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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from ........... to ...........
Commission file number 333-08929
______________________________
UNION FINANCIAL SERVICES-1, INC.
(Exact name of registrant as specified in its charter)
NEVADA 86-0817755
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6991 East Camelback Road, Suite B290
Scottsdale, Arizona 85251
(Address of principal executive offices) (Zip Code)
(602) 947-7703
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
------- -------
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE
CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM
10-K OR ANY AMENDMENT TO THIS FORM 10-K. /X/
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT ON DECEMBER 31, 1996: NONE
THE NUMBER OF SHARES OUTSTANDING OF REGISTRANT'S COMMON STOCK AS OF MARCH
1, 1997 WAS 1,000.
___________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated in Parts I, II and IV of
this report by reference: The Registrant's Registration Statement on Form
S-3 (File No. 333-08929), as amended and supplemented, as filed with the
Securities and Exchange Commission in October 1996 and March 1997; and the
Registrant's Current Report on Form 8-K dated January 7, 1997.
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TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. BUSINESS...................................................... 1
ITEM 2. PROPERTIES.................................................... 17
ITEM 3. LEGAL PROCEEDINGS............................................. 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................... 17
ITEM 6. SELECTED FINANCIAL DATA....................................... 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................... 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................... 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 22
ITEM 11. EXECUTIVE COMPENSATION........................................ 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................... 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K...................................................... 26
SIGNATURES
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Statements in this Form 10-K, including those concerning the Company's
(as defined below) expectations as to its ability to purchase eligible
student loans, to structure and issue competitive securities and to compete
generally, and certain of the information presented in this report,
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. As such, actual results may vary
materially from such expectations. For a discussion of the factors which
could cause actual results to differ from expectations, please see the
caption entitled "Forward Looking Statements" in ITEM 1 hereof. There can be
no assurance that the Company's results of operations will not be adversely
affected by such factors.
PART I
ITEM 1. BUSINESS
THE COMPANY
Union Financial Services-1, Inc. (the "Company") was incorporated under
the laws of the State of Nevada on February 28, 1996. The Company is a
wholly owned subsidiary of Union Financial Services, Inc., a Nevada
corporation ("UFS"). UFS is a privately held corporation and is affiliated
with Union Bank and Trust Company, a Nebraska corporation and state bank
("Union Bank"). The Company was formed solely for the purpose of acquiring,
from time to time, guaranteed educational loans made to students and parents
of students ("Eligible Loans") under the Higher Education Act of 1965, as
amended (the "Higher Education Act"), and pledging such Eligible Loans and
certain related collateral to a trustee to secure one or more series of
Taxable Student Loan Asset-Backed Notes that are issued by the Company from
time to time pursuant to a Second Amended and Restated Indenture of Trust,
dated as of November 1, 1996, between the Company and Norwest Bank Minnesota,
National Association (the "Trustee"), as amended and supplemented from time
to time (collectively, the "Indenture").
BUSINESS OF COMPANY
RECENT REGISTRATION. A registration statement on Form S-3, Registration
No. 333-08929 (the "Registration Statement"), was filed with the Securities
and Exchange Commission (the "Commission") by the Company under the
Securities Act of 1933, as amended (the "Securities Act"), for $700,000,000
of notes (the "Offered Notes"). Pursuant to the Registration Statement,
which was declared effective by order of the Commission in October of 1996,
the Company's base prospectus (the "Base Prospectus") and the prospectus
supplement (the "Prospectus Supplement") forming a part thereof, the Company
issued its Taxable Student Loan Asset-Backed Notes, Series 1996C (the "Series
1996C Notes") in an aggregate principal amount of $316,100,000, consisting
of: (i) Senior Treasury Rate Class A-5 Notes in the principal amount of
$225,000,000 (the "Class A-5 Treasury Rate Notes"); (ii) Senior Auction Rate
Class A-6 Notes in the principal amount of $75,500,000 (the "Class A-6
Auction Rate Notes"); and (iii) Subordinate LIBOR Rate Class B-3 Notes in the
principal amount of $15,600,000 (the "Class B-3 LIBOR Rate Notes"), all in
accordance with the Indenture. In March of 1997, the Company issued its
Taxable Student Loan Asset-Backed Notes, Series 1997A (the "Series 1997A
Notes") consisting of Subordinated Class 1997B-4 LIBOR Rate Notes in the
principal amount of $30,600,000 (the "Class B-4 LIBOR Rate Notes"). For a
more detailed discussion of the terms of the Offered Notes, please see the
caption entitled "DESCRIPTION OF NOTES" commencing on page 13 of the
Company's Base Prospectus.
1
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ISSUANCE OF PRIVATE NOTES. Prior to the registration of the Offered
Notes under the Securities Act, the Company in March and June of 1996 issued
Taxable Student Loan Asset-Backed Notes in two series in the aggregate
principal amount of $249,900,000 (the "Private Notes") in transactions exempt
from the registration requirements of the Securities Act. The Private Notes
were designated as (i) the Taxable Student Loan Asset-Backed Notes, Series
1996A (the "Series 1996A Notes"), consisting of $48,300,000 of its Senior
Auction Rate Class A-1 Notes (the "Class A-1 Notes"), $48,300,000 of its
Senior Auction Rate Class A-2 Notes (the "Class A-2 Notes") and $11,100,000
of its Subordinate LIBOR Rate Class B Notes (the "Class B-1 Notes"), and (ii)
the Taxable Student Loan Asset-Backed Notes, Series 1996B (the "Series 1996B
Notes"), consisting of $73,700,000 of its Senior Auction Rate Class A-3 Notes
(the "Class A-3 Notes"), $54,300,000 of its Senior Auction Rate Class A-4
Notes (the "Class A-4 Notes") and $14,200,000 of its Subordinate LIBOR Rate
Class B-2 Notes (the "Class B-2 Notes"). The Class A-1, Class A-2, Class A-3
and Class A-4 Notes are collectively referred to herein as the "Private Class
A Notes," and the Class B-1 and Class B-2 Notes are collectively referred to
herein as the "Private Class B Notes." The Private Notes and the Offered
Notes (including any additional notes, that may be issued in the future) are
and will be secured by the same pool of Eligible Loans to the extent
described in the Indenture. The Private Notes, the Offered Notes and the
additional notes are referred to collectively herein as the "Notes."
TRUST ESTATE. The Notes are secured by the revolving pool of Eligible
Loans and certain other property held for the benefit of the registered
owners of the Notes (the "Trust Estate"). For a more detailed discussion of
the Trust Estate, please see the captions entitled "SUMMARY OF THE
OFFERING--Trust Estate" and "SECURITY AND SOURCE OF PAYMENT FOR THE NOTES"
commencing on pages xii and 21, respectively, of the Company's Base
Prospectus.
SUBORDINATION OF VARIOUS CLASSES. The Offered Notes that are designated
as Class B Notes (the "Class B Notes") and the Private Notes that have been
designated as Private Class B Notes are subordinated in certain respects to
the Offered Notes that are designated as Class A Notes and the Private Notes
that have been designated as Private Class A Notes, and the Notes of any
series that are designated as Class C Notes (the "Class C Notes") are
subordinated in certain respects to the Offered Notes that are designated as
Class A Notes and Class B Notes and the Private Notes that have been
designated as Private Class A Notes and Private Class B Notes, as more fully
described in the Base Prospectus. Currently there are no Class C Notes.
NOTES ISSUED. The following table summarizes the various series and
classes of Notes issued by the Company since its inception.
2
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NOTES ISSUED BY THE COMPANY
Series Class Date Issued Maturity Dates Original Principal Amount
- ------ ----- ----------- -------------- -------------------------
1996A A-1 March 8, 1996 July 1, 2014 $ 48,300,000
1996A A-2 March 8, 1996 July 1, 2014 48,300,000
1996A B-1(*) March 8, 1996 July 1, 2014 11,100,000
1996B A-3 June 18, 1996 July 1, 2014 73,700,000
1996B A-4 June 18, 1996 July 1, 2014 54,300,000
1996B B-2(*) June 18, 1996 July 1, 2014 14,200,000
1996C A-5 October 31, 1996 July 1, 2005 225,000,000
1996C A-6 October 31, 1996 July 1, 2014 75,500,000
1996C B-3 October 31, 1996 July 1, 2025 15,600,000
1997A B-4 March 20, 1997 July 1, 2030 30,600,000
------------
$596,600,000
------------
------------
- -------------------
(*) These Notes were defeased with the proceeds of the Series 1997A Notes
and as of March 20, 1997 are no longer deemed to be outstanding under
the Indenture.
- ------------------------------------------------------------------------------
PURCHASE OF ELIGIBLE LOANS. The Company has purchased and expects to
purchase Eligible Loans from Union Bank pursuant to the terms and conditions
stated in student loan purchase agreements (each such agreements, together
with similar agreements entered into by other eligible lenders, each a
"Student Loan Purchase Agreement"). The Company will only acquire Eligible
Loans from Union Bank or from other eligible lenders as defined under the
Higher Education Act ("Eligible Lenders" and, together with Union Bank, each,
a "Seller" and collectively, the "Sellers"). Eligible Loans consist of
federal loans originated pursuant to the Federal Family Education Loan
Program (defined below).
THE FEDERAL FAMILY EDUCATION LOAN PROGRAM. The Higher Education Act
provides for a program of (a) direct federal insurance of student loans
("FISLP") and (b) reinsurance of student loans guaranteed or insured by a
state agency or private non-profit corporation (collectively, "Federal Family
Education Loans," with such program referred to herein as the "Federal Family
Education Loan Program"). Several types of loans are currently authorized as
Federal Family Education Loans pursuant to the Federal Family Education Loan
Program. These include: (a) loans to students with respect to which the
federal government makes interest payments available to reduce student
interest cost during periods of enrollment ("Subsidized Federal Stafford
Loans"); (b) loans to students with respect to which the federal government
does not make such interest payments ("Unsubsidized Federal Stafford Loans"
and, collectively with Subsidized Federal Stafford Loans, "Federal Stafford
Loans"); (c) supplemental loans to parents of dependent students ("Federal
PLUS Loans"); and (d) loans to fund payment and consolidation of certain of
the borrower's obligations ("Federal Consolidation Loans"). Prior to July 1,
1994, the Federal Family Education Loan Program also included a separate type
of loan to graduate and professional students and independent undergraduate
students and, under certain circumstances, dependent undergraduate students,
to supplement their Stafford Loans ("Federal Supplemental Loans for Students"
or "Federal SLS Loans"). For a more detailed discussion of the Federal
Family Education Loan Program, please see the caption entitled "DESCRIPTION
OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM" commencing on page 113 of the
Company's Base Prospectus.
3
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GUARANTEE AGENCIES. Each Eligible Loan will be guaranteed as to the
payment of principal and interest by a state or private non-profit guarantor
(each, a "Guarantee Agency"). Eligible Loans originated prior to October 1,
1993 will be fully guaranteed as to the principal amount of such loans and
accrued interest by the applicable Guarantee Agency. Eligible Loans
originated on or after October 1, 1993 will be guaranteed as to 98% of the
principal amount of such loans and accrued interest by the applicable
Guarantee Agency. The Guarantee Agencies each have reinsurance contracts
with the Secretary of the Department of Education (the "Department"). The
Department reimburses to the Guarantee Agencies the claims paid by the
Guarantee Agencies. The amount of such reinsurance payment is calculated
annually and is subject to reduction based upon the annual claims rate of the
Guarantee Agency to the Department calculated to equal the amount of federal
reimbursement as a percentage of the original principal amount of guaranteed
loans held by such Guarantee Agency in repayment on the last day of the prior
fiscal year. Regardless of the level of reinsurance that the applicable
Guarantee Agency receives from the Department, the Trustee will continue to
be entitled to reimbursement for the applicable guaranteed portion of an
Eligible Loan (either 98% or 100%, as applicable) from such Guarantee Agency.
The obligations of the Guarantee Agencies to the holders of Eligible Loans
reinsured by the Department (the "Federal Loans"), such as the Trustee, are
payable from the general funds available to each such Guarantee Agency,
including cash on deposit therewith, reimbursements received from the
Department and reserve funds maintained by the Guarantee Agencies as required
by the Higher Education Act. The Higher Education Act provides that, subject
to the provisions thereof including the proper origination and servicing of
Eligible Loans, the full faith and credit of the United States is pledged to
the reinsurance payments by the Department to the Guarantee Agencies. In
addition, the Higher Education Act provides that if a Guarantee Agency is
unable to meet its obligations to holders of Federal Loans, such as the
Trustee, then the holders of Federal Loans may submit guarantee claims
directly to the Department and the Department is required to pay to the
holders the full insurance obligation of such Guarantee Agency until such
time as the obligations are transferred by the Department to a new Guarantee
Agency capable of meeting such obligations or until a qualified successor
Guarantee Agency assumes such obligations. Certain delays in receiving
reimbursement could occur if a Guarantee Agency fails to meet its
obligations. In addition, failure to properly originate or service an
Eligible Loan can cause an Eligible Loan to lose its guarantee. For a more
detailed discussion of the Guarantee Agencies, please see the caption
entitled "DESCRIPTION OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM--Federal
Insurance and Reimbursement of Guarantee Agencies" commencing on page 121 of
the Company's Base Prospectus.
SERVICING OF ELIGIBLE LOANS. Union Bank acts as servicer (the
"Servicer") of the Eligible Loans in accordance with an Amended and Restated
Servicing Agreement, dated as of June 19, 1996 (the "Servicing Agreement").
UNIPAC Service Corporation, a Nebraska corporation ("UNIPAC"), acts as
subservicer (the "Subservicer") and custodian (the "Custodian") of the
Eligible Loans in accordance with a Subservicing Agreement (the "Subservicing
Agreement") between Union Bank and UNIPAC. The Company may appoint other
entities to act as a Servicer or Subservicer if approved by the rating
agencies which rate the Notes. UNIPAC began its education loan servicing
operations on January 1, 1978, and provides education loan servicing, time
sharing, administration and other services to lenders, secondary market
purchasers and Guarantee Agencies throughout the United States. UNIPAC is a
privately held corporation, owned primarily by Union Bank, with a minority
ownership interest held by Packers Service Group, Inc., Lincoln, Nebraska.
UNIPAC's corporate headquarters is located in Aurora, Colorado.
INFORMATION ON THE NOTES AND ELIGIBLE LOANS
In accordance with the Indenture, the Company is required to periodically
provide information to the Trustee regarding the Notes and Eligible Loans,
which information is then forwarded to registered holders of the Notes. The
following unaudited information was reported to registered holders of the
Notes
4
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on March 11, 1997 and represents figures as of the last business day of
February 1997. The following information does not take into account the
issuances of the Series 1997A Notes. Although the information set forth
below has not been independently verified by third parties, the Company
believes it to be accurate to the best of its knowledge. Undefined
capitalized terms used in the Tables and narrative herein have the meanings
set forth in the Company's Registration Statement. The glossary of terms for
the Registration Statement have been included herein as Exhibit 99.4.
Set forth in Tables A and B below is the amount of principal and interest
paid on the various classes of Notes.
- ------------------------------------------------------------------------------
TABLE A
PRINCIPAL PAYMENTS WITH RESPECT TO EACH CLASS OF NOTES
(February 1997)
Class of Notes Principal Payment
-------------- -----------------
A-1 $0
A-2 0
A-3 0
A-4 0
A-5 0
A-6 0
B-1 0
B-2 0
B-3 0
- ------------------------------------------------------------------------------
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TABLE B
INTEREST PAYMENTS WITH RESPECT TO EACH CLASS OF NOTES
(February 1997)
Current Month Prior Month
Class Actual Paid Accrued Accrued Total
- ----- ------------- ------------- ------------- -------------
A-1 $ 205,578.67 $ 21,412.08 $ (21,695.67) $ 205,295.08
A-2 204,753.36 188,020.17 (171,558.48) 221,215.05
A-3 310,277.00 54,968.36 (65,569.23) 299,676.13
A-4 228,814.77 154,755.00 (139,778.71) 243,791.06
A-5 1,097,630.14 1,019,227.99 (995,604.17) 1,121,253.96
A-6 314,132.86 44,881.51 (45,209.40) 313,804.97
B-1 59,776.96 53,418.75 (59,776.96) 53,418.75
B-2 76,349.14 68,227.06 (76,349.14) 68,227.06
B-3 80,383.86 71,799.00 (78,652.17) 73,530.69
-------------
$2,600,212.75
-------------
-------------
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5
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Set forth in Table C below is the amount of the payments allocable to any
Noteholders' Auction Rate Interest Carryover (for each Class of Auction Rate
Notes only), Noteholders' LIBOR Rate Interest Carryover (for each Class of
LIBOR Rate Notes only), and Noteholders' Treasury Rate Interest Carryover
(for each Class of Treasury Rate Notes only), together with any remaining
outstanding amount of each thereof.
- ------------------------------------------------------------------------------
TABLE C
INTEREST CARRYOVER
(February 1997)
Class Interest Carryover
----- ------------------
Auction Rate Notes 0
LIBOR Rate Notes 0
Treasury Rate Notes 0
- ------------------------------------------------------------------------------
The principal balance of Eligible Loans as of February 28, 1997 was
$514,832,088.97. Set forth in Table D below is the aggregate outstanding
principal amount of Notes of each Class as of February 28, 1997, after giving
effect to payments allocated to principal reported in Table A above.
- ------------------------------------------------------------------------------
TABLE D
OUTSTANDING AGGREGATE PRINCIPAL AMOUNT PER CLASS
(February 28, 1997)
Class Principal outstanding*
----- ----------------------
A-1 $ 48,300,000.00
A-2 48,300,000.00
A-3 73,700,000.00
A-4 54,300,000.00
A-5 225,000,000.00
A-6 75,500,000.00
B-1 11,100,000.00
B-2 14,200,000.00
B-3 15,600,000.00
-------------------
* The principal amounts do not reflect the issuance of
the Series 1997A Notes in the amount of $30,600,000,
the proceeds of which were used to defease the Class
B-1 Notes and Class B-2 Notes.
- ------------------------------------------------------------------------------
Set forth in Table E below is the interest rate for the applicable Class
of Notes with respect to each payment referred to in Table B above, indicating
whether such interest rate is calculated based on the Net Loan Rate or based
on the applicable Auction Rate (for each Class of the Auction Rate Notes only),
6
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LIBOR Rate (for each class of the LIBOR Rate Notes only), or Treasury Rate
(for each Class of the Treasury Rate Notes only), as the case may be, and
specifying what each such interest would have been using the alternate basis
for such calculation.
- ------------------------------------------------------------------------------
TABLE E
APPLICABLE INTEREST RATE PER CLASS
(February 1997)
CALCULATION METHOD
(Actual Method in Bold)
CLASS NET LOAN RATE AUCTION RATE
A-1 0% 5.3725%
A-2 0% 5.4504%
A-3 0% 5.4129%
A-4 0% 5.4179%
A-6 0% 5.3495%
TREASURY RATE*
A-5 5.7166%
LIBOR RATE*
B-1 6.1875%
B-2 6.1775%
B-3 5.9175%
-------------------
(*) Treasury Bill Rate based on average rate and LIBOR Rate based
on the Smith Barney stated rate.
- ------------------------------------------------------------------------------
The estimated amount of the Servicing Fee allocated to the Servicer as of
February 28, 1997 was $430,919.52. The amount of the Administration Fee, the
Auction Agent Fee and Trustee Fee allocated as of February 28, 1997 was
$71,852.72, $59,661.81 and $-0-, respectively. The amount of Net Losses as
of the close of February 28, 1997 and any recoveries of principal and
interest received during the preceding month relating to Eligible Loans for
which Net Losses were previously allocated was $-0-. The amount of
withdrawals from the Reserve Fund and the balance of the Reserve Fund as of
February 28, 1997 was $1,314,140.10 and $10,048,783.16, respectively.
Withdrawals were made from the Reserve Fund to cover shortages in the Revenue
Fund created by slow payment to the Company of interest due on the Company's
Eligible Loans. The Reserve Fund is fully funded under the terms of the
Indenture and the Company does not anticipate that future withdrawals from
the Reserve Fund will be required. No assurances can be given that future
withdrawals from the Reserve Fund will not occur. The portion of the
payments attributable to amounts on deposit in the Loan Account with respect
to each Series of the Student Loan Fund was $-0- (for Series 1996A), $-0-
(for Series 1996B) and $-0- (for Series 1996C). The aggregate amount paid by
the Trustee to acquire Eligible Loans from amounts on deposit in the Loan
Account with respect to each Series of the Student Loan Fund during the month
of February 1997 was $39,891,544.52 (principal amount), $301,259.26 (interest
amount) and $558,481.62 (premium amount). The amount remaining in the Loan
Account with respect to each Series of the Student Loan Fund that has not
been used to acquire Eligible Loans and is being transferred to the Note
Redemption Fund is $-0-.
7
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Set forth in Table F below is the number and principal amount of
financed student loans as of the close of business on the last day of
February 1997 that are (i) 30 to 60 days delinquent, (ii) 61 to 90 days
delinquent, (iii) 91 to 120 days delinquent, (iv) more than 120 days
delinquent and (v) for which claims have been filed with the appropriate
Guarantee Agency and which are awaiting payment.
- ------------------------------------------------------------------------------
TABLE F
DELINQUENCY RATES
(February 28, 1997)
Delinquencies
30 - 60 Days $ 19,888,428.63
61 - 90 Days 10,417,966.87
91 - 120 Days 4,295,759.88
Greater than 120 Days 4,495,301.04
Claims outstanding 2,341,611.08
- ------------------------------------------------------------------------------
Set forth in Table G below is the Program Equity in the Trust Estate and
the outstanding principal amount of the Notes as of February 28, 1997.
8
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- ------------------------------------------------------------------------------
TABLE G
PROGRAM EQUITY
(February 28, 1997)
ASSETS
Cash and Cash Equivalents $ 7,196,433.95
Student Loan Receivable 514,832,088.97
Debt Service Reserve 10,048,783.16
Recycling Account 22,257,280.49
---------------
Total $554,334,586.57
---------------
---------------
LIABILITIES
Series 1996 A-1 $ 48,300,000.00
Series 1996 A-2 48,300,000.00
Series 1996 A-3 73,700,000.00
Series 1996 A-4 54,300,000.00
Series 1996 A-5 225,000,000.00
Series 1996 A-6 75,500,000.00
Series 1996 B-1 11,100,000.00
Series 1996 B-2 14,200,000.00
Series 1996 B-3 15,600,000.00
---------------
Total $566,000,000.00
---------------
---------------
Program Equity $(11,665,413.43)
Parity Ratio 97.9390%
Senior Parity Ratio 105.5674%
- ------------------------------------------------------------------------------
CHARACTERISTICS OF ELIGIBLE LOANS.
Set forth in the tables below are the characteristics of Eligible Loans
as of January 16, 1997. Although the unaudited information set forth below has
not been independently verified by third parties, the Company believes it to
be accurate to the best of its knowledge.
9
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CHARACTERISTICS OF THE
ELIGIBLE LOANS
- ------------------------------------------------------------------------------
TABLE H
COMPOSITION OF THE ELIGIBLE LOANS
(January 16, 1997)
Aggregate Outstanding Principal Balance......................... $531,849,975
Number of Borrowers............................................. 72,945
Average Outstanding Principal Balance Per Borrower.............. $7,291
Number of Loans................................................. 151,261
Average Outstanding Principal Balance Per Loan.................. $3,516
Approximate Weighted Average Remaining Term (months)
(does not include school, grace, deferment or forbearance).... 121
Weighted Average Borrower Interest Rate......................... 8.25%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TABLE I
DISTRIBUTION OF THE ELIGIBLE LOANS BY LOAN TYPE
(January 16, 1997)
Outstanding Percent of Loans
Number of Principal by Outstanding
Loan Types Loans Balance Balance
---------- --------- ----------- ----------------
Consolidated 10,974 $144,325,735 27.14%
PLUS 1,543 6,634,398 1.25
SLS 278 831,675 0.16
Stafford-Subsidized 113,935 282,336,646 53.09
Stafford-Unsubsidized 24,531 97,721,521 18.37
------- ------------ -----
Total 151,261 $531,849,975 100.00%
------- ------------ -----
------- ------------ -----
- ------------------------------------------------------------------------------
10
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- ------------------------------------------------------------------------------
TABLE J
DISTRIBUTION OF THE ELIGIBLE LOANS BY INTEREST RATE
(January 16, 1997)
Outstanding Percent of Loans
Number of Principal by Outstanding
Interest Rate Range Loans Balance Balance
- ------------------- --------- ------------ ----------------
Less than 7.50% 3,412 $ 7,511,989 1.41%
7.50% to 8.49% 134,091 401,090,670 75.42
8.50% to 9.49% 13,031 116,642,105 21.93
9.50% or greater 727 6,605,211 1.24
------- ------------ ------
Total 151,261 $531,849,975 100.00%
------- ------------ ------
------- ------------ ------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TABLE K
DISTRIBUTION OF THE ELIGIBLE LOANS BY SCHOOL TYPES
(January 16, 1997)
Outstanding Percent of Loans
Number of Principal by Outstanding
School Type Loans Balance Balance
- ----------- --------- ------------ ----------------
2-Year 10,672 $ 25,668,034 4.83%
4-Year 126,476 446,281,636 83.91
Proprietary 11,512 34,249,575 6.44
Consolidation 2,601 25,650,730 4.82
------- ------------ ------
Total 151,261 $531,849,975 100.00%
------- ------------ ------
------- ------------ ------
- ------------------------------------------------------------------------------
11
<PAGE>
- ------------------------------------------------------------------------------
TABLE L
DISTRIBUTION OF THE ELIGIBLE LOANS BY BORROWER PAYMENT STATUS
(January 16, 1997)
Outstanding Percent of Loans
Number of Principal by Outstanding
Borrower Payment Status Loans Balance Balance
- ----------------------- --------- ------------ ----------------
Claim 611 $ 1,580,962 0.30%
Deferment 10,369 33,727,216 6.34
Grace 7,724 27,112,091 5.10
School 39,440 148,985,717 28.01
Repayment
First Year Repayment 58,088 199,954,857 37.59
Second Year Repayment 7,817 48,287,784 9.08
Third Year Repayment 4,508 22,218,306 4.18
More than 3 Years 22,704 49,983,042 9.40
------- ------------ ------
Total 151,261 $531,849,974 100.00%
------- ------------ ------
------- ------------ ------
- ------------------------------------------------------------------------------
12
<PAGE>
- ------------------------------------------------------------------------------
TABLE M
GEOGRAPHIC DISTRIBUTION OF THE ELIGIBLE LOANS
(January 16, 1997)
Outstanding Percent of Loans
Number of Principal by Outstanding
Location(1) Loans Balance Balance
----------- --------- ------------ ----------------
Alabama 34,489 $ 84,467,172 15.88%
Alaska 249 1,127,066 0.21
American Samoa 2 4,279 0.00
Arizona 7,130 28,585,078 5.37
Arkansas 417 2,060,003 0.39
California 4,660 21,433,806 4.03
Colorado 5,631 31,852,806 5.99
Connecticut 211 964,255 0.18
Delaware 59 339,594 0.06
District of Columbia 211 719,327 0.14
Florida 3,278 11,361,528 2.14
Foreign Country 273 1,235,561 0.23
Georgia 3,403 9,591,709 1.80
Guam 12 40,045 0.01
Hawaii 504 2,055,933 0.39
Idaho 205 989,613 0.19
Illinois 4,525 17,667,250 3.32
Indiana 797 3,585,496 0.67
Iowa 30,676 95,230,789 17.91
Kansas 8,497 43,563,648 8.19
Kentucky 536 2,325,792 0.44
Louisiana 895 3,150,767 0.59
Maine 95 625,492 0.12
Maryland 619 2,705,466 0.51
Massachusetts 520 2,992,249 0.56
Michigan 1,191 5,370,658 1.01
Military (Atlantic) 10 20,469 0.00
Military (Europe) 156 462,656 0.09
Military (Pacific) 54 194,461 0.04
Minnesota 11,933 35,921,578 6.75
Mississippi 725 2,170,311 0.41
Missouri 2,192 10,423,814 1.96
Montana 219 1,132,952 0.21
North Carolina 1,035 4,103,460 0.77
North Dakota 533 1,611,977 0.30
Nebraska 1,317 3,608,139 0.68
Nevada 3,374 11,097,324 2.09
New Hampshire 140 630,457 0.12
New Jersey 529 3,042,955 0.57
New Mexico 729 3,069,235 0.58
New York 1,157 6,162,153 1.16
Ohio 1,098 5,584,017 1.05
Oklahoma 3,535 11,423,169 2.15
Oregon 561 2,431,684 0.46
Pennsylvania 1,056 6,216,034 1.17
Puerto Rico 91 287,384 0.05
Rhode Island 50 295,831 0.06
South Carolina 502 2,165,140 0.41
South Dakota 663 2,299,385 0.43
Tennessee 1,886 6,349,277 1.19
Texas 3,482 14,727,991 2.77
Utah 355 1,835,058 0.35
Virginia 1,114 4,615,683 0.87
Virgin Islands 15 43,697 0.01
Vermont 45 245,632 0.05
Washington 1,177 4,944,220 0.93
West Virginia 213 1,125,816 0.21
Wisconsin 1,934 8,292,029 1.56
Wyoming 296 1,270,604 0.24
------- ------------ ------
Total 151,261 $531,849,975 100.00%
------- ------------ ------
------- ------------ ------
- -------------------
(1) Based on the permanent billing addresses of the borrowers of the Eligible
Loans shown on the Servicer's records.
- ------------------------------------------------------------------------------
13
<PAGE>
- ------------------------------------------------------------------------------
TABLE N
DISTRIBUTION OF THE ELIGIBLE LOANS BY DATE OF DISBURSEMENT
(January 16, 1997)
Outstanding Percent of Loans
Disbursement Number of Principal by Outstanding
Date Loans Balance Balance
- ------------ --------- ------------ ----------------
Pre 10/01/93 75,947 $185,392,633 34.86%
Post 10/01/93 73,314 346,457,342 65.14
------- ------------ ------
Total 151,261 $531,849,975 100.00%
------- ------------ ------
------- ------------ ------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TABLE O
DISTRIBUTION OF THE ELIGIBLE LOANS BY GUARANTEE AGENCY
(January 16, 1997)
Outstanding Percent of Loans
Number of Principal by Outstanding
Guarantee Agencies(1) Loans Balance Balance
- --------------------- --------- ------------ ----------------
COSLP 4,150 $20,986,473 3.95%
ICSAC 46,455 142,579,769 26.81
KHEAA 44,758 112,426,594 21.14
NORTHSTAR 8,342 15,803,934 2.97
NSLP 25,541 163,905,744 30.82
OGSLP 3,089 8,391,069 1.58
USAF 17,674 66,208,301 12.45
U.S. Dept. of Education 1,105 1,110,238 0.21
------- ------------ ------
Total 151,261 $531,849,974 100.00%
------- ------------ ------
------- ------------ ------
- -------------------
(1) As defined herein and in the Company's Prospectus Supplement.
- ------------------------------------------------------------------------------
14
<PAGE>
- ------------------------------------------------------------------------------
TABLE P
DISTRIBUTION OF THE ELIGIBLE LOANS BY RANGE OF PRINCIPAL BALANCE
(January 16, 1997)
Outstanding Percent of Loans
Number of Principal by Outstanding
Principal Balance Range Borrowers Balance Balance
- ----------------------- --------- ------------ ----------------
Less than $1,000 4,788 $ 2,740,833 0.52%
$1,000-$1,999 8,637 12,858,414 2.42
$2,000-$2,999 11,917 30,089,216 5.66
$3,000-$3,999 7,143 24,879,874 4.68
$4,000-$4,999 5,299 23,704,899 4.46
$5,000-$5,999 5,873 32,117,845 6.03
$6,000-$6,999 4,541 29,260,718 5.50
$7,000-$7,999 3,326 24,909,330 4.68
$8,000-$8,999 2,986 25,291,144 4.76
$9,000-$9,999 2,363 22,401,565 4.21
$10,000-$10,999 2,373 24,937,877 4.69
$11,000-$11,999 2,005 22,971,644 4.32
$12,000-$12,999 1,425 17,779,584 3.34
$13,000-$13,999 1,204 16,278,213 3.06
$14,000-$14,999 1,079 15,664,084 2.95
$15,000 or greater 7,986 205,964,735 38.73
------ ------------ ------
Total 72,945 $531,849,975 100.00%
------ ------------ ------
------ ------------ ------
- ------------------------------------------------------------------------------
15
<PAGE>
COMPETITION
The Company may experience substantial competition from other private
companies, trusts and financial firms issuing debt securities which are
primarily secured by pools of student loans. Many of these entities have
greater financial, technical, management and other resources than does the
Company. The Company believes that key factors in its ability to compete
will be its ability to purchase Eligible Loans and its ability to structure
notes or other securities in a manner which will be competitive with
securities offered by competitors.
EMPLOYEES
The Company does not employ any employees. The Company and UFS have
entered into an Administrative Services Agreement which is more fully
described in ITEM 13 hereof. The Company does not plan to hire any employees
in the next fiscal year.
FORWARD LOOKING STATEMENTS
Statements regarding the Company's expectations as to its ability to
purchase Eligible Loans, to structure and issue competitive securities and to
compete generally, and certain of the information presented in this report,
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company believes that
its expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that
actual results will not differ materially from its expectations. In addition
to matters affecting the economy and the asset-backed securities industry
generally, factors which could cause actual results to differ from
expectations include the following:
NATURE OF THE NOTES. The Company is a special purpose corporation and
the Notes represent obligations solely of the Company. The Notes are not
insured or guaranteed by any government agency or instrumentality, by any
affiliate of the Company, by any insurance company or by any other person or
entity. The Company will have no significant assets other than its interest
in the Eligible Loans and the other property granted to the Trustee for the
benefit of the registered owners of the Notes. Payments on the Notes will
depend solely on the amount and timing of payments and collections in
respect of the Eligible Loans, interest paid or earnings on the various
accounts established pursuant to the Indenture, the payment priority of
Notes previously issued and any Additional Notes to be issued in the future,
and amounts on deposit with the Trustee. There will be no additional
recourse to the Company or any other person if such proceeds are
insufficient. As a result, registered owners of Notes must depend on the
cash flow with respect to the Eligible Loans and funds on deposit with the
Trustee for payment of principal of and interest on the Notes.
FAILURE TO COMPLY WITH LOAN ORIGINATION AND SERVICING PROCEDURES FOR
ELIGIBLE LOANS. The Higher Education Act, including the implementing
regulations thereunder, require lenders and their assignees making and
servicing Eligible Loans and guarantors guaranteeing Eligible Loans to
follow specified procedures, including certain due diligence procedures, to
ensure that the Eligible Loans are properly made and disbursed to, and
repaid on a timely basis by or on behalf of, borrowers. The Servicer has
agreed pursuant to the Servicing Agreement to perform (or provide for a
third party servicer to perform) servicing and collection procedures on
behalf of the Company. However, failure to follow these procedures or
failure of any Seller or any other originator of the Eligible Loans to
follow procedures relating to the origination of any Eligible Loans may
result in the Department's refusal to make reinsurance payments to the
Guarantee Agencies or to make special allowance payments to the Trustee
with respect to such Eligible Loans or in the Guarantee Agencies' refusal
to honor their Guarantee Agreements with the Trustee with respect to such
Eligible Loans. Failure of the Guarantee Agencies to receive reinsurance
payments from the Department could
16
<PAGE>
adversely affect the Guarantee Agencies' ability or legal obligation to make
payments under the Guarantee Agreements ("Guarantee Payments") to the
Trustee. Loss of any such Guarantee Payments, Special Allowance Payments
or Federal Interest Subsidy Payments with respect to Eligible Loans, could
adversely affect the amount of revenues and the Company's ability to pay
principal and interest on the Notes.
RELIANCE UPON SELLERS. The Company expects to acquire additional
Eligible Loans from the Sellers from time to time, all pursuant to the
Student Loan Purchase Agreements under which each Seller will sell to the
Company Eligible Loans which comply with certain representations and
warranties with respect to each Eligible Loan and certain overall portfolio
characteristics in connection with such acquisitions. No assurance can be
given that the Company will be able to acquire Eligible Loans from Sellers
on terms or conditions acceptable to the Company.
CHANGES IN LEGISLATION. The Higher Education Act will expire in
September 1997 unless existing laws are reauthorized or Congress employs a
clause in another federal law, the General Education Provision Act, to
extend the Higher Education Act until September 1998. If the Higher
Education Act is not reauthorized by Congress, the Company's operations
would be materially adversely affected. Also, there can be no assurance
that the Higher Education Act or other relevant federal or state laws,
rules and regulations and the programs implemented thereunder will not be
amended or modified in the future in a matter that will adversely impact
the programs described herein and the loans made thereunder, including the
Eligible Loans, or the Guarantee Agencies. In addition, existing
legislation and future measures to reduce the federal budget deficit may
adversely affect the amount and nature of federal financial assistance
available with respect to these programs. In recent years, federal budget
legislation has provided for the recovery of certain funds held by Guarantee
Agencies in order to achieve reductions in federal spending.
For a description of additional risks which may affect the Company's
operations, please see the caption entitled "RISK FACTORS" in the Company's
Base Prospectus. Exhibit 99.4 attached to this Form 10-K contains the "RISK
FACTORS" section of the Company's Base Prospectus.
ITEM 2. PROPERTIES
The Company has no physical properties.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is a wholly owned subsidiary of UFS. UFS is a privately held
corporation and there is no market for its common stock. The minority owners
of UFS include certain employees of Union Bank and certain relatives of such
employees. The minority owners of UFS also indirectly own Union Bank.
17
<PAGE>
As of December 31, 1996, UFS was the only record holder of the Company's
outstanding shares of common stock. The Company has not paid dividends to
date and does not intend to pay dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
Set forth in the table below are all securities issued by the Company
within the past fiscal year without registering the securities under the
Securities Act. The Company believes that the following issuances of
securities were exempt from the registration requirements of the Securities
Act pursuant to the exemption set forth in Section 4(2) thereof and the
certificate for each such security bears a restrictive legend.
Upon formation, the Company issued 1,000 shares of its common stock to
UFS. On March 8, 1996 and June 18, 1996, the Company issued Taxable Student
Loan Asset-Backed Notes in the various series and classes to institutional
accredited investors as set forth more fully in the table below.
- ------------------------------------------------------------------------------
RECENT SALES OF UNREGISTERED SECURITIES
<TABLE>
Outstanding
Principal
Original Amount
Principal (As of Interest Maturity
Series* Class Date Issued Amount December 31, 1996) Rate Date
- ------- ------ ------------- ----------- ------------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
1996A A-1 March 8, 1996 $48,300,000 $48,300,000 Auction July 1, 2014
1996A A-2 March 8, 1996 48,300,000 48,300,000 Auction July 1, 2014
1996A B March 8, 1996 11,100,000 11,100,000 LIBOR July 1, 2014
1996B A-3 June 18, 1996 73,700,000 73,700,000 Auction July 1, 2014
1996B A-4 June 18, 1996 54,300,000 54,300,000 Auction July 1, 2014
1996B B-2 June 18, 1996 14,200,000 14,200,000 LIBOR July 1, 2014
</TABLE>
- -------------------
(*) As of the date hereof, all payments of principal and interest due and
payable on each Series specified above have been paid in full. As of
the date hereof, all fees and expenses due and payable on each Series
specified above have been paid in full.
- ------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the Company's selected financial data as
of and for the period ended December 31, 1996, which was derived from the
financial statements of the Company which have been audited by KPMG Peat
Marwick LLP. The information below should be read in conjunction with the
Financial Statements and notes thereto appearing elsewhere in this document.
18
<PAGE>
UNION FINANCIAL SERVICES-1, INC.
SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------
Period Ended
STATEMENT OF INCOME DATA: December 31, 1996 (1)
- ------------------------- ---------------------
Revenues:
Loan interest..................................... $ 15,636,042
Investment interest............................... 1,373,140
Other............................................. 17,449
------------
Total revenues.................................. 17,026,631
------------
Expenses:
Interest on Notes................................. 11,987,255
Loan Servicing (2)................................ 2,255,564
Financing fees to parent (2)...................... 1,919,207
Trustee and broker fees........................... 550,899
Amortization of debt issuance costs............... 250,992
Amortization of loan premiums..................... 438,584
Other general and administrative (2).............. 437,956
------------
Total expenses.................................. 17,840,457
Loss before income taxes........................ (813,826)
Income tax benefit (2).............................. 274,968
------------
Net Loss........................................ $ (538,858)
------------
------------
Per common share:
Loss from continuing operations................... $ (538.86)
Net loss.......................................... $ (538.86)
Shares used to compute per share amounts............ 1,000
BALANCE SHEET DATA:
Cash and cash equivalents (2)....................... $ 65,402,585
Student loans receivable, including premiums (2).... 491,046,915
Total Assets........................................ 568,171,986
Notes payable (2)................................... 566,000,000
Total liabilities................................... 568,709,844
Shareholders' deficit............................... (537,858)
- -------------------
(1) The Company was incorporated on February 28, 1996. Accordingly, selected
financial data for prior fiscal years is not available.
(2) See ITEM 14 for the Company's audited financial statements and
accompanying notes.
- ------------------------------------------------------------------------------
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the information set forth under the caption entitled "ITEM 6.--SELECTED
FINANCIAL DATA" and the financial statements and notes thereto included
elsewhere herein. Moreover, any forward looking statements should be read in
conjunction with information set forth in "ITEM 1 -- Forward Looking
Statements."
GENERAL
The Company was formed on February 28, 1996 solely for the purpose of
acquiring, from time to time, Eligible Loans and issuing notes, such as the
Notes, secured by such Eligible Loans. Since its inception, the Company has
issued four (4) series of Notes consisting of ten (10) classes. The Notes
shown in the audited financial statements of the Company represent limited
obligations of the Company secured solely by the Eligible Loans and other
assets in the Trust Estate.
PERIOD ENDED DECEMBER 31, 1996
REVENUES. Revenues for the period ended December 31, 1996 consisted
primarily of interest on the Eligible Loans subject to the indebtedness of
the Notes, which totaled $15,636,042. The amount of interest reported for the
period ended December 31, 1996 was derived from Eligible Loans in an
aggregate principal amount of $491,046,915. The Company's average net
investment in Eligible Loans during the period ended December 31, 1996 was
approximately $235,985,000 (excluding funds held by the Trustee) and the
average effective annual interest rate of interest income on Eligible Loans
was approximately 7.95%. The Company also received investment income and
other income for the period ended December 31, 1996 in the amounts of
$1,373,140 and $17,449, respectively.
EXPENSES. Expenses for the period ended December 31, 1996 consisted
primarily of interest on the Company's outstanding Notes which totaled
$11,987,255. The amount of interest expense reported during the period ended
December 31, 1996 depended primarily upon the amount of Notes outstanding
during that period and the interest rates on such Notes. The Company's
average debt outstanding was approximately $213,533,000 and the average
annual cost of borrowings was approximately 5.61%. The Company also made
payments for loan servicing fees to Union Bank and financing fees to UFS in
the amount of $2,255,564 and $1,919,207, respectively. See "ITEM 13--CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" for a description of the Servicing
Agreement and Administrative Services Agreement pursuant to which such fees
are owed. Trustee and broker fees, amortization of debt issuance costs and
amortization of loan premiums for the period ended December 31, 1996 amounted
to $550,899, $250,992, and $438,584, respectively. Other general and
administrative expenses for the period ended December 31, 1996 amounted to
$437,956. Income tax benefit for the period ended December 31, 1996 amounted
to $274,968. The income tax benefit results from a carryforward of the
Company's net operating loss which is discussed below. The Company's net
operating loss resulted from financing fees paid to UFS in 1996. Management
presently anticipates that future earnings will be sufficient to offset the
net operating loss.
NET LOSS. The Company experienced a net loss for the period ended
December 31, 1996 in the amount of $538,858. The net loss is attributable
to costs incurred by the Company for services provided by UFS in connection
with issuance of the Notes, that are recognized as an expense for the period
ended December 31, 1996. The Company will incur similar costs in connection
with future financing transactions which may result in a net loss for the
period in which the transaction is consummated. The Company does not believe
that such losses will adversely affect its ability to pay principal or
interest on the Notes when due.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Eligible Loans held by the Company are pledged as collateral for the
Notes, the terms of which provide for the retirement of all Notes from the
proceeds of the Eligible Loans. Cash flows from payments on the Eligible
Loans, together with proceeds of reinvestment income earned on the Eligible
Loans, are intended to provide cash sufficient to make all required payments
of principal and interest on each outstanding series of Notes. The Company
anticipates that it will require no additional funds to meet the obligation
on its outstanding Notes.
It is anticipated that regular payments under the terms of the Eligible
Loans, as well as early prepayment, will reduce the number of Eligible Loans
held in the Trust Estate. The Company is authorized under the Indenture to
use principal receipts from Eligible Loans to purchase additional Eligible
Loans until April 1, 1999. Thereafter, principal receipts from Eligible
Loans will be used to reduce the amount of Notes outstanding. The Company
also plans to issue additional Notes the proceeds of which will be used to
acquire additional Eligible Loans.
RESULT OF OPERATIONS
For the period ended December 31, 1996, there were no unusual or
infrequent events or transactions or any significant economic dangers that
materially affected the amount of reported income from continuing operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 125, ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. SFAS No.
125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
applied prospectively. This Statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments
of liabilities based on consistent application of a financial-components
approach that focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings. Management
of the Company does not expect that adoption of SFAS No. 125 will have a
material impact on the Company's financial position, results of operations or
liquidity.
IMPACT OF INFLATION
For the period ended December 31, 1996, cost increases to the Company
were not materially impacted by inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial data required by
this ITEM 8 are set forth in ITEM 14 of this Form 10-K. All information
which has been omitted is either inapplicable or not required.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no adverse opinions or disclaimers of opinion, nor were there
any modifications as to uncertainty, audit scope, or accounting principles
rendered by the current accounting firm. There were no disagreements with
the current accounting firm on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
21
<PAGE>
The accounting firm of KPMG Peat Marwick LLP was engaged to perform the
first annual audit of the Company for the period ended December 31, 1996.
There are no other changes in or disagreements on accounting and
financial statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company is governed by a Board of Directors, which is required by the
Company's Articles of Incorporation to include at least three directors.
Directors are required to be elected at each annual meeting of the
shareholders. The present directors and their addresses and principal
occupations or affiliations are as follows:
<TABLE>
Officers and
Principal Directors Term
Occupation ----------------------
Name of Director Offices Held Age Address or Affiliation From To*
- ---------------- ------------------ --- ----------------------- -------------- ------------- -------
<S> <C> <C> <C>
Michael S. Dunlap Chairman 33 4732 Calvert Street Executive Vice February 1996 Present
Lincoln, Nebraska 68506 President of
Union Bank and
Trust Company
Stephen F. Butterfield President 44 6991 East Camelback President of Union
Road, Suite B290 Financial Services, February 1996 Present
Scottsdale, Arizona 85251 Inc.
Ronald W. Page Vice President, 48 3015 S. Parker Road Senior Vice President February 1996 Present
Treasurer and Aurora, CO 80014 of Union Financial
Secretary Services, Inc.
Ross Wilcox -- 54 4732 Calvert Street Chief Executive Officer February 1996 Present
Lincoln, Nebraska 68506 of Union Bank and
Trust Company
Dr. Paul R. Hoff -- 62 Hernia Hill, Rural Route 1
Seward, Nebraska 68434 Retired Physician February 1996 Present
</TABLE>
- -------------------
(*) Each director holds office until the next annual meeting of shareholders
following his or her election until such director's successors shall have
been elected and qualified. The Company held its first annual shareholders
meeting on March 19, 1997.
EXECUTIVE MANAGEMENT
The Board of Directors and executive officers described below are
responsible for overall management of the Company. The Company's officers
and directors are shareholders, officers and directors of business entities
that have engaged in the business of purchasing, holding and selling student
loans.
MICHAEL S. DUNLAP, CHAIRMAN OF THE BOARD. As the Chairman of the Board
of Directors, Mr. Dunlap is responsible for the executive direction of the
Company. Mr. Dunlap is also Executive Vice President of Union Bank and Trust
Company, and President of Farmers & Merchants Investment Inc. He has been an
employee of Union Bank and Trust Company for approximately 14 years. Mr.
Dunlap is also a director of Stratus Fund, Inc., Comprehensive Assistance in
Student Lending Corporation, Union Bank and Trust Company, Union Financial
Services, Inc., UNIPAC and various other organizations. Mr. Dunlap
22
<PAGE>
received a Bachelor of Science degree in finance and accounting and a Juris
Doctor degree from the University of Nebraska.
STEPHEN F. BUTTERFIELD, PRESIDENT AND DIRECTOR. As President, Mr.
Butterfield is responsible for the overall management and direction of the
Company. Included in his responsibilities are loan purchasing, marketing of
corporate services and coordination of the Company's capital market
activities. Mr. Butterfield has been a member of the student loan industry
since January 1989, first as President of a for-profit student loan secondary
marketing facility located in Scottsdale, Arizona and currently as President
of a non-profit student loan secondary marketing facility in Scottsdale,
Arizona. Prior to his work in the student loan industry, Mr. Butterfield
spent 15 years as an investment banker specializing in municipal finance.
Mr. Butterfield is a director of Outdoor Systems, Inc. and Comprehensive
Assistance in Student Lending Corporation. Mr. Butterfield received a
Bachelor of Science degree in Business from Arizona State University.
RONALD W. PAGE, VICE PRESIDENT, TREASURER, SECRETARY AND DIRECTOR. As
Vice President, Treasurer and Secretary, Mr. Page is responsible for the
financial operations and record keeping of the Company. Included in his
responsibilities are financial planning and capital market operations. Mr.
Page spent 20 years as an investment banker specializing in tax-exempt and
taxable asset-backed finance, with a specialty in the securitization of
student loans. Mr. Page received a Bachelor of Science degree in Business
Administration from the University of Colorado, Boulder, Colorado, and a
Masters of Public Administration in Public Policy Analysis from the American
University, Washington, DC.
ROSS WILCOX, DIRECTOR. Mr. Wilcox is the Chief Executive Officer of
Union Bank and Trust Company and has been employed or affiliated with Union
Bank and Trust Company for 30 years. Mr. Wilcox is the Chairman of the Board
for Mills County State Bank and is on the Board of Directors for UNIPAC,
Southeast Lincoln Insurance Agency and the Lincoln Chamber of Commerce.
DR. R. PAUL HOFF, DIRECTOR. Dr. Hoff is a medical doctor who practiced
as a family physician in Seward, Nebraska for approximately 30 years, until
his retirement two years ago. Dr. Hoff also serves as member of the Board
of Directors of Packers Service Group, Inc. Dr. Hoff has been involved in a
number of business enterprises over the years and currently owns and operates
a retail antique store in Ennis, Montana.
The Company's executive officers are elected annually by the Board of
Directors and serve at the discretion of the Board. The Company's directors
hold office until the next annual meeting of stockholders and until their
successors have been duly elected and qualified.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 is not applicable
to the Company, because the Company has no class of equity securities
registered pursuant to Section 12 thereof.
ITEM 11. EXECUTIVE COMPENSATION
The Company's executive officers are not compensated by the Company for
services rendered by them, although some of the Company's officers are
compensated by UFS, which receives remuneration from the Company pursuant to
an Administrative Services Agreement by and between UFS and the Company. A
detailed description of the Administrative Services Agreement is set forth in
ITEM 13 of this Form 10-K.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES IN 1996
The Company has not issued any options.
23
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS IN 1996
The Company has no long-term incentive plan.
FUTURE BENEFITS OF PENSION PLAN DISCLOSURE IN 1996
The Company has no such benefit plans.
EMPLOYMENT AGREEMENTS
The Company has not entered into any employment agreements.
DIRECTOR COMPENSATION
Directors of the Company are not compensated as directors, but may
receive reimbursement of out-of-pocket expenses in connection with attendance
at Board meetings.
OFFICER COMPENSATION
The Company has not adopted a compensation plan for officers.
BOARD MEETINGS
The Board held a total of three (3) regular meetings during fiscal year
1996. All directors attended over 75% of the aggregate number of the
meetings of the Board.
COMMITTEES OF THE BOARD
The Board of Directors has not established an Audit Committee or a
Compensation Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 2, 1997, there were 1,000 shares of the Company's common
stock, no par value, outstanding, all of which were held by UFS. No director
or executive officer owns any shares of the Company and there are no other
beneficial owners. The following table reflects shares of UFS beneficially
owned by the directors and executive officers of the Company as of February
19, 1997.
Name and Address of Amount and Nature of
Beneficial Owner (1) Beneficial Ownership (2) Percent of Class
- -------------------- ------------------------ ----------------
Stephen F. Butterfield 500 shares(3) 50.0%
Michael S. Dunlap 290 shares(4) 29.0%
Ronald W. Page 120 shares(5) 12.0%
Ross Wilcox 50 shares(5) 5.0%
All directors and
executive officers as
a group (four persons) 790 shares(6) 79.0%
- -------------------
(1) The address of each person named in the table is c/o the Company, 6991
East Camelback Road, Suite B290, Scottsdale, Arizona 85251.
24
<PAGE>
(2) Unless otherwise indicated, the persons named in this table have sole
voting and investment power with respect to all shares of common stock
reflected as beneficially owned by them.
(3) Includes 120 shares held in trust for Ronald W. Page, 50 shares held in
trust for Ross Wilcox and 50 shares held in trust for Jeffrey R.
Noordhoek.
(4) Includes 10 shares held by Jay and Shirley Dunlap and 10 shares held in
trust for Neal E. Tyner.
(5) Shares held in trust by Stephen F. Butterfield for the benefit of the
named beneficial owner.
(6) To avoid double counting, the amount does not include beneficial
ownership through trust arrangements.
CHANGES IN CONTROL.
The Company knows of no arrangement, including the pledge by any person
of securities of the Company, which may at a subsequent date result in change
of control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ADMINISTRATIVE SERVICES AGREEMENT. The Company and UFS, the Company's
parent corporation, entered into an Administrative Services Agreement (the
"Agreement") dated as of August 1, 1996. Under the Agreement, UFS has agreed
to provide, through its officers and employees, the following services to the
Company: (i) to assist the Company in developing and implementing financing
transactions to enable the Company to purchase loans made to borrowers under
the Federal Family Education Loan Program (the "Loans"); (ii) to monitor, and
to the extent required, direct the Servicer in connection with its servicing
of the Loans; (iii) to respond to inquiries and requests made by borrowers,
educational institutions, Guarantee Agencies, the Trustee, and other parties
with respect to the Loans and respond to requests by the Company's
independent auditors for information concerning the Company's financial
affairs; (iv) to maintain financial records concerning the Loans and, if
furnished adequate information with respect to financial affairs not related
to the Loans, prepare and maintain a general ledger and financial statements
for the Company; (v) to furnish or cause to be furnished to the Company or
the Trustee copies of reports received with respect to the Loans, and prepare
such additional reports with respect to the Loans as the Company or the
Trustee may reasonably request from time to time; (vi) to prepare for and
furnish to the Company estimates of Maintenance and Operating Expenses (as
defined in the Indenture) and such statistical reports and cash flow
projections as may be required under the Indenture or requested by the
Company; and (vii) to provide such other services with respect to
administration of its program as the Company may reasonably request. The
Agreement expires upon the stated maturity of the Notes. Pursuant to the
Agreement, the Company has paid UFS the sum of $1,919,207 as compensation for
services provided by UFS in connection with issuance of Notes, to reimburse
UFS for certain costs incurred in anticipation of UFS's performance of its
duties under the Agreement, and for services previously rendered in
connection with administration of the Company's portfolio of Loans. The
Company shall also pay to UFS on the first day of each calendar month
following the execution of the Agreement an amount equal to 0.015% of the
average outstanding balance of the Loans during the preceding month. The
obligation of the Company to pay fees under the Agreement is a limited
obligation to be satisfied solely from distributions made by the Trustee to
the Company under the terms of the Indenture. Although the Company shall be
obligated to pay to UFS the full amount of all accrued fees, such payments
shall be made exclusively from amounts deposited in the Operating Fund for
payment of the Company's Maintenance and Operating Expenses (as defined in
the Indenture). If the Company does not have funds on hand to cover the full
amount of the fees due under the Agreement, then payment of the unpaid
balance shall be deferred until there are sufficient funds available from
such sources to satisfy part, or all, of the outstanding debt. The fee
payable to UFS under the Agreement may be revised on January 1, 1999, and on
each January 1 during its term thereafter. To alter the fee, UFS must
provide written notice of the proposed new fee to the Company ninety (90)
days prior to the next January 1. If UFS and the Company cannot reach an
agreement
25
<PAGE>
within sixty (60) days of the receipt of the notice, either party may
terminate the Agreement upon thirty (30) day's written notice to the other
party. The Administrative Services Agreement has been filed as an Exhibit to
this Form 10-K.
SERVICING AGREEMENT. The Company and Union Bank have entered into an
Amended and Restated Servicing Agreement (the "Servicing Agreement") dated as
of June 15, 1996. Under the Servicing Agreement, Union Bank services the
Eligible Loans. Although certain officers and directors of the Company are
also officers and directors of Union Bank, which owns 80.5% of UNIPAC, the
Company believes that the terms and conditions of the Servicing Agreement
(and the subservicing arrangement) are comparable to those offered by or
available to unrelated parties. The servicing fee to Union Bank is
calculated using an annual asset-based charge of 1.25 percent of the student
loan principal balance, calculated monthly. The Servicing Agreement has been
filed as an Exhibit to this Form 10-K.
STUDENT LOAN PURCHASE AGREEMENTS. The Company and Union Bank have
entered into, and plan to enter into, Student Loan Purchase Agreements
whereby the Company will purchase Eligible Loans from Union Bank. Although
certain owners and directors of the Company are also officers and directors
of Union Bank, the Company believes that the terms and conditions of the
Student Loan Purchase Agreements are comparable to those offered by or
available to unrelated parties. The Student Loan Purchase Agreements with
Union Bank have been filed as Exhibits to this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The financial statements and financial statement information required by
this Item are included on pages F-1 through F-11 of this report. The Report
of Independent Public Accountants appears on page F-1 of this report. All
other schedules have been omitted because they are inapplicable, not
required, or the information is included elsewhere in the financial
statements or notes thereto.
EXHIBITS
All exhibits listed hereunder, unless otherwise indicated, have
previously been filed as exhibits to the Company's Registration Statement
declared effective in October 1996. Such exhibits have been filed with the
Commission pursuant to the requirements of the Acts administered by the
Commission. Such exhibits are incorporated herein by reference under Rule
12b-23 of the Securities Exchange Act of 1934.
26
<PAGE>
The following is a complete list of exhibits filed as part of the Company's
Form S-3 Registration Statement and this Form 10-K. Exhibit numbers
correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.
Exhibit
No. Description Location
- ------- ----------- --------
3.1 Articles of Incorporation of the Company filed February 28,
1996 **
3.2 Bylaws of the Company **
4.1 Form of Second Amended and Restated Indenture *
4.2 Form of Supplemental Indenture *
10.1 Administrative Services Agreement, dated as of August 1, 1996,
by and between Union Financial Services, Inc. and the Company **
10.1.1 Amendment to Administrative Services Agreement, dated as of
November 1, 1996, by and between Union Financial Services, Inc.
and the Company **
10.2 Amended and Restated Servicing Agreement, dated as of June 19,
1996, by and between Union Bank and Trust Company and the Company **
24.1 Consent of KPMG Peat Marwick LLP, Independent Auditors **
27.1 Financial Data Schedule **
99.1 Loan Sale and Commitment Agreement, dated as of March 1, 1996,
by and between Union Bank and Trust Company and the Company *
99.2 Loan Sale and Commitment Agreement, dated as of June 19, 1996,
by and between Union Bank and Trust Company and the Company *
99.3 Loan Sale and Commitment Agreement, dated as of November 1,
1996, by and between Union Bank and Trust Company and the Company **
99.4 Risk Factors (Pages 1-13) and Glossary Terms (Pages 146-161)
sections of the Company's Form S-3 Registration Statement filed
in October 1996 **
____________________
* Incorporated by reference herein to the Company's Registration
Statement on Form S-3 (File No. 333-8929).
** Filed herewith.
REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on January 7, 1997. The
information provided therein was as follows:
The registrant filed a Current Report on Form 8-K in order to
file with the Commission its Second Amended and Restated Indenture,
excluding Exhibits E-1, E-2, F-1 and F-2 thereto, and the Series
1996-C Supplemental Indenture, excluding Exhibits D and E thereto.
The Exhibits were as follows:
27
<PAGE>
99.1 Second Amended and Restated Indenture by and between Union
Financial Services-1, Inc., as Issuer, and Norwest Bank Minnesota,
National Association, as Trustee, dated as of November 1, 1996,
excluding Exhibits E-1, E-2, F-1 and F-2 thereto.
99.2 Series 1996C Supplemental Indenture by and between Union
Financial Services-1, Inc. and Norwest Bank Minnesota, National
Association dated as of November 1, 1996, excluding Exhibits D and E
thereto.
28
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF UNION FINANCIAL SERVICES-1, INC.
- --------------------------------------------------------
Report of Independent Auditors....................................... F-1
Balance Sheet as of December 31, 1996................................ F-2
Statement of Operations for the period from inception
(February 28, 1996) to December 31, 1996............................. F-3
Statement of Stockholders' Deficit for the period from inception
(February 28, 1996) to December 31, 1996............................. F-4
Statement of Cash Flows for the period from inception
(February 28, 1996) to December 31, 1996............................. F-5
Notes to Financial Statements ....................................... F-6-11
29
<PAGE>
UNION FINANCIAL SERVICES - 1, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996
(WITH INDEPENDENT AUDITORS REPORT THEREON)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Union Financial Services - 1, Inc.:
We have audited the accompanying balance sheet of Union Financial Services - 1,
Inc. as of December 31, 1996, and the related statements of operations,
stockholders deficit and cash flows for the period from inception (February
28, 1996) to December 31, 1996. These financial statements are the
responsibility of the Company s management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Union Financial Services - 1,
Inc. as of December 31, 1996, and the results of its operations and its
cash flows for the period from inception to December 31, 1996 in conformity
with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
February 7, 1997, except Note 12
which is as of March 20, 1997
Lincoln, Nebraska
<PAGE>
UNION FINANCIAL SERVICES - 1, INC.
BALANCE SHEET
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents (note 2) $ 65,402,585
Student loans receivable, including premiums
(notes 3, 7 and 8) 491,046,915
Accrued interest receivable (note 3) 8,250,825
Debt issuance cost, net of accumulated amortization of
$250,992 (note 4) 3,182,805
Deferred tax asset (note 5) 274,968
Other assets 13,888
------------
Total assets $568,171,986
------------
------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Notes payable (notes 4 and 12) $566,000,000
Accrued interest payable 1,493,141
Other liabilities (note 10) 1,216,703
------------
Total liabilities 568,709,844
Stockholders' deficit:
Common stock, no par value. Authorized 1,000 shares;
issued 1,000 shares 1,000
Accumulated deficit (538,858)
------------
Total stockholders' deficit (537,858)
Commitments and contingencies (notes 7, 8 and 9)
------------
Total liabilities and stockholders' deficit $568,171,986
------------
------------
See accompanying notes to financial statements.
F-2
<PAGE>
UNION FINANCIAL SERVICES - 1, INC.
STATEMENT OF OPERATIONS
PERIOD FROM INCEPTION (FEBRUARY 28, 1996) TO DECEMBER 31, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Revenues:
Loan interest $ 15,636,042
Investment interest 1,373,140
Other 17,449
------------
Total revenues 17,026,631
------------
Expenses:
Interest on notes 11,987,255
Loan servicing (note 10) 2,255,564
Financing fees to parent (note 10) 1,919,207
Trustee and broker fees 550,899
Amortization of debt issuance costs 250,992
Amortization of loan premiums 438,584
Other general and administrative (note 10) 437,956
------------
Total expenses 17,840,457
------------
Loss before income taxes (813,826)
Income tax benefit (note 5) 274,968
------------
Net loss $ (538,858)
------------
------------
Net loss per common share $ (538.86)
------------
------------
See accompanying notes to financial statements.
F-3
<PAGE>
UNION FINANCIAL SERVICES - 1, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
PERIOD FROM INCEPTION (FEBRUARY 28, 1996) TO DECEMBER 31, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTAL
STOCK-
COMMON ACCUMULATED HOLDERS
STOCK DEFICIT DEFICIT
Balances at inception (February 28, 1996) $ - - -
Issuance of common stock 1,000 - 1,000
Net loss - (538,858) (538,858)
------- --------- ---------
Balances at December 31, 1996 $1,000 (538,858) (537,858)
------- --------- ---------
------- --------- ---------
See accompanying notes to financial statements.
F-4
<PAGE>
UNION FINANCIAL SERVICES - 1, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM INCEPTION (FEBRUARY 28, 1996) TO DECEMBER 31, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net loss $ (538,858)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization 689,576
Deferred tax benefit (274,968)
Increase in accrued interest receivable (8,250,825)
Increase in other assets (13,888)
Increase in accrued interest payable 1,493,141
Increase in other liabilities 1,216,703
--------------
Net cash used in operating activities (5,679,119)
--------------
Cash flows used in investing activities:
Purchase of student loans, including premiums (515,058,073)
Proceeds from student loan principal payments and loan
consolidations 23,572,574
--------------
Net cash used in investing activities (491,485,499)
--------------
Cash flows provided by financing activities:
Proceeds from issuance of common stock 1,000
Proceeds from issuance of notes payable 566,000,000
Cash paid for debt issuance costs (3,433,797)
--------------
Net cash provided by financing activities 562,567,203
--------------
Net increase in cash and cash equivalents 65,402,585
Cash and cash equivalents, beginning of year -
--------------
Cash and cash equivalents, end of year $ 65,402,585
--------------
--------------
Supplemental disclosures
Interest paid $ 10,494,114
--------------
--------------
Income taxes paid $ -
--------------
--------------
See accompanying notes to financial statements.
F-5
<PAGE>
UNION FINANCIAL SERVICES - 1, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
DESCRIPTION OF BUSINESS
Union Financial Services - 1, Inc. (the Company), a wholly-owned
subsidiary of Union Financial Services, Inc., was organized as a C
Corporation on February 28, 1996 (inception date) to invest in eligible
student loans issued under Title IV of the Higher Education Act of 1965
as amended (the Act). Student loans beneficially owned by the Company
include those originated under the Stafford Loan Program (SLP), the
Parent Loan Program for Undergraduate Students (PLUS) program, the
Supplemental Loans for Students (SLS) program and loans which
consolidate certain borrower obligations (Consolidation). Title to the
loans is held by an eligible lender trustee under the Act for the
benefit of the Company. The majority of the financed eligible loan
borrowers are geographically concentrated in the midwest area and are in
school or their first year of repayment.
The notes outstanding are payable primarily from interest and
principal payments on the student loans receivable as specified in the
bond offering statements.
Union Financial Services, Inc., the parent, is a holding company
organized for the purpose of establishing and owning the stock of
corporations like the Company engaged in the securitization of financial
assets. The parent also provides managerial and administrative support
to the Company.
STUDENT LOANS RECEIVABLE
Investments in student loans, including premiums, are recorded at
cost, net of premium amortization. Premiums are amortized over the
estimated principal life of the related loans.
INTEREST ON STUDENT LOANS
Interest on student loans is accrued when earned and is either paid by
the Department of Education or the borrower depending on the status of
the loan at the time of accrual. In addition, the Department of
Education makes quarterly interest subsidy payments on certain qualified
Title IV loans until the student is required under the provisions of the
Act to begin repayment. Repayment on guaranteed student loans normally
begins within six months after completion of their course of study,
leaving school or ceasing to carry at least one-half the normal
full-time academic load as determined by the educational institution.
Repayment of PLUS loans normally begins within 60 days from the date of
loan disbursement and repayment of SLS loans begins within one month
after completion of course study, leaving school or ceasing to carry at
least the normal full-time academic load as determined by the
educational institution.
CASH EQUIVALENTS
Cash equivalents consist of marketable short-term investment trust and
lockbox receivables in transit. For purposes of the statement of cash
flows, the Company considers all investments with original maturities of
three months or less to be cash equivalents.
LOSS PER SHARE
Net loss per share was calculated by dividing the net loss by the
weighted-average number of shares outstanding, which was 1,000 shares in
1996.
(Continued)
F-6
<PAGE>
UNION FINANCIAL SERVICES - 1, INC.
NOTES TO FINANCIAL STATEMENTS
PAGE 2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES, CONTINUED
INCOME TAXES
The Company and its parent will file a consolidated Federal tax
return. The financial statements reflect income taxes computed as if
the Company filed a separate tax return. Income tax payments are made
by the Company to its parent as if the Company were a separate tax
paying entity.
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(2) CASH AND CASH EQUIVALENTS
The Company's cash and cash equivalents are held by the
trustee in various accounts subject to use restrictions
as follows:
LOAN ACCOUNT FUND - Established for the purpose of
purchasing eligible student loans with proceeds of
the borrowing $ 38,459,716
RECYCLING ACCOUNT FUND - Established to maintain excess
funds for future operating needs, if necessary and
purchases of eligible student loans 14,843,885
RESERVE FUND - Established to cure any deficiencies in
the debt service requirements 11,373,233
COST OF ISSUANCE FUND - Established to pay administrative
and issuance costs incurred with the issuance of
Company debt 253,880
REVENUE FUND - Established for the receipt of interest
payments on eligible student loans and investment
securities and to pay fees and expenses incurred
under the indenture (13,249)
INTEREST FUND - Established for the payment of debt
service interest requirements.
Operating Cash and Cash Equivalents 485,120
-----------
Total Cash and Cash Equivalents $65,402,585
-----------
-----------
(Continued)
F-7
<PAGE>
UNION FINANCIAL SERVICES - 1, INC.
NOTES TO FINANCIAL STATEMENTS
PAGE 3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(3) STUDENT LOANS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
Student loans are recorded at cost, which includes premiums, and
approximates market value. Guaranteed loans may be made under this
program by certain lenders as defined by the Act. These loans,
including related accrued interest, are guaranteed at their maximum
level permitted under the Act by an authorized guarantee agency
which has a contract of reinsurance with the Department of
Education. The terms of the loans, which vary on an individual
basis, generally provide for repayment in monthly installments of
principal and interest over a period of up to twenty years.
Interest rates on loans may be fixed or variable, and will vary
based on the average of the 91-day U.S. Treasury bill rate, and
currently range from 7 percent to 10 percent dependent upon type,
terms of loan agreements and date of origination. For Title IV
loans, the Company has entered into a trust agreement in which an
unrelated financial institution will serve as the eligible lender
trustee. As an eligible lender trustee, the financial institution
acts as the eligible lender in acquiring certain eligible student
loans as an accommodation to the Company who holds a beneficial
interest in the student loan assets as the beneficiary of such
trust.
Substantially all student loan principal and related accrued
interest are guaranteed as defined by the Act. These guarantees
are made subject to the performance of certain loan servicing
procedures stipulated by applicable regulations. If these
procedures are not met, affected loans may not be covered by the
guarantees should the borrower default. The Company retains and
enforces recourse provisions against servicers and lenders under
certain circumstances. Should loans lose their guaranteed status
and recourse provisions prove unenforceable, the unguaranteed
portion has been reserved in a trustee account (Reserve Fund).
Such loans are subject to cure procedures and reinstatement of
the guarantee under certain circumstances. Also, in accordance
with Student Loan Reform Act of 1993, loans disbursed prior to
October 1, 1993 are fully insured and loans disbursed subsequent
to October 1, 1993 (approximately 60 percent of the student loans)
are insured up to 98 percent.
(4) NOTES PAYABLE
The Company periodically issues taxable student loan asset-backed
notes to finance the acquisition of student loans. All notes are
primarily secured by the student loans receivable, related accrued
interest, and other property and funds held in trust. All notes are
variable rate notes with interest rates reset from time to time based
upon auction rates and national indices.
The following table summarizes outstanding notes payable at December
31, 1996 by issue:
<TABLE>
FINAL CARRYING INTEREST
MATURITY AMOUNT RANGE
-------- ------ -------
<S> <C> <C> <C>
1996A Senior Auction Rate Notes, Class A-1 and A-2 7/01/14 $ 96,600,000 5.19% - 6.20%
1996A Subordinate LIBOR Rate Notes, Class B 7/01/14 11,100,000 6.13% - 6.25%
1996B Senior Auction Rate Notes, Class A-3 and A-4 7/01/14 128,000,000 5.34% - 5.91%
1996B Subordinate LIBOR Rate Notes, Class B-2 7/01/14 14,200,000 6.12% - 6.24%
1996C Senior Treasury Rate Notes, Class A-5 7/01/05 225,000,000 5.45% - 5.73%
1996C Senior Auction Rate Notes, Class A-6 7/01/14 75,500,000 5.32% - 6.05%
1996C Subordinate LIBOR Rate Notes, Class B-3 7/01/25 15,600,000 5.86% - 5.92%
------------
$566,000,000
------------
------------
</TABLE>
(Continued)
F-8
<PAGE>
UNION FINANCIAL SERVICES - 1, INC.
Notes to Financial Statements
Page 4
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(4) NOTES PAYABLE, CONTINUED
Generally, the notes can be redeemed on any interest payment date at
par plus accrued interest. Subject to note provisions, all notes are
subject to redemption prior to maturity at the option of the Company,
without a prepayment penalty.
The note resolutions contain, among other requirements, covenants
related to the restriction of funds to be maintained in a reserve fund.
Management believes the Company is in compliance with all covenants of
the note agreements at December 31, 1996.
The Company has an existing shelf registration allowing it to issue up
to $700 million in debt securities. The Company has no immediate plans
to utilize the remaining amount available under the shelf registration.
(5) INCOME TAXES
The income tax benefit consists of Federal income taxes of $274,968.
The deferred tax asset results from the future tax benefit of the net
operating loss. No valuation allowance is considered necessary as
management anticipates future earnings will be sufficient to offset the
net operating loss.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions are set forth below.
ACCRUED INTEREST RECEIVABLE/PAYABLE, OTHER ASSETS AND ACCOUNTS PAYABLE
The carrying value of certain asset and liability accounts including
accrued interest receivable, other assets, accrued interest payable and
other liabilities approximate fair value due to their short maturities.
STUDENT LOANS
The fair value of net student loans approximates carrying value.
Premiums paid for student loans purchased which have a higher than
market rate of interest would typically range from 1 percent to 3
percent, depending on the type of loan, balance, payment status, stated
interest rate, and other various factors.
NOTES PAYABLE
The fair value of the notes payable approximates carrying value due to
the nature of the financing arrangement. The terms of the arrangement
specify that the outstanding debt is callable at par at specified
interest payment dates.
(Continued)
F-9
<PAGE>
UNION FINANCIAL SERVICES - 1, INC.
NOTES TO FINANCIAL STATEMENTS
PAGE 5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(7) GUARANTEE AGENCIES
As of December 31, 1996, Iowa College Student Aid Commission, Nebraska
Student Loan Program, Inc. and Kentucky Higher Education Assistance
Authority were the primary guarantors, guaranteeing approximately 81
percent of the total student loans beneficially owned by the Company.
Management periodically reviews the financial condition of its
guarantors and does not believe the level of concentration creates an
unusual or unanticipated credit risk. In addition, management believes
that based on the Higher Education Amendments of 1992, the security for
and payment of any of the Company s obligations would not be materially
adversely affected as a result of legislative action or other failure to
perform on its obligations on the part of any guarantee agency. The
Company, however, offers no assurances to that effect.
(8) RECENT STUDENT LOAN LEGISLATION
Legislative changes to the Act affecting competition, loan asset
characteristics, debt structure provisions and regulatory compliance may
from time to time affect the operations of the Company. The Act will
expire in September 1997 unless the existing laws are reauthorized or
Congress employs a clause in another federal law, the General Education
Provision Act, to extend the Act until September 1998. In the months
before such laws are reauthorized, Congress will conduct detailed
studies of their programs to determine if the program should continue
and whether adjustments to the program are needed.
Pending legislation will likely also include provisions for additional
changes in the existing Federal Family Education Loan Program (FFELP),
including changes to interest rates, special allowance payments,
guarantee fees and the Federal Direct Student Loan Program (FDSLP).
Various factors in the legislation, if enacted, could have a material
adverse effect on the Company and its operations. These factors
include, but are not limited to, the reduction of the interest rates
payable by student loan borrowers, the increase of loan origination fees
and other provisions included in the pending legislation.
(9) PURCHASE COMMITMENTS
As of December 31, 1996, the Company was committed to purchase
approximately $40 million of additional eligible student loans from
Union Bank & Trust Co. (UB&T). The purchase was consummated on February
3, 1997 with funds from the loan account fund.
The Company has entered into a put option agreement with UB&T to
purchase up to $3 million of eligible student loans at 101 percent of
the principal amount. These eligible loans may consist of loans owned
by UB&T in its individual capacity or in its capacity as trustee of
certain grantor trusts in its trust department. No amounts were
purchased under this agreement in 1996.
(Continued)
F-10
<PAGE>
UNION FINANCIAL SERVICES - 1, INC.
NOTES TO FINANCIAL STATEMENTS
PAGE 6
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(10) RELATED PARTIES
Certain owners and directors of the Company are also officers and
directors of UB&T which owns 80.5 percent of UNIPAC Service Corporation
(UNIPAC). All loans currently held were purchased from UB&T.
Under the terms of an agreement, the Company contracts all loan
servicing through UB&T. UNIPAC has been contracted as the sub-servicer
by UB&T. Fees paid to UB&T are calculated using an annual asset-based
charge of 1.25 percent of the student loan principal balance, calculated
monthly. At December 31, 1996, $1,011,488 is payable to UB&T for loan
servicing and is included in other liabilities.
The Company incurred fees to its parent for managerial and
administrative support for the operations of the Company based on a
service agreement that requires .015 percent of the average outstanding
loan balance to be paid monthly. These fees amounted to approximately
$216,000 in 1996. In 1996, the Company also paid approximately
$1,919,000 to its parent for services provided in connection with the
Company s debt financing.
(11) ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
December 31, 1996 and is to be applied prospectively. This Statement
provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. Management of the
Company does not expect that adoption of SFAS No. 125 will have a
material impact on the Company s financial position, results of
operations or liquidity.
(12) SUBSEQUENT EVENT
On March 20, 1997, the Company issued approximately $30.6 million of
Taxable Student Loan Asset-Backed Notes, Series 1997A, due July 1, 2030.
The proceeds were deposited in an escrow fund to provide for the
defeasance of the $11.1 million and $14.2 million of Series 1996A and
Series 1996B Subordinate notes, respectively, in May 1999 (see note 4).
As a result of the transaction, the Company will recognize an accounting
loss of approximately $145,000 on the defeasance. The transaction
allows the Company flexibility in its program of purchasing student
loans.
F-11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
UNION FINANCIAL SERVICES-1, INC.
By: /s/ MICHAEL S. DUNLAP
----------------------------------------
Michael S. Dunlap, Chairman of the Board
(Principal Executive Officer)
By: /s/ RONALD W. PAGE
----------------------------------------
Ronald W. Page, Vice President (Principal
Financial and Accounting Officer)
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
By: /s/ MICHAEL S. DUNLAP Chairman of the Board
------------------------------- Principal Executive Officer) March 28, 1997
Michael S. Dunlap
By: /s/ STEPHEN F. BUTTERFIELD President and Director March 28, 1997
-------------------------------
Stephen F. Butterfield
By: /s/ RONALD W. PAGE Vice-President, Secretary, March 28, 1997
------------------------------- Treasurer and Director
Ronald W. Page (Principal Financial and
Accounting Officer)
By: /s/ ROSS WILCOX Director March 28, 1997
-------------------------------
Ross Wilcox
By: /s/ DR. PAUL HOFF Director March 28, 1997
-------------------------------
Dr. Paul Hoff
</TABLE>
30
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
3.1 Articles of Incorporation of the Company filed **
February 28, 1996
3.2 Bylaws of the Company **
4.1 Form of Second Amended and Restated Indenture *
4.2 Form of Supplemental Indenture *
10.1 Administrative Services Agreement, dated as of **
August 1, 1996, by and between Union Financial
Services, Inc. and the Company
10.1.1 Amendment to Administrative Services Agreement, dated **
as of November 1, 1996, by and between Union Financial
Services, Inc. and the Company
10.2 Amended and Restated Servicing Agreement, dated as of **
June 19, 1996, by and between Union Bank and Trust
Company and the Company
24.1 Consent of KPMG Peat Marwick LLP, Independent Auditors **
27.1 Financial Data Schedule **
99.1 Loan Sale and Commitment Agreement, dated as of March *
1, 1996, by and between Union Bank and Trust Company
and the Company
99.2 Loan Sale and Commitment Agreement, dated as of June *
19, 1996, by and between Union Bank and Trust Company
and the Company
99.3 Loan Sale and Commitment Agreement, dated as of **
November 1, 1996, by and between Union Bank and Trust
Company and the Company
99.4 Risk Factors (Pages 1-13) and Glossary of Terms (Page **
146-161) sections of the Company's Form S-3 Registration
Statement filed in October 1996
- -------------------
* Incorporated by reference herein to the Company's Registration Statement
on Form S-3 (File No. 333-8929).
** Filed herewith.
1
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
UNION FINANCIAL SERVICES-1, INC.
The undersigned, acting as incorporator of Union Financial Services-1,
Inc., under Title 7, Chapter 78 of the Nevada Revised Statutes, adopts the
following Articles of Incorporation.
ARTICLE I
NAME
The name of the corporation is:
Union Financial Services-1, Inc.
ARTICLE II
ADDRESS
The mailing address of the corporation is:
6991 East Camelback Road, Suite B-290
Scottsdale, Arizona 85251
ARTICLE III
COMMENCEMENT OF EXISTENCE
The existence of the corporation will commence on the date of filing
of these Articles of Incorporation, and the corporation shall have perpetual
existence.
ARTICLE IV
PURPOSE
The nature of the business or purposes to be conducted or promoted
are:
1. To execute and deliver one or more student loan purchase
agreements (each, a Purchase Agreement") by and between the corporation, as
purchaser, and Union Bank and Trust Company ("Union Bank") as seller, and
other sellers selected by the corporation (each, a "Seller" and,
collectively, the "Sellers"); the Servicing Agreement, dated on or about
the date of the Indenture referred to below, by and among the corporation
and Union Bank and/or an affiliate thereof; and the Indenture of Trust,
dated on or about the date of the Servicing Agreement (the "Indenture"),
between the corporation and a trustee, and to undertake all rights, duties
and obligations contained in said Agreements, including, but not limited
to, the purchase of the Student Loans (as defined in the
2
<PAGE>
Purchase Agreement) from the Seller and the pledge and assignment of said
Student Loans, rights, duties and obligations to the trustee pursuant to
the Indenture.
2. To enter into documents on substantially similar terms as the
Agreements referred to above as may be contemplated by the Indenture.
3. To enter into and to perform obligations pursuant to agreements
necessary or desirable to effectuate the foregoing, including the Notes (as
defined in the Indenture) (such agreement and the agreements referred to in
paragraphs 2 and 3 shall be collectively referred to herein as the
"Agreements").
4. To engage in any other lawful act or activity for which private
corporations may be organized under the Nevada Revised Statutes which are
incidental to the foregoing or necessary and appropriate to the foregoing.
ARTICLE V
AUTHORIZED SHARES
The maximum number of shares that the corporation is authorized to
have outstanding at any time is 1,000 shares of common stock, each share having
no par value.
ARTICLE VI
INITIAL REGISTERED OFFICE AND AGENT
The street address of the initial registered office of the corporation
is The Corporation Trust Company of Nevada, 1 East First Street, Reno, Nevada
89501, and the name of the corporation's initial registered agent at that
address is The Corporation Trust Company of Nevada.
ARTICLE VII
INITIAL BOARD OF DIRECTORS
The corporation shall have five directors initially. The number of
directors may be either increased or diminished from time to time, as provided
in the bylaws, but shall never be less than one. The names and street addresses
of the initial directors are:
NAME ADDRESS
---- -------
Michael S. Dunlap 4732 Calvert Street
Lincoln, Nebraska 68506
Stephen F. Butterfield 7001 N. Tatum Boulevard
Paradise Valley, Arizona 85253
3
<PAGE>
Ross Wilcox 4732 Calvert Street
Lincoln, Nebraska 68506
Ronald W. Page 3015 S. Parker Road, #400
Aurora, Colorado 80014
Dr. Paul Hoff Hernia Hill, Rural Route 1
Seward, Nebraska 68434
ARTICLE VIII
INCORPORATOR
The name and street address of the incorporator is:
NAME ADDRESS
---- -------
Robert J. Ahrenholz 717 17th Street, Suite 2900
Denver, Colorado 80202
ARTICLE IX
BYLAWS
The power to adopt, alter, amend, or repeal bylaws shall be vested in
the board of directors and the shareholders, except as limited by Article X
hereof and that the board of directors may not amend or repeal any bylaw adopted
by the shareholders if the shareholders specifically provide that the bylaw is
not subject to amendment or repeal by the directors.
ARTICLE X
RESTRICTIONS
So long as the Indenture is in effect:
1. The corporation shall not engage in any business or activity
other than in connection with or relating to the Agreements and as
otherwise permitted herein.
2. The corporation shall not consolidate or merge with or into any
other entity or convey or transfer its properties and assets substantially
as an entirety to any entity unless (i) the entity (if other than the
corporation) formed or surviving such consolidation or merger, or that
acquires by conveyance or transfer the properties and assets of the
corporation substantially as an entirety, shall be organized and existing
under the laws of the United States of America or any State thereof or the
District of Columbia, and shall expressly assume, the due and punctual
payment of the Notes then outstanding and the performance of every covenant
on the part of the corporation to be performed or observed pursuant to the
Indenture, and (ii) immediately after giving effect to such transaction, no
Event of Default under the Indenture shall have occurred and be continuing.
4
<PAGE>
3. The corporation shall not dissolve or liquidate, in whole or in
part, except (i) to the extent a merger or consolidation as described in
Section 2 of this Article X may be deemed a dissolution or liquidation or
(ii) with the prior written consent of the rating agency rating any of the
Notes issued under the Indenture (the "Rating Agency").
4. The funds and other assets of the corporation shall not be
commingled with those of any other individual, corporation, estate,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
5. The corporation shall not hold itself out as being liable for the
debts of any other party.
6. The corporation shall not form, or cause to be formed, any
subsidiaries.
7. The corporation shall act solely in its corporate name and
through its duly authorized officers or agents in the conduct of its
business, and shall conduct its business so as not to mislead others as to
the identity of the entity with which they are concerned.
8. The corporation shall maintain corporate records and books of
account and shall not commingle its corporate records and books of account
with the corporate records and books of account of any other corporation.
The books of the corporation may be kept (subject to any provision
contained in the applicable statutes) inside or outside the State of Nevada
such place or places as may be designated from time to time by the Board of
Directors or in the Bylaws of the corporation.
9. The Board of Directors of the corporation shall hold appropriate
meetings to authorize all of its corporate actions. Regular meetings of
the Board of Directors shall be held not less frequently than three times
per annum.
10. Meetings of the shareholders of the corporation shall be held not
less frequently than one time per annum.
11. The corporation shall not amend, alter, change or repeal any
provision contained in this Article X without (i) the affirmative vote in
favor thereof of the holders of the outstanding stock of the corporation
entitled to vote thereon; and (ii) the prior written consent of the Rating
Agency.
12. The corporation shall not amend its articles of incorporation or
bylaws without the prior written consent of the Rating Agency.
13. The corporation shall not permit nor register the transfer of any
of its capital stock.
14. The corporation shall not incur, assume or guarantee any
indebtedness of any person, except for such indebtedness (i) as may be
incurred by the corporation in connection with the issuance of the notes
under the Indenture (the "Notes"), (ii) as is non-recourse to the
corporation and subordinate to payments on the Notes, (iii) as is rated no
less than the rating assigned by the Rating Agency with respect to the
Notes, or (iv) as may otherwise be issued with
5
<PAGE>
the written confirmation of the Rating Agency that any rating with respect
to the existing Notes will not be withdrawn or downgraded as a result of
such issuance.
ARTICLE XI
SPECIAL DIRECTOR PROVISIONS
So long as the Indenture is in effect, at all times, except in the case of
a temporary vacancy, which shall promptly be filled, at least one director of
the corporation shall be a person who does not own beneficially, directly or
indirectly, more than 5% of the outstanding Common Stock and who is not a
director, officer or employee of any person, firm, corporation or other entity
owning beneficially, directly or indirectly, more than 5% of the outstanding
Common Stock of the corporation (the "Special Director"); provided, that such
Special Director may serve in similar capacities for other "special purpose
entities" formed by Union Financial Services, Inc. or affiliates thereof. In
the event of the resignation of the Special Director of the corporation whose
service satisfies the foregoing qualification requirement, the shareholders or
the Board of Directors of the corporation, as the case may be, shall elect or
appoint a person to such vacancy who meets the criteria set out in the foregoing
sentence. The member of the initial Board of Directors who fulfills the
foregoing requirements is Dr. Paul Hoff, whose address is Hernia Hill, Rural
Route 1, Seward, Nebraska 68434.
ARTICLE XII
BANKRUPTCY RESTRICTIONS
The corporation shall not, without the unanimous affirmative vote of the
whole Board of Directors (which shall include the Special Director) of the
corporation, institute any proceedings to adjudicate the corporation a bankrupt
or insolvent, consent to the institution of bankruptcy or insolvency proceedings
against the corporation, file a petition seeking or consenting to reorganization
or relief under any applicable federal or state law relating to bankruptcy,
consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the corporation or a substantial
part of its property or admit its inability to pay its debts generally as they
become due or authorize any of the foregoing to be done or taken on behalf of
the corporation. With respect to a vote for the filing of a bankruptcy petition
or other such action as described above, the Special Director shall owe his
fiduciary duty to the corporation itself, including the corporation's creditors.
ARTICLE XIII
AMENDMENTS
The corporation reserves the right to amend, alter, change, or repeal
any provision in these Articles of Incorporation in the manner prescribed by
law, and all rights conferred on shareholders are subject to this reservation,
provided that any such amendment, alteration or repeal shall comply with the
provisions of Article X hereof.
6
<PAGE>
The undersigned incorporator, for the purpose of forming a corporation
under the laws of the State of Nevada, has executed these Articles of
Incorporation this 23rd day of February, 1996.
/s/ Robert J. Ahrenzholz, Incorporator
---------------------------------------
7
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
UNION FINANCIAL SERVICES-1, INC.
ARTICLE I
OFFICES
The principal office of the Corporation shall be designated from time to
time by the Corporation and may be within or outside of Nevada.
The Corporation may have such other offices, either within or outside
Nevada, as the board of directors may designate or as the business of the
Corporation may require from time to time.
The registered office of the Corporation required by the Nevada Revised
Statutes to be maintained in Nevada may be, but need not be, identical with the
principal office, and the address of the registered office may be changed from
time to time by the board of directors.
ARTICLE II
SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the shareholders shall
be held during each year on a date and at a time fixed by the board of directors
of the Corporation (or by the president in the absence of action by the board of
directors), beginning with the year 1997, for the purpose of electing directors
and for the transaction of such other business as may come before the meeting.
If the election of directors is not held on the day fixed by the board of
directors for any annual meeting of the shareholders, or any adjournment
thereof, the board of directors shall cause the election to be held at a special
meeting of the shareholders as soon thereafter as it may conveniently be held.
A shareholder may apply to the district court in the county in Nevada where
the Corporation's principal office is located or, if the Corporation has no
principal office in Nevada, to the district court of the county in which the
Corporation's registered office is located to seek an order that a shareholder
meeting be held (a) if an annual meeting was not held within six months after
the close of the Corporation's most recently ended fiscal year or fifteen months
after its last annual meeting, whichever is earlier, or (b) if the shareholder
participated in a proper call of or proper demand for a special meeting and
notice of the special meeting was not given within thirty days after the date of
the call or the date the last of the demands necessary to require calling of the
meeting was received by the Corporation pursuant to the Nevada Revised Statutes,
or the special meeting was not held in accordance with the notice.
Section 2. SPECIAL MEETINGS. Unless otherwise prescribed by statute,
special meetings of the shareholders may be called for any purpose by the
president or by the board of directors. The president shall call a special
meeting of the shareholders if the Corporation receives one or more written
demands for the meeting, stating the purpose or purposes for which it is to be
held, signed
8
<PAGE>
and dated by holders of shares representing at least ten percent of all the
votes entitled to be cast on any issue proposed to be considered at the
meeting.
Section 3. PLACE OF MEETING. The board of directors may designate any
place, either within or outside Nevada, as the place for any annual meeting or
any special meeting called by the board of directors. A waiver of notice signed
by all shareholders entitled to vote at a meeting may designate any place,
either within or outside Nevada, as the place for such meeting. If no
designation is made, or if a special meeting is called other than by the board,
the place of meeting shall be the principal office of the Corporation.
Section 4. NOTICE OF MEETING. Written notice stating the place, date and
hour of the meeting shall be given not less than ten nor more than sixty days
before the date of the meeting, except that (a) if the number of authorized
shares is to be increased, at least thirty days' notice shall be given, or (b)
any other longer notice period is required by the Nevada Revised Statutes.
Notice of a special meeting shall include a description of the purpose or
purposes of the meeting. Notice of an annual meeting need not include a
description of the purpose or purposes of the meeting except the purpose or
purposes shall be stated with respect to (a) an amendment to the articles of
incorporation of the Corporation, (b) a merger or share exchange in which the
Corporation is a party and, with respect to a share exchange, in which the
Corporation's shares will be acquired, (c) a sale, lease, exchange or other
disposition, other than in the usual and regular course of business, of all or
substantially all of the property of the Corporation or of another entity which
this Corporation controls, in each case with or without the goodwill, (d) a
dissolution of the Corporation, or (e) any other purpose for which a statement
of purpose is required by the Nevada Revised Statutes. Notice shall be given
personally or by mail, private carrier, telegraph, teletype, electronically
transmitted facsimile or other form of wire or wireless communication by or at
the direction of the president, the secretary, or the officer or persons calling
the meeting, to each shareholder of record entitled to vote at such meeting. If
mailed and if in a comprehensible form, such notice shall be deemed to be given
and effective when deposited in the United States mail, addressed to the
shareholder at his address as it appears in the Corporation's current record of
shareholders, with postage prepaid. If notice is given other than by mail, and
provided that such notice is in a comprehensible form, the notice is given and
effective on the date received by the shareholder.
If requested by the person or persons lawfully calling such meeting, the
secretary shall give notice thereof at corporate expense. No notice need be
sent to any shareholder if three successive notices mailed to the last known
address of such shareholder have been returned as undeliverable until such time
as another address for such shareholder is made known to the Corporation by such
shareholder. In order to be entitled to receive notice of any meeting, a
shareholder shall advise the Corporation in writing of any change in such
shareholder's mailing address as shown on the Corporation's books and records.
When a meeting is adjourned to another date, time or place, notice need not
be given of the new date, time or place if the new date, time or place of such
meeting is announced before adjournment at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any business
which may have been transacted at the original meeting. If the adjournment is
for more than 120 days, or if a new record date is fixed for the adjourned
meeting, a new notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting as of the new record date.
9
<PAGE>
A shareholder may waive notice of a meeting before or after the time and
date of the meeting by a writing signed by such shareholder. Such waiver shall
be delivered to the Corporation for filing with the corporate records. Further,
by attending a meeting either in person or by proxy, a shareholder waives
objection to lack of notice or defective notice of the meeting unless the
shareholder objects at the beginning of the meeting to the holding of the
meeting or the transaction of business at the meeting because of lack of notice
or defective notice. By attending the meeting, the shareholder also waives any
objection to consideration at the meeting of a particular matter not within the
purpose or purposes described in the meeting notice unless the shareholder
objects to considering the matter when it is presented.
Section 5. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to (a) notice of or vote at any meeting of shareholders or
any adjournment thereof, (b) receive distributions or share dividends, or (c)
demand a special meeting, or to make a determination of shareholders for any
other proper purpose, the board of directors may fix a future date as the record
date for any such determination of shareholders, such date in any case to be not
more than seventy days, and, in case of a meeting of shareholders, not less than
ten days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed by the
directors, the record date shall be the date on which notice of the meeting is
mailed to shareholders, or the date on which the resolution of the board of
directors providing for a distribution is adopted, as the case may be. When a
determination of shareholders entitled to vote at any meeting of shareholders is
made as provided in this Section, such determination shall apply to any
adjournment thereof unless the board of directors fixes a new record date, which
it must do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting.
Notwithstanding the above, the record date for determining the shareholders
entitled to take action without a meeting or entitled to be given notice of
action so taken shall be the date a writing upon which the action is taken is
first received by the Corporation. The record date for determining shareholders
entitled to demand a special meeting shall be the date of the earliest of any of
the demands pursuant to which the meeting is called.
Section 6. VOTING LISTS. The secretary shall make, at the earlier of ten
days before each meeting of shareholders or two business days after notice of
the meeting has been given, a complete list of the shareholders entitled to be
given notice of such meeting or any adjournment thereof. The list shall be
arranged by voting groups and within each voting group by class or series of
shares, shall be in alphabetical order within each class or series, and shall
show the address of and the number of shares of each class or series held by
each shareholder. For the period beginning the earlier of ten days prior to the
meeting or two business days after notice of the meeting is given, and
continuing through the meeting and any adjournment thereof, this list shall be
kept on file at the principal office of the Corporation, or at a place (which
shall be identified in the notice) in the city where the meeting will be held.
Such list shall be available for inspection on written demand by any shareholder
(including for the purpose of this Section 6 any holder of voting trust
certificates) or his agent or attorney during regular business hours and during
the period available for inspection. The original stock transfer books shall be
PRIMA FACIE evidence as to the shareholders entitled to examine such list or to
vote at any meeting of shareholders.
Any shareholder, his agent or attorney may copy the list during regular
business hours and during the period it is available for inspection, provided
(a) the shareholder has been a shareholder for at least three months immediately
preceding the demand or holds at least five percent of all outstanding shares of
any class of shares as of the date of the demand, (b) the demand is made in
10
<PAGE>
good faith and for a purpose reasonably related to the demanding
shareholder's interest as a shareholder, (c) the shareholder describes with
reasonable particularity the purpose and the records the shareholder desires
to inspect, (d) the records are directly connected with the described
purpose, and (e) the shareholder pays a reasonable charge covering the costs
of labor and material for such copies, not to exceed the estimated cost of
production and reproduction.
Section 7. RECOGNITION PROCEDURE FOR BENEFICIAL OWNERS. The board of
directors may adopt by resolution a procedure whereby a shareholder of the
Corporation may certify in writing to the Corporation that all or a portion of
the shares registered in the name of such shareholder are held for the account
of a specified person or persons. The resolution may set forth (a) the types of
nominees to which it applies, (b) the rights or privileges that the Corporation
will recognize in a beneficial owner, which may include rights and privileges
other than voting, (c) the form of certification and the information to be
contained therein, (d) if the certification is with respect to a record date,
the time within which the certification must be received by the Corporation, (e)
the period for which the nominee's use of the procedure is effective, and (f)
such other provisions with respect to the procedure as the board deems necessary
or desirable. Upon receipt by the Corporation of a certificate complying with
the procedure established by the board of directors, the persons specified in
the certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the registered holders of the number of shares specified in
place of the shareholder making the certification.
Section 8. QUORUM AND MANNER OF ACTING. One-third of the votes entitled
to be cast on a matter by a voting group shall constitute a quorum of that
voting group for action on the matter. If less than one-third of such votes are
represented at a meeting, a majority of the votes so represented may adjourn the
meeting from time to time without further notice, for a period not to exceed 120
days for any one adjournment. If a quorum is present at such adjourned meeting,
any business may be transacted which might have been transacted at the meeting
as originally noticed. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum, unless the meeting is
adjourned and a new record date is set for the adjourned meeting.
If a quorum exists, action on a matter other than the election of directors
by a voting group is approved if the votes cast within the voting group favoring
the action exceed the votes cast within the voting group opposing the action,
unless the vote of a greater number or voting by classes is required by law or
the articles of incorporation.
Section 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy by signing an appointment form or similar writing, either
personally or by his duly authorized attorney-in-fact. A shareholder may also
appoint a proxy by transmitting or authorizing the transmission of a telegram,
teletype or other electronic transmission providing a written statement of the
appointment to the proxy, a proxy solicitor, proxy support service organization,
or other person duly authorized by the proxy to receive appointments as agent
for the proxy, or to the Corporation. The transmitted appointment shall set
forth or be transmitted with written evidence from which is can be determined
that the shareholder transmitted or authorized the transmission of the
appointment. The proxy appointment form or similar writing shall be filed with
the secretary of the Corporation before or at the time of the meeting. The
appointment of a proxy is effective when received by the Corporation and is
valid for eleven months unless a different period is expressly provided in the
appointment form or similar writing.
11
<PAGE>
Any complete copy, including an electronically transmitted facsimile, of an
appointment of a proxy may be substituted for or used in lieu of the original
appointment for any purpose for which the original appointment could be used.
Revocation of a proxy does not affect the right of the Corporation to
accept the proxy's authority unless (a) the Corporation had notice that the
appointment was coupled with an interest and notice that such interest is
extinguished is received by the secretary or other officer or agent authorized
to tabulate votes before the proxy exercises his authority under the
appointment, or (b) other notice of the revocation of the appointment is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment. Other notice of
revocation may, in the discretion of the Corporation, be deemed to include the
appearance at a shareholders' meeting of the shareholder who granted the proxy
and his voting in person on any matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the Corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
The Corporation shall not be required to recognize an appointment made
irrevocable if it has received a writing revoking the appointment signed by the
shareholder (including a shareholder who is a successor to the shareholder who
granted the proxy) either personally or by his attorney-in-fact, notwithstanding
that the revocation may be a breach of an obligation of the shareholder to
another person not to revoke the appointment.
Subject to Section 11 and any express limitation on the proxy's authority
appearing on the appointment form, the Corporation is entitled to accept the
proxy's vote or other action as that of the shareholder making the appointment.
Section 10. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote, except in the election of directors, and
each fractional share shall be entitled to a corresponding fractional vote on
each matter submitted to a vote at a meeting of shareholders, except to the
extent that the voting rights of the shares of any class or classes are limited
or denied by the articles of incorporation as permitted by the Nevada Revised
Statutes. Cumulative voting shall not be permitted in the election of directors
or for any other purpose. Each record holder of stock shall be entitled to vote
in the election of directors and shall have as many votes for each of the shares
owned by him as there are directors to be elected and for whose election he has
the right to vote.
At each election of directors, that number of candidates equaling the
number of directors to be elected, having the highest number of votes cast in
favor of their election, shall be elected to the board of directors.
Except as otherwise ordered by a court of competent jurisdiction upon a
finding that the purpose of this Section would not be violated in the
circumstances presented to the court, the shares of the Corporation are not
entitled to be voted if they are owned, directly or indirectly, by a second
corporation, domestic or foreign, and the first corporation owns, directly or
indirectly, a majority of the shares entitled to vote for directors of the
second corporation except to the extent the second corporation holds the shares
in a fiduciary capacity.
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Redeemable shares are not entitled to be voted after notice of redemption
is mailed to the holders and a sum sufficient to redeem the shares has been
deposited with a bank, trust company or other financial institution under an
irrevocable obligation to pay the holders the redemption price on surrender of
the shares.
Section 11. CORPORATION'S ACCEPTANCE OF VOTES. If the name signed on a
vote, consent, waiver, proxy appointment, or proxy appointment revocation
corresponds to the name of a shareholder, the Corporation, if acting in good
faith, is entitled to accept the vote, consent, waiver, proxy appointment or
proxy appointment revocation and give it effect as the act of the shareholder.
If the name signed on a vote, consent, waiver, proxy appointment or proxy
appointment revocation does not correspond to the name of a shareholder, the
Corporation, if acting in good faith, is nevertheless entitled to accept the
vote, consent, waiver, proxy appointment or proxy appointment revocation and to
give it effect as the act of the shareholder if:
(a) the shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity;
(b) the name signed purports to be that of an administrator,
executor, guardian or conservator representing the shareholder and, if the
Corporation requests, evidence of fiduciary status acceptable to the
Corporation has been presented with respect to the vote, consent, waiver,
proxy appointment or proxy appointment revocation;
(c) the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the Corporation requests, evidence of
this status acceptable to the Corporation has been presented with respect
to the vote, consent, waiver, proxy appointment or proxy appointment
revocation;
(d) the name signed purports to be that of a pledgee, beneficial
owner or attorney-in-fact or the shareholder and, if the Corporation
requests, evidence acceptable to the Corporation of the signatory's
authority to sign for the shareholder has been presented with respect to
the vote, consent, waiver, proxy appointment or proxy appointment
revocation;
(e) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of
the co-tenants or fiduciaries, and the person signing appears to be acting
on behalf of all the co-tenants or fiduciaries; or
(f) the acceptance of the vote, consent, waiver, proxy appointment or
proxy appointment revocation is otherwise proper under rules established by
the Corporation that are not inconsistent with this Section 11.
The Corporation is entitled to reject a vote, consent, waiver, proxy
appointment or proxy appointment revocation if the secretary or other officer or
agent authorized to tabulate votes, acting in good faith, has reasonable basis
for doubt about the validity of the signature on it or about the signatory's
authority to sign for the shareholder.
Neither the Corporation nor its officers nor any agent who accepts or
rejects a vote, consent, waiver, proxy appointment or proxy appointment
revocation in good faith and in accordance with the standards of this Section is
liable in damages for the consequences of the acceptance or rejection.
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Section 12. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if a written consent (or counterparts thereof) that sets forth the
action so taken is signed by all of the shareholders entitled to vote with
respect to the subject matter thereof and received by the Corporation. Such
consent shall have the same force and effect as a unanimous vote of the
shareholders and may be stated as such in any document. Action taken under this
Section 12 is effective as of the date the last writing necessary to effect the
action is received by the Corporation, unless all of the writings specify a
different effective date, in which case such specified date shall be the
effective date for such action. If any shareholder revokes his consent as
provided for herein prior to what would otherwise be the effective date, the
action proposed in the consent shall be invalid. The record date for
determining shareholders entitled to take action without a meeting is the date
the Corporation first receives a writing upon which the action is taken.
Any shareholder who has signed a writing describing and consenting to
action taken pursuant to this Section 12 may revoke such consent by a writing
signed by the shareholder describing the action and stating that the
shareholder's prior consent thereto is revoked, if such writing is received by
the Corporation before the effectiveness of the action.
Section 13. MEETINGS BY TELECOMMUNICATION. Any or all of the shareholders
may participate in an annual or special shareholders' meeting by, or the meeting
may be conducted through the use of, any means of communication by which all
persons participating in the meeting may hear each other during the meeting. A
shareholder participating in a meeting by this means is deemed to be present in
person at the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, its board of directors, except as otherwise
provided in the Nevada Revised Statutes or the articles of incorporation.
Section 2. NUMBER, QUALIFICATIONS AND TENURE. The number of directors of
the Corporation shall be fixed from time to time by the board of directors,
within a range of no less than 1 or more than 7. A director shall be a natural
person who is eighteen years of age or older. A director need not be a resident
of Nevada or a shareholder of the Corporation.
Directors shall be elected at each annual meeting of shareholders. Each
director shall hold office until the next annual meeting of shareholders
following his election and thereafter until his successor shall have been
elected and qualified. Directors shall be removed in the manner provided by the
Nevada Revised Statutes.
Section 3. VACANCIES. Any director may resign at any time by giving
written notice to the Corporation. Such resignation shall take effect at the
time the notice is received by the Corporation unless the notice specifies a
later effective date. Unless otherwise specified in the notice of resignation,
the Corporation's acceptance of such resignation shall not be necessary to make
it effective. Any vacancy on the board of directors may be filled by the
affirmative vote of a majority of the shareholders or the board of directors.
If the directors remaining in office constitute fewer than
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a quorum of the board, the directors may fill the vacancy by the affirmative
vote of a majority of all the directors remaining in office. If elected by
the directors, the director shall hold office until the next annual
shareholders' meeting at which directors are elected. If elected by the
shareholders, the director shall hold office for the unexpired term of his
predecessor in office; except that, if the director's predecessor was elected
by the directors to fill a vacancy, the director elected by the shareholders
shall hold office for the unexpired term of the last predecessor elected by
the shareholders.
Section 4. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without notice immediately after and at the same place as the
annual meeting of shareholders. The board of directors may provide by
resolution the time and place, either within or outside Nevada, for the holding
of additional regular meetings without other notice.
Section 5. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the president or any 2 directors. The
person or persons authorized to call special meetings of the board of directors
may fix any place, either within or outside Nevada, as the place for holding any
special meeting of the board of directors called by them, provided that no
meeting shall be called outside the State of Nevada unless a majority of the
board of directors has so authorized.
Section 6. NOTICE. Notice of any special meeting shall be given at least
two days prior to the meeting by written notice either personally delivered or
mailed to each director at his business address, or by notice transmitted by
telegraph, telex, electronically transmitted facsimile or other form of wire or
wireless communication. If mailed, such notice shall be deemed to be given and
to be effective on the earlier of (a) three days after such notice is deposited
in the United States mail, properly addressed, with postage prepaid, or (b) the
date shown on the return receipt, if mailed by registered or certified mail,
return receipt requested. If notice is given by telex, electronically
transmitted facsimile or other similar form of wire or wireless communication,
such notice shall be deemed to be given and to be effective when sent, and with
respect to a telegram, such notice shall be deemed to be given and to be
effective when the telegram is delivered to the telegraph company. If a
director has designated in writing one or more reasonable addresses or facsimile
numbers for delivery of notice to him, notice sent by mail, telegraph, telex,
electronically transmitted facsimile or other form of wire or wireless
communication shall not be deemed to have been given or to be effective unless
sent to such addresses or facsimile numbers, as the case may be.
A director may waive notice of a meeting before or after the time and date
of the meeting by a writing signed by such director. Such waiver shall be
delivered to the Corporation for filing with the corporate records. Further, a
director's attendance at or participation in a meeting waives any required
notice to him of the meeting unless at the beginning of the meeting, or promptly
upon his later arrival, the director objects to holding the meeting or
transacting business at the meeting because of lack of notice or defective
notice and does not thereafter vote for or assent to action taken at the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
Section 7. QUORUM. A majority of the number of directors fixed by the
board of directors pursuant to Section 2 or, if no number is fixed, a majority
of the number in office immediately before the meeting begins, shall constitute
a quorum for the transaction of business at any meeting of the board of
directors. If less than such majority is present at a meeting, a majority of
the directors
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present may adjourn the meeting from time to time without further notice, for
a period not to exceed sixty days at any one adjournment.
Section 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors.
Section 9. COMPENSATION. By resolution of the board of directors, any
director may be paid any one or more of the following: his expenses, if any, of
attendance at meetings, a fixed sum for attendance at each meeting, a stated
salary as director, or such other compensation as the Corporation and the
director may reasonably agree upon. No such payment shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
Section 10. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the board of directors or committee of the board at
which action on any corporate matter is taken shall be presumed to have assented
to the action taken unless (a) the director objects at the beginning of the
meeting, or promptly upon his arrival, to the holding of the meeting or the
transaction of business at the meeting and does not thereafter vote for or
assent to any action taken at the meeting, (b) the director contemporaneously
requests that his dissent or abstention as to any specific action taken be
entered in the minutes of the meeting, or (c) the director causes written notice
of his dissent or abstention as to any specific action to be received by the
presiding officer of the meeting before its adjournment or by the Corporation
promptly after the adjournment of the meeting. A director may dissent to a
specific action at a meeting, while assenting to others. The right to dissent
to a specific action taken at a meeting of the board of directors or a committee
of the board shall not be available to a director who voted in favor of such
action.
Section 11. COMMITTEES. By resolution adopted by a majority of all the
directors in office when the action is taken, the board of directors may
designate from among its members an executive committee and one or more other
committees, and appoint one or more members of the board of directors to serve
on them. To the extent provided in the resolution, each committee shall have
all the authority of the board of directors, except that no such committee shall
have the authority to (a) authorize distributions, (b) approve or propose to
shareholders actions or proposals required by the Nevada Revised Statutes to be
approved by shareholders, (c) fill vacancies on the board of directors or any
committee thereof, (d) amend articles of incorporation, (e) adopt, amend or
repeal the Bylaws, (f) approve a plan of merger not requiring shareholder
approval, (g) authorize or approve the reacquisition of shares unless pursuant
to a formula or method prescribed by the board of directors, or (h) authorize or
approve the issuance or sale of shares, or contract for the sale of shares or
determine the designations and relative rights, preferences and limitations of a
class or series of shares, except that the board of directors may authorize a
committee or officer to do so within limits specifically prescribed by the board
of directors. The committee shall then have full power within the limits set by
the board of directors to adopt any final resolution setting forth all
preferences, limitations and relative rights of such class or series and to
authorize an amendment of the articles of incorporation stating the preferences,
limitations and relative rights of a class or series for filing with the
Secretary of State under the Nevada Revised Statutes.
Sections 4, 5, 6, 7, 8 and 12 of Article III, which govern meetings,
notice, waiver of notice, quorum, voting requirements and action without a
meeting of the board of directors, shall apply to committees and their members
appointed under this Section 11.
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Neither the designation of any such committee, the delegation of authority
to such committee, nor any action by such committee pursuant to its authority
shall alone constitute compliance by any member of the board of directors or a
member of the committee in question with his responsibility to conform to the
standard of care set forth in Article III, Section 14 of these Bylaws.
Section 12. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at a meeting of the directors or any committee designated
by the board of directors may be taken without a meeting if a written consent
(or counterparts thereof) that sets forth the action so taken is signed by all
of the directors entitled to vote with respect to the action taken. Such
consent shall have the same force and effect as a unanimous vote of the
directors or committee members and may be stated as such in any document.
Unless the consent specifies a different effective date, action taken under this
Section 12 is effective at the time the last director signs a writing describing
the action taken, unless, before such time, any director has revoked his consent
by a writing signed by the director and received by the president or the
secretary of the Corporation.
Section 13. TELEPHONIC MEETINGS. The board of directors may permit any
director (or any member of a committee designated by the board) to participate
in a regular or special meeting of the board of directors or a committee thereof
through the use of any means of communication by which all directors
participating in the meeting can hear each other during the meeting. A director
participating in a meeting in this manner is deemed to be present in person at
the meeting.
Section 14. STANDARD OF CARE. A director shall perform his duties as a
director, including without limitation his duties as a member of any committee
of the board, in good faith, in a manner he reasonably believes to be in the
best interests of the Corporation, and with the care an ordinarily prudent
person in a like position would exercise under similar circumstances. In
performing his duties, a director shall be entitled to rely on information,
opinions, reports or statements, including financial statements and other
financial data, in each case prepared or presented by the persons herein
designated. However, he shall not be considered to be acting in good faith if
he has knowledge concerning the matter in question that would cause such
reliance to be unwarranted. A director shall not be liable to the Corporation
or its shareholders for any action he takes or omits to take as a director if,
in connection with such action or omission, he performs his duties in compliance
with this Section 14.
The designated persons on whom a director is entitled to rely are (a) one
or more officers or employees of the Corporation whom the director reasonably
believes to be reliable and competent in the matters presented, (b) legal
counsel, public accountant, or other person as to matters which the director
reasonably believes to be within such person's professional or expert
competence, or (c) a committee of the board of directors on which the director
does not serve if the director reasonably believes the committee merits
confidence.
ARTICLE IV
OFFICERS AND AGENTS
Section 1. GENERAL. The officers of the Corporation shall be a president,
one or more vice presidents, a secretary and a treasurer, each of whom shall be
a natural person eighteen years of age or older. The board of directors or an
officer or officers authorized by the board may appoint such other officers,
assistant officers, committees and agents, including a chairman of the board,
assistant secretaries and assistant treasurers, as they may consider necessary.
The board of directors or the
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officer or officers authorized by the board shall from time to time determine
the procedure for the appointment of officers, their term of office, their
authority and duties and their compensation. One person may hold more than
one office. In all cases where the duties of any officer, agent or employee
are not prescribed by the bylaws or by the board of directors, such officer,
agent or employee shall follow the orders and instructions of the president
of the Corporation.
Section 2. APPOINTMENT AND TERM OF OFFICE. The officers of the
Corporation shall be appointed by the board of directors at each annual meeting
of the board held after each annual meeting of the shareholders. If the
appointment of officers is not made at such meeting or if an officer or officers
are to be appointed by another officer or officers of the Corporation, such
appointments shall be made as soon thereafter as conveniently may be. Each
officer shall hold office until the first of the following occurs: his
successor shall have been duly appointed and qualified, his death, his
resignation, or his removal in the manner provided in Section 3.
Section 3. RESIGNATION AND REMOVAL. An officer may resign at any time by
giving written notice of resignation to the Corporation. The resignation is
effective when the notice is received by the Corporation unless the notice
specifies a later effective date.
Any officer or agent may be removed at any time with or without cause by
the board of directors or an officer or officers authorized by the board. Such
removal does not affect the contract rights, if any, of the Corporation or of
the person so removed. The appointment of an officer or agent shall not in
itself create contract rights.
Section 4. VACANCIES. A vacancy in any office, however occurring, may be
filled by the board of directors, or by the officer or officers authorized by
the board, for the unexpired portion of the officer's term. If an officer
resigns and his resignation is made effective at a later date, the board of
directors, or officer or officers authorized by the board, may permit the
officer to remain in office until the effective date and may fill the pending
vacancy before the effective date if the board of directors or officer or
officers authorized by the board provide that the successor shall not take
office until the effective date. In the alternative, the board of directors, or
officer or officers authorized by the board of directors, may remove the officer
at any time before the effective date and may fill the resulting vacancy.
Section 5. PRESIDENT. Subject to the direction and supervision of the
board of directors, the president shall be the chief executive officer of the
Corporation, and shall have general and active control of its affairs and
business and general supervision of its officers, agents and employees. Unless
otherwise directed by the board of directors, the president shall attend in
person or by substitute appointed by him, or shall execute on behalf of the
Corporation written instruments appointing a proxy or proxies to represent the
Corporation, at all meetings of the stockholders of any other Corporation in
which the Corporation holds any stock. On behalf of the Corporation, the
president may in person or by substitute or by proxy execute written waivers of
notice and consents with respect to any such meetings. At all such meetings and
otherwise, the president, in person or by substitute or proxy, may vote the
stock held by the Corporation, execute written consents and other instruments
with respect to such stock, and exercise any and all rights and powers incident
to the ownership of said stock, subject to the instructions, if any, of the
board of directors. The president shall have custody of the treasurer's bond,
if any.
Section 6. VICE PRESIDENTS. The vice presidents shall assist the
president and shall perform such duties as may be assigned to them by the
president or by the board of directors. In the absence of
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the president, the vice president, if any (or, if more than one, the vice
presidents in the order designated by the board of directors, or if the board
makes no such designation, then the vice president designated by the
president, or if neither the board nor the president makes any such
designation, the senior vice president as determined by first election to
that office), shall have the powers and perform the duties of the president.
Section 7. SECRETARY. The secretary shall (a) prepare and maintain as
permanent records the minutes of the proceedings of the shareholders and the
board of directors, a record of all actions taken by the shareholders or board
of directors without a meeting, a record of all actions taken by a committee of
the board of directors in place of the board of directors on behalf of the
Corporation, and a record of all waivers of notice of meetings of shareholders
and of the board of directors or any committee thereof, (b) see that all notices
are duly given in accordance with the provisions of these Bylaws and as required
by law, (c) serve as custodian of the corporate records and of the seal of the
Corporation and affix the seal to all documents when authorized by the board of
directors, (d) keep at the Corporation's registered office or principal place of
business a record containing the names and addresses of all shareholders in a
form that permits preparation of a list of shareholders arranged by voting group
and by class or series of shares within each voting group, that is alphabetical
within each class or series and that shows the address of, and the number of
shares of each class or series held by, each shareholder, unless such a record
shall be kept at the office of the Corporation's transfer agent or registrar,
(e) maintain at the Corporation's principal office the originals or copies of
the Corporation's articles of incorporation, bylaws, minutes of all
shareholders' meetings and records of all action taken by shareholders without a
meeting for the past three years, all written communications within the past
three years to shareholders as a group or to the holders of any class or series
of shares as a group, a list of the names and business addresses of the current
directors and officers, a copy of the Corporation's most recent corporate report
filed with the Secretary of State, and financial statements showing in
reasonable detail the Corporation's assets and liabilities and results of
operations for the last three years, (f) have general charge of the stock
transfer books of the Corporation, unless the Corporation has a transfer agent,
(g) authenticate records of the Corporation, and (h) in general, perform all
duties incident to the office of secretary and such other duties as from time to
time may be assigned to him by the president or by the board of directors.
Assistant secretaries, if any, shall have the same duties and powers, subject to
supervision by the secretary. The directors and/or shareholders may, however,
respectively designate a person other than the secretary or assistant secretary
to keep the minutes of their respective meetings.
Any books, records or minutes of the Corporation may be in written form or
in any form capable of being converted into written form within a reasonable
time.
Section 8. TREASURER. The treasurer shall be the principal financial
officer of the Corporation, shall have the care and custody of all funds,
securities, evidences of indebtedness and other personal property of the
Corporation and shall deposit the same in accordance with the instructions of
the board of directors. He shall receive and give receipts and acquittances for
money paid in on account of the Corporation, and shall pay out of the
Corporation's funds on hand all bills, payrolls and other just debts of the
Corporation of whatever nature upon maturity. He shall perform all other duties
incident to the office of the treasurer and, upon request of the board, shall
make such reports to it as may be required at any time. He shall, if required
by the board, give the Corporation a bond in such sums and with such sureties as
shall be satisfactory to the board, conditioned upon the faithful performance of
his duties and for the restoration to the Corporation of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation. He shall have such other powers and
perform such other duties as may from time to
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time be prescribed by the board of directors or the president. The assistant
treasurers, if any, shall have the same powers and duties, subject to the
supervision of the treasurer.
The treasurer shall also be the principal accounting officer of the
Corporation. He shall prescribe and maintain the methods and systems of
accounting to be followed, keep complete books and records of account as
required by the Nevada Revised Statutes, prepare and file all local, state and
federal tax returns, prescribe and maintain an adequate system of internal audit
and prepare and furnish to the president and the board of directors statements
of account showing the financial position of the Corporation and the results of
its operations.
ARTICLE V
STOCK
Section 1. CERTIFICATES. The board of directors shall be authorized to
issue any of its classes of shares with or without certificates. The fact that
the shares are not represented by certificates shall have no effect on the
rights and obligations of shareholders. If the shares are represented by
certificates, such shares shall be represented by consecutively numbered
certificates signed, either manually or by facsimile, in the name of the
Corporation by one or more persons designated by the board of directors. In
case any officer who has signed or whose facsimile signature has been placed
upon such certificate shall have ceased to be such officer before such
certificate is issued, such certificate may nonetheless be issued by the
Corporation with the same effect as if he were such officer at the date of its
issue. Certificates of stock shall be in such form and shall contain such
information consistent with law as shall be prescribed by the board of
directors. If shares are not represented by certificates, within a reasonable
time following the issue or transfer of such shares, the Corporation shall send
the shareholder a complete written statement of all of the information required
to be provided to holders of uncertificated shares by the Nevada Revised
Statutes.
Section 2. CONSIDERATION FOR SHARES. Certificated or uncertificated
shares shall not be issued until the shares represented thereby are fully paid.
The board of directors may authorize the issuance of shares for consideration
consisting of any tangible or intangible property of benefit to the Corporation,
including cash, promissory notes, services performed or other securities of the
Corporation. Future services shall not constitute payment or partial payment
for shares of the Corporation. The promissory note of a subscriber or an
affiliate of a subscriber shall not constitute payment or partial payment for
shares of the Corporation unless the note is negotiable and is secured by
collateral, other than the shares being purchased, having a fair market value at
least equal to the principal amount of the note. For purposes of this Section
2, "promissory note" means a negotiable instrument on which there is an
obligation to pay independent of collateral and does not include a non-recourse
note.
Section 3. LOST CERTIFICATES. In case of the alleged loss, destruction or
mutilation of a certificate of stock, the board of directors may direct the
issuance of a new certificate in lieu thereof upon such terms and conditions in
conformity with law as the board may prescribe. The board of directors may in
its discretion require an affidavit of lost certificate and/or a bond in such
form and amount and with such surety as it may determine before issuing a new
certificate.
Section 4. TRANSFER OF SHARES. Upon surrender to the Corporation or to a
transfer agent of the Corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and receipt of such documentary stamps as may be required by
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law and evidence of compliance with all applicable securities laws and other
restrictions, the Corporation shall issue a new certificate to the person
entitled thereto, and cancel the old certificate. Every such transfer of
stock shall be entered on the stock books of the Corporation which shall be
kept at its principal office or by the person and the place designated by the
board of directors.
Except as otherwise expressly provided in Article II, Sections 7 and 11,
and except for the assertion of dissenters' rights to the extent provided in the
Nevada Revised Statutes, the Corporation shall be entitled to treat the
registered holder of any shares of the Corporation as the owner thereof for all
purposes, and the Corporation shall not be bound to recognize any equitable or
other claim to, or interest in, such shares or rights deriving from such shares
on the part of any person other than the registered holder, including without
limitation any purchaser, assignee or transferee of such shares or rights
deriving from such shares, unless and until such other person becomes the
registered holder of such shares, whether or not the corporation shall have
either actual or constructive notice of the claimed interest of such other
person.
Section 5. TRANSFER AGENT, REGISTRARS AND PAYING AGENTS. The board may at
its discretion appoint one or more transfer agents, registrars and agents for
making payment upon any class of stock, bond, debenture or other security of the
Corporation. Such agents and registrars may be located either within or outside
Nevada. They shall have such rights and duties and shall be entitled to such
compensation as may be agreed.
ARTICLE VI
INDEMNIFICATION OF CERTAIN PERSONS
Section 1. INDEMNIFICATION. For purposes of Article VI, a "Proper Person"
means any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, and whether formal or informal, by
reason of the fact that he is or was a director, officer, employee, fiduciary or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee, fiduciary or agent of any
foreign or domestic profit or nonprofit corporation or of any partnership, joint
venture, trust, profit or nonprofit unincorporated association, limited
liability company, or other enterprise or employee benefit plan. The
Corporation shall indemnify any Proper Person against reasonably incurred
expenses (including attorneys' fees), judgments, penalties, fines (including any
excise tax assessed with respect to an employee benefit plan) and amounts paid
in settlement reasonably incurred by him in connection with such action, suit or
proceeding if it is determined by the groups set forth in Section 4 of this
Article that he conducted himself in good faith and that he reasonably believed
(a) in the case of conduct in his official capacity with the Corporation, that
his conduct was in the Corporation's best interests, or (b) in all other cases
(except criminal cases), that his conduct was at least not opposed to the
Corporation's best interests, or (c) in the case of any criminal proceeding,
that he had no reasonable cause to believe his conduct was unlawful. A Proper
Person will be deemed to be acting in his official capacity while acting as a
director, officer, employee or agent on behalf of this Corporation and not while
acting on this Corporation's behalf for some other entity.
No indemnification shall be made under this Article VI to a Proper Person
with respect to any claim, issue or matter in connection with a proceeding by or
in the right of a Corporation in which the Proper Person was adjudged liable to
the Corporation or in connection with any proceeding charging that the Proper
Person derived an improper personal benefit, whether or not involving action
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in an official capacity, in which he was adjudged liable on the basis that he
derived an improper personal benefit. Further, indemnification under this
Section in connection with a proceeding brought by or in the right of the
Corporation shall be limited to reasonable expenses, including attorneys'
fees, incurred in connection with the proceeding.
Section 2. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify any
Proper Person who was wholly successful, on the merits or otherwise, in defense
of any action, suit, or proceeding as to which he was entitled to
indemnification under Section 1 of this Article VI against expenses (including
attorneys' fees) reasonably incurred by him in connection with the proceeding
without the necessity of any action by the Corporation other than the
determination in good faith that the defense has been wholly successful.
Section 3. EFFECT OF TERMINATION OF ACTION. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or upon
a plea of NOLO CONTENDERE or its equivalent shall not of itself create a
presumption that the person seeking indemnification did not meet the standards
of conduct described in Section 1 of this Article VI. Entry of a judgment by
consent as part of a settlement shall not be deemed an adjudication of
liability, as described in Section 2 of this Article VI.
Section 4. GROUPS AUTHORIZED TO MAKE INDEMNIFICATION DETERMINATION.
Except where there is a right to indemnification as set forth in Sections 1 or 2
of this Article or where indemnification is ordered by a court in Section 5, any
indemnification shall be made by the Corporation only as authorized in the
specific case upon a determination by a proper group that indemnification of the
Proper Person is permissible under the circumstances because he has met the
applicable standards of conduct set forth in Section 1 of this Article. This
determination shall be made by the board of directors by a majority vote of
those present at a meeting at which a quorum is present, which quorum shall
consist of directors not parties to the proceeding ("Quorum"). If a Quorum
cannot be obtained, the determination shall be made by a majority vote of a
committee of the board of directors designated by the board, which committee
shall consist of two or more directors not parties to the proceedings, except
that directors who are parties to the proceeding may participate in the
designation of directors for the committee. If a Quorum of the board of
directors cannot be obtained and the committee cannot be established, or even if
a Quorum is obtained or the committee is designated and a majority of the
directors constituting such Quorum or committee so directs, the determination
shall be made by (a) independent legal counsel selected by a vote of the board
of directors or the committee in the manner specified in this Section 4 or, if a
Quorum of the full board of directors cannot be obtained and a committee cannot
be established, by independent legal counsel selected by a majority vote of the
full board (including directors who are parties to the action) or (b) a vote of
the shareholders.
Section 5. COURT-ORDERED INDEMNIFICATION. Any Proper Person may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction for mandatory indemnification under Section 2 of this
Article, including indemnification for reasonable expenses incurred to obtain
court-ordered indemnification. If the court determines that such Proper Person
is fairly and reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not he met the standards of conduct set forth in
Section 1 of this Article or was adjudged liable in the proceeding, the court
may order such indemnification as the court deems proper except that if the
Proper Person has been adjudged liable, indemnification shall be limited to
reasonable expenses incurred in connection with the proceeding and reasonable
expenses incurred to obtain court-ordered indemnification.
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Section 6. ADVANCE OF EXPENSES. Reasonable expenses (including attorneys'
fees) incurred in defending an action, suit or proceeding as described in
Section 1 may be paid by the Corporation to any Proper Person in advance of the
final disposition of such action, suit or proceeding upon receipt of (a) a
written affirmation of such Proper Person's good faith belief that he has met
the standards of conduct prescribed by Section 1 of this Article VI, (b) a
written undertaking, executed personally or on the Proper Person's behalf, to
repay such advances if it is ultimately determined that he did not meet the
prescribed standards of conduct (the undertaking shall be an unlimited general
obligation of the Proper Person but need not be secured and may be accepted
without reference to financial ability to make repayment), and (c) a
determination is made by the proper group (as described in Section 4 of this
Article VI) that the facts as then known to the group would not preclude
indemnification. Determination and authorization of payments shall be made in
the same manner specified in Section 4 of this Article VI.
Section 7. WITNESS EXPENSES. The sections of this Article VI do not limit
the Corporation's authority to pay or reimburse expenses incurred by a director
in connection with an appearance as a witness in a proceeding at a time when he
has not been made a named defendant or respondent in the proceeding.
Section 8. REPORT TO SHAREHOLDERS. Any indemnification of or advance of
expenses to a director in accordance with this Article VI, if arising out of a
proceeding by or on behalf of the Corporation, shall be reported in writing to
the shareholders with or before the notice of the next shareholders' meeting.
If the next shareholder action is taken without a meeting at the instigation of
the board of directors, such notice shall be given to the shareholders at or
before the time the first shareholder signs a writing consenting to such action.
ARTICLE VII
PROVISION OF INSURANCE
By action of the board of directors, notwithstanding any interest of the
directors in the action, the Corporation may purchase and maintain insurance, in
such scope and amounts as the board of directors deems appropriate, on behalf of
any person who is or was a director, officer, employee, fiduciary or agent of
the Corporation, or who, while a director, officer, employee, fiduciary or agent
of the Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee, fiduciary or agent of any other
foreign or domestic corporation or of any partnership, joint venture, trust,
profit or nonprofit unincorporated association, limited liability company or
other enterprise or employee benefit plan, against any liability asserted
against, or incurred by, him in that capacity or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of Article VI or applicable law.
Any such insurance may be procured from any insurance company designated by the
board of directors of the Corporation, whether such insurance company is formed
under the laws of Nevada or any other jurisdiction of the United States or
elsewhere, including any insurance company in which the Corporation has an
equity interest or any other interest, through stock ownership or otherwise.
ARTICLE VIII
BANKRUPTCY/INSOLVENCY
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The Corporation shall not, without the affirmative vote of the entire Board
of Directors of the Corporation, institute any proceedings to adjudicate the
Corporation a bankrupt or insolvent, consent to the institution of bankruptcy or
insolvency proceedings against the Corporation, file a petition seeking or
consenting to reorganization or relief under any applicable federal or state law
relating to bankruptcy, consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Corporation
or a substantial part of its property or admit its inability to pay its debts
generally as they become due or authorize any of the foregoing to be done or
taken on behalf of the Corporation.
ARTICLE IX
MISCELLANEOUS
Section 1. SEAL. The corporate seal of the Corporation shall be circular
in form and shall contain the name of the Corporation and the words, "Seal,
Nevada."
Section 2. FISCAL YEAR. The fiscal year of the Corporation shall be as
established by the board of directors.
Section 3. AMENDMENTS. The board of directors shall have power, to the
maximum extent permitted by the Nevada Revised Statutes, to make, amend and
repeal the Bylaws of the Corporation at any regular or special meeting of the
board unless the shareholders, in making, amending or repealing a particular
bylaw, expressly provide that the directors may not amend or repeal such bylaw.
The Shareholders also shall have the power to make, amend or repeal the Bylaws
of the Corporation at any annual meeting or at any special meeting called for
that purpose.
Section 4. GENDER. The masculine gender is used in these Bylaws as a
matter of convenience only and shall be interpreted to include the feminine and
neuter genders as the circumstances indicate.
Section 5. CONFLICTS. In the event of any irreconcilable conflict between
these Bylaws and either the Corporation's articles of incorporation or
applicable law, the latter shall control.
Section 6. DEFINITIONS. Except as otherwise specifically provided in
these Bylaws, all terms used in these Bylaws shall have the same definition as
in the Nevada Revised Statutes.
The undersigned Secretary of the Corporation
hereby certifies that the foregoing Bylaws are the
Bylaws of the Corporation that were duly adopted
by the Board of Directors of the Corporation on
March 7, 1996
/s/ Ronald W. Page, Secretary
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EXHIBIT 10.1
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is made and
entered into as of the 1st day of August, 1996, by and between Union Financial
Services, Inc., a Nevada corporation (the "Corporation") and Union Financial
Services-1, Inc., a Nevada corporation ("UFS-1").
RECITALS
A. UFS-1 conducts a program (the "Program") of financing, purchasing
and holding loans made to borrowers under the Federal Family Education Loan
Program, the proceeds of which are used to defray the costs of attendance at
eligible post secondary educational institutions (the "Loans").
B. UFS-1 has issued Taxable Student Loan Revenue Notes (the "Notes")
pursuant to the terms of that certain Amended and Restated Indenture of Trust
dated as of June 15, 1996 (as amended and supplemented, the "Indenture"),
between UFS-1 and Norwest Bank Minnesota, National Association, as trustee (the
"Trustee"), to provide funds for the Program, and UFS-1 intends to issue
additional Notes for that purpose pursuant to the terms of the Indenture.
C. UFS-1 has entered into Loan Sale and Purchase Agreements with
Union Bank & Trust Company, a Nebraska banking corporation ("Union Bank"),
acting in its own right and as trustee, pursuant to which UFS-1 has purchased
Loans from Union Bank, and UFS-1 anticipates entering into other such agreements
with Union Bank and other originators of Loans in order to implement its
Program.
D. UFS-1 has entered into a Servicing Agreement dated as of March 1,
1996 with Union Bank, under which UniPac Service Corporation, a Nebraska
corporation ("UNIPAC"), as subservicer, provides data processing and other
necessary assistance in connection with the servicing and collection of the
Loans, and UFS-1 may enter into agreements with other providers of such services
for the Loans (Union Bank, its subservicer and other providers of such services
are referred to herein as the "Servicer").
E. The Corporation has provided services to UFS-1 in connection with
the establishment and operation of the Program and employs highly qualified
personnel capable of providing professional administrative services for
portfolios of Loans.
F. UFS-1 now desires to provide compensation to the Corporation for
services previously rendered and to engage the Corporation to provide certain
services to UFS-1 in connection with the Program and administration of UFS-1's
portfolio of Loans on the terms and conditions specified herein.
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COVENANTS, REPRESENTATIONS AND WARRANTIES
The parties therefore agree as follows:
1. SERVICES TO BE PROVIDED. The Corporation agrees to provide,
through its officers and employees, the following services to UFS-1:
(a) Assist UFS-1 in developing and implementing financing
transactions to enable UFS-1 to purchase Loans;
(b) Monitor, and to the extent required, direct the Servicer in
connection with its servicing of the Loans;
(c) Respond to inquiries and requests made by borrowers,
educational institutions, Guarantee Agencies, the Trustee, and other
parties with respect to the Loans and respond to requests by UFS-1's
independent auditors for information concerning UFS-1's financial affairs;
(d) Maintain financial records concerning the Loans and, if
furnished adequate information with respect to financial affairs not
related to the Loans, prepare and maintain a general ledger and financial
statements for UFS-1;
(e) Furnish or cause to be furnished to UFS-1 or the Trustee
copies of reports received with respect to the Loans, and prepare such
additional reports with respect to the Loans, as UFS-1 or the Trustee may
reasonably request from time to time;
(f) Prepare for and furnish to UFS-1 estimates of Maintenance
and Operating Expenses and such statistical reports and cash flow
projections as may be required under the Indenture or requested by UFS-1;
and
(g) Such other services with respect to administration of the
Program as UFS-1 may reasonably request.
It is expressly agreed that the Corporation will not engage legal or accounting
firms on behalf of UFS-1, and UFS-1 will not be responsible for compensating any
such expenditures made by the Corporation.
2. TERM. This Agreement shall expire upon the
Stated Maturity of the Notes.
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3. FEES AND EXPENSES.
(a) FEE SCHEDULE. The Corporation will be entitled to the
following compensation for its services provided hereunder. UFS-1 has paid
the Corporation the sum of $700,000 as compensation for services provided
by the Corporation in connection with issuance of Notes, to reimburse the
Corporation for certain costs incurred in anticipation of the Corporation's
performance of its duties under this Agreement, and for services previously
rendered in connection with administration of UFS-1's portfolio of Loans.
UFS-1 shall pay to the Corporation on the first day of each calendar month
following the execution of this Agreement an amount equal to .01% of the
average outstanding balance of the Loans during the preceding month.
(b) LIMITED OBLIGATION. The obligation of UFS-1 to pay fees
under this Agreement is a limited obligation to be satisfied solely from
distributions made by the Trustee to UFS-1 under the terms of the
Indenture. Although UFS-1 shall be obligated to pay to the Corporation the
full amount of all accrued fees, such payments shall be made exclusively
from amounts deposited in the Operating Fund for payment of UFS-1's
Maintenance and Operating Expenses (as defined in the Indenture). If UFS-1
does not have funds on hand to cover the full amount of the fees due under
this Agreement, then payment of the unpaid balance shall be deferred until
there are sufficient funds available from such sources to satisfy part, or
all, of the outstanding debt.
(c) REVISION OF FEES. The fee payable to the Corporation under
this Agreement may be revised on January 1, 1999, and on each January 1
during its term thereafter. To alter the fee, the Corporation must provide
written notice of the proposed new fee to UFS-1 ninety (90) days prior to
January 1. If the Corporation and UFS-1 cannot reach an agreement within
sixty (60) days of the receipt of the notice, either party may terminate
this Agreement upon thirty (30) days written notice to the other party.
4. APPOINTMENT AS AGENT. UFS-1 hereby appoints and designates the
Corporation as its agent for the purpose of managing and administering the
Loans. In discharging its duties as agent of UFS-1 hereunder, the Corporation
shall have authority to act at its own discretion, and shall not be required to
obtain specific instructions or direction with respect to a particular matter
from UFS-1; provided, however, that in no event shall the Corporation be
permitted to create or incur obligations on behalf of UFS-1 except as and to the
extent specifically authorized by UFS-1 in writing. Any person dealing with the
Corporation may conclusively presume and rely upon the fact that actions taken
by the Corporation on behalf of UFS-1 with respect to the Loans are duly
authorized, regular and binding upon UFS-1, without further inquiry.
5. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The
Corporation hereby represents and warrants to UFS-1 as follows:
(a) DUE AUTHORIZATION. This Agreement has been duly authorized
by all necessary corporate action on the part of the Corporation and has
been duly executed by a duly authorized officer of the Corporation, and
constitutes a valid and binding agreement of the Corporation enforceable in
accordance with its terms, except as its enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization and other laws affecting
creditors' rights generally.
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(b) DUE ORGANIZATION. The Corporation is a corporation duly
organized, validly existing in good standing under the laws of Nevada and
has the requisite corporate power to enter into and perform this Agreement.
(c) CONFLICTING INSTRUMENTS. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated
hereby will violate or result in any violation of or be in conflict with or
constitute a default under any term of the Articles of Incorporation or
Bylaws of the Corporation, or of any judgment, decree or order of any court
or administrative body applicable to the Corporation, or any term of any
agreement or other instrument applicable to the Corporation.
6. REPRESENTATIONS AND WARRANTIES OF UFS-1. UFS-1 hereby represents
and warrants to the Corporation as follows:
(a) DUE AUTHORIZATION. This Agreement has been duly authorized
by all necessary corporate action on the part of UFS-1 and has been duly
executed by a duly authorized officer of UFS-1, and constitutes a valid and
binding agreement of UFS-1 enforceable in accordance with its terms, except
as its enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization and other laws affecting creditors' rights generally.
(b) DUE ORGANIZATION. UFS-1 is a corporation duly organized,
validly existing in good standing under the laws of the State of Nevada and
has the requisite corporate power to enter into and perform this Agreement.
(c) CONFLICTING INSTRUMENTS. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated
hereby will violate or result in any violation of or be in conflict with or
constitute a default under any term of the Certificate of Incorporation or
Bylaws of UFS-1, or any judgment, decree or order of any court or
administrative body applicable to UFS-1, or any term of any agreement or
other instrument applicable to UFS-1.
7. INDEMNIFICATION. In addition to the fees payable by UFS-1 to the
Corporation under paragraph 3 of this Agreement, UFS-1 shall indemnify and hold
the Corporation harmless from and against any and all claims, costs, expenses,
losses, damages, charges, counsel fees, payments or liability which may be
asserted against or incurred by the Corporation, or for which it may be held to
be liable, arising out of or attributable to:
(a) Any action taken by the Corporation in good faith in
compliance with the terms of this Agreement; or
(b) Reliance upon or use by the Corporation of any information
or materials provided by or at the direction of UFS-1 and compliance with
instructions or directions given to the Corporation by UFS-1.
8. TERMINATION. Either of the parties to this Agreement may
terminate this Agreement, with or without cause, by giving written notice of
termination to the other party. Such termination shall be effective thirty (30)
days after delivery of such written notice.
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9. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the prior written consent of
the other.
10. MISCELLANEOUS.
(a) This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by all of the parties hereto.
(b) All notices, requests, claims, demands and other
communications hereunder required to be in writing shall either be
personally delivered or mailed by First-Class Mail to the respective
parties as follows:
if to the Corporation:
Union Financial Services, Inc.
6991 East Camelback Road, Suite B-290
Scottsdale, Arizona 85251
Attn: Stephen F. Butterfield
and if to UFS-1:
Union Financial Services-1, Inc.
3015 South Parker Road
Aurora, Colorado 80014
Attn: Ronald W. Page
or to such other address as either party may have furnished to the other in
writing in accordance herewith. Any notice under this Agreement will be
deemed to have been given when so delivered or mailed, except that notices
of change of address shall only be effective upon receipt.
(c) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.
(d) CAPITALIZED TERMS. Capitalized terms used in this Agreement
that are not otherwise defined shall have the same meaning as those terms
used in the Indenture.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and year first above written.
UNION FINANCIAL SERVICES, INC.
/s/ Stephen F. Butterfield
---------------------------------------
Stephen F. Butterfield, President
UNION FINANCIAL SERVICES-1, INC.
/s/ Ronald W. Page
---------------------------------------
Ronald W. Page,
Senior Vice President
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EXHIBIT 10.1.1
AMENDMENT TO
ADMINISTRATIVE SERVICES AGREEMENT
This AMENDMENT TO ADMINISTRATIVE SERVICES AGREEMENT (the "Amendment")
is made and entered into as of the 1st day of November, 1996, by and between
Union Financial Services, Inc., a Nevada corporation (the "Corporation"), and
Union Financial Services-1, Inc., a Nevada corporation ("UFS-1").
RECITALS
G. The Corporation and UFS-1 have entered in to that certain
Administrative Services Agreement (the "Agreement") dated as of August 1, 1996,
pursuant to which the Corporation agreed to provide certain services to UFS-1 in
return for the payment of fees described therein.
H. The Corporation and UFS-1 now desire to amend the Agreement as
provided in this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Section 3(a) of the Agreement is amended in its entirety to read
as follows.
(a) FEE SCHEDULE. The Corporation will be entitled to the
following compensation for its services provided hereunder.
(i) UFS-1 has paid to the Corporation the sum of $700,000 as
compensation for services provided by the Corporation to UFS-1
pursuant to Section 1(a) of this Agreement in connection with issuance
by UFS-1 of its Taxable Student Loan Asset-Backed Notes Series 1996A
in the original principal amount of $107,700,000 and its Taxable
Student Loan Asset-Backed Notes Series 1996B in the original principal
amount of $142,200,000. On November 1, 1996, UFS-1 shall pay to the
Corporation the sum of $1,050,000 as compensation for services
provided by the Corporation to UFS-1 pursuant to Section 1(a) of this
Agreement in connection with issuance by UFS-1 of its Taxable Student
Loan Asset-Backed Notes Series 1996C in the original principal amount
of $316,100,000. UFS-1 shall pay to the Corporation such fees as the
parties may determine by mutual agreement for services rendered by the
Corporation pursuant to Section 1(a) of this Agreement in connection
with future financing transactions.
(ii) UFS-1 shall pay to the Corporation on the first day of each
calendar month following the execution of this Agreement an amount
equal to .015% of the average outstanding balance of the Loans during
the preceding month for services provided by the Corporation pursuant
to Section 1(b) through (g) of this Agreement.
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2. All of the other provisions of the Agreement remain in full
force and effect and binding upon the parties hereto, and the provisions of the
Agreement governing the Agreement, such as notices, amendments and other general
provisions, shall also govern this Amendment.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed effective as of the day and year first above written.
UNION FINANCIAL SERVICES, INC.
/s/ STEPHEN F. BUTTERFIELD
-----------------------------------
Stephen F. Butterfield, President
UNION FINANCIAL SERVICES-1, INC.
/s/ RONALD W. PAGE
-----------------------------------
Ronald W. Page,
Senior Vice President
32
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EXHIBIT 10.2
AMENDED AND RESTATED SERVICING AGREEMENT
THIS AMENDED AND RESTATED SERVICING AGREEMENT (the "Agreement") entered
into and effective as of the 19th day of June, 1996, by and between UNION BANK
AND TRUST COMPANY, a Nebraska banking corporation ("Union Bank"), and UNION
FINANCIAL SERVICES-1, Inc., a Nevada corporation ("UFS-1").
WHEREAS, Union Bank's subsidiary, UNIPAC Service Corporation ("Servicer"),
as subservicing agent, is in the business of servicing loans which are made and
guaranteed in accordance with the provisions of the Higher Education Act of
1965, as amended (the "Education Act") (references hereinafter to the "Education
Act" include rules and regulations promulgated thereunder as in effect from time
to time); and
WHEREAS, Servicer has developed and/or has available to it the systems and
services to enable it to process and service Education Loans in accordance with
the Education Act, and those guarantee agencies as are satisfactory to Servicer
("Guarantor(s)"); and
WHEREAS, Servicer has developed and/or has available to it the systems and
services to enable it to process and service Education Loans in accordance with
the Rules and Regulations (the "Regulations") promulgated by Guarantor
(references hereinafter to the "Regulations" include Rules and Regulations
promulgated thereunder as in effect from time to time); and
WHEREAS, UFS-1 acquires student loans made and guaranteed under the
Education Act ("Education Loans"); and
WHEREAS, UFS-1 desires to retain Union Bank to cause Servicer to process
and service UFS-1's Education Loans and for Servicer to act as subservicer under
the terms of that certain UNIPAC Service Corporation Guaranteed Student Loan
Program Servicing Agreement between Union Bank and Servicer, dated January 1,
1995, as amended (the "UNIPAC Servicing Agreement").
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties agree as follows:
1. DEFINITIONS. Capitalized terms which are not otherwise defined in
this Agreement shall have the meanings ascribed thereto in that certain
Indenture of Trust dated as of March 1, 1996, between Norwest Bank Minnesota,
National Association as Trustee and UFS-1.
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2. TERM.
2.1 The term of the Agreement shall continue until the earlier of (i)
termination of the Indenture, (ii) early termination after material default by
Servicer as provided for in Section 16 of this Agreement, and (iii) the
Education Loans serviced under this Agreement are paid in full.
2.2 Upon the termination of this Agreement, Union Bank shall turn over to
UFS-1 all Education Loan files complete with all information contained therein
and all current computer information on the Education Loans under service
pursuant to this Agreement in such form or fashion as UFS-1 shall reasonably
specify. Union Bank and UFS-1 specifically agree that the format used to
transfer UFS-1's data contains confidential and proprietary trade secret
information which is the exclusive property of Union Bank and/or Servicer.
Union Bank makes no claim to the specific data contained in any printout given
to UFS-1 and recognizes that said data is the exclusive property of UFS-1.
Union Bank and UFS-1 agree, however, that all aspects of the underlying computer
program, algorithms, methods of processing, specific design and layout, report
format, and the unique processing techniques and interactions of the various
aspects of Union Bank's and/or Servicer's computer program are trade secrets of,
proprietary to, and owned exclusively by Union Bank and/or Servicer. At such
deconversion, a minimum fee of $12.00 per account plus any other reasonable
expenses incurred in connection with the transfer of such files and other
information shall be paid by UFS-1; provided however, that in the event
deconversion results from early termination of this Agreement under Section 16
hereof due to the breach by Union Bank, UFS-1 shall pay only the actual expenses
incurred in connection with the transfer of such files and other information.
The confidentiality provisions of this paragraph shall survive any termination
or expiration of this Agreement.
3. DELIVERY OF COMPLETED EDUCATION LOANS FOR SERVICING AND COLLECTION.
Subject to Servicer's scheduling requirements, UFS-1 may from time to time
deliver or cause to be delivered to Servicers Education Loans with respect to
which loan processing has been completed and loan proceeds have been fully
disbursed to the student/parent borrowers prior to the date of delivery
("Completed Education Loans") to be serviced pursuant to the terms of this
Agreement. UFS-1 shall transmit to Servicer all such loan documentation as
required by Servicer to enable it to service the Completed Education Loans as
provided herein.
4. SERVICING OF COMPLETED EDUCATION LOANS. Upon acceptance of any
Completed Education Loan into Servicer's computer system and after the sale date
(if applicable) of the Completed Education Loan to UFS-1, Union Bank shall cause
Servicer to service such Education Loan in accordance with the Education Act,
the Regulations, and in accordance with the provisions of this Agreement,
including the following:
(a) Servicer shall take all steps necessary to maintain the Insurance on
Education Loans in full force at all times.
(b) Servicer shall prepare and mail directly to the student/parent
borrower all required statements, notices, disclosures and demands.
(c) Servicer shall retain records of contacts, follow-ups, collection
efforts and correspondence regarding each Education Loan.
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(d) Servicer shall provide accounting for all transactions related to
individual Education Loans, including, but not limited to, accounting for all
payments of principal and interest upon such Education Loans.
(e) Servicer shall process all deferments and forbearances.
(f) Servicer shall process all address changes and update address changes
accordingly.
(g) Servicer shall retain all documents received by Union Bank pertaining
to each Education Loan, including the original promissory note with respect to
each Education Loan.
(h) When necessary and allowable by the Education Act, Servicer shall take
all steps necessary to file a claim for loss with Guarantor, and shall be
responsible for all communication and contact with that agency necessary or
appropriate to accomplish the same.
(i) Servicer shall provide a Lender's Manifest of Education Loans on all
new accounts, accounts paid in full or converted to repayment, and provide any
other information required by Guarantor.
(j) Servicer shall provide such other services as Servicer customarily
provides and deems appropriate.
(k) Union Bank and UFS-1 agree that upon delivery of the original
promissory notes relating to the Education Loans to the Servicer as Custodian
pursuant to the Custodian Agreement, that each shall and does relinquish all
power and control over such promissory notes, subject to responsibilities of
Union Bank under this Agreement.
5. ADDITIONAL SERVICING ACTIVITIES. At UFS-1's request Union Bank agrees
to cause Servicer to perform additional servicing activities not required under
the terms of this Agreement for those Education Loans transferred to Servicer as
Completed Education Loans which have not been previously serviced in accordance
with the Education Act and Regulations, and which require additional servicing
activity to attempt to maintain or reinstate the loans' principal and interest
guarantee from the Guarantor ("Cure Procedures"). Union Bank shall cause
Servicer, utilizing Cure Procedures approved by the Guarantor, to use Servicer's
best efforts to cure all defects caused by UFS-1. Union Bank makes no
representation or warranty that the guarantee on each Education Loan will be
reinstated regardless of Servicer following the Cure Procedures as approved by
the Guarantor. UFS-1 agrees to pay Union Bank those fees for Cure Services
described in Schedule A under the topic entitled "Additional Servicing
Activity".
6. PORTFOLIOS SUBJECT TO REJECTION BY UNION BANK. UFS-1 acknowledges
that certain loan portfolio types pose a risk of financial hardship for Servicer
to service under this Agreement. Union Bank may in its discretion, prior to
placing such loans in the Servicer's system, reject certain loans or loan
portfolios ("Rejected Loans"). Union Bank shall provide UFS-1 with reasonable
advance notice as to any Rejected Loans which Union Bank declines to place on
Servicer's system. Union Bank shall have no right to reject or decline loans
after the loans are transferred to the Servicer's system.
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<PAGE>
7. REPORTS TO UFS-1. On or before the 15th day of each month, unless
some other time is provided herein, Union Bank shall cause Servicer to prepare
and deliver to UFS-1 and the Trustee (upon Trustee's request), or to such other
person as UFS-1 may designate, the following reports with respect to activity
during the preceding month:
(a) As of the last day of each month, an unaudited statement, in
reasonable detail, of all transactions during that month on Completed Education
Loans serviced by Servicer for UFS-1;
(b) Processing Status Report (daily);
(c) Check Register (daily);
(d) Posting Ledger (daily/monthly);
(e) Statistical Report (monthly);
(f) Loan Ledger/Alpha Report (monthly);
(g) Guarantor Manifest (monthly);
(h) Delinquency Report (daily/monthly);
(i) Claims Activity Report (monthly).
UFS-1 shall receive at no cost one copy of each of the foregoing reports.
Union Bank will cause Servicer to provide extra copies at the request of UFS-1.
UFS-1 shall reimburse Union Bank for the cost in producing such extra copies.
8. INTEREST COMPUTATION. Union Bank shall cause Servicer to provide on a
quarterly basis statistical data for the computation of interest and special
allowance billable to the U.S. Department of Education for UFS-1's Education
Loans. Data will be computed commencing with the date Education Loans appear on
the records of Servicer.
9. SERVICE FEE TO UNION BANK. UFS-1 shall pay to Union Bank, on or
before the 15th day of each month, or within fifteen (15) days of billing
statement (which may be sent either by Union Bank or Servicer), for and in
consideration of the services performed by Union Bank and Servicer hereunder for
the preceding month, the fee provided for in Schedule A of this Agreement
("Servicing Fee"). The Servicing Fee shall be subject to change every twelve
(12) months. Such change shall not result in an increase that will exceed three
and one-fifth percent (3.2%) cumulatively for any twelve (12) month period. In
addition, these fees are subject to renegotiation every three years, subject to
the renegotiated fees meeting approval of the Rating Agencies. In the event the
parties cannot agree to new fees for each three year period, then either party
may terminate this Agreement upon 90 days written notice to the other. In the
event Servicing Fees are not paid within thirty (30) days of the billing
statement, UFS-1 agrees Union Bank will have the following rights to (a) impose
a late charge of one and one-half percent (1 1/2%) per month against the entire
outstanding balance of the past due Servicing Fee including any prior late
charge; and (b) terminate services without notice if nonpayment persists for
sixty (60) days from
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<PAGE>
billing or more. The Servicing Fee and related charges shall be paid only
from the Trust Estate and only to the extent moneys are available in the
Revenue Fund as provided for under the terms of the Indenture.
The parties agree that should Servicer be required to make material changes
to its current servicing practices or servicing system due to changes to the
Education Act, Regulations, and/or business environment, or to other costs
beyond Union Bank's control, including but not limited to postal fees, Union
Bank may renegotiate the Servicing Fees with UFS-1 to reasonably reflect those
increased costs at any time during the term of this Agreement.
10. LOAN PAYMENTS. Student/parent borrowers will make all loan payments
to a third party lockbox established by Servicer. All cash receipts will be
remitted once a week to the Trustee for deposit into the Student Loan Holding
Fund.
11. DISCLOSURE OF INFORMATION. All data, information, records,
correspondence, reports or other documentation received by Union Bank or
Servicer pursuant to this Agreement from UFS-1 or the school which the student
attended or from the student/parent borrower, or prepared and maintained by
Union Bank or Servicer in the course of its activities under this Agreement
shall be released or divulged only to UFS-1 and the Trustee, or with respect to
information or documents relating to a particular student/parent borrower, to
that student/parent borrower, or to such other parties as Union Bank or Servicer
may be directed in writing by UFS-1 or such student/parent borrower.
12. INTELLECTUAL PROPERTY PROTECTION. Notwithstanding anything in this
Agreement to the contrary, it is the express intention of the parties to this
Agreement that all right, title and interest of whatever nature in Union Bank's
and/or Servicer's user manuals, training materials, all computer programs,
routines, structures, layout, report formats, together with all subsequent
versions, enhancements and supplements to said programs, all copyright rights
(including both source and object code) and all oral or written information
relating to Union Bank's and/or Servicer's programs conveyed in confidence by
Union Bank or Servicer to UFS-1 pursuant to this Agreement which is not
generally known to the public and which give Union Bank or Servicer an advantage
over its competitors who do not know or use such information (hereinafter
collectively referred to as "Trade Secrets"), and all other forms of
intellectual property of whatever nature is and shall remain the sole and
exclusive property of Union Bank and/or Servicer.
13. INQUIRIES. Union Bank shall answer or shall cause Servicer to answer
all inquiries received by it pertaining to Education Loans, school status or
refunds, and UFS-1 shall cooperate to the extent necessary to gather the
information needed to answer such inquiries. Such inquiries may be referred to
the school which the Student Borrower attended or is attending, if necessary.
Neither Union Bank nor Servicer shall have any responsibility for any disputes
between student/parent borrowers and schools regarding tuition, registration,
attendance, or quality of education/training.
14. AGENT AUTHORIZATION. UFS-1 hereby authorizes Union Bank and Servicer
to act on behalf of and as UFS-1's agent in the servicing of UFS-1's Education
Loans. Such authorization will include but not be limited to all correspondence
and liaison necessary with Guarantor regarding UFS-1's Education Loans,
assignment of claims to Guarantor and any/or all
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<PAGE>
other communications, correspondence, signatures or other acts appropriate to
service UFS-1's Education Loans in accordance with the Education Act and/or
Regulations.
15. LIABILITY OF UNION BANK AND SERVICER. Union Bank and Servicer assume
no responsibility or liability for failure of UFS-1 to exercise reasonable care
or due diligence and the results thereof, in making or servicing an Education
Loan prior to placing of the Education Loan on Servicer's system and prior to
the date UFS-1 holds ownership of the Education Loan. Union Bank and Servicer
also assume no liability for the failure of any student/parent borrower to repay
his or her loan, nor the failure of the United States government to pay any
principal, interest, subsidy or special allowance, nor for the failure of
Guarantor to make payment of any principal and/or interest on any of UFS-1's
Education Loans. Union Bank and Servicer shall not be responsible for
consequences of unreasonable acts of any Guarantor. In the event Servicer shall
take any action or fail to take any action which causes any Education Loan in
UFS-1's portfolio to be denied the benefit of any applicable guarantee, Union
Bank and Servicer shall have a reasonable time to cause the benefits of the
guarantee to be reinstated. If the guarantee is not reinstated within twelve
(12) months of denial by Guarantor, Union Bank shall cause Servicer to pay UFS-1
an amount equal to the outstanding principal balance plus all accrued interest
and other fees due on the Education Loan to the date of purchase, less the
amount subject to UFS-1 Risk Sharing under the Education Act and Regulations,
and thereupon Servicer shall be subrogated to all rights of UFS-1 respecting the
applicable Education Loan, including without limitation the right to collect on
the Education Loan, the right to federal subsidies, and agency authorization to
litigate in accordance with the Subrogation Agreement with Servicer. In such
event, UFS-1 agrees to perform such further acts as shall be necessary or
appropriate to subrogate the Education Loan to Servicer. For any subrogated
Education Loan for which the guarantee is fully reinstated by Guarantor, UFS-1
shall pay Servicer an amount equal to the then outstanding principle balance
plus all accrued interest due thereon, less the amount subject to UFS-1 Risk
Sharing under the Education Act and Regulations, whereupon the subrogation
rights of Servicer shall terminate. In such event, Union Bank agrees to cause
Servicer to perform such further acts as shall be necessary or appropriate to
reconvey the Education Loan to UFS-1. It is hereby acknowledged that Union Bank
shall not be performing any of the servicing activities described in this
Agreement, and that Servicer shall be responsible for performance of all such
servicing duties. As such, Union Bank shall have no liability of any nature
whatsoever arising out of or in connection with this Agreement for any negligent
or wrongful act or omission on the part of Servicer; provided, however, that
Union Bank hereby assigns, transfers and sets over unto UFS-1 all of Union
Bank's rights and remedies against Servicer as they pertain to UFS-1's Education
Loans under the UNIPAC Servicing Agreement.
16. TERMINATION OPTION. If at any time during the term of this Agreement
either party refuses or fails to perform in a material fashion any portion of
this Agreement, and fails or refuses to correct said action or lack of action
within thirty (30) days after receipt
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<PAGE>
of written notice, the other party may, upon thirty (30) days written notice,
terminate this Agreement. Without limiting the generality of the foregoing
sentence, the following shall be deemed as failure or refusal to perform in a
material fashion: (i) failure by Servicer to make deposits to the Trustee of
payments received with respect to the Education Loans, (ii) failure to
perform or observe in any material respect any covenants or agreements
contained herein, or (iii) becoming subject to an insolvency or receivership
proceeding.
17. INDEMNIFICATION. UFS-1 shall indemnify and hold Union Bank and/or
Servicer harmless from and against all claims, liabilities, losses, damages,
costs and expenses (including reasonable attorney's fees) asserted against or
incurred by Union Bank and/or Servicer as a result of Union Bank and/or Servicer
complying with any instruction or directive by UFS-1 and Union Bank and/or
Servicer shall in like manner indemnify UFS-1 for any miscompliance with any
such instruction or directive by Union Bank. UFS-1 shall further indemnify and
hold Union Bank and/or Servicer harmless from and against all claims,
liabilities, losses, damages, costs and expenses (including reasonable
attorney's fees) asserted against or incurred by Union Bank and/or Servicer as a
result of actions not the fault of or not caused by a negligent act of Union
Bank and/or Servicer, and their respective agents or employees, including all
claims, liabilities, losses, damages and costs caused by or the fault of UFS-1,
a prior holder, owner or UFS-1, a prior servicer or any other party connected in
any manner to the loan or loans resulting in the claim, liability, loss, damage
or cost.
18. STATUTE OF LIMITATIONS. Any action for the breach of any provisions
of this Agreement shall be commenced within one (1) year after the Education
Loan leaves the Servicer's servicing system.
19. GOVERNING LAW. This Agreement is executed and delivered within the
State of Colorado, and the parties hereto agree that it shall be construed,
interpreted and applied in accordance with the laws of that State, and that the
courts and authorities within the State of Colorado shall have sole jurisdiction
and venue over all controversies which may arise with respect to the execution,
interpretation and compliance with this Agreement.
20. CHANGES IN WRITING. This Agreement, including this provision hereof,
shall not be modified or changed in any manner except only by a writing signed
by all parties hereto.
21. SEVERABILITY. In the event a court of competent jurisdiction finds
any of the provisions of this Agreement to be so overly broad as to be
unenforceable or invalid for any other reason, it is the parties' intent that
such invalid provisions be reduced in scope or eliminated by the court, but only
to the extent deemed necessary by the court to render the provisions of this
Agreement reasonable and enforceable.
22. PERSONS BOUND. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their legal representatives, heirs, successors
and assigns.
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<PAGE>
23. ASSIGNMENT. This Agreement shall not be assigned by either party
without the prior written consent of the other party which consent shall not
be unreasonably withheld; provided, however, that UFS-1 may assign this
Agreement to the Trustee subject to the terms of Section 32 hereof, and Union
Bank may assign this Agreement to Servicer.
24. MUTUAL RELEASE. Each of the parties to this Agreement releases the
other party from any and all claims, or causes of the other arising from any
event or transaction occurring prior to the execution of this Agreement. This
release is an independent covenant between the parties, and will survive any
termination of this Agreement.
25. TITLES. The titles used in this Agreement are intended for
convenience and reference only. They are not intended and shall not be
construed to be a substantive part of this Agreement or in any other way to
affect the validity, construction or effect of any of the provisions of this
Agreement.
26. WAIVER. The waiver or failure of either party to exercise in any
respect any right provided for herein shall not be deemed a waiver of
any further right hereunder.
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<PAGE>
27. CONTINUITY OF LOAN SERVICING.
27.1 UFS-1 hereby agrees that it will ensure that all Education Loans
acquired, held, or sold by UFS-1 under the Act and subject to this Agreement
will remain with the Servicer for the full term of this Agreement.
27.2 In the event UFS-1 desires to sell any of its Education Loans, UFS-1
will first attempt to sell the Education Loans to an eligible lender maintaining
an agreement with Servicer, in order for the sale to cause no disruption in
service, or change in Servicer for the Borrower. Should UFS-1 decide to sell
its Education Loans to an eligible lender or holder which does not maintain an
agreement with Servicer and does not plan to have the Education Loans serviced
by Servicer, Union Bank is hereby granted the right to arrange for the purchase
of such Education Loans by an eligible lender or holder maintaining an agreement
with Servicer. Such purchase must be arranged within thirty (30) days following
the notice by UFS-1 if its intent to sell such Education Loans, which notice
must include sufficient information with respect to the Education Loans to be
sold. Union Bank has the right to arrange for the sale of such Education Loans,
provided Union Bank is able to arrange for the sale of the Education Loans
offering the same terms secured by UFS-1 in its efforts to sell such Education
Loans, subject to the continuing servicing rights granted to Servicer.
27.3 Sections 27.1 and 27.2 do not apply in the event of Union Bank's
breach or default hereunder, or with respect to a sale of the Education Loan to
a holder of other loans for the same borrower.
27.4 The intent of this Section 27 is to assure that every Education Loan
will remain with Servicer for servicing for the life of the loan.
28. REMOVAL FEE. Should UFS-1 remove any of its Education Loans from the
Servicer system prior to a scheduled termination or breach of this Agreement,
UFS-1 agrees to pay to Union Bank a removal fee of Fifteen Dollars ($15.00) per
loan transferred off the Servicer computer system, this removal fee shall be in
addition to those charges described in Section 2.2 of this Agreement, and in
addition to damages arising from a breach of Section 27 hereof.
29. FORCE MAJEURE. The foregoing provisions of this Agreement are subject
to the following limitation: If by reason of a force majeure Union Bank and/or
Servicer is unable in whole or in part to carry out any agreement on its part
herein contained, Union Bank and Servicer shall not be deemed in default during
the continuance of such inability. The term "force majeure" as used herein
shall mean, without limitation, the following: acts of God, strikes, lockouts,
or other industrial disturbances; acts of public enemies; order or restraint of
any kind of the government of the United States of America or of the State of
Colorado or City of Aurora or any of their departments, agencies or officials,
or any civil or military authority; insurrections; riots; landslides;
earthquakes; fires; storms; droughts; floods; explosions; breakage or accident
to machinery, equipment, transmission pipes or canals; or any other cause or
event not reasonably within the control of Union Bank and/or Servicer.
30. HIRING. UFS-1 agrees that during the term of this Agreement and any
extensions or renewals thereof, and for one year thereafter, UFS-1 shall not
solicit for hire, or knowingly allow its employees to solicit for hire, any
employees of Union Bank and Servicer without the prior written consent of Union
Bank or Servicer, respectively.
31. ENTIRE AGREEMENT. This is the entire and exclusive statement of the
agreement between the parties, which supersedes and merges all prior proposals,
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<PAGE>
understandings and all other agreements oral and written, between the parties
relating to this Agreement.
32. TRUSTEE AS THIRD PARTY BENEFICIARY. This Agreement has been made and
entered into not only for the benefit of Union Bank and UFS-1 but also for the
benefit of the Trustee in connection with the financing of Eligible Loans, and
upon assignment by UFS-1 to the Trustee, its provisions may be enforced not only
by the parties to this Agreement but by the Trustee. The foregoing creates a
permissive right on behalf of the Trustee and the Trustee shall be under no
duties or obligations hereunder.
This Agreement shall inure to the benefit of the Trustee and its successors
and assigns. Without limiting the generality of the foregoing, all
representations, covenants and agreements in this Agreement which expressly
confer rights upon the Trustee shall be for the benefit of and run directly to,
the Trustee, and the Trustee shall be entitled to rely on and enforce such
representations, covenants and agreements to the same extent as if it were a
party hereto. The foregoing creates a permissive right on behalf of the
Trustee, and the Trustee shall be under no duties or obligations hereunder.
If there is an Event of Default under the Indenture and the Trustee
forecloses on its security interest on the Education Loans, then the Trustee
shall assume all duties and obligations of UFS-1 hereunder, in accordance with
and subject to the Acknowledgment and Agreement re: Servicing Agreement among
the parties hereto dated of even date herewith.
[Remainder of this page intentionally left blank.]
42
<PAGE>
IN WITNESS WHEREFORE, the parties hereto have executed this Agreement as
of the date first written above.
UNION BANK AND TRUST COMPANY UNION FINANCIAL SERVICES, INC.-1
By: /s/ KEN L. BACKEMEYER By: /s/ STEPHEN F. BUTTERFIELD
-------------------------------- --------------------------------
Name: Ken L. Backemeyer Name: Stephen F. Butterfield
(Please print) (Please print)
Title: Senior Vice President Title: President
43
<PAGE>
SCHEDULE "A"
A. LOAN ORIGINATION FEE (Where Applicable).
Six Dollars ($6.00) per loan for Stafford, SLS and PLUS loan. Fifty-five
Dollars ($55.00) per loan for Consolidated loans (if applicable). In
addition, reimbursement for costs in the event a credit evaluation of the
borrower is to be performed by Union Bank.
B. CONVERSION FEE.
Five Dollars ($5.00) per account acquired by UFS and added to the Union
Bank Servicing System during the period of time the borrower is in school.
For periods of time other than when the borrower is in school, the feel
will be Ten Dollars ($10.00) per account. There shall be no charge for
loans already on the UNIPAC full servicing system.
Notwithstanding the foregoing, should any portfolio present an
"Extraordinary Conversion", requiring additional conversion services
materially beyond that customarily provided for a normal acquisition of
Education Loans, then UFS agrees to pay a conversion fee mutually agreed to
between UFS and Union Bank.
For purposes of this Agreement, whether a portfolio presents an
Extraordinary Conversion shall be determined after the data analysis, and
file review, have been conducted of the portfolio by Union Bank. Factors
to consider in determining whether a portfolio presents an Extraordinary
Conversion are as follows:
1. Unprocessed data.
2. Degree to which the conversion may be automated versus manual.
3. Integrity of the documentation. Are the files complete? Does the
data match the file content?
4. UFS adherence to its obligations and delivery schedules.
5. Presence of backlogged processing in the portfolio.
6. Whether prior servicing had substantial noncompliance with the
Education Act and Regulations.
7. Condition of the hard copy file documentation.
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<PAGE>
After consideration of the foregoing factors, UFS and Union Bank agree to
come to mutual agreement at the beginning and once again at the end of the
conversion of a particular portfolio as to whether they need to negotiate a
mutually agreeable conversion fee.
C. INTERNAL TRANSFERS. Transfers from one customer identification number to a
different customer identification number will be One Dollar and Fifty Cents
($1.50) per account transferred.
D. MONTHLY SERVICING FEE - GSL (STAFFORD) LOANS IN SCHOOL STATUS.
.90% annualized
E. MONTHLY SERVICING FEE - GSL (STAFFORD, PLUS, SLS) LOANS IN OTHER THAN
SCHOOL STATUS.
1.25% annualized
F. CONSOLIDATED LOANS.
1.25% annualized
G. BILLING FOR SERVICING FEES.
The full monthly servicing fee shall be paid commencing with the calendar
month an account is disbursed on or converted to the Union Bank system.
H. ADDITIONAL SERVICING ACTIVITY.
Thirty-five Dollars ($35.00) per Education Loan referred for such cure
services, plus ten percent (10%) of all sums made eligible for
reinstatement of guarantee (including principal, interest and special
allowance) as a result of successful performance of the Cure Procedures
required by Guarantor. (This fee shall not apply to loans that have lost
their guarantee due to an error or omission of Union Bank.)
I. MINIMUM MONTHLY FEE.
There will be a minimum monthly fee of Seven Hundred and Fifty Dollars
($750.00) per month.
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<PAGE>
J. REMOVAL FEE. Loans transferred off the Union Bank Servicing System prior
to termination of this Agreement will be assessed a fee of Fifteen Dollars
($15.00) per account.
K. DECONVERSION FEE. Loans transferred off the Union Bank Servicing System on
or after termination of this Agreement will be assessed a fee of Twelve
Dollars ($12.00) per account.
L. RECONCILIATION OF GUARANTEE BILLING.
Eighty cents ($.80) per account for the first disbursement.
M. PLUS (OR OTHER LOAN) LOAN CREDIT CHECKS. Fees for obtaining a credit
bureau report and evaluation will be Two Dollars and Fifty Cents ($2.50)
per loan application. An additional fee of Fifty Cents ($.50) will be
charged for those applications in which written authorization must first be
obtained prior to pulling a credit bureau report.
N. OTHER SERVICES
For services requested by UFS that are beyond the scope of those described
in this Agreement, the fees shall be assessed as follow:
(1) Supplies Cost Plus 15%
(2) Training $40.00 per hour
(3) Programming $70.00 per hour
(4) Consulting $80.00 per hour
Projects and services of this type shall be provided only after request by
UFS and after time and total cost estimate is provided by Union Bank.
O. LEGAL OPINIONS
Cost plus five percent (5%).
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<PAGE>
EXHIBIT 24.1
ACCOUNTANTS' CONSENT
The Board of Directors
Union Financial Services - 1, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-3 (No. 333-8929) relating to Union Financial Services - 1, Inc.
Taxable Student Loan Asset-Backed Notes of our report, dated February 7,
1997, except note 12, which is as of March 20, 1997, relating to the balance
sheet of Union Financial Services - 1, Inc. as of December 31, 1996, and
related statements of operations, stockholders' deficit and cash flows for
the period from inception (February 28, 1996) to December 31, 1996, which
report appears in the December 31, 1996 annual report on Form 10-K of Union
Financial Services - 1, Inc.
/s/ KPMG PEAT MARWICK LLP
Lincoln, Nebraska
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED FINANCIAL STATEMENTS FOR THE PERIOD FROM INCEPTION
(FEBRUARY 28, 1996) TO DECEMBER 31, 1996. ACCORDINGLY, THIS SCHEDULE IS
QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-28-1996
<PERIOD-END> DEC-31-1996
<CASH> $65,402,585
<SECURITIES> 0
<RECEIVABLES> 491,046,915
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 568,171,986
<CURRENT-LIABILITIES> 0
<BONDS> 566,000,000
0
0
<COMMON> 1,000
<OTHER-SE> (538,858)
<TOTAL-LIABILITY-AND-EQUITY> 568,171,986
<SALES> 0
<TOTAL-REVENUES> 17,026,631
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,853,202
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,987,255
<INCOME-PRETAX> (813,826)
<INCOME-TAX> 274,968
<INCOME-CONTINUING> (538,858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (538,858)
<EPS-PRIMARY> (538.86)
<EPS-DILUTED> (538.86)
</TABLE>
<PAGE>
EXHIBIT 99.3
LOAN SALE AND COMMITMENT AGREEMENT
This LOAN SALE AND COMMITMENT AGREEMENT is made and entered into as of the
1st day of November, 1996, by and between UNION BANK AND TRUST COMPANY, a
Nebraska bank and trust company, acting in its own right and in its capacity as
trustee, as seller ("Seller"), and UNION FINANCIAL SERVICES-1, INC, a Nevada
corporation, as purchaser ("Purchaser").
WITNESSETH:
WHEREAS, Seller is engaged in a program of originating, purchasing, holding
and selling loans made to eligible borrowers in accordance with the provisions
of the Higher Education Act (as defined herein), the proceeds of which are used
to pay the costs incurred by students attending post-secondary educational
institutions;
WHEREAS, Purchaser is engaged in a program of purchasing, holding and
financing Student Loans;
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, certain student loans, including Federal Stafford Loans,
Federal PLUS Loans and Federal Supplemental Loans for Students, made and
guaranteed or insured pursuant to the Higher Education Act, in accordance with
the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing premises and mutual
covenants herein contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
The capitalized words and terms used but not otherwise defined in this
Agreement shall have the respective meanings set forth in that certain Second
Amended and Restated Indenture of Trust (the "Indenture") dated as of November
1, 1996 between Purchaser and Trustee. As used in this Agreement, the following
capitalized terms, unless the context or use clearly indicates another or
different meaning or intent, shall have the following meanings:
"Agreement" shall mean this Agreement, including all exhibits attached
hereto and any supplements or amendments hereto.
"Commitment" shall mean Seller's commitment to sell Eligible Loans to
Purchaser pursuant to Section 2.1 hereof.
"Commitment Period" shall mean the period beginning on the date first above
written and ending on April 1, 1999.
"Guaranteed Loan" shall mean a Student Loan which is Guaranteed or Insured.
"Higher Education Act" shall mean the Act.
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<PAGE>
"Insured Loan" shall mean a Student Loan which is Insured.
"Interest Benefit Payments" shall mean interest payments on Student Loans
received pursuant to an Interest Benefits Agreement.
"Obligation" shall mean any bond, note or other evidence of indebtedness
issue by
Purchaser to finance the purchase of Eligible Loans hereunder.
"Portfolio" shall mean a group of Eligible Loans sold to Purchaser by
Seller pursuant to Section 2.1 hereof on a Scheduled Sale Date.
"Principal Balance" shall mean the original principal amount of a Student
Loan, PLUS capitalized interest (if any) and items which may not be guaranteed
or insured (such as late charges), LESS payments of principal by or on behalf of
the Student Borrower.
"Purchase Price" shall mean 101.40% of the aggregate Principal Balance of
the Eligible Loans included in the Portfolio, plus accrued and unpaid interest
thereon, each as of the Scheduled Sale Date.
"Purchaser" shall mean Union Financial Services-1, Inc., or its successors
or assigns.
"Scheduled Sale Date" shall mean the dates specified in Section 2.1 for
purchase of a Portfolio of Eligible Loans by Purchaser, unless such date is
changed by mutual agreement of the parties, in which case the Scheduled Sale
Date shall be the new date agreed to by the parties.
"Seller" shall mean Union Bank and Trust Company, in its own right and as
trustee,
or its successors or assigns.
"Student Borrower" shall mean the obligor on a Student Loan.
"Student Loan" shall mean a loan under the Higher Education Act to an
Eligible Borrower for education at an Eligible Institution (or a loan to
consolidate the same).
"UNIPAC" shall mean UNIPAC Servicing Corporation, or its successors or
assigns.
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ARTICLE II
LOAN SALE COMMITMENT
2.1 LOAN SALE COMMITMENT. Subject to the terms and conditions of this
Agreement, and in express reliance upon the representations, warranties and
covenants set forth herein, Seller agrees to sell, and Purchaser agrees to
purchase at the Purchase Price all right, title and interest of the Seller in
and to Eligible Loans having an aggregate Principal Balance of $300 million,
which sale and purchase is to be consummated on or before each of the following
Scheduled Sale Dates: (i) November 1, 1996: $260 million; and (ii) February 1,
1997: $40 million.
Upon sale of the Eligible Loans to the Purchaser, the Seller shall
relinquish all power and control over the original promissory notes relating to
such Eligible Loans, and the Purchaser shall relinquish all power and control
over such original promissory notes upon delivery to UNIPAC as custodian
pursuant to the provisions of that certain Custodian Agreement among the
Purchaser, between UNIPAC and the Trustee dated as of March 1, 1996.
2.2 DELIVERY PRIOR TO SCHEDULED SALE DATE. The parties agree that
consummation of the sale of a Portfolio of Eligible Loans may occur prior to
the Scheduled Sale Dates set forth above at the discretion of the Seller;
provided, however, that the requirements of Section 4.1 shall be met in
connection with such sale; and provided further, that the sale of the
Portfolios of Eligible Loans shall be consummated no later than the dates set
forth above. The aggregate Principal Balance of any Eligible Loans sold by
Seller to Purchaser pursuant to this Agreement or otherwise prior to of the
Scheduled Sale Date shall correspondingly reduce the Seller's commitment on
the Scheduled Sale Date.
2.3 REBATE OF PREMIUM. In the event the Seller originates or purchases a
Consolidation Loan under Section 428C of the Higher Education Act and the
proceeds of such Consolidation Loan are used to repay the principal and interest
due on an Eligible Loan sold by Seller to Purchaser under this Agreement, then,
upon demand by Purchaser (or without demand if Seller has actual knowledge of
such repayment), Seller shall rebate the premium paid by Purchaser to Seller in
connection with the purchase of said Eligible Loan by paying to Purchaser an
amount equal to 1.40% of the principal balance of said Eligible Loan then
outstanding; provided, that the rebate specified herein shall not be payable to
the extent paid pursuant to Section 5.2 hereof.
2.4 CHARACTERIZATION OF TRANSFER. The Purchaser and each Seller intend
that each transfer under Section 2.01 be treated as a true and absolute sale of
all of the Seller's right, title and interest in and under the Eligible Loans
and not a transfer intended as a security interest.
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ARTICLE III
PORTFOLIO CHARACTERISTICS AND SERVICING
3.1 PORTFOLIO CHARACTERISTICS. The Portfolios of Eligible Loans sold by
Seller to Purchaser under this Agreement shall have the following
characteristics: (i) the Eligible Loans shall, in the aggregate, have an average
borrower indebtedness ("ABI") of at least $3,500.00; (ii) no more than 30% of
the aggregate Principal Balance of all of the Eligible Loans as of the date of
sale may be attributable to Student Loans the proceeds of which funded tuition
to private Eligible Institutions offering only non-baccalaureate degrees; (iii)
at least 70% of the aggregate Principal Balance of all of the Eligible Loans as
of the date of sale shall be attributable to Federal Stafford Loans (as defined
in the Higher Education Act) which qualify for Interest Benefit Payments, PLUS
Loans or SLS Loans; (iv) no more than 30% of the aggregate Principal Balance of
all of the Eligible Loans as of the date of sale may be attributable to
Unsubsidized Loans, and (v) no more than 50% of the aggregate Principal Balance
of all of the Eligible Loans as of the date of sale may be attributable to
Consolidation Loans, unless otherwise agreed by the Parties. An individual
Portfolio of Eligible Loans sold pursuant to this Agreement may not have the
characteristics described in the preceding sentence if, immediately after the
consummation of the purchase of such Portfolio of Eligible Loans, the aggregate
of all Eligible Loans sold to Purchaser pursuant to this Agreement shall have
such characteristics. If Purchaser does not object to the characteristics of
any Portfolio of Eligible Loans, sold pursuant to this Agreement, within 30 days
of such sale, Purchaser shall be deemed to have waived any objection to the
characteristics of such Portfolio.
3.2 SERVICING. All of the Eligible Loans that may be sold by Seller to
Purchaser pursuant to this Agreement are currently serviced (or will be serviced
on the Scheduled Sale Date) by UniPac pursuant to the Servicing Agreement. On
the effective date (determined under Section 4.4 hereof) for the sale of a
Portfolio of Eligible Loans, Purchaser shall cause UniPac to commence servicing
such Portfolio pursuant to the Servicing Agreement at Purchaser's expense and
under the identification number of Purchaser or its designee.
ARTICLE IV
SALE/PURCHASE OF PORTFOLIOS
4.1 TENDER OF ELIGIBLE LOANS TO PURCHASER. With respect to a Portfolio of
Eligible Loans to be sold to Purchaser pursuant to Section 2.1 hereof prior to
the Scheduled Sale Date (or at such other time as the parties may agree), Seller
shall furnish Purchaser or its designee with a list of the Eligible Loans (each,
a "Schedule of Student Loans") to be included in such Portfolio, and shall
authorize and direct UniPac to release such information and documentation to
Purchaser or its designee as Purchaser, in its reasonable judgement, deems
necessary and appropriate to undertake a review of such loans to determine
whether (i) such loans constitute Eligible Loans under this Agreement, and (ii)
the Portfolio, aggregated with the other Eligible Loans that have been sold to
Purchaser by Seller if appropriate, comply with the requirements set forth in
Section 3.1 hereof.
4.2 CONDITIONS OF PURCHASE. Purchaser's obligation to purchase and pay
for Eligible Loans in a Portfolio hereunder shall be subject to the following
conditions precedent:
(a) the Eligible Loans in the Portfolio, aggregated with the other
Eligible Loans that have been sold to Purchaser by Seller if appropriate, shall
meet the requirements described in Section 3.1 hereof;
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(b) all representations, warranties and statements by or on behalf of
Seller contained in this Agreement are true on the Scheduled Sale Date;
(c) any notification to or approval by the Secretary or Guarantee Agency
required by the Higher Education Act or the Guarantee Agreement as a condition
to the assignment of Eligible Loans shall have been made or received and
evidence thereof delivered to both Purchaser and the Trustee;
(d) the entire interest of Seller in each Eligible Loan shall have been
duly assigned by endorsement, such endorsement to be without recourse except as
provided in Article V hereof;
(e) the Seller shall, at its own expense, indicate in its files that the
Student Loans sold on such date have been sold to the Purchaser pursuant to this
Agreement and pledged and assigned by the Purchaser to the Trustee for the
benefit of the Registered Owners, and the Seller shall deliver to the Purchaser
a Schedule of Student Loans certified by the Chairman, the President, the Vice
President or the Treasurer of the Seller to be true, correct and complete as of
the date thereof. Further, the Seller hereby agrees that the computer files
maintained by the Seller as Servicer will bear an indication reflecting that the
Student Loans sold to the Purchaser pursuant to this Agreement are owned by the
Purchaser; and
(f) prior to or on each Scheduled Sale Date, the Seller shall record and
file, at its own expense, appropriate UCC-3 termination statements with respect
to any previous liens on such Student Loans being sold and purchased hereunder.
4.3 REJECTION OF STUDENT LOANS BY PURCHASER PRIOR TO PURCHASE.
(a) If (i) Seller is unable to make or furnish the representations and
warranties required to be made or furnished by it pursuant to this Agreement as
to such Student Loan, or (ii) Seller is unable to fulfill one or more covenants
or conditions of this Agreement as to such Student Loan, or (iii) Purchaser in
its reasonable judgment deems that such Student Loan does not comply with the
terms and conditions of this Agreement or is not being delivered in compliance
with such terms and conditions; or (iv) the conditions of Section 4.2 shall not
have been complied with, then Purchaser may, in its sole discretion, refuse to
accept and purchase any Student Loan.
(b) If Purchaser rejects a Student Loan, any such Student Loan shall be
excluded from the sale, and Seller shall be furnished with a letter identifying
each excluded Student Loan and stating the basis for its exclusion. If
Purchaser rejects a Student Loan, Seller may substitute a different Eligible
Loan for the rejected Student Loan, provided, however, that the terms and
conditions of such Eligible Loan are in compliance with the terms and conditions
of this Agreement.
4.4 CONSUMMATION OF SALE AND PURCHASE OF PORTFOLIO.
(a) To consummate the sale and purchase of a Portfolio of Eligible Loans,
on or before the Scheduled Sale Date, Seller shall deliver to the Trustee on
behalf of Purchaser such instruments of transfer, including a bill of sale and
blanket endorsement, as Purchaser shall reasonably deem necessary for conveyance
of title of the Eligible Loans contained in the Portfolio free and clear of all
liens, encumbrances and security interests, and, upon receipt by Trustee of such
instruments of transfer (which may occur by delivery of facsimile copies to be
followed by delivery of the original executed instruments), the Purchaser shall
direct and cause the Trustee, on behalf of Purchaser, to pay to Seller on said
date the Purchase Price for such Portfolio. The purchase and sale of the
Portfolio shall be effective as of the date of the bill of sale. Seller shall
retain all ownership rights
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with respect to Eligible Loans in a Portfolio at all times prior to the
effective date of the sale of such Portfolio.
(b) Unless otherwise agreed by Seller, Purchaser and the Trustee, payment
of the Purchase Price for a Portfolio of Eligible Loans shall be made by wire
transfer of immediately available funds to Seller or its designated agent, with
no offset, deduction, reserve or other holdback by Purchaser or the Trustee.
4.5 OTHER INFORMATION AND DOCUMENTS. Seller shall furnish or make
available to Purchaser such additional information concerning Seller's Student
Loan portfolio as Purchaser may reasonably request. Seller shall execute all
other documents and take all Other steps as may be reasonably requested by
Purchaser or the Trustee from time to time to effect the sale hereunder of a
Portfolio of Eligible Loans.
ARTICLE V
REPURCHASE OBLIGATION OF SELLER
5.1 CONDITIONS PRECEDENT TO REPURCHASE OBLIGATION. At the request of
Purchaser or the Trustee, Seller shall repurchase any Student Loan purchased by
Purchaser pursuant to this Agreement if:
(a) any representation or warranty made or furnished by Seller in or
pursuant to this Agreement shall prove to have been materially incorrect as to
such Student Loan;
(b) the Secretary or a Guarantee Agency, as the case may be, refuses to
honor all or part of a claim filed with respect to a Student Loan (including any
claim for interest subsidy, Special Allowance Payments, Insurance, reinsurance
or Guarantee Payments) on account of any circumstance or event that occurred
prior to the sale of such Student Loan to Purchaser; or
(c) on account of any wrongful or negligent act or omission of Seller or
its servicing agent that occurred prior to the sale of a Student Loan to
Purchaser, a maker (or endorser, if any) has a valid defense that makes the
Student Loan unenforceable with respect to his or her obligation to pay all or
any part of the Student Loan.
5.2 REPURCHASE BY SELLER. Upon the occurrence of any of the conditions
set forth in Section 5.1 hereof and upon the request of Purchaser or the
Trustee, Seller shall pay to the Trustee, for the account of Purchaser, an
amount equal to 101.40% of the then-outstanding principal balance of such
Student Loan, plus interest and Special Allowance Payments accrued and unpaid
with respect to such Student Loan from the Scheduled Sale Date to and including
the date of repurchase, plus any attorneys' fees, legal expenses, court costs,
servicing fees or other expenses incurred by Purchaser, the Trustee or the
appropriate successors or assigns in connection with such Student Loans and
arising out of the reasons for the repurchase. The repurchase obligation of
Seller pursuant to this Section 5.2 shall constitute the sole remedy to the
Purchaser against the Seller with respect to any event described in Section 5.1.
With respect to any Student Loan repurchased by Seller pursuant to this
Agreement, the Purchaser shall assign, without recourse, representation or
warranty, to the Seller all of Purchaser's right, title and interest in and to
such Student Loan, and all security and documents relating thereto.
ARTICLE VI
COVENANTS AND ONGOING OBLIGATIONS OF SELLER
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6.1 OBLIGATION OF SELLER TO FORWARD PAYMENTS. Seller shall promptly
remit, or cause to be remitted, to the Trustee or the Servicer as it or they may
direct, all funds received by Seller after the Scheduled Sale Date which
constitute payments of principal or interest or Special Allowance Payments
accrued after the Scheduled Sale Date with respect to any Student Loan sold
pursuant to Section 2.1 hereof.
6.2 OBLIGATION OF SELLER TO FORWARD COMMUNICATIONS. Seller shall
immediately transmit to Purchaser any communication received by Seller after the
Scheduled Sale Date with respect to a Student Loan or the borrower under such a
Student Loan. Such communication shall include, but not be limited to, letters,
notices of death or disability, adjudication of bankruptcy and similar documents
and forms requesting deferment of repayment or loan cancellations.
6.3 NOTIFICATION TO STUDENT BORROWERS. Seller and Purchaser shall provide
each borrower under the Eligible Loans purchased under this Agreement with
notice of the assignment and transfer to the Trustee for the account and on
behalf of Purchaser of Seller's interest in such Eligible Loans as required by
the Higher Education Act.
6.4 NO MODIFICATION OF LENDER AGREEMENTS. Seller will consent to no
amendments to, or modifications of the Contract of Insurance or Guarantee
Agreement that may affect Eligible Loans which are sold or to be sold pursuant
to this Agreement without the prior written consent of Purchaser, which consent
shall not be unreasonably withheld. Amendments or modifications required by the
Higher Education Act are excluded from the requirement of this Section 6.4.
6.5 CLEAR TITLE. The Seller shall cause all termination statements, or
partial releases, as the case may be, with respect to prior liens, financing
statements and continuation statements and any other necessary documents
covering the right, title and interest of the Purchaser in and to the Student
Loans to be promptly filed, and at all times (except with respect to termination
statements) to be kept recorded, registered and filed, all in such manner and in
such places as may be required by law fully to preserve and protect the right,
title and interest of the Purchaser hereunder to the Student Loans. The Seller
shall deliver to the Purchaser and the Trustee file-stamped copies of, or filing
receipts for, any document recorded, registered or filed as provided above, as
soon as available following such recordation, registration or filing. The
Purchaser shall cooperate fully with the Seller in connection with the
obligations set forth above and will execute any and all documents reasonably
required to fulfill the intent of this Section 6.5. The Seller shall be under no
obligation hereunder in the event no prior liens exist with respect to the
Student Loans.
Except for the conveyances hereunder or as specified herein, the Seller
will not purport to sell, pledge, assign or transfer to any other person, or
grant, create, incur, assume or suffer to exist any lien on the Student Loans
purchased and assigned hereunder or on any interest therein, and the Seller
shall defend the right, title, and interest of the Purchaser in, to and under
such Student Loans against all claim of third parties claiming through or under
the Seller.
6.6 DEFENSES. Seller shall take all reasonable actions to assure that no
maker of an Eligible Loan has or may acquire a defense to the payment thereof on
account of Seller's action or inaction during the time in which Seller owned the
Eligible Loan.
6.7 RELEASE OF GUARANTEE AGENCY OR SECRETARY. Seller will not, with
respect to any Eligible Loan subject to this Agreement, agree to release the
Guarantee Agency or the Secretary from any of its contractual obligations to
Guarantee or Insure such loan, or agree to otherwise alter, amend
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or renegotiate any terms or conditions under which such Eligible Loan is
Guaranteed or Insured, without the express prior written consent of Purchaser
and the Trustee.
6.8 BORROWER WITHDRAWAL. In the event a Student Borrower withdraws within
the period specified as qualifying for a cancellation refund by the Guarantee
Agency, Seller agrees to pay the amount of the premium to be refunded to
Purchaser.
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents
and warrants to Purchaser that:
(a) ORGANIZATION AND AUTHORITY OF SELLER. Seller is duly organized,
validly existing and in good standing under the laws of the State of Nebraska,
and has all necessary statutory power and authority to own its assets and carry
on its business as now being conducted; Seller has, and its officers acting on
its behalf have, all necessary statutory power and authority to make and perform
this Agreement, including (without limitation) the power and authority to sell,
assign and transfer Student Loans to the Trustee on behalf of Purchaser, and to
repurchase Student Loans as required under the terms hereof.
(b) ELIGIBLE LENDER STATUS. Seller has applied for and received the
Secretary's or Guarantee Agency's designation, as the case may be, as an
"eligible lender" under the Higher Education Act.
(c) LEGAL AND BINDING OBLIGATION. The execution, delivery and performance
of this Agreement by Seller have been duly authorized by all necessary corporate
action, and do not require any stockholder approval or approval or consent of or
notice to, any trustee or holders of indebtedness or obligations of Seller; upon
due execution and delivery by the parties hereto, this Agreement will constitute
the legal, valid and binding obligation of Seller, enforceable in accordance
with its terms.
(d) NO CONFLICTS. Neither the execution, delivery or performance by
Seller of this Agreement, nor the consummation or performance by Seller of the
transactions contemplated hereby, will conflict with, result in a violation of
or constitute a default (or an event which could constitute a default with the
passage of time or notice or both) under, (i) any of the term of Seller's
charter or bylaws, or (ii) any indenture, mortgage, contract or other
agreement to which Seller is a party or by which it or its properties are
bound, or any law or regulation by which it or its properties are bound,
where, in the case of this clause (ii), such conflict, violation or default
could have a material adverse effect on Seller's ability to perform its
obligations hereunder. Seller is not a party to or bound by any agreement or
instrument or subject to any charter or other corporate restrictions or
judgment, order, writ, injunction, decree, law, rule or regulation which may
materially and adversely affect the ability of Seller to perform its
obligations under this Agreement.
(e) NO DEFAULTS OR VIOLATIONS. Seller is not in default under any
mortgage, deed of trust, indenture or other instrument or agreement to which
Seller is a party or by which it or its properties are bound, or in violation of
any law or regulation, which default or violation could have a material adverse
effect on Seller's ability to perform its obligations hereunder.
(f) NO CONSENTS. No consent, approval or authorization of any government
or governmental body, including (without limitation) the Office of Thrift
Supervision, the Federal
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Deposit Insurance Corporation, the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System or any state bank regulatory agency,
is required in connection with the execution, delivery and performance of
this Agreement, or the consummation of the transactions contemplated hereby.
(g) NO LITIGATION. There are no pending or threatened actions or
proceedings by or before any court, administrative agency or arbitrator, that
could if adversely determined, materially and adversely affect the ability of
Seller to perform its obligations hereunder, and there are no presently existing
orders of any court, administrative agency or arbitrator that could have a
material and adverse effect on the ability of Seller to perform its obligations
hereunder.
(h) CONTINUING OBLIGATION OF SELLER. Seller agrees that during the term
of this Agreement, it will (i) remain in good standing and qualified to do
business under the laws of the United States of America and the jurisdictions in
which it operates, (ii) conduct its business in accordance with all applicable
state and federal laws, (iii) continue to be qualified to carry out this
Agreement, and (iv) be an "eligible lender" under the Higher Education Act and
continue to be approved by the Guarantee Agency.
(i) SOLVENCY. The fair salable value of the assets on a going concern
basis of the Seller and its subsidiaries, on a consolidated basis, as of the
time of each Scheduled Sale Date is in excess of the total amount of their
liabilities. With respect to each Scheduled Sale Date, at the close of the
immediately preceding fiscal quarter of the Seller, the Seller had a positive
net worth as determined in accordance with generally accepted accounting
principles.
7.2 REPRESENTATIONS AND WARRANTIES OF SELLER WITH RESPECT TO STUDENT
LOANS. Seller hereby represents and warrants to Purchaser that as of the date
of sale of any Eligible Loan:
(a) ACCURACY OF INFORMATION. Any information furnished by Seller to
Purchaser or its agents with respect to any Eligible Loan is true, complete
and correct.
(b) VALIDITY OF LOANS. Each Eligible Loan has been duly executed and
delivered and constitutes the legal valid and binding obligation of the maker
(and the endorser, if any) thereof, enforceable in accordance with its terms.
(c) NO DEFENSES AGAINST REPAYMENT OF LOANS. The amount of the unpaid
principal balance of each Eligible Loan is true and owing, and no counterclaim,
offset, defense or right to rescission exists with respect to any Eligible Loan
which can be asserted and maintained or which, with notice, lapse of time, or
the occurrence or failure to occur of any act or event, could be asserted and
maintained by the borrower against the Trustee as assignee thereof. The rate of
interest carried by each Eligible Loan is the which was allowable by law at the
time the loan was made, and no such Eligible Loan carries a rate of interest in
excess of that permitted by the provisions of the Higher Education Act.
(d) OWNERSHIP AND LOCATION OF LOANS; EXISTENCE OF LIENS. Seller is the
sole owner and holder of each Eligible Loan and has full right and authority to
sell and assign the same free and clear of all liens, pledges or encumbrances,
and upon the endorsement and delivery of promissory notes evidencing such
Eligible Loan to Purchaser pursuant to this Agreement, Purchaser will acquire
full right, title and interest in the Eligible Loan free and clear of all liens,
pledges or encumbrances whatsoever. All documentation relating to the Eligible
Loans, including the original promissory note for each Eligible Loan, is in the
possession of UniPac.
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(e) GUARANTEE AND INSURANCE ON LOANS. Each Eligible Loan sold hereunder
is either Insured or Guaranteed. With respect to all Insured Loans being
acquired, a Contract of Insurance is in full force and effect with respect
thereto, the applicable Certificates of Insurance are valid and binding upon the
parties thereto in all respects, Seller is not in default in the performance of
any of its covenants and agreements made in respect thereof and such Insurance
is freely transferable as an incident to the sale of each Eligible Loan to be
sold. With respect to all Guaranteed Loans being acquired, a Guarantee
Agreement is in full force and effect with respect thereto and is valid and
binding upon the parties thereto in all material respects, Seller is not in
default in the performance of any of its covenants and agreements made in such
Guarantee Agreement, and such Guarantee is freely transferable as an incident to
the sale of each Eligible Loan to be sold. All amounts due and payable to the
Secretary or the Guarantee Agency, as the case may be have been paid in full by
Seller, and none of the Eligible Loans to be sold to Purchaser has at any time
been tendered to either the Secretary or the Guarantee Agency for payment.
(f) COMPLIANCE WITH HIGHER EDUCATION ACT. Each Eligible Loan complies in
all respects with the requirements of the Higher Education Act and is an
Eligible Loan as those terms are defined in this Agreement.
(g) COMPLIANCE WITH FEDERAL LAWS. Each Eligible Loan was made in
compliance with all applicable local, state and federal laws, rules and
regulations, including without limitation all applicable nondiscrimination,
truth-in-lending, consumer credit and usury laws.
(h) NO DISCRIMINATION. In making each Eligible Loan to be purchased by
Purchaser pursuant to this Agreement, Seller has not discriminated based upon
the educational institutions attended by, or the age, sex, race, national
origin, color, religion, handicapped status, income, attendance at a particular
eligible institution within the area served by Purchaser, length of the Student
Borrower's educational program, or the Student Borrower's academic year in
school.
(i) SERIAL LOANS. The Eligible Loans to be purchased pursuant to this
Agreement include all Eligible Loans of any one borrower held by Seller.
(j) DUE DILIGENCE IN SERVICING LOANS. Seller and any independent servicer
have each exercised and shall continue until the Scheduled Sale Date to exercise
due diligence and reasonable care in making, administering, Servicing and
collecting the Eligible Loans and Seller has conducted a reasonable
investigation of sufficient scope and content to enable it duly to make the
representations and warranties contained in this Agreement. Seller has paid the
costs and expenses incident to origination of the Eligible Loans, and has no
right of reimbursement therefor from Purchaser.
(k) ORIGINATION FEES. Seller has reported the amount of origination fees
(if any) authorized to be collected with respect to any Eligible Loan pursuant
to Section 438(c) of the Higher Education Act to the Secretary for the period in
which such fee was authorized to be collected; and Seller has made any refund of
an origination fee collected in connection with any Eligible Loan which may be
required pursuant to the Higher Education Act.
(l) INSURANCE PREMIUM. For each Eligible Loan Seller has reported the
amount of the insurance premium authorized to be collected, and has paid said
premium to the Guarantee Agency or the Secretary with all rights therein inuring
to Purchaser.
(m) SCHEDULE OF STUDENT LOANS. The information set forth in each Schedule
of Student Loans is true and correct in all material respects as of the opening
of business on the respective
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Scheduled Sale Date, and no selection procedures believed to be adverse to
the Purchaser have been utilized in selecting the Student Loans for inclusion
therein.
(n) TITLE. It is the intention of the Seller that the transfer and
assignment from the Seller to the Purchaser herein contemplated constitute a
true sale of the Student Loans to the Purchaser and that neither the interest in
nor title to the Student Loans shall become or be deemed property of the Seller
for any purpose under state or federal law.
(o) DOCUMENTS. The Seller shall furnish and file, if appropriate, any
document reasonably requested by the Purchaser to perfect the Purchaser's
ownership interest in the Student Loans.
(p) NO FRAUDULENT CONVEYANCE. The transactions contemplated by this
Agreement are and will be in the ordinary course of the Seller's business and
the Seller has valid business reasons for transferring the Student Loans rather
than obtaining a secured loan with the Student Loans as collateral. Both before
and immediately after giving effect to any transfer: (i) the Seller transferred
or will transfer the Student Loans to the Purchaser without any intent to
hinder, delay or defraud any current or future creditor of the Seller; (ii) the
Seller was not or will not be insolvent or did not or will not become insolvent
as a result of any transfer; (iii) the Seller was not engaged and was not about
to engage, and will not engage, in any business or transaction for which any
property remaining with the Seller was or will constitute unreasonably small
capital in relation to the business of the Seller or the transaction; and (iv)
the Seller did not intend or will not intend to incur, and did not believe or
reasonably should not have believed, or will not believe or reasonably shall not
have believed, that it would incur, debts beyond its ability to pay as they
become due.
(q) SALES NOT SUBJECT TO BULK TRANSFER. Each sale, transfer, assignment
and conveyance of the Student Loans by the Seller pursuant to this Agreement is
not subject to the bulk transfer or any similar statutory provisions in effect
in any applicable jurisdiction.
(r) NO TRANSFER TAXES DUE. Each sale, transfer, assignment and conveyance
of the Student Loans (including all payments due or to become due thereunder) by
the Seller pursuant to this Agreement is not subject to and will not result in
any tax, fee or governmental charge payable by the Purchaser or the Seller to
any federal, state or local government ("Transfer Taxes") except such Transfer
Taxes as are paid by the Seller at the time of transfer, assignment and
conveyance and except UCC filing fees. In the event that the Purchaser receives
actual notice of any unpaid Transfer Taxes arising out of the transfer,
assignment and conveyance of the Student Loans, on written demand by the
Purchaser, or upon the Seller otherwise being given notice thereof, it shall
pay, and otherwise indemnify and hold the Purchaser and the Trustee harmless
therefor. The Seller shall not be responsible for the Purchaser's or the
Trustee's income taxes.
7.3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER. Purchaser
hereby represents, covenants and warrants to Seller that:
(a) ORGANIZATION AND AUTHORITY OF PURCHASER. Purchaser is a duly
organized, validly existing corporation in good standing under the laws of the
State of Nevada; Purchaser has, and its officers acting on its behalf have, all
necessary statutory power and authority to make and perform this Agreement,
including (without limitation) the power and authority to purchase Student Loans
from Seller under the terms and conditions of this Agreement.
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(b) LEGAL AND BINDING OBLIGATION. The execution, delivery and performance
of this Agreement by Purchaser have been duly authorized by all necessary
corporate action, and do not require any stockholder approval or approval or
consent of, or notice to, any trustee or holders of indebtedness or obligations
of Purchaser; upon due execution and delivery by the parties hereto, this
Agreement will constitute the legal, valid and binding obligation of Purchaser,
enforceable in accordance with its terms.
(c) NO CONFLICT. Neither the execution, delivery and performance by
Purchaser of this Agreement, nor the consummation or performance by Purchaser of
the transactions, contemplated hereby, will conflict with, result in a violation
of, or constitute a default (or an event which could constitute a default with
the passage of time or notice or both) under, (i) any of the terms of
Purchaser's charter or bylaws, or (ii) any indenture, mortgage, contract or
other agreement to which Purchaser is a party or by which it or its properties
are bound, or any law or regulation by which it or its properties are bound,
where, in the case of this clause (ii), such conflict, violation or default
could have a material adverse effect on Purchaser's ability to perform its
obligations hereunder. Purchaser is not a party to or bound by any agreement or
instrument or subject to any charter or other corporate restrictions or
judgment, order, writ, injunction, decree, law, rule or regulation which may
materially and adversely affect the ability of Purchaser to perform its
obligations under this Agreement.
(d) NO DEFAULTS OR VIOLATIONS. Purchaser is not in default under any
mortgage, deed of trust, indenture or other instrument or agreement to which
Purchaser is a party or by which it or its properties are bound, or in violation
of any law or regulation, which default or violation could have a material
adverse effect on Purchaser's ability to perform its obligations hereunder.
(e) NO CONSENTS. No consent, approval or authorization of any government
or governmental body is required in connection with the execution, delivery and
performance of this Agreement, or the consummation of the transactions
contemplated hereby.
(f) NO LITIGATION. There are no pending or threatened actions or
proceedings by or before any court, administrative agency or arbitrator, that
could if adversely determined, materially and adversely affect the ability of
Purchaser to perform its obligations hereunder, and there are no presently
existing orders of any court, administrative agency or arbitrator that could
have a material and adverse affect on the ability of Purchaser to perform its
obligations hereunder.
(g) CONTINUING OBLIGATION OF PURCHASER. Purchaser agrees that during the
term of this Agreement, it will (i) remain in good standing and qualified to do
business under the laws of the State of Nevada, the United States of America and
any other jurisdictions in which it operates, (ii) conduct its business in
accordance with all applicable state and federal laws, and (iii) continue to be
qualified to carry out this Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 COMMUNICATIONS AND NOTICES. Unless otherwise expressly provided
herein, all notices, requests, demands or other instruments which may or are
required to be given by either party to the other or to the Trustee, shall be in
writing, and each shall be deemed to have been properly given when served
personally on an officer of the party to whom such notice is to be given, or
upon
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expiration of a period of 48 hours from and after the postmark thereof when
mailed postage prepaid by registered or certified mail, requesting return
receipt, addressed as follows:
If to Seller:
Union Bank and Trust Company
3643 S. 48th Street
Lincoln NE 68506-0155
Attention: Ken Backemeyer, Senior Vice President
(402) 483-8131
Fax: (402) 483-8286
If to Purchaser:
Union Financial Services-1, Inc.
6991 E. Camelback Road,
Scottsdale, AZ 85251
Attention: Mr. Stephen F. Butterfield, President
(602) 947-7703
Fax: (602) 947-5452
If to the Trustee:
Norwest Bank Minnesota, National Association
6th Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department, Student Loan Group
(612) 667-0822
Fax: (612) 667-9825
Any party may change the address and name of the addressee to which subsequent
notices are to be sent to it, by notice to the others given as aforesaid, but
any such notice of change, if sent by mail, shall not be effective until the 5th
day after it is mailed.
8.2 FORMS OF INSTRUMENTS PROCEEDINGS. All instruments relating to the
sale and purchase of the Student Loans, and all proceedings to be taken in
connection with this Agreement and the transactions contemplated herein, shall
be in form and substance mutually satisfactory to Seller and Purchaser and their
respective counsel.
8.3 PAYMENT OF EXPENSES. Each party to this Agreement shall pay its own
expenses incurred in connection with the preparation, execution and delivery of
this Agreement and the transactions herein contemplated, including, but not
limited to, the fees and disbursements of counsel.
8.4 NON-BUSINESS DAYS. If the date for taking any action required
hereunder is not a Business Day, then such action can be taken, without interest
or penalty, on the next succeeding Business Day, with the same force and effect
as if such action was taken on the required date.
8.5 AMENDMENTS, MODIFICATIONS AND WAIVERS. The provisions of this
Agreement
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cannot be amended, waived or modified unless such amendment, waiver or
modification be in writing and signed by the parties hereto and the Trustee.
Inaction or failure to demand strict performance shall not be deemed a waiver.
8.6 SEVERABILITY. If any provision of this Agreement shall be held, or
deemed to be or shall, in fact, be inoperative or unenforceable as applied in
any particular situation, such circumstance shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
situation or of rendering any other provision or provisions herein contained
invalid, inoperative or unenforceable to any extent whatsoever. The invalidity
of any one or more phrases, sentences, clauses or paragraphs herein contained
shall not affect the remaining portions of this Agreement or any part hereof.
8.7 REMEDIES. Unless otherwise expressly provided herein, no remedy by
the terms of this Agreement conferred upon or reserved to the Trustee or
Purchaser is intended to be exclusive of any other remedy, but each and every
such remedy shall be cumulative and in addition to every other remedy given
under this Agreement or existing at law or in equity (including, without
limitation, the right to such equitable relief by way of injunction),
or statute on or after the date of this Agreement.
8.8 ASSIGNMENT. This Agreement may not be assigned or otherwise
transferred, in whole or in part, by one party without the prior written consent
of the other parties, which consent shall not unreasonably be withheld;
provided, however, that Seller acknowledges that (i) Purchaser intends to assign
its rights (but none of its duties and obligations) under this Agreement to the
Trustee, (ii) Purchaser intends to pledge the Eligible Loan to the Trustee in
order to grant a security interest pursuant to the Indenture, and (iii) in
connection with and in order to perfect such pledge. Purchaser intends to
deliver possession of the original promissory note evidencing the Eligible Loans
to the Custodian as custodial agent for the Trustee, pursuant to the Custodian
Agreement, and Seller hereby agrees and consents to each of the matters
described in clauses (i) through (iii) hereof. This Agreement may not be
reassigned or otherwise transferred, in whole or in part, by the Trustee (other
than to a successor trustee) without the prior written consent of Seller in its
sole discretion.
8.9 BINDING EFFECT. All covenants and agreements herein contained
shall extend to and be obligatory upon all successors of the respective
parties hereto.
8.10 GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Nebraska.
8.11 ENTIRE AGREEMENT. This Agreement embodies and constitutes the entire
understanding between the parties with respect to the transactions contemplated
by this Agreement, and all prior or contemporaneous agreements, understandings,
representations and statements between the parties, written or oral, between the
parties, are merged into and superseded by this Agreement.
8.12 COUNTERPARTS. This Agreement may be simultaneously executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
8.13 THIRD PARTY BENEFICIARY. This Agreement shall inure to the benefit of
the Trustee and its successors and assigns. Without limiting the generality of
the foregoing, all representations, covenants and agreements in this Agreement
which expressly confer rights upon the Trustee shall be for the benefit of and
run directly to, the Trustee, and the Trustee shall be entitled to rely on and
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enforce such representations, covenants and agreements to the same extent as if
it were a party hereto. The foregoing creates a permissive right on behalf of
the Trustee, and the Trustee shall be under no duties or obligations hereunder.
8.14 CONSOLIDATION REIMBURSEMENT. If Purchaser acquires any Eligible Loan
from Seller through the consolidation procedures of Section 428C of the Higher
Education Act, Purchaser shall pay Seller an amount equal to 101.40% of the
Principal Balance of such Eligible Loans so acquired, plus accrued interest to
the date of consolidation.
IN WITNESS WHEREOF, the parties hereto have caused this Loan Sale and
Commitment Agreement to be duly executed as of the day and year first written
above.
UNION BANK AND TRUST UNION FINANCIAL SERVICES-1, INC.
COMPANY In its Own Right and in its
Capacity as Trustee
By: /s/ KEN BACKEMEYER By: /s/ Stephn F. Butterfield
------------------------------ ------------------------------
Stephen F. Butterfield
Title: Senior Vice President President
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EXHIBIT 99.4
RISK FACTORS (PAGES 1-13) AND GLOSSARY OF TERMS (PAGES 146-
161) SECTIONS OF THE COMPANY'S FORM S-3 REGISTRATION
STATEMENT FILED IN OCTOER 1996
RISK FACTORS
In connection with the Notes offered hereby, prospective investors should
consider, among other things, the following factors regarding the purchase of
the Notes.
NATURE OF THE NOTES
The Issuer is a special purpose corporation and the Notes represent
obligations solely of the Issuer. The Notes are not insured or guaranteed by
any government agency or instrumentality, by any affiliate of the Issuer, by any
insurance company or by any other person or entity. The Issuer will have no
significant assets other than its interest in the Financed Eligible Loans and
the other property granted to the Trustee for the benefit of the Registered
Owners. Payments on the Notes will depend solely on the amount and timing of
payments and collections in respect of the Financed Eligible Loans, interest
paid or earnings on the various accounts established pursuant to the Indenture,
the payment priority of Notes previously issued and any Additional Notes to be
issued in the future, and amounts on deposit in the Reserve Fund and other Funds
and Accounts and any other form of credit enhancement described in the related
Prospectus Supplement. There will be no additional recourse to the Issuer or
any other Person if such proceeds are insufficient. As a result, except as may
be specified with respect to a Series in the related Prospectus Supplement,
Registered Owners must depend on the cash flow with respect to the Financed
Eligible Loans and funds on deposit in the Reserve Fund and other Funds and
Accounts for payment of principal of and interest on the Notes.
Generally, after each required payment of Trustee fees and expenses,
servicing fees and expenses and interest on the Notes, and other required fees,
expenses, taxes and indemnities, including any required deposits to the Reserve
Fund have been made in full, any balance remaining from payments with respect to
the Financed Eligible Loans generally will be: (i) prior to the date specified
in the related Prospectus Supplement, applied to acquire Financed Eligible
Loans, (ii) on and after such date specified in the related Prospectus
Supplement, applied to the amortization of the Notes, until the aggregate
outstanding principal amount of Financed Eligible Loans exceeds the aggregate
Outstanding principal balance of the Notes; and (iii) thereafter, remitted to
the Issuer. If the payments with respect to the Financed Eligible Loans and
amounts on deposit in the Reserve Fund and other Funds and Accounts (including
any applicable credit enhancement) are insufficient to make payments on the
Subordinate Notes, other assets of the Issuer will not be available for payment
of any such deficiency.
SUBORDINATION; LIMITED ASSETS
Payments of interest and principal on the Subordinate Notes are
subordinated in priority of payment to payments of interest and principal due on
the Senior Notes and payments of interest and principal on the
Junior-Subordinate Notes are subordinated in priority of payments of interest
and
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principal due on the Subordinate Notes. Under certain redemption situations,
as set forth herein and as may be set forth in the related Prospectus
Supplement with respect to any Series, principal on certain Classes of the
Subordinate Notes may be redeemed while the Senior Notes and certain Prior
Notes remain Outstanding and the principal on the Subordinate Notes may be
redeemed while the Senior Notes and certain of the Subordinate Notes remain
Outstanding. See "Description of the Notes--Notice and Partial Redemption of
Notes." The Subordinate Notes are also subordinated to the Senior Notes and
the Junior-Subordinate Notes are also subordinate to the Subordinate Notes as
to the direction of remedies upon an Event of Default. The Trust Estate will
not have, nor is it permitted or expected to have, any significant assets or
sources of funds other than from payments with respect to the Financed
Eligible Loans, the Reserve Fund and other Funds and Accounts.
FAILURE TO COMPLY WITH LOAN ORIGINATION
AND SERVICING PROCEDURES FOR ELIGIBLE LOANS
The Higher Education Act of 1965, as amended (the "Higher Education Act"),
including the respective implementing regulations thereunder, require lenders
and their assignees making and servicing Eligible Loans and guarantors
guaranteeing Eligible Loans to follow specified procedures, including due
diligence procedures, to ensure that the Eligible Loans are properly made and
disbursed to, and repaid on a timely basis by or on behalf of, borrowers.
Certain of those procedures, which are specifically set forth in the Higher
Education Act, are summarized herein. See "Issuer's Student Loan Purchase
Program" and "Description of the Federal Family Education Loan Program" herein.
Generally, those procedures require that completed loan applications be
processed, a determination of whether an applicant is an eligible borrower
attending an eligible institution under the Higher Education Act be made, the
borrower's responsibilities under the loan be explained to him or her, the
promissory note evidencing the loan be executed by the borrower and then that
the loan proceeds be disbursed in a specified manner by the lender. After the
loan is made, the lender must establish repayment terms with the borrower,
properly administer deferrals and forbearances and credit the borrower for
payments made. If a borrower becomes delinquent in repaying a loan, a lender
must perform certain collection procedures (primarily telephone calls and demand
letters) which vary depending upon the length of time a loan is delinquent.
THE SERVICER HAS AGREED PURSUANT TO THE SERVICING AGREEMENT TO PERFORM (OR
PROVIDE FOR THIRD PARTY SERVICER TO PERFORM) SERVICING AND COLLECTION PROCEDURES
ON BEHALF OF THE ISSUER. HOWEVER, FAILURE TO FOLLOW THESE PROCEDURES OR FAILURE
OF ANY SELLER OR ANY OTHER ORIGINATOR OF THE FINANCED ELIGIBLE LOANS TO FOLLOW
PROCEDURES RELATING TO THE ORIGINATION OF ANY ELIGIBLE LOANS MAY RESULT IN THE
DEPARTMENT'S REFUSAL TO MAKE REINSURANCE PAYMENTS TO THE GUARANTEE AGENCIES OR
TO MAKE SPECIAL ALLOWANCE PAYMENTS TO THE TRUSTEE WITH RESPECT TO SUCH ELIGIBLE
LOANS OR IN THE GUARANTEE AGENCIES' REFUSAL TO HONOR THEIR GUARANTEE AGREEMENTS
WITH THE TRUSTEE WITH RESPECT TO SUCH ELIGIBLE LOANS. FAILURE OF THE GUARANTEE
AGENCIES TO RECEIVE REINSURANCE PAYMENTS FROM THE DEPARTMENT COULD ADVERSELY
AFFECT THE GUARANTEE AGENCIES' ABILITY OR LEGAL OBLIGATION TO MAKE PAYMENTS
UNDER THE GUARANTEE AGREEMENTS ("GUARANTEE PAYMENTS") TO THE TRUSTEE. LOSS OF
ANY SUCH GUARANTEE PAYMENTS, SPECIAL ALLOWANCE PAYMENTS OR FEDERAL INTEREST
SUBSIDY PAYMENTS WITH RESPECT TO ELIGIBLE LOANS, COULD ADVERSELY AFFECT THE
AMOUNT OF REVENUES AND THE ISSUER'S ABILITY TO PAY PRINCIPAL AND INTEREST ON THE
NOTES. SEE "DESCRIPTION OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM" HEREIN.
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RELIANCE UPON SELLERS
The Issuer expects to acquire additional Financed Eligible Loans from the
Sellers from time to time, all pursuant to the Student Loan Purchase Agreement
under which each Seller has agreed to sell to the Issuer Eligible Loans which
comply with certain representations and warranties with respect to each Financed
Eligible Loan and certain overall portfolio characteristics in connection with
such acquisitions. No assurance can be given that the Issuer would be able to
acquire Eligible Loans in an equivalent amount, with similar characteristics or
at comparable prices from sources other than the Sellers in the event that the
Sellers were unable to sell additional Eligible Loans to the Issuer or in the
event that any Seller was required to repurchase Financed Eligible Loans. See
"Risk Factors--Certain Legal Aspects," "--Failure to Comply with Loan
Origination and Servicing Procedures for Eligible Loans" and "Seller
Representations and Warranties" herein.
PERFECTION OF SECURITY
INTEREST IN FINANCED ELIGIBLE LOANS
As required by the Uniform Commercial Code, the perfection of the security
interest in the Financed Eligible Loans granted by the Issuer to the Trustee is
to be accomplished by possession of the promissory notes evidencing the Financed
Eligible Loans by the Trustee and by the filing of financing statements. Under
the Uniform Commercial Code, possession may be either by the secured party or by
an agent on the secured party's behalf. With respect to the Indenture,
possession by the Trustee, as secured party, is to be accomplished by delivery
of such promissory notes to UNIPAC, acting as custodial agent for the Trustee.
UNIPAC is an affiliate of Union Bank. In the event UNIPAC acted contrary to its
obligations under the Custodian Agreement, by reason of such affiliate
relationship or otherwise, and relinquished possession of the promissory notes
to any party other than the Trustee or the Trustee's agent, the security
interest of the Trustee in the Financed Eligible Loans released may become
unperfected. In addition, while the Issuer has received an opinion of counsel,
subject to the assumptions and limitations set forth therein, that the Trustee
has a first priority perfected security interest in the Financed Eligible Loans,
because of the affiliation between UNIPAC and Union Bank, the perfection of the
Trustee's security interest in the Financed Eligible Loans by UNIPAC taking
possession is not entirely free from doubt and such perfection may be challenged
by a receiver or other creditor of Union Bank in the event of Union Bank's
insolvency or otherwise. See "Certain Relationships Among Financing
Participants" herein.
CERTAIN INSOLVENCY CONCERNS
The Issuer has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief by a Seller or Union Financial Services, Inc., (the "Sponsor") under
the United States Bankruptcy Code or other insolvency laws, as the case may be
("Insolvency Laws") will not result in consolidation of the assets and
liabilities of the Issuer with those of any Seller or the Sponsor. These steps
include the creation of the Issuer as a separate, limited-purpose subsidiary of
the Sponsor pursuant to a certificate of incorporation containing certain
limitations (including restrictions on the nature of the Issuer's business and a
restriction on the Issuer's ability to commence a voluntary case or proceeding
under any Insolvency Law without the prior unanimous affirmative vote of all of
its directors, including at least one director who must be Independent of the
Issuer and its affiliates). However, there can be no assurance that the
activities of the Issuer would not result in a court concluding that the asset
and liabilities of the Issuer should be consolidated with those of any Seller or
the Sponsor in a proceeding under any Insolvency Law. If a court were to reach
such a conclusion or a filing were made under any Insolvency Law by or against
the Issuer, or if an attempt were made to litigate any of the
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foregoing issues, then delays in distributions on the Notes could occur or
reductions in the amounts of such distributions could result. See "The
Issuer."
It is intended by the Issuer that the transfer of the Financed Eligible
Loans by any Seller to the Issuer constitute a true sale of the Student Loans to
the Issuer. If the transfer constitutes such a true sale, the Financed Eligible
Loans and the proceeds thereof would not be the property of the respective
Seller should it become the subject of any Insolvency Law subsequent to the
transfer of the Financed Eligible Loans to the Issuer.
Each Seller will warrant to the Issuer in the related Student Loan Purchase
Agreement that the sale of the Financed Eligible Loans by such Seller to the
Issuer is a valid sale of the Financed Eligible Loans by such Seller to the
Issuer. Notwithstanding the foregoing, if a Seller were to become subject to an
Insolvency Law and a creditor or trustee-in-bankruptcy of such Seller itself
were to take the position that the sale of Financed Eligible Loans by such
Seller to the Issuer should instead be treated as a pledge of such Financed
Eligible Loans to secure a borrowing of such Seller, delays in payments of
collections of Financed Eligible Loans to the related Noteholders could occur or
(should the court rule in favor of such Seller or such trustee or creditor),
reductions or delays in the amounts of such payments could result. If the
transfer of Financed Eligible Loans by a Seller to the Issuer is treated as a
pledge instead of a sale, a tax or government lien on the property of such
Seller arising before the transfer of such Financed Eligible Loans to the Issuer
may have priority over the Trust Estate's interest in such Financed Eligible
Loans.
If an Insolvency Event occurs with respect to the Issuer, the Financed
Eligible Loans will be liquidated after the date of such Insolvency Event or as
otherwise specified in the related Prospectus Supplement. The proceeds from any
such sale, disposition or liquidation of Financed Eligible Loans will be treated
as collections on the Financed Eligible Loans and deposited in the Student Loan
Holding Fund. If the proceeds from the liquidation of the Financed Eligible
Loans and any amounts on deposit in the Reserve Fund (if any) and any amounts
available from any credit enhancement, if any, are not sufficient to pay the
Notes of the related Series in full, the distributions of principal to such
Noteholders will be reduced and Noteholders will incur a loss. See "Summary of
Certain Provisions of the Indenture--Events of Default."
CHANGING ASSETS OF THE TRUST ESTATE
During the period beginning on the Date of Issuance and ending no later
than the date set forth with respect to a Series in the related Prospectus
Supplement, the Issuer intends to purchase Financed Eligible Loans from the
Sellers. Each Financed Eligible Loan must meet certain characteristics and each
portfolio of Financed Eligible Loans added to the Financed Eligible Loans
portfolio in accordance with the terms of the Student Loan Purchase Agreement
and the Indenture must, as of the applicable Cutoff Date, together with each
portfolio previously added to the Financed Eligible Loans portfolio, as of their
respective Cutoff Dates, meet certain pool characteristics set forth in the
Student Loan Purchase Agreement. However, the actual characteristics of the
Financed Eligible Loans portfolio will change from time to time due to factors
such as adjustments made in the normal course of business, changes in the
classifications of Eligible Loans, sale or purchase of Eligible Loans by the
Issuer, scheduled amortization, prepayment or the occurrence of delinquencies or
defaults.
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VARIABILITY OF REVENUES
Amounts received with respect to the Financed Eligible Loans for a
particular period may vary in both timing and amount from the payments actually
due on the Financed Eligible Loans for a variety of economic, social and other
factors, including both individual factors, such as additional periods of
deferral or forbearance prior to or after a borrower's commencement of
repayment, and general factors, such as a general economic downturn which could
increase the amount of defaulted Financed Eligible Loans. Failures by borrowers
to pay timely the principal and interest on the Financed Eligible Loans will
affect the amount of Revenues, which may reduce the amount of principal and
interest available to be paid to the Registered Owners. In addition, failures
by borrowers of student loans generally to pay timely the principal and interest
due on such student loans could obligate the Guarantee Agencies to make payments
thereon, which could adversely affect the solvency of the Guarantee Agencies and
their ability to meet their guarantee obligations (including with respect to the
Financed Eligible Loans). The inability of any Guarantee Agency to meet its
guarantee obligations could reduce the amount of principal and interest paid to
the Registered Owners. The effect of such factors, including the effect on a
Guarantee Agency's ability to meet its guarantee obligations with respect to the
Financed Eligible Loans or the Issuer's ability to pay principal and interest
with respect to the Notes, is not possible to predict. Pursuant to the 1992
amendments under Section 432(o) of the Act, if the Department has determined
that a Guarantee Agency of an Eligible Loan is unable to meet its insurance
obligations, the loan holder may submit claims directly to the Department and
the Department is required to pay the full Guarantee payment due with respect
thereto in accordance with guarantee claim processing standards no more
stringent than those applied by a Guarantee Agency of Eligible Loans. However,
the Department's obligation to pay guarantee claims directly in this fashion is
contingent upon the Department making the determination referred to above.
There can be no assurance that the Department would ever make such a
determination with respect to a Guarantee Agency or, if such a determination was
made, whether such determination or the ultimate payment of such guarantee
claims would be made in a timely manner.
If an Event of Default occurs under the Indenture, subject to certain
conditions, the Trustee is authorized, without the consent of the Registered
Owners, to sell the Financed Eligible Loans. There can be no assurance,
however, that the Trustee will be able to find a purchaser for the Financed
Eligible Loans in a timely manner or that the market value of such Financed
Eligible Loans would, at any time, be equal to the aggregate outstanding
principal amount of the Notes then Outstanding and accrued interest thereon. If
the net proceeds of any such sale, together with amounts then on deposit in the
Reserve Fund and other Funds and Accounts, do not exceed the aggregate
outstanding principal amount of Notes then Outstanding and accrued interest
thereon, Registered Owners of any Class of Notes not paid in full will likely be
unable to recover the full amount of their investment. In addition, the amount
of principal required to be paid to Registered Owners under the Indenture is
generally limited to amounts available to be so paid. Therefore, the failure to
pay principal on any Class or Series of Notes may not result in the occurrence
of an Event of Default until the Stated Maturity date of such Class or Series of
Notes.
PREPAYMENT CONSIDERATIONS
Principal prepayments with respect to the Notes may be influenced by a
variety of economic, geographic, social and other factors. The Financed
Eligible Loans may be prepaid at any time without penalty. The Issuer believes
that in a fluctuating interest rate environment a factor affecting the
prepayment rate on a large pool of loans similar to the Financed Eligible Loans
is the difference between the interest rates on the loans (giving consideration
to the cost of any refinancing) and prevailing interest rates generally. In
general, if interest rates fall below the interest rates on the
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Financed Eligible Loans, the rate of prepayment would be expected to
increase. Conversely, if interest rates rise above the interest rates on the
Financed Eligible Loans, the rate of prepayment would be expected to
decrease. The Issuer does not have available sufficient prepayment
information on Financed Eligible Loans similar to those to be included in the
Trust Estate to estimate the rate of prepayment with respect to the Financed
Eligible Loans in the Financed Eligible Loans portfolio. Other factors
affecting prepayment of loans include changes in the borrower's job,
transfers, unemployment and servicing decisions, and refinancing
opportunities which may provide more favorable repayment terms such as those
offered under various consolidation loan programs, including the federal
direct consolidation loan programs. In addition, the rate of the payments of
principal on the Notes will be directly related to the actual amortization
schedule of the Financed Eligible Loans. See "Risk Factors--Changes in
Legislation" herein.
The rate of principal payments on the Notes, the amount of principal and
interest payments on the Notes and the yield to maturity of the Notes will be
directly related to the rate of payments of principal on the Financed Eligible
Loans. The timing of changes in the rate of prepayments may significantly
affect an investor's actual yield to maturity, even if the average rate of
principal prepayments is consistent with an investor's expectations. In
general, the earlier a prepayment of principal of a Financed Eligible Loan, the
greater the effect on an investor's yield to maturity. The effect on an
investor's yield as a result of principal payments occurring at a rate higher
(or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Offered Notes will not be offset by a
subsequent like reduction (or increase) in the rate of principal payments. See
"Weighted Average Life of the Notes" herein.
PRINCIPAL BALANCE OF NOTES MAY EXCEED
AGGREGATE PRINCIPAL BALANCE OF FINANCED
ELIGIBLE LOANS
As may be specified with respect to a Series in the related Prospectus
Supplement, on the Date of Issuance of such Series, the aggregate initial
principal amount of the Notes, together with all other Notes outstanding, may be
greater than the sum of the aggregate principal balance of the Financed Eligible
Loans and other assets on deposit in the Funds and Accounts in the Trust Estate
as of the Cutoff Date with respect thereto. Each Financed Eligible Loan with
respect to such Series may be purchased by the Issuer for an amount greater than
the principal balance thereof (including any accrued interest thereon expected
to be capitalized upon repayment) as of such Cutoff Date. In addition, under
the existing Loan Purchase Agreements with Union Bank each Eligible Loan
acquired during the recycling period with respect thereto will be purchased by
the Issuer for an amount greater than the principal balance thereof (including
any accrued interest thereon expected to be capitalized upon repayment) as of
the related Cutoff Date. As a result, if an Event of Default should occur under
the Indenture and the Financed Eligible Loans were liquidated at a time when the
outstanding principal amount of such Notes exceeded the aggregate principal
balance of the Financed Eligible Loans and other assets on deposit in the Funds
and Accounts in the Trust Estate, unless such Financed Eligible Loans are
liquidated at a premium, Noteholders may suffer a loss as a result thereof.
However, in the absence of any such default, any excess Note principal balance
is expected to be reduced from interest payments received on the Financed
Eligible Loans.
UNSECURED NATURE OF FINANCED ELIGIBLE LOANS;
FINANCIAL STATUS OF GUARANTEE AGENCIES
The Higher Education Act requires all Financed Eligible Loans to be
unsecured. As a result, the only security for payment of the Financed Eligible
Loans are the Guarantee Agreements between
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the Trustee and each Guarantee Agency. A deterioration in the financial
status of the Guarantee Agencies and their ability to honor guarantee claims
with respect to the Financed Eligible Loans could result in a delay in making
or a failure to make Guarantee Payments to the Trustee. One of the primary
causes of a possible deterioration in a Guarantee Agency's financial status
is directly related to the amount and percentage of defaulting Financed
Eligible Loans guaranteed by a Guarantee Agency. Moreover, with respect to
Eligible Loans, to the extent that the Department pays reimbursement claims
submitted by a Guarantee Agency for any fiscal year exceeding certain
specified levels, the Department's obligation to reimburse the Guarantee
Agency for losses will be reduced on a sliding scale from a maximum of 98% to
a minimum of 78% of Guarantee Agency payments. Under Section 432(o) of the
Act, if the Department has determined that a Guarantee Agency is unable to
meet its guarantee obligations, the loan holder may submit claims directly to
the Department and the Department is required to pay the full guaranty claim
amount due with respect thereto in accordance with guaranty claim processing
standards no more stringent than those of the Guarantee Agency. See
"Description of the Federal Family Education Loan Program" herein.
CHANGES IN LEGISLATION
There can be no assurance that the Higher Education Act or other relevant
federal or state laws, rules and regulations and the programs implemented
thereunder will not be amended or modified in the future in a matter that will
adversely impact the programs described herein and the loans made thereunder,
including the Financed Eligible Loans, or the Guarantee Agencies. In addition,
existing legislation and future measures to reduce the federal budget deficit
may adversely affect the amount and nature of federal financial assistance
available with respect to these programs. In recent years, federal budget
legislation has provided for the recovery of certain funds held by guarantee
agencies in order to achieve reductions in federal spending. There can be no
assurance that future federal budget legislation or administrative actions will
not adversely effect expenditures by the Department, the Secretary or the
financial condition of the Guarantee Agencies.
Under the Omnibus Budget Conciliation Act of 1993, Congress made a number
of changes that may adversely affect the financial condition of the Guarantee
Agencies, including reducing to 98% the maximum percentage of Guarantee payments
the Department will reimburse for loans first disbursed on or after October 1,
1993, reducing substantially the premiums and default collections that Guarantee
Agencies are entitled to receive and/or retain and giving the Department broad
powers over Guarantee Agencies and their reserves. These powers include the
authority to require a Guarantee Agency to return all reserve funds to the
Department if the Department determines such action is necessary to ensure an
orderly termination of such Guarantee Agency, to serve the best interests of the
federal programs or to ensure the proper maintenance of such Guarantee Agency's
funds or assets. The Department is also now authorized to direct a Guarantee
Agency to return a portion of its reserve funds which the Department determines
is unnecessary to pay the program expenses and contingent liabilities of such
Guarantee Agency and/or to cease any activities involving the use of such
Guarantee Agency's reserve funds or assets which the Department determines is a
misapplication or otherwise improper. The Department may also terminate the
reinsurance agreement of a Guarantee Agency if the Department determines that
such action is necessary to protect the federal fiscal interest or to ensure an
orderly transition to full implementation of direct federal lending. In such
event, however, the Department is required to assume the functions of such
Guarantee Agency as described herein in "Description of the Federal Family
Education Loan Program" herein. These various changes create a significant risk
that the resources available to the Guarantee Agencies to meet their guarantee
obligations will be significantly reduced. IN ADDITION, THIS LEGISLATION
GREATLY EXPANDS THE FEDERAL DIRECT STUDENT LOAN PROGRAM VOLUME TO A TARGET OF
APPROXIMATELY 60% OF STUDENT LOAN DEMAND IN ACADEMIC YEAR 1998-1999, WHICH COULD
RESULT IN
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INCREASING REDUCTIONS IN THE VOLUME OF LOANS MADE UNDER THE FEDERAL PROGRAM.
AS THE FEDERAL DIRECT STUDENT LOAN PROGRAM EXPANDS, THE SERVICER MAY
EXPERIENCE INCREASED COSTS DUE TO REDUCED ECONOMIES OF SCALE TO THE EXTENT
THE VOLUME OF NEW LOANS SERVICED BY THE SERVICER IS REDUCED. SUCH COST
INCREASES COULD AFFECT THE ABILITY OF THE SERVICER TO SATISFY ITS OBLIGATIONS
TO SERVICE THE FINANCED ELIGIBLE LOANS OR TO PURCHASE FINANCED ELIGIBLE LOANS
IN THE EVENT OF CERTAIN BREACHES OF COVENANTS. SEE "RISK FACTORS--RELIANCE
UPON SELLERS" AND "--THE FINANCED ELIGIBLE LOANS AND THE STUDENT LOAN FUND"
HEREIN. Such volume reductions could further reduce revenues received by the
Guarantee Agencies available to pay claims on defaulted Eligible Loans.
Finally, the level of competition currently in existence in the secondary
market for loans made under the federal programs could be reduced, resulting
in fewer potential buyers of the Eligible Loans and lower prices available in
the secondary market for those loans. Further, the Department is
implementing a direct consolidation loan program, which program may further
reduce the volume of loans made under the federal programs. See "Description
of the Federal Family Education Loan Program" herein.
THE FINANCED ELIGIBLE LOANS
AND THE STUDENT LOAN FUND
The Issuer has previously acquired or will acquire Financed Eligible Loans
with the funds on deposit in the Student Loan Fund. Any conveyance of
additional Eligible Loans is subject to the following conditions, among others:
(a) each such additional Eligible Loan must satisfy the eligibility criteria
specified in the applicable Student Loan Purchase Agreement, and (b) with
respect to Financed Eligible Loans acquired on the Scheduled Sale Date and other
dates of acquisition, the additional Financed Eligible Loans, as of the
applicable Cutoff Date, together with the Financed Eligible Loans previously
added to the portfolio, as of the respective Cutoff Date, must meet certain pool
characteristics set forth in the Student Loan Purchase Agreement. See "Seller
Representations and Warranties--Representations and Warranties--Portfolio
Characteristics" and "--Representations and Warranties--Eligible Loans" herein.
Unless otherwise specified with respect to a Series in the related
Prospectus Supplement, to the extent that amounts on deposit in the Loan Account
designated with respect to a Series of the Student Loan Fund have not been fully
applied to the acquisition of additional Eligible Loans by the date specified in
the related Prospectus Supplement, the Registered Owners of such Notes will
receive as a prepayment of principal, in the priorities described herein or in
the related Prospectus Supplement, an amount equal to the amount remaining in
the Loan Account designated with respect to a Series of the Student Loan Fund on
the respective Interest Payment Dates on or next succeeding the date specified
in the related Prospectus Supplement, with respect to the Senior Notes of such
Series, and the date specified in the related Prospectus Supplement with respect
to the Subordinate Notes and the Junior-Subordinate Notes of such Series, after
all such Senior Notes have been redeemed. The Issuer expects that the amount of
the additional Eligible Loans to be acquired with respect to any Series will
approximate 100% of the amount deposited in the Loan Account designated with
respect to a Series of the Student Loan Fund in the related Prospectus
Supplement.
ISSUANCE OF ADDITIONAL NOTES
The Issuer may, pursuant to the provisions of the Indenture, authenticate
and deliver from time to time Additional Notes secured by the Trust Estate on a
parity with or subordinate to any of the Senior Notes and senior to, on a parity
with or subordinate to the Subordinate Notes, as determined by the Issuer;
provided, however, that any such Additional Notes shall be issued pursuant to a
Supplemental Indenture, without the consent or approval of the Registered Owners
of any Notes then Outstanding, but with, among other things, written evidence
from each Rating Agency then
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rating any Outstanding Notes that such rating or ratings will not be reduced
or withdrawn as a result of the issuance of the proposed Additional Notes.
See "Additional Notes" herein.
MATURITY AND PREPAYMENT ASSUMPTIONS
Financed Eligible Loans may be prepaid by the borrowers at any time. (For
this purpose the term "prepayments" includes prepayments in full or in part
(including pursuant to Consolidation Loans) and liquidations due to default
(including receipt of Guarantee payments).) In addition, under certain
circumstances, a Seller will be obligated to repurchase, or the Servicer will be
obligated to purchase, Financed Eligible Loans from the Trust Estate pursuant to
the respective Student Loan Purchase Agreement as a result of breaches of their
respective representations, warranties or covenants. Moreover, to the extent
borrowers of Financed Eligible Loans elect to borrow money through Consolidation
Loans with respect to such Financed Eligible Loans from a Seller or from another
lender, Registered Owners of the Notes will collectively receive as a prepayment
of principal the aggregate principal amount of such Financed Eligible Loans.
There can be no assurance that borrowers with respect to the Financed Eligible
Loans will not seek to obtain Consolidation Loans with respect to such Financed
Eligible Loans. See "Risk Factors--Changes in Legislation" herein.
Scheduled payments with respect to, and maturities of, the Financed
Eligible Loans may be extended, including pursuant to the applicable Deferral
Phase and certain other grace periods authorized by the Higher Education Act
("Grace Periods") and, under certain circumstances, periods of forbearance
("Forbearance Periods") or as a result of refinancings through Consolidation
Loans having longer maturities, which may lengthen the remaining term of the
Financed Eligible Loans and the average life of each Class of Notes. Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Financed Eligible Loans will be borne entirely by the Registered Owners.
BASIS RISK
The interest rate with respect to the Notes of various Classes may
fluctuate from one interest period to another in response to changes in LIBOR or
Treasury security rates (the "Index Rates") described in a Prospectus
Supplement. The Issuer can make no representation as to what the Index Rates
may be in the future. In addition, the Financed Eligible Loans bear interest at
the rates (the "Loan Rates") described herein under "Description of the Federal
Family Education Loan Program." To the extent that the Loan Rates decrease or
do not increase as fast as the Index Rates, the interest rates with respect to
certain Senior Notes, Subordinate Notes or Junior-Subordinate Notes may be
limited to the weighted average rate received on the Financed Eligible Loans or
may be deferred to future periods. Further, if there is a decline in the Loan
Rates, the amount of funds representing interest deposited into the Trust Estate
may be reduced and, even if there is a similar reduction in the variable Index
Rates applicable to any Series, there may not necessarily be a similar reduction
in the other amounts required to be funded out of such funds (such as certain
administrative expenses), causing such amounts to be deferred to future periods.
There can be no assurances given that sufficient funds will be available in
future periods to make up for any shortfalls in the current payments of Index
Rates or expenses of the Trust Estate.
CERTAIN LEGAL ASPECTS
Each Seller will intend that the transfers of Financed Eligible Loans by it
to the Issuer under the respective Student Loan Purchase Agreement constitute
valid sales and assignments of such Financed Eligible Loans. In the event of
insolvency of such Seller, however, its affairs, if a bank, might become subject
to Federal Deposit Insurance Corporation ("FDIC") receivership. In such case,
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the FDIC, as a receiver, or a court could treat the transfer of the Financed
Eligible Loans to the Issuer as an assignment of collateral as security for the
benefit of the Issuer as a creditor of such Seller. If the transfer of the
Financed Eligible Loans to the Issuer is deemed to create a security interest
therein, a tax or government lien on property of such Seller arising before the
Financed Eligible Loans were transferred may have priority over the Issuer's
interest in such Financed Eligible Loans. If such Seller becomes subject to
receivership, to the extent that the transfer of the Financed Eligible Loans is
deemed to create a security interest, and that such interest was validly
perfected before such Seller's insolvency and was not taken in contemplation of
insolvency or with the intent to hinder, delay or defraud such Seller or its
creditors, such security interest should not be subject to avoidance and
payments to the Issuer or its assignees with respect to the Financed Eligible
Loans should not be subject to recovery by such Seller's creditors. The Issuer
has received an opinion of counsel, subject to the assumptions and limitations
set forth therein, that the provisions of the Indenture and the Custodial
Agreement and the actions required thereunder in connection with the acquisition
of Financed Eligible Loans are sufficient to create both a perfected security
interest in favor of the Trustee against any such Seller in the Financed
Eligible Loans, if the transfer of Financed Eligible Loans by such Seller to the
Issuer is considered as an assignment of collateral as security for an
obligation, which interest is prior to that of any creditor of such Seller, as
well as a perfected security interest in favor of the Trustee against the Issuer
in the Financed Eligible Loans, which interest is prior to that of any other
creditor of the Issuer. No assurance can be given, however, that delays in
receipt of funds with respect to the Financed Eligible Loans will not occur in
such circumstances. Moreover, no assurance can be given that the FDIC would not
seek to effect the release of the Financed Eligible Loans to it, as receiver, by
accelerating such Seller's "debt" and repaying the outstanding amount thereof.
See "Risk Factors--Reliance Upon Seller" and "--Perfection of Security Interest
in Financed Eligible Loans" herein.
With respect to a Seller that is not a bank or an insurance company, the
Issuer will structure the sale of the Financed Eligible Loans of such Seller to
the Issuer as a "true sale" for purposes of any voluntary or involuntary
petition for relief under the United States Bankruptcy Code or any similar
applicable federal or state law of such Seller (an "Insolvency Proceeding"),
such that upon the occurrence of any such Insolvency Proceeding, such Financed
Eligible Loans would not be consolidated into the bankruptcy estate of such
Seller. No assurance can be given, however, that such a consolidation would not
occur. A court might, however, treat the sale as an assignment of collateral
with respect to the Financed Eligible Loans as security for the benefit of the
Noteholders. If such sale is deemed to create a security interest in the
Financed Eligible Loans, a tax or governmental lien on property of such Seller
arising before the Financed Eligible Loans came into existence may have priority
over the Trustee's interest in such loans. If the Seller becomes subject to an
Insolvency Proceeding, to the extent that the transfer of the Financed Eligible
Loans is deemed to create a security interest and that interest was validly
perfected before such Seller's insolvency or bankruptcy and was not taken in
contemplation of insolvency or bankruptcy or with the intent to hinder, delay or
defraud such Seller or its creditors, such security interest should not be
subject to avoidance, and payments to the Trustee with respect to the Financed
Eligible Loans should not be subject to recovery by such Seller's creditors. No
assurance can be given, however, that delays in receipt of funds with respect to
the Financed Eligible Loans of such Seller will not occur in such circumstances.
See "Risk Factors--Reliance Upon Seller" and "--Perfection of Security Interest
in Financed Eligible Loans" herein.
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. Also, some state laws impose finance charge ceilings and other
restrictions on certain consumer transactions and
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require contract disclosures in addition to those required under federal law.
These state laws are, however, to a large part, preempted by the Higher
Education Act.
BOOK-ENTRY REGISTRATION
Unless otherwise specified with respect to a Series in the related
Prospectus Supplement, it is expected that each Class of Notes of any Series
will be initially represented by one or more certificates registered in the name
of Cede & Co., the nominee for DTC, and will not be registered in the names of
the holders of such Notes or their nominees. Because of this, unless and until
definitive securities are issued, holders of such Notes will not be recognized
by the Trustee as "Registered Owners" (as such terms are used in the Indenture).
Hence, until definitive securities are issued, holders of such Series of Notes
will only be able to exercise the rights of Registered Owners indirectly through
DTC and its participating organizations. See "Book Entry Registration" herein.
REPURCHASE OF FINANCED ELIGIBLE LOANS
Upon the occurrence of a breach of representations and warranties with
respect to a Financed Eligible Loan, the respective Seller is obligated to
repurchase the related Financed Eligible Loan from the Issuer. If such Seller
were to become insolvent or otherwise be unable to repurchase such Financed
Eligible Loan, it is unlikely that a repurchase of such Financed Eligible Loan
from the Issuer would occur. The failure of such Seller to repurchase a
Financed Eligible Loan would constitute a breach of the respective Student Loan
Purchase Agreement, enforceable by the Trustee on behalf of the Registered
Owners, but would not constitute an Event of Default under the Indenture or
permit the exercise of remedies thereunder. See "Risk Factors--Reliance Upon
Sellers," "Seller Representations and Warranties" and "The Issuer's Student Loan
Purchase Program" herein.
RATINGS OF THE NOTES
It is a condition to issuance of the Notes that they be rated as indicated
under the caption "Summary of the Offering--Ratings" in the related Prospectus
Supplement. Ratings are based primarily on the credit underlying the Financed
Eligible Loans, the level of subordination, the amount of credit enhancement and
the legal structure of the transaction. The ratings are not a recommendation to
purchase, hold or sell any Class of Notes inasmuch as such ratings do not
comment as to the market price or suitability for a particular investor. There
can be no assurance as to whether any additional rating agency will rate the
Notes, or if it does, that the rating that would be assigned by any such other
rating agency would be equivalent to the initial rating described in the related
Prospectus Supplement. There is no assurance that the ratings will remain for
any given period of time or that ratings will not be lowered or withdrawn by any
Rating Agency if in such Rating Agency's judgment circumstances so warrant.
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GLOSSARY OF TERMS
There follows definitions of certain capitalized terms used in this
Prospectus. Words importing the masculine gender include the feminine gender.
Words importing persons include firms, associations and corporations. Words
importing the singular number include the plural number and vice versa. The
Indenture contains the definition of certain terms not included herein and
reference is made thereto for such definitions. The following definitions shall
be applicable with respect to each Series unless otherwise specified in the
related Prospectus Supplement.
"ACCOUNT" shall mean any of the accounts created and established within any
Fund by the Indenture.
"ADDITIONAL NOTES" shall mean any notes, other than the Offered Notes, the
Prior Class A Notes and the Prior Class B Notes, issued pursuant to the
Indenture.
"AGGREGATE MARKET VALUE" shall mean on any calculation date the sum of the
Values of all assets of the Trust Estate, less moneys in any Fund or Account
which the Issuer is then entitled to receive for deposit into the Operating Fund
or the General Fund but which has not yet been removed from the Trust Estate.
"AUTHORIZED DENOMINATIONS" shall mean with respect to any Class or subclass
of Notes, $100,000 or any integral multiple thereof.
"AUTHORIZED OFFICER" shall mean, when used with reference to the Issuer,
its President, its Vice President, its Secretary, or any other officer or agent
authorized in writing by the Board to act on behalf of the Issuer.
"BOARD" or "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Issuer.
"BUSINESS DAY" shall mean any day on which banks located in the City of New
York, New York and banks located in the city in which the Principal Office of
the Trustee is located are not required or authorized by law to remain closed
and on which The New York Stock Exchange is not closed.
"CASH FLOW CERTIFICATE" shall mean a report or reports prepared by the
Issuer showing, with respect to the period covered by the Cash Flow Certificate,
which period shall extend from the date of the Cash Flow Certificate to the
latest maturity of the Notes then Outstanding, (a) all Revenue expected to be
received during such period from the Trust Estate, (b) the application of all
such Revenue in accordance with the Indenture and (c) the resulting periodic
balances on each Interest Payment Date, and showing that anticipated Revenue
will exceed, by a margin of $250,000 plus any additional amount, if any,
required by any Supplemental Indenture, the amount necessary to pay the
principal of and interest on the Notes when due and all expenses payable under
the Indenture when due and to maintain the Reserve Fund Requirement at a level
which will not cause the Rating Agencies to withdraw or reduce their respective
ratings on the Notes Outstanding, under all scenarios included in the Cash
Flows. Each Cash Flow Certificate shall be accompanied by all supporting Cash
Flows, shall be based solely upon assumptions acceptable to each Rating Agency
and shall be approved in writing by each Rating Agency.
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"CASH FLOWS" shall mean cash flow schedules prepared by the Issuer or its
designee including a listing of all assumptions used in the preparation of such
cash flow schedules. Such assumptions will include those contained in
Exhibits E-1 and E-2 to the Indenture or such other assumptions at the time such
Cash Flows are prepared as shall be reasonable in the judgment of the Issuer and
each Rating Agency.
"CERTIFICATE OF INSURANCE" shall mean a certificate of federal loan
insurance issued with respect to an Eligible Loan by the Secretary pursuant to
the provisions of the Act.
"CLASS A NOTES" shall mean the Issuer's Taxable Student Loan Asset-Backed
Notes issued pursuant to the Indenture and designated as Class A.
"CLASS A-1 NOTES" shall mean, with respect to the Series 1996A Notes, the
$48,300,000 of Class A Notes designated as Class A-1.
"CLASS A-2 NOTES" shall mean, with respect to the Series 1996A Notes, the
$48,300,000 of Class A Notes designated as Class A-2.
"CLASS A-3 NOTES" shall mean, with respect to the Series 1996B Notes, the
$73,700,000 of Class A Notes designated as Class A-3.
"CLASS A-4 NOTES" shall mean, with respect to the Series 1996B Notes, the
$54,300,000 of Class A Notes designated as Class A-4.
"CLASS B NOTES" shall mean the Issuer's Taxable Student Loan Asset-Backed
Notes issued pursuant to the Indenture and designated as Class B.
"CLASS B-2 NOTES" shall mean the Issuer's Taxable Student Loan Asset-Backed
Notes issued pursuant to the Indenture and designated as Class B-2.
"CLOSING CASH FLOW PROJECTION" shall mean the Cash Flow Certificate
delivered on the Date of Issuance with respect to any Series as attached to the
Indenture as Exhibit F-2.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time. Each reference to a section of the Code herein shall be deemed to
include the United States Treasury Regulations, including temporary and proposed
regulations, relating to such section which are applicable to the Notes of the
use of the proceeds thereof. A reference to any specific section of the Code
shall be deemed also to be a reference to the comparable provisions of any
enactment which supersedes or replaces the Code thereunder from time to time.
"COMPLIANCE CERTIFICATE" shall mean a certificate substantially in the form
of Exhibit D attached to the Indenture signed by an Authorized Officer and all
documents, opinions and certificates required thereby.
"CONSOLIDATION LOAN" shall mean a Student Loan authorized under Section
428C of the Higher Education Act consolidating Eligible Loans.
"CONTRACT OF INSURANCE" shall mean the contract of insurance between the
Eligible Lender and the Secretary.
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"COST OF ISSUANCE FUND" shall mean the Fund by that name created in the
Indenture and further described in the Indenture.
"CUSTODIAN AGREEMENT" shall mean, collectively, the Custodian Agreement
dated as of March 1, 1996, between the Trustee and the Custodian, and the
custodian agreements with any Servicer related to Financed Eligible Loans.
"CUTOFF DATE" shall mean, with respect to the Date of Issuance with respect
to any Series, the date specified in the related Prospectus Supplement and with
respect to each Scheduled Sale Date or other date of acquisition thereafter, the
close of business on the Business Day preceding such Scheduled Sale Date or date
of acquisition, as the case may be.
"DATE OF ISSUANCE" shall mean, with respect to any Offered Notes or
Additional Notes, the date of delivery of such Offered Notes or Additional Notes
to the placement agent or the underwriter.
"ELIGIBLE BORROWER" shall mean a borrower who is eligible under the Higher
Education Act to be the obligor of a loan for financing a program of education
at an Eligible Institution or for consolidating two or more such loans,
including without limitation a borrower who is eligible under the Higher
Education Act to be an obligor of a loan made pursuant to Section 428A, 428B or
428C of the Act.
"ELIGIBLE INSTITUTION" shall mean (a) an institution of higher education;
(b) a vocational school; or (c), with respect to students who are nationals of
the United States, an institution outside the United States which is comparable
to an institution of higher education or to a vocational school and which has
been approved by the Secretary.
"ELIGIBLE LENDER" shall mean any "ELIGIBLE LENDER," as defined in the Act,
permitted to participate as a seller of Student Loans to the Issuer under the
Program and which has received an eligible lender designation from the Secretary
with respect to Insured Student Loans or from the Guarantee Agency with respect
to Guaranteed Student Loans.
"ELIGIBLE LOAN" shall mean a Student Loan which (a) has been or will be
made to an Eligible Borrower; (b) is Insured or is Guaranteed by a Guarantee
Agency which then has a Guarantee Agreement with the Trustee; (c) unless it is
an Unsubsidized Stafford Loan, a PLUS Loan or an SLS Loan or a Consolidation
Loan, is an "eligible loan" under the Higher Education Act for purposes of
receiving Interest Benefit Payments; (d) bears interest at not less than the
maximum applicable rate of interest permitted by the Higher Education Act at the
time originated; (e) is not delinquent more than 180 days and has not been
tendered at any time to either the Secretary or any guarantee agency, including
without limitation, the Guarantee Agency, for payment unless the situation
giving rise to such tender has been cured; and (f) is eligible for Special
Allowance Payments as provided in Section 438 of the Act.
"ESTIMATED AMOUNT" shall mean the amount which the Issuer estimates will be
required to pay Maintenance and Operating Expenses (including accrued but unpaid
Maintenance and Operating Expenses) for the period beginning on the
Date of Issuance of the Series 1996A Notes and ending on June 30, 1996, and
thereafter for the monthly period beginning on the first Business Day of each
month, commencing July 1, 1996. The Estimated Amount shall be paid pursuant to
the Indenture; provided, however, such Estimated Amount shall not exceed (i) the
amount shown therefor in the Closing Cash Flow Projection, (ii) 0.12% annualized
on the Outstanding Financial Eligible Loans or (iii) the amount shown in the
most recent subsequent Cash Flow Certificate.
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"EVENT OF BANKRUPTCY" shall mean (a) the Issuer shall have commenced a
voluntary case or other proceeding seeking liquidation, reorganization, or other
relief with respect to itself or its debts under any bankruptcy, insolvency, or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian, or other similar official of it or any
substantial part of its property, or shall have made a general assignment for
the benefit of creditors, or shall have declared a moratorium with respect to
its debts or shall have failed generally to pay its debts as they become due, or
shall have taken any action to authorize any of the foregoing; or (b) an
involuntary case or other proceeding shall have been commenced against the
Issuer seeking liquidation, reorganization, or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official of it or any substantial part
of its property provided such action or proceeding is not dismissed within 60
days.
"EVENT OF DEFAULT" shall have the meaning specified in the Indenture.
"EXCHANGE DATE" shall mean the date that the Notes are exchanged for
Exchange Notes pursuant to the Indenture.
"EXCHANGE NOTES" shall mean the Notes exchanged for the Series 1996A Notes
and the Series 1996B Notes pursuant to the Indenture.
"FEDERAL REIMBURSEMENT CONTRACTS" shall mean the agreements between the
Guarantee Agency and the Secretary providing for the payment by the Secretary of
amounts authorized to be paid pursuant to the Act, including (but not
necessarily limited to) reimbursement of amounts paid or payable upon defaulted
Financed Eligible Loans and other Student Loans Guaranteed or Insured by the
Guarantee Agency and Interest Benefit Payments and Special Allowance Payments to
holders of qualifying Student Loans Guaranteed or Insured by the Guarantee
Agency.
"FINANCED" or "FINANCING," when used with respect to Eligible Loans or
Student Loans, shall mean or refer to Eligible Loans or Student Loans, as the
case may be, (i) acquired by the Issuer with balances in the Student Loan Fund
and (ii) Eligible Loans substituted or exchanged for Financed Eligible Loans or
Financed Eligible Loans, but does not include Student Loans or Eligible Loans
released from the lien of the Indenture and sold or transferred, to the extent
permitted by the Indenture.
"FISCAL YEAR" shall mean the fiscal year of the Issuer as established from
time to time.
"FISL PROGRAM" shall mean the federal loan insurance program created under
the Act, whereby the Secretary directly insures the repayment of 100% of the
principal of and accrued interest on student loans under the Act.
"FITCH" shall mean Fitch Investors Service, L.P., and its successors and
assigns, and, for the purposes of the Auction Procedures, if such corporation
shall be dissolved or liquidated or shall no longer perform the functions of a
securities rating agency, "Fitch" shall be deemed to relate to any other
nationally recognized securities rating agency designated by the Issuer by
notice to the Trustee, the Auction Agent and the Broker-Dealers; provided,
however, that such notice shall not be effective unless accompanied by a consent
of a majority of the Broker-Dealers.
"FUNDS" shall mean the following funds created under Section 5.01 of the
Indenture and held by the Trustee: (a) the Student Loan Fund, including therein
the Series 1996 Loan Account, the Series
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1996 Note Account, the Series 1996 Recycling Account and any other Loan
Account and Recycling Account designated with respect to a Series, (b) the
Revenue Fund, (c) the Reserve Fund, (d) the Interest Fund, including therein
the Senior Interest Account, the Subordinate Interest Account and the
Junior-Subordinate Interest Account, if any, (e) the Note Redemption Fund,
including therein the Senior Note Redemption Account, the Subordinate Note
Redemption Account and the Junior-Subordinate Note Redemption Account, if
any, (f) the Student Loan Holding Fund and (g) the Cost of Issuance Fund.
"GENERAL FUND" shall mean the fund by that name described in the Indenture.
"GUARANTEE" or "GUARANTEED" shall mean with respect to a Student Loan, the
insurance or guarantee by the Guarantee Agency pursuant to such Guarantee
Agency's Guarantee Agreement of not less than 98% of the principal of and
accrued interest on such Student Loan and the coverage of such Student Loan by
the Federal Reimbursement Contracts, providing, among other things, for
reimbursement to the Guarantee Agency for payments made by it on defaulted
Student Loans insured or guaranteed by the Guarantee Agency of at least the
minimum reimbursement allowed by the Federal Reinsurance Contracts and the
Higher Education Act with respect to a particular Student Loan.
"GUARANTEE AGENCY" shall mean (a) United Student Aid Funds, Inc., (b) Iowa
College Student Aid Commission, (c) Oklahoma State Guaranty Agency, (d) Nebraska
Student Loan Program, Inc. (e) Kentucky Higher Education Assistance Authority,
(f) Colorado Student Loan Program, (g) Northstar Guarantee Inc. and (h) and any
other guarantee agency so long as the Issuer shall have received written
confirmation from each Rating Agency that the designation of such entity as a
"Guarantee Agency" hereunder will not, at the time of such designation,
adversely affect its Ratings then applicable to any of the Notes, and their
respective successors and assigns.
"GUARANTEE AGREEMENTS" shall mean (a) the Guarantee Agreement, dated as of
March 7, 1996, between United Student Aid Funds, Inc. and Norwest Bank
Minnesota, National Association as trustee, (b) the Guarantee Agreement, dated
as of February 23, 1996, between Iowa College Student Aid Commission and Norwest
Bank Minnesota, National Association, as trustee, (c) the Guarantee Agreement,
dated as of March 7, 1996, between Oklahoma State Guaranty Agency and Norwest
Bank Minnesota, National Association, as trustee, (d) the Guarantee Agreement,
dated as of May 1, 1996, between Nebraska Student Loan Program, Inc. and Norwest
Bank Minnesota, National Association, as trustee, (e) the Guarantee Agreement,
dated as of June 12, 1996, between Kentucky Higher Education Assistance
Authority and Norwest Bank Minnesota, National Association, as trustee, (f) the
Lender Program Participation Agreement, dated as of September 24, 1996, between
Colorado Student Loan Program and Norwest Bank Minnesota, National Association,
as trustee, (g) the Lender Agreement dated as of September 26, 1996, between
Northstar Guarantee Inc. and Norwest Bank Minnesota, National Association, as
trustee (h) any similar guarantee or lender agreement with any other Guarantee
Agency, and (i) any amendments to the foregoing.
"GUARANTEED STUDENT LOAN" shall mean a Student Loan which is Guaranteed or
Insured.
"GUARANTEED STUDENT LOAN PROGRAM" shall mean the program known as the
Federal Family Education Loan Program which makes low interest loans under the
Higher Education Act available to pay the costs of a student attending
post-secondary schools, whether under the Guarantee Agency program or the FISL
Program.
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"HIGHER EDUCATION ACT" shall mean the Higher Education Act of 1965, as
amended or supplemented from time to time, or any successor federal act and all
regulations, directives, bulletins, and guidelines proposed or promulgated from
time to time thereunder.
"HOLD ORDER" shall have the meaning set forth in the Indenture.
"IMMEDIATE NOTICE" shall mean notice by telephone, telex or telecopier to
such address as the addressee shall have directed in writing, promptly followed
by written notice by first class mail, postage prepaid; provided, however, that
if any person required to give Immediate Notice shall not have been provided
with the necessary information as to the telephone, telex or telecopier number
of an addressee, Immediate Notice shall mean written notice by first class mail,
postage prepaid.
"INDENTURE" shall mean the Second Amended and Restated Indenture of Trust
dated as of November 1, 1996, including all supplements and amendments thereto.
"INSURANCE," "INSURED" or "INSURING" shall mean, with respect to a Student
Loan, insurance by the Secretary under the Higher Education Act (as evidenced by
a Contract of Insurance issued or entered into under the provisions of the Act)
of the maximum percentage of the principal of such Student Loan allowed by the
Act, and, during such time as such Student Loan is not entitled to Interest
Benefit Payments, the interest on such Student Loan.
"INTEREST BENEFIT PAYMENT" shall mean an interest payment on Student Loans
received pursuant to the Interest Benefits Agreement.
"INTEREST BENEFITS AGREEMENT" shall mean the agreement between the
Guarantee Agency and the Secretary whereby the Secretary agrees to pay to
holders of Student Loans Guaranteed by the Guarantee Agency the portion of the
interest charges on such loans which students are entitled to have paid on their
behalf pursuant to Sections 428(a)(1) and 428(a)(2) of the Act.
"INTEREST FUND" shall mean the Fund by that name created in the Indenture
and further described in the Indenture, including the Senior Interest Account,
the Subordinate Interest Account and the Junior-Subordinate Interest Account, if
any, created therein.
"INVESTMENT AGREEMENT" shall mean, collectively, the Investment Agreement
dated as of June 19, 1996 by and among the Trustee, the Issuer and Lehman
Brothers, Inc. and the Promissory Note dated as of June 19, 1996 between the
Issuer and Lehman Brothers Holdings Inc.
"INVESTMENT SECURITIES" shall mean
(a) Direct obligations of (including obligations issued or held in
book entry form on the books of) the Department of Treasury of the United
States of America with remaining maturities not exceeding the first
Business Day preceding the next Transfer Date. If not rated by Standard &
Poor's, the obligations must have a predetermined fixed dollar principal
due at maturity that cannot vary or change. If the obligation is rated, it
should not have an "r" highlighter affixed to its rating;
(b) Obligations of any of the following federal agencies which
obligations represent full faith and credit of the United States of America
with remaining maturities not exceeding the first Business Day preceding
the next Transfer Date, (i) Export - Import Bank; (ii) Farmers Home
Administration; (iii) General Services Administration; (iv) Government
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National Mortgage Association (GNMA); (v) U.S. Department of Housing &
Urban Development (PHA's); (vi) Federal Housing Administration. If not
rated by S&P, the obligations must have a predetermined fixed dollar
principal due at maturity that cannot vary or change. If the obligation is
rated, it should not have an "r" highlighter affixed to its rating;
(c) Notes, bonds or other evidences of indebtedness rated "AAA" by
Fitch and S&P issued by the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation with remaining maturities not
exceeding the first Business Day preceding the next Transfer Date. If not
rated by S&P, the obligations must have a predetermined fixed dollar
principal due at maturity that cannot vary or change. If the obligation is
rated, it should not have an "r" highlighter affixed to its rating;
(d) U.S. dollar denominated deposit accounts, federal funds and
banker's acceptances with domestic commercial banks which have a rating on
their short-term debt obligations of "A-1+" by S&P and "F-1+" by Fitch and
maturities not exceeding the first Business Day preceding the next Transfer
Date. In addition, the instruments should not have an "r" highlighter
affixed to the rating and its terms should have a predetermined amount of
principal due at maturity that cannot vary or change (Ratings on holding
companies are not considered as the rating of the bank);
(e) Commercial paper which is rated "F-1+" by Fitch and "A-1+" by S&P
and maturities not exceeding the first Business Day preceding the next
Transfer Date. In addition, the instruments should not have an "r"
highlighter affixed to the rating and its terms should have a predetermined
amount of principal due at maturity that cannot vary or change;
(f) Investments in money market funds (i) rated within the two
highest rating categories of Fitch and (ii) "AAAm" or "AAAm-G" by S&P;
(g) With the prior written consent of Fitch and S&P, repurchase
agreements with respect to securities of the type described in (a), (b) or
(c) above, with (i) a registered broker/dealer rated by Fitch and S&P or
approved in writing by Fitch and S&P and subject to the Securities
Investors' Protection Issuer Liquidation Act in the event of insolvency to
the full extent of such repurchase agreement, (ii) a primary dealer rated
by Fitch and S&P reporting to and trading with the Federal Reserve Bank of
New York, or (iii) any commercial bank, and in the case of clauses (i),
(ii) and (iii), (x) whose unsecured long-term indebtedness is rated by
Fitch and S&P and whose long-term or short-term indebtedness is rated
"F-1+" or "AAA" by Fitch and "A-1+" or "AAA" by S&P (dependent upon whether
the repurchase agreement is long-term or short-term, respectively) or
better by Fitch, or (y) which in the case of clause (iii) is the lead bank
of a parent bank holding company whose unsecured long-term indebtedness is
rated "AAA" or better by Fitch and S&P, and in the case of either (x) or
(y), having a combined capital, surplus and undivided profits of not less
than $100 million and which repurchase agreement shall provide that:
(A) the repurchase obligation is collateralized by the
securities themselves which shall be held by the Trustee (unless the
Trustee is the purchaser under the repurchase agreement) or a third
party which is a Federal Reserve Bank or a commercial bank with
capital, surplus and undivided profits of not less than $50 million,
and the Trustee shall have received written confirmation from such
third party that it holds such securities;
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(B) a perfected security interest in favor of the Trustee in the
securities has been created under the Uniform Commercial Code or
pursuant to the book entry procedures described in 31 C.F.R. 306.1 et
seq. or 31 C.F.R. 350.0 et seq., as amended, and any successor
regulations thereto; and
(C) the securities on the date of execution of the repurchase
agreement and upon weekly evaluation by the Trustee thereafter have a
fair market value of at least 102% of the amount of the repurchase
obligation, including both principal and interest;
(h) With the prior written consent of Fitch and S&P, any investment
agreement that has as a counterparty, an institution rated "F-1+" or "AAA"
by Fitch and "A-1+" or "AAA" by S&P; and
(i) The Investment Agreement and any other investment approved in
advance in writing by each Rating Agency.
"ISSUER" shall mean Union Financial Services-1, Inc., a corporation
organized and existing under the corporation laws of the State, and any
successor to its functions.
"ISSUER ORDER" shall mean a written order signed in the name of the Issuer
by an Authorized Officer.
"JUNIOR-SUBORDINATE INTEREST ACCOUNT" shall mean the Account by that name
created within the Interest Fund by Section 5.01 of the Indenture and further
described in the Indenture.
"JUNIOR-SUBORDINATE NOTE REDEMPTION ACCOUNT" shall mean the Account by that
name created within the Note Redemption Fund by the Indenture and further
described in the Indenture.
"JUNIOR-SUBORDINATE NOTES" shall mean Offered Notes or Additional Notes, if
any, subordinate to the Subordinate Notes, the principal of and interest on
which is paid from the Junior-Subordinate Redemption Account of the Note
Redemption Fund and the Junior-Subordinate Interest Account of the Interest
Fund, respectively; provided, however, that any series of the Junior-Subordinate
Notes need not necessarily be payable on a parity with all other series of the
Junior-Subordinate Notes. Any Junior-Subordinate Notes shall be designated by
Class "C," "D," "E" or lower alphabetic designation, the higher alphabetic
designation ("C" being higher than "D") indicating the more senior series of the
Junior-Subordinate Notes.
"LETTER OF REPRESENTATIONS" means the Letters of Representations among the
Securities Depository, the Issuer and the Trustee.
"LOAN ACCOUNT" shall mean the Account by that name created within the
Student Loan Fund by the Indenture designated with respect to each Series and
further described in the Indenture.
"MAINTENANCE AND OPERATING EXPENSES" shall mean the expenses of the Issuer
incurred in direct connection with the Program under the Indenture, including
attorneys' fees, auditing fees, marketing fees, travel expenses of directors and
officers, insurance, taxes, and such other reasonable and necessary expenses
which may be incurred directly or indirectly in connection with the operation of
the Program under the Indenture and in an annual amount not to exceed the
estimated Maintenance and Operating Expenses described in Exhibit E-2 to the
Indenture until January 1, 1999, unless
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otherwise approved by each Rating Agency, and on and after January 1, 1999,
an annual amount not to exceed the estimated Maintenance and Operating
Expenses described in a Cash Flow Certificate to be approved by each Rating
Agency for a specified period approved by each Rating Agency, but such term
shall not include servicing fees and expenses incurred under the Servicing
Agreement or the Subservicing Agreement, as the case may be, the Trustee fees
and expenses and the Calculation Agent fees and expenses incurred under the
Indenture or the Custodian Agreement, the Auction Agent's fees and expenses
incurred under the Auction Agent Agreement, any Broker-Dealer Fees and
expenses incurred under a Broker-Dealer Agreement or the Rating Agency Fees
and expenses incurred under the Indenture.
"MATURITY" shall mean, when used with respect to any Note, the date on
which the principal thereof becomes due and payable as provided herein in the
Indenture, whether at its Stated Maturity, by earlier redemption, by declaration
of acceleration, or otherwise.
"NET LOSSES" shall mean the aggregate principal amount of all Financed
Eligible Loans which are over 540 days delinquent, less any recoveries of
principal received with respect to such Financed Eligible Loans.
"NOTE COUNSEL" shall mean Kutak Rock, or any other counsel of nationally
recognized standing in the field of law relating to notes, selected by the
Issuer and reasonably acceptable to the Trustee.
"NOTE REDEMPTION FUND" shall mean the Fund by that name created in the
Indenture and further described in the Indenture, including the Senior Note
Redemption Account, the Subordinate Note Redemption Account and the Junior-
Subordinate Note Redemption Account created therein.
"NOTES" shall mean the Private Notes, the Offered Notes and any other
Additional Notes.
"NOTICE OF MANDATORY EXCHANGE" shall mean the notice regarding the exchange
of the Notes to be delivered by the Trustee pursuant to the Indenture.
"NOTIFICATION OF LOAN APPROVAL" shall mean the written notification by the
Guarantee Agency with respect to an Eligible Loan evidencing the Guarantee
thereof by the Guarantee Agency.
"OFFERED NOTES" shall mean, with respect to any Series, the Taxable Student
Loan Asset-Backed Notes being offered with respect thereto as specified in the
related Prospectus Supplement.
"OPERATING FUND" shall mean the fund by that name continued by and
described in the Indenture and under "Security and Sources of Payment for the
Notes."
"OUTSTANDING" shall mean, when used in connection with any Note, a Note
which has been executed and delivered pursuant to the Indenture which at such
time remains unpaid as to principal or interest, unless provision has been made
for such payment pursuant to the Indenture, excluding Notes which have been
replaced pursuant to the Indenture.
"OWNERSHIP INTEREST" means, with respect to any Note, any ownership
interest in such Note, including any interest in such Note as the Registered
Owner thereof and any other interest therein, whether direct or indirect, legal
or beneficial.
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"PARTICIPANT" means a member of, or participant in, the Depository.
"PERSON" shall mean an individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, or
government or agency or political subdivision thereof.
"PLUS LOAN" or "FEDERAL PLUS LOAN" shall mean a Student Loan authorized
under Section 428B of the Act.
"PRESIDENT" shall mean the President of the Issuer.
"PRINCIPAL OFFICE" shall mean the principal corporate trust office of the
Trustee.
"PRIOR CLASS A NOTES" shall mean (i) the Issuer's Taxable Student Loan
Asset-Backed Notes, Series 1996A Senior Auction Rate issued pursuant to the
Indenture in the aggregate principal amount of $96,600,000 and consisting of
$48,300,000 of Class 1996 A-1 Notes (Auction Rate Securities-SM- (ARS-SM-)) and
$48,300,000 of Class 1996 A-2 Notes (Auction Rate Securities-SM- (ARS-SM-)) and
(ii) the Issuer's Taxable Student Loan Asset-Backed Notes, Series 1996B,
Class 1996B Senior Auction Rate issued pursuant to the Indenture in the
aggregate principal amount of $128,000,000 and consisting of $73,700,000 of
Class A-3 Notes (Auction Rate Securities-SM- (ARS-SM-)) and $54,300,000 of
Class A-4 Notes (Auction Rate Securities-SM- (ARS-SM-)).
"PRIOR CLASS B NOTES" shall mean (i) the Issuer's Taxable Student Loan
Asset-Backed Notes, Series 1996A, Class B Subordinate LIBOR Rate, issued
pursuant to the Indenture in the aggregate principal amount of $11,100,000 and
(ii) the Issuer's Taxable Student Loan Asset-Backed Notes, Series 1996B,
Class B-2 Subordinate LIBOR Rate, issued pursuant to the Indenture in the
aggregate principal amount of $14,200,000.
"PRIVATE NOTES" shall mean the Series 1996A Notes and the Series 1996B
Notes.
"PROGRAM" or "PURCHASE PROGRAM" shall mean the Issuer's Program for the
purchase of Eligible Loans from Eligible Lenders in order to increase the supply
of money available for new Student Loans, thereby assisting students in
obtaining an education at an Eligible Institution.
"PURCHASE PRICE" shall mean the purchase price for the Financed Eligible
Loans described in the respective Student Loan Purchase Agreement.
"RATING" shall mean one of the rating categories of Fitch, S&P or any other
Rating Agency, provided Fitch, S&P or any other Rating Agency, as the case may
be, is currently rating the Notes.
"RATING AGENCY" shall mean, collectively, (a) Fitch and its successors and
assigns, (b) S&P and its successors and assigns or (c) or any other Rating
Agency requested by the Issuer to maintain a Rating on any of the Notes, but
only to the extent such entity is at the time maintaining a Rating on the Notes.
"RECYCLING ACCOUNT" shall mean the Account by that name created within the
Student Loan Fund by the Indenture designated with respect to each Series and
further described in the Indenture.
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"REGISTERED OWNER" shall mean the Person in whose name a Note is registered
on the Note registration books maintained by the Trustee or, if a Note is
registered in the name of a Securities Depository, any other Person with an
Ownership Interest.
"REGULATIONS" shall mean the Regulations promulgated from time to time by
the Secretary or the Guarantee Agency.
"RESERVE FUND" shall mean the Fund by that name created in the Indenture
and further described in the Indenture and under "Security and Sources of
Payment for the Notes."
"RESERVE FUND REQUIREMENT" shall mean at any time (a) the greater of an
amount equal to 2% of the aggregate principal amount of the Notes then
Outstanding or $750,000 plus (b) an amount, if any, required to be on deposit in
the Reserve Fund with respect to any Additional Notes pursuant to the
Supplemental Indenture authorizing the issuance of such Additional Notes.
"RESOLUTION" shall mean a resolution duly adopted by the Board.
"REVENUE" shall mean all principal and interest payments, proceeds, charges
and other income received by the Trustee or the Issuer from or on account of any
Financed Eligible Loan (including, but not limited to, scheduled, delinquent and
advance payments of and any insurance proceeds with respect to, interest,
including Interest Benefit Payments, on Financed Eligible Loans and any Special
Allowance Payments received by the Issuer or the Trustee with respect to any
Financed Eligible Loan) and investment income from all Funds and Accounts, and
any proceeds from the sale or other disposition of such Financed Eligible Loans.
"REVENUE FUND" shall mean the Fund by that name created in the Indenture
and further described in the Indenture and under "Security and Sources of
Payment for the Notes."
"S&P" shall mean Standard & Poor's Ratings Services, a Division of The
McGraw-Hill Companies, Inc., its successors and assigns, and, for the purposes
of the Auction Procedures, if such corporation shall be dissolved or liquidated
or shall no longer perform the functions of a securities rating agency, "S&P"
shall be deemed to relate to any other nationally recognized securities rating
agency designated by the Issuer by notice to the Trustee, the Auction Agent and
the Broker-Dealers; provided, however, that such notice shall not be effective
unless accompanied by a consent of a majority of the Broker-Dealers.
"SECRETARY" shall mean the Secretary of the United States Department of
Education or any successor to the pertinent functions thereof, under the Higher
Education Act or when the context so requires, the former Commissioner of
Education of the United States Department of Health, Education and Welfare.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES DEPOSITORY" shall mean The Depository Trust Company and its
successors and assigns or if, (i) the then Securities Depository resigns from
its functions as depository of the Notes or (ii) the Issuer discontinues use of
the Securities Depository pursuant to Section 2.01(d) of the Indenture, any
other securities depository which agrees to follow the procedures required to be
followed by a securities depository in connection with the Notes and which is
selected by the Issuer with the consent of the Trustee.
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"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"SELLER" shall mean an Eligible Lender from which the Issuer is purchasing
or has purchased or agreed to purchase Eligible Loans pursuant to a Student Loan
Purchase Agreement between the Issuer and such Eligible Lender; provided,
however, that any Seller, other than Union Bank and Trust Company, shall be
approved in writing by each Rating Agency.
"SENIOR NOTE REDEMPTION ACCOUNT" shall mean the Account by that name
created within the Note Redemption Fund by Section 5.01 of the Indenture and
further described in the Indenture.
"SENIOR NOTES" shall mean the Prior Class A Notes and any Offered Notes or
Additional Notes secured on a parity with the Prior Class A Notes, the principal
of and interest on which is paid from the Senior Note Redemption Account of the
Note Redemption Fund and the Senior Interest Account of the Interest Fund,
respectively.
"SENIOR INTEREST ACCOUNT" shall mean the Account by that name created
within the Interest Fund by the Indenture and further described in the Indenture
and under "Security and Sources of Payment for the Notes."
"SERIES 1996 NOTE ACCOUNT" shall mean the Account by that name created
within the Student Loan Fund by the Indenture and further described in the
Indenture and under "Security and Sources of Payment for the Notes."
"SERIES 1996A NOTES" shall mean the Union Financial Services-1, Inc.,
Taxable Student Loan Asset-Backed Notes, Series 1996A issued pursuant to the
Indenture in the aggregate principal amount of $107,700,000, consisting of the
Class A-1 Notes, the Class A-2 Notes and the Class B Notes.
"SERIES 1996B NOTES" shall mean the Union Financial Services-1, Inc.,
Taxable Student Loan Asset-Backed Notes, Series 1996B issued pursuant to the
Indenture in the aggregate principal amount of $142,200,000, consisting of the
Class A Notes and the Class B-2 Notes with respect thereto.
"SERVICER" shall mean Union Bank and Trust Company, and any other servicer
so long as the Issuer shall have received written confirmation from each Rating
Agency that the designation of such entity as a "Servicer" under the Indenture
will not, at the time of such designation, cause such Rating Agency to reduce or
withdraw its Ratings then applicable to any of the Notes, and their respective
successors and assigns.
"SERVICING AGREEMENT" shall mean the Amended and Restated Servicing
Agreement, dated as of June 19, 1996, as amended, between the Issuer and Union
Bank and Trust Company and any other servicing agreement with any other Servicer
relating to Financed Eligible Loans.
"SLS LOAN" or "FEDERAL SLS LOAN" shall mean a Student Loan authorized under
Section 428A of the Act.
"SPECIAL ALLOWANCE PAYMENTS" shall mean the special allowance payments
authorized to be made by the Secretary by Section 438 of the Act, or similar
allowances authorized from time to time by federal law or regulation.
"SPECIAL RECORD DATE" shall mean the date set forth in the Indenture on
which any defaulted interest shall be paid to Noteholders.
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"STATE" shall mean the State of Nevada.
"STATED MATURITY" shall mean the date specified in the Notes as the fixed
date on which principal of such Notes is due and payable.
"STUDENT LOAN" shall mean a loan under the Higher Education Act to an
Eligible Borrower for education at an Eligible Institution (or a loan to
consolidate the same) authorized to be made or acquired by the Issuer pursuant
to its articles of incorporation and the Loan Purchase Regulations and described
in Section 144(b)(1)(A) of the Code.
"STUDENT LOAN FUND" shall mean the Fund by that name created in the
Indenture and further described in the Indenture, including the Series 1996 Loan
Account, the Series 1996 Note Account and the Series 1996 Recycling Account
created therein and each Loan Account and Recycling Account designated with
respect to Additional Notes.
"STUDENT LOAN HOLDING FUND" shall mean the Fund by that name created in the
Indenture and further described in the Indenture and under "Security and Sources
of Payment for the Notes."
"STUDENT LOAN PURCHASE AGREEMENT" shall mean, collectively, (a) that
certain Loan Sale and Commitment Agreement dated as of March 1, 1996 between the
Issuer and Union Bank and Trust Company, (b) that certain Loan Sale and
Commitment Agreement dated as of June 19, 1996, between the Issuer and Union
Bank and Trust Company and (c) any other loan purchase agreement, entered into
between the Issuer and any Eligible Lender for the purchase of Eligible Loans in
substantially the same form as said Loan Sale and Commitment Agreement, as
determined by the Issuer and with an opinion of Note Counsel.
"SUBORDINATE INTEREST ACCOUNT" shall mean the Account by that name created
within the Interest Fund by the Indenture and further described in the Indenture
and under "Security and Sources of Payment for the Notes."
"SUBORDINATE NOTE REDEMPTION ACCOUNT" shall mean the Account by that name
created within the Note Redemption Fund by the Indenture and further described
in the Indenture and under "Security and Sources of Payment for the Notes."
"SUBORDINATE NOTES" shall mean the Prior Class B Notes and any Offered
Notes or Additional Notes secured on a parity with the Prior Class B Notes, the
principal of and interest on which is paid from the Subordinate Note Redemption
Account of the Note Redemption Fund and the Subordinate Interest Account of the
Interest Fund, respectively.
"SUBSERVICER" shall mean UNIPAC Service Corporation, a Nebraska
corporation, and any other subservicer so long as the Issuer shall have received
written confirmation from each Rating Agency that the designation of such entity
as a "Subservicer" hereunder will not, at the time of such designation, cause
such Rating Agency to reduce or withdraw its Ratings then applicable to any of
the Notes, and their respective successors and assigns.
"SUBSERVICING AGREEMENT" shall mean the Servicing Agreement, dated as of
January 1, 1995, as amended by the First Amendment to Servicing Agreement dated
as of March 1, 1996 and the Second Amendment to Servicing Agreement dated as of
June 19, 1996, each between the Servicer and the Subservicer and any other
subservicing agreement with any other Subservicer relating to Financed Eligible
Loans.
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"SUPPLEMENTAL INDENTURE" shall mean an agreement supplemental to the
Indenture executed pursuant to the Indenture.
"TRANSFER DATE" shall mean each January 1 and July 1, commencing July 1,
1996.
"TRUSTEE" shall mean Norwest Bank Minnesota, National Association, acting
in its capacity as Trustee under the Indenture, or any successor trustee
designated pursuant to the Indenture.
"UNSUBSIDIZED LOAN" or "UNSUBSIDIZED STAFFORD LOAN" shall mean a Student
Loan authorized under Section 428H of the Act.
"VALUE" on any calculation date when required under the Indenture shall
mean the value of the Trust Estate calculated by the Trustee as follows:
(a) with respect to any Eligible Loan, the unpaid principal amount
thereof plus any unamortized premiums, any accrued but unpaid interest,
Interest Benefit Payments and Special Allowance Payments as set forth on
the most recent Servicer's report or from the Issuer;
(b) with respect to any funds on deposit in any commercial bank or as
to any banker's acceptance or repurchase agreement or investment contract,
the amount thereof plus accrued but unpaid interest;
(c) with respect to any Investment Securities of an investment
company, the net asset value price of the shares as reported by the
investment company;
(d) as to investments the bid and asked prices of which are published
on a regular basis in THE WALL STREET JOURNAL (or, if not there, then in
THE NEW YORK TIMES): (i) the average of the bid and asked prices for such
investments so published on or most recently prior to such time of
determination, but not in excess of the par amount of such investment plus
accrued interest thereon or (ii) the bid price published by a nationally
recognized pricing service; and
(e) as to investments the bid and asked prices of which are not
published on a regular basis in THE WALL STREET JOURNAL or THE NEW YORK
TIMES: (i) the lower of the bid prices at such time of determination for
such investments by any two nationally recognized government securities
dealers (selected by the Issuer in its absolute discretion) at the time
making a market in such investments or (ii) the bid price published by a
nationally recognized pricing service.
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