UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ___________________________________________
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 of (I.R.S. Employer
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)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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__
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
Class of Stock Amount Outstanding
Common Stock, No par value 1,000 Shares of Common Stock
as of August 12, 1998
<PAGE>
UNION FINANCIAL SERVICES-1, INC.
INDEX
Page No.
PART I. - FINANCIAL INFORMATION
Item 1.Financial Statements
Balance Sheets as of September 30, 1998 and
December 31, 1997.......................................................1
Statements of Operations for the three months and nine months ended
September 30, 1998 and 1997.............................................2
Statement of Stockholder's Equity for the nine months
ended September 30, 1998................................................3
Statements of Cash Flows for the nine months ended September 30, 1998 and
1997....................................................................4
Note to Financial Statements..............................................5
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................................... 6
PART II. - OTHER INFORMATION
Item 1.Legal Proceedings.................................................... 10
Item 2.Changes in Securities................................................ 10
Item 3.Defaults upon Senior Securities...................................... 10
Item 4.Submission of Matters to a Vote
of Security Holders.................................................. 10
Item 5.Other Information.................................................... 10
Item 6.Exhibits and Reports on Form 8-K..................................... 10
<PAGE>
UNION FINANCIAL SERVICES-1, INC.
BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
ASSETS SEPTEMBER 30, DECEMBER 31,
1998 1997
(Unaudited)
------------- ------------
Cash and cash equivalents $15,564,813 $39,542,382
Student loans receivable including net premiums, 547,604,515 525,005,954
net of allowance for loan losses
Accrued interest receivable 10,036,391 7,735,292
Deferred income tax asset 112,387 1,000
Debt issuance cost, net of accumulated amortization 2,624,356 2,997,516
Other assets 2,000 10,000
------------ ------------
Total assets $575,944,462 $575,292,144
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Notes payable $571,500,000 $571,500,000
Accrued interest payable 1,664,652 1,607,350
Income taxes payable 246,438 989,819
Other liabilities 1,551,934 436,748
------------ ------------
Total liabilities $574,963,024 $574,533,917
------------ ------------
Stockholder's equity:
Common stock, no par value. Authorized $1,000 $ 1,000
1,000 shares; issued 1,000 shares
Retained earnings 980,438 757,227
Total stockholder's equity 981,438 758,227
Total liabilities and stockholder's
equity $575,944,462 $575,292,144
============ ===========
See accompanying note to financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
UNION FINANCIAL SERVICES - 1, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
Revenues: --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Loan interest $11,157,078 $10,796,386 $32,895,881 $31,694,899
Investment interest 194,230 368,562 847,751 1,847,769
Other 12,950 138,710 59,233 177,541
------ ------- ------ -------
Total revenues 11,364,258 11,303,658 33,802,865 33,720,209
Expenses:
Interest on notes 8,250,067 8,280,987 24,789,830 24,551,849
Loan servicing 1,375,053 1,291,119 4,061,437 3,606,070
Administrative and financing fees to 241,237 474,823 711,400 1,095,901
parent
Trustee and broker fees 234,825 245,762 695,820 713,410
Amortization of debt issuance costs 124,387 127,598 373,160 369,719
Amortization of loan premiums 496,958 309,581 1,457,143 897,055
Other general and administrative 510,543 295,862 1,356,813 978,559
------- ------- --------- -------
Total expenses 11,233,070 11,025,732 33,445,603 32,212,563
Income before income taxes 131,188 277,926 357,262 1,507,646
Income tax expense 51,533 94,495 134,051 512,600
------ ------ ------- -------
Net Income $79,655 $183,431 $223,211 $995,046
------- -------- -------- --------
Net Income per common share $79.66 $183.43 $223.21 $995.05
------ ------- ------- -------
See accompanying note to financial statements.
</TABLE>
2
<PAGE>
UNION FINANCIAL SERVICES-1, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
TOTAL
RETAINED STOCKHOLDER'S
COMMON STOCK EARNINGS EQUITY
-------------- --------------- -------------
Balances at December 31,1997 $1,000 $757,227 $758,227
Net income, nine months ended -- 223,211 223,211
September 30, 1998 (Unaudited)
Balance at September 30,
1998 (Unaudited) $1,000 $980,438 $981,438
------ -------- --------
See accompanying note to financial statements.
3
<PAGE>
UNION FINANCIAL SERVICES - 1, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
1998 1997
---- ----
Net Income $223,211 $995,046
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 1,830,303 1,224,669
Provision for loan losses 450,000 ---
Deferred tax expense (benefit) (111,387) 274,968
Increase in accrued interest receivable (2,301,099) (37,511)
Decrease (Increase) in other assets 8,000 (5,789)
Increase in accrued interest payable 183,952 306,816
Increase in other liabilities 245,155 19,293
------- ------
Net cash provided by operating activities 528,135 2,777,492
------ ---------
Cash flows used in investing activities:
Purchase of student loans, including premiums (71,602,789) (100,853,496)
Proceeds from student loan principal sales 656,556 5,970,592
Increase of student loans due to
capitalized interest (32,678,339) (12,339,745)
Proceeds from student loan principal
payments and loan consolidations 79,118,868 54,333,579
---------- ----------
Net cash used in investing activities (24,505,704) (52,889,070)
------------ ------------
Cash flows provided by financing activities:
Cash paid to defease debt -- (25,300,000)
Proceeds from issuance of notes payable -- 30,800,000
Cash paid for debt issuance costs -- (278,971)
----------- ------------
Net cash provided by financing activities -- 5,221,029
----------- ------------
Net decrease in cash and cash equivalents (23,977,569) (44,890,549)
Cash and cash equivalents, beginning of period 39,542,382 65,402,585
---------- -----------
Cash and cash equivalents, end of period $15,564,813 $20,512,036
----------- -----------
Supplemental disclosures:
Interest paid $24,074,237 $24,430,093
Income taxes paid 436,748
------- ----------
See accompanying note to financial statements.
4
<PAGE>
UNION FINANCIAL SERVICES - 1, INC.
NOTE TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
(1). BASIS OF PRESENTATION
The accompanying financial statements of Union Financial Services-1,
Inc. (the "Company") have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC") and, in the opinion of
management, include all adjustments necessary for a fair statement of income for
each period shown. All such adjustments made are of a normal recurring nature,
except when noted as extraordinary or nonrecurring. The balance sheet at
December 31, 1997 is derived from the audited balance sheet as of that date. All
other financial statements are unaudited. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations. Management believes that the
disclosures made are adequate and that the information is fairly presented. The
results for the interim periods are not necessarily indicative of the results
for the full year. These financial statements should be read in conjunction with
the financial statements and notes thereto in the Company's Annual Report on
Form 10-K, which are incorporated by reference.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OR OPERATIONS.
GENERAL
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. 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 (the "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 Zions First National Bank as successor trustee (the "Trustee"), as amended
and supplemented from time to time (collectively, the "Indenture"). Since its
inception, the Company has issued four (4) series of Notes consisting of ten
(10) classes. The Notes shown in the financial statements of the Company
represent limited obligations of the Company secured solely by the Eligible
Loans and other assets in the trust estate created under the Indenture.
RESULTS OF OPERATIONS
Three months ended September 30, 1998 compared to three months ended September
30, 1997.
REVENUES. The Company's revenues consist primarily of interest earned on
Eligible Loans subject to the indebtedness of the Notes. Revenues from interest
on Eligible Loans increased by $360,692 from $10,796,386 for the three months
ended September 30, 1997 to $11,157,078 for the three months ended September 30,
1998. The increase in revenues is attributable to the acquisition of additional
Eligible Loans by the Company during the period. The Company's average net
investment in Eligible Loans during the three months ended September 30, 1998
and September 30, 1997 was approximately $536,297,000 and $512,355,000,
respectively (excluding funds held by the Trustee) and the average effective
annual interest rate of interest income on Eligible Loans during the three
months ended September 30, 1998 and September 30, 1997 was approximately 8.32%
and 8.43%, respectively. The Company also received investment income and other
income in the amounts of $194,230 and $12,950, respectively, for the three
months ended September 30, 1998 and $368,562 and $138,710, respectively, for the
three months ended September 30, 1997.
EXPENSES. The Company's expenses consist primarily of interest expense
on the Company's outstanding Notes. Expenses from interest due on the Company's
outstanding Notes decreased by $30,920 from $8,280,987 for the three months
ended September 30, 1997 to $8,250,067 for the three months ended September 30,
1998. This decrease in expenses is attributable to the minor rate fluctuations
on all Notes outstanding. For the three months ended September 30, 1998 and
September 30, 1997, the Company's average debt outstanding was approximately
$571,500,000 and $571,500,000, respectively, and the average annual cost of
borrowings was approximately 5.78% and 5.80%, respectively. The Company also
incurred expenses for loan servicing fees to Union Bank and administrative and
financing fees to UFS in the amount of $1,375,053 and $241,237, respectively,
for the three months ended September 30, 1998 as compared to $1,291,119 and
$474,823 respectively, for the three months ended September 30, 1997. The
increase in loan servicing fees is directly related to the servicing of
additional Eligible Loans and the decrease in administrative and financing fees
is directly related to reduced financing activity. Trustee and broker fees,
6
<PAGE>
amortization of debt issuance costs and amortization of loan premiums amounted
to $234,825, $124,387, and $496,958, respectively, for the three months ended
September 30, 1998 as compared to $245,762, $127,598 and $309,581; respectively,
for the three months ended September 30, 1997. Other general and administrative
expenses amounted to $510,543 for the three months ended September 30, 1998 as
compared to $295,862 for the three months ended September 30, 1997. The
increases and decreases in these expenses directly relate to the activity of the
Company's business. The Company had net income of $79,655 for the three months
ended September 30, 1998 and net income of $183,431 for the three months ended
September 30, 1997. The reduction in net income resulted from an increase in
amortization of loan purchase premiums, from an increase in the provision for
loan losses and from a reduction in the interest rate spread between rates for
interest revenue and interest expense.
Income tax expense amounted to $51,533 for the three months ended
September 30, 1998 compared to $94,495 for the three months ended September 30,
1997. The decrease in tax expense was a result of book and tax differences
related to the provision for loan losses recorded in 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
REVENUES. The Company's revenues consist primarily of interest earned on
Eligible Loans subject to the indebtedness of the Notes. Revenues from interest
on Eligible Loans increased by approximately $1,200,982 from $31,694,899 for the
nine months ended September 30, 1997 to $32,895,881 for the nine months ended
September 30, 1998. The increase in revenues is directly attributable to the
acquisition of additional Eligible Loans by the Company during the period. The
Company's average net investment in Eligible Loans during the nine months ended
September 30, 1998 and September 30, 1997 was approximately $529,519,000 and
$604,654,000, respectively (excluding funds held by the Trustee) and the average
effective annual interest rate of interest income on Eligible Loans during the
nine months ended September 30, 1998 and September 30, 1997 was approximately
8.28% and 8.37%, respectively. The Company also earned investment income and
other income in the amounts of $847,751 and $59,233, respectively, for the nine
months ended September 30, 1998 and $1,847,769 and $177,541, respectively, for
the nine months ended September 30, 1997.
EXPENSES. The Company's expenses consist primarily of interest expense on
the Company's outstanding Notes. Interest expense on the Company's outstanding
Notes increased by $237,981 from $24,551,849 for the nine months ended September
30, 1997 to $24,789,830 for the nine months ended September 30, 1998. This
increase in expenses is directly attributable to the interest rates on all Notes
outstanding. The Company's average debt outstanding was approximately
$571,500,000 and the average annual cost of borrowing was approximately 5.78%
for the nine months ended September 30, 1998. The Company's average debt
outstanding was approximately $571,500,000 and the average annual cost of
borrowing was approximately 5.80% for the nine months ended September 30, 1997.
The Company also incurred expenses for loan servicing fees to Union Bank and
administrative and financing fees to UFS in the amount of $4,061,437 and
$711,400, respectively, for the nine months ended September 30, 1998 as compared
to $3,606,070 and $1,095,070, respectively, for the nine months ended September
30, 1997. The increase in loan servicing fees is directly related to the
servicing of additional Eligible Loans and the decrease in administration and
financing fees is directly related to additional Eligible Loans. Trustee and
broker fees, amortization of debt issuance costs and amortization of loan
premiums amounted to $695,820, $373,160 and $1,457,143, respectively, for the
nine months ended September 30, 1998 as compared to $713,410, $369,719 and
$897,055, respectively, for the nine months ended September 30, 1997. Other
general and administrative expenses amounted to $1,356,813 for the nine months
ended September 30, 1998 as compared to $978,559 for the nine months ended
September 30, 1997. The increase in these expenses directly relate to the
increased activity of the Company's business. Income tax expense amounted to
$134,051 for the nine months ended
7
<PAGE>
September 30, 1998 as compared to $512,600 for the nine months ended September
30, 1997. The Company had net income of $223,211 for the nine months ended
September 30, 1998 and as compared to $995,046 for the nine months ended
September 30, 1997. The reduction in net income resulted from an increase in
amortization of loan purchase premiums, from an increase in the provision for
loan losses and from a reduction in the interest rate spread between rates for
interest revenue and interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Eligible Loans held by the Company are pledged as collateral for payment
of the Notes. Cash flows from payments on the Eligible Loans, together with
proceeds of reinvestment of the income earned on Eligible Loans, are intended to
provide cash sufficient to make all required payments of principal and interest
on each outstanding series of the Notes. If current revenues are insufficient to
pay principal and interest due on the Notes money in the Reserve Fund created
under the Indenture is available for payment of amounts due. The Trustee has
withdrawn money from the Reserve Fund for payment of interest on the Notes. The
Reserve Fund is to be maintained in an amount equal to 2% of the outstanding
principal balance of the Notes under the terms of the Indenture. At September
30, 1998, that amount was $10,818,316 and the balance in the Reserve Fund was
$4,157,879. The Indenture provides that any deficiency in the Reserve Fund is to
be restored from future revenues as funds become available. The Company believes
that revenues will be sufficient to restore the Reserve Fund and that cash flow
from Eligible Loans, together with proceeds of the reinvestment of income from
the Eligible Loans, will be sufficient to pay the principal and interest due on
the 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.
RESULTS OF OPERATIONS
For the period ended December 31, 1997 and the nine months ended
September 30, 1998, 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.
YEAR 2000 PROBLEM.
The Year 2000 problem has arisen from the use by software developers of
two digits rather than four to denote year dates in software programs, computer
hardware operating systems and microprocessor-based embedded controls in
automated equipment. As a result, information systems that operate
date-sensitive software or automated equipment that contain date-sensitive
microprocessors may interpret "00" to signify "1900" rather than "2000," thereby
impairing the ability of the information systems or automated equipment to
correctly calculate, sequence or recognize dates, including, in some instances,
a failure to recognize that the Year 2000 is a leap year. These anomalies could
result in serious malfunctions or even complete failures of affected systems,
causing disruptions of business operations, such as an inability to process
transactions, issue securities or checks, or engage in similar normal business
activities.
8
<PAGE>
The Company does not itself rely significantly on computer programs.
Therefore, the Company does not expect to incur any material costs to deal with
the Year 2000 problem. UNIPAC Service Corporation ("UNIPAC"), which provides
loan processing services to the Company, depends heavily on a computerized
student loan servicing system. UNIPAC has informed the Company that it has
completed major program changes to its student loan servicing mainframe system,
has tested those modifications and has assured the Company that its system is
Year 2000 compliant.
According to a statement recently released by the Department, the
Department has completed renovation of 12 of 14 of its mission-critical systems,
including the Federal Family Education Loan Program System. However, the
Department has not completed the testing of its systems to assure they are "Year
2000 complaint." The Department's failure to become "Year 2000 compliant" could
result in the delay of special allowance payments and payments of interest
benefits from the Department to the Company, and therefore, there can be no
assurance that such failure by the Department would not have a material adverse
effect on the business, financial condition and results of operations of the
Company.
The Company's revenues come primarily from payments made by student
borrowers, who generally write checks to make loan payments. If the financial
institutions on which those checks are drawn are not "Year 2000 compliant", the
Company may experience a delay in receipt of revenues.
The Company cannot now determine whether the Year 2000 problem will have
a material effect on its business operations. The Company has no control over
the efforts of the Department or payor financial institutions to become "Year
2000 compliant." The Company will not be able to terminate its relationship with
the Department or the obligors on its student loans because they may be affected
by the Year 2000 problem. The Company has no specific contingency plans for
dealing with Year 2000 problems experienced by those parties. Under the
reasonably likely worst cause scenario, the Year 2000 problem could delay the
Company's receipt of principal and interest payments on its student loan assets,
and if that delay continues for a prolonged period, the Company could be left
without sufficient funds for payment of the interest due on its Notes.
The statements made above relating to the Year 2000 problems effect on
the Company are based upon information and assumptions about future events. Such
forward looking statements are subject to various known and unknown risks and
uncertainties that may cause actual events to differ from the statements
contained herein.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
By written consent in lieu of meeting dated April 2, 1998, the
Company's sole shareholder reelected Messrs: Dunlap, Butterfield,
Page, Wilcox and Hoff as directors of the Company.
ITEM 5. OTHER INFORMATION.
Effective September 1, 1998, Zions First National Bank replaced
Norwest Bank Minnesota, National Association, as the Trustee,
Paying Agent and Registrar under the Company's Indenture of Trust
dated March 1, 1996, as amended and supplemented (the
"Indenture"). Zions First National Bank assumed all of the
obligations of the Trustee, Paying Agent and Registrar under the
Indenture pursuant to an Assignment and Acceptance Agreement
dated September 1, 1998. The Company and Zions First National
Bank also entered into a Second Supplement to Second Amended and
Restated Indenture of Trust dated September 1, 1998, to reflect
the substitution of Zions First National Bank as Trustee, Paying
Agent and Registrar and to revise the order in which money may be
transferred from funds and accounts created under the Indenture
to cover any deficiencies in the Revenue Fund.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements 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/ Stephen F. Butterfield
Stephen F. Butterfield, President
(Principal Executive Officer)
By:/s/ Ronald W. Page
Ronald W. Page, Vice President (Principal
Financial and Accounting Officer)
Date: November 11, 1998
11
<PAGE>
The following is a complete list of exhibits filed as part of this Form
10-Q. 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 *
3.2 Bylaws of the Company *
4.1 Form of Second Amended and Restated Indenture **
4.2 Form of Supplemental Indenture **
4.3 Second Supplement to Second Amended and Restated Indenture of ***
Trust dated as of September 1, 1998 between the Company and
Zions First National Bank
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
10.3 Assignment and Acceptance Agreement dated September 1, 1998, by ***
and among the Company, Zions First National Bank and Norwest
Bank Minnesota, National Association
27.1 Financial Data Schedule ***
* Incorporated by reference herein to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997.
** Incorporated by reference herein to the Company's Registration
Statement on Form S-3 (File No. 333-28551).
*** Filed herewith.
REPORTS ON FORM 8-K
The Company has not filed any reports on Form 8-K during the
three months covered by this report.
EXHIBIT No. 4.3
SECOND SUPPLEMENT TO
SECOND AMENDED AND RESTATED INDENTURE OF TRUST
BETWEEN
UNION FINANCIAL SERVICES-1, INC.
AND
ZIONS FIRST, NATIONAL BANK
AS TRUSTEE
DATED AS OF SEPTEMBER 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND AUTHORITY
Section 1.01. Definitions.......................................... 1
Section 1.02. Authority for Second Supplement...................... 2
ARTICLE II
AMENDMENTS TO THE ORIGINAL INDENTURE
Section 2.01. Amendment to Article I of the Original Indenture..... 2
Section 2.02. Amendment of Section 5.02 of the Original Indenture.. 2
Section 2.03. Amendment of Section 5.05 of the Original Indenture.. 3
ARTICLE III
MISCELLANEOUS..................................................... 5
i
<PAGE>
This Second Supplement to Second Amended and Restated Indenture of Trust,
dated for convenience of reference as of September 1, 1998 (this "Second
Supplement"), by and between UNION FINANCIAL SERVICES-1, INC., a corporation
duly organized and existing under the laws of the State of Nevada (the
"Issuer"), and ZIONS FIRST NATIONAL BANK, a national banking association duly
organized and existing under the laws of the United States of America, (said
banking corporation and any trust company or bank becoming successor trustee
under this Second Supplement being herein called the "Trustee"), as successor
trustee, paying agent and registrar to Norwest Bank Minnesota, National
Association (the "Original Trustee"),
W I T N E S S E T H:
WHEREAS, the Issuer and the Original Trustee, entered into that Indenture
of Trust dated as of March 1, 1996 (as amended by that Amended and Restated
Indenture of Trust dated as of June 15, 1996 and that Second Amended and
Restated Indenture of Trust dated as of November 1, 1996 and that First
Supplement to Second Amended and Restated Indenture of Trust dated as of March
1, 1997, the "Original Indenture"), pursuant to which the Issuer issues in
series from time to time its Taxable Student Loan Asset-Backed Notes (the
"Notes") for the purpose of financing the acquisition of qualifying student
loans;
WHEREAS, Section 7.10 of the Original Indenture provides that the Issuer
may remove the Original Trustee;
WHEREAS, the Issuer has given written notice to the Original Trustee of its
removal and all moneys due to the Original Trustee have been paid;
WHEREAS, the Issuer has appointed Zions First National Bank as successor
Trustee, Paying Agent and Registrar and Zions First National Bank has accepted
such appointment;
WHEREAS, Section 8.01(e) of the Original Indenture permits the Issuer and
the Trustee to enter into supplements to the Original Indenture and the Issuer
and the Trustee are making certain changes set forth in Article II hereof
pursuant to such Sections.
NOW, THEREFORE, in consideration of the premises, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS AND AUTHORITY
Section 1.01. DEFINITIONS. Except as provided in the definitions in this
Section and in Section 2.01 below, all defined terms contained in the Original
Indenture shall have the same meanings in this Second Supplement as such terms
are given in the Original Indenture.
<PAGE>
As used in this Second Supplement, the following terms shall have the
following respective meanings:
"ORIGINAL INDENTURE" means the Indenture of Trust dated as of March 1,
1996, between the Issuer and the Trustee, as amended by that Amended and
Restated Indenture of Trust dated as of June 15, 1996 and that Second Amended
and Restated Indenture of Trust dated as of November 1, 1996 and that First
Supplement to Second Amended and Restated Indenture of Trust dated as of March
1, 1997.
"SECOND SUPPLEMENT" means this Second Supplement to Second Amended and
Restated Indenture of Trust, as amended or supplemented in accordance with the
terms hereof and of the Original Indenture.
In this Second Supplement, unless the context otherwise requires, words of
the masculine gender include correlative words of the feminine and neuter
genders, words importing the singular number include the plural number and vice
versa, and words importing persons include corporations and associations,
including public bodies, as well as natural persons.
The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any
similar terms, used in this Second Supplement, refer to this Second Supplement.
Section 1.02. AUTHORITY FOR SECOND SUPPLEMENT. This Second Supplement is
entered into pursuant to Section 8.01(e) of the Original Indenture in order to
supplement and amend the Original Indenture as provided in Article II hereof.
ARTICLE II
AMENDMENTS TO THE ORIGINAL INDENTURE
Section 2.01. AMENDMENT T0 ARTICLE I OF THE ORIGINAL INDENTURE. The
Definition of "Trustee" in the Original Indenture is hereby amended to read as
follows:
"Trustee" shall mean Zions First National Bank, acting in its capacity as
Trustee, Paying Agent and Registar under this Indenture, or any successor
trustee designated pursuant to this Indenture.
Section 2.02. AMENDMENT OF SECTION 5.02 OF THE ORIGINAL INDENTURE. The
fifth paragraph of Section 5.02 of the Original Indenture is hereby amended to
read as follows:
Notwithstanding anything herein to the contrary, if on the first
Business Day preceding any Interest Payment Date or Transfer Date there are
not sufficient moneys on deposit in the Revenue Fund to make the transfers
required by Section 5.03 hereof, other than Sections 5.03(k) through
5.03(l) hereof, then, but only after required transfers from the Note
Redemption Fund and Student Loan
2
<PAGE>
Holding Fund, such transfers shall be made by the Trustee upon Issuer
Order, in an amount equal to any such deficiency (including replenishment
of the Reserve Fund), directly from the Loan Accounts of the Student Loan
Fund, then from the Recycling Accounts of the Student Loan Fund, and, but
only after the required transfers from the Reserve Fund, then from the
proceeds from the sale of Financed Eligible Loans in the Note Accounts of
the Student Loan Fund.
Section 2.03 Amendment of Section 5.05 of the Original Indenture.
Section 5.05 of the Original Indenture is hereby amended as follows:
Section 5.05. Interest Fund. On the first Business Day preceding each
Interest Payment Date, the Trustee shall transfer to the Interest Fund from
the Revenue Fund an amount equal to the interest due and payable on such
Interest Payment Date on the Outstanding Notes less any amounts already on
deposit in the Interest Fund. Any moneys transferred to the Interest Fund
and not specifically required to be deposited to any Account therein shall
be deposited, first, to the Senior Interest Account of the Interest Fund to
the extent required to increase the amount on deposit therein to equal the
interest due and payable on the next Interest Payment Date for any
Outstanding Senior Notes and the amount of any Issuer Swap Payment secured
on a parity with the Senior Notes due and payable on the next Interest
Payment Date, second, to the Subordinate Interest Account of the Interest
Fund to the extent required to increase the amount on deposit therein to
equal the interest due and payable on the next Interest Payment Date for
any Outstanding Subordinate Notes and the amount of any Issuer Swap Payment
secured on a parity with the Subordinate Notes due and payable on the next
Interest Payment Date and, third, to the Junior-Subordinate Interest
Account of the Interest Fund to the extent required to increase the amount
on deposit therein to equal the interest due and payable on the next
Interest Payment Date for any Outstanding Junior-Subordinate Notes and the
amount of any Issuer Swap Payment secured on a parity with the
Junior-Subordinate Notes due and payable on the next Interest Payment Date.
If money sufficient to pay all interest due on the Senior Notes and
any Issuer Swap Payments secured on a parity with the Senior Notes on a
particular Interest Payment Date is not available in the Senior Interest
Account of the Interest Fund for that purpose on the first Business Day
preceding an Interest Payment Date from moneys transferred from the Revenue
Fund as provided above, then the amount of any such deficiency shall be
provided from any other Account of the Interest Fund, from the
Junior-Subordinate Note Redemption Account of the Note Redemption Fund, the
Subordinate Note Redemption Account of the Note Redemption Fund, the Senior
Note Redemption Account of the Note Redemption Fund, from the Student Loan
Holding Fund, from the Loan Account of the Student Loan Fund, from the
Recycling Accounts of the Student Loan Fund, from the Reserve Fund and from
the proceeds from the sale of
3
<PAGE>
Financed Eligible Loans in the Note Accounts of the Student Loan Fund,
in that order. The money in the Senior Interest Account of the Interest
Fund required for the payment of interest on any Senior Note and to pay any
Issuer Swap Payments secured on a parity with the Senior Notes shall be
applied in accordance with this Section by the Trustee to the payment of
such interest or Issuer Swap Payments when due without further
authorization or direction.
If money sufficient to pay all interest due on any Subordinate Notes
and Issuer Swap Payments secured on a parity with the Subordinate Notes on
a particular Interest Payment Date is not available in the Subordinate
Interest Account of the Interest Fund for that purpose on the first
Business Day preceding an Interest Payment Date from moneys transferred
from the Revenue Fund as provided above, then the amount of any such
deficiency shall be provided (after first making any required transfers to
the Senior Interest Account), from the Junior-Subordinate Note Redemption
Account of the Note Redemption Fund, the Subordinate Note Redemption
Account of the Note Redemption Fund, from the Student Loan Holding Fund,
from the Loan Account of the Student Loan Fund, from the Recycling Accounts
of the Student Loan Fund, from the Reserve Fund and from the proceeds from
the sale of Financed Eligible Loans in the Note Accounts of the Student
Loan Fund, in that order. The money in the Subordinate Interest Account of
the Interest Fund required for the payment of interest on any Subordinate
Notes and to pay any Issuer Swap Payments secured on a parity with the
Subordinate Notes shall be applied in accordance with this Section by the
Trustee to the payment of such interest or Issuer Swap Payments when due
without further authorization or direction.
If money sufficient to pay all interest due on any Junior-Subordinate
Notes and Issuer Swap Payments secured on a parity with the
Junior-Subordinate Notes on a particular Interest Payment Date is not
available in the Junior-Subordinate Interest Account of the Interest Fund
for that purpose on the first Business Day preceding an Interest Payment
Date from moneys transferred from the Revenue Fund as provided above, then
the amount of any such deficiency be provided (after first making any
required transfers to the Senior Interest Account and the Subordinate
Interest Account), from the Junior-Subordinate Note Redemption Account of
the Note Redemption Fund, from the Student Loan Holding Fund, from the Loan
Account of the Student Loan Fund, from the Recycling Accounts of the
Student Loan Fund, from the Reserve Fund and from the proceeds from the
sale of Financed Eligible Loans in the Note Accounts of the Student Loan
Fund, in that order. The money in the Junior-Subordinate Interest Account
of the Interest Fund required for the payment of interest on any
Junior-Subordinate Notes and to pay any Issuer Swap Payments secured on a
parity with the Junior-Subordinate Notes shall be applied in accordance
with this Section by the Trustee to the payment of such interest or Issuer
Swap Payments when due without further authorization or direction.
4
<PAGE>
ARTICLE III
MISCELLANEOUS
This Second Supplement 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.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
duly executed, all as of the date first above written.
UNION FINANCIAL SERVICES-1, INC.
By /s/ Ronald W. Page
------------------------------
Secretary
ZIONS FIRST NATIONAL BANK, as Trustee
By /s/ David Bata
------------------------------
Vice President
6
Exhibit No. 10.3
ASSIGNMENT AND ACCEPTANCE AGREEMENT
THIS ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Agreement") is
dated as of September 1, 1998 and is by and among Norwest Bank Minnesota,
National Association, a national banking association (the "Original Trustee"),
Zions First National Bank, a national banking association (the "Successor
Trustee"), and Union Financial Services-1, Inc., a Nevada corporation (the
"Issuer").
WITNESSETH:
WHEREAS, the Issuer has previously issued its Taxable Student
Loan Asset-Backed Notes, Series 1996A, Series 1996B, Series 1996C and Series
1997A (the "Notes") all pursuant to that certain Indenture of Trust, dated as of
March 1, 1996, as amended and supplemented by the Amended and Restated Indenture
of Trust dated as of June 15, 1996, the Second Amended and Restated Indenture of
Trust dated as of November 1, 1996, the First Supplement to Second Amended and
Restated Indenture of Trust dated as of March 1, 1997, and the Series 1997A
Supplemental Indenture of Trust dated as of March 1, 1997, (as amended and
supplemented, the "Indenture"), between the Issuer and the Original Trustee, as
trustee for the owners of the Notes (the "Noteholders"); and
WHEREAS, pursuant to ss.7.10 of the Indenture, the Issuer has
given written notice by registered first-class mail to the Original Trustee of
its removal as Trustee, Paying Agent and Registrar under the Indenture; and
WHEREAS, pursuant to the ss.7.10 of the Indenture, the removal of
the Original Trustee as "Trustee," "Paying Agent" and "Registrar" under the
Indenture shall take effect upon the appointment of and acceptance by the
Successor Trustee of such duties; and
WHEREAS, nothing herein is intended to be or shall constitute a
release, cancellation or extinguishment of the obligations, rights and duties of
any party (other than the Original Trustee to the extent provided herein) under
the Notes or the Indenture, but such obligations, rights and duties shall
continue in full force and effect, as modified and amended by this Agreement;
and
WHEREAS, this Agreement shall in no way be construed as a
novation of the Notes or the Indenture, but shall constitute merely a
modification thereof to provide a new Trustee.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants hereinbelow set forth, the parties hereto certify and agree as
follows:
Section 1. The Original Trustee hereby assigns, conveys and
transfers all of its estates, properties, rights, powers, trusts, duties and
obligations held pursuant to and in connection with the Indenture to the
Successor Trustee, and pursuant to said written notice of removal resigns as
Trustee, Paying Agent and Registrar under the Indenture and shall no longer be
liable as Trustee, Paying Agent and Registrar except for any liability resulting
from its past negligence or willful misconduct, and shall immediately assign,
transfer and deliver to the Successor Trustee all securities and moneys held by
the Original Trustee under the Indenture (except for any investments to be held
by the Original Trustee as custodian for the benefit of the Successor Trustee as
set forth in Exhibit A hereto, until such investments are delivered to the
Successor Trustee), together with an accounting of the balances held by it
thereunder.
Section 2. The Successor Trustee represents and covenants that it
(a) is a national banking association in good standing, organized and doing
business under the laws of the United States of America, authorized under such
laws to execute and exercise corporate trust powers, subject to supervision or
examination by federal and state authority and qualified to act as a Trustee,
Paying Agent and Registrar under the Indenture, (b) has capital and surplus
aggregating at least $50,000,000, (c) is an "eligible lender" under the Act, and
(d) specifically meets the requirements of the Indenture, including but not
limited to, ss.ss. 7.11, 7.18 and 7.19 of the Indenture.
Section 3. The Successor Trustee hereby accepts appointment as
Trustee, Paying Agent and Registrar under the Indenture, and agrees to assume
the estates, properties, rights, powers, trusts, duties and obligations of the
Original Trustee under the Indenture and, as successor to the Original Trustee,
under (a) the Escrow Agreement, dated as of March 1, 1997, by and between the
Issuer and the Original Trustee, and (b) all other agreements and instruments
executed by the Original Trustee in connection with its duties under the
Indenture. The Successor Trustee shall assume no responsibility for any
liability caused by the past negligence or willful misconduct of the Original
Trustee.
Section 4. The Successor Trustee shall immediately mail by
registered, first-class mail the following notice to the Calculation Agent, the
Servicer, the Subservicer and the Rating Agency (as such terms are defined in
the Indenture), and, by first-class mail, to the Noteholders:
2
<PAGE>
(Form of Notice)
UNION FINANCIAL SERVICES-1, INC.
TAXABLE STUDENT LOAN ASSET-BACKED NOTES
SERIES 1996A, B AND C
SERIES 1997A
NOTICE IS HEREBY GIVEN that Norwest Bank Minnesota, National
Association, is no longer Trustee, Paying Agent or Registrar for the Note issues
captioned above (the "Notes"). Zions First National Bank has accepted
appointment as Trustee, Paying Agent and Registrar and has assumed the estates,
properties, rights, powers, trusts, duties and obligations as Trustee, Paying
Agent and Registrar under the Indenture relating to the Notes.
DATED September 1, 1998
(End of Form of Notice)
Section 5. The Original Trustee hereby covenants to execute and
deliver all other necessary documents, instruments and certificates to
facilitate the appointment of the Successor Trustee as Trustee, Paying Agent and
Registrar under the Indenture.
Section 6. This Agreement shall constitute the instrument in
writing referred to in ss.7.12 of the Indenture pursuant to which the Successor
Trustee accepts appointment as successor trustee under the Indenture.
Section 7. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
Section 8. This Agreement shall be binding upon and inure to the
benefit of the parties named herein and their respective successors and
permitted assigns.
Section 9. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Nevada without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Nevada or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Nevada.
Section 10. No amendment of any provision of this Agreement shall
be valid unless the same shall be in writing and signed by the parties hereto.
3
<PAGE>
Section 11. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
Section 12. The Exhibits identified in this Agreement are
incorporated herein by reference and made a part hereof.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this
Agreement to be executed by their duly authorized officers and their seals to be
hereunto affixed and attested as of the date first written above.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as Original
Trustee
Attest:
By: /s/ Cynthia Woodward
---------------------------------
By: /s/ Dawn L. Hill Title: Corporate Trust Officer
-------------------------
Title: Assistant Vice President
ZIONS FIRST NATIONAL BANK,
as Successor Trustee
Attest:
By: /s/ David Bata
----------------------------
By: /s/ Bruce F. Lewis Title: Vice President and Trust Officer
Title: Assistant Vice President
UNION FINANCIAL SERVICES-1,
INC., as Issuer
Attest:
By: /s/ Stephen F. Butterfield
----------------------------
By: /s/ Ronald W. Page Stephen F. Butterfield, President
--------------------
Ronald W. Page, Secretary
<PAGE>
EXHIBIT A
INVESTMENTS HELD BY ORIGINAL TRUSTEE
AS CUSTODIAN FOR SUCCESSOR TRUSTEE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 15,564,813
<SECURITIES> 0
<RECEIVABLES> 540,915,802
<ALLOWANCES> (307,910)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 575,944,462
<CURRENT-LIABILITIES> 3,463,024
<BONDS> 571,500,000
0
0
<COMMON> 1,000
<OTHER-SE> 980,438
<TOTAL-LIABILITY-AND-EQUITY> 575,944,462
<SALES> 0
<TOTAL-REVENUES> 33,802,865
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,655,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,789,830
<INCOME-PRETAX> 357,262
<INCOME-TAX> 134,051
<INCOME-CONTINUING> 223,211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 223,211
<EPS-PRIMARY> 223.21
<EPS-DILUTED> 223.21
</TABLE>
