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                                                                    EXHIBIT 10.3

                   TECHNOLOGY TRANSFER AND LICENSE AGREEMENT

     This Technology Transfer and License Agreement (the "Agreement") dated July
10, 2000 (the "Effective Date") is between Amersham Pharmacia Biotech A.B.
("APB"), a Swedish corporation, and ArQule, Inc. ("ArQule"), a Delaware
corporation.

                                    RECITALS

     WHEREAS, APB and ArQule previously entered into a Research and Development
Agreement dated March 10, 1995, as amended, which expired and was replaced by a
Research Collaboration and License Agreement dated August 13, 1998 and a
Commercialization Agreement dated August 13, 1998 (collectively, all three
agreements are referred to in this Agreement as the "Prior Agreements"); and

     WHEREAS, under both the Research Collaboration and License Agreement dated
August 13, 1998 (the "Research Collaboration and License Agreement") and the
Commercialization Agreement dated August 13, 1998 (the "Commercialization
Agreement"), the parties attempted to develop certain technologies and to offer
certain commercial services in the area of Integrated Separations Solutions (as
defined in such agreements) on an exclusive basis; and

     WHEREAS, the parties have determined that technology development effort and
the commercialization effort are not achieving the original expectations of the
parties; and

     WHEREAS, ArQule has decided to focus its research and commercial endeavors
in pharmaceuticals and agrochemicals, to the exclusion of bioseparations
opportunities; and

     WHEREAS, the parties have agreed that ArQule will transfer certain
technology to APB and to grant APB certain non-exclusive licenses that will
enable APB to develop and offer Integrated Separations Solutions without the
involvement of ArQule;

     NOW, THEREFORE, in consideration of the foregoing and the covenants and
promises set forth herein, APB and ArQule hereby agree as follows:

1. DEFINITIONS.

     1.1. "AFFILIATE" means any legal entity (such as a corporation,
partnership, or limited liability company) that is controlled by a party. For
the purposes of this definition, the term "control" means (i) beneficial
ownership of at least fifty percent (50%) of the voting securities of a
corporation or other business organization with voting securities or (ii) a
fifty percent (50%) or greater interest in the net assets or profits of a
partnership or other business organization without voting securities.

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     1.2. "APB CORE TECHNOLOGY" means Technology developed under one of the
Prior Agreements that principally consists of (i) linkers, (ii) media coatings,
(iii) chromatographic media, or (iv) chemical modification methods.

     1.3. "ARQULE COMPOUND" means a small organic chemical molecule transferred
by ArQule to APB pursuant to the Technology Transfer Plan.

     1.4. "ARQULE CORE TECHNOLOGY" means Technology developed under one of the
Prior Agreements that principally consists of (i) chemical synthesis of ligands,
(ii) chemical compositions of ligands, including without limitation ArQule
Compounds, (iii) combinatorial libraries of chemical compounds, and (iv) chemi-
informatics.

     1.5. "BIOMOLECULES" means polypeptides, proteins, oligonucleotides,
polynucleotides, oligosaccharides, polysaccharides or any combination of such
molecules, whether produced by natural means or by organic synthesis on solid
support or in solution.

     1.6. "CHROMATOGRAPHIC BIOSEPARATIONS" means a method to purify or isolate a
particular Biomolecule from a mixture of Biomolecules by means of a differential
or selective non-covalent interaction of the particular Biomolecule in a mobile
phase with a stationary phase consisting of a small organic molecule ligand that
is covalently attached to a particulate solid support (i.e., a chromatographic
resin).

     1.7. "CONFIDENTIAL INFORMATION" has the meaning set forth in Section 6.1.1.

     1.8. "LICENSED PRODUCT" means any product (i) which incorporates an ArQule
Compound; or (ii) which, absent the licenses granted to APB hereunder, the
manufacture, use or sale of such product would infringe one or more Valid Claims
of the ArQule Patent Rights or the Joint Patent Rights; or (iii) which is
developed, manufactured or used through use of the ArQule Technology or the
Joint Technology.

     1.9. "LICENSED SERVICE" means any service (i) which involves the use of a
Licensed Product; (ii) which, absent the licenses granted to APB hereunder,
could not be provided without infringing one or more Valid Claims of the ArQule
Patent Rights or the Joint Patent Rights; or (iii) which could not be provided
without use of the ArQule Technology or the Joint Technology.

     1.10. "MEDIA PRODUCT" means a Licensed Product that is chromatography media
(e.g., a ligand covalently linked to media such as Sepharose).

     1.11. "NET SALES" means [*].

     [*]

     1.12. "PATENT RIGHTS" means any claims covering APB Technology, ArQule
Technology, or Joint Technology in United States or foreign patent applications,
together with any and all patents that have issued or in the future issue
therefrom, and all related divisionals,

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continuations, continuations-in-part (to the extent directed to the same subject
matter), reissues, renewals, extensions or additions and foreign counterparts
thereof. "ARQULE PATENT RIGHTS" means Patent Rights that are either (i) assigned
solely to ArQule, (ii) assigned jointly to ArQule and a party other than APB, or
(iii) licensed to or otherwise controlled by ArQule, in each case to the extent
that ArQule has the ability to license or sublicense the rights required under
this Agreement without payment to a third party. "APB PATENT RIGHTs" means
Patent Rights that are either (i) assigned solely to APB, (ii) assigned jointly
to APB and a party other than ArQule, or (iii) licensed to or otherwise
controlled by APB, in each case to the extent that APB has the ability to
license or sublicense the rights required under this Agreement without payment
to a third party. "JOINT PATENT RIGHTS" means Patent Rights assigned to both
ArQule and APB as joint owners. Joint Patent Rights will include (i) Patent
Rights claiming Joint Technology and (ii) Patent Rights claiming both ArQule
Technology and APB Technology in a single filing. "COLLABORATION PATENT RIGHTS"
means claims in Patent Rights that cover Collaboration Technology.

     1.13. "PROPRIETARY MATERIALS" has the meaning set forth in Section 6.2.1.

     1.14. "ROYALTY PERIOD" means [*].

     1.15. "STEERING COMMITTEE" means the Steering Committee described in
Section 4.2.

     1.16. "TECHNOLOGY" means any proprietary development, idea, design,
concept, technique, process, invention, Proprietary Material, discovery, or
improvement, whether or not patentable or copyrightable, that was developed,
discovered, conceived, or reduced to practice prior to the Effective Date.
"ARQULE TECHNOLOGY" means Technology that is either (i) assigned solely to
ArQule (including ArQule Core Technology), (ii) assigned jointly to ArQule and a
party other than APB, or (iii) licensed to or otherwise controlled by ArQule, in
each case to the extent that ArQule has the ability to license or sublicense the
rights required under this Agreement without payment to a third party. "APB
TECHNOLOGY" means Technology that is either (i) assigned solely to APB
(including APB Core Technology), (ii) assigned jointly to APB and a party other
than ArQule, or (iii) licensed to or otherwise controlled by APB, in each case
to the extent that APB has the ability to license or sublicense the rights
required under this Agreement without payment to a third party. "JOINT
TECHNOLOGY" means Technology that was developed or discovered jointly by one or
more employees or consultants of APB and one or more employees or consultants of
ArQule, excluding APB Core Technology and ArQule Core Technology. "COLLABORATION
TECHNOLOGY" means APB Technology, ArQule Technology, and Joint Technology that
was developed, discovered, conceived, or reduced to practice under any of the
Prior Agreements.

     1.17. "TECHNOLOGY TRANSFER PLAN" means the plan set forth on EXHIBIT A for
transfer of certain ArQule Technology and Joint Technology to APB under this
Agreement.

     1.18. "VALID CLAIM" means either (i) a claim of an issued patent that has
not been held unenforceable or invalid by an agency or a court of competent
jurisdiction in any unappealable

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or unappealed decision or (ii) a claim of a pending patent application that has
not been abandoned or finally rejected without the possibility of appeal or
refiling.

2. EFFECT ON PRIOR AGREEMENTS.

     The parties hereby agree to terminate the Research Collaboration and
License Agreement and the Commercialization Agreement, effective as of the
Effective Date of this Agreement. The surviving provisions of the Research
Collaboration and License Agreement shall be as set forth in Section 10.7. of
that agreement. The surviving provisions under the Commercialization Agreement
shall be as set forth in Section 8.5. of that agreement.

3. LICENSES.

     3.1. RIGHTS TO ARQULE TECHNOLOGY AND ARQULE PATENT RIGHTS.  Subject to the
terms of this Agreement, ArQule hereby grants to APB and its Affiliates the
following licenses:

     (i)  a worldwide, royalty-bearing, non-exclusive license, without the right
          to grant sublicenses, under the ArQule Patent Rights and other rights
          in the ArQule Technology, to develop, make, use, sell, import and
          distribute Licensed Products and to develop and provide Licensed
          Services in the field of Chromatographic Bioseparations;

     (ii) a worldwide, royalty-bearing, non-exclusive license under the ArQule
          Patent Rights and other rights in the ArQule Technology (i) to have a
          third party manufacture bulk quantities of ArQule Compounds for
          incorporation into Media Products and (ii) to have a third party
          manufacture Media Products; and

    (iii) a worldwide, royalty-bearing, exclusive license, without the right to
          grant sublicenses, under the ArQule Patent Rights and other rights in
          the ArQule Technology to use ArQule Compounds to develop Licensed
          Products, provide Licensed Services, and sell ArQule Compounds that
          are incorporated into Media Products; provided, however, that ArQule
          expressly excludes from this license grant and reserves to itself all
          rights in and to ArQule Compounds under the ArQule Patent Rights and
          other rights in ArQule Technology for its own internal programs for
          applications outside the field of Chromatographic Bioseparations,
          including without limitation pharmaceutical applications, without
          payment to APB.

     3.2. RIGHTS TO APB TECHNOLOGY AND APB PATENT RIGHTS.  Subject to the terms
of this Agreement, APB hereby grants to ArQule and its Affiliates a worldwide,
royalty-bearing, non-exclusive license, with the right to grant sublicenses,
under the APB Patent Rights and other rights in the APB Technology, to the
extent necessary to enable ArQule to practice ArQule Patent Rights or Joint
Patent Rights that constitute Collaboration Patent Rights or to use ArQule
Technology or Joint Technology that constitutes Collaboration Technology in any
field other than the field of Chromatographic Bioseparations.

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     3.3. USE OF JOINT TECHNOLOGY.

        3.3.1. APB RIGHTS.  Subject to the terms of this Agreement, APB and its
Affiliates shall have the right to use the Joint Technology and to practice the
Joint Patent Rights for any purpose in the field of Chromatographic
Bioseparations, with payment to ArQule in accordance with Section 5.5. APB and
its Affiliates shall have the right to use the Joint Technology and to practice
the Joint Patent Rights for any purpose outside the field of Chromatographic
Bioseparations, without payment to ArQule.

        3.3.2. ARQULE RIGHTS.  Subject to the terms of this Agreement, ArQule
and its Affiliates and sublicensees shall have the right to use the Joint
Technology and to practice the Joint Patent Rights for any purpose in the field
of Chromatographic Bioseparations, with payment to APB in accordance with
Section 5.11. ArQule and its Affiliates and sublicensees shall have the right to
use the Joint Technology and to practice the Joint Patent Rights for any purpose
outside of the field of Chromatographic Bioseparations, without payment to APB.

4. TECHNOLOGY TRANSFER.

     4.1. TECHNOLOGY TRANSFER PLAN.  The parties have established a Technology
Transfer Plan, set forth on EXHIBIT A, pursuant to which ArQule shall transfer
to APB, and APB shall accept, certain identified ArQule Technology. Each party
agrees to use commercially reasonable efforts to fulfill its obligations under
the Technology Transfer Plan; provided, however, that notwithstanding anything
to the contrary in this Agreement (i) ArQule shall have no further obligation to
fulfill the Technology Transfer Plan after [*], (ii) ArQule shall have no
obligation to commit more than [*] full-time equivalents ("FTEs") to the project
during the period from the Effective Date through [*] (i.e., an effort
equivalent to [*] individuals working full time on the Technology Transfer Plan
during this period), and (iii) during the period from [*], ArQule shall have a
limited obligation to provide reasonable technology transfer services subject to
the availability of the requested personnel and subject to reimbursement from
APB as set forth in Subsection 5.1.2.

     4.2. MANAGEMENT OF TECHNOLOGY TRANSFER.

        4.2.1. STEERING COMMITTEE.  The parties hereby create a Steering
Committee which shall consist of six (6) members, with three (3) members
designated by each party, to manage the technology transfer activities under the
Technology Transfer Plan. A party may change any of its members to the Steering
Committee immediately upon written notice to the other party. If a member of the
Steering Committee cannot attend a meeting for any reason, that member may
appoint a substitute to attend the meeting in his or her place. The Steering
Committee shall be responsible for oversight of the day-to-day conduct and
progress of the Technology Transfer Plan and approval of all activities relating
to the Technology Transfer Plan.

        4.2.2. DECISIONS.  Either party may call a meeting of the Steering
Committee on fifteen (15) days written notice to the other party, unless notice
is waived by the other party. A

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quorum of the Steering Committee shall be present at any meeting of the Steering
Committee if every member or a duly appointed substitute are present at such
meeting in person or by telephone. If a quorum exists at any meeting, the
unanimous consent of all members of the Steering Committee present at such
meeting is required to take any action on behalf of the Steering Committee.
Unless otherwise specifically stated to the contrary herein, no individual party
shall purport to act on behalf of the other party unless and then only to the
extent authorized to do so by the Steering Committee.

        4.2.3. REPORTS.  Within ten (10) days following each meeting of the
Steering Committee, a member appointed by the Steering Committee shall prepare
and send to the members of the Steering Committee a detailed written report of
actions taken at the meeting in such form and containing such detail as shall be
determined by the Steering Committee.

        4.2.4 DEADLOCK.  In the event that the Steering Committee cannot reach
agreement with respect to any matter that is subject to its decision-making
authority, then the matter shall be referred to the dispute resolution procedure
described in Section 9.12.

5. PAYMENTS.

     5.1. FEES.

          5.1.1. COMPOUND TRANSFER. In consideration of the transfer of certain
ArQule Compounds to APB under the Technology Transfer Plan, APB shall pay ArQule
a fee of [*] within [*] after the Effective Date.

          5.1.2. SERVICES. In the event that APB uses technology transfer
services from ArQule after [*] as described in Section 4.1. above, APB shall pay
ArQule for such services at the rate of [*] per ArQule FTE.

     5.2. ROYALTIES ON MEDIA PRODUCTS.  In consideration of the licenses under
ArQule Technology granted to APB under this Agreement and the technology
transfer provided to APB pursuant to this Agreement, APB shall pay ArQule a
royalty [*]:

        [*]                                    [*]

        [*]                                    [*]
        [*]                                    [*]
        [*]                                    [*]

provided, that, [*], the annual royalty [*]. By way of example, but not
limitation, if [*], APB shall pay ArQule a royalty of [*].

     5.3. ADJUSTMENTS TO ROYALTY PAYMENTS.  At the commencement of each calendar
year APB will estimate the total annual Net Sales for each Media Product
anticipated to be sold by

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APB during such calendar year, and thereby determine the royalty percentage that
will apply to the total annual Net Sales of such Media Product during such
calendar year. After the end of each calendar year, APB will provide, together
with the first quarterly report due pursuant to Section 5.6, a written report
setting forth the total actual annual Net Sales for each such Media Product in
such calendar year, reconciling the royalties paid by APB during such calendar
year with the royalties actually due from APB. Together with said report, APB
will either make a payment to ArQule or issue to ArQule an invoice for any
overpayments. All invoices provided for under this Section 5.3 shall be stated,
and all amounts payable thereunder shall be paid in United States dollars as
provided in Section 5.7.

     5.4. DURATION OF ROYALTY OBLIGATION.  APB's obligation to pay royalties on
the annual Net Sales of Media Products pursuant to Section 5.2 shall continue
for as long as such Media Products are being sold.

     5.5. ROYALTIES ON OTHER LICENSED PRODUCTS OR LICENSED SERVICES.  If APB
wishes to develop, market or sell Licensed Products other than Media Products or
Licensed Services other than services in the development or support of Media
Products, APB shall notify ArQule in writing and promptly thereafter the parties
shall enter into good faith negotiations to arrive at commercially reasonable
financial terms, including a royalty, for the development and commercialization
of such Licensed Products or Licensed Services. Until such terms are
established, APB will not have the right to develop, market or sell such
Licensed Products or Licensed Services.

     5.6. REPORTS.  Within sixty (60) days after the conclusion of each Royalty
Period, APB shall deliver to ArQule a report containing the following
information:

     (i)  gross sales of Licensed Products and Licensed Services by APB during
          the applicable Royalty Period in each country of sale;

     (ii) adjustments and calculation of Net Sales for each Licensed Product and
          Licensed Service for the applicable Royalty Period in each country of
          sale;

    (iii) total Net Sales of each Licensed Product and Licensed Service
          together with the exchange rates used for conversion; and

     (iv) total royalty payment due for the Royalty Period for each Licensed
          Product and Licensed Service.

     If no payment is to be made by APB for any reporting period, the report
shall so state. All such reports shall be considered Confidential Information
under this Agreement. Concurrent with this report, APB shall remit to ArQule any
payment due for the applicable Royalty Period.

     5.7. PAYMENTS IN U.S. DOLLARS.  Subject to Section 5.8., all payments due
under this Article 5 shall be payable in United States dollars. Conversion of
foreign currency to U.S. dollars shall be made at the conversion rate existing
in the United States (as reported in the WALL

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STREET JOURNAL) on the last working day of the calendar quarter preceding the
applicable Royalty Period. Such payments shall be without deduction of exchange,
collection, or other charges.

     5.8. PAYMENTS IN OTHER CURRENCIES.  If by law, regulation, or fiscal policy
of a particular country, conversion into United States dollars or transfer of
funds of a convertible currency to the United States is restricted or forbidden,
APB shall give ArQule prompt written notice of such restriction, which notice
shall satisfy the payment deadlines described in Section 5.6. APB shall pay any
amounts due ArQule through whatever lawful methods ArQule reasonably designates;
provided, however, that if ArQule fails to designate such payment method within
thirty (30) days after being notified of the restriction, APB may deposit such
payment in local currency to the credit of ArQule in a recognized banking
institution selected by APB and identified by written notice to ArQule, and such
deposit shall fulfill all obligations of APB to the other party with respect to
such payment.

     5.9. RECORDS.  APB shall maintain complete and accurate records of (i)
Licensed Products and Licensed Services sold or provided and (ii) any royalties
payable to ArQule in relation to each such Licensed Product and Licensed
Service, which records shall contain sufficient information to permit ArQule to
confirm the accuracy of any reports delivered under Section 5.6. APB shall
retain such records relating to a given Royalty Period for at least five (5)
years after the conclusion of that Royalty Period, during which time ArQule
shall have the right, at its expense, to cause an independent, certified public
accountant to inspect such records during normal business hours for the sole
purpose of verifying any reports and payments delivered under this Agreement.
Such accountant shall not disclose to ArQule any information other than
information relating to accuracy of reports and payments delivered under this
Agreement. The parties shall reconcile any underpayment or overpayment within
thirty (30) days after the accountant delivers the results of the audit. In the
event that any audit performed under this Section reveals an underpayment in
excess of [*] in any Royalty Period, APB shall bear the full cost of such audit.
ArQule may exercise its rights under this Section only once every year and only
with reasonable prior notice to APB.

     5.10. LATE PAYMENTS.  Any payments by APB that are not paid on or before
the date such payments are due under this Agreement shall bear interest, to the
extent permitted by law, at [*] above the Prime Rate of interest as reported in
the WALL STREET JOURNAL on the date payment is due, with interest calculated
based on the number of days that payment is delinquent.

     5.11. PAYMENTS BY ARQULE.  If ArQule wishes to develop, market or sell
products or services for which a royalty or other payment is due to APB pursuant
to Section 3.3.2., ArQule shall notify APB in writing and promptly thereafter
the parties shall enter into good faith negotiations to establish a definitive
license agreement on commercially reasonable financial terms for the development
and commercialization of such products or services. Until the parties execute a
definitive license agreement, ArQule will not have the right to develop, market
or sell such products or services.

6. CONFIDENTIAL INFORMATION AND PROPRIETARY MATERIALS.

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     6.1. CONFIDENTIAL INFORMATION.

          6.1.1. DEFINITION OF CONFIDENTIAL INFORMATION. Confidential
Information shall mean any technical or business information furnished by one
party (the "Disclosing Party") to the other party (the "Receiving Party") in
connection with this Agreement. Such Confidential Information may include,
without limitation, the use of a chemical compound, as well as trade secrets,
know-how, inventions, technical data or specifications, testing methods,
business or financial information, research and development activities, Steering
Committee reports or minutes, product and marketing plans, and customer and
supplier information.

          6.1.2. OBLIGATIONS. The Receiving Party agrees that it shall:

     (i)  maintain all Confidential Information in strict confidence, except
          that the Receiving Party may disclose or permit the disclosure of any
          Confidential Information to its directors, officers, employees,
          consultants, and advisors who are obligated to maintain the
          confidential nature of such Confidential Information and who need to
          know such Confidential Information for the purposes set forth in this
          Agreement;

     (ii) use all Confidential Information solely for the purposes set forth in
          this Agreement; and

    (iii) allow its directors, officers, employees, consultants, and advisors
          to reproduce the Confidential Information only to the extent necessary
          to effect the purposes set forth in this Agreement, with all such
          reproductions being considered Confidential Information.

          6.1.3. EXCEPTIONS.  The obligations of the Receiving Party under
Section 6.1.2. above shall not apply to the extent that the Receiving Party can
demonstrate that certain Confidential Information:

     (i)  was in the public domain prior to the time of its disclosure under
          this Agreement;

     (ii) entered the public domain after the time of its disclosure under this
          Agreement through means other than an unauthorized disclosure
          resulting from an act or omission by the Receiving Party;

    (iii) was independently developed or discovered by the Receiving Party
          without use of the Confidential Information;

     (iv) is or was disclosed to the Receiving Party at any time, whether prior
          to or after the time of its disclosure under this Agreement, by a
          third party having no fiduciary relationship with the Disclosing Party
          and having no obligation of confidentiality with respect to such
          Confidential Information; or

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     (v)  is required to be disclosed to comply with applicable laws or
          regulations, or with a court or administrative order, provided, that
          the Disclosing Party receives prior written notice of such disclosure
          and that the Receiving Party takes all reasonable and lawful actions
          to obtain confidential treatment for such disclosure and, if possible,
          to minimize the extent of such disclosure.

     6.2. PROPRIETARY MATERIALS.

          6.2.1. DEFINITION OF PROPRIETARY MATERIALS. "Proprietary Materials"
means any tangible chemical, biological, or physical materials that are
furnished by one party (the "Materials Provider") to the other party (the
"Materials Recipient") in connection with this Agreement regardless of whether
such materials are specifically designated as proprietary to the Materials
Provider, including without limitation all ArQule Compounds. The Materials
Provider shall furnish such Proprietary Materials to the Materials Recipient in
a mutually acceptable form, including appropriate labelling and packaging.

          6.2.2. LIMITED USE. The Materials Recipient shall use the Proprietary
Materials solely for the purposes set forth in this Agreement. The Materials
Recipient shall use the Proprietary Materials only in compliance with all
applicable governmental laws and regulations, and not for any IN VIVO
experiments on human subjects. The Materials Recipient assumes all liability for
damages that may arise from the use, storage, or disposal of any Proprietary
Materials. The Materials Provider will not be liable to the Materials Recipient
for any loss, claim, or demand made by Materials Recipient, or made against the
Materials Recipient by any other party, due to or arising from the use, storage,
or disposal of any Proprietary Materials by the Materials Recipient, and the
Materials Recipient agrees, to the extent allowed under applicable law, to
defend, indemnify, and hold the Materials Provider harmless from and against any
such losses, claims, or demands, except to the extent caused by the gross
negligence or willful misconduct of the Materials Provider.

          6.2.3. LIMITED DISPOSITION. Except as otherwise expressly provided
herein, the Materials Recipient shall not transfer or distribute any Proprietary
Materials to any third party without the prior written consent of the Materials
Provider, which consent may be withheld at the sole discretion of the Materials
Provider.

          6.2.4. APPLICABLE LAWS AND REGULATIONS. The Materials Recipient agrees
to comply with all federal, state, and local laws and regulations applicable to
the use, storage, disposal, and transfer of Proprietary Materials furnished by
the Materials Provider, including without limitation the Toxic Substances
Control Act (15 USC 2601 et seq.) and implementing regulations (in particular,
40 CFR 720.36 [Research and Development Exemption]), the Food, Drug, and
Cosmetic Act (21 USC 301 et seq.) and implementing regulations, all Export
Administration Regulations of the U.S. Department of Commerce, and equivalent
laws and regulations in countries outside the United States. The Materials
Recipient assumes sole responsibility for any violation of such laws or
regulations by the Materials Recipient, its employees or its consultants.

     6.3. RETURN OF CONFIDENTIAL INFORMATION AND PROPRIETARY MATERIALS.

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          6.3.1. CONFIDENTIAL INFORMATION. Upon the termination of this
Agreement, at the request of the Disclosing Party, the Receiving Party shall
return to the Disclosing Party all originals, copies, and summaries of
documents, materials, and other tangible manifestations of Confidential
Information in the possession or control of the Receiving Party, except that the
Receiving Party may retain one copy of the Confidential Information in the
possession of its legal counsel solely for the purpose of monitoring its
obligations under this Agreement.

          6.3.2. PROPRIETARY MATERIALS. Upon the termination of this Agreement,
the Materials Recipient shall, at the instruction of the Materials Provider,
either destroy or return any unused Proprietary Materials.

     6.4. EXCEPTION FOR CUSTOMER DISCLOSURES.  Notwithstanding anything to the
contrary in this Article 6, APB shall have the right to disclose and transfer to
its customers ArQule Compounds, as well as derivatives and analogs of ArQule
Compounds, that have demonstrated binding affinity for a Biomolecule in
connection with the development of a Media Product. Moreover, in the event that
APB determines that additional disclosure or transfer of ArQule Compounds to its
customers is necessary or desirable for providing Licensed Products or Licensed
Services, ArQule shall not unreasonably withhold consent to such disclosure or
transfer. APB agrees that all disclosures of ArQule Confidential Information or
transfer of ArQule Proprietary Materials under this Section 6.4. shall be
covered by an agreement between APB and the customer that contains terms and
conditions that are substantially similar to the provisions of this Article 6.

     6.5. SURVIVAL OF OBLIGATIONS.  The obligations set forth in this Article 6
shall remain in effect for a period of five (5) years after termination of this
Agreement, except that the obligations of the Receiving Party to return
Confidential Information to the Disclosing Party and the obligations of the
Materials Recipient to return or destroy Proprietary Materials received from the
Materials Provider shall survive until fulfilled.

7. TERM AND TERMINATION.

     7.1. TERM.  This Agreement shall commence on the Effective Date and, unless
sooner terminated pursuant to this Article 7, shall expire on a Licensed
Product-by-Licensed Product or Licensed Service-by-Licensed Service basis and
country-by-country basis, upon the date of the last sale of such Licensed
Product or the last provision of a Licensed Service in such country.

     7.2. EVENTS OF DEFAULT.

          7.2.1. DEFAULT BY EITHER PARTY. Subject to Section 7.2.2., an Event of
Default by either party shall have occurred upon (i) the occurrence of a breach
of a material term of this Agreement (other than a material breach described in
clause (ii) hereof or in Section 7.2.2.) if the breaching party fails to remedy
such breach within ninety (90) days after written notice thereof by the
non-breaching party or (ii) the bankruptcy, insolvency, dissolution or winding
up of a party.

                                       11

<PAGE>   12

          7.2.2. DEFAULT BY APB. An Event of Default by APB shall have occurred
if (i) APB fails to make payments due hereunder within thirty (30) days after
ArQule delivers written notice thereof to APB specifying such failure and its
claim of right to terminate, unless APB makes such payments plus interest within
such thirty (30) day period.

     7.3. EFFECT OF AN EVENT OF DEFAULT.

          7.3.1. REMEDIES AVAILABLE TO ARQULE. If an Event of Default described
in Section 7.2.1. or 7.2.2. occurs relating to APB, and APB fails to cure such
default during any applicable cure period, ArQule shall have the right, at its
option exercisable in its sole discretion, in addition to any other rights or
remedies available to it at law or in equity, and subject to the limitations of
Section 9.12, to terminate this Agreement upon written notice thereof to APB.

          7.3.2. REMEDIES AVAILABLE TO APB. If an Event of Default described in
Section 7.2.1. occurs relating to ArQule, and ArQule fails to cure such default
during any applicable cure period, APB shall have the right, at its option
exercisable in its sole discretion, in addition to any other rights or remedies
available to it at law or in equity, and subject to the limitations of Section
9.12, to terminate this Agreement upon written notice thereof to ArQule.

     7.4. SURVIVAL.  The expiration or termination of this Agreement shall not
relieve the parties of any obligation accruing prior to such expiration or
termination. The provisions of Articles 5 (with respect to payment obligations
that accrue prior to the effective date of termination), 6, and 8, and Sections
9.8., 9.10., and 9.12. shall survive the expiration or termination of this
Agreement

8. INDEMNIFICATION AND INSURANCE.

     8.1. APB INDEMNIFICATION.  APB (the "Indemnifying Party") shall indemnify
and hold harmless ArQule, and its directors, officers, employees and agents
(collectively, the "Indemnitees") from and against all claims, expenses or
liability of whatever nature arising from or alleged to arise from (i) any
default, act, omission or negligence of the Indemnifying Party, its agents or
employees, or others exercising rights by, through, or under the Indemnifying
Party, or the failure of the Indemnifying Party or such persons to comply with
any applicable laws, rules, regulations, codes, ordinances or directives of
governmental authorities, in each case to the extent the same are related,
directly or indirectly, to the licenses described herein, and/or the sale of
Licensed Products and/or the provision of Licensed Services; or (ii) any theory
of product liability (including, but not limited to, actions in the form of
tort, warranty or strict liability) concerning any Licensed Product sold or
Licensed Service rendered by such party; provided, however, that in no event
shall the Indemnifying Party be obligated under this section to indemnify an
Indemnitee where such claim, expense or liability results solely from any
omission, fault, negligence, or other misconduct of such Indemnitee.

     8.2. ARQULE INDEMNIFICATION.  ArQule (the "Indemnifying Party") shall
indemnify and hold harmless APB, and its directors, officers, employees and
agents (collectively, the "Indemnitees") from and against all claims, expenses
or liability of whatever nature arising from or alleged to arise from (i) any
default, act, omission or negligence of the Indemnifying Party, its

                                       12

<PAGE>   13

agents or employees, or others exercising rights by, through, or under the
Indemnifying Party, or the failure of the Indemnifying Party or such persons to
comply with any applicable laws, rules, regulations, codes, ordinances or
directives of governmental authorities, in each case to the extent the same are
related, directly or indirectly, to the licenses set forth in Section 3.2.; or
(ii) any theory of product liability (including, but not limited to, actions in
the form of tort, warranty or strict liability) concerning any product or
service rendered by such party pursuant to the licenses granted under Section
3.2.; provided, however, that in no event shall the Indemnifying Party be
obligated under this section to indemnify an Indemnitee where such claim,
expense or liability results solely from any omission, fault, negligence, or
other misconduct of such Indemnitee.

     8.3. PROCEDURE.  The Indemnitees agree to provide the Indemnifying Party
with prompt written notice of any claim, suit, action, demand, or judgment for
which indemnification is sought under this Agreement. If an Indemnitee fails to
provide such notice within a reasonable time, and if such failure prejudicially
affects the ability of the Indemnifying Party to defend such action, the
Indemnifying Party shall be relieved of its liability to such Indemnitee under
this Article 8. The Indemnifying Party agrees, at its own expense, to provide
attorneys reasonably acceptable to the Indemnitees to defend against any such
claim. The Indemnitees shall cooperate fully with the Indemnifying Party in such
defense and will permit the Indemnifying Party to conduct and control such
defense and the disposition of such claim, suit, or action (including all
decisions relative to litigation, appeal, and settlement); provided, however,
that any Indemnitee shall have the right to retain its own counsel, at the
expense of the Indemnifying Party, if representation of such Indemnitee by the
counsel retained by the Indemnifying Party would be inappropriate because of
actual or potential differences in the interests of such Indemnitee and any
other party represented by such counsel. The Indemnifying Party agrees to keep
the other party informed of the progress in the defense and disposition of such
claim and to consult with such party with regard to any proposed settlement.

     8.4. INSURANCE.  APB shall maintain adequate product liability insurance
with respect to development, manufacture, and sale of Licensed Products and
Licensed Services by APB in such amount as it customarily maintains with respect
to sales of its other products, and in no event less than a reasonable amount.
APB shall maintain such insurance for so long as it continues to manufacture or
sell Licensed Products and/or to provide Licensed Services, and thereafter for
so long APB customarily maintains such insurance for itself covering such
manufacture or sale.

9. MISCELLANEOUS.

     9.1. PUBLICITY.  Neither party shall make any press release, advertising,
promotional sales literature, or other promotional oral or written statements to
the public in connection with this Agreement, or having or containing any
reference to ArQule or APB, without the prior written approval of the other
party, except for restatements of previously-approved statements and disclosures
required by applicable law or regulation.

     9.2. RELATIONSHIP OF PARTIES.  For the purposes of this Agreement, each
party is an independent contractor and not an agent or employee of the other
party. Neither party shall have authority to make any statements,
representations, or commitments of any kind, or to take any

                                       13
<PAGE>   14

action which shall be binding on the other party, except as may be explicitly
provided for herein or authorized in writing.

     9.3. COUNTERPARTS.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.

     9.4. HEADINGS.  All headings in this Agreement are for convenience only and
shall not affect the meaning of any provision hereof.

     9.5. BINDING EFFECT.  This Agreement shall inure to the benefit of and be
binding upon the parties and their respective lawful successors and assigns.

     9.6. ASSIGNMENT.  This Agreement may not be assigned by either party
without the prior written consent of the other party, except that either of the
parties may assign this Agreement to an Affiliate or successor in connection
with the merger, consolidation, or sale of all or substantially all of its
assets or that portion of its business pertaining to the subject matter of this
Agreement.

     9.7. FORCE MAJEURE.  Neither party will be responsible for delays resulting
from acts beyond the control of such party, provided, that the non-performing
party uses commercially reasonable efforts to avoid or remove such causes of
nonperformance and continues performance hereunder with reasonable dispatch
whenever such causes are removed.

     9.8. NOTICES.  All notices, requests, demands and other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been duly given upon the date of receipt if
delivered by hand, recognized national overnight courier, confirmed facsimile
transmission, or registered or certified mail, return receipt requested, postage
prepaid, to the following addresses or facsimile numbers:

     If to APB:

                Amersham Pharmacia Biotech AB
                S-751-84 Uppsala
                Sweden
                Attention: Peter Ehrenheim
                Telephone: +46 18 612 0000
                Facsimile: +46 18 612 1809

                                       14

<PAGE>   15

     with a copy (which shall not constitute notice) to:

                Ulf Lundberg
                General Counsel
                Amersham Pharmacia Biotech
                S-751-84 Uppsala
                Sweden
                Telephone: +46 18 612 0001
                Facsimile: +46 18 612 1810

     If to ArQule:

                ArQule, Inc.
                19 Presidential Way
                Woburn, MA 01801
                Attn: President
                Telephone: (781) 994-0300
                Facsimile: (781) 503-0009

     with a copy (which shall not constitute notice) to:

                ArQule, Inc.
                19 Presidential Way
                Woburn, MA 01801
                Attn: Legal Department
                Telephone: (781) 994-0300
                Facsimile: (781) 994-0676

Either party may change its designated address and facsimile number by notice to
the other party in the manner provided in this Section 9.8.

     9.9. AMENDMENT AND WAIVER.  This Agreement may be amended, supplemented, or
otherwise modified at any time, but only by means of a written instrument signed
by both parties. Any waiver of any rights or failure to act in a specific
instance shall relate only to such instance and shall not be construed as an
agreement to waive any rights or fail to act in any other instance, whether or
not similar.

     9.10. GOVERNING LAW.  This Agreement and the legal relations among the
parties shall be governed by and construed in accordance with the laws of the
State of Delaware irrespective of any conflict of laws principles.

     9.11. SEVERABILITY.  In the event that any provision of this Agreement
shall, for any reason, be held to be invalid or unenforceable in any respect,
such invalidity or unenforceability shall not affect any other provision hereof,
and this Agreement shall be construed as if such invalid or unenforceable
provision had not been included herein.

                                       15

<PAGE>   16

     9.12. DISPUTE RESOLUTION.  Any disputes between the parties that arise
under or relate to this Agreement and are not resolved by the Steering Committee
shall be resolved in accordance with the following procedures. The parties shall
first attempt in good faith to resolve the matter among themselves. If the
matter remains unresolved after a period of thirty (30) days after the dispute
first arose, the dispute shall be referred to the Chief Executive Officers of
each party, who shall meet at a mutually acceptable time and location. If the
matter remains unresolved within sixty (60) days after the dispute first arose,
the matter will be finally settled by binding arbitration as follows. The
parties will submit the matter to binding arbitration in accordance with the
then current Center for Public Resources Institute for Dispute Resolution Rules
for Non-Administered Arbitration, with the exception that the arbitration shall
be conducted in New York, New York by a sole arbitrator. Judgment upon the award
rendered by the arbitrator may be entered and enforced in any court having
jurisdiction thereof.

        9.13.  ENTIRE AGREEMENT.  This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all prior or contemporaneous oral and prior written
agreements and understandings including, without limitation, the Prior
Agreements.

                                       16

<PAGE>   17

     IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as a sealed instrument effective as of the date first above written.

AMERSHAM PHARMACIA                          ARQULE, INC.
BIOTECH AB

By: /s/ Ulf Lundberg                        By: /s/ Stephen A. Hill
    --------------------------------            --------------------------------
Name: Ulf Lundberg                          Name: Stephen A. Hill
     -------------------------------             -------------------------------
Title: VP-Legal                             Title: CEO
     -------------------------------             -------------------------------

                                       17

<PAGE>   18

                                   EXHIBIT A

                            Technology Transfer Plan
                            ------------------------
                                  July 7, 2000

     [*]

---------------
*Confidential treatment has been requested for the marked portion.<PAGE>   1
                                                                     EXHIBIT 4.1

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

                     UNION PLANTERS MORTGAGE FINANCE CORP.,
                                  AS DEPOSITOR,

                   UNION PLANTERS BANK, NATIONAL ASSOCIATION,
                               AS MASTER SERVICER,

                            THE BANK OF NEW YORK, AS
                                     TRUSTEE

                                       AND

                  UNION PLANTERS BANK, NATIONAL ASSOCIATION, AS
                          CONTRACT OF INSURANCE HOLDER

                                   ----------

                  SERIES 2000-1 POOLING AND SERVICING AGREEMENT

                            DATED AS OF JULY 1, 2000

                                   ----------

                     UNION PLANTERS MORTGAGE FINANCE CORP.,

                MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2000-1

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

<PAGE>   2

         THIS SERIES 2000-1 POOLING AND SERVICING AGREEMENT, dated as of July 1,
2000, is made with respect to the formation of UPMFC Trust 2000-1 (the "Trust")
among UNION PLANTERS MORTGAGE FINANCE CORP., a Delaware corporation (the
"Depositor"), UNION PLANTERS BANK, NATIONAL ASSOCIATION, a national banking
association (in its capacity as master servicer, the "Master Servicer"), THE
BANK OF NEW YORK, a New York banking corporation, as trustee (the "Trustee"),
and UNION PLANTERS BANK, NATIONAL ASSOCIATION, a national banking association,
as contract of insurance holder (the "Contract of Insurance Holder") under this
Agreement and the Standard Terms to Pooling and Servicing Agreement, May 1998
Edition (the "Standard Terms"), all the provisions of which are incorporated
herein as modified hereby and shall be a part of this Agreement as if set forth
herein in full (this Agreement, with the Standard Terms so incorporated, the
"Pooling and Servicing Agreement"). Capitalized terms used and not otherwise
defined herein shall have the respective meanings given them in the Standard
Terms.

                              PRELIMINARY STATEMENT

         The Depositor has duly authorized the formation of the Trust to issue a
Series of Certificates with an aggregate initial principal amount of
$127,282,880, to be known as the Mortgage Pass-Through Certificates, Series
2000-1 (the "Certificates"). The Certificates consist of 10 Classes that in the
aggregate evidence the entire beneficial ownership interest in the Trust.

         In accordance with Section 10.01 of the Standard Terms, the Trustee
will make an election to treat all of the assets of the Trust as a real estate
mortgage investment conduit (the "REMIC") for federal income tax purposes. The
"startup day" for purposes of the REMIC Provisions is the Closing Date.

                                GRANTING CLAUSES

         The Depositor hereby bargains, sells, conveys, assigns and transfers to
the Trustee, in trust and as provided in this Pooling and Servicing Agreement,
without recourse (except as provided herein) and for the exclusive benefit of
the Holders of the Certificates, all of the Depositor's right, title and
interest in and to, and any and all benefits accruing to the Depositor from, (a)
the Assets listed in Schedule I hereto, together with the related Asset
Documents, and all payments thereon and proceeds of the conversion, voluntary or
involuntary, of the foregoing, including, without limitation, all rights to
receive all principal and interest payments due on the Assets after the Cut-off
Date, including such scheduled payments received by the Depositor or Seller on
or prior to the Cut-off Date, and Principal Prepayments, Net Insurance Proceeds,
Net Liquidation Proceeds, Repurchase Prices and other unscheduled collections
received on the Assets on and after the Cut-off Date; (b) the security interests
in the Mortgaged Properties granted by the Obligors pursuant to the related
Assets; (c) all funds relating to the Assets on deposit in the Certificate
Account or the Distribution Account for the Certificates and all proceeds
thereof, whether in the form of cash, instruments, securities or other
properties; (d) any and all rights, privileges and benefits accruing to the
Depositor under the Sales Agreement with respect to the Assets (provided that
the Depositor shall retain its rights to indemnification from

                                      S-1
<PAGE>   3

the Seller under such Sales Agreement, but also hereby conveys its rights to
such indemnification to the Trustee as its assignee), including the rights and
remedies with respect to the enforcement of any and all representations,
warranties and covenants under such Sales Agreement; and (e) proceeds of all the
foregoing (including, but not by way of limitation, all proceeds of any Standard
Hazard Insurance Policy, VA Guaranty or FHA Insurance, or any other insurance
policy relating to any of the Assets, cash proceeds, accounts, accounts
receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts,
rights to payment of any and every kind, and other forms of obligations and
receivables that at any time constitute all or part or are included in the
proceeds of any of the foregoing) as specified herein (the items referred to in
clauses (a) through (e) above shall be collectively referred to herein as the
"Trust Estate").

         The Trustee acknowledges the foregoing, accepts the trusts hereunder in
accordance with the provisions hereof and the Standard Terms and agrees to
perform the duties herein or therein required to the best of its ability to the
end that the interests of the Holders of the Certificates may be adequately and
effectively protected.

SECTION 1.  STANDARD TERMS; RESTATEMENT OF DECLARATION OF TRUST.

         (a)      The Depositor, the Master Servicer, the Trustee, and the
Contract of Insurance Holder each acknowledge that the Standard Terms prescribe
certain obligations of the Depositor, the Master Servicer, the Trustee, and the
Contract of Insurance Holder with respect to the Certificates. The Depositor,
the Master Servicer, the Trustee, and the Contract of Insurance Holder each
agree to observe and perform such prescribed duties, responsibilities and
obligations, and acknowledge that, except to the extent inconsistent with the
provisions of this Agreement, the Standard Terms are and shall be a part of this
Pooling and Servicing Agreement to the same extent as if set forth herein in
full.

         (b)      This Agreement amends and restates the Declaration of Trust in
all respects. The Trustee will be acting not in its individual capacity but
solely as Trustee hereunder. The office of the Trust will be in the care of the
Trustee at the Corporate Trust Office. The actions heretofore taken by the
Trustee under the authority of the Declaration of Trust are hereby ratified and
confirmed.

SECTION 2.  DEFINED TERMS.

         With respect to the Certificates and in addition to or in replacement
for the definitions set forth in Section 1.01 of the Standard Terms, the
following definitions shall be assigned to the defined terms set forth below:

         "Book-Entry Certificates": The Class A-1 Certificates.

         "Carryover Interest Amount": With respect to each Class of Certificates
and each Distribution Date, all amounts that were distributable on such Class as
Interest Distribution Amounts on any previous Distribution Dates that remain
undistributed.

                                      S-2
<PAGE>   4

         "Claims Administrator": Union Planters Bank, National Association, a
national banking association, or any successor thereof.

         "Class A Certificates": The Class A-1 Certificates.

         "Class A-1 Certificates": The Class A-1 Certificates created pursuant
to Section 3 hereof.

         "Class B Certificates": The Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class B-4 Certificates, Class B-5
Certificates, and Class B-6 Certificates.

         "Class B-1 Certificates": The Class B-1 Certificates created pursuant
to Section 3 hereof.

         "Class B-2 Certificates": The Class B-2 Certificates created pursuant
to Section 3 hereof.

         "Class B-3 Certificates": The Class B-3 Certificates created pursuant
to Section 3 hereof.

         "Class B-4 Certificates": The Class B-4 Certificates created pursuant
to Section 3 hereof.

         "Class B-5 Certificates": The Class B-5 Certificates created pursuant
to Section 3 hereof.

         "Class B-6 Certificates": The Class B-6 Certificates created pursuant
to Section 3 hereof.

         "Class PO Certificates": The Class PO Certificates created pursuant to
Section 3 hereof.

         "Class PO Deferred Amount": With respect to each Mortgage Loan for
which a Realized Loss occurs, the PO Percentage of such Realized Loss; provided,
however, that the Class PO Deferred Amount distributable on any Distribution
Date shall not exceed the excess, if any, of the Available Distribution Amount
remaining after giving effect to distributions in Section 5 herein over the
Interest Distribution Amount payable to the most senior Class of Subordinate
Certificates then outstanding; and provided further, that no distributions shall
be made in respect of the Class PO Deferred Amount after the Credit Support
Depletion Date.

         "Class PO Principal Distribution Amount": With respect to any
Distribution Date, the sum of (i) the sum of the PO Percentage of the principal
portions of all scheduled Monthly Payments on the Mortgage Loans due on the
related Due Date, whether or not received on or prior to the related
Determination Date, plus (ii) the sum of the PO Percentages of all unscheduled
payments or collections of principal in respect of the Mortgage Loans received
during the preceding calendar month (including the PO Percentage of the
principal portion of proceeds of the repurchase of a Mortgage Loan, full and
partial Mortgagor prepayments, Foreclosure Advances and Net Liquidation
Proceeds).

         "Class R Certificates": The Class R Certificates, which represent
beneficial ownership of the REMIC Residual Interest.

         "Class X Certificates": The Class X-1 Certificates, created pursuant to
Section 3 hereof.

         "Class X-1 Certificates": The Class X-1 Certificates created pursuant
to Section 3 hereof.

                                      S-3
<PAGE>   5

         "Closing Date": July 27, 2000.

         "Contract of Insurance Holder": Union Planters Bank, National
Association, a national banking association, or any successor appointed as
herein provided. Notices to the Contract of Insurance Holder shall be sent to
Union Planters Bank, National Association, 7130 Goodlett Farms Parkway, Cordova,
Tennessee 38018 Attn: UPMFC Trust 2000-1, or its successor in interest.

         "Corporate Trust Office": The address set forth hereinbelow under
"Trustee".

         "Credit Support Depletion Date": The first Distribution Date on which
the Certificate Principal Balances of each Class of the Class B Certificates
equals zero.

         "Cut-off Date": July 1, 2000.

         "Declaration of Trust": The declaration of trust, dated July 27, 2000,
by and between The Bank of New York, as settlor, and The Bank of New York, as
trustee, which established the Trust.

         "Determination Date": With respect to any Distribution Date, the 15th
calendar day of the month in which such Distribution Date occurs or, if such day
is not a Business Day, the immediately succeeding Business Day.

         "Discount Mortgage Loan": Each Mortgage Loan with a Net Rate less than
7.700% per annum.

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

         "ERISA Restricted Certificates": The Class B, Class X, Class PO and
Class R Certificates.

         "Interest Accrual Period": With respect to each Distribution Date and
with respect to the Class X-1 Certificates, the calendar month preceding the
month in which the Distribution Date occurs. Interest on the Class X-1
Certificates will be computed on the basis of a 360-day year consisting of
twelve 30-day months. The Interest Accrual Period with respect to all other
Classes of Certificates (other than the Class PO Certificates) will be as
provided in the Standard Terms.

         "Interest Distribution Amount": For any Class of Certificates (other
than the Class PO Certificates) on any Distribution Date, interest accrued on
such Class during the related Interest Accrual Period at the applicable
Pass-Through Rate on the related Certificate Principal Balance or Notional
Principal Amount, as the case may be, less Net Interest Shortfalls. No interest
shall be payable on the Class PO Certificates.

         "Net Interest Shortfalls": With respect to each Distribution Date, the
sum of (i) Soldiers' and Sailors' Shortfalls and (ii) Due Date Interest
Shortfalls, less Compensating Interest, each for the related Collection Period.

                                      S-4
<PAGE>   6

         "Non-Discount Mortgage Loan": Each Mortgage Loan with a Net Rate equal
to or greater than 7.700% per annum.

         "Non-PO Percentage": With respect to any Discount Mortgage Loan, the
Net Rate divided by 7.700% per annum; and with respect to any Non-Discount
Mortgage Loan, 100%.

         "Notional Principal Amount": The Notional Principal Amount of the Class
X-1 Certificates on any date shall equal the aggregate Principal Balance of each
of the Non-Discount Mortgage Loans at the beginning of the related Collection
Period (or as of the Cut-off Date in the case of the first Distribution Date).

         "Pass-Through Rate": With respect to each Class of Certificates, on any
Distribution Date, the per annum rate for such Class set forth in the table in
Section 3 hereof.

         "PO Percentage": With respect to any Discount Mortgage Loan, (i) 7.700%
per annum minus the related Net Rate (ii) divided by 7.700% per annum; and with
respect to any Non-Discount Mortgage Loan, 0%.

         "Principal Balance": With respect to any Mortgage Loan as of any Due
Date, the unpaid principal balance of such Mortgage Loan as of the Cut-off Date
reduced by all payments in respect of principal received or advanced from the
Cut-off Date through such Due Date.

         "Principal Distribution Amount": The sum of the Senior Principal
Distribution Amount and the Subordinate Principal Distribution Amount.

         "Private Certificates": The Class B, Class X, Class PO and Residual
Certificates.

         "Pro Rata Portion": With respect to any Distribution Date and Class of
Subordinate Certificates, the amount equal to the fraction, the numerator of
which is such Class's Certificate Principal Balance immediately prior to such
Distribution Date and the denominator of which is the aggregate of the
Certificate Principal Balances of the Class B Certificates immediately prior to
such Distribution Date.

         "Rating Agency": Each of Fitch, Inc., One State Street, New York, New
York 10004, and Moody's Investors Service, Inc., 99 Church Street, New York, New
York 10007.

         "Realized Loss": (a) With respect to each defaulted Mortgage Loan with
respect to which a Foreclosure Advance has been made, the excess, if any, of the
aggregate of all Advances made with respect to such Mortgage Loan over all
recoveries, including recoveries in respect of the related FHA Insurance or VA
Guaranty, as applicable, made in respect of such Mortgage Loan, (b) with respect
to any other Liquidated Loan other than in connection with a claim under FHA
Insurance or a VA Guaranty, the excess, if any, of the Scheduled Principal
Balance of the Liquidated Loan, plus accrued and unpaid interest on such
Liquidated Loan, plus amounts reimbursable to the Master Servicer for previously
unreimbursed Advances, minus Net Liquidation Proceeds collected in respect of
the Liquidated Loan, and (c) the excess, if any, of (1) the aggregate
Certificate Principal Balance of the Class A, Class R, Class PO and Class B

                                      S-5
<PAGE>   7

Certificates after giving effect to distributions of principal on such
Distribution Date and after taking into account preceding clauses (a) and (b)
over (2) the aggregate Scheduled Principal Balance of the Mortgage Loans at the
end of the related Collection Period.

         "Regular Certificates": The Class A Certificates, Class B Certificates,
Class PO Certificates and Class X Certificates.

         "Residual Certificates": The Class R Certificates.

         "Rule 144A Certificates": The Class B Certificates, Class X
Certificates, Class PO Certificates and Residual Certificates.

         "Scheduled Principal Balance": With respect to any Mortgage Loan as of
any Due Date, the unpaid principal balance thereof as of the Cut-off Date as
specified in the related amortization schedule at such time reduced by all
previous curtailments and by the payment of principal due on such Mortgage Loan
from the Cut-Off Date through such Due Date irrespective of any delinquencies in
payment of such Mortgage Loan.

         "Senior Accelerated Distribution Percentage": For any Distribution Date
occurring prior to the Distribution Date in August 2005, 100%, and for any
Distribution Date on or after the August 2005 Distribution Date will be as
follows:

                  (i)      for any Distribution Date from August 2005 through
         July 2006, the Senior Percentage for such Distribution Date plus 70% of
         the Subordinate Percentage for such Distribution Date;

                  (ii)     for any Distribution Date from August 2006 through
         July 2007, the Senior Percentage for such Distribution Date plus 60% of
         the Subordinate Percentage for such Distribution Date;

                  (iii)    for any Distribution Date from August 2007 through
         July 2008, the Senior Percentage for such Distribution Date plus 40% of
         the Subordinate Percentage for such Distribution Date;

                  (iv)     for any Distribution Date from August 2008 through
         July 2009, the Senior Percentage for such Distribution Date plus 20% of
         the Subordinate Percentage for such Distribution Date; and

                  (v)      for any Distribution Date after July 2009, the Senior
         Percentage for such Distribution Date;

provided, however, that on any Distribution Date on which the Senior Percentage
exceeds 97.31%, the Senior Accelerated Distribution Percentage for such
Distribution Date will equal 100%.

         Any scheduled reduction to the Senior Accelerated Distribution
Percentage described above shall not be made as of any Distribution Date unless
(i) the average monthly percentage of Mortgage Loans delinquent 90 days or more
over the last six months (calculated as the arithmetic

                                      S-6
<PAGE>   8

mean of the percentage values for each of the preceding six months determined by
dividing the aggregate outstanding Scheduled Principal Balance of Mortgage Loans
90 days or more delinquent in that month by the aggregate outstanding
Certificate Principal Balance of the Class B Certificates in that month, after
giving effect to distributions in such month) is less than 200%, and (ii)
aggregate Realized Losses on the Mortgage Loans to date for such Distribution
Date, if occurring during the sixth, seventh, eighth, ninth or tenth year (or
any year thereafter) after the Closing Date, are less than 15%, 20%, 25%, 30% or
35%, respectively, of the sum of the initial Certificate Principal Balances of
the Class B Certificates. Notwithstanding the foregoing, upon reduction of the
Certificate Principal Balances of the Class A-1 Certificates to zero, the Senior
Accelerated Distribution Percentage will equal 0%.

         "Senior Certificates": The Class R, Class A, Class PO and Class X
Certificates.

         "Senior Percentage": On the initial Distribution Date, approximately
97.31%, and thereafter for each succeeding Distribution Date will be
recalculated to equal the percentage equal to the aggregate Certificate
Principal Balance of the Senior Certificates (other than the Class X and Class
PO Certificates) immediately prior to such Distribution Date divided by the
aggregate Certificate Principal Balance of the Senior Certificates (other than
the Class X and Class PO Certificates) and the Subordinate Certificates
immediately prior to the Distribution Date.

         "Senior Non-PO Principal Distribution Amount": With respect to any
Distribution Date, the sum of the amounts described in clauses (i) through (ii)
below.

                  (i)      the product of (A) the then-applicable Senior
         Percentage and (B) the sum of the Non-PO Percentages of the principal
         portions of all Monthly Payments on the Mortgage Loans due on the
         related Due Date, whether or not received on or prior to the related
         Determination Date; plus

                  (ii)     the product of (A) the then-applicable Senior
         Accelerated Distribution Percentage and (B) the sum of the Non-PO
         Percentages of all of the unscheduled payments or collections of
         principal in respect of the Mortgage Loans received during the
         preceding calendar month (including the Non-PO Percentage of the
         principal portion of proceeds of the repurchase of a Mortgage Loan,
         full and partial Mortgagor prepayments, Foreclosure Advances and Net
         Liquidation Proceeds).

         "Senior Principal Distribution Amount": With respect to any
Distribution Date, the sum of the Senior Non-PO Principal Distribution Amount
and the Class PO Principal Distribution Amount, each with respect to such
Distribution Date. With respect to any Distribution Date, if the Available
Distribution Amount remaining after the distribution of interest to the Senior
Certificates (other than the Class PO Certificates) is insufficient to
distribute the full Senior Principal Distribution Amount, the Senior Non-PO
Principal Distribution Amount and the Class PO Principal Distribution Amount
will be reduced in proportion to the Non-PO Percentages and the PO Percentages,
respectively, of the Mortgage Loans responsible for such shortfall.

                                      S-7
<PAGE>   9

         "Servicing Fee Rate": 1.00% per annum with respect to each Mortgage
Loan with a Mortgage Rate greater than 8.625% per annum, 0.75% per annum with
respect to each Mortgage Loan with a Mortgage Rate less than or equal to 8.625%
per annum, but greater than 8.000% per annum, and 0.50% per annum with respect
to each Mortgage Loan with a Mortgage Rate less than or equal to 8.000% per
annum.

         "Subordinate Certificates": The Class B Certificates.

         "Subordinate Percentage": 100% less the Senior Percentage.

         "Subordinate Principal Distribution Amount": With respect to any
Distribution Date, the lesser of (a) the balance of the Available Distribution
Amount remaining after the distribution of the Interest Distribution Amount
allocable to the Senior Certificates, the Senior Principal Distribution Amount,
Class PO Deferred Amount and the Interest Distribution Amount allocable to the
Subordinate Certificates and (b) the sum of the amounts described in clauses (i)
through (ii) below:

         (i) the product of (A) the then-applicable Subordinate Percentage and
(B) the sum of the Non-PO Percentages of the principal portion of all Monthly
Payments on the Mortgage Loans due on the related Due Date, whether or not
received on or prior to the related Determination Date; plus

         (ii) the sum of the Non-PO Percentages of the portion of all
unscheduled payments or collections of principal in respect of the Mortgage
Loans received during the preceding calendar month (including the Non-PO
Percentages of the principal portion of proceeds of the repurchase of a Mortgage
Loan, full and partial Mortgagor prepayments, Foreclosure Advances and Net
Liquidation Proceeds) allocable to the Subordinate Certificates.

         "Trustee": The Bank of New York, a New York banking corporation, not in
its individual capacity but solely as Trustee under this Pooling and Servicing
Agreement, or any successor trustee appointed as herein provided. Notices to the
Trustee shall be sent to Corporate Trust Department, 101 Barclay Street, New
York, New York 10286, Attn: UPMFC Trust 2000-1 (the "Corporate Trust Office"),
or its successor in interest.

         "Trustee Fee Rate": 0.012% per annum.

         "Underwriter": Morgan Stanley & Co. Incorporated (whose address is 1585
Broadway, New York, New York 10036).

         "Weighted Average Net Asset Rate": With respect to any Distribution
Date, the weighted average of the Asset Rates applicable to the Monthly Payments
that were due during the related Collection Period on Mortgage Loans that were
Outstanding at the beginning of the related Prepayment Period, less the
Servicing Fee Rate and the Trustee Fee Rate.

                                      S-8
<PAGE>   10

SECTION 3.  CERTIFICATES.

         The aggregate initial principal amount of Certificates that may be
executed and delivered under this Pooling and Servicing Agreement is limited to
$127,282,880 except for Certificates executed and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Certificates pursuant to
Sections 5.04 or 5.07 of the Standard Terms. The Certificates shall be issued in
ten Classes having the designations, initial Certificate Principal Balances,
initial Notional Principal Amounts, Pass-Through Rates and Final Scheduled
Distribution Dates set forth or described below:

<TABLE>
<CAPTION>
                      INITIAL                                     FINAL
                    CERTIFICATE                                 SCHEDULED
                     PRINCIPAL         PASS THROUGH            DISTRIBUTION
DESIGNATION           BALANCE              RATE                   DATE(4)
-----------         -----------        ------------            ------------
<S>               <C>                  <C>                   <C>
    A-1           $121,906,000            7.700%             December 25, 2024
    B-1           $  1,145,000            7.700%             August 25, 2000
    B-2           $    318,207            7.700%             December 25, 2024
    B-3           $    318,207            7.700%             December 25, 2024
    B-4           $    318,207            7.700%             December 25, 2024
    B-5           $    318,207            7.700%             December 25, 2024
    B-6           $    957,268            7.700%             December 25, 2024
    X-1                     (1)              (2)             July 25, 2012
    PO            $  2,001,684            0.000%             December 25, 2024
    R                       (3)              (3)             August 25, 2000
</TABLE>

                  (1)      The Class X-1 Certificates shall have no Certificate
         Principal Balance, and will bear interest based on its Notional
         Principal Amount.

                  (2)      The Pass-Through Rate for the Class X-1 Certificates
         on each Distribution Date will be equal to the excess of (i) the
         Weighted Average Net Asset Rate, as of the first day of the related
         Collection Period, with respect to the Non-Discount Mortgage Loans over
         (ii) 7.700% per annum.

                  (3)      The Class R Certificates shall represent the residual
         interest in the REMIC. The Class R Certificates shall have a
         Certificate Principal Balance of $100 (unless previously paid) and a
         Pass-Through Rate of 7.700% per annum.

                  (4)      For purposes of Treasury Regulation
         ss.1.860G-1(a)(4), the latest possible maturity date of each Class of
         Certificates shall be the Final Scheduled Distribution Date.

                                      S-9
<PAGE>   11

SECTION 4.  DENOMINATIONS.

         The Book-Entry Certificates will be registered as one or more
certificates in the name of the Clearing Agency or its nominee. Beneficial
interests in the Book-Entry Certificates will be held by the Beneficial Owners
through the book-entry facilities of the Clearing Agency, in minimum
denominations of $1,000 and integral multiples of $1 in excess thereof.

         The Class B, Class X, Class PO and Class R Certificates will be issued
in certificated, fully-registered form. Each Class of the Class B Certificates
will be issued in minimum denominations of $100,000 and integral multiples of
$1,000 in excess thereof, except that one Certificate of each Class may be
issued in a different denomination that evidences the remainder of the aggregate
initial Certificate Principal Balance of each such Class. The Class PO
Certificates will be issued in minimum Percentage Interests equal to 50%. The
Class X Certificates and the Class R Certificates will be issued in minimum
Percentage Interests equal to 10%.

SECTION 5.  DISTRIBUTIONS.

         (a)      On each Distribution Date, the Trustee (or the Paying Agent on
behalf of the Trustee) shall distribute the Available Distribution Amount (less
the Trustee Fee) in the following manner and in the following order of priority:

(i)      First, concurrently, to each Class of Senior Certificates (other than
the Class PO Certificates), (A) first, its Interest Distribution Amount for such
Distribution Date; and (B) second, the related Carryover Interest Amount for
such Distribution Date, if any; provided that, if the Available Distribution
Amount on any Distribution Date is insufficient to distribute the full amount of
the Interest Distribution Amounts or the Carryover Interest Amounts for all
Classes of Senior Certificates (other than the Class PO Certificates), then the
Available Distribution Amount shall be allocated pro rata among such Classes
based upon their respective Interest Distribution Amounts or Carryover Interest
Amounts, as applicable, for such Distribution Date;

(ii)     Second, the Senior Non-PO Principal Distribution Amount shall be
allocated sequentially, first, to the Class R Certificates and second, to the
Class A-1 Certificates in each case in reduction of the Certificate Principal
Balance of each such Class of Certificates, until it has been reduced to zero.

         provided, however, that on any Distribution Date on which (A) the
         aggregate Principal Balance of the Mortgage Loans is less than the
         aggregate Certificate Principal Balance of the Senior Certificates
         immediately prior to such Distribution Date or (B) the Credit Support
         Depletion Date has occurred, the Senior Non-PO Principal Distribution
         Amount will be allocated among the Senior Certificates (other than the
         Class PO and Class X Certificates) pro rata based upon their respective
         Certificate Principal Balances;

(iii)    Third, to the Class PO Certificates, the amount of the Class PO
Principal Distribution Amount, if any, in reduction of the Certificate Principal
Balance of such Class, until it has been reduced to zero;

                                      S-10
<PAGE>   12

(iv)     Fourth, to the Class PO Certificates, the amount of the Class PO
Deferred Amount, if any, that has not previously been distributed pursuant to
this clause (iv) on any prior Distribution Date; provided, however, that amounts
allocated under this paragraph shall only be distributed out of amounts
otherwise distributable as principal on the Class B Certificates;

(v)      Fifth, to the Class B-1 Certificates, the related Interest Distribution
Amount for such Distribution Date;

(vi)     Sixth, to the Class B-1 Certificates, the Class B-1 Certificates' Pro
Rata Portion of the Subordinate Principal Distribution Amount in reduction of
the Certificate Principal Balance of such Class, until it has been reduced to
zero;

(vii)    Seventh, to the Class B-2 Certificates, the related Interest
Distribution Amount for such Distribution Date;

(viii)   Eighth, to the Class B-2 Certificates, the Class B-2 Certificates' Pro
Rata Portion of the Subordinate Principal Distribution Amount in reduction of
the Certificate Principal Balance of such Class, until it has been reduced to
zero;

(ix)     Ninth, to the Class B-3 Certificates, the related Interest Distribution
Amount for such Distribution Date;

(x)      Tenth, to the Class B-3 Certificates, the Class B-3 Certificates' Pro
Rata Portion of the Subordinate Principal Distribution Amount in reduction of
the Certificate Principal Balance of such Class, until it has been reduced to
zero;

(xi)     Eleventh, to the Class B-4 Certificates, the related Interest
Distribution Amount for such Distribution Date;

(xii)    Twelfth, to the Class B-4 Certificates, the Class B-4 Certificates' Pro
Rata Portion of the Subordinate Principal Distribution Amount in reduction of
the Certificate Principal Balance of such Class, until it has been reduced to
zero;

(xiii)   Thirteenth, to the Class B-5 Certificates, the related Interest
Distribution Amount for such Distribution Date;

(xiv)    Fourteenth, to the Class B-5 Certificates, the Class B-5 Certificates'
Pro Rata Portion of the Subordinate Principal Distribution Amount in reduction
of the Certificate Principal Balance of such Class, until it has been reduced to
zero;

(xv)     Fifteenth to the Class B-6 Certificates, the related Interest
Distribution Amount for such Distribution Date;

(xvi)    Sixteenth, to the Class B-6 Certificates, the Class B-6 Certificates'
Pro Rata Portion of the Subordinate Principal Distribution Amount in reduction
of the Certificate Principal Balance of such Class, until it has been reduced to
zero;

                                      S-11
<PAGE>   13

(xvii)   Seventeenth, to the Trustee, for any unpaid expenses (including,
without limitation, indemnification amounts required to be paid under the
Pooling and Servicing Agreement, if any); and

(xviii)  Finally, any remainder to the holders of the Class R Certificates.

         (b)      All distributions or allocations made with respect to each
Class on each Distribution Date shall be allocated pro rata among the
outstanding Certificates of such Class based on their respective Percentage
Interests. So long as the Book-Entry Certificates are registered in the name of
a Clearing Agency or its nominee, the Trustee shall make all distributions or
allocations on such Certificates by wire transfers of immediately available
funds to the Clearing Agency or its nominee. In the case of Certificates issued
in fully-registered, certificated form, payment shall be made either (i) by
check mailed to the address of each Certificateholder as it appears in the
Certificate Register on the Record Date immediately prior to such Distribution
Date or (ii) by wire transfer of immediately available funds to the account of a
Holder at a bank or other entity having appropriate facilities therefor, if such
Holder shall have so notified the Trustee in writing at least five Business Days
prior to the Record Date immediately prior to such Distribution Date and such
Holder is (A) with respect to any Class B Certificates issued on the Closing
Date in certificated, fully-registered form, the registered owner of Class B
Certificates with an aggregate initial Certificate Principal Balance of at least
$1,000,000 or 100% of their respective aggregate initial Certificate Principal
Balance, and (B) with respect to the Residual Certificates, Class PO
Certificates or Class X Certificates, the registered owner of the Residual
Certificates, Class PO Certificates or Class X Certificates evidencing an
aggregate Percentage Interest of at least 50%. The Trustee may charge any Holder
its standard wire transfer fee for any payment made by wire transfer. Final
distribution on the Certificates will be made only upon surrender of the
Certificates at the offices of the Trustee set forth in the notice of such final
distribution sent by the Trustee to all Certificateholders pursuant to Section
9.01 of the Standard Terms.

         (c)      Any amounts remaining in the Distribution Account on any
Distribution Date after all allocations and distributions required to be made by
this Pooling and Servicing Agreement have been made, and any amounts remaining
in the REMIC after payment in full of all of the Regular Interests therein and
any administrative expenses associated with the Trust, will be distributed to
the Holders of the Class R Certificates.

SECTION 6.  ALLOCATION OF REALIZED LOSSES.

         (a)      On each Distribution Date, after all required distributions
have been made on the Certificates pursuant to Section 5 above, the Non-PO
Percentage of Realized Losses, if any, shall be allocated on such Distribution
Date in the following manner and in the following order of priority:

(i)      First, to the Class B-6 Certificates, to be applied in reduction of the
Certificate Principal Balance of such Class of Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;

                                      S-12
<PAGE>   14

(ii)     Second, to the Class B-5 Certificates, to be applied in reduction of
the Certificate Principal Balance of such Class of Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;

(iii)    Third, to the Class B-4 Certificates, to be applied in reduction of the
Certificate Principal Balance of such Class of Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;

(iv)     Fourth, to the Class B-3 Certificates, to be applied in reduction of
the Certificate Principal Balance of such Class of Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;

(v)      Fifth, to the Class B-2 Certificates, to be applied in reduction of the
Certificate Principal Balance of such Class of Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;

(vi)     Sixth, to the Class B-1 Certificates, to be applied in reduction of the
Certificate Principal Balance of such Class of Certificates, until the
Certificate Principal Balance thereof has been reduced to zero; and

(vii)    Finally, to the Class A Certificates and the Class R Certificates, pro
rata, based on their respective Certificate Principal Balances immediately prior
to such Distribution Date to be applied in reduction of the Certificate
Principal Balances of such Classes of Certificates, until each such Certificate
Principal Balance has been reduced to zero.

         (b)      On each Distribution Date, after all required distributions
have been made on the Certificates pursuant to Section 5 above, the PO
Percentage of Realized Losses, if any, shall be allocated on such Distribution
Date to the Class PO Certificates in reduction of the Certificate Principal
Balance of such Certificates, until such Class's Certificate Principal Balance
has been reduced to zero.

SECTION 7.  REMITTANCE REPORTS.

         (a)      The Remittance Report for each Distribution Date shall
identify the following items, in addition to the items specified in Section 4.01
of the Standard Terms:

                  (1)      the Interest Distribution Amount for each Class for
         such Distribution Date and the Carryover Interest Amount, for each
         Class of the Certificates for such Distribution Date;

                  (2)      the amount to be distributed on such Distribution
         Date on each Class of the Certificates to be applied to reduce the
         Certificate Principal Balance of such Class, separately identifying any
         portion of such amount attributable to any prepayments;

                                      S-13
<PAGE>   15

                  (3)      the aggregate amount, if any, of the Class PO
         Deferred Amount allocated for such Distribution Date, and the aggregate
         amount, if any, of the Class PO Deferred Amount distributed on such
         Distribution Date;

                  (4)      the aggregate amount, if any, to be distributed on
         the Residual Certificates;

                  (5)      the Certificate Principal Balance of each Class of
         the Certificates after giving effect to the distributions to be made on
         such Distribution Date; and

                  (6)      the aggregate Interest Distribution Amount remaining
         unpaid, if any, and the aggregate Carryover Interest Amount remaining
         unpaid, if any, for each Class of Certificates, after giving effect to
         all distributions to be made on such Distribution Date.

         In the case of information furnished pursuant to clauses (1), (2) and
(3) above, the amounts shall be expressed, with respect to any Class A, Class R,
Class PO or Class B Certificate, as a dollar amount per $1,000 denomination, and
in the case of the Class X Certificates, as a dollar amount per $1,000,000
Notional Principal Amount denomination.

         (b)      In addition to mailing a copy of the related Remittance Report
to each Certificateholder on each Distribution Date in accordance with Section
4.01 of the Standard Terms, on each Distribution Date, the Trustee shall mail a
copy of the related Remittance Report to the Underwriter (to the attention of
the person, if any, reported to the Trustee by the Underwriter), to the Seller
and to The Bloomberg (to the address and to the person, if any specified to the
Trustee by the Underwriter). The Trustee shall not be obligated to mail any
Remittance Report to The Bloomberg unless and until the Underwriter shall have
notified the Trustee in writing of the name and address to which such reports
are to be mailed, which notice, once delivered, will be effective for all
Distribution Dates after the date such notice is received by the Trustee unless
and until superseded by a subsequent notice.

SECTION 8.  MASTER SERVICER MAY RETAIN SERVICING FEES FROM COLLECTIONS.

         The Master Servicer may retain its Servicing Fee and any other
servicing compensation provided for herein and in the Standard Terms from gross
interest collections on the Assets prior to depositing such collections into the
Certificate Account.

SECTION 9.  REMIC ADMINISTRATION.

         For purposes of the REMIC Provisions, all of the Certificates (except
the Class R Certificates) will be designated as the Regular Interests in the
REMIC, and the Class R Certificates will be designated as the Residual Interest
in the REMIC.

SECTION 10.  VOTING RIGHTS.

         The Voting Rights applicable to the Certificates shall be allocated
one-half of 1% to each of the Class R Certificates and the Class X-1
Certificates, and 99% to each Class of the Class A

                                      S-14
<PAGE>   16

Certificates, Class PO Certificates and the Class B Certificates, in proportion
with their respective Certificate Principal Balances on any date of
determination.

SECTION 11.  MODIFICATIONS OF STANDARD TERMS.

         The following modifications to the Standard Terms shall be in effect
with respect to the Certificates only.

         (a)      Section 1.01 of the Standard Terms is hereby amended as
                  follows:

                           (1) the definition of "Mortgage Loan Documents" is
                  hereby amended by adding the following to the end of paragraph
                  (c) thereof, immediately following the semicolon:

                           and the original assignment of the Mortgage from the
                           related Seller either in blank or to the Trustee or
                           its Custodian, in the form specified in the related
                           Sales Agreement (or a copy thereof certified to be a
                           true and correct reproduction of the original
                           thereof);

                           (2) the definition of "Certificate Principal Balance"
                  is hereby amended by deleting the reference to "Section
                  3.07(d)" in the first sentence thereof and replacing such
                  reference with "Section 3.07(c)".

                           (3) the definition of "Repurchase Price" is hereby
                  amended by deleting the reference to "Section 2.04" in the
                  first sentence thereof and replacing such reference with
                  "Section 2.05".

                           (4) the definition of "Non-U.S. Person" is hereby
                  amended by deleting such definition in its entirety and
                  replacing it with the following:

                           Any Person other than a U.S. Person.

                           (5) the definition of "U.S. Person" is hereby amended
                  by deleting such definition in its entirety and replacing it
                  with the following:

                                    (i) A citizen or resident of the United
                           States, (ii) a corporation created or organized in or
                           under the laws of the United States, any state
                           thereof or the District of Columbia, including an
                           entity treated as a corporation for federal income
                           tax purposes, (iii) a partnership (unless Treasury
                           regulations are adopted that provide otherwise)
                           created or organized in or under the laws of the
                           United States, any state thereof or the District of
                           Columbia, including an entity treated as a
                           partnership for federal income tax purposes, none of
                           the interests in which are owned, directly or
                           indirectly through one or more intermediate entities,
                           by a Non-U.S. Person, (iv) an estate the income of
                           which is includible in gross

                                      S-15
<PAGE>   17

                           income for United States federal income tax purposes,
                           regardless of its source, (v) a trust if a court
                           within the United States is able to exercise primary
                           supervision over the administration of such trust and
                           one or more United States fiduciaries have the
                           authority to control all substantial decisions of the
                           trust (or to the extent provided in applicable
                           Treasury regulations, certain trusts in existence on
                           August 20, 1996 that are eligible to be treated as
                           United States persons), or (vi) a foreign person who
                           would be subject to United States taxation on a net
                           basis on income derived from a Certificate.

         (b)      Section 2.05(a)(i) of the Standard Terms is hereby amended by
deleting the term "Section 2.05(g)" in the fourth sentence thereof and replacing
such term with "Section 2.05(d)".

         (c)      Section 3.01 of the Standard Terms is hereby amended by adding
the following to the end of clause (i) in the second paragraph thereof:

         other than in a manner consistent with the provisions of Section
3.03(b) hereof

         (d)      Section 3.09(a) of the Standard Terms is hereby amended as
follows:

                  (1) the fourth sentence is hereby amended by deleting the
         words "before the end" and replacing these words with "by the end of
         the tenth month", and by adding the parenthetical clause "(the "REO
         Holding Period")" after the word "acquired" but before the word
         "after",

                  (2) the fifth sentence is hereby amended by deleting the
         phrase "such 3 year period" in each location where it is used, and
         replacing such phrase in each location with the phrase "the REO Holding
         Period",

                  (3) the sixth sentence is hereby amended by deleting the
         phrase "period longer than two years", and replacing such phrase with
         the phrase "longer period", and

                  (4) the seventh sentence is hereby amended by deleting the
         phrase "the 3 year period", and replacing such phrase with the phrase
         "the REO Holding Period".

         (e)      Section 12.02 of the Standard Terms is hereby deleted in its
entirety and replace with the following:

Section 12.02. Regarding the Contract of Insurance Holder, the Master Servicer
and the Trustee.

         (a)      The Contract of Insurance Holder, the Master Servicer and the
Trustee (including any successor Trustee) shall at all times be approved by HUD
as a mortgagee. The Contract of Insurance Holder shall not resign from the
obligations and duties imposed on it by this Agreement as Contract of Insurance
Holder except upon a determination that by reason of a change in legal
requirements or requirements imposed by the FHA (including, without limitation,

                                      S-16
<PAGE>   18

loss of its status as a HUD approved mortgagee) the performance of its duties
under this Agreement would cause it to be in violation of such legal
requirements or FHA imposed requirements in a manner which would result in a
material adverse effect on the Contract of Insurance Holder or cause it to
become ineligible to hold the FHA Insurance. Any such determination permitting
the resignation of the Contract of Insurance Holder shall be evidenced by an
Opinion of Counsel to such effect delivered and acceptable to the Trustee. Upon
receiving such notice of resignation, the FHA Insurance shall be transferred to
a qualified successor appointed by the Master Servicer (which qualified
successor must be a HUD approved mortgagee) by written instrument, in duplicate,
one copy of which instrument shall be delivered to the resigning Contract of
Insurance Holder and one copy to the successor contract of insurance holder.

         (b)      If at any time the Contract of Insurance Holder shall become
incapable of acting, or shall fail to perform its obligations hereunder, or its
long-term credit rating assigned by Moody's Investors Service, Inc. shall fall
below "A3" (or such other credit rating as may be determined by the Rating
Agencies from time to time) or shall be adjudged as bankrupt or insolvent, or a
receiver of the Contract of Insurance Holder or of its property shall be
appointed, or any public officer shall take charge or control of the Contract of
Insurance Holder or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, or the Contract of Insurance Holder
shall fail to be "well capitalized" within the meaning of the Federal Deposit
Insurance Act and the regulations thereunder, then, in any such case the Master
Servicer shall remove the Contract of Insurance Holder and appoint a successor
contract of insurance holder (which successor must be a HUD approved mortgagee)
by written instrument, in duplicate, one copy of which instrument shall be
delivered to the Contract of Insurance Holder so removed and one copy to the
successor contract of insurance holder. Upon removal of the Contract of
Insurance Holder, the outgoing Contract of Insurance Holder shall take all
action required to maintain the benefits of the FHA Insurance; provided that, if
the Contract of Insurance Holder is removed because it has failed to be "well
capitalized" as provided in the preceding sentence, the Depositor and Master
Servicer each shall bear the expenses incurred in connection with such transfer.

         (c)      Any resignation or removal of the Contract of Insurance Holder
and appointment of a successor contract of insurance holder pursuant to any of
the provisions of this Section 12.02 shall become effective upon acceptance of
appointment by the successor contract of insurance holder.

         (f)      Exhibit 6 of the Standard Terms is hereby amended by inserting
in Section 3(ii)(C), between the words "Purchaser" and "are", the following:

         , and the transactions in connection with the servicing, operation and
         management of the Trust,

         (g)      Exhibit 7-A of the Standard Terms is hereby amended by
deleting Section 3 in its entirety and replacing it with the following:

                                      S-17
<PAGE>   19

         3.       The Transferee is a Non-U.S. Person.

         (h)      Exhibit 7-B of the Standard Terms is hereby amended by
deleting Section 3 in its entirety and replacing it with the following:

         3.       The Transferee is a U.S. Person.

SECTION 12.  GOVERNING LAW.

         The Pooling and Servicing Agreement shall be construed in accordance
with and governed by the laws of the State of New York applicable to agreements
made and to be performed therein. The parties hereto agree to submit to the
personal jurisdiction of all federal and state courts sitting in the State of
New York and hereby irrevocably waive any objection to such jurisdiction. In
addition, the parties hereto hereby irrevocably waive any objection that they
may have to the laying of venue of any suit, action or proceeding arising out of
or relating to this Agreement in any federal or state court sitting in the State
of New York, and further irrevocably waive any claim that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum.

SECTION 13.  FORMS OF CERTIFICATES.

         Each of the Schedules and Exhibits attached hereto or referenced herein
are incorporated herein by reference as contemplated by the Standard Terms. Each
Class of Certificates shall be in substantially the related form attached
hereto, as set forth in the Index to Schedules and Exhibits attached hereto.

SECTION 14.  COUNTERPARTS.

         This Pooling and Servicing Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument.

SECTION 15.  ENTIRE AGREEMENT.

         This Pooling and Servicing Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof, and fully
supersedes any prior or contemporaneous agreements relating to such subject
matter.

                            [Signature Page Follows]

                                      S-18
<PAGE>   20

         IN WITNESS WHEREOF, the Depositor, the Master Servicer, the Trustee,
and the Contract of Insurance Holder each have caused this Pooling and Servicing
Agreement to be duly executed by their respective officers thereunto duly
authorized and their respective signatures duly attested all as of the day and
year first above written.

                                    UNION PLANTERS MORTGAGE FINANCE
                                    CORP., AS DEPOSITOR

                                    By: /s/ Douglas R. Miller
                                        ---------------------
                                    Name: Douglas R. Miller
                                    Title: President

                                    UNION PLANTERS BANK, NATIONAL
                                    ASSOCIATION, AS MASTER SERVICER

                                    By: /s/ Mark E. Mosteller
                                        ---------------------
                                    Name: Mark E. Mosteller
                                    Title: Executive Vice President

                                    THE BANK OF NEW YORK, AS TRUSTEE

                                    By: /s/ Lauren L. Shamilzadeh
                                        -------------------------
                                    Name: Lauren L. Shamilzadeh
                                    Title: Assistant Treasurer

                                    UNION PLANTERS BANK, NATIONAL
                                    ASSOCIATION, AS CONTRACT OF INSURANCE HOLDER

                                    By: /s/ Mark E. Mosteller
                                        ---------------------
                                    Name: Mark E. Mosteller
                                    Title: Executive Vice President
ACKNOWLEDGED AND AGREED

UNION PLANTERS BANK, NATIONAL ASSOCIATION, AS
CLAIMS ADMINISTRATOR

By: /s/ Mark E. Mosteller
    ---------------------
Name: Mark E. Mosteller
Title: Executive Vice President

                                      S-19
<PAGE>   21

STATE OF TENNESSEE      )
                        )   s.
COUNTY OF SHELBY        )

         The foregoing instrument was acknowledged before me in the County of
Shelby this 24th day of July, 2000 by Douglas R. Miller, the President of Union
Planters Mortgage Finance Corp., a Delaware corporation, on behalf of the
corporation.

                                                      /s/ Deborah K. McDaniel
                                                    --------------------------
                                                      Notary Public

My Commission expires: March 27, 2001

STATE OF TENNESSEE      )
                        )   s.
COUNTY OF SHELBY        )

         The foregoing instrument was acknowledged before me in the County of
Shelby this 24th day of July, 2000 by Mark E. Mosteller, an Executive Vice
President of Union Planters Bank, National Association, a national banking
association, on behalf of the association.

                                                      /s/ Deborah K. McDaniel
                                                    --------------------------
                                                      Notary Public

My Commission expires:  March 27, 2001

                                      S-20
<PAGE>   22

STATE OF NEW YORK       )
                        )   s.
COUNTY OF BRONX         )

         The foregoing instrument was acknowledged before me in the City of New
York, this 25th day of July, 2000, by Lauren L. Shamilzadeh, an Assistant
Treasurer of The Bank of New York, a New York banking corporation, on behalf of
the corporation.

                                                          /s/ Henry Baez
                                                          --------------
                                                          Notary Public

My Commission expires:  September 27, 2001

                                      S-21
<PAGE>   23

                         INDEX TO SCHEDULES AND EXHIBITS

SCHEDULE I                 Mortgage Loan Schedule
EXHIBIT A-1                Form of Class A-1 Certificate
EXHIBIT X-1                Form of Class X-1 Certificate
EXHIBIT PO                 Form of Class PO Certificate
EXHIBIT B-1                Form of Class B-1 Certificate
EXHIBIT B-2                Form of Class B-2 Certificate
EXHIBIT B-3                Form of Class B-3 Certificate
EXHIBIT B-4                Form of Class B-4 Certificate
EXHIBIT B-5                Form of Class B-5 Certificate
EXHIBIT B-6                Form of Class B-6 Certificate
EXHIBIT R                  Form of Class R Certificate

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