As filed with the Securities and Exchange Commission on November 5, 1999
Registration No. 333-90439
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Amendment No. 1 to
Form S-1
Registration Statement
under
The Securities Act of 1933
-----------------------
Senior Insurance Settlements Funding Trust 1999
(Issuer of Certificates)
Capital Resource Group One, LLC
--------------------------------------------------
(Exact name of Registrant as specified in Charter)
Delaware 6411 Applied For
- ------------------------ ---------------------------- ----------------------
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employee
Classification Code Number) Identification number)
650 E. Carmel Drive
Suite 150
Carmel, Indiana 46032
------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
THOMAS J. LARUSSA
650 E. Carmel Drive
Suite 150
Carmel, Indiana 46032
(317) 705-5555
------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
Copies of all communications to:
Albert S. Dandridge, III, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street, 38th Floor
Philadelphia, Pennsylvania 19103
(215) 994-1257
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement has been effective.
If any of the securities registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Item and Caption in Form S-1 Caption or Location in Prospectus
---------------------------- ---------------------------------
1. Forepart of the Registration Statement and Outside Front Cover Page of the Registration Statement; Outside
Front Cover Page of Prospectus Front Cover Page of the Prospectus
2. Inside Front and Outside Back Cover Pages of the Front Cover Page of the Registration Statement; Outside
Prospectus Front Cover Page of the Prospectus
3. (a) Summary of Information Summary
(b) Risk Factors Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not applicable
6. Dilution Not applicable
7. Selling Security Holders Not applicable
8. Plan of Distribution Plan of Distribution; Cover Page; Summary; Description
of the Certificates and the Pooling and Servicing
Agreement
9. Description of Securities to be Registered Cover Page; Summary; Description of the Certificates
and the Pooling and Servicing Agreement
10. Interests of Named Experts and Counsel Not applicable
11. Information with Respect to the Registrant Cover Page; Summary; United, Capital, 21st Services and
the Trust; and Description of the Certificates and the
Pooling and Servicing Agreement
12. Disclosure of Commission Position on Indemnification Part II of Registration Statement
for Securities Act Liabilities Item 17 - Undertakings
PROSPECTUS SUBJECT TO COMPLETION
- ----------
$150,000,000
Senior Insurance Settlements Funding Trust 1999
$46,000,000 9.0% Asset Backed Certificates Maturing ___, 2007
$104,000,000 9.25% Asset Backed Certificates Maturing ___, 2009
[LEGEND]
CAPITAL RESOURCE GROUP ONE, LLC, Seller
21st Holdings, LLC, Master Servicer
The senior insurance settlements asset backed certificates offered hereby,
evidence fractional, undivided interests in the assets of Senior Insurance
Settlements Funding Trust 1999 to be created pursuant to a pooling and servicing
agreement among:
o Capital Resource Group One, LLC, as the originator of the trust and
assignor of the senior insurance settlements to the trust
o The Chase Manhattan Bank, as trustee
o 21st Holdings, LLC, as the master servicer
o United Funds, LLC, as the subservicer of the senior insurance
settlements and seller of the senior insurance settlements to Capital
The trust assets will include a portfolio of senior insurance settlements to be
generated by the purchase of insurance policies at a discount from elderly
insureds, a liquidity facility, and monies due or to become due with respect to
the senior insurance settlements held by the trust. The certificates, in the
aggregate, will represent a 100% interest in the trust assets.
Prospective investors should consider the factors set forth under "Risk
Factors."
These securities have not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission nor has the
Securities and Exchange Commission or any state securities commission passed
upon the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
- ------------------------------------------------------------------------------------------------
Underwriting Proceeds To Issuer
Discount and or Other
Price to Public(1) Commissions(2) Person(3)
------------------ -------------- -------------------
Per Certificate $ 5,000 $ 175 $ 4,875
Total Maximum $150,000,000 $5,250,000 $144,750,000
Total Minimum $ 20,000,000 $ 700,000 $ 19,300,000
- ------------------------------------------------------------------------------------------------
See footnotes on inside cover page.
The certificates will be delivered by the transfer agent 5 days after the
closing date. The certificates will be registered by individual book-entry by
the trustee.
Pryor, Counts & Co., Inc.
The date of the Prospectus is _________, 1999.
(1) Plus accrued interest, if any, at the applicable rate.
(2) An underwriting commission of 3.5% of the aggregate proceeds from
certificate subscriptions will be paid to Pryor, Counts & Co., Inc.
("Placement Agent") in connection with the offering. In addition, Capital
will grant to the Pryor, Counts & Co., Inc. a right entitling the Pryor,
Counts & Co., Inc. to receive up to 2.75% and 10% of the assets,
respectively, if any, remaining in Tranche I and Tranche II of the trust,
respectively, after all interest and principal payments have been made to
certificateholders. United and Capital have also agreed to indemnify Pryor,
Counts & Co., Inc. against certain civil liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Plan of Distribution."
(3) In addition to the 3.5% underwriting commission payable to Pryor, Counts &
Co., Inc., other fees and expenses of issuance and distribution are being
paid by the trust.
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in the prospectus. Certain capitalized
terms which are used in the following summary and elsewhere in the prospectus
are defined in the Glossary located on page 73.
Senior Insurance Settlements A senior insurance settlement is a cash
Industry payment in exchange for the assignment
of an ownership interest in a fully
underwritten life insurance policy
insuring the life of an individual of
advanced age. This assignment carries
with it the right to receive the death
benefit payable upon the death of the
insured. Insureds generally are
motivated to sell their life insurance
policies during the final months or
years of their lives because such sales
better enable the insureds to both
prepare for their expected death, for
the estate planning purposes or to
obtain a certain quality and dignity of
life that would otherwise be
unavailable because of mounting medical
and living expenses.
Entities purchasing settlements pay the
insured an amount discounted from the
face value of the policy to be
assigned. The amount of the discount is
negotiated and varies depending upon
the nature of the life insurance
policy, the stability of the insurer,
prevailing interest rates, the medical
condition of the insured and the
insured's estimated life expectancy.
The gross income of entities trading in
insurance settlements is generated
almost exclusively by the difference
between the discounted amount paid for
each policy purchased and the face
value of such policies. Net income is
arrived at by subtracting from gross
income such significant operating
expenses as commissions payable to
sourcing brokers, premium payments, due
diligence costs, legal and accounting
fees, interest and other miscellaneous
expenses.
The Insurance Settlement Market The insurance settlement market has
grown significantly since its beginning
in the late 1980's. Each year, more
than $10 billion in death benefits are
paid to the beneficiaries of insureds
who died of predictable terminal
illnesses or chronic incurable
diseases.
The market potential for policies
insuring the lives of individuals
seeking to sell for reasons of estate
purposes, advanced age, incurable
medical conditions, life care, etc. is
estimated by various sources, to be in
excess of $200 billion.
This figure represents those policies
that are purchasable because of the
accuracy in predicting the life
expectancy of these insureds. Medical
advances coupled with actuarial
statistics have created the potential
for this market.
Title of Securities 9% Asset Backed Certificates Maturing
___, 2007.
9.25% Asset Back Certificates Maturing
____, 2009.
Issuer Senior Insurance Settlements Funding
Trust 1999.
1
The Offering A maximum of $150,000,000 and a
minimum of $20,000,000 principal amount
of Certificates will be offered for
sale to the public. The offering will
terminate 12 months from the effective
date of the registration statement
unless, prior to such date,
subscriptions to purchase $150,000,000
principal amount of Certificates have
been accepted. Each investor must
subscribe to purchase Certificates in
the minimum denominations of $5,000 and
integral multiples of $1,000 in excess
of such minimum denomination.
The Certificates are being offered by
Pryor, Counts & Co., Inc. on a "best
efforts-minimum maximum" basis. A
minimum of $20,000,000 principal amount
of Certificates must be sold not later
than 90 days from the effective date of
the Registration Statement (subject to
Capital's option to extend such period
for 30 days) or all funds will be
returned to subscribers with interest.
If a minimum of $20,000,000 of
Certificates are sold within said
period, the offering will continue on a
"best efforts" basis until the
remaining $130,000,000 principal amount
of Certificates are sold or until
expiration of the offering period,
which is 12 months from the effective
date of the registration statement,
whichever occurs first. All proceeds
from subscriptions to purchase the
Certificates will be promptly
transmitted by Pryor, Counts & Co.,
Inc. or participating broker/dealers by
noon of the next business day after
receipt of such proceeds, to an
interest bearing account of The Chase
Manhattan Bank. All checks and other
orders for the payment of money should
be made to "THE CHASE MANHATTAN BANK
ESCROW ACCOUNT FOR SENIOR INSURANCE
SETTLEMENTS FUNDING TRUST 1999."
All offering proceeds will be deposited
in an interest bearing escrow account
with The Chase Manhattan Bank until
subscriptions totaling $20,000,000 have
been accepted, which must occur within
90 days from the effective date of the
Registration Statement, subject to
Capital's option to extend such period
for 30 days. If this minimum amount of
subscriptions has been timely received,
then, with 2 days prior notice, on the
closing date, The Chase Manhattan Bank
shall release to Capital funds equal to
the amount of the Senior Insurance
Settlements available for purchase in
exchange for Certificates in the
similar principal amount which amount
shall not be less than $20,000,000. All
subsequent subscription proceeds will
be deposited in the escrow account with
The Chase Manhattan Bank until the
earlier of (a) such time and from time
to time Senior Insurance Settlements
are available for purchase by Capital
in exchange for Certificates of
equivalent amounts (less amounts paid
to Pryor, Counts & Co., Inc.); (b) 12
months from the effective date of the
registration statement; or (c) the date
on which a total of $150,000,000
principal amount of Certificates has
been issued.
2
If subscriptions for a minimum of
$20,000,000 have not been accepted
within 90 days from the effective date
of this registration statement (subject
to Capital's option to extend that
period for 30 days), all subscription
proceeds then held in the escrow
account will be returned promptly with
interest earned thereon. The Chase
Manhattan Bank will be entitled to
retain, from disbursements from the
escrow account that are payable to
Capital for Senior Insurance
Settlements assigned to the trust,
outstanding fees and/or expenses owed
to it under the escrow agreement and
which have not been paid by Capital.
Capital shall have the option to
purchase such Certificates at 102.50%
of the outstanding principal amount
thereof after each 5 year period,
respectively. The entire principal
amount of Tranche I of the Certificates
shall be due and payable no later than
the first distribution date following
the Tranche I final maturity date which
has been defined as the close of
business on the first business day and
the date 8 years from the first closing
date and the entire principal amount of
Tranche II the Certificates shall be
due and payable no later than the first
distribution date following the Tranche
II final maturity date which has been
defined as the close of business on the
first business Day and date occurring
10 years from the first closing date.
The Trust Senior Insurance Settlements Funding
Trust 1999 will be formed pursuant to
the pooling and servicing agreement.
The assets of the trust will include
(a) an irrevocable beneficial interest
in all Senior Insurance Settlements
assigned to the trust by Capital, (b)
monies due or to become due with
respect to the Senior Insurance
Settlements, (c) funds or proceeds
collected or to be collected with
respect to the Senior Insurance
Settlements, (d) funds on deposit in
certain bank accounts of the trust and
funds invested in permitted investments
(inclusive of any interest earned or
accrued or those funds), and (e) all
right, title and interest in and to the
Senior Insurance Settlements and any
supporting documentation or agreements
related to the Senior Insurance
Settlements.
Capital Capital Resource Group One, LLC, a
Delaware limited liability company,
was incorporated on October 21, 1999
and was formed for the purpose of
acquiring Senior Insurance Settlements
from United and assigning them to the
Trust pursuant to the pooling and
servicing agreement. Capital is a
wholly owned subsidiary of United and
will be the originator of the Trust.
Trustee The Chase Manhattan Bank, a New York
corporation, will perform the functions
of trustee described in the pooling and
servicing agreement. The trustee will
also act as paying agent and transfer
agent and registrar under the terms of
the pooling and servicing agreement. In
addition, The Chase Manhattan Bank will
perform the services of escrow agent
pursuant to the escrow agreement.
3
Master Servicer 21st Holdings, LLC ("21st Services"),
a Minnesota limited liability company
and a national insurance services
organization, will perform the
functions of master servicer as
described in the pooling and servicing
agreement and the master servicer
agreement and will receive a fee in the
amount of .175% of the principal amount
of Certificates outstanding, payable
monthly up until the final closing
date. After the final closing date the
amount will be .0875% of the principal
amount of the Certificates outstanding,
payable monthly. 21st Services has not
previously acted as master servicer of
senior insurance settlements but has
had extensive experience in
underwriting, performing diagnostic
services and evaluating senior
insurance settlements. 21st Services is
qualified to perform the duties of
master servicer of the Senior Insurance
Settlements. 21st Services will also
receive additional fees, payable
monthly, for diagnostic and evaluation
services.
The master servicer shall receive and
maintain data relating to the Senior
Insurance Settlements assigned to
the trust such that at all times the
records of the master servicer will
accurately reflect the transactions
involving the Senior Insurance
Settlements. Upon the removal of the
subservicer, the master servicer will
be appointed successor servicer and
will assume the duties of the
subservicer under the pooling and
servicing agreement except those duties
specifically excluded.
The Master Servicer shall have the
responsibility for (a) reviewing
medical, insurance, and financial
underwriting for the Senior Insurance
Settlements, (b) managing the
assignment of the policies between
United, Capital and the trust, (c)
reviewing financial analysis for each
insurance policy and its relationship
to the aggregate pool of insurance
policies, (d) reviewing Senior
Insurance Settlements purchase
recommendations, (e) auditing the
integrity of financial models on a
periodic basis, (f) tracking of
insureds and maintenance of medical
files, and (g) maintaining data on
pool characteristics.
Subservicer United Funds, LLC, a Delaware limited
liability company, incorporated on
October 21, 1999, as subservicer, will
service the Senior Insurance
Settlements for the trust pursuant to
the pooling and servicing agreement.
United will also be the "seller" of the
Senior Insurance Settlements to be
purchased by Capital under the senior
insurance settlements purchase
agreement.
4
United does not have a portfolio of
senior insurance settlements nor does
it presently have any contracts to
purchase senior insurance settlements
for its own account.
United, as subservicer, will service
the Senior Insurance Settlements for
the trust for which United will receive
an annual subservicer's fee which shall
be equal to the product of .275%
multiplied by the principal amount of
the Certificates outstanding, payable
monthly up until the final closing
date. After the final closing date the
amount will be .3625% of the principal
amount of the Certificates outstanding,
payable monthly.
Aggregate Servicing Fee The aggregate servicing fee is .45% of
the principal amount of the
Certificates outstanding, consisting of
the .175% master servicer's fee and
.275% subservicer's fee up until the
final closing date. After the final
closing date the fees will be .0875%
and .3625%, respectively.
The Certificates The Certificates will be offered in
minimum denominations of $5,000 and
integral multiples of $1,000 in excess
of such minimum denominations. Upon
issuance, the Certificates will be
executed by Capital and authenticated
by the trustee. Each Certificate shall
be executed by manual or facsimile
signature on behalf of the trust by an
authorized officer of the trustee. No
Certificate shall be valid for any
purpose unless so authenticated and
signed.
Each Certificate offered hereby
represents an undivided interest in the
trust. Each Certificate represents its
owner's right to receive semi-annual
payments of interest at the certificate
rate during the period that the
certificates are outstanding, primarily
from collections attributable to the
collection of policy proceeds and the
liquidity account. See "Description of
the Certificates and the Pooling and
Servicing Agreement - Principal
Payments." The entire principal amount
of the outstanding Certificates shall
be due and payable no later than the
first distribution date following the
final maturity date which shall be the
close of business on the first business
day and date occurring 8 years and 10
years, respectively, from the first
closing date.
The principal amount of each
Certificate will remain fixed at its
initial principal amount until the
final maturity date.
The Certificates will represent
beneficial interests in the trust only
and will not represent or constitute an
interest in Capital or United.
Certificate Interest Certificate interest will accrue at
the rate of 9.0% and 9.25% per annum,
respectively, from the closing date
applicable to each Certificate and is
payable to the Certificateholders
semi-annually which is defined as the
distribution date, after the date of
purchase of the Certificates, which is
defined as the closing date. Principal
is payable commencing on the first
5
distribution date following the close
of busness on the 8th and 10th year
anniversary, respectively, of the
closing date. The Certificates are
subject to optional repurchase at
102.50% of the outstanding principal
amount thereof after each 5 year
period, respectively. The trust will
terminate at the close of business on
the first business day 10 years from
the date of the first closing date.
Interest will be calculated as of the
1st day of the month during the period
in which the applicable distribution
date occurs or, in the case of the
initial distribution date, on the
principal amount of the Certificates
issued on the initial closing date.
Certificate interest will be calculated
on the basis of a 360 day year
comprised of 12 months of 30 days each.
Beginning with the distribution date in
the period immediately following the
applicable closing date, certificate
interest at the certificate rate
will be due and payable.
Certificate interest payments on any
distribution date will be funded from
collections attributable to Senior
Insurance Settlements during the
preceding six months, or such shorter
period as applicable. Certificate
interest will be paid only after that
portion of the trustee's fees and
master servicer's fees due on the
applicable distribution date have been
paid. If collections attributable to
Senior Insurance Settlements are
insufficient to fund the payment of
such trustee's fees, master servicer's
fees and certificate interest, the
deficiency will be paid from
withdrawals from the liquidity account,
to the extent available. See
"Description of the Certificates and
the Pooling and Servicing Agreement".
Tax Matters Capital (under the pooling and
servicing agreement) and each
Certificateholder (by acceptance of its
Certificate) agree to treat the
Certificates as indebtedness of Capital
for federal, state and local income and
business tax purposes. However, no tax
ruling will be requested by Capital or
the trust with respect to this
characterization. If the
characterization of the Certificates as
debt obligations of Capital were
successfully challenged by the Internal
Revenue Service, there may be adverse
tax consequences to Certificateholders.
See "Tax Matters".
Registration of Certificates The Certificates will be registered by
individual book-entry by the transfer
agent and registrar who shall be The
Chase Manhattan Bank. There currently
is no secondary market for the
Certificates, and there is no assurance
that one will develop.
6
Senior Insurance Settlements Senior Insurance Settlements shall mean
insurance policies purchased from
elderly insureds in the newly emerging
senior and elder settlement market.
United intends to enter into agreements
with referral sources, primarily
sourcing brokers, financial planners,
healthcare professionals and elder care
organizations to purchase insurance
policies from insureds pursuant to
which United will purchase the senior
insurance settlements at a discount of
between 20% and 90% of the face amount
of the insurance policies. United may
also use 21st Services or its
affiliates as sourcing brokers. United
will then evaluate and process the
senior insurance settlements. 21st
Services will also make an extensive
evaluation of such policies. United
will then sell the senior insurance
settlements, without recourse to
Capital. The purchased policies will
then be deemed to be Senior Insurance
Settlements upon their acquisition by
Capital and the assignment of the
beneficial interest in such Senior
Insurance Settlements to the trust,
except as otherwise provided in the
pooling and servicing agreement.
Capital will enter into a senior
insurance settlements purchase
agreement dated of even date with the
pooling and servicing agreement between
Capital, as buyer, and United, as
seller, containing the terms and
conditions under which Capital will
purchase Senior Insurance Settlements
from United. Pursuant to the senior
insurance settlements purchase
agreement, United will (a) sell,
transfer, assign, and convey to Capital
all of United's right and interest in
and to the Senior Insurance Settlements
and (b) take all actions that are
required under state law to establish
Capital's ownership interest in and to
the Senior Insurance Settlements, as
more fully described in the senior
insurance settlements purchase
agreement. See "Description of the
Senior Insurance Settlements Purchase
Agreement."
Pursuant to the pooling and servicing
agreement, simultaneously with the
purchase of the Senior Insurance
Settlements from United, Capital will
(a) designate the trust as an
irrevocable beneficiary of the Senior
Insurance Settlements and (b) cause to
be taken all actions that are required
under state law to establish the
trust's interest in and to the Senior
Insurance Settlements. See "Description
of the Certificates and the Pooling and
Servicing Agreement - Assignment of
Senior Insurance Settlements".
7
Diversification Requirements: Capital
will covenant to structure its
purchase, acquisition and transfer of
Senior Insurance Settlements so that
(a) at acquisition, no less than 75% of
the cumulative death benefits of the
Senior Insurance Settlements held or
beneficially owned by the trust shall
be payable by insurance companies with
an A.M. Best rating of A or better, or
its equivalent as set by other
nationally recognized rating agencies,
(b) at acquisition no more than 25% of
the cumulative death benefits of the
Senior Insurance Settlements held or
beneficially owned by the trust shall
be payable by insurance companies with
an A.M. Best rating of B+, or its
equivalent as set by other nationally
recognized rating agencies, (c) at any
time after $50,000,000 of Senior
Insurance Settlements have been
assigned to the Trust no more than 10%
of the outstanding cumulative death
benefits of the Senior Insurance
Settlements held or beneficially owned
by the trust shall be payable by any
one insurance company, and (d) no more
than $4 million in Tranche I and $10
million in Tranche II will be
cumulative death benefits relating to
any one individual.
Senior Insurance Settlements Servicing United shall perform the duties of
subservicer as described in the pooling
and servicing agreement, which include
responsibility for (a) the day-to-day
operations of the pool of Senior
Insurance Settlements; (b) all data
management functions; (c) system
development and maintenance; (d)
allocating collections to the
appropriate accounting categories; (e)
preparing certain periodic reports and
certificates and otherwise tending to
the collection of the Senior Insurance
Settlements; and (f) coordinating the
escrow agent and trust functions. See
"United, Capital, 21st Services and the
Trust - United."
Should United fail to perform the
duties of subservicer, the trustee
shall require the master servicer to
perform the duties of subservicer and
appoint the master servicer as
successor servicer. In this regard, the
master servicer will receive the entire
amount of the servicing fee as well as
a $100,000 transfer of management fee.
Collections and Investor Accounts All death benefit payments received
with respect to the Senior Insurance
Settlements constitute collections.
8
Lockbox Account. Collections will be
sent by the insurer directly to The
Chase Manhattan Bank lockbox account
or, if sent to the subservicer, will
be deposited within one (1) business
day of its receipt into the lockbox
account by the subservicer.
Senior Insurance Settlements Account.
The senior insurance settlements
account shall be a segregated,
interest-bearing account into which
collections attributable to Senior
Insurance Settlements will be deposited
from the lockbox account.
Liquidity Account. The liquidity
account will be a segregated account
formed to provide additional security
for the distributions required under
the pooling and servicing agreement and
to provide for premium payments on the
insurance policies. Any amounts of
excess of the Senior Insurance
Settlements purchase price will be
maintained in the liquidity account.
The liquidity account will be funded
with a minimum of $___________.
Distribution Account. The distribution
account is a segregated, non-interest
bearing account into which funds are
deposited and from which distributions
are made to the Certificateholders.
The lockbox Account, the senior
insurance settlements account, the
liquidity account, and the distribution
account are collectively referred to as
investor accounts.
Permitted Investments The trust may invest funds from the
senior insurance settlements account
and the liquidity account in permitted
investments. See "Glossary."
Amortization Period With respect to each Certificate, the
amortization period shall mean the
period commencing on the date of the
first issuance of the Certificates
(i.e., the applicable closing date) and
ending on the earlier to occur of (a)
the close of business on the first
business day and date 8 years and 10
years, respectively, from the first
closing date or (b) the date on which a
pay out event is deemed to occur. The
first closing date shall not occur
prior to the effective date of the
registration statement. No Certificate
principal will be distributed to
Certificateholders during the
amortization period.
The last distribution of Certificate
principal to Certificateholders will be
due and payable on the final maturity
date. See "Description of the
Certification and the Policy and
Servicing Agreement - Principal
Payments."
9
Distributions From the Senior On each transfer date, The Chase
Insurance Settlements Account Manhattan Bank will withdraw, to the
and Liquidity Account extent available from collections
attributable to the senior insurance
settlements account and from the
liquidity account if insufficient funds
are available from the senior insurance
settlements account, and deposit in the
distribution account for payment in the
following order of priority: (a)
trustee's fees and expenses; (b) master
servicer's fee; (c) Certificate
interest; and (d) subservicer's fee.
See "Description of the Certificates
and the Pooling and Servicing Agreement
- Interest Payments" and - "Investor
Accounts and Allocation of
Collections."
On each transfer date, after the final
maturity date, The Chase Manhattan Bank
will withdraw from the senior insurance
settlements account and liquidity
account, if necessary, and deposit into
the distribution account, for payment
of principal to the Certificateholders
on the next distribution date,
collections attributable to Senior
Insurance Settlements. See "Description
of the Certificates and the Pooling and
Servicing Agreement - Principal
Payments" and - "Investor Accounts and
Allocation of Collections."
10
Affiliation Between United and Capital United is a Delaware limited liability
corporation who will be the seller of
the Senior Insurance Settlements to
Capital and the subservicer of the
Senior Insurance Settlements.
Capital is a single purpose
wholly-owned subsidiary of United and
is the originator of the trust
Placement Agent Pryor, Counts & Co., Inc. is a New York
corporation and will be the
broker/dealer who will use its best
efforts to offer and sell the
Certificates. Pryor, Counts & Co., Inc.
is a member in good standing, of the
National Association of Securities
Dealers, Inc. and registered as a
broker/dealer with the Securities and
Exchange Commission. Pryor, Counts &
Co., is not an "affiliate" of United or
Capital.
21st Services Fees 21st Services will receive a fee of
.30% for each Senior Insurance
Settlement purchased by Capital. 21st
Services is not an "affiliate" of
either United or Capital.
11
Financial Information Capital has determined that its
financial statements are not material
to the offering made hereby.
The trust will be formed to benefically
own Senior Insurance Settlements and to
issue the Certificates. The trust will
have no assets or obligations prior to
the issuance of the Certificates and
will not engage in activities other
than those described herein.
Accordingly, no financial statements
with respect to the trust are included
in the prospectus.
Reports to Certificateholders Once every year during the term of the
trust, the financial statements of the
trust will be audited by independent
public accountants and such statements
will be made available to
Certificateholders upon request.
Additionally, a semi-annual
certificateholders' statement and an
annual certificateholders' tax
statement will be sent to each
Certificateholder. See "Description of
the Certificates and the Pooling and
Servicing Agreement."
The certificates represent beneficial undivided interests in the trust only and
do no represent interests in or obligations of capital, united or
any affiliate thereof except to the extent described herein. The certificates
are not insured or guaranteed by any Federal or State Governmental Agency.
The certificates are offered subject to prior sale, to allotment and withdrawal
and to cancellation or modification of the offer without notice. The placement
agent reserves the right, in its discretion, to reject orders in whole or in
part for the purchase of certificates offered hereby, notwithstanding the tender
of payment by check or otherwise.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authoried by the trust, Capital or United. This prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the certificates, or an offer or solicitation of any person in any jurisdiction
in which such offer or solicitation would be unlawful. The delivery of this
prospectus at any time does not imply that information herein is correct as of
any time subsequenet to its date.
12
RISK FACTORS
Potential investors should be aware that an investment in the trust
involves a high degree of risk. There can be no assurance that the trust's
investment objectives will be achieved or that an investor will receive a return
of its capital. We also caution you that this prospectus includes
forward-looking statements that are based upon our beliefs and assumptions and
on information currently available to us. The following considerations should be
carefully evaluated before making an investment in the trust.
Dependence on United, Capital and 21st Services and on Ability to Predict
Life Expectancy. The trust shall look solely to Capital and Capital shall look
solely to United for the acquisition of Senior Insurance Settlements. There can
be no assurance that there will be sufficient Senior Insurance Settlements to
utilize the entire $150,000,000 anticipated to be raised from this offering of
Certificates. If United were to cease acting as subservicer, and if 21st
Services were to cease acting as master servicer, delay in processing payments
on the Senior Insurance Settlements and information with respect thereto could
occur, resulting in (a) delays in payments to the Certificateholders; (b) the
early termination of the trust; and (c) early maturity of the Certificates.
United, in turn is dependent upon Thomas LaRussa, the loss of whom could
adversely affect United's business and its ability to perform its duties and
obligations under the pooling and servicing agreement and the senior insurance
settlements purchase agreement. The loss of Paul Kirkman, Robert Simon and
Steven Walker of 21st Services who will perform the master servicer functions,
could also adversely affect its obligations under the pooling and services
agreement. See "United, Capital, 21st Services and the Trust."
The trust's operations and financial results are highly dependent on the
ability of United and 21st Services, to predict accurately life expectancy. Life
expectancy is a significant factor in United's determination of the purchase
price of an insurance policy. Unanticipated delays in the collection of policies
will reduce the trust's actual yield on its portfolio and adversely affect the
trust's cash flow. See "United, Capital, 21st Services and the Trust."
Cures and Advances in Medical Treatments For Terminal Illnesses Will Reduce
the Need for Senior Insurance Settlements. The development of a cure for or
vaccine against diseases and other terminal illnesses or the development of new
drugs or other treatments which extend the life expectancy of individuals with
such illnesses could delay substantially the collection of the face value of
policies assigned to the trust. Any such delay could materially reduce the
trust's actual yield on its portfolio, materially adversely affect the trust's
cash flows and extend the period over which the trust would recognize future
income. In addition, such medical developments would likely reduce the number of
individuals seeking insurance settlements. Substantial reductions is the cost of
treating terminal illnesses (including reductions from the development of less
costly treatments) may also reduce the number of individuals seeking insurance
settlements. The trust's profitability is directly linked to its ability to
collect the face value of its life insurance policies within the estimated life
expectancy of the insured. While some individual insureds will outlive their
estimated life expectancy, others will not. The trust will mitigate this risk by
investing in fully underwritten insurance policies of seniors and having two
13
Tranches with maturities of 8 and 10 years, respectively, thereby reducing the
impact of some insureds outliving their life expectancy. Advances in medical
treatment or cures that significantly prolong the lives of insureds who have
sold their life insurance policies to the trust may eliminate any profits and
may lead to substantial losses. However, United anticipates that almost all
of its purchases will be senior settlements which represent a much more diverse
array of life threatening or life shortening illnesses than has historically
been present in the viatical settlement market which to date has largely
involved AIDS patients.
Shortfall in Liquidity Account. Inaccurate life expectancy estimates could
result in the depletion of the liquidity account. While investing in a large
portfolio of Senior Insurance Settlements mitigates this risk, if the liquidity
account is depleted for any reason, the trust would be unable to pay premiums on
outstanding policies and the policies would lapse. Anticipating such
circumstances, the trust could attempt to liquidate its remaining Senior
Insurance Settlements through a sale to one or more third parties. The sale
price would take into account the then estimated life expectancies of Senior
Insurance Settlements plus a further discount representing a reserve to permit
the purchaser to pay premiums for a period of time after the sale.
The risk of shortfalls in the liquidity account will be mitigated somewhat
since funds will not be released from the liquidity account as Senior Insurance
Settlements are liquidated. Thus, the liquidity account will benefit from any
overestimates of life expectancies.
Delay in Payment and Non-Payment of Policy Proceeds. A number of arguments
may be addressed by former beneficiaries under a policy or by the insurance
company issuing a policy to deny or delay payment to the trust of the proceeds
of a policy following an insured's death, including arguments related to lack of
mental capacity of the client or applicable periods of contestability or suicide
provisions. Furthermore, the trust may be unable to collect the face value of
any insurance policy issued by an insurance company which becomes insolvent.
While virtually all states have established guarantee funds to pay the face
value of life insurance policies issued by insolvent insurance companies, the
face value of a policy may exceed the amount provided by such fund and, in any
event, a significant delay in the receipt of payment may occur. Prior to
purchasing a policy, United and 21st Services, will follow a procedure designed
to minimize the risk that any of the foregoing will result in non-payment of
proceeds to the trust. Delay for any reason in the trust's collection of the
face value of a life insurance policy following the death of the insured could
have an adverse effect on the trust's profits and distributions. The types of
events that could cause a delay in payment include disputes with third parties
concerning the mental capacity of the insured at the time of sale of the policy,
inability to obtain a death certificate in a timely manner, disputes with former
beneficiaries concerning the release of their interests, and other problems
relating to the transfer of title of the life insurance policy. The trust could
also experience difficulty obtaining a death certificate for a deceased insured
if the insured disappears prior to such insured's death, the insured dies
outside of the Unites States or the trust is unable to immediately determine the
country where the insured died.
14
Nonpayment of policy proceeds is a less likely but far more serious risk
than delay in payment. Nonpayment of a life insurance policy will significantly
reduce the trust's profits and distributions. Nonpayment could result from the
insolvency of the insurer or a dispute with the insurer concerning the issuance
of the life insurance policy.
To minimize the risk of a delay in payment or of nonpayment of life
insurance policy proceeds, United and/or 21st Services will take these steps,
among others, during the policy evaluation phase:
o Obtain notarized consents and releases from the former beneficiaries
of the life insurance policies;
o Review statements provided by the insured's physicians regarding the
owner and/or insured's mental capacity;
o Review policy documents to confirm contestability periods and other
matters; and
o Review the credit standing of life insurance companies as rated by
recognized ratings agencies.
Nontransferability of Certificates. Pryor, Counts & Co.,Inc. has advised
Capital that the Pryor, Counts & Co., Inc. does not intend to act as a market
maker of the Certificates.
Negative Effect of Increasing Interest Rates. Changes in interest rates,
and expectations about changing interest rates, will have a variety of affects
on the trust's business. The trust's profitability is dependent to a significant
degree on the difference ("spread") between the cost of the Senior Insurance
Settlements and the yield that it earns on its portfolio of policies. Increase
in interest rates may affect the price the trust is willing to pay for the
Senior Insurance Settlements. Any substantial increase in interest rates will
result in either a decrease in the purchase price the trust is willing to pay
for Senior Insurance Settlements or a lower spread. If the trust's purchase
prices were to become significantly lower than its competition's purchase
prices, the number of policies available to the trust could decrease. In
addition, due to current and proposed regulations in several states which
provide minimum purchase prices for policies, the trust may be unable to
decrease its purchase prices to fully account for the interest rates paid on the
Certificates. See "Risk Factors-Government Regulation."
Competition from other Insurance Settlement Companies and/or Insurance
Companies. The acquisition and servicing of insurance settlements is not unique.
Several other companies offer similar services and many of them are larger and
have greater resources than United and Capital. These other companies could
choose to enter United's and Capital's target market and devote greater
resources and capital to the acquisition of senior insurance settlements. The
resources and capital of the other companies are much greater than those which
United and Capital currently have available to them or which United and Capital
may have available in the future and thus United and Capital may be restricted
in their abilities to engage in business competitively with these other
companies.
United believes that approximately 50 to 60 insurance settlement companies
currently operate in the United States. Although lack of traditional funding
sources and high financing costs have limited the industry's growth in the past,
competition has recently increased. This increased competition has contributed
to higher prices and lower original estimated annual yields for such policies.
In addition, recently, the number of life insurance companies offering
accelerated death benefits to their policyholders has increased substantially
and the number of policyholders covered by some form of accelerated death
benefit feature has increased at an even higher rate. Accelerated death benefits
allow policyholders to access all or a portion of the death benefits of their
life insurance prior to their death under circumstances defined by the issuing
insurance company. Although the terms of accelerated death benefit features very
considerably, most provide for the payment to the policyholder prior to the
death of the insured of a specified percentage (generally ranging from 25% to
50%) of the policy's death benefit upon the certification by a physician that
the insured has a terminal illness and that death is expected to occur within a
specified period of time (generally within six to 12 months). Although United
believes insurance companies have generally offered accelerated death benefits
on terms more restrictive than the terms of senior insurance settlements, the
life insurance industry may become more aggressive in offering such benefits and
other benefits to elderly and terminally ill persons. In addition, more
insurance companies may engage in the insurance settlement business itself,
although United is aware of only a limited number having done so to date. Given
the life insurance industry's financial resources and direct access to
policyholders, life insurance companies could become much stronger and more
effective competitors to insurance settlement companies in the future. In
addition, it is possible that other capital providers that do not currently
provide insurance settlements will in the future offer insurance settlements or
similar financial services. Any increased competition could increase the
purchase price of policies, thus reducing the trust's future yield on its
portfolio, and could also reduce the number of policies available for purchase
by United. The trust's existing and future competitors may have substantially
greater financial resources than the trust.
15
Costs of and delays attributable to Government Regulation. Capital and
United either will be not required to be licensed, will be licensed, or will
temporarily be permitted to do business without a license. Currently only one
state, Texas, regulates senior life insurance settlements.
Generally, the statutes are designed to protect the rights of insureds by
ensuring, to the extent possible, that they receive (a) appropriate disclosures
from the settlement company negotiating the purchase of their life insurance
policy, (b) a fair and reasonable purchase price for their life insurance
policy, and (c) an opportunity for a brief period after the closing of the
sale of their life insurance policy to rescind the sale transaction. An
additional goal of most of the regulations are to enable state agencies to
monitor the financial soundness and business activities of entities engaged in
the buying and selling of insurance settlements.
United generally welcomes increased regulation of the insurance settlement
market and does not expect broader regulation to adversely affect its business.
For the most part, compliance with state laws regulating the insurance
settlement industry involves fulfilling certain licensing and reporting
requirements and adherence to certain disclosure and procedural requirements
when buying and selling insurance settlements. Capital and United intend to
comply with all applicable state statutes regulating the conduct of entities
engaged in the buying and selling of senior insurance settlements. Capital and
United intend to obtain all required state licenses or permits but there can be
no assurance that they will be able to obtain such licenses. United will be
prohibited from purchasing insurance settlements in any state in which it is
unable to obtain or maintain the appropriate licenses.
At present, Capital and United have no reason to believe that they will be
unable to comply with the licensing requirements of any particular jurisdiction.
However, the number of states enacting statutes governing the insurance
settlement industry is growing, and states with existing insurance settlement
statutes are broadening the scope of their regulations.
There can be no assurance that, in the future, there will not be periods
when Capital and United are not in compliance with state regulations and during
which Capital and United will be unable to comply.
A few states, have either adopted or are seriously considering the adoption
of legislation that regulates the minimum purchase prices to be paid for
insurance settlements. Capital and United will comply with any and all
legislation enacted by these jurisdictions and others. Compliance with minimum
purchase price requirements may significantly reduce the trust's profitability
and ability to make distributions. Because minimum purchase price requirements
may prevent the trust from earning an acceptable margin of profit on the life
insurance policies in its portfolio, such requirements may force the trust not
to purchase life insurance policies in states imposing such restrictions.
Every state has statutes governing persons and entities engaged in the
conduct of an insurance business. United is not aware of any judicial or
administrative opinion from any jurisdiction conclusively finding that
investment in insurance settlements constitutes the conduct of an insurance
business. It is possible, however, that investment in insurance settlements
will, in the future, be interpreted as the conduct of an insurance business. The
trust will not be organized as an insurance company. If a significant number of
jurisdictions, particularly jurisdictions from which the trust will obtain a
large amount of senior insurance settlements limit the trade in senior insurance
settlements to insurance companies, this is likely to have a material adverse
effect on the Trust and its prospects for financial success.
Limited Assets. The Trust does not have, nor is it expected to or permitted
to have, any assets other than Senior Insurance Settlements and temporary
investments. Investors, therefore, must rely on payment of death benefits on
policies beneficially owned by the trust.
16
No Regulation as an Investment Company. While the trust may be considered
similar to an investment company, it does not intend to register as such under
the Investment Company Act of 1940, and accordingly, the provisions of that Act
(which, among other matters, require investment companies to have a majority of
disinterested directors and regulate the relationship between the investment
advisers and the investment company) will not be applicable. See "Investment
Company Act of 1940."
Bankruptcy or Insolvency of United. United will warrant to Capital in the
senior insurance settlements purchase agreement between them that the sale of
the Senior Insurance Settlements by United to Capital is a true and valid sale.
In addition, United will take all actions that are required under the law of
each of the jurisdictions in which the Senior Insurance Settlements are
purchased to protect Capital's ownership interest in the Senior Insurance
Settlements in the event a court should rule that the sale to Capital was not a
true sale but a financing arrangement. United will treat each transaction as a
sale, and as such, the Senior Insurance Settlements would not be part of
United's estate should United be subject to bankruptcy proceedings or creditors'
rights proceedings. Notwithstanding the foregoing, if United were to become a
debtor in a bankruptcy proceeding and a creditor, Trustee-in-Bankruptcy, or
United itself, as debtor, were to assert that the sale of the Senior Insurance
Settlements to Capital should be recharacterized as a pledge of such Senior
Insurance Settlements to secure the borrowing of United, then delays in payments
of collections to the trust and the Certificateholders could occur or, in the
event a bankruptcy court were to rule in favor of any such trustee, creditor, or
United, then reductions in the amount of such payments could result. See
"Certain Legal Aspects of the Senior Insurance Settlements - Certain Matters
Relating to Bankruptcy."
Bankruptcy or Insolvency of Capital. Capital will warrant in the pooling
and servicing agreement that the assignment of the Senior Insurance Settlements
to the trust is an irrevocable assignment of its beneficial interest in the
Senior Insurance Settlements to the trust. Capital will take all actions
required under the law of each jurisdiction in which the Senior Insurance
Settlements are assigned to establish the trust's interest in the Senior
Insurance Settlements. Notwithstanding the foregoing, if Capital were to become
a debtor in a bankruptcy proceeding, and a bankruptcy trustee, Capital as a
debtor in possession, or a creditor of Capital were to assert that the
assignment of the Senior Insurance Settlements from Capital to the Trust should
be recharacterized as a pledge of such Senior Insurance Settlement to secure the
borrowing of Capital or, if a bankruptcy court were to rule in favor of any such
trustee, debtor in possession, or creditor, then delays or reductions in the
distribution of the Certificates to Certificateholders could result.
Breach of Warranties. Capital will represent and warrant to the trust and
United will represent and warrant to Capital that the Senior Insurance
settlements are valid and enforceable. However, it is not anticipated that the
trustee will make any examination of the Senior Insurance Settlements or the
records relating thereto for the purpose of establishing the presence or absence
of defects, compliance with such representations and warranties, or for any
other purpose. In addition, there are no provisions in the senior insurance
settlements purchase agreement for any repurchases of policies by United or
Capital.
17
No Operating History; New Industry. Both Capital and United were
incorporated in October 1999 and have no operating history. The trust was
created under the pooling and servicing agreement dated _____________, 1999 and
has no operating history. In addition, the senior insurance settlements industry
is relatively new. There can be no assurance that the insurance settlements
industry will remain a viable industry or that the trust will remain competitive
in the industry.
18
Limited Obligations of United and Capital. Neither United nor Capital has
any obligation to make any payments with respect to the Certificates or the
Senior Insurance Settlements.
Certificate Yield. The effective yield to Certificateholders on their
Certificates will be below that otherwise produced by the certificate rate
because, while interest will accrue on the Certificates from the first day of
each calendar month, distributions of such interest will be made semi-annually.
Limited Credit Enhancement. Credit enhancement of the Certificates will be
provided by the liquidity account and overcollateralization at the final
maturity date (based upon the trust advancing funds in an amount significantly
less than the face amount of the insurance policies represented by the Senior
Insurance Settlements).
Dependence on and Concentration of Sourcing Brokers. United will purchase
policies referred by sourcing brokers and other referral sources, including 21st
Services. None of these sourcing brokers is under a contractual agreement to
refer policies to United, and none is restrained from referring policies to
United's competitors. Sourcing brokers tend to be relatively small independent
businesses with limited capital resources. Therefore, no assurance can be given
that existing sourcing brokers will remain in business or that relationships
with sourcing brokers or other referral sources can be established. In the event
that United's relationship with the sourcing brokers were not to be established
or to cease, the trust's operations could be adversely affected. United believes
that it can establish a good relationship with sourcing brokers, including 21st
Services.
Rating of the Certificates. A rating by a rating agency is not a
condition to issuance of the Certificates. You are advised to make your decision
to purchase Certificates based on the Certificates being unrated unless and
until a rating has been secured. Capital has requested a ___ rating of the
Certificates from _____________________. If such rating has been secured it will
be included in the final prospectus. If an investment grade rating is not
available, Capital will withdraw the rating request. There can be no assurance
that the Certificates will be rated. There is no assurance that a rating, if
given, will remain for any given period of time or that a rating will not be
lowered or withdrawn entirely by a rating agency if in its judgment
circumstances so warrant. A rating is based on the following factors: the
type of Senior Insurance Settlements; the financial stability of the insurance
companies who must pay claims used in payment of the Senior Insurance
Settlements; the diversification of the pool of Senior Insurance Settlements
based upon the underlying concentration of life insurance claims from a
particular life insurance company; the degree of overcollateralization of the
Certificates; the size of the pool of Senior Insurance Settlements; the
collecton history, or lack thereof, of United; and the credit ratings of the
credit enhancement, if any, of the Certificates. A rating is not a
recommendation to purchase, hold or sell Certificates, inasmuch as a rating does
not comment as to market price or suitability of the market or investment for a
particular investor. A rating agency does not evaluate the likelihood of
successful remarketing of the Certificates. The Certificates are considered by a
rating agency to be securities.
ERISA Considerations. It is anticipated, although no assurance is hereby
given, that the trust's assets will not be deemed or characterized as "plan
assets" under the Plan Asset Regulations of the Department of Labor (the
"Regulations"), and that transactions involving the trust will not be prohibited
under those Regulations or under Section 406 of ERISA or Section 4975 of the
Internal Revenue Code of 1986, as amended. Benefit plans, benefit plans'
fiduciaries or anyone purchasing the Certificates should consult with their
counsel concerning the effect that ERISA, the Regulations, or the Internal
Revenue Code may have on such benefit plan or person. See "ERISA
Considerations."
Tax Matters. Capital (under the pooling and servicing agreement) and each
Certificateholder (by acceptance of its Certificate) agree to treat the
Certificates as indebtedness of Capital for federal, state and local income and
business tax purposes. No tax ruling will be requested by Capital or the Trust
with respect to this characterization. If the characterization of the
Certificates as debt obligations of Capital were successfully challenged by the
Internal Revenue Service, there may be adverse tax consequences to
Certificateholders. See "Tax Matters". There can be no assurance that the IRS
19
will not assert that the legal relationship among Capital and the
Certificateholders is that of a partnership, publicly traded partnership or an
association taxable as a corporation. If the arrangement were treated as a
publicly-traded partnership (unless certain exceptions apply) or as an
association taxable as a corporation, it would be subject to federal income
taxes at corporate tax rates on the taxable income generated by the ownership of
the Senior Insurance Settlements. Such a tax would result in reduced
distributions to Certificateholders. Distributions to Capital and to the
Certificateholders would not be deductible in computing the taxable income of
the corporation. In addition, all or a portion of any such distributions made to
the Certificateholders would, to the extent of the current and accumulated
earnings and profits of such corporation, be treated as dividend income to the
Certificateholders. You should consult with your counsel concerning the effect
of the tax matters discussed herein. See "Tax Matters".
FORWARD-LOOKING STATEMENTS
Some statements in this prospectus constitute forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements or
industry results to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements. Such
factors include those described in "Risk Factors." The forward-looking
statements included in this prospectus may prove to be inaccurate. In light of
the significant uncertainties inherent in these forward-looking statements, you
should not consider this information to be a guarantee by us or any other person
that our objectives and plans will be achieved.
UNITED, CAPITAL, 21ST SERVICES AND THE TRUST
United
The trust will be subserviced by United Funds, LLC. The trust
will also engage 21st Services as master servicer, to assist it in the
identification, evaluation, monitoring and collection of Senior Insurance
Settlements.
United contemplates conducting business on behalf of Capital and the trust.
United will make arrangements to buy, and buy Senior Insurance Settlements as
described in more detail below. United will then sell, transfer, assign and
convey the Senior Insurance Settlements to Capital. United will service the
Senior Insurance Settlements transferred from Capital to the trust pursuant to
the pooling and servicing agreement. United's agreement to sell to Capital are
governed by the senior insurance settlements purchase agreement. See
"Description of the Senior Insurance Settlements Purchase Agreement." United's
duties and obligations with respect to servicing the Senior Insurance
Settlements are governed by the pooling and servicing agreement. See
"Description of the Certificates and the Pooling and Servicing Agreement."
20
United was incorporated in Delaware on October 21, 1999. United has no
operating history. After the formation of the trust, United will (a) purchase
senior insurance settlements for its own account and will sell and transfer
those Senior Insurance Settlements to Capital pursuant to the senior insurance
settlements purchase agreement and (b) service those Senior Insurance
Settlements assigned to the trust from Capital pursuant to the pooling and
servicing agreement. United's address is 650 S. Carmel Drive, Suite 150, Carmel,
Indiana 46033. Its telephone number is (317)705-5555. United is managed by
Thomas J. LaRussa. Mr. LaRussa age 31, comes to United from the Mergers and
Acquisitions section of Merrill Lynch & Co, Inc.'s investment banking section.
Mr. LaRussa's background in finance is complimented by his experience in Merrill
Lynch's Mergers and Acquisitions Department as an Informational Services (IS)
Analyst. Mr. LaRussa received his Bachelor of Arts Degree from the University of
Rochester, cum laude, in 1990.
Business Strategy and Industry Overview
The senior insurance settlement industry expanded significantly in the late
1980's. Therefore, this industry is relatively new and contains a very different
profile of insureds than the traditional viatical settlement industry.
United intends to be is a nationwide specialty financial services company
that purchases senior insurance settlements from elderly insures. A senior
insurance settlement is the payment of cash in return for an ownership interest
in, and the right to receive the face value of a life insurance policy. Upon
such payment, the policyholder assigns his or her policy to the
United, which becomes the holder, owner or certificate holder of the policy and
the beneficiary thereunder and would receive from the insurance company the face
value payable under the policy following the death of the insured. The amount
paid by United for a policy is determined by United based on various factors,
including the United's estimated life expectancy of the insured, the estimated
premiums payable under the policy over the expected life of the insured and
certain other costs of the senior insurance settlement.
United's business will involve the following principal steps: (a)
origination of policy purchases through a nationwide referral network that will
include insurance settlement sourcing brokers; (b) underwriting, which includes
evaluating the terms of each policy and, with the assistance 21st Services,
estimating the life expectancy of the insured; (c) closing the transaction,
which includes execution of a sale agreement, releases of beneficiaries and an
insurance policy assignment as well as payment of the purchase price; (d)
monitoring the insured and the policy; and (e) collecting the policy proceeds
following the insured's death. All information obtained by United in connection
with policy purchases (including the identities of the insureds) is held in
confidence and access thereto is restricted by United to its employees, 21st
Services and other representatives.
Origination
United will obtain information regarding potential policy purchases from a
nationwide referral network that includes sourcing brokers and community groups
21
and professionals (including health care practitioners, care groups, financial
planners, attorneys and doctors) involved in the treatment of and provision of
services to the elderly.
While the United does not have formal agreements with any referral sources,
it hopes to establish close relationships with several referral sources who have
established market niches within the elder communities. Many referral sources
advertise their services in the geographic area in which they operate and target
such advertising to specific communities. The use of referral sources will allow
United to operate in market niches that otherwise would be cost prohibitive for
it to pursue through direct advertising. United intends to pay certain of its
referral sources (typically sourcing brokers) fees based on negotiated informal
fee arrangements. Sourcing brokers are typically paid an up-front fee (typically
based on the face value of the policy) upon the funding of the policy and may
also be paid a back-end fee (also typically based on the face value of the
policy) upon receipt by the trust of the proceeds of the policy. United does not
intend to pay referral fees to doctors, lawyers or other professionals to whom
United is prohibited by applicable law from paying a referral fee and will not
do business with referral sources which United does not believe to be reputable.
Sourcing brokers and certain other referral sources also handle other
administrative functions, such as collecting and processing applications from
potential clients and collecting medical and insurance records.
Underwriting
The underwriting process is designed to obtain accurate information
regarding both the insured and the life insurance policy (a) to determine
whether United will offer to purchase the policy and, if so, the price it will
offer and (b) to ensure that certain criteria are met to minimize challenges by
former beneficiaries or other persons to the purchase or by an insurance company
to payment of the face value of the policy. See "Risk Factors - Non Payment or
Delay in Payment of Policy Proceeds."
Once a potential client contacts United, an application and consent forms
permitting United to obtain medical and insurance coverage information for the
insured are sent to the potential client. All information obtained by United in
connection with policy purchases (including the identities of the insureds) is
held in confidence and access thereto will be restricted by United to its
employees, 21st Services and other representatives. Upon receipt by United of
the completed application, it is reviewed to determine preliminarily the
insured's life expectancy and, if the face value exceeds the applicable state
guarantee fund limit, whether the insurance company which issued the policy is
of a credit quality deemed acceptable to United.
If it appears from the application that the policy is one United would be
interested in purchasing, United will obtain from the attending physician
medical information about the insured which usually includes several years'
worth of laboratory reports and physicians' notes, as well as the attending
physician's estimate of the insured's life expectancy and a written statement as
to whether or not the insured is of sound mind. United will forward such
information to 21st Services for review and evaluation.
Simultaneously, United will obtain verification of insurance coverage and
other policy information from the insurance company, the employer or the group
administrator. The insurance documents will be reviewed to determine the type of
22
policy (e.g. whole. term or other) and any provisions which may effectively
reduce the face value of the policy (e.g. loan against the policy) and to
ensure, among other things, that: (a) the policy under consideration is past any
contestability periods (i.e. the periods during which the insurance company may
deny payment for various persons, including suicide and a misstatement of
material facts); (b) all current primary beneficiaries are willing to execute
releases with respect to any present or future claims they may have with respect
to the policy; and (c) United is able to obtain ownership of the policy and
the associated policy proceeds. United will not purchase a policy if a minor is
a named beneficiary at the time of purchase. United will also review the policy
premium schedule and determines whether the policy contains a disability waiver
of premium rider which impacts future premium payments. United will attempt to
ensure that the policy is compatible with the trust's portfolio in terms of
monthly cash flow. The review process for the insurance documents generally will
take one to three weeks, depending on the extent of cooperation received from
third parties.
If a referral source identifies a potential client some, of the
documentation gathering described above (primarily collection of necessary
medical, personal and insurance information) may be performed by such referral
source prior to submission of the application to United, but the determination
of the insured's life expectancy and compatibility with investment criteria.
review of insurance documents and determination of legal and contractual issues
will be made by United and 21st Services.
Closing
If United determines that the policy meets its criteria (including
underwriting and investment criteria), United will make an offer to the insured
to purchase the policy. The purchase price will be based upon the face value of
the policy, United's estimate of the insured's life expectancy, the premiums
estimated to be paid under the policy over the insured's estimated life
expectancy, and certain other costs of the policy. If the insured accepts the
offer, purchase documents are prepared from forms generated by United's
management information system. The documents include a sale agreement, releases
from beneficiaries, a change of ownership or assignment form and a change of
beneficiary form. United will acquire ownership in each insurance policy by
filing a change of ownership or absolute assignment form and a change of
beneficiary form with the applicable insurance company, employer or group
administrator. Following receipt of appropriate acknowledgment of the
recordation of such changes, closing occurs and funds are disbursed as directed
by the insured. United anticipates that the closing process will take one to
three weeks and the entire purchase process (from application to closing) will
take from four to eight weeks. United will provide an "out option" through which
the insured may, for any reason, return the disbursed funds (and any premium
payments made by the trust in the interim) and be unconditionally released from
the sale agreement. The "out option" period is at least 15 days from receipt of
the purchase price and is longer if required by applicable law.
23
Monitoring
Following the disbursement of funds, the insured is regularly monitored to
obtain timely information concerning the insured so that proceeds may be
collected as promptly as possible following the death of the insured. Monitoring
will be conducted in a sensitive and professional manner and will be assisted by
the 21st Services' management information system. In addition to tracking the
medical status and location of an insured, the 21st Services also will monitor
the policy to ensure it does not lapse because of a failure to timely pay
premiums. Some protection against the failure to pay premiums is provided by
statutory or policy provisions that require insurance companies to provide
written notice before terminating a policy for failure to pay premiums. As owner
of record of the policy, Capital generally will receive such notice directly.
Collection
Once an insured has died, a request for a copy of the death certificate
will be filed in the appropriate governmental office. Often the insured's family
or companion will also submits a copy of the death certificate to the insurance
company. United will then files the death certificate with the insurance company
and requests payment of the policy proceeds. United will monitor the collection
status until it receives the face value of the policy. Monitoring of collection
status will be assisted by United's management information system. Insurance
companies have an incentive to pay promptly on policies because most states
require insurance companies to pay interest on claims which take more than 30
days to settle. Actual collections generally occur within 30 to 55 days
following the death of the insured. However, in certain states (e.g., New York)
actual collections take a longer period of time due to delays in processing of
documents by state authorities.
Policy and Portfolio Information
General Description of Types of Policies to be Purchased by United
Term Policies. Term policies provide life insurance protection for a
limited number of years (e.g., until age 65). Generally, term policies are less
costly (compared to whole life policies) for younger insureds, although premiums
increase over time. Such policies are usually one-year renewable policies,
though some term policies have fixed premiums for longer intervals. Term
policies do not build up any cash value or pay dividends, although many are
convertible to whole life policies.
Whole Life Policies. Whole life policies typically provide protection for
the life of the insured. Based on a fixed premium payment, these policies build
up a cash value because premiums paid in the earlier years are higher than those
required to maintain the insurance. Many whole life policies have dividends
which the insured can receive in cash or can apply to premiums applicable to
additional coverage.
Universal Life Policies. This type of policy is generally a flexible
premium, adjustable death benefit policy and allows premiums to be skipped so
long as the cash value of the policy is sufficient to pay the premiums. There
are many variations of this type of policy.
24
Group Life Policies. Many group policies provide term coverage, though some
provide universal life coverage. Such policies are either provided by an
employer or are provided to members of a particular group.
Yield Analysis
Unlike specialty financial services companies whose performance depends
primarily on the ability to collect on a portfolio, the trust's performance
depends primarily on the timing of collection on its portfolio. To a great
extent, United will determine its purchase price for policies based on the
estimated date of collection. To the extent, the trust collects a policy earlier
than expected, the actual annualized yield on such policy will be higher than
the original estimated annual yield. Conversely, to the extent that the trust
collects on a policy later than expected, the actual annualized yield on such
policy will be lower than the original estimated annual yield. Thus, the actual
collection date of each policy affects the actual annualized yield on the trust
portfolio.
Competition
United believes potential clients distinguish insurance settlement
companies based on three principal factors: (a) price; (b) response time; and
(c) sensitivity and professionalism in dealing with the client, the insured
and their friends and relatives. A settlement company typically determines the
price that it is willing to pay for a life insurance policy principally based
upon its estimate of the life expectancy of the insured and, hence, the present
value of such policy discounted at a rate as determined by such life expectancy.
Response time is affected by the settlement company's internal ability to meet
demand, the cooperation received from the potential client's insurance company
and the insured's doctor and, ultimately, the insurance settlement company's
access to capital to fund its purchase of a policy.
United believes that approximately 50 to 60 insurance settlement companies
currently operate in the United States. Although lack of traditional funding
sources and high financing costs have limited the industry's growth in the past,
competition has recently increased. The increased competition has contributed to
higher prices and lower original estimated annual yields.
Most insurance companies also offer some form of accelerated death benefits
to holders of their policies with terminal illnesses, but the types of benefits
and cost thereof vary substantially among such companies. According to a study
conducted In March 1994 by the American Council of Life Insurance and LIMRA
International, at least 215 life insurance companies (issuing approximately 70%
of the life insurance in force in the United States) offered some form of
accelerated death benefit to their customers at the time of the study. The
number of insurance companies offering some form of accelerated death benefit
has likely increased since the study was conducted. During the last five years,
the number of life insurance companies offering accelerated death benefits has
increased substantially, and there have been limited instances of insurance
companies acquiring settlement operations and providing settlements directly.
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Despite those offered alternatives, claim experience for accelerated death
benefits appears to be limited. United believes the limited use of accelerated
benefits is a result of the restrictive nature of the benefits offered by
insurance companies. For example, over 90% of the products offered by insurance
companies responding to the study required the customer to have a life
expectancy of 12 months or less and 30% required a life expectancy of six months
or less. In addition. many products reported in the study specified a minimum
face value for the policy and over 50% of the products specified a maximum
benefit ranging from 26% to 50% of the face amount. United believes that
insurance companies, on an industry-wide basis, have not aggressively
participated in the market for senior insurance settlements or related products
or services primarily because of the undeveloped nature of the market and the
potential for public relations problems for the insurance industry resulting
from insurance companies redeeming policies for less than the death benefit
promised to their policyholders. Given the restrictions typically imposed on the
availability of accelerated death benefits, senior insurance settlements have,
to date, been an attractive alternative to accelerated death benefits for
elderly individuals. Senior insurance settlements can also offer some people
with terminal illnesses the opportunity to pursue lifelong goals while they are
still relatively healthy. Although United believes that insurance companies may
continue to be reluctant to enter the senior settlement market, insurance
companies may reduce their restrictions applicable to accelerated death
benefits, may begin to provide senior settlements directly or through separate
settlement companies or may offer other competing products or services on a
broader basis. See "Risk Factors--Competition."
United believes that it will be well-positioned within the senior
insurance settlement industry. As an early entrant it intends to establish a
nationwide referral network which will include various sourcing brokers,
community groups and professionals who are involved in treatment of and services
for the elderly. United also believes it will develop a reputation in the
industry for providing settlements in a professional, efficient and responsible
manner. In addition, United believes its strict underwriting procedures and its
relationship with 21st Services will provide it with a competitive advantage.
Government Regulation
United will monitor the progress of new legislation and regulation in each
state in which it purchases policies. However, given the emerging nature of
senior settlement regulations there may be periods in which United is not in
compliance, or is unable to comply, with the effective provisions of each
applicable, statute and regulation. Only Texas has enacted permanent statutes
governing senior insurance settlement companies and brokers.
Under most state regulatory schemes insurance settlement companies must be
licensed by the state insurance commissioner in order to solicit or enter into
an insurance settlement contract in that state. Licenses are normally renewable
on an annual basis but may be revoked if the licensee fails to comply with the
provisions of the statute or regulations. Licensees typically must file annual
operating reports with the commissioner, permit the commissioner to examine
their records; disclose alternatives to a insurance settlement to each potential
client; obtain representations as to the mental competency of the potential
client; deposit the purchase price for a policy into a trust or escrow account
in a bank; and allow the client a 15 to 30 day rescission period. United and
26
Capital will either not be required to be licensed, are licensed, or will be
temporarily permitted to do business without a license, in each state in which
it purchases policies. However, United may not be able to obtain licenses in
every state when required or to renew or prevent revocation of a previously
issued license. United may be precluded from doing business in any state in
which it is unable to obtain or maintain a required license.
A limited number of states have also enacted statutes or adopted or
proposed regulation, that establish minimum purchase prices to be paid to
insured according to the insured's life expectancy.
Every state has statutes that regulate "conducting an insurance business."
Although United is not aware of any judicial authority interpreting whether the
senior insurance settlement business constitutes "conducting an insurance
business," some or all of these statutes may be interpreted in the future to
include senior insurance settlements and to preclude United, which is not an
insurance company, from operating in those states.
Capital Resource Group One, LLC.
Capital was incorporated in the State of Delaware on October 21, 1999 and
is a wholly-owned subsidiary of United. Capital was organized for the
restricted, limited purpose of forming the trust, purchasing the Senior
Insurance Settlements from United, assigning the Senior Insurance Settlements to
the Trust, executing the Certificates, and for incidental, necessary or
convenient purposes related to the foregoing. Capital is prohibited from
incurring any debts except to the extent the Certificates are characterized as
debt obligations of Capital. Capital's current assets consist of [$ ]. Capital's
address is 650 E. Carmel Drive, Suite 150, Carmel, Indiana 46032. Its telephone
number is (317) 705-5555. Prior to its incorporation, Capital had no operating
history. Mr. Thomas LaRussa may be deemed to be finder and/or promoter of
Capital.
Capital's sole director and officer is Thomas LaRussa. Mr. LaRussa shall
serve as officer and director until the first annual meeting of the shareholders
of Capital or until his successor is elected and qualified.
Investment in Senior Insurance Settlements
The trust's investment in Senior Insurance Settlements will be a
seven-phase process which will consist of: (1) identification of life insurance
policies available for purchase, (2) estimating the average life expectancy of
the insured, (3) the evaluation of the value of the life insurance policy
proposed to be purchased, (4) the purchase of the life insurance policy, (5)
monitoring of the insured and maintenance of the life insurance policy during
the remainder of the insured's lifetime, (6) the collection of the face amount
of the life insurance policy from the insurance company following the death of
the insured, and (7) making payments to Certificateholders.
27
Policy Identification
United will purchase life insurance policies from individuals living
throughout the world but primarily in the United States. United's primary source
for potential policy purchases are brokers located throughout the United States.
These sourcing brokers will receive fees for their services in an amount
generally equal to 3% to 6% of the face amount of the life insurance policy, but
other compensation plans are sometimes utilized. United may also purchase
policies identified by 21st Services.
United also may purchase life insurance portfolios consisting of individual
life insurance policies owned and offered for sale by third-party settlement
companies.
Evaluation
During the evaluation phase, United will gather and develop information
regarding the life insurance policy to be purchased, the life insurance company
issuing such policy, the insured, the insured's medical condition and estimated
life expectancy. There are three key objectives of this phase. The first
objective is to determine whether the insurance policy is of sufficient quality
to purchase. The second objective is to predict the estimated life expectancy of
the insured as accurately as possible, for the purpose of determining the price
to be offered for such policy. The final objective is to properly evaluate the
insured and the beneficiaries of the life insurance policy to reduce the risk of
challenges to the purchase of the life insurance policy or to the payment of the
face value to the trust following the death of the insured.
Specifically, the evaluation procedures are as follows:
o Identify beneficiary rights that require waiver and other impediments
to transfer.
o Potential settlement recipients are sent application and consent forms
authorizing United to obtain medical and insurance information with
respect to the insured and the insured's life insurance policy.
o Once United has received the completed application, as well as the
medical and insurance information, the medical information is reviewed
to determine the insured's estimated life expectancy. The insurance
information will be reviewed to determine (i) whether the issuing
insurance company is credit worthy and (ii) that the life insurance
policy may be transferred to assure clear title to the new owner.
o If the life insurance policy passes the first stage of the evaluation
process, United will contact the insured's attending physician to
obtain certain of the insured's medical records. In most cases, United
also will elicit from the insured's attending physician whether the
insured is of sound mind.
28
o The insured's medical information will be reviewed by 21st Services'
medical underwriters who will render a life expectancy estimate of the
insured. The review will be conducted in strict confidence.
During the evaluation phase, United will also investigate the insured's
life insurance policy and its status. First, United will review relevant
insurance documents to determine (1) the type of insurance coverage being
considered for Senior Insurance Settlements, (e.g., whole life, term, universal,
individual or group), and (2) whether any event has occurred or any condition
exists that has or may reduce the face value of the policy (e.g., a loan against
the cash value of the policy). Second, United will determine whether the life
insurance policy has passed any contestability period. Third, United will
identify the primary beneficiaries of the life insurance policy and confirm that
such beneficiaries will execute complete releases of all present and future
claims with respect to the policy proceeds. Because minors cannot effectively
consent to a release of future claims, United will not purchase any life
insurance policy where a minor is a beneficiary. Finally, United will confirm
that the life insurance policy is assignable to the trust. If it is assignable,
United will check to see if it contains a disability waiver of premium rider.
The existence of such a rider may reduce the premiums payable by the trust after
assignment, thereby affecting the policy's purchase price.
Under most circumstances, when a sourcing broker refers the insurance
settlements to United, United will rely on the sourcing broker to conduct a
substantial portion of the steps included in the evaluation phase. United will,
however, independently verify estimated life expectancy of the insured, the
assignability of the life insurance policy and issues with respect to payment of
policy premiums. Once United has completed its evaluation, United will forward
such policies to 21st Services for a life expectancy evaluation. See "21st
Services."
Purchase
If, after the completion of the evaluation phase, United believes that the
life insurance policy satisfies its purchase criteria and its underwriting
criteria, United will commence the process of negotiating the purchase price.
The purchase price will be a discount from the face value of the policy. The
discount generally will vary from 20% to 90% percent depending upon the
estimated life expectancy of the insured and independently verified by 21st
Services. The longer the estimated life expectancy, the deeper the discount.
If the Senior Insurance Settlement candidate (and his or her agent) and
United reach an agreement with respect to the purchase price, United will
prepare all of the documents necessary to transfer ownership of the policy to
United. Generally, United will require the execution of five different types of
documents. These basic documents include (1) a purchase agreement, (2) a bill of
sale, (3) an assignment of life insurance policy, (4) a change of beneficiary
form, and (5) releases from all beneficiaries of the life insurance policy
immediately prior to assignment. During the ten (10) days following the
disbursement of the sale proceeds to the settlement recipient, the settlement
recipient will have the option of rescinding his or her decision to sell the
life insurance policy. The settlement recipient may regain title to the life
insurance policy at any time during this "open" period by sending United written
29
notice of the intent to terminate the sale along with the return of the sale
proceeds, plus the amount of any premiums paid by the trust with respect to the
life insurance policy during the open period. If state law requires a longer or
shorter period of time during which the settlement recipient may reverse the
sale of the life insurance policy, such longer or shorter period shall apply.
Monitoring
After the trust is assigned a life insurance policy, United and 21st
Services will take steps to monitor the status of the insured. Such monitoring
is necessary to ensure that the trust will be able to collect policy proceeds as
soon as possible after the death of the insured. In addition, the monitoring
phase involves the regular payment of premiums on all life insurance policies
owned by the trust. Premium payments will be tracked by united using a computer
database and paid out of the liquidity account, established from the proceeds of
the offering at closing. Additional protection against a lapse in premium
payments is provided by requirements in some insurance policies that the insurer
send notice to the owner of the life insurance policy prior to canceling a
policy for failure to pay policy premiums. United shall be responsible for
making timely payment of all premiums to keep insurance policies in force and
21st Services will be responsible for tracking the status of the insured.
Collection
Collection of the face value of the life insurance policy following the
death of the insured will require 21st Services on behalf of the trust to submit
a copy of a death certificate to the insurer. The amount of time that the trust
must wait for the insurer to disburse the face value of the life insurance
policy will vary from insurer to insurer and state to state. Many states require
insurers to pay interest on unpaid death benefits following the insurer's
receipt of the death certificate as an added incentive for the insurance company
to make timely benefit payments.
Quality Control
The master servicer provides valuation, verification and advisory services
in connection with purchases and administration of Senior Insurance Settlements.
21st Services independently evaluates the medical aspects of potential Senior
Insurance Settlements and estimates life expectancies. The master servicer
audits on a sample basis, the quality of closing documentation generated and
retained by Untied, Capital and the trust and also audits on a sample basis, the
integrity of the premium data base records maintained by the subservicer.
21ST Services
21st Services, located in Minneapolis, Minnesota, provides high quality
medical and insurance underwriting in the insurance settlements industry. 21st
Services is nationally recognized for its experience in evaluating and
underwriting insurance settlements. The Trust will engage 21st Services to
provide an independent medical evaluation of all insureds prior to United
purchasing the life insurance policies. 21st Services currently provides this
service to many of the participants in the insurance settlement industry. 21st
Services will receive a separate fee, payable monthly, for its diagnostic and
evaluation services.
30
Depending on the insured's medical condition, the life expectancy review is
accomplished through independent reviewing physicians, a proprietary
computerized life expectancy model or a combination of the two methods. Whatever
method is utilized, the life expectancy review includes a comprehensive review
of the insured's medical chart and specialized forms, if available, and, if
necessary, an interview with the insured's attending physician.
Subject to availability, the insured's medical chart should contain the
following items:
o Progress notes from the primary care provider and physician
specialists
o Laboratory results
o X-ray reports and other diagnostic tests
o Surgical reports
o Hospital admit/discharge summaries
o Pathology reports
o Previous and current therapy/treatment
o Lifestyle risk factors
o Functional impairments
o Psychological parameters.
If the life expectancy is generated by the proprietary computer model, data
from the insured's medical records and applicable forms are abstracted and key
risk factors are entered to the model. The model uses the risk factors to tailor
the general mortality statistics to the health and lifestyle profile specific to
the insured. The core of the model is the Industry Average Mortality Tables
licensed by 21st Services from Tillinghast-Towers Perrin. The statistical
mortality data on the these tables relates solely to insured individuals and
does not include the indigent or uninsurable populations. The basic mortality
data is adjusted by a system of debits complied by an accredited life
underwriting researcher who has degrees in epidemiology and public health. The
sources of information driving the risk factor adjustments include underwriting
criteria from large insurance companies, the Medical Information Bureau,
governmental studies and privately secured research. The life expectancy
certificate will highlight all pertinent risk factors used to determine life
expectancy. The model provides a median life expectancy for the specific
insured, expressed in months.
If the life expectancy review is completed by a physician specialist,
the reviewer will fully evaluate the insured's medical history, write a summary
of the highlights, provide an estimated life expectancy and justifications for
the life expectancy. Factors influencing each decision may include their own
clinical experience, peer review, rigorous analysis of medical journals, library
or internet research, non-public information concerning clinical trials,
investigational new drugs, and statistical information.
21st Services will provide master servicer functions, such as:
o Review medical, insurance and final underwriting for proposed policies
31
o Review financial analysis of each policy and its relationship to the
aggregate pool of policies
o Review purchase recommendations
o Audit integrity of financial model on a periodic basis
o Track all insureds and maintain updated medical files
o Maintain data on pool characteristics
o Monitor premium calendar database
o Prepare reports as needed
The trust will be dependent on 21st Services, whose managers are:
Paul Kirkman (President - 21st Diagnostics, managing director of 21st Holdings,
LLC) obtained his college education from Michigan State University, and several
years later began his viatical career as an underwriter for ViatiCare Financial
Services, LLC, where he became an expert in dissecting the complexities of group
life insurance. He later assumed the role of Service Group Manager and Manager
of Medical Affairs. As Service Group Manager he trained new client service
representatives in the art and science of insurance underwriting and actively
participated in the underwriting of difficult policies and those with particular
financial appeal to the company. As manager of Medical Affairs he managed the
company's consulting physician network and interacted with the clients'
attending physicians to ensure that life expectancies were obtained on a timely
basis.
At 21st Services, Kirkman leads the Diagnostic division. With Mervyn F.
Silverman, M.D., MPH, he developed a high quality network of consulting
physician specialists who review medical charts to provide life expectancies for
clients with terminal illness. Kirkman's network is one of two "re-insurer
certified" diagnostic companies in the United States. Kirkman also led the
development of 21st Services elder life expectancy model with an accredited life
underwriting researcher who has backgrounds in epidemiology and public health.
He combined the expertise of an international actuarial firm, a life
underwriting consultant and a respected geriatrician with 21st Services'
knowledge of the insurance settlement industry to create the most sophisticated,
credible elder life expectancy model in the industry. To date, this model is the
only automated computer model in the industry.
Kirkman has 4-1/2 years of life insurance settlement industry experience.
Robert Simon (President - Manna Financial, managing director of 21st Holdings,
LLC) became the controller for a large midwestern viatical funding company in
1995 and became chief financial officer for the company in 1997. In these
capacities he was responsible for developing procedures, controls and
information systems that allowed the company to dramatically increase its
purchasing volumes and manage a growing portfolio of insurance settlements in a
controlled fashion. Simon implemented a complex corporate structure designed to
support the public securitization of insurance settlements. He managed all
administrative, compliance and reporting functions for a $600 million revolving
credit facility to fund policy purchases. Simon was also responsible for
32
negotiating a reinsurance treaty with a major reinsurance firm and a backup
servicing agreement with a national bank. Before entering the life insurance
settlement industry, Simon held a variety of financial, audit and marketing
positions with several large financial, transportation and energy companies.
As President of Manna Financial, Simon has developed a senior insurance
settlement originations network of insurance agents that has produced a steady
stream of senior insurance settlements. Simon is a recognized expert in the life
insurance settlement field and regularly teaches life insurance settlement
concepts and applications to insurance agents and health care workers around the
region. As Managing Director of 21st Holdings, LLC, Simon has developed
proprietary information systems to control life expectancy, underwriting and
post-purchase policy servicing operations.
Simon holds a bachelor's degree in accounting from the University of Minnesota
and an MBA in marketing from the University of St. Thomas. Simon also holds
designations as a Certified Public Accountant and Certified Information Systems
Auditor. Simon has 5 years of life insurance settlement industry experience.
Steven Walker (President - 21st Underwriting and 21st Guardian, managing
director of 21st Holdings, LLC) was an underwriter, Service Group Manager and
Manager of Policy Purchasing for a large mid-western viatical funding company.
In these positions, he was responsible for evaluating the insurance risk of
insurance settlements against strict acceptance parameters mandated by the
institutional lender. He was also responsible for managing the closing process
for settlement transactions, including compliance reviews before files were
forwarded to the escrow agent for closing.
At 21st Services, Walker has created a substantial insurance underwriting
practice that manages the underwriting and placement operations for a large
number of regional and national brokers and funders. Other funders rely on
Walker's insurance underwriting expertise to help them evaluate special
insurance risks that they would not understand or could not verify without his
expertise. Walker is also responsible for managing the contact and death claim
filing processes for approximately 500 insureds who have sold their life
insurance policies to several funding companies.
Walker earned his college degree from the University of Minnesota. Walker has 4
years of life insurance settlement industry experience.
The Trust
The issuer of the Certificates is Senior Insurance Settlements Funding
Trust 1999, a trust organized on _____________, 1999. The purpose of the trust
is to invest the proceeds of the offering in Senior Insurance Settlements and
thereafter collect the death benefit proceeds associated with such Senior
Insurance Settlements and distribute the proceeds to the Certificateholders.
33
The trust was formed in accordance with the laws of the State of Delaware
and pursuant to the pooling and servicing agreement. The originator of the trust
is Capital. The trust was formed for the restricted, limited purposes of
beneficially owning the Senior Insurance Settlements acquired from Capital and
the proceeds derived therefrom, issuing Certificates and making payments
thereon, and making certain specified permitted investments. See "Description of
the Certificates and The Pooling and Servicing Agreement." The trust is not
expected to have any need for, or source of, capital other than the assets of
the trust. Upon formation, the initial assets of the trust will be [$100]
provided by Capital and thereafter shall consist of (a) an irrevocable
beneficial interest in the Senior Insurance Settlements acquired from Capital in
consideration of the proceeds of this offering, (b) an assignment of all of
Capital's interests under the senior insurance settlements purchase agreement,
and (c) all funds collected or to be collected with respect to the Senior
Insurance Settlements and deposited into certain accounts of the trust. It is
expected, but there can be no assurance, that there will be assets remaining in
the trust after all interest and principal payments have been made to
Certificateholders. All excess assets, if any, after the final distribution
dates will be transferred to Capital. See "Description of the Certificates and
the Pooling and Servicing Agreement." The Trustee of the Trust is .
The Escrow Agent
The trust will retain The Chase Manhattan Bank to serve as escrow agent for
the trust. As escrow agent, The Chase Manhattan Bank, will not evaluate medical
information or make assumptions as to estimated life expectancy.
Management Fee
The master servicer and subservicer shall receive a management fee equal to
.45% of the principal amount of the Certificates outstanding as determined at
the closing date. Capital will grant to the master servicer a right entitling
the master servicer to receive 5% of the trust's assets remaining in Tranche I
and Tranche II of the trust, respectively, after all interest and principal
payments have been made to Certificateholders. If the master servicer is
required to become the successor servicer, it will be paid a one-time management
transfer fee of $100,000. 21st Services will also receive additional fees,
payable monthly, for diagnostic and evaluation services.
The management fee will be paid monthly in arrears, for each preceding
month. This management fee will compensate the master servicer and subservicer
for their services in managing the affairs of the trust including identifying
and qualifying potential senior insurance settlements for purchase, negotiating
the price to be paid for senior insurance settlements, monitoring Senior
Insurance Settlements assigned to the trust, assuring that premiums are paid
when due and liquidating Senior Insurance Settlements purchased by the trust if
necessary or advisable.
The trust will have no employees or office space. The master servicer and
subservicer will bear all costs and expenses of providing to the trust any
office space, furniture, fixtures, equipment, facilities, supplies, telephone,
secretarial, internal bookkeeping and necessary ongoing overhead support
services for the trust's operations, the compensation of the master servicer's
and subservicer's personnel, and expenses incurred in connection with monitoring
and
34
collecting Senior Insurance Settlements. The trust will pay all other costs and
expenses of the trust including the following:
(a) all routine administrative expenses of the trust, including the cost
of the preparation of the annual audit, financial and tax returns and
tax returns and tax reports required for investors or the trust, cash
management fees and routine legal and accounting expenses,
(b) all out-of-pocket costs and expenses, if any, incurred in identifying,
evaluating, purchasing, acquiring, holding, valuing and disposing of
Senior Insurance Settlements, including without limitation any
financing, legal, accounting, advisory and consulting expenses in
connection therewith,
(c) all third-party expenses in connection with Senior Insurance
Settlements or proposed Senior Insurance Settlements that are not
ultimately made, including, without limitation, the out-of-pocket
costs and expenses incurred in connection with obtaining third-party
financing (such as commitment fees), if any,
(d) brokerage commissions, license and registration fees and expenses,
custodial expenses and other investment costs actually incurred in
connection with the Senior Insurance Settlements,
(e) interest on and fees and expenses arising out of all borrowings, if
any, made by the trust, including, but not limited to, the arranging
thereof,
(f) the out-of pocket costs of any litigation, liability or other
insurance and indemnification or extraordinary expense or liability
relating to the affairs of the trust,
(g) license fees and associated costs of obtaining all necessary licenses
such as licenses as a senior insurance settlement provider,
registration expenses and any taxes, fees or other governmental
charges levied against the trust and all expenses incurred in
connection with any tax audit, investigation, settlement or review of
the Trust, and
(h) similar expenses to the extent that such expenses are not servicing
expenses.
35
USE OF PROCEEDS
On each closing date, the proceeds received from the sale of Certificates,
net of payments to Pryor, Counts & Co., Inc. and certain other fees and
expenses, will be paid to the trust to purchase Senior Insurance Settlements
from Capital which Capital will acquire from United and which United will
acquire from sourcing brokers. The amount of proceeds which will be paid to
Pryor, Counts & Co., Inc., as its commission, shall be equal to 3.5% of the
aggregate principal amount of the Certificates issued on each closing date. The
Chase Manhattan Bank will be entitled to retain, from any disbursements from the
escrow account that are payable to Capital for Senior Insurance Settlements
assigned to the trust, any outstanding fees and/or expenses due The Chase
Manhattan Bank under the escrow agreement and which have not been paid by
Capital.
MATURITY ASSUMPTIONS
The pooling and servicing agreement provides that Certificateholders will
not begin to receive payments of principal until the final maturity dates.
During the amortization period, the Certificateholders will be entitled to
receive semi-annual payments of interest. See "Description of the Certificates
and the Pooling and Servicing Agreement - Principal Payments." The Certificates
are also subject to optional repurchase by the trust after a 5 year period,
respectively, at 102.50% of the outstanding principal amount of the
Certificates. See "Description of the Certificates and the Pooling and Servicing
Agreement - Reacquisition of the Senior Insurance Settlements; Termination."
PLAN OF DISTRIBUTION
Pryor, Counts & Co., Inc. has entered into an agreement with Capital and
United, to act as the agent with respect to the sale of the Certificates offered
hereby. Pryor, Counts & Co., Inc. has made no agreement to purchase or take down
all or part of the Certificates offered hereby, but has agreed to use its "best
efforts" on a "minimum-maximum" basis to sell a minimum of $20,000,000 principal
amount of Certificates within 90 days after the date of this prospectus (subject
to Capital's option to extend such period for 30 days). If the minimum amount of
Certificates are not sold within said period, the agreement between Pryor,
Counts & Co., Inc. and Capital and United will terminate and all funds will be
returned to subscribers with interest. If, however, the minimum $20,000,000
principal amount of Certificates are sold within the initial 90 (or 120) day
period, the offering will continue on a "best efforts" basis until the earlier
of (a) the sale of the remaining $130,000,000 principal amount of Certificates;
(b) twelve months after the effective date of this registration statement; or
(c) the mutual agreement of Pryor, Counts & Co., Inc. and Capital to terminate
sales of the Certificates.
All proceeds from subscriptions to purchase the Certificates will be
promptly transmitted by Pryor, Counts & Co., Inc. or other participating
broker/dealers by noon the next business day after receipt of such proceeds, to
an interest bearing escrow account at The Chase Manhatttan Bank.
36
All subscriber's checks should be made payable to "The Chase Manhattan Bank
ESCROW ACCOUNT FOR SENIOR INSURANCE SETTLEMENTS FUNDING TRUST 1999."
Pryor, Counts & Co., Inc. is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD") and registered as a
broker/dealer with the Securities and Exchange Commission. It will receive a
one-time sales commission equivalent to 3.5% of the principal amount of the
Certificate subscriptions obtained by them. Capital will direct The Chase
Manhattan Bank to remit Pryor, Counts & Co., Inc.'s fee to them at each closing
date. Participating dealers will receive a commission out of the 3.5% paid to
Pryor, Counts & Co., Inc.
Upon the sale of $20,000,000 principal amount of Certificates, Capital will
grant to Pryor, Counts & Co., Inc. a right entitling them to receive up to 2.75%
and 10% of the assets, respectively, if any, remaining in Tranche I and Tranche
II of the trust, respectively, after all interest and principal payments have
been made to Certificateholders. This right serves as additional compensation to
Pryor, Counts & Co., Inc. for selling the Certificates.
Capital and United have agreed, under the placement agent agreement, to
jointly and severally, indemnify and hold harmless Pryor, Counts & Co., Inc. and
its controlling persons, respective officers, directors, employees, agents,
successors and assignees ("indemnities") against any and all losses, claims,
damages, liabilities, costs and expenses to which the indemnitie(s) may become
subject and which arise directly or indirectly out of or are based upon any
breach of the placement agent agreement by Capital; any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement and prospectus or any amendment or supplement thereto; any omission or
alleged omission in the registration statement or prospectus of a material fact
required to be stated therein or necessary to make the statements therein not
misleading; or the representations by Pryor, Counts & Co., Inc. of Capital in
selling the Certificates.
The placement agent agreement may be terminated by Pryor, Counts & Co.,
Inc. at its option by giving notice to Capital and Capital's counsel, if Capital
materially fails to fulfill its obligations thereunder or if Pryor, Counts &
Co., Inc. learns of any material misrepresentations made by Capital.
There can be no assurance that Pryor, Counts & Co., Inc. will be successful
in selling any or all of the Certificates offered hereby. Pryor, Counts & Co.,
Inc. does not intend to sell any Certificates to any account over which it may
exercise discretionary authority.
The foregoing is a brief summary of all material provisions of the
placement agent agreement. A copy of the placement agent agreement has been
filed as an exhibit to the registration statement of which this prospectus forms
a part.
37
DESCRIPTION OF THE CERTIFICATES
AND THE POOLING AND SERVICING AGREEMENT
The Certificates will be issued pursuant to the pooling and servicing
agreement to be entered into among Capital, as assignor of the Senior Insurance
Settlements and originator of the trust, United as Seller and subservicer of the
Senior Insurance Settlements, 21st Services, as master servicer, and the
trustee, and which agreement will be substantially in the form filed as an
exhibit to the registration statement of which this prospectus is a part. The
trustee will provide a copy of the pooling and servicing agreement to any
Certificateholder on written request. The following summary describes certain
terms of the pooling and servicing agreement. It does not purport to be a
complete recitation of the pooling and servicing agreement and, therefore, is
qualified in its entirety by reference to the pooling and servicing agreement.
In addition, unless otherwise defined below, or in the Glossary on page 73,
each of the terms which is capitalized is defined in the pooling and servicing
agreement.
General
The Certificates will evidence undivided interests in the trust and
represent the right of the Certificateholders to receive from the trust the
amounts required to make payments of principal and interest on the Certificates.
The trust's assets will consist primarily of (a) an irrevocable beneficial
interest in the Senior Insurance Settlements; (b) monies due or to become due
thereunder; (c) monies received from insurance companies in payment of the
Senior Insurance Settlements; (d) monies on deposit in bank accounts of the
trust or other permitted investments, (inclusive of interest earned or accrued
on the funds deposited in said accounts); and (e) all right, title, and interest
with respect to the Senior Insurance Settlements and any supporting
documentation or agreements related to the Senior Insurance Settlements and with
United under the senior insurance settlements purchase agreement. See
"Description of the Senior Insurance Settlements Purchase Agreement."
The Certificates in the aggregate will represent a 100% interest in the
trust's assets up until the final maturity dates. the principal amount of the
Certificates outstanding at any time will equal the original principal amount of
the Certificates as of their respective dates of issuance minus the amount of
principal payments made to the Certificateholders. See "Application of
Collections." Each Certificate will represent the right to receive (i)
semi-annual payments of certificate interest at the certificate
rate primarily from the liquidity account and (ii) payments of certificate
principal funded from collections attributable payments by insurance companies
pursuant to the Senior Insurance Settlements. The Certificates are structured to
facilitate a secured, credit-enhanced financing with the intention that the
Certificates will constitute indebtedness of Capital for federal income, state
and local tax purposes, and Capital and each Certificateholder, by acceptance of
its Certificate, agrees to recognize and report the Certificate as indebtedness
of Capital for purposes of federal, state and local income or franchise taxes
and any other tax imposed on or measured by income, and to report all receipts
and payments relating to the Certificates in a manner that is consistent with
such characterization.
38
The principal amount of the Certificates will remain constant. Distribution
of interest and principal on the Certificates on each distribution date will be
made by the trustee, directly to the Certificateholders in whose names the
Certificates were registered at the close of business on the record date.
Distributions will be made by check mailed to the address of each of the
Certificateholders as it appears on the register maintained by the trustee, or
its designee. The final payment on any Certificate, however, will be made only
upon presentation and surrender of such Certificate at the office or agency
specified in the notice of final distribution to Certificateholders. The trustee
will provide such notice to registered Certificateholders not later than the 5th
day prior to the final distribution.
The Certificates
For federal tax purposes, Capital intends that the Certificates will
constitute evidence of indebtedness of Capital. The Certificates will be
substantially in the form filed as an exhibit to the registration statement of
which this prospectus forms a part and which is attached to the pooling and
servicing agreement as an exhibit. The Certificates will be issued in the
minimum denominations of $5,000 and integral multiples of $1,000 in excess
thereof equal to the original principal amount for which each Certificateholder
subscribed to purchase; provided, however, that one Certificate may be issued on
each closing date in a residual amount of less than $1,000.
On each closing date, upon the order of Capital, the trustee shall
authenticate and deliver the Certificates to the Certificateholders against
payment to Capital of the subscription proceeds for such Certificates (net of
any placement fee). The Certificates will be issued contemporaneously with the
assignment of the Senior Insurance Settlements to the trust.
Registration, Transfer and Exchange of Certificates
The trustee shall cause the certificate register to be kept at the office
or agency to be maintained by the transfer agent and registrar in which, subject
to such reasonable regulations as it may prescribe, the transfer agent and
registrar shall provide for the registration of the Certificates and of
transfers and exchanges of the Certificates. The trustee is initially appointed
the transfer agent and registrar, but shall be permitted to resign as transfer
agent and registrar upon 30 days written notice to Capital, in which event, the
trustee shall appoint a successor transfer agent and registrar.
Upon surrender for registration of transfer of any Certificate at any
office or agency of the transfer agent and registrar for such purpose, Capital
shall execute, and the trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Certificates in
authorized denominations of like aggregate principal amount. The transfer agent
and registrar will maintain at its expense in New York, NY an office or offices
or agency or agencies where Certificates may be surrendered for registration of
transfer or exchange.
Whenever any Certificates are surrendered for registration of transfer or
exchange, Capital shall execute, and the trustee shall authenticate and deliver,
the Certificates which the Certificateholder making the exchange is entitled to
39
receive. Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in a form
satisfactory to the transfer agent and the transfer agent and registrar duly
executed by the Certificateholder thereof or his attorney duly authorized in
writing. No service charge to the Certificateholder shall be made for any
registration of transfer or exchange of Certificates, but the transfer agent and
registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Certificates. All Certificates surrendered for registration of
transfer or exchange shall be cancelled and disposed of in a manner satisfactory
to Capital, the trustee and the transfer agent and registrar. Unless Capital
provides the trustee with written notice to the contrary, all Certificates so
surrendered will be destroyed pursuant to customary procedures.
Prior to presentation of a Certificate for registration of transfer,
Capital and the trustee, the paying agent, the transfer agent and registrar and
any agent of any of them may treat the person in whose name any Certificate is
registered as the owner of such Certificates for the purpose of receiving
distributions and for all other purposes whatsoever, and neither Capital and the
trustee, the paying agent, the transfer agent and registrar, nor any agent of
any of them shall be affected by any notice of the contrary.
The paying agent shall make all withdrawals, deposits and payments in
accordance with the subservicer's reports which reports are described below in
detail. The paying agent shall be the trustee and shall have revocable power to
transfer funds among investor accounts and make distributions to
Certificateholders from the distribution account (which account is described
below in greater detail). The trustee, as the paying agent, shall be permitted
to resign as paying agent upon 30 days written notice to Capital at which point
the trustee shall appoint a successor paying agent acceptable to Capital. The
provisions of the pooling and servicing agreement governing the duties of the
trustee, the trustee's liability for recitals in the Certificates, and certain
other matters affecting the trustee shall also apply to the trustee to its role
as paying agent, for so long as the trustee shall act as paying agent. if the
trustee determines in its sole discretion that the paying agent (assuming it is
not the trustee) has failed to perform its obligations under the pooling and
servicing agreement in any material respect, the trustee may revoke the paying
agent's power and remove the paying agent, unless the paying agent is the
trustee.
List of Certificateholders
The trustee will furnish or cause to be furnished by the transfer agent and
registrar (if other than the trustee) to Capital within five (5) business days
after receipt by the trustee of a request therefor from Capital, in writing, a
list in such form as Capital may reasonably require, of the names and addresses
of the Certificateholders as of the most recent record date for payment of
distributions to Certificateholders. If Certificateholders holding an aggregate
amount of the Certificates then outstanding (the "applicants") apply in writing
to the trustee, and such application states that the applicants desire to
communicate with other Certificateholders with respect to their rights under the
pooling and servicing agreement or under the Certificates and is accompanied by
40
a copy of the communication which such applicants propose to transmit, then the
trustee, after having been adequately indemnified by such applicants for its
costs and expenses, shall afford or shall cause the transfer agent and registrar
(if other than the trustee) to afford such applicants access during normal
business hours to the most recent list of Certificateholders held by the trustee
which shall be as of a date not more than 45 days prior to the date of receipt
of such applicants' request and shall give the subservicer notice that such
request has been made, within 5 business days after the receipt of such
application. Every Certificateholder, by receiving and holding Certificates,
agrees with the trustee that neither the trustee, the transfer agent and
registrar (if other than the trustee), nor any of their respective agents shall
be held accountable by reason of the disclosure of the names and addresses of
the Certificateholders, regardless of the source from which such information was
obtained.
Interest Payments
Certificate Interest will accrue on a Certificate from the applicable
closing date of the particular Certificate. Beginning with the distribution date
immediately following the date in which occurred the closing date applicable to
the particular Certificate, interest at the certificate rate shall be paid on
each distribution date on the basis of a 360 day year comprised of twelve 30 day
months. Certificate interest due on any distribution date will be calculated on
the outstanding principal amount of the Certificate as of the applicable closing
date. Certificate interest payments will be funded from the liquidity account.
Certificate interest will be paid to the Certificateholders after the trustee's
fees and expenses and master servicer's fee, but before the successor servicer's
fee has been paid in that order of priority. If there are insufficient amounts
in the liquidity account to pay Certificate interest, such deficits shall
constitute a deficiency amount payable on succeeding distribution dates from the
liquidity account.
Principal Payments
No payments of Certificate principal will be made to Certificateholders
until the final maturity date, as applicable, except as provided below. The
first payment of Certificate principal will be made to Certificateholders
beginning on the first distribution date following the first maturity date.
Additional payments of Certificate principal will be made on succeeding
distribution dates until the full outstanding balance of Certificate principal
with respect to all Certificates has been paid in full which will be deemed the
final maturity date. If there remains any outstanding balance of Certificate
principal, then all remaining trust's assets shall first be used to repay
the outstanding balance of Certificate principal of the Certificates. Any funds
remaining in any of the investor accounts, including the liquidity account,
after the full outstanding balance of Certificate principal on all Certificates
has been paid in full and all fees and expenses have been paid shall be the
property of Capital.
41
Assignment of Senior Insurance Settlements To The Trust
On or before the second business day prior to each closing date, Capital
shall give the trustee written notice of the proposed irrevocable assignment of
beneficial interest in the of Senior Insurance Settlements specifying the amount
of the Senior Insurance Settlements to be assigned and the trustee shall, in
turn, notify Capital of the amount available in the escrow account to acquire
Senior Insurance Settlements. Capital, on each closing date, will then
transfer, assign and set over to the trust for the benefit of the
Certificateholders, without recourse, (a) an irrevocable beneficial interest in
the Senior Insurance Settlements which shall be acquired by Capital from United
(as seller under the Senior Insurance Settlements Purchase Agreement ("seller"))
pursuant to the senior insurance settlements purchase agreement, including all
monies due or to become due with respect to the Senior Insurance Settlements and
all proceeds from the Senior Insurance Settlements and (b) all of Capital's
rights, remedies, powers and privileges with respect to the Senior Insurance
Settlements under the senior insurance settlements purchase agreement.
Representations and Warranties of Capital
General. Capital shall represent and warrant to the trust as of each
closing date that (1) it is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and has full corporate
power, authority and right to own its properties and conduct its business as
such properties are presently owned and such business is presently conducted,
and to execute, deliver and perform its obligations under the pooling and
servicing agreement and to execute and deliver to the trustee the certificates
pursuant thereto; (2) it is neither required to qualify, nor to register, as a
foreign corporation in any state other than those states in which it has so
qualified in order to conduct business, and has obtained all necessary licenses
and approvals required under federal and applicable state law; (3) the
execution and delivery of the pooling and servicing agreement and the senior
insurance settlements purchase agreement and the execution and delivery to the
trustee of the Certificates by Capital and the consummation of the transactions
provided for in the pooling and servicing agreement and the senior insurance
settlements purchase agreement have been duly authorized by Capital by all
necessary corporate action; (4) the execution and delivery of the pooling and
servicing agreement and the senior insurance settlements purchase agreement and
the Certificates, the performance of the transactions contemplated by the
pooling and servicing agreement and the fulfillment of the terms thereof will
not conflict with, result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time or both) a default under,
any indenture, contract, agreement, mortgage, deed of trust or other instrument
to which Capital is a party or by which it or any of its property is bound; (5)
the execution and delivery of the pooling and servicing agreement, the senior
insurance settlements purchase agreement and the Certificates, the performance
of the transactions contemplated by the pooling and servicing agreement or
the senior insurance settlements purchase agreement and the fulfillment of the
terms thereof will not conflict with or violate any requirements of law
applicable to Capital; (6) there are no proceedings or investigations pending
or, to the best knowledge of Capital, threatened against Capital, before any
court, regulatory body, administrative agency, or other governmental
42
instrumentality (a) asserting the invalidity of the pooling and servicing
agreement, the senior insurance settlements purchase agreement or the
Certificates, (b) seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by the pooling and
servicing agreement, the senior insurance settlements purchase agreement or the
Certificates, (c) seeking any determination of ruling that, in the reasonable
judgment of Capital, would materially and adversely affect the performance by
Capital of its obligations under the pooling and servicing agreement or the
senior insurance settlements purchase agreement, (d) seeking any determination
or ruling that would materially and adversely affect the validity or
enforceability of the pooling and servicing agreement, the senior insurance
settlements purchase agreement or the Certificates or (e) seeking to affect
adversely the income tax attributes of the trust; and (7) all appraisals,
authorizations, consents, orders or other actions of any person or of any
governmental body or official required in connection with the execution and
delivery of the pooling and servicing agreement, the senior insurance
settlements purchase agreement and the Certificates, the performance of the
transactions contemplated by the pooling and servicing agreement or the senior
insurance settlements purchase agreement, and the fulfillment of the terms
thereof, have been obtained. These representations and warranties of Capital
will survive the assignment of the senior insurance settlements to the trust and
the termination of the rights and obligations of the subservicer. Upon discovery
by Capital or the subservicer or upon written notice to the trustee of a breach
of any of the foregoing representations and warranties, the party discovering
such breach or the trustee, as applicable, is obligated to give prompt written
notice to the other parties to the pooling and servicing agreement.
Pooling and Servicing Agreement. Capital shall also represent and warrant to the
trust, with respect to any Certificates, as of each closing date that (a) the
pooling and servicing agreement and any assignment of the Senior Insurance
Settlements each constitute a legal, valid and binding obligation of Capital,
enforceable against Capital in accordance with its terms, except as such
enforceability may be limited by debtor relief laws and except as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity); and (b) the pooling and servicing
agreement and any assignment of the Senior Insurance Settlements each constitute
either (a) a valid assignment to the trust of all right, title and interest of
Capital in, to and under the Senior Insurance Settlements being assigned to the
trust, all monies due or to become due with respect to the Senior Insurance
Settlements, and all proceeds of the Senior Insurance Settlements, free and
clear of any lien of any person claiming through or under Capital, (except for
any tax lien), all monies due or to become due with respect to the Senior
Insurance Settlements and the proceeds of the Senior Insurance Settlements upon
transfer of the Senior Insurance Settlements to the trust, and of the pooling
and servicing agreement.
Eligibility of Senior Insurance Settlements, Selection Procedures, Solvency
In connection with the assignment of Senior Insurance Settlements to the
trust, Capital also shall represent and warrant to the trust as to each closing
date, that (a) no selection procedures believed by Capital to be in violation of
the diversification requirements (which are described below in greater detail)
were utilized in selecting the Senior Insurance Settlements being transferred to
the trust and (b) neither Capital nor the seller is insolvent. See "Covenants
43
of Capital." On each closing date, Capital will be deemed to represent and
warrant that the representation and warranties set forth above are true and
correct with respect to each Senior Insurance Settlement assigned on such date
as if made on such date. In addition, these representations and warranties shall
survive the assignment of the respective Senior Insurance Settlements to the
trust and the termination of the rights and obligations of the subservicer. Upon
discovery by Capital, the subservicer or the trustee of a breach of any of the
foregoing representations and warranties, the party discovering such breach
shall give prompt written notice to the others.
Representations and Warranties Regarding Senior Insurance Settlements Purchase
Agreement. Capital shall also represent and warrant to the trust that seller,
under the senior insurance settlements purchase agreement, that it has
covenanted and agreed to comply with and perform its obligations with respect to
the Senior Insurance Settlements, except insofar as any failure so to comply or
conform would not materially and adversely affect the rights of the trust or the
Certificateholders under the pooling and servicing agreement or under the
Certificates.
Covenants of Capital
Capital shall covenant to the trust that (1) each Senior Insurance
Settlement shall be evidenced by an appropriate insurance policy; (2) except for
the assignments contemplated in the pooling and servicing agreement, Capital
will not sell , pledge, assign or transfer to any other person the Senior
Insurance Settlements; (3) Capital agrees to tender to the subservicer for
deposit in the investor accounts all payments received by Capital with respect
to the Senior Insurance Settlements as soon as practicable after receipt thereof
by Capital; (4) Capital will enforce the provisions of the senior insurance
settlements purchase agreement prohibiting the seller from conveying, assigning,
exchanging or otherwise transferring the Senior Insurance Settlements to any
other person prior to termination of the trust; (5) Capital shall make any
filings, reports, motion, application, registration with, and shall seek any
consents or authorizations from the Securities and Exchange Commission and any
state securities authority on behalf of the trust as may be necessary or
advisable, and shall comply with any federal or state securities or reporting
requirement laws; and (6) Capital's purchase, acquisition and transfer of Senior
Insurance Settlements will be structured so that (a) at acquisition, no less
than 75% of the cumulative death benefits of the Senior Insurance Settlements
held or beneficially owned by the Trust shall be payable by insurance companies
with an A.M. Best rating of A or better, or its equivalent as set by other
nationally recognized rating agencies, (b) at acquisition no more than 25% of
the cumulative death benefits of the Senior Insurance Settlements held or
beneficially owned by the Trust shall be payable by insurance companies with
A.M. Best rating of B+, or its equivalent as set by other nationally recognized
agencies, (c) at any time after $50,000,000 of Senior Insurance settlements have
been assigned to the trust no more than 10% of the outstanding cumulative death
benefits of the Senior Insurance Settlements held or beneficially owned by the
trust shall be payable by any one insurance company, and (d) no more than $4
million in Tranche I and $10 million in Tranche II will be cumulative death
benefits relating to any one individual.
44
Administration and Servicing of Senior Insurance Settlements.
The subservicer has undertaken to service and administer the Senior
Insurance Settlements and to collect payments due under the Senior Insurance
Settlements in accordance with customary and usual servicing procedures and it
shall have full power and authority, acting alone or through any party properly
designated by it to do any and all things in connection with such servicing and
administration which it may deem necessary or desirable. Without limiting
generality of the foregoing, the subservicer is authorized and empowered unless
such power and authority is revoked by the trustee or the master servicer on
account of the occurrence of a subservicer default (as discussed below in
greater detail) to execute and deliver, on behalf of the trust for the benefit
of the Certificateholders, any and all instruments of satisfaction or
cancellation, or of partly or full release or discharge, and all other
comparable instruments, with respect to the Senior Insurance Settlements. The
trustee shall furnish the subservicer upon request with any powers of attorney
and other documents reasonably necessary or appropriate to enable the
subservicer to carry out its servicing and administrative duties.
The master servicer and subservicer are not obligated to use separate
servicing procedures, offices or employees for servicing the Senior Insurance
Settlements from the procedures, offices, or employees used by the master
servicer in connection with servicing other senior insurance settlements;
provided, however, that subservicer is at all times required to be able to
accurately reflect the status of collections and shall maintain separate
accounts. The subservicer is not required to maintain fidelity bond coverage
insuring against losses through wrongdoing of its officers and employees who are
involved in the servicing of the Senior Insurance Settlements.
Servicing Compensation and Payment of Expenses
As compensation for its servicing activities under the pooling and
servicing agreement and as reimbursement for its expenses in connection with its
activities under the pooling and servicing agreement, the master servicer and
subservicer shall be entitled to receive a monthly servicing fee with respect to
any month (or portion thereof) prior to the termination of the Trust, payable in
arrears on each fee distribution date. The master servicer and subservicer shall
not be liable for any liabilities, costs or expenses of the trust or the
Certificateholders arising under any tax law, including without limitation any
federal, state or local income or franchise taxes or any other tax imposed on or
measured by income (or any interest or penalties with respect thereto or arising
from a failure to comply therewith).
The subservicer shall be required to pay from its servicing compensation
all expenses, but not including fees paid to independent accountants which shall
be paid by the trust, incurred in connection with servicing the Senior Insurance
Settlements and shall not be entitled to any payment from Capital or the trust
other than the monthly servicing fee.
45
Representations, Warranties and Covenants of the Subservicer (and Seller)
As of each closing date, the subservicer will make the following
representations, warranties and covenants upon which the trustee will rely in
accepting the assignment of the Senior Insurance Settlements and is
authenticating the Certificates that (1) the subservicer is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has full corporate power, authority and right to own its
properties and conduct its business as such properties are presently owned and
such business is presently conducted, and to execute, deliver and perform its
obligations under the pooling and servicing agreement; (2) it is qualified as a
foreign corporation in every state where it is required to be so qualified to
service the Senior Insurance Settlements as required by the pooling and
servicing agreement and has obtained all necessary licenses and approvals as
required under federal and state law, in each case, where the failure to be so
qualified, licensed or approved, could reasonably be expected materially and
adversely to affect the ability of the subservicer to comply with the terms of
the pooling and servicing agreement; (3) the execution, delivery, and
performance of the pooling and servicing agreement (and the senior insurance
settlements purchase agreement) have been duly authorized by the subservicer
(and by United as seller, as applicable) by all necessary corporate action on
the part of the subservicer, that said agreements constitute legal, valid and
binding obligations of the subservicer (and by united as seller, as applicable)
enforceable in accordance with their respective terms, except as enforceability
may be limited by debtor relief laws and except as such enforceability may be
limited by general principles of equity (whether considered in a proceeding at
law or in equity) and that the execution and delivery of the pooling and
servicing agreement (and the senior insurance settlements purchase agreement) by
the subservicer (and by United as seller, as applicable), and the performance of
the transactions contemplated by said agreements and the fulfillment of the
terms thereof applicable to the subservicer (and seller, as applicable), will
not conflict with, violate, or result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time or both( a
default under, any requirements of law applicable to the subservicer (and
seller, as applicable) or any indenture contract, agreement, mortgage, deed of
trust or other instrument to which the subservicer (or the seller, as
applicable) is a party or by which it is bound; and (4) there are no
proceedings or investigations pending or, to the best knowledge of the
subservicer (or the seller, as applicable), threatened against the subservicer
(or the seller, as applicable), before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality seeking
to prevent the issuance of the Certificates or the consummation of any of the
transactions contemplated by the pooling and servicing agreement, seeking any
determination or ruling that, in the reasonably judgment of the subservicer (or
the seller, as applicable), would materially and adversely affect the
performance by the subservicer (or the seller, as applicable) of its obligations
under the pooling and servicing agreement (or the senior insurance settlements
purchase agreement), or seeking any determination or ruling that would
materially and adversely affect the validity or enforceability of the pooling
and servicing agreement (or the senior insurance settlements purchase
agreement). Seller shall also make agreements with or deliver binding
instructions to each insurance company such that Collections are to be deposited
directly in the lockbox account.
46
Reports and Records of the Master Servicer and Subservicer
The master servicer and subservicer is required to deliver certain reports
and certificates to Capital and the trustee at specified times.
Closing Date Reports. The subservicer shall prepare and deliver to Capital
and to the trustee on 2 business days prior to the initial closing date and,
thereafter, on the first business day of each week, an officer's certificate
setting forth the amount of Senior Insurance Settlements to be purchased on the
initial closing date as measured by the senior insurance settlements purchase
price expended therefor and by their face value.
Daily and Weekly Reports. On each business day, the subservicer shall
prepare and make available at the office of the subservicer for inspection by
the master servicer and the trustee (which trustee may do at its option, but has
no obligation to so inspect) and/or Capital a record setting forth (1) the
aggregate amount of collections processed by the subservicer on the preceding
business day and (2) the amount of Senior Insurance Settlements as of the close
of business on the preceding business day. On the first business day of each
week, commencing in the week following the first closing date, the subservicer
shall prepare and deliver to Capital and the trustee a record setting forth (1)
the aggregate amount of collections processed by the Subservicer in the
preceding week and (2) the aggregate amount of Senior Insurance Settlements as
of the close of business on the last business day in such week.
Master Servicer's Semi-Annual Certificate. On each determination date the
master servicer shall prepare and forward to the trustee and the paying agent
the semi-annual master servicer's certificate substantially setting forth (1)
the aggregate amount of collections processed during the preceding six months;
(2) the aggregate amount of collections attributable to Senior Insurance
Settlements processed by the subservicer during the preceding six months; (3)
the aggregate amount of Senior Insurance Settlements and the balance on deposit
in the senior insurance settlements account, with respect to collections
processed as of the end of the last day of the preceding six months; (4) the
aggregate amount, if any, of withdrawals from the liquidity account required to
be made on the next succeeding transfer date; (5) the aggregate amount of funds,
if any, to be deposited in the liquidity account on the next succeeding transfer
date; (6) the six months Certificateholders statement; (7) the sum of all
amounts payable to the Certificateholders on the next succeeding distribution
date in respect of Certificate interest and Certificate principal; and (8) the
interest and earnings (net of losses and investment expenses) from the senior
insurance settlements account and liquidity account for the preceding six
months.
Master Servicer's Annual Certificate. In addition to the closing date
reports, the daily and weekly reports and the six month master servicer's
certificate, the master servicer will deliver to the trustee on or before April
15th of each calendar year, beginning with April 15, 2000, an officer's
certificate stating that (1) a review of the activities of the subservicer
during the preceding calendar year and of its performance under the pooling and
servicing agreement was made under the supervision of the officer signing such
certificate and (2) to the best of such officer's knowledge, based on such
review, the subservicer has fully performed all its obligations under the
pooling and servicing agreement throughout such year, or, if there has been a
default in the performance of any such obligation, specifying each such default
47
known to such officer and the nature and status thereof. A copy of such
certificate may be obtained by any Certificateholder by a request in writing to
the trustee.
Annual Independent Public Accountants Subservicing Reports. The
subservicer, at cost of the trust, has also undertaken to cause certain annual
reports to be prepared by independent public accountants for the trustee, which
reports will be available for inspection by the Certificateholders. On or before
April 15th of each calendar year, beginning with April 15, 2000, the master
servicer shall cause, at cost and expense of the trust, a firm of nationally
recognized independent public accountants to furnish a report to the Trustee
covering the preceding annual period to the effect that such accountants have
applied certain agreed-upon procedures to certain documents and records relating
to the servicing of Senior Insurance Settlements, compared the information
contained in the master servicer's certificates delivered during the period
covered by such report with such documents and records and that no matters came
to the attention of such accountants that caused them to believe that such
servicing was not conducted in compliance with the pooling and servicing
agreement, except for such exceptions as such firm shall believe to be
immaterial and such other exceptions as shall be set forth in such statement. In
addition, each report shall set forth the agreed upon procedures performed. A
copy of such report may be obtained by any Certificateholder by a request in
writing to the trustee. In addition, on or before April 15th of each calendar
year, beginning with April 15, 2000, the subservicer also, at its sole cost and
expense, shall cause a firm of nationally recognized independent public
accountants to furnish a report to the trustee to the effect that they have
compared the mathematical calculations of each amount set forth in the six
months subservicer's certificates forwarded by the master servicer during the
period covered by such report (which shall be the period from January 1, or such
date which is the initial closing date, to and including December 31, or such
date which is the final maturity date, of such calendar year) with the
subservicer's computer reports which were the source of such amounts and that on
the basis of such comparison, such accountants are of the opinion that such
amounts are in agreement, except for such exceptions as they believe to be
immaterial and such other exceptions as shall be set forth in such statement. A
copy of such report may be obtained by any Certificateholder by a request in
writing to the trustee.
In the event that United is no longer acting as subservicer, the master
servicer or any successor servicer appointed pursuant to the provisions
governing said appointment under the pooling and servicing agreement, shall
deliver or make available to the trustee each certificate and report required to
be prepared, forwarded or delivered thereafter.
Subservicer Default
Upon the occurrence of a subservicer default (as discussed below in greater
detail), the subservicer will give prompt written notice of such default to the
master servicer and the trustee and the trustee will give notice to the
Certificateholders at the addresses appearing in the certificate register.
Should the subservicer fail to cure such subservicer default or be incapable of
curing such, the trustee or the Certificateholders representing not less than
51% of the principal amount of the Certificates then outstanding by written
notice then given to the subservicer (and the trustee if given by the
certificateholders) (a "termination notice") may (a) terminate all of the rights
and obligations of the subservicer as subservicer under the pooling and
servicing agreement or (b) only if Certificateholders representing not less
than 51% of the principal amount of Certificateholders so elect, waive such
48
default by the subservicer (except a default in the failure to make any required
deposits or payments, which may not be waived). Upon any such waiver of a past
default, such default shall cease to exist, and any default arising therefrom
shall be deemed to have been remedied for every purpose of the pooling and
servicing agreement. No such waiver shall extend to any subsequent or other
default or impair any right consequent thereto except to the extent expressly so
waived.
If a termination notice is delivered to subservicer, the subservicer shall
continue to perform all servicing functions under the agreement until the date
specified in the termination notice or otherwise specified by the trustee in
writing or, if no such date is specified in such termination notice, or
otherwise specified by the trustee, until a date mutually agreed upon by the
master servicer and the trustee. The trustee shall as promptly as possible after
the giving of a termination notice appoint the master servicer as successor
servicer (the "successor servicer") and such successor servicer shall accept its
appointment by a written assumption in a form acceptable to the trustee.
A subservicer default refers to any one of the following events which shall
occur and be continuing:
(a) any failure by the subservicer to report or give instructions or notice
to the trustee required by the pooling and servicing agreement on or before the
date occurring 5 business days after the date such report or such instruction or
notice is required to be given, as the case may be; or
(b) failure on the part of the subservicer duly to observe or perform in
any material respect any other covenants or agreements of the subservicer set
forth in the pooling and servicing agreement which has a material adverse effect
on the Certificateholders and which continues unremedied for a period of 30 days
after the date on which written notice of such failure requiring the same to be
remedied shall have been given to the subservicer by the trustee, or to the
subservicer and the trustee by the holders of Certificates representing not less
than 25% of the principal amount of the Certificates then outstanding; or
(c) the subservicer's delegation of its duties under the pooling and
servicing agreement except as permitted by the pooling and servicing agreement;
or
(d) any representation, warranty or certification made by the Subservicer
in the pooling and servicing agreement, or in any certificate delivered pursuant
to the pooling and servicing agreement shall prove to have been incorrect when
made, which has a material adverse effect on the rights of the
Certificateholders and which continues to be incorrect in any material respect
for a period of 30 days after the date on which written notice of such failure
requiring the same to be remedied shall have been given to the subservicer by
the trustee or master servicer, or to the master servicer and the trustee by the
49
holders of Certificates representing not less than 51% of the principal amount
of the Certificates then outstanding, or if such failure cannot be cured within
such 30 day period owing to causes beyond the control of the subservicer, if
subservicer shall fail to proceed promptly to cure the same and thereafter
prosecute the curing of such failure with continued diligence; or
(e) the subservicer shall (a) become insolvent, (b) fail to pay its debts
generally as they become due, (c) voluntarily seek, consent to, or acquiesce in
the benefit or benefits of any debtor relief law, or (d) become a party to (or
be made the subject of) any proceeding provided by any debtor relief law, other
than as a creditor or claimant, and, in the event such proceeding is
involuntary, the petition instituting same is not dismissed within 90 days after
its filing.
Appointment of Successor Servicer
Upon the occurrence of a subservicer default which results in a termination
of the subservicer, the trustee shall appoint the master servicer as "successor
servicer." the master servicer shall execute an acknowledgment agreeing to be
bound by the terms and provisions of the pooling and servicing agreement. The
trustee shall have no liability for the appointment of the master servicer as
successor servicer. If the master servicer fails or is unable (through no fault
of the master servicer) to accept its appointment as successor servicer, the
trustee may obtain bids from other parties to act as a successor servicer. If
the Master Servicer becomes the Successor Servicer, it shall receive a
management transfer fee of $100,000. If the trustee is unable to obtain any
bids, then the trustee shall automatically become the successor servicer. If the
trustee does not wish to continue in such capacity, it may, as its option,
petition a court of competent jurisdiction to appoint any established financial
institution whose regular business includes servicing senior insurance
settlements or other insurance settlements to act as successor servicer.
Upon its appointment, the successor servicer shall be the successor in all
respects to the subservicer with respect to servicing functions under the
pooling and servicing agreement and shall be subject to all the
responsibilities, duties and liabilities placed on the subservicer by the terms
and provisions of the pooling and servicing agreement. In connection with such
appointment and assumption, the successor servicer shall be entitled to receive
as compensation, such fees as it and the trustee shall agree (the priority of
payment, however, shall not be that for subservicer, but that for the trustee or
master servicer, as hereinafter discussed). If the trustee should become a
successor servicer it shall also receive compensation for performing such
services.
On the date that a successor servicer shall have been appointed by the
trustee, all power and authority of the subservicer under the pooling and
servicing agreement shall pass to and vest in the successor servicer, and,
without limitation, the trustee is authorized and empowered to execute and
deliver, but shall have no obligation to execute and deliver, on behalf of the
subservicer (upon the failure of subservicer to so execute, deliver or
cooperate), as attorney-in-fact or otherwise, all documents and other
50
instruments required of the subservicer to be executed or delivered, and to do
and accomplish all other acts or things necessary or appropriate to effect the
purposes of such transfer of servicing rights to the successor servicer.
Upon any termination or appointment of a successor servicer, the trustee
shall give prompt written notice thereof to Certificateholders at their
addresses appearing in the certificate register and trustee shall again obtain
bids for a new successor servicer.
The Trustee
The Chase Manhattan Bank will be the trustee. Capital, the subservicer,
the master servicer and their affiliates may from time to time enter into normal
banking and trustee relationships with the trustee and its affiliates. The
trustee, Capital, the subservicer, the master servicer, and any of their
affiliates may hold Certificates in their own names. In addition, for purposes
of meeting the legal requirements of certain local jurisdictions, the trustee
shall have the power to appoint a co-trustee or separate trustee(s) of all or
any part of the trust. In the event of such appointment, all rights, powers,
duties and obligations conferred or imposed upon the trustee by the pooling and
servicing agreement shall be conferred or imposed upon the trustee and such
separate trustee or co-trustee jointly, or, in any jurisdiction in which the
trustee shall be incompetent or unqualified to perform certain acts, singly upon
such separate trustee or co-trustee, which is so qualified and who shall
exercise and perform such rights, powers, duties and obligations solely at the
discretion of trustee. The trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
The trustee may resign at any time by giving written notice to Capital and
the master servicer and, upon receiving such written notice of resignation,
Capital shall be obligated to appoint a successor trustee. If no successor
trustee has been appointed within 30 days of Capital's receipt of the notice of
resignation, the resigning trustee shall petition any court of competent
jurisdiction for the appointment of a successor trustee. Capital may also remove
the trustee if the trustee ceases to be eligible to continue as such or the
trustee becomes insolvent or is adjudged a bankrupt. Any resignation or removal
of the trustee and appointment of a successor trustee does not become effective
until acceptance of the appointment by the successor trustee.
Amendment of Pooling and Servicing Agreement.
The pooling and servicing agreement may be amended from time to time by
seller, master servicer, Capital and the trustee, without the consent of any of
the Certificateholders, to cure any ambiguity, to correct or supplement any
provisions which may be inconsistent with any other provisions therein, or to
add any other provisions with respect to matters or questions arising under the
pooling and servicing agreement which shall not be inconsistent with the
existing provisions of the pooling and servicing agreement; provided, however,
that such action shall not, as evidenced by an opinion of counsel, adversely
affect in any material respect the interests of the Certificateholders. Further,
the trustee may, but shall not be obligated to, enter into any such amendment
51
which affects the trustee's rights, duties or immunities under the pooling and
servicing agreement or otherwise. Any assignments regarding the transfer of
Senior Insurance Settlements to the trust shall not be considered amendments to
the pooling and servicing agreement.
Other than as provided above, the pooling and servicing agreement may also
be amended from time to time by seller, master servicer, Capital and the trustee
with the consent of the Certificateholders representing not less than 66-2/3% of
the principal amount of the Certificates then outstanding, for the purpose of
adding, modifying or eliminating any provisions of the pooling and servicing
agreement or modifying in any manner the rights of the Certificateholders;
provided, however, that no such amendment shall (a) reduce in any manner the
amount of, or delay the timing of, distributions which are required to be made
on any Certificate without the consent of such Certificateholder, or (b) reduce
the aforesaid percentage required to consent to any such amendment, without the
consent of each Certificateholder.
Promptly after the execution of any amendment or consent the trustee shall
furnish written notification of the substance of such amendment to each
Certificateholder.
With respect to the amendment of the pooling and servicing agreement or the
modification of the rights of the Certificateholders, the consent of the
Certificateholders shall not be necessary to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent shall approve the
substance of the proposed amendment. The manner of obtaining any consents
required to amend the pooling and servicing agreement and evidence of
authorization by Certificateholders shall be subject to such reasonable
requirements as the trustee may prescribe.
Investor Accounts and Allocation of Collections.
The trust's assets shall also include investor accounts which consist of
the lockbox account, the senior insurance settlements account and liquidity
account, each of which shall be established and maintained by the trustee for
the benefit of the Certificateholders. In addition, the trustee shall establish
a distribution account (which shall also be an investor account) for payments to
the Certificateholders, subservicer, trustee, Capital, master servicer and such
others as are entitled to receive payments under the pooling and servicing
agreement.
Lockbox Account. The lockbox account has been established and shall be
maintained with the trustee in the name of the trust as an interest bearing
segregated demand deposit account and its shall bear a designation clearly
indicating that the funds deposited therein are held in trust for the benefit of
the Certificateholders.
Senior Insurance Settlements Account. The senior insurance settlements
account shall be established and maintained by the trustee as a segregated,
interest-bearing account and it shall bear a designation clearly indicating that
the funds deposited therein are held in trust for the benefit of the
Certificateholders and shall be subject to distribution pursuant to the pooling
52
and servicing agreement. The senior insurance settlements account shall contain
collections attributable to Senior Insurance Settlements.
Liquidity Account. The trustee shall also establish and maintain the
liquidity account with the trustee in the name of the trust as a segregated
interest bearing account, indicating that the funds therein are held for the
benefit of the Certificateholders. On each closing date, Capital shall deposit
or cause to be deposited in the liquidity account an amount equal to the
difference between the senior insurance settlements purchase price and the face
amount of the Certificates issued on such closing date.
Distribution Account. The trustee shall also establish and maintain with
the trustee the distribution account, which shall be a non-interest bearing
segregated demand deposit account from which the paying agent shall make the
distributions and other payments described in the pooling and servicing
agreement.
Distributions from Investor Accounts. The paying agent or the trustee shall
have the revocable authority to make withdrawals and distributions from, or
transfers between, the investor accounts. On each business day, the trustee
shall withdraw all funds from the lockbox account and deposit same in the senior
insurance settlements account and the liquidity account. Funds on deposit in the
senior insurance settlements account and the liquidity account may at all times
be invested in permitted investments, provided that any such investment shall
mature and such funds shall be available for withdrawal (i) on or prior to the
transfer date immediately preceding the fee distribution date and distribution
date on which such funds are required for distribution. The trustee shall hold
for the benefit of the Certificateholders the negotiable instruments or
securities, if any, evidencing the permitted investments from the time of
purchase until the time of sale or maturity. Subject to the maturity
restrictions set forth above, Capital shall instruct the trustee, in writing or
if orally, then promptly confirmed in writing, as to the investment of funds on
deposit in the senior insurance settlements account and the liquidity account.
If, for any reason, Capital does not provide investment instructions to the
trustee, then the trustee shall invest such funds in a Chase Institutional Money
Market Account. For purposes of determining the availability of funds or the
balances in the senior insurance settlements account and the liquidity account,
all investment earnings on such funds shall be deemed not to be available or on
deposit except upon the occurrence of a pay out event. The trustee shall not be
responsible for any losses incurred in connection with any such permitted
investments.
The subservicer is required to deposit immediately or cause to be deposited
in the senior insurance settlements account all collections which it receives
that are not otherwise made or deposited directly into the lockbox account.
Priority of Payments
On each fee determination date and determination date, as applicable, the
master servicer shall instruct the trustee to withdraw on the succeeding
transfer date the amounts required to be withdrawn from the senior insurance
settlements account, and deposited into the distribution account as discussed
below. The trustee will then withdraw from the
53
senior insurance settlements account to the extent funds are available from
collections attributable to Senior Insurance Settlements processed during the
preceding six months, and the deposit in the distribution account for payment in
the following order of priority;
(a) an amount equal to the trustee's fees and the expenses of trustee;
(b) an amount equal to the master servicer's fees or successor servicer's
fees;
(c) an amount equal to Certificate interest for the six months;
(d) an amount equal to the subservicer's fee, and
(e) an amount to fund any deficiency in the liquidity account.
If the collections attributable to Senior Insurance Settlements are less
than the amount required to be distributed from the senior insurance settlements
account, to fund items (a) through (d) above, the trustee shall withdraw from
the liquidity account funds in the amount of such deficiency and deposit same in
the distribution account. If the senior insurance settlements account or funds
in the liquidity account are insufficient in any six months to pay Certificate
interest to the Certificateholders, the amount of such deficiency for any six
months shall be referred to as the "deficiency amount" and shall be payable in
later months as sufficient funds become available.
In the event the master servicer or a successor servicer shall be appointed
subservicer, such party shall receive the monthly servicing fee in accordance
with the priority set forth in the first paragraph.
Repayment of Certificate Principal. With respect to the payment of
certificate principal on each transfer date, the trustee shall withdraw from the
senior insurance settlements account collections attributable to Senior
Insurance Settlements which have been on deposit in the senior insurance
settlements account and deposit same in the distribution account for payment to
the Certificateholders.
With respect to the final transfer date, the trustee shall withdraw from
the amount deposited in the senior insurance settlements account and deposit in
to the distribution account an amount equal to the outstanding amount of
Certificate principal of the Certificates as of the end of the day on the
preceding record date. If the amounts on deposit in the senior insurance
settlements account on the final transfer date are less than the outstanding
amount of certificate principal of the Certificates as of the end of the day on
the preceding record date, the trustee, will withdraw from the liquidity account
54
funds in the amount of such deficiency and deposit same in the distribution
account for payment to the Certificateholders. The Certificates are subject to
optional repurchase at 102.50% of the outstanding principal amount thereof after
each 5 year period, respectively.
Failure to Make Deposits. If the paying agent, subservicer or Capital fails
to make, or give instructions to make, any withdrawal, payment or deposit, the
trustee shall make or cause such withdrawal, payment or deposit to be made from
the applicable investor accounts. The master servicer and/or subservicer shall
promptly provide the trustee with all information necessary to allow the trustee
to make such payment. Such funds shall be applied by the trustee in the manner
in which such payment or deposit should have been made by the paying agent or
Capital, as the case may be.
Distributions and Reports to Certificateholders
On each distribution date, the paying agent will distribute to each
Certificateholder of record on the preceding record date such
Certificateholder's pro rata share of the Certificate interest and the
Certificate principal, if applicable, as previously discussed. The paying agent
shall make such distributions by check mailed to each Certificateholder.
In addition, on each distribution date, the paying agent shall forward to
each Certificateholder a certificateholders' statement, prepared by the master
servicer substantially in the form of exhibit 5.2 attached to the pooling and
servicing agreement filed as an exhibit to the registration statement of which
this prospectus is a part, setting forth the following information (which, in
the case of (a), (b) and (c) below, shall be stated on the basis of an
original principal amount of $1,000 per Certificate): (a) the total amount
distributed for the preceding six months; (b) the amount of such distribution
allocable to certificate principal; (c) the amount of such distribution
allocable to certificate interest; (d) the amount of collections of Senior
Insurance Settlements processed during the preceding six months; the (e) amount
of the monthly servicing fee for the preceding six months; (f) the aggregate
amount of funds deposited in the liquidity account as of such distribution date;
and (g) the amount of trustee's fees and expenses of the trustee for the
preceding six months.
On or before January 31 of each calendar year, beginning with calendar year
2000, Capital will furnish to each person who at any time during the preceding
calendar year was a Certificateholder an annual certificateholders' tax
statement prepared by an independent public accounting firm containing the
information required to be contained in the regular monthly report to
Certificateholders, as set forth in subclauses (a), (b) and (c) of the preceding
paragraph above, aggregated for such calendar year or the applicable portion
thereof during which such person was a Certificateholder, together with such
other customary information (consistent with the treatment of the Certificates
as debt) as the trustee, Capital master service or the subservicer deems
necessary or desirable to enable the Certificateholders to prepare their
respective tax returns. Such obligations of Capital shall be deemed to have been
satisfied to the extent that Capital provides information which is substantially
comparable to information which is required by applicable requirements of the
Internal Revenue Code, as from time to time in effect.
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Pay Out Events
A pay out event refers to any of the following events:
(a) the failure on the part of Capital or the subservicer to make any
payment or deposit required by the terms of the pooling and servicing agreement
on or before the date occurring 5 business days after the date such payment or
deposit is required to be made; or
(b) the failure on the part of Capital or the subservicer duly to observe
or perform in any material respect any other material covenants or agreements
set forth in the pooling and servicing agreement which failure(s) continues
unremedied for a period of 60 days after the date on which written notice of
such failure requiring the same to be remedied shall have been given to Capital
and/or the subservicer by the trustee, or to Capital, the master servicer and
the trustee by Certificateholders representing not less than 51% of the
principal amount of the Certificates then outstanding; or
(c) in the event that any representation or warranty made by Capital or the
subservicer in the pooling and servicing agreement or any information contained
in a computer printout required to be delivered by Capital shall prove to have
been incorrect in any material respect when made or when delivered, which
continues to be incorrect in any material respect for a period of 60 days after
the date on which written notice of such failure requiring the same to be
remedied shall have been given to Capital and the subservicer by the trustee, or
to Capital, the master servicer and the trustee by Certificateholders
representing not less than 5% of the principal amount of the Certificates then
outstanding and as a result of which the interests of such Certificateholders
are materially and adversely affected, or if such failure cannot be cured within
such 60 day period owing to causes beyond the control of Capital or the
subservicer, as the case may be, if Capital or the subservicer shall fail to
proceed promptly to cure the same and thereafter prosecute the curing of such
failure with continued diligence; or
(d) Capital or the Subservicer shall (1) become insolvent; (2) fail to pay
its debts generally as they become due; (3) voluntarily seek, consent to, or
acquiesce in the benefit or benefits of any debtor relief law; (4) become a
party to (or be made the subject of) any proceeding provided for by any debtor
relief law, other than as a creditor or claimant, and, in the event such
proceeding is involuntary, the petition instituting same is not dismissed within
90 days after its filing; or
(e) the trust shall become an "investment company" within the meaning of
the Investment Company Act of 1940, as amended; or
(f) any subservicer default shall occur which would have a material adverse
effect on the Certificateholders; or
56
(g) the balance of the funds available in the liquidity account is less
than % of the amount of certificate principal of the Certificates then
outstanding for a period of 2 consecutive months; or
(h) the appointment of the trustee as successor servicer.
Then in the case of an event described in subparagraphs (a), (b), (c) or (f),
after the applicable grace period set forth in such subparagraphs or other
relevant provisions, either the trustee or the Certificateholder representing
not less than 51% of the principal amount of the Certificates then outstanding,
may give written notice to Capital and the subservicer (and to the trustee if
given by the Certificateholders) declaring that a pay out event had occurred as
of the date of such notice, and, in the case of any event descried in
subparagraphs (d), (e), (g), or (h) a pay out event shall occur without any
notice or other action on the part of the trustee or the Certificateholder,
immediately upon the occurrence of such event.
Additional Rights Upon the Occurrence of Certain Events
If Capital voluntarily seeks, consents to or acquiesces in the benefit or
benefits of any debtor relief law or becomes party to (or is made the subject
of) any proceeding provided for by any debtor relief law, other than as a
creditor or claimant, and, in the event such proceeding is involuntary, and the
petition instituting same is not dismissed within 90 days after its filing (a
"bankruptcy event"), Capital shall on the date of such bankruptcy event
immediately cease to assign Senior Insurance Settlements to the trust and shall
promptly give notice to the trustee of such bankruptcy event. Within 15 days
after receipt by the trustee of notice of the bankruptcy event, the trustee
shall (i) publish a notice in the authorized newspapers that a bankruptcy event
has occurred and that the trustee intends to sell, dispose of or otherwise
liquidate the Senior Insurance Settlements in a commercially reasonable manner
and (ii) send written notice to the Certificateholders describing such
proceeding and requesting instructions from such Certificateholders. No such
sale, disposition or liquidation, whether in whole or in part, of the Senior
Insurance Settlements shall be consummated until and unless the trustee shall
have first received written instructions as aforementioned, or other written
response or affirmative refusal to provide a written response from
Certificateholders representing in excess of 51% of the principal amount of the
Certificates then outstanding. The trustee may obtain a prior determination from
any conservator or receiver appointed to handle the affairs of Capita that the
terms and manner of any proposed sale, disposition or liquidation are
commercially reasonable.
The proceeds from the sale, disposition or liquidation of the Senior
Insurance Settlements as discussed above shall be treated as collections. On the
distribution date on which such proceeds are scheduled to be distributed to the
Certificateholders, the trust shall terminate.
Other Matters Relating to Capital
Scope of Liability. Capital shall be liable for the obligations
specifically undertaken by Capital under the pooling and servicing agreement.
Except as provided in the pooling and servicing agreement with respect to the
trust and the trustee, neither Capital nor any of the directors, officers,
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employees or agents of Capital shall be under any liability to the trust, the
trustee, the Certificateholders or any other legal person for taking any action
or for refraining from taking any action under the pooling and servicing
agreement whether arising from express or implied duties under such agreement;
provided, however, this limitation on liability shall not protect Capital or any
director, officer, employee or agent of Capital against any liability which
would otherwise be imposed by reason of willful malfeasance, bad faith or gross
negligence in the performance of duties or by reason of its willful misconduct
under the pooling and servicing agreement or under any agreement executed an
delivered in connection with the pooling and servicing agreement or in any way
relating to or arising out of the creation of the trustee or any transactions
related thereto.
Indemnification. Further, Capital shall agree to indemnify and hold
harmless the trust, trustee and master servicer from and against any loss,
liability, expense, damage or injury suffered or sustained by reason of any
acts, omissions or alleged acts or omissions arising out of activities of the
trust, trustee, or master servicer pursuant to the pooling and servicing
agreement or any agreement executed or delivered in connection with such
agreement or in any way relating to or arising out of the creation of the
trust or the transactions related thereto, including but not limited to any
judgment, award, settlement, reasonable attorneys' fees and other costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim; provided, however, that although Capital shall
indemnify the trustee and master servicer if such acts, omissions or alleged
acts or omissions constitute ordinary negligence, Capital shall not indemnify
the trustee or master servicer if such acs, omissions or alleged acts or
omissions constitute willful malfeasance, bad faith or gross negligence by the
trustee or master servicer; and provided, further, Capital shall not indemnify
the trust or the Certificateholders for any liabilities, costs or expenses of
the trust with respect to any action taken by the trustee at the request of the
Certificateholders; provided, further, Capital shall not indemnify the trust or
the Certificateholders as to any losses, claims or damages incurred by any of
them in their capacities as investors; and provided further, Capital shall not
indemnify the trust or the Certificateholders with respect to any federal, state
or local income or franchise taxes (or any interest or penalties with respect
thereto) required to be paid by the trust or the Certificateholders in
connection herewith to any taxing authority, which taxes shall be the sole
obligation of the trust of the pooling and servicing agreement shall only be
from assets of Capital. The provisions of the pooling and servicing agreement
relating to this indemnity shall run directly to and be enforceable by an
injured party, subject to the limitations discussed in this paragraph, and shall
survive termination of the trust and the resignation or removal of the trustee
or master servicer.
Other Matters Relating to the Subservicer
Scope of Liability. The subservicer shall be liable under the terms of the
pooling and servicing agreement for the accuracy and sufficiency of the
information contained in any certificate it delivers to the master servicer and
otherwise only to the extent of the obligations specifically undertaken by the
subservicer in such capacity under the pooling and servicing agreement (and as
seller under the senior insurance settlements purchase agreement to the extent
any rights in such agreement have been assigned to the trust). Except as
provided in the next succeeding paragraph with respect to the trust and the
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trustee, neither the subservicer nor any of the directors, officers, employees
or agents of the subservicer shall be under any liability to the trust, the
trustee, the Certificateholders, the master servicer or any other legal person
for taking any action or for refraining from taking any action in its capacity
as subservicer under the pooling and servicing agreement; provided, however,
this limitation on liability shall not protect the subservicer or any director,
officer, employee or agent of the subservicer against any liability which would
otherwise be imposed by reason of willful malfeasance, bad faith or gross
negligence in the performance of duties or by reason of its willful misconduct
under the pooling and servicing agreement. The subservicer and any director,
officer, employee or agent of the subservicer may rely in good faith on any
document of any kind properly executed and submitted by any person respecting
any matters arising under the pooling and servicing agreement. The subservicer
shall not be under any obligation to appear in, prosecute or defend any legal
action which is not incidental to its duties to service the Senior Insurance
Settlements in accordance with the pooling and servicing agreement and which in
its reasonable opinion may involve it in any expense or liability.
Indemnification. The subservicer shall indemnify and hold harmless the
trust, trustee and master servicer from and against any loss, liability,
expense, damage or injury suffered or sustained by reason of any acts, omissions
or alleged acts or omissions arising out of activities of the trust, trustee, or
master servicer under the pooling and servicing agreement including those
arising from acts or omissions of the subservicer pursuant to such agreement or
any agreement executed or delivered in connection with such agreement or in any
way relating to or arising out of the creation of the trust or the transactions
related thereto including, but not limited to, any judgment, award, settlement,
reasonable attorneys' fees and other costs or expenses incurred in connection
with the defense of any actual or threatened action, proceeding or claim;
provided, however, that although the subservicer shall indemnify the trust,
trustee, and master servicer if such acts, omissions or alleged acts or
omissions constitute ordinary negligence, the subservicer shall not indemnify
the trust, trustee, or master servicer if such acts, omissions or alleged acts
or omissions constitute willful malfeasance, bad faith or gross negligence by
the trustee; provided further, the subservicer shall not indemnify the trust,
the trustee, or any Certificateholders for any liabilities, costs or expenses of
the trust with respect to any action taken by the trustee at the request of such
Certificateholders; for any liabilities, costs or expenses of the trust with
respect to any action taken by the trustee at the request of such
Certificateholders; provided further, the subservicer shall not indemnify the
trust or the Certificateholders as to any losses, claims or damages incurred by
any of them in their capacities as investors; and provided further, the
subservicer shall not indemnify the trust or the Certificateholders with respect
to any federal, state or local income or franchise taxes (or any interest or
penalties with respect thereto) required to be paid by the trust or the
Certificateholders in connection herewith to any taxing authority, which taxes
shall be the sole obligation of the trust or the Certificateholders. Any
indemnification under the pooling and servicing agreement shall only be from
assets of the subservicer. The provisions of the pooling and servicing agreement
relating to this indemnity shall run directly to and be enforceable by an
injured party, subject to the limitations hereof, and shall survive termination
of the trust and the resignation or removal of the trustee.
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Resignation of Master Servicer. The master servicer is not permitted to
resign from its obligations and duties under the pooling and servicing
agreement, except (a) upon determination that (1) the performance of its
obligations and duties is or becomes impermissible under applicable law and (2)
the master servicer can take no reasonable action to make the performance of its
obligations and duties hereunder permissible under applicable law, or (b) if the
master servicer fails to receive its fees and expenses for a period of at least
90 days after they become due, master servicer shall be entitled to resign upon
giving written notice to Capital, the trustee, and United. Any such
determination permitting the resignation of the subservicer shall be evidenced
by an opinion of counsel to such effect delivered to the trustee. No such
resignation shall become effective until the trustee or a successor servicer
shall have assumed the responsibilities and obligations of the subservicer. If
the trustee is unable within 30 days of the date of such determination to
appoint a successor servicer, the trustee shall petition a court of competent
jurisdiction to appoint any established financial institution whose regular
business includes the servicing of senior insurance settlements or other
insurance settlements similar to the Senior Insurance Settlements serviced or to
be serviced by the successor servicer hereunder and whose appointment shall not
adversely affect the rating, if any, of the securities offered pursuant to the
agreement.
Master Servicer's Delegation of Duties. In the ordinary course of
business, the master servicer may at any time delegate any of its duties under
the pooling and servicing agreement to any person who agrees to conduct such
duties in accordance with the provisions of the pooling and servicing agreement.
Any such delegation shall not relieve the master servicer of its liability and
responsibility with respect to such duties and shall not constitute a
resignation within the meaning of the preceding paragraph.
Termination
The trust shall terminate on the earlier of (a) the day designated by
Capital after the final distribution date due to an appointment of the trustee
as successor servicer or an optional repurchase of certificates (the "final
trust termination date"), (b) the final distribution date after the occurrence
of a pay out event or (c) the scheduled trust termination date. If on the
transfer date preceding the scheduled trust termination date there remains
certificate principal outstanding the subservicer shall sell all remaining
Senior Insurance Settlements on behalf of the trust and deposit and proceeds as
collections for subsequent allocation and distribution.
The amount of certificate principal outstanding on the final maturity date
(or on the final distribution date, due to a Pay Out Event) shall become payable
on the next distribution date specified in the "trustee's termination notice."
On such date, the Certificateholders shall surrender their Certificates for
final payment. If the amount in the senior insurance settlements account is not
sufficient to pay the outstanding amount of certificate principal then the
paying agent may withdraw funds from the liquidity account to pay such
deficiency. In the event that not all Certificateholders have surrendered their
Certificates for final payment, the trustee shall retain amounts in the
distribution account pending such surrender. If a Certificateholder has not
surrendered his Certificate within some 18 months, the trustee may take
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affirmative steps to locate the remaining Certificateholders and charge the cost
to such funds on deposit in the distribution account.
If the amount of the certificate principal outstanding is less than
$250,000, Capital may also terminate the trust by repaying certificate principal
and accrued interest.
Upon termination of the trust and final payments, the trustee shall
reconvey to Capital all right, title and interest of the trust in the Senior
Insurance Settlements, all monies due or to become due with respect to the
Senior Insurance Settlements and all proceeds from the Senior Insurance
Settlements and the amounts remaining in the liquidity account.
DESCRIPTION OF THE SENIOR INSURANCE
SETTLEMENTS PURCHASE AGREEMENT
General
The Senior Insurance Settlements assigned to the Trust by Capital will be
acquired by Capital from United pursuant to the senior insurance settlements
purchase agreement entered into between Capital, as purchaser of the Senior
Insurance Settlements, and United, as seller of the Senior Insurance
Settlements. The trustee will provide a copy of the senior insurance settlements
purchase agreement to Certificateholders without charge, upon receipt of a
written request therefor. Under the senior insurance settlements purchase
agreement, United will agree to transfer the Senior Insurance Settlements to
Capital. The following summary describes certain terms of the senior insurance
settlements purchase agreement and is qualified in its entirety by reference to
the senior insurance settlements purchase agreement.
Sale or Transfer of Senior Insurance Settlements
United will sell, transfer, assign, and convey to Capital all its right,
title and interest in and to all of the Senior Insurance Settlements being
transferred on each closing date. Upon the request of Capital, United will
notify Capital of the amount of Senior Insurance Settlements available for
purchase on each closing date. The purchase price for the Senior Insurance
Settlements shall at least be equal the amount advanced by United to the insured
as payment for the insurance policy, excluding United's fees. The monies
advanced by Capital with respect to any one Senior Insurance Settlement shall
not exceed an amount agreed upon between United and Capital as to the discount
from the face amount of the insurance policy, excluding fees. Such advance will
be payable to United in cash or other immediately available funds.
In connection with the sale and transfer of the Senior Insurance
Settlements to Capital, United will indicate in its computer master file that
the Senior Insurance Settlements have been sold to Capital by United and then
assigned by Capital to the trust. In addition, United will furnish to the
trustee and Capital a computer printout readable by the trustee and by Capital
containing a true and complete list of all such Senior Insurance Settlements,
identified by account number and by the total outstanding face amount on the
closing date. the senior insurance settlements purchase agreement shall
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constitute a security agreement between United and Capital. See "Risk Factors -
Certain Legal Aspects."
Representations and Warranties
United will make representations and warranties to Capital as of each
closing date, that United is duly incorporated and in good standing and that it
has the authority to consummate the transactions contemplated by the senior
insurance settlements purchase agreement.
United will also represent and warrant to Capital that the senior insurance
settlements purchase agreement constitutes a legal, valid and binding obligation
of United, and the sale and transfer of the Senior Insurance Settlements to
Capital constitute a valid sale and transfer to Capital of all right, title and
interest of United in and to the Senior Insurance Settlements, and the proceeds
thereof. United covenants to indemnify Capital and to hold Capital harmless from
and against any and all losses, damages and expenses (including reasonable
attorneys' fees) suffered or incurred by Capital if the foregoing
representations and warranties are materially false.
United covenants in the senior insurance settlements purchase agreement
that it will perform its obligations under the agreements relating to Senior
Insurance Settlements and observe all its policies and procedures relating to
the Senior Insurance Settlements, unless the failure to do so would not have a
material adverse effect on the rights of the trust, as assignee of the Senior
Insurance Settlements, or the Certificateholders.
United will expressly acknowledge and consent to the assignment by Capital
of all of its right, title and interest in and to the Senior Insurance
Settlements to the trust for the benefit of the Certificateholders. United will
also agree that any amounts payable by United to Capital, and that are to be
paid by Capital to the trustee for the benefit of the Certificateholders, will
be paid by United on behalf of Capital directly to the trustee.
United covenants that all of its right, title and interest in and to any
Senior Insurance Settlements shall inure to Capital. Except for the sale and
conveyances under the senior insurance settlements purchase agreement, United
will not sell, pledge, assign or transfer any interest in the Senior Insurance
Settlements to any other person or entity.
Termination
The senior insurance settlements purchase agreement will continue in full
force and effect until (a) the trust terminates, or (b) United shall (1) become
insolvent; (2) fail to pay its debts generally as they become due; (3)
voluntarily seek, consent to, or acquiesce in the benefit or benefits of any
debtor relief law; or (4) become a party to (or be made the subject of) any
proceeding provided for by any debtor relief law and, if such proceeding is
involuntary and is not dismissed within 90 days of its institution. United will
immediately cease to transfer to Capital and promptly give notice of such event
to Capital and to the trustee.
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CERTAIN LEGAL ASPECTS OF THE SENIOR INSURANCE SETTLEMENTS
Sale and Transfer of Senior Insurance Settlements
Transfer of Senior Insurance Settlements. On each closing date united will
sell, transfer, assign the Senior Insurance Settlements to Capital and Capital
will transfer, assign an irrevocable beneficial interest in the Senior Insurance
Settlements to the trust. Simultaneously with such transfers from United to
Capital and from Capital to the trust, Capital will execute and the trust will
authenticate Certificates offered hereby and pay Capital for the Senior
Insurance Settlements from the proceeds of such offering. Capital will pay
United the proceeds received from the trust in consideration for the Senior
Insurance Settlements sold to Capital by United. On each closing date United
will indicate in its master computer file of Senior Insurance Settlements that
the Senior Insurance Settlements have been sold to Capital and whose interests
are transferred to the trust. In addition, on each closing date, United, as
subservicer, will deliver to the master servicer and trustee, a computer
printout containing a true and complete list of all Senior Insurance
Settlements, identified by account number and by the total outstanding face
amount of such Senior Insurance Settlements on the closing date. Furthermore,
the insurers, in most instances, may not be notified of such transfers except
that United will direct the insurers to send all payments to the lockbox account
which will be owned by the trust.
United will represent and warrant to Capital in the senior insurance
settlements purchase agreement that the sale and transfer of the Senior
Insurance Settlements to Capital as of each closing date constitutes a true and
valid sale and transfer to Capital of all right, title and interest of United in
and to the Senior Insurance Settlements. Capital will make similar
representations and warranties with respect to its assignment of an irrevocable
beneficial interest to the trustee, in the pooling and servicing agreement.
Article 9 of the UCC ("Article 9") does not apply to a transfer of an
interest or claim in or under any policy of insurance and, consequently, the
trust may not have access to Article 9 remedies since its interest in the Senior
Insurance Settlements is characterized as an interest or claim in or under a
policy of insurance.
Under the senior insurance settlements purchase agreement, United will (a)
represent and warrant that United has acquired the Senior Insurance Settlements
from the insureds and has transferred the Senior Insurance Settlements to
Capital free and clear of the lien of any third party and (b) covenant that
United will not sell, pledge, assign, grant, transfer or otherwise convey any
lien or other interest in and to the Senior Insurance Settlements other than to
Capital. Under the pooling and servicing agreement, Capital will (a) represent
and warrant that Capital has acquired the Senior Insurance Settlements from
United and has assigned an irrevocable beneficial interest in the Senior
Insurance Settlements to the trust and (b) covenant that Capital will not sell,
pledge, assign, grant, transfer or otherwise convey any lien or other interest
in and to the Senior Insurance Settlements other than to the trust.
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Capital will not engage in any activities except acquiring Senior Insurance
Settlements from United, transferring an irrevocable beneficial interest in the
Senior Insurance Settlements to the trust and engaging in activities incidental
to, or necessary or convenient to accomplish the foregoing. Capital has no
intention of filing a voluntary petition under the United States Bankruptcy Code
or any applicable state law so long as Capital is solvent and does not
reasonably foresee becoming insolvent.
The voluntary or involuntary application for relief under the United States
Bankruptcy Code or any comparable state law with respect to Untied should not
necessarily result in a similar voluntary application with respect to Capital so
long as Capital is solvent and does not reasonably foresee becoming insolvent by
reason of United's insolvency or otherwise. Capital believes that (a)
a voluntary application for relief under the United States Bankruptcy Code or
any similar applicable state law with respect to Capital may not lawfully be
filed without the prior consent of all directors of Capital, (b) subject to
certain assumptions (including the assumption that separateness and corporate
formalities are observed by United and Capital), the assets and liabilities of
Capital should not be substantively consolidated with the assets and liabilities
of United in the event of an application for relief under the United States
Bankruptcy Code with respect to United, and (c) the sale and transfer of
Senior Insurance Settlements by United to Capital constitute a valid sale and
transfer and, therefore, such Senior Insurance Settlements would not be the
property of United in the event of the filing of an application for relief by or
against United under the United States Bankruptcy Code. If, however, a
bankruptcy trustee for United, United as debtor in possession, or a creditor of
United were to assert that United and Capital should be substantively
consolidated or that the transfer of the Senior Insurance Settlements from
United to Capital (and therefore from Capital to the trust) should be
recharacterized as a pledge of such Senior Insurance Settlements, then delays in
payments on the Certificates or (should the bankruptcy court rule in favor of
any such trustee, debtor in possession or creditor) reductions in such payments
could result.
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TAX MATTERS
General
Set forth below is a general description of certain of the anticipated
federal income tax consequences to Certificates. This discussion does not
purport to deal with all aspects of federal income taxation that may be relevant
to Certificateholders in light of their personal investment circumstances, nor
to certain types of Certificateholders subject to special treatment under the
federal income tax laws (for example, banks and life insurance companies). In
addition, this description does not consider the effect of any applicable
foreign, state or local income tax laws. Prospective investors are urged to
consult their own tax advisors as to the precise federal, state, local and other
tax consequences of acquiring, holding and disposing of the Certificates. This
discussion is based upon present provisions of the Internal Revenue Code, the
treasury regulations promulgated thereunder, and rulings of the Internal Revenue
Service and judicial decisions now in effect, all of which are subject to
change, possibly retroactively. No ruling will be sought from the IRS with
respect to the transactions contemplated hereby.
Treatment of the Certificates as Evidences of Indebtedness of Capital
As expressly provided in the pooling and servicing agreement, Capital has
structured the pooling and servicing agreement and the Certificates to
facilitate a secured, credit-enhanced financing with the intention that for
federal, state and local income tax purposes the Certificates will constitute
evidences of indebtedness of Capital collateralized by the Senior Insurance
Settlements it owns. Moreover, Capital and each Certificateholder, by the
acceptance of a Certificate, will agree to recognize and report such Certificate
as evidence of indebtedness of Capital for federal, state and local income or
franchise tax purposes. However, as integral elements of this financing
technique, Capital will transfer the Senior Insurance Settlements to the trust,
each Certificateholder will receive a Certificate that will represent an
undivided interest in the trust, and, for financial accounting purposes, the
transaction will be treated as a transfer of an ownership interest in the Senior
Insurance Settlements by Capital thereby avoiding the necessity for recording
the debt on the books of Capital.
Whether a transaction constitutes a sale of property or a loan secured by
the transferred property for federal income tax purposes depends on the
substance of the transaction determined from an analysis of the facts and
circumstances as reflected in the underlying documents for the transaction, the
intent of the parties, and on the basis of numerous factors primarily concerning
whether the transferor has relinquished substantial incidents of ownership of
the property. Among the many factors evidencing the incidents of ownership, the
primary factors examined by the courts and the IRS are whether the transferor
has retained or shifted substantial benefits and burdens of ownership of the
property. If the form and the substance of a transaction are consistent, the
characterization of the transaction would generally be conclusive for federal
income tax purposes.
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Even if the form and substance of a transaction are deemed to differ in
material respects, courts have allowed taxpayers, under appropriate
circumstances, to disregard the form chosen and rely instead on the substance of
the transaction for federal income tax purposes. Assuming that the form of the
transaction contemplated by the pooling and servicing agreement is not
determined to be consistent in all material respects with the substantive
characterization of the transaction as a secured financing by Capital, the
parties would be permitted to disregard the form of the transaction and
characterize the transaction in accordance with its substance.
The real economic gains from the transaction would be attributable to the
residual funds that are anticipated to accumulate as excess cash and the
interest and other earnings realized on investments of the funds in the senior
insurance settlements accounts and the liquidity account. Some of these gains
may be realized by Capital and are a further indication that the transaction
should be classified as a secured loan arrangement.
Possible Classification of the Transaction as a Partnership, or a
Publicly-Traded Partnership or an Association Taxable as a Corporation
There can be no assurance that the IRS will not assert that, for purposes
of the Internal Revenue Code, the transaction contemplated by Capital and the
Certificateholders constitutes a sale of the Senior Insurance Settlements (or an
interest therein) and/or that the proper classification of the legal
relationship among Capital and the Certificateholders resulting from this
transaction is that of a partnership, or a publicly-traded partnership or an
association taxable as a corporation.
If the arrangement created by the pooling and servicing agreement were
characterized as a partnership among Capital and the Certificateholders for
federal income tax purposes, the partnership would be treated as the owner of
the Senior Insurance Settlements. The amount and timing of income and deductions
of a Certificateholder with respect to the Certificates may differ if the
Certificates are held to constitute interests in a partnership rather than
evidences of indebtedness of Capital. The partnership itself would not be
subject to federal income tax; rather, Capital and each Certificateholder as
partners would report on their tax return their distributive share of the
partnership's income, gain, loss, deduction and credit, determined under
partnership tax accounting rules. Cash distributions to a Certificateholder
would not be separately taxable except to the extent that such distributions
exceeded the Certificateholder's basis in the Certificateholder's partnership
interest (as adjusted to reflect the Certificateholder's distributive share of
partnership income and loss and cash contributions made to and distributions
from the partnership).
If the arrangement were treated as a publicly-traded partnership (unless
certain exceptions apply) or an association taxable as a corporation, it would
be subject to federal income taxes at corporate tax rates on the taxable income
generated by the ownership of the Senior Insurance Settlements. Such a tax would
result in reduced distributions to Certificateholders. Distributions to Capital
and to the Certificateholders would not be deductible in computing the taxable
income of the corporation. In addition, all or a portion of any such
distributions made to the Certificateholders would, to the extent of the current
and accumulated earnings and profits of such corporation, be treated as dividend
income to the Certificateholders.
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No attempt will be made to comply with any IRS reporting or tax payment
requirements which might be applicable if the arrangement among Capital and the
Certificateholders were treated as creating a partnership or a publicly-traded
partnership or an association taxable as a corporation. If this transaction were
later held to constitute a partnership, a publicly-traded partnership or an
association taxable as a corporation, the manner of bringing it into compliance
with such requirements is unclear at this time.
Interest Income to Certificateholders
Assuming the Certificates constitute evidences of indebtedness of Capital
for federal income tax purposes, interest will be includible as ordinary income
when received or accrued by Certificateholders in accordance with their
respective methods of tax accounting. Interest received on the Certificates may
also constitute "investment income" for purposes of certain limitations of the
Internal Revenue Code concerning the deductibility of "investment interest"
expense.
Capital has indicated that the Certificates will not be issued at a price
resulting in a discount that exceeds a statutory de minimis amount and, thus,
the Certificates should not be issued with original issue discount ("OID")
within the meaning of Section 1273 of the Code. Each Certificateholder should
consult his own tax advisor regarding the impact to him of the original issue
discount rules if the Certificates are issued with OID.
A Certificateholder who purchases a Certificate for less than its stated
principal amount will be subject to the "market discount" rules of the Internal
Revenue Code, and a Certificateholder who purchases a Certificate for more than
its stated principal amount will be subject to the premium amortization rules of
the Internal Revenue Code. A Certificateholder should consult his own tax
advisor regarding the tax consequences of these rules if they apply to the
Certificateholder.
Gain or Loss on Disposition of Certificates
Subject to the application of the market discount rules, if a Certificate
is sold, exchanged or otherwise disposed of, the Certificateholder will
recognize gain or loss equal to the difference between the amount realized on
the sale, exchange or other disposition and the adjusted basis of such
Certificate. The adjusted basis of the Certificate will equal the
Certificateholder's cost, increased by any market discount previously includible
in income by the Certificateholder with respect to the Certificate, and reduced
by the principal payments previously received and any premium amortized, by the
Certificateholder with respect to the Certificate. Any such gain or loss will be
capital gain or loss if the Certificate was held as a capital asset.
Foreign Investors
In general, interest paid to a foreign person (within the meaning of the
Internal Revenue Code) would be exempt from United States withholding taxes
provided that the interest is not effectively
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connected with the conduct of a trade or business of the recipient in the United
States and, if the foreign person (i) is not a "10 percent shareholder" or
"controlled foreign corporation" to which Capital is a related person within the
meaning of the Internal Revenue Code, and (ii) provides an appropriate
statement, signed under penalties of perjury, certifying that the beneficial
owner of the Certificate is a foreign person, and providing the foreign person's
name and address. If the IRS were to contend successfully that the Certificates
are interests in a partnership, a Certificateholder that is a foreign person
might be required to file a United States individual or corporation income tax
return and pay tax on its share of partnership income at regular United States
rates, including the branch profits tax (and would be subject to withholding tax
on its share of partnership income). If the Certificates are recharacterized as
interests in an association taxable as a corporation or a "publicly traded
partnership" taxable as a corporation, to the extent distributions under the
pooling and servicing agreement were treated as dividends, a foreign person
would generally be taxed on the gross amount of such dividends (and be subject
to withholding) at a rate of 30% unless such rate were reduced by an applicable
treaty.
In general, any capital gain realized on the sale, redemption, retirement
or other taxable disposition of a Certificate by a foreign person will be exempt
from United States federal income tax and withholding, provided that (i) the
gain is not effectively connected with the conduct of a trade or business in the
United States by the nonresident alien or foreign corporation and (ii) in the
case of an individual foreign person, (a) the foreign person is not present in
the United States for 183 days or more in the taxable years of the sale,
exchange, retirement or other taxable disposition or (b)(1) the foreign person
does not have a "tax home" in the United States and (2) the gain is not
attributable to an office or other fixed place of business maintained in the
United States by the foreign person.
There could also be state and local tax considerations to foreign persons
who hold Certificates.
The foregoing description is very general in nature, and foreign investors
should consult their own tax advisors to ascertain the application of these
matters to them.
Backup Withholding
Certificateholders may be subject to backup withholding at the rate of 20%
with respect to interest paid on a Certificate, unless such Certificateholder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (b) provides a correct taxpayer
identification number, certifies as to the Certificateholder's exemption from
backup withholding and otherwise complies with applicable requirements of the
backup withholding rules. A Certificateholder, who does not provide Capital or
the Certificateholder's broker with such Certificateholder's correct taxpayer
identification number may be subject to penalties imposed by the IRS. Any amount
paid as backup withholding will be credited against the Certificateholder's
income tax liability. Capital will report to the Certificateholders and the IRS
the amount of any "reportable payments" for each calendar year and the amount of
tax withheld, if any, with respect to payments made on the Certificates.
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ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit
certain pension, profit sharing or other employee benefit plans, individual
retirement accounts or annuity and employee annuity plans from engaging in
certain transactions involving "plan assets" with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Internal Revenue Code
with respect to the plan. A violations of these "prohibited transaction" rules
may generate excise tax and other liabilities under ERISA and the Internal
Revenue Code for such persons.
The Department of Labor has issued a regulation ("regulation") concerning
the definition of what constitutes the "plan assets" of certain employee benefit
plans and annuities described in ERISA or the Internal Revenue Code, and of
individual retirement accounts or annuities (collectively referred to herein as
"benefit plans"). Under the regulation the assets and properties of
corporations, partnerships and certain other entities in which a benefit plan
makes an equity investment could be deemed to be investments by benefit plans
are made in the trust, the trust could be deemed to hold plan assets of such
benefit plan unless an exception is applicable to the trust.
Debt Interest Exception.
The regulation applies to the purchase by a benefit plan of an "equity
interest" in an entity. An equity interest is defined as any interest in an
entity other than an instrument that is treated as debt under applicable local
law and which has no substantial equity features. Capital is of the opinion that
the Certificates would be characterized as evidences of indebtedness of Capital
for federal income tax purposes. Although no assurance can be given that the
Certificates will be treated as debt under applicable law, if the Certificates
are deemed to be debt rather than equity interests, the trust's assets would not
be treated as plan assets solely as a result of the purchase of a Certificate by
a benefit plan.
Publicly-Offered Security Exception.
Assuming that the Certificates represent equity interests, the regulation
contains an exception that provides that if a benefit plan acquires a
"publicly-offered security," the issuer of the security is not deemed to hold
plan assets. A publicly-offered security is a security that is (1) freely
transferable, (2) part of a class of securities that is owned by 100 or more
investors independent of the issuer and of one another and (iii) either is (a)
part of a class of securities registered under section 12(b) or 12(g) of the
Securities Exchange Act of 1934, or (b) sold to the plan as part of an offering
of securities to the public pursuant to an effective registration statement
under the Securities Act of 1933 and the class of securities of which such
security is a part is registered under the Securities Exchange Act of 1934
within 120 days (or such later time as may be allowed by the Securities and
Exchange Commission) after the end of the fiscal year of the issuer during which
the offering of such securities to the public occurred.
Although there are no restrictions imposed under the terms of the pooling
and servicing agreement on the transfer of the Certificates and Capital intends
the registration requirements to be satisfied, it is uncertain whether the
Certificates will be held by at least 100 unrelated persons
69
at the conclusion of the offering made by this prospectus. Accordingly, no
assurances can be given that the offering of the Certificates will meet the
criteria of this publicly-offered security exception.
Exception for Insignificant Participation by Benefit Plan Investors.
The regulation also states that an entity's assets will not be deemed to be
plan assets if equity participation in the entity by "benefit plan investors"
(e.g., employee welfare benefit plans and employee pension benefit plans defined
pursuant to Section 3(3) of ERISA, trusts described in Section 401(a) of the
Internal Revenue Code or a plan described in Section 403(a) of the Internal
Revenue Code, which trust or plan is exempt from tax under Section 501(a) of the
Internal Revenue Code, an individual retirement account or annuity under Section
408 of the Internal Revenue Code and any entity whose underlying assets include
plan assets by reason of a plan's investment in the entity) is not
"significant." Equity participation in an entity by benefit plan investors is
not significant on any date if, immediately after the most recent acquisition of
any equity interest in the entity, less than 25% of the value of any class of
equity interests in the entity (excluding the value of any equity interests held
by Capital, the trustee or its affiliates) is held by benefit plan investors. No
assurance can be given by Capital as to whether the value of the interests in
the trust held by benefit plan investors will be less than 25%, or whether the
value will remain below 25%.
If the trust were deemed to hold "plan assets" of benefit plans that are
Certificateholders, transactions involving the trust and "parties in interest"
or "disqualified persons" with respect to such plans might be prohibited under
Section 406 of ERISA and Section 4975 of the Internal Revenue Code unless an
exemption is applicable. There is no assurance that any exemptions, even if all
of the conditions specified therein are satisfied, will apply to all
transactions involving the trust's assets.
In light of the foregoing, fiduciaries of a benefit plan considering the
purchase of Certificates should consult their own counsel regarding whether the
assets of the trust which are represented by the Certificates would be
considered "plan assets", the consequences that would apply if the trust's
assets were considered "plan assets" and the applicability of exemptive relief
from the prohibited transaction rules.
Regardless of whether the trust were deemed to hold "plan assets" of
benefit plans that are Certificateholders, the purchase of Certificates by a
benefit plan with respect to which Capital or any entity related to it is a
"party in interest" under ERISA or a "disqualified person" under the Internal
Revenue Code could constitute a prohibited transaction under Section 4975 of the
Internal Revenue Code or under Section 406 of ERISA if, for instance, the
benefit plan's purchase is part of an "arrangement" to benefit Capital or any
entity related to it. Accordingly, fiduciaries of a benefit plan with respect to
which Capital or any entity related to it is a "party in interest" or
"disqualified person" should consult their own counsel concerning the propriety
of the investment prior to making the purchase.
Moreover, a possible violation of the prohibited transaction rules could
occur if Certificates were purchased during the offering with assets of any
benefit plan if the trustee or
70
any of its affiliates were a fiduciary with respect to such benefit plan.
Accordingly, the fiduciaries of any benefit plan should not purchase
Certificates during the offering with assets of any benefit plan if the trustee
or any of its affiliates perform or have any discretionary investment powers or
any other fiduciary power as to such benefit plan.
Finally, fiduciaries of a benefit plan should consider fiduciary standards
under ERISA or other applicable law in the context of the benefit plan's
particular circumstances before authorizing an investment of a portion of a
benefit plan's assets in Certificates. Accordingly, among other factors, such
fiduciaries should consider whether the investment (i) satisfies the
diversification requirement of ERISA or other applicable law (ii) is in
accordance with the benefit plan's governing instruments and (iii) is prudent
considering the "Risk Factors" and other factors discussed in this prospectus.
TRANSFERABILITY OF CERTIFICATES
Pryor, Counts & Co., Inc. has advised Capital that it does not intend to
act as a market maker of the Certificates.
INVESTMENT COMPANY ACT OF 1940
The Investment Company Act of 1940 (the "Act") applies to "investment
companies" as defined by the Act.
Section 3(c)(5)(A) of the Act provides that an investment company does not
include a "person who is not engaged in the business of issuing redeemable
securities, face-amount certificates of the installment type or periodic payment
plan certificates, and who is primarily engaged in . . . (A) purchasing or
otherwise acquiring notes, drafts, acceptances, open accounts receivable, and
other obligations representing part or all of the sales price of merchandise,
insurance and service." The Securities and Exchange Commission staff takes the
position that an issuer qualifies under Section 3(c)(5)(A) if at least 55% of
its assets consist of notes, open accounts receivable, or other obligations
representing part or all of the sale price of merchandise, insurance or
services.
The Senior insurance Settlements represent payment obligations of insurance
companies. The trust will also consist of no more than [ ]% in permitted
investments. The trust will therefore satisfy the requirements of Section
3(c)(5)(A) of the Act and is not an investment company subject to the Act.
71
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
Capital by Mesirov Gelman Jaffe Cramer & Jamieson, LLP, Philadelphia,
Pennsylvania.
72
GLOSSARY
"Assignment" shall mean a written assignment transferring the Senior
Insurance Settlements to the trust and executed by Capital.
"Authorized newspapers" shall mean each newspaper of general circulation in
New York, or Carmal, Indiana, or in any other place specified by Capital,
printed in the English language and customarily published on each business day,
whether or not published on Saturdays, Sundays or holidays.
"Business day" shall mean each day which is neither a Saturday, a Sunday
nor any other day on which banking institutions in New York are authorized or
obligated by law or required by executive order to be closed.
"Certificate" shall mean any one of the certificates issued by the trust
and representing an undivided interest in the trust and the right to receive
payments of principal and interest on such certificates.
"Certificate interest" shall mean any and all interest which shall accrue
on a Certificate from the applicable closing date of the particular Certificate.
"Certificate principal" shall mean the outstanding principal amount of the
Certificate at the time of determination.
"Certificate rate" shall mean, with respect to the Tranche I Certificates,
9.0% per annum and with respect to the Tranche II Certificates, 9.25% per annum,
calculated on the basis of a 360 day year consisting of 30 day months, provided
that, in the case of the month in which any such Certificate is first issued,
such rate shall be calculated for the number of actual days remaining in the
month from the date of issuance.
"Certificate register" shall mean a register kept at the office or agency
in which the transfer agent and registrar shall provide for the registration of
the Certificates and of transfer and exchanges of the Certificates.
"Closing date" shall mean, with respect to any Certificate, the date of
issuance of such Certificate.
"Collections" shall mean all payments (including all payments received from
an insurance company) received by the subservicer with respect to the Senior
Insurance Settlements, in the form of cash, checks, wire transfers, electronic
transfers or other form of payment.
"Debtor relief laws" shall mean the United States Bankruptcy Code and all
other applicable liquidation, rearrangement, receivership or conservatorship or
similar laws affecting rights of creditors generally.
73
"Determination date" shall mean the 10th day of the month after the month
in which the first closing date occurs and the 10th day of each calendar month
thereafter, or, if any such 10th day is not a business day, the next succeeding
business day.
"Distribution date" shall mean the 15th day of the month after six months
in which the first closing date occurs and the 15th day of each calendar six
month period thereafter, or, if any such 15th day is not a business day, the
next succeeding business day.
"Escrow account" shall mean an interest bearing account established by the
trustee for the benefit of the Certificateholders to deposit subscription
proceeds prior to a closing date.
"Fee determination date" shall mean the tenth (10th) day of the month after
the month in which the first closing date occurs and the tenth (10th) day of
each calendar month thereafter, or, if any such tenth (10th) day is not a
business day, the next succeeding business day.
"Fee distribution date" shall mean the fifteenth (15th) day of the month
after the month in which the first closing date occurs and the fifteenth
(15th) day of each calendar month thereafter, or, if any such fifteenth (15th)
day is not a business day, the next succeeding business day.
"First maturity date" shall mean the close of business on the first
business day and date 8 and 10 years, respectively, from the date of the first
closing date whereby the first Certificate is issued by the trust.
"Governmental authority" shall mean the United States of America, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Insurance claims" means a claim for payment under a life insurance policy
issued by an insurance company.
"Insurance company" or "insurance companies" shall mean those legal
entities authorized and admitted by governmental authority to do insurance
business in the state under a certificate of authority and authorized to write
life insurance policies.
"Investor accounts" shall mean each of the senior insurance settlements
account, lockbox account, liquidity account, and the distribution account.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
encumbrance of lien or preferential arrangement, and the filing of a financing
statement to evidence any of the foregoing.
"Master servicer's fee" shall mean an annual fee equal to .175% or .0825%
of the principal amount of Certificates outstanding payable monthly in
accordance with the pooling and servicing agreement.
"Monthly subservicing fee" shall be an amount equal to 1/12th of the
product of (i) the servicing fee percentage and (ii) the principal amount of the
Certificates outstanding as of the first day of such month, or portion thereof.
"Officer's certificate" shall mean a certificate signed by any officer of
Capital or the subservicer, as appropriate, and delivered to the trustee.
74
"Paying agent" shall mean the trustee or any paying agent appointed by the
trustee.
"Permitted investment" shall mean any one or all of the following types of
investments (1) negotiable instruments or securities represented by instruments
in bearer or registered form which evidence any one or all of the following
types of obligations (a) obligations fully guaranteed by the United States of
America; (b) time deposits in, or bankers' acceptances issued by, any depository
institution or trust company incorporated under the laws of the United States of
America or any state thereof and subject to supervision and examination by
federal or state banking or depository institution authorities which the
certificates of deposit, short-term deposits or long-term secured debt
obligations, if any, of such depository institution or trust company shall meet
certain credit rating standards of Duff & Phelps, Moody's and/or Standard &
Poor's, as may be applicable, or such time deposits are fully insured by the
Federal Deposit Insurance Corporation; (c) certificates of deposit which meet,
at the time of the trust's investment or contractual commitment to invest
therein, certain rating standards of Duff & Phelps, Moody's and/or Standard &
Poor's, as may be applicable; (d) investments in money market funds rated in the
highest investment category or otherwise approved, in writing by Duff & Phelps,
Moody's and/or Standard & Poor's; and (e) investments in Chase Institutional
Money Market Account; (2) demand deposits in the name of the trust or the
trustee in any depository institution or trust company referred to in (1) (b)
above; and (3) securities not represented by an instrument, which are
registered in the name of the trustee upon books maintained for that purpose by
or on behalf of the issuer thereof and which consists of shares of any open end
diversified investment company which is registered under the Investment Company
Act of 1940, as amended, and which meets certain other prescribed investment
guidelines.
"Person" shall mean any legal person, including any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, governmental entity or other entity of
similar nature.
"Record date" shall mean with respect to any distribution date the last
business day of the preceding month.
"Requirements of law" for any legal person shall mean the certificate of
incorporation or articles of association or bylaws or other organizational or
governing documents of such person and any law, treaty, rule or regulation, or
determination of an arbitrator or governmental authority (defined as the United
States of America or any state or local subdivision thereof), in each case
applicable to or binding upon such person or to which such person is subject
(including, without limitation, the Federal Trust in Lending Act, Fair Debt
collection Act and retail installment sales acts).
"Scheduled trust termination date" shall mean the close of business on the
first business day and date six (6) months after the final maturity date.
"Servicing fee percentage" shall equal .45%.
75
"Subservicer" shall mean United, the master servicer or successor servicer
as applicable, which entity is then performing duties of subservicer under the
pooling and servicing agreement.
"Subservicer's fee" shall mean an annual fee equal to the product of (a)
.3625% multiplied by (b) the outstanding principal amount of the Certificates as
of the first day of each month after the first closing date.
"Transfer Agent and Registrar" shall initially be the trustee's corporate
trust office in New York, New York or any transfer agent and registrar appointed
by Trustee.
"Transfer Date" shall mean the Business Day next preceding each
distribution date or fee distribution date, as applicable.
"Trustee's fee" shall mean the fees and charges outlined in its letter of
November 18, 1999 shall be the customary and usual charges made by the trustee
for similar services provided to its customers.
76
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in this Prospectus and, if given or
made, such information or representation must not be relied upon as having been
authorized by Capital, Trustee, Master Servicer, United or the Placement Agent.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make such offer in such jurisdiction.
TABLE OF CONTENTS
Page
----
Prospectus Summary......................................................... 1
Risk Factors............................................................... 13
Forward-Looking Statements................................................. 20
United, Capital, 21st Services and the Trust............................... 20
Use of Proceeds............................................................ 36
Maturity Assumptions....................................................... 36
Plan of Distribution....................................................... 36
Description of the Certificates and the Pooling and Servicing Agreement.... 38
Description of the Senior Insurance Settlements Purchase Agreement......... 61
Certain Legal Aspects of the Senior Insurance Settlements.................. 63
Tax Matters................................................................ 65
ERISA Considerations....................................................... 69
Transferability of Certificates............................................ 71
Investment Company Act of 1940............................................. 71
Legal Matters.............................................................. 72
Until ________________________, ______________________2000 (90 days after the
date of this Prospectus) all dealers effecting transaction in the Certificates,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
$150,000,000
SENIOR
INSURANCE
SETTLEMENTS
FUNDING
TRUST 1999
9.0%
Asset Backed Certificates
and
9.25%
Asset Backed Certificates
Capital Resource Group One, LLC
21st Holdings, LLC
Master Servicer of the Senior Insurance Settlements
---------------------------------------------------------
PROSPECTUS
Pryor, Counts & Co. Inc.
---------------------------------------------------------
77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the amount of fees and expenses (other
than commissions) to be incurred in connection with the issuance and
distribution of the Certificates.
SEC Filing Fee $ 41,700
Trustee's Fees and Expenses 35,000
(including counsel fees)
Legal Fees and Expenses 150,000
Printing and Engraving Expenses 5,000
Blue Sky Qualification Expenses 5,250
Miscellaneous 2,000
--------
*Total $238,950
========
- ----------
* The actual total will be filed by amendment.
Item 14. Indemnification and Directors and Officers.
Capital was incorporated under Delaware law. Pursuant to Section 145 of the
Delaware General Corporation Law, a Delaware corporation may indemnify an
officer, director, or controlling person or purchase and maintain insurance
against liability which such persons may incur in this corporate capacity. Under
certain circumstances, Section 145 mandates that a Delaware corporation
indemnify such persons.
Section 145 provides that a corporation may indemnify a person, including
officers and directors, who was, is or is threatened to be made a named
defendant or respondent in a threatened, pending or completed legal action, suit
or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, including appeals therein, by reason of the fact that such person
was an officer or director of such corporation or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation or enterprise, if (1) such person conducted himself in good faith;
(2) if a director, he reasonably believed that (a) his conduct as a director was
in the corporation's best interest or (b) his conduct was at least not opposed
to the corporation's best interest; and (3) in a criminal proceeding, the person
had no reasonable cause to believe his conduct was unlawful.
Pursuant to Section 145, if the person is found liable to the corporation
or is found liable on the basis that personal benefit was improperly received by
the person, the indemnification (1) is limited to reasonable expenses actually
incurred by the person in connection with the proceeding and (2) shall not be
made in respect of any proceeding in which the person shall have been found
liable for willful or intentional misconduct in the performance of his duty to
the corporation. Except to the extent provided in Section 145, a director may
not be indemnified in
78
respect of a proceeding (1) in which the person is found liable on the basis
that personal benefit was improperly received by him, whether or not the benefit
resulted from an action taken in the person's official capacity or (2) in which
the person is found liable to the corporation.
Pursuant to Section 145, a corporation may purchase and maintain insurance
or another arrangement on behalf of any person who is or was a director,
officer, employee or agent of the corporation or who is or was serving at the
request of the corporation as a director, officer, partner, trustee, etc. of
another corporation, trust or enterprise.
Pursuant to Section 145, a corporation is obligated to indemnify an officer
or director against reasonable expenses incurred by him in connection with a
proceeding in which he is named defendant or respondent because he is or was an
officer or director, if he has been wholly successful, in the merits or
otherwise, the defense of the proceeding.
The indemnity provided for in Section 145 may include judgments, penalties
(including excise and similar taxes), fines, settlements, and reasonable
expenses (including court costs and attorneys' fees) actually incurred by the
person in connection with the proceeding.
Article ___ of Capital's Articles of Incorporation provides that no person
shall be liable to Capital for any loss or damage suffered by it on account of
any action taken or omitted to be taken by him as a director or officer of
Capital in good faith, if such person exercised or used the same degree of care
and skill as a prudent man would have exercised or used in the circumstances in
the conduct of his own affairs.
Item 15. Recent Sales of Unregistered Securities.
None.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
3.1 -- Articles of Incorporation of Registrant. (To be filed by
amendment)
3.2 -- Bylaws of Registrant. (To be filed by amendment)
4.1 -- Pooling and Servicing Agreement among Registrant, the Servicer
and the Trustee, including the form of Certificates and
other exhibits thereto, defining the rights of the
Certificateholders. (Filed herewith)
4.2 -- Form of Certificate. (Filed herewith)
5.1 -- Opinion of Mesirov Gelman Jaffe Cramer & Jamieson, LLP, with
respect to legality. (To be filed by amendment)
79
10.1 -- Placement Agent Agreement. (Filed herewith)
10.2 -- Senior Insurance Settlements Purchase Agreement. (Filed
herewith)
10.3 -- Master Servicer Agreement. (Filed herewith)
10.4 -- Escrow Agreement. (To be filed by amendment)
24.1 -- Consent of Mesirov Gelman Jaffe Cramer & Jamieson, LLP
(included in opinion filed as Exhibit 5.1). (To be filed by
amendment)
25.1 -- Form T-1 (To be filed by amendment)
28.2 -- Form of Subscription Agreement. (To be filed by amendment)
(b) Financial Statement Schedules:
Not applicable with respect to the Registrant.
Item 17. Undertakings.
The undersigned Registrant on behalf of the Trust or the Trust hereby
undertakes to provide to the Placement Agent on each Closing Date as specified
in the Pooling and Servicing Agreement and the Placement Agent Agreement,
Certificates in such denominations and registered in such names as required by
the Placement Agent to permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes:
(1) To file during any period in which offers or sales are being made, a
post-effective amendment to this amended Registration Statement.
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933:
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
80
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) For purposes of determining any liability under the securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
statement as of the time it was declared effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by directors, officers or controlling persons of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
directors, officers or controlling persons in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Carmel, and State of Indiana, on the 3rd day of December, 1999.
CAPITAL RESOURCE GROUP ONE, LLC
By: /s/ Thomas J. LaRussa
-------------------------------
Thomas J. LaRussa, President
81
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Officers Title Date Signed
-------- ----- -----------
/s/ Thomas J. LaRussa President December 3, 1999
- ---------------------
Thomas J. LaRussa
/s/ Thomas J. LaRussa Secretary December 3, 1999
- ---------------------
Thomas J. LaRussa
Board of Directors:
/s/ Thomas J. LaRussa Director December 3, 1999
- ---------------------
Thomas J. LaRussa
82