AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 2000
REGISTRATION NO. 333-90439
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INSURANCE SETTLEMENTS FUNDING TRUST 2000
(ISSUER OF CERTIFICATES)
CAPITAL RESOURCE GROUP ONE, LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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DELAWARE 6411 22-3705071
(State of Incorporation) (Primary Standard (I.R.S. Employee
Industrial Identification number)
Classification Code
Number)
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650 E. CARMEL DRIVE
SUITE 150
CARMEL, INDIANA 46032
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
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THOMAS J. LARUSSA
650 E. CARMEL DRIVE
SUITE 150
CARMEL, INDIANA 46032
(317) 705-5555
(Address, including zip code, and telephone number, including area code,
of agent for service)
Copies of all communications to:
Albert S. Dandridge, III, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street, 38th Floor
Philadelphia, Pennsylvania 19103
(215) 994-1257
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement has been effective.
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /x/
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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PROSPECTUS
SUBJECT TO COMPLETION
MAXIMUM -- $150,000,000
MINIMUM -- $20,000,000
INSURANCE SETTLEMENTS FUNDING TRUST 2000, ISSUER
$46,000,000 [ ]% Asset Backed Certificates Maturing ___, 2008
$104,000,000 [ ]% Asset Backed Certificates Maturing ___, 2010
CAPITAL RESOURCE GROUP ONE, LLC, SELLER
21ST HOLDINGS, LLC, MASTER SERVICER
The insurance settlements asset backed certificates offered hereby,
evidence fractional, undivided interests in the assets of Insurance Settlements
Funding Trust 2000 to be created pursuant to a pooling and servicing agreement
among:
o Capital Resource Group One, LLC, as the originator of the trust and
assignor of the insurance settlements to the trust.
o The Bank of New York, as trustee.
o 21st Holdings, LLC, as the master servicer.
o United Funds, LLC, as the subservicer of the insurance settlements and
seller of the insurance settlements to Capital.
The trust assets will include a portfolio of insurance settlements to be
generated by the purchase of insurance policies at a discount from
senior/elderly insureds, a liquidity facility, and monies due or to become due
with respect to the insurance settlements held by the trust. Prospective
investors should rely only on assets of the trust for payment of principal and
interest on the certificates. The trust currently owns no insurance settlements.
An investment in the trust involves a high degree of risk. Prospective
investors should consider the factors set forth under "Risk Factors" on page 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PROCEEDS TO
UNDERWRITING ISSUER
PRICE TO DISCOUNTS AND OR OTHER
PUBLIC COMMISSIONS PERSON
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Per Certificate........................... $5,000 $175 $4,875
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Total Maximum............................. $150,000,000 $5,250,000 $144,750,000
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Total Minimum............................. $20,000,000 $700,000 $19,300,000
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The certificates are being offered by Pryor, Counts & Co., Inc. on a best
efforts-minimum maximum basis. A minimum of $20,000,000 principal amount of
certificates must be sold not later than 90 days from the effective date of the
registration statement, subject to Capital's option to extend such period for 30
days, or all funds will be returned to subscribers, with interest at the rate of
4.0% per annum. If a minimum of $20,000,000 of certificates are sold within said
period, the offering will continue on a best efforts basis until the remaining
$130,000,000 principal amount of certificates are sold or until expiration of
the offering period, which is 12 months from the effective date of the
registration statement, whichever occurs first. All proceeds from subscriptions
to purchase the certificates will be promptly transmitted by Pryor, Counts &
Co., Inc. or participating broker/dealers by noon of the next business day after
receipt of such proceeds, to an interest bearing account of the Bank of New
York. All checks and other orders for the payment of money should be made to
"THE BANK OF NEW YORK ESCROW ACCOUNT FOR INSURANCE SETTLEMENTS FUNDING TRUST
2000."
The certificates will be delivered by the transfer agent 5 days after the
closing date. The certificates will be registered by individual book-entry by
the trustee. No person, including Pryor, Counts & Co., Inc., plans to act as a
market maker for the certificates.
PRYOR, COUNTS & CO., INC.
The date of the prospectus is February __, 2000.
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TABLE OF CONTENTS
PAGE
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Summary..................................................... 1
Risk Factors................................................ 3
Glossary.................................................... 8
Forward-Looking Statements.................................. 11
United, Capital, 21st Services and the Trust................ 11
Background................................................ 11
United.................................................... 11
Capital Resource Group One, LLC........................... 16
21st Services............................................. 17
The Trust................................................. 19
The Escrow Agent.......................................... 20
Management Fee............................................ 20
Use of Proceeds............................................. 21
Maturity Assumptions........................................ 21
Plan of Distribution........................................ 21
Registration of Certificates.............................. 22
Description of the Certificates and the Pooling and
Servicing Agreement....................................... 22
General................................................... 22
The Certificates.......................................... 23
Registration, Transfer and Exchange of Certificates....... 23
List of Certificateholders................................ 24
Interest Payments......................................... 24
Principal Payments........................................ 24
Assignment of Insurance Settlements to the Trust.......... 25
Representatives and Warranties of Capital................. 25
Eligibility of Insurance Settlements, Selection Procedure,
Solvency............................................... 26
Covenants of Capital...................................... 26
Administration and Servicing of the Insurance
Settlements............................................ 27
Servicing Compensation and Payment of Expenses............ 27
Representations, Warranties and Covenants of the
Subservicer (and Seller)............................... 28
Reports and Records of the Master Servicer and
Subservicer............................................ 29
Subservicer Default....................................... 30
Appointment of Successor Servicer......................... 31
The Trustee............................................... 31
Amendment of Pooling and Servicing Agreement.............. 32
Investor Accounts and Allocation of Collections........... 32
Priority of Payments...................................... 33
Distribution and Reports to Certificateholders............ 34
Pay Out Events............................................ 35
Additional Rights Upon Occurrence of Certain Events....... 36
Other Matters Relating to Capital......................... 36
Other Matters Relating to the Subservicer................. 37
Termination............................................... 38
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PAGE
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Description of the Insurance Settlements Purchase
Agreement................................................. 39
General................................................... 39
Sale or Transfer of the Insurance Settlements............. 39
Representation and Warranties............................. 39
Termination............................................... 40
Legal Aspects of the Insurance Settlements.................. 40
Sale and Transfer of the Insurance Settlements............ 40
Federal Income Tax Consequences............................. 42
General................................................... 42
Treatment of the Certificates as Evidences of Indebtedness
of Capital............................................. 42
Possible Classification of the Transaction as a
Partnership, or a Publicly-Traded Partnership or an
Association Taxable as a Corporation................... 43
Interest Income to Certificateholders..................... 43
Gain or Loss on Disposition of Certificates............... 44
Foreign Investors......................................... 44
Backup Withholding........................................ 44
ERISA Considerations........................................ 45
Debt Interest Exception................................... 45
Publicly-Offered Security Exception....................... 45
Exception for Insignificant Participation by Benefit Plan
Investors.............................................. 45
Transferability of Certificates............................. 46
Investment Company Act of 1940.............................. 46
Legal Matters............................................... 46
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in the prospectus.
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The Offering................................. A maximum of $150,000,000 and a minimum of
$20,000,000 principal amount of certificates will be
offered for sale to the public. Each investor must
subscribe to purchase certificates in the minimum
denominations of $5,000 and integral multiples of
$1,000 in excess of such minimum denomination.
If the minimum amount of subscriptions has been
timely received, then, with 2 days prior notice, on
the closing date, the Bank of New York shall release
to Capital funds equal to the amount of insurance
settlements available for purchase in exchange for
certificates in the similar principal amount which
amount shall not be less than $20,000,000. All
subsequent proceeds will be deposited into the escrow
account until the earlier of:
o such time and from time to time that insurance
settlements are available for purchase by Capital in
exchange for certificates of equivalent amounts,
less amounts paid to the placement agent and fees
and expenses associated with the offering;
o 12 months from the effective date of the
registration statement; or
o the date on which a total of $150,000,000 principal
amount of certificates has been issued.
The certificates represent beneficial undivided
interests in the trust only and do not represent
interests in or obligations of Capital, United or any
affiliate thereof. The certificates are not insured
or guaranteed by any federal or state governmental
agency.
Capital shall have the option to purchase the
certificates at 102.50% of the outstanding principal
amount thereof after each 5 year period,
respectively. The entire principal amount of Tranche
I of the certificates shall be due and payable no
later than the final distribution date following the
Tranche I final maturity date which has been defined
as the close of business on the first business day
and the date 8 years from the first closing date and
the entire principal amount of Tranche II the
certificates shall be due and payable no later than
the final distribution date following the Tranche II
final maturity date which has been defined as the
close of business on the first business day and date
occurring 10 years from the first closing date.
Capital...................................... Capital Resource Group One, LLC, a Delaware limited
liability company, was incorporated on October 21,
1999 and was formed for the limited purpose of
acquiring insurance settlements from United and
assigning them to the trust pursuant to the pooling
and servicing agreement. Capital will be the
originator of the trust. Capital's address is 650 E.
Carmel Drive, Suite 150, Carmel, Indiana 46032. Its
telephone number is (317) 705-5555.
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Subservicer.................................. United Funds, LLC, a Delaware limited liability
company, was incorporated on October 21, 1999 and was
formed for the purpose of acquiring insurance
settlements, selling them to Capital and servicing
the insurance settlements pursuant to the pooling and
serving agreement. United is an affiliate of Capital.
Master Servicer.............................. 21st Services, a national insurance services agency,
will perform the functions as master servicer as
described in the pooling and servicing agreement and
the master servicer agreement.
Trustee...................................... The Bank of New York, a New York banking corporation,
will perform the functions of trustee described in
the pooling and servicing agreement. The trustee will
also act as paying agent and transfer agent and
registrar of the certificates under the terms of the
pooling and servicing agreement. In addition, the
Bank of New York will perform the services of escrow
agent pursuant to the escrow agreement.
Federal Income Tax Consequences.............. Capital under the pooling and servicing agreement,
and each certificateholder, by acceptance of its
certificate, agree to treat the certificates as
indebtedness of Capital for federal, state and local
income and business tax purposes. However, no tax
ruling will be requested by Capital or the trust with
respect to this characterization. If the
characterization of the certificates as debt
obligations of Capital were successfully challenged
by the Internal Revenue Service, there may be adverse
tax consequences to certificateholders. See "Federal
Income Tax Consequences".
Financial Information........................ Capital has determined that its financial statements
are not material to the offering made hereby.
The trust will be formed to benefically own insurance
settlements and to issue the certificates. The trust
will have no assets or obligations prior to the
issuance of the certificates and will not engage in
activities other than those described herein.
Accordingly, no financial statements with respect to
the trust are included in the prospectus.
Reports to Certificateholders................ Once every year during the term of the trust, the
financial statements of the trust will be audited by
independent public accountants and such statements
will be made available to certificateholders.
Additionally, a semi-annual certificateholders'
statement and an annual certificateholders' tax
statement will be sent to each certificateholder. See
"Description of the Certificates and the Pooling and
Servicing Agreement."
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The certificates are offered subject to prior sale, to allotment and
withdrawal and to cancellation or modification of the offer without notice. The
placement agent reserves the right, in its discretion, to reject orders in whole
or in part for the purchase of certificates offered hereby, notwithstanding the
tender of payment by check or otherwise.
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authoried by the trust, Capital or United. This prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the certificates, or an offer or solicitation of any person in any jurisdiction
in which such offer or solicitation would be unlawful.
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RISK FACTORS
Potential investors should be aware that an investment in the trust
involves a high degree of risk. There can be no assurance that the trust's
investment objectives will be achieved or that an investor will receive a return
of its capital. We also caution you that this prospectus includes
forward-looking statements that are based upon our beliefs and assumptions and
on information currently available to us. The following considerations should be
carefully evaluated before making an investment in the trust.
Dependence on United, Capital and 21st Services. The trust shall look
solely to Capital and Capital shall look solely to United for the acquisition of
insurance settlements. There can be no assurance that United will be able to
purchase a sufficient amount of insurance settlements to utilize the entire
$150,000,000 anticipated to be raised from this offering of certificates. If
United were to cease acting as subservicer, and if 21st Services were to cease
acting as master servicer, delay in processing payments on the insurance
settlements and information with respect thereto could occur, resulting in:
o delays in payments to the certificateholders;
o the early termination of the trust; and
o early maturity of the certificates.
United, in turn is dependent upon Thomas LaRussa, the loss of whom could
adversely affect United's business and its ability to perform its duties and
obligations under the pooling and servicing agreement and the insurance
settlements purchase agreement. The loss of Paul Kirkman, Robert Simon and
Steven Walker of 21st Services who will perform the master servicer functions,
could also adversely affect its obligations under the pooling and services
agreement. There is currently a $5 million key-man insurance policy on Mr.
LaRussa. Unanticipated delays in the collection of policies will reduce the
trust's actual yield on its portfolio and adversely affect the trust's cash
flow. See "United, Capital, 21st Services and the Trust."
Dependence on Ability to Predict Life Expectancies. The trust's operations
and financial results are highly dependent on the ability of United and 21st
Services, to predict accurately life expectancies. Life expectancy is a
significant factor in United's determination of the purchase price of an
insurance policy. See "United, Capital, 21st Services and the Trust."
Cures and Advances in Medical Treatments for Terminal Illnesses Will Reduce
the Return on and the Need for Insurance Settlements. The development of a cure
for or vaccine against diseases and other terminal illnesses or the development
of new drugs or other treatments which extend the life expectancy of individuals
with such illnesses could delay substantially the collection of the face value
of policies assigned to the trust. Any such delay could materially reduce the
trust's actual yield on its portfolio, materially adversely affect the trust's
cash flows and extend the period over which the trust would recognize future
income. In addition, such medical developments would likely reduce the number of
individuals seeking insurance settlements. Substantial reductions in the cost of
treating terminal illnesses, including reductions from the development of less
costly treatments, may also reduce the number of individuals seeking insurance
settlements. The trust's profitability is directly linked to its ability to
collect the face value of its life insurance policies within the estimated life
expectancy of the insured. While some individual insureds will outlive their
estimated life expectancy, others will not. The trust will mitigate this risk by
investing in fully underwritten insurance policies of senior/elderly persons and
having two Tranches with maturities of 8 and 10 years, respectively, thereby
reducing the impact of some insureds outliving their life expectancy. Advances
in medical treatment or cures that significantly prolong the lives of insureds
who have sold their life insurance policies to the trust may eliminate any
profits and may lead to substantial losses. However, United anticipates that
almost all of its purchases will be settlements of senior/elderly persons which
represent a much more diverse array of life threatening or life shortening
illnesses than has historically been present in the viatical settlement market
which to date has largely involved AIDS patients.
Possible Shortfall in Liquidity Account. Inaccurate life expectancy
estimates could result in the depletion of the liquidity account. While
investing in a large portfolio of insurance settlements mitigates this risk, if
the liquidity account is depleted for any reason, the trust would be unable to
pay premiums on outstanding policies and the policies would lapse. Anticipating
such circumstances, the trust could attempt to
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liquidate some of its remaining policies through a sale to one or more third
parties. The sale price would take into account the then estimated life
expectancies represented by the insurance policies plus a further discount
representing a reserve to permit the purchaser to pay premiums for a period of
time after the sale.
The risk of shortfalls in the liquidity account will be mitigated somewhat
since funds will not be released from the liquidity account as insurance
settlements are liquidated or as policy proceeds are received. Thus, the
liquidity account will benefit from any overestimates of life expectancies.
Delay in Payment and Non-Payment of Policy Proceeds. A number of arguments
may be addressed by former beneficiaries under a policy or by the insurance
company issuing a policy to deny or delay payment to the trust of the proceeds
of a policy following an insured's death, including arguments related to lack of
mental capacity of the insured or applicable periods of contestability or
suicide provisions. Furthermore, the trust may be unable to collect the face
value of any insurance policy issued by an insurance company which becomes
insolvent. While virtually all states have established guarantee funds to pay
the face value of life insurance policies issued by insolvent insurance
companies, the face value of a policy may exceed the amount provided by such
fund and, in any event, a significant delay in the receipt of payment may occur.
Prior to purchasing a policy, United and 21st Services, will follow a procedure
designed to minimize the risk that any of the foregoing will result in
non-payment of proceeds to the trust. Delay for any reason in the trust's
collection of the face value of a life insurance policy following the death of
the insured could have an adverse effect on the trust's profits and
distributions. The types of events that could cause a delay in payment include
disputes with third parties concerning the mental capacity of the insured at the
time of sale of the policy, inability to obtain a death certificate in a timely
manner, disputes with former beneficiaries concerning the release of their
interests, and other problems relating to the transfer of title of the life
insurance policy. The trust could also experience difficulty obtaining a death
certificate for a deceased insured if the insured disappears prior to such
insured's death, the insured dies outside of the Unites States or the trust is
unable to immediately determine the country where the insured died.
Nontransferability of Certificates. Pryor, Counts & Co., Inc. has advised
Capital that it does not intend to act as a market maker of the certificates.
Negative Effect of Increase in Interest Rates. Changes in interest rates,
and expectations about changing interest rates, will have a variety of affects
on the trust's business. The trust's profitability is dependent to a significant
degree on the difference or the spread between the cost of the insurance
settlements and the yield that it earns on its portfolio of policies. An
increase in interest rates may affect the price the trust is willing to pay for
the insurance settlements. Any substantial increase in interest rates will
result in either a decrease in the purchase price the trust is willing to pay
for insurance settlements or a lower spread. If the trust's purchase prices were
to become significantly lower than its competition's purchase prices, the number
of policies available to the trust could decrease. In addition, due to current
and proposed regulations in several states which provide minimum purchase prices
for policies, the trust may be unable to decrease its purchase prices to fully
account for the interest rates paid on the certificates. See "Risk
Factors--Possible Costs of and Delays Attributable to Government Regulation."
Competition From Other Insurance Settlement Companies and/or Insurance
Companies. The acquisition and servicing of insurance settlements is not
unique. Several other companies offer similar services and many of them are
larger and have greater resources than United and Capital. These other companies
could choose to enter United's and Capital's target market and devote greater
resources and capital to the acquisition of insurance settlements from
seniors/elderly insureds. The resources and capital of the other companies,
including insurance companies, are much greater than those which United and
Capital currently have available to them or which United and Capital may have
available in the future and thus United and Capital may be restricted in their
abilities to engage in business competitively with these other companies. See
"United, Capital, 21st Services, and the Trust--Competition."
Possible Costs of and Delays Attributable to Government
Regulation. Capital and United either will be not required to be licensed, will
be licensed, or will temporarily be permitted to do business without a license
in various states. Currently only two states, Florida and Texas, regulate
senior/elderly life insurance settlements.
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At present, Capital and United have no reason to believe that they will be
unable to comply with the licensing requirements of any particular jurisdiction.
However, the number of states enacting statutes governing the insurance
settlement industry is growing, and states with existing insurance settlement
statutes are broadening the scope of their regulations.
There can be no assurance that, in the future, there will not be periods
when Capital and United are not in compliance with state regulations and during
which Capital and United will be unable to comply. See "United, Capital, 21st
Services and the Trust--Government Regulation."
A few states, have either adopted or are seriously considering the adoption
of legislation that regulates the minimum purchase prices to be paid for
insurance settlements. Capital and United will comply with any and all
legislation enacted by these jurisdictions and others. Compliance with minimum
purchase price requirements may significantly reduce the trust's profitability
and ability to make distributions. Because minimum purchase price requirements
may prevent the trust from earning an acceptable margin of profit on the life
insurance policies in its portfolio, such requirements may force the trust not
to purchase life insurance policies in states imposing such restrictions.
Every state has statutes governing persons and entities engaged in the
conduct of an insurance business. United is not aware of any judicial or
administrative opinion from any jurisdiction conclusively finding that
investment in insurance settlements constitutes the conduct of an insurance
business. It is possible, however, that investment in insurance settlements
will, in the future, be interpreted as the conduct of an insurance business. The
trust will not be organized as an insurance company. If a significant number of
jurisdictions, particularly jurisdictions from which the trust will obtain a
large amount of insurance settlements limit the trade in insurance settlements
to insurance companies, this is likely to have a material adverse effect on the
trust and its prospects for financial success.
Limited Assets Other Than Insurance Settlements. The trust does not have,
nor is it expected to or permitted to have, any assets other than insurance
settlements and temporary investments. Investors, therefore, must rely on
payment of death benefits on policies beneficially owned by the trust.
No Regulation as an Investment Company. While the trust may be considered
similar to an investment company, it does not intend to register as such under
the Investment Company Act of 1940, and accordingly, the provisions of that Act,
which, among other matters, require investment companies to have a majority of
disinterested directors and regulate the relationship between the investment
advisers and the investment company, will not be applicable. See "Investment
Company Act of 1940."
Adverse Effect of Bankruptcy or Insolvency of United. United will warrant
to Capital in the insurance settlements purchase agreement between them that the
sale of the insurance settlements by United to Capital is a true and valid sale.
In addition, United will take all actions that are required under the law of
each of the jurisdictions in which the insurance settlements are purchased to
protect Capital's ownership interest in the insurance settlements in the event a
court should rule that the sale to Capital was not a true sale but a financing
arrangement. United will treat each transaction as a sale, and as such, the
insurance settlements would not be part of United's estate should United be
subject to bankruptcy proceedings or creditors' rights proceedings.
Notwithstanding the foregoing, if United were to become a debtor in a bankruptcy
proceeding and a creditor, Trustee-in-Bankruptcy, or United itself, as debtor,
were to assert that the sale of the insurance settlements to Capital should be
recharacterized as a pledge of such insurance settlements to secure the
borrowing of United, then delays in payments of collections to the trust and the
certificateholders could occur or, in the event a bankruptcy court were to rule
in favor of any such trustee, creditor, or United, then reductions in the amount
of such payments could result in reduction in payments to certificateholders.
See "Legal Aspects of the Insurance Settlements--Sale and Transfer of the
Insurance Settlements."
Adverse Effect of Bankruptcy or Insolvency of Capital. Capital will
warrant in the pooling and servicing agreement that the assignment of the
insurance settlements to the trust is an irrevocable assignment of its
beneficial interest in the insurance settlements to the trust. Capital will take
all actions required under the laws of each jurisdiction in which the insurance
settlements are assigned to establish the trust's interest in the insurance
settlements. Notwithstanding the foregoing, if Capital were to become a debtor
in a bankruptcy proceeding, and a bankruptcy trustee, Capital as a debtor in
possession, or a creditor of Capital were to assert
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that the assignment of the insurance settlements from Capital to the trust
should be recharacterized as a pledge of such insurance settlement to secure the
borrowing of Capital or, if a bankruptcy court were to rule in favor of any such
trustee, debtor in possession, or creditor, then delays or reductions in the
distribution of payment to certificateholders could result.
Breach of Warranties Will Not Result in Repurchase of Policies. Capital
will represent and warrant to the trust and United will represent and warrant to
Capital that the insurance settlements are valid and enforceable. However, it is
not anticipated that the trustee will make any examination of the insurance
settlements or the records relating thereto for the purpose of establishing the
presence or absence of defects, compliance with such representations and
warranties, or for any other purpose. In addition, there are no provisions in
the insurance settlements purchase agreement for any repurchases of policies by
United or Capital.
No Operating History; New Industry. Both Capital and United were
incorporated in October 1999 and have no operating history. The trust was
created under the pooling and servicing agreement dated _____________, 2000 and
has no operating history. In addition, the senior/elderly insurance settlements
industry is relatively new. There can be no assurance that the senior/elderly
insurance settlements industry will remain a viable industry or that the trust
will remain competitive in the industry.
Limited Obligations of United and Capital. Neither United nor Capital has
any obligation to make any payments with respect to the certificates or the
insurance settlements.
Effective Certificate Yield Lower Than Certificate Rate. The effective
yield to certificateholders on their certificates will be below that otherwise
produced by the certificate interest rate because, while interest will accrue on
the certificates from the first day of each calendar month, distributions of
such interest will be made semi-annually.
Limited Credit Enhancement. Credit enhancement of the certificates will be
provided by the liquidity account and overcollateralization up until the final
maturity date based upon the trust advancing funds in an amount significantly
less than the face amount of the insurance policies represented by the insurance
settlements.
Dependence on and Concentration of Sourcing Brokers. United will purchase
policies referred by sourcing brokers and other referral sources, including 21st
Services. Some of these sourcing brokers are under a contractual agreement to
refer policies to United, however, none is restrained from referring policies to
United's competitors. Sourcing brokers tend to be relatively small independent
businesses with limited capital resources. Therefore, no assurance can be given
that existing sourcing brokers will remain in business or that relationships
with sourcing brokers or other referral sources can be established. In the event
that United's relationship with the sourcing brokers were not to be established
or to cease, the trust's operations could be adversely affected. United believes
that it has established a good relationship with sourcing brokers, including
21st Services.
No Rating of the Certificates Has Been Received. A rating by a rating
agency is not a condition to issuance of the certificates. Investors are advised
to make your decision to purchase certificates based on the certificates being
unrated unless and until a rating has been secured. Capital has requested a ___
rating of the certificates from _____________________. If such rating has been
secured it will be included in the final prospectus or the prospectus will be
updated to disclose what rating was actually received from the rating agency
and, if the requested rating is different from the actual rating, the reasons
why the rating agency declined to give the certificates the requested rating. If
an investment grade rating is not available, Capital will withdraw the rating
request. There can be no assurance that the certificates will be rated. There is
no assurance that a rating, if given, will remain for any given period of time
or that a rating will not be lowered or withdrawn entirely by a rating agency if
in its judgment circumstances so warrant. A rating is based on the following
factors: the type of insurance settlements; the financial stability of the
insurance companies who must pay claims used in payment of the insurance
settlements; the diversification of the pool of insurance settlements based upon
the underlying concentration of life insurance claims from a particular life
insurance company; the degree of overcollateralization of the certificates; the
size of the pool of insurance settlements; the collection history, or lack
thereof, of United; and the credit ratings of the credit enhancement, if any, of
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the certificates. A rating is not a recommendation to purchase, hold or sell
certificates, inasmuch as a rating does not comment as to market price or
suitability of the market or investment for a particular investor. A rating
agency does not evaluate the likelihood of successful remarketing of the
certificates. The certificates are considered by a rating agency to be
securities.
Possible ERISA Prohibition. It is anticipated, although no assurance is
hereby given, that the trust's assets will not be deemed or characterized as
plan assets under the Plan Asset Regulations of the Department of Labor, and
that transactions involving the trust will not be prohibited under those
regulations or under Section 406 of ERISA or Section 4975 of the Internal
Revenue Code of 1986, as amended. Benefit plans, benefit plans' fiduciaries or
anyone purchasing the certificates should consult with their counsel concerning
the effect that ERISA, its regulations, or the Internal Revenue Code may have on
such benefit plan or person. See "ERISA Considerations."
Possible Adverse Federal Income Tax Consequences. Capital under the
pooling and servicing agreement and each certificateholder by acceptance of its
certificate agree to treat the certificates as indebtedness of Capital for
federal, state and local income and business tax purposes. No tax ruling will be
requested by Capital or the trust with respect to this characterization. If the
characterization of the certificates as debt obligations of Capital were
successfully challenged by the Internal Revenue Service, there may be adverse
tax consequences to certificateholders. There can be no assurance that the IRS
will not assert that the legal relationship among Capital and the
certificateholders is that of a partnership, publicly traded partnership or an
association taxable as a corporation. If the arrangement were treated as a
publicly-traded partnership, unless exceptions apply, or as an association
taxable as a corporation, it would be subject to federal income taxes at
corporate tax rates on the taxable income generated by the ownership of the
insurance settlements. Such a tax would result in reduced distributions to
certificateholders. Distributions to Capital and to the certificateholders would
not be deductible in computing the taxable income of the corporation. In
addition, all or a portion of any such distributions made to the
certificateholders would, to the extent of the current and accumulated earnings
and profits of such corporation, be treated as dividend income to the
certificateholders. You should consult with your counsel concerning the effect
of the tax matters discussed herein. See "Federal Income Tax Consequences".
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GLOSSARY
"Amortization period" shall mean, with respect to each certificate, the
period between the closing date and the final maturity date.
"Assignment" shall mean a written assignment transferring the insurance
settlements to the trust and executed by Capital.
"Authorized newspapers" shall mean each newspaper of general circulation in
New York, or Carmel, Indiana, or in any other place specified by Capital,
printed in the English language and customarily published on each business day,
whether or not published on Saturdays, Sundays or holidays.
"Business day" shall mean each day which is neither a Saturday, a Sunday
nor any other day on which banking institutions in New York are authorized or
obligated by law or required by executive order to be closed.
"Certificate" shall mean any one of the certificates issued by the trust
and representing an undivided interest in the trust and the right to receive
payments of principal and interest on such certificates.
"Certificate interest" shall mean any and all interest which shall accrue
on a certificate from the applicable closing date of the particular certificate.
"Certificate principal" shall mean the outstanding principal amount of the
certificate at the time of determination.
"Certificate rate" shall mean, with respect to the Tranche I certificates,
[ ]% per annum and with respect to the Tranche II certificates, [ ]% per
annum, calculated on the basis of a 360 day year consisting of 30 day months,
provided that, in the case of the month in which any such certificate is first
issued, such rate shall be calculated for the number of actual days remaining in
the month from the date of issuance.
"Certificate register" shall mean a register kept at the office or agency
in which the transfer agent and registrar shall provide for the registration of
the certificates and of transfer and exchanges of the certificates.
"Closing date" shall mean, with respect to any certificate, the date of
issuance of such certificate.
"Collections" shall mean all payments (including all payments received from
an insurance company) received by the subservicer or trust with respect to the
insurance settlements, in the form of cash, checks, wire transfers, electronic
transfers or other form of payment.
"Debtor relief laws" shall mean the United States Bankruptcy Code and all
other applicable liquidation, rearrangement, receivership or conservatorship or
similar laws affecting rights of creditors generally.
"Determination date" shall mean the 10th day of the month immediately
succeeding the month in which the first closing date occurs and each six month
anniversary thereof, or, if any such 10th day is not a business day, the next
succeeding business day.
"Distribution date" shall mean the 15th day of the month immediately
succeeding the month in which the first closing date occurs and each six month
anniversary thereof, or, if any such 15th day is not a business day, the next
succeeding business day.
"Escrow account" shall mean an interest bearing account established by the
trustee for the benefit of the certificateholders to deposit subscription
proceeds prior to a closing date.
"Fee determination date" shall mean the 10th day of the month after the
month in which the first closing date occurs and the 10th day of each calendar
month thereafter, or, if any such 10th day is not a business day, the next
succeeding business day.
"Fee distribution date" shall mean the 15th day of the month after the
month in which the first closing date occurs and the 15th day of each calendar
month thereafter, or, if any such 15th day is not a business day, the next
succeeding business day.
"Final maturity date" shall mean the close of business on the first
business day and date 8 and 10 years, respectively, from the date of the first
closing date whereby the first certificate is issued by the trust.
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"Governmental authority" shall mean the United States of America, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Insurance claims" means a claim for payment under a life insurance policy
issued by an insurance company.
"Insurance company" or "insurance companies" shall mean those legal
entities authorized and admitted by a governmental authority to do insurance
business in the state under a certificate of authority and authorized to write
life insurance policies.
"Investor accounts" shall mean each of the insurance settlements account,
lockbox account, liquidity account, and the distribution account.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
encumbrance of lien or preferential arrangement, and the filing of a financing
statement to evidence any of the foregoing.
"Master servicer's fee" shall mean an annual fee equal to 0.1925% until the
expiration of the offering period and thereafter 0.09625% of the principal
amount of certificates outstanding, payable monthly in accordance with the
pooling and servicing agreement. The minimum payment will be $5,000 per month.
"Officer's certificate" shall mean a certificate signed by any officer of
Capital or the subservicer, as appropriate, and delivered to the trustee.
"Paying agent" shall mean the trustee or any paying agent appointed by the
trustee.
"Permitted investment" shall mean any one or all of the following types of
investments (1) negotiable instruments or securities represented by instruments
in bearer or registered form which evidence any one or all of the following
types of obligations:
o obligations fully guaranteed by the United States of America;
o time deposits in, or bankers' acceptances issued by, any depository
institution or trust company incorporated under the laws of the United
States of America or any state thereof and subject to supervision and
examination by federal or state banking or depository institution
authorities which the certificates of deposit, short-term deposits or
long-term secured debt obligations, if any, of such depository
institution or trust company shall meet certain credit rating standards
of Duff & Phelps, Moody's and/or Standard & Poor's, as may be applicable,
or such time deposits are fully insured by the Federal Deposit Insurance
Corporation;
o certificates of deposit which meet, at the time of the trust's investment
or contractual commitment to invest therein, certain rating standards of
Duff & Phelps, Moody's and/or Standard & Poor's, as may be applicable;
o investments in money market funds rated in the highest investment
category or otherwise approved, in writing by Duff & Phelps, Moody's
and/or Standard & Poor's; and
o investments in a Fidelity Fund Money Market Account;
(2) demand deposits in the name of the trust or the trustee in any
depository institution or trust company referred to in (1)(b) above; and (3)
securities not represented by an instrument, which are registered in the name of
the trustee upon books maintained for that purpose by or on behalf of the issuer
thereof and which consists of shares of any open end diversified investment
company which is registered under the Investment Company Act of 1940, as
amended, and which meets certain other prescribed investment guidelines.
"Person" shall mean any legal person, including any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, governmental entity or other entity of
similar nature.
"Record date" shall mean with respect to any distribution date the last
business day of the preceding month.
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"Requirements of law" for any legal person shall mean the certificate of
incorporation or articles of association or bylaws or other organizational or
governing documents of such person and any law, treaty, rule or regulation, or
determination of an arbitrator or governmental authority (defined as the United
States of America or any state or local subdivision thereof), in each case
applicable to or binding upon such person or to which such person is subject
(including, without limitation, the Federal Trust in Lending Act, Fair Debt
collection Act and retail installment sales acts).
"Scheduled trust termination date" shall mean the close of business on the
first business day and date six (6) months after the final maturity date.
"Servicing fee percentage" shall equal .55%.
"Subservicer" shall mean United, the master servicer or successor servicer
as applicable, which entity is then performing duties of subservicer under the
pooling and servicing agreement.
"Subservicer's fee" shall mean an annual fee equal to 0.3575% until the
expiration of the offering period and thereafter 0.45375% of the principal
amount of the certificates outstanding, payable monthly in accordance with the
pooling and servicing agreement.
"Transfer agent and registrar" shall initially be the trustee's corporate
trust office in New York, New York or any transfer agent and registrar appointed
by trustee.
"Transfer date" shall mean the business day next preceding each
distribution date or fee distribution date, as applicable.
"Trustee's fee" shall mean the fees and charges outlined in its letter of
January 21, 2000 shall be the customary and usual charges made by the trustee
for similar services provided to its customers. The trustee's fee will aggregate
approximately $150,000 per year.
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FORWARD-LOOKING STATEMENTS
Some statements in this prospectus constitute forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements or
industry results to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements. Such
factors include those described in "Risk Factors." The forward-looking
statements included in this prospectus may prove to be inaccurate. In light of
the significant uncertainties inherent in these forward-looking statements, you
should not consider this information to be a guarantee by us or any other person
that our objectives and plans will be achieved.
UNITED, CAPITAL, 21ST SERVICES AND THE TRUST
BACKGROUND
The insurance settlement market has grown significantly since its beginning
in the late 1980's. Each year, more than $10 billion in death benefits are paid
to the beneficiaries of insureds who died of predictable terminal illnesses or
chronic incurable diseases.
The market potential for policies insuring the lives of individuals seeking
to sell for reasons of estate purposes, advanced age, incurable medical
conditions, life care, etc. is estimated by various sources, to be in excess of
$200 billion and it is estimated that the insurance settlements market will
reach $4 billion this year.
This figure represents those policies that are purchasable because of the
accuracy in predicting the life expectancy of these insureds. Medical advances
coupled with actuarial statistics have created the potential for this market.
UNITED
The trust will be subserviced by United Funds, LLC. United has no operating
history. United has 5 employees, is minimally capitalized and is currently
applying for licenses in various states in connection with its purchase of
insurance settlements. United does not anticipate not being able to be licensed
in any state in which a license is required. After the formation of the trust,
United will (a) purchase insurance settlements for its own account and will sell
and transfer those insurance settlements to Capital pursuant to the insurance
settlements purchase agreement and (b) service those insurance settlements
assigned to the trust from Capital pursuant to the pooling and servicing
agreement. United's address is 650 S. Carmel Drive, Suite 150, Carmel, Indiana
46033. Its telephone number is (317) 705-5555.
United is managed by Thomas J. LaRussa, age 31. Mr. LaRussa from April 1999
has been the President of Capital Resources Group, LLC, an insurance settlements
company. From July 1997 to April 1999 he was a Vice President--Finance, with
Merrill Lynch Co., Inc. From August 1996 until June 1997 he was a consultant
with Infinity Medical Management, a viatical settlements company, and from
December 1994 until August 1996 he was an Informational Services Analyst with
Merrill Lynch & Co., Inc. Mr. LaRussa received his Bachelor of Arts Degree from
the University of Rochester, cum laude, in 1990.
United intends to be is a nationwide specialty financial services company
that purchases insurance settlements from senior/elderly insureds. An insurance
settlement is the payment of cash in return for an ownership interest in, and
the right to receive the face value of a life insurance policy. Upon such
payment, the policyholder assigns his or her policy to the United, which becomes
the holder, owner or certificate holder of the policy and the beneficiary
thereunder and would receive from the insurance company the face value payable
under the policy following the death of the insured. The amount paid by United
for a policy is determined by United based on various factors, including the
United's estimated life expectancy of the insured as per 21st Services, the
estimated premiums payable under the policy over the expected life of the
insured and certain other costs of the insurance settlement.
United has and intends to continue to enter into agreements with referral
sources, primarily sourcing brokers, financial planners, healthcare
professionals and elder care organizations to purchase insurance
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policies from insureds pursuant to which United will purchase the insurance
settlements at a discount of between 20% and 90% of the face amount of the
insurance policies. United may also use 21st Services or its affiliates as
sourcing brokers. United will evaluate and process the insurance settlements.
21st Services will also make an extensive evaluation of such policies. United
will then sell the insurance settlements, without recourse to Capital. Capital
will assign the beneficial interest in such insurance settlements to the trust.
United expects that a significant amount of its initial referrals will come from
21st Services. United will pay 21st Services a fee of .30% of the face amount of
each policy purchased by United.
United's business will involve the following principal steps:
o origination of policy purchases through a nationwide referral network
that will include insurance settlement sourcing brokers;
o underwriting, which includes evaluating the terms of each policy and,
with the assistance 21st Services, estimating the life expectancy of the
insured;
o closing the transaction, which includes execution of a sale agreement,
releases of beneficiaries and an insurance policy assignment as well as
payment of the purchase price;
o monitoring the insured and the policy; and
o collecting the policy proceeds following the insured's death.
ORIGINATION
United will obtain information regarding potential policy purchases from a
nationwide referral network that includes sourcing brokers and community groups
and professionals (including health care practitioners, care groups, financial
planners, attorneys and doctors) involved in the treatment of and provision of
services to the elderly.
United has formal agreements with several referral sources, including 21st
Services, and it hopes to establish close relationships with several other
referral sources who have established market niches within the senior/elder
communities. Many referral sources advertise their services in the geographic
area in which they operate and target such advertising to specific communities.
The use of referral sources will allow United to operate in market niches that
otherwise would be cost prohibitive for it to pursue through direct advertising.
United intends to pay certain of its referral sources, typically sourcing
brokers, fees based on negotiated informal fee arrangements. Sourcing brokers
are typically paid an up-front fee, based on the face value of the policy, upon
the funding of the policy and may also be paid a back-end fee, also based on the
face value of the policy, upon receipt by the trust of the proceeds of the
policy. United does not intend to pay referral fees to doctors, lawyers or other
professionals to whom United is prohibited by applicable law from paying a
referral fee and will not do business with referral sources which United does
not believe to be reputable. Sourcing brokers and certain other referral sources
also handle other administrative functions, such as collecting and processing
applications from potential clients and collecting medical and insurance
records.
UNDERWRITING
The underwriting process is designed to obtain accurate information
regarding both the insured and the life insurance policy (a) to determine
whether United will offer to purchase the policy and, if so, the price it will
offer and (b) to ensure that certain criteria are met to minimize challenges by
former beneficiaries or other persons to the purchase or by an insurance company
to payment of the face value of the policy. See "Risk Factors--Delay in Payment
and Non Payment of Policy Proceeds."
Once a potential client contacts United, an application and consent form
permitting United to obtain medical and insurance coverage information for the
insured are sent to the potential client. All information obtained by United in
connection with policy purchases, including the identities of the insureds, is
held in confidence and access thereto will be restricted by United to its
employees, 21st Services and other representatives. Upon receipt by United of
the completed application, it is reviewed to determine preliminarily the
insured's life expectancy and, if the face value exceeds the applicable state
guarantee fund
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preliminary the insured's life expectancy and, if the face value exceeds the
applicable state guarantee fund limit, whether the insurance company which
issued the policy is of a credit quality deemed acceptable to United.
If it appears from the application that the policy is one United would be
interested in purchasing, United will obtain from the attending physician
medical information about the insured which usually includes several years'
worth of laboratory reports and physicians' notes, as well as the attending
physician's estimate of the insured's life expectancy and a written statement as
to whether or not the insured is of sound mind. United will forward such
information to 21st Services for review and evaluation.
Simultaneously, United will obtain verification of insurance coverage and
other policy information from the insurance company, the employer or the group
administrator. The insurance documents will be reviewed to determine the type of
policy, e.g. whole. term or other, and any provisions which may effectively
reduce the face value of the policy, e.g. loan against the policy, and to
ensure, among other things, that:
o the policy under consideration is past any contestability periods, i.e.
the periods during which the insurance company may deny payment for
various persons, including suicide and a misstatement of material facts;
o all current primary beneficiaries are willing to execute releases with
respect to any present or future claims they may have with respect to the
policy; and
o United is able to obtain ownership of the policy and the associated
policy proceeds. United will not purchase a policy if a minor is a named
beneficiary at the time of purchase. United will also review the policy
premium schedule and determine whether the policy contains a disability
waiver of premium rider which impacts future premium payments. United
will attempt to ensure that the policy is compatible with the trust's
portfolio in terms of monthly cash flow. The review process for the
insurance documents generally will take one to three weeks, depending on
the extent of cooperation received from third parties.
If a referral source identifies a potential client, some of the
documentation gathering described above, including collection of necessary
medical, personal and insurance information, may be performed by such referral
source prior to submission of the application to United, but the determination
of the insured's life expectancy and compatibility with investment criteria,
review of insurance documents and determination of legal and contractual issues
will be made by United and 21st Services.
CLOSING
If United determines that the policy meets its criteria, including
underwriting and investment criteria, United will make an offer to the insured
to purchase the policy. The purchase price will be based upon the face value of
the policy, United's estimate of the insured's life expectancy as per 21st
Services, the premiums estimated to be paid under the policy over the insured's
estimated life expectancy as per 21st Services, and certain other costs of the
policy. If the insured accepts the offer, purchase documents are prepared from
forms generated by United's management information system. The documents include
a sale agreement, releases from beneficiaries, a change of ownership or
assignment form and a change of beneficiary form. United will acquire ownership
in each insurance policy by filing a change of ownership or absolute assignment
form and a change of beneficiary form with the applicable insurance company,
employer or group administrator. Following receipt of appropriate acknowledgment
of the recordation of such changes, closing occurs and funds are disbursed as
directed by the seller of such policy. United anticipates that the closing
process will take one to three weeks and the entire purchase process, from
application to closing will take from four to eight weeks. United will provide
an out option through which the insured may, for any reason, return the
disbursed funds, and any premium payments made by the trust in the interim, and
be unconditionally released from the sale agreement. The out option period is at
least 15 days from receipt of the purchase price and is longer, i.e. 30 days, if
required by applicable law.
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MONITORING
Following the disbursement of funds, the insured is regularly monitored to
obtain timely information concerning the insured so that proceeds may be
collected as promptly as possible following the death of the insured. Monitoring
will be conducted in a sensitive and professional manner and will be assisted by
the 21st Services' management information system. In addition to tracking the
medical status and location of an insured, the 21st Services also will monitor
the policy to ensure it does not lapse because of a failure to timely pay
premiums. Some protection against the failure to pay premiums is provided by
statutory or policy provisions that require insurance companies to provide
written notice before terminating a policy for failure to pay premiums. As owner
of record of the policy, Capital generally will receive such notice directly.
COLLECTION
Once an insured has died, a request for a copy of the death certificate
will be filed in the appropriate governmental office. Often the insured's family
or companion will also submit a copy of the death certificate to the insurance
company. United will then file the death certificate with the insurance company
and request payment of the policy proceeds. United will monitor the collection
status until the trust receives the face value of the policy. Monitoring of
collection status will be assisted by United's management information system
which will track the filing of the death certificates, the filing of claim forms
with the insurance companies, and provide follow-up until the claims have been
paid. Insurance companies have an incentive to pay promptly on policies because
most states require insurance companies to pay interest on claims which take
more than 30 days to settle. Actual collections will generally occur within 30
to 55 days following the death of the insured. However, in certain states e.g.,
New York actual collections may take a longer period of time due to delays in
processing of documents by state authorities.
POLICY AND PORTFOLIO INFORMATION
General Description of Types of Policies to be Purchased by United
Term Policies. Term policies provide life insurance protection for a
limited number of years e.g., until age 65. Generally, term policies are less
costly, compared to whole life policies, for younger insureds, although premiums
increase over time. Such policies are usually one-year renewable policies,
though some term policies have fixed premiums for longer intervals. Term
policies do not build up any cash value or pay dividends, although many are
convertible to whole life policies.
Whole Life Policies. Whole life policies typically provide protection for
the life of the insured. Based on a fixed premium payment, these policies build
up a cash value because premiums paid in the earlier years are higher than those
required to maintain the insurance. Many whole life policies have dividends
which the insured can receive in cash or can apply to premiums applicable to
additional coverage.
Universal Life Policies. This type of policy is generally a flexible
premium, adjustable death benefit policy and allows premiums to be skipped so
long as the cash value of the policy is sufficient to pay the premiums. There
are many variations of this type of policy.
Group Life Policies. Many group policies provide term coverage, though
some provide universal life coverage. Such policies are either provided by an
employer or are provided to members of a particular group.
YIELD ANALYSIS
Unlike specialty financial services companies whose performance depends
primarily on the ability to collect on a portfolio, the trust's performance
depends primarily on the timing of collection on its portfolio. To a great
extent, United will determine its purchase price for policies based on the
estimated date of collection. To the extent the trust collects a policy earlier
than expected, the actual annualized yield on such policy will be higher than
the original estimated annual yield. Conversely, to the extent that the trust
collects on a policy later than expected, the actual annualized yield on such
policy will be lower than the original estimated annual yield. Thus, the actual
collection date of each policy affects the actual annualized yield on the trust
portfolio.
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COMPETITION
United believes potential clients distinguish insurance settlement
companies based on three principal factors:
o price;
o response time; and
o sensitivity and professionalism in dealing with the client, the insured
and their friends and relatives.
A settlement company typically determines the price that it is willing to
pay for a life insurance policy principally based upon its estimate of the life
expectancy of the insured and, hence, the present value of such policy
discounted at a rate as determined by such life expectancy. Response time is
affected by the settlement company's internal ability to meet demand, the
cooperation received from the potential client's insurance company and the
insured's doctor and, ultimately, the insurance settlement company's access to
capital to fund its purchase of a policy.
United believes that approximately 50 to 60 insurance settlement companies
currently operate in the United States. Although lack of traditional funding
sources and high financing costs have limited the industry's growth in the past,
competition has recently increased. The increased competition has contributed to
higher prices and lower original estimated annual yields.
Most insurance companies also offer some form of accelerated death benefits
to holders of their policies with terminal illnesses, but the types of benefits
and cost thereof vary substantially among such companies. According to a study
conducted in March 1994 by the American Council of Life Insurance and LIMRA
International, at least 215 life insurance companies, issuing approximately 70%
of the life insurance in force in the United States, offered some form of
accelerated death benefit to their customers at the time of the study. The
number of insurance companies offering some form of accelerated death benefit
has likely increased since the study was conducted. During the last five years,
the number of life insurance companies offering accelerated death benefits has
increased substantially, and there have been limited instances of insurance
companies acquiring settlement operations and providing settlements directly.
Despite those offered alternatives, claim experience for accelerated death
benefits appears to be limited. United believes the limited use of accelerated
benefits is a result of the restrictive nature of the benefits offered by
insurance companies. For example, over 90% of the products offered by insurance
companies responding to the study required the customer to have a life
expectancy of 12 months or less and 30% required a life expectancy of six months
or less. In addition, many products reported in the study specified a minimum
face value for the policy and over 50% of the products specified a maximum
benefit ranging from 26% to 50% of the face amount. United believes that
insurance companies, on an industry-wide basis, have not aggressively
participated in the market for senior/elderly insurance settlements or related
products or services primarily because of the undeveloped nature of the market
and the potential for public relations problems for the insurance industry
resulting from insurance companies redeeming policies for less than the death
benefit promised to their policyholders.
Given the restrictions typically imposed on the availability of accelerated
death benefits, senior/elderly insurance settlements have, to date, been an
attractive alternative to accelerated death benefits for senior/elderly
individuals. Insurance settlements can also offer some people with terminal
illnesses the opportunity to pursue lifelong goals while they are still
relatively healthy. Although United believes that insurance companies may
continue to be reluctant to enter the senior/elderly settlement market,
insurance companies may reduce their restrictions applicable to accelerated
death benefits, may begin to provide senior settlements directly or through
separate settlement companies or may offer other competing products or services
on a broader basis. See "Risk Factors--Competition."
United believes that it will be well-positioned within the senior/elderly
insurance settlement industry. As an early entrant it intends to establish a
reputation in the industry for providing settlements in a professional,
efficient and responsible manner. In addition, United believes its strict
underwriting procedures and its relationship with 21st Services will provide it
with a competitive advantage. United also believes that the confidentiality
afforded the insureds by selling their policies to a trust will be an added
consideration. Finally, if this offering is successful, the proceeds from this
offering will allow United to have significant financial flexibility in such a
fragmented market.
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GOVERNMENT REGULATION
United will monitor the progress of new legislation and regulations in each
state in which it purchases policies. However, given the emerging nature of
senior/elderly settlement regulations there may be periods in which United is
not in compliance, or is unable to comply, with the effective provisions of each
applicable, statute and regulation. Only Florida and Texas have enacted
permanent statutes governing senior/elderly insurance settlement companies and
brokers.
Under most state regulatory schemes insurance settlement companies must be
licensed by the state insurance commissioner in order to solicit or enter into
an insurance settlement contract in that state. Licenses are normally renewable
on an annual basis but may be revoked if the licensee fails to comply with the
provisions of the statute or regulations. Licensees typically must file annual
operating reports with the commissioner, permit the commissioner to examine
their records; disclose alternatives to a insurance settlement to each potential
client; obtain representations as to the mental competency of the potential
client; deposit the purchase price for a policy into a trust or escrow account
in a bank; and allow the client a 15 to 30 day rescission period. United and
Capital will either not be required to be licensed, are licensed, or will be
temporarily permitted to do business without a license, in each state in which
it purchases policies. However, United may not be able to obtain licenses in
every state when required or to renew or prevent revocation of a previously
issued license. United may be precluded from doing business in any state in
which it is unable to obtain or maintain a required license.
A limited number of states have also enacted statutes or adopted or
proposed regulations, that establish minimum purchase prices to be paid to the
insured according to the insured's life expectancy.
Every state has statutes that regulate conducting an insurance business.
Although United is not aware of any judicial authority interpreting whether the
senior/elderly insurance settlement business constitutes conducting an insurance
business, some or all of these statutes may be interpreted in the future to
include senior or elderly insurance settlements and to preclude United, which is
not an insurance company, from operating in those states. See "Risk
Factors--Possible Costs of and Delays Attributable to Government Regulation."
CAPITAL RESOURCE GROUP ONE, LLC.
Capital was incorporated in the State of Delaware on October 21, 1999.
Capital was organized for the restricted, limited purpose of forming the trust,
purchasing the insurance settlements from United, assigning the insurance
settlements to the trust, executing the certificates through the trust, and for
incidental, necessary or convenient purposes related to the foregoing. Capital
is prohibited from incurring any debts except to the extent the certificates are
characterized as debt obligations of Capital. Capital's current assets consist
of [$ ]. Prior to its incorporation, Capital had no operating history. Mr.
Thomas LaRussa may be deemed to be finder and/or promoter of Capital. Capital's
sole member and officer is Thomas LaRussa.
Capital will enter into an insurance settlements purchase agreement dated
the date of the pooling and servicing agreement between Capital, as buyer, and
United, as seller, containing the terms and conditions under which Capital will
purchase insurance settlements from United. Pursuant to the insurance
settlements purchase agreement, United will (a) sell, transfer, assign, and
convey to Capital all of United's right and interest in and to the insurance
settlements and (b) take all actions that are required under state law to
establish Capital's ownership interest in and to the insurance settlements, as
more fully described in the senior insurance settlements purchase agreement. See
"Description of the Insurance Settlements Purchase Agreement."
Pursuant to the pooling and servicing agreement, simultaneously with the
purchase of the insurance settlements from United, Capital will (a) designate
the trust as an irrevocable beneficiary of the insurance settlements and (b)
cause to be taken all actions that are required under state law to establish the
trust's interest in and to the insurance settlements. See "Description of the
Certificates and the Pooling and Servicing Agreement--Assignment of Insurance
Settlements".
Diversification Requirements: Capital will covenant to structure its
purchase, acquisition and transfer of insurance settlements so that:
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o at acquisition, no less than 75% of the cumulative death benefits of the
insurance settlements held or beneficially owned by the trust shall be
payable by insurance companies with an A.M. Best rating of A or better,
or its equivalent as set by other nationally recognized rating agencies,
o at acquisition no more than 25% of the cumulative death benefits of the
insurance settlements held or beneficially owned by the trust shall be
payable by insurance companies with an A.M. Best rating of B+, or its
equivalent as set by other nationally recognized rating agencies.
o less than 10% of the outstanding cumulative death benefits of the
insurance settlements held or beneficially owned by the trust shall be
payable by any one insurance company, and
o no more than $4 million in Tranche I and $10 million in Tranche II will
be cumulative death benefits relating to any one individual.
21ST SERVICES
The trust will also engage 21st Services as master servicer, to assist it
in the identification, evaluation, monitoring and collection of the insurance
settlements. 21st Services, located in Minneapolis, Minnesota, provides high
quality medical and insurance underwriting to the insurance settlements
industry. 21st Services is nationally recognized for its experience in
evaluating and underwriting insurance settlements. 21st Services has had
significant experience in medical underwriting, insurance underwriting and
post-purchase servicing of insurance settlements to the insurance settlements
industry. 21st Services utilizes a statistically-based computer model to provide
life expectancy estimations in the newly emerging senior/elderly insurance
settlements market. The trust will engage 21st Services to provide an
independent medical evaluation of all insureds prior to United purchasing the
life insurance policies. 21st Services currently provides this service to many
of the participants in the insurance settlement industry. 21st Services will
receive a separate fee, payable monthly, for its diagnostic and evaluation
services. The fee will be no more than $200.00 per policy, regardless of whether
United eventually purchases such policy.
Depending on the insured's medical condition, the life expectancy review is
accomplished through independent reviewing physicians, 21st Services'
computerized life expectancy model or a combination of the two methods. Whatever
method is utilized, the life expectancy review includes a comprehensive review
of the insured's medical chart and specialized forms, if available, and, if
necessary, an interview with the insured's attending physician.
The insured's medical chart will generally contain the following items to be
requested by 21st Services:
o Progress notes from the primary care provider and physician specialists
o Laboratory results
o X-ray reports and other diagnostic tests
o Surgical reports
o Hospital admit/discharge summaries
o Pathology reports
o Previous and current therapy/treatment
o Lifestyle risk factors
o Functional impairments
o Psychological parameters.
If the life expectancy is generated by the proprietary computer model, data
from the insured's medical records and applicable forms are abstracted and key
risk factors are entered to the model. The model uses the risk factors to tailor
the general mortality statistics to the health and lifestyle profile specific to
the insured. The core of the model is the Industry Average Mortality Tables
licensed by 21st Services. The statistical mortality data on these tables
relates solely to insured individuals and does not include the indigent or
uninsurable populations. The basic mortality data is adjusted by a system of
debits complied by an accredited life underwriting researcher who has degrees in
epidemiology and public health. The sources of information
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driving the risk factor adjustments include underwriting criteria from large
insurance companies, the Medical Information Bureau, governmental studies and
privately secured research. The life expectancy certificate will highlight all
pertinent risk factors used to determine life expectancy. The model provides a
median life expectancy for the specific insured, expressed in months.
If the life expectancy review is completed by a physician specialist, the
reviewer will fully evaluate the insured's medical history, write a summary of
the highlights, provide an estimated life expectancy and justifications for the
life expectancy. Factors influencing each decision may include their own
clinical experience, peer review, rigorous analysis of medical journals, library
or internet research, non-public information concerning clinical trials,
investigational new drugs, and statistical information.
21st Services will also provide master servicer functions, such as:
o Review medical, insurance and final underwriting for proposed policies
o Review financial analysis of each policy and its relationship to the
aggregate pool of policies
o Review purchase recommendations
o Audit integrity of financial model on a periodic basis
o Track all insureds and maintain updated medical files
o Maintain data on pool characteristics
o Monitor premium calendar database
o Prepare reports as needed
All of the above services, except for tracking and maintaining updated
medical files on the insureds for which 21st Services will receive $23.00 per
month for each active policy, will be included in the master servicer fee.
The managers of 21st Services are:
PAUL KIRKMAN, age 36, President--21st Diagnostics, managing director of
21st Holdings, LLC, obtained his college education from Michigan State
University, and in 1995 began his viatical career as an underwriter for
ViatiCare Financial Services, LLC, where he became an expert in dissecting the
complexities of group life insurance. He later assumed the role of Service Group
Manager and Manager of Medical Affairs. As Service Group Manager he trained new
client service representatives in the art and science of insurance underwriting
and actively participated in the underwriting of difficult policies and those
with particular financial appeal to the company. As manager of Medical Affairs
he managed the company's consulting physician network and interacted with the
clients' attending physicians to ensure that life expectancies were obtained on
a timely basis.
Mr. Kirkman joined 21st Services in 1998 and he leads the Diagnostic
division. With Mervyn F. Silverman, M.D., MPH, he developed a high quality
network of consulting physician specialists who review medical charts to provide
life expectancies for clients with terminal illness. Kirkman also led the
development of 21st Services elder life expectancy model with an accredited life
underwriting researcher who has backgrounds in epidemiology and public health.
He combined the expertise of an international actuarial firm, a life
underwriting consultant and a respected geriatrician with 21st Services'
knowledge of the insurance settlement industry to create the most sophisticated,
credible elder life expectancy model in the industry. To date, this model is the
only automated computer model in the industry.
Kirkman has approximately 5 years of life insurance settlement industry
experience.
ROBERT SIMON, age 39, President--Manna Financial, has been managing
director of 21st Holdings, LLC since February 1998. He became the controller for
ViatiCare Financial Services, a large midwestern viatical funding company in
1995 and became chief financial officer for the company in 1997. In these
capacities he was responsible for developing procedures, controls and
information systems that allowed the company to dramatically increase its
purchasing volumes and manage a growing portfolio of insurance settlements in a
controlled fashion. Simon implemented a complex corporate structure designed to
support the public securitization of insurance settlements. He managed all
administrative, compliance and reporting functions for
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a $600 million revolving credit facility to fund policy purchases. Simon was
also responsible for negotiating a reinsurance treaty with a major reinsurance
firm and a backup servicing agreement with a national bank. Before entering the
life insurance settlement industry, Simon held a variety of financial, audit and
marketing positions with several large financial, transportation and energy
companies.
As President of Manna Financial, Simon has developed a senior/elderly
insurance settlement originations network of insurance agents that has produced
a steady stream of insurance settlements. Simon is a recognized expert in the
life insurance settlement field and regularly teaches life insurance settlement
concepts and applications to insurance agents and health care workers around the
region. As Managing Director of 21st Holdings, LLC, Simon has developed
proprietary information systems to control life expectancy, underwriting and
post-purchase policy servicing operations.
Simon holds a bachelor's degree in accounting from the University of
Minnesota and an MBA in marketing from the University of St. Thomas. Simon also
holds designations as a Certified Public Accountant and Certified Information
Systems Auditor. Simon has 5 years of life insurance settlement industry
experience.
STEVEN WALKER, age 39, President--21st Underwriting and 21st Guardian,
managing director of 21st Holdings, LLC, from 1995 until 1998 was an
underwriter, Service Group Manager and Manager of Policy Purchasing for
ViatiCare, a large mid-western viatical funding company. In these positions, he
was responsible for evaluating the insurance risk of insurance settlements
against strict acceptance parameters mandated by the institutional lender. He
was also responsible for managing the closing process for settlement
transactions, including compliance reviews before files were forwarded to the
escrow agent for closing.
Mr. Walker joined 21st Services in 1998 and he has created a substantial
insurance underwriting practice that manages the underwriting and placement
operations for a large number of regional and national brokers and funders.
Other funders rely on Walker's insurance underwriting expertise to help them
evaluate special insurance risks that they would not understand or could not
verify without his expertise. Walker is also responsible for managing the
contact and death claim filing processes for approximately 500 insureds who have
sold their life insurance policies to several funding companies.
Walker earned his college degree from the University of Minnesota. Walker
has approximately 5 years of life insurance settlement industry experience.
THE TRUST
The issuer of the certificates is Insurance Settlements Funding Trust 2000,
a trust organized on , 2000. The purpose of the trust will be
to invest the proceeds of the offering in insurance settlements and thereafter
collect the death benefit proceeds associated with such insurance settlements
and distribute the proceeds to the certificateholders.
The trust will be formed in accordance with the laws of the State of
Delaware and pursuant to the pooling and servicing agreement. The originator of
the trust will be Capital. The trust will be formed for the restricted, limited
purposes of beneficially owning the insurance settlements acquired from Capital
and the proceeds derived therefrom, issuing certificates and making payments
thereon, and making certain specified permitted investments. See "Description of
the Certificates and the Pooling and Servicing Agreement." The trust is not
expected to have any need for, or source of, capital other than the assets of
the trust. Upon formation, the initial assets of the trust will be [$100]
provided by Capital and thereafter shall consist of (a) an irrevocable
beneficial interest in the insurance settlements acquired from Capital in
consideration of the proceeds of this offering, (b) an assignment of all of
Capital's interests under the insurance settlements purchase agreement, and (c)
all funds collected or to be collected with respect to the insurance settlements
and deposited into certain accounts of the trust. It is expected, but there can
be no assurance, that there will be assets remaining in the trust after all
interest and principal payments have been made to certificateholders. All excess
assets, if any, after the final distribution dates will be transferred to
Capital. See "Description of the Certificates and the Pooling and Servicing
Agreement." The trustee of the trust is the Bank of New York, a New York banking
corporation. The trust will pay the Bank of New York an aggregate annual fee of
approximately $150,000.
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THE ESCROW AGENT
The trust will retain the Bank of New York to serve as escrow agent for the
trust. As escrow agent, the Bank of New York will not evaluate medical
information or make assumptions as to estimated life expectancy.
MANAGEMENT FEE
The master servicer and subservicer shall receive a management fee equal to
.55% of the principal amount of the certificates outstanding as determined at
the closing dates. Capital will grant to the master servicer a right entitling
the master servicer to receive 5% of the trust's assets remaining in Tranche I
and Tranche II of the trust, respectively, after all interest and principal
payments have been made to certificateholders. Such right shall vest at the rate
of 10% per year. If the master servicer is required to become the successor
servicer, it will be paid a one-time management transfer fee of $100,000 by the
trust.
The management fee will be paid monthly in arrears, for each preceding
month. This management fee will compensate the master servicer and subservicer
for their services in managing the affairs of the trust including identifying
and qualifying potential insurance settlements for purchase, negotiating the
price to be paid for insurance settlements, monitoring insurance settlements
assigned to the trust, assuring that premiums are paid when due and liquidating
insurance settlements purchased by the trust if necessary or advisable.
The trust will have no employees or office space. The master servicer and
subservicer will bear all costs and expenses of providing to the trust any
office space, furniture, fixtures, equipment, facilities, supplies, telephone,
secretarial, internal bookkeeping and necessary ongoing overhead support
services for the trust's operations, the compensation of the master servicer's
and subservicer's personnel, and expenses incurred in connection with monitoring
and collecting insurance settlements. The trust will pay all other costs and
expenses of the trust including the following:
o all routine administrative expenses of the trust, including the cost of
the preparation of the annual audit, financial and tax returns, tax
reports required for investors or the trust, cash management fees and
routine legal and accounting expenses,
o all out-of-pocket costs and expenses, if any, incurred in identifying,
evaluating, purchasing, acquiring, holding, valuing and disposing of
insurance settlements, including without limitation any financing, legal,
accounting, advisory and consulting expenses in connection therewith,
o all third-party expenses in connection with the insurance settlements or
proposed insurance settlements that are not ultimately made, including,
without limitation, the out-of-pocket costs and expenses incurred in
connection with obtaining third-party financing (such as commitment
fees), if any,
o brokerage commissions, license and registration fees and expenses,
custodial expenses and other investment costs actually incurred in
connection with the insurance settlements,
o interest on and fees and expenses arising out of all borrowings, if any,
made by the trust, including, but not limited to, the arranging thereof,
o the out-of pocket costs of any litigation, liability or other insurance
and indemnification or extraordinary expense or liability relating to the
affairs of the trust,
o license fees and associated costs of obtaining all necessary licenses
such as licenses as an insurance settlement provider, registration
expenses and any taxes, fees or other governmental charges levied against
the trust and all expenses incurred in connection with any tax audit,
investigation, settlement or review of the trust, and
o expenses to the extent that such expenses are not servicing expenses,
including expenses relating to the formation of the trust and the
offering of the certificates.
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USE OF PROCEEDS
On each closing date, the proceeds received from the sale of certificates,
net of payments to Pryor, Counts & Co., Inc. and other fees and expenses, will
be paid to the trust to purchase insurance settlements from Capital which
Capital will acquire from United and which United will acquire from sourcing
brokers. Approximately 66 2/3% of such funds will be utilized to acquire
insurance settlements and the remaining approximately 33 1/3% will be used to
fund the liquidity account. See "Description of the Certificates and the Pooling
and Servicing Agreement--Investor Accounts and Allocation of Collateral;
Liquidity Account." The amount of proceeds which will be paid to Pryor, Counts &
Co., Inc., as its commission, shall be equal to 3.5% of the aggregate principal
amount of the certificates issued on each closing date. The Bank of New York
will be entitled to retain, from any disbursements from the escrow account that
are payable to Capital for insurance settlements assigned to the trust, any
outstanding fees and/or expenses due the Bank of New York under the escrow
agreement and which have not been paid by Capital.
MATURITY ASSUMPTIONS
The pooling and servicing agreement provides that certificateholders will
not begin to receive payments of principal until after the final maturity dates.
During the amortization period, the certificateholders will be entitled to
receive semi-annual payments of interest. See "Description of the Certificates
and the Pooling and Servicing Agreement--Principal Payments." The certificates
are also subject to optional repurchase by the trust after a 5 year period,
respectively, at 102.50% of the outstanding principal amount of the
certificates. See "Description of the Certificates and the Pooling and Servicing
Agreement--Principal Payments; Termination."
PLAN OF DISTRIBUTION
Pryor, Counts & Co., Inc. has entered into an agreement with Capital and
United, to act as the agent with respect to the sale of the certificates offered
hereby. Pryor, Counts & Co., Inc. has made no agreement to purchase or take down
all or part of the certificates offered hereby, but has agreed to use its best
efforts on a minimum-maximum basis to sell a minimum of $20,000,000 principal
amount of certificates within 90 days after the date of this prospectus (subject
to Capital's option to extend such period for 30 days). If the minimum amount of
certificates are not sold within said period, the agreement between Pryor,
Counts & Co., Inc. and Capital and United will terminate and all funds will be
returned to subscribers with interest. If, however, the minimum $20,000,000
principal amount of certificates are sold within the initial 90, or 120, day
period, the offering will continue on a best efforts basis until the earlier of
(a) the sale of the remaining $130,000,000 principal amount of certificates; (b)
twelve months after the effective date of this registration statement; or (c)
the mutual agreement of Pryor, Counts & Co., Inc. and Capital to terminate sales
of the certificates, even after the minimum amount of certificates are sold.
All proceeds from subscriptions to purchase the certificates will be
promptly transmitted by Pryor, Counts & Co., Inc. or other participating
broker/dealers by noon the next business day after receipt of such proceeds, to
an interest bearing escrow account at the Bank of New York. All subscriber's
checks should be made payable to "THE BANK OF NEW YORK ESCROW ACCOUNT FOR
INSURANCE SETTLEMENTS FUNDING TRUST 2000."
Pryor, Counts & Co., Inc. is a member in good standing of the National
Association of Securities Dealers, Inc. and registered as a broker/dealer with
the Securities and Exchange Commission. It will receive a one-time sales
commission equivalent to 3.5% of the principal amount of the certificate
subscriptions obtained by them. Capital will direct the Bank of New York to
remit Pryor, Counts & Co., Inc.'s fee to them at each closing date.
Participating dealers will receive a commission out of the 3.5% paid to Pryor,
Counts & Co., Inc.
Upon the sale of $20,000,000 principal amount of certificates, Capital will
grant to Pryor, Counts & Co., Inc. a right entitling them to receive up to 2.75%
and 10% of the assets, respectively, if any, remaining in Tranche I and Tranche
II of the trust, respectively, after all interest and principal payments have
been made to certificateholders. This right serves as additional compensation to
Pryor, Counts & Co., Inc. for selling the certificates.
Capital and United have agreed, under the placement agent agreement, to
jointly and severally, indemnify and hold harmless Pryor, Counts & Co., Inc. and
its controlling persons, respective officers, directors, employees, agents,
successors and assignees against any and all losses, claims, damages,
liabilities,
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costs and expenses to which the indemnitie(s) may become subject and which arise
directly or indirectly out of or are based upon any breach of the placement
agent agreement by Capital; any untrue statement or alleged untrue statement of
any material fact contained in the registration statement and prospectus or any
amendment or supplement thereto; any omission or alleged omission in the
registration statement or prospectus of a material fact required to be stated
therein or necessary to make the statements therein not misleading; or the
representations by Pryor, Counts & Co., Inc. of Capital in selling the
certificates.
The placement agent agreement may be terminated by Pryor, Counts & Co.,
Inc. at its option by giving notice to Capital and Capital's counsel, if Capital
materially fails to fulfill its obligations thereunder or if Pryor, Counts &
Co., Inc. learns of any material misrepresentations made by Capital.
There can be no assurance that Pryor, Counts & Co., Inc. will be successful
in selling any or all of the certificates offered hereby. Pryor, Counts & Co.,
Inc. does not intend to sell any certificates to any account over which it may
exercise discretionary authority.
The foregoing is a brief summary of all material provisions of the
placement agent agreement. A copy of the placement agent agreement has been
filed as an exhibit to the registration statement of which this prospectus forms
a part.
Cullaraja Capital, Ltd., a wholly owned operating unit of Chanticleer
Ventures, Ltd., of Nassau, Bahamas, will receive one-time consulting fee
equivalent to .0033 1/3% of the outstanding principal balance of the
certificates in the trust sold pursuant to this offering. The consulting fee
will be payable by United on a monthly basis against the amount owed commencing
on the month following the first closing date and continuing until the trust
termination date.
REGISTRATION OF CERTIFICATES
The certificates will be registered by individual book-entry by the
transfer agent and registrar who shall be the Bank of New York. There currently
is no secondary market for the certificates, and there is no assurance that one
will develop.
DESCRIPTION OF THE CERTIFICATES
AND THE POOLING AND SERVICING AGREEMENT
The certificates will be issued pursuant to the pooling and servicing
agreement to be entered into among Capital, as assignor of the insurance
settlements and originator of the trust, United as seller and subservicer of the
insurance settlements, 21st Services, as master servicer, and the trustee, and
which agreement will be substantially in the form filed as an exhibit to the
registration statement of which this prospectus is a part. The trustee will
provide a copy of the pooling and servicing agreement to any certificateholder
on written request. The following summary describes the material terms of the
pooling and servicing agreement.
GENERAL
The certificates will evidence undivided interests in the trust and
represent the right of the certificateholders to receive from the trust the
amounts required to make payments of principal and interest on the certificates.
The trust's assets will consist primarily of:
o an irrevocable beneficial interest in the insurance settlements;
o monies due or to become due thereunder;
o monies received from insurance companies in payment of the insurance
settlements;
o monies on deposit in bank accounts of the trust or other permitted
investments, inclusive of interest earned or accrued on the funds
deposited in said accounts; and
o all right, title, and interest with respect to the insurance settlements
and any supporting documentation or agreements related to the insurance
settlements and with United under the insurance settlements purchase
agreement. See "Description of the Insurance Settlements Purchase
Agreement."
The certificates in the aggregate will represent a 100% interest in the
trust's assets up until the final maturity dates. See "Investor Accounts and
Allocation of Collections." Each certificate will represent the right to receive
(a) semi-annual payments of certificate interest at the certificate rate
primarily from the liquidity account and (b) payments of certificate principal
funded from collections attributable to payments by insurance companies pursuant
to the insurance settlements. The certificates are structured to facilitate a
secured, credit-enhanced financing with the intention that the certificates will
constitute indebtedness of
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Capital for federal income, state and local tax purposes, and Capital and each
certificateholder, by acceptance of its certificate, agrees to recognize and
report the certificate as indebtedness of Capital for purposes of federal, state
and local income or franchise taxes and any other tax imposed on or measured by
income, and to report all receipts and payments relating to the certificates in
a manner that is consistent with such characterization.
The principal amount of the certificates will remain constant. Distribution
of interest and/or principal on the certificates on each distribution date will
be made by the trustee, directly to the certificateholders in whose names the
certificates were registered at the close of business on the record date.
Distributions will be made by check mailed to the address of each of the
certificateholders as it appears on the register maintained by the trustee, or
its designee. The final payment on any certificate, however, will be made only
upon presentation and surrender of such certificate at the office or agency
specified in the notice of final distribution to certificateholders. The trustee
will provide such notice to registered certificateholders not later than the 5th
day prior to the final distribution.
THE CERTIFICATES
For federal tax purposes, Capital intends that the certificates will
constitute evidence of indebtedness of Capital. The certificates will be
substantially in the form filed as an exhibit to the registration statement of
which this prospectus forms a part and which is attached to the pooling and
servicing agreement as an exhibit. The certificates will be issued in the
minimum denominations of $5,000 and integral multiples of $1,000 in excess
thereof equal to the original principal amount for which each certificateholder
subscribed to purchase; provided, however, that one certificate may be issued on
each closing date in a residual amount of less than $1,000.
On each closing date, upon the order of Capital, the trustee shall
authenticate and deliver the certificates to the certificateholders against
payment to Capital of the subscription proceeds for such certificates net of any
placement fee. The certificates will be issued contemporaneously with the
assignment of the insurance settlements to the trust.
The certificates, in the aggregate, will represent a 100% interest in the
trust assets. The trust will be structured so that the aggregate principal
amount of the certificates and interest payable on the certificates will not be
more than the face amount of the insurance policies and the amounts in the
liquidity account.
REGISTRATION, TRANSFER AND EXCHANGE OF CERTIFICATES
The trustee shall cause the certificate register to be kept at the office
or agency to be maintained by the transfer agent and registrar in which, subject
to such reasonable regulations as it may prescribe, the transfer agent and
registrar shall provide for the registration of the certificates and of
transfers and exchanges of the certificates. The trustee is initially appointed
the transfer agent and registrar, but shall be permitted to resign as transfer
agent and registrar upon 30 days written notice to Capital, in which event,
Capital shall appoint a successor transfer agent and registrar.
Upon surrender for registration of transfer of any certificate at any
office or agency of the transfer agent and registrar for such purpose, Capital
shall execute, and the trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new certificates in
authorized denominations of like aggregate principal amount. The transfer agent
and registrar will maintain at its expense in New York, NY an office or offices
or agency or agencies where certificates may be surrendered for registration of
transfer or exchange.
Every certificate presented or surrendered for registration of transfer or
exchange shall be accompanied by a written instrument of transfer in a form
satisfactory to the transfer agent and the transfer agent and registrar duly
executed by the certificateholder thereof or his attorney duly authorized in
writing. No service charge to the certificateholder shall be made for any
registration of transfer or exchange of certificates, but the transfer agent and
registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of certificates. All certificates surrendered for registration of
transfer or exchange shall be cancelled and disposed of in a manner satisfactory
to Capital, the trustee and the transfer agent and registrar. Unless Capital
provides the trustee with written notice to the contrary, all certificates so
surrendered will be destroyed pursuant to customary procedures.
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Prior to presentation of a certificate for registration of transfer,
Capital and the trustee, the paying agent, the transfer agent and registrar and
any agent of any of them may treat the person in whose name any certificate is
registered as the owner of such certificate for the purpose of receiving
distributions and for all other purposes whatsoever, and neither Capital and the
trustee, the paying agent, the transfer agent and registrar, nor any agent of
any of them shall be affected by any notice of the contrary.
The paying agent shall make all withdrawals, deposits and payments in
accordance with the subservicer's reports. The paying agent shall be the trustee
and shall have revocable power to transfer funds among investor accounts and
make distributions to certificateholders from the distribution account. The
trustee, as the paying agent, shall be permitted to resign as paying agent upon
30 days written notice to Capital at which point Capital shall appoint a
successor paying agent. The provisions of the pooling and servicing agreement
governing the duties of the trustee, the trustee's liability for recitals in the
certificates, and certain other matters affecting the trustee shall also apply
to the trustee to its role as paying agent, for so long as the trustee shall act
as paying agent. If the trustee determines that the paying agent has failed to
perform its obligations under the pooling and servicing agreement in any
material respect, the trustee may revoke the paying agent's power and remove the
paying agent.
LIST OF CERTIFICATEHOLDERS
The trustee will furnish or cause to be furnished by the transfer agent and
registrar, if other than the trustee, to Capital within five (5) business days
after receipt by the trustee of a request therefor from Capital, in writing, a
list in such form as Capital may reasonably require, of the names and addresses
of the certificateholders as of the most recent record date for payment of
distributions to certificateholders. If certificateholders holding an aggregate
amount of not less than five percent (5%) of the certificates then outstanding
apply in writing to the trustee, and such application states that the applicants
desire to communicate with other certificateholders with respect to their rights
under the pooling and servicing agreement or under the certificates and is
accompanied by a copy of the communication which such applicants propose to
transmit, then the trustee, after having been adequately indemnified by such
applicants for its costs and expenses, shall afford or shall cause the transfer
agent and registrar if other than the trustee, to afford such applicants access
during normal business hours to the most recent list of certificateholders held
by the trustee which shall be as of a date not more than 45 days prior to the
date of receipt of such applicants' request and shall give the subservicer
notice that such request has been made, within 5 business days after the receipt
of such application. Every certificateholder, by receiving and holding
certificates, agrees with the trustee that neither the trustee, the transfer
agent and registrar, if other than the trustee, nor any of their respective
agents shall be held accountable by reason of the disclosure of the names and
addresses of the certificateholders, regardless of the source from which such
information was obtained.
INTEREST PAYMENTS
Certificate interest on the Tranche I and Tranche II cetificaties will
accrue at the rate of [ ]% and [ ]% per annum, respectively, and payable to
the certificateholder semi-annually, which is defined as the distribution date.
Certificate interest will accrue on a certificate from the applicable closing
date of the particular certificate. Beginning with the distribution date
immediately following the date in which occurred the closing date applicable to
the particular certificate, interest at the certificate rate shall be paid on
each distribution date on the basis of a 360 day year comprised of twelve 30 day
months. Certificate interest payments will be funded from the liquidity account.
Certificate interest will be paid to the certificateholders after the trustee's
fees, expenses and indemnity and master servicer's fee, but before the successor
servicer's fee has been paid, in that order of priority. If there are
insufficient amounts in the liquidity account to pay certificate interest, such
deficit shall constitute a deficiency amount payable on succeeding distribution
dates from the liquidity account.
PRINCIPAL PAYMENTS
Principal is payable commencing on the first distribution date following
the close of business on the 8th and 10th year anniversary, respectively, of the
closing date. No payments of certificate principal will be made to
certificateholders until after the final maturity date, as applicable, except as
provided below. The first payment of certificate principal will be made to
certificateholders beginning on the first distribution date following the final
maturity date. Additional payments of certificate principal will be made on
succeeding distribution dates until the full outstanding balance of certificate
principal with respect to all certificates has
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been paid in full. If there remains any outstanding balance of certificate
principal, then all remaining trust's assets shall first be used to repay the
outstanding balance of certificate principal on the certificates. Any funds
remaining in any of the investor accounts, including the liquidity account,
after the full outstanding balance of certificate principal on all certificates
has been paid in full and all fees and expenses have been paid shall be the
property of Capital.
ASSIGNMENT OF INSURANCE SETTLEMENTS TO THE TRUST
On or before the second business day prior to each closing date, Capital
shall give the trustee written notice of the proposed irrevocable assignment of
beneficial interest in the insurance settlements specifying the amount of the
insurance settlements to be assigned and the trustee shall, in turn, notify
Capital of the amount available in the escrow account to acquire insurance
settlements. Capital, on each closing date, will then transfer, assign and set
over to the trust for the benefit of the certificateholders, without recourse,
(a) an irrevocable beneficial interest in the insurance settlements which shall
be acquired by Capital from United, as seller under the insurance settlements
purchase agreement, pursuant to the insurance settlements purchase agreement,
including all monies due or to become due with respect to the insurance
settlements and all proceeds from the insurance settlements and (b) all of
Capital's rights, remedies, powers and privileges with respect to the insurance
settlements under the insurance settlements purchase agreement.
REPRESENTATIONS AND WARRANTIES OF CAPITAL
General. Capital shall represent and warrant to the trust as of each
closing date that:
o it is a company duly organized, validly existing and in good standing
under the laws of the State of Delaware, and has full corporate power,
authority and right to own its properties and conduct its business as
such properties are presently owned and such business is presently
conducted, and to execute, deliver and perform its obligations under the
pooling and servicing agreement and to execute and deliver to the trustee
the certificates pursuant thereto;
o it is neither required to qualify, nor to register, as a foreign
corporation in any state other than those states in which it has so
qualified in order to conduct business, and has obtained all necessary
licenses and approvals required under federal and applicable state law;
o the execution and delivery of the pooling and servicing agreement and the
insurance settlements purchase agreement and the execution and delivery
to the trustee of the certificates by Capital and the consummation of the
transactions provided for in the pooling and servicing agreement and the
insurance settlements purchase agreement have been duly authorized by
Capital by all necessary corporate action;
o the execution and delivery of the pooling and servicing agreement and the
insurance settlements purchase agreement and the certificates, the
performance of the transactions contemplated by the pooling and servicing
agreement and the fulfillment of the terms thereof will not conflict
with, result in any breach of any of the terms and provisions of, or
constitute, with or without notice or lapse of time or both, a default
under, any indenture, contract, agreement, mortgage, deed of trust or
other instrument to which Capital is a party or by which it or any of its
property is bound;
o the execution and delivery of the pooling and servicing agreement, the
insurance settlements purchase agreement and the certificates, the
performance of the transactions contemplated by the pooling and servicing
agreement or the insurance settlements purchase agreement and the
fulfillment of the terms thereof will not conflict with or violate any
requirements of law applicable to Capital;
o there are no proceedings or investigations pending or, to the best
knowledge of Capital, threatened against Capital, before any court,
regulatory body, administrative agency, or other governmental
instrumentality (a) asserting the invalidity of the pooling and servicing
agreement, the insurance settlements purchase agreement or the
certificates, (b) seeking to prevent the issuance of the certificates or
the consummation of any of the transactions contemplated by the pooling
and servicing agreement, the insurance settlements purchase agreement or
the certificates, (c) seeking any determination of ruling that, in the
reasonable judgment of Capital, would materially and adversely affect the
performance by Capital of its obligations under the pooling and servicing
agreement or the insurance settlements purchase agreement, (d) seeking
any determination or ruling that would materially and adversely affect
the validity or enforceability of the pooling and servicing agreement,
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the insurance settlements purchase agreement or the certificates or (e)
seeking to affect adversely the income tax attributes of the trust; and
o all appraisals, authorizations, consents, orders or other actions of any
person or of any governmental body or official required in connection
with the execution and delivery of the pooling and servicing agreement,
the insurance settlements purchase agreement and the certificates, the
performance of the transactions contemplated by the pooling and servicing
agreement or the insurance settlements purchase agreement, and the
fulfillment of the terms thereof, have been obtained. These
representations and warranties of Capital will survive the assignment of
the insurance settlements to the trust and the termination of the rights
and obligations of the subservicer. Upon discovery by Capital or the
subservicer or upon written notice to the trustee of a breach of any of
the foregoing representations and warranties, the party discovering such
breach or the trustee, as applicable, is obligated to give prompt written
notice to the other parties to the pooling and servicing agreement.
Pooling and Servicing Agreement. Capital shall also represent and warrant
to the trust, with respect to any certificates, as of each closing date that (a)
the pooling and servicing agreement and any assignment of the insurance
settlements each constitute a legal, valid and binding obligation of Capital,
enforceable against Capital in accordance with its terms, except as such
enforceability may be limited by debtor relief laws and except as such
enforceability may be limited by general principles of equity, whether
considered in a suit at law or in equity; and (b) the pooling and servicing
agreement and any assignment of the insurance settlements each constitute a
valid assignment to the trust of all right, title and interest of Capital in, to
and under the insurance settlements being assigned to the trust, all monies due
or to become due with respect to the insurance settlements, and all proceeds of
the insurance settlements, free and clear of any lien of any person claiming
through or under Capital, except for any federal, state or local tax lien, all
monies due or to become due with respect to the insurance settlements and the
proceeds of the insurance settlements upon transfer of the insurance settlements
to the trust, and of the pooling and servicing agreement.
ELIGIBILITY OF INSURANCE SETTLEMENTS, SELECTION PROCEDURES, SOLVENCY
In connection with the assignment of the insurance settlements to the
trust, Capital also shall represent and warrant to the trust as to each closing
date, that (a) no selection procedures believed by Capital to be in violation of
the diversification requirements were utilized in selecting the insurance
settlements being transferred to the trust and (b) neither Capital nor the
seller is insolvent. See "Covenants of Capital." On each closing date, Capital
will be deemed to represent and warrant that the representation and warranties
set forth above are true and correct with respect to each insurance settlement
assigned on such date as if made on such date. In addition, these
representations and warranties shall survive the assignment of the respective
insurance settlements to the trust and the termination of the rights and
obligations of the subservicer. Upon discovery by Capital, the subservicer or
the trustee of a breach of any of the foregoing representations and warranties,
the party discovering such breach shall give prompt written notice to the
others.
Representations and Warranties Regarding the Insurance Settlements Purchase
Agreement. Capital shall also represent and warrant to the trust under the
insurance settlements purchase agreement, that it has covenanted and agreed to
comply with and perform its obligations with respect to the insurance
settlements, except insofar as any failure so to comply or conform would not
materially and adversely affect the rights of the trust or the
certificateholders under the pooling and servicing agreement or under the
certificates.
COVENANTS OF CAPITAL
Capital shall covenant to the trust that:
o each insurance settlement shall be evidenced by an appropriate insurance
policy;
o except for the assignments contemplated in the pooling and servicing
agreement, Capital will not sell, pledge, assign or transfer to any other
person the insurance settlements;
o Capital agrees to tender to the subservicer for deposit in the investor
accounts all payments received by Capital with respect to the insurance
settlements as soon as practicable after receipt thereof by Capital;
o Capital will enforce the provisions of the insurance settlements purchase
agreement prohibiting the Seller from conveying, assigning, exchanging or
otherwise transferring the insurance settlements to any other person
prior to termination of the trust;
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o Capital shall make any filings, reports, motion, application,
registration with, and shall seek any consents or authorizations from the
Securities and Exchange Commission and any state securities authority on
behalf of the trust as may be necessary or advisable, and shall comply
with any federal or state securities or reporting requirement laws; and
o Capital's purchase, acquisition and transfer of the insurance settlements
will be structured so that:
o at acquisition, no less than 75% of the cumulative death benefits of
the insurance settlements held or beneficially owned by the trust
shall be payable by insurance companies with an A.M. Best rating of
A or better, or its equivalent as set by other nationally recognized
rating agencies,
o at acquisition no more than 25% of the cumulative death benefits of
the insurance settlements held or beneficially owned by the trust
shall be payable by insurance companies with A.M. Best rating of B+,
or its equivalent as set by other nationally recognized agencies,
o less than 10% of the outstanding cumulative death benefits of the
insurance settlements held or beneficially owned by the trust shall
be payable by any one insurance company, and
o no more than $4 million in Tranche I and $10 million in Tranche II
will be cumulative death benefits relating to any one individual.
ADMINISTRATION AND SERVICING OF THE INSURANCE SETTLEMENTS.
The subservicer will undertake to service and administer the insurance
settlements and to collect payments due under the insurance settlements in
accordance with customary and usual servicing procedures and it shall have full
power and authority, acting alone or through any party properly designated by it
to do any and all things in connection with such servicing and administration
which it may deem necessary or desirable. Without limiting generality of the
foregoing, the subservicer is authorized and empowered unless such power and
authority is revoked by the trustee or the master servicer on account of the
occurrence of a subservicer default to execute and deliver, on behalf of the
trust for the benefit of the certificateholders, any and all instruments of
satisfaction or cancellation, or of partly or full release or discharge, and all
other comparable instruments, with respect to the insurance settlements. The
trustee shall furnish the subservicer upon request with any powers of attorney
and other documents reasonably necessary or appropriate to enable the
subservicer to carry out its servicing and administrative duties.
The master servicer and subservicer are not obligated to use separate
servicing procedures, offices or employees for servicing the insurance
settlements from the procedures, offices, or employees used by the master
servicer in connection with servicing other insurance settlements, if any;
provided, however, that subservicer is at all times required to be able to
accurately reflect the status of collections and shall maintain separate
accounts. Neither the subservicer nor the master servicer is required to
maintain fidelity bond coverage insuring against losses through wrongdoing of
its officers and employees who are involved in the servicing of the insurance
settlements.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
As compensation for its servicing activities under the pooling and
servicing agreement and as reimbursement for its expenses in connection with its
activities under the pooling and servicing agreement, the master servicer and
subservicer shall be entitled to receive a monthly servicing fee with respect to
any month, or portion thereof, prior to the termination of the trust, payable in
arrears on each fee distribution date. The master servicer and subservicer shall
not be liable for any liabilities, costs or expenses of the trust or the
certificateholders arising under any tax law, including without limitation any
federal, state or local income or franchise taxes or any other tax imposed on or
measured by income, or any interest or penalties with respect thereto or arising
from a failure to comply therewith.
The subservicer shall be required to pay from its servicing compensation
all expenses, but not including fees paid to independent accountants which shall
be paid by the trust, incurred in connection with servicing the insurance
settlements and shall not be entitled to any payment from Capital or the trust
other than the monthly servicing fee. The subservicer shall be entitled to an
annual fee of 0.3575% until the expiration of the offering period and 0.45375%
after the expiration of the offering period on the outstanding principal amount
of certificates, payable monthly.
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REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SUBSERVICER (AND SELLER)
As of each closing date, the subservicer will make the following
representations, warranties and covenants upon which the trustee will rely in
accepting the assignment of the insurance settlements and is authenticating the
certificates that:
o the subservicer is a company duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has full corporate
power, authority and right to own its properties and conduct its business
as such properties are presently owned and such business is presently
conducted, and to execute, deliver and perform its obligations under the
pooling and servicing agreement;
o it is qualified as a foreign corporation in every state where it is
required to be so qualified to service the insurance settlements as
required by the pooling and servicing agreement and has obtained all
necessary licenses and approvals as required under federal and state law,
in each case, where the failure to be so qualified, licensed or approved,
could reasonably be expected materially and adversely to affect the
ability of the subservicer to comply with the terms of the pooling and
servicing agreement;
o the execution, delivery, and performance of the pooling and servicing
agreement and the insurance settlements purchase agreement, have been
duly authorized by the subservicer, and as seller, as applicable by all
necessary corporate action on the part of the subservicer, that said
agreements constitute legal, valid and binding obligations of the
subservicer, and as seller, as applicable, enforceable in accordance with
their respective terms, except as enforceability may be limited by debtor
relief laws and except as such enforceability may be limited by general
principles of equity, whether considered in a proceeding at law or in
equity, and that the execution and delivery of the pooling and servicing
agreement and the insurance settlements purchase agreement by the
subservicer, and as seller, as applicable, and the performance of the
transactions contemplated by said agreements and the fulfillment of the
terms thereof applicable to the subservicer, and as seller, as
applicable, will not conflict with, violate, or result in any breach of
any of the terms and provisions of, or constitute with or without notice
or lapse of time or both, a default under, any requirements of law
applicable to the subservicer, and as seller, as applicable, or any
indenture contract, agreement, mortgage, deed of trust or other
instrument to which the subservicer, or as seller, as applicable, is a
party or by which it is bound; and
o there are no proceedings or investigations pending or, to the best
knowledge of the subservicer, or as seller, as applicable, threatened
against the subservicer, or as seller, as applicable, before any court,
regulatory body, administrative agency or other tribunal or governmental
instrumentality seeking to prevent the issuance of the certificates or
the consummation of any of the transactions contemplated by the pooling
and servicing agreement, seeking any determination or ruling that, in the
reasonably judgment of the subservicer, or as seller, as applicable,
would materially and adversely affect the performance by the subservicer,
or as seller, as applicable, of its obligations under the pooling and
servicing agreement or the insurance settlements purchase agreement, or
seeking any determination or ruling that would materially and adversely
affect the validity or enforceability of the pooling and servicing
agreement or the insurance settlements purchase agreement. Seller shall
also make agreements with or deliver binding instructions to each
insurance company such that policy proceeds are to be deposited directly
in the lockbox account.
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REPORTS AND RECORDS OF THE MASTER SERVICER AND SUBSERVICER
The master servicer and subservicer are required to deliver certain reports
and certificates to Capital and the trustee at specified times.
Closing Date Reports. The subservicer shall prepare and deliver to Capital
and to the trustee at least 2 business days prior to each closing date and,
thereafter, on the first business day of each week, an officer's certificate
setting forth the amount of insurance settlements to be purchased on the closing
date as measured by the insurance settlements purchase price to be expended
therefor and by their face value.
Daily and Weekly Reports. On each business day, the subservicer shall
prepare and make available at the office of the subservicer for inspection by
the master servicer and the trustee, which trustee may do at its option, but has
no obligation to so inspect, and/or Capital, a record setting forth (1) the
aggregate amount of collections processed by the subservicer on the preceding
business day and (2) the amount of insurance settlements as of the close of
business on the preceding business day. On the first business day of each week,
commencing in the week following the first closing date, the subservicer shall
prepare and deliver to Capital and the trustee a record setting forth (1) the
aggregate amount of collections processed by the subservicer in the preceding
week and (2) the aggregate amount of insurance settlements as of the close of
business on the last business day in such week.
Master Servicer's Semi-Annual Certificate. On each determination date the
master servicer shall prepare and forward to the trustee and the paying agent
the semi-annual master servicer's certificate substantially setting forth:
o the aggregate amount of collections processed during the preceding six
months;
o the aggregate amount of insurance settlements and the balance on deposit
in the insurance settlements account, with respect to collections
processed as of the end of the last day of the preceding six months;
o the aggregate amount, if any, of withdrawals from the liquidity account
required to be made on the next succeeding transfer date;
o the aggregate amount of funds, if any, to be deposited in the liquidity
account on the next succeeding transfer date;
o the six months certificateholders statement;
o the sum of all amounts payable to the certificateholders on the next
succeeding distribution date in respect of certificate interest and
certificate principal; and
o the interest and earnings, net of losses and investment expenses, from
the insurance settlements account and liquidity account for the preceding
six months.
Master Servicer's Annual Certificate. In addition to the closing date
reports, the daily and weekly reports and the six month master servicer's
certificate, the master servicer will deliver to the trustee on or before April
15th of each calendar year, beginning with April 15, 2001, an officer's
certificate stating that (1) a review of the activities of the subservicer
during the preceding calendar year and of its performance under the pooling and
servicing agreement was made under the supervision of the officer signing such
certificate and (2) to the best of such officer's knowledge, based on such
review, the subservicer has fully performed all its obligations under the
pooling and servicing agreement throughout such year, or, if there has been a
default in the performance of any such obligation, specifying each such default
known to such officer and the nature and status thereof. A copy of such
certificate may be obtained by any certificateholder by a request in writing to
the trustee.
Annual Independent Public Accountants' Subservicing Reports. The
subservicer, at cost of the trust, will also undertake to cause certain annual
reports to be prepared by independent public accountants for the trust, which
reports will be available for inspection by the certificateholders. On or before
April 15th of each calendar year, beginning with April 15, 2001, the master
servicer shall cause, at cost and expense of the trust, a firm of nationally
recognized independent public accountants to furnish a report to the trustee
covering the
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preceding annual period to the effect that such accountants have applied certain
agreed-upon procedures to certain documents and records relating to the
servicing of the insurance settlements, compared the information contained in
the master servicer's certificates delivered during the period covered by such
report with such documents and records and that no matters came to the attention
of such accountants that caused them to believe that such servicing was not
conducted in compliance with the pooling and servicing agreement, except for
such exceptions as such firm shall believe to be immaterial and such other
exceptions as shall be set forth in such statement. In addition, each report
shall set forth the agreed upon procedures performed. A copy of such report may
be obtained by any certificateholder by a request in writing to the trustee. In
addition, on or before April 15th of each calendar year, beginning with April
15, 2001, the subservicer also, at the trust's cost and expense, shall cause a
firm of nationally recognized independent public accountants to furnish a report
to the trustee to the effect that they have compared the mathematical
calculations of each amount set forth in the six months subservicer's
certificates forwarded by the master servicer during the period covered by such
report, which shall be the period from January 1, or such date which is the
initial closing date, to and including December 31, or such date which is the
final maturity date, of such calendar year, with the subservicer's computer
reports which were the source of such amounts and that on the basis of such
comparison, such accountants are of the opinion that such amounts are in
agreement, except for such exceptions as they believe to be immaterial and such
other exceptions as shall be set forth in such statement. A copy of such report
may be obtained by any certificateholder by a request in writing to the trustee.
In the event that United is no longer acting as subservicer, the master
servicer or any successor servicer appointed pursuant to the provisions
governing said appointment under the pooling and servicing agreement, shall
deliver or make available to the trustee each certificate and report required to
be prepared, forwarded or delivered thereafter.
SUBSERVICER DEFAULT
Upon the occurrence of a subservicer default, the subservicer will give
prompt written notice of such default to the master servicer and the trustee and
the trustee will give notice to the certificateholders at the addresses
appearing in the certificate register. Should the subservicer fail to cure such
subservicer default or be incapable of curing such, the trustee or the
certificateholders representing not less than 51% of the principal amount of the
certificates then outstanding by written notice then given to the subservicer,
and the trustee if given by the certificateholders, may (a) terminate all of the
rights and obligations of the subservicer as subservicer under the pooling and
servicing agreement or (b) only if certificateholders representing not less than
51% of the principal amount of certificateholders so elect, waive such default
by the subservicer, except a default in the failure to make any required
deposits or payments, which may not be waived. Upon any such waiver of a past
default, such default shall cease to exist, and any default arising therefrom
shall be deemed to have been remedied for every purpose of the pooling and
servicing agreement. No such waiver shall extend to any subsequent or other
default or impair any right consequent thereto except to the extent expressly so
waived.
If a termination notice is delivered to subservicer, the subservicer shall
continue to perform all servicing functions under the agreement until the date
specified in the termination notice or otherwise specified by the trustee in
writing or, if no such date is specified in such termination notice, or
otherwise specified by the trustee, until a date mutually agreed upon by the
master servicer and the trustee. After the giving of a termination notice the
master servicer will immediately become the successor servicer and shall accept
its appointment by a written assumption.
A subservicer default refers to any one of the following events which shall
occur and be continuing:
o any failure by the subservicer to report or give instructions or notice
to the trustee required by the pooling and servicing agreement on or
before the date occurring 5 business days after the date such report or
such instruction or notice is required to be given, as the case may be;
or
o failure on the part of the subservicer duly to observe or perform in any
material respect any other covenants or agreements of the subservicer set
forth in the pooling and servicing agreement which has a material adverse
effect on the certificateholders and which continues unremedied for a
period of 30 days after the date on which written notice of such failure
requiring the same to be remedied shall
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have been given to the subservicer by the trustee, or to the subservicer
and the trustee by the holders of certificates representing not less than
51% of the principal amount of the certificates then outstanding; or
o the subservicer's delegation of its duties under the pooling and
servicing agreement except as permitted by the pooling and servicing
agreement; or
o any representation, warranty or certification made by the subservicer in
the pooling and servicing agreement, or in any certificate delivered
pursuant to the pooling and servicing agreement shall prove to have been
incorrect when made, which has a material adverse effect on the rights of
the certificateholders and which continues to be incorrect in any
material respect for a period of 30 days after the date on which written
notice of such failure requiring the same to be remedied shall have been
given to the subservicer by the trustee or master servicer, or to the
master servicer and the trustee by the holders of certificates
representing not less than 51% of the principal amount of the
certificates then outstanding, or if such failure cannot be cured within
such 30 day period owing to causes beyond the control of the subservicer,
if subservicer shall fail to proceed promptly to cure the same and
thereafter prosecute the curing of such failure with continued diligence;
or
o the subservicer shall (a) become insolvent, (b) fail to pay its debts
generally as they become due, (c) voluntarily seek, consent to, or
acquiesce in the benefit or benefits of any debtor relief law, or (d)
become a party to, or be made the subject of, any proceeding provided by
any debtor relief law, other than as a creditor or claimant, and, in the
event such proceeding is involuntary, the petition instituting same is
not dismissed within 90 days after its filing.
APPOINTMENT OF SUCCESSOR SERVICER
Upon the occurrence of a subservicer default which results in a termination
of the subservicer, the master servicer shall become the successor servicer.
When the master servicer becomes the successor servicer, it shall receive a
management transfer fee of $100,000. If the master servicer is legally unable to
act in such capacity, it may, as its option, petition a court of competent
jurisdiction to appoint any established financial institution whose regular
business includes servicing insurance settlements to act as successor servicer.
Upon its appointment, the successor servicer shall be the successor in all
respects to the subservicer with respect to servicing functions under the
pooling and servicing agreement and shall be subject to all the
responsibilities, duties and liabilities placed on the subservicer by the terms
and provisions of the pooling and servicing agreement.
All power and authority of the subservicer under the pooling and servicing
agreement shall pass to and vest in the successor servicer, and, without
limitation, the successor servicer shall execute and deliver all documents and
other instruments required of the subservicer to be executed or delivered, and
to do and accomplish all other acts or things necessary or appropriate to effect
the purposes of such transfer of servicing rights to the successor servicer.
Upon any termination or appointment of a successor servicer, the trustee
shall give prompt written notice thereof to certificateholders at their
addresses appearing in the certificate register.
THE TRUSTEE
The Bank of New York will be the trustee. Capital, the subservicer, the
master servicer and their affiliates may from time to time enter into normal
banking and trustee relationships with the trustee and its affiliates. The
trustee, Capital, the subservicer, the master servicer, and any of their
affiliates may hold certificates in their own names. In addition, for purposes
of meeting the legal requirements of certain local jurisdictions, the trustee
shall have the power to appoint a co-trustee or separate trustee(s) of all or
any part of the trust. In the event of such appointment, all rights, powers,
duties and obligations conferred or imposed upon the trustee by the pooling and
servicing agreement shall be conferred or imposed upon the trustee and such
separate trustee or co-trustee jointly, or, in any jurisdiction in which the
trustee shall be incompetent or unqualified to perform certain acts, singly upon
such separate trustee or co-trustee, which is so qualified and
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who shall exercise and perform such rights, powers, duties and obligations
solely at the discretion of trustee. The trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
The trustee may resign at any time by giving written notice to Capital and
the master servicer and, upon receiving such written notice of resignation,
Capital shall be obligated to appoint a successor trustee. If no successor
trustee has been appointed within 30 days of Capital's receipt of the notice of
resignation, the resigning trustee shall petition any court of competent
jurisdiction for the appointment of a successor trustee. Capital may also remove
the trustee if the trustee ceases to be eligible to continue as such or the
trustee becomes insolvent or is adjudged a bankrupt. Any resignation or removal
of the trustee and appointment of a successor trustee does not become effective
until acceptance of the appointment by the successor trustee.
AMENDMENT OF POOLING AND SERVICING AGREEMENT
The pooling and servicing agreement may be amended from time to time by the
Seller, master servicer, Capital and the trustee, without the consent of any of
the certificateholders, to cure any ambiguity, to correct or supplement any
provisions which may be inconsistent with any other provisions therein, or to
add any other provisions with respect to matters or questions arising under the
pooling and servicing agreement which shall not be inconsistent with the
existing provisions of the pooling and servicing agreement; provided, however,
that such action shall not, as evidenced by an opinion of counsel, adversely
affect in any material respect the interests of the certificateholders. Further,
the trustee may, but shall not be obligated to, enter into any such amendment
which affects the trustee's rights, duties or immunities under the pooling and
servicing agreement or otherwise. Any assignments regarding the transfer of
insurance settlements to the trust shall not be considered amendments to the
pooling and servicing agreement.
Other than as provided above, the pooling and servicing agreement may also
be amended from time to time by Seller, master servicer, Capital and the trustee
with the consent of the certificateholders representing not less than 66 2/3% of
the principal amount of the certificates then outstanding, for the purpose of
adding, modifying or eliminating any provisions of the pooling and servicing
agreement or modifying in any manner the rights of the certificateholders;
provided, however, that no such amendment shall (a) reduce in any manner the
amount of, or delay the timing of, distributions which are required to be made
on any certificate without the consent of such certificateholder, or (b) reduce
the aforesaid percentage required to consent to any such amendment, without the
consent of each certificateholder.
Promptly after the execution of any amendment or consent the trustee shall
furnish written notification of the substance of such amendment to each
certificateholder.
With respect to the amendment of the pooling and servicing agreement or the
modification of the rights of the certificateholders, the consent of the
certificateholders shall not be necessary to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent shall approve the
substance of the proposed amendment. The manner of obtaining any consents
required to amend the pooling and servicing agreement and evidence of
authorization by certificateholders shall be subject to such reasonable
requirements as the trustee may prescribe.
INVESTOR ACCOUNTS AND ALLOCATION OF COLLECTIONS
The trust's assets shall also include investor accounts which consist of
the lockbox account, the insurance settlements account and liquidity account,
each of which shall be established and maintained by the trustee for the benefit
of the certificateholders. In addition, the trustee shall establish a
distribution account, which shall also be an investor account for payments to
the certificateholders, subservicer, trustee, Capital, master servicer and such
others as are entitled to receive payments under the pooling and servicing
agreement.
Lockbox Account. The lockbox account shall be established and maintained
with the trustee in the name of the trust as an interest bearing segregated
demand deposit account and its shall bear a designation clearly indicating that
the funds deposited therein are held in trust for the benefit of the
certificateholders.
Insurance Settlements Account. The insurance settlements account shall be
established and maintained by the trustee as a segregated, interest-bearing
account and it shall bear a designation clearly indicating that
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the funds deposited therein are held in trust for the benefit of the
certificateholders and shall be subject to distribution pursuant to the pooling
and servicing agreement. The insurance settlements account shall contain
collections attributable to insurance settlements.
Liquidity Account. The trustee shall also establish and maintain the
liquidity account in the name of the trust as a segregated interest bearing
account, indicating that the funds therein are held for the benefit of the
certificateholders. On each closing date, Capital shall deposit or cause to be
deposited in the liquidity account an amount equal to approximately 33 1/3 of
the principal amount of the certificates issued on such closing date. The
liquidity account will be funded with a minimum of approximately $6,660,000 if
$20,000,000 of certificates are sold pursuant to this offering. The maximum
amount would be approximately $49,950,000 if $150,000,000 of certificates are
sold. It is anticipated that the amount of funds in the liquidity account will
be sufficient to pay insurance premiums, however no assurance can be given. If
such amount is not sufficent the trust may be required to liquidate some
policies.
Distribution Account. The trustee shall also establish and maintain a
distribution account, which shall be a non-interest bearing segregated demand
deposit account from which the paying agent shall make the distributions and
other payments described in the pooling and servicing agreement.
Distributions from Investor Accounts. The paying agent or the trustee
shall have the revocable authority to make withdrawals and distributions from,
or transfers between, the investor accounts. On each business day at 3:00 p.m.,
the trustee shall withdraw all funds from the lockbox account and deposit same
in the insurance settlements account. Funds on deposit in the insurance
settlements account and the liquidity account may at all times be invested in
permitted investments, provided that any such investment shall mature and such
funds shall be available for withdrawal on or prior to the transfer date
immediately preceding the fee distribution date and distribution date on which
such funds are required for distribution. The trustee shall hold for the benefit
of the certificateholders the negotiable instruments or securities, if any,
evidencing the permitted investments from the time of purchase until the time of
sale or maturity. Subject to the maturity restrictions set forth above, Capital
shall instruct the trustee, in writing as to the investment of funds on deposit
in the insurance settlements account and the liquidity account. If, for any
reason, Capital does not provide investment instructions to the trustee, then
the trustee shall invest such funds in a Fidelity Fund Money Market Account. For
purposes of determining the availability of funds or the balances in the
insurance settlements account and the liquidity account, all investment earnings
on such funds shall be deemed not to be available or on deposit except upon the
occurrence of a pay out event. The trustee shall not be responsible for any
losses incurred in connection with any such permitted investments.
The subservicer is required to deposit immediately or cause to be deposited
in the insurance settlements account all collections which it receives that are
not otherwise made or deposited directly into the lockbox account.
PRIORITY OF PAYMENTS
On each fee determination date and determination date, as applicable, the
subservicer shall instruct the trustee to withdraw on the succeeding transfer
date the amounts required to be withdrawn from the insurance settlements
account, and deposited into the distribution account. The trustee will then
withdraw from the insurance settlements account to the extent funds are
available from collections attributable to insurance settlements processed
during the preceding six months, and the deposit in the distribution account for
payment in the following order of priority;
(a) an amount equal to the trustee's fees, expenses of the trustee and any
indemnity owing to the trustee;
(b) an amount equal to certificate interest for the six months and
certificate principal, if applicable;
(c) an amount equal to the subservicer's fee:
(d) an amount equal to the master servicer's fees or successor servicer's fees;
and
(e) an amount to fund any deficiency in the liquidity account.
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If the collections attributable to insurance settlements are less than the
amount required to be distributed from the insurance settlements account, to
fund items (a) through (d) above, the trustee shall withdraw from the liquidity
account funds in the amount of such deficiency and deposit same in the
distribution account. If the insurance settlements account or funds in the
liquidity account are insufficient in any six months to pay certificate interest
to the certificateholders, the amount of such deficiency for any six months
shall be referred to as the deficiency amount and shall be payable in later
months as sufficient funds become available.
In the event the master servicer or a successor servicer shall be appointed
subservicer, such party shall receive the monthly servicing fee in accordance
with the priority set forth in the first paragraph.
Repayment of Certificate Principal. With respect to the payment of
certificate principal, on each transfer date the trustee shall withdraw from the
insurance settlements account collections attributable to insurance settlements
which have been on deposit in the insurance settlements account and deposit same
in the distribution account for payment to the certificateholders.
With respect to the final transfer date, the trustee shall withdraw from
the amount deposited in the insurance settlements account and deposit in to the
distribution account an amount equal to the outstanding amount of certificate
principal of the certificates as of the end of the day on the preceding record
date. If the amounts on deposit in the insurance settlements account on the
final transfer date are less than the outstanding amount of certificate
principal of the certificates as of the end of the day on the preceding record
date, the trustee, will withdraw from the liquidity account funds in the amount
of such deficiency and deposit same in the distribution account for payment to
the certificateholders.
The certificates are subject to optional repurchase at 102.50% of the
outstanding principal amount thereof after each 5 year period, respectively.
DISTRIBUTIONS AND REPORTS TO CERTIFICATEHOLDERS
On each distribution date, the paying agent will distribute to each
certificateholder of record on the preceding record date such
certificateholder's pro rata share of the certificate interest and the
certificate principal, if applicable, as previously discussed. The paying agent
shall make such distributions by check mailed to each certificateholder.
In addition, on each distribution date, the paying agent shall forward to
each certificateholder a certificateholders' statement, prepared by the master
servicer substantially in the form of exhibit 5.2 attached to the pooling and
servicing agreement filed as an exhibit to the registration statement of which
this prospectus is a part, setting forth the following information (which, in
the case of (a), (b) and (c) below, shall be stated on the basis of an original
principal amount of $1,000 per certificate):
(a) the total amount distributed for the preceding six months;
(b) the amount of such distribution allocable to certificate principal;
(c) the amount of such distribution allocable to certificate interest;
(d) the amount of collections of insurance settlements processed during the
preceding six months;
(e) the amount of the monthly servicing fee for the preceding six months;
(f) the aggregate amount of funds deposited in the liquidity account
as of such distribution date; and
(g) the amount of trustee's fees and expenses of the trustee for the
preceding six months.
On or before January 31 of each calendar year, beginning with calendar year
2001, Capital will furnish to each person who at any time during the preceding
calendar year was a certificateholder an annual certificateholders' tax
statement prepared by an independent public accounting firm containing the
information required to be contained in the regular semi-annual report to
certificateholders, as set forth in subclauses (a), (b) and (c) of the preceding
paragraph above, aggregated for such calendar year or the applicable portion
thereof during which such person was a certificateholder, together with such
other customary information, consistent with the treatment of the certificates
as debt, as the trustee, Capital, master
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service or the subservicer deems necessary or desirable to enable the
certificateholders to prepare their respective tax returns. Such obligations of
Capital shall be deemed to have been satisfied to the extent that Capital
provides information which is substantially comparable to information which is
required by applicable requirements of the Internal Revenue Code, as from time
to time in effect.
PAY OUT EVENTS
A pay out event refers to any of the following events:
(a) the failure on the part of Capital or the subservicer to make any
payment or deposit required by the terms of the pooling and servicing
agreement on or before the date occurring 5 business days after the date
such payment or deposit is required to be made; or
(b) the failure on the part of Capital or the subservicer duly to
observe or perform in any material respect any other material covenants or
agreements set forth in the pooling and servicing agreement which
failure(s) continues unremedied for a period of 60 days after the date on
which written notice of such failure requiring the same to be remedied
shall have been given to Capital and/or the subservicer by the trustee, or
to Capital, the master servicer and the trustee by certificateholders
representing not less than 51% of the principal amount of the certificates
then outstanding; or
(c) in the event that any representation or warranty made by Capital
or the subservicer in the pooling and servicing agreement or any
information contained in a computer printout required to be delivered by
Capital shall prove to have been incorrect in any material respect when
made or when delivered, which continues to be incorrect in any material
respect for a period of 60 days after the date on which written notice of
such failure requiring the same to be remedied shall have been given to
Capital and the subservicer by the trustee, or to Capital, the master
servicer and the trustee by certificateholders representing not less than
51% of the principal amount of the certificates then outstanding and as a
result of which the interests of such certificateholders are materially and
adversely affected, or if such failure cannot be cured within such 60 day
period owing to causes beyond the control of Capital or the subservicer, as
the case may be, if Capital or the subservicer shall fail to proceed
promptly to cure the same and thereafter prosecute the curing of such
failure with continued diligence; or
(d) Capital or the Subservicer shall (1) become insolvent; (2) fail to
pay their debts generally as they become due; (3) voluntarily seek, consent
to, or acquiesce in the benefit or benefits of any debtor relief law; (4)
become a party to, or be made the subject of, any proceeding provided for
by any debtor relief law, other than as a creditor or claimant, and, in the
event such proceeding is involuntary, the petition instituting same is not
dismissed within 90 days after its filing; or
(e) the trust shall become an "investment company" within the meaning
of the Investment Company Act of 1940, as amended; or
(f) any subservicer default shall occur which would have a material
adverse effect on the certificateholders; or
(g) the balance of the funds available in the liquidity account is
less than 5% of the amount of certificate principal of the certificates
then outstanding for a period of 2 consecutive months; or
(h) no person is able to act as successor servicer.
Then in the case of an event described in subparagraphs (a), (b), (c) or
(f), after the applicable grace period set forth in such subparagraphs or other
relevant provisions, either the trustee upon actual knowledge of a responsible
officer or the certificateholders representing not less than 51% of the
principal amount of the certificates then outstanding, may give written notice
to Capital and the subservicer, and to the trustee if given by the
certificateholders, declaring that a pay out event had occurred as of the date
of such notice, and, in the case of any event descried in subparagraphs (d),
(e), (g), or (h) a pay out event shall occur without any notice or other action
on the part of the trustee or the certificateholders, immediately upon the
occurrence of such event.
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ADDITIONAL RIGHTS UPON THE OCCURRENCE OF CERTAIN EVENTS
If Capital voluntarily seeks, consents to or acquiesces in the benefit or
benefits of any debtor relief law or becomes party to, or is made the subject
of, any proceeding provided for by any debtor relief law, other than as a
creditor or claimant, and, in the event such proceeding is involuntary, and the
petition instituting same is not dismissed within 90 days after its filing,
Capital shall on the date of such bankruptcy event immediately cease to assign
insurance settlements to the trust and shall promptly give notice to the trustee
of such bankruptcy event. Within 15 days after receipt by the trustee of notice
of the bankruptcy event, the trustee shall (a) publish a notice in the
authorized newspapers that a bankruptcy event has occurred and that the master
servicer intends to sell, dispose of or otherwise liquidate the insurance
settlements in a commercially reasonable manner and (b) send written notice to
the certificateholders describing such proceeding and requesting instructions
from such certificateholders. No such sale, disposition or liquidation, whether
in whole or in part, of the insurance settlements shall be consummated until and
unless the trustee shall have first received written instructions as
aforementioned, or other written response or affirmative refusal to provide a
written response from certificateholders representing in excess of 51% of the
principal amount of the certificates then outstanding.
The proceeds from the sale, disposition or liquidation of the insurance
settlements as discussed above shall be treated as collections. On the
distribution date on which such proceeds are scheduled to be distributed to the
certificateholders, the trust shall terminate.
OTHER MATTERS RELATING TO CAPITAL
Scope of Liability. Capital shall be liable for the obligations
specifically undertaken by Capital under the pooling and servicing agreement.
Except as provided in the pooling and servicing agreement with respect to the
trust and the trustee, neither Capital nor any of the directors, officers,
employees or agents of Capital shall be under any liability to the trust, the
trustee, the certificateholders or any other legal person for taking any action
or for refraining from taking any action under the pooling and servicing
agreement whether arising from express or implied duties under such agreement;
provided, however, this limitation on liability shall not protect Capital or any
director, officer, employee or agent of Capital against any liability which
would otherwise be imposed by reason of willful malfeasance, bad faith or gross
negligence in the performance of duties or by reason of its willful misconduct
under the pooling and servicing agreement or under any agreement executed an
delivered in connection with the pooling and servicing agreement or in any way
relating to or arising out of the creation of the trust or any transactions
related thereto.
Indemnification. Further, Capital shall agree to cause the trust to
indemnify and hold harmless the trustee and master servicer from and against any
loss, liability, expense, damage or injury suffered or sustained by reason of
any acts, omissions or alleged acts or omissions arising out of activities of
the trustee, or master servicer pursuant to the pooling and servicing agreement
or any agreement executed or delivered in connection with such agreement or in
any way relating to or arising out of the creation of the trust or the
transactions related thereto, including but not limited to any judgment, award,
settlement, reasonable attorneys' fees and other costs or expenses incurred in
connection with the defense of any actual or threatened action, proceeding or
claim; provided, however, that although Capital shall indemnify the trustee and
master servicer if such acts, omissions or alleged acts or omissions constitute
ordinary negligence, Capital shall not indemnify the trustee or master servicer
if such acts, omissions or alleged acts or omissions constitute willful
malfeasance, bad faith or gross negligence by the trustee or master servicer;
and provided, further, Capital shall not indemnify the trust or the
certificateholders for any liabilities, costs or expenses of the trust with
respect to any action taken by the trustee at the request of the
certificateholders; provided, further, Capital shall not indemnify the trust or
the certificateholders as to any losses, claims or damages incurred by any of
them in their capacities as investors; and provided further, Capital shall not
indemnify the trust or the certificateholders with respect to any federal, state
or local income or franchise taxes, or any interest or penalties with respect
thereto, required to be paid by the trust or the certificateholders in
connection herewith to any taxing authority, which taxes shall be the sole
obligation of the trust or the certificateholders. Any indemnification under the
pooling and servicing agreement, shall only be from assets of the trust. The
provisions of the pooling and servicing agreement relating to this indemnity
shall run
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directly to and be enforceable by an injured party, subject to the limitations
discussed in this paragraph, and shall survive termination of the trust and the
resignation or removal of the trustee or master servicer.
OTHER MATTERS RELATING TO THE SUBSERVICER
Scope of Liability. The subservicer shall be liable under the terms of the
pooling and servicing agreement for the accuracy and sufficiency of the
information contained in any certificate it delivers to the master servicer and
otherwise only to the extent of the obligations specifically undertaken by the
subservicer in such capacity under the pooling and servicing agreement, and as
seller under the insurance settlements purchase agreement to the extent any
rights in such agreement have been assigned to the trust. Except as provided in
the next succeeding paragraph with respect to the trust and the trustee, neither
the subservicer nor any of the directors, officers, employees or agents of the
subservicer shall be under any liability to the trust, the trustee, the
certificateholders, the master servicer or any other legal person for taking any
action or for refraining from taking any action in its capacity as subservicer
under the pooling and servicing agreement; provided, however, this limitation on
liability shall not protect the subservicer or any director, officer, employee
or agent of the subservicer against any liability which would otherwise be
imposed by reason of willful malfeasance, bad faith or gross negligence in the
performance of duties or by reason of its willful misconduct under the pooling
and servicing agreement. The subservicer and any director, officer, employee or
agent of the subservicer may rely in good faith on any document of any kind
properly executed and submitted by any person respecting any matters arising
under the pooling and servicing agreement. The subservicer shall not be under
any obligation to appear in, prosecute or defend any legal action which is not
incidental to its duties to service the insurance settlements in accordance with
the pooling and servicing agreement and which in its reasonable opinion may
involve it in any expense or liability.
Indemnification. The subservicer shall indemnify and hold harmless the
trust, trustee and master servicer from and against any loss, liability,
expense, damage or injury suffered or sustained by reason of any acts, omissions
or alleged acts or omissions arising out of activities of the trust, trustee, or
master servicer under the pooling and servicing agreement including those
arising from acts or omissions of the subservicer pursuant to such agreement or
any agreement executed or delivered in connection with such agreement or in any
way relating to or arising out of the creation of the trust or the transactions
related thereto including, but not limited to, any judgment, award, settlement,
reasonable attorneys' fees and other costs or expenses incurred in connection
with the defense of any actual or threatened action, proceeding or claim;
provided, however, that although the subservicer shall indemnify the trust,
trustee, and master servicer if such acts, omissions or alleged acts or
omissions constitute ordinary negligence, the subservicer shall not indemnify
the trust, trustee, or master servicer if such acts, omissions or alleged acts
or omissions constitute willful malfeasance, bad faith or gross negligence by
the trustee; provided further, the subservicer shall not indemnify the trust,
the trustee, or any certificateholders for any liabilities, costs or expenses of
the trust with respect to any action taken by the trustee at the request of such
certificateholders; for any liabilities, costs or expenses of the trust with
respect to any action taken by the trustee at the request of such
certificateholders; provided further, the subservicer shall not indemnify the
trust or the certificateholders as to any losses, claims or damages incurred by
any of them in their capacities as investors; and provided further, the
subservicer shall not indemnify the trust or the certificateholders with respect
to any federal, state or local income or franchise taxes, or any interest or
penalties with respect thereto, required to be paid by the trust or the
certificateholders in connection herewith to any taxing authority, which taxes
shall be the sole obligation of the trust or the certificateholders. Any
indemnification under the pooling and servicing agreement shall only be from
assets of the subservicer. The provisions of the pooling and servicing agreement
relating to this indemnity shall run directly to and be enforceable by an
injured party, subject to the limitations hereof, and shall survive termination
of the trust and the resignation or removal of the trustee.
Resignation of Master Servicer. The master servicer is not permitted to
resign from its obligations and duties under the pooling and servicing
agreement, except (a) upon determination that (1) the performance of its
obligations and duties is or becomes impermissible under applicable law and (2)
the master servicer can take no reasonable action to make the performance of its
obligations and duties hereunder permissible under applicable law, or (b) if the
master servicer fails to receive its fees and expenses for a period of at least
90 days after they become due, master servicer shall be entitled to resign upon
giving written notice to Capital,
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the trustee, and United. Any such determination permitting the resignation of
the master servicer shall be evidenced by an opinion of counsel to such effect
delivered to the trustee. No such resignation shall become effective until
United or a successor servicer shall have assumed the responsibilities and
obligations of the master servicer. If Capital is unable within 30 days of the
date of such determination to appoint a successor servicer, Capital shall
petition a court of competent jurisdiction to appoint any established financial
institution whose regular business includes the servicing of insurance
settlements or other insurance settlements similar to the insurance settlements
serviced or to be serviced by the successor servicer hereunder and whose
appointment shall not adversely affect the rating, if any, of the securities
offered pursuant to the agreement.
Master Servicer's Delegation of Duties. In the ordinary course of
business, the master servicer may at any time delegate any of its duties under
the pooling and servicing agreement to any person who agrees to conduct such
duties in accordance with the provisions of the pooling and servicing agreement.
Any such delegation shall not relieve the master servicer of its liability and
responsibility with respect to such duties and shall not constitute a
resignation within the meaning of the preceding paragraph.
TERMINATION
The trust shall terminate on the earlier of:
o the day designated by Capital after the final distribution date, the
inability to appoint a successor servicer or an optional repurchase
of certificates (the "final trust termination date"),
o the final distribution date after the occurrence of a pay out event,
or
o the scheduled trust termination date.
If on the transfer date preceding the scheduled trust termination date
there remains certificate principal outstanding the subservicer shall sell all
remaining insurance settlements on behalf of the trust and deposit the proceeds
as collections for subsequent allocation and distribution.
The amount of certificate principal outstanding on the final maturity date,
or on the final distribution date, due to a Pay Out Event, shall become payable
on the next distribution date specified in the trustee's termination notice. On
such date, the certificateholders shall surrender their certificates for final
payment. If the amount in the insurance settlements account is not sufficient to
pay the outstanding amount of certificate principal then the paying agent may
withdraw funds from the liquidity account to pay such deficiency. In the event
that not all certificateholders have surrendered their certificates for final
payment, the trustee shall retain amounts in the distribution account pending
such surrender. If a certificateholder has not surrendered his certificate
within some 18 months, the trustee may take affirmative steps to locate the
remaining certificateholders and charge the cost to such funds on deposit in the
distribution account.
If the amount of the certificate principal outstanding is less than
$500,000, Capital may also terminate the trust by repaying certificate principal
and accrued interest.
Upon termination of the trust and final payments, the trustee shall
reconvey to Capital all right, title and interest of the trust in the insurance
settlements, all monies due or to become due with respect to the insurance
settlements and all proceeds from the insurance settlements and the amounts
remaining in the liquidity account.
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DESCRIPTION OF THE INSURANCE
SETTLEMENTS PURCHASE AGREEMENT
GENERAL
The insurance settlements assigned to the trust by Capital will be acquired
by Capital from United pursuant to the insurance settlements purchase agreement
entered into between Capital, as purchaser of the insurance settlements, and
United, as seller of the insurance settlements. The trustee will provide a copy
of the insurance settlements purchase agreement to certificateholders without
charge, upon receipt of a written request therefor. Under the insurance
settlements purchase agreement, United will agree to transfer the insurance
settlements to Capital. The following summary describes material terms of the
insurance settlements purchase agreement and is qualified in its entirety by
reference to the insurance settlements purchase agreement.
SALE OR TRANSFER OF THE INSURANCE SETTLEMENTS
United will sell, transfer, assign, and convey to Capital all its right,
title and interest in and to all of the insurance settlements being transferred
on each closing date. Upon the request of Capital, United will notify Capital of
the amount of insurance settlements available for purchase on each closing date.
The purchase price for the insurance settlements shall at least be equal the
amount advanced by United to the insured as payment for the insurance policy,
excluding United's fees. The monies advanced by Capital with respect to any one
insurance settlement shall not exceed an amount agreed upon between United and
Capital as to the discount from the face amount of the insurance policy,
excluding fees. Such advance will be payable to United in cash or other
immediately available funds.
In connection with the sale and transfer of the insurance settlements to
Capital, United will indicate in its computer master file that the insurance
settlements have been sold to Capital by United and then assigned by Capital to
the trust. In addition, United will furnish to the trustee and Capital a
computer printout readable by the trustee and by Capital containing a true and
complete list of all such insurance settlements, identified by account number
and by the total outstanding face amount on the closing date. The insurance
settlements purchase agreement shall constitute a security agreement between
United and Capital. See "Legal Aspects of the Insurance Settlements."
REPRESENTATIONS AND WARRANTIES
United will make representations and warranties to Capital as of each
closing date, that United is duly incorporated and in good standing and that it
has the authority to consummate the transactions contemplated by the insurance
settlements purchase agreement.
United will also represent and warrant to Capital that the insurance
settlements purchase agreement constitutes a legal, valid and binding obligation
of United, and the sale and transfer of the insurance settlements to Capital
constitute a valid sale and transfer to Capital of all right, title and interest
of United in and to the insurance settlements, and the proceeds thereof. United
covenants to indemnify Capital and to hold Capital harmless from and against any
and all losses, damages and expenses, including reasonable attorneys' fees,
suffered or incurred by Capital if the foregoing representations and warranties
are materially false.
United will covenant in the insurance settlements purchase agreement that
it will perform its obligations under the agreements relating to insurance
settlements and observe all its policies and procedures relating to the
insurance settlements, unless the failure to do so would not have a material
adverse effect on the rights of the trust, as assignee of the insurance
settlements, or the certificateholders.
United will expressly acknowledge and consent to the assignment by Capital
of all of its right, title and interest in and to the insurance settlements to
the trust for the benefit of the certificateholders. United will also agree that
any amounts payable by United to Capital, and that are to be paid by Capital to
the trustee for the benefit of the certificateholders, will be paid by United on
behalf of Capital directly to the trustee.
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United covenants that all of its right, title and interest in and to any
insurance settlements shall inure to Capital. Except for the sale and
conveyances under the insurance settlements purchase agreement, United will not
sell, pledge, assign or transfer any interest in the insurance settlements to
any other person or entity.
TERMINATION
The insurance settlements purchase agreement will continue in full force
and effect until (a) the trust terminates, or (b) United shall (1) become
insolvent; (2) fail to pay its debts generally as they become due; (3)
voluntarily seek, consent to, or acquiesce in the benefit or benefits of any
debtor relief law; or (4) become a party to, or be made the subject of, any
proceeding provided for by any debtor relief law and, if such proceeding is
involuntary and is not dismissed within 90 days of its institution, United will
immediately cease to transfer insurance settlements to Capital and promptly give
notice of such event to Capital and to the trustee.
LEGAL ASPECTS OF THE INSURANCE SETTLEMENTS
SALE AND TRANSFER OF THE INSURANCE SETTLEMENTS
On each closing date United will sell, transfer, assign the insurance
settlements to Capital and Capital will transfer and assign an irrevocable
beneficial interest in the insurance settlements to the trust. Simultaneously
with such transfers from United to Capital and from Capital to the trust,
Capital will execute and the trust will authenticate certificates offered hereby
and pay Capital for the insurance settlements from the proceeds of such
offering. Capital will pay United the proceeds received from the trust in
consideration for the insurance settlements sold to Capital by United. On each
closing date United will indicate in its master computer file of insurance
settlements that the insurance settlements have been sold to Capital and whose
interests are transferred to the trust. In addition, on each closing date,
United, as subservicer, will deliver to the master servicer and trustee, a
computer printout containing a true and complete list of all insurance
settlements, identified by account number and by the total outstanding face
amount of such insurance settlements on the closing date. Furthermore, the
insurers, in most instances, may not be notified of such transfers except that
United will direct the insurers to send all policy proceeds payments to the
lockbox account which will be owned by the trust.
United will represent and warrant to Capital in the insurance settlements
purchase agreement that the sale and transfer of the insurance settlements to
Capital as of each closing date constitutes a true and valid sale and transfer
to Capital of all right, title and interest of United in and to the insurance
settlements. Capital will make similar representations and warranties with
respect to its assignment of an irrevocable beneficial interest to the trustee,
in the pooling and servicing agreement.
Article 9 of the UCC does not apply to a transfer of an interest or claim
in or under any policy of insurance and, consequently, the trust may not have
access to Article 9 remedies since its interest in the insurance settlements may
be characterized as an interest or claim in or under a policy of insurance.
Under the insurance settlements purchase agreement, United will (a)
represent and warrant that United has acquired the insurance settlements from
the insureds and has transferred the insurance settlements to Capital free and
clear of the lien of any third party and (b) covenant that United will not sell,
pledge, assign, grant, transfer or otherwise convey any lien or other interest
in and to the insurance settlements other than to Capital. Under the pooling and
servicing agreement, Capital will (a) represent and warrant that Capital has
acquired the insurance settlements from United and has assigned an irrevocable
beneficial interest in the insurance settlements to the trust and (b) covenant
that Capital will not sell, pledge, assign, grant, transfer or otherwise convey
any lien or other interest in and to the insurance settlements other than to the
trust.
Capital will not engage in any activities except acquiring insurance
settlements from United, transferring an irrevocable beneficial interest in the
insurance settlements to the trust and engaging in activities incidental to, or
necessary or convenient to accomplish the foregoing. Capital has no intention of
filing a voluntary petition under the United States Bankruptcy Code or any
applicable state law so long as Capital is solvent and does not reasonably
foresee becoming insolvent.
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The voluntary or involuntary application for relief under the United States
Bankruptcy Code or any comparable state law with respect to Untied should not
necessarily result in a similar voluntary application with respect to Capital so
long as Capital is solvent and does not reasonably foresee becoming insolvent by
reason of United's insolvency or otherwise. Capital believes that:
o a voluntary application for relief under the United States
Bankruptcy Code or any similar applicable state law with respect to
Capital may not lawfully be filed without the prior consent of all
directors of Capital,
o subject to certain assumptions (including the assumption that
separateness and corporate formalities are observed by United and
Capital), the assets and liabilities of Capital should not be
substantively consolidated with the assets and liabilities of United
in the event of an application for relief under the United States
Bankruptcy Code with respect to United, and
o the sale and transfer of insurance settlements by United to Capital
constitute a valid sale and transfer and, therefore, such insurance
settlements would not be the property of United in the event of the
filing of an application for relief by or against United under the
United States Bankruptcy Code. If, however, a bankruptcy trustee for
United, United as debtor in possession, or a creditor of United were
to assert that United and Capital should be substantively
consolidated or that the transfer of the insurance settlements from
United to Capital, and therefore from Capital to the trust, should
be recharacterized as a pledge of such insurance settlements, then
delays in payments on the certificates or, should the bankruptcy
court rule in favor of any such trustee, debtor in possession or
creditor, reductions in such payments could result.
41
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Set forth below is a description of the federal income tax consequences to
certificateholders. This discussion does not purport to deal with all aspects of
federal income taxation that may be relevant to certificateholders in light of
their personal investment circumstances, nor to certain types of
certificateholders subject to special treatment under the federal income tax
laws, for example, banks and life insurance companies. In addition, this
description does not consider the effect of any applicable foreign, state or
local income tax laws. We suggest that prospective investors consult their own
tax advisors as to the precise federal, state, local and other tax consequences
of acquiring, holding and disposing of the certificates. This discussion is
based upon present provisions of the Internal Revenue Code, the treasury
regulations promulgated thereunder, and rulings of the Internal Revenue Service
and judicial decisions now in effect, all of which are subject to change,
possibly retroactively.
No ruling will be sought from the IRS with respect to the transactions
contemplated hereby. This summary of federal income tax consequences is based on
the written opinion of Mesirov Gelman Jaffe Cramer & Jamieson, LLP, counsel to
Capital, a copy of which is included as an exhibit to the registration statement
of which this prospectus is a part. The following summary describes the material
terms of counsel's opinion and is qualified in its entirety by reference to that
opinion. The conclusions reached in such opinion are not binding on the courts
or the IRS, and there can be no assurance that the IRS will not assert positions
contrary to the views expressed therein, or that any such contrary position
would not be sustained.
TREATMENT OF THE CERTIFICATES AS EVIDENCES OF INDEBTEDNESS OF CAPITAL
As expressly provided in the pooling and servicing agreement, Capital has
structured the pooling and servicing agreement and the certificates to
facilitate a secured, credit-enhanced financing so that for federal, state and
local income tax purposes the certificates will constitute evidences of
indebtedness of Capital collateralized by the insurance settlements it owns.
Moreover, Capital and each certificateholder, by the acceptance of a
certificate, will agree to recognize and report such certificate as evidence of
indebtedness of Capital for federal, state and local income or franchise tax
purposes. However, as integral elements of this financing technique, Capital
will transfer the insurance settlements to the trust, each certificateholder
will receive a certificate that will represent an undivided interest in the
trust, and, for financial accounting purposes, the transaction will be treated
as a transfer of an ownership interest in the insurance settlements by Capital
thereby avoiding the necessity for recording the debt on the books of Capital.
Whether a transaction constitutes a sale of property or a loan secured by
the transferred property for federal income tax purposes depends on the
substance of the transaction determined from an analysis of the facts and
circumstances as reflected in the underlying documents for the transaction, the
intent of the parties, and on the basis of numerous factors primarily concerning
whether the transferor has relinquished substantial incidents of ownership of
the property. Among the many factors evidencing the incidents of ownership, the
primary factors examined by the courts and the IRS are whether the transferor
has retained or shifted substantial benefits and burdens of ownership of the
property. For the reasons stated in counsel's opinion, substantial incidents of
ownership of the insurance settlements have been retained by Capital.
Accordingly, counsel has concluded that the arrangements among Capital and the
certificateholders under the pooling and servicing agreement would probably be
viewed in substance as a secured financing by Capital. If the form and the
substance of a transaction are consistent, the characterization of the
transaction would generally be conclusive for federal income tax purposes. For
the reasons stated in its opinion, counsel has concluded that the form of the
arrangements among Capital and the certificateholders under the pooling and
servicing agreement should not be viewed as inconsistent with the substance of
the transaction as a secured financing by Capital. Furthermore, it is counsel's
opinion that the financial accounting treatment of the transaction is not
controlling for federal income tax purposes.
Even if the form and substance of a transaction are deemed to differ in
material respects, courts have allowed taxpayers, under appropriate
circumstances, to disregard the form chosen and rely instead on the substance of
the transaction for federal income tax purposes. Assuming that the form of the
transaction contemplated by the pooling and servicing agreement is not
determined to be consistent in all material respects with the substantive
characterization of the transaction as a secured financing by Capital, counsel
is nevertheless of the view that the parties would be permitted to disregard the
form of the transaction and
42
<PAGE>
characterize the transaction in accordance with its substance. Based on all of
the foregoing, counsel has opined that the certificates would be characterized
as evidences of indebtedness of Capital for federal income tax purposes and not
the trust.
The real economic gains from the transaction would be attributable to the
residual funds that are anticipated to accumulate as excess cash and the
interest and other earnings realized on investments of the funds in the
insurance settlements account and the liquidity account. Some of these gains may
be realized by Capital and are a further indication that the transaction should
be classified as a secured loan arrangement.
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP, OR A
PUBLICLY-TRADED PARTNERSHIP OR AN ASSOCIATION TAXABLE AS A CORPORATION
As stated above, counsel has opined that the certificates would be
characterized as indebtedness of Capital that is secured by the insurance
settlements. There can be no assurance that the IRS will not assert that, for
purposes of the Internal Revenue Code, the transaction contemplated by Capital
and the certificateholders constitutes a sale of the insurance settlements, or
an interest therein, and/or that the proper classification of the legal
relationship among Capital and the certificateholders resulting from this
transaction is that of a partnership, or a publicly-traded partnership or an
association taxable as a corporation.
If the arrangement created by the pooling and servicing agreement were
characterized as a partnership among Capital and the certificateholders for
federal income tax purposes, the partnership would be treated as the owner of
the insurance settlements. The amount and timing of income and deductions of a
certificateholder with respect to the certificates may differ if the
certificates are held to constitute interests in a partnership rather than
evidences of indebtedness of Capital. The partnership itself would not be
subject to federal income tax; rather, Capital and each certificateholder as
partners would report on their tax return their distributive share of the
partnership's income, gain, loss, deduction and credit, determined under
partnership tax accounting rules. Cash distributions to a certificateholder
would not be separately taxable except to the extent that such distributions
exceeded the certificateholder's basis in the certificateholder's partnership
interest, as adjusted to reflect the certificateholder's distributive share of
partnership income and loss and cash contributions made to and distributions
from the partnership.
If the arrangement were treated as a publicly-traded partnership, unless
exceptions apply, or an association taxable as a corporation, it would be
subject to federal income taxes at corporate tax rates on the taxable income
generated by the ownership of the insurance settlements. Such a tax would result
in reduced distributions to certificateholders. Distributions to Capital and to
the certificateholders would not be deductible in computing the taxable income
of the corporation. In addition, all or a portion of any such distributions made
to the certificateholders would, to the extent of the current and accumulated
earnings and profits of such corporation, be treated as dividend income to the
certificateholders.
Based upon counsel's opinion that the certificates would be characterized
as debt of Capital for federal income tax purposes, no attempt will be made to
comply with any IRS reporting or tax payment requirements which might be
applicable if the arrangement among Capital and the certificateholders were
treated as creating a partnership or a publicly-traded partnership or an
association taxable as a corporation. If this transaction were later held to
constitute a partnership, a publicly-traded partnership or an association
taxable as a corporation, the manner of bringing it into compliance with such
requirements is unclear at this time.
INTEREST INCOME TO CERTIFICATEHOLDERS
Assuming the certificates constitute evidences of indebtedness of Capital
for federal income tax purposes, interest will be includible as ordinary income
when received or accrued by certificateholders in accordance with their
respective methods of tax accounting. Interest received on the certificates may
also constitute investment income for purposes of certain limitations of the
Internal Revenue Code concerning the deductibility of investment interest
expense.
Capital has indicated that the certificates will not be issued at a price
resulting in a discount that exceeds a statutory de minimis amount and, thus,
the certificates should not be issued with original issue discount within the
meaning of Section 1273 of the Code. Each certificateholder should consult his
own tax advisor regarding the impact to him of the original issue discount rules
if the certificates are issued with original issue discount.
43
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A certificateholder who purchases a certificate for less than its stated
principal amount will be subject to the market discount rules of the Internal
Revenue Code, and a certificateholder who purchases a certificate for more than
its stated principal amount will be subject to the premium amortization rules of
the Internal Revenue Code. A certificateholder should consult his own tax
advisor regarding the tax consequences of these rules if they apply to the
certificateholder.
GAIN OR LOSS ON DISPOSITION OF CERTIFICATES
Subject to the application of the market discount rules, if a certificate
is sold, exchanged or otherwise disposed of, the certificateholder will
recognize gain or loss equal to the difference between the amount realized on
the sale, exchange or other disposition and the adjusted basis of such
certificate. The adjusted basis of the certificate will equal the
certificateholder's cost, increased by any market discount previously includible
in income by the certificateholder with respect to the certificate, and reduced
by the principal payments previously received and any premium amortized, by the
certificateholder with respect to the certificate. Any such gain or loss will be
capital gain or loss if the certificate was held as a capital asset.
FOREIGN INVESTORS
In general, interest paid to a foreign person, within the meaning of the
Internal Revenue Code, would be exempt from United States withholding taxes
provided that the interest is not effectively connected with the conduct of a
trade or business of the recipient in the United States and, if the foreign
person (a) is not a 10 percent shareholder or a controlled foreign corporation
to which Capital is a related person within the meaning of the Internal Revenue
Code, and (b) provides an appropriate statement, signed under penalties of
perjury, certifying that the beneficial owner of the certificate is a foreign
person, and providing the foreign person's name and address. If the IRS were to
contend successfully that the certificates are interests in a partnership, a
certificateholder that is a foreign person might be required to file a United
States individual or corporation income tax return and pay tax on its share of
partnership income at regular United States rates, including the branch profits
tax (and would be subject to withholding tax on its share of partnership
income). If the certificates are recharacterized as interests in an association
taxable as a corporation or a publicly traded partnership taxable as a
corporation, to the extent distributions under the pooling and servicing
agreement were treated as dividends, a foreign person would generally be taxed
on the gross amount of such dividends (and be subject to withholding) at a rate
of 30% unless such rate were reduced by an applicable treaty.
In general, any capital gain realized on the sale, redemption, retirement
or other taxable disposition of a certificate by a foreign person will be exempt
from United States federal income tax and withholding, provided that (a) the
gain is not effectively connected with the conduct of a trade or business in the
United States by the nonresident alien or foreign corporation and (b) in the
case of an individual foreign person, (1) the foreign person is not present in
the United States for 183 days or more in the taxable years of the sale,
exchange, retirement or other taxable disposition or (2) the foreign person does
not have a tax home in the United States and (3) the gain is not attributable to
an office or other fixed place of business maintained in the United States by
the foreign person.
There could also be state and local tax considerations to foreign persons
who hold certificates.
The foregoing description is very general in nature, and we suggest that
foreign investors consult their own tax advisors to ascertain the application of
these matters to them.
BACKUP WITHHOLDING
Certificateholders may be subject to backup withholding at the rate of 20%
with respect to interest paid on a certificate, unless such certificateholder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (b) provides a correct taxpayer
identification number, certifies as to the certificateholder's exemption from
backup withholding and otherwise complies with applicable requirements of the
backup withholding rules. A certificateholder, who does not provide Capital or
the certificateholder's broker with such certificateholder's correct taxpayer
identification number may be subject to penalties imposed by the IRS. Any amount
paid as backup withholding will be credited against the certificateholder's
income tax liability. Capital will report to the certificateholders and the IRS
the amount of any reportable payments for each calendar year and the amount of
tax withheld, if any, with respect to payments made on the certificates.
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ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit
certain pension, profit sharing or other employee benefit plans, individual
retirement accounts or annuity and employee annuity plans from engaging in
certain transactions involving plan assets with persons that are parties in
interest under ERISA or disqualified persons under the Internal Revenue Code
with respect to the plan. A violation of these prohibited transaction rules may
generate excise tax and other liabilities under ERISA and the Internal Revenue
Code for such persons.
The Department of Labor has issued a regulation concerning the definition
of what constitutes the plan assets of certain employee benefit plans and
annuities described in ERISA or the Internal Revenue Code, and of individual
retirement accounts or annuities (collectively referred to herein as benefit
plans). Under the regulation the assets and properties of corporations,
partnerships and certain other entities in which a benefit plan makes an equity
investment could be deemed to be investments by benefit plans are made in the
trust, the trust could be deemed to hold plan assets of such benefit plan unless
an exception is applicable to the trust.
DEBT INTEREST EXCEPTION
The regulation applies to the purchase by a benefit plan of an equity
interest in an entity. An equity interest is defined as any interest in an
entity other than an instrument that is treated as debt under applicable local
law and which has no substantial equity features. Counsel to Capital is of the
opinion that the certificates would be characterized as evidences of
indebtedness of Capital for federal income tax purposes. Although no assurance
can be given that the certificates will be treated as debt under applicable law,
if the certificates are deemed to be debt rather than equity interests, the
trust's assets would not be treated as plan assets solely as a result of the
purchase of a certificate by a benefit plan.
PUBLICLY-OFFERED SECURITY EXCEPTION
Assuming that the certificates represent equity interests, the regulation
contains an exception that provides that if a benefit plan acquires a
publicly-offered security, the issuer of the security is not deemed to hold plan
assets. A publicly-offered security is a security that is (1) freely
transferable, (2) part of a class of securities that is owned by 100 or more
investors independent of the issuer and of one another and (3) either is (a)
part of a class of securities registered under section 12(b) or 12(g) of the
Securities Exchange Act of 1934, or (b) sold to the plan as part of an offering
of securities to the public pursuant to an effective registration statement
under the Securities Act of 1933 and the class of securities of which such
security is a part is registered under the Securities Exchange Act of 1934
within 120 days, or such later time as may be allowed by the Securities and
Exchange Commission, after the end of the fiscal year of the issuer during which
the offering of such securities to the public occurred.
Although there are no restrictions imposed under the terms of the pooling
and servicing agreement on the transfer of the certificates and Capital intends
the registration requirements to be satisfied, it is uncertain whether the
certificates will be held by at least 100 unrelated persons at the conclusion of
the offering made by this prospectus. Accordingly, no assurances can be given
that the offering of the certificates will meet the criteria of this
publicly-offered security exception.
EXCEPTION FOR INSIGNIFICANT PARTICIPATION BY BENEFIT PLAN INVESTORS
The regulation also states that an entity's assets will not be deemed to be
plan assets if equity participation in the entity by benefit plan investors,
e.g., employee welfare benefit plans and employee pension benefit plans defined
pursuant to Section 3(3) of ERISA, trust described in Section 401(a) of the
Internal Revenue Code or a plan described in Section 403(a) of the Internal
Revenue Code, which trust or plan is exempt from tax under Section 501(a) of the
Internal Revenue Code, an individual retirement account or annuity under Section
408 of the Internal Revenue Code and any entity whose underlying assets include
plan assets by reason of a plan's investment in the entity, is not significant.
Equity participation in an entity by benefit plan investors is not significant
on any date if, immediately after the most recent acquisition of any equity
interest in the entity, less than 25% of the value of any class of equity
interests in the entity, excluding the value of any equity interests held by
Capital, the trustee or its affiliates, is held by benefit plan investors. No
assurance can be given by Capital as to whether the value of the interests in
the trust held by benefit plan investors will be less than 25%, or whether the
value will remain below 25%.
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If the trust were deemed to hold plan assets of benefit plans that are
certificateholders, transactions involving the trust and parties in interest or
disqualified persons with respect to such plans might be prohibited under
Section 406 of ERISA and Section 4975 of the Internal Revenue Code unless an
exemption is applicable. There is no assurance that any exemptions, even if all
of the conditions specified therein are satisfied, will apply to all
transactions involving the trust's assets.
In light of the foregoing, fiduciaries of a benefit plan considering the
purchase of certificates should consult their own counsel regarding whether the
assets of the trust which are represented by the certificates would be
considered plan assets, the consequences that would apply if the trust's assets
were considered plan assets and the applicability of exemptive relief from the
prohibited transaction rules.
Regardless of whether the trust were deemed to hold plan assets of benefit
plans that are certificateholders, the purchase of Certificates by a benefit
plan with respect to which Capital or any entity related to it is a party in
interest under ERISA or a disqualified person under the Internal Revenue Code
could constitute a prohibited transaction under Section 4975 of the Internal
Revenue Code or under Section 406 of ERISA if, for instance, the benefit plan's
purchase is part of an arrangement to benefit Capital or any entity related to
it. Accordingly, fiduciaries of a benefit plan with respect to which Capital or
any entity related to it is a party in interest or disqualified person should
consult their own counsel concerning the propriety of the investment prior to
making the purchase.
Moreover, a possible violation of the prohibited transaction rules could
occur if certificates were purchased during the offering with assets of any
benefit plan if the trustee or any of its affiliates were a fiduciary with
respect to such benefit plan. Accordingly, the fiduciaries of any benefit plan
should not purchase certificates during the offering with assets of any benefit
plan if the trustee or any of its affiliates perform or have any discretionary
investment powers or any other fiduciary power as to such benefit plan.
Finally, fiduciaries of a benefit plan should consider fiduciary standards
under ERISA or other applicable law in the context of the benefit plan's
particular circumstances before authorizing an investment of a portion of a
benefit plan's assets in certificates. Accordingly, among other factors, such
fiduciaries should consider whether the investment (a) satisfies the
diversification requirement of ERISA or other applicable law (b) is in
accordance with the benefit plan's governing instruments and (c) is prudent
considering the Risk Factors and other factors discussed in this prospectus.
TRANSFERABILITY OF CERTIFICATES
Pryor, Counts & Co., Inc. has advised Capital that it does not intend to
act as a market maker of the certificates.
INVESTMENT COMPANY ACT OF 1940
The Investment Company Act of 1940 applies to investment companies as
defined by the Act.
Section 3(c)(5)(A) and (B) of the Act provides that an investment company
does not include a "person who is not engaged in the business of issuing
redeemable securities, face-amount certificates of the installment type or
periodic payment plan certificates, and who is primarily engaged in . . .
purchasing or otherwise acquiring notes, drafts, acceptances, open accounts
receivable, and other obligations representing part or all of the sales price of
merchandise, insurance and services" and ". . . making loans to manufacturers,
wholesalers and retailers of, and to prospective purchasers of, specified
merchandise, insurance, and services." The Securities and Exchange Commission
staff takes the position that an issuer qualifies under Section 3(c)(5)(A) if at
least 55% of its assets consist of notes, open accounts receivable, or other
obligations representing part or all of the sales price of merchandise,
insurance or services.
The insurance settlements represent payment obligations of insurance
companies. The trust will also initially consist of no more than 33 1/3% in
permitted investments. The trust will therefore satisfy the requirements of
Section 3(c)(5) of the Act and is not an investment company subject to the Act.
LEGAL MATTERS
Certain legal and federal income tax matters relating to the certificates
will be passed upon for Capital by Mesirov Gelman Jaffe Cramer & Jamieson, LLP,
Philadelphia, Pennsylvania.
46
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================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY CAPITAL, TRUSTEE, MASTER SERVICER, UNITED OR THE
PLACEMENT AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION.
------------------
TABLE OF CONTENTS
PAGE
----
Summary.............................. 1
Risk Factors......................... 3
Glossary............................. 8
Forward-Looking Statements........... 11
United, Capital, 21st Services and
the Trust.......................... 11
Use of Proceeds...................... 21
Maturity Assumptions................. 21
Plan of Distribution................. 21
Description of the Certificates and
the Pooling and Servicing
Agreement.......................... 22
Description of the Insurance
Settlements Purchase Agreement..... 39
Legal Aspects of the Insurance
Settlements........................ 40
Federal Income Tax Consequences...... 42
ERISA Considerations................. 45
Transferability of Certificates...... 46
Investment Company Act of 1940....... 46
Legal Matters........................ 46
------------------
UNTIL _____________________ , _____ 2000 (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS) ALL DEALERS EFFECTING TRANSACTION IN THE CERTIFICATES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
$150,000,000 -- MAXIMUM
$20,000,000 -- MINIMUM
INSURANCE
SETTLEMENTS FUNDING
TRUST 2000
[ ]% ASSET BACKED CERTIFICATES
AND
[ ]% ASSET BACKED CERTIFICATES
CAPITAL RESOURCE GROUP ONE, LLC
21ST HOLDINGS, LLC
MASTER SERVICER OF
THE INSURANCE SETTLEMENTS
----------
PROSPECTUS
----------
PRYOR, COUNTS & CO., INC.
____________ , 2000
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses (other
than commissions) to be incurred in connection with the issuance and
distribution of the Certificates.
SEC Filing Fee.............................................. $ 41,700
Trustee's Fees and Expenses (including counsel fees)........ 35,000
Legal Fees and Expenses..................................... 250,000
Printing and Engraving Expenses............................. 25,000
Blue Sky Qualification Expenses............................. 36,000
Miscellaneous............................................. 2,000
--------
* Total................................................ $389,700
========
- ------------------
* The actual total will be filed by amendment.
ITEM 14. INDEMNIFICATION AND DIRECTORS AND OFFICERS.
Capital was incorporated under Delaware law. Pursuant to Section 145 of the
Delaware General Corporation Law, a Delaware corporation may indemnify an
officer, director, or controlling person or purchase and maintain insurance
against liability which such persons may incur in this corporate capacity. Under
certain circumstances, Section 145 mandates that a Delaware corporation
indemnify such persons.
Section 145 provides that a corporation may indemnify a person, including
officers and directors, who was, is or is threatened to be made a named
defendant or respondent in a threatened, pending or completed legal action, suit
or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, including appeals therein, by reason of the fact that such person
was an officer or director of such corporation or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation or enterprise, if (1) such person conducted himself in good faith;
(2) if a director, he reasonably believed that (a) his conduct as a director was
in the corporation's best interest or (b) his conduct was at least not opposed
to the corporation's best interest; and (3) in a criminal proceeding, the person
had no reasonable cause to believe his conduct was unlawful.
Pursuant to Section 145, if the person is found liable to the corporation
or is found liable on the basis that personal benefit was improperly received by
the person, the indemnification (1) is limited to reasonable expenses actually
incurred by the person in connection with the proceeding and (2) shall not be
made in respect of any proceeding in which the person shall have been found
liable for willful or intentional misconduct in the performance of his duty to
the corporation. Except to the extent provided in Section 145, a director may
not be indemnified in respect of a proceeding (1) in which the person is found
liable on the basis that personal benefit was improperly received by him,
whether or not the benefit resulted from an action taken in the person's
official capacity or (2) in which the person is found liable to the corporation.
Pursuant to Section 145, a corporation may purchase and maintain insurance
or another arrangement on behalf of any person who is or was a director,
officer, employee or agent of the corporation or who is or was serving at the
request of the corporation as a director, officer, partner, trustee, etc. of
another corporation, trust or enterprise.
Pursuant to Section 145, a corporation is obligated to indemnify an officer
or director against reasonable expenses incurred by him in connection with a
proceeding in which he is named defendant or respondent because he is or was an
officer or director, if he has been wholly successful, in the merits or
otherwise, the defense of the proceeding.
II-1
<PAGE>
The indemnity provided for in Section 145 may include judgments, penalties
(including excise and similar taxes), fines, settlements, and reasonable
expenses (including court costs and attorneys' fees) actually incurred by the
person in connection with the proceeding.
Article ___ of Capital's Certificate of Formation provides that no person
shall be liable to Capital for any loss or damage suffered by it on account of
any action taken or omitted to be taken by him as a director or officer of
Capital in good faith, if such person exercised or used the same degree of care
and skill as a prudent man would have exercised or used in the circumstances in
the conduct of his own affairs.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
3.1 Certificate of Formation of Registrant.
3.1A Certificate of Amendment to Certificate of Formation of Registrant
(To be filed by amendment).
3.2 Bylaws of Registrant. (Not Applicable)
4.1 Pooling and Servicing Agreement among Registrant, the master
servicer, the subservicer and the trustee, including the form of
certificates and other exhibits thereto, defining the rights of the
certificateholders.
4.2 Form of Certificate.
5.1 Opinion of Mesirov Gelman Jaffe Cramer & Jamieson, LLP, with
respect to legality. (To be filed by amendment)
8.1 Opinion of Mesirov Gelman Jaffe Cramer & Jamieson, LLP, with
respect to tax matters. (To be filed by amendment).
10.1 Placement Agent Agreement.
10.2 Insurance Settlements Purchase Agreement.
10.3 Master Servicer Agreement.
10.4 Escrow Agreement. (To be filed by amendment)
10.5 Agreement between Cullasaja Capital, Ltd. and United Funds, LLC.
(To be filed by amendment).
24.1 Consent of Mesirov Gelman Jaffe Cramer & Jamieson, LLP (included in
opinion filed as Exhibit 5.1 and 8.1). (To be filed by amendment)
25.1 Form T-1 (To be filed by amendment)
28.2 Form of Subscription Agreement. (To be filed by amendment)
(b) Financial Statement Schedules:
Not applicable with respect to the Registrant.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant on behalf of the trust or the trust hereby
undertakes to provide to the placement agent on each closing date as specified
in the pooling and servicing agreement and the placement agent agreement,
certificates in such denominations and registered in such names as required by
the placement agent to permit prompt delivery to each purchaser.
II-2
<PAGE>
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES:
(1) To file during any period in which offers or sales are being made, a
post-effective amendment to this amended Registration Statement.
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933:
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) For purposes of determining any liability under the securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by directors, officers or controlling persons of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
directors, officers or controlling persons in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Carmel, and State of Indiana, on the 28th day of February, 2000.
CAPITAL RESOURCE GROUP ONE, LLC
By: /s/ THOMAS J. LARUSSA
----------------------------------
Thomas J. LaRussa
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
OFFICERS TITLE DATE
-------- ----- ----
<S> <C> <C>
/s/ THOMAS J. LARUSSA President February 28, 2000
- -----------------------------
Thomas J. LaRussa
/s/ THOMAS J. LARUSSA Secretary February 28, 2000
- -----------------------------
Thomas J. LaRussa
/s/ THOMAS J. LARUSSA Principal Accounting Officer February 28, 2000
- -----------------------------
Thomas J. LaRussa
MEMBERS
/s/ THOMAS J. LARUSSA Managing Member February 28, 2000
- -----------------------------
Thomas J. LaRussa
</TABLE>
II-4
