<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1996
REGISTRATION STATEMENT NO. 333-07939
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UCFC FUNDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
LOUISIANA APPLICATION PENDING
<S> <C>
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
4041 ESSEN LANE
BATON ROUGE, LOUISIANA 70809
(504) 924-6007
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DALE E. REDMAN
CHIEF FINANCIAL OFFICER
4041 ESSEN LANE
BATON ROUGE, LOUISIANA 70809
(504) 924-6007
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
LEE C. KANTROW, ESQ. ROBERT C. WIPPERMAN, ESQ.
KANTROW, SPAHT, WEAVER & BLITZER STROOCK & STROOCK & LAVAN
(A PROFESSIONAL LAW CORPORATION) SEVEN HANOVER SQUARE
CITY PLAZA, SUITE 300 NEW YORK, NEW YORK 10004
445 NORTH BOULEVARD
BATON ROUGE, LA 70802
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER UNIT (1) (1) REGISTRATION FEE(2)
<S> <C> <C> <C> <C>
Manufactured Housing Contract
Pass-Through
Certificates............... $2,000,000,000 100% $2,000,000,000 $689,655.17
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Of this amount, $344.83 previously was paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED SEPTEMBER 11, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 199 )
$ (APPROXIMATE)
MANUFACTURED HOUSING CONTRACT
PASS-THROUGH CERTIFICATES,
SERIES 199 - [LOGO]
UCFC FUNDING CORPORATION
DEPOSITOR
UNITED COMPANIES LENDING CORPORATION(REGISTERED)
SERVICER
------------------------
The Manufactured Housing Contract Pass-Through Certificates, Series 199 -
(the 'Certificates') will represent interests in a trust (the 'Trust')
consisting of a pool (the 'Contract Pool') of actuarial manufactured housing
installment sale contracts and installment loan agreements (collectively, the
'Contracts') and certain related property as described herein. Only the Classes
of Certificates listed below (collectively, the 'Offered Certificates') are
being offered hereby.
(cover continued on next page)
<TABLE>
<CAPTION>
INITIAL CLASS REMITTANCE FINAL SCHEDULED
CERTIFICATE BALANCE(1) RATE REMITTANCE DATE(2)
<S> <C> <C> <C>
Class A-1........... $ %
Class A-2........... $ %
Class A-3........... $ %
Class A-4........... $ %
Class A-5........... $ %(3)
Class B-1........... $ %
Class B-2........... $ %(3)
</TABLE>
(1) Subject to the permitted variance described herein.
(2) Determined as described under 'Maturity, Prepayment and Yield
Considerations' herein.
(3) The Remittance Rate is subject to a maximum rate equal to the weighted
average of the Net Contract Rates of the Contracts in the Contract Pool.
------------------------
THE OFFERED CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, UNITED COMPANIES LENDING
CORPORATION, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. THE
OFFERED CERTIFICATES AND THE CONTRACTS ARE NOT INSURED OR GUARANTEED
BY ANY GOVERNMENTAL AGENCY, OR ANY OTHER PERSON NOR HAS ANY
GOVERNMENTAL AGENCY PASSED UPON THE ACCURACY OF THE
INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL DEFENSE.
------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION UNDER 'RISK FACTORS'
BEGINNING ON PAGE S-8 HEREIN AND ON PAGE 8 OF THE ACCOMPANYING PROSPECTUS.
------------------------
The Offered Certificates will be purchased by and
(the 'Underwriters') from the Depositor and will be offered by the
Underwriters from time to time in negotiated transactions or otherwise, at
varying prices to be determined at the time of sale. Proceeds to the Depositor,
including accrued interest, are expected to be approximately % of the
aggregate principal balance of the Offered Certificates before deducting
expenses payable by the Depositor estimated to be $ . See 'Underwriting'
herein.
The Offered Certificates are offered by the Underwriters subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters. The Underwriters reserve
the right to withdraw, cancel or modify such offer and to reject orders in whole
or in part. It is expected that the Offered Certificates will be issued on or
about , 199 , and will thereafter be available from the Underwriters
through the Same Day Funds Settlement System of the Depository Trust Company.
[NAMES OF UNDERWRITERS]
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 199
<PAGE>
(Cover continued from front page)
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement, dated as of , 199 (the 'Agreement'), among UCFC Funding
Corporation, as depositor (the 'Depositor'), United Companies Lending
Corporation, as servicer ('United Companies' or the 'Servicer'), and
, as trustee (the 'Trustee'). Only the Offered Certificates
are offered hereby. Distributions of principal and interest on the Offered
Certificates will be made to the extent funds are available therefor on the 15th
day of each month or, if such day is not a business day, on the succeeding
business day commencing , 199 (each, a 'Remittance Date') to holders
of record on the last business day of the calendar month preceding the month of
such Remittance Date (the 'Record Date').
There is currently no secondary market for the Offered Certificates. The
Underwriters intend to make a secondary market for the Offered Certificates, but
no Underwriter is obligated to do so. There can be no assurance that a secondary
market for any of the Offered Certificates will develop or, if one does develop,
that it will continue or offer sufficient liquidity of investment.
As described herein, an election will be made to treat certain assets and
Accounts (as defined herein) of the Trust as a 'real estate mortgage investment
conduit' ('REMIC') pursuant to the Internal Revenue Code of 1986, as amended
(the 'Code'). The Offered Certificates will be 'regular interests' in a REMIC.
See 'Federal Income Tax Considerations' herein and in the Prospectus.
------------------------
The Certificates offered by this Prospectus Supplement constitute a separate
Series of Certificates being offered by the Depositor pursuant to its Prospectus
dated , 199 , of which this Prospectus Supplement is a part and
which accompanies this Prospectus Supplement. The Prospectus contains important
information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
S-2
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings assigned them elsewhere in this
Prospectus Supplement and in the Prospectus. See 'Glossary' in the Prospectus.
<TABLE>
<S> <C>
Title of Certificates.... Manufactured Housing Contract Pass-Through
Certificates, Series 199 - (the 'Certificates').
Offered Certificates..... The Class A-1, Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates (collectively, the 'Senior
Certificates'), and the Class B-1 and the Class B-2
Certificates (collectively the 'Subordinated
Certificates'). Only the Offered Certificates are
offered hereby. The aggregate of the initial Class
Certificate Balances of the Offered Certificates is
subject to a permitted variance of plus or minus %.
Other Certificates....... In addition to the Offered Certificates, the Trust
will issue the following additional Classes of
Certificates which are not offered hereby:
</TABLE>
<TABLE>
<CAPTION>
INITIAL CLASS
CERTIFICATE REMITTANCE
BALANCE RATE
------------- ------------
<S> <C> <C> <C>
Class B-3 $ (1) %
Class R (2) (2)
</TABLE>
<TABLE>
<S> <C>
------------------
(1) Subject to the permitted variance described above.
(2) The Class R Certificates have no Class Certificate
Balance and do not bear interest.
Any information contained herein with respect to the
Class B-3 and Class R Certificates is provided only to
permit a better understanding of the Offered
Certificates.
Depositor................ UCFC Funding Corporation, a Louisiana corporation (the
'Depositor'). See 'The Depositor' in the Prospectus.
Servicer................. United Companies Lending Corporation(Registered), a
Louisiana corporation ('United Companies' or the
'Servicer'), an indirect, wholly-owned subsidiary of
United Companies Financial Corporation. The Servicer's
principal executive offices are located at 4041 Essen
Lane, Baton Rouge, Louisiana 70809. See 'The
Manufactured Housing Program' in the Prospectus.
Trustee.................. (the 'Trustee').
Originator............... The Contracts were originated or purchased by United
Companies Funding, Inc. a Louisiana corporation and an
affiliate of the Depositor and the Servicer. See 'The
Manufactured Housing Program' herein and in the
Prospectus.
Approximate Cut-off Date
Pool Principal
Balance................ $
Closing Date............. On or about , 199 .
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
Cut-off Date............. The opening of business on , 199 ,
except that the Cut-off Date with respect to any
Contract dated on or after , 199 , will
be the date of such Contract.
Remittance Date.......... The 15th day of each month (or if such 15th day is not
a business day, the next succeeding business day),
commencing in , 199 .
Description of
Certificates........... The Certificates will be issued by the Trust pursuant
to the Pooling and Servicing Agreement, dated as of
, 199 (the 'Agreement'), among the
Depositor, the Servicer and the Trustee. The Class
A-1, Class A-2, Class A-3, Class A-4 and Class A-5
Certificates are Senior Certificates and the Class
B-1, Class B-2 and Class B-3 Certificates are
Subordinated Certificates, all as described herein.
The Offered Certificates will be offered in registered
form, in denominations of $25,000 and integral
multiples of $1,000 in excess thereof, except for one
Certificate of each Class which may be issued with a
different denomination.
Priority of
Distributions.......... Distributions will be made on each Remittance Date
from the Amount Available in the following order of
priority: (i) concurrently to interest on each Class
of Senior Certificates; (ii) to principal of the
Classes of Senior Certificates then entitled to
receive distributions of principal, in the order and
subject to the limitations set forth herein under
'Description of the Certificates--Principal,' in each
case in an aggregate amount up to the maximum amount
of principal to be distributed on such Classes on such
Remittance Date; and (iii) to interest on and then
principal of each Class of Subordinated Certificates,
in the order and subject to the limitations set forth
herein under 'Description of the
Certificates--Principal.'
Distributions of
Interest............... To the extent funds are available therefor, each
interest-bearing Class of Certificates will be
entitled to receive interest in the amount of the
Interest Distribution Amount for such Class. See
'Description of the Certificates--Interest' herein.
A. Interest
Distribution Amount.... For each Class of Certificates, the amount of interest
accrued during the related Interest Accrual Period at
the applicable Remittance Rate. With respect to each
Remittance Date, the 'Interest Accrual Period' for
each Class of Certificates will be the calendar month
preceding the month of such Remittance Date.
B. Remittance Rate..... The Remittance Rate for each Class of Offered
Certificates for each Remittance Date will be as set
forth or described on the cover page hereof.
Distributions of
Principal.............. On each Remittance Date, to the extent funds are
available therefor, principal distributions in
reduction of the Class Certificate Balance of each
Class of Certificates will be made in the order and
subject to the priorities set forth herein under
'Description of the Certificates--Principal' in an
aggregate amount equal to such Class' allocable
portion of the Senior Principal Distribution Amount or
the Subordinated Principal Distribution Amount, as
applicable.
Credit
Enhancement--General... Credit enhancement for the Senior Certificates will be
provided by the Subordinated Certificates. Credit
enhancement for each Class of Subordinated
Certificates (other than the Class B-3 Certificates)
will be provided by the Class or Classes of
Subordinated Certificates with higher numerical Class
designations, as described below.
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
Subordination............ The rights of the holders of the Subordinated
Certificate to receive distributions with respect to
the Contracts in the Trust will be subordinated to
such rights of the holders of the Senior Certificates,
and the rights of the holders of each Class of
Subordinated Certificates (other than the Class B-1
Certificates) to receive distributions will be further
subordinated to such rights of holders of the Class or
Classes of Subordinated Certificates with lower
numerical Class designations, in each case only to the
extent described herein.
The subordination of the Subordinated Certificates to
the Senior Certificates and the further subordination
within the Subordinated Certificates are each intended
to increase the likelihood of timely receipt by the
holders of Certificates with higher relative payment
priority of the maximum amount to which they are
entitled on any Remittance Date and to provide such
holders protection against losses resulting from
defaults on the Contracts to the extent described
herein. However, in certain circumstances, the amount
of available subordination may be exhausted and
shortfalls in distributions on the Certificates could
result. Holders of the Offered Certificates will bear
their proportionate share of any losses realized on
the Contracts in excess of the available subordination
amounts.
The Contracts............ Fixed rate manufactured housing installment sale
contracts and installment loan agreements including
any and all rights to receive payments due thereunder
on and after the Cut-off Date and either (i) security
interests in the Manufactured Homes purchased with the
proceeds of such contracts or (ii) with respect to
certain of the Contracts ('Land-and-Home Contracts')
liens on the real estate to which the related
Manufactured Homes are deemed permanently affixed. The
Contracts have been selected by the Originator from
its portfolio of manufactured housing contracts based
on the criteria specified in the Agreement. All of the
Contracts are conventional Contracts (i.e., not
insured or guaranteed by any governmental agency). See
'The Contract Pool' herein.
Security Interests and
Certain Other Aspects
of the Contracts;
Repurchase or
Substitution
Obligations............ In connection with the transfer of the Contracts to
the Trust, the Depositor will cause the Originator to
assign the security interests in the Manufactured
Homes or, with respect to the Land-and-Home Contracts,
the liens on the Manufactured Homes and the underlying
real property, as appropriate, to the Trust. Under the
laws of most states, Manufactured Homes that have not
been affixed to the real estate constitute personal
property, and perfection of a security interest in the
Manufactured Home is obtained, depending on applicable
state law, either by noting the security interest on
the certificate of title for the Manufactured Home or
by filing a financing statement under the Uniform
Commercial Code. If the Manufactured Home were to be
relocated to another state without reperfection of the
security interest, or if the Manufactured Home were to
become attached to its site and a determination were
to be made that the security interest was subject to
real estate title and recording laws, or as a result
of fraud or negligence, the Trust could lose its prior
perfected security interest in a Manufactured Home.
Subject to the effect of not amending certificates of
title as discussed
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
under 'Risk Factors--Titles Will Not Be Amended' in
the Prospectus, the Servicer will take such steps as
are necessary to maintain perfection of the security
interest in each Manufactured Home. Because of the
expense and administrative inconvenience involved, the
assignment to the Trustee of the mortgage or deed of
trust securing each Land-and-Home Contract will not be
recorded. Consequently, in some states in the absence
of such recordation the assignment to the Trustee of
the mortgage or deed of trust securing a Land-and-Home
Contract may not be effective and in the absence of
such recordation the assignment of the mortgage or
deed of trust to the Trustee may not be effective
against creditors of or purchasers from the Originator
or a trustee in bankruptcy of the Originator. Federal
and state consumer protection laws impose requirements
upon creditors in connection with extensions of credit
and collections on installment sale or loan contracts,
and certain of these laws make an assignee of such a
contract, such as the Trust, liable to the obligor
thereon for any violation by the lender. The
Originator has agreed to repurchase, or, at its
option, to substitute another contract for, any
Contract as to which it has failed to perfect a
security interest in the Manufactured Home securing
such Contract, or as to which a breach of federal or
state laws exists if such breach materially adversely
affects the Trust's interest in the Contract, unless
such failure or breach has been cured within 90 days
from notice of such breach.
Optional Termination..... At its option, the Servicer may purchase from the
Trust all remaining Contracts, and thereby effect
early retirement of the Certificates, on any
Remittance Date when the Pool Scheduled Principal
Balance is less than 10% of the Cut-off Date Pool
Principal Balance. See 'Description of the
Certificates--Optional Termination' herein.
Federal Income Tax
Considerations......... For federal income tax purposes, the Trust will be
treated as a real estate mortgage investment conduit
('REMIC'). The Offered Certificates will constitute
'regular interests' in the REMIC and generally will be
treated as debt instruments of the Trust for federal
income tax purposes with payment terms equivalent to
the terms of such Certificates. The Class R
Certificates will constitute 'residual interests' in
the REMIC. The holders of the Offered Certificates
will be required to include in income interest on such
Certificates (including any original issue discount)
in accordance with the accrual method of accounting.
Depending on their respective issue prices, certain
Classes of Offered Certificates may be issued with
original issue discount ('OID') for federal income tax
purposes. The rate that will be used to calculate the
accrual of OID will be %
(as defined herein). No
representation is made that the Contracts will prepay
at that rate or at any other rate. See 'Federal Income
Tax Considerations' in the Prospectus.
ERISA Considerations..... The acquisition of an Offered Certificate by a pension
or other employee benefit plan (a 'Plan') subject to
the Employee Retirement Income Security Act of 1974,
as amended ('ERISA'), could, in some instances, result
in a prohibited transaction or other
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
violation of the fiduciary responsibility provisions
of ERISA and Section 4975 of the Code.
Subject to the conditions described herein, it is
expected that the Senior Certificates may be purchased
by a Plan. Any Plan fiduciary considering whether to
purchase any Offered Certificates on behalf of a Plan
should consult with its counsel regarding the
applicability of the provisions of ERISA and the Code.
See 'ERISA Considerations' herein and in the
Prospectus.
Legal Investment
Considerations......... The Senior Certificates will constitute 'mortgage
related securities' for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ('SMMEA') so
long as they are rated in one of the two highest
rating categories by at least one nationally
recognized statistical rating organization and, as
such, will be 'legal investments' for certain types of
institutional investors to the extent provided in
SMMEA.
The Class B-1 and Class B-2 Certificates will not
constitute 'mortgage related securities' for purposes
of SMMEA. Accordingly, many institutions with legal
authority to invest in more highly rated securities
based on first mortgage loans may not be legally
authorized to invest in the Class B-1 and Class B-2
Certificates. See 'Legal Investment Considerations' in
the Prospectus.
Ratings.................. It is a condition to the issuance of the Senior
Certificates that they be rated at least ' ' by
each of (' ') and
(' ')
and, together with , the 'Rating
Agencies'). It is a condition to the issuance of the
Class B-1 Certificates that they be rated at least
' ' by each of the Rating Agencies, and it is a
condition to the issuance of the Class B-2
Certificates that they be rated at least ' ' by
and ' ' by
. A security rating is not a
recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time by
the assigning rating organization.
Registration of the
Offered Certificates... Each Class of Offered Certificates initially will be
represented by one or more certificates registered in
the name of Cede & Co. ('Cede') as the nominee of The
Depository Trust Company ('DTC'), and will only be
available in the form of book entries on the records
of DTC and participating members thereof. Certificates
representing the Offered Certificates will be issued
in definitive form only under the limited
circumstances described herein. All references herein
to 'holders' or 'Certificateholders' reflect the
rights of Certificate Owners as they may indirectly
exercise such rights through DTC and participating
members thereof, except as otherwise specified herein.
See 'Description of the Certificates--Book-Entry
Certificates' herein and in the Prospectus.
</TABLE>
S-7
<PAGE>
RISK FACTORS
Before investing in the Offered Certificates, potential investors should
consider the risks discussed under the caption 'Risk Factors' in the Prospectus
and the following additional risks:
[Geographic Concentration May Create Additional Risks. Approximately
% of the Contracts, by Cut-Off Date Pool Principal Balance, are secured
by Manufactured Homes which were located in the State of at the
time of origination of the related Contracts. In recent years, the State of
has reported weaker economic conditions than those in other
regions of the country. In addition to affecting the possible rates of
delinquencies and defaults on the Contracts, such weaker economic
conditions could adversely affect the values of the related Manufactured
Homes and the level of possible losses following repossession and
disposition. To the extent that economic conditions in the State of
have been or may become generally weaker than those in other
parts of the country, the concentration of Manufactured Homes in the State
of may adversely affect the performance of the Contract Pool and
the Offered Certificates.]
[Yields on Subordinated Certificates will be Adversely Affected by
Losses. The weighted average lives of, and the yields to maturity on, the
Subordinated Certificates, in increasing order of their numerical Class
designations, will be progressively more sensitive to the rate and timing
of borrower defaults and the severity of ensuing losses on the Contracts.
If the actual rate and severity of losses on the Contracts is higher than
those assumed by a holder of a Subordinated Certificate, the actual yield
to maturity of such Certificates will be lower than the yield expected by
such holder based on such assumption. The timing of losses on the Contracts
will also affect an investor's actual yield to maturity, even if the rate
of defaults and severity of losses over the life of the Contract Pool are
consistent with an investor's expectations. In general, the earlier a loss
occurs, the greater the effect on an investor's yield to maturity. Losses
on the Contracts will reduce the Class Certificate Balance of the
applicable Class of Subordinated Certificates to the extent of any losses
allocated thereto without the receipt of cash attributable to such
reduction. As a result of such reductions, less interest will accrue on
such Class of Subordinated Certificates than otherwise would be the case.]
THE CONTRACT POOL
GENERAL
All of the Contracts were originated by a manufactured housing dealer and
purchased by the Originator from such dealer, or were originated by the
Originator directly. All of the Contracts are conventional manufactured housing
contracts, meaning that they are not insured or guaranteed by any governmental
agency.
Each Contract (a) is secured by a Manufactured Home or, in the case of a
Land-and-Home Contract, is secured by a lien on the Manufactured Home and the
real estate to which the Manufactured Home is deemed permanently affixed, (b) is
fully amortizing with a fixed contractual rate of interest (the 'Contract Rate')
and provides for level payments over the term of such Contract and (c) is dated
on or after 199 .
The 'Value' used to calculate the original loan-to-value ratios of the
Contracts is equal to (i) in the case of a new Manufactured Home, the total cost
of such Manufactured Home (allowing for the standard industry dealer markup of
30%), including sales and other taxes, filing and recording fees imposed by law
and premiums for related insurance and optional equipment up to 25% of the base
invoice and set-up fees, (ii) in the case of a used Manufactured Home, either
the total delivered sales price for such Manufactured Home, if available, or
else its appraised market value, plus, in either case, each of the following to
the extent that the inclusion thereof does not exceed the appraised value of the
Manufactured Home: sales and other taxes, filing and recording fees imposed by
law and premiums for related insurance, or (iii) in the case of real estate
securing a Land-and-Home Contract, the total sales price of the real estate and
the Manufactured Home together. (With respect to approximately % of the
Contracts by Cut-off Date Pool Principal Balance, 'Value' includes the value of
land in respect of which the Obligor has granted a lien to the Originator in
lieu of a down payment, which lien is not being transferred to the Trust. Such
Contracts are not Land-and-Home Contracts.) Appraisals are made by employees of
the Originator. Manufactured Homes, unlike site-built homes, generally
depreciate in value. Consequently, at any
S-8
<PAGE>
time after origination it is possible, especially in the case of Contracts with
high loan-to-value ratios at origination, that the market value of a
Manufactured Home may be lower than the principal amount outstanding under the
related Contract.
STATISTICAL INFORMATION
Set forth below is certain statistical information as of the Cut-off Date
regarding the Contracts expected to be included in the Contract Pool as of the
Closing Date. Prior to the Closing Date, Contracts may be removed from the
Contract Pool and other Contracts may be substituted therefor. The Depositor
believes that the information set forth herein with respect to the Contract Pool
as presently constituted is representative of the characteristics of the
Contract Pool as it will be constituted at the Closing Date, although certain
characteristics of the Contracts may vary. The sum of the percentage columns in
the following tables may not equal 100% due to rounding.
As of the Cut-off Date: the Contract balances ranged from approximately
$ to $ ; the average Contract balance was $ ; the Contract
Rates ranged from % to %; the weighted average Contract Rate was
%; the original Loan-to-Value Ratios ranged from % to %; the
weighted average original Loan-to Value Ratio was %; the remaining terms to
stated maturity ranged from months to months; the weighted average
remaining term to stated maturity was months; the Contract ages ranged from
months to months; the weighted Contract age was month; and approximately %
of the Contracts by Cut-off Date Pool Principal Balance are secured by new
Manufactured Homes and the balance are secured by used Manufactured Homes.
GEOGRAPHICAL DISTRIBUTION OF MANUFACTURED HOMES
<TABLE>
<CAPTION>
% OF CONTRACT % OF OUTSTANDING
NUMBER OF POOL BY NUMBER AGGREGATE PRINCIPAL PRINCIPAL BALANCE
STATES CONTRACTS OF CONTRACTS BALANCE OUTSTANDING AS OF CUT-OFF DATE
- -------------------------------------------- --------- -------------- ------------------- -------------------
<S> <C> <C> <C> <C>
--------- ------- ---------- -------
Total.................................. 100.00% 100.00%
--------- ------- ---------- -------
--------- ------- ---------- -------
</TABLE>
DISTRIBUTION OF CONTRACT AMOUNTS AS OF CUT-OFF DATE
<TABLE>
<CAPTION>
% OF CONTRACT % OF OURSTANDING
CONTRACT AMOUNT NUMBER OF POOL BY NUMBER AGGREGATE PRINCIPAL PRINCIPAL BALANCE
(IN DOLLARS) CONTRACTS OF CONTRACTS BALANCE OUTSTANDING AS OF CUT-OFF DATE
- -------------------------------------------- --------- -------------- ------------------- -------------------
<S> <C> <C> <C> <C>
--------- ------- ---------- -------
Total.................................. 100.00% 100.00%
--------- ------- ---------- -------
--------- ------- ---------- -------
</TABLE>
S-9
<PAGE>
DISTRIBUTION OF ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
ORIGINAL % OF CONTRACT % OF OURSTANDING
LOAN-TO-VALUE NUMBER OF POOL BY NUMBER AGGREGATE PRINCIPAL PRINCIPAL BALANCE
RATIOS CONTRACTS OF CONTRACTS BALANCE OUTSTANDING AS OF CUT-OFF DATE
- -------------------------------------------- --------- -------------- ------------------- -------------------
<S> <C> <C> <C> <C>
--------- ------- ---------- -------
Total.................................. 100.00% 100.00%
--------- ------- ---------- -------
--------- ------- ---------- -------
</TABLE>
CONTRACT RATES
<TABLE>
<CAPTION>
% OF CONTRACT % OF OURSTANDING
RANGE OF NUMBER OF POOL BY NUMBER AGGREGATE PRINCIPAL PRINCIPAL BALANCE
CONTRACT RATES CONTRACTS OF CONTRACTS BALANCE OUTSTANDING AS OF CUT-OFF DATE
- -------------------------------------------- --------- -------------- ------------------- -------------------
<S> <C> <C> <C> <C>
--------- ------- ---------- -------
Total.................................. 100.00% 100.00%
--------- ------- ---------- -------
--------- ------- ---------- -------
</TABLE>
REMAINING MONTHS TO MATURITY
<TABLE>
<CAPTION>
% OF CONTRACT % OF OURSTANDING
RANGE OF NUMBER OF POOL BY NUMBER AGGREGATE PRINCIPAL PRINCIPAL BALANCE
MONTHS TO MATURITY CONTRACTS OF CONTRACTS BALANCE OUTSTANDING AS OF CUT-OFF DATE
- -------------------------------------------- --------- -------------- ------------------- -------------------
<S> <C> <C> <C> <C>
--------- ------- ---------- -------
Total.................................. 100.00% 100.00%
--------- ------- ---------- -------
--------- ------- ---------- -------
</TABLE>
S-10
<PAGE>
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
Prepayments. The weighted average life of and, if purchased at a price
other than par, the yield to maturity on, a Class of Offered Certificates will
be directly related to the rate of payment of principal of the Contracts within
the Contract Pool, including for this purpose Prepayments, delinquencies,
liquidations due to defaults, casualties and condemnations, and repurchases of
Contracts by the Originator or the Servicer. The Contracts may be prepaid by the
related Obligors at any time, generally, without payment of any prepayment fee
or penalty. The actual rate of principal prepayments on pools of manufactured
housing contracts is influenced by a variety of economic, tax, geographic,
demographic, social, legal and other factors and has fluctuated considerably in
recent years. In addition, the rate of principal prepayments may differ among
pools of manufactured housing contracts at any time because of specific factors
relating to the contracts in the particular pool, including, among other things,
the age of the contracts, the geographic locations of the properties securing
the contracts, the extent of the Obligor's equity in such properties, and
changes in the Obligor's housing need, job transfers and unemployment.
Generally, however, because the Contracts bear interest at fixed rates, if
prevailing interest rates were to fall, the Contracts may be subject to higher
prepayment rates. Conversely, if prevailing interest rates were to rise, the
rate of prepayments on the Contracts could decrease.
Final Scheduled Remittance Dates. The Final Scheduled Remittance Dates for
each Class of Offered Certificates, is set forth on the cover hereof. The Final
Scheduled Remittance Dates were determined on the basis of the Structuring
Assumptions (defined below) and the assumption that there are no Prepayments.
The weighted average life of each Class of Offered Certificates is likely to be
shorter, and the final Remittance Date could occur significantly earlier than
the applicable Final Scheduled Remittance Date because (i) Prepayments are
likely to occur, (ii) the Originator may repurchase Contracts in the event of
breaches of representations and warranties and (iii) the Servicer may cause an
optional termination of the Trust.
Priority of Distributions. The allocation of principal distributions to
the Holders of the Senior Certificates on each Remittance Date prior to the
Cross-over Date, and on any Remittance Date on or after the Cross-over Date on
which a Class B Principal Distribution Test is not satisfied, will have the
effect of accelerating the amortization of the Senior Certificates relative to
the amortization that would be applicable if the principal were distributed pro
rata among the Senior and the Subordinated Certificates. Until the Cross-over
Date, and on any Remittance Date on or after the Cross-over Date on which a
Class B Principal Distribution Test is not satisfied, the Senior
Certificateholders will receive all payments of principal which are made on the
Contracts. There is no assurance as to whether or when the Cross-over Date will
occur. The rate of principal payments on the Subordinated Certificates and the
aggregate amount of distributions on the Subordinated Certificates will be
affected by the rate of Obligor defaults resulting in delinquencies on the
Contracts and losses on Liquidated Contracts, by the severity of those losses
and by the timing of those delinquencies and losses. See 'Description of the
Certificates--Subordination' and '--Allocation of Losses' for a description of
the manner in which such losses are borne by each Class of the Subordinated
Certificates. If a Class of Offered Certificates is purchased at a discount and
the purchaser calculates its anticipated yield to maturity based on an assumed
rate of payment of principal that is faster than the rate actually realized,
such purchaser's actual yield to maturity will be lower than the yield so
calculated by such purchaser.
PAYMENT LAG FEATURE
The Agreement provides that each Interest Accrual Period will be the
calendar month prior to each Remittance Date. Collections on the Contracts are
not distributed to the Holders of the Offered Certificates until at least the
15th day of the following month. As a result, the yield to the Holders of the
Certificates will be slightly lower than would be the case if each Interest
Accrual Period were to be from Remittance Date to Remittance Date.
S-11
<PAGE>
STRUCTURING ASSUMPTIONS
The information in the decrement tables has been prepared on the basis of
the following assumed characteristics of the Contracts and the following
additional assumptions (collectively, the 'Structuring Assumptions'): (i) the
Contracts prepay at the specified percentages of (as defined
below), (ii) no defaults or delinquencies in the payment by Obligors of
principal of and interest on the Contracts are experienced, (iii) the initial
Class Certificate Balance of each Class of Offered Certificates is as set forth
on the cover page hereof, (iv) interest accrues on each Class of Offered
Certificates in each period at the applicable Remittance Rate described herein,
(v) distributions in respect of the Offered Certificates are received in cash on
the 15th day of each month commencing in 199 , (vi) the Servicer does
not exercise its option to purchase the remaining Contracts, (vii) the Offered
Certificates are purchased on , 199 , (viii) scheduled payments on
the Contracts are received on the first day of each month commencing in the
calendar month following the Closing Date and are computed prior to giving
effect to prepayments received on the last day of the prior month, (ix)
prepayments represent prepayments in full of individual Contracts and are
received on the last day of each month and include 30 days' interest thereon,
commencing in the calendar month of the Closing Date, (x) the scheduled monthly
payment for each Contract has been calculated based on the assumed
characteristics set forth in the following table such that each Contract will
amortize in amounts sufficient to repay the balance of such Contract by its
indicated remaining term to maturity, and (xi) the Trust consists of
Contracts with the characteristics set forth in the following table. While it is
assumed that each of the Contracts prepays at the specified percentages of
, this is not likely to be the case. Moreover, discrepancies
will exist between the characteristics of the actual Contracts which will be
delivered to the Trustee and characteristics of the Contracts assumed in
preparing the tables herein.
Prepayments of contracts are commonly measured relative to a prepayment
standard or model. The model used with respect to the Offered Certificates is
the (' ') assumption. assumes
that a pool of manufactured housing contracts prepays in the first month at a
constant prepayment rate of % and increases by an additional % each month
thereafter until the month, where it remains at % per annum. The Constant
Prepayment Rate ('CPR') represents an assumed constant rate of prepayment each
month, expressed as an annual rate, relative to the then outstanding principal
balance of a pool of manufactured housing contracts for the life of such
manufactured housing contracts. Neither model purports to be either an
historical description of the prepayment experience of any pool of manufactured
housing contracts or a prediction of the anticipated rate of prepayment of any
manufactured housing contracts, including the Contracts to be included in the
Trust.
<TABLE>
<CAPTION>
CURRENT REMAINING TERM
MORTGAGE ORIGINAL TERM TO TO MATURITY
PRINCIPAL BALANCE($) RATE(%) MATURITY (MONTHS) (MONTHS)
- -------------------- -------- -------------------- --------------
<S> <C> <C> <C>
</TABLE>
DECREMENT TABLES
The following tables indicate, based on the Structuring Assumptions, the
percentages of the initial Class Certificate Balances of the Classes of Offered
Certificates that would be outstanding after each of the dates shown at various
percentages of and the corresponding weighted average lives of
such Classes. It is not likely that (i) all of the Contracts will have the
characteristics assumed or (ii) the Contracts will prepay at the specified
percentages of or at any other constant percentage. Moreover,
the diverse remaining terms to maturity of the Contracts could produce slower or
faster principal distributions than indicated in the tables at the specified
percentages of , even if the weighted average remaining term
to maturity of the Contracts is consistent with the remaining terms to maturity
of the Contracts specified in the Structuring Assumptions.
S-12
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL
BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
PERCENTAGE OF PERCENTAGE OF
------------------------------- -------------------------------
REMITTANCE DATE % % % % % % % % % %
- --------------------- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent......
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
--- --- --- --- --- --- --- --- --- ---
Weighted Average Life
(years)**..........
--- --- --- --- --- --- --- --- --- ---
--- --- --- --- --- --- --- --- --- ---
</TABLE>
- ------------------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of such Certificate on each Remittance Date by the number of years
from the date of issuance to such Remittance Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
S-13
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE
BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-3 CLASS A-4
PERCENTAGE OF PERCENTAGE OF
------------------------------- -------------------------------
DISTRIBUTION DATE % % % % % % % % % %
- --------------------- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent......
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
--- --- --- --- --- --- --- --- --- ---
Weighted Average Life
(years)**..........
--- --- --- --- --- --- --- --- --- ---
--- --- --- --- --- --- --- --- --- ---
</TABLE>
- ------------------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of such Certificate on each Remittance Date by the number of years
from the date of issuance to such Remittance Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
S-14
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE
BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-5 CLASS B-1
PERCENTAGE OF PERCENTAGE OF
------------------------------- -------------------------------
REMITTANCE DATE % % % % % % % % % %
- --------------------- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent......
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
--- --- --- --- --- --- --- --- --- ---
Weighted Average Life
(years)**..........
--- --- --- --- --- --- --- --- --- ---
--- --- --- --- --- --- --- --- --- ---
</TABLE>
- ------------------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of such Certificate on each Remittance Date by the number of years
from the date of issuance to such Remittance Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
S-15
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE
BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS B-2
PERCENTAGE OF
-------------------------------
REMITTANCE DATE % % % % %
- --------------------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percent......
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
--- --- --- --- ---
Weighted Average Life
(years)**..........
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
- ------------------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of such Certificate on each Remittance Date by the number of years
from the date of issuance to such Remittance Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
S-16
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Agreement. Set forth below
are summaries of the specific terms and provisions pursuant to which the
Certificates will be issued. The following summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreement. When particular provisions or terms used in
the Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference.
The Manufactured Housing Contract Pass-Through Certificates, Series 199 -
will consist of the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5
Certificates (collectively, the 'Senior Certificates') and the Class B-1, Class
B-2, Class B-3 and Class R Certificates (collectively, the 'Subordinated
Certificates'). The Senior Certificates and the Subordinated Certificates are
collectively referred to herein as the 'Certificates.' Only the Senior
Certificates and the Class B-1 and Class B-2 Certificates (collectively, the
'Offered Certificates') are offered hereby. The Classes of Offered Certificates
will have the respective initial Class Certificate Balances (subject to the
permitted variance) and Remittance Rates set forth or described on the cover
hereof.
The Class Certificate Balance of any Class of Certificates as of any
Remittance Date is the initial Class Certificate Balance thereof reduced by the
sum of (i) all amounts previously distributed to holders of Certificates of such
Class as payments of principal and (ii) the amount of Realized Losses allocated
to such Class.
The Senior Certificates will evidence in the aggregate an initial
beneficial ownership interest of approximately % in the Trust. The Class
B-1, Class B-2 and Class B-3 Certificates will each evidence in the aggregate an
initial beneficial ownership interest of approximately %, % and
%, respectively, in the Trust.
BOOK-ENTRY CERTIFICATES
Each Class of Offered Certificates will be issued in one or more
certificates which equal the aggregate initial Class Certificates Balance of
each such Class of Certificates and which will be held by a nominee of The
Depository Trust Company (together with any successor depository selected by the
Depositor, the 'Depository'). Beneficial interests in such Certificates (the
'Book-Entry Certificates') will be held indirectly by investors through the
book-entry facilities of the Depository, as described herein. Investors may hold
such beneficial interests in the Book-Entry Certificates in minimum
denominations representing an original principal amount of $25,000 and integral
multiples of $1,000 in excess thereof. One investor of each Class of Book-Entry
Certificates may hold a beneficial interest therein that is not an integral
multiple of $1,000. The Depositor has been informed by the Depository that its
nominee will be CEDE & Co. ('CEDE'). Accordingly, CEDE is expected to be the
holder of record of the Book-Entry Certificates. Except as described in the
Prospectus under 'Description of the Certificates--Book-Entry Certificates,' no
person acquiring a Book-Entry Certificate (each, a 'Certificate Owner') will be
entitled to receive a physical certificate representing such Certificate (a
'Definitive Certificate').
Unless and until Definitive Certificates are issued, it is anticipated that
the only 'Certificateholder' of the Book-Entry Certificates will be CEDE, as
nominee of the Depository. Owners of the Book-Entry Certificates will not be
Certificateholders, as that term is used in the Agreement. Certificate Owners
are only permitted to exercise the rights of Certificateholders indirectly
through Financial Intermediaries and the Depository. Monthly and annual reports
on the Trust provided to CEDE, as nominee of the Depository, may be made
available to Certificate Owners upon request, in accordance with the rules,
regulations and procedures creating and affecting the Depository, and to the
Financial Intermediaries to whose Depository accounts the Book-Entry
Certificates of such Certificate Owners are credited.
For a description of the procedures generally applicable to the Book-Entry
Certificates, see 'Description of the Certificates--Book-Entry Certificates' in
the Prospectus.
S-17
<PAGE>
DISTRIBUTIONS
Distributions on the Certificates will be made by the Trustee on the 15th
day of each month, or if such day is not a business day, on the first business
day thereafter, commencing in 199 (each, a 'Remittance Date'), to the
persons in whose names such Certificates are registered at the close of business
on the last business day of the month preceding the month of such Remittance
Date (the 'Record Date').
Distributions on each Remittance Date will be made by check mailed to the
address of the person entitled thereto as it appears on the applicable
certificate register or, in the case of a Certificateholder who holds 100% of a
Class of Certificates or who holds Certificates with an aggregate initial
Certificate Balance of $ or more and who has so notified the Trustee in
writing in accordance with the Agreement, by wire transfer in immediately
available funds to the account of such Certificateholder at a bank or other
depository institution having appropriate wire transfer facilities; provided,
however, that the final distribution in retirement of the Certificates will be
made only upon presentment and surrender of such Certificates at the Corporate
Trust Office of the Trustee.
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES
As more fully described herein, distributions will be made on each
Remittance Date from the Amount Available in the following order of priority:
(i) to interest on each interest-bearing Class of Senior Certificates; (ii) to
principal of the Classes of Senior Certificates then entitled to receive
distributions of principal, in the order and subject to the priorities set forth
herein under '--Principal'); and (iii) to interest on and then principal of each
Class of Subordinated Certificates, in the order of their numerical Class
designations, beginning with the Class B-1 Certificates, subject to certain
limitations set forth herein under '--Principal.'
INTEREST
The Remittance Rate for each Class of Offered Certificates for each
Distribution Date is as set forth or described on the cover hereof.
On each Remittance Date, to the extent of funds available therefor, each
interest-bearing Class of Certificates will be entitled to receive an amount
allocable to interest (as to each such Class, the 'Interest Distribution
Amount') with respect to the related Interest Accrual Period. The Interest
Distribution Amount for any interest-bearing Class will be equal to the sum of
(i) interest at the applicable Remittance Rate on the related Class Certificate
Balance and (ii) the sum of the amounts, if any, by which the amount described
in clause (i) above on each prior Remittance Date exceeded the amount actually
distributed as interest on such prior Remittance Dates and not subsequently
distributed ('Unpaid Interest Amounts').
With respect to each Remittance Date, the 'Interest Accrual Period' for
each interest-bearing Class of Certificates will be the calendar month preceding
the month of such Remittance Date.
Accrued interest to be distributed on any Remittance Date will be
calculated, in the case of each interest-bearing Class of Certificates, on the
basis of the related Class Certificate Balance immediately prior to such
Remittance Date. Interest will be calculated and payable on the basis of a
360-day year divided into twelve 30-day months.
In the event that, on a particular Remittance Date, the Amount Available
applied in the order described above under '--Priority of Distributions Among
Certificates' are not sufficient to make a full distribution of the interest
entitlement on the Certificates, interest will be distributed on each Class of
Certificates of equal priority based on the amount of interest each such Class
would otherwise have been entitled to receive in the absence of such shortfall.
Any such unpaid amount will be carried forward and added to the amount holders
of each such Class of Certificates will be entitled to receive on the next
Remittance Date. Such a shortfall could occur, for example, if losses realized
on the Contracts were exceptionally high or were concentrated in a particular
month. Any such unpaid amount will bear interest at the applicable Remittance
Rate to the extent permitted by law.
S-18
<PAGE>
PRINCIPAL
General. All payments and other amounts received in respect of principal
of the Contracts will be allocated between the Senior Certificates and the
Subordinated Certificates.
Senior Principal Distribution Amount. On each Remittance Date, the Amount
Available remaining after distribution of interest on the Senior Certificates,
up to the amount of the Senior Principal Distribution Amount for such Remittance
Date, will be distributed sequentially, to the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificates, in that order, until the respective Class
Certificate Balances thereof are reduced to zero.
Subordinated Principal Distribution Amount. On each Remittance Date, the
Amount Available remaining after distributions of interest on and principal of
the Senior Certificates and distributions of interest on the Subordinated
Certificates in the priority described above under '--Priority of
Distributions,' up to the amount of the Subordinated Principal Distribution
Amount for such Remittance Date, will be distributed sequentially, to the Class
B-1, Class B-2 and Class B-3 Certificates, in that order, until the respective
Class Certificate Balances thereof are reduced to zero.
For purposes of the foregoing, the following terms have the respective
meanings set forth below:
'Class B Principal Distribution Test' means: (i) the Average Sixty-Day
Delinquency Ratio (as defined in the Agreement) as of such Remittance Date must
not exceed %; (ii) the Average Thirty-Day Delinquency Ratio (as defined in
the Agreement) as of such Remittance Date must not exceed %; (iii) the
cumulative Realized Losses (as defined in the Agreement) as of such Remittance
Date must not exceed a certain specified percentage of the Cut-off Date Pool
Principal Balance, depending on the year in which such Remittance Date occurs;
(iv) the Current Realized Loss Ratio (as defined in the Agreement) as of such
Remittance Date must not exceed %; (v) the Class B Principal Balance Test
(as defined in the Agreement) must be equal to or greater than %; and (vi)
the aggregate Class Certificate Balance of the Subordinated Certificates must
not be less than $ .
'Cross-Over Date' means the later to occur of (a) the Remittance Date in
, 199 and (b) the first Remittance Date on which the aggregate Class
Certificate Balance of the Subordinated Certificates equals or exceeds % of
the Pool Scheduled Principal Balance.
'Formula Principal Distribution Amount' means, with respect to any
Remittance Date, the sum of (i) all scheduled payments of principal due on each
outstanding Contract during the month preceding the month in which the
Remittance Date occurs, (ii) the Scheduled Principal Balance of each Contract
which, during the month preceding the month of such Remittance Date, was
purchased by the Servicer or repurchased by the Originator pursuant to the
Agreement, (iii) all Partial Principal Prepayments applied and all Principal
Prepayments in Full received during such preceding month, and (iv) the Scheduled
Principal Balance of each Contract that became a Liquidated Contract during such
preceding month.
'Liquidated Contract' means a defaulted Contract with respect to which the
Servicer has determined that all recoverable liquidation and insurance proceeds
have been received.
'Pool Scheduled Principal Balance' means the aggregate of the Scheduled
Principal Balances of the Contracts.
'Scheduled Principal Balance' means the unpaid principal balance of a
Contract as specified in the amortization schedule at the time relating thereto
(before any adjustment to such schedule by reason of bankruptcy, moratorium or
similar waiver or grace period) as of the Due Date in the Due Period next
preceding such Remittance Date, after giving effect to any previous partial
prepayments and to the payment of principal due on such Due Date and
irrespective of any delinquency in payment on such Contract.
'Senior Percentage' means (a) for any Remittance Date prior to the
Cross-Over Date and any Remittance Date on or after the Cross-Over Date on which
any Class B Principal Distribution Test is not satisfied, 100% and (b) for any
other Remittance Date, the percentage equivalent of a fraction, the numerator of
which is the aggregate Class Certificate Balance of the Senior Certificates
immediately prior to such Remittance Date and the denominator of which is the
Pool Scheduled Principal Balance.
S-19
<PAGE>
'Senior Principal Distribution Amount' means for any Remittance Date, the
Senior Percentage of the Formula Principal Distribution Amount.
'Subordinated Percentage' means for any Remittance Date, 100% minus the
Senior Percentage for such Remittance Date.
'Subordinated Principal Distribution Amount' means for any Remittance Date,
the Subordinated Percentage of the Formula Principal Distribution Amount.
SUBORDINATION OF CERTAIN CLASSES
The rights of the holders of the Subordinated Certificates to receive
distributions with respect to the Contracts will be subordinated to such rights
of the holders of the Senior Certificates, and the rights of the holders of each
Class of Subordinated Certificates (other than the Class B-1 Certificates) to
receive such distributions will be further subordinated to such rights of the
holders of the Class or Classes of Subordinated Certificates with lower
numerical Class designations, in each case only to the extent described herein.
The subordination of the Subordinated Certificates to the Senior Certificates
and the further subordination within the Subordinated Certificates is intended
to increase the likelihood of timely receipt by the holders of Certificates with
a higher relative payment priority of the maximum amount to which they are
entitled on any Remittance Date and to provide such holders protection against
Realized Losses. The protection afforded by means of the subordination feature
will be accomplished by the preferential right of the Certificateholders with
higher relative payment priority to receive, prior to any distribution being
made on a Remittance Date in respect of the Certificates with relatively lower
payment priority, the amount of principal and interest due them on each
Remittance Date out of the Amount Available on deposit on such date in the
Certificate Account and by the right of the Certificateholders with higher
relative payment priority to receive future distributions on the Contracts that
would otherwise be payable to the holders of Certificates with relatively lower
payment priority.
ALLOCATION OF LOSSES
On each Remittance Date, any Realized Loss will be allocated first to the
Subordinated Certificates, in the reverse order of their numerical Class
designations (beginning with the Class of Subordinated Certificates then
outstanding with the highest numerical Class designation), in each case until
the Class Certificate Balance of the respective Class of Certificates has been
reduced to zero, and then to the Senior Certificates pro rata, based upon their
respective Class Certificate Balances. In general, a 'Realized Loss' means, with
respect to a Liquidated Contract, the amount by which the remaining unpaid
principal balance of the Contract exceeds the amount of Liquidation Proceeds
applied to the principal balance of the related Contract.
Because principal distributions are paid to certain Classes of Certificates
before other Classes of Certificates, holders of Certificates that are entitled
to receive principal later bear a greater risk of being allocated Realized
Losses on the Contracts than holders of Classes that are entitled to receive
principal earlier.
OPTIONAL TERMINATION
The Agreement provides that on any Remittance Date on which the Pool
Scheduled Principal Balance is less than 10% of the Cut-off Date Pool Principal
Balance, the Servicer will have the option to repurchase all outstanding
Contracts at a price equal to the greater of (a) the sum of (x) 100% of the
Scheduled Principal Balance of each Contract (other than any Contract as to
which the related Manufactured Home has been repossessed and whose fair market
value is included pursuant to clause (y) below) as of the final Remittance Date
and (y) the fair market value of such acquired property and (b) the aggregate
fair market value of all of the assets of the Trust, plus, in each case, any
unpaid interest at the related Remittance Rates on each Class of Certificates as
well as one month's interest at the applicable Contract Rate on the Scheduled
Principal Balance of each Contract (including any Contract as to which the
related Manufactured Home has been repossessed).
S-20
<PAGE>
THE TRUSTEE
(the 'Trustee') has its corporate trust offices at
, , . The Trustee and certain
of its affiliates maintain commercial banking relationships with the Servicer
and its affiliates.
THE MANUFACTURED HOUSING PROGRAM
The Contracts were originated or purchased by the Originator in accordance
with the policies and procedures described under 'The Manufactured Housing
Program' in the Prospectus.
The volume of Contracts purchased or originated by the Originator for the
periods indicated and certain other information at the end of such periods are
as follows:
CONTRACTS ORIGINATED OR PURCHASED ON AN INDIVIDUAL BASIS
<TABLE>
<CAPTION>
MONTHS THREE MONTHS
ENDED ENDED
, 199 (1) , 199
---------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Principal balance of contracts purchased.................... $ $
Number of contracts purchased...............................
Average contract size(2).................................... $ $
Average interest rate(2)(3)................................. % %
</TABLE>
- ------------------
(1) The Originator commenced originating and purchasing manufactured housing
contracts on a limited basis in November 1995. Consequently, the ,
199 column covers the Originator's first months of operation.
(2) As of period end.
(3) Weighted average gross coupon.
The following tables show the size of the portfolio of manufactured housing
contracts originated by the Originator and serviced by the Servicer, together
with certain delinquency, loan loss and liquidation experience on the dates
indicated.
SIZE OF SERVICED PORTFOLIO
<TABLE>
<CAPTION>
AS OF AS OF
, 199 (1) , 199
---------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unpaid principal balance of contracts being serviced........ $ $
Average unpaid principal balance............................ $ $
Number of contracts being serviced..........................
</TABLE>
- ------------------
(1) The Originator commenced originating and purchasing manufactured housing
contracts on a limited basis in November 1995. Consequently, the ,
199 column covers the Originator's first months of operation.
S-21
<PAGE>
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AS OF AS OF
, 199 (1) , 199 (1)
-------------------- --------------------
<S> <C> <C>
Number of contracts outstanding(2).................
Number of contracts delinquent(3):
30-59 days.......................................
60-89 days.......................................
90 days or more..................................
Total contracts delinquent.........................
Delinquencies as a percentage of contracts
outstanding(4)................................... % %
</TABLE>
- ------------------
(1) The Originator commenced originating and purchasing manufactured housing
contracts on a limited basis in November 1995. Consequently, the
, 199 column covers the Originator's first months of
operation.
(2) Excludes contracts already held in repossession.
(3) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months).
(4) As a percentage of the total number of contracts outstanding as of period
end.
LOAN LOSS/LIQUIDATION EXPERIENCE
<TABLE>
<CAPTION>
MONTHS THREE MONTHS
ENDED ENDED
, 199 (1) , 199
-------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Number of contracts serviced(2)....................
Principal balance of contracts serviced(2)......... $ $
Contract liquidations.............................. % %
Net losses:
Dollars(4)....................................... $ $
Percentage(5).................................... % %
</TABLE>
- ------------------
(1) The Originator commenced originating and purchasing manufactured housing
contracts on a limited basis in November 1995. Consequently, the
, 199 column covers the Originator's first months of
operation.
(2) As of period end. Includes contracts already in repossession.
(3) As a percentage of the total number of contracts being serviced as of period
end. The percentage for the three months ending , 199 is not
annualized.
(4) The calculation of net loss on liquidated contracts includes unpaid interest
to the date of repossession and all expenses of repossession and
liquidation. The dollar amount for the three months ending ,
199 is not annualized.
(5) As a percentage of the aggregate principal balance of contracts being
serviced as of period end. The percentage for the three months ending
, 199 is not annualized.
S-22
<PAGE>
USE OF PROCEEDS
The net proceeds to be received from the sale of the Offered Certificates
will be used by the Depositor to purchase the Contracts and to pay the costs of
carrying the Contracts until the sale of the Certificates and other expenses
connected with pooling the Contracts and issuing the Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
imposes certain restrictions on employee benefit plans that are subject to ERISA
('Plans') and on persons who are fiduciaries with respect to such Plans.
Employee benefit plans that are governmental plans (as defined in section 3(32)
of ERISA) and certain church plans (as defined in Section 3(33) of ERISA) are
not subject to ERISA requirements. Accordingly, assets of such plans may be
invested in the Senior Certificates without regards to the ERISA restrictions
described above, subject to applicable provisions of other federal and state
laws. However, any such governmental or church plan which is qualified under
section 401(a) of the Code and exempt from taxation under section 501(a) of the
Code is subject to the prohibited transaction rules set forth in section 503 of
the Code.
The U.S. Department of Labor ('DOL') has granted an administrative
exemption to (Prohibited Transaction Exemption ; Exemption
Application No. , Fed. Reg. ( )) (the
'Exemption') from certain of the prohibited transaction rules of ERISA and the
Code with respect to the initial purchase, the holding and the subsequent resale
by Plans of certificates representing interests in asset-backed pass-through
trusts that consist of certain receivables, loans and other obligations that
meet the conditions and requirements of the Exemption. The receivables covered
by the Exemption include manufactured housing installment sales contracts and
installment loan agreements such as the Contracts. The Exemption will apply to
the acquisition, holding, and resale of the Senior Certificates by a Plan,
provided that specified conditions (certain of which are described below) are
met.
Among the conditions which must be satisfied for the Exemption to apply to
the Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Plan is on terms
(including the price for the Senior Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Senior Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust;
(3) The Senior Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from any of Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc., Moody's Investors Service, Inc., Duff &
Phelps Credit Rating Co. or Fitch Investors Service, Inc.;
(4) The Trustee is not an affiliate of any member of the Restricted
Group (as defined below);
(5) The sum of all payments made to the Underwriters in connection
with the distribution of the Senior Certificates represents not more than
reasonable compensation for underwriting the Senior Certificates. The sum
of all payments made to and retained by the Depositor pursuant to the sale
of the Contracts to the Trust represents not more than the fair market
value of such Contracts. The sum of all payments made to and retained by
the Servicer represents not more than reasonable compensation for the
Servicer's services under the Agreement and reimbursement of the Servicer's
reasonable expenses in connection therewith; and
(6) The Plan investing in the Senior Certificates is an 'accredited
investor' as defined in Rule 501 (a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933.
Moreover, the Exemption would provide relief from certain
self-dealing/conflict of interest prohibited transactions only if, among other
requirements, (i) in the case of the acquisition of Senior Certificates in
connection with the initial issuance, at least fifty (50) percent of the Senior
Certificates are acquired by persons independent of the Restricted Group (as
defined below), (ii) the Plan's investment in Senior Certificates does not
exceed twenty-five (25) percent of all of the Senior Certificates outstanding at
the time of the acquisition and
S-23
<PAGE>
(iii) immediately after the acquisition, no more than twenty-five (25) percent
of the assets of the Plan are invested in certificates representing an interest
in one or more trusts containing assets sold or serviced by the same entity. The
Exemption does not apply to Plans sponsored by the Originator, the Depositor,
the Underwriters, the Trustee, the Servicer, any obligor with respect to
Contracts included in the Trust constituting more than five (5) percent of the
aggregate unamortized principal balance of the assets in the Trust or any
affiliate of such parties (the 'Restricted Group').
No transfer of a Subordinated Certificate will be permitted to be made to a
Plan unless such Plan, at its expense, delivers to the Trustee and the Depositor
an opinion of counsel (in form satisfactory to the Trustee and the Depositor) to
the effect that the purchase or holding of a Subordinated Certificate by such
Plan will not result in the assets of the Trust being deemed to be 'plan assets'
and subject to the prohibited transaction provisions of ERISA and the Code and
will not subject the Trustee, the Depositor or the Servicer to any obligation or
liability in addition to those undertaken in the Agreement. Unless such opinion
is delivered, each person acquiring a Subordinated Certificate will be deemed to
represent to the Trustee, the Depositor and the Servicer that such person is
neither a Plan, nor acting on behalf of a Plan, subject to ERISA or to Section
4975 of the Code.
LEGAL INVESTMENT CONSIDERATIONS
The Subordinated Certificates will not constitute 'mortgage related
securities' under the Secondary Mortgage Market Enhancement Act of 1984. The
appropriate characterization of the Subordinated Certificates under various
legal investment restrictions, and thus the ability of investors subject to
these restrictions to purchase Subordinated Certificates, may be subject to
significant interpretive uncertainties. All investors whose investment authority
is subject to legal restrictions should consult their own legal advisors to
determine whether, and the extent to which, the Subordinated Certificates will
constitute legal investments for them.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the 'Underwriting Agreement') among the Depositor and the Underwriters named
below (the 'Underwriters'), the Depositor has agreed to sell to the
Underwriters, and each Underwriter has severally agreed to purchase from the
Depositor, the principal amount of each Class of Offered Certificates set forth
below after its name.
<TABLE>
<CAPTION>
UNDERWRITER CLASS PRINCIPAL AMOUNT
- --------------------------------------------- ----- ----------------
<S> <C> <C>
[Name of Underwriter]........................ A-1 $
A-2 $
A-3 $
A-4 $
A-5 $
B-1 $
B-2 $
----------------
Total:.................................. $ $
----------------
----------------
[Name of Underwriter]........................ A-1 $
A-2 $
A-3 $
A-4 $
A-5 $
B-1
B-2 $
----------------
Total:.................................. $
----------------
----------------
</TABLE>
S-24
<PAGE>
The Offered Certificates will be offered by the Underwriters from time to
time in negotiated transactions or otherwise, at varying prices to be determined
at the time of sale. Proceeds to the Depositor, including accrued interest, are
expected to be approximately % of the aggregate principal balance of the
Offered Certificates, before deducting expenses payable by the Depositor in
connection with the Offered Certificates, estimated to be $ . In connection
with the purchase and sale of the Offered Certificates, the Underwriters may be
deemed to have received compensation from the Depositor in the form of
underwriting discounts.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
CERTAIN LEGAL MATTERS
Certain tax matters concerning the issuance of the Certificates will be
passed upon by Stroock & Stroock & Lavan, New York, New York. Certain legal
matters relating to the validity of the Certificates will be passed upon for the
Underwriters by Stroock & Stroock & Lavan, New York, New York. Stroock & Stroock
& Lavan represents the Servicer and United Companies Financial Corporation, an
affiliate of the Depositor and the Servicer, from time to time.
RATINGS
It is a condition of the original issuance of the Offered Certificates that
they receive ratings of by and by
. Such ratings are the highest long-term ratings assigned to
securities by such rating agencies. The ratings do not address the possibility
that, as a result of principal prepayments, Certificateholders may receive a
lower than anticipated yield. The ratings will be the views only of such rating
agencies. There is no assurance that nay such ratings will continue for any
period of time or that such ratings will not be revised or withdrawn. Any such
revision or withdrawal of such ratings may have an adverse effect on the market
price of the Offered Certificates. A security rating is not a recommendation to
buy, sell or hold securities.
S-25
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED SEPTEMBER 11, 1996
PROSPECTUS
UCFC FUNDING CORPORATION
(DEPOSITOR)
MANUFACTURED HOUSING CONTRACT
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
------------------------
This Prospectus relates to $ original aggregate principal amount
of Manufactured Housing Contract Pass-Through Certificates (the 'Certificates'),
issuable in series (each, a 'Series'), which may be sold from time to time under
this Prospectus and a Prospectus Supplement for each such Series. The
Certificates of a Series evidence specified interests in one or more trust funds
(each, a 'Trust'), the primary assets of which will consist of one or more pools
(each, a 'Pool') of manufactured housing installment sales contracts and
manufactured housing installment loan agreements (the 'Contracts'). If specified
in the Prospectus Supplement, a portion of the proceeds of the sale of a Series
of Certificates, not to exceed fifty percent of the aggregate original principal
balance of such Certificates, will be deposited in one or more Pre-Funding
Accounts and used to purchase additional Contracts during the period of time,
not to exceed six months, specified in such Prospectus Supplement. Except as
otherwise specified in the related Prospectus Supplement, the Contracts will
have been originated or acquired in the ordinary course of business primarily by
United Companies Funding, Inc. (the 'Originator'). If specified in the related
Prospectus Supplement, credit enhancement with respect to a Series or any Class
of Certificates may be provided by pool insurance, letters of credit, surety
bonds, a guarantee, cash reserve funds, derivative products or other forms of
credit enhancement, or any combinations thereof.
Each Series of Certificates will be issued in one or more classes (each, a
'Class'). Each Class of Certificates will evidence a beneficial ownership
interest of a specified percentage (which may be 0%) or portion of future
interest payments and a specified percentage (which may be 0%) or portion of
future principal payments on the Contracts in the related Trust. A Series of
Certificates may include one or more senior Classes (the 'Senior Certificates')
that receive certain preferential treatment with respect to one or more other
Classes of Certificates of such Series (the 'Subordinated Certificates').
There will have been no public market for any Certificates sold hereunder
prior to the offering thereof and there is no assurance that any such market
will develop. The Underwriters named in the Prospectus Supplement relating to a
Series may from time to time buy and sell Certificates of such Series, but there
can be no assurance that an active secondary market therefor will develop, and
there is no assurance that any such market, if established, will continue or
will provide investors with sufficient liquidity of investment.
If specified in a Prospectus Supplement, one or more elections may be made
to treat each Trust or specified portions thereof as a 'real estate mortgage
investment conduit' (a 'REMIC') for federal income tax purposes. See 'Federal
Income Tax Considerations' herein.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION UNDER 'RISK FACTORS'
BEGINNING ON PAGE 8.
------------------------
THE CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
DEPOSITOR, THE ORIGINATOR, THE SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES.
THE CERTIFICATES WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY, OR (EXCEPT AS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS
SUPPLEMENT) BY ANY OTHER PERSON OR ENTITY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus may not be used to consummate sales of a Series of
Certificates unless accompanied by a Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Certificates to be
offered hereunder, among other things, will set forth with respect to such
Series of Certificates: (i) a description of the Class or Classes of such
Certificates; (ii) the rate of interest or other applicable rate (or the manner
of determining such rate) and authorized denominations of each Class of such
Certificates; (iii) certain information concerning the Contracts and insurance
policies, cash accounts, letters of credit, financial guaranty insurance
policies, third party guarantees or other forms of credit enhancement, if any,
relating to one or more Pools or all or part of the related Certificates; (iv)
the specified interest of each Class of Certificates in, and the manner and
priority of, the distributions on the Contracts; (v) information as to the
nature and extent of subordination with respect to such Series of Certificates,
if any; (vi) the Remittance Dates; (vii) information regarding the Servicer;
(viii) the circumstances, if any, under which each Trust may be subject to early
termination; (ix) whether a REMIC election will be made and the designation of
the regular and residual interest therein; and (x) additional information with
respect to the plan of distribution of such Certificates.
AVAILABLE INFORMATION
The Depositor has filed a Registration Statement under the Securities Act
of 1933, as amended (the '1933 Act'), with the Securities and Exchange
Commission (the 'Commission') with respect to the Certificates. The Registration
Statement and amendments thereof and the exhibits thereto are available for
inspection without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; 75 Park Place,
Room 1102, New York, New York 10007; and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of the Registration Statement and
amendments thereof and exhibits thereto may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains an Internet Web site that
contains reports, information statements and other information regarding the
registrants that file electronically with the Commission, including the
Depositor. The address of such Internet Web site is (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual reports concerning the Certificates and the related
Trust will be provided to the Certificateholders. See 'Description of the
Certificates--Reports to Certificateholders.' If the Certificates of a Series
are to be issued in book-entry form, such reports will be provided to the
Certificateholder of record and beneficial owners of such Certificates will have
to rely on the procedures described herein under 'Description of the
Certificates--Book-Entry Registration.' The Depositor will file or cause to be
filed with the Commission such periodic reports with respect to each Trust as
may be required under the Securities Exchange Act of 1934, as amended, as the
same may be modified by the Commission pursuant to the request of the Depositor.
Because of the limited number of Certificateholders expected for each Series,
the Depositor anticipates that such reporting obligations will be permanently
suspended following the first fiscal year of each Trust. The Depositor does not
intend to file such reports if its obligation to do so is suspended.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of each Trust referred to
in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the 'Exchange Act'), after the date of this Prospectus and prior to the
termination of any offering of the Certificates issued by such Trust shall be
deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for all purposes of this
Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
replaces such statement. Any such statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Depositor will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Such requests should be directed to UCFC Funding Corporation,
4041 Essen Lane, Baton Rouge, Louisiana 70809 Attention: Secretary, telephone
(504) 924-6007.
2
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the accompanying
Prospectus Supplement. Capitalized terms used and not otherwise defined herein
or in the related Prospectus Supplement will have the respective meanings
assigned them in the 'Glossary.'
<TABLE>
<S> <C>
Title of Securities...... Manufactured Housing Contract Pass-Through
Certificates (Issuable in Series) (the
'Certificates').
Depositor................ UCFC Funding Corporation, a Louisiana corporation. The
principal office of the Depositor is located in Baton
Rouge, Louisiana. See 'The Depositor.'
Servicer................. United Companies Lending Corporation(Registered), a
Louisiana corporation and an affiliate of the
Depositor. The Servicer may service the contracts
through one or more sub-servicers. The principal
office of the Servicer is located in Baton Rouge,
Louisiana. See 'The Manufactured Housing Program.'
Originator............... United Companies Funding, Inc., a Louisiana
corporation and an affiliate of the Depositor and the
Servicer. The principal office of the Originator is
located in Minneapolis, Minnesota. See 'The
Manufactured Housing Program.'
Trustee.................. The Trustee for each Series of Certificates will be
specified in the related Prospectus Supplement.
The Contracts............ The primary assets of each Trust will consist of one
or more pools (each, a 'Pool') of manufactured housing
installment sales contracts and manufactured housing
installment loan agreements ('Chattel Contracts').
Each Chattel Contract will be secured by a new or used
Manufactured Home (as defined herein). Other contracts
will be secured by a mortgage or deed of trust on the
Manufactured Home and the real estate to which the
Manufactured Home is deemed permanently affixed (a
'Land-and-Home Contract' and collectively with Chattel
Contracts, the 'Contracts'). As described in the
related Prospectus Supplement, the Contracts may bear
fixed or adjustable rates of interest (each, a
'Contract Rate'). Contracts may be conventional
contracts or contracts insured by the Federal Housing
Authority (the 'FHA') or partially guaranteed by the
Veterans Administration (the 'VA').
The Prospectus Supplement for each Series will contain
information as of the date specified in the Prospectus
Supplement (the 'Cut-off Date') and to the extent then
specifically known to the Depositor with respect to
the Contracts in the related Pools, including: (i) the
range of the dates of origination of the Contracts;
(ii) the range of the Contract Rates and the weighted
average Contract Rate; (iii) the range of
Loan-to-Value Ratios at origination and the weighted
average Loan-to-Value Ratio at origination; (iv) the
minimum and maximum outstanding principal balances as
of the Cut-off Date and the average outstanding
principal balance as of the Cut-off Date; (v) the
aggregate principal balances of the Contacts; (vi) the
weighted average and range of scheduled terms to
maturity as of the Cut-off Date; (vii) the original
maturities of the Contracts and the last
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
maturity date of any Contract; (viii) and the
locations of the Manufactured Homes securing the
Contracts.
It is expected that the Contracts primarily will have
been originated or purchased by the Originator;
however, certain Contracts may have been purchased by
the Depositor, the Originator or affiliates thereof in
the open market or in privately negotiated
transactions.
Description of
Certificates........... Each Series of Certificates will be issued pursuant to
a Pooling and Servicing Agreement (each, an
'Agreement') among the Depositor, the Servicer and the
Trustee. Each Certificate will evidence an interest in
one or more trust funds (each, a 'Trust') created
pursuant to the related Agreement.
The Certificates of any Series may be issued in one or
more Classes, as specified in the related Prospectus
Supplement. A Series of Certificates may include one
or more Classes of senior Certificates (collectively,
the 'Senior Certificates') which receive certain
preferential treatment specified in the related
Prospectus Supplement with respect to one or more
Classes of subordinate Certificates (collectively, the
'Subordinated Certificates'). Each Class of
Certificates within a Series will evidence the
interests specified in the related Prospectus
Supplement, which may (i) include the right to receive
distributions allocable only to principal, only to
interest or to any combination thereof; (ii) include
the right to receive distributions only of prepayments
of principal throughout the lives of the Certificates
or during specified periods; (iii) be subordinated in
the right to receive distributions of scheduled
payments of principal, prepayments of principal,
interest or any combination thereof to one or more
other Classes of Certificates of such Series
throughout the lives of the Certificates or during
specified periods or may be subordinated with respect
to certain losses or delinquencies; (iv) include the
right to receive such distributions only after the
occurrence of events specified in the Prospectus
Supplement; (v) include the right to receive
distributions in accordance with a schedule or formula
or on the basis of collections from designated
portions of the assets in the related Trust; (vi)
include, as to Certificates entitled to distributions
allocable to interest, the right to receive interest
at a fixed rate or an adjustable rate; and (vii)
include, as to Certificates entitled to distributions
allocable to interest, the right to distributions
allocable to interest only after the occurrence of
events specified in the related Prospectus Supplement,
and in each case, may accrue interest until such
events occur, as specified in such Prospectus
Supplement. The timing and amounts of such
distributions may vary among Classes, over time, or
otherwise as specified in the related Prospectus
Supplement. Unless otherwise specified in the related
Prospectus Supplement, the Certificates will be
issuable in fully registered form, in the minimum
denominations set forth in such Prospectus Supplement.
See 'Description of the Certificates.'
Subordinated
Certificates........... One or more Classes of any Series may be Subordinated
Certificates, as specified in the related Prospectus
Supplement. The rights of the Subordinated
Certificateholders to receive any or a specified
portion of distributions with respect to the Contracts
will be subordinated to the rights of the holders
('Certificateholders' or
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
'Holders') of Senior Certificates to the extent and in
the manner specified in the related Prospectus
Supplement. If a Series of Certificates contains more
than one Class of Subordinated Certificates,
distributions and losses will be allocated among such
Classes in the manner specified in the related
Prospectus Supplement. This subordination is intended
to enhance the likelihood of regular receipt by
Holders of Certificates with a higher payment priority
of the full amount of scheduled monthly payments of
principal and interest due them and to protect such
Holders against losses.
Credit Enhancement....... As an alternative, or in addition, to the credit
enhancement afforded by subordination of the
Subordinated Certificates, credit enhancement with
respect to a Series or any Class of Certificates may
be provided by pool insurance, letters of credit,
surety bonds, a guarantee, cash reserve funds,
derivative products or other forms of credit
enhancement or any combinations thereof (collectively,
'Enhancement'). The Enhancement with respect to any
Series or any Class of Certificates may be structured
to provide protection against delinquencies and/or
losses on the Contracts, against changes in interest
rates, or other risks, to the extent and under the
conditions specified in the related Prospectus
Supplement. Unless otherwise specified in the related
Prospectus Supplement, any form of Enhancement will
have certain limitations and exclusions from coverage
thereunder, which will be described in the related
Prospectus Supplement. Further information regarding
any third party provider of Enhancement (the
'Enhancer'), including financial information when
material, will be included in the related Prospectus
Supplement. See 'Credit Enhancement.'
Pre-Funding and
Capitalized Interest
Accounts............... If specified in the related Prospectus Supplement, a
Trust will include one or more segregated trust
accounts (each, a 'Pre-Funding Account') for the
related Series. If so specified, on the closing date
for such Series, a portion of the proceeds of the sale
of the Certificates of such Series (such amount, the
'Pre-Funded Amount') will be deposited in the
Pre-Funding Account and may be used to purchase
additional Contracts during the period of time, not to
exceed six months, specified in the related Prospectus
Supplement (the 'Pre-Funding Period'). The Contracts
to be so purchased will be required to have certain
characteristics specified in the related Prospectus
Supplement. If any Pre-Funded Amount remains on
deposit in the Pre-Funding Account at the end of the
Pre-Funding Period, such amount will be applied in the
manner specified in the related Prospectus Supplement
to prepay the Classes of Certificates of the
applicable Series specified in the related Prospectus
Supplement. The amount initially deposited in a Pre-
Funding Account for a Series of Certificates will not
exceed fifty percent of the aggregate principal amount
of such Series of Certificates.
If a Pre-Funding Account is established, one or more
segregated trust accounts (each, a 'Capitalized
Interest Account') may be established for the related
Series. On the closing date for such Series, a portion
of the proceeds of the sale of the Certificates of
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
such Series may be deposited in the Capitalized
Interest Account and used to fund the excess, if any,
of (x) the sum of (i) the amount of interest accrued
on the Classes of Certificates of such Series
specified in the related Prospectus Supplement and
(ii) if specified in the related Prospectus
Supplement, certain fees or expenses during the
Pre-Funding Period such as Trustee fees and
Enhancement fees, over (y) the amount of interest
available therefor from the Contracts in the Trust. If
so specified in the related Prospectus Supplement,
amounts on deposit in the Capitalized Interest Account
may be released to the Depositor prior to the end of
the Pre-Funding Period subject to the satisfaction of
certain tests specified in the related Prospectus
Supplement. Any amounts on deposit in the Capitalized
Interest Account at the end of the Pre-Funding Period
that are not necessary for such purposes will be
distributed to the person specified in the related
Prospectus Supplement.
Optional Termination..... If so specified in the related Prospectus Supplement,
the Depositor, the Servicer or another entity may at
its option repurchase all Contracts relating to a
Series of Certificates remaining outstanding at such
price, time and under the circumstances specified in
such Prospectus Supplement. See 'Description of the
Certificates-- Termination of the Agreement.'
Registration of
Certificates........... If so specified in the related Prospectus Supplement,
the Certificates of a Series, or of one or more
Classes within a Series, will be issuable in the form
of one or more book-entry certificates registered in
the name of a depositary (each, a 'Depositary') on
behalf of the beneficial owners of the Certificates.
The description of the Certificates in this Prospectus
assumes that the Certificates of a Series will not be
issued in the form of Book-Entry Certificates. If some
or all of the Certificates of a Series are issued in
the form of Book-entry Certificates, the terms
'Holder' and 'Certificateholder' will refer to such
beneficial owners of such Certificates, and the rights
of such Certificateholders will be limited as
described herein. See 'Description of the
Certificates--Book-Entry Certificates.'
Federal Income Tax
Considerations......... The federal income tax consequences of the purchase,
ownership and disposition of the Certificates of each
Series will depend on whether an election is made to
treat the corresponding Trust (or certain assets of
the Trust) as a 'real estate mortgage investment
conduit' ('REMIC') under the Internal Revenue Code of
1986, as amended (the 'Code').
REMIC. If an election is to be made to treat the
Trust or certain assets thereof as a REMIC for federal
income tax purposes, the related Prospectus Supplement
will specify which Class or Classes of the related
Series of Certificates will be designated as regular
interests in the REMIC ('REMIC Regular Certificates')
and which Class of Certificates will be designated as
the residual interest in the REMIC ('REMIC Residual
Certificates'). For federal income tax purposes, REMIC
Regular Certificates generally will be treated as debt
obligations of the Trust with payment terms equivalent
to the terms of such Certificates. Holders of REMIC
Regular Certificates will be required to report income
with respect to such Certificates under an accrual
method, regardless of their normal tax accounting
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
method. Original issue discount, if any, on REMIC
Regular Certificates will be includible in the income
of the Holders thereof as it accrues, in advance of
receipt of the cash attributable thereto, which rate
of accrual will be determined based on a reasonable
assumed prepayment rate. The REMIC Residual
Certificates generally will not be treated as
evidences of indebtedness for federal income tax
purposes, but instead, as representing rights to the
taxable income or net loss of the REMIC.
GRANTOR TRUST. If no election is to be made to treat
a Trust as a REMIC, such Trust will be classified as a
grantor trust for federal income tax purposes and not
as an association taxable as a corporation. Holders of
the related Series of Certificates ('Non-REMIC
Certificates') will be treated for such purposes,
subject to the possible application of the stripped
bond rules, as owners of undivided interests in the
related assets of the Trust and generally will be
required to report as income their pro rata share of
the entire gross income (including amounts paid as
reasonable servicing compensation) from the Contracts
and will be entitled, subject to certain limitations,
to deduct their pro rata share of the expenses of the
Trust. See 'Federal Income Tax Considerations.'
ERISA Considerations..... Fiduciaries of employee benefit plans or other
retirement plans or arrangements, including individual
retirement accounts, certain Keogh plans, and
collective investment funds and separate accounts in
which such plans, accounts or arrangements are
invested, that are subject to the Employee Retirement
Income Security Act of 1974, as amended ('ERISA'), or
the Code should carefully review with their legal
advisors whether an investment in the Certificates
will cause the assets of the related Trust to be
considered plan assets under the Department of Labor
('DOL') regulations set forth in 29 C.F.R. Section
2510.3-101 (the 'Plan Asset Regulations'), thereby
subjecting the Trustee and the Servicer to the
fiduciary investment standards of ERISA, and whether
the purchase, holding or transfer of Certificates give
rise to a transaction that is prohibited under ERISA
or subject to the excise tax provisions of Section
4975 of the Code, unless a DOL administrative
exemption applies. See 'ERISA Considerations.'
Legal Investment......... Unless otherwise indicated in the applicable
Prospectus Supplement, any Certificates offered hereby
that are rated by at least one nationally recognized
statistical rating organization in one of its two
highest rating categories will constitute 'mortgage
related securities' under the Secondary Mortgage
Market Enhancement Act of 1984, as amended, and as
such will be 'legal investments' for certain types of
institutional investors to the extent provided in that
Act. See 'Legal Investment.'
Ratings.................. It is a condition to the issuance of any Class of
Certificates sold under this Prospectus that they be
rated in one of the four highest rating categories of
at least one nationally recognized statistical rating
organization. A security rating is not a
recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time by
the assigning rating agency. See 'Ratings.'
</TABLE>
7
<PAGE>
RISK FACTORS
Prospective investors in the Certificates should consider, among other
things, the following risks in connection with the purchase of the Certificates:
Security Interests in Manufactured Homes May be Lost. The method of
perfecting a security interest in a Manufactured Home depends on the laws of the
state in which the Manufactured Home is located and, in some cases, the facts
and circumstances surrounding the location of the Manufactured Home (for
example, whether the Manufactured Home has become permanently affixed to its
site). If a Manufactured Home is moved from one state to another, steps must be
taken to re-perfect the security interest under the laws of the new state.
Generally the Servicer would become aware of the need to take such steps
following notice due to the notation of the Originator's lien on the applicable
certificate of title. However, if through fraud or administrative error such
steps were not taken in a timely manner, the perfected status of the lien on the
related Manufactured Home could be lost.
Similarly, if a Manufactured Home were to become or be deemed to be
permanently affixed to its site, additional steps may have to be taken to
maintain the priority and/or perfection of the security interest granted by the
related Contract. Although the borrowers will have agreed not to permit their
Manufactured Homes to become or to be deemed to be permanently affixed to the
sites, there can be no assurance that the borrowers will comply with their
agreements. In such cases, the Servicer would be unlikely to obtain knowledge
thereof which would permit the Servicer to take additional steps, if any,
required under applicable law to maintain the priority and/or perfection of the
lien on the Manufactured Home. See 'Certain Legal Aspects of the Contracts.'
Property Values May Be Insufficient. Unlike site-built homes which may
appreciate in value over time, manufactured housing generally depreciates in
value over time. In addition, many manufactured housing lenders, including the
Originator, finance the cost of taxes, fees and insurance and the costs of
delivery and set up. The Originator's current underwriting standards permit an
Obligor to finance up to 95% of the cash sale price (including taxes, fees and
insurance) of a new Manufactured Home and up to 100% of the appraised value
(including taxes, fees and insurance) of a used Manufactured Home. The values of
the Manufactured Homes also may be affected by, among other things, a downturn
in regional or local economic conditions. These regional or local economic
conditions are often volatile, and historically have affected the delinquency,
loan loss and repossession experience of contracts similar to the Contracts.
Consequently, the market value of certain Manufactured Homes could be or become
lower than the outstanding principal balances of the Contracts that they secure.
To the extent that losses on the Contracts are not covered by the subordination
of other Classes of Certificates, if any, or by any other form of Enhancement,
Holders of the Certificates of a Series evidencing interests in such Contracts
will bear all risk of loss resulting from default by obligors and will have to
look primarily to the value of the Manufactured Homes for recovery of the
outstanding principal and unpaid interest on the defaulted Contracts.
Titles Will Not Be Amended. On or prior to the closing date for a Series
of Certificates, the Originator will convey the related Contracts to the
Depositor, and the Depositor will convey such Contracts to the Trust. Each
Contract will be secured by a security interest in a Manufactured Home together
with, in the case of a Land-and-Home Contract, the real estate to which the
Manufactured Home is permanently affixed. Perfection of security interests in
the Manufactured Homes and enforcement of rights to realize upon the value of
the Manufactured Homes as collateral for the Contracts are subject to a number
of federal and state laws, including the Uniform Commercial Code (the 'UCC') as
adopted in the states in which the Manufactured Homes are located and the
certificate of title statutes of such states.
Because of the expense and administrative inconvenience involved, the
certificates of title to the Manufactured Homes will not be amended to change
the lienholder specified therein to the Trustee or to note thereon the interest
of the Trustee, and, unless otherwise specified in the Agreement, the
certificates of title will not be delivered to the Trustee. As a result, the
Originator will remain the lienholder on the certificates of title for the
Manufactured Homes. In some states, in the absence of such an amendment to the
certificate of title, the assignment to the Trustee of the security interest in
the Manufactured Homes located therein may not be effective or such security
interest may not be perfected and, in the absence of such notation or delivery
to the Trustee, the assignment of the security interest in the Manufactured Home
to the Trustee may not be effective against creditors of the Originator or a
trustee in bankruptcy of the Originator. In addition, because of the expense and
8
<PAGE>
administrative inconvenience involved, the assignment to the Trustee of the
mortgage or deed of trust securing each Land-and-Home Contract will not be
recorded. In the absence of such recordation, the assignment to the Trustee of
the mortgage or deed of trust securing a Land-and-Home Contract may not be
effective against creditors or a trustee in bankruptcy of the Originator or
against purchasers of such Land-and-Home Contracts from the Originator without
notice of the sale thereof to the Trust. See 'Certain Legal Aspects of the
Contracts.'
Originator Has Limited History. The Originator was incorporated in May
1995, and commenced originating and purchasing Contracts on a limited scale in
November 1995. As a result, the Originator has only limited historical
information concerning the delinquency and loss experience of Contracts
originated or purchased by the Originator. The Originator's manufactured housing
portfolio has experienced rapid growth since its inception, and the delinquency
and loss percentages presented herein may be affected by the size and relative
lack of seasoning of its servicing portfolio. Because such data is limited and
includes the period of time during which the Originator commenced its
operations, the Depositor believes such data would not provide meaningful
information concerning the quality or performance of the Contracts.
Although the management of the Originator has had considerable experience
while employed at other companies in the origination, purchasing and servicing
of Contracts, and the Depositor believes that the underwriting criteria of the
Originator and the servicing standards of the Servicer are consistent with
industry norms, there can be no assurance that the loss and delinquency rates on
the Contracts will not exceed normal industry rates.
The Originator's success depends in large part upon a number of key
management personnel and technical employees. The loss of the services of one or
more of its management personnel could have a material adverse impact on the
business and operations of the Originator.
Consumer Protection Laws May Affect Contracts. Numerous federal and state
consumer protection laws impose requirements on lenders under installment sales
contracts and installment loan agreements such as the Contracts, and the failure
by the lender or seller of goods to comply with such requirements could give
rise to liabilities of assignees for amounts due under such agreements and the
right of set-off against claims by such assignees. These laws would apply to the
Trust as assignee of the Contracts. The Originator will represent and warrant
that as of the related Cut-off Date, each Contract complies with all
requirements of law and will provide certain representations relating to the
validity, perfection and priority of the security interest in each Manufactured
Home securing a Contract. If any such representation is breached and such breach
materially adversely affects the interests of Certificateholders in the related
Contract, the Originator will be obligated to cure such breach within the time
period specified in the Agreement or to repurchase, or at its option substitute
another manufactured housing contract for, such Contract.
No Secondary Market. There will be no market for the Certificates of any
Series prior to the issuance thereof. There can be no assurance that a secondary
market will develop for the Certificates of any Series, or, if it does develop,
that it will provide the Holders of any of the Certificates with liquidity of
investment or that it will remain for the term of any Series of Certificates.
Trust Assets Are Only Source of Payment. The Certificates will not
represent an interest in or obligation of the Depositor, the Servicer or the
Originator. The Certificates will not be insured or guaranteed by any
governmental agency or instrumentality, or (except as otherwise specified in the
related Prospectus Supplement) by any other person. The Certificates of a Series
will be payable solely from the assets of the related Trust including any
related Enhancement. Further, unless otherwise stated in the related Prospectus
Supplement, at the times set forth in the related Prospectus Supplement, any
balance remaining in the Certificate Account immediately after making all
payments due on the Certificates of such Series and other payments specified in
the related Prospectus Supplement, may be promptly released or remitted to the
Depositor, the Servicer, the Enhancer or any other person entitled thereto and
will no longer be available for making payments to Holders. Consequently,
Holders of Certificates of each Series must rely solely upon payments with
respect to the assets constituting the Trust for a Series of Certificates,
including, if applicable, any amounts available pursuant to any Enhancement for
such Series, for the payment of principal of and interest on the Certificates of
such Series.
Yield May Vary. The yields to maturity of the Classes of Certificates of a
Series will be affected by the amount and timing of principal payments on the
related Contracts, the allocation of available funds and/or losses
9
<PAGE>
among such Classes, the interest rates or amounts of interest payable on such
Classes and the purchase prices paid for such Classes. The interaction of the
foregoing factors may have different effects on, and create different risks for
the various Classes of Certificates, and the effects and/or risks for any one
Class may vary over the life of such Class.
The prepayment experience on the Contracts in a Trust will affect the
average lives of the related Class or Classes of Certificates. Prepayments on
the Contracts (which include both voluntary prepayments and liquidations
following default) may be influenced by a variety of economic, geographic,
social and other factors, including repossessions, aging, seasonality, market
interest rates, changes in housing needs, job transfers and unemployment. If the
Certificates of any Series are purchased at a discount and the purchaser
calculates its anticipated yield to maturity based on an assumed rate of payment
of principal on such Certificates that is faster than the rate actually
realized, such purchaser's actual yield to maturity will be lower than the yield
so calculated by such purchaser.
Pre-Funding and Additional Contracts May Adversely Affect Investment. If a
Trust includes a Pre-Funding Account and the principal balance of additional
Contracts delivered to the Trust during the Pre-Funding Period is less than the
Pre-Funded Amount, the Holders of the Certificates of the related Series will
receive a prepayment of principal as and to the extent described in the related
Prospectus Supplement. Any such principal prepayment may adversely affect the
yield to maturity of the applicable Certificates. Since prevailing interest
rates are subject to fluctuation, there can be no assurance that investors will
be able to reinvest such a prepayment at yields equaling or exceeding the yields
on the related Certificates. It is possible that the yield on any such
reinvestment will be lower, and may be significantly lower, than the yield on
the related Certificates.
Each additional Contract must satisfy the eligibility criteria specified in
the related Prospectus Supplement and Agreement. Such eligibility criteria will
be determined in consultation with each Rating Agency (and/or any Enhancer)
prior to the issuance of the related Series and are designed to ensure that if
such additional Contracts were included as part of the initial Contracts, the
credit quality of such assets would be consistent with the initial rating of
each Class of Certificates of such Series. The Depositor will certify to the
Trustee that all conditions precedent to the transfer of the additional
Contracts to the Trust, including the satisfaction of the eligibility criteria,
have been satisfied. Following the transfer of additional Contracts to the
Trust, the aggregate characteristics of the Contracts then held in the Trust may
vary from those of the initial Contracts of such Trust. As a result, the
additional Contracts may adversely affect the performance of the related
Certificates.
The ability of a Trust to invest in additional Contracts during the related
Pre-Funding Period will be dependant on the ability of the Originator to
originate or acquire Contracts that satisfy the requirements for transfer to the
Trust specified in the related Prospectus Supplement. The ability of the
Originator to originate or acquire such Contracts will be affected by a variety
of social and economic factors, including the prevailing level of market
interest rates, unemployment levels and consumer perceptions of general economic
conditions.
Ratings Are Not Recommendations. It will be a condition to the sale of any
Certificates under this Prospectus and related Prospectus Supplement that they
be rated in one of the four highest rating categories by the Rating Agency
identified in the related Prospectus Supplement. Any such rating will be based
on, among other things, the adequacy of the value of the Contracts and any
Enhancement with respect to such Series. Such rating should not be deemed a
recommendation to purchase, hold or sell Certificates, inasmuch as it does not
address market price or suitability for a particular investor. There is no
assurance that any such rating will remain in effect for any given period of
time or may not be lowered or withdrawn entirely by the Rating Agency if in its
judgment circumstances in the future so warrant. In addition to being lowered or
withdrawn due to any erosion in the adequacy of the value of the Contracts, such
rating might also be lowered or withdrawn, among other reasons, because of an
adverse change in the financial or other condition of an Enhancer or a change in
the rating of such Enhancer's long term debt.
10
<PAGE>
THE TRUSTS
GENERAL
Each Trust will include (i) one or more Pools, (ii) the amounts held from
time to time in a trust account (the 'Certificate Account') maintained by the
Trustee pursuant to the Agreement, (iii) amounts on deposit in any Pre-Funding
Account and Capitalized Interest Account established for such Trust, (iv) the
amounts held from time to time in other accounts maintained on behalf of the
Trust, (v) proceeds from certain hazard insurance on individual Manufactured
Homes and Manufactured Homes (and, in the case of Land-and-Home Contracts, the
related real estate) acquired by repossession or foreclosure, (vi) any
Enhancement for such Series, and (vii) certain rights of the Depositor under the
agreements pursuant to which the Contracts were acquired. Whenever in this
Prospectus terms such as 'Pool,' 'Trust,' 'Agreement' or 'Remittance Rate' are
used, those terms respectively apply, unless the context otherwise indicates, to
one specific Pool, Trust, each Agreement and the Remittance Rate applicable to
the related Class of Certificates. Each Certificate will evidence the interest
specified in the related Prospectus Supplement in a Trust, containing one or
more Pools comprised of Contracts having the aggregate principal balance as of
the specified day of the month of the creation of the pool (the 'Cut-off Date')
specified in the related Prospectus Supplement.
The following is a brief description of the Contracts expected to be
included in the Trust. If specific information respecting the Contracts is not
known at the time the related Series of Certificates initially is offered, more
general information of the nature described below will be provided in the
Prospectus Supplement and specific information will be set forth in a report on
Form 8-K to be filed with the Securities and Exchange Commission within fifteen
days after the initial issuance of such Certificates (the 'Detailed
Description'). A copy of the Agreement with respect to each Series of
Certificates will be available for inspection at the corporate trust office of
the Trustee specified in the related Prospectus Supplement. A schedule of the
Contracts relating to such Series will be attached to or incorporated by
reference in the Agreement delivered to the Trustee upon delivery of the
Certificates.
THE CONTRACT POOLS
Each pool of Contracts with respect to a Series of Certificates (each, a
'Pool') will consist of manufactured housing installment sales contracts and
manufactured housing installment loan agreements (collectively, the 'Chattel
Contracts'). Each Chattel Contract will be secured by a Manufactured Home (as
defined below). Other contracts will be secured by a mortgage or deed of trust
on the Manufactured Home and the real estate to which the Manufactured Home is
deemed permanently affixed (a 'Land-and-Home Contract' and collectively with
Chattel Contracts, the 'Contracts'). The Manufactured Homes may be located in
any one of the fifty states or the District of Columbia. Contracts may be
conventional contracts or contracts insured by the Federal Housing Authority
(the 'FHA') or partially guaranteed by the Veterans Administration (the 'VA').
Each Pool will be comprised of Contracts bearing interest at annual fixed
or variable rates (the 'Contract Rates'). Unless otherwise specified in the
related Prospectus Supplement, all of the Contracts in a Pool will provide for
payments to be made monthly on a specified date of each month (each, a 'due
date'), and the due dates will occur throughout the month.
The Originator will make representations and warranties to the Depositor as
to the types and geographical distribution of the Contracts included in a Pool
and as to the accuracy in all material respects of certain information furnished
to the Depositor in respect of each such Contract. The Originator also will
represent to the Depositor that the Manufactured Homes securing the Contracts
consist of manufactured homes within the meaning of 42 United States Code,
Section 5402(6), which defines a 'manufactured home' as 'a structure,
transportable in one or more sections, which in the traveling mode, is eight
body feet or more in width or forty body feet or more in length, or, when
erected on site, is three hundred twenty or more square feet, and which is built
on a permanent chassis designed to be used as a dwelling with or without a
permanent foundation when connected to the required utilities, and includes the
plumbing, heating, air-conditioning, and electrical systems contained therein;
except that such term shall include any structure which meets all the
requirements of (this) paragraph except the size requirements and with respect
to which the manufacturer voluntarily files a certification required by the
Secretary of Housing and Urban Development and complies with the standards
established under
11
<PAGE>
[this]chapter.' Pursuant to the Agreement, the Depositor will assign such
representations and its rights with
respect to breaches thereof to the Trustee. Upon a breach of any such
representation that materially and adversely affects the interests of the
Certificateholders in a Contract, the Originator will be obligated either to
cure the breach in all material respects, to repurchase the Contract or to
substitute another Contract as described below. Should the Originator not cure
the breach in all material respects or substitute another Contract as described
below, the repurchase obligation of the Originator will constitute the sole
remedy available to the Certificateholders or the Trustee for a breach of
representation by the Originator. See 'Description of the
Certificates--Conveyance of Contracts.'
For each Series of Certificates, the Depositor will cause the Originator to
assign the Contracts constituting the Pool to the trustee named in the related
Prospectus Supplement (the 'Trustee'). The Servicer will service the Contracts
pursuant to the Agreement. See 'Description of the Certificates--Servicing.'
Unless otherwise specified in the related Prospectus Supplement, the Contract
documents (other than the documents relating to Land-and-Home Contracts) will be
held by the Servicer as custodian for the Trustee. The documents relating to any
Land-and-Home Contracts will be held by the Trustee or by a custodian (the
'Custodian') appointed pursuant to a custodial agreement (the 'Custodial
Agreement') between the Trustee and the Custodian.
The Prospectus Supplement for each Series of Certificates will contain
information, as of the Cut-off Date and to the extent then specifically known to
the Depositor, with respect to the Contracts contained in the related Pool,
including: (i) the range of the dates of origination of the Contracts; (ii) the
range of the Contract Rates and the weighted average Contract Rate; (iii) the
range of Loan-to-Value Ratios at origination and the weighted average
Loan-to-Value Ratio at origination; (iv) the minimum and maximum outstanding
principal balances as of the Cut-off Date and the average outstanding principal
balance as of the Cut-off Date; (v) the aggregate principal balances of the
Contracts; (vi) the weighted average and range of scheduled terms to maturity as
of the Cut-off Date; (vii) the original maturities of the Contracts and the last
maturity date of any Contract; and (viii) the locations of the Manufactured
Homes securing the Contracts.
USE OF PROCEEDS
The Depositor intends to use the net proceeds to be received from the sale
of the Certificates of each Series to acquire the Contracts to be deposited in
the related Trust, and to pay other expenses connected with pooling Contracts
and issuing Certificates. Any amounts remaining after such payments may be used
for general corporate purposes. The Depositor expects to sell Certificates in
Series from time to time.
THE DEPOSITOR
UCFC Funding Corporation (the 'Depositor') was incorporated in the State of
Louisiana in July 1996, and is an indirect wholly-owned subsidiary of United
Companies Financial Corporation (the 'Parent'). The Depositor maintains its
principal offices at 4041 Essen Lane, Baton Rouge, Louisiana 70809. Its
telephone number is (504) 924-6007.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
12
<PAGE>
THE MANUFACTURED HOUSING PROGRAM
GENERAL
It is expected that the Contracts primarily will have been originated or
purchased by United Companies Funding, Inc. (the 'Originator'); however, certain
Contracts may have been purchased by the Depositor, the Originator or affiliates
thereof in the open market or privately negotiated transactions.
The Originator was incorporated in May 1995, and commenced originating and
purchasing Contracts on a limited scale in November 1995. The Originator is an
affiliate of the Depositor and the Servicer and a wholly-owned subsidiary of the
Parent. The Originator maintains its principal offices at 2051 Killibrew Drive,
Suite 220, Minneapolis, Minnesota 55425. Its telephone number is (612) 854-6556.
The Contracts will be serviced by United Companies Lending
Corporation(Registered) (the 'Servicer') pursuant to the Agreement. The Servicer
may service the Contracts through one or more sub-servicers. The Servicer is an
affiliate of the Depositor and the Originator and is an indirect wholly-owned
subsidiary of the Parent. The Servicer maintains its principal offices at 4041
Essen Lane, Baton Rouge, Louisiana 70809. Its telephone number is (504)
924-6007.
CONTRACT ORIGINATION
General. The Originator may (i) purchase Contracts from approved
manufactured housing dealers ('Indirect Financing'), (ii) originate Contracts
directly with individual owners or purchasers of Manufactured Homes ('Direct
Financing') or (iii) make bulk purchases of Contracts originated or acquired by
other lending institutions, finance companies or affiliates. Regardless of the
method of production, the Originator applies the same underwriting standards.
Indirect Financing. Through its regional managers, the Originator
purchases manufactured housing contracts from manufactured housing dealers. The
Originator's regional managers contact dealers located in their region and
explain the Originator's available financing plans, terms, prevailing rates and
credit and financing policies. If the dealer wishes to use the Originator's
available customer financing, the dealer must make an application for dealer
approval. Upon satisfactory results of the Originator's investigation of the
dealer's creditworthiness and general business reputation, the Originator and
the dealer execute a dealer agreement. As of June 30, 1996, the dealers with
which the Originator has entered into dealer agreements are located in thirteen
states.
The Originator provides Indirect Financing only for Manufactured Homes
which are manufactured by an approved manufacturer. Approval may be requested by
a dealer or a manufacturer. If the Originator's review of the manufacturer's
creditworthiness and general business reputation is satisfactory, the Originator
will approve the manufacturer's products as being eligible for Indirect
Financing.
All contracts that the Originator purchases from dealers are written on
forms provided by the Originator and are purchased on an individually approved
basis. The dealer submits the customer's credit application and purchase order
to the Originator's executive offices where the Originator's underwriters make
an analysis of the creditworthiness of the proposed buyer. If the application
meets the Originator's guidelines and the credit is approved, the Originator
purchases the Contract after the Manufactured Home is delivered and set up and
the customer has been contacted by telephone to obtain the customer's approval
of the Manufactured Home and the delivery and set-up of the Manufactured Home.
Direct Financing. The Originator also provides financing directly to
individuals who own or wish to purchase Manufactured Homes. The customer submits
the credit application to the Originator's regional manager who, in turn, will
submit such information to the Originator's executive offices where the
Originator's underwriters make an analysis of the creditworthiness of the
customer. The Originator also will accept a customer's application over a
toll-free telephone number established for that purpose. If the application
receives preliminary approval, it is submitted to the appropriate regional
manager for further processing as with other customer applications.
Bulk Purchases. The Originator also may, from time to time, purchase
Contracts originated or acquired by other lending institutions, finance
companies or affiliates Each Contract so purchased will be re-underwritten by
13
<PAGE>
personnel of the Originator or its affiliates prior to the purchase thereof
using the Originator's then-current underwriting standards.
UNDERWRITING STANDARDS
The Originator's underwriting focuses primarily on the borrower's
willingness and capacity to repay the debt. The analysis includes application of
a credit scoring system and a review of the applicant's paying habits, length
and likelihood of continued employment, and certain other factors. The
Originator's current underwriting guidelines for conventional Contracts limit
the maximum loan size to $200,000 in the case of Chattel Contracts and $300,000
in the case of Land-and-Home Contracts. With respect to conventional contracts
for new Manufactured Homes, the Originator may finance up to the lesser of (a)
95% of the cash sale price (including taxes, fees and insurance) of the
Manufactured Home or (b) 125% of the manufacturer's invoice price of the
Manufactured Home plus 100% of taxes, license fees and freight charges, 100% of
the dealer's cost of additional dealer-installed equipment (not to exceed 25% of
the base price of the Manufactured Home), and up to $1,500 of set-up costs per
module. With respect to used Manufactured Homes, the Originator may finance up
to 100% of the lesser of (a) the total delivered sales price of the Manufactured
Home (including taxes, fees, insurance and up to $1,500 of set-up costs per
module), or (b) the appraised value of the Manufactured Home. Taxes, fees, and
insurance may be included in the amount financed up to a maximum of 100% of the
appraised value of the used Manufactured Home. Such appraisals on used
Manufactured Homes are performed by employees of the Originator, in the case of
Indirect Financing, and by independent appraisers approved by the Originator, in
the case of Direct Financing. The appraisals of such independent appraisers are
validated by the Originator's personnel through a review of the National
Automobile Dealers Association ('NADA') base values and on-site inspections. The
guidelines in this paragraph may be exceeded when the Originator's underwriters
deem it appropriate.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The yields to maturity of the Certificates will be affected by the amount
and timing of principal payments on or in respect of the Contracts included in
the related Trust, the allocation of available funds to various Classes of
Certificates, the Remittance Rate for various Classes of Certificates and the
purchase price paid for the Certificates.
The original terms to maturity of the Contracts in a given Pool will vary,
and the related Prospectus Supplement will contain information with respect to
the maturities of the Contracts in the related Pool. Unless otherwise specified
in the related Prospectus Supplement, the Contracts may be prepaid without
penalty in full or in part at any time.
The rate of prepayments with respect to manufactured housing installment
sales contracts and manufactured housing installment loan sale agreements has
fluctuated significantly in recent years. In general, if prevailing rates fall
below the Contract Rates borne by the Contracts, such Contracts are likely to be
subject to higher prepayment rates than if prevailing interest rates remain at
or above such Contract Rates. Conversely, if prevailing interest rates rise
appreciably above the Contract Rates borne by the Contracts, such Contracts are
likely to experience a lower prepayment rate than if prevailing rates remain at
or below such Contract Rates. However, there can be no assurance that such will
be the case.
Prepayments are influenced by a variety of economic, geographical, social,
tax, legal and additional factors. The rate of prepayments on Contracts may be
affected by changes in Obligors' housing needs, job transfers, unemployment, the
Obligors' net equity in the Manufactured Homes, the enforcement of due-on-sale
clauses and other servicing decisions. Unless otherwise provided in the related
Prospectus Supplement, all of the Contracts will contain due-on-sale provisions
permitting the lender to accelerate the maturity of the Contract upon sale or
certain transfers by the Obligors of the underlying Manufactured Home. The
Servicer generally will permit the assumption of a Contract by an obligor that
satisfies the then-current underwriting standards of the Originator. In
connection with any such assumption, no material term of the Contract may be
changed.
When a full prepayment occurs on a Contract, the Obligor will be charged
interest on the principal amount of the Contract so prepaid only for the number
of days in the month actually elapsed up to the date of the prepayment rather
than for a full month. Interest shortfalls also could result from the
application of the Relief
14
<PAGE>
Act, as described under 'Certain Legal Aspects of the Contracts--Soldiers' and
Sailors' Civil Relief Act' herein. Such shortfalls will adversely affect the
yield on the Certificates.
Under certain circumstances, the Depositor, the Servicer, the Holders of
REMIC Residual Certificates or certain other entities specified in the related
Prospectus Supplement may have the option to purchase the Contracts and other
assets of a Trust, thereby effecting earlier retirement of the related Series of
Certificates, subject to the principal balance of the related Contracts being
less than the percentage specified in the related Prospectus Supplement of the
aggregate principal balance of the Contracts at the Cut-off Date for the related
Series.
Unless otherwise specified in the related Prospectus Supplement, the
effective yield to Certificateholders will be slightly lower than the yield
otherwise produced by the applicable Remittance Rate and purchase price, because
while interest generally will accrue on the Certificates from the first day of
each month, the distribution of such interest will not be made earlier than a
date specified in the related Prospectus Supplement in the month following the
month of accrual.
The timing of payments on the Contracts may significantly affect an
investor's yield. In general, the earlier a prepayment of principal on the
Contracts, the greater will be the effect on an investor's yield to maturity. As
a result, the effect on an investor's yield of principal prepayments occurring
at a rate higher (or lower) than the rate anticipated by the investor during the
period immediately following the issuance of the Certificates will not be offset
by a subsequent like reduction (or increase) in the rate of principal payments.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a pooling and
servicing agreement (each, an 'Agreement'), dated as of the related Cut-off
Date, among the Depositor, the Servicer and the Trustee for the benefit of the
holders of the Certificates ('Certificateholders' or 'Holders') of such Series.
The provisions of each Agreement will vary depending upon the nature of the
Certificates to be issued thereunder and the nature of the related Trust. A form
of an Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The following summaries describe the material
provisions which may appear in each Agreement. The Prospectus Supplement for a
Series of Certificates will supplement the description contained in this
Prospectus to the extent necessary to describe the material provisions of the
Agreement for such Series of Certificates. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Agreement for each Series of Certificates and
the applicable Prospectus Supplement. The Depositor will provide a copy of the
Agreement (without exhibits) relating to any Series without charge upon written
request of a Holder of a Certificate of such Series addressed to UCFC Funding
Corporation, 4041 Essen Lane, Baton Rouge, LA 70809, Attention: Secretary.
GENERAL
Unless otherwise specified in the Prospectus Supplement, the Certificates
of each Series will be issued in fully registered form only in the denominations
specified in the related Prospectus Supplement, will represent beneficial
ownership interests in a Trust created pursuant to the related Agreement and
will not be entitled to payments in respect of the Contracts included in any
other Trust. Definitive Certificates will be transferable and exchangeable at
the corporate trust office of the Trustee or, at the election of the Trustee, at
the office of a Certificate Registrar appointed by the Trustee. No service
charge will be incurred for any registration of exchange or transfer, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
Each Series of Certificates will be issued in one or more classes (each, a
'Class'). Each Class of Certificates of a Series will evidence the beneficial
ownership interest in the assets of the related Trust specified in the related
Prospectus Supplement. A Series of Certificates may include one or more Classes
of Senior Certificates that receive certain preferential treatment with respect
to one or more Subordinated Classes of Certificates of such Series. Certain
Series or Classes of Certificates may be covered by Enhancement as described in
the related Prospectus Supplement. Distributions on one or more Classes of a
Series of Certificates may be made prior to one or more other Classes, after the
occurrence of specified events, in accordance with a schedule or formula, on the
basis of collections from designated portions of the Contracts in the related
Trust or on a
15
<PAGE>
different basis, in each case, as specified in the related Prospectus
Supplement. The timing and amounts of such distributions may vary among Classes
or over time as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or where applicable, of principal only
or interest only) on the related Certificates will be made by the Trustee on
each date specified in the related Prospectus Supplement (each, a 'Remittance
Date'), in the amounts specified in the related Prospectus Supplement.
Distributions will be made to the persons in whose names the Certificates are
registered at the close of business on the record dates specified in the
Prospectus Supplement. Distributions will be made by check mailed to the persons
entitled thereto at the address appearing in the register maintained for holders
of Certificates (the 'Certificate Register') or, to the extent described in the
related Prospectus Supplement, by wire transfer or by such other means as are
described therein, except that the final distribution in retirement of the
Certificates will be made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee or other person specified in
the final distribution notice to Certificateholders.
Each Class of Certificates within a Series will evidence the interests
specified in the related Prospectus Supplement, which may (i) include the right
to receive distributions allocable only to principal, only to interest or to any
combination thereof; (ii) include the right to receive distributions only of
prepayments of principal throughout the lives of the Certificates or during
specified periods; (iii) be subordinated in its right to receive distributions
of scheduled payments of principal, prepayments of principal, interest or any
combination thereof to one or more other Classes of Certificates of such Series
throughout the lives of the Certificates or during specified periods or may be
subordinated with respect to certain losses or delinquencies; (iv) include the
right to receive such distributions only after the occurrence of events
specified in the Prospectus Supplement; (v) include the right to receive
distributions in accordance with a schedule or formula or on the basis of
collections from designated portions of the assets in the related Trust; (vi)
include, as to Certificates entitled to distributions allocable to interest, the
right to receive interest at a fixed rate or an adjustable rate; and (vii)
include, as to Certificates entitled to distributions allocable to interest, the
right to distributions allocable to interest only after the occurrence of events
specified in the related Prospectus Supplement, and in each case, may accrue
interest until such events occur, as specified in such Prospectus Supplement.
BOOK-ENTRY CERTIFICATES
If so specified in the related Prospectus Supplement, the Certificates will
be book-entry certificates (the 'Book-Entry Certificates'). Persons acquiring
beneficial ownership interests in such Certificates ('Certificate Owners') will
hold their Certificates through DTC in the United States, or Cedel Bank socit
anonyme ('Cedel') or the Euroclear System ('Euroclear') in Europe if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. The Book-Entry Certificates will be issued in one
or more certificates which equal the aggregate principal balance of the
applicable Series of Certificates and will initially be registered in the name
of Cede & Co. ('Cede'), the nominee of DTC. Cedel and Euroclear will hold
omnibus positions on behalf of their participants through customers' securities
accounts in Cedel's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank, N.A.
('Citibank') will act as depositary for Cedel and Chemical Bank ('Chemical')
will act as depositary for Euroclear (in such capacities, individually the
'Relevant Depositary' and collectively the 'European Depositaries'). Except as
described below, no person acquiring a Book-Entry Certificate will be entitled
to receive a physical certificate representing such Certificate (a 'Definitive
Certificate'). Unless and until Definitive Certificates are issued, the only
'Certificateholder' of Book-Entry Certificates will be Cede, as nominee of DTC.
Certificate Owners will not be Certificateholders as that term is used in the
applicable Agreement. Certificate Owners are only permitted to exercise their
rights indirectly through DTC Participants and DTC.
The Certificate Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a 'Financial Intermediary') that maintains the
Certificate Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Certificate Owner's Financial Intermediary is not a DTC Participant and on
the records of Cedel or Euroclear, as appropriate).
16
<PAGE>
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a DTC Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received on Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant Cedel or Euroclear cash account only as of the
business day following settlement in DTC.
Transfers between DTC Participants will occur in accordance with DTC Rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding certificates directly or
indirectly through DTC, on the one hand, and directly or indirectly through
Cedel Participants or Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by the Relevant Depositary; however, such cross
market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European International clearing System will, if
the transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC which is a New York-chartered limited purpose company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC Participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and DTC Participants as in effect from
time to time.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ('Cedel
Participants') and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
('Euroclear Participants') and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the 'Euroclear Operator'), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
'Cooperative'). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
17
<PAGE>
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the 'Terms and Conditions'). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Remittance Date by the applicable Trustee to DTC. DTC will be responsible for
crediting the amount of such payments to the accounts of the applicable DTC
Participants in accordance with DTC's normal procedures. Each DTC Participant
will be responsible for disbursing such payments to the Certificate Owners of
the Book-Entry Certificates that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial Intermediary will
be responsible for disbursing funds to the Certificate Owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, Certificate Owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. Distributions with respect to
Certificates held through Cedel or Euroclear will be credited to the cash
accounts of Cedel Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. Because DTC can only act
on behalf of Financial Intermediaries, the ability of a Certificate Owner to
pledge Book-Entry Certificates to persons or entities that do not participate in
the depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such certificates in the secondary
market since certain potential investors may be unwilling to purchase
certificates for which they cannot obtain physical certificates.
DTC has advised the Depositor that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the applicable Agreement only at
the direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are taken
on behalf of Financial Intermediaries whose holdings include such Book-Entry
Certificates. Cedel or the Euroclear Operator, as the case may be, will take any
other action permitted to be taken by a Certificateholder under the applicable
Agreement on behalf of a Cedel Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to the ability of
the Relevant Depositary to effect such actions on its behalf through DTC. DTC
may take actions, at the direction of the related Participants, with respect to
some Book-Entry Certificates of a Series which conflict with actions taken with
respect to other Book-Entry Certificates of such Series.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the applicable Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as nominee
and depository with respect to the Book-Entry Certificates and the Depositor or
such Trustee is unable to locate a qualified successor, (b) the Depositor, at
its sole option, elects to terminate the book-entry system through DTC or (c)
after the occurrence of an Event of Default (as defined herein), Certificate
Owners of the applicable Series having Percentage Interests aggregating not less
than 51% advise the Trustee and DTC through the Financial Intermediaries and the
DTC Participants in writing that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the best interests of Certificate
Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the applicable Trustee will be required to notify all
affected Certificate Owners of the occurrence of such event and the
18
<PAGE>
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the global certificate or certificates representing the Book-Entry Certificates
and instructions for re-registration, the applicable Trustee will issue
Definitive Certificates, and thereafter such Trustee will recognize the holders
of such Definitive Certificates as Certificateholders under the applicable
Agreement.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Neither the Depositor, the Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
CONVEYANCE OF CONTRACTS
The Depositor will transfer, assign, set over and otherwise convey to the
Trustee all right, title and interest of the Depositor in the Contracts,
including all security interests created thereby and any related mortgages or
deeds of trust, all principal and interest received on or with respect to the
Contracts (other than receipts of principal and interest due on the Contracts
before the Cut-off Date), all rights under certain hazard insurance policies on
the related Manufactured Homes, all documents contained in the Contract files
and all proceeds derived from any of the foregoing. The Trustee, concurrently
with such conveyance, will execute and deliver the Certificates to the order of
the Depositor. The Contracts will be described on a list attached to or
incorporated by reference in the Agreement. Such list will include the amount of
monthly payments due on each Contract as of the date of issuance of the
Certificates, the Contract Rate on each Contract and the maturity date of each
Contract. Prior to the conveyance of the Contracts to the Trust, the Originator
will complete a review of all of the Contract files, including the certificates
of title to, or other evidence of a perfected security interest in, the
Manufactured Homes, confirming the accuracy of the list of Contracts delivered
to the Trustee. Any Contract discovered not to agree with such list in a manner
that is materially adverse to the interests of the Certificateholders will be
repurchased by the Originator or replaced with another Contract, or, if the
discrepancy relates to the unpaid principal balance of a Contract, the
Originator may deposit cash in the separate account maintained at an Eligible
Institution in the name of the Trustee (the Certificate Account') in an amount
sufficient to offset such discrepancy.
Unless otherwise provided in the related Prospectus Supplement, the
Agreement will designate the Servicer as custodian to maintain possession, as
the Trustee's agent, of the Contracts and any other documents related to the
Manufactured Homes (other than the Land-and-Home Contracts and related
documents). To facilitate servicing and save administrative costs, the documents
will not be physically segregated from other similar documents that are in the
Servicer's possession. Uniform Commercial Code financing statements will be
filed in appropriate jurisdictions reflecting the sale and assignment of the
Contracts from the Originator to the Depositor and from the Depositor to the
Trustee, and the Originator's and the Servicer's accounting records and computer
systems will also reflect such sale and assignment. In addition, the Contracts
may be stamped or stickered to reflect their assignment to the Trustee. If
through fraud, negligence or otherwise, a subsequent purchaser were able to take
physical possession of the Contracts without knowledge of the assignment, the
Trustee's interest in the Contracts could be defeated. The Agreement will
designate the Trustee or another independent custodian, as the Trustee's agent,
to maintain possession of the documents relating to all Land-and-Home Contracts.
Except as otherwise specified in the related Prospectus Supplement, the
Originator will make certain representations to the Depositor with respect to
each Contract as of the related Cut-off Date, including, among others, that: (a)
each Contract is a legal, valid and binding obligation of the Obligor and is
enforceable in accordance with its terms (except as may be limited by laws
affecting creditors' rights generally); (b) no Contract is subject to any right
of rescission, set-off, counterclaim or defense; (c) each Contract complies with
all requirements of law; (d) each Contract creates a valid and enforceable first
priority security interest in favor of the Originator in the Manufactured Home
covered thereby; (e) no Contract has been sold, assigned or pledged to any other
person except pursuant to an assignment or pledge which has been released prior
to or simultaneously with the issuance of the related Certificates, and at the
time of the transfer of the Contracts to the Trustee, the Depositor had good and
marketable title to each Contract free and clear of any encumbrance, equity,
loan, pledge,
19
<PAGE>
charge, claim or security interest, and was the sole owner and had full right to
transfer such Contract to the Trustee; and (f) the related Manufactured Home is
a 'manufactured home' within the meaning of 42 United States Code, Section
5402(6) and each manufactured housing dealer from whom the Originator purchased
a Contract was approved by the Originator in accordance with the requirements of
the Secretary of Housing and Urban Development. Pursuant to the Agreement, the
Depositor will assign to the Trustee all of the Depositor's right, title and
interest in the representations and warranties made by the Originator, including
the obligation of the Originator to cure, repurchase or substitute for a
Contract as described in the following paragraphs.
Under the terms of the Agreement, and subject to the option to effect a
substitution as described in the next paragraph, the Originator will be
obligated to repurchase for the Repurchase Price (as defined below) any Contract
on the first business day after the first Determination Date which is more than
90 days after the Originator becomes aware, or should have become aware, or the
Originator's receipt of written notice from the Trustee, the Depositor or the
Servicer, of a breach of any representation or warranty that materially
adversely affects the interest of the Certificateholders in the related Contract
if such breach has not been cured. The Repurchase Price for any Contract will be
the remaining principal amount outstanding on such Contract on the date of
repurchase plus accrued and unpaid interest thereon at its Contract Rate to the
first day of the month in which such Repurchase price is to be distributed to
Certificateholders. Should the Originator not cure such breach in all material
respects or substitute another Contract as provided below, the repurchase
obligation will constitute the sole remedy available to the Trustee and the
Certificateholders for a breach of a warranty under the Agreement with respect
to the Contracts.
In lieu of repurchasing a Contract as specified in the preceding paragraph,
during the two-year period (or such shorter period as is specified in the
related Prospectus Supplement with respect to a Trust for which no REMIC
election is to be made) following the closing date, the Originator may, at its
option, substitute an Eligible Substitute Contract (as defined below) for the
Contract that it is otherwise obligated to repurchase (referred to herein as the
'Replaced Contract'). An Eligible Substitute Contract is a Contract that
satisfies, as of the date of its substitution, the representations and
warranties specified in the Agreement, has a Scheduled Principal Balance that is
not greater than the Scheduled Principal Balance of the Replaced Contract, has a
Contract Rate that is at least equal to the Contract Rate of the Replaced
Contract and has a remaining term to scheduled maturity that is not greater than
the remaining term to scheduled maturity of the Replaced Contract. The
Originator will be required to deposit in the Certificate Account cash in the
amount, if any, by which the Scheduled Principal Balance of the Replaced
Contract exceeds the Scheduled Principal Balance of the Eligible Substitute
Contract. Such deposit will be deemed to be a Partial Principal Prepayment.
PAYMENTS ON CONTRACTS
Each Certificate Account will be a trust account established by the
Servicer as to each Series of Certificates in the name of the Trustee (i) with a
depository institution, the long-term unsecured debt obligations of which at the
time of any deposit therein are rated within the two highest rating categories
or such other rating category as will not adversely affect the ratings assigned
to the Certificates by each rating agency rating the Certificates of such
Series, (ii) with the trust department of a national bank, (iii) in an account
or accounts the deposits in which are fully insured by the FDIC, (iv) in an
account or accounts the deposits in which are insured by the FDIC (to the limits
established by the FDIC), the uninsured deposits in which are otherwise secured
such that, as evidenced by an opinion of counsel, the Certificateholders have a
claim with respect to the funds in the Certificate Account or a perfected first
priority security interest against any collateral securing such funds that is
superior to the claims of any other depositors or general creditors of the
depository institution with which the Certificate Account is maintained or (v)
otherwise acceptable to the rating agency without reduction or withdrawal of the
rating assigned to the relevant Certificates. The collateral eligible to secure
amounts in the Certificate Account is limited to United States government
securities and certain other high-quality investments specified in the
applicable Agreement ('Eligible Investments'). A Certificate Account may be
maintained as an interest bearing account, or the funds held therein may be
invested pending each succeeding Remittance Date in Eligible Investments.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will deposit in the Certificate Account on a daily basis the following
payments and collections received or made by it subsequent to the Cut-off
20
<PAGE>
Date (including scheduled payments of principal and interest due after the
Cut-off Date but received by the Servicer on or before the Cut-off Date):
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts;
(iii) all amounts received and retained in connection with the
liquidation of defaulted Contracts, net of liquidation expenses ('Net
Liquidation Proceeds');
(iv) all proceeds received under any hazard or other insurance policy
covering any Contract, other than proceeds to be applied to the restoration
or repair of the Manufactured Home or released to the Obligor; and
(v) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Servicer, or the Originator, or otherwise as
described above or under 'Termination' below.
DISTRIBUTIONS ON CERTIFICATES
General. In general, the method of determining the amount of distributions
on a particular Series of Certificates will depend on the type of Enhancement,
if any, that is used with respect to such Series. See 'Credit Enhancement.' The
Prospectus Supplement for each Series of Certificates will describe the method
to be used in determining the amount of distributions on the Certificates of
such Series. Distributions allocable to principal and interest on the
Certificates will be made by the Trustee out of, and only to the extent of,
funds in the related Certificate Account, including any funds received as a
result of Enhancement. As between Certificates of different Classes and as
between distributions of interest and principal and, if applicable, between
distributions of prepayments of principal and scheduled payments of principal,
distributions made on any Remittance Date will be applied as specified in the
Prospectus Supplement. Unless otherwise specified in the Prospectus Supplement,
distributions to any Class of Certificates will be made pro rata to all
Certificateholders of that Class.
Amount Available. All distributions on the Certificates of each Series on
each Remittance Date will be made from the Amount Available described below, in
accordance with the terms described in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the 'Amount Available'
for each Remittance Date will equal the sum of the following amounts:
(i) the aggregate of all amounts described in clauses (i) through (v)
above received by the Servicer after the Cut-off Date and on or prior to
the day of the month of the related Remittance Date specified in the
Agreement (the 'Determination Date') except:
(a) all payments on the Contracts that were due on or before the
Cut-off Date;
(b) all payments or collections received after the Due Period
preceding the month in which the Remittance Date occurs;
(c) all scheduled payments of principal and interest due on a date
or dates subsequent to the Due Period preceding the Determination Date;
(d) amounts representing reimbursement for Advances, such
reimbursement being limited, if so specified in the related Prospectus
Supplement, to amounts received on particular Contracts as late
collections of principal or interest as to which the Servicer has made
an unreimbursed Advance; and
(e) amounts representing reimbursement for any unpaid Servicing
Fees and expenses from Liquidation Proceeds, condemnation proceeds and
proceeds of insurance policies with respect to the related Contracts;
(ii) the amount of any Advance made by the Servicer (including any
Sub-servicer) and deposited by it in the Certificate Account; and
(iii) if applicable, amounts received in connection with Enhancement.
Distributions of Interest. Interest will accrue on the Class Certificate
Balance (defined below) (or, in the case of Certificates entitled only to
distributions allocable to interest, the aggregate notional principal balance)
of each Class of Certificates entitled to interest from the date, at the
Remittance Rate, for the periods and to the extent specified in the Prospectus
Supplement. To the extent funds are available therefor, interest accrued during
each such specified period on each Class of Certificates entitled to interest
(other than a Class of Certificates that
21
<PAGE>
provides for interest that accrues, but is not currently payable, referred to
hereafter as 'Compound Interest Certificates') will be distributable on the
Remittance Dates specified in the Prospectus Supplement until the Class
Certificate Balance of the Certificates of such Class has been distributed in
full or, in the case of Certificates entitled only to distributions allocable to
interest, until the aggregate notional principal balance of such Certificates is
reduced to zero or for the period of time designated in the Prospectus
Supplement.
The original Certificate Principal Balance of each Certificate will equal
the maximum aggregate distributions allocable to principal to which such
Certificate is entitled. Distributions allocable to interest on each Certificate
that is not entitled to distributions allocable to principal will be calculated
on the basis set forth in the related Prospectus Supplement. The notional
principal balance of a Certificate will not evidence an interest in or
entitlement to distributions allocable to principal but will be used solely for
convenience in expressing the calculation of interest and for certain other
purposes.
With respect to any Class of Compound Interest Certificates, if specified
in the Prospectus Supplement, any interest that has accrued but is not paid on a
given Remittance Date will be added to the Class Certificate Balance of such
Class of Certificates on that Remittance Date. Distributions of interest on each
Class of Compound Interest Certificates will commence only after the occurrence
of the events specified in the Prospectus Supplement. Prior to such time, the
beneficial ownership interest of such Class of Compound Interest Certificates in
the Trust, as reflected in the Class Certificate Balance of such Class of
Compound Interest Certificates, will increase on each Remittance Date by the
amount of interest that accrued on such Class of Compound Interest Certificates
during the preceding interest accrual period but that was not required to be
distributed to such Class on such Remittance Date. Any such Class of Compound
Interest Certificates will thereafter accrue interest on its outstanding Class
Certificate Balance as so adjusted.
Distributions of Principal. Unless otherwise specified in the Prospectus
Supplement, the 'Class Certificate Balance' of any Class of Certificates
entitled to distributions of principal will be the aggregate of the original
Certificate Principal Balances of the Certificates of such Class, reduced by all
distributions and losses reported to the holders of such Certificates as
allocable to principal, and, in the case of Compound Interest Certificates,
increased by all interest accrued but not then distributable on such Compound
Interest Certificates. The Prospectus Supplement will specify the method by
which the amount of principal to be distributed on the Certificates on each
Remittance Date will be calculated and the manner in which such amount will be
allocated among the Classes of Certificates entitled to distributions of
principal.
If so provided in the Prospectus Supplement, one or more Classes of Senior
Certificates will be entitled to receive all or a disproportionate percentage of
the payments of principal which are received from Obligors in advance of their
scheduled due dates and are not accompanied by amounts representing scheduled
interest due after the month of such payments ('Principal Prepayments') in the
percentages and under the circumstances or for the periods specified in the
Prospectus Supplement. Any such allocation of Principal Prepayments to such
Class or Classes of Certificates will have the effect of accelerating the
amortization of such Senior Certificates while increasing the interests
evidenced by the Subordinated Certificates in the Trust. Increasing the
interests of the Subordinated Certificates relative to that of the Senior
Certificates is intended to preserve the availability of the subordination
provided by the Subordinated Certificates. The timing and amounts of
distributions allocable to interest and principal and, if applicable, Principal
Prepayments and scheduled payments of principal, to be made on any Remittance
Date may vary among Classes, over time or otherwise as specified in the
Prospectus Supplement.
PRE-FUNDING AND CAPITALIZED INTEREST ACCOUNTS
If specified in the related Prospectus Supplement, a Trust will include one
or more segregated trust accounts (each, a 'Pre-Funding Account') established
and maintained with the Trustee for the related Series. If so specified, on the
closing date for such Series, a portion of the proceeds of the sale of the
Certificates of such Series not to exceed fifty percent of the aggregate
principal amount of such Series (such amount, the 'Pre-Funded Amount') may be
deposited in the Pre-Funding Account and may be used to purchase additional
Contracts during the period of time not to exceed six months specified in the
related Prospectus Supplement (the 'Pre-Funding Period'). If any Pre-Funded
Amount remains on deposit in the Pre-Funding Account at the end of the
Pre-Funding Period, such amount will be applied in the manner specified in the
related Prospectus Supplement to prepay the Certificates of the applicable
Series.
22
<PAGE>
Each additional Contract must satisfy the eligibility criteria specified in
the related Prospectus Supplement and related Agreement. Such eligibility
criteria will be determined in consultation with each Rating Agency (and/or any
Enhancer) prior to the issuance of the related Series and are designed to ensure
that if such additional Contracts were included as part of the initial
Contracts, the credit quality of such assets would be consistent with the
initial rating of the Certificates of such Series. The Depositor will certify to
the Trustee that all conditions precedent to the transfer of the additional
Contracts to the Trust, including the satisfaction of the eligibility criteria,
have been satisfied. Following the transfer of additional Contracts to the
Trust, the aggregate characteristics of the Contracts then held in the Trust may
vary from those of the initial Contracts of such Trust. As a result, the
additional Contracts may adversely affect the performance of the related
Certificates.
If a Pre-Funding Account is established, one or more segregated trust
accounts (each, a 'Capitalized Interest Account') may be established and
maintained with the Trustee for the related Series. On the closing date for such
Series, a portion of the proceeds of the sale of the Certificates of such Series
will be deposited in the Capitalized Interest Account and used to fund the
excess, if any, of the sum of (i) the amount of interest accrued on the
Certificates of such Series and (ii) if specified in the related Prospectus
Supplement, certain fees or expenses during the Pre-Funding Period such as
Trustee fees and credit enhancement fees, over the amount of interest available
therefor from the Contracts in the Trust. If so specified in the related
Prospectus Supplement, amounts on deposit in the Capitalized Interest Account
may be released to the Depositor prior to the end of the Pre-Funding Period
subject to the satisfaction of certain tests specified in the related Prospectus
Supplement. Any amounts on deposit in the Capitalized Interest Account at the
end of the Pre-Funding Period that are not necessary for such purposes will be
distributed to the person specified in the related Prospectus Supplement.
ADVANCES
To the extent provided in the related Prospectus Supplement, the Servicer
will be obligated to make periodic Advances of cash from its own funds or from
excess funds in the Certificate Account not then required to be distributed to
Certificateholders, for distribution to the Certificateholders entitled thereto
in an amount equal to the amount of delinquent payments of principal and/or
interest for the preceding Due Period but only to the extent the Servicer
determines such Advances are recoverable from future payments and collections on
the delinquent Contracts. The Servicer's obligation to make Advances, if any,
may, as specified in the related Prospectus Supplement, be limited in amount. If
so specified in the related Prospectus Supplement, the Servicer will not be
obligated to make Advances until all or a specified portion of the reserve fund,
if any, is depleted. Advances are intended to maintain a regular flow of
scheduled interest and/or principal payments and not to guarantee or insure
against losses. Accordingly, any funds so advanced are recoverable by the
Servicer out of amounts received on particular Contracts which represent late
recoveries of amounts respecting which any such Advance was made.
SERVICING
General. Pursuant to the Agreement, the Servicer will service and
administer the Contracts assigned to the Trustee as more fully set forth below.
The Servicer will perform diligently all services and duties specified in each
Agreement, in the same manner as prudent lending institutions of manufactured
housing contracts of the same type as the Contracts in those jurisdictions where
the related Manufactured Homes are located or as otherwise specified in the
Agreement. The duties to be performed by the Servicer will include collection
and remittance of principal and interest payments, collection of insurance
claims and, if necessary, repossession or foreclosure.
The Servicer will make reasonable efforts to collect all payments called
for under the Contracts and, consistent with the Agreement and any FHA insurance
and VA guaranty, will follow such collection procedures as it follows with
respect to mortgage loans or contracts serviced by it that are comparable to the
Contracts.
Hazard Insurance. The terms of the Agreement will require the Servicer to
cause to be maintained with respect to each Contract one or more insurance
policies ('Hazard Insurance Policies') which provide, at a minimum, the same
coverage as a standard form fire and extended coverage insurance policy that is
customary for manufactured housing, issued by a company authorized to issue such
policies in the state in which the Manufactured Home is located, and in an
amount which is not less than the maximum insurable value of such Manufactured
Home or the principal balance due from the Obligor on the related Contract,
whichever is less.
23
<PAGE>
When a Manufactured Home was located at the time of origination of the related
Contract, within a federally designated special flood hazard area, the Servicer
also will be required to cause flood insurance to be maintained, with coverage
at least equal to the minimum amount specified in the preceding sentence or such
lesser amount as may be available under the federal flood insurance program.
Each Hazard Insurance Policy caused to be maintained by the Servicer will
contain a standard loss payee clause in favor of the Servicer and its successors
and assigns. If any Obligor is in default in the payment of premiums on its
Hazard Insurance Policy or Policies, the Servicer will be required to pay such
premiums out of its own funds. The Servicer may add separately such premium to
the Obligor's obligation as provided by the Contract, but may not add such
premium to the remaining amount due on the Contract.
In lieu of causing individual Hazard Insurance Policies to be maintained
with respect to each Manufactured Home, the Servicer may, and, to the extent
that the related Contract does not require the Obligor to maintain a Hazard
Insurance Policy with respect to the related Manufactured Home, the Servicer is
required to, maintain one or more blanket insurance policies covering losses on
the Obligors' interests in the Contracts resulting from the absence or
insufficiency of individual Hazard Insurance Policies. The Servicer will pay the
premium for such policies on the basis described therein and will pay any
deductible amount with respect to claims under such policies relating to the
Contracts.
If the Servicer repossesses a Manufactured Home on behalf of the Trustee,
the Servicer will be required to either (i) maintain at its expense hazard
insurance with respect to such Manufactured Home or (ii) indemnify the Trustee
against any damage to such Manufactured Home prior to resale or other
disposition.
Evidence as to Compliance. Unless otherwise specified in the related
Prospectus Supplement, the Servicer will deliver to the Trustee each year an
officer's certificate executed by an officer of the Servicer (i) stating that a
review of the activities of the Servicer during the preceding calendar year and
of the Servicer's performance under the Agreement has been made under the
supervision of such officer, and (ii) stating that to the best of such officer's
knowledge, the Servicer has fulfilled all its obligations under such Agreement
throughout such year, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof. Such officer's certificate will be accompanied by a
statement of a firm of independent public accountants to the effect that, on the
basis of an examination of certain documents and records relating to servicing
of the Contracts under the Agreement (or, at the Servicer's option, the
Contracts and other contracts being serviced by the Servicer under agreements
similar to the Agreement), conducted in accordance with generally accepted
auditing standards, the Servicer's servicing has been conducted in compliance
with the provisions of the Agreement (or such agreements), except for (i) such
exceptions as such firm believes to be immaterial and (ii) such other exceptions
as may be set forth in such statement.
Certain Matters Regarding the Servicer. The Servicer may not resign from
its obligations and duties under an Agreement except upon (i) appointment of a
successor servicer reasonably satisfactory to the Trustee and the delivery to
the Trustee of a letter from each applicable Rating Agency to the effect that
such action will not, in and of itself, result in the qualification, downgrading
or withdrawal of the then-current rating assigned by such Rating Agency to the
Certificates of the applicable Series or (ii) a determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor servicer has assumed the
Servicer's obligations and duties under such Agreement.
Each Agreement will provide that neither the Servicer, nor any director,
officer, employee or agent of the Servicer, will be under any liability to the
Trust or the Certificateholders, and all such persons shall be held harmless,
for any action taken or for refraining from the taking of any action in good
faith pursuant to the Agreement, or for errors in judgment; provided, however,
that no such person will be protected against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of such person's duties or by reason of reckless
disregard of such person's obligations and duties under the Agreement. The
Servicer may, in its discretion, undertake any such action which it may deem
necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interests of the Certificateholders thereunder.
In such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust and the
Servicer will be entitled to be reimbursed therefor out of the Certificate
Account.
Servicing Compensation and Payment of Expenses. As compensation for its
servicing duties in respect of any Series, the Servicer will be entitled to the
Servicing Fee described in the related Prospectus Supplement. The
24
<PAGE>
Servicing Fee for a Series will be a percentage per annum, payable monthly, of
the Pool Scheduled Principal Balance of the related Pool unless otherwise
specified in a particular Prospectus Supplement. In addition, the Servicer will
be entitled to servicing compensation in the form of assumption fees, late
payment charges or otherwise, which fees or charges will be retained by the
Servicer to the extent not required to be deposited into the related Certificate
Account.
The Servicing Fee provides compensation for customary manufactured housing
contract third party servicing activities to be performed by the Servicer for
the Trust and for additional administrative services performed by the Servicer
on behalf of the Trust. Customary servicing activities include collecting and
recording payments, communicating with Obligors, investigating payment
delinquencies, providing billing and tax records to Obligors and maintaining
internal records with respect to each Contract. Administrative services
performed by the Servicer on behalf of the Trust include calculating
distributions to Certificateholders and providing related data processing and
reporting services for Certificateholders and on behalf of the Trustee. Expenses
incurred in connection with the servicing of the Contracts and paid by the
Servicer from its Servicing Fees include, without limitation, payment of fees
and expenses of accountants, payments of all fees and expenses incurred in
connection with the enforcement of Contracts (except Liquidation Expenses) and
payment of expenses incurred in connection with distributions and reports to
Certificateholders. The Servicer will be reimbursed out of the Liquidation
Proceeds of a Liquidated Contract for all ordinary and necessary Liquidation
Expenses incurred by it in realization upon the related Manufactured Home.
Events of Default. Except as otherwise specified in the related Prospectus
Supplement, 'Events of Default' under each Agreement will include (i) any
failure by the Servicer to make any required payment or deposit which continues
unremedied for 5 days (or such other period specified in the related Prospectus
Supplement) after the giving of written notice; (ii) any failure by the Servicer
duly to observe or perform in any material respect any other of its covenants or
agreements in the Agreement that materially and adversely affects the interests
of Certificateholders, which, in either case, continues unremedied for 30 days
after the giving of written notice of such failure of breach; and (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Servicer. Notice as used herein
means notice to the Servicer by the Trustee or the Depositor, or to the
Depositor, the Servicer and the Trustee by the Holders of Certificates
representing Percentage Interests aggregating not less than 25% of any Class
affected thereby.
Rights Upon Event of Default. Except as otherwise specified in the related
Prospectus Supplement, so long as an Event of Default remains unremedied, the
Trustee may, and at the written direction of the Certificateholders of a Series
evidencing Percentage Interests aggregating not less than 51% of the related
Trust, shall, terminate all of the rights and obligations of the Servicer under
the related Agreement and in and to the Contracts, and the proceeds thereof.
Thereupon (subject to applicable law regarding the Trustee's ability to make
advances) the Trustee or a successor Servicer under the Agreement will succeed
to all the responsibilities, duties and liabilities of the Servicer under the
Agreement and will be entitled to similar compensation arrangements; provided,
however, that neither the Trustee nor any successor Servicer will be liable for
any acts or omissions of the prior Servicer occurring prior to a transfer of the
Servicer's servicing and related functions or for any breach of such Servicer of
any of its obligations contained in the Agreement. Notwithstanding such
termination, the Servicer will be entitled to payment of certain amounts payable
to it prior to such termination, for services rendered prior to such
termination. In the event that the Trustee would be obligated to succeed the
Servicer but is unwilling or unable so to act, it may appoint or petition to a
court of competent jurisdiction for the appointment of a Servicer. Pending such
appointment the Trustee is obligated to act in such capacity. The Trustee and
such successor may agree upon the servicing compensation to be paid, which in no
event may be greater than the compensation to the Servicer under the Agreement.
No Certificateholder will have any right under an Agreement to institute
any proceeding with respect to such Agreement unless such Holder previously has
given to the Trustee written notice of default and unless the Holders of
Certificates evidencing Percentage Interests aggregating not less than 25% of
the related Trust requested the Trustee in writing to institute such proceeding
in its own name as Trustee and have offered to the Trustee reasonable indemnity
and the Trustee for 60 days has neglected or refused to institute any such
proceeding. The Trustee will be under no obligation to take any action or
institute, conduct or defend any litigation under the Agreement at the request,
order or direction of any of the Holders of Certificates, unless such
25
<PAGE>
Certificateholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which the Trustee may incur.
REPORTS TO CERTIFICATEHOLDERS
On or before each Remittance Date, the Servicer or the Trustee will be
required to forward to each Certificateholder of record of the related Series a
statement setting forth the following to the extent applicable to such Series or
Class:
(i) the amount of such distribution allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments included
therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance by the Servicer (or any Sub-servicer);
(iv) the total amount of any payments under Enhancement included in
the amount distributed on such Remittance Date;
(v) the outstanding principal balance of such Class after giving
effect to the distribution of principal on such Remittance Date;
(vi) if applicable, the percentage of principal payments on the
Contracts, if any, which such Class will be entitled to receive on the
following Remittance Date;
(vii) unless the Remittance Rate is a fixed rate, the Remittance Rate
applicable to the distribution on the Remittance Date;
(viii) the number and aggregate principal balance of Contracts in the
related Pool delinquent (a) one month and (b) two or more months; and
(ix) if applicable, the amount remaining of any Enhancement, after
giving effect to the distribution on the Remittance Date.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single Certificate of the relevant Class having the denomination or
interest specified in the report to Certificateholders. The report to
Certificateholders for any Class or Series of Certificates may include
additional or other information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer or the Trustee will mail to each person who was a
Certificateholder of record at any time during such calendar year a report (a)
as to the aggregate of amounts reported pursuant to (i) and (ii) for such
calendar year or, in the event such person was a Certificateholder of record
during a portion of such calendar year, for the applicable portion of such year
and (b) such other customary information as may be deemed necessary or desirable
for Certificateholders to prepare their tax returns.
AMENDMENT
Unless otherwise specified in the related Prospectus Supplement, the
Agreement may be amended by the Depositor, the Servicer and the Trustee without
the consent of the Certificateholders, (i) to cure any ambiguity, (ii) to
correct or supplement any provision therein that may be defective or
inconsistent with any other provision therein, (iii) to maintain the REMIC
status of the Trust and to avoid the imposition of certain taxes on the REMIC or
(iv) to make any other provisions with respect to matters or questions arising
under such Agreement that are not inconsistent with the provisions thereof,
provided that such action will not adversely affect in any material respect the
interests of the Certificateholders of the related Series, as evidenced by (A)
an opinion of counsel independent of the Depositor, the Servicer and the Trustee
or (B) a letter from each Rating Agency from which the Depositor requested a
rating of any of the Certificates of such Series stating that the proposed
amendment will not result in a downgrading of the then-current rating of any of
the Certificates of such Series rated by such Rating Agency. The Agreement also
may be amended by the Depositor, the Servicer and the Trustee with the consent
of the Certificateholders evidencing Percentage Interests aggregating not less
than 51% of each Class affected thereby for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of such
Agreement or of modifying in any manner the rights of the Certificateholders;
provided, however, that no such amendment that reduces in any manner the amount
of, or delays the timing of, any
26
<PAGE>
payment received on or with respect to Contracts which are required to be
distributed on any Certificate may be effected without the consent of the
Holders of each such Certificate.
TERMINATION OF THE AGREEMENT; OPTIONAL TERMINATION
The obligations created by each Agreement will terminate upon the date
calculated as specified in the Agreement, generally upon (i) the later of the
final payment or other liquidation of the last Contract subject thereto and the
disposition of all property acquired upon foreclosure of any Land-and-Home
Contract or repossession of any Manufactured Home and (ii) the payment to the
Certificateholders of all amounts held by the Servicer or the Trustee and
required to be paid to them pursuant to the Agreement.
The Depositor, the Servicer or other person identified in the related
Prospectus Supplement will have the option to purchase all of the Contracts and
Manufactured Homes acquired on behalf of the related Trust and thereby effect
early termination of such Trust and the related Series of Certificates. Such
option will not be exercisable until the aggregate unpaid principal balance of
such Contracts is less than 10% or such lower percentage as is specified in the
related Prospectus Supplement of the aggregate unpaid principal balance of the
Contracts on the Cut-off Date. Unless otherwise specified in the related
Prospectus Supplement, the purchase price will equal the unpaid principal
balance of the Contracts and the Manufactured Homes plus one month's interest
thereon at the weighted average Contract Rate (net of the Servicing Fee).
THE TRUSTEE
The Prospectus Supplement for a Series of Certificates will specify the
Trustee under the related Agreement. The Trustee may have normal banking
relationships with the Depositor, the Servicer and their respective affiliates.
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. Unless otherwise specified in the
related Prospectus Supplement, the Trustee may also be removed at any time by
the Holders of Certificates evidencing Percentage Interests aggregating at least
51% of the related Trust. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee.
The Trustee will make no representation as to the validity or sufficiency
of the Agreement, the Certificates, any Contract, Contract file or related
documents, and will not be accountable for the use or application by the
Depositor of any funds paid to the Depositor in consideration of the conveyance
of the Contracts, or deposited into or withdrawn from the Certificate Account by
the Servicer. If no Event of Default has occurred, the Trustee will be required
to perform only those duties specifically required of it under the Agreement.
However, upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee will be required to examine them to
determine whether they conform as to form to the requirements of the Agreement.
CREDIT ENHANCEMENT
The amounts and types of credit enhancement arrangements and the provider
thereof, if applicable, with respect to a Series or any Class or Certificates
will be set forth in the related Prospectus Supplement. If and to the extent
provided in the related Prospectus Supplement, enhancement may be in the form of
a pool insurance, letters of credit, surety bonds, a guarantee, cash reserve
funds, derivative products or other forms of credit enhancement, or any
combinations thereof, as may be described in the related Prospectus Supplement
(collectively, 'Enhancement'). If specified in the applicable Prospectus
Supplement, Enhancement for any Series of Certificates may cover one or more
Classes of Certificates, and accordingly may be exhausted for the benefit of a
particular Class of Certificates and thereafter be unavailable to the other
Classes of Certificates of such Series. Further information regarding any
third-party provider of Enhancement (the 'Enhancer'), including financial
information when material, will be included in the related Prospectus
Supplement.
The presence of Enhancement is intended to increase the likelihood of
receipt by the Certificateholders of the full amount of principal and interest
due them and to decrease the likelihood that the Certificateholders will
experience losses, or may be structured to provide protection against changes in
interest rates or against other
27
<PAGE>
risks, to the extent and under the conditions specified in the related
Prospectus Supplement. The Enhancement for a Class of Certificates may not
provide protection against all risks of loss and may not guarantee repayment of
the entire principal and interest thereon. If losses occur which exceed the
amount covered by any Enhancement or which are not covered by any Enhancement,
Certificateholders will bear their allocable share of deficiencies.
DESCRIPTION OF FHA INSURANCE AND VA GUARANTEES
Certain of the Contracts may be insured by the Federal Housing Authority
(the 'FHA') under Title I of the National Housing Act or partially guaranteed by
the Veterans Administration (the 'VA').
The regulations governing FHA manufactured home insurance provide that
insurance benefits are payable upon the repossession and resale of the
collateral and assignment of the contract to the United States Department of
Housing and Urban Development ('HUD'). With respect to a defaulted FHA contract,
the servicer must follow applicable regulations before initiating repossession
procedures. These regulations include requirements that the lender arrange a
face-to-face meeting with the borrower, initiate a modification or repayment
plan, if feasible, and give the borrower 30 days' notice of default prior to any
repossession. The insurance claim is paid in cash by HUD. For manufactured
housing contracts, the amount of insurance benefits generally paid by FHA is
equal to 90% of the sum of (i) the unpaid principal amount of the Contract at
the date of default and uncollected interest earned to the date of default
computed at the Contract Rate, after deducting the best price obtainable for the
collateral (based in part on a HUD-approved appraisal) and all amounts retained
or collected by the lender from other sources with respect to the Contract, (ii)
accrued and unpaid interest on the unpaid amount of the Contract from the date
of default to the date of submission of the claim plus 15 calendar days (but in
no event more than nine months) computed at a rate of 7% per annum, (iii) costs
paid to a dealer or other third party to repossess and preserve the Manufactured
Home, (iv) the amount of any sales commission paid to a dealer or other third
party for the resale of the property, (v) with respect to a Land-and-Home
Contract, property taxes, special assessments and other similar charges and
hazard insurance premiums, prorated to the date of disposition of the property,
(vi) uncollected court costs, (vii) legal fees not to exceed $500 and (viii)
expenses for recording the assignment of the lien on the collateral to the
United States.
The insurance available to a lender under FHA Title I insurance is subject
to the limit of a reserve amount equal to ten percent of the original principal
balance of all Title I insured loans originated by the lender, which amount is
reduced by all claims paid to the lender and by an annual reduction in the
reserve amount of ten percent of the reserve amount, and which is increased by
an amount equal to ten percent of the original principal balance of insured
loans subsequently originated by the lender. If the Servicer were replaced as
Servicer of the Contracts under the Agreement, it is not clear from the FHA
regulations what portion of this reserve amount would be available for claims in
respect of the FHA-insured Contracts. The obligation to pay insurance premiums
to FHA is the obligation of the Servicer.
The maximum guarantee that may be issued by the VA for a VA-guaranteed
contract is the lesser of (a) the lesser of $20,000 and 40% of the principal
amount of the contract and (b) the maximum amount of guaranty entitlement
available to the obligor veteran (which may range from $20,000 to zero). The
amount payable under the guarantee will be the percentage of the VA contract
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations, interest accrued on the
unpaid balance of the loan to the appropriate date of computation and limited
expenses of the contract holder, but in each case only to the extent that such
amounts have not been recovered through resale of the manufactured home. The
amount payable under the guarantee may in no event exceed the amount of the
original guarantee.
28
<PAGE>
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries of certain legal aspects of
manufactured housing contracts, including Land-and-Home Contracts, which are
general in nature. Because such legal aspects are governed by applicable state
law (which laws may differ substantially), the summaries do not purport to be
complete nor to reflect the laws of any particular state, nor to encompass the
laws of all states in which the security for the Contracts is situated. The
summaries are qualified in their entirety by reference to the applicable federal
and state laws governing the Chattel Contracts or Land-and-Home Contracts.
THE CHATTEL CONTRACTS
General. As a result of the assignment of the Chattel Contracts underlying
a Series to the Trustee, the related Trust will succeed to all of the rights
(including the right to receive payment on the Chattel Contracts), and will
assume the obligations, of the obligee under the Chattel Contracts. Each Chattel
Contract evidences both (a) the obligation of the Obligor to repay the loan
evidenced thereby, and (b) the grant of a security interest in the Manufactured
Home to secure repayment of such loan.
The Chattel Contracts generally are 'chattel paper' as defined in the
Uniform Commercial Code (the 'UCC') in effect in the states in which the
Manufactured Homes initially were registered. Pursuant to the UCC, the sale of
chattel paper is treated in a manner similar to perfection of a security
interest in chattel paper. Unless otherwise provided in the related Prospectus
Supplement, the Servicer will retain possession of the Chattel Contracts as
custodian for the Trustee, and will make an appropriate filing of a UCC-1
financing statement in the appropriate jurisdictions to give notice of the
Trustee's ownership of the Contracts. The Chattel Contracts may be stamped or
stickered to reflect their assignment to the Trustee. However, if through
negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the Chattel Contracts without notice of such assignment,
the Trustee's interest in such Contracts could be defeated.
Security Interests in the Manufactured Homes. The Manufactured Homes
securing the Contracts may be located in all 50 states and the District of
Columbia. In many states ('Title States') security interests in manufactured
homes may be perfected under applicable motor vehicle titling statutes either by
notation of the secured party's lien on the certificate of title or by delivery
of the required documents and payment of a fee to the state motor vehicle
authority to re-register the home, depending on state law. In some states ('UCC
States'), perfection of a lien on a manufactured home is accomplished pursuant
to the provisions of the applicable UCC by filing UCC-1 financing statements
with all appropriate UCC filing offices. Some states are both Title States and
UCC States. The Depositor will cause the security interests created by the
Contracts in the related Manufactured Homes to be assigned to the Trustee on
behalf of the Certificateholders. However, unless otherwise specified in the
related Prospectus Supplement, because of the expense and administrative
inconvenience involved, neither the Originator nor the Depositor will amend any
certificate of title to change the lienholder specified therein from the
Originator to the Trustee, deliver any documents or pay fees to re-register any
Manufactured Home, or file any UCC transfer instruments, and neither the
Originator nor the Depositor will deliver any certificate of title to the
Trustee or note thereon the Trustee's interest. In some states, simple
assignment of the security interest created by a Contract in the related
Manufactured Home constitutes an effective conveyance of such security interest
without amendment of any lien noted on the related certificate of title,
re-registration of the underlying home, or filing of any statement under the
applicable UCC, and the assignee succeeds to the seller's rights as the secured
party as to such Manufactured Home. In other states, however, the law is unclear
whether a security interest in a Manufactured Home is effectively assigned in
the absence of an amendment to a certificate of title, re-registration of the
underlying home, or the filing of an appropriate UCC transfer instrument, as
appropriate under applicable state law. In such event, the assignment of the
security interest created by a Contract in the related Manufactured Home may not
be effective against creditors of the Originator or a trustee in bankruptcy of
the Originator.
As manufactured homes have become larger and often have been attached to
their sites without any apparent intention to move them, courts in many states
have held that manufactured homes, under certain circumstances, may become
subject to real estate title and recording laws. As a result, a security
interest in a manufactured home located in such a state could be rendered
subordinate to the interests of other parties claiming an interest in the home
under applicable state real estate law. In order to perfect a security interest
in a manufactured home under
29
<PAGE>
real estate laws, the holder of the security interest must file either a
'fixture filing' under the provisions of the UCC or a real estate mortgage or
deed of trust, as applicable under the real estate laws of the state where the
home is located. See 'Land-and-Home Contracts' below. These filings must be made
in the real estate records office of the county where the home is located.
Substantially all of the Chattel Contracts contain provisions prohibiting the
Obligor from permanently attaching the Manufactured Home to its site. So long as
the Obligor does not violate this agreement, a security interest in the
Manufactured Home will be governed by the certificate of title laws or the UCC,
and the notation of the security interest on the certificate of title or the
filing of a UCC financing statement will be effective to maintain the priority
of the security interest in the Manufactured Home. If, however, a Manufactured
Home becomes permanently attached to its site, other parties could obtain an
interest in the Manufactured Home which is prior to the security interest
originally obtained by the Originator. The Originator will represent that at the
date of the initial issuance of the related Certificates it has obtained a
perfected first priority security interest by proper notation or delivery of the
required documents and fees with respect to all of the Manufactured Homes
securing the Contracts.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Originator
on the certificate of title or delivery of the required documents and fees will
be sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the Originator's security interest is not perfected, such security
interest would be subordinate to, among others, subsequent purchasers for value
of the Manufactured Homes and holders of perfected security interests. There
also exists a risk in not identifying the Trustee as the new secured party on
the certificate of title that, through fraud or negligence, the security
interest of the Trustee could be released.
Under the laws of most states, in the event that a manufactured home is
moved to a state other than the state in which it initially is registered, any
perfected security interest in such home would continue automatically for four
months after such relocation, during which time the security interest must be
re-perfected in the new state in order to remain perfected after such four-month
period. Generally, a security interest in such a manufactured home may be
re-perfected after the expiration of such four-month period, but, for the period
between the end of such four-month period and the date of such re-perfection,
the security interest would be unperfected.
If a Manufactured Home is moved to a UCC State, an appropriate UCC
financing statement generally would have to be filed in such state within the
four-month period after the move in order for the Originator's security interest
in the Manufactured Home to remain perfected continuously. If a Manufactured
Home is moved to a Title State, re-perfection of a security interest in such
home generally would be accomplished by registering the Manufactured Home with
the Title State's motor vehicle authority. In the ordinary course of servicing
its portfolio of manufactured housing installment sales contracts, the Servicer
takes steps to re-perfect its security interests in the related manufactured
homes upon its receipt of notice of registration of such home in a new state
(which it should receive by virtue of the notation of the Originator's lien on
the original certificate of title, if the home is moved from a Title State to a
Title State) or of information from a related borrower as to relocation of such
home. In some Title States, the certificate of title to a Manufactured Home
(which is required to be in the Servicer's possession) must be surrendered
before the home could be re-registered; in such states an Obligor could not
re-register a Manufactured Home to a transferee without the Servicer's
assistance. In other Title States, when an Obligor under a Contract sells the
related Manufactured Home (if it is located in a Title State both before and
after the sale), the Originator should at least receive notice of any attempted
re-registration thereof because its lien is noted on the related certificate of
title and accordingly should have the opportunity to require satisfaction of the
related Contract before releasing its lien on the home. If the motor vehicle
authority of a Title State to which a Manufactured Home is relocated or in which
a Manufactured Home is located when it is transferred registers such
Manufactured Home in the name of the owner thereof or such owner's transferee
without noting the Originator's lien on the related certificate of title,
whether because (1) such state did not require the owner to surrender the
certificate of title issued prior to the transfer or issued by the Title State
from which such home was moved or failed to notify the Originator of
re-registration and failed to note the Originator's lien on the new certificate
of title issued upon re-registration or (2) such Manufactured Home was moved
from a state that is not a Title State, such re-registration could defeat the
perfection of the Originator's lien in the Manufactured Home. In addition,
re-registration of a Manufactured Home (whether due to a transfer or
30
<PAGE>
relocation thereof) in a state, such as a UCC State, which does not require a
certificate of title for registration of a Manufactured Home, could defeat
perfection of the Originator's lien thereon.
The Originator will be required to report to the Servicer any notice it
receives of any re-registration of a Manufactured Home. Under the Agreement, the
Servicer is obligated to take all necessary steps, at its own expense, to
maintain perfection of the Trustee's security interests in the Manufactured
Homes, to the extent it receives notice of relocation, sale or re-registration
thereof. However, the Servicer has no independent obligation to monitor the
status of the Originator's lien on any Manufactured Home.
Under the laws of most states, liens for repairs performed on a
Manufactured Home and liens for personal property taxes take priority over a
perfected security interest. Such liens could arise at any time during the term
of a Contract. No notice will be given to the Trustee or Certificateholders in
the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes. The Servicer on
behalf of the Trustee, to the extent required by the related Agreement, may take
action to enforce the Trustee's security interest with respect to Contracts in
default by repossession and resale of the Manufactured Homes securing such
defaulted Contracts. So long as the Manufactured Home has not become subject to
real estate laws, a creditor can repossess a Manufactured Home securing a
Contract by voluntary surrender, by 'self-help' repossession that is 'peaceful'
(i.e., without breach of the peace) or, in the absence of voluntary surrender
and the ability to repossess without breach of the peace, by judicial process.
The holder of a Contract must give the debtor a number of days' notice, which
varies from state to state, prior to commencement of any repossession. The UCC
and consumer protection laws in most states place restrictions on repossession
sales, including requiring prior notice to the debtor and commercial
reasonableness in effecting such a sale. The law in most states also requires
that the debtor be given notice of any sale prior to resale of the unit so that
the debtor may redeem the home at or before such resale. In the event of such
repossession and resale of a Manufactured Home, the Trustee would be entitled to
be paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the manufactured home securing such a debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments, and in many
cases the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy and
insolvency laws and general equitable principles, may limit or delay the ability
of a lender to repossess and resell collateral or enforce a deficiency judgment.
Under the terms of the federal Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the 'Relief Act'), an Obligor who enters military service
after the origination of such Obligor's Contract (including an Obligor who is a
member of the National Guard or is in reserve status at the time of the
origination of the Contract and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such Obligor's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Contracts. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent not
covered by any applicable Enhancement, could result in losses to the holders of
a Series of Certificates. In addition, the Relief Act imposes limitations which
would impair the ability of the Servicer to foreclose on an affected Contract
during the Obligor's period of active duty status. Thus, in the event that such
a Contract goes into default, there may be delays and losses occasioned by the
inability to realize upon the Manufactured Home in a timely fashion.
LAND-AND-HOME CONTRACTS
General. The Land-and-Home Contracts will be secured by either first
mortgages or deeds of trust, depending upon the prevailing practice in the state
in which the underlying property is located. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the borrower, and the mortgagee, who is the lender. In a
mortgage state, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties: the borrower, a lender as
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
31
<PAGE>
trust, generally with a power of sale, to the trustee to secure payment of the
loan. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the express provisions of the deed of
trust or mortgage, applicable law, and, in some cases, with respect to the deed
of trust, the directions of the beneficiary.
Foreclosure. Foreclosure of a mortgage is generally accomplished by
judicial action. Generally, the action is initiated by the service of legal
pleadings upon all parties having an interest of record in the real property.
Delays in completion of the foreclosure occasionally may result from
difficulties in locating necessary parties defendant. When the mortgagee's right
to foreclosure is contested, the legal proceedings necessary to resolve the
issue can be time-consuming and expensive. After the completion of a judicial
foreclosure proceeding, the court may issue a judgment of foreclosure and
appoint a receiver or other officer to conduct the sale of the property. In some
states, mortgages may also be foreclosed by advertisement, pursuant to a power
of sale provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by nonjudicial power of
sale.
Foreclosure of a deed of trust is generally accomplished by a nonjudicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states the trustee must record a notice of
default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and the notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within any applicable cure
period, a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest of record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, that may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
not common for a third party to purchase the property at the foreclosure sale.
Rather, the lender generally purchases the property from the trustee or receiver
for an amount equal to the unpaid principal amount of the note, accrued and
unpaid interest and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender commonly will
obtain the services of a real estate broker and pay the broker a commission in
connection with the sale of the property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property.
Rights of Redemption. In some states, after sale pursuant to a deed of
trust or foreclosure of a mortgage, the borrower and certain foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. In certain other states, this right of redemption applies only
to sale following judicial foreclosure, and not sale pursuant to a nonjudicial
power of sale. In most states where the right of redemption is available,
statutory redemption may occur upon payment of the foreclosure purchase price,
accrued interest and taxes. In some states the right to redeem is an equitable
right. The effect of a right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser at a foreclosure sale, or of any
purchaser from the lender subsequent to judicial foreclosure or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has run.
32
<PAGE>
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain
states have imposed statutory restrictions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage relating to a
single family residence. In some states, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure or sale under a deed of trust. A deficiency judgment is a
personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the net amount realized upon the
foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the Relief Act and state laws affording relief to debtors, may interfere with or
affect the ability of a secured mortgage lender to realize upon its security.
For example, with respect to a Land-and-Home Contract, in a Chapter 13
proceeding under the federal Bankruptcy Code, when a court determines that the
value of a home is less than the principal balance of the loan, the court may
prevent a lender from foreclosing on the home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the value
of the home as it exists at the time of the proceeding, leaving the lender as a
general unsecured creditor for the difference between that value and the amount
of outstanding indebtedness. A bankruptcy court may grant the debtor a
reasonable time to cure a payment default, and in the case of a mortgage loan
not secured by the debtor's principal residence, also may reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule. Certain court decisions have applied such
relief to claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing and the
enforcement of mortgage loans. These laws include the federal Truth in Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail to
comply with the provisions of the law. In some cases, this liability may affect
assignees of the Contracts.
CONSUMER PROTECTION LAWS
The so-called 'Holder-in-Due-Course' rule of the Federal Trade Commission
is intended to defeat the ability of the transferor of a consumer credit
contract which is the seller of goods which gave rise to the transaction (and
certain related lenders and assignees) to transfer such contract free of notice
of claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a Contract (such as the Trust) to all claims and defenses which
the Obligor could assert against the seller of the Manufactured Home. Liability
under this rule is limited to amounts paid under a contract; however, the
Obligor also may be able to assert the rule to set off remaining amounts due as
a defense against a claim brought by the Trust against such Obligor. Numerous
other federal and state consumer protection laws impose requirements applicable
to the origination and lending
33
<PAGE>
pursuant to the Contracts, including the Truth in Lending Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the
Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and the
Uniform Consumer Credit Code. In the case of some of these laws, the failure to
comply with their provisions may affect the enforceability of the related
Contract.
TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF 'DUE-ON-SALE' CLAUSES
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such sale
or transfer that is not consented to. In certain cases, the transfer may be made
by a delinquent Obligor in order to avoid a repossession proceeding with respect
to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Servicer
desires to accelerate the maturity of the related Contract, the Servicer's
ability to do so will depend on the enforceability under state law of the
'due-on-sale' clause. The Garn-St. Germain Depositary Institutions Act of 1982
(the 'Garn-St. Germain Act'), subject to certain exceptions preempts state
constitutional, statutory and case law prohibiting enforcement of 'due-on-sale'
clauses applicable to the Manufactured Homes. As to Contracts secured by an
owner-occupied residence, the Garn-St. Germain Act sets forth nine specific
instances in which a mortgagee covered by the Garn-St. Germain Act may not
exercise its rights under a due-on-sale clause, notwithstanding the fact that a
transfer of the Manufactured Home may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related Manufactured Home to an
uncreditworthy person, which could increase the likelihood of default.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ('Title V'), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is secured
by a first lien on certain kinds of manufactured housing. The Contracts would be
covered if they satisfy certain conditions, among other things, governing the
terms of any prepayments, late charges and deferral fees and requiring a 30-day
notice period prior to instituting any action leading to repossession of or
foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA')
imposes certain requirements on employee benefit plans and collective investment
funds and separate accounts in which such plans or arrangements are invested to
which it applies and on those persons who are fiduciaries with respect to such
benefit plans. Certain employee benefit plans, such as governmental plans (as
defined in Section 3(32) of ERISA) and certain church plans (as defined in
Section 3(33) of ERISA), are not subject to ERISA. In accordance with ERISA's
general fiduciary standards, before investing in a Certificate, a benefit plan
fiduciary should determine whether such an investment is permitted under the
governing benefit plan instruments and is appropriate for the benefit plan in
view of its overall investment policy and the composition and diversification of
its portfolio and is prudent.
In addition, benefit plans subject to ERISA and individual retirement
accounts or certain types of Keogh plans not subject to ERISA but subject to
Section 4975 of the Code (each a 'Plan') are prohibited from engaging in a broad
range of transactions involving Plan assets and persons having certain specified
relationships to a Plan ('parties in interest' and 'disqualified persons'). Such
transactions are treated as 'prohibited transactions' under Sections 406 and 407
of ERISA and excise taxes are imposed upon such persons by Section 4975 of the
Code. The Depositor, the Originator, the Enhancer, the Underwriter and the
Trustee and certain of their affiliates might be considered 'parties in
interest' or 'disqualified persons' with respect to a Plan. If so, the
acquisition or holding or transfer of Certificates by or on behalf of such Plan
could be considered to give rise to a 'prohibited transaction' within the
meaning of ERISA and the Code unless an exemption is
34
<PAGE>
available. In addition, the Department of Labor ('DOL') has issued a regulation
(29 C.F.R. Section 2510.3-101) concerning the definition of what constitutes the
assets of a Plan (the 'Plan Asset Regulations'), which provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
'equity' investment will be deemed for purposes of ERISA to be assets of the
investing Plan unless certain exceptions apply. If an investing Plan's assets
were deemed to include an interest in the Contracts and any other assets of the
Trust and not merely an interest in the Certificates, transactions occurring
between the Depositor, the Trustee, the Servicer, Sub-servicers, if any, the
Enhancer or any of their affiliates might constitute prohibited transactions,
and the assets of the Trust would become subject to the fiduciary investment
standards of ERISA, unless an administrative exemption applies. Certain such
exemptions which may be applicable to the acquisition and holding of the
Certificates or to the servicing of the Contracts are noted below.
The DOL has issued an administrative exemption, Prohibited Transaction
Class Exemption 83-1 ('PTCE 83-1'), which, under certain conditions, exempts
from the application of the prohibited transaction rules of ERISA and the excise
tax provisions of Section 4975 of the Code transactions involving a Plan in
connection with the operation of a 'mortgage pool' and the purchase, sale and
holding of 'mortgage pool pass-through certificates.' A 'mortgage pool' is
defined as an investment pool, consisting solely of interest bearing obligations
secured by first or second mortgages or deeds of trust on single-family
residential property, property acquired in foreclosure and undistributed cash. A
'mortgage pool pass-through certificate' is defined as a certificate which
represents a beneficial undivided interest in a mortgage pool which entitles the
holder to pass-through payments of principal and interest from the mortgage
loans.
For the exemption to apply, PTCE 83-1 requires that (i) the Depositor and
the Trustee maintain a system of insurance or other protection for the Contracts
and the property securing such Contracts, and for indemnifying holders of
Certificates against reductions in pass-through payments due to defaults in loan
payments or property damage in an amount at least equal to the greater of 1% of
the aggregate principal balance of the Contracts, or 1% of the principal balance
of the largest covered pooled Contract; (ii) the Trustee may not be an affiliate
of the Depositor; and (iii) the payments made to and retained by the Depositor
in connection with the Trust, together with all funds inuring to its benefit for
administering the Trust, represent no more than 'adequate consideration' for
selling the Contracts, plus reasonable compensation for services provided to the
Trust.
In addition, PTCE 83-1 exempts the initial sale of Certificates to a Plan
with respect to which the Depositor, the Enhancer, the Servicer or the Trustee
is a party in interest if the Plan does not pay more than fair market value for
such Certificates and the rights and interests evidenced by such Certificates
are not subordinated to the rights and interests evidenced by other Certificates
of the same pool. PTCE 83-1 also exempts from the prohibited transaction rules
and transactions in connection with the servicing and operation of the Pool,
provided that any payments made to the Servicer in connection with the servicing
for the Trust are made in accordance with a binding agreement, copies of which
must be made available to prospective investors.
In the case of any Plan with respect to which the Depositor, the Servicer,
the Enhancer or the Trustee is a fiduciary, PTCE 83-1 will only apply if, in
addition to the other requirements: (i) the initial sale, exchange or transfer
of Certificates is expressly approved by an independent fiduciary who has
authority to manage and control those plan assets being invested in
Certificates; (ii) the Plan pays no more for the Certificates than would be paid
in an arm's length transaction; (iii) no investment management, advisory or
underwriting fee, sale commission, or similar compensation is paid to the
Depositor with regard to the sale, exchange or transfer of Certificates to the
Plan; (iv) the total value of the Certificates purchased by such Plan does not
exceed 25% of the amount issued; and (v) at least 50% of the aggregate amount of
Certificates is acquired by persons independent of the Depositor, the Trustee,
the Servicer and the Enhancer, if any.
Before purchasing Certificates, a fiduciary of a Plan should confirm that
the Trust is a 'mortgage pool,' that the Certificates constitute 'mortgage pool
pass-through certificates,' and that the conditions set forth in PTCE 83-1 would
be satisfied. In addition to making its own determination as to the availability
of the exemptive relief provided in PTCE 83-1, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions. The
Plan fiduciary also should consider its general fiduciary obligations under
ERISA in determining whether to purchase any Certificates on behalf of a Plan.
35
<PAGE>
In addition, DOL has granted to certain underwriters and/or placement
agents individual prohibited transaction exemptions which may be applicable to
avoid certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale in the secondary market
by Plans of pass- through certificates representing a beneficial undivided
ownership interest in the assets of a trust that consist of certain receivables,
loans and other obligations that meet the conditions and requirements of the
exemption which may be applicable to the Certificates.
One or more other prohibited transaction exemptions issued by the DOL may
be available to a Plan investing in Certificates, depending in part upon the
type of Plan fiduciary making the decision to acquire Certificates and the
circumstances under which such decision is made, including but not limited to:
PTCE 90-1 (regarding investments by insurance company pooled separate accounts),
PTCE 91-38 (regarding investments by bank collective investment funds); PTCE
95-60 (regarding investments by insurance company general accounts); PTCE 84-14
(regarding investments by qualified professional asset managers); or PTCE 96-23
(regarding investment by in-house asset managers). However, even if the
conditions specified in the Exemption or one or more of these other exemptions
are met, the scope of the relief provided might or might not cover all acts
which might be construed as prohibited transactions.
Any Plan fiduciary considering the purchase of a Certificate should consult
with its counsel with respect to the potential applicability of ERISA and the
Code to such investment. Moreover, each Plan fiduciary should determine whether,
under the general fiduciary standards of investment prudence and
diversification, an investment in the Certificates is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio. Special caution ought to be
exercised before a Plan purchases a Certificate in such circumstances.
36
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Stroock & Stroock & Lavan, special Federal tax counsel,
('Federal Tax Counsel'), the following are the material federal income tax
consequences of the purchase, ownership and disposition of the Certificates
offered hereby. The discussion, and the opinions referred to below, are based on
laws, regulations, rulings and decisions now in effect (or, in the case of
certain regulations, proposed), all of which are subject to change or possibly
differing interpretations. Because tax consequences may vary based on the status
or tax attributes of the owner of a Certificate, prospective investors should
consult their own tax advisors in determining the federal, state, local and
other tax consequences to them of the purchase, ownership and disposition of a
Certificate. For purposes of this tax discussion (except with respect to
information reporting, or where the context indicates otherwise), the terms
'Certificateholder' and 'Holder' mean the beneficial owner of a Certificate.
REMIC ELECTIONS
Under the Internal Revenue Code of 1986, as amended (the 'Code'), an
election may be made with respect to each Trust related to a Series of
Certificates to treat such Trust or certain assets of such Trust as a 'real
estate mortgage investment conduit' ('REMIC'). The Prospectus Supplement for
each Series of Certificates will indicate whether a REMIC election will be made
with respect to the related Trust. To the extent provided in the Prospectus
Supplement for a Series, Certificateholders may also have the benefit of a
reserve fund and of certain agreements (each, a 'Yield Supplement Agreement')
under which payment will be made from the reserve fund in the event that
interest accrued on the Contracts at their Contracts Rates is insufficient to
pay interest on the Certificates of such Series (a 'Basis Risk Shortfall'). If a
REMIC election is to be made, the Prospectus Supplement will designate the
Certificates of such Series that will be designated as 'regular interests'
('REMIC Regular Certificates') in the REMIC (within the meaning of Section
860G(a)(1) of the Code) or as the 'residual interest' ('REMIC Residual
Certificates') in the REMIC (within the meaning of Section 860G(a)(2) of the
Code).
REMIC CERTIFICATES
With respect to each Series of REMIC Certificates, the Trustee will agree
in the Agreement to elect to treat the related Trust or certain assets of such
Trust as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Upon the issuance of each Series of REMIC Certificates,
Federal Tax Counsel will deliver its opinion generally to the effect that under
then-existing law and assuming a proper and timely REMIC election and ongoing
compliance with the provisions of the related Agreement and applicable
provisions of the Code and applicable Treasury regulations and rulings, the
related Trust or certain assets of such Trust will be a REMIC and the REMIC
Certificates will be considered to evidence ownership of 'regular interests' or
'residual interests' within the meaning of the REMIC provisions of the Code.
To the extent provided in the Prospectus Supplement for a Series, REMIC
Regular Certificateholders who are entitled to payments from a reserve fund in
the event of a Basis Risk Shortfall will be required to allocate their purchase
price between their beneficial ownership interests in the related REMIC regular
interests and Yield Supplement Agreements, and will be required to report their
income realized with respect to each, calculated taking into account such
allocation. In general, such allocation would be based on the respective fair
market values of the REMIC regular interests and the related Yield Supplement
Agreements on the date of purchase of the related Certificate. No representation
is or will be made as to the fair market value of the Yield Supplement
Agreements or the relative values of the REMIC regular interests and the Yield
Supplement Agreements, upon initial issuance of the related REMIC Regular
Certificates or at any time thereafter. REMIC Regular Certificateholders are
advised to consult their own tax advisors concerning the determination of such
fair market values. Under the Agreement, holders of applicable Classes of REMIC
Regular Certificates will agree that, for federal income tax purposes, they will
be treated as owners of the respective class of regular interests and of the
corresponding Yield Supplement Agreement.
The regulations under Sections 860A through 860G of the Code (the 'REMIC
Regulations') provide that obligations secured by interests in manufactured
housing which qualify as 'single family residences' within the meaning of
Section 25(e)(10) of the Code, are to be treated as 'qualified mortgages' for a
REMIC. Under Section 25(e)(10) of the Code, the term 'single family residence'
includes any manufactured home which has a
37
<PAGE>
minimum of 400 square feet of living space and a minimum width in excess of 102
inches and which is of a kind customarily used at a fixed location. The
Originator will represent and warrant that each of the manufactured homes
securing the Contracts which are a part of a Trust for which a REMIC election
will be made meets this definition of a 'single family residence.'
Status of REMIC Certificates as Real Property Loans. The REMIC
Certificates will be 'qualifying real property loans' within the meaning of
Section 593(d) of the Code, 'real estate assets' for purposes of Section
856(c)(5)(A) of the Code and assets described in Section 7701(a)(19)(C) of the
Code (assets qualifying under one or more of those sections, applying each
section separately, 'qualifying assets') to the extent that the REMIC's assets
are qualifying assets, but not to the extent that the REMIC's assets consist of
Yield Supplement Agreements. However, if at least 95 percent of the REMIC's
assets are qualifying assets, then 100 percent of the REMIC Certificates will be
qualifying assets. Similarly, income on the REMIC Certificates will be treated
as 'interest on obligations secured by mortgages on real property' within the
meaning of Section 856(c)(3)(B) of the Code, subject to the limitations of the
preceding two sentences. In addition to the Contracts, the REMIC's assets will
include payments on the Contracts held pending distribution to holders of REMIC
Certificates, amounts in reserve accounts (if any), and other credit
enhancements (if any). The Contracts generally will be qualifying assets under
all three of the foregoing sections of the Code. However, Contracts that are not
secured by residential real property or real property used primarily for church
purposes may not constitute qualifying assets under Section 7701(a)(19)(C)(v) of
the Code, and Contracts that are not secured by improved real property or real
property which is to be improved using loan proceeds will not constitute
qualifying assets under Section 593(d) of the Code. In addition, to the extent
that the principal amount of a Contract exceeds the value of the property
securing the Contract, it is unclear and Federal Tax Counsel is unable to opine
whether the Contract will be a qualifying asset. Although the REMIC Regulations
treat credit enhancements as part of the mortgage or pool of mortgages to which
they relate, it is unclear and Federal Tax Counsel is unable to opine whether
credit enhancements are qualifying assets. Regulations issued in conjunction
with the REMIC Regulations provide that amounts paid on Contracts and held
pending distribution to holders of Certificates ('cash flow investments') will
be treated as qualifying assets. It is unclear whether reserve funds would also
constitute qualifying assets under any of those provisions.
TIERED REMIC STRUCTURES
For certain Series of Certificates, two or more separate elections may be
made to treat designated portions of the related Trust as REMICs ('Tiered
REMICs') for federal income tax purposes. Upon the issuance of any such Series
of Certificates, Federal Tax Counsel will deliver its opinion generally to the
effect that, under then-existing law and assuming proper and timely REMIC
elections and ongoing compliance with the provisions of the related Agreement
and applicable provisions of the Code and applicable Treasury regulations and
rulings, the Tiered REMICs will each qualify as a REMIC and the REMIC
Certificates issued by the Tiered REMICs, respectively, will be considered to
evidence ownership of 'regular interests' or 'residual interests' in the related
REMIC within the meaning of the REMIC provisions of the Code.
Solely for purposes of determining whether the REMIC Certificates will be
'qualifying real property loans' under Section 593(d) of the Code, 'real estate
assets' within the meaning of Section 856(c)(5)(A) of the Code, and 'loans
secured by an interest in real property' under Section 7701(a)(19)(C) of the
Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
REMIC REGULAR CERTIFICATES
Current Income on REMIC Regular Certificates--General. Except as otherwise
indicated herein, the REMIC Regular Certificates will be treated for federal
income tax purposes (but not necessarily for accounting or other purposes) as
debt instruments that are issued by the REMIC on the date of issuance of the
REMIC Regular Certificates and not as ownership interests in the REMIC or the
REMIC's assets. Holders of REMIC Regular Certificates who would otherwise report
income under a cash method of accounting will be required to report income with
respect to REMIC Regular Certificates under an accrual method.
38
<PAGE>
Payments of interest on REMIC Regular Certificates may be based on a fixed
rate, a variable rate as permitted by the REMIC Regulations, or may consist of a
specified portion of the interest payments on qualified mortgages where such
portion does not vary during the period the REMIC Regular Certificate is
outstanding. The definition of a variable rate for purposes of the REMIC
Regulations is based on the definition of a qualified floating rate for purposes
of the rules governing original issue discount set forth in Sections 1271
through 1275 of the Code and the regulations thereunder (the 'OID Regulations')
with certain modifications and permissible variations. In contrast to the OID
Regulations, for purposes of the REMIC Regulations, a qualified floating rate
does not include any multiple of a qualified floating rate (also excluding
multiples of qualified floating rates that themselves would constitute qualified
floating rates under the OID Regulations), and the characterization of a
variable rate that is subject to a cap, floor or similar restriction as a
qualified floating rate for purposes of the REMIC Regulations will not depend
upon the OID Regulations relating to caps, floors, and similar restrictions. A
qualified floating rate, as defined above for purposes of the REMIC Regulations
(a 'REMIC Qualified Floating Rate'), qualifies as a variable rate for purposes
of the REMIC Regulations if such REMIC Qualified Floating Rate is set at a
'current rate' as defined in the OID Regulations. In addition, a rate equal to
the highest, lowest or an average of two or more REMIC Qualified Floating Rates
qualifies as a variable rate for REMIC purposes. A REMIC Regular Certificate
also may have a variable rate based on a weighted average of the interest rates
on some or all of the qualified mortgages held by the REMIC where each qualified
mortgage taken into account has a fixed rate or a variable rate that is
permissible under the REMIC Regulations. Further, a REMIC Regular Certificate
may have a rate that is the product of a REMIC Qualified Floating Rate or a
weighted average rate and a fixed multiplier, is a constant number of basis
points more or less than a REMIC Qualified Floating Rate or a weighted average
rate, or is the product, plus or minus a constant number of basis points, of a
REMIC Qualified Floating Rate or a weighted average rate and a fixed multiplier.
An otherwise permissible variable rate for a REMIC Regular Certificate,
described above, will not lose its character as such because it is subject to a
floor or a cap, including a 'funds available cap' as that term is defined in the
REMIC Regulations. Lastly, a REMIC Regular Certificate will be considered as
having a permissible variable rate if it has a fixed or otherwise permissible
variable rate during one or more payment or accrual periods and different fixed
or otherwise permissible variable rates during other payment or accrual periods.
Original Issue Discount. REMIC Regular Certificates of certain Series may
be issued with 'original issue discount' within the meaning of Section 1273(a)
of the Code. Holders of REMIC Regular Certificates issued with original issue
discount generally must include original issue discount in gross income for
federal income tax purposes as it accrues, in advance of receipt of the cash
attributable to such income, under a method that takes account of the
compounding of interest. The Code requires that information with respect to the
original issue discount accruing on any REMIC Regular Certificate be reported
periodically to the Internal Revenue Service and to certain categories of
holders of such REMIC Regular Certificates.
Each Trust will report original issue discount, if any, to the Holders of
REMIC Regular Certificates based on the OID Regulations. The OID Regulations are
effective April 4, 1994. Proposed OID Regulations concerning contingent payments
have not been finalized.
The Code provides that, in the case of a debt instrument such as a REMIC
Regular Certificate, (i) the amount and rate of accrual of original issue
discount will be calculated based on a reasonable assumed prepayment rate (the
'Prepayment Assumption'), and (ii) adjustments will be made in the amount and
rate of accrual of such discount to reflect differences between the actual
prepayment rate and the Prepayment Assumption. The method for determining the
appropriate assumed prepayment rate will eventually be set forth in Treasury
regulations, but those regulations have not yet been issued. The applicable
legislative history indicates, however, that such regulations will provide that
the assumed prepayment rate for securities such as the REMIC Regular
Certificates will be the rate used in pricing the initial offering of the
securities. The Prospectus Supplement for each Series of REMIC Regular
Certificates will specify the Prepayment Assumption, but no representation is
made that the REMIC Regular Certificates will prepay at a rate based on the
Prepayment Assumption or at any other rate.
In general, a REMIC Regular Certificate will be considered to be issued
with original issue discount if its stated redemption price at maturity exceeds
its issue price. Except as discussed below under 'Payment Lag REMIC Regular
Certificates; Initial Period Considerations' and 'Qualified Stated Interest,'
and in the case of certain Variable Rate REMIC Regular Certificates (as defined
below) and accrual certificates, the stated
39
<PAGE>
redemption price at maturity of a REMIC Regular Certificate is its principal
amount. The issue price of a REMIC Regular Certificate is the initial offering
price to the public (excluding bond houses and brokers) at which a substantial
amount of the Class of REMIC Regular Certificates was sold. The issue price will
be reduced if any portion of such price is allocable to a related Yield
Supplement Agreement. Notwithstanding the general definition of original issue
discount, such discount will be considered to be zero for any REMIC Regular
Certificate on which such discount is less than 0.25% of its stated redemption
price at maturity multiplied by its weighted average life. The weighted average
life of a REMIC Regular Certificate apparently is computed for purposes of this
de minimis rule as the sum, for all distributions included in the stated
redemption price at maturity of the REMIC Regular Certificate, of the amounts
determined by multiplying (i) the number of complete years (rounding down for
partial years) from the closing date to the date on which each such distribution
is expected to be made, determined under the Prepayment Assumption, by (ii) a
fraction, the numerator of which is the amount of such distribution and the
denominator of which is the REMIC Regular Certificate's stated redemption price
at maturity. The OID Regulations provide that Holders will include any de
minimis original issue discount ratably as payments of stated principal are made
on the REMIC Regular Certificates.
The Holder of a REMIC Regular Certificate issued with original issue
discount must include in gross income the sum of the 'daily portions' of such
original issue discount for each day during its taxable year on which it held
such REMIC Regular Certificate. In the case of an original Holder of a REMIC
Regular Certificate, the daily portions of original issue discount are
determined first by calculating the portion of the original issue discount that
accrued during each period (an 'accrual period') that begins on the day
following a Remittance Date (or in the case of the first such period, begins on
the closing date) and ends on the next succeeding Remittance Date. The original
issue discount accruing during each accrual period is then allocated ratably to
each day during such period to determine the daily portion of original issue
discount for that day.
The portion of the original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions to be made on
the REMIC Regular Certificate, if any, in future periods and (B) the
distributions made on the REMIC Regular Certificate during the accrual period
that are included in such REMIC Regular Certificate's stated redemption price at
maturity, over (ii) the adjusted issue price of such REMIC Regular Certificate
at the beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that the REMIC Regular Certificates will be prepaid in future periods
at a rate computed in accordance with the Prepayment Assumption and (ii) using a
discount rate equal to the original yield to maturity of the REMIC Regular
Certificates. For these purposes, the original yield to maturity of the REMIC
Regular Certificates will be calculated based on their issue price and assuming
that the REMIC Regular Certificates will be prepaid in accordance with the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such REMIC
Regular Certificate, increased by the portion of the original issue discount
that has accrued during prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods
that were included in such REMIC Regular Certificate's stated redemption price
at maturity.
The daily portions of original issue discount may increase or decrease
depending on the extent to which the actual rate of prepayments diverges from
the Prepayment Assumption. If original issue discount accruing during any
accrual period computed as described above is negative, it is likely that a
Holder will be entitled to offset such amount only against positive original
issue discount accruing on such REMIC Regular Certificate in future accrual
periods. Although Federal Tax Counsel is unable to opine with respect to this
matter, such a holder may be entitled to deduct a loss to the extent that its
remaining basis would exceed the maximum amount of future payments to which such
holder is entitled. It is unclear whether the Prepayment Assumption is taken
into account for this purpose.
A subsequent Holder that purchases a REMIC Regular Certificate issued with
original issue discount at a cost less than its remaining stated redemption
price at maturity will also generally be required to include in gross income,
for each day on which it holds such REMIC Regular Certificate, the daily
portions of original issue discount with respect to the REMIC Regular
Certificate, calculated as described above. However, if (i) the excess of the
remaining stated redemption price at maturity over such cost is less than (ii)
the aggregate amount of such daily portions for all days after the date of
purchase until final retirement of such REMIC Regular Certificate, then such
daily portions will be reduced proportionately in determining the income of such
holder.
40
<PAGE>
Qualified Stated Interest. Interest payable on a REMIC Regular Certificate
which qualifies as 'qualified stated interest' for purposes of the OID
Regulations will not be includible in the stated redemption price at maturity of
the REMIC Regular Certificate. Interest payments will not qualify as qualified
stated interest unless the interest payments are 'unconditionally payable.' The
OID Regulations state that interest is unconditionally payable if late payment
of interest (other than late payment that occurs within a reasonable grace
period) or nonpayment of interest is expected to be penalized or reasonable
remedies exist to compel payment. The meaning of 'penalized' under the OID
Regulations is unclear. The Internal Revenue Service has taken the position that
a penalty must inure directly to the benefit of the debt instrument holder and
must be large enough to ensure that, at the time the debt instruments are
issued, it is reasonably certain that, absent insolvency, the issuer will make
interest payments when due. In its determination, the accrual of interest on
past-due interest payments at a penalty rate that is two percentage points above
the stated yield of a debt instrument is not a sufficient penalty, but the
accrual of interest on past-due interest payments at a penalty rate that is
twelve percentage points above the stated yield of the debt instrument might be
a sufficient penalty, depending on the facts and circumstances. Accordingly,
Federal Tax Counsel is unable to opine whether interest payments on REMIC
Regular Certificates that otherwise would not be treated as having original
issue discount would be considered to have original issue discount because there
are not reasonable remedies to compel timely payment of interest or adequate
penalties for the nonpayment of interest.
Premium. A purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost greater than its remaining stated redemption
price at maturity will be considered to have purchased such REMIC Regular
Certificate at a premium, and may, under Section 171 of the Code, elect to
amortize such premium under a constant yield method over the life of the REMIC
Regular Certificate. The Prepayment Assumption is probably taken into account in
determining the life of the REMIC Regular Certificate for this purpose. Except
as provided in regulations, amortizable premium will be treated as an offset to
interest income on the REMIC Regular Certificate.
Payment Lag REMIC Regular Certificates; Initial Period
Considerations. Certain REMIC Regular Certificates will provide for
distributions of interest based on a period that is the same length as the
interval between Remittance Dates but ends prior to each Remittance Date. Any
interest that accrues prior to the closing date may be treated under the OID
Regulations either (i) as part of the issue price and the stated redemption
price at maturity of the REMIC Regular Certificates or (ii) as not included in
the issue price or the stated redemption price. The OID Regulations provide a
special application of the de minimis rule for debt instruments with long first
accrual periods where the interest payable for the first period is at a rate
which is effectively less than that which applies in all other periods. In such
cases, for the sole purpose of determining whether original issue discount is de
minimis, the OID Regulations provide that the stated redemption price is equal
to the instrument's issue price plus the greater of the amount of foregone
interest or the excess (if any) of the instrument's stated principal amount over
its issue price.
Variable Rate REMIC Regular Certificates. Under the OID Regulations, REMIC
Regular Certificates paying interest at a variable rate (a 'Variable Rate REMIC
Regular Certificate') are subject to special rules. A Variable Rate REMIC
Regular Certificate will qualify as a 'variable rate debt instrument' if (i) its
issue price does not exceed the total noncontingent principal payments due under
the Variable Rate REMIC Regular Certificate by more than a specified de minimis
amount and (ii) it provides for stated interest, paid or compounded at least
annually, at (a) one or more qualified floating rates, (b) a single fixed rate
and one or more qualified floating rates, (c) a single objective rate or (d) a
single fixed rate and a single objective rate that is a qualified inverse
floating rate.
A 'qualified floating rate' is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate REMIC Regular Certificate is denominated. A multiple of a
qualified floating rate will generally not itself constitute a qualified
floating rate for purposes of the OID Regulations. However, a variable rate
equal to (i) the product of a qualified floating rate and a fixed multiple that
is greater than zero but not more than 1.35 or (ii) the product of a qualified
floating rate and a fixed multiple that is greater than zero but not more than
1.35, increased or decreased by a fixed rate will constitute a qualified
floating rate for purposes of the OID Regulations. In addition, under the OID
Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Variable Rate REMIC Regular
41
<PAGE>
Certificate will be treated as a single qualified floating rate (a 'Presumed
Single Qualified Floating Rate'). Two or more qualified floating rates with
values within 25 basis points of each other as determined on the Variable Rate
REMIC Regular Certificate's issue date will be conclusively presumed to be a
Presumed Single Qualified Floating Rate. Notwithstanding the foregoing, a
variable rate that would otherwise constitute a qualified floating rate but
which is subject to one or more restrictions such as a cap or floor, will not be
a qualified floating rate for purposes of the OID Regulations unless the
restriction is fixed throughout the term of the Variable Rate REMIC Regular
Certificate or the restriction will not significantly affect the yield of the
Variable Rate REMIC Regular Certificate.
An 'objective rate' is a rate that is not itself a qualified floating rate
but which is determined using a single fixed formula and which is based upon (i)
one or more qualified floating rates, (ii) one or more rates where each rate
would be a qualified floating rate for a debt instrument denominated in a
currency other than the currency in which the Variable Rate REMIC Regular
Certificate is denominated, (iii) either the yield or changes in the price of
one or more items of actively traded personal property or (iv) a combination of
rates described in (i),(ii) and (iii). The OID Regulations also provide that
other variable rates may be treated as objective rates if so designated by the
Internal Revenue Service in the future. Despite the foregoing, a variable rate
of interest on a Variable Rate REMIC Regular Certificate will not constitute an
objective rate if it is reasonably expected that the average value of such rate
during the first half of the Variable Rate REMIC Regular Certificate's term will
be either significantly less than or significantly greater than the average
value of the rate during the final half of the Variable Rate REMIC Regular
Certificate's term. An objective rate will qualify as a 'qualified inverse
floating rate' if such rate is equal to a fixed rate minus a qualified floating
rate and variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the cost of newly borrowed funds. The OID
Regulations also provide that if a Variable Rate REMIC Regular Certificate
provides for stated interest at a fixed rate for an initial period of less than
one year followed by a variable rate that is either a qualified floating rate or
an objective rate and if the variable rate on the Variable Rate REMIC Regular
Certificate's issue date is intended to approximate the fixed rate, then the
fixed rate and the variable rate together will constitute either a single
qualified floating rate or objective rate, as the case may be (a 'Presumed
Single Variable Rate'). If the value of the variable rate and the initial fixed
rate are within 25 basis points of each other as determined on the Variable Rate
REMIC Regular Certificate's issue date, the variable rate will be conclusively
presumed to approximate the fixed rate.
For Variable Rate REMIC Regular Certificates that qualify as a 'variable
rate debt instrument' under the OID Regulations and provide for interest at
either a single qualified floating rate, a single objective rate, a Presumed
Single Qualified Floating Rate or a Presumed Single Variable Rate throughout the
term (a 'Single Variable Rate REMIC Regular Certificate'), original issue
discount is computed as described in 'REMIC Regular Certificates-Current Income
on REMIC Regular Certificates--Original Issue Discount' based on the following:
(i) stated interest on the Single Variable Rate REMIC Regular Certificate which
is unconditionally payable in cash or property (other than debt instruments of
the issuer) at least annually will constitute qualified stated interest and (ii)
by assuming that the variable rate on the Single Variable Rate REMIC Certificate
is a fixed rate equal to: (a) in the case of a Single Variable Rate REMIC
Regular Certificate with a qualified floating rate or a qualified inverse
floating rate, the value, as of the issue date, of the qualified floating rate
or the qualified inverse floating rate or (b) in the case of a Single Variable
Rate REMIC Regular Certificate with an objective rate (other than a qualified
inverse floating rate), a fixed rate which reflects the reasonably expected
yield for such Single Variable Rate REMIC Regular Certificate.
In general, any Variable Rate REMIC Regular Certificate other than a Single
Variable Rate REMIC Regular Certificate (a 'Multiple Variable Rate REMIC Regular
Certificate') that qualifies as a 'variable rate debt instrument' will be
converted into an 'equivalent' fixed rate debt instrument for purposes of
determining the amount and accrual of original issue discount and qualified
stated interest on the Multiple Variable Rate REMIC Regular Certificate. The OID
Regulations generally require that such a Multiple Variable Rate REMIC Regular
Certificate be converted into an 'equivalent' fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Multiple Variable Rate REMIC Regular
Certificate with a fixed rate equal to the value of the qualified floating rate
or qualified inverse floating rate, as the case may be, as of the Multiple
Variable Rate REMIC Regular Certificate's issue date. Any objective rate (other
than a qualified inverse floating rate) provided for under the terms of the
Multiple Variable Rate REMIC
42
<PAGE>
Regular Certificate is converted into a fixed rate that reflects the yield that
is reasonably expected for the Multiple Variable Rate REMIC Regular Certificate.
In the case of a Multiple Variable Rate REMIC Regular Certificate that qualifies
as a 'variable rate debt instrument' and provides for stated interest at a fixed
rate in addition to either one or more qualified floating rates or a qualified
inverse floating rate, the fixed rate is initially converted into a qualified
floating rate (or a qualified inverse floating rate, if the Multiple Variable
Rate REMIC Regular Certificate provides for a qualified inverse floating rate).
Under such circumstances, the qualified floating rate or qualified inverse
floating rate that replaces the fixed rate must be such that the fair market
value of the Multiple Variable Rate REMIC Regular Certificate as of the Multiple
Variable Rate REMIC Regular Certificate's issue date is approximately the same
as the fair market value of an otherwise identical debt instrument that provides
for either the qualified floating rate or qualified inverse floating rate rather
than the fixed rate. Subsequent to converting the fixed rate into either a
qualified floating rate or a qualified inverse floating rate, the Multiple
Variable Rate REMIC Regular Certificate is then converted into an 'equivalent'
fixed rate debt instrument in the manner described above.
Once the Multiple Variable Rate REMIC Regular Certificate is converted into
an 'equivalent' fixed rate debt instrument pursuant to the foregoing rules, the
amount of original issue discount and qualified stated interest, if any, are
determined for the 'equivalent' fixed rate debt instrument by applying the
original issue discount rules to the 'equivalent' fixed rate debt instrument in
the manner described in 'REMIC Regular Certificates-Current Income on REMIC
Regular Certificates--Original Issue Discount'. A Holder of the Multiple
Variable Rate REMIC Regular Certificate will account for such original issue
discount and qualified stated interest as if the Holder held the 'equivalent'
fixed rate debt instrument. Each accrual period, appropriate adjustments will be
made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the 'equivalent' fixed rate
debt instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Multiple Variable Rate REMIC Regular Certificate
during such accrual period.
The OID Regulations do not clearly address the treatment of a Variable Rate
REMIC Regular Certificate that is based on a weighted average of the interest
rates on underlying Contracts and, consequently, Federal Tax Counsel is unable
to opine whether REMIC Regular Certificates that otherwise would not be treated
as having original issue discount would be considered to have original issue
discount because they bear interest based on a weighted average. Under the OID
Regulations, interest payments on such a Variable Rate REMIC Regular Certificate
may be characterized as qualified stated interest which is includible in income
in a manner similar to that described in the previous paragraph. However, it is
also possible that interest payments on such a Variable Rate REMIC Regular
Certificate would be treated as contingent interest (possibly includible in
income when the payments become fixed) or in some other manner. If a Variable
Rate REMIC Regular Certificate does not qualify as a 'variable rate debt
instrument' under the OID Regulations, then the Variable Rate REMIC Regular
Certificate would be treated as a contingent payment debt obligation. Federal
Tax Counsel is unable to opine how a Variable Rate REMIC Regular Certificate
would be taxed if such REMIC Regular Certificate were to be treated as a
contingent payment debt obligation.
Interest-Only REMIC Regular Certificates. The Trust intends to report
income from interest-only Classes of REMIC Regular Certificates to the Internal
Revenue Service and to holders of interest-only REMIC Regular Certificates based
on the assumption that the stated redemption price at maturity is equal to the
sum of all payments determined under the Prepayment Assumption. As a result,
such interest-only REMIC Regular Certificates will be treated as having original
issue discount.
Market Discount. A Holder that acquires a REMIC Regular Certificate at a
market discount (that is, a discount that exceeds any unaccrued original issue
discount) will recognize gain upon receipt of a principal distribution,
regardless of whether the distribution is scheduled or is a prepayment. In
particular, the REMIC Regular Certificateholder will be required to allocate
that principal distribution first to the portion of the market discount on such
REMIC Regular Certificate that has accrued but has not previously been
includible in income, and will recognize ordinary income to that extent. In
general terms, unless Treasury regulations when issued state otherwise, market
discount on a REMIC Regular Certificate may be treated, at the REMIC
Certificateholder's election, as accruing either (i) under a constant yield
method, taking into account the Prepayment Assumption, or (ii) in proportion to
accruals of original issue discount (or, if there is no original issue discount,
in proportion to payments of interest at the Remittance Rate).
43
<PAGE>
In addition, a Holder may be required to defer deductions for a portion of
the Holder's interest expense on any debt incurred or continued to purchase or
carry a REMIC Regular Certificate purchased with market discount. The deferred
portion of any interest deduction would not exceed the portion of the market
discount on the REMIC Regular Certificate that accrues during the taxable year
in which such interest would otherwise be deductible and, in general, would be
deductible when such market discount is included in income upon receipt of a
principal distribution on, or upon the sale of, the REMIC Regular Certificate.
The Code requires that information necessary to compute accruals of market
discount be reported periodically to the Internal Revenue Service and to certain
categories of Holders of REMIC Regular Certificates.
Notwithstanding the above rules, market discount on a REMIC Regular
Certificate will be considered to be zero if such discount is less than 0.25% of
the remaining stated redemption price at maturity of such REMIC Regular
Certificate multiplied by its weighted average remaining life. Weighted average
remaining life presumably is calculated in a manner similar to weighted average
life (described above under 'Current Income on REMIC Regular
Certificates-Original Issue Discount'), taking into account distributions
(including prepayments) prior to the date of acquisition of such REMIC Regular
Certificate by the subsequent purchaser. If market discount on a REMIC Regular
Certificate is treated as zero under this rule, the actual amount of such
discount must be allocated to the remaining principal distributions on the REMIC
Regular Certificate, and when each such distribution is made, gain equal to the
discount, if any, allocated to the distribution will be recognized.
Election to Treat All Interest Under the Constant Yield Rules. The OID
Regulations provide that all Holders may elect to include in gross income all
interest that accrues on a debt instrument issued after April 4, 1994 by using
the constant yield method. For purposes of this election, interest includes
stated interest, original issue discount, and market discount, as adjusted to
account for any premium. Holders should consult their own tax advisors regarding
the availability or advisability of such an election.
Sales of REMIC Regular Certificates. If a REMIC Regular Certificate is
sold, the seller will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the REMIC Regular
Certificate. A Holder's adjusted basis in a REMIC Regular Certificate generally
equals the cost of the REMIC Regular Certificate to the Holder, increased by
income reported by the Holder with respect to the REMIC Regular Certificate and
reduced (but not below zero) by distributions on the REMIC Regular Certificate
received by the Holder and by amortized premium. Except as indicated in the next
two paragraphs, any such gain or loss generally will be capital gain or loss
provided the REMIC Regular Certificate is held as a capital asset.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in the seller's income with respect to the REMIC Regular Certificate
had income accrued thereon at a rate equal to 110% of 'the applicable Federal
rate' (generally, an average of current yields on Treasury securities),
determined as of the date of purchase of the REMIC Regular Certificate, over
(ii) the amount actually includible in the seller's income. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
the REMIC Regular Certificate at a market discount would be taxable as ordinary
income in an amount not exceeding the portion of such discount that accrued
during the period the REMIC Regular Certificate was held by such seller, reduced
by any market discount includible in income under the rules described above
under 'Current Income on REMIC Regular Certificates--Market Discount.'
REMIC Regular Certificates will be 'evidences of indebtedness' within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from a
sale of a REMIC Regular Certificate by a bank or other financial institution to
which such section applies would be ordinary income or loss.
Termination. The REMIC will terminate shortly following the REMIC's
receipt of the final payment in respect of the Contracts. The last distribution
on a REMIC Regular Certificate should be treated as a payment in full retirement
of a debt instrument.
TAX TREATMENT OF YIELD SUPPLEMENT AGREEMENTS
Whether a REMIC Regular Certificateholder of a Series will have a separate
contractual right to payments under a Yield Supplement Agreement, and the tax
treatment of such payments, if any, will be addressed in the related Prospectus
Supplement.
44
<PAGE>
REMIC RESIDUAL CERTIFICATES
Because the REMIC Residual Certificates will be treated as 'residual
interests' in the REMIC, each Holder of a REMIC Residual Certificate will be
required to take into account its daily portion of the taxable income or net
loss of the REMIC for each day during the calendar year on which it holds its
REMIC Residual Certificate. The daily portion is determined by allocating to
each day in a calendar quarter a ratable portion of the taxable income or net
loss of the REMIC for that quarter and allocating such daily amounts among the
Holders on such day in proportion to their holdings. All income or loss of the
REMIC taken into account by a REMIC Residual Certificateholder must be treated
as ordinary income or loss, as the case may be. Income from residual interests
is 'portfolio income' which cannot be offset by 'passive activity losses' in the
hands of individuals or other persons subject to the passive loss rules. The
Code also provides that all residual interests must be issued on the REMIC's
startup day and designated as such. For this purpose, 'startup day' means the
day on which the REMIC issues all of its regular and residual interests, and
under the REMIC Regulations may, in the case of a REMIC to which property is
contributed over a period of up to ten consecutive days, be any day designated
by the REMIC within such period.
The taxable income of the REMIC, for purposes of determining the amounts
taken into account by Holders of REMIC Residual Certificates, is determined in
the same manner as in the case of an individual, with certain exceptions. The
accrual method of accounting must be used and the taxable year of the REMIC must
be the calendar year. The basis of property contributed to the REMIC in exchange
for regular or residual interests is its fair market value immediately after the
transfer. The REMIC Regulations determine the fair market value of the
contributed property by deeming it equal to the aggregate issue prices of all
regular and residual interests in the REMIC.
A REMIC Regular Certificate will be considered indebtedness of the REMIC.
Market discount on any of the Contracts held by the REMIC must be included in
the income of the REMIC as it accrues, rather than being included in income only
upon sale of the Contracts or as principal on the Contracts is paid. The REMIC
is not entitled to any personal exemptions or to deductions for taxes paid to
foreign countries and U.S. possessions, charitable contributions or net
operating losses, or to certain other deductions to which individuals are
generally entitled. Income or loss in connection with a 'prohibited transaction'
is disregarded. See 'Prohibited Transactions.'
As previously discussed, the timing of recognition of negative original
issue discount, if any, on a REMIC Regular Certificate is uncertain. As a
result, the timing of recognition of the REMIC taxable income related to a REMIC
Residual Certificate is also uncertain. Although Federal Tax Counsel is unable
to opine as to this matter, the related REMIC taxable income may be recognized
when the adjusted issue price of such REMIC Regular Certificate would exceed the
maximum amount of future payments with respect to such REMIC Regular
Certificate. It is unclear whether the Prepayment Assumption is taken into
account for this purpose.
A REMIC Residual Certificate has a tax basis in its Holder's hands that is
distinct from the REMIC's basis in its assets. The tax basis of a REMIC Residual
Certificate in its holder's hands will be its cost (i.e., the purchase price of
the REMIC Residual Certificate), and will be reduced (but not below zero) by the
Holder's share of cash distributions and losses and increased by its share of
taxable income from the REMIC.
If, in any year, cash distributions to a Holder of a REMIC Residual
Certificate exceed its share of the REMIC's taxable income, the excess will
constitute a return of capital to the extent of the Holder's basis in its REMIC
Residual Certificate. A return of capital is not treated as income for federal
income tax purposes, but will reduce the tax basis of the Holder in its REMIC
Residual Certificate (but not below zero). If a REMIC Residual Certificate's
basis is reduced to zero, any cash distributions with respect to that REMIC
Residual Certificate in any taxable year in excess of its share of the REMIC's
income would be taxable to the Holder as gain on the sale or exchange of its
interest in the REMIC.
The losses of the REMIC taken into account by a Holder of a REMIC Residual
Certificate in any quarter may not exceed the holder's basis in its REMIC
Residual Certificate. Any excess losses may be carried forward indefinitely to
future quarters subject to the same limitation.
There is no REMIC counterpart to the partnership election under Code
Section 754 to increase or decrease the partnership's basis in its assets by
reference to the adjusted basis to subsequent partners of their partnership
45
<PAGE>
interest. The REMIC Regulations do not provide for a similar election or other
adjustment. Consequently, a subsequent purchaser of a REMIC Residual Certificate
at a premium will not be able to use the premium to reduce his share of the
REMIC's taxable income.
Mismatching of Income and Deductions; Excess Inclusions. The taxable
income recognized by the Holder of a REMIC Residual Certificate in any taxable
year will be affected by, among other factors, the relationship between the
timing of recognition of interest and discount income (or deductions for
amortization of premium) with respect to the Contracts, on the one hand, and the
timing of deductions for interest (including original issue discount) on the
REMIC Regular Certificates, on the other. In the case of multiple Classes of
REMIC Regular Certificates issued at different yields, and having different
weighted average lives, taxable income recognized by the holders of REMIC
Residual Certificates may be greater than cash flow in earlier years of the
REMIC (with a corresponding taxable loss or less taxable income than cash flow
in later years). This may result from the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of the REMIC
Regular Certificates, will increase over time as the shorter term, lower
yielding Classes of REMIC Regular Certificates are paid, whereas interest income
from the Contracts may not increase over time as a percentage of the outstanding
principal amount of the Contracts.
In the case of Tiered REMICs, the OID Regulations provide that the regular
interests in the REMIC which directly owns the Contracts (the 'Lower Tier
REMIC') will be treated as a single debt instrument for purposes of the original
issue discount provisions. Therefore, the Trust will calculate the taxable
income of Tiered REMICs by treating the Lower Tier REMIC regular interests as a
single debt instrument.
Any 'excess inclusions' with respect to a REMIC Residual Certificate will
be subject to certain special rules. The excess inclusions with respect to a
REMIC Residual Certificate are equal to the excess, if any, of its share of
REMIC taxable income for the quarterly period over the sum of the daily accruals
for such quarterly period. The daily accrual for any day on which the REMIC
Residual Certificate is held is determined by allocating to each day in a
quarter its allocable share of the product of (A) 120% of the long-term
applicable Federal rate (for quarterly compounding) that would have applied to
the REMIC Residual Certificates if they were debt instruments on the closing
date under Code Section 1274(d)(1) and (B) the adjusted issue price of such
REMIC Residual Certificates at the beginning of a quarterly period. For this
purpose, the adjusted issue price of such REMIC Residual Certificate at the
beginning of a quarterly period is the issue price of such Certificates plus the
amount of the daily accruals of REMIC taxable income for all prior quarters,
decreased by any distributions made with respect to such Certificates prior to
the beginning of such quarterly period.
The excess inclusions of a REMIC Residual Certificate may not be offset by
other deductions, including net operating loss carryforwards, on a Holder's
return. An exception exists for organizations to which Code Section 593 applies
(generally, certain thrift institutions); however, the Code grants the Treasury
Department authority to issue regulations providing that this exception will not
apply to the extent necessary or appropriate to prevent avoidance of tax. The
REMIC Regulations provide that the exception for thrifts applies only if a REMIC
Residual Certificate has 'significant value.' For this purpose, a REMIC Residual
Certificate has significant value if (i) the aggregate issue price of the
residual interest in the REMIC equals at least two percent of the total issue
prices of all interests in the REMIC, and (ii) the REMIC Residual Certificate
has an anticipated weighted average life at least equal to 20 percent of the
anticipated weighted average life of the REMIC. The anticipated weighted average
life of the REMIC is the weighted average of the anticipated weighted average
lives of all classes of interests in the REMIC. This weighted average is
determined under a formula provided in the REMIC Regulations, applied by
treating all payments taken into account in computing the anticipated weighted
average lives of the regular and residual interests in the REMIC as principal
payments on a single regular interest.
Legislation has been introduced with respect to the relationship between
excess inclusions and the alternative minimum tax. This legislation provides
that (i) the alternative minimum taxable income of a taxpayer is based on the
taxpayer's regular taxable income computed without regard to the rule that
taxable income cannot be less than the amount of excess inclusions, (ii) the
alternative minimum taxable income of a taxpayer for a taxable year cannot be
less than the amount of excess inclusions for that year, and (iii) the amount of
any alternative minimum tax net operating loss is computed without regard to any
excess inclusions. No prediction can be made whether such legislation or similar
legislation will be enacted.
46
<PAGE>
The rule permitting thrift institutions to offset excess inclusions with
their net operating losses generally applies only when the thrift institution
itself (rather than an affiliate of the thrift) holds the residual interest.
However, excess inclusions of a 'qualified subsidiary' of a thrift institution
(defined generally as a subsidiary organized and operated exclusively in
connection with the organization and operation of one or more REMICs) may be
offset by net operating losses of its parent thrift as if the parent thrift held
the residual interest directly.
If the Holder of a REMIC Residual Certificate is an organization subject to
the tax on unrelated business income imposed by Code Section 511, the excess
inclusions will be treated as unrelated business taxable income of such holder
for purposes of Code Section 511. In addition, the Code provides that under
Treasury regulations, if a real estate investment trust ('REIT') owns a REMIC
Residual Certificate, to the extent excess inclusions of the REIT exceed its
real estate investment trust taxable income (excluding net capital gains), the
excess inclusions would be allocated among the shareholders of the REIT in
proportion to the dividends received by the shareholders from the REIT. Excess
inclusions derived by regulated investment companies ('RICs'), common trust
funds, and subchapter T cooperatives must be allocated to the shareholders of
such entities using rules similar to those applicable to REITs. The Internal
Revenue Service has not yet adopted or proposed such regulations as to REITs,
RICs, or similar entities. A life insurance company cannot adjust its reserve
with respect to variable contracts to the extent of any excess inclusion, except
as provided in regulations.
The Internal Revenue Service has authority to promulgate regulations
providing that if the aggregate value of the REMIC Residual Certificates is not
considered to be 'significant,' then the entire share of REMIC taxable income of
a Holder of a REMIC Residual Certificate (including a holder which is a thrift
institution) may be treated as excess inclusions subject to the foregoing
limitations. This authority has not been exercised to date.
The REMIC is subject to tax at a rate of 100 percent on any net income it
derived from 'prohibited transactions.' In general, 'prohibited transaction'
means the disposition of a Contract other than pursuant to specified exceptions,
the receipt of income as compensation for services, the receipt of income from a
source other than a Contract or certain other permitted investments, or gain
from the disposition of an asset representing a temporary investment of payments
on the Contracts pending distribution on the REMIC Certificates. In addition, a
tax is imposed on the REMIC equal to 100 percent of the value of certain
property contributed to the REMIC after its 'startup day.' No REMIC in which
interests are offered hereunder will accept contributions that would be subject
to such tax. This provision will not affect the REMIC's ability to accept
substitute Contracts or to sell defective Contracts in accordance with the
Agreement.
A REMIC is subject to a tax (deductible from its income) on any 'net income
from foreclosure property' (determined in accordance with Section 857(b)(4)(B)
of the Code as if the REMIC were a REIT).
Any tax described in the two preceding paragraphs that may be imposed on
the Trust initially would be borne by the holders of the REMIC Residual
Certificates in the related REMIC rather than by the REMIC Regular
Certificateholders, unless otherwise specified in the Prospectus Supplement.
Dealers' Ability to Mark-to-Market REMIC Residual Certificates. Temporary
regulations provide that 'negative-value' REMIC Residual Certificates are not
securities and cannot be marked-to-market pursuant to Section 475 of the Code
(relating to the requirement that dealers in securities mark them to market). A
REMIC Residual Certificate is a negative-value REMIC Residual Certificate if on
the date the dealer acquires the REMIC Residual Certificate the present value of
the anticipated tax liabilities associated with holding the REMIC Residual
Certificate (net of the present value of the tax savings resulting from losses
associated with holding the REMIC Residual Certificate) exceeds the present
value of the expected future distributions on the REMIC Residual Certificate.
Pursuant to the temporary regulations, the Commissioner has the authority to
treat REMIC Residual Certificates which have the same economic effect as a
negative-value REMIC Residual Certificate as not being a security for purposes
of Section 475 of the Code. Proposed regulations provide that all REMIC Residual
Certificates acquired on or after January 4, 1995, and similar interests or
arrangements acquired on or after January 4, 1995 that are determined by the
Commissioner to have substantially the same economic effect as a REMIC Residual
Certificate, are not securities and cannot be marked to market pursuant to
Section 475 of the Code.
The anticipated and expected tax consequences and distributions are
determined by taking into account events that have occurred through the date of
acquisition, the Prepayment Assumption and reinvestment
47
<PAGE>
assumption adopted when the residual was created, and by taking account of
required liquidations and required or permitted clean up calls.
TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Tax on Disposition of REMIC Residual Certificates. The sale of a REMIC
Residual Certificate by a Holder will result in gain or loss equal to the
difference between the amount realized on the sale and the adjusted basis of the
REMIC Residual Certificate.
If the seller of a REMIC Residual Certificate held the REMIC Residual
Certificate as a capital asset, the gain or loss generally will be capital gain
or loss. However, under Code Section 582(c), the sale of a REMIC Residual
Certificate by certain banks and other financial institutions will be considered
a sale of property other than a capital asset, resulting in ordinary income or
loss. Although Federal Tax Counsel is unable to opine with respect to the tax
treatment of a REMIC Residual Certificate that has unrecovered basis after all
funds of the Trust have been distributed, the holder may be entitled to claim a
loss in the amount of the unrecovered basis.
The Code provides that, except as provided in Treasury regulations (which
have not yet been issued), if a Holder sells a REMIC Residual Certificate and
acquires the same or other REMIC Residual Certificates, residual interests in
another REMIC, or any similar interests in a 'taxable mortgage pool' (as defined
in Section 7701(i) of the Code) during the period beginning six months before,
and ending six months after, the date of such sale, such sale will be subject to
the 'wash sale' rules of Section 1091 of the Code. In that event, any loss
realized by the seller on the sale generally will not be currently deductible.
A tax is imposed on the transfer of any residual interest in a REMIC to a
'disqualified organization.' The tax is imposed on the transferor, or, where the
transfer is made through an agent of the disqualified organization, on the
agent. 'Disqualified organizations' include for this purpose the United States,
any State or political subdivision thereof, any foreign government, any
international organization or agency or instrumentality of the foregoing (with
an exception for certain taxable instrumentalities of the United States, of a
State or of a political subdivision thereof), any rural electrical and telephone
cooperative, and any tax-exempt entity (other than certain farmers'
cooperatives) not subject to the tax on unrelated business income.
The amount of tax to be paid by the transferor on a transfer to a
disqualified organization is equal to the present value of the total anticipated
excess inclusions with respect to the interest transferred for periods after
such transfer multiplied by the highest corporate rate of tax. The transferor
(or agent, as the case may be) will be relieved of liability so long as the
transferee furnishes an affidavit that it is not a disqualified organization and
the transferor or agent does not have actual knowledge that the affidavit is
false. Under the REMIC Regulations, an affidavit will be sufficient if the
transferee furnishes (A) a social security number, and states under penalties of
perjury that the social security number is that of the transferee, or (B) a
statement under penalties of perjury that it is not a disqualified organization.
Treatment of Payments to a Transferee in Consideration of Transfer of a
REMIC Residual Certificate. The federal income tax consequences of any
consideration paid to a transferee on a transfer of an interest in a REMIC
Residual Certificate are unclear and Federal Tax Counsel is unable to opine with
respect to this issue. The preamble to the REMIC Regulations indicates that the
Internal Revenue Service is considering the tax treatment of these types of
residual interests. A transferee of such an interest should consult its own tax
advisors.
Restrictions on Transfer; Holding by Pass-Through Entities. An entity
cannot qualify as a REMIC absent reasonable arrangements designed to ensure that
(1) residual interests in such entity are not held by disqualified organizations
and (2) information necessary to calculate the tax due on transfers to
disqualified organizations (i.e., a computation of the present value of the
excess inclusions) is made available by the REMIC. The governing instruments of
a Trust will contain provisions designed to ensure the foregoing, and any
transferee of a REMIC Residual Certificate must execute and deliver an affidavit
stating that neither the transferee nor any person for whose account such
transferee is acquiring the REMIC Residual Certificate is a disqualified
organization. In addition, as to the requirement that reasonable arrangements be
made to ensure that disqualified organizations do not hold a residual interest
in the REMIC, the REMIC Regulations require that notice of the prohibition be
provided either through a legend on the certificate that evidences ownership, or
through a conspicuous statement in the prospectus or other offering document
used to offer the residual interest for sale. As
48
<PAGE>
to the requirement that sufficient information be made available to calculate
the tax on transfers to disqualified organizations (or the tax, discussed below,
on pass-through entities, interests in which are held by disqualified
organizations), the REMIC Regulations further require that such information also
be provided to the Internal Revenue Service.
A tax is imposed on 'pass-through entities' holding residual interests
where a disqualified organization is a record holder of an interest in the
pass-through entity. 'Pass-through entity' is defined for this purpose to
include RICs, REITs, common trust funds, partnerships, trusts, estates, and
subchapter T cooperatives. Except as provided in regulations, nominees holding
interests in a 'pass-through entity' for another person will also be treated as
'pass-through entities' for this purpose. The tax is equal to the amount of
excess inclusions allocable to the disqualified organization for the taxable
year multiplied by the highest corporate rate of tax, and is deductible by the
'pass-through entity' against the gross amount of ordinary income of the entity.
Each Agreement will provide that any attempted transfer of a beneficial or
record interest in a REMIC Residual Certificate will be null and void unless the
proposed transferee provides to the Trustee an affidavit that such transferee is
not a disqualified organization.
Legislation has been introduced which would provide that partners of
certain partnerships having a large number of partners will be treated as
disqualified organizations for purposes of the tax imposed on pass-through
entities if such partnerships hold residual interests in a REMIC. When
applicable, the legislation would disallow 70 percent of a large partnership's
miscellaneous itemized deductions, including deductions for servicing and
guaranty fees and any expenses of the REMIC, although the remaining deductions
would not be subject to the 2 percent floor applicable to individual partners.
See 'Deductibility of Trust Expenses' below. No prediction can be made regarding
whether such legislation will be enacted.
The REMIC Regulations provide that a transfer of a 'noneconomic residual
interest' will be disregarded for all federal income tax purposes unless
impeding the assessment or collection of tax was not a significant purpose of
the transfer. A residual interest will be treated as a 'noneconomic residual
interest' unless, at the time of the transfer (1) the present value of the
expected future distributions on the residual interest at least equals the
product of (x) the present value of all anticipated excess inclusions with
respect to the residual interest and (y) the highest corporate tax rate,
currently 35 percent, and (2) the transferor reasonably expects that for each
anticipated excess inclusion, the transferee will receive distributions from the
REMIC, at or after the time at which taxes on such excess inclusion accrue,
sufficient to pay the taxes thereon. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known (had 'improper knowledge') that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor will be presumed not to have improper
knowledge if (i) the transferor conducts, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and, as a
result of the investigation, the transferor finds that the transferee has
historically paid its debts as they came due and finds no significant evidence
to indicate that the transferee will not continue to pay its debts as they come
due in the future, and (ii) the transferee represents to the transferor that (A)
the transferee understands that it might incur tax liabilities in excess of any
cash received with respect to the residual interest and (B) the transferee
intends to pay the taxes associated with owning the residual interest as they
come due. A different formulation of this rule applies to transfers of REMIC
Residual Certificates by or to foreign transferees. See 'Foreign Investors'
below.
DEDUCTIBILITY OF TRUST EXPENSES
A Holder that is an individual, estate or trust will be subject to the
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such deductions, in the aggregate, do not exceed two
percent of the holder's adjusted gross income, and such holder may not be able
to deduct such fees and expenses to any extent in computing such holder's
alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount (which amount will be
adjusted for inflation for taxable years beginning after 1990) will be reduced
by the lesser of (i) 3 percent of the excess of adjusted gross income over the
applicable amount, or (ii) 80 percent of the amount of itemized deductions
otherwise allowable for such taxable year. Such deductions will include
servicing, guarantee and administrative fees paid to the servicer of the
Contracts. These deductions
49
<PAGE>
will be allocated entirely to the Holders of the REMIC Residual Certificates in
the case of REMIC Trusts with multiple classes of REMIC Regular Certificates
that do not pay their principal amounts ratably. As a result, the REMIC will
report additional taxable income to Holders of REMIC Residual Certificates in an
amount equal to their allocable share of such deductions, and individuals,
estates, or trusts holding an interest in such REMIC Residual Certificates may
have taxable income in excess of the cash received. In the case of a
'single-class REMIC,' the expenses will be allocated, under Treasury
regulations, among the Holders of the REMIC Regular Certificates and the REMIC
Residual Certificates on a daily basis in proportion to the relative amounts of
income accruing to each Certificateholder on that day. In the case of a Holder
of a REMIC Regular Certificate who is an individual or a 'pass-through interest
holder' (including certain pass-through entities, but not including REITS), the
deductibility of such expenses will be subject to the limitations described
above. The reduction or disallowance of these deductions may have a significant
impact on the yield of REMIC Regular Certificates to such a Holder. In general
terms, a single-class REMIC is one that either (i) would qualify under existing
Treasury regulations as a grantor trust if it were not a REMIC (treating all
interests as ownership interests, even if they would be classified as debt for
federal income tax purposes) or (ii) is similar to such a trust and which is
structured with the principal purpose of avoiding the single-class REMIC rules.
FOREIGN INVESTORS
REMIC Regular Certificates. Except as discussed below, a Holder of a REMIC
Regular Certificate who is not a 'United States person' (as defined below)
generally will not be subject to United States income or withholding tax in
respect of a distribution on a REMIC Regular Certificate, provided that (i) the
Holder complies to the extent necessary with certain identification
requirements, including timely delivery of a statement, signed by the holder of
the REMIC Regular Certificate under penalties of perjury, certifying that the
Holder of the REMIC Regular Certificate is not a United States person and
providing the name and address of the Holder, (ii) the Holder is not a
'10-percent shareholder' within the meaning of Code Section 871(h)(3)(B), which
could be interpreted to apply to a Holder of a REMIC Regular Certificate who
holds a direct or indirect 10 percent interest in the REMIC Residual
Certificates, (iii) the Holder is not a 'controlled foreign corporation' (as
defined in the Code) related to the REMIC or related to a 10 percent holder of a
residual interest in the REMIC, and (iv) the Holder is not engaged in a United
States trade or business, or otherwise subject to federal income tax as a result
of any direct or indirect connection to the United States other than through its
ownership of a REMIC Regular Certificate. For these purposes, the term 'United
States person' means (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or (iii) an
estate or trust whose income is includible in gross income for United States
federal income taxation regardless of its source.
REMIC Residual Certificates. The Conference Report to the Tax Reform Act
of 1986 states that amounts paid to foreign persons with respect to residual
interests should be considered interest for purposes of the withholding rules.
Interest paid to a foreign person which is not effectively connected with a
trade or business of the foreign person in the United States is subject to a 30%
withholding tax. The withholding tax on interest does not apply, however, to
'portfolio interest' (if certain certifications as to beneficial ownership are
made, as discussed above under 'Foreign Investors--Regular Certificates') or to
the extent a tax treaty reduces or eliminates the tax. Treasury regulations
provide that amounts paid with respect to residual interests qualify as
portfolio interest only if interest on the qualified mortgages held by the REMIC
qualifies as portfolio interest. Generally, interest on Contracts held by a
Trust will not qualify as portfolio interest. In any case, a Holder of a REMIC
Residual Certificate will not be entitled to the portfolio interest exception
from the 30% withholding tax (or to any treaty exemption or rate reduction) for
that portion of a payment that constitutes excess inclusions. Generally, the
withholding tax will be imposed when REMIC gross income is paid or distributed
to the Holder of a residual interest or when there is a disposition of the
residual interest.
The REMIC Regulations provide that a transfer of a REMIC Residual
Certificate to a foreign transferee will be disregarded for all federal income
tax purposes if the transfer has 'tax avoidance potential.' A transfer to a
foreign transferee will be considered to have tax avoidance potential unless at
the time of the transfer, the transferor reasonably expects that (1) the future
distributions on the REMIC Residual Certificate will equal at least 30 percent
of the anticipated excess inclusions and (2) such amounts will be distributed at
or after the time at which the excess inclusion accrues, but not later than the
close of the calendar year following the calendar year
50
<PAGE>
of accrual. A safe harbor in the REMIC Regulations provides that the reasonable
expectation requirement will be satisfied if the above test would be met at all
assumed prepayment rates for the Contracts from 50 percent of the Prepayment
Assumption to 200 percent of the Prepayment Assumption. A transfer by a foreign
transferor to a domestic transferee will likewise be disregarded under the REMIC
Regulations if the transfer would have the effect of allowing the foreign
transferor to avoid the tax on accrued excess inclusions.
BACKUP WITHHOLDING
Distributions made on the REMIC Certificates and proceeds from the sale of
REMIC Certificates to or through certain brokers may be subject to a 'backup'
withholding tax of 31 percent of 'reportable payments' (including interest
accruals, original issue discount, and, under certain circumstances,
distributions in reduction of principal amount) unless, in general, the Holder
of the REMIC Certificate complies with certain procedures or is an exempt
recipient. Any amounts so withheld from distributions on the REMIC Certificates
would be refunded by the Internal Revenue Service or allowed as a credit against
the holder's federal income tax.
REMIC ADMINISTRATIVE MATTERS
The federal information returns for a Trust (Form 1066 and Schedules Q
thereto) must be filed as if the Trust were a partnership for federal income tax
purposes. Information on Schedule Q must be provided to Holders of REMIC
Residual Certificates with respect to every calendar quarter. Each Holder of a
REMIC Residual Certificate will be required to treat items on its federal income
tax returns consistently with their treatment on the Trust's information returns
unless the Holder either files a statement identifying the inconsistency or
establishes that the inconsistency resulted from an incorrect schedule received
from the Trust. The Trust also will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination of any adjustments to, among other things, items of REMIC taxable
income by the Internal Revenue Service. (Treasury regulations exempt from
certain of these procedural rules REMICs having no more than one residual
interest holder.) Holders of REMIC Residual Certificates will have certain
rights and obligations with respect to any administrative or judicial
proceedings involving the Internal Revenue Service. Under the Code and the REMIC
Regulations, a REMIC generally is required to designate a tax matters person.
Generally, subject to various limitations, the tax matters person has authority
to act on behalf of the REMIC and the holders of the REMIC Residual Certificates
in connection with administrative determinations and judicial review respecting
returns of taxable income of the REMIC.
Unless otherwise indicated in the Prospectus Supplement, and to the extent
allowable, the Servicer or its designee will act as the tax matters person for
each REMIC. Each holder of a REMIC Residual Certificate, by the acceptance of
its interest in the REMIC Residual Certificate, agrees that the Servicer or its
designee will act as the holder's fiduciary in the performance of any duties
required of the holder in the event that the holder is the tax matters person.
NON-REMIC CERTIFICATES
The discussion under this heading applies only to a Series of Certificates
with respect to which a REMIC election is not made.
Tax Status of the Trust. Upon the issuance of each Series of Non-REMIC
Certificates, Federal Tax Counsel will deliver its opinion generally to the
effect that, under then current law, assuming compliance with the related
Agreement, the related Trust will be classified for federal income tax purposes
as a grantor trust and not as an association taxable as a corporation or a
taxable mortgage pool. Accordingly, each Holder of a Non-REMIC Certificate will
be treated for federal income tax purposes as the owner of an undivided interest
in the Contracts included in the Trust. As further described below, each Holder
of a Non-REMIC Certificate therefore must report on its federal income tax
return the gross income from the portion of the Contracts that is allocable to
such Non-REMIC Certificate and may deduct the portion of the expenses incurred
by the Trust that is allocable to such Non-REMIC Certificate, at the same time
and to the same extent as such items would be reported by such Holder if it had
purchased and held directly such interest in the Contracts and received directly
its share of the payments on the Contracts and incurred directly its share of
expenses incurred by the Trust when those amounts are received or incurred by
the Trust.
51
<PAGE>
A Holder of a Non-REMIC Certificate that is an individual, estate, or trust
will be allowed deductions for such expenses only to the extent that the sum of
those expenses and the Holder's other miscellaneous itemized deductions exceeds
two percent of such Holder's adjusted gross income. Moreover, a Holder of a
Non-REMIC Certificate that is not a corporation cannot deduct such expenses for
purposes of the alternative minimum tax (if applicable). Such deductions will
include servicing, guarantee and administrative fees paid to the servicer of the
Contracts. As a result, the Trust will report additional taxable income to
Holders of Non-REMIC Certificates in an amount equal to their allocable share of
such deductions, and individuals, estates, or trusts holding Non-REMIC
Certificates may have taxable income in excess of the cash received.
Status of the Non-REMIC Certificates as Real Property Loans. The Non-REMIC
Certificates will be 'qualifying real property loans' within the meaning of
Section 593(d) of the Code, 'real estate assets' for purposes of Section
856(c)(5)(A) of the Code and 'loans . . . secured by an interest in real
property' within the meaning of Section 7701(a)(19)(C)(v) of the Code (assets
qualifying under one or more of those sections, applying each section
separately, 'qualifying assets') to the extent that the Trust's assets are
qualifying assets. The Non-REMIC Certificates may not be qualifying assets under
any of the foregoing sections of the Code to the extent that the Trust's assets
include reserve funds or payments on Contracts held pending distribution to
Certificateholders. Further, the Non-Remic Certificates may not be 'qualifying
real property loans' to the extent loans held by the Trust are not secured by
improved real property or real property which is to be improved using the loan
proceeds, may not be 'real estate assets' to the extent loans held by the Trust
are not secured by real property, and may not be 'loans . . . secured by an
interest in real property' to the extent loans held by the Trust are not secured
by residential real property or real property used primarily for church
purposes. In addition, to the extent that the principal amount of a loan exceeds
the value of the property securing the loan, it is unclear and Federal Tax
Counsel is unable to opine whether the loan will be a qualifying asset.
Taxation of Non-REMIC Certificates Under Stripped Bond Rules. The federal
income tax treatment of the Non-REMIC Certificates will depend on whether they
are subject to the rules of Section 1286 of the Code (the 'stripped bond
rules'). The Non-REMIC Certificates will be subject to those rules if stripped
interest-only Certificates are issued. In addition, whether or not stripped
interest-only Certificates are issued, the Internal Revenue Service may contend
that the stripped bond rules apply on the ground that the Servicer's servicing
fee, or other amounts, if any, paid to (or retained by) the Servicer or its
affiliates, as specified in the applicable Agreement, represent greater than an
arm's length consideration for servicing the Contracts and should be
characterized for federal income tax purposes as an ownership interest in the
Contracts. The Internal Revenue Service has taken the position in Revenue Ruling
91-46 that retained interest in excess of reasonable compensation for servicing
is treated as a 'stripped coupon' under the rules of Code Section 1286.
If interest retained for the Servicer's servicing fee or other interest is
treated as a 'stripped coupon,' the Non-REMIC Certificates will either be
subject to the original issue discount rules or the market discount rules. A
Holder of a Non-REMIC Certificate will account for any discount on the Non-REMIC
Certificate as market discount rather than original issue discount if either (i)
the amount of original issue discount with respect to the Non-REMIC Certificate
was treated as zero under the original issue discount de minimis rule when the
Non-REMIC Certificate was stripped or (ii) no more than 100 basis points
(including any amount of servicing in excess of reasonable servicing) is
stripped off from the Contracts. If neither of the above exceptions applies, the
original issue discount rules will apply to the Non-REMIC Certificates.
If the original issue discount rules apply, the holder of a Non-REMIC
Certificate (whether a cash or accrual method taxpayer) will be required to
report interest income from the Non-REMIC Certificate in each taxable year equal
to the income that accrues on the Non-REMIC Certificate in that year calculated
under a constant yield method based on the yield of the Non-REMIC Certificate
(or, possibly, the yield of each Contract underlying such Non-REMIC Certificate)
to such Holder. Such yield would be computed at the rate (assuming monthly
compounding) that, if used in discounting the Holder's share of the payments on
the Contracts, would cause the present value of those payments to equal the
price at which the holder purchased the Non-REMIC Certificate. With respect to
certain categories of debt instruments, Section 1272(a)(6) of the Code requires
that original issue discount be accrued based on a prepayment assumption
determined in a manner prescribed by forthcoming regulations. It is unclear
whether such regulations would apply this rule to the Non-REMIC Certificates,
whether Section 1272(a)(6) might apply to the Non-REMIC Certificates in the
absence of such regulations, or whether the Internal Revenue Service could
require use of a reasonable prepayment assumption based on other tax law
52
<PAGE>
principles and Federal Tax Counsel is unable to opine with respect to these
issues. If required to report interest income on the Non-REMIC Certificates to
the Internal Revenue Service under the stripped bond rules, it is anticipated
that the Trustee will calculate the yield of the Non-REMIC Certificates based on
a representative initial offering price of the Non-REMIC Certificates and a
reasonable assumed rate of prepayment of the Contracts (although such yield may
differ from the yield to any particular holder that would be used in calculating
the interest income of such holder). The Prospectus Supplement for each Series
of Non-REMIC Certificates will describe the prepayment assumption that will be
used for this purpose, but no representation is made that the Contracts will
prepay at that rate or at any other rate.
In the case of a Non-REMIC Certificate acquired at a price equal to the
principal amount of the Contracts allocable to the Non-REMIC Certificate, the
use of a reasonable prepayment assumption would not have any significant effect
on the yield used in calculating accruals of interest income. In the case,
however, of a Non-REMIC Certificate acquired at a discount or premium (that is,
at a price less than or greater than such principal amount, respectively), the
use of a reasonable prepayment assumption would increase or decrease such yield,
and thus accelerate or decelerate the reporting of interest income,
respectively.
If a Contract is prepaid in full, the Holder of a Non-REMIC Certificate
acquired at a discount or premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Contract that is allocable to the Non-REMIC Certificate and the portion
of the adjusted basis of the Non-REMIC Certificate (see 'Sales of Non-REMIC
Certificates' below) that is allocable to the Contract. The method of allocating
such basis among the Contracts may differ depending on whether a reasonable
prepayment assumption is used in calculating the yield of the Non-REMIC
Certificates for purposes of accruing original issue discount. It is not clear
whether any other adjustments would be required to reflect differences between
the prepayment rate that was assumed in calculating yield and the actual rate of
prepayments.
Non-REMIC Certificates of certain Series ('Variable Rate Non-REMIC
Certificates') may provide for a Remittance Rate based on the weighted average
of the interest rates of the Contracts held by the Trust, which interest rates
may be fixed or variable. In the case of a Variable Rate Non-REMIC Certificate
that is subject to the original issue discount rules, the daily portions of
original issue discount generally will be calculated under the principles
discussed in 'REMIC Regular Certificates-Current Income on REMIC Regular
Certificates-- Original Issue Discount--Variable Rate REMIC Regular
Certificates.'
Taxation of Non-REMIC Certificates If Stripped Bond Rules Do Not Apply. If
the stripped bond rules do not apply to a Non-REMIC Certificate, then the Holder
will be required to include in income its share of the interest payments on the
Contracts in accordance with its tax accounting method. In addition, if the
Holder purchased the Non-REMIC Certificate at a discount or premium, the holder
will be required to account for such discount or premium in the manner described
below. The treatment of any discount will depend on whether the discount is
original issue discount as defined in the Code and, in the case of discount
other than original issue discount, whether such other discount exceeds a de
minimis amount. In the case of original issue discount, the Holder (whether a
cash or accrual method taxpayer) will be required to report as additional
interest income in each month the portion of such discount that accrues in that
month, calculated based on a constant yield method. In general it is not
anticipated that the amount of original issue discount to be accrued in each
month, if any, will be significant relative to the interest paid currently on
the Contracts. However, original issue discount could arise with respect to a
Contract that provides for interest at a rate equal to the sum of an index of
market interest rates and a fixed number. The original issue discount for such
Contracts generally will be determined under the principles discussed in 'REMIC
Regular Certificates-Current Income on REMIC Regular Certificates--Original
Issue Discount---Variable Rate REMIC Regular Certificates.'
If discount other than original issue discount exceeds a de minimis amount
(described below), the Holder will also generally be required to include in
income in each month the amount of such discount accrued through such month and
not previously included in income, but limited, with respect to the portion of
such discount allocable to any Contract, to the amount of principal on such
Contract received by the Trust in that month. Because the Contracts will provide
for monthly principal payments, such discount may be required to be included in
income at a rate that is not significantly slower than the rate at which such
discount accrues (and therefore at a rate not significantly slower than the rate
at which such discount would be included in income if it were original
53
<PAGE>
issue discount). The Holder may elect to accrue such discount under a constant
yield method based on the yield of the Non-REMIC Certificate to such holder. In
the absence of such an election, it may be necessary to accrue such discount
under a more rapid straight-line method. Under the de minimis rule, market
discount with respect to a Non-REMIC Certificate will be considered to be zero
if it is less than the product of (i) 0.25% of the principal amount of the
Contracts allocable to the Non-REMIC Certificate and (ii) the weighted average
life (in complete years) of the Contracts remaining at the time of purchase of
the Non-REMIC Certificate.
If a Holder purchases a Non-REMIC Certificate at a premium, such Holder may
elect under Section 171 of the Code to amortize the portion of such premium that
is allocable to a Contract under a constant yield method based on the yield of
the Contract to such Holder, provided that such Contract was originated after
September 27, 1985. Premium allocable to a Contract originated on or before that
date should be allocated among the principal payments on the Contract and
allowed as an ordinary deduction as principal payments are made or, perhaps,
upon termination.
It is not clear whether the foregoing adjustments for discount or premium
would be made based on the scheduled payments on the Contracts or taking account
of a reasonable prepayment assumption, and Federal Tax Counsel is unable to
opine on this issue.
If a Contract is prepaid in full, the Holder of a Non-REMIC Certificate
acquired at a discount or premium will recognize ordinary income or loss equal
to the difference between the portion of the prepaid principal amount of the
Contract that is allocable to the Non-REMIC Certificate and the portion of the
adjusted basis of the Non-REMIC Certificate (see 'Sales of Non-REMIC
Certificates' below) that is allocable to the Contract. The method of allocating
such basis among the Contracts may differ depending on whether a reasonable
prepayment assumption is used in calculating the yield of the Non-REMIC
Certificates for purposes of accruing original issue discount. Other adjustments
might be required to reflect differences between the prepayment rate that was
assumed in accounting for discount or premium and the actual rate of
prepayments.
Sales of Non-REMIC Certificates. A Holder that sells a Non-REMIC
Certificate will recognize gain or loss equal to the difference between the
amount realized in the sale and its adjusted basis in the Non-REMIC Certificate.
In general, such adjusted basis will equal the holder's cost for the Non-REMIC
Certificate, increased by the amount of any income previously reported with
respect to the Non-REMIC Certificate and decreased by the amount of any losses
previously reported with respect to the Non-REMIC Certificate and the amount of
any distributions received thereon. Any such gain or loss generally will be
capital gain or loss if the assets underlying the Non-REMIC Certificate were
held as capital assets, except that, for a Non-REMIC Certificate to which the
stripped bond rules do not apply and that was acquired with more than a de
minimis amount of discount other than original issue discount (see 'Taxation of
Non-REMIC Certificates if Stripped Bond Rules Do Not Apply' above), such gain
will be treated as ordinary interest income to the extent of the portion of such
discount that accrued during the period in which the seller held the Non-REMIC
Certificate and that was not previously included in income.
Foreign Investors. A Holder of a Non-REMIC Certificate who is not a
'United States person' (as defined below) and is not subject to federal income
tax as a result of any direct or indirect connection to the United States other
than its ownership of a Non-REMIC Certificate generally will not be subject to
United States income or withholding tax in respect of payments of interest or
original issue discount on a Non-REMIC Certificate to the extent attributable to
Contracts that were originated after July 18, 1984, provided that the Holder
complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the holder of the Non-REMIC
Certificate under penalties of perjury, certifying that such Holder is not a
United States person and providing the name and address of such holder).
Interest or original issue discount on a Non-REMIC Certificate attributable to
Contracts that were originated prior to July 19, 1984 will be subject to a 30%
withholding tax (unless such tax is reduced or eliminated by an applicable tax
treaty). For these purposes, the term 'United States person' means a citizen or
a resident of the United States, a corporation, partnership or other entity
created or organized in, or under the laws of, the United States or any
political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source.
54
<PAGE>
TAXABLE MORTGAGE POOLS
Effective January 1, 1992, certain entities classified as 'taxable mortgage
pools' are subject to corporate level tax on their net income. A 'taxable
mortgage pool' is generally defined as an entity that meets the following
requirements: (i) the entity is not a REMIC, (ii) substantially all of the
assets of the entity are debt obligations, and more than 50 percent of such debt
obligations consist of real estate mortgages (or interests therein), (iii) the
entity is the obligor under debt obligations with two or more maturities, and
(iv) payments on the debt obligations on which the entity is the obligor bear a
relationship to the payments on the debt obligations which the entity holds as
assets. With respect to requirement (iii), the Code authorizes the Internal
Revenue Service to provide by regulations that equity interests may be treated
as debt for purposes of determining whether there are two or more maturities. If
a Series of Non-REMIC Certificates were treated as obligations of a taxable
mortgage pool, the Trust would be ineligible to file consolidated returns with
any other corporation and could be liable for corporate tax. Treasury
regulations do not provide for the recharacterization of equity as debt for
purposes of determining whether an entity has issued debt with two maturities,
except in the case of transactions structured to avoid the taxable mortgage pool
rules.
LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, any
Certificates offered hereby that are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating organization
will constitute 'mortgage related securities' for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ('SMMEA') and, as such, will be legal
investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including depository institutions, life
insurance companies and pension funds) created pursuant to or existing under the
laws of the United States or of any state whose authorized investments are
subject to state regulation to the same extent as, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any such entities. Under SMMEA certain states have created legislation
specifically limiting the legal investment authority of any such entities with
respect to 'mortgage related securities,' in which case the Certificates will
constitute legal investments for entities subject to such legislation only to
the extent provided therein. SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in Certificates, or require the sale or
other disposition of Certificates, so long as such contractual commitment was
made or such Certificates were acquired prior to the enactment of such
legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Certificates
without limitation as to the percentage of their assets represented thereby;
federal credit unions may invest in Certificates; and national banks may
purchase Certificates for their own account without regard to the limitations
generally applicable to investment securities set forth in 12 U.S.C. Section24
(Seventh), subject in each case to such regulations as the applicable federal
regulatory authority may prescribe.
Some Classes of Certificates offered hereby may not be rated in one of the
two highest rating categories and thus would not constitute 'mortgage related
securities' for purposes of SMMEA.
The Federal Financial Institutions Examination Council, The Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency and the National Credit Union Administration have
proposed or adopted guidelines regarding investment in various types of
mortgagebacked securities. In addition, certain state regulators have taken
positions that may prohibit regulated institutions subject to their jurisdiction
from holding securities representing residual interests, including securities
previously purchased. There may be other restrictions on the ability of certain
investors, including depository institutions, either to purchase Certificates or
to purchase Certificates representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Certificates constitute legal
investments for such investors.
55
<PAGE>
RATINGS
It is a condition precedent to the issuance of any Class of Certificates
sold under this Prospectus that they be rated by at least one nationally
recognized statistical rating organization in one of its four highest rating
categories (within which there may be sub-categories or gradations indicating
relative standing). A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. The security rating of any Series of Certificates
should be evaluated independently of similar security ratings assigned to other
kinds of securities.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the Prospectus Supplement will be
offered in Series, either directly by the Depositor or through one or more
underwriters or underwriting syndicates ('Underwriters'). The Prospectus
Supplement for each Series will set forth the terms of the offering of such
Series and of each Class within such Series, including the name or names of the
Underwriters, the proceeds to and their use by the Depositor, and either the
initial public offering price, the discounts and commissions to the Underwriters
and any discounts or concessions allowed or reallowed to certain dealers, or the
method by which the price at which the Underwriters will sell the Certificates
will be determined.
The Certificates in a Series may be acquired by Underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of any
Underwriters will be subject to certain conditions precedent, and such
Underwriters will be severally obligated to purchase all of a Series of
Certificates described in the related Prospectus Supplement, if any are
purchased. If Certificates of a Series are offered other than through
Underwriters, the related Prospectus Supplement will contain information
regarding the nature of such offering and any agreements to be entered into
between the seller and purchasers of Certificates of such Series.
If any of the Certificates are to be offered for the account of security
holders, the related Prospectus Supplement will specify the name of such holder,
the nature of any position, office or other material relationship which such
holder has had within the past three years with the Depositor or any of its
affiliates, and the amount and Percentage Interest of the applicable Class or
Series of Certificates (i) held by such holder prior to the offering, (ii) being
offered and (iii) to be held by such Holder following completion of the
offering.
The Depositor will indemnify any Underwriters against certain civil
liabilities, including liabilities under the 1933 Act, or will contribute to
payments any Underwriters may be required to make in respect thereof.
In the ordinary course of business, the Depositor, its affiliates and any
Underwriters may engage in various securities and financing transactions,
including repurchase agreements to provide interim financing of the Contracts
pending the sale of such Contracts or interests therein, including the
Certificates.
The Depositor anticipates that the Certificates will be sold primarily to
institutional investors. Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
'underwriters' within the meaning of the 1933 Act in connection with reoffers
and sales by them of Certificates. Holders of Certificates should consult with
their legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates of each
Series, including certain federal income tax consequences with respect thereto,
will be passed upon by Stroock & Stroock & Lavan, Seven Hanover Square, New
York, New York 10004.
56
<PAGE>
GLOSSARY
There follows abbreviated definitions of certain capitalized terms used in
this Prospectus and the Prospectus Supplement. The Agreement may contain a more
complete definition of certain of the terms defined herein and reference should
be made to the Agreement for a more complete definition of all such terms.
'Advances' means the advances made by the Servicer (including advances made
by a Sub-servicer) on any Remittance Date pursuant to an Agreement.
'Agreement' means each Pooling and Servicing Agreement by and among the
Depositor, the Servicer and the Trustee.
'Amount Available' means, with respect to each Series of Certificates,
certain amounts on deposit in the Certificate Account on a Determination Date.
'Certificate Account' means the account maintained by the Servicer or the
Trustee, as specified in the related Prospectus Supplement for deposit of
amounts received on the related Contracts.
'Certificate Principal Balance' means the maximum amount of principal to
which the holder thereof is entitled.
'Certificates' means the Manufactured Housing Contract Pass-Through
Certificates issued pursuant to an Agreement.
'Chattel Contracts' means manufactured housing installment sales contracts
and manufactured housing installment loan agreements, including any and all
rights to receive payments due thereunder on and after the Cut-off Date and
security interests in Manufactured Homes purchased with the proceeds of such
contracts.
'Class' means all Certificates of a Series bearing the same designation and
evidencing the same rights in the related Trust.
'Class Certificate Balance' means the aggregate of the Certificate
Principal Balances of all Certificates of the same Class.
'Code' means the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
'Compound Interest Certificates' means Certificates on which interest may
accrue but not be paid for the period described in the related Prospectus
Supplement.
'Contract Rate' means, with respect to each Contract, the annual rate at
which interest accrues on the unpaid balance from time to time as specified in
such Contract.
'Contracts' means Chattel Contracts and Land-and-Home Contracts
collectively, unless the context otherwise requires.
'Cut-off Date' means the date specified in the related Prospectus
Supplement as the date from which principal and interest payments on the
Contracts are included in the Trust.
'Depositor' means UCFC Funding Corporation, a Louisiana corporation.
'Determination Date' means the business day preceding the related
Remittance Date specified in the related Agreement as of which the Amount
Available for such Remittance Date is determined.
'Due Period' means, unless otherwise provided in a related Prospectus
Supplement, with respect to any Remittance Date, the period beginning on the
second day of the month preceding the month of the Remittance Date and ending on
the first day of the month of the Remittance Date.
'Eligible Investments' means one or more of the investments specified in
the Agreement in which moneys in the Certificate Account and certain other
accounts are permitted to be invested.
'Enhancement' means the form of credit enhancement applicable to a Series
or one or more Classes of such Series of Certificates as specified in the
related Prospectus Supplement.
57
<PAGE>
'Enhancer' means the third-party providing the Enhancement for a Series.
'FDIC' means the Federal Deposit Insurance Corporation.
'FHA' means the Federal Housing Administration.
'Final Scheduled Remittance Date' means, with respect to any Class, the
date, based on the assumptions set forth in the related Prospectus Supplement,
on which the Class Certificate Balance of such Class would be reduced to zero.
'FNMA' means the Federal National Mortgage Association.
'GNMA' means the Government National Mortgage Association.
'HUD' means the United States Department of Housing and Urban Development.
'Initial Deposit' means, with respect to a Series of Certificates, the
amount, if any, deposited into the Reserve Fund on the date of the initial
issuance of the Certificates.
'Land-and-Home Contract' means a manufactured housing installment sales
contract and manufactured housing installment loan agreement which is secured by
a mortgage, deed of trust or other similar instrument on the Manufactured Home
and the real estate to which the Manufactured Home is deemed to be permanently
affixed.
'Late Collections' means, with respect to any Contract, amounts received
during any Due Period, whether as late payments of Monthly Payments, or as
Liquidation Proceeds, condemnation awards, proceeds of insurance policies or
otherwise, which represent late payments or collections of Monthly Payments due
but delinquent for a previous Due Period and not previously recovered.
'Liquidation Proceeds' means cash (including insurance proceeds) received
in connection with the repossession of a Manufactured Home.
'Loan-to-Value Ratio' means the loan-to-value ratio at the time of
origination of the Contract.
'Manufactured Home' means a unit of manufactured housing, including all
accessions thereto, securing the indebtedness of the Obligor under the related
Contract.
'Monthly Payment' means the scheduled monthly payment of principal and
interest on a Contract.
'Obligor' means each person who is indebted under a Contract or who has
acquired a Manufactured Home subject to a Contract.
'Originator' means United Companies Funding, Inc., a Louisiana corporation,
and any other affiliate thereof specified in the related Prospectus Supplement.
'Pool' means, with respect to each Series of Certificates, the pool of
Contracts transferred by the Depositor to the Trustee.
'Record Date' means the date specified in the related Prospectus Supplement
for the list of Certificateholders entitled to distributions on the
Certificates.
'REMIC' means a 'real estate mortgage investment conduit' as defined in the
Code.
'Remittance Date' means the date specified in the related Prospectus
Supplement for payments on the Certificates.
'Remittance Rate' means, as to a Certificate, the rate or rates of interest
thereon specified in the related Prospectus Supplement.
'Senior Certificates' means, with respect to each Series of Certificates,
the Class or Classes which have rights senior to another Class or Classes in
such Series.
'Servicer' means United Companies Lending Corporation(Registered), a
Louisiana corporation.
58
<PAGE>
'Servicing Fee' means the amount of the annual fee paid to the Servicer as
specified in the related Prospectus Supplement.
'Subordinated Certificates' means, with respect to each Series of
Certificates, the Class or Classes with rights subordinate to another Class or
Classes of such Series.
'Trust' means, with respect to each Series of Certificates, the corpus of
the trust created by the related Agreement, to the extent described in such
Agreement, consisting of, among other things, Contracts, such assets as shall
from time to time be identified as deposited in the Certificate Account, the
Manufactured Homes which secured a Contract, and Enhancement, if any.
'Trustee' means the Trustee for a Series of Certificates specified in the
related Prospectus Supplement.
'VA' means the Veterans' Administration.
59
<PAGE>
===============================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEPOSITOR OR ANY UNDERWRITER.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
CERTIFICATES OFFERED HEREBY NOR AN OFFER OF SUCH CERTIFICATES TO ANY PERSON IN
ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Terms................................................. S-3
Risk Factors..................................................... S-8
The Contract Pool................................................ S-8
Maturity, Prepayment and Yield Considerations.................... S-11
Description of the Certificates.................................. S-17
Use of Proceeds.................................................. S-23
ERISA Considerations............................................. S-23
Legal Investment Considerations.................................. S-24
Legal Matters.................................................... S-25
PROSPECTUS
Prospectus Supplement............................................ 2
Available Information............................................ 2
Reports to Certificateholders.................................... 2
Incorporation of Certain Documents by Reference.................. 2
Summary of Terms................................................. 3
Risk Factors..................................................... 8
The Trusts....................................................... 11
Use of Proceeds.................................................. 12
The Depositor.................................................... 12
The Manufactured Housing Program................................. 13
Maturity, Prepayment and Yield Considerations.................... 14
Description of the Certificates.................................. 15
Credit Enhancement............................................... 27
Description of FHA Insurance and VA Guarantees................... 28
Certain Legal Aspects of the Contracts........................... 29
ERISA Considerations............................................. 34
Federal Income Tax Considerations................................ 37
Legal Investment Considerations.................................. 55
Ratings.......................................................... 56
Method of Distribution........................................... 56
Legal Matters.................................................... 56
Glossary......................................................... 57
</TABLE>
------------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTING IN THE CERTIFICATES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
MANUFACTURED
HOUSING CONTRACT
PASS-THROUGH CERTIFICATES,
SERIES 199 -
UCFC FUNDING CORPORATION
(DEPOSITOR)
UNITED COMPANIES LENDING
CORPORATION(REGISTERED)
(SERVICER)
------------------------
PROSPECTUS SUPPLEMENT
------------------------
[NAMES OF UNDERWRITERS]
, 199
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities offered hereunder other than
underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC Registration Fee......................... $ 86,206.90
Printing and Engraving....................... 25,000.00
Trustee's Fees............................... 20,000.00
Legal Fees and Expenses...................... 100,000.00
Accountant's Fees and Expenses............... 35,000.00
Rating Agency Fees........................... 125,000.00
Miscellaneous Fees and Expenses.............. 5,000.00
-----------
Total Expenses.......................... $396,206.90
-----------
-----------
</TABLE>
- ------------------
* All amounts, other than the SEC Registration Fee, are estimates of expenses to
be incurred in connection with the issuance and distribution of a Series of
Certificates in an aggregate principal amount assumed for these purposes to be
$250,000,000 of Certificates registered hereby.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Indemnification. Section 83 of the Louisiana Business Corporation Law
provides that a corporation such as UCFC Funding Corporation may indemnify any
director, officer, employee or agent against expenses and liabilities in
connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative involving the director, officer, employee or
agent by reason of such person acting in such capacity if such person acted in
good faith and in a manner that he reasonably believed to be in, or not opposed
to, the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. Article VIII of UCFC Funding Corporation's By-Laws entitle officers,
directors, employees and agents to indemnification to the fullest extent
permitted by Section 83 of the Louisiana Business Corporation Law.
Article X of UCFC Funding Corporation's Articles of incorporation provides
that no director or officer shall be personally liable to the corporation or its
shareholders for monetary damages for breach of a fiduciary duty as a director
or officer, except for liability (i) for breach of the director's or officer's
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 92(D) of the Louisiana Business
Corporation Law, or (iv) for any transaction from which the director or officer
derived an improper personal benefit.
Insurance. UCFC Funding Corporation maintains director's and officer's
liability insurance on its directors and officers with a policy limit of
$20,000,000.
ITEM 16. LIST OF EXHIBITS
(a) Financial Statements.
None.
(b) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement between UCFC Funding Corporation and
the Underwriters named therein, relating to the distribution of
certain Classes of Certificates.
3.1 -- Articles of Incorporation of UCFC Funding Corporation.
3.2 -- By-Laws of UCFC Funding Corporation.
4.1 -- Form of Pooling and Servicing Agreement.
5.1 -- Opinion of Stroock & Stroock & Lavan as to legality of the securities
being registered, including consent.
8.1 -- Opinion of Stroock & Stroock & Lavan with respect to certain tax
matters, including consent (included in Exhibit 5.1).
23.1 -- Consent of Stroock & Stroock & Lavan (included in Exhibit 5.1).
*24.1 -- Powers of Attorney (included in Part II of this Registration
Statement).
</TABLE>
- ------------------
* Previously filed.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended (the 'Securities Act'), the information omitted from
the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(4) For purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act') that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(5) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denomination and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(6) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(7) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(8) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Baton Rouge, State of Louisiana on September 11, 1996.
UCFC FUNDING CORPORATION
By /s/ H. C. MCCALL, III
-----------------------------------
H. C. McCall, III
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities indicated on September 11, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ------------------------------------------------
<S> <C>
/s/ J. TERRELL BROWN* Director and Chief Executive Officer
- ------------------------------ (Principal Executive Officer)
(J. Terrell Brown)
/s/ DALE E. REDMAN* Director, Vice Chairman and Assistant Secretary
- ------------------------------ (Principal Financial Officer and Principal
(Dale E. Redman) Accounting Officer)
/s/ H. C. MCCALL, III Director and President
- ------------------------------
(H. C. McCall, III)
*By /s/ H. C. MCCALL, III
- ------------------------------
H. C. McCall, III
(Attorney-in-Fact)
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -----------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement between UCFC Funding Corporation and the Underwriters
named therein, relating to the distribution of certain Classes of Certificates.
3.1 -- Articles of Incorporation of UCFC Funding Corporation.
3.2 -- By-Laws of UCFC Funding Corporation.
4.1 -- Form of Pooling and Servicing Agreement.
5.1 -- Opinion of Stroock & Stroock & Lavan as to legality of the securities being
registered, including consent.
8.1 -- Opinion of Stroock & Stroock & Lavan with respect to certain tax matters, including
consent (included in Exhibit 5.1).
23.1 -- Consent of Stroock & Stroock & Lavan (included in Exhibit 5.1).
*24.1 -- Powers of Attorney (included in Part II of this Registration Statement).
</TABLE>
- ------------------
* Previously filed.
<PAGE>
Draft 8/30/96
UCFC FUNDING CORPORATION
Manufactured Housing Contract Pass-Through Certificates
UNDERWRITING AGREEMENT
___________, 1996
New York, New York
Prudential Securities Inc.
One New York Plaza
New York, New York
As Representative of the
Several Underwriters
Ladies and Gentlemen:
UCFC Funding Corporation (the "Company") hereby confirms its
agreement with Prudential Securities Incorporated as representative of the
several underwriters (the "Representative") listed in Exhibit B hereto (the
"Underwriters") to sell Manufactured Housing Contract PassThrough Certificates
Series ______ (the "Certificates") in the classes (each, a "Class") indicated in
Exhibit B hereto (the "Offered Certificates). The Offered Certificates will have
the characteristics set forth in the Prospectus Supplement (as defined below)
and will evidence beneficial ownership interests in a trust fund (the "Trust")
the assets of which will consist primarily of (i) a pool of manufactured housing
installment sales contracts and manufactured housing installment loan agreements
(collectively, the "Contracts") having the characteristics described in the
Prospectus Supplement, (ii) funds deposited in the Pre-Funding Account and the
Capitalized Interest Account (each, as defined in the Prospectus Supplement),
[and] (iii) the rights of the Company under the Contract Sale Agreement (as
defined below) [, and (iv) the Policy].
The Certificates are to be issued under a pooling and
servicing agreement, to be dated as of ___________ 1, 1996 (the "Pooling and
Servicing Agreement"), among the Company, as depositor, United Companies Lending
Corporation(Registered), as servicer
<PAGE>
("UCLC" or the "Servicer"), and _________________________, as
trustee (the "Trustee").
All capitalized terms used but not otherwise defined herein
shall have the respective meanings ascribed thereto in the Pooling and Servicing
Agreement.
Section 1. Representations and Warranties of the Company. The
Company represents and warrants to, and covenants with, each Underwriter that:
(a) A registration statement on Form S-3, (File number
333-07939) for the registration of Manufactured Housing Contract Pass-through
Certificates issuable in series, has been filed with the Securities and Exchange
Commission (the "Commission"), pursuant to the Securities Act of 1933, as
amended (the "1933 Act"), and has been declared effective. The Company will
cause to be filed with the Commission a final prospectus and prospectus
supplement relating to the Offered Certificates in accordance with Rule 424(b),
and previously has informed the Representative of all information to be included
or incorporated therein (other than the Computational Materials (as defined in
Section 8) to be filed with the Commission on a Current Report (as defined in
Section 5(k)).
As used herein: "Effective Date" shall mean each date that the
Registration Statement and any post-effective amendment or amendments thereto
became effective; "Execution Time" shall mean the date and time that this
Underwriting Agreement is executed and delivered by the parties hereto;
"Registration Statement" shall mean the registration statement referred to in
the preceding paragraph, including the exhibits thereto and any documents
incorporated therein by reference pursuant to Item 12 of Form S-3 which were
filed under the Securities Exchange Act of 1934, as amended (the "1934 Act") on
or before the Effective Date, in the form in which it has become effective;
"Preliminary Prospectus" shall mean any preliminary prospectus and preliminary
prospectus supplement described in Rule 430 under the 1933 Act; "Base
Prospectus" shall mean the form of prospectus included in the Registration
Statement at the Effective Date; "Prospectus Supplement" shall mean the
Prospectus Supplement relating to the Offered Certificates; and "Prospectus"
shall mean the form of final prospectus, including the Prospectus Supplement,
relating to the Offered Certificates as filed in accordance with Rule 424(b) as
provided above, including any documents incorporated therein by reference
pursuant to Item 12 of Form S-3 which were filed under the 1934 Act on or before
the date of such filing pursuant to Rule 424(b). Any reference herein to the
terms "amend," "amendment", or "supplement" with respect to the Registration
Statement, the Prospectus or the Prospectus Supplement shall be deemed to refer
to and include the filing of any document under the 1934 Act
-2-
<PAGE>
after the Effective Date or the issue date of the Prospectus or Prospectus
Supplement, as the case may be, deemed to be incorporated by reference therein
pursuant to Item 12 of Form S-3.
(b) On the Effective Date, the Registration Statement and the
Base Prospectus (and any supplements thereto) complied in all material respects
with the applicable requirements of the 1933 Act and the rules and regulations
of the Commission (the "Rules and Regulations"); on the Effective Date, the
Registration Statement did not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; and the Prospectus (and any
amendments or supplements thereto) will not, on the date of any filing pursuant
to Rule 424(b) and on the Closing Date, include any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
representations or warranties as to the information contained in or omitted from
(i) the Registration Statement or the Prospectus in reliance upon and in
conformity with written information relating to any Underwriter [or the Insurer]
furnished to the Company by such Underwriter through the Representative [or by
or on behalf of the Insurer, as the case may be,] specifically for use in
connection with the preparation of the Registration Statement or the Prospectus
or (ii) the Current Report or in any amendment thereof or supplement thereto,
incorporated by reference in such Registration Statement or such Prospectus (or
any amendment thereof or supplement thereto.)
(c) Each of the Company, UCLC, United Companies Funding, Inc.
("UCFI"), UNICOR Mortgage(Registered), Inc. ("UNICOR"), and Gopher Mortgage
Company, Inc. ("Gopher") (collectively, the "United Entities") is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation, has full power and authority (corporate and other)
to own its properties and conduct its business as now conducted by it, and as
described in the Prospectus, and is duly qualified to do business in each
jurisdiction in which it owns or leases real property (to the extent such
qualification is required by applicable law) or in which the conduct of its
business requires such qualification except where the failure to be so qualified
(i) does not involve a material risk to, or a material adverse effect on, the
business, properties, financial position, operations or results of operations of
such United Entity or (ii) would adversely affect the enforceability of any
Contract.
-3-
<PAGE>
(d) There are no actions, proceedings or investigations
pending, or, to the knowledge of the Company, threatened against any United
Entity, before any court, governmental agency or body or other tribunal (i)
asserting the invalidity of (a) this Agreement, (b) the Certificates, (c) the
Contract Sale Agreement, to be dated the Closing Date (the "Contract Sale
Agreement"), between the Company and Gopher, (d) the Contract Purchase
Agreement, to be dated the Closing Date (the "Contract Purchase Agreement"),
among UCLC, UCFI, Gopher and UNICOR, (e) any Subsequent Transfer Agreement, or
(f) the Pooling and Servicing Agreement (collectively, the "Transaction
Documents"), (ii) seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by the Transaction
Documents, (iii) which may, individually or in the aggregate, materially and
adversely affect the performance by any United Entity of its obligations under,
or the validity or enforceability of the Transaction Documents or (iv) which may
affect adversely the federal income tax attributes of the Certificates as
described in the Prospectus.
(e) The execution and delivery by the Company and the other
United Entities of the Transaction Documents to which each is a party, the
issuance of the Certificates and the transfer and delivery of the Contracts to
the Trustee by or on behalf of the Company are within the corporate power of the
related United Entities and have been, or will be, prior to the Closing Date
duly authorized by all necessary corporate action on the part of the related
United Entities and the execution and delivery of such instruments, the
consummation of the transactions therein contemplated and compliance with the
provisions thereof will not result in a breach or violation of any of the terms
and provisions of, or constitute a default under, any statute or any agreement
or instrument to which the related United Entities are parties or by which they
are bound or to which any of the property of the United Entities is subject, the
related United Entities charter or bylaws, or any order, rule or regulation of
any court, governmental agency or body or other tribunal having jurisdiction
over the United Entities, or any of their properties; and no consent, approval,
authorization or order of, or filing with, any court or governmental agency or
body or other tribunal is required for the consummation of the transactions
contemplated by the Transaction Documents or the Prospectus in connection with
the issuance and sale of the Certificates by the Company other than those
previously obtained and the filing of Uniform Commercial Code financing
statements as required by the Pooling and Servicing Agreement. None of the
United Entities is a party to, bound by or in breach or violation of any
indenture or other agreement or instrument, or subject to or in violation of any
statute, order, rule or regulation of any court, governmental agency or body or
other tribunal having jurisdiction over any United Entity, which materially and
adversely affects, or is reasonably likely in the
-4-
<PAGE>
future to materially and adversely affect, (i) the ability of the related United
Entity to perform its obligations under the Transaction Documents or (ii) the
business, operations, results of operations, financial position, income,
properties or assets of the related United Entity.
(f) Each of the Transaction Documents has been or will be duly
executed and delivered by the related United Entity, and each constitutes and
will constitute the legal, valid and binding obligation of the related United
Entity enforceable in accordance with their respective terms, except as
enforceability may be limited by (i) bankruptcy, insolvency, liquidation,
receivership, moratorium, reorganization or other similar laws affecting the
enforcement of the rights of creditors, (ii) general principles of equity,
whether enforcement is sought in a proceeding at law or in equity and (iii) with
respect to this Agreement, public policy constraints regarding indemnification.
(g) The Certificates will conform in all material respects to
the description thereof to be contained in the Prospectus and will be duly and
validly authorized and, when duly and validly executed, authenticated, issued
and delivered in accordance with the Pooling and Servicing Agreement and, in the
case of the Offered Certificates, sold to the Underwriters as provided herein,
will be validly issued and outstanding and entitled to the benefits of the
Pooling and Servicing Agreement.
(h) At the Closing Date, the Contracts to be sold on such date
will conform in all material respects to the description thereof contained in
the Prospectus and the representations and warranties contained in this
Agreement will be true and correct in all material respects. The representations
and warranties set out in the Pooling and Servicing Agreement are hereby made to
each Underwriter as though set out herein, and at the dates specified in the
Pooling and Servicing Agreement, such representations and warranties were or
will be true and correct in all material respects.
(i) The transfer of the Contracts to the Trust at the Closing
Date and, if applicable, on each Subsequent Transfer Date, will be treated by
the Company for financial accounting and reporting purposes as a sale of assets
and not as a pledge of assets to secure debt.
-5-
<PAGE>
(j) Each of the United Entities possesses all material
licenses, certificates, permits or other authorizations issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct the business now operated by it and as described in the Prospectus and
there are no proceedings, pending or, to the best knowledge of the Company,
threatened, relating to the revocation or modification of any such license,
certificate, permit or other authorization which singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the business, operations, results of operations, financial
position, income, property or assets of the United Entities.
(k) Any taxes, fees and other governmental charges in
connection with the execution and delivery of the Transaction Documents or the
execution and issuance of the Certificates have been or will be paid at or prior
to the Closing Date.
(l) There has not been any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company from __________, 1996.
(m) This Agreement and the Pooling and Servicing Agreement
will conform in all material respects to the descriptions thereof contained in
the Prospectus.
(n) The Company is not aware of (i) any request by the
Commission for any further amendment of the Registration Statement or the
Prospectus or for any additional information, (ii) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding for that purpose
or (iii) any notification with respect to the suspension of the qualification of
the Certificates for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose.
(o) The chief executive office of each of the Company, the
Seller and the Originators is listed opposite its name on Exhibit C hereto,
which office is the place where each such entity is "located" for the purposes
of Section 9-103(3)(d) of the Uniform Commercial Code as in effect in the State
of New York and the office where each such entity keeps its respective records
concerning the Contracts, and there have been no other such locations during the
four month preceding the Closing Date.
-6-
<PAGE>
Any certificate signed by any officer of the Company and delivered to
the Representative in connection with the sale of the Offered Certificates
hereunder shall be deemed a representation and warranty as to the matters
covered thereby by the Company to each person to whom the representations and
warranties in this Section 1 are made.
Section 2. Purchase and Sale. On the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, the Company hereby agrees to sell to each Underwriter, and
each Underwriter, severally and not jointly, hereby agrees to purchase, the
aggregate principal amount of the Offered Certificates set forth after such
Underwriter's name in Exhibit B at the purchase prices set forth therein. The
purchase prices shall include interest accrued on the Fixed Rate Certificates at
the related Pass-Through Rate from _______, 1996 to, but not including, the
Closing Date.
Section 3. Delivery and Payment. Payment of the purchase price
for, and delivery of, the Offered Certificates shall be made at the offices of
Stroock & Stroock & Lavan, Seven Hanover Square, New York, New York at 11:00
a.m. New York City time, on ____________, 1996, or at such other time thereafter
as the Representative and the Company determine (such time being herein referred
to as the "Closing Date"). Payment shall be made by wire transfer of same day
federal funds to the account specified by the Company. Each of the Offered
Certificates so delivered shall be represented by one or more global
certificates registered in the name of Cede & Co., as nominee for the Depository
Trust Company.
The Company agrees to have the Certificates available for
inspection and review by the Representative in New York City not later than
11:00 a.m. New York City time on the Business Day prior to the Closing Date.
The parties agree that the settlement of the Offered
Certificates pursuant to this Agreement shall take place on the terms set forth
herein and not as set forth in Rule 15c6-1(a) under the Exchange Act.
Section 4. Agreements of the Underwriters. Each Underwriter,
severally and not jointly, agrees with the Company that upon the execution of
this Agreement and authorization by the Representative of the release of the
Offered Certificates, such Underwriter shall offer the Offered Certificates
purchased by it for sale upon the terms and conditions set forth in the
Prospectus as amended or supplemented.
5. Covenants of the Company. The Company covenants
and agrees with each Underwriter that:
-7-
<PAGE>
(a) The Company will promptly advise the Representative and
special counsel for the Underwriters (i) when any amendment to the Registration
Statement shall have become effective, (ii) of any request by the Commission for
any amendment to the Registration Statement or the Prospectus or for any
additional information, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Offered Certificates for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose. The Company will
not file any amendment to the Registration Statement or supplement to the
Prospectus after the date hereof and prior to the Closing Date unless the
Company has furnished the Representative and its counsel copies of such
amendment or supplement for their review prior to filing and will not file any
such proposed amendment or supplement to which the Representative reasonably
objects, unless such filing is required by law. The Company will use its best
efforts to prevent the issuance of any stop order suspending the effectiveness
of the Registration Statement and, if issued, to obtain as soon as possible the
withdrawal thereof.
(b) If, at any time during the period in which the Prospectus
is required by law to be delivered, any event occurs as a result of which the
Prospectus as then amended or supplemented would include any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it shall be necessary to amend or supplement the
Prospectus to comply with the 1933 Act or the rules under the 1933 Act, the
Company, subject to the obligation of each Underwriter pursuant to Section 8(d)
below, will promptly prepare and file with the Commission, subject to Section
5(a), an amendment or supplement that will correct such statement or omission or
an amendment that will effect such compliance and, if such amendment or
supplement is required to be contained in a post-effective amendment to the
Registration Statement, will use its best efforts to cause such amendment of the
Registration Statement to be made effective as soon as possible.
(c) The Company will furnish to the Representative, without
charge, executed copies of the Registration Statement (including exhibits
thereto) and, so long as delivery of a prospectus by the Underwriters or a
dealer may be required by the 1933 Act, as many copies of the Prospectus, as
amended or supplemented, and any amendments and supplements thereto as the
Underwriter may reasonably request.
(d) As soon as practicable, but not later than
sixteen months after the effective date of the Registration
-8-
<PAGE>
Statement, the Company will cause the Trustee to make generally available to
Certificateholders an earnings statement of the Trust covering a period of at
least 12 months beginning after the effective date of the Registration Statement
which will satisfy the provisions of Section 11(a) of the 1933 Act and, at the
option of the Company, will satisfy the requirements of Rule 158 under the 1933
Act.
(e) During a period of 7 calendar days from the Execution
Time, neither the Company nor any trust established, directly or indirectly, by
the Company will, without the Representative's prior written consent (which
consent shall not be unreasonably withheld), offer or sell pass-through
certificates backed by manufactured housing installment sales contracts and
manufactured housing installment loan agreements, except pursuant to this
Agreement.
(f) So long as any of the Offered Certificates are
outstanding, the Company will cause to be delivered to the Representative (i)
all documents required to be distributed to Holders of the Offered Certificates,
(ii) the annual statement as to compliance delivered to the Trustee pursuant to
the Pooling and Servicing Agreement, (iii) the annual statement of a firm of
independent public accountants furnished to the Trustee pursuant to the Pooling
and Servicing Agreement and (iv) from time to time, any other information
concerning the Trust filed with any government or regulatory authority that is
otherwise publicly available, as the Representative may reasonably request.
(g) The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is terminated, will pay (except as
provided in Section 8 below) all expenses in connection with the transactions
contemplated herein, including but not limited to the expenses of printing (or
otherwise reproducing) all documents relating to the offering of the Offered
Certificates, the reasonable fees and disbursements of special counsel to the
Underwriters and expenses of the Underwriters incurred in connection with (i)
the issuance and delivery of the Offered Certificates, (ii) preparation of all
documents specified in this Agreement, (iii) any fees and expenses of the
Trustee, [the Insurer and any other credit support provider (including
reasonable legal fees),] and accounting fees and disbursements, (iv) any fees
charged by investment rating agencies for rating the Offered Certificates and
(v) any expenses (including reasonable fees and disbursements of counsel) in
connection with the qualification of the Offered Certificates under any Blue Sky
laws.
(h) The Company will enter into the applicable Transaction
Documents (other than any Subsequent Transfer Agreements) to which it is a party
and all related agreements on
-9-
<PAGE>
or prior to the Closing Date [and will deliver the Policy issued
by the Insurer.]
(i) The Company will endeavor to qualify the Offered
Certificates for sale to the extent necessary under any state securities or Blue
Sky laws in any jurisdictions as may be reasonably requested by the
Representative, if any, and will pay, as contemplated by Section 5(g) hereof,
all expenses (including reasonable fees and disbursements of counsel) in
connection with such qualification and in connection with the determination of
the eligibility of the Offered Certificates for investment under the laws of
such jurisdictions as the Representative may reasonably designate, if any.
(j) Provided that the Company has received the letter from
Deloitte & Touche LLP, described in Section 8(a) relating to the Computational
Materials, the Company will cause such Computational Materials (as defined in
Section 8 below) with respect to the Offered Certificates which are delivered to
the Company as provided in Section 8 below to be filed with the Commission on a
Current Report on Form 8-K (the "Current Report") not later than the date on
which the Prospectus Supplement is available for distribution to investors.
Section 6. Conditions of the Underwriters' Obligations. The
obligation of each Underwriter to purchase and pay for the Offered Certificates
to be purchased by it as provided herein shall be subject to the accuracy as of
the date hereof and the Closing Date of the representations and warranties of
the Company contained herein, to the accuracy of the statements of the Company
made in any certificate or other document delivered pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder, and to
the following additional conditions:
(a) The Registration Statement shall have become effective no
later than the date hereof, and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened, and the Prospectus shall have
been filed pursuant to Rule 424(b).
(b) The Representative shall have received the favorable
opinion, dated the Closing Date, of Kantrow, Spaht, Weaver & Blitzer (A
Professional Law Corporation), special counsel to the United Entities with
respect to the following items, substantially to the effect that:
(i) Each of the United Entities has been duly
organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction in which it was
incorporated, and to such counsel's knowledge, is qualified to
do business in each state
-10-
<PAGE>
necessary to enable it to perform its obligations under the
Transaction Documents. Each of the United Entities has the
requisite power and authority to execute and deliver, engage
in the transactions contemplated by, and perform and observe
the conditions of, the Transaction Documents to which it is a
party.
(ii) Each of the Transaction Documents has been duly
and validly authorized, and except for any Subsequent Transfer
Agreements, have been duly and validly executed and delivered
by the appropriate United Entity, all requisite corporate
action having been taken with respect thereto, and each
constitutes the valid, legal and binding agreement of the
appropriate United Entity, and, if such agreements (other than
the Certificates) were governed by the laws of the State of
Louisiana, would be enforceable against the appropriate United
Entities in accordance with their respective terms subject, as
to enforceability, to applicable bankruptcy, insolvency,
moratorium and similar laws affecting the rights of creditors
generally and to general principles of equity, regardless of
whether enforcement is considered in a proceeding at law or in
equity and subject, in the case of this Agreement, to public
policy constraints regarding indemnification.
(iii) Neither the transfer of the Contracts pursuant
to the Contract Purchase Agreement, the Contract Sale
Agreement or the Pooling and Servicing Agreement, the issuance
or sale of the Certificates by the Company nor the execution,
delivery or performance by the United Entities of the
Transaction Documents, except for any Subsequent Transfer
Agreements (A) conflicts or will conflict with or results or
will result in a breach of, or constitutes or will constitute
a default under, (i) any term or provision of the Articles of
Incorporation or Certificate of Incorporation (as the case may
be) or bylaws of any of the United Entities; (ii) to such
counsel's knowledge, any term or provision of any material
agreement, contract, instrument or indenture, to which any of
the United Entities is a party or is bound; or (iii) to such
counsel's knowledge, any order, judgment, writ, injunction or
decree of any court or governmental agency or body or other
tribunal having jurisdiction over any of the United Entities;
or (B) results in, or will result in the creation or
imposition of any lien, charge or encumbrance upon the assets
of the Trust or upon the Certificates, except as otherwise
contemplated by the Pooling and Servicing Agreement.
-11-
<PAGE>
(iv) No consent, approval, authorization or order of,
registration or filing with, or notice to, any court,
governmental agency or body or other tribunal is to such
counsel's knowledge required under the laws of the State of
Louisiana, for the execution, delivery and performance by any
of the United Entities of the Transaction Documents to which
it is a party or the offer, issuance, sale or delivery of the
Certificates or the consummation of any other transaction
contemplated thereby by any of the United Entities, except
such which have been obtained.
(v) To such counsel's knowledge, there are no
actions, proceedings or investigations pending or threatened
against any of the United Entities before any court,
governmental agency or body or other tribunal (a) asserting
the invalidity of any of the Transaction Documents or the
Certificates, (b) seeking to prevent the issuance of the
Certificates or the consummation of any of the transactions
contemplated by any of the Transaction Documents, (c) which,
except as disclosed in the Prospectus, are reasonably likely
to materially and adversely affect the performance by any of
the United Entities of its obligations under, or the validity
or enforceability of, the Transaction Documents to which it is
a party or (d) that are reasonably likely to adversely affect
the status of certain assets and accounts as a "real estate
mortgage investment conduit" ("REMIC") as such term is defined
in the Internal Revenue Code of 1986, as amended.
(vi) Except as to any financial, tax, accounting and
statistical data contained or incorporated in the Registration
Statement and the Prospectus (including without limitation,
the Computational Materials) and the statements set forth in
the Prospectus under the captions ["THE CERTIFICATE INSURANCE
POLICY AND THE CERTIFICATE INSURER,"] "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES," "LEGAL INVESTMENT" and "ERISA
CONSIDERATIONS," and "GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES" as to which no opinion or belief
need be expressed, nothing has come to such counsel's
attention that would lead such counsel to believe that the
Registration Statement as of the Effective Date contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein not misleading or that
the Prospectus as of the date of the Prospectus Supplement, or
the Prospectus, as amended or supplemented as of the Closing
Date contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the
-12-
<PAGE>
statements therein, in the light of the circumstances under
which they were made, not misleading.
(c) The Representative shall have received the favorable opinion, dated
the Closing Date, of Stroock & Stroock & Lavan, special counsel to the Company,
substantially to the effect that:
(i) The Certificates, assuming due execution and
authentication by the Trustee, and, in the case of the Offered
Certificates delivery and payment therefor pursuant to this
Agreement, are validly issued and outstanding and are entitled
to the benefits of the Pooling and Servicing Agreement.
(ii) No consent, approval, authorization or order of,
registration or filing with, or notice to, any governmental
authority or court is required under federal laws or the laws
of the State of New York, for the execution, delivery and
performance by the Company of the Pooling and Servicing
Agreement, this Agreement or the offer, issue, sale or
delivery of the Certificates or the consummation of any other
transaction contemplated thereby by the Company, except such
as have been obtained.
(iii) Neither the issuance or sale of the
Certificates, nor the execution, delivery or performance by
the Company of the Pooling and Servicing Agreement or this
Agreement will (a) conflict with or result in a breach of, or
constitute a default under any law, rule or regulation of the
State of New York or the federal government, or (b) to such
counsel's knowledge, without independent investigation,
results in, or will result in, the creation or imposition of
any lien, charge or encumbrance upon the assets of the Trust
or upon the Certificates, except as otherwise contemplated by
the Pooling and Servicing Agreement.
(iv) The Registration Statement and the Prospectus
(other than the financial and statistical data included or
incorporated therein, as to which such counsel need express no
opinion), as of the date on which the Registration Statement
was declared effective and as of the date hereof, comply as to
form in all material respects with the requirements of the
1933 Act and the rules and regulations thereunder, and such
counsel does not know of any amendment to the Registration
Statement required to be filed, or of any contracts,
indentures or other documents of a character required to be
filed as an exhibit to the Registration Statement or required
to be described in
-13-
<PAGE>
the Registration Statement which has not been filed or
described as required. To the best of the knowledge of such
counsel, the Commission has not issued any stop order
suspending the effectiveness of the Registration Statement or
any order directed to any prospectus relating to the Offered
Certificates (including the Prospectus), and has not initiated
or threatened any proceeding for that purpose.
(v) Neither the qualification of the Pooling and
Servicing Agreement under the Trust Indenture Act of 1939, as
amended, nor the registration of the Trust created by such
Agreement under the Investment Company Act of 1940, as
amended, is presently required.
(vi) The statements in the Prospectus set forth under
the captions "DESCRIPTION OF THE CERTIFICATES" and "THE
POOLING AND SERVICING AGREEMENT," to the extent such
statements purport to summarize certain provisions of the
Certificates or of the Pooling and Servicing Agreement, are
fair and accurate in all material respects.
(vii) The statements in the Prospectus set forth
under the captions "ERISA CONSIDERATIONS," "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES", "LEGAL INVESTMENT" and "CERTAIN
LEGAL ASPECTS OF THE CONTRACTS" to the extent that they
constitute matters of federal or New York law, or federal or
New York legal conclusions provide a fair and accurate summary
of such law or conclusions.
(viii) Assuming that (a) the Trustee causes certain
assets and accounts created under the Pooling and Servicing
Agreement to elect, as the Trustee has covenanted to do in the
Pooling and Servicing Agreement, to be treated as a REMIC and
(b) the parties to the Pooling and Servicing Agreement comply
with the terms thereof, certain assets and accounts will be
treated as a REMIC, the Certificates, other than the Class R
Certificates issued pursuant to the Pooling and Servicing
Agreement, will be treated as the "regular interests" in a
REMIC and the Class R Certificates issued pursuant to the
Pooling and Servicing Agreement will be treated as "residual
interests" in a REMIC. Neither the Trust nor certain assets
and accounts of the Trust will be subject to tax upon their
income or assets by any taxing authority of the State of New
York or New York City (except that no opinion need be
expressed with respect to any minimum tax).
-14-
<PAGE>
(d) The Representative shall have received the favorable opinion, dated
the Closing Date, of Stroock & Stroock & Lavan, special counsel to the
Underwriters, to the effect that no information has come to such counsel's
attention which causes them to believe that the Prospectus (other than the
financial statements and other financial and statistical data contained or
incorporated therein [and the information under the caption "THE CERTIFICATE
INSURANCE POLICY AND THE CERTIFICATE INSURER"], as to which such counsel need
express no opinion), as of the date thereof, contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering their opinions, the counsels described in Section 6(b),
(c) and (d) may rely, as to matters of fact, on certificates of responsible
officers of the United Entities, the Trustee and public officials. Such opinions
may also assume the due authorization, execution and delivery of the instruments
and documents referred to therein by the parties thereto other than the Company.
(e) The Representative shall have received a letter from Deloitte &
Touche, LLP, dated on or before the Closing Date, in form and substance
satisfactory to the Representative and special counsel for the Underwriters, to
the effect that they have performed certain specified procedures requested by
the Representative with respect to the information set forth in the Prospectus
and certain matters relating to the Company.
(f) The Offered Certificates shall have been rated [AAA by Fitch
Investors Service LP ("Fitch"), Aaa by Moody's Investors Service, Inc.
("Moody's"), and AAA by Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. ("S&P," and together with Fitch and Moody's, the
"Rating Agencies")] and such ratings shall not have been rescinded. The
Representative and special counsel for the Underwriters shall have received
copies of any opinions of counsel, including local counsel, if any, supplied to
the Rating Agencies relating to any matters with respect to the Certificates or
the Contracts. Any such opinions shall be dated the Closing Date and addressed
to the Representative or accompanied by reliance letters to the Representative
or shall state that the Representative may rely upon them.
(g) The Representative shall have received a certificate, signed by the
president, a senior vice president or a vice president of the Company, dated the
Closing Date, to the effect that the signer of such certificate has carefully
examined the Registration Statement (excluding any documents incorporated
therein by reference), the Pooling and Servicing Agreement and this Agreement
and that, to the best of his or her knowledge based upon reasonable
investigation:
-15-
<PAGE>
(i) the representations and warranties of the Company in this
Agreement and in the Pooling and Servicing Agreement and in all related
agreements, as of the date specified in such agreements, are true and
correct, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to the Closing Date;
(ii) the information contained in the Registration Statement
relating to the Company, the Contracts or the servicing procedures of
its affiliates or subservicer is true and accurate in all material
respects and nothing has come to his or her attention that would lead
such officer to believe that the Registration Statement includes any
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein not misleading;
(iii) there has been no amendment or other document filed
affecting the articles of incorporation or bylaws of the Company since
________, 199_, and no such amendment has been authorized. No event has
occurred since _________, 1996, which has affected the good standing of
the Company under the laws of the State of Louisiana; and
(iv) each person who, as an officer or representative of the
Company, signed or signs the Registration Statement, the Pooling and
Servicing Agreement, this Agreement or any other document delivered
pursuant hereto, on the date of such execution, or on the Closing Date,
as the case may be, in connection with the transactions described in
the Pooling and Servicing Agreement and this Agreement was, at the
respective times of such signing and delivery, and is now, duly elected
or appointed, qualified and acting as such officer or representative,
and the signatures of such persons appearing on such documents are
their genuine signatures.
The Company shall attach to such certificate or otherwise
provide a true and correct copy of its certificate or articles of incorporation,
as appropriate, and bylaws which are in full force and effect on the date of
such certificate and a certified true copy of the resolutions of its Board of
Directors with respect to the transactions contemplated herein.
(h) The Representative shall have received a favorable opinion of
counsel to the Trustee, dated the Closing Date and in form and substance
satisfactory to the Representative, to the effect that:
(i) the Trustee is a _____________________ duly
organized, validly existing and in good standing under the
laws of the __________________ and has the power and
-16-
<PAGE>
authority to enter into and to take all actions required of
it under the Pooling and Servicing Agreement;
(ii) the Pooling and Servicing Agreement has been duly
authorized, executed and delivered by the Trustee and the Pooling and
Servicing Agreement constitutes the legal, valid and binding obligation
of the Trustee, enforceable against the Trustee in accordance with its
terms, except as enforceability thereof may be limited by (A)
bankruptcy, insolvency, reorganization or other similar laws affecting
the enforcement of creditors' rights generally, as such laws would
apply in the event of a bankruptcy, insolvency or reorganization or
similar occurrence affecting the Trustee, and (B) general principles of
equity regardless of whether such enforcement is sought in a proceeding
at law or in equity;
(iii) no approval, authorization or other action by any
governmental authority of the United States of America or the State of
________________ having jurisdiction over the banking powers of the
Trustee is required on the part of the Trustee in connection with its
execution and delivery of the Pooling and Servicing Agreement or the
performance of its obligations thereunder;
(iv) the Certificates have been duly executed,
authenticated and delivered by the Trustee; and
(v) the execution and delivery of, and performance by the
Trustee of its obligations under, the Pooling and Servicing Agreement
do not conflict with or result in a violation of any statute or
regulation applicable to the Trustee, or the charter or bylaws of the
Trustee, or to the best knowledge of such counsel, any governmental
authority having jurisdiction over the Trustee or the terms of any
indenture or other agreement or instrument to which the Trustee is a
party or by which it is bound.
In rendering such opinion, such counsel may rely, as to
matters of fact, on certificates of responsible officers of the Company, the
Trustee and public officials. Such opinion may also assume the due
authorization, execution and delivery of the instruments and documents referred
to therein by the parties thereto other than the Trustee.
(i) The Representative shall have received from the Trustee a
certificate, signed by the President, a senior vice president or a vice
president of the Trustee, dated the Closing Date, to the effect that each person
who, as an officer or representative of the Trustee, signed or signs the
Certificates, the Pooling and Servicing Agreement or any other document
delivered pursuant hereto, on the date hereof or on the Closing Date, in
connection with the transactions described in the
-17-
<PAGE>
Pooling and Servicing Agreement was, at the respective times of such signing and
delivery, and is now, duly elected or appointed, qualified and acting as such
officer or representative, and the signatures of such persons appearing on such
documents are their genuine signatures.
[(j) The Policy relating to the Offered Certificates shall have been
duly executed and issued at or prior to the Closing Date and shall conform in
all material respects to the description thereof in the Prospectus.]
[(k) The Representative shall have received a favorable opinion of
in-counsel to the Insurer, dated the Closing Date and in form and substance
satisfactory to special counsel for the Underwriters, to the effect that:
(i) The Insurer is a stock insurance corporation, duly
incorporated and validly existing under the laws of the State of New
York. The Insurer is validly licensed and authorized to issue the
Policy and perform its obligations under the Policy in accordance with
the terms thereof, under the laws of the State of New York.
(ii) The execution and delivery by the Insurer of the Policy
is within the corporate power of the Insurer and has been authorized by
all necessary corporate action on the part of the Insurer; the Policy
has been duly executed and is the valid and binding obligation of the
Insurer enforceable in accordance with its terms except that the
enforcement of the Policy may be limited by laws relating to
bankruptcy, insolvency, reorganization, moratorium, receivership and
other similar laws affecting creditors' rights generally and by general
principles of equity.
(iii) The Insurer is authorized to deliver the Insurance
Agreement and the Guarantee Agreement and the Insurance Agreement and
the Guarantee Agreement have each been duly executed and each is the
valid and binding obligation of the Insurer enforceable in accordance
with its terms except that the enforcement of the Insurance Agreement
and the Guarantee Agreement may be limited by laws relating to
bankruptcy, insolvency, reorganization, moratorium, receivership and
other similar laws affecting creditors' rights generally and by general
principles of equity and, in the case of the Insurance Agreement,
subject to principles of public policy limiting the right to enforce
the indemnification provisions contained therein insofar as such
provisions relate to indemnification for liabilities arising under the
securities laws.
(iv) No consent, approval, authorization or order of any state
or federal court or governmental agency or body is required on the part
of the Insurer, the lack of which
-18-
<PAGE>
would adversely affect the validity or enforceability of the Policy; to
the extent required by applicable legal requirements that would
adversely affect validity or enforceability of the Policy, the form of
the Policy has been filed with, and approved by, all governmental
authorities having jurisdiction over the Insurer in connection with the
Policy.
(v) To the extent the Policy constitutes a security within the
meaning of Section 2(l) of the Securities Act of 1933, as amended (the
"Act"), it is a security that is exempt from the registration
requirements of the Act.
(vi) The information set forth under the caption "THE
CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER" in the
Prospectus insofar as such statements constitute a description of the
Policy, accurately summarizes the Policy.
[(l) The Representative shall have received from the Insurer a
certificate, signed by the President, a senior vice president or a vice
president of the Insurer, dated the Closing Date, to the effect that the signer
of such certificate has carefully examined the Policy and the related documents
and that, to the best of his or her knowledge based on reasonable investigation:
(i) The information in the Prospectus Supplement as of the
date hereof under the caption "THE CERTIFICATE INSURANCE POLICY AND THE
CERTIFICATE INSURER" (the "Insurer Information") is true and correct in
all material respects and does not contain any untrue statement of a
fact that is material to the Insurer's ability to perform its
obligations under the Policy. There has been no material adverse change
in the financial condition of the Insurer since _________, 1996. The
financial statements of the Insurer included in Appendix A and Appendix
B to the Prospectus Supplement have been prepared in accordance with
generally accepted accounting practices;
(ii) There are no actions, suits, proceedings or
investigations pending or, to the best of the Insurer's knowledge,
threatened against it at law or in equity or before or by any court,
governmental agency, board or commission or any arbitrator which, if
decided adversely, would materially and adversely affect its condition
(financial or otherwise) or operations of it or would materially and
adversely affect its ability to perform its obligations under the
Policy, the Guarantee Agreement or the Insurance Agreement;
(iii) The execution and delivery of the Insurance
Agreement, the Guarantee Agreement and the Policy and the
-19-
<PAGE>
compliance with the terms and provisions thereof will not conflict
with, result in a breach of, or constitute a default under any of the
terms, provisions or conditions of, the Restated Charter or By-Laws of
the Insurer, or any agreement, indenture or other instrument to which
the Insurer is a party;
(iv) The issuance of the Policy and the execution, delivery
and performance of the Guarantee Agreement and the Insurance Agreement
have been duly authorized by all necessary corporate proceedings. No
further approvals or filings of any kind, including, without
limitation, any further approvals of or further filing with any
governmental agency or other governmental authority, or any approval of
the Insurer's board of directors or stockholders, are necessary for the
Policy, the Guarantee Agreement and the Insurance Agreement to
constitute the legal, valid and binding obligations of the Insurer.
In rendering this opinion, such counsel may rely, as to
matters of fact, on certificates of responsible officers of the Company, the
Trustee, the Insurer and public officials. Such opinion may assume the due
authorization, execution and delivery of the instruments and documents referred
to therein by the parties thereto other than the Insurer.]
[(m) On or prior to the Closing Date there shall not have occurred any
downgrading, nor shall any notice have been given of (A) any intended or
potential downgrading or (B) any review or possible change in rating the
direction of which has not been indicated, in the rating accorded the Insurer's
claims paying ability by any "nationally recognized statistical rating
organization," as such term is defined for purposes of the 1933 Act.]
[(n) There has not occurred any change, or any development involving a
prospective change, in the condition, financial or otherwise, or in the
earnings, business or operations, since ______________, 1996, of (A) the Company
and its subsidiaries or [(B) the Insurer,] that is in the Representative's
judgment material and adverse and that makes it in the Representative's judgment
impracticable to market the Offered Certificates on the terms and in the manner
contemplated in the Prospectus.
(o) The Representative shall have received from Stroock & Stroock &
Lavan, special counsel to the Underwriters, such opinion or opinions, dated the
Closing Date, with respect to the issuance and sale of the Certificates, the
Prospectus and such other related matters as the Representative shall reasonably
require.
(p) The Representative and special counsel for the
Underwriters shall have received copies of any opinions of
-20-
<PAGE>
counsel to the Company or the Insurer supplied to the Trustee relating to
matters with respect to the Certificates or the Policy. Any such opinions shall
be dated the Closing Date and addressed to the Representative or accompanied by
reliance letters to the Representative or shall state the Representative may
rely thereon.
(q) The Representative shall have received such further information,
certificates and documents as the Representative may reasonably have requested
not fewer than three (3) full business days prior to the Closing Date.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all respects when and as provided in this Agreement, if
the Company is in breach of any covenants or agreements contained herein or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representative and special counsel to the Underwriters,
this Agreement and all obligations of the Underwriters hereunder, may be
canceled on, or at any time prior to, the Closing Date by the Representative.
Notice of such cancellation shall be given to the Company in writing, or by
telephone or telegraph confirmed in writing.
Section 7. Expenses. If the sale of the Offered Certificates
provided for herein is not consummated by reason of a default by the Company in
its obligations hereunder, then the Company will reimburse the Underwriters,
upon demand, for all reasonable out-of-pocket expenses (including, but not
limited to, the reasonable fees and expenses of Stroock & Stroock & Lavan) that
shall have been incurred by them in connection with their investigation with
regard to the Company and the Certificates and the proposed purchase and sale of
the Offered Certificates.
Section 8. Computational Materials. (a) Not later than 10:30
a.m. Baton Rouge time, on the Business Day before the date on which the Current
Report relating to the Certificates is required to be filed by the Company with
the Commission pursuant to Section 5(k) hereof, each Underwriter shall deliver
to the Company five complete copies of all materials, if any, provided by such
Underwriter to prospective investors in such Certificates which constitute
"Computational Materials" within the meaning of the no-action letter dated May
20, 1994 issued by the Division of Corporation Finance of the Commission to
Kidder, Peabody Acceptance Corporation I, Kidder, Peabody & Co. Incorporated,
and Kidder Structured Asset Corporation, the noaction letter dated May 27, 1994
issued by the Division of Corporation Finance of the Commission to the Public
Securities Association and the no-action letter of February 17, 1995 issued by
the Commission to the Public Securities Association (collectively, the
"Kidder/PSA Letters") and the filing of which
-21-
<PAGE>
is a condition of the relief granted in such letters (such materials being the
"Computational Materials"). Each delivery of Computational Materials to the
Company pursuant to this paragraph (a) shall be effected by delivering four
copies of such materials to counsel for the Company on behalf of the Company and
one copy of such materials to the Company. The Computational Materials so
delivered shall be accompanied by a letter from Deloitte & Touche, LLP,
addressed to the Company and the Representative, in form and substance
reasonably satisfactory to the Company and the Representative, to the effect
that Deloitte & Touche, LLP, have performed certain agreed upon procedures with
respect to such Computational Materials as a result of which they have
determined that such Computational Materials are mathematically correct. The
costs of such letter shall be paid by the Underwriters except as otherwise
provided in Section 7 hereof.
(b) Each Underwriter that so delivers Computational Materials
represents and warrants to and agrees with the Company, as of date hereof and as
of the Closing Date, that:
(i) the Computational Materials furnished to the Company by
such Underwriter pursuant to Section 8(a) constitute (either
in original, aggregated or consolidated form) all of the
materials furnished to prospective investors by such
Underwriter prior to the time of delivery thereof to the
Company that are required to be filed with the Commission with
respect to the Certificates in accordance with the Kidder/PSA
Letters, and such Computational Materials comply with the
requirements of the Kidder/PSA Letters;
(ii) on the date any such Computational Materials with respect
to the Certificates were last furnished to each prospective
investor by such Underwriter and on the date of delivery
thereof to the Company pursuant to Section 8(a) and on the
Closing Date, such Computational Materials did not and will
not include any untrue statement of a material fact, or, when
read in conjunction with the Prospectus and Prospectus
Supplement, did not and will not omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading;
(iii) at the time any Computational Materials with respect to
the Certificates were furnished to a prospective investor by
such Underwriter and on the date hereof, such Underwriter had,
and on the date of delivery of such materials to the Company
pursuant to this Section 8 and on the Closing Date, such
Underwriter will have, systems of internal control reasonably
designed to ensure that such Computational
-22-
<PAGE>
Materials conform to the representations and warranties of
such Underwriter contained in subparagraphs (i) and (ii) above
of this paragraph (b); and
(iv) all Computational Materials delivered by such Underwriter
contained and will contain a legend, prominently displayed, to
the effect that the Company has not prepared, reviewed or
participated in the preparation of such Computational
Materials, is not responsible for the accuracy thereof and has
not authorized the dissemination thereof.
Notwithstanding the foregoing, no Underwriter makes any representation or
warranty as to (i) whether any Computational Materials included or will include
any untrue statement resulting directly from any information relating to the
Home Equity Loans furnished by or on behalf of the Company to the Underwriter
except to the extent that the Company previously furnished corrected information
or (ii) Computational Materials delivered by any other Underwriter.
(c) Each Underwriter acknowledges and agrees that the Company
has not authorized and will not authorize the distribution of any Computational
Materials to any prospective investor, and agrees that any Computational
Materials with respect to the Certificates furnished to prospective investors
included and shall include a disclaimer in the form set forth in paragraph
(b)(iv) above. Each Underwriter agrees that it will not represent to investors
that any Computational Materials furnished by such Underwriter were prepared or
disseminated on behalf of the Company.
(d) If, at any time when a prospectus relating to the Offered
Certificates is required to be delivered under the 1933 Act, it shall be
necessary to amend or supplement the related Prospectus as a result of an untrue
statement of a material fact contained in any Computational Materials provided
by an Underwriter pursuant to this Section 8 or the omission to state therein a
material fact required, when considered in conjunction with the related
Prospectus and Prospectus Supplement, to be stated therein or necessary to make
the statements therein, when read in conjunction with the related Prospectus and
Prospectus Supplement, not misleading, or if it shall be necessary to amend or
supplement any Current Report to comply with the 1933 Act or the rules
thereunder, the Underwriter which furnished the Computational Materials in
question, at its sole cost, promptly will prepare and furnish to the Company for
filing with the Commission an amendment or supplement which will correct such
statement or omission or an amendment which will effect such compliance. Each
Underwriter represents and warrants to the Company, as of the date of delivery
by such Underwriter of such amendment or supplement, if any, to the Company,
that such
-23-
<PAGE>
amendment or supplement will not include any untrue statement of a material fact
or, when read in conjunction with the related Prospectus and Prospectus
Supplement, omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
Section 9. Indemnification and Contribution. (a) Regardless of
whether any Certificates are sold, the Company will indemnify and hold harmless
each Underwriter, each of its respective officers and directors and each person
who controls each Underwriter within the meaning of the 1933 Act or the 1934
Act, against any and all losses, claims, damages, or liabilities (including the
cost of any investigation, legal and other expenses incurred in connection with
and amounts paid in settlement of any action, suit, proceeding or claim
asserted), joint or several, to which they or any of them may become subject,
under the 1933 Act, the 1934 Act or other federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained (i) in the
Registration Statement, or any amendment thereof or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, not misleading or (ii) in the Preliminary Prospectus or the Prospectus
or any amendment thereto or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and will reimburse each such indemnified
party for any legal or other expenses reasonably incurred by it in connection
with investigating or defending against such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made therein (x) in reliance upon and in conformity with
written information relating to any Underwriter furnished to the Company by such
Underwriter through the Representative specifically for use in connection with
the preparation thereof or (y) in any Current Report or any amendment or
supplement thereof, except to the extent that any untrue statement or alleged
untrue statement therein results (or is alleged to have resulted) from an error
(a "Pool Error") in the information regarding the Contracts furnished by the
Company in writing or by electronic transmission to any Underwriter upon which
the mathematical calculations in the Computational Materials of such Underwriter
are based other than a Pool Error which is corrected by information subsequently
furnished by the Company in writing or by electronic transmission to such
Underwriter prior to the time such Computational Materials are
-24-
<PAGE>
furnished to the Company pursuant to Section 8(a); and provided further, that as
to any Preliminary Prospectus this indemnity agreement shall not inure to the
benefit of any Underwriter on account of any loss, claim, damage or liability
(or action in respect thereof) arising from the sale of Offered Certificates to
any person by such Underwriter if such Underwriter failed to send or give a copy
of the Prospectus, as the same may be amended or supplemented, to that person
within the time required by the 1933 Act, and the untrue statement or alleged
untrue statement of any material fact or omission or alleged omission to state
any material fact in such Preliminary Prospectus was corrected in the
Prospectus, unless such failure resulted from non-compliance by the Company with
Section 5(b).
(b) Regardless of whether any Certificates are sold, each
Underwriter, severally and not jointly, will indemnify and hold harmless the
Company, each of its officers and directors and each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act against
any losses, claims, damages or liabilities to which they or any of them become
subject under the 1933 Act, the 1934 Act or other federal or state law or
regulation, at common law or otherwise, to the same extent as the foregoing
indemnity, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in (i) the Registration Statement,
or any amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
or in (ii) the Preliminary Prospectus or the Prospectus or any amendment thereto
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made therein (x) in reliance upon and in conformity with written
information relating to such Underwriter furnished to the Company by such
Underwriter through the Representative specifically for use in the preparation
thereof and so acknowledged in writing, or (y) in any Computational Materials
(or amendments or supplements thereof) furnished to the Company by such
Underwriter pursuant to Section 8 (except that no such indemnity shall be
available for any losses, claims, damages or liabilities (or actions in respect
thereof) resulting from a Pool Error, and will reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending against such loss, claim, damage, liability or
action.
-25-
<PAGE>
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 9 (a) and (b) above such person
(hereinafter called the "indemnified party") shall promptly notify the person
against whom such indemnity may be sought (hereinafter called the indemnifying
party) in writing thereof; but the omission to notify the indemnifying party
shall not relieve such indemnifying party from any liability which it may have
to any indemnified party otherwise than under such Section, except to the extent
of actual prejudice caused by such failure. The indemnifying party, upon request
of the indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such proceeding
any indemnified party shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel, or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all such indemnified parties, and that
all such fees and expenses shall be reimbursed as they are incurred. Such firm
shall be designated in writing by the Representative in the case of parties
indemnified pursuant to Section 9 (a) and by the Company in the case of parties
indemnified pursuant to Section 9 (b).
The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated above, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of
-26-
<PAGE>
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(d) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party in respect of any losses, claims, damages or
liabilities referred to herein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities, (x) in the case of any losses, claims, damages or liabilities (or
actions in respect thereof) which do not arise out of or are not based upon the
Computational Materials (or any amendments or supplements thereof) (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Underwriters from the sale of the Certificates or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only relative benefits referred
to in clause (i) above but also the relative fault of the Company and of the
Underwriters in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations and (y) in the case of any losses, claims, damages or
liabilities (or actions in respect thereof) which arise out of or are based upon
the Computational Materials (or any amendments or supplements thereof) in such
proportion as is appropriate to reflect the relative fault of the Company and
the Underwriter or Underwriters which furnished such Computational Materials in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand, and by each Underwriter on the other hand, shall be
deemed to be in such proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bear to the excess, if any,
of the purchase price received by such Underwriter from the sale of the Offered
Certificates purchased by it over the purchase price paid by such Underwriter
for such Offered Certificates (the "Spread"). The relative fault of the Company
and any Underwriter shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied or prepared by the Company or by the Underwriter and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
-27-
<PAGE>
(e) The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 9 were determined
by pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 9 (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in Section 9 (d) shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 9, no Underwriter shall be required to contribute any amount in excess
of (i) in the case of Section 9(d)(x), such Underwriter's Spread or (ii) in the
case of Section 9(d)(y), an amount equal to 10% of the aggregate original
principal balance of the Offered Certificates to be purchased by such
Underwriter.
(f) The Company and each Underwriter expressly waive, and
agree not to assert, any defense to their respective indemnification and
contribution obligations under this Section 9 which they might otherwise assert
based upon any claim that such obligations are unenforceable under federal or
state securities laws or by reasons of public policy.
(g) The obligations of the Company under this Section 9 shall
be in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
each Underwriter within the meaning of the 1933 Act or the 1934 Act; and the
several obligations of each Underwriter under this Section 9 shall be in
addition to any liability that such Underwriter may otherwise have and shall
extend, upon the same terms and conditions, to each director of the Company and
to each person, if any, who controls the Company within the meaning of the 1933
Act or the 1934 Act; provided, however, that in no event shall the Company or
any Underwriter be liable for double indemnification.
Section 10. Information Supplied by Underwriters. The
statements set forth in the last paragraph on the outside front cover page of
the Prospectus, in the fourth paragraph of the inside front cover page of the
Prospectus regarding market-making, under the heading "Underwriting" in the
Prospectus (to the extent such statements relate to an Underwriter) and related
to the Exemption described under the heading "ERISA" in the Prospectus
constitute the only information furnished by any Underwriter through the
Representative to the Company for the purposes of Sections 1(b) and 9(a)(x)
hereof. Each Underwriter confirms that such statements (to such extent) are
correct.
Section 11. Notices. All communications hereunder shall be in
writing and, if sent to any Underwriter, shall be
-28-
<PAGE>
mailed or delivered or telecopied and confirmed in writing to Prudential
Securities Incorporated, One New York Plaza, New York, New York 10292,
Attention: Mortgage and Asset Finance Department; and, if sent to the Company,
shall be mailed or delivered or telecopied and confirmed in writing to the
Company at the address set forth above, Attention: Henry C. McCall, III; with a
copy addressed to the General Counsel at the same address.
Section 12. Survival. All representations, warranties,
covenants and agreements of the Company contained herein or in agreements or
certificates delivered pursuant hereto, the agreements of each Underwriter and
the Company contained in Section 9 hereof, and the representations, warranties
and agreements of each Underwriter contained in Sections 4 and 8 hereof, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any Underwriter or any controlling persons, or any
subsequent purchaser or the Company or any of its officers, directors or any
controlling persons, and shall survive delivery of and payment for the
Certificates. The provisions of Sections 5, 7 and 9 hereof shall survive the
termination or cancellation of this Agreement.
Section 13. Default by One or More of the Underwriters. If one
or more of the Underwriters fail on the Closing Date to purchase the Offered
Certificates which it or they are obligated to purchase hereunder (the
"Defaulted Certificates"), the Representative shall have the right, within 48
hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Certificates in such amounts as may be agreed upon and upon the
terms herein set forth. (As used in this Agreement, the term "Underwriter"
includes any underwriter substituted for an Underwriter under this Section 13.)
If, however, the Representative has not completed such arrangements within such
48-hour period, then:
(a) If the aggregate original principal amount of Defaulted
Certificates does not exceed 10% of the aggregate original principal amount of
the Offered Certificates, the non-defaulting Underwriters shall be obligated to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, and
(b) If the aggregate original principal amount of Defaulted
Certificates exceeds 10% of the aggregate original principal amount of the
Offered Certificates, this Agreement shall terminate without any liability on
the part of any non-defaulting Underwriter.
-29-
<PAGE>
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Representative or the Company shall have the right
to postpone the Closing Date for a period of time not exceeding seven days in
order to effect any required changes in the Prospectus or in any other documents
or arrangements.
Section 14. Termination. The Representative shall have the
right to terminate this Agreement by giving notice as hereinafter specified at
any time at or prior to the Closing Date if (a) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (b) trading of any securities
of the Company shall have been suspended on any exchange or in any
over-the-counter market, (c) a general moratorium on commercial banking
activities shall have been declared by either federal or New York State
authorities, (d) there shall have occurred any outbreak or escalation of
hostilities or any change in financial markets or any calamity or crisis which,
in the Representative's reasonable judgment, is material and adverse, and, in
the case of any of the events specified in clauses (a) through (d), such event
singly or together with any other such event makes it in the Representative's
reasonable judgment impractical to market the Offered Certificates. Any such
termination shall be without liability of any other party except that the
provisions of Paragraph G of Section 5 and Sections 7 and 9 hereof shall at all
times be effective. If the Representative elects to terminate this Agreement as
provided in this Section 14, the Company shall be notified promptly by the
Representative by telephone, telegram or facsimile transmission, in any case,
confirmed by letter.
Section 15. Successors. This Agreement will inure to the
benefit of and be binding upon the Company and the Underwriters and their
respective successors and assigns (which successors and assigns do not include
any person purchasing a Certificate from any Underwriter), and the officers and
directors and controlling persons referred to in Section 9 hereof and their
respective successors and assigns, and no other persons will have any right or
obligations hereunder.
Section 16. Applicable Law; Venue. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York. Any action or proceeding brought to enforce or arising out of any
provision of this Agreement shall be brought only in a state or federal court
located in the Borough of Manhattan, New York City, New York,
-30-
<PAGE>
and the Company and the Underwriters hereto expressly consent to the
jurisdiction of such courts and agree to waive any defense or claim of forum non
conveniens they may have with respect to any such action or proceeding brought.
Section 17. Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall
together constitute but one and the same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-31-
<PAGE>
Section 18. Amendments and Waivers. This Agreement
may be amended, modified, altered or terminated, and any of its
provisions waived, only in a writing signed on behalf of the
Company and the Representative.
Very truly yours,
UCFC FUNDING CORPORATION
By:_________________________
Name: H.C. McCall, III
Title: President
The foregoing is hereby
confirmed and accepted
PRUDENTIAL SECURITIES
INCORPORATED
For itself and as the Representative
of the other several Underwriters
named in Exhibit B hereto
By:________________________________
Name: Leonard A. Blum
Title: Managing Director
<PAGE>
___________, 1996
Prudential Securities Incorporated
As Representative of the several
Underwriters
One New York Plaza
New York, New York 10292
Re: Underwriting Agreement dated _______, 1996
(the "Underwriting Agreement") between
UCFC Funding Corporation (the"Company") and
Prudential Securities Incorporated, as
representative (the "Representative")
Gentlemen:
Pursuant to the Underwriting Agreement, the Company has
undertaken certain financial obligations with respect to the indemnification of
the Underwriters with respect to the Registration Statement, Preliminary
Prospectus and the Prospectus described in the Underwriting Agreement. Any
financial obligations of the Company under the Underwriting Agreement, whether
or not specifically enumerated in this paragraph, are hereinafter referred to as
the "Joint and Several Obligations," provided, however, that "Joint and Several
Obligations" shall mean only the financial obligations of the Company under the
Underwriting Agreement (including the payment of money damages for a breach of
any of the Company's obligations under the Underwriting Agreement, whether
financial or otherwise) but shall not include any obligations not relating to
the payment of money.
As a condition of their execution of the Underwriting
Agreement, the Representative has required the undersigned, United Companies
Lending Corporation ("UCLC"), an affiliate of the Company, to acknowledge its
joint-and-several liability with the Company for the payment of the Joint and
Several Obligations under the Underwriting Agreement.
Now, therefore, the Representative and UCLC do hereby agree
that:
A-1
<PAGE>
(1) UCLC hereby agrees to be absolutely and
unconditionally jointly and severally liable with the
Company to the Underwriters for the payment of the
Joint and Several Obligations.
(2) UCLC may honor its obligations hereunder either by
direct payment of any Joint and Several Obligations
or by causing any Joint and Several Obligations to be
paid to the Underwriters by the Company or another
affiliate of UCLC.
Capitalized terms used herein and not defined herein shall
have their respective meanings as set forth in the Agreement.
Very truly yours,
UNITED COMPANIES LENDING CORPORATION
By:_________________________________
Name: H.C. McCall, III
Title: Vice President
Acknowledged and Agreed:
PRUDENTIAL SECURITIES INCORPORATED
For itself and as the
Representative of the other
several Underwriters
By:_______________________________
Name: Leonard A. Blum
Title: Managing Director
A-2
<PAGE>
EXHIBIT B
Underwriter Class Principal Amount
- ----------- ----- ----------------
Total: $
Total: $
Total: $
Purchase Prices
<PAGE>
EXHIBIT C
Locations of Chief
Executive Offices
<PAGE>
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
ARTICLES OF INCORPORATION OF
UCFC FUNDING CORPORATION
BE IT KNOWN, that on this 3rd day of July, 1996, personally came and
appeared before me, the undersigned Notary Public, the incorporator named below,
of the full age of majority, who declared to me, in the presence of the
undersigned competent witnesses, that availing himself of the provisions of the
Louisiana Business Corporation Law (Louisiana Revised Statutes 12:1 et seq.), he
hereby organizes a corporation pursuant to the following Articles of
Incorporation:
ARTICLE I
The name of this corporation is UCFC Funding Corporation.
ARTICLE II
The purposes of this corporation are limited to: (i) (a) acquiring,
owning, selling, holding, investing in, pledging, servicing or otherwise dealing
with manufactured housing installment sale contracts, manufactured housing
installment loan agreements and with mortgage related assets (collectively,
"Contracts"), including without limitation, first and second lien, fixed and
adjustable rate installment sale contracts, installment loan agreements and
mortgage loans secured by new or used manufactured homes, the real estate to
which the manufactured home is deemed permanently affixed, and/or other
collateral, and participations in, and securities backed or collateralized by,
or evidencing beneficial interests in, such installment sale contracts,
installment loan agreements and mortgage loans, (b) acquiring, owning, issuing,
selling, holding, investing in, pledging, servicing or otherwise dealing with
one or more series of bonds, notes or certificates (collectively,
"Certificates") backed or collateralized by, or evidencing participations or
beneficial interests in, Contracts (c) acting as settlor, depositor or sponsor
of one or more trusts formed to acquire, issue, sell, hold, invest in, pledge,
service or otherwise deal with Contracts and/or Certificates, and (d) engaging
in any activity and exercising any powers permitted to corporations under the
laws of the State of Louisiana that are incidental to the foregoing and
necessary or convenient to accomplish the foregoing.
(ii) Notwithstanding any other provision of these Articles of
Incorporation and any provision of law that otherwise so empowers the
corporation, the corporation shall not do any of the following without first
having received a letter from each rating agency from which the corporation
requested a rating of Certificates issued and then outstanding under all pooling
and servicing agreements or similar agreements among the corporation, the
trustees thereof and the servicers stating that any of the following will not
result in a downgrade or withdrawal of the then-current rating of any of such
Certificates rated by each such rating agency:
(a) dissolve or liquidate, in whole or in part;
<PAGE>
(b) consolidate or merge with or into any other entity or
convey or transfer its properties and assets substantially as an
entirety to any entity, unless:
(i) the entity (if other than the corporation) formed
or surviving the consolidation or merger which acquires the
properties and assets of the corporation expressly assumes the
due and punctual payment of, and all obligations of the
corporation in connection with the indebtedness of the
corporation, and has a Articles of Incorporation containing
the provisions identical to the provisions of this Article II;
(ii) immediately after giving effect to the
transaction, no default or event of default has occurred and
is continuing under any indebtedness of the corporation or any
agreements relating to such indebtedness;
(c) without the affirmative vote of 100% of the members of the
Board of Directors of this corporation, institute proceedings to be
adjudicated a bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it, or file a petition
seeking or consent to reorganization or relief under any applicable
federal or state law relating to bankruptcy, or consent to the
appointment of a receiver, liquidator, assignee, trustee sequestrator
(or other similar official) of the corporation, or a substantial part
of its property, or make any assignment for the benefit of creditors,
or admit in writing its inability to pay its debts generally as they
become due, or take corporate action in furtherance of any such action;
or
(d) amend, alter, change or repeal this Article II. Subject to
the foregoing limitation, this Corporation reserves the right to amend,
alter, change or repeal any provisions contained in these Articles of
Incorporation, in the manner now or hereafter prescribed by statute,
and all rights conferred upon stockholders herein are granted subject
to this reservation.
ARTICLE III
The duration of this corporation is perpetual.
ARTICLE IV
The aggregate number of shares which this corporation shall have
authority to issue is One Million (1,000,000) shares of common stock, having no
par value.
ARTICLE V
The full name and post office address of the incorporator is:
- 2 -
<PAGE>
H. C. McCall, III
4041 Essen Lane
Baton Rouge, LA 70809
ARTICLE VI
Any corporate action of shareholders, including specifically but not by
way of limitation, adoption of amendments (including alterations, changes and
repeals) to these Articles of Incorporation, approval of merger and
consolidation agreements, authorization of voluntary disposition of all or
substantially all of the corporate assets and removal of a member of the Board
of Directors, may be taken on affirmative vote of a majority of the voting power
of the shareholders as shall be entitled to vote.
ARTICLE VII
Consents in writing to corporate action may be given by shareholders
having that proportion of the total voting power which would be required to
authorize or constitute such action at a meeting of the shareholders.
ARTICLE VIII
A. All of the corporate powers of this corporation shall be vested in,
and all of the business and affairs of this corporation shall be managed by a
Board of Directors.
B. Until otherwise provided in the by-laws, any director absent from a
meeting of the Board of Directors or any committee thereof, may be represented
by any other director who may cast the vote of the absent director according to
the written instructions, general or special, of the absent director filed with
the Secretary.
C. The Board of Directors shall have authority to adopt, make and alter
by-laws, including the right to make and alter by-laws fixing their number,
qualification, classification or terms of office and of fixing or increasing
their compensation, subject to the power of an affirmative vote of a majority of
the voting power of the shareholders to change or repeal the by-laws so made.
ARTICLE IX
Cash, property or share dividends, shares issuable to shareholders in
connection with a reclassification of stock, and the redemption price of
redeemed shares, which are not claimed by the shareholders entitled thereto
within two year(s) after the dividend or redemption price became payable or the
shares became issuable, despite reasonable efforts of the corporation to pay the
dividend or redemption price or deliver the certificates for the shares to such
shareholders within such time, shall, at the expiration of such time, revert in
full ownership, to the corporation, and the corporation's obligation to pay such
dividend or redemption price or
- 3 -
<PAGE>
issue such shares, as the case may be, shall thereupon cease; provided that the
Board of Directors may, at any time, for any reason satisfactory to it, but need
not, authorize (a) payment of the amount of any cash or property dividend or
redemption price or (b) issuance of any shares, ownership of which has reverted
to the corporation pursuant to this Article, to the entity who or which would be
entitled thereto had such reversion not occurred.
ARTICLE X
No director or officer of this corporation shall be personally liable
to this corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director or officer, except for liability (i) for breach of
the director's or officer's duty of loyalty to this corporation or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 92(D)
of the Louisiana Business Corporation Law, or (iv) for any transaction from
which the director or officer derived an improper personal benefit. If the
Louisiana Business Corporation Law is hereafter amended to authorize corporate
action further limiting or eliminating the personal liability of directors and
officers, then the liability of each director and officer of this corporation
shall be limited or eliminated to the full extent permitted by the Louisiana
Business Corporation Law as so amended from time to time. Neither the amendment
nor repeal of this Article, nor the adoption of any provision of this
corporation's Articles of Incorporation inconsistent with this Article shall
eliminate or reduce the effect of this Article, in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
THUS DONE, READ AND SIGNED in multiple originals in the State and
Parish aforesaid, on the day, month and year hereinabove set forth, in the
presence of the undersigned competent witnesses and me, Notary, after due
reading of the whole.
WITNESSES: INCORPORATOR:
s/ Debbie Deville s/ H. C. McCall, III
- ----------------------------------- ------------------------
H. C. McCall, III
s/ Kate M. Tompkins
- -----------------------------------
s/ Lee C. Kantrow
--------------------
Notary Public
- 4 -
<PAGE>
BY-LAWS
OF
UCFC FUNDING CORPORATION
ARTICLE I
Shareholders
1.1 Place of Holding Meetings. All meetings of the shareholders shall
be held at the principal business office of the corporation in Louisiana, or at
such other place as may be specified in the notice of the meeting within or
without Louisiana.
1.2 Annual Election of Directors. The annual meeting of shareholders
for the election of directors, and the transaction of other business, shall be
held at the business offices of the corporation, or at such other place as may
be agreed upon by the Shareholders, on the second Tuesday of September of each
year, or the first business day thereafter when such day is a generally observed
business holiday, beginning with the year 1997.
1.3 Voting. (a) On demand of any shareholder, the vote for directors,
or on any question before a meeting, shall be by ballot. All elections shall be
had by plurality, and all questions decided by majority, of the votes cast,
except as otherwise provided by the articles or by-laws.
(b) At each meeting of shareholders, a list of the shareholders
entitled to vote, arranged alphabetically and certified by the secretary,
showing the number and class of shares held by each such shareholder on the
record date for the meeting, shall be produced on the request of any
shareholder.
1.4 Quorum. Except as provided in the next section hereof, any number
of shareholders, together holding at least a majority of the outstanding shares
entitled to vote thereat, who are present in person or represented by proxy at
any meeting, constitute a quorum for the transaction of business despite the
subsequent withdrawal or refusal to vote of any shareholder.
1.5 Adjournment of Meeting. If less than a quorum is in attendance at
any time for which a meeting is called, the meeting may, after the lapse of at
least half an hour, be adjourned by a majority in interest of the shareholders
present or represented and entitled to vote thereat. If notice of such adjourned
meeting is sent to the shareholders entitled to vote at the meeting, stating the
purpose or purposes of the meeting and that the previous meeting failed for lack
of a quorum, then any number of shareholders, present in person or represented
by proxy, and together holding at least one-fourth of the outstanding shares
entitled to vote thereat, constitute a quorum at the adjourned meeting.
1.6 Special Meetings: How called. Special meetings of the shareholders
for any purpose or purposes may be called by the president or chairman of the
Board, if any, or by resolution of the directors, and shall be called upon a
written request therefor, stating the purpose or purposes thereof, delivered to
the secretary and signed by a majority of the directors or by a vote in interest
of a majority of the shareholders entitled to vote.
<PAGE>
1.7 Notice of Shareholders' Meetings. Written or printed notice,
stating the place and time of any meeting, and, if a special meeting, the
general nature of the business to be considered, shall be given to each
shareholder entitled to vote thereat, at his last known address, at least ten
days before the meeting in the case of an annual meeting and five days before
the meeting in the case of a special meeting. Any irregularity in the notice of
an annual meeting held at the corporation's principal business office at the
time prescribed in 1.2 of this Article I, shall not affect the validity of the
meeting or any action taken thereat.
ARTICLE II
Directors
2.1 Number of Directors. The number of directors shall not be less than
three (3) nor more than ten (10), each of whom shall serve for a term of one (1)
year, or until a successor is selected; provided, however, if all of the
outstanding shares are held of record by fewer than three shareholders, there
need be only as many directors as there are shareholders.
2.2 Place of Holding Meetings. Meetings of the directors, regular or
special, may be held at any place, within or outside Louisiana, as the Board may
determine. In addition, meetings of the Board of Directors may be held by means
of conference telephone or similar communications equipment that allows all
persons participating in such meetings to hear and communicate with each other.
2.3 First Meeting. The first meeting of each newly elected Board of
Directors shall be held immediately following the annual meeting of shareholders
and no notice of such meeting shall be necessary to the newly elected directors
in order legally to constitute the meeting, provided a quorum is present; or
they may meet at such time and place as fixed by the consent in writing of all
of the directors, or by notice given by the majority to the remaining directors.
At the first meeting, or any subsequent meeting called for the purpose, the
directors shall elect the officers of the corporation.
2.4 Regular Directors' Meeting. Regular meetings of the directors may
be held without notice, at such time and place as may be designated by the
directors.
2.5 Special Directors' Meeting. How Called. Special meetings of the
directors may be called at any time by the Board of Directors or by the
executive committee, if one be constituted, by vote at a meeting, or by the
president, or in writing, with or without a meeting, by a majority of the
directors or of the members of the executive committee. Special meetings may be
held at such place or places within or outside Louisiana as may be designated by
the Board of Directors. In the absence of such designation, any such meeting
shall be held at such place as may be designated in the notice thereof.
2.6 Notice of Special Directors' Meetings. Notice of the place and
time of every special meeting of the Board of Directors (and of the first
meeting of the newly-elected board, if held on notice) shall be delivered to
each director, or sent to him by telegraph or by mail, or by
-2-
<PAGE>
leaving the same at his residence or usual place of business, at least two days
before the date of the meeting.
2.7 Quorum. At all meetings of the Board, a majority of the directors
in office and qualified to act constitute a quorum for the transaction of
business, and the action of a majority of the directors present at any meeting
at which a quorum is present is the action of the Board of Directors, unless the
concurrence of a greater proportion is required for such action by law, the
articles, or these by-laws. If a quorum is not present at any meeting of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present. If a quorum be present, the directors present may continue to act by
vote of a majority of the quorum until adjournment, notwithstanding the
subsequent withdrawal of enough directors to leave less than a quorum or the
refusal of any directors present to vote.
2.8 Remuneration to Directors. Directors, as such, shall not receive
any stated salary for their services, but by resolution of the Board, expenses
of attendance, if any, and a fixed fee, may be allowed to directors for
attendance at each regular or special meeting of the Board or of any committee
thereof; but this Section does not preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
2.9 Powers of Directors. The Board of Directors has the management of
the business of the corporation, and subject to any restrictions imposed by law,
the articles or these by-laws, may exercise all the powers of the corporation.
Without prejudice to such general powers, the directors have the following
specific powers:
(a) From time to time, to devolve the powers and duties of any
officer upon any other person for the time being.
(b) To confer upon any officer the power to appoint, remove and
suspend, and fix and change the compensation of, subordinate
officers, agents and factors.
(c) To determine who shall be entitled to vote, or to assign and
transfer any shares of stock, bonds, debentures or other
securities of other corporations held by this corporation.
(d) To delegate any of the powers of the Board to any standing or
special committee or to any officer or agent (with power to
sub-delegate) upon such terms as they may deem fit.
2.10 Resignations. The resignation of a director shall take effect on
receipt thereof by the chief executive officer or secretary, or on any later
date, not more than thirty days after such receipt, specified therein.
-3-
<PAGE>
ARTICLE III
Committees
3.1 Executive Committee. If an executive committee is appointed, the
chief executive officer shall be a member, and the committee shall have all of
the powers of the Board when the Board is not in session, except the power to
declare dividends, make or alter by-laws, fill vacancies on the board or on the
executive committee, or change the membership of the executive committee.
3.2 Minutes of Meetings of Committees. Any committees designated by the
Board shall keep regular minutes of their proceedings, and shall report the same
to the Board when required, but no approval by the Board of any action properly
taken by a committee shall be required.
3.3 Procedure. If the Board fails to designate the chairman of a
committee, the chief executive officer, if a member, shall be chairman. Each
committee shall meet at such times as it shall determine, and at any time on
call of the chairman. A majority of the committee constitutes a quorum, and the
committee may take action either by vote of a majority of the members present at
any meeting at which there is a quorum or by written concurrence of a majority
of the members. In case of absence or disqualification of a member of a
committee at any meeting thereof, the qualified members present, whether or not
they constitute a quorum, may unanimously appoint a director to act in place of
the absent or disqualified member. The Board has power to change the members of
any committee at any time, to fill vacancies, and to discharge any committee at
any time.
ARTICLE IV
Officers
4.1 Titles. The officers of the corporation shall be a Chief Executive
Officer, a President, a Treasurer, a Secretary and such other officers,
including a Chairman of the Board, as may, from time to time, be elected or
appointed by the Board. Any two officers may be combined in the same person, and
none need be a director.
4.2 Chairman of the Board of Directors. If a Chairman of the Board of
Directors is elected, he shall, when present, preside at all meetings of the
directors and shareholders. He shall have such powers as are delegated to him
by the Board.
4.3 Chief Executive Officer. If no Chairman of the Board is elected,
the Chief Executive Officer shall, when present, preside at all meetings of the
directors and shareholders. He is the chief executive officer, with general
management of the corporation's business, and power to make contracts in the
ordinary course of business; shall see that all orders and resolutions of the
Board are carried into effect and direct the other officers in the performance
of their duties; has power to execute all authorized instruments; and shall
generally perform all acts incident to the office of Chief Executive Officer, or
which are authorized or required by law, or which are incumbent upon him under
the provisions of the articles and these by-laws.
-4-
<PAGE>
The Chief Executive Officer's authority shall be subject to the authority and
direction of the Board of Directors.
4.4 President. The President, subject to the authority of the Chief
Executive Officer, shall carry out the duties assigned to him by the Chief
Executive Officer and shall be responsible for the general management of the
corporation's business; shall see that all actions and resolutions of the Board
are carried into effect; shall direct the officers other than the Chief
Executive Officer in the performance of their duties; shall preside at meetings
of the directors and shareholders in the absence of the Chairman of the Board of
Directors and the Chief Executive Officer; and shall generally perform all acts
customarily incident to the office of president or which are authorized or
required by law, or which are incumbent upon him under the provisions of the
Articles of Incorporation and these By-Laws.
4.5 Vice-Presidents. Each Vice-President shall have such powers, and
shall perform such duties, as shall be assigned to him by the directors, by the
Chief Executive Officer or by the President.
4.6 Treasurer. The Treasurer has custody of all funds, securities,
evidences of indebtedness and other valuable documents of the corporation. He
shall receive and give, or cause to be given, receipts and acquittances for
moneys paid in on account of the corporation, and shall pay out of the funds on
hand all just debts of the corporation of whatever nature, when due. He shall
enter, or cause to be entered, in books of the corporation to be kept for that
purpose, full and accurate accounts of all moneys received and paid out on
account of the corporation, and whenever required by the president or the
directors, he shall render a statement of his accounts. He shall keep or cause
to be kept such books as will show a true record of the expenses, gains, losses,
assets and liabilities of the corporation; and he shall perform all of the other
duties incident to the office of treasurer. If required by the Board, he shall
give the corporation a bond for the faithful discharge of his duties and for
restoration to the corporation, upon termination of his tenure, of all property
of the corporation under his control.
4.7 Secretary. The Secretary shall give, or cause to be given, notice
of all meetings of shareholders, directors and committees, and all other notices
required by law, or by these by-laws, and in case of his absence or refusal or
neglect so to do, such notice may be given by the shareholders or directors upon
whose request the meeting is called as provided in these by-laws. He shall
record all the proceedings of the meetings of the shareholders, of the
directors, and of committees in a book to be kept for that purpose. Except as
otherwise determined by the directors, he has charge of the original stock
books, transfer books and stock ledgers, and shall act as transfer agent in
respect of the stock and other securities issued by the corporation. He has
custody of the seal of the corporation, and shall affix it to all instruments
requiring it; and he shall perform such other duties as may be assigned to him
by the directors or by the Chief Executive Officer.
4.8 Assistants. Assistant Secretaries or Treasurers shall have such
duties as may be delegated to them by the Secretary and Treasurer respectively.
-5-
<PAGE>
ARTICLE V
Capital Stock
5.1 Certificates of Stock. Certificates of stock, numbered, and with
the seal of the corporation affixed, signed by the President or a Vice-President
and the Treasurer or Secretary, shall be issued to each shareholder, certifying
the number of shares owned by him in the corporation. If the stock certificates
are countersigned by a transfer agent and a registrar, the signatures of the
corporate officials may be facsimile.
5.2 Lost Certificates. A new certificate of stock may be issued in
place of any certificate theretofore issued by the corporation, alleged to have
been lost, stolen, mutilated or destroyed, or mailed and not received, and the
directors may in their discretion require the owner of the replaced certificate
to give the corporation a bond, unlimited as to stated amount, to indemnify the
corporation against any claim which may be made against it on account of the
replacement of the certificate or any payment made or other action taken in
respect thereof.
5.3 Transfer of Shares. Shares of stock of the corporation are
transferable only in its books, by the holders thereof in person or by their
duly authorized attorneys or legal representative, and only after proof of
compliance with any restrictions upon their transfer set forth in the Articles
of Incorporation or in these By-Laws. Upon such transfer, the old certificates
shall be surrendered to the person in charge of the stock transfer records, by
whom they shall be cancelled, and new certificates shall thereupon be issued. A
record shall be made of each transfer, and whenever a transfer is made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer. The Board may make regulations concerning the transfer of
shares, and may in their discretion authorize the transfer of shares from the
names of deceased persons whose estates are not administered, upon receipt of
such indemnity as they may require.
5.4 Record Dates. The Board may fix a record date for determining
shareholders of record for any purpose, such date to be not more than sixty days
and, if fixed for the purpose of determining shareholders entitled to notice of
and to vote at a meeting, not less than ten days, prior to the date of the
action for which the date is fixed.
5.5 Transfer Agents, Registrars. The Board may appoint and remove one
or more transfer agents and registrars for any class of stock. If such
appointments are made, the transfer agents shall effect original issuances of
stock certificates and transfer of shares, record and advise the corporation and
one another of such issuances and transfers, countersign and deliver stock
certificates, and keep the stock, transfer and other pertinent records; and the
registrars shall prevent over-issues by registering and countersigning all stock
certificates issued. A transfer agent and registrar may be identical. The
transfer agents and registrars, when covered with the corporation as obligees by
an indemnity bond substantially in a form, and issued by a surety company,
approved by the corporation's general counsel and providing indemnity unlimited
in stated amount, or in form and amount and signed by a surety approved by the
Board, and upon receipt of an appropriate affidavit and indemnity agreement, may
(a) countersign, register and deliver, in place of any stock certificate alleged
to have been lost,
-6-
<PAGE>
stolen, destroyed or mutilated, or to have been mailed and not received, a
replacement certificate for the same number of shares, and make any payment,
credit, transfer, issuance, conversion or exchange to which the holder may be
entitled in respect of such replaced certificate, without surrender thereof for
cancellation, and (b) effect transfers of shares from the names of deceased
persons whose estates (not exceeding $l,000 in gross asset value) are not
administered.
ARTICLE VI
Miscellaneous Provisions
6.1 Checks, Drafts, Notes. All checks, drafts, other orders for the
payment of money, and notes or other evidences of indebtedness, issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall, from time to time, be
determined by the Board.
6.2 Notice. Whenever any notice is required by these by-laws to be
given, personal notice is not meant unless expressly so stated; any notice is
sufficient if given by depositing the same in a mail receptacle in a sealed
post-paid envelope addressed to the person entitled thereto at his last known
address as it appears on the records of the corporation; and such notice is
deemed to have been given on the day of such mailing.
6.3 Waiver of Notice. Whenever any notice of the time, place or purpose
of any meeting of shareholders, directors or committee is required by law, the
articles or these by-laws a waiver thereof in writing, signed by the person or
persons entitled to such notice and filed with the records of the meeting before
or after the holding thereof, or actual attendance at the meeting of
shareholders in person or by proxy or actual attendance at the meeting of
directors or committee in person, is equivalent to the giving of such notice
except as otherwise provided by law.
ARTICLE VII
Amendments
7.1 The directors, by affirmative vote of a majority of those present
or represented, may, at any meeting, amend or alter any of the by-laws; subject,
however, to the right of the shareholders by affirmative vote of a majority of
those entitled to vote, to change or repeal any by-laws made or amended by the
directors.
-7-
<PAGE>
ARTICLE VIII
Indemnity
8.1 This corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any action, suit or proceedings, whether
civil, criminal, administrative or investigative (including any action by or in
the right of the corporation) by reason of the fact that he is or was a director
or officer of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another business,
foreign or non-profit corporation, partnership, joint venture or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful; provided that in case of
actions by or in the right of the corporation, the indemnity shall be limited to
expenses (including attorneys' fees, and amounts paid in settlement not
exceeding, in the judgment of the Board of Directors, the estimated expense of
litigating the action to conclusion) actually and reasonably incurred in
connection with the defense or settlement of such action and no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged by a court of competent jurisdiction, after exhaustion
of all appeals therefrom, to be liable for willful or intentional misconduct in
the performance of his duty to the corporation unless and only to the extent
that the court shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, he is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceedings, had reasonable cause to believe that his conduct was unlawful.
8.2 To the extent that a director or officer of a corporation has been
successful on the merits or otherwise in defense of any such action, suit or
proceedings, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
8.3 Any indemnification under Section 8.1 of this Article (unless
ordered by the court) shall be made by the corporation only as authorized in a
specific case upon a determination that the applicable standard of conduct has
been met. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceedings, or (2) if such a quorum is not obtainable or a
quorum of disinterested directors so directs, by independent legal counsel, or
(3) by the shareholders.
8.4 Expenses incurred in defending such an action, suit or proceeding
may be paid by the corporation in advance of the final disposition thereof if
authorized by the Board of
-8-
<PAGE>
Directors, without regard to whether participating members thereof are parties
to such action, suit or proceeding, upon receipt of an undertaking by or on
behalf of the director or officer to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this Article.
8.5 The indemnification and advancement of expenses provided by this
Article shall not be deemed exclusive of any other rights to which the person
indemnified or obtaining advancement of expenses may be entitled under any
by-law, agreement, authorization of shareholders or directors or otherwise,
regardless of whether directors authorizing such indemnification are
beneficiaries thereof, or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of his heirs and legal representative.
8.6 This corporation shall have power to procure insurance on behalf of
any person who is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another business, non-profit or foreign
corporation, partnership, joint venture, or other enterprise against any
liability asserted against or incurred by him in any such capacity, or arising
out of the status as such, whether or not the corporation would have the power
to indemnify him against such liability under the provisions of this Article.
C E R T I F I C A T E
I certify that the foregoing By-Laws were unanimously adopted by the
Board of Directors of the corporation at a special meeting held by them on the
10th day of July, 1996.
s/ Sherry E. Anderson
------------------------------
Sherry E. Anderson, Secretary
-9-
<PAGE>
DRAFT 7/22/96
UCFC FUNDING CORPORATION,
as Depositor,
UNITED COMPANIES LENDING CORPORATION(Registered),
as Servicer
and
[ ],
as Trustee
-----------------------
POOLING AND SERVICING AGREEMENT
Dated as of 1, 1996
----------------------
Manufactured Housing Contract Pass-Through Certificates
Series 1996-__
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
Section 1.01. Definitions.............................................. 1
Section 1.02. Interest Calculations.................................... 1
ARTICLE II
Conveyance of Contracts;
Original Issuance of Certificates;
Tax Treatment
Section 2.01. Conveyance of Contracts.................................. 2
Section 2.02. Acceptance by Trustee.................................... 2
Section 2.03. Representations and Warranties
Regarding the Depositor and the
Servicer................................................. 4
Section 2.04. Representations and Warranties of the
Originator Regarding the Mortgage
Loans.................................................... 8
Section 2.05. Sale and Conveyance of the Subsequent
Contracts................................................ 8
Section 2.06. Execution and Authentication of
Certificates............................................. 10
Section 2.07. Certain Designations..................................... 10
Section 2.08. Tax Returns and Reports to Certificate-
holders.................................................. 11
Section 2.09. Tax Matters Person....................................... 11
Section 2.10. REMIC Related Covenants.................................. 11
ARTICLE III
Administration and Servicing
of Contracts
Section 3.01. The Servicer............................................. 14
Section 3.02. Subservicing............................................. 15
Section 3.03. Collection Account....................................... 17
Section 3.04. Withdrawals from the Collection
Account.................................................. 20
Section 3.05. Enforcement.............................................. 22
Section 3.06. Trustee to Cooperate..................................... 23
Section 3.07. Maintenance of Insurance................................. 23
Section 3.08. Repossession............................................. 25
Section 3.09. Retitling; Security Interests............................ 26
Section 3.10. Servicing Compensation................................... 27
i
<PAGE>
Page
Section 3.11. Annual Statement as to Compliance......................... 28
Section 3.12. Annual Servicing Report................................... 28
Section 3.13. Reports of Foreclosures and
Abandonments of Mortgaged Property,
Returns Relating to Mortgage Interest
Received from Individuals and Returns
Relating to Cancellation of
Indebtedness.............................................. 28
Section 3.14. Advances by the Servicer.................................. 29
ARTICLE IV
Perfection of Transfer and Protection of Security Interests
Section 4.01. Custody of Contracts...................................... 30
Section 4.02. Filings................................................... 31
Section 4.03. Name Change or Relocation................................. 31
Section 4.04. Chief Executive Office.................................... 32
Section 4.05. Costs and Expenses........................................ 32
ARTICLE V
Certain Accounts, Payments [and Certificate Insurance Policy]
Section 5.01. Establishment of Accounts; Permitted
Withdrawals............................................... 33
Section 5.02. Distributions............................................. 34
Section 5.03. Statements................................................ 34
Section 5.04. Investment of Accounts.................................... 35
[Section 5.05. Certificate Insurance Policy.............................. 36
ARTICLE VI
The Certificates
Section 6.01. The Certificates.......................................... 38
Section 6.02. Registration of Transfer and Exchange
of Certificates........................................... 40
Section 6.03. Mutilated, Destroyed, Lost or Stolen
Certificates.............................................. 42
Section 6.04. Persons Deemed Owners..................................... 43
Section 6.05. Appointment of Paying Agent............................... 43
ii
<PAGE>
Page
ARTICLE VII
The Depositor and the Servicer
Section 7.01. Liability of the Depositor and the Servicer............... 45
Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Depositor or the Servicer............. 45
Section 7.03. Limitation on Liability of the Depositor, the
Servicer and Others....................................... 45
Section 7.04. Servicer Not to Resign.................................... 46
Section 7.05. Rights of the Depositor in Respect of the Servicer........ 47
ARTICLE VIII
Servicer Termination
Section 8.01. Events of Default......................................... 49
Section 8.02. Trustee to Act; Appointment of Successor.................. 51
Section 8.03. Waiver of Defaults........................................ 53
Section 8.04. Notification to Certificateholders........................ 53
[Section 8.05. Rights of the Certificate Insurer to Exercise Rights
of Holders of Insured Certificates........................ 53
[Section 8.06. Trustee To Act Solely with Consent of the Certificate
Insurer................................................... 54
[Section 8.07. Trust Held for Benefit of the Certificate Insurer......... 54
[Section 8.08. Certificate Insurer Default............................... 55
ARTICLE IX
The Trustee
Section 9.01. Duties of Trustee......................................... 56
Section 9.02. Certain Matters Affecting the Trustee..................... 57
Section 9.03. Trustee Not Liable for Certificates or Contracts.......... 59
Section 9.04. Trustee May Own Certificates.............................. 59
Section 9.05. Servicer to Pay Trustee's Fees and Expenses............... 59
Section 9.06. Eligibility Requirements for Trustee...................... 60
Section 9.07. Resignation or Removal of Trustee......................... 60
Section 9.08. Successor Trustee......................................... 61
iii
<PAGE>
Page
Section 9.09. Merger or Consolidation of Trustee........................ 62
Section 9.10. Appointment of Co-Trustee or Separate Trustee............. 62
Section 9.11. Limitation of Liability................................... 64
Section 9.12. Trustee May Enforce Claims Without Possession of
Certificates.............................................. 64
Section 9.13. Suits for Enforcement..................................... 64
Section 9.14. Obligor Claims............................................ 64
Section 9.15. Back-Up Servicer.......................................... 65
ARTICLE X
Termination
Section 10.01. Termination.............................................. 66
Section 10.02. Additional Termination Requirements...................... 67
ARTICLE XI
Miscellaneous Provisions
Section 11.01. Amendment................................................ 69
Section 11.02. Limitation on Rights of Certificateholders............... 70
Section 11.03. Governing Law............................................ 71
Section 11.04. Notices.................................................. 71
Section 11.05. Severability of Provisions............................... 73
Section 11.06. Certificates Nonassessable and Fully Paid................ 73
Section 11.07. Counterparts............................................. 73
Section 11.08. Effect of Headings and Table of Contents................. 73
Section 11.09 Exhibits................................................. 73
EXHIBIT A- FORMS OF CERTIFICATES..................................... A-1-1
EXHIBIT B - REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE ORIGINATOR............................... B-1
EXHIBIT C - SCHEDULE OF CONTRACTS..................................... C-1
EXHIBIT D - DEFINITIONS............................................... D-1
EXHIBIT E - PARAMETERS FOR SUBSEQUENT CONTRACTS....................... E-1
EXHIBIT F - SERVICER'S CERTIFICATE REGARDING SUBSEQUENT CONTRACTS..... F-1
EXHIBIT G - FORM OF TRANSFEREE LETTER................................. G-1
iv
<PAGE>
Page
EXHIBIT H - TRANSFER AFFIDAVIT........................................ H-1
EXHIBIT I - FORM OF SUBSEQUENT TRANSFER
AGREEMENT................................................. I-1
EXHIBIT J - MONTHLY REPORT............................................ J-1
v
<PAGE>
This Pooling and Servicing Agreement, dated as of ________ 1, 1996,
among UCFC Funding Corporation, as depositor (the "Depositor"), United
Companies Lending Corporation(Registered), as servicer (the "Servicer")
and _____________________, as trustee (the "Trustee").
W I T N E S S E T H T H A T:
In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions. For all purposes of this Agreement,
capitalized terms used herein shall have the meanings specified in Exhibit B,
unless the context otherwise requires. Unless otherwise specified in such
Exhibit, references to Sections shall refer to Sections of the Pooling and
Servicing Agreement.
Section 1.02. Interest Calculations. All calculations of accrued
interest shall be made on the basis of a 360-day year consisting of twelve
30-day months [;provided, however, that the Class Interest Amount for the
Floating Rate Certificates shall be calculated on the basis of a 360-day year
and the actual number of days elapsed in the applicable Accrual Period].
1
<PAGE>
ARTICLE II
Conveyance of Contracts;
Original Issuance of Certificates;
Tax Treatment
Section 2.01. Conveyance of Contracts. (a) The Depositor, concurrently
with the execution and delivery of this Agreement, does hereby sell, transfer,
assign, set over and otherwise convey, without recourse but subject to the terms
of this Agreement, to the Trustee for the benefit of the Certificateholders, all
of the Depositor's right, title and interest in and to each Contract (excluding
the Subsequent Contracts), including without limitation, the security interests
in the Manufactured Homes and any related Mortgages on Mortgaged Property
securing such Contracts and [all principal received and interest accrued on such
Contracts on and after the Cut-off Date] [all interest and principal received or
receivable with respect to such Contracts after the Cut-off Date but not
including payments of principal and interest due and payable on such Contracts
on or before the Cut-off Date] and all other assets included or to be included
in the Trust. In connection with such transfer and assignment, the Depositor
hereby assigns to the Trustee all of the Depositor's right, title and interest
in its rights and benefits, but none of its obligations or burdens, under the
Contract Sale Agreement, including without limitation, the Seller's rights with
respect to the Originator's (i) delivery obligations, (ii) representations and
warranties and (iii) cure, repurchase or substitution obligations under the
Contract Purchase Agreement. [In addition, on or prior to the Closing Date, the
Depositor shall cause the Certificate Insurer to deliver the Certificate
Insurance Policy to the Trustee.]
(b) Pursuant to Section 2.1(c) of the Contract Purchase Agreement, the
Originator has agreed to take the actions specified in Part I of Exhibit D
attached hereto.
(c) It is the express intent of the parties hereto that the conveyance
of the Contracts and all other assets constituting the Trust by the Depositor to
the Trustee be, and be construed as, a sale of the Contracts and such other
assets constituting the Trust by the Depositor and not a pledge by the Depositor
to secure a debt or other obligation of the Depositor.
Section 2.02. Acceptance by Trustee. (a) The Trustee hereby
acknowledges its receipt of the assets of the Trust and declares that the
Trustee holds and will hold such assets and all amounts received by it
thereunder and hereunder in trust, upon the terms herein set forth, for the use
and benefit of all present and future Certificateholders.
2
<PAGE>
(b) The Trustee agrees to execute and deliver on the Closing Date and
on each Subsequent Transfer Date an acknowledgment of receipt of the items
required to be delivered with respect to the Land-and-Home Contracts pursuant to
Section (a)(A) of Part I of Exhibit D. The Trustee agrees, for the benefit of
Certificateholders, (i) within 45 days after the Closing Date and (ii) the first
anniversary of the Closing Date (or, with respect to any document delivered
after the Closing Date pursuant to Part I of Exhibit D, within 45 days of
receipt and with respect to any Subsequent Contract or Qualified Replacement
Contract, within 45 days after the related Subsequent Cut-off Date or
Replacement Cut-off Date) to review the Contract Files for such Land-and-Home
Contracts to ascertain that all required documents set forth in paragraphs (i)
(v) of Section (a)(A) of Part I of Exhibit D have been executed and received,
and that such documents have not been mutilated, damaged, torn or otherwise
physically altered and relate to the Land-and-Home Contracts identified on the
Schedule of Contracts or Schedule(s) of Subsequent Contracts and in so doing the
Trustee may rely on the purported due execution and genuineness of any signature
thereon. If within such applicable review period the Trustee finds any document
constituting a part of a Contract File for a Land-and-Home Contract not to have
been executed or received or to have been altered or to be unrelated to the
Contracts identified in said Schedule of Contracts or Schedule of Subsequent
Contracts or, if in the course of its review, the Trustee determines that such
Contract File is otherwise defective in any material respect, the Trustee shall
promptly upon the conclusion of its review notify [the Certificate Insurer] the
Depositor and the Originator and the Originator shall have a period of 60 days
after such notice within which to correct or cure any such defect.
(c) The Trustee shall have no responsibility for reviewing any Contract
File except as expressly provided in subsection (b) of this Section 2.02.
Without limiting the effect of the preceding sentence, in reviewing any Contract
File for a Landand-Home Contract pursuant to such subsection, the Trustee shall
have no responsibility for determining whether any document is valid and
binding, whether the text of any assignment or endorsement is in proper or
recordable form (except, if applicable, to determine if the Trustee is the
assignee or endorsee), whether any document has been recorded in accordance with
the requirements of any applicable jurisdiction, or whether a blanket assignment
is permitted in any applicable jurisdiction, but shall only be required to
determine whether a document has been executed, that it appears to be what it
purports to be, and, where applicable, that it purports to be recorded, but
shall not be required to determine whether any Person executing any document is
authorized to do so or whether any signature thereon is genuine.
3
<PAGE>
Section 2.03. Representations and Warranties Regarding the Depositor
and the Servicer (a) The Depositor represents and warrants, as of the Closing
Date and each Subsequent Transfer Date as follows:
(i) The Depositor is, and as of each Subsequent Transfer Date
will be, a corporation duly organized, validly existing and in good
standing under the laws of the State of Louisiana. The Depositor has
all requisite corporate power and authority to own and operate its
properties, to carry out its business as presently conducted and as
proposed to be conducted, to enter into and discharge its obligations
under this Agreement and each Subsequent Transfer Agreement. The
Depositor is, and as of each Subsequent Transfer Date will be, duly
qualified to do business and is in good standing in each jurisdiction
necessary to perform its obligations under this Agreement and each
Subsequent Transfer Agreement.
(ii) The execution and delivery of this Agreement and each
Subsequent Transfer Agreement by the Depositor and its performance and
compliance with the terms of this Agreement and each Subsequent
Transfer Agreement have been duly authorized by all necessary corporate
action on the part of the Depositor and will not violate the
Depositor's Articles of Incorporation or Bylaws or constitute a default
(or an event which, with notice or lapse of time, or both, would
constitute a default), under, or result in a breach of, any material
contract, agreement or other instrument to which the Depositor is a
party or by which the Depositor is bound or violate any statute or any
order, rule or regulation of any court, governmental agency or body or
other tribunal having jurisdiction over the Depositor or any of its
properties.
(iii) Assuming due authorization, execution and delivery by
the other parties hereto, this Agreement constitutes, and each
Subsequent Transfer Agreement will constitute, a valid, legal and
binding obligation of the Depositor, enforceable against it in
accordance with the terms hereof, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally
and by general principles of equity (whether considered in a proceeding
or action in equity or at law).
4
<PAGE>
(iv) The Depositor is not, and as of each Subsequent Transfer
Date will not be, in default with respect to any order or decree of any
court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which is likely to have consequences
that would materially and adversely affect the condition (financial or
other) or operations of the Depositor or its properties or is likely to
have consequences that would materially and adversely affect its
performance hereunder or under any Subsequent Transfer Agreement.
(v) No litigation is pending or, to the best of the
Depositor's knowledge, threatened against the Depositor the
consequences of which would prohibit its entering into this Agreement
or any Subsequent Transfer Agreement or that would materially and
adversely affect the condition (financial or otherwise) or operations
of the Depositor or its properties or the consequences of which would
materially and adversely affect its performance hereunder or
thereunder.
(vi) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be,
by or from any federal, state or other governmental authority or agency
(other than any such actions, approvals, etc., under any state
securities laws, real estate syndication or "Blue Sky" statutes, as to
which the Depositor makes no such representation or warranty), that are
necessary or advisable in connection with the purchase of the Contracts
and the execution and delivery by the Depositor of this Agreement and
each Subsequent Transfer Agreement, have been or will be duly taken,
given or obtained, as the case may be, are or will be in full force and
effect on the date hereof or thereof, as the case may be, are not
subject to any pending proceeding or appeals (administrative, judicial
or otherwise) and either the time within which any appeal therefrom may
be taken or review thereof may be obtained has expired or no review
thereof may be obtained or appeal therefrom taken, and are adequate to
authorize this Agreement and each Subsequent Transfer Agreement and the
performance by the Depositor of its obligations hereunder or
thereunder.
(vii) Immediately prior to the transfer and assignment
contemplated by this Agreement and each Subsequent Transfer Agreement,
the Depositor was or will be the sole owner of each Contract, subject
to no liens, charges, mortgages, encumbrances or rights of others
except liens which will be released simultaneously with such
5
<PAGE>
transfer or assignment; and immediately upon the transfer and
assignment contemplated by this Agreement and each Subsequent Transfer
Agreement, the Trustee will hold good and indefeasible title to, and
will be the sole owner of, each Contract subject to no liens, charges,
mortgages, encumbrances or rights of others.
(viii) The assignment of all of the Depositor's right, title
and interest in its rights and benefits, but none of its obligations or
burdens, under the Contract Sale Agreement is valid, enforceable and
effective to permit the Trustee to enforce the obligations of the
Originator under the Contract Purchase Agreement.
(b) The Servicer represents and warrants, as of the Closing
Date and each Subsequent Transfer Date, as follows:
(i) The Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Louisiana,
is in compliance with the laws of each state in which any Manufactured
Home is located to the extent necessary to enable it to perform its
obligations hereunder and is in good standing as a foreign corporation
in each jurisdiction in which the nature of its business, or the
properties owned or leased by it make such qualification necessary. The
Servicer has all requisite corporate power and authority to own and
operate its properties, to carry out its business as presently
conducted and as proposed to be conducted and to enter into and
discharge its obligations under this Agreement. The Servicer has, on a
consolidated basis with its top-tier parent, United Companies Financial
Corporation, equity of at least $15,000,000, as determined in
accordance with generally accepted accounting principles.
(ii) The execution and delivery of this Agreement by the
Servicer and its performance and compliance with the terms of this
Agreement have been duly authorized by all necessary corporate action
on the part of the Servicer and will not violate the Servicer's
Articles of Incorporation or Bylaws or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach of, any material contract,
agreement or other instrument to which the Servicer is a party or by
which the Servicer is bound or violate any statute or any order, rule
or regulation of any court, governmental agency or body or other
tribunal having jurisdiction over the Servicer or any of its
properties.
6
<PAGE>
(iii) This Agreement, assuming due authorization, execution
and delivery by the other parties hereto, constitutes a valid, legal
and binding obligation of the Servicer, enforceable against it in
accordance with the terms hereof, except as the enforcement hereof may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally
and by general principles of equity (whether considered in a proceeding
or action in equity or at law).
(iv) The Servicer is not in default with respect to any order
or decree of any court or any order, regulation or demand of any
federal, state, municipal or governmental agency, which is likely to
have consequences that would materially and adversely affect the
condition (financial or otherwise) or operations of the Servicer or its
properties or is likely to have consequences that would materially and
adversely affect its performance hereunder.
(v) No litigation is pending or, to the best of the Servicer's
knowledge, threatened against the Servicer which litigation is likely
to have consequences that would prohibit its entering into this
Agreement or that would materially and adversely affect the condition
(financial or otherwise) or operations of the Servicer or its
properties or is likely to have consequences that would materially and
adversely affect its performance hereunder.
(vi) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be,
by or from any federal, state or other governmental authority or agency
(other than any such actions, approvals, etc. under any state
securities laws, real estate syndication or "Blue Sky" statutes, as to
which the Servicer makes no such representation or warranty), that are
necessary or advisable in connection with the execution and delivery by
the Servicer of this Agreement, have been duly taken, given or
obtained, as the case may be, are in full force and effect on the date
hereof, are not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within
which any appeal therefrom may be taken or review thereof may be
obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement and the performance by the
Servicer of its obligations under this Agreement.
7
<PAGE>
(c) The representations and warranties set forth in subsections (a) and
(b) above shall survive the sale and assignment of the Contracts to the Trust.
Upon discovery of a breach of any such representation and warranty which
materially and adversely affects the interests of the Certificateholders [or the
Certificate Insurer], the Person discovering such breach shall give prompt
written notice to the other parties [and to the Certificate Insurer]. Within 30
days of its discovery or its receipt of notice of breach, or, with the prior
written consent of a Responsible Officer of the Trustee, such longer period
specified in such consent, the Depositor or the Servicer, as applicable, shall
cure such breach in all material respects.
Section 2.04. Representations and Warranties of the Originator
Regarding the Mortgage Loans. (a) The Originator has made representations
and warranties with respect to the Contracts that are set forth in Part II
of Exhibit D hereto.
(b) The Originator has agreed to take the actions set forth in Part III
of Exhibit D hereto with respect to breaches of the representations and
warranties set forth in Part II of Exhibit D hereto.
(c) It is understood and agreed that the representations and warranties
set forth in Part II of Exhibit D and the covenants set forth in Part III of
Exhibit D shall survive delivery of the respective Contracts to the Trustee and
the termination of the rights and obligations of the Servicer pursuant to
Section 7.04 or 8.01.
Section 2.05. Sale and Conveyance of the Subsequent Contracts.
(a) Subject to the conditions set forth in paragraph (b) below, in
consideration of the delivery on the related Subsequent Transfer Dates
to or upon the order of the Depositor of all or a portion of the balance
of funds in the Pre-Funding Account, the Depositor shall on any
Subsequent Transfer Date sell, transfer, convey and assign, without
recourse but subject to the obligations set forth herein, to the Trustee
for the benefit of the Certificateholders, all right, title and interest
of the Depositor in and to each Subsequent Contract listed on the
Schedule of Subsequent Contracts delivered on such Subsequent Transfer
Date, including without limitation, the security interests in the
Manufactured Homes and any related Mortgages on Mortgaged Properties
securing such Subsequent Contracts and [all principal received and
interest accrued on such Subsequent Contracts on and after the related
Subsequent Cut-off Date][and all interest and principal received or
receivable with respect to such Subsequent Contracts after the related
Subsequent Cut-off Date but not including payments of principal and
interest due and payable on such Subsequent Contracts on or before such
Subsequent Cut-off Date]. The
8
<PAGE>
transfer by the Depositor of the Subsequent Contracts set forth on each Schedule
of Subsequent Contracts shall be absolute and is intended by all parties hereto
to be treated as a complete, absolute and final sale.
The amount released from the Pre-Funding Account shall be one-hundred
percent (100%) of the aggregate Cut-off Date Principal Balances of the
Subsequent Contracts so transferred.
(b) Each of the following conditions shall be satisfied on or prior to
the related Subsequent Transfer Date:
(i) the Originator shall have provided the Trustee [, the
Rating Agencies and the Certificate Insurer] with a timely Addition
Notice and shall have provided any information reasonably requested [by
any of the foregoing] with respect to the Subsequent Contracts;
(ii) the Depositor shall have executed and delivered
a Subsequent Transfer Agreement with all required schedules
and exhibits;
(iii) the Originator shall have delivered to the Servicer for
deposit in the Collection Account all collections in respect of the
Subsequent Contracts received [on or] after the related Subsequent
Cut-off Date other than amounts that were due and payable [prior to or]
on such Subsequent Cut-off Date;
(iv) as of each Subsequent Transfer Date, none of the
Depositor, the Seller or the Originator shall be insolvent, none of
them will become insolvent by such transfer and none of them shall be
aware of any pending insolvency;
(v) such purchase and sale of Subsequent Mortgage Loans will
not result in a material adverse tax consequence to the Trust or the
Holders of the Certificates;
(vi) the Pre-Funding Period shall not have
terminated;
(vii) the Depositor shall have delivered to the [Certificate
Insurer,] the Rating Agencies and the Trustee opinions of counsel with
respect to the transfer of the Subsequent Contracts substantially in
the form of the opinions of counsel delivered to the [Certificate
Insurer,] the Rating Agencies and the Trustee on the Closing Date;
(viii) the Subsequent Contracts shall satisfy the
conditions set forth in Exhibit E hereto;
9
<PAGE>
(ix) the Servicer shall have delivered to the
Trustee a certificate substantially in the form of Exhibit
F hereto; and
[(x) the Trustee shall have received written confirmation from
each Rating Agency that the inclusion of such Subsequent Contracts in
the Trust will not result in the withdrawal or downgrading of the
then-current ratings assigned to the Offered Certificates].
(c) In connection with the transfer and assignment of the Subsequent
Contracts, the Originator has agreed to take the actions set forth in Part I of
Exhibit D hereto and the Trustee shall take the actions applicable to it
specified in Section 2.02, the Originator shall be deemed to have made the
representations and warranties set forth in Part II of Exhibit D and shall take
the action, if any, required under Part III of Exhibit D, in each case with
respect to the Subsequent Contracts delivered on a Subsequent Transfer Date,
except that references in said sections to Contracts, the Closing Date and the
Cut-off Date shall refer to the applicable Subsequent Contracts, Subsequent
Transfer Date and Subsequent Cut-off Date, respectively, except that references
to one year from the Closing Date shall remain unchanged.
Section 2.06. Execution and Authentication of Certificates. The Trustee
on behalf of the Trust shall cause to be executed, authenticated and delivered
on the Closing Date to or upon the order of the Depositor, concurrently with the
sale, assignment and conveyance to the Trustee set forth in Section 2.01,
Certificates in authorized denominations evidencing the ownership of the entire
Trust.
Section 2.07. Certain Designations. (a) For federal income tax
purposes, the REMIC Trust will be evidenced by (x) the Offered Certificates
which are hereby designated as the "regular interests" in the REMIC Trust, and
(y) the Class R Certificates, which are hereby designated as the single
"residual interest" in the REMIC Trust.
(b) The Closing Date is hereby designated as the "start-up day" of the
REMIC Trust within the meaning of Section 860G(a)(9) of the Code.
(c) Solely for purposes of satisfying Section 1.860G- 1(a)(4)(iii) of
the Treasury Regulations, the "latest possible maturity date" of the Offered
Certificates is the Remittance Date in _____________.
Section 2.08. Tax Returns and Reports to Certificateholders.
(a) For federal income tax purposes, the REMIC Trust
10
<PAGE>
shall have a calendar year and shall maintain its books on the accrual method of
accounting.
(b) The Servicer shall prepare and file or cause to be filed with the
Internal Revenue Service federal income tax or information returns with respect
to the REMIC Trust and the Certificates containing such information and at the
times and in such manner as may be required by the Code or applicable Treasury
regulations, and shall furnish to Certificateholders such statements or
information at the times and in such manner as may be required thereby. For this
purpose, the Tax Matters Person may, but need not, rely on any proposed
regulations of the United States Department of the Treasury. The Servicer shall
indicate the election to treat the REMIC Trust as a REMIC (which election shall
apply to the taxable period ending on the last day of the calendar year in which
the Closing Date occurs and each calendar year thereafter) in such manner as the
Code or applicable Treasury regulations may prescribe. The Trustee shall sign
all tax information returns filed pursuant to this Section 2.08 which shall be
prepared by the Servicer. The Servicer shall provide information necessary for
the computation of tax imposed on the transfer of a Residual Certificate to a
Disqualified Organization, or an agent of a Disqualified Organization, or a
"pass-thru entity" in which a Disqualified Organization is the record holder of
an interest.
Section 2.09. Tax Matters Person. The tax matters person with respect
to the REMIC Trust shall be the Servicer, unless and until the Depositor
designates another person by notice to the Servicer and the Trustee. The Tax
Matters Person shall at all times hold the Tax Matters Person Residual Interest
and shall have the same duties with respect to the Trust as those of a "tax
matters partner" under Subchapter C of Chapter 63 of Subtitle F of the Code.
Each holder of a Residual Certificate shall be deemed to have agreed, by
acceptance thereof, to be bound by this Section 2.09.
Section 2.10. REMIC Related Covenants. (a) For as long as the REMIC
Trust shall exist, the Depositor, the Servicer and the Trustee shall act in
accordance herewith to assure continuing treatment of the REMIC Trust as a REMIC
and avoid the imposition of tax on the REMIC Trust. In particular:
(i) Neither the Depositor nor the Trustee shall create, or
permit the creation of, any "interests" in the REMIC Trust within the
meaning of Code Section 860D(a)(2) other than the interests represented
by the Offered Certificates and the Residual Certificates.
(ii) Except as otherwise provided in the Code, the
Depositor shall not grant and the Trustee shall not accept
11
<PAGE>
property unless (i) substantially all of the property held in the REMIC
Trust constitutes either "qualified mortgages" or "permitted
investments" as defined in Code Sections 860G(a)(3) and (5),
respectively, and (ii) no property shall be contributed to the REMIC
Trust after the start-up day unless such grant would not subject the
REMIC Trust to the 100% tax on contributions to a REMIC after the
start-up day of the REMIC Trust imposed by Code Section 860G(d).
(iii) The Trustee shall not accept on behalf of the REMIC
Trust any fee or other compensation for services (other than as
otherwise provided herein) and shall not accept on behalf of the Trust
any income from assets other than those permitted to be held by a
REMIC.
(iv) The Trustee shall not sell or permit the sale of all or
any portion of the Contracts (other than in accordance with Part I or
Part III of Exhibit D hereto) unless such sale is pursuant to a
"qualified liquidation" as defined in Code Section 860F(a)(4)(A) and in
accordance with Article X.
(v) The Servicer shall maintain books with respect to the
REMIC Trust on the basis of a taxable year consisting of a calendar
year and the accrual method of accounting.
(vi) Upon filing with the Internal Revenue Service, the
Servicer shall furnish to the Holders of the Residual Certificates the
Form 1066 and each Form 1066Q.
(b) In the event that any tax is imposed on "prohibited transactions"
of the REMIC Trust as defined in Section 860F(a)(2) of the Code, on the "net
income from foreclosure property" of the REMIC Trust as defined in Section
860G(c) of the Code, on any contribution to the REMIC Trust after the Startup
Day pursuant to Section 860G(d) of the Code, or any other tax is imposed, such
tax shall be paid by (i) the Trustee, if such tax arises out of or results from
a breach by the Trustee of any of its obligations under this Agreement, (ii) the
Servicer, if such tax arises out of or results from a breach by the Servicer of
any of any of its obligations under this Agreement, or otherwise (iii) the
Holders of the Residual Certificates in proportion to their Percentage
Interests. To the extent such tax is chargeable against the holders of the
Residual Certificates, notwithstanding anything to the contrary contained
herein, the Trustee is hereby authorized to retain from amounts otherwise
distributable to the Holders of the Residual Certificates on any Remittance Date
sufficient funds to reimburse the Trustee for the payment of such tax (to the
extent that the Trustee has not been previously reimbursed or indemnified
therefor).
12
<PAGE>
(c) None of the Depositor, the Servicer or the Trustee shall engage in
a "prohibited transaction" (as defined in Code Section 860F(a)(2)), except that,
such parties may engage in the activities otherwise prohibited by the foregoing
clauses (a)(ii), (a)(iii) and (a)(iv), provided that the Depositor shall have
delivered to the Trustee an Opinion of Counsel to the effect that such
transaction will not result in the imposition of a contribution or prohibited
transaction tax on the REMIC Trust and will not disqualify the REMIC Trust from
treatment as a REMIC; and provided, that the Depositor shall have demonstrated
to the satisfaction of the Trustee that such action will not adversely affect
the rights of the holders of the Certificates and the Trustee and that such
action will not adversely impact the rating of the Certificates.
(d) The Servicer shall pay out of its own funds, without any right of
reimbursement: (i) any and all expenses of the REMIC Trust related to tax return
preparation and filing; and (ii) any professional fees or expenses related to
audits or any administrative or judicial proceedings with respect to the REMIC
Trust that involve the Internal Revenue Service or state tax authorities arising
out of or resulting from a breach by the Servicer of any of its obligations
under this Agreement.
13
<PAGE>
ARTICLE III
Administration and Servicing
of Contracts
Section 3.01. The Servicer. (a) It is intended that the REMIC Trust
formed hereunder shall constitute, and that the affairs of the REMIC Trust shall
be conducted so as to qualify it as, a REMIC in accordance with the REMIC
Provisions. In furtherance of such intentions, the Servicer covenants and agrees
that it shall not knowingly or intentionally take any action or omit to take any
action that would cause the termination of the REMIC status of the REMIC Trust.
(b) The Servicer, as independent contract servicer, shall service and
administer the Contracts and shall have full power and authority, acting alone,
to do any and all things in connection with such servicing and administration
which the Servicer may deem necessary or desirable and consistent with the terms
of this Agreement. In managing, administering, servicing and making collections
on the Contracts pursuant to this Agreement, the Servicer will exercise that
degree of skill and care consistent with the highest degree of skill and care
that the Servicer exercises with respect to similar contracts serviced by the
Servicer; provided, however, that such degree of skill and care shall be at
least as favorable as the degree of skill and care generally applied by
servicers of manufactured housing installment sales contracts for institutional
investors. The Servicer shall comply with FHA/VA Regulations in servicing any
FHA/VA Contracts (and will pay any required premiums) so that the related
insurance of the Federal Housing Administration or partial guarantee of the
Veterans Administration remains in full force and effect, except for good faith
disputes relating to FHA/VA Regulations that will not cause the termination or
reduction of such insurance or guarantee.
(c) Consistent with the terms of this Agreement, the Servicer may
waive, modify or vary any term of any Contract or consent to the postponement of
strict compliance with any such term or in any manner grant indulgence to any
Obligor if in the Servicer's determination such waiver, modification,
postponement or indulgence is not materially adverse to the interests of the
Certificateholders [and the Certificate Insurer], provided, however, that unless
(x) the Obligor is in default with respect to the Contract, or such default is,
in the judgment of the Servicer, imminent, and (y) such waiver, modification,
postponement or indulgence would not cause the REMIC Trust to be disqualified or
otherwise cause a tax to be imposed on the REMIC Trust) the Servicer may not
permit any modification with respect to any Contract that would change the
Contract Rate, defer or
14
<PAGE>
forgive the payment of any principal or interest (unless in connection with the
liquidation of the related Contract) or extend the final maturity date on the
Contract. Without limiting the generality of the foregoing, the Servicer shall
continue, and is hereby authorized and empowered to execute and deliver on
behalf of the Trustee and each Certificateholder, all instruments of
satisfaction or cancellation, or of partial or full release, discharge and all
other comparable instruments, with respect to the Contracts and with respect to
the Manufactured Homes. If reasonably required by the Servicer, the Trustee
shall furnish the Servicer with any powers of attorney and other documents
necessary or appropriate to enable the Servicer to carry out its servicing and
administrative duties under this Agreement.
(d) The Servicer shall, during the period it is servicer hereunder,
maintain (i) such books of account and other records as will enable the Trustee
to determine the status of each Contract and (ii) a copy of the Schedule of
Contracts at its principal executive office for inspection by
Certificateholders.
(e) At all times during the period it is servicer hereunder, the
Servicer shall afford the Trustee and its authorized agents reasonable access
during normal business hours to the Servicer's records, which have not
previously been provided to the Trust, relating to the Contracts and will cause
its personnel to assist in any examination of such records by the Trustee or its
authorized agents. The examination referred to in this Section will be conducted
in a manner which does not unreasonably interfere with the Servicer's normal
operations or customer or employee relations. Without otherwise limiting the
scope of the examination the Trustee may make, the Trustee may, using generally
accepted audit procedures, verify the status of each Contract and review records
relating thereto for conformity to Monthly Reports prepared by the Servicer.
Section 3.02. Subservicing. (a) The Servicer may enter into
Subservicing Agreements for any servicing and administration of Contracts with
any institution which is in compliance with the laws of each state necessary to
enable it to perform its obligations under such Subservicing Agreement. Any such
Subservicing Agreement shall be consistent with and not violate the provisions
of this Agreement. The Servicer shall be entitled to terminate any Subservicing
Agreement in accordance with the terms and conditions of such Subservicing
Agreement and either itself directly service the related Contracts or enter into
a Subservicing Agreement with a successor subservicer which qualifies hereunder.
(b) Notwithstanding any Subservicing Agreement, any of the
provisions of this Agreement relating to agreements or arrange-
15
<PAGE>
ments between the Servicer and Subservicer or reference to actions taken through
a Subservicer or otherwise, the Servicer shall remain obligated and primarily
liable for the servicing and administering of the Contracts 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 Contracts. For purposes of this Agreement, the Servicer shall
be deemed to have received payments on Contracts when the Subservicer has
received such payments. The Servicer shall be entitled to enter into any
agreement with a Subservicer for indemnification of the Servicer by such
Subservicer, and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification.
(c) Any Subservicing Agreement that may be entered into and any
transactions or services relating to the Contracts involving a Subservicer shall
be deemed to be between the Subservicer and the Servicer alone, and the Trustee
and Certificateholders shall not be deemed parties thereto and shall have no
claims, rights, obligations, duties or liabilities with respect to the
Subservicer except as set forth in Section 3.02(d). The Servicer shall be solely
liable for all fees owed by it to any Subservicer irrespective of whether the
Servicer's compensation pursuant to this Agreement is sufficient to pay such
fees.
(d) In the event the Servicer shall for any reason no longer be the
Servicer (including by reason of an Event of Default), the Trustee or its
designee [approved by the Certificate Insurer] shall thereupon assume all of the
rights and obligations of the Servicer under each Subservicing Agreement that
the Servicer may have entered into, unless the Trustee or such designee elects
to terminate any Subservicing Agreement. If the Trustee does not terminate a
Subservicing Agreement, the Trustee, its designee or the successor servicer for
the Trustee shall be deemed to have assumed all of the Servicer's interest
therein and to have replaced the Servicer as a party to each Subservicing
Agreement to the same extent as if the Subservicing Agreements had been assigned
to the assuming party, except that the Servicer shall not thereby be relieved of
any liability or obligations under the Subservicing Agreements with regard to
events that occurred prior to the date the Servicer ceased to be the Servicer
hereunder. The Servicer at its expense and without right of reimbursement
therefor, shall, upon request of the Trustee [or the Certificate Insurer],
deliver to the assuming party all documents and records relating to each
Subservicing Agreement and the Contracts then being serviced and an accounting
of amounts collected and held by it
16
<PAGE>
and otherwise use its best efforts to effect the orderly and efficient transfer
of the Subservicing Agreements to the assuming party.
Section 3.03. Collection Account. (a) On or before the Closing Date,
the Servicer shall establish and thereafter maintain a separate trust account
(the "Collection Account") titled "_______________, as Trustee, in trust for the
registered holders of UCFC Manufactured Housing Contract Pass-Through
Certificates, Series 1996-_." The Collection Account shall be an Eligible
Account. The Servicer shall on the Closing Date deposit into the Collection
Account any amounts representing payments on and any collections in respect of
the Contracts received [on or] after the Cut-off Date and prior to the Closing
Date (other than amounts due and payable [on or] before the Cutoff Date), and
thereafter shall use its best efforts to deposit within one Business Day, and
shall in any event deposit within two Business Days following receipt thereof
the following payments and collections received or made by it (without
duplication) with respect to the Contracts:
(i) all payments received [on or] after the Cut-off
Date on account of principal of the Contracts (other than amounts due
and payable [on or] prior to the Cut-off Date) and all Principal
Prepayments and Curtailments collected after the Cut-off Date;
(ii) all payments received [on or] after the
Cut-off Date on account of interest on the Contracts (other than
amounts due and payable [on or] prior to the Cut-off Date);
(iii) all Net Liquidation Proceeds net of Foreclosure
Profits;
(iv) all Insurance Proceeds;
(v) all Released Mortgaged Property Proceeds;
(vi) any amounts payable in connection with the purchase
or repurchase of any Contract and the amount of any Substitution
Adjustment Amount pursuant to Part I or Part III of Exhibit D hereto;
and
(vii) any amount required to be deposited in the
Collection Account pursuant to Sections 2.04, 3.07, 5.04 or
10.01;
provided, however, that (x) with respect to each Due Period, the Servicer shall
be permitted to retain from payments in respect of interest on the Contracts,
the Servicing Fee for such Due Period and (y) the Servicer shall be permitted to
retain late
17
<PAGE>
collections, including Liquidation Proceeds, Released Mortgaged Property
Proceeds and Insurance Proceeds, to the extent of any unpaid Servicing Fees,
unreimbursed Monthly Advance and/or Servicing Advance with respect to the
related Contract. The foregoing requirements respecting deposits to the
Collection Account are exclusive, it being understood that, without limiting the
generality of the foregoing, the Servicer need not deposit in the Collection
Account amounts representing Foreclosure Profits, fees (including annual fees),
late charges or penalties payable by Obligors, or amounts received by the
Servicer for the accounts of Obligors for application towards the payment of
taxes, insurance premiums, assessments and similar items.
The Servicer shall cause the institution maintaining the Collection
Account to invest any funds in each Collection account in Eligible Investments
(including obligations of the Trustee, if such obligations otherwise qualify as
Eligible Investments).
(b) At any time prior to the occurrence of an Event of Default
and in lieu of the requirement of depositing collections on the Contracts into
the Collection Account, the Servicer may deliver to the Trustee a Servicer LOC.
A Servicer LOC must be irrevocable and (i) issued by a commercial bank rated __
or better by S&P and __ or better by Moody's and acceptable to [the Certificate
Insurer,] the Depositor and the Trustee, (ii) be in form and substance
satisfactory to the [Certificate Insurer,] the Depositor and the Trustee, (iii)
may have a maximum term of not more than one year, (iv) must name the Trustee as
beneficiary, (v) must be in an amount acceptable to the [Certificate Insurer,]
the Depositor and the Rating Agencies, and (vi) must provide for drawings
thereunder conditioned only upon presentation of a sight draft accompanied by
the applicable certificate in the form attached thereto.
The Trustee shall accept any such Servicer LOC only if such
Servicer LOC is accompanied by (i) the written consent of the Depositor [and of
the Certificate Insurer], (ii) an opinion of counsel satisfactory to [the
Certificate Insurer and] the Depositor to the effect that (x) such Servicer LOC
has been duly authorized, executed and delivered by the issuer thereof and
constitutes a valid and binding obligation of such issuer, subject only to laws
affecting creditors' rights generally and (y) in the event that the Person
obligated to reimburse the issuer thereof for drawings under such Servicer LOC
should be subject to any proceedings under the U.S. Bankruptcy Code, drawings
under such Servicer LOC would not be recoverable by the estate of such Person,
from the Trustee or any Holder of an Offered Certificate as a "preference" and
(iii) an opinion of counsel experienced in federal income tax matters acceptable
to
18
<PAGE>
[the Certificate Insurer and] the Depositor to the effect that such delivery
does not constitute a prohibited transaction for the REMIC Trust or a
contribution to the REMIC Trust resulting in the imposition of the tax described
in Section 860G(d) of the Code or jeopardize the status of the REMIC Trust as a
REMIC.
Upon receipt of such Servicer LOC, such consents and such
opinions by the Trustee, and for so long as such Servicer LOC (or any qualifying
replacement thereof) is in effect, the Servicer shall not be required to deposit
collections on the Contracts to the Collection Account, but may co-mingle such
collections with the Servicer's general funds. Amounts are to be deposited with
the Trustee on the Business Day preceding each Remittance Date. Notice of the
delivery of any Servicer LOC shall be given to the Rating Agencies by the
Depositor.
If, as of any date that is ________________ days prior to the
stated expiration date of any Servicer LOC, (i) a Servicer LOC (which may be a
renewal or extension of the expiring Servicer LOC) in the same amount as the
amount then available for drawing under the expiring Servicer LOC has not been
delivered to the Trustee or (ii) the Servicer has not deposited all collections
on the Contracts then held by the Servicer to the Collection Account and
notified the Trustee that the Servicer will thenceforth deposit all future
collections on the Contracts to the Collection Account, then the Trustee shall,
on the next Business Day, cause to be presented to the issuer of the expiring
Servicer LOC a draft in proper form for payment thereunder and otherwise in
conformity with the terms thereof for the full amount then available to be drawn
thereunder.
Upon discovery by any of the Depositor[, the Certificate
Insurer] or the Trustee that the bank issuing a Servicer LOC has a rating by S&P
of lower than __ or by Moody's of lower than __, the party discovering such
rating hereby covenants and warrants that it shall promptly give notice to the
others. If, within 20 days of such discovery (i) the Trustee has not received a
substitute Servicer LOC meeting the requirements of this Agreement in
replacement of such Servicer LOC, or (ii) the Servicer has not theretofore
deposited all collections on the Contracts then held by the Servicer to the
Collection Account and notified the Trustee that the Servicer will thenceforth
deposit all future collections on the Contracts to the Collection Account, then
the Trustee shall cause to be presented to the issuer of such Servicer LOC a
drawing certificate in proper form for payment thereunder and otherwise in
conformity with the terms thereof, and shall draw the full amount available to
be drawn under such Servicer LOC.
19
<PAGE>
In the event that, upon the occurrence of any event described
in clauses (a)(iii) or (a)(iv) of Section 8.01 hereof, the Servicer is unable to
remit to the Trustee any collections on the Contracts, the Trustee shall
immediately draw on the Servicer LOC the full amount available to be drawn
thereunder. Upon the occurrence of any event described in clauses (a)(iii) or
(a)(iv) of Section 8.01 hereof, the Servicer shall immediately deposit all
collections on the Contracts then held by the Servicer to the Collection Account
and shall thenceforth deposit all future collections on the Contracts to the
Collection Account.
The proceeds of any drawing on the Servicer LOC shall be held
by the Trustee in trust for the benefit of the Certificateholders in a
segregated trust account, and shall be used to fund any shortfall in the amounts
required to be remitted by the Servicer to the Trustee. Any amounts not so used
by the Trustee shall be turned over to the Servicer only upon the written
consent of [the Certificate Insurer and of] the Depositor, which consent shall
not unreasonably be withheld.
During any period for which a Servicer LOC is in effect, the
phrase "amounts then on deposit in the Collection Account," or words of similar
import, as used in this Agreement, shall mean collections on the Contracts held
by the Servicer as part of its general funds.
[(c) Notwithstanding anything in this Agreement to the contrary, for so
long as, and only so long as, UCLC shall remain the Servicer hereunder and UCLC
remains a direct or indirect subsidiary of the Parent, (i) if the Parent shall
have and maintain a short-term debt rating of at least P-1 by Moody's (notice of
the failure to maintain such rating shall be given to the Trustee by the
Servicer within ten (10) days of the occurrence thereof) and (ii) the Trustee
shall have received an Opinion of Counsel that any action taken pursuant to this
sentence shall not adversely affect the status of the REMIC Trust as a REMIC or
result in the imposition of a tax upon the Trust, the Servicer may make the
deposits that otherwise would be made to the Collection Account directly to the
Certificate Account not later than the Business Day immediately preceding the
Remittance Date following the last day of the Due Period within which such
payments were processed by the Servicer, in an amount equal to the net amount of
such deposits and payments which would have been made to the Certificate Account
during such Due Period but for the provisions of this subsection.]
Section 3.04. Withdrawals from the Collection Account. The Servicer
shall withdraw or cause to be withdrawn funds from the Collection Account for
the following purposes:
20
<PAGE>
(i) on the Business Day prior to each Remittance
Date, to deposit the Amount Available to the Certificate
Account;
(ii) to the extent not retained by the Servicer as
provided in Section 3.03(b), to reimburse the Servicer for any accrued
unpaid Servicing Fees and for unreimbursed Monthly Advances and
Servicing Advances. The Servicer's right to reimbursement for unpaid
Servicing Fees and unreimbursed Servicing Advances shall be limited to
late collections on the related Contract, including Liquidation
Proceeds, Released Mortgaged Property Proceeds, Insurance Proceeds and
such other amounts as may be collected by the Servicer from the related
Obligor or otherwise relating to the Contract in respect of which such
reimbursed amounts are owed. If a Monthly Advance was made net of the
Servicing Fee as permitted by Section 3.14 hereof, no additional
Servicing Fee for the related Contract and Due Period shall be payable.
The Servicer's right to reimbursement from the Collection Account for
unreimbursed Monthly Advances shall be limited to late collections of
interest on any Contract and to Liquidation Proceeds and Insurance
Proceeds on related Contracts;
(iii) to withdraw any amount received from an Obligor
that is recoverable and sought to be recovered as a voidable preference
by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code in accordance with a final, nonappealable order of a court having
competent jurisdiction;
(iv) to make investments in Eligible Investments and
to pay to the Servicer interest earned in respect of
Eligible Investments or on funds deposited in the
Collection Account;
(v) to withdraw any funds deposited in the Collection
Account that were not required to be deposited therein or were
deposited therein in error and to pay such funds to the appropriate
Person;
(vi) to pay the Servicer Servicing Compensation
pursuant to Section 3.10 hereof to the extent not retained
or paid pursuant to Section 3.03(b);
(vii) to withdraw funds necessary for the conserva-
tion and disposition of REO Property pursuant to Section
3.08;
21
<PAGE>
(viii) to reimburse the Servicer or the Depositor for
costs incurred by, and reimbursable to, such Person as
provided in Section 7.03; and
(ix) to clear and terminate the Collection Account
upon the termination of this Agreement.
Section 3.05. Enforcement. (a) The Servicer shall, consistent with
customary servicing procedures and the terms of this Agreement, act with respect
to the Contracts in such manner as will maximize the receipt of principal and
interest on such Contracts and Liquidation Proceeds with respect to Liquidated
Contracts.
(b) The Servicer may sue to enforce or collect upon Contracts, in its
own name, if possible, or as agent for the Trust. If the Servicer elects to
commence a legal proceeding to enforce a Contract, the act of commencement shall
be deemed to be an automatic assignment of the Contract to the Servicer for
purposes of collection only. If, however, in any enforcement suit or legal
proceeding it is held that the Servicer may not enforce a Contract on the ground
that it is not a real party in interest or a holder entitled to enforce the
Contract, the Trustee on behalf of the Trust shall, at the Servicer's expense,
take such steps as the Servicer deems necessary to enforce the Contract,
including bringing suit in its name or the names of the Certificateholders.
(c) The Servicer shall exercise any rights of recourse against third
persons that exist with respect to any Contract in accordance with the
Servicer's usual practice. In exercising recourse rights, the Servicer is
authorized on the Trustee's behalf to reassign the Contract or to resell the
related Manufactured Home to the person against whom recourse exists at the
price set forth in the document creating the recourse.
(d) Prior to an Event of Default, the Servicer may, consistent with its
customary servicing procedures and consistent with Section 3.01, grant to the
Obligor on any Contract (i) an extension of payments due under such Contract,
provided that Obligors may not be solicited for extensions [and no more than one
extension of payments under a Contract may be granted in any twelve-month
period] and (ii) any rebate, refund or adjustment out of the Collection Account
that the Servicer in good faith believes is required because of prepayment in
full of the Contract. The Servicer will not permit any rescission or
cancellation of any Contract except to the extent, if any, required by law.
(e) The Servicer may enforce any due-on-sale clause in a
Contract if such enforcement is called for under its then-
22
<PAGE>
current servicing policies for obligations similar to the Contracts, provided
that such enforcement is permitted by applicable law and will not adversely
affect any applicable insurance policy. If an assumption of a Contract is
permitted by the Servicer upon conveyance of the related Manufactured Home, the
Servicer shall use its best efforts to obtain an assumption agreement in
connection therewith and add such assumption agreement to the related Contract
File.
Section 3.06. Trustee to Cooperate. (a) Upon payment in full of any
Contract, the Servicer will notify the Trustee on the next succeeding Remittance
Date by certification of a Servicing Officer (which certification shall include
a statement to the effect that all amounts received in connection with such
payment which are required to be deposited in the Collection Account pursuant to
Section 3.03 have been so deposited). The Servicer is authorized to execute an
instrument in satisfaction of such Contract and to do such other acts and
execute such other documents as the Servicer deems necessary to discharge the
Obligor thereunder and eliminate the lien on the related real estate. The
Servicer shall determine when a Contract has been paid in full. To the extent
that insufficient payments are received on a Contract credited by the Servicer
as prepaid or paid in full and satisfied, the shortfall shall be paid by the
Servicer out of its own funds.
(b) From time to time as appropriate for servicing and foreclosure in
connection with any Land-and-Home Contract, the Trustee shall, upon written
request of a Servicing Officer and delivery to the Trustee of a receipt signed
by such Servicing Officer, cause the original Land-and-Home Contract and the
related Contract File to be released to the Servicer and shall execute such
documents as the Servicer shall deem necessary to the prosecution of any such
proceedings. The Trustee shall stamp the face of each such Land-and-Home
Contract to be released to the Servicer with a notation that the Land-and-Home
Contract has been assigned to the Trustee. Upon request of a Servicing Officer,
the Trustee shall perform such other acts as reasonably requested by the
Servicer and otherwise cooperate with the Servicer in enforcement of the
Certificateholders' rights and remedies with respect to Contracts.
(c) The Servicer's receipt of a Land-and-Home Contract and/or Contract
File shall obligate the Servicer to return the original Land-and-Home Contract
and the related Land-and-Home Contract File to the Trustee when its need by the
Servicer has ceased unless the Contract shall be liquidated or repurchased or
replaced as described in Section 2.04.
Section 3.07. Maintenance of Insurance. (a) Except as
otherwise provided in subsection (b) of this Section 3.07, the
23
<PAGE>
Servicer shall cause to be maintained with respect to each Contract one or more
Hazard Insurance Policies which provide, at a minimum, the same coverage as a
standard form fire and extended coverage insurance policy that is customary for
manufactured housing, issued by a company authorized to issue such policies in
the state in which the related Manufactured Home is located and in an amount
which is not less than the maximum insurable value of such Manufactured Home or
the principal balance due from the Obligor on the related Contract, whichever is
less[; provided, however, that the amount of coverage provided by each Hazard
Insurance Policy shall be sufficient to avoid the application of any
co-insurance clause contained therein; and] provided, further, that such Hazard
Insurance Policies may provide for customary deductible amounts. When a
Manufactured Home's location was, at the time of origination of the related
Contract, within a federally designated special flood hazard area, the Servicer
shall also cause such flood insurance to be maintained, which coverage shall be
at least equal to the minimum amount specified in the preceding sentence or such
lesser amount as may be available under the federal flood insurance program.
Each Hazard Insurance Policy caused to be maintained by the Servicer shall
contain a standard loss payee clause in favor of the Servicer and its successors
and assigns. If any Obligor is in default in the payment of premiums on its
Hazard Insurance Policy or Policies, the Servicer shall pay such premiums out of
its own funds and may separately add such premium to the Obligor's obligation as
provided by the Contract, but shall not add such premium to the remaining
principal balance of the Contract.
(b) The Servicer may, in lieu of causing individual Hazard Insurance
Policies to be maintained with respect to each Manufactured Home pursuant to
subsection (a) of this Section 3.07, and shall, to the extent that the related
Contract does not require the Obligor to maintain a Hazard Insurance Policy with
respect to the related Manufactured Home, maintain one or more blanket insurance
policies covering losses on the Obligor's interest in the Contracts resulting
from the absence or insufficiency of individual Hazard Insurance Policies. Any
such blanket policy shall be substantially in the form and in the amount carried
by the Servicer as of the date of this Agreement. The Servicer shall pay the
premium for such policy on the basis described therein and shall deposit into
the Collection Account from its own funds any deductible amount with respect to
claims under such blanket insurance policy relating to the Contracts. The
Servicer shall not, however, be required to deposit any deductible amount with
respect to claims under individual Hazard Insurance Policies maintained pursuant
to subsection (a) of this Section.
24
<PAGE>
(c) With respect to each Manufactured Home that has been repossessed in
connection with a defaulted Contract, the Servicer shall either (i) maintain one
or more Hazard Insurance Policies thereon or (ii) self-insure such Manufactured
Homes and deposit into the Collection Account from its own funds any losses
caused by damage to such Manufactured Home that would have been covered by a
Hazard Insurance Policy.
(d) The Servicer shall keep in force throughout the term of this
Agreement (i) a policy or policies of insurance covering errors and omissions
for failure to maintain insurance as required by this Agreement and (ii) a
fidelity bond. Such policy or policies and such fidelity bond shall be in such
form and amount as is generally customary among Persons which service a
portfolio of manufactured housing installment sales contracts and installment
loan agreements having an aggregate principal amount of [$100,000,000] or more
and which are generally regarded as servicers acceptable to institutional
investors.
Section 3.08. Repossession. (a) Notwithstanding the standard of care
specified in Section 3.01, the Servicer shall commence procedures for the
repossession of any Manufactured Home or the foreclosure upon any Mortgaged
Property or take such other steps that in the Servicer's reasonable judgment
will maximize the receipt of principal and interest or Net Liquidation Proceeds
with respect to the Contract secured by such Manufactured Home or Mortgaged
Property, (which may include retitling or filing a recorded assignment of the
Mortgage) subject to the requirements of the applicable state and federal law,
no later than five Business Days after the time when such Contract becomes a
Defaulted Contract; provided that if the Servicer has actual knowledge that a
Mortgaged Property is affected by hazardous waste, then the Servicer shall not
cause the Trust to acquire title to such Mortgaged Property in a foreclosure or
similar proceeding. For purposes of the proviso in the preceding sentence, the
Servicer shall not be deemed to have actual knowledge that a Mortgage Property
is affected by hazardous waste unless it shall have received written notice that
hazardous waste is present on such property and such written notice has been
made a part of the Land-and-Home Contract File with respect to the related
Contract. 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 consistent with Section 3.01.
(b) In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Trustee, as Trustee, or, at its election, to its nominee
on behalf of the Trustee, as Trustee. In the event that any Manufactured Home is
25
<PAGE>
acquired in a repossession, foreclosure or other realization procedure (an "REO
Property"), the Servicer shall sell such REO Property within two years of its
acquisition by the Trust, unless, at the request of the Servicer, the Trustee
seeks, and subsequently receives, an Opinion of Counsel, addressed to the
Trustee and the Servicer, to the effect that the holding by the Trust of such
REO Property subsequent to two years after its acquisition will not result in
the imposition of taxes on "prohibited transactions" of the REMIC Trust as
defined in Section 860F of the Code or cause the REMIC Trust to fail to qualify
as a REMIC at any time that any Certificates are outstanding. The Servicer shall
manage, conserve, protect and operate each REO Property such that it will
qualify as a "foreclosure property" within the meaning of Section 860G(a)(8) and
will not result in the receipt by the REMIC Trust of any "income from
nonpermitted assets" within the meaning of Section 860F(a)(2)(B) or the Code.
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 it is customary in the
locality where such REO Property is located and may, incident to its
conservation and protection of the interest of the Certificateholders, rent the
same, or any part thereof, as the Servicer deems to be in the best interest of
the Servicer and the Certificateholders for the period prior to the sale of such
REO Property.
The Servicer shall deposit all Liquidation Proceeds (net of Liquidation
Expenses) in the Collection Account in accordance with Section 3.03. The
Servicer shall include with its Monthly Report to the Trustee a separate report
specifying, with respect to each Contract that becomes a Liquidated Contract
during the prior Due Period, the unpaid principal balance and the Liquidation
Proceeds (net of Liquidation Expenses) for such Contract.
Section 3.09. Retitling; Security Interests. (a) If, at any time, an
Event of Default has occurred and UCLC is no longer the Servicer and the new
Servicer is unable to foreclose upon a Manufactured Home because the title
document for such Manufactured Home does not show such Servicer or the Trustee
as the holder of the first priority security interest in the Manufactured Home,
such Servicer shall take all necessary steps to apply for a replacement title
document showing it or the Trustee as the secured party.
(b) In order to facilitate the Servicer's actions, as described in
subsection (a) of this section, the Depositor will cause the Originator to
provide the Servicer with any necessary power of attorney permitting it to
retitle the Manufactured Home. If the Servicer is still unable to retitle the
26
<PAGE>
Manufactured Home, the Depositor will cause the Originator to take all actions
necessary to act with the Servicer to foreclose upon the Manufactured Home,
including, as appropriate, the filing of any UCC-1 or UCC-2 financing statements
necessary to perfect the security interest in any Manufactured Home that
constitutes a fixture under the laws of the jurisdiction in which it is located
and all actions necessary to perfect the security interest in any Manufactured
Home that is considered or classified as part of the real estate on which it is
located under the laws of the jurisdiction in which it is located.
(c) [If the aggregate Cut-off Date Principal Balances of all
Land-and-Home Contracts is less than 10% of the Cut-off Date Pool Principal
Balance, then on the Closing Date the Depositor shall cause the Originator to
deliver to the Trustee executed assignments to the Trustee on behalf of the
Trust in recordable form of each Mortgage securing a Land-and-Home Contract.
If the aggregate Cut-off Date Principal Balances of all Land-and-Home
Contracts equals or exceeds 10% of the Cut-off Date Pool Principal Balance, the
Depositor shall cause the Originator to (i) file promptly in the appropriate
recording offices the assignments to the Trustee on behalf of the Trust of the
number of Mortgages securing Land-and-Home Contracts needed to reduce the
aggregate Cut-off Date Principal Balances of all Land-and-Home Contracts with
respect to which such assignments are not so recorded to less than 10% of the
Cut-off Date Pool Principal Balance or (ii) deliver an Opinion of Counsel
satisfactory to the Trustee to the effect that the Trustee holds a perfected
first priority lien in the real estate securing the Land-and-Home Contracts.
If at any time during the term of this Agreement the Parent does not
have a long-term senior debt rating from Moody's of Baa3 or higher, or any other
Rating Agency then rating the Certificates, the Trustee, at the Depositor's
expense, shall file promptly in the appropriate recording offices the
assignments to the Trustee on behalf of the Trust of each Mortgage securing a
Land-and-Home Contract.]
Section 3.10. Servicing Compensation. (a) The Servicer shall be
entitled to retain the Servicing Fee in accordance with Section 3.03 as
compensation for its services in connection with servicing the Contracts.
Moreover, additional servicing compensation in the form of late payment charges
or other receipts not required to be deposited in the Collection Account,
including, without limitation, Foreclosure Profits, shall be retained by the
Servicer.
(b) All costs and expenses incurred by the Servicer in
carrying out its duties hereunder, including all fees and
27
<PAGE>
expenses incurred in connection with the enforcement of Contracts (including
enforcement of defaulted Contracts and repossessions of Manufactured Homes
securing such Contracts) shall be paid by the Servicer and the Servicer shall
not be entitled to reimbursement hereunder, except that the Servicer shall be
reimbursed out of the Liquidation Proceeds of a Liquidated Contract for
Liquidation Expenses incurred by it. The Servicer shall not incur such
Liquidation Expenses unless it determines in its good faith business judgment
that incurring such expenses will increase the Net Liquidation Proceeds on the
related Contract.
Section 3.11. Annual Statement as to Compliance. The Servicer will
deliver to the Depositor, the Trustee[, the Certificate Insurer] and the Rating
Agencies, on or before the last day in April in each year, beginning in April
1997, an Officer's Certificate stating that (i) a review of the activities of
the Servicer during the preceding fiscal year (or such shorter period as is
applicable in the case of the first report) and of its performance under this
Agreement has been made under such officer's supervision and (ii) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its material obligations under this Agreement throughout such fiscal year, or,
if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof.
Section 3.12. Annual Servicing Report. On or before the last day in
April in each year, beginning in April 1997, the Servicer, at its expense, shall
cause a firm of independent public accountants [reasonably acceptable to the
Certificate Insurer] to furnish a letter or letters to the Depositor, [the
Certificate Insurer,] the Trustee, Standard & Poor's and Moody's to the effect
that such firm has examined certain documents and records relating to the
servicing of manufactured housing conditional sales contracts under pooling and
servicing agreements substantially similar one to another (such statement to
have attached thereto a schedule setting forth the pooling and servicing
agreements covered thereby, including this Agreement) and that, on the basis of
such examination, conducted substantially in compliance with generally accepted
auditing standards, such servicing has been conducted in compliance with such
pooling and servicing agreements, except for such significant exceptions or
errors in records that, in the opinion of such firm, generally accepted auditing
standards requires it to report.
Section 3.13. Reports of Foreclosures and Abandonments of
Mortgaged Property, Returns Relating to Mortgage Interest
Received from Individuals and Returns Relating to Cancellation
of Indebtedness. The Servicer shall make reports to the Trustee
28
<PAGE>
of foreclosures and abandonments of any Mortgaged Property for each year
beginning with 1996. The Servicer shall file reports relating to each instance
occurring during the previous calendar year in which the Servicer (i) on behalf
of the Trustee acquires an interest in any Mortgaged Property through
foreclosure or any Manufactured Home through repossession or other comparable
conversion in full or partial satisfaction of a Contract, or (ii) knows or has
reason to know that any Mortgaged Property or Manufactured Home has been
abandoned. The reports from the Servicer shall be in form and substance
sufficient to meet the reporting requirements imposed by Sections 6050J, 6050H
and 6050P of the Code.
Section 3.14. Advances by the Servicer. (a) Not later than the close of
business on each Deposit Date, the Servicer shall remit to the Trustee for
deposit in the Certificate Account an amount to be distributed on the related
Remittance Date pursuant to Section 5.02, equal to the interest accrued on each
Contract at the Contract Rate (or at such lower rate as may be in effect for
such Contract pursuant to application of the Civil Relief Act and/or any Debt
Service Reduction) through the related Due Date, but not received as of the
close of business on the Determination Date for such Remittance Date (net of the
Servicing Fee) (the "Monthly Advance"). The Servicer may fund all or a portion
of the Monthly Advance from the Amount Available for Future Distribution;
provided that if such funds are so used the Servicer shall replace such funds on
or before any subsequent Determination Date on which such funds are required to
be part of the Amount Available.
(b) Notwithstanding anything herein to the contrary, no Servicing
Advance or Monthly Advance shall be required to be made hereunder if the
Servicer determines that such Servicing Advance or Monthly Advance would, if
made, constitute a Nonrecoverable Advance.
(c) With respect to any Contract that did not have a first payment due
on the Due Date in the calendar month [preceding the month] of a Remittance
Date, on or before the Deposit Date in the month of such Remittance Date the
Servicer shall remit to the Trustee for deposit in the Certificate Account an
amount equal to 30 days' interest at the Contract Rate (net of the Servicing
Fee) on the Cut-off Date Principal Balance of such Contract. Such deposit shall
not be recoverable by the Servicer as a Monthly Advance except to the extent
there are related Foreclosure Profits. Proceeds exceed the unpaid principal
balance plus accrued interest thereon at the related Contract Rate.
29
<PAGE>
ARTICLE IV
Perfection of Transfer and Protection of Security Interests
Section 4.01. Custody of Contracts. (a) Subject to the
terms and conditions of this Section the Trustee appoints the
Servicer to maintain custody of the Contract Files for the
Chattel Contracts for the benefit of the Certificateholders and
the Trustee. The Trustee shall maintain custody of the Contract
Files for the Land-and-Home Contracts.
(b) The Servicer agrees to maintain the related Contract Files at its
office where they are currently maintained, or at such other offices of the
Servicer in the State of Louisiana as shall from time to time be identified to
the Trustee by written notice. The Servicer may temporarily move individual
Contract Files or any portion thereof without notice as necessary to conduct
collection and other servicing activities in accordance with its customary
practices and procedures.
(c) As custodian, the Servicer shall have and perform the
following powers and duties:
(i) hold the Contract Files on behalf of the
Certificateholders and the Trustee, maintain accurate records
pertaining to each Contract to enable it to comply with the terms and
conditions of this Agreement, maintain a current inventory thereof,
conduct annual physical inspections of Contract Files held by it under
this Agreement and certify to the Trustee annually that it continues to
maintain possession of such Contract Files;
(ii) implement policies and procedures, in writing and signed
by a Servicing Officer, with respect to persons authorized to have
access to the Contract Files on the Servicer's premises and the
receipting for Contract Files taken from their storage area by an
employee of the Servicer for purposes of servicing or any other
purposes; and
(iii) attend to all details in connection with maintaining
custody of the Contract Files on behalf of the Certificateholders and
the Trustee.
(d) In performing its duties under this Section, the Servicer agrees to
act with reasonable care, using that degree of skill and care that it exercises
with respect to similar contracts owned and/or serviced by it. The Servicer
shall promptly report to the Trustee any failure by it to hold the Contract
Files as herein provided and shall promptly take appropriate action to remedy
any such failure. In acting as
30
<PAGE>
custodian of the Contract Files, the Servicer agrees further not to assert any
beneficial ownership interests in the Contracts or the Contract Files. The
Servicer agrees to indemnify the Certificateholders and the Trustee for any and
all liabilities, obligations, losses, damages, payments, costs or expenses of
any kind whatsoever which may be imposed on, incurred or asserted against the
Certificateholders and the Trustee as the result of any act or omission by the
Servicer relating to the maintenance and custody of the Contract Files;
provided, however, that the Servicer will not be liable for any portion of any
such amount resulting from the negligence or willful misconduct of any
Certificateholder or the Trustee.
Section 4.02. Filings. (a) On or prior to the Closing Date or the
applicable Subsequent Transfer Date, the Depositor shall cause the UCC-1
financing statement referred to in Part I of Exhibit D to be filed. The Servicer
shall cause to be filed all necessary continuation statements of the UCC-1
financing statements. Subject to the next paragraph, from time to time the
Servicer shall take and cause to be taken such actions and execute such
documents as are necessary to perfect and protect the Certificateholders'
interests in the Contracts and their proceeds and the Manufactured Homes against
all other persons, including, without limitation, the filing of financing
statements, amendments thereto and continuation statements, the execution of
transfer instruments and the making of notations on or taking possession of all
records or documents of title. The Depositor's and the Originator's accounting
records and computer systems will be marked to reflect the sale and assignments
of the Contracts by the Originator and the Depositor as contemplated herein.
(b) The Servicer will maintain the Trustee's first perfected priority
security interest in each Manufactured Home and a first lien on each Mortgaged
Property so long as the related Contract is the property of the Trust; provided,
however, that because of the expense and administrative inconvenience involved,
the Servicer will not amend any certificate of title relating to any
Manufactured Home to name the Originator as the lienholder where the Originator
did not originate the related Contract, the Servicer will not amend any
certificate of title to name the Depositor or the Trustee as the lienholder, and
neither the Servicer nor the Depositor will deliver any certificate of title to
the Trustee or note thereon the Trustee's interest.
Section 4.03. Name Change or Relocation. (a) During the
term of this Agreement, the Depositor shall not change its name,
identity or structure or relocate its chief executive office
without first giving notice thereof to the Trustee and the
Servicer. In addition, following any such change in the name,
31
<PAGE>
identity, structure or location of the chief executive office of the Depositor,
the Depositor shall given written notice of any such change to the Rating
Agencies.
(b) If any change in the Depositor's name, identity or structure or the
relocation of its chief executive office would make any financing or
continuation statement or notice of lien filed under this Agreement seriously
misleading within the meaning of applicable provisions of the UCC or any title
statute or would cause any such financing or continuation statement or notice of
lien to become unperfected (whether immediately or with lapse of time), the
Depositor, no later than five days after the effective date of such change,
shall file, or cause to be filed, such amendments or financing statements as may
be required to preserve, perfect and protect the Certificateholders' interests
in the Contracts and proceeds thereof and in the Manufactured Homes.
Section 4.04. Chief Executive Office. During the term of
this Agreement, the Depositor will maintain its chief executive
office in one of the States of the United States.
Section 4.05. Costs and Expenses. The Servicer agrees to pay all
reasonable costs and disbursements in connection with the perfection and the
maintenance of perfection, as against all third parties, of the
Certificateholders' right, title and interest in and to the Contracts
(including, without limitation, the security interests in the Manufactured Homes
granted thereby).
32
<PAGE>
ARTICLE V
Certain Accounts, Payments [and Certificate Insurance Policy]
Section 5.01. Establishment of Accounts; Permitted Withdrawals. (a) No
later than the Closing Date, the Trustee will establish and thereafter maintain
with itself for the benefit of the Certificateholders [and the Certificate
Insurer] (i) a segregated trust account (the "Pre-Funding Account"), (ii) a
segregated trust account (the "Capitalized Interest Account"), and (iii) a
segregated trust account (the "Certificate Account"), each of which shall be an
Eligible Account.
(b) On the Closing Date, the Depositor shall remit to the
Trustee from the proceeds of the sale of the Offered Certificates, and the
Trustee shall deposit the Original PreFunded Amount in the Pre-Funding Account
and the Original Capitalized Interest Deposit in the Capitalized Interest
Account. On each Pre-Funding Remittance Date, the Trustee shall withdraw from
the Pre-Funding Account any Pre-Funding Earnings on the amounts on deposit
therein and deposit such Pre-Funding Earnings in the Capitalized Interest
Account. On each Subsequent Transfer Date, the Trustee shall withdraw from the
Pre-Funding Account an amount equal to 100% of the Cut-off Date Principal
Balance of each Subsequent Contract to be assigned to the Trust on such
Subsequent Transfer Date and pay such amount to or upon the order of the
Depositor. On the final Pre-Funding Remittance Date, if any amounts remain in
the Pre-Funding Account after the withdrawals specified above, the Trustee shall
withdraw such amounts and deposit them in the Certificate Account and the
Pre-Funding Account shall be closed.
(c) On each Pre-Funding Remittance Date, the Trustee shall
transfer from the Capitalized Interest Account to the Certificate Account, the
Capitalized Interest Requirement for the related Class or Classes of
Certificates for such PreFunding Remittance Date. In addition, the Trustee shall
withdraw any Overfunded Amount from the Capitalized Interest Account and pay
such amount to the Holders of the Residual Certificates. On the final
Pre-Funding Remittance Date, after giving effect to the transfers, if any,
described in the preceding sentences, any amounts remaining in the Capitalized
Interest Account shall be withdrawn by the Trustee and paid to the Holders of
the Residual Certificates and the Capitalized Interest Account shall be closed.
Notwithstanding the foregoing, if the final Pre-Funding Remittance Date will
occur in the month following the month of the final Subsequent Transfer Date
(because such final Subsequent Transfer Date occurs after the Remittance Date in
a month), on such final
33
<PAGE>
Subsequent Transfer Date, all amounts on deposit in the Capitalized Interest
Account, other than the Capitalized Interest Requirement for such final
Pre-Funding Remittance Date, shall be withdrawn by the Trustee and paid to the
Holders of the Residual Certificates on such final Subsequent Transfer Date.
(d) For federal tax purposes, the Holders of the Residual
Certificates shall be responsible for reporting any investment earnings on the
Pre-Funding Account and the Capitalized Interest Account and for the payment of
any taxes assessed thereon.
Section 5.02. Distributions. (a) On each Remittance
Date, the Trustee shall distribute out of the Certificate
Account to the extent of the related Amount Available [Available
Funds], the following amounts in the following order of
priority:
[TBD]
(b) The Trustee shall make distributions in respect of a Remittance
Date to each Certificateholder of record on the related Record Date (other than
as provided in Section 10.01 respecting the final distribution) by check or
money order mailed to such Certificateholder at the address appearing in the
Certificate Register, or upon written request by a Certificateholder delivered
to the Trustee at least five Business Days prior to such Record Date, by wire
transfer (but only if such Certificateholder owns one or more Offered
Certificates with denominations aggregating at least $1,000,000). Distributions
among Certificateholders shall be made in proportion to the Percentage Interests
evidenced by the Certificates held by such Certificateholders.
Section 5.03. Statements. (a) Not later than 12:00 noon New York time
on the first Business Day following the Determination Date, the Servicer shall
deliver to the Trustee a computer tape or diskette containing the Monthly Report
for the related Due Period and such other information as the Trustee shall
reasonably require.
(b) Concurrently with the distributions on each Remittance Date, the
Trustee shall deliver to [the Certificate Insurer] each Certificateholder and
the Rating Agencies, a statement (the "Trustee's Remittance Report") containing
the information set forth below with respect to such Remittance Date:
[TBD]
In the case of information furnished pursuant to subclauses (___) and
(___) above, the amounts shall be expressed in a
34
<PAGE>
separate section of the report as a dollar amount for each Class for each $1,000
original dollar amount as of the Cut-Off Date.
(b) Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each Person who at any time during the
calendar year was a Certificateholder, such information as is reasonably
necessary to provide to such Person a statement containing the information set
forth in subclauses (___) or (___) as applicable, and (___) above, aggregated
for such calendar year or applicable portion thereof during which such Person
was a Certificateholder. Such obligation of the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
prepared and furnished by the Trustee to Certificateholders pursuant to any
requirements of the Code as are in force from time to time.
Section 5.04. Investment of Accounts. (a) All or a
portion of any Account held by the Trustee shall be invested and
reinvested by the Trustee, as directed in writing by the Servicer, in one or
more Eligible Investments bearing interest or sold at a discount. If an Event of
Default shall have occurred and be continuing or if the Servicer does not
provide investment directions, the Trustee shall invest all Accounts in Eligible
Investments described in paragraph (___) of the definition of Eligible
Investments. No such investment in any Account shall mature later than the
Business Day immediately preceding the next Remittance Date (except that if such
Eligible Investment is an obligation of the Trustee, then such Eligible
Investment shall mature not later than such Remittance Date).
(b) If any amounts are needed for disbursement from any Account held by
the Trustee and sufficient uninvested funds are not available to make such
disbursement, the Trustee shall cause to be sold or otherwise converted to cash
a sufficient amount of the investments in such Account. The Trustee shall not be
liable for any investment loss or other charge resulting therefrom unless the
Trustee's failure to perform in accordance with this Section 5.04 is the cause
of such loss or charge.
(c) The Trustee shall not in any way be held liable by reason of any
insufficiency in any Account held by the Trustee resulting from any investment
loss on any Eligible Investment included therein (except to the extent that the
Trustee is the obligor and has defaulted thereon or as provided in subsection
(b) of this Section 5.04).
(d) All net income and gain realized from investment of, and all
earnings on, funds deposited in the Collection Account and the Certificate
Account shall be for the benefit of the Servicer as servicing compensation (in
addition to the Servicing
35
<PAGE>
Fee), and shall be subject to withdrawal by the Servicer or by the Trustee at
the direction of the Servicer. The Servicer shall deposit in the Collection
Account or Certificate Account, as the case may be, the amount of any loss
incurred in respect of any Eligible Investment held therein which is in excess
of the income and gain thereon immediately upon realization of such loss,
without any right to reimbursement therefor.
[Section 5.05. Certificate Insurance Policy. (a) As soon as possible,
and in no event later than 11:00 a.m. New York time on the second Business Day
immediately preceding the Remittance Date, the Trustee shall furnish the
Certificate Insurer and the Servicer with a completed notice in the form set
forth as Exhibit A to the Certificate Insurance Policy (the "Notice for
Payment") in the event that the Amount Available (excluding Insured Payments),
is insufficient to pay the Guaranteed Interest Payment Amount and the Guaranteed
Principal Payment Amount. The Notice for Payment shall specify the amount of
Insured Payment and shall constitute a claim for an Insured Payment pursuant to
the Certificate Insurance Policy. Upon receipt of Insured Payments on behalf of
the Holders of the affected Class of Insured Certificates under the Certificate
Insurance Policy, the Trustee shall deposit such Insured Payments in the
Certificate Account and shall distribute such Insured Payments pursuant to
Section 5.02.
(b) The Trustee shall receive, as attorney-in-fact of each Holder of an
Insured Certificate, any Insured Payment from the Certificate Insurer and
disburse the same to each Holder of the affected Class of Certificates in
accordance with the provisions of Section 5.02.
(c) The Trustee shall keep complete and accurate records of the amount
of Insured Payments and the Certificate Insurer shall have the right to inspect
such records at reasonable times upon one Business Day's prior notice to the
Trustee.
(d) If the payment of a Guaranteed Interest Payment Amount or a
Guaranteed Principal Payment Amount pursuant to the Certificate Insurance Policy
is voided (a "Preference Event") under any applicable bankruptcy, insolvency,
receivership or similar law in an Insolvency Proceeding, and, as a result of
such a Preference Event, the Trustee is required to return such voided payment,
or any portion of such voided payment, made in respect of a Class of Insured
Certificates (an "Avoided Payment"), the Trustee shall furnish to the
Certificate Insurer (x) a certified copy of a final order of a court exercising
jurisdiction in such Insolvency Proceeding to the effect that the Trustee is
required to return any such payment or portion thereof during the term of the
Certificate Insurance Policy because such payment was voided under applicable
law, with
36
<PAGE>
respect to which order the appeal period has expired without an appeal having
been filed (the "Final Order"), (y) an assignment, in form reasonably
satisfactory to the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of the Trustee relating to or arising
under such Avoided Payment and (z) a Notice for Payment appropriately completed
and executed by the Trustee. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Final
Order and not to the Trustee directly. The Trustee is not permitted to make a
claim on the Trust or on any Certificateholder for payments made to
Certificateholders under the Certificate Insurance Policy which are
characterized as preference payments by any bankruptcy court having jurisdiction
over any bankrupt Obligor unless ordered to do so by such bankruptcy court.]
37
<PAGE>
ARTICLE VI
The Certificates
Section 6.01. The Certificates. (a) The Certificates shall be
substantially in the respective forms set forth in Exhibits A-___ through A-___
and shall, on original issue, be executed, authenticated and delivered by the
Trustee to or upon the order of the Depositor concurrently with the sale and
assignment to the Trustee of the Trust.
(b) The Certificates shall be executed by manual or facsimile signature
on behalf of the Trustee by a Responsible Officer. Certificates bearing the
manual or facsimile signatures of individuals who were, at the time when such
signatures were affixed, authorized to sign on behalf of the Trustee shall bind
the Trust, notwithstanding that such individuals or any of them have ceased to
be so authorized prior to the authentication and delivery of such Certificates
or did not hold such offices at the date of such Certificate. No Certificate
shall be entitled to any benefit under this Agreement, or be valid for any
purpose, unless such Certificate shall have been manually authenticated by the
Trustee substantially in the form provided for herein, and such authentication
upon any Certificate shall be conclusive evidence, and the only evidence, that
such Certificate has been duly authenticated and delivered hereunder. All
Certificates shall be dated the date of their authentication.
(c) The Residual Certificates (except for the Tax Matters Person
Residual Interest) shall be issued in fully registered form in minimum
Percentage Interests of 10% and integral multiples of 10% in excess thereof
(except one Certificate of such Class which may be issued in a Percentage
Interest which is not an integral multiple of 10%).
(d) The Offered Certificates shall be issued in fully registered form
in minimum dollar denominations of $25,000 and integral multiples of $1,000 in
excess thereof, except that one Offered Certificate of each Class may be in a
different denomination so that the sum of the denominations of all outstanding
Certificates of such Class shall equal the Original Class Certificate Balance of
such Class. On the Closing Date, the Trustee will execute and authenticate one
or more Book-Entry Certificates in an aggregate principal amount that shall
equal the Original Class Certificate Balance of each Class of Offered
Certificates.
(e) Except as provided in paragraph (f) below, the Book-
Entry Certificates shall at all times remain registered in the
name of the Depository or its nominee and at all times: (i)
registration of such Certificates may not be transferred by the
38
<PAGE>
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 Certificates; (iii) ownership and transfers of
registration of such Certificates on the books of the Depository shall be
governed by applicable rules established by the Depository; (iv) the Depository
may collect its usual and customary fees, charges and expenses from its
Depository Participants; (v) the Trustee shall deal with the Depository as
representative of the Certificate Owners of the Certificates for purposes of
exercising the rights of Holders under this Agreement, and requests and
directions for and votes of such representative shall not be deemed to be
inconsistent if they are made with respect to different Certificate Owners; and
(vi) the Trustee may rely and shall be fully protected in relying upon
information furnished by the Depository with respect to its Depository
Participants and furnished by the Depository Participants with respect to
indirect participating firms and Persons shown on the books of such indirect
participating firms as direct or indirect Certificate Owners.
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
that it represents or of brokerage firms for which it acts as agent in
accordance with the Depository's normal procedures. The parties hereto are
hereby authorized to execute a Letter of Representations with the Depository or
take such other action as may be necessary or desirable to register a Book-Entry
Certificate to the Depository. In the event of any conflict between the terms of
any such Letter of Representation and this Agreement the terms of this Agreement
shall control.
(f) If (i) (x) the Depository or the Depositor advises the Trustee in
writing that the Depository is no longer willing or able to discharge properly
its responsibilities as Depository, and (y) the Trustee or the Depositor is
unable to locate a qualified successor, (ii) the Depositor, at its sole option,
elects to terminate the book-entry system through the Depository or (iii) after
the occurrence of an Event of Default, the Certificate Owners representing
Percentage Interests aggregating not less than 51% of all the Offered
Certificates advise the Trustee and the Depository through the Depository
Participants in writing that the continuation of a book-entry system through the
Depository to the exclusion of definitive fully registered certificates to
Certificate Owners is no longer in the best interests of the Certificate Owners,
then upon surrender to the Certificate Registrar of the Book-Entry Certificates
by the Depository, accompanied by the registration instructions from
39
<PAGE>
the Depository for registration, the Trustee shall at the Depositor's expense
execute and authenticate Definitive Certificates. Neither the Depositor nor the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Certificates, the Trustee, the Certificate
Registrar, the Servicer, any Paying Agent and the Depositor shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder.
Section 6.02. Registration of Transfer and Exchange of Certificates.
(a) The Certificate Registrar shall cause to be kept at the Corporate Trust
Office a register (the "Certificate Register") in which, subject to such
reasonable regulations as it may prescribe, the Certificate Registrar shall
provide for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. The Trustee shall initially serve as
Certificate Registrar for the purpose of registering Certificates and transfers
and exchanges of Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate at any
office or agency of the Certificate Registrar maintained for such purpose
pursuant to the foregoing paragraph, the Trustee on behalf of the Trust shall
execute, authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of the same aggregate Percentage
Interest.
(b) Subject to the restrictions on transfer and exchange set forth in
this Section 6.02, the holder of any Certificate may transfer or exchange the
same in whole or in part (in an initial certificate balance equal to the minimum
authorized denomination or any integral multiple of $1,000 in excess thereof) by
surrendering such Certificate at the Corporate Trust Office, or at the office of
any transfer agent, together with an executed instrument of assignment and
transfer satisfactory in form and substance to the Certificate Registrar in the
case of transfer and a written request for exchange in the case of exchange.
Following a proper request for transfer or exchange, the Certificate Registrar
shall cause the Trustee to authenticate and the Certificate Registrar to deliver
to the transferee (in the case of transfer) or holder (in the case of exchange)
a Certificate or Certificates, as the case may require, for a like aggregate
Percentage Interest and in such authorized denomination or denominations as may
be requested.
(c) No transfer of a Residual Certificate shall be made unless such
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended, and any applicable state securities laws or is made in
accordance with
40
<PAGE>
said Act and laws. In the event of any such transfer, the Trustee shall require
(i) a written Opinion of Counsel (which may be in-house counsel) acceptable to
and in form and substance reasonably satisfactory to the Trustee that such
transfer may be made pursuant to an exemption from said Act, which Opinion of
Counsel shall not be an expense of the Trustee, the Depositor, the Servicer or
the Trust and (ii) the transferee to execute a Transferee Letter certifying to
the Depositor and the Trustee the facts surrounding such transfer, which
Transferee Letter shall not be an expense of the Trustee, the Depositor, the
Servicer or the Trust. The Holder of a Certificate desiring to effect such
transfer shall, and does hereby agree to, indemnify the Trustee and the
Depositor 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.
(d) No transfer of a Residual Certificate shall be made unless the
Trustee shall have received either (i) a representation letter from the
transferee of such Certificate, acceptable to and in form and substance
satisfactory to the Trustee and the Depositor, to the effect that either such
transferee is not an employee benefit plan subject to Section 406 of ERISA, nor
a person acting on behalf of any such plan, or the source of funds used to
purchase such Certificates constitute assets allocated to an "insurance company
general account" (as defined under Section V of the United States Department of
Labor's Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and as of
the date of purchase of such Certificates, satisfies all of the applicable
requirements for relief under Sections I and IV of PTCE 95-60, which
representation letter shall not be an expense of the Trustee, the Depositor, the
Servicer or the Trust, or (ii) in the case of a Residual Certificate presented
for registration in the name of an employee benefit plan subject to ERISA, and
Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan, an Opinion of Counsel satisfactory
to the Trustee and the Servicer to the effect that the purchase or holding of
such Certificate will not result in the assets of the Trust being deemed to be
"plan assets" and subject to the prohibited transaction provisions of ERISA and
the Code and will not subject the Trustee or the Servicer to any obligation in
addition to those undertaken in this Agreement, which Opinion of Counsel shall
not be an expense of the Trustee, the Depositor, the Servicer or the Trust.
Notwithstanding anything else to the contrary herein, in the event any purported
transfer of any Residual Certificate is made without delivery of the
representation letter referred to above, such representation shall be deemed to
have been made by the Transferee by its acceptance of such Certificate. In
addition, any purported transfer of a Residual Certificate to or on behalf of an
employee benefit plan subject to ERISA or to the Code
41
<PAGE>
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.
(e) No sale or other transfer of record or beneficial ownership of a
Residual Certificate (whether pursuant to a purchase, a transfer resulting from
a default under a secured lending agreement or otherwise) shall be made to a
Disqualified Organization. The transfer, sale or other disposition of a Residual
Certificate (whether pursuant to a purchase, a transfer resulting from a default
under a secured lending agreement or otherwise) to a Disqualified Organization
shall be deemed to be of no legal force or effect whatsoever and such transferee
shall not be deemed to be a Holder for any purpose hereunder, including, but not
limited to, the receipt of distributions on such Residual Certificate.
Furthermore, in no event shall the Trustee accept surrender for transfer,
registration of transfer, or register the transfer, of any Residual Certificate
nor countersign and make available any new Residual Certificate unless the
Trustee has received an affidavit from the proposed transferee in the form
attached hereto as Exhibit H. Each Holder of a Residual Certificate, by its
acceptance thereof, shall be deemed for all purposes to have consented to the
provisions of this Section 6.02(e).
The foregoing provisions of this Section 6.02(e) shall cease to apply
to transfers occurring on or after the date on which there shall have been
delivered to the Trustee, in form and substance satisfactory to the Trustee,
(i) written notification from each Rating Agency that the removal of the
restrictions on Transfer set forth in this Section 6.02(e) will not cause such
Rating Agency to downgrade its rating of the Certificates and (ii) an Opinion of
Counsel to the effect that such removal will not cause the REMIC Trust to fail
to qualify as a REMIC.
(f) No service charge shall be made for any registration of transfer or
exchange of Certificates of any Class, but the Certificate Registrar may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer or exchange of Certificates.
All Certificates surrendered for registration of transfer or exchange
shall be canceled by the Certificate Registrar and disposed of pursuant to its
standard procedures.
Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates. If
(i) any mutilated Certificate is surrendered to the Certificate Registrar or
the Certificate Registrar receives evidence to its satisfaction of the
destruction, loss or theft of any Certificate, and (ii) there is delivered to
the Trustee and
42
<PAGE>
the Certificate Registrar such security or indemnity as may be required by them
to save each of them harmless, then, in the absence of notice to the Trustee or
the Certificate Registrar that such Certificate has been acquired by a bona fide
purchaser, the Trustee shall execute, authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like tenor and Percentage Interest. Upon the issuance of any new
Certificate under this Section 6.03, the Trustee or the Certificate Registrar
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee and the Certificate
Registrar) in connection therewith. Any duplicate Certificate issued pursuant to
this Section 6.03, shall constitute complete and indefeasible evidence of
ownership in the Trust, as if originally issued, whether or not the lost, stolen
or destroyed Certificate shall be found at any time.
Section 6.04. Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Servicer, the Depositor, the
Trustee, the Certificate Registrar, any Paying Agent and any agent of the
Servicer, the Depositor, the Trustee, any Paying Agent or the Certificate
Registrar may treat the Person in whose name any Certificate is registered as
the owner of such Certificate for the purpose of receiving distributions
pursuant to Section 5.02 and for all other purposes whatsoever, and none of the
Servicer, the Depositor, the Trustee, the Certificate Registrar nor any agent of
any of them shall be affected by notice to the contrary.
Section 6.05. Appointment of Paying Agent. (a) The Paying Agent shall
make distributions to Certificateholders from the Certificate Account pursuant
to Section 5.02 and shall report the amounts of such distributions to the
Trustee. The duties of the Paying Agent may include the obligation to distribute
statements and provide information to Certificateholders as required hereunder.
The Paying Agent hereunder shall at all times be a corporation duly incorporated
and validly existing under the laws of the United States of America or any state
thereof, authorized under such laws to exercise corporate trust powers and
subject to supervision or examination by federal or state authorities. The
Paying Agent shall initially be the Trustee. The Trustee may appoint a successor
to act as Paying Agent, which appointment shall be reasonably satisfactory to
the Depositor [and the Certificate Insurer].
(b) The Trustee shall cause the Paying Agent (if other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee that such Paying Agent shall hold all
sums, if any, held
43
<PAGE>
by it for payment to the Certificateholders in trust for the benefit of the
Certificateholders entitled thereto until such sums shall be paid to such
Certificateholders and shall agree that it shall comply with all requirements of
the Code regarding the withholding of payments in respect of Federal income
taxes due from Certificate Owners and otherwise comply with the provisions of
this Agreement applicable to it.
44
<PAGE>
ARTICLE VII
The Depositor and the Servicer
Section 7.01. Liability of the Depositor and the Servicer. The
Depositor and the Servicer shall be liable in accordance herewith only to the
extent of the obligations specifically imposed upon and undertaken by the
Depositor or Servicer, as the case may be, herein.
Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Depositor or the Servicer. Any corporation into which the
Depositor or the Servicer may be merged or consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Depositor or
the Servicer shall be a party, or any corporation succeeding to the business of
the Depositor or the Servicer shall be the successor of the Depositor 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.
Section 7.03. Limitation on Liability of the Depositor, the Servicer
and Others. Neither the Depositor, the Servicer nor any of the directors or
officers or employees or agents of the Servicer or the Depositor shall be under
any liability to the Trust or the Certificateholders for any action taken or for
refraining from the taking of any action by the Servicer or the Depositor, in
good faith pursuant to this Agreement, or for errors in judgment; provided,
however, that this provision shall not protect the Depositor, the Servicer or
any such Person against any liability which would otherwise be imposed by reason
of its willful misfeasance, bad faith or negligence in the performance of duties
of the Servicer or the Depositor or by reason of its reckless disregard of its
obligations and duties of the Servicer or the Depositor hereunder. The Servicer,
the Depositor and any director or officer or employee or agent of the Servicer
or the Depositor may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder. The Servicer, the Depositor and any director or officer or employee
or agent of the Servicer or the Depositor shall be indemnified by the Trust and
held harmless against any loss, liability or expense incurred in connection with
any legal action relating to this Agreement or the Certificates, other than any
loss, liability or expense related to any specific Contract (except as any such
loss, liability or expense shall be otherwise reimbursable pursuant to this
Agreement) and any loss, liability or expense incurred by reason of its willful
misfeasance, bad faith or negligence in the performance of duties hereunder or
by reason of its reckless disregard of obligations and duties
45
<PAGE>
hereunder. The Servicer and the Depositor may in its sole discretion undertake
any such action which it may deem necessary or desirable in respect of this
Agreement, and the rights and duties of the parties hereto and the interests of
the Certificateholders hereunder. In such event, the reasonable legal expenses
and costs of such action and any liability resulting therefrom shall be
expenses, costs and liabilities of the Trust and the Servicer or the Depositor,
as the case may be, shall be entitled to be reimbursed therefor pursuant to
Section 3.04(viii). The Servicer's right to indemnity or reimbursement pursuant
to this Section 7.03 shall survive any resignation or termination of the
Servicer pursuant to Section 7.04 or 8.01 with respect to any losses, expenses,
costs or liabilities arising prior to such resignation or termination (or
arising from events that occurred prior to such resignation or termination).
Section 7.04. Servicer Not to Resign. Subject to the provisions of
Section 7.02, the Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) upon determination that the performance of its
obligations or duties hereunder are no longer permissible under applicable law
or are in material conflict by reason of applicable law with any other
activities carried on by it or its subsidiaries or Affiliates, the other
activities of the Servicer so causing such a conflict being of a type and nature
carried on by the Servicer or its subsidiaries or Affiliates at the date of this
Agreement or (ii) upon satisfaction of the following conditions: (a) the
Servicer has proposed a successor servicer to the Trustee and the Depositor in
writing and such proposed successor servicer is reasonably acceptable to the
Trustee and the Depositor; [and] (b) each Rating Agency shall have delivered a
letter to the Trustee prior to the appointment of the successor servicer stating
that the proposed appointment of such successor servicer as Servicer hereunder
will not result in the reduction or withdrawal of the then current rating of the
Offered Certificates[; and (c) such proposed successor servicer is reasonably
acceptable to the Certificate Insurer, as evidenced by a letter to the Trustee];
provided, however, that no such resignation by the Servicer shall become
effective until such successor servicer or, in the case of (i) above, the
Trustee shall have assumed the Servicer's responsibilities and obligations
hereunder or the Trustee shall have designated a successor servicer in
accordance with Section 8.02. Any such resignation shall not relieve the
Servicer of responsibility for any of the obligations specified herein as
obligations that survive the resignation or termination of the Servicer. Any
such determination permitting the resignation of the Servicer pursuant to clause
(i) above shall be evidenced by an Opinion of Counsel to such effect delivered
to [the Certificate Insurer,] the Depositor and the Trustee.
46
<PAGE>
Section 7.05. Rights of the Depositor in Respect of the Servicer. The
Servicer shall afford the Depositor, upon reasonable notice, during normal
business hours access to all records maintained by the Servicer in respect of
its rights and obligations hereunder and access to officers of the Servicer
responsible for such obligations. Upon request, the Servicer shall furnish the
Depositor with its most recent financial statements and such other information
as the Servicer possesses regarding its businesses, affairs, property and
condition, financial or otherwise.
The Depositor 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 or
exercise the 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 its designee. The Depositor shall not have any
responsibility or liability for any action or failure to act by the Servicer and
is not obligated to supervise the performance of the Servicer under this
Agreement or otherwise.
47
<PAGE>
ARTICLE VIII
Servicer Termination
Section 8.01. Events of Default. (a) If any one of the following
events shall occur and be continuing, it shall constitute an "Event of Default":
(i) The failure by the Servicer to deposit in the
Collection Account any deposit required to be made under the terms of
this Agreement which continues unremedied for a period of five Business
Days after the date upon which written notice of such failure shall
have been given to the Servicer by the Trustee or to the Servicer and
the Trustee [by the Certificate Insurer] or by Holders of Certificates
of any Class evidencing Percentage Interests aggregating not less than
25% of such Class; or
(ii) The failure by the Servicer duly to observe or
perform, in any material respect, any other covenants, obligations or
agreements of the Servicer as set forth in this Agreement, which
failure continues unremedied for a period of 30 days, after the date on
which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee or to
the Servicer and the Trustee [by the Certificate Insurer] or by Holders
of Certificates of any Class evidencing Percentage Interests
aggregating not less than 25% of such Class; or
(iii) The entry against the Servicer of a decree or order
by a court or agency or supervisory authority having jurisdiction in
the premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for
a period of 75 consecutive days; or
(iv) The Servicer shall voluntarily go into liquidation,
consent to the appointment of a conservator or receiver or liquidator
or similar person in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of its property,
or a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a
conservator, receiver, liquidator or similar person in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs,
48
<PAGE>
shall have been entered against the Servicer and such decree or order
shall have remained in force undischarged, unbonded or unstayed for a
period of 75 days; 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 any applicable insolvency or reorganization statute, make
an assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; or
(vi) So long as the Originator is an Affiliate of the
Servicer, any failure of the Originator, to repurchase, or substitute
an Eligible Substitute Contract for, any Contract as required by
Exhibit D hereto; or
(vii) Any failure of the Servicer to pay any Monthly
Advance required to be made from its own funds that continues
unremedied for a period of one Business Day.
(b) If an Event of Default shall occur and be continuing then, and in
each and every such case, so long as an Event of Default shall not have been
remedied, (x) with respect solely to clause (vii) above, if such payment is not
made by 12:00 Noon New York time on the applicable Remittance Date, the Trustee,
upon receipt of written notice or discovery by a Responsible Officer of such
failure, shall give immediate telephonic notice of such failure to [the
Certificate Insurer,] a Servicing Officer of the Servicer and the Depositor, and
the Trustee shall terminate all of the rights and obligations of the Servicer
under this Agreement and the Trustee, or a successor servicer appointed in
accordance with Section 8.02, shall immediately make such payment and assume,
pursuant to Section 8.02 hereof, the duties of a successor Servicer and (y) in
all other cases, the Trustee shall, at the direction of [the Certificate Insurer
or] the Holders of Offered Certificates evidencing Percentage Interests
aggregating not less than 51% of all Offered Certificates [with the consent of
the Certificate Insurer], by notice then given in writing to the Servicer (and
to the Trustee if given by Holders of Certificates), terminate all of the rights
and obligations of the Servicer as servicer under this Agreement. Any such
notice to the Servicer shall also be given to [the Certificate Insurer,] each
Rating Agency and the Depositor. On or after the receipt by the Servicer of such
written notice, all authority and power of the Servicer under this Agreement,
whether with respect to the Certificates or the Contracts or otherwise, shall
pass to and be vested in the Trustee pursuant to and under this Section 8.01;
and, without limitation, the Trustee is hereby authorized and empowered to
execute and deliver, on behalf of the Servicer, as attorney-in-fact or
otherwise, any and all documents and other
49
<PAGE>
instruments, including without limitation, documents to make the Trustee or a
successor Servicer the sole lienholder or legal title holder of record of each
Manufactured Home, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination or otherwise.
The Servicer agrees to cooperate with the Trustee in effecting the termination
of the responsibilities and rights of the Servicer hereunder, including, without
limitation, the transfer to the Trustee for the administration by it of all cash
amounts that shall at the time be held by the Servicer and are to be deposited
by it in the Collection Account, or that have been deposited by the Servicer in
the Collection Account or thereafter received by the Servicer with respect to
the Contracts. All reasonable costs and expenses (including attorneys' fees)
incurred in connection with transferring the Contract Files to the successor
Servicer and amending this Agreement to reflect such succession as Servicer
pursuant to this Section 8.01 shall be paid by the predecessor Servicer (or if
the predecessor Servicer is the Trustee, the initial Servicer) upon presentation
of reasonable documentation of such costs and expenses. The Servicer shall
transfer, at its expense, to the successor Servicer (i) the Servicer's records
relating to the Contracts in such electronic form as such successor may
reasonably request and (ii) the Contracts and Contract Files in the Servicer's
possession. Notwithstanding the removal of the Servicer, the Servicer shall be
entitled to receive any amounts accrued and unpaid, or otherwise due to the
Servicer, on or prior to the date of such removal as and when the Servicer would
have been entitled to receive such amounts hereunder had no such removal
occurred.
[(c) Upon the occurrence and continuation of a Trigger Event, the
Certificate Insurer may, in its sole discretion, require the Trustee by written
notice to (i) terminate all of the rights and responsibilities of the Servicer
under this Agreement, (ii) proceed with the provisions for servicing by the
Trustee and/or (iii) appoint a successor to the Servicer pursuant to Sections
8.01(b) and 8.02 of this Agreement. Upon the taking of any such action, the
Trustee shall give written notice thereof to each Rating Agency.
Section 8.02. Trustee to Act; Appointment of Successor. (a) On and
after the time the Servicer receives a notice of termination pursuant to Section
8.01 or resigns pursuant to Section 7.04, the Trustee shall be the successor in
all respects to the Servicer in its capacity as servicer under this Agreement
and the transactions set forth or provided for herein and shall be subject to
all the responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof arising on and after its succession.
As compensation therefor, the Trustee shall be entitled to such
50
<PAGE>
compensation as the Servicer would have been entitled to hereunder if no such
notice of termination had been given. Notwithstanding the above, (i) if the
Trustee is unwilling to act as successor Servicer, or (ii) if the Trustee is
legally unable so to act, the Trustee may (in the situation described in clause
(i)) or shall (in the situation described in clause (ii)) appoint or petition a
court of competent jurisdiction to appoint, any established housing and home
finance institution, bank or other servicer qualified to service the Contracts
under federal and state laws and regulations and servicing not less than
$100,000,000 outstanding principal amount of manufactured housing installment
sales contracts and manufactured housing installment loan agreements as the
successor to the Servicer hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Servicer hereunder; provided that
[any such successor Servicer shall be acceptable to the Certificate Insurer, as
evidenced by the Certificate Insurer's prior written consent which consent shall
not be unreasonably withheld and provided further that] the appointment of any
such successor Servicer will not result in the qualification, reduction or
withdrawal of the then-current ratings assigned to the Offered Certificates by
the Rating Agencies. Pending appointment of a successor to the Servicer
hereunder, unless the Trustee is prohibited by law from so acting, the Trustee
shall act in such capacity as hereinabove provided. In connection with such
appointment and assumption, the successor shall be entitled to receive
compensation out of payments on the Contracts in an amount equal to the
compensation which the Servicer would otherwise have received pursuant to
Section 3.10 (or such lesser compensation as the Trustee and such successor
shall agree). The appointment of a successor Servicer shall not affect any
liability of the predecessor Servicer which may have arisen under this Agreement
prior to its termination as Servicer to pay any deductible under an insurance
policy pursuant to Section 3.07 or to indemnify the Trustee pursuant to Section
9.05), nor shall any successor Servicer be liable for any acts or omissions of
the predecessor Servicer or for any breach by such Servicer of any of its
representations or warranties contained herein or in any related document or
agreement. The Trustee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession.
(b) Any successor, including the Trustee, to the Servicer as servicer
shall during the term of its service as servicer (i) continue to service and
administer the Contracts for the benefit of Certificateholders, (ii) maintain in
force a policy or policies of insurance covering errors and omissions in the
performance of its obligations as Servicer hereunder and a fidelity bond in
respect of its officers, employees and agents
51
<PAGE>
to the same extent as the Servicer is so required pursuant to Section 3.07.
Section 8.03. Waiver of Defaults. The Holders of Certificates
evidencing Percentage Interests aggregating not less than 51% of all the
Percentage Interests in the Trust, may, on behalf of all Certificateholders,
[and subject to the prior written consent of the Certificate Insurer,] waive any
events permitting removal of the Servicer as servicer pursuant to this Article
VIII, provided, however, that such Certificateholders may not waive a default in
making a required deposit necessary for distribution on a Certificate without
the consent of the Holder of such Certificate. Upon any waiver of a past
default, such default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto except to the extent expressly so waived.
Notice of any such waiver shall be given by the Trustee to the Rating Agencies.
Section 8.04. Notification to Certificateholders. Upon any termination
or appointment of a successor to the Servicer pursuant to this Article VIII or
Section 7.04, the Trustee shall give prompt written notice thereof to the
Certificateholders at their respective addresses appearing in the Certificate
Register, the [Certificate Insurer,] the Depositor and each Rating Agency.
[Section 8.05. Rights of the Certificate Insurer to Exercise Rights of
Holders of Insured Certificates. By accepting its Certificate, each Holder of an
Insured Certificate agrees that unless a Certificate Insurer Default exists, the
Certificate Insurer shall have the right to exercise all rights of the Holders
of Insured Certificates under this Agreement and under the Insured Certificates
without any further consent of such Certificateholders, including, without
limitation:
(a) the right to require the Originator to repurchase Contracts
pursuant to Exhibit D hereto;
(b) the right to give notices of breach or to terminate the rights and
obligations of the Servicer as servicer pursuant to Section 8.01 hereof and to
consent to or direct waivers of Servicer defaults pursuant to Section 8.03
hereof;
(c) the right to direct the actions of the Trustee during the
continuance of a Servicer default pursuant to Sections 8.01
and 8.02 hereof;
52
<PAGE>
(d) the right to institute proceedings against the Servicer pursuant
to Section 8.01 hereof;
(e) the right to direct the Trustee to investigate certain matters
pursuant to Section 9.02 hereof;
(f) the right to remove the Trustee pursuant to Section 9.07 hereof;
and
(g) the right to direct foreclosures upon the failure of the Servicer
to do so in accordance with this Agreement.
In addition, each Holder of an Insured Certificate agrees that, unless a
Certificate Insurer Default exists, the rights specifically enumerated above may
be exercised by such Certificateholders only with the prior written consent of
the Certificate Insurer.]
[Section 8.06. Trustee To Act Solely with Consent of the Certificate
Insurer. Unless a Certificate Insurer Default exists, the Trustee shall not,
without the Certificate Insurer's consent or unless directed by the
Certificate Insurer:
(a) terminate the rights and obligations of the Servicer as Servicer
pursuant to Section 8.01 hereof;
(b) agree to any amendment pursuant to Article XI hereof, provided
however that such consent shall not be unreasonably withheld; or
(c) undertake any suits for enforcement as provided in Section 9.13.
The Certificate Insurer may, in writing and in its sole discretion
renounce all or any of its rights under Sections 8.05, 8.06 or 8.07 or any
requirement for the Certificate Insurer's consent for any period of time.]
[Section 8.07. Trust Held for Benefit of the Certificate Insurer. The
Trustee shall hold the Trust for the benefit of the Certificateholders and the
Certificate Insurer and all references in this Agreement and in the Certificates
to the benefit of Holders of the Certificates shall be deemed to include the
Certificate Insurer. The Trustee shall cooperate in all reasonable respects with
any reasonable request by the Certificate Insurer for action to preserve or
enforce the Certificate Insurer's rights or interests under this Agreement and
the Certificates unless, as stated in an Opinion of Counsel addressed to the
Trustee and the Certificate Insurer, such action is adverse to the interests of
the Certificateholders or
53
<PAGE>
diminishes the rights of the Certificateholders or imposes additional burdens
or restrictions on the Certificateholders.
The Servicer hereby acknowledges and agrees that it shall service the
Contracts for the benefit of the Certificateholders and for the benefit of the
Certificate Insurer, and all references in this Agreement to the benefit of or
actions on behalf of the Certificateholders shall be deemed to include the
Certificate Insurer.]
[Section 8.08. Certificate Insurer Default. Notwithstanding anything
elsewhere in this Agreement or in the Certificates to the contrary, if a
Certificate Insurer Default exists, or if and to the extent the Certificate
Insurer has delivered its written renunciation of its rights, the provisions of
this Article VIII and all other provisions of this Agreement which (a) permit
the Certificate Insurer to exercise rights of the Certificateholders, (b)
restrict the ability of the Depositor, the Certificateholders, the Servicer or
the Trustee to act without the consent or approval of the Certificate Insurer,
(c) provide that a particular act or thing must be acceptable to the Certificate
Insurer, (d) permit the Certificate Insurer to direct (or otherwise to require)
the actions of the Trustee, the Servicer or the Certificateholders, (e) provide
that any action or omission taken with the consent, approval or authorization of
the Certificate Insurer shall be authorized hereunder or shall not subject the
party taking or omitting to take such action to any liability hereunder or (f)
which have a similar effect, shall be of no further force and effect and the
Trustee shall administer the Trust and perform its obligations hereunder solely
for the benefit of the Holders of the Certificates. Nothing in the foregoing
sentence, nor any action taken pursuant thereto or in compliance therewith,
shall be deemed to have released the Certificate Insurer from any obligation or
liability it may have to any party or to the Certificateholders hereunder, under
any other agreement, instrument or document (including, without limitation, the
Certificate Insurance Policy) or under applicable law.]
54
<PAGE>
ARTICLE IX
The Trustee
Section 9.01. Duties of Trustee. The Trustee, prior to the occurrence
of an Event of Default and after the curing of all Events of Default which may
have occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement. If an Event of Default has occurred
(which has not been cured) of which a Responsible Officer has knowledge, the
Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own misconduct; provided, however, that:
(i) prior to the occurrence of an Event of Default, and
after the curing of all such Events of Default which may have occurred,
the duties and obligations of the Trustee shall be determined solely by
the express provisions of this Agreement, the Trustee shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement, no implied covenants or
obligations shall be read into this Agreement against the Trustee and,
in the absence of bad faith on the part of the Trustee, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Agreement;
(ii) the Trustee shall not be personally liable for an
error of judgment made in good faith by a Responsible Officer of the
Trustee, unless it shall be proved that the Trustee was negligent in
ascertaining the facts related thereto;
55
<PAGE>
(iii) the Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken by it in
good faith [in accordance with the consent or direction of the
Certificate Insurer or] in accordance with the direction of the Holders
of Certificates of any Class evidencing Percentage Interests
aggregating not less than 51% of such Class relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising or omitting to exercise any trust or
power conferred upon the Trustee, under this Agreement; and
(iv) the Trustee shall not be charged with knowledge of
any failure by the Servicer to comply with the obligations of the
Servicer referred to in clause (a) of Section 8.01 unless a Responsible
Officer of the Trustee at the Corporate Trust Office obtains actual
knowledge of such failure or the Trustee receives written notice of
such failure from the Servicer[, the Certificate Insurer] or the
Holders of Certificates of any Class evidencing Percentage Interests
aggregating not less than 25% of such Class.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
Section 9.02. Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 9.01:
(i) the Trustee may request and rely upon, and shall be
protected in acting or refraining from acting upon, any resolution,
Officer's Certificate, certificate of auditors or any other
certificate, statement, instrument, opinion, report, notice, request,
consent, order, appraisal, bond or other paper or document reasonably
believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(ii) the Trustee may consult with counsel and any
written advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection in respect of any action
taken or suffered or omitted by it hereunder in good faith and in
accordance with such advice or Opinion of Counsel;
56
<PAGE>
(iii) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Agreement, or
to institute, conduct or defend any litigation hereunder or in relation
hereto, at the request, order or direction of any of the
Certificateholders [or the Certificate Insurer,] pursuant to the
provisions of this Agreement, unless such Certificateholders [or the
Certificate Insurer] shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which
may be incurred therein or thereby; the right of the Trustee to perform
any discretionary act enumerated in this Agreement shall not be
construed as a duty, and the Trustee shall not be answerable for other
than its negligence or willful misconduct in the performance of any
such act; nothing contained herein shall, however, relieve the Trustee
of the obligations, upon the occurrence of an Event of Default (which
has not been cured) of which a Responsible Officer has knowledge, to
exercise such of the rights and powers vested in it by this Agreement,
and to use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the
conduct of his own affairs;
(iv) the Trustee shall not be personally liable for any
action taken, suffered or omitted by it in good faith and believed by
it to be authorized or within the discretion or rights or powers
conferred upon it by this Agreement;
(v) prior to the occurrence of an Event of Default and
after the curing of all Events of Default which may have occurred, the
Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or
other paper or documents, unless requested in writing to do so by
Holders of Certificates of any Class evidencing Percentage Interests
aggregating not less than 51% of such Class; provided, however, that if
the payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of
this Agreement, the Trustee may require reasonable indemnity against
such cost, expense or liability as a condition to such proceeding;
(vi) the Trustee shall not be accountable, shall have
no liability and makes no representation as to any acts or omissions
hereunder of the Servicer until such time
57
<PAGE>
as the Trustee may be required to act as Servicer pursuant to
Section 8.02; and
(vii) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys or a custodian and the Trustee shall not be
responsible for any misconduct on the part of any agents or attorneys
appointed by it with due care.
Section 9.03. Trustee Not Liable for Certificates or Contracts. The
recitals contained herein and in the Certificates (other than the execution by,
and the authentication of, the Trustee on the Certificates) shall be taken as
the statements of the Depositor, and the Trustee assumes no responsibility for
the correctness of the same. The Trustee makes no representations as to the
validity or sufficiency of this Agreement or of the Certificates (other than the
signature and authentication of the Trustee on the Certificates) or of any
Contract or related document. The Trustee shall not be accountable for the use
or application by the Servicer, or for the use or application of any funds paid
to the Servicer in respect of the Contracts or deposited in or withdrawn from
the Collection Account by the Servicer.
Section 9.04. Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of Certificates
with the same rights as it would have if it were not Trustee and may transact
any banking and trust business with the Depositor, the Seller, the Originator or
the Servicer.
Section 9.05. Servicer to Pay Trustee's Fees and Expenses. The Trustee
shall be entitled to the Trustee's Fee as reasonable compensation (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust) for all services rendered by it in the execution of
the trusts hereby created and in the exercise and performance of any of the
powers and duties hereunder of the Trustee. Except as otherwise provided in
Section 2.10, the Servicer covenants and agrees to indemnify the Trustee and its
officers, directors, employees and agents from, and hold it harmless against,
any and all losses, liabilities, damages, claims or expenses (i) incurred in
connection with any legal action relating to this Agreement or the Certificates,
other than any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence of the Trustee in the performance of its
duties hereunder or by reason of the Trustee's reckless disregard of obligations
and duties hereunder or (ii) resulting from any error in any tax or information
return prepared by the Servicer.
58
<PAGE>
This section shall survive termination of this Agreement or the resignation or
removal of any Trustee hereunder.
Section 9.06. Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times be a corporation duly incorporated and validly
existing under the laws of the United States of America or any state thereof,
authorized under such laws to exercise corporate trust powers, [, be approved
for insurance by the Secretary of Housing and Urban Development pursuant to
Section 2 of the National Housing Act,] having a combined capital and surplus
of at least $50,000,000 and a minimum long-term deposit rating of BBB by S&P
and Baa3 by Moody's, and subject to supervision or examination by federal or
state authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising
or examining authority, then for the purposes of this Section 9.06, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. The principal office of the Trustee (other than the initial
Trustee) shall be in a state with respect to which an Opinion of Counsel has
been delivered to such Trustee at the time such Trustee is appointed Trustee to
the effect that the Trust will not be a taxable entity under the laws of such
state. In case at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section 9.06, the Trustee shall resign immediately
in the manner and with the effect specified in Section 9.07.
Section 9.07. Resignation or Removal of Trustee. The Trustee may at
any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Depositor, the Servicer [, the Certificate
Insurer] and each Rating Agency. Upon receiving such notice of resignation,
the Depositor, shall promptly appoint a successor Trustee [(approved in
writing by the Certificate Insurer, such approval not to be unreasonably
withheld)] by written instrument, in duplicate, one copy of which instrument
shall be delivered to the resigning Trustee and one copy to the successor
Trustee. If no successor Trustee shall have been so appointed and having
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee. Promptly following the
appointment of any successor Trustee, such successor Trustee shall give written
notice thereof to each Certificateholder.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 9.06 and shall fail to resign after written
request therefor by the Depositor [or the Certificate Insurer], or if at any
time the Trustee shall be
59
<PAGE>
legally unable to act, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then
[the Certificate Insurer,] the Depositor or the Servicer may remove the Trustee.
If the Trustee is removed under the authority of the immediately preceding
sentence, the Depositor shall promptly appoint a successor Trustee [(approved in
writing by the Certificate Insurer, such approval not to be unreasonably
withheld)] by written instrument, in duplicate, one copy of which instrument
shall be delivered to the Trustee so removed and one copy to the successor
trustee.
The Depositor [and the Certificate Insurer] or the Holders of
Certificates evidencing Percentage Interests aggregating at least 51% of all
Certificates may at any time remove the Trustee by written instrument or
instruments delivered to the Servicer, the Depositor and the Trustee, and the
Depositor shall thereupon use its best efforts to appoint a successor trustee in
accordance with this Section.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 9.07 shall
not become effective until acceptance of appointment by the successor Trustee as
provided in Section 9.08.
Section 9.08. Successor Trustee. Any successor Trustee appointed as
provided in Section 9.07 shall execute, acknowledge and deliver to the
Depositor, the Servicer and to its predecessor Trustee [and the Certificate
Insurer] an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor Trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Trustee. The
Depositor, the Servicer and the predecessor Trustee shall execute and deliver
such instruments and do such other things as may reasonably be required for
fully and certainly vesting and confirming in the successor Trustee all such
rights, powers, duties and obligations.
No successor Trustee shall accept appointment as provided in this
Section 9.08 unless at the time of such acceptance such successor Trustee shall
be eligible under the provisions of Section 9.06.
Upon acceptance of appointment by a successor Trustee as provided in
this Section 9.08, the Servicer shall mail notice of
60
<PAGE>
the succession of such Trustee hereunder to all Holders of Certificates at their
addresses as shown in the Certificate Register and to each Rating Agency. If the
Servicer fails to mail such notice within 30 days after acceptance of
appointment by the successor Trustee, the successor Trustee shall cause such
notice to be mailed at the expense of the Servicer.
Section 9.09. Merger or Consolidation of Trustee. Any 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 such corporation shall be eligible under the provisions of
Section 9.06, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
Section 9.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Mortgaged Property or Manufactured Home 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 [and the Certificate Insurer] to act as co-trustee or
co-trustees, jointly with the Trustee, or separate trustee or separate trustees,
of all or any part of the Trust, and to vest in such Person or Persons, in such
capacity and for the benefit of the Certificateholders, such title to the Trust,
or any part thereof, and, subject to the other provisions of this Section 9.10,
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
so to do, or in the case an Event of Default shall have occurred and be
continuing, the Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 9.06 and no notice to
Certificateholders of the appointment of any co-trustee or separate trustee
shall be required under Section 9.08.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed
upon and exercised or performed by the Trustee and
61
<PAGE>
such separate trustee or co-trustee jointly (it being understood that
such separate trustee or co-trustee is not authorized to act separately
without the Trustee joining in such act), except to the extent that
under any law of any jurisdiction in which any particular act or acts
are to be performed (whether as Trustee hereunder or as successor to
the Servicer hereunder), the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights,
powers, duties and obligations (including the holding of title to the
Trust or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee,
but solely at the direction of the Trustee;
(ii) no trustee hereunder shall be held personally
liable by reason of any act or omission of any other
trustee hereunder; and
(iii) the Servicer and the Trustee acting jointly may at
any time accept the resignation of or remove any separate trustee or
co-trustee except that following the occurrence of an Event of Default,
the Trustee acting alone may accept the resignation or remove any
separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article IX. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Depositor and the Servicer.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor Trustee.
62
<PAGE>
Section 9.11. Limitation of Liability. The Certificates are executed by
the Trustee, not in its individual capacity but solely as Trustee of the Trust,
in the exercise of the powers and authority conferred and vested in it by this
Agreement. Each of the undertakings and agreements made on the part of the
Trustee in the Certificates is made and intended not as a personal undertaking
or agreement by the Trustee but is made and intended for the purpose of binding
only the Trust.
Section 9.12. Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and such proceeding instituted by the Trustee shall
be brought in its own name or in its capacity as Trustee. Any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursement and advances of the Trustee, its agents and counsel, be
for the ratable benefit or the Certificateholders in respect of which such
judgment has been recovered.
Section 9.13. Suits for Enforcement. Subject to Section 8.05(c) in case
an Event of Default or other default by the Servicer hereunder shall occur and
be continuing, the Trustee, in its discretion, may proceed to protect and
enforce its rights and the rights of the Certificateholders under this Agreement
by a suit, action or proceeding in equity or at law or otherwise, whether for
the specific performance of any covenant or agreement contained in this
Agreement or in aid of the execution of any power granted in this Agreement or
for the enforcement of any other legal, equitable or other remedy, as the
Trustee, being advised by counsel, shall deem most effectual to protect and
enforce any of the rights of the Trustee and the Certificateholders.
Section 9.14. Obligor Claims. (a) No obligation or liability to any
Obligor under any of the Contracts is intended to be assumed by the Trust, the
Trustee or the Certificateholders under or as a result of this Agreement and the
transactions contemplated hereby and, to the maximum extent permitted and valid
under mandatory provisions of law, the Trust, the Trustee and the
Certificateholders expressly disclaim such assumptions.
(b) In connection with any offset defenses, or affirmative claims for
recovery, asserted in legal actions brought by Obligors under one or more
Contracts based upon provisions therein complying with, or upon other rights or
remedies arising from, any legal requirements applicable to the Contracts,
including, without limitation, the Federal Trade Commission's
63
<PAGE>
Trade Regulation Rule Concerning Preservation of Consumers' Claims and
Defenses (16 C.F.R. Section 433) as amended from time to time:
(i) The Trustee is not, and shall not be deemed to be, either
in any individual capacity, as trustee hereunder or otherwise, a
creditor, or a joint venturer with or an Affiliate of, or acting in
concert or cooperation with, any seller of home improvements, in the
arrangement, origination or making of Contracts. The Trustee is the
holder of the Contracts only as trustee on behalf of the
Certificateholders, and not as a principal or in any individual or
personal capacity;
(ii) The Trustee shall not be personally liable for or
obligated to pay Obligors any affirmative claims asserted thereby, or
responsible to Certificateholders for any offset defense amounts
applied against Contract payments, pursuant to such legal actions;
(iii) The Trustee will pay, solely from available Trust monies,
affirmative claims for recovery by Obligors only pursuant to final
judicial orders or judgments, or judicially approved settlement
agreements, resulting from such legal actions;
(iv) The Trustee will comply with judicial orders and judgments
which require its actions or cooperation in connection with Obligors'
legal actions to recover affirmative claims against Certificateholders;
and
(v) The Trustee will cooperate with and assist
Certificateholders in their defense of legal actions by Obligors to
recover affirmative claims if such cooperation and assistance is not
contrary to the interests of the Trustee is a party to such legal
actions and if the Trustee is satisfactorily indemnified for all
liability, costs and expenses arising therefrom.
Section 9.15. Back-Up Servicer. The provisions of this Article IX
shall not apply to, or otherwise limit, the obligations of
_____________________ in its capacity as successor Servicer hereunder
or any successor thereto appointed as provided herein.
64
<PAGE>
ARTICLE X
Termination
Section 10.01. Termination. (a) The respective obligations and
responsibilities of the Depositor, the Servicer and the Trustee created hereby
shall terminate upon the last action required to be taken by the Trustee on the
final Remittance Date pursuant to this Article X following [the later of (A)
payment in full of all amounts owing to the Certificate Insurer and (B)] the
earlier of (i) the day following the Remittance Date on which the final
distribution on the Certificates has been made, and (ii) the final payment or
other liquidation of the last Contract remaining in the Trust or the disposition
of all REO Property; provided, however, that in no event shall the trust created
hereby continue beyond the expiration of 21 years from the death of the last
survivor of the descendants of Joseph P. Kennedy, the late ambassador of the
United States to the Court of St. James's, living on the date hereof.
In addition, subject to Section 10.02, the Servicer may, at its option,
terminate this Agreement on any date on which the Pool Principal Balance is less
than 10% of the Cut-off Date Pool Principal Balance by purchasing, on the next
succeeding Remittance Date, all of the outstanding Contracts and REO Properties
at a price equal to the sum of (x) 100% of the unpaid principal balance of each
outstanding Contract and each REO Property, and (y) the greater of (a) the
aggregate amount of accrued and unpaid interest on the Contracts through the
related Due Period and (b) 30 days' interest thereon at a rate equal to the Net
Contract Rate [and (z) all amounts due to the Certificate Insurer under this
Agreement and the Insurance Agreement] (the "Termination Price").
Any such purchase shall be accomplished by delivery of the Termination
Price to the Trustee for deposit into the Certificate Account on the
Determination Date before the Remittance Date on which the Termination Price is
to be distributed.
(b) Notice of any termination, specifying the Remittance Date upon
which the Certificateholders may surrender their Certificates to the Trustee for
payment of the final distribution and cancellation, shall be given promptly by
the Trustee [to the Certificate Insurer and] by letter to Offered
Certificateholders mailed not earlier than the 15th day and not later than the
25th day of the month next preceding the month of such final distribution
specifying (i) the Remittance Date upon which final distribution of the Offered
Certificates will be made upon presentation and surrender of Offered
Certificates at the office or agency of the Trustee therein designated, (ii) the
amount of
65
<PAGE>
any such final distribution and (iii) that the Record Date otherwise applicable
to such Remittance Date is not applicable, distributions being made only upon
presentation and surrender of the Offered Certificates at the office or agency
of the Trustee therein specified.
(c) Upon presentation and surrender of the Offered Certificates, the
Trustee shall cause to be distributed to the holders of Offered Certificates on
the Remittance Date for such final distribution, in proportion to the Percentage
Interests of their respective Classes of Certificates and to the extent that
funds are available for such purpose, an amount equal to the amount required to
be distributed to the Holders of each Class of Offered Certificates pursuant to
Section 5.02 for such Remittance Date. [On the final Remittance Date, the
Trustee will withdraw from the Certificate Account and remit to the Certificate
Insurer the unpaid amounts due and owing to the Certificate Insurer pursuant to
Section 5.02 and the Insurance Agreement.]
(d) In the event that all of the Offered Certificateholders shall not
surrender their Certificates for final payment and cancellation on or before
such final Remittance Date, the Trustee shall promptly following such date cause
all funds in the Certificate Account not distributed in final distribution to
such Certificateholders to be withdrawn therefrom and credited to the remaining
Certificateholders by depositing such funds in a separate escrow account for the
benefit of such Certificateholders and the Trustee shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
one year after the second notice all the Regular 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 on deposit in such escrow account.
Section 10.02. Additional Termination Requirements. (a) In the event
that the Servicer exercises its purchase option as provided in Section 10.01,
the REMIC Trust shall be terminated in accordance with the following additional
requirements, unless the Trustee has been furnished with an Opinion of Counsel
to the effect that the failure of the REMIC Trust to comply with the
requirements of this Section 10.02 will not (i) result in the imposition of
taxes on "prohibited transactions" of the REMIC Trust as defined in Section
860F(a)(2) of the Code, or (ii) cause the REMIC Trust to fail to qualify as a
REMIC at any time that any REMIC Certificates are outstanding:
66
<PAGE>
(i) Within 90 days prior to the final Remittance Date, the
Servicer shall adopt and the Trustee shall sign a plan of complete
liquidation of the REMIC Trust meeting the requirements of a "Qualified
Liquidation" under Section 860F of the Code and any regulations
thereunder;
(ii) At or after the time of adoption of such a plan of complete
liquidation and at or prior to the final Remittance Date, the Trustee
shall sell all of the assets of the REMIC Trust to the Servicer for
cash; and
(iii) At the time of the making of the final payment on the
Certificates, the Trustee shall distribute or credit, or cause to be
distributed or credited (A) to the Holders of each Class of Offered
Certificates the applicable Class Certificate Balance, plus one month's
interest thereon at the applicable Certificate Rate, [(B) to the
Certificate Insurer all unreimbursed Insured Payments and other amounts
owing to the Certificate Insurer under the Insurance Agreement] and (C)
to the Residual Certificateholders, all cash on hand after such
payments (other than cash retained to meet claims) and the Trust shall
terminate at such time.
(b) By their acceptance of the Certificates, the Holders thereof hereby
appoint the Trustee as their attorney in fact to: (i) adopt such a plan of
complete liquidation (and the Certificateholders hereby appoint the Trustee as
their attorney in fact to sign such plan) as appropriate [or upon the written
request of the Certificate Insurer,] and (ii) to take such other action in
connection therewith as may be reasonably required to carry out such plan of
complete liquidation all in accordance with the terms hereof.
67
<PAGE>
ARTICLE XI
Miscellaneous Provisions
Section 11.01. Amendment. (a) This Agreement may be amended from time
to time by the Depositor, the Servicer and the Trustee, in each case without the
consent of any of the Certificateholders, [but only with the consent of the
Certificate Insurer (which consent shall not be unreasonably withheld),] (i) to
cure any ambiguity, (ii) to correct any defective provisions or to correct or
supplement any provisions herein that may be inconsistent with any other
provisions herein or deal with any matter not covered (i.e., to give effect to
the intent of the parties and, if applicable, to the expectations of the
Certificateholders), (iii) to add to the duties of the Servicer, (iv) to add any
other provisions with respect to matters or questions arising under this
Agreement [or the Certificate Insurance Policy, as the case may be,] which shall
not be inconsistent with the provisions of this Agreement, (v) to add or amend
any provisions of this Agreement as required by any Rating Agency or any other
nationally recognized statistical rating agency in order to maintain or improve
any rating of the Offered Certificates (it being understood that, after
obtaining the ratings in effect on the Closing Date, none of the Trustee, the
Depositor, the Seller, the Originator or the Servicer is obligated to obtain,
maintain or improve any such rating) or (vi) to add or amend any provisions of
this Agreement to such extent as shall be necessary to maintain the
qualification of the REMIC Trust as a REMIC; provided, however, that (x) as
evidenced by an Opinion of Counsel (at the expense of the requesting party) in
each case such action shall not, adversely affect in any material respect the
interest of any Certificateholder, (y) in each case, such action is necessary or
desirable to maintain the qualification of the REMIC Trust as a REMIC or shall
not adversely affect such qualification and (z) if the opinion called for in
clause (x) cannot be delivered with regard to an amendment pursuant to clause
(vi) above, such amendment is necessary to maintain the qualification of the
REMIC Trust as a REMIC; and provided, further, that the amendment shall be
deemed not to adversely affect in any material respect the interests of the
Certificateholders and no Opinion of Counsel to that effect shall be required if
the Person requesting the amendment obtains a letter from each Rating Agency
stating that the amendment would not result in the downgrading or withdrawal of
the respective ratings then assigned to the Offered Certificates.
(b) This Agreement also may be amended from time to time by the
Depositor, the Servicer and the Trustee with the consent of [the Certificate
Insurer and] the Holders of Certificates evidencing Percentage Interests
aggregating at least 51% of each
68
<PAGE>
Class which is affected by such amendment, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the
Certificateholders; provided, however, that no such amendment shall (i) reduce
in any manner the amount of, or delay the timing of, payments on the
Certificates or distributions [or payments under the Certificate Insurance
Policy] which are required to be made on any Certificate without the consent of
the Holder of such Certificate or (ii) reduce the aforesaid percentage required
to consent to any such amendment, without the consent of the Holders of all
Certificates then outstanding.
(c) An amendment made with the consent of all Certificateholders and
executed in accordance with this Section 11.01 shall be permitted or authorized
by this Agreement notwithstanding that the Opinion of Counsel required by
Section 11.01(a)(vi)(y) may conclude that such amendment would adversely affect
the qualification of the REMIC Trust as a REMIC.
(d) Promptly after the execution of any such amendment made with the
consent of the Certificateholders, the Trustee shall furnish fully executed
original counterparts of the instruments effecting such amendment [to the
Certificate Insurer and] to each Rating Agency.
(e) It shall not be necessary for the consent of Certificateholders
under this Section 11.01 to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
Section 11.02. Limitation on Rights of Certificateholders. The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations and liabilities of the parties
hereto or any of them.
No Certificateholder shall have any right to vote (except as expressly
provided in this Agreement) or in any manner otherwise control the operation and
management of the Trust, or the obligations of the parties hereto, nor shall
anything herein set forth, or contained in the terms of the Certificates, be
construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any
69
<PAGE>
Certificateholder be under any liability to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Holder previously shall have given to the Trustee a written notice
of default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Certificates of any Class evidencing Percentage Interests
aggregating not less than 51% of such Class shall have made written request upon
the Trustee to institute such action, suit or proceeding in its own name as
Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee, for 60 days after its receipt of
such notice, request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding; it being understood and intended,
and being expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb or prejudice
the rights of the Holders of any other of the Certificates, or to obtain or seek
to obtain priority over or preference to any other such Holder, or to enforce
any right under this Agreement, except in the manner herein provided and for the
equal, ratable and common benefit of all Certificateholders. For the protection
and enforcement of the provisions of this Section 11.02, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
Section 11.03. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK OTHER THAN THE CHOICE OF LAW
PROVISIONS THEREOF AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 11.04. Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified mail, return receipt requested,
to:
The Trustee:
70
<PAGE>
The Depositor: UCFC Funding Corporation
4041 Essen Lane
Baton Rouge, Louisiana 70809
Attention: H. C. McCall, III
President
Tel: (504) 924-6007
Fax: (504) 922-4244
The Servicer: United Companies Lending
Corporation
4041 Essen Lane
Baton Rouge, Louisiana 70809
Attention: B. Dale Quick,
Senior Vice President
Copy to: C. Geron Hargon,
President
Tel: (504) 924-6007
Fax: (504) 922-4244
[The Certificate
Insurer :
Moody's: Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: The Home Equity
Monitoring Department
S & P: Standard & Poor's, a division of
The McGraw-Hill Companies, Inc.
26 Broadway
15th Floor
New York, New York 10004
Attention: Surveillance Dept.
Fitch: Fitch Investors Service L.P.
1 State Street Plaza
New York, New York 10004
Attention:
Any notice required or permitted to be mailed to a Certificateholder shall be
given by first class mail, postage prepaid, at the address of such Holder as
shown in the Certificate Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Certificateholder receives such notice. Any notice or
other document required to be delivered or mailed by the Trustee to any Rating
Agency shall be given on a best efforts basis and only as a matter of courtesy
and
71
<PAGE>
accommodation and the Trustee shall have no liability for failure to deliver
such notice or document to any Rating Agency.
Section 11.05. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of the
Certificates or the rights of the Holders thereof.
Section 11.06. Certificates Nonassessable and Fully Paid. The parties
agree that the Certificateholders shall not be personally liable for obligations
of the Trust, that the beneficial ownership interests represented by the
Certificates shall be nonassessable for any losses or expenses of the Trust or
for any reason whatsoever, and that the Certificates upon execution,
authentication and delivery thereof by the Trustee pursuant to Section 6.01 are
and shall be deemed fully paid.
Section 11.07. Counterparts. This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 11.08. Effect of Headings and Table of Contents. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
Section 11.09 Exhibits. The Exhibits referred to herein are
incorporated herein as an integral part of this Agreement.
72
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Servicer and the
Trustee have caused this Agreement to be duly executed by their respective
officers all as of the day and year first above written.
UCFC FUNDING CORPORATION,
as Depositor
By:______________________________________________
Name:
Title:
UNITED COMPANIES LENDING CORPORATION (Registered),
as Servicer
By:_____________________________________________
Name:
Title:
[ ],
as Trustee
By:_____________________________________________
Name:
Title:
73
<PAGE>
EXHIBIT B
DEFINITIONS
Account: Any of the Collection Account, the
Certificate Account, the Pre-Funding Account and the Capitalized
Interest Account.
Accrual Period: As to any Remittance Date and the Fixed Rate
Certificates, the calendar month preceding the month of such Remittance Date. As
to any Remittance Date and the Floating Rate Certificates, the period beginning
on the 15th day of the month preceding the month of such Remittance Date (or in
the case of the first Remittance Date, beginning on the Closing Date) and ending
on the 14th day of the month of such Remittance Date.
Addition Notice: As to any Subsequent Transfer Date, written
notice to the Trustee [and the Certificate Insurer] from the Originator given at
least 10 Business Days prior to such Subsequent Transfer Date identifying the
related Subsequent Contracts and the aggregate Cut-off Date Principal Balance
thereof and accompanied by an electromagnetic data file for such Subsequent
Contracts.
[Additional Deposit: As to any Subsequent Transfer Date, an
amount equal to the sum of (i) the product of the percentage used in the
definition of Base Requirement and the aggregate Cut-off Date Principal Balance
as of the related Subsequent Cut-off Date of the Subsequent Contracts being
transferred on such date, and (ii) the amount, if any, required to be deposited
in the Spread Sub-Account with respect to the Subsequent Contracts transferred
and sold on such Subsequent Transfer Date as provided in Section ________
subject to the limits set forth in Section _____.]
Adjusted Remittance Rate: As to any Remittance Date, a per
annum rate equal to the sum of (x) the Expense Fee Rate and (y) the average of
the Remittance Rates for the Classes of Offered Certificates, weighted on the
basis of their respective Class Certificate Balances as of the first day of the
Due Period related to such Remittance Date. As of the Closing Date, the Adjusted
Remittance Rate is ___________________%.
Affiliate: As to any Person, any other Person controlling,
controlled by or under common control with such Person. "Control" means the
power to direct the management and policies of a Person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise.
"Controlled" and "Controlling" have meanings correlative to the foregoing. The
Trustee may conclusively presume that a Person is not an Affiliate of another
Person unless an Authorized Officer of the Trustee has actual knowledge to the
contrary.
1
<PAGE>
Agreement: This Pooling and Servicing Agreement, as
it may be amended from time to time, and including the Exhibits
hereto.
Amount Available: As to any Remittance Date, an amount equal
to the sum of (i) the amount on deposit in the Collection Account at the close
of business on the related Determination Date, net of the Amount Held for Future
Distribution and net of the amounts permitted to be withdrawn therefrom pursuant
to clauses (ii) - (viii) of Section 3.04, (ii) the amount of the related Monthly
Advance and (iii) the aggregate Purchase Prices and Substitution Adjustment
Amounts deposited in the Collection Account on the related Deposit Date.
Amount Available for Senior Principal: As to any Remittance
Date, the Amount Available [Available Funds] for such Remittance Date reduced by
the aggregate amount distributable on such Remittance Date in respect of the
Senior Certificates.
Amount Held for Future Distribution: As to any Remittance
Date, the aggregate amount held in the Collection Account at the close of
business on the related Determination Date on account of (i) Principal
Prepayments and Liquidation Proceeds received after the related Prepayment
Period and (ii) all Scheduled Payments due after the related Due Period.
Applicable Filing Office: As to any Person identified
below, the office of the Secretary of State of the state
indicated opposite such Person's name below:
Person State
------ -----
UCFI Minnesota
UNICOR Louisiana
UCLC Louisiana
Seller Nevada
Depositor Louisiana
Appraised Value: The appraised value of any
Manufactured Home based upon the appraisal made at the time of
origination of the related Contract.
Authorized Officer: With respect to any Person, any person who
is authorized to act for such Person in matters relating to this Agreement, and
whose action is binding upon such Person, with respect to the Depositor and the
Servicer, initially including those individuals whose names appear on the lists
of Authorized Officers delivered on the Closing Date and with respect to the
Trustee, the Chairman or Vice Chairman of the Board of Directors or Trustees,
the Chairman or Vice Chairman of the Executive or Standing Committee of the
Board of Directors or Trustees, the President, the Chairman of the
2
<PAGE>
Committee on Trust Matters, any vice president, any assistant vice president,
the Secretary, any assistant secretary, the Treasurer, any assistant treasurer,
the Cashier, any assistant cashier, any trust officer, the Controller and any
assistant controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
[Available Funds: As to any Remittance Date, the sum
of (a) the Amount Available, (b) the amount withdrawn from the
Reserve Account pursuant to Section __ and (c) Insured
Payments.]
[Base Requirement: As such term is defined in the
Insurance Agreement.]
Book-Entry Certificate: Any Certificate registered in the name
of the Depository or its nominee ownership of which is reflected on the books of
the Depository or on the books of a person maintaining an account with such
Depository (directly or as an indirect participant in accordance with the rules
of such Depository).
Business Day: Any day that is not a Saturday, Sunday or other
day on which commercial banking institutions in the State of New York or in the
city in which the principal corporate trust office of the Trustee is located,
are authorized or obligated by law or executive order to be closed. When used
with respect to an Interest Determination Date, "Business Day" shall also mean a
day on which banks are open for dealing in foreign currency and exchange in
London and New York City.
Capitalized Interest Account: The capitalized
interest account created and maintained by the Trustee pursuant
to Section 5.01.
Capitalized Interest Requirement: As to any PreFunding
Remittance Date, interest for the number of days in the Accrual Period for each
related Class of Offered Certificates on the Pre-Funded Amount as of the first
day of the Due Period related to such Pre-Funding Remittance Date at the average
of the applicable Remittance Rates, weighted on the basis of their respective
Class Certificate Balances as of the first day of such Due Period.
[Capitalized Premium Payment: As to each Pre-Funding
Remittance Date, an amount equal to the product of one-twelfth
of the Premium Rate and the excess of (i) the sum of the Class
3
<PAGE>
Certificate Balances of the Senior Certificates over (ii) the
Pool Principal Balance.]
Certificate: Any one of the Senior Certificates, the
Subordinated Certificates or the Residual Certificates.
Certificate Account: The certificate account created
and maintained by the Trustee pursuant to Section 5.01.
[Certificate Insurance Policy: The certificate
insurance policy no. ________ issued by the Certificate Insurer
to the Trustee.]
[Certificate Insurer: ____________________________.
Certificate Owner: The Person who is the owner of a
beneficial interest in a Book-Entry Certificate.
Certificate Register and Certificate Registrar: The
register maintained and the registrar appointed pursuant to
Section 6.02.
Certificateholder or Holder: The Person in whose name a
Certificate is registered in the Certificate Register, except that, solely for
the purpose of giving any consent, direction, waiver or request pursuant to the
Pooling and Servicing Agreement, any Certificate registered in the name of the
Depositor or any Person known to a Responsible Officer to be an Affiliate of the
Depositor shall be deemed not to be outstanding (unless to the knowledge of a
Responsible Officer (i) the Depositor or such Affiliate is acting as trustee or
nominee for a Person who is not an Affiliate of the Depositor and who makes the
voting decision with respect to such Certificates or (ii) the Depositor or such
Affiliate is the Holder of all the Certificates of a particular Class) and the
Percentage Interest evidenced thereby shall not be taken into account in
determining whether the requisite amount of Percentage Interests necessary to
effect any such consent, direction, waiver or request has been obtained.
[Certified Assignment Schedule: A computerized
schedule listing each original intervening assignment a true and
correct copy of which is in the possession of the Originator or
the Servicer but the original of which is unavailable and the
contract number and property address of the related Manufactured
Home.]
[Certified Mortgage Schedule: A computerized schedule
listing each original Mortgage a true and correct copy of which
is in the possession of the Originator or the Servicer but the
original of which in unavailable and the contract number and
property address of the related Mortgaged Property.]
4
<PAGE>
Chattel Contract: Any Contract other than a Land-and-
Home Contract.
Civil Relief Act: The Soldier's and Sailors' Civil
Relief Act of 1940.
Class: All of the Certificates having the same
designation.
Class Certificate Balance: As to any Class of Certificates
(other than the Residual Certificates) and any date of determination, the
Original Class Certificate Balance of such Class of Certificates reduced by the
sum of all amounts previously distributed to the Holders thereof on account of
principal.
Class Interest Distribution Amount: With respect to any
Remittance Date and interest-bearing Class, the sum of (i) interest accrued
during the related Accrual Period at the Remittance Rate for such Class, on the
related Class Certificate Balance, subject to reduction pursuant to Section
_________, and (ii) any Class Unpaid Interest Amounts for such Class.
Class Interest Shortfall: As to any Remittance Date and Class,
the amount by which the amount described in clause (i) of the definition of
Class Interest Distribution Amount for such Class exceeds the amount of interest
actually distributed on such Class on such Remittance Date pursuant to such
clause (i).
Class Unpaid Interest Amounts: As to any Remittance Date and
Class of interest-bearing Certificates, the amount by which the aggregate Class
Interest Shortfalls for such Class on prior Remittance Dates exceeds the amount
distributed on such Class on prior Remittance Dates pursuant to clause (ii) of
the definition of Class Interest Distribution Amount.
Closing Date: ______________, 1996
Code: The Internal Revenue Code of 1986, as amended.
Contracts: The manufactured housing installment sales
contracts and manufactured housing installment loan agreements, described in the
Schedule of Contracts and constituting part of the corpus of the Trust, and
includes, without limitation, all related security interests and Mortgages and
any and all rights to receive payments which are due pursuant thereto [on or]
after the Cut-off Date, but excluding any rights to receive payments which are
due pursuant thereto [on or] prior to the Cut-off Date. On and after a
Subsequent Transfer Date, "Contracts" shall include the Subsequent Contracts
listed on the related Schedule of Subsequent Contracts.
5
<PAGE>
Contract File: As to each Contract: (a) the original of
the Contract; (b) either (i) the original title document for the related
Manufactured Home or a duplicate certified by the appropriate governmental
authority which issued the original thereof or the application for such title
document or (ii) if the laws of the jurisdiction in which the related
Manufactured Home is located do not provide for the issuance of title
documents for manufactured housing, other evidence of ownership of the related
Manufactured Home which is customarily relied upon in such jurisdiction as
evidence of title to a manufactured housing unit; (c) evidence of one or more
of the following types of perfection of the security interest in the related
Manufactured Home granted by such Contract, as appropriate: (i) notation of
such security interest on the title document; (ii) a financing statement
meeting the requirements of the UCC, with evidence of recording indicated
thereon; or (iii) such other evidence of perfection of a security interest in
a manufactured housing unit as is customarily relied upon in the jurisdiction
in which the related Manufactured Home is located; (d) with respect to each
Land-and-Home Contract, the related Mortgage with evidence of recording thereon
and the assignment thereof in recordable form; (e) each assignment of the
Contract evidencing the chain of title of the Contract from the originator
(if other than the applicable Originator) to an Originator; and (f) any
extension, modification or waiver agreement(s).
Contract Purchase Agreement: The Contract Purchase
Agreement, dated the Closing Date, among the Seller and the
Originators.
Contract Rate: As of any date of determination, the
rate of interest borne by each Contract.
Contract Sale Agreement: The Contract Sale Agreement,
dated the Closing Date, between the Depositor and the Seller.
Corporate Trust Office: The office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the Closing Date is located at the address set
forth in Section 11.04.
Cumulative Realized Losses: As to any Remittance Date, the sum
of the Realized Losses for that Remittance Date and each preceding Remittance
Date since the Cut-off Date.
Cut-off Date: ________ 1, 1996, except that the Cutoff Date
with respect to any Contract that is not a Subsequent Contract and dated on or
after _____ 1, 1996, shall be the date of such Contract.
6
<PAGE>
Cut-off Date Pool Principal Balance: Prior to a
Subsequent Transfer Date $___________________. On a Subsequent
Transfer Date, the sum of (i) $______________, (ii) the
aggregate Cut-off Date Principal Balance of the Subsequent
Contracts transferred to the Trust on such Subsequent Transfer Date and
(iii) if applicable, an amount calculated as provided in clause (ii) with
respect to all prior Subsequent Transfer Dates.
Cut-off Date Principal Balance: As to any Contract,
Qualified Replacement Contract or Subsequent Contract, the
Scheduled Principal Balance thereof as of the Cut-off Date, the
applicable Replacement Cut-off Date or the applicable Subsequent
Cut-off Date, as the case may be.
Debt Service Reduction: With respect to any Contract,
a reduction by a court of competent jurisdiction of the
Scheduled Payment due on such Contract.
Defaulted Contract: [A Contract with respect to which the
Servicer commenced repossession or foreclosure procedures, made a sale of such
Contract to a third party for repossession, foreclosure or other enforcement, or
as to which there was a payment delinquent 180 or more days (excluding any
Contract deemed delinquent solely because the Obligor's required monthly payment
was reduced as a result of bankruptcy or similar proceedings).]
Definitive Certificates: Any Residual Certificate and
any Certificate issued in lieu of a Book-Entry Certificate
pursuant to Section 6.01(f).
Deposit Date: As to any Remittance Date, the ________
Business Day preceding such Remittance Date.
Depositor: UCFC Funding Corporation, a Louisiana
corporation, and its successors and permitted assigns.
Depository: The Depository Trust Company, the nominee
of which is Cede & Co., or any successor thereto.
Depository Participant: A broker, dealer, bank or other
financial institution or other Person for whom from time to time the Depository
effects book-entry transfers and pledges of securities deposited with the
Depository.
Determination Date: The ________ Business Day
preceding each Remittance Date.
Disqualified Organization: The meaning set forth from
time to time in the definition thereof at Section 860E(e)(5) of
the Code (or any successor statute thereto).
7
<PAGE>
Due Date: As to any Contract, the day of the month on
which the Scheduled Payment is due, excluding any days of grace.
Due Period: As to any Remittance Date, [the period
beginning on the second day of the calendar month preceding the month of
such Remittance Date and ending on the first day of][the calendar month
preceding] the calendar month of such Remittance Date.
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, but only if Moody's is
not a Rating Agency) have the highest short-term ratings of each 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) 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 each
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 the trust department of a
federal or state chartered depository institution or trust company, acting in
its fiduciary capacity or (iv) any other account acceptable to each Rating
Agency. Eligible Accounts may bear interest, and may include, if otherwise
qualified under this definition, accounts maintained with the Trustee.
Eligible Investments: Any of the following:
(a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States, the timely
payment or the guarantee of which constitutes a full faith and credit obligation
of the United States.
(b) Federal Housing Administration debentures, but excluding
any such securities whose terms do not provide for payment of a fixed dollar
amount upon maturity or call for redemption.
8
<PAGE>
(c) FHLMC senior debt obligations, but excluding any such
securities whose terms do not provide for payment of a fixed dollar amount upon
maturity or call for redemption.
(d) Federal Home Loan Banks' consolidated senior debt
obligations, but excluding any such securities whose terms do not provide for
payment of a fixed dollar amount upon maturity or call for redemption.
(e) FNMA senior debt obligations, but excluding any such
securities whose terms do not provide for payment of a fixed dollar amount upon
maturity or call for redemption.
(f) Federal funds, certificates of deposit, time and demand
deposits, and bankers' acceptances (having original maturities of not more than
365 days) of any domestic bank, the short-term debt obligations of which have
been rated A-1 or better by S&P and P-1 by Moody's.
(g) Deposits of any bank or savings and loan association which
has combined capital, surplus and undivided profits of at least $3,000,000 which
deposits are not in excess of the applicable limits insured by the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC, provided
that the long-term deposits of such bank or savings and loan association are
rated at least "BBB" by S&P and "Baa3" by Moody's.
(h) Commercial paper (having original maturities of not more
than 270 days) rated A-1 or better by S&P and P-1 by Moody's.
(i) Investments in money market funds rated AAAm or
AAAm-G by S&P and Aaa by Moody's.
provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity.
ERISA: Employee Retirement Income Security Act of
1974, as amended.
Event of Default: As defined in Section 8.01(a).
9
<PAGE>
Expense Fee Rate: A per annum rate equal to the sum
of [the Premium Rate,] the Servicing Fee Rate and the Trustee's
Fee Rate, which sum equals ________% per annum.
FDIC: The Federal Deposit Insurance Corporation, or
any successor thereto.
FHA/VA Contract: A Contract that, at its origination, was
insured by the Federal Housing Administration or partially guaranteed by the
Veterans Administration.
FHA/VA Regulations: As to any FHA/VA Contract, the contractual
agreements and regulations of the Federal Housing Administration or the Veterans
Administration, as the case may be, providing or governing the terms of the
insurance for such Contract by the Federal Housing Administration or the partial
guarantee for such Contract by the Veterans Administration, as the case may be.
FHLMC: The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970, as amended, or any successor thereof.
Fitch: Fitch Investors Service L.P.
Fixed Rate Certificate: Any one of the Certificates,
other than the Floating Rate Certificates and the Residual
Certificates.
Floating Rate Certificates: The Class ___
Certificates.
FNMA: The Federal National Mortgage Association, a
federally-chartered and privately-owned corporation existing
under the Federal National Mortgage Association Charter Act, as
amended, or any successor thereof.
Foreclosure Profits: With respect to a Liquidated Contract,
the amount, if any, by which (i) the aggregate of the related Net Liquidation
Proceeds exceeds (ii) the related unpaid principal balance (plus accrued and
unpaid interest thereon at the applicable Contract Rate from the date interest
was last paid through the date of receipt of the final Liquidation Proceeds) of
such Liquidated Contract immediately prior to the final recovery of its
Liquidation Proceeds.
Formula Principal Distribution Amount: As to any
Remittance Date, the sum of:
(i) the principal portion of all Scheduled Payments
due on each outstanding Contract during the
10
<PAGE>
prior Due Period as specified in the amortization schedule
at the time applicable thereto (after adjustments for
previous partial Principal Prepayments but before any
adjustment to such amortization schedule by reason of any
bankruptcy of an Obligor or similar proceeding or any
moratorium or similar waiver or grace period); plus
(ii) all partial Principal Prepayments applied
and all Principal Prepayments in full received during
the prior Prepayment Period; plus
(iii) the Scheduled Principal Balance of each
Contract that became a Liquidated Contract during the
prior Due Period; plus
(iv) the aggregate of the Purchase Prices and
Substitution Adjustment Amounts received with respect to the
prior Due Period.
Hazard Insurance Policy: As to each Contract, the policy of
fire and extended coverage insurance (and federal flood insurance, if the
Manufactured Home is located in a federally designed special flood area)
required to be maintained for the related Manufactured Home, as provided in
Section 3.07 and which, as provided in Section 3.07, may be a blanket mortgage
impairment policy maintained by the Servicer in accordance with the terms and
conditions of said Section 3.07.
Insurance Proceeds: The proceeds of any insurance
policy [other than the Certificate Insurance Policy] relating to
a Contract.
Interest Determination Date: The second Business Day
prior to any Remittance Date while the Floating Rate
Certificates are outstanding.
Land-and-Home Contract: A Contract that is secured by a
mortgage or deed of trust on real estate on which the related Manufactured Home
is situated and which Manufactured Home is considered or classified as part of
the real estate under the laws of the jurisdiction in which it is located.
Land-in-Lieu Contract: A Chattel Contract with respect to
which the Obligor has granted the applicable Originator a Mortgage on real
property as part or all of the down payment for the Manufactured Home secured by
such Chattel Contract.
Letter of Credit: An irrevocable letter of credit (i) issued
by a commercial bank rated ___ or better by S&P and ___ or better by Moody's
[and acceptable to the Certificate
11
<PAGE>
Insurer], (ii) in form and substance acceptable [to the Certificate Insurer and]
the Trustee, (iii) with a maximum term of one year, (iv) for the benefit of the
Trustee on behalf of the Certificateholders and (v) providing for the amount
thereof to be available to the Trustee on behalf of the Certificateholders in
multiple drawings conditioned only upon presentation of sight drafts accompanied
by the applicable certificate in the form attached to such letter of credit.
Letter of Credit Bank: Any bank issuing a Letter of
Credit to the Trustee on behalf of the Certificateholders.
Liquidated Contract: A defaulted Contract as to which the
Servicer has determined that all amounts which it expects to recover from or on
account of such Contract have been recovered; provided that any defaulted
Contract in respect of which the related Manufactured Home and, in the case of
Landand-Home Contracts, Mortgaged Property, have been realized upon and disposed
of and the proceeds of such disposition have been received shall be deemed to be
a Liquidated Contract.
Liquidation Expenses: Out-of-pocket expenses which are
incurred by the Servicer in connection with the liquidation of any defaulted
Contract, on or prior to the date on which the related Manufactured Home and, in
the case of Land-and-Home Contracts, Mortgaged Property, are disposed of,
including, without limitation, legal fees and expenses, and any related and
unreimbursed expenditures for property taxes, property preservation or
restoration of the property to marketable condition.
Liquidation Proceeds: Cash (including Insurance Proceeds)
received in connection with the liquidation of defaulted Contracts, whether
through repossession, foreclosure sale or otherwise, including any rental income
realized from the repossessed Manufactured Home.
Loan-to-Value Ratio: As to any Contract, a fraction (expressed
as a percentage rounded to two decimal places), the numerator of which is the
principal amount of such Contract at origination and, the denominator of which
is the Appraised Value of the Manufactured Home (and in the case of a
Land-and-Home Contract, the related Mortgaged Property securing such Contract).
Manufactured Home: A unit of manufactured housing,
including all accessions thereto, securing the indebtedness of
the Obligor under the related Contract.
[Monthly Premium Deposit: As to any Remittance Date,
an amount equal to the product of (x) one-twelfth of the Premium
Rate and (y) the sum of the Class Certificate Balances of the
12
<PAGE>
Classes of Senior Certificates after giving effect to the
distribution of principal applicable thereto on such Remittance
Date.]
Monthly Report: The information furnished by the Servicer to
the Trustee with respect to each Due Period as specified in Exhibit J to the
Pooling and Servicing Agreement.
Moody's: Moody's Investors Service, Inc.
Mortgage: The mortgage, deed of trust or other instrument
creating a first lien on an estate in fee simple interest in real property
securing a Land-and-Home Contract.
Net Contract Rate: As to any Contract, a per annum
rate equal to the related Contract Rate minus the Servicing Fee
Rate.
Net Liquidation Proceeds: As to any Liquidated Contract,
Liquidation Proceeds net of Liquidation Expenses and unreimbursed Monthly
Advances relating to such Contract. In no event shall Net Liquidation Proceeds
with respect to any Liquidated Contract be less than zero.
Note: As to any Land-and-Home Contract or Land-in-
Lieu Contract, the evidence of indebtedness of the Obligor which
is secured by the related Mortgage.
Offered Certificates: All Classes of Certificates
other than the Residual Certificates.
Officer's Certificate: A certificate signed by any
Authorized Officer of any Person delivering such certificate and
delivered to the Trustee.
Obligor: The Person who is indebted under a Contract.
Original Capitalized Interest Deposit: $____________
Original Class Certificate Balance: The aggregate
original principal balance of the Certificates of a Class of
Offered Certificates on the Closing Date as follows:
Class Original Class Certificate Balance
----- ----------------------------------
Original Pre-Funded Amount: $________________ .
Originator: Any of UCFI, UNICOR or UCLC.
13
<PAGE>
Overfunded Amount: As to any Subsequent Transfer Date, the
excess, if any, of (x) the sum of (i) the amount on deposit in the Capitalized
Interest Account on such Subsequent Transfer Date and (ii) the aggregate
Pre-Funding Earnings on the remaining amount on deposit in the Pre-Funding
Account for the period from the preceding Pre-Funding Remittance Date to the
next Pre-Funding Remittance Date at 2.0% per annum, over (y) the [sum of the]
Capitalized Interest Requirement [and the Capitalized Premium Payment] for each
succeeding Pre-Funding Remittance Date.
Parent: United Companies Financial Corporation, a
Louisiana corporation.
Percentage Interest: As to any Offered Certificate, that
fraction, expressed as a percentage, the numerator of which is the original
principal balance of such Certificate as of the Cut-off Date and the denominator
of which is the Original Class Certificate Balance of the Class of Offered
Certificates of which such Certificate is a part. As to any other Certificate,
that Percentage Interest set forth on such Certificate.
Person: Any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
Pooling and Servicing Agreement: The Pooling and Servicing
Agreement, dated as of ________ 1, 1996, among the Depositor, the Servicer and
the Trustee, as the same may be amended from time to time.
Pool Principal Balance: As of any date, the aggregate
of the Scheduled Principal Balances of all of the Contracts as
of the close of business on such date.
Pre-Funded Amount: As to any Determination Date, the
amount on deposit in the Pre-Funding Account excluding Pre-
Funding Earnings.
Pre-Funding Account: The pre-funding account
established and maintained with the Trustee as provided in
Section 5.01.
Pre-Funding Earnings: As to any Pre-Funding Remittance Date,
the amount of actual net investment earnings realized on the Pre-Funded Amount
in the Pre-Funding Account during the period beginning on the Determination Date
in the month preceding such Pre-Funding Remittance Date (or in the case of the
first Pre-Funding Remittance Date, beginning on the Closing Date) and ending on
the Determination Date in the month of such Pre-Funding Remittance Date.
14
<PAGE>
Pre-Funding Period: The period beginning on the Closing Date
and ending on the earliest to occur of (i) the date on which the Pre-Funded
Amount is less than $100,000, (ii) an Event of Default and (iii) ______________
15, 199_.
Pre-Funding Remittance Date: Each Remittance Date occurring
during the Pre-Funding Period and the Remittance Date occurring in the month (i)
following the month in which such Pre-Funding Period ends if such period ends
after the Remittance Date in a month or (ii) in which such Pre-Funding Period
ends, if such period ends prior to the Remittance Date in a month.
[Premium Payment: With respect to each Premium
Payment Date, an amount equal to the product of (x) one-fourth
of the Premium Rate and (y) the sum of the Class Certificate
Balances of the Senior Certificates after giving effect to the
distribution of principal applicable thereto.]
[Premium Payment Date: The Remittance Date in
__________ 199_ and each third Remittance Date thereafter.]
[Premium Rate: As defined in the Insurance
Agreement.]
Prepayment Period: As to any Remittance Date,
______________.
Principal Prepayment: Any payment or other recovery of
principal on a Contract (exclusive of Liquidation Proceeds) which is received in
advance of its scheduled Due Date and applied upon receipt (or, in the case of a
partial Principal Prepayment, upon the next scheduled Due Date on such Contract)
to reduce the outstanding principal amount due on such Contract prior to the
date or dates on which such principal amount is due.
Prohibited Transactions: A prohibited transaction as
defined in Section 860F of the Code or a contribution defined in
Section 860G(d) of the Code.
Prospectus: The Prospectus Supplement dated
____________, 1996 together with the Prospectus dated
___________, 1996, relating to the Offered Certificates.
Purchase Price: As to any Contract repurchased on any date
pursuant to Part I or Part III of Exhibit D, an amount equal to the sum of (i)
the unpaid principal balance thereof and (ii) the greater of (a) all unpaid
accrued interest thereon and (b) 30 days' interest thereon, computed at the
applicable Contract Rate, (iii) any unreimbursed Monthly Advances and Servicing
Advances with respect to such Contract.
15
<PAGE>
Purchaser: The Depositor.
Qualified Replacement Contract: A Contract substituted for
another pursuant to this Agreement, which (i) has a current Contract Rate at
least equal to, and not more than 1% greater than, the current Contract Rate of
the Contract being replaced, (ii) shall mature no later than the maturity date
of the Contract being replaced, (iii) has a Loan-to-Value Ratio no higher than
the Loan-to-Value Ratio of the replaced Contract, (iv) has a Cut-off Date
Principal Balance equal to or less than the Scheduled Principal Balance of the
replaced Contract and (v) satisfies each representation and warranty set forth
in Part II of Exhibit D as of the date of substitution.
Rating Agency: [Fitch, S&P and Moody's] and any other
nationally recognized statistical credit rating agency, or its successor, that
rates any Certificates at the request of the Depositor at the time of the
initial issuance of the Certificates [with the consent of the Certificate
Insurer.] If such agency or a successor is no longer in existence, "Rating
Agency" shall be such statistical credit rating agency, or other comparable
Person, designated by the Depositor [with the consent of the Certificate
Insurer], notice of which designation shall be given to the Trustee and
Servicer. References herein to the highest rating category of a rating agency
shall mean AAA or A- 1+, in the case of S&P, and Aaa or P-1, in the case of
Moody's, and in the case of any other Rating Agency shall mean such equivalent
ratings.
Realized Loss: With respect to each Liquidated Contract, an
amount (not less than zero or more than the Scheduled Principal Balance of the
Contract) as of the date of such liquidation, equal to (i) the Scheduled
Principal Balance of the Liquidated Contract as of the date of such liquidation,
plus (ii) interest at the Net Contract 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 Scheduled Principal Balance of such Liquidated Contract from
time to time, minus (iii) the Liquidation Proceeds, if any, received during the
month in which such liquidation occurred, to the extent applied as recoveries of
interest at the Contract Rate and to principal of the Liquidated Contract.
Record Date: With respect to each Remittance Date, the last
Business Day of the calendar month immediately preceding the calendar month in
which such Remittance Date occurs.
Released Mortgaged Property Proceeds. As to any Landand-Home
Contract, proceeds received by the Servicer in connection with (a) a taking of
an entire Mortgaged Property by
16
<PAGE>
exercise of the power of eminent domain or condemnation or (b) any release of
part of the Mortgaged Property from the lien of the related Mortgage whether by
partial condemnation, sale or otherwise, which are not released to the Obligor
in accordance with the applicable law and servicing standards the Servicer would
use in servicing similar contracts for its own account.
REMIC: A "real estate mortgage investment conduit"
within the meaning of Section 860D of the Code.
REMIC Provisions: Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of the Code, and related provisions, and regulations and
rulings promulgated thereunder, as the foregoing may be in effect from time to
time.
REMIC Trust: The segregated pool of assets consisting of the
Contracts, the Collection Account and the Certificate Account. The Pre-Funding
Account and Capitalized Interest Account shall not be part of the REMIC Trust
but shall be part of the Trust.
Remittance Rate: As to any Class of Offered
Certificates, the per annum rate indicated or calculated as set
forth below.
Class Remittance Rate
----- ---------------
Remittance Date: The 15th day of each month or, if the 15th is
not a Business Day, on the immediately succeeding Business Day, commencing in
the month following the Closing Date.
REO Property: A Manufactured Home or Mortgaged Property
acquired by the Servicer on behalf of the Trust through repossession,
foreclosure or deed-in-lieu of foreclosure in connection with a defaulted
Contract.
Replacement Cut-off Date: As to any Qualified
Substitute Contract, the first day of the calendar month in
which such Qualified Substitute Contract is conveyed to the
Trust.
Residual Certificate: Any Class R Certificate.
S&P: Standard & Poor's, a division of The McGraw-Hill
Companies, Inc.
17
<PAGE>
Scheduled Payment: The scheduled monthly payment on a
Contract due on any Due Date allocable to principal and/or
interest on such Contract.
Scheduled Principal Balance: As to any Contract and any
Remittance Date, the principal balance of such Contract as of the Due Date in
the Due Period immediately preceding such Remittance Date, as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such amortization schedule by reason of any bankruptcy of an Obligor or similar
proceeding or any moratorium or similar waiver or grace period) after giving
effect to any previous partial Principal Prepayment and to the payment of
principal due on such Due Date and irrespective of any delinquency in payment
by, or extension granted to, the related Obligor.
Schedule of Contracts: The list identifying each Contract
constituting part of the corpus of the Trust, which list (a) identifies each
Contract and (b) sets forth for each Contract (i) the unpaid principal balance
as of the Cut-off Date, (ii) the amount of monthly payments due from the
Obligor, (iii) the Contract Rate and (iv) the maturity date, and which is
attached to this Agreement as Exhibit C.
Schedule of Subsequent Contracts. The schedule attached to
each Subsequent Transfer Agreement listing the Subsequent Contracts being sold
to the Trust pursuant thereto. Each such schedule shall include the same
categories of information set forth in the definition of Schedule of Contracts
substituting where appropriate, information as of the applicable Subsequent
Cut-off Date rather than the Cut-off Date.
Seller: Gopher Funding, Inc.
Senior Certificates:
Senior Percentage: As to any Remittance Date
___________________.
Senior Principal Distribution Amount: As to any
Remittance Date, [the Senior Percentage of the Formula Principal
Distribution Amount].
Servicer: United Companies Lending Corporation(R), a
Louisiana corporation, and its permitted successors and assigns.
Servicer LOC: Any letter of credit, surety bond or similar
agreement obtained by the Servicer pursuant to Section __________ .
Servicing Advance: All reasonable and customary "out of
pocket" costs and expenses incurred in the performance by the
18
<PAGE>
Servicer of its servicing obligations, including but not limited to, the cost of
(i) the preservation, restoration and protection of the Manufactured Home or
Mortgaged Property, (ii) any enforcement or judicial proceedings, including
foreclosures or repossessions, (iii) the management and liquidation of the REO
Property, including reasonable fees paid to any independent contractor in
connection therewith, and (iv) compliance with the obligations under Section
3.07(a).
Servicing Fee: As to any Remittance Date, an amount
equal to the product of one twelfth of the Servicing Fee Rate
and the Pool Principal Balance.
Servicing Fee Rate: _____% per annum.
Subordinated Certificates:
Subordinated Percentage: As of any date of
determination, 100% minus the Senior Percentage.
Subordinated Principal Distribution Amount: As to any
Remittance Date, an amount equal to [the Subordinated Percentage
of the Formula Principal Distribution Amount].
Subsequent Contracts: Those manufactured housing installment
sales contracts and manufactured housing installment loan agreements sold,
transferred and conveyed on a Subsequent Transfer Date pursuant to Section 2.05
and the related Subsequent Transfer Agreement, which shall be listed in the
Schedule of Subsequent Contracts delivered pursuant to such Subsequent Transfer
Agreement.
Subsequent Cut-off Date: The [opening] [close] of business on
the first day of the month in which a Subsequent Transfer Date occurs as
specified in a Subsequent Transfer Agreement with respect to those Subsequent
Contracts which are being sold pursuant to such Subsequent Transfer Agreement.
Subsequent Transfer Agreement: Each Subsequent Transfer
Agreement dated as of a Subsequent Transfer Date, executed and delivered
pursuant to the terms hereof and thereof, substantially in the form attached
hereto as Exhibit I.
Subsequent Transfer Date: The date specified as such
in each Subsequent Transfer Agreement which shall occur on or
prior to _________ 15, 199__.
Subservicer: Any Person with whom the Servicer has
entered into a Subservicing Agreement.
Subservicing Agreement: The written contract between
the Servicer and any Subservicer relating to servicing and/or
19
<PAGE>
administration of certain Contracts as permitted by Section
3.02.
Substitution Adjustment Amount: As defined in Section
3.1(a) of the Contract Purchase Agreement.
Tax Matters Person: The tax matters person, as defined in
Section 1.860F-4(d) of the Treasury Regulations, appointed with respect to the
REMIC Trust pursuant to Section 2.09.
Tax Matters Residual Interest: A Class R Certificate with a
0.01% Percentage Interest issued to the Servicer in order for the Servicer to
serve as Tax Matters Person of the REMIC Trust.
[Title Policy Schedule: A computerized schedule
listing for each Land-and-Home Contract, the name and address of the title
insurance company issuing the commitment, binder or policy with respect
thereto and the commitment, binder or policy number, as applicable.]
Trust: UCFC MH Trust 1996-___, the corpus of which shall
include, without limitation, the following: (i) the Contracts, (ii) such
amounts, including Eligible Investments, as from time to time may be held by the
Trustee in any related Account, and by the Servicer in the Collection Account or
otherwise held by the Servicer in trust for the Certificateholders (except as
otherwise provided herein), (iii) any REO Property, (iv) any Insurance Policies
relating to the Contracts, (v) Net Liquidation Proceeds (but excluding
Foreclosure Profits) with respect to any Liquidated Contract, (vi) all rights of
the Depositor under the Contract Purchase Agreement and the Contract Sale
Agreement transferred and assigned by the Depositor to the Trustee pursuant to
this Agreement, [and (vii) the rights of the Trustee under the Certificate
Insurance Policy].
Trustee: ___________________________________, not in
its individual capacity but solely as Trustee of the Trust
created under this Agreement, and any successor hereunder.
Trustee's Fee: With respect to any Remittance Date, the
product of (i) one-twelfth of the Trustee's Fee Rate and (ii) the Pool Principal
Balance as of the last day of the preceding Due Period.
Trustee's Fee Rate: _______% per annum.
UCC: The Uniform Commercial Code in effect as of the
applicable date in the jurisdiction to which the reference
thereto applies.
20
<PAGE>
UCFI: United Companies Funding, Inc., a Louisiana
corporation.
UCLC: United Companies Lending Corporation(R), a
Louisiana corporation.
Underfunded Amount: As to any Subsequent Transfer Date, the
excess, if any, of (x) the [sum of the] Capitalized Interest Requirement [and
the Capitalized Premium Payment] for the next Pre-Funding Remittance Date over
(y) the sum of (i) the amount on deposit in the Capitalized Interest Account and
(ii) the aggregate Pre-Funding Earnings on the remaining amount on deposit in
the Pre-Funding Account for the period from such PreFunding Remittance Date to
the next Pre-Funding Remittance Date at 2.0% per annum.
UNICOR: UNICOR Mortgage(R), Inc., a Louisiana
corporation.
21
<PAGE>
EXHIBIT D
Representations, Warranties and Covenants of the Originators
Part I. Delivery Requirements
(a) On or prior to the Closing Date, each Originator shall
make the following deliveries with respect to each of the Contracts sold by it
on the Closing Date:
(i) Land-and Home Contracts
(A) to the Trustee, the following:
(I) the original Note, endorsed
without recourse by such
Originator to the order of the
Trustee;
(II) an original of an assignment of
the Mortgage in recordable form from
the applicable Originator to the
Trustee (except with respect to
those Mortgages which have not yet
been returned from the applicable
recorder's office);
(III) originals of each intervening
assignment, with evidence of
recording thereon, showing a
complete chain of title from
origination to the applicable
Originator or, if the original of
any such intervening assignment is
unavailable, [the Certified
Assignment Schedule]; and
(IV) originals of all assumption and
modification agreements, if any;
(B) to the Servicer, as custodian for the
Trustee, a complete Contract File other than
the documents delivered to the Trustee as
provided in (i)(A) above.
(ii) Land-in-Lieu Contracts
(A) to the Trustee, the following:
(I) the original Note, endorsed without
recourse by such Originator to the
order of the Trustee;
(II) an original of an assignment of
the Mortgage in recordable form from
the applicable Originator to the
Trustee (except with
<PAGE>
respect to those Mortgages which have
not yet been returned from the
applicable recorder's office);
(III) originals of each intervening
assignment with evidence of
recording thereon, showing a
complete chain of title from
origination to the applicable
Originator, or if the original of
any such intervening assignment is
unavailable [the Certified
Assignment Schedule];
(IV) originals of all assumption and
modification agreements, if any:
(V) evidence of filing of the following
UCC-1 financing statements
(x) listing the applicable
Originator as debtor and the
Seller as secured party and filed
in the Applicable Filing Office;
(y) listing the Seller as debtor
and the Depositor as secured party
and filed in the Applicable Filing
Office; and
(z) listing the Depositor
as debtor and the Trustee
as secured party and filed
in the Applicable Filing
Office.
(B) to the Servicer, as custodian for
the Trustee, a complete Contract
File other than the documents
delivered to the Trustee pursuant to
(ii)(A) above.
(iii) Chattel Contracts
(A) to the Trustee, evidence of filing of
the following UCC-1 financing
statements
(x) listing the applicable
Originator as debtor and the
Seller as secured party and filed
in the Applicable Filing Office;
(y) listing the Seller as debtor
and the Depositor as secured party
2
<PAGE>
and filed in the Applicable Filing
Office; and
(z) listing the Depositor
as debtor and the Trustee
as secured party and filed
in the Applicable Filing
Office.
(B) to the Servicer, as custodian for
the Trustee, a complete Contract
File other than the documents
delivered to the Trustee pursuant to
(iii)(A) above.
(b) Promptly after the Closing Date, each Originator, at its
sole cost and expense, shall with respect to the Land-and-Home Contracts and
Land-in-Lieu Contracts sold by it on the Closing Date, cause assignments of the
Mortgages from such Originator to the Trustee, as designee of the Purchaser, to
be submitted for recording in the appropriate jurisdictions; provided, however,
that such Originator shall not be required to submit for recording an assignment
for any Mortgage with respect to which the original recording information is
lacking until promptly following the receipt of such recording information. Such
assignments shall be submitted for recording within two Business Days after
receipt of the necessary recording information and in any case within one year
after the Closing Date.
(c) With respect to the Land-and-Home Contracts and
Land-in-Lieu Contracts sold by it on the Closing Date, each Originator shall
deliver or cause to be delivered (x) to the Trustee, recorded assignments or
copies (certified by the applicable recorder's office) thereof, together with
originals or copies (certified by the applicable recorder's office) of any and
all prior recorded assignments and (y) to the Servicer, as custodian for the
Trustee, the original or copies (certified by the applicable recorder's office)
of the Mortgages, as the case may be, policy numbers for all title policies, in
each case, within 30 days of receipt thereof by such Originator (but in any
event within one year after the Closing Date).
(d) Notwithstanding anything to the contrary contained in this
Part I, in those instances where the public recording office retains the
original Mortgage, the assignment of a Mortgage or the intervening assignments
of the Mortgage after it has been recorded, the Originator shall be deemed to
have satisfied its obligations hereunder upon delivery to the Trustee, or the
Servicer, as applicable, of a true and correct copy of such Mortgage, such
assignment or assignments of Mortgage, duly certified by the applicable
recorder's office.
(e) Each Originator covenants and agrees with respect
to the Land-and-Home Contracts and Land-in-Lieu Contracts sold
3
<PAGE>
by it on the Closing Date (i) to maintain or cause to be maintained on
microfiche (or other permanent storage media) a copy of each original title
insurance policy and to furnish a copy thereof to the Trustee, as designee of
the Purchaser, or the Servicer if necessary in order to present claims under
such policy and (ii) to provide to the Trustee, as designee of the Purchaser, or
the Servicer a certified copy of any Mortgage or intervening assignment which
was not delivered on the Closing Date and has not been subsequently delivered as
provided in (c) above if necessary to permit the Servicer to take actions with
respect to the related Land-and-Home Contract or Land-in-Lieu Contract.
(f) In the case of Contracts sold on the Closing Date which
have been prepaid in full [on or] after the Cut-off Date and prior to the
Closing Date, the Originators, in lieu of the foregoing, will cause the Servicer
to deliver within 15 days after the Closing Date to the Trustee, as designee of
the Purchaser, a certification of an Authorized Officer in the form set forth in
Exhibit A to the Contract Purchase Agreement.
(g) If a Mortgage assignment is lost during the process of
recording, or is returned from the recorder's office unrecorded due to a defect
therein, the applicable Originator shall prepare a substitute assignment or cure
such defect, as the case may be, and thereafter cause each such assignment to be
duly recorded.
(h) If an Originator receives notice from the Trustee, the
Depositor or the Servicer pursuant to Section 2.02 of the Pooling and Servicing
Agreement that any required item has not been received, and such item materially
and adversely affects the interest of the Certificateholders in the related
Contract, such Originator agrees to use reasonable efforts to remedy a material
defect in a document constituting part of a Contract File of which it is so
notified. If, however, within 60 days after notice to it respecting such defect
the applicable Originator has not remedied, or caused to be remedied, the defect
and the defect materially and adversely affects the interest of the
Certificateholders in the related Contract, such Originator will on the next
succeeding Deposit Date (i) substitute in lieu of such Contract a Qualified
Replacement Contract and deliver the Substitution Adjustment Amount applicable
thereto directly to the Servicer for deposit in the Collection Account or (ii)
purchase such Contract at a purchase price equal to the Purchase Price thereof,
which purchase price shall be delivered directly to the Servicer for deposit in
the Collection Account. Upon receipt by the Trustee, as designee of the
Purchaser, of written notification of such deposit the Trustee, as designee of
the Purchaser, shall release or cause the Servicer to release to such Originator
the related Contract File and the Trustee shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as
4
<PAGE>
shall be necessary to vest in such Originator or its designee any Contract
released pursuant hereto. It is understood and agreed that the obligation of the
Originators to cure, substitute for or purchase any Contract as to which a
material defect in or omission of a constituent document exists shall constitute
the sole remedy against the Originators respecting such defect or omission
available to the Purchaser, the Certificateholders or the Trustee on behalf of
Certificateholders. In connection with any such proposed purchase or
substitution, the applicable Originator shall cause at such Originator's expense
to be delivered to the Trustee an opinion of counsel experienced in federal
income tax matters stating whether or not such a proposed purchase or
substitution would constitute a Prohibited Transaction for the REMIC Trust or
would jeopardize the status of the REMIC Trust as a REMIC, and such Originator
shall only be required to take such action to the extent such action would not
constitute a Prohibited Transaction for the REMIC Trust (or if it does
constitute a Prohibited Transaction no tax would be incurred) or would not
jeopardize the status of the REMIC Trust as a REMIC.
Part II. Representations
Note: Until a Subsequent Transfer Date occurs, references in
this Part II to Contracts shall mean the Contracts sold, transferred, conveyed
and assigned on the Closing Date.
(a) Schedule of Contracts. The information set forth
in the Schedule of Contracts is true and correct as of the
Cut-off Date.
(b) Payments. As of the Cut-off Date, the most recent
Scheduled Payment was made by or on behalf of the Obligor (without any
advance from the related Originator or any Person acting at the request
of the related Originator) or was not delinquent for more than 59 days.
(c) No Waivers. The terms of the Contract have not
been waived, altered or modified in any respect, except by
instruments or documents identified in the applicable
Contract File.
(d) Binding Obligation. The Contract is the legal, valid and
binding obligation of the Obligor thereunder and is enforceable in
accordance with its terms, except as such enforceability may be limited
by laws affecting the enforcement of creditors' rights generally.
(e) No Defenses. The Contract is not subject to any
right of rescission, setoff, counterclaim or defense,
including the defense of usury, and the operation of any of
the terms of the Contract or the exercise of any right
thereunder will not render the Contract unenforceable in
5
<PAGE>
whole or in part or subject to any right of rescission setoff,
counterclaim or defense, including the defense of usury, and no such
right of rescission, setoff, counterclaim or defense has been asserted
with respect thereto.
(f) Insurance Coverage. The Manufactured Home securing the
Contract is covered by a Hazard Insurance Policy in the amount required
by Section 3.07. Each Manufactured Home which was, at the time of
origination of the related Contract, located within a federally
designated special flood hazard area is covered by insurance coverage
at least equal to that required by Section 3.07 or such lesser coverage
as may be available under the federal flood insurance program. All
premiums due as of the Closing Date on such insurance have been paid in
full.
(g) Origination. The Contract was originated by a manufactured
housing dealer or the applicable Originator in the regular course of
its business and, if originated by a manufactured housing dealer, was
purchased by the applicable Originator in the regular course of its
business.
(h) Lawful Assignment. The Contract was not originated in and
is not subject to the laws of any jurisdiction whose laws would make
the transfer of the Contract pursuant to this Agreement or pursuant to
transfers of Certificates, or the ownership of the Contract by the
Trust, unlawful or render the Contract unenforceable.
(i) Compliance with Law. At the date of origination of the
Contract, all requirements of any federal and state laws, rules and
regulations applicable to the Contract, including, without limitation,
usury, truth in lending and equal credit opportunity laws, have been
complied with, and the applicable Originator shall for at least the
period of this Agreement, maintain in its possession, available for the
Trustee's inspection, and shall deliver to the Trustee upon demand,
evidence of compliance with all such requirements. Such compliance is
not affected by the Trust's ownership of the Contract.
(j) Contract in Force. The Contract has not been satisfied or
subordinated in whole or in part or rescinded, and the Manufactured
Home securing the Contract has not been released from the lien of the
Contract in whole or in part.
(k) Valid Security Interest. Each Chattel Contract
creates a valid and enforceable perfected first priority
security interest in favor of the Originator in the
6
<PAGE>
Manufactured Home covered thereby as security for payment of the
Cut-off Date Principal Balance of such Contract. The Trustee, as
designee of the Purchaser, has and will have a valid and perfected and
enforceable first priority security interest in such Manufactured Home
and has and will have a valid and perfected ownership interest in such
Contract.
For each Land-and-Home Contract, the related Mortgage is a
valid first lien in favor of the applicable Originator on real property
securing the amount owed by the Obligor under such Land-and-Home
Contract subject only to (a) the lien of current real property taxes
and assessments, (b) covenants, conditions and restrictions, rights of
way, easements and other matters of public record as of the date of
recording of such Mortgage, such exceptions appearing of record being
acceptable to mortgage lending institutions generally in the area
wherein the property subject to the Mortgage is located or specifically
reflected in the appraisal obtained in connection with the origination
of the related Land-and-Home Contract obtained by the applicable
Originator and (c) other matters to which like properties are commonly
subject which do not materially interfere with the benefits of the
security intended to be provided by such Mortgage. The Trustee, as
designee of the Purchaser, has and will have a valid and perfected
ownership interest in such Land-and-Home Contract.
(l) Capacity of Parties. The signature(s) of the Obligor(s) on
the Contract are genuine and all parties to the Contract had full legal
capacity to execute the Contract.
(m) Good Title. In the case of a Contract purchased from a
manufactured housing dealer, the applicable Originator purchased the
Contract for fair value and took possession thereof in the ordinary
course of its business, without knowledge that the Contract was subject
to a security interest. Prior to the transfer of the Contract by the
applicable Originator, such Originator had good and marketable title
thereto free and clear of any encumbrance, equity, loan, pledge,
charge, claim or security interest other than liens released
simultaneously with such transfer and was the sole owner thereof with
full right to transfer the Contract to the Trustee, as designee of the
Purchaser.
(n) No Defaults. As of the Cut-off Date, there was no default,
breach, violation or event permitting acceleration existing under the
Contract and no event which, with notice and the expiration of any
grace or cure period, would constitute such a default, breach,
violation or event permitting acceleration under such Contract (except
payment delinquencies permitted by clause (b)
7
<PAGE>
above). The applicable Originator has not waived any such default,
breach, violation or event permitting acceleration except payment
delinquencies permitted by clause (b) above. As of the Closing Date,
the related Manufactured Home is, to the best of such Originator's
knowledge, free of damage and in good repair.
(o) No Liens. As of the Closing Date there are, to the best of
the applicable Originator's knowledge, no liens or claims which have
been filed for work, labor or materials affecting the Manufactured Home
or any related Mortgaged Property securing the Contract which are or
may be liens prior to, or equal or coordinate with, the lien of the
Contract.
(p) Equal Installments. Each Contract has a fixed
Contract Rate and provides for level monthly payments which
fully amortize the amount financed over its term.
(q) Enforceability. The Contract contains customary and
enforceable provisions so as to render the rights and remedies of the
holder thereof adequate for the realization against the collateral of
the benefits of the security provided thereby.
(r) One Original. There is only one original executed
Contract, which Contract has been delivered to the Trustee or its
custodian on or before the Closing Date. Each Contract (other then the
Land-and-Home Contracts) has been stamped or stickered to reflect the
assignment of such Contract to the Trustee.
(s) Not Real Estate. With respect to each Chattel Contract,
the related Manufactured Home is not considered or classified as part
of the real estate on which it is located under the laws of the
jurisdiction in which it is located.
(t) Notation of Security Interest. With respect to each
Chattel Contract, if the related Manufactured Home is located in a
state in which notation of a security interest on the title document is
required or permitted to perfect such security interest, the title
document shows, or if a new or replacement title document with respect
to such Manufactured Home is being applied for such title document will
be issued within 180 days and will show, the Originator as the holder
of a first priority security interest in such Manufactured Home; if the
related Manufactured Home is located in a state in which the filing of
a financing statement under the UCC is required to perfect a security
interest in manufactured housing, such filings or recordings have been
duly made and show the Originator as secured party. If the related
Manufactured
8
<PAGE>
Home secures a Land-and-Home Contract, such Manufactured Home is
subject to a Mortgage properly filed in the appropriate public
recording office or such Mortgage will be properly filed in the
appropriate public recording office within 180 days, naming the
applicable Originator as mortgagee. In either case, the Trustee has the
same rights as the secured party of record would have (if such secured
party were still the owner of the Contract) against all Persons
(including the applicable Originator and any trustee in bankruptcy of
such Originator) claiming an interest in such Manufactured Home.
(u) Secondary Mortgage Market Enhancement Act. The related
Manufactured Home is a "manufactured home" within the meaning of 42
United States Code, Section 5402(6). Each manufactured housing dealer
from whom the applicable Originator purchased such Contract, if any,
was then approved by such Originator in accordance with the
requirements of the Secretary of Housing and Urban Development set
forth in 24 CFR Section 201.27. At the origination of each Contract,
the applicable Originator was approved for insurance by the Secretary
of Housing and Urban Development pursuant to Section 2 of the National
Housing Act.
(v) Qualified Mortgage. The Contract is a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the
Code.
(w) Amounts. The aggregate principal amounts payable by
Obligors under the Contracts as of the Cut-off Date equal the Cut-off
Date Pool Principal Balance.
(x) Computer Tape. The computer tape made available by or on
behalf of the applicable Originator was complete and accurate as of its
date and includes a description of the same Contracts that are
described in the Schedule of Contracts.
(y) Marking Records. By the Closing Date, the applicable
Originator has caused the portions of its books and records relating to
the Contracts sold by it to be clearly and unambiguously marked to
indicate that such Contracts constitute part of the Trust and are owned
by the Trust in accordance with the terms of the trust created under
the Pooling and Servicing Agreement.
(z) No Adverse Selection. Except for the effect of
these representations and warranties no adverse selection
procedures have been employed in selecting the Contracts.
(aa) Possession. Immediately prior to the Closing
Date, the applicable Originator had possession of each
9
<PAGE>
original Contract and the related Contract File and there are and there
will be no custodial agreements in effect materially and adversely
affecting the rights of such Originator to make, or cause to be made,
any delivery required hereunder.
(bb) Underwriting. Each Home Equity Loan was, in all
material respects, underwritten according to credit
underwriting guidelines which are no less restrictive than
those described in the Prospectus;
(cc) Characteristics. Each Contract conforms in all
material respects and all of the Contracts in the aggregate
conform in all material respects with the description
thereof set forth in the Prospectus; and
(dd) Subsequent Contracts. At the end of the PreFunding
Period, each of the Subsequent Contracts will conform in all material
respects and all of such Subsequent Contracts in the aggregate will
conform in all material respects with the conditions set forth in
Exhibit __.
Part III. Certain Covenants
(a) Upon the discovery by an Originator or by the Trustee, the
Purchaser or the Depositor that any statement set forth in Part II of Exhibit D
was untrue as of the Closing Date or the applicable Subsequent Transfer Date, as
the case may be, with the result that the interests of the Certificateholders
are materially and adversely affected, the party discovering such breach shall
give prompt written notice to the other parties. Upon the earlier to occur of an
Originator's discovery or its receipt of notice of breach, such Originator
hereby covenants and warrants that it shall promptly cure such breach in all
material respects or, unless otherwise directed by the Trustee, as designee of
the Purchaser, it shall (or shall cause an Affiliate of such Originator to) on
the second Deposit Date next succeeding such discovery, or receipt of notice (i)
substitute in lieu of each Contract which has given rise to the requirement for
action by the Originator a Qualified Replacement Contract and deliver the
Substitution Adjustment Amount applicable thereto to the Servicer for deposit in
the Collection Account or (ii) purchase such Contract from the Trustee at a
purchase price equal to the Purchase Price thereof, which purchase price shall
be delivered to the Servicer for deposit in the Collection Account. It is
understood and agreed that the obligation of the Originators so to cure,
substitute or purchase any Contract as to which such a statement is untrue in
any material respect and has not been remedied shall constitute the sole remedy
respecting a discovery of any such statement which is untrue in any material
respect in Part II of this Exhibit D available to the Purchaser or the Trustee,
as designee of the Purchaser.
10
<PAGE>
(b) In the event that any Qualified Replacement Contract is
delivered by an Originator to the Trustee pursuant to Section 2.1, Section 3.1
or Section 3.2 of the Contract Purchase Agreement, such Originator shall be
obligated to take the actions described in clause (a) of Part III of Exhibit D
with respect to such Qualified Replacement Contract upon the discovery by any of
the Originator, the Purchaser or the Depositor that any statement set forth in
Part II of Exhibit D is untrue on the date such Qualified Replacement Contract
is conveyed to the Trustee such that the interests of the Certificateholders in
the related Qualified Replacement Contract are materially and adversely
affected; provided, however, that for the purposes of this subsection (b) the
statements in Part II of Exhibit D referring to items "as of the Cut-off Date"
or "as of the Closing Date" shall be deemed to refer to such items as of the
applicable Replacement Cut-off Date and the date such a Qualified Replacement
Contract is conveyed to the Trustee, as the case may be.
11
<PAGE>
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004
September 11, 1996
UCFC Funding Corporation
4041 Essen Lane
Baton Rouge, Louisiana 70809
Re: UCFC Funding Corporation
Registration Statement on Form S-3
(File No. 333-07939)
Gentlemen:
We have acted as special counsel for UCFC Funding Corporation, a Louisiana
corporation (the "Company"), in connection with the issuance from time to time
in one or more series of Manufactured Housing Contract Pass-Through Certificates
(the "Certificates"). A Registration Statement on Form S-3 relating to the
Certificates (the "Registration Statement") has been filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"). As set forth in the Registration Statement, the
issuer with respect to a series of Certificates (the "Issuer") will be a trust
established by the Company. Each series of Certificates is to be issued pursuant
to a Pooling and Servicing Agreement (each, a "Pooling and Servicing Agreement")
among the Issuer, a master servicer and an independent trustee (the "Trustee").
We have examined copies of the articles of incorporation and by-laws of the
Company, forms of the Pooling and Servicing Agreement and forms of the
Certificates included therein, as well as the Registration Statement and the
agreements and other documents filed as exhibits thereto. We also have examined
the original or reproduced or certified copies of all such records of the
Company, all such agreements, certificates of officers and representatives of
the Company and others, and such other documents, papers, statutes and
authorities as we deemed necessary to form the basis of the opinions hereinafter
<PAGE>
September 11, 1996
Page 2
expressed. In such examinations, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals and the conformity to original documents of copies of documents
supplied to us by the Company and others. As to certain matters of fact relevant
to the opinions hereinafter expressed, we have relied upon statements and
certificates of officers of the Company and others.
Based upon the foregoing, we are of the opinion that:
1. When each Pooling and Servicing Agreement has been duly authorized by all
necessary action and has been duly executed and delivered, each will constitute
the valid and binding obligation of the Issuer, enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto and we express no
opinion with respect to the application of equitable principles in any
proceeding, whether at law or in equity.
2. When the issuance, execution and delivery of each series of Certificates has
been authorized by all necessary action of the Issuer in accordance with the
provisions of the Pooling and Servicing Agreement, and when such Certificates
have been duly executed, authenticated and delivered by the Trustee and sold as
described in the Registration Statement, (a) such Certificates will constitute
the valid and binding obligations of the Issuer, enforceable in accordance with
their terms, subject to the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto and we express no
opinion with respect to the application of equitable principles in any
proceeding, whether at law or in equity, and (b) the holders of such
Certificates will be entitled to the benefits provided by the Pooling and
Servicing Agreement.
3. The information in the Prospectus under the caption "Federal Income Tax
Considerations," to the extent that it constitutes matters of law or legal
conclusions, is correct in all material respects.
In rendering the foregoing opinions, we express no opinion as to the laws of any
jurisdiction other than the State of New York and the federal laws of the United
States of America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the
<PAGE>
September 11, 1996
Page 3
prospectus and the related prospectus supplement forming a part of the
Registration Statement, and to the filing of this opinion as an exhibit to any
application made by or on behalf of the Company or any dealer in connection with
the registration of the Certificates under the securities or blue sky laws of
any state or jurisdiction. In giving such permission, we do not admit hereby
that we come within the category or persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan
STROOCK & STROOCK & LAVAN
