Document:

<PAGE>

                                 EXHIBIT 10.1

                        Pooling and Servicing Agreement
                               September 1, 2000

<PAGE>

                                                                    EXHIBIT 10.1

                      FIRST HORIZON ASSET SECURITIES INC.

                                   Depositor

                   FIRST TENNESSEE BANK NATIONAL ASSOCIATION

                                    Seller

                      FIRST HORIZON HOME LOAN CORPORATION

                                Master Servicer

                        THE HUNTINGTON MORTGAGE COMPANY

                                   Servicer

                                      and

                             THE BANK OF NEW YORK,

                                    Trustee

             _____________________________________________________

                        POOLING AND SERVICING AGREEMENT

                         Dated as of September 1, 2000

             _____________________________________________________

               FIRST HORIZON MORTGAGE PASS-THROUGH TRUST 2000-H

               MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2000-H
<PAGE>

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                          <C>
ARTICLE I - DEFINITIONS....................................................   6

ARTICLE II - CONVEYANCE OF MORTGAGE LOANS;
 REPRESENTATIONS AND WARRANTIES............................................  31
 SECTION 2.1  Conveyance of Mortgage Loans.................................  31
 SECTION 2.2  Acceptance by Trustee of the Mortgage Loans..................  34
 SECTION 2.3  Representations, Warranties and Covenants of the Seller
     and Servicer..........................................................  36
 SECTION 2.4  Representations and Warranties of the Depositor as to
     the Mortgage Loans....................................................  38
 SECTION 2.5  Delivery of Opinion of Counsel in Connection with
     Substitutions.........................................................  38
 SECTION 2.6  Execution and Delivery of Certificates.......................  39
 SECTION 2.7  REMIC Matters................................................  39
 SECTION 2.8  Covenants of the Servicer....................................  39

ARTICLE III - ADMINISTRATION AND SERVICING OF MORTGAGE LOANS...............  40
 SECTION 3.1  Servicer to Service Mortgage Loans...........................  40
 SECTION 3.2  Subservicing; Enforcement of the Obligations of Servicers....  41
 SECTION 3.3  Rights of the Depositor, the Master Servicer and
     the Trustee in Respect of the Servicer................................  41
 SECTION 3.4  Master Servicer or Trustee to Act as Servicer................  41
 SECTION 3.5  Collection of Mortgage Loan Payments;
     Collection Account; Distribution Account..............................  42
 SECTION 3.6  Collection of Taxes, Assessments and
     Similar Items; Escrow Accounts........................................  45
 SECTION 3.7  Access to Certain Documentation and Information
     Regarding the Mortgage Loans..........................................  46
 SECTION 3.8  Permitted Withdrawals from the Collection Account
     and Distribution Account..............................................  46
 SECTION 3.9  Maintenance of Hazard Insurance; Maintenance of
     Primary Insurance Policies............................................  48
 SECTION 3.10  Enforcement of Due-on-Sale Clauses; Assumption
     Agreements............................................................  49
 SECTION 3.11  Realization Upon Defaulted Mortgage Loans;
     Repurchase of Certain Mortgage Loans..................................  50
 SECTION 3.12  Trustee to Cooperate; Release of Mortgage Files.............  53
 SECTION 3.13  Documents Records and Funds in Possession of
     Servicer to be Held for the Trustee...................................  53
 SECTION 3.14  Servicing Compensation......................................  54
 SECTION 3.15  Access to Certain Documentation.............................  54
 SECTION 3.16  Annual Statement as to Compliance...........................  55
 SECTION 3.17  Annual Independent Public Accountants'
     Servicing Statement; Financial Statements.............................  55
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                          <C>
 SECTION 3.18  Errors and Omissions Insurance; Fidelity Bonds..............  55

ARTICLE IV - ADVANCES AND DISTRIBUTIONS BY THE SERVICER....................  56
 SECTION 4.1  Advances.....................................................  56
 SECTION 4.2  Priorities of Distribution...................................  56
 SECTION 4.3  Method of Distribution.......................................  60
 SECTION 4.4  Allocation of Losses.........................................  61
 SECTION 4.5  Monthly Statements to Certificateholders.....................  63

ARTICLE V - THE CERTIFICATES...............................................  65
 SECTION 5.1  The Certificates.............................................  65
 SECTION 5.2  Certificate Register; Registration of Transfer and Exchange
     of Certificates.......................................................  65
 SECTION 5.3  Mutilated, Destroyed, Lost or Stolen Certificates............  70
 SECTION 5.4  Persons Deemed Owners........................................  70
 SECTION 5.5  Access to List of Certificateholders' Names and Addresses....  70
 SECTION 5.6  Maintenance of Office or Agency..............................  70

ARTICLE VI - THE DEPOSITOR, THE MASTER SERVICER AND THE SERVICER...........  72
 SECTION 6.1  Respective Liabilities of the Depositor, the Master
      Servicer and the Servicer............................................  72
 SECTION 6.2  Merger or Consolidation of the Depositor, the Master
     Servicer or the Servicer..............................................  72
 SECTION 6.3  Limitation on Liability of the Depositor, the Seller,
     the Master Servicer, the Servicer and Others..........................  72
 SECTION 6.4  Limitation on Resignation of Servicer........................  73

ARTICLE VII - DEFAULT......................................................  73
 SECTION 7.1  Events of Default............................................  73
 SECTION 7.2  Master Servicer or Trustee to Act; Appointment
     of Successor..........................................................  75
 SECTION 7.3  Notification to Certificateholders...........................  76

ARTICLE VIII - CONCERNING THE TRUSTEE......................................  77
 SECTION 8.1  Duties of Trustee............................................  77
 SECTION 8.2  Certain Matters Affecting the Trustee........................  78
 SECTION 8.3  Trustee Not Liable for Certificates or Mortgage Loans........  80
 SECTION 8.4  Trustee May Own Certificates.................................  80
 SECTION 8.5  Trustee's Fees and Expenses..................................  80
 SECTION 8.6  Eligibility Requirements for Trustee.........................  81
 SECTION 8.7  Resignation and Removal of Trustee...........................  81
 SECTION 8.8  Successor Trustee............................................  82
 SECTION 8.9  Merger or Consolidation of Trustee...........................  82
 SECTION 8.10  Appointment of Co-Trustee or Separate Trustee...............  82
 SECTION 8.11  Tax Matters.................................................  84
 SECTION 8.12  Periodic Filings............................................  86
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                          <C>
ARTICLE IX - TERMINATION...................................................  86
 SECTION 9.1  Termination upon Liquidation or Purchase of all
     Mortgage Loans........................................................  86
 SECTION 9.2  Final Distribution on the Certificates.......................  86
 SECTION 9.3  Additional Termination Requirements..........................  88

ARTICLE X -  MISCELLANEOUS PROVISIONS......................................  88
 SECTION 10.1  Amendment...................................................  88
 SECTION 10.2  Recordation of Agreement; Counterparts......................  90
 SECTION 10.3  Governing Law...............................................  90
 SECTION 10.4  Intention of Parties........................................  90
 SECTION 10.5  Notices.....................................................  91
 SECTION 10.6  Severability of Provisions..................................  92
 SECTION 10.7  Assignment..................................................  92
 SECTION 10.8  Limitation on Rights of Certificateholders..................  92
 SECTION 10.9  Inspection and Audit Rights.................................  93
 SECTION 10.10  Certificates Nonassessable and Fully Paid..................  93
</TABLE>

                                   SCHEDULES
<TABLE>
<CAPTION>
<S>                  <C>                                                      <C>
   Schedule I:       Mortgage Loan Schedule................................      I-1
   Schedule II-A:    Representations and Warranties of the Seller..........   II-A-1
   Schedule II-B:    Representations and Warranties of the Servicer........   II-B-1
   Schedule II-C:    Representations and Warranties of the Master Servicer.   II-C-1
   Schedule III:     Representations and Warranties as to the Mortgage
                     Loans.................................................    III-1
   Schedule IV:      Form of Monthly Servicer Report.......................     IV-1
   Schedule V:       Schedule of Restricted Mortgage Loans.................      V-1
</TABLE>
                                    EXHIBITS
<TABLE>
<CAPTION>
<S>              <C>                                        <C>
   Exhibit A:    Form of Senior Certificate................................      A-1
   Exhibit B:    Form of Offered Subordinate Certificate...................      B-1
   Exhibit C:    Form of Private Subordinate Certificate...................      C-1
   Exhibit D:    Form of Residual Certificate..............................      D-1
   Exhibit E:    Form of Reverse of Certificates...........................      E-1
   Exhibit F:    Form of Initial Certification of Trustee..................      F-1
   Exhibit G:    [Reserved]
   Exhibit H:    Form of Final Certification of Trustee....................      H-1
   Exhibit I:    Transfer Affidavit........................................      I-1
   Exhibit J:    Form of Transferor Certificate............................      J-1
   Exhibit K:    Form of Investment Letter [Non-Rule 144A].................      K-1
   Exhibit L:    Form of Rule 144A Letter..................................      L-1
   Exhibit M:    Request for Release (for Trustee).........................      M-1
   Exhibit N:    Request for Release (Mortgage Loan).......................      N-1
</TABLE>
<PAGE>

     THIS POOLING AND SERVICING AGREEMENT, dated as of September 1, 2000, among
FIRST HORIZON ASSET SECURITIES INC., a Delaware corporation, as depositor (the
"Depositor"), FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking
association, as seller (the "Seller"), FIRST HORIZON HOME LOAN CORPORATION, a
Kansas corporation, as master servicer (the "Master Servicer"),  THE HUNTINGTON
MORTGAGE COMPANY, an Ohio corporation, as servicer (the "Servicer"), and THE
BANK OF NEW YORK, a banking corporation organized under the laws of the State of
New York, as trustee (the "Trustee").

                                WITNESSETH THAT

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

                             PRELIMINARY STATEMENT

     The Depositor is the owner of the Trust Fund that is hereby conveyed to the
Trustee in return for the Certificates. The Trust Fund created hereby will
consist of a single REMIC for federal income tax purposes.  The Certificates
will represent the entire beneficial ownership interest in the Trust Fund. The
Classes of Certificates designated as the Regular Certificates will represent
"regular interests" in the REMIC.  The Class I-A-R Certificates will represent
the sole class of residual interests in the REMIC.  The "latest possible
maturity date" for federal income tax purposes of all interests created hereby
will be the Latest Possible Maturity Date.

     As used herein, (i) each Component is "related" to the other Components of
the same Loan Group having the identical parenthetical numerical designation as
such Loan Group, (ii) each Certificate Group is "related" to the Loan Group
having the identical numerical designation, and (iii) each Senior Certificate is
"related" to the Loan Group and Certificate Group having the identical numerical
designation.

     When reference is made herein to the "ranking" or "priority" of a
Certificate, the highest ranking Certificate is the Certificate with the lowest
numerical designation and the lowest ranking Certificate is the Certificate with
the highest ranking numerical designation.  When reference is made herein to the
"ranking" or "priority"  of a Component, such reference shall be deemed to be a
reference to the "ranking" or "priority" of the Class of Certificates of which
such Component is a part.

     The following table sets forth characteristics of the Certificates,
together with the minimum denominations and integral multiples in excess thereof
in which such Classes shall be issuable (except that one Certificate of each
Class of Certificates may be issued in a different amount and, in addition, one
Residual Certificate representing the Tax Matters Person Certificate may be
issued in a different amount):

                  [Remainder of Page Intentionally Left Blank]
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
     Class          Initial Class      Initial Pass-     Minimum     Integral Multiples in
  Designation    Certificate Balance    Through Rate   Denomination   in Excess  Minimum
------------------------------------------------------------------------------------------
<S>              <C>                   <C>             <C>           <C>
Class I-A              $82,062,000.00          7.000%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class I-A-R            $       100.00          7.000%      $    100           N/A
------------------------------------------------------------------------------------------
Class I-B-1            $ 2,229,000.00          7.000%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class I-B-2            $ 1,562,000.00          7.000%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class II-A             $35,737,000.00          7.292%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class II-B-1           $ 1,402,000.00          7.292%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class II-B-2           $   901,000.00          7.292%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class III-A            $49,389,000.00          6.352%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class III-B-1          $ 2,399,000.00          6.352%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class III-B-2          $ 1,411,000.00          6.352%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class IV-A             $91,572,000.00          6.228%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class IV-B-1           $ 2,737,000.00          6.228%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class IV-B-2           $ 1,493,000.00          6.228%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class V-A              $56,849,000.00          6.602%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class V-B-1            $ 2,204,000.00          6.602%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class V-B-2            $ 1,103,000.00          6.602%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class D-B-3            $ 4,262,000.00          6.637%      $ 25,000          $1,000
------------------------------------------------------------------------------------------
Class D-B-4            $ 5,440,000.00          6.628%      $250,000          $1,000
------------------------------------------------------------------------------------------
Class D-B-5            $ 2,728,000.00          6.641%      $250,000          $1,000
------------------------------------------------------------------------------------------
Class D-B-6            $ 2,731,672.60          6.641%      $250,000          $1,000
------------------------------------------------------------------------------------------
</TABLE>

Book-Entry Certificates..........   All Classes of Certificates other than the
                                    Physical Certificates.

Certificate Group 1..............   The Class I-A, Class I-A-R, Class I-B-1 and
                                    Class I-B-2 Certificates.

Certificate Group 2..............   The Class II-A, Class II-B-1 and Class
                                    II-B-2 Certificates.

Certificate Group 3..............   The Class III-A, Class III-B-1 and Class
                                    III-B-2 Certificates.

Certificate Group 4..............   The Class IV-A, Class IV-B-1 and Class
                                    IV-B-2 Certificates.

Certificate Group 5..............   The Class V-A, Class V-B-1 and Class V-B-2
                                    Certificates.

                                      -2-
<PAGE>

Certificate Group................   Any one of Certificate Groups 1, 2, 3, 4 or
                                    5 and, with respect to a Component of a
                                    Class D-B Certificate, the Certificate Group
                                    with a numerical designation that
                                    corresponds to the parenthetical numerical
                                    designation of such Component.

Class A Certificates.............   The Class I-A, Class I-A-R, Class II-A,
                                    Class III-A, Class IV-A and Class V-A
                                    Certificates.

Class B-1 Certificates...........   The Class I-B-1, Class II-B-1, Class
                                    III-B-1, Class IV-B-1 and Class V-B-1
                                    Certificates.

Class B-2 Certificates...........   The Class I-B-2, Class II-B-2, Class
                                    III-B-2, Class IV-B-2 and Class V-B-2
                                    Certificates.

Class D-B Certificates...........   The Class D-B-3, Class D-B-4, Class D-B-5
                                    and Class D-B-6 Certificates.

Components.......................   Each of the components having the
                                    designations, initial Component Principal
                                    Balances and initial Component Pass-Through
                                    Rates as follows:

<TABLE>
<CAPTION>
  Component    Initial Component   Initial Component
 Designation   Principal Balance   Pass-Through Rate
----------------------------------------------------
<S>            <C>                 <C>
D-B-3(1)            $  892,000.00              7.000%
----------------------------------------------------
D-B-3(2)            $  600,000.00              7.292%
----------------------------------------------------
D-B-3(3)            $  987,000.00              6.352%
----------------------------------------------------
D-B-3(4)            $  996,000.00              6.228%
----------------------------------------------------
D-B-3(5)            $  787,000.00              6.602%
----------------------------------------------------
D-B-4(1)            $1,204,000.00              7.000%
----------------------------------------------------
D-B-4(2)            $  681,000.00              7.292%
----------------------------------------------------
D-B-4(3)            $1,073,000.00              6.352%
----------------------------------------------------
D-B-4(4)            $1,443,000.00              6.228%
----------------------------------------------------
D-B-4(5)            $1,039,000.00              6.602%
----------------------------------------------------
D-B-5(1)            $  624,000.00              7.000%
----------------------------------------------------
D-B-5(2)            $  360,000.00              7.292%
----------------------------------------------------
D-B-5(3)            $  593,000.00              6.352%
----------------------------------------------------
D-B-5(4)            $  647,000.00              6.228%
----------------------------------------------------
</TABLE>

                                      -3-
<PAGE>

<TABLE>
<CAPTION>
<S>            <C>                 <C>

D-B-5(5)            $  504,000.00              6.602%
----------------------------------------------------
D-B-6(1)            $  625,316.12              7.000%
----------------------------------------------------
D-B-6(2)            $  361,297.82              7.292%
----------------------------------------------------
D-B-6(3)            $  592,717.63              6.352%
----------------------------------------------------
D-B-6(4)            $  647,518.91              6.228%
----------------------------------------------------
D-B-6(5)            $  504,822.12              6.602%
----------------------------------------------------
</TABLE>

ERISA-Restricted
Certificates.....................   The Residual Certificates and the
                                    Subordinate Certificates.

Loan Group.......................   Any one of Loan Group 1, Loan Group 2, Loan
                                    Group 3, Loan Group 4 or Loan Group 5.

Loan Group 1.....................   The aggregate of the Mortgage Loans
                                    identified on the Mortgage Loan Schedule as
                                    being included in Loan Group 1.

Loan Group 2.....................   The aggregate of the Mortgage Loans
                                    identified on the Mortgage Loan Schedule as
                                    being included in Loan Group 2.

Loan Group 3.....................   The aggregate of the Mortgage Loans
                                    identified on the Mortgage Loan Schedule as
                                    being included in Loan Group 3.

Loan Group 4.....................   The aggregate of the Mortgage Loans
                                    identified on the Mortgage Loan Schedule as
                                    being included in Loan Group 4.

Loan Group 5.....................   The aggregate of the Mortgage Loans
                                    identified on the Mortgage Loan Schedule as
                                    being included in Loan Group 5.

Offered Certificates.............   All Classes of Certificates other than the
                                    Private Subordinate Certificates.

Offered Subordinate
 Certificates....................   All Classes of Subordinate Certificates
                                    other than the Private Subordinate
                                    Certificates.

Physical Certificates............   The Private Subordinate Certificates and the
                                    Residual Certificates.

Private Subordinate
 Certificates....................   Class D-B-4, Class D-B-5 and Class D-B-6
                                    Certificates.

Rating Agency....................   S&P.

                                      -4-
<PAGE>

Regular Certificates.............   All Classes of Certificates, other than the
                                    Residual Certificates.

Residual Certificates............   Class I-A-R Certificates.

Senior Certificates..............   The Class A Certificates.

Subordinate Certificates.........   Class I-B-1, Class I-B-2, Class II-B-1,
                                    Class II-B-2, Class III-B-1, Class III-B-2,
                                    Class IV-B-1, Class IV-B-2, Class V-B-1,
                                    Class V-B-2, Class D-B-3, Class D-B-4, Class
                                    D-B-5 and Class D-B-6 Certificates.

     With respect to any of the foregoing designations as to which the
corresponding reference is "None," all defined terms and provisions herein
relating solely to such designations shall be of no force or effect, and any
calculations herein incorporating references to such designations shall be
interpreted without reference to such designations and amounts. Defined terms
and provisions herein relating to a statistical rating agency not designated
above as the Rating Agency shall be of no force or effect.

                  [Remainder of Page Intentionally Left Blank]

                                      -5-
<PAGE>

                                   ARTICLE I
                                  DEFINITIONS

     Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:

     Accrued Certificate Interest: For any Class of Certificates (other than a
Class of Class D-B Certificates) and any Component and any Distribution Date,
the interest accrued during the related Interest Accrual Period at the
applicable Pass-Through Rate on the Certificate Principal Balance (or Component
Principal Balance) of such Class of Certificates (or related Components)
immediately prior to such Distribution Date, less such Class'  (or Component's)
share of any Net Interest Shortfall.  The Accrued Certificate Interest for any
Class of Class D-B Certificates on any Distribution Date shall be equal to the
sum of the Accrued Certificate Interest for such Distribution Date on the
Components of such Class.

     Advance: The payment required to be made by the Servicer with respect to
any Distribution Date pursuant to Section 4.1, the amount of any such payment
being equal to the aggregate of payments of principal and interest (net of the
Servicing Fee and net of any net income in the case of any REO Property) on the
Mortgage Loans that were due on the related Due Date and not received as of the
close of business on the related Determination Date, less the aggregate amount
of any delinquent payments that the Servicer has determined would constitute a
Nonrecoverable Advance if advanced.

     Agreement: This Pooling and Servicing Agreement and all amendments or
supplements hereto.

     Amount Held for Future Distribution: As to any Distribution Date and a Loan
Group, the aggregate amount held in the applicable subaccount of the Collection
Account at the close of business on the related Determination Date on account of
(i) Principal Prepayments received in respect of the related Mortgage Loans
after the related Prepayment Period and Liquidation Proceeds received in respect
of the related Mortgage Loans in the month of such Distribution Date and (ii)
all Scheduled Payments in respect of the related Mortgage Loans due after the
related Due Date.

     Appraised Value: With respect to any Mortgage Loan, the Appraised Value of
the related Mortgaged Property shall be: (i) with respect to a Mortgage Loan
other than a Refinancing Mortgage Loan, the lesser of (a) the value of the
Mortgaged Property based upon the appraisal made at the time of the origination
of such Mortgage Loan and (b) the sales price of the Mortgaged Property at the
time of the origination of such Mortgage Loan; (ii) with respect to a
Refinancing Mortgage Loan other than a Streamlined Documentation Mortgage Loan,
the value of the Mortgaged Property based upon the appraisal made at the time of
the origination of such Refinancing Mortgage Loan; and (iii) with respect to a
Streamlined Documentation Mortgage Loan, (a) if the loan-to-value ratio with
respect to the Original Mortgage Loan at the time of the origination thereof was
90% or less, the value of the Mortgaged Property based upon the appraisal made
at the time of the origination of the Original Mortgage Loan and (b) if the
loan-to-value ratio with respect to the Original Mortgage Loan at the time of
the origination thereof was greater than 90%, the value of the Mortgaged
Property

                                      -6-
<PAGE>

based upon the appraisal (which may be a drive-by appraisal) made at the time of
the origination of such Streamlined Documentation Mortgage Loan.

     ARM Loan:  A Mortgage Loan that bears interest at a per annum rate that is
subject to periodic adjustment in accordance with the terms of the related
Mortgage Note.

     Available Funds:  With respect to any Distribution Date and any Certificate
Group, an amount equal to the sum for such group of:

     .    all scheduled installments of interest, net of the Expense Fees, and
          all scheduled installments of principal due on the Due Date in the
          month in which the Distribution Date occurs and received before the
          related Determination Date, together with any Advances in respect
          thereof;

     .    all Insurance Proceeds and all Liquidation Proceeds during the
          calendar month before the Distribution Date, which in each case is net
          of unreimbursed expenses incurred in connection with a liquidation or
          foreclosure and unreimbursed Advances, if any;

     .    all Principal Prepayments received during the related Prepayment
          Period, plus interest received thereon, net of any Prepayment Interest
          Excess;

     .    any Compensating Interest in respect of Principal Prepayments in Full
          received during the related Prepayment Period; and

     .    any Substitution Adjustment Amount or the Purchase Price for any
          Deleted Mortgage Loan or a Mortgage Loan repurchased by the Seller or
          the Servicer as of such Distribution Date, reduced by amounts  in
          reimbursement for Advances previously made and other amounts that the
          Servicer is entitled to be reimbursed for out of the Collection
          Account pursuant to this Agreement.

     Bankruptcy Code: The United States Bankruptcy Reform Act of 1978, as
amended.

     Bankruptcy Coverage Termination Date: As to any Loan Group, the point in
time at which the related Bankruptcy Loss Coverage Amount is reduced to zero.

     Bankruptcy Loss:  With respect to any Mortgage Loan, a Deficient Valuation
or Debt Service Reduction; provided, however, that a Bankruptcy Loss shall not
be deemed a Bankruptcy Loss hereunder so long as the Servicer has notified the
Trustee in writing that the Servicer is diligently pursuing any remedies that
may exist in connection with the related Mortgage Loan and either (A) the
related Mortgage Loan is not in default with regard to payments due thereunder
or (B) delinquent payments of principal and interest under the related Mortgage
Loan and any related escrow payments in respect of such Mortgage Loan are being
advanced on a current basis by the Servicer, in either case without giving
effect to any Debt Service Reduction or Deficient Valuation.

     Bankruptcy Loss Coverage Amount: As of any Determination Date and any Loan
Group, the Bankruptcy Loss Coverage Amount shall equal the Initial Bankruptcy
Coverage Amount for such Loan Group as reduced by (i) the aggregate amount of
Bankruptcy Losses allocated to the related

                                      -7-
<PAGE>

Certificates (or Components thereof) since the Cut-off Date and (ii) any
permissible reductions in the Bankruptcy Loss Coverage Amount for such Loan
Group as evidenced by a letter of the Rating Agency to the Trustee to the effect
that any such reduction will not result in a downgrading of the then current
ratings assigned to the Classes of Certificates rated by it.

     Book-Entry Certificates: As specified in the "Preliminary Statement".

     Business Day: Any day other than (i) a Saturday or a Sunday, or (ii) a day
on which banking institutions in Columbus, Ohio, Memphis, Tennessee, Dallas,
Texas or the city in which the Corporate Trust Office of the Trustee is located
are authorized or obligated by law or executive order to be closed.

     Certificate: Any one of the Certificates executed by the Trustee in
substantially the forms attached hereto as Exhibits A through E.

     Certificate Principal Balance: With respect to any Certificate and as of
any Distribution Date, the Certificate Principal Balance on the date of the
initial issuance of such Certificate, as reduced by:

     .    all amounts distributed on previous Distribution Dates on such
          Certificate on account of principal;

     .    the principal portion of all Realized Losses previously allocated to
          such Certificate; and

     .    in the case of a Class B-1 or Class B-2 Certificate, such
          Certificate's pro rata share, if any, of the Writedown Amount for
          previous Distribution Dates.

     .    in the case of a Class D-B Certificate, such Certificate's pro rata
          share, if any, of the Writedown Amount for previous Distribution
          Dates.

     Certificate Owner: With respect to a Book-Entry Certificate, the Person who
is the beneficial owner of such Book-Entry Certificate.

     Certificate Register: The register maintained pursuant to Section 5.2
hereof.

     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 pursuant to this Agreement, any Certificate registered in the
name of the Depositor or any affiliate of the Depositor shall be deemed not to
be Outstanding and the Percentage Interest evidenced thereby shall not be taken
into account in determining whether the requisite amount of Percentage Interests
necessary to effect such consent has been obtained; provided, however, that if
any such Person (including the Depositor) owns 100% of the Percentage Interests
evidenced by a Class of Certificates, such Certificates shall be deemed to be
Outstanding for purposes of any provision hereof that requires the consent of
the Holders of Certificates of a particular Class as a condition to the taking
of any action hereunder. The Trustee is entitled to rely conclusively on a
certification of the Depositor or any affiliate of the Depositor in determining
which Certificates are registered in the name of an affiliate of the Depositor.

                                      -8-
<PAGE>

     Class: All Certificates bearing the same class designation as set forth in
the "Preliminary Statement".

     Class Principal Balance: With respect to any Class of Certificates (other
than a Class of Class D-B Certificates) and as of any Distribution Date, the
Class Principal Balance on the date of the initial issuance of such Certificate,
as reduced by:

     .    all amounts distributed on previous Distribution Dates on such Class
          of Certificates on account of principal;

     .    the principal portion of all Realized Losses previously allocated to
          such Class of Certificates;

     .    in the case of the Class B-1 and Class B-2 Certificates, such Class of
          Certificate's pro rata share, if any, of the Writedown Amount for
          previous Distribution Dates.

     With respect to any Class of Class D-B Certificates and any Distribution
Date, the Class Principal Balance will be equal to the sum of the Component
Principal Balances of all Components thereof for such Distribution Date.

     Closing Date: September 27, 2000.

     Code: The Internal Revenue Code of 1986, including any successor or
amendatory provisions.

     Collection Account: The separate Eligible Account or Accounts created and
maintained by the Servicer pursuant to Section 3.5 with a depository institution
in the name of the Servicer for the benefit of the Trustee on behalf of
Certificateholders and designated "The Huntington Mortgage Company in trust for
the registered holders of First Horizon Asset Securities Inc. Mortgage Pass-
Through Certificates Series 2000-H."

     Compensating Interest: As to any Distribution Date and any Mortgage Loan
that prepaid in full during the period from the sixteenth day of the month prior
to the month of such Distribution Date through the last day of such month, an
additional payment made by the Servicer, to the extent funds are available from
the Servicing Fee, equal to the amount of interest at the Net Mortgage Rate for
that Mortgage Loan from the date of the prepayment to the related Due Date;
provided that the aggregate of all such payments shall not exceed an amount
equal to 10% of the aggregate of all Servicing Fees for such Distribution Date.

     Component:  As defined in the  "Preliminary Statement".

     Component Pass-Through Rate:  With respect to each Distribution Date and
any Component, a per annum rate equal to the weighted average of the Net
Mortgage Rates of the Mortgage Loans in the related Loan Group on the first day
of the month preceding the month in which such Distribution Date occurs.

                                      -9-
<PAGE>

     Component Principal Balance:  With respect to any Distribution Date and any
Component, the Component Principal Balance of such Component as of the Closing
Date, reduced by all amounts previously distributed on such Component in respect
of principal, the principal portion of any Realized Losses previously allocated
to such Component and any Writedown Amount previously allocated to such
Component.

     Conversion Option:  With respect to an ARM Loan, an option granted under
the terms of the related Mortgage Note pursuant to which the Mortgagor may
convert the adjustable Mortgage Rate for such ARM Loan to a fixed rate.

     Convertible Mortgage Loan:  An ARM Loan which, pursuant to the terms of the
related Mortgage Note, may be converted into a fixed rate Mortgage Loan at the
option of the related Mortgagor.

     Cooperative Corporation: The entity that holds title (fee or an acceptable
leasehold estate) to the real property and improvements constituting the
Cooperative Property and which governs the Cooperative Property, which
Cooperative Corporation must qualify as a Cooperative Housing Corporation under
Section 216 of the Code.

     Coop Shares: Shares issued by a Cooperative Corporation.

     Cooperative Loan: Any Mortgage Loan secured by Coop Shares and a
Proprietary Lease.

     Cooperative Property: The real property and improvements owned by the
Cooperative Corporation, including the allocation of individual dwelling units
to the holders of the Coop Shares of the Cooperative Corporation.

     Cooperative Unit: A single family dwelling located in a Cooperative
Property.

     Corporate Trust Office: The designated office of the Trustee in the State
of New York at which at any particular time its corporate trust business with
respect to this Agreement shall be administered, which office at the date of the
execution of this Agreement is located at The Bank of New York, 101 Barclay
Street, 12E New York, New York 10286 (Attn: Corporate Trust Mortgage-Backed
Securities Group, First Horizon Asset Securities Inc. Series 2000-H), facsimile
no. (212) 815-4135, and which is the address to which notices to and
correspondence with the Trustee should be directed.

     Cross-Over Date:  With respect to a Certificate Group, the Distribution
Date on which the respective Class Principal Balances of the related Subordinate
Certificates  (or, in the case of the Class D-B Certificates, the Component
Principal Balances of all related Components thereof) have been reduced to zero.

                                     -10-
<PAGE>

     Custodial Fee: As to each Mortgage Loan and any Distribution Date, an
amount payable out of each full payment of interest received on such Mortgage
Loan and equal to one-twelfth of the Custodial Fee Rate multiplied by the Stated
Principal Balance of such Mortgage Loan as of the Due Date in the month of such
Distribution Date (prior to giving effect to any Scheduled Payments due on such
Mortgage Loan on such Due Date); provided that the Custodial Fee for the fixed
rate Mortgage Loans with Mortgage Rates of 7.00% shall be fixed at an agreed
upon amount and shall be paid to the Trustee by the Servicer or its designee in
one lump sum within 30 days after the Closing Date.

     Custodial Fee Rate: For each Mortgage Loan, a per annum rate equal to
0.0025%.

     Cut-off Date: September 1, 2000.

     Cut-off Date Pool Principal Balance:  $348,211,772.60.

     Cut-off Date Principal Balance: As to any Mortgage Loan, the Stated
Principal Balance thereof as of the close of business on the Cut-off Date.

     Debt Service Reduction: With respect to any Mortgage Loan, a reduction by a
court of competent jurisdiction in a proceeding under the Bankruptcy Code in the
Scheduled Payment for such Mortgage Loan which became final and non-appealable,
except such a reduction resulting from a Deficient Valuation or any reduction
that results in a permanent forgiveness of principal.

     Deficient Valuation: With respect to any Mortgage Loan, a valuation by a
court of competent jurisdiction of the Mortgaged Property in an amount less than
the then-outstanding indebtedness under the Mortgage Loan, or any reduction in
the amount of principal to be paid in connection with any Scheduled Payment that
results in a permanent forgiveness of principal, which valuation or reduction
results from an order of such court which is final and non-appealable in a
proceeding under the Bankruptcy Code.

     Definitive Certificates: Any Certificate evidenced by a Physical
Certificate and any Certificate issued in lieu of a Book-Entry Certificate
pursuant to Section 5.2(e).

     Deleted Mortgage Loan: As defined in Section 2.3(c) hereof.

     Denomination: With respect to each Certificate, the amount set forth on the
face thereof as the "Initial Certificate Balance of this Certificate" or the
Percentage Interest appearing on the face thereof.

     Depositor: First Horizon Asset Securities Inc., a Delaware corporation, or
its successor in interest.

     Depository: The initial Depository shall be The Depository Trust Company,
the nominee of which is CEDE & Co., as the registered Holder of the Book-Entry
Certificates. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(a)(5) of the Uniform Commercial Code 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.

                                     -11-
<PAGE>

     Determination Date: As to any Distribution Date, the earlier of (i) the
third Business Day after the 15th day of each month, and (ii) the second
Business Day prior to the related Distribution Date.

     Distribution Account: The separate Eligible Account created and maintained
by the Trustee pursuant to Section 3.5 in the name of the Trustee for the
benefit of the Certificateholders and designated "The Bank of New York, in trust
for registered Holders of First Horizon Asset Securities Inc. Mortgage Pass-
Through Certificates, Series 2000-H." Funds in the applicable subaccount of the
Distribution Account shall be held in trust for the related Certificateholders
for the uses and purposes set forth in this Agreement.

     Distribution Date: The 25th day of each calendar month after the initial
issuance of the Certificates, or if such 25th day is not a Business Day, the
next succeeding Business Day, commencing in October 2000.

     Due Date: With respect to any Distribution Date, the first day of the month
in which the related Distribution Date occurs.

     Eligible Account: Any of (i) an account or accounts maintained with a
federal or state chartered depository institution or trust company the short-
term unsecured debt obligations of which (or, in the case of a depository
institution or trust company that is the principal subsidiary of a holding
company, the debt obligations of such holding company) have the highest short-
term ratings of the Rating Agency at the time any amounts are held on deposit
therein, or (ii) an account or accounts in a depository institution or trust
company in which such accounts are insured by the FDIC or the SAIF (to the
limits established by the FDIC or the SAIF, as applicable) and the uninsured
deposits in which accounts are otherwise secured such that, as evidenced by an
Opinion of Counsel delivered to the Trustee and to the Rating Agency, the
Certificateholders have a claim with respect to the funds in such account or a
perfected first priority security interest against any collateral (which shall
be limited to Permitted Investments) securing such funds that is superior to
claims of any other depositors or creditors of the depository institution or
trust company in which such account is maintained, or (iii) a trust account or
accounts maintained with (a) the trust department of a federal or state
chartered depository institution or (b) a trust company, acting in its fiduciary
capacity or (iv) any other account acceptable to the Rating Agency.  Eligible
Accounts may bear interest, and may include, if otherwise qualified under this
definition, accounts maintained with the Trustee or the Servicer.

     ERISA: The Employee Retirement Income Security Act of 1974, as amended.

     ERISA-Restricted Certificate: As specified in the "Preliminary Statement".

     Escrow Account: The Eligible Account or Accounts established and maintained
pursuant to Section 3.6(a) hereof.

     Event of Default: As defined in Section 7.1 hereof.

     Excess Loss:  As to any Loan Group, the amount of any (i) Fraud Loss
realized after the related Fraud Loss Coverage Termination Date, (ii) Special
Hazard Loss realized after the related

                                     -12-
<PAGE>

Special Hazard Coverage Termination Date or (iii) Deficient Valuation realized
after the related Bankruptcy Coverage Termination Date.

     Excess Proceeds: With respect to any Liquidated Mortgage Loan, the amount,
if any, by which the sum of any Liquidation Proceeds of such Mortgage Loan
received in the calendar month in which such Mortgage Loan became a Liquidated
Mortgage Loan, net of any amounts previously reimbursed to the Servicer as
Nonrecoverable Advance(s) with respect to such Mortgage Loan pursuant to Section
3.8(a)(iii), exceeds (i) the unpaid principal balance of such Liquidated
Mortgage Loan as of the Due Date in the month in which such Mortgage Loan became
a Liquidated Mortgage Loan plus (ii) accrued interest at the Mortgage Rate from
the Due Date as to which interest was last paid or advanced (and not reimbursed)
to Certificateholders up to the Due Date applicable to the Distribution Date
immediately following the calendar month during which such liquidation occurred.

     Expense Fees:  With respect to each Distribution Date, the sum of the
Servicing Fee, the Master Servicing Fee and the Custodial Fee for such
Distribution Date.

     Expense Rate: As to each Mortgage Loan, the sum of the related Servicing
Fee Rate, the Master Servicing Fee Rate and the Custodial Fee Rate; provided
that the Expense Rate will be 0.00% with respect to each fixed rate Mortgage
Loan with a Mortgage Rate of 7.00%.

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

     FHLMC: The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.

     FNMA: The Federal National Mortgage Association, a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, or any successor thereto.

     Fraud Losses: Realized Losses on Mortgage Loans as to which a loss is
sustained by reason of a default arising from fraud, dishonesty or
misrepresentation in connection with the related Mortgage Loan, including a loss
by reason of the denial of coverage under any related Primary Insurance Policy
because of such fraud, dishonesty or misrepresentation.

     Fraud Loss Coverage Amount: As of the Closing Date and with respect to a
Loan Group, the Initial Fraud Loss Coverage Amount.  As of any Distribution Date
prior to the third anniversary of the Cut-off Date, the Fraud Loss Coverage
Amount for a Loan Group will equal the related Initial Fraud Loss Coverage
Amount, less the aggregate amount of Fraud Losses that would have been allocated
to the related Subordinate Certificates or related Components in the absence of
the Loss Allocation Limitation since the Cut-off Date.  As of any Distribution
Date from the third to the fifth anniversaries of the Cut-off Date, the Fraud
Loss Coverage Amount for a Loan Group will equal (1) the lesser of (a) the Fraud
Loss Coverage Amount for such Loan Group as of the most recent anniversary of
the Cut-off Date and (b) 0.5% of the aggregate outstanding principal balance of
all of the Mortgage Loans in such Loan Group  as of the most recent anniversary
of the Cut-off Date minus (2) the Fraud Losses that would have been allocated to
the Subordinate Certificates or related Components in the absence of the Loss
Allocation Limitation since the most recent anniversary of

                                     -13-
<PAGE>

the Cut-off Date. As of any Distribution Date on or after the earlier of the
Cross-Over Date or the fifth anniversary of the Cut-off Date, the Fraud Loss
Coverage Amount for each Loan Group shall be zero.

     Fraud Loss Coverage Termination Date:  As to any Loan Group, the point in
time at which the related Fraud Loss Coverage Amount is reduced to zero.

     Index: A per annum rate equal to the weekly average yield on U.S. Treasury
securities adjusted to a constant maturity of one year as reported by the
Federal Reserve Board in statistical Release No. H.15(519) as most recently
available as of the date forty-five days, thirty-five days or thirty days prior
to the adjustment date or on the adjustment date.

     Initial Bankruptcy Loss Coverage Amount:  With respect to each of Loan
Groups 1, 2, 3, 4 and 5, $100,000.

     Initial Fraud Loss Coverage Amount:  With respect to Loan Groups 1, 2, 3, 4
and 5, $1,783,968, $1,201,269, $1,693,342, $1,990,710 and $1,259,816,
respectively.

     Initial Seller:  The Huntington National Bank, a national banking
association, and its successors and assigns.

     Initial Special Hazard Loss Coverage Amount:  With respect to Loan Groups
1, 2, 3, 4 and 5, $6,349,827, $3,436,433, $3,894,689, $5,922,655 and $3,873,269,
respectively.

     Insurance Policy: With respect to any Mortgage Loan included in the Trust
Fund, any insurance policy, including all riders and endorsements thereto in
effect, including any replacement policy or policies for any Insurance Policies.

     Insurance Proceeds: Proceeds paid by an insurer pursuant to any Insurance
Policy, in each case other than any amount included in such proceeds in respect
of Insured Expenses.

     Insured Expenses: Expenses covered by an Insurance Policy.

     Interest Accrual Period: With respect to each Class of Certificates and any
Distribution Date, the one-month period beginning immediately following the end
of the preceding Interest Accrual Period (or from the Cut-off Date, in the case
of the first Interest Accrual Period) and ending on the last day of the month
preceding the month in which such Distribution Date occurs.

     Latest Possible Maturity Date: The Distribution Date following the third
anniversary of the scheduled maturity date of the Mortgage Loan having the
latest scheduled maturity date as of the Cut-off Date.

     Liquidated Mortgage Loan: With respect to any Distribution Date, a
defaulted Mortgage Loan (including any REO Property) which was liquidated in the
calendar month preceding the month of such Distribution Date and as to which the
Servicer has determined (in accordance with this Agreement) that it has received
all amounts it expects to receive in connection with the liquidation of such
Mortgage Loan, including the final disposition of an REO Property.

                                     -14-
<PAGE>

     Liquidation Proceeds: Amounts, excluding Insurance Proceeds, received in
connection with the partial or complete liquidation of defaulted Mortgage Loans,
whether through trustee's sale, foreclosure sale or otherwise or amounts
received in connection with any condemnation or partial release of a Mortgaged
Property and any other proceeds received in connection with an REO Property,
less the sum of related unreimbursed Servicing Fees, Servicing Advances and
Advances.

     Loan-to-Value Ratio:  With respect to any Mortgage Loan and as to any date
of determination, the fraction (expressed as a percentage) the numerator of
which is the principal balance of the related Mortgage Loan at such date of
determination and the denominator of which is the Appraised Value of the related
Mortgaged Property.

     Loss Allocation Limitation: As defined in Section 4.4(h).

     Lost Mortgage Note: Any Mortgage Note the original of which was permanently
lost or destroyed and has not been replaced.

     Majority in Interest: As to any Class of Regular Certificates, the Holders
of Certificates of such Class evidencing, in the aggregate, at least 51% of the
Percentage Interests evidenced by all Certificates of such Class.

     Master Servicer: First Horizon Home Loan Corporation, a Kansas corporation,
and its successors and assigns, in its capacity as Master Servicer hereunder.

     Master Servicing Fee: As to each Mortgage Loan and any Distribution Date,
an amount payable out of each full payment of interest received on such Mortgage
Loan and equal to one-twelfth of the Master Servicing Fee Rate multiplied by the
Stated Principal Balance of such Mortgage Loan as of the Due Date in the month
of such Distribution Date (prior to giving effect to any Scheduled Payments due
on such Mortgage Loan on such Due Date).

     Master Servicing Fee Rate: For each Mortgage Loan, a per annum rate equal
to 0.025%; provided that the Master Servicing Fee Rate shall be 0.000% with
respect to each fixed rate Mortgage Loan with a Mortgage Rate of 7.00%.

     Monthly Statement:  The statement delivered to the Certificateholders
pursuant to Section 4.5.

     Mortgage: The mortgage, deed of trust or other instrument creating a first
lien on an estate in fee simple or leasehold interest in real property securing
a Mortgage Note.

     Mortgage File: The mortgage documents listed in Section 2.1 hereof
pertaining to a particular Mortgage Loan and any additional documents delivered
to the Trustee to be added to the Mortgage File pursuant to this Agreement.

     Mortgage Loan Purchase Agreement:  The Mortgage Loan Purchase Agreement
dated as of September 27, 2000 by and between the Initial Seller, as seller, and
the Seller, as purchaser.

                                     -15-
<PAGE>

     Mortgage Loans:  Each of the mortgage loans transferred and assigned to the
Trustee pursuant to the provisions hereof as from time to time are held as a
part of the Trust Fund (including any REO Property), the mortgage loans so held
being identified in the Mortgage Loan Schedule, notwithstanding foreclosure or
other acquisition of title of the related Mortgaged Property.

     Mortgage Loan Schedule: The list of Mortgage Loans (as from time to time
amended by the Servicer to reflect the addition of Substitute Mortgage Loans and
the deletion of Deleted Mortgage Loans pursuant to the provisions of this
Agreement) transferred to the Trustee as part of the Trust Fund and from time to
time subject to this Agreement, attached hereto as Schedule I, setting forth the
following information with respect to each Mortgage Loan:

     (i)    the loan number;

     (ii)   the Mortgagor's name and the street address of the Mortgaged
            Property, including the zip code;

     (iii)  the maturity date;

     (iv)   the original principal balance;

     (v)    the Cut-off Date Principal Balance;

     (vi)    the Scheduled Payment in effect as of the Cut-off Date;

     (vii)   if available, the Loan-to-Value Ratio at the Cut-off Date;

     (viii)  if available, a code indicating whether the residential
dwelling at the time of origination was represented to be owner-occupied;

     (ix)   if available, a code indicating whether the residential dwelling is
either (a) a detached single family dwelling (b) a dwelling in a PUD, (c) a
condominium unit, (d) a two- to four-unit residential property or (e) a
Cooperative Unit;

     (x)    the Mortgage Rate; and

     (xi)   the Servicing Fee Rate for the Mortgage Loan.

     Such schedule shall also set forth the total of the amounts described under
(iv) and (v) above for all of the Mortgage Loans.

     Mortgage Note: The original executed note or other evidence of indebtedness
evidencing the indebtedness of a Mortgagor under a Mortgage Loan.

     Mortgage Rate: The annual rate of interest borne by a Mortgage Note from
time to time, net of any interest premium charged by the mortgagee to obtain or
maintain any Primary Insurance Policy.

                                     -16-
<PAGE>

     Mortgaged Property: The underlying property securing a Mortgage Loan,
which, with  respect to a Cooperative Loan, is the related Coop Shares and
Proprietary Lease.

     Mortgagor: The obligor(s) on a Mortgage Note.

     Net Interest Shortfall: For any Distribution Date and any Loan Group, the
sum of (a) the amount of interest which would otherwise have been received for
any Mortgage Loan in such Loan Group that was the subject of (x) a Relief Act
Reduction or (y) a Special Hazard Loss, Fraud Loss, or Deficient Valuation,
after the exhaustion of the respective amounts of coverage provided by the
related Subordinate Certificates for those types of losses; and (b) any Net
Prepayment Interest Shortfalls.  Net Interest Shortfalls for a Loan Group on any
Distribution Date will be allocated pro rata among all Classes of Certificates
(other than Class D-B Certificates) and Components of such Loan Group based on
the amount of interest each of those Classes of Certificates and Components
would otherwise be entitled to receive on that Distribution Date before taking
into account any reduction in such amounts resulting from such Net Interest
Shortfalls.

     Net Mortgage Rate: As to each Mortgage Loan, and at any time, the per annum
rate equal to the Mortgage Rate less the related Expense Rate.

     Net Prepayment Interest Shortfalls: As to any Distribution Date and any
Loan Group, the amount by which the aggregate of Prepayment Interest Shortfalls
during the related Prepayment Period exceeds an amount equal to the Compensating
Interest, if any, for such Distribution Date.

     Nonrecoverable Advance: Any portion of an Advance or Servicing Advance
previously made or proposed to be made by the Servicer that, in the good faith
judgment of the Servicer, will not be ultimately recoverable by the Servicer
from the related Mortgagor, related Liquidation Proceeds or otherwise.

     Non-Permitted Transferee:  A Person that is not a Permitted Transferee.

     Non-U.S. Person: A Person that is (i) an individual other than a citizen or
resident of the United States, (ii) a partnership, corporation or entity treated
as a partnership or corporation for U.S. federal income tax purposes not formed
under the laws of the United States, any state thereof or the District of
Columbia (unless, in the case of a partnership, Treasury regulations provide
otherwise), (iii) any estate, the income of which is not subject to U.S. federal
income taxation, regardless of source, and (iv) any trust, other than a trust
that a court within the United States is able to exercise primary supervision
over the administration of the trust and one or more U.S. Persons have the
authority to control all substantial decisions of the trust.

     Offered Certificates: As specified in the "Preliminary Statement".

     Officer's Certificate: A Certificate (i) signed by the Chairman of the
Board, the Vice Chairman of the Board, the President, a Managing Director, a
Vice President (however denominated), an Assistant Vice President, the
Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or the Servicer, or (ii), if provided for in this
Agreement, signed by a Servicing Officer, as the case may be, and delivered to
the Depositor and the Trustee, as the case may be, as required by this
Agreement.

                                     -17-
<PAGE>

     Opinion of Counsel: A written opinion of counsel, who may be counsel for
the Depositor, the Master Servicer or the Servicer, including in-house counsel,
reasonably acceptable to the Trustee; provided, however, that with respect to
the interpretation or application of the REMIC Provisions, such counsel must (i)
in fact be independent of the Depositor, the Master Servicer and the Servicer,
(ii) not have any direct material financial interest in the Depositor, the
Master Servicer, the Servicer or in any affiliate thereof, and (iii) not be
connected with the Depositor, the Master Servicer or the Servicer as an officer,
employee, promoter, underwriter, trustee, partner, director or person performing
similar functions.

     Original Group Subordinate Amount:  As to any Loan Group, the sum of the
aggregate initial Class Principal Balances of the related Offered Subordinated
Certificates (other than the Class D-B-3 Certificates) and the aggregate initial
Component Principal Balances of the related Components.

     Original Mortgage Loan: The Mortgage Loan refinanced in connection with the
origination of a Refinancing Mortgage Loan.

     Original Subordination Level:  With respect to each Class of Subordinate
Certificates of a Certificate Group (or related Components), the Subordination
Level for such Class (or Component) on the Closing Date.

     OTS: The Office of Thrift Supervision.

     Outstanding: With respect to the Certificates as of any date of
determination, all Certificates theretofore executed and authenticated under
this Agreement except:

         (i)  Certificates theretofore canceled by the Trustee or delivered to
     the Trustee for cancellation; and

         (ii) Certificates in exchange for which or in lieu of which other
     Certificates have been executed and delivered by the Trustee pursuant to
     this Agreement.

     Outstanding Mortgage Loan: As of any Due Date, a Mortgage Loan with a
Stated Principal Balance greater than zero.

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

     Pass-Through Rate: With respect to each Distribution Date and for each
Class of Certificates in Certificate Group 1, 7.00% per annum.  With respect to
each Distribution Date and for each Class of Certificates in Certificate Groups
2, 3, 4 and 5, a per annum rate equal to the weighted average of the Net
Mortgage Rates of the Mortgage Loans in the related Loan Group as of the
beginning of the related Interest Accrual Period.

     Percentage Interest: As to any Certificate, the percentage interest
evidenced thereby in distributions required to be made on the related Class,
such percentage interest being set forth on the

                                     -18-
<PAGE>

face thereof or equal to the percentage obtained by dividing the Denomination of
such Certificate by the aggregate of the Denominations of all Certificates of
the same Class.

     Permitted Investments: At any time, any one or more of the following
obligations and securities:

         (i)    obligations of the United States or any agency thereof, provided
     such obligations are backed by the full faith and credit of the United
     States;

         (ii)   general obligations of or obligations guaranteed by any state of
     the United States or the District of Columbia receiving the highest
     long-term debt rating of the Rating Agency, or such lower rating as will
     not result in the downgrading or withdrawal of the ratings then assigned to
     the Certificates by the Rating Agency;

         (iii)  commercial or finance company paper which is then receiving the
     highest commercial or finance company paper rating of the Rating Agency, or
     such lower rating as will not result in the downgrading or withdrawal of
     the ratings then assigned to the Certificates by the Rating Agency;

         (iv)   certificates of deposit, demand or time deposits, or bankers'
     acceptances issued by any depository institution or trust company
     incorporated under the laws of the United States or of any state thereof
     and subject to supervision and examination by federal and/or state banking
     authorities, provided that the commercial paper and/or long term unsecured
     debt obligations of such depository institution or trust company (or in the
     case of the principal depository institution in a holding company system,
     the commercial paper or long-term unsecured debt obligations of such
     holding company) are then rated one of the two highest long-term and the
     highest short-term ratings of the Rating Agency for such securities, or
     such lower ratings as will not result in the downgrading or withdrawal of
     the rating then assigned to the Certificates by the Rating Agency;

         (v)    demand or time deposits or certificates of deposit issued by any
     bank or trust company or savings institution to the extent that such
     deposits are fully insured by the FDIC;

         (vi)   guaranteed reinvestment agreements issued by any bank, insurance
     company or other corporation containing, at the time of the issuance of
     such agreements, such terms and conditions as will not result in the
     downgrading or withdrawal of the rating then assigned to the Certificates
     by the Rating Agency;

         (vii)  repurchase obligations with respect to any security described in
     clauses (i) and (ii) above, in either case entered into with a depository
     institution or trust company (acting as principal) described in clause (iv)
     above;

         (viii) securities (other than stripped bonds, stripped coupons or
     instruments sold at a purchase price in excess of 115% of the face amount
     thereof) bearing interest or sold at a discount issued by any corporation
     incorporated under the laws of the United States or any state thereof
     which, at the time of such investment, have one of the two highest ratings
     of the Rating Agency, or such lower rating as will not result in the
     downgrading or withdrawal of

                                     -19-
<PAGE>

     the rating then assigned to the Certificates by the Rating Agency as
     evidenced by a signed writing delivered by the Rating Agency;

         (ix) units of a taxable money-market portfolio having the highest
     rating assigned by the Rating Agency and restricted to obligations issued
     or guaranteed by the United States of America or entities whose obligations
     are backed by the full faith and credit of the United States of America and
     repurchase agreements collateralized by such obligations; and

         (x)  such other investments bearing interest or sold at a discount
     acceptable to the Rating Agency as will not result in the downgrading or
     withdrawal of the rating then assigned to the Certificates by the Rating
     Agency, as evidenced by a signed writing delivered by the Rating Agency;

     provided that no such instrument shall be a Permitted Investment if such
     instrument evidences the right to receive interest only payments with
     respect to the obligations underlying such instrument.

     Permitted Transferee: Any person other than (i) the United States, any
State or political subdivision thereof, or any agency or instrumentality of any
of the foregoing, (ii) a foreign government, International Organization or any
agency or instrumentality of either of the foregoing, (iii) an organization
(except certain farmers' cooperatives described in section 521 of the Code)
which is exempt from tax imposed by Chapter 1 of the Code (including the tax
imposed by section 511 of the Code on unrelated business taxable income) on any
excess inclusions (as defined in section 860E(c)(l) of the Code) with respect to
any Residual Certificate, (iv) rural electric and telephone cooperatives
described in section 1381(a)(2)(C) of the Code, (v) an "electing large
partnership" as defined in section 775 of the Code, (vi) a Person that is not
(a) a citizen or resident of the United States, (b) a corporation, partnership,
or other entity created or organized in or under the laws of the United States,
any state thereof or the District of Columbia, (c) an estate whose income from
sources without the United States is includible in gross income for United
States federal income tax purposes regardless of its connection with the conduct
of a trade or business within the United States or (d) a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust, unless such Person
has furnished the transferor and the Trustee with a duly completed Internal
Revenue Service Form 4224 or any applicable successor form, and (vii) any other
Person so designated by the Depositor based upon an Opinion of Counsel that the
Transfer of an Ownership Interest in a Residual Certificate to such Person may
cause any REMIC created hereunder to fail to qualify as a REMIC at any time that
the Certificates are Outstanding; provided, however, that if a person is
                                  --------
classified as a partnership under the Code, such person shall only be a
Permitted Transferee if all of its beneficial owners are described in subclauses
(a), (b), (c) or (d) of clause (vi) and the governing documents of such person
prohibits a transfer of any interest in such person to any person described in
clause (vi). The terms "United States," "State" and "International Organization"
shall have the meanings set forth in section 7701 of the Code or successor
provisions. A corporation will not be treated as an instrumentality of the
United States or of any State or political subdivision thereof for these
purposes if all of its activities are subject to tax and, with the exception of
the Federal Home Loan Mortgage Corporation, a majority of its board of directors
is not selected by such government unit.

                                     -20-
<PAGE>

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

     Physical Certificate: As specified in the "Preliminary Statement".

     Pool Principal Balance: As to any Distribution Date, the aggregate of the
Stated Principal Balances of the Mortgage Loans which were Outstanding Mortgage
Loans on the Due Date in the month preceding the month of such Distribution
Date.

     Prepayment Interest Excess: As to any Principal Prepayment received by the
Servicer from the first day through the fifteenth day of any calendar month
(other than the calendar month in which the Cut-off Date occurs), all amounts
paid by the related Mortgagor in respect of interest on such Principal
Prepayment.  All Prepayment Interest Excess shall be paid to the Servicer as
additional servicing compensation.

     Prepayment Interest Shortfall: As to any Distribution Date, Mortgage Loan
and Principal Prepayment received (a) during the period from the sixteenth day
of the month preceding the month of such Distribution Date through the last day
of such month, in the case of a Principal Prepayment in Full, or (b) during the
month preceding the month of such Distribution Date, in the case of a partial
Principal Prepayment, the amount, if any, by which one month's interest at the
related Net Mortgage Rate on such Principal Prepayment exceeds the amount of
interest actually paid by the Mortgagor in connection with such Principal
Prepayment.

     Prepayment Period: (a) With respect to any Principal Prepayments in Full
and any Distribution Date, the period from the sixteenth day of the month
preceding the month of such Distribution Date (or, in the case of the first
Distribution Date, from the Cut-off Date) through the fifteenth day of the month
of such Distribution Date, and (b) with respect to any other Principal
Prepayments and any Distribution Date, the month preceding the month of such
Distribution Date.

     Primary Insurance Policy: Each policy of primary mortgage guaranty
insurance or any replacement policy therefor with respect to any Mortgage Loan.

     Principal Payment Amount:  For any Distribution Date and Loan Group, the
sum of:

     .    scheduled principal payments on the Mortgage Loans due on the related
          Due Date;

     .    the principal portion of the Purchase Price received for any Mortgage
          Loan which was repurchased as permitted or required by this Agreement
          during the calendar month preceding the month of the Distribution
          Date; and

     .    any other unscheduled payments of principal which were received on
          the Mortgage Loans during the preceding calendar month, other than
          Principal Prepayments in Full, partial Principal Prepayments or
          Liquidation Proceeds.

                                     -21-
<PAGE>

     Principal Prepayment Amount:  For any distribution date and group, the sum
of all partial Principal Prepayments or Principal Prepayments in Full which were
received during the related Prepayment Period.

     Principal Prepayment: Any payment of principal by a Mortgagor on a Mortgage
Loan that is received in advance of its scheduled Due Date and is not
accompanied by an amount representing scheduled interest due on any date or
dates in any month or months subsequent to the month of prepayment. Partial
Principal Prepayments shall be applied by the Servicer in accordance with the
terms of the related Mortgage Note.

     Principal Prepayment in Full: Any Principal Prepayment made by a Mortgagor
of the entire principal balance of a Mortgage Loan.

     Private Subordinate Certificate: As specified in the "Preliminary
Statement".

     Proprietary Lease: With respect to any Cooperative Unit, a lease or
occupancy agreement between a Cooperative Corporation and a holder of related
Coop Shares.

     PUD: Planned Unit Development.

     Purchase Price: With respect to any Mortgage Loan required to be purchased
by the Seller pursuant to Section 2.2 or 2.3 hereof or purchased at the option
of the Servicer pursuant to Section 3.11, an amount equal to the sum of (i) 100%
of the unpaid principal balance of the Mortgage Loan on the date of such
purchase, and (ii) accrued interest thereon at the applicable Mortgage Rate (or
at the applicable Net Mortgage Rate if (x) the ultimate purchaser is the
Servicer or the Initial Seller or (y) if the purchaser is the Seller and the
Seller is the Servicer) from the date through which interest was last paid by
the Mortgagor to the Due Date in the month in which the Purchase Price is to be
distributed to Certificateholders.

     Qualified Insurer: A mortgage guaranty insurance company duly qualified as
such under the laws of the state of its principal place of business and each
state having jurisdiction over such insurer in connection with the insurance
policy issued by such insurer, duly authorized and licensed in such states to
transact a mortgage guaranty insurance business in such states and to write the
insurance provided by the insurance policy issued by it, approved as a FNMA-
approved mortgage insurer.  Any replacement insurer with respect to a Mortgage
Loan must be approved as a FNMA-approved mortgage insurer.

     Rating Agency: The Rating Agency specified in the "Preliminary Statement".
If any such organization or a successor is no longer in existence, "Rating
Agency" shall be such nationally recognized statistical rating organization, or
other comparable Person, as is designated by the Depositor, notice of which
designation shall be given to the Trustee. References herein to a given rating
category of a Rating Agency shall mean such rating category without giving
effect to any modifiers.

     Realized Loss: With respect to each Liquidated Mortgage Loan, an amount
(not less than zero or more than the Stated Principal Balance of the Mortgage
Loan) as of the date of such liquidation, equal to (i) the Stated Principal
Balance of the Liquidated Mortgage Loan as of the date of such

                                     -22-
<PAGE>

liquidation, plus (ii) interest at the Net Mortgage Rate from the Due Date as to
which interest was last paid or advanced (and not reimbursed) to
Certificateholders up to the Due Date in the month in which Liquidation Proceeds
are required to be distributed on the Stated Principal Balance of such
Liquidated Mortgage Loan from time to time, minus (iii) the Liquidation Proceeds
and Insurance Proceeds, if any, received during the month in which such
liquidation occurred, to the extent applied as recoveries of interest at the Net
Mortgage Rate and to principal of the Liquidated Mortgage Loan. With respect to
each Mortgage Loan which has become the subject of a Deficient Valuation, if the
principal amount due under the related Mortgage Note has been reduced, the
difference between the principal balance of the Mortgage Loan outstanding
immediately prior to such Deficient Valuation and the principal balance of the
Mortgage Loan as reduced by the Deficient Valuation.

     Record Date: With respect to any Distribution Date, the close of business
on the last Business Day of the month preceding the month in which such
Distribution Date occurs.

     Refinancing Mortgage Loan: Any Mortgage Loan originated in connection with
the refinancing of an existing mortgage loan.

     Regular Certificates: As specified in the "Preliminary Statement".

     Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.

     Relief Act Reductions: With respect to any Distribution Date and any
Mortgage Loan as to which there has been a reduction in the amount of interest
collectible thereon for the most recently ended calendar month as a result of
the application of the Relief Act, the amount, if any, by which interest
collectible on such Mortgage Loan for the most recently ended calendar month is
less than interest accrued thereon for such month pursuant to the Mortgage Note.

     REMIC: A "real estate mortgage investment conduit" within the meaning of
section 860D of the Code.

     REMIC Provisions: Provisions of the federal income tax law relating to real
estate mortgage investment conduits, which appear at sections 860A through 860G
of Subchapter M of Chapter 1 of the Code, and related provisions, and
regulations promulgated thereunder, as the foregoing may be in effect from time
to time as well as provisions of applicable state laws.

     Remittance Date: As to any Distribution Date, 1:30 p.m. Central time on the
Business Day immediately preceding such Distribution Date.

     REO Property: A Mortgaged Property acquired by the Trust Fund through
foreclosure or deed-in-lieu of foreclosure in connection with a defaulted
Mortgage Loan.

     Request for Release: The Request for Release submitted by the Servicer to
the Trustee, substantially in the form of Exhibits M and N, as appropriate.

     Required Insurance Policy: With respect to any Mortgage Loan, any insurance
policy that is required to be maintained from time to time under the terms of
such Mortgage Loan.

                                     -23-
<PAGE>

     Residual Certificates: As specified in the "Preliminary Statement".

     Responsible Officer: When used with respect to the Trustee, any Vice
President, any Assistant Vice President, the Secretary, any Assistant Secretary,
any Trust Officer or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
having direct responsibility for the administration of this Agreement and also
to whom, with respect to a particular matter, such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.

     Restricted Mortgage Loan:  A Mortgage Loan for which the related Mortgagor
was the subject of a bankruptcy proceeding as of the Closing Date.  Each
Restricted Mortgage Loan is listed on Schedule V.

     Restricted Mortgaged Property:  With respect to any Restricted Mortgage
Loan, means the Mortgaged Property securing such Restricted Mortgage Loan.

     Scheduled Payment: The scheduled monthly payment on a Mortgage Loan due on
any Due Date allocable to principal and/or interest on such Mortgage Loan which,
unless otherwise specified herein, shall give effect to any related Debt Service
Reduction and any Deficient Valuation that affects the amount of the monthly
payment due on such Mortgage Loan.

     Securities Act: The Securities Act of 1933, as amended.

     Seller:  First Tennessee Bank National Association, a national banking
asssociation, and its successors and assigns, in its capacity as seller of the
Mortgage Loans to the Depositor.

     Senior Certificates: As specified in the "Preliminary Statement".

     Senior Liquidation Amount:  For any Distribution Date and for each Mortgage
Loan in the related Loan Group or Groups which became a Liquidated Mortgage Loan
during the calendar month preceding the month of the Distribution Date, the
lesser of the related Senior Percentage of the Stated Principal Balance of that
Mortgage Loan and the related Senior Prepayment Percentage of the principal
portion of Liquidation Proceeds related to that Mortgage Loan.

     Senior Percentage:  For any Distribution Date and Certificate Group, the
percentage equivalent of a fraction, the numerator of which is the aggregate
Class Principal Balance of the Classes of Senior Certificates of such
Certificate Group immediately prior to that date and the denominator of which is
the aggregate Stated Principal Balance of the Mortgage Loans in the related Loan
Group immediately prior to the Distribution Date.

     In no event will the Senior Percentage for any Certificate Group exceed
100%.

     Senior Prepayment Percentage:  (A) For Certificate Group 1 and each
Distribution Date occurring during the five year period following the closing
date, beginning on the first Distribution Date, 100%. Thereafter, the Senior
Prepayment Percentage for Certificate Group 1 will, except as described below,
be subject to gradual reduction as described in the following paragraph.

                                     -24-
<PAGE>

     The Senior Prepayment Percentage for Certificate Group 1 and any
Distribution Date occurring on or after the fifth anniversary of the first
Distribution Date will be as follows:

     .   for any Distribution Date in the first year thereafter, the related
         Senior Percentage plus 70% of the related Subordinate Percentage for
         that Distribution Date;

     .   for any Distribution Date in the second year thereafter, the related
         Senior Percentage plus 60% of the related Subordinate Percentage for
         that Distribution Date;

     .   for any Distribution Date in the third year thereafter, the related
         Senior Percentage plus 40% of the related Subordinate Percentage for
         that Distribution Date;

     .   for any Distribution Date in the fourth year thereafter, the related
         Senior Percentage plus 20% of the related Subordinate Percentage for
         that Distribution Date; and

     .   for any Distribution Date thereafter, the related Senior Percentage
         for that Distribution Date.

     If for any of the foregoing Distribution Dates a Senior Percentage exceeds
its initial Senior Percentage, the Senior Prepayment Percentage for the related
Certificate Group for that Distribution Date will once again equal 100%.

     In spite of the foregoing, no decrease in the reduction to a Senior
Prepayment Percentage as described above will occur if, as of the first
Distribution Date as to which that decrease applies (A) the outstanding
principal balance of the Mortgage Loans in the related Loan Group delinquent 60
days or more, averaged over the preceding six month period, as a percentage of
the related Original Group Subordinate Amount as of that Distribution Date, is
equal to or greater than 50%, or (B) cumulative Realized Losses for the Mortgage
Loans in the related Loan Group exceed:

     .   for the Distribution Date on the fifth anniversary of the first
         Distribution Date, 30% of the related Original Group Subordinate
         Amount;

     .   for the Distribution Date on the sixth anniversary of the first
         Distribution Date, 35% of the related Original Group Subordinate
         Amount;

     .   for the Distribution Date on the seventh anniversary of the first
         Distribution Date, 40% of the related Original Group Subordinate
         Amount;

     .   for the Distribution Date on the eighth anniversary of the first
         Distribution Date, 45% of the related Original Group Subordinate
         Amount; and

     .   for the Distribution Date on the ninth anniversary of the first
         Distribution Date, 50% of the related Original Group Subordinate
         Amount.

     (B) For Certificate Groups 2, 3, 4 and 5 and Distribution Date occurring
during the ten year period following the closing date, beginning on the first
Distribution Date, 100%. Thereafter, the

                                     -25-
<PAGE>

Senior Prepayment Percentage for Certificate Groups 2, 3, 4 and 5 will, except
as described below, be subject to gradual reduction as described in the
following paragraph.

     The Senior Prepayment Percentage for each of Certificate Groups 2, 3, 4
and 5 and any Distribution Date occurring on or after the tenth anniversary of
the first Distribution Date will be as follows:

     .   for any Distribution Date in the first year thereafter, the related
         Senior Percentage plus 70% of the related Subordinate Percentage for
         that Distribution Date;

     .   for any Distribution Date in the second year thereafter, the related
         Senior Percentage plus 60% of the related Subordinate Percentage for
         that Distribution Date;

     .   for any Distribution Date in the third year thereafter, the related
         Senior Percentage plus 40% of the related Subordinate Percentage for
         that Distribution Date;

     .   for any Distribution Date in the fourth year thereafter, the related
         Senior Percentage plus 20% of the related Subordinate Percentage for
         that Distribution Date; and

     .   for any Distribution Date thereafter, the related Senior Percentage
         for that Distribution Date.

     If for any of the foregoing Distribution Dates a Senior Percentage exceeds
its initial Senior Percentage, the Senior Prepayment Percentage for the related
Certificate Group for that Distribution Date will once again equal 100%.

     In spite of the foregoing, no decrease in the reduction to a Senior
Prepayment Percentage as described above will occur if, as of the first
Distribution Date as to which that decrease applies (A) the outstanding
principal balance of the Mortgage Loans in the related Loan Group delinquent 60
days or more, averaged over the preceding six month period, as a percentage of
the related Original Group Subordinate Amount as of that Distribution Date, is
equal to or greater than 50%, or (B) cumulative Realized Losses for the Mortgage
Loans in the related Loan Group exceed:

     .   for the Distribution Date on the tenth anniversary of the first
         Distribution Date, 30% of the related Original Group Subordinate
         Amount;

     .   for the Distribution Date on the eleventh anniversary of the first
         Distribution Date, 35% of the related Original Group Subordinate
         Amount;

     .   for the Distribution Date on the twelfth anniversary of the first
         Distribution Date, 40% of the related Original Group Subordinate
         Amount;

     .   for the Distribution Date on the thirteenth anniversary of the first
         Distribution Date, 45% of the related Original Group Subordinate
         Amount; and

     .   for the Distribution Date on the fourteenth anniversary of the first
         Distribution Date, 50% of the related Original Group Subordinate
         Amount.

                                     -26-
<PAGE>

     If on any Distribution Date the allocation to the Class of Senior
Certificates then entitled to distributions of Principal Prepayments in Full and
partial Principal Prepayments and other amounts in the percentage required above
would reduce the outstanding Class Principal Balance of that Class below zero,
the distribution to that Class of Certificates of the Senior Prepayment
Percentage of those amounts for that Distribution Date will be limited to the
percentage necessary to reduce the related Class Principal Balance to zero.

     Senior Principal Distribution Amount:   For any Distribution Date and
Certificate Group, the sum of:

     (i)    the related Senior Percentage of the related Principal Payment
            Amount, after adjustment for the principal portion of Debt Service
            Reductions after the related Bankruptcy Coverage Termination Date;

     (ii)   the related Senior Prepayment Percentage of the related Principal
            Prepayment Amount; and

     (iii)  the related Senior Liquidation Amount.

     Servicer: The Huntington Mortgage Company, an Ohio corporation, and its
successors and assigns, in its capacity as Servicer hereunder.

     Servicer Advance Date: As to any Distribution Date, 1:30 p.m. Central time
on the Business Day immediately preceding such Distribution Date.

     Servicing Advances: All customary, reasonable and necessary "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 a Mortgaged Property, (ii) any expenses
reimbursable to the Servicer pursuant to Section 3.11 and any enforcement or
judicial proceedings, including foreclosures, (iii) the management and
liquidation of any REO Property and (iv) compliance with the obligations under
Section 3.9.

     Servicing Fee: As to each Mortgage Loan and any Distribution Date, an
amount payable out of each full payment of interest received on such Mortgage
Loan and equal to one-twelfth of the Servicing Fee Rate multiplied by the Stated
Principal Balance of such Mortgage Loan as of the Due Date in the month of such
Distribution Date (prior to giving effect to any Scheduled Payments due on such
Mortgage Loan on such Due Date), subject to reduction as provided in Section
3.14.

     Servicing Fee Rate:  For each Mortgage Loan, a per annum rate as set forth
in the Mortgage Loan Schedule; provided that the Servicing Fee Rate shall be
0.000% with respect to each fixed rate Mortgage Loan with a Mortgage Rate of
7.00%.

     Servicing Officer: Any officer of the Servicer involved in, or responsible
for, the administration and servicing of the Mortgage Loans whose name and
facsimile signature appear on a list of servicing officers furnished to the
Trustee by the Servicer on the Closing Date pursuant to this Agreement, as such
list may from time to time be amended.

                                     -27-
<PAGE>

     Special Hazard Coverage Termination Date: As to any Loan Group, the point
in time at which the related Special Hazard Loss Coverage Amount is reduced to
zero.

     Special Hazard Loss: Any Realized Loss suffered by a Mortgaged Property on
account of direct physical loss but not including (i) any loss of a type covered
by a hazard insurance policy or a flood insurance policy required to be
maintained with respect to such Mortgaged Property pursuant to Section 3.9 to
the extent of the amount of such loss covered thereby, or (ii) any loss caused
by or resulting from:

         (a)  normal wear and tear;

         (b) fraud, conversion or other dishonest act on the part of the
     Trustee, the Servicer or any of their agents or employees (without regard
     to any portion of the loss not covered by any errors and omissions policy);

         (c) errors in design, faulty workmanship or faulty materials, unless
     the collapse of the property or a part thereof ensues and then only for the
     ensuing loss;

         (d) nuclear or chemical reaction or nuclear radiation or radioactive or
     chemical contamination, all whether controlled or uncontrolled, and whether
     such loss be direct or indirect, proximate or remote or be in whole or in
     part caused by, contributed to or aggravated by a peril covered by the
     definition of the term "Special Hazard Loss";

         (e) hostile or warlike action in time of peace and war, including
     action in hindering, combating or defending against an actual, impending or
     expected attack:

            1.  by any government or sovereign power, de jure or de facto, or by
          any authority maintaining or using military, naval or air forces; or

            2.  by military, naval or air forces; or

            3.  by an agent of any such government, power, authority or forces;

         (f) any weapon of war employing nuclear fission, fusion or other
     radioactive force, whether in time of peace or war; or

         (g) insurrection, rebellion, revolution, civil war, usurped power or
     action taken by governmental authority in hindering, combating or defending
     against such an occurrence, seizure or destruction under quarantine or
     customs regulations, confiscation by order of any government or public
     authority or risks of contraband or illegal transportation or trade.

     Special Hazard Loss Coverage Amount: As of the Closing Date and with
respect to a Loan Group, the Initial Special Hazard Loss Coverage Amount.  As of
any Distribution Date, the Special Hazard Loss Coverage Amount for a Loan Group
will equal the greater of

     .   1% of the outstanding principal balance of all the Mortgage Loans in
         the related Loan Group as of the related Determination Date; and

                                     -28-
<PAGE>

     .   twice the outstanding principal balance of the Mortgage Loan in the
         related Loan Group with the largest outstanding principal balance as of
         the related Determination Date,

less, in each case, the aggregate amount of Special Hazard Losses that would
have been previously allocated to the Subordinated Certificates or related
Component in the absence of the Loss Allocation Limitation.  As of any
Distribution Date on or after the related Cross-Over Date, the Special Hazard
Loss Coverage Amount for a Loan Group will be zero.

     S&P: Standard & Poor's Corporation, a division of The McGraw-Hill
Companies, Inc. If S&P is designated as a Rating Agency in the "Preliminary
Statement", for purposes of Section 10.05(b) the address for notices to S&P
shall be Standard & Poor's, 26 Broadway, 15th Floor, New York, New York 10004,
Attention: Mortgage Surveillance Monitoring, or such other address as S&P may
hereafter furnish to the Depositor, the Seller, the Master Servicer, the
Servicer and the Trustee.

     Startup Day: The Closing Date.

     Stated Principal Balance: As to any Mortgage Loan and Due Date, the unpaid
principal balance of such Mortgage Loan as of such Due Date as specified in the
amortization schedule at the time relating thereto, after giving effect to any
previous partial Principal Prepayments, Liquidation Proceeds and Insurance
Proceeds allocable to principal and to the payment of principal due on such Due
Date, whether or not actually received from the related Mortgagor.

     Streamlined Documentation Mortgage Loan: Any Mortgage Loan originated
pursuant to a streamlined loan documentation program.

     Subordinate Certificates: As specified in the "Preliminary Statement".

     Subordinate Class Percentage:  With respect to any Distribution Date and
any Class of Subordinate Certificates, the percentage obtained by dividing (A)
the Class Principal Balance of such Class immediately prior to such Distribution
Date by (B) the sum of (i) the  aggregate Certificate Principal Balance of all
Subordinate Certificates of the related Certificate Group and (ii) the aggregate
Component Principal Balance of all Components of the related Certificate Group,
in each case immediately prior to such Distribution Date.

     Subordinate Component Percentage:  With respect to each Component and any
Distribution Date, the percentage obtained by dividing (A) the Component
Principal Balance of such Component immediately prior to such Distribution Date
by (B) the sum of (i) the aggregate Component Principal Balance of all
Components of the related Certificate Group, and (ii) the aggregate Certificate
Principal Balance of all Subordinate Certificates of the related Certificate
Group, in each case immediately prior to such Distribution Date.

     Subordinate Liquidation Amount:   For any Distribution Date and Certificate
Group, the excess, if any, of the principal portion of aggregate Liquidation
Proceeds of all Mortgage Loans in the related Loan Group or groups which became
Liquidated Mortgage Loans during the calendar month preceding the month of that
Distribution Date over the related Senior Liquidation Amount for that
Distribution Date.

                                     -29-
<PAGE>

     Subordinate Percentage:  For any Distribution Date and Certificate Group,
the excess of 100% over the related Senior Percentage for that Distribution
Date.

     Subordinate Prepayment Percentage:  For any Distribution Date and
Certificate Group, the excess of 100% over the related Senior Prepayment
Percentage for that Distribution Date.

     Subordinate Principal Distribution Amount:  For any Distribution Date and
Certificate Group or groups, the sum of the following amounts:

     (i)    the related Subordinate Percentage of the related Principal Payment
            Amount, after adjustment for the principal portion of Debt Service
            Reductions after the related Bankruptcy Coverage Termination Date;

     (ii)   the related Subordinate Prepayment Percentage of the related
            Principal Prepayment Amount; and

     (iii)  the related Subordinate Liquidation Amount.

     Any reduction to the Subordinate Principal Distribution Amount shall first
offset the Principal Payment Amounts, second the Subordinate Liquidation Amounts
and then the Principal Prepayment Amounts.

     Subordination Level:  On any Distribution Date for any Class of Subordinate
Certificates of a Certificate Group, the percentage obtained by dividing the sum
of the Class Principal Balances (or Component Principal Balances, as applicable)
of all Classes of Certificates (or Components thereof) in that Certificate Group
which are subordinate in right of payment to that Class (or Component) by the
sum of the Class Principal Balances (or Component Principal Balances, as
applicable) of all Classes of Certificates in that Certificate Group, in each
case immediately prior to that Distribution Date.

     Subservicer: Any person to whom the Servicer has contracted for the
servicing of all or a portion of the Mortgage Loans pursuant to Section 3.2
hereof.

     Substitute Mortgage Loan: A Mortgage Loan substituted by the Initial Seller
for a Deleted Mortgage Loan which must, on the date of such substitution, as
confirmed in a Request for Release, substantially in the form of Exhibit M, (i)
have a Stated Principal Balance, after deduction of the principal portion of the
Scheduled Payment due in the month of substitution, not in excess of, and not
more than 10% less than the Stated Principal Balance of the Deleted Mortgage
Loan; (ii) accrue interest at a rate no lower than and not more than 1% per
annum higher than, that of the Deleted Mortgage Loan; (iii) have a Loan-to-Value
Ratio no higher than that of the Deleted Mortgage Loan; (iv) have a remaining
term to maturity no greater than (and not more than one year less than that of)
the Deleted Mortgage Loan; (v) be, in the determination of the Servicer, of the
same type, quality and character (including location of the Mortgaged Property)
as the Deleted Mortgage Loan, without taking into account any breach with
respect to the Deleted Mortgage Loan, (vi) not be a Cooperative Loan unless the
Deleted Mortgage Loan was a Cooperative Loan and (vii) comply with each
representation and warranty set forth in Section 2.3(b) hereof.

                                     -30-
<PAGE>

     Substitution Adjustment Amount: The meaning ascribed to such term pursuant
to Section 2.3(c).

     Tax Matters Person: The person designated as "tax matters person" in the
manner provided under Treasury regulation (S) 1.860F-4(d) and Treasury
regulation (S) 301.6231(a)(7)-1. Initially, the Tax Matters Person shall be the
Trustee.

     Tax Matters Person Certificate: The Class I-A-R Certificate with a
Denomination of $0.01.

     Transfer: Any direct or indirect transfer or sale of any Ownership Interest
in a Residual Certificate.

     Trustee:  The Bank of New York and its successors and, if a successor
trustee is appointed hereunder, such successor.

     Trustee Fee: As to any Distribution Date, an amount equal to one-twelfth of
the Trustee Fee Rate multiplied by the Pool Principal Balance with respect to
such Distribution Date, to be paid by the Master Servicer from the Master
Servicer Fee; provided that the Trustee shall not be entitled to receive a fee
for any fixed rate Mortgage Loan with a Mortgage Rate of 7.00%.

     Trustee Fee Rate: With respect to each Mortgage Loan, the per annum rate
agreed upon in writing on or prior to the Closing Date by the Trustee and the
Master Servicer.

     Trust Fund:  The corpus of the trust created hereunder consisting of (i)
the Mortgage Loans and all interest and principal received on or with respect
thereto after the Cut-off Date to the extent not applied in computing the Cut-
off Date Principal Balance thereof; (ii) the Collection Account and the
Distribution Account and all amounts deposited therein pursuant to the
applicable provisions of this Agreement; (iii) property that secured a Mortgage
Loan and has been acquired by foreclosure, deed-in-lieu of foreclosure or
otherwise; (iv) all right, title and interest of the Depositor in and to the
Mortgage Loan Purchase Agreement, and (v) all proceeds of the conversion,
voluntary or involuntary, of any of the foregoing.

     Voting Rights: The portion of the voting rights of all of the Certificates
which is allocated to any Certificate.  As of any date of determination, (a) 99%
of all Voting Rights will be allocated among all Holders of the Certificates,
other than the Residual Certificates; and (b) 1% of all Voting Rights shall be
allocated among the Holders of the Residual Certificates, in each case in
proportion to their respective outstanding Class Principal Balances.

     Writedown Amount:  As of any Distribution Date and with respect to a
Certificate Group, the amount by which (a) the sum of the Class Principal
Balances of all of the Certificates in such Certificate Group and the sum of the
Component Principal Balances of each Component of the related Loan Group, after
giving effect to the distribution of principal and the allocation of Realized
Losses in reduction of the Class Principal Balances of all of the Certificates
in such Certificate Group and the Component Principal Balances of each of the
Components of the related Loan Group on such Distribution Date, exceeds (b) the
aggregate Stated Principal Balance of the Mortgage Loans in the related Loan
Group on the first day of the month of such Distribution Date less any Deficient
Valuations occurring before the Bankruptcy Coverage Termination Date.

                                     -31-
<PAGE>

                                  ARTICLE II
                         CONVEYANCE OF MORTGAGE LOANS;
                        REPRESENTATIONS AND WARRANTIES

     SECTION 2.1  Conveyance of Mortgage Loans.

     (a) The Seller, concurrently with the execution and delivery hereof, hereby
sells, transfers, assigns, sets over and otherwise conveys to the Depositor,
without recourse, all the right, title and interest of the Seller in and to the
Mortgage Loans, including all interest and principal received or receivable by
the Seller on or with respect to the Mortgage Loans after the Cut-off Date and
all interest and principal payments on the Mortgage Loans received on or prior
to the Cut-off Date in respect of installments of interest and principal due
thereafter, but not including payments of principal and interest due and payable
on the Mortgage Loans on or before the Cut-off Date. On or prior to the Closing
Date, the Seller shall deliver or shall cause to be delivered to the Trustee the
Mortgage File for each Mortgage Loan listed in the Mortgage Loan Schedule.  Such
delivery of the Mortgage Files shall be made against payment by the Depositor of
the purchase price, previously agreed to by the Seller and Depositor, for the
Mortgage Loans.

     (b) The Depositor, concurrently with the execution and delivery hereof,
hereby sells, transfers, assigns, sets over and otherwise conveys to the Trustee
for the benefit of the Certificateholders, without recourse, all the right,
title and interest of the Depositor in and to the Trust Fund together with the
Depositor's right to require the Seller to cause the Initial Seller to cure any
breach of a representation or warranty made herein by the Seller or to
repurchase or substitute for any affected Mortgage Loan in accordance herewith.

     (c) In connection with the transfer and assignment set forth in clause (b)
above, the Depositor has delivered or caused to be delivered to the Trustee for
the benefit of the Certificateholders the following documents or instruments
with respect to each Mortgage Loan so assigned, which collectively constitutes
the "Mortgage File":

         (i) (A) the original Mortgage Note endorsed by manual or facsimile
     signature in blank in the following form: "Pay to the order of
     ________________, without recourse," with all intervening endorsements
     showing a complete chain of endorsement from the originator to the Person
     endorsing the Mortgage Note (each such endorsement being sufficient to
     transfer all right, title and interest of the party so endorsing, as
     noteholder or assignee thereof, in and to that Mortgage Note); or

             (B) with respect to any Lost Mortgage Note, a lost note affidavit
     from the Servicer or the Initial Seller stating that the original Mortgage
     Note was lost or destroyed, together with a copy of such Mortgage Note;

         (ii)  except as provided below, the original recorded Mortgage or a
     copy of such Mortgage certified by the Servicer or the Initial Seller as
     being a true and complete copy of the Mortgage;

                                     -32-
<PAGE>

         (iii)  except as provided below, a duly executed assignment of the
     Mortgage in blank (which may be included in a blanket assignment or
     assignments), together with, except as provided below, all interim recorded
     assignments of such mortgage (each such assignment, when duly and validly
     completed, to be in recordable form and sufficient to effect the assignment
     of and transfer to the assignee thereof, under the Mortgage to which the
     assignment relates); provided that, if the related Mortgage has not been
     returned from the applicable public recording office, such assignment of
     the Mortgage may exclude the information to be provided by the recording
     office;

         (iv)   the original or copies of each assumption, modification, written
     assurance or substitution agreement, if any;

         (v)    except as provided below, either the original or duplicate
     original title policy (including all riders thereto) or comparable
     attorney's opinion of title with respect to the related Mortgaged Property,
     and

         (vi)   in the case of a Cooperative Loan, the originals of the
     following documents or instruments:

         (a)    The Coop Shares, together with a stock power in blank;
         (b)    The executed security agreement;
         (c)    The executed Proprietary Lease;
         (d)    The executed UCC-1 financing statement with evidence of
recording thereon which have been filed in all places required to perfect the
Seller's interest in the Coop Shares and the Proprietary Lease; and
         (e)    Executed UCC-3 financing statements or other appropriate UCC
                financing statements required by state law, evidencing a
                complete and unbroken line from the mortgagee to the Trustee
                with evidence of recording thereon (or in a form suitable for
                recordation).

     In the event that in connection with any Mortgage Loan the Depositor cannot
deliver or cause to be delivered (a) the original recorded Mortgage or (b) all
interim recorded assignments satisfying the requirements of clause (ii) or (iii)
above, respectively, concurrently with the execution and delivery hereof because
such document or documents have not been returned from the applicable public
recording office, the Depositor shall promptly deliver or cause to be delivered
to the Trustee such original Mortgage or such interim assignment, as the case
may be, with evidence of recording indicated thereon upon receipt thereof from
the public recording office, or a copy thereof, certified, if appropriate, by
the relevant recording office, but in no event shall any such delivery of the
original Mortgage and each such interim assignment or a copy thereof, certified,
if appropriate, by the relevant recording office, be made later than one year
following the Closing Date; provided, however, in the event the Depositor is
unable to deliver or cause to be delivered by such date each Mortgage and each
such interim assignment by reason of the fact that any such documents have not
been returned by the appropriate recording office, or, in the case of each such
interim assignment, because the related Mortgage has not been returned by the
appropriate recording office, the Depositor shall deliver or cause to be
delivered such documents to the Trustee as promptly as possible upon receipt
thereof and, in any event, within 720 days following the Closing Date. The
Depositor shall forward or cause to be forwarded to the Trustee (a) from time to
time additional original documents

                                     -33-
<PAGE>

evidencing an assumption or modification of a Mortgage Loan and (b) any other
documents required to be delivered by the Depositor or the Servicer to the
Trustee. In the event that the original Mortgage is not delivered and in
connection with the payment in full of the related Mortgage Loan and the public
recording office requires the presentation of a "lost instruments affidavit and
indemnity" or any equivalent document, because only a copy of the Mortgage can
be delivered with the instrument of satisfaction or reconveyance, the Servicer
shall execute and deliver or cause to be executed and delivered such a document
to the public recording office. In the case where a public recording office
retains the original recorded Mortgage or in the case where a Mortgage is lost
after recordation in a public recording office, the Seller shall deliver or
cause to be delivered to the Trustee a copy of such Mortgage certified by such
public recording office to be a true and complete copy of the original recorded
Mortgage.

     In addition, in the event that in connection with any Mortgage Loan the
Depositor cannot deliver the duly executed assignment of Mortgage in blank
satisfying the requirements of clause (iii) above concurrently with the
execution and delivery hereof,  the Depositor shall promptly deliver or cause to
be delivered to the Trustee such duly executed assignment of Mortgage in blank
within 60 days following the Closing Date.

     Furthermore, in the event that in connection with any Mortgage Loan the
Depositor cannot deliver the original or duplicate original lender's title
policy (together with all riders thereto), satisfying the requirements of clause
(v) above, concurrently with the execution and delivery hereof because the
related Mortgage has not been returned from the applicable public recording
office,  the Depositor shall promptly deliver or cause to be delivered to the
Trustee such original or duplicate original lender's title policy (together with
all riders thereto) upon receipt thereof from the applicable title insurer, but
in no event shall any such delivery of the original or duplicate original
lender's title policy be made later than one year following the Closing Date;
provided, however, in the event the Depositor is unable to deliver by such date
the original or duplicate original lender's title policy (together with all
riders thereto) because the related Mortgage has not been returned by the
appropriate recording office, the Depositor shall deliver or cause to be
delivered such documents to the Trustee as promptly as possible upon receipt
thereof and, in any event, within 720 days following the Closing Date.

     With respect to any Mortgage Loan secured by Mortgaged Property located in
the State of Florida, as promptly as practicable after the Closing Date, and in
any event, within ninety (90) days thereafter, the Servicer shall (i) affix the
Trustee's name to the related assignment of Mortgage, as the assignee thereof,
(ii) cause such assignment to be in proper form for recording in the appropriate
public office for real property records in the State of Florida, and (iii) cause
to be delivered for recording in the appropriate public office for real property
records in the State of Florida the assignment of the Mortgage to the Trustee,
except that, with respect to any assignments of Mortgage as to which the
Servicer has not received the information required to prepare such assignment in
recordable form, the Servicer's obligation to do so and to deliver the same for
such recording shall be as soon as practicable after receipt of such information
and in any event within thirty (30) days after receipt thereof.  The Servicer
shall not be required to cause to be recorded any assignment which relates to a
Mortgage Loan secured by Mortgaged Property located in any state other than the
State of Florida.

                                     -34-
<PAGE>

     In the case of Mortgage Loans that have been prepaid in full as of the
Closing Date, the Depositor, in lieu of delivering the above documents to the
Trustee, will deposit or cause to be deposited into the applicable subaccount of
the Collection Account the portion of such payment that is required to be
deposited into the Collection Account pursuant to Section 3.5(b) hereof.

     SECTION 2.2  Acceptance by Trustee of the Mortgage Loans.

     The Trustee  acknowledges receipt of the documents identified in the
Initial Certification in the form annexed hereto as Exhibit F and declares that
it holds and will hold such documents and the other documents delivered to it
constituting the Mortgage Files, and that it holds or will hold such other
assets as are included in the Trust Fund, in trust for the exclusive use and
benefit of all present and future Certificateholders. The Trustee will maintain
possession of the Mortgage Notes in the State of California, unless otherwise
permitted by the Rating Agency.

     The Trustee agrees to execute and deliver on the Closing Date to the
Depositor, the Master Servicer, the Servicer and the Seller an Initial
Certification in the form annexed hereto as Exhibit F.  Based on its review and
examination, and only as to the documents identified in such Initial
Certification, the Trustee acknowledges that such documents appear regular on
their face and relate to such Mortgage Loan. The Trustee shall have no duty or
obligation to inspect, review or examine said documents, instruments,
certificates or other papers to determine that the same are genuine, enforceable
or appropriate for the represented purpose or that they have actually been
recorded in the real estate records or that they are other than what they
purport to be on their face.  In performing any such review, the Trustee may
conclusively rely on the Depositor as to the purported genuineness of any such
document and any signature thereon.  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, 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.

     Not later than 90 days after the Closing Date, the Trustee shall deliver to
the Depositor, the Master Servicer, the Servicer and the Seller a Final
Certification in the form annexed hereto as Exhibit H, with any applicable
exceptions noted thereon.

     If, in the course of such review, the Trustee finds any document
constituting a part of a Mortgage File which does not meet the requirements of
Section 2.1, the Trustee shall list such document as an exception in the Final
Certification; provided, however that the Trustee shall not make any
determination as to whether (i) any endorsement is sufficient to transfer all
right, title and interest of the party so endorsing, as noteholder or assignee
thereof, in and to that Mortgage Note or (ii) any assignment is in recordable
form or is sufficient to effect the assignment of and transfer to the assignee
thereof under the mortgage to which the assignment relates. The Seller shall
cause the Initial Seller to promptly correct or cure such defect within 90 days
from the date it was so notified of such defect and, if the Initial Seller does
not correct or cure such defect within such period, the Seller shall cause the
Initial Seller to either (a) substitute for the related Mortgage Loan a
Substitute Mortgage Loan, which substitution shall be accomplished in the manner
and subject to the conditions set forth in Section 2.3, or (b) purchase such
Mortgage Loan from the Trustee within 90 days from the date the Seller was
notified of such defect in writing at the Purchase Price of such Mortgage Loan;
provided, however, that in no event shall such substitution or purchase occur
more than 540

                                     -35-
<PAGE>

days from the Closing Date, except that if the substitution or purchase of a
Mortgage Loan pursuant to this provision is required by reason of a delay in
delivery of any documents by the appropriate recording office, and there is a
dispute between the Servicer or the Seller and the Trustee over the location or
status of the recorded document, then such substitution or purchase shall occur
within 720 days from the Closing Date. The Trustee shall deliver written notice
to the Rating Agency within 270 days from the Closing Date indicating each
Mortgage Loan (a) which has not been returned by the appropriate recording
office or (b) as to which there is a dispute as to location or status of such
Mortgage Loan. Such notice shall be delivered every 90 days thereafter until the
related Mortgage Loan is returned to the Trustee. Any such substitution pursuant
to (a) above or purchase pursuant to (b) above shall not be effected prior to
the delivery to the Trustee of the Opinion of Counsel required by Section 2.5
hereof, if any, and any substitution pursuant to (a) above shall not be effected
prior to the additional delivery to the Trustee of a Request for Release
substantially in the form of Exhibit N. No substitution is permitted to be made
in any calendar month after the Determination Date for such month. The Seller
shall cause the Initial Seller to deposit the Purchase Price for any such
Mortgage Loan into the applicable subaccount of the Collection Account on or
prior to the Remittance Date for the Distribution Date in the month following
the month of repurchase and, upon receipt of such deposit and certification with
respect thereto in the form of Exhibit N hereto, the Trustee shall release the
related Mortgage File to the Initial Seller and shall execute and deliver at the
Initial Seller's request such instruments of transfer or assignment prepared by
the Initial Seller, in each case without recourse, as shall be necessary to vest
in the Initial Seller, or its designee, the Trustee's interest in any Mortgage
Loan released pursuant hereto.

     The Trustee shall retain possession and custody of each Mortgage File in
accordance with and subject to the terms and conditions set forth herein. The
Servicer shall promptly deliver to the Trustee, upon the execution or receipt
thereof, the originals of such other documents or instruments constituting the
Mortgage File as come into the possession of the Servicer from time to time.

     It is understood and agreed that the obligation of the Seller to cause the
Initial Seller to substitute for or to purchase any Mortgage Loan which does not
meet the requirements of Section 2.1 above shall constitute the sole remedy
respecting such defect available to the Trustee, the Depositor and any
Certificateholder against the Seller.

     SECTION 2.3  Representations, Warranties and Covenants of the Seller and
Servicer.

     (a) Each of the Seller, the Servicer and the Master Servicer hereby make
the representations and warranties set forth in Schedules II-A, II-B and II-C
hereto, respectively, and by this reference incorporated herein, to the
Depositor and the Trustee, as of the Closing Date, or if so specified therein,
as of the Cut-off Date.

     (b) The Seller hereby makes the representations and warranties set forth in
Schedule III hereto, and by this reference incorporated herein, to the Depositor
and the Trustee, as of the Closing Date, or if so specified therein, as of the
Cut-off Date.

     (c) Upon discovery by any of the parties hereto of a breach of a
representation or warranty made pursuant to Section 2.3(b) that materially and
adversely affects the interests of the Certificateholders in any Mortgage Loan,
the party discovering such breach shall give prompt notice thereof to the other
parties. The Seller hereby covenants that within 90 days of the earlier of its

                                     -36-
<PAGE>

discovery or its receipt of written notice from any party of a breach of any
representation or warranty made pursuant to Section 2.3(b) which materially and
adversely affects the interests of the Certificateholders in any Mortgage Loan,
it shall cause the Initial Seller to cure such breach in all material respects,
and if such breach is not so cured, shall, (i) if such 90-day period expires
prior to the second anniversary of the Closing Date, cause the Initial Seller to
remove such Mortgage Loan (a "Deleted Mortgage Loan") from the Trust Fund and
substitute in its place a Substitute Mortgage Loan, in the manner and subject to
the conditions set forth in this Section; or (ii) cause the Initial Seller to
repurchase the affected Mortgage Loan or Mortgage Loans from the Trustee at the
Purchase Price in the manner set forth below;  provided, however, that any such
substitution pursuant to (i) above shall not be effected prior to the delivery
to the Trustee of the Opinion of Counsel required by Section 2.5 hereof, if any,
and any such substitution pursuant to (i) above shall not be effected prior to
the additional delivery to the Trustee of a Request for Release substantially in
the form of Exhibit N and the Mortgage File for any such Substitute Mortgage
Loan.  The Seller shall cause the Initial Seller to promptly reimburse the
Servicer and the Trustee for any expenses reasonably incurred by the Servicer or
the Trustee in respect of enforcing the remedies for such breach.  With respect
to the representations and warranties described in this Section which are made
to the best of the Seller's knowledge, if it is discovered by either the
Depositor, the Seller 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 or the interests of the
Certificateholders therein, notwithstanding the Seller's lack of knowledge with
respect to the substance of such representation or warranty, such inaccuracy
shall be deemed a breach of the applicable representation or warranty.

     With respect to any Substitute Mortgage Loan or Loans, the Seller shall
deliver or cause to be delivered to the Trustee for the benefit of the
Certificateholders the Mortgage Note, the Mortgage, the related assignment of
the Mortgage, and such other documents and agreements as are required by Section
2.1, with the Mortgage Note endorsed and the Mortgage assigned as required by
Section 2.1. No substitution is permitted to be made in any calendar month after
the Determination Date for such month.  Scheduled Payments due with respect to
Substitute Mortgage Loans in the month of substitution shall not be part of the
Trust Fund and will be retained by the Initial Seller on the next succeeding
Distribution Date. For the month of substitution, distributions to
Certificateholders will include the monthly payment due on any Deleted Mortgage
Loan for such month and thereafter the Initial Seller shall be entitled to
retain all amounts received in respect of such Deleted Mortgage Loan. The
Servicer shall amend the Mortgage Loan Schedule for the benefit of the
Certificateholders to reflect the removal of such Deleted Mortgage Loan and the
substitution of the Substitute Mortgage Loan or Loans and the Servicer shall
deliver the amended Mortgage Loan Schedule to the Trustee. Upon such
substitution, the Substitute Mortgage Loan or Loans shall be subject to the
terms of this Agreement in all respects, and the Seller shall be deemed to have
made with respect to such Substitute Mortgage Loan or Loans, as of the date of
substitution, the representations and warranties made pursuant to Section 2.3(b)
with respect to such Mortgage Loan. Upon any such substitution and the deposit
to the applicable subaccount of the Collection Account of the amount required to
be deposited therein in connection with such substitution as described in the
following paragraph, the Trustee shall release the Mortgage File held for the
benefit of the Certificateholders relating to such Deleted Mortgage Loan to the
Seller and shall execute and deliver at the Seller's direction such instruments
of transfer or assignment prepared by the Seller, in each case without recourse,
as shall be necessary to vest title in the Seller, or its designee, the
Trustee's interest in any Deleted Mortgage Loan substituted for pursuant to this
Section 2.3.

                                     -37-
<PAGE>

     For any month in which the Seller substitutes one or more Substitute
Mortgage Loans for one or more Deleted Mortgage Loans, the Servicer will
determine the amount (if any) by which the aggregate principal balance of all
such Substitute Mortgage Loans as of the date of substitution is less than the
aggregate Stated Principal Balance of all such Deleted Mortgage Loans (after
application of the scheduled principal portion of the monthly payments due in
the month of substitution). The Seller shall cause the Initial Seller to deposit
the amount of such shortage (the "Substitution Adjustment Amount"), plus an
amount equal to the aggregate of any unreimbursed Advances with respect to such
Deleted Mortgage Loans, into the applicable subaccount of the Collection Account
on or before the Remittance Date for the Distribution Date in the month
succeeding the calendar month during which the related Mortgage Loan became
required to be purchased or replaced hereunder.

     In the event that the Seller shall have caused the Initial Seller to
repurchase a Mortgage Loan, the Seller shall cause the Initial Seller to deposit
the Purchase Price therefor into the applicable subaccount of the Collection
Account pursuant to Section 3.5 on or before the Remittance Date for the
Distribution Date in the month following the month during which the Seller
became obligated hereunder to cause the Initial Seller to repurchase or replace
such Mortgage Loan and upon such deposit of the Purchase Price, the delivery of
the Opinion of Counsel required by Section 2.5, if any, and receipt of a Request
for Release in the form of Exhibit N hereto, the Trustee shall release the
related Mortgage File held for the benefit of the Certificateholders to the
Initial Seller, and the Trustee shall execute and deliver at the Initial
Seller's direction such instruments of transfer or assignment prepared by the
Initial Seller, in each case without recourse, as shall be necessary to transfer
title from the Trustee. It is understood and agreed that the obligation under
this Agreement of the Seller to cause the Initial Seller to cure, repurchase or
replace any Mortgage Loan as to which a breach has occurred and is continuing
shall constitute the sole remedy against the Seller respecting such breach
available to Certificateholders, the Depositor or the Trustee on their behalf.

     (d) In the event the Mortgagor with respect to a Convertible Mortgage Loan
elects to exercise the related Conversion Option, the Servicer will either
repurchase such Convertible Mortgage Loan from the Trust or will substitute one
or more Substitute Mortgage Loans for such Convertible Mortgage Loan in
accordance with the provisions set forth in subparagraph (c) above.

     (e) The representations and warranties made pursuant to this Section 2.3
shall survive delivery of the respective Mortgage Files to the Trustee for the
benefit of the Certificateholders.

     SECTION 2.4  Representations and Warranties of the Depositor as to the
Mortgage Loans.

     The Depositor hereby represents and warrants to the Trustee with respect to
each Mortgage Loan as of the date hereof or such other date set forth herein
that as of the Closing Date, and following the transfer of the Mortgage Loans to
it by the Seller, the Depositor had good title to the Mortgage Loans and the
Mortgage Notes were subject to no offsets, defenses or counterclaims.

     The Depositor hereby assigns, transfers and conveys to the Trustee all of
its rights with respect to the Mortgage Loans including, without limitation, the
representations and warranties of the Seller made pursuant to Section 2.3(b)
hereof, together with all rights of the Depositor to require the Seller to cause
the Initial Seller to cure any breach thereof or to repurchase or substitute for
any affected Mortgage Loan in accordance with this Agreement.

                                     -38-
<PAGE>

     It is understood and agreed that the representations and warranties set
forth in this Section 2.4 shall survive delivery of the Mortgage Files to the
Trustee. Upon discovery by the Depositor or the Trustee of a breach of any of
the foregoing representations and warranties set forth in this Section 2.4
(referred to herein as a "breach"), which breach materially and adversely
affects the interest of the Certificateholders, the party discovering such
breach shall give prompt written notice to the others and to the Rating Agency.

     SECTION 2.5  Delivery of Opinion of Counsel in Connection with
Substitutions.

     (a) Notwithstanding any contrary provision of this Agreement, no
substitution pursuant to Section 2.2 or Section 2.3 shall be made more than 90
days after the Closing Date unless the Seller delivers to the Trustee an Opinion
of Counsel, which Opinion of Counsel shall not be at the expense of either the
Trustee or the Trust Fund, addressed to the Trustee, to the effect that such
substitution will not (i) result in the imposition of the tax on "prohibited
transactions" on the Trust Fund or contributions after the Startup Day, as
defined in Sections 860F(a)(2) and 860G(d) of the Code, respectively, or (ii)
cause any REMIC created hereunder to fail to qualify as a REMIC at any time that
any Certificates are outstanding.

     (b) Upon discovery by the Depositor, the Seller, the Master Servicer, the
Servicer or the Trustee that any Mortgage Loan does not constitute a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code, the party
discovering such fact shall promptly (and in any event within five (5) Business
Days of discovery) give written notice thereof to the other parties. In
connection therewith, the Trustee shall require the Seller to cause the Initial
Seller, at the Initial Seller's option, to either (i) substitute a Substitute
Mortgage Loan for the affected Mortgage Loan if the conditions in Section 2.3(c)
with respect to substitutions are satisfied, or (ii) repurchase the affected
Mortgage Loan within 90 days of such discovery in the same manner as it would a
Mortgage Loan for a breach of representation or warranty made pursuant to
Section 2.3. The Trustee shall reconvey to the Initial Seller the Mortgage Loan
to be released pursuant hereto in the same manner, and on the same terms and
conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty contained in Section 2.3.

     SECTION 2.6  Execution and Delivery of Certificates.

     The Trustee acknowledges the transfer and assignment to it of the Trust
Fund and, concurrently with such transfer and assignment, has executed and
delivered to or upon the order of the Depositor, the Certificates in authorized
denominations evidencing directly or indirectly the entire ownership of the
Trust Fund.  The Trustee agrees to hold the Trust Fund and exercise the rights
referred to above for the benefit of all present and future Holders of the
Certificates and to perform the duties set forth in this Agreement to the best
of its ability, to the end that the interests of the Holders of the Certificates
may be adequately and effectively protected.

     SECTION 2.7  REMIC Matters.

     The "Preliminary Statement" sets forth the designations and "latest
possible maturity date" for federal income tax purposes of all interests created
hereby. The "Startup Day" for purposes of the REMIC Provisions shall be the
Closing Date. The "tax matters person" with respect to each REMIC hereunder
shall be the Trustee and the Trustee shall hold the Tax Matters Person
Certificate.

                                     -39-
<PAGE>

Each REMIC's fiscal year shall be the calendar year and its accounts shall be
maintained using the accrual method.

     SECTION 2.8  Covenants of the Servicer.

     The Servicer hereby covenants to the Depositor, the Master Servicer and the
Trustee as follows:

     (a) the Servicer shall comply in the performance of its obligations under
this Agreement with all reasonable rules and requirements of the insurer under
each Required Insurance Policy; and

     (b) no written information, certificate of an officer, statement furnished
in writing or written report delivered to the Trustee, the Depositor, the Master
Servicer or any affiliate of the Trustee, the Depositor or the Master Servicer
and prepared by the Servicer pursuant to this Agreement will contain any untrue
statement of a material fact or omit to state a material fact necessary to make
such information, certificate, statement or report not misleading.

                                  ARTICLE III
                         ADMINISTRATION AND SERVICING
                               OF MORTGAGE LOANS

     SECTION 3.1  Servicer to Service Mortgage Loans.

     For and on behalf of the Certificateholders, the Servicer shall service and
administer the Mortgage Loans in accordance with the terms of this Agreement and
customary and usual standards of practice of prudent mortgage loan servicers. In
connection with such servicing and administration, the Servicer shall have full
power and authority, acting alone and/or through Subservicers as provided in
Section 3.2 hereof, to do or cause to be done any and all things that it may
deem necessary or desirable in connection with such servicing and
administration, including but not limited to, the power and authority, subject
to the terms hereof (i) to execute and deliver, on behalf of the
Certificateholders and the Trustee, customary consents or waivers and other
instruments and documents, (ii) to consent to transfers of any Mortgaged
Property and assumptions of the Mortgage Notes and related Mortgages (but only
in the manner provided in this Agreement), (iii) to collect any Insurance
Proceeds and Liquidation Proceeds, and (iv) to effectuate foreclosure or other
conversion of the ownership of the Mortgaged Property securing any Mortgage
Loan; provided that the Servicer shall not take any action that is inconsistent
with or prejudices the interests of the Trust Fund or the Certificateholders in
any Mortgage Loan or the rights and interests of the Depositor, the Trustee and
the Certificateholders under this Agreement. The Servicer shall represent and
protect the interests of the Trust Fund in the same manner as it protects its
own interests in mortgage loans in its own portfolio in any claim, proceeding or
litigation regarding a Mortgage Loan, and shall not make or permit any
modification, waiver or amendment of any Mortgage Loan which would cause any
REMIC created hereunder to fail to qualify as a REMIC or result in the
imposition of any tax under Section 860F(a) or Section 860G(d) of the Code.
Without limiting the generality of the foregoing, the Servicer, in its own name
or in the name of the Depositor and the Trustee, is hereby authorized and
empowered by the Depositor and the Trustee, when the Servicer believes it
appropriate in its reasonable judgment, to execute and deliver, on behalf of the
Trustee, the Depositor, the

                                     -40-
<PAGE>

Certificateholders or any of them, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge and all other
comparable instruments, with respect to the Mortgage Loans, and with respect to
the Mortgaged Properties held for the benefit of the Certificateholders. The
Servicer shall prepare and deliver to the Depositor and/or the Trustee such
documents requiring execution and delivery by either or both of them as are
necessary or appropriate to enable the Servicer to service and administer the
Mortgage Loans to the extent that the Servicer is not permitted to execute and
deliver such documents pursuant to the preceding sentence. Upon receipt of such
documents, the Depositor and/or the Trustee shall execute such documents and
deliver them to the Servicer.

     In accordance with the standards of the preceding paragraph, the Servicer
shall advance or cause to be advanced funds as necessary for the purpose of
effecting the payment of taxes and assessments on the Mortgaged Properties,
which advances shall be reimbursable in the first instance from related
collections from the Mortgagors pursuant to Section 3.6, and further as provided
in Section 3.8. The costs incurred by the Servicer, if any, in effecting the
timely payments of taxes and assessments on the Mortgaged Properties and related
insurance premiums shall not, for the purpose of calculating monthly
distributions to the Certificateholders, be added to the Stated Principal
Balances of the related Mortgage Loans, notwithstanding that the terms of such
Mortgage Loans so permit.

     SECTION 3.2  Subservicing; Enforcement of the Obligations of Servicers.

     (a) The Servicer may arrange for the subservicing of any Mortgage Loan by a
Subservicer pursuant to a subservicing agreement; provided, however, that such
subservicing arrangement and the terms of the related subservicing agreement
must provide for the servicing of such Mortgage Loans in a manner consistent
with the servicing arrangements contemplated hereunder. Unless the context
otherwise requires, references in this Agreement to actions taken or to be taken
by the Servicer in servicing the Mortgage Loans include actions taken or to be
taken by a Subservicer on behalf of the Servicer. Notwithstanding the provisions
of any subservicing agreement, 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 liable to the Depositor, the Trustee and the
Certificateholders for the servicing and administration 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. All actions of each
Subservicer performed pursuant to the related subservicing agreement shall be
performed as an agent of the Servicer with the same force and effect as if
performed directly by the Servicer.

     (b) For purposes of this Agreement, the Servicer shall be deemed to have
received any collections, recoveries or payments with respect to the Mortgage
Loans that are received by a Subservicer regardless of whether such payments are
remitted by the Subservicer to the Servicer.

                                     -41-
<PAGE>

     SECTION 3.3  Rights of the Depositor, the Master Servicer and the Trustee
in Respect of the Servicer.

     Each of the Depositor and the Master Servicer may, but is not obligated to,
enforce the obligations of the Servicer hereunder and may, but is not obligated
to, perform, or cause a designee to perform, any defaulted obligation of the
Servicer hereunder and in connection with any such defaulted obligation to
exercise the related rights of the Servicer hereunder; provided that the
Servicer shall not be relieved of any of its obligations hereunder by virtue of
such performance by the Depositor or the Master Servicer. None of the Trustee,
the Depositor or the Master Servicer shall have any responsibility or liability
for any action or failure to act by the Servicer nor shall the Trustee, the
Depositor or the Master Servicer be obligated to supervise the performance of
the Servicer hereunder or otherwise.

     SECTION 3.4  Master Servicer or Trustee to Act as Servicer.

     (a) In the event that the Servicer shall for any reason no longer be the
Servicer hereunder (including by reason of an Event of Default), the Master
Servicer or its successor shall thereupon assume all of the rights and
obligations of the Servicer hereunder arising thereafter (except that the Master
Servicer shall not be (i) liable for losses of the Servicer pursuant to Section
3.9 hereof or any acts or omissions of the predecessor Servicer hereunder), (ii)
obligated to make Advances if it is prohibited from doing so by applicable law,
(iii) obligated to effectuate repurchases or substitutions of Mortgage Loans
hereunder including, but not limited to, repurchases or substitutions of
Mortgage Loans pursuant to Section 2.2 or 2.3 hereof, (iv) responsible for
expenses of the Servicer pursuant to Section 2.3 or (v) deemed to have made any
representations and warranties of the Servicer hereunder). Any such assumption
shall be subject to Section 7.2 hereof. If the Servicer shall for any reason no
longer be the Servicer (including by reason of any Event of Default), the Master
Servicer or its successor shall succeed to any rights and obligations of the
Servicer under each subservicing agreement.

     The Servicer shall, upon request of the Master Servicer, but at the expense
of the Servicer, deliver to the assuming party all documents and records
relating to each subservicing agreement or substitute subservicing agreement and
the Mortgage Loans then being serviced thereunder and an accounting of amounts
collected or held by it and otherwise use its best efforts to effect the orderly
and efficient transfer of the substitute subservicing agreement to the assuming
party.

     (b) In the event that the Master Servicer shall for any reason no longer be
able to act as successor to the Servicer hereunder (including by reason of an
Event of Default relating to the Master Servicer, as successor Servicer), the
Trustee or its successor shall thereupon assume all of the rights and
obligations of the Servicer hereunder arising thereafter (except that the
Trustee shall not be (i) liable for losses of the Servicer (or the Master
Servicer, as successor Servicer) pursuant to Section 3.9 hereof or any acts or
omissions of any predecessor Servicer hereunder), (ii) obligated to make
Advances if it is prohibited from doing so by applicable law, (iii) obligated to
effectuate repurchases or substitutions of Mortgage Loans hereunder including,
but not limited to, repurchases or substitutions of Mortgage Loans pursuant to
Section 2.2 or 2.3 hereof, (iv) responsible for expenses of any Servicer
pursuant to Section 2.3 or (v) deemed to have made any representations and
warranties of the Servicer hereunder). Any such assumption shall be subject to
Section 7.2 hereof.

                                     -42-
<PAGE>

If the Master Servicer shall for any reason no longer act as successor to the
Servicer (including by reason of any Event of Default relating to the Master
Servicer, as successor Servicer), the Trustee or its successor shall succeed to
any rights and obligations of the Servicer under each subservicing agreement.

     The Master Servicer shall, upon request of the Trustee, but at the expense
of the Master Servicer, deliver to the assuming party all documents and records
relating to each subservicing agreement or substitute subservicing agreement and
the Mortgage Loans then being serviced thereunder and an accounting of amounts
collected or held by it and otherwise use its best efforts to effect the orderly
and efficient transfer of the substitute subservicing agreement to the assuming
party.

     SECTION 3.5  Collection of Mortgage Loan Payments; Collection Account;
Distribution Account.

     (a) The Servicer shall make reasonable efforts in accordance with the
customary and usual standards of practice of prudent mortgage servicers to
collect all payments called for under the terms and provisions of the Mortgage
Loans to the extent such procedures shall be consistent with this Agreement and
the terms and provisions of any related Required Insurance Policy. Consistent
with the foregoing, the Servicer may in its discretion (i) waive any late
payment charge or any prepayment charge or penalty interest in connection with
the prepayment of a Mortgage Loan and (ii) extend the due dates for payments due
on a Mortgage Note for a period not greater than 180 days; provided, however,
that the Servicer cannot extend the maturity of any such Mortgage Loan past the
date on which the final payment is due on the latest maturing Mortgage Loan as
of the Cut-off Date. In the event of any such arrangement, the Servicer shall
make Advances on the related Mortgage Loan in accordance with the provisions of
Section 4.1 during the scheduled period in accordance with the amortization
schedule of such Mortgage Loan without modification thereof by reason of such
arrangements. The Servicer shall not be required to institute or join in
litigation with respect to collection of any payment (whether under a Mortgage,
Mortgage Note or otherwise or against any public or governmental authority with
respect to a taking or condemnation) if it reasonably believes that enforcing
the provision of the Mortgage or other instrument pursuant to which such payment
is required is prohibited by applicable law.

     (b) The Servicer shall establish and maintain the Collection Account.  The
Collection Account shall consist of five separate subaccounts, each of which
shall relate to a particular Loan Group.  No later than two Business Days after
receipt, except as otherwise specifically provided herein, the Servicer shall
deposit or shall cause to be deposited into the applicable subaccount of the
Collection Account the following payments and collections remitted by
Subservicers or received by it in respect of the Mortgage Loans in the related
Loan Group subsequent to the Cut-off Date (other than in respect of principal
and interest due on such Mortgage Loans on or before the Cut-off Date) and the
following amounts required to be deposited hereunder:

         (i)    all payments on account of principal on the Mortgage Loans in
     the related Loan Group, including Principal Prepayments;

         (ii)   all payments on account of interest on the Mortgage Loans in the
     related Loan Group, net of the related Servicing Fee and any Prepayment
     Interest Excess;

                                     -43-
<PAGE>

         (iii)  all Insurance Proceeds and Liquidation Proceeds in respect of
     the Mortgage Loans in the related Loan Group, other than proceeds to be
     applied to the restoration or repair of the Mortgaged Property or released
     to the Mortgagor in accordance with the Servicer's normal servicing
     procedures;

         (iv)   any amount required to be deposited by the Servicer in respect
     of the related Loan Group pursuant to Section 3.5(d) in connection with any
     losses on Permitted Investments;

         (v)    any amounts required to be deposited by the Servicer in respect
     of the related Loan Group pursuant to Section 3.9(b), 3.9(d), and in
     respect of net monthly rental income from any related REO Property pursuant
     to Section 3.11 hereof;

         (vi)   all Substitution Adjustment Amounts in respect of the related
     Loan Group;

         (vii)  all Advances in respect of the related Loan Group made by the
     Servicer pursuant to Section 4.1; and

         (viii) any other amounts required to be deposited into the Collection
     Account hereunder in respect of the related Loan Group.

     In addition, with respect to any Mortgage Loan that is subject to a buydown
agreement, on each Due Date for such Mortgage Loan, in addition to the monthly
payment remitted by the Mortgagor, the Servicer shall cause funds to be
deposited into the applicable subaccount of the Collection Account in an amount
required to cause an amount of interest to be paid with respect to such Mortgage
Loan equal to the amount of interest that has accrued on such Mortgage Loan from
the preceding Due Date at the related Net Mortgage Rate on such date.

     The foregoing requirements for remittance by the Servicer shall be
exclusive, it being understood and agreed that, without limiting the generality
of the foregoing, payments in the nature of prepayment penalties, late payment
charges, assumption fees or amounts attributable to reimbursements of Advances,
if collected, need not be remitted by the Servicer. In the event that the
Servicer shall remit any amount not required to be remitted, it may at any time
withdraw or direct the institution maintaining the Collection Account to
withdraw such amount from the Collection Account, any provision herein to the
contrary notwithstanding. Such withdrawal or direction may be accomplished by
delivering written notice thereof to the Trustee or such other institution
maintaining the Collection Account which describes the amounts deposited in
error in the Collection Account. The Servicer shall maintain adequate records
with respect to all withdrawals made pursuant to this Section. All funds
deposited in the Collection Account shall be held in trust for the
Certificateholders until withdrawn in accordance with Section 3.8.

     (c) The Trustee shall establish and maintain, on behalf of the
Certificateholders, the Distribution Account.  The Distribution Account shall
consist of five separate subaccounts, each of which shall relate to a particular
Loan Group.  The Trustee shall, promptly upon receipt, deposit in the applicable
subaccount of the Distribution Account and retain therein the following:

                                     -44-
<PAGE>

         (i)   the aggregate amount remitted by the Servicer to the Trustee in
     respect of a Loan Group pursuant to Section 3.8(a)(ix);

         (ii)  any amount deposited by the Servicer pursuant to Section 3.5(d)
     in connection with any losses on Permitted Investments; and

         (iii) any other amounts deposited hereunder which are required to be
     deposited in the Distribution Account.

     In the event that the Servicer shall remit any amount not required to be
remitted, it may at any time direct the Trustee to withdraw such amount from the
Distribution Account, any provision herein to the contrary notwithstanding. Such
direction may be accomplished by delivering an Officer's Certificate to the
Trustee which describes the amounts deposited in error in the Distribution
Account. All funds deposited in the applicable subaccount of the Distribution
Account shall be held by the Trustee in trust for the related Certificateholders
until disbursed in accordance with this Agreement or withdrawn in accordance
with Section 3.8. In no event shall the Trustee incur liability for withdrawals
from the Distribution Account at the direction of the Servicer.

     (d) The institution at which the Collection Account is maintained shall
invest the funds therein as directed in writing by the Servicer in Permitted
Investments, and the institution at which the Distribution Account is maintained
shall invest funds as directed by the Servicer in Permitted Investments which in
both cases shall mature not later than (i) in the case of the Collection
Account, the second Business Day next preceding the related Remittance Date
(except that if such Permitted Investment is an obligation of the institution
that maintains such account, then such Permitted Investment shall mature not
later than the Business Day next preceding such Remittance Date) and (ii) in the
case of the Distribution Account, the Business Day next preceding the
Distribution Date (except that if such Permitted Investment is an obligation of
the institution that maintains such fund or account, then such Permitted
Investment shall mature not later than such Distribution Date) and, in each
case, shall not be sold or disposed of prior to its maturity. All Permitted
Investments in the Distribution Account shall be made in the name of the
Trustee, for the benefit of the Certificateholders.  All income and gain (net of
any losses) realized from any such investment of funds on deposit in the
Collection Account shall be for the benefit of the Servicer as servicing
compensation  and all income and gain (net of any losses) realized from any such
investment of funds on deposit in the Distribution Account shall be for the
benefit of the Trustee. The amount of any losses in the Collection Account in
respect of any such investments shall promptly be deposited by the Servicer in
the Collection Account and the amount of any losses in the Distribution Account
in respect of any such investments shall promptly be deposited by the Trustee
into the Distribution Account.  The Trustee in its fiduciary capacity shall not
be liable for the amount of any loss incurred in respect of any investment or
lack of investment of funds held in the Collection Account and made in
accordance with this Section 3.5 and the Servicer shall not be liable for the
amount of any loss incurred in respect of any investment or lack of investment
of funds held in the Distribution Account.

     (e) The Servicer shall give notice to the Trustee, the Seller, the Rating
Agency and the Depositor of any proposed change of the location of the
Collection Account prior to any change thereof. The Trustee shall give notice to
the Servicer, the Seller, the Rating Agency and the Depositor of any proposed
change of the location of the Distribution Account prior to any change thereof.

                                     -45-
<PAGE>

     SECTION 3.6  Collection of Taxes, Assessments and Similar Items; Escrow
Accounts.

     (a) To the extent required by the related Mortgage Note and not violative
of current law, the Servicer shall establish and maintain one or more accounts
(each, an "Escrow Account") and deposit and retain therein all collections from
the Mortgagors (or advances by the Servicer) for the payment of taxes,
assessments, hazard insurance premiums or comparable items for the account of
the Mortgagors. Nothing herein shall require the Servicer to compel a Mortgagor
to establish an Escrow Account in violation of applicable law.

     (b) Withdrawals of amounts so collected from the Escrow Accounts may be
made only to effect timely payment of taxes, assessments, hazard insurance
premiums, condominium or PUD association dues, or comparable items, to reimburse
the Servicer out of related collections for any payments made pursuant to
Sections 3.1 hereof (with respect to taxes and assessments and insurance
premiums) and 3.9 hereof (with respect to hazard insurance), to refund to any
Mortgagors any sums determined to be overages, to pay interest, if required by
law or the terms of the related Mortgage or Mortgage Note, to Mortgagors on
balances in the Escrow Account or to clear and terminate the Escrow Account at
the termination of this Agreement in accordance with Section 9.1 hereof. The
Escrow Accounts shall not be a part of the Trust Fund.

     (c) The Servicer shall advance any payments referred to in Section 3.6(a)
that are not timely paid by the Mortgagors on the date when the tax, premium or
other cost for which such payment is intended is due, but the Servicer shall be
required to advance only to the extent that such advances, in the good faith
judgment of the Servicer, will be recoverable by the Servicer out of Insurance
Proceeds, Liquidation Proceeds or otherwise.

     SECTION 3.7  Access to Certain Documentation and Information Regarding the
Mortgage Loans.

     The Servicer shall afford the Depositor, the Master Servicer and the
Trustee reasonable access to all records and documentation regarding the
Mortgage Loans and all accounts, insurance information and other matters
relating to this Agreement, such access being afforded without charge, but only
upon reasonable request and during normal business hours at the office
designated by the Servicer.

     Upon reasonable advance notice in writing, the Servicer will provide to
each Certificateholder which is a savings and loan association, bank or
insurance company certain reports and reasonable access to information and
documentation regarding the Mortgage Loans sufficient to permit such
Certificateholder to comply with applicable regulations of the OTS or other
regulatory authorities with respect to investment in the Certificates; provided
that the Servicer shall be entitled to be reimbursed by each such
Certificateholder for actual expenses incurred by the Servicer in providing such
reports and access.

     SECTION 3.8  Permitted Withdrawals from the Collection Account and
Distribution Account.

     (a) The Servicer may from time to time make withdrawals from the applicable
subaccount of the Collection Account for the following purposes:

                                     -46-
<PAGE>

         (i)    to the extent not previously retained by the Servicer, to pay to
     the Servicer the servicing compensation to which it is entitled pursuant to
     Section 3.14, and earnings on or investment income with respect to funds in
     or credited to the Collection Account as additional servicing compensation;

         (ii)   to the extent not previously retained by the Servicer, to
     reimburse the Servicer for unreimbursed Advances made by it in respect of
     the related Loan Group, such right of reimbursement pursuant to this
     subclause (ii) being limited to amounts received on the Mortgage Loan(s) in
     respect of which  any such Advance was made or prepayments received on
     other Mortgage Loans;

         (iii)  to reimburse the Servicer for any Nonrecoverable Advance
     previously made in respect of the related Loan Group;

         (iv)   to reimburse the Servicer for Insured Expenses from the related
     Insurance Proceeds in respect of the related Loan Group;

         (v)    to reimburse the Servicer for (a) unreimbursed Servicing
     Advances in respect of the related Loan Group, the Servicer's right to
     reimbursement pursuant to this clause (a) with respect to any Mortgage Loan
     being limited to amounts received on such Mortgage Loan(s) which represent
     late recoveries of the payments for which such advances were made pursuant
     to Section 3.1 or Section 3.6 and (b) for unpaid Servicing Fees as provided
     in Section 3.11 hereof;

         (vi)   to pay to the purchaser, with respect to each Mortgage Loan in
     the related Loan Group or property acquired in respect thereof that has
     been purchased pursuant to Section 2.2, 2.3 or 3.11, all amounts received
     thereon after the date of such purchase;

         (vii)  to reimburse the Seller, the Servicer or the Depositor for
     expenses incurred by any of them and reimbursable pursuant to Section 6.3
     hereof;

         (viii) to withdraw any amount deposited in the Collection Account and
     not required to be deposited therein;

         (ix)   on or prior to the Remittance Date, to withdraw an amount equal
     to the sum of the Available Funds, the Master Servicing Fee and the
     Custodial Fee for such Distribution Date and remit such amount to the
     Trustee for deposit in the Distribution Account; and

         (x)    to clear and terminate the Collection Account upon termination
     of this Agreement pursuant to Section 9.1 hereof.

     The Servicer shall keep and maintain separate accounting, on a Mortgage
Loan by Mortgage Loan basis and on a Loan Group by Loan Group basis, for the
purpose of justifying any withdrawal from the Collection Account pursuant to
such subclauses (i), (ii), (iv), (v) and (vi). Prior to making any withdrawal
from the Collection Account pursuant to subclause (iii), the Servicer shall
deliver to the Trustee an Officer's Certificate of a Servicing Officer
indicating the amount of any previous

                                     -47-
<PAGE>

Advance determined by the Servicer to be a Nonrecoverable Advance and
identifying the related Mortgage Loans(s), and their respective portions of such
Nonrecoverable Advance.

     (b) The Trustee shall withdraw funds from the applicable subaccount of the
Distribution Account for distributions to the related Certificateholders in the
manner specified in this Agreement (and to withhold from the amounts so
withdrawn, the amount of any taxes that it is authorized to withhold pursuant to
the last paragraph of Section 8.11). In addition, the Trustee may prior to
making the distribution pursuant to Section 4.2 from time to time make
withdrawals from the Distribution Account for the following purposes:

         (i)   to pay to itself the Trustee Fee and the Custodial Fee for the
     related Distribution Date;

         (ii)  to pay to the Master Servicer the remaining Master Servicing Fee
     for the related Distribution Date, after deduction of the Trustee Fee;

         (iii) to pay to itself earnings on or investment income with respect to
     funds in the Distribution Account;

         (iv)  to withdraw and return to the Servicer any amount deposited in
     the Distribution Account and not required to be deposited therein; and

         (v)   to clear and terminate the Distribution Account upon termination
     of the Agreement pursuant to Section 9.1 hereof.

     On each Distribution Date, the Trustee shall pay the amounts set forth in
clauses (i), (ii) and (iii) above and shall return the amounts specified in
clause (iv) above prior to making the distributions to Certificateholders as set
forth in Section 4.2.

     SECTION 3.9  Maintenance of Hazard Insurance; Maintenance of Primary
Insurance Policies.

     (a) The Servicer shall cause to be maintained, for each Mortgage Loan,
hazard insurance with extended coverage in an amount that is at least equal to
the lesser of (i) the maximum insurable value of the improvements securing such
Mortgage Loan or (ii) the greater of (y) the outstanding principal balance of
the Mortgage Loan and (z) an amount such that the proceeds of such policy shall
be sufficient to prevent the Mortgagor and/or the mortgagee from becoming a co-
insurer. Each such policy of standard hazard insurance shall contain, or have an
accompanying endorsement that contains, a standard mortgagee clause. Any amounts
collected by the Servicer under any such policies (other than the amounts to be
applied to the restoration or repair of the related Mortgaged Property or
amounts released to the Mortgagor in accordance with the Servicer's normal
servicing procedures) shall be deposited in the applicable subaccount of the
Collection Account. Any cost incurred by the Servicer in maintaining any such
insurance shall not, for the purpose of calculating monthly distributions to the
Certificateholders or remittances to the Trustee for their benefit, be added to
the principal balance of the Mortgage Loan, notwithstanding that the terms of
the Mortgage Loan so permit. Such costs shall be recoverable by the Servicer out
of late payments by the related Mortgagor or out of Liquidation Proceeds to the
extent permitted by Section 3.8 hereof. It is

                                     -48-
<PAGE>

understood and agreed that no earthquake or other additional insurance is to be
required of any Mortgagor or maintained on property acquired in respect of a
Mortgage other than pursuant to such applicable laws and regulations as shall at
any time be in force and as shall require such additional insurance. If the
Mortgaged Property is located at the time of origination of the Mortgage Loan in
a federally designated special flood hazard area and such area is participating
in the national flood insurance program, the Servicer shall cause flood
insurance to be maintained with respect to such Mortgage Loan. Such flood
insurance shall be in an amount equal to the least of (i) the original principal
balance of the related Mortgage Loan, (ii) the replacement value of the
improvements which are part of such Mortgaged Property, and (iii) the maximum
amount of such insurance available for the related Mortgaged Property under the
national flood insurance program.

     (b) In the event that the Servicer shall obtain and maintain a blanket
policy insuring against hazard losses on all of the Mortgage Loans, it shall
conclusively be deemed to have satisfied its obligations as set forth in the
first sentence of this Section, it being understood and agreed that such policy
may contain a deductible clause on terms substantially equivalent to those
commercially available and maintained by comparable servicers. If such policy
contains a deductible clause, the Servicer shall, in the event that there shall
not have been maintained on the related Mortgaged Property a policy complying
with the first sentence of this Section, and there shall have been a loss that
would have been covered by such policy, deposit in the applicable subaccount of
the Collection Account the amount not otherwise payable under the blanket policy
because of such deductible clause. In connection with its activities as Servicer
of the Mortgage Loans, the Servicer agrees to present, on behalf of itself, the
Depositor, and the Trustee for the benefit of the Certificateholders, claims
under any such blanket policy.

     (c) The Servicer shall not take any action which would result in non-
coverage under any applicable Primary Insurance Policy of any loss which, but
for the actions of the Servicer, would have been covered thereunder. The
Servicer shall not cancel or refuse to renew any such Primary Insurance Policy
that is in effect at the date of the initial issuance of the Certificates and is
required to be kept in force hereunder unless the replacement Primary Insurance
Policy for such canceled or non-renewed policy is maintained with a Qualified
Insurer.

     The Servicer shall not be required to maintain any Primary Insurance Policy
(i) with respect to any Mortgage Loan with a Loan-to-Value Ratio less than or
equal to 80% as of any date of determination or, based on a new appraisal, the
principal balance of such Mortgage Loan represents 80% or less of the new
appraised value or (ii) if maintaining such Primary Insurance Policy is
prohibited by applicable law.

     The Servicer agrees to effect the timely payment of the premiums on each
Primary Insurance Policy, and such costs not otherwise recoverable shall be
recoverable by the Servicer from the related Liquidation Proceeds or as
otherwise provided for in Section 3.8 hereof.

     (d) In connection with its activities as Servicer of the Mortgage Loans,
the Servicer agrees to present on behalf of itself, the Trustee and
Certificateholders, claims to the insurer under any Primary Insurance Policies
and, in this regard, to take such reasonable action as shall be necessary to
permit recovery under any Primary Insurance Policies respecting defaulted
Mortgage Loans. Any amounts collected by the Servicer under any Primary
Insurance Policies shall be deposited in the applicable subaccount of the
Collection Account.

                                     -49-
<PAGE>

     SECTION 3.10  Enforcement of Due-on-Sale Clauses; Assumption Agreements.

     (a) Except as otherwise provided in this Section, when any property subject
to a Mortgage has been conveyed by the Mortgagor, the Servicer shall to the
extent that it has knowledge of such conveyance, enforce any due-on-sale clause
contained in any Mortgage Note or Mortgage, to the extent permitted under
applicable law and governmental regulations, but only to the extent that such
enforcement will not adversely affect or jeopardize coverage under any Required
Insurance Policy. Notwithstanding the foregoing, the Servicer is not required to
exercise such rights with respect to a Mortgage Loan if the Person to whom the
related Mortgaged Property has been conveyed or is proposed to be conveyed
satisfies the terms and conditions contained in the Mortgage Note and Mortgage
related thereto and the consent of the mortgagee under such Mortgage Note or
Mortgage is not otherwise so required under such Mortgage Note or Mortgage as a
condition to such transfer. In the event that the Servicer is prohibited by law
from enforcing any such due-on-sale clause, or if coverage under any Required
Insurance Policy would be adversely affected, or if nonenforcement is otherwise
permitted hereunder, the Servicer is authorized, subject to Section 3.10(b), to
take or enter into an assumption and modification agreement from or with the
Person to whom such property has been or is about to be conveyed, pursuant to
which such Person becomes liable under the Mortgage Note and, unless prohibited
by applicable state law, the Mortgagor remains liable thereon, provided that the
Mortgage Loan shall continue to be covered (if so covered before the Servicer
enters such agreement) by the applicable Required Insurance Policies. The
Servicer, subject to Section 3.10(b), is also authorized with the prior approval
of the insurers under any Required Insurance Policies to enter into a
substitution of liability agreement with such Person, pursuant to which the
original Mortgagor is released from liability and such Person is substituted as
Mortgagor and becomes liable under the Mortgage Note. Notwithstanding the
foregoing, the Servicer shall not be deemed to be in default under this Section
by reason of any transfer or assumption which the Servicer reasonably believes
it is restricted by law from preventing, for any reason whatsoever.

     (b) Subject to the Servicer's duty to enforce any due-on-sale clause to the
extent set forth in Section 3.10(a) hereof, in any case in which a Mortgaged
Property has been conveyed to a Person by a Mortgagor, and such Person is to
enter into an assumption agreement or modification agreement or supplement to
the Mortgage Note or Mortgage that requires the signature of the Trustee, or if
an instrument of release signed by the Trustee is required releasing the
Mortgagor from liability on the Mortgage Loan, the Servicer shall prepare and
deliver or cause to be prepared and delivered to the Trustee for signature and
shall direct, in writing, the Trustee to execute the assumption agreement with
the Person to whom the Mortgaged Property is to be conveyed and such
modification agreement or supplement to the Mortgage Note or Mortgage or other
instruments as are reasonable or necessary to carry out the terms of the
Mortgage Note or Mortgage or otherwise to comply with any applicable laws
regarding assumptions or the transfer of the Mortgaged Property to such Person.
In connection with any such assumption, no material term of the Mortgage Note
may be changed. In addition, the substitute Mortgagor and the Mortgaged Property
must be acceptable to the Servicer in accordance with its underwriting standards
as then in effect. Together with each such substitution, assumption or other
agreement or instrument delivered to the Trustee for execution by it, the
Servicer shall deliver an Officer's Certificate signed by a Servicing Officer
stating that the requirements of this subsection have been met in connection
therewith. The Servicer shall notify the Trustee that any such substitution or
assumption agreement has been completed by forwarding to the Trustee the
original of such substitution or assumption agreement, which in the case of the
original shall be added to the

                                     -50-
<PAGE>

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. Any fee collected by the Servicer for entering into
an assumption or substitution of liability agreement will be retained by the
Servicer as additional servicing compensation.

     SECTION 3.11  Realization Upon Defaulted Mortgage Loans; Repurchase of
Certain Mortgage Loans.

     The Servicer shall use reasonable efforts to foreclose upon or otherwise
comparably convert the ownership of properties securing such of the Mortgage
Loans as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments. In connection
with such foreclosure or other conversion, the Servicer shall follow such
practices and procedures as it shall deem necessary or advisable and as shall be
normal and usual in its general mortgage servicing activities and meet the
requirements of the insurer under any Required Insurance Policy; provided,
however, that the Servicer shall not be required to expend its own funds in
connection with any foreclosure or towards the restoration of any property
unless it shall determine (i) that such restoration and/or foreclosure will
increase the proceeds of liquidation of the Mortgage Loan after reimbursement to
itself of such expenses and (ii) that such expenses will be recoverable to it
through Liquidation Proceeds (respecting which it shall have priority for
purposes of withdrawals from the Collection Account). The Servicer shall be
responsible for all other costs and expenses incurred by it in any such
proceedings; provided, however, that it shall be entitled to reimbursement
thereof from the Liquidation Proceeds with respect to the related Mortgaged
Property, as provided in the definition of Liquidation Proceeds or as otherwise
provided in Section 3.8 hereof. If the Servicer has knowledge that a Mortgaged
Property which the Servicer is contemplating acquiring in foreclosure or by deed
in lieu of foreclosure is a site with environmental or hazardous waste risks
known to the Servicer, the Servicer will, prior to acquiring the Mortgaged
Property, consider such risks and only take action in accordance with its
established environmental review procedures.

     With respect to any REO Property, the deed or certificate of sale shall be
taken in the name of the Trustee for the benefit of the Certificateholders, or
its nominee, on behalf of the Certificateholders. The Trustee's name shall be
placed on the title to such REO Property solely as the Trustee hereunder and not
in its individual capacity. The Servicer shall ensure that the title to such REO
Property references this Agreement and the Trustee's capacity hereunder.
Pursuant to its efforts to sell such REO Property, the Servicer shall either
itself or through an agent selected by the Servicer protect and conserve such
REO Property in the same manner and to such extent as is customary in the
locality where such REO Property is located and may, incident to its
conservation and protection of the interests of the Certificateholders, rent the
same, or any part thereof, as the Servicer deems to be in the best interest of
the Certificateholders for the period prior to the sale of such REO Property.
The Servicer shall prepare for and deliver to the Trustee an annual statement
with respect to each REO Property that has been rented showing the aggregate
rental income received and all expenses incurred in connection with the
management and maintenance of such REO Property at such times as is necessary to
enable the Trustee to comply with the reporting requirements of the REMIC
Provisions. The net monthly rental income, if any, from such REO Property shall
be deposited in the applicable subaccount of the Collection Account no later
than the close of business on each Determination Date. The Servicer shall
perform the tax reporting and withholding required by Sections 1445 and 6050J of
the Code with respect to foreclosures and

                                     -51-
<PAGE>

abandonments, the tax reporting required by Section 6050H of the Code with
respect to the receipt of mortgage interest from individuals and any tax
reporting required by Section 6050P of the Code with respect to the cancellation
of indebtedness by certain financial entities, by preparing such tax and
information returns as may be required, in the form required, and delivering the
same to the Trustee for filing.

     In the event that the Trust Fund acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, the Servicer shall dispose of such Mortgaged Property prior to
three years after its acquisition by the Trust Fund unless the Trustee shall
have been supplied with an Opinion of Counsel to the effect that the holding by
the Trust Fund of such Mortgaged Property subsequent to such three-year period
will not result in the imposition of taxes on "prohibited transactions" of any
REMIC hereunder as defined in section 860F of the Code or cause any REMIC
created hereunder to fail to qualify as a REMIC at any time that any
Certificates are outstanding, in which case the Trust Fund may continue to hold
such Mortgaged Property (subject to any conditions contained in such Opinion of
Counsel). Notwithstanding any other provision of this Agreement, no Mortgaged
Property acquired by the Trust Fund shall be rented (or allowed to continue to
be rented) or otherwise used for the production of income by or on behalf of the
Trust Fund in such a manner or pursuant to any terms that would (i) cause such
Mortgaged Property to fail to qualify as "foreclosure property" within the
meaning of section 860G(a)(8) of the Code or (ii) subject any REMIC hereunder to
the imposition of any federal, state or local income taxes on the income earned
from such Mortgaged Property under Section 860G(c) of the Code or otherwise,
unless the Servicer has agreed to indemnify and hold harmless the Trust Fund
with respect to the imposition of any such taxes.

     In the event of a default on a Mortgage Loan one or more of whose obligor
is not a United States Person, as that term is defined in Section 7701(a)(30) of
the Code, in connection with any foreclosure or acquisition of a deed in lieu of
foreclosure (together, "foreclosure") in respect of such Mortgage Loan, the
Servicer will cause compliance with the provisions of Treasury Regulation
Section 1.1445-2(d)(3) (or any successor thereto) necessary to assure that no
withholding tax obligation arises with respect to the proceeds of such
foreclosure except to the extent, if any, that proceeds of such foreclosure are
required to be remitted to the obligors on such Mortgage Loan.

     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.
The income earned from the management of any REO Properties, net of
reimbursement to the Servicer for expenses incurred (including any property or
other taxes) in connection with such management and net of unreimbursed
Servicing Fees, Advances and Servicing Advances, shall be applied to the payment
of principal of and interest on the related defaulted Mortgage Loans (with
interest accruing as though such Mortgage Loans were still current) and all such
income shall be deemed, for all purposes in this Agreement, to be payments on
account of principal and interest on the related Mortgage Notes and shall be
deposited into the applicable subaccount of the Collection Account. To the
extent the net income received during any calendar month is in excess of the
amount attributable to amortizing principal and accrued interest at the related
Mortgage Rate on the related Mortgage Loan for such calendar month, such excess
shall be considered to be a partial prepayment of principal of the related
Mortgage Loan.

                                     -52-
<PAGE>

     The proceeds from any liquidation of a Mortgage Loan, as well as any income
from an REO Property, will be applied in the following order of priority: first,
to reimburse the Servicer for any related unreimbursed Servicing Advances and
Servicing Fees; second, to reimburse the Servicer for any unreimbursed Advances;
third, to reimburse the applicable subaccount of the Collection Account for any
Nonrecoverable Advances (or portions thereof) that were previously withdrawn by
the Servicer pursuant to Section 3.8(a)(iii) that related to such Mortgage Loan;
fourth, to accrued and unpaid interest (to the extent no Advance has been made
for such amount or any such Advance has been reimbursed) on the Mortgage Loan or
related REO Property, at the Net Mortgage Rate to the Due Date occurring in the
month in which such amounts are required to be distributed; and fifth, as a
recovery of principal of the Mortgage Loan. Excess Proceeds, if any, from the
liquidation of a Liquidated Mortgage Loan will be retained by the Servicer as
additional servicing compensation pursuant to Section 3.14.

     The Servicer, in its sole discretion, shall have the right to purchase for
its own account from the Trust Fund any Mortgage Loan which is 91 days or more
delinquent at a price equal to the Purchase Price. The Purchase Price for any
Mortgage Loan purchased hereunder shall be deposited in the applicable
subaccount of the Collection Account and the Trustee, upon receipt of a
certificate from the Servicer in the form of Exhibit N hereto, 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 Trustee'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.

     Neither the Servicer nor the Trustee shall complete foreclosure proceedings
with respect to any Restricted Mortgage Loan for which the related Mortgagor has
not been discharged from bankruptcy, or take title to any Restricted Mortgaged
Property if, as a result of such foreclosure or taking of title, the aggregate
value of the Restricted Mortgaged Properties (computed on the basis of the
Stated Principal Balance of such Restricted Mortgage Loan immediately prior to
such foreclosure or taking of title) then owned by the Trust Fund would exceed
0.80% of the aggregate of the Stated Principal Balances of the Mortgage Loans as
of the preceding Determination Date.

     If at any time the Servicer or the Trustee holds title to Restricted
Mortgaged Properties that have an aggregate value (computed on the basis of the
Stated Principal Balance of each related Restricted Mortgage Loan immediately
prior to the time the Servicer or the Trustee acquired title to the related
Restricted Mortgaged Property) that exceeds 0.95% of the aggregate of the Stated
Principal Balance of the Mortgage Loans as of the preceding Determination Date,
then the Seller shall, on or prior to the next succeeding Remittance Date,
purchase or cause the Initial Seller to purchase one or more of such Restricted
Mortgaged Properties at a price equal to the Purchase Price for the related
Mortgage Loan so that the aggregate value of such Restricted Mortgaged
Properties (calculated as specified above) then owned by the Trust Fund after
such purchase or purchases does not exceed 0.90% of the then aggregate of the
Stated Principal Balances of the Mortgage Loans.

                                     -53-
<PAGE>

     SECTION 3.12  Trustee to Cooperate; Release of Mortgage Files.

     Upon the payment in full of any Mortgage Loan, or the receipt by the
Servicer of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Servicer will promptly notify the Trustee by
delivering, or causing to be delivered a "Request for Release" substantially in
the form of Exhibit N. Upon receipt of such request, the Trustee shall promptly
release the related Mortgage File to the Servicer, and the Trustee shall at the
Servicer's direction execute and deliver to the Servicer the request for
reconveyance, deed of reconveyance or release or satisfaction of mortgage or
such instrument releasing the lien of the Mortgage in each case provided by the
Servicer, together with the Mortgage Note with written evidence of cancellation
thereon. Expenses incurred in connection with any instrument of satisfaction or
deed of reconveyance shall be chargeable to the related Mortgagor. From time to
time and as shall be appropriate for the servicing or foreclosure of any
Mortgage Loan, including for such purpose, collection under any policy of flood
insurance, any fidelity bond or errors or omissions policy, or for the purposes
of effecting a partial release of any Mortgaged Property from the lien of the
Mortgage or the making of any corrections to the Mortgage Note or the Mortgage
or any of the other documents included in the Mortgage File, the Trustee shall,
upon delivery to the Trustee of a Request for Release in the form of Exhibit M
signed by a Servicing Officer, release the Mortgage File to the Servicer.
Subject to the further limitations set forth below, the Servicer shall cause the
Mortgage File or documents so released to be returned to the Trustee when the
need therefor by the Servicer no longer exists, unless the Mortgage Loan is
liquidated and the proceeds thereof are deposited in the applicable subaccount
of the Collection Account, in which case the Servicer shall deliver to the
Trustee a Request for Release in the form of Exhibit N, signed by a Servicing
Officer.

     If the Servicer at any time seeks to initiate a foreclosure proceeding in
respect of any Mortgaged Property as authorized by this Agreement, the Servicer
shall deliver or cause to be delivered to the Trustee, for signature, as
appropriate, any court pleadings, requests for trustee's sale or other documents
necessary to effectuate such foreclosure or any legal action brought to obtain
judgment against the Mortgagor on the Mortgage Note or the Mortgage or to obtain
a deficiency judgment or to enforce any other remedies or rights provided by the
Mortgage Note or the Mortgage or otherwise available at law or in equity.

     SECTION 3.13  Documents Records and Funds in Possession of Servicer to be
Held for the Trustee.

     Notwithstanding any other provisions of this Agreement, the Servicer shall
transmit to the Trustee as required by this Agreement all documents and
instruments in respect of a Mortgage Loan coming into the possession of the
Servicer from time to time and shall account fully to the Trustee for any funds
received by the Servicer or which otherwise are collected by the Servicer as
Liquidation Proceeds or Insurance Proceeds in respect of any Mortgage Loan. All
Mortgage Files and funds collected or held by, or under the control of, the
Servicer in respect of any Mortgage Loans, whether from the collection of
principal and interest payments or from Liquidation Proceeds, including but not
limited to, any funds on deposit in the Collection

                                     -54-
<PAGE>

Account, shall be held by the Servicer for and on behalf of the Trustee and
shall be and remain the sole and exclusive property of the Trustee, subject to
the applicable provisions of this Agreement. The Servicer also agrees that it
shall not create, incur or subject any Mortgage File or any funds that are
deposited in the Collection Account, Distribution Account or any Escrow Account,
or any funds that otherwise are or may become due or payable to the Trustee for
the benefit of the Certificateholders, to any claim, lien, security interest,
judgment, levy, writ of attachment or other encumbrance, or assert by legal
action or otherwise any claim or right of setoff against any Mortgage File or
any funds collected on, or in connection with, a Mortgage Loan, except, however,
that the Servicer shall be entitled to set off against and deduct from any such
funds any amounts that are properly due and payable to the Servicer under this
Agreement.

     SECTION 3.14  Servicing Compensation.

     As compensation for its activities hereunder, the Servicer shall be
entitled to retain or withdraw from the Collection Account an amount equal to
the Servicing Fee for each Mortgage Loan, provided that the aggregate Servicing
Fee with respect to any Distribution Date shall be reduced by the amount of any
Compensating Interest paid by the Servicer  with respect to such Distribution
Date.

     Additional servicing compensation in the form of Excess Proceeds,
Prepayment Interest Excess, prepayment penalties, assumption fees, modification
fees, late payment charges and all income and gain net of any losses realized
from Permitted Investments shall be retained by the Servicer to the extent not
required to be deposited in the Collection Account pursuant to Section 3.5
hereof.  The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder (including payment of any
premiums for hazard insurance and any Primary Insurance Policy and maintenance
of the other forms of insurance coverage required by this Agreement) and shall
not be entitled to reimbursement therefor except as specifically provided in
this Agreement.

     SECTION 3.15  Access to Certain Documentation.

     The Servicer shall provide to the OTS and the FDIC and to comparable
regulatory authorities supervising Holders of Subordinate Certificates and the
examiners and supervisory agents of the OTS, the FDIC and such other
authorities, access to the documentation regarding the Mortgage Loans required
by applicable regulations of the OTS and the FDIC. Such access shall be afforded
without charge, but only upon reasonable and prior written request and during
normal business hours at the offices designated by the Servicer. Nothing in this
Section shall limit 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 3.16  Annual Statement as to Compliance.

     The Servicer shall deliver to the Depositor, the Master Servicer and the
Trustee on or before 120 days after the end of the Servicer's fiscal year,
commencing with its 2000 fiscal year, an Officer's Certificate stating, as to
the signer thereof, that (i) a review of the activities of the Servicer during
the preceding calendar year and of the performance of the Servicer under this
Agreement has been made under such officer's supervision and (ii) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this Agreement throughout such year, or, if there has been
a default in the fulfillment of any such obligation, specifying each such

                                     -55-
<PAGE>

default known to such officer and the nature and status thereof. The Trustee
shall forward a copy of each such statement to the Rating Agency.  The Master
Servicer shall be responsible for any costs and/or expenses associated with the
Rating Agency's annual review of the Servicer and/or the Master Servicer in
connection with the transactions contemplated by this Agreement.

     SECTION 3.17  Annual Independent Public Accountants' Servicing Statement;
Financial Statements.

     On or before 120 days after the end of the Servicer's fiscal year,
commencing with its 2000 fiscal year, the Servicer at its expense shall cause a
nationally or regionally recognized firm of independent public accountants (who
may also render other services to the Servicer, the Seller or any affiliate
thereof) which is a member of the American Institute of Certified Public
Accountants to furnish a statement to the Trustee, the Depositor and the Master
Servicer to the effect that such firm has examined certain documents and records
relating to the servicing of mortgage loans by the Servicer and that, on the
basis of such examination, conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers, such servicing has been
conducted in compliance with the Uniform Single Attestation Program for Mortgage
Bankers except for such significant exceptions or errors in records that, in the
opinion of such firm, the Uniform Single Attestation Program for Mortgage
Bankers requires it to report. In rendering such statement, such firm may rely,
as to matters relating to direct servicing of mortgage loans by Subservicers,
upon comparable statements for examinations conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers
(rendered within one year of such statement) of independent public accountants
with respect to the related Subservicer. Copies of such statement shall be
provided by the Trustee to any Certificateholder upon request at the Servicer's
expense, provided such statement is delivered by the Servicer to the Trustee.

     SECTION 3.18  Errors and Omissions Insurance; Fidelity Bonds.

     The Servicer shall for so long as it acts as Servicer under this Agreement,
obtain and maintain in force (a) a policy or policies of insurance covering
errors and omissions in the performance of its obligations as Servicer hereunder
and (b) a fidelity bond in respect of its officers, employees and agents. Each
such policy or policies and bond shall, together, comply with the requirements
from time to time of FNMA or FHLMC for persons performing servicing for mortgage
loans purchased by FNMA or FHLMC. In the event that any such policy or bond
ceases to be in effect, the Servicer shall obtain a comparable replacement
policy or bond from an insurer or issuer, meeting the requirements set forth
above as of the date of such replacement.

                                  ARTICLE IV
                          ADVANCES AND DISTRIBUTIONS

     SECTION 4.1  Advances.

     The Servicer shall determine on or before each Servicer Advance Date
whether it is required to make an Advance pursuant to the definition thereof. If
the Servicer determines it is required to make an Advance, it shall, on or
before the Servicer Advance Date, either (i) deposit into the

                                     -56-
<PAGE>

applicable subaccount of the Collection Account an amount equal to the Advance
or (ii) make an appropriate entry in its records relating to the applicable
subaccount of the Collection Account that any Amount Held for Future
Distribution has been used by the Servicer in discharge of its obligation to
make any such Advance. Any funds so applied shall be replaced by the Servicer by
deposit in the applicable subaccount of the Collection Account no later than the
close of business on the next Servicer Advance Date. The Servicer shall be
entitled to be reimbursed from the applicable subaccount of the Collection
Account for all Advances of its own funds made pursuant to this Section as
provided in Section 3.8. The obligation to make Advances with respect to any
Mortgage Loan shall continue if such Mortgage Loan has been foreclosed or
otherwise terminated and the related Mortgaged Property has not been liquidated.

     The Servicer shall deliver to the Trustee on the related Servicer Advance
Date an Officer's Certificate of a Servicing Officer indicating the amount of
any Advance determined by the Servicer to be a Nonrecoverable Advance and which
was deducted from the Advance for such Servicer Advance Date.

     SECTION 4.2  Priorities of Distribution.

     (a) On each Distribution Date, the Trustee shall withdraw the Available
Funds for each Certificate Group from the applicable subaccount of the
Distribution Account and apply such funds to distributions on the Certificates
of the related Certificate Group in the following order and priority and, in
each case, to the extent of the Available Funds remaining:

         (i)   to the Senior Certificates of each Certificate Group, the Accrued
     Certificate Interest thereon for such Distribution Date;

         (ii)  to the Senior Certificates of each Certificate Group, any Accrued
     Certificate Interest thereon remaining undistributed from previous
     Distribution Dates;

         (iii) to the Senior Certificates of each Certificate Group,
     concurrently, as follows:

               (A) to the Class I-A-R and Class I-A Certificates, in that order,
         the Senior Principal Distribution Amount for Loan Group 1 for such
         Distribution Date until the respective Class Principal Balances thereof
         have been reduced to zero;

               (B) to the Class II-A Certificates, the Senior Principal
         Distribution Amount for Loan Group 2 for such Distribution Date, until
         the Class Principal Balance thereof has been reduced to zero;

               (C) to the Class III-A Certificates, the Senior Principal
         Distribution Amount for Loan Group 3 for such Distribution Date, until
         the Class Principal Balance thereof has been reduced to zero;

               (D) to the Class IV-A Certificates, the Senior Principal
         Distribution Amount for Loan Group 4 for such Distribution Date, until
         the Class Principal Balance thereof has been reduced to zero; and

                                     -57-
<PAGE>

            (E) to the Class V-A Certificates, the Senior Principal Distribution
          Amount for Loan Group 5 for such Distribution Date, until the Class
          Principal Balance thereof has been reduced to zero.

          (iv) to the Class B-1 Certificates of each Certificate Group,
     concurrently as follows:

            (A) to the Class I-B-1 Certificates in the following order:  (1) the
          Accrued Certificate Interest thereon for such Distribution Date, (2)
          any Accrued Certificate Interest thereon remaining undistributed from
          previous Distribution Dates, and (3) such Class's Subordinate Class
          Percentage of the Subordinate Principal Distribution Amount for Loan
          Group 1 for such Distribution Date until the Class Principal Balance
          thereof has been reduced to zero;

            (B) to the Class II-B-1 Certificates in the following order:  (1)
          the Accrued Certificate Interest thereon for such Distribution Date,
          (2) any Accrued Certificate Interest thereon remaining undistributed
          from previous Distribution Dates, and (3) such Class's Subordinate
          Class Percentage of the Subordinate Principal Distribution Amount for
          Loan Group 2 for such Distribution Date until the Class Principal
          Balance thereof has been reduced to zero;

            (C) to the Class III-B-1 Certificates in the following order:  (1)
          the Accrued Certificate Interest thereon for such Distribution Date,
          (2) any Accrued Certificate Interest thereon remaining undistributed
          from previous Distribution Dates, and (3) such Class's Subordinate
          Class Percentage of the Subordinate Principal Distribution Amount for
          Loan Group 3 for such Distribution Date until the Class Principal
          Balance thereof has been reduced to zero;

            (D) to the Class IV-B-1 Certificates in the following order:  (1)
          the Accrued Certificate Interest thereon for such Distribution Date,
          (2) any Accrued Certificate Interest thereon remaining undistributed
          from previous Distribution Dates, and (3) such Class's Subordinate
          Class Percentage of the Subordinate Principal Distribution Amount for
          Loan Group 4 for such Distribution Date until the Class Principal
          Balance thereof has been reduced to zero; and

            (E) to the Class V-B-1 Certificates in the following order:  (1) the
          Accrued Certificate Interest thereon for such Distribution Date, (2)
          any Accrued Certificate Interest thereon remaining undistributed from
          previous Distribution Dates, and (3) such Class's Subordinate Class
          Percentage of the Subordinate Principal Distribution Amount for Loan
          Group 5 for such Distribution Date until the Class Principal Balance
          thereof has been reduced to zero.

         (v) to the Class B-2 Certificates of each Certificate Group,
     concurrently as follows:

            (A) to the Class I-B-2 Certificates in the following order:  (1) the
          Accrued Certificate Interest thereon for such Distribution Date, (2)
          any Accrued Certificate Interest thereon remaining undistributed from
          previous Distribution Dates, and (3) such Class's Subordinate Class
          Percentage of the Subordinate Principal Distribution

                                     -58-
<PAGE>

          Amount for Loan Group 1 for such Distribution Date until the Class
          Principal Balance thereof has been reduced to zero;

            (B) to the Class II-B-2 Certificates in the following order:  (1)
          the Accrued Certificate Interest thereon for such Distribution Date,
          (2) any Accrued Certificate Interest thereon remaining undistributed
          from previous Distribution Dates, and (3) such Class's Subordinate
          Class Percentage of the Subordinate Principal Distribution Amount for
          Loan Group 2 for such Distribution Date until the Class Principal
          Balance thereof has been reduced to zero;

            (C) to the Class III-B-2 Certificates in the following order:  (1)
          the Accrued Certificate Interest thereon for such Distribution Date,
          (2) any Accrued Certificate Interest thereon remaining undistributed
          from previous Distribution Dates, and (3) such Class's Subordinate
          Class Percentage of the Subordinate Principal Distribution Amount for
          Loan Group 3 for such Distribution Date until the Class Principal
          Balance thereof has been reduced to zero;

            (D) to the Class IV-B-2 Certificates in the following order:  (1)
          the Accrued Certificate Interest thereon for such Distribution Date,
          (2) any Accrued Certificate Interest thereon remaining undistributed
          from previous Distribution Dates, and (3) such Class's Subordinate
          Class Percentage of the Subordinate Principal Distribution Amount for
          Loan Group 4 for such Distribution Date until the Class Principal
          Balance thereof has been reduced to zero; and

            (E) to the Class V-B-2 Certificates in the following order:  (1) the
          Accrued Certificate Interest thereon for such Distribution Date, (2)
          any Accrued Certificate Interest thereon remaining undistributed from
          previous Distribution Dates, and (3) such Class's Subordinate Class
          Percentage of the Subordinate Principal Distribution Amount for Loan
          Group 5 for such Distribution Date until the Class Principal Balance
          thereof has been reduced to zero.

          (vi)  to the D-B-3(1), D-B-3(2), D-B-3(3), D-B-3(4) and D-B-3(5)
     Components of the Class D-B-3 Certificates, concurrently and in the
     following order:  (1) the Accrued Certificate Interest thereon for such
     Distribution Date, (2) any Accrued Certificate Interest thereon remaining
     undistributed from previous Distribution Dates, and (3) such Component's
     Subordinate Component Percentage of the Subordinate Principal Distribution
     Amount for Loan Groups 1, 2, 3, 4 and 5 for such Distribution Date, except
     as provided below, in reduction of the Component Principal Balances thereof
     until the Component Principal Balances thereof have been reduced to zero;

         (vii)  to the D-B-4(1), D-B-4(2), D-B-4(3), D-B-4(4) and D-B-4(5)
     Components of the Class D-B-4 Certificates, concurrently and in the
     following order:  (1) the Accrued Certificate Interest thereon for such
     Distribution Date, (2) any Accrued Certificate Interest thereon remaining
     undistributed from previous Distribution Dates, and (3) such Component's
     Subordinate Component Percentage of the Subordinate Principal Distribution
     Amount for Loan Groups 1, 2, 3, 4 and 5 for such Distribution Date, except
     as provided below, in

                                     -59-
<PAGE>

     reduction of the Component Principal Balances thereof until the Component
     Principal Balances thereof have been reduced to zero;

         (viii)  to the D-B-5(1), D-B-5(2), D-B-5(3), D-B-5(4) and D-B-5(5)
     Components of the Class D-B-5 Certificates, concurrently and in the
     following order:  (1) the Accrued Certificate Interest thereon for such
     Distribution Date, (2) any Accrued Certificate Interest thereon remaining
     undistributed from previous Distribution Dates, and (3) such Component's
     Subordinate Component Percentage of the Subordinate Principal Distribution
     Amount for Loan Groups 1, 2, 3, 4 and 5 for such Distribution Date, except
     as provided below, in reduction of the Component Principal Balances thereof
     until the Component Principal Balances thereof have been reduced to zero;
     and

         (ix)    to the D-B-6(1), D-B-6(2), D-B-6(3), D-B-6(4) and D-B-6(5)
     Components of the Class D-B-6 Certificates, concurrently and in the
     following order:  (1) the Accrued Certificate Interest thereon for such
     Distribution Date, (2) any Accrued Certificate Interest thereon remaining
     undistributed from previous Distribution Dates, and (3) such Component's
     Subordinate Component Percentage of the Subordinate Principal Distribution
     Amount for Loan Groups 1, 2, 3, 4 and 5 for such Distribution Date, except
     as provided below, in reduction of the Component Principal Balances thereof
     until the Component Principal Balances thereof have been reduced to zero.

     (b) On each Distribution Date, the Trustee shall distribute to the Holders
of the Class I-A-R Certificates any Available Funds remaining in the REMIC for
such Distribution Date after application of all amounts described in clause (a)
of this Section 4.2.  Any distributions pursuant to this subsection (b) shall
not reduce the Class Principal Balance of the Class I-A-R Certificates.

     (c) If on any Distribution Date the Component Principal Balance of a
Component of a Class D-B Certificate has been reduced to zero, the Available
Funds with respect to the related Loan Group shall be distributed on such
Distribution Date to the remaining Classes of Certificates of the related
Certificate Group in order of their priority, such that no such distribution
shall be made to any Class of Certificates while a Class of Certificates prior
to such Class is outstanding.

     (d) (i)  If on any Distribution Date the Subordination Level for any Class
B-1 Certificate of a Certificate Group is less than the Original Subordination
Level for such Class, then, notwithstanding anything to the contrary in Section
4.2(a), no distribution of amounts described in clauses (ii) and (iii) of the
definition of Subordinate Principal Distribution Amount will be made in respect
of the Class B-2 Certificates of the related Certificate Group or in respect of
the Components of the Class D-B-3, Class D-B-4, Class D-B-5 or Class D-B-6
Certificates for the related Loan Group on such Distribution Date.  (ii)  If on
any Distribution Date the Subordination Level for any Class B-2 Certificate of a
Certificate Group is less than the Original Subordination Level for such Class,
then, notwithstanding anything to the contrary in Section 4.2(a), no
distribution of amounts described in clauses (ii) and (iii) of the definition of
Subordinate

                                     -60-
<PAGE>

Principal Distribution Amount will be made in respect of the Components of the
Class D-B-3, Class D-B-4, Class D-B-5 or Class D-B-6 Certificates for the
related Loan Group on such Distribution Date. (iii) If on any Distribution Date
the Subordination Level for any Component of the Class D-B-3 Certificates is
less than the Original Subordination Level for such Component, then,
notwithstanding anything to the contrary in Section 4.2(a), no distribution of
amounts described in clauses (ii) and (iii) of the definition of Subordinate
Principal Distribution Amount will be made in respect of the Components of the
Class D-B-4, Class D-B-5 or Class D-B-6 Certificates for the related Loan Group
on such Distribution Date. (iv) If on any Distribution Date the Subordination
Level for any Component of the Class D-B-4 Certificates is less than the
Original Subordination Level for such Component, then, notwithstanding anything
to the contrary in Section 4.2(a), no distribution of amounts described in
clauses (ii) and (iii) of the definition of Subordinate Principal Distribution
Amount will be made in respect of the Components of the Class D-B-5 or Class
D-B-6 Certificates for the related Loan Group on such Distribution Date. (v) If
on any Distribution Date the Subordination Level for any Component of the Class
B-5 Certificates is less than the Original Subordination Level for such
Component, then, notwithstanding anything to the contrary in Section 4.2(a), no
distribution of amounts described in clauses (ii) and (iii) of the definition of
Subordinate Principal Distribution Amount will be made in respect of the
Components of the Class D-B-6 Certificates for the related Loan Group on such
Distribution Date.

     Any amount not distributed in respect of any Class of Certificates (or any
Component) on any Distribution Date pursuant to the immediately preceding
paragraph will be allocated among the remaining Class of Certificates in the
related Certificate Group (or related Components) in proportion to their
respective Class Principal Balances (or Component Principal Balances).

     (e) If on any Distribution Date (i) the Class Principal Balance of any
Class of Subordinate Certificates is reduced to zero and (ii) amounts
distributable to such Class of Subordinate Certificates pursuant to clauses (ii)
and (iii)  of the definition of Subordinate Principal Distribution Amount remain
undistributed on such Distribution Date after all amounts otherwise
distributable on such date pursuant to Section 4.2(a) have been distributed,
such amounts shall be distributed on such Distribution Date to the remaining
Classes of Certificates in the related Certificate Group in order of their
priority, such that no such distribution shall be made to any Class of
Certificates while a Class of Certificates prior to such Class is outstanding.

     SECTION 4.3  Method of Distribution.

     (a)  All distributions with respect to each Class of Certificates on each
Distribution Date shall be made pro rata among the outstanding Certificates of
such Class, based on the Percentage Interest in such Class represented by each
Certificate.  Payments to the Certificateholders on each Distribution Date will
be made by the Trustee to the Certificateholders of record on the related Record
Date by check or money order mailed to a Certificateholder at the address
appearing in the Certificate Register, or upon written request by such
Certificateholder to the Trustee made not later than the applicable Record Date,
by wire transfer to a U.S. depository institution acceptable to the Trustee, or
by such other means of payment as such Certificateholder and the Trustee shall
agree.

     (b) 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
financial intermediary for which it acts as agent.  Each such financial
intermediary 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 applicable Certificates.
Neither the

                                     -61-
<PAGE>

Trustee nor the Company shall have any responsibility therefor except as
otherwise provided by applicable law.

     (c) The Trustee shall withhold or cause to be withheld such amounts as it
reasonably determines are required by the Code (giving full effect to any
exemptions from withholding and related certifications required to be furnished
by Certificateholders or Certificate Owners and any reductions to withholding by
virtue of any bilateral tax treaties and any applicable certification required
to be furnished by Certificateholders or Certificate Owners with respect
thereto) from distributions to be made to Non-U.S. Persons.  If the Trustee
reasonably determines that a more accurate determination of the amount required
to be withheld for a distribution can be made within a reasonable period after
the scheduled date for such distribution, it may hold such distribution in trust
for a Holder of a Residual Certificate until such determination can be made.

     SECTION 4.4  Allocation of Losses.

     (a) On or prior to each Determination Date, the Servicer shall determine
the amount of any Realized Loss in respect of each Mortgage Loan that occurred
during the immediately preceding calendar month.

     (b) With respect to any Distribution Date, the principal portion of each
Realized Loss (other than any Excess Loss) with respect to a Loan Group shall be
allocated as follows:

         first, to the related Component of the Class D-B-6 Certificates until
     the Component Principal  Balance thereof has been reduced to zero;

         second, to the related Component of the Class D-B-5 Certificates until
     the Component Principal Balance thereof has been reduced to zero;

         third, to the related Component of the Class D-B-4 Certificates until
     the Component Principal Balance thereof has been reduced to zero;

         fourth, to the related Component of the Class D-B-3 Certificates until
     the Component Principal Balance thereof has been reduced to zero;

         fifth, to the Class B-2 Certificates of the related Certificate Group
     until the Class Principal Balance thereof has been reduced to zero;

         sixth, to the Class B-1 Certificates of the related Certificate Group
     until the Class Principal Balance thereof has been reduced to zero;

         seventh, to the Class A Certificates of the related Certificate Group,
     until the Class Principal Balance thereof has been reduced to zero.

     (c) With respect to any Distribution Date, the principal portion of any
Excess Loss with respect to a Loan Group shall be allocated to each Class of
Certificates (or Components) in the related Certificate Group, pro rata, based
on the respective Class Principal Balances (or Component Principal Balances)
thereof.

                                     -62-
<PAGE>

     (d) Any Realized Losses allocated to a Class of Certificates pursuant to
Section 4.4(b) or (c) shall be allocated among the Certificates of such Class in
proportion to their respective Certificate Principal Balances.  In addition, any
Realized Losses allocated to any Class of Component Certificates on a
Distribution Date shall be allocated in reduction of the Component Principal
Balances of the related Components in proportion to their respective Component
Principal Balances immediately prior to such Distribution Date. Any allocation
of Realized Losses pursuant to this paragraph (d) shall be accomplished by
reducing the Certificate Principal Balances (or, in the case of any Component,
the Component Principal Balance) of the related Certificates (or Component) on
the related Distribution Date in accordance with Section 4.4(e).

     (e) Realized Losses allocated in accordance with this Section 4.4 shall be
allocated on the Distribution Date in the month following the month in which
such loss was incurred and, in the case of the principal portion thereof, after
giving effect to distributions made on such Distribution Date.

     (f) On each Distribution Date, the Trustee shall calculate the Writedown
Amount for such Distribution Date.  On each Distribution Date, the Writedown
Amount for such date shall effect, without duplication of any other provision in
this Section 4.4 that provides for a reduction in the Class Principal Balance
(or Component Principal Balance) of a Class of Subordinate Certificates (or the
related Components), a corresponding reduction in the Class Principal Balance
(or Component Principal Balance) of the most subordinate Class of Subordinate
Certificates (or related Components) outstanding, which reduction shall occur on
such Distribution Date after giving effect to distributions made on such
Distribution Date.

     (g) In the event that there is a recovery of an amount in respect of
principal of a Mortgage Loan, which amount had previously been allocated as a
Realized Loss to one or more Classes of Certificates, and, if applicable, one or
more Components, each outstanding Class or Component to which any portion of
such Realized Loss had previously been allocated shall be entitled to receive,
on the Distribution Date in the month following the month in which such recovery
is received, its pro rata share (based on the Class Principal Balance or
Component Principal Balance thereof) of such recovery, up to the amount of the
portion of such Realized Loss previously allocated to such Class.  In the event
that the total amount of such recovery exceeds the amount of Realized Loss
allocated to the outstanding Classes in accordance with the preceding
provisions, each outstanding Class of Certificates or Component shall be
entitled to receive its pro rata share of the amount of such excess, up to the
amount of any unrecovered Realized Loss previously allocated to such Class or
Component.  Any such recovery allocated to a Class of Certificates shall not
further reduce the Certificate Principal Balance of such Certificate.  Any such
amounts not otherwise allocated to any Class of Certificates, pursuant to this
subsection shall be treated as Principal Prepayments for purposes of this
Agreement.

     (h) Notwithstanding the foregoing, no such allocation of any Realized Loss
shall be made on a Distribution Date to a Class of Certificates (or Components)
to the extent that such allocation would result in the reduction of the
aggregate Certificate Principal Balances (or Component Principal Balances)  of
all the Certificates (or Components) as of such Distribution Date, after giving
effect to all distributions and prior allocations of Realized Losses on such
date, to an amount less than the aggregate Stated Principal Balance of the
Mortgage Loans in the related Loan Group as of the first day of the month of
such Distribution Date, less any Deficient Valuations occurring on or prior to
the Bankruptcy Coverage Termination Date (such limitation, the "Loss Allocation
Limitation").

                                     -63-
<PAGE>

     SECTION 4.5   Monthly Statements to Certificateholders.

     (a) Not later than each Distribution Date, the Trustee shall prepare and
cause to be forwarded by first class mail to each Certificateholder, the
Servicer, the Master Servicer, the Depositor and the Rating Agency a statement
setting forth with respect to the related distribution and may post such
statement on its website located at "www.mbsreporting.com":

          (i)    the amount thereof allocable to principal, separately
     identifying the aggregate amount of any Principal Prepayments and
     Liquidation Proceeds included therein;

          (ii)   the amount thereof allocable to interest, the amount of any
     Compensating Interest included in such distribution and any remaining Net
     Interest Shortfalls after giving effect to such distribution;

          (iii)  if the distribution to the Holders of such Class of
     Certificates is less than the full amount that would be distributable to
     such Holders if there were sufficient funds available therefor, the amount
     of the shortfall and the allocation thereof as between principal and
     interest;

          (iv)   the Class Principal Balance of each Class of Certificates after
     giving effect to the distribution of principal on such Distribution Date;

          (v)    the Component Principal Balance of each Component after giving
     effect to the distribution of principal on such Distribution Date;

          (vi)   the aggregate Stated Principal Balance of the Mortgage Loans in
     the related Loan Group for the following Distribution Date;

          (vii)  the Senior Percentage, the Subordinate Percentage, the
     Subordinate Class Percentage and the Subordinate Component Percentage for
     the following Distribution Date;

          (viii) the amount of the Servicing Fees paid to or retained by the
     Servicer with respect to such Distribution Date;

          (ix)   the Pass-Through Rate for each such Class of Certificates with
     respect to such Distribution Date;

          (x)    the amount of Advances included in the distribution on such
     Distribution Date and the aggregate amount of Advances for the related Loan
     Group outstanding as of the close of business on such Distribution Date;

          (xi)   the number and aggregate principal amounts of Mortgage Loans in
     the related Loan Group that are (A) delinquent (exclusive of Mortgage Loans
     in foreclosure) (1) 1 to 30 days (2) 31 to 60 days (3) 61 to 90 days and
     (4) 91 or more days and (B) in foreclosure and delinquent (1) 1 to 30 days
     (2) 31 to 60 days (3) 61 to 90 days and (4) 91 or more days, as of the
     close of business on the last day of the calendar month preceding such
     Distribution Date;

                                     -64-
<PAGE>

          (xii)   with respect to any Mortgage Loan in the related Loan Group
     that became an REO Property during the preceding calendar month, the loan
     number and Stated Principal Balance of such Mortgage Loan as of the close
     of business on the Determination Date preceding such Distribution Date and
     the date of acquisition thereof;

          (xiii)  the total number and principal balance of any REO Properties
     (and market value, if available) with respect to the related Loan Group as
     of the close of business on the Determination Date preceding such
     Distribution Date;

          (xiv)   the Senior Prepayment Percentage for the related Certificate
     Group for the following Distribution Date;

          (xv)    the aggregate amount of Realized Losses incurred in respect of
     the related Loan Group during the preceding calendar month;

          (xvi)   the cumulative amount of Realized Losses applied in reduction
     of the principal balance of such Class of Certificates since the Closing
     Date;

          (xvii)  the Special Hazard Loss Coverage Amount, the Fraud Loss
     Coverage Amount and the Bankruptcy Loss Coverage Amount with respect to the
     related Loan Group, in each case as of the related Determination Date;

          (xviii) the Subordination Level for the related Components for such
     Distribution Date; and

          (xix)   the Writedown Amount, if any, for such Distribution Date.

     (b)  The Trustee's responsibility for disbursing the above information to
the Certificateholders is limited to the availability, timeliness and accuracy
of the information provided by the Servicer.

     (c)  On or before the fifth Business Day following the end of each
Prepayment Period (but in no event later than the third Business Day prior to
the related Distribution Date), the Servicer shall deliver to the Trustee (which
delivery may be by electronic data transmission) a report in substantially the
form set forth as Schedule IV hereto.

     (d)  Within a reasonable period of time (consistent with applicable law)
after the end of each calendar year, the Trustee shall cause to be furnished to
each Person who at any time during the calendar year was a Certificateholder, a
statement containing the information set forth in clauses (a)(i), (a)(ii) and
(a)(viii) of this Section 4.5, aggregated for such calendar year or applicable
portion thereof during which such Person was a Certificateholder, so that such
Certificateholder may use such information in connection with the preparation of
its annual income tax return for such calendar year.  Such obligation of the
Trustee shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Trustee pursuant to any
requirements of the Code as from time to time in effect.

                                     -65-
<PAGE>

                                   ARTICLE V
                               THE CERTIFICATES

     SECTION 5.1  The Certificates.

     The Certificates shall be substantially in the forms attached hereto as
exhibits. The Certificates shall be issuable in registered form, in the minimum
denominations, integral multiples in excess thereof (except that one Certificate
in each Class may be issued in a different amount which must be in excess of the
applicable minimum denomination and, in addition, one Residual Certificate
representing the Tax Matters Person Certificate may be issued in a different
amount) and aggregate denominations per Class set forth in the "Preliminary
Statement".

     Subject to Section 9.2 hereof respecting the final distribution on the
Certificates, on each Distribution Date the Trustee shall make distributions to
each Certificateholder of record on the preceding Record Date either (x) by wire
transfer in immediately available funds to the account of such Holder at a bank
or other entity having appropriate facilities therefor, if (i) such Holder has
so notified the Trustee at least five Business Days prior to the related Record
Date and (ii) such Holder shall hold (A) 100% of the Class Principal Balance of
any Class of Certificates or (B) Certificates of any Class with aggregate
principal Denominations of not less than $1,000,000 or (y) by check mailed by
first class mail to such Certificateholder at the address of such Holder
appearing in the Certificate Register.

     The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee by an authorized 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 Trustee, notwithstanding that such individuals or any of them have ceased to
be so authorized prior to the countersignature 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 countersigned by the Trustee by manual signature, and such
countersignature upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly executed and delivered hereunder.
All Certificates shall be dated the date of their countersignature. On the
Closing Date, the Trustee shall countersign the Certificates to be issued at the
direction of the Depositor, or any affiliate thereof.

     The Depositor shall provide, or cause to be provided, to the Trustee on a
continuous basis, an adequate inventory of Certificates to facilitate transfers.

     SECTION 5.2  Certificate Register; Registration of Transfer and Exchange of
Certificates.

     (a) The Trustee shall maintain, or cause to be maintained at an office in
accordance with the provisions of Section 5.6 hereof, a Certificate Register for
the Trust Fund in which, subject to the provisions of subsections (b) and (c)
below and to such reasonable regulations as it may prescribe, the Trustee shall
provide for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. Upon surrender for registration of transfer of
any Certificate, the Trustee shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Certificates of the same
Class and aggregate Percentage Interest.

                                     -66-
<PAGE>

     At the option of a Certificateholder, Certificates may be exchanged for
other Certificates of the same Class in authorized denominations and evidencing
the same aggregate Percentage Interest upon surrender of the Certificates to be
exchanged at the office or agency of the Trustee. Whenever any Certificates are
so surrendered for exchange, the Trustee shall execute, 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 be accompanied by a written instrument of transfer
in form satisfactory to the Trustee duly executed by the Holder thereof or his
attorney duly authorized in writing.

     No service charge to the Certificateholders shall be made for any
registration of transfer or exchange of Certificates, but 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 may be required.

     All Certificates surrendered for registration of transfer or exchange shall
be cancelled and subsequently destroyed by the Trustee in accordance with the
Trustee's customary procedures.

     (b) No transfer of a Private Subordinate Certificate shall be made unless
such transfer is made pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws or is exempt from the
registration requirements under the Securities Act and such state securities
laws. In the event that a transfer is to be made in reliance upon an exemption
from the Securities Act and such laws, in order to assure compliance with the
Securities Act and such laws, the Certificateholder desiring to effect such
transfer and such Certificateholder's prospective transferee shall each certify
to the Trustee in writing the facts surrounding the transfer in substantially
the forms set forth in Exhibit J (the "Transferor Certificate") and (i) deliver
a letter in substantially the form of either Exhibit K (the "Investment Letter")
or Exhibit L (the "Rule 144A Letter") or (ii) there shall be delivered to the
Trustee at the expense of the transferor an Opinion of Counsel that such
transfer may be made pursuant to an exemption from the Securities Act. The
Depositor shall provide to any Holder of a Private Subordinate Certificate and
any prospective transferee designated by any such Holder, information regarding
the related Certificates and the Mortgage Loans and such other information as
shall be necessary to satisfy the condition to eligibility set forth in Rule
144A(d)(4) for transfer of any such Certificate without registration thereof
under the Securities Act pursuant to the registration exemption provided by Rule
144A. The Trustee and the Servicer shall cooperate with the Depositor in
providing the Rule 144A information referenced in the preceding sentence,
including providing to the Depositor such information regarding the
Certificates, the Mortgage Loans and other matters regarding the Trust Fund as
the Depositor shall reasonably request to meet its obligation under the
preceding sentence. Each Holder of a Private Subordinate Certificate desiring to
effect such transfer shall, and does hereby agree to, indemnify the Trustee and
the Depositor, the Seller, the Master Servicer and the Servicer against any
liability that may result if the transfer is not so exempt or is not made in
accordance with such federal and state laws.

     No transfer of an ERISA-Restricted Certificate shall be made unless the
Trustee shall have received either (i) a representation from the transferee of
such Certificate acceptable to and in form and substance satisfactory to the
Trustee (in the event such Certificate is a Private Subordinate Certificate,
such requirement is satisfied only by the Trustee's receipt of a representation
letter from the transferee substantially in the form of Exhibit K or Exhibit L),
to the effect that such transferee is not an employee benefit plan or
arrangement subject to Section 406 of ERISA or a plan or

                                     -67-
<PAGE>

arrangement subject to Section 4975 of the Code, nor a person acting on behalf
of any such plan or arrangement, nor using the assets of any such plan or
arrangement to effect such transfer, (ii) in the case of a Subordinate
Certificate or a Residual Certificate, 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 such
ERISA-Restricted Certificate presented for registration in the name of an
employee benefit plan subject to ERISA, or a plan or arrangement subject to
Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan or any other person acting on behalf
of any such plan or arrangement, or using such plan's or arrangement's assets,
an Opinion of Counsel satisfactory to the Trustee, which Opinion of Counsel
shall not be an expense of either the Trustee or the Trust Fund, addressed to
the Trustee to the effect that the purchase or holding of such ERISA-Restricted
Certificate will not result in the assets of the Trust Fund 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
expressly undertaken in this Agreement or to any liability. For purposes of the
preceding sentence, with respect to an ERISA-Restricted Certificate that is not
a Private Subordinate Certificate, in the event the representation letter
referred to in the preceding sentence is not so furnished, such representation
shall be deemed to have been made to the Trustee by the transferee's (including
an initial acquiror's) acceptance of the ERISA-Restricted Certificates.
Notwithstanding anything else to the contrary herein, any purported transfer of
an ERISA-Restricted Certificate to or on behalf of an employee benefit plan
subject to ERISA or to the Code without the delivery to the Trustee of an
Opinion of Counsel satisfactory to the Trustee as described above shall be void
and of no effect.

     To the extent permitted under applicable law (including, but not limited
to, ERISA), the Trustee shall be under no liability to any Person for any
registration of transfer of any ERISA-Restricted Certificate that is in fact not
permitted by this Section 5.2(b) or for making any payments due on such
Certificate to the Holder thereof or taking any other action with respect to
such Holder under the provisions of this Agreement so long as the transfer was
registered by the Trustee in accordance with the foregoing requirements.

     (c) Each Person who has or who acquires any Ownership Interest in a
Residual Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions, and
the rights of each Person acquiring any Ownership Interest in a Residual
Certificate are expressly subject to the following provisions:

          (i)   Each Person holding or acquiring any Ownership Interest in a
     Residual Certificate shall be a Permitted Transferee and shall promptly
     notify the Trustee of any change or impending change in its status as a
     Permitted Transferee.

          (ii)  No Ownership Interest in a Residual Certificate may be
     registered on the Closing Date or thereafter transferred, and the Trustee
     shall not register the Transfer of any Residual Certificate unless, in
     addition to the certificates required to be delivered to the Trustee under
     subparagraph (b) above, the Trustee shall have been furnished with an
     affidavit (a "Transfer Affidavit") of the initial owner or the proposed
     transferee in the form attached hereto as Exhibit I.

                                     -68-
<PAGE>

          (iii)  Each Person holding or acquiring any Ownership Interest in a
     Residual Certificate shall agree (A) to obtain a Transfer Affidavit from
     any other Person to whom such Person attempts to Transfer its Ownership
     Interest in a Residual Certificate, (B) to obtain a Transfer Affidavit from
     any Person for whom such Person is acting as nominee, trustee or agent in
     connection with any Transfer of a Residual Certificate and (C) not to
     Transfer its Ownership Interest in a Residual Certificate or to cause the
     Transfer of an Ownership Interest in a Residual Certificate to any other
     Person if it has actual knowledge that such Person is not a Permitted
     Transferee.

          (iv)   Any attempted or purported Transfer of any Ownership Interest
     in a Residual Certificate in violation of the provisions of this Section
     5.2(c) shall be absolutely null and void and shall vest no rights in the
     purported transferee. If any purported transferee shall become a Holder of
     a Residual Certificate in violation of the provisions of this Section
     5.2(c), then the last preceding Permitted Transferee shall be restored to
     all rights as Holder thereof retroactive to the date of registration of
     Transfer of such Residual Certificate. The Trustee shall be under no
     liability to any Person for any registration of Transfer of a Residual
     Certificate that is in fact not permitted by Section 5.2(b) and this
     Section 5.2(c) or for making any payments due on such Certificate to the
     Holder thereof or taking any other action with respect to such Holder under
     the provisions of this Agreement so long as the Transfer was registered
     after receipt of the related Transfer Affidavit, Transferor Certificate and
     either the Rule 144A Letter or the Investment Letter. The Trustee shall be
     entitled but not obligated to recover from any Holder of a Residual
     Certificate that was in fact not a Permitted Transferee at the time it
     became a Holder or, at such subsequent time as it became other than a
     Permitted Transferee, all payments made on such Residual Certificate at and
     after either such time. Any such payments so recovered by the Trustee shall
     be paid and delivered by the Trustee to the last preceding Permitted
     Transferee of such Certificate.

          (v) The Depositor shall use its best efforts to make available, upon
     receipt of written request from the Trustee, all information necessary to
     compute any tax imposed under Section 860E(e) of the Code as a result of a
     Transfer of an Ownership Interest in a Residual Certificate to any Holder
     who is not a Permitted Transferee.

     The restrictions on Transfers of a Residual Certificate set forth in this
Section 5.2(c) shall cease to apply (and the applicable portions of the legend
on a Residual Certificate may be deleted) with respect to Transfers occurring
after delivery to the Trustee of an Opinion of Counsel, which Opinion of Counsel
shall not be an expense of the Trust Fund, the Trustee, the Seller or the
Servicer, to the effect that the elimination of such restrictions will not cause
any REMIC created hereunder to fail to qualify as a REMIC at any time that the
Certificates are outstanding or result in the imposition of any tax on the Trust
Fund, a Certificateholder or another Person. Each Person holding or acquiring
any Ownership Interest in a Residual Certificate hereby consents to any
amendment of this Agreement which, based on an Opinion of Counsel furnished to
the Trustee, is reasonably necessary (a) to ensure that the record ownership of,
or any beneficial interest in, a Residual Certificate is not transferred,
directly or indirectly, to a Person that is not a Permitted Transferee and (b)
to provide for a means to compel the Transfer of a Residual Certificate which is
held by a Person that is not a Permitted Transferee to a Holder that is a
Permitted Transferee.

                                     -69-
<PAGE>

     (d) The preparation and delivery of all certificates and opinions referred
to above in this Section 5.2 in connection with transfer shall be at the expense
of the parties to such transfers.

     (e) Except as provided below, the Book-Entry Certificates shall at all
times remain registered in the name of the Depository or its nominee and at all
times: (i) registration of the Certificates may not be transferred by the
Trustee except to another Depository; (ii) the Depository shall maintain book-
entry records with respect to the Certificate Owners and with respect to
ownership and transfers of such Book-Entry Certificates; (iii) ownership and
transfers of registration of the Book-Entry 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, Depository Participants and indirect participating firms as
representatives of the Certificate Owners of the Book-Entry Certificates for
purposes of exercising the rights of holders under this Agreement, and requests
and directions for and votes of such representatives shall not be deemed to be
inconsistent if they are made with respect to different Certificate Owners; and
(vi) the Trustee may rely and shall be fully protected in relying upon
information furnished by the Depository with respect to its Depository
Participants and furnished by the Depository Participants with respect to
indirect participating firms and persons shown on the books of such indirect
participating firms as direct or indirect Certificate Owners.

     All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository Participant
or brokerage firm representing such Certificate Owner. Each Depository
Participant shall only transfer Book-Entry Certificates of Certificate Owners it
represents or of brokerage firms for which it acts as agent in accordance with
the Depository's normal procedures.

     If (x) (i) the Depository or the Depositor advises the Trustee in writing
that the Depository is no longer willing or able to properly discharge its
responsibilities as Depository, and (ii) the Trustee or the Depositor is unable
to locate a qualified successor, (y) the Depositor at its option advises the
Trustee in writing that it elects to terminate the book-entry system through the
Depository or (z) after the occurrence of an Event of Default, Certificate
Owners representing at least 51% of the Class Principal Balance of the Book-
Entry Certificates together advise the Trustee and the Depository through the
Depository Participants in writing that the continuation of a book-entry system
through the Depository is no longer in the best interests of the Certificate
Owners, the Trustee shall notify all Certificate Owners, through the Depository,
of the occurrence of any such event and of the availability of definitive,
fully-registered Certificates (the "Definitive Certificates") to Certificate
Owners requesting the same. Upon surrender to the Trustee of the related Class
of Certificates by the Depository, accompanied by the instructions from the
Depository for registration, the Trustee shall issue the Definitive
Certificates. None of the Depositor, the Master Servicer, the Servicer or the
Trustee shall be liable for any delay in delivery of such instruction and each
may conclusively rely on, and shall be protected in relying on, such
instructions. The Depositor shall provide the Trustee with an adequate inventory
of certificates to facilitate the issuance and transfer of Definitive
Certificates. Upon the issuance of Definitive Certificates all references herein
to obligations imposed upon or to be performed by the Depository shall be deemed
to be imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates and the Trustee shall recognize the
Holders of the Definitive Certificates as Certificateholders

                                     -70-
<PAGE>

hereunder; provided that the Trustee shall not by virtue of its assumption of
such obligations become liable to any party for any act or failure to act of the
Depository.

     SECTION 5.3  Mutilated, Destroyed, Lost or Stolen Certificates.

     If (a) any mutilated Certificate is surrendered to the Trustee, or the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate and (b) there is delivered to the Servicer, the Master
Servicer and the Trustee 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
that such Certificate has been acquired by a bona fide purchaser, the Trustee
shall execute, countersign and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
Class, tenor and Percentage Interest. In connection with the issuance of any new
Certificate under this Section 5.3, the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith. Any replacement Certificate issued pursuant to
this Section 5.3 shall constitute complete and indefeasible evidence of
ownership, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.

     SECTION 5.4  Persons Deemed Owners.

     Each of the Master Servicer, the Servicer, the Trustee and their respective
agents may treat the Person in whose name any Certificate is registered as the
owner of such Certificate for the purpose of receiving distributions as provided
in this Agreement and for all other purposes whatsoever, and none of the Master
Servicer, the Servicer, the Trustee or any of their respective agents shall be
affected by any notice to the contrary.

     SECTION 5.5  Access to List of Certificateholders' Names and Addresses.

     If three or more Certificateholders (a) request such information in writing
from the Trustee, (b) state that such Certificateholders desire to communicate
with other Certificateholders with respect to their rights under this Agreement
or under the Certificates, and (c) provide a copy of the communication which
such Certificateholders propose to transmit, or if the Depositor, the Master
Servicer or the Servicer shall request such information in writing from the
Trustee, then the Trustee shall, within ten Business Days after the receipt of
such request, provide the Depositor, the Master Servicer, the Servicer or such
Certificateholders at such recipients' expense the most recent list of the
Certificateholders of the Trust Fund held by the Trustee, if any. The Depositor
and every Certificateholder, by receiving and holding a Certificate, agree that
the Trustee shall not be held accountable by reason of the disclosure of any
such information as to the list of the Certificateholders hereunder, regardless
of the source from which such information was derived.

     SECTION 5.6  Maintenance of Office or Agency.

     The Trustee will maintain or cause to be maintained at its expense an
office or offices or agency or agencies in New York City where Certificates may
be surrendered for registration of transfer or exchange. The Trustee initially
designates its Corporate Trust Office for such purposes. The Trustee will give
prompt written notice to the Certificateholders of any change in such location
of any such office or agency.

                                     -71-
<PAGE>

                                  ARTICLE VI
              THE DEPOSITOR, THE MASTER SERVICER AND THE SERVICER

     SECTION 6.1  Respective Liabilities of the Depositor, the Master Servicer
and the Servicer.

     Each of the Depositor, the Master Servicer and the Servicer shall be liable
in accordance herewith only to the extent of the obligations specifically and
respectively imposed upon and undertaken by them herein.

     SECTION 6.2  Merger or Consolidation of the Depositor, the Master Servicer
or the Servicer.

     Each of the Depositor, the Master Servicer and the Servicer will keep in
full effect its existence, rights and franchises as a corporation under the laws
of the United States or under the laws of one of the states thereof and will
each obtain and preserve its qualification to do business as a foreign
corporation in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Agreement, or any
of the Mortgage Loans and to perform its respective duties under this Agreement.

     Any Person into which the Depositor, the Master Servicer or the Servicer
may be merged or consolidated, or any Person resulting from any merger or
consolidation to which the Depositor, the Master Servicer or the Servicer shall
be a party, or any person succeeding to the business of the Depositor, the
Master Servicer or the Servicer, shall be the successor of the Depositor, the
Master Servicer or the Servicer, 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 or surviving Person to the Master Servicer and/or
the Servicer shall be qualified to sell mortgage loans to, and to service
mortgage loans on behalf of, FNMA or FHLMC.

     SECTION 6.3  Limitation on Liability of the Depositor, the Seller, the
Master Servicer, the Servicer and Others.

     None of the Depositor, the Seller, the Master Servicer, the Servicer or any
of the directors, officers, employees or agents of the Depositor, the Seller,
the Master Servicer or the Servicer shall be under any liability to the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Depositor, the
Seller, the Master Servicer, the Servicer or any such Person against any breach
of representations or warranties made by it herein or protect the Depositor, the
Seller, the Master Servicer, the Servicer or any such Person from any liability
which would otherwise be imposed by reasons of willful misfeasance, bad faith or
gross negligence in the performance of duties or by reason of reckless disregard
of obligations and duties hereunder. The Depositor, the Seller, the Master
Servicer, the Servicer and any director, officer, employee or agent of the
Depositor, the Seller, the Master Servicer or 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 Depositor, the Seller,
the Master Servicer, the Servicer and any director, officer, employee or agent
of the Depositor, the Seller, the Master Servicer or the Servicer shall be
indemnified by the Trust Fund and held harmless against any loss, liability or
expense incurred in connection with any audit, controversy or judicial
proceeding relating to a governmental

                                     -72-
<PAGE>

taxing authority or 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 willful misfeasance, bad faith or
gross negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties hereunder. None of the Depositor, the
Seller, the Master Servicer or the Servicer shall be under any obligation to
appear in, prosecute or defend any legal action that is not incidental to its
respective duties hereunder and which in its opinion may involve it in any
expense or liability; provided, however, that any of the Depositor, the Seller,
the Master Servicer or the Servicer may in its discretion undertake any such
action that it may deem necessary or desirable in respect of this Agreement and
the rights and duties of the parties hereto and interests of the Trustee and the
Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Fund, and the Depositor, the Seller, the Master
Servicer and the Servicer shall be entitled to be reimbursed therefor out of the
applicable subaccount of the Collection Account.

     SECTION 6.4  Limitation on Resignation of Servicer.

     The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) upon appointment of a successor Servicer and receipt by
the Trustee of a letter from the Rating Agency that such a resignation and
appointment will not result in a downgrading of the rating of any of the
Certificates, or (b) upon determination that its duties hereunder are no longer
permissible under applicable law. Any such determination under clause (b)
permitting the resignation of the Servicer shall be evidenced by an Opinion of
Counsel to such effect delivered to the Trustee. No such resignation shall
become effective until the Trustee or a successor Servicer shall have assumed
the Servicer's responsibilities, duties, liabilities and obligations hereunder.

                                  ARTICLE VII
                                    DEFAULT

     SECTION 7.1  Events of Default.

     "Event of Default," wherever used herein, means any one of the following
events:

          (i)  any failure by the Servicer to deposit in the applicable
     subaccount of the Collection Account or remit to the Trustee any payment
     required to be made under the terms of this Agreement, which failure shall
     continue unremedied for five days after the date upon which written notice
     of such failure shall have been given to the Servicer by the Trustee or the
     Depositor or to the Servicer and the Trustee by the Holders of Certificates
     having not less than 25% of the Voting Rights evidenced by the
     Certificates; or

          (ii) any failure by the Servicer to observe or perform in any material
     respect any other of the covenants or agreements on the part of the
     Servicer contained in this Agreement, which failure materially affects the
     rights of Certificateholders, which failure continues unremedied for a
     period of 60 days after the date on which written notice of such failure
     shall have been given to the Servicer by the Trustee or the Depositor, or
     to the
                                     -73-
<PAGE>

     Servicer and the Trustee by the Holders of Certificates evidencing not less
     than 25% of the Voting Rights evidenced by the Certificates; or

          (iii)  a decree or order of a court or agency or supervisory authority
     having jurisdiction in the premises for the appointment of a receiver or
     liquidator in any insolvency, readjustment of debt, marshalling of assets
     and liabilities or similar proceedings, or for the winding-up or
     liquidation of its affairs, shall have been entered against the Servicer
     and such decree or order shall have remained in force undischarged or
     unstayed for a period of 60 consecutive days; or

          (iv)  the Servicer shall consent to the appointment of a receiver or
     liquidator in any insolvency, readjustment of debt, marshalling of assets
     and liabilities or similar proceedings of or relating to the Servicer or
     all or substantially all of the  property of the Servicer; or

          (v) the Servicer shall admit in writing its inability to pay its debts
     generally as they become due, file a petition to take advantage of, or
     commence a voluntary case under, any applicable insolvency or
     reorganization statute, make an assignment for the benefit of its
     creditors, or voluntarily suspend payment of its obligations.

     If an Event of Default described in clauses (i) to (v) of this Section
shall occur, then, and in each and every such case, so long as such Event of
Default shall not have been remedied, the Trustee may, or at the direction of
the Holders of Certificates evidencing not less than 66 2/3% of the Voting
Rights evidenced by the Certificates, the Trustee shall by notice in writing to
the Servicer (with a copy to the Rating Agency), terminate all of the rights and
obligations of the Servicer under this Agreement and in and to the Mortgage
Loans and the proceeds thereof, other than its rights as a Certificateholder
hereunder. On and after the receipt by the Servicer of such written notice, all
authority and power of the Servicer hereunder, whether with respect to the
Mortgage Loans or otherwise, shall pass to and be vested in the Master Servicer.
The Master Servicer, in its capacity as successor to the Servicer, shall
thereupon make any Advance which the Servicer failed to make in accordance with
Section 4.1 hereof.  The Master Servicer 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 or
assignment of the Mortgage Loans and related documents, or otherwise.  Unless
expressly provided in such written notice, no such termination shall affect any
obligation of the Servicer to pay amounts owed to the Trustee pursuant to
Section 8.5.  The Servicer agrees to cooperate with the Master Servicer in
effecting the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the Trustee of all
cash amounts which shall at the time be credited to the Collection Account, or
thereafter be received with respect to the Mortgage Loans. All expenses incurred
in the transferring of the servicing duties from a Servicer to a successor
Servicer shall be paid by the Servicer, and if not paid by the Servicer, shall
be paid from amounts on deposit in the Collection Account.

     Notwithstanding any termination of the activities of the Servicer
hereunder, the Servicer shall be entitled to receive, out of any late collection
of a Scheduled Payment on a Mortgage Loan which was due prior to the notice
terminating such Servicer's rights and obligations as Servicer hereunder and
received after such notice, that portion thereof to which such Servicer would
have been entitled

                                     -74-
<PAGE>

pursuant to Sections 3.8(a)(i) through (viii),and any other amounts payable to
such Servicer hereunder the entitlement to which arose prior to the termination
of its activities hereunder.

     SECTION 7.2  Master Servicer or Trustee to Act; Appointment of Successor.

     (a) On and after the time the Servicer receives a notice of termination
pursuant to Section 7.1 hereof, the Master Servicer shall, subject to and to the
extent provided in Section 3.4, be the successor 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 and
applicable law including the obligation to make Advances pursuant to Section
4.1. As compensation therefor, the Master Servicer shall be entitled to all
funds relating to the Mortgage Loans that the Servicer would have been entitled
to charge to the Collection Account or Distribution Account if the Servicer had
continued to act hereunder. Notwithstanding the foregoing, if the Master
Servicer has become the successor to the Servicer in accordance with Section 7.1
hereof, the Master Servicer may, if it shall be unwilling to so act, or shall,
if it is prohibited by applicable law from making Advances pursuant to Section
4.1 hereof or if it is otherwise unable to so act, appoint, or petition a court
of competent jurisdiction to appoint, any established mortgage loan servicing
institution the appointment of which does not adversely affect the then current
rating of the Certificates by the Rating Agency 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. Any successor to the Servicer shall be
an institution which is a FNMA and FHLMC approved seller/servicer in good
standing, which has a net worth of at least $10,000,000, and which is willing to
service the Mortgage Loans and executes and delivers to the Depositor, the
Master Servicer and the Trustee an agreement accepting such delegation and
assignment, which contains an assumption by such Person of the rights, powers,
duties, responsibilities, obligations and liabilities of the Servicer (other
than liabilities of the Servicer under Section 6.3 hereof incurred prior to
termination of the Servicer under Section 7.1), with like effect as if
originally named as a party to this Agreement; and provided further that the
Rating Agency acknowledges that its rating of the Certificates in effect
immediately prior to such assignment and delegation will not be qualified or
reduced, as a result of such assignment and delegation. Pending appointment of a
successor to the Servicer hereunder, the Master Servicer, unless the Master
Servicer is prohibited by law from so acting, shall, subject to Section 3.4
hereof, act in such capacity as provided above. In connection with such
appointment and assumption, the Master Servicer may make such arrangements for
the compensation of such successor out of payments on Mortgage Loans as it and
such successor shall agree; provided, however, that no such compensation shall
be in excess of the Servicing Fee permitted the Servicer hereunder. The Master
Servicer and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession. Neither the
Master Servicer nor any other successor Servicer shall be deemed to be in
default hereunder by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof or any failure to perform, or any
delay in performing, any duties or responsibilities hereunder, in either case
caused by the failure of the Servicer to deliver or provide, or any delay in
delivering or providing, any cash, information, documents or records to it.

     (b) On and after the time the Master Servicer, as successor to the
Servicer, receives a notice of termination pursuant to Section 7.1 hereof, or if
the Master Servicer is unable to act as successor to the Servicer pursuant to
subsection (a) above and the Master Servicer has not appointed a successor
Servicer as required pursuant to Subsection (a) above, the Trustee shall,
subject to and

                                     -75-
<PAGE>

to the extent provided in Section 3.4, be the successor 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 and applicable law including the obligation to make Advances pursuant to
Section 4.1. As compensation therefor, the Trustee shall be entitled to all
funds relating to the Mortgage Loans that the Servicer would have been entitled
to charge to the Collection Account or Distribution Account if the Servicer had
continued to act hereunder. Notwithstanding the foregoing, if the Trustee has
become the successor to the Servicer in accordance with Section 7.1 hereof, the
Trustee may, if it shall be unwilling to so act, or shall, if it is prohibited
by applicable law from making Advances pursuant to Section 4.1 hereof or if it
is otherwise unable to so act, appoint, or petition a court of competent
jurisdiction to appoint, any established mortgage loan servicing institution the
appointment of which does not adversely affect the then current rating of the
Certificates by the Rating Agency 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. Any successor to the Servicer shall be an institution
which is a FNMA and FHLMC approved seller/servicer in good standing, which has a
net worth of at least $10,000,000, and which is willing to service the Mortgage
Loans and executes and delivers to the Depositor, the Master Servicer and the
Trustee an agreement accepting such delegation and assignment, which contains an
assumption by such Person of the rights, powers, duties, responsibilities,
obligations and liabilities of the Servicer (other than liabilities of the
Servicer under Section 6.3 hereof incurred prior to termination of the Servicer
under Section 7.1), with like effect as if originally named as a party to this
Agreement; and provided further that the Rating Agency acknowledges that its
rating of the Certificates in effect immediately prior to such assignment and
delegation will not be qualified or reduced, as a result of such assignment and
delegation. Pending appointment of a successor to the Servicer hereunder, the
Trustee, unless the Trustee is prohibited by law from so acting, shall, subject
to Section 3.4 hereof, act in such capacity as provided above. In connection
with such appointment and assumption, the Trustee may make such arrangements for
the compensation of such successor out of payments on Mortgage Loans as it and
such successor shall agree; provided, however, that no such compensation shall
be in excess of the Servicing Fee permitted the Servicer hereunder. The Trustee
and such successor shall take such action, consistent with this Agreement, as
shall be necessary to effectuate any such succession. Neither the Trustee nor
any other successor Servicer shall be deemed to be in default hereunder by
reason of any failure to make, or any delay in making, any distribution
hereunder or any portion thereof or any failure to perform, or any delay in
performing, any duties or responsibilities hereunder, in either case caused by
the failure of the Servicer to deliver or provide, or any delay in delivering or
providing, any cash, information, documents or records to it.

     (c) Any successor to the Servicer as Servicer hereunder shall give notice
to the Mortgagors of such change of Servicer and shall, during the term of its
service as Servicer maintain in force the policy or policies that the Servicer
is required to maintain pursuant to Section 3.18.

     SECTION 7.3  Notification to Certificateholders.

     (a) Upon any termination of or appointment of a successor to the Servicer,
the Trustee shall give prompt written notice thereof to Certificateholders and
to the Rating Agency.

                                     -76-
<PAGE>

     (b) Within 60 days after the occurrence of any Event of Default, the
Trustee shall transmit by mail to all Certificateholders notice of each such
Event of Default hereunder known to the Trustee, unless such Event of Default
shall have been cured or waived.

                                  ARTICLE VII
                            CONCERNING THE TRUSTEE

     SECTION 8.1  Duties of Trustee.

     The Trustee, prior to the occurrence of an Event of Default of which a
Responsible Officer of the Trustee has actual knowledge and after the curing of
all Events of Default that may have occurred, shall undertake to perform such
duties and only such duties as are specifically set forth in this Agreement. In
case an Event of Default of which a Responsible Officer of the Trustee has
actual knowledge has occurred and remains uncured, 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.

     The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee that are specifically required to be furnished pursuant to any provision
of this Agreement shall examine them to determine whether they are in the form
required by 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 to conform in any material respect to the requirements
of this Agreement, the Trustee shall notify the Certificateholders of such
instrument in the event that the Trustee, after so requesting, does not receive
a satisfactorily corrected instrument.

     No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own willful misconduct; provided, however, that:

          (i)  unless an Event of Default of which a Responsible Officer of the
     Trustee has actual knowledge shall have occurred and be continuing, 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 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 which it believed in good faith to be genuine and to have
     been duly executed by the proper authorities respecting any matters arising
     hereunder;

          (ii) the Trustee shall not be liable for an error of judgment made in
     good faith by a Responsible Officer or Responsible Officers of the Trustee,
     unless it shall be finally proven that the Trustee was negligent in
     ascertaining the pertinent facts;

                                     -77-
<PAGE>

          (iii) the Trustee shall not be liable with respect to any action
     taken, suffered or omitted to be taken by it in good faith in accordance
     with the direction of Holders of Certificates evidencing not less than 25%
     of the Voting Rights of Certificates relating to the time, method and place
     of conducting any proceeding for any remedy available to the Trustee, or
     exercising any trust or power conferred upon the Trustee under this
     Agreement;

          (iv)  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 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 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; and

          (v)   without limiting the generality of this Section 8.1, the Trustee
     shall have no duty (A) to see to any recording, filing, or depositing of
     this Agreement or any agreement referred to herein or any financing
     statement or continuation statement evidencing a security interest, or to
     see to the maintenance of any such recording or filing or deposit or to any
     rerecording, refiling or redepositing of any thereof, (B) to see to any
     insurance, (C) to see to the payment or discharge of any tax, assessment,
     or other governmental charge or any lien or encumbrance of any kind owing
     with respect to, assessed or levied against, any part of the Trust Fund
     other than from funds available in the applicable subaccount of the
     Distribution Account (D) to confirm or verify the contents of any reports
     or certificates of the Servicer delivered to the Trustee pursuant to this
     Agreement believed by the Trustee to be genuine and to have been signed or
     presented by the proper party or parties.

     SECTION 8.2  Certain Matters Affecting the Trustee.

     Except as otherwise provided in Section 8.1:

          (i)  the Trustee may request and rely upon and shall be protected in
     acting or refraining from acting upon any resolution, Officers'
     Certificate, certificate of auditors or any other certificate, statement,
     instrument, opinion, report, notice, request, consent, order, appraisal,
     bond or other paper or document believed by it to be genuine and to have
     been signed or presented by the proper party or parties and the Trustee
     shall have no responsibility to ascertain or confirm the genuineness of any
     signature of any such party or parties;

          (ii) the Trustee may consult with counsel, financial advisers or
     accountants and the advice of any such counsel, financial advisers or
     accountants and 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 Opinion
     of Counsel;

                                     -78-
<PAGE>

          (iii)  the Trustee shall not be 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;

          (iv)   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 document, unless requested in writing so to do by
     Holders of Certificates evidencing not less than 25% of the Voting Rights
     allocated to each Class of Certificates; provided, however, that if the
     payment within a reasonable time to the Trustee of the costs, expenses or
     liabilities likely to be incurred by it in the making of such investigation
     is, in the opinion of the Trustee, not assured to the Trustee by the
     security afforded to it by the terms of this Agreement, the Trustee may
     require indemnity satisfactory to the Trustee against such cost, expense or
     liability as a condition to taking any such action. To the extent the
     Servicer provides the documentation initially, the reasonable expense of
     every such examination shall be paid by the Servicer or, if paid by the
     Trustee, shall be repaid by the Servicer upon demand from the Servicer's
     own funds.

          (v)    the Trustee may execute any of the trusts or powers hereunder
     or perform any duties hereunder either directly or by or through agents,
     accountants or attorneys and the Trustee shall not be responsible for any
     misconduct or negligence on the part of such agent, accountant or attorney
     appointed by the Trustee with due care;

          (vi)   the Trustee shall not be required to risk or expend its own
     funds or otherwise incur any financial liability in the performance of any
     of its duties or in the exercise of any of its rights or powers hereunder
     if it shall have reasonable grounds for believing that repayment of such
     funds or adequate indemnity against such risk or liability is not assured
     to it;

          (vii)  the Trustee shall not be liable for any loss on any investment
     of funds pursuant to this Agreement (other than as specified in Section
     3.5(d));

          (viii) the Trustee shall not be deemed to have knowledge of an Event
     of Default until a Responsible Officer of the Trustee shall have received
     written notice thereof and in the absence of such notice, the Trustee may
     conclusively assume that there is no Event of Default;

          (ix)   the Trustee shall be under no obligation to exercise any of the
     trusts, 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, pursuant to
     the provisions of this Agreement, unless such Certificateholders shall have
     offered to the Trustee reasonable security or indemnity satisfactory to the
     Trustee against the costs, expenses and liabilities which may be incurred
     therein or thereby;

          (x)    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; and

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          (xi)  the Trustee shall not be required to give any bond or surety in
     respect of the execution of the Trust Fund created hereby or the powers
     granted hereunder.

     SECTION 8.3  Trustee Not Liable for Certificates or Mortgage Loans.

     The recitals contained herein and in the Certificates shall be taken as the
statements of the Depositor or the Seller, as the case may be, and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Certificates or of any Mortgage Loan or related document other than with respect
to the Trustee's execution and counter-signature of the Certificates. The
Trustee shall not be accountable for the use or application by the Depositor,
the Master Servicer or the Servicer of any funds paid to the Depositor, the
Master Servicer or the Servicer in respect of the Mortgage Loans or deposited in
or withdrawn from the Collection Account by the Depositor, the Master Servicer
or the Servicer.

     SECTION 8.4  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 the
Trustee.

     SECTION 8.5  Trustee's Fees and Expenses.

     The Trustee, prior to making the distributions pursuant to Section 4.2
hereunder, shall be entitled to withdraw from the Distribution Account on each
Distribution Date an amount equal to the Trustee Fee for such Distribution Date
as compensation for its activities hereunder. The Trustee and any director,
officer, employee or agent of the Trustee shall be indemnified by the Servicer
and held harmless against any loss, liability or expense (including reasonable
attorney's fees) (i) incurred in connection with any claim or legal action
relating to (a) this Agreement, (b) the Certificates or (c) in connection with
the performance of any of the Trustee's duties hereunder, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of any of the Trustee's duties hereunder or
incurred by reason of any action of the Trustee taken at the direction of the
Certificateholders and (ii) resulting from any error in any tax information
provided  annually by the Servicer for the Mortgagors. Such indemnity shall
survive the termination of this Agreement or the resignation or removal of the
Trustee hereunder. Without limiting the foregoing, the Servicer covenants and
agrees, except for any such expense, disbursement or advance as may arise from
the Trustee's negligence, bad faith or willful misconduct, to pay or reimburse
the Trustee, for all reasonable expenses, disbursements and advances incurred or
made by the Trustee in accordance with any of the provisions of this Agreement
with respect to: (A) the reasonable compensation and the expenses and
disbursements of its counsel incurred in connection with this Agreement or the
Certificates, (B) the reasonable compensation, expenses and disbursements of any
accountant, engineer or appraiser that is not regularly employed by the Trustee,
to the extent that the Trustee must engage such persons to perform acts or
services hereunder and (C) printing and engraving expenses in connection with
preparing any Definitive Certificates. Except as otherwise provided herein, the
Trustee shall not be entitled to payment or reimbursement for any routine
ongoing expenses incurred by the Trustee in the ordinary course of its duties as
Trustee, Certificate registrar, Tax Matters Person or paying agent hereunder or
for any other expenses.

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<PAGE>

     SECTION 8.6  Eligibility Requirements for Trustee.

     The Trustee hereunder shall at all times be a corporation or association
organized and doing business under the laws of a state or the United States of
America, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000, subject to supervision or
examination by federal or state authority and with a credit rating which would
not cause the Rating Agency to reduce the then current ratings of the
Certificates (or having provided such security from time to time as is
sufficient to avoid such reduction). If such corporation or association
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 8.6 the combined capital and surplus of such
corporation or association shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 8.6, the Trustee shall resign immediately in the
manner and with the effect specified in Section 8.7 hereof. The entity serving
as Trustee may have normal banking and trust relationships with the Depositor
and its affiliates or the Servicer and its affiliates; provided, however, that
such entity cannot be an affiliate of the Servicer other than the Trustee in its
role as successor to the Servicer.

     SECTION 8.7  Resignation and Removal of Trustee.

     The Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice of resignation to the Depositor, the Seller,
the Master Servicer, the Servicer and the Rating Agency not less than 60 days
before the date specified in such notice when, subject to Section 8.8, such
resignation is to take effect, and acceptance by a successor trustee in
accordance with Section 8.8 meeting the qualifications set forth in Section 8.6.
If no successor trustee meeting such qualifications shall have been so appointed
and have accepted appointment within 30 days after the giving of such notice or
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 8.6 hereof and shall fail to resign after written
request thereto by the Depositor, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged as bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, or a tax
is imposed with respect to the Trust Fund by any state in which the Trustee or
the Trust Fund is located and the imposition of such tax would be avoided by the
appointment of a different trustee, then the Depositor, the Master Servicer or
the Servicer may remove the Trustee and appoint a successor trustee by written
instrument, in triplicate, one copy of which instrument shall be delivered to
the Trustee, one copy of which shall be delivered to each of the Depositor, the
Master Servicer and the Servicer and one copy to the successor trustee.

     The Holders of Certificates entitled to at least 51% of the Voting Rights
may at any time remove the Trustee and appoint a successor trustee by written
instrument or instruments, in triplicate, signed by such Holders or their
attorneys-in-fact duly authorized, one complete set of which instruments shall
be delivered by the successor trustee to the Servicer, one complete set to the

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<PAGE>

Trustee so removed and one complete set to the successor so appointed. Notice of
any removal of the Trustee shall be given to the Rating Agency by the successor
trustee.

     Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section 8.7 shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 8.8 hereof.

     SECTION 8.8  Successor Trustee.

     Any successor trustee appointed as provided in Section 8.7 hereof shall
execute, acknowledge and deliver to the Depositor, the Master Servicer, the
Servicer and to its predecessor trustee an instrument accepting such appointment
hereunder and thereupon the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as Trustee herein. The Depositor, the Master Servicer, the Servicer and
the predecessor trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for more 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
8.8 unless at the time of such acceptance such successor trustee shall be
eligible under the provisions of Section 8.6 hereof and its appointment shall
not adversely affect the then current rating of the Certificates.

     Upon acceptance of appointment by a successor trustee as provided in this
Section 8.8, the Depositor shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates. If the Depositor fails to mail such
notice within 10 days after acceptance of appointment by the successor trustee,
the successor trustee shall cause such notice to be mailed at the expense of the
Depositor.

     SECTION 8.9  Merger or Consolidation of Trustee.

     Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the business of the Trustee, shall be the successor of
the Trustee hereunder, provided that such corporation shall be eligible under
the provisions of Section 8.6 hereof without the execution or filing of any
paper or further act on the part of any of the parties hereto, anything herein
to the contrary notwithstanding.

     SECTION 8.10  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 Fund or property securing any Mortgage Note may at the time be
located, the Servicer 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 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 Fund, and to vest in such Person or Persons, in

                                     -82-
<PAGE>

such capacity and for the benefit of the Certificateholders, such title to the
Trust Fund or any part thereof, whichever is applicable, and, subject to the
other provisions of this Section 8.10, such powers, duties, obligations, rights
and trusts as the Servicer and the Trustee may consider necessary or desirable.
If the Servicer shall not have joined in such appointment within 15 days after
the receipt by it of a request to do so, 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
8.6 and no notice to Certificateholders of the appointment of any co-trustee or
separate trustee shall be required under Section 8.8.

     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)   To the extent necessary to effectuate the purposes of this
     Section 8.10, 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
     Fund 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 such appointment
     shall not, and shall not be deemed to, constitute any such separate trustee
     or co-trustee as agent of the Trustee;

          (iii) The Trustee may at any time accept the resignation of or remove
     any separate trustee or co-trustee; and

          (iv)  The Servicer, and not the Trustee, shall be liable for the
     payment of reasonable compensation, reimbursement and indemnification to
     any such 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 separate trustees and co-trustees, when and as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicer, the Master Servicer and the Depositor.

                                     -83-
<PAGE>

     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 8.11  Tax Matters.

     It is intended that the assets with respect to which any REMIC election is
to be made, as set forth in the "Preliminary Statement", shall constitute, and
that the conduct of matters relating to such assets shall be such as to qualify
such assets as, a "real estate mortgage investment conduit" as defined in and in
accordance with the REMIC Provisions. In furtherance of such intention, the
Trustee covenants and agrees that it shall act as agent (and the Trustee is
hereby appointed to act as agent) on behalf of any such REMIC and that in such
capacity it shall: (a) prepare and file, or cause to be prepared and filed, in a
timely manner, a U.S. Real Estate Mortgage Investment Conduit Income Tax Return
(Form 1066 or any successor form adopted by the Internal Revenue Service) and
prepare and file or cause to be prepared and filed with the Internal Revenue
Service and applicable state or local tax authorities income tax or information
returns for each taxable year with respect to any such REMIC, containing such
information and at the times and in the manner as may be required by the Code or
state or local tax laws, regulations, or rules, and furnish or cause to be
furnished to Certificateholders the schedules, statements or information at such
times and in such manner as may be required thereby; (b) within thirty days of
the Closing Date, furnish or cause to be furnished to the Internal Revenue
Service, on Forms 8811 or as otherwise may be required by the Code, the name,
title, address, and telephone number of the person that the holders of the
Certificates may contact for tax information relating thereto, together with
such additional information as may be required by such form, and update such
information at the time or times in the manner required by the Code; (c) make or
cause to be made elections that such assets be treated as a REMIC on the federal
tax return for its first taxable year (and, if necessary, under applicable state
law); (d) prepare and forward, or cause to be prepared and forwarded, to the
Certificateholders and to the Internal Revenue Service and, if necessary, state
tax authorities, all information returns and reports as and when required to be
provided to them in accordance with the REMIC Provisions, including without
limitation, the calculation of any original issue discount using the prepayment
assumption; (e) provide information necessary for the computation of tax imposed
on the transfer of a Residual Certificate to a Non-Permitted Transferee, or an
agent (including a broker, nominee or other middleman) of a Non-Permitted
Transferee, or a pass-through entity in which a Non-Permitted Transferee is the
record holder of an interest (the reasonable cost of computing and furnishing
such information may be charged to the Person liable for such tax); (f) to the
extent that they are under its control conduct matters relating to such assets
at all times that any Certificates are outstanding so as to maintain the status
as a REMIC under the REMIC Provisions; (g) not knowingly or intentionally take
any action or omit to take any action that would cause the termination of the
REMIC status; (h) pay, from the sources specified in the last paragraph of this
Section 8.11, the amount of any federal or state tax, including prohibited
transaction taxes as described below, imposed on any such REMIC prior to its
termination when and as the same shall be due and payable (but such obligation
shall not prevent the Trustee or any other appropriate Person from contesting
any such tax in appropriate proceedings and shall not prevent the Trustee from
withholding payment

                                     -84-
<PAGE>

of such tax, if permitted by law, pending the outcome of such proceedings); (i)
ensure that federal, state or local income tax or information returns shall be
signed by the Trustee or such other person as may be required to sign such
returns by the Code or state or local laws, regulations or rules; (j) maintain
records relating to any such REMIC, including but not limited to the income,
expenses, assets and liabilities thereof and the fair market value and adjusted
basis of the assets determined at such intervals as may be required by the Code,
as may be necessary to prepare the foregoing returns, schedules, statements or
information; and (k) as and when necessary and appropriate, represent any such
REMIC in any administrative or judicial proceedings relating to an examination
or audit by any governmental taxing authority, request an administrative
adjustment as to any taxable year of any such REMIC, enter into settlement
agreements with any governmental taxing agency, extend any statute of
limitations relating to any tax item of any such REMIC, and otherwise act on
behalf of any such REMIC in relation to any tax matter or controversy involving
it; provided, however, that the Trustee shall be entitled to reimbursement from
the Distribution Account for the cost of the items referenced in this subsection
(k).

     In order to enable the Trustee to perform its duties as set forth herein,
the Depositor shall provide, or cause to be provided, to the Trustee within ten
(10) days after the Closing Date all information or data that the Trustee
requests in writing and determines to be relevant for tax purposes to the
valuations and offering prices of the Certificates, including, without
limitation, the price, yield, prepayment assumption and projected cash flows of
the Certificates and the Mortgage Loans. Thereafter, the Depositor shall provide
to the Trustee promptly upon written request therefor, any such additional
information or data that the Trustee may, from time to time, reasonably request
in order to enable the Trustee to perform its duties as set forth herein. The
Depositor hereby indemnifies the Trustee for any losses, liabilities, damages,
claims or expenses of the Trustee arising from any errors or miscalculations of
the Trustee that result from any failure of the Depositor to provide, or to
cause to be provided, accurate information or data to the Trustee on a timely
basis.

     In the event that any tax is imposed on "prohibited transactions" of the
REMIC as defined in Section 860F(a)(2) of the Code, on the "net income from
foreclosure property" of the REMIC as defined in Section 860G(c) of the Code, on
any contribution to the REMIC after the Startup Day pursuant to Section 860G(d)
of the Code, or any other tax is imposed, if not paid as otherwise provided for
herein, such tax shall be paid by (i) the Trustee, if any such other tax arises
out of or results from a breach by the Trustee of any of its obligations under
this Agreement which breach was caused by its negligence or willful misconduct,
(ii) the Servicer, in the case of any such minimum tax, or if such tax arises
out of or results from a breach by the Servicer of any of its obligations under
this Agreement, (iii) the Master Servicer, in the case of any such minimum tax,
or if such tax arises out of or results from a breach by the Master Servicer of
any of its obligations under this Agreement,(iv) the Seller, if any such tax
arises out of or results from the Seller's obligation to cause the Initial
Seller to repurchase a Mortgage Loan pursuant to Section 2.2 or 2.3 or (v) in
all other cases, or in the event that the Trustee, the Servicer, the Master
Servicer or the Seller fails to honor its obligations under the preceding
clauses (i), (ii), (iii) or (iv), any such tax will be paid with amounts
otherwise to be distributed to the Certificateholders, as provided in Section
3.8(b).

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<PAGE>

     SECTION 8.12  Periodic Filings.

     Pursuant to written instructions from the Depositor, the Trustee shall
prepare, execute and file all periodic reports required under the Securities
Exchange Act of 1934 in conformity with the terms of the "no-action" relief
granted by the SEC to issuers of asset-backed securities such as the
Certificates.  In connection with the preparation and filing of such periodic
reports, the Depositor and the Servicer shall timely provide to the Trustee all
material information available to them which is required to be included in such
reports and not known to them to be in the possession of the Trustee and such
other information as the Trustee reasonably may request from either of them and
otherwise reasonably shall cooperate with the Trustee. The Trustee shall have no
liability with respect to any failure to properly prepare or file such periodic
reports resulting from or relating to the Trustee's inability or failure to
obtain any information not resulting from its own negligence or willful
misconduct.  In addition, the Trustee shall submit to Bloomberg the information
included in each Monthly Statement prepared pursuant to Section 4.5 for
dissemination through Bloomberg's securities information reporting service.

                                  ARTICLE IX
                                  TERMINATION

     SECTION 9.1  Termination upon Liquidation or Purchase of all Mortgage
Loans.

     Subject to Section 9.3, the obligations and responsibilities of the
Depositor, the Seller, the Master Servicer, the Servicer and the Trustee created
hereby shall terminate upon the earlier of (a) the purchase by the Servicer of
all Mortgage Loans (and REO Properties) remaining in the Trust Fund at the price
equal to the sum of (i) 100% of the Stated Principal Balance of each Mortgage
Loan plus one month's accrued interest thereon at the applicable Net Mortgage
Rate and (ii) the lesser of (x) the appraised value of any REO Property as
determined by the higher of two appraisals completed by two independent
appraisers selected by the Servicer at the expense of the Servicer and (y) the
Stated Principal Balance of each Mortgage Loan related to any REO Property, in
each case plus accrued and unpaid interest thereon at the applicable Net
Mortgage Rate and (b) the later of (i) the maturity or other liquidation (or any
Advance with respect thereto) of the last Mortgage Loan remaining in the Trust
Fund and the disposition of all REO Property and (ii) the distribution to
Certificateholders of all amounts required to be distributed to them pursuant to
this Agreement. In no event shall the trusts created hereby continue beyond the
earlier of (i) the expiration of 21 years from the death of the 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, and (ii) the Latest
Possible Maturity Date. The right to purchase all Mortgage Loans and REO
Properties pursuant to clause (a) above shall be conditioned upon the Pool
Principal Balance, at the time of any such repurchase, aggregating less than ten
percent of the Cut-off Date Pool Principal Balance.

     SECTION 9.2  Final Distribution on the Certificates.

     If on any Determination Date, the Servicer determines that there are no
Outstanding Mortgage Loans and no other funds or assets in the Trust Fund other
than the funds in the Collection Account, the Servicer shall direct the Trustee
promptly to send a final distribution notice to each

                                     -86-
<PAGE>

Certificateholder. If the Servicer elects to terminate the Trust Fund pursuant
to clause (a) of Section 9.1, at least 20 days prior to the date notice is to be
mailed to the affected Certificateholders, the Servicer shall notify the
Depositor, the Master Servicer and the Trustee of the date the Servicer intends
to terminate the Trust Fund and of the applicable repurchase price of the
Mortgage Loans and REO Properties.

     Notice of any termination of the Trust Fund, specifying the Distribution
Date on which the related Certificateholders may surrender their Certificates
for payment of the final distribution and cancellation, shall be given promptly
by the Trustee by letter to such Certificateholders mailed not earlier than the
10th day and no later than the 15th day of the month next preceding the month of
such final distribution. Any such notice shall specify (a) the Distribution Date
upon which final distribution on the Certificates will be made upon presentation
and surrender of Certificates at the office therein designated, (b) the amount
of such final distribution, (c) the location of the office or agency at which
such presentation and surrender must be made, and (d) 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 therein specified. The Servicer will give such notice to the Rating
Agency at the time such notice is given to Certificateholders.

     In the event such notice is given, the Servicer shall cause all funds in
the Collection Account to be remitted to the Trustee for deposit in the
applicable subaccounts of the Distribution Account on the Business Day prior to
the applicable Distribution Date in an amount equal to the final distribution in
respect of the Certificates. Upon such final deposit with respect to the Trust
Fund and the receipt by the Trustee of a Request for Release therefor, the
Trustee shall promptly release to the Servicer the Mortgage Files for the
related Mortgage Loans.

     Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed to the Certificateholders of each Class, in the order
set forth in Section 4.2 hereof, on the final Distribution Date, in the case of
the Certificateholders, in proportion to their respective Percentage Interests,
with respect to Certificateholders of the same Class, an amount equal to (i) as
to each Class of Regular Certificates, the Class Principal Balance thereof plus
accrued interest thereon, and (ii) as to the Residual Certificates, the amount,
if any, which remains on deposit in the Distribution Account (other than the
amounts retained to meet claims) after application pursuant to clause (i) above.

     In the event that any affected Certificateholders shall not surrender
Certificates for cancellation within six months after the date specified in the
above mentioned written notice, the Trustee shall give a second written notice
to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
six months after the second notice all the applicable Certificates shall not
have been surrendered for cancellation, the Trustee may take appropriate steps,
or may appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets which remain a part of
the Trust Fund. If within one year after the second notice all Certificates
shall not have been surrendered for cancellation, the Holders of the Residual
Certificates shall be entitled to all unclaimed funds and other assets of the
Trust Fund, held for distribution to such Certificateholders, which remain
subject hereto.

                                     -87-
<PAGE>

     SECTION 9.3  Additional Termination Requirements.

     (a) In the event the Servicer exercises its purchase option as provided in
Section 9.1, the Trust Fund shall be terminated in accordance with the following
additional requirements, unless the Trustee has been supplied with an Opinion of
Counsel, at the expense of the Servicer, to the effect that the failure to
comply with the requirements of this Section 9.3 will not (i) result in the
imposition of taxes on "prohibited transactions" as defined in section 860F of
the Code on any REMIC created hereunder, or (ii) cause any REMIC created
hereunder to fail to qualify as a REMIC at any time that any Certificates are
outstanding:

          (1) Within 90 days prior to the final Distribution Date set forth in
     the notice given by the Servicer under Section 9.2, the Servicer shall
     prepare and the Trustee, at the expense of the "Tax Matters Person," shall
     adopt a plan of complete liquidation within the meaning of section
     860F(a)(4) of the Code which, as evidenced by an Opinion of Counsel (which
     opinion shall not be an expense of the Trustee or the Tax Matters Person),
     meets the requirements of a qualified liquidation; and

          (2) Within 90 days after the time of adoption of such a plan of
     complete liquidation, the Trustee shall sell all of the assets of the Trust
     Fund to the Servicer for cash in accordance with Section 9.1.

     (b) The Trustee as agent for any REMIC established hereunder hereby agrees
to adopt and sign such a plan of complete liquidation upon the written request
of the Servicer, and the receipt of the Opinion of Counsel referred to in
Section 9.3(a)(1) and to take such other action in connection therewith as may
be reasonably requested by the Servicer.

     (c) By their acceptance of the Certificates, the Holders thereof hereby
authorize the Servicer to prepare and the Trustee to adopt and sign a plan of
complete liquidation.

                                   ARTICLE X
                           MISCELLANEOUS PROVISIONS

     SECTION 10.1  Amendment.

     This Agreement may be amended from time to time by the Depositor, the
Seller, the Master Servicer, the Servicer and the Trustee without the consent of
any of the Certificateholders (i) to cure any ambiguity or mistake, (ii) to
correct any defective provision herein or to supplement any provision herein
which may be inconsistent with any other provision herein, (iii) to add to the
duties of the Depositor, the Seller, the Master Servicer or the Servicer, (iv)
to add any other provisions with respect to matters or questions arising
hereunder or (v) to modify, alter, amend, add to or rescind any of the terms or
provisions contained in this Agreement; provided that any action pursuant to
clauses (iv) or (v) above shall not, as evidenced by an Opinion of Counsel
(which Opinion of Counsel shall not be an expense of the Trustee or the Trust
Fund), adversely affect in any material respect the interests of any
Certificateholder; provided, however, that the amendment shall not be deemed to
adversely affect in any material respect the interests of the Certificateholders
if the Person requesting

                                     -88-
<PAGE>

the amendment obtains a letter from the Rating Agency stating that the amendment
would not result in the downgrading or withdrawal of the respective ratings then
assigned to the Certificates; it being understood and agreed that any such
letter in and of itself will not represent a determination as to the materiality
of any such amendment and will represent a determination only as to the credit
issues affecting any such rating. The Trustee, the Depositor, the Master
Servicer or the Servicer also may at any time and from time to time amend this
Agreement without the consent of the Certificateholders to modify, eliminate or
add to any of its provisions to such extent as shall be necessary or helpful to
(i) maintain the qualification of any REMIC as a REMIC under the Code, (ii)
avoid or minimize the risk of the imposition of any tax on any REMIC pursuant to
the Code that would be a claim at any time prior to the final redemption of the
Certificates or (iii) comply with any other requirements of the Code, provided
that the Trustee has been provided an Opinion of Counsel, which opinion shall be
an expense of the party requesting such opinion but in any case shall not be an
expense of the Trustee or the Trust Fund, to the effect that such action is
necessary or helpful to, as applicable, (i) maintain such qualification, (ii)
avoid or minimize the risk of the imposition of such a tax or (iii) comply with
any such requirements of the Code.

     This Agreement may also be amended from time to time by the Depositor, the
Seller, the Master Servicer, the Servicer and the Trustee with the consent of
the Holders of a Majority in Interest of each Class of Certificates affected
thereby 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 Holders of Certificates; provided, however, that no
such amendment shall (i) reduce in any manner the amount of, or delay the timing
of, payments required to be distributed on any Certificate without the consent
of the Holder of such Certificate, (ii) adversely affect in any material respect
the interests of the Holders of any Class of Certificates in a manner other than
as described in (i), without the consent of the Holders of Certificates of such
Class evidencing, as to such Class, Percentage Interests aggregating 66%, or
(iii) reduce the aforesaid percentages of Certificates the Holders of which are
required to consent to any such amendment, without the consent of the Holders of
all such Certificates then outstanding.

     Notwithstanding any contrary provision of this Agreement, the Trustee shall
not consent to any amendment to this Agreement unless it shall have first
received an Opinion of Counsel, which opinion shall not be an expense of the
Trustee or the Trust Fund, to the effect that such amendment will not cause the
imposition of any tax on any REMIC or the Certificateholders or cause any REMIC
created hereunder to fail to qualify as a REMIC at any time that any
Certificates are outstanding.

     Promptly after the execution of any amendment to this Agreement requiring
the consent of Certificateholders, the Trustee shall furnish written
notification of the substance or a copy of such amendment to each
Certificateholder and the Rating Agency.

     It shall not be necessary for the consent of Certificateholders under this
Section to approve the particular form of any proposed amendment, 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 regulations as
the Trustee may prescribe.

                                     -89-
<PAGE>

     Nothing in this Agreement shall require the Trustee to enter into an
amendment without receiving an Opinion of Counsel (which Opinion shall not be an
expense of the Trustee or the Trust Fund), satisfactory to the Trustee that (i)
such amendment is permitted and is not prohibited by this Agreement and that all
requirements for amending this Agreement have been complied with; and (ii)
either (A) the amendment does not adversely affect in any material respect the
interests of any Certificateholder or (B) the conclusion set forth in the
immediately preceding clause (A) is not required to be reached pursuant to this
Section 10.1.

     SECTION 10.2  Recordation of Agreement; Counterparts.

     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 Servicer at its expense, but only upon direction a
majority of the Certificateholders to the effect that such recordation
materially and beneficially affects the interests of the Certificateholders.

     For the purpose of facilitating the recordation of this Agreement as herein
provided and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which counterparts shall be deemed to be
an original, and such counterparts shall constitute but one and the same
instrument.

     SECTION 10.3  Governing Law.

     THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
SUBSTANTIVE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED IN THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES
OF THE PARTIES HERETO AND THE CERTIFICATEHOLDERS SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.

     SECTION 10.4  Intention of Parties.

     (a) It is the express intent of the parties hereto that the conveyance of
the Mortgage Loans by the Seller to the Depositor be, and be construed as,
absolute sales thereof to the Trust.  It is, further, not the intention of the
parties that such conveyances be deemed a pledge thereof by the Seller to the
Depositor.  However, in the event that, notwithstanding the intent of the
parties, such assets are held to be the property of the Seller, or if for any
other reason this Agreement is held or deemed to create a security interest in
such assets, then (i) this Agreement shall be deemed to be a security agreement
within the meaning of the Uniform Commercial Code of the State of New York and
(ii) the conveyance of the Mortgage Loans provided for in this Agreement shall
be deemed to be an assignment and a grant by the Seller to the Depositor, for
the benefit of the Certificateholders, of a security interest in all of the
Mortgage Loans, whether now owned or hereafter acquired.

     The Seller, for the benefit of the Certificateholders, shall, to the extent
consistent with this Agreement, take such actions as may be necessary to ensure
that, if this Agreement were deemed to create a security interest in the
Mortgage Loans, such security interest would be deemed to be a

                                     -90-
<PAGE>

perfected security interest of first priority under applicable law and will be
maintained as such throughout the term of the Agreement. The Servicer shall
arrange for filing any Uniform Commercial Code continuation statements in
connection with any security interest granted or assigned to the Depositor for
the benefit of the Certificateholders. Prior to the issuance of the
Certificates, the Trustee shall hold the related Mortgage Files in trust for the
exclusive use and benefit of the Depositor. Upon and at all times after the
issuance of the Certificates, the Trustee shall hold the related Mortgage Files
in trust for the exclusive use and benefit of all present and future
Certificateholders.

     (b) It is the express intent of the parties hereto that the conveyance of
the Trust Fund by the Depositor to the Trustee be, and be construed as, an
absolute sale thereof to the Trustee. It is, further, not the intention of the
parties that such conveyances be deemed a pledge thereof by the Depositor to the
Trustee.  However, in the event that, notwithstanding the intent of the parties,
such assets are held to be the property of the Depositor, or if for any other
reason this Agreement is held or deemed to create a security interest in such
assets, then (i) this Agreement shall be deemed to be a security agreement
within the meaning of the Uniform Commercial Code of the State of New York and
(ii) the conveyance provided for in this Agreement shall be deemed to be an
assignment and a grant by the Depositor to the Trustee, for the benefit of the
Certificateholders, of a security interest in all of the assets that constitute
the Trust Fund, whether now owned or hereafter acquired.

     The Depositor, for the benefit of the Certificateholders, shall, to the
extent consistent with this Agreement, take such actions as may be necessary to
ensure that, if this Agreement were deemed to create a security interest in the
Trust Fund, such security interest would be deemed to be a perfected security
interest of first priority under applicable law and will be maintained as such
throughout the term of the Agreement. The Servicer shall arrange for filing any
Uniform Commercial Code continuation statements in connection with any security
interest granted or assigned to the Trustee for the benefit of the
Certificateholders.

     SECTION 10.5  Notices.

     (a) The Trustee shall use its best efforts to promptly provide notice to
the Rating Agency with respect to each of the following of which it has actual
knowledge:

     1.  Any material change or amendment to this Agreement;
     2.  The occurrence of any Event of Default that has not been cured;
     3.  The resignation or termination of the Servicer or the Trustee and the
         appointment of any successor;
     4.  The repurchase or substitution of Mortgage Loans pursuant to Section
         2.3; and
     5.  The final payment to Certificateholders.

     In addition, the Trustee shall promptly furnish to the Rating Agency copies
of the following:

     1.  Each report to Certificateholders described in Section 4.5;
     2.  Each annual statement as to compliance described in Section 3.16;
     3.  Each annual independent public accountants' servicing report described
         in Section 3.17; and

                                     -91-
<PAGE>

     4.  Any notice of a purchase of a Mortgage Loan pursuant to Section 2.2,
         2.3 or 3.11.

     (b) All directions, demands and notices hereunder shall be in writing and
shall be deemed to have been duly given when delivered to (a) in the case of the
Depositor, First Horizon Asset Securities Inc., 4000 Horizon Way, Irving, Texas
75063, Attention: Wade Walker or such other address as the Depositor may
hereafter furnish in writing to the Seller, the Master Servicer, the Servicer
and the Trustee; (b) in the case of the Seller, First Tennessee Bank National
Association, 845 Crossover Lane, Suite 150, Memphis, Tennessee 38117, Attention:
R. Davis Howe, with a copy to First Tennessee National Corporation,  165 Madison
Avenue, Memphis, Tennessee  38103, Attention: Clyde A. Billings, Jr., Esq. or
such other address as the Seller may hereafter furnish in writing to the
Depositor, the Master Servicer, the Servicer and the Trustee; (c) in the case of
the Servicer, The Huntington Mortgage Company, 7575 Huntington Park Drive,
Columbus, Ohio 43235, Attention:  Kristine J. Tikson, with a copy to The
Huntington National Bank, 41 South High St., Columbus, Ohio 43287, Attention:
Legal Department, or such other address as the Servicer may hereafter furnish in
writing to the Depositor, the Seller, the Master Servicer and the Trustee; (d)
in the case of the Master Servicer, First Horizon Home Loan Corporation, 4000
Horizon Way, Irving, Texas 75063, Attention: Wade Walker or such other address
as the Master Servicer may hereafter furnish in writing to the Depositor, the
Seller, the Servicer and the Trustee; (e) in the case of the Trustee, The Bank
of New York, 101 Barclay Street 12E, New York, New York 10286, Attention:
Courtney Bartholomew, or such other address as the Trustee may hereafter furnish
in writing to the Depositor, the Seller, the Master Servicer or the Servicer;
and (f) in the case of the Rating Agency, the address specified therefor in the
definition corresponding to the name of the Rating Agency. Notices to
Certificateholders shall be deemed given when mailed, first class postage
prepaid, to their respective addresses appearing in the Certificate Register.

     SECTION 10.6  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 10.7  Assignment.

     Notwithstanding anything to the contrary contained herein, except as
provided in Section 6.02, this Agreement may not be assigned by any party
without the prior written consent of the other parties.

     SECTION 10.8  Limitation on Rights of Certificateholders.

     The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the trust created hereby, nor entitle such
Certificateholder's legal representative or heirs to claim an accounting or to
take any action or commence any proceeding in any court for a petition or
winding up of the trust created hereby, or otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.

                                     -92-
<PAGE>

     No Certificateholder shall have any right to vote (except as provided
herein) or in any manner otherwise control the operation and management of the
Trust Fund, 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
party 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 an Event
of Default and of the continuance thereof, as herein provided, and unless the
Holders of Certificates evidencing not less than 25% of the Voting Rights
evidenced by the Certificates shall also have made written request to 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
common benefit of all Certificateholders. For the protection and enforcement of
the provisions of this Section 10.8, each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.

     SECTION 10.9  Inspection and Audit Rights.

     The Servicer agrees that, on reasonable prior notice, it will permit and
will cause each Subservicer to permit any representative of the Depositor or the
Trustee during the Servicer's normal business hours, to examine all the books of
account, records, reports and other papers of the Servicer relating to the
Mortgage Loans, to make copies and extracts therefrom, to cause such books to be
audited by independent certified public accountants selected by the Depositor or
the Trustee and to discuss its affairs, finances and accounts relating to the
Mortgage Loans with its officers, employees and independent public accountants
(and by this provision the Servicer hereby authorizes said accountants to
discuss with such representative such affairs, finances and accounts), all at
such reasonable times and as often as may be reasonably requested. Any out-of-
pocket expense incident to the exercise by the Depositor or the Trustee of any
right under this Section 10.9 shall be borne by the party requesting such
inspection.

     SECTION 10.10  Certificates Nonassessable and Fully Paid.

     It is the intention of the Depositor that Certificateholders shall not be
personally liable for obligations of the Trust Fund, that the interests in the
Trust Fund represented by the Certificates shall

                                     -93-
<PAGE>

be nonassessable for any reason whatsoever, and that the Certificates, upon due
authentication thereof by the Trustee pursuant to this Agreement, are and shall
be deemed fully paid.

                                  * * * * * *

                                     -94-
<PAGE>

     IN WITNESS WHEREOF, the Depositor, the Trustee, the Seller, the Master
Servicer and the Servicer have caused their names to be signed hereto by their
respective officers thereunto duly authorized as of the day and year first above
written.

                              FIRST HORIZON ASSET SECURITIES INC.,
                                    as Depositor

                              By:
                                 -------------------------------------------
                              Name:  Wade Walker
                              Title:  Senior Vice President - Asset
                                      Securitization

                              THE BANK OF NEW YORK,
                                    as Trustee

                              By:
                                 -------------------------------------------
                              Name:  Diane Pickett
                              Title:   Vice President

                              FIRST TENNESSEE BANK NATIONAL  ASSOCIATION, as
                              Seller

                              By:
                                 -------------------------------------------
                              Name:  Jim Hughes
                              Title:  President, First Tennessee Capital Markets

                              FIRST HORIZON HOME LOAN CORPORATION,
                                    as Master Servicer

                              By:
                                 -------------------------------------------
                              Name:  Wade Walker
                              Title:  Senior Vice President - Asset
                                      Securitization

                                 THE HUNTINGTON MORTGAGE COMPANY,
                                    as Servicer

                              By:
                                 -------------------------------------------
                              Name:  Thomas J. Finnegan, III
                              Title:  President

Pooling and Servicing Agreement - Signature Page<PAGE>

                                                                     EXHIBIT 4.3

                                    FORM OF

                    SHAREHOLDER PROTECTION RIGHTS AGREEMENT

                                    BETWEEN

                             GLOBAL PAYMENTS INC.

                                      AND

                    SUNTRUST BANK, ATLANTA, AS RIGHTS AGENT

                             ___________ ___, 2000

<PAGE>

<TABLE>
<CAPTION>
                               TABLE OF CONTENTS

<S>                                                                                                              <C>
ARTICLE I - CERTAIN DEFINITIONS...................................................................................1

ARTICLE II - THE RIGHTS...........................................................................................4

   2.1    Summary of Rights.......................................................................................4
   2.2    Issuance of Rights Certificates; Legend.................................................................4
   2.3    Exercise of Rights; Separation of Rights................................................................5
   2.4    Adjustments to Exercise Price; Number of Rights.........................................................6
   2.5    Date on Which Exercise is Effective.....................................................................7
   2.6    Execution, Authentication, Delivery and Dating of Rights Certificates...................................7
   2.7    Registration, Registration of Transfer and Exchange.....................................................7
   2.8    Mutilated, Destroyed, Lost and Stolen Rights Certificates...............................................8
   2.9    Persons Deemed Owners...................................................................................8
   2.10   Delivery and Cancellation of Certificates...............................................................9
   2.11   Agreement of Rights Holders.............................................................................9

ARTICLE III - ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS......................................9

   3.1    Flip-In.................................................................................................9
   3.2    Flip-Over..............................................................................................11

ARTICLE IV - THE RIGHTS AGENT....................................................................................11

   4.1    General................................................................................................11
   4.2    Merger or Consolidation or Change of Name of Rights Agent..............................................12
   4.3    Duties of Rights Agent.................................................................................12
   4.4    Change of Rights Agent.................................................................................14

ARTICLE V - MISCELLANEOUS........................................................................................14

   5.1    Redemption.............................................................................................14
   5.2    Expiration.............................................................................................14
   5.3    Issuance of New Rights Certificates....................................................................15
   5.4    Supplements and Amendments.............................................................................15
   5.5    Fractional Shares......................................................................................15
   5.6    Rights of Action.......................................................................................15
   5.7    Holder of Rights Not Deemed a Shareholder..............................................................15
   5.8    Notice of Proposed Actions.............................................................................16
   5.9    Notices................................................................................................16
   5.10   Suspension of Exercisability...........................................................................16
   5.11   Costs of Enforcement...................................................................................16
   5.12   Successors.............................................................................................17
   5.13   Benefits of this Agreement.............................................................................17
   5.14   Determination and Actions by the Board of Directors, etc...............................................17
   5.15   Descriptive Headings...................................................................................17
   5.16   Governing Law..........................................................................................17
   5.17   Counterparts...........................................................................................17
   5.18   Severability...........................................................................................17
</TABLE>
<PAGE>

                                    FORM OF

                    SHAREHOLDER PROTECTION RIGHTS AGREEMENT

     THIS SHAREHOLDER PROTECTION RIGHTS AGREEMENT (as amended from time to time,
this "Agreement") is made and entered into as of ________, 2000, between Global
Payments Inc., a Georgia corporation (the "Company"), and SunTrust Bank,
Atlanta, as rights agent (the "Rights Agent," which term shall include any
successor rights agent hereunder).

                             W I T N E S S E T H:
                             -------------------

     WHEREAS, on_______________, 2000, the Board of Directors of the Company has
(a) authorized and declared a dividend of one right ("Right") in respect of each
share of Common Stock (as hereinafter defined) held of record as of the Close of
Business (as hereinafter defined) on,_____________ 2000 (the "Record Time") and
(b) as provided in Section 2.4, authorized the issuance of one Right in respect
of each share of Common Stock issued after the Record Time and prior to the
Separation Time (as hereinafter defined);

     WHEREAS, subject to Sections 3.1, 5.1 and 5.10, each Right entitles the
holder thereof, after the Separation Time, to purchase securities of the Company
(or, in certain cases, of certain other entities) pursuant to the terms and
subject to the conditions set forth herein; and

     WHEREAS, the Company desires to appoint the Rights Agent to act on behalf
of the Company, and the Rights Agent is willing so to act, in connection with
the issuance, transfer, exchange and replacement of Rights Certificates (as
hereinafter defined), the exercise of Rights and other matters referred to
herein;

     NOW THEREFORE, in consideration of the premises and the respective
agreements set forth herein, the parties hereby agree as follows:

                                   ARTICLE I

                              CERTAIN DEFINITIONS
                              -------------------

     1.1  Certain Definitions. For purposes of this Agreement, the following
          -------------------
terms have the meanings indicated:

     "Acquiring Person" shall mean any Person who is a Beneficial Owner of 20%
or more of the outstanding shares of Common Stock; provided, however, that the
term "Acquiring Person" shall not include any Person (i) who is the Beneficial
Owner of 20% or more of the outstanding shares of Common Stock on the date of
this Agreement or who shall become the Beneficial Owner of 20% or more of the
outstanding shares of Common Stock solely as a result of an acquisition by the
Company of shares of Common Stock, until such time hereafter or thereafter as
any such Person shall become the Beneficial Owner (other than by means of a
stock dividend or stock split) of any additional shares of Common Stock, (ii)
who is the Beneficial Owner of 20%, or more of the outstanding shares of Common
Stock but who acquired Beneficial Ownership of shares of Common Stock without
any plan or intention to seek or affect control of the Company, if such Person
promptly enters into an irrevocable commitment promptly to divest, and
thereafter promptly divests (without exercising or retaining any power,
including voting power, with respect to such shares), sufficient shares of
Common Stock (or securities convertible into, exchangeable into or exercisable
for Common Stock) so that such Person ceases to be the Beneficial Owner of 20%
or more of the outstanding shares of Common Stock or (iii) who Beneficially Owns
shares of Common Stock consisting solely of one or more of (A) shares of Common
Stock Beneficially Owned pursuant to the grant or exercise of an option granted
to such Person by the Company in connection with an agreement to merge with, or
acquire, the Company entered into prior to a Flip-In Date, (B) shares of Common
Stock (or securities convertible into, exchangeable into or exercisable
<PAGE>

for Common Stock) Beneficially Owned by such Person or its Affiliates or
Associates at the time of grant of such option or (C) shares of Common Stock (or
securities convertible into, exchangeable into or exercisable for Common Stock)
acquired by Affiliates or Associates of such Person after the time of such grant
which, in the aggregate, amount to less than 1% of the outstanding shares of
Common Stock. In addition, the Company, any wholly owned Subsidiary of the
Company and any employee stock ownership or other employee benefit plan of the
Company or a wholly owned Subsidiary of the Company shall not be an Acquiring
Person.

     "Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as amended
(the "Securities Exchange Act"), as such Rule is in effect on the date of this
Agreement.

     A Person shall be deemed the "Beneficial Owner" of, and to have "Beneficial
Ownership" of, and to "Beneficially Own," any securities of which such Person or
any of such Person's Affiliates or Associates is or may be deemed to be the
beneficial owner pursuant to Rule 13d-3 and 13d-5 under the Securities Exchange
Act, as such Rules are in effect on the date of this Agreement as well as any
securities as to which such Person or any of such Person's Affiliates or
Associates has the right to become Beneficial Owner (whether such right is
exercisable immediately or only after the passage of time or the occurrence of
conditions) pursuant to any agreement, arrangement or understanding, or upon the
exercise of conversion rights, exchange rights, other rights (other than the
Rights), warrants or options, or otherwise; provided, however, that a Person
shall not be deemed the "Beneficial Owner" of, or to have "Beneficial Ownership"
of, or to "Beneficially Own," any security (i) solely because such security has
been tendered pursuant to a tender or exchange offer made by such Person or any
of such Person's Affiliates or Associates until such tendered security is
accepted for payment or exchange or (ii) solely because such Person or any of
such Person's Affiliates or Associates has or shares the power to vote or direct
the voting of such security pursuant to a revocable proxy given in response to a
public proxy or consent solicitation made to more than ten holders of shares of
a class of stock of the Company registered under Section 12 of the Securities
Exchange Act and pursuant to, and in accordance with, the applicable rules and
regulations under the Securities Exchange Act, except if such power (or the
arrangements relating thereto) is then reportable under Item 6 of Schedule 13D
under the Securities Exchange Act (or any similar provision of a comparable or
successor report). Notwithstanding the foregoing, no officer or director of the
Company shall be deemed to Beneficially Own any securities of any other Person
by virtue of any actions such officer or director takes in such capacity. For
purposes of this Agreement, any calculation of the number of shares of Common
Stock outstanding at any time, including for purposes of determining the
percentage of the outstanding shares of Common Stock with respect to which a
Person is the Beneficial Owner, shall be made in accordance with the provisions
of Rule 13d-3(d)(1) under the Securities Exchange Act.

     "Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in Atlanta, Georgia are generally authorized or
obligated by law or executive order to close.

     "Close of Business" on any given date shall mean 5:00 p.m. Atlanta, Georgia
time on such date (or, if such date is not a Business Day, 5:00 p.m. Atlanta,
Georgia time on the next succeeding Business Day).

     "Common Stock" shall mean the shares of Common Stock, no par value, of the
Company.

     "Exchange Time" shall mean the time at which the right to exercise the
Rights shall terminate pursuant to Section 3.1(c).

     "Exercise Price" shall mean, as of any date, the price at which a holder
may purchase the securities issuable upon exercise of one whole Right. Until
adjustment thereof in accordance with the terms hereof, the Exercise Price shall
equal $____.

     "Expiration Time" shall mean the earliest of (i) the Exchange Time, (ii)
the Redemption Time, (iii)____________, 2010 and (iv) the time of a merger of
the Company into another corporation pursuant to an agreement entered into prior
to a Flip-In Date.

     "Flip-In Date" shall mean the tenth Business Day after any Stock
Acquisition Date or such earlier or later date as the Board of Directors of the
Company may from time to time fix by resolution adopted prior to the Flip-In
Date that would otherwise have occurred.

                                      -2-
<PAGE>

     "Flip-Over Entity" for purposes of Section 3.2, shall mean (i) in the case
of a Flip-Over Transaction or Event described in clause (i) of the definition
thereof, the Person issuing any securities into which shares of Common Stock are
being converted or exchanged and, if no such securities are being issued, any
other party to such Flip-Over Transaction or Event and (ii) in the case of a
Flip-Over Transaction or Event referred to in clause (ii) of the definition
thereof, the Person receiving the greatest portion of the assets or earning
power being transferred in such Flip-Over Transaction or Event; provided in all
cases if such Person is a Subsidiary of another Person, the ultimate controlling
Person that is not an individual shall be the Flip-Over Entity.

     "Flip-Over Stock" shall mean the capital stock (or similar equity interest)
with the greatest voting power in respect of the election of directors (or other
Persons similarly responsible for direction of the business and affairs) of the
Flip-Over Entity.

     "Flip-Over Transaction or Event" shall mean a transaction or series of
transactions after a Flip-In Date in which, directly or indirectly, (i) the
Company shall consolidate or merge or participate in a share exchange with any
other Person if, at the time of the consolidation, merger or share exchange or
at the time the Company enters into any agreement with respect to any such
consolidation, merger or share exchange, the Acquiring Person Controls the Board
of Directors of the Company and either (A) any term of or arrangement concerning
the treatment of shares of capital stock in such consolidation, merger or share
exchange relating to the Acquiring Person is not identical to the terms and
arrangements relating to other holders of the Common Stock or (B) the Person
with whom the transaction or series of transactions occurs is the Acquiring
Person or an Affiliate or Associate of the Acquiring Person or (ii) the Company
shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell
or otherwise transfer) assets (A) aggregating more than 50% of the assets
(measured by either book value or fair market value) or (B) generating more than
50% of the operating income or cash flow, of the Company and its Subsidiaries
(taken as a whole) to any Person (other than the Company or one or more of its
wholly owned Subsidiaries) or to two or more such Persons which are Affiliates
or Associates or otherwise acting in concert, if, at the time of the entry by
the Company (or any such Subsidiary) into an agreement with respect to such sale
or transfer of assets, the Acquiring Person Controls the Board of Directors of
the Company. An Acquiring Person shall be deemed to "Control" the Company's
Board of Directors when, following a Flip-In Date, the Persons who were
directors of the Company before the Flip-In Date shall cease to constitute a
majority of the Company's Board of Directors.

     "Market Price" per share of any securities on any date shall mean the
average of the daily closing prices per share of such securities (determined as
described below) on each of the 20 consecutive Trading Days through and
including the Trading Day immediately preceding such date; provided, however,
that if an event of a type analogous to any of the events described in Section
2.4 shall have caused the closing prices used to determine the Market Price on
any Trading Days during such period of 20 Trading Days not to be fully
comparable with the closing price on such date, each such closing price so used
shall be appropriately adjusted in order to make it fully comparable with the
closing price on such date. The closing price per share of any securities on any
date shall be the last reported sale price, regular way, or, in case no such
sale takes place or is quoted on such date, the average of the closing bid and
asked prices, regular way, for each share of such securities, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange, Inc.
or, if the securities are not listed or admitted to trading on the New York
Stock Exchange, Inc., as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the securities are listed or admitted to trading
or, if the securities are not listed or admitted to trading on any national
securities exchange, as reported by The Nasdaq Stock Market, Inc.'s Nasdaq
National Market or such other system then in use, or, if on any such date the
securities are not listed or admitted to trading on any national securities
exchange or quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
securities selected by the Board of Directors of the Company; provided, however,
that if on any such date the securities are not listed or admitted to trading on
a national securities exchange or traded in the over-the-counter market, the
closing price per share of such securities on such date shall mean the fair
value per share of securities on such date as determined in good faith by the
Board of Directors of the Company, after consultation with a nationally
recognized investment banking firm, and set forth in a certificate delivered to
the Rights Agent.

                                      -3-
<PAGE>

     "Person" shall mean any individual, firm, partnership, association, group
(as such term is used in Rule 13d-5 under the Securities Exchange Act, as such
Rule is in effect on the date of this Agreement), corporation or other entity.

     "Preferred Stock" shall mean the Series A Junior Participating Preferred
Stock, no par value, of the Company created by the Articles of Amendment in
substantially the form set forth in Exhibit B hereto, appropriately completed.
                                    ---------

     "Redemption Price" shall be an amount equal to one cent ($0.01)

     "Redemption Time" shall mean the time at which the right to exercise the
Rights shall terminate pursuant to Section 5.1 hereof.

     "Separation Time" shall mean the Close of Business on the earlier of (i)
the tenth Business Day (or such later date as the Board of Directors of the
Company may from time to time fix by resolution adopted prior to the Separation
Time that would otherwise have occurred) after the date on which any Person
commences a tender or exchange offer which, if consummated, would result in such
Person's becoming an Acquiring Person and (ii) the Flip-In Date; provided, that
if the foregoing results in the Separation Time being prior to the Record Time,
the Separation Time shall be the Record Time and provided further, that if any
tender or exchange offer referred to in clause (i) of this paragraph is
canceled, terminated or otherwise withdrawn prior to the Separation Time without
the purchase of any shares of Common Stock pursuant thereto, such offer shall be
deemed, for purposes of this paragraph, never to have been made.

     "Stock Acquisition Date" shall mean the first date of public announcement
by the Company (by any means) that an Acquiring Person has become such.

     "Subsidiary" of any specified Person shall mean any corporation or other
entity of which a majority of the voting power of the equity securities or a
majority of the equity interests is Beneficially Owned, directly or indirectly,
by such Person.

     "Trading Day," when used with respect to any securities, shall mean a day
on which the New York Stock Exchange, Inc. is open for the transaction of
business or, if such securities are not listed or admitted to trading on the New
York Stock Exchange, Inc., a day on which the principal national securities
exchange on which such securities are listed or admitted to trading is open for
the transaction of business or, if such securities are not listed or admitted to
trading on any national securities exchange, a day on which The Nasdaq Stock
Market, Inc.'s Nasdaq National Market or such other system then in use is open
for the transaction of business or, if such securities are not listed or
admitted to trading on any national securities exchange or quoted on any such
system, a Business Day.

                                  ARTICLE II

                                  THE RIGHTS
                                  ----------

     2.1  Summary of Rights. As soon as practicable after the Record Time, the
          -----------------
Company will mail a letter summarizing the terms of the Rights to each holder of
record of Common Stock as of the Record Time, at such holder's address as shown
by the records of the Company.

     2.2  Issuance of Rights Certificates; Legend. (a) Certificates for the
          ---------------------------------------
Common Stock issued after the Record Time but prior to the Separation Time shall
evidence, in addition to the Common Stock represented by such certificate, one
Right for each share of Common Stock represented thereby and shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:

     "Until the Separation Time (as defined in the Rights Agreement referred to
     below), this certificate also evidences and entitles the holder hereof to
     certain Rights as set forth in a Shareholder Protection Rights Agreement
     (as such may be amended from time to time, the "Rights Agreement"), between
     Global Payments Inc. (the "Company") and SunTrust Bank, Atlanta, as

                                      -4-
<PAGE>

     Rights Agent, the terms of which are hereby incorporated herein by
     reference and a copy of which is on file at the principal executive offices
     of the Company. Under certain circumstances, as set forth in the Rights
     Agreement, such Rights may be redeemed, may become exercisable for
     securities or assets of the Company or of another entity, may be exchanged
     for shares of Common Stock or other securities or assets of the Company,
     may expire, may become void (if they are "Beneficially Owned" by an
     "Acquiring Person" or an Affiliate or Associate thereof, as such terms are
     defined in the Rights Agreement, or by any transferee of any of the
     foregoing) or may be evidenced by separate certificates and may no longer
     be evidenced by this certificate. The Company will mail or arrange for the
     mailing of a copy of the Rights Agreement to the holder of this certificate
     without charge promptly after the receipt of a written request therefor."

Certificates representing shares of Common Stock that are issued and outstanding
at the Record Time shall evidence, in addition to the Common Stock represented
by such certificate, one Right for each share of Common Stock evidenced thereby
notwithstanding the absence of the foregoing legend.

     (b)  Subject to Sections 2.4 and 5.3, one Right shall be issued in respect
of (i) each share of Common Stock outstanding as of the Record Time and (ii)
each additional share of Common Stock that becomes outstanding (whether by
original issuance or out of treasury, but other than in a transaction
contemplated by Section 2.4) after the Record Time but prior to the Separation
Time. To the extent provided in Section 5.3, Rights shall be issued by the
Company in respect of shares of Common Stock that are issued or sold by the
Company after the Separation Time.

     2.3  Exercise of Rights; Separation of Rights. (a) Subject to Sections 3.1,
          ----------------------------------------
5.1 and 5.10 and subject to adjustment as herein set forth, each Right will
entitle the holder thereof, after the Separation Time and prior to the
Expiration Time, to purchase, for the Exercise Price, one thousandth (1/1000th)
of a share of Preferred Stock.

     (b)  Until the Separation Time, (i) no Right may be exercised and (ii) each
Right will be evidenced by the certificate that evidences the share of Common
Stock with which it is associated (together, in the case of certificates issued
prior to the Record Time, with the letter or notice mailed to the record holder
thereof pursuant to Section 2.1) and will be transferable only together with,
and will be transferred by a transfer (whether with or without such letter or
notice) of, such associated share of Common Stock, and the surrender for
transfer of any certificates representing outstanding Common Stock will also
constitute the surrender for transfer of the Rights associated with the Common
Stock represented by such certificate.

     (c)  Subject to this Section 2.3 and to Sections 3.1, 5.1 and 5.10, after
the Separation Time and prior to the Expiration Time, the Rights (i) may be
exercised and (ii) may be transferred independently of shares of Common Stock.
Promptly following the Separation Time, the Rights Agent will mail to each
holder of record of Common Stock as of the Separation Time (other than any
Person whose Rights have become void pursuant to Section 3.1(b)), at such
holder's address as shown by the records of the Company (the Company hereby
agreeing to furnish copies of such records to the Rights Agent for this
purpose), (x) a certificate (a "Rights Certificate") in substantially the form
of Exhibit A hereto appropriately completed, representing the number of Rights
   ---------
held by such holder at the Separation Time and having such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any national securities exchange or quotation system on which the
Rights may from time to time be listed or traded, or to conform to usage, and
(y) a disclosure statement describing the Rights.

     (d)  Subject to Sections 3.1, 5.1 and 5.10, Rights may be exercised on any
Business Day after the Separation Time and prior to the Expiration Time by
submitting to the Rights Agent the Rights Certificate evidencing such Rights
with an Election to Exercise (an "Election to Exercise") substantially in the
form attached to the Rights Certificate, duly completed, accompanied by payment
by certified or official bank check or money order payable to the order of the
Company, of a sum equal to the Exercise Price multiplied by the number of Rights
being exercised and a sum sufficient to cover any transfer tax or charge that
may be payable in respect of any transfer involved in the transfer or delivery
of Rights Certificates or the issuance or delivery of certificates for shares or
depositary receipts (or both) in a name other than that of the holder of the
Rights being exercised.

                                      -5-
<PAGE>

     (e)  Upon receipt of a Rights Certificate, with an Election to Exercise
accompanied by payment as set forth in Section 2.3(d), and subject to Sections
3.1, 5.1 and 5.10, the Rights Agent promptly will (i)(A) requisition from the
Company's transfer agent(s) stock certificates evidencing such number of shares
or other securities to be purchased (the Company hereby irrevocably authorizing
its transfer agents to comply with all such requisitions) and (B) if the Company
elects pursuant to Section 5.5 not to issue certificates representing fractional
shares, requisition from the depositary selected by the Company depositary
receipts representing the fractional shares to be purchased or requisition from
the Company the amount of cash to be paid in lieu of fractional shares in
accordance with Section 5.5 and (ii) after receipt of such certificates,
depositary receipts and/or cash, deliver the same to or upon the order of the
registered holder of such Rights Certificate, registered (in the case of
certificates or depositary receipts) in such name or names as may be designated
by such holder. In the event that the Company elects pursuant to Section 3.1(e)
to issue other securities and/or assets of the Company upon exercise of the
Rights, the Company will make all arrangements necessary so that such other
securities and/or assets of the Company are available for distribution by the
Rights Agent, if and when appropriate.

     (f)  In case the holder of any Rights shall exercise less than all the
Rights evidenced by such holder's Rights Certificate, a new Rights Certificate
evidencing the Rights remaining unexercised will be issued by the Rights Agent
to such holder or to such holder's duly authorized assigns.

     (g)  The Company covenants and agrees that it will (i) take all such action
as may be necessary to ensure that all shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such shares (subject to
payment of the Exercise Price), be duly and validly authorized, executed, issued
and delivered and fully paid and nonassessable; (ii) take all such action as may
be necessary to comply with any applicable requirements of the Securities Act of
1933, as amended, or the Securities Exchange Act, and the rules and regulations
thereunder, and any other applicable law, rule or regulation, in connection with
the issuance of any shares upon exercise of Rights; and (iii) pay when due and
payable any and all federal and state transfer taxes and charges that may be
payable in respect of the original issuance or delivery of the Rights
Certificates or of any shares issued upon the exercise of Rights, provided that
the Company shall not be required to pay any transfer tax or charge that may be
payable in respect of any transfer involved in the transfer or delivery of
Rights Certificates or the issuance or delivery of certificates for shares in a
name other than that of the holder of the Rights being transferred or exercised.

     2.4  Adjustments to Exercise Price; Number of Rights. (a) In the event the
          -----------------------------------------------
Company shall at any time after the Record Time and prior to the Separation Time
(i) declare or pay a dividend on Common Stock payable in Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares of Common Stock, (x) the Exercise Price in
effect after such adjustment will be equal to the Exercise Price in effect
immediately prior to such adjustment divided by the number of shares of Common
Stock (the "Expansion Factor") that a holder of one share of Common Stock
immediately prior to such dividend, subdivision or combination would hold
thereafter as a result thereof (assuming for such purpose that the Company would
issue a fraction of a share of Common Stock, as applicable, and without giving
effect to any requirement that cash be paid in lieu of the issuance of any
fractional share interest) and (y) each Right held prior to such adjustment will
become that number of Rights equal to the Expansion Factor, and the adjusted
number of Rights will be deemed to be distributed among the shares of Common
Stock with respect to which the original Rights were associated (if they remain
outstanding) and the shares issued in respect of such dividend, subdivision or
combination, so that each such share of Common Stock will have exactly one Right
associated with it. Each adjustment made pursuant to this paragraph shall be
made as of the payment or effective date for the applicable dividend,
subdivision or combination.

     (b)  In the event the Company shall at any time after the Record Time and
prior to the Separation Time issue or distribute any securities or assets in
respect of, in lieu of or in exchange for Common Stock (other than pursuant to a
regular periodic cash dividend or a dividend paid solely in Common Stock)
whether by dividend, in a reclassification or recapitalization (including any
such transaction involving a merger, consolidation or share exchange), or
otherwise, the Company shall make such adjustments, if any, in the Exercise
Price, number of Rights and/or securities or other property purchasable upon
exercise of Rights as the Board of Directors of the Company, in its sole
discretion, may deem to be appropriate under the circumstances in order to
adequately protect the interests of the holders of Rights generally, and the
Company and the Rights Agent shall amend this Agreement as necessary to provide
for such adjustments.

                                      -6-
<PAGE>

     (c)  Each adjustment to the Exercise Price made pursuant to this Section
2.4 shall be calculated to the nearest cent. Whenever an adjustment to the
Exercise Price is made pursuant to this Section 2.4, the Company shall (i)
promptly prepare a certificate setting forth such adjustment and a brief
statement of the facts accounting for such adjustment and (ii) promptly file
with the Rights Agent and with each transfer agent for the Common Stock a copy
of such certificate. The Rights Agent shall be fully protected in relying on any
such certificate and on any adjustment therein and shall not be deemed to have
knowledge of any such adjustment unless and until it shall have received such a
certificate.

     Rights Certificates shall represent the right to purchase the
securities purchasable under the terms of this Agreement, including any
adjustment or change in the securities purchasable upon exercise of the Rights,
even though such certificates may continue to express the right to purchase the
securities purchasable at the time of issuance of the initial Rights
Certificates.

     2.5  Date on Which Exercise is Effective. Each person in whose name any
          -----------------------------------
certificate for shares is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of the shares represented
thereby on the date upon which the Rights Certificate evidencing such Rights was
duly surrendered and payment of the Exercise Price for such Rights (and any
applicable taxes and other governmental charges payable by the exercising holder
hereunder) was made; provided, however, that if the date of such surrender and
payment is a date upon which the stock transfer books of the Company are closed,
such person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the stock transfer books of the Company are open.

     2.6  Execution, Authentication, Delivery and Dating of Rights Certificates.
          ---------------------------------------------------------------------
(a) The Rights Certificates shall be executed on behalf of the Company by its
Chairman of the Board, Chief Executive Officer, President or one of its Vice
Presidents, under its corporate seal reproduced thereon and attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Rights Certificates may be manual or facsimile.

     Rights Certificates bearing the manual or facsimile signatures of
individuals who were at the time of such signature the proper officers of the
Company shall bind the Company, notwithstanding that such individuals or any of
them have ceased to hold such offices prior to the countersignature and delivery
of such Rights Certificates.

     Promptly after the Separation Time, the Company will notify the Rights
Agent of such Separation Time and will deliver Rights Certificates executed by
the Company to the Rights Agent for countersignature, and, subject to Section
3.1(b), an authorized signatory of the Rights Agent shall manually countersign
and deliver such Rights Certificates to the holders of the Rights pursuant to
Section 2.3(c). No Rights Certificate shall be valid for any purpose unless
manually countersigned by an authorized signatory of the Rights Agent.

     (b)  Each Rights Certificate shall be dated the date of countersignature
thereof.

     2.7  Registration, Registration of Transfer and Exchange. (a) After the
          ---------------------------------------------------
Separation Time, the Company will cause to be kept a register (the "Rights
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company will provide for the registration and transfer of Rights. The Rights
Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the
Rights Register for the Company and registering Rights and transfers of Rights
after the Separation Time as herein provided. In the event that the Rights Agent
shall cease to be the Rights Registrar, the Rights Agent will have the right to
examine the Rights Register at all reasonable times after the Separation Time.

     After the Separation Time and prior to the Expiration Time, upon surrender
for registration of transfer or exchange of any Rights Certificate, and subject
to the provisions of this Section 2.7(a) and Sections 2.7(c) and 2.7(d), the
Company will execute and the Rights Agent will countersign and deliver, in the
name of the holder or the designated transferee or transferees, as required
pursuant to the holder's instructions, one or more new Rights Certificates
evidencing the same aggregate number of Rights as did the Rights Certificate so
surrendered.

                                      -7-
<PAGE>

     (b)  Except as otherwise provided in Section 3.1(b), all Rights issued
upon any registration of transfer or exchange of Rights Certificates shall be
the valid obligations of the Company, and such Rights shall be entitled to the
same benefits under this Agreement as the Rights surrendered upon such
registration of transfer or exchange.

     (c)  Every Rights Certificate surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company or the Rights Agent, as the case
may be, duly executed by the holder thereof or such holder's attorney duly
authorized in writing. Neither the Rights Agent nor the Company shall be
obligated to take any action whatsoever with respect to the transfer of any such
surrendered Rights Certificates until the registered holder shall have completed
and signed the certificate contained in the form of assignment on the reverse
side of such Rights Certificate and shall have provided such additional evidence
of the identity of the Beneficial Owner (or former Beneficial Owner) thereof, or
the Affiliates or Associates of such Beneficial Owner (or former Beneficial
Owner), as the Company shall reasonably request. As a condition to the issuance
of any new Rights Certificate under this Section 2.7, the Company may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto.

     (d)  The Company shall not be required to register the transfer or exchange
of any Rights after such Rights have become void under Section 3.1(b), been
exchanged under Section 3.1(c) or been redeemed under Section 5.1.

     2.8  Mutilated, Destroyed, Lost and Stolen Rights Certificates. (a) If any
          ---------------------------------------------------------
mutilated Rights Certificate is surrendered to the Rights Agent prior to the
Expiration Time, then, subject to Sections 3.1(b), 3.1(c) and 5.1, the Company
shall execute and the Rights Agent shall countersign and deliver in exchange
therefor a new Rights Certificate evidencing the same number of Rights as did
the Rights Certificate so surrendered.

     (b)  If there shall be delivered to the Company and the Rights Agent prior
to the Expiration Time (i) evidence to their satisfaction of the destruction,
loss or theft of any Rights Certificate and (ii) such security or indemnity as
may be required by them to save each of them and any of their agents harmless,
then, subject to Sections 3.1(b), 3.1(c) and 5.1 and in the absence of notice to
the Company or the Rights Agent that such Rights Certificate has been acquired
by a bona fide purchaser, the Company shall execute and upon its request the
Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost
or stolen Rights Certificate, a new Rights Certificate evidencing the same
number of Rights as did the Rights Certificate so destroyed, lost or stolen.

     (c)  As a condition to the issuance of any new Rights Certificate under
this Section 2.8, the Company 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 Rights
Agent) connected therewith.

     (d)  Every new Rights Certificate issued pursuant to this Section 2.8 in
lieu of any destroyed, lost or stolen Rights Certificate shall evidence an
original additional contractual obligation of the Company, whether or not the
destroyed, lost or stolen Rights Certificate shall be at any time enforceable by
anyone, and, subject to Section 3.1(b), shall be entitled to all the benefits of
this Agreement equally and proportionately with any and all other Rights duly
issued hereunder.

     2.9  Persons Deemed Owners. Prior to due presentment of a Rights
          ---------------------
Certificate (or, prior to the Separation Time, the associated Common Stock
certificate) for registration of transfer, the Company, the Rights Agent and any
agent of the Company or the Rights Agent may deem and treat the person in whose
name such Rights Certificate (or, prior to the Separation Time, such Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby for all purposes whatsoever, and neither the Company nor the
Rights Agent shall be affected by any notice to the contrary. As used in this
Agreement, unless the context otherwise requires, the term "holder" of any
Rights shall mean the registered holder of such Rights (or, prior to the
Separation Time, the associated shares of Common Stock).

     2.10 Delivery and Cancellation of Certificates. All Rights Certificates
          -----------------------------------------
surrendered upon exercise or for registration of transfer or exchange shall, if
surrendered to any Person other than the Rights Agent, be delivered to the
Rights Agent and, in any case, shall be promptly canceled by the Rights Agent.

                                      -8-
<PAGE>

The Company may at any time deliver to the Rights Agent for cancellation any
Rights Certificates previously countersigned and delivered hereunder which the
Company may have acquired in any manner whatsoever, and all Rights Certificates
so delivered shall be promptly canceled by the Rights Agent. No Rights
Certificates shall be countersigned in lieu of or in exchange for any Rights
Certificates canceled as provided in this Section 2.10, except as expressly
permitted by this Agreement. The Rights Agent shall return all canceled Rights
Certificates to the Company.

     2.11 Agreement of Rights Holders. Every holder of a Right by accepting the
          ---------------------------
same consents and agrees with the Company and the Rights Agent and with every
other holder of a Right that:

     (a)  prior to the Separation Time, each Right will be transferable only
together with, and will be transferred by a transfer of, the associated share of
Common Stock;

     (b)  after the Separation Time, the Rights Certificates will be
transferable only on the Rights Register as provided herein;

     (c)  prior to due presentment of a Rights Certificate (or, prior to the
Separation Time, the associated Common Stock certificate) for registration of
transfer, the Company, the Rights Agent and any agent of the Company or the
Rights Agent may deem and treat the person in whose name the Rights Certificate
(or, prior to the Separation Time, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby for
all purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary;

     (d)  Rights beneficially owned by certain Persons will, under the
circumstances set forth in Section 3.1(b), become void;

     (e)  this Agreement may be supplemented or amended from time to time
pursuant to Section 2.4(b) or 5.4; and

     (f)  notwithstanding anything in this Agreement to the contrary, neither
the Company nor the Rights Agent shall have any liability to any holder of a
Right or other Person as a result of the Rights Agent's inability to perform any
of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.

                                  ARTICLE III

                         ADJUSTMENTS TO THE RIGHTS IN
                       THE EVENT OF CERTAIN TRANSACTIONS
                       ---------------------------------
     3.1  Flip-In. (a) In the event that prior to the Expiration Time a Flip-In
          -------
Date shall occur, except as provided in this Section 3.1, each Right shall
constitute the right to purchase from the Company, upon exercise thereof in
accordance with the terms hereof (but subject to Section 5.10), that number of
shares of Common Stock having an aggregate Market Price on the Stock Acquisition
Date equal to twice the Exercise Price for an amount in cash equal to the
Exercise Price (such right to be appropriately adjusted in order to protect the
interests of the holders of Rights generally in the event that on or after such
Stock Acquisition Date an event of a type analogous to any of the events
described in Section 2.4(a) or (b) shall have occurred with respect to the
Common Stock).

     (b)  Notwithstanding the foregoing, any Rights that are or were
Beneficially Owned on or after the Stock Acquisition Date by an Acquiring Person
or an Affiliate or Associate thereof or by any transferee, direct or indirect,
of any of the foregoing shall become void and any holder of such Rights
(including transferees) shall thereafter have no right to exercise or transfer
such Rights under any provision of this Agreement. If any Rights Certificate is
presented for assignment or exercise and the Person presenting the same will not
complete the

                                      -9-
<PAGE>

certification set forth at the end of the form of assignment or notice of
election to exercise and provide such additional evidence of the identity of the
Beneficial Owner and its Affiliates and Associates (or former Beneficial Owners
and their Affiliates and Associates) as the Company shall reasonably request,
then the Company shall be entitled conclusively to deem the Beneficial Owner
thereof to be an Acquiring Person or an Affiliate or Associate thereof or a
transferee of any of the foregoing and accordingly will deem the Rights
evidenced thereby to be void and not transferable or exercisable.

     (c)  The Board of Directors of the Company may, at its option, at any time
after a Flip-In Date and prior to the time that an Acquiring Person becomes the
Beneficial Owner of more than 50% of the outstanding shares of Common Stock,
elect to exchange all (but not less than all) the then-outstanding Rights (other
than Rights that have become void pursuant to the provisions of Section 3.1(b))
for shares of Common Stock at an exchange ratio of one share of Common Stock per
Right (appropriately adjusted in order to protect the interests of holders of
Rights generally in the event that after the Separation Time an event of a type
analogous to any of the events described in Section 2.4(a) or (b) shall have
occurred with respect to the Common Stock) (such exchange ratio, as adjusted
from time to time, being hereinafter referred to as the "Exchange Ratio").

     Immediately upon the action of the Board of Directors of the Company
electing to exchange the Rights, without any further action and without any
notice, the right to exercise the Rights will terminate and each Right (other
than Rights that have become void pursuant to Section 3.1(b)) will thereafter
represent only the right to receive a number of shares of Common Stock equal to
the Exchange Ratio. Promptly after the action of the Board of Directors of the
Company electing to exchange the Rights, the Company shall give notice thereof
(specifying the steps to be taken to receive shares of Common Stock in exchange
for Rights) to the Rights Agent and the holders of the Rights (other than Rights
that have become void pursuant to Section 3.1(b)) outstanding immediately prior
thereto by mailing such notice in accordance with Section 5.9.

     Each Person in whose name any certificate for shares is issued upon the
exchange of Rights pursuant to this Section 3.1(c) or Section 3.1(e) shall for
all purposes be deemed to have become the holder of record of the shares
represented thereby on, and such certificate shall be dated, the date upon which
the Rights Certificate evidencing such Rights was duly surrendered and payment
of any applicable taxes and other governmental charges payable by the holder was
made; provided, however, that if the date of such surrender and payment is a
date upon which the stock transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares on, and such
Certificate shall be dated, the next succeeding Business Day on which the stock
transfer books of the Company are open.

     (d)  Whenever the Company shall become obligated under Section 3.1(a) or
(c) to issue shares of Common Stock upon exercise of or in exchange for Rights,
the Company, at its option, may substitute therefor shares of Preferred Stock,
at a ratio of one thousandth (1/1000th) of a share of Preferred Stock for each
share of Common Stock so issuable.

     (e)  In the event that there shall not be sufficient treasury shares or
authorized but unissued shares of Common Stock or Preferred Stock of the Company
to permit the exercise or exchange in full of the Rights in accordance with
Section 3.1(a) or (c), the Company shall either (i) call a meeting of
shareholders seeking approval to cause sufficient additional shares to be
authorized (provided that if such approval is not obtained the Company will take
the action specified in clause (ii) of this sentence) or (ii) take such action
as shall be necessary to ensure and provide, to the extent permitted by
applicable law and any agreements or instruments in effect on the Stock
Acquisition Date to which it is a party, that each Right shall thereafter
constitute the right to receive, (x) at the Company's option, either (A) in
return for the Exercise Price, cash, debt or equity securities or other assets
(or a combination thereof) having a fair value equal to twice the Exercise
Price, or (B) without payment of consideration (except as otherwise required by
applicable law), cash, debt or equity securities or other assets (or a
combination thereof) having a fair value equal to the Exercise Price, or (y) if
the Board of Directors of the Company elects to exchange the Rights in
accordance with Section 3.1(c), debt or equity securities or other assets (or a
combination thereof) having a fair value equal to the product of the Market
Price of a share of Common Stock on the Flip-In Date times the Exchange Ratio in
effect on the Flip-In Date, where in any case set forth in (x) or (y) above the
fair value of such debt or equity securities or other assets shall be as
determined in good faith by the Board of Directors of the Company, after
consultation with a nationally recognized investment banking firm.

                                      -10-
<PAGE>

     3.2   Flip-Over. (a) Prior to the Expiration Time, the Company shall not
           ---------
enter into any agreement with respect to, consummate or permit to occur any
Flip-Over Transaction or Event unless and until it shall have entered into a
supplemental agreement with the Flip-Over Entity, for the benefit of the holders
of the Rights (other than holders of Rights that have become void pursuant to
Section 3.1(b)), providing that, upon consummation or occurrence of the
Flip-Over Transaction or Event (i) each Right (other than Rights that have
become void pursuant to Section 3.1(b)) shall thereafter constitute the right to
purchase from the Flip-Over Entity, upon exercise thereof in accordance with the
terms hereof, that number of shares of Flip-Over Stock of the Flip-Over Entity
having an aggregate Market Price on the date of consummation or occurrence of
such Flip-Over Transaction or Event equal to twice the Exercise Price for an
amount in cash equal to the Exercise Price (such right to be appropriately
adjusted in order to protect the interests of the holders of Rights generally
(other than holders of Rights that have become void pursuant to Section 3.1(b))
in the event that after such date of consummation or occurrence an event of a
type analogous to any of the events described in Section 2.4(a) or (b) shall
have occurred with respect to the Flip-Over Stock) and (ii) the Flip-Over Entity
shall thereafter be liable for, and shall assume, by virtue of such Flip-Over
Transaction or Event and such supplemental agreement, all the obligations and
duties of the Company pursuant to this Agreement. The provisions of this Section
3.2 shall apply to successive Flip-Over Transactions or Events.

     (b)   Prior to the Expiration Time, unless the Rights will be redeemed
pursuant to Section 5.1 in connection therewith, the Company shall not enter
into any agreement with respect to, consummate or permit to occur any Flip-Over
Transaction or Event if at the time thereof there are any rights, warrants or
securities outstanding or any other arrangements, agreements or instruments that
would eliminate or otherwise diminish in any material respect the benefits
intended to be afforded by this Rights Agreement to the holders of Rights upon
consummation of such transaction.

                                   ARTICLE IV

                                THE RIGHTS AGENT
                                ----------------

     4.1   General. (a) The Company hereby appoints the Rights Agent to act as
           -------
agent for the Company in accordance with the terms and conditions hereof, and
the Rights Agent hereby accepts such appointment. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent, its directors,
officers, employees and agents for, and to hold each of them harmless against,
any loss, liability, or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent or such other indemnified
party, for anything done or suffered or omitted to be done by the Rights Agent
in connection with the acceptance and administration of this Agreement or the
exercise or performance of its duties hereunder, including the costs and
expenses of defending against any claim of liability. The indemnity provided in
this Section 4.1(a) shall survive the expiration of the Rights and the
termination of this Agreement.

     (b)   The Rights Agent shall be fully protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement or the exercise or
performance of its duties hereunder in reliance upon any certificate for
securities purchasable upon exercise of Rights, Rights Certificate, certificate
for other securities of the Company, instrument of assignment or transfer, power
of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons.

     4.2   Merger or Consolidation or Change of Name of Rights Agent. (a) Any
           ---------------------------------------------------------
Person into which the Rights Agent or any successor Rights Agent may be merged
or with which it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Rights Agent or any successor Rights Agent
is a party, or any corporation succeeding to the shareholder services business
of the Rights Agent or any successor Rights Agent, will be the successor to the
Rights Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto, provided that such
Person would be eligible for appointment as a successor Rights Agent under the
provisions of Section 4.4. In case at the time such successor Rights Agent

                                      -11-
<PAGE>

succeeds to the agency created by this Agreement any of the Rights Certificates
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Rights Certificates so countersigned; and in case at that time any of the Rights
Certificates have not been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates will have the full force provided in the Rights
Certificates and in this Agreement.

     (b)   In case at any time the name of the Rights Agent is changed and at
such time any of the Rights Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, the Rights Agent
may countersign such Rights Certificates either in its prior name or in its
changed name; and in all such cases such Rights Certificates shall have the full
force provided in the Rights Certificates and in this Agreement.

     4.3   Duties of Rights Agent. The Rights Agent undertakes the duties and
           ----------------------
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Rights Certificates, by their
acceptance thereof, shall be bound:

     (a)   The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the advice or opinion of such counsel will be full
and complete authorization and protection to the Rights Agent as to any action
taken, suffered or omitted by it in good faith and in accordance with such
advice or opinion.

     (b)   Whenever in the performance of its duties under this Agreement the
Rights Agent deems it necessary or desirable that any fact or matter be proved
or established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by a person believed by the Rights Agent to be the
Chairman of the Board, the Chief Executive Officer, the President or any Vice
President, the Chief Financial Officer, the Treasurer or any Assistant Treasurer
or the Secretary or any Assistant Secretary of the Company and delivered to the
Rights Agent; and such certificate will be full authorization to the Rights
Agent for any action taken, suffered or omitted in good faith by it under the
provisions of this Agreement in reliance upon such certificate.

     (c)   The Rights Agent will be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.

     (d)   The Rights Agent will not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the
certificates for securities purchasable upon exercise of Rights or the Rights
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and will be deemed to have been
made by the Company only.

     (e)   The Rights Agent will not be under any responsibility in respect of
the validity of any provision of this Agreement or the execution and delivery
hereof (except the due authorization, execution and delivery hereof by the
Rights Agent) or in respect of the validity or execution of any certificate for
securities purchasable upon exercise of Rights or Rights Certificate (except its
countersignature thereof); nor will it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor will it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant to
Section 3.1(b)) or any adjustment required under any provision of this Agreement
or responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights after receipt of the certificate
contemplated by Section 2.4 describing any such adjustment); nor will it by any
act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any securities purchasable upon exercise of
Rights or any Rights or as to whether any securities purchasable upon exercise
of Rights will, when issued, be duly and validly authorized, executed, issued
and delivered and fully paid and nonassessable.

                                      -12-
<PAGE>

     (f)   The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.

     (g)   The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person believed by the Rights Agent to be the Chairman of the Board, the Chief
Executive Officer, the President, the Chief Financial Officer, or any Vice
President or the Secretary or any Assistant Secretary or the Treasurer or any
Assistant Treasurer of the Company, and to apply to such persons for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken, suffered or omitted by it in good faith in accordance with
instructions of any such person, or for any delay in acting while awaiting
instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken, suffered or omitted by the Rights Agent under this
Agreement and the date on or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for any action
taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
any officer of the Company actually receives such application, unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken, suffered or omitted.

     (h)   The Rights Agent and any shareholder, director, officer or employee
of the Rights Agent may buy, sell or deal in Common Stock, Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other Person.

     (i)   The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent will not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided the Rights Agent was not grossly negligent in
the selection and continued employment thereof.

     (j)   The Rights Agent undertakes only the express duties and obligations
imposed on it by this Agreement and no implied duties or obligations shall be
read into this Agreement against the Rights Agent.

     (k)   Anything in this Agreement to the contrary notwithstanding, in no
event shall the Rights Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits).

     (l)   No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.

     4.4   Change of Rights Agent. The Rights Agent may resign and be discharged
           ----------------------
from its duties under this Agreement upon 90 days notice (or such lesser notice
as is acceptable to the Company) in writing mailed to the Company and to each
transfer agent of Common Stock by registered or certified mail, and to the
holders of the Rights in accordance with Section 5.9. The Company may remove the
Rights Agent upon 30 days notice in writing, mailed to the Rights Agent and to
each transfer agent of the Common Stock by registered or certified mail, and to
the holders of the Rights in accordance with Section 5.9. If the Rights Agent
should resign or be removed or otherwise become incapable of acting, the Company
will appoint a successor to the Rights Agent. If the Company fails to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of any Rights (which holder shall,
with such notice, submit such holder's Rights Certificate for inspection by the
Company), then the holder of

                                      -13-
<PAGE>

any Rights may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a corporation organized and doing
business under the laws of the United States or of the State of Georgia or any
other State of the United States, in good standing, which is authorized under
such laws to exercise the powers of the Rights Agent contemplated by this
Agreement and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $100,000,000 or (b) an Affiliate of a
corporation described in the immediately preceding clause (a). After
appointment, the successor Rights Agent will be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company will file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock, and mail a
notice thereof in writing to the holders of the Rights. Failure to give any
notice provided for in this Section 4.4, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.

                                    ARTICLE V

                                  MISCELLANEOUS
                                  -------------

     5.1   Redemption. (a) The Board of Directors of the Company may, at its
           ----------
option, at any time prior to the close of business on the Flip-In Date elect to
redeem all (but not less than all) of the then outstanding Rights at the
Redemption Price and the Company, at its option, may pay the Redemption Price,
either in cash or shares of Common Stock or other securities of the Company
deemed by the Board of Directors of the Company, in the exercise of its sole
discretion, to be at least equivalent in value to the Redemption Price.

     (b)   Immediately upon the action of the Board of Directors of the Company
electing to redeem the Rights (or, if the resolution of the Board of Directors
of the Company electing to redeem the Rights states that the redemption will not
be effective until the occurrence of a specified future time or event, upon the
occurrence of such future time or event), without any further action and without
any notice, the right to exercise the Rights will terminate and each Right will
thereafter represent only the right to receive the Redemption Price in cash or
securities,m as determined by the Board of Directors. Promptly after the Rights
are redeemed, the Company shall give notice of such redemption to the Rights
Agent and the holders of the then outstanding Rights by mailing such notice in
accordance with Section 5.9.

     5.2   Expiration. The Rights and this Agreement shall expire at the
           ----------
Expiration Time and no Person shall have any rights pursuant to this Agreement
or any Right after the Expiration Time, except, if the Rights are exchanged, as
provided in Section 3.1.

     5.3    Issuance of New Rights Certificates. Notwithstanding any of the
            -----------------------------------
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the number or kind or class of shares of stock purchasable upon exercise of
Rights made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of shares of Common Stock by the Company
following the Separation Time and prior to the Redemption Time or Expiration
Time pursuant to the terms of securities convertible or redeemable into shares
of Common Stock or to options, in each case issued or granted prior to, and
outstanding at, the Separation Time, the Company shall issue to the holders of
such shares of Common Stock, Rights Certificates representing the appropriate
number of Rights in connection with the issuance or sale of such shares of
Common Stock; provided, however, in each case, (i) no such Rights Certificate
shall be issued, if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Company or to the Person to whom such Rights
Certificates would be issued, (ii) no such Rights Certificates shall be issued
if, and to the extent that, appropriate adjustment shall have otherwise been
made in lieu of the issuance thereof, and (iii) the Company shall have no
obligation to distribute Rights Certificates to any Acquiring Person or
Affiliate or Associate of an Acquiring Person or any transferee of any of the
foregoing.

                                      -14-
<PAGE>

     5.4   Supplements and Amendments. The Company and the Rights Agent may
           --------------------------
from time to time supplement or amend this Agreement without the approval of any
holders of Rights (i) prior to the Close of Business on the Flip-In Date, in any
respect and (ii) after the Close of Business on the Flip-In Date, to make any
changes that the Company may deem necessary or desirable and that shall not
materially adversely affect the interests of the holders of Rights generally
(other than an Acquiring Person or an Affiliate or an Associate of an Acquiring
Person) or in order to cure any ambiguity or to correct or supplement any
provision contained herein that may be inconsistent with any other provisions
herein or otherwise defective. The Rights Agent will duly execute and deliver
any supplement or amendment hereto requested by the Company upon receipt of a
certificate from the Company that such supplement or amendment satisfies the
terms of the preceding sentence. Notwithstanding anything contained in this
Agreement to the contrary, no supplement or amendment that changes the rights
and duties of the Rights Agent under this Agreement shall be effective without
the consent of the Rights Agent.

     5.5   Fractional Shares. If the Company elects not to issue certificates
           -----------------
representing fractional shares upon exercise of Rights, the Company shall, in
lieu thereof, in the sole discretion of the Board of Directors, either (a)
evidence such fractional shares by depositary receipts issued pursuant to an
appropriate agreement between the Company and a depositary selected by it,
providing that each holder of a depositary receipt shall have all of the rights,
privileges and preferences to which such holder would be entitled as a
beneficial owner of such fractional share, or (b) sell such shares on behalf of
the holders of Rights and pay to the registered holder of such Rights the
appropriate fraction of price per share received upon such sale.

     5.6   Rights of Action. Subject to the terms of this Agreement (including
           ----------------
Section 3.1(b)), rights of action in respect of this Agreement, other than
rights of action vested solely in the Rights Agent, are vested in the respective
holders of the Rights; and any holder of any Rights, without the consent of the
Rights Agent or of the holder of any other Rights, may, on such holder's own
behalf and for such holder's own benefit and the benefit of other holders of
Rights, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, such holder's
right to exercise such holder's Rights in the manner provided in such holder's
Rights Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.

     5.7   Holder of Rights Not Deemed a Shareholder. No holder, as such, of any
           -----------------------------------------
Rights shall be entitled to vote, receive dividends or be deemed for any purpose
the holder of shares or any other securities which may at any time be issuable
on the exercise of such Rights, nor shall anything contained herein or in any
Rights Certificate be construed to confer upon the holder of any Rights, as
such, any of the rights of a shareholder of the Company or any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in Section 5.8), or to receive dividends or subscription rights, or
otherwise, until such Rights shall have been exercised or exchanged in
accordance with the provisions hereof.

     5.8   Notice of Proposed Actions. In case the Company shall propose after
           --------------------------
the Separation Time and prior to the Expiration Time (i) to effect or permit
occurrence of any Flip-Over Transaction or Event or (ii) to effect the
liquidation, dissolution or winding up of the Company, then, in each such case,
the Company shall give to each holder of a Right, in accordance with Section
5.9, a notice of such proposed action, which shall specify the date on which
such Flip-Over Transaction or Event, liquidation, dissolution, or winding up is
to take place, and such notice shall be so given at least 20 Business Days prior
to the date of the taking of such proposed action.

     5.9   Notices. Notices or demands authorized or required by this Agreement
           -------
to be given or made by the Rights Agent or by the holder of any Rights to or on
the Company shall be sufficiently given or made if delivered or sent by first-
class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:

                                      -15-
<PAGE>

         Global Payments Inc.
         Four Corporate Square
         Atlanta, Georgia  30329
         Attention: Secretary

         Any notice or demand authorized or required by this Agreement to be
given or made by the Company or by the holder of any Rights to or on the Rights
Agent shall be sufficiently given or made if delivered or sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Company) as follows:

         SunTrust Bank, Atlanta
         P.O. Box 4625
         Atlanta, Georgia 30302-4625
         Attention:  Department Manager

         Notices or demands authorized or required by this Agreement to be given
or made by the Company or the Rights Agent to or on the holder of any Rights
shall be sufficiently given or made if delivered or sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as it
appears upon the registry books of the Rights Agent or, prior to the Separation
Time, on the registry books of the transfer agent for the Common Stock. Any
notice that is mailed in the manner herein provided shall be deemed given on the
third Business Day after mailing, whether or not the holder receives the notice.
Failure to give a notice pursuant to the provisions of this Agreement shall not
affect the validity of any action taken hereunder.

         5.10  Suspension of Exercisability. To the extent that the Company
               ----------------------------
determines in good faith that some action will or need be taken pursuant to
Section 2.3(g) or Section 3.1 or otherwise to comply with federal or state
securities laws, the Company may suspend the exercisability of the Rights for 90
days and any additional period that may be reasonable in order to take such
action or comply with such laws. In the event of any such suspension, the
Company shall issue as promptly as practicable a public announcement stating
that the exercisability or exchangeability of the Rights has been temporarily
suspended. Notice thereof pursuant to Section 5.9 shall not be required.

         5.11  Costs of Enforcement. The Company agrees that if the Company or
               --------------------
any other Person the securities of which are purchasable upon exercise of Rights
fails to fulfill any of its obligations pursuant to this Agreement, then the
Company or such Person will reimburse the holder of any Rights for the costs and
expenses (including legal fees) incurred by such holder in actions to enforce
such holder's rights pursuant to any Rights or this Agreement.

         5.12  Successors. All the covenants and provisions of this Agreement by
               ----------
or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.

         5.13  Benefits of this Agreement. Nothing in this Agreement shall be
               --------------------------
construed to give to any Person other than the Company, the Rights Agent and the
holders of the Rights any legal or equitable right, remedy or claim under this
Agreement and this Agreement shall be for the sole and exclusive benefit of the
Company, the Rights Agent and the holders of the Rights.

         5.14  Determination and Actions by the Board of Directors, etc. The
               --------------------------------------------------------
Board of Directors of the Company shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors of the Company or to the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement. All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
of Directors of the Company, in good faith, shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights and all
other parties, and (y) not subject the Board of Directors of the Company to any
liability to the holders of the Rights.

                                      -16-
<PAGE>

         5.15    Descriptive Headings. Descriptive headings appear herein for
                 --------------------
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.

         5.16    Governing Law. THIS AGREEMENT AND EACH RIGHT ISSUED HEREUNDER
                 -------------
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF GEORGIA AND
FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF SUCH STATE APPLICABLE TO CONTRACTS TO BE MADE AND PERFORMED ENTIRELY WITHIN
SUCH STATE.

         5.17    Counterparts. This Agreement may be executed in any number of
                 ------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.

         5.18    Severability. If any term or provision of this Agreement or the
                 ------------
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions hereof or the application of such term or provision to circumstances
other than those as to which it is held invalid or unenforceable.

                     [SIGNATURES APPEAR ON FOLLOWING PAGE]

                                      -17-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.

                                        GLOBAL PAYMENTS INC.

                                        By:
                                           _________________________________
                                           Name:
                                           Title:

                                        SUNTRUST BANK, ATLANTA, as Rights Agent

                                        By:
                                           _________________________________
                                           Name:
                                           Title:

                                      -1-
<PAGE>

                                                                       EXHIBIT A
                                                                       ---------

                          (Form of Rights Certificate)

Certificate No. R-                                               _______ Rights

THE RIGHTS ARE SUBJECT TO REDEMPTION OR MANDATORY EXCHANGE, AT THE OPTION OF THE
COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT(AS DEFINED BELOW).
RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS OR AFFILIATES OR ASSOCIATES
THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR TRANSFEREES OF
ANY OF THE FOREGOING WILL BE VOID.

                              Rights Certificate

                             GLOBAL PAYMENTS INC.

This certifies that _______________________, or registered assigns, is the
registered holder of the number of Rights set forth above, each of which
entitles the registered holder thereof, subject to the terms, provisions and
conditions of the Shareholder Protection Rights Agreement, dated as of
________________, 2000 (as amended from time to time, the "Rights Agreement"),
between Global Payments Inc., a Georgia corporation (the "Company"), and
SunTrust Bank, Atlanta, as rights agent (the "Rights Agent," which term shall
include any successor rights agent under the Rights Agreement), to purchase from
the Company at any time after the Separation Time (as such term is defined in
the Rights Agreement) and prior to the Close of Business on________________,
2010, one thousandth (1/1000) of a fully paid share of Series A Junior
Participating Preferred Stock, no par value (the "Preferred Stock"), of the
Company (subject to adjustment as provided in the Rights Agreement) at the
Exercise Price referred to below, upon presentation and surrender of this Rights
Certificate with the Form of Election to Exercise duly executed at the principal
office of the Rights Agent. The Exercise Price shall initially be $_____ per
Right and shall be subject to adjustment in certain events as provided in the
Rights Agreement.

In certain circumstances described in the Rights Agreement, the Rights evidenced
hereby may entitle the registered holder thereof to purchase securities of an
entity other than the Company or securities or assets of the Company other than
Preferred Stock, all as provided in the Rights Agreement.

This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates. Copies of
the Rights Agreement are on file at the principal office of the Company and are
available without cost upon written request. Capitalized terms used in this
Rights Certificate and not otherwise defined herein shall have the meanings
ascribed to such terms in the Rights Agreement.

This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Rights Certificate or Rights Certificates of like tenor
evidencing an aggregate number of Rights equal to the aggregate number of Rights
evidenced by the Rights Certificate or Rights Certificates surrendered. If this
Rights Certificate shall be exercised in part, the registered holder shall be
entitled to receive, upon surrender hereof, another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.

Subject to the provisions of the Rights Agreement, each Right evidenced by this
Certificate may be (a) redeemed by the Company under certain circumstances, at
its option, at a redemption price of $0.01 per Right, or (b) exchanged by the
Company under certain circumstances, at its option, for one share of Common
Stock or one thousandth (1/1000) of a share of Preferred Stock per Right (or, in
certain cases, other securities or assets of the Company), subject in each case
to adjustment in certain events as provided in the Rights Agreement.

No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of any securities
which may at any time be issuable on the exercise hereof, nor shall anything
contained in the Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the rights
<PAGE>

of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting shareholders (except as provided in the
Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Rights evidenced by this Rights Certificate shall have been exercised
or exchanged as provided in the Rights Agreement.

This Rights Certificate shall not be valid or obligatory for any purpose until
it shall have been countersigned by the Rights Agent.

WITNESS the facsimile signature of the proper officers of the Company.

Date:_______________

ATTEST:                                         GLOBAL PAYMENTS INC.

_______________________________                 By:___________________
Secretary

Countersigned:

SUNTRUST BANK, ATLANTA

By:_____________________________
   Authorized Officer

                                      -2-
<PAGE>

                 [Form of Reverse Side of Rights Certificate]

                               FORM OF ASSIGNMENT
                               ------------------

               (To be executed by the registered holder if such
             holder desires to transfer this Rights Certificate.)

FOR VALUE RECEIVED, __________________hereby sells, assigns and transfers unto

_______________________________________________________________________________
                (Please print name and address of transferee)

this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________________
attorney-in-fact, to transfer the within Rights Certificate on the books of the
within-named company, with full power of substitution.

Dated:  ___________________, _____.

Signature Guaranteed:                           _______________________________
                                                Signature

                                                (Signature must correspond to
                                                name as written upon the face of
                                                this Rights Certificate in every
                                                particular, without alteration
                                                or enlargement or any change
                                                whatsoever)

Signatures must be guaranteed by an eligible guarantor institution (a bank,
stockbroker, savings and loan association or credit union with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15 of the
Securities Exchange Act of 1934.

________________________________________________________________________________

                           (To be completed if true)
The undersigned hereby represents, for the benefit of the Company and all
holders of Rights and shares of Common Stock, that the Rights evidenced by this
Rights Certificate are not, and, to the knowledge of the undersigned, have never
been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement).

                                                     __________________________
                                                     Signature

________________________________________________________________________________

                                     NOTICE
                                     ------

In the event the certification set forth above is not completed in connection
with a purported assignment, the Company will deem the Beneficial Owner of the
Rights evidenced by the enclosed Rights Certificate to be an Acquiring Person or
an Affiliate or Associate thereof (as defined in the Rights Agreement) or a
transferee of any of the foregoing and accordingly will deem the Rights
evidenced by such Rights Certificate to be void and not transferable or
exercisable.
<PAGE>

                  [To be attached to each Rights Certificate]
                         FORM OF ELECTION TO EXERCISE
                         ----------------------------

    (To be executed if holder desires to exercise the Rights Certificate.)

TO:   GLOBAL PAYMENTS INC.

The undersigned hereby irrevocably elects to exercise _________________ whole
Rights represented by the attached Rights Certificate to purchase the shares of
Series A Junior Participating Preferred Stock issuable upon the exercise of such
Rights and requests that certificates for such shares be issued in the name of
and delivered to:

                           Name:__________________________________________
                           Address:_______________________________________
                                   _______________________________________
                           Social Security or other Taxpayer ID No.:______

If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall be
registered in the name of and delivered to:

                           Name:_____________________________________________
                           Address:__________________________________________
                                   __________________________________________
                           Social Security or other Taxpayer ID No.:_________

Dated:  _________________, ______

Signature Guaranteed:                               ___________________________
                                                    Signature
                                                    (Signature must correspond
                                                    to name as written upon the
                                                    face of this Rights
                                                    Certificate in every
                                                    particular, without
                                                    alteration or enlargement or
                                                    any change whatsoever)

Signatures must be guaranteed by an eligible guarantor institution (a bank,
stockbroker, savings and loan association or credit union with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15 of the
Securities Exchange Act of 1934.

______________________________________________________________________________
                           (To be completed if true)

The undersigned hereby represents, for the benefit of the Company and all
holders of Rights and shares of Common Stock, that the Rights evidenced by this
Rights Certificate are not, and, to the knowledge of the undersigned, have never
been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement).

                                          ______________________________________
                                          Signature

________________________________________________________________________________
                                    NOTICE
                                    ------

In the event the certification set forth above is not completed in connection
with a purported assignment, the Company will deem the Beneficial Owner of the
Rights evidenced by the enclosed Rights Certificate to be an Acquiring Person or
an Affiliate or Associate thereof (as defined in the Rights Agreement) or a
<PAGE>

transferee of any of the foregoing and accordingly will deem the Rights
evidenced by such Rights Certificate to be void and not transferable or
exercisable.
<PAGE>

                                                                       EXHIBIT B
                                                                       ---------
                                  APPENDIX A
                                      TO
                         THE ARTICLES OF INCORPORATION
                                      OF
                             GLOBAL PAYMENTS INC.

DESIGNATING THE PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF SERIES A JUNIOR
                         PARTICIPATING PREFERRED STOCK

         There is hereby designated, out of the authorized but unissued shares
of Preferred Stock of the Corporation, a series thereof, and the number of
shares, voting powers, designation, preferences, and relative, participating,
optional, and other special rights, and the qualifications, limitations, and
restrictions thereof, of the shares of such series (in addition to those set
forth in the Articles of Incorporation which are applicable to the Preferred
Stock of all series), shall be as follows:

         1. Series A Junior Participating Preferred Stock. There is hereby
            ---------------------------------------------
established a series of Preferred Stock, no par value per share, of the
Corporation, and the designation and certain terms, powers, preferences and
other rights of the shares of such series, and certain qualifications,
limitations and restrictions thereon, are hereby fixed as follows:

                  (i)   The distinctive serial designation of this series shall
be "Series A Junior Participating Preferred Stock" (hereinafter called "this
Series"). Each share of this Series shall be identical in all respects with the
other shares of this Series except as to the dates from and after which
dividends thereon shall be cumulative.

                  (ii)  The number of shares in this Series shall initially be
20,000 which number may from time to time be increased or decreased (but not
below the number then outstanding) by the Board of Directors. Shares of this
Series purchased by the Corporation shall be canceled and shall revert to
authorized but unissued shares of Preferred Stock undesignated as to series.
Shares of this Series may be issued in fractional shares, which fractional
shares shall entitle the holder, in proportion to such holder's fractional
share, to all rights of a holder of a whole share of this Series.

                  (iii) The holders of full or fractional shares of this Series
shall be entitled to receive, when and as declared by the Board of Directors,
but only out of funds legally available therefor, dividends, (A) on each date
that dividends or other distributions (other than dividends or distributions
payable in Common Stock of the Corporation) are payable on or in respect of
Common Stock comprising part of the Reference Package (as defined below), in an
amount per whole share of this Series equal to the aggregate amount of dividends
or other distributions (other than dividends or distributions payable in Common
Stock of the Corporation) that would be payable on such date to a holder of the
Reference Package and (B) on the last day of March, June, September and December
in each year, in an amount per whole share of this Series equal to the excess
(if any) of $1.00 over the aggregate dividends paid per whole share of this
Series during the three-month period ending on such last day. Each such dividend
shall be paid to the holders of record of shares of this Series on the date, not
exceeding 60 days preceding such dividend or distribution payment date, fixed
for that purpose by the Board of Directors in advance of payment of each
particular dividend or distribution. Dividends on each full and each fractional
share of this Series shall be cumulative from the date such full or fractional
share is originally issued; provided that any such full or fractional share
originally issued after a dividend record date and on or prior to the dividend
payment date to which such record date relates shall not be entitled to receive
the dividend payable on such dividend payment date or any amount in respect of
the period from such original issuance to such dividend payment date.

                  The term "Reference Package" shall initially mean 1000 shares
of Common Stock, no par value ("Common Stock"), of the Corporation. In the event
the Corporation shall at any time (A) declare or pay a dividend on any Common
Stock payable in Common Stock, (B) subdivide any Common Stock or (C) combine any
Common Stock into a smaller number of shares, then and in each such case the
Reference Package after such event shall be the Common Stock that a holder of
the Reference Package immediately prior to such event would hold thereafter as a
result thereof.

                                      A-1
<PAGE>

                  Holders of shares of this Series shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends, as herein provided, on this Series.

                  So long as any shares of this Series are outstanding, no
dividend (other than a dividend in Common Stock or in any other stock ranking
junior to this Series as to dividends and upon liquidation) shall be declared or
paid or set aside for payment or other distribution declared or made upon the
Common Stock or upon any other stock ranking junior to this Series as to
dividends or upon liquidation, nor shall any Common Stock nor any other stock of
the Corporation ranking junior to or on a parity with this Series as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Corporation (except
by conversion into or exchange for stock of the Corporation ranking junior to
this Series as to dividends and upon liquidation), unless, in each case, the
full cumulative dividends (including the dividend to be due upon payment of such
dividend, distribution, redemption, purchase or other acquisition) on all
outstanding shares of this Series shall have been, or shall contemporaneously
be, paid.

                  (iv) In the event of any merger, consolidation,
reclassification or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of this Series shall at the same time
be similarly exchanged or changed in an amount per whole share equal to the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, that a holder of the Reference Package would be
entitled to receive as a result of such transaction.

                  (v)  In the event of any liquidation, dissolution or winding
up of the affairs of the Corporation, whether voluntary or involuntary, the
holders of full and fractional shares of this Series shall be entitled, before
any distribution or payment is made on any date to the holders of the Common
Stock or any other stock of the Corporation ranking junior to this Series upon
liquidation, to be paid in full an amount per whole share of this Series equal
to the greater of (A) $1.00 or (B) the aggregate amount distributed or to be
distributed prior to such date in connection with such liquidation, dissolution
or winding up to a holder of the Reference Package (such greater amount being
hereinafter referred to as the "Liquidation Preference"), together with accrued
dividends to such distribution or payment date, whether or not earned or
declared. If such payment shall have been made in full to all holders of shares
of this Series, the holders of shares of this Series as such shall have no right
or claim to any of the remaining assets of the Corporation.

                  In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to the first paragraph of this Section (v), no such
distribution shall be made on account of any shares of any other class or series
of Preferred Stock ranking on a parity with the shares of this Series upon such
liquidation, dissolution or winding up unless proportionate distributive amounts
shall be paid on account of the shares of this Series, ratably in proportion to
the full distributable, amounts for which holders of all such parity shares are
respectively entitled upon such liquidation, dissolution or winding up.

                  Upon the liquidation, dissolution or winding up of the
Corporation, the holders of shares of this Series then outstanding shall be
entitled to be paid out of assets of the Corporation available for distribution
to its shareholders all amounts to which such holders are entitled pursuant to
the first paragraph of this Section (v) before any payment shall be made to the
holders of Common Stock or any other stock of the Corporation ranking junior
upon liquidation to this Series.

                  For the purposes of this Section (v), the consolidation or
merger of, or binding share exchange by, the Corporation with any other
corporation shall not be deemed to constitute a liquidation, dissolution or
winding up of the corporation.

                  (vi)  The shares of this Series shall not be redeemable.
<PAGE>

                  (vii) In addition to any other vote or consent of shareholders
required by law or by the Certificate of Incorporation of the Corporation, each
whole share of this Series shall, on any matter, vote as a class with any other
capital stock comprising part of the Reference Package and voting on such matter
and shall have the number of votes thereon that a holder of the Reference
Package would have.

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