As filed with the Securities and Exchange Commission on March 31, 1999
Registration No. 333-
-----
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
VANDERBILT MORTGAGE AND FINANCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
TENNESSEE 62-0997810
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
500 ALCOA TRAIL
MARYVILLE, TENNESSEE 37804
(423) 380-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
KEVIN T. CLAYTON
500 ALCOA TRAIL
MARYVILLE, TENNESSEE 37804
(423) 380-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
CLAYTON HOMES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 62-1671360
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
5000 CLAYTON ROAD
MARYVILLE, TENNESSEE 37804
(423) 380-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES)
----------------
KEVIN T. CLAYTON
5000 CLAYTON ROAD
MARYVILLE, TENNESSEE 37804
(423) 380-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPY TO:
JOHN W. TITUS, ESQ.
BOULT, CUMMINGS, CONNERS & BERRY, PLC
414 UNION STREET, SUITE 1600
NASHVILLE, TENNESSEE 37219
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, 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./ /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount to be Proposed Proposed Amount of
Securities to Be Registered Registered* Maximum Offering Maximum Aggregate Registration Fee
Price Per Unit** Offering Price**
<S> <C> <C> <C> <C>
Pass-Through Certificates.................... $2,500,000,000 100% $2,500,000,000 $695,000
Limited Guarantee of Clayton Homes, Inc...... $2,500,000,000 100% $2,500,000,000 N/A
</TABLE>
* $287,363,000 in securities registered by the Registrants under Registration
Statement No. 333-43583 referred to below and not previously sold is carried
forward in this Registration Statement pursuant to Rule 429. A registration
fee of $87,079.70 in connection with such unsold amount of securities was
paid previously under the foregoing Registration Statement. Accordingly, the
total amount registered under this Registration Statement as so consolidated as
of the date of this filing is $2,787,363,000.
** Estimated for the purpose of calculating the registration fee.
Pursuant to Rule 429, this Registration Statement also constitutes Post-
Effective Amendment No. 1 to Registration Statement No. 333-43583, which became
effective on January 26, 1998.
The Registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrants shall
file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus supplement is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
- --------------------------------------------------------------------------------
You should consider the risk factors starting on page S-11 of this prospectus
supplement and page 10 of the prospectus.
The offered certificates represent obligations of the trust only and do not
represent an interest in or obligation of Vanderbilt Mortgage and Finance, Inc.,
________________ or any of their affiliates [(except to the extent of the
limited guarantee of the Class I B-2 and Class II B-3 Certificates by Clayton
Homes, Inc.)].
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED MARCH 31, 1999
Prospectus Supplement
(To Prospectus dated _______, 1999)
$-----------
(Approximate)
Vanderbilt Mortgage and Finance, Inc.
Seller and Servicer
Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates, Series 1999__
You should consider the risk factors starting on page S-11 of this prospectus
supplement and page 10 of the prospectus.
The offered certificates represent obligations of the trust only and do not
represent an interest in or obligation of Vanderbilt Mortgage and Finance, Inc.,
______ or any of their affiliates [(except to the extent of the limited
guarantee of the Class I B-2 and Class II B-3 Certificates by Clayton Homes,
Inc.)].
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
The Trust Fund will:
o Issue thirteen Classes of offered certificates described in the table below.
o Consist primarily of manufactured housing installment sales contracts,
installment loan agreements and mortgage loans.
o Make an election to be treated as REMIC for federal income tax purposes.
The Certificates:
o Represent ownership interests in a trust fund.
o Include the Group I Certificates which generally relate to the fixed rate
contracts and the Group II Certificates which generally relate to the
adjustable rate contracts.
o Currently have no trading market and are not listed on any securities
exchange.
o Receive distributions on the ___ day of each month (or if such day is not
a business day, the next business day) beginning on _____ __, 1999.
<TABLE>
<CAPTION>
Original Price
Certificate To Underwriting Proceeds to
Balance Public Discount Company(2)
<S> <C> <C> <C> <C>
Class I A-1 Certificates $
Class I A-2 Certificates(1) $
Class I A-3 Certificates(1) $
Class I A-4 Certificates(1) $
Class I A-5 Certificates(1) $
Class I A-6 Certificates(1) $
Class I M-1 Certificates(1) $
Class I B-1 Certificates(1) $
Class I B-2 Certificates(1) $
Class II A-1 Certificates(1) $
Class II B-1 Certificates(1) $
Class II B-2 Certificates(1) $
Class II B-3 Certificates(1) $
Total................... $ $ $ $
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from ________ __,
1999.
(2) Before deducting expenses, estimated to be $_______.
The underwriters named below will offer these securities to the public at the
price to public set forth above and they will receive the discount listed
above.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
________ __, 1999
You should rely only on the information contained in this document or
to which we have referred you. We have not authorized anyone to provide you
with information that is different. This document may only be used where it is
legal to sell these securities. The information in this document may only be
accurate on the date of this document.
We provide information about the certificates to you through this
document which consists of two parts: (a) the accompanying prospectus, which
provides general information, some of which may not apply to your certificates
and (b) this prospectus supplement, which describes the specific terms of your
certificates. This prospectus supplement may be used to offer and sell the
certificates only if accompanied by the prospectus.
If there is a conflict between the terms of this prospectus supplement
and the accompanying prospectus, you should rely on the information in this
prospectus supplement.
This prospectus supplement and the accompanying prospectus include
cross-references to captions in these materials where you can find further
related discussions. The following table of contents and the table of contents
included in the accompanying prospectus provide the pages on which these
captions are located.
We have filed preliminary information regarding the trust's assets and
the certificates with the Securities and Exchange Commission. The information
contained in this document supersedes all of that preliminary information,
which was prepared by the underwriters for prospective investors.
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
Summary Information......................................S-3
Risk Factors.............................................S-11
The Contract Pool........................................S-15
Vanderbilt Mortgage and Finance, Inc.....................S-26
[Ratio of Earnings to Fixed Charges for CHI..............S-29]
Yield and Prepayment Considerations......................S-29
Description of The Certificates..........................S-50
Use of Proceeds..........................................S-75
Certain Federal Income Tax Consequences..................S-75
State Tax Considerations.................................S-77
ERISA Considerations.....................................S-77
Legal Investment Considerations..........................S-78
Certificate Rating.......................................S-78
Underwriting.............................................S-79
Legal Matters............................................S-80
Index Of Defined Terms...................................S-81
Annex I..................................................I-1
Page
PROSPECTUS
Reports to Holders of Certificates.........................2
Where You Can Find More Information........................2
Risk Factors...............................................4
The Trust Fund.............................................8
Use of Proceeds............................................9
Vanderbilt Mortgage and Finance, Inc.......................9
Underwriting Policies......................................10
Yield Considerations.......................................11
Maturity and Prepayment Considerations.....................12
Description of the Certificates............................12
Description of FHA Insurance and VA Guarantees.............26
Certain Legal Aspects of the Contracts.....................27
ERISA Considerations.......................................32
Certain Federal Income Tax Consequences....................35
State and Local Tax Considerations.........................53
Legal Investment Considerations............................54
Ratings....................................................54
Underwriting...............................................55
Legal Matters..............................................55
Experts....................................................55
Glossary...................................................56
SUMMARY INFORMATION
This summary highlights selected information from this document and
does not contain all of the information to make your investment decision.
Please read this entire prospectus supplement and the accompanying
prospectus carefully for additional information about the Offered
Certificates.
Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates,
Series 1999__
Initial Rating of
Certificates(5)
Original
Class Principal Remittance Rate [______] [_____]
Class Balance(1) (per annum) Rating Rating
Offered Certificates
Class I A-1 $ (2)(3)
Class I A-2 $ (2)
Class I A-3 $ (2)
Class I A-4 $ (2)
Class I A-5 $ (2)
Class I A-6 $ (2)
Class I M-1 $ (2)
Class I B-1 $ (2)
Class I B-2 $ (2)
Class II A-1 $ (3)(4)
Class II B-1 $ (3)(4)
Class II B-2 $ (3)(4)
Class II B-3 $ (3)(4)
Non-Offered Certificate
Class R N/A N/A N/A
- ----------
(1) This amount is subject to a variance of plus or minus 5%.
(2) Subject to a maximum rate equal to (a) the weighted average contract
rate of the Group I Contracts less (b) the applicable servicing fee (if
Vanderbilt Mortgage and Finance, Inc. is no longer the servicer).
(3) Interest will accrue at a variable rate based on one-month LIBOR plus
the applicable spread subject to certain caps described in
"Distributions--Interest Distributions".
(4) The spread will increase if the option to repurchase the Contracts is
not exercised. See "Distributions--Interest Distributions--Remittance
Rates of the Certificates" herein.
(5) A description of the ratings of the Certificates is set forth under the
heading "Certificate Rating" in this prospectus supplement.
The Trust Fund
A trust fund will be established pursuant to a pooling and servicing
agreement, dated as of __________ __, 1999, among Vanderbilt Mortgage and
Finance, Inc., ("Vanderbilt") as seller and servicer[, Clayton Homes, Inc.,
("CHI") as provider of the limited guarantee] and ____________________, as
trustee (the "Trustee").
Seller
o Vanderbilt Mortgage and Finance, Inc. maintains its principal
office at 500 Alcoa Trail, Maryville, Tennessee 37804. Its telephone number is
(423) 380-3000.
Servicer
o Vanderbilt Mortgage and Finance, Inc.
o The Servicer will service all of the Contracts either directly or
through one or more sub-servicers.
Trustee
o ________________________.
Cut-off Date
o _______ __, 1999.
Closing Date
o ________ __, 1999.
Remittance Date
o The __ day of each month or if such day is not a business day, the
next business day. The first Remittance Date will be _____, 1999.
Designations
o Offered Certificates--Class I A-1, Class I A-2, Class I A-3, Class I A-4,
Class I A-5, Class I A-6, Class I M-1, Class I B-1, Class I B-2, Class II A-1,
Class II B-1, Class II B-2 and Class II B-3.
o Group I Certificates--Class I A-1, Class I A-2, Class I A-3, Class I A-4,
Class I A-5, Class I A-6, Class I M-1, Class I B-1 and Class I B-2.
o Group II Certificates--Class II A-1, Class II B-1, Class II B-2 and Class II
B-3.
o Group I Senior Certificates--Class I A-1, Class I A-2, Class I A-3, Class I
A-4 and Class I A-5.
o Group II Senior Certificates--Class II A-1.
o Senior Certificates--Class I A-1, Class I A-2, Class I A-3, Class I A-4,
Class I A-5 and Class II A-1.
o Group I Subordinate Certificates--Class I A-6, Class I M-1, Class I B-1 and
Class I B-2.
o Group II Subordinate Certificates--Class II B-1, Class II B-2 and Class II
B-3.
o Subordinate Certificates--Class I A-6, Class I M-1, Class I B-1, Class I
B-2, Class II B-1, Class II B-2 and Class II B-3.
o Fixed Rate Certificates--Class I A-2, Class I A-3, Class I A-4, Class I A-5,
Class I A-6, Class I M-1, Class I B-1 and Class I B-2.
o Floating Rate Certificates--Class I A-1 and the Group II Certificates.
The Contracts
The trust fund will consist of two separate pools of manufactured
housing installment sales contracts, installment loan agreements and mortgage
loans (the "Contracts"). Generally, the Group I Certificates relate to the
fixed rate contracts (the "Group I Contracts") and the Group II Certificates
relate to the adjustable rate contracts (the "Group II Contracts").
_____ Contracts, with an aggregate unpaid principal balance of
approximately $______________ as of the Cut-off Date, are manufactured housing
installment sales contracts or installment loan agreements originated by
manufactured housing dealers and purchased by Vanderbilt from such dealers or
originated directly by Vanderbilt.
[Certain of these dealers are affiliates of CHI.]
Vanderbilt purchased the remaining Contracts from different financing
companies and financial institutions. A portion of such Contracts were
originated or acquired by 21st Century Mortgage Corporation and Access
Financial Lending Corp.
For additional information with respect to the Contracts, we refer you to the
table below and "The Contract Pool" in this prospectus supplement for more
detail.
Summary of Contract
Characteristics as of the Cut-off Date
(Approximate)
All Contracts
Pool Balance $
Number of Contracts
Average Contract Balance $
Location of homes
Percentage by outstanding principal balance with Monthly Payments %
Percentage by outstanding principal balance with Bi-Weekly Payments %
Group I Contracts
Pool Balance $
Number of Contracts
Average Contract Balance $
Weighted Average Annual Percentage Rate of Interest ("APR") %
Range of APRs %to %
Weighted Average Original Term to Scheduled Maturity (at origination)
Weighted Average Remaining Term to Scheduled Maturity (at Cut-off Date)
Latest maturity date of any Group I Contract
Group II Contracts*
Pool Balance $
Number of Contracts
Average Contract Balance $
Percentage by outstanding principal balance with Periodic Caps of 1% %
Percentage by outstanding principal balance with Periodic Caps of 2% %
Percentage by outstanding principal balance with a Lifetime Cap of 5%
over the initial APR %
Percentage by outstanding principal balance with a Lifetime Cap of 6%
over the initial APR %
Weighted Average APR as of the Cut-off Date %
Range of APR as of the Cut-off Date % to %
Weighted Average Maximum APR % Range of Maximum APR % to %
Weighed Average Minimum APR+ % Range of Minimum APR+ % to %
Weighted Average Gross Margin %
Range of Gross Margins % to %
Weighted Average Original Term to Scheduled Maturity (at origination) months
Weighted Average Remaining Term to Scheduled Maturity (at Cut-off Date) months
Latest maturity date of any Group II Contract
* The Group II Contracts are variable rate contracts that adjust
annually (initially at the date set forth in the related Contract
and at regular intervals thereafter). They bear interest at a rate
equal to the sum of (i) the monthly average yield on U.S. Treasury
securities adjusted to a constant maturity of five years and (ii) the
Gross Margin set forth in the Contract, subject to rounding and the
effects of the applicable Periodic Cap, Lifetime Cap and Lifetime
Floor.
+ Assumes Minimum APR to be equal to the Gross Margin.
We refer you to "The Contract Pool" in this prospectus supplement for more
detail.
Final Scheduled Remittance Dates
The Final Scheduled Remittance Date of each Class of Certificates
is as follows:
Final Scheduled
Class Remittance Date
Class I A-1(1)
Class I A-2(1)
Class I A-3(1)
Class I A-4(1)
Class I A-5(1)
Class I A-6(2)
Class I M-1(2)
Class I B-1(1)
Class I B-2(2)
Class II A-1(2)
Class II B-1(1)
Class II B-2(1)
Class II B-3(2)
(1) Such determination of the Final Scheduled Remittance Dates is based on
the following assumptions: (i) there are no defaults, prepayments or
delinquencies with respect to payments due based on the Assumed Contract
Characteristics (set forth in "Yield and Prepayment Considerations"
herein), (ii) the Seller or Servicer does not exercise its right to
purchase the Contracts and the related trust property when the current
balance of the Contracts declines below 10% of the balance of the
Contracts as of the Cut-off Date and (iii) excess spread from the
Contracts is not used to make accelerated payments of principal to
increase the level of overcollateralization with respect to the Group II
Certificates.
(2) The Final Scheduled Remittance Date for these Classes is the Remittance
Date in the month following the date on which the Contracts with the
latest scheduled maturity date in the relevant group amortizes according
to their terms.
It is anticipated that the actual final Remittance Date for each Class may
occur earlier than the Final Scheduled Remittance Date. In the event of large
losses and delinquencies on the Contracts, however, the actual payment on
certain of the subordinated classes of Certificates may occur later than the
Final Scheduled Remittance Date and in certain scenarios, holders of such
classes may incur a loss on their investment.
We refer you to "Yield and Prepayment Considerations" in this prospectus
supplement for more detail.
Priority of Distributions
Group I Certificates: Funds available from payments and other amounts received
on the Group I Contracts on any Remittance Date (less certain expenses and
reimbursements) will be distributed in the following order:
(i) to pay interest on the Group I Senior Certificates, at their
respective Remittance Rates together with any previously undistributed
shortfalls in interest due, on a pro rata basis;
(ii) to pay principal on the Group I Senior Certificates in an amount
equal to the applicable class percentage of a formula amount dictated by
principal payable on the Group I contracts for the remittance date, in the
following order of priority:
o Class I A-1
o Class I A-2
o Class I A-3
o Class I A-4
o Class I A-5;
(iii) first, to pay interest and then to pay principal on the Classes
listed below, in an amount equal to the applicable class percentage of a
formula amount dictated by amount of principal payable on the Group I
Contracts for that Remittance Date, in the following order of priority:
o Class I A-6
o Class I M-1
o Class I B-1
Class I B-2 (subject, in certain instances, to a floor set forth herein);
(iv) to pay shortfalls, if any, with respect to the Group II
Certificates; and
(v) to increase overcollateralization to the required
overcollateralization level with respect to the Group II Certificates.
After payment of the above, the remaining amounts received on the
Group I Contracts will be distributed to pay Vanderbilt (if Vanderbilt is the
servicer) the servicing fee [and to reimburse CHI with respect to any
guarantee or enhancement payments], in the order of priority set forth herein.
Remaining amounts will be paid to the holder of the Class R Certificate.
Group II Certificates: Funds available from payments and other amounts
received on the Group II Contracts on any Remittance Date (less certain
expenses and reimbursements) will be distributed in the following order:
(i) first to pay interest, and then to pay principal on the Classes
listed below in an amount equal to the applicable class percentage of a
formula amount dictated by principal payable on the Group II Contracts for
that Remittance Date, in the following order of priority:
o Class II A-1
o Class II B-1
o Class II B-2
o Class II B-3 (subject, in certain instances, to a floor set forth herein)
(ii) to increase overcollateralization to the required
overcollateralization level with respect to the Group II Certificates;
(iii) to pay shortfalls, if any, with respect to the Group I
Certificates; and
(iv) to any net funds cap carryover amounts (as further described
herein), on a pro rata basis.
After payment of the above, the remaining amounts received on the
Group II Contracts will be distributed to pay Vanderbilt (if Vanderbilt is the
servicer) the servicing fee [and to reimburse CHI with respect to any
guarantee or enhancement payments], in the order of priority set forth herein.
Remaining amounts will be paid to the holder of the Class R Certificate.
We refer you to "Description of the Certificates --Distributions" in this
prospectus supplement for more detail.
Interest Distributions
Interest accrues on the Fixed Rate Certificates during the calendar
month prior to the related Remittance Date on the basis of a 360-day year
consisting of twelve 30-day months.
Interest accrues on the Floating Rate Certificates (other than the
first Remittance Date) based on the actual number of days during the period
from the Remittance Date in the prior month to the day preceding the related
Remittance Date and a 360 day year.
On each Remittance Date, you will be entitled to the following:
o Interest at the related Remittance Rate that accrued during the accrual
period.
o Interest due on any prior Remittance Date that was not paid.
Your interest entitlement may be reduced as a result of prepayments or
losses on the Contracts.
We refer you to "Description of the Certificates -- Distributions -- Interest
Distributions" in this prospectus supplement for more information.
Principal Distributions
Group I Certificates:
o On each Remittance Date, you will be entitled to receive principal
distributions in an amount equal to the applicable class percentage of a
formula amount dictated by principal payable on the Group I Contracts
for that Remittance Date.
o Prior to the Remittance Date in ___________, the applicable class
percentage for the Class I A Certificates is expected to be 100% and the
class percentage for the Class I M-1 and Class I B Certificates is
expected to be 0%. The Class I A Certificates will receive all principal
distributions in the order of priority set forth herein.
o Thereafter, assuming delinquencies, defaults and losses on the Group I
Contracts remain below certain thresholds, principal is expected to be
distributed to the Class I A Certificates, Class I M-1 Certificates and
Class I B Certificates in proportion to their outstanding principal
balances as further set forth herein.
o Payments to the Class I B-2 Certificates are subject to a floor set
forth herein. If principal payments to the Class I B-2 Certificates
would reduce the Class I B-2 Certificates below the floor such principal
payments will be reallocated to the more senior classes as set forth
herein.
We refer you to "Description of the Certificates --Distributions" in this
prospectus supplement for more detail.
Group II Certificates:
o On each Remittance Date, you will be entitled to receive principal
distributions in an amount equal to the applicable class percentage of a
formula amount dictated by principal payable on the Group II Contracts
for that Remittance Date.
o Prior to the Remittance Date in _____ ____, the applicable class
percentage for the Class II A-1 Certificates is expected to be 100% and
the class percentage for the Class II B Certificates is expected to be
0%.
o Thereafter, principal is expected to be distributed to the Class II A-1
Certificates and Class II B Certificates in proportion to their
outstanding principal balances as further set forth herein.
o Payments to the Class II B-3 Certificates are subject to a floor set
forth herein. If principal payments to the Class II B-3 Certificates
would reduce the Class II B-3 Certificate below the floor, such
principal payments will be reallocated to the more senior classes as set
forth herein.
We refer you to "Description of the Certificates -- Distributions" in this
prospectus supplement for more detail.
Credit Enhancement
Credit enhancement in the form of subordination should reduce delays
in distributions and losses on certain classes of certificates. The
subordination feature will support the classes of certificates in varying
degrees.
Group I Certificates
A. Subordination
There are two types of subordination with respect to the Group I
Certificates:
1. The Group I Senior Certificates will receive distributions of interest
prior to distributions of interest made to the other Group I
Certificates. Until certain distribution tests are met, the Group I
Senior Certificates will receive distributions of principal prior to
distributions of principal made to the Group I Subordinate
Certificates. Also, on each Remittance Date, each class of Group I
Subordinate Certificates will generally receive its interest and
principal distribution in the following order: Class I A-6, Class I
M-1, Class I B-1 and Class I B-2; and
2. Losses resulting from the liquidation of defaulted Group I Contracts
will be absorbed by the Group I Subordinate Certificates in the
following order: Class I B-2, Class I B-1, Class I M-1 and Class I A-6.
We refer you to "Description of the Certificates -- Group I Certificates and
the Senior/Subordinate Structure" and "--Losses on Liquidated Contracts" in
the prospectus supplement for more detail.
B. Cross Collateralization Provisions
Excess amounts generated by the Group II Contracts will fund shortfalls
in the Group I available funds, subject to certain prior requirements
relating to the Group II Certificates.
We refer you to "Description of the Certificates-- Cross Collateralization
Provisions" in this prospectus supplement for more detail.
Group II Certificates
A. Subordination
There are two types of subordination with respect to the Group II
Certificates:
1. The Class II A-1 Certificates will receive distributions of interest
prior to distributions of interest made to the Class II B Certificates.
Until certain distribution tests are met, the Class II A-1 Certificates
will receive distributions of principal prior to distributions of
principal made to the Class II B Subordinate Certificates. Also, on
each Remittance Date each class of Class II B Certificates will receive
its interest and principal distribution before any other class of Class
II B Certificates with a higher numerical class designation; and
2. Losses resulting from the liquidation of defaulted Group II Contracts
will be absorbed by the Class II B Certificates in reverse order of
numerical class designation.
We refer you to "Description of the Certificates-- Group II Certificates and
the Senior Subordinate Structure" and "--Losses on Liquidated Contracts" in
this prospectus supplement for more detail.
B. Overcollateralization;
Excess Interest Collections
to Increase Overcollateralization
Overcollateralization refers to the actual amount by which the
aggregate principal balance of the Group II Contracts exceeds the
aggregate principal balance of the Group II Certificates. This excess
is intended to protect against any shortfalls in required payments on
the Group II Certificates.
In certain instances, excess interest collections shall be applied to
make accelerated payments of principal to the Class of Group II
Certificates then entitled to receive principal. This will cause the
outstanding principal balance of the Group II Certificates to decrease
faster than the principal balance of the Group II Contracts, thereby
increasing the overcollateralization.
If the overcollateralization is greater than the required
overcollateralization (which will vary throughout the life of the
Certificates), certain amounts will not be applied to reduce the
principal balance of the Group II Certificates and will be distributed
as set forth herein.
We refer you to "Description of the Certificates-- Group II Certificates;
Overcollateralization Provisions" in this prospectus supplement for more
detail.
C. Cross Collaterization Provisions
Excess amounts generated by the Group I Contracts may fund shortfalls
and accelerate principal payments for the Group II Certificates,
subject to certain prior requirements relating to the Group I
Certificates.
We refer you to "Description of the Certificates-- Cross Collateralization
Provisions" in this prospectus supplement for more detail.
Optional Repurchase
If the aggregate pool scheduled principal balance of the Contracts declines
below 10% of the aggregate pool principal balance as of the Cut-off Date, then
the Servicer and the Seller (if the Seller is no longer Servicer) each have
the option to purchase all of the Contracts and the other property in the
Trust. If the Servicer or Seller purchases all of the Contracts, you will
receive a final distribution and then the Trust will be terminated.
We refer you to "Description of the Certificates-- Termination; Optional
Termination" in this prospectus supplement for more detail.
[Limited Guarantee of CHI
CHI will guarantee the payment of interest and principal on the Class I B-2
and Class II B-3 Certificates. No other Certificates have the benefit of this
guarantee.
The limited guarantee, if applicable, will be an unsecured general obligation
of CHI and will not be supported by any letter of credit or other enhancement
arrangement. See "Incorporation of Certain Documents of CHI by Reference" in
the Prospectus.
At CHI's option and subject to certain conditions, such limited guarantee may
be replaced by an alternate credit enhancement. Such credit enhancement may
consist of cash or securities deposited by CHI or any other person in a
segregated escrow, trust or collateral account or a letter of credit,
certificate insurance policy or surety bond provided by a third party.
We refer you to "Description of the Certificates-- Limited Guarantee of CHI"
and "-- Alternate Credit Enhancement" in this prospectus supplement for more
detail.]
Advances
If the Servicer reasonably believes that cash advances can be recovered from a
delinquent obligor then the Servicer will make cash advances to the Trust Fund
to cover delinquent scheduled payments on the Contracts. The Servicer will
make advances to maintain a regular flow of scheduled interest and principal
payments on the certificates, not to guarantee or insure against losses. The
Trust Fund will reimburse the Servicer for such advances.
We refer you to "Description of the Certificates-- Advances" in this
prospectus supplement for more detail.
Federal Income Tax Consequences
For federal income tax purposes:
o An election will be made to treat the Trust Fund as a "real estate mortgage
investment conduit," or REMIC.
o Each class of Certificates other than the Class R Certificate will be
"regular interests" in the REMIC and will be treated as debt instruments
of the REMIC.
o The Class R Certificate will represent the beneficial ownership of the
sole class of "residual interest" in the REMIC. Certain types of
investors may not purchase the Class R Certificate.
We refer you to "Certain Federal Income Tax Consequences" in this prospectus
supplement and in the prospectus for more detail.
ERISA Considerations
The fiduciary responsibility provisions of the Employee Retirement Income
Security Act of 1974 (ERISA) and Section 4975 of the Internal Revenue Code of
1986 (the Code) can limit investments by certain pension and other employee
benefit plans. For example, the acquisition of Certificates by certain plans
may be considered a "prohibited transaction" under ERISA; however, certain
exemptions from the prohibited transactions rules could apply. If you are a
fiduciary of a pension or other employee benefit plan which is subject to
ERISA or section 4975 of the Code, you should consult with your counsel
regarding the applicability of the provisions of ERISA and the Code before
purchasing a Certificate.
Subject to the considerations and conditions described under "ERISA
Considerations" in this prospectus supplement and prospectus, it is expected
that pension or employee benefit plans subject to ERISA or Section 4975 of the
Code may purchase the Class I A-1, Class I A-2, Class I A-3, Class I A-4,
Class I A-5 and Class II A-1 Certificates.
We refer you to "ERISA Considerations" in this prospectus supplement and in
the prospectus.
Legal Investment
The Class II A-1 and Class II B-1 Certificates will be "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"), as long as they are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization.
The other Certificates will not be "mortgage related securities" for purposes
of SMMEA.
We refer you to "Legal Investment Considerations" in this prospectus
supplement and in the prospectus for more detail.
Certificate Rating
The Trust Fund will not issue the Offered Certificates unless they have been
assigned the ratings designated on page S-3.
A rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by either rating agency.
We refer you to "Certificate Rating" in this prospectus supplement for more
detail.
RISK FACTORS
You should carefully consider the following risk factors prior to any
purchase of certificates. You should also carefully consider the information
set forth under "Risk Factors" in the prospectus.
Prepayments on Contracts May Adversely Affect Yield of Offered Certificates
The rate of principal distributions and the average life of your
Certificates will be directly related to the rate of principal payments on the
Contracts. Obligors may prepay a Contract in full or in part at any time. The
Contracts do not impose any prepayment penalties. For example, the rate of
principal payments on the Contracts will be affected by the following:
o the amortization schedules of the Contracts;
o partial prepayments and prepayments resulting from refinancing by
obligors;
o liquidations of defaulted Contracts by the Servicer;
o repurchases of Contracts by the Seller due to defective documentation or
breaches of representations and warranties in the pooling and servicing
agreement; and
o the optional purchase by the Seller or Servicer of all of the Contracts
in connection with the termination of the Trust.
Prepayments on the Contracts are influenced by a variety of economic,
geographic, social and other factors. For example, if interest rates for
similar contracts fall below the interest rates on the Contracts, the rate of
prepayment would generally be expected to increase. Conversely, if interest
rates on similar contracts rise above the interest rates on the Contracts, the
rate of prepayment would generally be expected to decrease.
We cannot predict the rate at which obligors will repay their
contracts. Please consider the following:
o If you are purchasing a Certificate at a discount, your yield may be
lower than expected if principal payments on the Contracts occur at a
slower rate than you expected.
o If you are purchasing a Certificate at a premium, your yield may be
lower than expected if principal payments on the Contracts occur at a
faster rate than you expected.
o The earlier a payment of principal occurs, the greater the impact on
your yield. For example, if you purchase a Certificate at a premium,
although the average rate of principal payments is consistent with your
expectations, if the rate of principal payments occurs initially at a
rate higher than expected, which would adversely impact your yield, a
subsequent reduction in the rate of principal payments will not offset
any adverse yield effect.
o In addition, in the event a Contract is prepaid in full, interest on
such Contract will cease to accrue on the date of prepayment. If such
prepayments and related interest shortfalls are sufficiently high in a
month, with respect to a group of Certificates, the amount available for
the next Remittance Date could be less than the amount of principal and
interest that would be distributable to the applicable
Certificateholders, in the absence of such shortfalls.
We refer you to "Yield and Prepayment Considerations" in this
prospectus supplement and "Maturity and Prepayment Considerations" in the
prospectus for more detail.
Risks of Holding Subordinate Certificates
The protections afforded the Senior Certificates in this transaction
create risks for the Subordinate Certificates. Before purchasing Subordinate
Certificates, you should consider the following factors that may negatively
impact your yield:
o Because the Subordinate Certificates receive distributions after the
Senior Certificates, there is a greater likelihood that one or more
classes of Subordinate Certificates will not receive the distributions
to which they are entitled on any Remittance Date.
o If the Servicer determines not to advance a delinquent payment because
such amount is not recoverable from an obligor, there will be a
shortfall in distributions on the Certificates which will initially
impact the Subordinate Certificates.
o The Subordinate Certificates are not entitled to a proportionate share
of principal payments on the Contracts until (a) the beginning of the
fifth year after the Closing Date and (b) the satisfaction of certain
delinquency and performance tests.
o With respect to each Group of Certificates, losses resulting from the
liquidation of defaulted Contracts will initally be absorbed by the
related Subordinate Certificates. The liquidation losses on the Group I
Contracts and resulting deficiencies in the amount available to pay the
Group I Certificates will, in effect, be absorbed by the Group I
Subordinate Certificates in the following order: Class I B-2, Class I
B-1, Class I M-1 and Class I A-6. The liquidation losses on the Group II
Contracts and resulting deficiencies in the amount available to pay the
Group II Certificates will, in effect, be absorbed by the Group II
Subordinate Certificates in the following order: Class II B-3, Class II
B-2 and Class II B-1.
o The earlier a loss on a Contract occurs, the greater the impact on yield.
o The risks presented in this section are more severe for the more
subordinate classes of Certificates (i.e. Class I B, Class II B-2 and
Class II B-3 Certificates). No class of Subordinate Certificates will
receive a distribution on any Remittance Date prior to the class or
classes of Subordinate Certificates of a higher priority. With limited
exceptions, losses on the Contracts are allocated to the most junior
classes of Certificates outstanding. In addition, if losses on the
Contracts exceed certain levels, the amounts that these classes would
otherwise receive will be distributed to the classes of Subordinate
Certificates with a higher priority.
Please review "Description of the Certificates" and "Yield and
Prepayment Considerations" in this prospectus supplement and "Risk
Factors--Subordination may not protect holders of senior certificates from
losses" in this prospectus for more detail.
Limited Source of Payments - No Recourse to Seller, Servicer or Trustee
The Contracts are the sole source of distributions for the
Certificates (except to the extent of the limited guarantee or alternate
credit enhancement in respect to the Class I B-2 and Class II B-3
Certificates). The Certificates do not represent an interest in or obligation
of the Seller, the Servicer, the Trustee or any of their affiliates, except
for (i) the limited obligations of the Seller with respect to certain breaches
of its representations and warranties, (ii) the Servicer with respect to its
servicing obligations [and (iii) CHI, as the provider of the Limited Guarantee
with respect to the Class I B-2 and Class II B-3 Certificates.] Neither the
Certificates nor the Contracts will be guaranteed by or insured by any
governmental agency or instrumentality, the Seller, the Servicer, the Trustee
or any of their affiliates (except to the extent of the limited guarantee in
respect to the Class I B-2 and Class II B-3 Certificates). Consequently, if
payments on the Contracts are insufficient to make all payments required on
the Certificates you may incur a loss on your investment.
[Limited Guarantee of CHI is an Unsecured General Obligation of CHI
The Limited Guarantee, if applicable, will be an unsecured general
obligation of CHI and will not be supported by any letter of credit or other
enhancement arrangement. See "Where You Can Find More Information" in the
Prospectus.]
[Alternate Credit Enhancement may be Exhausted and Result in Losses
If CHI has replaced the Limited Guarantee with an Alternate Credit
Enhancement and such Alternate Credit Enhancement is exhausted, CHI has no
obligation to replace such enhancement. Consequently, the Class I B-2 and
Class II B-3 Certificates may bear a greater risk relating to losses on the
Contracts than if the Limited Guarantee was in place and CHI was able to make
payments pursuant to the Limited Guarantee.]
Lack of Secondary Market for the Offered Certificates
The Underwriters intend to make a market for the purchase and sale of
the Offered Certificates after their initial issuance but have no obligation
to do so. There is currently no secondary market for the Offered Certificates.
We cannot give you any assurance that such a secondary market will develop or,
if it develops, that it will continue. Consequently, you may not be able to
sell your Certificates readily or at prices that will enable you to realize
your desired yield. Your limited ability to resell your certificates could
adversely affect the market value of your certificates and result in losses to
you.
The secondary markets for asset backed securities have experienced
periods of illiquidity and can be expected to do so in the future. Illiquidity
can have a severely adverse effect on the prices of securities that are
especially sensitive to prepayment, credit or interest rate risk, or that have
been structured to meet the investment requirements of limited categories of
investors.
In addition, the Group I Certificates and the Class II B-2 and Class
II B-3 Certificates will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Accordingly, many institutions with legal authority to invest in SMMEA
securities will not be able to invest in such Certificates, limiting the
market for such securities.
Geographic Concentration and Depreciation in Value of Manufactured Homes
An investment in the Certificates evidencing interests in the
Contracts 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 manufactured housing installment sales contracts.
The geographic location of the Manufactured Homes is set forth in "The
Contract Pool" herein.
Moreover, regardless of its location, manufactured housing generally
depreciates in value. Consequently, the market value of the Manufactured Homes
could be or become lower than the principal balances of the related Contracts.
See "The Contract Pool" herein.
Certain Matters Relating to Insolvency
If Vanderbilt becomes involved in bankruptcy proceedings,
distributions to you could be delayed or reduced. Please review "Risk
Factors--If Vanderbilt Mortgage and Finance, Inc. becomes insolvent there may
be delays or reductions in distributions on your certificates" in the
Prospectus for more detail.
Security Interests and Certain Other Aspects of the Contracts
A variety of factors may limit the ability of the Servicer, on behalf
of the Certificateholders, to realize upon the Manufactured Homes or other
property securing the contracts or may limit the amount realized to less than
the amount due. See "Risk Factors--Risks relating to enforceability on the
contracts" in the Prospectus.
Consequences of Owning Book-Entry Certificates
Limit on Liquidity of Certificates. Issuance of the Offered
Certificates in book-entry form (the "Book-Entry Certificates") may reduce the
liquidity of such certificates in the secondary trading market since investors
may be unwilling to purchase certificates for which they cannot obtain
physical certificates.
Limit on Ability to Transfer or Pledge. Since transactions in the
Book-Entry Certificates can be effected only though DTC, Cedel, Euroclear,
participating organizations, indirect participants and certain banks, your
ability to transfer or pledge a Book-Entry Certificate to persons or entities
that do not participate in the DTC, Cedel or Euroclear system or otherwise to
take actions in respect of such certificates, may be limited due to lack of a
physical certificate representing the Book-Entry Certificates.
Delays in Distributions. You may experience some delay in the receipt
of distributions on the Book-Entry Certificates since the distributions will
be forwarded by the Trustee to DTC for DTC to credit the accounts of its
participants which will thereafter credit them to your account either directly
or indirectly through indirect participants, as applicable.
Please review "Description of the Certificates--Registration of the
Offered Certificates" in this prospectus supplement for more detail.
Basis Risk with Respect to the Class I A-1 Certificates and Group II
Certificates
With respect to the Group I Contracts, interest will accrue at a fixed
rate which may differ from the LIBOR based rate generally payable to the
holders of the Class I A-1 Certificates. Moreover, interest rates on the Group
I Contracts do not adjust while the rate on the Class I A-1 Certificates does
adjust. Accordingly, the amount of collections with respect to interest on the
Group I Contracts available to pay interest on the Class I A-1 Certificates
(which may have increased) and other amounts due on the Class A-1 Certificates
during such period may be less than would be the case if the interest rates on
the Group I Contracts matched the index and adjustment frequency of the Class
I A-1 Certificates.
With respect to the Group II Contracts, interest will accrue on
indices which may differ from the LIBOR based rates generally payable to the
holders of the Group II Certificates. Moreover, interest rates on the Group II
Contracts generally adjust less frequently than the rates on the Group II
Certificates. Accordingly, the amount of collections with respect to interest
on the Group II Contracts available to pay interest on the Group II
Certificates (which may have increased) and other amounts due on the Group II
Certificates during such period may be less than would be the case if the
interest rates on the Group II Contracts matched the index and adjustment
frequency of the Group II Certificates.
Risks Associated With Year 2000 Compliance
The Servicer is faced with the task of completing its goals for
compliance in connection with the year 2000 issue. The year 2000 issue is the
result of prior computer programs being written using two digits to define the
applicable year. Any computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. Any
such occurrence could result in a major computer system failure or
miscalculations. Although the Servicer believes its computer systems are year
2000 compliant, it is presently engaged in various procedures to determine if
the computer systems and software of its suppliers, customers, brokers and
agents will be year 2000 compliant.
In the event that the Servicer, any sub-servicer or any of their
suppliers, customers, brokers or agents do not successfully and timely achieve
year 2000 compliance, the Servicer's performance of its obligations under the
pooling and servicing agreement could be adversely affected. This could result
in delays in processing payments on the Contracts and could cause a delay in
distributions to you.
THE CONTRACT POOL
The "Contracts" consist of fixed rate and variable rate manufactured
housing installment sales contracts and installment loan agreements (the
"Manufactured Housing Contracts") and mortgage loans (the "Mortgage Loans").
The Manufactured Housing Contracts are secured by security interests in
manufactured homes, as defined herein (the "Manufactured Homes"), purchased
with the proceeds of the Contracts and, with respect to certain of the
Contracts (the "Land-and-Home Contracts"), secured by liens on the real estate
on which the related Manufactured Homes are located. The Mortgage Loans are
secured by one- to four-family residential properties (the "Mortgaged
Properties"). All of the Contracts in the Trust Fund (the "Contract Pool")
have been purchased or originated by Vanderbilt Mortgage and Finance, Inc.
(the "Company" or "Vanderbilt"). The Contracts, as of origination, were
secured by Manufactured Homes or Mortgaged Properties located in 45 states.
The statistical information presented in this Prospectus Supplement concerning
the Contract Pool is based on the Contract Pool of Contracts as of the Cut-off
Date.
A description of the Company's general practice with respect to the
origination or purchase, on an individual basis, of manufactured housing
contracts is set forth under "Underwriting Policies" in the Prospectus.
Under the Pooling and Servicing Agreement dated as of _______ __, 1999
among the Seller[, CHI] and the Trustee (the "Agreement"), the Manufactured
Homes are required to comply with the requirements of certain federal statutes
which generally would require the Manufactured Homes to have a minimum of 400
square feet of living space and a minimum width of 102 inches and to be of a
kind customarily used at a fixed location. Such statutes would also require
the Manufactured Homes to be transportable in one or more sections, built on a
permanent chassis and designed to be used as dwellings, with or without
permanent foundations, when connected to the required utilities. The
Manufactured Homes are also required to include the plumbing, heating, air
conditioning, and electrical systems therein. Management of the Company
estimates that in excess of 95% of the Manufactured Homes are used as primary
residences by the Obligors under the Contracts secured by such Manufactured
Homes.
The Agreement requires the Servicer to maintain hazard insurance
policies with respect to each Manufactured Home (other than a Manufactured
Home in repossession) in the amounts and manner set forth herein under
"Description of the Certificates--Servicing" in the Prospectus. Generally, no
other insurance will be maintained with respect to the Manufactured Homes, the
Contracts or the Contract Pool.
The Company will cause to be conveyed to the Trustee the Contracts and
all rights to receive payments on the Contracts that have not been received
prior to _______ __, 1999 (the "Cut-off Date"), including any such payments
that were due prior to such date but were not received prior to such date.
Payments due on or after _______ __, 1999, that have been received by the
Company prior to _______ __, 1999 will be the property of the Company and will
not be part of the Trust Fund. The Servicer will retain physical possession of
the Contract documents (other than certain documents related to the
Land-and-Home Contracts and the Mortgage Loans which will be held by a
custodian on behalf of the Trustee). See "Description of the
Certificates--Conveyance of Contracts" herein.
The Contract Pool will have an aggregate principal balance as of the
Cut-off Date of approximately $______________ (subject to a permitted variance
of plus or minus 5%) (the "Cut-off Date Pool Principal Balance") consisting of
_____ Contracts. Each Contract was originated on or after _____ __, ____.
_____ of the Contracts, having an aggregate unpaid principal balance of
approximately $______________ as of the Cut-off Date, are manufactured housing
installment sale contracts originated by manufactured housing dealers and
purchased by the Company from such dealers or originated by the Company.
Certain of these dealers are affiliates of CHI, the parent of the Company. The
Company purchased the remaining _____ Contracts (the "Acquired Contracts")
from different financing companies and financial institutions (the "Other
Lenders").
Approximately ___ of the Acquired Contracts (the "21st Century
Contracts") having an aggregate unpaid principal balance of approximately
$_____________ as of the Cut-off Date were originated or acquired by 21st
Century Mortgage Corporation, a Delaware corporation ("21st Century"). The
21st Century Contracts constitute approximately _____% of the Contract Pool by
outstanding principal balance as of the Cut-off Date. 21st Century was founded
in 1995 for the origination, acquisition and servicing of manufactured housing
contracts like the Contracts. Certain of the officers of 21st Century were
previously officers of the Company and the President of the Company is on the
Board of Directors of 21st Century. CHI is a minority stockholder of 21st
Century. 21st Century will act as subservicer for the 21st Century Contracts.
The Servicer, however, will remain primarily liable for the servicing of the
21st Century Contracts. The underwriting standards employed by 21st Century
are similar to the standards used by the Company.
Approximately ____% of the Contract Pool by outstanding principal
balance as of the Cut-off Date are Contracts originated by Access Financial
Lending Corp. ("Access"). On May 28, 1998, the Company purchased approximately
$245 million of manufactured housing installment sales contracts (the "Access
Financial Contracts") from Access.
Approximately _____% of the Contracts by outstanding principal balance
as of the Cut-off-Date having an aggregate unpaid principal balance of
approximately $_____________ are re-financed contracts originated by the
Company. Of such Contracts, approximately $_____________ by aggregate unpaid
principal balance as of the Cut-off Date are cash-out refinancings.
Approximately _____% of the Contracts by Cut-off Date Pool Principal
Balance having an outstanding principal balance of $_____________ are
Land-and-Home Contracts.
Approximately _____% of the Contracts by Cut-off Date Pool Principal
Balance having an outstanding principal balance of $_____________ are Mortgage
Loans.
Approximately _____% of the Contracts (the "Bi-weekly Contracts") by
principal balance as of the Cut-off Date have bi-weekly scheduled payments of
principal and interest. Approximately _____% of the Contracts (the "Semi-Monthly
Contracts") by outstanding principal balance as of the Cut-off Date have
semi-monthly scheduled payments of principal and interest. The remainder of the
Contracts have monthly scheduled payments of principal and interest. Under a
Bi-weekly Contract the obligor authorizes the Company to automatically debit the
obligor's account for the payment of each scheduled payment. If the obligor
terminates such account or the authorization of the Company to debit such
account, then such Bi-weekly Contract is converted to a Contract with scheduled
monthly payments.
Approximately ____% of the Contracts by outstanding principal balance
as of the Cut-off Date provide for an annual increase in monthly payments over
the first five years of the term of the Contract with an original Contract
term of __ years, and approximately ____% of the Contracts by outstanding
principal balance as of the Cut-off Date provide for an annual increase in
monthly payments over the first five years of the term of the Contract with an
original Contract term of __ years, in each case providing initially for lower
monthly payments than if the contract were of a shorter term (collectively,
the "Escalating Principal Payment Contracts"). The Escalating Principal
Payment Contracts automatically convert to a shorter term, and the monthly
payment increases accordingly. At year six, the monthly payment increases to a
level monthly payment which fully amortizes the remaining principal over a
twelve year term with respect to the 36-year original term or seven years with
respect to the 21-year term. There is no period in which the Escalating
Principal Payment Contracts have negative amortization.
Each Contract in Group I has a fixed annual percentage rate of
interest (the "APR") and, except for the Escalating Principal Payment
Contracts, generally provides for level payments over the term of such
Contract. Each Contract in Group II has an adjustable APR, as further
described herein. Each Contract fully amortizes the principal balance of the
Contract over the term of the Contract. All of the Contracts are actuarial
obligations. The portion of each scheduled payment for any Contract allocable
to principal is equal to the total amount thereof less the portion allocable
to interest. The portion of each scheduled payment due in a particular month
that is allocable to interest is a precomputed amount equal to one month's
interest (or 14 days' interest in the case of a Bi-weekly Contract and
one-half of one month's interest in the case of a Semi-Monthly Contract) on
the principal balance of the Contract, which principal balance is determined
by reducing the initial principal balance by the principal portion of all
scheduled payments that were due in prior months (whether or not such
scheduled payments were timely made) and all prior partial principal
prepayments. Thus, each payment allocated to a scheduled monthly, bi-weekly or
semi-monthly payment of a Contract will be applied to interest and to
principal in accordance with such precomputed allocation whether such
scheduled payments are received in advance of or subsequent to the day of the
month (or in the case of a Bi-weekly Contract or Semi-Monthly Contract, each
day in the month) on which each scheduled payment of principal and interest is
due on a Contract, exclusive of any days of grace (the "Due Date"). All
payments received on the Contracts (other than payments allocated to items
other than principal and interest or payments sufficient to pay the
outstanding principal balance of and all accrued and unpaid interest on such
Contracts) will be applied when received to current and any previously unpaid
scheduled monthly payments in the order of the Due Dates of such payments and
any payments that exceed the amount necessary to bring the Contract current
are applied to the partial prepayment of principal of the Contract.
In certain instances, the Company finances the purchase of the
Manufactured Home and takes as additional security a mortgage on the property
on which the Manufactured Home is located or, in certain cases, a mortgage on
other property pledged on behalf of the Obligor. The Company may also take a
mortgage on the property on which the Manufactured Home is located in lieu of
a down payment in the form of cash or the value of a trade-in unit, or as
additional security. Approximately _____% of the Contracts by outstanding
principal balance as of the Cut-off Date are secured by a mortgage on the
property on which the Manufactured Home is located in lieu of a down payment
in the form of cash or the value of a trade-in unit. See "Certain Legal
Aspects of the Contracts" in the Prospectus.
Group I Contracts
As of the Cut-off Date, the aggregate unpaid principal balance of the
Group I Contracts will equal $______________ (subject to a permitted variance
of plus or minus 5%) (the "Group I Cut-off Date Principal Balance"). _____% of
the Group I Contracts by outstanding principal balance as of the Cut-off Date
are secured by Manufactured Homes which were new at the time the related Group
I Contracts were originated and _____% of the Group I Contracts by outstanding
principal balance as of the Cut-off Date are secured by Manufactured Homes
which were used at the time the related Group I Contracts were originated.
Each Group I Contract has an APR of at least _____% and not more than ______%.
The weighted average APR of the Group I Contracts as of the Cut-off Date is
approximately ______%. The Group I Contracts have remaining maturities as of
the Cut-off Date of at least __ months but not more than ___ months and
original maturities of at least __ months but not more than ___ months. As of
the Cut-off Date, the Group I Contracts had a weighted average original term
to scheduled maturity of approximately ___ months, and a weighted average
remaining term to scheduled maturity of approximately ___ months. The
remaining term to stated maturity of a Group I Contract is as of the Cut-off
Date. The average outstanding principal balance of the Group I Contracts as of
the Cut-off Date was $_________. The weighted average loan-to-value ratio at
the time of origination of the Group I Contracts was approximately _____%.
Generally, "value" in such calculation is equal to the sum of the down payment
(which includes the value allocated to any trade-in unit or land pledged as
additional security or in lieu of a down payment), the original amount
financed on the related Contract, which may include sales and other taxes,
and, in the case of a Land-and-Home Contract, the value of the land securing
the Contract as estimated by the dealer. Manufactured Homes, unlike site-built
homes, generally depreciate in value, and it has been the Company's experience
that, upon repossession, the market value of a Manufactured Home securing a
manufactured housing contract is generally lower than the principal balance of
the related manufactured housing contract. The Group I Contracts are secured
by Manufactured Homes and/or real estate located in __ states. Approximately
_____%, ____%, ____%, ____%, ____%, ____% and ____% of the Group I Contracts
by aggregate unpaid principal balance were secured by Manufactured Homes or
real estate located in _____, ______________, _________, ______________,
_________, ________ and _______, respectively. No other state represented more
than _____% of the Group I Contracts by aggregate unpaid principal balance as
of the Cut-off Date.
GROUP I STATISTICS
Set forth below is a description of certain additional characteristics
of the Group I Contracts as of the Cut-off Date. Percentages may not add to
100.00% due to rounding. Totals may not add to aggregate balances due to
rounding.
Geographical Distribution of Manufactured Homes as of Origination - Group I
Contracts
<TABLE>
<CAPTION>
Percentage of
Group I Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
State As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
Alabama................................. $ %
Arizona.................................
Arkansas................................
California..............................
Colorado................................
Connecticut.............................
Delaware................................
Florida.................................
Georgia.................................
Hawaii..................................
Idaho...................................
Illinois................................
Indiana.................................
Iowa....................................
Kansas..................................
Kentucky................................
Louisiana...............................
Maine...................................
Maryland................................
Michigan................................
Minnesota...............................
Mississippi.............................
Missouri................................
Montana.................................
Nebraska................................
Nevada..................................
New Jersey..............................
New Mexico..............................
New York................................
North Carolina..........................
North Dakota............................
Ohio....................................
Oklahoma................................
Oregon..................................
Pennsylvania............................
South Carolina..........................
Tennessee...............................
Texas...................................
Utah....................................
Virginia................................
Washington..............................
West Virginia...........................
Wisconsin...............................
Wyoming.................................
Total.............................. 100.00%
</TABLE>
<TABLE>
<CAPTION>
Years of Origination of Contracts - Group I Contracts
Percentage of
Group I Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Year of Origination As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
1989.................................... $ %
1990....................................
1991....................................
1992....................................
1993....................................
1994....................................
1995....................................
1996....................................
1997....................................
1998....................................
1999....................................
Total.............................. 100.00%
</TABLE>
<TABLE>
<CAPTION>
Distribution of Original Contract Amounts - Group I Contracts
Percentage of
Group I Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Original Contract Amount As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C> <C>
$ 5,000.01 - $ 10,000.00............. $ %
10,000.01 - 15,000.00.............
15,000.01 - 20,000.00.............
20,000.01 - 25,000.00.............
25,000.01 - 30,000.00.............
30,000.01 - 35,000.00.............
35,000.01 - 40,000.00.............
40,000.01 - 45,000.00.............
45,000.01 - 50,000.00.............
50,000.01 - 55,000.00.............
55,000.01 - 60,000.00.............
60,000.01 - 65,000.00.............
65,000.01 - 70,000.00.............
70,000.01 - 75,000.00.............
75,000.01 - 80,000.00.............
80,000.01 - 85,000.00.............
85,000.01 - 90,000.00.............
90,000.01 - 95,000.00.............
95,000.01 - 100,000.00.............
100,000.01 - 105,000.00.............
105,000.01 - 110,000.00.............
110,000.01 - 115,000.00.............
115,000.01 - 120,000.00.............
120,000.01 - 125,000.00.............
125,000.01 - 130,000.00.............
130,000.01 - 135,000.00.............
140,000.01 - 145,000.00.............
145,000.01 - 150,000.00.............
150,000.01 - 155,000.00.............
155,000.01 - 160,000.00.............
165,000.01 - 170,000.00.............
170,000.01 or greater
Total................................ 100.00%
</TABLE>
<TABLE>
<CAPTION>
Distribution of Original Loan-to-Value Ratios(1) - Group I Contracts
Percentage of
Group I Contracts
Number of Aggregate Principal by Outstanding
Original Contracts Balance Outstanding Principal Balance
Loan-to-Value Ratio As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
Less than 61.000%......................... $ %
From 61.000% - 65.999%...........
From 66.000 - 70.999............
From 71.000 - 75.999............
From 76.000 - 80.999............
From 81.000 - 85.999............
From 86.000 - 90.999............
From 91.000 - 100.000............
Total................................ 100.00%
</TABLE>
(1) The definition of "Value" is set forth above. Manufactured Homes, unlike
site-built homes, generally depreciate in value, and it should generally
be expected, especially with Contracts with high loan-to-value ratios at
origination, that any time after the origination of a Contract, the
market value of the Manufactured Home securing such Contract may be
lower than the outstanding principal balance of such Contract.
<TABLE>
<CAPTION>
Cut-off Date Contract Rates - Group I Contracts
Percentage of
Group I Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Contract Rate As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
6.001% - 7.000%.................... $ %
7.001 - 8.000.....................
8.001 - 9.000.....................
9.001 - 10.000.....................
10.001 - 11.000.....................
11.001 - 12.000.....................
12.001 - 13.000.....................
13.001 - 14.000.....................
14.001 - 15.000.....................
15.001 - 16.000.....................
Total................................ 100.00%
</TABLE>
<TABLE>
<CAPTION>
Remaining Months to Maturity - Group I Contracts
Percentage of
Group I Contracts
Number of Aggregate Principal by Outstanding
Months Remaining Contracts Balance Outstanding Principal Balance
As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
13 - 72.......................... $ %
73 - 84..........................
85 - 120..........................
121 - 156..........................
157 - 180..........................
181 - 240..........................
241 - 300..........................
301 - 360..........................
Total................................ 100.00%
</TABLE>
Group II Contracts
As of the Cut-off Date, the aggregate unpaid principal balance of the
Group II Contracts will equal approximately $_____________ (subject to a
permitted variance of plus or minus 5%) (the "Group II Cut-off Date Principal
Balance"). _____% of the Group II Contracts by outstanding principal balance
as of the Cut-off Date are secured by Manufactured Homes which were new at the
time the related Group II Contracts were originated and _____% of the Group II
Contracts by outstanding principal balance as of the Cut-off Date are secured
by Manufactured Homes which were used at the time the related Group II
Contracts were originated. All of the Group II Contracts are variable rate
Contracts that adjust annually initially at the date set forth in the related
Contract and at regular intervals thereafter (each such date, a "Change Date")
to equal the sum of (i) the monthly average yield on U.S. Treasury securities
adjusted to a constant maturity of five years as made available by the Federal
Reserve Board (the "Index") on a "lookback date" (a date specified in each
Contract which occurs up to a specified number of days before the applicable
Change Date) and (ii) the number of basis points set forth in such Contract
(the "Gross Margin"), subject to rounding and to the effects of the Periodic
Cap, the applicable Lifetime Cap and the applicable Lifetime Floor. The
"Periodic Cap" limits changes in the APR for each Group II Contract on each
Change Date. The "Lifetime Cap" is the maximum APR that may be borne by a
Group II Contract over its life. The "Lifetime Floor" is the minimum APR that
may be borne by a Group II Contract over its life and is equal to the Gross
Margin for such Group II Contract. Each Group II Contract has an APR of at
least _____% and not more than ______%. The weighted average APR of the Group
II Contracts as of the Cut-off Date is approximately ______%. The Group II
Contracts have remaining maturities as of the Cut-off Date of at least __
months but not more than ___ months and original maturities of at least __
months but not more than ___ months. As of the Cut-off Date, the Group II
Contracts had a weighted average original term to scheduled maturity of
approximately ___ months, and a weighted average remaining term to scheduled
maturity of approximately ___ months. The remaining term to stated maturity of
a Group II Contract is as of the Cut-off Date. The average outstanding
principal balance of the Group II Contracts as of the Cut-off Date was
$_________. The weighted average loan-to-value ratio at the time of
origination of the Group II Contracts was approximately _____%. The
calculation of the loan-to-value for the Group II Contracts is as set forth
under the "The Contract Pool--Group I Contracts". Manufactured Homes, unlike
site-built homes, generally depreciate in value, and it has been the Company's
experience that, upon repossession, the market value of a Manufactured Home
securing a manufactured housing contract is generally lower than the principal
balance of the related manufactured housing contract. The Group II Contracts
are secured by Manufactured Homes and/or real estate located in 30 states.
Approximately _____%, _____%, _____%, _____%, ____% and ____% of the Group II
Contracts by outstanding principal balance as of the Cut-off Date were secured
by Manufactured Homes or real estate located in ______________, _________,
_____, ______________, ________ and ________, respectively. No other state
represented more than ____% of the Group II Contracts by outstanding principal
balance as of the Cut-off Date.
The Periodic Cap for the Group II Contracts ranged from _% to _% with
a weighted average of approximately _____%. The Months to Interest Roll (with
respect to each Group II Contract, the number of months from the Cut-off Date
to the next adjustment of the APR of such Contract) for the Group II Contracts
as of the Cut-off Date ranged from __ to __ months with a weighted average of
approximately ______ months. The weighted average Payment Roll Frequency (with
respect to each Contract, the number of months between adjustments of the APR)
for all Group II Contracts was approximately __ months.
GROUP II STATISTICS
Set forth below is a description of certain additional characteristics
of the Group II Contracts as of the Cut-off Date. Percentages may not add to
100.00% due to rounding. Totals may not add to aggregate balances due to
rounding.
Geographical Distribution of Manufactured Homes as of Origination -
Group II Contracts
<TABLE>
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
State As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
Alabama................................. $ %
Arizona.................................
Arkansas................................
California..............................
Colorado................................
Delaware................................
Florida.................................
Georgia.................................
Illinois................................
Indiana.................................
Iowa....................................
Kentucky................................
Louisiana...............................
Maryland................................
Mississippi.............................
Missouri................................
New Jersey..............................
New Mexico..............................
New York................................
North Carolina..........................
Ohio....................................
Oklahoma................................
Pennsylvania............................
South Carolina..........................
South Dakota............................
Tennessee...............................
Texas...................................
Virginia................................
West Virginia...........................
Wyoming.................................
Total.............................. 100.00%
</TABLE>
<TABLE>
<CAPTION>
Years of Origination of Contracts - Group II Contracts
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Year of Origination As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
1997.................................... $ %
1998....................................
1999....................................
Total.............................. 100.00%
</TABLE>
<TABLE>
<CAPTION>
Distribution of Original Contract Amounts - Group II Contracts
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Original Contract Amount As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
$ 5,000.01 - $ 10,000.00............. $ %
10,000.01 - 15,000.00.............
15,000.01 - 20,000.00.............
20,000.01 - 25,000.00.............
25,000.01 - 30,000.00.............
30,000.01 - 35,000.00.............
35,000.01 - 40,000.00.............
40,000.01 - 45,000.00.............
45,000.01 - 50,000.00.............
50,000.01 - 55,000.00.............
55,000.01 - 60,000.00.............
60,000.01 - 65,000.00.............
65,000.01 - 70,000.00.............
70,000.01 - 75,000.00.............
75,000.01 - 80,000.00.............
80,000.01 - 85,000.00.............
85,000.01 - 90,000.00.............
90,000.01 - 95,000.00.............
95,000.01 - 100,000.00.............
100,000.01 - 105,000.00.............
105,000.01 - 110,000.00.............
110,000.01 - 115,000.00.............
115,000.01 - 120,000.00.............
Total................................ 100.00%
</TABLE>
<TABLE>
<CAPTION>
Distribution of Original Loan-to-Value Ratios(1) - Group II Contracts
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Original Contracts Balance Outstanding Principal Balance
Loan-to-Value Ratio As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
Less than 61.000%......................... $ %
From 61.000% - 65.999%...........
From 66.000 - 70.999............
From 71.000 - 75.999............
From 76.000 - 80.999............
From 81.000 - 85.999............
From 86.000 - 90.999............
From 91.000 - 100.000............
Total................................ 100.00%
</TABLE>
(1) The definition of "Value" is set forth above. Manufactured Homes, unlike
site-built homes, generally depreciate in value, and it should generally
be expected, especially with Contracts with high loan-to-value ratios at
origination, that any time after the origination of a Contract, the
market value of the Manufactured Home securing such Contract may be
lower than the outstanding principal balance of such Contract.
<TABLE>
<CAPTION>
Cut-off Date Contract Rates - Group II Contracts
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Contract Rate As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
7.001% - 8.000%.................... $ %
8.001 - 9.000.....................
9.001 - 10.000.....................
10.001 - 11.000.....................
11.001 - 12.000.....................
12.001 - 13.000.....................
13.001 - 14.000.....................
14.001 - 15.000.....................
15.001 - 16.000.....................
Total................................ 100.00%
</TABLE>
<TABLE>
<CAPTION>
Remaining Months to Maturity - Group II Contracts
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Months Remaining Contracts Balance Outstanding Principal Balance
As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
13 - 72........................ $ %
73 - 84........................
85 - 120........................
121 - 156........................
157 - 180........................
181 - 240........................
241 - 300........................
301 - 360........................
Total................................ 100.00%
</TABLE>
<TABLE>
<CAPTION>
Remaining Months to Maturity - Group II Contracts
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Lifetime Cap As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
13.001% - 13.500%................... $ %
13.501 - 14.000....................
14.001 - 14.500....................
14.501 - 15.000....................
15.001 - 15.500....................
15.501 - 16.000....................
16.001 - 16.500....................
16.501 - 17.000....................
17.001 - 17.500....................
17.501 - 18.000....................
18.001 - 18.500....................
18.501 - 19.000....................
19.001 - 19.500....................
19.501 - 20.000....................
20.001 - 20.500....................
20.501 - 21.000....................
21.001 21.500....................
Total .......................... 100.00%
</TABLE>
<TABLE>
<CAPTION>
Distribution of Gross Margins - Group II Contracts
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Gross Margin As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
2.501% - 3.000%.................... $ %
3.001 - 3.500.....................
3.501 - 4.000.....................
4.001 - 4.500.....................
4.501 - 5.000.....................
5.001 - 5.500....................
5.501 - 6.000.....................
6.001 - 6.500.....................
6.501 - 7.000.....................
7.001 - 7.500.....................
7.501 - 8.000.....................
8.001 - 8.500.....................
8.501 - 9.000.....................
9.001 - 9.500.....................
9.501 - 10.000.....................
10.001 - 10.500.....................
11.001 - 11.500.....................
Total .......................... 100.00%
</TABLE>
<TABLE>
<CAPTION>
Distribution of Next Contract Rate Change - Group II Contracts
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Date of Next Contracts Balance Outstanding Principal Balance
Contract Rate Change As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
___________ 1, 1999 ...................... $ %
___________ 1, 1999 ......................
___________ 1, 1999 ......................
___________ 1, 1999 ......................
___________ 1, 1999 ......................
___________ 1, 1999 ......................
___________ 1, 1999 ......................
___________ 1, 1999 ......................
___________ 1, 1999 ......................
___________ 1, 1999 ......................
Total 100.00%
</TABLE>
<TABLE>
<CAPTION>
Distribution of Periodic Cap - Group II Contracts
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Periodic Cap As of Cut-off Date As of Cut-off Date As of Cut-off Date
<S> <C> <C> <C>
%......................................... $ %
..........................................
Total................................... 100.00%
</TABLE>
VANDERBILT MORTGAGE AND FINANCE, INC.
The following information supplements the information in the
Prospectus under the heading "Vanderbilt Mortgage and Finance, Inc." and
"Underwriting Policies" in the Prospectus.
The volume of manufactured housing contracts originated by the Company
for the periods indicated below and certain other information at the end of
such periods are as follows:
<TABLE>
<CAPTION>
Contract Origination
For the Six
Month
Period Ended
Year Ended June 30, December 31,
1994 1995 1996 1997 1998 1998
<S> <C> <C> <C> <C> <C> <C>
Principal Balance of Contracts
Originated (in thousands)................ $292,435 $345,26 $476,467 $646,624 $801,865 $500,622
Number of Contracts Originated........... 12,401 13,857 16,910 21,691 24,304 13,293
Average Contract Size(1)................. $23,582 $24,916 $28,177 $29,811 $32,993 $37,661
Average Interest Rate(1)................. 10.84% 12.24% 10.72% 11.10% 10.51% 10.19%
(1) As of period end.
</TABLE>
The following table shows the size of the portfolio of manufactured
housing contracts serviced by the Company on the dates indicated:
<TABLE>
<CAPTION>
Contract Servicing Portfolio
At
At June 30, December 31,
1994 1995 1996 1997 1998(2) 1998(2)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Number of Contracts
Being Serviced(1) 60,165 66,960 74,154 85,912 108,045 113,547
Originated by the Company 47,944 55,923 64,298 75,455 86,245 92,702
Acquired from other institutions 12,221 11,037 9,856 10,457 21,800 20,845
</TABLE>
(1) Excludes contracts serviced by the Company on behalf of the Resolution
Trust Corporation trust and other trusts previously serviced by First
Manufactured Housing Credit Corporation.
(2) Includes Access Financial Contracts.
<TABLE>
<CAPTION>
Delinquency Experience(1)
At
At June 30, December 31,
1994 1995 1996 1997 1998(8) 1998(9) 1998(8) 1998(9)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Number of Contracts
Outstanding(2)(3)............ 60,165 66,960 74,154 85,912 99,819 108,045 105,839 113,547
Company Originations......... 47,944 55,923 64,298 75,455 86,245 86,245 92,702 92,702
Acquisitions from other
institutions................. 12,221 11,037 9,856 10,457 13,574 21,800 13,137 20,845
Number of Contracts Delinquent(4):
Total 30 to 59 days past due. 772 819 953 1,159 1,287 2,045 1,859 2,195
Company Originations......... 353 565 761 982 1,048 1,048 1,584 1,584
Acquisitions from other
institutions................. 419 254 192 177 239 997 275 611
Total 60 to 89 days past due.... 209 227 285 284 326 568 481 611
Company Originations......... 109 167 238 236 268 268 410 410
Acquisitions from other
institutions................. 100 60 47 48 58 300 71 201
Total 90 days or more past due.. 498 625 516 590 787 1,486 1,027 1,742
Company Originations......... 203 315 341 440 547 547 748 748
Acquisitions from other
institutions................. 295 310 175 150 240 939 279 994
Total Contracts Delinquent(5)... 1,479 1,671 1,754 2,033 2,400 4,099 3,367 4,548
Company Originations......... 665 1,047 1,340 1,658 1,863 1,863 2,742 2,742
Acquisitions from other
institutions................. 814 624 414 375 537 2,236 625 1,806
Total Contracts Delinquent(6)... 1,184 1,208 1,511 1,789 2,153 3,603 3,069 3,898
Company Originations......... 556 873 1,211 1,503 1,711 1,711 2,563 2,563
Acquisitions from other
institutions................. 628 335 300 286 442 1,892 506 1,335
Total Delinquencies as a
Percent(7) of
Contracts Outstanding(5)..... 2.46% 2.50% 2.37% 2.37% 2.40% 3.79% 3.18% 4.01%
Company Originations......... 1.39% 1.87% 2.08% 2.20% 2.16% 2.16% 2.96% 2.96%
Acquisitions from other
institutions................. 6.66% 5.65% 4.20% 3.59% 3.96% 10.26% 4.76% 8.66%
Total Delinquencies as a Percent(7)
of Contracts Outstanding(6).. 1.97% 1.80% 2.04% 2.08% 2.16% 3.34% 2.90% 3.43%
Company Originations......... 1.16% 1.56% 1.88% 1.99% 1.98% 1.98% 2.76% 2.76%
Acquisitions from other
institutions.................... 5.14% 3.04% 3.04% 2.74% 3.26% 8.68% 3.85% 6.40%
(1) Includes data on contracts originated by the Company and portfolios
acquired by the Company from other financial institutions, as described
under "Vanderbilt Mortgage and Finance, Inc." in the Prospectus.
(2) Excludes contracts serviced by others for which the Company is
contingently liable.
(3) Excludes contracts serviced by the Company on behalf of the Resolution
Trust Corporation trust and other trusts previously serviced by First
Manufactured Housing Credit Corporation.
(4) Including contracts that were repossessed during the prior 30-day
period, and based on number of days payments are contractually past due
(assuming 30-day months). Consequently, a payment due on the first day
of a month is not 30 days delinquent until the first day of the
following month.
(5) Including contracts that were repossessed during the prior 30-day
period; figures for Acquisitions from other institutions at June 30,
1995 also include all such repossessed contracts on hand.
(6) Excluding contracts that were repossessed during the prior 30-day
period.
(7) By number of contracts.
(8) Excludes Access Financial Contracts.
(9) Includes Access Financial Contracts.
</TABLE>
The following table sets forth the loan loss/repossession experience
of the Company and its affiliates for the manufactured housing contracts
serviced by the Company.
<TABLE>
<CAPTION>
Loan Loss/Repossession Experience(1)
At
At or for the Year Ended June 30, December 31,
1994 1995 1996 1997 1998(9) 1998(9) 1998(10)
(Dollars in Thousand)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Number of Contracts
Serviced(2)(3).................. 60,165 66,960 74,154 85,912 99,819 105,839 113,547
Company Originations............ 47,944 55,923 64,298 75,455 86,245 92,702 92,702
Acquisitions from other
institutions.................. 12,221 11,037 9,856 10,457 13,574 13,137 20,845
Aggregate Principal Balance of
Contracts Serviced(4)........... $1,006,794 $1,200,893 $1,456,103 $1,910,438 $2,340,583 $ 2,616,274 $2,841,829
Company Originations............ $ 852,536 $1,074,302 $1,351,324 $1,749,645 $2,190,183 $ 2,463,916 $2,463,916
Acquisitions from other
institutions.................. $ 154,258 $ 126,591 $ 104,779 $ 160,793 $ 150,400 $ 152,358 $ 377,913
Net Losses from Contract
Liquidations(5):
Total Dollars(6)................ $ 2,758 $ 2,262 $ 2,052 $ 715 $ 17,861 $ 12,871 $ 17,565
Company Originations(6)......... $ 528 $ 362 $ (442 $ (1,622) $ 15,099 $ 11,027 $ 11,027
Acquisitions from other
institutions.................. $ 2,230 $ 1,900 $ 2,494 $ 2,337 $ 2,762 $ 1,844 $ 6,538
Percentage of Average Principal
Balance(7)...................... 0.30% 0.20% 0.15% 0.04% 0.84% 1.04% 1.29%
Company Originations............... 0.07% 0.04% (0.04)% (0.10)% 0.77% 0.95% 0.95%
Acquisitions from other
institutions.................... 1.62% 1.35% 2.16% 1.76% 1.70% 2.44% 3.35%
Total Number of Contracts in
Repossession(3)................. 565 540 709 937 1,682(10) 1,577 2,014
Company Originations(8) 388 422 635 885 1,229 1,459 1,459
Acquisitions from Other
Institutions.................. 177 118 74 52 453 118 555
(1) Includes data on contracts originated by the Company and portfolios
acquired by the Company from other financial institutions, as
described under "Vanderbilt Mortgage and Finance, Inc." in the
Prospectus.
(2) As of period end. Excludes contracts serviced by others for which the
Company is contingently liable.
(3) Excludes contracts serviced by the Company on behalf of Access, the
Resolution Trust Corporation and trusts previously serviced by First
Manufactured Housing Credit Corporation.
(4) As of period end. Includes principal balances of contracts serviced by
others for which the Company is contingently liable.
(5) Includes net losses on contracts serviced by others for which the
Company is contingently liable. (6) For all periods through June 30,
1997, the calculation of net losses has been determined after all
accrued and unpaid interest was written off and does not include
repossession and other liquidation expenses. For these periods, data
with respect to repossession and other liquidation expenses generally
was not maintained by dealers on a separately identifiable basis, and,
therefore, this information was not available to the Company. The
Company believes that it would not be unusual for such expenses to
have been equal to 15% of the Scheduled Principal Balance of a
defaulted Contract. However, actual expenses may have been higher or
lower. For the periods ended June 30, 1998 and December 31, 1998, data
with respect to repossession and other liquidation expenses has been
maintained by dealers and made available to the Company. The Company
has, therefore, included dealer repossession and liquidation expense
data in the numbers calculated for such periods. Because of the
different computational method used, amounts shown for the periods
ended June 30, 1998 and December 31, 1998 are not comparable to prior
periods.
(7) As a percentage of the average principal balance of all contracts
being serviced during the period. Percentages have been annualized.
(8) Includes repossessions from contracts serviced by others for which the
Company is contingently liable.
(9) Excludes Access Financial Contracts.
(10) Includes Access Financial Contracts.
</TABLE>
The Company believes that its historical loss experience has been
favorably affected by its capacity to resell repossessed units through dealers
owned by CHI and to make needed repairs on repossessed units through the
facilities of such dealers, rather than paying the rates charged by
unaffiliated parties. If the Company is replaced as Servicer of the Contracts,
the successor Servicer may not have access to the CHI dealer network and, as a
consequence, the loss experience on the Contracts may be adversely affected.
The data presented in the preceding tables are for illustrative
purposes only, and there is no assurance that the delinquency, loan loss and
repossession experience of Contracts in the Contract Pool will be similar to
that set forth above. The delinquency, loan loss and repossession experience
of manufactured housing contracts historically has been sharply affected by a
downturn in regional or local economic conditions. For instance, such a
downturn and higher levels of delinquency, loan loss and repossession were
experienced in areas dependent on the oil and gas industry. These regional or
local economic conditions are often volatile, and no predictions can be made
regarding future economic loss upon repossession. In addition, an increased
supply of used units in one region may in turn affect the supply in other
regions, thus affecting economic loss upon liquidation in such other regions.
Information regarding the geographic location, at origination, of the
Manufactured Homes securing the Contracts in the Contract Pool is set forth
under "The Contract Pool" herein.
Recent Developments
On February 16, 1999, the Company purchased from United Companies
Funding, Inc, a Louisiana corporation, approximately $94 million of
manufactured housing installment sales contracts and installment loan
agreements.
[RATIO OF EARNINGS TO FIXED CHARGES FOR CHI
Set forth below are CHI's ratios of earnings to fixed charges for the
past five years and the six month period ended December 31, 1998. For the
purposes of compiling these ratios, earnings consist of earnings before income
taxes plus fixed charges. Fixed charges consist of interest expense and the
interest portion of rent expense.
<TABLE>
<CAPTION>
For Six Month
Period Ended
For Year Ended June 30, December 31,
1994 1995 1996 1997 1998 1998
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges.. 10.12 21.64 36.00 39.99 41.24 10.08*
- -----------------
* The reduction in the earnings to fixed charges ratio for the six month period ended December 31, 1998
compared to prior years was due primarily to an increase in interest expense as a result of increased
borrowings by CHI and its consolidated companies. The requisite financing for recent acquisitions of
contracts, the funding of a CHI stock repurchase program and general working capital needs have all
attributed to the recent rise in CHI's outstanding debt obligations. For additional financial information we
refer you to CHI's annual 10-K report for fiscal year ended June 30, 1998 and quarterly 10-Q reports for the
quarterly periods ended September 30, 1998 and December 31, 1998, which reports were previously filed with
the SEC.]
</TABLE>
YIELD AND PREPAYMENT CONSIDERATIONS
The Contracts have maturities at origination ranging from __ to ___
months, but may be prepaid in full or in part at any time. The prepayment
experience of the Contracts (including prepayments due to liquidations of
defaulted contracts) will affect the average life of the Certificates. The
weighted average life of, and, if purchased at other than par, the yield to
maturity on, the Offered Certificates will relate to the rate of payment of
principal in the Contracts in the related Contract Group, including, for this
purpose, prepayments, liquidations due to defaults, casualties and
condemnations. Based on the Company's experience with the portfolio of
conventional manufactured housing contracts serviced by it, the Company
anticipates that a number of Contracts will be prepaid in full prior to their
maturity. A number of factors, including homeowner mobility, general and
regional economic conditions and prevailing interest rates may influence
prepayments. In addition, repurchases of Contracts on account of certain
breaches of representations and warranties as described below under
"Descriptions of the Certificates--Conveyance of Contracts" will have the
effect of prepayment of such Contracts and therefore will affect the life of
the Certificates. Most of the Contracts contain provisions that prohibit the
owner from selling the Manufactured Home without the prior consent of the
holder of the related Contract. Such provisions are similar to the
"due-on-sale" clauses and may not be enforceable in some states. See "Certain
Legal Aspects of the Contracts--Transfers of Manufactured Homes;
Enforceability of `Due-on-Sale' Clauses" in the Prospectus. The initial
Servicer's policy is to permit most sales of Manufactured Homes where the
proposed buyer meets the initial Servicer's then current underwriting
standards and enters into an assumption agreement. See "--Weighted Average
Life of the Offered Certificates" below and "Maturity and Prepayment
Considerations" in the Prospectus.
As with fixed rate obligations generally, the rate of prepayment on a
pool of Contracts with fixed rates (such as the Group I Contracts) is affected
by prevailing market rates for Contracts of a comparable term and risk level.
When the market interest rate is below the contract APR, Obligors may have an
increased incentive to refinance their contracts. Depending on prevailing
market rates, the future outlook for market rates and economic conditions
generally, some Obligors may sell or refinance their contracts in order to
realize their equity in the manufactured house, to meet cash flow needs or to
make other investments.
As is the case with conventional fixed rate obligations, adjustable
rate obligations (such as the Group II Contracts) may also be subject to a
greater rate of principal prepayments in a declining interest rate
environment. For example, if prevailing interest rates fall significantly,
adjustable rate contracts could be subject to higher prepayment rates than if
prevailing interest rates remain constant because the availability of
fixed-rate contracts at competitive interest rates may encourage Obligors to
refinance their adjustable rate contract to "lock in" a lower fixed interest
rate. However, no assurance can be given as to the level of prepayments that
the Group II Contracts will experience.
The allocation of distributions to the Certificateholders in
accordance with the Agreement will have the effect of accelerating the
amortization of the Senior Certificates in the sequence indicated under
"Description of the Certificates--Distributions" from the amortization that
would be applicable if distributions in respect of the applicable Formula
Principal Distribution Amount were made pro rata according to the respective
Principal Balances of each Class of Certificates. As described under
"Description of the Certificates--Group I Certificates and the
Senior/Subordinate Structure" and "--Group II Certificates and the
Senior/Subordinate Structure" herein, to the extent that, on any Remittance
Date, the Group I or Group II Available Distribution Amount, as applicable, is
not sufficient to permit a full distribution of the applicable Formula
Principal Distribution Amount or the portion thereof due on such Remittance
Date to the Class of the Offered Certificates entitled to such distribution,
the effect will be to delay the amortization of such Class of the Offered
Certificates. If a purchaser of a Class of Offered Certificates purchases them
at a discount and calculates its anticipated yield to maturity based on an
assumed rate of payment of principal on such Offered 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.
In addition to the foregoing factors affecting the weighted average
life of the Senior Certificates, the overcollateralization provisions of the
Trust result in a limited acceleration of the Group II Certificates relative
to the amortization of the Group II Contracts in early months of the
transaction. The accelerated amortization is achieved by the application of
certain excess interest to the payment of the Group II Certificate Principal
Balance. This acceleration feature creates overcollateralization which results
from the excess of the Group II Contract Balance over the Group II Certificate
Principal Balance. Once the required level of overcollateralization is
reached, the acceleration feature will cease, unless necessary to maintain the
required level of overcollateralization.
The effective yield to each holder of a Group I Certificate (other
than a Class I A-1 Certificate) will be below that otherwise produced by the
applicable Remittance Rate and the purchase price of such holder's Certificate
because, while interest will accrue in respect of each calendar month, the
distribution of such interest to such holders will be made on the __ day (or,
if such day is not a business day, the next succeeding business day) of the
month following the Due Period in which it accrues.
The rate of distributions of principal of the Offered Certificates and
the yield to maturity of the Offered Certificates also will be directly
related to the rate of payment of principal (including prepayments) of the
Contracts. The rate of principal distributions on the Offered Certificates
will be affected by the amortization schedules of the Contracts and the rate
of principal payments on the Contracts (including prepayments due to
liquidations upon default). In general, the Contracts may be prepaid by the
Obligors at any time without payment of any prepayment fee or penalty.
The Class I M-1 Certificateholders will not receive any distributions
of principal until the Class I M-1 and Class I B Principal Distribution Test
is met or the Class I A Principal Balance is reduced to zero. The rate of
principal payments on the Class I M-1 Certificates, the aggregate amount of
distributions on the Class I M-1 Certificates and the yield to maturity of the
Class I M-1 Certificates will be affected by the rate of Obligor defaults
resulting in losses on Liquidated Contracts, by the severity of those losses
and by the timing of those losses. If a purchaser of Class I M-1 Certificates
calculates its anticipated yield based on an assumed rate of default and an
assumed amount of losses that are lower than the default rate and amount of
losses actually incurred and such amount of losses actually incurred is not
entirely covered by the subordination of the Class I B Certificates, its
actual yield to maturity will be lower than that so calculated. The timing of
losses on Liquidated Contracts will also affect an investor's actual yield to
maturity, even if the rate of defaults and severity of losses are consistent
with an investor's expectations. If the protection afforded to the Class I M-1
Certificateholders by the subordination of the Class I B Certificates is
exhausted, the Class I M-1 Certificateholders will bear all losses and
delinquencies on the Contracts and will incur a loss on their investment.
The Class I B-1 Certificateholders will not receive any distributions
of principal until the Class I M-1 and Class I B Principal Distribution Test
is met or the Class I A Principal Balance and the Class I M-1 Principal
Balance is reduced to zero. The rate of principal payments on the Class I B-1
Certificates, the aggregate amount of distributions on the Class I B-1
Certificates and the yield to maturity of the Class I B-1 Certificates will be
affected by the rate of Obligor defaults resulting in losses on Liquidated
Contracts, by the severity of those losses and by the timing of those losses.
If a purchaser of Class I B-1 Certificates calculates its anticipated yield
based on an assumed rate of default and an assumed amount of losses that are
lower than the default rate and amount of losses actually incurred and such
amount of losses actually incurred is not entirely covered by the
subordination of the Class I B-2 Certificates, its actual yield to maturity
will be lower than that so calculated. The timing of losses on Liquidated
Contracts will also affect an investor's actual yield to maturity, even if the
rate of defaults and severity of losses are consistent with an investor's
expectations. If the protection afforded to the Class I B-1 Certificateholders
by the subordination of the Class I B-2 Certificates is exhausted, the Class I
B-1 Certificateholders will bear all losses and delinquencies on the Contracts
and will incur a loss on their investment.
The Class II B Certificateholders will not receive any distributions
of principal until the Class II B Principal Distribution Test is met or the
Class II A-1 Principal Balance is reduced to zero. Once the Class II B
Principal Distribution Test is met, however, there is a likelihood that the
Class II A-1 Certificates will not receive distributions of principal for a
period of time. The rate of principal payments on the Class II B-1
Certificates, the aggregate amount of distributions on the Class II B-1
Certificates and the yield to maturity of the Class II B-1 Certificates will
be affected by the rate of Obligor defaults resulting in losses on Liquidated
Contracts, by the severity of those losses and by the timing of those losses.
If a purchaser of Class II B-1 Certificates calculates its anticipated yield
based on an assumed rate of default and an assumed amount of losses that are
lower than the default rate and amount of losses actually incurred and such
amount of losses actually incurred is not entirely covered by the
subordination of the Class II B-2 Certificates and the Class II B-3
Certificates, its actual yield to maturity will be lower than that so
calculated. The timing of losses on Liquidated Contracts will also affect an
investor's actual yield to maturity, even if the rate of defaults and severity
of losses are consistent with an investor's expectations. If the protection
afforded to the Class II B-1 Certificateholders by the subordination of the
Class II B-2 Certificates and the Class II B-3 Certificates is exhausted, the
Class II B-1 Certificateholders will bear all losses and delinquencies on the
Contracts and will incur a loss on their investment. The rate of principal
payments on the Class II B-2 Certificates, the aggregate amount of
distributions on the Class II B-2 Certificates and the yield to maturity of
the Class II B-2 Certificates will be affected by the rate of Obligor defaults
resulting in losses on Liquidated Contracts, by the severity of those losses
and by the timing of those losses. If a purchaser of Class II B-2 Certificates
calculates its anticipated yield based on an assumed rate of default and an
assumed amount of losses that are lower than the default rate and amount of
losses actually incurred and such amount of losses actually incurred is not
entirely covered by the subordination of the Class II B-3 Certificates, its
actual yield to maturity will be lower than that so calculated. The timing of
losses on Liquidated Contracts will also affect an investor's actual yield to
maturity, even if the rate of defaults and severity of losses are consistent
with an investor's expectations. If the protection afforded to the Class II
B-2 Certificateholders by the subordination of the Class II B-3 Certificates
is exhausted, the Class II B-2 Certificateholders will bear all losses and
delinquencies on the Contracts and will incur a loss on their investment.
There can be no assurance that the delinquency or repossession experience set
forth herein under "Vanderbilt Mortgage and Finance, Inc." will be
representative of the results that may be experienced with respect to the
Contracts. There can be no assurance as to the delinquency, repossession or
loss experience with respect to the Contracts.
As described herein under the "Description of the Certificates--Group
I Certificates and the Senior/Subordinate Structure" and "--Losses on
Liquidated Contracts" on any Remittance Date on or after the Remittance Date,
if any, on which the Class I A Principal Balance is greater than the related
Pool Scheduled Principal Balance, if the Available Distribution Amount is not
sufficient to permit a full distribution of the Formula Principal Distribution
Amount to the Class of Class I A Certificateholders then entitled to such
amount, the Class I A-6 Certificateholders will absorb (i) all losses on each
Liquidated Contract in the amount by which its Liquidation Proceeds (net of
Liquidation Expenses and applicable Advances) are less than its unpaid
principal balance plus accrued and unpaid interest thereon at the weighted
average Remittance Rate and the percentage rate used to calculate the monthly
servicing fee and (ii) other shortfalls in the Available Distribution Amount
and will incur a loss on their investments. See "Description of the
Certificates--Distributions" herein.
On any Remittance Date on or after the Remittance Date, if any, on
which the Principal Balance of the Senior Certificates of a particular Group
is greater than the Pool Scheduled Principal Balance for such Group, if the
related Available Distribution Amount is not sufficient to permit a full
distribution of the related Formula Principal Distribution Amount to such
Senior Certificateholders, such Senior Certificateholders will absorb (i) all
losses on each Liquidated Contract in such Group in the amount by which its
Liquidation Proceeds (net of Liquidation Expenses and applicable Advances) are
less than its unpaid principal balance plus accrued and unpaid interest
thereon at the weighted average Remittance Rate and the percentage rate used
to calculate the monthly servicing fee and (ii) other shortfalls in the
related Available Distribution Amount and will incur a loss on their
investments. See "Description of the Certificates--Distributions" herein.
The Company (if it is no longer the Servicer) and the Servicer
(whether or not the Company remains the Servicer) each has the option to
repurchase the Contracts then outstanding and any other property constituting
the Trust Fund if on any Remittance Date 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. The exercise of such option
would effect the early retirement of the then outstanding Certificates.
In the event that there were a sufficiently large number of
delinquencies on the Contracts in any Due Period that were not covered by
Monthly Advances as described herein, the amounts paid to Certificateholders
could be less than the amount of principal and interest that would otherwise
be payable on the Offered Certificates with respect to such Due Period. In
such event, even if delinquent payments on the Contracts were eventually
recovered upon liquidation, since the amounts received would not include
interest on delinquent interest payments, the effective yield on the Contracts
would be reduced, and under certain circumstances it is possible that
sufficient amounts might not be available for the ultimate payment of all
principal of the Offered Certificates plus accrued interest thereon at the
related Remittance Rate, thus also reducing the effective yield on the Offered
Certificates.
While partial prepayments of the principal on the Contracts are
applied on Due Dates, Obligors are not required to pay interest on the
Contracts after the date of a full prepayment of principal. As a result, full
prepayments in advance of the related Due Dates for such Contracts in any Due
Period will reduce the amount of interest received from Obligors during such
Due Period to less than one month's interest. On the other hand, when a
Contract (other than a Bi-weekly Contract or a Semi-Monthly Contract) is
prepaid in full during any period, but after the Due Date for such Contract in
such Due Period, the effect will be to increase the amount of interest
received from the related Obligor during such Due Period to more than one
month's interest. If a sufficient number of Contracts are prepaid in full in a
given Due Period in advance of their respective Due Dates, interest payable on
all of the Contracts during that Due Period may be less than the interest
payable on the related Classes of Certificates with respect to such Due
Period. In addition, because the principal balance of the Bi-weekly Contracts
are reduced on a bi-weekly basis and the principal balance of the Semi-Monthly
Contracts on a semi-monthly basis, the amount of interest due from Obligors on
such Contracts is less than that which would have accrued if such Contracts
were amortized on a monthly basis. As a result, the Trust Fund may not receive
sufficient monies to pay the interest on such Certificates in the amounts set
forth herein under "Description of the Certificates--Distributions" and to
make a full distribution to the related Certificateholders of the related
Formula Principal Distribution Amounts respectively allocable to them.
Although no assurance can be given in this matter, the Company does not
anticipate that the net shortfall of interest received because of prepayments
in full or the amortization of the Bi-weekly Contracts or the Semi-Monthly
Contracts in any Due Period would be great enough, in the absence of
delinquencies and Liquidation Losses, to reduce the related Available
Distribution Amount for a Remittance Date below the amount required to be
distributed to the related Certificateholders on that Remittance Date in the
absence of such prepayment interest shortfalls.
Each scheduled payment on a Bi-weekly Contract in any Due Period will
contain only two weeks of interest, and each scheduled payment on a
Semi-Monthly Contract in any Due Period will contain only one-half of one
month's interest rather than one month's interest. In addition, the second,
and in some Due Periods the third (in the case of a Bi-weekly Contract)
scheduled payment in each Due Period will be calculated on a principal balance
that is lower than the principal balance at the beginning of that Due Period.
These characteristics may result in the interest due on a Bi-weekly Contract
or a Semi-Monthly Contract in a particular Due Period being less than thirty
days' interest on the principal balance thereof at the beginning of the Due
Period.
Weighted Average Life of the Offered Certificates
The following information is given solely to illustrate the effect of
prepayments of the Contracts on the weighted average life of the Offered
Certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the Contracts.
Weighted average life refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average life of the Offered
Certificates will be affected by the rate at which principal on the Contracts
is paid. Principal payments on Contracts may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
repayments and liquidations due to default or other dispositions of
Contracts). Prepayments on contracts may be measured by a prepayment standard
or model. The model used in this Prospectus Supplement ("Prepayment Model") is
based on an assumed rate of prepayment each month of the then unpaid principal
balance of a pool of new Contracts. 100% of the Prepayment Model assumes
prepayment rates of ____% per annum of the then unpaid principal balance of
such Contracts in the first month of the life of the Contracts and an
additional ____% per annum in each month thereafter until the ____ month.
Beginning in the 24th month and in each month thereafter during the life of
the Contracts, 100% of the Prepayment Model assumes a constant prepayment rate
of ____% per annum.
As used in the following tables "0% of the Prepayment Model" assumes
no prepayments on the Contracts; "100% of the Prepayment Model" assumes the
Contracts will prepay at rates equal to 100% of the Prepayment Model assumed
prepayment rates; "225% of the Prepayment Model" assumes the Contracts will
prepay at rates equal to 225% of the Prepayment Model assumed prepayment
rates; and "250% of the Prepayment Model" assumes the Contracts will prepay at
rates equal to 250% of the Prepayment Model assumed prepayment rates.
There is no assurance, however, that prepayments of the Contracts will
conform to any level of the Prepayment Model, and no representation is made
that the Contracts will prepay at the prepayment rates shown or any other
prepayment rate. The rate of principal payments on pools of manufactured
housing contracts is influenced by a variety of economic, geographic, social
and other factors, including the level of interest rates and the rate at which
manufactured homeowners sell their manufactured homes or default on their
contracts. Other factors affecting prepayment of contracts include changes in
obligors' housing needs, job transfers, unemployment and obligors' net equity
in the manufactured homes. In the case of mortgage loans secured by site-built
homes, in general, if prevailing interest rates fall significantly below the
interest rates on such mortgage loans, the mortgage loans are likely to be
subject to higher prepayment rates than if prevailing interest rates remain at
or above the rates borne by such mortgage loans. Conversely, if prevailing
interest rates rise above the interest on such mortgage loans, the rate of
prepayment would be expected to decrease. In the case of manufactured housing
contracts, however, because the outstanding principal balances are, in
general, much smaller than mortgage loan balances and the original term to
maturity of each such contract is generally shorter, the reduction or increase
in the size of the monthly payments on contracts of the same maturity and
principal balance arising from a change in the interest rate thereon is
generally much smaller. Consequently, changes in prevailing interest rates may
not have a similar effect, or may have a similar effect, but to a smaller
degree, on the prepayment rates on manufactured housing contracts.
Group I Assumptions
The tables set forth below assume that there are no delinquencies on
the Group I Contracts and that there will be a sufficient Group I Available
Distribution Amount to distribute interest on the Group I Certificates and the
Group I Formula Principal Distribution Amount to the Certificateholders then
entitled thereto.
The percentages and weighted average lives in the following tables
were determined assuming that (i) scheduled interest and principal payments on
the Group I Contracts are received in a timely manner and prepayments are made
at the indicated percentages of the Prepayment Model set forth in the tables;
(ii) the Servicer or the Company exercises its right of optional termination
described above; (iii) the Group I Contracts will, as of the Cut-off Date, be
grouped into ____ pools having the additional characteristics set forth below
under "Assumed Contract Characteristics for Group I"; (iv) one-month LIBOR is
______%; (v) the Original Class Principal Balance and the Remittance Rate of
each Class of Group I Certificates is as set forth under "Summary
Information"; (vi) no interest shortfalls will arise in connection with
prepayment in full of the Contracts; (vii) there will be no losses on the
Group I Contracts; (viii) the Group I Performance Tests are satisfied; (ix)
the Group II Contracts prepay at 250% of the Prepayment Model except in the
case of the 0% of the Prepayment Model scenario in which the Group II
Contracts prepay at 0% of the Prepayment Model; and (x) the Group I
Certificates are purchased on ________ __, 1999. No representation is made
that the Contracts will experience delinquencies or losses at the respective
rates assumed above or at any other rates.
<TABLE>
<CAPTION>
Assumed Contract Characteristics for Group I
Remaining Original
Term to Term to
Current Principal Maturity Maturity
Pool Balance APR (Months) (Months)
<S> <C> <C> <C> <C>
1............................... $
2...............................
3...............................
4...............................
5...............................
6...............................
7...............................
8...............................
9...............................
Total.......................
</TABLE>
Since the tables were prepared on the basis of the assumptions in the
preceding paragraph, there may be discrepancies between the characteristics of
the actual Group I Contracts and the characteristics of the Group I Contracts
assumed in preparing the tables. Any such discrepancy may have an effect upon
the percentages of the Original Class I A-1 Principal Balance, Original Class
I A-2 Principal Balance, Original Class I A-3 Principal Balance, Original
Class A-4 Principal Balance, Original Class A-5 Principal Balance, Original
Class A-6 Principal Balance, Original Class I M-1 Principal Balance, Original
Class I B-1 Principal Balance and Original Class I B-2 Principal Balance
outstanding and weighted average lives of the Class I A-1 Certificates, Class
I A-2 Certificates, Class I A-3 Certificates, Class I A-4 Certificates, Class
I A-5 Certificates, Class I A-6 Certificates, Class I M-1 Certificates, Class
I B-1 Certificates and Class I B-2 Certificates set forth in the tables. In
addition, since the actual Contracts and the Trust Fund have characteristics
which differ from those assumed in preparing the tables set forth below, the
distributions of principal on each Class of Group I Certificates may be made
earlier or later than as indicated in the tables.
It is not likely that Contracts will prepay at any constant percentage
of the Prepayment Model to maturity or that all Contracts will prepay at the
same rate. In addition, the diverse remaining terms to maturity of the
Contracts (which include recently originated Contracts) could produce slower
distributions of principal than as indicated in the tables at the various
percentages of the Prepayment Model specified even if the weighted average
remaining term to maturity of the Contracts is the same as the weighted
average remaining term to maturity of the Assumed Contract Characteristics.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a
variety of the assumptions discussed herein.
Based on the foregoing assumptions, the following tables indicate the
resulting weighted average lives of the Certificates and set forth the
percentage of the Original Class Principal Balance of each Group I Certificate
that would be outstanding after each of the dates shown at the indicated
percentages of the Prepayment Model.
<TABLE>
<CAPTION>
Percent of the Original Principal Balance of the Class I A-1
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
Prepayments (% of Prepayment Model)
0% 175% 200% 225% 275% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................
________, 2000.................................
________, 2001.................................
________, 2002.................................
________, 2003.................................
________, 2004.................................
________, 2005.................................
________, 2006.................................
________, 2007.................................
________, 2008.................................
________, 2009.................................
________, 2010.................................
________, 2011.................................
________, 2012.................................
________, 2013.................................
________, 2014.................................
________, 2015.................................
________, 2016.................................
________, 2017.................................
________, 2018.................................
________, 2019.................................
________, 2020.................................
________, 2021.................................
________, 2022.................................
________, 2023.................................
________, 2024.................................
________, 2025.................................
________, 2026.................................
________, 2027.................................
________, 2028.................................
________, 2029.................................
Weighted Average Life (years)(1)...............
</TABLE>
(1) The weighted average life of the Class I A-1 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-1
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-1 Principal
Balance.
<TABLE>
<CAPTION>
Percent of the Original Principal Balance of the Class I A-2
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
Prepayments (% of Prepayment Model)
0% 175% 200% 225% 275% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................
________, 2000.................................
________, 2001.................................
________, 2002.................................
________, 2003.................................
________, 2004.................................
________, 2005.................................
________, 2006.................................
________, 2007.................................
________, 2008.................................
________, 2009.................................
________, 2010.................................
________, 2011.................................
________, 2012.................................
________, 2013.................................
________, 2014.................................
________, 2015.................................
________, 2016.................................
________, 2017.................................
________, 2018.................................
________, 2019.................................
________, 2020.................................
________, 2021.................................
________, 2022.................................
________, 2023.................................
________, 2024.................................
________, 2025.................................
________, 2026.................................
________, 2027.................................
________, 2028.................................
________, 2029.................................
Weighted Average Life (years)(1)...............
</TABLE>
(1) The weighted average life of the Class I A-2 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-2
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-2 Principal
Balance.
<TABLE>
<CAPTION>
Percent of the Original Principal Balance of the Class I A-3
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
Prepayments (% of Prepayment Model)
0% 175% 200% 225% 275% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................
________, 2000.................................
________, 2001.................................
________, 2002.................................
________, 2003.................................
________, 2004.................................
________, 2005.................................
________, 2006.................................
________, 2007.................................
________, 2008.................................
________, 2009.................................
________, 2010.................................
________, 2011.................................
________, 2012.................................
________, 2013.................................
________, 2014.................................
________, 2015.................................
________, 2016.................................
________, 2017.................................
________, 2018.................................
________, 2019.................................
________, 2020.................................
________, 2021.................................
________, 2022.................................
________, 2023.................................
________, 2024.................................
________, 2025.................................
________, 2026.................................
________, 2027.................................
________, 2028.................................
________, 2029.................................
Weighted Average Life (years)(1)...............
</TABLE>
(1) The weighted average life of the Class I A-3 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-3
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-3 Principal
Balance.
<TABLE>
<CAPTION>
Percent of the Original Principal Balance of the Class I A-4
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
Prepayments (% of Prepayment Model)
0% 175% 200% 225% 275% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................
________, 2000.................................
________, 2001.................................
________, 2002.................................
________, 2003.................................
________, 2004.................................
________, 2005.................................
________, 2006.................................
________, 2007.................................
________, 2008.................................
________, 2009.................................
________, 2010.................................
________, 2011.................................
________, 2012.................................
________, 2013.................................
________, 2014.................................
________, 2015.................................
________, 2016.................................
________, 2017.................................
________, 2018.................................
________, 2019.................................
________, 2020.................................
________, 2021.................................
________, 2022.................................
________, 2023.................................
________, 2024.................................
________, 2025.................................
________, 2026.................................
________, 2027.................................
________, 2028.................................
________, 2029.................................
Weighted Average Life (years)(1)...............
</TABLE>
(1) The weighted average life of the Class I A-4 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-4
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-4 Principal
Balance.
<TABLE>
<CAPTION>
Percent of the Original Principal Balance of the Class I A-5
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
Prepayments (% of Prepayment Model)
0% 175% 200% 225% 275% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................
________, 2000.................................
________, 2001.................................
________, 2002.................................
________, 2003.................................
________, 2004.................................
________, 2005.................................
________, 2006.................................
________, 2007.................................
________, 2008.................................
________, 2009.................................
________, 2010.................................
________, 2011.................................
________, 2012.................................
________, 2013.................................
________, 2014.................................
________, 2015.................................
________, 2016.................................
________, 2017.................................
________, 2018.................................
________, 2019.................................
________, 2020.................................
________, 2021.................................
________, 2022.................................
________, 2023.................................
________, 2024.................................
________, 2025.................................
________, 2026.................................
________, 2027.................................
________, 2028.................................
________, 2029.................................
Weighted Average Life (years)(1)...............
</TABLE>
(1) The weighted average life of the Class I A-5 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-5
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-5 Principal
Balance.
<TABLE>
<CAPTION>
Percent of the Original Principal Balance of the Class I A-6
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
Prepayments (% of Prepayment Model)
0% 175% 200% 225% 275% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................
________, 2000.................................
________, 2001.................................
________, 2002.................................
________, 2003.................................
________, 2004.................................
________, 2005.................................
________, 2006.................................
________, 2007.................................
________, 2008.................................
________, 2009.................................
________, 2010.................................
________, 2011.................................
________, 2012.................................
________, 2013.................................
________, 2014.................................
________, 2015.................................
________, 2016.................................
________, 2017.................................
________, 2018.................................
________, 2019.................................
________, 2020.................................
________, 2021.................................
________, 2022.................................
________, 2023.................................
________, 2024.................................
________, 2025.................................
________, 2026.................................
________, 2027.................................
________, 2028.................................
________, 2029.................................
Weighted Average Life (years)(1)...............
</TABLE>
(1) The weighted average life of the Class I A-6 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-6
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-6 Principal
Balance.
<TABLE>
<CAPTION>
Percent of the Original Principal Balance of the Class I M-1
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
Prepayments (% of Prepayment Model)
0% 175% 200% 225% 275% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................
________, 2000.................................
________, 2001.................................
________, 2002.................................
________, 2003.................................
________, 2004.................................
________, 2005.................................
________, 2006.................................
________, 2007.................................
________, 2008.................................
________, 2009.................................
________, 2010.................................
________, 2011.................................
________, 2012.................................
________, 2013.................................
________, 2014.................................
________, 2015.................................
________, 2016.................................
________, 2017.................................
________, 2018.................................
________, 2019.................................
________, 2020.................................
________, 2021.................................
________, 2022.................................
________, 2023.................................
________, 2024.................................
________, 2025.................................
________, 2026.................................
________, 2027.................................
________, 2028.................................
________, 2029.................................
Weighted Average Life (years)(1)...............
</TABLE>
(1) The weighted average life of the Class I M-1 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I M-1
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I M-1 Principal
Balance.
<TABLE>
<CAPTION>
Percent of the Original Principal Balance of the Class I B-1
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
Prepayments (% of Prepayment Model)
0% 175% 200% 225% 275% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................
________, 2000.................................
________, 2001.................................
________, 2002.................................
________, 2003.................................
________, 2004.................................
________, 2005.................................
________, 2006.................................
________, 2007.................................
________, 2008.................................
________, 2009.................................
________, 2010.................................
________, 2011.................................
________, 2012.................................
________, 2013.................................
________, 2014.................................
________, 2015.................................
________, 2016.................................
________, 2017.................................
________, 2018.................................
________, 2019.................................
________, 2020.................................
________, 2021.................................
________, 2022.................................
________, 2023.................................
________, 2024.................................
________, 2025.................................
________, 2026.................................
________, 2027.................................
________, 2028.................................
________, 2029.................................
Weighted Average Life (years)(1)...............
</TABLE>
(1) The weighted average life of the Class I B-1 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I B-1
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I B-1 Principal
Balance.
<TABLE>
<CAPTION>
Percent of the Original Principal Balance of the Class I B-2
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
Prepayments (% of Prepayment Model)
0% 175% 200% 225% 275% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................
________, 2000.................................
________, 2001.................................
________, 2002.................................
________, 2003.................................
________, 2004.................................
________, 2005.................................
________, 2006.................................
________, 2007.................................
________, 2008.................................
________, 2009.................................
________, 2010.................................
________, 2011.................................
________, 2012.................................
________, 2013.................................
________, 2014.................................
________, 2015.................................
________, 2016.................................
________, 2017.................................
________, 2018.................................
________, 2019.................................
________, 2020.................................
________, 2021.................................
________, 2022.................................
________, 2023.................................
________, 2024.................................
________, 2025.................................
________, 2026.................................
________, 2027.................................
________, 2028.................................
________, 2029.................................
Weighted Average Life (years)(1)...............
</TABLE>
(1) The weighted average life of the Class I B-2 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I B-2
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I B-2 Principal
Balance.
Group II Assumptions
The tables set forth below assume that there are no delinquencies on
the Group II Contracts and that there will be a sufficient Group II Available
Distribution Amount to distribute interest on the Group II Certificates and
the Group II Formula Principal Distribution Amount to the Certificateholders
then entitled thereto.
The percentages and weighted average lives in the following tables
were determined assuming that (i) scheduled interest and principal payments on
the Group II Contracts are received in a timely manner and prepayments are
made at the indicated percentages of the Prepayment Model set forth in the
tables; (ii) the Servicer or the Company exercises its right of optional
termination described above; (iii) the Group II Contracts will, as of the
Cut-off Date, be grouped into ___ pools having the additional characteristics
set forth below under "Assumed Contract Characteristics for Group II"; (iv)
one-month LIBOR is ______% and ____ year CMT is _____%; (v) the Original Class
Principal Balance and the Remittance Rate of each Class of Group II
Certificates is as set forth under "Summary Information"; (vi) no interest
shortfalls will arise in connection with prepayment in full of the Group II
Contracts; (vii) there will be no losses on the Group II Contracts; (viii) the
Group II Performance Tests are satisfied; (ix) the Group I Contracts prepay at
____% of the Prepayment Model except in the case of the 0% of the Prepayment
Model scenario in which the Group I Contracts prepay at 0% of the Prepayment
Model; and (x) the Group II Certificates are purchased on ________ __, 1999.
No representation is made that the Contracts will experience delinquencies or
losses at the respective rates assumed above or at any other rates.
<TABLE>
<CAPTION>
Assumed Contract Characteristics for Group II
Remaining
Current Term to Original Term
Principal Current Maturity to Maturity
Pool Balance APR (Months) (Months)
<S> <C> <C> <C> <C>
1................................ $ %
2................................
3................................
4................................
5................................
6................................
Total..................... $
</TABLE>
<TABLE>
<CAPTION>
First
Lifetime Lifetime Periodic Adjustment Adjustment
Gross Rate Rate Rate Date Frequency
Pool Margin Cap Floor Cap (Months) (Months) Index
Interest Payment Interest Payment
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1......... % % % %
2.........
3.........
4.........
5.........
6.........
</TABLE>
Since the tables were prepared on the basis of the assumptions in the
preceding paragraph, there are discrepancies between the characteristics of
the actual Contracts and the characteristics of the Contracts assumed in
preparing the tables. Any such discrepancy may have an effect upon the
percentages of the Original Class II A-1 Principal Balance, Original Class II
B-1 Principal Balance, Original Class II B-2 Principal Balance and Original
Class II B-3 Principal Balance outstanding and weighted average lives of the
Class II A-1 Certificates, Class II B-1 Certificates, Class II B-2
Certificates and Class II B-3 Certificates set forth in the tables. In
addition, since the actual Contracts and the Trust Fund have characteristics
which differ from those assumed in preparing the tables set forth below, the
distributions of principal on the each Class of Group II Certificates may be
made earlier or later than as indicated in the tables.
It is not likely that Contracts will prepay at any constant percentage
of the Prepayment Model to maturity or that all Contracts will prepay at the
same rate. In addition, the diverse remaining terms to maturity of the
Contracts (which include recently originated Contracts) could produce slower
distributions of principal than as indicated in the tables at the various
percentages of the Prepayment Model specified even if the weighted average
remaining term to maturity of the Contracts is the same as the weighted
average remaining term to maturity of the Assumed Contract Characteristics.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a
variety of the assumptions discussed herein.
Based on the foregoing assumptions, the following tables indicate the
resulting weighted average lives of the Certificates and set forth the
percentage of the Original Class Principal Balance of each Group II
Certificate that would be outstanding after each of the dates shown at the
indicated percentages of the Prepayment Model.
<TABLE>
<CAPTION>
Percent of the Original Principal Balance of the Class II A-1
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
Prepayments (% of Prepayment Model)
0% 175% 200% 225% 275% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................
________, 2000.................................
________, 2001.................................
________, 2002.................................
________, 2003.................................
________, 2004.................................
________, 2005.................................
________, 2006.................................
________, 2007.................................
________, 2008.................................
________, 2009.................................
________, 2010.................................
________, 2011.................................
________, 2012.................................
________, 2013.................................
________, 2014.................................
________, 2015.................................
________, 2016.................................
________, 2017.................................
________, 2018.................................
________, 2019.................................
________, 2020.................................
________, 2021.................................
________, 2022.................................
________, 2023.................................
________, 2024.................................
________, 2025.................................
________, 2026.................................
________, 2027.................................
________, 2028.................................
________, 2029.................................
Weighted Average Life (years)(1)...............
</TABLE>
(1) The weighted average life of the Class II A-1 Certificates is
determined by (i) multiplying the amount of each principal distribution
by the number of years from the initial date of issuance of the Class
II A-1 Certificates to the related Remittance Date, (ii) summing the
results and (iii) dividing the sum by the Original Class II A-1
Principal Balance.
<TABLE>
<CAPTION>
Percent of the Original Principal Balance of the Class II B-1
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
Prepayments (% of Prepayment Model)
0% 175% 200% 225% 275% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................
________, 2000.................................
________, 2001.................................
________, 2002.................................
________, 2003.................................
________, 2004.................................
________, 2005.................................
________, 2006.................................
________, 2007.................................
________, 2008.................................
________, 2009.................................
________, 2010.................................
________, 2011.................................
________, 2012.................................
________, 2013.................................
________, 2014.................................
________, 2015.................................
________, 2016.................................
________, 2017.................................
________, 2018.................................
________, 2019.................................
________, 2020.................................
________, 2021.................................
________, 2022.................................
________, 2023.................................
________, 2024.................................
________, 2025.................................
________, 2026.................................
________, 2027.................................
________, 2028.................................
________, 2029.................................
Weighted Average Life (years)(1)...............
</TABLE>
(1) The weighted average life of the Class II B-1 Certificates is
determined by (i) multiplying the amount of each principal distribution
by the number of years from the initial date of issuance of the Class
II B-1 Certificates to the related Remittance Date, (ii) summing the
results and (iii) dividing the sum by the Original Class II B-1
Principal Balance.
<TABLE>
<CAPTION>
Percent of the Original Principal Balance of the Class II B-2
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
Prepayments (% of Prepayment Model)
0% 175% 200% 225% 275% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................
________, 2000.................................
________, 2001.................................
________, 2002.................................
________, 2003.................................
________, 2004.................................
________, 2005.................................
________, 2006.................................
________, 2007.................................
________, 2008.................................
________, 2009.................................
________, 2010.................................
________, 2011.................................
________, 2012.................................
________, 2013.................................
________, 2014.................................
________, 2015.................................
________, 2016.................................
________, 2017.................................
________, 2018.................................
________, 2019.................................
________, 2020.................................
________, 2021.................................
________, 2022.................................
________, 2023.................................
________, 2024.................................
________, 2025.................................
________, 2026.................................
________, 2027.................................
________, 2028.................................
________, 2029.................................
Weighted Average Life (years)(1)...............
</TABLE>
(1) The weighted average life of the Class II B-2 Certificates is
determined by (i) multiplying the amount of each principal distribution
by the number of years from the initial date of issuance of the Class
II B-2 Certificates to the related Remittance Date, (ii) summing the
results and (iii) dividing the sum by the Original Class II B-2
Principal Balance.
<TABLE>
<CAPTION>
Percent of the Original Principal Balance of the Class II B-3
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
Prepayments (% of Prepayment Model)
0% 175% 200% 225% 275% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage.............................
________, 2000.................................
________, 2001.................................
________, 2002.................................
________, 2003.................................
________, 2004.................................
________, 2005.................................
________, 2006.................................
________, 2007.................................
________, 2008.................................
________, 2009.................................
________, 2010.................................
________, 2011.................................
________, 2012.................................
________, 2013.................................
________, 2014.................................
________, 2015.................................
________, 2016.................................
________, 2017.................................
________, 2018.................................
________, 2019.................................
________, 2020.................................
________, 2021.................................
________, 2022.................................
________, 2023.................................
________, 2024.................................
________, 2025.................................
________, 2026.................................
________, 2027.................................
________, 2028.................................
________, 2029.................................
Weighted Average Life (years)(1)...............
</TABLE>
(1) The weighted average life of the Class II B-3 Certificates is
determined by (i) multiplying the amount of each principal distribution
by the number of years from the initial date of issuance of the Class
II B-3 Certificates to the related Remittance Date, (ii) summing the
results and (iii) dividing the sum by the Original Class II B-3
Principal Balance.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. A copy of a
general form of a Pooling and Servicing Agreement has been filed with the
Securities and Exchange Commission (the "Commission"). A copy of the execution
form of the Agreement (without certain exhibits) will be filed with the
Securities and Exchange Commission after the initial issuance of the
Certificates. The following description supplements the description of the
Agreement and the Certificates under the caption "Description of the
Certificates" in the Prospectus and must be read together therewith. The
following summaries describe certain terms of the Agreement, 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.
General
The Trust will issue classes (each a "Class") of certificates. Each
Class (other than the Class R Certificate) will be issued in fully registered
form only, in denominations of $50,000 and integral multiples of $1,000 in
excess thereof, except for a denomination representing the remainder of a
Class of Certificates. The undivided percentage interest (the "Percentage
Interest") of each Class of Certificates in the distributions on such
Certificates will be equal to the percentage obtained from dividing the
denomination of such Certificate by the Original Class Principal Balance of
such Class of Certificates. Definitive Certificates, if issued, will be
transferable and exchangeable at the corporate trust office of the Trustee. No
service charge will be made 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.
The Certificates evidence undivided interests in the Contract Pool and
certain other property held in trust for the benefit of the Certificateholders
(the "Trust Fund"). The Certificates will consist of (a) two groups of
certificates (each, a "Group") including the "Group I Certificates" consisting
of five classes of senior certificates (the "Class I A-1 Certificates," the
"Class I A-2 Certificates," the "Class I A-3 Certificates," the "Class I A-4
Certificates" and the "Class I A-5 Certificates") and four classes of
subordinated certificates (the "Class I A-6 Certificates," the "Class I M-1
Certificates," the "Class I B-1 Certificates" and the "Class I B-2
Certificates") and the "Group II Certificates" consisting of one class of
senior certificates (the "Class II A-1 Certificates") and three classes of
subordinated certificates (the "Class II B-1 Certificates," the "Class II B-2
Certificates" and the "Class II B-3 Certificates") and (b) one class of
residual certificates (the "Class R Certificate"). The Class I A-1
Certificates, Class I A-2 Certificates, Class I A-3 Certificates, Class I A-4
Certificates and Class I A-5 Certificates will evidence in the aggregate
approximate initial _____%, _____%, _____%, ____% and _____% undivided
interests, respectively, in the "Group I Contracts". The Class I A-6
Certificates, Class I M-1 Certificates, Class I B-1 Certificates and Class I
B-2 Certificates will evidence in the aggregate approximate initial ____%,
____%, ____% and ____% undivided interests, respectively, in the Group I
Contracts. The Class II A-1 Certificates, the Class II B-1 Certificates, the
Class II B-2 Certificates and the Class II B-3 Certificates will evidence in
the aggregate approximate initial _____%, _____%, ____% and ____% undivided
interests, respectively, in the "Group II Contracts".
The Trust Fund includes (i) the Contract Pool, including all rights to
receive payments on the Contracts received on or after the Cut-off Date, (ii)
the amounts held from time to time in trust accounts (with respect to the
Group I Certificates, the "Group I Certificate Account" and with respect to
the Group II Certificates, the "Group II Certificate Account") maintained by
the Trustee pursuant to the Agreement, (iii) any property which initially
secured a Contract and which is acquired in the process of realizing thereon
and (iv) the proceeds of all insurance policies described herein.
The Company will cause the Contracts to be assigned to the Trustee or
a co-trustee. The Company, as Servicer, will service the Contracts pursuant to
the Agreement. The Servicer may perform any of its servicing obligations under
the Agreement through one or more subservicers. Notwithstanding any such
subservicing arrangement, the Servicer will remain liable for its servicing
duties and obligations under the Agreement as if the Servicer alone were
servicing the Contracts. The Contract documents will be held for the benefit
of the Trustee by the Servicer (other than certain documents related to the
Land-and-Home Contracts which will be held by a custodian on behalf of the
Trustee).
Distributions of principal and interest on the Certificates will be
made on the __ day of each month, or, if such day is not a business day, the
next succeeding business day (each, a "Remittance Date") beginning in _____,
1999, to the persons in whose names the Certificates are registered at the
close of business on the related Record Date. The "Record Date" means (a) with
respect to the initial Remittance Date, the Closing Date, (b) with respect to
any Remittance Date thereafter and the Fixed Rate Certificates, the last
business day of the month preceding the month of the related Remittance Date,
(c) with respect to any Remittance Date thereafter and the Floating Rate
Certificates, the business day preceding the related Remittance Date;
provided, however, in the event that Definitive Certificates are issued with
respect to a Class of Certificates, the Record Date with respect to such Class
will be the close of business on the last business Day of the month preceding
the month of the related Remittance Date. If definitive Offered Certificates
are issued, distributions will be made by check mailed to the address of the
person entitled thereto as it appears on the Certificate Register, except that
a holder of Offered Certificates with original denominations aggregating at
least $5 million may request payment by wire transfer of funds pursuant to
written instructions delivered to the Trustee at least five business days
prior to the Record Date. 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 in New York, New York
specified in the final distribution notice to Certificateholders.
Conveyance of Contracts
In addition to the representations and warranties described in the
Prospectus under "Description of Certificates--Conveyance of Contracts," the
Company has also made certain warranties with respect to the Contracts in the
aggregate, including that (i) the aggregate principal amount payable by the
Obligors as of the Cut-off Date equals the Cut-off Date Pool Principal
Balance; (ii) (a) approximately _____% of the Group I Cut-off Date Principal
Balance is attributable to loans to purchase new Manufactured Homes and
approximately _____% of the Group I Cut-off Date Principal Balance is
attributable to loans to purchase used Manufactured Homes and (b)
approximately _____% of the Group II Cut-off Date Principal Balance is
attributable to loans to purchase new Manufactured Homes and approximately
_____% of the Group II Cut-off Date Principal Balance is attributable to loans
to purchase used Manufactured Homes; (iii) no Contract has a remaining
maturity of more than ___ months; (iv) the date of origination of each
Contract is on or after _____ __, ____; and (v) no adverse selection
procedures were employed in selecting the Contracts.
Payments on Contracts
The Trustee will establish and maintain the Certificate Accounts (i)
at a depository institution organized under the laws of the United States or
any state, the deposits of which are insured to the full extent permitted by
law by the Federal Deposit Insurance Corporation (the "FDIC") whose commercial
paper or unsecured short-term debt has a rating of ____ by ____ and ____ by
_____, and which is subject to examination by federal or state authorities or
a depository institution otherwise acceptable to ________ and ________, (ii)
in the corporate trust department of the Trustee or (iii) at an institution
otherwise acceptable to ________ and ________ (an "Eligible Institution").
Funds in each Certificate Account will be invested in Eligible Investments (as
defined in the Agreement) that will mature or be subject to redemption not
later than the business day preceding the applicable monthly Remittance Date.
Eligible Investments include, among other investments, obligations of the
United States or of any agency thereof backed by the full faith and credit of
the United States; federal funds, certificates of deposit, time deposits and
bankers' acceptances sold by eligible financial institutions; commercial paper
rated ___ by _______ and ___ by _______; money market funds acceptable to the
Rating Agencies; and other obligations acceptable to the Rating Agencies.
All payments in respect of principal and interest on the Contracts
received by the Servicer, including Principal Prepayments and Liquidation
Proceeds (net of Liquidation Expenses), will be paid into the applicable
Certificate Account no later than the second business day following receipt
thereof. Amounts received as late payment fees, extension fees, assumption
fees or similar fees will be retained by the Servicer as part of its servicing
fees. See "Description of Certificates--Servicing Compensation and Payment of
Expenses" in the Prospectus. In addition, amounts paid by the Company for
Contracts repurchased as a result of breach of a representation or warranty
under the Agreement and amounts required to be deposited upon substitution of
an Eligible Substitute Contract because of breach of a representation or
warranty, as described under "Conveyance of Contracts" above, will be paid
into the applicable Certificate Account. The Servicer will deposit the Monthly
Advance (described under "Advances" below), if any, in the applicable
Certificate Account on or before each Determination Date.
On the fifth business day prior to each Remittance Date (the
"Determination Date"), the Servicer will determine the Available Distribution
Amount and the amounts to be distributed on the Certificates for the following
Remittance Date.
The Available Distribution Amount for a Group (the "Group I Available
Distribution Amount" or the "Group II Available Distribution Amount," as
applicable) is the sum of (a) the Monthly Advance relating to the Contracts in
such Group for such Remittance Date and (b) the amount in the related
Certificate Account on the close of business on the last day of the
immediately preceding Due Period less the sum of (i) scheduled payments for
Contracts in such Group that are due in a Due Period subsequent to such Due
Period; (ii) payments on Contracts in such Group that have been repurchased as
a result of a breach of a representation or warranty and any other payments
not required to be deposited in the related Certificate Account; (iii)
reimbursements to the Servicer in the amount of Liquidation Expenses incurred
and taxes and insurance premiums advanced by the Servicer in respect of
Contracts in such Group; (iv) if the Company is no longer the Servicer, the
related Monthly Servicing Fee equal to 1/12th of the product of ____% and the
Pool Scheduled Principal Balance for such Group for the immediately preceding
Remittance Date; (v) reimbursements to the Servicer for Nonrecoverable
Advances and Monthly Advances relating to the Contracts in such Group in
respect of Liquidated Contracts, to the extent permitted by the Agreement; and
(vi) certain expenses reimbursable to the Company as provided in the
Agreement.
The "Due Period" with respect to any Remittance Date is the period
beginning on the 26th day of the second month preceding the month of such
Remittance Date and ending on the 25th day of the month preceding the month of
such Remittance Date.
The Trustee or its Paying Agent will withdraw funds from the
applicable Certificate Account (but only to the extent of the related
Available Distribution Amount) to make payments to Certificateholders as
specified under "Distributions" below. From time to time, as provided in the
Agreement, the Servicer will also withdraw funds from the Certificate Account
to make payments to it as permitted by the Agreement and described in clauses
(ii), (iii), (iv), (v) and (vi) in the previous paragraph.
Distributions
Distributions of principal and interest to holders of a Class of
Certificates will be made on each Remittance Date in an amount equal to the
respective Percentage Interests multiplied by the aggregate amount distributed
on such Class of Certificates on such Remittance Date.
Each distribution with respect to a Book-Entry Certificate will be
paid to DTC, which will credit the amount of such distribution to the accounts
of its Participants in accordance with its normal procedures. Each Participant
will be responsible for disbursing such distribution to the Certificate Owners
that it represents and to each indirect participating brokerage firm (a
"brokerage firm" or "indirect participating firm") for which it acts as agent.
Each brokerage firm will be responsible for disbursing funds to the
Certificate Owners that it represents. All such credits and disbursements with
respect to Book-Entry Certificates are to be made by DTC and the Participants
in accordance with DTC's rules.
Interest Distributions:
With respect to each Remittance Date, the Fixed Rate Certificates will
accrue interest in respect of each calendar month preceding such Remittance
Date. With respect to each Remittance Date (other than the first Remittance
Date), the Floating Rate Certificates will accrue interest from the Remittance
Date in the preceding calendar month through the day preceding the Remittance
Date in the current calendar month. With respect to the first Remittance Date,
the Floating Rate Certificates will accrue interest from Closing Date.
Distributions to a Class of Certificateholders will be applied first to the
payment of interest and, if any payment is then due, then to the payment of
principal. Interest on the Fixed Rate Certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. Interest on the
Floating Rate Certificates will be calculated on the basis of the number of
actual days elapsed during the related Interest Period and a 360-day year.
With respect to the Floating Rate Certificates and any Remittance
Date, the "Interest Period" shall be the period from the Remittance Date
preceding such Remittance Date (or in the case of the first Remittance Date,
from the Closing Date) through the day preceding such Remittance Date. With
respect to each Class of Fixed Rate Certificates and any Remittance Date, the
"Interest Period" shall be the period from the first day of the calendar month
preceding the month of such Remittance Date through the last day of such
calendar month on the basis of a 360-day year consisting of twelve 30-day
months.
On each Remittance Date, holders of each Class of Certificates will be
entitled to receive, to the extent of the Group I Available Distribution
Amount or Group II Available Distribution Amount, as applicable, (i) interest
accrued on such Class during the related Interest Period at the then
applicable Remittance Rate on the Principal Balance of such Class immediately
prior to that Remittance Date (the "Interest Distribution Amount" for such
Class and Remittance Date), plus (ii) any amounts distributable under clause
(i) above or this clause (ii) on such Class on the previous Remittance Date
but not previously distributed, plus, to the extent legally permissible,
interest accrued on any such amount during the related Interest Period at the
then applicable Remittance Rate (the "Carryover Interest Distribution Amount"
for such Class and Remittance Date).
Remittance Rates of the Certificates
Fixed Rate Certificates: The Remittance Rates on the Fixed Rate
Certificates listed below are subject to a maximum rate equal to the Group I
Weighted Average Net Contract Rate for the applicable Remittance Date:
The "Class I A-2 Remittance Rate" shall equal _____%.
The "Class I A-3 Remittance Rate" shall equal _____%.
The "Class I A-4 Remittance Rate" shall equal _____%.
The "Class I A-5 Remittance Rate" shall equal _____%.
The "Class I A-6 Remittance Rate" shall equal _____%. The "Class
I M-1 Remittance Rate" shall equal _____%.
The "Class I B-1 Remittance Rate" shall equal _____%.
The "Class I B-2 Remittance Rate" shall equal _____%.
Floating Rate Certificates: The Remittance Rates on the Floating Rate
Certificates are as follows:
The "Class I A-1 Remittance Rate" shall equal the lesser of (a)
the sum of (i) the London interbank offered rate for one-month
United States dollar deposits ("LIBOR") appearing on the
Telerate Screen Page 3570 as of the second LIBOR Business Day
prior to the first day of the related Interest Period (or as of
two LIBOR Business Days of the Closing Date in the case of the
first Interest Period) and (ii) ____% and (b) the Group I
Weighted Average Net Contract Rate (as defined herein) for such
Remittance Date.
The "Class II A-1 Remittance Rate" shall be the lesser of (a)
the Class II A-1 Formula Rate and (b) the Net Funds Cap for such
Remittance Date.
The "Class II B-1 Remittance Rate" shall be the lesser of (a)
the Class II B-1 Formula Rate and (b) the Net Funds Cap for such
Remittance Date.
The "Class II B-2 Remittance Rate" shall be the lesser of (a)
the Class II B-2 Formula Rate and (b) the Net Funds Cap for such
Remittance Date.
The "Class II B-3 Remittance Rate" shall be the lesser of (a)
the Class II B-3 Formula Rate and (b) the Net Funds Cap for such
Remittance Date.
If on any Remittance Date, the Remittance Rate for any of the Group II
Certificates is based on the Net Funds Cap, Certificateholders of such Class
will be entitled to receive on subsequent Remittance Dates the applicable Net
Funds Cap Carryover Amount (as defined herein) to the extent of funds
available therefore as described herein; provided, however, additional funds
resulting from the cross-collateralization provisions described herein shall
not be available to Group II Certificateholders to pay the Net Funds Cap
Carryover Amount.
With respect to the Floating Rate Certificates, the Remittance Rates
for the first Remittance Date (the "Initial Remittance Rates") will not be
determined until two days prior to the Closing Date. Therefore, the Initial
Remittance Rates have not been determined as of the date of this Prospectus
Supplement.
The "Call Option Date" shall be the Remittance Date on which the sum
of the Group I Pool Scheduled Principal Balance and the Group II Pool
Scheduled Principal Balance has declined to 10% or less of the Cut-off Date
Pool Principal Balance.
The "Class II A-1 Formula Rate" shall be a per annum rate equal to the
sum of (a) LIBOR (calculated as described above) plus (b) (i) with respect to
any Remittance Date which occurs on or prior to the Call Option Date (as
defined herein), ____% or (ii) with respect to any Remittance Date which
occurs after the Call Option Date, ____%.
The "Class II B-1 Formula Rate" shall be a per annum rate equal to the
sum of (a) LIBOR (calculated as described above) plus (b) (i) with respect to
any Remittance Date which occurs on or prior to the Call Option Date, ____% or
(ii) with respect to any Remittance Date which occurs after the Call Option
Date, ____%.
The "Class II B-2 Formula Rate" shall be a per annum rate equal to the
sum of (a) LIBOR (calculated as described above) plus (b) (i) with respect to
any Remittance Date which occurs on or prior to the Call Option Date, ____% or
(ii) with respect to any Remittance Date which occurs after the Call Option
Date, ____%.
The "Class II B-3 Formula Rate" shall be a per annum rate equal to the
sum of (a) LIBOR (calculated as described above) plus (b) (i) with respect to
any Remittance Date which occurs on or prior to the Call Option Date, ____% or
(ii) with respect to any Remittance Date which occurs after the Call Option
Date, ____%.
The "Group I Weighted Average Net Contract Rate" shall be equal to (a)
the weighted average of the Group I Contract Rates applicable to the scheduled
payments due on the outstanding Group I Contracts in the Due Period preceding
such Remittance Date minus (b) (i) if the Company is the Servicer, 0.00% or
(ii) if the Company is no longer the Servicer, ____% of the Group I Pool
Scheduled Principal Balance on the first day of the related Due Period.
"LIBOR Business Day" means a day on which banks are open for dealing
in foreign currency and exchange in London and New York City; "Telerate 3750"
means the display page currently so designated on the Dow Jones Telerate
Service (or such other page as may replace that page on that service for the
purpose of displaying comparable rates or prices).
The "Net Funds Cap" for any Remittance Date shall equal the per annum
rate equal to a fraction, expressed as a percentage, the numerator of which
equals the sum of (a) the aggregate amount of interest due on the Group II
Contracts on the related Due Date and (b) the Overcollateralization Reduction
Amount, if any, for such Distribution Date less (c) one-twelfth of (i) if the
Company is the Servicer, 0.00% or (ii) if the Company is no longer the
Servicer, ____% of the Group II Pool Scheduled Principal Balance on the first
day of the Due Period less (d) one-twelfth of (i) if the actual
Overcollateralization Amount is equal to or greater than the Required
Overcollateralization Amount for such Remittance Date, 0.00% or (ii) if the
actual Overcollateralization Amount is less than the Required
Overcollateralization Amount for such Remittance Date, ____% of the Group II
Pool Scheduled Principal Balance on the first day of the Due Period and the
denominator of which is equal to the Certificate Principal Balance of the
Group II Certificates (adjusted to reflect the actual number of days elapsed
in the Interest Period divided by 360).
Priority of Distributions:
A. On each Remittance Date on which the Class I M-1 and Class I B
Principal Distribution Test is not met, the Group I Available Distribution
Amount will be distributed in the following amounts in the following order of
priority:
(i) interest accrued during the related Interest Period on the
Class I A-1, Class I A-2, Class I A-3, Class I A-4 and Class I A-5
Certificates, at their respective Remittance Rates on the outstanding
Class I A-1, Class I A-2, Class I A-3, Class I A-4 and Class I A-5
Principal Balances, respectively, together with any previously
undistributed shortfalls in interest due on the Class I A-1, Class I
A-2, Class I A-3, Class I A-4 and Class I A-5 Certificates,
respectively, in respect of prior Remittance Dates; if the Group I
Available Distribution Amount is not sufficient to distribute the full
amount of interest due on the Class I A-1, Class I A-2, Class I A-3,
Class I A-4 and Class I A-5 Certificates, the Group I Available
Distribution Amount will be distributed on such Classes of
Certificates pro rata on the basis of the interest due thereon;
(ii) the Group I Formula Principal Distribution Amount in the
following order of priority:
(a) to the Class I A-1 Certificates until the Class I A-1
Principal Balance is reduced to zero;
(b) to the Class I A-2 Certificates until the Class I A-2
Principal Balance is reduced to zero;
(c) to the Class I A-3 Certificates until the Class I A-3
Principal Balance is reduced to zero;
(d) to the Class I A-4 Certificates until the Class I A-4
Principal Balance is reduced to zero; and
(e) to the Class I A-5 Certificates until the Class I A-5
Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period on
the Class I A-6 Principal Balance to the Class I A-6 Certificates at
the related Remittance Rate, together with any previously
undistributed shortfalls in interest due on the Class I A-6
Certificates in respect of prior Remittance Dates;
(iv) the remainder of the Group I Formula Principal
Distribution Amount, if any, to the Class I A-6 Certificates until the
Class I A-6 Principal Balance is reduced to zero;
(v) interest accrued during the related Interest Period on the
Class I M-1 Principal Balance to the Class I M-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I M-1 Certificates in respect
of prior Remittance Dates;
(vi) the remainder of the Group I Formula Principal
Distribution Amount, if any, to the Class I M-1 Certificates until the
Class I M-1 Principal Balance is reduced to zero;
(vii) interest accrued during the related Interest Period on
the Class I B-1 Principal Balance to the Class I B-1 Certificates at
the related Remittance Rate, together with any previously
undistributed shortfalls in interest due on the Class I B-1
Certificates in respect of prior Remittance Dates;
(viii) the remainder of the Group I Formula Principal
Distribution Amount, if any, to the Class I B-1 Certificates until the
Class I B-1 Principal Balance is reduced to zero;
(ix) interest accrued during the related Interest Period on the
Class I B-2 Principal Balance to the Class I B-2 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-2 Certificates in respect
of prior Remittance Dates;
(x) the remainder of the Group I Formula Principal Distribution
Amount, if any, to the Class I B-2 Certificates until the Class I B-2
Principal Balance is reduced to zero;
(xi) any Group I Monthly Excess Spread (as defined below) to
fund any Group II Available Funds Shortfall;
(xii) any remaining Group I Monthly Excess Spread to fund any
unfunded Accelerated Principal Payment (as defined below) on the Group
II Certificates after giving effect to the distribution described in
clause C(ix) or D(ix), as applicable, below;
(xiii) so long as the Company is the Servicer, any remaining
available funds up to the amount equal to 1/12th of the product of
____% and the Group I Pool Scheduled Principal Balance for such
Remittance Date (the "Group I Monthly Servicing Fee"), to the
Servicer;
(xiv) [the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class I B-2 Certificates as provided in
the Agreement;]
(xv) so long as the Company is the Servicer, any remaining
available funds up to the amount of the Group II Monthly Servicing Fee
(as defined herein), if any, remaining unpaid after giving effect to
the distribution described in clause C(xii) or D(xii), as applicable,
below, to the Servicer;
(xvi) [the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class II B-3 Certificates as provided in
the Agreement, which remains unpaid after giving effect to the
distribution described in clause C(xiii) or D(xiii), as applicable,
below; and]
(xvii) any remaining available funds to the holder of the Class
R Certificate, which will initially be a special purpose subsidiary of
the Company.
B. On each Remittance Date on which the Class I M-1 and Class I B
Principal Distribution Test is met, the Group I Available Distribution Amount
will be distributed in the following amounts in the following order of
priority:
(i) interest accrued during the related Interest Period on the
Class I A-1, Class I A-2, Class I A-3, Class I A-4 and Class I A-5
Certificates, at their respective Remittance Rates on the outstanding
Class I A-1, Class I A-2, Class I A-3, Class I A-4 and Class I A-5
Principal Balances, respectively, together with any previously
undistributed shortfalls in interest due on the Class I A-1, Class I
A-2, Class I A-3, Class I A-4 and Class I A-5 Certificates,
respectively, in respect of prior Remittance Dates; if the Group I
Available Distribution Amount is not sufficient to distribute the full
amount of interest due on the Class I A-1, Class I A-2, Class I A-3,
Class I A-4 and Class I A-5 Certificates, the Group I Available
Distribution Amount will be distributed on such Classes of
Certificates pro rata on the basis of the interest due thereon;
(ii) the Class I A Percentage of the Group I Formula Principal
Distribution Amount in the following order of priority:
(a) to the Class I A-1 Certificates until the Class I A-1
Principal Balance is reduced to zero;
(b) to the Class I A-2 Certificates until the Class I A-2
Principal Balance is reduced to zero;
(c) to the Class I A-3 Certificates until the Class I A-3
Principal Balance is reduced to zero;
(d) to the Class I A-4 Certificates until the Class I A-4
Principal Balance is reduced to zero; and
(e) to the Class I A-5 Certificates until the Class I A-5
Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period on
the Class I A-6 Principal Balance to the Class I A-6 Certificates at
the related Remittance Rate, together with any previously
undistributed shortfalls in interest due on the Class I A-6
Certificates in respect of prior Remittance Dates;
(iv) the remainder of the Class I A Percentage of the Group I
Formula Principal Distribution Amount, if any, to the Class I A-6
Certificates until the Class I A-6 Principal Balance is reduced to
zero;
(v) interest accrued during the related Interest Period on the
Class I M-1 Principal Balance to the Class I M-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I M-1 Certificates in respect
of prior Remittance Dates;
(vi) the Class I M-1 Percentage of the Group I Formula
Principal Distribution Amount to the Class I M-1 Certificates until
the Class I M-1 Principal Balance is reduced to zero;
(vii) interest accrued during the related Interest Period on
the Class I B-1 Principal Balance to the Class I B-1 Certificates at
the related Remittance Rate, together with any previously
undistributed shortfalls in interest due on the Class I B-1
Certificates in respect of prior Remittance Dates;
(viii) the Class I B Percentage of the Group I Formula
Principal Distribution Amount to the Class I-B-1 Certificates until
the Class I B-1 Principal Balance is reduced to zero;
(ix) interest accrued during the related Interest Period on the
Class I B-2 Principal Balance to the Class I B-2 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-2 Certificates in respect
of prior Remittance Dates;
(x) the remainder of the Group I Formula Principal Distribution
Amount to the Class I B-2 Certificates until the Class I B-2 Principal
Balance is reduced to zero; provided, however, if the Class I A and
Class I M-1 Principal Balances have not been reduced to zero on or
before a Remittance Date, to the extent that allocations in respect of
principal to the Class I B-2 Certificates would reduce the Class I B-2
Principal Balance below the Class I B-2 Floor Amount, then the amount
of such excess principal will instead be distributed, pro rata, to the
Class I A Certificates and the Class I M-1 Certificates based on the
Class I A Principal Balance and the Class I M-1 Principal Balance
prior to distributions pursuant to clauses B(ii), (iv) and (vi) above
with respect to such Remittance Date. The allocations in respect of
such excess principal to the Class I A Certificates will be in the
order of priority set forth in clauses B(ii) and (iv) above. With
respect to any Remittance Date, the "Class I B-2 Floor Amount" will
equal $____________ (which represents approximately 2% of the Group I
Cut-off Date Pool Principal Balance);
(xi) any Group I Monthly Excess Spread to fund any Group II
Available Funds Shortfall;
(xii) any remaining Group I Monthly Excess Spread to fund any
unfunded Accelerated Principal Payment (as defined below) on the Group
II Certificates after giving effect to the distribution described in
clause C(ix) or D(ix), as applicable, below;
(xiii) so long as the Company is the Servicer, any remaining
available funds up to the Group I Monthly Servicing Fee, to the
Servicer;
(xiv) [the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class I B-2 Certificates as provided in
the Agreement;]
(xv) so long as the Company is the Servicer, any remaining
available funds up to the amount of the Group II Monthly Servicing
Fee, if any, remaining unpaid after giving effect to the distribution
described in clause C(xii) or D(xii), as applicable, below, to the
Servicer;
(xvi) [the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class II B-3 Certificates as provided in
the Agreement, which remains unpaid after giving effect to the
distribution described in clause C(xiii) or D(xiii), as applicable,
below; and]
(xvii) any remaining available funds to the holder of the Class
R Certificate.
C. On each Remittance Date on which the Class II B Principal
Distribution Test is not met, the Group II Available Distribution Amount will
be distributed in the following amounts in the following order of priority:
(i) interest accrued during the related Interest Period on the
Class II A-1 Principal Balance to the Class II A-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II A-1 Certificates in respect
of prior Remittance Dates;
(ii) the Group II Formula Principal Distribution Amount, net of
any portion of the Overcollateralization Reduction Amount, if any,
then applicable to such Certificates, to the Class II A-1 Certificates
until the Class II A-1 Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period on
the Class II B-1 Principal Balance to the Class II B-1 Certificates at
the related Remittance Rate, together with any previously
undistributed shortfalls in interest due on the Class II B-1
Certificates in respect of prior Remittance Dates;
(iv) the remaining Group II Formula Principal Distribution
Amount, if any, to the Class II B-1 Certificates, net of any portion
of the Overcollateralization Reduction Amount, if any, then applicable
to such Certificates, until the Class II B-1 Principal Balance is
reduced to zero;
(v) interest accrued during the related Interest Period on the
Class II B-2 Principal Balance to the Class II B-2 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-2 Certificates in respect
of prior Remittance Dates;
(vi) the remaining Group II Formula Principal Distribution
Amount, if any, to the Class II B-2 Certificates, net of any portion
of the Overcollateralization Reduction Amount, if any, then applicable
to such Certificates, until the Class II B-2 Principal Balance is
reduced to zero;
(vii) interest accrued during the related Interest Period on
the Class II B-3 Principal Balance to the Class II B-3 Certificates at
the related Remittance Rate, together with any previously
undistributed shortfalls in interest due on the Class II B-3
Certificates in respect of prior Remittance Dates;
(viii) the remainder of the Group II Formula Principal
Distribution Amount, if any, to the Class II B-3 Certificates, net of
any portion of the Overcollateralization Reduction Amount, if any,
then applicable to such Certificates, until the Class II B-3 Principal
Balance is reduced to zero;
(ix) any remaining Group II Available Distribution Amount to
fund any Accelerated Principal Payment on the Group II Certificates;
(x) any Group II Monthly Excess Spread, together with any
Overcollateralization Reduction Amount, to fund any Group I Available
Funds Shortfall;
(xi) any remaining available funds up to the Class II A-1 Net
Funds Cap Carryover Amount, Class II B-1 Net Funds Cap Carryover
Amount, Class II B-2 Net Funds Cap Carryover Amount and Class II B-3
Net Funds Cap Carryover Amount to the applicable Certificateholder; if
such available funds are not sufficient to distribute the total Net
Funds Cap Carryover Amount to the applicable Classes of Certificates,
such remaining available funds will be distributed on such Classes of
Certificates pro rata based on the amount of the Net Funds Cap
Carryover Amount owing to each such Class of Certificates;
(xii) so long as the Company is the Servicer, any remaining
available funds up to the amount equal to 1/12th of the product of
____% and the Group II Pool Scheduled Principal Balance for such
Remittance Date (the "Group II Monthly Servicing Fee") to the
Servicer;
(xiii) [the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class II B-3 Certificates as provided in
the Agreement;]
(xiv) so long as the Company is the Servicer, any remaining
available funds up to the amount of the Group I Monthly Servicing Fee,
if any, remaining unpaid after giving effect to the distribution
described in clause A(xiii) or B(xiii), as applicable, above, to the
Servicer;
(xv) [the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class I B-2 Certificates as provided in
the Agreement, which remains unpaid after giving effect to the
distribution described in clause A(xiv) or B(xiv), as applicable,
above; and]
(xvi) any remaining available funds to the holder of the Class
R Certificate.
D. On each Remittance Date on which the Class II B Principal
Distribution Test is met, the Available Distribution Amount will be
distributed in the following amounts in the following order of priority:
(i) interest accrued during the related Interest Period on the
Class II A-1 Principal Balance to the Class II A-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II A-1 Certificates, in
respect of prior Remittance Dates;
(ii) the Class II A Percentage of the Group II Formula
Principal Distribution Amount, net of any portion of the
Overcollateralization Reduction Amount, if any, then applicable to
such Certificates, to the Class II A-1 Certificateholders until the
Class II A-1 Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period on
the Class II B-1 Principal Balance to the Class II B-1 Certificates at
the related Remittance Rate, together with any previously
undistributed shortfalls in interest due on the Class II B-1
Certificates in respect of prior Remittance Dates;
(iv) the Class II B Percentage of the Group II Formula
Principal Distribution Amount to the Class II B-1 Certificates, net of
any portion of the Overcollateralization Reduction Amount, if any,
then applicable to such Certificates, until the Class II B-1 Principal
Balance is reduced to zero;
(v) interest accrued during the related Interest Period on the
Class II B-2 Principal Balance to the Class II B-2 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-2 Certificates in respect
of prior Remittance Dates;
(vi) the remainder of the Class II B Percentage, if any, of the
Group II Formula Principal Distribution Amount to the Class II B-2
Certificates, net of any portion of the Overcollateralization
Reduction Amount, if any, then applicable to such Certificates, until
the Class II B-2 Principal Balance is reduced to zero;
(vii) interest accrued during the related Interest Period on
the Class II B-3 Principal Balance to the Class II B-3 Certificates at
the related Remittance Rate, together with any previously
undistributed shortfalls in interest due on the Class II B-3
Certificates in respect of prior Remittance Dates;
(viii) the remainder of the Group II Formula Principal
Distribution Amount to the Class II B-3 Certificates, net of any
portion of the Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II B-3 Principal
Balance is reduced to zero; provided, however, if the Class II A-1
Principal Balance has not been reduced to zero on or before a
Remittance Date, to the extent that allocations in respect of
principal to the Class II B-3 Certificates would reduce the sum of the
Class II B-3 Principal Balance and the Overcollateralization Amount
below the Group II Certificate Floor Amount, then the amount of such
excess principal will instead be distributed to the Class II A-1
Certificates. With respect to any Remittance Date, the "Group II
Certificate Floor Amount" will equal $____________ (which represents
approximately __% of the Group II Cut-off Date Principal Balance);
(ix) any remaining Group II Available Distribution Amount to
fund any Accelerated Principal Payment on the Group II Certificates;
(x) any Group II Monthly Excess Spread, together with any
Overcollateralization Reduction Amount, to fund any Group I Available
Funds Shortfall;
(xi) any remaining available funds up to the Class II A-1 Net
Funds Cap Carryover Amount, Class II B-1 Net Funds Cap Carryover
Amount, Class II B-2 Net Funds Cap Carryover Amount and Class II B-3
Net Funds Cap Carryover Amount to the applicable Certificateholder; if
such available funds are not sufficient to distribute the total Net
Funds Cap Carryover Amount to the applicable Classes of Certificates,
such remaining available funds will be distributed on such Classes of
Certificates pro rata based on the amount of the Net Funds Cap
Carryover Amount owing to each such Class of Certificates;
(xii) so long as the Company is the Servicer, any remaining
available funds up to the Group II Monthly Servicing Fee, to the
Servicer;
(xiii) [the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class II B-3 Certificates as provided in
the Agreement;]
(xiv) so long as the Company is the Servicer, any remaining
available funds up to the amount of the Group I Monthly Servicing Fee,
if any, remaining unpaid after giving effect to the distribution
described in clause A(xiii) or B(xiii), as applicable, above, to the
Servicer;
(xv) [the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class I B-2 Certificates as provided in
the Agreement, which remains unpaid after giving effect to the
distribution described in clause A(xiv) or B(xiv), as applicable,
above; and]
(xvi) any remaining available funds to the holder of the Class
R Certificate.
In no event will the aggregate distributions of principal to any Class
of Certificates [(including, in the case of the Class IB-2 and Class IIB-3
Certificates, any principal amounts included in any Enhancement Payments)]
exceed the Original Principal Balance of such Class of Certificates.
Notwithstanding the prioritization of the distribution of the Group I
Formula Principal Distribution Amount among the Group I Senior Certificates
pursuant to clauses A(ii) and B(ii) above, on each Remittance Date on and
after the Remittance Date, if any, on which the Deficiency Event occurs, the
Group I Available Distribution Amount remaining after making the distributions
of interest to the Group I Senior Certificates required by clauses A(i) and
B(i) above will be applied to distribute the Group I Formula Principal
Distribution Amount on each Class of Group I Senior Certificates pro rata in
accordance with the outstanding Principal Balance of such Class. The
"Deficiency Event" will occur if the sum of the Principal Balances of the
Group I Senior Certificates becomes equal to or greater than the Pool
Scheduled Principal Balance for Group I.
Definitions:
The "Class I M-1 and Class I B Principal Distribution Test" is met in
respect of a Remittance Date on which each of the following requirements is
satisfied:
(i) such Remittance Date is on or after the ______ ____
Remittance Date;
(ii) the Class I M-1 Percentage plus the Class I B Percentage
for such Remittance Date is equal to at least ______% (which is ____
times the sum of the original Class I M-1 Percentage and the original
Class I B Percentage);
(iii) the Group I Performance Tests are satisfied; and
(iv) the Class I B-2 Principal Balance is not less than the
Class I B-2 Floor Amount.
The "Class II B Principal Distribution Test" is met in respect of a
Remittance Date on which each of the following requirements is satisfied:
(i) such Remittance Date is on or after the __________ Remittance
Date;
(ii) the Class II B Percentage for such Remittance Date is
equal to at least 50%;
(iii) the Group II Performance Tests are satisfied; and
(iv) the sum of the Class II B-3 Principal Balance and the
Overcollateralization Amount is not less than the Group II Certificate
Floor Amount.
The "Group I Performance Tests" are satisfied in respect of a
Remittance Date if all of the following conditions with respect to Group I are
met:
(i) the Average Sixty-Day Delinquency Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed __% for the
Group I Contracts;
(ii) the Average Thirty-Day Delinquency Ratio (as defined in
the Agreement) as of such Remittance Date does not exceed __% for the
Group I Contracts;
(iii) the Cumulative Realized Losses (as defined in the
Agreement) for the Group I Contracts as of such Remittance Date do not
exceed a certain specified percentage of the Group I Cut-off Date
Principal Balance, depending on the year in which such Remittance Date
occurs; and
(iv) the Current Realized Loss Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed _____% for Group
I Contracts.
The "Group II Performance Tests" are satisfied in respect of a
Remittance Date if all of the following conditions with respect to the Group
II Contracts are met:
(i) the Average Sixty-Day Delinquency Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed __% for the
Group II Contracts;
(ii) the Average Thirty-Day Delinquency Ratio (as defined in
the Agreement) as of such Remittance Date does not exceed __% for the
Group II Contracts;
(iii) the Cumulative Realized Losses (as defined in the
Agreement) for the Group II Contracts as of such Remittance Date do
not exceed a certain specified percentage of the Group II Cut-off
Date, depending on the year in which such Remittance Date occurs; and
(iv) the Current Realized Loss Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed ____% for the
Group II Contracts.
The "Group I Monthly Excess Spread" with respect to any Remittance
Date will generally be equal to the excess interest collections on the Group I
Contracts for the related Due Period which remain available after payment of
all required distributions on the Group I Certificates and certain other
required payments for such Remittance Date as specified in the Agreement.
The "Group II Monthly Excess Spread" with respect to any Remittance
Date will generally be equal to the excess interest collections on the Group
II Contracts for the related Due Period (together with interest on the
Overcollateralization Amount to the extent provided in the Agreement) which
remain available after payment of all required distributions on the Group II
Certificates (including any Accelerated Principal Payment for such Remittance
Date) and certain other required payment for such Remittance Date as specified
in the Agreement.
The "Group I Available Funds Shortfall", if any, with respect to any
Remittance Date, will be equal to the amount, if any, by which the Group I
Available Distribution Amount is less than the amount required to be
distributed to the Group I Certificates on such Remittance Date pursuant to
clauses A(i) through (x) or clauses B(i) through (x), as the case may be, of
the distribution priorities set forth above.
The "Group II Available Funds Shortfall", if any, with respect to any
Remittance Date, will be equal to the amount, if any, by which the Group II
Available Distribution Amount is less than the amount required to be
distributed to the Group II Certificates on such Remittance Date Pursuant to
clauses C(i) through (viii) or clauses D(i) through (viii), as the case may
be, of the distribution priorities set forth above.
The "Principal Balance" of each Class of Certificates is its original
Principal Balance reduced by all distributions on such Class in respect of
principal. The "Class I A Principal Balance" is the sum of the Class I A-1,
Class I A-2, Class I A-3, Class I A-4, Class I A-5 and Class I A-6 Principal
Balances. The "Class I B Principal Balance" is the sum of the Class I B-1
Principal Balance and the Class I B-2 Principal Balance. The "Class II B
Principal Balance" is the sum of the Class II B-1 Principal Balance, the Class
II B-2 Principal Balance and the Class II B-3 Principal Balance.
The "Class I A Percentage" for a Remittance Date is the percentage
derived from the fraction (which shall not be greater than 1), the numerator
of which is the aggregate Principal Balance of the Class I A Certificates
immediately prior to such Remittance Date and the denominator of which is the
Pool Scheduled Principal Balance for Group I Contracts.
The "Class I M-1 Percentage" for a Remittance Date is the percentage
derived from the fraction (which shall not be greater than 1), the numerator
of which is the aggregate Principal Balance of the Class I M-1 Certificates
immediately prior to such Remittance Date and the denominator of which is the
Pool Scheduled Principal Balance for the Group I Contracts.
The "Class I B Percentage" is 100% less the Class I A Percentage and
Class I M-1 Percentage.
The "Class II A Percentage" for a Remittance Date is the percentage
derived from the fraction (which shall not be greater than 1), the numerator
of which is the aggregate Principal Balance of the Class II A-1 Certificates
immediately prior to such Remittance Date and the denominator of which is the
Pool Scheduled Principal Balance for Group II Contracts.
The "Class II B Percentage" is 100% less the Class II A Percentage;
provided, however, that on any Remittance Date on which (i) the Class II B
Principal Distribution Test is met and (ii) the Class II B Percentage is
greater than 50%, the Class II A Percentage shall equal 0% until distribution
of principal to the Class II B Certificateholders on such Remittance Date
shall reduce the Class II B Percentage to a percentage equal to 50%; provided,
further, on the Remittance Date on which there is a Group II Formula Principal
Distribution Amount in excess of the amount (the "Required Class II B
Payment") required to be distributed to the Class II B Certificates so as to
reduce the Class II B Percentage to 50%, the Required Class II B Payment shall
be distributed to the Class II B Certificates and the remaining Group II
Formula Principal Distribution Amount shall be distributed pro rata to the
Class II A Certificates and the Class II B Certificates.
The "Average Sixty-Day Delinquency Ratio" and the "Average Thirty-Day
Delinquency Ratio" are, in general, the ratios of the average of the aggregate
principal balances of Contracts in the applicable Group delinquent 60 days or
more and 30 days or more, respectively, for the preceding three Due Periods
(determined as of the last day of each such Due Period) to the average Pool
Scheduled Principal Balance for such periods. "Cumulative Realized Losses"
are, in general, the aggregate net liquidation losses (calculated as specified
in the Agreement) in respect of Liquidated Contracts since the Cut-off Date.
The "Current Realized Loss Ratio" is, in general, the ratio of the aggregate
net liquidation losses in respect of Liquidated Contracts for the periods
specified in the Agreement to an average Pool Scheduled Principal Balance
specified in the Agreement.
The "Formula Principal Distribution Amount" in respect of a Remittance
Date and a Group equals the sum of (i) all scheduled payments of principal due
on each outstanding Contract in such Group during the Due Period preceding the
month in which the Remittance Date occurs, (ii) the Scheduled Principal
Balance (as defined below) of each Contract in such Group which, during the
Due Period preceding the month of such Remittance Date, was purchased by the
Company pursuant to the Agreement on account of certain breaches of its
representations and warranties, (iii) all Partial Prepayments (as defined in
the Agreement) of Contracts in such Group received during such preceding Due
Period, (iv) the Scheduled Principal Balance of each Contract in such Group
that was prepaid in full during such preceding Due Period, (v) the Scheduled
Principal Balance of each Contract in such Group that became a Liquidated
Contract during such preceding Due Period and (vi) any previously
undistributed shortfalls in the amounts in clauses (i) through (v) in respect
of the prior Remittance Dates [(other than any such shortfall with respect to
which an Enhancement Payment has been made to the related Certificateholders)].
The "Class II A-1 Net Funds Cap Carryover Amount" means, on any
Remittance Date, the sum of (A) if on such Remittance Date, the Remittance
Rate for the Class II A-1 Certificates is based upon the Net Funds Cap, the
excess of (i) the lesser of (a) the product of (i) the Weighted Average
Lifetime Cap (as defined herein) and (ii) the Class II A-1 Certificate
Principal Balance and (b) the amount of interest the Class II A-1 Certificates
would otherwise be entitled to receive on such Remittance Date had such rate
been calculated at the Class II A-1 Formula Rate for such Remittance Date over
(ii) the amount of interest payable on the Class II A-1 Certificates at the
Net Funds Cap for such Remittance Date and (B) the Class II A-1 Net Funds Cap
Carryover Amount, together with accrued interest thereon, for all previous
Remittance Dates not previously paid pursuant to clause C(xi) or D(xi) above.
The "Weighted Average Lifetime Cap" with respect to any Remittance Date shall
equal, on such Remittance Date, the weighted average of the Lifetime Caps of
the Group II Contracts multiplied by a fraction the numerator of which is the
actual number of days elapsed in the related Interest Period and the
denominator of which is 360.
The "Class II B-1 Net Funds Cap Carryover Amount" means, on any
Remittance Date, the sum of (A) if on such Remittance Date, the Remittance
Rate for the Class II B-1 Certificates is based upon the Net Funds Cap, the
excess of (i) the lesser of (a) the product of (i) the Weighted Average
Lifetime Cap and (ii) the Class II B-1 Certificate Principal Balance and (b)
the amount of interest the Class II B-1 Certificates would otherwise be
entitled to receive on such Remittance Date had such rate been calculated at
the Class II B-1 Formula Rate for such Remittance Date over (ii) the amount of
interest payable on the Class II B-1 Certificates at the Net Funds Cap for
such Remittance Date and (B) the Class II B-1 Net Funds Cap Carryover Amount,
together with accrued interest thereon, for all previous Remittance Dates not
previously paid pursuant to clause C(xi) or D(xi) above.
The "Class II B-2 Net Funds Cap Carryover Amount" means, on any
Remittance Date, the sum of (A) if on such Remittance Date, the Remittance
Rate for the Class II B-2 Certificates is based upon the Net Funds Cap, the
excess of (i) the lesser of (a) the product of (i) the Weighted Average
Lifetime Cap and (ii) the Class II B-2 Certificate Principal Balance and (b)
the amount of interest the Class II B-2 Certificates would otherwise be
entitled to receive on such Remittance Date had such rate been calculated at
the Class II B-2 Formula Rate for such Remittance Date over (ii) the amount of
interest payable on the Class II B-2 Certificates at the Net Funds Cap for
such Remittance Date and (B) the Class II B-2 Net Funds Cap Carryover Amount,
together with accrued interest thereon, for all previous Remittance Dates not
previously paid pursuant to clause C(xi) or D(xi) above.
The "Class II B-3 Net Funds Cap Carryover Amount" means, on any
Remittance Date, the sum of (A) if on such Remittance Date, the Remittance
Rate for the Class II B-3 Certificates is based upon the Net Funds Cap, the
excess of (i) the lesser of (a) the product of (i) the Weighted Average
Lifetime Cap and (ii) the Class II B-3 Certificate Principal Balance and (b)
the amount of interest the Class II B-3 Certificates would otherwise be
entitled to receive on such Remittance Date had such rate been calculated at
the Class II B-3 Formula Rate for such Remittance Date over (ii) the amount of
interest payable on the Class II B-3 Certificates at the Net Funds Cap for
such Remittance Date and (B) the Class II B-3 Net Funds Cap Carryover Amount,
together with accrued interest thereon, for all previous Remittance Dates not
previously paid pursuant to clause C(xi) or D(xi) above.
The "Net Funds Cap Carryover Amount" with respect to each Class of
Group II Certificates shall equal each of the Class II A-1 Net Funds Cap
Carryover Amount, Class II B-1 Net Funds Cap Carryover Amount, Class II B-2
Net Funds Cap Carryover Amount and Class II B-3 Net Funds Cap Carryover
Amount, as applicable. The "Net Funds Cap Carryover Amount" with respect to
all Classes of Group II Certificates shall equal the sum of the Class II A-1
Net Funds Cap Carryover Amount, the Class II B-1 Net Funds Cap Carryover
Amount, the Class II B-2 Net Funds Cap Carryover Amount and the Class II B-3
Net Funds Cap Carryover Amount. The Class II B-3 Net Funds Cap Carryover
Amount shall not have the benefit of the Limited Guarantee or the Alternate
Credit Enhancement.
The "Scheduled Principal Balance" of a Contract as of any Remittance
Date is its principal balance (before any adjustment by reason of bankruptcy,
moratorium or similar waiver or grace period) as of the Due Date (or latest
occurring Due Date, in the case of a Bi-weekly Contract or a Semi-Monthly
Contract) in the Due Period next preceding such Remittance Date, after giving
effect to any previous Partial Prepayments and after giving effect to all
previous scheduled principal payments and to the scheduled payment of
principal due on such Due Date (whether or not paid and before any adjustment
by reason of bankruptcy, moratorium or similar waiver or grace period).
The "Pool Scheduled Principal Balance" for a Group (the "Group I Pool
Scheduled Principal Balance" or the "Group II Pool Scheduled Principal Balance"
as applicable) for any Remittance Date is equal to (i) the Cut-off Date Pool
Principal Balance for such Group less (ii) the aggregate of the Formula
Principal Distribution Amounts for such Group (exclusive of the amounts in
clause (vi) of the definition thereof) for all prior Remittance Dates.
A "Liquidated Contract" is a defaulted Contract as to which all
amounts that the Servicer expects to recover through the date of disposition
of the Manufactured Home and/or any real property securing such Contract have
been received.
Group II Certificates; Overcollateralization Provisions
The Group II Weighted Average Contract Rate for the Group II Contracts
is expected generally to be higher than the weighted average of the Remittance
Rates applicable to the Group II Certificates, thus generating certain excess
interest collections which in the absence of losses and delinquencies, will
not be needed to fund distributions on the Group II Certificates. The
Agreement provides that this excess interest is to be applied, to the extent
available, to make accelerated payments of principal to the Class or Classes
of Group II Certificates then entitled to receive distributions of principal.
Such accelerated payments are expected to cause the aggregate Principal
Balance of the Group II Certificates to amortize more rapidly than the
principal balance of the Group II Contracts, resulting in
"overcollateralization" (i.e., the excess of the Group II Pool Scheduled
Principal Balance over the aggregate Principal Balance of the Group II
Certificates). This interest for a Due Period, together with interest on the
Overcollateralization Amount itself, remaining after distributions in clauses
C(i) to C(ix) or D(i) to D(ix) above is the "Group II Monthly Excess Spread"
for the Remittance Date immediately following the applicable Due Period. On
any Remittance Date, the "Overcollateralization Amount" will be an amount
equal to the excess, if any, of (x) the Group II Pool Scheduled Principal
Balance as of the end of the immediately preceding Due Period over (y) the
aggregate Certificate Principal Balance of the Group II Certificates on such
Remittance Date (after taking into account all other distributions to be made
on such Remittance Date). On the Closing Date, the Overcollateralization
Amount will be $______.
The Group II Monthly Excess Spread will be applied to make accelerated
payments of principal on each Remittance Date until the Overcollateralization
Amount is equal to the "Initial Required Overcollateralization Amount," which
is expected to equal $____________, which represents approximately ____% of
the initial Group II Contract Pool Balance. Thereafter, the Group II Monthly
Excess Spread will not be applied to further increase the
Overcollateralization Amount unless, due to losses, the Overcollateralization
Amount is decreased, in which event such applications will commence to the
extent necessary to increase the actual Overcollateralization Amount to the
Required Overcollateralization Amount. The level of the Required
Overcollateralization Amount is equal to, for any Remittance Date, (x) prior
to the date on which the Class II B Principal Distribution Test is satisfied,
the Initial Required Overcollateralization Amount and (y) on and after the
date on which the Class II B Principal Distribution Test is satisfied, the
lesser of (i) the Initial Required Overcollateralization Amount and (ii) the
greater of (a) ____% of the then current Group II Pool Scheduled Principal
Balance and (b) ____% of the Group II Cut-off Date Pool Principal Balance.
If, on any Remittance Date, the level of Required
Overcollateralization Amount is permitted to be reduced, the "Excess
Overcollateralization Amount" (the excess of (x) the actual
Overcollateralization Amount on such Remittance Date (after taking into
account all other distributions on such Remittance Date) over (y) the Required
Overcollateralization Amount for such Remittance Date) will be deducted from
the Group II Formula Principal Distribution Amount (but only to the extent of
such Group II Formula Principal Distribution Amount) otherwise distributable
to the holders of the Group II Certificates on such Remittance Date (any such
amount so deducted, an "Overcollateralization Reduction Amount") and will be
applied as provided herein under "Description of the
Certificates--Distributions". The Overcollateralization Reduction Amount, if
any, on any Remittance Date shall be funded, first, from that portion of the
Group II Formula Principal Distribution Amount otherwise distributable to the
holders of the most junior class of Group II Certificates on such Remittance
Date, and, if such amount is insufficient to fund in full the
Overcollateralization Reduction Amount on such Remittance Date, then, second,
from that portion of the Group II Formula Principal Distribution Amount
otherwise distributable to the holders of each succeeding class of Group II
Certificates in ascending order of seniority, until such Overcollateralization
Reduction Amount is completely funded. The Agreement provides that in no event
shall an Overcollateralization Reduction Amount be deducted from the Group II
Formula Principal Distribution Amount if, after deducting such amount, the sum
of the aggregate Principal Balance of the Class II B-3 Certificates and the
Overcollateralization Amount, taken together, would be less than 2.0% of the
Group II Cut-off Date Principal Balance.
The amount, if any, actually applied as an accelerated payment of
principal on any Remittance Date is referred to herein as the "Accelerated
Principal Payment" for such Remittance Date. The Accelerated Principal
Payment, if any, on any Remittance Date will be an amount equal to the lesser
of (x) the excess of (i) the Required Overcollateralization Amount over (ii)
the actual Overcollateralization Amount on such Remittance Date and (y) the
sum of the Group II Monthly Excess Spread, if any, and the Group I Monthly
Excess Spread, if any, remaining after payment of all then applicable prior
requirements for such Remittance Date. The Accelerated Principal Payment will
be distributed to the holders of the Class of Group II Certificates then
entitled to receive distributions in respect of principal on such date.
Cross Collateralization Provisions
The Agreement provides for cross collateralization through the
application of excess amounts generated by one Contract Group to fund
shortfalls in available funds in the other Contract Group, subject to certain
prior requirements of such Contract Group. Therefore, as to any Remittance
Date, the amount, if any, of Group I Monthly Excess Spread remaining after
payment of all then applicable prior requirements relating to the Group I
Certificates will be used to fund, first, any Group II Available Funds
Shortfall and, second, to the extent of any remaining Group I Monthly Excess
Spread, any unfunded Accelerated Principal Payment on the Group II
Certificates for such Remittance Date. Likewise, as to any Remittance Date,
the amount, if any, of Group II Monthly Excess Spread (together with any
Overcollateralization Reduction Amount) remaining after payment of all then
applicable prior requirements relating to the Group II Certificates (including
any Accelerated Principal Payment for such Remittance Date) will be used to
fund any Group I Available Funds Shortfall for such Remittance Date. The
payment of any amounts in respect of cross collateralization will be applied
in the order specified above under "--Distributions" and "--Group II
Certificates; Overcollateralization Provisions".
Additional funds resulting from the cross-collateralization provisions
described herein shall not be available to Group II Certificateholders to pay
the Net Funds Cap Carryover Amount.
Group I Certificates and the Senior/Subordinate Structure
Subordination of the Class I A-6 Certificates
The rights of the holders of the Class I A-6 Certificates to receive
distributions of amounts collected on the Group I Contracts will be
subordinated, to the extent described herein, to such rights of the Group I
Senior Certificates. This subordination is intended to enhance the likelihood
of receipt by the holders of the Group I Senior Certificates of the full
amount of their scheduled monthly payments of interest and the ultimate
receipt by such holders of principal equal to the applicable Original Class
Principal Balance of the Group I Senior Certificates.
The protection afforded to the Group I Senior Certificates by means of
the subordination of the Class I A-6 Certificates will be accomplished by the
application of the Group I Available Distribution Amount in the order
specified under "--Distributions" above. In addition, if the Group I Available
Distribution Amount on any Remittance Date is not sufficient to permit the
distribution of the entire specified portion of the Group I Formula Principal
Distribution Amount to the Group I Senior Certificateholders, the
subordination feature will protect the Group I Senior Certificateholders, by
the right of such Certificateholders to receive, until, if ever, any such
shortfall is distributed, a portion of the future distributions of Group I
Available Distribution Amounts that would otherwise have been distributable to
the holders of the Class I A-6 Certificates.
Subordination of the Class I M-1 Certificates
The rights of holders of the Class I M-1 Certificates to receive
distributions of amounts collected on the Group I Contracts will be
subordinated, to the extent described herein, to such rights of the holders of
the Group I Senior Certificates and Class I A-6 Certificates. This
subordination is intended to enhance the likelihood of receipt by the holders
of the Group I Senior Certificates and Class I A-6 Certificates of the full
amount of their scheduled monthly payments of interest and the ultimate
receipt by such holders of principal equal to the applicable Original Class
Principal Balance of the Group I Senior Certificates and Class I A-6
Certificates.
The protection afforded to the holders of the Group I Senior
Certificates and Class I A-6 Certificates by means of the subordination, to
the extent provided herein, of the Class I M-1 Certificates will be
accomplished (i) by the application of the Group I Available Distribution
Amount in the order specified under "--Distributions" above and (ii) if the
Group I Available Distribution Amount on such Remittance Date is not
sufficient to permit the distribution of the entire specified portion of the
Group I Formula Principal Distribution Amount, as applicable, to the Class of
Group I Senior Certificateholders and Class I A-6 Certificateholders, by the
right of such Group I Senior and Class I A-6 Certificateholders to receive,
until, if ever, any such shortfall is distributed, a portion of future
Available Distribution Amounts that would otherwise have been payable to the
holders of the Class I M-1 Certificates. On each Remittance Date before the
Class I A Principal Balance is reduced to zero, the holders of the Class I M-1
Certificates will receive the amounts specified under "--Distributions" above.
Subordination of the Class I B-1 and Class I B-2 Certificates and Class
R Certificate
The rights of holders of the Class I B-1 and Class I B-2 Certificates
and Class R Certificate to receive distributions of amounts collected on the
Group I Contracts will be subordinated, to the extent described herein, to
such rights of the holders of the Class I M-1 Certificates. This subordination
is intended to enhance the likelihood of receipt by the holders of the Class I
A and Class I M-1 Certificates of the full amount of their scheduled monthly
payments of interest and the ultimate receipt by such holders of principal
equal to the applicable Original Class Principal Balance.
The protection afforded to the holders of the Class I M-1 Certificates
by means of the subordination, to the extent provided herein, of the Class I
B-1 and Class I B-2 Certificates and Class R Certificate will be accomplished
(i) by the application of the Group I Available Distribution Amount in the
order specified under "--Distributions" above and (ii) if the Group I
Available Distribution Amount on such Remittance Date is not sufficient to
permit the distribution of the entire specified portion of the Group I Formula
Principal Distribution Amount, as applicable, to the Class I M-1
Certificateholder then entitled to such distribution, by the right of such
Class I M-1 Certificateholders to receive, until, if ever, any such shortfall
is distributed, a portion of future Available Distribution Amounts that would
otherwise have been payable to the holders of the Class I B-1 and Class I B-2
Certificates or the Class R Certificate. On each Remittance Date before the
Class I A Principal Balance is reduced to zero, the holders of the Class I B
Certificates will receive the amounts specified under "--Distributions" above.
Subordination of the Class I B-2 Certificates
The rights of the holders of the Class I B-2 Certificates to receive
distributions of amounts collected on the Contracts in the Trust Fund will be
subordinated, to the extent described herein, to such rights of the Class I
B-1 Certificates. This subordination is intended to enhance the likelihood of
receipt by the holders of the Class I A, Class I M-1 and Class I B-1
Certificates of the full amount of their scheduled monthly payments of
interest and the ultimate receipt by such holders of principal equal to the
applicable Original Class Principal Balance.
The protection afforded to the Class I B-1 Certificates by means of
the subordination of the Class I B-2 Certificates will be accomplished by the
application of the applicable Available Distribution Amount in the order
specified under "--Distributions" above. In addition, if the applicable
Available Distribution Amount on any Remittance Date is not sufficient to
permit the distribution of the entire specified portion of the related Formula
Principal Distribution Amount, as applicable, to the Class I B-1
Certificateholders and the subordination provided by the Class I B-2
Certificates has not been exhausted, the subordination feature will protect
the Class I B-1 Certificateholders by the right of the Class I B-1
Certificateholders to receive, until, if ever, any such shortfall is
distributed, a portion of the future distributions of Available Distribution
Amounts that would otherwise have been distributable to the holders of the
Class I B-2 Certificates or the Class R Certificate.
[However, the Class I B-2 Certificates will have the benefit of the
Limited Guarantee from CHI or the Alternate Credit Enhancement. Neither the
Limited Guarantee nor the Alternate Credit Enhancement will benefit or result
in any payments on any other Offered Certificates (other than the Class II B-3
Certificates to the limited extent described below).]
Group II Certificates and the Senior/Subordinate Structure
Subordination of the Class II B-1 Certificates
The rights of the holders of the Class II B-1 Certificates to receive
distributions of amounts collected on the Contracts in the Trust Fund will be
subordinated, to the extent described herein, to such rights of the Class II
A-1 Certificates. This subordination is intended to enhance the likelihood of
receipt by the holders of the Class II A-1 Certificates of the full amount of
their scheduled monthly payments of interest and the ultimate receipt by such
holders of principal equal to the Original Class II A-1 Class Principal
Balance.
The protection afforded to the Class II A-1 Certificates by means of
the subordination of the Class II B-1 Certificates will be accomplished by the
application of the applicable Available Distribution Amount in the order
specified under "--Distributions" above. In addition, if the applicable
Available Distribution Amount on any Remittance Date is not sufficient to
permit the distribution of the entire specified portion of the Group II
Formula Principal Distribution Amount, as applicable, to the Class II A-1
Certificateholders, the subordination feature will protect the Class II A-1
Certificateholders, by the right of such Certificateholders to receive, until,
if ever, any such shortfall is distributed, a portion of the future
distributions of Available Distribution Amounts that would otherwise have been
distributable to the Class II B-1 Certificates.
Subordination of the Class II B-2, Class II B-3 and Class R Certificate
The rights of holders of the Class II B-2, Class II B-3 and Class R
Certificate to receive distributions of amounts collected on the Contracts
will be subordinated, to the extent described herein, to such rights of the
holders of the Class II A-1 and Class II B-1 Certificates. This subordination
is intended to enhance the likelihood of receipt by the holders of Class II
A-1 and Class II B-1 Certificates of the full amount of their scheduled
monthly payments of interest and the ultimate receipt by such holders of
principal equal to the applicable Original Class Principal Balance.
The protection afforded to the holders of the Class II A-1 and Class
II B-1 Certificates by means of the subordination, to the extent provided
herein, of the Class II B-2, Class II B-3 and Class R Certificate will be
accomplished (i) by the application of the applicable Available Distribution
Amount in the order specified under "--Distributions" above and (ii) if the
applicable Available Distribution Amount on such Remittance Date is not
sufficient to permit the distribution of the entire specified portion of the
Formula Principal Distribution Amount, as applicable, to the Class of Class II
A-1 Certificateholders then entitled to such distribution, by the right of
such Class II A-1 Certificateholders to receive, until, if ever, any such
shortfall is distributed, a portion of future Available Distribution Amounts
that would otherwise have been payable to the holders of the Class II B
Certificates or the Class R Certificate. On each Remittance Date before the
Class II A Principal Balance is reduced to zero, the holders of the Class II B
Certificates will receive the amounts specified under "--Distributions" above.
Subordination of the Class II B-2 and Class II B-3 Certificates
The rights of the holders of the Class II B-2 and the Class II B-3
Certificates to receive distributions of amounts collected on the Contracts in
the Trust Fund will be subordinated, to the extent described herein, to such
rights of the Class II B-1 Certificates. This subordination is intended to
enhance the likelihood of receipt by the holders of the Class II B-1
Certificates of the full amount of their scheduled monthly payments of
interest and the ultimate receipt by such holders of principal equal to the
applicable Original Class Principal Balance.
The protection afforded to the Class II B-1 Certificates by means of
the subordination of the Class II B-2 and the Class II B-3 Certificates will
be accomplished by the application of the applicable Available Distribution
Amount in the order specified under "--Distributions" above. In addition, if
the applicable Available Distribution Amount on any Remittance Date is not
sufficient to permit the distribution of the entire specified portion of the
applicable Formula Principal Distribution Amount, as applicable, to the Class
II B-1 Certificateholders and the subordination provided by the Class II B-2
and the Class II B-3 Certificates has not been exhausted, the subordination
feature will protect the Class II B-1 Certificateholders by the right of the
Class II B-1 Certificateholders to receive, until, if ever, any such shortfall
is distributed, a portion of the future distributions of Available
Distribution Amounts that would otherwise have been distributable to the
holders of the Class II B-2, the Class II B-3 Certificates or the Class R
Certificate.
In addition, the protection afforded to the Class II B-2 Certificates
by means of the subordination of the Class II B-3 Certificates will be
accomplished by the application of the applicable Available Distribution
Amount in the order specified under "--Distributions" above. In addition, if
the applicable Available Distribution Amount on any Remittance Date is not
sufficient to permit the distribution of the entire specified portion of the
applicable Formula Principal Distribution Amount, as applicable, to the Class
II B-2 Certificateholders and the subordination provided by the Class II B-3
Certificates has not been exhausted, the subordination feature will protect
the Class II B-2 Certificateholders by the right of the Class II B-2
Certificateholders to receive, until, if ever, any such shortfall is
distributed, a portion of the future distributions of Available Distribution
Amounts that would otherwise have been distributable to the holders of the
Class II B-3 or the Class R Certificate.
[However, the Class II B-3 Certificates will have the benefit of the
Limited Guarantee from CHI or the Alternate Credit Enhancement. Neither the
Limited Guarantee nor the Alternate Credit Enhancement will benefit or result
in any payments on any other Offered Certificates (other than the Class I B-2
Certificates to the limited extent described above).]
Losses on Liquidated Contracts
In general, a "Liquidated Contract" is a defaulted Contract as to
which all amounts that the Servicer expects to recover through the date of
disposition of the Manufactured Home and/or any real property securing such
Contract has been received.
As described above, the distribution of principal to the holders of
the Senior Certificates in each Group is intended to include the Scheduled
Principal Balance of each Contract in the related Group that became a
Liquidated Contract during the Due Period immediately preceding the month of
such distribution. If the Liquidation Proceeds, net of related Liquidation
Expenses, from such Liquidated Contract are less than the Scheduled Principal
Balance of such Liquidated Contract, and accrued and unpaid interest thereon,
then to the extent such deficiency is not covered by any excess interest
collections on non-defaulted Contracts, the deficiency may, in effect, be
absorbed by the Subordinate Certificates since a portion of future Available
Distribution Amounts funded by future principal collections on the Contracts,
up to the aggregate amount of such deficiencies, that would otherwise have
been distributable to them may be paid to the holders of the Senior
Certificates. If the protection afforded to the holders of a Class of
Subordinate Certificates by the subordination of one or more Classes of more
junior Subordinate Certificates is exhausted, the holders of such Class of
Subordinate Certificates will incur a loss on their investment.
If the Group I or Group II Available Distribution Amount, as
applicable, for any Remittance Date is not sufficient to cover, in addition to
interest distributable to the related Senior Certificateholders, the entire
specified portion of the applicable Formula Principal Distribution Amount
distributable to the related Senior Certificateholders then entitled to such
payment on such Remittance Date, then the amount of the Pool Scheduled
Principal Balance available to the Class B Certificates (i.e., such Pool
Scheduled Principal Balance less the Class I A Principal Balance or the Class
II A Principal Balance, as applicable) on future Remittance Dates will be
reduced. With respect to each Group of Certificates, if, because of
liquidation losses, the Pool Scheduled Principal Balance for such Group were
to decrease proportionately faster than distributions to the related Senior
Certificateholders and Senior Subordinate Certificateholders reduce the
Principal Balance of such Certificates, the level of protection afforded by
the subordination of the Subordinate Certificates (i.e., the percentage of the
Pool Scheduled Principal Balance for the applicable Group available to the
Certificates) would be reduced. On each Remittance Date, if any, on or after
the date on which the Senior Certificate Principal Balance equals or becomes
greater than the Pool Scheduled Principal Balance for such Group and so long
as the Class I A-6 and Class II B-1 Certificates are outstanding, the Class I
A-6 and Class II B-1 Certificates will bear all losses on Liquidated Contracts
(with no ability to recover the amount of any liquidation loss from future
principal collections on the Contracts) and incur a loss on their investment
in the Class I A-6 and Class II B-1 Certificates. On each Remittance Date, if
any, on or after the date on which the Deficiency Event occurs, the Group I or
Group II Senior Certificateholders, as applicable, will receive only their
respective percentage interest of Liquidation Proceeds (net of Liquidation
Expenses) realized in respect of Liquidated Contracts, rather than the
Scheduled Principal Balances thereof, and will therefore bear all losses on
Liquidated Contracts (with no ability to recover the amount of any liquidation
loss from future principal collections on the Contracts) and incur a loss on
their investment in the Group I or Group II Senior Certificates, as
applicable. See "Description of the Certificates--Group I Certificates and the
Senior/Subordinate Structure, and "-- Group II Certificates and the
Senior/Subordinate Structure" and "Yield and Prepayment Considerations."
On each Remittance Date, if any, on or after the date on which the sum
of the Principal Balances of the Senior Certificates in either Group equals or
becomes greater than the Pool Scheduled Principal Balance for such Group, the
related Senior Certificateholders will receive only their respective
percentage interests of Liquidation Proceeds (net of Liquidation Expenses)
realized in respect of Liquidated Contracts in such Group, rather than the
Scheduled Principal Balances thereof, and will therefore bear all losses on
Liquidated Contracts (with no ability to recover the amount of any liquidation
loss from future principal collections on the Contracts) and incur a loss on
their investment in such Certificates.
But for the subordination of the Class I B-2 Certificates, the Class I
B-1 Certificateholders would absorb (i) all losses on each Liquidated Contract
in Group I (to the extent such loss is not covered by excess interest
collections) and (ii) other shortfalls in the applicable Available
Distribution Amount. If, on any Remittance Date, the sum of the Class I A
Principal Balance and the Class I B-1 Principal Balance becomes equal to or
greater than the Pool Scheduled Principal Balance for Group I, then the Class
I B-1 Certificateholders will bear all losses on Liquidated Contracts in Group
I (with no ability to recover the amount of any Liquidation Loss from future
principal collections on the Contracts) and incur a loss on their investment
in the Class I B-1 Certificates.
But for the subordination of the Class II B-3 Certificates, the Class
II B-2 Certificateholders would absorb (i) all losses on each Liquidated
Contract in Group II (to the extent such loss is not covered by excess
interest collections or the Overcollateralization Amount) and (ii) other
shortfalls in the applicable Available Distribution Amount. If, on any
Remittance Date, the sum of the Class II A Principal Balance, the Class II B-1
Principal Balance and the Class II B-2 Principal Balance becomes equal to or
greater than the Pool Scheduled Principal Balance for Group II, then the Class
II B-2 Certificateholders will bear all losses on Liquidated Contracts in
Group II (with no ability to recover the amount of any Liquidation Loss from
future principal collections on the Contracts) and incur a loss on their
investment in the Class II B-2 Certificates.
[Limited Guarantee of CHI
In order to mitigate the effect of the subordination of the Class I
B-2 Certificates or the Class II B-3 Certificates, as applicable, and
liquidation losses and delinquencies on the Contracts in the related Group
borne by the Class I B-2 Certificates or the Class II B-3 Certificates, as
applicable, CHI will initially provide a guarantee (the "Limited Guarantee")
against losses that would otherwise be absorbed by the Class I B-2
Certificates or the Class II B-3 Certificates, as applicable. Such Limited
Guarantee may be replaced by an Alternate Credit Enhancement. See "--Alternate
Credit Enhancement" below.
Each payment required to be made under the Limited Guarantee is
referred to as an "Enhancement Payment." Prior to the Remittance Date with
respect to the Class I B-2 Certificates (the "Initial Class I B-2 Principal
Remittance Date") on which the Class I B-1 Principal Balance is reduced to
zero, the Enhancement Payment will equal the amount, if any, by which (a) the
sum of (i) the Class I B-2 Formula Distribution Amount (which will be equal to
interest accrued during the related Interest Period on the Class I B-2
Principal Balance and an amount of principal described in the Agreement) for
such Remittance Date and (ii) the Class I B-2 Principal Liquidation Loss
Amount, if any, exceeds (b) the amount (other than the Enhancement Payment)
that will otherwise be distributed on the Class I B-2 Certificates on such
Remittance Date (the "Class I B-2 Distribution Amount"). On each Remittance
Date on or after the Initial Class I B-2 Principal Remittance Date, the
Enhancement Payment will equal the amount, if any, by which the Class I B-2
Formula Distribution Amount (which will include both interest and principal)
exceeds the Class I B-2 Distribution Amount for such Remittance Date. Prior to
the Remittance Date with respect to the Class II B-3 Certificates (the
"Initial Class II B-3 Principal Remittance Date") on which the Class II B-2
Principal Balance is reduced to zero, the Enhancement Payment will equal the
amount, if any, by which (a) the sum of (i) the Class II B-3 Formula
Distribution Amount (which will be equal to interest accrued during the
related Interest Period on the Class II B-3 Principal Balance and an amount of
principal described in the Agreement) for such Remittance Date and (ii) the
Class II B-3 Principal Liquidation Loss Amount, if any, exceeds (b) the amount
(other than the Enhancement Payment) that will otherwise be distributed on the
Class II B-3 Certificates on such Remittance Date (the "Class II B-3
Distribution Amount"). On each Remittance Date on or after the Initial Class
II B-3 Principal Remittance Date, the Enhancement Payment will equal the
amount, if any, by which the Class II B-3 Formula Distribution Amount (which
will include both interest and principal) exceeds the Class II B-3
Distribution Amount for such Remittance Date; provided, however, that the
Enhancement Payment with respect to the Class II B-3 Certificates will not
include amounts in respect of the Class II B-3 Net Funds Cap Carryover Amount.
The "Class I B-2 Principal Liquidation Loss Amount" for any Remittance
Date will equal the amount, if any, by which (a) the Group I Formula Principal
Distribution Amount (exclusive of the portion thereof specified in clause (vi)
of the definition of Formula Principal Distribution Amount) for such
Remittance Date exceeds (b) the amount (exclusive of the Enhancement Payment)
distributed on the Group I Certificates on account of principal on such
Remittance Date. The Class I B-2 Principal Liquidation Loss Amount represents
future principal payments on the Contracts that, because of the subordination
of the Class I B-2 Certificates and liquidation losses on the Contracts, will
not be paid to the Class I B-2 Certificateholders from the assets of the Trust
Fund but may be paid in the form of an Enhancement Payment.
The "Class II B-3 Principal Liquidation Loss Amount" for any
Remittance Date will equal the amount, if any, by which (a) the Group II
Formula Principal Distribution Amount (exclusive of the portion thereof
specified in clause (vi) of the definition of Formula Principal Distribution
Amount) for such Remittance Date exceeds (b) the amount (exclusive of the
Enhancement Payment) distributed on the Group II Certificates on account of
principal on such Remittance Date. The Class II B-3 Principal Liquidation Loss
Amount represents future principal payments on the Contracts that, because of
the subordination of the Class II B-3 Certificates and liquidation losses on
the Contracts, will not be paid to the Class II B-3 Certificateholders from
the assets of the Trust Fund but may be paid to the Class II B-3
Certificateholders in the form of an Enhancement Payment.
In the event that, on a particular Remittance Date, the Class I B-2
Distribution Amount or the Class II B-3 Distribution Amount, as applicable, in
the applicable Certificate Account plus any amounts actually paid under the
Limited Guarantee are not sufficient to make a full distribution of interest
to the Class I B-2 Certificateholder or the Class II B-3 Certificateholders,
as applicable, the amount of the deficiency will be carried forward as an
amount that the Class I B-2 Certificateholders or the Class II B-3
Certificateholder, as applicable, are entitled to receive on the next
Remittance Date.
The Limited Guarantee will be an unsecured general obligation of CHI
and will not be supported by any letter of credit or other enhancement
arrangement.
The Limited Guarantee is for the benefit of the Class I B-2
Certificates and Class II B-3 Certificates only and will not result in any
payments on the other Offered Certificates.
As reimbursement to CHI for Enhancement Payments made by CHI pursuant
to the Limited Guarantee, CHI will be entitled to receive on each Remittance
Date an amount equal to the lesser of (a) the Available Distribution Amount,
less the portion of the Available Distribution Amount distributed on the
Certificates (other than the Class R Certificate), and (b) the aggregate
amount of Enhancement Payments outstanding which remain unreimbursed as of
such Remittance Date.
Alternate Credit Enhancement
In the event that, at CHI's option, Alternate Credit Enhancement (as
defined herein) is provided and, upon prior written notice to the Rating
Agencies, the Rating Agencies shall have notified CHI, the Company, the
Servicer and the Trustee in writing that substitution of such Alternate Credit
Enhancement for the Limited Guarantee will not result in the downgrade or
withdrawal of the then current rating of any class of the Certificates, and
upon the delivery by CHI to the Trustee of an opinion of counsel, acceptable
to the Trustee, that such action would not cause the Trust to fail to qualify
as a REMIC, the Limited Guarantee shall be released and shall terminate. The
Alternate Credit Enhancement may consist of cash or securities deposited by
CHI or any other person in a segregated escrow, trust or collateral account or
a letter of credit, certificate insurance policy or surety bond provided by a
third party (an "Alternate Credit Enhancement"). On each Remittance Date after
delivery of the Alternate Credit Enhancement, an amount, equal to the lesser
of the amount which would have been payable under the Limited Guarantee and
the amount available under such Alternate Credit Enhancement, shall be
transferred from such account to the applicable Certificate Account to make
payments to the Class I B-2 and Class II B-3 Certificateholders, as applicable
(the "Enhancement Payment"). CHI shall have no obligation to replace such
enhancement once it has been exhausted.]
Advances
For each Remittance Date, the Servicer will be obligated to make
advances ("Monthly Advances") in respect of delinquent scheduled payments on
the Contracts that were due in the preceding Due Period and would, in the
Servicer's judgment, be recoverable from related late payments, Liquidation
Proceeds or otherwise.
On or prior to each Determination Date, the Servicer will either (i)
deposit from its own funds the Monthly Advance into the applicable Certificate
Account, (ii) cause appropriate entries to be made in the records of the
applicable Certificate Account that funds in the applicable Certificate
Account that are not part of the applicable Available Distribution Amount for
the related Remittance Date have been used to make the Monthly Advance or
(iii) make the Monthly Advance through any combination of clauses (i) and
(ii). Any funds held for future distribution and used in accordance with
clause (ii) must be restored by the Servicer from its own funds or advance
payments on the Contracts when they become part of a future Available
Distribution Amount. The Monthly Advance is the sum of delinquent scheduled
payments due in the related Due Period, exclusive of all Nonrecoverable
Advances, except that the Monthly Advance will not exceed the amount necessary
to bring the Available Distribution Amount up to the sum of the amounts
specified in clauses A(i)-(x), B(i)-(x), C(i)-(viii) or D(i)-(viii), as the
case may be, under "--Distributions--Priority of Distributions" above. A
Nonrecoverable Advance is any advance made or proposed to be made that the
Servicer believes is not, or if made would not be, ultimately recoverable from
related Liquidation Proceeds or otherwise.
Monthly Advances are intended to maintain a regular flow of scheduled
interest and principal payments to Certificateholders rather than to guarantee
or insure against losses. The Servicer will reimburse itself for Monthly
Advances out of collections of the late scheduled payments. In addition, upon
the determination that a Nonrecoverable Advance has been made in respect of a
Contract or upon a Contract becoming a Liquidated Contract, the Servicer will
reimburse itself out of funds in the applicable Certificate Account for the
delinquent scheduled payments on such Contract (exclusive of any scheduled
payment (i) for which no advance was made because the Servicer determined that
such an advance would be a Nonrecoverable Advance if an advance were made or
(ii) that was recovered out of Net Liquidation Proceeds for the related
Contract).
The Servicer will also be obligated to make advances, to the extent
recoverable out of Liquidation Proceeds or otherwise, in respect of certain
taxes and insurance premiums not paid by an Obligor on a timely basis. Funds
so advanced are reimbursable to the Servicer as provided in the Agreement.
Reports to Certificateholders
The Trustee will include with each distribution to each
Certificateholder a statement as of such Remittance Date setting forth, among
other things:
(a) the aggregate amount distributed on the Class I A-1
Certificates on such Remittance Date;
(b) the amount of such distribution which constitutes principal;
(c) the amount of such distribution which constitutes interest;
(d) the remaining Class I A-1 Principal Balance;
(e) the aggregate amount distributed on the Class I A-2 Certificates
on such Remittance Date;
(f) the amount of such distribution which constitutes principal;
(g) the amount of such distribution which constitutes interest;
(h) the remaining Class I A-2 Principal Balance;
(i) the aggregate amount distributed on the Class I A-3 Certificates
on such Remittance Date;
(j) the amount of such distribution which constitutes principal;
(k) the amount of such distribution which constitutes interest;
(l) the remaining Class I A-3 Principal Balance;
(m) the aggregate amount distributed on the Class I A-4 Certificates
on such Remittance Date;
(n) the amount of such distribution which constitutes principal;
(o) the amount of such distribution which constitutes interest;
(p) the remaining Class I A-4 Principal Balance;
(q) the aggregate amount distributed on the Class I A-5 Certificates
on such Remittance Date;
(r) the amount of such distribution which constitutes principal;
(s) the amount of such distribution which constitutes interest;
(t) the remaining Class A-5 Principal Balance;
(u) the aggregate amount distributed on the Class I A-6 Certifictes
on such Remittance Date;
(v) the amount of such distribution which constitutes principal;
(w) the amount of such distribution which constitutes interest;
(x) the remaining Class A-6 Principal Balance;
(y) the aggregate amount distributed on the Class I M-1
Certificates on such Remittance Date;
(z) the amount of such distribution which constitutes principal;
(aa) the amount of such distribution which constitutes interest;
(bb) the remaining Class I M-1 Principal Balance;
(cc) the aggregate amount distributed on the Class I B-1
Certificates on such Remittance Date;
(dd) the amount of such distribution which constitutes principal;
(ee) the amount of such distribution which constitutes interest;
(ff) the remaining Class I B-1 Principal Balance;
(gg) the aggregate amount distributed on the Class I B-2
Certificates on such Remittance Date;
(hh) the amount of such distribution which constitutes principal;
(ii) the amount of such distribution which constitutes interest;
(jj) the amount, if any, by which the Class I B-2 Formula
Distribution Amount exceeds the Class I B-2 Remaining Amount
Available for such Remittance Date;
(kk) the Class I B-2 Liquidation Loss Amount, if any, for such
Remittance Date;
(ll) [the Enhancement Payment, if any, for such Remittance Date;]
(mm) the remaining Class I B-2 Principal Balance;
(nn) the aggregate amount distributed on the Class II A-1
Certificates on such Remittance Date;
(oo) the amount of such distribution which constitutes principal;
(pp) the amount of such distribution which constitutes interest;
(qq) the remaining Class II B-1 Principal Balance;
(rr) the aggregate amount distributed on the Class II B-1
Certificates on such Remittance Date;
(ss) the amount of such distribution which constitutes principal;
(tt) the amount of such distribution which constitutes interest;
(uu) the remaining Class II B-2 Principal Balance;
(vv) the aggregate amount distributed on the Class II B-3
Certificates on such Remittance Date;
(ww) the amount of such distribution which constitutes principal;
(xx) the amount of such distribution which constitutes interest;
(yy) the amount, if any, by which the Class II B-3 Formula
Distribution Amount exceeds the Class II B-3 Remaining Amount
Available for such Remittance Date;
(zz) the Class II B-3 Liquidation Loss Amount, if any, for such
Remittance Date;
(aaa) [the Enhancement Payment, if any, for such Remittance Date;]
(bbb) the number of and aggregate unpaid principal balance of Group
I and Group II Contracts with payments delinquent 31 to 59, 60
to 89 and 90 or more days, respectively; and
(ccc) the amount of fees payable out of the Trust Fund.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will furnish a report to each Certificateholder of
record at any time during such calendar year as to certain aggregate of
amounts for such calendar year.
Optional Termination
The Agreement provides that on any Remittance Date after the first
Remittance Date on which the sum of the Group I Pool Scheduled Principal
Balance and the Group II Pool Scheduled Principal Balance is less than 10% of
the Cut-off Date Pool Principal Balance, the Company (if it is no longer the
Servicer) and the Servicer will each have the option to repurchase, upon the
Company or the Servicer giving notice mailed no later than the first day of
the month next preceding the month of the exercise of such option, all
outstanding Contracts at a price equal to the greater of (a) the sum of (x)
100% of the outstanding principal balance of each Contract (other than any
Contract as to which the related Manufactured Home has been acquired in
realizing thereon 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 (as determined by the Company or the Servicer, as the
case may be) and (b) the aggregate fair market value (as determined by the
Company or the Servicer, as the case may be) of all of the assets of the Trust
Fund, plus, in each case, any unpaid interest on the Certificates due on prior
Remittance Dates as well as one month's interest at the rate specified in the
Agreement on the Scheduled Principal Balance of each Contract (including any
Contract as to which the related Manufactured Homes has been repossessed and
not yet disposed of). Notwithstanding the foregoing, the option referred to in
this paragraph shall not be exercisable unless there will be distributed to
the Certificateholders an amount equal to 100% of the outstanding principal
balance of each Certificate plus one month's interest thereon at the related
Remittance Rate, and any previously undistributed shortfalls in interest due
thereon.
The Trustee
_________________________, a ______________________, has its corporate
trust offices at ___________________. The Company and its affiliates may have
commercial transactions with the Trustee from time to time.
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company 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. In such circumstances, the
Company will also be obligated to appoint a successor Trustee. 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.
Registration of the Offered Certificates
The Offered Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests
in the Offered Certificates ("Certificate Owners") will hold their Offered
Certificates through The Depository Trust Company ("DTC") in the United
States, or Cedelbank ("Cedel") or Euroclear (in Europe) if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. The Book-Entry Certificates will be issued in
one or more certificates which equal the aggregate principal balance of the
Offered Certificates and will initially be registered in the name of Cede &
Co., the nominee of DTC. Cedel and Euroclear will hold omnibus positions on
behalf of their participants through customers' securities accounts in Cedel's
and Euroclear's names on the books of their respective depositaries which in
turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank will act as depositary for
Cedel and The Chase Manhattan Bank will act as depositary for Euroclear (in
such capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations of $50,000. Except as
described below, no person acquiring a Book-Entry Certificate (each, a
"beneficial owner") will be entitled to receive a physical certificate
representing such Certificate (a "Definitive Certificate"). Unless and until
Definitive Certificates are issued, it is anticipated that the only
"Certificateholder" of the Offered Certificates will be Cede & Co., as nominee
of DTC. Certificate Owners will not be Certificateholders as that term is used
in the Agreement. Certificate Owners are only permitted to exercise their
rights indirectly through Participants and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that maintains
the beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on
the records of DTC (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in turn be recorded on the records
of DTC, if the beneficial owner's Financial Intermediary is not a DTC
participant and on the records of Cedel or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of and
interest on the Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required
to make book-entry transfers among Participants on whose behalf it acts with
respect to the Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Participants and indirect participants with whom Certificate Owners have
accounts with respect to Offered Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates representing their respective interests in the
Offered Certificates, the Rules provide a mechanism by which Certificate
Owners will receive distributions and will be able to transfer their interest.
Certificateholders will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless
and until Definitive Certificates are issued, Certificateholders who are not
Participants may transfer ownership of Offered Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer Offered Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Offered
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Offered Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Certificateholders.
Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in
such securities settled during such processing will be reported to the
relevant Euroclear or Cedel Participants on such business day. Cash received
in Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant (as defined below) or Euroclear Participant (as defined below) to
a DTC Participant will be received with value on the DTC settlement date but
will be available in the relevant Cedel or Euroclear cash account only as of
the business day following settlement in DTC. For information with respect to
tax documentation procedures relating to the Certificates, see "Certain
Federal Income Tax Consequences--REMIC Series--Taxation of Certain Foreign
Investors" and "--Backup Withholding" in the Prospectus and "Global Clearance,
Settlement and Tax Documentation Procedures--Certain U.S. Federal Income Tax
Documentation Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC
rules. Transfers between Cedel Participants and Euroclear Participants will
occur in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant 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 is a New York-chartered limited purpose trust company that
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, as in effect from time to time.
Cedelbank, 67 Bd Grande-Duchesse Charlotte, L-1331 Luxembourg, was
incorporated in 1970 as a limited company under Luxembourg law. Cedel is owned
by banks, securities dealers and financial institutions, and currently has
about 100 shareholders, including U.S. financial institutions or their
subsidiaries. No single entity may own more than five percent of Cedel's
stock.
Cedel is registered as a bank in Luxembourg, and as such is subject to
regulation by the Institute Monetaire Luxembourgeois, "IML", the Luxembourg
Monetary Authority, which supervises Luxembourg banks.
Cedel holds securities for its customers ("Cedel Participants") and
facilitates the clearance and settlement of securities transactions by
electronic book-entry transfers between their accounts. Cedel provides various
services, including safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. Cedel
also deals with domestic securities markets in several countries through
established depository and custodial relationships. Cedel has established an
electronic bridge with Morgan Guaranty Trust as the Euroclear Operator in
Brussels to facilitate settlement of trades between systems. Cedel currently
accepts over 70,000 securities issues on its books.
Cedel's customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations. Cedel's United States customers are limited to
securities brokers and dealers and banks. Currently, Cedel has approximately
3,000 customers located in over 60 countries, including all major European
countries, Canada, and the United States. Indirect access to Cedel is
available to other institutions which clear through or maintain a custodial
relationship with an account holder of Cedel.
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 29 currencies, including
United States dollars. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants, and has no record of or
relationship with persons holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Remittance Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing such payments to the beneficial owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be
responsible for disbursing funds to the beneficial owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede & Co. Distributions
with respect to Certificates held through Cedel or Euroclear will be credited
to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Certain Federal Income Tax Consequences--REMIC Series--Taxation of
Certain Foreign Investors" and "--Backup Withholding" in the Prospectus.
Because DTC can only act on behalf of Financial Intermediaries, the ability of
a beneficial owner to pledge Book-Entry Certificates to persons or entities
that do not participate in the Depository system, or otherwise take actions in
respect of such Book-Entry Certificates, may be limited due to the lack of
physical certificates for such Book-Entry Certificates. In addition, issuance
of the Book-Entry Certificates in book-entry form may reduce the liquidity of
such Certificates in the secondary market since certain potential investors
may be unwilling to purchase Certificates for which they cannot obtain
physical certificates.
Monthly and annual reports on the Trust will be provided to Cede &
Co., as nominee of DTC, and may be made available by Cede to beneficial owners
upon request, in accordance with the rules, regulations and procedures
creating and affecting the Depository, and to the Financial Intermediaries to
whose DTC accounts the Book-Entry Certificates of such beneficial owners are
credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are
taken on behalf of Financial Intermediaries whose holdings include such
Book-Entry Certificates. Cedel or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by a Certificateholder under
the Agreement on behalf of a Cedel Participant or Euroclear Participant only
in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depositary to effect such actions on its behalf
through DTC. DTC may take actions, at the direction of the related
Participants, with respect to some Offered Certificates which conflict with
actions taken with respect to other Offered Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a)
DTC or the Company advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as
nominee and depository with respect to the Book-Entry Certificates and the
Company or the Trustee is unable to locate a qualified successor, (b) the
Company, at its sole option, with the consent of the Trustee, elects to
terminate a book-entry system through DTC or (c) after the occurrence of an
Event of Default, beneficial owners having Percentage Interests aggregating
not less than 51% of the Book-Entry Certificates advise the Trustee and DTC
through the Financial Intermediaries and the DTC participants in writing that
the continuation of a book-entry system through DTC (or a successor thereto)
is no longer in the best interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Offered 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 Company, 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 & Co., as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
DTC management is aware that some computer applications, systems, and
the like for processing data ("Systems") that are dependent upon calendar
dates, including dates before, on, and after January 1, 2000, may encounter
"Year 2000 problems." DTC has informed its Participants and other members of
the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within the appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information of the
provision of services, including telecommunication and electrical utility
service providers, among others. DTC has informed the Industry that it is
contacting (and will continue to contact) third party vendors from whom DTC
acquires services to : (i) impress upon them the importance of such services
being Year 2000 complaint; (ii) determine the extent of their efforts for Year
2000 remediation (and, as appropriate, testing) of their services. In
addition, DTC is in the process of developing such contingency plans as it
deems appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to the Industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of
any kind.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
the Offered Certificates will be added to the general funds of the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Trust Fund as a "real estate
mortgage investment conduit" (a "REMIC") for federal income tax purposes. The
Senior and Subordinate Certificates will constitute "regular interests" in the
REMIC, and the Class R Certificate will constitute the sole class of "residual
interest" in the REMIC.
Original Issue Discount
The Offered Certificates may be issued with original issue discount
for federal income tax purposes. For purposes of determining the amount and
the rate of accrual of original issue discount and market discount, the
Company intends to assume that there will be prepayments on the Contracts at a
rate equal to _____% of the Prepayment Model (as defined herein) for the Group
I Contracts and _____% of the Prepayment Model for the Group II Contracts. No
representation is made as to whether the Contracts will prepay at that rate or
any other rate. See "Yield and Prepayment Considerations" herein and "Certain
Federal Income Tax Consequences" in the Prospectus.
A reasonable application of the principles of the OID Regulations to
the Floating Rate Certificates generally would be to report all income with
respect to such Certificates as original issue discount for each period,
computing such original issue discount (i) by assuming that the value of the
applicable index with respect to such Certificates will remain constant for
purposes of determining the original yield to maturity of each such Class of
Certificates and projecting future distributions on such Certificates, thereby
treating such Certificates as fixed rate instruments to which the original
issue discount computation rules described in the Prospectus can be applied,
and (ii) by accounting for any positive or negative variation in the actual
value of the applicable index in any period from its assumed value as a
current adjustment to original issue discount with respect to such period. See
"Certain Federal Income Tax Consequences" in the Prospectus.
The Offered Certificates will be treated as regular interests in a
REMIC under section 860G of the Code. Accordingly, the Offered Certificates
will be treated as (i) assets described in section 7701(a)(19)(C) of the Code,
and (ii) "real estate assets" within the meaning of section 856(c)(5)(B) of
the Code, in each case to the extent described in the Prospectus. Interest on
the Offered 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 to the same extent that the Offered Certificates are treated as real
estate assets. See "Certain Federal Income Tax Consequences" in the
Prospectus.
Effect of Losses and Delinquencies
As described above under "Description of the Certificates," with
respect to each Group of Certificates, the Subordinate Certificates are
subordinated to the Senior Certificates. In the event there are losses or
delinquencies on the Contracts in a certain Group, amounts that otherwise
would be distributed on the Subordinate Certificates of such Group may instead
be distributed on the Senior Certificates of such Group. Holders of the
Subordinate Certificates nevertheless will be required to report interest with
respect to such Subordinate Certificates under an accrual method without
giving effect to delays and reductions in distributions on such Certificates
attributable to losses and delinquencies on the Contracts in such Contract
Group, except to the extent it can be established, for tax purposes, that such
amounts are uncollectible. As a result, the amount of income reported by
holders of the Subordinate Certificates in any period could significantly
exceed the amount of cash distributed to such holders in that period. The
holders of the Subordinate Certificates will eventually be allowed a loss (or
will be allowed to report a lesser amount of income) to the extent that the
aggregate amount of distributions on such Certificates is reduced as a result
of losses and delinquencies on the Contracts in the Contract Pool. However,
the timing and character of such losses or reductions in income are uncertain.
Although not entirely clear, it appears that holders of the Subordinate
Certificates that are corporations should in general be allowed to deduct as
an ordinary loss any loss sustained during the taxable year on account of any
such Certificates becoming wholly or partially worthless, and that, in
general, holders of Certificates that are not corporations should be allowed
to deduct as short-term capital loss any loss sustained during the taxable
year on account of any such Certificates becoming wholly worthless. Although
the matter is unclear, non-corporate holders of Certificates may be allowed a
bad debt deduction at such time that the principal balance of any such
Certificate is reduced to reflect realized losses resulting from any
liquidated Contracts. The Internal Revenue Service, however, could take the
position that non-corporate holders will be allowed a bad debt deduction to
reflect realized losses only after all Contracts remaining in the related
Trust Fund have been liquidated or the Certificates have been otherwise
retired. Potential investors and Holders of the Certificates are urged to
consult their own tax advisors regarding the appropriate timing, amount and
character of any loss sustained with respect to such Certificates, including
any loss resulting from the failure to recover previously accrued interest or
discount income. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
Certificates.
Backup Withholding
Certain Certificate Owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Offered Certificates if the
Certificate Owners, upon issuance, fail to supply the Trustee or their broker
with their taxpayer identification number, furnish an incorrect taxpayer
identification number, fail to report interest, dividends, or other
"reportable payments" (as defined in the Code) properly, or, under certain
circumstances, fail to provide the Trustee or their broker with a certified
statement, under penalty of perjury, that they are not subject to backup
withholding.
The Trustee will be required to report annually to the IRS, and to
each Offered Certificateholder of record, the amount of interest paid (and OID
accrued, if any) on the Offered Certificates (and the amount of interest
withheld for federal income taxes, if any) for each calendar year, except as
to exempt holders (generally, holders that are corporations, certain
tax-exempt organizations or nonresident aliens who provide certification as to
their status as nonresidents). As long as the only "Class A Certificateholder"
of record is Cede, as nominee for DTC, Certificate Owners and the IRS will
receive tax and other information including the amount of interest paid on
such Certificates owned from Participants and indirect Participants rather
than from the Trustee. (The Trustee, however, will respond to requests for
necessary information to enable Participants, indirect Participants and
certain other persons to complete their reports.) Each non-exempt Certificate
Owner will be required to provide, under penalty of perjury, a certificate on
IRS Form W-9 containing his or her name, address, correct federal taxpayer
identification number and a statement that he or she is not subject to backup
withholding. Should a nonexempt Certificate Owner fail to provide the required
certification, the Participants or indirect Participants (or the Paying Agent)
will be required to withhold 31% of the interest (and principal) otherwise
payable to the holder, and remit the withheld amount to the IRS as a credit
against the holder's federal income tax liability.
Such amounts will be deemed distributed to the affected Certificate
Owner for all purposes of the Certificates and the Agreement.
Federal Income Tax Consequences to Foreign Investors
The following information describes the United States federal income
tax treatment of holders that are not United States persons ("Foreign
Investors"). The term "Foreign Investors" means any person other than (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity treated as a corporation or partnership for United States federal
income tax purposes organized in or under the laws of the United States or any
state thereof or the District of Columbia (other than a partnership that is
not treated as a United States person under any applicable Treasury
regulations), (iii) an estate, the income of which is includible in gross
income for United States federal income tax purposes, regardless of its source
or (iv) a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
United States persons have authority to control all substantial decisions of
the trust. Notwithstanding the preceding sentence, to the extent provided in
Treasury regulations, certain trusts in existence on August 20, 1996 which
were treated as United States persons prior to such date that elect to
continue to be treated as United States persons will not be considered a
Foreign Investor.
The Code and Treasury regulations generally subject interest paid to a
Foreign Investor to a withholding tax at a rate of 30% (unless such rate is
reduced by an applicable treaty). The withholding tax, however, is eliminated
with respect to certain "portfolio debt investments" issued to Foreign
Investors. Portfolio debt investments include debt instruments issued in
registered form for which the United States payor receives a statement that
the beneficial owner of the instrument is a Foreign Investor. The Offered
Certificates will be issued in registered form, therefore if the information
required by the Code is furnished (as described below) and no other exceptions
to the withholding tax exemption are applicable, there will be no withholding
tax on interest paid to a Foreign Investor.
For the Offered Certificates to constitute portfolio debt investments
exempt from the United States withholding tax, the withholding agent must
receive from the Certificate Owner an executed IRS Form W-8 signed under
penalty of perjury by the Certificate Owner stating that the Certificate Owner
is a Foreign Investor and providing such Certificate Owner's name and address.
The statement must be received by the withholding agent in the calendar year
in which the interest payment is made, or in either of the two preceding
calendar years.
A Certificate Owner that is a Foreign Investor will not be subject to
United States federal income tax on gain realized on the sale, exchange, or
redemption of an Offered Certificate, provided that (i) such gain is not
effectively connected with a trade or business carried on by the Certificate
Owner in the United States, (ii) in the case of a Certificate Owner that is an
individual, such Certificate Owner is not present in the United States for 183
days or more during the taxable year in which such sale, exchange or
redemption occurs and (iii) in the case of gain representing accrued interest,
the conditions described in the immediately preceding paragraph are satisfied.
On October 6, 1997, the Treasury Department issued new regulations
(the "New Regulations") which make certain modifications to the withholding,
backup withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
For further information regarding the federal income tax consequences
of investing in the Certificates, see "Certain Federal Income Tax
Consequences" in the Prospectus.
STATE TAX CONSIDERATIONS
The Company makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Offered 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. See "ERISA Considerations" in the Prospectus.
Senior Certificates
As discussed in the Prospectus under "ERISA Considerations" and
subject to the limitations discussed thereunder, the Company believes that the
Exemption (as defined in the Prospectus) granted to ___________ and
________________ (the "Underwriters"), will apply to the acquisition and
holding by Plans of Senior Certificates sold by the Underwriters and that all
conditions of the Exemption other than those within the control of the
investors have been met. See "ERISA Considerations" in the Prospectus. In
addition, as of the date hereof, no obligor with respect to Contracts included
in the Trust Fund constitutes more than five percent of the aggregate
unamortized principal balance of the assets of the Trust Fund.
Employee benefit plans that are governmental plans (as defined in
section 3(32) of ERISA) and 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 regard to the ERISA
restrictions described above, subject to applicable provisions of other
federal and state laws. Any such plan that is a tax-qualified plan and exempt
from taxation under Section 401(a) and 501(a) of the Code, however, is subject
to the prohibited transaction rules set forth in Section 503 of the Code.
Any Plan fiduciary who proposes to cause a Plan to purchase Senior
Certificates should consult with its own counsel with respect to the potential
consequences under ERISA and the Internal Revenue Code of 1986, as amended
(the "Code"), of the Plan's acquisition and ownership of Senior Certificates.
Assets of a Plan or individual retirement account should not be invested in
the Senior Certificates unless it is clear that the assets of the Trust Fund
will not be plan assets or unless it is clear that the Exemption or a
prohibited transaction class exemption will apply and exempt all potential
prohibited transactions.
Subordinate Certificates
As discussed in the Prospectus, because the Subordinate Certificates
are subordinated to the Senior Certificates, the Exemption will not apply to
the Subordinate Certificates. See "ERISA Considerations--Subordinated
Certificates" in the Prospectus.
Consequently, no transfer of a Subordinate Certificate shall be
registered unless the prospective transferee provides the Trustee and the
Company with (a) a certification to the effect that (1) such transferee is
neither an employee benefit plan subject to section 406 or section 407 of
ERISA or to section 4975 of the Code; the trustee of any such plan; a person
acting on behalf of any such plan; nor a person using the assets of any such
plan; or (2) if such transferee is an insurance company, it is purchasing such
certificates with funds contained in an "insurance company general account"
(as such term is defined in section V(e) of the Prohibited Transaction Class
Exemption 95-60 ("PTCE 95-60")) and the purchase and holding of such
certificates are covered under Sections I and III of PTCE 95-60; or (b) an
opinion of counsel (a "benefit plan opinion") satisfactory to the Trustee and
the Company, and upon which the Trustee and the Company shall be entitled to
rely, to the effect that the purchase and holding of such Subordinate
Certificate by the prospective transferee will not result in the assets of the
Trust Fund being deemed to be plan assets and subject to the prohibited
transaction provisions of ERISA or the Code and will not subject the Trustee
or the Company to any obligation in addition to those undertaken by such
entities in the Agreement, which benefit plan opinion shall not be an expense
of the Trustee or the Company. Unless such certification or benefit plan
opinion is delivered, Certificate Owners of the Subordinate Certificates will
be deemed to make the representations in clause (a)(1). See "ERISA
Considerations" in the Prospectus.
LEGAL INVESTMENT CONSIDERATIONS
The Class II A-1 and Class II B-1 Certificates will constitute
"mortgage related securities" under the Secondary Mortgage Market Enhancement
Act of 1984 and, as such, will be "legal investments" for certain types of
institutional investors to the extent provided in the Act.
The Group I Certificates and the Class II B-2 and Class II B-3
Certificates (the "Non-SMMEA Certificates") will not constitute "mortgage
related securities" under the Secondary Mortgage Market Enhancement Act of
1984. The appropriate characterization of the Non-SMMEA Certificates under
various legal investment restrictions, and thus the ability of investors
subject to these restrictions to purchase Non-SMMEA 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 to what extent, the Non-SMMEA
Certificates will constitute legal investments for them.
The Company makes no representations as to the proper characterization
of the Non-SMMEA Certificates for legal investment or financial institution
regulatory purposes, or as to the ability of particular investors to purchase
Non-SMMEA Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory
characteristics of the Non-SMMEA Certificates) may adversely affect the
liquidity of the Non-SMMEA Certificates. See "Legal Investment Considerations"
in the Prospectus.
CERTIFICATE RATING
It is a condition to the issuance of each Class of Certificates that
they be rated by both _______________ and ___________ (together, the "Rating
Agencies") the ratings specified in "Summary Information." The Company has not
requested a rating on the Certificates by any rating agency other than
__________ or ________. However, there can be no assurance as to whether any
other rating agency will rate the Certificates, or if it does, what rating
would be assigned by any such other rating agency. A rating on any or all of
the Certificates by certain other rating agencies, if assigned at all, may be
lower than the ratings assigned to such Certificates by the Rating Agencies. A
security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time. [The rating of the Class
I B-2 and Class II B-3 Certificates is based in part on an assessment of CHI's
ability to make payments under the Limited Guarantee. Any change in ________
or ________'s assessment of CHI's ability to make payments under the Limited
Guarantee may result in a reduction of the rating of the Class I B-2 and Class
II B-3 Certificates.]
UNDERWRITING
Each of the Underwriters has severally agreed, subject to the terms
and conditions of the Underwriting Agreement dated _____, ___, 1999 among the
Company[, CHI] and the Underwriters (the "Underwriting Agreement") to purchase
from the Company the respective principal amounts of the Offered Certificates
set forth opposite its name below.
<TABLE>
<CAPTION>
Principal Principal Principal Principal Principal Principal
Amount of Amount of Amount of Amount of Amount of Amount of
Class I A-1 Class I A-2 Class I A-3 Class I A-4 Class I A-5 Class I A-6
Underwriter Certificates Certificates Certificates Certificates Certificates Certificates
<S> <C> <C> <C> <C> <C> <C>
........................................
........................................
Total................................
</TABLE>
<TABLE>
<CAPTION>
Principal Principal Principal Principal
Principal Principal Principal Amount of Amount of Amount of Amount of
Amount of Amount of Amount of Class II Class II Class II Class II
Class I M-1 Class I B-1 Class I B-2 A-1 B-1 B-2 B-3
Underwriter Certificates Certificates Certificates Certificates Certificates Certificates Certificates
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
Total......................
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the Offered
Certificates offered hereby if any Offered Certificates are purchased. In the
event of default by an Underwriter, the Underwriting Agreement provides that,
in certain circumstances, the Underwriting Agreement may be terminated.
The Company has been advised by the Underwriters that they propose
initially to offer the Offered Certificates to the public at the respective
offering prices set forth on the cover page hereof and to certain dealers at
such prices less concessions not to exceed _____% of the aggregate of the
Class Principal Balances of the Class I A Certificates, Class I M-1
Certificates, Class II A-1 Certificates and Class II B-1 Certificates and
_____% of the Class Principal Balances of the Class I B-1 Certificates, Class
II B-2 Certificates and Class II B-3 Certificates.
With respect to the Class I A Certificates, Class I M-1 Certificates,
Class II A-1 Certificates and Class II B-1 Certificates, the Underwriters may
allow, and such dealers may reallow, a concession not to exceed _____% of the
aggregate of such Class Principal Balances. With respect to the Class I B-1
Certificates, Class II B-2 Certificates and Class II B-3 Certificates, the
Underwriters may allow, and such dealers may reallow, a concession not to
exceed _____% of such Class Principal Balances.
Until the distribution of the Offered Certificates is completed, rules
of the Commission may limit the ability of the Underwriters and certain
selling group members to bid for and purchase the Offered Certificates. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Offered Certificates. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Offered Certificates.
In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases.
Neither the Company nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the prices of the Offered
Certificates. In addition, neither the Company nor any of the Underwriters
makes any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
After the initial public offering of the Offered Certificates, the
public offering price and such concessions may be changed.
Pursuant to the Underwriting Agreement, the Company has agreed to
indemnify the Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or contribute to payments which the
Underwriters may require to make in respect thereof.
The Company has agreed that for a period of 30 days from the date of
this Prospectus Supplement it will not offer or sell publicly any other
manufactured housing contract pass-through certificates without the
Underwriters' consent.
LEGAL MATTERS
The validity of the Offered Certificates will be passed upon for the
Company by Boult, Cummings, Conners & Berry, PLC, Nashville, Tennessee.
Certain legal matters will be passed upon for the Underwriters by Brown & Wood
LLP, New York, New York. The material federal income tax consequences of the
Offered Certificates will be passed upon for the Company by Brown & Wood LLP.
<TABLE>
<CAPTION>
Index of Defined Terms
Page
<S> <C>
21st Century...................................................................................................S-15
21st Century Contracts.........................................................................................S-15
Accelerated Principal Payment..................................................................................S-63
Access.........................................................................................................S-16
Access Financial Contracts.....................................................................................S-16
Acquired Contracts.............................................................................................S-15
Agreement......................................................................................................S-15
Alternate Credit Enhancement...................................................................................S-68
APR.......................................................................................................S-5, S-16
Average Sixty-Day Delinquency Ratio............................................................................S-61
Average Thirty-Day Delinquency Ratio...........................................................................S-61
beneficial owner...............................................................................................S-71
benefit plan opinion...........................................................................................S-78
Bi-weekly Contracts............................................................................................S-16
Book-Entry Certificates..................................................................................S-13, S-71
brokerage firm.................................................................................................S-52
Call Option Date...............................................................................................S-53
Carryover Interest Distribution Amount.........................................................................S-52
Cedel..........................................................................................................S-71
Cedel Participants.............................................................................................S-72
Certificate Owners.............................................................................................S-71
Certificateholder..............................................................................................S-71
Change Date....................................................................................................S-21
[CHI...........................................................................................................S-4]
Class..........................................................................................................S-50
Class I A Percentage...........................................................................................S-60
Class I A Principal Balance....................................................................................S-60
Class I A-1 Certificates.......................................................................................S-50
Class I A-1 Remittance Rate....................................................................................S-53
Class I A-2 Certificates.......................................................................................S-50
Class I A-2 Remittance Rate....................................................................................S-53
Class I A-3 Certificates.......................................................................................S-50
Class I A-3 Remittance Rate....................................................................................S-53
Class I A-4 Certificates.......................................................................................S-50
Class I A-4 Remittance Rate....................................................................................S-53
Class I A-5 Certificates.......................................................................................S-50
Class I A-5 Remittance Rate....................................................................................S-53
Class I A-6 Certificates.......................................................................................S-50
Class I A-6 Remittance Rate....................................................................................S-53
Class I B Percentage...........................................................................................S-60
Class I B Principal Balance....................................................................................S-60
Class I B-1 Certificates.......................................................................................S-50
Class I B-1 Remittance Rate....................................................................................S-53
Class I B-2 Certificates.......................................................................................S-50
Class I B-2 Distribution Amount................................................................................S-67
Class I B-2 Floor Amount.......................................................................................S-56
Class I B-2 Principal Liquidation Loss Amount..................................................................S-67
Class I B-2 Remittance Rate....................................................................................S-53
Class I M-1 and Class I B Principal Distribution Test..........................................................S-59
Class I M-1 Certificates.......................................................................................S-50
Class I M-1 Percentage.........................................................................................S-60
Class I M-1 Remittance Rate....................................................................................S-53
Class II A Percentage..........................................................................................S-60
Class II A-1 Certificates......................................................................................S-50
Class II A-1 Formula Rate......................................................................................S-53
Class II A-1 Net Funds Cap Carryover Amount....................................................................S-61
Class II A-1 Remittance Rate...................................................................................S-53
Class II B Percentage..........................................................................................S-60
Class II B Principal Balance...................................................................................S-60
Class II B Principal Distribution Test.........................................................................S-50
Class II B-1 Certificates......................................................................................S-50
Class II B-1 Formula Rate......................................................................................S-53
Class II B-1 Net Funds Cap Carryover Amount....................................................................S-61
Class II B-1 Remittance Rate...................................................................................S-53
Class II B-2 Certificates......................................................................................S-50
Class II B-2 Formula Rate......................................................................................S-54
Class II B-2 Net Funds Cap Carryover Amount....................................................................S-61
Class II B-2 Remittance Rate...................................................................................S-53
Class II B-3 Certificates......................................................................................S-50
Class II B-3 Distribution Amount...............................................................................S-67
Class II B-3 Formula Rate......................................................................................S-54
Class II B-3 Net Funds Cap Carryover Amount....................................................................S-61
Class II B-3 Principal Liquidation Loss Amount.................................................................S-68
Class II B-3 Remittance Rate...................................................................................S-53
Class R Certificate............................................................................................S-50
Closing Date...................................................................................................S-4
Code...........................................................................................................S-77
Commission.....................................................................................................S-50
Company........................................................................................................S-15
Contract Pool..................................................................................................S-15
Contracts.................................................................................................S-4, S-15
Cooperative....................................................................................................S-73
Cumulative Realized Losses.....................................................................................S-61
Current Realized Loss Ratio....................................................................................S-61
Cut-off Date...................................................................................................S-15
Cut-off Date Pool Principal Balance............................................................................S-15
Deficiency Event...............................................................................................S-59
Definitive Certificate.........................................................................................S-71
Designations...................................................................................................S-4
Determination Date.............................................................................................S-51
DTC............................................................................................................S-71
DTC Services..............................................................................................I-1, S-74
Due Date.......................................................................................................S-16
Due Period.....................................................................................................S-52
Eligible Institution...........................................................................................S-51
[Enhancement Payment.....................................................................................S-67, S-68
ERISA..........................................................................................................S-77
Escalating Principal Payment Contracts.........................................................................S-16
Euroclear Operator.............................................................................................S-73
Euroclear Participants.........................................................................................S-73
European Depositaries..........................................................................................S-71
Excess Overcollateralization Amount............................................................................S-63
FDIC...........................................................................................................S-51
Financial Intermediary.........................................................................................S-71
Fixed Rate Certificates........................................................................................S-4
Floating Rate Certificates.....................................................................................S-4
Foreign Investors..............................................................................................S-76
Formula Principal Distribution Amount..........................................................................S-61
Global Securities..............................................................................................I-1
Gross Margin...................................................................................................S-21
Group..........................................................................................................S-50
Group I Available Distribution Amount..........................................................................S-51
Group I Available Funds Shortfall..............................................................................S-60
Group I Certificate Account....................................................................................S-50
Group I Certificates...........................................................................................S-50
Group I Contracts.........................................................................................S-4, S-50
Group I Cut-off Date Principal Balance.........................................................................S-17
Group I Monthly Excess Spread..................................................................................S-60
Group I Monthly Servicing Fee..................................................................................S-55
Group I Performance Tests......................................................................................S-59
Group I Pool Scheduled Principal Balance.......................................................................S-62
Group I Senior Certificates....................................................................................S-4
Group I Subordinate Certificates...............................................................................S-4
Group I Weighted Average Net Contract Rate.....................................................................S-54
Group II Available Distribution Amount.........................................................................S-51
Group II Available Funds Shortfall.............................................................................S-60
Group II Certificate Account...................................................................................S-50
Group II Certificate Floor Amount..............................................................................S-58
Group II Certificates.....................................................................................S-4, S-50
Group II Contracts........................................................................................S-4, S-50
Group II Cut-off Date Principal Balance........................................................................S-21
Group II Monthly Excess Spread...........................................................................S-60, S-62
Group II Monthly Servicing Fee.................................................................................S-57
Group II Performance Tests.....................................................................................S-60
Group II Pool Scheduled Principal Balance......................................................................S-62
Group II Senior Certificates...................................................................................S-4
Group II Subordinate Certificates..............................................................................S-4
IML............................................................................................................S-72
Index..........................................................................................................S-21
indirect participating firm....................................................................................S-52
Industry.......................................................................................................S-54
Initial Class I B-2 Principal Remittance Date..................................................................S-67
Initial Class II B-3 Principal Remittance Date.................................................................S-67
Initial Remittance Rates.......................................................................................S-53
Initial Required Overcollateralization Amount..................................................................S-62
Interest Distribution Amount...................................................................................S-52
Interest Period................................................................................................S-52
Land-and-Home Contracts........................................................................................S-15
LIBOR..........................................................................................................S-53
LIBOR Business Day.............................................................................................S-54
Lifetime Cap...................................................................................................S-21
Lifetime Floor.................................................................................................S-21
[Limited Guarantee.............................................................................................S-67
Liquidated Contract......................................................................................S-62, S-66
lookback date..................................................................................................S-21
Manufactured Homes.............................................................................................S-15
Manufactured Housing Contracts.................................................................................S-15
Monthly Advances...............................................................................................S-68
Mortgage Loans.................................................................................................S-15
Mortgaged Properties...........................................................................................S-15
Net Funds Cap..................................................................................................S-54
Net Funds Cap Carryover Amount.................................................................................S-62
New Regulations................................................................................................S-77
Non-SMMEA Certificates.........................................................................................S-78
Offered Certificates...........................................................................................S-78
Other Lenders..................................................................................................S-15
overcollateralization..........................................................................................S-62
Overcollateralization Amount...................................................................................S-62
Overcollateralization Reduction Amount.........................................................................S-63
Percentage Interest............................................................................................S-50
Periodic Cap...................................................................................................S-21
Plans..........................................................................................................S-77
Pool Scheduled Principal Balance...............................................................................S-62
portfolio debt investments.....................................................................................S-76
prepayment.....................................................................................................S-32
Prepayment Model...............................................................................................S-32
Principal Balance..............................................................................................S-60
PTCE 95-60.....................................................................................................S-78
Rating Agencies................................................................................................S-78
Record Date....................................................................................................S-50
Relevant Depositary............................................................................................S-71
REMIC..........................................................................................................S-75
Remittance Date................................................................................................S-50
Required Class II B Payment....................................................................................S-61
Rules..........................................................................................................S-71
Scheduled Principal Balance....................................................................................S-62
Seller.........................................................................................................S-4
Semi-Monthly Contracts.........................................................................................S-16
Senior Certificates............................................................................................S-4
Servicer.......................................................................................................S-4
SMMEA....................................................................................................S-10, S-12
Subordinate Certificates.......................................................................................S-4
Systems........................................................................................................S-74
Telerate 3750..................................................................................................S-54
Terms and Conditions...........................................................................................S-73
Trust Fund.....................................................................................................S-50
Trustee........................................................................................................S-4
U.S. Person....................................................................................................I-3
Underwriters...................................................................................................S-77
Underwriting Agreement.........................................................................................S-79
Vanderbilt................................................................................................S-4, S-15
Weighted Average Lifetime Cap..................................................................................S-61
Year 2000 problems.............................................................................................S-74
</TABLE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Manufactured Housing Contract Senior/ Subordinate Pass-Through Certificates,
Series 1999__ (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities
through any of The Depository Trust Company ("DTC"), Cedel or Euroclear. The
Global Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary
trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-
against-payment basis through the respective Depositaries of Cedel and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to conventional eurobonds, except
that there will be no temporary global security and no "lock-up" or restricted
period. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior
manufactured housing contract pass-through certificates issues in same-day
funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant
to the account of a Cedel Participant or a Euroclear Participant, the
purchaser will send instructions to Cedel or Euroclear through a Cedel
Participant or Euroclear Participant at least one business day prior to
settlement. Cedel or Euroclear will instruct the respective Depositary, as the
case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date, on the basis of the
actual number of days in such accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following
month. Payment will then be made by the respective Depositary of the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be system and by the
clearing system, in accordance with its usual procedures, to the Cedel
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade
fails), the Cedel or Euroclear cash debt will be valued instead as of the
actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the Global Securities were credited
to their accounts. However, interest on the Global Securities would accrue
from the value date. Therefore, in many cases the investment income on the
Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will
depend on each Cedel Participant's or Euroclear Participant's particular cost
of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global
Securities to the respective European Depositary for the benefit of Cedel
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two
DTC Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases
Cedel or Euroclear will instruct the respective Depositary, as appropriate, to
deliver the Global Securities to the DTC Participant's account against
payment. Payment will include interest accrued on the Global Securities from
and including the last coupon payment to and excluding the settlement date on
the basis of the actual number of days in such accrual period and a year
assumed to consist of 360 days. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. The payment will then be reflected in the account of the
Cedel Participant or Euroclear Participant the following day, and receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Cedel Participant or
Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would
give the Global Securities sufficient time to be reflected in their
Cedel or Euroclear account in order to settle the sale side of the
trade; or
(c) staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the sale
to the Cedel Participant or Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status).
If the information shown on Form W-8 changes, a new Form W-8 must be filed
within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that rate
unless the filer alternatively files Form W-8. Form 1001 may be filed by the
Certificate Owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of
a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity treated as a
corporation or partnership for United States federal income tax purposes
organized in or under the laws of the United States or any state thereof or
the District of Columbia or (iii) an estate the income of which is includible
in gross income for United States tax purposes, regardless of its source, or
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have authority to control all substantial decisions of the trust. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors
are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
$-----------
(Approximate)
Vanderbilt Mortgage and Finance, Inc.
Seller and Servicer
Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates, Series 1999__
PROSPECTUS SUPPLEMENT
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the Offered Certificates in any state where the
offer is not permitted.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
Dealers will deliver a prospectus supplement and prospectus when
acting as underwriters of the Offered Certificates and with respect to their
unsold allotments or subscriptions. In addition, all dealers selling the
Offered Certificates will be required to deliver a prospectus supplement and
prospectus until ____________, ___, 1999.
________ __, 1999
<PAGE>
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
- --------------------------------------------------------------------------------
You should consider the risk factors starting on page 4 of this
prospectus.
The certificates will represent obligations of the related trust The
certificates will represent obligations of the related trust and will not
represent any interest in or obligation of Vanderbilt Mortgage and Finance, Inc.
or, unless specified in the prospectus supplement relating to a series, any of
its affiliates.
The Certificates will not be insured or guaranteed by any governmental
agency or instrumentality. This prospectus may not be used to offer or sell any
certificates unless accompanied by a prospectus supplement relating to that
series.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED MARCH 31, 1999
PROSPECTUS
Vanderbilt Mortgage and Finance, Inc.
Seller and Servicer
Manufactured Housing Contract Pass-Through Certificates
(Issuable in Series)
We are offering certificates representing primarily an interest in
manufactured housing contracts as further specified in this prospectus and a
prospectus supplement. Vanderbilt Mortgage and Finance, Inc. or a limited
purpose finance subsidiary of Vanderbilt Mortgage and Finance, Inc. will form a
trust for each separate series of certificates, and the trust will issue the
certificates of that series. The certificates of any series may consist of
several different classes. A trust may also issue one or more other interests in
the trust that will not be offered under this prospectus and the related
prospectus supplement.
The right of each class of certificates within a series to receive
payments may be senior or subordinate to the rights of one or more of the other
classes of certificates. In addition, a series of certificates may include one
or more classes which on the one hand are subordinated to one or more classes
of certificates, while on the other hand are senior to one or more classes of
certificates. The rate of principal and interest payments on the certificates
of any class will depend on the priority of payment of that class and the rate
and timing of payments of the related contracts.
The prospectus supplement will list the remittance rate that holders of
certificates will receive for each class in that series. The prospectus
supplement will specify whether the remittance rate will be fixed, variable or
adjustable.
Before the offering of the certificates under this prospectus, there
was no public market for the certificates. The underwriters named in the
prospectus supplement relating to a series may from time to time buy and sell
certificates of that series.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
--------------------------
_______________, 1999
IMPORTANT NOTICE ABOUT INFORMATION IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the certificates in two separate documents that
progressively provide more detail: (a) this prospectus, which provides general
information, some of which may not apply to a particular series of
certificates, including your series; and (b) the prospectus supplement related
to the particular terms of your series of certificates.
If the terms of your series of certificates described in the
prospectus supplement varies from this prospectus, you should rely on the
information in your prospectus supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities. The information in this document
may only be accurate on the date of this document.
REPORTS TO HOLDERS OF THE CERTIFICATES
We will provide to the holders of certificates of each series certain
monthly and annual reports concerning the certificates and the related trust
fund. For a more complete description of the reports you will receive, please
read the section entitled "Description of the Certificates--Reports to
Certificateholders" in the prospectus supplement relating to your series.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires the filing of certain information with
the Securities and Exchange Commission, including annual, quarterly and
special reports, proxy statements and other information. Vanderbilt Mortgage
and Finance, Inc. and Clayton Homes, Inc. have filed a registration statement
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended. You can read and copy the registration statement, as well as other
filed documents, at the Securities and Exchange Commission's public reference
facilities located at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the public
reference facilities by calling the Securities and Exchange Commission at
1-800-SEC-0330. You may also visit the Securities and Exchange Commission's
web site at http://www.sec.gov to access available filings.
Clayton Homes, Inc. has securities other than the certificates listed
on the New York Stock Exchange. You may inspect reports and other information
concerning those securities at the New York Stock Exchange.
The Securities and Exchange Commission allows us to "incorporate by
reference" some of the information we file with it, which means that we can
disclose important information to you by referring you to those documents. The
information that we incorporate by reference is considered to be part of this
prospectus, and later information that we file with the Securities and
Exchange Commission will automatically update and supersede this information.
With respect to any class of certificates that is supported by a guarantee of
Clayton Homes, Inc., we are incorporating by reference the following documents
into this prospectus and the related prospectus supplement:
o Clayton Homes, Inc.'s Annual Report on Form 10-K for the year
ended June 30, 1998; and
o Clayton Homes, Inc.'s Quarterly Reports on Form 10-Q for the
quarterly periods ending September 30, 1998 and December 31,
1998.
We are also incorporating by reference into this prospectus and the
related prospectus supplement:
o any document filed by Vanderbilt Mortgage and Finance, Inc.
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
and Exchange Act of 1934, as amended, after the date of this
prospectus and prior to the termination of the offering of the
certificates issued by that trust; and
o any document: (i) that relates to a class of certificates
supported by a guarantee of Clayton Homes, Inc. and (ii) that is
filed by Clayton Homes, Inc. pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities and Exchange Act of 1934, as
amended, after the date of this prospectus and prior to the
termination of the offering of the certificates issued by that
trust.
We will provide to you, upon your written or oral request, without
charge, a copy of any or all of the documents incorporated by reference in this
prospectus (other than certain exhibits to such documents). Please direct your
requests for copies of documents filed by Vanderbilt Mortgage and Finance, Inc.
to its principal executive office at 500 Alcoa Trail, Maryville, Tennessee
37804, Attention: David Jordan, Secretary, telephone number: (423) 380-3515.
Please direct your requests for copies of documents filed by Clayton Homes, Inc.
to its principal executive office at 5000 Clayton Road, Maryville, Tennessee
37804, Attention: Kevin T. Clayton, President, telephone number: (423) 380-3000.
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the certificates. You should also consider the risk factors described
in your prospectus supplement.
The contracts may have higher than expected delinquencies, defaults or losses.
Your investment in the certificates may be affected by various
factors, including:
General Economic Conditions. Downturns in regional or local economic
conditions historically have caused increased delinquency, defaults and losses
on manufactured housing contracts. An economic downturn in any region where a
number of the obligors on the contracts are located might cause higher
delinquencies, defaults and losses on the contracts. If delinquencies,
defaults or losses on the contracts are higher than expected, you could suffer
a loss on your investment.
Depreciation in Value of Manufactured Homes. A manufactured home
generally depreciates over time. As a result, the market value of a
manufactured home may decline faster than the outstanding principal balance of
the loan for that home. If the value of the manufactured homes securing the
contracts declines faster than expected, then defaults and losses on the
contracts may rise. If the losses on the contracts are not covered by the
subordination of other classes of certificates, or by another form of credit
enhancement, you will bear all the risk of loss of default by obligors and
will need to look primarily to the value of the manufactured home. The
proceeds from the liquidation of any contract and sale of the related
manufactured home may not be sufficient to cover the outstanding principal and
unpaid interest on the defaulted contract.
Please review "The Trust Fund--The Contract Pools" in this prospectus
for more detail.
The contracts may be prepaid before their scheduled maturity.
There is a risk that the contracts may be prepaid in full or in part
at any time before their scheduled maturity due to various factors, such as:
o homeowner mobility;
o general and regional economic conditions;
o competition among manufactured housing lenders; and
o prevailing interest rates.
The prepayment experience on manufactured housing contracts varies
greatly and may affect the average life of the certificates. If a contract is
prepaid in full, the interest on the contract will accrue only to the date of
prepayment. If you purchase a certificate at a discount, then slower than
expected prepayments on the contracts will reduce the yield on your
certificate. If you purchase a certificate at a premium, then faster than
expected prepayments on the contracts will reduce the yield on your
certificate. You should not assume that the contracts will prepay at any
particular rate or at a constant rate.
You will also be subject to reinvestment risk in connection with the
average life of your certificates. When prevailing interest rates are lower
than at the time of your investment, prepayments are likely to increase and
the average life of your certificates is likely to decrease. You may only be
able to reinvest the proceeds from your certificates in investments of similar
risk bearing a lower rate of interest than your certificates.
The certificates are not an obligation of Vanderbilt Mortgage and Finance, Inc.
and they are not insured.
The certificates will not represent an interest in, or obligation of,
Vanderbilt Mortgage and Finance, Inc. The certificates are not insured or
guaranteed by the government, any underwriter, Vanderbilt Mortgage and
Finance, Inc. or, unless specified in the related Prospectus Supplement, any
of its affiliates, and will be payable only from amounts collected on the
contracts.
The certificates may have limited liquidity.
There is a risk that a secondary market will not develop for the
certificates of any series. There is also a risk that if a secondary market
does develop:
o it may not be sufficiently liquid to allow you to sell your
certificates; and/or
o it may not continue for the term of any series of certificates.
Risks relating to enforceability of the contracts.
The security interest in the manufactured homes may not be perfected.
Every manufactured home contract will be secured by a security
interest in either:
o the manufactured home; or
o if it is a land-and-home contract, the mortgage or deed of trust
on the real estate where the manufactured home is permanently
affixed.
State laws, such as the uniform commercial code and motor vehicle
titling statutes, govern the perfection of security interests in manufactured
homes and the enforcement of rights to realize upon the value of manufactured
homes as collateral for the contracts. The steps required to create and
perfect a security interest in a manufactured home vary from state to state.
Certain laws may also limit the servicer's ability to repossess, foreclose or
liquidate the contracts.
Vanderbilt Mortgage and Finance, Inc. will represent and warrant that
each contract is secured by a perfected security interest in a manufactured
home. If we materially breach this representation and warranty with respect to
any contract, we must repurchase the contract, subject to the conditions of
the Pooling and Servicing Agreement. Nevertheless, a failure by Vanderbilt
Mortgage and Finance, Inc. to perfect its security interest in the
manufactured homes securing a number of contracts could cause an increase in
losses on the contracts, and you could suffer a loss on your investment as a
result.
The security interest in the manufactured homes may not have been assigned to
the trustee.
Vanderbilt Mortgage and Finance, Inc. will not:
o amend a certificate of title to a manufactured home to name the
trustee as the lienholder;
o note the trustee's interest on the certificate of title;
o deliver the certificate of title to the trustee; or
o record the assignment to the trustee of the mortgage
or deed of trust securing land-and-home contracts.
As a result, in some states the assignment of the security interest in
the manufactured home, or of the mortgage or deed of trust, to the trustee may
not be effective against our creditors or a trustee in the event we enter
bankruptcy, or the security interest may not be perfected. If Vanderbilt
Mortgage and Finance, Inc. is no longer the servicer and the trustee or a
successor servicer is unable to enforce the security interest in the
manufactured home following a default on a contract, losses on the contracts
would increase, and you could suffer a loss on your investment as a result.
Federal and state consumer protection laws apply to the contracts.
If Vanderbilt Mortgage and Finance, Inc. or the seller of a
manufactured home did not comply with federal or state consumer protection
laws with respect to a contract relating to a manufactured home, the trust
fund may be liable for amounts due under the contracts.
Vanderbilt Mortgage and Finance, Inc. will represent and warrant that
each contract complies with applicable federal and state consumer protection
laws. If we materially breach this representation and warranty with respect to
any contract, we must repurchase the contract, subject to the conditions of
the Pooling and Servicing Agreement. Nevertheless, a failure by Vanderbilt
Mortgage and Finance, Inc. to comply with these laws could cause an increase
in losses on the contracts, and you could suffer a loss on your investment as
a result.
Please review "Certain Legal Aspects of the Contracts" in this
prospectus for more detail.
If Vanderbilt Mortgage and Finance, Inc. becomes insolvent, there may be delays
or reductions in distributions on your certificates.
Vanderbilt Mortgage and Finance, Inc. intends that each transfer of
contracts to a trust fund will constitute a sale, rather than a pledge of the
contracts to secure indebtedness. However, if we become a debtor under the
federal bankruptcy code, it is possible that our creditors or a bankruptcy
trustee may argue that the transfer of the contracts was a pledge rather than
a sale. If this position is presented to or accepted by a court, it could
result in a delay in, or reduction of, distributions on your certificates.
The case of Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th
Cir. 1993) contains language to the effect that accounts sold by an entity
which subsequently became bankrupt remained property of the debtor's
bankruptcy estate. Although most of the contracts constitute chattel paper
rather than accounts under the Uniform Commercial Code, sales of chattel
paper, like sales of accounts, are governed by the same Article 9 of the
Uniform Commercial Code. If Vanderbilt Mortgage and Finance, Inc. becomes a
debtor under the federal bankruptcy code and a court applies the reasoning of
the Octagon court to chattel paper, you could experience a delay in, or
reduction of, distributions on your certificates.
Subordination may not protect holders of senior certificates from losses.
If the rights of your class of certificates are senior to the rights
of one or more other classes of certificates:
o the protection given to you by subordination may be depleted due
to certain losses on the contracts; and
o any reserve fund established for your series of certificates
could be depleted in certain circumstances.
In either case, shortfalls could affect you as well as the holders of
certificates subordinate to your class of certificates. You should carefully
review the credit risks to be absorbed by your class of certificates on
account of subordination or the timing of the distributions intended to be
made on your class of certificates.
Tennessee Tax Lien May Have Priority Over the Trust Fund
Under Tennessee law, a tax is due in connection with the public
recordation of instruments evidencing indebtedness. Vanderbilt Mortgage and
Finance, Inc. will treat the transfer of the Contracts to each trust fund as a
sale rather than a loan, and therefore we will not pay any tax in respect of
the recordation of instruments evidencing such transfers. Nonpayment or
underpayment of the Tennessee indebtedness tax does not affect or impair the
effectiveness, validity, priority or enforceability of the security interest
created or evidenced by the instrument, but (a) subjects the holder of the
indebtedness to a penalty, in addition to the tax, in the amount of the
greater of $250 or double the unpaid tax due, (b) results in the imposition of
a tax lien in favor of the Tennessee Department of Revenue, in the amount of
any tax and penalties unpaid and owing that attaches to the collateral until
the lien or security interest is released and thereafter attaches to the
proceeds, and (c) precludes the holder of the indebtedness from maintaining an
action on the indebtedness (other than an action limited to the enforcement of
the security interests or lien) against the debtor until the nonpayment is
cured. In such event, and in addition to the statutory disability described
above, collections on the contracts could be applied to pay such tax and
penalty prior to being applied to make distributions on your certificates and
the Tennessee Department of Revenue would have a lien on the contracts prior
to the security interests and liens of the trust fund.
THE TRUST FUND
General
Each Trust Fund will include (i) a Contract Pool (which may consist of
sub-pools), (ii) the amounts held from time to time in trust accounts (each, a
"Certificate Account") maintained by the Trustee pursuant to the Agreement,
and (iii) proceeds from certain hazard insurance policies on individual
Manufactured Homes or Mortgaged Properties, if any, and Manufactured Homes
acquired by repossession, (iv) any letter of credit, limited guarantee of
Clayton Homes, Inc. ("CHI"), surety bond, pool insurance policy, cash reserve
fund or any other form of credit enhancement, or any combination thereof, and
(v) such other property as may be specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, a limited
guarantee of CHI may exist and may not be a part of the Trust Fund.
Each Certificate will evidence the interest specified in the related
Prospectus Supplement in one Trust Fund, containing one Contract Pool (which
may consist of sub-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.
Holders of Certificates of a Series will have interests only in such Contract
Pool and will have no interest in the Contract Pool created with respect to
any other Series of Certificates.
All of the Contracts will have been originated or purchased by
Vanderbilt Mortgage and Finance, Inc. ("Vanderbilt") or an affiliate of
Vanderbilt in the open market or in privately negotiated transactions,
including transactions with affiliates of Vanderbilt. The following is a brief
description of the Contracts expected to be included in the Trust Fund.
Specific information respecting the Contracts will be provided in the
Prospectus Supplement or in a report on Form 8-K to be filed with the
Securities and Exchange Commission after the initial issuance of such
Certificates. A copy of the Pooling and Servicing Agreement among the Company,
the Trustee and any other party specified in the related Prospectus Supplement
(the "Agreement") with respect to each Series of Certificates will be attached
to the Form 8-K and 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 the
Agreement delivered to the Trustee upon delivery of the Certificates.
Whenever in this Prospectus terms such as "Contract Pool," "Trust
Fund," "Agreement" or "Remittance Rate" are used, those terms respectively
apply, unless the context otherwise indicates, to one specific Contract Pool,
Trust Fund, each Agreement and the Remittance Rate applicable to the related
Series of Certificates.
The Contract Pools
Each pool of Contracts with respect to a Series of Certificates (the
"Contract Pool") will consist primarily of manufactured housing installment
sales contracts and installment loan agreements and may include modular home
installment sales contracts and installment loan agreements (collectively, the
"Manufactured Housing Contracts") originated by either Vanderbilt, a
manufactured housing dealer or a lender in the ordinary course of business and
purchased by Vanderbilt. The Contracts will be conventional manufactured housing
contracts or contracts insured by the FHA or partially guaranteed by the VA.
Each Manufactured Housing Contract will be secured by a new or used Manufactured
Home or Modular Home and, in certain instances, by a mortgage or deed of trust
on real estate to which the Manufactured Home is permanently affixed (the
"Land-and-Home Contracts"). Each Contract secured by a Modular Home and some of
the Contracts secured by a Manufactured Home may be further secured by a
mortgage or deed of trust on real estate. Except as otherwise specified in the
related Prospectus Supplement, the Contracts will be fully amortizing and will
bear interest at a fixed or variable annual percentage rate (the "Contract
Rate") or at a Contract Rate which steps up on a particular date (a "step-up
rate").
If so specified in the Prospectus Supplement, the Contract Pool will
include notes or other evidences of indebtedness (the "Mortgage Loans")
secured by a mortgage or deed of trust on one-to-four family residential
properties (the "Mortgaged Properties"). The Mortgage Loans were originated or
acquired by Vanderbilt in the ordinary course of business.
Vanderbilt or, if specified in the related Prospectus Supplement, a
limited purpose finance subsidiary of Vanderbilt organized and established by
Vanderbilt (the "Company"), as seller of the Contracts, will represent 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 and 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 [this] chapter."
For each Series of Certificates, the Company will assign the Contracts
constituting the Contract Pool to the trustee named in the related Prospectus
Supplement (the "Trustee"). Vanderbilt, as Servicer (in such capacity referred
to herein as 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 relating to Manufactured Housing Contracts will be held for the
benefit of the Trustee by the Servicer and the principal documents relating to
Mortgage Loans and Land-and-Home Contracts will be delivered to the Trustee or
a custodian for the benefit of the Trustee.
Each Contract Pool will be composed of Contracts bearing interest at
the annual fixed and/or variable Contract Rates and/or step-up rates specified
in the Prospectus Supplement. The Monthly Payments for Contracts bearing
interest at a step-up rate (sometimes referred to herein as "step-up rate
Contracts") will increase on the dates on which the Contract Rates are stepped
up. Each registered holder of a Certificate will be entitled to receive
periodic distributions, which will typically be monthly, of all or a portion
of principal on the underlying Contracts or interest on the principal balance
of such Certificate at the Remittance Rate, or both.
The related Prospectus Supplement will disclose in summary form for
the Contracts contained in the related Contract Pool, among other things, the
year of origination; the range and the weighted average of Contract Rates; the
range of Loan-to-Value Ratios; the range and average of outstanding principal
balances as of the Cut-off Date; the weighted average term to scheduled
maturity as of origination and as of the Cut-off Date; the geographic location
of the Manufactured Homes securing the Contracts; the percentage and amount of
Contracts secured by new or used Manufactured Homes; the aggregate principal
balance of the Contracts; and the last maturity date of any Contract. The
Trust Fund may include monies on deposit in a trust account (the "Pre-Funding
Account") to be established with the Trustee, which would be used to purchase
additional Contracts ("Subsequent Contracts") from the Company during the
funding period specified in the related Prospectus Supplement. The related
Prospectus Supplement will specify the conditions that must be satisfied prior
to any transfer of Subsequent Contracts, including the requisite
characteristics of the Subsequent Contracts.
The Company will make representations and warranties as to the types
and geographical distribution of the Contracts included in a Contract Pool and
as to the accuracy in all material respects of certain information furnished
to the Trustee in respect of each such Contract. Upon a breach of any
representation or warranty that materially and adversely affects the interests
of the Certificateholders in a Contract, the Company will be obligated either
to cure the breach in all material respects, to purchase the Contract or to
substitute another Contract as described below. This repurchase or
substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for a breach of a representation or warranty
by the Company. See "Description of the Certificates -- Conveyance of
Contracts."
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
each Series of Certificates will be used by the Company for general corporate
purposes, including the purchase of the Contracts, cost of carrying the
Contracts until sale of the related Certificates and to pay other expenses
connected with pooling the Contracts and issuing the Certificates.
VANDERBILT MORTGAGE AND FINANCE, INC.
Vanderbilt was incorporated in 1977 in the State of Tennessee. As of
June 30, 1998, Vanderbilt had total assets of approximately $936 million and
stockholder's equity of approximately $254 million. Vanderbilt, an indirect
subsidiary of Clayton Homes, Inc. ("CHI"), is engaged in the business of,
among other things, purchasing, originating, selling and servicing installment
sales contracts and installment loan agreements for manufactured housing and
modular housing. CHI, through its affiliates, manufactures and sells
manufactured homes and modular homes, and owns, manages and markets
manufactured housing communities. Vanderbilt's principal office is located at
500 Alcoa Trail, Maryville, Tennessee 37804, telephone number (423) 380-3515.
An affiliate of CHI acts as an insurance broker for certain types of
insurance, including hazard and credit life insurance policies, some of which
may cover certain of the Contracts. Other affiliates of CHI reinsure hazard
and credit life insurance policies, including policies that may cover certain
of the Contracts. Two separate indirect subsidiaries of CHI, Vanderbilt Life
and Casualty Insurance Co., Ltd. and Vanderbilt Property and Casualty
Insurance Co., Ltd. may act as reinsurer of insurance coverage relating to the
Contracts.
Vanderbilt purchases and originates manufactured housing contracts on
an individual basis from its principal office. Vanderbilt arranges to purchase
manufactured housing installment sales contracts originated by manufactured
housing dealers located in approximately 29 states, primarily southern and
midwestern. Most of these purchases are from dealers indirectly owned by CHI.
Dealers which are not owned by CHI must make an application to Vanderbilt for
dealer approval. Upon satisfactory results of Vanderbilt's investigation of
the dealer's creditworthiness and general business reputation, Vanderbilt and
the dealer enter into a dealer agreement.
In addition to purchasing manufactured housing contracts from dealers
on an individual basis, Vanderbilt makes bulk purchases of manufactured
housing contracts and services on behalf of other owners of manufactured
housing contracts that were not originally purchased or originated by
Vanderbilt. These purchases may be from, and these servicing arrangements may
be made with respect to, the portfolios of other lenders or finance companies,
the portfolios of governmental agencies or instrumentalities or the portfolios
of other entities that purchase and hold manufactured housing contracts.
Vanderbilt is actively seeking arrangements by which it would service
and/or acquire manufactured housing contracts originated by other lenders.
Vanderbilt's management currently anticipates it will only seek servicing
responsibilities which relate to manufactured housing contracts.
UNDERWRITING POLICIES
General
Customers desiring to obtain financing from Vanderbilt complete a
credit application form. In the case of those dealers owned by CHI, the
manager initially evaluates the application and then forwards it to Vanderbilt
for consideration. In the case of dealers that are not owned by CHI, the
application is transmitted to Vanderbilt for consideration.
Credit applications are then evaluated by Vanderbilt's credit
officers. With respect to those customers determined to be creditworthy,
Vanderbilt requires a down payment in the form of cash, the trade-in value of
a previously owned manufactured home, and/or the estimated value of equity in
real property pledged as additional collateral. For previously owned homes,
the trade-in allowance accepted by the dealer must be consistent with the
value of such home determined by Vanderbilt in light of current market
conditions. The value of real property pledged as additional collateral is
estimated by personnel of the dealer, who are not appraisers but are familiar
with the area in which the property is located. The minimum amount of the down
payment is typically 5% of the purchase price. The purchase price includes the
stated cash sale price of the manufactured home, sales or other taxes and
certain fees and set-up costs. The balance of the purchase price and certain
insurance premiums (including up to five years of premiums on required hazard
insurance) are financed by an installment sales contract providing for a
purchase money security interest in the manufactured home and a mortgage on
real property, if any, pledged as additional collateral. Normally, the
contracts originated by Vanderbilt provide for equal monthly payments,
generally over a period of five to thirty years at fixed rates of interest.
Vanderbilt's underwriting guidelines generally require that each
applicant's credit history, residence history, employment history and income
to debt payment ratios be examined. There are no requirements on the basis of
which, if met, credit is routinely approved; or if they are not met, credit is
routinely denied. If in the judgment of Vanderbilt's credit manager an
applicant does not meet minimum underwriting criteria, there generally must be
compensating higher ratings with respect to other criteria in order for an
applicant to be approved. Credit managers must confirm that the credit
investigation gave a complete and up-to-date accounting of the applicant's
creditworthiness. Credit managers are encouraged to obtain second opinions on
loans for relatively larger dollar amounts or those which, in their judgment,
tend to rank lower in terms of underwriting criteria. Generally, the sum of
the monthly obligation for installment obligations, including the manufactured
home loan payment and monthly site costs, should not exceed 50% of the
applicant's gross monthly income. Since January 1989 Vanderbilt has, in
addition to the above considerations, used a credit scoring system to evaluate
credit applicants. The credit score of an applicant is used as a further guide
in determining whether to extend credit to the applicant. All of the Mortgage
Loans originated or acquired by Vanderbilt are underwritten or reunderwritten
by Vanderbilt in a manner generally consistent with the foregoing guidelines.
In the case of a Contract Pool containing Contracts originated by
other originators and acquired by Vanderbilt ("Acquired Contracts"), the
related Prospectus Supplement will describe such Contracts.
Various Financing Terms
In addition to level payment, fixed rate contracts, Vanderbilt offers
various other financing arrangements. Vanderbilt has developed financing options
such as contracts with a 7-year term (compared to the industry norm of 15 to 30
years), which provides financing to its customers at a relatively low cost. In
January 1990, Vanderbilt introduced a bi-weekly payment contract which provides
for 26 payments a year, which are made by electronically debiting the
purchaser's checking account. In 1989, Vanderbilt began originating variable
rate Contracts which provide for periodic Contract Rate adjustments. In general,
the Contract Rate equals the sum of a fixed margin and an index rate.
Vanderbilt's originations of variable rate Contracts has increased from
relatively few prior to 1994 to a high of 8,493 originations with an aggregate
dollar amount of approximately $282 million in fiscal 1998.
In 1996, Vanderbilt introduced contracts with financing terms which
provide for an annual increase in monthly payments over the first five years of
the term of the Contracts (the "Escalating Principal Payment Contracts"). An
Escalating Principal Payment Contract provides initially for lower monthly
payments than if the contract were of a shorter term. Each year for a period of
five years, the term of the Escalating Principal Payment Contract automatically
converts to a shorter term, and the monthly payment increases accordingly. At
year six, the monthly payment increases to a level monthly payment which fully
amortizes the remaining principal over a specified term which is shorter than
the original term of the Escalating Principal Payment Contract. There are no
periods in which the Escalating Principal Payment Contracts have negative
amortization.
In 1998, Vanderbilt introduced contracts which provide for Contract
Rates that periodically increase over a certain period of time (the "Step-up
Rate Contracts"). Step-up Rate Contracts provide for periodic increases in the
applicable interest rate at the end of certain intervals during the term of the
Contracts, including at the end of each twelve-month interval during the first
three years following origination and at the end of each six month interval
during the first eighteen months following origination. After the applicable
interest rate increase period, the Contract Rates are fixed. The total amount
and principal portion of each monthly payment that is due on a Step-up Rate
Contract at the time of each adjustment to its Contract Rate will be determined
on a basis that would cause the Contract (which would bear interest at an
increased rate after such adjustment) to be fully amortized over its remaining
term on a level payment basis. There are no periods in which the Step-up Rate
Contracts have negative amortization.
During the last six fiscal years, Vanderbilt has become the most
important source of financing for purchasers of CHI's homes. In fiscal 1988,
Vanderbilt originated 5,692 contracts, in fiscal 1993, Vanderbilt originated
10,880 contracts, in fiscal 1994, Vanderbilt originated 12,401 contracts, in
fiscal 1995, Vanderbilt originated 13,857 contracts, in fiscal 1996,
Vanderbilt originated 16,910 contracts and in fiscal 1997, Vanderbilt
originated 21,691 contracts. For fiscal year 1998, Vanderbilt originated
24,304 contracts. At June 30, 1998, Vanderbilt was servicing approximately
126,000 contracts and an aggregate dollar amount of approximately $2.9
billion, of which Vanderbilt either originated, purchased from dealers or
acquired from other lenders approximately 108,000 contracts with an aggregate
dollar amount of approximately $2.6 billion. Vanderbilt expects it will
continue to originate a significant portion of the financing for purchasers of
homes sold by CHI owned retail centers, consistent with the overall level of
CHI's retail sales.
YIELD CONSIDERATIONS
The Remittance Rates and the weighted average Contract Rate of the
Contracts relating to each Series of Certificates will be set forth in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
monthly accrual of interest on a Contract is calculated at one-twelfth of the
product of the Contract Rate and the principal balance outstanding on the
scheduled payment date for such Contract in the preceding month. Unless
otherwise specified in the related Prospectus Supplement, the Remittance Rate
with respect to each Certificate will be calculated similarly.
The Prospectus Supplement for each Series will indicate that a lower
rate of principal prepayments than anticipated would negatively affect the
total return to investors of any Class or such sub-class of Certificates that
is offered at a discount to its principal amount, and a higher rate of
principal prepayments than anticipated would negatively affect the total
return to investors of any such Class or sub-class of Certificates that is
offered at a premium to its principal amount or without any principal amount.
If a Series of Certificates contains Classes or sub-classes of
Certificates entitled to receive distributions of principal or interest or
both, in a specified order other than as a specified percentage of each
distribution of principal or interest or both, the Prospectus Supplement will
set forth information, measured relative to a prepayment standard or model
specified in such Prospectus Supplement, with respect to the projected
weighted average life of each such Class or sub-class and the percentage of
the original Stated Balance of each such Class or sub-class that would be
outstanding on specified Remittance Dates for such Series based on the
assumptions stated in such Prospectus Supplement, including assumptions that
prepayments on the Contracts in the related Trust Fund are made at rates
corresponding to the various percentage of such prepayment standard or model.
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless otherwise specified in the related Prospectus Supplement, the
Contracts will have maturities at origination of not more than 30 years.
Prepayment Considerations
Contracts generally may be prepaid in full or in part without penalty.
Based on Vanderbilt's experience with the portfolio of manufactured housing
contracts which it services, Vanderbilt anticipates that a number of the
contracts will be prepaid prior to their maturity. A number of factors,
including homeowner mobility, general and regional economic conditions,
competition among manufactured housing lenders and prevailing interest rates,
may influence prepayments. The refinancing of any Contract will result in a
prepayment in full of such Contract. Declining interest rates and certain
other factors may result in an increased number of refinancings which would
affect the average life of the Certificates. In addition, the repurchase of
Contracts on account of certain breaches of representations and warranties in
the Agreement have the effect of prepaying such Contracts. Most of the
Contracts contain a "due-on-sale" clause that would permit the Servicer to
accelerate the maturity of a Contract upon the sale of the related
Manufactured Home. In the case of those Contracts that do contain due-on-sale
clauses, the Servicer may permit assumptions of such Contracts if the
purchaser of the related Manufactured Home satisfies the Vanderbilt's
then-current underwriting standards.
Information regarding the prepayment model or any other rate of
assumed prepayment, as applicable, will be set forth in the Prospectus
Supplement with respect to a Series of Certificates.
See "Description of the Certificates -- Termination of the Agreement"
for a description of the Company's or the Servicer's option to repurchase the
Contracts comprising part of a Trust Fund when the aggregate outstanding
principal balance of such Contracts is less than a specified percentage of the
initial aggregate outstanding principal balance of such Contracts as of the
related Cut-off Date. See also "The Trust Fund -- The Contract Pools" for a
description of the obligations of the Company to repurchase a Contract in case
of a breach of a representation or warranty relative to such Contract.
DESCRIPTION OF THE CERTIFICATES
The Certificates of one or more series (each, a "Series") may be
offered and sold from time to time under this Prospectus and a Prospectus
Supplement. Each Series of Certificates will be issued pursuant to a separate
pooling and servicing agreement (each, an "Agreement") to be entered into
among the Company, as Seller, Vanderbilt, as Servicer, the trustee named in
the related Prospectus Supplement (the "Trustee") and such other parties, if
any, as are described in the applicable Prospectus Supplement. The following
summaries describe certain provisions expected to be common to each Agreement
and the related Certificates, but do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the
provisions of the related Agreement and the description set forth in the
related Prospectus Supplement. Section references, if any, contained herein
refer to sections of the form of Agreement filed as an exhibit to the
Registration Statement of which this Prospectus is a part (the "Registration
Statement"). The portions of such sections described herein may be contained
in different numbered sections in the actual Agreement pursuant to which any
Series of Certificates is issued. The provisions of the form of Agreement
filed as an exhibit to the Registration Statement that are not described
herein may differ from the provisions of any actual Agreement. The material
differences will be described in the related Prospectus Supplement.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to them in the form of Agreement filed as an exhibit to the
Registration Statement.
General
The Certificates may be issued in one or more Classes or sub-classes
(each referred to in this Prospectus as a "Class"). If the Certificates of a
Series are issued in more than one Class, the Certificates of all or less than
all of such Classes may be sold pursuant to this Prospectus, and there may be
separate Prospectus Supplements relating to one or more of such Classes so
sold. Any reference herein to the Prospectus Supplement relating to a Series
comprised of more than one Class should be understood as a reference to each
of the Prospectus Supplements relating to the Classes sold hereunder. Any
reference herein to the Certificates of a Class should be understood to refer
to the Certificates of a Class within a Series, the Certificates of a
sub-class within a Series or all of the Certificates of a single-Class Series,
as the context may require.
The Certificates of each Series will be issued in fully registered
form only and will represent the interest specified in the related Prospectus
Supplement in a separate trust fund (the "Trust Fund") created pursuant to the
related Agreement. The Trust Fund will be held by the Trustee for the benefit
of the Certificateholders. Each Trust Fund will generally include (i)
Contracts (the "Contract Pool") which are subject to the Agreement from time
to time, (ii) amounts held in the Certificate Account from time to time and
(iii) proceeds from certain hazard insurance on individual Manufactured Homes,
Modular Homes or Mortgaged Properties (or the related real estate, in the case
of Land-and-Home Contracts) acquired by repossession, and may include a letter
of credit, limited guarantee of CHI, surety bond, pool insurance policy, cash
reserve fund or any other form of credit enhancement, or any combination
thereof. Except as otherwise specified in the related Prospectus Supplement,
the Certificates will be freely transferable and exchangeable at the corporate
trust office of the Trustee at the address set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge.
Ownership of each Contract Pool may be evidenced by one or more
classes of Certificates, each representing the interest in the Contract Pool
specified in the related Prospectus Supplement. One or more Classes of
Certificates evidencing interests in Contracts may be Subordinated
Certificates, evidencing the right of the holders thereof to receive any or a
portion of distributions of principal or interest or both on the Contracts
subordinate to the rights of the holders of other Classes of Certificates
("Senior Certificates") as provided 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 described in the Prospectus Supplement.
A Series of Certificates may consist of Classes of Certificates
evidencing the right to receive distributions of principal or interest or both
in the order specified in the related Prospectus Supplement. A Class of
Certificates of a Series may be divided into two or more sub-classes. The
related Prospectus Supplement will specify whether a Class has been so divided
and the terms of each sub-class. The holders of each sub-class of a Class of
Certificates will be entitled to the percentages (which may be 0%) of
principal or interest payments or both on the related Contracts as specified
in the related Prospectus Supplement. The related Prospectus Supplement will
specify the minimum denomination or initial principal amount of Contracts
evidenced by a single Certificate of each Class of Certificates of a Series (a
"Single Certificate").
Distributions of principal and interest on the Certificates will be
made on the payment dates set forth in the related Prospectus Supplement
(each, a "Remittance Date") to the persons in whose names the Certificates are
registered at the close of business on the related record date specified in
the related Prospectus Supplement (the "Record Date"). Distributions will be
made by check mailed to the address of the person entitled thereto as it
appears on the Certificate Register, or, to the extent described in the
related Agreement, by wire transfer, except that the final distribution in
retirement of Certificates will be made only upon presentation and surrender
of the Certificates at the office or agency of the Trustee specified in the
final distribution notice to Certificateholders.
Global Certificates
The Certificates of a Class may be issued in whole or in part in the
form of one or more global certificates (each, a "Global Certificate") that
will be deposited with, or on behalf of, and registered in the name of a
nominee for, a depositary (the "Depositary") identified in the related
Prospectus Supplement. The description of the Certificates contained in this
Prospectus assumes that the Certificates will be issued in definitive form. If
the Certificates of a Class are issued in the form of one or more Global
Certificates, the term "Certificateholder" should be understood to refer to
the beneficial owners of the Global Certificates, and the rights of such
Certificateholders will be limited as described under this subheading.
Global Certificates will be issued in registered form. Unless and
until it is exchanged in whole or in part for Certificates in definitive form,
a Global Certificate may not be transferred except as a whole by the
Depositary for such Global Certificate to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor of such
Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to any
Certificates of a Class will be described in the related Prospectus
Supplement. It is anticipated that the following provisions will apply to all
depositary arrangements:
Upon the issuance of a Global Certificate, the Depositary for such
Global Certificate will credit, on its book-entry registration and transfer
system, the respective denominations of the Certificates represented by such
Global Certificate to the accounts of institutions that have accounts with
such Depositary ("participants"). Ownership of beneficial interests in a
Global Certificate will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests in such
Global Certificate will be shown on, and the transfer of that ownership will
be effected only through, records maintained by the Depositary for such Global
Certificate or by participants or persons that hold through participants. The
laws of some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to transfer beneficial interests in a Global
Certificate.
So long as the Depositary for a Global Certificate, or its nominee, is
the owner of such Global Certificate, such Depositary or such nominee, as the
case may be, will be considered the sole owner or holder of the Certificates
represented by such Global Certificate for all purposes under the Agreement
relating to such Certificates. Except as set forth below, owners of beneficial
interests in a Global Certificate will not be entitled to have Certificates of
the Series represented by such Global Certificate registered in their names,
will not receive or be entitled to receive physical delivery of Certificates
of such Series in definitive form and will not be considered the owners or
holders thereof under the Agreement governing such Certificates.
Distributions or payments on Certificates registered in the name of or
held by a Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner for the holder of the
Global Certificate representing such Certificates. In addition, all reports
required under the applicable Agreement to be made to Certificateholders (as
described below under "Reports to Certificateholders") will be delivered to
the Depositary or its nominee, as the case may be. None of the Company, the
Servicer, the Trustee or any agent thereof (including any applicable
Certificate Registrar or Paying Agent) will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interest in a Global Certificate or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for providing reports to the related beneficial owners.
The Company expects that the Depositary for Certificates of a Class,
upon receipt of any distribution or payment in respect of a Global
Certificate, will credit immediately participants' accounts with payments in
amounts proportionate to their respective beneficial interest in such Global
Certificate as shown on the records of such Depositary. The Company also
expects that payments by participants to owners of beneficial interests in
such Global Certificate held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in "street name," and
will be the responsibility of such participants.
If a Depositary for Certificates of a Class is at any time unwilling
or unable to continue as Depositary and a successor depositary is not
appointed by or on behalf of the Company within the time period specified in
the Agreement, the Company will cause to be issued Certificates of such Class
in definitive form in exchange for the related Global Certificate or
Certificates. In addition, the Company may at any time and in its sole
discretion determine not to have any Certificates of a Class represented by
one or more Global Certificates and, in such event, will cause to be issued
Certificates of such Class in definitive form in exchange for the related
Global Certificate or Certificates. Further, if the Company so specifies with
respect to the Certificates of a Class, an owner of a beneficial interest in a
Global Certificate representing Certificates of such Class may, on terms
acceptable to the Company and the Depositary for such Global Certificate,
receive Certificates of such Class in definitive form. In any such instance,
an owner of a beneficial interest in a Global Certificate will be entitled to
physical delivery in definitive form of Certificates of the Class represented
by such Global Certificate equal in denominations to such beneficial interest
and to have such Certificates registered in its name.
Conveyance of Contracts
The Company will transfer, assign, set over and otherwise convey to
the Trustee all right, title and interest of the Company 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, Modular Homes or Mortgaged Properties, if
any, all documents contained in the Contract files, Land-and-Home Contract
files or Mortgage Loan files, as applicable, and all proceeds derived from any
of the foregoing. On behalf of the Trust Fund, as the issuer of the related
Series of Certificates, the Trustee, concurrently with such conveyance, will
execute and deliver the Certificates to the order of the Company. The
Contracts will be as described on a list attached to the Agreement. Such list
will include the current amount of monthly payments due on each Contract as of
the date of issuance of the Certificates and the Contract Rate on each
Contract. Such list will be available for inspection by any Certificateholder
at the principal executive office of the Servicer. Prior to the conveyance of
the Contracts to the Trustee, the Company's operations department will
complete a review of all of the Contract files, Land-and-Home Contract files
and Mortgage Loan files, as applicable, 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 Company or replaced with another Contract, or, if the
discrepancy relates to the unpaid principal balance of a Contract, the Company
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.
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 or Modular Homes (other than the principal
documents relating to Land-and-Home Contracts and Mortgage Loans). To
facilitate servicing and save administrative costs, the documents will not be
physically segregated from other similar documents that are in the Company's
possession. In order to give notice of the right, title and interest of the
Certificateholders to the Contracts, the Company will cause a UCC-1 financing
statement to be executed and filed by the Company identifying the Company as
the seller and the Trustee as the buyer of the Contracts, and the Company's
accounting records and computer systems will also reflect such sale and
assignment. In addition, within one week after the initial delivery of the
Certificates, the Contracts will be stamped to reflect their assignment to the
Trustee. However, 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. See "Risk Factors-- Risks relating to enforceability of the
contracts." Unless otherwise specified in the Prospectus Supplement, the
Agreement will designate the Trustee or another independent custodian, as the
Trustee's agent, to maintain possession of the principal documents relating to
all Land-and-Home Contracts and Mortgage Loans.
In general, and except as otherwise specified in the related
Prospectus Supplement, the Company will make certain representations and
warranties in the Agreement with respect to each Contract as of the Closing
Date, including that:
(a) as of the Cut-off Date, or the date of origination, if
later, the most recent scheduled payment was made or was not
delinquent more than 59 days (or such other number of days specified
in the related Prospectus Supplement);
(b) no provision of a Contract has been waived, altered or
modified in any respect, except by instruments or documents contained
in the Contract file, the Land-and-Home Contract file or the Mortgage
Loan file, as applicable;
(c) 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);
(d) no Contract is subject to any right of rescission,
set-off, counterclaim or defense;
(e) each Contract is covered by hazard insurance
described under "-- Servicing -- Hazard Insurance";
(f) each Contract has been originated by a manufactured
housing dealer or lender or Vanderbilt in the ordinary course of such
dealer's or lender's or Vanderbilt's business and, if originated by a
manufactured housing dealer or other lender, was purchased by the
Vanderbilt in the ordinary course of business;
(g) no Contract was originated in or is subject to the laws
of any jurisdiction whose laws would make the transfer of the
Contract or an interest therein to the Trustee or a separate trustee
pursuant to the Agreement or pursuant to the Certificates unlawful;
(h) each Contract complies with all requirements of law;
(i) no Contract has been satisfied, 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;
(j) each Manufactured Housing Contract creates a valid and
enforceable first priority security interest in favor of the Company
in the Manufactured Home covered thereby and, with respect to each
Land-and-Home Contract and each Mortgage Loan, the lien created
thereby has been recorded or will be recorded within six months, and
such security interest or lien has been assigned by the Company to
the Trustee;
(k) all parties to each Contract had capacity to execute
such Contract;
(l) no Contract has been sold, assigned or pledged to any
other person and prior to the transfer of the Contracts by the
Company to the Trustee, the Company had good and marketable title to
each Contract free and clear of any encumbrance, equity, loan,
pledge, charge, claim or security interest, and was the sole owner
and had full right to transfer such Contract to the Trustee;
(m) as of the Closing Date there was no default, breach,
violation or event permitting acceleration under any Contract (except
for payment delinquencies permitted by clause (a) above), no event
which with notice and the expiration of any grace or cure period
would constitute a default, breach, violation or event permitting
acceleration under such Contract, and the Company has not waived any
of the foregoing;
(n) as of the Closing Date there were, to the best of the
Company's knowledge, no liens or claims which have been filed for
work, labor or materials affecting a Manufactured Home or any related
Mortgaged Property securing a Contract, which are or may be liens
prior or equal to the lien of the Contract;
(o) each Contract other than a step-up rate Contract and an
Escalating Payment Contract is:
(i) a fully-amortizing loan with a fixed Contract
Rate and provides for level payments over the term of such
Contract or
(ii) a loan with a variable interest rate;
(p) each Contract contains customary and enforceable
provisions such as to render the rights and remedies of the holder
thereof adequate for realization against the collateral of the
benefits of the security;
(q) the description of each Contract set forth in the
list delivered to the Trustee is true and correct;
(r) there is only one original of each Contract;
(s) none of the Contracts had a Loan-to-Value Ratio at
origination greater than 100% (or such other percentage amount
specified in the related Prospectus Supplement);
(t) at the time of origination of each Contract or for the
percentage of Contracts set forth in the Prospectus Supplement, the
Obligor was the primary resident of the related Manufactured Home;
(u) other than the Land-and-Home Contracts or the Mortgage
Loans, if any, 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 as would render
unperfected or impair the priority of the security interest in such
Manufactured Home, and as of the Closing Date such Manufactured Home
was, to the best of the Company's knowledge, free of damage and in
good repair;
(v) the related Manufactured Home is a "manufactured home"
within the meaning of 42 United States Code, Section 5402(6); and
(w) each Contract is a "qualified mortgage" under Section
860G(a)(3) of the Code and each Manufactured Home is "manufactured
housing" within the meaning of Section 25(e)(10) of the Code.
Under the terms of the Agreement, and subject to the conditions
specified in the preceding paragraph and to the Company's option to effect a
substitution as described in the next paragraph, the Company 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 Company becomes aware, or should have become aware, or the
Company's receipt of written notice from the Trustee or the Servicer, of a
breach of any representation or warranty of the Company in the Agreement that
materially adversely affects the Trust Fund's interest in any 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 date of such repurchase. This repurchase obligation constitutes the sole
remedy available to the Trust Fund and the Certificateholders for a breach of
a representation or warranty under the Agreement with respect to the Contracts
(but not with respect to any other breach by the Company of its obligations
under the Agreement). If a prohibited transaction tax under the REMIC
provisions of the Code is incurred in connection with such repurchase,
distributions otherwise payable to Residual Certificateholders will be applied
to pay such tax. The Company will be required to pay the amount of such tax
that is not funded out of such distributions.
In lieu of purchasing a Contract as specified in the preceding
paragraph, during the two-year period following the Closing Date, the Company
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. In the event that more than one Contract is
substituted, the above requirements with respect to Scheduled Principal
Balance, Contract Rate and remaining term to scheduled maturity may be
satisfied on an aggregate or weighted average basis, as applicable. The
Company 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 Contract being
substituted. Such deposit will be deemed to be a partial principal prepayment.
Payments on Contracts
Unless otherwise specified in the related Prospectus Supplement, each
Certificate Account will be a trust account established by the Servicer as to
each Series of Certificates or a Group of Certificates within a Series 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 rating assigned to the Certificates by each rating agency
rating the Certificates of such Series, (ii) with the trust department of a
depositary institution, (iii) in an account or accounts the deposits in which
are fully insured by the Federal Deposit Insurance Corporation ("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 other high-quality
investments ("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 the following payments and
collections received or made by it subsequent to 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 Obligor;
(v) any Advances made as described under "Advances" and certain
other amounts required under the Agreement to be deposited in the
Certificate Account;
(vi) all amounts received from any credit enhancement provided
with respect to a Series of Certificates;
(vii) all proceeds of any Contract or property acquired in
respect thereof repurchased by the Servicer, or the Company, or
otherwise as described above or under "Termination" below; and
(viii) all amounts, if any, required to be transferred to the
Certificate Account from a Reserve Fund pursuant to the Agreement.
Distributions on Certificates
Except as otherwise provided in the related Prospectus Supplement, on
each Remittance Date, the Trustee will withdraw from the applicable
Certificate Account and distribute to the Certificateholders of each Class
(other than a Series having a Class of Subordinated Certificates, as described
below), either the specified interest of such Class in the Contract Pool times
the aggregate of all amounts on deposit in the Certificate Account as of the
fifth Business Day preceding the Remittance Date or such other date as may be
specified in the related Prospectus Supplement (the "Determination Date"), or,
in the case of a Series of Certificates comprised of Classes which have been
assigned a Stated Balance, payments of interest and payments in reduction of
the Stated Balance from all amounts on deposit in the Certificate Account as
of the end of the Due Period immediately prior to such Remittance Date, in the
priority and calculated in the manner set forth in the related Prospectus
Supplement, except, in each case: (i) all payments or collections due after
the Due Period preceding the month in which the Remittance Date occurs; (ii)
all scheduled payments of principal and interest due on a date or dates
subsequent to the Due Period preceding the Determination Date; (iii) amounts
representing reimbursement for Advances, such reimbursement being limited, as
described 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 (iv) amounts representing
reimbursement for any unpaid Servicing Fee and expenses from Liquidation
Proceeds, condemnation proceeds and proceeds of insurance policies with
respect to the related Contracts. The amount of principal and interest
specified in the related Prospectus Supplement to be distributed to
Certificateholders is referred to herein as the "Certificate Distribution
Amount." The amounts on deposit in the Certificate Account on a Determination
Date, less the amounts specified in (i) through (iv) above, with respect to a
Series of Certificates having a Class of Subordinated Certificates, are
referred to herein as the "Available Distribution Amount."
On each Remittance Date, the Trustee will withdraw the Available
Distribution Amount from the applicable Certificate Account and distribute
such amount to the Certificateholders of each Class or other specified persons
in the amounts and order of priority specified in the related Prospectus
Supplement.
Interest on the Certificates will be paid on the dates specified in
the related Prospectus Supplement (each a "Remittance Date"), commencing on
the date specified in the related Prospectus Supplement. The related
Prospectus Supplement will set forth for each Class or sub-class of
Certificates the interest rate, if any, for each such Class or sub-class or
the method of determining such interest rate. As specified in the related
Prospectus Supplement, Classes of a Series of Certificates or sub-classes
within a Class may be entitled to receive no interest or interest which is not
proportionate to the principal allocable to such Certificates. Principal
collected on each Contract, including any principal prepayments, will be
passed through on each Remittance Date, unless such principal has previously
been passed through. With respect to a Class or sub-class of a Series having a
Stated Balance, such distributions may be made in the reduction of the Stated
Balance, or in such other amounts as are specified in the related Prospectus
Supplement.
Within the time specified in the Agreement and described in the
related Prospectus Supplement, the Servicer will furnish a statement to the
Trustee setting forth the amount to be distributed on the related Remittance
Date on account of principal and interest, stated separately, and a statement
setting forth certain information with respect to the Contracts.
If there are not sufficient funds in the Certificate Account to make
the full distribution to Certificateholders described above on any Remittance
Date, the Servicer will distribute the funds available for distribution to the
Certificateholders of each Class in accordance with the respective interests
therein, except that Subordinated Certificateholders, if any, will not,
subject to the limitations described in the related Prospectus Supplement,
receive any distributions until Senior Certificateholders receive the Senior
Distribution Amount plus, to the extent not paid, the aggregate of amounts by
which the Senior Distribution Amount for any Distribution Date exceeded the
amount actually paid on such Remittance Date plus interest at the related
Remittance Rate. Unless otherwise provided in the related Prospectus
Supplement, the difference between the amount which the Certificateholders
would have received if there had been sufficient eligible funds in the
Certificate Account and the amount actually distributed, will be added to the
amount which the Certificateholders are entitled to receive on the next
Remittance Date.
A Class or sub-class of Certificates may be Compound Interest
Certificates on which interest will accrue, but not be paid for the period set
forth in the related Prospectus Supplement.
Special Distributions. To the extent specified in the Prospectus
Supplement relating to a Series of Certificates, one or more Classes or
subclasses of which have been assigned a Stated Balance and having less
frequent than monthly Remittance Dates, such Classes or sub-classes may
receive Special Distributions in reduction of Stated Balance ("Special
Distributions") in any month, other than a month in which a Remittance Date
occurs, if, as a result of principal prepayments on the Contracts in the
related Contract Pool or low reinvestment yields, the Trustee determines,
based on assumptions specified in the related Agreement, that the amount of
cash anticipated to be on deposit in the Certificate Account on the next
Remittance Date for such Series and available to be distributed to the Holders
of the Certificates of such Classes or sub-classes may be less than the sum of
(i) the interest scheduled to be distributed to holders of the Certificates of
such Classes or sub-classes and (ii) the amount to be distributed in reduction
of Stated Balance of such Certificates on such Remittance Date. Any such
Special Distributions will be made in the same priority and manner as
distributions in reduction of Stated Balance would be made on the next
Remittance Date.
Subordinated Certificates and Reserve Fund. The rights of a Class of
Certificateholders of a Series to receive any or a specified portion of
distributions of principal or interest or both with respect to the Contracts,
to the extent specified in the related Agreement and described in the related
Prospectus Supplement, may be subordinated to such rights of other
Certificateholders. The Prospectus Supplement with respect to a Series of
Certificates having a Class of Subordinated Certificates will set forth, among
other things, the extent to which such Class is subordinated (which may
include a formula for determining the subordinated amount or for determining
the allocation of the Available Distribution Amount among Senior Certificates
and Subordinated Certificates), the allocation of losses among the Classes of
Subordinated Certificates (which may include a reduction of the principal
balance of the Classes of Subordinated Certificates in the event of such
losses), the period or periods of such subordination, the minimum subordinated
amount, if any, and any distributions or payments which will not be affected
by such subordination. If specified in the related Prospectus Supplement, the
rights of the Subordinated Certificateholders, to the extent not subordinated,
may be on a parity with those Senior Certificateholders. This subordination
feature is intended to enhance the likelihood of regular receipt by Senior
Certificateholders of the full amount of scheduled monthly payments of
principal and interest due them and to protect the Senior Certificateholders
against losses.
If specified in the related Prospectus Supplement, the protection
afforded to the Senior Certificateholders from the subordination feature
described above will be effected by the preferential right of such
Certificateholders to receive current distributions from the Contract Pool
and, to the extent specified in the related Prospectus Supplement, by the
establishment of a reserve fund (the "Reserve Fund"). The Reserve Fund may be
funded, to the extent specified in the related Prospectus Supplement, by one
or more of an initial cash deposit, the retention of specified periodic
distributions of principal or interest or both otherwise payable to
Subordinated Certificateholders, or the provision of a letter of credit,
limited guarantee of CHI, pool insurance policy or any other form of credit
enhancement, or any combination thereof. Unless otherwise specified in the
related Prospectus Supplement, the Reserve Fund will be part of the Trust
Fund.
The subordination features and the Reserve Fund described above are
intended to enhance the likelihood of timely payment of principal and interest
and to protect the Senior Certificateholders and, to the extent specified in
the related Prospectus Supplement, Subordinated Certificateholders against
loss. However, in certain circumstances the Reserve Fund could be depleted and
shortfalls could result. If, on a particular date when a distribution is due
such Certificateholders, the aggregate amount of payments received from the
obligors on the Contracts and Advances by the Servicer (as described below),
if any, and from the Reserve Fund of a Series, if any, do not provide
sufficient funds to make full distributions to such Certificateholders of a
Series, the amount of the shortfall may be added to the amount such
Certificateholders are entitled to receive on the next Remittance Date. In the
event the Reserve Fund, if any, is depleted, such Senior Certificateholders
and, to the extent specified in the related Prospectus Supplement,
Subordinated Certificateholders nevertheless will have a preferential right to
receive current distributions from the Contract Pool. Such Certificateholders
will bear their proportionate share of losses realized on Contracts to the
extent such Reserve Fund and subordination feature are exhausted.
Advances
If the amount eligible for distribution to the Certificateholders of a
Series of Certificates (or to Senior Certificateholders only if so specified
in the case of a Series of Certificates having a Class of Subordinated
Certificates) on any Remittance Date is less than the amount which is due such
Certificateholders on such Remittance Date, the related Agreement will provide
that the Servicer, under certain circumstances, will make 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 (other than Subordinated Certificateholders) in an amount
equal to the difference between the amount due to them and the amount in the
Certificate Account, eligible for distribution to them pursuant to the
Agreement, but only to the extent such difference is due to delinquent
payments of principal and interest for the preceding Due Period and only to
the extent the Servicer determines such advances are recoverable from future
payments and collections on the Contracts or otherwise, as specified in the
Agreement. The Servicer's obligation to make Advances, if any, may, be limited
in amount and the Servicer may 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 principal
payments to the Senior Certificateholders, 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
principal or interest with respect to which any such Advances were made or
from other funds in the Certificate Account.
Example of Distributions
The following chart sets forth an example of the flow of funds for the
Remittance Date occurring in June 1999 for a Class with a fixed Remittance
Rate in a hypothetical Series of Certificates with a Cut-off Date of April 26,
1999:
<TABLE>
<S> <C> <C>
April 26, 1999........................................ (A) Cut-off Date.
April 26 to May 25.................................... (B) Due Period. Servicer receives scheduled
payments on the Contracts and any Principal
Prepayments made by Obligors and applicable
interest thereon.
May 31................................................ (C) Record Date.
June 2................................................ (D) Determination Date. Distribution amounts
determined.
June 7................................................ (E) Remittance Date. (Each Remittance Date is the
7th day of each month or, if the 7th day is not
a business day, the next business day.)
</TABLE>
The Original Contract Pool Principal Balance will be the aggregate
Scheduled Principal Balance of the Contracts on April 26, 1999 after deducting
principal payments received before such date. Principal payments received
before April 26, and the accompanying interest payments, are not part of the
Trust Fund and will not be passed through to Certificateholders. Scheduled
payments, Principal Prepayments and Net Liquidation Proceeds may be received
at any time during this period and will be distributed to Certificateholders
on June 7. When a Contract is prepaid in full, interest on the amount prepaid
is collected from the Obligor only to the date of payment. The Available
Distribution Amount for the distribution on June 7 is described under
"--Payments on Contracts" and "--Distributions on the Certificates" above.
Distributions on June 7 will be made to Certificateholders of record at the
close of business on May 31. On June 2 (three business days prior to the
Remittance Date), the Servicer will determine the amounts of principal and
interest which will be passed through on June 7 to Certificateholders. On June
7, the amounts determined on June 2 will be distributed to Certificateholders.
If a payment due in the Due Period ending May 25 is received in the Due Period
ending in June, such late payment will be taken into account in determining
the Available Distribution Amount for July 7.
The flow of funds with respect to any Series of Certificates may
differ from the above example, as specified in the related Prospectus
Supplement.
Indemnification
Unless otherwise specified in the related Prospectus Supplement, the
Agreement requires the Servicer to defend and indemnify the Trust Fund, the
Trustee (including any agent of the Trustee) and the Certificateholders (which
indemnification will survive any removal of the Servicer as servicer of the
Contracts) against any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation (a) arising from third party claims or actions in respect of any
action taken or failed to be taken by the Servicer or a prior owner of
Acquired Contracts or servicer on behalf of such owner with respect to any
Contract or Manufactured Home, (b) any failure by the Servicer to perform its
obligations in compliance with the standard of care set forth in the
Agreement, and (c) for any taxes which may at any time be asserted with
respect to, and as of the date of, the conveyance of the Contracts to the
Trust Fund (but not including any income or franchise taxes or any federal,
state or other tax arising out of the creation of the Trust Fund and the
issuance of the Certificates or distributions with respect thereto).
Unless otherwise specified in the related Prospectus Supplement, the
Agreement also requires the Servicer, in connection with its duties as
servicer of the Contracts, to defend and indemnify the Trust Fund, the Trustee
and the Certificateholders (which indemnification will survive any removal of
the Servicer as servicer of the Contracts) against any and all costs,
expenses, losses, damages, claims and liabilities, including reasonable fees
and expenses of counsel and expenses of litigation, in respect of any action
taken by the Servicer with respect to any Contract while it was the Servicer.
Servicing
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 installment sales 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. The Agreement
provides that the Servicer may delegate its duties under that agreement to one
or more entities (each a "Subservicer") that agrees to conduct such duties in
accordance with the Agreement. Notwithstanding any such delegation, the
Servicer will continue to be liable for all of its obligations under the
Agreement.
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 generally require
the Servicer to 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 or one- to-four family residential
properties, as applicable, issued by a company authorized to issue such
policies in the state in which the Manufactured Home, Modular Home or
Mortgaged Property is located, and in an amount which is not less than the
maximum insurable value of such Manufactured Home, Modular Home or Mortgaged
Property 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 coinsurance clause contained therein. When a Manufactured
Home or Modular 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 add separately such
premium to the Obligor's obligation as provided by the Contract, but may not
add such premium to the remaining principal balance of the Contract.
The Servicer may maintain, in lieu of causing individual Hazard
Insurance Policies to be maintained with respect to each Manufactured Home,
Modular Home or Mortgaged Property, and shall maintain, 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, Modular Home or
Mortgaged Property, 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 pay any deductible amount with
respect to claims under such policy relating to the Contracts. If the insurer
thereunder shall cease to be acceptable to the Servicer, the Servicer shall
exercise its best reasonable efforts to obtain from another insurer a
placement policy comparable to such policy.
If the Servicer shall have repossessed a Manufactured Home on behalf
of the Trustee, the Servicer shall 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. Each Agreement will require the Servicer to
deliver to the Trustee a monthly report prior to each Remittance Date, setting
forth certain information regarding the Contract Pool and Certificates of such
Series as is specified in the related Prospectus Supplement. Each such report
to the Trustee will be accompanied by a statement from an appropriate officer
of the Servicer certifying the accuracy of such report and stating that the
Servicer has not defaulted in the performance of its obligations under the
Agreement. The Servicer will deliver to the Trustee an annual report of a
nationally recognized accounting firm stating that such firm has examined
certain documents and records relating to the servicing of manufactured
housing contracts serviced by the Servicer under pooling and servicing
agreements similar to the Agreement and stating that, on the basis of such
procedures, such servicing has been conducted in compliance with the
Agreement, except for any exceptions set forth in such report.
Certain Matters Regarding the Servicer. The Servicer may not resign
from its obligations and duties under an Agreement except upon 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. The Servicer can only be removed as servicer pursuant to an Event
of Termination as discussed below. Any person with which the Servicer is
merged or consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Servicer is a party, or any person
succeeding to the business of the Servicer, will be the successor to the
Servicer under the Agreement so long as such successor services at least $100
million of manufactured housing contracts.
Each Agreement will also generally provide that neither the Servicer,
nor any director, officer, employee or agent of the Servicer, will be under
any liability to the Trust Fund or the Certificateholders for any action taken
or for restraining from the taking of any action in good faith pursuant to the
Agreement, or for errors in judgment; provided, however, that neither the
Servicer nor any such person will be protected against any liability which
would otherwise be imposed by reason of the failure to perform its obligations
in strict compliance with the standards of care set forth in 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 Fund and the Servicer will be entitled to be reimbursed therefor out of
the Certificate Account.
Except for certain representations and warranties relating to the
contracts and certain other exceptions, the Servicer's obligations with
respect to the Certificates are limited to its contractual servicing
obligations.
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 contracts having an aggregate principal
amount of $100 million or more and which are generally regarded as servicers
acceptable to institutional investors.
The Servicer, to the extent practicable, shall cause the Obligors to
pay all taxes and similar governmental charges when and as due. To the extent
that nonpayment of any taxes or charges would result in the creation of a lien
upon any Manufactured Home having a priority equal or senior to the lien of
the related Contract, the Servicer shall advance any such delinquent tax or
charge.
Servicing Compensation and Payment of Expenses. For its servicing of
the Contracts, the Servicer will receive servicing fees ("Servicing Fees")
which include a Monthly Servicing Fee (which the Servicer may assign) for each
Due Period (paid on the next succeeding Remittance Date) which, unless
otherwise stated in the related Prospectus Supplement, will be equal to 1/12th
of the product of 1.25% and the Pool Scheduled Principal Balance for such
Remittance Date.
The Monthly Servicing Fee provides compensation for customary
manufactured housing contract third-party servicing activities to be performed
by the Servicer for the Trust Fund and for additional administrative services
performed by the Servicer on behalf of the Trust Fund. 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 Fund include calculating distributions of 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.
So long as the Vanderbilt is the Servicer, the Servicer, in its sole
discretion, may, but is not obligated to, liquidate a defaulted Contract by
depositing into the Certificate Account an amount equal to (i) the outstanding
principal balance of such Contract plus accrued and unpaid interest thereon to
the Due Date in the Due Period in which such deposit is made less (ii) $2,000.
Vanderbilt will not be reimbursed for any Liquidation Expenses incurred in
connection with any such Contract and will retain any liquidation proceeds in
respect thereof. Vanderbilt has such option to liquidate defaulted Contracts
in that manner because such manner of liquidation is more compatible with its
record keeping systems.
As part of its Servicing Fees the Servicer will also be entitled to
retain, as compensation for the additional services provided in connection
therewith, any fees for late payments made by Obligors, extension fees paid by
Obligors for the extension of scheduled payments and assumption fees for
permitted assumptions of Contracts by purchasers of the related Manufactured
Homes.
Any person with which the Servicer is merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which
the Servicer is a party, or any person succeeding to the business of the
Servicer, will be the successor to the Servicer under the Agreement so long as
such successor has a net worth of at least $10 million and has serviced at
least $100 million of manufactured housing contracts for at least one year.
The Servicer may assign its rights and delegate its duties under the Agreement
(with the prior written consent of the Company if the Vanderbilt is not the
Servicer), provided that any rating of the Certificates then in effect will
not be reduced because of such assignment and delegation. Upon any such
assignment and delegation, the assigning Servicer will not be liable for
obligations of the Servicer after such assignment.
Events of Termination. Events of Termination under each Agreement will
include (i) any failure by the Servicer to distribute to the
Certificateholders any required payment 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 or 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 shall mean notice to the Servicer by the Trustee or the Company, or to
the Company, the Servicer, if any, and the Trustee by the Holders of
Certificates representing interests aggregating not less than 25% of the Trust
Fund.
Rights Upon Event of Termination. So long as an Event of Termination
remains unremedied, the Trustee may, and at the written direction of the
Certificateholders of a Series evidencing interests aggregating 25% or more of
the related Trust Fund, 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, whereupon (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 assume any obligation of the Company to repurchase Contracts for
breaches of representations or warranties, and the Trustee will not be liable
for any acts or omissions of the Servicer occurring prior to a transfer of the
Servicer's servicing and related functions or for any breach by the Servicer
of any of its obligations contained in the Agreement. Notwithstanding such
termination, the Servicer shall be entitled to payment of certain amounts
payable to it prior to such termination, for services rendered prior to such
termination. No such termination will affect in any manner the Company's
obligation to repurchase certain Contracts for breaches of representations or
warranties under the Agreement. 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. If the trustee in bankruptcy
or similar official is appointed for the Servicer, and no Event of Termination
other than the Servicer's insolvency has occurred, such trustee or other
official may have the power to prevent the Trustee from effecting a transfer
of servicing.
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 interests aggregating not less than 25% of
the related Trust Fund 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 Certificateholders have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which the Trustee may
incur.
Reports to Certificateholders
The Servicer or the Trustee, as applicable, will forward to each
Certificateholder on each Remittance Date, or as soon thereafter as is
practicable, as specified in the related Prospectus Supplement, a statement
setting forth, among other things:
(i) the amount of such distribution allocable to principal on
the Certificates;
(ii) the amount of such distribution allocable to interest on
the Certificates;
(iii) if the distribution to the Certificateholders is less
than the full amount that would be distributable to such
Certificateholders if there were sufficient eligible funds in the
Certificate Account, the difference between the aggregate amounts of
principal and interest which Certificateholders would have received if
there were sufficient eligible funds in the Certificate Account and
the amounts actually distributed;
(iv) the aggregate amount of Advances, if any, by the Servicer
included in the amounts actually distributed to the
Certificateholders;
(v) the outstanding principal balance of the Contracts; and
(vi) the approximate weighted average Remittance Rate of the
Contracts during the Due Period immediately preceding such Remittance
Date.
In addition, not more than 90 days after the end of each calendar
year, the Servicer will furnish a report to each Certificateholder of record
at any time during such calendar year (a) as to the aggregate of amounts
reported pursuant to (i) and (ii) above 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
information as the Servicer deems necessary or desirable for
Certificateholders to prepare their tax returns. Information in the monthly
and annual reports provided to the Certificateholders will not have been
examined and reported upon by an independent public accountant. However, the
Servicer will provide to the Trustee annually a report by independent public
accountants with respect to the servicing of the Contracts as described under
"Evidence as to Compliance" above.
Amendment
The Agreement may be amended by the Company 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 inconsistent with any
other provision therein, (iii) if an election (a "REMIC Election") has been
made with respect to a particular Series of Certificates to treat the Trust
Fund as a real estate mortgage investment conduit ("REMIC") within the meaning
of Section 860D(a) of the Code, to maintain the REMIC status of the Trust Fund
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. The Agreement may also be
amended by the Company, the Servicer and the Trustee with the consent of the
Certificateholders (other than holders of Residual Certificates) evidencing
interests aggregating not less than 51% of the Trust Fund 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 delay the timing of, any payment received on or
with respect to Contracts which are required to be distributed on any
Certificate may be effective without the consent of the holders of each such
Certificate.
Termination of the Agreement
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 Contracts subject thereto and
the disposition of all property acquired upon foreclosure of any Land-and-Home
Contract or Mortgage Loan 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 it pursuant to the Agreement. In
addition, the Company or the Servicer may at its option with respect to any
Series of Certificates, repurchase all Certificates or Contracts remaining
outstanding at such time as the aggregate unpaid principal balance of such
Contracts is less than the percentage of the aggregate unpaid principal
balance of the Contracts on the Cut-off Date specified with respect to such
Series in the related Prospectus Supplement. Unless otherwise provided in the
related Prospectus Supplement, the repurchase price will equal the principal
amount of such Contracts plus accrued interest from the first day of the month
of repurchase to the first day of the next succeeding month at the Contract
Rates borne by such Contracts.
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 Company or its affiliates and the Servicer or its
affiliates.
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company 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. The Trustee may also be removed
at any time by the holders of Certificates evidencing interests aggregating
over 50% of the related Trust Fund as specified in the Agreement. 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,
Land-and-Home Contract file, Mortgage Loan file or related documents, and will
not be accountable for the use or application by the Company of any funds paid
to the Company, as Seller, in consideration of the conveyance of the
Contracts, or deposited into or withdrawn from the Certificate Account by the
Company, as Servicer. If no Event of Termination 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. Whether or not an Event of Termination has
occurred, the Trustee is not required to expend or risk its own funds or
otherwise incur any financial liability in the performance of its duties or
the exercise of its powers if it has reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
Under the Agreement, the Servicer, agrees to pay to the Trustee on
each Remittance Date (a) reasonable compensation for all services rendered by
it hereunder (which compensation shall not be limited by any provision of law
in regard to the compensation of a trustee of any express trust) and (b)
reimbursement for all reasonable expenses, disbursements and advances incurred
or made by the Trustee in accordance with any provision of the Agreement
(including the reasonable compensation and the expenses and disbursements of
its agents and counsel), except any such expense, disbursement or advance as
may be attributable to the Trustee's negligence or bad faith. The Company has
agreed to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration of
the Trust Fund and the Trustee's duties thereunder, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of the Trustee's powers or duties
thereunder.
DESCRIPTION OF FHA INSURANCE AND VA GUARANTEES
Certain of the Contracts, may be FHA-insured or VA-guaranteed, the
payments upon which, subject to the following discussion, are insured by the
FHA under Title I of the National Housing Act or partially guaranteed by 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. As of June 30, 1998,
the Vanderbilt's Title I reserve amount was approximately $19,739,736, which
amount was available to pay claims in respect of approximately $190,631,522 of
FHA-insured manufactured housing contracts serviced by Vanderbilt. If
Vanderbilt 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 Vanderbilt,
as servicer of the FHA-insured Contracts.
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 a 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 original
guarantee.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries of certain legal aspects
of Manufactured Housing Contracts, Land-and-Home Contracts and Mortgage Loans,
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 reflect the laws of any particular state, nor
to encompass the laws of all states in which the security for the Manufactured
Housing Contracts, Land-and-Home Contracts or Mortgage Loans is situated. The
summaries are qualified in their entirety by reference to the applicable
federal and state laws governing the Manufactured Housing Contracts,
Land-and-Home Contracts or Mortgage Loans.
The Manufactured Housing Contracts
General. As a result of the assignment of the Contracts to the
Trustee, the Trust Fund will succeed collectively to all of the rights
(including the right to receive payment on the Contacts) and will assume the
obligations of the obligee under the Contracts. Each Manufactured Housing
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. Certain aspects of both
features of the Manufactured Housing Contracts are described more fully below.
The Manufactured Housing 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. Under the Agreement, the Servicer will
retain possession of the Manufactured Housing Contracts (other than the
Land-and-Home Contracts) as custodian for the Trustee, and will make an
appropriate filing of a UCC-1 financing statement in Tennessee to give notice
of the Trustee's ownership of the Manufactured Housing Contracts. The
Manufactured Housing Contracts will be stamped to reflect their assignment
from the Company to the Trustee. However, if through negligence, fraud, or
otherwise, a subsequent purchaser were able to take physical possession of the
Manufactured Housing 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 Manufactured Housing Contracts may be located in all 50 states
and the District of Columbia and Puerto Rico. Security interests in
manufactured homes may be perfected 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, depending on state law.
In some nontitle states, perfection pursuant to the provisions of the UCC is
required. Vanderbilt effects such notation or delivery of the required
documents and fees, and obtains possession of the certificate of title, as
appropriate under the laws of the state in which a Manufactured Home is
registered. In the event Vanderbilt fails, due to clerical errors, to effect
such notation or delivery, or files the security interest under the wrong law
(for example, under a motor vehicle title statute rather than under the UCC,
in a few states), the Certificateholders may not have a first priority
security interest in the Manufactured Home securing a Manufactured Housing
Contract. As manufactured homes have become larger and 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 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 real estate laws, the holder of the security interest must file either a
"fixture filing" under the provision of the UCC or a real estate mortgage
under the real estate laws of the state where the home is located. See
"Land-and-Home Contracts and Mortgage Loans" below. These filings must be made
in the real estate records office of the county where the home is located.
Substantially all of the Manufactured Housing Contracts contain provisions
prohibiting the borrower from attaching the Manufactured Home to its site. So
long as the borrower 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 the UCC financing statement will be effective to maintain the
priority of the security interest in the Manufactured Home. If, however, a
Manufactured Home becomes attached to its site, other parties could obtain an
interest in the Manufactured Home which is prior to the security interest
originally retained by the seller of the Manufactured Housing Contracts and
transferred to the Company. The Company 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 substantially all of the Manufactured Homes
securing the Manufactured Housing Contracts.
The Company will assign the security interest in the Manufactured
Homes to the Trustee on behalf of the Certificateholders. Neither the Company
nor the Trustee will amend the certificates of title to identify the Trustee
as the new secured party, and neither the Company nor the Servicer will
deliver the certificates of title to the Trustee or note thereon the interest
of the Trustee. Accordingly, the Company, or such other originator of the
Manufactured Housing Contracts as provided herein, will continue to be named
as the secured party on the certificates of title relating to the Manufactured
Homes. In some states, such assignment is an effective conveyance of such
security interest without amendment of any lien noted on the related
certificate of title and the new secured party succeeds to the Company's
rights as the secured party. However, in some states in the absence of an
amendment to the certificate of title, such assignment of the security
interest in the Manufactured Home may not be held effective or such security
interests 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 may not be effective against creditors of the Company or a trustee in
bankruptcy of the Company.
In the absence of fraud, forgery or 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 Company 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 Company'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.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of certain states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter only if and after the owner re-registers the Manufactured Home in
such state. If the owner were to relocate a Manufactured Home to another state
and not re-register the Manufactured Home in such state, and if steps were not
taken to re-perfect the Trustee's security interest in such state, the
security interest in the Manufactured Home would cease to be perfected. A
majority of states generally require surrender of a certificate of title to
re-register a Manufactured Home; accordingly, the Company must surrender
possession if it holds certificate of title to such Manufactured Home or, in
the case of Manufactured Homes registered in states which provide for notation
of lien, the Company would receive notice of surrender if the security
interest in the Manufactured Home is noted on the certificate of title.
Accordingly, the Company would have the opportunity to re-perfect its security
interest in the Manufactured Home in the state of relocation. In states which
do not require a certificate of title for registration of a Manufactured Home,
re-registration could defeat perfection. In the ordinary course of servicing
the manufactured housing conditional sales contracts, the Company takes steps
to effect such re-perfection upon receipt of notice of re-registration or
information from the obligor as to relocation. Similarly when an Obligor under
a Contract sells a Manufactured Home, the Company must surrender possession of
the certificate of title or will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of
the related manufactured housing conditional sales contract before release of
the lien. Under the Agreement, the Company is obligated to take such steps, at
the Company's expense, as are necessary to maintain perfection of security
interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home and liens for personal property taxes take priority over
perfected security interests. The Company will represent in the Agreement that
it has no knowledge of any such liens with respect to any Manufactured Home
securing payment on any Contract. However, such liens could arise at any time
during the term of the 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 10 to 30 days depending on the 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 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 definitions 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 Soldier's and Sailor's 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 the subordination of a Class of Subordinated Certificates,
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 and Mortgage Loans
General. The Land-and-Home Contracts and Mortgage Loans will be
secured by either first mortgages or deeds of trust, depending upon the
applicable law 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, bond or other instrument 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 the deed of trust, the borrower conveys
title to the property, irrevocably until the debt is paid, in 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 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. 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 mortgage by
advertisement is essentially similar to foreclosure of a deed of trust by
non-judicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust
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 by 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 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 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. Thereafter, subject to the right of the borrower in
some states to remain in possession during the redemption period, the lender
will assume the burden 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 the 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 (i) may
be waived or (ii) applies only to sale following judicial foreclosure, and not
sale pursuant to a non-judicial 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 property and pay the
expenses of ownership until the redemption period has run.
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 or restrict 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 a
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 federal Soldier's and Sailor's Civil Relief Act of 1940 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 or a Mortgage Loan, 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 the deed of trust. The laws of some states provide priority to
certain tax liens over the lien of the mortgage or the deed of trust. Numerous
federal and 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, the Fair Debt Collection
Practices 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.
Certain Matters Relating to Insolvency
The Company intends that each transfer of the Contracts to a Trust
Fund will constitute a sale rather than a pledge of the Contracts to secure
indebtedness of the Company. However, if the Company (or one of its
affiliates) were to become a debtor under the federal bankruptcy code, it is
possible that a creditor, receiver, conservator or trustee in bankruptcy of
the Company (or one of its affiliates) or the Company as a
debtor-in-possession may argue the sale of the Contracts by the Company (or
one of its affiliates) was a pledge of the Contracts rather than a sale. This
position, if argued or accepted by a court, could result in a delay or
reduction of distributions to the related Certificateholders.
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 Fund) 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 Fund against the Obligor. Numerous other federal and state consumer
protection laws impose requirements applicable to the origination and lending
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 or Modular 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. The Servicer
expects that it will permit most transfers and not accelerate the maturity of
the related Contracts. In certain cases, the transfer may be made by a
delinquent Obligor in order to avoid a repossession, foreclosure proceeding or
trustee's sale.
In the case of a transfer of a Manufactured Home or Modular 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 Depository Institutions
Act of 1982 preempts, subject to certain exceptions and conditions, state laws
prohibiting enforcement of "due-on-sale" clauses applicable to the
Manufactured Homes or Modular Homes. Consequently, in some states the Servicer
may be prohibited from enforcing a "due-on-sale" clause in respect of certain
Manufactured Homes or Modular Homes.
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 and
mortgaged properties. 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 the Title V was not so rejected, any state is authorized by law to
adopt a provision limiting discount points or other charges on loans covered
by Title V. The Company will represent in the applicable Agreement that all of
the Contracts comply with applicable usury laws.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") imposes certain requirements on employee benefit plans subject to
ERISA ("Plans") and on persons who are fiduciaries with respect to such Plans.
Generally, ERISA applies to investments made by such Plans. Among other
requirements, ERISA mandates that the assets of Plans be held in trust and
that the trustee, or other duly authorized fiduciary, have exclusive authority
and discretion to manage and control the assets of such Plans. ERISA also
imposes certain duties on persons who are fiduciaries of such Plans. Under
ERISA (subject to certain exceptions), any person who exercises any authority
or control with respect to the management or disposition of the assets of a
Plan is considered to be a fiduciary of such Plan, subject to the standards of
fiduciary conduct under ERISA. These standards include the requirements that
the assets of Plans be invested and managed for the exclusive benefit of Plan
participants and beneficiaries, a determination by the Plan fiduciary that any
such investment is permitted under the governing Plan instruments and is
prudent and appropriate for the Plan in view of its overall investment policy
and the composition and diversification of its portfolio. Certain employee
benefit plans, such as governmental plans (as defined in ERISA Section 3(32))
and church plans (as defined in ERISA Section 3(33)), are not subject to
ERISA. Accordingly, assets of such plans may be invested in Certificates
without regard to the ERISA considerations described above and below, subject
to the provisions of applicable state law. Any such plan which is qualified
and exempt from taxation under Sections 401(a) and 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), however, is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
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 composition of the Plan's investment portfolio.
In addition to the imposition of general fiduciary standards of
investment prudence and diversification under ERISA, other provisions of
ERISA, and the corresponding provisions of the Code, prohibit a broad range of
transactions involving assets of Plans (including for these purposes
individual retirement accounts and keough plans) and persons having certain
specified relationships to a Plan ("parties in interest" within the meaning of
ERISA and "disqualified persons" within the meaning of the Code). 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. An investment in the Certificates by a Plan might constitute a
prohibited transaction under the foregoing provisions unless an administrative
exemption applies. In addition, if any investing Plan's assets were deemed to
include an interest in the assets of the Contract Pool and not merely an
interest in the Certificates, transactions occurring in the operation of the
Contract Pool might constitute prohibited transactions unless an
administrative exemption applies. Certain such exemptions which may be
applicable to the acquisition and holding of the Certificates or to the
servicing and operation of the Contract Pool are noted below.
The Department of Labor ("DOL") has issued a regulation (29 C.F.R.
Section 2510.3-101) (the "Regulation") concerning the definition of what
constitutes the assets of a Plan. The Regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships,
trusts and certain other entities in which a Plan makes an "equity" investment
will be deemed for purposes of ERISA to be assets of the investing plan unless
certain exceptions apply. However, the Regulation provides that, generally,
the assets of a corporation or partnership in which a Plan invests will not be
deemed for purposes of ERISA to be assets of such Plan if the equity interest
acquired by the investing Plan is a publicly-offered security. A
publicly-offered security, as defined under the Regulation, is a security that
is widely held, freely transferable, and either is (i) part of a class of
securities registered under Section 12(b) or 12(g) of the Securities Exchange
Act of 1934, or (ii) sold to the Plan as part of a securities offering to the
public pursuant to an effective registration statement under the Securities
Act of 1933, and the class of securities of which such security is a part is
registered under the Securities Exchange Act of 1934 within 120 days (or such
later time as may be allowed by the Securities and Exchange Commission) after
the end of the fiscal year of the issuer during which the offering of such
securities to the public occurred. The Certificates are not expected to be
publicly-offered securities under the terms of the Regulation, and it is not
anticipated that any other exemption from the Regulation will apply.
As a result, an investing Plan's assets could be considered to include
an undivided interest in the Contracts and any other assets held in the
Contract Pool. In the event that assets of a Contract Pool are considered
assets of an investing Plan, the Company, the Servicer, the Trustee, other
persons, in providing services with respect to the Contracts or certain
affiliates thereof, may be considered, or might become, parties in interest or
disqualified persons with respect to a Plan. If so, the acquisition or holding
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 a
statutory, regulatory or administrative exemption applies.
Special caution should be exercised before the assets of a Plan
(including assets that may be held in an insurance company's separate or
general accounts where assets in such accounts may be deemed to be Plan assets
for purposes of ERISA) are used to purchase a Certificate if, with respect to
such assets, the Company, the Servicer, the Trustee, the Underwriters named in
the Prospectus Supplement or an affiliate thereof either: (a) has investment
discretion with respect to the investment of such assets of such Plan or (b)
has authority or responsibility to give, or regularly gives, investment advice
with respect to such assets for a fee and pursuant to an agreement or
understanding that such advice will serve as a primary basis for investment
decisions with respect to such assets and that such advice will be based on
the particular investment needs of the Plan.
The U.S. Department of Labor has granted to the lead Underwriter named
in the Prospectus Supplement an exemption (the "Exemption") from certain of
the prohibited transaction rules of ERISA 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 certain
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 Fund;
(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 either Standard & Poor's, a
Division of the McGraw-Hill Companies, Moody's Investors Service, Inc.,
Duff & Phelps Inc. or Fitch IBCA, Inc.;
(4) The Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to the Underwriter 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 Company pursuant to
the sale of the Contracts to the Trust Fund represents not more than the
fair market value of such Contracts; and 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 that may occur if a
Plan fiduciary causes a Plan to acquire interests in a trust that includes
obligations on which the fiduciary (or an affiliate) is obligor 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) and at least fifty (50) percent of the aggregate
interest in the Trust Fund is acquired by persons independent of the
Restricted Group, (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 (iii) immediately after the acquisition,
no more than twenty-five (25) percent of the assets of any Plan with respect
to which such person is a fiduciary 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 Company,
any Underwriter, the Trustee, the Servicer, any obligor with respect to
Contracts included in the Trust Fund constituting more than five percent of
the aggregate unamortized principal balance of the assets in the Trust Fund,
or any affiliate of such parties (the "Restricted Group").
Employee benefit plans that are governmental plans (as defined in
section 3(32) of ERISA) and church plans (as defined in section 3(33) of
ERISA) are not subject to ERISA requirements. Accordingly, unless otherwise
specified in the Prospectus Supplement, assets of such plans may be invested
in the Senior Certificates without regard to the ERISA restrictions described
above, subject to applicable provisions of other federal and state laws.
Any Plan fiduciary who proposes to cause a Plan to purchase Senior
Certificates should consult with its own counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership
of Senior Certificates. Assets of a Plan or individual retirement account
should not be invested in the Senior Certificates unless it is clear that the
assets of the Trust Fund will not be plan assets or unless it is clear that
the Exemption or a prohibited transaction class exemption will apply and
exempt all potential prohibited transactions.
Subordinated Certificates
Because the Subordinated Certificates are subordinated to the Senior
Certificates, the Exemption will not apply to the acquisition, holding and
resale of the Subordinated Certificates by a Plan.
Consequently, no transfer of a Subordinate Certificate shall be
registered unless the prospective transferee provides the Trustee and the
Company with (a) a certification to the effect that (1) such transferee is
neither an employee benefit plan subject to section 406 or section 407 of
ERISA or to section 4975 of the Code; the trustee of any such plan; a person
acting on behalf of any such plan; nor a person using the assets of any such
plan; or (2) if such transferee is an insurance company, it is purchasing such
certificates with funds contained in an "insurance company general account"
(as such term is defined in section V(e) of the Prohibited Transaction Class
Exemption 95-60 ("PTCE 95-60")) and the purchase and holding of such
certificates are covered under Sections I and III of PTCE 95-60; or (b) an
opinion of counsel (a "benefit plan opinion") satisfactory to the Trustee and
the Company, and upon which the Trustee and the Company shall be entitled to
rely, to the effect that the purchase and holding of such Subordinate
Certificate by the prospective transferee will not result in the assets of the
Trust Fund being deemed to be plan assets and subject to the prohibited
transaction provisions of ERISA or the Code and will not subject the Trustee
or the Company to any obligation in addition to those undertaken by such
entities in the agreement, which opinion of counsel shall not be an expense of
the Trustee or the Company. Unless such certification or opinion is delivered,
Certificate Owners of the Subordinate Certificates will be deemed to make the
representations in clause (a)(1).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of certain federal income tax
consequences relating to the purchase, ownership, and disposition of the
Certificates and is based on advice of Brown & Wood LLP, special tax counsel
to the Company. The discussion is also based upon laws, regulations, rulings,
and decisions now in effect, including Treasury Regulations issued on December
23, 1992, and generally effective for REMICs with startup days on or after
November 12, 1991 (the "REMIC Regulations"), all of which are subject to
change or possibly differing interpretations. The discussion below addresses
all material federal income tax consequences generally applicable to
investors. However, the discussion does not purport to deal with federal
income tax consequences applicable to all categories of investors, some of
which may be subject to special rules. Investors should consult their own tax
advisors to determine the federal, state, local, and any other tax
consequences of the purchase, ownership, and disposition of the Certificates.
Many aspects of the federal tax treatment of the purchase, ownership,
and disposition of the Certificates will depend upon whether an election is
made to treat the Trust Fund or a segregated portion thereof evidenced by a
particular series or sub-series of Certificates as a REMIC within the meaning
of Section 860D(a) of the Code. The Prospectus Supplement for each series will
indicate whether or not an election to be treated as a REMIC has been or will
be made with respect thereto. The following discussion deals first with Series
with respect to which a REMIC Election is made and then with Series with
respect to which a REMIC Election is not made.
REMIC Series
With respect to each Series of Certificates for which a REMIC Election
is made, Brown & Wood LLP, special tax counsel to the Company, will have
advised the Company that in its opinion, assuming (i) the making of that
election in accordance with the requirements of the Code and (ii) ongoing
compliance with the applicable Agreement, at the initial issuance of the
Certificates in such series the Trust Fund will qualify as a REMIC and the
Certificates in such a Series ("REMIC Certificates") will be treated either as
regular interests in the REMIC within the meaning of Section 860G(a)(1) of the
Code ("Regular Certificates") or as a residual interest in the REMIC within
the meaning of Section 860G(a)(2) of the Code ("Residual Certificates").
Qualification as a REMIC. Qualification as a REMIC involves ongoing
compliance with certain requirements and the following discussion assumes that
such requirements will be satisfied by the Trust Fund so long as there are any
REMIC Certificates outstanding. Substantially all of the assets of the REMIC
must consist of "qualified mortgages" and "permitted investments" as of the
close of the third month beginning after the day on which the REMIC issues all
of its regular and residual interests (the "Startup Day") and at all times
thereafter. The term "qualified mortgage" means any obligation (including a
participation or certificate of beneficial ownership in such obligation) which
is principally secured by an interest in real property that is transferred to
the REMIC on the Startup Day in exchange for regular or residual interests in
the REMIC or is purchased by the REMIC within the three-month period beginning
on the Startup Day if such purchase is pursuant to a fixed price contract in
effect on the Startup Day. The REMIC Regulations provide that a Contract is
principally secured by an interest in real property if the fair market value
of the real property securing the Contract is at least equal to either (i) 80%
of the issue price (generally, the principal balance) of the Contract at the
time it was originated or (ii) 80% of the adjusted issue price (the
then-outstanding principal balance, with certain adjustments) of the Contract
at the time it is contributed to a REMIC. The fair market value of the
underlying real property is to be determined after taking into account other
liens encumbering that real property. Alternatively, a Contract is principally
secured by an interest in real property if substantially all of the proceeds
of the Contract were used to acquire or to improve or protect an interest in
real property that, at the origination date, is the only security for the
Contract (other than the personal liability of the obligor). The REMIC
Regulations provide that obligations secured by manufactured housing or mobile
homes (not including recreational vehicles, campers or similar vehicles) which
are "single family residences" under Section 25(e)(10) of the Code will
qualify as obligations secured by real property without regard to state law
classifications. See the discussion below under "REMIC Series -- Status of
Manufactured Housing Contracts." A qualified mortgage also includes a
qualified replacement mortgage that is used to replace any qualified mortgage
within three months of the Startup Day or to replace a defective mortgage
within two years of the Startup Day.
"Permitted investments" consist of (a) temporary investments of cash
received under qualified mortgages before distribution to holders of interests
in the REMIC ("cash-flow investments"), (b) amounts, such as a Reserve Fund,
if any, reasonably required to provide for full payment of expenses of the
REMIC, the principal and interest due on regular or residual interests in the
event of defaults on qualified mortgages, lower than expected returns on
cash-flow investments, prepayment interest shortfalls or certain other
contingencies ("qualified reserve assets"), and (c) certain property acquired
as a result of foreclosure of defaulted qualified mortgages ("foreclosure
property"). A reserve fund will not be qualified if more than 30% of the gross
income from the assets in the reserve fund is derived from the sale or other
disposition of property held for three months or less, unless such sale is
necessary to prevent a default in payment of principal or interest on Regular
Certificates. In accordance with Section 860G(a)(7) of the Code, a reserve
fund must be "promptly and appropriately" reduced as payments on contracts are
received. Foreclosure property will be a permitted investment only to the
extent that such property is not held for more than three years following the
close of the taxable year in which the property was acquired by the REMIC.
The Code requires that in order to qualify as a REMIC an entity must
make reasonable arrangements designed to ensure that certain specified
entities, generally including governmental entities or other entities that are
exempt from United States tax, including the tax on unrelated business income
("Disqualified Organizations"), do not hold residual interest in the REMIC.
Consequently, it is expected that in the case of any Trust Fund for which a
REMIC Election is made the transfer, sale, or other disposition of a Residual
Certificate to a Disqualified Organization will be prohibited and the ability
of a Residual Certificate to be transferred will be conditioned on the
Trustee's receipt of a certificate or other document representing that the
proposed transferee is not a Disqualified Organization. The transferor of a
Residual Certificate must not, as of the time of the transfer, have actual
knowledge that such representation is false. The Code further requires that
reasonable arrangements must be made to enable a REMIC to provide the Internal
Revenue Service (the "Service") and certain other parties, including
transferors of residual interests in a REMIC, with the information needed to
compute the tax imposed by Section 860E(e)(1) of the Code if, in spite of the
steps taken to prevent Disqualified Organizations from holding residual
interests, such an organization does, in fact, acquire a residual interest.
See "REMIC Series -- Restrictions on Transfer of Residual Certificates" below.
If the Trust Fund fails to comply with one or more of the ongoing
requirements for qualification as a REMIC, the Trust Fund will not be treated
as REMIC for the year during which such failure occurs and for all years
thereafter unless the Service determines, in its discretion, that such failure
was inadvertent (in which case, the Service may require any adjustments which
it deems appropriate). If the ownership interests in the assets of the Trust
Fund consist of multiple classes, failure to treat the Trust Fund as a REMIC
may cause the Trust Fund to be treated as an association taxable as a
corporation. Such treatment could result in income of the Trust Fund being
subject to corporate tax in the hands of the Trust Fund and in a reduced
amount being available for distribution to Certificateholders as a result of
the payment of such taxes.
Status of Manufactured Housing Contracts. The REMIC Regulations as
well as a Notice issued by the Service 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
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
Company will represent and warrant that each of the manufactured homes
securing the Contracts which are a part of a Trust Fund meets this definition
of a "single family residence." See the discussion above under "REMIC Series
- -- Qualification as a REMIC."
Tiered REMIC Structures. For certain series of Certificates, two or
more separate elections may be made to treat segregated portions of the assets
of a single Trust Fund as REMICs for federal income tax purposes
(respectively, the "Subsidiary REMIC" or "Subsidiary REMICs" and the "Master
REMIC"). Upon the issuance of any such series of Certificates, Brown & Wood
LLP, special tax counsel to the Company, will have advised the Company, as
described above, that at the initial issuance of the Certificates, the
Subsidiary REMIC or Subsidiary REMICs and the Master REMIC will each qualify
as a REMIC for federal income tax purposes, and that the Certificates in such
series will be treated either as Regular Certificates or Residual Certificates
of the appropriate REMIC. Only REMIC Certificates issued by the Master REMIC
will be offered hereunder. Solely for the purpose of determining whether such
Regular Certificates will constitute qualifying real estate or real property
assets for certain categories of financial institutions or real estate
investment trusts as described below, each REMIC in a tiered REMIC structure
will be treated as one. See the discussion below under "REMIC Series --
Taxation of Regular Interests."
Taxation of Regular Interests. Regular Certificates will be treated as
new debt instruments issued by the REMIC on the Startup Day. If a Regular
Certificate represents an interest in a REMIC that consists of a specified
portion of the interest payments on the REMIC's qualified mortgages, the
stated principal amount with respect to that Regular Certificate may be zero.
Such a specified portion may consist of a fixed number of basis points, a
fixed percentage of interest or a qualified variable rate on some or all of
the qualified mortgages. Stated interest on a Regular Certificate will be
taxable as ordinary income. Holders of Regular Certificates that would
otherwise report income under a cash method of accounting will be required to
report income with respect to such Regular Certificates under the accrual
method. Under Temporary Treasury Regulations, if a Trust Fund, with respect to
which a REMIC Election is made, is considered to be a "single-class REMIC," a
portion of the REMIC's servicing fees, administrative and other non-interest
expenses, including assumption fees and late payment charges retained by the
Company, will be allocated as a separate item to those Regular
Certificateholders that are "pass-through interest holders." Generally, a
single-class REMIC is defined as a REMIC that would be treated as a fixed
investment trust under applicable law but for its qualification as a REMIC, or
a REMIC that is substantially similar to an investment trust but is structured
with the principal purpose of avoiding this allocation requirement imposed by
the Temporary Treasury Regulations. Generally, a pass-through interest holder
refers to individuals, entities taxed as individuals, such as certain trusts
and estates, and regulated investment companies. An individual, an estate, or
a trust that holds a Regular Certificate in such a REMIC will be allowed to
deduct the foregoing expenses under Section 212 of the Code only to the extent
that, in the aggregate and combined with certain other itemized deductions,
they exceed 2% of the adjusted gross income of the holder. In addition,
Section 68 of the Code provides that the amount of itemized deductions
(including those provided for in Section 212 of the Code) otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds a
threshold amount specified in the Code will be reduced by the lesser of (i) 3%
of the excess of adjusted gross income over the specified threshold amount or
(ii) 80% of the amount of itemized deductions otherwise allowable, for such
taxable year. As a result of the foregoing limitations, certain holders of
Regular Certificates in "single-class REMICs" may not be entitled to deduct
all or any part of the foregoing expenses.
Tax Status of REMIC Certificates. In general, (i) Regular Certificates
held by a thrift institution taxed as a "domestic building and loan
association" within the meaning of Section 7701(a)(19) of the Code will
constitute "a regular . . . interest in a REMIC" within the meaning of Section
7701(a)(19)(C)(xi) of the Code; and (ii) Regular Certificates held by a real
estate investment trust will constitute "real estate assets" within the
meaning of Section 856(c)(5)(B) of the Code and interest thereon will be
considered "interest on obligations secured by mortgages on real property"
within the meaning of Section 856(c)(3)(B) of the Code, in each such case as
long as the portion of the assets of the Trust Fund qualifying for the
corresponding status is at least 95% of the assets of the REMIC. If less than
95% of the average adjusted basis of the assets comprising the REMIC are
assets qualifying under any of the foregoing Sections of the Code (including
assets described in Section 7701(a)(19)(C) of the Code), then the Regular
Certificates will be qualifying assets only to the extent that the assets
comprising the REMIC are qualifying assets. Treasury Regulations promulgated
pursuant to Section 593 of the Code define "qualifying real property loans" to
include a loan secured by a mobile home unit "permanently fixed to real
property" except during a brief period in which the unit is transported to its
site. Section 7701(a)(19)(C)(v) of the Code provides that "loans secured by an
interest in real property" includes loans secured by mobile homes not used on
a transient basis. Treasury Regulations promulgated pursuant to Section 856 of
the Code state that local law definitions are not controlling in determining
the meaning of the term "Real Property" for purposes of that section, and the
Service has ruled that obligations secured by permanently installed mobile
home units qualify as "real estate assets" under this provision. Entities
affected by the foregoing provisions of the Code that are considering the
purchase of Certificates should consult their own tax advisors regarding these
provisions. Furthermore, interest paid with respect to Certificates held by a
real estate investment trust will be considered "interest on obligations
secured by mortgages on real property or on interest in real property" within
the meaning of Section 856(c)(3)(B) of the Code to the same extent that the
Certificates themselves are treated as real estate assets. Regular
Certificates held by a regulated investment company or a real estate
investment trust will not constitute "Government securities" within the
meaning of Sections 851(b)(3)(A)(i) and 856(c)(4)(A) of the Code,
respectively. In addition, the REMIC Regulations provide that payments on
Contracts qualifying for the corresponding status that are held and reinvested
pending distribution to Certificateholders will be considered to be "real
estate assets" within the meaning of Section 856(c)(5)(B) of the Code.
Original Issue Discount. Regular Certificates may be issued with
"original issue discount." Rules governing original issue discount are set
forth in Sections 1271-1273 and 1275 of the Code and the Treasury Regulations
issued thereunder in January 1994 and in June 1996 (the "OID Regulations").
The discussion herein is based in part on the OID Regulations, which generally
apply to debt instruments issued on or after April 4, 1994, but which
generally may be relied upon for debt instruments issued after December 21,
1992. The June 1996 Regulations apply to debt instruments issued after August
13, 1996. Moreover, although the rules relating to original issue discount
contained in the Code were modified by the Tax Reform Act of 1986 specifically
to address the tax treatment of securities, such as the Regular Certificates,
on which principal is required to be prepaid based on prepayments of the
underlying assets, regulations under that legislation have not yet been
finalized. Certificateholders also should be aware that the OID Regulations do
not address certain issues relevant to prepayable securities such as the
Regular Certificates.
In general, in the hands of the original holder of a Regular
Certificate, original issue discount, if any, is the difference between the
"stated redemption price at maturity" of the Regular Certificate and its
"issue price." The original issue discount with respect to a Regular
Certificate will be considered to be zero if it is less than 0.25% of the
Regular Certificate's stated redemption price at maturity multiplied by the
number of complete years from the date of issue of such Regular Certificate to
its maturity date. The OID Regulations, however, provide a special de minimis
rule to apply to obligations such as the Regular Certificates that have more
than one principal payment or that have interest payments that are not
qualified stated interest as defined in the OID Regulations, payable before
maturity ("installment obligations"). Under the special rule, original issue
discount on an installment obligation is generally considered to be zero if it
is less than 0.25% of the principal amount of the obligation multiplied by the
weighted average maturity of the obligation as defined in the OID Regulations.
Because of the possibility of prepayments, it is not clear whether or how the
de minimis rules will apply to the Regular Certificates. It is possible that
the anticipated rate of prepayments assumed in pricing the debt instrument
(the "Prepayment Assumption") will be required to be used in determining the
weighted average maturity of the Regular Certificates. In the absence of
authority to the contrary, the Company expects to apply the de minimis rule
applicable to installment obligations by using the Prepayment Assumption. The
OID Regulations provide a further special de minimis rule applicable to any
Regular Certificates that are "self-amortizing installment obligations," i.e.,
Regular Certificates that provide for equal payments composed of principal and
qualified stated interest payable unconditionally at least annually during its
entire term, with no significant additional payment required at maturity.
Under this special rule, original issue discount on a self-amortizing
installment obligation is generally considered to be zero if it is less than
0.167% of the principal amount of the obligation multiplied by the number of
complete years from the date of issue of such a Regular Certificate to its
maturity date.
Generally, the original holder of a Regular Certificate that includes
a de minimis amount of original issue discount includes that de minimis
original issue discount in income as principal payments are made. The amount
included in income with respect to each principal payment equals a pro rata
portion of the entire amount of de minimis original issue discount with
respect to that Regular Certificate. Any de minimis amount of original issue
discount included in income by a holder of a Regular Certificate is generally
treated as a capital gain if the Regular Certificate is a capital asset in the
hands of the holder thereof. Pursuant to the OID Regulations, a holder of a
Regular Certificate that uses the accrual method of tax accounting may elect
to include in gross income all interest that accrues on a Regular Certificate,
including any de minimis original issue discount and market discount, by using
the constant yield method described below with respect to original issue
discount.
The stated redemption price at maturity of a Regular Certificate
generally will be equal to the sum of all payments, whether denominated as
principal or interest, to be made with respect thereto other than "qualified
stated interest." Pursuant to the OID Regulations, qualified stated interest
generally means stated interest that is unconditionally payable at least
annually at a single fixed rate of interest (or, under certain circumstances,
a variable rate tied to an objective index) during the entire term of the
Regular Certificate (including short periods). It is possible that the IRS
could assert that the stated rate of interest on the Certificates is not
unconditionally payable or otherwise does not qualify as qualified stated
interest. Such position, if successful, would require all holders of
Certificates to accrue all income on the Certificates under the OID
Regulations. The Company, however, intends to treat all stated interest on the
Certificates as qualified stated interest. Under the OID Regulations, certain
variable interest rates payable on Regular Certificates, including rates based
upon the weighted average interest rate of a Pool of Contracts, may not be
treated as qualified stated interest. In such case, the OID Regulations would
treat interest under such rates as contingent interest which generally must be
included in income by the Regular Certificateholder when the interest becomes
fixed, as opposed to when it accrues. Until further guidance is issued
concerning the treatment of such interest payable on Regular Certificates, the
REMIC will treat such interest as being payable at a variable rate tied to a
single objective index of market rates. Prospective investors should consult
their tax advisors regarding the treatment of such interest under the OID
Regulations. In the absence of authority to the contrary and if otherwise
appropriate, the Company expects to determine the stated redemption price at
maturity of a Regular Certificate by assuming that the anticipated rate of
prepayment for all Contracts will occur in such a manner that the initial
Remittance Rate for a Certificate will not change. Accordingly, interest at
the initial Remittance Rate will constitute qualified stated interest payments
for purposes of applying the original issue discount provisions of the Code.
In general, the issue price of a Regular Certificate is the first price at
which a substantial amount of the Regular Certificates of such class are sold
for money to the public (excluding bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers). If a portion of the initial offering price of a Regular
Certificate is allocable to interest that has accrued prior to its date of
issue, the issue price of such a Regular Certificate includes that
pre-issuance accrued interest.
If the Regular Certificates are determined to be issued with original
issue discount, a holder of a Regular Certificate must generally include the
original issue discount in ordinary gross income for federal income tax
purposes as it accrues in advance of the receipt of any cash attributable to
such income. The amount of original issue discount, if any, required to be
included in a Regular Certificateholder's ordinary gross income for federal
income tax purposes in any taxable year will be computed in accordance with
Section 1272(a) of the Code and the OID Regulations. Under such Section and
the OID Regulations, original issue discount accrues on a daily basis under a
constant yield method that takes into account the compounding of interest. The
amount of original issue discount to be included in income by a holder of a
debt instrument, such as a Regular Certificate, under which principal payments
may be subject to acceleration because of prepayments of other debt
obligations securing such instruments, is computed by taking into account the
Prepayment Assumption. The Prospectus Supplement for each series of Regular
Certificates will specify the Prepayment Assumption to be used for the purpose
of determining the amount and rate of accrual of OID. No representation is
made that the Regular Certificates will prepay at the Prepayment Assumption or
at any other rate.
The amount of original issue discount included in income by a holder
of a Regular Certificate is the sum of the "daily portions" of the original
issue discount for each day during the taxable year on which the holder held
the Regular Certificate. The daily portions of original issue discount are
determined by allocating to each day in any "accrual period" a pro rata
portion of the excess, if any, of the same of (i) the present value of all
remaining payments to be made on the Regular Certificate as of the close of
the "accrual period" and (ii) the payments during the "accrual period" of
amounts included in the stated redemption price of the Regular Certificate
over the "adjusted issue price" of the Regular Certificate at the beginning of
the "accrual period." Generally, the "accrual period" for the Regular
Certificates corresponds to the intervals at which amounts are paid or
compounded with respect to such Regular Certificate, beginning with their date
of issuance and ending with the maturity date. The "adjusted issue price" of a
Regular Certificate at the beginning of any accrual period is the sum of the
issue price and accrued original issue discount for each prior accrual period
reduced by the amount of payments other than payments of qualified stated
interest made during each prior accrual period. The Code requires the present
value of the remaining payments to be determined on the bases of (a) the
original yield to maturity (determined on the basis of compounding at the
close of each accrual period and properly adjusted for the length of the
accrual period), (b) events, including actual prepayments, which have occurred
before the close of the accrual period, and (c) the assumption that the
remaining payments will be made in accordance with the original Prepayment
Assumption. The effect of this method is to increase the portions of original
issue discount that a Regular Certificateholder must include in income to take
into account prepayments with respect to the Contracts held by the Trust Fund
that occur at a rate that exceeds the Prepayment Assumption and to decrease
(but not below zero for any period) the portions of original issue discount
that a Regular Certificateholder must include in income to take into account
prepayments with respect to the Contracts that occur at a rate that is slower
than the Prepayment Assumption. Although original issue discount will be
reported to Regular Certificateholders based on the Prepayment Assumption, no
representation is made to Regular Certificateholders that the Contracts will
be prepaid at that rate or at any other rate.
A subsequent purchaser of a Regular Certificate will also be required
to include in such purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to such
Regular Certificate. However, if the price paid exceeds the sum of the Regular
Certificate's issue price plus the aggregate amount of original issue discount
accrued with respect to the Regular Certificate, but does not equal or exceed
the outstanding principal amount of the Regular Certificate, the amount of
original issue discount to be accrued will be reduced in accordance with a
formula set forth in Section 1272(a)(7)(B) of the Code.
The Company believes, upon the advice of Brown & Wood LLP, special tax
counsel to the Company, that the holder of a Regular Certificate determined to
be issued with non-de minimis original issue discount will be required to
include the original issue discount in ordinary gross income for federal
income tax purposes computed in the manner described above. However, the OID
Regulations either do not address or are subject to varying interpretations
with respect to several issues concerning the computation of original issue
discount for obligations such as the Regular Certificates.
Variable Rate Regular Certificates. Regular Certificates may bear
interest at a variable rate. Under the OID Regulations, if a variable rate
Regular Certificate provides for qualified stated interest payments computed
on the basis of certain qualified floating rates or objective rates, then any
original issue discount on such a Regular Certificate is computed and accrued
under the same methodology that applies to Regular Certificates paying
qualified stated interest at a fixed rate. See the discussion above under
"REMIC Series -- Original Issue Discount." Accordingly, if the issue price of
such a Regular Certificate is equal to its stated redemption price at
maturity, the Regular Certificate will not have any original issue discount.
For purposes of applying the original issue discount provisions of the
Code, all or a portion of the interest payable with respect to a variable rate
Regular Certificate may not be treated as qualified stated interest in certain
circumstances, including the following: (i) if the variable rate of interest
is subject to one or more minimum or maximum rate floors or ceilings which are
not fixed throughout the term of the Regular Certificate and which are
reasonably expected as of the issue date to cause the rate in certain accrual
periods to be significantly higher or lower than the overall expected return
on the Regular Certificate determined without such floor or ceiling; or (ii)
if it is reasonably expected that the average value of the variable rate
during the first half of the term of the Regular Certificate will be either
significantly less than or significantly greater than the average value of the
rate during the final half of the term of the Regular Certificate. In these
situations, as well as others, it is unclear under the OID Regulations whether
such interest payments constitute qualified stated interest payments, or must
be treated either as part of a Regular Certificate's stated redemption price
at maturity resulting in original issue discount, or represent contingent
payments. The amended OID Regulations issued on June 11, 1996 generally
require the accrual of original issue discount on contingent payment debt
instruments based on the comparable yield of fixed rate debt instruments with
similar terms and conditions, followed by adjustments to reflect the
differences between the payments so projected and the actual contingent
payments. Although the new rules technically do not adequately address certain
issues relevant to, or applicable to, prepayable securities such as REMIC
regular interests, in the absence of other authority, the Servicer intends to
be guided by certain principles of the OID Regulations applicable to variable
rate debt instruments in determining whether such Certificates should be
treated as issued with original issue discount and in adapting the provisions
of Section 1272(a)(6) of the Code to such Certificates for the purpose of
preparing reports furnished to Certificateholders and the IRS. Investors
acquiring Regular Certificates whose rates are subject to the variations
outlined above should consult their tax advisors concerning their appropriate
tax treatment.
If a variable rate Regular Certificate is deemed to have been issued
with original issue discount, as described above, the amount of original issue
discount accrues on a daily basis under a constant yield method that takes
into account the compounding of interest; provided, however, that the interest
associated with such a Regular Certificate generally is assumed to remain
constant throughout the term of the Regular Certificate at a rate that, in the
case of a qualified floating rate, equals the value of such qualified floating
rate as of the issue date of the Regular Certificate, or, in the case of an
objective rate, at a fixed rate that reflects the yield that is reasonably
expected for the Regular Certificate. A holder of such a Regular Certificate
would then recognize original issue discount during each accrual period which
is calculated based upon such Regular Certificate's assumed yield to maturity,
adjusted to reflect the difference between the assumed and actual interest
rate.
Market Discount. Regular Certificates, whether or not issued with
original issue discount, will be subject to the market discount rules of the
Code. A purchaser of a Regular Certificate who purchases the Regular
Certificate at a market discount (i.e., a discount from its original issue
price plus any accrued original issue discount, if any, as described above)
will be required to recognize accrued market discount as ordinary income as
payments of principal are received on such Regular Certificate or upon the
sale or exchange of the Regular Certificate. In general, the holder of a
Regular Certificate may elect to treat market discount as accruing either (i)
under a constant yield method that is similar to the method for the accrual of
original issue discount or (ii) in proportion to accruals of original issue
discount (or, if there is no original issue discount, in proportion to
accruals of stated interest), in each case computed taking into account the
Prepayment Assumption.
The Code provides that the market discount in respect of a Regular
Certificate will be considered to be zero if the amount allocable to the
Regular Certificate is less than 0.25% of the Regular Certificate's stated
redemption price at maturity multiplied by the number of complete years
remaining to its maturity after the holder acquired the obligation. If market
discount is treated as de minimis under this rule, the actual discount would
be allocated among a portion of each scheduled distribution representing the
stated redemption price of such Regular Certificate and that portion of the
discount allocable to such distribution would be reported as income when such
distribution occurs or is due.
The Code further provides that any principal payment with respect to a
Regular Certificate acquired with market discount or any gain on disposition
of such Regular Certificate shall be treated as ordinary income to the extent
it does not exceed the accrued market discount at the time of such payment.
The amount of accrued market discount for purposes of determining the amount
of ordinary income to be recognized with respect to subsequent payments on
such a Regular Certificate is to be reduced by the amount previously treated
as ordinary income.
The Code grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments such as the Regular Certificates. Until such time as regulations
are issued, rules described in the legislative history for these provisions of
the Code will apply. Under those rules, as described above, the holder of a
Regular Certificate with market discount may elect to accrue market discount
either on the basis of a constant interest rate or according to certain other
methods. Certificateholders who acquire a Regular Certificate at a market
discount should consult their tax advisors concerning various methods which
are available for accruing that market discount.
In general, limitations imposed by the Code that are intended to match
deductions with the taxation of income may require a holder of a Regular
Certificate having market discount to defer a portion of the interest
deductions attributable to any indebtedness incurred or continued to purchase
or carry such Regular Certificate. Alternatively, a holder of a Regular
Certificate may elect to include market discount in gross income as it accrues
and, if he makes such an election, is exempt from this rule. The adjusted
basis of a Regular Certificate subject to such election will be increased to
reflect market discount included in gross income, thereby reducing any gain or
increasing any loss on a sale or taxable disposition.
Amortizable Premium. A holder of a Regular Certificate who holds the
Regular Certificate as a capital asset and who purchased the Regular
Certificate at a cost greater than its outstanding principal amount will be
considered to have purchased the Regular Certificate at a premium. In general,
the Regular Certificateholder may elect to deduct the amortizable bond premium
as it accrues under a constant yield method. A Regular Certificateholder's tax
basis in the Regular Certificate will be reduced by the amount of the
amortizable bond premium deducted. In addition, it appears that the same
methods which apply to the accrual of market discount on installment
obligations are intended to apply in computing the amortizable bond premium
deduction with respect to a Regular Certificate. It is not clear, however, (i)
whether the alternatives to the constant-yield method which may be available
for the accrual of market discount are available for amortizing premium on
Regular Certificates and (ii) whether the Prepayment Assumption should be
taken into account in determining the term of a Regular Certificate for this
purpose. Certificateholders who pay a premium for a Regular Certificate should
consult their tax advisors concerning such an election and rules for
determining the method for amortizing bond premium.
On December 30, 1997 the IRS issued final regulations ("the
Amortizable Bond Premium Regulations") dealing with amortizable bond premium.
These regulations specifically do not apply to prepayable debt instruments
subject to Code Section 1272(a)(6) such as the Regular Certificates. Absent
further guidance from the IRS, the Trustee intends to account for amortizable
bond premium in the manner described above. Prospective purchasers of the
Certificates should consult their tax advisors regarding the possible
application of the Amortizable Bond Premium Regulations.
Gain or Loss on Disposition. If a Regular Certificate is sold, the
seller will recognize gain or loss equal to the difference between the amount
realized from the sale and the seller's adjusted basis in such Regular
Certificate. The adjusted basis generally will equal the cost of such Regular
Certificate to the seller, increased by any original issue discount included
in the seller's ordinary gross income with respect to such Regular Certificate
and reduced (but not below zero) by any payments on the Regular Certificate
previously received or accrued by the seller (other than qualified stated
interest payment) and any amortizable premium. Similarly, a Regular
Certificateholder who receives a principal payment with respect to a Regular
Certificate will recognize gain or loss equal to the difference between the
amount of the payment and the holder's allocable portion of his or her
adjusted basis in the Regular Certificate. Except as discussed below or with
respect to market discount, any gain or loss recognized upon a sale, exchange,
retirement, or other disposition of a Regular Certificate will be capital gain
if the Regular Certificate is held as a capital asset.
Gain from the disposition of a Regular Certificate that might
otherwise be capital gain, including any gain attributable to de minimis
original issue discount, will be treated as ordinary income to the extent of
the excess, if any, of (i) the amount that would have been included in the
holder's income if the yield on such Regular Certificate had equaled 110% of
the applicable federal rate determined as of the beginning of such holder's
holding period, over (ii) the amount of ordinary income actually recognized by
the holder with respect to such Regular Certificate.
If it is determined that the Company intended on the date of issue of
the Regular Certificates to call all or any portion of the Regular
Certificates prior to their stated maturity within the meaning of Section
1271(a)(2)(A) of the Code, any gain realized upon a sale, exchange,
retirement, or other disposition of a Regular Certificate would be considered
ordinary income to the extent it does not exceed the unrecognized portion of
the original issue discount, if any, with respect to the Regular Certificate.
The OID Regulations provide that the intention to call rule will not be
applied to mortgage-backed securities such as the Regular Certificates. In
addition, under the OID Regulations, a mandatory sinking fund or call option
is not evidence of an intention to call.
Taxation of Residual Interests. Generally, the "daily portions" of the
taxable income or net loss of a REMIC will be included as ordinary income or
loss in determining the taxable income of holders of Residual Certificates
("Residual Holders"), and will not be taxed separately to the REMIC. The daily
portions are determined by allocating the REMIC's taxable income or net loss
for each calendar quarter ratably to each day in such quarter and by
allocating such daily portion among the Residual Holders in proportion to
their respective holdings of Residual Certificates in the REMIC on such day.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting except
that (i) the limitation on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad loans will be
deductible as business bad debts, and (iii) the limitation on the
deductibility of interest and expenses related to tax-exempt income will
apply. REMIC taxable income generally means a REMIC's gross income, including
interest, original issue discount income, and market discount income, if any,
on the Contracts, plus income on reinvestment of cash flows and reserve
assets, minus deductions, including interest and original issue discount
expense on the Regular Certificates, servicing fees on the Contracts, other
administrative expenses of a REMIC, and amortization of premium, if any, with
respect to the Contracts.
The taxable income recognized by a Residual Holder in any taxable year
will be affected by, among other factors, the relationship between the timing
of interest, original issue discount or market discount income, or
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 Regular Certificates, on the other hand. In the event that an interest in
the Contracts is acquired by a REMIC at a discount, and one or more of such
Contracts is prepaid, the Residual Holder may recognize taxable income without
being entitled to receive a corresponding cash distribution because (i) the
prepayment may be used in whole or in part to make distributions on Regular
Certificates, and (ii) the discount on the Contracts which is included in a
REMIC's income may exceed its deduction with respect to the distributions on
those Regular Certificates. When there is more than one class of Regular
Certificates that receive payments sequentially (i.e., a fast-pay, slow-pay
structure), this mismatching of income and deductions is particularly likely
to occur in the early years following issuance of the Regular Certificates,
when distributions are being made in respect of earlier classes of Regular
Certificates to the extent that such classes are not issued with substantial
discount. If taxable income attributable to such a mismatching is realized, in
general, losses would be allowed in later years as distributions on the later
classes of Regular Certificates are made. Taxable income may also be greater
in earlier years than in later years as a result of the fact that interest
expense deductions, expressed as a percentage of the outstanding principal
amount of Regular Certificates, may increase over time as distributions are
made on the lower yielding classes of Regular Certificates, whereas interest
income with respect to any given Contract will remain constant over time as a
percentage of the outstanding principal amount of that loan (assuming it bears
interest at a fixed rate). Consequently, Residual Holders must have sufficient
other sources of cash to pay any federal, state, or local income taxes due as
a result of such mismatching, or such holders must have unrelated deductions
against which to offset such income, subject to the discussion of "excess
inclusions" below under "REMIC Series -- Limitations on Offset or Exemption of
REMIC Income." The mismatching of income and deductions described in this
paragraph, if present with respect to a series of Certificates, may have a
significant adverse effect upon the Residual Holder's after-tax rate of
return.
The amount of any net loss of a REMIC that may be taken into account
by the Residual Holder is limited to the adjusted basis of the Residual
Certificate as of the close of the quarter (or time of disposition of the
Residual Certificate if earlier), determined without taking into account the
net loss for the quarter. The initial adjusted basis of a purchaser of a
Residual Certificate is the amount paid for such Residual Certificate. Such
adjusted basis will be increased by the amount of taxable income of the REMIC
reportable by the Residual Holder and decreased by the amount of loss of the
REMIC reportable by the Residual Holder. A cash distribution from the REMIC
also will reduce such adjusted basis (but not below zero). Any loss that is
disallowed on account of this limitation may be carried over indefinitely by
the Residual Holder for whom such loss was disallowed and may be used by such
Residual Holder only to offset any income generated by the same REMIC.
If a Residual Certificate has a negative value, it is not clear
whether its issue price would be considered to be zero or such negative amount
for purposes of determining the REMIC's basis in its assets. The REMIC
Regulations imply that residual interest cannot have a negative basis or a
negative issue price. However, the preamble to the REMIC Regulations indicates
that, while existing tax rules do not accommodate such concepts, the Service
is considering the tax treatment of these types of residual interests,
including the proper tax treatment of a payment made by the transferor of such
residual interest to induce the transferee to acquire that interest. Absent
regulations or administrative guidance to the contrary, the Company does not
intend to treat a class of Residual Certificates as having a value of less
than zero for purposes of determining the basis of the related REMIC in its
assets.
Further, to the extent that the initial adjusted basis of a Residual
Holder(other than an original holder) in the Residual Certificate is greater
than the corresponding portion of the REMIC's basis in the Contracts, the
Residual Holder will not recover a portion of such basis until termination of
the REMIC unless Treasury Regulations yet to be issued provide for periodic
adjustments to the REMIC income otherwise reportable by such holder.
Treatment of Certain Items of REMIC Income and Expense. Generally, a
REMIC's deductions for original issue discount will be determined in the same
manner as original issue discount income on Regular Certificates as described
above under "REMIC Series -- Original Issue Discount" and "--- Variable Rate
Regular Certificates," without regard to the de minimis rule described
therein.
The REMIC will have market discount income in respect of the Contracts
if, in general, the basis of the REMIC in such Contracts is exceeded by their
unpaid principal balances. The REMIC's basis in such Contracts is generally
the fair market value of the Contracts immediately after the transfer thereof
to the REMIC (which may equal a proportionate part of the aggregate fair
market value of the REMIC Certificates). In respect of the Contracts that have
market discount to which Code Section 1276 applies, the market discount income
generally should accrue in the manner described above under "REMIC Series --
Market Discount."
Generally, if the basis of a REMIC in the Contracts exceeds the unpaid
principal balances thereof, the REMIC will be considered to have acquired such
Contracts at a premium equal to the amount of such excess. As stated above,
the REMIC's basis in the Contracts is the fair market value of the Contracts
immediately after the transfer thereof to the REMIC. Generally, a person that
holds a Contract as a capital asset may elect to amortize premium on the
Contracts under a constant interest method. See the discussion under "REMIC
Series -- Amortizable Premium."
Limitations on Offset or Exemption of REMIC Income. If the aggregate
value of the Residual Certificates relative to the aggregate value of the
Regular Certificates and Residual Certificates is considered to be
"significant," as described below, then a portion (but not all) of the REMIC
taxable income included in determining the federal income tax liability of a
Residual Holder will be subject to special treatment. That portion, referred
to as the "excess inclusion," is equal to the excess of REMIC taxable income
for the calendar quarter allocable to a Residual Certificate over the daily
accruals for such quarterly period of (i) 120% of the long-term applicable
Federal rate that would have applied to the Residual Certificate (if it were a
debt instrument) on the Startup Day under Section 1274(d) of the Code,
multiplied by (ii) the adjusted issue price of such Residual Certificate at
the beginning of such quarterly period. For this purpose, the adjusted issue
price of a Residual Certificate at the beginning of a quarter is the issue
price of the Residual Certificate, plus the amount of such daily accruals of
REMIC income described in this paragraph for all prior quarters decreased by
any distributions made with respect to such Residual Certificate prior to the
beginning of such quarterly period. The value of the Residual Certificates
would be significant in cases where the aggregate issue price of the Residual
Certificates is at least 2% of the aggregate issue price of the Regular
Certificates and Residual Certificates, and the anticipated weighted average
life of the Residual Certificates is at least 20% of the anticipated weighted
average life of the REMIC.
The portion of a Residual Holder's REMIC taxable income consisting of
the excess inclusions generally may not be offset by other deductions on such
Residual Holder's tax return, including net operating loss carry forwards.
Further, if the Residual Holder is an organization subject to the tax on
unrelated business income imposed by Section 511 of the Code, the Residual
Holder's excess inclusions will be treated an unrelated business taxable
income of such Residual Holder for purposes of Section 511. Finally, if a real
estate investment trust or regulated investment company owns a Residual
Certificate, a portion (allocated under Treasury Regulations yet to be issued)
of dividends paid by such real estate investment trust or regulated investment
company could not be offset by net operating losses of its shareholders, would
constitute unrelated business taxable income for tax-exempt shareholders, and
would be ineligible for reduction of withholding to certain persons who are
not U.S.
persons.
The Small Business Job Protection Act of 1996 has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to
use net operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant
value" within the meaning of the REMIC Regulations, effective for taxable
years beginning after December 31, 1995, except with respect to residual
certificates continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum
taxable income for such residual holder is determined without regard to the
special rule that taxable income cannot be less than excess inclusions.
Second, a residual holder's alternative minimum taxable income for a tax year
cannot be less than the excess inclusions for the year. Third, the amount of
any alternative minimum tax net operating loss deductions must be computed
without regard to any excess inclusions. These rules are effective for tax
years beginning after December 31, 1986, unless a residual holder elects to
have such rules apply only to tax years beginning after August 20, 1996.
Restrictions on Transfer of Residual Certificates. As described above
under "REMIC Series -- Qualification as a REMIC," an interest in a Residual
Certificate may not be transferred to a Disqualified Organization. If any
legal or beneficial interest in a Residual Certificate is, nonetheless,
transferred to a Disqualified Organization, a tax would be imposed in an
amount equal to the product of (i) the present value of the total anticipated
excess inclusions with respect to such Residual Certificate for periods after
the transfer, and (ii) the highest marginal federal income tax rate applicable
to corporations. The anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and projected payments based
on the Prepayment Assumption. The present value rate equals the applicable
federal rate under Section 1274(d) of the Code as of the date of the transfer
for a term ending on the close of the last quarter in which excess inclusions
are expected to accrue. Such rate is applied to the anticipated excess
inclusions from the end of the remaining calendar quarters in which they arise
to the date of the transfer. Such a tax generally would be imposed on the
transferor of the Residual Certificate, except that where such transfer is
through an agent (including a broker, nominee, or other middleman) for a
Disqualified Organization, the tax would instead by imposed on such agent.
However, a transferor of a Residual Certificate would in no event be liable
for such tax with respect to a transfer if the transferee furnishes to the
transferor an affidavit, under penalties of perjury, that the transferee is
not a Disqualified Organization and, as of the time of the transfer, the
transferor does not have the actual knowledge that such affidavit is false.
The tax also may be waived by the Treasury Department if the Disqualified
Organization promptly disposes of the residual interest and the transferor
pays such amount of tax as the Treasury Department may require (presumably, a
corporate tax on the excess inclusion for the period the residual interest is
actually held by the Disqualified Organization).
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions on the Residual Certificate that are allocable
to the interest in the Pass-Through Entity during the period such interest is
held by such Disqualified Organization, and (ii) the highest marginal federal
income tax rate imposed on corporations. Such tax would be deductible from the
ordinary gross income of the Pass-Through Entity during the period such
interest is held by such Disqualified Organization, and (iii) the highest
marginal federal income tax rate imposed on corporations. Such tax would be
deductible from the ordinary gross income of the Pass-Through Entity for the
taxable year. The Pass-Through Entity would not be liable for such tax if it
has received an affidavit from such record holder that it is not a
Disqualified Organization and, during the period such person is the record
holder of the Residual Certificate, the Pass-Through Entity would not be
liable for such tax if it has received an affidavit from such record holder
that it is not a Disqualified Organization and, during the period such person
is the record holder of the Residual Certificate, the Pass-Through Entity does
not have actual knowledge that such affidavit is false.
For these purposes, a "Pass-Through Entity" means any regulated
investment company, real estate investment trust, common trust fund,
partnership, trust or estate and certain corporations operating on a
cooperative basis. Except as may be provided in Treasury Regulations, any
person holding an interest in a Pass-Through Entity as a nominee for another
will, with respect to such interest, be treated as a Pass-Through Entity.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus
would continue to be subject to tax on its allocable portion of the net income
of the REMIC. Under the REMIC Regulations, a transfer of a "noneconomic
residual interest" (as defined below) to a Residual Holder is disregarded for
all federal income tax purposes if a significant purpose of the transfer is to
enable the transferor to impede the assessment or collection of tax. A
residual interest in a REMIC (including a residual interest with a positive
value at issuance) is a "noneconomic residual interest" unless, at the time of
transfer, (i) the present value of the expected future distributions on the
residual interest at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs, and (ii) the transferor
reasonably expects that the transferee will receive distributions from the
REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. The
anticipated excess inclusions and the present value rate are determined in the
same manner as set forth above. The REMIC Regulations explain that 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
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A safe harbor is provided if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation
of the financial condition of the transferee and found that the transferee had
historically paid its debts as they came due and found 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 it understands that, as the holder of a non-economic residual interest,
the transferee may incur tax liabilities in excess of any cash flows generated
by the interest and that the transferee intends to pay taxes associated with
holding the residual interest as they become due. The Pooling and Servicing
Agreement with respect to each series of REMIC Certificates will require the
transferee of a Residual Certificate to certify to the statements in clause
(ii) of the preceding sentence as part of the affidavit described above under
"Restrictions on Transfer of Residual Certificates."
Mark-to-Market Rules. On December 23, 1996, the Service finalized
regulations (the "Mark-to-Market Regulations") relating to the requirement
that a securities dealer mark-to-market securities held for sale to customers.
This mark-to-market requirement applies to all securities owned by a dealer,
except to the extent that the dealer has specifically identified a security as
held for investment. The regulations provide that a REMIC residual interest
acquired on or after January 4, 1995, will not be considered a security for
purposes of the Mark-to-Market Regulations, and thus, such interests may not
be marked to market.
Sale or Exchange of a Residual Certificate. Upon the sale or exchange
of a Residual Certificate, the Residual Holder will recognize gain or loss
equal to the excess, if any, of the amount realized over the adjusted basis as
described above of such Residual Holder in such Residual Certificate at the
time of the sale or exchange. In addition to reporting the taxable income of
the REMIC, a Residual Holder will have taxable income to the extent that any
cash distribution to him from the REMIC exceeds such adjusted basis on that
Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC may be treated as a sale or exchange of a Residual Holder's Residual
Certificate, in which case, if the Residual Holder has an adjusted basis in
his Residual Certificate remaining when his interest in the REMIC terminates,
and if he holds such Residual Certificate as a capital asset, then he will
recognize a capital loss at that time in the amount of such remaining adjusted
basis.
The Conference Committee Report to the Tax Reform Act of 1986 provides
that, except as provided in Treasury Regulations, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six
months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Code Section 1091) any residual
interest in any REMIC or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a Residual
Certificate.
Certain Other Taxes on the REMIC. The REMIC provisions of the Code
impose a 100% tax on any net income derived by a REMIC from certain prohibited
transactions, and prohibits deducting any loss with respect to such
transactions. Such transactions are: (i) any disposition of a qualified
mortgage, other than pursuant to the substitution of a qualified replacement
mortgage for a qualified mortgage (or the repurchase in lieu of substitution
of a defective obligation), a disposition incident to the foreclosure,
default, or imminent default of a mortgage, the bankruptcy or insolvency of
the REMIC, or a qualified liquidation of the REMIC; (ii) the receipt of income
from assets other than qualified mortgages and permitted investments; (iii)
the receipt of compensation for services; and (iv) the receipt of gain from
the dispositions of cash flow investments. The REMIC Regulations provide that
the modification of the terms of a Contract occasioned by default or a
reasonably foreseeable default of the Contract, the assumption of the
Contract, the waiver of a due-on-sale clause or the conversion of an interest
rate by an Obligor pursuant to the terms of a convertible adjustable-rate
Contract will not be treated as a disposition of the Contract. In the event
that a REMIC holds Convertible ARM Loans which are convertible at the option
of the Obligor into fixed-rate, fully amortizing, level payment Contracts, a
sale of such Contracts by the REMIC pursuant to a purchase agreement or other
contract with the Company or other party, if and when the Obligor elects to so
convert the terms of the Contract, is not expected to result in a prohibited
transaction for the REMIC. The Code also imposes a 100% tax on contributions
to a REMIC made after the Startup Day, unless such contributions are payments
made to facilitate a cleanup call or a qualified liquidation of the REMIC,
payments in the nature of a guaranty, contributions during the three-month
period beginning on the Startup Day or contributions to a qualified reserve
fund of the REMIC by a holder of a residual interest in the foreclosure
property that the REMIC derives at the highest corporate rate on certain net
income from foreclosure property that the REMIC derives from the management,
sale, or disposition of any real property, or any personal property incident
thereto, acquired by the REMIC in connection with the default or imminent
default of a loan. Generally, it is not anticipated that a REMIC will generate
a significant amount of such income.
Liquidation of the REMIC. A REMIC may liquidate without the imposition
of entity-level tax only in a "qualified liquidation." A liquidation is
considered qualified if a REMIC adopts a plan of complete liquidation (which
may be accomplished by designating in the REMIC's final tax return a date on
which such adoption is deemed to occur) and sells all of its assets (other
than cash) within the ninety-day period beginning on the date of the adoption
of the plan of liquidation, provided that it distributes to holders of Regular
or Residual Certificates, on or before the last day of the ninety-day
liquidation period, all the proceeds of the liquidation (including all cash),
less amounts retained to meet claims.
Taxation of Certain Foreign Investors. For purposes of this
discussion, a "Foreign Holder" is a Certificateholder who holds a Regular
Certificate and who is not (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity treated as a corporation or
partnership for United States federal income tax purposes, organized in or
under the laws of the United States, any state thereof or the District of
Columbia (unless, in the case of a partnership, Treasury regulations provide
otherwise), (iii) an estate, the income of which is included in gross income
for United States tax purposes regardless of its source, or (iv) a trust if a
court within the United States is able to exercise primary supervision of the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. Notwithstanding
the preceding sentence, to the extent provided in Treasury regulations,
certain trusts in existence on August 20, 1996 and treated as United States
persons prior to such date that elect to continue to be treated as United
States persons will not be considered Foreign Holders. Unless the interest on
a Regular Certificate is effectively connected with the conduct by the Foreign
Holder of a trade or business within the United States, the Foreign Holder is
not subject to federal income or withholding tax on interest (or original
issue discount, if any) on a Regular Certificate (subject to possible backup
withholding of tax, discussed below), provided the Foreign Holder is not a
controlled foreign corporation related to the Company and does not own
actually or constructively 10% or more of the voting stock of the Company. To
qualify for this tax exemption, the Foreign Holder will be required to provide
periodically a statement signed under penalties of perjury certifying that the
Foreign Holder meets the requirements for treatment as a Foreign Holder and
providing the Foreign Holder's name and address. The statement, which may be
made on a Form W-8 or substantially similar substitute form, generally must be
provided in the year a payment occurs or in either of the two preceding years.
This exemption may not apply to a Foreign Holder that owns both Regular
Certificates and Residual Certificates. If the interest on a Regular
Certificate is effectively connected with the conduct by a Foreign Holder of a
trade or business within the United States, then the Foreign Holder will be
subject to tax at regular graduated rates. Foreign Holders should consult
their own advisors regarding the specific tax consequences of their owning a
Regular Certificate.
New Withholding Regulations. On October 6, 1997, the Treasury
Department issued new regulations (the "New Regulations") which make certain
modifications to the withholding, backup withholding and information reporting
rules described above. The New Regulations attempt to unify certification
requirements and modify reliance standards. The New Regulations will generally
be effective for payments made after December 31, 1999, subject to certain
transition rules. Prospective investors are urged to consult their own tax
advisors regarding the New Regulations.
Any gain recognized by a Foreign Holder upon a sale, retirement or
other taxable disposition of a Regular Certificate generally will not be
subject to United States federal income tax unless either (i) the Foreign
Holder is a non-resident alien individual who holds the Regular Certificate as
a capital asset and who is present in the United States for 183 days or more
in the taxable year of the disposition, or (ii) the gain is effectively
connected with the conduct by the Foreign Holder of a trade or business within
the United States.
A Regular Certificate will not be included in the estate of a Foreign
Holder who does not own actually or constructively 10% or more of the voting
stock of the Company.
Backup Withholding. Under certain circumstances, a REMIC
Certificateholder may be subject to "backup withholding" at a 31% rate. Backup
withholding may apply to a REMIC Certificateholder who is a United States
person if the holder, among other circumstances, fails to furnish his Social
Security number or other taxpayer identification number to the Trustee. Backup
withholding may apply, under certain circumstances, to a REMIC
Certificateholder who is a Foreign Holder if the REMIC Certificateholder fails
to provide the Trustee or the REMIC Certificateholder's securities broker with
the statement necessary to establish the exemption from federal income and
withholding tax on interest on the REMIC Certificates. Backup withholding,
however, does not apply to payments on a Certificate made to certain exempt
recipients, such as corporations and tax-exempt organizations, and to certain
foreign persons. REMIC Certificateholders should consult their tax advisors
for additional information concerning the potential application of backup
withholding to payments received by them with respect to a Certificate.
Reporting Requirements and Tax Administration. The Company will report
annually to the Service, holders of record of the Regular Certificates that
are not excepted from the reporting requirements and, to the extent required
by the Code, other interested parties, information with respect to the
interest paid or accrued on the Regular Certificates, original issue discount,
if any, accruing on the Regular Certificates and information necessary to
compute the accrual of any market discount or the amortization of any premium
on the Regular Certificates.
The Treasury Department has issued temporary regulations concerning
certain aspects of REMIC tax administration. Under those regulations, a
Residual Certificateholder must be designated as the REMIC's "tax matters
person." The tax matters person, generally, has responsibility for overseeing
and providing notice to the other Residual Certificateholders of certain
administrative and judicial proceedings regarding the REMIC's tax affairs. The
Company will be designated as tax matters person for each REMIC, and in
conjunction with the Trustee will act as the agent of the Residual
Certificateholders in the preparation and filing of the REMIC's federal and
state income tax and other information returns.
Grantor Trust Series
Tax Status of the Trust Fund. In the case of a Trust Fund evidenced by
a series or sub-series of Certificates, or a segregated portion thereof, with
respect to which a REMIC Election is not made ("Non-REMIC Certificates"),
Brown & Wood LLP, special tax counsel to the Company, will have advised the
Company that, in their opinion, each Contract Pool and the arrangement to be
administered by the Company under which the Trustee will hold and the Company
will be obligated to service the Contracts and pursuant to which Non-REMIC
Certificates will be issued to Non-REMIC Certificateholders will not be
classified as an association taxable as a corporation or a "taxable mortgage
pool," within the meaning of Code Section 7701(i), but rather will be
classified as a grantor trust under Subpart E, Part I of Subchapter J of
Chapter 1 of Subtitle A of the Code. Each Non-REMIC Certificateholder will be
treated as the owner of a pro rata undivided interest in the ordinary income
and corpus portions of the trust attributable to the Contract Pool in which
its Certificate evidences an ownership interest and will be considered the
equitable owner of a pro rata undivided interest in each of the Contracts
included therein.
Tax Status of Non-REMIC Certificates. In general, (i) Certificates
held by a "domestic building and loan association" within the meaning of
Section 7701(a)(19) of the Code may be considered to represent "qualifying
real property loans" within the meaning of Section 7701(a)(19)(C)(v) of the
Code; and (ii) Certificates held by a real estate investment trust may
constitute "real estate assets" within the meaning of Section 856(c)(5)(B) of
the Code and interest thereon may be considered "interest on obligations
secured by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code. See the discussions of such Code provisions above
under "REMIC Series Tax Status of REMIC Certificates." Investors should review
the related Prospectus Supplement for the treatment of Non-REMIC Certificates
and Contracts, if any, under these Code sections and should, in addition,
consult with their own tax advisors with respect to these matters.
Tax Treatment of Non-REMIC Certificates. Non-REMIC Certificateholders
will be required to report on their federal income tax returns, and in a
manner consistent with their respective methods of accounting, their pro rata
share of the entire income arising from the Contracts comprising such Contract
Pool, including interest, original issue discount, if any, prepayment fees,
assumption fees, and late payment charges received by the Company, and any
gain upon disposition of such Contracts. (For purposes of this discussion, the
term "disposition," when used with respect to the Contracts, includes
scheduled or prepaid collections with respect to the Contracts, as well as the
sale or exchange of a Non-REMIC Certificate.) Non-REMIC Certificateholders
will be entitled under Section 162 or 212 of the Code to deduct their pro rata
share of related servicing fees, administrative and other non-interest
expenses, including assumption fees and late payment charges retained by the
Company. An individual, an estate, or a trust that holds a Non-REMIC
Certificate either directly or through a pass-through entity will be allowed
to deduct such expenses under Section 212 of the Code only to the extent that,
in the Aggregate and combined with certain other itemized deductions, they
exceed 2% of the adjusted gross income of the holder. In addition, Section 68
of the Code provides that the amount of itemized deductions (including those
provided for in Section 212 of the Code) otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds a threshold amount
specified in the Code will be reduced by the lesser of (i) 3% of the excess of
adjusted gross income over the specified threshold amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for such taxable year. To
the extent that a Non-REMIC Certificateholder is not permitted to deduct
servicing fees allocable to a Non-REMIC Certificate, the taxable income of the
Non-REMIC Certificateholder attributable to that Non-REMIC Certificate will
exceed the net cash distributions related to such income. Non-REMIC
Certificateholders may deduct any loss on disposition of the Contracts to the
extent permitted under the Code.
Under current Service interpretations of applicable Treasury
Regulations the Company would be able to sell or otherwise dispose of any
subordinated Non-REMIC Certificates. Accordingly, the Company expects to offer
subordinated Non-REMIC Certificates for sale to investors. In general, such
subordination should not affect the federal income tax treatment of either the
subordinated or senior Certificates. Holders of subordinated classes of
Certificates should be able to recognize any losses allocated to such class
when and if losses are realized.
To the extent that any of the Contracts comprising a Contract Pool
were originated on or after March 2, 1984 and under circumstances giving rise
to original issue discount, Certificateholders will be required to report
annually an amount of additional interest income attributable to such discount
in such Contracts prior to receipt of cash related to such discount. See the
discussion above under "REMIC Series -- Original Issue Discount." Similarly,
Code provisions concerning market discount and amortizable premium will apply
to the Contracts comprising a Contract Pool to the extent that the loans were
originated after July 18, 1984 and September 27, 1985, respectively. See the
discussions above under "REMIC Series -- Market Discount" and "REMIC Series --
Amortizable Premium."
It is not clear whether a reasonable prepayment assumption should be
used in computing amortization of premium allowable under Code Section 171 or
in computing the accrual of market discount for non-REMIC Certificates.
However, the use of a Prepayment Assumption is required for purposes of
calculating OID for tax years beginning after August 5, 1997, to pools of
receivables the yield on which may be affected by reason of prepayments.
Previous legislative history states that Congress intends that if a Prepayment
Assumption would be used to calculate OID then it should also be used to
accrue market discount and amortize bond premium. Because regulations have not
yet been issued, it is impossible to predict what effect those regulations
might have on the tax treatment of a Certificate purchased at a discount or
premium in the secondary market. Prospective investors are urged to consult
their own tax advisors concerning the tax treatment of a Certificate purchased
at a discount or a premium.
If premium is not subject to amortization using a reasonable
Prepayment Assumption, the holder of a Certificate acquired at a premium
should recognize a loss, if a Contract repays in full, equal to the difference
between the portion of the prepaid principal amount of such Contract that is
allocable to the Certificate and the portion of the adjusted basis of the
Certificate that is allocable to the Contract. If a reasonable Prepayment
Assumption is used to amortize such premium, it appears that such a loss would
be available, if at all, only if prepayments have occurred at a rate faster
than the reasonable assumed prepayment rate. It is not clear whether any other
adjustments would be required to reflect the differences between an assumed
prepayment rate and the actual rate of prepayments. In addition, under recent
legislation, amounts received on the redemption of an obligation issued by a
natural person are considered received in exchange of such obligation if the
debt obligation is purchased or issued after June 8, 1997 (i.e., treated the
same as obligations issued by corporations). This change could affect the
character of any such loss (e.g., cause the loss to be treated as capital if
such assets are held as capital assets by the taxpayer).
Stripped Non-REMIC Certificates. Certain classes of Non-REMIC
Certificates may be subject to the stripped bond rules of Section 1286 of the
Code and for purposes of this discussion will be referred to as "Stripped
Certificates." In general, a Stripped Certificate will be subject to the
stripped bond rules where there has been a separation of ownership of the
right to receive some or all of the principal payments on a Contract from
ownership of the right to receive some or all of the related interest
payments. Non-REMIC Certificates will constitute Stripped Certificates and
will be subject to these rules under various circumstances, including the
following: (i) if any servicing compensation is deemed to exceed a reasonable
amount; (ii) if the Company or any other party retains a Retained Yield with
respect to the Contracts comprising a Contract Pool; (iii) if two or more
classes of Non-REMIC Certificates are issued representing the right to non-pro
rata percentages of the interest or principal payments on the Contracts; or
(iv) if Non-REMIC Certificates are issued which represent the right to
interest only payments or principal only payments.
Although not entirely clear, each Stripped Certificate should be
considered to be a single debt instrument issued on the day it is purchased
for purposes of calculating any original issue discount. Original issue
discount with respect to a Stripped Certificate, if any, must be included in
ordinary gross income for federal income tax purposes as it accrues in
accordance with the constant-yield method that takes into account the
compounding of interest and such accrual of income may be in advance of the
receipt of any cash attributable to such income. See "REMIC Series -- Original
Issue Discount" above. For purposes of applying the original issue discount
provisions of the Code, the issue price of a Stripped Certificate will be the
purchase price paid by each holder thereof and the stated redemption price at
maturity may include the aggregate amount of all payments to be made with
respect to the Stripped Certificate whether or not denominated as interest.
The amount of original issue discount with respect to a Stripped Certificate
may be treated as zero under the original issue discount de minimis rules
described above. A purchaser of a Stripped Certificate will be required to
account for any discount on the certificate as market discount rather than
original issue discount if either (i) the amount of original issue discount
with respect to the certificate was treated as zero under the original issue
discount de minimis rule when the certificate was stripped or (ii) no more
than 100 basis points (including any amount of servicing in excess of
reasonable servicing) is stripped off of the Contracts. See "REMIC Series --
Market Discount" above.
When an investor purchases more than one class of Stripped
Certificates it is currently unclear whether for federal income tax purposes
such classes of Stripped Certificates should be treated separately or
aggregated for purposes of applying the original issue discount rules
described above.
It is possible that the Service may take a contrary position with
respect to some or all of the foregoing tax consequences. For example, a
holder of a Stripped Certificate may be treated as the owner of (i) as many
stripped bonds or stripped coupons as there are scheduled payments of
principal and/or interest on each Contract or (ii) a separate installment
obligation for each Contract representing the Stripped Certificate's pro rata
share of price; and/or interest payments to be made with respect thereto. As a
result of these possible alternative characterizations, investors should
consult their own tax advisors regarding the proper treatment of Stripped
Certificates for federal income tax purposes.
It is unclear under what circumstance, if any, the prepayment of
Contracts will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If such
Certificate is treated as a single instrument (rather than an interest in
discrete contracts) and the effect of prepayments is taken into account in
computing yield with respect to such Certificate, it appears that no loss will
be available as a result of any particular prepayment unless prepayments occur
at a rate faster than the assumed prepayment rate. However, if such
Certificate is treated as an interest in discrete Contracts, or if no
prepayment assumption is used, then when a Contract is prepaid, the holder of
such Certificate should be able to recognize a loss equal to the portion of
the unrecovered premium of such Certificate that is allocable to such
Contract. In addition, amounts received in redemption for debt instruments
issued by natural persons purchased or issued after June 8, 1997 are treated
as received in exchange thereof (i.e., treated the same as obligations issued
by corporations). This change could affect the character of any loss. Holders
of Stripped Bond Certificates and Stripped Coupon Certificates are urged to
consult with their own tax advisors regarding the proper treatment of these
Certificates for federal income tax purposes.
Gain or Loss on Disposition. Upon sale or exchange of a Non-REMIC
Certificate, a Non-REMIC Certificateholder will recognize gain or loss equal
to the difference between the amount realized in the sale and its aggregate
adjusted basis in the Contracts represented by the Non-REMIC Certificate.
Generally, the aggregate adjusted basis will equal the Non-REMIC
Certificateholder's cost for the Non-REMIC Certificate increased by the amount
of any previously reported gain 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.
Except as provided above with respect to the original issue discount and
market discount rules, any such gain or loss would be capital gain or loss if
the Non-REMIC Certificate was held as a capital asset. See "REMIC Series --
Gain or Loss on Disposition" above.
Recharacterization of Servicing Fees. The servicing compensation to be
received by the Servicer may be questioned by the Service with respect to
certain Certificates or Contracts as exceeding a reasonable fee for the
services being performed in exchange therefor, and a portion of such servicing
compensation could be recharacterized as an ownership interest retained by the
Servicer or other party in a portion of the interest payments to be made
pursuant to the Contracts. In this event, a Certificate might be treated as a
Stripped Certificate subject to the stripped bond rules of Section 1286 of the
Code and the original issue discount provisions rather than to the market
discount and premium rules. See the discussion above under "Non-REMIC Series
- -- Stripped Non-REMIC Certificates."
Tax Treatment of Certain Foreign Investors. Generally, interest or
original issue discount paid to or accruing for the benefit of a Non-REMIC
Certificateholder who is a Foreign Holder (as defined in "REMIC Series --
Taxation of Certain Foreign Investors") will be treated as "portfolio
interest" and therefore will be exempt from the 30% withholding tax. Such
Non-REMIC Certificateholder will be entitled to receive interest payments and
original issue discount on the Non-REMIC Certificates free of United States
federal income tax, but only to the extent the Contracts were originated after
July 18, 1984 and provided that such Non-REMIC Certificateholder periodically
provides the Trustee (or other person who would otherwise be required to
withhold tax) with a statement certifying under penalty of perjury that such
Non-REMIC Certificateholder is a Foreign Holder and provides the name and
address of such Non-REMIC Certificateholder. For additional information
concerning interest or original issue discount paid by the Company to a
Foreign Holder and the treatment of a sale or exchange of a Non-REMIC
Certificate by a Foreign Holder, which will generally have the same tax
consequences as the sale of a Regular Certificate, see the discussion above
under "REMIC Series -- Taxation of Certain Foreign Investors". In addition,
payments of interest or original issue discount made to a Foreign Investor
after December 31, 1999 will generally be subject to the New Regulations. See
discussion above under "REMIC Series--New Withholding Regulations."
Tax Administration and Reporting. The Company will furnish to each
Non-REMIC Certificateholder with each distribution a statement setting forth
the amount of such distribution allocable to principal and to interest. In
addition, the Company will furnish, within a reasonable time after the end of
each calendar year, to each Non-REMIC Certificateholder who was a
Certificateholder at any time during such year, information regarding the
amount of servicing compensation received by the Company and any sub-servicer
and such other customary factual information as the Company deems necessary or
desirable to enable Certificateholders to prepare their tax returns. Reports
will be made annually to the Service and to holders of record that are not
expected from the reporting requirements regarding information as may be
required with respect to interest and original issue discount, if any, with
respect to the Non-REMIC Certificates.
FASIT Securities
Qualification as a FASIT. In the case of a Trust Fund underlying a
Series (or one or more designated pools of assets held in the Trust Fund) for
which a REMIC election is not made, Brown & Wood LLP, special tax counsel to
the Company may advise the Company that in their opinion, the Trust Fund will
qualify under the Code as a Financial Asset Securitization Investment Trust
("FASIT") in which the FASIT Regular Securities and the FASIT Ownership
Securities will constitute the "regular interests" and the "ownership
interests," respectively, if (i) a FASIT election is in effect, (ii) certain
tests concerning (A) the composition of the FASIT's assets and (B) the nature
of the Securityholders' interests in the FASIT are met on a continuing basis,
and (iii) the Trust Fund is not a regulated investment company as defined in
Section 851(a) of the Code.
General. The FASIT provisions of the Code were enacted by the Small
Business Job Protection Act of 1996 and create a new elective statutory
vehicle for the issuance of mortgage-backed and asset-backed securities.
Although the FASIT provisions of the Code became effective on September 1,
1997, no Treasury regulations or other administrative guidance have been
issued with respect to those provisions. Accordingly, definitive guidance
cannot be provided with respect to many aspects of the tax treatment of FASIT
Securityholders. Investors also should note that the FASIT discussion
contained herein constitutes only a summary of the federal income tax
consequences to holders of FASIT Securities. With respect to each Series of
FASIT Securities, the related Prospectus Supplement will provide a detailed
discussion regarding the federal income tax consequences associated with the
particular transaction.
FASIT Securities will be classified as either FASIT Regular
Securities, which generally will be treated as debt for federal income tax
purposes, or FASIT Ownership Securities, which generally are not treated as
debt for such purposes, but rather as representing rights and responsibilities
with respect to the taxable income or loss of the related Series of FASIT
Securities. The Prospectus Supplement for each Series of Securities will
indicate whether one or more FASIT elections will be made for that Series and
which Securities of such Series will be designated as Regular Securities, and
which, if any, will be designated as Ownership Securities.
Asset Composition. In order for a Trust Fund (or one or more
designated pools of assets held by a Trust Fund) to be eligible for FASIT
status, substantially all of the assets of the Trust Fund (or the designated
pool) must consist of "permitted assets" as of the close of the third month
beginning after the closing date and at all times thereafter (the "FASIT
Qualification Test"). Permitted assets include (i) cash or cash equivalents,
(ii) debt instruments with fixed terms that would qualify as REMIC regular
interests if issued by a REMIC (generally, instruments that provide for
interest at a fixed rate, a qualifying variable rate, or a qualifying
interest-only ("IO") type rate, (iii) foreclosure property, (iv) certain
hedging instruments (generally, interest and currency rate swaps and credit
enhancement contracts) that are reasonably required to guarantee or hedge
against the FASIT's risks associated with being the obligor on FASIT
interests, (v) contract rights to acquire qualifying debt instruments or
qualifying hedging instruments, (vi) FASIT regular interests, and (vii) REMIC
regular interests. Permitted assets do not include any debt instruments issued
by the holder of the FASIT's ownership interest or by any person related to
such holder.
Interests in a FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements.
All of the interests in a FASIT must belong to either of the following: (i)
one or more classes of regular interests or (ii) a single class of ownership
interest that is held by a fully taxable domestic C corporation. In the case
of Series that include FASIT Ownership Securities, the ownership interest will
be represented by the FASIT Ownership Securities.
A FASIT interest generally qualifies as a regular interest if (i) it
is designated as a regular interest, (ii) it has a stated maturity not greater
than thirty years, (iii) it entitles its holder to a specified principal
amount, (iv) the issue price of the interest does not exceed 125% of its
stated principal amount, (v) the yield to maturity of the interest is less
than the applicable Treasury rate published by the Service plus 5%, and (vi)
if it pays interest, such interest is payable at either (a) a fixed rate with
respect to the principal amount of the regular interest or (b) a permissible
variable rate with respect to such principal amount. Permissible variable
rates for FASIT regular interests are the same as those for REMIC regular
interests (i.e., certain qualified floating rates and weighted average rates).
See "Certain Federal Income Tax Consequences -- REMIC Series -- Original Issue
Discount" and "-- Variable Rate Regular Certificates" herein.
If a FASIT Security fails to meet one or more of the requirements set
out in clauses (iii), (iv), or (v), but otherwise meets the above
requirements, it may still qualify as a type of regular interest known as a
"High-Yield Interest." In addition, if a FASIT Security fails to meet the
requirement of clause (vi), but the interest payable on the Security consists
of a specified portion of the interest payments on permitted assets and that
portion does not vary over the life of the Security, the Security also will
qualify as a High-Yield Interest. A High-Yield Interest may be held only by
domestic C corporations that are fully subject to corporate income tax
("Eligible Corporations"), other FASITs, and dealers in securities who acquire
such interests as inventory, rather than for investment. In addition, holders
of High-Yield Interests are subject to limitations on offseting income derived
from such interest. See "Certain Federal Income Tax Consequences -- FASIT
Securities -- Tax Treatment of FASIT Regular Securities -- Treatment of
High-Yield Interests."
Consequences of Disqualification. If a Series of FASIT Securities
fails to comply with one or more of the Code's ongoing requirements for FASIT
status during any taxable year, the Code provides that its FASIT status may be
lost for that year and thereafter. If FASIT status is lost, the treatment of
the former FASIT and the interests therein for federal income tax purposes is
uncertain. The former FASIT might be treated as a grantor trust, as a separate
association taxable as a corporation, or as a partnership. The FASIT Regular
Securities could be treated as debt instruments for federal income tax
purposes or as equity interests. Although the Code authorizes the Treasury to
issue regulations that address situations where a failure to meet the
requirements for FASIT status occurs inadvertently and in good faith, such
regulations have not yet been issued. It is possible that disqualification
relief might be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the FASIT's income for the period of time
in which the requirements for FASIT status are not satisfied.
Tax Treatment of FASIT Regular Securities. Payments received by
holders of FASIT Regular Securities generally should be accorded the same tax
treatment under the Code as payments received on other taxable corporate debt
instruments and on REMIC Regular Securities. As in the case of holders of
REMIC Regular Securities, holders of FASIT Regular Securities must report
income from such Securities under an accrual method of accounting, even if
they otherwise would have used the cash receipts and disbursements method.
Except in the case of FASIT Regular Securities issued with original issue
discount or acquired with market discount or premium, interest paid or accrued
on a FASIT Regular Security generally will be treated as ordinary income to
the Securityholder and a principal payment on such Security will be treated as
a return of capital to the extent that the Securityholder's basis is allocable
to that payment. FASIT Regular Securities issued with original issue discount
or acquired with market discount or premium generally will treat interest and
principal payments on such Securities in the same manner described for REMIC
Regular Securities. See "Certain Federal Income Tax Consequences -- REMIC
Series -- Original Issue Discount," "-- Market Discount," and "-- Amortizable
Premium" above. High-Yield Securities may be held only by fully taxable
domestic C corporations, other FASITs, and certain securities dealers. Holders
of High-Yield Securities are subject to limitations on their ability to use
current losses or net operating loss carryforwards or carrybacks to offset any
income derived from those Securities.
If a FASIT Regular Security is sold, the Securityholder generally will
recognize gain or loss upon the sale in the manner described above for REMIC
Regular Securities. See "Certain Federal Income Tax Consequences -- REMIC
Series -- Gain or Loss on Disposition."
FASIT Regular Securities held by a REIT will qualify as "real estate
assets" within the meaning of section 856(c)(5)(B) of the Code, and interest
on such Securities will be considered Qualifying REIT Interest to the same
extent that REMIC Securities would be so considered. See "Certain Federal
Income Tax Consequences -- REMIC Series -- Tax Status of REMIC Certificates"
herein. FASIT Regular Securities held by a Thrift Institution taxed as a
"domestic building and loan association" will represent qualifying assets for
purposes of the qualification requirements set forth in Code Section
7701(a)(19) to the same extent that REMIC Securities would be so considered.
See "Certain Federal Income Tax Consequences -- REMIC -- Series Tax Status of
REMIC Certificates." In addition, FASIT Regular Securities held by a financial
institution to which Section 585 of the Code applies will be treated as
evidences of indebtedness for purposes of Section 582(c)(1) of the Code. FASIT
Securities will not qualify as "Government securities" for either REIT or RIC
qualification purposes.
Treatment of High-Yield Interests. High-Yield Interests are subject to
special rules regarding the eligibility of holders of such interests, and the
ability of such holders to offset income derived from their FASIT Security
with losses. High-Yield Interests may be held only by Eligible Corporations,
other FASITs, and dealers in securities who acquire such interests as
inventory. If a securities dealer (other than an Eligible Corporation)
initially acquires a High-Yield Interest as inventory, but later begins to
hold it for investment, the dealer will be subject to an excise tax equal to
the income from the High-Yield Interest multiplied by the highest corporate
income tax rate. In addition, transfers of High-Yield Interests to
disqualified holders will be disregarded for federal income tax purposes, and
the transferor still will be treated as the holder of the High-Yield Interest.
The holder of a High-Yield Interest may not use non-FASIT current
losses or net operating loss carryforwards or carrybacks to offset any income
derived from the High-Yield Interest, for either regular federal income tax
purposes or for alternative minimum tax purposes. In addition, the FASIT
provisions contain an anti-abuse rule that imposes corporate income tax on
income derived from a FASIT Regular Security that is held by a pass-through
entity (other than another FASIT) that issues debt or equity securities backed
by the FASIT Regular Security and that have the same features as High-Yield
Interests.
Tax Treatment of FASIT Ownership Securities. A FASIT Ownership
Security represents the residual equity interest in a FASIT. As such, the
holder of a FASIT Ownership Security determines its taxable income by taking
into account all assets, liabilities, and items of income, gain, deduction,
loss, and credit of a FASIT. In general, the character of the income to the
holder of a FASIT Ownership Interest will be the same as the character of such
income to the FASIT, except that any tax-exempt interest income taken into
account by the holder of a FASIT Ownership Interest is treated as ordinary
income. In determining taxable income, the holder of a FASIT Ownership
Security must determine the amount of interest, original issue discount,
market discount, and premium recognized with respect to the FASIT's assets and
the FASIT Regular Securities issued by the FASIT according to a constant yield
methodology and under an accrual method of accounting. In addition, holders of
FASIT Ownership Securities are subject to the same limitations on their
ability to use losses to offset income from their FASIT Security as are the
holders of High-Yield Interests. See "Certain Federal Income Tax Consequences
- -- FASIT Securities -- Tax Treatment of FASIT Regular Securities -- Treatment
of High-Yield Interests."
Rules similar to the wash sale rules applicable to REMIC Residual
Securities also will apply to FASIT Ownership Securities. Accordingly, losses
on dispositions of a FASIT Ownership Security generally will be disallowed
where, within six months before or after the disposition, the seller of such
Security acquires any other FASIT Ownership Security or, in the case of a
FASIT holding mortgage assets, any interest in a Taxable Mortgage Pool, that
is economically comparable to a FASIT Ownership Security. In addition, if any
security that is sold or contributed to a FASIT by the holder of the related
FASIT Ownership Security was required to be marked-to-market under Code
section 475 by such holder, then section 475 will continue to apply to such
securities, except that the amount realized under the mark-to-market rules
will be the greater of the securities' value under present law or the
securities' value after applying special valuation rules contained in the
FASIT provisions. Those special valuation rules generally require that the
value of debt instruments that are not traded on an established securities
market be determined by calculating the present value of the reasonably
expected payments under the instrument using a discount rate of 120% of the
applicable Federal rate, compounded semiannually.
The holder of a FASIT Ownership Security will be subject to a tax
equal to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include (i) the receipt of income
derived from assets that are not permitted assets, (ii) certain dispositions
of permitted assets, (iii) the receipt of any income derived from any loan
originated by a FASIT, and (iv) in certain cases, the receipt of income
representing a servicing fee or other compensation. Any Series for which a
FASIT election is made generally will be structured in order to avoid
application of the prohibited transaction tax.
Withholding, Backup Withholding, Reporting and Tax Administration to
Withholding and Backup Withholding. Holders of FASIT Securities will be
subject to withholding and backup withholding to the same extent holders of
REMIC Securities would be subject. See "Certain Federal Income Tax
Consequences -- REMIC Series -- Backup Withholding" and "Certain Federal
Income Tax Consequences -- REMIC Series -- New Withholding Regulations." For
purposes of reporting and tax administration, holders of record of FASIT
Securities generally will be treated in the same manner as holders of REMIC
Securities. See "Certain Federal Income Tax Consequences -- REMIC Series --
Reporting Requirements and Tax Administration" above. Prospective investors
should be aware than on October 6, 1997, the Treasury Department issued new
regulations regarding withholding, backup withholding, and information
reporting. Such regulations are further discussed at "Certain Federal Income
Tax Consequences -- REMIC Series -- New Withholding Regulations."
STATE AND LOCAL TAX CONSIDERATIONS
No advice has been received as to local income, franchise, personal
property, or other taxation in any state or locality, or as to the tax effect
of ownership of Certificates in any state or locality. Certificateholders are
advised to consult their own tax advisors with respect to any state or local
income, franchise, personal property, or other tax consequences arising out of
their ownership of Certificates.
LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise specified 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 such 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. 24 (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, or may not otherwise satisfy the
requirements of SMMEA, 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
mortgage-backed securities. In addition, certain state regulators have taken
positions that may prohibit regulated institutions subject to their
jurisdiction from holding securities representing residual interest, 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.
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.
Ratings of the Certificates address the likelihood of the ultimate
receipt of all distributions on the contracts by the related
certificateholders under the agreements pursuant to which such certificates
are issued. The ratings take into consideration the credit quality of the
related contract pool, including any credit support providers, structural and
legal aspects associated with such certificates, and the extent to which
payment stream on such contract pool is adequate to make payments required by
such certificates. The ratings on such certificates do not, however,
constitute a statement regarding frequency of prepayments on the related
contracts.
UNDERWRITING
The Company may sell Certificates of each Series to or through
underwriters (the "Underwriters") by a negotiated firm commitment underwriting
and public reoffering by the Underwriters, and also may sell and place
Certificates directly to other purchasers or through agents. The Company
intends that Certificates will be offered through such various methods from
time to time and that offerings may be made concurrently through more than one
of these methods or that an offering of a particular Series of Certificates
may be made through a combination of such methods.
The distribution of the Certificates may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed,
or at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of the Certificates, Underwriters may
receive compensation from the Company or from purchasers of Certificates for
whom they may act as agents in the form of discounts, concessions or
commissions. Underwriters may sell the Certificates of a Series to or through
dealers and such dealers may receive compensation in the form of discounts,
concessions or commissions from the Underwriters and/or commissions from the
purchasers for whom they may act as agents. Underwriters, dealers and agents
that participate in the distribution of the Certificates of a Series may be
deemed to be Underwriters, and any discounts or commissions received by them
from the Company and any profit on the resale of the Certificates by them may
be deemed to be underwriting discounts and commissions, under the Securities
Act of 1933, as amended (the "Act"). Any such Underwriters or agents will be
identified, and any such compensation received from the Company will be
described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company,
Underwriters and agents who participate in the distribution of the
Certificates may be entitled to indemnification by the Company against certain
liabilities, concluding liabilities under the Act.
The Company may authorize Underwriters or other persons acting as the
Company's agents to solicit offers by certain institutions to purchase the
Certificates from the Company pursuant to contracts providing for payment and
delivery on a future date. Institutions with which such contracts may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational charitable institutions and others, but in
all cases such institutions must be approved by the Company. The obligation of
any purchaser under any such contract will be subject to the condition that
the purchaser of the offered Certificates shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject from purchasing such Certificates. The Underwriters and such other
agents will not have responsibility in respect of the validity or performance
of such contracts.
The Underwriters may, from time to time, buy and sell Certificates,
but there can be no assurance that an active secondary market will develop and
there is no assurance that any such market, if established, will continue.
Certain of the Underwriters and their associates may engage in
transactions with and perform services for the Company in the ordinary course
of business.
LEGAL MATTERS
The validity of the Certificates will be passed upon for the Company
by Boult, Cummings, Conners & Berry, PLC. The material federal income tax
consequences of the Certificates will be passed upon for the Company by Brown
& Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements of CHI as of June 30, 1997 and
1998 and for each of the three years in the period ended June 30, 1998,
incorporated by reference herein, have been incorporated herein in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
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 a Servicer (including from
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 Company, the Trustee, the Servicer and any other party specified in the
related Prospectus Supplement.
"APR" means, with respect to any Contract and any time, the per annum
rate of interest then being borne by such Contract, as set forth on the face
thereof.
"Available Distribution Amount" 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.
"Certificate Distribution Amount" means with respect to a Series of
Certificates evidencing an interest in a Contract Pool the amount of interest
(calculated as specified in such Prospectus Supplement) and the amount of
Principal (calculated as specified in such Prospectus Supplement) to be
distributed to Certificateholders on each Remittance Date.
"Certificates" means the Manufactured Housing Contract Pass-Through
Certificates issued pursuant to an Agreement.
"CHI" means Clayton Homes, Inc.
"Code" means the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
"Company" means Vanderbilt (as defined below) or, if specified in the
related Prospectus Supplement, a limited purpose finance subsidiary of
Vanderbilt organized and established by Vanderbilt.
"Compound Interest Certificates" means Certificates on which interest
may accrue but not be paid for the period described in the related Prospectus
Supplement.
"Contract Pool" means, with respect to each Series of Certificate, the
pool of manufactured housing conditional sales contracts and installment loan
agreements transferred by the Company to the Trustee.
"Contract Rate" means, with respect to each Contract, the interest
rate specified in the Contract.
"Contracts" means manufactured housing installment sales contracts,
installment loan agreements and (unless the context requires otherwise)
Mortgage Loans, including any and all rights to receive payments due
thereunder on and after the Cut-off Date and security interest in Manufactured
Homes and/or mortgaged properties purchased with the proceeds of such
contracts.
"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 Fund.
"Determination Date" means, unless otherwise specified in the related
Prospectus Supplement, the third Business Day immediately preceding the
related Remittance Date.
"Due Period" means, unless otherwise provided in a related Prospectus
Supplement, with respect to any Remittance Date, the period beginning on the
26th day of the second month preceding the month of the Remittance Date and
ending on the 25th day of the month preceding 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.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration.
"Final Scheduled Remittance Date" means, with respect to a Series of
Certificates providing for sequential distributions in reduction of the Stated
Balance of the Classes of each Series, the date, based on the assumptions set
forth in the related Prospectus Supplement, on which the Stated Balance of all
Certificates of each Class shall have been reduced to zero.
"HUD" means the United States Department of Housing and Urban
Development.
"Interest Rate" means, with respect to a Series of Certificates
providing for sequential distributions in reduction of the Stated Balance of
the Classes of such Series, the interest payable on the Principal Balance
outstanding of each such Class.
"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.
"Modular Home" means a unit of manufactured housing that does not meet
the requirements of a "manufactured home" under 42 United States Code, Section
5402(6), and which is further defined in a related Prospectus Supplement.
"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.
"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.
"Seller" means, with respect to a Series of Certificates evidencing
interest in Contracts, the Seller specified in the 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 Vanderbilt Mortgage and Finance, Inc., or such other
entity as specified in the related Prospectus Supplement.
"Servicing Fee" means the amount of the annual fee paid to the
Servicer or the Trustee as specified in the related Prospectus Supplement.
"Single Certificate" means, for each Class of Certificates of any
Series, the initial principal amount of Contracts evidenced by a single
Certificate of such Class.
"Stated Balance" means, with respect to a Series of Certificates
providing for sequential distributions in reduction of Stated Balance of the
Classes of such Series, the maximum specified dollars amount (exclusive of
interest at the related Interest Rate) to which the Holder thereof is entitled
from the cash flow of the Trust Fund.
"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 Fund" 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 Home which secured a Contract, insurance, a reserve
fund and other forms of credit enhancement, if any.
"Trustee" means the Trustee for a Series of Certificates specified in
the related Prospectus Supplement.
"VA" means the Veterans' Administration.
"Vanderbilt" means Vanderbilt Mortgage and Finance, Inc.
"Variable Rate Regular Certificates" means Certificates which evidence
the right to receive distributions of income at a variable Remittance Rate.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC registration fee ..........................................$ 695,000
Blue Sky fees and expenses.....................................$ 10,000
Accountant's fee and expenses..................................$ 200,000
Attorneys' fees and expenses...................................$ 625,000
Trustee's fees and expense.....................................$ 20,000
Printing and engraving expenses................................$ 120,000
Rating Agency fee..............................................$1,250,000
Miscellaneous..................................................$ 20,000
Total.....................................................$2,940,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
With respect to Vanderbilt Mortgage and Finance, Inc., the Tennessee
Business Corporation Act ("TBCA") provides that a corporation may indemnify
any of its directors and officers against liability incurred in connection
with a proceeding if (i) the director or officer acted in good faith; (ii) in
the case of conduct in his or her official capacity with the corporation, the
director or officer reasonably believed such conduct was in the corporation's
best interests, (iii) in all other cases, the director or officer reasonably
believed that his or her conduct was not opposed to the best interests of the
corporation, and (iv) in connection with any criminal proceeding, the director
or officer had no reasonable cause to believe that his or her conduct was
unlawful. In actions brought by or in the right of the corporation, however,
the TBCA provides that no indemnification may be made if the director or
officer was adjudged to be liable to the corporation. In cases where the
director or officer is wholly successful, on the merits or otherwise, in the
defense of any proceeding instigated because of his or her status as an
officer or director of a corporation, the TBCA mandates that the corporation
indemnify the director or officer against reasonable expenses incurred in the
proceeding. The TBCA also provides that in connection with any proceeding
charging impersonal benefit to an officer or director, no indemnification may
be made if such officer or director is adjudged liable on the basis that
personal benefit was improperly received. Notwithstanding the foregoing, the
TBCA provides that a court of competent jurisdiction, upon application, may
order that an officer or director be indemnified for reasonable expenses if,
in consideration of all relevant circumstances, the court determines that such
individual is fairly and reasonably entitled to indemnification, whether or
not he or she met the standard of conduct set forth above.
Pursuant to the form of Underwriting Agreement, a copy of which is
included as Exhibit 1.1 hereto, the Underwriters will agree, subject to
certain conditions, to indemnify the Company, its directors, certain of its
officers and persons who control the Company within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), against certain
liabilities.
With respect to Clayton Homes, Inc. Section 145 of the Delaware
General Corporation Law provides, in substance, that Delaware corporations
shall have the power, under specified circumstances, to indemnify their
directors, officers, employees and agents in connection with actions, suits or
proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any such action,
suit or proceeding. The Delaware General Corporation Law also provides that
Clayton Homes, Inc. may purchase insurance on behalf of any such director,
officer, employee or agent.
ITEM 16. EXHIBITS
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of Vanderbilt Mortgage and Finance, Inc.*
3.2 By-Laws of Vanderbilt Mortgage and Finance, Inc.*
3.3 Articles of Incorporation of Clayton Homes, Inc.
3.4 By-Laws of Clayton Homes, Inc.**
4.1 Form of Pooling and Servicing Agreement, including Form of Certificates
4.2 Form of Limited Guarantee (included as Section 6.05 of Exhibit 4.1)
5.1 Opinion of Boult, Cummings, Conners & Berry, PLC as to validity of
Certificates
8.1 Opinion of Brown & Wood LLP as to certain federal income tax
matters
12 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Boult, Cummings, Conners & Berry, PLC (included as part of
Exhibit 5.1)
23.2 Consent of Brown & Wood LLP (included as part of Exhibit 8.1)
23.3 Consent of PricewaterhouseCoopers LLP
24.1 Power of attorney from officers and directors of the Vanderbilt
Mortgage and Finance, Inc (included on page II-4)
24.2 Power of attorney from officers and directors of Clayton Homes, Inc.
(included on page II-5)
- ----------------------------------
* Previously filed as an Exhibit to Registration Statement
No. 33-88238 and incorporated by reference herein.
** Previously filed as an Exhibit to the Annual Report of Clayton
Homes, Inc. on Form 10-K for the period ended June 30, 1998, and
incorporated by reference herein.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a 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 a 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 of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registrant 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) 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.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the 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 to such information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change in the information set
forth in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Maryville, State of Tennessee, on
March 31, 1999.
VANDERBILT MORTGAGE AND FINANCE, INC.
By: /s/ Kevin T. Clayton
______________________________________
KEVIN T. CLAYTON,
PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature below
constitutes and appoints each of Kevin T. Clayton and David Jordan, or any of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and his name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Kevin T. Clayton President (Principal Executive Officer) and March 31, 1999
Director
____________________________
KEVIN T. CLAYTON
/s/ David Jordan Secretary (Principal Financial Officer and March 31, 1999
Principal Accounting Officer) and Director
____________________________
DAVID JORDAN
/s/ Paul Nichols Assistant Secretary and Director March 31, 1999
____________________________
PAUL NICHOLS
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Maryville, State of Tennessee, on
March 31, 1999.
CLAYTON HOMES, INC.
By: /s/ Kevin T. Clayton
__________________________
KEVIN T. CLAYTON,
PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature below
constitutes and appoints each of Kevin T. Clayton and Amber Krupacs, or any of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and his name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Kevin T. Clayton President (Principal Executive Officer) and March 31, 1999
Director
___________________________
KEVIN T. CLAYTON
/s/ Amber Krupacs Vice President, Finance (Principal Financial March 31, 1999
Officer and Principal Accounting Officer)
and Secretary
___________________________
AMBER KRUPACS
/s/ James L. Clayton Chief Executive Officer and Director March 31, 1999
___________________________
JAMES L. CLAYTON
/s/ John J. Kalec Director March 31, 1999
___________________________
JOHN J. KALEC
/s/ C. Warren Neel Director March 31, 1999
C. WARREN NEEL
/s/ B. Joe Clayton Director March 31, 1999
___________________________
B. JOE CLAYTON
</TABLE>
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
VANDERBILT MORTGAGE AND FINANCE, INC.
CLAYTON HOMES, INC.
----------------
EXHIBIT VOLUME
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Page
<S> <C>
1.1 Form of Underwriting Agreement*...........................................................................
3.1 Articles of Incorporation of Vanderbilt Mortgage and Finance, Inc.*.......................................
3.2 By-Laws of Vanderbilt Mortgage and Finance, Inc.*.........................................................
3.3 Articles of Incorporation of Clayton Homes, Inc...........................................................
3.4 By-Laws of Clayton Homes, Inc**...........................................................................
4.1 Form of Pooling and Servicing Agreement, including Form of Certificates...................................
4.2 Form of Limited Guarantee (included as Section 6.05 of Exhibit 4.1).......................................
5.1 Opinion of Boult, Cummings, Conners & Berry, PLC as to validity of Certificates...........................
8.1 Opinion of Brown & Wood LLP as to certain federal income tax matters...............................
12 Computation of Ratio of Earnings to Fixed Charges ........................................................
23.1 Consent of Boult, Cummings, Conners & Berry, PLC (included as part of Exhibit 5.1)........................
23.2 Consent of Brown & Wood LLP (included as part of Exhibit 8.1).............................................
23.3 Consent PricewaterhouseCoopers LLP........................................................................
24.1 Power of attorney from officers and directors of Vanderbilt Mortgage and Finance, Inc.
(included on page II-4)...................................................................................
24.2 Power of attorney from officers and directors of Clayton Homes, Inc. (included on page II-5)..............
- ------------------------------
* Previously filed as an Exhibit to Registration Statement No. 33-88238, and incorporated by reference
herein.
** Previously filed as an Exhibit to the Annual Report of Clayton Homes, Inc. on Form 10-K for the period
ended June 30, 1998, and incorporated by reference herein.
</TABLE>
Exhibit 3.3
CERTIFICATE OF CORRECTION
FILED TO CORRECT A CERTAIN ERROR
IN THE CERTIFICATE OF MERGER OF
CLAYTON HOMES, INC. INTO
CLAYTON HOMES OF DELAWARE, INC.
FILED IN THE OFFICE OF THE
SECRETARY OF STATE OF DELAWARE
ON DECEMBER 23, 1996
Clayton Homes, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY AND CERTIFY:
1. The name of the Corporation is Clayton Homes, Inc.
2. That a Certificate of Merger of Clayton Homes, Inc. into
Clayton Homes of Delaware, Inc. was filed by the Secretary
of State of Delaware on December 23, 1996 and that said
Certificate requires correction as permitted by Section 103
of the General Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected
is as follows:
The principal place of business of the surviving corporation
was erroneously listed.
4. Article 6 of the Certificate is corrected to read as follows:
The executed Agreement and Plan of Merger is on file at the
principal place of business of the Surviving Corporation at 1105 North Market
Street, Suite 1300, Wilmington, Delaware 19899.
IN WITNESS WHEREOF, said Clayton Homes, Inc. has caused this
Certificate to be signed by Joseph Stegmayer, its President, this 13th day of
March, 1997.
CLAYTON HOMES, INC.
By: /s/ Joseph Stegmayer
---------------------
Joseph Stegmayer, President
CERTIFICATE OF MERGER
OF
CLAYTON HOMES, INC.
INTO
CLAYTON HOMES OF DELAWARE, INC.
(PURSUANT TO SECTION 252 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE)
THE UNDERSIGNED CORPORATION HEREBY CERTIFIES THAT:
1. The name and state of incorporation of each of the constituent
corporations are:
(a) Clayton Homes of Delaware, Inc., a Delaware corporation; and
(b) Clayton Homes, Inc., a Tennessee corporation.
2. An Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged on December 23, 1996 by Clayton
Homes, Inc., and by Clayton Homes of Delaware, Inc. in accordance
with the provisions of Section 252 of the General Corporation Law of
the State of Delaware ("DGCL") and Sections 48-21-102 through 104 of
the Tennessee Business Corporations Act.
3. The name of the surviving corporation is Clayton Homes of Delaware,
Inc. (hereinafter "Surviving Corporation").
4. The certificate of incorporation of Clayton Homes of Delaware, Inc.
shall be the certificate of incorporation of the Surviving
Corporation. The certificate of incorporation is amended pursuant to
Section 251(e) of the DGCL to change the name of said corporation
from Clayton Homes of Delaware, Inc.
to Clayton Homes, Inc.
5. The Surviving Corporation is a corporation of the State of Delaware.
6. The executed Agreement and Plan of Merger is on file at the principal
place of business of the Surviving Corporation at 623 Market Street,
Knoxville, TN 37902.
7. A copy of the executed Agreement and Plan of Merger will be furnished
by the Surviving Corporation on request and without cost, to any
stockholder of Clayton Homes of Delaware, Inc. or Clayton Homes, Inc.
8. The authorized capital stock of Clayton Homes of Delaware, Inc. is
Two Hundred Million (200,000,000) shares of common stock, $.10 par
value.
9. The authorized capital stock of Clayton Homes, Inc. is Two Hundred
Million (200,000,000) shares of common stock, $.10 par value.
10. The Plan and Agreement of Merger shall be effective on December 31,
1996, at 5:00 p.m.
IN WITNESS WHEREOF, the undersigned corporation has caused this
Certificate of Merger to be executed on the 23rd day of December, 1996.
CLAYTON HOMES OF DELAWARE, INC.
By: /s/ Brett Blackwood
________________________
Name: Brett Blackwood
Title: Secretary
STATE OF DELAWARE
CERTIFICATE OF INCORPORATION
OF
CLAYTON HOMES OF DELAWARE, INC.
1. The name of the Corporation is Clayton Homes of Delaware, Inc.
2. The name of the registered agent and the address of the Corporation's
registered office in the State of Delaware shall be: Delaware
Corporate Management, Inc., 1105 North Market Street, Suite 1300,
Wilmington, New Castle County, Delaware 19899.
3. The purpose for which the Corporation is organized, either directly or
indirectly through subsidiaries, is: to take, purchase, exchange,
lease, or otherwise acquire vehicles including but not limited to
mobile homes, automobiles, trucks, motorcycles, trailers, and any
interest or right therein; to hold, own, operate, control, maintain,
manage, sell, and develop these interests, and to improve for purposes
of sale, lease, or otherwise and to do and perform all things needful
and lawful for their development for residence, trade, and business;
to construct, maintain, alter, manage and control directly or through
ownership of stock in any other corporation and through ownership or
control of any and all kinds of buildings, stores, offices,
warehouses, mills, shops, factories, machinery and plants, and any and
all other structures and erections which may at any time be necessary,
useful or advantageous for the purpose of this corporation; to
manufacture, produce, purchase, lease, rent, repair, finance, or
otherwise acquire, trade, sell, distribute, disburse, dispose of,
import, export, service or in any manner to deal in and with, whether
as principal or agent, vehicles of all types and descriptions,
including but not limited to mobile homes, automobiles, trucks,
motorcycles and trailers and all accessories and parts related
thereto, and to offer, engage in, and make available all and every
type of financing and insurance services, whether as principal or
agent as well as goods, wares, merchandise, furnishings, furniture,
appliance and services of any and every description, properties,
securities, certificates of indebtedness and materials and personal
property of every kind and description, whether now known or hereafter
to be discovered or invented, so long as such activity shall be lawful
in the place in which it is performed; said corporation shall, in
addition, have the power to purchase, sell and otherwise deal in its
own stock, to lend money to other corporations and individuals and to
mortgage, encumber, and pledge any or all of the real or personal
property or other assets of the corporation, to act as agent for any
other corporation, partnership, or individual, and to carry on any
lawful business purpose connected with these powers; to establish, own
and conduct separate or branch establishments for all of its lawful
business in places other than the principal office of the corporation
in this State or elsewhere.
4. The maximum number of shares which the Corporation shall have the
authority to issue is:
(a) TWO HUNDRED MILLION (200,000,000) shares of common stock,
$.10 par value.
5. The name and address of the Incorporator is Brett N. Blackwood, 623
Market Street, 8th Floor, Knoxville, Tennessee 37902.
6. The powers of the Incorporator will terminate upon filing of this
certificate.
7. (a) The Corporation's Board of Directors shall be composed of the
following directors until such time as their successors are elected:
James L. Clayton, Joseph H. Stegmayer, B. Joe Clayton, C. Warren Neal,
Dan W. Evins, James D. Cockman, Wallace C. Doud and Wilma H. Jordan
(b) The address for each of the Corporation's Directors is 623 Market
Street, 8th Floor, Knoxville, Tennessee 37902.
8. No shareholder shall be entitled to preemptive rights with respect to
any shares of capital stock issued by the Corporation.
9. (a) The Board of Directors may take, on written consent without a
meeting, any action which it could take by means of a regularly called
and held meeting, provided that such written consent sets forth the
action so taken and is signed by all the directors.
(b) The Board of Directors is expressly authorized to:
(i) Adopt, amend or repeal any of the Corporation's bylaws; and
(ii) Distribute to the shareholders of the
Corporation, out of its capital surplus, a
portion of the Corporation's assets, in
cash or property, without the vote of the
shareholders.
10. To the fullest extent permitted by the Delaware General Corporation
Law as is currently effective or may hereafter be amended from time to
time, a director of the Corporation shall not be liable to the
Corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director. If after filing of this Certificate of
Incorporation, the Delaware General Corporation Law is amended or a
successor statute is enacted further eliminating or limiting the
personal liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law or any successor
statute, as so amended from time to time. Any repeal or modification
of this paragraph 10 by the shareholders of the Corporation shall not
adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification or
with respect to events occurring prior to such time.
11. The duration of the Corporation is perpetual.
12. The Corporation shall have all of the powers, privileges, and
authorities, which are not contrary to the laws and constitution of
the State of Delaware or the United States which are necessary,
incidental or required for the conduct, development, or establishment
of the business, or the regulation, extension, dissolution, or
termination of its affairs and existence.
I, the undersigned, being the sole incorporator hereinbefore named, for the
purpose of forming this corporation pursuant to the Delaware General
Corporation Law, do hereby declare and certify that this is my act and that
the facts stated are true and correct and facts be reinstated and accordingly
have set forth my hand this 19th day of December, 1996.
/s/ Brett Blackwood
--------------------------------
Incorporator
Exhibit 4.1
VANDERBILT MORTGAGE AND FINANCE, INC.,
AS SELLER AND SERVICER,
[CLAYTON HOMES, INC.,
AS PROVIDER OF THE LIMITED GUARANTEE]
and
[TRUSTEE]
POOLING AND SERVICING AGREEMENT
Dated as of _______ __, 1999
Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates
Series 1999__
Table of Contents
Page
----
Article I
DEFINITIONS
Section 1.01. Definitions..................................................1
Section 1.02. Determination of Scheduled Payments.........................41
Article II
CONVEYANCE OF CONTRACTS; TRUST FUND; PERFECTION OF SECURITY
INTEREST; CUSTODY OF CONTRACTS
Section 2.01. Conveyance of Contracts and Other Rights....................42
Section 2.02. Filing; Name Change or Relocation...........................43
Section 2.03. Acceptance by Trustee.......................................44
Section 2.04. Delivery of Land-and-Home Contract Files and
Mortgage Loan Files and Recordation......................44
Section 2.05. REMIC Election; Designation of Regular and Residual
Interests; Tax Year.........................................45
Section 2.06. Designation of Startup Day..................................46
Section 2.07. REMIC Certificate Maturity Date.............................46
Article III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties Regarding the Company........47
Section 3.02. Representations and Warranties Regarding Each Contract......48
Section 3.03. Representations and Warranties Regarding the Contracts in
the Aggregate...............................................51
Section 3.04. Representations and Warranties Regarding the Contract
Files, the Land-and-Home Contract Files and the Mortgage
Loan Files..................................................52
Section 3.05. Repurchases of Contracts or Substitution of Contracts
for Breach of Representations and Warranties................52
Article IV
THE CERTIFICATES
Section 4.01. The Certificates............................................56
Section 4.02. Registration of Transfer and Exchange of Certificates.......57
Section 4.03. Mutilated, Destroyed, Lost or Stolen Certificate............60
Section 4.04. Persons Deemed Owners.......................................61
Section 4.05. Appointment of Paying Agent.................................61
Section 4.06. Access to List of Certificateholders' Names and Addresses...61
Section 4.07. Authenticating Agents.......................................61
Section 4.08. Class R Certificate.........................................62
Article V
ADMINISTRATION AND SERVICING OF CONTRACTS
Section 5.01. Responsibility for Contract Administration and Servicing....66
Section 5.02. Standard of Care............................................66
Section 5.03. Records.....................................................66
Section 5.04. Inspection..................................................66
Section 5.05. Establishment of and Deposits in Certificate Accounts.......67
Section 5.06. Payment of Taxes............................................68
Section 5.07. Enforcement.................................................68
Section 5.08. Transfer of Certificate Accounts............................69
Section 5.09. Maintenance of Hazard Insurance Policies....................69
Section 5.10. Fidelity Bond and Errors and Omissions Insurance............70
Section 5.11. Collections under Hazard Insurance Policies; Consent to
Transfers of Manufactured Homes; Assumption Agreements......71
Section 5.12. Realization upon Defaulted Contracts........................71
Section 5.13. Costs and Expenses..........................................72
Section 5.14. Trustee to Cooperate........................................72
Section 5.15. Servicing and Other Compensation............................73
Section 5.16. Custody of Contracts........................................73
Section 5.17. REMIC Compliance............................................74
Section 5.18. Establishment of and Deposits in Distribution Accounts......77
Article VI
PAYMENTS TO THE CERTIFICATEHOLDERS; WITHDRAWALS FROM CERTIFICATE ACCOUNTS
Section 6.01. Monthly Payments...........................................78
Section 6.02. Permitted Withdrawals from the Certificate Accounts........88
Section 6.03. [Reserved]. ...............................................89
Section 6.04. Monthly Advances by the Servicer...........................89
[Section 6.05. Limited Guarantee..........................................89]
[Section 6.06. Alternate Credit Enhancement...............................90]
Section 6.07. Calculation of the Remittance Rates with respect
to the Floating Rate Certificates.......................90
Article VII
REPORTS
Section 7.01. Monthly Reports............................................92
Section 7.02. Certificate of Servicing Officer...........................95
Section 7.03. Other Data.................................................96
Section 7.04. Annual Statement as to Compliance..........................96
Section 7.05. Annual Independent Public Accountants' Servicing Report....96
Section 7.06. Statements to Certificateholders...........................96
Article VIII
INDEMNITIES; THE COMPANY AND THE SERVICER
Section 8.01. Liabilities to Obligors...................................101
Section 8.02. Tax Indemnification.......................................101
Section 8.03. Servicer's Indemnities....................................101
Section 8.04. Operation of Indemnities..................................101
Section 8.05. Merger or Consolidation of the Company or the Servicer....102
Section 8.06. Limitation on Liability of the Servicer and Others........102
Section 8.07. Assignment by Servicer....................................102
Section 8.08. Successor to the Servicer.................................103
Article IX
DEFAULT
Section 9.01. Events of Default.........................................105
Section 9.02. Waiver of Defaults........................................106
Section 9.03. Trustee to Act; Appointment of Successor..................106
Section 9.04. Notification to Certificateholders........................106
Section 9.05. Effect of Transfer........................................106
Section 9.06. Transfer of the Accounts..................................107
Article X
CONCERNING THE TRUSTEE
Section 10.01. Duties of Trustee.........................................108
Section 10.02. Certain Matters Affecting the Trustee.....................109
Section 10.03. Trustee Not Liable for Certificates or Contracts..........110
Section 10.04. Trustee May Own Certificates..............................110
Section 10.05. Servicer to Pay Fees and Expenses of Trustee..............110
Section 10.06. Eligibility Requirements for Trustee......................111
Section 10.07. Resignation and Removal of the Trustee....................111
Section 10.08. Successor Trustee.........................................112
Section 10.09. Merger or Consolidation of Trustee........................112
Section 10.10. Appointment of Co-Trustee or Separate Trustee.............112
Section 10.11. Appointment of Office or Agency...........................114
Section 10.12. Trustee May Enforce Claims Without Possession of
Certificates..............................................114
Section 10.13. Suits for Enforcement.....................................114
Article XI
TERMINATION
Section 11.01. Termination...............................................115
Article XII
MISCELLANEOUS PROVISIONS
Section 12.01. Severability of Provisions................................118
Section 12.02. Limitation on Rights of Certificateholders................118
Section 12.03. Acts of Certificateholders................................118
Section 12.04. Calculations..............................................119
Section 12.05. Amendment.................................................119
Section 12.06. Recordation of Agreement..................................121
Section 12.07. Contribution of Assets....................................121
Section 12.08. Duration of Agreement.....................................121
Section 12.09. Governing Law.............................................121
Section 12.10. Notices...................................................121
Section 12.11. Merger and Integration of Documents.......................122
Section 12.12. Headings..................................................122
Section 12.13. Counterparts..............................................122
TESTIMONIUM
EXHIBIT A-1 - Contract Schedule
EXHIBIT A-2 - Form of Custodial Agreement
EXHIBIT B-1 - Form of Face of Class I A Certificate
EXHIBIT B-2 - Form of Face of Class II A Certificate
EXHIBIT B-3 - Form of Face of Class I M-1 Certificate
EXHIBIT C-1 - Form of Face of Class I B Certificate
EXHIBIT C-2 - Form of Face of Class II B Certificate
EXHIBIT D - Form of Face of Class R Certificate
EXHIBIT E - Form of Reverse of Certificates
EXHIBIT F - Form of Certificate Regarding
Substitution of Eligible Substitute Contracts
EXHIBIT G - Form of Certificate of Servicing
Officer Regarding Monthly Report
EXHIBIT H - Form of Transfer Affidavit
EXHIBIT I - Form of Investment Letter
EXHIBIT J - List of Sellers and Originators of Acquired Contracts
EXHIBIT K - Form of Power of Attorney
AGREEMENT, dated as of _______ __, 1999, among Vanderbilt Mortgage
and Finance, Inc., a corporation organized and existing under the laws of the
State of Tennessee, as Seller and Servicer (the "Company")[, Clayton Homes,
Inc., a corporation organized and existing under the laws of the State of
Delaware, as provider of the Limited Guarantee ("CHI")], and ____________, a
___________, not in its individual capacity but solely as Trustee (the
"Trustee").
WHEREAS, in the regular course of its business, the Company
originates, purchases and services manufactured housing installment sales
contracts and installment loan agreements and mortgage loans, which provide
for installment payments by or on behalf of the owner of the manufactured home
and grant a security interest in the related manufactured home (and in
addition, in certain cases, mortgages or deeds of trust on the real estate on
which such manufactured home is located);
WHEREAS, the Company and the Trustee wish to set forth the terms and
conditions pursuant to which the "Trust Fund," as hereinafter defined, will
acquire the "Contracts" as hereinafter defined, and the Company will manage
and service the Contracts;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the Company[, CHI] and the Trustee agree as
provided herein:
Article I
DEFINITIONS
Section 1.01. Definitions. Whenever used herein, unless the context
otherwise requires, the following words and phrases shall have the following
meanings:
ACCELERATED PRINCIPAL PAYMENT: As to any Remittance Date, an amount
equal to the lesser of (x) the amount, if any, by which (i) the Required
Overcollateralization Amount exceeds (ii) the actual Overcollateralization
Amount on such Remittance Date and (y) the sum of (i) the Group II Monthly
Excess Spread, if any, and (ii) any portion of the Group I Monthly Excess
Spread, if any, remaining after the distribution on such Remittance Date of
the amounts specified in clauses A(i) through (xi) or clauses B(i) through
(xi), as applicable, of Section 6.01(a).
ACQUIRED CONTRACTS: _____ Contracts having an aggregate principal
balance as of the Cut-off Date of approximately $_____________, respectively,
which Vanderbilt purchased from the sellers listed on Exhibit J, all of which
Contracts were originated by the Originators listed in Exhibit J hereto.
ACTUARIAL CONTRACT: Any Contract pursuant to which the portion of any
scheduled payment allocable to interest is calculated on the basis that each
monthly payment is applied on its Due Date, regardless of when it is actually
made.
AFFILIATE: As to any specified Person, any other Person controlling
or controlled by or under common control with such specified Person. For the
purposes of this definition, "controls," when used with respect to any
specified Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" or
"controlled" have meanings correlative to the foregoing.
AGGREGATE NET FUNDS CAP CARRYOVER AMOUNT: As to any Remittance Date,
the sum of the Class II A-1 Net Funds Cap Carryover Amount, the Class II B-1
Net Funds Cap Carryover Amount, the Class II B-2 Net Funds Cap Carryover
Amount and the Class II B-3 Net Funds Cap Carryover Amount for such Remittance
Date.
AGGREGATE NET LIQUIDATION LOSSES: With respect to the time of
reference thereto, the aggregate of the amounts by which (i) the outstanding
principal balance of each Contract that, during such time of reference, had
become a Liquidated Contract, plus accrued and unpaid interest thereon to the
Due Date for such Contract in the Due Period in which such Contract became a
Liquidated Contract, exceeds (ii) the Net Liquidation Proceeds for such
Contract.
AGREEMENT: This Pooling and Servicing Agreement and all amendments
hereof and supplements hereto.
AMORTIZATION SCHEDULE: With respect to any Contract, the amortization
schedule for such Contract at the time of reference thereto after adjustments
for previous Partial Prepayments but without giving effect to any adjustments
by reason of the bankruptcy of the Obligor or any similar proceeding or
moratorium or any waiver, extension or grace period.
ANNUAL PERCENTAGE RATE OR APR: As to any Contract and any time, the
per annum rate of interest then being borne by such Contract, as set forth on
the face thereof.
APPLICANTS: As defined in Section 4.06.
APPRAISED VALUE: With respect to any Manufactured Home, the value of
such Manufactured Home as determined by a professional appraiser or an
employee of the Servicer who, as part of such employment, regularly appraises
manufactured housing units.
AUTHENTICATING AGENT: An authenticating agent appointed pursuant to
Section 4.07.
AVAILABLE DISTRIBUTION AMOUNT: As to any Remittance Date, either the
Group I Available Distribution Amount or the Group II Available Distribution
Amount, as applicable, for such Remittance Date.
AVAILABLE FUNDS SHORTFALL: Either the Group I Available Funds
Shortfall or the Group II Available Funds Shortfall, as the case may be.
AVERAGE SIXTY-DAY DELINQUENCY RATIO: As to any Remittance Date and
Group, the arithmetic average of the Sixty-Day Delinquency Ratios for such
Remittance Date and the two preceding Remittance Dates. The "Sixty-Day
Delinquency Ratio" for a Remittance Date and each Group is the percentage
derived from the fraction, the numerator of which is the aggregate of the
outstanding principal balances (as of the end of the preceding Due Period) of
all Contracts in such Group (including Contracts in such Group in respect of
which the related Manufactured Home has been repossessed but not yet disposed
of) as to which a scheduled monthly payment thereon (without giving effect to
any adjustments thereto by reason of a bankruptcy or similar proceeding of the
Obligor or any extension or modification granted to such Obligor) is
delinquent 60 days or more as of the end of the related Due Period and the
denominator of which is the Pool Scheduled Principal Balance for such Group
for such Remittance Date.
AVERAGE THIRTY-DAY DELINQUENCY RATIO: As to any Remittance Date and
Group, the arithmetic average of the Thirty-Day Delinquency Ratios for such
Remittance Date and the two preceding Remittance Dates. The "Thirty-Day
Delinquency Ratio" for a Remittance Date and each Group is the percentage
derived from the fraction, the numerator of which is the aggregate of the
outstanding principal balances (as of the end of the preceding Due Period) of
all Contracts in such Group (including Contracts in such Group in respect of
which the related Manufactured Home has been repossessed but not yet disposed
of) as to which a scheduled monthly payment thereon (without giving effect to
any adjustments thereto by reason of a bankruptcy or similar proceeding of the
Obligor or any extension or modification granted to such Obligor) is
delinquent 30 days or more as of the end of the related Due Period and the
denominator of which is the Pool Scheduled Principal Balance for such Group
for such Remittance Date.
BI-WEEKLY CONTRACT: Any Contract pursuant to which the scheduled
level payment of interest and principal is due every 14 days.
BOOK-ENTRY CERTIFICATE: Any Group I or Group II Certificate
registered in the name of the Depository or its nominee ownership of which is
reflected on the books of the Depository or on the books of a Person
maintaining an account with such Depository (directly or as an indirect
participant in accordance with the rules of such Depository).
BUSINESS DAY: Any day other than (i) a Saturday or Sunday, or (ii) a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to be closed.
CALL OPTION DATE: The date on which the sum of the Group I Pool
Scheduled Principal Balance and the Group II Pool Scheduled Principal Balance
has declined to 10% or less of the Combined Total Original Contract Pool
Principal Balance.
CERTIFICATE: A Certificate for Manufactured Housing Contract
Pass-Through Certificates, Series 1999_, executed, countersigned and delivered
by the Trustee substantially in the form of Exhibits B-1, B-2, B-3, C-1, C-2
or D and E.
CERTIFICATE ACCOUNT: Either the Group I Certificate Account or the
Group II Certificate Account, as the context requires.
CERTIFICATEHOLDER or HOLDER: The Person in whose name a Certificate
is registered in the Certificate Register, except that, solely for the
purposes of giving any consent, waiver, request or demand pursuant to this
Agreement, any Group I or Group II Certificate registered in the name of the
Company, the Servicer or any Person known to a Responsible Officer of the
Trustee to be an Affiliate of the Servicer and any Group I or Group II
Certificate to the extent that, to the knowledge of a Responsible Officer of
the Trustee, the Servicer or any Affiliate of the Servicer is the Certificate
Owner shall be deemed not to be outstanding and the Percentage Interest or
Fractional Interest, as the case may be, evidenced thereby shall not be taken
into account in determining whether the requisite amount of Percentage
Interests or Fractional Interests necessary to effect any such consent,
waiver, request or demand has been obtained, unless, in the case of the Senior
Certificates, all such Certificates of both Groups are held by such Persons
or, in the case of the Subordinate Certificates, all such Certificates of both
Groups and all Senior Certificates of both Groups are held by such Persons, or
such Certificates have been fully paid.
CERTIFICATE GROUP: The Group comprising the Group I Certificates or
the Group II Certificates, as the context requires.
CERTIFICATE OWNER: With respect to a Group I or Group II Certificate,
the Person who is the beneficial owner of a Book-Entry Certificate.
CERTIFICATE REGISTER: The register maintained pursuant to Section
4.02.
CERTIFICATE REGISTRAR: The Trustee, or the agent appointed pursuant
to Section 4.02(a).
CLASS: Pertaining to Class I A-1 Certificates, Class I A-2
Certificates, Class I A-3 Certificates, Class I A-4 Certificates, Class I A-5
Certificates, Class I A-6 Certificates, Class I M-1 Certificates, Class I B-1
Certificates, Class I B-2 Certificates, Class II A-1 Certificates, Class II
B-1 Certificates, Class II B-2 Certificates, Class II B-3 Certificates and/or
the Class R Certificate, as the case may be.
CLASS I A CERTIFICATE: Any one of the Class I A-1 Certificates, Class
I A-2 Certificates, Class I A-3 Certificates, Class I A-4 Certificates, Class
I A-5 Certificates and/or Class I A-6 Certificates.
CLASS I A DISTRIBUTION AMOUNT: As to any Remittance Date, the sum of
the Class I A-1 Distribution Amount, the Class I A-2 Distribution Amount, the
Class I A-3 Distribution Amount, the Class I A-4 Distribution Amount, the
Class I A-5 Distribution Amount and the Class I A-6 Distribution Amount.
CLASS I A PERCENTAGE: As to any Remittance Date, the percentage
derived from the fraction (which shall not be greater than 1) whose numerator
is the Class I A Principal Balance immediately prior to such Remittance Date
and whose denominator is the Group I Pool Scheduled Principal Balance
immediately prior to such Remittance Date.
CLASS I A PRINCIPAL BALANCE: As to any Remittance Date, the sum of
the Class I A-1, Class I A-2, Class I A-3, Class I A-4, Class I A-5 and Class
I A-6 Principal Balances (before giving effect to distributions on the
Certificates on such Remittance Date).
CLASS I A-1 CERTIFICATE: Any one of the Certificates designated Class
I A-1, executed and countersigned as provided herein, substantially in the
form set forth in Exhibits B-1 and E hereto.
CLASS I A-1 DISTRIBUTION AMOUNT: As to any Remittance Date, the
aggregate amount distributed on the Class I A-1 Certificates on such
Remittance Date pursuant to Section 6.01.
CLASS I A-1 INTEREST FORMULA DISTRIBUTION AMOUNT: As to any
Remittance Date, an amount equal to the sum of (a) interest accrued during the
related Interest Period at the Class I A-1 Remittance Rate on the Class I A-1
Principal Balance as of such Remittance Date (before giving effect to the
distribution on such Remittance Date) and (b) any Class I A-1 Unpaid Interest
Shortfall.
CLASS I A-1 INTEREST SHORTFALL: As to any Remittance Date, any amount
by which the amount distributed on the Class I A-1 Certificates on such
Remittance Date is less than the amount computed pursuant to clause (a) of the
definition of "Class I A-1 Interest Formula Distribution Amount".
CLASS I A-1 PRINCIPAL BALANCE: At any time, the Original Class I A-1
Principal Balance minus the sum of all amounts previously distributed on the
Class I A-1 Certificates since the Closing Date pursuant to clauses A(ii)(a)
and B(ii)(a) of Section 6.01(a) and, in respect of principal on the Class I
A-1 Certificates, pursuant to clauses C(x) and D(x) of Section 6.01(a).
CLASS I A-1 REMITTANCE RATE: With respect to the first Remittance
Date, _______% per annum, and, for any subsequent Remittance Date, the lesser
of (a) the sum of (i) LIBOR as of the second LIBOR Business Day prior to the
first day of the related Interest Period and (ii) ____% (eighteen basis
points) per annum and (b) the Group I Weighted Average Net Contract Rate for
such Remittance Date.
CLASS I A-1 UNPAID INTEREST SHORTFALL: As to any Remittance Date, the
amount, if any, by which the aggregate of the Class I A-1 Interest Shortfalls
for prior Remittance Dates exceeds the aggregate of the amounts distributed on
the Class I A-1 Certificates on prior Remittance Dates in respect of such
Interest Shortfalls, plus accrued interest (to the extent payment thereof is
legally permissible) at the Class I A-1 Remittance Rate on the amount thereof
from such prior Remittance Date to such current Remittance Date. For purposes
of determining whether amounts distributable pursuant to such clause (b) were
actually distributed on the Class I A-1 Certificates on any particular
Remittance Date, the distribution of interest on the Class I A-1 Certificates
on such Remittance Date shall be allocated first to the monthly interest
requirement calculated pursuant to clause (a) of the definition of "Class I
A-1 Interest Formula Distribution Amount" and then to any Class I A-1 Unpaid
Interest Shortfall pursuant to such clause (b).
CLASS I A-2 CERTIFICATE: Any one of the Certificates designated Class
I A-2, executed and countersigned as provided herein, substantially in the
form set forth in Exhibits B-1 and E hereto.
CLASS I A-2 DISTRIBUTION AMOUNT: As to any Remittance Date, the
aggregate amount distributed on the Class I A-2 Certificates on such
Remittance Date pursuant to Section 6.01.
CLASS I A-2 INTEREST FORMULA DISTRIBUTION AMOUNT: As to any
Remittance Date, an amount equal to the sum of (a) interest accrued during the
related Interest Period at the Class I A-2 Remittance Rate on the Class I A-2
Principal Balance as of such Remittance Date (before giving effect to the
distribution on such Remittance Date) and (b) any Class I A-2 Unpaid Interest
Shortfall.
CLASS I A-2 INTEREST SHORTFALL: As to any Remittance Date, any amount
by which the amount distributed on the Class I A-2 Certificates on such
Remittance Date is less than the amount computed pursuant to clause (a) of the
definition of "Class I A-2 Interest Formula Distribution Amount".
CLASS I A-2 PRINCIPAL BALANCE: At any time, the Original Class I A-2
Principal Balance minus the sum of all amounts previously distributed on the
Class I A-2 Certificates since the Closing Date pursuant to clauses A(ii)(b)
and B(ii)(b) of Section 6.01(a) and, in respect of principal on the Class I
A-2 Certificates, pursuant to clauses C(x) and D(x) of Section 6.01(a).
CLASS I A-2 REMITTANCE RATE: As to any Remittance Date, the lesser of
(i) _____% per annum and (ii) the Group I Weighted Average Net Contract Rate
for such Remittance Date.
CLASS I A-2 UNPAID INTEREST SHORTFALL: As to any Remittance Date, the
amount, if any, by which the aggregate of the Class I A-2 Interest Shortfalls
for prior Remittance Dates exceeds the aggregate of the amounts distributed on
the Class I A-2 Certificates on prior Remittance Dates in respect of such
Interest Shortfalls, plus accrued interest (to the extent payment thereof is
legally permissible) at the Class I A-2 Remittance Rate on the amount thereof
from such prior Remittance Date to such current Remittance Date. For purposes
of determining whether amounts distributable pursuant to such clause (b) were
actually distributed on the Class I A-2 Certificates on any particular
Remittance Date, the distribution of interest on the Class I A-2 Certificates
on such Remittance Date shall be allocated first to the monthly interest
requirement calculated pursuant to clause (a) of the definition of "Class I
A-2 Interest Formula Distribution Amount" and then to any Class I A-2 Unpaid
Interest Shortfall pursuant to such clause (b).
CLASS I A-3 CERTIFICATE: Any one of the Certificates designated Class
I A-3, executed and countersigned as provided herein, substantially in the
form set forth in Exhibits B-1 and E hereto.
CLASS I A-3 DISTRIBUTION AMOUNT: As to any Remittance Date, the
aggregate amount distributed on the Class I A-3 Certificates on such
Remittance Date pursuant to Section 6.01.
CLASS I A-3 INTEREST FORMULA DISTRIBUTION AMOUNT: As to any
Remittance Date, an amount equal to the sum of (a) interest accrued during the
related Interest Period at the Class I A-3 Remittance Rate on the Class I A-3
Principal Balance as of such Remittance Date (before giving effect to the
distribution on such Remittance Date) and (b) any Class I A-3 Unpaid Interest
Shortfall.
CLASS I A-3 INTEREST SHORTFALL: As to any Remittance Date, any amount
by which the amount distributed on the Class I A-3 Certificates on such
Remittance Date is less than the amount computed pursuant to clause (a) of the
definition of "Class I A-3 Interest Formula Distribution Amount".
CLASS I A-3 PRINCIPAL BALANCE: At any time, the Original Class I A-3
Principal Balance minus the sum of all amounts previously distributed on the
Class I A-3 Certificates since the Closing Date pursuant to clauses A(ii)(c)
and B(ii)(c) of Section 6.01(a) and, in respect of principal on the Class I
A-3 Certificates, pursuant to clauses C(x) and D(x) of Section 6.01(a).
CLASS I A-3 REMITTANCE RATE: As to any Remittance Date, the lesser of
(i) _____% per annum and (ii) the Group I Weighted Average Net Contract Rate
for such Remittance Date.
CLASS I A-3 UNPAID INTEREST SHORTFALL: As to any Remittance Date, the
amount, if any, by which the aggregate of the Class I A-3 Interest Shortfalls
for prior Remittance Dates exceeds the aggregate of the amounts distributed on
the Class I A-3 Certificates on prior Remittance Dates in respect of such
Interest Shortfalls, plus accrued interest (to the extent payment thereof is
legally permissible) at the Class I A-3 Remittance Rate on the amount thereof
from such prior Remittance Date to such current Remittance Date. For purposes
of determining whether amounts distributable pursuant to such clause (b) were
actually distributed on the Class I A-3 Certificates on any particular
Remittance Date, the distribution of interest on the Class I A-3 Certificates
on such Remittance Date shall be allocated first to the monthly interest
requirement calculated pursuant to clause (a) of the definition of "Class I
A-3 Interest Formula Distribution Amount" and then to any Class I A-3 Unpaid
Interest Shortfall pursuant to such clause (b).
CLASS I A-4 CERTIFICATE: Any one of the Certificates designated Class
I A-4, executed and countersigned as provided herein, substantially in the
form set forth in Exhibits B-1 and E hereto.
CLASS I A-4 DISTRIBUTION AMOUNT: As to any Remittance Date, the
aggregate amount distributed on the Class I A-4 Certificates on such
Remittance Date pursuant to Section 6.01.
CLASS I A-4 INTEREST FORMULA DISTRIBUTION AMOUNT: As to any
Remittance Date, an amount equal to the sum of (a) interest accrued during the
related Interest Period at the Class I A-4 Remittance Rate on the Class I A-4
Principal Balance as of such Remittance Date (before giving effect to the
distribution on such Remittance Date) and (b) any Class I A-4 Unpaid Interest
Shortfall.
CLASS I A-4 INTEREST SHORTFALL: As to any Remittance Date, any amount
by which the amount distributed on the Class I A-4 Certificates on such
Remittance Date is less than the amount computed pursuant to clause (a) of the
definition of "Class I A-4 Interest Formula Distribution Amount".
CLASS I A-4 PRINCIPAL BALANCE: At any time, the Original Class I A-4
Principal Balance minus the sum of all amounts previously distributed on the
Class I A-4 Certificates since the Closing Date pursuant to clauses A(ii)(d)
and B(ii)(d) of Section 6.01(a) and, in respect of principal on the Class I
A-4 Certificates, pursuant to clauses C(x) and D(x) of Section 6.01(a).
CLASS I A-4 REMITTANCE RATE: As to any Remittance Date, the lesser of
(i) _____% per annum and (ii) the Group I Weighted Average Net Contract Rate
for such Remittance Date.
CLASS I A-4 UNPAID INTEREST SHORTFALL: As to any Remittance Date, the
amount, if any, by which the aggregate of the Class I A-4 Interest Shortfalls
for prior Remittance Dates exceeds the aggregate of the amounts distributed on
the Class I A-4 Certificates on prior Remittance Dates in respect of such
Interest Shortfalls, plus accrued interest (to the extent payment thereof is
legally permissible) at the Class I A-4 Remittance Rate on the amount thereof
from such prior Remittance Date to such current Remittance Date. For purposes
of determining whether amounts distributable pursuant to such clause (b) were
actually distributed on the Class I A-4 Certificates on any particular
Remittance Date, the distribution of interest on the Class I A-4 Certificates
on such Remittance Date shall be allocated first to the monthly interest
requirement calculated pursuant to clause (a) of the definition of "Class I
A-4 Interest Formula Distribution Amount" and then to any Class I A-4 Unpaid
Interest Shortfall pursuant to such clause (b).
CLASS I A-5 CERTIFICATE: Any one of the Certificates designated Class
I A-5, executed and countersigned as provided herein, substantially in the
form set forth in Exhibits B-1 and E hereto.
CLASS I A-5 DISTRIBUTION AMOUNT: As to any Remittance Date, the
aggregate amount distributed on the Class I A-5 Certificates on such
Remittance Date pursuant to Section 6.01.
CLASS I A-5 INTEREST FORMULA DISTRIBUTION AMOUNT: As to any
Remittance Date, an amount equal to the sum of (a) interest accrued during the
related Interest Period at the Class I A-5 Remittance Rate on the Class I A-5
Principal Balance as of such Remittance Date (before giving effect to the
distribution on such Remittance Date) and (b) any Class I A-5 Unpaid Interest
Shortfall.
CLASS I A-5 INTEREST SHORTFALL: As to any Remittance Date, any amount
by which the amount distributed on the Class I A-5 Certificates on such
Remittance Date is less than the amount computed pursuant to clause (a) of the
definition of "Class I A-5 Interest Formula Distribution Amount".
CLASS I A-5 PRINCIPAL BALANCE: At any time, the Original Class I A-5
Principal Balance minus the sum of all amounts previously distributed on the
Class I A-5 Certificates since the Closing Date pursuant to clauses A(ii)(e)
and B(ii)(e) of Section 6.01(a) and, in respect of principal on the Class I
A-5 Certificates, pursuant to clauses C(x) and D(x) of Section 6.01(a).
CLASS I A-5 REMITTANCE RATE: As to any Remittance Date, the lesser of
(i) _____% per annum and (ii) the Group I Weighted Average Net Contract Rate
for such Remittance Date.
CLASS I A-5 UNPAID INTEREST SHORTFALL: As to any Remittance Date, the
amount, if any, by which the aggregate of the Class I A-5 Interest Shortfalls
for prior Remittance Dates exceeds the aggregate of the amounts distributed on
the Class I A-5 Certificates on prior Remittance Dates in respect of such
Interest Shortfalls, plus accrued interest (to the extent payment thereof is
legally permissible) at the Class I A-5 Remittance Rate on the amount thereof
from such prior Remittance Date to such current Remittance Date. For purposes
of determining whether amounts distributable pursuant to such clause (b) were
actually distributed on the Class I A-5 Certificates on any particular
Remittance Date, the distribution of interest on the Class I A-5 Certificates
on such Remittance Date shall be allocated first to the monthly interest
requirement calculated pursuant to clause (a) of the definition of "Class I
A-5 Interest Formula Distribution Amount" and then to any Class I A-5 Unpaid
Interest Shortfall pursuant to such clause (b).
CLASS I A-6 CERTIFICATE: Any one of the Certificates designated Class
I A-6, executed and countersigned as provided herein, substantially in the
form set forth in Exhibits B-1 and E hereto.
CLASS I A-6 DISTRIBUTION AMOUNT: As to any Remittance Date, the
aggregate amount distributed on the Class I A-6 Certificates on such
Remittance Date pursuant to Section 6.01.
CLASS I A-6 INTEREST FORMULA DISTRIBUTION AMOUNT: As to any
Remittance Date, an amount equal to the sum of (a) interest accrued during the
related Interest Period at the Class I A-6 Remittance Rate on the Class I A-6
Principal Balance as of such Remittance Date (before giving effect to the
distribution on such Remittance Date) and (b) any Class I A-6 Unpaid Interest
Shortfall.
CLASS I A-6 INTEREST SHORTFALL: As to any Remittance Date, any amount
by which the amount distributed on the Class I A-6 Certificates on such
Remittance Date is less than the amount computed pursuant to clause (a) of the
definition of "Class I A-6 Interest Formula Distribution Amount".
CLASS I A-6 PRINCIPAL BALANCE: At any time, the Original Class I A-6
Principal Balance minus the sum of all amounts previously distributed on the
Class I A-6 Certificates since the Closing Date pursuant to clauses A(iv) and
B(iv) of Section 6.01(a) and, in respect of principal on the Class I A-6
Certificates, pursuant to clauses C(x) and D(x) of Section 6.01(a).
CLASS I A-6 REMITTANCE RATE: As to any Remittance Date, the lesser of
(i) _____% per annum and (ii) the Group I Weighted Average Net Contract Rate
for such Remittance Date.
CLASS I A-6 UNPAID INTEREST SHORTFALL: As to any Remittance Date, the
amount, if any, by which the aggregate of the Class I A-6 Interest Shortfalls
for prior Remittance Dates exceeds the aggregate of the amounts distributed on
the Class I A-6 Certificates on prior Remittance Dates in respect of such
Interest Shortfalls, plus accrued interest (to the extent payment thereof is
legally permissible) at the Class I A-6 Remittance Rate on the amount thereof
from such prior Remittance Date to such current Remittance Date. For purposes
of determining whether amounts distributable pursuant to such clause (b) were
actually distributed on the Class I A-6 Certificates on any particular
Remittance Date, the distribution of interest on the Class I A-6 Certificates
on such Remittance Date shall be allocated first to the monthly interest
requirement calculated pursuant to clause (a) of the definition of "Class I
A-6 Interest Formula Distribution Amount" and then to any Class I A-6 Unpaid
Interest Shortfall pursuant to such clause (b).
CLASS I B CERTIFICATE: Any one of the Class I B-1 Certificates and/or
Class I B-2 Certificates, as the case may be.
CLASS I B PERCENTAGE: As to any Remittance Date, 100% minus the Class
I A Percentage and Class I M-1 Percentage for such Remittance Date.
CLASS I B PRINCIPAL BALANCE: As to any Remittance Date, the sum of
the Class I B-1 and Class I B-2 Principal Balances (before giving effect to
distributions on the Certificates on such Remittance Date).
CLASS I B-1 CERTIFICATE: Any one of the Certificates designated Class
I B-1, executed and countersigned as provided herein, substantially in the
form set forth in Exhibits C-1 and E hereto.
CLASS I B-1 DISTRIBUTION AMOUNT: As to any Remittance Date, the
aggregate amount distributed on the Class I B-1 Certificates on such
Remittance Date pursuant to Section 6.01.
CLASS I B-1 INTEREST FORMULA DISTRIBUTION AMOUNT: As to any
Remittance Date, an amount equal to the sum of (a) interest accrued during the
related Interest Period at the Class I B-1 Remittance Rate on the Class I B-1
Principal Balance as of such Remittance Date (before giving effect to the
distribution on such Remittance Date) and (b) any Class I B-1 Unpaid Interest
Shortfall.
CLASS I B-1 INTEREST SHORTFALL: As to any Remittance Date, any amount
by which the amount distributed on the Class I B-1 Certificates on such
Remittance Date is less than the amount computed pursuant to clause (a) of the
definition of "Class I B-1 Interest Formula Distribution Amount".
CLASS I B-1 PRINCIPAL BALANCE: At any time, the Original Class I B-1
Principal Balance minus the sum of (i) all amounts previously distributed on
the Class I B-1 Certificates pursuant to clauses A(viii) and B(viii) of
Section 6.01(a) and, in respect of principal on the Class I B-1 Certificates,
pursuant to clauses C(x) and D(x) of Section 6.01(a).
CLASS I B-1 REMITTANCE RATE: As to any Remittance Date, the lesser of
(i) _____% per annum and (ii) the Group I Weighted Average Net Contract Rate
for such Remittance Date.
CLASS I B-1 UNPAID INTEREST SHORTFALL: As to any Remittance Date, the
amount, if any, by which the aggregate of the Class I B-1 Interest Shortfalls
for prior Remittance Dates exceeds the aggregate of the amounts distributed on
the Class I B-1 Certificates on prior Remittance Dates in respect of such
Interest Shortfalls, plus accrued interest (to the extent payment thereof is
legally permissible) at the Class I B-1 Remittance Rate on the amount thereof
from such prior Remittance Date to such current Remittance Date. For purposes
of determining whether amounts distributable pursuant to such clause (b) were
actually distributed on the Class I B-1 Certificates on any particular
Remittance Date, the distribution of interest on the Class I B-1 Certificates
on such Remittance Date shall be allocated first to the monthly interest
requirement calculated pursuant to clause (a) of the definition of "Class I
B-1 Interest Formula Distribution Amount" and then to any Class I B-1 Unpaid
Interest Shortfall pursuant to such clause (b).
CLASS I B-2 CERTIFICATE: Any one of the Certificates designated Class
I B-2, executed and countersigned as provided herein, substantially in the
form set forth in Exhibits C-1 and E hereto.
CLASS I B-2 DISTRIBUTION AMOUNT: As to any Remittance Date, the
aggregate amount distributed on the Class I B-2 Certificates on such
Remittance Date pursuant to Section 6.01 [(excluding the amount of the Group I
Guarantee Payment, if any, with respect to such Remittance Date)].
CLASS I B-2 FLOOR AMOUNT: As to any Remittance Date, $____________.
CLASS I B-2 FORMULA DISTRIBUTION AMOUNT: As to any Remittance Date,
an amount equal to the sum of (a) the Class I B-2 Interest Formula
Distribution Amount for such Remittance Date and (b) the greater of (x) the
Class I B-2 Principal Liquidation Loss Amount for such Remittance Date and (y)
an amount equal to the amount, if any, of principal that would be
distributable on the Class I B-2 Certificates on such Remittance Date pursuant
to clauses (A)(x) or (B)(x), as the case may be, of Section 6.01(a) hereof,
assuming that the Group I Available Distribution Amount for such Remittance
Date remaining after distribution of the amounts specified in (x) clauses
A(i), A(iii), A(v), A(vii) and A(ix) in the aggregate or (y) clauses B(i),
B(iii), B(v), B(vii) and B(ix) in the aggregate, as the case may be, of
Section 6.01(a) hereof is at least equal to the Group I Formula Principal
Distribution Amount for such Remittance Date.
CLASS I B-2 INTEREST FORMULA DISTRIBUTION AMOUNT: As to any
Remittance Date, an amount equal to the sum of (a) interest accrued during the
related Interest Period at the Class I B-2 Remittance Rate on the Class I B-2
Principal Balance as of such Remittance Date (before giving effect to the
distribution on such Remittance Date) and (b) any Class I B-2 Unpaid Interest
Shortfall.
CLASS I B-2 INTEREST SHORTFALL: As to any Remittance Date, any amount
by which the amount distributed on the Class I B-2 Certificates on such
Remittance Date is less than the amount computed pursuant to clause (a) of the
definition of "Class I B-2 Interest Formula Distribution Amount".
CLASS I B-2 PRINCIPAL BALANCE: At any time, the Original Class I B-2
Principal Balance minus the sum of (i) all amounts previously distributed on
the Class I B-2 Certificates pursuant to clauses A(x) and B(x) of Section
6.01(a) and, in respect of principal on the Class I B-2 Certificates, pursuant
to clauses C(x) and D(x) of Section 6.01(a).
CLASS I B-2 PRINCIPAL LIQUIDATION LOSS AMOUNT: As to any Remittance
Date the amount, if any, by which the sum of the Class I A Principal Balance
and the Class I B Principal Balance for such Remittance Date exceeds the Group
I Pool Scheduled Principal Balance for such Remittance Date, in each case,
after giving effect to all distributions on the Certificates on account of
principal on such Remittance Date [(exclusive of the related Guarantee
Payment, if any)].
CLASS I B-2 REMITTANCE RATE: As to any Remittance Date, the lesser of
(i) _____% per annum and (ii) the Group I Weighted Average Net Contract Rate
for such Remittance Date.
CLASS I B-2 UNPAID INTEREST SHORTFALL: As to any Remittance Date, the
amount, if any, by which the aggregate of the Class I B-2 Interest Shortfalls
for prior Remittance Dates exceeds the aggregate of the amounts distributed on
the Class I B-2 Certificates on prior Remittance Dates in respect of such
Interest Shortfalls, plus accrued interest (to the extent payment thereof is
legally permissible) at the Class I B-2 Remittance Rate on the amount thereof
from such prior Remittance Date to such current Remittance Date. For purposes
of determining whether amounts distributable pursuant to such clause (b) were
actually distributed on the Class I B-2 Certificates on any particular
Remittance Date, the distribution of interest on the Class I B-2 Certificates
on such Remittance Date shall be allocated first to the monthly interest
requirement calculated pursuant to clause (a) of the definition of "Class I
B-2 Interest Formula Distribution Amount" and then to any Class I B-2 Unpaid
Interest Shortfall pursuant to such clause (b).
CLASS I M-1 AND CLASS I B PRINCIPAL DISTRIBUTION TEST: The Class I
M-1 and Class I B Principal Distribution Test is met in respect of a
Remittance Date if the following conditions are satisfied:
(i) such Remittance Date is on or after the _____ ____ Remittance
Date;
(ii) the Class I M-1 Percentage plus the Class I B Percentage for
such Remittance Date is equal to at least ______%;
(iii) the Average Sixty-Day Delinquency Ratio for the Group I
Contracts as of such Remittance Date does not exceed __%;
(iv) the Average Thirty-Day Delinquency Ratio for the Group I
Contracts as of such Remittance Date does not exceed __%;
(v) the Cumulative Realized Losses for the Group I Contracts
do not exceed (x) __% of the Group I Total Original Contract Pool
Principal Balance, as of the March 2004 Remittance Date, (y) __%
of the Group I Total Original Contract Pool Principal Balance as of
the _____ ____ Remittance Date, and (z) __% of the Group I Total
Original Contract Pool Principal Balance as of the _____ ____
Remittance Date and thereafter;
(vi) the Current Realized Loss Ratio for the Group I Contracts as
of such Remittance Date does not exceed ____%; and
(vii) the Class I B-2 Principal Balance is not less than the
Class I B-2 Floor Amount.
CLASS I M-1 CERTIFICATE: Any one of the Certificates designated Class
I M-1, executed and countersigned as provided herein, substantially in the
form set forth in Exhibits B-3 and E hereto.
CLASS I M-1 DISTRIBUTION AMOUNT: As to any Remittance Date, the
aggregate amount distributed on the Class I M-1 Certificates on such
Remittance Date pursuant to Section 6.01.
CLASS I M-1 INTEREST FORMULA DISTRIBUTION AMOUNT: As to any
Remittance Date, an amount equal to the sum of (a) interest accrued during the
related Interest Period at the Class I M-1 Remittance Rate on the Class I M-1
Principal Balance as of such Remittance Date (before giving effect to the
distribution on such Remittance Date) and (b) any Class I M-1 Unpaid Interest
Shortfall.
CLASS I M-1 INTEREST SHORTFALL: As to any Remittance Date, any amount
by which the amount distributed on the Class I M-1 Certificates on such
Remittance Date is less than the amount computed pursuant to clause (a) of the
definition of "Class I M-1 Interest Formula Distribution Amount".
CLASS I M-1 PERCENTAGE: As to any Remittance Date, the percentage
derived from the fraction (which shall not be greater than 1) whose numerator
is the Class I M-1 Principal Balance immediately prior to such Remittance Date
and whose denominator is the Group I Pool Scheduled Principal Balance
immediately prior to such Remittance Date.
CLASS I M-1 PRINCIPAL BALANCE: At any time, the Original Class I M-1
Principal Balance minus the sum of all amounts previously distributed on the
Class I M-1 Certificates since the Closing Date pursuant to clauses A(vi) and
B(vi) of Section 6.01(a) and, in respect of principal on the Class I M-1
Certificates, pursuant to clauses C(x) and D(x) of Section 6.01(a).
CLASS I M-1 REMITTANCE RATE: As to any Remittance Date, the lesser of
(i) _____% per annum and (ii) the Group I Weighted Average Net Contract Rate
for such Remittance Date.
CLASS I M-1 UNPAID INTEREST SHORTFALL: As to any Remittance Date, the
amount, if any, by which the aggregate of the Class I M-1 Interest Shortfalls
for prior Remittance Dates exceeds the aggregate of the amounts distributed on
the Class I M-1 Certificates on prior Remittance Dates in respect of such
Interest Shortfalls, plus accrued interest (to the extent payment thereof is
legally permissible) at the Class I M-1 Remittance Rate on the amount thereof
from such prior Remittance Date to such current Remittance Date. For purposes
of determining whether amounts distributable pursuant to such clause (b) were
actually distributed on the Class I M-1 Certificates on any particular
Remittance Date, the distribution of interest on the Class I M-1 Certificates
on such Remittance Date shall be allocated first to the monthly interest
requirement calculated pursuant to clause (a) of the definition of "Class I
M-1 Interest Formula Distribution Amount" and then to any Class I M-1 Unpaid
Interest Shortfall pursuant to such clause (b).
CLASS II A CERTIFICATE: Any one of the Class II A-1 Certificates.
CLASS II A DISTRIBUTION AMOUNT: As to any Remittance Date, the Class
II A-1 Distribution Amount.
CLASS II A PERCENTAGE: As to any Remittance Date, the percentage
derived from the fraction (which shall not be greater than 1) whose numerator
is the Class II A Principal Balance immediately prior to such Remittance Date
and whose denominator is the Group II Pool Scheduled Principal Balance
immediately prior to such Remittance Date; provided, however, that on any
Remittance Date on which (i) the Class II B Principal Distribution Test is met
and (ii) the Class II B Percentage is greater than 50%, the Class II A
Percentage shall equal 0% until distribution of principal to the Class II B
Certificates on such Remittance Date shall reduce the Class II B Percentage to
a percentage equal to 50%.
CLASS II A PRINCIPAL BALANCE: As to any Remittance Date, the Class II
A-1 Principal Balance (before giving effect to distributions on the
Certificates on such Remittance Date).
CLASS II A-1 CERTIFICATE: Any one of the Certificates designated
Class II A-1, executed and countersigned as provided herein, substantially in
the form set forth in Exhibits B-2 and E hereto.
CLASS II A-1 DISTRIBUTION AMOUNT: As to any Remittance Date, the
aggregate amount distributed on the Class II A-1 Certificates on such
Remittance Date pursuant to Section 6.01.
CLASS II A-1 FORMULA RATE: As to any Remittance Date, a per annum
rate equal to the sum of (a) LIBOR for such Remittance Date and (b)(i) if such
Remittance Date occurs on or prior to the Call Option Date, ____% (__________
basis points) per annum or (ii) if such Remittance Date occurs after the Call
Option Date, ____% (_________ basis points) per annum.
CLASS II A-1 INTEREST FORMULA DISTRIBUTION AMOUNT: As to any
Remittance Date, an amount equal to the sum of (a) interest accrued during the
related Interest Period at the Class II A-1 Remittance Rate on the Class II
A-1 Principal Balance as of such Remittance Date (before giving effect to the
distribution on such Remittance Date) and (b) any Class II A-1 Unpaid Interest
Shortfall.
CLASS II A-1 INTEREST SHORTFALL: As to any Remittance Date, any
amount by which the amount distributed on the Class II A-1 Certificates on
such Remittance Date is less than the amount computed pursuant to clause (a)
of the definition of "Class II A-1 Interest Formula Distribution Amount".
CLASS II A-1 NET FUNDS CAP CARRYOVER AMOUNT: As to any Remittance
Date, the sum of (A) if the Remittance Rate for the Class II A-1 Certificates
on such Remittance Date is based upon the Net Funds Cap, the amount, if any,
by which (i) the lesser of (a) the product of (x) the Weighted Average
Lifetime Cap for such Remittance Date and (y) the Class II A-1 Principal
Balance as of such Remittance Date and (b) the amount of interest that would
otherwise be distributable on the Class II A-1 Certificates on such Remittance
Date were such Remittance Rate calculated at the Class II A-1 Formula Rate for
such Remittance Date exceeds (ii) the amount of interest payable on the Class
II A-1 Certificates at the Net Funds Cap for such Remittance Date and (B) the
Class II A-1 Net Funds Cap Carryover Amounts, together with accrued interest
thereon (at the Class II A-1 Formula Rate for such Remittance Date) for all
previous Remittance Dates to the extent not previously paid pursuant to clause
C(xi) or D(xi) of Section 6.01(a).
CLASS II A-1 PRINCIPAL BALANCE: At any time, the Original Class II
A-1 Principal Balance minus the sum of all amounts previously distributed on
the Class II A-1 Certificates since the Closing Date pursuant to clauses C(ii)
and D(ii) of Section 6.01(a) and, in respect of principal on the Class II A-1
Certificates, pursuant to clauses A(xi), B(xi), C(ix) and D(ix) of Section
6.01(a).
CLASS II A-1 REMITTANCE RATE: With respect to the first Remittance
Date, _______% per annum, and, for any subsequent Remittance Date, the lesser
of (a) Class II A-1 Formula Rate for such Remittance Date and (b) the Net
Funds Cap for such Remittance Date.
CLASS II A-1 UNPAID INTEREST SHORTFALL: As to any Remittance Date,
the amount, if any, by which the aggregate of the Class II A-1 Interest
Shortfalls for prior Remittance Dates exceeds the aggregate of the amounts
distributed on the Class II A-1 Certificates on prior Remittance Dates in
respect of such Interest Shortfalls, plus accrued interest (to the extent
payment thereof is legally permissible) at the Class II A-1 Remittance Rate on
the amount thereof from such prior Remittance Date to such current Remittance
Date. For purposes of determining whether amounts distributable pursuant to
such clause (b) were actually distributed on the Class II A-1 Certificates on
any particular Remittance Date, the distribution of interest on the Class II
A-1 Certificates on such Remittance Date shall be allocated first to the
monthly interest requirement calculated pursuant to clause (a) of the
definition of "Class II A-1 Interest Formula Distribution Amount" and then to
any Class II A-1 Unpaid Interest Shortfall pursuant to such clause (b).
CLASS II B CERTIFICATE: Any one of the Class II B-1 Certificates,
Class II B-2 Certificates and/or Class II B-3 Certificates, as the case may
be.
CLASS II B PERCENTAGE: As to any Remittance Date, 100% minus the
Class II A Percentage for such Remittance Date; provided, however, that on any
Remittance Date on which (i) the Class II B Principal Distribution Test is met
and (ii) the Class II B Percentage is greater than 50%, the Class II B
Percentage shall equal 100% until distribution of principal to the Class II B
Certificateholders on such Remittance Date shall increase the Class II A
Percentage to a percentage equal to 50%; provided, further, on the Remittance
Date on which there is a Group II Formula Principal Distribution Amount in
excess of the Required Class II B Payment, the Required Class II B Payment
shall be distributed to the Class II B Certificates and the remaining Group II
Formula Principal Distribution Amount shall be distributed pro rata to the
Class II A Certificates and the Class II B Certificates.
CLASS II B PRINCIPAL BALANCE: As to any Remittance Date, the sum of
the Class II B-1, Class II B-2 and Class II B-3 Principal Balances (before
giving effect to distributions on the Certificates on such Remittance Date).
CLASS II B PRINCIPAL DISTRIBUTION TEST: The Class II B Principal
Distribution Test is met in respect of a Remittance Date if the following
conditions are satisfied:
(i) such Remittance Date is on or after the _____ ____
Remittance Date;
(ii) the Class II B Percentage for such Remittance Date is equal
to at least 50%;
(iii) the Average Sixty-Day Delinquency Ratio for the Group II
Contracts as of such Remittance Date does not exceed __%;
(iv) the Average Thirty-Day Delinquency Ratio for the Group II
Contracts as of such Remittance Date does not exceed __%;
(v) the Cumulative Realized Losses for the Group II Contracts
do not exceed (x) __% of the Group II Total Original Contract Pool
Principal Balance, as of the March 2004 Remittance Date, (y) __% of
the Group II Total Original Contract Pool Principal Balance as of
the March 2005 Remittance Date, and (z) __% of the Group II Total
Original Contract Pool Principal Balance as of the March 2006
Remittance Date and thereafter;
(vi) the Current Realized Loss Ratio for the Group II Contracts
as of such Remittance Date does not exceed _____%; and
(vii) the sum of the Class II B-3 Principal Balance and the
Overcollateralization Amount is not less than the Group II Certificate
Floor Amount.
CLASS II B-1 CERTIFICATE: Any one of the Certificates designated
Class II B-1, executed and countersigned as provided herein, substantially in
the form set forth in Exhibits C-2 and E hereto.
CLASS II B-1 DISTRIBUTION AMOUNT: As to any Remittance Date, the
aggregate amount distributed on the Class II B-1 Certificates on such
Remittance Date pursuant to Section 6.01.
CLASS II B-1 FORMULA RATE: As to any Remittance Date, a per annum
rate equal to the sum of (a) LIBOR for such Remittance Date and (b)(i) if such
Remittance Date occurs on or prior to the Call Option Date, ____% (___________
basis points) per annum or (ii) if such Remittance Date occurs after the Call
Option Date, ___% (__________ basis points) per annum.
CLASS II B-1 INTEREST FORMULA DISTRIBUTION AMOUNT: As to any
Remittance Date, an amount equal to the sum of (a) interest accrued during the
related Interest Period at the Class II B-1 Remittance Rate on the Class II
B-1 Principal Balance as of such Remittance Date (before giving effect to the
distribution on such Remittance Date) and (b) any Class II B-1 Unpaid Interest
Shortfall.
CLASS II B-1 INTEREST SHORTFALL: As to any Remittance Date, any
amount by which the amount distributed on the Class II B-1 Certificates on
such Remittance Date is less than the amount computed pursuant to clause (a)
of the definition of "Class II B-1 Interest Formula Distribution Amount".
CLASS II B-1 NET FUNDS CAP CARRYOVER AMOUNT: As to any Remittance
Date, the sum of (A) if the Remittance Rate for the Class II B-1 Certificates
on such Remittance Date is based upon the Net Funds Cap, the amount, if any,
by which (i) the lesser of (a) the product of (x) the Weighted Average
Lifetime Cap for such Remittance Date and (y) the Class II B-1 Principal
Balance as of such Remittance Date and (b) the amount of interest that would
otherwise be distributable on the Class II B-1 Certificates on such Remittance
Date were such Remittance Rate calculated at the Class II B-1 Formula Rate for
such Remittance Date exceeds (ii) the amount of interest payable on the Class
II B-1 Certificates at the Net Funds Cap for such Remittance Date and (B) the
Class II B-1 Net Funds Cap Carryover Amounts, together with accrued interest
thereon (at the Class II B-1 Formula Rate for such Remittance Date) for all
previous Remittance Dates to the extent not previously paid pursuant to clause
C(xi) or D(xi) of Section 6.01(a).
CLASS II B-1 PRINCIPAL BALANCE: At any time, the Original Class II
B-1 Principal Balance minus the sum of all amounts previously distributed on
the Class II B-1 Certificates pursuant to clauses C(iv) and D(iv) of Section
6.01(a) and, in respect of principal on the Class II B-1 Certificates,
pursuant to clauses A(xi), B(xi), C(ix) and D(ix) of Section 6.01(a).
CLASS II B-1 REMITTANCE RATE: With respect to the first Remittance
Date, _______% per annum, and, for any subsequent Remittance Date, the lesser
of (a) Class II B-1 Formula Rate for such Remittance Date and (b) the Net
Funds Cap for such Remittance Date.
CLASS II B-1 UNPAID INTEREST SHORTFALL: As to any Remittance Date,
the amount, if any, by which the aggregate of the Class II B-1 Interest
Shortfalls for prior Remittance Dates exceeds the aggregate of the amounts
distributed on the Class II B-1 Certificates on prior Remittance Dates in
respect of such Interest Shortfalls, plus accrued interest (to the extent
payment thereof is legally permissible) at the Class II B-1 Remittance Rate on
the amount thereof from such prior Remittance Date to such current Remittance
Date. For purposes of determining whether amounts distributable pursuant to
such clause (b) were actually distributed on the Class II B-1 Certificates on
any particular Remittance Date, the distribution of interest on the Class II
B-1 Certificates on such Remittance Date shall be allocated first to the
monthly interest requirement calculated pursuant to clause (a) of the
definition of "Class II B-1 Interest Formula Distribution Amount" and then to
any Class II B-1 Unpaid Interest Shortfall pursuant to such clause (b).
CLASS II B-2 CERTIFICATE: Any one of the Certificates designated
Class II B-2, executed and countersigned as provided herein, substantially in
the form set forth in Exhibits C-2 and E hereto.
CLASS II B-2 DISTRIBUTION AMOUNT: As to any Remittance Date, the
aggregate amount distributed on the Class II B-2 Certificates on such
Remittance Date pursuant to Section 6.01.
CLASS II B-2 FORMULA RATE: As to any Remittance Date, a per annum
rate equal to the sum of (a) LIBOR for such Remittance Date and (b)(i) if such
Remittance Date occurs on or prior to the Call Option Date, ____%
(___________________ basis points) per annum if such Remittance Date occurs
after the Call Option Date, ____% (__________________ basis points) per annum.
CLASS II B-2 INTEREST FORMULA DISTRIBUTION AMOUNT: As to any
Remittance Date, an amount equal to the sum of (a) interest accrued during the
related Interest Period at the Class II B-2 Remittance Rate on the Class II
B-2 Principal Balance as of such Remittance Date (before giving effect to the
distribution on such Remittance Date) and (b) any Class II B-2 Unpaid Interest
Shortfall.
CLASS II B-2 INTEREST SHORTFALL: As to any Remittance Date, any
amount by which the amount distributed on the Class II B-2 Certificates on
such Remittance Date is less than the amount computed pursuant to clause (a)
of the definition of "Class II B-2 Interest Formula Distribution Amount".
CLASS II B-2 NET FUNDS CAP CARRYOVER AMOUNT: As to any Remittance
Date, the sum of (A) if the Remittance Rate for the Class II B-2 Certificates
on such Remittance Date is based upon the Net Funds Cap, the amount, if any,
by which (i) the lesser of (a) the product of (x) the Weighted Average
Lifetime Cap for such Remittance Date and (y) the Class II B-2 Principal
Balance as of such Remittance Date and (b) the amount of interest that would
otherwise be distributable on the Class II B-2 Certificates on such Remittance
Date were such Remittance Rate calculated at the Class II B-2 Formula Rate for
such Remittance Date exceeds (ii) the amount of interest payable on the Class
II B-2 Certificates at the Net Funds Cap for such Remittance Date and (B) the
Class II B-2 Net Funds Cap Carryover Amounts, together with accrued interest
thereon (at the Class II B-2 Formula Rate for such Remittance Date) for all
previous Remittance Dates to the extent not previously paid pursuant to clause
C(xi) or D(xi) of Section 6.01(a).
CLASS II B-2 PRINCIPAL BALANCE: At any time, the Original Class II
B-2 Principal Balance minus the sum of all amounts previously distributed on
the Class II B-2 Certificates pursuant to clauses C(vi) and D(vi) of Section
6.01(a) and, in respect of principal on the Class II B-2 Certificates,
pursuant to clauses A(xi), B(xi), C(ix) and D(ix) of Section 6.01(a).
CLASS II B-2 REMITTANCE RATE: With respect to the first Remittance
Date, _______% per annum, and for any subsequent Remittance Date, the lesser
of (a) Class II B-2 Formula Rate for such Remittance Date and (b) the Net
Funds Cap for such Remittance Date.
CLASS II B-2 UNPAID INTEREST SHORTFALL: As to any Remittance Date,
the amount, if any, by which the aggregate of the Class II B-2 Interest
Shortfalls for prior Remittance Dates exceeds the aggregate of the amounts
distributed on the Class I B-2 Certificates on prior Remittance Dates in
respect of such Interest Shortfalls, plus accrued interest (to the extent
payment thereof is legally permissible) at the Class II B-2 Remittance Rate on
the amount thereof from such prior Remittance Date to such current Remittance
Date. For purposes of determining whether amounts distributable pursuant to
such clause (b) were actually distributed on the Class II B-2 Certificates on
any particular Remittance Date, the distribution of interest on the Class II
B-2 Certificates on such Remittance Date shall be allocated first to the
monthly interest requirement calculated pursuant to clause (a) of the
definition of "Class II B-2 Interest Formula Distribution Amount" and then to
any Class II B-2 Unpaid Interest Shortfall pursuant to such clause (b).
CLASS II B-3 CERTIFICATE: Any one of the Certificates designated
Class II B-3, executed and countersigned as provided herein, substantially in
the form set forth in Exhibits C-2 and E hereto.
CLASS II B-3 DISTRIBUTION AMOUNT: As to any Remittance Date, the
aggregate amount distributed on the Class II B-3 Certificates on such
Remittance Date pursuant to Section 6.01 [(excluding the amount of the Group
II Guarantee Payment, if any, with respect to such Remittance Date)].
CLASS II B-3 FORMULA DISTRIBUTION AMOUNT: As to any Remittance Date,
an amount equal to the sum of (a) the Class II B-3 Interest Formula
Distribution Amount for such Remittance Date and (b) the greater of (x) the
Class II B-3 Principal Liquidation Loss Amount for such Remittance Date and
(y) an amount equal to the amount, if any, of principal that would be
distributable on the Class II B-3 Certificates on such Remittance Date
pursuant to clauses (C)(viii) or (D)(viii), as the case may be, of Section
6.01(a) hereof, assuming that the Group II Available Distribution Amount for
such Remittance Date remaining after distribution of the amounts specified in
(x) clauses C(i), C(iii), C(v) and C(vii) in the aggregate or (y) clauses
D(i), D(iii), D(v) and D(vii) in the aggregate, as the case may be, of Section
6.01(a) hereof is at least equal to the Group II Formula Principal
Distribution Amount for such Remittance Date.
CLASS II B-3 FORMULA RATE: As to any Remittance Date, a per annum
rate equal to the sum of (a) LIBOR for such Remittance Date and (b)(i) if such
Remittance Date occurs on or prior to the Call Option Date, ____%
(________________ basis points) per annum or (ii) if such Remittance Date
occurs after the Call Option Date, ____% (______________ basis points) per
annum.
CLASS II B-3 INTEREST FORMULA DISTRIBUTION AMOUNT: As to any
Remittance Date, an amount equal to the sum of (a) interest accrued during the
related Interest Period at the Class II B-3 Remittance Rate on the Class II
B-3 Principal Balance as of such Remittance Date (before giving effect to the
distribution on such Remittance Date) and (b) any Class II B-3 Unpaid Interest
Shortfall.
CLASS II B-3 INTEREST SHORTFALL: As to any Remittance Date, any
amount by which the amount distributed on the Class II B-3 Certificates on
such Remittance Date is less than the amount computed pursuant to clause (a)
of the definition of "Class II B-3 Interest Formula Distribution Amount".
CLASS II B-3 NET FUNDS CAP CARRYOVER AMOUNT: As to any Remittance
Date, the sum of (A) if the Remittance Rate for the Class II B-3 Certificates
on such Remittance Date is based upon the Net Funds Cap, the amount, if any,
by which (i) the lesser of (a) the product of (x) the Weighted Average
Lifetime Cap for such Remittance Date and (y) the Class II B-3 Principal
Balance as of such Remittance Date and (b) the amount of interest that would
otherwise be distributable on the Class II B-3 Certificates on such Remittance
Date were such Remittance Rate calculated at the Class II B-3 Formula Rate for
such Remittance Date exceeds (ii) the amount of interest payable on the Class
II B-3 Certificates at the Net Funds Cap for such Remittance Date and (B) the
Class II B-3 Net Funds Cap Carryover Amounts, together with accrued interest
thereon (at the Class II B-3 Formula Rate for such Remittance Date) for all
previous Remittance Dates to the extent not previously paid pursuant to clause
C(xi) or D(xi) of Section 6.01(a).
CLASS II B-3 PRINCIPAL BALANCE: At any time, the Original Class II
B-3 Principal Balance minus the sum of all amounts previously distributed on
the Class II B-3 Certificates pursuant to clauses C(viii) and D(viii) of
Section 6.01(a) and, in respect of principal on the Class II B-3 Certificates,
pursuant to clauses A(xi), B(xi), C(ix) and D(ix) of Section 6.01(a).
CLASS II B-3 PRINCIPAL LIQUIDATION LOSS AMOUNT: As to any Remittance
Date the amount, if any, by which the sum of the Class II A Principal Balance
and the Class II B Principal Balance for such Remittance Date exceeds the
Group II Pool Scheduled Principal Balance for such Remittance Date, in each
case, after giving effect to all distributions on the Certificates on account
of principal on such Remittance Date [(exclusive of the related Guarantee
Payment, if any)].
CLASS II B-3 REMITTANCE RATE: With respect to the first Remittance
Date, _______% per annum, and for any subsequent Remittance Date, the lesser
of (a) Class II B-3 Formula Rate for such Remittance Date and (b) the Net
Funds Cap for such Remittance Date.
CLASS II B-3 UNPAID INTEREST SHORTFALL: As to any Remittance Date,
the amount, if any, by which the aggregate of the Class II B-3 Interest
Shortfalls for prior Remittance Dates exceeds the aggregate of the amounts
distributed on the Class II B-3 Certificates on prior Remittance Dates in
respect of such Interest Shortfalls, plus accrued interest (to the extent
payment thereof is legally permissible) at the Class II B-3 Remittance Rate on
the amount thereof from such prior Remittance Date to such current Remittance
Date. For purposes of determining whether amounts distributable pursuant to
such clause (b) were actually distributed on the Class II B-3 Certificates on
any particular Remittance Date, the distribution of interest on the Class II
B-3 Certificates on such Remittance Date shall be allocated first to the
monthly interest requirement calculated pursuant to clause (a) of the
definition of "Class II B-3 Interest Formula Distribution Amount" and then to
any Class II B-3 Unpaid Interest Shortfall pursuant to such clause (b).
CLASS R CERTIFICATE: The Certificate executed and countersigned as
provided herein, substantially in the form set forth in Exhibits D and E
hereto.
CLASS R DISTRIBUTION AMOUNT: As to any Remittance Date, the aggregate
amount distributed on the Class R Certificate pursuant to Section 6.01.
CLOSING DATE: ________ __, 1999.
CODE: The Internal Revenue Code of 1986, as amended.
COMBINED TOTAL ORIGINAL CONTRACT POOL PRINCIPAL BALANCE: The sum of
the Group I Total Original Contract Pool Principal Balance and the Group II
Total Original Contract Pool Principal Balance.
COMPANY: Vanderbilt Mortgage and Finance, Inc., a Tennessee
corporation, or its successor in interest or any successor under this
Agreement appointed as herein provided.
COMPUTER TAPE: The computer tape generated by the Company which
provides information relating to the Contracts, and includes the master file
and the history file.
CONTRACT FILE: As to each Contract, other than a Land-and-Home
Contract, (a) the original of the Contract (except for fewer than 15
Contracts, in which case the related Contract File shall contain a photocopy
of the original Contract together with a certificate from the Obligor under
such Contract certifying that such photocopy is a true copy of the original
Contract), and, in the case of each Bi-weekly Contract, the original of the
bi-weekly rider for such Contract, and, in the case of each Escalating
Principal Payment Contract, the original of the graduated payment rider for
such Contract; (b) the original title document for the related Manufactured
Home of the type issued to lienholders, unless the laws of the jurisdiction in
which the related Manufactured Home is located do not provide for the issuance
of such title documents for such Manufactured Home; (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: (1)
notation of such security interest on the title document, (2) a financing
statement meeting the requirements of the UCC, with evidence of recording in
the appropriate offices indicated thereon, or (3) such other evidence of
perfection of a security interest in a manufactured housing unit as is
customary in such jurisdiction; (d) the assignment of the Contract (which may
be in a blanket form that also covers other Contracts or contracts) from the
Originator to the Company; and (e) any extension, modification or waiver
agreement(s). In addition, as to each Land Secured Contract, the related
Mortgage with evidence of recording thereon.
CONTRACT POOL: The pool of Contracts held in the Trust Fund with
respect to each Group.
CONTRACT RATE ADJUSTMENT DATE: As to each Group II Contract, a date
on which the related APR may adjust, as provided in such Contract.
CONTRACT SCHEDULE: The list (as such list may be amended from time to
time) identifying each Contract constituting part of the corpus of the Trust
Fund as of the Cut-off Date, and which (a) identifies each Contract by Group,
contract number and name and address of the Obligor and (b) sets forth as to
each Contract (i) the unpaid principal balance as of the related Transfer Date
determined by giving effect to payments received prior to the related Transfer
Date, (ii) the amount of each scheduled payment due from the Obligor, and
(iii) the APR.
CONTRACTS: The manufactured housing installment sale contracts and
installment loan agreements, including any Land-and-Home Contracts and
Mortgage Loans, described in the Contract Schedule and constituting part of
the corpus of the Trust Fund, which Contracts are to be sold and assigned by
the Company to the Trustee and which are the subject of this Agreement. The
Contracts include, without limitation, all related security interests and any
and all rights to receive payments which are due pursuant thereto from and
after the Cut-off Date, but exclude any rights to receive payments which are
due pursuant thereto prior to the Cut-off Date.
CORPORATE TRUST OFFICE: The principal office of the Trustee at which
at any particular time its corporate business in connection with this
Agreement shall be administered, which office at the date of execution of this
Agreement is located at ____________________,
________________________________.
CUSTODIAL AGREEMENT: As defined in Section 2.04(a).
CUT-OFF DATE: _______ __, 1999.
DEFICIENCY EVENT: The Remittance Date, if any, on which the Group I
Pool Scheduled Principal Balance becomes equal to or less than the sum of the
Class I A-1 Principal Balance, the Class I A-2 Principal Balance, the Class I
A-3 Principal Balance, the Class I A-4 Principal Balance and the Class I A-5
Principal Balance.
DEFINITIVE CERTIFICATES: As defined in Section 4.02(g).
DEPOSITORY: The initial Depository shall be The Depository Trust
Company, the nominee of which is CEDE & CO., as the registered Holder of (i)
one Class I A-1 Certificate evidencing $__________ in initial aggregate
principal balance of the Class I A-1 Certificates, (ii) one Class I A-2
Certificate evidencing $__________ in initial aggregate principal balance of
the Class I A-2 Certificates, (iii) one Class I A-3 Certificate evidencing
$__________ in initial aggregate principal balance of the Class I A-3
Certificates, (iv) one Class I A-4 Certificate evidencing $__________ in
initial aggregate principal balance of the Class I A-4 Certificates, (v) one
Class I A-5 Certificate evidencing $__________ in initial aggregate principal
balance of the Class I A-5 Certificates, (vi) one Class I A-6 Certificate
evidencing $__________ in initial aggregate principal balance of the Class I
A-6 Certificates, (vii) one Class I M-1 Certificate evidencing $_________ in
initial aggregate principal balance of the Class I M-1 Certificates, (viii)
one Class I B-1 Certificate evidencing $_________ in initial aggregate
principal balance of the Class I B-1 Certificates, (ix) one Class I B-2
Certificate evidencing $__________ in initial aggregate principal balance of
the Class I B-2 Certificates, (x) one Class II A-1 Certificate evidencing
$__________ in initial aggregate principal balance of Class II A-1
Certificates, (xi) one Class II B-1 Certificate evidencing $__________ in
initial aggregate principal balance of Class II B-1 Certificates, (xii) one
Class II B-2 Certificate evidencing $_________ in initial aggregate principal
balance of Class II B-2 Certificates and (xiii) one Class II B-3 Certificate
evidencing $_________ in initial aggregate principal balance of Class II B-3
Certificates. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(3) of the Uniform Commercial Code of the State of New
York.
DEPOSITORY PARTICIPANT: A broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
DETERMINATION DATE: The fifth Business Day prior to each Remittance
Date.
DISTRIBUTION ACCOUNT: The custodial account or accounts created and
maintained with respect to each Certificate Group pursuant to Section 5.18.
DUE DATE: The day of the month (or in the case of a Bi-weekly
Contract or Semi-Monthly Contract, each day in the month) on which each
scheduled payment of principal and interest is due on a Contract, exclusive of
any days of grace.
DUE PERIOD: With respect to the first Remittance Date, the period
commencing on _______ __, 1999 and ending on ________ __, 1999. With respect
to any Remittance Date after the first Remittance Date, the period commencing
on the 26th day of the second month preceding the month of such Remittance
Date and ending on the 25th day of the month preceding the month of such
Remittance Date.
ELECTRONIC LEDGER: The electronic master record of the Company's
manufactured housing installment sales contracts and installment loan
agreements clearly identifying each Contract that is part of the corpus of the
Trust Fund.
ELIGIBLE ACCOUNT: An account that is either (i) maintained with a
depository institution the commercial paper or short-term unsecured debt
obligations of which is rated "__" by _______ and "___" by _____, (ii) a trust
account maintained with the Trustee in its corporate trust department or (iii)
otherwise acceptable to the Rating Agencies, as evidenced by a letter from the
Rating Agencies, without a reduction or withdrawal of the rating of the
Certificates.
ELIGIBLE INVESTMENTS: One or more of the following:
(a) direct obligations of, or guaranteed as to the full and timely
payment of principal and interest by, the United States or any agency
or instrumentality thereof when such obligations are backed by the
full faith and credit of the United States;
(b) repurchase agreements on obligations specified in clause (a)
maturing not more than one month from the date of acquisition
thereof, provided that the long-term unsecured obligations of the
party agreeing to repurchase such obligations are at the time rated
by each Rating Agency in the two highest rating category available
from such Rating Agency; and provided further that the short-term
debt obligations of the party agreeing to repurchase shall be at the
time rated "___" by _____ and "____" by _________;
(c) federal funds, certificates of deposit, time deposits, demand
deposits and bankers' acceptances, each of which shall not have an
original maturity of more than 90 days, of any depository institution
or trust company incorporated under the laws of the United States or
any state; provided that the short-term obligations of such
depository institution or trust company shall be at the time rated
"____" by ____ and "___" by ____;
(d) commercial paper (having original maturities of not more than 270
days) of any corporation incorporated under the laws of the United
States or any state thereof; provided that such commercial paper
shall be at the time rated "___" by ____ and "___" by _____;
(e) any money market fund rated "_____" by _____ and "_____" by
______; and
(f) other obligations or securities that are acceptable to the Rating
Agencies as an Eligible Investment hereunder and will not result in a
reduction in or withdrawal of the then current rating or ratings of
the Certificates, as evidenced by a letter to such effect from the
Rating Agencies;
provided, however, that no instrument shall be an Eligible Investment
if such instrument evidences a right to receive only interest payments with
respect to the obligations underlying such instrument.
ELIGIBLE SUBSTITUTE CONTRACT: As to any Replaced Contract for which
such Eligible Substitute Contract is being substituted pursuant to Section
3.05(b), a Contract that (a) as of the date of its substitution, satisfies all
of the representations and warranties (which, except when expressly stated to
be as of origination, shall be deemed to be determined as of the date of its
substitution rather than as of the Cut-off Date or the Closing Date) in
Section 3.02 and does not cause any of the representations and warranties in
Section 3.03, after giving effect to such substitution, to be incorrect, (b)
after giving effect to the scheduled payment or payments due in the month of
such substitution, has a Scheduled Principal Balance that is not greater than
the Scheduled Principal Balance of such Replaced Contract, (c) has an APR that
is at least equal to the APR of such Replaced Contract, (d) has a remaining
term to scheduled maturity that is not greater than the remaining term to
scheduled maturity of the Replaced Contract, (e) has not been delinquent for
more than 31 days as to any scheduled payment due within twelve months of the
date of its substitution, (f) if the Replaced Contract is secured by a
Manufactured Home which was new at the time of origination, it shall be
replaced by a new Eligible Substitute Contract, (g) if the Replaced Contract
is secured by a Manufactured Home which is a double-wide, the Eligible
Substitute Contract shall be a double-wide, (h) if the Replaced Contract is a
Group I Contract, has a fixed APR, and (i) if the Replaced Contract is a Group
II Contract, (1) has a Lifetime Cap no lower than (and not more than two
percentage points higher than) the Lifetime Cap of the Replaced Contract and a
Minimum APR no lower than (and not more than one percentage point higher than)
the Minimum APR of the Replaced Contract, (2) has the same index and Periodic
Cap as that of the Replaced Contract and a Gross Margin not less than that of
the Replaced Contract and, if Group II Contracts having an aggregate
outstanding principal balance equaling 1% or more of the aggregate principal
balance of the Group II Contracts as of the Cut-off Date have become Replaced
Contracts, not more than two percentage points higher than that of the
Replaced Contract, (3) has Contract Rate Adjustment Dates that are no less
frequent than the Contract Rate Adjustment Dates of the Replaced Contract and
(4) will not permit conversion of the related adjustable APR to a fixed APR.
Notwithstanding the foregoing, in the event that on any date more than one
Eligible Substitute Contract is substituted for one or more Replaced
Contracts, the requirement set forth in clause (b) above with respect to
Scheduled Principal Balance may be satisfied if the aggregate of the Scheduled
Principal Balances of such Eligible Substitute Contracts is not greater than
the aggregate of the Scheduled Principal Balances of such Replaced Contracts;
the requirement set forth in clause (c) above with respect to APR may be
satisfied if the weighted average APR of such Eligible Substitute Contracts is
at least equal to the weighted average APR of such Replaced Contracts
(provided that the APR of each Eligible Substitute Contract to be substituted
for a Group I Contract shall be equal to or greater than the Group I Weighted
Average Net Contract Rate); the requirement set forth in clause (d) above with
respect to remaining term to scheduled maturity may be satisfied if the
weighted average remaining term to scheduled maturity of such Eligible
Substitute Contracts is not greater than the weighted average remaining term
to scheduled maturity of such Replaced Contracts; provided that no Eligible
Substitute Contract shall have a scheduled maturity date later than _____ __,
____.
ESCALATING PRINCIPAL PAYMENT CONTRACT: Contracts which provide for an
annual increase in monthly payments over the first five years of the term of
the Contract, and at year six, the Contract is fully amortized for the
remainder of the term of the Contract, based on the balance of the Contract at
year six, providing for level payments for the remainder of the term of the
Contract.
EVENT OF DEFAULT: Any one of the events described in Section 9.01
hereof.
EXCESS OVERCOLLATERALIZATION AMOUNT: As to any Remittance Date, the
amount, if any, by which (x) the actual Overcollateralization Amount on such
Remittance Date (after taking into account all other distributions on such
Remittance Date pursuant to Section 6.01(a)) exceeds (y) the Required
Overcollateralization Amount for such Remittance Date.
EXTENSION FEE: Any extension fee paid by the Obligor on a Contract.
FIDELITY BOND: A fidelity bond to be maintained by the Servicer pursuant to
Section 5.10.
FILE: A Contract File, Land-and-Home Contract File or a Mortgage Loan
File.
FIRST REMITTANCE DATE: _____ _, 1999.
FIXED RATE CERTIFICATES: The Class I A-2, Class I A-3, Class I A-4,
Class I A-5, Class I A-6, Class I M-1, Class I B-1 and Class I B-2
Certificates.
FLOATING RATE CERTIFICATES: The Class I A-1 and Group II Certificates.
FORMULA PRINCIPAL DISTRIBUTION AMOUNT: As to any Remittance Date and
each Group, an amount equal to the sum of (a) all scheduled payments of
principal due on each Outstanding Contract in such Group during the Due Period
immediately preceding the month in which such Remittance Date occurs, (b) all
Partial Prepayments received with respect to Contracts in such Group during
such Due Period, (c) the Scheduled Principal Balance of each Contract in such
Group for which a Principal Prepayment in Full was received during such Due
Period, (d) the Scheduled Principal Balance of each Contract in such Group
that became a Liquidated Contract during such Due Period, (e) the Scheduled
Principal Balance of each Contract in such Group that was purchased during
such Due Period pursuant to Section 3.05 and (f) any previously undistributed
shortfalls in the distribution of the amounts in clauses (a) through (e) in
respect of such Group in respect of prior Remittance Dates [(other than any
such shortfall with respect to which a Guarantee Payment has been made to the
Class I B-2 Certificateholders (in the case of the Group I Certificates) or
the Class II B-3 Certificateholders (in the case of the Group II
Certificates))].
FRACTIONAL INTEREST: As to any Certificate of any Class, the product
of (a) the Percentage Interest evidenced by such Certificate multiplied by (b)
the amount derived from dividing the Principal Balance of such Class by the
sum of the Class I A-1 Principal Balance, Class I A-2 Principal Balance, Class
I A-3 Principal Balance, Class I A-4 Principal Balance, Class I A-5 Principal
Balance, Class I A-6 Principal Balance, Class I M-1 Principal Balance, Class I
B-1 Principal Balance, the Class I B-2 Principal Balance, the Class II A-1
Principal Balance, the Class II B-1 Principal Balance, the Class II B-2
Principal Balance and the Class II B-3 Principal Balance.
GROSS MARGIN: With respect to each Group II Contract, the percentage
set forth in the related Contract to be added to the related index for use in
determining such Contract's APR on each date of adjustment thereof.
GROUP: Either Group I or Group II, as the context requires.
GROUP I: With respect to the Contracts, the Group I Contracts, and
with respect to the Certificates, the Group I Certificates. When the words
"Group I" immediately precede another defined term herein, the application of
such term will be limited to the Group I Contracts and/or the Group I
Certificates.
GROUP I AVAILABLE DISTRIBUTION AMOUNT: As to any Remittance Date, (a)
the sum of (i) the amount on deposit in the Group I Certificate Account as of
the end of the Due Period ending immediately prior to such Remittance Date,
and (ii) the Monthly Advance with respect to Group I made in respect of such
Remittance Date reduced by (b) the sum of (i) scheduled payments of principal
and interest for Group I Contracts due after such Due Period and (ii) amounts
permitted to be withdrawn by the Servicer from the Group I Certificate Account
pursuant to clauses (i) through (v), inclusive, and (vii) of Section 6.02.
GROUP I AVAILABLE FUNDS SHORTFALL: As to any Remittance Date, the
amount, if any, by which the Group I Available Distribution Amount is less
than the amount required to be distributed on the Group I Certificates on such
Remittance Date pursuant to clauses A(i) through (x) or clauses B(i) through
(x), as applicable, of Section 6.01(a).
GROUP I CERTIFICATE: Any one of the Class I A-1 Certificates, Class I
A-2 Certificates, Class I A-3 Certificates, Class I A-4 Certificates, Class I
A-5 Certificates, Class I A-6 Certificates, Class I M-1 Certificates, Class I
B-1 Certificates or Class I B-2 Certificates.
GROUP I CERTIFICATE ACCOUNT: The custodial account or accounts
created and maintained pursuant to Section 5.05 with respect to the Group I
Contracts.
GROUP I CONTRACT: Each Contract sold to the Trust which bears
interest at a fixed rate.
GROUP I CUMULATIVE REALIZED LOSSES: As to any Remittance Date, the
Aggregate Net Liquidation Losses for Group I Contracts for the period from the
Cut-off Date through the end of the related Due Period.
GROUP I CURRENT REALIZED LOSS RATIO: As to any Remittance Date, the
annualized percentage derived from the fraction, the numerator of which is the
sum of the Aggregate Net Liquidation Losses for Group I Contracts for the
three preceding Due Periods and the denominator of which is the arithmetic
average of the Group I Pool Scheduled Principal Balances for such Remittance
Date and the preceding two Remittance Dates.
GROUP I INTEREST FORMULA DISTRIBUTION AMOUNT: As to any Remittance
Date, an amount equal to the sum of the Class I A-1 Interest Formula
Distribution Amount, Class I A-2 Interest Formula Distribution Amount, Class I
A-3 Interest Formula Distribution Amount, Class I A-4 Interest Formula
Distribution Amount, Class I A-5 Interest Formula Distribution Amount, Class I
A-6 Interest Formula Distribution Amount, Class I M-1 Interest Formula
Distribution Amount, Class I B-1 Interest Formula Distribution Amount and
Class I B-2 Interest Formula Distribution Amount.
GROUP I MONTHLY SERVICING FEE: With respect to any Remittance Date,
an amount equal to one-twelfth of ____% of the Group I Pool Scheduled
Principal Balance for such Remittance Date.
GROUP I REMAINING AMOUNT AVAILABLE: As to any Remittance Date, the
Group I Available Distribution Amount less the sum of the Class I A
Distribution Amount and the Class I B-1 Distribution Amount.
GROUP I WEIGHTED AVERAGE NET CONTRACT RATE: As to any Remittance Date
and the Group I Contracts, the per annum rate equal to (i) the weighted
average of the Annual Percentage Rates borne by the Group I Contracts and
applicable to scheduled payments due in the Due Period preceding such
Remittance Date less (ii) (x) if the Company is the Servicer, 0.00% or (y) if
the Company is no longer the Servicer, ____%.
GROUP II: With respect to the Contracts, the Group II Contracts, and
with respect to the Certificates, the Group II Certificates. When the words
"Group II" immediately precede another defined term herein, the application of
such term will be limited to the Group II Contracts and/or the Group II
Certificates.
GROUP II AVAILABLE DISTRIBUTION AMOUNT: As to any Remittance Date,
(a) the sum of (i) the amount on deposit in the Group II Certificate Account
as of the end of the Due Period ending immediately prior to such Remittance
Date, and (ii) the Monthly Advance with respect to Group II made in respect of
such Remittance Date reduced by (b) the sum of (i) scheduled payments of
principal and interest for Group II Contracts due after such Due Period and
(ii) amounts permitted to be withdrawn by the Servicer from the Group II
Certificate Account pursuant to clauses (i) through (v), inclusive, and (vii)
of Section 6.02.
GROUP II AVAILABLE FUNDS SHORTFALL: As to any Remittance Date, the
amount, if any, by which the Group II Available Distribution Amount is less
than the amount required to be distributed on the Group II Certificates on
such Remittance Date pursuant to clauses C(i) through (viii) or clauses D(i)
through (viii), as applicable, of Section 6.01(a).
GROUP II CERTIFICATE: Any one of the Class II A-1 Certificates, Class
II B-1 Certificates, Class II B-2 Certificates or Class II B-3 Certificates.
GROUP II CERTIFICATE ACCOUNT: The custodial account or accounts
created and maintained pursuant to Section 5.05 with respect to the Group II
Contracts.
GROUP II CERTIFICATE FLOOR AMOUNT: As to any Remittance Date,
$____________.
GROUP II CONTRACT: Each Contract sold to the Trust which bears
interest at a variable rate.
GROUP II CUMULATIVE REALIZED LOSSES: As to any Remittance Date, the
Aggregate Net Liquidation Losses for Group II Contracts for the period from
the Cut-off Date through the end of the related Due Period.
GROUP II CURRENT REALIZED LOSS RATIO: As to any Remittance Date, the
annualized percentage derived from the fraction, the numerator of which is the
sum of the Aggregate Net Liquidation Losses for Group II Contracts for the
three preceding Due Periods and the denominator of which is the arithmetic
average of the Group II Pool Scheduled Principal Balances for such Remittance
Date and the preceding two Remittance Dates.
GROUP II INTEREST FORMULA DISTRIBUTION AMOUNT: As to any Remittance
Date, an amount equal to the sum of the Class II A-1 Interest Formula
Distribution Amount, Class II B-1 Interest Formula Distribution Amount, Class
II B-2 Interest Formula Distribution Amount and Class II B-3 Interest Formula
Distribution Amount.
GROUP II MONTHLY SERVICING FEE: With respect to any Remittance Date,
an amount equal to one-twelfth of ____% of the Group II Pool Scheduled
Principal Balance for such Remittance Date.
GROUP II REMAINING AMOUNT AVAILABLE: As to any Remittance Date, the
Group II Available Distribution Amount less the sum of the Class II A
Distribution Amount, the Class II B-1 Distribution Amount and the Class II B-2
Distribution Amount.
GROUP II WEIGHTED AVERAGE CONTRACT RATE: As to any Remittance Date
and the Group II Contracts, the per annum rate equal to the weighted average
of the Annual Percentage Rates borne by the Group II Contracts and applicable
to scheduled payments due in the Due Period preceding such Remittance Date.
[GUARANTEE PAYMENT: As to any Remittance Date and the Group I
Certificates, the amount, if any, by which (a) the Class I B-2 Formula
Distribution Amount for such Remittance Date exceeds (b) the Group I Remaining
Amount Available. As to any Remittance Date and the Group II Certificates, the
amount, if any, by which (a) the Class II B-3 Formula Distribution Amount for
such Remittance Date exceeds (b) the Group II Remaining Amount Available.]
[GUARANTEE REIMBURSEMENT AMOUNT: As to each Certificate Group and any
Remittance Date, an amount equal to the lesser of (a) the related Available
Distribution Amount for such Remittance Date less the portion thereof that
represents the sum of the amounts (i) distributed on the related Certificates
(other than the Class R Certificate) on such Remittance Date, (ii) distributed
in respect of the Available Funds Shortfall, if any, of the other Certificate
Group on such Remittance Date and (iii) paid to the Servicer in respect of the
Monthly Servicing Fee pursuant to clause A(xi) or B(xi) (in the case of Group
I Guarantee Payments) or pursuant to clause C(xii) or D(xii) (in the case of
Group II Guarantee Payments) on such Remittance Date and (b) the aggregate
amount of outstanding Guarantee Payments relating to such Certificate Group
that remain unreimbursed as of such Remittance Date.]
HAZARD INSURANCE POLICY: With respect to each Contract, the policy of
fire and extended coverage insurance (and federal flood insurance, if
applicable) required to be maintained for the related Manufactured Home, as
provided in Section 5.09, and which, as provided in Section 5.09, may be a
blanket insurance policy maintained by the Servicer in accordance with the
terms and conditions of Section 5.09.
INDEX: As to any Group II Contract, the published rate upon which the
related Remittance Rate is calculated.
INITIAL PRINCIPAL AMOUNT: With respect to the Group I Contracts,
$_____________. With respect to the Group II Contracts, $_____________.
INITIAL REQUIRED OVERCOLLATERALIZATION AMOUNT: $____________.
INTEREST FORMULA DISTRIBUTION AMOUNT: As to any Remittance Date, the
Class I A-1 Interest Formula Distribution Amount, the Class I A-2 Interest
Formula Distribution Amount, the Class I A-3 Interest Formula Distribution
Amount, the Class I A-4 Interest Formula Distribution Amount, the Class I A-5
Interest Formula Distribution Amount, the Class I A-6 Interest Formula
Distribution Amount, the Class I M-1 Interest Formula Distribution Amount, the
Class I B-1 Interest Formula Distribution Amount, the Class I B-2 Interest
Formula Distribution Amount, the Class II A-1 Interest Formula Distribution
Amount, the Class II B-1 Interest Formula Distribution Amount, the Class II
B-2 Interest Formula Distribution Amount and the Class II B-3 Interest Formula
Distribution Amount, as applicable.
INTEREST PERIOD: With respect to the Class I A-1 Certificates and
each Class of Group II Certificates and any Remittance Date, the period
commencing on the preceding Remittance Date (or in the case of the first
Remittance Date, the Closing Date) through the day preceding such Remittance
Date. With respect to each Class of Group I Certificates (other than the Class
I A-1 Certificates) and any Remittance Date, the period from the first day of
the calendar month preceding the month of such Remittance Date through the
last day of such calendar month on the basis of a 360-day year consisting of
twelve 30-day months.
LAND-AND-HOME CONTRACT: A Contract that is secured by a Mortgage 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-AND-HOME CONTRACT FILE: With respect to each Land-and-Home
Contract,
(a) the original of the Land-and-Home Contract, and, in the case of
each Bi-weekly Contract, the original of the bi-weekly rider for such
Contract, and, in the case of each Escalating Principal Payment
Contract, the original of the graduated payment rider for such
Contract;
(b) the original related Mortgage with evidence of recording
thereon and any title document for the related Manufactured Home;
(c) with respect to any Land-and-Home Contract not originated
by Vanderbilt, the assignment of the Land-and-Home Contract from the
originator to Vanderbilt with evidence of recording thereon;
(d) with respect to any Land-and-Home Contract originated by
Vanderbilt, an endorsement of such Land-and-Home Contract by
Vanderbilt without recourse;
(e) with respect to the Land-and-Home Contracts located in the
ten states with the highest concentration of Land-and-Home Contracts,
an Opinion of Counsel to the effect that Vanderbilt need not cause
to be recorded any assignment which relates to Land-and-Home
Contracts in such states to protect the Trustee's and the
Certificateholders' interest in such Land-and-Home Contracts;
provided, however, if Vanderbilt fails to deliver such an Opinion of
Counsel for any such states, with respect to the Land-and-Home
Contracts located in those states, Vanderbilt shall provide an
original executed assignment of the Mortgage, with evidence of
recording thereon, showing the assignment from Vanderbilt to the
Trustee or the separate trustee, as applicable; and
(f) any extension, waiver or modification agreement(s) for each
Land-and-Home Contract on the Schedule.
LAND SECURED CONTRACT: A Contract that is secured by (i) a security
interest in a Manufactured Home and (ii) a Mortgage on real estate on which
the related Manufactured Home is situated, but such Manufactured Home is not
considered or classified as part of the real estate under the laws of the
jurisdiction in which it is located.
LATE PAYMENT FEES: Any late payment fees paid by Obligors on
Contracts after all sums received have been allocated first to regular
installments due or overdue and all such installments are then paid in full.
LIBOR: As to any date, the rate for United States dollar deposits for
one month which appear on the Telerate Screen LIBOR Page 3750 as of 11:00
A.M., London time. If such rate does not appear on such page (or such other
page as may replace that page on that service, or if such service is no longer
offered, such other service for displaying LIBOR or comparable rates as may be
reasonably selected by the Seller after consultation with the Trustee), the
rate will be the Reference Bank Rate. If no such quotations can be obtained
and no Reference Bank Rate is available, LIBOR will be LIBOR applicable to the
preceding Remittance Date.
LIBOR BUSINESS DAY: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the State of New York or in the
city of London, England are required or authorized by law to be closed.
LIFETIME CAP: With respect to a Group II Contract, the maximum APR,
if any, that may be borne by such Contract over its term, as set forth as such
therein; provided, however, that solely for the purposes of calculating the
Weighted Average Lifetime Cap on any given date, each Group II Contract as to
which a maximum APR has not been set forth in such Contract shall be deemed to
have a Lifetime Cap equal to its APR on such date.
[LIMITED GUARANTEE: The obligation of CHI to make Guarantee Payments
as set forth in Section 6.05.]
LIQUIDATED CONTRACT: Any 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
Land-and-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: All reasonable out-of-pocket expenses
(exclusive of overhead 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, any unreimbursed amount expended by the Servicer
pursuant to Section 5.06 or 5.09 (to the extent such amount is reimbursable
under the terms of Section 5.06 or 5.09, as the case may be) respecting such
Contract and any unreimbursed expenditures for property taxes or for property
restoration or preservation that are related to such liquidation.
LIQUIDATION PROCEEDS: Cash (including insurance proceeds other than
those applied to the restoration of the related Manufactured Home or released
to the related Obligor in accordance with the normal servicing procedures of
the Servicer) received in connection with the liquidation of defaulted
Contracts, whether through repossession or otherwise.
LOAN-TO-VALUE RATIO: The fraction, expressed as a percentage, the
numerator of which is the original principal balance of the related Contract
and the denominator of which is the Original Value of the related Manufactured
Home (including for this purpose the Original Value of any Mortgaged Property
not constituting a part of the Manufactured Home).
MANUFACTURED HOME: A unit of manufactured housing which meets the
requirements of Section 25(e)(10) of the Code, including all accessions
thereto, securing the indebtedness of the Obligor under the related Contract.
MINIMUM APR: With respect to a Group II Contract, the minimum APR, if
any, that may be borne by such Contract over its term, as set forth as such
therein.
MONTHLY ADVANCE: As to any Remittance Date and the Contracts of each
Group, the aggregate of all scheduled payments of principal and interest which
were due during the related Due Period on any such Contracts that remained
Outstanding at the end of such Due Period and were not collected during such
Due Period, exclusive of any such scheduled payment which the Servicer has
determined would be a Nonrecoverable Advance if an advance in respect of such
scheduled payment were made.
MONTHLY ADVANCE REIMBURSEMENT AMOUNT: Any amount received or deemed
to be received by the Servicer pursuant to Section 6.04(c) in reimbursement of
a Monthly Advance made out of its own funds.
MONTHLY EXCESS SPREAD: As to Group I and any Remittance Date, the
portion, if any, of the Group I Available Distribution Amount remaining after
the distribution on such Remittance Date of the amounts specified in clauses
A(i) through (x) or clauses B(i) through (x), as applicable, of Section
6.01(a). As to Group II and any Remittance Date, the portion, if any, of the
Group II Available Distribution Amount (other than any portion thereof
representing the Overcollateralization Reduction Amount, if any, for such
Remittance Date) remaining after the distribution on such Remittance Date of
the amounts specified in clauses C(i) through (viii) or clauses D(i) through
(viii), as applicable, of Section 6.01(a).
MONTHLY REPORT: The monthly report described in Section 7.01.
MONTHLY SERVICING FEE: With respect to each Group of Contracts and
any Remittance Date, an amount equal to one-twelfth of _____% of the Pool
Scheduled Principal Balance for such Group for such Remittance Date.
MORTGAGE: The mortgage or deed of trust creating a lien on an estate
in fee simple interest in the real property securing a Contract.
MORTGAGE LOANS: The mortgage loans or deeds of trust secured by a
mortgage or deed of trust of one- to four-family residential properties,
described in the Contract Schedule and constituting part of the corpus of the
Trust, which are to be sold and assigned by the Company to the Trustee and
which are the subject of this Agreement. The Mortgage Loans include, without
limitation, all related security interests and any and all rights to receive
payments which are due pursuant thereto from and after the Cut-off Date, but
exclude any rights to receive payments which are due pursuant thereto prior to
the Cut-off Date.
MORTGAGE LOAN FILE: With respect to each Mortgage Loan,
(a) the original related Mortgage, with evidence of recording indicated
thereon;
(b) the original assignment and any intervening assignments of the
Mortgage, with evidence of recording thereon, showing a complete chain
of assignment of the Mortgage Loan from origination of the Mortgage
Loan to Vanderbilt;
(c) the original assignment, with evidence of recording thereon,
showing the assignment from Vanderbilt to the Trustee or the separate
trustee, as applicable; and
(d) any extension, modification or waiver agreement(s) for each
Mortgage Loan on the Schedule.
MORTGAGED PROPERTY: The property subject to a Mortgage.
NET FUNDS CAP: As to any Remittance Date, the per annum rate equal to
a fraction, expressed as a percentage, (A) whose numerator equals the amount
by which (i) the sum of (a) the aggregate amount of interest due on the Group
II Contracts on the related Due Date and (b) the Overcollateralization
Reduction Amount, if any, for such Remittance Date exceeds (ii) the sum of (1)
the product of (a) one-twelfth of the Group II Pool Scheduled Principal
Balance on the first day of the Due Period immediately preceding the month in
which such Remittance Date occurs and (b)(x) if the Company is the Servicer,
0.00%, or (y) if the Company is no longer the Servicer, _____% and (2) the
product of (a) one-twelfth of the Group II Pool Scheduled Principal Balance on
the first day of the Due Period immediately preceding the month in which such
Remittance Date occurs and (b)(x) if the Overcollateralization Amount is less
than the Required Overcollateralization Amount for such Remittance Date, ____%
and (y) if the Overcollateralization Amount is greater than or equal to the
Required Overcollateralization Amount for such Remittance Date, 0.00%, and (B)
whose denominator equals the product of (i) the aggregate Principal Balance of
the Group II Certificates and (ii) the actual number of days elapsed in the
Interest Period divided by 360.
NET LIQUIDATION PROCEEDS: As to any Liquidated Contract, Liquidation
Proceeds net of the sum of (i) Liquidation Expenses and (ii) any amount
required to be paid to the Obligor or any other Person with an interest in the
Manufactured Home or any related Mortgaged Property that is senior to the
interest of the Trust Fund.
NONRECOVERABLE ADVANCE: Any advance made or proposed to be made
pursuant to Section 6.04, which the Servicer believes, in its good faith
judgment, is not, or if made would not be, ultimately recoverable from
Liquidation Proceeds or otherwise. In determining whether an advance is or
will be nonrecoverable, the Servicer need not take into account that it might
receive any amounts in a deficiency judgment. The determination by the
Servicer that any advance is, or if made would constitute, a Nonrecoverable
Advance, shall be evidenced by an Officer's Certificate of the Servicer
delivered to the Trustee and stating the reasons for such determination.
OBLIGOR: Each Person who is indebted under a Contract or who has
acquired a Manufactured Home subject to a Contract.
OFFICER'S CERTIFICATE: A certificate signed by the President, a Vice
President, the Treasurer, the Secretary or one of the Assistant Treasurers or
Assistant Secretaries or any other duly authorized officer of the Company or
the Servicer, as appropriate, and delivered to the Trustee as required by this
Agreement.
OPINION OF COUNSEL: A written opinion of counsel, who may be the
counsel for the Company or the Servicer and who shall be acceptable to the
Trustee.
ORIGINAL CLASS I A-1 PRINCIPAL BALANCE: $__________
ORIGINAL CLASS I A-2 PRINCIPAL BALANCE: $__________.
ORIGINAL CLASS I A-3 PRINCIPAL BALANCE: $__________.
ORIGINAL CLASS I A-4 PRINCIPAL BALANCE: $__________.
ORIGINAL CLASS I A-5 PRINCIPAL BALANCE: $__________.
ORIGINAL CLASS I A-6 PRINCIPAL BALANCE: $__________.
ORIGINAL CLASS I M-1 PRINCIPAL BALANCE: $_________.
ORIGINAL CLASS I B-1 PRINCIPAL BALANCE: $_________.
ORIGINAL CLASS I B-2 PRINCIPAL BALANCE: $__________.
ORIGINAL CLASS II A-1 PRINCIPAL BALANCE: $__________.
ORIGINAL CLASS II B-1 PRINCIPAL BALANCE: $__________.
ORIGINAL CLASS II B-2 PRINCIPAL BALANCE: $_________.
ORIGINAL CLASS II B-3 PRINCIPAL BALANCE: $_________.
ORIGINAL VALUE: With respect to any Manufactured Home that was new at
the time the related Contract was originated, the sum of the down payment
(including the value allocated to any trade-in unit or land pledged as
additional security or in lieu of the down payment), the original amount
financed on the related Contract, which may include sales and other taxes and
premiums for related insurance, and, in the case of a Land-and-Home Contract,
the value of the land securing the Contract as estimated by the dealer. With
respect to any Manufactured Home that was used at the time the related
Contract was originated, the total delivered sales price of such Manufactured
Home (including, for this purpose, any Mortgaged Property not constituting a
part of the Manufactured Home), plus sales and other taxes and, to the extent
financed under such Contract, premiums for related insurance.
ORIGINATOR: Any of the originators of Acquired Contracts listed in
Exhibit J hereto.
OUTSTANDING: With respect to any Contract as to the time of reference
thereto, a Contract that has not been fully prepaid, has not become a
Liquidated Contract, and has not been purchased pursuant to Section 3.05 prior
to such time of reference.
OUTSTANDING AMOUNT ADVANCED: As to any Remittance Date and each
Group, the aggregate of all Monthly Advances remitted by the Servicer out of
its own funds pursuant to Section 6.04 with respect to such Group, less the
aggregate of all related Monthly Advance Reimbursement Amounts actually
received prior to such Remittance Date.
OVERCOLLATERALIZATION AMOUNT: As to any Remittance Date, an amount
equal to the difference between the Group II Pool Scheduled Principal Balance
as of the end of the immediately preceding Due Period and the aggregate
Principal Balance of the Group II Certificates on such Remittance Date (after
taking into account all other distributions to be made on such Remittance Date
pursuant to Section 6.01(a)).
OVERCOLLATERALIZATION REDUCTION AMOUNT: As to any Remittance Date, an
amount equal to the least of (i) that portion of the Group II Available
Distribution Amount for such Remittance Date that, absent the existence of any
Excess Overcollateralization Amount, would be distributed in payment of the
Group II Formula Principal Distribution Amount on such Remittance Date
pursuant to paragraph C. or D., as applicable, of Section 6.01(a), (ii) the
Excess Overcollateralization Amount, if any, on such Remittance Date and (iii)
the Group II Formula Principal Distribution Amount for such Remittance Date.
OWNERSHIP INTEREST: As defined in Section 4.08(b).
PARTIAL PREPAYMENT: Any Principal Prepayment other than a Principal
Prepayment in Full.
PAYING AGENT: Any paying agent appointed pursuant to Section 4.05.
PERCENTAGE INTEREST: As to any Certificate of any Class, the
percentage interest evidenced thereby in distributions required to be made on
the Certificates of such Class, such percentage interest being equal to the
percentage obtained by dividing the denomination of such Certificate by the
aggregate of the denominations of all of the outstanding Certificates of such
Class (or, in the case of the Class R Certificate, being equal to the
percentage specified on the face of such Class R Certificate).
PERIODIC CAP: With respect to a Group II Contract, the provision in
each Group II Contract that limits permissible increases and decreases in such
Contract's APR on any date on which such APR adjusts pursuant to the terms of
such Contract.
PERMITTED TRANSFEREE: As defined in Section 4.08(b).
PERSON: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
PLAN ASSETS: As defined in Section 4.02(b).
POOL FACTOR: As of any Remittance Date and as to any Class of
Certificates, the percentage obtained by dividing the Class I A-1 Principal
Balance, the Class I A-2 Principal Balance, the Class I A-3 Principal Balance,
the Class I A-4 Principal Balance, the Class I A-5 Principal Balance, the
Class I A-6 Principal Balance, the Class I M-1 Principal Balance, the Class I
B-1 Principal Balance, the Class I B-2 Principal Balance, the Class II A-1
Principal Balance, the Class II B-1 Principal Balance, the Class II B-2
Principal Balance or the Class II B-3 Principal Balance, as the case may be
(after giving effect to the distribution on such Remittance Date), by the
Original Class I A-1 Principal Balance, the Original Class I A-2 Principal
Balance, the Original Class I A-3 Principal Balance, the Original Class I A-4
Principal Balance, the Original Class I A-5 Principal Balance, the Original
Class I A-6 Principal Balance, the Original Class I M-1 Principal Balance, the
Original Class I B-1 Principal Balance, the Original Class I B-2 Principal
Balance, the Original Class II A-1 Principal Balance, the Original Class II
B-1 Principal Balance, the Original Class II B-2 Principal Balance or the
Original Class II B-3 Principal Balance, respectively, carried out to seven
decimal places.
POOL SCHEDULED PRINCIPAL BALANCE: As to any Remittance Date and with
respect to any Group, the Total Original Contract Pool Principal Balance for
such Group less the aggregate of the Formula Principal Distribution Amounts
for such Group (exclusive of the amounts in clause (f) of the related
definition of "Formula Principal Distribution Amount") for all prior
Remittance Dates.
PRINCIPAL BALANCE: The Class I A-1 Principal Balance, the Class I A-2
Principal Balance, the Class I A-3 Principal Balance, the Class I A-4
Principal Balance, the Class I A-5 Principal Balance, the Class I A-6
Principal Balance, the Class I M-1 Principal Balance, the Class I B-1
Principal Balance, the Class I B-2 Principal Balance, the Class II A-1
Principal Balance, the Class II B-1 Principal Balance, the Class II B-2
Principal Balance or the Class II B-3 Principal Balance, as applicable.
PRINCIPAL PREPAYMENT: (i) Subject to clause (ii) of this definition,
with respect to any Due Date for a Contract, any payment or any portion
thereof or other recovery on such Contract (other than a Liquidated Contract
or a Contract repurchased pursuant to Section 3.05) received on or prior to
such Due Date (but after the immediately preceding Due Date) that exceeds the
amount necessary to bring such Contract current as of such Due Date and that
the Obligor has notified or confirmed with the Servicer are to be treated as a
prepayment of principal; (ii) notwithstanding the provisions of the preceding
clause (i), if any payment or any portion thereof or other recovery on a
Contract (other than a Liquidated Contract or a Contract repurchased pursuant
to Section 3.05) is sufficient to pay the outstanding principal balance of
such Contract, all accrued and unpaid interest at the APR to the payment date
and, at the option of the Servicer, all other outstanding amounts owing on
such Contract, the portion of the payments or recoveries on such Contract
during such Due Period that is equal to the Scheduled Principal Balance of
such Contract after giving effect to the scheduled payment on such Contract
due in such Due Period; and (iii) any cash deposit made with respect to a
Contract pursuant to Section 3.05.
PRINCIPAL PREPAYMENT IN FULL: Any Principal Prepayment specified in
clause (ii) of the definition of the term "Principal Prepayment".
RATING AGENCIES: ____________ and _______.
RECORD DATE: With respect to the initial Remittance Date and the
Group I and Group II Certificates, the Closing Date. With respect to any
Remittance Date thereafter and the Fixed Rate Certificates and the Class R
Certificate, the close of business of the last Business Day of the month
preceding the month of the related Remittance Date. With respect to any
Remittance Date after the initial Remittance Date and the Floating Rate
Certificates, the Business Day preceding the related Remittance Date. In the
event that a Definitive Certificate is issued with respect to a Class of
Certificates, the Record Date with respect to such Class will be the close of
business of the last Business Day of the month preceding the month of the
related Remittance Date.
RECORDED DOCUMENTS: As defined in Section 2.04.
REFERENCE BANK RATE: As to any Interest Period as follows: the
arithmetic mean (rounded upwards, if necessary, to the nearest one sixteenth
of a percent) of the offered rates for United States dollar deposits for one
month which are offered by the Reference Banks as of 11:00 A.M., London time,
on the second LIBOR Business Day prior to the first day of such Interest
Period to prime banks in the London interbank market for a period of one month
in amounts approximately equal to the related Class Principal Balance;
provided that at least two such Reference Banks provide such rate. If fewer
than two offered rates appear, the Reference Bank Rate will be the arithmetic
mean of the rates quoted by one or more major banks in New York City, selected
by the Seller after consultation with the Trustee, as of 11:00 A.M., New York
City time, on such date for loans in U.S. Dollars to leading European Banks
for a period of one month in amounts approximately equal to the outstanding
related Class Principal Balance. If no such quotations can be obtained, the
Reference Bank Rate shall be the Reference Bank Rate applicable to the
preceding Interest Period.
REFERENCE BANKS: Three major banks that are engaged in the London
interbank market, selected by the Seller after consultation with the Trustee.
REMIC: A real estate mortgage investment conduit within the meaning of
Section 860D(a) of the Code.
REMIC CERTIFICATE MATURITY DATE: The "latest possible maturity date" of
the Regular Certificates as that term is defined in Section 2.07.
REMIC PROVISIONS: Provisions of the federal income tax law relating
to real estate mortgage investment conduits, which appear at Section 860A
through 860G of Subchapter M of Chapter 1 of the Code, and related provisions,
and regulations promulgated thereunder, as the foregoing may be in effect from
time to time.
REMITTANCE DATE: The ___ day of any month, or if such ___ day is not
a Business Day, the first Business Day immediately following the ___ day of
the month, commencing with _____ __, 1999.
REMITTANCE RATE: As to each Class of Certificates, the Class I A-1
Remittance Rate, the Class I A-2 Remittance Rate, the Class I A-3 Remittance
Rate, the Class I A-4 Remittance Rate, the Class I A-5 Remittance Rate, the
Class I A-6 Remittance Rate, the Class I M-1 Remittance Rate, the Class I B-1
Remittance Rate, the Class I B-2 Remittance Rate, the Class II A-1 Remittance
Rate, the Class II B-1 Remittance Rate, the Class II B-2 Remittance Rate or
the Class II B-3 Remittance Rate, as applicable.
REO ACCOUNT: As defined in Section 5.17.
REPLACED CONTRACT: As defined in Section 3.05(b).
REPOSSESSION PROFITS: As to any Remittance Date, the excess, if any,
of Net Liquidation Proceeds in respect of each Contract that became a
Liquidated Contract during the related Due Period over the sum of the unpaid
principal balance of such Contract plus accrued and unpaid interest at the
related APR on the unpaid principal balance thereof from the Due Date to which
interest was last paid by the Obligor to the Due Date for such Contract in the
month in which such Contract became a Liquidated Contract.
REPURCHASE OBLIGATION: The obligation of the Company, set forth in
Section 3.05, to repurchase the related Contracts as to which there exists an
uncured breach of a representation or warranty contained in Section 3.02 or
3.03.
REPURCHASE PRICE: With respect to any Contract required to be
repurchased hereunder, an amount equal to the remaining principal amount
outstanding on such Contract as of the beginning of the Due Period in which
such repurchase occurs plus accrued interest from the Due Date with respect to
which the Obligor last made the entire payment then due to the Due Date (or
the latest-occurring Due Date, in the case of a Bi-weekly Contract or a
Semi-Monthly Contract) in the Due Period in which such Contract is
repurchased.
REQUIRED CLASS II B PAYMENT: As to any Remittance Date on which (i)
the Class II B Principal Distribution Test is met and (ii) the Class II B
Percentage is greater than 50%, the amount required to be distributed to the
Class II B Certificates so as to reduce the Class II B Percentage to 50%.
REQUIRED OVERCOLLATERALIZATION AMOUNT: As to any Remittance Date
prior to the date on which the Class II B Principal Distribution Test is
satisfied, the Initial Required Overcollateralization Amount. As to any
Remittance Date on and after the date on which the Class II B Principal
Distribution Test is satisfied, the lesser of (i) the Initial Required
Overcollateralization Amount and (ii) the greater of (a) ____% of the Group II
Pool Principal Balance as of such Remittance Date and (b) ____% of the Group
II Total Original Contract Pool Principal Balance.
RESPONSIBLE OFFICER: When used with respect to the Trustee, any
officer with direct responsibility for the administration of this Agreement
and any other officer of the Trustee customarily performing functions similar
to those performed by any of the above designated officers and also to whom,
with respect to a particular matter, such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
SCHEDULED PRINCIPAL BALANCE: As to any Contract and any Remittance
Date or the Cut-off Date, the principal balance of such Contract as of the Due
Date (or, in the case of a Bi-weekly Contract or a Semi-Monthly Contract, the
latest occurring Due Date) in the Due Period next preceding such Remittance
Date or the Cut-off Date as specified in the Amortization Schedule at the time
relating thereto after giving effect 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.
SEMI-MONTHLY CONTRACT: Any Contract pursuant to which the scheduled
level payment of interest and principal is due twice each month.
SENIOR CERTIFICATE: With respect to Group I, any one of the Class I
A-1 Certificates, Class I A-2 Certificates, Class I A-3 Certificates, Class I
A-4 Certificates or Class I A-5 Certificates, and, with respect to Group II,
any one of the Class II A-1 Certificates.
SERVICER: The Company or its successor in interest or any successor
under this Agreement as provided by Section 8.08.
SERVICING FILE: All documents, records, and other items maintained by
the Servicer with respect to a Contract and not included in the corresponding
Contract File, Land-and-Home Contract File or Mortgage Loan File, as
applicable, including the credit application, credit reports and
verifications, appraisals, tax and insurance records, payment records,
insurance claim records, correspondence, and all historical computerized data
files.
SERVICING OFFICER: Any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Contracts whose name
appears on a list of servicing officers furnished on the Closing Date to the
Trustee by the Servicer, as such list may from time to time be amended.
SUBORDINATE CERTIFICATE: With respect to Group I, any one of the
Class I A-6 Certificates, Class I M-1 Certificates, Class I B-1 Certificates
or Class I B-2 Certificates, and, with respect to Group II, any one of the
Class II B-1 Certificates, Class II B-2 Certificates or Class II B-3
Certificates.
TELERATE SCREEN LIBOR PAGE 3750: The display designated as page 3750
on the Telerate Service (or such other page as may replace page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks).
TOTAL ORIGINAL CONTRACT POOL PRINCIPAL BALANCE: As of any Remittance
Date and with respect to any Group, the aggregate principal balance of the
Contracts in such Group as of the Cut-off Date.
TRANSFER: As defined in Section 4.08(b).
TRANSFER AFFIDAVIT: As defined in Section 4.08(b).
TRANSFER DATE: With respect to each Contract, the Closing Date.
TRANSFEREE: As defined in Section 4.08(b).
TRUSTEE: _________, or its successors or assigns or any successor under
this Agreement.
TRUSTEE'S FEES: The fees, expenses and disbursements of the Trustee
set forth in Section 10.05.
TRUST FUND: The corpus of the trust created by this Agreement, to the
extent described herein, consisting of the Contracts (including, without
limitation, the security interest created thereby), including all rights to
receive payments on the Contracts that have not been received prior to the
Cut-off Date (including any such payments that were due prior to the Cut-off
Date but were not received by the Company prior to the Cut-off Date); such
assets as shall from time to time be identified as deposited in the
Certificate Accounts; all Manufactured Homes and any related Mortgaged
Properties that secured Contracts not purchased pursuant to Section 3.05 and
that have been acquired in realizing upon such Contracts; the Mortgages; the
Repurchase Obligation; the proceeds of the Hazard Insurance Policies; [and the
Limited Guarantees] for the benefit of the Class I B-2 and Class II B-3
Certificateholders.
UCC: The Uniform Commercial Code as in effect in the relevant
jurisdiction or, in the case of Louisiana, the comparable provisions of
Louisiana law.
UNDERWRITERS: _______________________.
WEIGHTED AVERAGE LIFETIME CAP: As to any Remittance Date, a per annum
rate equal to the product of (i) the average of the Lifetime Caps of the Group
II Contracts that were Outstanding Contracts on the first day of the related
Interest Period, weighted by the respective Scheduled Principal Balances of
such Contracts on the first day of such Interest Period, and (ii) a fraction
whose numerator is the actual number of days elapsed in the related Interest
Period and whose denominator is 360.
Section 1.02. Determination of Scheduled Payments. Scheduled payments
due on any Contract shall be determined without giving effect to any
adjustments required by reason of the bankruptcy of the related Obligor or any
similar proceeding or moratorium or any waiver, extension or grace period.
[End of Article I]
Article II
CONVEYANCE OF CONTRACTS; TRUST FUND;
PERFECTION OF SECURITY INTEREST;
CUSTODY OF CONTRACTS
Section 2.01. Conveyance of Contracts and Other Rights. (a) The
Company, concurrently with the execution and delivery hereof, does hereby
transfer, sell, assign, set over and otherwise convey to the Trustee or, in
the case of any Contracts from Alaska, California, Delaware, District of
Columbia, Florida, Georgia, Maine, Maryland, Minnesota, Missouri, Montana,
Nevada, Texas, Utah or Washington, a separate trustee, without recourse (i)
all of the right, title and interest of the Company in and to the Contracts
(including, without limitation, the security interests created thereby) and
any related Mortgages, including all interest and principal payments that have
not been received prior to the Cut-off Date (including any such payments that
were due prior to the Cut-off Date but were not received by the Company prior
to the Cut-off Date), (ii) all of the rights under any Hazard Insurance Policy
relating to a Manufactured Home securing a Contract for the benefit of the
creditor of such Contract, (iii) all documents contained in the Contract
Files, the Land-and-Home Contract Files and the Mortgage Loan Files, (iv) the
Certificate Accounts and all funds and other assets deposited therein and all
instruments, securities (including without limitation, Eligible Investments)
or other property in which the Certificate Accounts may be invested in whole
or in part from time to time and (v) all proceeds derived from any of the
foregoing.
As of the related Transfer Date, the ownership of each Contract and
the contents of the related Contract File, Land-and-Home Contract File or
Mortgage Loan File, as applicable, and Servicing File are vested in the
Trustee or separate trustee, as the case may be. The contents of each File and
Servicing File are and shall be held in trust by the Servicer for the benefit
of the Trustee or the separate trustee as the owner thereof and the Servicer's
possession of the contents of each Servicing File so retained is for the sole
purpose of servicing the related Contract, and such retention and possession
by the Servicer is in a custodial capacity only. The contents of the
Land-and-Home Contract Files and the Mortgage Loan Files shall be delivered to
the Trustee, or a custodian on behalf of the Trustee, in accordance with
Section 2.04 hereof. Neither the Company nor the Servicer shall take any
action inconsistent with the Trustee's or such separate trustee's, as the case
may be, ownership of the Contracts, and the Company and the Servicer shall
promptly indicate to all inquiring parties that the Contracts have been sold,
transferred, assigned, set over and conveyed to the Trustee or such separate
trustee, as the case may be, and shall not claim any ownership interest in the
Contracts.
(b) Although the parties intend that the conveyance of the Company's
right, title and interest in and to the items of property listed in Section
2.01(a) pursuant to this Agreement shall constitute a purchase and sale and
not a loan, if such conveyance is deemed to be a loan, the parties intend that
the rights and obligations of the parties to such loan shall be established
pursuant to the terms of this Agreement. The parties also intend and agree
that the Company shall be deemed to have granted to the Trustee, and the
Company does hereby grant to the Trustee, a perfected first priority security
interest in all of the right, title and interest in, to and under the items of
property listed in Section 2.01(a), and that this Agreement shall constitute a
security agreement under applicable law. If the trust created by this
Agreement terminates prior to the satisfaction of the claims of any Person in
any Certificates, the security interest created hereby shall continue in full
force and effect and the Trustee shall be deemed to be the collateral agent
for the benefit of such Person.
The Company acknowledges and agrees that the conveyance of the
Contracts for the consideration stated in this Agreement is a transfer for
sufficient value and consideration and that the transfer is not an avoidable
conveyance under any applicable state or federal fraudulent conveyance laws.
Section 2.02. Filing; Name Change or Relocation. (a) On or prior to
the Transfer Date, the Servicer shall cause to be filed in the office of the
Secretary of State of Tennessee, UCC-1 financing statements describing the
Contracts being transferred on such Transfer Date and naming the Company as
"Seller" and the Trustee (or a separate trustee) as "Purchaser". Each
financing statement shall bear a statement on the face thereof indicating that
the parties intend the financing statement to evidence a true sale of the
Contracts, but that if the transaction is recharacterized as a loan from the
described Purchaser to the described Seller, the financing statement is to
perfect the described Purchaser's security interest in the Contracts. The
Servicer shall cause to be filed all necessary continuation statements for
each of the foregoing UCC-1 financing statements. 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 and
any related Mortgaged Property 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;
provided, however, that the Company, so long as it is the Servicer, shall not
be required to cause notations to be made on any document of title relating to
any Manufactured Home or to execute any transfer instrument (including,
without limitation, any UCC-3 assignments) relating to any Manufactured Home
(other than a notation or a transfer instrument necessary to show the Company
as the lienholder or legal title holder) or to file documents in real property
records with respect to a Manufactured Home or related Contract or any related
Mortgaged Property, absent notice from the Trustee or the Company or actual
knowledge that such Manufactured Home (other than a Manufactured Home securing
a Land-and-Home Contract) has become real property under applicable state law;
provided that the preceding proviso shall not have any effect on the
representation and warranty in Section 3.02(k) and the Company's obligations
in respect thereof in Section 3.05; provided, further, that the Servicer (if
the Company is not the Servicer) shall not be required to protect the Trustee
from any liens, claims, charges or other encumbrances on the Contracts, their
proceeds or the Manufactured Homes created by the Company or conveyances of
the Contracts or their proceeds by the Company. Nothing in the preceding
sentence shall be construed to limit the indemnification obligations of the
Servicer set forth in Section 10.05 hereof. The Company agrees to take
whatever action is necessary to enable the Servicer to file financing
statements and otherwise act to perfect and protect the Certificateholders'
interests in the Contracts, the Manufactured Homes and any related Mortgage or
Mortgaged Property. In particular, the Company shall deliver to the Trustee on
or before the Closing Date a power of attorney substantially in the form as
Exhibit K hereto, authorizing the Trustee to, among other things, record
assignments of Mortgages securing Land Secured Contracts. Assuming that the
Company and the Trustee perform such actions as are required at the direction
of the Servicer, the Servicer will maintain a perfected first priority
security interest in each Manufactured Home and any related Mortgaged Property
so long as the related Contract is the property of the Trust Fund; provided,
however, that the Company, so long as it is the Servicer, shall not be
required to cause notations to be made on any document of title relating to
any Manufactured Home, to execute any transfer instrument (including, without
limitation, any UCC-3 assignments) relating to any Manufactured Home (other
than a notation or a transfer instrument necessary to show the Company as
lienholder or legal title holder) or to file documents in real property
records with respect to a Manufactured Home or related Contract or any related
Mortgaged Property, absent notice from the Trustee, or the Company or actual
knowledge that such Manufactured Home (other than a Manufactured Home securing
a Land-and-Home Contract) has become real property under applicable state law.
(b) During the term of this Agreement, the Company shall not change
its name, identity or structure or relocate its chief executive office without
first giving notice to the Trustee. If any change in the Company'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, the Company, no later than five
days after the effective date of such change, shall file such amendments as
may be required to preserve and protect the Certificateholders' interests in
the Contracts and proceeds thereof and in the Manufactured Homes.
(c) The Company hereby represents and warrants that its current
principal executive office is located in the State of Tennessee. During the
term of this Agreement, the Company will maintain its principal executive
office in one of the States of the United States.
(d) 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
interest in the Manufactured Homes granted thereby) and any related Mortgages.
Section 2.03. Acceptance by Trustee. The Trustee hereby acknowledges
conveyance of the Contracts and any related Mortgages to the Trustee or a
separate trustee, as the case may be, and declares that the Trustee, directly
or through a custodian (which, except with respect to the Land-and-Home
Contracts and the Mortgage Loan Files, shall be the Servicer pursuant to
Section 5.16), holds and will hold such Files in trust for the use and benefit
of all present and future Certificateholders. The Trustee hereby certifies
that although it has not undertaken any independent investigation or review of
any Contract, any Contract File, any Land-and-Home Contract File, any Mortgage
Loan File or any Servicing File, no Responsible Officer of the Trustee has
notice or knowledge of (a) any adverse claim, lien or encumbrance with respect
to any Contract, (b) any Contract being overdue or dishonored, (c) any
evidence on the face of any Contract of any security interest therein adverse
to the Trustee's interest, or (d) any defense against or claim against any
Contract by the Obligor or by any other party.
Section 2.04. Delivery of Land-and-Home Contract Files and Mortgage
Loan Files and Recordation. (a) In connection with the conveyance pursuant to
Section 2.01, with respect to each Land-and-Home Contract and each Mortgage
Loan, the Company shall (i) enter into a custodial agreement (the "Custodial
Agreement") on the Closing Date substantially in the form attached hereto as
Exhibit A-2 and (ii) deliver or cause to be delivered the related
Land-and-Home Contract Files and Mortgage Loan Files, as applicable, to the
custodian under the Custodial Agreement on behalf of the Trustee, within 30
days of the Closing Date in accordance with such Custodial Agreement. Such
delivery of the Files shall be accompanied by a certificate of delivery signed
by the Company substantially in the form set forth as Exhibit A to the
Custodial Agreement.
(b) In lieu of the items to be recorded and delivered pursuant to
Sections (b), (c) and (e) of the definition of Land-and-Home Contract File and
Sections (a), (b) and (c) of the definition of Mortgage Loan File (the
"Recorded Documents"), if the original Mortgage or assignment has not been
returned by the applicable recording office or is not otherwise available, the
Company shall provide the custodian with a copy thereof together with an
Officer's Certificate (which may be a blanket Officer's Certificate of the
Company covering all such Mortgages and assignments) certifying that the copy
is a true and correct copy of the original Mortgage or original assignment, as
applicable, submitted for recording, which will be (1) replaced by the
original Mortgage or original assignment when it is so returned or (2) if the
recording office in the applicable jurisdiction retains the original Mortgage
or original assignment or the original Mortgage or original assignment has
been lost, a copy of such item certified by the applicable recording office.
(c) The Company shall deliver each Recorded Document (or if the
recording office in the applicable jurisdiction retains the original Mortgage
or original assignment or the original Mortgage or original assignment has
been lost, a copy of such item certified by the applicable recording office)
to the custodian no later than the earlier of (i) five Business Days after
receipt thereof and (ii) within 180 days of the Closing Date. In addition,
within that same time period, the Company shall deliver to the custodian any
other original documents constituting a part of the Files.
(d) Within 30 days of the Closing Date and with respect to the ten
states which have the highest concentration of Land-and-Home Contracts, by
Cut-off Date principal balance of the Contract Pool, the Company shall deliver
an Opinion of Counsel to the Trustee and the Rating Agencies to the effect
that the Company need not cause to be recorded any assignment which relates to
Land-and-Home Contracts in such states to protect the Trustee's and the
Certificateholders' interest in such Land-and-Home Contracts. Such Opinions of
Counsel shall be addressed to the Trustee and the Rating Agencies. In the
event that any Opinion of Counsel referred to in the preceding sentence is not
obtainable with respect to a state after reasonable effort, then the Company
shall either record the assignments of mortgage for each Land-and-Home
Contract located in such state or substitute an Eligible Substitute Contract
(which would not be a Land-and-Home Contract in such state) for each
Land-and-Home Contract in such state, in each case, within 90 days of the
Closing Date.
Section 2.05. REMIC Election; Designation of Regular and Residual
Interests; Tax Year. The Company will cause the Trust Fund to elect to be
treated as a REMIC. The Group I and Group II Certificates will constitute
"regular interests" in the REMIC. The Class R Certificate will constitute the
sole class of "residual interest" in the REMIC. The Holder of the Class R
Certificate hereby agrees to pay any taxes assessed against it as holder of
the "residual interest" in the REMIC. The tax year of the Trust Fund shall be
the calendar year, and the Trust Fund shall use the accrual method of
accounting.
Section 2.06. Designation of Startup Day. The Closing Date is hereby
designated as the "startup day" of the REMIC within the meaning of Section
860G(a)(9) of the Code.
Section 2.07. REMIC Certificate Maturity Date. Solely for purposes of
satisfying Section 1.860G-1(a)(4)(iii) of the REMIC Provisions, and based upon
certain assumptions described below, the "latest possible maturity date" of
each of the Group I and Group II Certificates is the Remittance Date in
________ ____. The foregoing date represents the date by which the
Certificates would be reduced to zero on the date on which the Contract with
the latest maturity date in the Contract Pool matures plus twenty-five months.
[End of Article II]
Article III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties Regarding the Company.
The Company makes the following representations and warranties to the Trustee
and the Certificateholders (to the extent such representations and warranties
are stated as being made by it):
(a) Organization and Good Standing; Licensing. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Tennessee and has the corporate power to own its assets
and to transact the business in which it is currently engaged. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the character of the business transacted by it
or properties owned or leased by it requires such qualification and in which
the failure so to qualify would have a material adverse effect on the
business, properties, assets, or condition (financial or other) of the
Company. The Company was properly licensed in each jurisdiction at the time of
its purchase of each Contract in such jurisdiction to the extent required by
the laws of such jurisdiction as applied to the purchase and servicing of such
Contract.
(b) Authorization; Binding Obligations. The Company has the power and
authority to make, execute, deliver and perform this Agreement and perform all
of the transactions contemplated to be performed by it under the Agreement,
and has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement. When executed and delivered, this
Agreement will constitute the legal, valid and binding obligation of the
Company enforceable in accordance with its terms, except as enforcement of
such terms may be limited by bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally and by the availability of
equitable remedies.
(c) No Consent Required. The Company is not required to obtain the
consent of any other party or any consent, license, approval or authorization
from, or registration or declaration with, any governmental authority, bureau
or agency in connection with the execution, delivery, performance, validity or
enforceability of this Agreement, except such as have been obtained.
(d) No Violations. The execution, delivery and performance of this
Agreement by the Company will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the Company or
the charter or bylaws of the Company, or constitute a material breach of any
mortgage, indenture, contract or other agreement to which the Company is a
party or by which the Company may be bound.
(e) Litigation. No litigation or administrative proceeding of or
before any court, tribunal or governmental body is currently pending, or to
the knowledge of the Company, threatened, against the Company or any of its
properties or with respect to this Agreement or the Certificates which, if
adversely determined, would in the opinion of the Company have a material
adverse effect on the transactions contemplated by this Agreement.
Section 3.02. Representations and Warranties Regarding Each Contract.
The Company represents and warrants to the Trustee and the Certificateholders
as to each Contract as of the Closing Date (except as otherwise expressly
stated):
(a) Contract Schedule. The information set forth in the Contract
Schedule is true and correct.
(b) Payments. As of the Cut-off Date, no scheduled payment of
principal or interest on any Contract was more than 59 days past due and was
not made directly or indirectly by the Company on behalf of the Obligor.
(c) No Waivers. The terms of the Contract and any related Mortgage
have not been waived, altered or modified in any respect, except by
instruments or documents identified in the Contract File, the Land-and-Home
Contract File or the Mortgage Loan File, as applicable.
(d) Binding Obligation. The Contract and any related Mortgage 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 and
by general principles of equity.
(e) No Defenses. The Contract and any related Mortgage 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
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. The Manufactured Home securing the Contract is covered
by a Hazard Insurance Policy in the amount required by Section 5.09. All
premiums due as of the Closing Date on such insurance have been paid in full.
(g) Origination. The Contract was either (i) originated by a
manufactured housing dealer acting, to the best of the Company's knowledge, in
the regular course of its business and was purchased by the Company or an
Originator in the regular course of its business, or (ii) originated by the
Company or an Originator in the regular course of its business.
(h) Lawful Assignment. The Contract and any related Mortgage was not
originated in and is not subject to the laws of any jurisdiction whose laws
would make the transfer or ownership of the Contract under this Agreement or
pursuant to transfers of Certificates unlawful or render the Contract
unenforceable.
(i) Compliance with Law. All requirements of any federal, state or
local law, including, without limitation, usury, truth-in-lending and equal
credit opportunity laws and lender licensing laws, applicable to the Contract
and any related Mortgage have been complied with, and the Servicer 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.
(j) Contract in Force. The Contract and any related Mortgage 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 and any related Mortgage in whole or in part.
(k) Valid Security Interest. The Contract, together with any related
Mortgage or certificate of title, creates a valid, subsisting and enforceable
first priority security interest in favor of the Company in the Manufactured
Home covered thereby and, in the case of a Land-and-Home Contract or a
Mortgage Loan, a first mortgage lien on the related Mortgaged Property; and
the Trustee has a valid and perfected first priority security interest in such
Manufactured Home and, in the case of a Land-and-Home Contract or a Mortgage
Loan, a first mortgage lien on the related Mortgaged Property.
(l) Capacity of Parties. All parties to the Contract and any related
Mortgage had capacity to execute the Contract.
(m) Good Title. The Company originated or purchased the Contract and
any related Mortgage for value and took possession thereof in the ordinary
course of its business, without knowledge that the Contract was subject to any
security interest. Immediately prior to the transfer of the Contract and any
related Mortgage by the Company, the Company had good and marketable title
thereto free and clear of any encumbrance, equity, loan, pledge, charge, claim
or security interest and was the sole owner thereof with full right to
transfer the Contract and any related Mortgage to the Trustee.
(n) No Defaults. As of the Closing Date, there was no default,
breach, violation or event permitting acceleration existing under the Contract
and any related Mortgage 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) above). The Company has not waived any
such default, breach, violation or event permitting acceleration.
(o) No Liens. As of the Closing Date, there are, to the best of the
Company's knowledge, no liens or claims which have been filed for work, labor
or materials affecting the Manufactured Home or related Mortgaged Property
securing the Contract or the Mortgage Loan, as applicable, which are or may be
liens prior to, or equal or coordinate with, the lien of the Contract.
(p) Equal Installments. Except for Escalating Principal Payment
Contracts, each Group I Contract has a fixed APR and provides for level
monthly, bi-weekly or semi-monthly payments of principal and interest which
fully amortize the loan over its term. If the Contract is a Group II Contract,
it has a variable APR based on the Index. The Contract is an Actuarial
Contract.
(q) Enforceability. Each Contract and any related Mortgage contains
customary and enforceable provisions such as to render the rights and remedies
of the holder thereof adequate for the realization against the collateral of
the benefits of the security.
(r) One Original. There is only one original executed Contract, and
each original Contract is in the custody of the Company or otherwise held on
behalf of the Trustee on the Closing Date.
(s) Loan-to-Value Ratio. At the time of its origination other than
one Contract with a Loan-to-Value Ratio of _______% and one Contract with a
Loan-to-Value Ratio of _______%, all of the Contracts had a Loan-to-Value
Ratio not greater than 100%.
(t) Primary Residence. To the best of the Company's knowledge, at the
time of origination of the Contracts, at least __% of the Manufactured Homes
securing Contracts in each Group were the related Obligors' primary
residences.
(u) Not Real Estate. Except with respect to Land-and-Home Contracts
and Mortgage Loans, the related Manufactured Home is personal property, was
personal property at the time of the execution and delivery of the related
Contract by the parties thereto, and is not and was not, at such time,
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. The related
Manufactured Home is, to the best of the Company's knowledge, free of damage
and in good repair.
(v) Notation of Security Interest. 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 Company or the related 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 or the making of a fixture filing under the UCC is
required to perfect a security interest in manufactured housing, such filings
or recordings have been duly made and show the Company as secured party. If
the related Manufactured Home secures a Land-and-Home Contract, the related
land securing such Land-and-Home Contract is subject to a Mortgage properly
filed in the appropriate public recording office and naming the Company as
mortgagee. In each such 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 claiming an interest in such Manufactured Home.
(w) Qualified Mortgage for REMIC. Each Contract is secured by a
"single family residence" within the meaning of Section 25(e)(10) of the Code
and is a "qualified mortgage" under Section 860G(a)(3) of the Code.
(x) Stamping of Contracts. Within seven days after the Closing Date,
each Contract will have been stamped with the following legend: "This Contract
has been assigned to ____________, as Trustee, or a separate trustee under the
Pooling and Servicing Agreement dated as of _______ __, 1999 or to any
successor Trustee thereunder."
(y) Secondary Mortgage Market Enhancement Act. With respect to each
Contract, the related Manufactured Home is a "manufactured home" within the
meaning of 42 United States Code, Section 5402(6), and at the origination of
each such Contract, the Company was approved for insurance by the Secretary of
Housing and Urban Development pursuant to Section 2 of the National Housing
Act and, at the origination of each Acquired Contract in Group II purchased by
the Company, the Originator of such Acquired Contract was a savings and loan
association, a savings bank or a Person approved for insurance by the
Secretary of Housing and Urban Development under Section 2 of the National
Housing Act or a "similar institution supervised and examined by a Federal or
State authority" within the meaning of Section 3(a)(41) of the Securities
Exchange Act of 1934, as amended.
Section 3.03. Representations and Warranties Regarding the Contracts in
the Aggregate. The Company represents and warrants that:
(a) Amounts. The aggregate principal amounts payable by Obligors
under the Group I Contracts and the Group II Contracts as of the Cut-off Date
(including scheduled principal payments due before the Cut-off Date but
received by the Company on or after the Cut-off Date and excluding scheduled
principal payments due on or after the Cut-off Date but received by the
Company prior to the Cut-off Date) equal or exceed the Group I Initial
Principal Amount and the Group II Initial Principal Amount, respectively, and
each Contract has an APR equal to or greater than _____%.
(b) Characteristics. The Contracts have the following characteristics
as of the Cut-off Date: (i) except for Group I Contracts secured by
Manufactured Homes located in _____, _________, _______, _________, _______,
_______ and _______ not more than ____% of the Group I Contracts and except
for Group II Contracts secured by Manufactured Homes located in ________,
_______, _______, _______ and _______, not more than ____% of the Group II
Contracts, in each case by remaining principal balance, are secured by
Manufactured Homes located in any one state, not more than ____% of the Group
I Contracts or ____% of the Group II Contracts, in each case by remaining
principal balance, are secured by Manufactured Homes located in an area with
the same zip code; (ii) no Group I Contract has a remaining maturity of less
than __ months or more than 360 months; (iii) the final scheduled payment date
on the Group I Contract with the latest maturity is ________ ____ and the
final scheduled payment date on the Group II Contract with the latest maturity
is _____ ____; (iv) no less than approximately _____% of the Group I Initial
Principal Amount or _____% of the Group II Initial Principal Amount is
attributable to loans for purchases of new Manufactured Homes, and no more
than approximately _____% of the Group I Initial Principal Amount or _____% of
the Group II Initial Principal Amount is attributable to loans for purchases
of used Manufactured Homes; (v) no Group I Contract was originated before
_____ __, ____ and no Group II Contract was originated before _____ __, ____;
(vi) no more than _____% of the Contracts by Cut-Off Date principal balance
are Contracts for which the related land was pledged in lieu of a down payment
or a trade-in; (vii) no more than _____% of the Contracts by Cut-Off Date
principal balance are Land-and-Home Contracts and no more than _____% of the
Contracts by Cut-Off Date principal balance are Mortgage Loans; (viii) no more
than ____% of the Contracts by Cut-off Date principal balance are Escalating
Principal Payment Contracts; (ix) ______% and __% of the Group II Contracts by
aggregate unpaid principal balance reset annually and semi-annually,
respectively; (x) ___% of the Group II Contracts by aggregate unpaid principal
balance consist of variable rate contracts which adjust based on the monthly
average yield on U.S. treasury securities adjusted to a constant maturity of
__ years, __% of the Group II Contracts by aggregate unpaid principal balance
consist of variable rate contracts which adjust based on the monthly average
yield on U.S. treasury securities adjusted to a constant maturity of __ year
and __% of the Group II Contracts by aggregate unpaid principal balance
consist of variable rate contracts which adjust based on other indices; (xi)
each Group II Contract has an initial date for the adjustment of its Contract
Rate no later than _______ __, ____; (xii) the Gross Margins on the Group II
Contracts range from _____% to _______% and the weighted average of such Gross
Margins as of the Cut-off Date was approximately _____%.
(c) Computer Tape. The Computer Tape made available by the Servicer
as of the close of business on _______ __, 1999 was accurate as of its date
and includes a description of the same Contracts that are described in the
Contract Schedule.
(d) Marking Records. On or before the Closing Date, the Company will
have caused the portions of the Electronic Ledger relating to the Contracts
constituting part of the Trust Fund to be clearly and unambiguously marked to
indicate that such Contracts constitute part of the Trust Fund and are owned
by the Trust Fund in accordance with the terms of the trust created hereunder.
(e) No Adverse Selection. Except for the effect of the
representations and warranties made in Section 3.02 and 3.03 and the effect of
the geographical distribution of the Manufactured Homes, no adverse selection
procedures have been employed in selecting the Contracts.
Section 3.04. Representations and Warranties Regarding the Contract
Files, the Land-and-Home Contract Files and the Mortgage Loan Files. The Company
represents and warrants that:
(a) Possession. Immediately prior to the Closing Date, the Servicer
will have possession of each original Contract and the remainder of the
related Contract File. In addition, the Servicer will have possession of the
Servicing Files with respect to each Contract, including each Land-and-Home
Contract and each Mortgage Loan. There are and there will be no custodial
agreements in effect materially and adversely affecting the right of the
Company to make, or to cause to be made, any delivery required hereunder.
(b) Bulk Transfer Laws. The transfer, assignment and conveyance of
the Contracts, the Contract Files, the Land-and-Home Contract Files and the
Mortgage Loan Files by the Company pursuant to this Agreement are not subject
to the bulk transfer or any similar statutory provisions in effect in any
applicable jurisdiction.
Section 3.05. Repurchases of Contracts or Substitution of Contracts
for Breach of Representations and Warranties. (a) The Company shall either (i)
repurchase a Contract at its Repurchase Price, or (ii) if the Company is able
to satisfy the conditions of Section 3.05(b), remove a Contract from the Trust
Fund and substitute therefor an Eligible Substitute Contract in accordance
with and subject to the limitations of Section 3.05(b), in each case not later
than one Business Day after the first Determination Date which is more than 90
days after the Company becomes aware, or receives written notice from the
Servicer or the Trustee, of a breach of a representation or warranty of the
Company set forth in Sections 3.02 or 3.03 of this Agreement that materially
adversely affects the Trust Fund's interest in such Contract, unless such
breach has been cured; provided, however, that with respect to any Contract
incorrectly described on the Contract Schedule with respect to unpaid
principal balance, which the Company would otherwise be required to repurchase
pursuant to this Section, the Company may, in lieu of repurchasing such
Contract, deposit in the related Certificate Account not later than one
Business Day after such Determination Date cash in an amount sufficient to
cure such deficiency or discrepancy; and provided, further, that with respect
to a breach of a representation or warranty relating to the Contracts in the
aggregate and not to each particular Contract, the Company may select
Contracts to repurchase or substitute for such that, had such Contracts not
been included as part of the related Contract Pool and after giving effect to
such substitution, if any, there would have been no breach of such
representation or warranty. It is understood and agreed that the obligation of
the Company to repurchase or substitute for any Contract as to which a breach
of a representation or warranty set forth in Section 3.02 or 3.03 of this
Agreement has occurred and is continuing shall constitute the sole remedy
respecting such breach available to the Certificateholders or the Trustee;
provided, however, that the Company shall defend and indemnify the Trustee,
the Trust Fund and Certificateholders against all costs, expenses, losses,
damages, claims and liabilities, including reasonable fees and expenses of
counsel, which may be asserted against or suffered by any of them as a result
of third-party claims arising out of any breach of a representation or
warranty set forth in Section 3.02 or 3.03. Nothing in the preceding sentence
shall be construed to limit the indemnification obligations of the Servicer
set forth in Section 10.05 hereof. Notwithstanding any other provision of this
Agreement, the obligation of the Company under this Section shall not
terminate upon an Event of Default and the indemnification obligation of the
Servicer in this Section shall survive the resignation or removal of the
Trustee and the termination of this Agreement.
Notwithstanding any other provision of this Agreement to the
contrary, any amount received on or recovered with respect to repurchased
Contracts or Replaced Contracts during or after the Due Period in which such
repurchase occurs shall be the property of the Company and need not be
deposited in either Certificate Account.
Notwithstanding the foregoing, the Company shall not deposit cash
into either Certificate Account pursuant to this Section 3.05 after the end of
the three month period beginning on the Closing Date unless it shall first
have obtained an Opinion of Counsel to the effect that such deposit will not
give rise to any tax under Section 860F(a)(1) of the Code or Section 860G(d)
of the Code. Any such deposit shall not be invested. If the Company is
required to purchase such Contract (or deposit cash in the related Certificate
Account), the Company shall guarantee the payment of any tax under Section
860F(a)(1) of the Code or under Section 860G(d) of the Code by paying to the
Trustee the amount of such tax not later than five Business Days before such
tax shall be due and payable to the extent that amounts previously paid over
to and then held by the Trustee pursuant to Section 5.17 hereof are
insufficient to pay such tax and all other taxes chargeable under Section
5.17. If a payment of tax by the Company is required in connection with a
repurchase, the Company shall give the Trustee notice of such tax and the
amount of such tax and the date by which the Company shall provide funds to
the Trustee to cover such tax. The Trustee shall hold any amount paid to it
pursuant to the preceding sentence in an account that is not part of the Trust
Fund. The Servicer shall give notice to the Trustee at the time of such
repurchase of the amounts due from the Company pursuant to the guarantee of
the Company and notice as to who should receive such payment.
The Trustee shall have no obligation to pay any such amounts pursuant
to this Section other than from moneys provided to it by the Company or from
moneys held in the funds and accounts created under this Agreement. The
Trustee shall be deemed conclusively to have complied with this Section if it
follows the directions of the Servicer.
In the event any tax that is guaranteed by the Company is refunded to
the Trust Fund or otherwise is determined not to be payable, the Company shall
be repaid the amount of such refund or that portion of any guarantee payment
made by the Company that is not applied to the payment of such tax.
Notwithstanding the above provisions of this Section 3.05(a), the
Company shall not be required to repurchase or substitute for any Contract on
account of a breach of the representation or warranty contained in Section
3.02(k) or (v) solely on the basis of failure by the Company to cause
notations to be made on any document of title relating to any Manufactured
Home or to execute any transfer instrument relating to any Manufactured Home
(other than a notation or a transfer instrument necessary to show the Company
as lienholder or legal title holder) unless (i) a court of competent
jurisdiction has adjudged that, because of such failure, the Trustee does not
have a perfected first-priority security interest in the related Manufactured
Home or (ii) (A) the Servicer has received written advice of counsel (with a
copy to the Trustee) to the effect that a court of competent jurisdiction has
held that, solely because of a substantially similar failure on the part of a
pledgor or assignor of manufactured housing contracts (who has perfected the
assignment or pledge of such contracts), a perfected first-priority security
interest was not created in favor of the pledgee or assignee (as the case may
be) in a related manufactured home which is located in such jurisdiction and
which is subject to the same laws regarding the perfection of security
interest therein as apply to Manufactured Homes located in such jurisdiction,
and (B) the Servicer shall not have completed all appropriate remedial action
with respect to such Manufactured Home within 180 days after receipt of such
written advice. Any such advice shall be from counsel selected by the Servicer
on a non-discriminatory basis from among the counsel used by the Servicer in
its general business in the jurisdiction in question. The Servicer shall have
no obligation on an ongoing basis to seek any advice with respect to the
matters described in clause (ii) above. However, the Servicer shall seek
advice with respect to such matters whenever information comes to the
attention of its General Counsel which causes such General Counsel to
determine that a holding of the type described in clause (ii) (A) might exist.
(b) On or prior to the date that is the second anniversary of the
Closing Date, the Company, at its election, may substitute one or more
Contracts for a Contract that it is obligated to repurchase pursuant to
Section 3.05(a) (such Contract being referred to as the "Replaced Contract")
upon satisfaction of the following conditions:
(i) each Contract to be substituted for the Replaced
Contract is an Eligible Substitute Contract and the Company delivers
an Officer's Certificate, substantially in the form of Exhibit F
hereto, to the Trustee certifying that such Contract is an Eligible
Substitute Contract, describing in reasonable detail how such
Contract satisfies the definition of the term "Eligible Substitute
Contract" (as to satisfaction of representations and warranties, such
description shall be that such Contract satisfies such
representations and warranties) and certifying that (a) the Contract
File for such Contract is in the possession of the Servicer or (b)
the Land-and-Home Contract File or the Mortgage Loan File for such
Contract is in the possession of a custodian acting on behalf of the
Trustee;
(ii) the Company shall have delivered to the Trustee
evidence of filing with the appropriate office in Tennessee of a
UCC-1 financing statement describing such Contract executed by the
Company as seller, naming the Trustee as purchaser and bearing the
statement set forth in Section 2.02(a);
(iii) the Company shall have delivered to the Trustee an
Opinion of Counsel (a) to the effect that the substitution of such
Contract for such Replaced Contract will not cause the Trust Fund to
fail to qualify as a REMIC at any time under then applicable REMIC
Provisions or cause any "prohibited transaction" that will result in
the imposition of a tax under such REMIC Provisions and (b) to the
effect that no filing or other action other than the filing of a
financing statement on Form UCC-1 with the Secretary of State of the
State of Tennessee, naming the Company as debtor and the Trustee as
secured party, and the filing of continuation statements as required
by Section 2.02(a) of this Agreement, is necessary to perfect as
against third parties the conveyance of the Contracts by the Company
to the Trustee; and
(iv) if the aggregate of the Scheduled Principal Balances of
the Replaced Contracts, if any, within a particular Group is greater
than the Scheduled Principal Balances of the Contracts substituted
for such Replaced Contracts, the Company shall have deposited in the
related Certificate Account the amount of such excess and shall have
included in the Officer's Certificate required by clause (i) above a
certification that such deposit has been made.
Upon satisfaction of such conditions, the Servicer shall add each such
Contract to, and delete each such Replaced Contract from (or cause such
addition and deletion to be accomplished), the Contract Schedule and shall
deliver a copy of such amended Contract Schedule to the Trustee. Such
substitution shall be effected prior to the first Determination Date that
occurs more than 90 days after the Company becomes aware, or receives written
notice from the Servicer or the Trustee, of the breach referred to in Section
3.05(a).
(c) Promptly after the repurchase referred to in Section 3.05(a) or
the substitution referred to in Section 3.05(b), the Trustee shall execute
such documents as are presented to it by the Company and are reasonably
necessary to reconvey, without recourse, representation or warranty the
repurchased Contract or Replaced Contract, as the case may be, to the Company.
[End of Article III]
Article IV
THE CERTIFICATES
Section 4.01. The Certificates. The Class I A, Class II A, Class I M-1,
Class I B, Class II B and Class R Certificate shall be substantially in the
forms annexed hereto as Exhibit B-1, Exhibit B-2, Exhibit B-3, Exhibit C-1,
Exhibit C-2 and Exhibit D, respectively, and Exhibit E (reverse of all
Certificates), with such immaterial changes as the Company deems appropriate,
and on original issue, shall be executed by manual or facsimile signature by an
authorized officer of the Trustee, countersigned by the Trustee and delivered to
or upon the order of the Company. The Class I A-1 Certificates, Class I A-2
Certificates, Class I A-3 Certificates, Class I A-4 Certificates, Class I A-5
Certificates, Class I A-6 Certificates, Class I M-1 Certificates, Class I B-1
Certificates, Class I B-2 Certificates, Class II A-1 Certificates, Class II B-1
Certificates, Class II B-2 Certificates and Class II B-3 Certificates shall each
be evidenced initially by single certificates representing $__________,
$__________, $__________, $__________, $__________, $__________, $__________,
$__________, $__________, $__________, $__________, $_________, and $_________,
respectively, in initial aggregate principal balance, beneficial ownership of
such Certificates to be held through Book-Entry Certificates. The Class R
Certificate shall initially be held in the name of Vanderbilt SPC, Inc. Each
Certificate other than the Class R Certificate shall be issued in minimum dollar
denominations of $50,000 and integral dollar multiples of $1,000 in excess
thereof. Upon original issuance, the sum of the denominations of each Class of
the Class I A-1 Certificates, Class I A-2 Certificates, Class I A-3
Certificates, Class I A-4 Certificates, Class I A-5 Certificates and Class I A-6
Certificates, as the case may be, shall equal the Original Class I A-1 Principal
Balance, the Original Class I A-2 Principal Balance, the Original Class I A-3
Principal Balance, the Original Class I A-4 Principal Balance, the Original
Class I A-5 Principal Balance and the Original Class I A-6 Principal Balance,
respectively, the sum of the denominations of the Class I M-1 Certificates shall
equal the Original Class I M-1 Principal Balance and the sum of the
denominations of each Class of the Class I B-1 Certificates and Class I B-2
Certificates shall equal the Original Class I B-1 Principal Balance and the
Original Class I B-2 Principal Balance, respectively. Upon original issuance,
the sum of the denominations of each Class of the Class II A-1 Certificates,
Class II B-1 Certificates, Class II B-2 Certificates and Class II B-3
Certificates shall equal the Original Class II A-1 Principal Balance, the
Original Class II B-1 Principal Balance, the Original Class II B-2 Principal
Balance and the Original Class II B-3 Principal Balance, respectively. The Class
R Certificate shall not have a principal balance.
The Certificates shall be countersigned by manual signature on behalf
of the Trustee by one of its authorized officers or its Authenticating Agent
pursuant to Section 4.07. Certificates bearing the signatures of individuals
who were at any time the proper officers of the Trustee shall bind the
Trustee, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the countersignature and delivery of such
Certificate or did not hold such offices at the date of such Certificates. No
Certificate shall be entitled to any benefit under this Agreement, or be valid
for any purpose, unless there appears on such Certificate a manual
countersignature by the Trustee or its Authenticating Agent and such
countersignature upon any Certificate shall be conclusive evidence, and the
only evidence, that such Certificate has been duly countersigned and delivered
hereunder. All Certificates shall be dated the date of their countersignature.
The rights of the Certificateholders to receive payments with respect
to the Trust Fund in respect of the Certificates, and all ownership interests
of the Certificateholders in such payments, shall be as set forth in this
Agreement.
Section 4.02. Registration of Transfer and Exchange of Certificates.
(a) The Trustee shall cause to be kept at its Corporate Trust Office or, at
the election of the Trustee, at the office of its designated agent in New York
City, a Certificate Register in which, subject to such reasonable regulations
as it may prescribe, the Trustee shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein
provided.
(b) Subject to Section 4.02(c) and the other provisions of this
Section, upon surrender for registration of transfer of any Certificate at any
office or agency of the Trustee maintained for such purpose, the Trustee shall
execute, countersign and deliver, in the name of the designated transferee or
transferees, a Certificate of a like aggregate Percentage Interest and dated
the date of countersignature by the Trustee or its Authenticating Agent. The
Holder and beneficial owner of any Class I A-6 Certificate, Class I M-1, Class
I B-1, Class I B-2, Class II B-1, Class II B-2 or Class II B-3 Certificate
must provide either (i) a representation to the effect that it is not an
employee benefit plan subject to Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or Section 4975 of the Code or a
trustee of any such plan or a person acting on behalf of any such plan or
acquiring a Certificate with the assets of any such plan to effect such
transfer, (ii) if the purchaser is an insurance company, a representation that
the purchaser is an insurance company which is purchasing such Certificates
with funds contained in an "insurance company general account" (as such term
is defined in Section V(e) of Prohibited Transaction Class Exemption 95-60
("PTCE 95-60") and that the purchase and holding of such Certificates are
covered under PTCE 95-60 or (iii) in the case of any such Certificate
presented for registration in the name of an employee benefit plan subject to
ERISA, or a plan or arrangement subject to Section 4975 of the Code (or
comparable provisions of any subsequent enactments), or a trustee of any such
plan or any other person acting on behalf of any such plan or arrangement or
using such plan's or arrangement's assets, an Opinion of Counsel satisfactory
to the Trustee, which Opinion of Counsel shall not be an expense of either the
Trustee or the Trust Fund, addressed to the Trustee, to the effect that the
purchase or holding of such Certificate will not result in the assets of the
Trust Fund being deemed to be "plan assets" and subject to the prohibited
transaction provisions of ERISA and the Code and will not subject the Trustee
to any obligation in addition to those expressly undertaken in this Agreement
or to any liability. For purposes of the preceding sentence, with respect to a
Certificate that is not a Class R Certificate, in the event the representation
letter referred to in the preceding sentence is not furnished, such
representation shall be deemed to have been made to the Trustee by the
transferee's (including an initial acquiror's) acceptance of the Certificates.
Notwithstanding anything else to the contrary herein, any purported transfer
of a Class I A-6, Class I M-1, Class I B-1, Class I B-2, Class II B-1, Class
II B-2 or Class II B-3 Certificate to or on behalf of an employee benefit plan
subject to ERISA or to the Code without the delivery to the Trustee of an
Opinion of Counsel satisfactory to the Trustee as described above shall be
void and of no effect.
To the extent permitted under applicable law (including, but not
limited to, ERISA), the Trustee shall be under no liability to any Person for
any registration of transfer of any Class I A-6, Class I M-1, Class I B-1,
Class I B-2, Class II B-1, Class II B-2 or Class II B-3 Certificate that is in
fact not permitted by this Section 5.02(b) or for making any payments due on
such Certificate to the Holder thereof or taking any other action with respect
to such Holder under the provisions of this Agreement so long as the transfer
was registered by the Trustee in accordance with the foregoing requirements.
No transfer of a Class R Certificate shall be made unless such
transfer is made pursuant to an effective registration statement or in
accordance with an exemption from the requirements under the Securities Act of
1933, as amended, or any applicable state securities laws. If such a transfer
is to be made in reliance upon an exemption from said Act and laws, prior to
the registration of any such transfer (i) the Trustee or the Company may
require a written Opinion of Counsel acceptable to and in form and substance
satisfactory to the Trustee and the Company that such transfer may be made
pursuant to an exemption, describing the applicable exemption and the basis
therefor, from said Act and laws or is being made pursuant to said Act and
laws, which Opinion of Counsel shall not be an expense of the Trustee, the
Company or the Servicer, and (ii) the Trustee shall require the transferee to
execute a certification, substantially in the form of Exhibit I hereto,
acceptable to and in form and substance satisfactory to the Company and the
Trustee setting forth the facts surrounding such transfer; provided that such
Opinion of Counsel shall not be required in the case of transfers by or to
Vanderbilt SPC, Inc. Such Opinions of Counsel shall not be an expense of the
Trustee, the Company or the Servicer.
No transfer of a Class R Certificate shall be made unless the Trustee
shall have either (i) a representation letter from the proposed transferee to
the effect that such transferee is not an employee benefit plan subject to
Section 406 of ERISA or Section 4975 of the Code or a trustee of any such plan
or a person acting on behalf of any such plan or acquiring such Certificate
with the assets of any such plan or (ii) an Opinion of Counsel satisfactory to
the Trustee, the Company and the Servicer, and upon which each of them is
authorized to rely, to the effect that the purchase or holding of such
Certificate by the prospective transferee will not result in the assets of the
Trust Fund being deemed to be "plan assets" and subject to the prohibited
transaction provisions of ERISA and the Code and will not subject the Trustee,
the Company 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 Company or the Servicer.
(c) At the option of the Certificateholder, a Certificate may be
exchanged for another Certificate or Certificates of the same Class and of
authorized denominations of the same aggregate denomination, upon surrender of
the Certificate to be exchanged at any office or agency of the Trustee
maintained for such purpose. Whenever the Certificate is so surrendered for
exchange, the Trustee or its Authenticating Agent shall execute, countersign
and deliver, the Certificate or Certificates which the Certificateholder
making the exchange is entitled to receive. Every Certificate presented or
surrendered for registration of transfer or exchange (if so required by the
Trustee) shall be duly endorsed by, or be accompanied by a written instrument
of transfer in the form satisfactory to the Trustee or the Certificate
Registrar duly executed by, the Holder thereof or his attorney duly authorized
in writing.
(d) No service charge shall be made to the Holder for any
registration of transfer or exchange of the Certificate, but the Trustee 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 the
Certificate.
(e) All Certificates surrendered for registration of transfer or
exchange shall be held in accordance with the retention policy of the Trustee.
(f) Except as provided in paragraph (g) 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) transfer of the Book-Entry
Certificates may not be registered by the Trustee except to another
Depository; (ii) the Depository shall maintain book-entry records with respect
to the Certificate Owners and with respect to ownership and transfers of such
Book-Entry Certificates; (iii) ownership and transfers of registration of the
Book-Entry Certificates on the books of the Depository shall be governed by
applicable rules established by the Depository; (iv) the Depository may
collect its usual and customary fees, charges and expenses from its Depository
Participants; (v) the Trustee shall deal only with the Depository and its
nominee, Cede & Co., as registered Holder of the Book-Entry Certificates for
purposes of exercising the rights of Holders under this Agreement, and
requests and directions for and votes of such Persons shall not be deemed to
be inconsistent if they are made with respect to different Certificate Owners;
and (vi) the Trustee may rely and shall be fully protected in relying upon
information furnished by the Depository with respect to its Depository
Participants and furnished by the Depository Participants with respect to
indirect participating firms and Persons shown on the books of such indirect
participating firms as direct or indirect Certificate Owners.
All transfers by Certificate Owners of Book-Entry Certificates shall
be made in accordance with the procedures established by the Depository
Participant or brokerage firm representing such Certificate Owner. Each
Depository Participant shall only transfer Book-Entry Certificates of
Certificate Owners it represents or of brokerage firms for which it acts as
agent in accordance with the Depository's normal procedures.
(g) If (x)(i) the Company or the Depository advises the Trustee in
writing that the Depository is no longer willing, qualified or able to
properly discharge its responsibilities as Depository, and (ii) the Trustee or
the Company is unable to locate a qualified successor, (y) the Company at its
option advises the Trustee in writing that it elects to terminate the
book-entry system through the Depository and obtains the consent of the
Trustee and the Servicer to such termination, or (z) after the occurrence of
an Event of Default, the Depository notifies the Trustee that Certificate
Owners representing Fractional Interests aggregating not less than 51% of the
aggregate Fractional Interests of the Book-Entry Certificates together have
advised the Depository through the Depository Participants in writing that the
continuation of a book-entry system through the Depository is no longer in the
best interests of the Certificate Owners, the Trustee shall send notice to the
Depository for distribution to the Certificate Owners, of the occurrence of
any such event and of the availability of definitive, fully registered Group I
and Group II Certificates (the "Definitive Certificates") to Certificate
Owners requesting the same. Upon surrender to the Trustee of the Group I and
Group II Certificates by the Depository, accompanied by registration
instructions from the Depository for registration of transfer, the Trustee
shall countersign the Definitive Certificates. Neither the Company nor the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Certificates, all references herein to
obligations imposed upon or to be performed by the Depository shall be deemed
to be imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates, and the Trustee shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder.
(h) On or prior to the Closing Date, there shall be delivered to the
Depository one Class I A-1 Certificate, one Class I A-2 Certificate, one Class
I A-3 Certificate, one Class I A-4 Certificate, one Class I A-5 Certificate,
one Class I A-6 Certificate, one Class I M-1 Certificate, one Class I B-1
Certificate, one Class I B-2 Certificate, one Class II A-1 Certificate, one
Class II B-1 Certificate, one Class II B-2 Certificate and one Class II B-3
Certificate in registered form registered in the name of the Depository's
nominee, Cede & Co., the total face amount of each of which represents 100% of
the Original Class I A-1 Principal Balance, 100% of the Original Class I A-2
Principal Balance, 100% of the Original Class I A-3 Principal Balance, 100% of
the Original Class I A-4 Principal Balance, 100% of the Original Class I A-5
Principal Balance, 100% of the Original Class I A-6 Principal Balance, 100% of
the Original Class I M-1 Principal Balance, 100% of the Original Class I B-1
Principal Balance, 100% of the Original Class I B-2 Principal Balance, 100% of
the Original Class II A-1 Principal Balance, 100% of the Original Class II B-1
Principal Balance, 100% of the Original Class II B-2 Principal Balance and
100% of the Original Class II B-3 Principal Balance, respectively. Each
Certificate registered in the name of the Depository shall bear the following
legend:
"Unless this Certificate is presented by an authorized representative
of The Depository Trust Company to the Trustee or its agent for
registration of transfer, exchange or payment, and any certificate issued
is registered in the name of Cede & Co. or such other name as requested by
an authorized representative of The Depository Trust Company and any
payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered
owner hereof, Cede & Co., has an interest herein."
Section 4.03. Mutilated, Destroyed, Lost or Stolen Certificate. If
(i) any mutilated Certificate is surrendered to the Trustee or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (ii) there is delivered to the Trustee and any Certificate
Registrar such security or indemnity as may be required by it to save each of
them harmless, then, in the absence of notice to a Responsible Officer of the
Trustee that such Certificate has been acquired by a bona fide purchaser, the
Trustee shall countersign and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of the
same Class and of like tenor and denomination. Upon the issuance of any new
Certificate under this Section, the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses connected therewith. Any
replacement Certificate issued pursuant to this Section shall constitute
complete and indefeasible evidence of ownership in the Trust Fund, as if
originally issued, whether or not the destroyed, lost or stolen Certificate
shall be found at any time.
Section 4.04. Persons Deemed Owners. The Company, the Servicer, the
Trustee and any Paying Agent may treat the Person in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving payments pursuant to Section 6.01 and for all other purposes
whatsoever, and none of the Company, the Servicer, any Paying Agent, the
Certificate Registrar nor the Trustee shall be affected by notice to the
contrary.
Section 4.05. Appointment of Paying Agent. The Trustee may appoint a
Paying Agent for the purpose of making distributions to Certificateholders
pursuant to Section 6.01 and payments pursuant to Section 5.17. Any Paying Agent
or its parent company so appointed either shall be a bank or trust company or
shall have a rating acceptable to the Rating Agencies. In the event of any such
appointment, on or prior to each Remittance Date, the Trustee shall deposit or
cause to be deposited with the Paying Agent, from amounts in each Certificate
Account, a sum sufficient to make the payments to the related Certificateholders
in the amounts and in the manner provided for in Section 6.01, such sum to be
held in trust for the benefit of the related Certificateholders. The Trustee
initially appoints itself as Paying Agent.
The Trustee shall cause each Paying Agent (other than itself) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee that such Paying Agent is at all times acting as
agent for the Trustee and such Paying Agent will hold all sums held by it for
the payment to Certificateholders in trust for the benefit of the
Certificateholders entitled thereto until such sums shall be paid to such
Certificateholders.
Section 4.06. Access to List of Certificateholders' Names and
Addresses. The Certificate Registrar will furnish to the Trustee (if the
Trustee is not the Certificate Registrar), the Company and the Servicer within
five days after receipt by the Certificate Registrar of a request therefor
from the Trustee, the Company or the Servicer in writing, a list, in such form
as the Trustee, the Company or the Servicer reasonably may require, of the
names and addresses of the Certificateholders as of the most recent Record
Date. If Holders of Certificates of any Class evidencing, as to such Class,
aggregate Percentage Interests of 25% or more (the "Applicants") apply in
writing to the Trustee, and such application states that the Applicants desire
to communicate with other Certificateholders of such Class with respect to
their rights under this Agreement or under the Certificates of such Class and
is accompanied by a copy of the communication which such Applicants propose to
transmit, then the Trustee, within five Business Days after the receipt of
such application, shall afford such Applicants access during normal business
hours to the most recent list of Certificateholders of such Class held by the
Trustee. If such list is as of a date more than 90 days prior to the date of
receipt of such applicants' request, the Trustee promptly shall request from
the Certificate Registrar a current list as provided above, and shall afford
such Applicants access to such list promptly upon receipt. Every
Certificateholder, by receiving and holding a Certificate, agrees with the
Certificate Registrar and the Trustee that neither the Servicer, the
Certificate Registrar, the Company nor the Trustee shall be held accountable
by reason of the disclosure of any such information as to the names and
addresses of the Certificateholders hereunder, regardless of the source from
which such information was derived.
Section 4.07. Authenticating Agents. The Trustee may appoint one or
more Authenticating Agents with power to act on its behalf and subject to its
direction in the execution and delivery of the Certificates. For all purposes
of this Agreement, the execution and delivery of Certificates by the
Authenticating Agent pursuant to this Section shall be deemed to be the
execution and delivery of Certificates "by the Trustee."
Section 4.08. Class R Certificate. (a) The Class R Certificate shall
not be assigned or transferred except in accordance with Sections 4.08(b) and
(c) and any other applicable provision of this Agreement.
(b) Each Person who has or acquires any Ownership Interest (as
defined below) in a Class R Certificate shall be deemed by the acceptance or
acquisition of such Ownership Interest in such Class R Certificate to have
agreed to be bound by the following provisions and to have irrevocably
appointed the Servicer as its attorney-in-fact to negotiate the terms of any
mandatory sale under clause (vi) below and to execute all instruments of
transfer and to do all other things necessary in connection with any such
sale, and the rights of each Person acquiring any Ownership Interest in a
Class R Certificate are expressly subject to the following provisions:
(i) Each Person holding or acquiring any Ownership
Interest in a Class R Certificate shall be a Permitted Transferee (as
defined below) and shall promptly notify the Servicer and the Trustee
of any change or impending change in its status as a Permitted
Transferee.
(ii) Any Ownership Interest in a Class R Certificate may
not be subject to a Transfer (as defined below) without the express
written consent of the Servicer (with a copy to the Trustee), and the
Trustee shall not recognize the Transfer (as defined below) of such
Class R Certificate, and such proposed Transfer shall not be
effective, without such consent with respect thereto. In connection
with any proposed Transfer of any Ownership Interest in a Class R
Certificate, the Servicer shall, as a condition to such consent,
require delivery to it, in form and substance satisfactory to it, and
the proposed Transferee shall deliver to the Servicer and the
Trustee, the following:
(A) an affidavit (a "Transfer Affidavit") of the
proposed Transferee in the form attached as Exhibit H
hereto; and
(B) an express agreement by the proposed Transferee
to be bound by and to abide by the provisions of this
Section.
The Servicer shall notify the Trustee of any such Transfer to which
it consents.
(iii) Notwithstanding the delivery of a Transfer
Affidavit by a proposed Transferee under clause (ii) above, if the
Servicer or a Responsible Officer of the Trustee has actual knowledge
that the proposed Transferee is not a Permitted Transferee, no
Transfer of any Ownership Interest in a Class R Certificate to such
proposed Transferee shall be effected.
(iv) Each Person holding or acquiring any Ownership
Interest in a Class R Certificate shall agree (A) to require a
Transfer Affidavit from any other Person to whom such Person attempts
to Transfer any Ownership Interest in such Class R Certificate and
(B) not to Transfer any Ownership Interest in such Class R
Certificate or to cause the Transfer of any Ownership Interest in
such Class R Certificate to any other Person if it has actual
knowledge that such Person is not a Permitted Transferee.
(v) Any attempted or purported Transfer of any Ownership
Interest in a Class R Certificate in violation of the provisions of
this Section shall be absolutely null and void and shall vest no
rights in the purported Transferee. If any purported Transferee shall
become the holder of an Ownership Interest in a Class R Certificate
in violation of the provisions of this Section, then, upon discovery
by a Responsible Officer of the Trustee of, or due notification to
the Trustee that the recognition of the Transfer of such Ownership
Interest in such Class R Certificate was not in fact permitted by
this Section, the last preceding Permitted Transferee shall be
restored to all rights as Holder thereof retroactive to the date of
Transfer of such Ownership Interest in such Class R Certificate. The
Trustee shall promptly notify the Servicer if it discovers or
receives notice of such an impermissible Transfer. The Trustee shall
be under no liability to any Person for permitting the Transfer of an
Ownership Interest in a Class R Certificate that is in fact not
permitted by this Section or for making any payments in respect of a
Class R Certificate to the Holder thereof or taking any other action
with respect to such Holder under the provisions of this Agreement so
long as the Transfer was made with the express prior written consent
of the Servicer. The Trustee shall be entitled but not obligated to
recover from any Holder of a Class R Certificate that was in fact not
a Permitted Transferee at the time it became a Holder or, at such
subsequent time as it became other than a Permitted Transferee, all
payments made on such Class R Certificate at and after such time. Any
such payments so recovered by the Trustee shall be paid and delivered
by the Trustee to the last preceding Permitted Transferee of such
Class R Certificate.
(vi) If any purported Transferee shall be a Holder of a
Class R Certificate in violation of the restrictions in this Section,
then the Servicer shall have the right without notice to the Holder
or any prior Holder of such Class R Certificate to sell such Class R
Certificate to a purchaser selected by the Servicer on such terms as
the Servicer may choose. Such purchaser may be the Servicer itself or
any Affiliate of the Servicer. The proceeds of such sale, net of
commissions (which may include commissions payable to the Servicer or
its Affiliates), expenses and taxes due, if any, will be remitted by
the Servicer to the last preceding Permitted Transferee of such Class
R Certificate, except that in the event that the Servicer determines
that the Holder or any prior Holder of such Class R Certificate will
be liable for any amount due under this Section or any other
provisions of this Agreement, the Servicer shall so inform the
Trustee, and the Trustee shall withhold a corresponding amount from
such remittance as security for such claim. The terms and conditions
of any sale under this clause (vi) shall be determined in the sole
discretion of the Servicer, and it shall not be liable for the
exercise of such discretion to any Person holding or purporting to
hold a Class R Certificate.
Upon notice to the Servicer that any legal or beneficial interest in
any portion of a Class R Certificate has been transferred, either directly or
indirectly, to any Person that is not a Permitted Transferee or an agent
thereof (including a broker, nominee, or middleman) in contravention of the
foregoing restrictions, or that is a pass-through entity, as defined in
Section 860E(e)(6) of the Code, an interest in which is held of record by a
Person that is not a "Permitted Transferee," the Servicer agrees to furnish to
the Internal Revenue Service and those Persons specified in Section 860E(e)(5)
of the Code such information necessary to the application of Section 860E(e)
of the Code as may be required by the Code, including but not limited to, the
present value of the total anticipated excess inclusions with respect to such
Class R Certificate (or portion thereof) for periods after such Transfer and
the total excess inclusions for any taxable year allocable to any holder of an
interest in such pass-through entity which is not a Permitted Transferee. At
the election of the Servicer, the Servicer may charge a reasonable fee for
computing and furnishing such information to the transferor or to such agent
or to such pass-through entity referred to above; however, the Servicer shall
in no event be excused from furnishing such information to the Internal
Revenue Service. The foregoing restrictions on transfer contained in this
Section 4.08(b) shall cease to apply to Transfers occurring on or after the
date on which there shall have been delivered to the Trustee, the Company and
the Servicer, in form and substance satisfactory to the Servicer, an Opinion
of Counsel that eliminating such restrictions will not cause the Trust Fund to
fail to qualify as a REMIC at any time while the Certificates are outstanding.
"Ownership Interest" means any legal or beneficial, direct or
indirect, ownership or other interest.
"Permitted Transferee" means any Person other than (a) the United
States, a State or any political subdivision thereof, any possession of the
United States, or any agency or instrumentality of any of the foregoing (other
than an instrumentality that is a corporation if all of its activities are
subject to tax and, except for the Federal Home Loan Mortgage Corporation, a
majority of its board of directors is not selected by any such governmental
unit), (b) a foreign government, international organization or agency or
instrumentality of either of the foregoing (other than an instrumentality that
is a corporation if all of its activities are subject to tax and a majority of
its board of directors is not selected by any such governmental unit), (c) an
organization which is exempt from tax imposed by Chapter 1 of the Code
(including the tax imposed by Code Section 511 on unrelated business taxable
income) on any excess inclusions (as defined in Code Section 860E(c)(1)) with
respect to a Class R Certificate (except certain farmers' cooperatives
described in Code Section 521), (d) rural electric and telephone cooperatives
described in Code Section 1381(a)(2), (e) a Non-U.S. Person, and (f) any other
Person so designated by the Servicer based upon an Opinion of Counsel that the
Transfer of an Ownership Interest in a Class R Certificate to such Person may
cause the Trust Fund to fail to qualify as a REMIC at any time that the
Certificates are outstanding. The terms "United States," "State" and
"International Organization" shall have the meanings set forth in Code Section
7701 or successor provisions. A "Non-U.S. Person" means an individual,
corporation, partnership or other entity which is not a "U.S. Person".
A "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity treated as a corporation or
partnership for United States federal income tax purposes organized in or
under the laws of the United States or any state thereof or the District of
Columbia (other than a partnership that is not treated as a United States
person under any applicable Treasury regulations) or (iii) an estate the
income of which is includible in gross income for United States tax purposes,
regardless of its source, or (iv) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust
and one or more United States persons have authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence, to
the extent provided in regulations, certain trusts in existence on August 20,
1996 and treated as United States persons prior to such date that elect to
continue to be treated as United States persons shall be considered United
States persons as well.
"Transfer" means any direct or indirect transfer or sale of any
Ownership Interest in a Class R Certificate.
"Transferee" means any Person who is acquiring by Transfer any
Ownership Interest in a Class R Certificate.
(c) A Class R Certificate shall not be registered in the name of the
Company or any Person known to a Responsible Officer of the Trustee to be an
Affiliate thereof, and a Class I A-6, Class I M-1, Class I B-1, Class I B-2,
Class II A-1, Class II B-1, Class II B-2 or Class II B-3 Certificate shall not
be registered in the name of the Company or any such Affiliate thereof, unless
the Trustee shall first have received written notification from the Rating
Agencies that such Transfer will not cause a reduction or withdrawal of the
rating then assigned to any of the Group I or Group II Certificates.
[End of Article IV]
Article V
ADMINISTRATION AND SERVICING OF CONTRACTS
Section 5.01. Responsibility for Contract Administration and
Servicing. The Servicer shall service and administer the Contracts and,
subject to the terms of this Agreement, shall have full power and authority to
do any and all things which it may deem necessary or desirable in connection
with such servicing and administration. Subject to Section 5.02, without
limiting the generality of the foregoing, the Servicer hereby is authorized
and empowered when the Servicer believes it appropriate in its best judgment,
to execute and deliver, on behalf of the Certificateholders and the Trustee or
any of them, any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge and all other comparable instruments,
with respect to the Contracts and any related Mortgages and with respect to
the Manufactured Homes and any related Mortgaged Property. The Trustee shall
execute and deliver to the Servicer any powers of attorney and other documents
prepared by the Servicer and certified to the Trustee as being necessary or
appropriate to enable the Servicer to service and administer the Contracts.
The Servicer may perform its servicing and administration functions,
as Servicer, pursuant to this Agreement through one or more subservicers. All
actions by any subservicer with respect to the servicing and administration of
the Contracts shall be treated as though done by the Servicer itself. All
documents, instruments or contracts executed by any subservicer on behalf of
the Servicer shall be treated by the Trustee as though executed by the
Servicer itself. The Servicer shall remain primarily liable for all actions of
any subservicer.
Section 5.02. Standard of Care. In managing, administering, servicing
and making collections on the Contracts pursuant to this Agreement, the
Servicer will exercise the same degree of skill and care, consistent with the
terms of this Agreement, that the Servicer exercises with respect to similar
manufactured housing contracts owned and serviced by the Servicer but in no
event shall such standard be lower than the standard prevailing in the
industry; provided, however, that notwithstanding the foregoing, the Servicer
shall not release or waive the right to collect the unpaid balance on any
Contract; provided further that nothing herein shall require the Servicer to
violate any applicable law.
Section 5.03. Records. The Servicer, during the period it is servicer
hereunder, shall maintain such books of account and other records as will
enable the Trustee (if the Trustee so elects) to determine the status of each
Contract. Without limiting the generality of the preceding sentence, the
Servicer shall keep such records in respect of Liquidation Expenses as will
enable the Trustee (if the Trustee so elects) to determine that the correct
amount of Net Liquidation Proceeds in respect of a Liquidated Contract has
been deposited in the related Certificate Account.
Section 5.04. Inspection. (a) At all times during the term hereof,
the Servicer shall afford the Trustee and its authorized agents reasonable
access during normal business hours to the Servicer's records relating to the
Contracts and will cause its personnel to assist in any examination of such
records by the Trustee or any of its authorized agents. The examination
referred to in this Section will be conducted in a manner which does not
interfere unreasonably 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 or its authorized agents, using generally
accepted audit procedures, may in their discretion verify the status of each
Contract and review the records relating thereto for conformity to Monthly
Reports prepared pursuant to Article VII and compliance with the standards
represented to exist as to each Contract in this Agreement.
(b) At all times during the term hereof, the Servicer shall keep
available a copy of the Contract Schedule at its principal executive office
for inspection by Certificateholders.
(c) On or before each Determination Date, the Servicer will, upon the
written request of the Trustee, provide to the Trustee a list of outstanding
Contracts, setting forth the principal balance of each such Contract as of the
Due Period immediately preceding such Determination Date.
(d) Notwithstanding the provisions of this Section 5.04, the Trustee
shall at no time have any duty or obligation to examine any records of the
Servicer or to recalculate or otherwise verify the accuracy of any certificate
or report prepared by the Servicer (including certificates or reports as to
the amount required to be deposited into either Certificate Account), and no
implied duty to do so shall be asserted against the Trustee.
Section 5.05. Establishment of and Deposits in Certificate Accounts.
On or before the Closing Date, the Trustee shall have established, and
thereafter shall maintain, with respect to each Group of Contracts, a
Certificate Account which is an Eligible Account, in the form of one or more
separate custodial accounts, titled (i) in the case of the Group I Contracts,
"Manufactured Housing Contract Senior/Subordinate Pass-Through Certificates,
1999__ (Vanderbilt Mortgage and Finance, Inc., Seller), Group I, in trust for
the Trustee" and (ii) in the case of the Group II Contracts, "Manufactured
Housing Contract Senior/Subordinate Pass-Through Certificates, 1999__
(Vanderbilt Mortgage and Finance, Inc., Seller), Group II, in trust for the
Trustee". The Trustee shall cause moneys in each Certificate Account to be
invested in Eligible Investments as directed in writing by the Servicer, which
shall mature or, in the case of a money market fund, be redeemed not later
than the Business Day immediately preceding the Remittance Date next following
the date of such investment (except that if such Eligible Investment is an
obligation of the institution that maintains such Certificate Account, then
such Eligible Investments shall mature or, in the case of a money market fund,
be redeemed not later than such Remittance Date) and shall not be sold or
disposed of prior to its maturity. All such Eligible Investments shall be made
in the name of the Trustee. The Servicer shall promptly notify the Trustee
upon obtaining knowledge that an instrument or account in which a Certificate
Account is invested has ceased to be an Eligible Investment or Eligible
Account. All net income and gain realized from any such investments, to the
extent provided by this Agreement, shall be added to the related Certificate
Account.
The Servicer shall deposit in the applicable Certificate Account, as
promptly as practicable (but not later than the close of business of the
second Business Day) following receipt thereof:
(1) All amounts received from Obligors with respect to
principal of and interest on the related Contracts;
(2) All Net Liquidation Proceeds with respect to the related
Contracts;
(3) All amounts required to be deposited by the Company
pursuant to Sections 3.05(a) and (b) with respect to the related
Contracts;
(4) All Monthly Advances with respect to the related
Contracts pursuant to Section 6.04; and
(5) All amounts required to be withdrawn from an REO Account
and deposited in the related Certificate Account in accordance with
Section 5.17.
Section 5.06. Payment of Taxes. If the Servicer becomes aware of the
nonpayment by an Obligor of a personal property tax or other tax or charge
which may result in a lien upon a Manufactured Home prior to, or equal to or
coordinate with, the lien of the related Contract, the Servicer, consistent
with Section 5.02, shall take action to avoid the attachment of any such lien.
If the Servicer shall have paid any such personal property tax or other tax or
charge directly on behalf of an Obligor, the Servicer shall seek reimbursement
therefor only from the related Obligor (except as provided in the last
sentence of this Section) and may separately add such amount to the Obligor's
obligation as provided by the Contract, but, for the purposes of this
Agreement, may not add such amount to the remaining principal balance of the
Contract. If the Servicer shall have repossessed a Manufactured Home on behalf
of the Certificateholders and the Trustee, the Servicer shall pay the amount
of any such personal property tax or other tax or charge arising during the
time such Manufactured Home is in the Servicer's possession, unless the
Servicer is contesting in good faith such personal property tax or other tax
or charge or the validity of the claimed lien on such Manufactured Home. If
the Obligor does not reimburse the Servicer for payment of taxes pursuant to
this Section and the related Contract is liquidated after a default, the
Servicer shall be reimbursed for its payment of such taxes out of the related
Liquidation Proceeds.
Section 5.07. Enforcement. (a) The Servicer, consistent with Section
5.02, will act with respect to the Contracts in such manner as will maximize the
receipt of principal and interest on such Contracts.
(b) The Servicer shall sue to enforce or collect upon Contracts, in
its own name, if possible, or as agent for the Trust Fund. 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
Certificateholders 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. If there has been a recovery
of attorneys' fees in favor of the Servicer or the Trust Fund in an action
involving the enforcement of a Contract, the Servicer shall be reimbursed out
of such recovery for its out-of-pocket attorney's fees and expenses incurred
in such enforcement action.
(c) The Servicer shall exercise any rights of recourse against third
persons that exist with respect to any Contract in accordance with Section
5.02. 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) The Servicer may grant to the Obligor on any Contract any rebate,
refund or adjustment out of the related Certificate Account that is required
because of an overpayment in connection with the prepayment in full of such
Contract or otherwise. The Servicer will not permit any rescission or
cancellation of any Contract.
Section 5.08. Transfer of Certificate Accounts. The Trustee may
transfer either or both Certificate Accounts to a different depository
institution from time to time, so long as such Certificate Account or
Certificate Accounts remain Eligible Accounts. The Trustee shall give notice
of any transfer of either Certificate Account to the Rating Agencies prior to
such transfer.
Section 5.09. Maintenance of Hazard Insurance Policies. (a) Except as
otherwise provided in subsection (b) of this Section 5.09, the 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 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 that such Hazard Insurance Policies may provide
for customary deductible amounts, and provided further 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. If a
Manufactured Home is located 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 add
separately such premium to the Obligor's obligation as provided by the
Contract, but may not add such premium to the remaining principal balance of
the Contract for purposes of this Agreement. If the Obligor does not reimburse
the Servicer for payment of such premiums and the related Contract is
liquidated after a default, the Servicer shall be reimbursed for its payment
of such premiums out of the related Liquidation Proceeds.
(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 5.09, 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 as provided in subsection (a) of this
Section resulting from the absence or insufficiency of individual Hazard
Insurance Policies. Any such blanket policy shall be substantially in the form
that is the industry standard for blanket insurance policies issued to cover
Manufactured Homes and in the amount sufficient to cover all losses on the
Contracts. The Servicer shall pay, out of its own funds, the premium for such
policy on the basis described therein and shall deposit in the related
Certificate Account, on the Business Day next preceding the Determination Date
following the Due Period in which the insurance proceeds from claims in
respect of any Contracts under such blanket policy are or would have been
received, the deductible amount with respect to such claims. 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.
(c) If the Servicer shall have repossessed a Manufactured Home on
behalf of the Trustee or foreclosed upon or otherwise acquired any Mortgaged
Property, the Servicer shall either (i) maintain at its expense a Hazard
Insurance Policy with respect to such Manufactured Home or Mortgaged Property
meeting the requirements of subsections (a) or (b), except that the Servicer
shall be responsible for depositing any deductible amount with respect to all
claims under individual Hazard Insurance Policies, or (ii) indemnify the Trust
Fund against any damage to such Manufactured Home prior to resale or other
disposition.
(d) Any cost incurred by the Servicer in maintaining any of the
foregoing insurance, for the purpose of calculating monthly distributions to
Certificateholders, shall not be added to the amount owing under the Contract,
notwithstanding that the terms of the Contract so permit. The Servicer shall
not be entitled to reimbursement from the Company, the Trustee or the
Certificateholders for such costs. Such costs (other than the cost of the
blanket policy) shall only be recovered out of late payments by the Obligor
for such premiums or, if the related Contract is liquidated after a default,
out of the related Liquidation Proceeds.
Section 5.10. Fidelity Bond and Errors and Omissions Insurance. The
Servicer shall maintain, at its own expense, a blanket fidelity bond and an
errors and omissions insurance policy, with broad coverage with responsible
companies acceptable to the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation, on all officers, employees or other
persons acting in any capacity with regard to the Contracts to handle funds,
money, documents and papers relating to the Contracts. Any such fidelity bond
and errors and omissions insurance shall protect and insure the Servicer
against losses, including forgery, theft, embezzlement, fraud, errors and
omissions and negligent acts of such persons. No provision of this Section
5.10 requiring such fidelity bond and errors and omissions insurance shall
diminish or relieve the Servicer from its duties and obligations as set forth
in this Agreement. The minimum coverage under any such bond and insurance
policy, shall be in an amount as is customary for servicers that service a
portfolio of manufactured housing installment sales contracts of $100 million
or more and that are generally acceptable as servicers to institutional
investors. Upon request of the Trustee, the Servicer shall cause to be
delivered to the Trustee a certified true copy of such fidelity bond and
insurance policy and a statement from the surety and the insurer that such
fidelity bond or insurance policy shall in no event be terminated or
materially modified without 30 days' prior written notice to the Trustee.
Section 5.11. Collections under Hazard Insurance Policies; Consent to
Transfers of Manufactured Homes; Assumption Agreements. (a) In connection with
its activities as administrator and servicer of the Contracts, the Servicer
agrees to present, on behalf of itself, the Trustee and Certificateholders,
claims to the insurer under any Hazard Insurance Policies and, in this regard,
to take such reasonable action as shall be necessary to permit recovery under
any Hazard Insurance Policies. Any amounts collected by the Servicer under any
such Hazard Insurance Policies shall be deposited within two Business Days
after receipt in the related Certificate Account pursuant to Section 5.05,
except to the extent they are applied to the restoration of the related
Manufactured Home or released to the related Obligor in accordance with the
normal servicing procedures of the Servicer.
(b) The Servicer shall not withhold its consent to any transfer of
ownership of a Manufactured Home in accordance with the related Contract
unless the proposed transferee does not meet the Servicer's then applicable
underwriting standards (exclusive of down payment requirements). In addition,
the Servicer shall not withhold such consent if such withholding of consent is
not permitted under applicable law and governmental regulations.
(c) In any case in which a Manufactured Home is to be conveyed to a
Person by an Obligor, and such Person is to enter into an assumption agreement
or modification agreement or supplement to the Contract, upon the closing of
such conveyance, the Servicer shall cause the originals of the assumption
agreement, the release (if any), or the modification or supplement to the
Contract to be deposited with the Contract File, the Land-and-Home Contract
File or the Mortgage Loan File, as applicable, for such Contract. Any fee
collected by the Servicer for entering into an assumption or substitution of
liability agreement with respect to such Contract will be retained by the
Servicer as additional servicing compensation. In connection with any such
assumption, the rate of interest borne by, and all other material terms of,
the related Contract shall not be changed.
(d) Notwithstanding any of the foregoing, the Servicer shall not
permit the extension of the maturity date of any Contract beyond the
latest-occurring scheduled maturity date of any Contract as of the Cut-off
Date.
Section 5.12. Realization upon Defaulted Contracts. Subject to
applicable law, the Servicer shall repossess, foreclose upon or otherwise
comparably convert the ownership of Manufactured Homes and any related
Mortgaged Property securing all Contracts that come into default and which the
Servicer believes in its good faith business judgment will not be brought
current; provided, however, that notwithstanding anything else in this
Agreement to the contrary, but subject to the requirements of law, the
Servicer shall commence repossession, foreclosure and other realization
procedures in respect of any Contract that is at any one time delinquent as to
all or part of five or more (or ten or more, in the case of Bi-weekly
Contracts and Semi-Monthly Contracts) scheduled payments; 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 Fund to acquire
title to such Mortgaged Property in a foreclosure or similar proceeding. For
purposes of the last proviso in the preceding sentence, the Servicer shall not
be deemed to have actual knowledge that a Mortgaged 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 Servicing File with respect to the related Contract. Such written
notice shall be provided to the Trustee. In the event that the Trustee is
responsible for foreclosing on a Contract, if the Trustee has actual knowledge
that a Mortgaged Property is affected by hazardous waste, then the Trustee
shall not cause the Trust Fund to acquire title to such Mortgaged Property in
a foreclosure or similar proceeding. In connection with such repossession,
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 5.02. Subject to the foregoing proviso, 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. The Servicer shall manage, conserve and protect such Manufactured
Homes and any related Mortgaged Property for the purposes of their prompt
disposition and sale, and shall dispose of such Manufactured Homes and any
related Mortgaged Property on such terms and conditions as it deems in the
best interests of the Certificateholders. In connection with such activities,
the Servicer shall follow such practices and procedures as are consistent with
Section 5.02.
Section 5.13. Costs and Expenses. All costs and expenses incurred by
the Servicer in carrying out its duties under this Agreement, including all
fees and 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 to the
extent such reimbursement is specifically provided for in this Agreement.
Notwithstanding the foregoing, the Servicer shall be reimbursed out of the
Liquidation Proceeds of a defaulted Contract for Liquidation Expenses incurred
by it in realizing upon the related Manufactured Home and any related
Mortgaged Property, including, but not limited to: (i) costs of refurbishing
and securing such Manufactured Home; (ii) transportation expenses incurred in
moving the Manufactured Home; (iii) reasonable legal fees and expenses of
outside counsel; (iv) rental expenses (including the payment of rent not paid
by the defaulting Obligor) incurred in maintaining a leasehold interest for
the Manufactured Home; and (v) sales commissions paid to (a) Persons that are
not Affiliates of the Servicer or (b) Affiliates of the Servicer, if such
sales commission is no greater than the sales commission that would be paid to
a Person that is not an Affiliate of the Servicer. The Servicer shall not
incur the foregoing Liquidation Expenses unless it determines in its good
faith business judgment that incurring such expenses will increase the Net
Liquidation Proceeds from such Manufactured Home.
Notwithstanding anything in this Agreement to the contrary, so long
as the Company is the Servicer, the Servicer, in its sole discretion, may, but
is not obligated to, liquidate a defaulted Contract by depositing into the
related Certificate Account, as Liquidation Proceeds, an amount equal to (i)
the outstanding principal balance of such Contract plus accrued and unpaid
interest thereon to the Due Date in the Due Period in which such deposit is
made less (ii) $2,000. The Servicer shall not be reimbursed for any
Liquidation Expenses incurred in connection with such Contract and shall
retain any liquidation proceeds thereafter collected in liquidating such
Contract.
Section 5.14. Trustee to Cooperate. Upon payment in full of any
Contract, the Servicer will notify the Trustee on the next Determination Date
by a certificate of a Servicing Officer (which certification shall include a
statement to the effect that all amounts received or to be received in
connection with such payment which are required to be deposited in the related
Certificate Account pursuant to Section 5.05 have been deposited). The
Servicer is authorized to execute an instrument in satisfaction of such
Contract and any related Mortgage and do such other acts and execute such
other documents as the Servicer deems necessary to discharge the Obligor
thereunder and eliminate the security interest in the Manufactured Home and
any related Mortgaged Property related thereto. The Servicer shall determine
when a Contract has been paid in full; to the extent insufficient payments are
received on a Contract mistakenly determined by the Servicer to be prepaid or
paid in full and satisfied, the shortfall shall be paid by the Servicer out of
its own funds by deposit into the related Certificate Account. Upon request of
a Servicing Officer, the Trustee shall, at the expense of the Servicer,
perform such other acts as are reasonably requested by the Servicer
(including, without limitation, the execution of documents) and otherwise
cooperate with the Servicer in enforcement of rights and remedies with respect
to Contracts, and the Trustee shall not be liable or responsible for the
execution of any documents or performance of any acts requested by the
Servicer pursuant to this Section.
Section 5.15. Servicing and Other Compensation. The Servicer, as
compensation for its activities hereunder including, without limitation, the
payment of fees and expenses of the Trustee pursuant to Section 10.05, shall
be entitled to receive on each Remittance Date the Group I Monthly Servicing
Fee and the Group II Monthly Servicing Fee pursuant to, and to the extent
provided in, Section 6.02. In addition, the Servicer may obtain any additional
compensation permitted pursuant to this Agreement.
Additional servicing compensation in the form of Late Payment Fees or
Extension Fees and any transfer of equity or assumption fees shall be retained
by the Servicer.
The Servicer shall not be reimbursed for its costs and expenses in
servicing the Contracts except as provided pursuant to Sections 5.06, 5.09 and
5.13.
Section 5.16. Custody of Contracts. (a) Subject to the terms and
conditions of this Section and Section 3.04(a), the Servicer shall maintain
custody of the Contract Files as custodian for the benefit of the
Certificateholders and the Trustee. The Trustee, or a custodian appointed by
or on behalf of the Trustee, shall maintain custody of the Land-and-Home
Contract Files and the Mortgage Loan Files.
(b) The Servicer agrees to maintain the related Contract Files at its
offices where they are presently maintained, or at such other offices of the
Servicer in the State of Tennessee as shall from time to time be identified to
the Trustee by ten days' prior 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;
(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, but
in no event using a degree of skill and care that is lower than that used
generally in the servicing industry for such contracts. 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 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 or 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 to the Certificateholders for any portion of any such amount
resulting from the negligence or wilful misconduct of any Certificateholder or
the Trustee and will not be liable to the Trustee for any portion of such
amount resulting from the negligence or wilful misconduct of the Trustee. The
agreement of the Servicer to indemnify the Trustee shall survive the
resignation or removal of the Trustee and the termination of this Agreement.
Section 5.17. REMIC Compliance. The parties intend that the Trust
Fund formed hereunder shall constitute, and that the affairs of the Trust Fund
shall be conducted so as to qualify it as, a "real estate mortgage investment
conduit" as defined in and in accordance with the REMIC Provisions. In
furtherance of such intention, the Servicer shall, to the extent permitted by
applicable law, act as agent, and is hereby appointed to act as agent, of the
Trust Fund and shall on behalf of the Trust Fund: (a) prepare, file and
present to the Trustee to sign, or cause to be prepared, filed and presented
to the Trustee to be signed, all required federal tax returns for the Trust
Fund, including, but not limited to, Form 1066 using a calendar year as the
taxable year for the Trust Fund when and as required by the REMIC Provisions
and other applicable federal income tax laws; (b) make an election, on behalf
of the Trust Fund, to be treated as a REMIC on the Form 1066 for its first
taxable year, in accordance with the REMIC Provisions; (c) prepare and
forward, or cause to be prepared and forwarded, to the Certificateholders all
information reports as and when required to be provided to them in accordance
with the REMIC Provisions; (d) take such other actions as are necessary or
appropriate to maintain the status of the Trust Fund as a REMIC; and (e) serve
as tax matters person for the Trust Fund pursuant to Treasury Regulations
Section 1.860F-4(d) or serve as attorney-in-fact and agent for any Person that
is the tax matters person. Neither the Trustee nor the Servicer shall take any
action or omit to take any action if such action or omission (as the case may
be) would cause the termination of the REMIC status of the Trust Fund;
provided, however, that neither the Trustee nor the Servicer shall be required
to take any action if a Responsible Officer of the Trustee or the Servicer, as
applicable, in good faith believes such action or omission to be inconsistent
with any other provision of this Agreement. The Company and the Servicer shall
cooperate with the Servicer or its agent for such purpose in supplying any
information within their control that is necessary to enable the Servicer to
perform its duties under this Section. The Holder of the Class R Certificate,
by purchasing such Class R Certificate, (a) shall be deemed to consent to the
appointment of the Servicer as (i) the tax matters person for the Trust Fund
and (ii) the attorney-in-fact and agent for any person that is the tax matters
person if the Servicer is unable to serve as the tax matters person and (b)
agrees to execute any documents required to give effect to clause (a) of this
sentence.
The Holder of the Class R Certificate, by purchasing such Class R
Certificate, agrees to give the Servicer written notice that it is a
"pass-through interest holder" within the meaning of Temporary Treasury
Regulations section 1.67-3T(a)(2)(i)(A) immediately upon becoming the Holder
of the Class R Certificate, if it is, or is holding the Class R Certificate on
behalf of, a "pass-through interest holder."
In the event that any tax, including interest, penalties, additional
amounts or additions to tax (a "Tax"), is imposed on the Trust Fund, such tax
shall be charged against amounts otherwise required to be distributed on the
Class R Certificate. The Servicer shall notify the Trustee if any Tax is
imposed on the Trust Fund and the amount of any such Tax. The Trustee is
hereby authorized to retain, or cause the Paying Agent to retain, from amounts
otherwise required to be distributed on the Class R Certificate, sufficient
funds to pay or provide for the payment of, and to actually pay, or cause the
Paying Agent to pay, such Tax as is legally owed by the Trust Fund (but such
authorization shall not prevent the Trustee from contesting any such Tax in
appropriate proceedings, and withholding payment of such Tax, if permitted by
law, pending the outcome of such proceedings). To the extent that sufficient
amounts cannot be so retained to pay or provide for the payment of any tax
imposed on gain realized from any prohibited transaction (as defined in the
REMIC Provisions), the Trustee is hereby authorized to and, upon the receipt
of written notice of the existence of any tax liability, shall segregate, into
a separate non-interest-bearing account, the net income from such prohibited
transactions and pay, or cause the Paying Agent to pay, such Tax. In the event
any (i) amounts initially retained from amounts required to be distributed on
the Class R Certificate and (ii) income so segregated and applied towards the
payment of such Tax shall not be sufficient to pay such Tax in its entirety,
the amount of the shortfall shall be paid from funds in each Certificate
Account after distributions of principal and interest to the related
Certificateholders pursuant to Section 6.01 in respect of the related
Remittance Date notwithstanding anything to the contrary contained herein. To
the extent any such segregated income or funds from one of the Certificate
Accounts are paid to the Internal Revenue Service, the Trustee shall retain,
or cause to be retained, an amount equal to the amount of such income or funds
so paid from future amounts otherwise required to be distributed on the Class
R Certificate and shall deposit such retained amounts in such Certificate
Account for distribution to the Holders of Certificates other than the Class R
Certificate.
Except as provided in Section 3.05 and except in connection with REO
Property, the Trustee shall not sell any Contract or any other asset of the
Trust Fund unless either (i) it has received an Opinion of Counsel to the
effect that such sale will not result in the imposition of taxes on
"prohibited transactions" on the Trust Fund as defined in Section 860F of the
Code, or (ii) the proceeds of such sale, net of any related taxes on
"prohibited transactions" on the Trust Fund as defined in Section 860F of the
Code, will at least equal the Repurchase Price of such Contract.
In the event that any Manufactured Home is acquired in a repossession
or foreclosure (an "REO Property"), the Servicer shall sell any REO Property
within two years of its acquisition by the Trust Fund, unless, at the request
and expense of the Servicer, the Servicer seeks, and subsequently receives, an
Opinion of Counsel, addressed to the Trustee and the Servicer, to the effect
that the holding by the Trust Fund of such REO Property subsequent to two
years after its acquisition will not result in the imposition of taxes on
"prohibited transactions" of the Trust Fund as defined in Section 860F of the
Code or cause the Trust Fund 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 solely for the purpose of its prompt disposition
and sale in a manner that does not cause any such REO Property to fail to
qualify as "foreclosure property" within the meaning of Section 860G(a)(8) or
result in the receipt by the REMIC of any "income from non-permitted assets"
within the meaning of Section 860F(a)(2)(B) of the Code or any "net income
from foreclosure property" which is subject to taxation under the REMIC
Provisions. Pursuant to its efforts to sell such REO Property, the Servicer
shall either itself or through an agent selected by the Servicer protect and
conserve such REO Property in the same manner and to such extent as is
customary in the locality where such REO Property is located and may, incident
to its conservation and protection of the interests of the Certificateholders,
rent the same, or any part thereof, as the Servicer deems to be in the best
interest of the Servicer and the Certificateholders for the period prior to
the sale of such REO Property.
The Servicer shall segregate and hold all funds collected and
received in connection with the operation of any REO Property separate and
apart from its own funds and general assets and shall establish and maintain
with respect to each REO Property an account held in trust for the Trustee for
the benefit of the Certificateholders (each, an "REO Account"), which shall be
an Eligible Account. The Servicer shall be entitled to retain or withdraw any
interest income paid on funds deposited in each REO Account by the depository.
The Servicer shall deposit, or cause to be deposited, within two
Business Days after receipt on a daily basis in each REO Account all revenues
received with respect to the related REO Property and shall withdraw therefrom
funds necessary for the proper operation, management and maintenance of the
REO Property. On or before each Determination Date, the Servicer shall
withdraw from each REO Account and deliver to the Trustee for deposit into the
related Certificate Account the income from the REO Property on deposit in the
REO Account, net of its reasonable fees and expenses.
The disposition of REO Property shall be carried out by the Servicer
at such price and upon such terms and conditions as the Servicer shall deem
necessary or advisable, as shall be normal and usual in its general servicing
activities.
The proceeds from the REO disposition, net of any reimbursement to
the Servicer as provided above, shall be deposited in the REO Account and
shall be deposited in the related Certificate Account when the related
Contract becomes a Liquidated Contract.
Section 5.18. Establishment of and Deposits in Distribution Accounts.
On or before the Closing Date, the Trustee shall have established, and
thereafter shall maintain, with respect to each Certificate Group, a
Distribution Account which is an Eligible Account, in the form of one or more
separate custodial accounts, titled (i) in the case of the Group I
Certificates, "Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Series 1999__ (Vanderbilt Mortgage and Finance, Inc., Seller),
Group I, in trust for the Trustee" and (ii) in the case of the Group II
Certificates, "Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Series 1999__ (Vanderbilt Mortgage and Finance, Inc., Seller),
Group II, in trust for the Trustee". The moneys in the Distribution Accounts
shall not be invested. One Business Day prior to each Distribution Date, the
Trustee shall deposit in each Distribution Account the related Available
Distribution Amount.
[End of Article V]
Article VI
PAYMENTS TO THE CERTIFICATEHOLDERS; WITHDRAWALS
FROM CERTIFICATE ACCOUNTS
Section 6.01. Monthly Payments. (a) On each Remittance Date the
Trustee shall, based upon the information set forth in the Monthly Report for
such Remittance Date, withdraw from each Distribution Account an amount equal
to the related Available Distribution Amount for such Remittance Date and
apply such amount as set forth below:
On each Remittance Date on which the Class I M-1 and Class I B Principal
Distribution Test is not met, the Group I Available Distribution Amount will
be distributed in the following amounts in the following order of priority:
(i) interest accrued during the related Interest Period on
the Class I A-1, Class I A-2, Class I A-3, Class I A-4 and
Class I A-5 Certificates, at their respective Remittance
Rates on the outstanding Class I A-1, Class I A-2, Class I
A-3, Class I A-4 and Class I A-5 Principal Balances,
respectively, together with any previously undistributed
shortfalls in interest due on the Class I A-1, Class I A-2,
Class I A-3, Class I A-4 and Class I A-5 Certificates,
respectively, in respect of prior Remittance Dates; if the
Group I Available Distribution Amount is not sufficient to
distribute the full amount of interest due on the Class I
A-1, Class I A-2, Class I A-3, Class I A-4 and Class I A-5
Certificates, the Group I Available Distribution Amount will
be distributed on such Classes of Certificates pro rata on
the basis of the interest due thereon;
(ii) the Group I Formula Principal Distribution Amount in
the following order of priority:
(a) to the Class I A-1 Certificates until the Class
I A-1 Principal Balance is reduced to zero;
(b) to the Class I A-2 Certificates until the Class
I A-2 Principal Balance is reduced to zero;
(c) to the Class I A-3 Certificates until the Class
I A-3 Principal Balance is reduced to zero;
(d) to the Class I A-4 Certificates until the Class
I A-4 Principal Balance is reduced to zero; and
(e) to the Class I A-5 Certificates until the Class
I A-5 Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period at
the Class I A-6 Remittance Rate on the Class I A-6 Principal
Balance to the Class I A-6 Certificates, together with any
previously undistributed shortfalls in interest due on the
Class I A-6 Certificates in respect of prior Remittance
Dates;
(iv) the remainder of the Group I Formula Principal
Distribution Amount, if any, to the Class I A-6 Certificates
until the Class I A-6 Principal Balance is reduced to zero;
(v) interest accrued during the related Interest Period at
the Class I M-1 Remittance Rate on the Class I M-1 Principal
Balance to the Class I M-1 Certificates, together with any
previously undistributed shortfalls in interest due on the
Class I M-1 Certificates in respect of prior Remittance
Dates;
(vi) the remainder of the Group I Formula Principal
Distribution Amount, if any, to the Class I M-1 Certificates
until the Class I M-1 Principal Balance is reduced to zero;
(vii) interest accrued during the related Interest Period at
the Class I B-1 Remittance Rate on the Class I B-1 Principal
Balance to the Class I B-1 Certificates, together with any
previously undistributed shortfalls in interest due on the
Class I B-1 Certificates in respect of prior Remittance
Dates;
(viii) the remainder of the Group I Formula Principal
Distribution Amount, if any, to the Class I B-1 Certificates
until the Class I B-1 Principal Balance is reduced to zero;
(ix) interest accrued during the related Interest Period at
the Class I B-2 Remittance Rate on the Class I B-2 Principal
Balance to the Class I B-2 Certificates, together with any
previously undistributed shortfalls in interest due on the
Class I B-2 Certificates in respect of prior Remittance
Dates;
(x) the remainder of the Group I Formula Principal
Distribution Amount, if any, to the Class I B-2 Certificates
until the Class I B-2 Principal Balance is reduced to zero;
(xi) any Group I Monthly Excess Spread, to fund any Group
II Available Funds Shortfall;
(xii) any remaining Group I Monthly Excess Spread, to fund
any unfunded Accelerated Principal Payment on the Group II
Certificates after giving effect to the distribution
specified in clause C(ix) or clause D(ix) of this Section
6.01(a);
(xiii) any remaining Group I Monthly Excess Spread, to pay
the Servicer the amount of any Group I Monthly Servicing
Fee, if the Company is the Servicer;
(xiv) [any remaining Group I Monthly Excess Spread, to pay
CHI the Guarantee Reimbursement Amount, if any, with respect
to the Class I B-2 Certificates];
(xv) any remaining Group I Monthly Excess Spread, to pay
that portion of the Group II Monthly Servicing Fee, if any,
that remains unpaid after giving effect to the distribution
described in clause C(xii) or D(xii), as applicable, below,
to the Servicer, if the Company is the Servicer;
(xvi) [any remaining Group I Monthly Excess Spread, to pay
CHI that portion of the Guarantee Reimbursement Amount, if
any, with respect to the Class II B-3 Certificates that
remains unpaid after giving effect to the distribution
described in clause C(xiii) or D(xiii), as applicable,
below; and]
(xvii) any remaining Group I Monthly Excess Spread, to the
holder of the Class R Certificate;
B. On each Remittance Date on which the Class I M-1 and Class I B
Principal Distribution Test is met, the Group I Available Distribution Amount
will be distributed in the following amounts in the following order of
priority:
(i) interest accrued during the related Interest Period on
the Class I A-1, Class I A-2, Class I A-3, Class I A-4 and
Class I A-5 Certificates, at their respective Remittance
Rates on the outstanding Class I A-1, Class I A-2, Class I
A-3, Class I A-4 and Class I A-5 Principal Balances,
respectively, together with any previously undistributed
shortfalls in interest due on the Class I A-1, Class I A-2,
Class I A-3, Class I A-4 and Class I A-5 Certificates,
respectively, in respect of prior Remittance Dates; if the
Group I Available Distribution Amount is not sufficient to
distribute the full amount of interest due on the Class I
A-1, Class I A-2, Class I A-3, Class I A-4 and Class I A-5
Certificates, the Group I Available Distribution Amount will
be distributed on such Classes of Certificates pro rata on
the basis of the interest due thereon;
(ii) the Class I A Percentage of the Group I Formula
Principal Distribution Amount in the following order of
priority:
(a) to the Class I A-1 Certificates until the Class
I A-1 Principal Balance is reduced to zero;
(b) to the Class I A-2 Certificates until the Class
I A-2 Principal Balance is reduced to zero;
(c) to the Class I A-3 Certificates until the Class
I A-3 Principal Balance is reduced to zero;
(d) to the Class I A-4 Certificates until the Class
I A-4 Principal Balance is reduced to zero; and
(e) to the Class I A-5 Certificates until the Class
I A-5 Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period at
the Class I A-6 Remittance Rate on the Class I A-6 Principal
Balance to the Class I A-6 Certificates, together with any
previously undistributed shortfalls in interest due on the
Class I A-6 Certificates in respect of prior Remittance
Dates;
(iv) the remainder of the Class I A Percentage of the Group
I Formula Principal Distribution Amount, if any, to the
Class I A-6 Certificates until the Class I A-6 Principal
Balance is reduced to zero;
(v) interest accrued during the related Interest Period at
the Class I M-1 Remittance Rate on the Class I M-1 Principal
Balance to the Class I M-1 Certificates, together with any
previously undistributed shortfalls in interest due on the
Class I M-1 Certificates in respect of prior Remittance
Dates;
(vi) the Class I M-1 Percentage of the Group I Formula
Principal Distribution Amount, if any, to the Class I M-1
Certificates until the Class I M-1 Principal Balance is
reduced to zero;
(vii) interest accrued during the related Interest Period at
the Class I B-1 Remittance Rate on the Class I B-1 Principal
Balance to the Class I B-1 Certificates, together with any
previously undistributed shortfalls in interest due on the
Class I B-1 Certificates in respect of prior Remittance
Dates;
(viii) the Class I B Percentage of the Group I Formula
Principal Distribution Amount to the Class I B-1
Certificates until the Class I B-1 Principal Balance is
reduced to zero;
(ix) interest accrued during the related Interest Period at
the Class I B-2 Remittance Rate on the Class I B-2 Principal
Balance to the Class I B-2 Certificates, together with any
previously undistributed shortfalls in interest due on the
Class I B-2 Certificates in respect of prior Remittance
Dates;
(x) the remainder of the Group I Formula Principal
Distribution Amount to the Class I B-2 Certificates until
the Class I B-2 Principal Balance is reduced to zero;
provided, however, if the Class I A and Class I M Principal
Balances have not been reduced to zero on or before a
Remittance Date, to the extent that allocations in respect
of principal to the Class I B-2 Certificates would reduce
the Class I B-2 Principal Balance below the Class I B-2
Floor Amount, then the amount of such excess principal will
instead by distributed, pro rata, to the Class I A
Certificates and the Class I M Certificates based on the
Class IA Principal Balance and the Class I M-1 Principal
Balance prior to distributions pursuant to clauses B(ii),
(iv) and (vi) above with respect to such Remittance Date.
The allocations in respect of such excess principal to the
Class I A Certificates will be in the order of priority set
forth in clauses (B)(ii) and (iv) above;
(xi) any Group I Monthly Excess Spread, to fund any Group II
Available Funds Shortfall;
(xii) any remaining Group I Monthly Excess Spread, to fund
any unfunded Accelerated Principal Payment on the Group II
Certificates after giving effect to the distribution
specified in clause C(ix) or clause D(ix) of this Section
6.01(a);
(xiii) any remaining Group I Monthly Excess Spread, to pay
the Servicer the amount of any Group I Monthly Servicing
Fee, if the Company is the Servicer;
(xiv) [any remaining Group I Monthly Excess Spread, to pay
CHI the Guarantee Reimbursement Amount, if any, with respect
to the Class I B-2 Certificates];
(xv) any remaining Group I Monthly Excess Spread, to pay
that portion of the Group II Monthly Servicing Fee, if any,
that remains unpaid after giving effect to the distribution
described in clause C(xii) or D(xii), as applicable, below,
to the Servicer, if the Company is the Servicer;
(xvi) [any remaining Group I Monthly Excess Spread, to pay
CHI that portion of the Guarantee Reimbursement Amount, if
any, with respect to the Class II B-3 Certificates that
remains unpaid after giving effect to the distribution
described in clause C(xiii) or D(xiii), as applicable,
below; and]
(xvii) any remaining Group I Monthly Excess Spread, to the
holder of the Class R Certificate;
C. On each Remittance Date on which the Class II B Principal
Distribution Test is not met, the Group II Available Distribution Amount will
be distributed in the following amounts in the following order of priority:
(i) interest accrued during the related Interest Period at
the Class II A-1 Remittance Rate on the Class II A-1
Principal Balance to the Class II A-1 Certificates, together
with any previously undistributed shortfalls in interest due
on the Class II A-1 Certificates in respect of prior
Remittance Dates;
(ii) the Group II Formula Principal Distribution Amount to
the Class II A-1 Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II A-1
Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period at
the Class II B-1 Remittance Rate on the Class II B-1
Principal Balance to the Class II B-1 Certificates, together
with any previously undistributed shortfalls in interest due
on the Class II B-1 Certificates in respect of prior
Remittance Dates;
(iv) the remainder of the Group II Formula Principal
Distribution Amount to the Class II B-1 Certificates, net of
any portion of the Overcollateralization Reduction Amount,
if any, then applicable to such Certificates, until the
Class II B-1 Principal Balance is reduced to zero;
(v) interest accrued during the related Interest Period at
the Class II B-2 Remittance Rate on the Class II B-2
Principal Balance to the Class II B-2 Certificates, together
with any previously undistributed shortfalls in interest due
on the Class II B-2 Certificates in respect of prior
Remittance Dates;
(vi) the remainder of the Group II Formula Principal
Distribution Amount, if any, to the Class II B-2
Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II B-2
Principal Balance is reduced to zero;
(vii) interest accrued during the related Interest Period at
the Class II B-3 Remittance Rate on the Class II B-3
Principal Balance to the Class II B-3 Certificates, together
with any previously undistributed shortfalls in interest due
on the Class II B-3 Certificates in respect of prior
Remittance Dates;
(viii) the remainder of the Group II Formula Principal
Distribution Amount, if any, to the Class II B-3
Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II B-3
Principal Balance is reduced to zero;
(ix) any Group II Monthly Excess Spread, to fund any
Accelerated Principal Payment on the Group II Certificates;
(x) any remaining Group II Monthly Excess Spread, together
with any Overcollateralization Reduction Amount, to fund any
Group I Available Funds Shortfall;
(xi) any remaining Group II Monthly Excess Spread, together
with any remaining Overcollateralization Reduction Amount,
up to the Class II A-1 Net Funds Cap Carryover Amount, Class
II B-1 Net Funds Cap Carryover Amount, Class II B-2 Net
Funds Cap Carryover Amount and Class II B-3 Net Funds Cap
Carryover Amount to the applicable Classes of Certificates;
if such remaining amounts are not sufficient to distribute
the Aggregate Net Funds Cap Carryover Amount to the
applicable Classes of Certificates, such remaining amounts
will be distributed on such Classes of Certificates pro rata
based on the amount of the Net Funds Cap Carryover Amount
owed to each such Class of Certificates;
(xii) any remaining Group II Monthly Excess Spread, together
with any remaining Overcollateralization Reduction Amount,
to pay the Servicer the amount of any Group II Monthly
Servicing Fee, if the Company is the Servicer;
(xiii) [any remaining Group II Monthly Excess Spread,
together with any remaining Overcollateralization Reduction
Amount, to pay CHI the Guarantee Reimbursement Amount, if
any, with respect to the Class II B-3 Certificates;]
(xiv) any remaining Group II Monthly Excess Spread, together
with any remaining Overcollateralization Reduction Amount,
to pay that portion of the Group I Monthly Servicing Fee, if
any, that remains unpaid after giving effect to the
distribution described in clause A(xiii) or B(xiii), as
applicable, above, to the Servicer, if the Company is the
Servicer;
(xv) [any remaining Group II Monthly Excess Spread, together
with any remaining Overcollateralization Reduction Amount,
to pay CHI that portion of the Guarantee Reimbursement
Amount, if any, with respect to the Class I B-2 Certificates
that remains unpaid after giving effect to the distribution
described in clause A(xiv) or B(xiv), as applicable, above;
and]
(xvi) any remaining Group II Monthly Excess Spread, together
with any remaining Overcollateralization Reduction Amount,
to the holder of the Class R Certificate.
D. On each Remittance Date on which the Class II B Principal
Distribution Test is met, the Group II Available Distribution Amount will be
distributed in the following amounts in the following order of priority:
(i) interest accrued during the related Interest Period at
the Class II A-1 Remittance Rate on the Class II A-1
Principal Balance to the Class II A-1 Certificates, together
with any previously undistributed shortfalls in interest due
on the Class II A-1 Certificates in respect of prior
Remittance Dates;
(ii) the Class II A Percentage of the Group II Formula
Principal Distribution Amount to the Class II A-1
Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II A-1
Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period at
the Class II B-1 Remittance Rate on the Class II B-1
Principal Balance to the Class II B-1 Certificates, together
with any previously undistributed shortfalls in interest due
on the Class II B-1 Certificates in respect of prior
Remittance Dates;
(iv) the Class II B Percentage of the Group II Formula
Principal Distribution Amount to the Class II B-1
Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II B-1
Principal Balance is reduced to zero;
(v) interest accrued during the related Interest Period at
the Class II B-2 Remittance Rate on the Class II B-2
Principal Balance to the Class II B-2 Certificates, together
with any previously undistributed shortfalls in interest due
on the Class II B-2 Certificates in respect of prior
Remittance Dates;
(vi) the remainder of the Class II B Percentage of the Group
II Formula Principal Distribution Amount, if any, to the
Class II B-2 Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II B-2
Principal Balance is reduced to zero;
(vii) interest accrued during the related Interest Period at
the Class II B-3 Remittance Rate on the Class II B-3
Principal Balance to the Class II B-3 Certificates, together
with any previously undistributed shortfalls in interest due
on the Class II B-3 Certificates in respect of prior
Remittance Dates;
(viii) subject to the proviso below, the remainder of the
Group II Formula Principal Distribution Amount, if any, to
the Class II B-3 Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II B-3
Principal Balance is reduced to zero; provided, however, if
the Class II A-1 Principal Balance has not been reduced to
zero on or before a Remittance Date, to the extent that
allocations in respect of principal to the Class II B-3
Certificates would reduce the sum of the Class II B-3
Principal Balance and the Overcollateralization Amount below
the Group II Certificate Floor Amount, then the amount of
such excess principal will instead be distributed to the
Class II A-1 Certificates;
(ix) any Group II Monthly Excess Spread, to fund any
Accelerated Principal Payment on the Group II Certificates;
(x) any remaining Group II Monthly Excess Spread, together
with any Overcollateralization Reduction Amount, to fund any
Group I Available Funds Shortfall;
(xi) any remaining Group II Monthly Excess Spread, together
with any remaining Overcollateralization Reduction Amount,
up to the Class II A-1 Net Funds Cap Carryover Amount, Class
II B-1 Net Funds Cap Carryover Amount, Class II B-2 Net
Funds Cap Carryover Amount and Class II B-3 Net Funds Cap
Carryover Amount to the applicable Classes of Certificates;
if such remaining amounts are not sufficient to distribute
the Aggregate Net Funds Cap Carryover Amount to the
applicable Classes of Certificates, such remaining amounts
will be distributed on such Classes of Certificates pro rata
based on the amount of the Net Funds Cap Carryover Amount
owed to each such Class of Certificates;
(xii) any remaining Group II Monthly Excess Spread, together
with any remaining Overcollateralization Reduction Amount,
to pay the Servicer the amount of any Group II Monthly
Servicing Fee, if the Company is the Servicer;
(xiii) [any remaining Group II Monthly Excess Spread,
together with any remaining Overcollateralization Reduction
Amount, to pay CHI the Guarantee Reimbursement Amount, if
any, with respect to the Class II B-3 Certificates];
(xiv) any remaining Group II Monthly Excess Spread, together
with any remaining Overcollateralization Reduction Amount,
to pay that portion of the Group I Monthly Servicing Fee, if
any, that remains unpaid after giving effect to the
distribution described in clause A(xiii) or B(xiii), as
applicable, above, to the Servicer, if the Company is the
Servicer;
(xv) [any remaining Group II Monthly Excess Spread, together
with any remaining Overcollateralization Reduction Amount,
to pay CHI that portion of the Guarantee Reimbursement
Amount, if any, with respect to the Class I B-2 Certificates
that remains unpaid after giving effect to the distribution
described in clause A(xiv) or B(xiv), as applicable, above;
and]
(xvi) any remaining Group II Monthly Excess Spread, together
with any remaining Overcollateralization Reduction Amount,
to the holder of the Class R Certificate;
provided that, notwithstanding the prioritization of the distribution of the
Group I Formula Principal Distribution Amount among the Class I A-1, Class I
A-2, Class I A-3, Class I A-4 and Class I A-5 Certificates pursuant to clauses
A(ii) and B(ii) above, on each Remittance Date on and after the Remittance
Date, if any, on which a Deficiency Event occurs, the Group I Available
Distribution Amount remaining after making the distributions of interest on
the Class I A-1, Class I A-2, Class I A-3, Class I A-4 and Class I A-5
Certificates required by clauses A(i) and B(i) above will be applied to
distribute the Group I Formula Principal Distribution Amount on each Class of
Class I A-1, Class I A-2, Class I A-3, Class I A-4 and Class I A-5
Certificates pro rata in accordance with the outstanding Principal Balance of
each such Class of Certificates; provided, further, that (I) the aggregate
amounts distributed on the Class I A-1 Certificates, Class I A-2 Certificates,
Class I A-3 Certificates, Class I A-4 Certificates, Class I A-5 Certificates,
Class I A-6 Certificates, Class I M-1 Certificates, Class I B-1 Certificates
and Class I B-2 Certificates on account of principal shall not exceed the
Original Class I A-1 Principal Balance, the Original Class I A-2 Principal
Balance, the Original Class I A-3 Principal Balance, the Original Class I A-4
Principal Balance, the Original Class I A-5 Principal Balance, the Original
Class I A-6 Principal Balance, the Original Class I M-1 Principal Balance, the
Original Class I B-1 Principal Balance and the Original Class I B-2 Principal
Balance, respectively, and (II) the aggregate amounts distributed on the Class
II A-1 Certificates, Class II B-1 Certificates, Class II B-2 Certificates and
Class II B-3 Certificates on account of principal shall not exceed the
Original Class II A-1 Principal Balance, the Original Class II B-1 Principal
Balance, the Original Class II B-2 Principal Balance and the Original Class II
B-3 Principal Balance, respectively.
The distributions on the Group I Certificates on each Remittance Date
shall be made such that the Trustee shall distribute (x) to the holder of each
Class I A Certificate as of the preceding Record Date an amount equal to the
product of (1) the aggregate Percentage Interest evidenced by such Class I A
Certificate and (2) as applicable, the Class I A-1 Distribution Amount, Class
I A-2 Distribution Amount, Class I A-3 Distribution Amount, Class I A-4
Distribution Amount, Class I A-5 Distribution Amount, or Class I A-6
Distribution Amount for such Remittance Date, (y) to the holder of each Class
I M-1 Certificate as of the preceding Record Date an amount equal to the
product of (1) the aggregate Percentage Interest evidenced by such Class I M-1
Certificates and (2) the Class I M-1 Distribution Amount for such Remittance
Date, and (z) to the holder of each Class I B Certificate as of the preceding
Record Date an amount equal to the product of (1) the aggregate Percentage
Interest evidenced by such Class I B Certificates and (2) as applicable, the
Class I B-1 Distribution Amount or Class I B-2 Distribution Amount for such
Remittance Date.
The distributions to the Group II Certificates on each Remittance
Date shall be made such that the Trustee shall distribute (x) to the holder of
each Class II A-1 Certificate as of the preceding Record Date an amount equal
to the product of (1) the aggregate Percentage Interest evidenced by such
Class II A-1 Certificate and (2) the Class II A-1 Distribution Amount for such
Remittance Date, and (y) to the holder of each Class II B Certificate as of
the preceding Record Date an amount equal to the product of (1) the aggregate
Percentage Interest evidenced by such Certificateholder's Class II B
Certificates and (2) as applicable, the Class II B-1 Distribution Amount,
Class II B-2 Distribution Amount or Class II B-3 Distribution Amount for such
Remittance Date. Any Accelerated Principal Payments distributable on a given
Remittance Date pursuant to clauses A(xii), B(xii), C(ix) or D(ix), as
applicable, of Section 6.01(a) shall be distributed to the holders of the
Class of Group II Certificates then entitled to receive distributions in
respect of principal on such date. The payment of any amounts made pursuant to
clause A(xi) or B(xi), as applicable, of Section 6.01(a) to fund any Group II
Available Funds Shortfall shall be applied as provided in clauses C(i) through
C(viii), in that order, or D(i) through D(viii), in that order, as applicable,
of Section 6.01(a). The payment of any amounts made pursuant to clause C(x) or
D(x), as applicable, of Section 6.01(a) to fund any Group I Available Funds
Shortfall shall be applied as provided in clauses A(i) through A(x), in that
order, or B(i) through B(x), in that order, as applicable, of Section 6.01(a).
The Trustee shall pay each Certificateholder of record by check
mailed to such Certificateholder at the address for such Certificateholder
appearing on the Certificate Register; provided that if such Certificateholder
holds Certificates with original denominations aggregating at least $5 million
and has given the Trustee appropriate written instructions at least 5 Business
Days prior to the related Record Date (which instructions, until revised,
shall remain operative for all Remittance Dates thereafter), the Trustee shall
pay such Certificateholder by wire transfer of funds. If on any Determination
Date the Servicer determines that there are no Contracts outstanding and no
other funds or assets in the Trust Fund other than the funds in the
Certificate Accounts, the Servicer promptly shall instruct the Trustee to send
the final distribution notice to each Certificateholder and make provision for
the final distribution in accordance with Section 11.01(b). Final payment of
any Certificate shall be made only upon presentation of such Certificate at
the office or agency of the Certificate Registrar.
(b) On each Remittance Date, the Trustee shall, based upon the
information set forth in the Monthly Report for such Remittance Date, withdraw
from each Distribution Account (solely out of the related Available
Distribution Amount for such Remittance Date after giving effect to the
distributions made on the Group I and Group II Certificates pursuant to
Section 6.01(a) on such Remittance Date) and distribute to the Holder of the
Class R Certificate the Class R Distribution Amount for such Remittance Date.
Such distribution shall be made by a means that is mutually acceptable to the
Trustee and the Holder of the Class R Certificate.
(c) Each distribution with respect to a Book-Entry Certificate shall
be paid to the Depository, which shall credit the amount of such distribution
to the accounts of its Depository Participants in accordance with its normal
procedures. Each Depository Participant shall be responsible for disbursing
such distribution to the Certificate Owners that it represents and to each
indirect participating brokerage firm (a "brokerage firm" or "indirect
participating firm") for which it acts as agent. Each brokerage firm shall be
responsible for disbursing funds to the Certificate Owners that it represents.
All such credits and disbursements with respect to a Book-Entry Certificate
are to be made by the Depository and the Depository Participants in accordance
with the provisions of the Group I and Group II Certificates. None of the
Trustee, the Certificate Registrar, the Company and the Servicer shall have
any responsibility therefor except as otherwise provided by applicable law.
(d) [On each Remittance Date the Trustee shall withdraw from each
Certificate Account an amount equal to the related Guarantee Payment for such
Remittance Date received by it from CHI pursuant to Section 6.05 and
distribute such amount to (i) in the case of a Group I Guarantee Payment, the
Class I B-2 Certificateholders and (ii) in the case of a Group II Guarantee
Payment, the Class II B-3 Certificateholders.]
Section 6.02. Permitted Withdrawals from the Certificate Accounts.
The Servicer may, and in the case of clause (vii) below shall, from time to
time as provided herein, make withdrawals from each Certificate Account of
amounts deposited therein pursuant to Section 5.05 that are attributable to
Contracts of the related Group for the following purposes:
(i) to pay to the Company with respect to each Contract of such
Group or property acquired in respect thereof that has been purchased
or replaced pursuant to Section 3.05 all amounts received thereon that
are specified in such Section to be property of the Company;
(ii) to reimburse itself for the payment of taxes out of
Liquidation Proceeds relating to a Contract of such Group (to the
extent not previously retained from such Liquidation Proceeds prior to
their deposit) or out of payments expressly made by the related Obligor
to reimburse the Servicer for such taxes, as permitted by Section 5.06;
(iii) if neither the Company nor a wholly owned subsidiary of the
Company is the Servicer, to pay to itself Monthly Servicing Fee
relating to such Group.
(iv) to reimburse itself or a previous Servicer out of
Liquidation Proceeds (to the extent not previously retained from
Liquidation Proceeds prior to their deposit in such Certificate
Account) in respect of a Manufactured Home of such Group and out of
payments by the related Obligor (to the extent of payments expressly
made by the Obligor to reimburse the Servicer for insurance premiums)
for expenses incurred by it in respect of such Manufactured Home that
are specified as being reimbursable to it pursuant to Section 5.07,
5.09 or 5.13 or to a previous Servicer under Section 8.08;
(v) to reimburse itself for any Nonrecoverable Advance or Monthly
Advances with respect to such Group in accordance with Section 6.04(c)
and for advances in respect of Liquidated Contracts in accordance with
Section 6.04(c);
(vi) to reimburse the Servicer for expenses incurred with respect
to such Group and reimbursable to the Servicer pursuant to Section 8.06
(such reimbursement to be made only from funds that would otherwise be
distributed on the Class R Certificate pursuant to Section
6.01(a)A(xvii) or 6.01 (a)B(xvii), in the case of Group I, or pursuant
to Section 6.01(a)C(xiv) or 6.01 (a)D(xiv), in the case of Group II.
(vii) to withdraw any amount deposited in such Certificate
Account that was not required to be deposited therein (including any
collections on the related Contracts that, pursuant to Section 2.01(a),
are not part of the Trust Fund);
(viii) withdraw all amounts on deposit in such Certificate
Account which are to be deposited in the related Distribution Account
in respect of the related Available Distribution Amount;
(ix) withdraw any amounts necessary to pay any Taxes pursuant to
Section 5.17.
Since, in connection with withdrawals pursuant to clauses (i), (ii)
and (iv), the Servicer's entitlement thereto is limited to collections or
other recoveries on the related Contract, the Servicer shall keep and maintain
separate accounting, on a Contract by Contract basis, for the purpose of
justifying any withdrawal from each Certificate Account pursuant to such
clauses.
The Servicer shall report withdrawals with respect to each Due Period
pursuant to this Section 6.02 in the related Monthly Report.
Section 6.03. [Reserved].
Section 6.04. Monthly Advances by the Servicer. (a) By the close of
business on each Determination Date the Servicer shall deposit in each
Certificate Account, out of its own funds, the related Monthly Advance;
provided, however, that any such deposit out of the Servicer's own funds shall
be made only to the extent necessary to cause the related Available
Distribution Amount to be large enough to permit the distribution on the
related Remittance Date of the amounts computed as set forth in (i) clauses
A(i) through (x) or B(i) through (x), inclusive, as applicable, of Section
6.01(a), in the case of the Group I Certificates, and (ii) clauses C(i)
through (viii) and D(i) through (viii), inclusive, as applicable, of Section
6.01(a), in the case of the Group II Certificates.
(b) On each Remittance Date, the Servicer shall reimburse itself for
the Outstanding Amount Advanced to the extent of actual collections of late
scheduled payments on the related Contracts.
(c) If the Servicer determines that any advance made pursuant to
Section 6.04(a) has become a Nonrecoverable Advance and at the time of such
determination there exists an Outstanding Amount Advanced, then the Servicer
shall reimburse itself out of funds in the related Certificate Account for the
amount of such Nonrecoverable Advance, but only to the extent of such
Outstanding Amount Advanced.
[Section 6.05. Limited Guarantee. (a) No later than the third
Business Day prior to each Remittance Date, the Servicer (if other than CHI)
shall notify CHI of the amount of any Guarantee Payment for such Remittance
Date. Not later than the Business Day preceding each Remittance Date, CHI
shall deposit any such Guarantee Payment for such Remittance Date into the
related Certificate Account.
(b) The obligations of CHI under this Agreement shall not terminate
upon or otherwise be affected by an Event of Default pursuant to Article IX of
this Agreement.
(c) The obligation of CHI to provide the Limited Guarantee under this
Agreement shall terminate on the Final Remittance Date.
(d) The obligation of CHI to make the Guarantee Payments described in
subsection (a) above shall be unconditional and irrevocable and shall
constitute an unsecured obligation of CHI and will rank on a parity with all
other unsecured and unsubordinated indebtedness of CHI. CHI acknowledges that
its obligation to make the Guarantee Payments described in subsection (a)
above shall be deemed a guarantee by CHI of indebtedness of the Trust Fund for
money borrowed from the Class I B-2 and Class II B-3 Certificateholders, and
CHI acknowledges and agrees that it has no right of reimbursement, indemnity,
exoneration, contribution or other similar right of recovery arising from
amounts expended pursuant to its obligations under this Agreement, other than
the right to receive distributions, to the extent available, from the Trust
Fund as provided in this Agreement. In no event shall the amount paid on the
Class I B-2 Certificates in respect of principal pursuant to the Group I
Limited Guarantee exceed the Original Class I B-2 Principal Balance, and in no
event shall the amount paid on the Class II B-3 Certificates in respect of
principal pursuant to the Group II Limited Guarantee exceed the Original Class
II B-3 Principal Balance. In no event shall either Limited Guarantee require
CHI to make payments of the Class II B-3 Net Funds Cap Carryover Amount to the
Class II B-3 Certificateholders.
(e) If CHI fails to make a Guarantee Payment in whole or in part, CHI
shall promptly notify the Trustee, and the Trustee shall promptly notify the
Rating Agencies. CHI shall promptly notify the Rating Agencies in the event of
any termination of the Limited Guarantee or any change of the Person providing
the Limited Guarantee, including but not limited to a change by merger.]
[Section 6.06. Alternate Credit Enhancement. CHI, at its option and
upon prior written notice to the Rating Agencies, may substitute an alternate
form of credit enhancement in place of the Limited Guarantee, provided that
(i) the Rating Agencies shall notify CHI, the Company, the Servicer and the
Trustee in writing that such alternate form of credit enhancement shall not
result in a reduction in the then current ratings of the Certificates and (ii)
CHI shall cause to be delivered to the Trustee an Opinion of Counsel to the
effect that such substitution of credit enhancement shall not adversely affect
the status of the Trust Fund as a REMIC. Such alternate form of credit
enhancement can be in the form of cash or securities deposited by CHI or any
other Person in a segregated escrow, trust or collateral account or a letter
of credit, certificate insurance policy or surety bond provided by a third
party.]
Section 6.07. Calculation of the Remittance Rates with respect to the
Floating Rate Certificates. On the second LIBOR Business Day immediately
preceding each Remittance Date, the Trustee shall determine LIBOR for the
Interest Period commencing on such Remittance Date and inform the Servicer (at
the facsimile number given to the Trustee in writing) of such rates. On each
Determination Date, the Servicer shall determine the Class I A-1 Remittance
Rate, Class II A-1 Remittance Rate, the Class II B-1 Remittance Rate, the
Class II B-2 Remittance Rate and the Class II B-3 Remittance Rate for the
related Remittance Date.
[End of Article VI]
Article VII
REPORTS
Section 7.01. Monthly Reports. Within two Business Days following
each Determination Date, the Servicer shall cause the Trustee to receive, with
respect to each Group of Contracts and each Certificate Group, a report (the
"Monthly Report"), which shall include the following information with respect
to the immediately following Remittance Date:
(I) As to the Group I Contracts and Group I Certificates:
(a) the Class I A-1 Distribution Amount, the Class I A-2
Distribution Amount, the Class I A-3 Distribution Amount, the Class I
A-4 Distribution Amount, the Class I A-5 Distribution Amount, the Class
I A-6 Distribution Amount, the Class I M-1 Distribution Amount, the
Class I B-1 Distribution Amount and the Class I B-2 Distribution Amount
for such Remittance Date;
(b) the amount of principal to be distributed on each Class of
the Class I A-1, Class I A-2, Class I A-3, Class I A-4, Class I A-5,
Class I A-6, Class I M-1, Class I B-1 and Class I B-2 Certificates on
such Remittance Date, separately stating the amounts specified in
clauses (a) through (f) of the term "Formula Principal Distribution
Amount" with respect to the Group I Certificates;
(c) the amount of interest to be distributed on each Class of the
Class I A-1, Class I A-2, Class I A-3, Class I A-4, Class I A-5, Class
I A-6, Class I M-1, Class I B-1 and Class I B-2 Certificates on such
Remittance Date (separately identifying any Class I A-1 Unpaid Interest
Shortfall, Class I A-2 Unpaid Interest Shortfall, Class I A-3 Unpaid
Interest Shortfall, Class I A-4 Unpaid Interest Shortfall, Class I A-5
Unpaid Interest Shortfall, Class I A-6 Unpaid Interest Shortfall, Class
I M-1 Unpaid Interest Shortfall, Class I B-1 Unpaid Interest Shortfall
and Class I B-2 Unpaid Interest Shortfall included in such
distribution) and the Remittance Rate for each such Class of
Certificates for such Remittance Date;
(d) the remaining Class I A-1 Principal Balance, Class I A-2
Principal Balance, Class I A-3 Principal Balance, Class I A-4 Principal
Balance, Class I A-5 Principal Balance, Class I A-6 Principal Balance,
Class I M-1 Principal Balance, Class I B-1 Principal Balance and Class
I B-2 Principal Balance after giving effect to the payment of principal
to be made on such Remittance Date (on which interest will be
calculated on the next succeeding Remittance Date);
(e) the total amount of fees payable on such Remittance Date with
respect to the Group I Contracts, separately identifying the Group I
Monthly Servicing Fee, any related reimbursement to the Company
pursuant to Section 8.06, and any related Late Payment Fees, Extension
Fees and assumption fees paid during the prior Due Period;
(f) the number and aggregate unpaid principal balance of Group I
Contracts with payments delinquent 31 to 59, 60 to 89, and 90 or more
days, respectively;
(g) the number of Group I Contracts that were repurchased by the
Company in accordance with Section 3.05 during the prior Due Period,
identifying such Contracts and the Repurchase Price of such Contracts;
(h) the Pool Factor for the Class I A-1, Class I A-2, Class I
A-3, Class I A-4, Class I A-5, Class I A-6, Class I M-1, Class I B-1
and Class I B-2 Certificates after giving effect to the payment of
principal to be made on such Remittance Date;
(i) the Class R Distribution Amount, if any, for such Remittance
Date, separately stating any Repossession Profits;
(j) the aggregate principal balances of all Group I Contracts
that are not Liquidated Contracts and in respect of which the related
Manufactured Homes have been repossessed or foreclosed upon;
(k) the Group I Aggregate Net Liquidation Losses through the Due
Period immediately preceding such Remittance Date;
(l) the amount, if any, by which the Class I B-2 Formula
Distribution Amount exceeds the Remaining Amount Available for such
Remittance Date;
(m) the Class I B-2 Principal Liquidation Loss Amount, if any,
for such Remittance Date;
(n) [the Guarantee Payment with respect to the Group I
Certificates, if any, for such Remittance Date;]
(o) the amount of any related unadvanced shortfalls for the prior
Due Period;
(p) the number and dollar amount of Group I units repossessed
during the prior Due Period;
(q) the amount of any Principal Prepayments paid with respect to
Group I Contracts during the prior Due Period;
(r) the amount of any Scheduled Principal Payments to be made
with respect to Group I Contracts on such Remittance Date;
(s) the weighted average annual percentage rate of interest for
the Contracts remaining in the Group I Contract Pool on such Remittance
Date; and
(II) As to the Group II Contracts and Group II Certificates:
(a) the Class II A-1 Distribution Amount, the Class II B-1
Distribution Amount, the Class II B-2 Distribution Amount and the Class
II B-3 Distribution Amount for such Remittance Date;
(b) the amount of principal to be distributed on each Class of
the Class II A-1, Class II B-1, Class II B-2 and Class II B-3
Certificates on such Remittance Date, separately stating the amounts
specified in clauses (a) through (f) of the term "Formula Principal
Distribution Amount" with respect to the Group II Certificates;
(c) the amount of interest to be distributed on each Class of the
Class II A-1, Class II B-1, Class II B-2 and Class II B-3 Certificates
holders on such Remittance Date (separately identifying any Class II
A-1 Unpaid Interest Shortfall, Class II B-1 Unpaid Interest Shortfall,
Class II B-2 Unpaid Interest Shortfall and Class II B-3 Unpaid Interest
Shortfall included in such distribution) and the Remittance Rate for
each such Class of Certificates for such Remittance Date;
(d) the remaining Class II A-1 Principal Balance, Class II B-1
Principal Balance, Class II B-2 Principal Balance and Class II B-3
Principal Balance after giving effect to the payment of principal to be
made on such Remittance Date (on which interest will be calculated on
the next succeeding Remittance Date);
(e) the total amount of fees payable on such Remittance Date with
respect to the Group II Contracts, separately identifying the Group II
Monthly Servicing Fee, any related reimbursement to the Company
pursuant to Section 8.06, and any related Late Payment Fees, Extension
Fees and assumption fees paid during the prior Due Period;
(f) the number and aggregate unpaid principal balance of Group II
Contracts with payments delinquent 31 to 59, 60 to 89, and 90 or more
days, respectively;
(g) the number of Group II Contracts that were repurchased by the
Company in accordance with Section 3.05 during the prior Due Period,
identifying such Contracts and the Repurchase Price of such Contracts;
(h) the Pool Factor for the Class II A-1, Class II B-1, Class II
B-2 and Class II B-3 Certificates after giving effect to the payment of
principal to be made on such Remittance Date;
(i) the Class R Distribution Amount, if any, for such Remittance
Date, separately stating any Repossession Profits;
(j) the aggregate principal balances of all Group II Contracts
that are not Liquidated Contracts and in respect of which the related
Manufactured Homes have been repossessed or foreclosed upon;
(k) the Group II Aggregate Net Liquidation Losses through the Due
Period immediately preceding such Remittance Date;
(l) the amount, if any, by which the Class II B-3 Formula
Distribution Amount exceeds the Remaining Amount Available for such
Remittance Date;
(m) the Class II B-3 Principal Liquidation Loss Amount, if any,
for such Remittance Date;
(n) [the Guarantee Payment with respect to the Group II
Certificates, if any, for such Remittance Date;]
(o) the amount of any related unadvanced shortfalls for the prior
Due Period;
(p) the number and dollar amount of Group II units repossessed
during the prior Due Period;
(q) the amount of any Principal Prepayments paid with respect to
Group II Contracts during the prior Due Period;
(r) the amount of any Scheduled Principal Payments to be made
with respect to Group II Contracts on such Remittance Date;
(s) the weighted average annual percentage rate of interest for
the Contracts remaining in the Group II Contract Pool on such
Remittance Date;
(t) the amount, if any, of any Accelerated Principal Payment for
such Remittance Date;
(u) the Overcollateralization Amount in respect of such
Remittance Date;
(v) the Required Overcollateralization Amount for such Remittance
Date;
(w) the amount, if any, of any Overcollateralization Reduction
Amount on such Remittance Date;
(x) the amount, if any, of any outstanding Class II A-1 Net Funds
Cap Carryover Amount, Class II B-1 Net Funds Cap Carryover Amount,
Class II B-2 Net Funds Cap Carryover Amount and Class II B-3 Net Funds
Cap Carryover Amount; and
(y) a summary of withdrawals from the Certificate Account
pursuant to Section 6.02 of this Agreement.
The Trustee shall send copies of all Monthly Reports to the Rating
Agencies. The Trustee shall have no duty to recalculate or verify the
information provided to it by the Servicer.
Section 7.02. Certificate of Servicing Officer. Each Monthly Report
pursuant to Section 7.01 shall be accompanied by a certificate of a Servicing
Officer substantially in the form of Exhibit G, certifying the accuracy of the
Monthly Report and that no Event of Default or event that with notice or lapse
of time or both would become an Event of Default has occurred, or if such
event has occurred and is continuing, specifying the event and its status.
Section 7.03. Other Data. In addition, the Servicer on request of the
Trustee shall furnish the Trustee such underlying data as may reasonably be
requested.
Section 7.04. Annual Statement as to Compliance. The Servicer will
deliver to the Company, the Trustee and the Rating Agencies on or before the
first day of the fifth month following the end of the Servicer's fiscal year,
initially ________ __, 1999, an Officer's Certificate stating, as to each
signer thereof, that (i) a review of the activities of the Servicer during
such preceding fiscal year and of 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
obligations under this 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. The Servicer
shall notify the Trustee in the event of a change in the Servicer's fiscal
year.
Section 7.05. Annual Independent Public Accountants' Servicing
Report. On or before November 1 of each year, beginning with ________ __,
1999, the Servicer, at its expense, shall cause a firm of independent public
accountants which is a member of the American Institute of Certified Public
Accountants to furnish a statement to the Company, the Trustee and the Rating
Agencies to the effect that such firm has examined certain documents and
records relating to the servicing of the Contracts under this Agreement and,
at the option of the Servicer, manufactured housing installment sale contracts
under pooling and servicing agreements substantially similar to this Agreement
with regard to servicing procedures (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 this Agreement or such agreements, as the
case may be, and generally accepted auditing standards, such servicing has
been conducted in compliance with this Agreement or such pooling and servicing
agreements, as the case may be, except for (i) such exceptions as such firm
believes to be immaterial and (ii) such other exceptions that, in the opinion
of such firm, generally accepted auditing standards require it to report. For
purposes of such statement, such firm may assume conclusively that all pooling
and servicing agreements among the Company, the Servicer and the Trustee
relating to certificates evidencing an interest in manufactured housing
contracts are substantially similar to one another except for any such pooling
and servicing agreement which by its terms specifically states otherwise.
Section 7.06. Statements to Certificateholders. (a) Concurrently with
each distribution to Certificateholders pursuant to Article VI, the Trustee
shall mail, or cause the Paying Agent to mail, to the Certificateholders of
each Group, at the addresses appearing on the Certificate Register, a
statement as of the related Remittance Date prepared by the Servicer setting
forth, with respect to each Group:
(I) As to the Group I Contracts and Group I Certificates:
(1) the Class I A-1 Distribution Amount, the Class I
A-2 Distribution Amount, the Class I A-3 Distribution
Amount, the Class I A-4 Distribution Amount, the Class I
A-5 Distribution Amount, the Class I A-6 Distribution
Amount, the Class I M-1 Distribution Amount, the Class I
B-1 Distribution Amount, the Class I B-2 Distribution
Amount and the Class R Distribution Amount for such
Remittance Date;
(2) the amount of principal to be distributed on
each Class of the Class I A-1, Class I A-2, Class I A-3,
Class I A-4, Class I A-5, Class I A-6, Class I M-1, Class
I B-1 and Class I B-2 Certificates on such Remittance
Date, separately stating the amounts specified in clauses
(a) through (f) of the term "Formula Principal
Distribution Amount" with respect to the Group I
Certificates;
(3) the amount of interest to be distributed on each
Class of the Class I A-1, Class I A-2, Class I A-3, Class
I A-4, Class I A-5, Class I A-6, Class I M-1, Class I B-1
and Class I B-2 Certificates on such Remittance Date
(separately identifying any Class I A-1 Unpaid Interest
Shortfall, Class I A-2 Unpaid Interest Shortfall, Class I
A-3 Unpaid Interest Shortfall, Class I A-4 Unpaid
Interest Shortfall, Class I A-5 Unpaid Interest
Shortfall, Class I A-6 Unpaid Interest Shortfall, Class I
M-1 Unpaid Interest Shortfall, Class I B-1 Unpaid
Interest Shortfall or Class I B-2 Unpaid Interest
Shortfall included in such distribution) and the related
Remittance Rate for each such Class for such Remittance
Date;
(4) the remaining Class I A-1 Principal Balance,
Class I A-2 Principal Balance, Class I A-3 Principal
Balance, Class I A-4 Principal Balance, Class I A-5
Principal Balance, Class I A-6 Principal Balance, Class I
M-1 Principal Balance, Class I B-1 Principal Balance and
Class I B-2 Principal Balance after giving effect to the
payment of principal to be made on such Remittance Date
(on which interest will be calculated on the next
succeeding Remittance Date);
(5) the number and aggregate unpaid principal amount
of Group I Contracts that are delinquent 31 to 59 days,
60 to 89 days, and 90 or more days, respectively;
(6) the total amount of fees payable out of the
Trust Fund for such Due Period with respect to the Group
I Contracts;
(7) the Pool Factor for each Class of Group I
Certificates after giving effect to the distribution on
such Remittance Date;
(8) such other customary factual information
available to the Servicer as the Servicer deems necessary
and can obtain reasonably from its existing data base to
enable Group I Certificateholders to prepare their tax
returns;
(9) the amount, if any, by which the Class I B-2
Formula Distribution Amount exceeds the Remaining Amount
Available for such Remittance Date;
(10) the Class I B-2 Principal Liquidation Loss
Amount, if any, for such Remittance Date;
(11) [the Group I Guarantee Payment, if any, for
such Remittance Date; and]
(II) As to the Group II Contracts and Group II Certificates:
(1) the Class II A-1 Distribution Amount, the Class
II B-1 Distribution Amount, the Class II B-2 Distribution
Amount, the Class II B-3 Distribution Amount and the
Class R Distribution Amount for such Remittance Date;
(2) the amount of principal to be distributed on
each Class of the Class II A-1, Class II B-1, Class II
B-2 and Class II B-3 Certificates on such Remittance
Date, separately stating the amounts specified in clauses
(a) through (f) of the term "Formula Principal
Distribution Amount" with respect to the Group II
Certificates;
(3) the amount of interest to be distributed on each
Class of the Class II A-1, Class II B-1, Class II B-2 and
Class II B-3 Certificates on such Remittance Date
(separately identifying any Class II A-1 Unpaid Interest
Shortfall, Class II B-1 Unpaid Interest Shortfall, Class
II B-2 Unpaid Interest Shortfall or Class II B-3 Unpaid
Interest Shortfall included in such distribution) and the
related Remittance Rate for each such Class for such
Remittance Date;
(4) the remaining Class II A-1 Principal Balance,
Class II B-1 Principal Balance, Class II B-2 Principal
Balance and Class II B-3 Principal Balance after giving
effect to the payment of principal to be made on such
Remittance Date (on which interest will be calculated on
the next succeeding Remittance Date);
(5) the number and aggregate unpaid principal amount
of Group II Contracts that are delinquent 31 to 59 days,
60 to 89 days, and 90 or more days, respectively;
(6) the total amount of fees payable out of the
Trust Fund for such Due Period with respect to the Group
II Contracts;
(7) the Pool Factor for each Class of Group II
Certificates after giving effect to the distribution on
such Remittance Date;
(8) such other customary factual information
available to the Servicer as the Servicer deems necessary
and can obtain reasonably from its existing data base to
enable Group II Certificateholders to prepare their tax
returns;
(9) the amount, if any, by which the Class II B-3
Formula Distribution Amount exceeds the Remaining Amount
Available for such Remittance Date;
(10) the Class II B-3 Principal Liquidation Loss
Amount, if any, for such Remittance Date;
(11) [the Group II Guarantee Payment, if any, for
such Remittance Date;]
(12) the amount, if any, of any Accelerated
Principal Payment for such Remittance Date;
(13) the Overcollateralization Amount in respect of
such Remittance Date;
(14) the Required Overcollateralization Amount for
such Remittance Date;
(15) the amount, if any, of any
Overcollateralization Reduction on such Remittance Date;
and
(16) the amount, if any, of any outstanding Class II
A-1 Net Funds Cap Carryover Amount, Class II B-1 Net
Funds Cap Carryover Amount, Class II B-2 Net Funds Cap
Carryover Amount and Class II B-3 Net Funds Cap Carryover
Amount.
In the case of information furnished pursuant to clauses (I)(1)
through (I)(4) and (II)(1) through (II)(4) above, the amounts shall be
expressed as a dollar amount per Certificate with a $1,000 denomination.
Within a reasonable period of time after the end of each calendar
year, subject to the next sentence, but in no event later than 90 days after
the end of such year, the Servicer shall prepare and furnish to the Trustee,
and the Trustee, promptly upon receipt, shall furnish to each Person who at
any time during the calendar year was the Holder of a Certificate, a statement
containing the information set forth in clauses (2) and (3) above, in the case
of Class I B and Class II B Certificateholders, aggregated for such calendar
year or applicable portion thereof during which such Person was a
Certificateholder. Such obligation of the Servicer shall be deemed to have
been satisfied to the extent that substantially comparable information shall
be provided by the Servicer pursuant to any requirements of the Code as from
time to time in force.
On each Remittance Date, if the Servicer is not the Holder of the
Class R Certificate, the Servicer shall forward or cause to be forwarded by
mail to the Holder of the Class R Certificate a copy of the report forwarded
to the Holders of Certificates on such Remittance Date. If the Servicer is not
the Holder of the Class R Certificate, the Servicer shall also forward or
cause to be forwarded by mail to the Holder of the Class R Certificate a
statement setting forth the amount of the distribution to the Holder of the
Class R Certificate, together with such other information as the Servicer
deems necessary or appropriate.
Within a reasonable period of time after the end of each calendar
year, the Servicer shall furnish or cause to be furnished to each Person who
at any time during the calendar year was the holder of the Residual Interest a
statement containing the applicable distribution information provided pursuant
to this Section aggregated for such calendar year or applicable portion
thereof during which such Person was the Holder of the Class R Certificate.
Such obligation of the Servicer shall be deemed to have been satisfied to the
extent that substantially comparable information shall be provided by the
Servicer pursuant to any requirements of the Code as from time to time
enforced.
A Certificateholder holding Certificates of a Class representing in
the aggregate at least 5% of the Percentage Interest of such Class shall, upon
written request to the Trustee, be entitled to receive copies of all reports
provided to the Trustee.
The Servicer shall send copies of all reports provided to the Trustee
for the Certificateholders to each of the Underwriters.
[End of Article VII]
Article VIII
INDEMNITIES; THE COMPANY AND THE SERVICER
Section 8.01. Liabilities to Obligors. No liability to any Obligor
under any of the Contracts arising out of any act or omission to act of the
Servicer in servicing the Contracts prior to the Closing Date is intended to
be assumed by 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 Trustee and
the Certificateholders expressly disclaim such assumption.
Section 8.02. Tax Indemnification. The Company agrees to pay, and to
indemnify, defend and hold harmless the Trust or any separate trustee, the
Trustee, the Certificate Registrar, each Paying Agent and the
Certificateholders from any taxes and related penalties which may at any time
be asserted with respect to, and as of the date of, the transfer of the
Contracts from the Company to the Trust or any separate trustee, including,
without limitation, any sales, gross receipts, general corporation, personal
property, privilege or license taxes (but not including any income or
franchise taxes or federal, state or other taxes arising out of the creation
of the Trust Fund and the issuance of the Certificates or distributions with
respect thereto) or tax due under Tenn. Code Ann. ss.67-4-409(b) or any
successor provision and, in each such case, costs, expenses and reasonable
counsel fees in defending against the same. The Servicer shall promptly notify
the Trustee and the Rating Agencies, and the Trustee shall promptly notify the
Rating Agencies, in the event that either such party becomes aware of the
assertion of a claim or imposition of a lien by the Tennessee Department of
Revenue arising out of any characterization by such Department of the transfer
of the Contracts to the Trustee or any separate trustee as a secured financing
rather than a sale for purposes of the Tennessee indebtedness tax.
Section 8.03. Servicer's Indemnities. The Servicer shall defend and
indemnify the Trust Fund, the Trustee, the Certificate Registrar, each Paying
Agent, the Company and the Certificateholders against any and all costs,
expenses, losses, damages, claims and liabilities, including reasonable fees
and expenses of counsel and expenses of litigation, arising from third party
claims or actions in respect of any action taken or failed to be taken by the
Servicer or a prior owner of Acquired Contracts or servicer on behalf of such
owner with respect to any Contract or Manufactured Home and any failure by the
Servicer to perform its obligations in compliance with the standard of care
set forth in this Agreement. This indemnity shall survive any Event of Default
(but a Servicer's obligations under this Section 8.03 shall not relate to any
actions of any subsequent Servicer after an Event of Default) and any payment
of the amount owing under, or any repurchase by the Company of, any such
Contract.
Section 8.04. Operation of Indemnities. Indemnification under this
Article shall include, without limitation, reasonable fees and expenses of
counsel and expenses of litigation. If the Company or the Servicer has made
any indemnity payments to the Trustee pursuant to this Article and the Trustee
thereafter collects any of such amounts from others, the Trustee will repay
such amounts collected to the Company or the Servicer, as the case may be,
together with any interest collected thereon, but reduced by interest on
amounts paid by the Trustee through the date of reimbursement. The indemnities
under this Article shall survive the termination of this Agreement and any
resignation or removal of the Trustee.
Section 8.05. Merger or Consolidation of the Company or the Servicer.
The Company and the Servicer will each keep in full effect its existence,
rights and franchises as a corporation or association, as the case may be, and
will obtain and preserve its qualification to do business as a foreign
corporation in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Agreement, the
Certificates or any of the Contracts and to perform its duties under this
Agreement.
Any Person into which the Company or the Servicer may be merged or
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Company or the Servicer shall be a party, or any
Person succeeding to the business of the Company or the Servicer, shall be the
successor of the Company or the Servicer hereunder, without the execution or
filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding; provided, however,
that the successor or surviving Person to the Servicer shall satisfy the
requirements of Section 8.08 with respect to the qualifications of a successor
to the Servicer. Each of the Company and the Servicer shall promptly notify
the Trustee and the Rating Agencies of any such merger to which it is a party.
Section 8.06. Limitation on Liability of the Servicer and Others.
Neither the Servicer nor any of the directors, officers, employees or agents
of the Servicer shall be under any liability to the Trustee or the
Certificateholders for any action taken or for refraining from the taking of
any action in good faith pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the
Servicer or any such person against any liability that would otherwise be
imposed by reason of the failure to perform its obligations in strict
compliance with the standard of care set forth in this Agreement. The Servicer
and any director, officer, employee or agent of the Servicer may rely in good
faith on any document of any kind prima facie properly executed and submitted
by any Person respecting any matters arising hereunder. The Servicer shall not
be under any obligation to appear in, prosecute or defend any legal action
which arises under this Agreement and which in its opinion may involve it in
any expenses or liability; provided, however, that the Servicer may in its
discretion undertake any such action which it may deem necessary or desirable
in respect to this Agreement and the rights and duties of the parties hereto.
In such event, the legal expenses and costs of such action and any liability
resulting therefrom shall be expenses, costs and liabilities payable from the
related Certificate Account and the Servicer shall be entitled to be
reimbursed therefor out of such Certificate Account as provided by Section
6.02; provided that such reimbursement shall be made, from time to time on one
or more Remittance Dates, only out of the related Available Distribution
Amount for such Remittance Date that remains after the distributions on both
the Group I Certificates and the Group II Certificates for such Remittance
Date have been made.
Section 8.07. Assignment by Servicer. The Servicer may, with the
prior written consent of the Company, assign its rights and delegate its
duties and obligations under this Agreement; provided that the Person
accepting such assignment or delegation shall be a Person which is
satisfactory to the Trustee, in its sole judgment, and executes and delivers
to the Company and the Trustee an agreement, in form and substance reasonably
satisfactory to the Company and the Trustee, which contains an assumption by
such Person of the due and punctual performance and observance of each
covenant and condition to be performed or observed by the Servicer under this
Agreement; provided further that the Rating Agencys' rating of the Group I or
Group II Certificates in effect immediately prior to such assignment and
delegation will not be withdrawn or reduced as a result of such assignment and
delegation, as evidenced by a letter from the Rating Agencies. In the case of
any such assignment and delegation, the Servicer shall be released from its
obligations under this Agreement, except that the Servicer shall remain liable
for all liabilities and obligations incurred by it as Servicer hereunder prior
to the satisfaction of the conditions to such assignment and delegation set
forth in the next preceding sentence.
Section 8.08. Successor to the Servicer. In connection with the
termination of the Servicer's responsibilities and duties under this Agreement
pursuant to Section 9.01, the Trustee shall (i) succeed to and assume all of
the Servicer's responsibilities, rights, duties and obligations under this
Agreement (except the duty to pay and indemnify the Trustee pursuant to
Section 10.05 hereof, which duty shall remain the obligation of the initial
Servicer), or (ii) appoint a successor acceptable to the Company, which shall
have a net worth of not less than $10,000,000 and shall have serviced for at
least one year prior to such appointment a portfolio of not less than
$100,000,000 principal amount of manufactured housing installment sale
contracts or installment loans and which shall succeed to all rights and
assume all of the responsibilities, duties and liabilities of the Servicer
under this Agreement prior to the termination of the Servicer's
responsibilities, duties and liabilities under this Agreement (except that the
duty to pay and indemnify the Trustee pursuant to Section 10.05 hereof shall
be subject to negotiation at the time of such appointment). If the Trustee has
become the successor to the Servicer in accordance with this Section, the
Trustee may, if it shall be unwilling to continue to so act, or shall, if it
is unable to so act, appoint or petition a court of competent jurisdiction to
appoint, a successor satisfying the requirements set out in clause (ii) above.
In connection with any appointment of a successor Servicer, the Trustee may
make such arrangements for the compensation of such successor out of payments
on Contracts as it and such successor shall agree or such court shall
determine; provided, however, that with respect to either Group of Contracts,
no such compensation shall be in excess of a monthly amount equal to 1/12 of
the product of ____% and the Pool Scheduled Principal Balance for such Group
for the Remittance Date in respect of which such compensation is being paid
without the consent of all of the Certificateholders and notice to the Rating
Agencies. If the Servicer's duties, responsibilities and liabilities under
this Agreement should be terminated pursuant to Sections 8.07 or 9.01, the
Servicer shall discharge such duties and responsibilities during the period
from the date it acquires knowledge of such termination until the effective
date thereof with the same degree of diligence and prudence which it is
obligated to exercise under this Agreement, shall cooperate with the Trustee
and any successor Servicer in effecting the termination of the Servicer's
responsibilities and rights hereunder, and shall take no action whatsoever
that might impair or prejudice the rights or financial condition of its
successor. The assignment by a Servicer pursuant to Section 8.07 or removal of
Servicer pursuant to Section 9.01 shall not become effective until a successor
shall be appointed pursuant to this Section and shall in no event relieve the
Company of liability pursuant to Section 3.05 for breach of the
representations and warranties made pursuant to Section 3.02 or 3.03.
Any successor appointed as provided herein shall execute, acknowledge
and deliver to the Servicer and to the Trustee an instrument accepting such
appointment, whereupon such successor shall become fully vested with all the
rights, powers, duties, responsibilities, obligations and liabilities of the
Servicer, with like effect as if originally named as a party to this Agreement
and the Certificates. Any assignment by or termination of the Servicer
pursuant to Section 8.07 or 9.01 or the termination of this Agreement pursuant
to Section 11.01 shall not affect any claims that the Trustee may have against
the Servicer arising prior to any such termination or resignation.
The Servicer shall, at its expense, timely deliver to the successor
the funds in both Certificate Accounts and all Contract Files and related
documents and statements held by it hereunder and the Servicer shall account
for all funds and shall execute and deliver such instruments and do such other
things as reasonably may be required to more fully and definitely vest and
confirm in the successor all such rights, powers, duties, responsibilities,
obligations and liabilities of the Servicer. Without limitation, the Trustee
is authorized and empowered to execute and deliver on behalf of the Servicer,
as attorney-in-fact or otherwise, any and all documents and other instruments
(including, without limitation, transfer instruments in respect of
certificates of title and financing statements relating to the Manufactured
Homes), and to do any and all acts or things necessary or appropriate to
effect the purposes of such notice of termination.
Upon a successor's acceptance of appointment as such, the Trustee
shall notify in writing the Certificateholders of such appointment.
[End of Article VIII]
Article IX
DEFAULT
Section 9.01. Events of Default. In case one or more of the following
Events of Default shall occur and be continuing, that is to say:
(a) any failure by the Servicer to make any deposit or
payment, or to remit to the Trustee any payment, required to be made
under the terms of this Agreement which continues unremedied for a
period of five days after the date upon which written notice of such
failure, requiring the same to be remedied, shall have been given to
the Servicer by the Trustee or the Company (which shall also give
such notice to the Trustee) or to the Servicer, the Trustee and the
Company by the Holders of Certificates evidencing not less than 25%
of the Trust Fund; or
(b) failure on the part of the Servicer duly to observe or
perform in any material respect any other of the covenants or
agreements on the part of the Servicer set forth in this Agreement
which 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 the
Company (which shall also give such notice to the Trustee), or to the
Servicer, the Trustee and the Company by the Holders of Certificates
evidencing not less than 25% of the Trust Fund; or
(c) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case
under any present or future federal or state bankruptcy, insolvency
or similar law or appointing a conservator or receiver or liquidator
in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the
Servicer and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days; or
(d) the Servicer shall consent to the appointment of a
conservator or receiver or liquidator 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 the Servicer's property; or
(e) 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 take any corporate action in
furtherance of the foregoing;
then, and in each and every such case, so long as such Event of Default shall
not have been remedied, the Trustee may, and at the written direction of the
Holders of the Certificates evidencing not less than 25% of the Trust Fund, by
notice in writing to the Servicer shall, terminate all the rights and
obligations of the Servicer under this Agreement and in and to the Contracts
and the proceeds thereof. The Trustee shall send a copy of any such notice to
the Rating Agencies. 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 Contracts or otherwise, shall pass to and be vested in the
successor appointed pursuant to Section 8.08. Upon the occurrence of an Event
of Default which shall not have been remedied, the Trustee may also pursue
whatever rights it may have at law or in equity to damages, including
injunctive relief and specific performance. The Trustee will have no
obligation to take any action or institute, conduct or defend any litigation
under this Agreement at the request, order or direction of any of the Holders
of Certificates unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which the Trustee may incur.
Section 9.02. Waiver of Defaults. The Trustee may waive any default
by the Servicer in the performance of its obligations hereunder and its
consequences, except that a default in the making of any required remittance
to the Trustee for distribution on any of the Certificates may be waived only
by the affected Certificateholders. Upon any such 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 thereon except to the extent expressly so waived.
Section 9.03. Trustee to Act; Appointment of Successor. On and after
the time the Servicer receives a notice of termination pursuant to Section
9.01, the Trustee or its appointed agent shall be the successor in all
respects to the Servicer as provided in Section 8.08 hereof.
Section 9.04. Notification to Certificateholders. (a) Upon any such
termination pursuant to Section 9.01, the Trustee shall give prompt written
notice thereof to Certificateholders at their respective addresses appearing
in the Certificate Register and to the Rating Agencies.
(b) Within 60 days after the occurrence of any Event of Default known
to a Responsible Officer of the Trustee, the Trustee shall transmit by mail to
all Holders of Certificates, notice of each such Event of Default hereunder
known to the Trustee, unless such Event of Default shall have been cured or
waived.
Section 9.05. Effect of Transfer. (a) After a transfer of servicing
duties to a successor Servicer pursuant to Section 8.05, 8.07, 8.08 or 9.01,
the Trustee or new Servicer may notify Obligors to make payments that are due
under the Contracts after the effective date of the transfer of servicing
duties directly to the new Servicer.
(b) After the transfer of servicing duties to a successor Servicer
pursuant to Section 8.05, 8.07, 8.08 or 9.01, the replaced Servicer shall have
no further obligations with respect to the management, administration,
servicing or collection of the Contracts, but in the case of a transfer
pursuant to Section 8.08 or 9.01 shall remain liable for any liability of the
Servicer hereunder and shall remain entitled to any compensation due the
Servicer that had already accrued prior to such transfer.
(c) A transfer of servicing duties to a successor Servicer shall not
affect the rights and duties of the parties hereunder (including but not
limited to the indemnities of the Servicer pursuant to Article VIII) other
than those relating to the management, administration, servicing or collection
of the Contracts.
Section 9.06. Transfer of the Accounts. Notwithstanding the
provisions of Section 9.01, if either Certificate Account shall be maintained
with the Servicer or an Affiliate of the Servicer and an Event of Default
shall occur and be continuing, the Servicer, after five days' written notice
from the Trustee, or in any event within ten days after the occurrence of the
Event of Default, shall establish a new account or accounts, which shall be
Eligible Accounts, conforming with the requirements of this Agreement at the
trust department of the Trustee or with a depository institution other than
the Servicer or an Affiliate of the Servicer and promptly transfer all funds
in such Certificate Account to such new Certificate Account, which shall
thereafter be deemed the Certificate Account for the related Group for the
purposes hereof.
[End of Article IX]
Article X
CONCERNING THE TRUSTEE
Section 10.01. 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 set forth specifically in this Agreement. In case an Event
of Default of which a Responsible Officer of the Trustee shall have actual
knowledge has occurred (which has not been cured or waived), 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 required specifically 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 of which a
Responsible Officer of the Trustee shall have actual knowledge, and
after the curing or waiver of all such Events of Default which may have
occurred, the duties and obligations of the Trustee shall be determined
solely by the express provisions of this Agreement, the Trustee shall
not be liable except for the performance of such duties and obligations
as are specifically set forth in this Agreement, no implied covenants
or obligations shall be read into this Agreement against the Trustee
and, in the absence of bad faith on the part of the Trustee, the
Trustee may rely conclusively, 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, if specifically
required to be furnished pursuant to any provision of this Agreement,
conforming to the requirements of this Agreement;
(ii) The Trustee shall not be liable personally for an error
of judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) The Trustee shall not be liable personally with respect
to any action taken, suffered or omitted to be taken by it in good
faith in accordance with the direction of Holders of Certificates
evidencing not less than 25% of the Trust Fund as to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Agreement.
None of the provisions contained in this Agreement shall require the
Trustee to perform, or be responsible for the manner of performance of, any of
the obligations of the Servicer under this Agreement, except during such time,
if any, as the Trustee shall be the successor to, and be vested with the
rights, duties, powers and privileges of, the Servicer in accordance with the
terms of this Agreement.
Section 10.02. Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 10.01:
(a) The Trustee may rely upon and shall be protected in
acting or refraining from acting upon any resolution, Officers'
Certificate, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, consent,
order, appraisal, bond or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party
or parties;
(b) The Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in
good faith and in accordance with such Opinion of Counsel;
(c) The Trustee shall be under no obligation to exercise any
of the trusts or powers vested in it by this Agreement or to
institute, conduct or defend any litigation hereunder or in relation
hereto at the request, order or direction of any of the
Certificateholders pursuant to the provisions of this Agreement,
unless such Certificateholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby; nothing
contained herein shall, however, relieve the Trustee of the
obligation, upon the occurrence of an Event of Default (which has not
been cured), 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;
(d) The Trustee shall not be liable personally 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;
(e) Prior to the occurrence of an Event of Default of which
a Responsible Officer of the Trustee has actual knowledge hereunder
and after the curing or waiver of all Events of Default which may
have occurred, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, approval, bond or other paper or document, unless
requested in writing so to do by the Holders of Certificates
evidencing Fractional Interests aggregating not less than 25%;
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 expense or liability as a
condition to such proceeding. The reasonable expense of every such
examination shall be paid by the Servicer, if an Event of Default
shall have occurred and is continuing, and otherwise by the
Certificateholders requesting the investigation;
(f) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents (including appointing a custodian to maintain custody
of the Land-and-Home Contract Files and the Mortgage Loan Files) or
attorneys and the Trustee shall not be liable or responsible for the
misconduct or negligence of any such agent or attorney appointed with
due care; provided, however, that any Affiliate of the Company may
only perform ministerial or custodial duties hereunder as agent for
the Trustee; and
(g) 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 wilful misconduct in the performance of any such act.
Section 10.03. Trustee Not Liable for Certificates or Contracts. The
recitals contained herein and in the Certificates (other than the
countersignature of the Certificates) shall be taken as the statements of the
Company or the Servicer, as the case may be, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations or
warranties as to the validity or sufficiency of this Agreement, of the
Certificates (except that the Certificates shall be duly and validly
countersigned by it) or of any Contract or related document. The Trustee shall
not be accountable for the use or application by the Company of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Company or the Servicer in respect of the
Contracts or deposited in or withdrawn from the Certificate Accounts by the
Company or the Servicer. The Trustee shall have no responsibility for filing
any financing or continuation statement in any public office at any time or to
otherwise perfect or maintain the perfection of any security interest or lien
granted to it hereunder (unless the Trustee shall have become the successor
Servicer) or to prepare or file any Securities and Exchange Commission filing
for the trust created hereby or to record this Agreement.
Section 10.04. Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of
Certificates, and may deal with the Company[, CHI] and the Servicer in banking
transactions, with the same rights it would have if it were not Trustee.
Section 10.05. Servicer to Pay Fees and Expenses of Trustee. The
Servicer covenants and agrees to pay, from its own funds, to the Trustee from
time to time, and the Trustee shall be entitled to, reasonable compensation
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) for all services rendered by it
in the execution of the trust hereby created and in the exercise and
performance of any of the powers and duties hereunder of the Trustee, and the
Servicer will pay (out of its own funds) or reimburse the Trustee, to the
extent requested by the Trustee, for all reasonable expenses, disbursements
and advances incurred or made by the Trustee, in accordance with any of the
provisions of this Agreement and the reasonable compensation and the expenses
and disbursements of its counsel and of all Persons not regularly in its
employ (including any custodian), and the expenses incurred by the Trustee in
connection with the appointment of an office or agency pursuant to Section
10.11 except any such expense, disbursement or advance as may arise from its
negligence or bad faith. The Servicer also covenants and agrees to indemnify
(out of its own funds) the Trustee for, and to hold it harmless against, any
loss, liability or expense arising out of or in connection with the acceptance
or administration of this trust and its duties hereunder, including the costs
and expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties hereunder,
except any such loss, liability or expense arising from any negligence or bad
faith on the part of the Trustee. The covenants in this Section 10.05 shall be
for the benefit of the Trustee in its capacities as Trustee, Paying Agent and
Certificate Registrar hereunder, and shall survive the termination of this
Agreement.
Section 10.06. Eligibility Requirements for Trustee. There shall at
all times be a Trustee hereunder which shall be either (a)
________________________ or any other Person into which
________________________ is merged or consolidated or to which substantially
all of the properties and assets of _______________________ are transferred as
an entirety, and provided, further, that such entity is authorized to exercise
corporate trust powers under the laws of the United States of America, any
state thereof or the District of Columbia and has all necessary trust powers
to perform its obligations hereunder, or (b) a corporation or banking
association organized and doing business under the laws of the United States
of America, any state thereof or the District of Columbia, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least $50,000,000 and subject to supervision or examination by
Federal or state authority and with a long-term debt rating of at least Baa3
or a short-term debt rating of at least Prime-3. If the corporation or banking
association referred to in clause (b) of the previous sentence publishes
reports of condition at least annually, pursuant to law or to the requirements
of said supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation or banking
association shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 10.07. Resignation and Removal of the Trustee. The Trustee at
any time may resign and be discharged from the trusts hereby created by giving
written notice thereof to the Company, the Servicer and the Rating Agencies.
Upon receiving such notice of resignation, the Company promptly shall appoint
a successor trustee 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
have accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 10.06 and shall fail to resign after written
request therefor by the Company, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged 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 Company
may remove the Trustee and appoint a successor trustee 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 Holders of Certificates evidencing more than 50% of the Trust
Fund may remove the Trustee at any time and appoint a successor trustee by
written instrument or instruments, in triplicate, signed by such
Certificateholders or their attorneys-in-fact duly authorized, one complete
set of which instruments shall be delivered to the Company, one complete set
to the Trustee so removed and one complete set to the successor so appointed.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 10.08.
Section 10.08. Successor Trustee. Any successor trustee appointed as
provided in Section 10.07 shall execute, acknowledge and deliver to the
Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee shall
become effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if
originally named as trustee herein. The predecessor trustee shall execute and
deliver such instruments and do such other things as reasonably may be
required for more fully and certainly vesting and confirming in the successor
trustee all such rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor trustee shall be
eligible under the provisions of Section 10.06.
Upon acceptance of appointment by a successor trustee as provided in
this Section, the Company shall mail notice of the succession of such trustee
hereunder to all Certificateholders at their addresses as shown in the
Certificate Register, to the Servicer and to the Rating Agencies. If the
Company fails to mail such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Company.
Section 10.09. 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 all or substantially all of the business of the Trustee, shall
be the successor of the Trustee hereunder, provided such corporation shall be
eligible under the provisions of Section 10.06, 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 10.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for the purpose of
(i) meeting any legal requirements of any jurisdiction in which any part of
the Trust Fund or property securing the same may be located at the time or
(ii) meeting any legal requirements with respect to the holding of the
Contracts, the Company and the Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons
approved by the Trustee to act as co-trustee or co-trustees, jointly with the
Trustee, or separate trustee or separate trustees, of all or any part of the
Trust Fund, and to vest in such Person or Persons, in such capacity, such
title to the Trust Fund, or any part thereof, and, subject to the other
provisions of this Section 10.10, such powers, duties, obligations, rights and
trusts as the Company and the Trustee may consider necessary or desirable. If
the Company shall not have joined in such appointment within 15 days after the
receipt by it of a request so to do, or in 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
10.06 hereunder and no notice to Certificateholders of the appointment of
co-trustee(s) or separate trustee(s) shall be required under Section 10.08
hereof. The Servicer shall be responsible for the fees and expenses of any
co-trustee or separate trustee appointed hereunder to the extent and in the
manner set forth for the Trustee in Section 10.05.
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 10.10, all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed or any regulation applicable to
any of the Contracts (whether as Trustee hereunder or as successor to the
Servicer hereunder), the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust Fund or any portion
thereof in any such jurisdiction) shall be exercised and performed by such
separate trustee or co-trustee at the direction of the 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 X. 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.
Any separate trustee or co-trustee may, at any time, appoint 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.
Nothing in this Section shall relieve the Trustee of its duties,
obligations or liabilities under this Agreement.
Section 10.11. Appointment of Office or Agency. The Trustee will
appoint an office or agency in the City of New York where Certificates maybe
surrendered for registration of transfer or exchange. The Trustee initially
designates its offices at _____________________________________________ for
such purposes. The Certificate Register may be kept in an electronic form
capable of printing out a hard copy of the Certificate Register. The Trustee
will maintain an office at the address stated in Section 12.10 hereof where
notices and demands to or upon the Trustee in respect of the Certificates may
be served. The Trustee will give prompt written notice to Certificateholders
of any change in the location of the Certificate Register or any such office
or agency.
Section 10.12. 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. Any 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, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Certificateholders in respect
of which such judgment has been recovered.
Section 10.13. Suits for Enforcement. In case an Event of Default or
other default by the Servicer or of the Company 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 or the Certificateholders.
[End of Article X]
Article XI
TERMINATION
Section 11.01. Termination. (a) The respective obligations and
responsibilities of the Company, the Servicer (except as to Section 10.05) and
the Trustee shall terminate upon: (i) the later of the final payment or other
liquidation (or any advance with respect thereto) of the last Contract or the
disposition of all property acquired upon repossession of any Contract and the
remittance of all funds due hereunder; or (ii) at the option of the Company
(if the Company is not the Servicer) or the Servicer, on any Remittance Date
after the first Remittance Date on which the sum of the Group I Pool Scheduled
Principal Balance and the Group II Pool Scheduled Principal Balance is less
than 10% of the Combined Total Original Contract Pool Principal Balance, upon
the purchase of the Contracts at a price equal to the greater of (a) the sum
of (x) 100% of the principal balance of each Contract (other than any Contract
as to which the related Manufactured Home has been repossessed and not yet
disposed of 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 (as determined by the Company or the Servicer, as the case
may be, as of the close of business on the third Business Day next preceding
the date upon which notice of any such termination is furnished to
Certificateholders pursuant to this Section), and (b) the aggregate fair
market value (as determined by the Company or the Servicer, as the case may
be, as of the close of business on such third Business Day) of all of the
assets of the Trust Fund, plus, in the case of both (a) and (b), any Class I
A-1 Unpaid Interest Shortfall, any Class I A-2 Unpaid Interest Shortfall, any
Class I A-3 Unpaid Interest Shortfall, any Class I A-4 Unpaid Interest
Shortfall, any Class I A-5 Unpaid Interest Shortfall, any Class I A-6 Unpaid
Interest Shortfall, any Class I M-1 Unpaid Interest Shortfall, any Class I B-1
Unpaid Interest Shortfall and any Class I B-2 Unpaid Interest Shortfall, as
well as one month's interest at the applicable APR on the Scheduled Principal
Balance of each Contract (including any Contract as to which the related
Manufactured Home has been repossessed or foreclosed upon and not yet disposed
of); 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, living on the date hereof. Notwithstanding
the foregoing, the option specified in clause (ii) of this Section 11.01(a)
shall not be exercisable if there will not be distributed on the Class I A-1,
Class I A-2, Class I A-3, Class I A-4, Class I A-5, Class I A-6, Class I M-1,
Class I B-1 and Class I B-2 Certificates an amount equal to the Class I A-1
Principal Balance, Class I A-2 Principal Balance, Class I A-3 Principal
Balance, Class I A-4 Principal Balance, Class I A-5 Principal Balance, Class I
A-6 Principal Balance, Class I M-1 Principal Balance, Class I B-1 Principal
Balance and Class I B-2 Principal Balance, respectively, together with the
Class I A-1 Unpaid Interest Shortfall, Class I A-2 Unpaid Interest Shortfall,
Class I A-3 Unpaid Interest Shortfall, Class I A-4 Unpaid Interest Shortfall,
Class I A-5 Unpaid Interest Shortfall, Class I A-6 Unpaid Interest Shortfall,
Class I M-1 Unpaid Interest Shortfall, Class I B-1 Unpaid Interest Shortfall
and Class I B-2 Unpaid Interest Shortfall, respectively, and interest accrued
during the related Interest Period on the Principal Balance of each such Class
of Certificates at the related Remittance Rate. If the Company and the
Servicer both desire to exercise the option in clause (ii) of this paragraph
on any Remittance Date after the first Remittance Date on which the sum of the
Group I Pool Scheduled Principal Balance and the Group II Pool Scheduled
Principal Balance is less than 10% of the Combined Total Original Contract
Pool Principal Balance, the Servicer shall have the prior right to exercise
such option.
(b) Notice of any termination, specifying the Remittance Date upon
which all Certificateholders may surrender their Certificates to the Trustee
for payment and cancellation, shall be given promptly by the Servicer (if the
Company is exercising the option given it in Section 11.01(a), upon direction
by the Company given 10 days prior to the date such notice is to be mailed) by
letter to Certificateholders, the Trustee and the Rating Agencies mailed no
later than the 15th day of the month preceding the month of such final
distribution specifying (i) the Remittance Date upon which final payment on
the Certificates will be made upon presentation and surrender of Certificates
at the office or agency of the Trustee therein designated, (ii) the amount of
any such final payment and (iii) that the Record Date otherwise applicable to
such Remittance Date is not applicable, payments being made only upon
presentation and surrender of the Certificates at the office or agency of the
Trustee therein specified. After giving such notice, the Trustee shall not
register the transfer of or exchange any Certificates. If such notice is given
in connection with the Company's or the Servicer's election to purchase, the
Company or the Servicer shall deposit in each Certificate Account on the
Business Day prior to the applicable Remittance Date the portion of the amount
described in Section 11.01(a)(ii) relating to each Group. Upon presentation
and surrender of the Group I Certificates, the Trustee shall cause to be
distributed to Certificateholders, from funds in the Group I Certificate
Account, in proportion to such Certificateholders' respective Percentage
Interests, the following amounts (to the extent of available funds) in the
following order of priority: (i) to the Class I A-1 Certificateholders, the
Class I A-1 Principal Balance plus the interest due thereon; (ii) to the Class
I A-2 Certificateholders, the Class I A-2 Principal Balance plus the interest
due thereon; (iii) to the Class I A-3 Certificateholders, the Class I A-3
Principal Balance plus the interest due thereon; (iv) to the Class I A-4
Certificateholders, the Class I A-4 Principal Balance plus the interest due
thereon; (v) to the Class I A-5 Certificateholders, the Class I A-5 Principal
Balance plus the interest due thereon; (vi) to the Class I A-6
Certificateholders, the Class I A-6 Principal Balance plus the interest due
thereon; (vii) to the Class I M-1 Certificateholders, the Class I M-1
Principal Balance plus the interest due thereon; (viii) to the Class I B-1
Certificateholders, the Class I B-1 Principal Balance plus the interest due
thereon; (ix) to the Class I B-2 Certificateholders, the Class I B-2 Principal
Balance plus the interest due thereon; provided that if a Deficiency Event has
occurred, the distribution pursuant to clause (i) , (ii) and (iii) shall be
pro rata among such Classes on the basis of the amounts specified in such
clauses. Upon presentation and surrender of the Group II Certificates, the
Trustee shall cause to be distributed to Certificateholders, from funds in the
Group II Certificate Account, in proportion to such Certificateholders'
respective Percentage Interests, the following amounts (to the extent of
available funds) in the following order of priority: (i) to the Class II A-1
Certificateholders, the Class II A-1 Principal Balance plus the interest due
thereon; (ii) to the Class II B-1 Certificateholders, the Class II B-1
Principal Balance plus the interest due thereon; (iii) to the Class II B-2
Certificateholders, the Class II B-2 Principal Balance plus the interest due
thereon, (iv) to the Class II B-3 Certificateholders, the Class II B-3
Principal Balance plus the interest due thereon and (v) to the Group II
Certificateholders, the Class II A-1 Net Funds Cap Carryover Amount, the Class
II B-1 Net Funds Cap Carryover Amount, the Class II B-2 Net Funds Cap
Carryover Amount and the Class II B-3 Net Funds Cap Carryover Amount, if any,
pro rata based on the amount of the Net Funds Cap Carryover Amount owing to
each such Class of Certificates. Upon such termination, any amounts remaining
in the Certificate Accounts (other than amounts retained to meet claims) shall
be paid to the Holder of the Class R Certificate. Following such final
deposit, the Trustee shall execute all assignments, endorsements and other
instruments necessary to effectuate such transfer. The distribution on the
final Remittance Date shall be in lieu of the distribution otherwise required
to be made on such Remittance Date in respect of the Certificates. Any amounts
retained in the Certificate Accounts that are owed to Certificateholders which
have not surrendered their Certificates as of the final Remittance Date shall
be withdrawn from the Certificate Accounts and held in an escrow account with
the Trustee pending distribution pursuant to Section 11.01(c).
(c) If all of the Certificateholders shall not surrender their
Certificates for cancellation within three months after the time specified in
the above-mentioned written notice, the Trustee shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If
within two years after the second notice all the Certificates shall not have
been surrendered for cancellation, the Trustee shall so notify the Company and
the Company may take appropriate steps, or may appoint an agent to take
appropriate and reasonable steps, to contact the remaining Certificateholders
concerning surrender of their Certificates, and the cost thereof shall be paid
out of, and only to the extent of, the funds and other assets which remain in
trust hereunder.
Upon any termination pursuant to the exercise of the purchase option
contained in Section 11.01(a)(ii) or otherwise, the Trust Fund shall be
terminated in accordance with the following additional requirements, unless
the Trustee has received an Opinion of Counsel to the effect that the failure
of the Trust Fund to comply with the requirements of this Section will not (i)
result in the imposition of taxes on "prohibited transactions" of the Trust
Fund as described in Section 860F of the Code, or (ii) cause the Trust Fund to
fail to qualify as a REMIC at any time that any Certificates are outstanding:
(i) Within 90 days prior to the final Remittance Date set
forth in the notice given by the Servicer or the Trustee under this
Section, the Holder of the Class R Certificate shall adopt a plan of
complete liquidation of the Trust Fund; and
(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
Servicer shall sell all of the assets of the Trust Fund to the Company
or the Servicer, as the case may be, for cash.
By its acceptance of the Class R Certificate, the Holder thereof
hereby agrees to adopt such a plan of complete liquidation upon the written
request of the Servicer or the Company and to take such other action in
connection therewith as may be reasonably requested by the Company.
[End of Article XI]
Article XII
MISCELLANEOUS PROVISIONS
Section 12.01. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and in no way shall affect the validity
or enforceability of the other provisions of this Agreement.
Section 12.02. Limitation on Rights of Certificateholders. The death
or incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust Fund, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust Fund, 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 herein) or in any manner otherwise control the operation
and management of the Trust Fund, or the obligations of the parties hereto,
nor shall anything herein set forth, or contained in the terms of the
Certificates, be construed so as to constitute the Certificateholders from
time to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third 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 of any provision
of this Agreement to institute any suit, action or proceeding in equity or at
law upon or under or with respect to this Agreement, unless such Holder
previously shall have given to the Trustee a written notice of default and of
the continuance thereof, as hereinbefore provided, and unless also the Holders
of Certificates evidencing not less than 25% of the Trust Fund 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 covenanted expressly 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 of any provision of this Agreement to affect, disturb or
prejudice the rights of the Holders of any other of such 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. For the protection and
enforcement of the provisions of this Section, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
Section 12.03. Acts of Certificateholders. (a) Except as otherwise
specifically provided herein, whenever Certificate-holder approval,
authorization, direction, notice, consent, waiver or other action is required
hereunder, such approval, authorization, direction, notice, consent, waiver or
other action shall be deemed to have been given or taken on behalf of, and
shall be binding upon, all Certificateholders if agreed to by Holders of
Certificates of the specified Class or Classes evidencing, as to each such
Class, Percentage Interests aggregating 51% or more.
(b) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Certificateholders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Certificateholders in person or
by agent duly appointed in writing; and except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where required, to the Servicer.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Agreement and conclusive in
favor of the Trustee, the Servicer and the Company if made in the manner
provided in this Section.
(c) The fact and date of the execution by any Certificateholder of
any such instrument or writing may be proved in any reasonable manner which
the Trustee deems sufficient.
(d) The ownership of Certificates shall be proved by the Certificate
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Certificateholder shall bind every Holder of every
Certificate issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be
done by the Trustee or the Servicer in reliance thereon, whether or not
notation of such action is made upon such security.
(f) The Trustee may require such additional proof of any matter
referred to in this Section as it shall deem necessary.
Section 12.04. Calculations. Except as other provided in this
Agreement with respect to the Class I A-1 Certificates and the Class II
Certificates, all interest rate and basis point calculations under this
Agreement will be made on the basis of a 360-day year and twelve thirty-day
months and will be carried out to at least three decimal places.
Section 12.05. Amendment. This Agreement may be amended from time to
time by the Company, the Servicer, and the Trustee, but without the consent of
any of the Certificateholders, (a) to cure any ambiguity, mistake or error or
to correct or supplement any provisions herein which may be inconsistent with
any other provisions herein, (b) to add to the duties or obligations of the
Servicer hereunder, (c) to obtain a rating by a nationally recognized rating
agency or to maintain or improve the rating of Group I or Group II
Certificates then given by a rating agency (it being understood that, after
obtaining the rating of any Group I or Group II Certificates at the Closing
Date, none of the Trustee, the Company or the Servicer is obligated to obtain,
maintain or improve any rating of the Group I or Group II Certificates), (d)
to facilitate the operation of a guarantee of either the Class I B-2
Certificates or the Class II B-3 Certificates by any Person (it being
understood that the creation of any such guarantee is solely at the option of
the Company and that such guarantee will not benefit in any way or result in
any payments on any other Class of Certificates) or (e) to make any other
provisions with respect to matters or questions arising under this Agreement
which shall not be materially inconsistent with the provisions of this
Agreement, including without limitation provisions relating to the issuance of
definitive Certificates to Certificate Owners provided that book-entry
registration of Group I and Group II Certificates is no longer permitted;
provided, however, that such action shall not, as evidenced by an Opinion of
Counsel, adversely affect in any material respect the interests of any
Certificateholder (including, without limitation, the maintenance of the
status of the Trust Fund as a REMIC under the Code).
This Agreement may also be amended from time to time by the Company,
the Servicer and the Trustee, without consent of the Certificateholders, to
modify, eliminate or add to the provisions of this Agreement to such extent as
shall be necessary to (i) maintain the qualification of the Trust Fund as a
REMIC under the Code or avoid, or minimize the risk of, the imposition of any
tax on the Trust Fund under the Code that would be a claim against the Trust
Fund's assets, provided that (a) there shall have been delivered an Opinion of
Counsel addressed to the Trustee to the effect that such action is necessary
or appropriate to maintain such qualification or avoid any such tax or
minimize the risk of its imposition, and (b) such amendment shall not
adversely affect in any material respect the interests of any
Certificateholder or (ii) prevent the Trust Fund from entering into any
"prohibited transaction" as defined in Section 860F of the Code provided that
(a) there shall have been delivered an Opinion of Counsel addressed to the
Trustee to the effect that such action is necessary or appropriate to prevent
the Trust Fund from entering into such prohibited transaction, and (b) such
amendment shall not adversely affect in any material respect the interests of
any Certificateholder.
This Agreement also may be amended from time to time by the Company,
the Servicer and the Trustee, with the consent of the Holders of Certificates
evidencing not less than 51% of the Trust Fund, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Agreement or of modifying in any manner the rights of the Holders of
Certificates; provided, however, that no such amendment shall (i) reduce in
any manner the amount of, or delay the timing of, distributions which are
required to be made on any Certificate without the consent of the Holder of
such Certificate; (ii) reduce the aforesaid percentage of Certificates, the
Holders of which are required to consent to any such amendment, without the
consent of the Holders of all such Certificates then outstanding or (iii)
adversely affect the status of the Trust Fund as a REMIC or cause a tax to be
imposed on the Trust Fund under the REMIC Provisions.
Promptly after the execution of any such amendment the Trustee shall
furnish written notification of the substance of such amendment to each
Certificateholder and the Rating Agencies.
It shall not be necessary for the consent of Certificateholders under
this Section 12.05 to approve the particular form of any proposed amendment
but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject
to such reasonable regulations as the Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, the
Trustee shall be entitled to receive and rely upon an Opinion of Counsel
stating that the execution of such amendment is authorized or permitted by
this Agreement and that all conditions precedent to such execution and
delivery have been satisfied. The Trustee may, but shall not be obligated to,
enter into any such amendment which affects the Trustee's own rights, duties
or immunities under this Agreement.
Section 12.06. Recordation of Agreement. To the extent permitted by
applicable law, this Agreement is subject to recordation in all appropriate
public offices for real property records in all the counties or other
comparable jurisdictions in which any or all of the properties subject to the
Contracts are situated, and in any other appropriate public recording office
or elsewhere, such recordation to be effected by the Servicer at the
Servicer's expense with the consent of the Trustee accompanied by an Opinion
of Counsel to the effect that such recordation materially and beneficially
affects the interests of the Certificateholders or is necessary for the
administration or servicing of the Contracts.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one
and the same instrument.
Section 12.07. Contribution of Assets. Except as provided in Section
3.05(b) and so much of Section 3.05(a) as does not relate to a deposit in lieu
of repurchase of a Contract the principal balance of which is incorrectly set
forth on the Contract Schedule, following the Closing Date, the Trustee shall
not accept any contribution of additional assets to the Trust Fund unless the
Company has delivered an Opinion of Counsel addressed to the Trustee to the
effect that (i) the contribution of such assets into the Trust Fund will not
cause the Trust Fund to fail to qualify as a REMIC so long as any Certificate
is outstanding and (ii) such contribution will not cause the imposition of tax
on contributions to the Trust Fund after the "start-up day" (as defined in
Section 860G of the Code) with respect thereto.
Section 12.08. Duration of Agreement. This Agreement shall continue in
existence and effect until terminated as herein provided.
Section 12.09. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York, except that the laws of the
State of Tennessee shall govern the transfer, sale, assignment, set over and
conveyance of the Contracts from the Company to the Trustee and separate
trustee hereunder, and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws, as applicable.
Section 12.10. 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 telecopied (with transmission confirmed by
telephone) to, or mailed by first class or registered mail, postage prepaid, to
(i) in the case of the Company, 500 Alcoa Trail, Maryville, TN 37804, Attention:
President; (ii) in the case of the Trustee, ________________________,
____________________, ___________________________________, Attention:
______________________; (iii) in the case of [Rating Agency], Attention:
______________; or (iv) in the case of [Rating Agency], Attention: ____________.
Section 12.11. Merger and Integration of Documents. Except as
specifically stated otherwise herein, this Agreement sets forth the entire
understanding of the parties relating to the subject matter hereof, and all
prior understandings, written or oral, are superseded by this Agreement. This
Agreement may not be modified, amended, waived, or supplemented except as
provided herein.
Section 12.12. Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.
Section 12.13. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
[End of Article XII]
IN WITNESS WHEREOF, the Company, as Seller and Servicer[, CHI] and
the Trustee have caused their names to be signed hereto by their respective
officers thereunto duly authorized as of the day and year first above written.
VANDERBILT MORTGAGE AND FINANCE,
INC., as Seller and Servicer
By:_______________________________
Name:
Title:
_________________________,
as Trustee
By:_______________________________
Name:
Title:
[CLAYTON HOMES, INC., as Provider
of the Limited Guarantee
By:_______________________________
Name:
Title: ]
STATE OF _____________ )
) ss.:
COUNTY OF ____________ )
On the ____ day of February, 1999, before me, a notary public in and
for said State, personally appeared ____________, known to me to be
____________________ of Vanderbilt Mortgage and Finance, Inc., one of the
corporations that executed the within instrument, and also known to me to be
the person who executed it on behalf of said corporation, and acknowledged to
me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
_______________________________
Notary Public
[Notarial Seal]
[STATE OF ____________ )
) ss.:
COUNTY OF ____________ )
On the ____ day of ________, 1999 before me, a notary public in and
for said State, personally appeared ___________, known to me to be
____________ of Clayton Homes, Inc., one of the corporations that executed the
within instrument, and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
_______________________________
Notary Public
[Notarial Seal] ]
STATE OF ____________ )
) ss.:
COUNTY OF ___________ )
On the ____ day of ________, 1999, before me, a notary public in and
for said State, personally appeared _______________, known to me to be a
_______________ of ________________________, a ________ banking corporation
that executed the within instrument, and also known to be the person who
executed it on behalf of said banking corporation and acknowledged to me that
such banking corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
_______________________________
Notary Public
[Notarial Seal]
EXHIBIT A-1
CONTRACT SCHEDULE
EXHIBIT A-2
FORM OF CUSTODIAL AGREEMENT
Dated as of ________ __, 1999
________________________, a ________ banking corporation, as trustee
(the "Trustee"), _____________________________________, a national banking
association, or its successors in interest (the "Custodian" or "__________"),
and VANDERBILT MORTGAGE AND FINANCE, INC., a Tennessee corporation, or its
successors in interest, individually and as Servicer (individually,
"Vanderbilt" or, in its capacity as servicer, the "Servicer"), agree as
follows:
WHEREAS, the Trustee, Vanderbilt [and Clayton Homes, Inc.] have
entered into a Pooling and Servicing Agreement, dated as of _______ __, 1999
(the "Pooling Agreement"; terms used but not defined herein shall have the
meanings assigned to them in Section 1.01 of the Pooling Agreement attached
hereto at Appendix A) relating to the Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates, Series 1999__ (the
"Certificates");
WHEREAS, pursuant to Section 2.04 of the Pooling Agreement,
Vanderbilt shall deliver each Delivered Land-and-Home Contract File and each
Delivered Mortgage Loan File to the Trustee or a custodian on its behalf and
the Trustee may appoint a custodian with respect to such Delivered
Land-and-Home Contract Files and the Delivered Mortgage Loan Files
(collectively, the "Files");
WHEREAS, the Trustee wishes to appoint __________ as custodian with
respect to the Files; and
WHEREAS, __________ is willing to act as custodian of the Files and
perform its services in accordance with the terms and conditions hereof;
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Trustee, the Custodian and Vanderbilt agree as follows:
1. Appointment as the Custodian. Subject to the terms and conditions
herein, the Trustee hereby appoints the Custodian, and the Custodian hereby
accepts such appointment, to maintain custody of the Files relating to the
Land-and-Home Contracts and Mortgage Loans listed on Schedule I hereto (the
"Schedule"). The Custodian shall have no duties or obligations except those
expressly stated in this Agreement, and such duties or obligations shall be
determined solely by the express provisions of this Agreement.
2. Charges and Expenses. The Custodian will charge for its services
under this Agreement as set forth in a separate agreement between the
Custodian and Vanderbilt, the payment of which shall be the obligation of
Vanderbilt. The Trustee shall not be responsible for the fees or expenses of
the Custodian.
3. Initial Delivery of Files. Within 30 days of the date hereof, the
Servicer shall deliver the following items to the Custodian:
(1) with respect to each Land-and-Home Contract,
(a) the original of the Land-and-Home Contract, and, in the case of
each Bi-weekly Contract, the original of the bi-weekly rider for such
Contract, and, in the case of each Escalating Principal Payment Contract, the
original of the graduated payment rider for such Contract;
(b) the original related Mortgage with evidence of recording thereon
and any title document for the related Manufactured Home;
(c) with respect to any Land-and-Home Contract not originated by
Vanderbilt, the assignment of the Land-and-Home Contract from the originator
to Vanderbilt with evidence of recording thereon;
(d) with respect to any Land-and-Home Contract originated by
Vanderbilt, an endorsement of such Land-and-Home Contract by Vanderbilt
without recourse;
(e) with respect to the Land-and-Home Contracts located in the ten
states with the highest concentration of Land-and-Home Contracts (listed on
Exhibit D hereto), an Opinion of Counsel to the effect that Vanderbilt need
not cause to be recorded any assignment which relates to Land-and-Home
Contracts in such states to protect the Trustee's and the Certificateholders'
interest in such Land-and-Home Contracts; provided, however, if Vanderbilt
fails to deliver such an Opinion of Counsel for any of the states listed on
Exhibit D, with respect to the Land-and-Home Contracts located in those
states, Vanderbilt shall provide an original executed assignment of the
Mortgage, with evidence of recording thereon, showing the assignment from
Vanderbilt to the Trustee or to the separate trustee, as applicable; and
(f) any extension, waiver or modification agreement(s) for each
Land-and-Home Contract on the Schedule; and
(2) with respect to each Mortgage Loan,
(a) the original related Mortgage, with evidence of recording
indicated thereon;
(b) the original assignment and any intervening assignments of the
Mortgage, with evidence of recording thereon, showing a complete chain of
assignment of the Mortgage Loan from origination of the Mortgage Loan to
Vanderbilt;
(c) an original assignment, with evidence of recording thereon,
showing the assignment from Vanderbilt to the Trustee or to the separate
trustee, as applicable; and
(d) any extension, modification or waiver agreement(s) for each
Mortgage Loan on the Schedule.
In lieu of the items to be recorded and delivered pursuant to
Sections 3(1)(b), 3(1)(c), 3(1)(e), 3(2)(a), 3(2)(b) and 3(2)(c) above (the
"Recorded Documents"), if the original Mortgage or assignment has not been
returned by the applicable recording office or is not otherwise available,
Vanderbilt shall provide the Custodian with a copy thereof together with an
Officer's Certificate (which may be a blanket Officer's Certificate of
Vanderbilt covering all such Mortgages and assignments) certifying that the
copy is a true and correct copy of the original Mortgage or original
assignment, as applicable, submitted for recording, which will be (1) replaced
by the original Mortgage or original assignment when it is so returned or (2)
if the recording office in the applicable jurisdiction retains the original
Mortgage or original assignment or the original Mortgage or original
assignment has been lost, a copy of such item certified by the applicable
recording office.
All of the items with respect to a Land-and-Home Contract which are
delivered to and held by the Custodian are referred to herein as the
"Delivered Land-and-Home Contract File." All of the items with respect to a
Mortgage Loan which are delivered to and held by the Custodian are referred to
herein as the "Delivered Mortgage Loan File."
Such delivery shall be accompanied by a Certificate of Delivery (the
"Certificate of Delivery") of Vanderbilt substantially in the form of Exhibit
A hereto.
4. Subsequent Delivery of Documents. Vanderbilt shall deliver each
Recorded Document (or if the recording office in the applicable jurisdiction
retains the original Mortgage or original assignment or the original Mortgage
or original assignment has been lost, a copy of such item certified by the
applicable recording office) to the Custodian no later than the earlier of (1)
five Business Days after receipt thereof and (ii) within 180 days of the
Closing Date. In addition, within that same time period, Vanderbilt shall
deliver to the Custodian any other original documents constituting a part of
the Files.
5. Maintenance of Office. The Custodian agrees to maintain the
Delivered Land-and-Home Contract Files for each Land-and-Home Contract and the
Delivered Mortgage Loan Files for each Mortgage Loan identified in the
Schedule at the office of the Custodian located at
_________________________________, or at such other offices of the Custodian
in the State of _______ as the Custodian shall designate from time to time
after giving the Servicer and the Trustee at least 10 days' prior written
notice.
6. Standard of Care and Limitation on Liability of the Custodian. The
Custodian shall not be subject to liability for any loss with respect to the
Files; provided, however, that the Custodian shall use its best judgment and
perform its duties under this Agreement in good faith and in accordance with
customary standards for such custody; and provided, however, that the
provisions of this paragraph shall not be construed to relieve the Custodian
from liability from its own negligence, or its own wilful misconduct or any
breach by the Custodian of any of its obligations hereunder.
7. Duties of the Custodian. The Custodian shall have the following
rights and obligations and shall perform the following duties with respect to
the Files in its possession:
(a) Safekeeping. To segregate the Files from all other mortgages and
mortgage notes and similar records in its possession, to maintain the
Files in secure, fireproof facilities, to identify the Files as being
held and to hold the Files for and on behalf of the Trustee for the
benefit of all present and future Certificateholders, and to conduct
periodic physical inspections of the Files held by it under this
Agreement in such a manner as shall enable the Custodian to verify
the physical possession thereof. The Custodian will promptly report
to the Servicer and the Trustee any failure on its part to hold the
Files as herein provided and promptly take appropriate action to
remedy any such failure.
(b) Certification as to File Contents.
(i) Within 45 days after the Custodian has received from (or
on behalf of) the Servicer actual possession of each File, the
Custodian shall (a) verify that, with respect to each File, all
documents listed on the Certificate of Delivery have been executed,
received and recorded, if applicable, except as noted on the list of
exceptions attached thereto, and (b) deliver to the Servicer and the
Trustee an Initial Certificate of Receipt, substantially in the form
of Exhibit B-1 attached hereto, which ascertains that all required
documents have been executed, received and recorded, if applicable.
After the delivery of the Initial Certificate of Receipt, the
Custodian shall provide to Vanderbilt and the Trustee, no less
frequently than quarterly, updated certifications, in the form of
Exhibit B-2, indicating the current status of exceptions until all
such exceptions have been eliminated.
(ii) In making such a review, the Custodian makes no
representation and has no responsibilities as to the authenticity of
such documents or their compliance with applicable law, including but
not limited to their compliance with the requirements for
recordation, the correctness of the legal description contained in
any document or the collectibility of any of the loan amounts from
any borrower. In making such verification, the Custodian may rely
conclusively on the Schedule attached hereto and the Certificate of
Delivery, and the Custodian shall have no obligation to independently
verify the correctness of the Schedule or the Certificate of
Delivery.
(iii) If (a) any discrepancy exists between the Files in the
possession of the Custodian and the Schedule or (b) any document or
documents constituting a part of a File (the contents of which are
indicated in the Certificate of Delivery) has been omitted or is
defective in any material respect, the Custodian shall promptly
notify the Servicer and the Trustee and deliver an exceptions report
(the "Exceptions Report") as promptly as possible but in any event
within 45 days of the date of receipt of the Files. Except as
specifically provided above, the Custodian shall be under no duty to
review, inspect or examine such documents to determine that any of
them are enforceable or appropriate for their prescribed purpose.
(c) Administration; Reports. The Custodian shall, at the expense of
the Servicer and any subservicer, assist the Servicer and any
subservicer generally in the preparation of reports to
Certificateholders or to regulatory bodies to the extent necessitated
by the Custodian's custody of the Files.
(d) Release of Documents. Upon receipt of a Request for Release (a
"Request for Release") (substantially in the form attached hereto as
Exhibit C), to release all or a portion of any File to the Servicer,
the Trustee, or the designee of either the Servicer or the Trustee, in
accordance with the instructions furnished by the Servicer, and to
cooperate on behalf of the Trustee in such release of Files. All
documents so released to the Servicer, the Trustee or their respective
designees shall be held by such entity in trust for the benefit of the
Certificateholders. Unless such Land-and-Home Contract or Mortgage Loan
has been liquidated, the Servicer, the Trustee or their respective
designees shall return to the Custodian such released documents when
such documents are no longer needed for the purpose set forth in the
Request for Release.
8. Access to Records. The Custodian shall permit the Trustee,
_________________ (the "Separate Trustee"), the Servicer and any subservicer
appointed by the Servicer and identified by the Trustee to the Custodian, or
their duly authorized representatives, attorneys or auditors to inspect the
Files and the books and records maintained by the Custodian at such time as
the Trustee, the Separate Trustee, the Servicer or any subservicer may
reasonably request, subject only to compliance by the Trustee, the Separate
Trustee, the Servicer or any subservicer with the security procedures of the
Custodian applied by the Custodian to its own employees having access to these
and similar records.
9. Instructions; Authority to Act. The Custodian shall be deemed to
have received proper instructions with respect to the Files upon receipt of
written notice, request, consent, certificate, order, affidavit, letter,
telegram or other document reasonably believed by it to be genuine and to have
been signed or sent by the proper party or parties and may be considered as in
full force and effect until receipt of written notice to the contrary by the
Custodian from the Trustee, the Separate Trustee, the Servicer or any
subservicer; provided, however, that the provision of this paragraph shall not
be construed to relieve the Custodian, its officers, directors, employees,
agents or other representatives from liability from its own negligence or its
own wilful misconduct.
10. Indemnification of the Custodian. Vanderbilt agrees to indemnify
the Custodian for any and all liabilities, obligations, losses, damages,
payments, costs or expenses of any kind whatsoever (including reasonable
attorneys fees) which may be imposed on, incurred or asserted against the
Custodian as the result of any act or omission in any way relating to the
maintenance and custody by the Custodian of the Files; provided, however, that
Vanderbilt shall not be liable for any portion of any such amount resulting
from the gross negligence or wilful misconduct of the Custodian.
11. Indemnification of the Trustee. Vanderbilt agrees to indemnify
the Trustee for any and all liabilities, obligations, losses, damages,
payments, costs or expenses of any kind whatsoever (including reasonable
attorneys fees) which may be imposed on, incurred or asserted against the
Trustee as the result of any act or omission in any way relating to or arising
out of the maintenance and custody by the Custodian of the Files or the
performance by the Custodian, Vanderbilt or any Servicer of their respective
duties hereunder; provided, however, that Vanderbilt shall not be liable for
any portion of any such amount resulting from the gross negligence or wilful
misconduct of the Trustee.
12. Advice of Counsel. The Custodian shall be entitled to rely and
act upon written advice of counsel with respect to its performance hereunder
as custodian and shall be without liability for any action reasonably taken
pursuant to such advice, provided that such action is not in violation of
applicable Federal or State law and Vanderbilt shall reimburse the Custodian
for the reasonable attorneys' fees of the Custodian.
13. [Custodian] Not to Resign. [Custodian] shall not resign from its
obligations and duties as Custodian hereby imposed on it except (a) 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 [Custodian] so causing
such a conflict being of a type and nature carried on by [Custodian] or its
subsidiaries or affiliates at the date of this Agreement or (b) upon
satisfaction of the following conditions: (i) [Custodian] has proposed a
successor custodian to the Trustee in writing and such proposed successor is
reasonably acceptable to the Trustee; and (ii) [Rating Agency] or its
successor in interest and [Rating Agency] or its successor in interest shall
have delivered a letter to the Trustee prior to the appointment of the
successor stating that the proposed appointment of such successor of
[Custodian] hereunder will not result in the reduction or withdrawal of the
then current rating of the Certificates; provided, however, that no such
resignation by [Custodian] shall become effective until its successor or, in
the case of (a) above, the Trustee or a custodian appointed by the Trustee and
acceptable to [Rating Agency] and [Rating Agency] shall have assumed
[Custodian]'s responsibilities and obligations hereunder. Any such
determination permitting the resignation of [Custodian] pursuant to clause (a)
above shall be evidenced by an opinion of counsel to such effect reasonably
satisfactory to the Trustee and delivered to Vanderbilt and the Trustee
concurrently with the delivery of any notice of resignation.
14. Effective Period, Termination and Amendment. This Agreement shall
become effective as of the date hereof and shall continue in full force and
effect until terminated as hereinafter provided, and may be amended at any
time by mutual agreement of the parties hereto. This Agreement may be
terminated by the Trustee with or without cause in a writing delivered or
mailed, postage prepaid, to the other parties, such termination to take effect
no sooner than sixty (60) days after the date of such delivery or mailing.
Concurrently with, or as soon as practicable after, the termination of this
Agreement, the Custodian shall redeliver the Files to the Trustee or a person
designated by the Trustee at such place as the Trustee or the person
designated by the Trustee may reasonably designate.
15. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York.
16. Notices. All demands, notices and communications hereunder shall
be in writing and shall be delivered or mailed, postage prepaid, to the
Trustee at _______________________________, Attention:
____________________________; to the Custodian at ___________________________,
Attention: ___________________________; to the Servicer or Vanderbilt at 500
Alcoa Trail, Maryville, TN 37804, Attention: President; or to such other
address as the Trustee, the Custodian, the Servicer or Vanderbilt may
hereafter specify in writing. Notices or other writings shall be effective
only upon actual receipt by the parties.
17. Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the Trustee, the Custodian, Vanderbilt, in its
individual capacity, the Servicer and their respective successors and assigns.
Concurrently with the appointment of a successor trustee as provided in the
Pooling Agreement, the parties hereto shall amend this Agreement to make said
successor trustee the successor to the Trustee hereunder.
18. Counterparts. This Agreement may be signed in any number of
counterparts each of which will be deemed an original, which taken together
shall constitute one and the same instrument.
19. Obligations of the Trustee. Nothing in this Agreement shall be
deemed to release the Trustee from any of its obligations under the Pooling
Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
_______________________________,
as Trustee
By: ___________________________
Name:
Title:
________________________________,
as Custodian
By: _____________________________
Name:
Title:
VANDERBILT MORTGAGE AND
FINANCE, INC.
individually and as Servicer
By: _____________________________
Name:
Title:
APPENDIX A
(Series 1999__ Pooling and Servicing Agreement)
SCHEDULE I
(Schedule of Land-and-Home Contracts and Mortgage Loans)
EXHIBIT A TO THE CUSTODIAL AGREEMENT
CERTIFICATE OF DELIVERY
The undersigned hereby certifies that the documents listed below,
except as noted on the list of exceptions attached hereto, are included in the
Delivered Land-and-Home Contract Files and the Delivered Mortgage Loan Files
delivered to the Custodian pursuant to the terms of the Custodial Agreement,
dated ________ __, 1999 (the "Custodial Agreement"), among _________
______________, as trustee (the "Trustee"), _________________________, as
custodian (the "Custodian") and Vanderbilt Mortgage and Finance, Inc.
("Vanderbilt") for each contract on the Schedule:
(1) with respect to each Land-and-Home Contract,
(a) the original of the Land-and-Home Contract, and, in the case of
each Bi-weekly Contract, the original of the bi-weekly rider for such
Contract, and, in the case of each Escalating Principal Payment
Contract, the original of the graduated payment rider for such
Contract;
(b) the original related Mortgage with evidence of recording thereon
and any title document for the related Manufactured Home;
(c) with respect to any Land-and-Home Contract not originated by
Vanderbilt, the assignment of the Land-and-Home Contract from the
originator to Vanderbilt with evidence of recording thereon;
(d) with respect to any Land-and-Home Contract originated by
Vanderbilt, an endorsement of such Land-and-Home Contract by
Vanderbilt with recourse;
(e) with respect to the Land-and-Home Contracts located in the ten
states listed on Exhibit D to the Custodial Agreement, the Opinion of
Counsel specified in Section 3(1)(e) of the Custodial Agreement;
provided, however, if Vanderbilt failed to deliver such an Opinion of
Counsel for any of the states listed on Exhibit D to the Custodial
Agreement, with respect to the Land-and-Home Contracts located in
those states, the original executed assignment of the Mortgage, with
evidence of recording thereon, showing the assignment from Vanderbilt
to the Trustee or to the separate trustee, as applicable; and
(f) any extension, waiver or modification agreement(s) for each
Land-and-Home Contract on the Schedule.
(2) with respect to each Mortgage Loan,
(a) the original related Mortgage, with evidence of recording indicated
thereon;
(b) the original assignment and any intervening assignments of the
Mortgage, with evidence of recording thereon, showing a complete
chain of assignment of the Mortgage Loan from origination of the
Mortgage Loan to Vanderbilt;
(c) the original assignment, with evidence of recording thereon,
showing the assignment from Vanderbilt to the Trustee or to the
separate trustee, as applicable; and
(d) any extension, modification or waiver agreement(s) for each
Mortgage Loan on the Schedule.
In lieu of the items to be recorded and delivered pursuant to Sections (1)(b),
(1)(c), (1)(e), (2)(a), (2)(b) and (2)(c) above (the "Recorded Documents"), if
the original Mortgage or assignment has not been returned by the applicable
recording office or is not otherwise available, Vanderbilt has provided the
Custodian with a copy thereof together with an Officer's Certificate (which
may be a blanket Officer's Certificate of Vanderbilt covering all such
Mortgages and assignments) certifying that the copy is a true and correct copy
of the original Mortgage or original assignment, as applicable, submitted for
recording, which will be (1) replaced by the original Mortgage or original
assignment when it is so returned or (2) if the recording office in the
applicable jurisdiction retains the original Mortgage or original assignment
or the original Mortgage or original assignment has been lost, a copy of such
item certified by the applicable recording office.
In accordance with Section 4 of the Custodial Agreement, Vanderbilt
shall deliver to the Custodian any additional items required pursuant to
Custodial Agreement within the time period specified therein.
Capitalized terms not otherwise defined herein shall have the meaning
set forth in the Custodial Agreement.
Dated: VANDERBILT MORTGAGE AND FINANCE, INC.,
as Servicer
By:__________________________________
Name:
Title:
EXHIBIT B-1 TO THE CUSTODIAL AGREEMENT
INITIAL CERTIFICATE OF RECEIPT
_________________________,
as Trustee
_____________________
___________
_________________________
Attention: ________________________________
Vanderbilt Mortgage and Finance, Inc.
500 Alcoa Trail
Maryville, TN 37802
Re: Custodial Agreement, dated as of ________ __, 1999, among
[Trustee], [Custodian] and Vanderbilt Mortgage and Finance,
Inc.
-----------------------------------------------------------
Ladies and Gentlemen:
The undersigned hereby acknowledges receipt on this ___ day of
__________ 1998 of the Certificate of Delivery and the Delivered Land-and-Home
Contract Files and the Delivered Mortgage Loan Files. Subject to the Custodial
Agreement, dated ________ __, 1999, among ________________________, as trustee
(the "Trustee"), _________________________, as custodian (the "Custodian") and
Vanderbilt Mortgage and Finance, Inc. ("Vanderbilt" or in its capacity as
servicer, the "Servicer") (the "Custodial Agreement"), the undersigned hereby
certifies that it has reviewed each of the Files listed on the Schedule and
that it is holding, on behalf of the Trustee and for the benefit of the
Certificateholders, the following items (except as noted on the list of
exceptions attached hereto):
(1) with respect to each Land-and-Home Contract,
(a) the original of the Land-and-Home Contract, and, in the case of
each Bi-weekly Contract, the original of the bi-weekly rider for such
Contract, and, in the case of each Escalating Principal Payment
Contract, the original of the graduated payment rider for such
Contract;
(b) the original related Mortgage with evidence of recording thereon
and any title document for the related Manufactured Home;
(c) with respect to any Land-and-Home Contract not originated by
Vanderbilt, the assignment of the Land-and-Home Contract from the
originator to Vanderbilt with evidence of recording thereon;
(d) with respect to any Land-and-Home Contract originated by
Vanderbilt, an endorsement of such Land-and-Home Contract by
Vanderbilt without recourse;
(e) (1) with respect to the Land-and-Home Contracts located in the
ten states with the highest concentration of Land-and-Home Contracts
(listed on Exhibit D to the Custodial Agreement), an Opinion of
Counsel to the effect that Vanderbilt need not cause to be recorded
any assignment which relates to Land-and-Home Contracts in such
states to protect the Trustee's and the Certificateholders' interest
in such Land-and-Home Contracts; or
(2) if the above-referenced Opinion of Counsel is not delivered with
respect to any of the ten states listed on Exhibit D to the Custodial
Agreement, with respect to the Land-and-Home Contracts located in
those states, an original executed assignment of the Mortgage, with
evidence of recording thereon, showing the assignment from Vanderbilt
to the Trustee or to the separate trustee, as applicable; and
(f) any extension, waiver or modification agreement(s) of which the
Custodian is aware for each Land-and-Home Contract on the Schedule.
(2) with respect to each Mortgage Loan,
(a) the original related Mortgage, with evidence of recording indicated
thereon;
(b) the original assignment and any intervening assignments of the
Mortgage, with evidence of recording thereon, showing a complete
chain of assignment of the Mortgage Loan from origination of the
Mortgage Loan to Vanderbilt;
(c) the original assignment, with evidence of recording thereon,
showing the assignment from Vanderbilt to the Trustee or to the
separate trustee, as applicable; and
(d) any extension, modification or waiver agreement(s) of which the
Custodian is aware for each Mortgage Loan on the Schedule.
In lieu of the items to be recorded and delivered pursuant to
Sections (1)(b), (1)(c), (1)(e), (2)(a), (2)(b) and (2)(c) above (the
"Recorded Documents"), if the original Mortgage or assignment has not been
returned by the applicable recording office or is not otherwise available, the
Custodian has received a copy thereof together with an Officer's Certificate
certifying that the copy is a true and correct copy of the original Mortgage
or original assignment, as applicable, submitted for recording, which will be
(1) replaced by the original Mortgage or original assignment when it is so
returned or (2) if the recording office in the applicable jurisdiction retains
the original Mortgage or original assignment or the original Mortgage or
original assignment has been lost, a copy of such item certified by the
applicable recording office.
Pursuant to Section 7(b) of the Custodial Agreement, the Custodian
will provide an updated certification to Vanderbilt and the Trustee, no less
frequently than quarterly, indicating the current status of exceptions until
all such exceptions have been eliminated.
The undersigned agrees to hold the Files strictly in accordance with
the Custodial Agreement and shall perform its duties as explicitly set forth
thereunder, and shall have no other duties thereunder. Terms not otherwise
defined herein shall have the meaning set forth in the Custodial Agreement.
[Custodian]
By:______________________________
Name:
Title:
EXHIBIT B-2 TO THE CUSTODIAL AGREEMENT
FORM OF UPDATED CERTIFICATION
_________________________,
as Trustee
_____________________
___________
_________________________
Attention: ________________________________
Vanderbilt Mortgage and Finance, Inc.
500 Alcoa Trail
Maryville, TN 37804
Re: Custodial Agreement, dated as of _______ __, 1999, among
[Trustee], [Custodian] and Vanderbilt Mortgage and Finance, Inc.
----------------------------------------------------------------
Ladies and Gentlemen:
In accordance with Section 7 of the above-referenced Custodial
Agreement, the undersigned, as Custodian, hereby sets forth an updated
exception report from the previous Custodian's Certificate issued [INSERT
DATE].
The undersigned agrees to hold the Files strictly in accordance with
the Custodial Agreement and shall perform its duties as explicitly set forth
thereunder, and shall have no other duties thereunder. Terms not otherwise
defined herein shall have the meaning set forth in the Custodial Agreement.
[Custodian]
By:_______________________________
Name:
Title:
EXHIBIT C TO THE CUSTODIAL AGREEMENT
REQUEST FOR RELEASE OF DOCUMENTS
- --------------------------------------------------------------------------------
TO: [Custodian] DATE:
___________________________
___________________________
___________________________
___________________________
FROM: ___________________________
___________________________
___________________________
___________________________
RE: Custodial Agreement, dated as of ________ __, 1999 (the "Custodial
Agreement"), among ________________________, as trustee,
___________________________, as custodian and Vanderbilt Mortgage and Finance,
Inc., individually and as Servicer.
- --------------------------------------------------------------------------------
IN CONNECTION WITH THE ADMINISTRATION OF THE FILES HELD BY YOU IN CUSTODY FOR
[TRUSTEE] AND PURSUANT TO THE CUSTODIAL AGREEMENT, THE UNDERSIGNED REQUESTS THE
RELEASE OF THE DOCUMENTS DESCRIBED BELOW FOR THE REASON INDICATED.
- --------------------------------------------------------------------------------
OBLIGOR'S NAME, ADDRESS AND ZIP CODE LOAN NO.
POOL ID
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ORIGINAL CONTRACT AMOUNT............................ $___________
DATE OF ORIGINAL CONTRACT........................... ___________
- -----------
PAID THROUGH DATE................................... ___________
- --------------------------------------------------------------------------------
REASON FOR REQUESTING DOCUMENTS AMOUNT SETTLEMENT
DATE
[ ] CONTRACT PAID IN FULL $________ _______________
[ ] FORECLOSURE $________ __________
[ ] EXHIBITS ATTACHED FOR SUBSTITUTION $________ __________
[ ] OTHER (explain)___________________ $________ __________
WE CERTIFY THAT ALL AMOUNTS RECEIVED OR TO BE RECEIVED IN CONNECTION WITH SUCH
PAYMENT WHICH ARE REQUIRED TO BE CREDITED TO THE PROTECTED ACCOUNT OR
DEPOSITED TO THE CERTIFICATE ACCOUNT HAVE BEEN OR, WITHIN TWO BUSINESS DAYS,
RECEIPT OF SUCH PAYMENT WILL BE CREDITED OR DEPOSITED.
- --------------------------------------------------------------------------------
SIGNATURE DATE
- --------------------------------------------------------------------------------
PARTICIPANT AUTHORIZED SIGNATURE
- --------------------------------------------------------------------------------
[CUSTODIAN'S] RELEASE AUTHORIZATION
- --------------------------------------------------------------------------------
NAME AND TITLE SIGNATURE DATE
- --------------------------------------------------------------------------------
TO CUSTODIAN: PLEASE ACKNOWLEDGE BELOW BY YOUR SIGNATURE THE EXECUTION OF THE
ABOVE REQUEST. YOU MUST RETAIN THIS FORM FOR YOUR FILES.
DOCUMENT RETURNED TO CUSTODY:
- ----------------------------- -------------
SIGNATURE DATE
EXHIBIT D TO THE CUSTODIAL AGREEMENT
LIST OF TEN STATES WITH HIGHEST CONCENTRATION
OF LAND-AND-HOME CONTRACT FILES
EXHIBIT B-1
FORM OF FACE OF CLASS [I A-1][I A-2][I A-3]
[I A-4][I A-5][I A-6] CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS
CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE
MORTGAGE INVESTMENT CONDUIT" AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE
INTERNAL REVENUE CODE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE
TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO
CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
[FOR CLASS I A-6 ONLY: THIS CERTIFICATE IS SUBORDINATED
IN RIGHT OF PAYMENT TO THE CLASS I A-1, CLASS I A-2,
CLASS I A-3 CLASS I A-4 AND CLASS I A-5 CERTIFICATES AS
DESCRIBED IN THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN.]
Number ______
Date of Pooling and Original Denomination
Servicing Agreement and $ ___________________
Cut-off Date:
_______ __, 1999 Original Class [I A-1][I A-2]
[I A-3][I A-4][I A-5][I A-6]
Principal Balance:
Class [I A-1][I A-2][I A-3] $[__________]
[I A-4][I A-5][I A-6] $[__________]
Remittance Rate: As specified $[__________]
in the Pooling and Servicing $[__________]
Agreement referred to herein $[__________]
$[ _________]
Remittance Date after
Latest Due Date: ____ __, ____
First Remittance Date: CUSIP _______________
_____ __, 1999
MANUFACTURED HOUSING CONTRACT SENIOR/SUBORDINATE
PASS-THROUGH CERTIFICATE
SERIES 1999_, CLASS [I A-1][I A-2][I A-3][I A-4][I A-5][I A-6]
[(SENIOR)][(SUBORDINATE)]
evidencing a percentage interest in any
distributions allocable to the Class [I A-1][I
A-2][I A-3][I A-4][I A-5] [I A-6] Certificates with
respect to a pool of fixed rate conventional
manufactured housing contracts formed and sold by
VANDERBILT MORTGAGE AND FINANCE, INC.
which manufactured housing contracts either were originated or acquired by and
are initially serviced by Vanderbilt Mortgage and Finance, Inc. (the
"Servicer").
This Certificate does not represent an obligation of or interest in
Vanderbilt Mortgage and Finance, Inc., the Servicer or the Trustee referred to
below or any of their Affiliates. Neither this Certificate nor the underlying
manufactured housing contracts are guaranteed or insured by Vanderbilt
Mortgage and Finance, Inc., the Servicer or by any governmental agency or
instrumentality.
THE PORTION OF THE ORIGINAL CLASS [I A-1][I A-2][I A-3] [I A-4][I
A-5][I A-6] PRINCIPAL BALANCE EVIDENCED BY THIS CERTIFICATE ("CERTIFICATE
BALANCE") WILL BE REDUCED BY DISTRIBUTIONS ON THIS CERTIFICATE THAT ARE
ALLOCABLE TO PRINCIPAL. ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE
CERTIFICATES, THE CERTIFICATE BALANCE OF THIS CERTIFICATE WILL BE DIFFERENT
FROM THE ORIGINAL DENOMINATION SHOWN ABOVE. ANYONE ACQUIRING THIS CERTIFICATE
MAY ASCERTAIN ITS CURRENT CERTIFICATE BALANCE BY INQUIRY OF THE PAYING AGENT.
On the date of the initial issuance of the Certificates, the Paying Agent is
the Trustee.
This certifies that _________. is the registered owner of an
undivided interest in certain monthly distributions with respect to a pool
(the "Contract Pool") of conventional manufactured housing installment sales
contracts, installment loan agreements and mortgage loans (collectively, the
"Contracts") formed and sold by Vanderbilt Mortgage and Finance, Inc.
(hereinafter called the "Company," which term includes any successor entity
under the Agreement referred to below) and certain other property
(collectively, the "Trust Fund"). The Contracts either were originated or
acquired by and are serviced by the Servicer and are secured by Manufactured
Homes. The Trust Fund was created pursuant to a Pooling and Servicing
Agreement dated as specified above (the "Agreement"), by and among the
Company, as servicer[, Clayton Homes, Inc., as provider of the Limited
Guarantee] and ____________________, as trustee (the "Trustee"), a summary of
certain of the pertinent provisions of which is set forth hereafter. To the
extent not defined herein, the capitalized terms used herein have the meanings
assigned in the Agreement.
This Certificate is one of a duly authorized issue of Certificates,
designated as Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Series 1999__ (the "Certificates"), and is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the acceptance hereof
assents and by which such Holder is bound.
On each Remittance Date, the Trustee will cause to be distributed
from funds in the Certificate Account to each Class [I A-1][I A-2][I A-3][I
A-4][I A-5][I A-6] Certificateholder an amount equal to the product of the
Percentage Interest evidenced by such Class [A-1][A-2][A-3][A-4][A-5][A-6]
Certificateholder's Certificate and the Class [I A-1][I A-2][I A-3][I A-4][I
A-5][I A-6] Distribution Amount.
Distributions on this Certificate will be made by check mailed to the
address of the Person entitled thereto, as such name and address shall appear
on the Certificate Register or by wire transfer to Holders of Class [I A-1][I
A-2][I A-3][I A-4][I A-5][I A-6] Certificates with original denominations
aggregating at least $5 million who have given the Trustee written
instructions at least five Business Days prior to the related Record Date.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or
agency appointed by the Trustee for that purpose and specified in such notice
of final distribution.
[For Class I A-6 only] Unless the Opinion of Counsel as to certain
ERISA matters required by Section 4.02(b) of the Agreement has been delivered
to the Trustee in connection with this Certificate, the Holder of this
Certificate represents, by virtue of its acceptance hereof, that it is not an
employee benefit plan subject to Section 406 of ERISA or Section 4975 of the
Code or a Person acting on behalf of such a plan or using the assets of such a
plan to acquire this Certificate.
Reference is hereby made to the further provisions of this
Certificate set forth hereafter, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless this Certificate has been countersigned by or on behalf of the
Trustee, by manual signature, this Certificate shall not be entitled to any
benefit under the Agreement or be valid for any purpose.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated:
________________________,
as Trustee
By ______________________________
Authorized Officer
[Form of Certificate of
Countersignature]
This is one of the Certificates
referred to in the within-
mentioned Agreement.
By______________________________ By______________________________,
OR
Authenticating Agent Trustee
______________________________ ______________________________
Authorized Signatory Authorized Signatory
[Signature page to Class [I A-1][I A-2][I A-3][I A-4][I A-5][I A-6]
Certificate, Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Series 1999_]
EXHIBIT B-2
FORM OF FACE OF CLASS II A-1 CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS
CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE
MORTGAGE INVESTMENT CONDUIT" AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE
INTERNAL REVENUE CODE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE
TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO
CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
Number______
Date of Pooling and Original Denomination
Servicing Agreement and $____________________
Cut-off Date:
_______ __, 1999 Original Class II
Principal Balance:
Class II A-1 $[__________]
Remittance Rate: As specified
in the Pooling and Servicing
Agreement referred to herein
Remittance Date after
Latest Due Date: ____ __, ____
First Remittance Date: CUSIP _______________
_____ __, 1999
MANUFACTURED HOUSING CONTRACT SENIOR/SUBORDINATE
PASS-THROUGH CERTIFICATE
SERIES 1999__, CLASS II A-1
(SENIOR)
evidencing a percentage interest in any
distributions allocable to the Class II A-1
Certificates with respect to a pool of fixed rate
conventional manufactured housing contracts formed
and sold by
VANDERBILT MORTGAGE AND FINANCE, INC.
which manufactured housing contracts either were originated or acquired by and
are initially serviced by Vanderbilt Mortgage and Finance, Inc. (the
"Servicer").
This Certificate does not represent an obligation of or interest in
Vanderbilt Mortgage and Finance, Inc., the Servicer or the Trustee referred to
below or any of their Affiliates. Neither this Certificate nor the underlying
manufactured housing contracts are guaranteed or insured by Vanderbilt
Mortgage and Finance, Inc., the Servicer or by any governmental agency or
instrumentality.
THE PORTION OF THE ORIGINAL CLASS II A-1 PRINCIPAL BALANCE EVIDENCED
BY THIS CERTIFICATE ("CERTIFICATE BALANCE") WILL BE REDUCED BY DISTRIBUTIONS
ON THIS CERTIFICATE THAT ARE ALLOCABLE TO PRINCIPAL. ACCORDINGLY, FOLLOWING
THE INITIAL ISSUANCE OF THE CERTIFICATES, THE CERTIFICATE BALANCE OF THIS
CERTIFICATE WILL BE DIFFERENT FROM THE ORIGINAL DENOMINATION SHOWN ABOVE.
ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CURRENT CERTIFICATE
BALANCE BY INQUIRY OF THE PAYING AGENT. On the date of the initial issuance of
the Certificates, the Paying Agent is the Trustee.
This certifies that _________. is the registered owner of an
undivided interest in certain monthly distributions with respect to a pool
(the "Contract Pool") of conventional manufactured housing installment sales
contracts, installment loan agreements and mortgage loans (collectively, the
"Contracts") formed and sold by Vanderbilt Mortgage and Finance, Inc.
(hereinafter called the "Company," which term includes any successor entity
under the Agreement referred to below) and certain other property
(collectively, the "Trust Fund"). The Contracts either were originated or
acquired by and are serviced by the Servicer and are secured by Manufactured
Homes. The Trust Fund was created pursuant to a Pooling and Servicing
Agreement dated as specified above (the "Agreement"), by and among the
Company, as servicer[, Clayton Homes, Inc., as provider of the Limited
Guarantee] and _________________, as trustee (the "Trustee"), a summary of
certain of the pertinent provisions of which is set forth hereafter. To the
extent not defined herein, the capitalized terms used herein have the meanings
assigned in the Agreement.
This Certificate is one of a duly authorized issue of Certificates,
designated as Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Series 1999__ (the "Certificates"), and is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the acceptance hereof
assents and by which such Holder is bound.
On each Remittance Date, the Trustee will cause to be distributed
from funds in the Certificate Account to each Class II A-1 Certificateholder
an amount equal to the product of the Percentage Interest evidenced by such
Class II A-1 Certificateholder's Certificate and the Class II A-1 Distribution
Amount.
Distributions on this Certificate will be made by check mailed to the
address of the Person entitled thereto, as such name and address shall appear
on the Certificate Register or by wire transfer to Holders of Class II A-1
Certificates with original denominations aggregating at least $5 million who
have given the Trustee written instructions at least five Business Days prior
to the related Record Date. Notwithstanding the above, the final distribution
on this Certificate will be made after due notice by the Trustee of the
pendency of such distribution and only upon presentation and surrender of this
Certificate at the office or agency appointed by the Trustee for that purpose
and specified in such notice of final distribution.
Reference is hereby made to the further provisions of this
Certificate set forth hereafter, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless this Certificate has been countersigned by or on behalf of the
Trustee, by manual signature, this Certificate shall not be entitled to any
benefit under the Agreement or be valid for any purpose.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated:
______________________________,
as Trustee
By ______________________________
Authorized Officer
[Form of Certificate of
Countersignature]
This is one of the Certificates
referred to in the within-
mentioned Agreement.
By ______________________________ By______________________________,
OR
Authenticating Agent Trustee
______________________________ ______________________________
Authorized Signatory Authorized Signatory
[Signature page to Class II A-1 Certificate, Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates, Series 1999__]
EXHIBIT B-3
FORM OF FACE OF CLASS I M-1 CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS
CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE
MORTGAGE INVESTMENT CONDUIT" AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE
INTERNAL REVENUE CODE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE
TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO
CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO
THE CLASS I A-1, CLASS I A-2, CLASS I A-3 CLASS I A-4,
CLASS I A-5 AND CLASS I A-6 CERTIFICATES AS DESCRIBED
IN THE POOLING AND SERVICING AGREEMENT REFERRED TO
HEREIN.
Number_______
Date of Pooling and Original Denomination
Servicing Agreement and $____________________
Cut-off Date:
_______ __, 1999 Original Class M-1
Principal Balance:
Class I M-1 $[__________]
Remittance Rate: As specified
in the Pooling and Servicing
Agreement referred to herein
Remittance Date after
Latest Due Date: ____ __, ____
First Remittance Date: CUSIP _______________
_____ __, 1999
MANUFACTURED HOUSING CONTRACT SENIOR/SUBORDINATE
PASS-THROUGH CERTIFICATE
SERIES 1999__, CLASS I M-1
(SUBORDINATE)
evidencing a percentage interest in any
distributions allocable to the Class I M-1
Certificates with respect to a pool of fixed rate
conventional manufactured housing contracts formed
and sold by
VANDERBILT MORTGAGE AND FINANCE, INC.
which manufactured housing contracts either were originated or acquired by and
are initially serviced by Vanderbilt Mortgage and Finance, Inc. (the
"Servicer").
This Certificate does not represent an obligation of or interest in
Vanderbilt Mortgage and Finance, Inc., the Servicer or the Trustee referred to
below or any of their Affiliates. Neither this Certificate nor the underlying
manufactured housing contracts are guaranteed or insured by Vanderbilt
Mortgage and Finance, Inc., the Servicer or by any governmental agency or
instrumentality.
THE PORTION OF THE ORIGINAL CLASS I M-1 PRINCIPAL BALANCE EVIDENCED
BY THIS CERTIFICATE ("CERTIFICATE BALANCE") WILL BE REDUCED BY DISTRIBUTIONS
ON THIS CERTIFICATE THAT ARE ALLOCABLE TO PRINCIPAL. ACCORDINGLY, FOLLOWING
THE INITIAL ISSUANCE OF THE CERTIFICATES, THE CERTIFICATE BALANCE OF THIS
CERTIFICATE WILL BE DIFFERENT FROM THE ORIGINAL DENOMINATION SHOWN ABOVE.
ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CURRENT CERTIFICATE
BALANCE BY INQUIRY OF THE PAYING AGENT. On the date of the initial issuance of
the Certificates, the Paying Agent is the Trustee.
This certifies that _________. is the registered owner of an
undivided interest in certain monthly distributions with respect to a pool
(the "Contract Pool") of conventional manufactured housing installment sales
contracts, installment loan agreements and mortgage loans (collectively, the
"Contracts") formed and sold by Vanderbilt Mortgage and Finance, Inc.
(hereinafter called the "Company," which term includes any successor entity
under the Agreement referred to below) and certain other property
(collectively, the "Trust Fund"). The Contracts either were originated or
acquired by and are serviced by the Servicer and are secured by Manufactured
Homes. The Trust Fund was created pursuant to a Pooling and Servicing
Agreement dated as specified above (the "Agreement"), by and among the
Company, as servicer[, Clayton Homes, Inc., as provider of the Limited
Guarantee] and ____________________, as trustee (the "Trustee"), a summary of
certain of the pertinent provisions of which is set forth hereafter. To the
extent not defined herein, the capitalized terms used herein have the meanings
assigned in the Agreement.
This Certificate is one of a duly authorized issue of Certificates,
designated as Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Series 1999__ (the "Certificates"), and is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the acceptance hereof
assents and by which such Holder is bound.
On each Remittance Date, the Trustee will cause to be distributed
from funds in the Certificate Account to each Class I M-1 Certificateholder an
amount equal to (i) the product of the Percentage Interest evidenced by such
Class I M-1 Certificateholder's Certificate and (ii) subject to the prior
rights of Holders of Class IA Certificates as specified in the Agreement, the
Class I M-1 Distribution Amount.
Distributions on this Certificate will be made by check mailed to the
address of the Person entitled thereto, as such name and address shall appear
on the Certificate Register or by wire transfer to Holders of Class I M-1
Certificates with original denominations aggregating at least $5 million who
have given the Trustee written instructions at least five Business Days prior
to the related Record Date. Notwithstanding the above, the final distribution
on this Certificate will be made after due notice by the Trustee of the
pendency of such distribution and only upon presentation and surrender of this
Certificate at the office or agency appointed by the Trustee for that purpose
and specified in such notice of final distribution.
Unless the Opinion of Counsel as to certain ERISA matters required by
Section 4.02(b) of the Agreement has been delivered to the Trustee in
connection with this Certificate, the Holder of this Certificate represents,
by virtue of its acceptance hereof, that it is not an employee benefit plan
subject to Section 406 of ERISA or Section 4975 of the Code or a Person acting
on behalf of such a plan or using the assets of such a plan to acquire this
Certificate.
Reference is hereby made to the further provisions of this
Certificate set forth hereafter, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless this Certificate has been countersigned by or on behalf of the
Trustee, by manual signature, this Certificate shall not be entitled to any
benefit under the Agreement or be valid for any purpose.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated:
______________________________,
as Trustee
By ______________________________
Authorized Officer
[Form of Certificate of
Countersignature]
This is one of the Certificates
referred to in the within-
mentioned Agreement.
By______________________________ By______________________________,
OR
Authenticating Agent Trustee
______________________________ __________________________________
Authorized Signatory Authorized Signatory
[Signature page to Class I M-1 Certificate, Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates, Series 1999__]
EXHIBIT C-1
FORM OF FACE OF CLASS [I B-1][I B-2] CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS
CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE
MORTGAGE INVESTMENT CONDUIT" AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE
INTERNAL REVENUE CODE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE
TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO
CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
[FOR CLASS I B-1 CERTIFICATES ONLY: THIS CERTIFICATE IS
SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS I A AND
CLASS I M-1 CERTIFICATES AS DESCRIBED IN THE POOLING
AND SERVICING AGREEMENT REFERRED TO HEREIN.]
[FOR CLASS I B-2 CERTIFICATES ONLY] THIS CERTIFICATE IS
SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS I A,
CLASS I M-1 AND CLASS I B-1 CERTIFICATES AS DESCRIBED
IN THE POOLING AND SERVICING AGREEMENT REFERRED TO
HEREIN.
[FOR CLASS I B-2 CERTIFICATES ONLY: TO THE LIMITED
EXTENT DESCRIBED IN THE POOLING AND SERVICING AGREEMENT
THIS CERTIFICATE IS ENTITLED TO THE BENEFITS OF THE
LIMITED GUARANTEE OF CHI AS SET FORTH IN SECTION 6.06
THEREOF.]
Number _______
Date of Pooling and Original Denomination
Servicing Agreement and $____________________
Cut-off Date:
_______ __, 1999 Original Class [I B-1][I B-2]
Principal Balance:
Class [I B-1] [I B-2] Remittance
Rate: As specified in the $[_________] $[____________]
Pooling and Servicing Agreement
referred to herein.
Remittance Date after
Latest Due Date: ____ __, ____
First Remittance Date:
_____ __, 1999
CUSIP ______________
MANUFACTURED HOUSING CONTRACT SENIOR/SUBORDINATE
PASS-THROUGH CERTIFICATE
Series 1999__ CLASS [I B-1][I B-2] (SUBORDINATE)
evidencing a percentage interest in any distributions
allocable to the Class [I B-1][I B-2] Certificates with
respect to a pool of fixed rate conventional
manufactured housing contracts formed and sold by
VANDERBILT MORTGAGE AND FINANCE, INC.
which manufactured housing contracts either were originated or acquired by and
are initially serviced by Vanderbilt Mortgage and Finance, Inc. (the
"Servicer").
Except as set forth in the Pooling and Servicing Agreement, this
Certificate does not represent an obligation of or interest in Vanderbilt
Mortgage and Finance, Inc., the Servicer or the Trustee referred to below or
any of their Affiliates. Neither this Certificate nor the underlying
manufactured housing contracts are guaranteed or insured by Vanderbilt
Mortgage and Finance, Inc., the Servicer or by any governmental agency or
instrumentality.
THE PORTION OF THE ORIGINAL CLASS [I B-1][I B-2] PRINCIPAL BALANCE
EVIDENCED BY THIS CERTIFICATE ("CERTIFICATE BALANCE") WILL BE REDUCED BY
DISTRIBUTIONS ON THIS CERTIFICATE THAT ARE ALLOCABLE TO PRINCIPAL.
ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE CERTIFICATES, THE
CERTIFICATE BALANCE OF THIS CERTIFICATE WILL BE DIFFERENT FROM THE ORIGINAL
DENOMINATION SHOWN ABOVE. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS
CURRENT CERTIFICATE BALANCE BY INQUIRY OF THE PAYING AGENT. On the date of the
initial issuance of the Certificates, the Paying Agent is the Trustee.
This certifies that __________ is the registered owner of an
undivided interest in certain monthly distributions with respect to a pool
(the "Contract Pool") of conventional manufactured housing installment sales
contracts, installment loan agreements and mortgage loans (collectively, the
"Contracts") formed and sold by Vanderbilt Mortgage and Finance, Inc.
(hereinafter called the "Company," which term includes any successor entity
under the Agreement referred to below) and certain other property
(collectively, the "Trust Fund"). The Contracts either were originated or
acquired by and are serviced by the Servicer and are secured by Manufactured
Homes. The Trust Fund was created pursuant to a Pooling and Servicing
Agreement dated as specified above (the "Agreement"), by and among the
Company, as seller and servicer[, Clayton Homes, Inc., as provider of the
Limited Guarantee] and ___________________, as trustee (the "Trustee"), a
summary of certain of the pertinent provisions of which is set forth
hereafter. To the extent not defined herein, the capitalized terms used herein
have the meanings assigned in the Agreement.
This Certificate is one of a duly authorized issue of Certificates,
designated as Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Series 1999__ (the "Certificates"), and is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the acceptance hereof
assents and by which such Holder is bound.
On each Remittance Date, the Trustee will cause to be distributed to
each Class [I B-1][I B-2] Certificateholder an amount equal to the product of
(i) the Percentage Interest evidenced by such Class [B-1][B-2]
Certificateholder's Certificate and (ii) subject to the prior rights of
Holders of Class I A, Class I M-1 [and Class I B-1] Certificates as specified
in the Agreement, the Class [I B-1][I B-2] Distribution Amount.
Distributions on this Certificate will be made by check mailed to the
address of the Person entitled thereto, as such name and address shall appear
on the Certificate Register or by wire transfer to Holders of Class [I B-1] [I
B-2] Certificates with original denominations aggregating at least $5 million
who have given the Trustee written instructions at least five Business Days
prior to the related Record Date. Notwithstanding the above, the final
distribution on this Certificate will be made after due notice by the Trustee
of the pendency of such distribution and only upon presentation and surrender
of this Certificate at the office or agency appointed by the Trustee for that
purpose and specified in such notice of final distribution.
Unless the Opinion of Counsel as to ERISA matters required by Section
4.02(b) of the Agreement has been delivered to the Trustee in connection with
this Certificate, the holder of this Certificate represents, by virtue of its
acceptance hereof, that it is not an employee benefit plan subject to Section
406 of ERISA or Section 4975 of the Code or a person acting on behalf of such
a plan or using the assets of such a plan to acquire this Certificate.
Reference is hereby made to the further provisions of this
Certificate set forth hereafter, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless this Certificate has been countersigned by or on behalf of the
Trustee, by manual signature, this Certificate shall not be entitled to any
benefit under the Agreement or be valid for any purpose.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated:
______________________________,
as Trustee
By______________________________
Authorized Officer
[Form of Certificate of
Countersignature]
This is one of the Certificates
referred to in the within-
mentioned Agreement.
By______________________________ By______________________________,
OR
Authenticating Agent Trustee
______________________________ ______________________________
Authorized Signatory Authorized Signatory
[Signature page to Class [I B-1][I B-2]
Certificate, Manufactured Housing
Contract Senior/Subordinate
Pass-Through Certificates,
Series 1999__]
EXHIBIT C-2
FORM OF FACE OF CLASS [II B-1][II B-2][II B-3] CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS
CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE
MORTGAGE INVESTMENT CONDUIT" AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE
INTERNAL REVENUE CODE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE
TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO
CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.]
[[FOR CLASS II B-1 CERTIFICATES ONLY] THIS CERTIFICATE
IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS II A
CERTIFICATES AS DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT REFERRED TO HEREIN.]
[FOR CLASS II B-2 CERTIFICATES ONLY] THIS CERTIFICATE
IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS II A
AND CLASS II B-1 CERTIFICATES AS DESCRIBED IN THE
POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
[FOR CLASS II B-3 CERTIFICATES ONLY] THIS CERTIFICATE
IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS II A,
CLASS II B-1 AND CLASS II B-2 CERTIFICATES AS DESCRIBED
IN THE POOLING AND SERVICING AGREEMENT REFERRED TO
HEREIN.
[FOR CLASS II B-3 CERTIFICATES ONLY: TO THE LIMITED
EXTENT DESCRIBED IN THE POOLING AND SERVICING AGREEMENT
THIS CERTIFICATE IS ENTITLED TO THE BENEFITS OF THE
LIMITED GUARANTEE OF CHI AS SET FORTH IN SECTION 6.06
THEREOF.]
Number_________
Date of Pooling and Original Denomination
Servicing Agreement and $____________________
Cut-off Date:
_______ __, 1999 Original Class [II B-1][II B-2]
[II B-3] Principal Balance:
Class [II B-1] [II B-2]
[II B-3] Remittance
Rate: As specified in the $[_________] $[____________]
Pooling and Servicing Agreement
referred to herein.
Remittance Date after
Latest Due Date: ____ __, ____
First Remittance Date:
_____ __, 1999
MANUFACTURED HOUSING CONTRACT SENIOR/SUBORDINATE
PASS-THROUGH CERTIFICATE
Series 1999__ CLASS [II B-1][II B-2][II B-3](SUBORDINATE)
evidencing a percentage interest in any distributions
allocable to the Class [II B-1][II B-2][II B-3]
Certificates with respect to a pool of fixed rate
conventional manufactured housing contracts formed and
sold by
VANDERBILT MORTGAGE AND FINANCE, INC.
which manufactured housing contracts either were originated or acquired by and
are initially serviced by Vanderbilt Mortgage and Finance, Inc. (the
"Servicer").
Except as set forth in the Pooling and Servicing Agreement, this
Certificate does not represent an obligation of or interest in Vanderbilt
Mortgage and Finance, Inc., the Servicer or the Trustee referred to below or
any of their Affiliates. Neither this Certificate nor the underlying
manufactured housing contracts are guaranteed or insured by Vanderbilt
Mortgage and Finance, Inc., the Servicer or by any governmental agency or
instrumentality.
THE PORTION OF THE ORIGINAL CLASS [II B-1][II B-2][II B-3] PRINCIPAL
BALANCE EVIDENCED BY THIS CERTIFICATE ("CERTIFICATE BALANCE") WILL BE REDUCED
BY DISTRIBUTIONS ON THIS CERTIFICATE THAT ARE ALLOCABLE TO PRINCIPAL.
ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE CERTIFICATES, THE
CERTIFICATE BALANCE OF THIS CERTIFICATE WILL BE DIFFERENT FROM THE ORIGINAL
DENOMINATION SHOWN ABOVE. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS
CURRENT CERTIFICATE BALANCE BY INQUIRY OF THE PAYING AGENT. On the date of the
initial issuance of the Certificates, the Paying Agent is the Trustee.
This certifies that __________ is the registered owner of an
undivided interest in certain monthly distributions with respect to a pool
(the "Contract Pool") of conventional manufactured housing installment sales
contracts, installment loan agreements and mortgage loans (collectively, the
"Contracts") formed and sold by Vanderbilt Mortgage and Finance, Inc.
(hereinafter called the "Company," which term includes any successor entity
under the Agreement referred to below) and certain other property
(collectively, the "Trust Fund"). The Contracts either were originated or
acquired by and are serviced by the Servicer and are secured by Manufactured
Homes. The Trust Fund was created pursuant to a Pooling and Servicing
Agreement dated as specified above (the "Agreement"), by and among the
Company, as seller and servicer[, Clayton Homes, Inc., as provider of the
Limited Guarantee] and ___________________, as trustee (the "Trustee"), a
summary of certain of the pertinent provisions of which is set forth
hereafter. To the extent not defined herein, the capitalized terms used herein
have the meanings assigned in the Agreement.
This Certificate is one of a duly authorized issue of Certificates,
designated as Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Series 1999__ (the "Certificates"), and is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the acceptance hereof
assents and by which such Holder is bound.
On each Remittance Date, the Trustee will cause to be distributed to
each Class [II B-1][II B-2][II B-3] Certificateholder an amount equal to the
product of (i) the Percentage Interest evidenced by such Class [II B-1][II
B-2][II B-3] Certificateholder's Certificate and (ii) subject to the prior
rights of Holders of Class II A-1 [and Class II B-1][Class II B-2]
Certificates as specified in the Agreement, the Class [II B-1][II B-2][II B-3]
Distribution Amount.
Distributions on this Certificate will be made by check mailed to the
address of the Person entitled thereto, as such name and address shall appear
on the Certificate Register or by wire transfer to Holders of Class [II B-1]
[II B-2][II B-3] Certificates with original denominations aggregating at least
$5 million who have given the Trustee written instructions at least five
Business Days prior to the related Record Date. Notwithstanding the above, the
final distribution on this Certificate will be made after due notice by the
Trustee of the pendency of such distribution and only upon presentation and
surrender of this Certificate at the office or agency appointed by the Trustee
for that purpose and specified in such notice of final distribution.
Unless the Opinion of Counsel as to ERISA matters required by Section
4.02(b) of the Agreement has been delivered to the Trustee in connection with
this Certificate, the holder of this Certificate represents, by virtue of its
acceptance hereof, that it is not an employee benefit plan subject to Section
406 of ERISA or Section 4975 of the Code or a person acting on behalf of such
a plan or using the assets of such a plan to acquire this Certificate.
Reference is hereby made to the further provisions of this
Certificate set forth hereafter, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless this Certificate has been countersigned by or on behalf of the
Trustee, by manual signature, this Certificate shall not be entitled to any
benefit under the Agreement or be valid for any purpose.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated:
______________________________,
as Trustee
By______________________________
Authorized Officer
[Form of Certificate of
Countersignature]
This is one of the Certificates
referred to in the within-
mentioned Agreement.
By______________________________ By______________________________,
OR
Authenticating Agent Trustee
______________________________ ______________________________
Authorized Signatory Authorized Signatory
[Signature page to Class [II B-1][II B-2]
[II B-3] Certificate, Manufactured Housing
Contract Senior/Subordinate
Pass-Through Certificates,
Series 1999__]
EXHIBIT D
FORM OF FACE OF CLASS R CERTIFICATE
THIS CLASS R CERTIFICATE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE RESOLD OR
TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH
ACT OR LAWS OR IS SOLD OR TRANSFERRED IN TRANSACTIONS
WHICH ARE EXEMPT FROM REGISTRATION UNDER SUCH ACT OR
UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 4.02 OF THE
AGREEMENT REFERRED TO HEREIN.
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO
THE CLASS A, CLASS I M-1 AND CLASS B CERTIFICATES AS
DESCRIBED IN THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN.
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS
CERTIFICATE IS A "RESIDUAL INTEREST" IN A "REAL ESTATE
MORTGAGE INVESTMENT CONDUIT" AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE
INTERNAL REVENUE CODE.
NEITHER THIS CERTIFICATE NOR ANY BENEFICIAL INTEREST
HEREIN MAY BE, DIRECTLY OR INDIRECTLY, TRANSFERRED,
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED
WITHOUT THE EXPRESS WRITTEN CONSENT OF THE SERVICER,
ACTING ON BEHALF OF THE TRUST FUND, AND ANY TRANSFER IN
VIOLATION OF THIS RESTRICTION SHALL BE ABSOLUTELY NULL
AND VOID AND SHALL VEST NO RIGHTS IN ANY PURPORTED
TRANSFEREE, AND SHALL SUBJECT THE HOLDER HEREOF TO
LIABILITY FOR ANY TAX IMPOSED (AND RELATED EXPENSES, IF
ANY) WITH RESPECT TO SUCH ATTEMPTED TRANSFER.
Number_____ Percentage Interest: ___%
Date of Pooling and
Servicing Agreement and
Cut-off Date:
_______ __, 1999
Remittance Date after
Latest Due Date: ____ __, ____
First Remittance Date:
_____ __, 1999
MANUFACTURED HOUSING CONTRACT SENIOR/SUBORDINATE
PASS-THROUGH CERTIFICATE
Series 1999__ Class R (SUBORDINATE)
evidencing the entire percentage interest in any
distributions allocable to the Class R Certificate with
respect to a pool of fixed rate and a pool of
adjustable rate conventional manufactured housing
contracts, in each case formed and sold by
VANDERBILT MORTGAGE AND FINANCE, INC.
which manufactured housing contracts either were originated or acquired by and
are initially serviced by Vanderbilt Mortgage and Finance, Inc. (the
"Servicer").
This Certificate does not represent an obligation of or interest in
Vanderbilt Mortgage and Finance, Inc., the Servicer or the Trustee referred to
below or any of their Affiliates. Neither this Certificate nor the underlying
manufactured housing contracts are guaranteed or insured by Vanderbilt
Mortgage and Finance, Inc. or the Servicer or by any governmental agency or
instrumentality.
This certifies that ___________________ is the registered owner of an
undivided interest in certain monthly distributions with respect to a pool
(the "Contract Pool") of conventional manufactured housing installment sales
contracts, installment loan agreements and mortgage loans (collectively, the
"Contracts") formed and sold by Vanderbilt Mortgage and Finance, Inc.
(hereinafter called the "Company," which term includes any successor entity
under the Agreement referred to below) and certain other property
(collectively, the "Trust Fund"). The Contracts either were originated or
acquired by and are serviced by Vanderbilt Mortgage and Finance, Inc. (the
"Servicer") and are secured by Manufactured Homes. The Trust Fund was created
pursuant to a Pooling and Servicing Agreement dated as specified above (the
"Agreement"), by and among the Company, as seller and servicer[, Clayton
Homes, Inc., as provider of the Limited Guarantee] and ____________________,
as trustee (the "Trustee"), a summary of certain of the pertinent provisions
of which is set forth hereafter. To the extent not defined herein, the
capitalized terms used herein have the meanings assigned in the Agreement.
This Certificate is one of a duly authorized issue of Certificates,
designated as Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Series 1999__ (the "Certificates"), and is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the acceptance hereof
assents and by which such Holder is bound.
On each Remittance Date, the Trustee will cause to be distributed to
the Class R Certificateholder an amount equal to the Class R Distribution
Amount.
Distributions on this Certificate will be made by check mailed to the
address of the Person entitled thereto, as such name and address shall appear
on the Certificate Register or by wire transfer if the Holder has given the
Trustee written instructions at least five business days prior to the related
Record Date. Notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Trustee of the pendency of
such distribution and only upon presentation and surrender of this Certificate
at the office or agency appointed by the Trustee for that purpose and
specified in such notice of final distribution.
No transfer of the Class R Certificate will 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 pursuant
to an effective registration statement under said Act or laws. The Trustee or
the Company may require an Opinion of Counsel acceptable to and in form and
substance satisfactory to the Company that such transfer is exempt (describing
the applicable exemption and the basis therefor) from the registration
requirements of the Securities Act of 1933, as amended, and from any
applicable securities statute of any state, and the transferee shall execute
an investment letter in the form described by the Agreement.
Unless the Opinion of Counsel as to ERISA matters required by Section
4.02(b) of the Agreement has been delivered to the Trustee in connection with
this Certificate, the Holder of this Certificate represents, by virtue of its
acceptance hereof, that it is not an employee benefit plan subject to Section
406 of ERISA or Section 4975 of the Code or a Person acting on behalf of such
a plan or using the assets of such a plan to acquire this Certificate. In
addition, no transfer of this Class R Certificate shall be made without the
consent of the Servicer pursuant to Sections 4.02 and 4.08 of the Agreement.
Reference is hereby made to the further provisions of this
Certificate set forth hereafter, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless this Certificate has been countersigned by or on behalf of the
Trustee, by manual signature, this Certificate shall not be entitled to any
benefit under the Agreement or be valid for any purpose.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed.
Dated:
______________________________,
as Trustee
By______________________________
Authorized Officer
[Form of Certificate of
Countersignature]
This is one of the Certificates
referred to in the within-
mentioned Agreement.
By______________________________ By______________________________,
OR
Authenticating Agent Trustee
______________________________ ______________________________
Authorized Signatory Authorized Signatory
[Signature page to Class R Certificate,
Manufactured Housing Contract
Senior/Subordinate Pass-Through
Certificates, Series 1999__]
EXHIBIT E
[FORM OF REVERSE OF CLASS A, CLASS B AND CLASS R CERTIFICATE]
As provided in the Agreement, deductions and withdrawals from the
Certificate Account will be made from time to time for purposes other than
distributions to Certificateholders, such purposes including payment of the
Monthly Servicing Fee, reimbursement to the Servicer for certain expenses
incurred by it, and reimbursement to the Servicer for previous advances with
respect to delinquent payments on the Contracts.
The Trustee will cause to be kept at its Corporate Trust Office in
New York City, or at the office of its designated agent, a Certificate
Register in which, subject to such reasonable regulations as it may prescribe,
the Trustee will provide for the registration of Certificates and of transfers
and exchanges of Certificates. Upon surrender for registration of transfer of
any Certificate at any office or agency of the Trustee maintained for such
purpose, the Trustee will, subject to the limitations set forth in the
Agreement, countersign and deliver, in the name of the designated transferee
or transferees, a Certificate dated the date of countersignature by the
Trustee.
No service charge will be made to the Holder for any registration of
transfer or exchange of this Certificate, but the Trustee may require payment
of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any registration of transfer or exchange of the
Certificate. Prior to due presentation of a Certificate for registration of
transfer, the Company, the Servicer and the Trustee may treat the Person in
whose name any Certificate is registered as the owner of such Certificate and
the Percentage Interest in the Trust Fund evidenced thereby for the purpose of
receiving distributions pursuant to the Agreement and for all other purposes
whatsoever, and neither the Company, the Servicer nor the Trustee will be
affected by notice to the contrary.
The Agreement may be amended from time to time by the Company, the
Servicer and the Trustee, without the consent of any of the
Certificateholders, (i) to cure any ambiguity, error or mistake or to correct
or supplement any provisions therein which may be inconsistent with any other
provisions therein, (ii) to add to the duties or obligations of the Servicer
under the Agreement, (iii) to obtain a rating by a nationally recognized
rating agency or to maintain or improve the rating of Group I or Group II
Certificates then given by a rating agency (it being understood that, after
obtaining the rating of any Group I or Group II Certificates at the Closing
Date, none of the Trustee, the Company or the Servicer is obligated to obtain,
maintain or improve any rating of the Group I or Group II Certificates), (iv)
to facilitate the operation of a guarantee of the Class I B-2 or Class II B-3
Certificates by any Person (it being understood that the creation of any such
guarantee is solely at the option of the Company and that such guarantee will
not benefit in any way or result in any payments on any other Class of
Certificates) or (v) to make any other provisions with respect to matters or
questions arising under the Agreement which are not materially inconsistent
with the provisions of the Agreement, including without limitation provisions
relating to the issuance of definitive Certificates to Certificate Owners
provided that book-entry registration of Group I and Group II Certificates is
no longer permitted, provided that such action does not, as evidenced by an
Opinion of Counsel, adversely affect in any material respect the interests of
any Certificateholder (including, without limitation, the maintenance of the
status of the Trust Fund as a REMIC under the Code). The Agreement may also be
amended from time to time by the Company, the Servicer and the Trustee,
without consent of the Certificateholders, to modify, eliminate or add to the
provisions of the Agreement to such extent as shall be necessary to maintain
the qualification of the Trust Fund as a REMIC under the Code or avoid, or
minimize the risk of, the imposition of any tax on the Trust Fund or to
prevent the Trust Fund from entering into certain prohibited transactions
under the Code, provided that such amendment shall not adversely affect in any
material respect the interests of any Certificateholder and there shall have
been delivered to the Trustee an Opinion of Counsel to the effect that such
action is necessary or appropriate for such purposes.
The Agreement may also be amended from time to time by the Company,
the Servicer and the Trustee with the consent of the Holders of Certificates
evidencing not less than 51% of the Trust Fund, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of the Agreement or of modifying in any manner the rights of the Holders of
Certificates; provided, however, that no such amendment may (i) reduce in any
manner the amount of, or delay the timing of, distributions which are required
to be made on any Certificate without the consent of the Holder of such
Certificate or (ii) reduce the aforesaid percentage of Certificates, the
Holders of which are required to consent to any such amendment, without the
consent of the Holders of all Certificates of such Class then outstanding or
(iii) adversely affect the status of the Trust Fund as a REMIC or cause a tax
to be imposed on the Trust Fund under the REMIC provisions.
The respective obligations and responsibilities of the Company, the
Servicer and the Trustee under the Agreement will terminate upon: (i) the
later of the final payment or other liquidation (or any advance with respect
thereto) of the last Contract or the disposition of all property acquired upon
repossession of any Contract and the remittance of all funds due thereunder;
or (ii) at the option of the Company or the Servicer, on any Remittance Date
after the first Remittance Date on which the sum of the Pool Scheduled
Principal Balances of the Group I and Group II Contracts is less than 10% of
the sum of the Total Original Contract Pool Principal Balances of the Group I
and Group II Contracts, so long as the Company or the Servicer, as the case
may be, deposits in the Certificate Accounts the repurchase price specified in
the Agreement.
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(PLEASE INSERT SOCIAL SECURITY* OR TAXPAYER IDENTIFICATION NUMBER OF
ASSIGNEE) (*This information, which is voluntary, is being requested to ensure
that the assignee will not be subject to backup withholding under Section 3406
of the Code.)
___________________
___________________
________________________________________________________________________________
(Please Print or Typewrite Name and Address of Assignee)
________________________________________________________________________________
the within Certificate, and all rights thereunder, and hereby does irrevocably
constitute and appoint
_______________________________________________________________________Attorney
to transfer the within Certificate on the books kept for the registration
thereof, with full power of substitution in the premises.
Dated:
(Signature guaranty) ______________________________
NOTICE: The signature to this
assignment must correspond with the
name as it appears upon the face of
the within Certificate in every
particular, without alteration or
enlargement or any change whatever.
EXHIBIT F
[SERVICER]
CERTIFICATE REGARDING SUBSTITUTION OF ELIGIBLE
SUBSTITUTE CONTRACT
The undersigned certify that they are [title] and [title],
respectively, of Vanderbilt Mortgage and Finance, Inc. (the "Company"), and that
as such they are duly authorized to execute and deliver this certificate on
behalf of the Company pursuant to Section 3.05(b) of the Pooling and Servicing
Agreement (the "Agreement"), dated as of _______ __, 1999, among Vanderbilt
Mortgage and Finance, Inc., as Seller and Servicer, and ___________, as Trustee
(all capitalized terms used herein without definition having the respective
meanings specified in the Agreement), and further certify that:
1. The Contracts on the attached schedule are to be substituted on the
date hereof pursuant to Section 3.05(b) of the Agreement and each such Contract
is an Eligible Substitute Contract [description, as to each Contract, as to how
it satisfies the definition of "Eligible Substitute Contract"].
2. The Contract File for each such Contract being substituted for a
Replaced Contract is in the custody of the Servicer and each such Contract has
been stamped in accordance with Section 3.02(y) of the Agreement.
3. The UCC-1 financing statement in respect of the Contracts to be
substituted, in the form required by Section 3.05(b)(ii) of the Agreement, has
been filed with the appropriate office in Tennessee.
[4. There has been deposited in the appropriate Certificate Account the
amounts listed on the schedule attached hereto as the amount by which the
Scheduled Principal Balance of each Replaced Contract exceeds the Scheduled
Principal Balance of each Contract being substituted therefor.]
IN WITNESS WHEREOF, I have affixed hereunto my signature this ____
day of ________, 19__.
[SERVICER]
By______________________________
[Name]
[Title]
EXHIBIT G
[SERVICER]
CERTIFICATE OF SERVICING OFFICER
The undersigned certifies that he is a [title] of [Servicer], a [ ]
corporation (the "Servicer"), and that as such he is duly authorized to
execute and deliver this certificate on behalf of the Servicer pursuant to
Section 7.02 of the Pooling and Servicing Agreement (the "Agreement"), dated
as of _______ __, 1999, by and among Vanderbilt Mortgage and Finance, Inc., as
Seller and Servicer[, Clayton Homes, Inc., as provider of the Limited
Guarantee] and ____________________, as trustee (all capitalized terms used
herein without definition having the respective meanings specified in the
Agreement), and further certifies that:
1. The Monthly Report for the period from ____________ to
___________ attached to this certificate is complete and accurate in
accordance with the requirements of Sections 7.01 and 7.02 of the
Agreement; and
2. As of the date hereof, no Event of Default or event that with
notice or lapse of time or both would become an Event of Default has
occurred.
IN WITNESS WHEREOF, I have affixed hereunto my signature this __ day of
_________, ____.
[SERVICER]
By______________________________
[Name]
[Title]
EXHIBIT H
TRANSFER AFFIDAVIT
STATE OF )
: ss.:
COUNTY OF )
The undersigned, being first duly sworn, deposes and says as follows:
1. The undersigned is an officer of ___________________
_________________, a corporation duly organized and existing under the laws of
the State of _________, the proposed transferee (the "Transferee") of the
Class R Certificate from the Manufactured Housing Contract Senior/Subordinate
Pass-Through Certificates, Series 1999__, issued pursuant to the Pooling and
Servicing Agreement, dated as of _______ __, 1999 (the "Agreement"), by and
among Vanderbilt Mortgage and Finance, Inc., as seller and servicer[, Clayton
Homes, Inc., as provider of the Limited Guarantee] and _____________________.
Capitalized terms used, but not defined herein or in Exhibit 1 hereto, shall
have the meanings ascribed to such terms in the Agreement. The Transferee has
authorized the undersigned to make this affidavit on behalf of the Transferee.
2. The Transferee is, as of the date hereof, and will be, as of the
date of the Transfer, a Permitted Transferee. The Transferee is acquiring the
Class R Certificate either (i) for its own account or (ii) as nominee, trustee
or agent for another Person and has attached hereto an affidavit from such
Person in substantially the same form as this affidavit. The Transferee has no
knowledge that any such affidavit is false.
3. The Transferee has been advised and understands that (i) a tax
shall be imposed on Transfers of the Class R Certificate to Persons that are
not Permitted Transferees; (ii) such tax is imposed on the transferor, or, if
such Transfer is through an agent (which includes a broker, nominee or
middleman) for a Person that is not a Permitted Transferee, on the agent; and
(iii) the Person otherwise liable for the tax shall be relieved of liability
for the tax if the subsequent Transferee furnished to such Person an affidavit
that such subsequent Transferee is a Permitted Transferee and, at the time of
Transfer, such Person does not have actual knowledge that the affidavit is
false.
4. The Transferee has been advised of, and understands that a tax
shall be imposed on a "pass-through entity" holding the Class R Certificate if
at any time during the taxable year of the pass-through entity a Person that
is not a Permitted Transferee is the record holder of an interest in such
entity. The Transferee understands that no tax will be imposed for any period
for which the record holder furnishes to the pass-through entity an affidavit
stating that the record holder is a Permitted Transferee and the pass-through
entity does not have actual knowledge that such affidavit is false. (For this
purpose, a "pass-through entity" includes a regulated investment company, a
real estate investment trust or common trust fund, a partnership, trust or
estate, and certain cooperatives and, except as may be provided in Treasury
Regulations, persons holding interests in pass-through entities as a nominee
for another Person.)
5. Transferee has reviewed the provisions of Section 4.08 of the
Agreement (attached hereto as Exhibit 1 and incorporated herein by reference)
and understands the legal consequences of the acquisition of the Class R
Certificate, including, without limitation, the restrictions on subsequent
Transfers and the provisions regarding voiding the Transfer and mandatory
sales. The Transferee expressly agrees to be bound by and to abide by the
provisions of Sections 4.02 and 4.08 of the Agreement. The Transferee
understands and agrees that any breach of any of the representations included
herein shall render the Transfer to the Transferee contemplated hereby null
and void.
6. The Transferee agrees to require a Transfer Affidavit from any
Person to whom the Transferee attempts to Transfer the Class R Certificate and
in connection with any Transfer by a Person for whom the Transferee is acting
as nominee, trustee or agent, and the Transferee will not Transfer the Class R
Certificate or cause the Class R Certificate to be Transferred to any Person
that the Transferee knows is not a Permitted Transferee.
7. The Transferee's taxpayer identification number is
__________________.
8. The Purchaser (i) is not a Non-U.S. Person or (ii) is a Non-U.S.
Person that holds the Class R Certificate in connection with the conduct of a
trade or business in the United States and has furnished the transferor and
the Trustee with an effective Internal Revenue Service Form 4224 or successor
form at the time and in the manner required by the Code or (iii) is a Non-U.S.
Person that has delivered to both the transferor and the Trustee an opinion of
a nationally recognized tax counsel to the effect that the transfer of the
Class R Certificate to it is in accordance with the requirements of the Code
and the regulations promulgated thereunder and that such transfer of the Class
R Certificate will not be disregarded for federal income tax purposes.
"Non-U.S. Person" means an individual, corporation, partnership or other
person which is not a U.S. Person. A "U.S. Person" means (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
treated as a corporation or partnership for United States federal income tax
purposes organized in or under the laws of the United States or any state
thereof or the District of Columbia (other than a partnership that is not
treated as a United States person under any applicable Treasury regulations)
or (iii) an estate the income of which is includible in gross income for
United States tax purposes, regardless of its source, or (iv) a trust if a
court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States persons have
authority to control all substantial decisions of the trust. Notwithstanding
the preceding sentence, to the extent provided in regulations, certain trusts
in existence on August 20, 1996 and treated as United States persons prior to
such date that elect to continue to be treated as United States persons shall
be considered United States persons as well.
9. The Purchaser does not have the intention to impede the assessment
or collection of any federal, state or local taxes legally required to be paid
with respect to such Class R Certificate, and the Purchaser hereby
acknowledges that the Class R Certificate may generate tax liabilities in
excess of the cash flow associated with the Class R Certificate and intends to
pay such taxes associated with the Class R Certificate when they become due.
IN WITNESS WHEREOF, the Transferee has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by
its duly authorized officer and its corporate seal to be hereunto affixed,
duly attested, this ___ day of __________, 199_.
[Name of transferee]
By:_______________________________
Name:
Title:
[Corporate Seal]
ATTEST:
_______________________________
[Assistant] Secretary
Personally appeared before me the above-named _____________, known or
proved to me to be the same person who executed the foregoing instrument and
to be the ____________ of the Transferee, and acknowledged that he executed
the same as his free act and deed and the free act and deed of the Transferee.
Subscribed and sworn before me this ____ day of ______, 1999.
_______________________________
NOTARY PUBLIC
My commission expires the
__ day of _______________, 19__.
EXHIBIT I
FORM OF INVESTMENT LETTER OF
CLASS R CERTIFICATEHOLDER
Representations of Purchaser.
- -----------------------------
1. The Purchaser is acquiring a Class R Certificate as principal for
its own account for the purpose of investment [neither the Underwriters nor any
of their Affiliates need represent that it is acquiring for purposes of
investment] and not with a view to or for sale in connection with any
distribution thereof, subject nevertheless to any requirement of law that the
disposition of the Purchaser's property shall at all times be and remain within
its control.
2. The Purchaser has knowledge and experience in financial and business
matters and is capable of evaluating the merits and risks of its investment in a
Class R Certificate and is able to bear the economic risk of such investment.
The Purchaser is an "accredited investor" within the meaning of Rule 501(a)
under the rules and regulations of the Securities and Exchange Commission under
the Securities Act of 1933, as amended. The Purchaser has been given such
information concerning the Class R Certificate, the underlying Contracts and the
Servicer as it has requested.
3. The Purchaser will comply with all applicable federal and state
securities laws in connection with any subsequent resale by the Purchaser of the
Class R Certificate.
4. The Purchaser understands that the Class R Certificate has not been
and will not be registered under the Securities Act of 1933, as amended, or any
state securities laws and may be resold (which resale is not currently
contemplated) only if an exemption from registration is available, that neither
the Company, the Servicer nor the Trustee is required to register the Class R
Certificate and that any transfer must comply with Sections 4.02 and 4.08 of the
Pooling and Servicing Agreement. In connection with any resale of the Class R
Certificate, the Purchaser shall not make any general solicitation or
advertisement.
5. The Purchaser represents that it is not an employee benefit plan
subject to Section 406 of the Employee Retirement Income Security Act of 1974,
as amended, or Section 4975 of the Internal Revenue Code of 1986, as amended, or
a person acting on behalf of such a plan or using the assets of such a plan to
acquire the Class R Certificate.
6. The Purchaser agrees that it will obtain from any purchaser of the
Class R Certificate from it the same representations, warranties and agreements
contained in the foregoing paragraphs 1 through 4 and in this paragraph 5.
7. The Purchaser hereby directs the Trustee to register the Class R
Certificate acquired by the Purchaser in the name of its nominee as follows:
_____________.
Very truly yours,
_______________________________
NAME OF PURCHASER
By:_______________________________
Name:_____________________________
Title:____________________________
EXHIBIT J
List of Sellers and Originators of Acquired Contracts
Seller Originator
------ ----------
EXHIBIT K
POWER OF ATTORNEY
Vanderbilt Mortgage and Finance, Inc. as Seller and Servicer (the
"Seller") under the Pooling and Servicing Agreement dated as of _______ __,
1999 (the "Agreement"), between Vanderbilt Mortgage and Finance, Inc. and
____________________, as Trustee (the "Trustee"), hereby irrevocably
constitutes and appoints the Trustee its true and lawful attorney-in-fact and
agent, to execute, acknowledge, verify, swear to, deliver, record and file, in
its name, place and stead, all instruments, documents and certificates which
may from time to time be required in connection with the Agreement, including,
without limitation, to execute any documents required to be executed or
recorded by the Trustee pursuant to Section 2.02(a) of the Agreement. If
required, the Seller shall execute and deliver to the Trustee upon request
therefor, such further designations, powers of attorney or other instruments
as the Trustee shall reasonably deem necessary for its purposes hereof.
Capitalized terms used herein and not otherwise defined shall have
the meanings assigned to such terms in the Agreement.
VANDERBILT MORTGAGE AND FINANCE, INC.
By:_______________________________
Name:
Title:
Exhibit 5.1
[BOULT, CUMMINGS, CONNERS & BERRY, PLC]
March 31, 1999
Vanderbilt Mortgage and Finance, Inc.
500 Alcoa Trail
Maryville, Tennessee 37804
Clayton Homes, Inc.
5000 Clayton Road
Maryville, Tennessee 37804
Re: Registration Statement on Form S-3
$2,500,000,000 Vanderbilt Mortgage and Finance, Inc.
Manufactured Housing Contract Pass-Through Certificates
and Clayton Homes, Inc. Limited Guarantee
Ladies and Gentlemen:
We have acted as counsel for Vanderbilt Mortgage and Finance, Inc.
("VMF") and Clayton Homes, Inc. ("CHI") in connection with the Registration
Statement on Form S-3 filed on March 31, 1999 (the "Registration Statement"),
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), for the registration under the
Act of $2,500,000,000 Vanderbilt Mortgage and Finance, Inc. Manufactured
Housing Contract Pass-Through Certificates (the "Certificates") and the
Clayton Homes, Inc. Limited Guarantee (the "Limited Guarantee"). Pursuant to
Rule 429 under the Act, the Registration Statement also constitutes
Post-Effective Amendment No. 1 to Registration Statement No. 333-43583
previously filed with the Commission by VMF and CHI which became effective on
January 26, 1998, for the registration under the Act of Vanderbilt Mortgage
and Finance, Inc. Manufactured Housing Contract Pass-Through Certificates and
the Clayton Homes, Inc. Limited Guarantee.
Each series of such Certificates is proposed to be issued pursuant to a
separate pooling and servicing agreement (the "Pooling and Servicing Agreement")
between VMF, as servicer, VMF, as seller or, in some cases, a special purpose
subsidiary of VMF ("SPC"), as seller, and a trustee (the "Trustee") to be
identified in a prospectus supplement ("Prospectus Supplement") prepared and
filed in connection with such series of Certificates.
The Limited Guarantee may apply to certain of the Certificates, if so
provided in the Prospectus Supplement for such class or series of
Certificates.
We have examined the Registration Statement and such other documents,
agreements and instruments, and have reviewed such questions of law, as we
have considered necessary and appropriate for purposes of rendering this
opinion.
Based on the foregoing, we are of the opinion that:
1. When each Pooling and Servicing Agreement has been duly authorized
by all necessary action on the part of VMF and the SPC, if applicable, and has
been duly executed and delivered by each party thereto, it will constitute a
valid and binding obligation of VMF and the SPC, if applicable, enforceable
against VMF and the SPC, if applicable, in accordance with its terms, subject
to applicable bankruptcy, reorganization, insolvency and similar laws
affecting creditors' rights generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
2. When the issuance, execution and delivery of the Certificates have
been duly authorized by all necessary action on the part of VMF and CHI and
the SPC, if applicable, and when such Certificates have been duly executed,
delivered and authenticated and sold in accordance with the terms of a
specific Pooling and Servicing Agreement and as described in the Registration
Statement, such Certificates will be legally and validly issued, fully-paid
and nonassessable and the holders of such Certificates will be entitled to the
benefits provided by the Pooling and Servicing Agreement pursuant to which
such Certificates were issued.
3. When the Limited Guarantee has been duly authorized by all
necessary action on the part of CHI and has been duly executed and delivered,
it will constitute a valid and binding obligation of CHI, enforceable in
accordance with its terms, subject to applicable bankruptcy, reorganization,
insolvency and similar laws affecting creditors' rights generally and to
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
In rendering our opinion, we have assumed that, at the time of the
execution and delivery of the applicable Pooling and Servicing Agreement and
the Limited Guarantee and the execution, delivery and authentication of the
related class or series of Certificates, (i) there will not have occurred any
change in the law affecting the authorization, issuance, validity or
enforceability of the Pooling and Servicing Agreement, the Limited Guarantee
or the Certificates, (ii) the Registration Statement will have been declared
effective by the Commission and will continue to be effective, and the
issuance of such securities will be in compliance with all applicable state
securities laws; (iii) the Certificates will be issued and sold as described
in the applicable Prospectus Supplement; (iv) none of the particular terms of
a class or series of Certificates will violate any applicable law, and (v)
neither the issuance and sale of the Certificates and the Limited Guarantee
nor the compliance by VMF or CHI or the SPC, if applicable, with the terms
thereof will result in a violation of any agreement or instrument then binding
upon VMF or CHI or the SPC, if applicable, or any order of any court or
governmental body having jurisdiction over VMF or CHI or the SPC, if
applicable. This opinion is applicable only to the authorization, execution
and delivery of Pooling and Servicing Agreements and the Limited Guarantee and
the issuance of Certificates with respect to which we have participated as
counsel.
Further, we have assumed the accuracy and completeness of all
certifications, documents and other proceedings examined by us that have been
executed or certified by officials of VMF and CHI acting within the scope of
their official capacities and have not verified the accuracy or truthfulness
thereof. We have also assumed the genuineness of the signatures appearing upon
such public records, certifications, documents and proceedings. In addition,
we have assumed that each such Pooling and Servicing Agreement and Limited
Guarantee and the related Certificates will be executed and delivered in
substantially the form filed as exhibits to the Registration Statement
(including such exhibits incorporated therein which were previously filed with
the Commission), and that such Certificates will be sold as described in the
Prospectus Supplement described in the Registration Statement.
We express no opinion as to the laws of any jurisdiction, other than
the federal laws of the United States of America and the laws of the State of
Tennessee.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the heading "Legal
Matters" in the Prospectus forming a part of the Registration Statement,
without implying or admitting that we are "experts" within the meaning of the
Act or the rules and regulations of the Securities and Exchange Commission
issued thereunder, with respect to any part of the Registration Statement,
including this exhibit.
Sincerely,
/s/ BOULT, CUMMINGS, CONNERS & BERRY, PLC
Exhibit 8.1
[BROWN & WOOD LLP]
March 31, 1999
Vanderbilt Mortgage and Finance, Inc.
500 Alcoa Trail
Maryville, Tennessee 37804
Clayton Homes, Inc.
5000 Clayton Road
Maryville, Tennessee 37804
Re: Vanderbilt Mortgage and Finance, Inc.
Manufactured Housing Contract
Pass-Through Certificates
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special federal income tax counsel to Vanderbilt
Mortgage and Finance, Inc., a Tennessee corporation (the "Registrant"), in
connection with the issuance and sale of its Manufactured Housing Contract
Pass-Through Certificates that evidence interests in certain pools of
manufactured housing installment sales contracts (the "Certificates"). Each
series of Certificates will be issued pursuant to a Pooling and Servicing
Agreement among the Registrant and a trustee to be specified in the prospectus
supplement for such series of Certificates. We have advised the Registrant
with respect to certain federal income tax consequences of the proposed
issuance of the Certificates. This advice is summarized under the headings
"Certain Federal Income Tax Consequences" in the form of prospectus and
"Summary of Terms of the Offered Certificates -- Certain Federal Income Tax
Considerations" and "Certain Federal Income Tax Consequences" in the form of
prospectus supplement, all as part of the Registration Statement on Form S-3
(the "Registration Statement"), filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), on the
date hereof for the registration of such Certificates under the Act. Such
description does not purport to discuss all possible federal income tax
ramifications of the proposed issuance, but with respect to those tax
consequences which are discussed, in our opinion, the description is accurate
in all material respects.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to a reference to this firm (as special federal
income tax counsel to the Registrant) under the headings "Certain Federal Income
Tax Consequences" and "Legal Matters" in the Prospectus forming a part of the
Registration Statement, without implying or admitting that we are "experts"
within the meaning of the Act or the rules and regulations of the Commission
issued thereunder, with respect to any part of the Registration Statement,
including this exhibit.
Very truly yours,
/s/ BROWN & WOOD LLP
Exhibit 12
CLAYTON HOMES, INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For Six Month
Period Ended
For Year Ended June 30, December 31,
1994 1995 1996 1997 1998 1998
<S> <C> <C> <C> <C> <C> <C>
Income from operation
before taxes $108,285 $135,800 $172,300 $192,700 $222,100 $108,310
Add
Interest on Indebtedness 11,160 5,823 4,016 3,912 4,285 11,110
Portion of rents
representative of
interest factor 720 757 906 1,031 1,235 821
Income as adjusted 120,185 142,380 177,222 197,643 22,620 120,241
Fixed Charges
Interest on Indebtedness 11,160 5,823 4,016 3,912 4,285 11,110
Portion of rents
representative of
interest factor 720 757 906 1,031 1,235 821
Fixed Charges 11,880 6,580 4,922 4,943 5,520 11,931
Ratio of earnings to
fixed charges 10.12 21.64 36.00 39.99 41.24 10.08
</TABLE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Vanderbilt Mortgage and Finance, Inc. and Clayton Homes, Inc. on
Form S-3 of our report dated August 5, 1998, on our audits of the consolidated
financial statements of Clayton Homes, Inc. (the "Company") as of June 30,
1998 and 1997, and for each of the years in the three year period ended June
30, 1998, which report is incorporated by reference, from the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1998, filed with the
SEC. We also consent to the reference to our Firm under the caption "Experts".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Knoxville, Tennessee
March 31, 1999
