AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 2000
REGISTRATION NO. 333-90439
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INSURANCE SETTLEMENTS FUNDING TRUST 2000
(ISSUER OF CERTIFICATES)
UNITED FUNDS, LLC
AND
CAPITAL RESOURCE GROUP ONE, LLC
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(EXACT NAME OF REGISTRANTS AS SPECIFIED IN CHARTERS)
DELAWARE 6411 52-2232623 AND 22-3705071
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(State of Incorporation) (Primary Standard Industrial (I.R.S. Employee
Classification Code Number) Identification numbers)
101 W. OHIO STREET
PMB 2000
INDIANAPOLIS, INDIANA 46204
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(Address, including zip code, and telephone number, including area code,
of Registrants' principal executive offices)
------------------------
THOMAS J. LARUSSA
101 W. OHIO STREET
PMB 2000
INDIANAPOLIS, INDIANA 46204
(317) 569-3630
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(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/
CALCULATION OF REGISTRATION FEE
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| PROPOSED | PROPOSED |
| MAXIMUM | MAXIMUM | AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO | OFFERING PRICE | AGGREGATE | REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED | PER UNIT | OFFERING PRICE | FEE
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<S> <C> <C> <C> <C>
[ ]% Asset Backed Certificates | | |
Maturing _____, 2008........ $46,000,000 | $5,000 | $46,000,000 | $12,788
[ ]% Asset Backed Certificates | | |
Maturing ______, 2010....... $104,000,000 | $5,000 | $104,000,000 | $28,912
Insurance Settlements.......... (1) | (1) | (1) | (1)
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Total.......................... $150,000,000 | | $150,000,000 | $41,700*
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(1) United Funds, LLC is concurrently registering $150,000,000 of insurance
settlements underlying the certificates. No additional filing fee is
required to be paid.
* Previously paid.
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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TABLE OF CONTENTS
PAGE
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Summary..................................................... 1
Risk Factors................................................ 6
Glossary.................................................... 13
Forward-Looking Statements.................................. 13
United, Capital, 21st Services and the Trust................ 13
The Insurance Settlements Market......................... 13
United................................................... 13
Capital Resource Group One, LLC.......................... 20
21st Services............................................ 22
The Trust................................................ 25
Financial Information.................................... 25
The Escrow Agent......................................... 25
Management Fee........................................... 25
Use of Proceeds............................................. 27
Maturity Assumptions........................................ 27
Plan of Distribution........................................ 27
Registration of Certificates............................. 29
Description of the Certificates and the Pooling and
Servicing Agreement...................................... 29
The Trust's Assets....................................... 29
The Certificates......................................... 30
Registration, Transfer and Exchange of Certificates...... 30
List of Certificateholders............................... 31
Interest Payments........................................ 32
Principal Payments....................................... 32
Assignment of Insurance Policies to the Trust............ 32
Representatives and Warranties of Capital................ 32
Eligibility of Insurance Policies, Selection
Procedures, Solvency................................... 34
Covenants of Capital..................................... 35
Administration and Servicing of the Insurance Policies... 35
Servicing Compensation and Payment of Expenses........... 36
Representations, Warranties and Covenants of the
Subservicer and Seller................................. 36
Reports and Records of the Master Servicer and
Subservicer............................................ 38
Subservicer Default...................................... 40
Appointment of Successor Servicer........................ 41
The Trustee.............................................. 42
Amendment of Pooling and Servicing Agreement............. 42
Investor Accounts and Allocation of Collections.......... 43
Priority of Payments..................................... 44
Distribution and Reports to Certificateholders........... 45
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PAGE
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Pay Out Events........................................... 46
Additional Rights Upon Occurrence of Other Events........ 47
Other Matters Relating to Capital........................ 48
Other Matters Relating to the Subservicer................ 49
Termination.............................................. 51
Description of the Insurance Settlements Purchase
Agreement................................................ 52
The Insurance Settlements Purchase Agreement............. 52
Sale or Transfer of the Insurance Policies............... 52
Representations and Warranties........................... 52
Termination.............................................. 53
Legal Aspects of the Insurance Policies..................... 54
Sale and Transfer of the Insurance Policies.............. 54
Federal Income Tax Consequences............................. 56
Description of the Federal Income Tax Consequences....... 56
Treatment of the Certificates as Evidences of
Indebtedness of Capital................................ 56
Possible Classification of the Transaction as a
Partnership, or a Publicly-Traded Partnership or an
Association Taxable as a Corporation................... 57
Interest Income to Certificateholders.................... 58
Gain or Loss on Disposition of Certificates.............. 59
Foreign Investors........................................ 59
Backup Withholding....................................... 60
ERISA Considerations........................................ 61
Debt Interest Exception.................................. 61
Publicly-Offered Security Exception...................... 61
Exception for Insignificant Participation by Benefit Plan
Investors.............................................. 62
No Market for the Certificates.............................. 63
Investment Company Act of 1940.............................. 63
Legal Matters............................................... 63
Glossary.................................................... 64
<PAGE>
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
UNITED FUNDS, LLC, ISSUER
CAPITAL RESOURCE GROUP ONE, LLC, SELLER
21ST HOLDINGS, LLC, MASTER SERVICER
The insurance policies asset backed certificates offered hereby, evidence
fractional, undivided interests in the assets of Insurance Settlements Funding
Trust 2000.
The trust assets will include a portfolio of beneficial interests in insurance
policies to be generated by the purchase of insurance policies at a discount
solely from senior/elderly insureds, a liquidity facility representing
approximately 20% of the certificate amount which will be used primarily to pay
premiums on the insurance policies, and monies due or to become due with respect
to the insurance policies beneficially owned by the trust. Prospective investors
must rely only on assets of the trust for payment of principal and interest on
the certificates. No principal payments are scheduled to be made prior to the
final maturity dates of the certificates. The trust currently beneficially owns
no insurance policies or other assets and the subservicer has no experience
servicing insurance policies.
An investment in the trust involves a high degree of risk. Prospective
investors should consider the factors set forth under "Risk Factors" on page 6.
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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<S> <C> <C> <C>
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 100% of the subscription payments 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 this 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. The
offering may be terminated 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 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 May __, 2000.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THEIR SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this prospectus.
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Insurance Settlements........................ An insurance settlement is a cash payment
for the ownership of a life insurance policy
for less than the expected death benefit of
the life insurance policy insuring the life
of an individual of advanced age. This
ownership interest carries with it the right
to receive the death benefit payable upon
the death of the insured. It also generally
carries with it the obligation to make
premium payments. Insureds generally are
motivated to sell their life insurance
policies during the final months or years of
their lives because such sales better enable
the insureds to both prepare for their
expected death, for estate planning purposes
or to obtain a certain quality and dignity
of life that would otherwise be unavailable
because of mounting medical and living
expenses.
Entities purchasing policies, such as
United, pay the insured an amount discounted
from the face value of the policy to be
purchased. The amount of the discount is
negotiated and varies depending upon the
nature of the life insurance policy, the
stability of the insurer, prevailing
interest rates, the medical condition of the
insured and the insured's estimated life
expectancy. The gross income of entities
purchasing insurance settlements is
generated almost exclusively by the
difference between the discounted amount
paid for each policy purchased and the face
value of such policies. Net income is
arrived at by subtracting from gross income
such significant operating expenses as
commissions payable to sourcing brokers,
premium payments, due diligence costs, legal
and accounting fees, interest and other
miscellaneous expenses. The face amount of the
insurance policies will be greater than the
purchase price of such policies. However, to the
extent up to 20% of the certificate amount will
be used primarily to pay premiums, this may be
deemed an undercollateralization of the
certificates.
The Trust.................................... Insurance Settlements Funding Trust 2000
will be formed pursuant to the pooling and
servicing agreement. United will purchase
the insurance policies, sell them to Capital
and Capital will assign an irrevocable
beneficial interest in the insurance
policies to the trust.
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1
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The Trust's Assets........................... The assets of the trust will include:
o an irrevocable beneficial interest in all
insurance policies assigned to the trust by
Capital;
o monies due or to become due with respect
to the insurance policies;
o funds or proceeds collected or to be
collected with respect to the insurance
policies;
o funds on deposit in certain bank accounts
of the trust and funds invested in permitted
investments, including interest earned or
accrued on those funds; and
o any supporting documentation or agreements
relating to the insurance policies. See
"United, Capital, 21st Services and the
Trust--The Trust."
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. 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.
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2
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The Certificates............................. Both the Tranche I and Tranche II
certificates represent beneficial undivided
interests in the trust only and will be paid
from the same pool of assets. They 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
principal amount of each certificate will
remain fixed at its initial principal amount
until the final maturity date. No principal
payments are scheduled to be made prior to
the final maturity dates of the
certificates.
Certificate Interest......................... Certificate interest will accrue at the rate
of [ ]% and [ ]% yearly, respectively,
from the closing date applicable to each
certificate and is payable to the
certificateholders semi-annually.
Certificate interest payments will be funded
from collections attributable to the
insurance policies. Interest payments made
on certificates prior to any collections
being received, or if insufficient
collections are received, may be deemed to
be a return of certificateholders capital.
Certificate interest will be paid only after
that portion of the trustee's fees have been
paid. If collections attributable to
insurance policies are insufficient to fund
the payment of the trustee's fees, master
servicer's fees and certificate interest,
the deficiency will be paid from withdrawals
from the liquidity account, to the extent
available. See "Description of the
Certificates and the Pooling and Servicing
Agreement".
Capital...................................... Capital Resource Group One, LLC, was formed
for the limited purpose of acquiring
insurance policies from United and assigning
its beneficial interest in the insurance
policies to the trust in accordance with the
pooling and servicing agreement. Capital
will be the originator of the trust.
Capital's address is 101 W. Ohio Street, PMB
2000, Indianapolis, Indiana 46204. Its
telephone number is (317) 569-3630.
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3
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Subservicer.................................. United Funds, LLC, will service the
insurance policies as described in the
pooling and serving agreement and will be
the seller of the insurance settlements to
Capital.
Master Servicer.............................. 21st Services, a national insurance services
organization, an affiliate of 21st Holdings,
LLC, 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.
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.
In the opinion of Mesirov Gelman Jaffe
Cramer & Jamieson, LLP, the certificates
will be characterized as evidences of
indebtedness of Capital for federal income
tax purposes and the trust will not be
subject to federal income tax. See "Risk
Factors--Possible Adverse Federal Income Tax
Consequences" and "Federal Income Tax
Consequences".
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 the 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--Reports and
Records of the Master Servicer and
Subservicer."
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4
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Permitted Fees and Expenses.................. Trustee's fee--$150,000 per annum.
Master servicer's fees.
o 0.1925% or 0.09625% of the principal
amount of the outstanding certificates,
payable monthly.
o $23.00 per month for each active policy.
o up to $200.00 per insured life.
o .30% of the face amount of each insurance
policy purchased by United.
Subservicer's fee--0.3575% or 0.45375% of
the principal amount of the outstanding
certificates, payable monthly.
</TABLE>
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.
5
<PAGE>
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.
The Trust's Performance is Dependent on United, Capital and 21st
Services. The trust will look solely to Capital and Capital will 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; or
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, however, there is no key-man life insurance on Messrs. Kirkman, Simon
and Walker. 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."
The Ability to Predict Life Expectancies will Affect the Trust's Financial
Results. 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. 21st Services' computer model
provides a life expectancy expressed in months. The model has a fifty percent
(50%) confidence level. Therefore, 50% of the similar insureds are expected to
die before the median life expectancy and 50% may live significantly beyond the
estimate and therefore could have a material negative effect on the trust's
financial results and may result in losses to certificateholders. See "United,
Capital, 21st Services and the Trust--Yield Analysis."
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 the policies assigned to the trust. Any
6
<PAGE>
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. 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.
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 sell 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. See "Use of Proceeds."
Delay in Payment and Non-Payment of Policy Proceeds Will Affect the Trust's
Profits and Distributions. 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. 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 the
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.
There is Currently No Secondary Market for the Certificates and a Secondary
Market May Never Develop. Investors may not be able to sell their certificates
and there is currently no secondary market for the certificates. There can be no
assurance that a
7
<PAGE>
secondary market will ever develop and even if one does develop, it may
not be sufficiently liquid to allow investors to resell any of their
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 Will Affect the Trust's
Profitability. 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 policies. Any substantial
increase in interest rates will result in either a decrease in the purchase
price the trust is willing to pay for insurance policies 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 Will Affect the Trust's Profitability."
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 policies from
senior/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 Will
Affect the Trust's Profitability. 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 three states,
Maine, Florida and Texas, regulate senior/elderly life insurance settlements.
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 of Insurance Settlements."
8
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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 policies 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.
The Trust Will Have Limited Assets Other Than Insurance Policies. The
trust does not have, nor is it expected to or be permitted to have, any assets
other than interests in insurance policies and temporary investments. Investors,
therefore, must rely on payment of death benefits on policies beneficially owned
by the trust.
Regulation as an Investment Company May Terminate the Trust. 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. If the trust is deemed to be an investment company, it will be
deemed to be a payout event which means that the trust will terminate and
distribute its assets, which will affect its profitability. See "Investment
Company Act of 1940."
Adverse Effect of Bankruptcy or Insolvency of United May Cause Losses to
Certificateholders. United will warrant to Capital in the insurance
settlements purchase agreement between them that the sale of the insurance
policies 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 policies are purchased to protect Capital's ownership
interest in the insurance policies in the event a court should rule that the
sale to Capital was not a true sale but a financing arrangement. Article 9 of
the UCC does not apply to a transfer of an interest 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 policies may be characterized as an interest
or claim in or under an insurance policy. United will treat each transaction as
a sale, and as such, the insurance policies 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 if a party to the proceeding were to assert that the
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sale of the insurance policies to Capital should be recharacterized as a pledge
of such insurance policies to secure the borrowing of United, then delays in
payments of collections to the trust and the certificateholders could occur. In
the event a bankruptcy court were to rule in favor of any such party, then
reductions in the amount of such payments could result in losses to
certificateholders. See "Legal Aspects of the Insurance Settlements--Sale and
Transfer of the Insurance Policies."
Adverse Effect of Bankruptcy or Insolvency of Capital May Cause Losses to
Certificateholders. Capital will warrant in the pooling and servicing
agreement that the assignment of the insurance policies to the trust is an
irrevocable assignment of its beneficial interest in the insurance policies to
the trust. Capital will take all actions required under the laws of each
jurisdiction in which the insurance policies are assigned to establish the
trust's interest in the insurance policies. Notwithstanding the foregoing, if
Capital were to become a debtor in a bankruptcy proceeding and if a party to the
proceeding were to assert that the assignment of the insurance policies from
Capital to the trust should be recharacterized as a pledge of such insurance
policies to secure the borrowing of Capital or, if a bankruptcy court were to
rule in favor of any such person, then losses to certificateholders could
result. See "Legal Aspects of the Insurance Settlements--Sale and Transfer of
the Insurance Settlements."
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 policies are valid and enforceable. However, it is
not anticipated that the trustee will make any examination of the insurance
policies 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.
Lack of Experience Regarding Predicted and Actual Life Expectancies. 21st
Services' computer model for predicting life expectancies has only been in
operation for a relatively short period of time. Therefore, there is very
limited experience regarding predicted and actual life expectancies.
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 policies.
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.
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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.
Lack of or Decrease in Asset Diversification if Only the Minimum Amount is
Raised in this Offering. If only the minimum amount is raised in this
offering, there may be a lack of or decrease in asset diversification since
there may be only a limited number of insurance policies in the trust.
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.
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 policies; the financial stability of the
insurance companies who must pay claims used in payment of the insurance
policies; the diversification of the pool of insurance policies 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 policies; the collection history, or lack thereof,
of United; and the credit ratings of the credit enhancement, if any, of the
certificates. A rating is not a recommendation to purchase, hold or sell
certificates, inasmuch as a rating does not comment as to market price or
suitability of the market or investment for a particular investor. A rating
agency does not evaluate the likelihood of successful remarketing of the
certificates.
No Assurance That the Certificates Will Be Rated Investment Grade. If the
certificates are rated by a rating agency, there is no assurance that such
rating will be investment grade.
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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. 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. See "Federal Income Tax Consequences".
Material Litigation Risks. An investment in the certificates involves a
certain degree of risk. The trust benefits from an insurance settlement upon the
death of an insured. Therefore, there are various emotional concerns surrounding
an investment in the certificates. Other than what is described herein, there
may be other issues such as privacy, attempts to rescind the insurance
settlements, legislation and other factors which may make the certificates
subject to litigation.
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GLOSSARY
Certain terms which are used in this prospectus are defined in the glossary
located on page 64.
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
THE INSURANCE SETTLEMENTS MARKET
The insurance settlements 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 was formed in
the State of Delaware in October 1999. 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 policies. 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 policies for its own account and will sell and transfer those
insurance policies to Capital pursuant to the insurance settlements purchase
agreement and (b) service those insurance policies whose irrevocable beneficial
interests are assigned to the trust by Capital pursuant to the pooling and
servicing agreement. United's address is 101 W. Ohio Street, PMB 2000,
Indianapolis, Indiana 46204. Its telephone number is (317) 569-3630.
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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
advisory 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 computer
systems design consultant with Infinity Medical Management, a viatical
settlements company which system provided support for the tracking and execution
of premium payments, policy closing financial statements, tracking insureds and
periodic financial statement reporting. From December 1994 until August 1996 he
was an Informational Services Analyst with Merrill Lynch & Co., Inc. whereby he
managed a team of developers that developed computer systems that tracked
clients. Mr. LaRussa received his Bachelor of Arts Degree from the University of
Rochester, cum laude, in 1990.
United intends to be a nationwide specialty financial services company that
purchases insurance policies from senior/elderly insureds. 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 policies from insureds. United will purchase
the insurance policies 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 policies, without recourse to Capital. Capital will
assign an irrevocable beneficial interest in such insurance policies 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 identification of potential policy purchases through a nationwide
referral network that will include insurance settlements 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.
IDENTIFICATION OF POTENTIAL POLICY PURCHASES
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 informal agreements with several referral sources, including
21st Services, and it hopes to establish close relationships with several other
referral sources who have
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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.
EVALUATING THE INSURED AND THE INSURANCE POLICY-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 Will Affect the Trust's Profits and
Distributions."
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 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 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:
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o the policy under consideration is past any contestability periods, i.e.
the periods during which the insurance company may deny payment for
various reasons, 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.
United will not purchase policies of insureds who are not residents of the
United States or whose insurance companies are not domiciled in the United
States.
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 the 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.
PURCHASE OF POLICIES
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 THE INSUREDS
Following the disbursement of funds, the insured is regularly phoned to
obtain timely information concerning him or her so that proceeds may be
collected as promptly as possible following the death of the insured. The
monitoring forms the basis of knowing whether an insured has died. 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 audit
certain policies to ensure that they do 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 OF POLICY PROCEEDS
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 reflect the filing of the death certificates, the filing of claim
forms with the insurance companies by United, and provide for a status update
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.
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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.
ACTUAL ANNUALIZED YIELD
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 the 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 the
policy will be lower than the original estimated annual yield. Thus, the actual
collection date of each policy affects the actual annualized yield on the trust
portfolio.
COMPETITION
United believes potential clients distinguish insurance settlement
companies based on three principal factors:
o price;
o response time; and
o sensitivity and professionalism in dealing with the client, the insured
and their friends and relatives.
An insurance 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 insurance 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
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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 insurance 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 having their policies beneficially owned by a trust
will be an additional incentive for them to do business with United rather than
sell their policies to persons who will hold the policies directly. Finally, if
this offering is successful, the proceeds from this offering will allow United
to have significant financial flexibility in such a fragmented market since it
will have access to resources which will allow it to purchase more insurance
policies at deeper discounts.
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GOVERNMENT REGULATION OF INSURANCE SETTLEMENTS
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 Maine, 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/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 will
Affect the Trust's Profitability."
CAPITAL RESOURCE GROUP ONE, LLC.
Capital was formed in the State of Delaware in October, 1999. Capital was
organized for the restricted, limited purpose of forming the trust, purchasing
the insurance policies from United, assigning its beneficial interest in the
insurance policies 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 formation, 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. Mr. LaRussa has
not received and will not receive anything of value from Capital, except to the
extent that any assets remain in the trust after the certificateholder have been
paid their principal and interest.
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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 policies from United. In accordance with 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
policies and (b) take all actions that are required under state law to establish
Capital's ownership interest in and to the insurance policies, as more fully
described in the insurance settlements purchase agreement. See "Description of
the Insurance Settlements Purchase Agreement."
In accordance with the pooling and servicing agreement, simultaneously with
the purchase of the insurance policies from United, Capital will (a) designate
the trust as an irrevocable beneficiary of the insurance policies 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
Policies to the Trust".
Diversification Requirements: Capital will covenant to structure its
purchase, acquisition and assignment of insurance policies so that:
o at acquisition, no less than 75% of the cumulative death benefits of the
insurance policies 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 policies 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. There
will be no acquisitions of insurance policies where insurance companies
are rated by A.M. Best of below B+.
o less than 10% of the outstanding cumulative death benefits of the
insurance policies 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.
The objective of the A.M. Best rating system is to provide an overall
opinion of an insurance company's ability to meet its obligations to
policyholders. Ratings are based on a comprehensive evaluation of a company's
financial strength, operating performance and market profile as compared to A.M.
Best's quantitative and qualitative standards.
Ratings of A+ to A++ are assigned to companies which have, on balance,
superior financial strength, operating performance and market profile when
compared to the standards established by A.M. Best. A.M. Best believes that
these companies have a very strong ability to meet their ongoing obligations to
policyholders. Ratings of A- to A are assigned to companies which have, on
balance, excellent financial strength, operating performance and market profile
when compared to the standards established by A.M. Best. A.M. Best believes that
their companies have a strong ability to meet their ongoing obligations to
policyholders. Ratings of B+ to B++ are assigned to companies which have, on
balance, very good financial strength, operating performance and market profile
when
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compared to the standards established by A.M. Best. A.M. Best believes these
companies have a good ability to meet their ongoing obligations to
policyholders. All of the above are deemed to be secure ratings by A.M. Best.
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
policies. 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 policies 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. Its model provides a life expectancy expressed in months.
Pursuant to the model, 50% of these similar insureds will die before the medium
life expectancy and 50% of afterwards. 21st Services has recently started using
the model and therefore has no results from using the model. 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 participants in the insurance settlements
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
insured life regardless of whether United eventually purchases such policy.
Depending on the insured's medical condition and at the discretion of 21st
Services, 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
which may be furnished by the sourcing broker or requested by United:
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.
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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
obtained from an international actuarial firm. 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. The sources of information driving the risk factor adjustments
include underwriting criteria from large insurance companies, the Medical
Information Bureau, governmental studies and privately secured research. The
life expectancy certificate will highlight all pertinent risk factors used to
determine life expectancy. The model provides a median life expectancy for the
specific insured, expressed in months.
If the life expectancy review is completed by a physician specialist, the
reviewer will fully evaluate the insured's medical history, write a summary of
the highlights, provide an estimated life expectancy and justifications for the
life expectancy. Factors influencing each decision may include their own
clinical experience, peer review, rigorous analysis of medical journals, library
or internet research, non-public information concerning clinical trials,
investigational new drugs, and statistical information.
21st Services will 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 Audit premium calendar database
o Prepare reports as agreed
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 learned 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.
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Mr. Kirkman joined 21st Services in 1998 and he leads the Diagnostic
division. With Mervyn F. Silverman, M.D., MPH, he developed a network of
consulting physician specialists who review medical charts to provide life
expectancies for clients with terminal illnesses. Kirkman also led the
development of 21st Services elder life expectancy model.
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 corporate structure designed to support
the public securitization of insurance settlements. He managed all
administrative, compliance and reporting functions for a $600 million revolving
credit facility to fund policy purchases. Simon was also responsible for
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
insurance settlements. Simon 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.
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.
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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 policies and thereafter
collect the death benefit proceeds associated with such insurance policies and
distribute the proceeds to the certificateholders in the form of interest and
principal payments.
The trust will be formed in accordance with the laws of the State of
Delaware, as a business trust, and in accordance with 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
policies acquired from Capital and the proceeds from such insurance policies,
issuing certificates and making payments on the certificates, 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. See
"Description of the Certificates and The Pooling and Servicing Payment--The
Trust's Assets." 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 all required
payments to certificateholders 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.
FINANCIAL INFORMATION
Capital and United have determined that their financial statements are not
material to the offering.
The trust will be formed to benefically own insurance policies 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 in this prospectus. Accordingly, no financial statements with respect
to the trust are included in this prospectus. If the trust is formed during the
offering period, audited financial statements of the trust will be included in
the prospectus. See "Description of The Certificates," and "The Pooling and
Servicing Agreement--Reports and Records of the Master Servicer and Subservicer"
and "Distribution and Reports to Certificateholders."
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
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all interest and principal payments have been made to certificateholders. Such
right shall vest at the rate of 12.5% and 10% per year, for Tranche I and
Tranche II, respectively. If either Tranche is repurchased prior to maturity,
such rights shall vest automatically. 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 policies for purchase, negotiating the price
to be paid for the insurance policies, monitoring insurance policies assigned to
the trust, assuring that premiums are paid when due and liquidating insurance
policies assigned to 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 policies. 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 policies, including without limitation any financing, legal,
accounting, advisory and consulting expenses in connection therewith,
o all third-party expenses in connection with the insurance policies or
proposed insurance policies 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 settlements 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 acquire an irrevocable beneficial interest in the
insurance policies from Capital which policies Capital will purchase from United
and which United will purchase from sourcing brokers. Approximately 80% of such
funds will be utilized to acquire insurance policies and the remaining
approximately 20% 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
policies 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 for the sale of the certificates in this offering.
Pryor, Counts & Co., Inc. has made no agreement to purchase or take down all or
part of the certificates as part of this offering, 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 this period, the
agreement between Pryor, Counts & Co., Inc. and Capital and United will
terminate and 100% of the subscription payments 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
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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, 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. This includes 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 in this offering. 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.
Cullasaja 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 in 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. If there is no closing, Cullasaja does not receive a fee.
Cullasaja may be deemed to be a finder.
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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
policies and originator of the trust, United as seller and subservicer of the
insurance policies, 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.
THE TRUST'S ASSETS
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 policies;
o monies due or to become due thereunder;
o monies received from insurance companies in payment of the insurance
policies;
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 policies and
any supporting documentation or agreements related to the insurance
policies 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 interest
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 policies. The certificates are structured to
facilitate a secured, credit-enhanced financing with the intention that the
certificates will constitute indebtedness of Capital for federal income, state
and local tax purposes, and Capital and each certificateholder, by acceptance of
its certificate, agrees to recognize and report the certificate as indebtedness
of Capital for purposes of federal, state and local income or franchise taxes
and any other tax imposed on or measured by income, and to report all receipts
and payments relating to the certificates in a manner that is consistent with
such characterization.
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,
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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
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 beneficial interests in the insurance policies to the trust.
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 this 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 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
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require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of certificates. All
certificates surrendered for registration of transfer or exchange shall be
cancelled and disposed of in a manner satisfactory to Capital, the trustee and
the transfer agent and registrar. Unless Capital provides the trustee with
written notice to the contrary, all certificates so surrendered will be
destroyed pursuant to customary procedures.
Prior to presentation of a certificate for registration of transfer,
Capital and the trustee, the paying agent, the transfer agent and registrar and
any agent of any of them may treat the person in whose name any certificate is
registered as the owner of such 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. Certificateholders holding an aggregate
amount of not less than five percent (5%) of the certificates then outstanding
may apply in writing to the trustee, that they desire to communicate with other
certificateholders with respect to their rights under the pooling and servicing
agreement or under the certificates. If such request 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. The list
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.
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INTEREST PAYMENTS
Certificate interest on the Tranche I and Tranche II cetificaties will
accrue at the rate of [ ]% and [ ]% annually, respectively, and payable to
the certificateholder semi-annually. Certificate interest will accrue on a
certificate from the applicable closing date of the particular certificate.
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, but before the master servicer's fee, the
successor servicer's fee and the subservicer's fee have 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 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 POLICIES 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 policies specifying the amount of the
insurance policies to be assigned and the trustee shall, in turn, notify Capital
of the amount available in the escrow account to acquire insurance policies.
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 policies which shall be
acquired by Capital from United, as seller under the insurance settlements
purchase agreement, according to the insurance settlements purchase agreement,
including all monies due or to become due with respect to the insurance policies
and all proceeds from the insurance policies and (b) all of Capital's rights,
remedies, powers and privileges with respect to the insurance policies 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
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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:
o asserting the invalidity of the pooling and servicing agreement, the
insurance settlements purchase agreement or the certificates,
o 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,
o 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,
o seeking any determination or ruling that would materially and
adversely affect the validity or enforceability of the pooling and
servicing agreement, the insurance settlements purchase agreement or
the certificates or
o seeking to affect adversely the income tax attributes of the trust;
and
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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 policies 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 the
pooling and servicing agreement and any assignment of the insurance policies
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. Capital shall also represent and warrant that the pooling and
servicing agreement and any assignment of the insurance policies each constitute
a valid assignment to the trust of all right, title and interest of Capital in,
to and under the insurance policies being assigned to the trust, all monies due
or to become due with respect to the insurance policies, and all proceeds of the
insurance policies, free and clear of any lien of any person claiming through or
under Capital, all monies due or to become due with respect to the insurance
policies and the proceeds of the insurance policies upon transfer of the
insurance policies to the trust, and of the pooling and servicing agreement.
ELIGIBILITY OF INSURANCE POLICIES, SELECTION PROCEDURES, SOLVENCY
In connection with the assignment of its beneficial interests in the
insurance policies 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 policies being assigned 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 policy assigned on such date as if made on such date. In addition,
these representations and warranties shall survive the assignment of the
beneficial interests of the respective insurance policies 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 policies,
except insofar as any failure
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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 assignment 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 policies;
o Capital agrees to tender to the subservicer for deposit in the investor
accounts all payments received by Capital with respect to the insurance
policies 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 policies to any other person prior
to termination of the trust;
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 policies
will be structured so that:
o at acquisition, no less than 75% of the cumulative death benefits of
the insurance policies 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 policies held or beneficially owned by the trust shall
be payable by insurance companies with A.M. Best rating of B+ or
better, or its equivalent as set by other nationally recognized
agencies,
o less than 10% of the outstanding cumulative death benefits of the
insurance policies 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 POLICIES
The subservicer will undertake to service and administer the insurance
policies and to collect payments due under the insurance policies 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
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and administration which it may deem necessary or desirable. 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 policies. 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 policies
from the procedures, offices, or employees used by the master servicer in
connection with servicing other insurance policies, 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 policies.
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
policies 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.
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 policies and in 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
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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 policies 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. 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 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 policies 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 policies 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 policies as of the close of
business on the last business day in that 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 setting forth:
o the aggregate amount of collections processed during the preceding six
months;
o the aggregate amount of insurance policies 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
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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 the certificate and (2) to the best of the officer's knowledge, based on
the review, the subservicer has fully performed all its obligations under the
pooling and servicing agreement throughout such year. If there has been a
default in the performance of any obligation, specifying each the default known
to the officer and the nature and status thereof. A copy of the 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 annual reports
to be prepared by independent public accountants for the trust, which reports
will be available for inspection by the certificateholders at the offices of the
trustee during normal business hours. 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 preceding annual
period to the effect that the accountants have applied agreed-upon procedures to
documents and records relating to the servicing of the insurance policies,
compared the information contained in the master servicer's certificates
delivered during the period covered by the report with the documents and records
and that no matters came to the attention of such accountants that caused them
to believe that the servicing was not conducted in compliance with the pooling
and servicing agreement, except for exceptions as the firm shall believe to be
immaterial and 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 the 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 the report, which shall be the period from January 1, or the
date which is the initial closing date, to and including December 31, or the
date which is the final maturity date, of the calendar year, with the
subservicer's computer reports which were the source of the amounts and that on
the basis of the comparison, the accountants are of the opinion that the amounts
are in agreement, except for the exceptions as they believe to be immaterial and
the other exceptions as shall be set forth in the statement. A copy of the
report or any other report described in this section may be obtained by any
certificateholder by a request in writing to the trustee at no cost to the
certificateholder.
In the event that United is no longer acting as subservicer, the master
servicer or any successor servicer appointed in accordance with the provisions
governing the 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.
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SUBSERVICER DEFAULT
Upon the occurrence of a subservicer default, the subservicer will give
prompt written notice of the 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 the
subservicer default or be incapable of curing the default, 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 the default by
the subservicer. A default in the failure to make any required deposits or
payments, may not be waived. Upon any waiver of a past default, the 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
waiver shall extend to any subsequent or other default or impair any right in
connection with the agreement 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 date is specified in the 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 the report or
the 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 the failure
requiring the same to be remedied shall have been given to the
subservicer by the trustee, or to the subservicer and the trustee by the
holders of certificates representing not less than 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 in
accordance with the pooling and servicing agreement shall prove to have
been incorrect when made,
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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
the 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. If the failure cannot be cured within the 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 the failure with continued diligence; or
o the subservicer shall:
o become insolvent,
o fail to pay its debts generally as they become due,
o voluntarily seek, consent to, or acquiesce in the benefit or benefits
of any debtor relief law, or
o 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 the 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 policies 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 the 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.
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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 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 the 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 separate trustee or
co-trustee jointly, or, in any jurisdiction in which the trustee shall be
incompetent or unqualified to perform the acts, singly upon the separate trustee
or co-trustee, which is so qualified and who shall exercise and perform the
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 the 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 the 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
subservicer, 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. However, 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 amendment which affects the
trustee's rights, duties or immunities under the pooling and servicing agreement
or otherwise. Any assignments regarding the transfer of the beneficial interests
in the insurance policies 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 subservicer, 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
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any manner the amount of, or delay the timing of, distributions which are
required to be made on any certificate without the consent of the
certificateholder, or (b) reduce the aforesaid percentage required to consent to
any 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 the 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 the 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 any reasonable
requirements 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 any
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 the funds
deposited therein are held in trust for the benefit of the certificateholders
and shall be subject to distribution in accordance with the pooling and
servicing agreement. The insurance settlements account shall contain collections
attributable to insurance policies.
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 20% of the
principal amount of the certificates issued on such closing date. The liquidity
account will be funded with a minimum of approximately $4,000,000 if $20,000,000
of certificates are sold pursuant to this offering. The maximum amount would be
approximately $30,000,000 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 insurance policies.
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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 investment shall mature and the funds
shall be available for withdrawal on or prior to the transfer date immediately
preceding the fee distribution date and distribution date on which the 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 the 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 the 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 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 policies 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 policies 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 the 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, that 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 policies
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 the 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 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 the certificateholder's
pro rata share of certificate interest and 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 the distribution allocable to certificate principal;
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(c) the amount of the distribution allocable to certificate interest;
(d) the amount of collections of insurance policies 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 the 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 the calendar year or the applicable portion
thereof during which the person was a certificateholder, together with the other
customary information, consistent with the treatment of the certificates as
debt, as the trustee, Capital, master servicer or the subservicer deems
necessary or desirable to enable the certificateholders to prepare their
respective tax returns. The 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
the 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 the 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
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written notice of the 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 the 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 the failure with continued diligence; or
(d) Capital or the subservicer shall:
o become insolvent;
o fail to pay their debts generally as they become due;
o voluntarily seek, consent to, or acquiesce in the benefit or
benefits of any debtor relief law;
o 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 the 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; 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 these 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. 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 the event.
ADDITIONAL RIGHTS UPON THE OCCURRENCE OF OTHER 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 the
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proceeding is involuntary, and the petition instituting same is not dismissed
within 90 days after its filing, Capital shall on the date of the bankruptcy
event immediately cease to assign insurance policies to the trust and shall
promptly give notice to the trustee of the 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 policies in a commercially reasonable manner
and (b) send written notice to the certificateholders describing the proceeding
and requesting instructions from the certificateholders. No sale, disposition or
liquidation, whether in whole or in part, of the insurance policies shall be
consummated until and unless the trustee shall have first received written
instructions, 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
policies as discussed above shall be treated as collections. On the distribution
date on which the 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 managers, 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 the agreement.
However, this limitation on liability shall not protect Capital or any manager,
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 and
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 in connection with the pooling and servicing
agreement or any agreement executed or delivered in connection with that
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. However, 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,
Capital
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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. 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 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 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 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 managers, 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. However, this limitation on liability
shall not protect the subservicer or any manager, 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 manager, 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 policies 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 the agreement or
any agreement executed or delivered in connection with the 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
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and other costs or expenses incurred in connection with the defense of any
actual or threatened action, proceeding or claim. However, 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. 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 the certificateholders. 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. 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 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, the master servicer shall be entitled to resign
upon giving written notice to Capital, the trustee, and United. Any such
determination permitting the resignation of the 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 policies similar to the insurance policies serviced
or to be serviced by the successor servicer under the pooling and servicing
agreement and whose appointment shall not adversely affect the rating, if any,
of the securities offered in connection with to this offering.
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 the
duties in accordance with the provisions of the pooling and servicing agreement.
Any delegation shall not relieve the master servicer of its liability and
responsibility with respect to its duties and shall not constitute a resignation
within the meaning of the preceding paragraph.
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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,
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 policies 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
that 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 the 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
the surrender. If a certificateholder has not surrendered his certificate within
18 months, the trustee may take affirmative steps to locate the remaining
certificateholders and charge the cost to the 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
policies, all monies due or to become due with respect to the insurance policies
and all proceeds from the insurance policies and the amounts remaining in the
liquidity account.
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DESCRIPTION OF THE INSURANCE
SETTLEMENTS PURCHASE AGREEMENT
THE INSURANCE SETTLEMENTS PURCHASE AGREEMENT
The insurance policies 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 policies, and
United, as seller of the insurance policies. 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
policies to Capital. The following summary summarizes the insurance settlements
purchase agreement.
SALE OR TRANSFER OF THE INSURANCE POLICIES
United will sell, transfer, assign, and convey to Capital all its right,
title and interest in and to all of the insurance policies being transferred on
each closing date. Upon the request of Capital, United will notify Capital of
the amount of insurance policies available for purchase on each closing date.
The purchase price for the insurance policies 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
policy 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 policies to
Capital, United will indicate in its computer master file that the insurance
policies have been sold to Capital by United and then an irrevocable beneficial
interest in the insurance policies will be 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 policies, 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 formed 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 policies to Capital
constitute a valid sale and transfer to Capital of all right, title and interest
of United in and to the insurance policies, and the proceeds thereof. United
covenants to indemnify Capital and to hold Capital harmless from
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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
policies and observe all its policies and procedures relating to the insurance
policies, unless the failure to do so would not have a material adverse effect
on the rights of the trust, as assignee of the insurance policies, or the
certificateholders.
United will expressly acknowledge and consent to the assignment by Capital
of an irrevocable beneficial interest in and to the insurance policies to the
trust for the benefit of the certificateholders. United will also agree that any
amounts payable by United to Capital, and that are to be paid by Capital to the
trustee for the benefit of the certificateholders, will be paid by United on
behalf of Capital directly to the trustee.
United covenants that all of its right, title and interest in and to any
insurance policy 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 policies 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:
o become insolvent;
o fail to pay its debts generally as they become due;
o voluntarily seek, consent to, or acquiesce in the benefit or benefits of
any debtor relief law; or
o become a party to, or be made the subject of, any proceeding provided for
by any debtor relief law and, if the proceeding is involuntary and is not
dismissed within 90 days of its institution, United will immediately
cease to transfer insurance policies to Capital and promptly give notice
of the event to Capital and to the trustee.
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LEGAL ASPECTS OF THE INSURANCE POLICIES
SALE AND TRANSFER OF THE INSURANCE POLICIES
On each closing date United will sell, transfer, assign the insurance
policies to Capital and Capital will transfer and assign an irrevocable
beneficial interest in the insurance policies to the trust. Simultaneously with
such transfers from United to Capital and from Capital to the trust, Capital
will execute and the trustee on behalf of the trust will authenticate
certificates offered hereby and lend to Capital for the purchase of insurance
policies the proceeds of such offering. Capital will pay United the proceeds
received from the trust in consideration for the insurance policies sold to
Capital by United. On each closing date United will indicate in its master
computer file of insurance policies that the insurance policies 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 policies, identified by account number and by the total outstanding
face amount of the insurance policies 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 policies 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
policies. 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 policies 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 policies from the
insureds and has transferred the insurance policies 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 policies other than to Capital. Under the pooling and servicing
agreement, Capital will (a) represent and warrant that Capital has acquired the
insurance policies from United and has assigned an irrevocable beneficial
interest in the insurance policies 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 policies other than to the trust.
Capital will not engage in any activities except acquiring insurance
policies from United, transferring an irrevocable beneficial interest in the
insurance policies 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
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Bankruptcy Code or any applicable state law so long as Capital is solvent and
does not reasonably foresee becoming insolvent.
The voluntary or involuntary application for relief under the United States
Bankruptcy Code or any comparable state law with respect to Untied should not
necessarily result in a similar voluntary application with respect to Capital so
long as Capital is solvent and does not reasonably foresee becoming insolvent by
reason of United's insolvency or otherwise. Capital believes that:
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 managers of
Capital,
o subject to 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 policies by United to Capital
constitute a valid sale and transfer and, therefore, such insurance
policies 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 policies from
United to Capital, and therefore from Capital to the trust, should be
recharacterized as a pledge of such insurance policies, then delays
in payments on the certificates or, should the bankruptcy court rule
in favor of any such trustee, debtor in possession or creditor,
reductions in such payments could result.
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FEDERAL INCOME TAX CONSEQUENCES
DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a description of the material 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
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, 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 the material federal income tax
consequences summarizes the written opinion of Mesirov Gelman Jaffe Cramer &
Jamieson, LLP, counsel to Capital, a copy of which is included as exhibit 8.1 to
the registration statement of which this prospectus is a part. The conclusions
reached in the 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 in the opinion, or that any 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 policies it owns.
Moreover, Capital and each certificateholder, by the acceptance of a
certificate, will agree to recognize and report the 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 make an irrevocable assignment if its beneficial interests in the insurance
policies 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 policies 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 policies have been retained by Capital. Although the
result is not without
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doubt, counsel has concluded that the arrangements among Capital and the
certificateholders under the pooling and servicing agreement will 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 characterize the transaction in accordance with its
substance. Based on all of the foregoing, counsel has opined that the
certificates will be characterized as evidences of indebtedness of Capital for
federal income tax purposes and not the trust and the trust will be disregarded
for federal income tax purposes.
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
policies. 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 policies, or an
interest therein. Nor can there be assurance that the IRS will not assert 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 policies. 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
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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 policies. 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 that counsel's opinion that 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 will not be issued with original issue discount within the
meaning of Section 1273 of the Code.
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.
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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.
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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 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 the 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, including
whether such payments may be deemed to be a return of capital.
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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
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
these persons.
The Department of Labor has issued a regulation concerning the definition
of what constitutes the plan assets of employee benefit plans and annuities
described in ERISA or the Internal Revenue Code, and of individual retirement
accounts or annuities, collectively referred to as benefit plans. Under the
regulation the assets and properties of corporations, partnerships and 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 the 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 the 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 or whether the certificates will be
registered as required to be registered under the Securities Exchange
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Act of 1934. 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
in accordance with 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%.
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 the 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 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 the benefit plan.
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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,
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.
NO MARKET FOR THE 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 80% 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 policies represent payment obligations of insurance
companies. The trust will also initially consist of no more than 20% in
permitted investments. In the opinion of Mesirov Gelman Jaffe Cramer & Jamieson,
LLP, 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. The Securities and
Exchange Commission has not passed upon any issues presented by the Investment
Company Act of 1940.
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.
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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 an irrevocable
beneficial interest in the insurance policies 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.
"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.
"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.
"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.
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"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.
"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.
"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:
(a) obligations fully guaranteed by the United States of America;
(b) time deposits in, or bankers' acceptances issued by, any depository
institution or trust company incorporated under the laws of the United
States of America or any state thereof and subject to supervision and
examination by federal or state banking or depository institution
authorities which the certificates of deposit, short-term deposits or
long-term secured debt obligations, if any, of such depository
institution or trust company shall meet certain credit rating standards
of Duff & Phelps, Moody's and/or Standard & Poor's, as may be
applicable, or such time deposits are fully insured by the Federal
Deposit Insurance Corporation;
(c) certificates of deposit which meet, at the time of the trust's
investment or contractual commitment to invest therein, certain rating
standards of Duff & Phelps, Moody's and/or Standard & Poor's, as may be
applicable;
(d) investments in money market funds rated in the highest investment
category or otherwise approved, in writing by Duff & Phelps, Moody's
and/or Standard & Poor's; and
(e) investments in a Fidelity Fund Money Market Account;
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(2) demand deposits in the name of the trust or the trustee in any
depository institution or trust company referred to in (1)(b) above; and (3)
securities not represented by an instrument, which are registered in the name of
the trustee upon books maintained for that purpose by or on behalf of the issuer
thereof and which consists of shares of any open end diversified investment
company which is registered under the Investment Company Act of 1940, as
amended, and which meets certain other prescribed investment guidelines.
"Person" shall mean any legal person, including any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, governmental entity or other entity of
similar nature.
"Record date" shall mean with respect to any distribution date the last
business day of the preceding month.
"Requirements of law" for any legal person shall mean the certificate of
incorporation or articles of association or bylaws or other organizational or
governing documents of such person and any law, treaty, rule or regulation, or
determination of an arbitrator or governmental authority defined as the United
States of America or any state or local subdivision thereof, in each case
applicable to or binding upon such person or to which such person is subject
including, without limitation, the Federal Truth 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.
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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.
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TABLE OF CONTENTS
PAGE
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Summary................................... 1
Risk Factors.............................. 6
Glossary.................................. 13
Forward-Looking Statements................ 13
United, Capital, 21st Services and
the Trust............................... 13
Use of Proceeds........................... 27
Maturity Assumptions...................... 27
Plan of Distribution...................... 27
Description of the Certificates and
the Pooling and Servicing Agreement..... 29
Description of the Insurance
Settlements Purchase Agreement.......... 52
Legal Aspects of the Insurance Policies... 54
Federal Income Tax Consequences........... 56
ERISA Considerations...................... 61
No Market for the Certificates............ 63
Investment Company Act of 1940............ 63
Legal Matters............................. 63
Glossary.................................. 64
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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
UNITED FUNDS, LLC
CAPITAL RESOURCE GROUP ONE, LLC
21ST HOLDINGS, LLC
MASTER SERVICER OF
THE INSURANCE POLICIES
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PROSPECTUS
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PRYOR, COUNTS & CO., INC.
____________ , 2000
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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
NASD filing fee............................................ 15,500
Miscellaneous........................................... 2,000
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* Total.............................................. $405,200
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* The actual total will be filed by amendment.
ITEM 14. INDEMNIFICATION AND DIRECTORS AND OFFICERS.
Capital and United were formed under Delaware law. Pursuant to Section
18-108 of the Delaware Limited Liability Company Act, a Delaware limited
liability company may indemnify and hold harmless any member or manager or other
person from and against any and all claims and demands whatsoever, subject to
such standards and restrictions, if any, as are set forth in a limited liability
company operating agreement. Capital and United have no such restrictions.
Articles 4 and 5 of Capital's Amended Certificate of Formation and Articles
4 and 5 of United's Amended Certificate of Formation provide that no person
shall be liable to Capital or United for any loss or damage suffered by it on
account of any action taken or omitted to be taken by him as a manager or
officer of Capital or United in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the interests of Capital or United and the
conduct of the manager or officer did not constitute actual fraud, gross
negligence, or willful misconduct.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
3.1 Certificate of Formation of Capital Resource Group One, LLC.
3.1A Certificate of Amendment to Certificate of Formation of
Capital Resource Group One, LLC.
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3.1B Certificate of Amendment to Certificate of Formation of
United Funds, LLC (Filed herewith).
3.2 Bylaws of Capital Resource Group One, LLC. (Not Applicable)
3.2A Bylaws of United Funds, LLC. (Not Applicable)
4.1a 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.
4.2a Form of Certificate.
5.1 Opinion of Mesirov Gelman Jaffe Cramer & Jamieson, LLP, with
respect to legality. (Filed herewith).
8.1 Opinion of Mesirov Gelman Jaffe Cramer & Jamieson, LLP, with
respect to tax matters. (Filed herewith).
10.1a Placement Agent Agreement.
10.2a Insurance Settlements Purchase Agreement.
10.3a Master Servicer Agreement.
10.4 Escrow Agreement.
10.5 Agreement between Cullasaja Capital, Ltd. and United Funds, LLC.
24.1 Consent of Mesirov Gelman Jaffe Cramer & Jamieson, LLP
(included in opinion filed as Exhibit 5.1 and 8.1). (Filed
herewith).
25.1 Form T-1.
28.2 Form of Subscription Agreement.
(b) Financial Statement Schedules:
Not applicable with respect to the Registrants.
ITEM 17. UNDERTAKINGS.
The undersigned registrants on behalf of the trust or the trust hereby
undertake to provide to the placement agent on each closing date as specified in
the pooling and servicing agreement and the placement agent agreement,
certificates in such denominations and registered in such names as required by
the placement agent to permit prompt delivery to each purchaser.
THE UNDERSIGNED REGISTRANTS HEREBY UNDERTAKE:
(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)
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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 registrants 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
registrants pursuant to the foregoing provisions, or otherwise, the registrants
have 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 registrants of expenses incurred
or paid by directors, officers or controlling persons of the registrants 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 registrants 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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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this Amendment No. 4 to the Registration Statement to be signed
on their behalf by the undersigned, thereunto duly authorized, in the City of
Indianapolis, and State of Indiana, on the 24th day of May, 2000.
CAPITAL RESOURCE GROUP ONE, LLC UNITED FUNDS, LLC
By: /s/ THOMAS J. LARUSSA By: /s/ THOMAS J. LARUSSA
--------------------- ---------------------
Thomas J. LaRussa Thomas J. LaRussa
President President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
CAPITAL RESOURCE GROUP ONE, LLC
OFFICERS TITLE DATE
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/s/ THOMAS J. LARUSSA President May 24, 2000
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Thomas J. LaRussa
/s/ THOMAS J. LARUSSA Secretary May 24, 2000
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Thomas J. LaRussa
/s/ THOMAS J. LARUSSA Principal Financial Officer May 24, 2000
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Thomas J. LaRussa
MEMBERS
/s/ THOMAS J. LARUSSA Managing Member May 24, 2000
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Thomas J. LaRussa
UNITED FUNDS, LLC
OFFICERS TITLE DATE
-------- ----- ----
/s/ THOMAS J. LARUSSA President May 24, 2000
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Thomas J. LaRussa
/s/ THOMAS J. LARUSSA Secretary May 24, 2000
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Thomas J. LaRussa
/s/ THOMAS J. LARUSSA Principal Financial Officer May 24, 2000
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Thomas J. LaRussa
MEMBERS
/s/ THOMAS J. LARUSSA Managing Member May 24, 2000
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Thomas J. LaRussa
II-4
CERTIFICATE OF FORMATION
OF
UNITED FUNDS, LLC
**********
1. The name of the limited liability company is United Funds, LLC.
2. The address of its registered office in the State of Delaware is 1209
Orange Street, Wilmington, New Castle County, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of this 21st day of October, 1999.
UNITED FUNDS, LLC
By: /s/ Christine F. Pillo
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Christine F. Pillo
Sole Organizer
Exhibit 5.1
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May 24, 2000
United Funds, LLC
Capital Resource Group One, LLC
101 W. Ohio Street
PMB 2000
Indianapolis, IN 46204
Re: Insurance Settlements Funding Trust 2000
$150,000,000 Aggregate Principal Amount of
Insurance Policies Asset Backed Certificates
Registration Statement on Form S-1
File No. 333-90439
--------------------------------------------
Gentlemen:
We have acted as special counsel to United Funds, LLC and Capital Resource
Group One, LLC, each a Delaware limited liability company ("United") and
("Capital") in connection with the offering of up to One Hundred and Fifty
Million Dollars ($150,000,000) aggregate principal amount of _____ percent (__%)
and _____ percent (__%) Asset Backed Certificates (the "Certificates"), to be
issued from time to time by Insurance Settlements Funding Trust 2000 (the
"Trust") pursuant to the Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement"), to be entered among United, Capital, The Bank of New
York, as Trustee (the "Trustee") and 21st Holdings, LLC, as Master Servicer (the
"Master Servicer"). Capitalized terms not otherwise defined herein have the
meanings specified in the Pooling and Servicing Agreement.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records,
certificates and other instruments as we have deemed necessary or appropriate
for the purposes of this opinion, including (a) the Certificates of Formation of
Capital and United and the resolutions of the Board of Managers of Capital and
United, (b) the Insurance Settlements Purchase Agreement to be entered into
between United and Capital (the "Insurance Settlements Purchase Agreement"), (c)
the Pooling and Servicing Agreement, (d) the certificates representing the
Certificates, (e) the Registration Statement (the "Registration
<PAGE>
UNITED FUNDS, LLC
CAPITAL RESOURCE GROUP ONE, LLC
May 24, 2000
Page 2
Statement") on S-1 filed with the Securities and Exchange Commission
("Commission") for registration of the Certificates under the Securities Act of
1933, as amended (the "Securities Act"); and (f) the related Prospectus to be
filed with the Commission as a part of the Registration Statement
("Prospectus").
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the original of such copies. We have also assumed
the correctness and completeness of the statements made in the documents
submitted to us.
Our opinion is based upon the laws and documents examined as they exist as
of the date of this opinion and any modification, repeal, amendment, or
authoritative interpretation of the laws or modification or amendment to the
documents occurring subsequent to the date of this opinion may cause our opinion
to vary from that set forth below.
Based upon such examination, and relying solely upon the foregoing, subject
to the assumptions, exceptions, comments, and qualifications herein expressed
and limited in all respects to the laws of the State of Delaware and federal
law, we are of the opinion that:
1. United and Capital have been duly formed, validly existing, and in good
standing under the laws of the State of Delaware, have corporate power and
authority to own their property and conduct their businesses and to enter into
and perform its obligations under the Insurance Settlements Purchase Agreement
and the Pooling and Servicing Agreement. Capital has full power and authority to
originate the Trust and execute the Certificates as contemplated by the Pooling
and Servicing Agreement.
2. The Pooling and Servicing Agreement and the Insurance Settlements
Purchase Agreement have each been duly authorized by United and Capital and,
assuming the due authorization, execution and delivery thereof by each of the
parties thereto, the Pooling and Servicing Agreement and the Insurance
Settlements Purchase Agreement each constitute a legal, valid and binding
obligations of United and Capital enforceable against United and Capital in
accordance with their terms (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency,
<PAGE>
UNITED FUNDS, LLC
CAPITAL RESOURCE GROUP ONE, LLC
May 24, 2000
Page 3
moratorium or other laws affecting creditors' rights generally as to the same
may relate to United and Capital and to general equitable principles).
3. The Certificates when issued and executed in accordance with the terms
of the Pooling and Servicing Agreement will be duly authorized and, assuming due
authentication thereof by the Trustee in accordance with the Pooling and
Servicing Agreement, will be entitled to the benefits of the Pooling and
Servicing Agreement and will be enforceable in accordance with its terms and,
when sold, will be legally issued, fully paid, non-assessable (subject, as to
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium or other laws affecting creditors' rights generally and to general
equitable principles).
4. No consent, approval, authorization or order of, or filing with, any
court or governmental agency or body is required in connection with the
execution, delivery and performance by United and Capital of the Pooling and
Servicing Agreement and the Insurance Settlements Purchase Agreement or in
connection with the issuance or sale of the Certificates, except such as may be
required under state blue sky laws, and the Securities Act, and except that no
Certificate can be issued, sold, purchased, or offered for sale or purchase
prior to the date that the Registration Statement has been declared effective by
the Commission.
5. Issuance and sale of the Certificates in the manner contemplated by the
Pooling and Servicing Agreement will not cause the Trust to be required to be
registered under the Investment Company Act of 1940.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the summarization of this opinion in the
Prospectus.
We are attorneys admitted to the Bar in the Commonwealth of Pennsylvania,
and we express no opinion as to the law of any jurisdiction, other than the
corporate law of the State of Delaware and federal law.
Very truly yours,
Mesirov Gelman Jaffe Cramer &
Jamieson, LLP
Exhibit 8.1
May 24, 2000
United Funds, LLC
Capital Resource Group One, LLC
101 W. Ohio Street
PMB 2000
Indianapolis, IN 46204
Re: $150,000,000 Aggregate Principal Amount of
Insurance Policies Asset Backed Certificates
Gentlemen:
You have requested our opinion as to the material federal income tax
consequences of purchasing, holding and depositing of the certificates pursuant
to the Pooling and Servicing Agreement (the "Agreement") to be entered into
among Capital Resource Group One, LLC ("Capital"), as Originator of the
Insurance Settlements Funding Trust 2000 (the "Trust"), United Funds, LLC
("United"), as Subservicer, 21st Holdings, LLC, as Master Servicer (the "Master
Servicer"), and The Bank of New York, as Trustee ("Trustee"). Specifically, you
have asked whether the certificates acquired by investors (the "Certificates")
will be characterized as indebtedness of Capital for federal income tax purposes
and whether the Trust will be subject to federal income taxation. It is our
opinion, as described below, that the Certificates will be characterized as
evidences of indebtedness of Capital for federal income tax purposes and that
the Trust will not be subject to federal income taxation.
In connection with your request, you have furnished us with definitive
copies of or the most recent drafts of (i) the preliminary prospectus (the "
Prospectus") that is part of Amendment No. 4 of the Registration Statement to be
filed with the Securities Exchange Commission, (ii) the Agreement, (iii) the
Insurance Settlements Purchase Agreement to be entered into between United and
Capital, and (iv) such other documents and instruments as we have deemed
necessary or relevant (collectively referred to as the "Documents").
Our opinion is also based upon the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury Regulations (the "Regulations") promulgated
thereunder, and published judicial and administrative decisions with respect
thereto, all as of the date of this letter. Any modification, repeal, amendment
or authoritative interpretation of the Code or the Regulations or modification
or amendment to the Documents occurring subsequent to the date of this letter
may cause our opinion to vary from that set forth below. In addition, our
opinion is not binding on the courts or the Internal Revenue Service ("IRS") and
there can be no assurance that positions contrary to those stated in our opinion
would not be taken by the IRS or that any such contrary
<PAGE>
position would not be sustained by a court of law. No tax ruling will be
requested with respect to the transaction discussed herein.
The terms used herein, unless otherwise defined herein, shall have the
definitions as set forth in the Prospectus.
Description of Transaction
Capital was formed in the State of Delaware in 1999 and is an affiliate of
United. Capital was organized for the restricted, limited purpose of forming the
Trust, purchasing the Insurance Policies from United, transferring an
irrevocable beneficial interest in the Insurance Policies to the Trust, and for
incidental or necessary purposes related to the foregoing. In connection with
the issuance of the Certificates, United will sell the Insurance Policies to
Capital and Capital will transfer an irrevocable beneficial interest in the
Insurance Policies to the Trust.
Pursuant to the Pooling and Servicing Agreement, Capital will transfer an
irrevocable beneficial interest in the Insurance Policies to the Trust in
exchange for the proceeds obtained from the offering of the Certificates.
Capital will pay to United the funds received from the Trust in consideration
for the transfer of the Insurance Policies to Capital. The Certificates will be
executed by Capital and authenticated by the Trustee.
Interest will accrue on the Certificates at a fixed rate and will be
payable semi-annually. Certificate Principal shall be due and payable no later
than the Final Maturity Date. Prepayments of Certificate Principal will be made
in the event of the occurrence of a Pay Out Event. Any assets remaining in the
Trust after all interest and principal payments will be the property of Capital.
Collections on the Insurance Policies will be allocated to the Insurance
Settlements Account. The amount advanced to United will not exceed eighty
percent (80%) of the face amount of the Insurance Policy.
Collections represent face amount attributable to an Insurance Policy after
an insured has died. Collections will be distributed from the Insurance
Settlements Account in the following order of priority: Trustee's Fees and
expenses; Certificate Interest and Certificate Principal, if applicable; the
Subservicer's Fee; Master Servicer's Fees; and amounts payable to
Certificateholders for Deficiency Amounts of Certificate Interest. If
Collections are insufficient to pay the foregoing, the Trustee will withdraw
funds from the Liquidity Account to cover any deficiency, to the extent such
funds are available. If the amount in the Liquidity Account is insufficient to
cover Certificate Interest, the amount of such unpaid deficiency (referred to as
the "Deficiency Amount") will be payable in later months from Collections then
collected.
All interest and other earnings on the Lockbox Account, Liquidity Account
and Insurance Settlements Account will accrue for the benefit of the
Certificateholders.
(2)
<PAGE>
The facts set forth in the Registration Statement as of the date hereof are
incorporated herein and have been specifically relied on as a basis for this
opinion.
Based on and subject to the foregoing and subject to the analysis set forth
below, this firm is of the opinion that, for federal income tax purposes,
Capital is properly treated as the owner of the Insurance Policies and the
Certificates will be characterized as evidences of indebtedness of Capital
secured by the Insurance Policies.
Federal Income Tax Characterization
of Certificates as Debt of Capital
For federal income tax purposes, a transaction will generally be governed
by the economic substance of the transaction, rather than the form. See, e.g.,
Helvering v. Lazarus & Co., 308 U.S. 252 (1939); Rev. Rul. 61-181, 1961-2 C.B.
21. Whether a transfer of property is, in economic substance, a secured loan or
a sale depends on whether the transferor has retained "substantial incidents of
ownership" with respect to the property. See, Town and County Food Co., Inc. v.
Commissioner, 51 T.C. 1049 (1969), acq. 1969-2 C.B. XXV. As discussed below, the
courts and the IRS have identified several factors to determine which party to
the transaction possesses the substantial incidents of ownership. See, United
States Surgical Steel Co. v. Commissioner, 54 T.C. 1215 (1970), acq. 1971-2 C.B.
3; Town and Country Food Co., Inc., supra; G.C.M. 39584 (Dec. 3, 1986).
1. Risk of Loss
One of the primary factors utilized by the courts and the IRS is which
party to the transaction bears the risk of loss with respect to the transferred
assets. Illinois Power Co. v. Commissioner, 87 T.C. 1417 (1986). This factor
requires an analysis of whether Capital or the Certificateholders possess the
risk of loss in the event of a default of the Insurance Policies.
Pursuant to the Pooling and Servicing Agreement, after all interest and
principal payments have been made to Certificateholders, all assets remaining in
the Trust will be the property of Capital. To the extent that funds from the
Insurance Settlements Account and Liquidity Account will be used to pay
principal and interest, the amount of residual assets available for distribution
to Capital will be reduced. Of course, the possibility exists that interest and
principal payments could exceed the amount of the two above-described sources
(i.e., Insurance Settlements Account and the Liquidity Account) available to
protect the Certificateholders from any loss. However, these two sources have
been determined to be in such amounts that the Certificateholders are protected
from much of the risk of loss from a default on the Insurance Policies.
Therefore, the risk of loss on a default of the Insurance Policies lies
principally with Capital, rather than the Certificateholders.
The Certificateholders have certain other protections from any risk of
loss. Certificate Interest will be funded from Collections attributable to
Insurance Policies. Except for Trustee's Fees, Certificate Interest has priority
to any amounts that accumulate in the Insurance Settlements Account. The
Trustee's Fees are anticipated to be a minor amount in comparison to
(3)
<PAGE>
the anticipated accumulations in the Insurance Policies Account. This factor
mitigates against any potential risk of loss to the Certificateholders with
respect to the Insurance Policies.
In addition, funds in the Liquidity Account will be available as additional
security to offset any deficiency in the distribution of Certificate Interest.
The Liquidity Account will initially be funded with a portion of the offering
proceeds equal to twenty percent (20%) of the principal amount of the
outstanding Certificates. Thus, the Liquidity Account provides additional
security and further mitigates against any risk of loss to the
Certificateholders. In fact, in the event funds are drawn out of the Liquidity
Account to cover a deficiency in priority distributions from Insurance Policies,
to the extent such funds are later replenished, these funds will reduce the
amount of assets payable to Capital, thereby imposing the risk of loss on
Capital.
In summary, based on the factors and relevant authority discussed above, as
between Capital and the Certificateholders, Capital bears the risk of loss with
respect to a default in the Insurance Settlements.
2. Opportunity for Gain
Another factor emphasized by the court and the IRS rulings in determining
whether a transaction is properly classified as a secured loan or a sale is
which of the parties has the opportunity to realize gain from an appreciation in
the transferred assets. United Surgical Steel Co., supra; Town and Country Food
Co., supra; G.C.M. 39584 (Dec. 3, 1986).
The rate of return to the Certificateholders is fixed at the time the
Certificates are issued. The Certificateholders are entitled to this fixed
interest and a return of the Certificate Principal. In G.C.M. 39584 (Dec. 3,
1986), the IRS noted that an interest charge is a reflection of the time value
of money and is not in the nature of a profit on the transaction.
Capital, on the other hand, retains the opportunity to realize any gains on
the transaction. Capital is entitled to the residual amount of assets, which are
the funds and Insurance Policies remaining in the Insurance Settlements Account
and Liquidity Account after payment of Certificate Interest and various other
fees and charges. In addition, the value of the Insurance Policies may also
increase if there death benefits are paid earlier than anticipated. This value
would also potentially be realized by Capital by increasing the residual amount
of assets remaining in the Trust.
In summary, the Certificate Interest is a factor of the time value of money
for the use of the Certificateholder's money and is not in the nature of profits
or gains. The real economic gains from the transaction would be attributable to
the residual Insurance Policies and funds that are anticipated to accumulate.
These gains will be realized by Capital and are a further indication that the
transaction should be classified as a secured loan arrangement.
3. Other Factors
A number of other factors have been utilized by the courts and the IRS in
determining whether a transaction is in substance a secured loan or a sale. The
terms of the collateral and the
(4)
<PAGE>
debt obligation are often examined in purported loan transactions. Differences
in the principal amounts, payment terms, and maturity dates are factors
indicating a true debt arrangement. See, Town and Country Food Co., supra.
The face amount of the irrevocable beneficial interest in Insurance
Policies that are transferred to the Trust by Capital will be substantially
greater than the principal amount of the Certificates. The payment terms on the
Insurance Policies and the Certificates are also different. Payments on the
Insurance Policies will be received continuously throughout the term of the
Certificates, whereas Certificate Principal will generally not be paid until the
Final Maturity Dates. Finally, the Certificates will accrue interest at a stated
rate whereas interest will not accrue on the Insurance Policies. These
differences in the terms of the Insurance Policies and Certificates are a factor
indicating a loan arrangement between Capital and the Certificateholders.
The courts have also examined transactions to determine which party has the
right to possession and control of the transferred property. If the transferor
retains these rights, this is a factor indicating a loan transaction. The
Subservicer will retain possession of all records relating to the Insurance
Settlements for the benefit of Capital and Capital will retain title to the
Insurance Policies. In addition, the Subservicer will collect payments on the
Insurance Policies. Furthermore, the Subservicer will perform all other
servicing requirements with respect to the Insurance Policies. The Subservicer
will bear the costs and expenses related to these duties and will be paid an
annual fee. These facts lend additional support to the characterization of the
transaction as a financing arrangement.
The Subservicer is obligated to prepare and submit records to be inspected
by the Trustee that set forth the total collections processed by the Subservicer
and the aggregate amount of Insurance Policies. This type of inspection right is
a right commonly found in a secured financing transaction.
In summary, Capital bears the risk of loss and retains the opportunity to
realize any gains on the transaction. The other factors discussed above lend
additional support to the characterization of the transaction as a secured
financing arrangement. Based on the application of these factors to the proposed
transaction, we are of the opinion that the Certificates will be characterized
as a secured loan between Capital and the Certificateholders.
Substance over Form
The federal income tax consequences of the Certificates as evidences of
indebtedness of Capital depends on the substance of the transaction determined
from an analysis of the facts and circumstances as related in the documentation
effecting the transaction, the intent of the parties and the retention or
shifting of the burdens and benefits of ownership. If the form and substance of
a transaction are consistent, and the parties to the transaction treat them
consistently, the characterization would generally be unequivocal and conclusive
for federal income tax purposes. If the form and substance of a transaction
differ in material respects, an issue arises as to whether the taxpayer or the
government may seek to disregard the form of the transaction and rely upon the
substance of the transaction in order to sustain the proposed characterization
for federal income tax purposes.
(5)
<PAGE>
We are of the opinion that the Certificates are in substance evidences of
indebtedness of Capital and the form of the transaction should not be viewed as
inconsistent with that characterization in any material respect.
The Pooling and Servicing Agreement, the Preliminary Prospectus and the
Certificates clearly state the intention of Capital and the Certificateholders
that the Certificates will be treated as indebtedness of Capital for federal,
state and local income and business tax purposes.
The Pooling and Servicing Agreement provides that Capital will transfer an
irrevocable beneficial interest in the Insurance Policies to the Trust. The
transfer of beneficial interest to collateral securing a loan is a common
characteristic of transactions utilizing secured financing. See, e.g., Helvering
v. Lazarus & Co., 308 U.S. 252 (1939). Therefore, the transfer of the beneficial
interest from Capital to the Trust is consistent with the parties
characterization of the transaction as secured financing.
The obligation of the Certificateholders is in the form of a trust
certificate rather than a promissory note. However, an examination of the rights
conferred by the Certificates reveals that the Certificates are in reality a
debt instrument. The Certificateholder is only entitled to a return of principal
and stated interest as is characteristic with a debt obligation. Although the
Certificates state that they represent an undivided interest in the Trust, the
Certificateholders do not benefit from any enhancement in the value of assets of
the Trust. Under facts that are analogous to the present situation, the IRS has
recognized that trust certificates were in reality a debt obligation. Rev. Rul.
61-181, 1961-2 C.B. 21. Thus, the form of the Certificates is consistent with
the characterization of the Certificates as a debt obligation of Capital.
Capital will report the transaction for financial accounting purposes as a
sale of the Insurance Policies, as opposed to a secured financing arrangement.
However, the United States Supreme Court has recognized that different concerns
and objectives are involved with respect to financial accounting and the income
tax laws and that the two may produce different results from the same
transaction. See, Thor Power Tool Co. v. Commissioner, 439 U.S. 522 (1979);
Frank Lyon Co. v. United States, 435 U.S. 561 (1978). In Frank Lyon, the Supreme
Court stated that "the characterization of a transaction for financial
accounting purposes . . . and for tax purposes . . . need not necessarily be the
same." 435 U.S. at 577. Thus, treatment of the transaction as a sale for
financial accounting purposes is not necessarily inconsistent with treatment as
a financing transaction for federal income tax purposes.
Although the factors discussed above relating to the form of the
transaction could initially be viewed as inconsistent with debt treatment, a
closer examination reveals that the form should not be viewed as conflicting
with the characterization of the substance of the transaction as secured
financing arrangement. However, even if a determination were made that the form
was inconsistent with the substance of the transaction, the substance should
nevertheless control the characterization for federal income tax purposes.
It is a general principal of federal income tax law that a transaction will
be governed by the economic substance rather than the form. Gregory v.
Helvering, 293 U.S. 465 (1935). If the substance and the form of a transaction
are inconsistent, courts will usually disregard the form
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and characterize the transaction according to its substance. Moreover, some
courts have permitted parties to treat a transaction in accordance with its
economic substance in instances where a different form is utilized for non-tax
purposes. Helvering v. Lazarus & Co., 308 U.S. 252 (1939); Gatlin v.
Commissioner, 34 B.T.A. 50 (1936). See also, Rev. Rul. 61-81, 1961-2 C.B. 21.
In Commissioner v. Danielson, 378 F.2d 771 (3rd Cir. 1967) the court held
that the parties were bound by the form of the transaction and could not
introduce evidence that the economic substance was inconsistent with such form.
Danielson dealt with a stock purchase contract that allocated a portion of the
purchase price to a covenant not to compete. The court refused to allow the
taxpayer to disregard the contract allocation. The court was concerned with the
competing tax consideration between the parties to the contract and the fact
that the IRS would be forced to litigate against both parties if one party were
allowed to disregard the contract terms. However, subsequent court decisions
have refused to follow the Danielson case in situations where there are no
competing tax considerations between the parties to the transaction. See, e.g.,
Comdisco, Inc. v. United States, 756 F.2d 569 (7th Cir. 1985); Cubic Corporation
v. United States, 74-2 USTC 9667 (S.D. Cal. 1974), aff'd, 541 F.2d 829 (9th Cir.
1976).
In the event that the form of transaction contemplated by the Pooling and
Servicing Agreement was viewed as inconsistent with the underlying economic
substance, the Danielson decision should not bind the parties to such form. The
parties to the transaction do not have the competing tax considerations that
prompted the holding in Danielson. Furthermore, the parties to the Pooling and
Servicing Agreement have expressly agreed to treat the transaction as a secured
financing arrangement. Where the form of a transaction is ambiguous, several
courts have held Danielson is inapplicable and that the characterization of the
transaction for federal income tax purposes should be determined on the basis of
the economic substance of the transaction as determined by review of all of the
facts and circumstances and not just the labels used by the parties. See, Elrod
v. Commissioner, 87 T.C. 1046, 1064-70 (1986); Smith v. Commissioner, 82 T.C.
705, 713-16 (1984). Therefore, economic substance should control the
characterization for federal income tax purposes and Danielson should not apply
to cause the form to govern the characterization of the transaction.
In summary, the form of the transaction for federal income tax purposes
should not be viewed as inconsistent with the economic substance of the
transaction as a secured financing arrangement. However, even if the substance
and form of the transaction were determined to be inconsistent, the economic
substance should control the characterization issue. As discussed above, the
economic substance of the transaction is a secured financing arrangement by
Capital.
Characterization of the Trust
If the transaction contemplated by the Pooling and Servicing Agreement is
properly characterized as a secured financing arrangement between Capital and
the Certificateholders, then the Trust can be disregarded for federal income tax
purposes. In analogous situations involving debt transactions utilizing
certificates in trust, the IRS has disregarded the trust and
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viewed the transaction as a security arrangement. See, Rev. Rul. 76-265, 1976-2
C.B. 448; Rev. Rul. 61-181, 1961-2 C.B. 21. See also, Treas. Regs.ss.1.61-13(b).
Under the present facts, the responsibilities of the Trustee under the
Agreement are largely ministerial, except in certain default situations. These
responsibilities include (i) authentication of the Certificates under the
Agreement, (ii) issuing the Certificates and applying the proceeds, and (iii)
overseeing the retirement of the Certificates. By analogy to the deed of trust
situation, the Trustee can be viewed as a mere agent of the Certificateholders
in which Capital has transferred an irrevocable beneficial interest to the
Insurance Policies to the Trustee/Agent to serve as security for the
Certificates.
Based on the application of the rationale of the revenue rulings cited
above to the facts in the present situation, we are of the opinion that the
Trust will be disregarded for federal income tax purposes. We express no opinion
on the state, local or foreign tax consequences that may arise herein. We hereby
undertake to update this opinion, as necessary, during the course of the
offering period.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the use of this firm's name under the caption
"Federal Income Tax Consequences" in the Prospectus included in the Registration
Statement, and to the summarization of this opinion in the Prospectus.
Very truly yours,
Mesirov, Gelman, Jaffe, Cramer & Jamieson, LLP
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