortgage Loans being substituted on such Determination Date does not
exceed an amount equal to % of the Pool Principal Balance as of the Closing
Date, (C) stating that all conditions precedent to such substitution specified
in subsection (a) have been satisfied and attaching as an exhibit a supplemental
Mortgage Loan schedule (the "Supplemental Mortgage Loan Schedule") setting forth
the same type of information as appears on the Mortgage Loan Schedule and
representing as to the accuracy thereof and (D) confirming that the
representations and warranties contained in Section 2.04 are true and correct in
all material respects with respect to the Eligible Substitute Mortgage Loans on
and as of such Determination Date, provided that remedies for the inaccuracy of
such representations are limited as set forth in Sections 2.02, 2.04 and this
Section 2.06, and (4) a certificate stating that cash in the amount of the
related Substitution Adjustment, if any, has been deposited to the Collection
Account. Upon receipt of the foregoing, the Trustee shall release such Defective
Mortgage Loans to the Seller without recourse, representation or warranty.

         (c) Concurrently with the satisfaction of the conditions set forth in
Sections 2.06(a) and (b) above and the transfer of such Eligible Substitute
Mortgage Loans to the Trustee on behalf of the Trust pursuant to Section
2.06(a), Exhibit C to this Agreement shall be deemed to be amended to exclude
all Mortgage Loans being replaced by such Eligible Substitute Mortgage Loans and
to include the information set forth on the Supplemental Mortgage Loan Schedule
with respect to such Eligible Substitute Mortgage Loans, and all references in
this Agreement to Mortgage Loans shall include such Eligible Substitute Mortgage
Loans and be deemed to be made on or after the related Substitution Date, as the
case may be, as to such Eligible Substitute Mortgage Loans.

         Section 2.07 Execution and Authentication of Certificates. The Trustee
on behalf of the Trust shall cause to be executed, authenticated and delivered
on the Closing Date to or upon the order of the Depositor, in exchange for the
Mortgage Loans, concurrently with the sale, assignment and conveyance to the
Trustee of the Mortgage Loans, the Class A Certificates in authorized
denominations which, together with the Transferor Interest evidences the
ownership of the entire Trust.

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<PAGE>   37
                                  ARTICLE III.

                          Administration and Servicing
                                of Mortgage Loans

         Section 3.01 The Servicer. (a) The Servicer, as independent contract
servicer, shall service and administer the Mortgage Loans and shall have full
power and authority, acting alone, to do any and all things in connection with
such servicing and administration which the Servicer may deem necessary or
desirable and consistent with the terms of this Agreement. The Servicer may
enter into subservicing agreements for any servicing and administration of
Mortgage Loans with any institution which (i) is in compliance with the laws of
each state necessary to enable it to perform its obligations under such
subservicing agreement, [(ii) is acceptable to the Certificate Insurer] and
(iii) (x) has been designated an approved Seller-Servicer by Freddie Mac or
Fannie Mae for first and second mortgage loans or (y) is an affiliate of the
Servicer. The Servicer shall give written notice to [the Certificate Insurer,]
the Trustee and the Rating Agencies of the appointment of any subservicer. Any
such subservicing agreement shall be consistent with and not violate the
provisions of this Agreement and shall be in form and substance acceptable to
[the Certificate Insurer].

         (b) Notwithstanding any subservicing agreement or any of the provisions
of this Agreement relating to agreements or arrangements between the Servicer
and a subservicer or reference to actions taken through a subservicer or
otherwise, the Servicer shall remain obligated and primarily liable for the
servicing and administering of the Mortgage Loans in accordance with the
provisions of this Agreement without diminution of such obligation or liability
by virtue of such subservicing agreements or arrangements or by virtue of
indemnification from the subservicer and to the same extent and under the same
terms and conditions as if the Servicer alone were servicing and administering
the Mortgage Loans. For purposes of this Agreement, the Servicer shall be deemed
to have received payments on Mortgage Loans when the subservicer has received
such payments. The Servicer shall be entitled to enter into any agreement with a
subservicer for indemnification of the Servicer by such subservicer, and nothing
contained in this Agreement shall be deemed to limit or modify such
indemnification.

         (c) Any subservicing agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a subservicer
in its capacity as such and not as an originator shall be deemed to be between
the subservicer and the Servicer alone, and the Trustee and Certificateholders
shall not be deemed parties thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to the subservicer except as set
forth in Section 3.01(e). The Servicer shall be solely liable for all fees owed
by it to any subservicer irrespective of whether the Servicer's compensation
pursuant to this Agreement is sufficient to pay such fees.

         (d) In the event the Servicer shall for any reason no longer be the
Servicer (including by reason of an Event of Default), the Trustee or its
designee approved by [the Certificate Insurer] shall thereupon assume all of the
rights and obligations of the Servicer under each subservicing

                                       32
<PAGE>   38
agreement that the Servicer may have entered into, unless the Trustee or
designee approved by the [Certificate Insurer] elects to terminate any
subservicing agreement. Any fee payable in connection with such a termination
will be payable by the outgoing Servicer. If the Trustee does not terminate a
subservicing agreement, the Trustee, its designee or the successor servicer for
the Trustee shall be deemed to have assumed all of the Servicer's interest
therein and to have replaced the Servicer as a party to each subservicing
agreement to the same extent as if the subservicing agreements had been assigned
to the assuming party, except that the Servicer shall not thereby be relieved of
any liability or obligations under the subservicing agreements with regard to
events that occurred prior to the date the Servicer ceased to be the Servicer
hereunder. The Servicer, at its expense and without right of reimbursement
therefor, shall, upon the request of the Trustee, deliver to the assuming party
all documents and records and afford the assuming party reasonable access (to
the extent practicable) to the computer systems, electronic files and personnel
as they relate to each subservicing agreement and the Mortgage Loans then being
serviced and an accounting of amounts collected and held by it and otherwise use
its best efforts to effect the orderly and efficient transfer of the
subservicing agreements to the assuming party.

         (e) Consistent with the terms of this Agreement, the Servicer may
waive, modify or vary any term of any Mortgage Loan or consent to the
postponement of strict compliance with any such term or in any manner grant
indulgence to any Mortgagor if in the Servicer's good faith determination such
waiver, modification, postponement or indulgence is not materially adverse to
the interests of the Certificateholders and the Certificate Insurer. No costs
incurred by the Servicer in respect of Servicing Advances shall, for the
purposes of distributions to Certificateholders, be added to the amount owing
under the related Mortgage Loan. Without limiting the generality of the
foregoing, the Servicer shall continue, and is hereby authorized and empowered
to execute and deliver on behalf of the Trustee and each Certificateholder, all
instruments of satisfaction or cancellation, or of partial or full release,
discharge and all other comparable instruments with respect to the Mortgage
Loans and with respect to the Mortgaged Properties. If reasonably required by
the Servicer, the Trustee shall furnish the Servicer with limited powers of
attorney and other documents necessary or appropriate to enable the Servicer to
carry out its servicing and administrative duties under this Agreement.

         Notwithstanding anything to the contrary contained herein, the
Servicer, in servicing and administering the Mortgage Loans, shall employ or
cause to be employed procedures (including collection, foreclosure and REO
Property management procedures) and exercise the same care that it customarily
employs and exercises in servicing and administering mortgage loans for its own
account, in accordance with accepted mortgage servicing practices of prudent
lending institutions servicing mortgage loans similar to the Mortgage Loans and
giving due consideration to [the Certificate Insurer's] and the
Certificateholders' reliance on the Servicer.

         (f) On and after such time as the Trustee receives the written
resignation of, or notice of the removal of, the Servicer from its rights and
obligations under this Agreement, and with respect to resignation pursuant to
Section 7.04, after receipt by the Trustee [and the Certificate Insurer] of the
Opinion of Counsel required pursuant to Section 7.04, the Trustee or its
designee approved by the Certificate Insurer shall assume all of the rights and
obligations of the Servicer,

                                       33
<PAGE>   39
subject to Section 8.02. The Servicer shall, upon request of the Trustee but at
the expense of the Servicer, deliver to the Trustee all documents and records
relating to the Mortgage Loans and an accounting of amounts collected and held
by the Servicer and otherwise use its best efforts to effect the orderly and
efficient transfer of servicing rights and obligations to the assuming party
which may include reasonable on site access to the computer systems, electronic
files and personnel of the Servicer during normal business hours.

         (g) The Servicer shall deliver a list of Servicing Officers to the
Trustee [and the Certificate Insurer] on or before the Closing Date and shall
revise such list from time to time, as appropriate, and shall deliver all
revisions promptly to the Trustee [and the Certificate Insurer].

         (h) Consistent with the terms of this Agreement, the Servicer may
consent to the placing of a lien senior to that of the Mortgage on the related
Mortgaged Property; provided that such senior lien secures a mortgage loan that
refinances a First Lien and the combined loan-to-value ratio of the related
Mortgage Loan immediately following the refinancing (based on the outstanding
principal balance of the Mortgage Loan and the original principal balance of
such refinanced mortgage loan) is not greater than the Combined Loan-to-Value
Ratio of such Mortgage Loan as of the date such Mortgage Loan was originated.

         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 prepayment penalty or 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
consistent with the Servicer's policies with respect to the mortgage loans it
owns or services.

         (b) The Servicer shall establish and maintain a separate trust account
(the "Collection Account") titled "[ ], as Trustee, of [ ] Home Equity Loan
Trust 200_-_, Collection Account." The Collection Account shall be an Eligible
Account with an independent financial institution. No later than 12:00 noon New
York time two Business Days prior to each Distribution Date (or, if a Deposit
Event has occurred, within two Business Days following receipt thereof), the
Servicer shall deposit into the Collection Account the following payments and
collections received or made by it with respect to each Mortgage Loan (without
duplication):

                  (i) all payments received on or after the Cut-Off Date on
         account of principal on the Mortgage Loans and all Principal
         Prepayments and Curtailments collected on and after the Cut-Off Date;

                  (ii) all payments received or advanced on or after the Cut-Off
         Date on account of interest on the Mortgage Loans;

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<PAGE>   40
                  (iii) all Net Liquidation Proceeds net of related Foreclosure
         Profits;

                  (iv) all Insurance Proceeds;

                  (v) any amounts payable in connection with the repurchase of
         any Mortgage Loan and the amount of any Substitution Adjustment
         pursuant to Sections 2.02, 2.04 and 2.06;

                  (vi) all Released Mortgaged Property Proceeds; and

                  (vii) any amount required to be deposited in the Collection
         Account pursuant to Sections 3.07, 3.21 or 5.05(e);

         provided, however, that with respect to each Due Period, the Servicer
shall be permitted to retain (x) from payments in respect of interest on the
Mortgage Loans, the Servicing Fee for such Due Period and (y) from payments from
Mortgagors, Liquidation Proceeds, Insurance Proceeds and Released Mortgaged
Property Proceeds, any unreimbursed Servicing Advances and Monthly Advances
related thereto in accordance with Section 3.03 hereof. 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 (including annual fees) or late charge penalties
payable by Mortgagors or amounts received by the Servicer for the accounts of
Mortgagors for application toward the payment of taxes, insurance premiums,
assessments and similar items.

         (c) All funds in the Collection Account shall be invested as provided
in Section 5.05.

         Section 3.03 Withdrawals from the Collection Account. The Trustee shall
withdraw or cause to be withdrawn funds from the Collection Account for the
following purposes:

                  (i) two Business Days prior to each Distribution Date, to
         deposit the portion of Available Funds then in the Collection Account
         to the Distribution Account;

                  (ii) to reimburse the Servicer for any accrued unpaid
         Servicing Fees and for unreimbursed Monthly Advances and Servicing
         Advances to the extent not otherwise retained. The Servicer's right to
         reimbursement for unpaid Servicing Fees and unreimbursed Servicing
         Advances shall be limited to late collections on the related Mortgage
         Loan, including Liquidation Proceeds, Insurance Proceeds and such other
         amounts as may be collected by the Servicer from the related Mortgagor
         or otherwise relating to the Mortgage Loan in respect of which such
         reimbursed amounts are owed. The Servicer's right to reimbursement for
         unreimbursed Monthly Advances shall be limited to late collections of
         interest on any Mortgage Loan and to Liquidation Proceeds and Insurance
         Proceeds on related Mortgage Loans;

                                       35
<PAGE>   41
                  (iii) to withdraw any amount received from a Mortgagor that is
         recoverable and sought to be recovered as a voidable preference by a
         trustee in bankruptcy pursuant to the United States Bankruptcy Code in
         accordance with a final, nonappealable order of a court having
         competent jurisdiction;

                  (iv) subject to Section 5.05 hereof, to make investments in
         Eligible Investments and to pay to the Servicer interest earned in
         respect of Eligible Investments or on funds deposited in the Collection
         Account;

                  (v) to withdraw any funds deposited in the Collection Account
         that were not required to be deposited therein or were deposited
         therein in error and to pay such funds to the appropriate Person after
         written notice of such error is received and verified by the Trustee;

                  (vi) to pay the Servicer servicing compensation pursuant to
         Section 3.09 to the extent not retained or paid pursuant to Sections
         3.02(b) and 3.21;

                  (vii) to reimburse the Servicer for Nonrecoverable Advances
         that are not, with respect to aggregate Servicing Advances on any
         single Mortgage Loan or REO Property, in excess of the Principal
         Balance thereof and expenses incurred pursuant to Section 7.03;

                  (viii) to withdraw funds necessary for the conservation,
         operation, management, maintenance and disposition of REO Property
         pursuant to Section 3.07 to the extent not advanced by the Servicer;
         and

                  (ix) to clear and terminate the Collection Account upon the
         termination of this Agreement and to pay any amounts remaining therein
         to the Transferor.

         Section 3.04 Maintenance of Hazard Insurance; Property Protection
Expenses. The Servicer shall cause to be maintained for each Mortgage Loan a
blanket policy providing fire and hazard insurance naming the Servicer as loss
payee thereunder providing coverage in an amount which is at least equal to the
lesser of (i) the maximum insurable value of the improvements securing each
Mortgage Loan from time to time, (ii) the combined principal balance owing on
each Mortgage Loan and any mortgage loan senior to such Mortgage Loan and (iii)
the minimum amount required to compensate for damage or loss on a replacement
cost basis. 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 maximum
insurable value from time to time of the improvements which are a part of such
property, (ii) the combined principal balance owing on such Mortgage Loan and
any mortgage loan senior to such Mortgage Loan and (iii) the minimum amount
required to compensate for damage or loss on a replacement cost basis at the
time of such foreclosure, fire and or deed in lieu of foreclosure plus accrued
interest and the good-faith estimate of the Servicer of related Servicing
Advances to be incurred in connection therewith. Amounts collected by the
Servicer under any such policies in connection with the Mortgage Loans, together
with the deductible amounts which are applicable pursuant to the terms of such
policy, shall be deposited in the

                                       36
<PAGE>   42
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 to the extent such flood insurance is available and the Servicer
has determined such insurance to be necessary in accordance with accepted second
mortgage loan servicing standards.

         Section 3.05 Maintenance of Mortgage Impairment Insurance. In the event
that the Servicer shall obtain and maintain a blanket policy consistent with
prudent industry standards with an insurer either (A) having a General Policy
rating of A.VIII or better in Best's Key Rating Guide, or [(B) approved by the
Certificate Insurer, such approval not to be unreasonably withheld,] insuring
against fire and hazards of extended coverage on all of the Mortgage Loans,
then, to the extent such policy names the Servicer or its designee as loss payee
and provides coverage in an amount equal to the aggregate unpaid principal
balance on the Mortgage Loans without co-insurance, and otherwise complies with
the requirements of Section 3.04, the Servicer shall be deemed conclusively to
have satisfied its obligations with respect to fire and hazard insurance
coverage under Section 3.04, it being understood and agreed that such blanket
policy may contain a deductible clause, in which case the Servicer shall, in the
event that there shall not have been maintained on the related Mortgaged
Property a policy complying with Section 3.04, and there shall have been a loss
which would have been covered by such policy, deposit in the Collection Account
the difference, if any, between the amount that would have been payable under a
policy complying with Section 3.04 and the amount paid under such blanket
policy. Upon the request of [the Certificate Insurer or] the Trustee, the
Servicer shall cause to be delivered to [the Certificate Insurer or] the
Trustee, as the case may be, a certified true copy of such policy. In connection
with its activities as administrator and servicer of the Mortgage Loans, the
Servicer agrees to prepare and present, on behalf of itself, the Trustee, [the
Certificate Insurer] and Certificateholders, claims under any such policy in a
timely fashion in accordance with the terms of such policy.

         Section 3.06 [Reserved]

         Section 3.07 Management and Realization Upon Defaulted Mortgage Loans.
The Servicer shall manage, conserve, protect and operate each REO Property for
the Certificateholders solely for the purpose of its prudent and prompt
disposition and sale. The Servicer shall, either itself or through an agent
selected by the Servicer, manage, conserve, protect and operate the REO Property
in the same manner that it manages, conserves, protects and operates other
foreclosed property for its own account, and in the same manner that similar
property in the same locality as the REO Property is managed. The Servicer shall
attempt to sell the same (and may temporarily rent the same) on such terms and
conditions as the Servicer deems to be in the best interest of the
Certificateholders [and the Certificate Insurer].

         If a Deposit Event has occurred, the Servicer shall cause to be
deposited, within two Business Days of receipt thereof or if a Deposit Event has
not occurred, the Servicer shall cause to be deposited two Business Days prior
to the related Distribution Date, in the Collection Account, all revenues
received with respect to the related REO Property and shall retain, or

                                       37
<PAGE>   43
cause the Trustee to withdraw therefrom, funds necessary for the proper
operation, management and maintenance of the REO Property and the fees of any
managing agent acting on behalf of the Servicer.

         The disposition of REO Property shall be carried out by the Servicer
for cash at such price, and upon such terms and conditions, as the Servicer
deems to be in the best interest of the Certificateholders and, as soon as
practicable thereafter, the expenses of such sale shall be paid. The cash
proceeds of sale of the REO Property shall be promptly deposited in the
Collection Account in accordance with Section 3.02, net of Foreclosure Profits
and of any related unreimbursed Servicing Advances, accrued and unpaid Servicing
Fees and unreimbursed Monthly Advances payable to the Servicer in accordance
with Section 3.03, for distribution to the Certificateholders in accordance with
Section 5.01.

         The decision of the Servicer to foreclose on a defaulted Mortgage Loan
shall be subject to a determination by the Servicer that the proceeds of such
foreclosure would exceed the costs and expenses of bringing such a proceeding
and if such determination cannot be made, the Servicer shall deal with such
Mortgage Loan in a manner consistent with the servicing standard in Section 3.01
hereof.

         In the event that 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 its nominee on behalf of Certificateholders
and [the Certificate Insurer].

         If the Servicer has actual knowledge that a Mortgaged Property which
the Servicer is acquiring in foreclosure or by deed in lieu of foreclosure is
located within a one-mile radius of any site with environmental or hazardous
waste risks known to the Servicer, the Servicer will notify the Trustee [and the
Certificate Insurer] prior to acquiring the Mortgaged Property. Nothing in this
Section 3.07 shall affect the Servicer's right to deem certain advances proposed
to be made Nonrecoverable Advances. For the purpose of this Section 3.07, actual
knowledge of the Servicer means actual knowledge of a Responsible Officer of the
Servicer involved in the servicing of the relevant Mortgage Loan. Actual
knowledge of the Servicer does not include knowledge imputable by virtue of the
availability of or accessibility to information relating to environmental or
hazardous waste sites or the locations thereof.

         Section 3.08 Trustee to Cooperate. Upon any Principal Prepayment in
full, the Servicer is authorized to execute, pursuant to the authorization
contained in Section 3.01(f), 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, the Trustee shall, upon request of the
Servicer and delivery to the Trustee of a Request for Release, in the form
attached hereto as Exhibit G, signed by a Servicing Officer, release the related
Mortgage File to the Servicer, and the Trustee shall execute

                                       38
<PAGE>   44
such documents, in the forms provided by the Servicer, as shall be necessary for
the prosecution of any such proceedings or the taking of other servicing
actions. Such Request for Release shall obligate the Servicer to return the
Mortgage File to the Trustee when the need therefor by the Servicer no longer
exists unless the Mortgage Loan shall be liquidated, in which case, upon receipt
of a certificate of a Servicing Officer similar to that hereinabove specified,
the Request for Release shall be released by the Trustee to the Servicer.

         In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the related Assignment
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 (any such assignment shall
unambiguously indicate that the assignment is for the purpose of collection
only) and, upon such assignment, such assignee for collection will thereupon
bring all required actions in its own name and otherwise enforce the terms of
the Mortgage Loan and deposit or credit 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 assignee for
collection shall promptly reassign such Mortgage Loan to the Trustee and return
it to the place where the related Mortgage File was being maintained.

         Section 3.09 Servicing Compensation; Payment of Certain Expenses by
Servicer. Subject to Section 3.21, the Servicer shall be entitled to retain the
Servicing Fee in accordance with Section 3.02 as compensation for its services
in connection with servicing the Mortgage Loans. Moreover, additional servicing
compensation in the form of prepayment penalties, late payment charges, bad
check charges or assumption fees, any Net Simple Interest Excess for the related
Due Period or other receipts not required to be deposited in the Collection
Account, including, without limitation, Foreclosure Profits and, subject to
Section 5.05(e), investment income on the Collection Account 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
Trust or the Certificateholders) and shall not be entitled to reimbursement
therefor except as specifically provided herein.

         Section 3.10 Annual Statement as to Compliance. (a) The Servicer will
deliver to the Trustee, [the Certificate Insurer] and the Rating Agencies, on or
before the last day of the fifth month following the end of the Servicer's
fiscal year ended [December 31], beginning in 200_ (for the fiscal year ending
December [ ]), an Officer's Certificate stating that (i) to the best knowledge
of such person, the Servicer has fully complied in all material respects with
the provisions of Article III and V, if applicable, (ii) 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 (iii) to
the best of such officer's knowledge, based on such review, the Servicer has
fulfilled all its material obligations under this Agreement throughout such
fiscal year or, if there has been a

                                       39
<PAGE>   45
default in the fulfillment of any such obligation, specifying each such default
known to such officer and the nature and status thereof. The Servicer shall
promptly notify the Depositor, the Trustee, [the Certificate Insurer] and the
Rating Agencies upon any change in the basis on which its fiscal year is
determined.

         (b) The Servicer shall deliver to the Trustee, the Depositor, [the
Certificate Insurer] 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 Default.

         Section 3.11 Annual Servicing Report. On or before the last day of the
fifth month following the end of the Servicer's fiscal year, beginning in 200_
(for the fiscal year ending [ ]), the Servicer, at its expense, shall cause a
firm of independent public accountants to furnish a letter or letters to the
Depositor, the Trustee, [the Certificate Insurer] and the Rating Agencies to the
effect that such firm has, with respect to the Servicer's overall servicing
operations, examined such operations in accordance with the requirements of the
Uniform Single Attestation Program for Mortgage Bankers, and stating such firm's
conclusions relating thereto.

         Section 3.12 Access to Certain Documentation and Information Regarding
the Mortgage Loans. The Servicer shall provide to the Trustee, [the Certificate
Insurer] and Certificateholders which are federally insured savings and loan
associations, the Office of Thrift Supervision, 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 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 as a result of such obligation shall not constitute a breach of this
Section.

Section 3.13      [Reserved]
                  -        -

Section 3.14      [Reserved]
                  -        -

         Section 3.15 Reports of Foreclosures and Abandonments of Mortgaged
Properties, Returns Relating to Mortgage Interest Received from Individuals and
Returns Relating to Cancellation of Indebtedness. The Servicer shall make
reports of foreclosures and abandonments of any Mortgaged Property for each year
beginning in [ ]. The Servicer shall file reports relating to each instance
occurring during the previous calendar year in which the Servicer (i) on behalf
of the Trust 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 reports from the Servicer shall be in form and substance
sufficient to meet the reporting requirements imposed by Sections 6050J, 6050H
and 6050P of the Code.

                                       40
<PAGE>   46
         Section 3.16 Advances by the Servicer. (a) Not later than the close of
business on the second Business Day prior to each Distribution Date, the
Servicer shall remit to the Trustee for deposit in the Distribution Account an
amount to be distributed on such Distribution Date pursuant to Section 5.01,
equal to the interest accrued on each Mortgage Loan through the related Due
Date, but not received as of the close of business on the last day of the
related Due Period (net of the Servicing Fee); such amount being defined herein
as the "Monthly Advance". The Servicer may fund all or a portion of the Monthly
Advance with respect to the Mortgage Loans by instructing the Trustee on the
related Determination Date to use funds deposited in the Collection Account
which are not part of Available Funds for the related Distribution Date;
provided that if such funds are so used the Servicer on notice to the Trustee
shall replace such funds on or before any subsequent Determination Date on which
such funds are required to be part of the Available Funds.

         (b) Notwithstanding anything herein to the contrary, no Servicing
Advance or Monthly Advance shall be required to be made hereunder if the
Servicer determines in its good faith business judgment, and provides the
Trustee with an Officer's Certificate to the effect, that such Servicing Advance
or Monthly Advance would, if made, constitute a Nonrecoverable Advance.

Section 3.17      [Reserved]
                  -        -

         Section 3.18 Assumption Agreements. When a Mortgaged Property has been
or is about to be conveyed by the Mortgagor, the Servicer shall, to the extent
it has knowledge of such conveyance or prospective conveyance, exercise its
right to accelerate the maturity of the related Mortgage Loan under any
"due-on-sale" clause contained in the related Mortgage or Mortgage Note;
provided, however, that the Servicer shall not exercise any such right if the
"due-on-sale" clause, in the reasonable belief of the Servicer, is not
enforceable under applicable law. The Servicer shall to the extent it has
knowledge of such conveyance or prospective conveyance, be authorized to enter
into an assumption and modification agreement with the person to whom such
property has been or is about to be conveyed, pursuant to which such person
shall become liable under the Mortgage Note and, unless prohibited by applicable
law, the Mortgagor shall remain liable thereon. The Servicer, in accordance with
accepted mortgage loan servicing standards for mortgage loans similar to the
Mortgage Loans, is also authorized to enter into a substitution of liability
whereby such person is substituted as Mortgagor and becomes liable under the
Mortgage Note. The Servicer shall notify the Trustee [and the Certificate
Insurer] that any such substitution or assumption agreement has been completed
by forwarding to the Trustee the original of such substitution or assumption
agreement, which original shall be added by the Trustee to the related Mortgage
File and shall, for all purposes, be considered a part of such Mortgage File to
the same extent as all other documents and instruments constituting a part
thereof. In connection with any assumption or substitution agreement entered
into pursuant to this Section, the Servicer shall not change the Loan Rate or
the Monthly Payment, defer or forgive the payment of principal or interest,
reduce the outstanding principal amount or extend the final maturity date on
such Mortgage Loan. Any fee collected by the Servicer for consenting to such
conveyance or entering into such modification shall be retained by or paid to
the Servicer as additional servicing compensation.

                                       41
<PAGE>   47
         Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Mortgage Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.

         Section 3.19 Payment of Taxes, Insurance and Other Charges. With
respect to each Mortgage Loan, the Servicer shall not be required to maintain
records relating to payment of taxes or insurance (including hazard insurance).

         Section 3.20 Optional Purchase of Defaulted Mortgage Loans. The
Servicer, in its sole discretion, shall have the right, but not an obligation to
elect (by written notice sent to the Trustee) to purchase for its own account
from the Trust any Mortgage Loan which is 90 days or more past due in the manner
and at the price specified in Section 2.02. The Servicer shall not purchase an
aggregate amount of defaulted Mortgage Loans in excess of [ ]% of the Cut-Off
Date Pool Principal Balance. The Purchase Price for any Mortgage Loan purchased
hereunder shall be deposited in the Collection Account. The Trustee, upon
written notice of the receipt of such deposit, shall release or cause to be
released to the purchaser of such Mortgage Loan the related Mortgage File and
shall execute and deliver such instruments of transfer or assignment prepared by
the purchaser of such Mortgage Loan, in each case without recourse, as shall be
necessary to vest in the purchaser of such Mortgage Loan any Mortgage Loan
released pursuant hereto and the purchaser of such Mortgage Loan shall succeed
to all the Trust's right, title and interest in and to such Mortgage Loan and
all security and documents related thereto. Such assignment shall be an
assignment outright and not for security. The purchaser of such Mortgage Loan
shall thereupon own such Mortgage Loan, and all security and documents, free of
any further obligation to the Trustee or the Certificateholders with respect
thereto.

         Section 3.21 Compensating Interest. Not later than the close of
business on the second Business Day prior to each Distribution Date, the
Servicer shall remit to the Collection Account an amount equal to the lesser of
(A) the aggregate of the Prepayment Interest Shortfalls for the related
Distribution Date resulting from Principal Prepayments during the related Due
Period and (B) its aggregate Servicing Fees received in the related Due Period.
The Servicer shall not have the right to reimbursement for any amounts deposited
to the Collection Account pursuant to this Section.

                                  ARTICLE IV.

                        [The Certificate Insurance Policy

         Section 4.01 The Certificate Insurance Policy. As soon as possible, and
in no event later than 3:00 p.m., New York time, on the third Business Day
immediately preceding each Distribution Date, the Trustee shall determine the
amount of Available Funds (net of any Insured Payments) for such Distribution
Date minus the amount of any Premium Amount and Trustee Fee to be paid on such
Distribution Date.

                                       42
<PAGE>   48
         If for any Distribution Date a Deficiency Amount exists, the Trustee
shall complete a notice in the form set forth as Exhibit A to the Certificate
Insurance Policy (the "Notice") and shall submit such Notice to the Fiscal Agent
no later than 12:00 noon, New York time, on the second Business Day preceding
such Distribution Date. The Notice shall constitute a claim for an Insured
Payment pursuant to the Certificate Insurance Policy for an amount equal to the
Deficiency Amount. Upon receipt of the Insured Payment, at or prior to the
latest time payments of the Insured Payment are to be made by the Certificate
Insurer pursuant to the Certificate Insurance Policy, on behalf of the Class A
Certificateholders, the Trustee shall deposit such Insured Payments in the
Distribution Account and shall distribute such Insured Payments only in
accordance with Section 5.01(a)(ii) and (iii).

         The Trustee shall receive, as attorney-in-fact of each Holder of a
Class A Certificate, any Insured Payment from the Certificate Insurer and
disburse the same to each Holder of a Class A Certificate in accordance with the
provisions of Article V. Insured Payments disbursed by the Trustee from proceeds
of the Certificate Insurance Policy shall not be considered payment by the Trust
nor shall such payments discharge the obligation of the Trust with respect to
such Class A Certificate, and the Certificate Insurer shall become the owner of
such unpaid amounts due from the Trust in respect of such Insured Payments as
the deemed assignee of such Holder and shall be entitled to be reimbursed
therefore in accordance with Section 5.01. The Trustee hereby agrees on behalf
of each Holder of a Class A Certificate for the benefit of the Certificate
Insurer that it and they recognize that to the extent the Certificate Insurer
makes Insured Payments, either directly or indirectly (as by paying through the
Trustee), to the Class A Certificateholders, the Certificate Insurer will be
entitled to be reimbursed therefore in accordance with Section 5.01.

         Section 4.02 [Reserved]

         Section 4.03 Claims Upon the Certificate Insurance Policy. The Trustee
shall comply with the provisions of the Certificate Insurance Policy with
respect to claims upon the Certificate Insurance Policy.

         The Trustee shall keep a complete and accurate record of the amount of
interest and principal paid in respect of any Class A Certificate from moneys
received under the Certificate Insurance Policy. The Certificate Insurer shall
have the right to inspect such records at reasonable times during normal
business hours upon one Business Day's prior written notice to the Trustee.

         The Trustee shall promptly notify the Certificate Insurer 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 the Bankruptcy Code (a "Preference Claim") of any distribution
made with respect to the Class A Certificates. Each Certificateholder of Class A
Certificates, by its purchase of Class A Certificates, the Servicer, the Seller
and the Trustee hereby agree that the Certificate Insurer (so long as no
Certificate Insurer Default exists) may at any time during the continuation of
any proceeding relating to a Preference Claim direct

                                       43
<PAGE>   49
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, supersedeas or performance bond pending any
such appeal.]

                                   ARTICLE V.

                 Payments and Statements to Certificateholders;
                          Rights of Certificateholders

         Section 5.01 Distributions. (a) On each Distribution Date, the Trustee
shall withdraw from the Distribution Account the Available Funds and make
distributions thereof as described below and to the extent of the Available
Funds in the following order of priority:

                  (i) [ to the Trustee, the Trustee Fee for such Distribution
         Date and [to the Certificate Insurer], the Premium Amount owing to the
         Certificate Insurer under the Insurance Agreement;]

                  (ii) to the holders of the Class A Certificates an amount
         equal to the Class Interest Distribution for the related Distribution
         Date;

                  (iii) to the holders of the Class A Certificates, the Class A
         Principal Distribution Amount (other than the portion thereof
         representing Distributable Excess Spread) for such Distribution Date;

                  (iv) [ to the Certificate Insurer, the Reimbursement Amount
         owing to the Certificate Insurer hereunder;]

                  (v) sequentially, to the holders of the Class A Certificates,
         to the extent of Available Funds remaining, the Distributable Excess
         Spread for such Distribution Date;

                  (vi) to the Servicer, the amount of any accrued and unpaid
         Servicing Fee;

                  (vii) to the Servicer, the amount of Nonrecoverable Advances
         not previously reimbursed;

                  [(viii) to the Certificate Insurer, any other amounts owing to
         the Certificate Insurer under the Insurance Agreement;] and

                  (ix) to the Transferor, the balance.

         (b) Method of Distribution. The Trustee shall make distributions in
respect of a Distribution Date to each Certificateholder of record on the
related Record Date (other than as provided in Section 10.01 respecting the
final distribution), in the case of Certificateholders, by

                                       44
<PAGE>   50
check or money order mailed to such Certificateholder at the address appearing
in the Certificate Register, or, upon written request by a Certificateholder
delivered to the Trustee at least five Business Days prior to such Record Date,
by wire transfer to an account with a banking or financial institution in the
United States (but only if such Certificateholder is the Depository or such
Certificateholder owns of record one or more Certificates aggregating at least
$1,000,000 Original Certificate Principal Balance) and, in the case of the
Transferor, by wire transfer to an account with a banking or financial
institution in the United States. Distributions among Certificateholders shall
be made in proportion to the Percentage Interests evidenced by the Certificates
held by such Certificateholders.

         (c) 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
Certificates. None of the Trustee, the Paying Agent, the Certificate Registrar,
the Seller, the Servicer, the Certificate Insurer or the Seller shall have any
responsibility therefor except as otherwise provided by applicable law.

         (d) [ Distribution of Insured Payments. With respect to any
Distribution Date, in the event of an Insured Payment, the Trustee shall make
such payments from the amount drawn under the Certificate Insurance Policy
pursuant to Section 4.01 for such Distribution Date in accordance with Section
5.01(a)(ii) and (iii). The Certificate Insurer shall be deemed to be the
assignee of the Holders of the Class A Certificates to the extent of any amount
of Insured Payments disbursed by the Trustee from proceeds of the Certificate
Insurance Policy and to such extent, shall be the subrogee of each such Holder
of the Class A Certificates; provided, however, that any such right of
subrogation inuring to the Certificate Insurer hereunder or otherwise shall be
and is subordinated to the rights under this Agreement of the Holders of the
Class A Certificates and in accordance with Section 5.01(a).]

         Section 5.02 [Reserved]

         Section 5.03 Statements. (a) Not later than 12:00 noon, New York time,
on each Determination Date, the Servicer shall deliver to the Trustee a monthly
report (the "Monthly Report") in a form and format mutually agreeable to the
Servicer and the Trustee containing the information set forth in Exhibit D
hereto as to each Mortgage Loan as of the end of the preceding Due Period and
such other information as the Trustee shall reasonably require, including,
without limitation, all information necessary to enable the Trustee to make the
payments required by Section 5.01(a). Each Monthly Report shall be an Officer's
Certificate. On the Business Day

                                       45
<PAGE>   51
preceding the Distribution Date, the Trustee shall deliver to the Servicer[, the
Certificate Insurer] and the Depositor, by telecopy, with a hard copy thereof to
be delivered on such Distribution Date, a statement (the "Trustee's Remittance
Report") (based solely on the information contained on the Monthly Report)
containing the information set forth below with respect to such Distribution
Date:

                  (i) The Available Funds, the Certificate Rate [and the amount
         of the Insured Payment], if any, for the related Distribution Date;

                  (ii) The Class Principal Balance, the Pool Principal Balance
         as reported in the prior Trustee's Remittance Report or, in the case of
         the first Determination Date, the original Class Principal Balance of
         each Class and the Cut-Off Date Pool Principal Balance;

                  (iii) The aggregate amount of collections received on the
         Mortgage Loans on or prior to such Determination Date in respect of the
         preceding Due Period, separately stating the amounts received in
         respect of principal and interest;

                  (iv) The number and Principal Balances of all Mortgage Loans
         that were the subject of Principal Prepayments during the related Due
         Period;

                  (v) The amount of all Curtailments that were received during
         the Due Period;

                  (vi) The principal portion of all Monthly Payments received
         during the Due Period;

                  (vii) The interest portion of all Monthly Payments received on
         the Mortgage Loans during the Due Period;

                  (viii) The amount required to be paid by the Seller (reported
         separately) pursuant to Sections 2.02, 2.04 or 2.06;

                  (ix) The amount of the Monthly Advances and the Compensating
         Interest payment to be made with respect to such Distribution Date;

                  (x) The Class A Principal Distribution Amount for the related
         Distribution Date, the portion thereof to be distributed on each Class
         of Certificates then entitled to distributions of principal and the
         Class Interest Distribution for the related Distribution Date to be
         distributed on each Class of Certificates;

                  (xi) The amount, if any, of the Outstanding Class Interest
         Carryover Shortfall for each Class after giving effect to the
         distributions on the related Distribution Date;

                  (xii) The amount to be distributed to the Transferor for the
         related Distribution Date;

                                       46
<PAGE>   52
                  (xiii) The Class Principal Balance after giving effect to the
         distributions to be made on the related Distribution Date;

                  (xiv) The weighted average remaining term to maturity of the
         Mortgage Loans and the weighted average Loan Rate;

                  (xv) (a) The Servicing Fee to be paid to the Servicer and [(b)
         the amounts paid to the Certificate Insurer,] separately stated, and
         [the Reimbursement Amount to be paid to the Certificate Insurer
         pursuant to Section 5.01(a)(iv) and other amounts due and owing to the
         Certificate Insurer under the Insurance Agreement and to be paid
         pursuant to Section 5.01(a)(viii)];

                  (xvi) The amount of all payments or reimbursements to the
         Servicer pursuant to Section 3.03;

                  (xvii) The Overcollateralization Amount, the
         Overcollateralization Release Amount, the Targeted
         Overcollateralization Amount and the Distributable Excess Spread for
         such Distribution Date;

                  (xviii) The number of Mortgage Loans outstanding at the
         beginning and at the end of the related Due Period;

                  (xix) The Pool Principal Balance as of the end of the Due
         Period related to such Distribution Date;

                  (xx) The number and aggregate Principal Balances of Mortgage
         Loans (w) as to which the Monthly Payment is delinquent for 30-59 days,
         60-89 days and 90 or more days, respectively, (x) that have become REO
         Properties, in each case as of the end of the preceding Due Period, (y)
         that are in foreclosure and (z) the Mortgagor of which is the subject
         of any bankruptcy or insolvency proceeding;

                  (xxi) The unpaid principal amount of all Mortgage Loans that
         became Liquidated Mortgage Loans during such Due Period;

                  (xxii) The Net Liquidation Proceeds received during such Due
         Period;

                  (xxiii) The book value (within the meaning of 12
         C.F.R.Section571.13 or comparable provision) of any real estate
         acquired through foreclosure or grant of a deed in lieu of foreclosure;

                  (xxiv) Whether a Trigger Event has occurred or is continuing;

                  (xxv) Such other information as is required by the Code and
         regulations thereunder to be made available to Holders of the Regular
         Certificates;

                                       47
<PAGE>   53
                  [(xxvi) The aggregate Premium Amount to be paid to the
         Certificate Insurer pursuant to Section 5.01(a)(i);]

                  (xxvii) For so long as the Servicer is the Seller, the Rating
         Agencies ratings of the long-term unsecured debt of the Seller; and

                  (xxviii) Cumulative Liquidation Loan Losses and the 90 Day+
         Rolling Average as of such Distribution Date; and

                  (xxix) The number and aggregate Principal Balance of all
         Mortgage Loans purchased by the Servicer pursuant to Section 3.20 for
         (i) the related Due Period and (ii) for all Due Periods since the
         Cut-Off Date.

         The Trustee shall forward such report concurrently with each
distribution to the Certificateholders, the Rating Agencies, the Certificate
Insurer, Bloomberg (at 499 Park Avenue, New York, New York 10022, Attention:
[ ]) and [ ] on the related Distribution Date. The Trustee may fully rely upon
and shall have no liability with respect to information provided by the
Servicer.

         To the extent that there are inconsistencies between the telecopy of
the Trustee's Remittance Report and the hard copy thereof, the Servicer may rely
upon the latter.

         In the case of information furnished pursuant to subclauses (vii), (x)
and (xi) above, the amounts shall be expressed in a separate section of the
report as a dollar amount for each Class for each $1,000 original dollar amount
as of the Cut-Off Date.

         (b) Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each Person who at any time during the
calendar year was a Certificateholder of a Regular Certificate, if requested in
writing by such Person, such information as is reasonably necessary to provide
to such Person a statement containing the information set forth in subclause
(xxv) above, aggregated for such calendar year or applicable portion thereof
during which such Person was a Certificateholder. Such obligation of the Trustee
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be prepared and furnished by the Trustee to
Certificateholders pursuant to any requirements of the Code as are in force from
time to time.

         (c) On each Distribution Date, the Trustee shall forward to the
Transferor a copy of the reports forwarded to the Regular Certificateholders in
respect of such Distribution Date with such other information as the Trustee
deems necessary or appropriate.

         (d) Within a reasonable period of time after the end of each calendar
year, the Trustee shall deliver to each Person who at any time during the
calendar year was a Transferor, if requested in writing by such Person, such
information as is reasonably necessary to provide to such Person a statement
containing the information provided pursuant to the previous paragraph
aggregated for such calendar year or applicable portion thereof during which
such Person was a

                                       48
<PAGE>   54
Transferor. Such obligation of the Trustee shall be deemed to have been
satisfied to the extent that substantially comparable information shall be
prepared and furnished to Certificateholders by the Trustee pursuant to any
requirements of the Code as from time to time in force.

         Section 5.04 Distribution Account. The Trustee shall establish with [ ]
a separate trust account (the "Distribution Account") titled "[ ], as Trustee,
of [ ] Home Equity Loan Trust 200_-_ Distribution Account." The Distribution
Account shall be an Eligible Account. The Trustee shall deposit amounts
representing payments on and any collections in respect of the Mortgage Loans
received by it, if any, immediately following receipt thereof, including,
without limitation, all amounts withdrawn from the Collection Account pursuant
to Section 3.03 for deposit to the Distribution Account. Amounts on deposit in
the Distribution Account may be invested in Eligible Investments pursuant to
Section 5.05.

         Section 5.05 Investment of Accounts. (a) So long as no Event of Default
shall have occurred and be continuing, and consistent with any requirements of
the Code, all or a portion of any Account held by or in the name of the Trustee
shall be invested and reinvested by the Trustee, as directed in writing by the
Servicer, in one or more Eligible Investments bearing interest or sold at a
discount; such direction to be signed by a Servicing Officer. If an Event of
Default shall have occurred and be continuing or if the Servicer does not
provide investment directions, the Trustee shall invest all Accounts in Eligible
Investments described in paragraphs (v) or (vi) of the definition of Eligible
Investments. No such investment in any Account shall mature later than the
Business Day immediately preceding the next Distribution Date.

         (b) If any amounts are needed for disbursement from any Account held by
the Trustee and sufficient uninvested funds are not available to make such
disbursement, the Trustee shall cause to be sold or otherwise converted to cash
a sufficient amount of the investments in such Account. No liquidation of
amounts of investments in an Account will be required prior to maturity unless
the proceeds are needed for disbursements.

         (c) The Trustee shall not in any way be held liable for the selection
of Eligible Investments to be purchased or sold pursuant to this Section or by
reason of any investment loss or charge or any insufficiency in any Account held
by or in the name of the Trustee resulting from any investment loss on any
Eligible Investment included therein unless the Trustee's failure to perform in
accordance with this Section is the cause of such loss or charge except to the
extent that the Trustee is the obligor and has defaulted thereon. The Trustee
shall have no liability in respect of losses incurred as a result of the
liquidation of any Eligible Investment prior to its stated maturity or the
failure of the Servicer to provide timely written investment direction.

         (d) The Trustee shall invest and reinvest funds in the Accounts held by
or in the name of the Trustee, to the fullest extent practicable, in such manner
as the Servicer shall from time to time direct as set forth in Section 5.05(a),
but only in one or more Eligible Investments.

         (e) So long as no Event of Default shall have occurred and be
continuing, all net income and gain realized from investment of, and all
realized earnings on, funds deposited in the Collection Account and the
Distribution Account shall be for the benefit of the Servicer as

                                       49
<PAGE>   55
servicing compensation (in addition to the Servicing Fee), and shall be subject
to withdrawal on or before the first Business Day of the month following the
month in which such income or gain is received. The Servicer shall deposit in
the Collection Account and the Distribution Account the amount of any loss
incurred in respect of any Eligible Investment held therein which is in excess
of the income and gain thereon immediately upon realization of such loss from
its own funds, without any right to reimbursement therefor.

                                  ARTICLE VI.

                                The Certificates

         Section 6.01 The Certificates. The Class A Certificates shall be
substantially in the form set forth in Exhibit A hereto, 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 Class A Certificates shall be initially evidenced by one or
more certificates representing a fraction of the Original Class Certificate
Principal Balance and shall be held in minimum dollar denominations of $1,000
and dollar multiples in excess thereof, except that one Certificate may be in a
different denomination so that the sum of the denominations of all outstanding
Certificates shall equal the Original Class Certificate Principal Balance.

         The Certificates shall be executed on behalf of the Trust by manual or
facsimile signature on behalf of the Trustee by a Responsible Officer.
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
Certificate. 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 an authorized officer of 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 Regular
Certificates shall be Book-Entry Certificates. The Transferor Interest shall not
be a Book-Entry Certificate.

         Section 6.02 Registration of Transfer and Exchange of Certificates. (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
Certificates and of transfers and exchanges of Certificates as herein provided.
The Trustee shall initially serve as Certificate Registrar for the purpose of
registering Certificates and transfers and exchanges of Certificates as herein
provided.

         Upon surrender for registration of transfer of any Certificate at any
office or agency of the Certificate Registrar maintained for such purpose
pursuant to the foregoing paragraph, the

                                       50
<PAGE>   56
Trustee on behalf of the Trust shall execute, authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Certificates
of the same aggregate Percentage Interest.

         At the option of the Certificateholders, Certificates may be exchanged
for other Certificates in authorized denominations and the same aggregate
Percentage Interests, upon surrender of the Certificates to be exchanged at any
such office or agency. Whenever any Certificates are so surrendered for
exchange, the Trustee shall execute on behalf of the Trust and authenticate and
deliver the Certificates which the Certificateholder making the exchange is
entitled to receive. Every Certificate presented or surrendered for registration
of 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 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 such Certificates may not
be transferred by the Trustee except to another Depository or its nominee; (ii)
the Depository shall maintain book-entry records with respect to the Certificate
Owners and with respect to ownership and transfers of such Certificates; (iii)
ownership and transfers of registration of such 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 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; and (vii) the
direct and indirect participants of the Depository shall have no rights under
this Agreement under or with respect to any of the Certificates held on their
behalf by the Depository, and the Depository may be treated by the Trustee and
its agents, employees, officers and directors as the absolute owner of the
Certificates for all purposes whatsoever.

         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.

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<PAGE>   57
         (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 Default, the
Certificate Owners of each Class of Regular Certificates representing Percentage
Interests aggregating not less than 51% advises the Trustee and Depository
through the Financial Intermediaries and the Depository Participants in writing
that the continuation of a book-entry system through the Depository to the
exclusion of definitive, fully registered 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 each Class of
Regular Certificates by the Depository, accompanied by registration instructions
from the Depository for registration, the Trustee shall, at the Depositor's
expense, in the case of (ii) above, or the Seller's expense, in the case of (i)
and (iii) above, execute on behalf of the Trust 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, the Trustee, the Certificate Registrar, the Servicer, any Paying
Agent and the Depositor shall recognize the Holders of the Definitive
Certificates as Certificateholders hereunder.

         (d) No service charge shall be made for any registration of transfer or
exchange of 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 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 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 on behalf of the Trust, authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Certificate, a new Certificate of like tenor and Percentage Interest.
Upon the issuance of any new Certificate under this Section, 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) in connection therewith. Any duplicate Certificate issued
pursuant to this Section, 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.

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<PAGE>   58
         Section 6.04 Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Servicer, the Depositor, the
Trustee, the Certificate Registrar, the Certificate Insurer, any Paying Agent
and any agent of the Servicer, the Depositor, the Certificate Registrar, any
Paying Agent, the Certificate Insurer or the Trustee may (subject to Section
5.01(b)) treat the Person, including a Depository, in whose name any Certificate
is registered as the owner of such Certificate for the purpose of receiving
distributions pursuant to Section 5.01 and for all other purposes whatsoever,
and none of the Servicer, the Trust, the Trustee, the Certificate Insurer, the
Depositor, the Certificate Registrar, the Paying Agent nor any agent of any of
them shall be affected by notice to the contrary.

         Section 6.05 Appointment of Paying Agent. (a) The Paying Agent shall
make distributions to Certificateholders from the Distribution 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 Distribution Account pursuant to Section 5.01 and for
the purpose of making the distributions referred to in Section 5.01 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 initially be the Trustee. The Trustee may
appoint a successor to act as Paying Agent, which appointment shall be
reasonably satisfactory to the Depositor and the Certificate Insurer. There will
be no Paying Agent on the Closing Date.

         (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 Certificateholders in trust for the
benefit of the 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 6.06 Restrictions on Transfer of Ownership Interest. The
Ownership Interest and any interest therein shall not be transferred except upon
satisfaction of the following conditions precedent: (i) the Person that acquires
an interest in the Ownership 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 [and the Certificate Insurer] the
performance of every covenant and obligation of the Transferor hereunder and (C)
as part of its acquisition of an interest in the Ownership Interest, acquire all
rights of the Transferor or any transferee under this Section 6.06 to amounts
payable to such Transferor or such transferee under Section 5.01(ix); (ii) the
Owner of the Ownership Interest shall deliver to the Trustee [and the
Certificate Insurer] an Officer's Certificate stating that such transfer and
such supplemental agreement comply with this Section 6.06 and that all
conditions precedent provided by this subsection 6.06 have been complied with
and an Opinion of Counsel stating that all conditions precedent provided by this

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<PAGE>   59
subsection 6.06 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 Owner of the Ownership Interest shall deliver to the Trustee [and the
Certificate Insurer] a letter from each Rating Agency confirming that its rating
of the Class A Certificates, after giving effect to such transfer, will not be
reduced or withdrawn [without regard to the Policy]; (iv) the transferee of the
Ownership Interest shall deliver to the Trustee an Opinion of Counsel to the
effect that (a) such transfer will not adversely affect the treatment of the
Class A 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 Certificate Insurer shall have
consented to such transfer in writing]. Notwithstanding the foregoing, the
requirement set fort in subclause (i) (A) of this Section 6.06 shall not apply
in the event the Trustee [and the Certificate Insurer] shall have received a
letter from each Rating Agency confirming that its rating of the Class A
Certificates, after giving effect to a proposed transfer to a Person that does
not meet the requirement set forth in subclause (i) (A), shall not be reduced or
withdrawn [without regard to the Policy]. Notwithstanding the foregoing, the
requirements set forth in this paragraph (c) shall not apply to the initial
issuance of the Ownership Interest to the Transferor.

         (d) Except for the initial issuance of the Ownership Interest to the
Transferor, no transfer of a Transferor Certificate 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 Ownership 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
enactments), or a trustee of any such plan, an Opinion of Counsel to the effect
that the purchase or holding of such Ownership Interest 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 Sponsor.

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<PAGE>   60
                                  ARTICLE VII.

                   The Seller, the Servicer 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 the 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 herein by the Depositor.

         Section 7.02 Merger or Consolidation of, or Assumption of the
Obligations of, the Seller, the Servicer or the Depositor. Any Person into which
the Seller, the Servicer or the Depositor may be merged or consolidated, or any
Person resulting from any merger, conversion or consolidation to which the
Seller, the Servicer or the Depositor shall be a party, or any Person succeeding
to the business of the Seller, the Servicer or the Depositor, shall be the
successor of the Seller, 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; provided, however, that the successor Servicer shall satisfy
all the requirements of Section 8.02 with respect to the qualifications of a
successor Servicer.

         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 its willful misfeasance, bad faith or gross negligence in
the performance of duties of the Servicer or by reason of its reckless disregard
of its obligations and duties of the Servicer hereunder; provided, further, that
this provision shall not be construed to entitle the Servicer to indemnity in
the event that amounts advanced by the Servicer to retire any senior lien exceed
Net Liquidation Proceeds realized with respect to the related Mortgage Loan. The
preceding sentence shall not limit the obligations of the Servicer pursuant to
Section 9.05. 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; and such amounts shall be payable only pursuant to Section 3.03(vii).
The Servicer may 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

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<PAGE>   61
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 be
entitled to be reimbursed therefor only pursuant to Section 5.01(a)(vii). The
Servicer's right to indemnity or reimbursement pursuant to this Section 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). This paragraph shall apply to the Servicer
solely in its capacity as Servicer hereunder and in no other capacities.

         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 or (ii) 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 Regular Certificates; and (c)
such proposed successor servicer is reasonably acceptable to the Rating Agencies
[and the Certificate Insurer,] as evidenced by a letter to the Trustee;
provided, however, that no such resignation by the Servicer shall become
effective until such successor servicer or, in the case of (i) above, the
Trustee 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. Any 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 Certificate Insurer].

         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, who agrees to conduct such duties in accordance
with standards comparable to those set forth in 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. The Servicer shall provide the Trustee [and the Certificate
Insurer] with written notice prior to the delegation of any of its duties to any
Person or any of the Servicer's Affiliates or their respective successors and
assigns.

         Section 7.06 Indemnification of the Trust by the Servicer. The Servicer
shall indemnify and hold harmless the Trust and the Trustee and its officers,
directors, agents and employees from and against any loss, liability, expense,
damage or injury suffered or sustained by reason of

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<PAGE>   62
the Servicer's willful misfeasance, bad faith or gross negligence in the
performance of its activities in servicing or administering the Mortgage Loans
pursuant to this Agreement, including, but not limited to, any judgment, award,
settlement, reasonable fees of counsel of its selection and other costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim related to the Servicer's misfeasance, bad faith or
gross negligence. 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 the Agreement or
the earlier of the resignation or removal of the Trustee.

         Notwithstanding anything to the contrary contained herein, the Seller
(i) agrees to be liable directly to the injured party for the entire amount and
(ii) shall indemnify and hold harmless the Servicer, the Trust and the Trustee
from and against any loss, liability, expense, damage, claim or injury
(including, without limitation, any prohibited transactions tax imposed on the
Trust, but excluding any loss, liability, expense, damage, claim or injury
attributable to a holder of a Class A Certificate in the capacity as an investor
in such Certificates as a result of defaults on the Mortgage Loans) arising out
of or based on the retention of the Mortgage Loans and Mortgage Files pursuant
to 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, in either case, 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 Seller shall not indemnify any such party (but shall indemnify any other
injured party) if such loss, liability, expense, damage or injury is due to such
party's willful malfeasance, bad faith or negligence or by reason of such
party'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. The provisions of this Section shall survive the
termination of this Agreement or the resignation or removal of the Trustee
hereunder.

                                 ARTICLE VIII.

                                     Default

         Section 8.01 Events of Default. (a) If any one of the following events
("Events of Default") shall occur and be continuing:

                  (i) (A) The failure by the Servicer to make any Monthly
         Advance (other than a Nonrecoverable Advance); or (B) any other failure
         by the Servicer to deposit in the Collection Account or the
         Distribution Account any deposit required to be made under the terms of
         this Agreement which continues unremedied for a period of two 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 Certificate Insurer] or any holder of a Certificate
         evidencing an aggregate undivided interest in the Trust of a Percentage
         Interest of at least 25%; or

                                       57
<PAGE>   63
                  (ii) The failure by the Servicer to make any required
         Servicing Advance which failure continues unremedied for a period of 30
         days, or the failure by the Servicer duly to observe or perform, in any
         material respect, any other covenants, obligations or agreements of the
         Servicer as set forth in this Agreement, which failure continues
         unremedied for a period of 30 days, after the date on which written
         notice of such failure, requiring the same to be remedied, shall have
         been given to the Servicer by the Trustee or to the Servicer and the
         Trustee by the [Certificate Insurer or] any holder of a Certificate
         evidencing an aggregate undivided interest in the Trust of a Percentage
         Interest of at least 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 [ ] consecutive days;

                  (iv) The Servicer shall voluntarily 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
         Servicer or of or relating to all or substantially all of 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, 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 Servicer and such decree or order shall
         have remained in force undischarged, unbonded or unstayed for a period
         of [ ] days; 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; or

                  (v) So long as the Seller is the Servicer, any failure of the
         Seller, to repurchase, or substitute an Eligible Substitute Mortgage
         Loan for, any Mortgage Loan as required by Sections 2.02, 2.04 and
         2.06; and

                  [(vi) The occurrence of a Trigger Event.]

         (b) Then, and in each and every such case, so long as an Event of
Default shall not have been remedied within the applicable grace period, (x)
with respect solely to clause (i) (A) above, if such Monthly Advance is not made
by 4:00 P.M., New York time, on the second Business Day following written notice
to the Servicer of such event given to the Servicer by the Trustee, the Trustee
shall terminate by written notice to the Servicer all of the rights and
obligations of the Servicer under this Agreement and the Trustee, or a successor
servicer appointed in accordance

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<PAGE>   64
with Section 8.02, shall immediately make such Monthly Advance and assume,
pursuant to Section 8.02, the duties of a successor Servicer and (y) in the case
of (i) (B), (ii), (iii), (iv) and (v) above, the Trustee shall, at the direction
of [the Certificate Insurer or] the Holders of Certificates evidencing
Percentage Interests aggregating not less than 51% [(with the consent of the
Certificate Insurer so long as no Certificate Insurer Default exists)], by
notice then given in writing to the Servicer, terminate all of the rights and
obligations of the Servicer as servicer under this Agreement. Any notice given
pursuant to this Section to the Servicer shall also be given to each Rating
Agency and the Depositor. 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;
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 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.

         (c) Holders of Certificates evidencing Percentage Interests aggregating
not less than 51% [(with the consent of the Certificate Insurer, a copy of which
consent shall be delivered to the Trustee)] 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,
provided, that:

                  (1)      such direction shall not be in conflict with any rule
                           of law or with this Agreement;
                  (2)      the Trustee may take any other action deemed proper
                           by the Trustee which is not inconsistent with such
                           direction; and
                  (3)      the Trustee shall have the right to decline to follow
                           any such direction if the Trustee in good faith
                           shall, by a Responsible Officer or Officers of the
                           Trustee, determine that the proceeding so directed
                           would involve the Trustee in personal liability.

         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 on or after any resignation pursuant to Section 7.04 (i) provided, that in
the case of Section 7.04(i) the Opinion of Counsel

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required by that Section shall have been received, 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 arising on and after
its succession. 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. 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 shall 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 $50,000,000 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 Certificate Insurer, as evidenced by the
Certificate Insurer'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. 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 3.09 (or such lesser compensation as the
Trustee and such successor shall agree). 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 to pay any deductible
under an insurance policy pursuant to Section 3.05 or to indemnify the Trustee
pursuant to Section 7.06), nor shall any successor Servicer be liable for any
acts or omissions of the predecessor Servicer or for any breach by such Servicer
of any of its representations or warranties contained herein or in any related
document or agreement. 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
Certificate Insurer, (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 3.06.

         Section 8.03 Waiver of Defaults. The Majority Certificateholders [with
the consent of the Certificate Insurer (a copy of which shall be delivered to
the Trustee) or the Certificate Insurer may,] on behalf of all
Certificateholders, waive any events permitting removal of the Servicer as
Servicer pursuant to this Article VIII, provided, however, that the
Certificateholders may not waive a default in making a required distribution on
a Certificate without the consent of the Holder of such Certificate. Upon any
waiver of a past default, such default shall cease to exist and any Event of
Default arising therefrom shall be deemed to have been remedied for

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every purpose of this Agreement. No such waiver shall extend to any subsequent
or other default or impair any right consequent thereto except to the extent
expressly so waived. Notice of any such waiver shall be given by the Trustee to
the Rating Agencies.

         Section 8.04 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 Certificate Insurer] and each Rating Agency.

         [Section 8.05 Rights of the Certificate Insurer to Exercise Rights of
Class A Certificateholders. By accepting its Certificate, each Class A
Certificateholder agrees that unless a Certificate Insurer Default exists, the
Certificate Insurer shall be deemed to be the Certificateholders for all
purposes (other than with respect to payment on the Certificates) and shall have
the right to exercise all rights of the Class A Certificateholders under this
Agreement and under each Class of Class A Certificates without any further
consent of the Class A Certificateholders, including, without limitation:

                  (i) the right to require the Seller to repurchase Mortgage
         Loans pursuant to Section 2.02 or 2.04;

                  (ii) the right to give notices of breach or to terminate the
         rights and obligations of the Servicer as servicer pursuant to Section
         8.01 and to consent to or direct waivers of Servicer defaults pursuant
         to Section 8.03;

                  (iii) the right to direct actions of the Trustee pursuant to
         Section 8.01;

                  (iv) [Reserved]

                  (v) the right to direct the Trustee to investigate certain
         matters pursuant to Section 9.02;

                  (vi) the right to remove the Trustee pursuant to Section 9.07;

                  (vii) the right to direct foreclosures upon the failure of the
         Servicer to do so in accordance with this Agreement; and

                  (viii) any rights or remedies expressly given the Majority
         Certificateholders.

In addition, each Certificateholder agrees that unless a Certificate Insurer
Default exists, the rights specifically enumerated in this Agreement may be
exercised by the Certificateholders only with the prior written consent of the
Certificate Insurer.

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         Section 8.06 Trustee to Act Solely with Consent of the Certificate
Insurer. Unless a Certificate Insurer Default exists, the Trustee shall not,
without the Certificate Insurer's consent or unless directed by the Certificate
Insurer:

                  (i) terminate the rights and obligations of the Servicer as
         Servicer pursuant to Section 8.01;

                  (ii) agree to any amendment pursuant to Article XI, provided,
         however, that such consent shall not be unreasonably withheld; or

                  (iii) undertake any litigation.

         The Certificate Insurer may, in writing delivered to the Trustee and in
its sole discretion renounce all or any of its rights under Section 8.05, 8.06
or 8.07 or any requirement for the Certificate Insurer's consent for any period
of time.

         Section 8.07 Mortgage Loans, Trust and Accounts Held for Benefit of the
Certificate Insurer. The Trustee shall hold the Trust and the Mortgage Files (as
set forth in Section 2.01) for the benefit of the Certificateholders and the
Certificate Insurer and all references in this Agreement and in the Certificates
to the benefit of Holders of the Certificates shall be deemed to include the
Certificate Insurer. The Trustee shall cooperate in all reasonable respects with
any reasonable request by the Certificate Insurer for action to preserve or
enforce the Certificate Insurer's rights or interests under this Agreement and
the Certificates unless, as stated in an Opinion of Counsel addressed to the
Trustee and the Certificate Insurer, such action is adverse to the interests of
the Certificateholders or diminishes the rights of the Certificateholders or
imposes additional burdens or restrictions on the Certificateholders.

         The Servicer hereby acknowledges and agrees that it shall service the
Mortgage Loans for the benefit of the Certificateholders and for the benefit of
the Certificate Insurer, and all references in this Agreement to the benefit of
or actions on behalf of the Certificateholders shall be deemed to include the
Certificate Insurer.

         Section 8.08 Certificate Insurer Default. Notwithstanding anything
elsewhere in this Agreement or in the Certificates to the contrary, if a
Certificate Insurer Default exists, or if and to the extent the Certificate
Insurer has delivered its written renunciation of its rights, the provisions of
this Article VIII and all other provisions of this Agreement which (a) permit
the Certificate Insurer to exercise rights of the Certificateholders, (b)
restrict the ability of the Certificateholders, the Servicer or the Trustee to
act without the consent or approval of the Certificate Insurer, (c) provide that
a particular act or thing must be acceptable to the Certificate Insurer, (d)
permit the Certificate Insurer to direct (or otherwise to require) the actions
of the Trustee, the Servicer or the Certificateholders, (e) provide that any
action or omission taken with the consent, approval or authorization of the
Certificate Insurer shall be authorized hereunder or shall not subject the party
taking or omitting to take such action to any liability hereunder or (f) which
have a similar effect, shall be of no further force and effect and the Trustee
shall administer the Trust and perform its obligations hereunder solely for the
benefit of the Holders of

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<PAGE>   68
the Certificates. Nothing in the foregoing sentence, nor any action taken
pursuant thereto or in compliance therewith, shall be deemed to have released
the Certificate Insurer from any obligation or liability it may have to any
party or to the Certificateholders hereunder, under any other agreement,
instrument or document (including, without limitation, the Certificate Insurance
Policy) or under applicable law.]

                                  ARTICLE IX.

                                   The Trustee

         Section 9.01 Duties of Trustee. The Trustee, prior to the occurrence of
an Event of Default and after the curing or waiver of all Events of Default
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 Default has
occurred (which has not been cured or waived) of which a Responsible Officer of
the Trustee at the Corporate Trust Office has actual 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 person
would exercise or use under the circumstances in the conduct of such person's
own affairs, unless it is acting as successor Servicer in which case it shall
use, when acting in such capacity, the same degree of care and skill required of
the Servicer hereunder.

         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; provided, however, that the
Trustee shall not be responsible for the accuracy or content of any such
resolution, certificate, statement, opinion, report, document, order or other
instrument. If any such instrument is found not be in the form specified in this
Agreement, on its face, the Trustee shall take action as it deems appropriate to
have the instrument corrected, and if the instrument is not corrected to the
Trustee's reasonable satisfaction, the Trustee will provide notice thereof to
the [Certificate Insurer] and will, at the expense of the Seller, which expense
shall be reasonable given the scope and nature of the action required, take such
further action as directed by the [Certificate Insurer].

         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 misconduct; provided, however, that:

                  (i) prior to the occurrence of an Event of Default of which a
         Responsible Officer of the Trustee shall have actual knowledge, and
         after the curing or waiver of all such Events of Default 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

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<PAGE>   69
         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 direction of the Certificate Insurer or
         the Holders of Certificates evidencing Percentage Interests aggregating
         not less than 51% [(with the consent of the Certificate Insurer, so
         long as no Certificate Insurer Default exists (a copy of which consent
         shall be delivered to the Trustee))] relating to the time, method and
         place of conducting any proceeding for any remedy available to the
         Trustee, or exercising or omitting to exercise 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(a) or of an Event
         of Default under Sections 8.01(v) or (vi), of an Assignment Event or of
         a Deposit Event unless a Responsible Officer of the Trustee at the
         Corporate Trust Office obtains actual knowledge of such failure or
         event or the Trustee receives written notice of such failure or event
         from the Servicer, the Certificate Insurer or the Holders of
         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, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of, any
of the obligations of the Servicer under this Agreement, except during such
time, if any, as the Trustee shall be the successor to, and be vested with the
rights, duties, powers and privileges of, the Servicer in accordance with the
terms of this Agreement.

         Subject to the other provisions of this Agreement and without limiting
the generality of this Section, the Trustee shall have no duty (A) to see to the
payment or discharge of any tax, assessment, or other governmental charge or any
lien or encumbrance of any kind owing with respect to, assessed or levied
against, any part of the Trust from funds available in the Collection Account or
any other source or (B) to confirm or verify the contents of any reports or
certificates of the Servicer delivered to the Trustee pursuant to this Agreement
believed by the Trustee to be genuine and to have been signed or presented by
the proper party or parties.

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         Section 9.02 Certain Matters Affecting the Trustee. (a) Except as
otherwise provided in Section 9.01:

                  (i) the Trustee may request and conclusively rely upon, and
         shall be fully 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 of its selection 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 Certificate Insurer, pursuant to the
         provisions of this Agreement, unless such Certificateholders or the
         Certificate Insurer 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 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 Default (which
         has not been cured or waived) of which a Responsible Officer at the
         Corporate Trust Office has actual 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 (unless it is acting as
         Servicer) as a prudent person would exercise or use under the
         circumstances in the conduct of such person's own affairs;

                  (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 powers conferred upon
         it by this Agreement;

                  (v) prior to the occurrence of an Event of Default and after
         the curing or waiver of all Events of Default 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 the Certificate Insurer or Holders of Certificates evidencing
         Percentage Interests aggregating not less than 51% (with the consent of
         the Certificate Insurer, so long as no Certificate Insurer Default
         exists (a copy of which consent shall be delivered to the Trustee));
         provided, however,

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<PAGE>   71
         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. 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;

                  (vii) the Trustee may execute any of the trusts or powers
         hereunder or perform any duties hereunder either directly or by or
         through agents, attorneys, nominees or a custodian;

                  (viii) the Trustee shall not be required to give any bond or
         surety in respect of the execution of the Trust created hereby or the
         powers granted herein; and

                  (ix) 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 be answerable for other than its negligence or
         willful misconduct in the performance of such act.

         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
Seller and 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 Servicer or for the use or application of any funds
paid to 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 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 the Trustee acting as Servicer 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 the Trustee acting as Servicer
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

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<PAGE>   72
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
Servicer (other than the Trustee as Servicer if the Trustee shall assume the
duties of the Servicer pursuant to Section 8.02), any Servicer 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 Servicer taken in the name of the
Trustee; the failure of the Servicer or any Servicer to act or perform any
duties required of it as a third-party independent contractor 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, including,
without limitation, the Trustee's duty to review the Mortgage File pursuant to
Section 2.01. 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).

         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 Certificate Insurer, the
Servicer or the Depositor and their Affiliates.

         Section 9.05 Servicer to Pay Trustee Fees and Expenses. The Servicer
shall pay to the Trustee the Trustee Fee as agreed between the Servicer and the
Trustee and the Servicer shall 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. Without prejudice to any
other rights available to the Trustee under applicable law, when the Trustee
incurs expenses or renders services in connection with an Event of Default
described in Sections 8.01(a)(iii) or 8.01(a)(iv) such expenses (including the
fees and expenses of its counsel) and the compensation for such services are
intended to constitute expenses of administration under any bankruptcy law or
law relating to creditors' rights generally. This Section shall survive
termination of this Agreement or the resignation or removal of any Trustee
hereunder.

         If and so long as the Trustee is the successor Servicer, all references
in this Section 9.05 to the Servicer shall be deemed to refer to [ ] or any
successor Servicer thereto other than the Trustee.

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<PAGE>   73
         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, have a combined
capital and surplus of at least $50,000,000 and a minimum long-term debt rating
of "Baa3" by Moody's and "BBB" by S&P, and be 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, 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, 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 Depositor, the Servicer, the Certificate Insurer and each
Rating Agency. Upon receiving such notice of resignation, the Depositor shall
promptly appoint a successor Trustee [(approved in writing by the Certificate
Insurer, so long as such approval shall not be unreasonably withheld)] by
written instrument, copies of which instrument shall be delivered to the
resigning Trustee and the successor Trustee; provided, however, that any such
successor Trustee shall be subject to the prior written approval of the
Servicer. If no successor Trustee shall have been so appointed and having
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 Depositor [with the consent of the Certificate Insurer
(so long as no Certificate Insurer Default exists) or the Certificate Insurer,]
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, then the Depositor, the Servicer [or the
Certificate Insurer] may remove the Trustee. If the Depositor, the Servicer [or
the Certificate Insurer] removes the Trustee under the authority of the
immediately preceding sentence, the Depositor or the Servicer shall promptly
appoint a successor Trustee [(approved in writing by the Certificate Insurer, so
long as such approval is not unreasonably withheld)] by written instrument,
copies of which instrument shall be delivered to the resigning Trustee and the
successor Trustee. If the Servicer fails to appoint a successor Trustee within
30 days after the giving of such notice of removal to the Trustee, the Trustee
being removed may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

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         Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor Trustee as
provided in Section 9.08.

         [Notwithstanding anything to the contrary contained herein, so long as
no Certificate Insurer Default exists, the Trustee may not be removed by the
Depositor or the Certificateholders without the prior written consent of the
Certificate Insurer, which consent shall not be unreasonably withheld.]

         Section 9.08 Successor Trustee. Any successor Trustee appointed as
provided in Section 9.07 shall execute, acknowledge and deliver to the
Depositor, the Servicer and to its predecessor Trustee [and the Certificate
Insurer] 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
Depositor, the Servicer[, the Certificate Insurer] 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 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, the Servicer 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.

         [Notwithstanding anything to the contrary contained herein, so long as
no Certificate Insurer Default exists, the appointment of any successor Trustee
pursuant to any provision of this Agreement will be subject to the prior written
consent of the Certificate Insurer, which consent shall not be unreasonably
withheld.]

         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 substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation 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.

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         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 Depositor
and the Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee
and the Certificate Insurer 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,
and, subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Servicer 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 and the Certificate Insurer. If the
Servicer shall not have joined in such appointment within 15 days after the
receipt by it of a request so to do, or, in the case an Event of Default 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 with the
         consent of the Certificate Insurer, so long as no Certificate Insurer
         Default exists, 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 Default, 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

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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 provided therein, subject to
all the provisions of this Agreement, specifically including every provision of
this Agreement relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Every such instrument shall be filed with
the Trustee and a copy thereof given to the Depositor, the Certificate Insurer
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 trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor Trustee.

         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 and authority conferred and vested in it by this
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; Inspection. (a) 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 its own name or in its capacity as Trustee. Any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses and disbursements of the Trustee, its agents and counsel, be for the
ratable benefit of the Certificateholders [and the Certificate Insurer] in
respect of which such judgment has been recovered.

         (b) The Trustee shall afford the Seller, the Depositor, the Servicer,
[the Certificate Insurer] and each Certificateholder upon reasonable notice
during normal business hours, access to all records maintained by the Trustee in
respect of its duties hereunder and access to officers of the Trustee
responsible for performing such duties. Upon request, the Trustee shall furnish
the Depositor, the Servicer, [the Certificate Insurer] and any requesting
Certificateholder with its most recent financial statements. The Trustee shall
cooperate fully with the Seller, the Servicer, the Depositor, [the Certificate
Insurer] and such Certificateholder and shall make available to the Seller, the
Servicer, the Depositor, the [Certificate Insurer] and such Certificateholder
for review and copying, at such party's sole cost and expense, such books,
documents or records as may be requested with respect to the Trustee's duties
hereunder. The Seller, the Depositor, the Servicer, [the Certificate Insurer]
and the Certificateholders shall not have any responsibility or liability

                                       71
<PAGE>   77
for any action or failure to act by the Trustee and are not obligated to
supervise the performance of the Trustee under this Agreement or otherwise.

         Section 9.13 Suits for Enforcement. In case an Event of Default or
other default by the Servicer, [the Certificate Insurer] or the Depositor
hereunder shall occur and be continuing, the Trustee, in its discretion, may
proceed to protect and enforce its rights and the rights of the
Certificateholders or, if such default is not a Certificate Insurer Default[,
the Certificate Insurer] 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, [the
Certificate Insurer] and the Certificateholders.

         Section 9.14 Reports to the Commission. (a) The Trustee shall, on
behalf of the Trust, cause to be filed with the Commission any periodic reports
required to be filed under the provisions of the Exchange Act, and the rules and
regulations of the Commission thereunder. Upon the request of the Trustee, each
of the Seller, the Servicer and the Depositor 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 is in the possession of
such Person and that the Trustee may reasonably request in connection with the
performance of its duties and obligations under this Section.

         (b) The Trustee shall file with the Commission a Form 15 with respect
to the Trust as soon as practicable following the first date on which the
conditions to filing thereof have been satisfied. Following the filing of such
Form 15, the Trustee will submit a certificate addressed to an officer of the
Depositor certifying that all filings under the Exchange Act have been made and
shall attach a copy of acceptance slips for such filings. On the Closing Date,
the Depositor shall provide the Trustee with a letter at closing, substantially
in the form attached hereto as Exhibit K, instructing the Trustee, as filing
agent, to comply with the reporting obligations for the Trust under the Exchange
Act.

                                   ARTICLE X.

                                   Termination

         Section 10.01 Termination. (a) The respective obligations and
responsibilities of the Seller, the Servicer, the Depositor 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 and
all other obligations which pursuant to this Agreement survive the termination
hereof) shall terminate upon notice to the Trustee by the Servicer of the later
of [(A) payment in full of all amounts owing to the Certificate Insurer, unless
the Certificate Insurer shall otherwise consent and] (B) the earliest of (i) the
Distribution Date on which the Class Principal Balance has been

                                       72
<PAGE>   78
reduced to zero, (ii) the final payment or other liquidation of the last
Mortgage Loan in the Trust, (iii) the optional purchase by the Servicer of the
Mortgage Loans as described below and (iv) the Distribution Date in [ ].
Notwithstanding the foregoing, in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the last survivor
of the descendants of Joseph P. Kennedy, the late ambassador of the United
States to the Court of St. James's, living on the date hereof.

         The Servicer may, at its option, terminate this Agreement on any date
on which the Pool Principal Balance is less than [ ]% of the Cut-Off Date Pool
Principal Balance, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the sum
of the outstanding Pool Principal Balance and accrued and unpaid interest
thereon at the weighted average of the Loan Rates through the end of the Due
Period preceding the final Distribution Date together with all amounts due and
owing the Certificate Insurer (the "Termination Price"). [The Certificate
Insurer may exercise the Servicer's right to terminate the Agreement and
purchase the outstanding Mortgage Loans at the Termination Price if the Servicer
opts not to exercise such right.

         In connection with any such purchase pursuant to the preceding
paragraph, the Servicer shall deposit in the Distribution Account all amounts
then on deposit in the Collection Account, which deposit shall be deemed to have
occurred immediately preceding such purchase.

         Any such purchase shall be accomplished by deposit into the
Distribution Account on the Determination Date before such Distribution Date of
the Termination Price.

         (b) Notice of any termination, specifying the Distribution Date (which
shall be a date that would otherwise be a Distribution Date) upon which the
Certificateholders may surrender their Certificates to the Trustee for payment
of the final distribution and cancellation, shall be given promptly by the
Trustee [to the Certificate Insurer] and by letter to Certificateholders mailed
not earlier than the 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 Certificates will be made upon
presentation and surrender of 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
Certificates at the office or agency of the Trustee therein specified.

         (c) Upon presentation and surrender of the Certificates, the Trustee
shall cause to be distributed to the holders of Certificates on the Distribution
Date for such final distribution, in proportion to the Percentage Interests of
their respective Certificates and to the extent that funds are available for
such purpose, an amount equal to the amount required to be distributed to
holders of Certificates pursuant to Section 5.01 for such Distribution Date. [On
the final Distribution Date, the Trustee will withdraw from the Distribution
Account and remit to the Certificate Insurer the lesser of (x) the amount
available for distribution on such final Distribution Date, net of any portion
thereof necessary to pay holders of Class A Certificates

                                       73
<PAGE>   79
pursuant to Section 5.01(a) and any amounts owing to the Trustee in respect of
the Trustee Fee and due and unpaid Monthly Advances and Servicing Fees, and (y)
the unpaid amounts due and owing to the Certificate Insurer pursuant to Section
5.01(a).]

         (d) In the event that all of the Certificateholders shall not surrender
their Certificates for final payment and cancellation on or before such final
Distribution Date, the Trustee shall promptly following such date cause all
funds in the Distribution Account not distributed in final distribution to
Certificateholders to be withdrawn therefrom and credited to the remaining
Certificateholders by depositing such funds in a separate escrow account for the
benefit of such Certificateholders and the Servicer (if the Servicer has
exercised its right to purchase the Mortgage Loans) or the Trustee (in any other
case) shall give a second written notice to the remaining Certificateholders to
surrender their Certificates for cancellation and receive the final distribution
with respect thereto. If within nine months after the second notice all the
Certificates shall not have been surrendered for cancellation, the Transferor
shall be entitled to all unclaimed funds and other assets which remain subject
hereto and the Trustee upon transfer of such funds shall be discharged of any
responsibility for such funds and the Certificateholders shall look to the
Transferor for payment.

                                  ARTICLE XI.

                            Miscellaneous Provisions

         Section 11.01 Amendment. This Agreement may be amended from time to
time by the Seller, the Servicer, the Depositor and the Trustee, in each case
without the consent of any of the Certificateholders, [but only with the consent
of the Certificate Insurer (a copy of which shall be delivered to the Trustee)],
(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 Servicer, (iv) to add
any other provisions with respect to matters or questions arising under this
Agreement [or the Certificate Insurance Policy] which shall not be inconsistent
with the provisions of this Agreement, or (v) to add or amend any provisions of
this Agreement as required by any Rating Agency or any other nationally
recognized statistical rating agency 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 Trustee, the Seller, the Depositor nor
the Servicer is obligated to obtain, maintain or improve any such rating);
provided, however, that as evidenced by an Opinion of Counsel (a copy of which
shall be delivered to the Trustee) (at the expense of the requesting party) in
each case such action shall not, adversely affect in any material respect the
interest of any Certificateholder; 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 of Counsel to that effect shall be
required 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 Certificates.

                                       74
<PAGE>   80
         This Agreement also may be amended from time to time by the Seller, the
Depositor, the Trustee and the Servicer and the Servicer [and the Certificate
Insurer may from time to time consent to the amendment of the Certificate
Insurance Policy,] in each case with the consent of the Holders of Certificates,
evidencing Percentage Interests aggregating not less than 51% in Percentage
Interests of such Class or in the case of an amendment which affects all
classes, evidencing Percentage Interests aggregating not less than 51% of all
Classes, and in the case of an amendment to this Agreement, [with the consent of
the Certificate Insurer, (a copy of which shall be delivered to the Trustee)]
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 Certificate
Insurance 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.

         Prior to the execution of any such amendment, the Trustee shall furnish
written notification prepared by the Servicer 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 Certificateholders, the Trustee shall
furnish written notification prepared by the Servicer of the substance of such
amendment to each Certificateholder and the fully executed original counterparts
of the instruments effecting such amendment to the Certificate Insurer.

         It shall not be necessary for the consent of Certificateholders under
this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable requirements as the Trustee may prescribe.

         Prior to the execution of any amendment to this Agreement, the Trustee
shall be entitled to receive and rely upon an Opinion of Counsel stating that
the execution of such amendment is authorized or permitted by this Agreement.
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.

         Section 11.02 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 written direction of Holders of Certificates evidencing
Percentage Interests aggregating at least 51% or the Certificate Insurer
accompanied by an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of Certificateholders [or the
Certificate Insurer.] The Certificateholders [or the Certificate Insurer]
requesting such recordation shall bear all costs and expenses of such
recordation. The Trustee

                                       75
<PAGE>   81
shall have no obligation to ascertain whether such recordation so affects the
interests of the Certificateholders.

         Section 11.03 Limitation on Rights of Certificateholders. The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust, nor entitle such 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 and 11.01) or in any manner otherwise control the
operation and management of the Trust, or the obligations of the parties hereto,
nor shall anything 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
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 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, each and every Certificateholder and the Trustee shall be entitled
to such relief as can be given either at law or in equity.

         Section 11.04 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 11.05 Notices. (a) 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

                                       76
<PAGE>   82
certified mail, return receipt requested, to (a) in the case of the Depositor,
[ ], (b) in the case of the Seller and the Servicer, [ ], with a copy to [ ],
(c) in the case of the Trustee, to the Corporate Trust Office, (d) in the case
of Moody's, Home Mortgage Loan Monitoring Group, 4th Floor, 99 Church Street,
New York, New York 10007, (e) in the case of S&P, 26 Broadway, 15th Floor, New
York, New York 10004, Attention: Residential Mortgage Group[, and (f) in the
case of the Certificate Insurer, [ ] (in each case in which notice or other
communication to the Certificate Insurer refers to an Event of Default, a claim
on the Certificate Insurance Policy or with respect to which failure on the part
of the Certificate Insurer to respond shall be deemed to constitute consent or
acceptance, then a copy of such notice or other communication shall be marked to
indicate "URGENT MATERIAL ENCLOSED")] 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 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.

         (b) Notice to the Rating Agencies. The Trustee and the Servicer shall
each be obligated to use its best efforts promptly to provide notice, at the
expense of the Servicer, to the Rating Agencies with respect to each of the
following of which a Responsible Officer of the Trustee or Servicer, as the case
may be, has actual knowledge:

                  (i) Any material change or amendment to this Agreement;

                  (ii) The occurrence of any Event of Default that has not been
         cured or waived;

                  (iii) The resignation or termination of the Servicer or the
         Trustee;

                  (iv) The final payment to Holders of the Certificates of any
         Class;

                  (v) Any change in the location of any Account; and

                  (vi) Any event that would result in the inability of the
         Servicer to make Monthly Advances.

         (c) In addition, (i) the Trustee shall promptly furnish to each Rating
Agency copies of the following:

                           (A) Each annual report to Certificateholders
                  described in Section 5.03; and

                           (B) Each Monthly Report described in Section 5.03;
                  and

                                       77
<PAGE>   83
                  (ii) The Servicer shall promptly furnish to each Rating Agency
         copies of the following:

                           (A) Each annual statement as to compliance described
                  in Section 3.10;

                           (B) Each annual independent public accountants'
                  servicing report described in Section 3.11; and

                           (C) Each notice delivered pursuant to Section 8.01(b)
                  which relates to the fact that the Servicer has not made a
                  Monthly Advance.

         Any such notice pursuant to this Section shall be in writing and shall
be deemed to have been duly given if personally delivered or mailed by first
class mail, postage prepaid, or by express delivery service to the addresses
specified above for each such Rating Agency.

         Section 11.06 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 11.07 Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 7.02, 7.04 and 7.05 (or 3.01),
this Agreement may not be assigned by the Depositor or the Servicer without the
prior written consent of [the Certificate Insurer and] Holders of the
Certificates evidencing Percentage Interests aggregating not less than 66-K%.

         Section 11.08 Certificates Nonassessable and Fully Paid. The parties
agree that the 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 6.01 and
6.02 are and shall be deemed fully paid.

         Section 11.09 Third-Party Beneficiaries. This Agreement will inure to
the benefit of and be binding upon the parties hereto, the Certificateholders,
the Certificate Owners, the Certificate Insurer 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 11.10 Counterparts. This Agreement 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.

                                       78
<PAGE>   84
         Section 11.11 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.

                                       79
<PAGE>   85
         IN WITNESS WHEREOF, 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.

                        [ ],
                              as Depositor

                        By _______________________________________________
                            Name:
                            Title:

                        [ ],
                            as Seller and Servicer

                        By _______________________________________________
                            Name:
                            Title:

                        [ ],
                            as Trustee

                        By _______________________________________________
                            Name:
                            Title:

                                       80
<PAGE>   86
State of New York  )
                   ) ss.:
County of New York )

         On the [ ]th day of [ ] 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 is the ____________________ of [ ], a
[Delaware] corporation, one of the parties that executed the foregoing
instrument; that it was signed 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
<PAGE>   87
State of      )
              ) ss.:
County of     )

         On the [ ]th day of [ ] before me, a notary public in and for the State
of ______________, personally appeared ______________, known to me who, being by
me duly sworn, did depose and say that he is the _________________ of [ ], a
national banking association, one of the parties that executed the foregoing
instrument; that it was signed by order of the Board of Directors of said
company; and that he signed his name thereto by like order.

                                          ________________________________
                                                  Notary Public

[Notarial Seal]

                                       82
<PAGE>   88
State of New York  )
                   ) ss.:
County of New York )

         On the [ ]th day of [ ] 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 is the _________________ of [ ], a [New
York] banking corporation, one of the parties that executed the foregoing
instrument; that it was signed by order of the Board of Directors of said
company; and that he signed his name thereto by like order.

                                          _________________________________
                                                  Notary Public

[Notarial Seal]

                                       83
<PAGE>   89
                                    EXHIBIT A

         UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

Certificate No.                             :

Cut-Off Date                                :

First Distribution Date                     :

Class Principal
Balance of this Certificate
("Denomination")                            :        $

Class Principal
Balance                                     :       $

Certificate Rate:                           :       [__%]

CUSIP                                       :        []

Class                                       :        A

                                      A-1
<PAGE>   90
                       [ ] HOME EQUITY LOAN TRUST _____-_
          [ ] Home Equity Loan Asset-Backed Certificates, Series ____-_
                                     Class A

                  evidencing a percentage interest in the distributions
         allocable to the Certificates of the above-referenced Class with
         respect to a Trust consisting of closed-end fixed rate home equity
         loans (the "Mortgage Loans")

                Fleet Home Equity Loan Corporation, as Depositor

         Principal in respect of this Certificate is distributable monthly as
set forth herein. Accordingly, the Class Principal Balance of this Class A
Certificate at any time may be less than the Class Principal Balance set forth
on the face hereof, as described herein. This Class A Certificate does not
evidence an obligation of, or an interest in, and is not guaranteed by the
Depositor, the Seller, the Servicer or the Trustee referred to below or any of
their respective affiliates. Neither this Class A Certificate nor the Mortgage
Loans are guaranteed or insured by any governmental agency or instrumentality.

         This certifies that CEDE & CO. is the registered owner of the
Percentage Interest evidenced by this Class A Certificate (obtained by dividing
the Denomination of this Class A Certificate by the Class Principal Balance) in
certain monthly distributions with respect to a Trust consisting primarily of
the Mortgage Loans deposited by Fleet Home Equity Loan Corporation (the
"Depositor"). The Trust was created pursuant to a Pooling and Servicing
Agreement dated as of the Cut-Off Date specified above (the "Agreement") among
the Depositor, [ ], as Seller and Servicer (in such capacities, the "Seller" and
"Servicer," respectively), and [ ], as Trustee (the "Trustee"). To the extent
not defined herein, the capitalized terms used herein have the meanings assigned
in the Agreement. This Class A Certificate is issued under and is subject to the
terms, provisions and conditions of the Agreement, to which Agreement the Holder
of this Class A Certificate by virtue of the acceptance hereof assents and by
which such Holder is bound.

         Reference is hereby made to the further provisions of this Class A
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.

         This Class A Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by an
authorized officer of the Trustee.

                                      A-2
<PAGE>   91
         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:  [      ]

                                                  [                       ],
                                                  as Trustee

                                                  By ________________________

This is one of the Class A Certificates
referenced in the within-mentioned Agreement

By ________________________________
         Authorized Officer of

         [                     ], as Trustee

                                      A-3
<PAGE>   92
                        [Reverse of Class A Certificate]

                        [ ] HOME EQUITY LOAN TRUST ____-_
                 [ ] Home Equity Loan Asset-Backed Certificates,
                                  Series ____-_

         This Certificate is one of a duly authorized issue of Certificates
designated as [ ] Home Equity Loan Trust ____-_, [ ] Home Equity Loan
Asset-Backed Certificates, Series ____-_ (herein collectively called the
"Certificates"), and representing a beneficial ownership interest in the Trust
created by the Agreement.

         The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Distribution Account for
payment hereunder and that the Trustee is not liable to the Certificateholders
for any amount payable under this Certificate or the Agreement or, except as
expressly provided in the Agreement, subject to any liability under the
Agreement.

         [This Certificate will have the benefit of an irrevocable and
unconditional certificate guaranty insurance policy issued by [ ] (the
"Certificate Insurer").]

         This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations of
rights, benefits, obligations and duties evidenced thereby, and the rights,
duties and immunities of the Trustee.

         Pursuant to the terms of the Agreement, a distribution will be made on
the [25]th day of each month or, if such [25]th day is not a Business Day then
the first Business Day following such Distribution Date (the "Distribution
Date"), commencing on the first Distribution Date specified on the face hereof,
to the Person in whose name this Certificate is registered at the close of
business on the applicable Record Date in an amount equal to the product of the
Percentage Interest evidenced by this Certificate and the amount required to be
distributed to Holders of Certificates of the Class to which this Certificate
belongs on such Distribution Date pursuant to the Agreement. The Record Date
applicable to each Distribution Date is the last Business Day of the month
preceding the month of such Distribution Date.

         Distributions on this Certificate shall be made by check or money order
mailed to the address of the person entitled thereto as it appears on the
Certificate Register or, upon the request of a Certificateholder owning Class A
Certificates having denominations aggregating at least $[1,000,000], by wire
transfer or otherwise, as set forth in the Agreement. The final distribution on
each Certificate will be made in like manner, but only upon presentment and
surrender of such Certificate at the office or agency of the Trustee specified
in the notice to Certificateholders of such final distribution.

         It is the intention of the Transferor, the Depositor and the Class A
Certificateholders that the Class A 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 Depositor,

                                      A-4
<PAGE>   93
the Trustee and the Holder of this Certificate (or Certificate Owner) by
acceptance of this Certificate (or, in the case of a Certificate Owner, by
virtue of such Certificate Owner's acquisition of a beneficial interest herein)
agrees to treat the Class A 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 secured by the Trust Assets
and to report the transactions contemplated by the Agreement on all applicable
tax returns in a manner consistent with such treatment. Each Holder of this
Certificate agrees that it will cause any Certificate Owner acquiring an
interest in this Certificate through it to comply with the Agreement as to
treatment 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 Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Trustee and the rights of the Certificateholders under the Agreement at any time
by the Depositor and the Trustee with the consent of the Certificate Insurer and
of Holders of the requisite percentage of the Percentage Interests of each Class
of Certificates affected by such amendment, as specified in the Agreement. Any
such consent by the Holder of this Certificate shall be conclusive and binding
on such Holder and upon all future Holders of this Certificate and of any
Certificate issued upon the transfer hereof or in exchange therefor or in lieu
hereof whether or not notation of such consent is made upon this Certificate.
The Agreement also permits the amendment thereof, in certain limited
circumstances, without the consent of the Holders of any of the Certificates.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the office or agency maintained by the Trustee in New York
accompanied by a written instrument of transfer in form satisfactory to the
Trustee and the Certificate Registrar duly executed by the holder hereof or such
holder's attorney duly authorized in writing, and thereupon one or more new
Certificates of the same Class in authorized denominations and evidencing the
same aggregate Percentage Interest in the Trust will be issued to the designated
transferee or transferees.

         The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class in authorized denominations
and evidencing the same aggregate Percentage Interest, as requested by the
Holder surrendering the same.

         No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

         The Depositor, the Seller and the Trustee and any agent of the
Depositor or the Trustee may treat the Person in whose name this Certificate is
registered as the owner hereof for all

                                      A-5
<PAGE>   94
purposes, and neither the Depositor, the Trustee nor any such agent shall be
affected by any notice to the contrary.

         On any Distribution Date following the date at which the Pool Principal
Balance is less than [ ]% of the Cut-Off Date Pool Principal Balance, the
Servicer will have the option to repurchase, in whole, from the Trust the
Mortgage Loans at a purchase price determined as provided in the Agreement. In
the event that no such optional termination occurs, the obligations and
responsibilities created by the Agreement will terminate upon the later of [(A)
payment in full of all amounts owing to the Certificate Insurer unless the
Certificate Insurer shall otherwise consent and (B)] the earliest of (i) the
Distribution Date on which the Class Principal Balance has been reduced to zero,
(ii) the final payment or other liquidation of the last Mortgage Loan in the
Trust and (iii) the Distribution Date in [ ]. 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 the descendants living at the date of the
Agreement of a certain person named in the Agreement.

         Capitalized terms used herein that are defined in the Agreement shall
have the meanings ascribed to them in the Agreement, and nothing herein shall be
deemed inconsistent with that meaning.

                                      A-6
<PAGE>   95
                                   ASSIGNMENT

         FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
         ___________________________________________________________________
         ___________________________________________________________________
         ___________________________________________________________________

         (Please print or typewrite name and address including postal zip code
of assignee)

         the Percentage Interest evidenced by the within Certificate and hereby
authorizes the transfer of registration of such Percentage Interest to assignee
on the Certificate Register of the Trust.

         I (We) further direct the Trustee to issue a new Certificate of a like
denomination and Class, to the above named assignee and deliver such Certificate
to the following address:
         ___________________________________________________________________

Dated: _____________

                                    __________________________________________
                                    Signature by or on behalf of assignor

                                      A-7
<PAGE>   96
                            DISTRIBUTION INSTRUCTIONS

         The assignee should include the following for purposes of distribution:

         Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to ________________________________________
         for the account of   _________________________________________,
         account number _________, or, if mailed by check,
         to____________________________________________________________

         Applicable statements should be mailed
         to____________________________________________________________.

         This information is provided by ______________________________,
         the assignee named above, or _________________________________,
as its agent.

                                      A-8
<PAGE>   97
                                    EXHIBIT C

                             MORTGAGE LOAN SCHEDULE

                                      C-1
<PAGE>   98
                                    EXHIBIT D

                    MONTHLY INFORMATION DELIVERED TO TRUSTEE

                                      D-1
<PAGE>   99
                                    EXHIBIT F

                            LETTER OF REPRESENTATIONS

                                      F-1
<PAGE>   100
                                    EXHIBIT G

                           FORM OF REQUEST FOR RELEASE

                                                                          [DATE]
[Address]
[Address]
[Address]

         Re:    [ ] Home Equity Loan Trust ____-_
                [ ] Home Equity Loan Asset-Backed Certificates, Series ____-_

Ladies and Gentlemen:

         In connection with the administration of the Mortgage Loans held by you
as Trustee under the Pooling and Servicing Agreement dated as of [   ], among
Fleet Home Equity Loan Corporation, as depositor (the "Depositor"), [   ], as
seller and servicer (in such capacities, the "Seller" and the "Servicer,"
respectively) and [   ], as trustee (the "Trustee") (the "Agreement"), we hereby
request a release of the Mortgage File held by you as Trustee with respect to
the following described Mortgage Loan for the reason indicated below.

Loan No.:     ___________

Reason for requesting file:

_______           a.  Mortgage Loan paid in full. (The Servicer hereby
                  certifies that all amounts received in connection with the
                  payment in full of the Mortgage Loan which are required to be
                  deposited in the Collection Account pursuant to Section 3.02
                  of the Agreement have been so deposited).

_______           b.  Retransfer of Mortgage Loan. (The Servicer hereby
                  certifies that the Substitution Adjustment has been deposited
                  in the Collection Account pursuant to the Agreement.)

_______           c.  The Mortgage Loan is being foreclosed.

_______           d.  The Mortgage Loan is being re-financed by another
                  depository institution. (The Servicer hereby certifies that
                  all amounts received in connection with the payment in full of
                  the Mortgage Loan which are required to be deposited in the
                  Collection Account pursuant to Section 3.02 of the Agreement
                  have been so deposited).

                                      G-1
<PAGE>   101
_______           e.       Other (Describe).

         The undersigned acknowledges that the above Mortgage File will be held
by the undersigned in accordance with the provisions of the Agreement and will
promptly be returned to the Trustee when the need therefor by the Servicer no
longer exists unless the Mortgage Loan has been liquidated.

         Capitalized terms used herein shall have the meanings ascribed to them
in the Agreement.

                                        [               ], as
                                         Servicer

                                        By:____________________________
                                           Name:
                                           Title: Servicing Officer

                                      G-2
<PAGE>   102
                                    EXHIBIT J

                           LIST OF SERVICING OFFICERS

                                      J-1
<PAGE>   103
                                    EXHIBIT K

            FORM OF LETTER REGARDING REPORTING OBLIGATIONS UNDER THE
                        SECURITIES EXCHANGE ACT OF 1934

                                               [DATE]

[Address]
[Address]
[Address]

         Re:   [ ] Home Equity Loan Trust ____-_,
               [ ] Home Equity Loan Asset-Backed Certificates, Series ____-_

Ladies and Gentlemen:

         Pursuant to and in reference to Section 9.14 of the Pooling and
Servicing Agreement dated as of [    ] relating to the above referenced
Certificates, please note the following:

     (a)  CIK Number for [ ] Home Equity Loan Trust ____-_(the "Trust"):
          ______________.

     (b)  CCC for the Trust should be applied for at your earliest convenience
          and reported to our attention.

         In order to comply with the reporting obligations for the Trust under
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), the
Trustee must file within 15 days following each Distribution Date a copy of the
report distributed by the Trustee to the Certificateholders in a current report
on Form 8-K. Such reports provide all current information ordinarily of interest
to the Certificateholders. The Trustee must also report on a current report on
Form 8-K any significant occurrences during the reporting period that would be
reportable under Item 1, Item 2, Item 4 and Item 5. In addition, the Trustee
should cause the filing of an annual report on Form 10-K within 90 days
following the end of the Trust's fiscal year containing the following
information:

                                      K-1
<PAGE>   104
<TABLE>
<S>                             <C>
         Part I, Item 3.        A description of any material pending litigation;
         Part I, Item 4.        A description of any submission matters to vote of Certificateholders;
         Part II, Item 5.       A statement of the number of Certificateholders and
                                the principal market, if any, in which the Certificates trade; Part II,
         Item 9.                A statement as to any changes in or disagreements with the
                                independent public accounts for the Trust;
         Part IV, Item 14.      A copy of the annual certificate of compliance by an
                                officer of the Servicer, and any Subservicer and the audit of the
                                servicing by the independent accounting firm.
</TABLE>

Promptly after filing the Form 10-K, the Trustee should file a Form 15 in
accordance with Section 9.14 of the Pooling and Servicing Agreement,
deregistering the Trust and terminating the reporting obligations under the
Exchange Act. All filings must be made through the Edgar System and all
acceptance slips from the filings should be saved as they will be needed for the
annual certificate.

                                       [                   ]

                                       By:  ________________________
                                       Name:
                                       Title:

                                      K-2
<PAGE>   105
                                    EXHIBIT L

                      FORM OF CERTIFICATE INSURANCE POLICY

                                      L-1
<PAGE>   106
                                   EXHIBIT M-1

                      FORM OF CERTIFICATE AS TO ASSIGNMENTS

                                                      [DATE]

[Address]
[Address]
[Address]

[Address]
[Address]
[Address]

[Address]
[Address]
[Address]

[Address]
[Address]
[Address]

          Re:    [ ] Home Equity Loan Trust ____-_,
                 [ ] Home Equity Loan Asset-Backed Certificates, Series ____-_

Ladies and Gentlemen:

         In accordance with the provisions of Section 2.01 of the Pooling and
Servicing Agreement, dated as of [ ] (the "Pooling Agreement"), among [ ], as
seller and servicer, [ ], as depositor, and [ ], as trustee, the undersigned, as
Trustee, hereby certifies that, it has reviewed each Assignment of Mortgage
delivered to it and that with respect to each Mortgage Loan listed on the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full):

     1.   All Assignments of Mortgage required to be delivered pursuant to
          Section 2.01(iii) of the Pooling Agreement are in its possession; and

     2.   Each Assignment of Mortgage referred to in clause 1. above has been
          reviewed by it, appear to be what they purport to be and relate to
          such Assignment of Mortgage.

                                     M-1-1
<PAGE>   107
     Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Pooling Agreement.

                                              [                ], as Trustee

                                              By:_____________________________

                                     M-1-2
<PAGE>   108
                                   EXHIBIT M-2

        FORM OF CERTIFICATE AS TO MORTGAGE FILE (OTHER THAN ASSIGNMENTS)

                                                      [DATE]

[Address]
[Address]
[Address]

[Address]
[Address]
[Address]

[Address]
[Address]
[Address]

[Address]
[Address]
[Address]

           Re:   [ ] Home Equity Loan Trust ____-_,
                 [ ] Home Equity Loan Asset-Backed Certificates, Series ____-_

Ladies and Gentlemen:

         In accordance with the provisions of Section 2.01 of the Pooling and
Servicing Agreement, dated as of [ ] (the "Pooling Agreement"), among [ ], as
seller and servicer, [ ], as depositor, and [ ], as trustee, the undersigned, as
Trustee, hereby certifies that, it has reviewed each Mortgage File delivered to
it and that with respect to each Mortgage Loan listed on the Mortgage Loan
Schedule (other than any Mortgage Loan paid in full listed on Annex I hereto):

     (i)  all documents constituting part of each such Mortgage File required to
          be delivered pursuant to paragraphs (i) through (iv) of Section
          2.01(a) of the Pooling Agreement are in our possession;

                                     M-2-1
<PAGE>   109
     (ii) each document described in clause (i) above has been reviewed by us
          and appears to be what it purports to be and relates to such Mortgage
          Loan;

     (iii) based on our examination and only as to the foregoing, the
          information set forth in the Mortgage Loan Schedule which corresponds
          to items (ii), (iii) and (iv) of the definition of Mortgage Loan
          Schedule accurately reflects information set forth in the Mortgage
          File.

     Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Pooling Agreement.

                                              [               ], as Trustee

                                              By:_____________________________

                                     M-2-2

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