SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 19, 1997
UACSC 1997-D AUTO TRUST
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation)
333-06929-06 35-1937340
(Registration Number) (IRS Employer Identification No.)
9240 Bonita Beach Road
Suite 1109-A
Bonita Springs, Florida 34135
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 948-1850
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Item 5. Other Events.
Pooling and Servicing Agreement
-------------------------------
The definitive Pooling and Servicing Agreement for the UACSC 1997-D
Auto Trust, dated as of November 13, 1997, among Harris Trust and
Savings Bank, as trustee, UAC Securitization, as depositor, and Union
Acceptance Corporation, as servicer is filed herewith.
Filing of Capital Markets Assurance Corporation
Financial Statements and Consent of Experts.
------------------------------------------------
The Financial Statements of Capital Markets Assurance Corporation as
of December 31, 1996 and 1995 and for each of the years in the three-
year period ended Decmeber 31, 1996 that are included in this Form 8-K
have been audited by KPMG Peat Marwick LLP. The consent of KPMG Peat
Marwick LLP to the inclusion of their audit report on such financial
statements in the Form 8-K and to being named as "experts" in the
Prospectus Supplement for the UACSC 1997-D Auto Trust is attached
hereto as Exhibit 24.
The financial statements of Capital Markets Assurance Corporation as
of December 31, 1996 and 1995 are attached hereto as Exhibit 99.
Item 7. Financial Statements and Exhibits.
Exhibit
Number Description
------ -----------
4 Definitive copy of the Pooling and Servicing Agreement dated
as of November 13, 1997 for the UACSC 1997-D Auto Trust
24 Consent of KPMG Peat Marwick LLP to the inclusion of their
audit report on the financial statements of Capital Markets
Assurance Corporation in the Form 8-K for the UACSC 1997-D
Auto Trust and to being named as "experts" in the Prospectus
Supplement for the UACSC 1997-D Auto Trust
99 Financial statements of Capital Markets Assurance
Corporation as of December 31, 1996 and 1995 and for each of
the years in the three-year period ended Decmeber 31, 1996
and interim financial statements of Capital Markets
Assurance Corporation as of September 30, 1997
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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 hereunto duly authorized in the City of Bonita Springs, State of
Florida, on November 25, 1997.
UAC SECURITIZATION CORPORATION
as Depositor (Registrant)
/s/ Leeanne Graziani
----------------------------------------
By: Leeanne Graziani, Vice President
UAC SECURITIZATION CORPORATION
Depositor
UNION ACCEPTANCE CORPORATION
Servicer
and
HARRIS TRUST AND SAVINGS BANK,
Trustee
POOLING AND SERVICING AGREEMENT,
Dated as of November 13, 1997
$204,147,164.67
UACSC 1997-D Auto Trust
$33,250,000.00 6.4507% Class A-1 Money Market Automobile Receivable
Backed Certificates
$71,250,000.00 6.20% Class A-2 Automobile Receivable Backed Certificates
$31,925,000.00 6.26% Class A-3 Automobile Receivable Backed Certificates
$44,725,000.00 6.28% Class A-4 Automobile Receivable Backed Certificates
$22,997,164.67 6.41% Class A-5 Automobile Receivable Backed Certificates
Class I Interest Only Automobile Receivable Backed Certificates
and
Class IC Automobile Receivable Backed Certificate
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TABLE OF CONTENTS
Page
ARTICLE I Creation of Trust......................................1
ARTICLE II Definitions............................................1
SECTION 2.01. Definitions..........................................1
SECTION 2.02. Usage of Terms......................................18
SECTION 2.03. Cutoff Date and Record Date.........................19
SECTION 2.04. Section References..................................19
ARTICLE III Conveyance of Receivables.............................19
ARTICLE IV Acceptance by Trustee.................................20
ARTICLE V Information Delivered to the Rating Agencies..........20
ARTICLE VI Agent for Service.....................................21
ARTICLE VII The Receivables.......................................21
SECTION 7.01. Representations and Warranties of Depositor...............21
SECTION 7.02. Repurchase Upon Breach....................................22
SECTION 7.03. Custody of Receivable Files...............................22
SECTION 7.04. Duties of Servicer as Custodian...........................23
SECTION 7.05. Instructions; Authority to Act............................23
SECTION 7.06. Custodian's Indemnification...............................23
SECTION 7.07. Effective Period and Termination..........................24
ARTICLE VIII Administration and Servicing of Receivables...........24
SECTION 8.01. Duties of Servicer........................................24
SECTION 8.02. Collection of Receivable Payments.........................24
SECTION 8.03. Realization Upon Receivables..............................25
SECTION 8.04. Physical Damage Insurance.................................26
SECTION 8.05. Maintenance of Security Interests in Financed Vehicles....26
SECTION 8.06. Covenants of Servicer.....................................26
SECTION 8.07. Purchase of Receivables Upon Breach.......................26
SECTION 8.08. Servicing Fee.............................................26
SECTION 8.09. Servicer's Certificate....................................27
SECTION 8.10. Annual Statement as to Compliance; Notice of Default......27
SECTION 8.11. Annual Independent Certified Public Accountant's Report...28
SECTION 8.12. Access to Certain Documentation and Information Regarding
Receivables............................................28
SECTION 8.13. Servicer Expenses.........................................28
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SECTION 8.14. Reports to Certificateholders.......................28
ARTICLE IX Distributions; Statements to Certificateholders.......28
SECTION 9.01. Certificate Account.......................................28
SECTION 9.02. Collections...............................................29
SECTION 9.03. Purchase Amounts..........................................30
SECTION 9.04. Distributions to Parties..................................30
SECTION 9.05. Advances..................................................32
SECTION 9.06. Net Deposits..............................................33
SECTION 9.07. Statements to Certificateholders..........................33
SECTION 9.08. Intentionally Blank.......................................34
SECTION 9.09. Payahead Account. .......................................34
SECTION 9.10. Calculation of Notional Principal Amount..................34
ARTICLE X Credit Enhancement....................................35
SECTION 10.01. Subordination............................................35
SECTION 10.02. Spread Account...........................................35
ARTICLE XI The Certificates......................................36
SECTION 11.01. The Certificates.........................................36
SECTION 11.02. Authentication of Certificates...........................37
SECTION 11.03. Registration of Transfer and Exchange of Certificates....37
SECTION 11.04. Mutilated, Destroyed, Lost, or Stolen Certificates.......38
SECTION 11.05. Persons Deemed Owners....................................38
SECTION 11.06. Access to Agreement and List of Certificateholders'
Names and Addresses...................................38
SECTION 11.07. Maintenance of Office or Agency..........................38
SECTION 11.08. Book-Entry Certificates..................................39
SECTION 11.09. Notices to Clearing Agency...............................39
SECTION 11.10. Definitive Certificates..................................39
SECTION 11.11. The Tax Partnership Agreement............................40
ARTICLE XII The Depositor.........................................40
SECTION 12.01. Representations and Undertakings of Depositor............40
SECTION 12.02. Liability of Depositor; Indemnities......................42
SECTION 12.03. Merger or Consolidation of, or Assumption
of the Obligations of Depositor........................43
SECTION 12.04. Limitation on Liability of Depositor and Others..........43
SECTION 12.05. Depositor May Own Certificates...........................43
ARTICLE XIII The Servicer..........................................44
SECTION 13.01. Representations of Servicer..............................44
SECTION 13.02. Indemnities of Servicer..................................45
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SECTION 13.03. Merger or Consolidation of, or Assumption of
the Obligations of Servicer............................46
SECTION 13.04. Limitation on Liability of Servicer and Others............46
SECTION 13.05. Servicer Not to Resign....................................47
SECTION 13.06. Delegation of Duties......................................47
ARTICLE XIV Default................................................47
SECTION 14.01. Events of Default.........................................47
SECTION 14.02. Appointment of Successor..................................49
SECTION 14.03. Notification to Certificateholders........................49
SECTION 14.04. Waiver of Past Defaults...................................49
ARTICLE XV The Trustee............................................50
SECTION 15.01. Duties of Trustee.........................................50
SECTION 15.02. Trustee's Certificate.....................................51
SECTION 15.03. Trustee's Assignment of Purchased Receivables.............52
SECTION 15.04. Certain Matters Affecting the Trustee.....................52
SECTION 15.05. Trustee Not Liable for Certificates or Receivables........53
SECTION 15.06. Trustee May Own Certificates..............................54
SECTION 15.07. Trustee's Fees and Expenses...............................54
SECTION 15.08. Eligibility Requirements for Trustee......................54
SECTION 15.09. Resignation or Removal of Trustee.........................55
SECTION 15.10. Successor Trustee.........................................55
SECTION 15.11. Merger or Consolidation of Trustee........................56
SECTION 15.12. Appointment of Co-Trustee or Separate Trustee.............56
SECTION 15.13. Representations and Warranties of Trustee.................57
ARTICLE XVI Termination............................................58
SECTION 16.01. Termination of the Trust..................................58
SECTION 16.02. Optional Disposition of All Receivables...................58
ARTICLE XVII Miscellaneous Provisions...............................59
SECTION 17.01. Amendment.................................................59
SECTION 17.02. Protection of Title to Trust..............................60
SECTION 17.03. Limitation on Rights of Certificateholders................62
SECTION 17.04. Governing Law.............................................62
SECTION 17.05. Notices...................................................63
SECTION 17.06. Severability of Provisions................................63
SECTION 17.07. Assignment................................................63
SECTION 17.08. Certificates Nonassessable and Fully Paid.................63
SECTION 17.09. Nonpetition Covenant......................................63
SECTION 17.10. Counterparts..............................................64
SECTION 17.11. Third Party Beneficiary. ................................64
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EXHIBIT 1 - Trustee's Certificate Pursuant to Section 15.02
EXHIBIT 2 - Trustee's Certificate Pursuant to Section 15.02
EXHIBIT 3 - Servicer's Certificate
EXHIBIT A-1 - Form of Class A-1 Automobile Receivable Backed Certificate
EXHIBIT A-2 - Form of Class A-2 Automobile Receivable Backed Certificate
EXHIBIT A-3 - Form of Class A-3 Automobile Receivable Backed Certificate
EXHIBIT A-4 - Form of Class A-4 Automobile Receivable Backed Certificate
EXHIBIT A-5 - Form of Class A-5 Automobile Receivable Backed Certificate
EXHIBIT B - Form of Class I Automobile Receivable Backed Certificate
EXHIBIT C - Form of Class IC Automobile Receivable Backed Certificate
EXHIBIT D - Form of Depository Trust Co. Letter of Representations
SCHEDULE A - Schedule of Receivables
SCHEDULE B - Location of Receivables
SCHEDULE C - Planned Notional Principal Amount Schedule
ANNEX A - Tax Partnership Agreement
[all exhibits and schedules, except Secheule C are omitted
from this Form 8-K]
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<PAGE>
This POOLING AND SERVICING AGREEMENT, dated as of November 13, 1997, is
made with respect to the formation of the UACSC 1997-D Auto Trust, among UAC
SECURITIZATION CORPORATION, a Delaware corporation as depositor (the
"Depositor"), UNION ACCEPTANCE CORPORATION, an Indiana corporation as servicer
(the "Servicer"), and HARRIS TRUST AND SAVINGS BANK, an Illinois banking
corporation, as trustee (the "Trustee").
WITNESSETH THAT: In consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
Creation of Trust
Upon the execution of this Agreement by the parties hereto, there is
hereby created the UACSC 1997-D Auto Trust.
The parties hereto intend that this Agreement be construed so as to
create a partnership formed to facilitate the direct investment by
Certificateholders in the assets of the Trust.
ARTICLE II
Definitions
SECTION 2.01. Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the following meanings:
"Accrued Interest" means all interest accrued on the Receivables prior
to the opening of business on the day following the Cutoff Date.
"Advance" means, with respect to a Receivable and with respect to a
Collection Period, the amount that the Servicer is required to advance pursuant
to Section 9.05.
"Agreement" means this Pooling and Servicing Agreement executed by the
Depositor, the Servicer and the Trustee, and all amendments and supplements
thereto.
"Amount Financed", with respect to a Receivable, means the amount
advanced under the Receivable toward the purchase price of the Financed Vehicle
and any related costs.
"Approved Rating" means a rating of P-1 by Moody's or A-l+ by Standard
& Poor's.
"Authorized Newspaper" means a newspaper of general circulation in the
Borough of Manhattan, the City of New York, printed in the English language and
customarily published on each Business Day, whether or not published on
Saturdays, Sundays and holidays.
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"Available Spread Amount" means, on any Distribution Date, the amount
on deposit in the Spread Account, including any income or gain from any
investment of funds in the Spread Account, net of any losses from such
investment before giving effect to deposits into or withdrawals from the Spread
Account pursuant to Article IX.
"Available Funds" means the amount defined as such in Section 9.02.
"Book-Entry Certificates" means certificates evidencing a beneficial
interest in the Certificates, ownership and transfers of which shall be made
through book entries by a Clearing Agency as described in Section 11.08;
provided, however, that after the occurrence of a condition whereupon book-entry
registration and transfer are no longer permitted and Definitive Certificates
are to be issued to the Certificate Owners, such Certificates shall no longer be
"Book-Entry Certificates".
"Business Day" means, unless otherwise specified, any day other than a
Saturday, a Sunday or a day on which banking institutions in Chicago, Illinois
or New York, New York (or, if the Servicer has previously provided notice to the
Trustee that such day is not a Business Day, Little Rock, Arkansas or
Indianapolis, Indiana) shall be authorized or obligated by law, executive order,
or governmental decree to be closed.
"Certificate" means a Class A Certificate, a Class I Certificate or a
Class IC Certificate.
"Certificateholder" or "Holder" means the Person in whose name the
respective Certificate shall be registered in the Certificate Register, except
that, solely for the purposes of giving any consent, waiver, request, or demand
pursuant to the Agreement, the interest evidenced by any Certificate registered
in the name of the Depositor, the Servicer or UAC, or any Person controlling,
controlled by, or under common control with the Depositor or the Servicer, shall
not be taken into account in determining whether the requisite percentage of
Certificates (except the Class IC Certificate) necessary to effect any such
consent, waiver, request, or demand shall have been obtained.
"Certificate Account" means the account designated as such, established
and maintained pursuant to Section 9.01.
"Certificate Balance" means, at any time, the Initial Certificate
Balance minus all distributions of Monthly Principal made up to such time.
"Certificate Factor" means a seven digit decimal number computed by the
Servicer and stated in the Servicer's Certificate which is computed by dividing
the Certificate Balance (after giving effect to any prior distribution of
Monthly Principal) by the Initial Certificate Balance.
"Certificate Owner" means, with respect to a Book-Entry Certificate,
the Person who is the owner of such Book-Entry Certificate, as reflected on the
books of the Clearing Agency, or on the
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books of a Person maintaining an account with such Clearing Agency (directly or
as an indirect participant, in accordance with the rules of such Clearing
Agency).
"Certificate Register" and "Certificate Registrar" mean, respectively,
the register maintained and the registrar appointed pursuant to Section 11.03.
"Class A Certificate" means a certificate executed on behalf of the
Trust and authenticated by the Trustee substantially in the form attached hereto
as Exhibit A-1, Exhibit A-2, Exhibit A-3, Exhibit A-4 or Exhibit A-5.
"Class A Certificateholder" means the Person in whose name the
respective Class A Certificate shall be registered in the Certificate Register,
except that, solely for the purposes of giving any consent, waiver, request, or
demand pursuant to this Agreement, the interest evidenced by any Class A
Certificate registered in the name of the Depositor, the Servicer or UAC, or any
Person controlling, controlled by, or under common control with the Depositor or
the Servicer, shall not be taken into account in determining whether the
requisite percentage necessary to effect any such consent, waiver, request, or
demand shall have been obtained.
"Class A Monthly Interest" means, for any Distribution Date, the sum of
Class A-1 Monthly Interest, Class A-2 Monthly Interest, Class A-3 Monthly
Interest, Class A-4 Monthly Interest and Class A-5 Monthly Interest.
"Class A-1 Certificate" means a certificate executed on behalf of the
Trust and authenticated by the Trustee substantially in the form attached hereto
as Exhibit A-1.
"Class A-1 Certificate Balance" means, at any time, the Initial Class
A-1 Certificate Balance minus all distributions of Monthly Principal to Class
A-1 Certificateholders made up to such time.
"Class A-1 Certificate Factor" means a seven digit decimal number
computed by the Servicer and stated in the Servicer's Certificate which is
computed by dividing the Class A-1 Certificate Balance (after giving effect to
any prior distribution of Monthly Principal to the Class A-1 Certificateholders)
by the Initial Class A-1 Certificate Balance.
"Class A-1 Certificateholder" means the Person in whose name the
respective Class A-1 Certificate shall be registered in the Certificate
Register, except that, solely for the purposes of giving any consent, waiver,
request, or demand pursuant to this Agreement, the interest evidenced by any
Class A-1 Certificate registered in the name of the Depositor, the Servicer or
UAC, or any Person controlling, controlled by, or under common control with the
Depositor or the Servicer, shall not be taken into account in determining
whether the requisite percentage necessary to effect any such consent, waiver,
request, or demand shall have been obtained.
"Class A-1 Monthly Interest" means, (i) for the first Distribution
Date, the product of the following: (one-three hundred sixtieth (1/360th) of the
Class A-1 Pass-Through Rate) multiplied
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by (the number of days remaining in the month of the Closing Date from and
including the Closing Date) multiplied by the Class A-1 Certificate Balance at
the Closing Date and (ii) for any subsequent Distribution Date, one-three
hundred sixtieth (1/360th) of the product of the Class A-1 Pass-Through Rate,
the actual number of days elapsed during the related Collection Period and the
Class A-1 Certificate Balance as of the immediately preceding Distribution Date
(after giving effect to any distribution of Monthly Principal made on such
immediately preceding Distribution Date).
"Class A-1 Monthly Principal" means that portion of Monthly Principal
to be distributed to Class A-1 Certificateholders on each Distribution Date in
accordance with Section 9.04.
"Class A-1 Pass-Through Rate" means 6.4507% per annum.
"Class A-1 Stated Final Distribution Date" means November 10, 1998.
"Class A-2 Certificate" means a certificate executed on behalf of the
Trust and authenticated by the Trustee substantially in the form attached hereto
as Exhibit A-2.
"Class A-2 Certificate Balance" means, at any time, the Initial Class
A-2 Certificate Balance minus all distributions of Monthly Principal to Class
A-2 Certificateholders made up to such time.
"Class A-2 Certificate Factor" means a seven digit decimal number
computed by the Servicer and stated in the Servicer's Certificate which is
computed by dividing the Class A-2 Certificate Balance (after giving effect to
any prior distribution of Monthly Principal to the Class A-2 Certificateholders)
by the Initial Class A-2 Certificate Balance.
"Class A-2 Certificateholder" means the Person in whose name the
respective Class A-2 Certificate shall be registered in the Certificate
Register, except that, solely for the purposes of giving any consent, waiver,
request, or demand pursuant to this Agreement, the interest evidenced by any
Class A-2 Certificate registered in the name of the Depositor, the Servicer or
UAC, or any Person controlling, controlled by, or under common control with the
Depositor or the Servicer, shall not be taken into account in determining
whether the requisite percentage necessary to effect any such consent, waiver,
request, or demand shall have been obtained.
"Class A-2 Monthly Interest" means, (i) for the first Distribution
Date, the product of the following: (one twelfth of the Class A-2 Pass-Through
Rate) multiplied by (the number of days remaining in the month of the Closing
Date assuming a 30-day month from and including the Closing Date divided by 30)
multiplied by the Class A-2 Certificate Balance at the Closing Date and (ii) for
any subsequent Distribution Date, one-twelfth of the product of the Class A-2
Pass-Through Rate and the Class A-2 Certificate Balance as of the immediately
preceding Distribution Date (after giving effect to any distribution of Monthly
Principal made on such immediately preceding Distribution Date).
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"Class A-2 Monthly Principal" means that portion of Monthly Principal
to be distributed to Class A-2 Certificateholders on each Distribution Date in
accordance with Section 9.04.
"Class A-2 Pass-Through Rate" means 6.20% per annum.
"Class A-2 Stated Final Distribution Date" means March 8, 2001.
"Class A-3 Certificate" means a certificate executed on behalf of the
Trust and authenticated by the Trustee substantially in the form attached hereto
as Exhibit A-3.
"Class A-3 Certificate Balance" means, at any time, the Initial Class
A-3 Certificate Balance minus all distributions of Monthly Principal to Class
A-3 Certificateholders made up to such time.
"Class A-3 Certificate Factor" means a seven digit decimal number
computed by the Servicer and stated in the Servicer's Certificate which is
computed by dividing the Class A-3 Certificate Balance (after giving effect to
any prior distribution of Monthly Principal to the Class A-3 Certificateholders)
by the Initial Class A-3 Certificate Balance.
"Class A-3 Certificateholder" means the Person in whose name the
respective Class A-3 Certificate shall be registered in the Certificate
Register, except that, solely for the purposes of giving any consent, waiver,
request, or demand pursuant to this Agreement, the interest evidenced by any
Class A-3 Certificate registered in the name of the Depositor, the Servicer or
UAC, or any Person controlling, controlled by, or under common control with the
Depositor or the Servicer, shall not be taken into account in determining
whether the requisite percentage necessary to effect any such consent, waiver,
request, or demand shall have been obtained.
"Class A-3 Monthly Interest" means, (i) for the first Distribution
Date, the product of the following: (one twelfth of the Class A-3 Pass-Through
Rate) multiplied by (the number of days remaining in the month of the Closing
Date assuming a 30-day month from and including the Closing Date divided by 30)
multiplied by the Class A-3 Certificate Balance at the Closing Date and (ii) for
any subsequent Distribution Date, one-twelfth of the product of the Class A-3
Pass-Through Rate and the Class A-3 Certificate Balance as of the immediately
preceding Distribution Date (after giving effect to any distribution of Monthly
Principal made on such immediately preceding Distribution Date).
"Class A-3 Monthly Principal" means that portion of Monthly Principal
to be distributed to Class A-3 Certificateholders on each Distribution Date in
accordance with Section 9.04.
"Class A-3 Pass-Through Rate" means 6.26% per annum.
"Class A-3 Stated Final Distribution Date" means February 8, 2002.
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"Class A-4 Certificate" means a certificate executed on behalf of the
Trust and authenticated by the Trustee substantially in the form attached hereto
as Exhibit A-4.
"Class A-4 Certificate Balance" means, at any time, the Initial Class
A-4 Certificate Balance minus all distributions of Monthly Principal to Class
A-4 Certificateholders made up to such time.
"Class A-4 Certificate Factor" means a seven digit decimal number
computed by the Servicer and stated in the Servicer's Certificate which is
computed by dividing the Class A-4 Certificate Balance (after giving effect to
any prior distribution of Monthly Principal to the Class A-4 Certificateholders)
by the Initial Class A-4 Certificate Balance.
"Class A-4 Certificateholder" means the Person in whose name the
respective Class A-4 Certificate shall be registered in the Certificate
Register, except that, solely for the purposes of giving any consent, waiver,
request, or demand pursuant to this Agreement, the interest evidenced by any
Class A-4 Certificate registered in the name of the Depositor, the Servicer or
UAC, or any Person controlling, controlled by, or under common control with the
Depositor or the Servicer, shall not be taken into account in determining
whether the requisite percentage necessary to effect any such consent, waiver,
request, or demand shall have been obtained.
"Class A-4 Monthly Interest" means, (i) for the first Distribution
Date, the product of the following: (one twelfth of the Class A-4 Pass-Through
Rate) multiplied by (the number of days remaining in the month of the Closing
Date assuming a 30-day month from and including the Closing Date divided by 30)
multiplied by the Class A-4 Certificate Balance at the Closing Date and (ii) for
any subsequent Distribution Date, one-twelfth of the product of the Class A-4
Pass-Through Rate and the Class A-4 Certificate Balance as of the immediately
preceding Distribution Date (after giving effect to any distribution of Monthly
Principal made on such immediately preceding Distribution Date).
"Class A-4 Monthly Principal" means that portion of Monthly Principal
to be distributed to Class A-4 Certificateholders on each Distribution Date in
accordance with Section 9.04.
"Class A-4 Pass-Through Rate" means 6.28% per annum.
"Class A-4 Stated Final Distribution Date" means July 9, 2003.
"Class A-5 Certificate" means a certificate executed on behalf of the
Trust and authenticated by the Trustee substantially in the form attached hereto
as Exhibit A-5.
"Class A-5 Certificate Balance" means, at any time, the Initial Class
A-5 Certificate Balance minus all distributions of Monthly Principal to Class
A-5 Certificateholders made up to such time.
"Class A-5 Certificate Factor" means a seven digit decimal number
computed by the Servicer and stated in the Servicer's Certificate which is
computed by dividing the Class A-5 Certificate
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Balance (after giving effect to any prior distribution of Monthly Principal to
the Class A-5 Certificateholders) by the Initial Class A-5 Certificate Balance.
"Class A-5 Certificateholder" means the Person in whose name the
respective Class A-5 Certificate shall be registered in the Certificate
Register, except that, solely for the purposes of giving any consent, waiver,
request, or demand pursuant to this Agreement, the interest evidenced by any
Class A-5 Certificate registered in the name of the Depositor, the Servicer or
UAC, or any Person controlling, controlled by, or under common control with the
Depositor or the Servicer, shall not be taken into account in determining
whether the requisite percentage necessary to effect any such consent, waiver,
request, or demand shall have been obtained.
"Class A-5 Monthly Interest" means, (i) for the first Distribution
Date, the product of the following: (one twelfth of the Class A-5 Pass-Through
Rate) multiplied by (the number of days remaining in the month of the Closing
Date assuming a 30-day month from and including the Closing Date divided by 30)
multiplied by the Class A-5 Certificate Balance at the Closing Date and (ii) for
any subsequent Distribution Date, one-twelfth of the product of the Class A-5
Pass-Through Rate (as adjusted on and after the Clean-Up Call Date) and the
Class A-5 Certificate Balance as of the immediately preceding Distribution Date
(after giving effect to any distribution of Monthly Principal made on such
immediately preceding Distribution Date).
"Class A-5 Monthly Principal" means that portion of Monthly Principal
to be distributed to Class A-5 Certificateholders on each Distribution Date in
accordance with Section 9.04.
"Class A-5 Pass-Through Rate" means 6.41% per annum; provided, however,
the per annum rate shall be increased by 0.50% on and after the Clean-Up Call
Date, if the Class IC Certificateholder does not exercise its right to purchase
the corpus of the Trust on the Clean-Up Call Date as described in Section 16.02.
"Class A-5 Stated Final Distribution Date" means the Stated Final
Distribution Date.
"Class I Certificate" means a certificate executed on behalf of the
Trust and authenticated by the Trustee substantially in the form attached hereto
as Exhibit B.
"Class I Certificateholder" means the Person in whose name the
respective Class I Certificate shall be registered in the Certificate Register,
except that solely for the purposes of giving any consent, waiver, request, or
demand pursuant to the Agreement, the interest evidenced by any Class I
Certificate registered in the name of the Depositor, the Servicer or UAC, or any
Person controlling, controlled by, or under common control with the Depositor or
the Servicer, shall not be taken into account in determining whether the
requisite percentage necessary to effect any such consent, waiver, request, or
demand shall have been obtained.
"Class I Monthly Interest" means (i) for the first Distribution Date,
the product of the following: (one-twelfth of the Class I Pass-Through Rate)
multiplied by (the number of days
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remaining in the month of the Closing Date assuming a 30-day month from and
including the Closing Date divided by 30) multiplied by the Notional Principal
Amount of the Class I Certificates at the Closing Date, and (ii) for any
subsequent Distribution Date, one-twelfth of the product of the Class I
Pass-Through Rate and the Notional Principal Amount as of the immediately
preceding Distribution Date (after giving effect to any application of Monthly
Principal on such preceding Distribution Date); provided, however, that after
the Class I Stated Final Distribution Date, the Class I Monthly Interest shall
be zero.
"Class I Pass-Through Rate" means 1.65% per annum.
"Class I Stated Final Distribution Date" means the Stated Final
Distribution Date.
"Class IC Certificate" means a certificate executed on behalf of the
Trust and authenticated by the Trustee substantially in the form attached hereto
as Exhibit C.
"Class IC Certificateholder" means the Depositor or any Person in whose
name the Class IC Certificate shall be registered in the Certificate Register.
"Clean-Up Call Date" means the first Distribution Date on which the
Class IC Certificateholder may purchase the corpus of the Trust pursuant to
Section 16.02.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means November 25, 1997.
"Collected Interest" on a Receivable, as of the last day of a
Collection Period, means the portion of all payments received by the Servicer
allocable to interest relating to such Collection Period.
"Collected Principal" on a Receivable, as of the last day of a
Collection Period, means the portion of all payments received by the Servicer
allocable to principal relating to such Collection Period.
"Collection Period" means (i) initially, the period from the day after
the Cutoff Date to the end of the calendar month of November, 1997 and (ii)
thereafter, each calendar month, until the Trust shall terminate pursuant to
Article 16.
"Companion Component" means, for each respective Distribution Date, the
difference between the Certificate Balance and the PAC Component.
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"Corporate Trust Office" means the office of the Trustee at which its
corporate trust business shall, at any particular time, be administered, which
office at the date of the execution of this Agreement is located at 311 West
Monroe Street, 12th Floor, Chicago, Illinois 60606; Attention: Corporate Trust
Department; Telecopy (312) 461-3525 or at such other address as the Trustee may
designate from time to time by notice to the Certificateholders, the Depositor
and the Servicer.
"Cutoff Date" means November 12, 1997.
"Dealer" means the seller of a Financed Vehicle, who originated and
assigned the related Receivable to UAC, UAC Finance Corporation or the
Predecessor under an existing agreement with UAC, UAC Finance Corporation or the
Predecessor or who arranged for a loan from UAC or the Predecessor to the
purchaser of a Financed Vehicle under an existing agreement with UAC or the
Predecessor.
"Defaulted Receivable" means, for any Collection Period, a Receivable
as to which any of the following has occurred: (i) any payment was delinquent
120 days or more as of the last day of such Collection Period, (ii) the Financed
Vehicle that secures the Receivable has been repossessed, or (iii) the Servicer
has determined that the Receivable is uncollectible in accordance with the
Servicer's customary practices on or before the last day of such Collection
Period; provided, however, that "Defaulted Receivable" shall not include any
Receivable that is to be repurchased pursuant to Section 7.02 or purchased
pursuant to Section 8.07; provided further, that any Advances made with respect
to a Receivable shall not be considered in the determination of the delinquency
status of such Receivable.
"Definitive Certificate" means a Certificate defined as such in Section
11.08.
"Depositor" means UAC Securitization Corporation, a Delaware
corporation, in its capacity as the depositor of the Receivables under this
Agreement, and each successor to UAC Securitization Corporation (in the same
capacity) pursuant to Section 12.03.
"Depository Agreement" means the agreement among the Depositor, the
Trustee and the initial Clearing Agency in the form attached hereto as Exhibit
D.
"Determination Date" means, for each Collection Period, the fifth day
of the following month.
"Dissolution Distribution Date" means the Distribution Date following
the liquidation of the trust corpus pursuant to Section 16.02.
"Distribution Date" means, for each Collection Period, the third
Business Day after the Determination Date. The first Distribution Date shall be
December 10, 1997.
"Eligible Bank" means any depository institution with trust powers
(including the Trustee), organized under the laws of the United States or any
State having a net worth in excess of $50,000,000, the deposits of which are
insured to the full extent permitted by law by the Federal Deposit Insurance
Corporation, which is subject to supervision and examination by Federal or State
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authorities and which (i) has a long-term unsecured debt rating of at least Baa3
from Moody's or (ii) is approved by each Rating Agency.
"Eligible Investment" means any of the following:
(i) direct obligations of, and obligations the full and
timely payment of principal and interest on which is fully guaranteed
by, the United States of America, the Federal National Mortgage
Association, or any agency or instrumentality of the United States of
America the obligations of which are backed by the full faith and
credit of the United States of America;
(ii) (A) demand and time deposits in, certificates of deposits of,
bankers' acceptances issued by, or federal funds sold by any depository
institution or trust company (including the Trustee or any agent of the
Trustee, acting in their respective commercial capacities) incorporated
under the laws of the United States of America, any State thereof or
the District of Columbia or any foreign depository institution with a
branch or agency licensed under the laws of the United States of
America or any State, in each case subject to supervision and
examination by Federal and/or State banking authorities and having an
Approved Rating at the time of such investment or contractual
commitment providing for such investment or (B) any other demand or
time deposit or certificate of deposit which is fully insured by the
Federal Deposit Insurance Corporation;
(iii) repurchase obligations with respect to (A) any security
described in clause (i) above or (B) any other security issued or
guaranteed by an agency or instrumentality of the United States of
America, in either case entered into with a depository institution or
trust company (acting as principal) described in clause (ii) (A) above;
(iv) short-term securities bearing interest or sold at a
discount issued by any corporation incorporated under the laws of the
United States of America or any State the short-term unsecured
obligations of which have an Approved Rating, or higher, at the time of
such investment; provided, however, that securities issued by any
particular corporation will not be Eligible Investments to the extent
that investment therein will cause the then outstanding principal
amount of securities issued by such corporation and held as part of the
corpus of the Trust to exceed 10% of amounts held in the Certificate
Account;
(v) commercial paper having an Approved Rating at the time of
such investment;
(vi) a guaranteed investment contract issued by any insurance
company or other corporation acceptable to the Rating Agency, provided
that the Trustee shall have received written notice from the Rating
Agency to the effect that the investment of funds in such a contract
will not result in the reduction or withdrawal of any rating on the
Certificates;
(vii) interests in any money market fund having a rating of
Aaa by Moody's or AAAm by Standard & Poor's; and
(viii) any other investment approved in advance in writing by
the Rating Agencies and the Surety Bond Issuer.
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"Event of Default" means an event specified in Section 14.01.
"Excess Yield Requirement" has the meaning specified in Section 1.01 of
the Insurance Agreement.
"Financed Vehicle" means a new or used automobile, light truck or van,
together with all accessions thereto, securing an Obligor's indebtedness under
the respective Receivable.
"Holder" -- see "Certificateholder."
"Initial Certificate Balance" means $204,147,164.67.
"Initial Class A-1 Certificate Balance" means $33,250,000.00.
"Initial Class A-2 Certificate Balance" means $71,250,000.00.
"Initial Class A-3 Certificate Balance" means $31,925,000.00.
"Initial Class A-4 Certificate Balance" means $44,725,000.00.
"Initial Class A-5 Certificate Balance" means $22,997,164.67.
"Insolvency Event" with respect to a party means (i) the entry of a
decree or order by a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a trustee-in-bankruptcy or
similar official for such party in any insolvency, readjustment of debt,
marshalling of assets and liabilities, or similar proceedings, or for the
winding up or liquidation of their respective affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 60 consecutive
days; or (ii) the consent by such party to the appointment of a trustee-in-
bankruptcy or similar official in any insolvency, readjustment of debt,
marshalling of assets and liabilities, or similar proceedings of or relating to
such party or of or relating to substantially all of its property; or (iii) such
party shall admit in writing its inability to pay its debts generally as they
become due, file a petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of its creditors, or
voluntarily suspend payment of its obligations.
"Insurance Agreement" means the Insurance and Reimbursement Agreement,
dated as of November 25, 1997, among the Depositor, UAC individually and as
Servicer, UAFC and the Surety Bond Issuer pursuant to which the Surety Bond
Issuer issued the Surety Bond.
"Interest Advance Amount" with respect to a simple interest Receivable
as to which an Advance is required to be made on the last day of a Collection
Period, shall mean an amount equal to 30 days of interest upon the Principal
Balance of such Receivable as of such date; and, with respect to a Precomputed
Receivable as to which an Advance is required to be made on the last day of a
Collection Period, shall mean an amount equal to that portion of the earliest
delinquent Scheduled Payment allocable to interest (using the actuarial or
constant yield method).
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"Interest Shortfall" means, as to any simple interest Receivable as of
the last day of any Collection Period, the amount, if any, by which (a) interest
due on such Receivable exceeds (b) the Collected Interest on such Receivable.
"Interest Shortfall" with respect to a Precomputed Receivable as of the last day
of any Collection Period means the amount, if any, by which the portion of the
Scheduled Payment due during such Collection Period allocable to interest (using
the actuarial or constant yield method) exceeds the Collected Interest on such
Receivable (computed using the same method except that the amount of Collected
Interest in respect of Precomputed Receivables shall be increased by giving
effect to the withdrawal for the related Distribution Date of any previously
received Scheduled Payments in respect of such Receivable from the Payahead
Account in accordance with Sections 8.02(b) and 9.09 hereof).
"Lien" means a security interest, lien, charge, pledge, equity, or
encumbrance of any kind other than tax liens, mechanics' liens, and any liens
which attach to the respective Receivable or related Financed Vehicle by
operation of law.
"Liquidation Proceeds" means the monies collected from whatever source,
including insurance proceeds, on Defaulted Receivables, net of the sum of any
amounts expended by the Servicer for the account of the Obligor plus any amounts
required by law to be remitted to the Obligor. "Liquidation Proceeds" with
respect to a Distribution Date means such monies collected during the preceding
Collection Period. In no event shall Liquidation Proceeds be less than zero.
"Monthly Interest" means the sum of Class A Monthly Interest and Class
I Monthly Interest.
"Monthly Principal" means, for any Distribution Date, an amount equal
to (i) the Certificate Balance as of the prior Distribution Date (after giving
effect to the distribution of Monthly Principal on such date) (or, in the case
of the first Distribution Date, the Original Pool Balance), less (ii) the Pool
Balance at the close of business on the last day of the preceding Collection
Period; provided, however, that: (i) Monthly Principal will be increased by the
amount, if any, which is necessary to reduce the Class A-1 Certificate Balance
to zero on the Class A-1 Stated Final Distribution Date; (ii) Monthly Principal
will be increased by the amount, if any, which is necessary to reduce the Class
A-2 Certificate Balance to zero on the Class A-2 Stated Final Distribution Date;
(iii) Monthly Principal will be increased by the amount, if any, which is
necessary to reduce the Class A-3 Certificate Balance to zero on the Class A-3
Stated Final Distribution Date; (iv) Monthly Principal will be increased by the
amount, if any, which is necessary to reduce the Class A-4 Certificate Balance
to zero on the Class A-4 Stated Final Distribution Date; and (v) Monthly
Principal will be increased by the amount, if any, which is necessary to reduce
the Class A-5 Certificate Balance to zero on the Stated Final Distribution Date.
Monthly Principal will not exceed the Certificate Balance.
"Monthly Servicing Fee" means, (i) for the first Distribution Date, the
product of the following: the monthly Servicing Rate multiplied by (the number
of days remaining in the month of the Closing Date from and including the
Closing Date, assuming a 30-day month, divided by 30) multiplied by the Initial
Certificate Balance and (ii) for any subsequent Distribution Date, the product
of (a) the Certificate Balance on the preceding Distribution Date (after giving
effect to any distribution of Monthly Principal made on that such Distribution
Date) and (b) the monthly Servicing Rate.
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"Moody's" means Moody's Investors Service, Inc.
"Net Cumulative Loss Percentage" means, for any Distribution Date, the
fraction (expressed as a percentage) of which (i) the numerator is the aggregate
principal balance of all Defaulted Receivables as of such Distribution Date less
the aggregate amount of Liquidation Proceeds received after the Cutoff Date as
of such Distribution Date and (ii) the denominator is the Initial Certificate
Balance.
"Net Principal Surety Bond Amount" means the Certificate Balance as of
the first Distribution Date minus all amounts previously drawn on the Surety
Bond or from the Spread Account with respect to Monthly Principal.
"Note Rate" means, with respect to a Receivable, the contract rate of
interest on such Receivable, exclusive of prepaid finance charges.
"Notional Principal Amount" or "PAC Component" means, for the purpose
of calculating the Class I Monthly Interest at any time, the Original Notional
Principal Amount minus all allocations of Monthly Principal to the PAC Component
made up to such time pursuant to Section 9.10 of this Agreement.
"Obligor" on a Receivable means the purchaser or the co-purchasers of
the Financed Vehicle or any other Person who owes payments under the Receivable.
The phrase "payment made on behalf of an Obligor" shall mean all payments made
with respect to a Receivable except payments made by UAC, the Depositor or the
Servicer.
"Officers' Certificate" means a certificate signed by any two of the
chairman of the board, the president, any vice chairman of the board, any vice
president, the treasurer, or the controller of UAC, the Depositor or the
Servicer, as the case may be; provided that no individual shall sign in a dual
capacity.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel to the Depositor and/or Servicer, which counsel shall be acceptable to
the Trustee.
"Optional Disposition Price" means the amount specified as such in
Section 16.02.
"Original Notional Principal Amount" shall be $151,027,447.84.
"Original Pool Balance" means $204,147,164.67.
"Outstanding Advances" as of any date, with respect to a Receivable,
means the total amount of Advances made on such Receivable for which the
Servicer has not been reimbursed.
"PAC Component" has the meaning set forth in Section 9.10.
"Payahead" on a Precomputed Receivable means the amount, as of the
close of business on the last day of a Collection Period, computed in accordance
with Section 8.02(b) with respect to such Receivable.
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"Payahead Account" means the account designated as such, established
and maintained pursuant to Section 9.09.
"Payahead Balance" on a Precomputed Receivable means the sum, as of the
close of business on the last day of a Collection Period, of all Payaheads made
by or on behalf of the Obligor with respect to such Precomputed Receivable, as
reduced by applications of previous Payaheads with respect to such Precomputed
Receivable, pursuant to Sections 8.02(b) and 9.09.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
or government or any agency or political subdivision thereof.
"Planned Notional Principal Amount" means, for each respective
Distribution Date, the corresponding amount specified in the Planned Notional
Principal Amount Schedule.
"Planned Notional Principal Amount Schedule" means, the amortization
schedule of Planned Notional Principal Amount for each respective Distribution
Date, attached hereto as Schedule C.
"Pool Balance" as of any date means the aggregate Principal Balance of
the Receivables as of such date; provided, however, that for purposes of
determining Monthly Principal, the Principal Balance of a Defaulted Receivable
or a Purchased Receivable (if actually purchased by the Servicer or repurchased
by UAC) shall be deemed to be zero on and after the close of business on the
last day of the Collection Period in which the Receivable becomes a Defaulted
Receivable or a Purchased Receivable that is actually purchased or repurchased.
"Precomputed Receivable" means any Receivable under which the portion
of a payment allocable to earned interest (which may be referred to in the
related contract as an add-on finance charge) and the portion allocable to the
Amount Financed is determined according to the sum of periodic balances, the sum
of monthly balances, the rule of 78's or any equivalent method.
"Predecessor" means Union Federal Savings Bank of Indianapolis, a
federally chartered stock savings bank.
"Premium Side Letter Agreement" means the letter dated the Closing Date
as defined in the Insurance Agreement.
"Prepayment Charges," as used in the Agreement, shall be interpreted to
include, without limitation, in the case of a Precomputed Receivable that is
prepaid in full, the difference between the Principal Balance of such Receivable
(plus accrued interest to the date of prepayment) and the Principal Balance of
such Receivable computed in accordance with the method provided for in the
contract governing such Receivable, such as the rule of 78's.
"Principal Balance" of a simple interest Receivable, as of the close of
business on the last day of a Collection Period, means the Amount Financed minus
that portion of all payments received on or before the close of business on such
last day allocable to principal of such Receivable. "Principal Balance" with
respect to a Precomputed Receivable, as of the close of business on the Cutoff
Date, means the gross principal balance of such Receivable on the records of the
Servicer,
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net of unearned or accrued interest reflected therein, and as of the close of
business on the last day of a Collection Period, means the Principal Balance as
of the Cutoff Date minus that portion of all Scheduled Payments received with
respect to such Receivable in respect of such Collection Period and all prior
Collection Periods allocable to principal of such Receivable using the actuarial
or constant yield method.
"Principal Distribution Sequence" means that order in which Monthly
Principal shall be distributed among the Class A Certificateholders as follows:
(i) to the Class A-1 Certificateholders until the Class A-1 Certificate Balance
has been reduced to zero; (ii) to the Class A-2 Certificateholders until the
Class A-2 Certificate Balance has been reduced to zero; (iii) to the Class A-3
Certificateholders until the Class A-3 Certificate Balance has been reduced to
zero; (iv) to the Class A-4 Certificateholders until the Class A-4 Certificate
Balance has been reduced to zero; and (v) to the Class A-5 Certificateholders
until the Class A-5 Certificate Balance has been reduced to zero.
"Purchase Agreement" means the Purchase Agreement, dated as of November
13, 1997, by and between the Depositor, UAC and UAFC, as amended, supplemented
or modified from time to time.
"Purchase Amount" of any Receivable, as of the close of business on the
last day of any Collection Period, means the amount equal to the sum of the
Principal Balance of such Receivable plus any unpaid interest accrued and due
during or prior to such Collection Period on such Receivable.
"Purchased Receivable" means a Receivable purchased not later than the
Determination Date of the month immediately following the respective Collection
Period by the Servicer pursuant to Section 8.07 or repurchased not later than
the Determination Date of the month immediately following the respective
Collection Period by UAC pursuant to Section 7.02.
"Rating Agency" means each of Moody's and Standard & Poor's and their
successors and assigns.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have been given 10 days' (or such shorter period as shall be
acceptable to each Rating Agency) prior notice thereof and that, within 7 days
of receipt of such notice, none of the Rating Agencies shall have notified the
Depositor, the Servicer or the Trustee in writing that such action will result
in a reduction or withdrawal of the then current ratings of the Certificates.
"Receivable" means any simple interest or pre-computed (add-on)
interest installment sales contract or installment loan and security agreement
which shall appear on Schedule A to the Agreement.
"Receivable Files" means the documents specified in Section 7.03.
"Receivables" or "Receivables Pool" means those Receivables conveyed to
the Trust by the Depositor listed as of the Cutoff Date in Schedule A.
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"Record Date" means, for any Distribution Date, the last day of the
preceding Collection Period.
"Recoveries of Advances" means, for any Collection Period, all payments
received by the Servicer by or on behalf of Obligors (other than Obligors with
respect to Defaulted Receivables and excluding reimbursements of Outstanding
Advances on Defaulted Receivables pursuant to Sections 9.04(a)(i) and 9.05)
during such Collection Period representing recoveries of Interest Shortfalls for
which Advances were made for prior Collection Periods.
"Required Spread Amount" means on each Distribution Date, 1.25% of the
Initial Certificate Balance; provided, that on any Distribution Date on which
(or after the first Distribution Date on which) the Excess Yield Requirement is
not met, the Required Spread Amount shall be equal to 7% of the Certificate
Balance (after giving effect to any payment of Monthly Principal on such
Distribution Date). On any Distribution Date following such first Distribution
Date on which the Excess Yield Requirement is not met, the Required Spread
Amount shall be reduced below 7% beginning on the twelfth Distribution Date, as
follows:
(i) on and after the twelfth (12th) Distribution Date, if the
Net Cumulative Loss Percentage is less than or equal to 1.2% on the
twelfth Distribution Date, then the Required Spread Amount shall be
6.5% of the Certificate Balance;
(ii) on and after the twenty fourth (24th) Distribution Date,
if the Net Cumulative Loss Percentage is less than or equal to 2.5% on
the on the 24th Distribution Date, then the Required Spread Amount
shall be 6% of the Certificate Balance; and
(iii) on and after the thirty sixth (36th) Distribution Date,
if the Net Cumulative Loss Percentage is less than or equal to 3.75% on
the twelfth Distribution Date, then the Required Spread Amount shall be
5% of the Certificate Balance.
Notwithstanding any of the foregoing, upon and during the continuance of an
Event of Default or a Trigger Event, the Required Spread Amount shall be equal
to the Surety Bond Amount as of such Distribution Date after giving effect to
any draws on the Surety Bond, draws on the Spread Account and other
distributions pursuant to Section 9.04 on such Distribution Date. Once such
Event of Default or Trigger Event has been cured or discontinued, the Required
Spread Amount shall be determined as set forth above.
"Responsible Officer" means, when used with respect to the Trustee, any
officer within the Corporate Trust Office (or any successor group of the
Trustee) including any managing director, vice president, assistant vice
president, assistant treasurer, assistant secretary or any other officer of the
Trustee customarily performing functions similar to those performed by the
persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred because of his knowledge of and familiarity
with the particular subject.
"Scheduled Payment" on a Receivable means that portion of the payment
required to be made by the Obligor during the respective Collection Period
sufficient to amortize the Principal Balance and to provide interest at the Note
Rate.
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"Servicer" means Union Acceptance Corporation, an Indiana corporation,
in its capacity as the servicer of the Receivables and each successor to Union
Acceptance Corporation (in the same capacity) pursuant to Section 13.03 or
14.02.
"Servicer's Certificate" means a certificate completed and executed by
an officer of the Servicer pursuant to Section 8.09.
"Servicing Rate" means 1.00% per annum, payable monthly at one-twelfth
of the annual rate, subject to adjustment with respect to a successor Servicer
pursuant to Section 14.02.
"Spread Account" means, the account designated as such, established and
maintained pursuant to Section 10.02.
"Spread Account Facility" means any liquidity facility or similar
arrangement established pursuant to Section 10.02.
"Spread Account Surplus" means, on any Distribution Date, the excess,
if any, of the Available Spread Amount on such Distribution Date, after giving
effect to deposits into and withdrawals from the Spread Account pursuant to
Article 9 on such Distribution Date, over the Required Spread Amount on such
Distribution Date (after giving effect to any payments of Monthly Principal and
Monthly Interest and all amounts owing to the Surety Bond Issuer on such
Distribution Date).
"Standard & Poor's" means Standard & Poor's Ratings Group, a division
of The McGraw- Hill Companies, Inc.
"State" means (i) any state of the United States of America or (ii) the
District of Columbia.
"Stated Final Distribution Date" means May 10, 2005.
"Surety Bond" means the irrevocable Principal/Interest Surety Bond
dated November 25, 1997 issued by the Surety Bond Issuer to the Trustee for the
benefit of the Class A Certificateholders and the Class I Certificateholders and
having a maximum amount available to be drawn in respect of Class A Monthly
Interest, Class I Monthly Interest and Monthly Principal equal to the Surety
Bond Amount.
"Surety Bond Amount" means with respect to any Distribution Date:
(x) the sum of (A) the lesser of (i) the Certificate Balance
(after giving effect to any distribution of Available Funds and any
funds withdrawn from the Spread Account to pay Monthly Principal on
such Distribution Date) and (ii) the Net Principal Surety Bond Amount,
plus (B) Class A Monthly Interest, plus (C) Class I Monthly Interest,
plus (D) the Monthly Servicing Fee; less
(y) all amounts on deposit in the Spread Account on such
Distribution Date.
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"Surety Bond Fee" means for any Distribution Date, an amount equal to
the product of (i) the Surety Bond per annum fee rate set forth in paragraph 1
of the Premium Side Letter Agreement calculated for the actual number of days
elapsed during the Collection Period on the basis of a 360 day year and (ii) the
Certificate Balance calculated as of the Record Date to which such Distribution
Date relates, payable monthly in arrears.
"Surety Bond Issuer" means Capital Markets Assurance Corporation, a New
York domiciled monoline stock insurance company.
"Trigger Event" means any of the events identified as such in Section
6.01 of the Insurance Agreement.
"Trust" means the trust created by the Agreement, the estate of which
shall generally comprise the Receivables (other than Purchased Receivables) and
all monies paid thereon, and all monies due thereon, including Accrued Interest,
as of and after the Cutoff Date (but excluding Accrued Interest paid on or prior
to the Closing Date); security interests in the Financed Vehicles; funds
deposited in the Certificate Account; all documents contained in the Receivable
Files; any property that shall have secured a Receivable and that shall have
been acquired by or on behalf of the Trust; any Liquidation Proceeds and any
rights of the Depositor in proceeds from claims or refunds of premiums on any
physical damage, lender's single interest, credit life, disability, and
hospitalization insurance policies covering Financed Vehicles or Obligors; the
interest of the Depositor in recourse to Dealers relating to certain of the
Receivables; the proceeds of the foregoing; amounts on deposit from time to time
in the Spread Account; and certain rights of the Depositor under the Purchase
Agreement, including, without limitation, Section 3.04 thereof.
"Trustee" means Harris Trust and Savings Bank, a banking corporation
organized under the laws of the State of Illinois and its successors or any
corporation resulting from or surviving any merger or consolidation to which it
or its successors may be a party or any successor trustee at the time serving as
successor trustee hereunder.
"Trustee's Certificate" means a certificate completed and executed by
the Trustee by a Responsible Officer pursuant to Section 15.02, substantially in
the form of, in the case of an assignment to UAC, Exhibit 1, and in the case of
an assignment to the Servicer, Exhibit 2.
"UAC" means Union Acceptance Corporation, an Indiana corporation, and
its successors and assigns, other than in its capacity as Servicer.
"UAC Finance Corporation" means UAC Finance Corporation, an Indiana
corporation, and its successors and assigns.
"UAFC" means Union Acceptance Funding Corporation, a Delaware
corporation, and its successors and assigns.
"UCC" means the Uniform Commercial Code as in effect in the respective
jurisdiction.
SECTION 2.02. Usage of Terms. With respect to all terms in this
Agreement, the singular includes the plural and the plural the singular; words
importing any gender include the other genders;
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references to "writing" include printing, typing, lithography and other means of
reproducing words in a visible form; references to agreements and other
contractual instruments include all subsequent amendments thereto or changes
therein entered into in accordance with their respective terms and not
prohibited by this Agreement; references to Persons include their permitted
successors and assigns; and the term "including" means "including without
limitation."
SECTION 2.03. Cutoff Date and Record Date. All references to the Record
Date prior to the first Record Date in the life of the Trust shall be to the
Closing Date.
SECTION 2.04. Section References. All section references in this
Agreement shall be to Sections in this Agreement unless otherwise specified.
ARTICLE III
Conveyance of Receivables
In consideration of the Trustee's delivery to or upon the order of the
Depositor of Class A Certificates with a Certificate Balance equal to the
Original Pool Balance, Class I Certificates representing in the aggregate the
Original Notional Principal Amount and the Class IC Certificate the Depositor
does hereby sell, transfer, assign, and otherwise convey to the Trustee, in
trust for the benefit of the Certificateholders and the Surety Bond Issuer,
without recourse (subject to the obligations herein):
(i) all right, title, and interest of the Depositor in and to
the Receivables listed in Schedule A hereto;
(ii) the security interests in the Financed Vehicles granted
by Obligors pursuant to the Receivables;
(iii) any Liquidation Proceeds and any proceeds from claims or
refunds of premiums on any physical damage, lender's single interest,
credit life, disability and hospitalization insurance policies covering
Financed Vehicles or Obligors;
(iv) funds deposited in the Certificate Account;
(v) the interest of the Depositor in any proceeds from
recourse to Dealers relating to the Receivables;
(vi) all documents contained in the Receivable Files;
(vii) all monies paid and all monies due, including Accrued
Interest, after the Cutoff Date, with respect to the Receivables held
by the Servicer or Depositor (but excluding Accrued Interest paid prior
to the Closing Date);
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(viii) the rights of the Depositor pursuant to the Purchase
Agreement to require UAC to repurchase any Receivables as to which
there has been a breach of the representations and warranties contained
therein;
(ix) the benefits of the Surety Bond; and
(x) all proceeds of the foregoing.
The Depositor does hereby further assign, convey, pledge and grant a
security interest in (i) the funds on deposit from time to time in the Spread
Account; (ii) all Eligible Investments purchased with funds deposited in the
Spread Account; (iii) any and all other right, title and interest, including any
beneficial interest the Depositor may have in the Certificate Account, the
Spread Account and the funds deposited therein, and (iv) any proceeds of any of
the foregoing, to the Trustee and for the benefit of the Certificateholders to
secure amounts payable to Certificateholders as provided under this Agreement.
The Depositor does not convey to the Trustee any interest in any
contracts with Dealers related to any "dealer reserve" or any rights to the
recapture of any dealer reserve.
ARTICLE IV
Acceptance by Trustee
The Trustee does hereby accept all consideration conveyed by the
Depositor pursuant to Article III, and declares that the Trustee shall hold such
consideration upon the trusts herein set forth for the benefit of all present
and future Certificateholders and the Surety Bond Issuer, subject to the terms
and provisions of this Agreement.
ARTICLE V
Information Delivered to the Rating Agencies
(a) The Servicer hereby expresses its intention to deliver
promptly to each Rating Agency (i) a copy of each Servicer's Certificate that it
delivers to the Trustee and the Surety Bond Issuer pursuant to Section 8.09,
(ii) a copy of each annual Officers' Certificate as to compliance and any notice
of Default that it delivers to the Trustee pursuant to Section 8.10, (iii)
delinquency and loss information for the Receivables, the amount of any draws on
the Surety Bond, written notice of any merger, consolidation, or other
succession of the Servicer, pursuant to Section 13.03, or the Depositor,
pursuant to Section 12.03, (iv) a copy of each amendment to this Agreement and
(v) any Opinion of Counsel delivered to the Trustee pursuant to Section
17.02(i).
(b) The Trustee hereby expresses its intention to deliver
promptly to each Rating Agency (i) a copy of each statement or notification to
Certificateholders delivered pursuant to Section 9.07, 14.03 or 15.10, (ii) a
copy of each annual certified public accountant's report received by the Trustee
pursuant to Section 8.11, (iii) a copy of each amendment to this Agreement and
(iv)
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a copy of the notice of termination of the Trust provided to Certificateholders
pursuant to Section 16.01.
(c) For purposes of delivery pursuant to paragraphs (a) and
(b) of this Article VIII, the addresses for the Rating Agencies are:
Structured Finance/Asset Backed Surveillance Group
Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies
26 Broadway, 15th Floor
New York, New York 10004
Moody's Investors Service, Inc.
Attention: ABS Monitoring Department
4th Floor
99 Church Street
New York, New York 10007
(d) The provisions of this Article V are included herein for
convenience of reference only and shall not be construed to be contractual
undertakings or obligations. The failure of the Servicer or the Trustee to
comply with any or all of the provisions of this Article V shall not constitute
an Event of Default or a default of any kind under this Agreement or make any
remedy available to any Person.
ARTICLE VI
Agent for Service
The agent for service for the Depositor shall be Thomas W. West,
President of the Depositor. Any and all service on the agent for service of the
Depositor shall be sent to UAC Securitization Corporation, 9240 Bonita Beach
Road, Suite 1109-A, Bonita Springs, Florida 34135 or such other address as the
Depositor shall provide notice thereof pursuant to Sections 17.02(c) or 17.05.
The agent for service for the Servicer shall be John M. Stainbrook,
President of the Servicer. Any and all service on the agent for service of the
Servicer shall be sent to Union Acceptance Corporation, 250 North Shadeland
Avenue, Indianapolis, Indiana 46204.
ARTICLE VII
The Receivables
SECTION 7.01. Representations and Warranties of Depositor. Pursuant to
Article III, the Depositor has assigned to the Trust the benefit of, and its
rights respecting, the representations and warranties made to the Depositor in
the Purchase Agreement as to the Receivables on which the Trustee relies in
accepting the Receivables in trust and executing and authenticating the
Certificates. Such representations and warranties speak as of the execution and
delivery of the Purchase Agreement but shall survive the sale, transfer, and
assignment of the Receivables to the Trustee.
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(a) The Depositor hereby represents and warrants to the Trustee that it
has entered into the Purchase Agreement with UAC and UAFC, that UAC and UAFC
have made the representations and warranties set forth therein, that such
representations and warranties run to and are for the benefit of the Depositor,
and that pursuant to Article III of this Agreement the Depositor has transferred
and assigned to the Trustee all rights of the Depositor to cause UAC under the
Purchase Agreement to repurchase Receivables in the event of a breach of such
representations and warranties.
(b) It is the intention of the Depositor that the transfer and
assignment herein contemplated, taken as a whole, constitute a sale of the
Receivables from the Depositor to the Trust and that the beneficial interest in
and title to the Receivables not be part of the receivership estate in the event
of the appointment of a receiver for the Depositor. No Receivable has been sold,
transferred, assigned, or pledged by the Depositor to any Person other than the
Trustee. Immediately prior to the transfer and assignment herein contemplated,
the Depositor had good and marketable title to each Receivable free and clear of
all liens, and, immediately upon the transfer thereof, the Trustee (for the
benefit of the Certificateholders and the Surety Bond Issuer) shall have good
and marketable title to each Receivable, free and clear of all liens and rights
of others, except for the rights of the Certificateholders and the Surety Bond
Issuer; and the transfer has been perfected under the UCC. On or prior to the
Closing Date, all filings (including, without limitation, UCC filings) necessary
in any jurisdiction to give the Trustee a first perfected ownership interest in
the Receivables shall have been made.
SECTION 7.02. Repurchase Upon Breach. The Depositor, UAC, the Servicer,
or the Trustee, as the case may be, shall inform the Surety Bond Issuer and the
other parties promptly, in writing, upon the discovery of any breach of the
representations and warranties contained in the Purchase Agreement. This
obligation shall not constitute an obligation on the part of the Trustee to
actively seek to discover any such breaches. Unless the breach shall have been
cured by the second Record Date following the discovery, UAC, pursuant to its
obligations under the Purchase Agreement, shall repurchase any Receivable
materially and adversely affected by the breach as of such Record Date (or, at
UAC's option, the first Record Date following the discovery). In consideration
of the purchase of the Receivable, UAC shall remit the Purchase Amount, in the
manner specified in Section 9.03. The sole remedy of the Trustee, the Trust, or
the Certificateholders with respect to a breach of the representations and
warranties referred to in Section 7.01 shall be to require UAC to repurchase
Receivables pursuant to the Purchase Agreement and this Section 7.02.
SECTION 7.03. Custody of Receivable Files. To assure uniform quality in
servicing the Receivables and to reduce administrative costs, the Trustee, upon
the execution and delivery of the Agreement, hereby revocably appoints the
Servicer, and the Servicer hereby accepts such appointment, for the benefit of
the Trust and the Certificateholders, to act as the agent of the Trustee as
custodian of the following documents or instruments which are hereby
constructively delivered to the Trustee with respect to each Receivable:
(i) The original of the Receivable.
(ii) The original credit application fully executed by the
Obligor.
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(iii) The original certificate of title or such documents that
the Depositor or Servicer shall keep on file, in accordance with its
customary procedures, evidencing the security interest of the Depositor
in the Financed Vehicle.
(iv) Any and all other documents that the Servicer or the
Depositor shall keep on file, in accordance with its customary
procedures, relating to a Receivable, an Obligor, or a Financed
Vehicle.
SECTION 7.04. Duties of Servicer as Custodian.
(a) Safekeeping. The Servicer, in its capacity as custodian, shall hold
the Receivable Files on behalf of the Trustee for the use and benefit of all
present and future Certificateholders, and maintain such accurate and complete
accounts, records, and computer systems pertaining to each Receivable File as
shall enable the Trustee to comply with this Agreement. In performing its duties
as custodian the Servicer shall act with reasonable care, using that degree of
skill and attention that the Servicer exercises with respect to the receivable
files relating to all comparable automotive receivables that the Servicer
services for itself. The Servicer shall conduct, or cause to be conducted,
periodic audits of the Receivable Files held by it under this Agreement, and of
the related accounts, records, and computer systems, in such a manner as shall
enable the Trustee to verify the accuracy of the Servicer's record keeping. The
Servicer shall promptly report to the Trustee any failure on its part to hold
the Receivable Files and maintain its accounts, records, and computer systems as
herein provided and promptly take appropriate action to remedy any such failure;
provided, however, notwithstanding anything to the contrary in Section 7.03 or
this Section 7.04, the Servicer shall not be required to possess the original of
Receivables representing less than 2% of the Original Pool Balance until 30 days
following the Closing Date.
(b) Maintenance of and Access to Records. The Servicer shall maintain
each Receivable File at one of its offices specified in Schedule B to this
Agreement, or at such other office as shall be specified to the Trustee by prior
written notice. The Servicer shall make available to the Trustee or its duly
authorized representatives, attorneys, or auditors a list of locations of the
Receivable Files, the Receivable Files, and the related accounts, records, and
computer systems maintained by the Servicer at such times as the Trustee shall
instruct.
(c) Release of Documents. Upon instruction from the Trustee, the
Servicer shall release any document in a Receivable File to the Trustee, the
Trustee's agent, or the Trustee's designee, as the case may be, at such place or
places as the Trustee may designate, as soon as practicable.
SECTION 7.05. Instructions; Authority to Act. The Servicer shall be
deemed to have received proper instructions with respect to the Receivable Files
upon its receipt of written instructions signed by a Responsible Officer of the
Trustee.
SECTION 7.06. Custodian's Indemnification. The Servicer, shall
indemnify the Trust and the Trustee (which shall include, for purposes of this
Section 7.06, its directors, officers, employees and agents) for any and all
liabilities, obligations, losses, compensatory damages, payments, costs, or
expenses of any kind whatsoever that may be imposed on, incurred, or asserted
against the Trust or the Trustee as the result of any improper act or omission
in any way relating to the maintenance and custody by the Servicer of the
Receivable Files; provided, however, that the Servicer shall not
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be liable for any portion of any such amount resulting from the willful
misfeasance, bad faith, or negligence of the Trustee. This indemnity shall
survive the termination of this Agreement and the resignation or removal of the
Trustee.
SECTION 7.07. Effective Period and Termination. The Servicer's
appointment as custodian shall become effective as of the Cutoff Date and shall
continue in full force and effect until terminated pursuant to this Section
7.07. If the Servicer shall resign in accordance with the provisions of this
Agreement or if all of the rights and obligations of the Servicer shall have
been terminated under Section 14.01, the appointment of the Servicer as
custodian may be terminated (i) by the Holders of Certificates evidencing not
less than 25% of the Certificate Balance and 25% of the Notional Principal
Amount of the Class I Certificates with the consent of the Surety Bond Issuer,
which consent shall not be unreasonably withheld, or (ii) by the Surety Bond
Issuer, without the consent of the Holders of the Certificates (and, as to the
rights of the Surety Bond Issuer under (i) or (ii), so long as the Surety Bond
Issuer is not in default of its obligations under the Surety Bond). The Trustee
may terminate the Servicer's appointment as custodian with cause at any time
upon written notification to the Servicer. As soon as practicable after any
termination of such appointment, the Servicer shall deliver the Receivable Files
to the Trustee or the Trustee's agent at such place or places as the Trustee,
with the consent of the Surety Bond Issuer, may reasonably designate.
ARTICLE VIII
Administration and Servicing of Receivables
SECTION 8.01. Duties of Servicer. The Servicer, for the benefit of the
Trust and the Certificateholders, shall manage, service, administer, and make
collections on the Receivables with reasonable care, using that degree of skill
and attention that the Servicer exercises with respect to all comparable
automotive receivables that it services for itself. The Servicer's duties shall
include collection and posting of all payments, making Advances (in the
Servicer's sole discretion), responding to inquiries of Obligors or of federal,
state or local governmental authorities with respect to the Receivables,
investigating delinquencies, sending payment coupons to Obligors, accounting for
collections, and furnishing monthly and annual statements to the Trustee with
respect to distributions. The Servicer shall follow its customary standards,
policies, and procedures in performing its duties as Servicer. Without limiting
the generality of the foregoing, the Servicer is authorized and empowered by the
Trustee to execute and deliver, on behalf of itself, the Trust, the
Certificateholders, or the Trustee or any of them, any and all instruments of
satisfaction or cancellation, or partial or full release or discharge, and all
other comparable instruments, with respect to such Receivables or to the
Financed Vehicles securing such Receivables. If the Servicer shall commence a
legal proceeding to enforce a Receivable or a Defaulted Receivable, the Trustee
shall thereupon be deemed to have automatically assigned, solely for the purpose
of collection, such Receivable to the Servicer. The Trustee shall execute any
documents prepared by the Servicer and delivered to the Trustee for execution
that are necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties hereunder.
SECTION 8.02. Collection of Receivable Payments (a) The Servicer shall
make reasonable efforts to collect all payments called for under the terms and
provisions of such Receivables as and when the same shall become due and shall
follow such collection procedures as it follows with
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respect to all comparable automotive receivables that it services for itself. If
payments are extended in the ordinary course of the Servicer's collection
procedures, and, as a result, any Receivable would be outstanding at the Stated
Final Distribution Date, then the Servicer shall be obligated to purchase such
Receivable pursuant to Section 8.07 (unless such Receivable is otherwise being
purchased pursuant to Section 16.02) as of the last day of the Collection Period
immediately preceding the Stated Final Distribution Date. The Servicer may in
its discretion waive any late payment charge or any other fees that it is
entitled to retain under Section 8.08, or other fee (to the extent consistent
with its credit and collection policy on the Closing Date) that may be collected
in the ordinary course of servicing a Receivable.
(b) All allocations of payments with respect to a simple-interest
Receivable to principal and interest and determinations of periodic charges and
the like shall be made using the simple interest method, based on either the
actual number of days elapsed and the actual number of days in the calendar year
or on the basis of a thirty-day month and a 360-day calendar year, as specified
in the related installment sales contract or installment loan and security
agreement. Each payment on a simple interest Receivable shall be applied first
to the amount of interest accrued on such Receivable to the date of receipt;
second, to principal due on such Receivable; third, to late charges, if any,
accrued on such Receivable; and last, to reduce the remaining principal amount
outstanding on such Receivable. Payments made by or on behalf of an Obligor
including any Payaheads previously made and added to the Payahead Balance with
respect to a Precomputed Receivable shall be applied first to overdue Scheduled
Payments (including reduction of Outstanding Advances as provided in Section
9.04). Next, any excess shall be applied to the Scheduled Payment and any
remaining excess shall be added to the Payahead Balance, and shall be applied to
prepay the Precomputed Receivable, but only if such Payahead Balance shall be
sufficient to prepay the Receivable in full. Otherwise, any such remaining
excess payments shall constitute a Payahead and shall increase the Payahead
Balance.
SECTION 8.03. Realization Upon Receivables. (a) On behalf of the Trust
the Servicer shall use its best efforts, consistent with its customary servicing
procedures, to repossess or otherwise convert the ownership of the Financed
Vehicle securing any Receivable as to which the Servicer shall have determined
that eventual payment in full is unlikely. The Servicer shall follow such
customary and usual practices and procedures as it shall deem necessary or
advisable in its servicing of automotive receivables, which may include
reasonable efforts to realize upon any recourse to Dealers and selling the
Financed Vehicle at public or private sale. The foregoing shall be subject to
the provision that, in any case in which the Financed Vehicle shall have
suffered damage, the Servicer shall not expend funds in connection with the
repair or the repossession of such Financed Vehicle unless it shall determine in
its discretion that such repair and/or repossession will increase the
Liquidation Proceeds. After appropriate disposition of the Financed Vehicle, the
Servicer shall also take such measures as it deems reasonable and appropriate to
realize value in respect of any deficiency balance of the Receivable including
pursuit of action on behalf of the Trust against the Obligor or public or
private sale of the Trust's remaining interest in such Receivable.
(b) Unless otherwise stated in this Agreement, the Servicer shall
either purchase or liquidate each Financed Vehicle that has not previously been
liquidated and that secures, or previously secured, a Defaulted Receivable
either (i) by the end of the Collection Period preceding the final scheduled
Distribution Date during the life of the Trust or (ii) if earlier, by the end of
the ninth Collection Period following the Collection Period during which such
Receivable became a
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Defaulted Receivable. Any purchase of a Financed Vehicle by the Servicer shall
be made at a price equal to the fair market value of the Financed Vehicle as
determined by the Servicer in accordance with the Servicer's normal servicing
standards.
SECTION 8.04. Physical Damage Insurance. The Servicer, in accordance
with its customary servicing procedures and underwriting standards, shall
require that each Obligor shall have obtained and shall maintain physical damage
insurance covering the Financed Vehicle.
SECTION 8.05. Maintenance of Security Interests in Financed Vehicles.
The Servicer shall, in accordance with its customary servicing procedures, take
such steps as are necessary to ensure that perfection of the security interest
created by each Receivable in the related Financed Vehicle has been obtained,
and to maintain such security interest. The Trustee hereby authorizes the
Servicer to take such steps as are necessary to re-perfect such security
interest on behalf of the Trust in the event of the relocation of a Financed
Vehicle or for any other reason.
SECTION 8.06. Covenants of Servicer. The Servicer shall not release the
Financed Vehicle securing any Receivable from the security interest granted by
such Receivable in whole or in part except in the event of payment in full by
the Obligor thereunder or repossession, nor shall the Servicer impair the rights
of the Certificateholders in the Receivables, nor shall the Servicer change the
amount of the Scheduled Payment under a Receivable or change the Amount Financed
under a Receivable or reduce the Note Rate of a Receivable (except if so ordered
by a bankruptcy court in a proceeding concerning the Obligor or otherwise
mandated by law).
SECTION 8.07. Purchase of Receivables Upon Breach. The Servicer or the
Trustee shall inform the other party and the Surety Bond Issuer promptly, in
writing, upon the discovery of any breach by the Servicer of its obligations
under Section 8.06. This obligation shall not constitute an obligation on the
part of the Trustee to discover any such breaches. Unless the breach shall have
been cured by the last day of the Collection Period following the Collection
Period during which such breach was discovered, the Servicer shall purchase any
Receivable materially and adversely affected by such breach as of such day (or,
at the Servicer's election, as of the last day of the Collection Period during
which such breach was discovered). In consideration of the purchase of such
Receivable, the Servicer shall remit the Purchase Amount with respect to such
Receivable in the manner specified in Section 9.03. The sole remedy of the
Trustee, the Trust, or the Certificateholders with respect to a breach pursuant
to Section 8.06 shall be to require the Servicer to purchase Receivables
pursuant to this Section 8.07, except as provided in Section 13.02.
SECTION 8.08. Servicing Fee. The servicing fee for a Collection Period
shall equal the Monthly Servicing Fee (except that in the case of a successor
Servicer, the servicing fee shall equal such amount as is arranged in accordance
with Section 14.02). The Servicer shall be entitled to retain from payments of
interest on the Receivables collected during a Collection Period an amount equal
to the Monthly Servicing Fee due the Servicer in respect of such Collection
Period and need not deposit such amount in the Certificate Account. The Servicer
shall also be entitled to retain, and need not deposit in the Certificate
Account, all late fees, Prepayment Charges, other administrative fees or similar
charges allowed by applicable law with respect to Receivables, if any, collected
(from whatever source) on the Receivables. The Monthly Servicing Fee will be
paid only out of the funds of the Trust and not from the Trustee's own funds. So
long as Union Acceptance Corporation is the Servicer, if the Servicer fails to
pay the Trustee's fees and expenses pursuant to Section 15.07, the
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Trustee shall be entitled to receive such amount from the Monthly Servicing Fee
prior to payment thereof to the Servicer and the Servicer shall not retain from
collections that portion of the Monthly Servicing Fee equal to any fees of the
Trustee that are due and payable and any unpaid amount that the Servicer has
received notice is due the Trustee as reimbursement for expenses.
SECTION 8.09. Servicer's Certificate. On or before the Determination
Date following each Collection Period, the Servicer shall deliver to the Trustee
and the Surety Bond Issuer a Servicer's Certificate in substantially the form of
Exhibit 3 attached hereto containing all information necessary to make the
distributions pursuant to Section 9.04 for the Collection Period preceding the
date of such Servicer's Certificate and all information necessary for the
Trustee to send statements to Certificateholders pursuant to Section 9.07,
including (A) the amount of aggregate collections on the Receivables, (B) the
aggregate Purchase Amount of the Receivables repurchased by UAC and purchased by
the Servicer, (C) with respect to Precomputed Receivables the net deposit from
the Certificate Account to the Payahead Account or the net withdrawal from the
Payahead Account to the Certificate Account required for the Collection Period
in accordance with Section 9.09, and in the case of a net withdrawal, the
Monthly Interest and Monthly Principal reported on such Servicer's Certificate
shall reflect the portions of such withdrawal allocable to interest and
principal, respectively, in accordance with this Agreement, (D) information
respecting (i) delinquent Receivables that are 30, 60 and 90 days past due, and
(ii) the number of repossessions of Financed Vehicles during the preceding
Collection Period, number of unliquidated repossessed Financed Vehicles, gross
and net losses on the Receivables, and recoveries on charged off Receivables;
and (E) each other item listed in Section 9.04 hereof reasonably requested by
the Rating Agency or the Surety Bond Issuer in order to monitor the performance
of the Receivables. Receivables purchased by UAC as of the last day of such
Collection Period shall be identified by the UAC account number with respect to
such Receivable (as specified in Schedule A to this Agreement).
SECTION 8.10. Annual Statement as to Compliance; Notice of Default. (a)
The Servicer shall deliver to the Trustee and the Surety Bond Issuer, on or
before April 30 of each year, beginning on the first April 30 that is at least
six months after the Closing Date, an Officers' Certificate, dated as of
December 31 of the preceding year, stating that (i) a review of the activities
of the Servicer during the preceding 12-month period (or in the case of the
initial Officer's Certificate, the period from the Closing Date to and including
the date of such Officer's Certificate) and of its performance under this
Agreement has been made under such officer's supervision and (ii) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this Agreement throughout such year, or, if there has been
a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof. A copy of such
certificate and the report referred to in Section 8.11 may be obtained by any
Certificateholder at its own expense by a request in writing to the Trustee
addressed to the Corporate Trust Office.
(b) The Servicer shall deliver to a Responsible Officer of the Trustee
and the Surety Bond Issuer, promptly after having obtained knowledge thereof,
but in no event later than 5 Business Days thereafter, written notice in an
Officers' Certificate of any event which with the giving of notice or lapse of
time, or both, would become an Event of Default under Section 14.01. The
Depositor or UAC shall deliver to a Responsible Officer of the Trustee and the
Surety Bond Issuer, promptly after having obtained knowledge thereof, but in no
event later than 5 Business Days thereafter, written
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notice in an Officers' Certificate of any event which with the giving of notice
or lapse of time, or both, would become an Event of Default under clause (ii) of
Section 14.01.
SECTION 8.11. Annual Independent Certified Public Accountant's Report.
The Servicer shall cause a firm of independent certified public accountants, who
may also render other services to the Servicer, to deliver to the Trustee and
the Surety Bond Issuer on or before September 30 of each year concerning the
12-month period ended June 30 of such year (or shorter period since the date of
this Agreement), beginning on the first September 30 following the first June 30
after the Closing Date, a report addressed to the Board of Directors of the
Servicer to the effect that such firm has reviewed the servicing of the
Receivables by the Servicer and that such review (1) included tests relating to
new or used automobile, van and light truck loans serviced for others in
accordance with the requirements of the Uniform Single Audit Program for
Mortgage Bankers, to the extent the procedures in such program are applicable to
the servicing obligations set forth in the Agreement, and (2) except as
described in the report, disclosed no exceptions or errors in the records
relating to automobile, van or light truck loans serviced for others that, in
the firm's opinion, paragraph four of such program requires such firm to report.
The report will also indicate that the firm is independent of the
Servicer within the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants.
SECTION 8.12. Access to Certain Documentation and Information Regarding
Receivables. The Servicer shall provide to the Certificateholders access to the
Receivables Files in such cases where the Certificateholder shall be required by
applicable statutes or regulations to review such documentation. Access shall be
afforded without charge, but only upon reasonable request and during the normal
business hours at the respective offices of the Servicer. Nothing in this
Section shall affect the obligation of the Servicer to observe any applicable
law prohibiting disclosure of information regarding the Obligors, and the
failure of the Servicer to provide access to information as a result of such
obligation shall not constitute a breach of this Section 8.12.
SECTION 8.13. Servicer Expenses. The Servicer shall be required to pay
all expenses incurred by it in connection with its activities hereunder,
including fees and disbursements of independent accountants, taxes imposed on
the Servicer, and expenses incurred in connection with distributions and reports
to Certificateholders.
SECTION 8.14. Reports to Certificateholders. The Trustee shall provide
to any Certificateholder who so requests in writing (addressed to the Corporate
Trust Office) a copy of any certificate described in Section 8.09, or the annual
statement described in Section 8.10, or the annual report described in Section
8.11. The Trustee may require the Certificateholder to pay a reasonable sum to
cover the cost of the Trustee's complying with such request.
ARTICLE IX
Distributions; Statements to Certificateholders
SECTION 9.01. Certificate Account. The Servicer, on behalf of the
Trust, shall establish the Certificate Account with an Eligible Bank as a
segregated trust account in the name of the Trust for the benefit of
Certificateholders with the Corporate Trust Office of the Trustee. The Servicer
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shall direct the Trustee to invest the amounts in the Certificate Account in
Eligible Investments that mature not later than the Business Day prior to the
next succeeding Distribution Date and to hold such Eligible Investments to
maturity. The Trustee (or its custodian) shall (i) maintain possession of any
negotiable instruments or securities evidencing Eligible Investments until the
time of sale or maturity and each certificated security or negotiable instrument
evidencing an Eligible Investment shall be endorsed in blank or to the Trustee
or registered in the name of the Trustee and (ii) cause any Eligible Investment
represented by an uncertificated security to be registered in the name of the
Trustee.
SECTION 9.02. Collections. The Servicer shall remit to the Certificate
Account all payments by or on behalf of the Obligors on the Receivables and all
Liquidation Proceeds, both as collected during the Collection Period net of
Monthly Servicing Fees and administrative fees allowed to be retained by the
Servicer pursuant to Section 8.08 and net of charge backs (attributable to
errors in posting, returned checks, or rights of offset for amounts that should
not have been paid or that must be refunded as the result of a successful claim
or defense under bankruptcy or similar laws) not later than the second Business
Day following the Business Day on which such amounts are received by the
Servicer. Notwithstanding the foregoing, for so long as (a) UAC remains the
Servicer, (b) no Event of Default shall have occurred and be continuing and
(c)(1) UAC maintains a short-term rating of at least A-1 by Standard & Poor's
and P-l by Moody's (and for five Business Days following a reduction in either
such rating) or (2) prior to ceasing daily remittances, the Rating Agency
Condition shall have been satisfied (and any conditions or limitations imposed
by the Rating Agencies in connection therewith are complied with) and the prior
written consent of the Surety Bond Issuer (not to be unreasonably withheld)
shall have been obtained, the Servicer may remit all such payments and
Liquidation Proceeds with respect to any Collection Period to the Certificate
Account on a less frequent basis, but in no event later than the Determination
Date immediately preceding each Distribution Date. The Servicer shall remit any
Advances with respect to a Collection Period to the Certificate Account on or
before the Determination Date.
On each Determination Date, the Servicer shall determine (a) the amount
of payments on all Receivables and all Liquidation Proceeds received during such
Collection Period, the amount of Advances for such Collection Period, and the
Purchase Amount for all Receivables purchased or repurchased with respect to
such Collection Period which have been deposited in the Certificate Account (net
of amounts required to be paid pursuant to Section 9.04(d), excluding investment
income on all such amounts, and not including amounts required to be paid
pursuant to Sections 7.02, 8.07, and 9.05 but not so paid) after giving effect
to the net transfer from the Certificate Account to the Payahead Account or from
the Payahead Account to the Certificate Account as provided in Section 9.09,
(the "Available Funds"), and (b) the amount of funds necessary to make the
distributions required pursuant to Sections 9.04(a) (i) through (vii),
inclusive, on the next Distribution Date. The Servicer shall by a Servicer's
Certificate notify the Trustee of such amounts by telecopy to the Corporate
Trust Office at the number specified in this Agreement (or such other number as
the Trustee may from time to time provide), followed promptly by mailing such
notice to the Trustee at the Corporate Trust Office and to the Surety Bond
Issuer. On each Distribution Date, the Trustee, or the Servicer on its behalf,
shall effect the net transfer between the Certificate Account and the Payahead
Account as required by Section 9.09 for such Distribution Date.
On any Distribution Date on which there are not sufficient Available
Funds to make the distributions required pursuant to Sections 9.04(a)(i) through
(iii) the Trustee, or the Servicer on its
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behalf, shall withdraw from the Spread Account, to the extent of the Available
Spread Amount, an amount equal to such deficiency and promptly deposit such
amount in the Certificate Account. If such deficiency exceeds the Available
Spread Amount, the Servicer shall simultaneously and in the same manner also
notify the Trustee and the Surety Bond Issuer of the amount of such excess
deficiency. The Trustee shall promptly (and in any event not later than 1:00
p.m. New York City time on the Business Day preceding the Distribution Date)
deliver a Notice for Payment as defined in the Surety Bond (appropriately
completed) to the Surety Bond Issuer with respect to the Surety Bond. The Surety
Bond Issuer is required pursuant to Section 10.03 and the terms of the Surety
Bond to pay the amount of such excess deficiency of Monthly Interest and Monthly
Principal, up to the Surety Bond Amount.
The Trustee shall deposit in the Certificate Account any funds received
by the Trustee in respect of funds drawn under the Surety Bond from the Surety
Bond Issuer.
If the Available Funds for a Distribution Date are insufficient to pay
current and past due Surety Bond Fees, or any amounts owing to the Surety Bond
Issuer pursuant to the Insurance Agreement including, without limitation,
reimbursements, indemnities, fees and expenses, plus accrued interest thereon,
to the Surety Bond Issuer, the Servicer shall notify the Trustee of such
deficiency, and the Available Spread Amount, if any, then on deposit in the
Spread Account (after giving effect to any withdrawal to satisfy a deficiency in
Monthly Interest or Monthly Principal) shall be available to cover such
deficiency.
SECTION 9.03. Purchase Amounts. Not later than the Determination Date,
the Servicer or UAC shall remit to the Certificate Account the aggregate
Purchase Amount for such Collection Period pursuant to Sections 7.02 and 8.07.
SECTION 9.04. Distributions to Parties. (a) On each Distribution Date,
the Trustee shall apply or cause to be applied the Available Funds in the
Certificate Account for the prior Collection Period, (plus any amounts withdrawn
from the Spread Account or drawn on the Surety Bond pursuant to Section 9.02),
to make the following distributions in the listed order of priority:
(i) Without duplication, an amount equal to the sum of
(y) Outstanding Advances on all Receivables that became Defaulted
Receivables during the prior Collection Period, plus (z) Outstanding
Advances which the Servicer determines to be unrecoverable pursuant to
Section 9.05, to the Servicer;
(ii) To the extent not previously distributed to the
Servicer, the Monthly Servicing Fee, including any overdue Monthly
Servicing Fee, to the Servicer;
(iii) Pro rata, (in accordance with Section
9.04(b)(i)), (y) the Monthly Principal (in accordance with the
Principal Distribution Sequence) and Class A Monthly Interest,
including any overdue Monthly Principal and Class A Monthly Interest,
to the Class A Certificateholders, and (z) Class I Monthly Interest,
including any overdue Class I Monthly Interest, to the Class I
Certificateholders;
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(iv) The Surety Bond Fee, including any overdue Surety
Bond Fee, plus accrued interest thereon at the rate provided in the
Insurance Agreement, to the Surety Bond Issuer;
(v) The amount of Recoveries of Advances, to the
Servicer (to the extent not applied pursuant to (i) above on or prior
to such Distribution Date);
(vi) The aggregate amount of all unreimbursed draws
made on the Surety Bond in respect of Class A Monthly Interest, Class
I Monthly Interest and Monthly Principal and any other amounts payable
to the Surety Bond Issuer under the Insurance Agreement, plus accrued
interest thereon at the rate provided in the Insurance Agreement, to
the Surety Bond Issuer;
(vii) The balance for deposit in the Spread Account.
The rights of the Class IC Certificateholder to receive distributions
from the Spread Account are described in Sections 10.02(e) and (f).
(b)(i) If on any Distribution Date there are not sufficient Available
Funds (together with amounts withdrawn from the Spread Account and/or the Surety
Bond) to pay the distribution required by Section 9.04(a)(iii), the Available
Funds distributable under Section 9.04(a)(iii) shall be distributed
proportionately on the basis of the ratio of the required distribution due each
of the Class A Certificateholders and the Class I Certificateholders,
respectively, to the sum of the distributions required by Section 9.04(a)(iii)
to the Class A Certificateholders and the Class I Certificateholders. The amount
so distributed to the Class A Certificateholders hereunder shall be allocated
first to Class A Monthly Interest, and second to Monthly Principal and shall be
distributed pro rata among the Class A Certificateholders.
(ii) Notwithstanding the foregoing, the Class I
Certificateholders will not be entitled to any distributions after the
Notional Principal Amount of the Class I Certificates has been reduced
to zero.
(iii) Notwithstanding the foregoing, if the Class IC
Certificateholder exercises its option to cause a disposition of the
remaining corpus of the Trust on any Distribution Date pursuant to
Section 16.02: (a) the Available Funds and amounts withdrawn from the
Spread Account or drawn on the Surety Bond in respect only of Monthly
Interest and Monthly Principal with respect to the immediately
preceding Distribution Date as determined in accordance with Section
9.02 and 9.04 shall be distributed to Certificateholders on such
Distribution Date; (b) the Surety Bond will not be available to pay
any shortfall of Monthly Interest or Monthly Principal after a
disposition of the Receivables pursuant to Section 16.02; and (c) the
Optional Disposition Price and any remaining assets of the Trust
(including the remaining Available Spread Amount) shall be distributed
to Certificateholders on such Distribution Date based on their
Adjusted Capital Accounts (as defined in Section 6(c)(iv) of Annex A
attached hereto) in accordance with Section 6(b)(iii) and Section 9 of
Annex A attached hereto.
(iv) In making such distributions the Trustee shall be
entitled to rely upon (without investigation, confirmation or
recalculation) all information and calculations
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contained in the Servicer's Certificate delivered to the Trustee
pursuant to Section 8.09 hereof.
(v) All monthly distributions shall be made by wire
transfer of immediately available funds to each Certificateholder of
record on the preceding Record Date. Notwithstanding the foregoing, the
final payment on each Certificate shall be made only against
presentation and surrender of the Certificate at the office or agency
then maintained by the Trustee in accordance with Section 11.07.
(c) On each Distribution Date, the Trustee shall remit to the Servicer
all investment income earned through the last day of the preceding Collection
Period on amounts held from time to time in the Certificate Account.
(d) On each Distribution Date, if the Servicer has reported to the
Trustee in the Servicer's Certificate for any Collection Period that an Obligor
or an Obligor's representative or successor successfully shall have asserted a
claim or defense under bankruptcy law or similar laws for the protection of
creditors generally (including the avoidance of a preferential transfer under
bankruptcy law) that results in a liability of the Trust to such Obligor for
monies previously collected and remitted to the Trustee and not otherwise netted
against collections pursuant to Section 9.02, the Trustee shall make all
payments in respect of such claims or defenses out of the amounts on deposit in
the Certificate Account with respect to such Collection Period before making the
distributions required by paragraph (a) of this Section 9.04.
(e) If the Servicer has failed to provide the Trustee with the notice
required pursuant to Section 9.02, the Trustee may calculate Monthly Interest
and Monthly Principal and apply funds, if any, in the Certificate Account as of
the last day of the Collection Period, to make a distribution of Monthly
Interest and Monthly Principal to the Certificateholders.
SECTION 9.05. Advances. (a) As of the last day of the initial
Collection Period, the Servicer shall advance funds equal to the excess, if any,
of Monthly Interest due in respect of the initial Collection Period, over the
Collected Interest for such Collection Period; and (b) as of the last day of
each Collection Period, the Servicer shall advance funds in the amount of the
Interest Advance Amount (or such other amount as the Servicer shall reasonably
determine to cover an Interest Shortfall) with respect to each Receivable that
is delinquent for more than 30 days, in each such case, to the extent that the
Servicer, in its sole discretion, determines that the Advance will be
recoverable from payments by or on behalf of the Obligor, the Purchase Amount,
or Liquidation Proceeds. With respect to each Receivable, the Advance paid
pursuant to this Section 9.05 shall increase Outstanding Advances. Outstanding
Advances shall be reduced by subsequent payments by or on behalf of the Obligor,
collections of Liquidation Proceeds, or payments of the Purchase Amount. The
Servicer shall remit any Advances with respect to a Collection Period to the
Certificate Account by the related Determination Date.
If the Servicer shall determine that an Outstanding Advance with
respect to any Receivable shall not be recoverable, the Servicer shall be
reimbursed from any collections made on other Receivables in the Trust, and
Outstanding Advances with respect to such Receivable shall be reduced
accordingly.
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SECTION 9.06. Net Deposits. For so long as Union Acceptance Corporation
is the Servicer, Union Acceptance Corporation (in whatever capacity) may make
the remittances with respect to any Distribution Date pursuant to Section 9.02
above, net of amounts to be distributed to itself or its delegee under Section
13.06 (also in whatever capacity) pursuant to Section 9.04, if it determines
pursuant to Section 9.02 that there is no deficiency in Available Funds for such
Distribution Date. Nonetheless, the Servicer shall account for all of the above
described amounts as if such amounts were deposited and distributed.
SECTION 9.07. Statements to Certificateholders. On each Distribution
Date, the Trustee shall include with each distribution to the Certificateholders
and shall mail to the Rating Agency a statement, based on information in the
Servicer's Certificate furnished to the Trustee by the Servicer pursuant to
Section 8.09, setting forth for the Collection Period relating to such
Distribution Date the following information (which in the case of items (i)
through (v), inclusive, shall be based on a Certificate in a principal amount of
$1,000):
(i) the amount of the aggregate distribution that constitutes Class A
Monthly Interest (including the amount thereof which constitutes Class A-1
Monthly Interest, Class A-2 Monthly Interest, Class A-3 Monthly Interest, Class
A-4 Monthly Interest and Class A-5 Monthly Interest);
(ii) the amount of the aggregate distribution that constitutes Class I
Monthly Interest and the Notional Principal Amount (after giving effect to any
application of Monthly Principal required to be made on such date) on which
Class I Monthly Interest will be calculated on that next succeeding Distribution
Date;
(iii) the amount of the aggregate distribution that constitutes Monthly
Principal (including the amount thereof which constitutes Class A-1 Monthly
Principal, Class A-2 Monthly Principal, Class A-3 Monthly Principal, Class A-4
Monthly Principal and Class A-5 Monthly Principal);
(iv) the Certificate Balance (after giving effect to any distribution
of Monthly Principal made on such Distribution Date) and the Class A-1
Certificate Balance, the Class A-2 Certificate Balance, the Class A-3
Certificate Balance, the Class A-4 Certificate Balance and the Class A-5
Certificate Balance comprising the Certificate Balance on which Class A-1
Monthly Interest, Class A-2 Monthly Interest, Class A-3 Monthly Interest, Class
A-4 Monthly Interest and Class A-5 Monthly Interest will be calculated on the
next succeeding Distribution Date;
(v) the Certificate Factor (after giving effect to any distribution of
Monthly Principal made on such Distribution Date) and the Class A-1 Certificate
Factor, the Class A-2 Certificate Factor, the Class A-3 Certificate Factor, the
Class A-4 Certificate Factor and the Class A-5 Certificate Factor;
(vi) the amount on deposit in the Spread Account after giving effect to
distributions made on such Distribution Date;
(vi) the Monthly Servicing Fee for such Distribution Date.
(vii) the Surety Bond Fee for such Distribution Date;
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(viii) the Surety Bond Amount (after giving effect to any draw on the
Surety Bond or the Spread Account on such Distribution Date).
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Agreement, the Trustee
shall mail, to each Person who at any time during such calendar year shall have
been a Certificateholder, a statement containing the annual sum of the
respective amounts determined in clauses (i) through (v) for such calendar year,
as applicable to such Person, or, in the event such Person shall have been a
Certificateholder during a portion of such calendar year, for the applicable
portion of such year, unless substantially comparable information has been
provided to such Certificateholder, for the purposes of such Certificateholder's
preparation of federal income tax returns pursuant to Section 5(b) of Annex A
hereto. To the extent required by applicable law, the Servicer shall prepare or
cause to be prepared and the Class IC Certificateholder or the Trustee shall
sign the tax returns of the Trust and shall file such returns and such of the
above information with the Internal Revenue Service.
SECTION 9.08. Intentionally Blank.
SECTION 9.09. Payahead Account. The Servicer shall establish the
Payahead Account in the name of the Trustee on behalf of the Obligors and the
Certificateholders as their interests may appear. The Payahead Account shall be
a segregated interest bearing trust account established with the Trustee or an
Eligible Bank. Amounts in the Payahead Account shall be invested in Eligible
Investments that mature not later than the Business Day prior to the next
succeeding Distribution Date. The Payahead Account is not property of the Trust.
Investment income or interest earned on the Payahead Account shall be remitted
to the Servicer at least monthly, or as frequently as the Servicer may
reasonably request. On or prior to each Distribution Date, the Servicer shall
transfer or the Trustee (as instructed in the Servicer's Certificate) shall
transfer (a) from the Certificate Account to the Payahead Account, in
immediately available funds, all Payaheads received by the Servicer and
previously deposited to the Certificate Account during the Collection Period as
described in Section 8.02(b); and (b) from the Payahead Account to the
Certificate Account, in immediately available funds, the aggregate amount of
previously deposited Payaheads to be applied to Scheduled Payments on
Precomputed Receivables for the related Collection Period or prepayments for the
related Collection Period, pursuant to Section 8.02(b), each in the amounts set
forth in the Servicer's Certificate delivered on the related Determination Date.
A single, net transfer between the Payahead Account and the Certificate Account
may be made. Any amount deposited in the Payahead Account shall not constitute
Available Funds under Section 9.02. Any amount deposited to the Certificate
Account from the Payahead Account pursuant to Section 9.09(b) shall be included
in Available Funds under Section 9.02.
SECTION 9.10. Calculation of Notional Principal Amount.
(a) Solely for the purpose of calculating the Class I Monthly Interest,
the Certificate Balance will be divided into, and equal the sum of, two
principal components: (i) the "PAC Component" and (ii) the "Companion
Component." The PAC Component shall initially equal the Original Notional
Principal Amount.
(b) On each Distribution Date, solely for the purposes of calculating
the Notional Principal Amount, the Monthly Principal will be allocated (i)
first, to the PAC Component up to the
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amount necessary to reduce the PAC Component to its Planned Notional Principal
Amount for such Distribution Date, (ii) second, to the Companion Component until
the balance thereof is reduced to zero, and (iii) third, to the PAC Component
without regard to the Planned Notional Principal Amount for such Distribution
Date.
ARTICLE X
Credit Enhancement
SECTION 10.01. Subordination. The rights of the Class IC
Certificateholder shall be subordinated to the rights of the Class A
Certificateholders and the Class I Certificateholders to the extent described in
Section 9.04.
SECTION 10.02. Spread Account.
(a) On or prior to the Closing Date, the Trustee shall establish and
maintain a segregated trust account with the Trustee or in the corporate trust
department of another Eligible Bank referred to herein as the "Spread Account."
The Spread Account shall be maintained in the name of the Trustee. The Spread
Account and any amounts on deposit therein shall be part of the Trust and shall
be for the benefit of the Certificateholders and the Surety Bond Issuer, as
their respective interests may appear herein; provided, however, that the
interest of the Surety Bond Issuer and the Class IC Certificateholder shall be
subordinated to the interests of the other Certificateholders as provided
herein.
(b) Funds on deposit in the Spread Account shall be invested in
Eligible Investments in the same manner and subject to the same requirements and
limitations as the investment of funds in the Certificate Account pursuant to
Section 9.01, including the limitation that Eligible Investments mature not
later than the Business Day prior to the next succeeding Distribution Date;
provided, however, no such limitation on the maturity of Eligible Investments
shall apply if the Trust obtains the benefit of a liquidity facility or similar
arrangement from a commercial bank with an Approved Rating or other provider
approved in advance in writing by the Surety Bond Issuer, with respect to funds
in the Spread Account (a "Spread Account Facility") and Standard & Poor's and
Moody's confirm in writing that the rating of the Certificates will not be
lowered or withdrawn as a result of eliminating or modifying the limitation on
the maturity of Permitted Investments in respect of the Spread Account. For
purposes of determining the availability of funds or the balance in the Spread
Account for any reason under this Agreement, investment earnings on such funds
shall be deemed to be available or on deposit only to the extent that the
aggregate of such amounts, plus the funds on deposit in the Spread Account, do
not exceed the Required Spread Amount.
(c) If on any Distribution Date the amount of Available Funds is
insufficient to make the distributions required by Sections 9.04(a)(i) through
(iii), the Trustee shall withdraw or cause to be withdrawn from the Spread
Account and deposited in the Certificate Account the lesser of (i) the entire
Available Spread Amount and (ii) the amount necessary to make up such deficiency
to pay any deficiency in permitted reimbursements of Outstanding Advances
pursuant to Section 9.04(a)(i), the Monthly Servicing Fee, Monthly Interest and
Monthly Principal (prior to making any draw on the Surety Bond), all as provided
in Sections 9.02 and 9.04 and the Surety Bond.
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(d) On each Distribution Date, all distributions made pursuant to
Section 9.04(a) (vii) shall be deposited into the Spread Account.
(e) If the amount on deposit in the Spread Account, after giving effect
to the distributions set forth in Section 9.04 (including, without limitation,
payment of amounts due and owing to the Surety Bond Issuer) is greater than the
Required Spread Amount on such Distribution Date, the amount of such excess
shall be distributed to the Class IC Certificateholder. Amounts properly
distributed to the Class IC Certificateholder pursuant to this Section, either
directly without deposit in the Spread Account or from excess amounts in the
Spread Account shall be deemed released from the Trust and from any security
interest of the Trustee or the Surety Bond Issuer.
(f) Upon the termination of this Agreement, amounts remaining in the
Spread Account, after payment of any amounts due and owing to the Class A
Certificateholders and the Class I Certificateholders and to the Surety Bond
Issuer, shall be distributed to the Class IC Certificateholder and such amounts
shall not be subject to any claims or rights of the other Certificateholders to
the extent that such action is not inconsistent with Section 6(b)(ii) and
Section 9 of Annex A hereto.
(g) On the Closing Date, the Depositor shall deposit an amount equal to
one percent (1%) of the Initial Certificate Balance into the Spread Account.
SECTION 10.03. Surety Bond. The Surety Bond Issuer is required under
the terms of the Surety Bond to pay Class I Monthly Interest, Class A Monthly
Interest and Monthly Principal up to the Surety Bond Amount in the event of any
deficiency of Available Funds to pay such amounts (after permitted
reimbursements of Outstanding Advances and payment of the Monthly Servicing Fee)
not covered by amounts withdrawn from the Spread Account, as determined pursuant
to Section 9.02 to the Trustee for credit to the Certificate Account on the
later of (a) 11:00 a.m., New York City time, on the Business Day immediately
preceding a Distribution Date and (b) 11:00 a.m., New York City time, on the
Business Day immediately succeeding presentation to the Surety Bond Issuer of
the Trustee's demand therefor. Any demand for payment pursuant to Section 9.02
to the Surety Bond Issuer received by the Surety Bond Issuer on a Business Day
after 1:00 p.m., New York City time, or on any day that is not a Business Day,
will be deemed to be received by the Surety Bond Issuer at 9:00 a.m., New York
City time, on the next Business Day. Notwithstanding the forgoing, on a
Dissolution Distribution Date, the obligations of the Surety Bond Issuer under
the Surety Bond shall be limited in accordance with Section 9.04(b)(iii).
ARTICLE XI
The Certificates
SECTION 11.01. The Certificates. The Class A Certificates shall be
issued in denominations of $1,000 and integral multiples thereof; provided,
however, that one Class A-1 Certificate, one Class A-2 Certificate, one Class
A-3 Certificate, one Class A-4 Certificate and one Class A-5 Certificate may be
issued in a denomination that represents any residual amount of such class and
that such residual amount Certificates shall be retained by the Depositor. The
Class I Certificates shall be issued in one or more whole dollar denominations
which in the aggregate do not exceed the Original Notional Principal Amount. The
Class IC Certificate shall be issued in the form
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of one or more Certificates and shall initially be issued to the Depositor. The
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of a Responsible Officer of the Trustee. Certificates bearing the
manual or facsimile signatures of individuals who were, at the time when such
signatures shall have been affixed, authorized to sign on behalf of the Trust,
shall be valid and binding obligations of the Trust, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of such Certificates.
SECTION 11.02. Authentication of Certificates. The Trustee shall cause
the Certificates to be executed on behalf of the Trust, authenticated, and
delivered to or upon the written order of the Depositor, signed by its chairman
of the board, its president, or any vice president, without further corporate
action by the Depositor, in authorized denominations, pursuant to this
Agreement. No Certificate shall entitle its holder to any benefit under this
Agreement, or shall be valid for any purpose, unless there shall appear on such
Certificate a certificate of authentication, substantially as set forth in the
forms of Certificate attached as exhibits to this Agreement, executed by a
Responsible Officer of the Trustee by manual signature; such authentication
shall constitute conclusive evidence that such Certificate shall have been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication.
SECTION 11.03. Registration of Transfer and Exchange of Certificates.
The Certificate Registrar shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 11.07, a Certificate Register in which,
subject to such reasonable regulations as it may prescribe, the Trustee shall
provide for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. The Trustee shall be the initial Certificate
Registrar.
Upon surrender for registration of transfer of any Certificate at the
Corporate Trust Office, the Trustee shall execute, authenticate, and deliver, in
the name of the designated transferee or transferees, one or more new
Certificates in authorized denominations of a like aggregate amount dated the
date of authentication by the Trustee, provided, however, that registration of
transfer of the Class IC Certificate may not be effected unless (A) the Trustee
receives an Opinion of Counsel, satisfactory to it, to the effect that (i) such
transfer may be made in reliance upon an exemption from the registration
requirements of the Securities Act of 1933, as amended, and (ii) such transfer
will not adversely affect the tax treatment of the Trust or the Certificates;
(B) the Surety Bond Issuer has consented to such transfer and (C) the Rating
Agency Condition shall have been satisfied with respect to such transfer. At the
option of a Holder, Certificates may be exchanged for other Certificates of
authorized denominations of a like aggregate amount upon surrender of the
Certificates to be exchanged at the Corporate Trust Office.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Trustee and the Certificate Registrar duly executed by the
Holder or his attorney duly authorized in writing. Each Certificate surrendered
for registration of transfer and exchange shall be canceled and subsequently
destroyed by the Trustee.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
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SECTION 11.04. Mutilated, Destroyed, Lost, or Stolen Certificates. If
(a) any mutilated Certificate shall be surrendered to the Certificate Registrar,
or if the Certificate Registrar shall receive evidence to its satisfaction of
the destruction, loss, or theft of any Certificate and (b) there shall be
delivered to the Certificate Registrar or the Trustee such security or indemnity
as may be required by them to save each of them harmless, then in the absence of
notice that such Certificate shall have been acquired by a bona fide purchaser,
the Trustee on behalf of the Trust shall execute and the Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost, or stolen Certificate, a new Certificate of like tenor and
denomination. In connection with the issuance of any new Certificate under this
Section 11.04, the Trustee and the Certificate Registrar may require the payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith. Any duplicate Certificate issued pursuant to
this Section 11.04 shall constitute conclusive evidence of ownership in the
Trust, as if originally issued, whether or not the lost, stolen, or destroyed
Certificate shall be found at any time.
SECTION 11.05. Persons Deemed Owners. Prior to registration of
transfer, the Trustee or the Certificate Registrar may treat the Person in whose
name any Certificate shall be registered as the owner of such Certificate for
the purpose of receiving distributions pursuant to Section 9.04 and for all
other purposes whatsoever, and neither the Trustee nor the Certificate Registrar
shall be bound by any notice to the contrary.
SECTION 11.06. Access to Agreement and List of Certificateholders'
Names and Addresses. The Trustee shall furnish or cause to be furnished to the
Servicer, within 15 days after receipt by the Trustee of a request therefor from
the Servicer in writing, a list, in such form as the Servicer may reasonably
require, of the names and addresses of the Certificateholders as of the most
recent Record Date. If three or more Certificateholders, or one or more Holders
of Certificates aggregating not less than 25% of the Certificate Balance or not
less than 25% of the Notional Principal Amount of the Class I Certificates,
apply in writing to the Trustee, and such application states that the applicants
desire to communicate with other Certificateholders with respect to their rights
under this Agreement or under the Certificates and such application shall be
accompanied by a copy of the communication that such applicants propose to
transmit, then the Trustee shall, within five Business Days after the receipt of
such application, afford such applicants access during normal business hours to
the current list of Certificateholders. The Trustee shall also allow any
Certificateholder, upon request, to examine a copy of this Agreement at its
Corporate Trust Office during regular business hours. Each Holder, by receiving
and holding a Certificate, shall be deemed to have agreed to hold neither the
Servicer nor the Trustee accountable by reason of the disclosure of its name and
address, regardless of the source from which such information was derived.
SECTION 11.07. Maintenance of Office or Agency. The Trustee shall
maintain in the Borough of Manhattan, The City of New York, an office or offices
or agency or agencies where Certificates may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Trustee in
respect of the Certificates and this Agreement may be served. The Trustee
initially designates its office at 77 Water Street, 4th Floor, New York, New
York 10005, telephone (212) 701-7602 as its office for such purposes. The
Trustee shall give prompt written notice to the Servicer and to
Certificateholders of any change in the location of the Certificate Register or
any such office or agency.
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SECTION 11.08. Book-Entry Certificates. The Class A Certificates and
Class I Certificates, upon original issuance, shall be issued in the form of one
or more typewritten Certificates representing the Book-Entry Certificates, to be
delivered to The Depository Trust Company, the initial Clearing Agency, by, or
on behalf of, the Depositor, except for the residual amount Certificates
described in Section 11.01. The Class A Certificates and Class I Certificates
shall initially be registered on the Certificate Register in the name of CEDE &
Co., the nominee of the Clearing Agency, and no Certificate Owner will receive a
definitive Certificate representing such Certificate Owner's interest in the
Certificates, except as provided in Section 11.10. Unless and until definitive,
fully registered Certificates ("Definitive Certificates") have been issued to
Certificate Owners pursuant to Section 11.10:
(i) the provisions of this Section 11.08 shall be in
full force and effect;
(ii) the Depositor, the Servicer and the Trustee may
deal with the Clearing Agency and the Clearing Agency Participants for
all purposes (including the making of distributions on the
Certificates) as the authorized representatives of the Certificate
Owners (requests and directions from, and votes of, such
representatives shall not be considered inconsistent if they are made
with respect to different Certificate Owners);
(iii) to the extent that the provisions of this Section
11.08 conflict with any other provisions of this Agreement, the
provisions of this Section 11.08 shall control; and
(iv) the rights of Certificate Owners shall be
exercised only through the Clearing Agency and the Clearing Agency
Participants and shall be limited to those established by law and
agreements between such Certificate Owners and the Clearing Agency
and/or the Clearing Agency Participants. Pursuant to the Depository
Agreement, unless and until Definitive Certificates are issued
pursuant to Section 11.10, the initial Clearing Agency will make
book-entry transfers among the Clearing Agency Participants and
receive and transmit distributions of principal and interest on the
Certificates to such Clearing Agency Participants.
SECTION 11.09. Notices to Clearing Agency. Whenever notice or other
communication to the Class A Certificateholders or Class I Certificateholders is
required under this Agreement, unless and until Definitive Certificates shall
have been issued to Certificate Owners pursuant to Section 11.10, the Trustee
shall give all such notices and communications specified herein to be given to
such Certificateholders to the Clearing Agency.
SECTION 11.10. Definitive Certificates. The Class IC Certificate and
any residual amount Certificates described in Section 11.01 will be issued
initially in fully registered, certificated form. If (i)(A) the Depositor
advises the Trustee in writing that the Clearing Agency is no longer willing or
able to properly discharge its responsibilities under the Depository Agreement,
and (B) the Trustee or the Depositor is unable to locate a qualified successor,
(ii) the Depositor, at its option, advises the Trustee in writing that it elects
to terminate the book-entry system through the Clearing Agency or (iii) after
the occurrence of an Event of Default, Certificate Owners representing
beneficial interests aggregating not less than 50% of the Certificate Balance
advise the Trustee and the Clearing Agency in writing that the continuation of a
book-entry system through the Clearing Agency is no longer in the best interests
of the Certificate Owners, the Trustee shall notify the
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Clearing Agency of the occurrence of any such event and of the availability of
Definitive Certificates to Certificate Owners requesting the same. Upon
surrender to the Trustee of the Certificates by the Clearing Agency, accompanied
by registration instructions from the Clearing Agency for registration, the
Trustee shall issue the Definitive Certificates. Neither the Depositor nor the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Certificates all references herein to
obligations imposed on or to be performed by the Clearing Agency shall be deemed
to be imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates and the Trustee shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder.
SECTION 11.11. The Tax Partnership Agreement. Each of the
Certificateholders agrees to be bound by the terms of the Tax Partnership
Agreement attached hereto as Annex A.
ARTICLE XII
The Depositor
SECTION 12.01. Representations and Undertakings of Depositor. (a) The
Depositor makes the following representations on which the Trustee relies in
accepting the Receivables in trust and executing and authenticating the
Certificates. The representations speak as of the execution and delivery of this
Agreement and shall survive the sale of the Receivables to the Trustee.
(i) Organization and Good Standing. The Depositor shall
have been duly organized and shall be validly existing as a
corporation in good standing under the laws of the State of Delaware,
with power and authority to own its properties and to conduct its
business as such properties shall be currently owned and such business
is presently conducted, and had at all relevant times, and shall have,
power, authority, and legal right to acquire and own the Receivables.
(ii) Due Qualification. The Depositor shall be duly
qualified to do business as a foreign corporation in good standing,
and shall have obtained all necessary licenses and approvals in all
jurisdictions in which the ownership or lease of property or the
conduct of its business shall require such qualifications.
(iii) Power and Authority. The Depositor shall have the
power and authority to execute and deliver this Agreement and to carry
out its terms, the Depositor shall have full power and authority to
sell and assign the property to be sold and assigned to and deposited
with the Trustee as part of the Trust and shall have duly authorized
such sale and assignment to the Trustee by all necessary corporate
action; and the execution, delivery, and performance of the Agreement
shall have been duly authorized by the Depositor by all necessary
corporate action.
(iv) Valid Sale; Binding Obligations. This Agreement
shall evidence a valid sale, transfer, and assignment of the
Receivables, enforceable against creditors of and purchasers from the
Depositor; and shall evidence a legal,
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valid, and binding obligation of the Depositor enforceable in
accordance with its terms.
(v) No Violation. The consummation of the transactions
contemplated by the Agreement and the fulfillment of the terms hereof
shall not conflict with, result in any breach of any of the terms and
provisions of, nor constitute (with or without notice or lapse of
time) a default under, the charter or by-laws of the Depositor, or any
indenture, agreement, or other instrument to which the Depositor is a
party or by which it shall be bound; nor result in the creation or
imposition of any Lien upon any of its properties pursuant to the
terms of any such indenture, agreement, or other instrument (other
than this Agreement); nor violate any law or, to the best of the
Depositor's knowledge, any order, rule, or regulation applicable to
the Depositor of any court or of any federal or State regulatory body,
administrative agency, or other governmental instrumentality having
jurisdiction over the Depositor or its properties.
(vi) No Proceedings. There are no proceedings or
investigations pending, or, to the Depositor's best knowledge,
threatened, before any court, regulatory body, administrative agency,
or other governmental instrumentality having jurisdiction over the
Depositor or its properties: (A) asserting the invalidity of this
Agreement or the Certificates, (B) seeking to prevent the issuance of
the Certificates or the consummation of any of the transactions
contemplated by this Agreement, (C) seeking any determination or
ruling that might materially and adversely affect the performance by
the Depositor of its obligations under, or the validity or
enforceability of, this Agreement or the Certificates, or (D) which
might adversely affect the federal income tax attributes of the
Certificates.
(b) The Depositor further covenants that, prior to termination of
the Trust:
(i) It will not engage at any time in any
business or business activity other than such activities
expressly set forth in its Certificate of Incorporation
delivered to the Surety Bond Issuer on or prior to the Closing
Date, and will not amend its Certificate of Incorporation
without the prior written consent of the Surety Bond Issuer.
(ii) It will not, without the consent of the
Surety Bond Issuer (not to be unreasonably withheld), sell,
assign, pledge or otherwise transfer, in whole, or in part or
in any series of related or unrelated transactions any of its
right, title or interest in or to the IC Certificate.
(iii) It will not:
(A) Fail to do all things necessary
to maintain its corporate existence separate and
apart from UAC and any other Person, including,
without limitation, holding regular meetings of its
stockholders and board of directors and maintaining
appropriate corporate books and records (including a
current minute book);
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(B) Suffer any limitation on the
authority of its own directors and officers to
conduct its business and affairs in accordance with
their independent business judgment or authorize or
suffer any Person other than its own officers and
directors to customarily delegated to others under
powers of attorney) for which a corporation's own
Officers and directors would customarily be
responsible;
(C) Fail to (I) maintain or cause to
be maintained by an agent of the Depositor under the
Depositor's control physical possession of all its
books and records, (II) maintain capitalization
adequate for the conduct of its business, (III)
account for and manage all its liabilities separately
from those of any other Person, including payment by
it of all payroll, administrative expenses and taxes,
if any, from its own assets, (IV) segregate and
identify separately all of its assets from those of
any other Person, (V) to the extent any such payments
are made, pay its employees, officers and agents for
services performed for the Depositor or (VI) maintain
a separate office address with a separate telephone
number from those of UAC or any other affiliate
thereof; or
(D) Except as may be provided in
this Agreement, or a similar agreement relating to
other securitizations in which the Depositor has
similar rights and/or obligations, commingle its
funds with those of UAC or any affiliate thereof or
use its funds for other than the Depositor's uses.
SECTION 12.02. Liability of Depositor; Indemnities. The Depositor shall
be liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Depositor under this Agreement.
(i) The Depositor shall indemnify, defend, and hold
harmless the Trustee, its officers, directors, employees and agents and
the Trust from and against any taxes that may at any time be asserted
against the Trustee, its officers, directors, employees or agents or
the Trust with respect to, and as of the date of, the sale of the
Receivables to the Trustee or the issuance and original sale of the
Certificates, including any sales, gross receipts, general corporation,
tangible or intangible personal property, privilege, or license taxes
(but, in the case of the Trust, not including any taxes asserted with
respect to ownership of the Receivables or federal or other income
taxes arising out of distributions on the Certificates) and costs and
expenses in defending against the same.
(ii) The Depositor shall indemnify, defend, and hold
harmless the Trustee, its officers, directors, employees and agents and
the Trust from and against any loss, liability, or expense incurred by
reason of (a) the Depositor's willful misfeasance, bad faith, or
negligence in the performance of its duties under this Agreement, or by
reason of reckless disregard of its obligations and duties under this
Agreement and (b) the Depositor's violation of federal or State
securities laws in connection with the registration of the sale of the
Certificates.
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Indemnification under this Section 12.02 shall include, without
limitation, reasonable fees and expenses of counsel and expenses of litigation.
If the Depositor shall have made any indemnity payments to the Trustee or the
Trust pursuant to this Section and the Trustee or the Trust thereafter shall
collect any of such amounts from others, the Trustee or the Trust, as the case
may be, shall repay such amounts to the Depositor, without interest. This
indemnification shall survive the termination of this Agreement and the
resignation or removal of the Trustee.
SECTION 12.03. Merger or Consolidation of, or Assumption of the
Obligations of Depositor. Any Person (a) into which the Depositor may be merged
or consolidated, (b) which may result from any merger or consolidation to which
the Depositor shall be a party, or (c) which may succeed to all or substantially
all of the properties and assets of the Depositor's business, which Person in
any of the foregoing cases executes an agreement of assumption to perform every
obligation of the Depositor under this Agreement, shall be the successor to the
Depositor hereunder without the execution or filing of any document or any
further act by any of the parties to this Agreement; provided, however, that (i)
immediately after giving effect to such transaction, no representation or
warranty made pursuant to Section 7.01 shall have been breached and no Event of
Default, and no event that, after notice or lapse of time, or both, would become
an Event of Default shall have happened and be continuing, (ii) the Depositor
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel each stating that such consolidation, merger, or succession and such
agreement of assumption comply with this Section 12.03 and that all conditions
precedent, if any, provided for in this Agreement relating to such transaction
have been complied with and (iii) the Depositor shall have delivered an Opinion
of Counsel either (A) stating that, in the opinion of such counsel, all
financing statements and continuation statements and amendments thereto have
been executed and filed that are necessary fully to preserve and protect the
interest of the Trustee in the Receivables, and reciting the details of such
filings, or (B) stating that, in the opinion of such Counsel, no such action
shall be necessary to preserve and protect such interest. Notwithstanding the
forgoing, the Depositor shall not engage in any merger or consolidation with any
Person, or a disposition of all or substantially all of its assets without the
prior written consent of the Surety Bond Issuer, not to be unreasonably
withheld.
SECTION 12.04. Limitation on Liability of Depositor and Others. The
Depositor and any director or officer or employee or agent of the Depositor may
rely in good faith on the advice of counsel or on any document of any kind,
prima facie properly executed and submitted by any Person respecting any matters
arising hereunder. The Depositor shall not be under any obligation to appear in,
prosecute, or defend any legal action that shall not be incidental to its
obligations under this Agreement, and that in its opinion may involve it in any
expense or liability.
SECTION 12.05. Depositor May Own Certificates. The Depositor and any
Person controlling, controlled by, or under common control with the Depositor
may in its individual or any other capacity become the owner or pledgee of
Certificates with the same rights as it would have if it were not the Depositor
or an affiliate thereof, except as otherwise provided in the definition of
"Certificateholder", "Class A Certificateholder" and "Class I
Certificateholder." Certificates so owned by or pledged to the Depositor or such
controlling or commonly controlled Person shall have an equal and proportionate
benefit under the provisions of this Agreement, without preference, priority, or
distinction as among all of the Certificates.
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ARTICLE XIII
The Servicer
SECTION 13.01. Representations of Servicer. The Servicer makes the
following representations on which the Trustee relies in accepting the
Receivables in trust and executing and authenticating the Certificates. The
representations speak as of the execution and delivery of this Agreement and
shall survive the sale of the Receivables to the Trustee.
(i) Organization and Good Standing. The Servicer shall
have been duly organized and shall be validly existing as a corporation
under the laws of the State of Indiana, with power and authority to own
its properties and to conduct its business as such properties shall be
currently owned and such business is presently conducted, and had at
all relevant times, and shall have, power, authority, and legal right
to acquire, own, sell, and service the Receivables and to hold the
Receivable Files as custodian on behalf of the Trustee.
(ii) Due Qualification. The Servicer shall be duly
qualified to do business as a foreign corporation in good standing, and
shall have obtained all necessary licenses and approvals in all
jurisdictions in which the ownership or lease of property or the
conduct of its business (including the servicing of the Receivables as
required by this Agreement) shall require such qualifications.
(iii) Power and Authority. The Servicer shall have the
power and authority to execute and deliver this Agreement and to carry
out its terms; and the execution, delivery, and performance of this
Agreement shall have been duly authorized by the Servicer by all
necessary corporate action.
(iv) Binding Obligations. This Agreement shall
constitute a legal, valid, and binding obligation of the Servicer
enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, or other similar
laws affecting the enforcement of creditors' rights in general and by
general principles of equity, regardless of whether such enforceability
shall be considered in a proceeding in equity or at law.
(v) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
shall not conflict with, result in any breach of any of the terms and
provisions of, nor constitute (with or without notice or lapse of time)
a default under, the charter or by-laws of the Servicer, or any
indenture, agreement, or other instrument to which the Servicer is a
party or by which it shall be bound; nor result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms
of any such indenture, agreement, or other instrument (other than this
Agreement); nor violate any law or, to the best of the Servicer's
knowledge, any order, rule, or regulation applicable to the Servicer of
any court or of any federal or State regulatory body, administrative
agency, or other governmental instrumentality having jurisdiction over
the Servicer or its properties.
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(vi) No Proceedings. There are no proceedings or
investigations pending, or, to the Servicer's knowledge, threatened,
before any court, regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over the Servicer or
its properties: (A) asserting the invalidity of this Agreement or the
Certificates, (B) seeking to prevent the issuance of the Certificates
or the consummation of any of the transactions contemplated by this
Agreement, (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Servicer of its
obligations under, or the validity or enforceability of, this Agreement
or the Certificates, or (D) which might adversely affect the federal
income tax attributes of the Certificates.
SECTION 13.02. Indemnities of Servicer. The Servicer shall be liable in
accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer under this Agreement.
(i) The Servicer shall defend, indemnify, and hold
harmless the Trustee, its officers, directors, employees and agents,
the Trust and the Certificateholders from and against any and all
costs, expenses, losses, damages, claims, and liabilities, arising out
of or resulting from the use, ownership, or operation by the Servicer
or any affiliate thereof of a Financed Vehicle.
(ii) The Servicer shall indemnify, defend and hold
harmless the Trustee, its officers, directors, employees and agents and
the Trust from and against any taxes that may at any time be asserted
against the Trustee, its officers, directors, employees or agents or
the Trust with respect to the transactions contemplated herein,
including, without limitation, any sales, gross receipts, general
corporation, tangible or intangible personal property, privilege, or
license taxes (but, in the case of the Trust, not including any taxes
asserted with respect to, and as of the date of, the sale of the
Receivables to the Trust or the issuance and original sale of the
Certificates, or asserted with respect to ownership of the Receivables,
or federal or other income taxes arising out of distributions on the
Certificates) and costs and expenses in defending against the same.
(iii) The Servicer shall indemnify, defend, and hold
harmless the Trustee, its officers, directors, employees and agents,
the Trust and the Certificateholders from and against any and all
costs, expenses, losses, claims, damages, and liabilities to the extent
that such cost, expense, loss, claim, damage, or liability arose out
of, or was imposed upon the Trustee, the Trust or the
Certificateholders through, the negligence, willful misfeasance, or bad
faith of the Servicer in the performance of its duties under this
Agreement, or by reason of reckless disregard of its obligations and
duties under this Agreement. This indemnity shall survive the
termination of this Agreement or the Trust and the resignation or
removal of the Trustee.
(iv) The Servicer shall indemnify, defend, and hold
harmless the Trustee, its officers, directors, employees and agents,
and the Trust from and against all costs, expenses, losses, claims,
damages, and liabilities arising out of or incurred in connection with
the acceptance or performance of the trusts and duties herein
contained, except to the extent that such cost, expense, loss, claim,
damage or liability: (a) shall be due to the willful misfeasance, bad
faith, or negligence of the Trustee; (b) relates to any tax other than
the taxes
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with respect to which either the Depositor or Servicer shall be
required to indemnify the Trustee; (c) shall arise from the Trustee's
breach of any of its representations or warranties set forth in Section
15.13; (d) shall be one as to which the Depositor is required to
indemnify the Trustee; or (e) shall arise out of or be incurred in
connection with the acceptance or performance by the Trustee of the
duties of successor Servicer hereunder.
Indemnification under this Section 13.02 shall include reasonable fees
and expenses of counsel and expenses of litigation. If the Servicer shall have
made any indemnity payments pursuant to this Section and the recipient
thereafter collects any of such amounts from others, the recipient shall
promptly repay such amounts to the Servicer, without interest. This
indemnification shall survive the termination of this Agreement and the removal
of the Servicer.
SECTION 13.03. Merger or Consolidation of, or Assumption of the
Obligations of Servicer. Any Person (a) into which the Servicer may be merged or
consolidated, (b) which may result from any merger or consolidation to which the
Servicer shall be a party, or (c) which may succeed to all or substantially all
of the properties and assets of the Servicer's indirect automobile financing and
receivables servicing business, which Person in any of the foregoing cases
executes an agreement of assumption to perform every obligation of the Servicer
hereunder, shall be the successor to the Servicer under this Agreement without
further act on the part of any of the parties to this Agreement; provided,
however, that (i) immediately after giving effect to such transaction, no Event
of Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default shall have happened and be continuing, (ii) the
Servicer shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel each stating that such consolidation, merger or succession
and such agreement of assumption comply with this Section 13.03 and that all
conditions precedent provided for in this Agreement relating to such transaction
have been complied with and (iii) the Servicer shall have delivered an Opinion
of Counsel either (A) stating that, in the opinion of such counsel, all
financing statements and continuation statements and amendments thereto have
been executed and filed that are necessary fully to preserve and protect the
interest of the Trustee and the Surety Bond Issuer in the Receivables, and
reciting the details of such filings, or (B) stating that, in the opinion of
such Counsel, no such action shall be necessary to preserve and protect such
interest. Notwithstanding the forgoing, the Servicer shall not engage in any
merger or consolidation in which it is not the surviving corporation without the
prior written consent of the Surety Bond Issuer, not to be unreasonably
withheld.
SECTION 13.04. Limitation on Liability of Servicer and Others. Neither
the Servicer nor any of the directors or officers or employees or agents of the
Servicer shall be under any liability to the Trust or the Certificateholders,
except as provided under this Agreement, for any action taken or for refraining
from the taking of any action pursuant to this Agreement; provided, however,
that this provision shall not protect the Servicer or any such person against
any liability that would otherwise be imposed by reason of willful misfeasance,
bad faith, or negligence in the performance of duties or by reason of reckless
disregard of obligations and duties under this Agreement. The Servicer and any
director or officer or employee or agent of the Servicer may rely in good faith
on any document of any kind prima facie properly executed and submitted by any
Person respecting any matters arising under this Agreement.
Except as provided in this Agreement, the Servicer shall not be under
any obligation to appear in, prosecute, or defend any legal action that shall
not be incidental to its duties to service the
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Receivables in accordance with this Agreement (collection actions with respect
to Defaulted Receivables are understood to be incidental to the Servicer's
duties to service the Receivables), and that in its opinion may involve it in
any expense or liability.
SECTION 13.05. Servicer Not to Resign. The Servicer shall not resign
from its obligations and duties under this Agreement except upon determination
that the performance of its duties shall no longer be permissible under
applicable law or otherwise with the consent of the Trustee and the Surety Bond
Issuer. Any determination described above permitting the resignation of the
Servicer shall be evidenced by an Opinion of Counsel to such effect delivered to
the Trustee. No such resignation shall become effective until the Trustee or a
successor servicer shall have assumed the responsibilities and obligations of
the Servicer in accordance with Section 14.02.
SECTION 13.06. Delegation of Duties. Except as provided in Section
13.03 hereof, it is understood and agreed by the parties hereto that the
Servicer or the Depositor may at any time delegate any duties including duties
as custodian to any Person willing to accept such delegation and to perform such
duties (including any affiliate of the Servicer) in accordance with the
customary procedures of the Servicer. In connection with such delegation, the
Servicer or the Depositor may assign rights to the delegee or direct the payment
to the delegee of benefits or amounts otherwise inuring to the benefit of, or
payable to, the Depositor or the Servicer hereunder. Any such delegation shall
not relieve the Servicer or the Depositor of their respective liability and
responsibility with respect to such duties, and shall not constitute a
resignation within Section 13.05 hereof. The Servicer shall give written notice
to the Rating Agency, the Surety Bond Issuer and the Trustee of any such
delegation.
ARTICLE XIV
Default
SECTION 14.01. Events of Default. If any one of the following events
("Events of Default") shall occur and be continuing:
(i) Any failure by the Servicer or UAC to deliver to
the Trustee for distribution to Certificateholders any proceeds or
payment required to be so delivered under the terms of the Certificates
and this Agreement or the Purchase Agreement or any failure by the
Servicer to deliver any Servicer's Certificate pursuant to Section 8.09
that, in either case, shall continue unremedied for a period of two
Business Days (A) after written notice from either the Trustee, the
Surety Bond Issuer (so long as the Surety Bond Issuer is not in default
of its obligations under the Surety Bond) or the Holders of
Certificates evidencing not less than 25% of the Certificate Balance
and 25% of the Notional Principal Amount of the Class I Certificates is
received by the Servicer or UAC as specified in this Agreement or (B)
after discovery by an officer of the Servicer; or
(ii) Failure on the part of the Servicer, the Depositor
or UAC duly to observe or to perform in any material respect any other
covenants or agreements of the Servicer, the Depositor or UAC, as the
case may be, set forth in the Certificates or in this Agreement or the
Purchase Agreement, which failure shall (a) materially and adversely
affect the rights of Certificateholders or the Surety Bond Issuer and
(b) continue unremedied for
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a period of 60 days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given (1)
to the Servicer, UAC or the Depositor, as the case may be, by the
Trustee, or (2) to the Servicer or the Depositor, as the case may be,
and to the Trustee, by the Surety Bond Issuer (so long as the Surety
Bond Issuer is not in default of its obligations under the Surety Bond)
or by the Holders of Certificates evidencing not less than 25% of the
Certificate Balance and 25% of the Notional Principal Amount of the
Class I Certificates; or
(iii) The occurrence of an Insolvency Event with respect to
the Servicer;
then, and in each and every case, so long as an Event of Default shall not have
been remedied, the Trustee, upon direction to do so by the Holders of
Certificates evidencing not less than 25% of the Certificate Balance and 25% of
the Notional Principal Amount of the Class I Certificates, by notice then given
in writing to the Servicer (and to the Trustee if given by the
Certificateholders) may, with the consent of the Surety Bond Issuer (so long as
the Surety Bond Issuer is not in default of its obligations under the Surety
Bond) terminate all of the rights and obligations of the Servicer under this
Agreement. In addition, if a Trigger Event (as defined in the Insurance
Agreement) shall have occurred, the Surety Bond Issuer may (A) require that the
Trustee deliver a notice of termination to the Servicer and appoint a successor
Servicer designated by the Surety Bond Issuer in such notice pursuant to Section
14.02; (B) require that the Trustee amend certificates of title relating to the
Financed Vehicles and take other actions to identify the Trust as the new
secured party on such certificates of title; (C) as provided in the Insurance
Agreement, require that the Servicer or successor Servicer or the Trustee
instruct Obligors in respect of the Receivables to remit payment on the
Receivable directly to the Trustee or a separate account established exclusively
for the Trust; and (D) as provided in the Insurance Agreement, compel transfer
by the Servicer of all Receivables files and, if applicable, certain rights in
respect of servicing systems assets to the Surety Bond Issuer or to the
successor Servicer designated by the Surety Bond Issuer. On or after the receipt
by the Servicer of such written notice, all authority and power of the Servicer
under this Agreement, whether with respect to the Certificates or the
Receivables or otherwise, shall, without further action, pass to and be vested
in the Trustee (except that the Trustee may but shall not be required to make
Advances) or such successor Servicer as may be appointed under Section 14.02
pursuant to and under this Section 14.01; and, without limitation, the Trustee
is hereby authorized and empowered to execute and deliver, on behalf of the
predecessor Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
whether to complete the transfer and endorsement of the Receivables and related
documents, or otherwise. The predecessor Servicer shall cooperate with the
successor Servicer and the Trustee in effecting the termination of the
responsibilities and rights of the predecessor Servicer under this Agreement,
including the transfer to the successor Servicer of electronic records related
to the Receivables in such form as the successor Servicer may reasonably request
and the transfer to the successor Servicer for administration by it of all cash
amounts that shall at the time be held by the predecessor Servicer for deposit,
or shall thereafter be received with respect to a Receivable. All reasonable
costs and expenses (including attorneys' fees) incurred in connection with
transferring the Receivable Files to the successor Servicer and amending this
Agreement to reflect such succession as Servicer pursuant to this Section 14.01
shall be paid by the predecessor Servicer upon presentation of reasonable
documentation of such costs and expenses.
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SECTION 14.02. Appointment of Successor. (a) Upon the Servicer's
receipt of notice of termination pursuant to Section 14.01 or the Servicer's
resignation in accordance with the terms of this Agreement, the predecessor
Servicer shall continue to perform its functions as Servicer under this
Agreement, in the case of termination, only until the date specified in such
termination notice or, if no such date is specified in a notice of termination,
until receipt of such notice and, in the case of resignation, until the later of
(x) the date 45 days from the delivery to the Trustee of written notice of such
resignation (or written confirmation of such notice) in accordance with the
terms of this Agreement and (y) the date upon which the predecessor Servicer
shall become unable to act as Servicer, as specified in the notice of
resignation and accompanying Opinion of Counsel. In the event of the Servicer's
resignation or termination hereunder, the Trustee shall appoint a successor
Servicer, which successor Servicer shall be reasonably acceptable to the Surety
Bond Issuer (so long as the Surety Bond Issuer is not in default of its
obligations under the Surety Bond), and the successor Servicer shall accept its
appointment by a written assumption in form acceptable to the Trustee. In the
event that a successor Servicer has not been appointed at the time when the
predecessor Servicer has ceased to act as Servicer in accordance with this
Section 14.02, the Trustee without further action shall automatically be
appointed the successor Servicer. Notwithstanding the above, the Trustee shall,
if it shall be legally unable or unwilling so to act, appoint, or petition a
court of competent jurisdiction to appoint, any established financial
institution, having a net worth of not less than $50,000,000 and whose regular
business shall include the servicing of automotive receivables, as the successor
to the Servicer under this Agreement and which financial institution is, in the
case of appointment by the Trustee, reasonably acceptable to the Surety Bond
Issuer.
(b) Upon appointment, the successor Servicer shall be the successor in
all respects to the predecessor Servicer and shall be subject to all the
responsibilities, duties, and liabilities arising thereafter relating thereto
placed on the predecessor Servicer, and shall be entitled to the Servicing Fee
and all of the rights granted to the predecessor Servicer, by the terms and
provisions of this Agreement. The predecessor Servicer shall be entitled to be
reimbursed for Outstanding Advances.
(c) In connection with such appointment, the Trustee may make such
arrangements for successor Servicer out of payments on Receivables it and such
successor Servicer shall agree; provided, however, that no such compensation
shall be in excess of that permitted the original Servicer under this Agreement.
The Trustee and such successor Servicer shall take such action, consistent with
this Agreement, as shall be necessary to effectuate any such succession.
SECTION 14.03. Notification to Certificateholders. Upon any notice of
an Event of Default or upon any termination of, or appointment of a successor
to, the Servicer pursuant to this Article XIV, the Trustee shall give prompt
written notice thereof to Certificateholders at their respective addresses
appearing in the Certificate Register.
SECTION 14.04. Waiver of Past Defaults. The Holders of Certificates
evidencing not less than 51% of the Certificate Balance and 51% of the Notional
Principal Amount of the Class I Certificates, may, on behalf of all Holders of
Certificates, waive any default by the Servicer in the performance of its
obligations hereunder and its consequences, except a default in making any
required deposits to or payments from the Certificate Account in accordance with
this Agreement; provided, that no waiver of any default or provision of this
Agreement shall become effective without the consent of the Surety Bond Issuer
(unless the Surety Bond Issuer is in default of its obligations under the Surety
Bond). Upon any such waiver of a past default, such default shall cease
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to exist, and any Event of Default arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereon.
ARTICLE XV
The Trustee
SECTION 15.01. Duties of Trustee. The Trustee, both prior to and after
the occurrence of an Event of Default, shall undertake to perform such duties as
are specifically set forth in this Agreement. If an Event of Default shall have
occurred and shall not have been cured and, in the case of an Event of Default
described in clause (i) of Section 14.01, the Trustee has received notice of
such Event of Default, the Trustee shall exercise such of the rights and powers
vested in it by this Agreement, and shall use the same degree of care and skill
in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs; provided, however, that if the
Trustee shall assume the duties of the Servicer pursuant to Section 14.02, the
Trustee in performing such duties shall use the degree of skill and attention
customarily exercised by a servicer with respect to automobile receivables that
it services for itself or others.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee that shall be specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own bad faith; provided, however, that:
(i) Prior to the occurrence of an Event of Default, and
after the curing of all such Events of Default that may have occurred,
the duties and obligations of the Trustee shall be determined solely by
the express provisions of this Agreement, the Trustee shall not be
liable except for the performance of such duties and obligations as
shall be specifically set forth in this Agreement, no implied covenants
or obligations shall be read into this Agreement against the Trustee
and, in the absence of bad faith on the part of the Trustee, or
manifest error, the Trustee may conclusively rely on the truth of the
statements and the correctness of the opinions expressed in any
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Agreement;
(ii) The Trustee shall not be liable for an error of
judgment made in good faith by a Responsible Officer, including its
actions pursuant to Section 9.04(e), unless it shall be proved that the
Trustee shall have been negligent in ascertaining the pertinent facts;
(iii) The Trustee shall not be liable with respect to any
action taken, suffered, or omitted to be taken in good faith in
accordance with this Agreement or at the direction of the Holders of
Certificates evidencing not less than 25% of the Certificate Balance
relating to the time, method, and place of conducting any proceeding
for any remedy
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available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Agreement;
(iv) The Trustee shall not be charged with knowledge of
any failure by the Servicer to comply with the obligations of the
Servicer referred to in clauses (i) or (ii) of Section 14.01, or of any
failure by the Depositor to comply with the obligations of the
Depositor referred to in clause (ii) of Section 14.01, unless a
Responsible Officer of the Trustee receives written notice of such
failure (it being understood that knowledge of the Servicer or the
Servicer as custodian, in its capacity as agent for the Trustee, is not
attributable to the Trustee) from the Servicer or the Depositor, as the
case may be, or the Holders of Certificates evidencing not less than
25% of the Certificate Balance; and
(v) Without limiting the generality of this Section or
Section 15.04, the Trustee shall have no duty (A) to see to any
recording, filing, or depositing of this Agreement or any agreement
referred to therein or any financing statement evidencing a security
interest in the Receivables or the Financed Vehicles, or to see to the
maintenance of any such recording or filing or depositing or to any
rerecording, refiling or redepositing of any thereof, (B) to see to any
insurance of the Financed Vehicles or Obligors or to effect or maintain
any such insurance, (C) to see to the payment or discharge of any tax,
assessment, or other governmental charge or any Lien or encumbrance of
any kind owing with respect to, assessed, or levied against, any part
of the Trust, (D) to confirm or verify the contents of any reports or
certificates of the Servicer delivered to the Trustee pursuant to this
Agreement believed by the Trustee to be genuine and to have been signed
or presented by the proper party or parties, or (E) to inspect the
Financed Vehicles at any time or ascertain or inquire as to the
performance or observance of any of the Depositor's or the Servicer's
representations, warranties or covenants or the Servicer's duties and
obligations as Servicer and as custodian of the Receivable Files under
this Agreement.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there shall be
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability shall not be reasonably assured to it,
and none of the provisions contained in this Agreement shall in any event
require the Trustee to perform, or be responsible for the manner of performance
of, any of the obligations of the Servicer under this Agreement except during
such time, if any, as the Trustee shall be the successor to, and be vested with
the rights, duties, powers, and privileges of, the Servicer in accordance with
the terms of this Agreement. Except for actions expressly authorized by this
Agreement, the Trustee shall take no action reasonably likely to impair the
security interests created or existing under any Receivable or to impair the
value of any Receivable.
SECTION 15.02. Trustee's Certificate. On or as soon as practicable
after each Distribution Date on which Receivables shall be (i) assigned to UAC
pursuant to Section 7.02 or deemed to be assigned to the Depositor as a result
of the application of Available Funds in respect of Defaulted Receivables
pursuant to Section 9.02 or (ii) assigned to the Servicer pursuant to Section
8.07 or 16.02, the Trustee shall, at the written request of the Servicer,
execute a Trustee's Certificate, substantially in the form of, in the case of an
assignment to UAC, Exhibit 1, or, in the case of an assignment to the Servicer,
Exhibit 2, based on the information contained in the Servicer's
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Certificate for the related Collection Period, amounts deposited to the
Certificate Account, and notices received pursuant to this Agreement,
identifying the Receivables repurchased or deemed to be repurchased by UAC
pursuant to Section 7.02 or 9.02 or purchased by the Servicer pursuant to
Section 8.07 or 16.02 during such Collection Period, and shall deliver such
Trustee's Certificate, accompanied by a copy of the Servicer's Certificate for
such Collection Period to UAC or the Servicer, as the case may be. The Trustee's
Certificate shall be an assignment pursuant to Section 15.03.
SECTION 15.03. Trustee's Assignment of Purchased Receivables. With
respect to each Receivable repurchased by UAC pursuant to Section 7.02, or
deemed to be so repurchased pursuant to Section 9.02 or purchased by the
Servicer pursuant to Section 8.07 or 16.02, the Trustee shall assign, as of the
last day of the Collection Period during which such Receivable became a
Defaulted Receivable or became subject to repurchase by UAC or purchase by the
Servicer, without recourse, representation, or warranty, to UAC or the Servicer
(as the case may be) all the Trustee's right, title, and interest in and to such
Receivables, and all security and documents relating thereto, such assignment
being an assignment outright and not for security. If in any enforcement suit or
legal proceeding it shall be held that the Servicer may not enforce a Receivable
on the ground that it shall not be a real party in interest or a holder entitled
to enforce the Receivable, the Trustee shall, at the Servicer's expense, take
such steps as the Trustee deems necessary to enforce the Receivable, including
bringing suit in its name or the name of the Certificateholders.
SECTION 15.04. Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 15.01:
(i) The Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution, Officers'
Certificate, Servicer's Certificate, certificate of auditors, or any
other certificate, statement, instrument, opinion, report, notice,
request, consent, order, appraisal, bond, or other paper or document
believed by it to be genuine and to have been signed or presented by
the proper party or parties.
(ii) The Trustee may consult with counsel and any
written advice or Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered
or omitted by it under this Agreement in good faith and in accordance
with such written advice or Opinion of Counsel.
(iii) The Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Agreement, or
to institute, conduct, or defend any litigation under this Agreement or
in relation to this Agreement, at the request, order, or direction of
any of the Certificateholders pursuant to the provisions of this
Agreement, unless such Certificateholders shall have offered to the
Trustee reasonable security or indemnity reasonably satisfactory to the
Trustee against the costs, expenses, and liabilities that may be
incurred therein or thereby. Nothing contained in this Agreement,
however, shall relieve the Trustee of the obligations, upon the
occurrence of an Event of Default (that shall not have been cured), to
exercise such of the rights and powers vested in it by this Agreement,
and to use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
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(iv) The Trustee shall not be liable for any action
taken, suffered, or omitted by it in good faith and believed by it to
be authorized or within the discretion or rights or powers conferred
upon it by this Agreement.
(v) Prior to the occurrence of an Event of Default and
after the curing of all Events of Default that may have occurred, the
Trustee shall not be bound to make any investigation into the facts of
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, or
other paper or document, unless requested in writing so to do by
Holders of Certificates evidencing not less than 25% of the Certificate
Balance or not less than 25% of the Notional Principal Amount of the
Class I Certificates; provided, however, that if the payment within a
reasonable time to the Trustee of the costs, expenses, or liabilities
likely to be incurred by it in the making of such investigation shall
be, in the opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of this Agreement,
the Trustee may require reasonable indemnity against such cost,
expense, or liability as a condition to so proceeding. The reasonable
expense of every such examination shall be paid by the Servicer or, if
paid by the Trustee, shall be reimbursed by the Servicer upon demand.
Nothing in this clause (v) shall affect the obligation of the Servicer
to observe any applicable law prohibiting disclosure of information
regarding the Obligors.
(vi) The Trustee may execute any of the trusts or powers
hereunder or perform any duties under this Agreement either directly or
by or through agents or attorneys or a custodian. The Trustee shall not
be responsible for any misconduct or negligence solely attributable to
the acts or omissions of the Servicer in its capacity as Servicer or
custodian.
(vii) Subsequent to the sale of the Receivables by the
Depositor to the Trustee, the Trustee shall have no duty of independent
inquiry, except as may be required by Section 15.01, and the Trustee
may rely upon the representations and warranties and covenants of the
Depositor and the Servicer contained in this Agreement with respect to
the Receivables and the Receivable Files.
SECTION 15.05. Trustee Not Liable for Certificates or Receivables. The
recitals contained herein and in the Certificates (other than the certificate of
authentication on the Certificates) shall be taken as the statements of the
Depositor or the Servicer, as the case may be, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee shall make no
representations as to the validity or sufficiency of this Agreement or of the
Certificates (other than the certificate of authentication on the Certificates),
or of any Receivable or related document. The Trustee shall at no time have any
responsibility or liability for or with respect to the legality, validity, and
enforceability of any security interest in any Financed Vehicle or any
Receivable, or the perfection and priority of such a security interest or the
maintenance of any such perfection and priority, or for or with respect to the
efficacy of the Trust or its ability to generate the payments to be distributed
to Certificateholders under this Agreement, including, without limitation: the
existence, condition, location, and ownership of any Financed Vehicle; the
existence and enforceability of any physical damage insurance, lender's single
interest insurance, or credit life or disability and hospitalization insurance
with respect to any Receivable; the existence and contents of any Receivable or
any computer or other record thereof; the validity of the assignment of any
Receivable to the Trust or of any intervening assignment; the completeness of
any Receivable; the performance or enforcement
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of any Receivable; the compliance by the Depositor or the Servicer with any
warranty or representation made under this Agreement or in any related document
and the accuracy of any such warranty or representation prior to the Trustee's
receipt of notice or other discovery of any noncompliance therewith or any
breach thereof; any investment of monies by the Servicer or any loss resulting
therefrom (it being understood that the Trustee shall remain responsible for any
Trust property that it may hold); the acts or omissions of the Depositor, the
Servicer, or any Obligor; an action of the Servicer taken in the name of the
Trustee; or any action by the Trustee taken at the instruction of the Servicer;
provided, however, that the foregoing shall not relieve the Trustee of its
obligation to perform its duties under this Agreement. Except with respect to a
claim based on the failure of the Trustee to perform its duties under this
Agreement or based on the Trustee's negligence or willful misconduct, no
recourse shall be had for any claim based on any provision of this Agreement,
the Certificates, or any Receivable or assignment thereof against the Trustee in
its individual capacity, the Trustee shall not have any personal obligation,
liability, or duty whatsoever to any Certificateholder or any other Person with
respect to any such claim, and any such claim shall be asserted solely against
the Trust or any indemnitor who shall furnish indemnity as provided in this
Agreement. The Trustee shall not be accountable for the use or application by
the Depositor of any of the Certificates or of the proceeds of such
Certificates, or for the use or application of any funds paid to the Depositor
or the Servicer in respect of the Receivables.
SECTION 15.06. Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of Certificates
with the same rights as it would have if it were not Trustee.
SECTION 15.07. Trustee's Fees and Expenses. The Servicer shall pay to
the Trustee, and the Trustee shall be entitled to, reasonable compensation
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) for all services rendered by it
in the execution of the trusts created by this Agreement and in the exercise and
performance of any of the Trustee's powers and duties under this Agreement, and
the Servicer shall pay or reimburse the Trustee upon its request for all
reasonable expenses, disbursements, and advances (including the reasonable
compensation and the expenses and disbursements of its counsel and of all
persons not regularly in its employ) incurred or made by the Trustee in
accordance with any provisions of this Agreement, except any such expense,
disbursement, or advance as may be attributable to its willful misfeasance,
negligence, or bad faith, and the Servicer shall indemnify the Trustee (which,
for purposes of this section, shall include its directors, officers, employees,
and agents) for and hold it harmless against any loss, liability, or expense
incurred without willful misfeasance, negligence, or bad faith on its part,
arising out of or in connection with the acceptance or administration of the
Trust, including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties under this Agreement. Additionally, the Depositor, pursuant to Section
12.02, and the Servicer, pursuant to Section 13.02, respectively, shall
indemnify the Trustee with respect to certain matters. This indemnity shall
survive the termination of this Agreement or the Trust and the resignation or
removal of the Trustee.
SECTION 15.08. Eligibility Requirements for Trustee. The Trustee under
this Agreement shall at all times be a corporation having an office in the same
State as the location of the Corporate Trust Office as specified in this
Agreement; and organized and doing business under the laws of such State or the
United States of America; authorized under such laws to exercise corporate trust
powers;
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and having a net worth of at least $50,000,000 and subject to supervision or
examination by federal or State authorities and the long-term unsecured debt of
which is rated at least Baa3 or which is approved by the Surety Bond Issuer and
each Rating Agency. If such corporation shall publish reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this Section 15.08,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 15.08, the Trustee shall resign
immediately in the manner and with the effect specified in Section 15.09.
SECTION 15.09. Resignation or Removal of Trustee. The Trustee may at
any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Servicer. Upon receiving such notice of
resignation, the Servicer, with the prior written consent of the Surety Bond
Issuer, shall promptly appoint a successor Trustee, by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor Trustee. If no successor Trustee shall
have been so appointed and have accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 15.08 and shall fail to resign after written
request therefor by the Servicer, or if at any time the Trustee shall be legally
unable to act, or shall be adjudged a bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be appointed, or any public officer shall
take charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation, or liquidation, then the Servicer may
remove the Trustee. If it shall remove the Trustee under the authority of the
immediately preceding sentence, the Servicer shall promptly appoint a successor
Trustee by written instrument, in duplicate, one copy of which instrument shall
be delivered to the Trustee so removed and one copy to the successor Trustee.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 15.09 shall
not become effective until acceptance of appointment by the successor Trustee
pursuant to Section 15.10.
SECTION 15.10. Successor Trustee. Any successor Trustee appointed
pursuant to Section 15.09 shall execute, acknowledge, and deliver to the
Servicer and to its predecessor Trustee an instrument accepting such appointment
under this Agreement, and thereupon the resignation or removal of the
predecessor Trustee shall become effective and such successor Trustee, without
any further act, deed, or conveyance, shall become fully vested with all the
rights, powers, duties, and obligations of its predecessor under this Agreement,
with like effect as if originally named as Trustee. The predecessor Trustee
shall deliver to the successor Trustee all documents and statements held by it
under this Agreement; and the Servicer and the predecessor Trustee shall execute
and deliver such instruments and do such other things as may reasonably be
required for fully and certainly vesting and confirming in the successor Trustee
all such rights, powers, duties, and obligations.
No successor Trustee shall accept appointment as provided in this
Section 15.10 unless at the time of such acceptance such successor Trustee shall
be eligible pursuant to Section 15.08.
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Upon acceptance of appointment by a successor Trustee pursuant to this
Section 15.10, the Servicer shall mail notice of the successor of such Trustee
under this Agreement to all Holders of Certificates at their addresses as shown
in the Certificate Register. If the Servicer shall fail to mail such notice
within 10 days after acceptance of appointment by the successor Trustee, the
successor Trustee shall cause such notice to be mailed at the expense of the
Servicer.
SECTION 15.11. Merger or Consolidation of Trustee. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion, or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be eligible pursuant to Section 15.08, without the execution
or filing of any instrument or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding.
SECTION 15.12. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Financed Vehicle may at the time be located, the Servicer
and the Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee
to act as co-trustee, jointly with the Trustee, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person, in such
capacity and for the benefit of the Certificateholders, such title to the Trust,
or any part thereof, and, subject to the other provisions of this Section 15.12,
such powers, duties, obligations, rights, and trusts as the Servicer and the
Trustee may consider necessary or desirable. If the Servicer shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in the case an Event of Default shall have occurred and be
continuing, the Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee under this Agreement shall be required to meet
the terms of eligibility as a successor Trustee pursuant to Section 15.08 and no
notice to Certificateholders of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 15.10.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) All rights, powers, duties, and obligations
conferred or imposed upon the Trustee shall be conferred upon and
exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee under this Agreement or as successor to the
Servicer under this Agreement), the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights,
powers, duties, and obligations (including the holding of title to the
Trust or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee,
but solely at the direction of the Trustee;
(ii) No trustee under this Agreement shall be
personally liable by reason of any act or omission of any other
trustee under this Agreement; and
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(iii) The Servicer and the Trustee acting jointly may at
any time accept the resignation of or remove any separate trustee or
co-trustee.
Any notice, request, or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article XV. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Each
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicer.
Any separate trustee or co-trustee may at any time appoint the Trustee,
its agent or attorney-in-fact with full power and authority, to the extent not
prohibited by law, to do any lawful act under or in respect of this Agreement on
its behalf and in its name. If any separate trustee or co-trustee shall die,
become incapable of acting, resign, or be removed, all of its estates,
properties, rights, remedies, and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
SECTION 15.13. Representations and Warranties of Trustee. The Trustee
shall make the following representations and warranties on which the Depositor
and Certificateholders may rely:
(i) Organization and Existence. The Trustee is an
Illinois banking corporation duly organized and validly existing under
the laws of the State of Illinois and authorized to engage in a banking
and trust business under such laws.
(ii) Power and Authority. The Trustee has full power,
authority, and legal right to execute, deliver, and perform this
Agreement, and shall have taken all necessary action to authorize the
execution, delivery, and performance by it of this Agreement.
(iii) Duly Executed. This Agreement shall have been duly
executed and delivered by the Trustee and shall constitute the legal,
valid, and binding agreement of the Trustee, enforceable in accordance
with its terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, liquidation, reorganization, moratorium,
conservatorship, receivership or other similar laws now or hereinafter
in effect relating to the enforcement of creditors' rights in general,
as such laws would apply in the event of a bankruptcy, insolvency,
liquidation, reorganization, moratorium, conservatorship, receivership
or similar occurrence affecting the Trustee, and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) as well as concepts of
reasonableness, good faith and fair dealing.
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ARTICLE XVI
Termination
SECTION 16.01. Termination of the Trust. The respective obligations and
responsibilities of the Depositor, the Servicer and the Trustee created hereby
and the Trust created by this Agreement shall terminate upon (i) the disposition
of the Trust corpus as of the last day of any Collection Period at the direction
of the Class IC Certificateholder, at its option, pursuant to Section 16.02, or
(ii) the payment to Certificateholders and the Surety Bond Issuer of all amounts
required to be paid to them pursuant to this Agreement and the Insurance
Agreement (as set forth in writing by the Surety Bond Issuer) and the
disposition of all property held as part of the Trust; provided, however, that
in no event shall the trust created by this Agreement continue beyond the
expiration of 21 years from the date as of which this Agreement is executed. The
Servicer shall promptly notify the Trustee of any prospective termination
pursuant to this Section 16.01.
Notice of any termination, specifying the Distribution Date upon which
the Certificateholders may surrender their Certificates to the Trustee for
payment of the final distribution and cancellation, shall be given promptly by
the Trustee to Certificateholders immediately following the Trustee's receipt of
notice thereof from the Class IC Certificateholder but not later than the
Distribution Date that such payment shall be made stating (A) the final payment
of the Certificates shall be made upon presentation and surrender of the
Certificates at the office of the Trustee therein designated, (B) the amount of
any such final payment, and (C) if applicable, that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made only
upon presentation and surrender of the Certificates at the office of the Trustee
therein specified. The Trustee shall give such notice to the Certificate
Registrar (if other than the Trustee) at the time such notice is given to
Certificateholders. Upon presentation and surrender of the Certificates, the
Trustee shall cause to be distributed to Certificateholders amounts
distributable on such Distribution Date pursuant to Section 9.04 and, in the
event of a termination pursuant to clause (i) or (ii) of the preceding
paragraph, the provisions of Section 9 of Annex A hereto shall govern the
remaining distributions to Certificateholders.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above-mentioned written notice, the Trustee shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
one year after the second notice all the Certificates shall not have been
surrendered for cancellation, the Trustee may take appropriate steps, or may
appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets that shall remain
subject to this Agreement. Any funds remaining in the Trust after exhaustion of
such remedies shall, upon notice to the Trustee, be distributed by the Trustee
to the United Way of Central Indiana or its successor, and upon such
distribution the Certificateholders' rights to any amounts so distributed will
be extinguished.
SECTION 16.02. Optional Disposition of All Receivables. On the last day
of any Collection Period following which (i) the Notional Principal Amount has
been reduced to zero, and (ii) the Certificate Balance as of the related
Distribution Date is less than or equal to 10% of the Original Pool Balance, the
holder of the Class IC Certificate shall have the option to cause the Trustee to
sell
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(to the Class IC Certificateholder or any other person) the corpus of the Trust
at a price (the "Optional Disposition Price") equal to the fair market value of
the Receivables, but not less than (i) the sum of (x) 100% of the Certificate
Balance, (y) accrued and unpaid interest on such amount computed at a rate equal
to the weighted average Note Rate, and (z) all amounts due and owing to the
Surety Bond Issuer under the Agreement and the Insurance Agreement minus any
amounts representing payments received on the Receivables not yet applied to the
interest related thereto or to reduce the principal balance thereof. The
proceeds of such sale will be deposited into the Certificate Account for
distribution to the Certificateholders (and, to the extent applicable, the
Surety Bond Issuer) on the next succeeding Distribution Date. In connection with
such disposition, the Class IC Certificateholder is required to pay any unpaid
fees and expenses of the Trustee that it would otherwise have been entitled to
pursuant to this Agreement. The fair market value of the outstanding Receivables
for purposes of this Section 16.02 shall be an amount equal to the average of
the bid prices for such assets taken as a whole, provided to the Servicer by two
independent, nationally recognized dealers in automobile loans substantially
similar to the Receivables. The Servicer shall notify the Class IC
Certificateholder on or before the Determination Date if the Pool Balance as of
the end of the related Collection Period is less than or equal to 10% of the
Original Certificate Balance. The Class IC Certificateholder shall notify the
Trustee on or before the Determination Date if the Pool Balance as of the end of
the related Collection Period is less than or equal to 10% of the Original
Certificate Balance and such notice shall indicate whether the Class IC
Certificateholder will exercise its option to purchase the corpus of the Trust
pursuant to this Section 16.02. Such price shall be deposited to the Certificate
Account in immediately available funds by 12:00 noon, New York City time, on the
Distribution Date and, upon notice to the Trustee of such deposit, the Trustee
shall transfer the Receivables and the Receivable Files to the purchaser,
whereupon the Certificates shall no longer evidence any right or interest in the
Receivables or any proceeds thereof.
ARTICLE XVII
Miscellaneous Provisions
SECTION 17.01. Amendment. This Agreement may be amended by the
Depositor, the Servicer and the Trustee, without the consent of any of the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions in this Agreement, or to add any other provisions with respect to
matters or questions arising under this Agreement that shall not be inconsistent
with the provisions of this Agreement; provided, however, that such action shall
not, as evidenced by an Opinion of Counsel, adversely affect in any material
respect the interests of any Certificateholder.
This Agreement may also be amended from time to time by the Depositor,
the Servicer, and the Trustee with the consent of the Class IC
Certificateholder, Holders of Certificates evidencing not less than 51% of the
Certificate Balance and 51% of the Notional Principal Amount of the Class I
Certificates for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement, or of modifying
in any manner the rights of the Holders of Certificates; provided, however, that
no such amendment shall, without the consent of the Holders of all Certificates
then outstanding, reduce the aforesaid percentage required to consent to any
such amendment. In no case may any such amendment increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments on Receivables or distributions that shall be required to be made on
any Certificate.
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Notwithstanding anything to the contrary in this Agreement, no Opinion
of Counsel or consent of Certificateholders shall be required in connection with
any amendment of this Agreement to provide for a Spread Account Facility;
provided that prior to the effectiveness of any such amendment Standard & Poor's
and Moody's shall confirm in writing that the rating of the Certificates will
not be lowered or withdrawn as a result of such amendment.
Notwithstanding anything to the contrary in this Agreement (i) no
amendment of this Agreement shall be effective without the prior written consent
of the Surety Bond Issuer and (ii) except as provided in the third paragraph of
this Section 17.01, no amendment to this Agreement shall be recognized or be
effective without the written consent of the Trustee and receipt by the Trustee
of an Opinion of Counsel to the effect that such amendment will not cause the
Trust to be treated as an association taxable as a corporation or as a
publicly-traded partnership.
Promptly after the execution of any amendment or consent, the Trustee
shall furnish written notification of the substance of such amendment or consent
to each Certificateholder.
It shall not be necessary for the consent of Certificateholders
pursuant to this Section 17.01 to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, the Trustee
shall be entitled to receive and rely upon an Opinion of Counsel stating that
the execution of such amendment is authorized or permitted by this Agreement and
the Opinion of Counsel referred to in Section 17.02(i)(1). The Trustee may, but
shall not be obligated to, enter into any such amendment which affects the
Trustee's own rights, duties, or immunities under this Agreement.
SECTION 17.02. Protection of Title to Trust.
(a) The Depositor shall execute and file such financing statements and
cause to be executed and filed such continuation statements, all in such manner
and in such places as may be required by law fully to preserve, maintain, and
protect the interest of the Certificateholders and the Trustee under this
Agreement in the Receivables and in the proceeds thereof. The Depositor shall
deliver (or cause to be delivered) to the Trustee file-stamped copies of, or
filing receipts for, any document filed as provided above, as soon as available
following such filing.
(b) Neither the Depositor nor the Servicer shall change its name,
identity, or corporate structure in any manner that would, could, or might make
any financing statement or continuation statement filed by the Depositor in
accordance with paragraph (a) above seriously misleading within the meaning of
ss. 9-402(7) of the UCC, unless it shall have given the Trustee at least 60
days' prior written notice thereof.
(c) The Depositor and the Servicer shall give the Trustee at least 60
days' prior written notice of any relocation of its principal executive office
if, as a result of such relocation, the applicable provisions of the UCC would
require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement (in which case the
Servicer
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shall file or cause to be filed such amendment or continuation statement or new
financing statement). The Trustee shall be permitted to waive the 60 day notice
period to any shorter period; provided that such UCC financing statements or
amendments have been filed on or before the effective date of any such waiver.
The Servicer shall at all times maintain each office from which it shall service
Receivables, and its principal executive office, within the United States of
America.
(d) The Servicer shall maintain accounts and records as to each
Receivable accurately and in sufficient detail to permit (i) the reader thereof
to know at any time the status of such Receivable, including payments and
recoveries made and payments owing (and the nature of each) and (ii)
reconciliation between payments or recoveries on (or with respect to) each
Receivable and the amounts from time to time deposited in the Certificate
Account in respect of such Receivable.
(e) The Servicer shall maintain its computer systems so that, from and
after the time of sale under this Agreement of the Receivables to the Trustee,
the Servicer's master computer records (including any back-up archives) that
refer to a Receivable shall indicate clearly with reference to the particular
trust that such Receivable is owned by the Trustee. Indication of the Trustee's
ownership of a Receivable shall be deleted from or modified on the Servicer's
computer systems when, and only when, the Receivable shall have been paid in
full or repurchased.
(f) If at any time the Depositor or the Servicer shall propose to sell,
grant a security interest in, or otherwise transfer any interest in automotive
receivables to any prospective purchaser, lender, or other transferee, the
Servicer shall give to such prospective purchaser, lender, or other transferee
computer tapes, records, or print-outs (including any restored from back-up
archives) that, if they shall refer in any manner whatsoever to any Receivable,
shall indicate clearly that such Receivable has been sold and is owned by the
Trustee.
(g) The Servicer shall permit the Trustee and its agents at any time
during normal business hours to inspect, audit, and make copies of and abstracts
from the Servicer's records regarding any Receivable.
(h) Upon request, the Servicer shall furnish to the Trustee, within
five Business Days, a list of all Receivables (by contract number and name of
Obligor) then held as part of the Trust, together with a reconciliation of such
list to the Schedule of Receivables and to each of the Servicer's Certificates
furnished before such request indicating removal of Receivables from the Trust.
(i) The Servicer shall deliver to the Trustee:
(1) promptly after the execution and delivery of this
Agreement and of each amendment thereto, an Opinion of Counsel either
(a) stating that, in the opinion of such counsel, all financing
statements and continuation statements have been executed and filed
that are necessary fully to preserve and protect the interest of the
Trustee in the Receivables and reciting the details of such filings or
referring to prior Opinions of Counsel in which such details are given,
or (b) stating that, in the opinion of such counsel, no such action
shall be necessary to preserve and protect such interest; and
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(2) within 90 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months
after the Cutoff Date, an Opinion of Counsel, dated as of a date during
such 90-day period, either (a) stating that, in the opinion of such
counsel, all financing statements and continuation statements have been
executed and filed that are necessary fully to preserve and protect the
interest of the Trustee in the Receivables, and reciting the details of
such filings or referring to prior Opinions of Counsel in which such
details are given, or (b) stating that, in the opinion of such counsel,
no such action shall be necessary to preserve and protect such
interest.
SECTION 17.03. Limitation on Rights of Certificateholders. The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations, and liabilities of the parties to
this Agreement or any of them.
No Certificateholder shall have any right to vote (except as provided
in Section 14.04, 17.01, 17.03 or 17.07) or in any manner otherwise control the
operation and management of the Trust, or the obligations of the parties to this
Agreement except as expressly set forth herein, nor shall anything in this
Agreement set forth, or contained in the terms of the Certificates, be construed
so as to constitute the Certificateholders from time to time as members of an
association; nor shall any Certificateholder be under any liability to any third
person by reason of any action taken pursuant to any provision of this
Agreement.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action, or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Holder previously shall have given to the Trustee a written notice
of default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Certificates evidencing not less than 25% of the Certificate
Balance or not less than 25% of the Notional Principal Amount of the Class I
Certificates shall have made written request upon the Trustee to institute such
action, suit, or proceeding in its own name as Trustee under this Agreement and
shall have offered to the Trustee such reasonable indemnity as it may require
against the costs, expenses, and liabilities to be incurred therein or thereby,
and the Trustee, for 30 days after its receipt of such notice, request, and
offer of indemnity, shall have neglected or refused to institute any such
action, suit, or proceeding and during such 30-day period no direction
inconsistent with such written request has been given to the Trustee pursuant to
Section 14.04; no one or more Holders of Certificates shall have any right in
any manner whatever by virtue or by availing itself or themselves of any
provisions of this Agreement to affect, disturb, or prejudice the rights of the
Holders of any other of the Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right,
under this Agreement except in the manner provided in this Agreement and for the
equal, ratable, and common benefit of all Certificateholders. For the protection
and enforcement of the provisions of this Section 17.03, each Certificateholder
and the Trustee shall be entitled to such relief as can be given either at law
or in equity.
SECTION 17.04. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed within the State of New York, and the obligations, rights,
and remedies of the parties under this Agreement shall be determined in
accordance with such laws.
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SECTION 17.05. Notices. All demands, notices, and communications under
this Agreement shall be in writing, personally delivered, sent by facsimile to,
sent by courier to or mailed by certified mail, return receipt requested, and
shall be deemed to have been duly given unless otherwise provided herein, upon
receipt (a) in the case of the Depositor to the agent for service as specified
in this Agreement, at the following address: UAC Securitization Corporation,
9240 Bonita Beach Road, Suite 1109-A, Bonita Springs, Florida 34135, or at such
other address as shall be designated by the Depositor in a written notice to the
Servicer or Trustee; (b) in the case of the Servicer to the agent for service as
specified in this Agreement, at the following address, Union Acceptance
Corporation, 250 North Shadeland Avenue, Indianapolis, Indiana 46219, (c) in the
case of the Trustee, at the Corporate Trust Office, (d) in the case of the
Surety Bond Issuer, at Capital Markets Assurance Corporation, 885 Third Avenue,
14th Floor, New York, New York 10022, Fax (212) 755-5462, Attention: Managing
Director, Credit Enhancement. Any notice required or permitted to be mailed to a
Certificateholder shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register unless otherwise
provided herein. Unless otherwise provided herein, any notice so mailed within
the time prescribed in this Agreement shall be conclusively presumed to have
been duly given, whether or not the Certificateholder shall receive such notice.
SECTION 17.06. Severability of Provisions. If any one or more of the
covenants, agreements, provisions, or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions, or
terms shall be deemed severable from the remaining covenants, agreements,
provisions, or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of the
Certificates or the rights of the Holders thereof.
SECTION 17.07. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided below or in Sections 12.03 and 13.03 and as
provided in the provisions of this Agreement concerning the resignation of the
Servicer, this Agreement may not be assigned by the Depositor or the Servicer
without the prior written consent of the Trustee, the Class IC
Certificateholder, and the Holders of Certificates evidencing not less than 66%
of the Certificate Balance and 66% of the Notional Principal Amount of the Class
I Certificates.
SECTION 17.08. Certificates Nonassessable and Fully Paid.
Certificateholders shall not be personally liable for obligations of the Trust.
The interests represented by the Certificates shall be nonassessable for any
losses or expenses of the Trust or for any reason whatsoever, and, upon
authentication thereof by the Trustee pursuant to Section 11.02, Certificates
shall be deemed fully paid.
SECTION 17.09. Nonpetition Covenants. Notwithstanding any prior
termination of this Agreement, the Servicer, UAC and the Trustee shall not,
prior to the date which is one year and one day after the termination of this
Agreement with respect to the Trust or the Depositor, acquiesce, petition or
otherwise invoke or cause the Trust or the Depositor to invoke the process of
any court or government authority for the purpose of commencing or sustaining a
case against the Trust or the Depositor under any Federal or state bankruptcy,
insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Trust or the
Depositor or any substantial part of its property, or ordering the winding up or
liquidation of the affairs of the Trust or the Depositor.
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SECTION 17.10. Counterparts. For the purpose of facilitating the
execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and all of which counterparts
shall constitute but one and the same instrument.
SECTION 17.11. Third Party Beneficiary. This Agreement shall inure to
the benefit of the Surety Bond Issuer and its successors and assigns.
[Next page is signature page]
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IN WITNESS WHEREOF, the parties hereto have caused this Pooling and
Servicing Agreement to be duly executed by their respective officers as of the
day and year first above written.
UAC SECURITIZATION CORPORATION,
as Depositor
By: /s/ Leeanne Graziani
-------------------------------------
TITLE: Vice President
UNION ACCEPTANCE CORPORATION,
as Servicer
By: /s/ Rick A. Brown
-------------------------------------
TITLE: Vice President
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By: /s/ Robert Foltz
-------------------------------------
TITLE: Vice President
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Schedule C
Planned Notional Principal Amount Schedule
Planned Notional
Distribution Date in Principal Amount
Initial......................................................$151,027,447.84
December 1997.................................................144,569,129.94
January 1998..................................................139,851,101.72
February 1998.................................................135,172,469.66
March 1998....................................................130,533,989.29
April 1998....................................................125,936,427.96
May 1998......................................................121,380,565.02
June 1998.....................................................116,867,192.02
July 1998.....................................................112,397,112.86
August 1998...................................................107,971,144.03
September 1998.................................................103,590,114.6
October 1998...................................................99,254,866.83
November 1998..................................................94,966,255.70
December 1998..................................................90,725,149.66
January 1999...................................................86,532,430.59
February 1999..................................................82,388,993.98
March 1999.....................................................78,295,749.22
April 1999.....................................................74,253,619.67
May 1999.......................................................70,263,542.96
June 1999......................................................66,326,471.16
July 1999......................................................62,443,370.97
August 1999....................................................58,615,223.89
September 1999.................................................54,843,026.56
October 1999...................................................51,127,790.86
November 1999..................................................47,470,544.11
December 1999..................................................43,872,329.38
January 2000...................................................40,334,205.64
February 2000..................................................36,857,248.02
March 2000.....................................................33,442,548.04
April 2000.....................................................30,091,213.76
May 2000.......................................................26,804,370.15
June 2000......................................................23,583,159.24
July 2000......................................................20,428,740.32
August 2000....................................................17,342,290.30
September 2000.................................................14,325,003.86
October 2000...................................................11,378,093.74
November 2000...................................................8,502,790.98
December 2000...................................................5,700,345.19
January 2001....................................................2,972,024.78
February 2001.....................................................337,388.43
March 2001..............................................................0.00
The Class I Certificates will not be entitled to any distributions after the
Notional Principal Amount has been reduced to zero.
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ANNEX A
TAX PARTNERSHIP AGREEMENT
1. Characterization for Tax Purposes. For United States federal and
state income tax purposes, the Depositor's contribution of the Receivables to
the Trust in exchange for interests in the Trust, and the sale by the Depositor
of Class A Certificates (which includes Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates and Class A-5
Certificates) and Class I Certificates and the retention by the Depositor of the
Class IC Certificate is intended to constitute the formation of a partnership
(the "Tax Partnership") whose partners are the Class A Certificateholders, the
Class I Certificateholders and the Class IC Certificateholder (which are
hereinafter collectively referred to as the "Tax Partners"). This Tax
Partnership shall continue in effect as provided in Paragraph 3 below. Pursuant
to the final regulations adopting the "check-the-box" classification system for
unincorporated organizations, the Servicer on behalf of the Tax Partners shall
elect, in such manner as provided in such regulations, to treat the Trust as a
partnership for federal income tax purposes, and each Tax Partner irrevocably
agrees to be bound by such election. The Tax Partnership shall not be a
partnership to any other extent or for any other purpose.
2. Election with Respect to Subchapter K. Notwithstanding anything to
the contrary, each Tax Partner agrees: (a) not to elect to be excluded from the
application of Subchapter K of Chapter 1 of Subtitle A of the Code, or any
comparable provisions of applicable state laws; and (b) to join in the execution
of such additional documents and elections as may be required in order to
effectuate the foregoing.
3. Term. The provisions of this Tax Partnership Agreement shall be
effective as of the effective date of the sale by the Depositor of the Class A
Certificates and Class I Certificates and the issuance to the Depositor of the
Class IC Certificate (the "Effective Date") and shall continue in full force and
effect from and after such date until the earliest of: (a) the termination of
the Agreement pursuant to its terms; or (b) the mutual agreement of all of the
Tax Partners to terminate the Trust.
4. Capital Contributions and Capital Accounts.
(a) The value of the interests contributed by the Class A
Certificateholders and the Class I Certificateholders shall equal the amount
paid by such Certificateholders for such interests, respectively, and such
amounts shall constitute the opening balance in their Capital Accounts (as
hereinafter defined). The value of the interests contributed by the Class IC
Certificateholder shall equal the fair market value of the Receivables
contributed to the Tax Partnership less the value attributed to the Class A
Certificateholders and the Class I Certificateholders, as described above. Such
amount shall constitute the opening balance in the Class IC Certificateholder's
Capital Account.
(b) An individual capital account (a "Capital Account") shall be
maintained for each Tax Partner in compliance with Treasury Regulation Sections
1.704-1(b)(2)(iv) and 1.704-2 and accordingly, except as otherwise provided
herein:
(i) The Capital Account of each Tax Partner shall be
credited by (A) the amount of cash and the fair market value
of property other than cash contributed (or deemed contributed
pursuant to Code Section 708) by such Tax Partner to the Tax
Partnership (net of any liabilities assumed by the Tax
Partnership upon such contribution or to which such property
is subject at the time of such contribution); and (B) the
amount of any item of taxable income or gain and the amount of
any item of income or gain exempt from tax allocated to such
Tax Partner.
(ii) The Capital Account of each Tax Partner shall be
debited by (A) the amount of any item of tax deduction or loss
allocated to such Tax Partner; (B) such Tax Partner's
allocable share, of expenditures not deductible in computing
taxable income and not properly chargeable as capital
expenditures; and (C) the amount of cash and the fair market
value of any property other than cash (net of any liabilities
assumed by such Tax Partner or to which such property is
subject at the time of distribution) distributed to such Tax
Partner.
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(iii) Immediately prior to any distribution of
property in kind, the Tax Partners' Capital Accounts shall be
adjusted by assuming that the distributed properties were sold
for cash at their respective fair market values as of the date
of distribution and crediting or debiting each Tax Partner's
Capital Account with its respective share of the hypothetical
gains or losses resulting from such assumed sales in the same
manner as gains or losses on actual sales of such properties
would be allocated under Paragraph 6 below.
(iv) Any adjustments of basis of property provided
for under Code Section 734 and 733 and comparable provisions
of state law (resulting from an election under Code Section
754 or comparable provisions of state law) shall not affect
the Capital Accounts of the Tax Partners, except as provided
in Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(5).
5. Federal and State Income Tax Returns and Elections.
(a) The Tax Partners agree that the holder of the Class IC
Certificate shall serve as the "tax matters partner" (as such term is
defined in Code Section 6231(a)(7) (the "Tax Matters Partner") of the
Tax Partnership. The Tax Matters Partner shall (i) apply to the
Internal Revenue Service for a taxpayer identification number for the
Tax Partnership, (ii) elect to adopt the accrual method of accounting
and, if permitted by applicable federal tax law, the calendar year as
the Tax Partnership's fiscal year, (iv) make such other elections as it
deems proper, (v) prepare, execute and file the necessary federal and
state partnership income tax returns for the Tax Partnership and (vi)
keep the other Tax Partners informed of all material matters that may
come to its attention in its capacity as Tax Matters Partner. Each Tax
Partner agrees to furnish the Tax Matters Partner with all pertinent
information relating to activities under the Agreement and this Annex A
which is necessary for the Tax Matters Partner to prepare and file
federal and state partnership returns. In acting as Tax Matters
Partner, the Tax Matters Partner shall use its best efforts, but shall
incur no liability to the other Tax Partners.
(b) Within 60 days after the end of each of the Tax
Partnership's taxable years, the Tax Matters Partner shall send to each
Tax Partner who has been a Tax Partner at any time during the taxable
year then ended such tax information as shall be necessary for the
preparation by such Tax Partner of its Federal income tax return and
state income and other tax returns, if any, in states where the Tax
Partnership is organized or is qualified to do business.
6. Allocations.
(a)(i) "Net Income" and "Net Loss" respectively, for any
period, means the income or losses of the Tax Partnership as determined
in accordance with the method of accounting followed by the Tax
Partnership for Federal income tax purposes, including, for all
purposes, any income exempt from tax and any expenditures of the Tax
Partnership described in Code Section 705(a)(2)(B); provided, however,
(i) that any item allocated under Paragraphs 6(b)(iii) or 6(c) shall be
excluded from the computation of Net Income and Net Loss and (ii) that
if, as a result of the contribution of an asset whose fair market value
differs from its adjusted basis for Federal income tax purposes or as a
result of the revaluation of the Tax Partnership's assets, the book
value of any Tax Partnership asset differs from its adjusted basis for
Federal income tax purposes, gain, loss, depreciation and amortization
with respect to such asset shall be computed using the asset's book
value consistently with the requirements of Treasury Regulation Section
1.704-1(b)(2)(iv)(g).
(ii) "Period" shall mean the calendar month; provided
that as to the month in which the Closing Date occurs, Period
shall mean the period commencing on the Closing Date and
ending on the last day of that calendar month, and as to the
month in which the Tax Partnership terminates, Period shall
mean the period beginning on the first day of such month and
ending on the date of the Tax Partnership's termination.
(b) The Tax Partners agree that the Tax Partnership's Net
Income and Net Loss and each item of income, gain, loss, or deduction
entering into the computation thereof for any Fiscal Year shall be
allocated by first allocating the Tax Partnership's Net Income and Net
Loss (and each item of income, gain, loss, or deduction entering into
the computation thereof) for each Period within such Fiscal Year (as if
such Period were a complete fiscal year) and then aggregating the
allocations for each Period within the Fiscal Year. In
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<PAGE>
the case of the transfer of any interest in the Tax Partnership, the
items of Net Income and Net Loss allocated for any Period with respect
to the transferred interest shall be allocated to the holder of that
interest on the first business day of the month following the end of
such Period (or in the case of the Period in which the Tax Partnership
terminates, the last day of such Period). If the Tax Matters Partner
determines that this method of allocation of items of Net Income and
Net Loss is not consistent with the requirements of the Code and
applicable Treasury Regulations, it may revise such method of
allocation to conform with such requirements. The Tax Partnership's Net
Income and Net Loss for each Period within a Fiscal Year shall be
allocated as follows:
(i) Net Income for such Period shall be allocated as
follows:
(A)(I) An amount of Net Income equal to the
excess of (x) the sum for such Period and each
preceding Period up to the Period beginning with the
Closing Date, of (1) the product of the Class A-1
Pass-Through Rate and (2) the Class A-1 Certificate
Balance amount for such Period (and each such
preceding Period) over (y) all amounts previously
allocated to the Class A-1 Certificateholders
pursuant to this Paragraph 6(b)(i)(A)(I) shall be
allocated 100% to the Class A-1 Certificateholders,
in proportion to their holdings of Class A-1
Certificates; provided that the product of (1) and
(2) in clause (x) shall be computed on the basis of a
360 day year consisting of twelve 30 day months, and
that any such product shall be appropriately prorated
for any Period that is not a full calendar month in a
manner consistent with the computation of cash
distributions with respect to such Periods as
provided by the Agreement.
(II) An amount of Net Income equal to the
excess of (x) the sum for such Period and
each preceding Period up to the Period
beginning with the Closing Date, of that
portion of any excess of the principal
amount of the Class A-1 Certificates over
their initial issue price (disregarding
accrued interest) that would have accrued
with respect to such Periods if the Class
A-1 Certificates were indebtedness and such
excess were original issue discount over (y)
all amounts previously allocated to the
Class A-1 Certificateholders pursuant to
this Paragraph 6(b)(i)(A)(II) shall be
allocated 100% to the Class A-1
Certificateholders, in proportion to their
holdings of Class A-1 Certificates.
(B)(I) An amount of Net Income equal to the
excess of (x) the sum for such Period and each
preceding Period up to the Period beginning with the
Closing Date, of (1) the product of the Class A-2
Pass-Through Rate and (2) the Class A-2 Certificate
Balance amount for such Period (and each such
preceding Period) over (y) all amounts previously
allocated to the Class A-2 Certificateholders
pursuant to this Paragraph 6(b)(i)(B)(I) shall be
allocated 100% to the Class A-2 Certificateholders,
in proportion to their holdings of Class A-2
Certificates; provided that the product of (1) and
(2) in clause (x) shall be computed on the basis of a
360 day year consisting of twelve 30 day months, and
that any such product shall be appropriately prorated
for any Period that is not a full calendar month in a
manner consistent with the computation of cash
distributions with respect to such Periods as
provided by the Agreement.
<PAGE>
(II) An amount of Net Income equal to the
excess of (x) the sum for such Period and
each preceding Period up to the Period
beginning with the Closing Date, of that
portion of any excess of the principal
amount of the Class A-2 Certificates over
their initial issue price (disregarding
accrued interest) that would have accrued
with respect to such Periods if the Class
A-2 Certificates were indebtedness and such
excess were original issue discount over (y)
all amounts previously allocated to the
Class A-2 Certificateholders pursuant to
this Paragraph 6(b)(i)(B)(II) shall be
allocated 100% to the Class A-2
Certificateholders, in proportion to their
holdings of Class A-2 Certificates.
(C)(I) An amount of Net Income equal to the
excess of (x) the sum for such Period and each
preceding Period up to the Period beginning with the
Closing Date, of (1)
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<PAGE>
the product of the Class A-3 Pass-Through Rate and
(2) the Class A-3 Certificate Balance amount for such
Period (and each such preceding Period) over (y) all
amounts previously allocated to the Class A-3
Certificateholders pursuant to this Paragraph
6(b)(i)(C)(I) shall be allocated 100% to the Class
A-3 Certificateholders, in proportion to their
holdings of Class A-3 Certificates; provided that the
product of (1) and (2) in clause (x) shall be
computed on the basis of a 360 day year consisting of
twelve 30 day months, and that any such product shall
be appropriately prorated for any Period that is not
a full calendar month in a manner consistent with the
computation of cash distributions with respect to
such Periods as provided by the Agreement.
(II) An amount of Net Income equal to the
excess of (x) the sum for such Period and
each preceding Period up to the Period
beginning with the Closing Date, of that
portion of any excess of the principal
amount of the Class A-3 Certificates over
their initial issue price (disregarding
accrued interest) that would have accrued
with respect to such Periods if the Class
A-3 Certificates were indebtedness and such
excess were original issue discount over (y)
all amounts previously allocated to the
Class A-3 Certificateholders pursuant to
this Paragraph 6(b)(i)(C)(II) shall be
allocated 100% to the Class A-3
Certificateholders, in proportion to their
holdings of Class A-3 Certificates.
(D)(I) An amount of Net Income equal to the
excess of (x) the sum for such Period and each
preceding Period up to the Period beginning with the
Closing Date, of (1) the product of the Class A-4
Pass-Through Rate and (2) the Class A-4 Certificate
Balance amount for such Period (and each such
preceding Period) over (y) all amounts previously
allocated to the Class A-4 Certificateholders
pursuant to this Paragraph 6(b)(i)(D)(I) shall be
allocated 100% to the Class A-4 Certificateholders,
in proportion to their holdings of Class A-4
Certificates; provided that the product of (1) and
(2) in clause (x) shall be computed on the basis of a
360 day year consisting of twelve 30 day months, and
that any such product shall be appropriately prorated
for any Period that is not a full calendar month in a
manner consistent with the computation of cash
distributions with respect to such Periods as
provided by the Agreement.
(II) An amount of Net Income equal to the
excess of (x) the sum for such Period and
each preceding Period up to the Period
beginning with the Closing Date, of that
portion of any excess of the principal
amount of the Class A-4 Certificates over
their initial issue price (disregarding
accrued interest) that would have accrued
with respect to such Periods if the Class
A-4 Certificates were indebtedness and such
excess were original issue discount over (y)
all amounts previously allocated to the
Class A-4 Certificateholders pursuant to
this Paragraph 6(b)(i)(D)(II) shall be
allocated 100% to the Class A-4
Certificateholders, in proportion to their
holdings of Class A-4 Certificates.
<PAGE>
(E)(I) An amount of Net Income equal to the
excess of (x) the sum for such Period and each
preceding Period up to the Period beginning with the
Closing Date, of (1) the product of the Class A-5
Pass-Through Rate and (2) the Class A-5 Certificate
Balance amount for such Period (and each such
preceding Period) over (y) all amounts previously
allocated to the Class A-5 Certificateholders
pursuant to this Paragraph 6(b)(i)(E)(I) shall be
allocated 100% to the Class A-5 Certificateholders,
in proportion to their holdings of Class A-5
Certificates; provided that the product of (1) and
(2) in clause (x) shall be computed on the basis of a
360 day year consisting of twelve 30 day months, and
that any such product shall be appropriately prorated
for any Period that is not a full calendar month in a
manner consistent with the computation of cash
distributions with respect to such Periods as
provided by the Agreement.
(II) An amount of Net Income equal to the
excess of (x) the sum for such Period and
each preceding Period up to the Period
beginning with the Closing Date, of that
portion of any excess of the principal
amount of the Class A-5 Certificates
110
<PAGE>
over their initial issue price (disregarding
accrued interest) that would have accrued
with respect to such Periods if the Class
A-5 Certificates were indebtedness and such
excess were original issue discount over (y)
all amounts previously allocated to the
Class A-5 Certificateholders pursuant to
this Paragraph 6(b)(i)(E)(II) shall be
allocated 100% to the Class A-5
Certificateholders, in proportion to their
holdings of Class A-5 Certificates.
(F) An amount of Net Income equal to the
excess of (x) the sum for such Period and each
preceding Period up to the Period beginning with the
Closing Date, of the Periodic Allocation (as
hereinafter defined) over (y) all amounts previously
allocated to the Class I Certificateholders pursuant
to this Paragraph 6(b)(i)(F), shall be allocated 100%
to the Class I Certificateholders, in proportion to
their holdings of Class I Certificates. The "Periodic
Allocation" for any Period shall equal the excess of
(i) the product of (1) the Class I Pass-Through Rate
and (2) the Notional Principal Amount for such Period
over (ii) the portion of the amount distributable
with respect to the Class I Certificates with respect
to such Period that would constitute a return of
basis for an initial holder if the Class I
Certificates constituted an instrument described in
Code Section 860G(a)(1)(B)(ii), employing the
principles of Code Section 1272(a)(6) and the
constant yield method of accrual; provided that the
product of (1) and (2) in clause (i) shall be
computed on the basis of a 360 day year consisting of
twelve 30 days months, and that such product shall be
appropriately prorated for any Period that is not a
full calendar month in a manner consistent with the
computation of cash distributions with respect to
such Periods as provided by the Agreement.
(G) Notwithstanding the foregoing Paragraphs
(A) through (F), if the actual Net Income for such
Period is less than the Net Income allocable under
the sum of the amounts described in such Paragraphs
(A) through (F), the actual Net Income for such
Period shall be allocable to the Class A
Certificateholders and the Class I Certificateholders
in proportion to the allocations that would have been
made to such Certificateholders with respect to such
Period under such foregoing Paragraphs (A) through
(F) if sufficient Net Income for such period had
existed and the amount distributable hereunder to
Class A Certificateholders shall be distributed pro
rata. For the purposes of applying the foregoing
Paragraphs (A) through (F), in such periods, any
amounts allocated pursuant to this Paragraph (G)
shall be treated as allocated pursuant to Paragraphs
(A) through (F), as the case may be, to the extent
the allocation was related thereto.
<PAGE>
(H) Any remaining Net Income shall be
allocated 100% to the Class IC Certificateholder.
(ii) Net Losses for such Periods shall be allocated
as follows:
(A) 100% to the Class IC Certificateholder
until the Adjusted Capital Account (as hereinafter
defined) balance of the Class IC Certificateholders
equals zero.
(B) 100% pro rata:
(I) to the Class I
Certificateholders, in proportion to their
holdings of Class I Certificates, until the
Adjusted Capital Account balances of the
Class I Certificateholders equal zero; and
(II) to the Class A
Certificateholders, in proportion to their
holdings of Class A Certificates, until the
Adjusted Capital Account balances of the
Class A Certificateholders equal zero.
(C) Any remaining Net Losses shall be
allocated 100% to the Class IC Certificateholder.
111
<PAGE>
(iii) Any provision of this Agreement to the contrary
notwithstanding, any payment of amounts due and owing the
Surety Bond Issuer from time to time or in connection with an
optional disposition of all Receivables pursuant to Section
16.02 of the Agreement shall be treated as a loss of the Tax
Partnership and shall be allocated in the same manner as the
Net Loss would be allocated under paragraph 6(b)(ii).
(c) (i) In the taxable year in which the final redemption of
the Class I Certificates occurs, a portion of the premium and other
deductions derived by the Trust up to an amount equal to the aggregate
remaining Capital Account balances of the Class I Certificateholders
shall be allocated to the Class I Certificateholders in proportion to
their respective Capital Account balances.
(ii) Any deductions not allocated pursuant to
Paragraph 6(c)(i) and attributable to (w) the amortization of
premium on the Receivables, (x) payments to the Trustee and
(y) payments to the Servicer shall be specially allocated to
the Class IC Certificateholder.
(iii) If there is a net decrease in "partnership
minimum gain" (within the meaning of Treasury Regulation
Section 1.704-2(d)) for a Fiscal Year, then there shall be
allocated to each Tax Partner items of income and gain for
that year equal to that Tax Partner's share of the net
decrease in partnership minimum gain (within the meaning of
Treasury Regulation Section 1.704-2(g)(2)), subject to the
exceptions set forth in Treasury Regulation Sections
1.704-2(f)(2), (3) and (5), provided, that if the Tax
Partnership has any discretion as to an exception set forth
pursuant to Treasury Regulation Section 1.704-2(f)(5), the Tax
Matters Partner may exercise such discretion on behalf of the
Tax Partnership. In the event the application of the minimum
gain chargeback requirement would cause a distortion in the
economic arrangement among the Tax Partners, the Tax Matters
Partner shall request the Commissioner to waive the minimum
gain chargeback requirement pursuant to Treasury Regulation
Section 1.704-2(f)(4). The foregoing is intended to be a
"minimum gain chargeback" provision as described in Treasury
Regulation Section 1.704-2(f) and shall be interpreted and
applied in all respects in accordance with that Treasury
Regulation.
If during a Fiscal Year there is a net decrease in partner nonrecourse
debt minimum gain (as determined in accordance with Treasury Regulation
Section 1.704-2(i)(3)), then, in addition to the amounts, if any,
allocated pursuant to the preceding paragraph, any Tax Partner with a
share of that partner nonrecourse debt minimum gain (determined in
accordance with Treasury Regulation Section 1.704-2(i)(5)) as of the
beginning of the Fiscal Year shall, subject to the exceptions set forth
in Treasury Regulation Section 1.704-2(i)(4), including exceptions
analogous to those provided pursuant to Treasury Regulation Sections
1.704-2(f)(2), (3) and (5) (provided, that if the Tax Partnership has
any discretion as to an exception set forth pursuant to Treasury
Regulation Section 1.704-2(f)(5) as made applicable by Treasury
Regulation Section 1.704-2(i)(4), the Tax Matters Partner may exercise
such discretion on behalf of the Tax Partnership) be allocated items of
income and gain for the year (and, if necessary, for succeeding years)
equal to that Tax Partner's share of the net decrease in the partner
nonrecourse minimum gain. In the event the application of the minimum
gain chargeback requirement would cause a distortion in the economic
arrangement among the Tax Partners, the Tax Matters Partner shall
request the Commissioner to waive the minimum gain chargeback
requirement pursuant to Treasury Regulation Sections 1.704-2(i)(4) and
1.704-2(f)(4). The foregoing is intended to be the "chargeback of
partner nonrecourse debt minimum gain" required by Treasury Regulation
Section 1.704- 2(i)(4) and shall be interpreted and applied in all
respects in accordance with that Treasury Regulation.
(iv) If during any Fiscal Year of the Tax Partnership
a Tax Partner unexpectedly receives an adjustment, allocation
or distribution described in Treasury Regulation Sections
1.704- 1(b)(2)(ii)(d)(4), (5) or (6), which causes or
increases a deficit balance in the Tax Partner's Adjusted
Capital Account (as defined below), there shall be allocated
to the Tax Partner items of income and gain (consisting of a
pro rata portion of each item of Tax Partnership income,
including gross income, and gain for such year) in an amount
and manner sufficient to eliminate such deficit as quickly as
possible. The foregoing is intended to be a "qualified income
offset" provision as described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted and applied in
all respects in accordance with the Treasury Regulation.
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<PAGE>
A Tax Partner's "Adjusted Capital Account", at any time, shall
equal the Tax Partner's Capital Account at such time (x) increased by
the sum of (A) the amount of the Tax Partner's share of partnership
minimum gain (as defined in Treasury Regulation Section 1.704-2(g)(1)
and (3)), (B) the amount of the Tax Partner's share of partner
nonrecourse debt minimum gain (as defined in Treasury Regulation
Section 1.704- 2(i)(5)), and (C) any amount of the deficit balance in
its Capital Account and Tax Partner is obligated to restore on
liquidation of the Tax Partnership and (y) decreased by reasonably
expected adjustments, allocations and distributions described in
Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
(v) Notwithstanding anything to the contrary in this
Paragraph 6, Tax Partnership losses, deductions, or Code
Section 705(a)(2)(B) expenditures that are attributable to a
particular partner nonrecourse liability shall be allocated to
the Tax Partner that bears the economic risk of loss for the
liability in accordance with the rules of Treasury Regulation
Section 1.704-2(i).
(vi) Notwithstanding any provision of Paragraphs 6(b)
and 6(c)(ii), no allocation of items of loss or deduction
shall be made to a Tax Partner if it would cause the Tax
Partner to have a negative balance in its Adjusted Capital
Account. Allocations of items of loss or deduction that would
be made to a Tax Partner but for this Paragraph 6(c)(vi) shall
instead be made first to the Class IC Certificateholder to the
extent not inconsistent with this Paragraph 6(c)(vi), and
second, to the Class A and Class I Certificateholders in
proportion to the amounts distributable for the related Period
pursuant to Sections 9.04(a)(iii) of the Agreement. To the
extent allocations of items of loss or deduction cannot be
made to any Tax Partner because of this Paragraph 6(c)(vi),
such allocations shall be made to the Tax Partners in
accordance with Paragraphs 6(b) and 6(c)(ii) notwithstanding
this Paragraph 6(c)(vi).
(vii) To the extent that any item of income, gain,
loss or deduction has been specially allocated pursuant to
Paragraphs 6(c)(iv) and (vi) and such allocation is
inconsistent with the way in which the same amount otherwise
would have been allocated under Paragraphs 6(b) and 6(c)(ii),
subsequent allocations under Paragraph 6(b) and 6(c)(ii) shall
be made, to the extent possible and without duplication, in a
manner consistent with Paragraphs 6(c)(iii), (iv), (v) and
(vi) which negate as rapidly as possible the effect of all
such inconsistent allocations.
(viii) Any allocations made pursuant to this
Paragraph 6 shall be made in the following order:
(i) Paragraph 6(c)(iii)
(ii) Paragraph 6(c)(iv)
(iii) Paragraph 6(c)(v)
(iv) Paragraph 6(c)(vii)
(v) Paragraph 6(c)(i)
(vi) Paragraph 6(c)(ii)
(vii) Paragraph 6(b)(iii)
(viii) Paragraph 6(b)(i) and (ii)
These provisions shall be applied as if all distributions and
allocations were made at the end of the Fiscal Year. Where any
provision depends on the Capital Account of any Partner, that
Capital Account shall be determined after the operation of all
preceding provisions for the year. These allocations shall be
made consistently with the requirements of Treasury Regulation
Section 1.704- 2(j).
(d) The income, gains, losses, deductions and credits of the
Tax Partnership for Federal, state and local income tax purposes shall
be allocated in the same manner as the corresponding items entering
into the computation of Net Income and Net Losses were allocated
pursuant to Paragraphs 6(b) and (c) provided that solely for Federal,
local and state income and franchise tax purposes and not for book or
Capital Account purposes, income, gain, loss and deduction with respect
to property properly carried on the Tax Partnership's books at a value
other than its tax basis shall be allocated (i) in the case of property
contributed in kind, in accordance with the requirements of Code
Section 704(c) and such Treasury Regulations as may be promulgated
thereunder from time to time, and (ii) in the case of other property,
in accordance with the
113
<PAGE>
principles of Code Section 704(c) and the Treasury Regulations
thereunder as incorporated among the requirements of the relevant
provisions of the Treasury Regulations under Code Section 704(b).
(e) The Tax Partnership shall comply with all withholding
requirements under Federal, state and local law and shall remit amounts
withheld to and file required forms with the applicable jurisdictions.
To the extent the Tax Partnership is required to withhold and pay over
any amounts with respect to distributions or allocations to any Tax
Partner, the amount withheld shall be treated as a distribution to that
Tax Partner. In the event of any claimed over withholding, Tax Partners
shall have no claim for recovery against the Tax Partnership or other
Tax Partners. If the amount withheld was not withheld from actual
distributions, the Tax Partnership, may at its option, (i) require the
Tax Partner to reimburse the Tax Partnership for such withholding (and
each Tax Partner agrees to reimburse the Tax Partnership promptly
following such request) or (ii) reduce any subsequent distributions by
the amount of such withholding. If there is a possibility that
withholding tax is payable with respect to a distribution (such as a
distribution to a non-U.S. Tax Partner), the Tax Partnership may in its
sole discretion withhold such amounts in accordance with this Paragraph
6(e). Each Tax Partner agrees to furnish the Tax Partnership with any
representations and forms as shall reasonably be requested by the Tax
Partnership to assist it in determining the extent of, and in
fulfilling, its withholding obligations. If a Tax Partner wishes to
apply for a refund of any such withholding tax, the Trustee shall
reasonably cooperate with such Tax Partner in making such claim as long
as the Tax Partner agrees to reimburse the Tax Partnership for any
out-of-pocket expenses incurred.
7. Sale of Interests. The Tax Partners agree that any sale by a Tax
Partner of any ownership interest in a Certificate shall be deemed to be a sale
of all or a portion of such Tax Partner's interest in the Tax Partnership.
8. Termination of a Tax Partner's Interest. Any distribution by the Tax
Partnership in termination of any Tax Partner's interest in the Tax Partnership
other than pursuant to Paragraph 9 below shall be in an amount of cash or
property other than cash having a net fair market value equal to the positive
Capital Account balance of such Tax Partner at the time such interest is
terminated, after such Capital Account balance has been adjusted in accordance
with Paragraphs 4 and 6 above for all operations preceding such distribution and
the applicable Treasury Regulations under Code Section 704(b), and shall be made
by the later of: (a) the end of the Tax Partnership's taxable year in which such
termination occurs; or (b) within 90 days after the date of such termination.
9. Distributions upon Termination. Upon termination of the Agreement
pursuant to its terms, the activities of the Tax Partners under this Annex A
shall be concluded and the assets subject to the Agreement and this Annex A
shall be distributed to the Tax Partners in the manner and in the order set
forth below:
(a) Debts of the Tax Partnership created pursuant to the
Agreement, other than to Tax Partners, including, except as provided in
Paragraph 9(e), all amounts due and owing to the Surety Bond Issuer,
shall be paid.
(b) Debts owed among the Tax Partners created pursuant to the
Agreement shall be paid.
(c) All cash on hand representing unexpended contributions by
any Tax Partner shall be returned to the contributor.
(d) The Tax Partners' Capital Accounts shall be adjusted by:
(i) assuming the sale of all remaining assets at their fair market
values as of the date of termination of the Agreement; and (ii)
debiting or crediting each Tax Partner's Capital Account with the Tax
Partner's respective share of the hypothetical gains or losses
resulting from such assumed sales in the same manner as such Tax
Partner's Capital Account would be debited or credited under Paragraph
6 above for gains or losses on actual sales of such properties.
(e) All Tax Partnership assets shall be distributed to the Tax
Partners in accordance with their respective Capital Account balances
as so adjusted by the later of: (i) the end of the Tax Partnership's
taxable year in which the termination occurs; or (ii) within 90 days
after the date of such termination, in the following order or priority:
(i) to the Class A and Class I Certificateholders,
pro rata; and
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<PAGE>
(ii) to the Class IC Certificateholder; provided, that in the
event of an optional termination of the Trust under Section 16.02 of
the Agreement, all amounts due and owing to the Surety Bond Issuer
shall be paid to the Surety Bond Issuer after the distribution to the
Class A and Class I Certificateholders pursuant to clause (i) of this
Paragraph 9(e) and prior to the distribution to the Class IC
Certificateholder pursuant to clause (ii) of this Paragraph 9(e).
If property subject to the Agreement is distributed pursuant to this paragraph,
the amount of the distribution shall be equal to the net fair market value of
the distributed property.
115
Consent of Independent Certified Public Accountants
The Board of Directors
Capital Markets Assurance Corporation:
We consent to the use of our report included in the Form 8-K of UACSC
1997-D Auto Trust, and to the reference to our firm under the heading "Experts"
in the UACSC 1997-D Auto Trust Prospectus Supplement dated November 19, 1997.
/s/ KPMG Peat Marwick LLP
New York, New York
November 25, 1997
Exhibit 99
CAPITAL MARKETS ASSURANCE CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
(With Independent Auditors' Report Thereon)
F-1
<PAGE>
KPMG Peat Marwick LLP
345 park Avenue
New York, New York 10154
Independent Auditors' Report
The Board of Directors
Capital Markets Assurance Corporation:
We have audited the accompanying balance sheets of Capital Markets Assurance
Corporation as of December 31, 1996 and 1995 and the related statements of
income, stockholder's equity and cash flows for each of the years in the
three-year period ended 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those 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 audits provide 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 Capital Markets Assurance
Corporation as of December 31, 1996 and 1995 and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
January 29, 1997
F-2
<PAGE>
Capital Markets Assurance Corporation
Balance Sheets
(Dollars in thousands, except per share data)
ASSETS
<TABLE>
<CAPTION>
December 31 December 31
1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Bonds at fair value (amortized cost $294,861 at December 31,
1996 and $210,651 at December 31, 1995) $ 297,893 215,706
Short-term investments (at amortized cost which approximates
fair value) 16,810 68,646
- ------------------------------------------------------------------------------------------------------
Total investments 314,703 284,352
- ------------------------------------------------------------------------------------------------------
Cash 371 344
Accrued investment income 3,807 3,136
Deferred acquisition costs 45,380 35,162
Premiums receivable 5,141 3,540
Prepaid reinsurance 18,489 13,171
Other assets 6,424 3,428
- ------------------------------------------------------------------------------------------------------
Total assets $ 394,315 343,133
======================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Unearned premiums $ 68,262 45,767
Reserve for losses and loss adjustment expenses 10,985 6,548
Ceded reinsurance 1,738 2,469
Accounts payable and other accrued expenses 8,019 10,844
Current income taxes 679 136
Deferred income taxes 15,139 11,303
- ------------------------------------------------------------------------------------------------------
Total liabilities 104,822 77,067
- ------------------------------------------------------------------------------------------------------
Stockholder's Equity:
Common stock - $1.00 par value per share; 15,000,000
shares are authorized, issued and outstanding
at December 31, 1996 and 1995 15,000 15,000
Additional paid-in capital 208,475 205,808
Unrealized appreciation on investments, net of tax 1,970 3,286
Retained earnings 64,048 41,972
- ------------------------------------------------------------------------------------------------------
Total stockholder's equity 289,493 266,066
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 394,315 343,133
======================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
Capital Markets Assurance Corporation
Statements of Income
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31,1995 December 31, 1994
Revenues:
<S> <C> <C> <C>
Direct premiums written $ 71,752 56,541 43,598
Assumed premiums written 1,086 935 1,064
Ceded premiums written (15,104) (15,992) (11,069)
- -----------------------------------------------------------------------------------------------------
Net premiums written 57,734 41,484 33,593
Increase in unearned premiums (17,177) (12,242) (10,490)
- -----------------------------------------------------------------------------------------------------
Net premiums earned 40,557 29,242 23,103
Net investment income 16,992 11,953 10,072
Net realized capital gains 236 1,301 92
Other income 146 2,273 120
- -----------------------------------------------------------------------------------------------------
Total revenues 57,931 44,769 33,387
- -----------------------------------------------------------------------------------------------------
Expenses:
Losses and loss adjustment expenses 4,815 3,141 1,429
Underwriting and operating expenses 14,613 13,808 11,833
Policy acquisition costs 7,824 7,203 4,529
- -----------------------------------------------------------------------------------------------------
Total expenses 27,252 24,152 17,791
- -----------------------------------------------------------------------------------------------------
Income before income taxes 30,679 20,617 15,596
- -----------------------------------------------------------------------------------------------------
Income Taxes:
Current income tax 5,235 2,113 865
Deferred income tax 3,368 3,102 2,843
- -----------------------------------------------------------------------------------------------------
Total income taxes 8,603 5,215 3,708
- -----------------------------------------------------------------------------------------------------
Net Income $ 22,076 15,402 11,888
=====================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
Capital Markets Assurance Corporation
Statements of Stockholder's Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31,1996 December 31, 1995 December 31, 1994
<S> <C> <C> <C>
Common stock:
Balance at beginning of year $ 15,000 15,000 15,000
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 15,000 15,000 15,000
- ---------------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of year 205,808 146,808 146,808
Capital contribution 2,667 59,000 -
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 208,475 205,808 146,808
Unrealized appreciation (depreciation)
on investments, net of tax:
Balance at beginning of year 3,286 (5,499) 3,600
Unrealized appreciation (depreciation)
on investments (1,316) 8,785 (9,099)
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 1,970 3,286 (5,499)
- ---------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 41,972 26,570 14,682
Net income 22,076 15,402 11,888
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 64,048 41,972 26,570
- ---------------------------------------------------------------------------------------------------------
Total stockholder's equity $ 289,493 266,066 182,879
=========================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Capital Markets Assurance Corporation
Statements of Cash Flows
(Dollar in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 22,076 15,402 11,888
- ----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Reserve for losses and loss adjustment
expenses 4,437 1,357 1,429
Unearned premiums, net 22,496 19,862 15,843
Deferred acquisition costs (10,218) (10,302) (9,611)
Premiums receivable (1,601) (161) (2,103)
Accrued investment income (671) (390) (848)
Income taxes payable 3,911 3,621 2,611
Net realized capital gains (236) (1,301) (92)
Accounts payable and other accrued
expenses 1,020 472 3,726
Prepaid reinsurance (5,318) (7,620) (5,352)
Other, net (3,396) 992 689
- ----------------------------------------------------------------------------------------------------------
Total adjustments 10,424 6,530 6,292
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 32,500 21,932 18,180
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of investments (199,989) (158,830) (77,980)
Proceeds from sales of investments 57,210 49,354 39,967
Proceeds from maturities of investments 110,306 28,803 19,665
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (32,473) (80,673) (18,348)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Capital contribution - 59,000 -
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities - 59,000 -
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 27 259 (168)
Cash balance at beginning of year 344 85 253
- ----------------------------------------------------------------------------------------------------------
Cash balance at end of year $ 371 344 85
==========================================================================================================
Supplemental disclosure of cash flow
information:
Income taxes paid $ 4,525 1,450 1,063
==========================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
December 31, 1996 and 1995
1) Background
Capital Markets Assurance Corporation ("CapMAC" or "the Company") is a
New York- domiciled monoline stock insurance company which engages only
in the business of financial guarantee and surety insurance. CapMAC is
a wholly owned subsidiary of CapMAC Holdings Inc. ("Holdings"). CapMAC
is licensed in all 50 states in addition to the District of Columbia,
the Commonwealth of Puerto Rico and the territory of Guam. CapMAC
insures structured asset-backed, corporate, municipal and other
financial obligations in the U.S. and international capital markets.
CapMAC also provides financial guarantee reinsurance for structured
asset- backed, corporate, municipal and other financial obligations
written by other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Ratings Group
("S&P"), "AAA" by Duff & Phelps Credit Rating Co. ("Duff & Phelps"),
and "AAA" by Nippon Investors Service, Inc., a Japanese rating agency.
Such ratings reflect only the views of the respective rating agencies,
are not recommendations to buy, sell or hold securities and are subject
to revision or withdrawal at any time by such rating agencies.
2) Significant Accounting Policies
Significant accounting policies used in the preparation of the
accompanying financial statements are as follows:
a) Basis of Presentation
The accompanying financial statements are prepared on the
basis of generally accepted accounting principles ("GAAP").
Such accounting principles differ from statutory reporting
practices used by insurance companies in reporting to state
regulatory authorities.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Management believes the most
significant estimates relate to deferred acquisition costs,
reserve for losses and loss adjustment expenses and
disclosures of financial guarantees outstanding. Actual
results could differ from those estimates.
b) Investments
As of December 31, 1996 and 1995, all of the Company's
securities have been classified as available-for-sale.
Available-for-sale securities are recorded at fair value. Fair
value is generally based upon quoted market prices. Unrealized
holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and
are reported as a separate component of stockholder's equity
until realized. Transfers of securities between categories are
recorded at fair value at the date of transfer. A decline in
the fair value of any available-for-sale security below cost
that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the
security.
F-7
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
Short-term investments are those investments having a maturity
of less than one year at purchase date. Short-term investments
are carried at amortized cost which approximates fair value.
Premiums and discounts are amortized or accreted over the life
of the related security as an adjustment to yield using the
effective interest method. Dividend and interest income are
recognized when earned. Realized gains and losses are included
in earnings and are derived using the FIFO (first-in,
first-out) method for determining the cost of securities sold.
c) Premium Revenue Recognition
Premiums which are payable monthly to CapMAC are reflected in
income when due, net of amounts payable to reinsurers.
Premiums which are payable quarterly, semi-annually or
annually are reflected in income, net of amounts payable to
reinsurers, on an equal monthly basis over the corresponding
policy term. Premiums that are collected as a single premium
at the inception of the policy and have a term longer than one
year are earned, net of amounts payable to reinsurers, by
allocating premium to each bond maturity based on the
principal amount and earning it straight-line over the term of
each bond maturity. For the years ended December 31, 1996 and
1995, 91% of net premiums earned were attributable to premiums
payable in installments and 9% were attributable to premiums
collected on an up-front basis.
d) Deferred Acquisition Costs
Certain costs incurred by CapMAC, which vary with and are
primarily related to the production of new business, are
deferred. These costs include direct and indirect expenses
related to underwriting, marketing and policy issuance, rating
agency fees and premium taxes, net of reinsurance ceding
commissions. The deferred acquisition costs are amortized over
the period in proportion to the related premium earnings. The
actual amount of premium earnings may differ from projections
due to various factors such as renewal or early termination of
insurance contracts or different run-off patterns of exposure
resulting in a corresponding change in the amortization
pattern of the deferred acquisition costs.
e) Reserve for Losses and Loss Adjustment Expenses
The reserve for losses and loss adjustment expenses consists
of a supplemental loss reserve ("SLR") and a case basis loss
reserve. The SLR is established for expected levels of losses
resulting from credit failures on currently insured issues and
reflects the estimated portion of earned premiums required to
cover those losses.
A case basis loss reserve is established for insured
obligations when, in the judgment of management, a default in
the timely payment of debt service is imminent. For defaults
considered temporary, a case basis loss reserve is established
in an amount equal to the present value of the anticipated
defaulted debt service payments over the expected period of
default. If the default is judged not to be temporary, the
present value of all remaining defaulted debt service payments
is recorded as a case basis loss reserve. Anticipated salvage
recoveries are considered in establishing case basis loss
reserves when such amounts are reasonably estimable. Case
basis loss reserves may be allocated from any SLR outstanding
at the time the case basis reserves are established.
F-8
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
Management believes that the current level of reserves is
adequate to cover the ultimate net cost of claims and the
related expenses with respect to financial guarantees issued
by CapMAC. The establishment of the appropriate level of loss
reserves is an inherently uncertain process involving
estimates and subjective judgments by management, and
therefore there can be no assurance that ultimate losses in
CapMAC's insured portfolio will not exceed the current
estimate of loss reserves.
f) Depreciation
Leasehold improvements, furniture, fixtures and electronic
data processing equipment are being amortized or depreciated
over the lease term or useful life, whichever is shorter,
using the straight-line method.
g) Income Taxes
Deferred income taxes are provided with respect to temporary
differences between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the period that includes the
enactment date.
F-9
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
3) Insured Portfolio
At December 31, 1996 and 1995, the principal amount of financial
obligations insured by CapMAC was $24.5 billion and $16.9 billion,
respectively, and net of reinsurance (net principal outstanding), was
$19.7 billion and $12.6 billion, respectively, with a weighted average
life of 6.4 years and 6.0 years, respectively. CapMAC's insured
portfolio was broadly diversified by geographic distribution and type
of insured obligations, with no single insured obligation in excess of
statutory single risk limits, after giving effect to any reinsurance
and collateral, which are a function of CapMAC's statutory qualified
capital (the sum of statutory capital and surplus and mandatory
contingency reserve). At December 31, 1996 and 1995, the statutory
qualified capital was approximately $260 million and $240 million,
respectively.
<TABLE>
<CAPTION>
Net Principal Outstanding
December 31, 1996 December 31, 1995
------------------------------ -----------------------------
Type of Obligations Insured ($ in millions) Amount % Amount %
- ----------------------------------------- -------------- --------------- ---- -------------- -------------
<S> <C> <C> <C> <C>
Consumer receivables $ 10,362 52.8 $ 6,959 55.1
Trade and other corporate
obligations 8,479 43.1 4,912 38.9
Municipal/government obligations 814 4.1 757 6.0
- ----------------------------------------- -------------- --------------- ---- -------------- -------------
Total $ 19,655 100.0 $ 12,628 100.0
========================================= ============== =============== ==== ============== =============
</TABLE>
At December 31, 1996 and 1995, the principal and interest amount of
financial obligations insured by CapMAC was $29.8 billion and $20.3
billion, respectively, and net of reinsurance (net principal and
interest outstanding) was $23.3 billion and $15.1 billion,
respectively. At December 31, 1996, approximately 93% of CapMAC's
insured portfolio was comprised of structured asset-backed
transactions. Under these structures, a pool of assets covering at
least 100% of the principal amount guaranteed under its insurance
contract is sold or pledged to a special purpose bankruptcy remote
entity. CapMAC's primary risk from such insurance contracts is the
impairment of cash flows due to delinquency or loss on the underlying
assets. CapMAC, therefore, evaluates all the factors affecting past and
future asset performance by studying historical data on losses,
delinquencies and recoveries of the underlying assets. Each transaction
is reviewed to ensure that an appropriate legal structure is used to
protect against the bankruptcy risk of the originator of the assets.
Along with the legal structure, an additional level of first loss
protection is also created to protect against losses due to credit or
dilution. This first level of loss protection is usually available from
reserve funds, excess cash flows, overcollateralization, or recourse to
a third party. The level of first loss protection depends upon the
historical losses and dilution of the underlying assets, but is
typically several times the normal historical loss experience for the
underlying type of assets.
During 1995, the Company sold without recourse its interest in
potential cash flows from transactions included in its insured
portfolio and recognized $2,200,000 of income which has been included
in other income in the accompanying financial statements.
The following entities each accounted for, through referrals and
otherwise, 10% or more of total revenues for each of the periods
presented:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
--------------------------- ---------------------------- ----------------------------
% of % of % of
Revenues Revenues Revenues
----------- -- ----------- ------------ -- ----------- ----------- ----------------
<S> <C> <C> <C>
Citicorp 14.5 15.2 16.3
</TABLE>
F-10
<PAGE>
4) Investments
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value for available-for-sale securities by major
security type at December 31, 1996 and 1995 were as follows ($ in
thousands):
<TABLE>
<CAPTION>
December 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-sale Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $ 4,059 10 - 4,069
Mortgage-backed securities of
U.S. government instrumentalities
and agencies 109,436 265 1,160 108,541
Obligations of states, municipalities
and political subdivisions 177,811 4,602 555 181,858
Corporate and asset-backed
securities 20,365 23 153 20,235
-----------------------------------------------------
Total $ 311,671 4,900 1,868 314,703
=====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-sale Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $ 4,153 55 - 4,208
Mortgage-backed securities of
U.S. government instrumentalities
and agencies 100,628 313 79 100,862
Obligations of states, municipalities
and political subdivisions 166,010 4,809 82 170,737
Corporate and asset-backed
securities 8,506 45 6 8,545
-----------------------------------------------------
Total $ 279,297 5,222 167 284,352
=====================================================================================================
</TABLE>
F-11
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
The amortized cost and estimated fair value of investments in debt
securities at December 31, 1996 by contractual maturity are shown below
($ in thousands):
December 31, 1996
Amortized Estimated
Securities Available-for-sale Cost Fair Value
- ------------------------------------------------------------- -----------------
Due in one year or less $ 11,627 11,644
Due after one year through five years 31,821 32,815
Due after five years through ten years 76,450 78,200
Due after ten years 82,337 83,503
- ------------------------------------------------------------- -----------------
Sub-total 202,235 206,162
Mortgage-backed securities 109,436 108,541
- ------------------------------------------------------------- -----------------
Total $ 311,671 314,703
============================================================= =================
Actual maturities may differ from contractual maturities because
borrowers may call or prepay obligations with or without call or
prepayment penalties.
Proceeds from sales of investment securities were approximately $57.2
million, $49.3 million and $39.9 million in 1996, 1995 and 1994,
respectively. Gross realized capital gains of $772,000, $1,320,000 and
$714,000, and gross realized capital losses of $536,000, $19,000 and
$622,000 were realized on those sales for the years ended December 31,
1996, 1995 and 1994, respectively.
Investments include bonds having a fair value of approximately
$3,884,000 and $3,985,000 which are on deposit at December 31, 1996 and
1995, respectively, with state regulators as required by law.
Investment income is comprised of interest and dividends, net of
related expenses, and is applicable to the following sources:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
$ in thousands December 31, 1996 December 31, 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bonds $ 15,726 11,105 9,193
Short-term investments 1,534 1,245 484
Mutual funds - (162) 579
Investment expenses (268) (235) (184)
- -----------------------------------------------------------------------------------------------------
Total $ 16,992 11,953 10,072
=====================================================================================================
</TABLE>
F-12
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
The change in unrealized appreciation (depreciation) on
available-for-sale securities is included as a separate component of
stockholder's equity as shown below:
<TABLE>
<CAPTION>
Year Ended Year Ended
$ in thousands December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 3,286 (5,499)
Change in unrealized (depreciation) appreciation (2,024) 13,386
Income tax effect 708 (4,601)
Net change (1,316) 8,785
- ------------------------------------------------------------------------------------------------------
Balance at end of year $ 1,970 3,286
======================================================================================================
</TABLE>
No single issuer, except for investments in U.S. Treasury and U.S.
government agency securities, exceeds 2% of stockholder's equity as of
December 31, 1996 and 1995, respectively.
5) Deferred Acquisition Costs
The following table reflects acquisition costs deferred by CapMAC and
amortized in proportion to the related premium earnings:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
$ in thousands December 31, 1996 December 31, 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 35,162 24,860 15,249
Additions 18,042 17,505 14,140
Amortization (policy
acquisition costs) (7,824) (7,203) (4,529)
- -----------------------------------------------------------------------------------------------------
Balance at end of year $ 45,380 35,162 24,860
=====================================================================================================
</TABLE>
6) Employee Benefits
CapMAC has a service agreement with CapMAC Financial Services, Inc.
("CFS"). Under the service agreement, CFS has agreed to provide various
services, including underwriting, reinsurance, marketing, data
processing and other services to CapMAC in connection with the
operation of CapMAC's insurance business. CapMAC pays CFS a fee for
providing such services, but not in excess of CFS's cost for such
services. CFS incurred, on behalf of CapMAC, total compensation
expenses, excluding bonuses, of $13,374,000, $13,484,000 and
$11,081,000 in 1996, 1995 and 1994, respectively.
The Company, through CFS, maintains an incentive compensation plan for
its employees. The plan is an annual discretionary bonus award. For the
years ended December 31, 1996, 1995 and 1994, the Company had provided
approximately $8,810,000, $7,804,000 and $5,253,000, respectively, for
the plan. CFS also provides health and welfare benefits to
substantially all of its employees. The Company incurred $551,943,
$598,530, and $562,508 of expense for the years ended December 31,
1996, 1995 and 1994, respectively, for such plan. The Company also has
a defined contribution retirement plan which allows participants to
make voluntary contributions by salary reduction pursuant to section
401 (k) of the Internal Revenue Code. The Company provides for the
administrative cost for the 401 (k) plan.
F-13
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
On June 25, 1992, certain officers of CapMAC were granted 182,633
restricted stock units ("RSU") at $13.33 a share in respect of certain
deferred compensation. On December 7, 1995, the RSU's were converted to
cash in the amount of approximately $3.7 million, and such officers
agreed to defer receipt of such cash amount in exchange for receiving
the same number of new shares of restricted stock of Holdings as the
number of RSU's such officers previously held. During 1995 and 1994,
the expense was $1.3 million and $0.1 million, respectively. During
1996, Holdings assumed the liability of $3.7 million less the related
deferred tax asset of $1.1 million as capital contribution. The cash
amount is held by Holdings and invested in accordance with certain
guidelines. Such amount, including the investment earnings thereon,
will be paid to each officer upon the occurrence of certain events but
no later than December 2000.
7) Employee Stock Ownership Plan
Holdings maintains an Employee Stock Ownership Plan ("ESOP") to provide
its employees the opportunity to obtain beneficial interests in the
stock of Holdings through a trust (the "ESOP Trust"). Compensation
expense related to the ESOP and allocated to CapMAC was approximately
$2,764,000, $2,087,000 and $2,086,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
F-14
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
8) Reserve for Losses and Loss Adjustment Expenses
The reserve for losses and loss adjustment expenses consists of a case
basis loss reserve and the SLR.
In 1995, CapMAC incurred its first claim on a financial guarantee
policy. Based on its current estimate, the Company expects the
aggregate amount of claims and related expenses not to exceed $2.7
million, although no assurance can be given that such claims and
related expenses will not exceed that amount. Such loss amount was
covered through a recovery under a quota share reinsurance agreement of
$0.2 million and a reduction in the SLR of $2.5 million. The portion of
such claims and expenses not covered under the quota share agreement is
being funded through payments to CapMAC from the Lureco Trust Account
(see note 12).
The following is a summary of the activity in the case basis loss
reserve account and the components of the reserve for losses and loss
adjustment expenses ($ in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Case basis loss reserve:
Net balance at January 1 $ 620 - -
- ------------------------------------------------------------------------ --------------- ----------
Incurred related to:
Current year - 2,473 -
Prior years - - -
- ------------------------------------------------------------------------ --------------- ----------
Total incurred - 2,473 -
- ------------------------------------------------------------------------ --------------- ----------
Paid related to:
Current year - 1,853 -
Prior years 309 - -
- ------------------------------------------------------------------------ --------------- ----------
Total paid 309 1,853 -
- ------------------------------------------------------------------------ --------------- ----------
Net balance at December 31 311 620 -
Reinsurance recoverable - 69 -
- ------------------------------------------------------------------------ --------------- ----------
Gross balance at December 31 311 689 -
- ------------------------------------------------------------------------ --------------- ----------
Supplemental loss reserve
Balance at January 1 5,859 5,191 3,762
- ------------------------------------------------------------------------ --------------- ----------
Additions to supplemental loss reserve 4,815 3,141 1,429
Allocated to case basis reserve - (2,473) -
- ------------------------------------------------------------------------ --------------- ----------
Balance at December 31 10,674 5,859 5,191
- ------------------------------------------------------------------------ --------------- ----------
Total reserve for losses and loss adjustment
expenses $10,985 6,548 5,191
======================================================================== =============== ==========
</TABLE>
F-15
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
9) Income Taxes
Pursuant to a tax sharing agreement with Holdings, the Company is
included in Holdings' consolidated U.S. Federal income tax return. The
Company's annual Federal income tax liability is determined by
computing its pro rata share of the consolidated group Federal income
tax liability.
Total income tax expense differed from the amount computed by applying
the U.S. Federal income tax rate of 35% in 1996 and 1995 and 34% in
1994:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
$ in thousands Amount % Amount % Amount %
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense computed
at the statutory rate $ 10,738 35.0 $7,216 35.0 $5,303 34.0
Increase (decrease) in tax
resulting from:
Tax-exempt interest (2,916) (9.5) (2,335) (11.3) (1,646) (10.6)
Other, net 781 2.5 334 1.6 51 0.4
- -----------------------------------------------------------------------------------------------------
Total income tax expense $ 8,603 28.0 $5,215 25.3 $3,708 23.8
=====================================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred Federal income tax liability are as follows:
<TABLE>
<CAPTION>
$ in thousands December 31, 1996 December 31, 1995
<S> <C> <C>
Deferred tax assets:
Deferred compensation $ 200 1,901
Losses and loss adjustment expenses 1,527 1,002
Unearned premiums 866 852
Other, net 96 98
Total gross deferred tax assets 2,689 3,853
- -----------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs 15,883 12,307
Unrealized capital gains on investments 1,061 1,769
Other, net 884 1,080
Total gross deferred tax liabilities 17,828 15,156
Net deferred tax liability $ 15,139 11,303
=====================================================================================================
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized.
Management believes that the deferred tax assets will be fully realized
in the future.
F-16
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
10) Insurance Regulatory Restrictions
CapMAC is subject to insurance regulatory requirements of the State of
New York and other states in which it is licensed to conduct business.
Generally, New York insurance laws require that dividends be paid from
earned surplus and restrict the amount of dividends in any year that
may be paid without obtaining approval for such dividends from the
Superintendent of Insurance to the lower of (i) net investment income
as defined or (ii) 10% of statutory surplus as of December 31 of the
preceding year. No dividends were paid by CapMAC to Holdings during the
years ended December 31, 1996, 1995 and 1994. No dividends could be
paid during these periods because CapMAC had negative earned surplus.
Statutory surplus at December 31, 1996 and 1995 was approximately
$193,726,000 and $195,018,000, respectively. Statutory surplus differs
from stockholder's equity determined under GAAP principally due to the
mandatory contingency reserve required for statutory accounting
purposes and differences in accounting for investments, deferred
acquisition costs, SLR and deferred taxes provided under GAAP.
Statutory net income was $18,737,000, $9,000,000 and $4,543,000 for the
years ended December 31, 1996, 1995 and 1994, respectively. Statutory
net income differs from net income determined under GAAP principally
due to deferred acquisition costs, SLR and deferred income taxes.
11) Commitments and Contingencies
The Company's lease agreement for the space occupied in New York
expires on November 20, 2008. CapMAC has a lease agreement for its
London office, which expires on October 1, 2002. As of December 31,
1996, future minimum payments under the lease agreements are as
follows:
$ in thousands Payment
- -----------------------------------------------------------------------------
1997 $ 2,647
1998 2,715
1999 3,077
2000 3,152
2001 and thereafter 28,660
Total $ 40,251
=============================================================================
Rent expense, commercial rent taxes and electricity for the years ended
December 31, 1996, 1995 and 1994 amounted to $1,618,000, $1,939,000 and
$2,243,000, respectively.
CapMAC has available a $150,000,000 standby corporate liquidity
facility (the "Liquidity Facility") scheduled to terminate in September
1999. The Liquidity Facility is provided by a consortium of banks,
headed by Bank of Montreal, as agent, which is rated "A-1+" and "P- 1"
by S&P and Moody's, respectively. Under the Liquidity Facility, CapMAC
will be able, subject to satisfying certain conditions, to borrow funds
from time to time in order to enable it to fund any claim payments or
payments made in settlement or mitigation of claim payments under its
insurance contracts. There have been no draws under the Liquidity
Facility.
CapMAC has agreed to make an investment of 50 million French Francs
(approximately $10 million U.S. dollars) in CapMAC Assurance, S.A., an
insurance subsidiary to be established in Paris, France. This
investment is anticipated to be made in 1997.
F-17
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
12) Reinsurance
In the ordinary course of business, CapMAC cedes exposure under various
treaty and facultative reinsurance contracts, both on a pro rata and
excess of loss basis, primarily designed to minimize losses from large
risks and protect the capital and surplus of CapMAC.
The effect of reinsurance on premiums written and earned was as
follows:
<TABLE>
<CAPTION>
Years Ended December 31
1996 1995 1994
------------------------ ---------------------- -----------------------
$ in thousands Written Earned Written Earned Written Earned
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Direct $ 71,752 48,835 56,541 36,853 43,598 28,561
Assumed 1,086 1,508 935 761 1,064 258
Ceded (15,104) (9,786) (15,992) (8,372) (11,069) (5,716)
- -----------------------------------------------------------------------------------------------------
Net premiums $ 57,734 40,557 41,484 29,242 33,593 23,103
=====================================================================================================
</TABLE>
The reinsurance of risk does not relieve the ceding insurer of its
original liability to its policyholders. A contingent liability exists
with respect to the aforementioned reinsurance arrangements, which may
become a liability of CapMAC in the event the reinsurers are unable to
meet obligations assumed by them under the reinsurance contracts. At
December 31, 1996 and 1995, CapMAC had ceded loss reserves of $0 and
$69,000, respectively, and had ceded unearned premiums of $18,489,000
and $13,171,000, respectively.
In 1994, CapMAC entered into a reinsurance agreement (the "Lureco
Treaty") with Luxembourg European Reinsurance LURECO S.A. ("Lureco"), a
European-based reinsurer. The agreement is renewable annually at the
Company's option, subject to satisfying certain conditions. The
agreement reinsured and indemnified the Company for any loss incurred
by CapMAC during the agreement period up to the limits of the
agreement. The Lureco Treaty provides that the annual reinsurance
premium payable by CapMAC to Lureco, after deduction of the reinsurer's
fee payable to Lureco, be deposited in a trust account (the "Lureco
Trust Account") to be applied by CapMAC, at its option, to offset
losses and loss expenses incurred by CapMAC in connection with incurred
claims. Amounts on deposit in the Lureco Trust Account which have not
been applied against claims are contractually due to CapMAC at the
termination of the treaty.
The premium deposit amounts in the Lureco Trust Account have been
reflected as assets by CapMAC during the term of the agreement.
Premiums in excess of the deposit amounts have been recorded as ceded
premiums in the statements of income. For the 1996 policy year, the
agreement provides $7 million of loss coverage in excess of the premium
deposit amount of $5 million retained in the Lureco Trust Account.
Additional coverage is provided for losses incurred in excess of 200%
of the net premiums earned up to $4 million for any one agreement year.
In September 1995, a claim of approximately $2.5 million on an
insurance policy was applied against the Lureco Trust Account.
F-18
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
In addition to its capital (including statutory contingency reserves),
CapMAC has other reinsurance available to pay claims under its
insurance contracts. Effective November 30, 1995, CapMAC entered into a
Stop-loss Reinsurance Agreement with Mitsui Marine and Fire Insurance
Co. (the "Mitsui Stop-loss Agreement"). Under the Mitsui Stop-loss
Agreement, Mitsui Marine and Fire Insurance Co. ("Mitsui") will be
required to pay any losses in excess of $100 million in the aggregate
incurred by CapMAC during the term of the Mitsui Stop-loss Agreement on
the insurance policies in effect on December 1, 1995 and written during
the one-year period thereafter, up to an aggregate limit payable under
the Mitsui Stop-loss Agreement of $50 million. The Mitsui Stop-loss
Agreement has a term of seven years and is subject to early termination
by CapMAC in certain circumstances. Effective January 1, 1997 the
stop-loss reinsurance coverage increased to $75 million in excess of
incurred losses of $150 million increasing annually based on increases
in CapMAC's statutory qualified capital. The new stop-loss reinsurance
is provided by Mitsui, AXA Re Finance S.A. ("AXA Re") and Munchener
Ruckversicherungs-Gesellschaft ("Munich Re").
On November 30, 1995, CapMAC canceled the quota share reinsurance
agreement with Winterthur Swiss Insurance Company ("Winterthur")
pursuant to which Winterthur had the right to reinsure on a quota share
basis 10% of each policy written by CapMAC. As a result, CapMAC
reassumed approximately $1.4 billion of principal insured by Winterthur
on January 1, 1996. In connection with the commutation, Winterthur
returned $2.0 million of unearned premiums, net of ceding commission
and Federal excise tax.
13) Disclosures About Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1996 and
1995. The fair value amounts were determined by the Company using
independent market information when available, and appropriate
valuation methodologies when market information was not available. Such
valuation methodologies require significant judgment and are not
necessarily indicative of the amount the Company could recognize in a
current market exchange.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Carrying Estimated Carrying Estimated
$ in thousands Amount Fair Value Amount Fair Value
- --------------------------------------------------------------- --------------------------------------
Financial Assets:
<S> <C> <C> <C> <C>
Available-for-sale securities $ 314,703 314,703 284,352 284,352
- --------------------------------------------------------------- --------------------------------------
Off-Balance-Sheet Instruments:
Financial guarantees outstanding $ - 219,989 - 147,840
Less: ceding commission - 65,997 - 44,352
- --------------------------------------------------------------- --------------------------------------
Net financial guarantees outstanding $ - 153,992 103,488
=============================================================== ======================================
</TABLE>
F-19
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments summarized above:
Available-for-sale Securities
The fair values of fixed maturities are based upon quoted market
prices. The fair value of short-term investments approximates amortized
cost.
Financial Guarantees Outstanding
The fair value of financial guarantees outstanding consists of (1) the
current unearned premium reserve, net of prepaid reinsurance and (2)
the fair value of installment revenue which is derived by calculating
the present value of the estimated future cash inflow to CapMAC of
policies in force having installment premiums, net of amounts payable
to reinsurers, at a discount rate of 7% at December 31, 1996 and 1995.
The amount calculated is assumed to be equivalent to the consideration
that would be paid by CapMAC under market conditions prevailing at the
reporting dates to transfer CapMAC's financial guarantee business to a
third party under reinsurance and other agreements. Ceding commission
represents the expected amount that would be paid to CapMAC to
compensate CapMAC for originating and servicing the insurance
contracts. In constructing estimated future cash inflows, management
makes assumptions regarding prepayments for amortizing asset-backed
securities which are consistent with relevant historical experience.
For revolving programs, assumptions are made regarding program
utilization based on discussions with program users. The amount of
future installment revenue actually realized by the Company could be
reduced in the future due to factors such as early termination of
insurance contracts, accelerated prepayments of underlying obligations
or lower than anticipated utilization of insured structured programs,
such as commercial paper conduits. Although increases in future
installment revenue earnings due to renewals of existing insurance
contracts historically have been greater than reductions in future
installment revenue due to factors such as those described above, there
can be no assurance that future circumstances might not cause a
material net reduction in the future installment revenue.
14) Capitalization
In 1995, $59.0 million of the proceeds received by Holdings from the
sale of shares in connection with an initial public offering and
private placements were contributed to CapMAC.
F-20
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
F - 21
<PAGE>
Capital Markets Assurance Corporation and Subsidiary
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
September 30, 1997 December 31,1996
(Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Bonds at fair value (amortized cost $323,043 at September
30, 1997 and $294,861 at December 31, 1996) $ 328,035 297,893
Short-term investments (at amortized cost which
approximates fair value) 21,119 16,810
- -----------------------------------------------------------------------------------------------------
Total investments 349,154 314,703
- -----------------------------------------------------------------------------------------------------
Cash 999 371
Accrued investment income 3,998 3,807
Deferred acquisition costs 51,137 45,380
Premiums receivable 7,132 5,141
Prepaid reinsurance 23,348 18,489
Other assets 5,666 6,424
- -----------------------------------------------------------------------------------------------------
Total assets $ 441,434 394,315
=====================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Unearned premiums $ 76,023 68,262
Reserve for losses and loss adjustment expenses 15,389 10,985
Ceded reinsurance 5,653 1,738
Accounts payable and other accrued expenses 14,270 8,019
Current income taxes 626 679
Deferred income taxes 17,383 15,139
- -----------------------------------------------------------------------------------------------------
Total liabilities 129,344 104,822
- -----------------------------------------------------------------------------------------------------
Stockholder's Equity:
Common stock - $1.00 par value per share; 15,000,000 shares
are authorized, issued and outstanding at September 30, 1997
and December 31, 1996 15,000 15,000
Additional paid-in capital 208,475 208,475
Unrealized appreciation on investments, net of tax 3,251 1,970
Retained earnings 85,440 64,048
Cumulative translation adjustment, net of tax (76) -
- -----------------------------------------------------------------------------------------------------
Total stockholder's equity 312,090 289,493
- -----------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 441,434 394,315
=====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F - 22
<PAGE>
Capital Markets Assurance Corporation and Subsidiary
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Direct premiums written $ 22,345 17,206 57,525 49,983
Assumed premiums written 225 8 1,141 1,032
Ceded premiums written (7,428) (4,129) (18,049) (11,142)
- -----------------------------------------------------------------------------------------------
Net premiums written 15,142 13,085 40,617 39,873
Increase in unearned premiums (1,663) (3,042) (2,903) (11,014)
- -----------------------------------------------------------------------------------------------
Net premiums earned 13,479 10,043 37,714 28,859
Net investment income 4,958 4,307 14,344 12,296
Net realized capital gains (loss) - (57) 2,549 111
Other income 51 25 139 104
- -----------------------------------------------------------------------------------------------
Total revenues 18,488 14,318 54,746 41,370
- -----------------------------------------------------------------------------------------------
Expenses:
Losses and loss adjustment expenses 1,528 1,248 4,404 3,432
Underwriting and operating expenses 4,430 3,780 13,309 11,142
Policy acquisition costs 2,372 2,126 7,425 6,249
- -----------------------------------------------------------------------------------------------
Total expenses 8,330 7,154 25,138 20,823
- -----------------------------------------------------------------------------------------------
Income before income taxes 10,158 7,164 29,608 20,547
- -----------------------------------------------------------------------------------------------
Income Taxes:
Current income tax 2,502 1,027 6,652 3,008
Deferred income tax 172 718 1,564 2,689
- -----------------------------------------------------------------------------------------------
Total income taxes 2,674 1,745 8,216 5,697
- -----------------------------------------------------------------------------------------------
Net Income $ 7,484 5,419 21,392 14,850
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F - 23
<PAGE>
Capital Markets Assurance Corporation and Subsidiary
Consolidated Statement of Stockholder's Equity
(Unaudited)
(Dollars in thousands)
Nine Months Ended
September 30, 1997
Common stock:
Balance at beginning of period $ 15,000
- --------------------------------------------------------------------------------
Balance at end of period 15,000
- --------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of period 208,475
- --------------------------------------------------------------------------------
Balance at end of period 208,475
Unrealized appreciation on investments, net of tax:
Balance at beginning of period 1,970
Unrealized appreciation on investments 1,281
- --------------------------------------------------------------------------------
Balance at end of period 3,251
- --------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of period 64,048
Net income 21,392
- --------------------------------------------------------------------------------
Balance at end of period 85,440
- --------------------------------------------------------------------------------
Cumulative translation adjustment, net of tax:
Balance at beginning of period -
Translation adjustment (76)
- --------------------------------------------------------------------------------
Balance at end of period (76)
- --------------------------------------------------------------------------------
Total stockholder's equity $ 312,090
================================================================================
See accompanying notes to consolidated financial statements.
F - 24
<PAGE>
Capital Markets Assurance Corporation and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,392 14,850
- -------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Reserve for losses and loss adjustment expenses 4,404 3,054
Unearned premiums, net 7,761 15,643
Deferred acquisition costs (5,757) (7,188)
Premiums receivable (1,991) (528)
Accrued investment income (191) (468)
Income taxes payable 1,511 2,341
Net realized capital gains (2,549) (111)
Accounts payable and other accrued expenses 6,251 5,445
Prepaid reinsurance (4,859) (4,630)
Other, net 5,089 (381)
- -------------------------------------------------------------------------------------------
Total adjustments 9,669 13,177
- -------------------------------------------------------------------------------------------
Net cash provided by operating activities 31,061 28,027
- -------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of investments (137,369) (154,308)
Proceeds from sales of investments 74,768 35,388
Proceeds from maturities of investments 32,168 91,063
- -------------------------------------------------------------------------------------------
Net cash used in investing activities (30,433) (27,857)
- -------------------------------------------------------------------------------------------
Net increase in cash 628 170
Cash balance at beginning of period 371 344
- -------------------------------------------------------------------------------------------
Cash balance at end of period $ 999 514
===========================================================================================
Supplemental disclosures of cash flow
information:
Income taxes paid $ 6,550 3,225
Tax and loss bonds purchased $ 155 131
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F - 25
<PAGE>
Capital Markets Assurance Corporation and Subsidiary
Notes to Unaudited Consolidated Financial Statements
September 30, 1997
1. Background
Capital Markets Assurance Corporation ("CapMAC") is a New
York-domiciled monoline stock insurance company which engages only in
the business of financial guaranty and surety insurance. CapMAC is a
wholly owned subsidiary of CapMAC Holdings Inc. ("Holdings"). In early
1997, CapMAC made an investment of 50 million French francs
(approximately 10 million U.S. dollars) in CapMAC Assurance, S.A., an
insurance subsidiary to be established in Paris, France. CapMAC
Assurance, S.A., is licensed to write financial guarantee insurance in
the European Union member states.
CapMAC is licensed in all 50 states in addition to the District of
Columbia, the Commonwealth of Puerto Rico and the territory of Guam.
CapMAC insures structured asset-backed, corporate, municipal and other
financial obligations in the U.S. and international capital markets.
CapMAC also provides financial guaranty reinsurance for structured
asset-backed, corporate, municipal and other financial obligations
written by other major insurance companies.
CapMAC's claims-paying ability is rated triple-A by Moody's Investors
Service, Inc., Standard & Poor's Ratings Services, Duff & Phelps Credit
Rating Co., and Nippon Investors Service, Inc., a Japanese rating
agency. Such ratings reflect only the views of the respective rating
agencies, are not recommendations to buy, sell or hold securities and
are subject to revision or withdrawal at any time by such rating
agencies.
2. Basis of Presentation
CapMAC's consolidated unaudited interim financial statements have been
prepared on the basis of generally accepted accounting principles and,
in the opinion of management, reflect all adjustments necessary for a
fair presentation of the CapMAC's financial condition, results of
operations and cash flows for the periods presented. The results of
operations for the nine months ended September 30, 1997 may not be
indicative of the results that may be expected for the full year ending
December 31, 1997. These consolidated financial statements and notes
should be read in conjunction with the financial statements and notes
included in the audited financial statements of CapMAC as of December
31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996.
3. Reclassifications
Certain prior period balances have been reclassified to conform to the
current period presentation.
F - 26
