-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uy7tuzSeuf9RmAlPMOSWiISd9ZGclmoeaRIacTb8oIBhzx00HycOWU+SVEWa0fwL FtzNWpSASa/7uX1yeJ/mDQ== /in/edgar/work/20000706/0000719271-00-000006/0000719271-00-000006.txt : 20000920 0000719271-00-000006.hdr.sgml : 20000920 ACCESSION NUMBER: 0000719271-00-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000706 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSFINANCIAL HOLDINGS INC CENTRAL INDEX KEY: 0000719271 STANDARD INDUSTRIAL CLASSIFICATION: [4213 ] IRS NUMBER: 460278762 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12070 FILM NUMBER: 668491 BUSINESS ADDRESS: STREET 1: 8245 NIEMAN ROAD, STE 100 STREET 2: SUITE 100 CITY: LENEXA STATE: KS ZIP: 66214 BUSINESS PHONE: 9138590055 MAIL ADDRESS: STREET 1: 8245 NIEMAN ROAD STREET 2: SUITE 100 CITY: LENEXA STATE: KS ZIP: 66214 FORMER COMPANY: FORMER CONFORMED NAME: ANUHCO INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN CARRIERS INC DATE OF NAME CHANGE: 19910812 10-K 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Year Ended December 31, 1999 Commission File Number - 1-12070 TRANSFINANCIAL HOLDINGS, INC. State of Incorporation - Delaware IRS Employer Identification No. - 46-0278762 8245 Nieman Road, Suite 100, Lenexa, Kansas 66214 Telephone Number - (913) 859-0055 Securities Registered Pursuant to Section 12(b) of the Act Name of Each Exchange Title of Each Class on Which Registered TransFinancial Holdings, Inc. Common Stock, American Stock Exchange par value $0.01 per share, Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Common Stock held by non-affiliates of TransFinancial Holdings, Inc. as of June 16, 2000, was $4,288,000 based on the last sale price on the American Stock Exchange prior to that date. The number of outstanding shares of the registrant's common stock as of June 16, 2000 was 3,278,291 shares. FORWARD-LOOKING STATEMENTS The Company believes certain statements contained in this Annual Report on Form 10-K that are not statements of historical fact may constitute forward- looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These statements can often be identified by the use in such statements of forward-looking terminology, such as "believes," "expects," "may," "will," "should," "could," "intends," "plans," "estimates," or "anticipates," or the negative thereof, or comparable terminology. Certain of the forward-looking statements contained herein are marked by an asterisk ("*") or otherwise specifically identified herein. These statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements" for additional information and factors to be considered concerning forward-looking statements. PART I ITEM 1. BUSINESS. TransFinancial Holdings, Inc. ("TransFinancial" or the "Company"), is headquartered in Lenexa, Kansas, and is a Delaware holding company formed in April, 1976. TransFinancial operates in three industry segments; transportation, financial services and industrial technology. Financial information about the Company's operating industry segments is presented in Note 1 of Notes to Consolidated Financial Statements. TRANSPORTATION The Company operates in transportation through its subsidiary, TFH Logistics & Transportation Services, Inc. ("TFH L&T"), which is a holding company for the Company's transportation operating subsidiaries. TFH L&T has two principal subsidiaries, Crouse Cartage Company ("Crouse"), which was acquired in 1991, and Specialized Transport, Inc. ("Specialized"), a newly formed subsidiary. Most of the Company's transportation operations are conducted through Crouse. In 1999, the Company reorganized its transportation operations by transferring its truckload operations from Crouse to Specialized. Crouse, headquartered in Lenexa, Kansas, is a regional motor common carrier of general commodities in less-than-truckload ("LTL") quantities in 15 states in the north central and mid-west portion of the United States. Crouse has entered into strategic partnership arrangements with other regional LTL carriers that enables Crouse to offer its customers service in the southeast, and northwest states and Canada. LTL shipments are defined as shipments weighing less than 20,000 pounds. LTL carriers are referred to as regional, inter-regional or national motor carriers, based upon length of haul. Carriers with average lengths of haul less than 500 miles are referred to as regional carriers. Carriers with average lengths of haul between 500 and 1,000 miles are referred to as inter-regional carriers. National carriers generally operate coast-to-coast and have average lengths of haul that exceed 1,000 miles. In the motor carrier business, revenue is a function of volume and pricing and is frequently described in relation to weight. Crouse tracks revenue per hundredweight (pounds divided by 100) as a measure of pricing or rate trends. In addition to pricing, the average revenue per hundredweight is also a function of the weight per shipment, length of haul and commodity mix. LTL carriers can improve profitability by increasing lane and terminal density. Increased lane density, by increasing the percentage of trailer capacity filled with freight on scheduled routes or lanes, lowers unit operating costs. Increased terminal density, by increasing the amount of freight handled at a given terminal location, improves utilization of fixed assets. LTL shipments must be handled rapidly and carefully in several coordinated stages. Local drivers operating from Crouse's network of 63 service locations pick up shipments from customers. The freight is transported to a terminal, loaded into intercity trailers, carried by linehaul drivers to the terminal which services the delivery area, transferred to trucks or trailers and then delivered to the consignee by local drivers. Much of Crouse's LTL freight is handled and/or transferred through one of three centrally located "break bulk" terminals between the origin and destination service areas. LTL operations require substantial equipment capabilities and an extensive network of terminal facilities. Accordingly, LTL operations, compared to truckload shipments and operations, command higher rates per hundredweight shipped and have tended historically to be less vulnerable to competition from other forms of transportation such as railroads. Crouse's operations typically allow it to provide next day service (delivery on the day after pickup) for much of the LTL freight it handles. TFH L&T also offers motor common carrier service for truckload quantities of general and perishable commodities throughout the 48 contiguous United States through its subsidiary, Specialized. TL shipments transported in one movement from origin to destination without requiring handling through terminal or "break bulk" facilities. The following table sets forth certain financial and operating data with respect to TFH L&T:
1999(3) 1998(3) 1997(3) 1996(3) 1995(3) Revenue (000's).................................. $ 149,125 $ 144,592 $ 126,062 $ 107,502 $ 95,152 Operating Income (000's)......................... (6,434) 1,321 3,136 2,915 3,970 Operating Ratio (1).............................. 104.3% 99.1% 97.5% 97.3% 95.8% Number of Shipments (000's) - Less-than-truckload ........................... 1,228 1,166 1,076 952 742 Truckload ............................... 23 23 31 27 32 Revenue per Hundredweight - Less-than-truckload ........................... $ 8.73 $ 8.59 $ 9.25 $ 8.84 $ 9.25 Truckload ............................... 1.94 1.93 2.09 2.04 2.30 Tonnage (000's) - Less-than-truckload ........................... 757 743 570 503 402 Truckload ............................... 437 440 495 461 451 Intercity Miles Operated (000's)................. 61,235 60,848 51,952 44,523 39,424 At Year-End, - Terminals (2) ............................... 63 68 66 55 54 Tractors and trucks ........................... 701 684 631 585 527 Trailers ...................................... 1,631 1,501 1,417 1,194 1,004 Employees ............................... 1,440 1,338 1,287 1,113 945 Notes: (1) Operating ratio is the percent of operating expenses to operating revenue. (2) Includes owned, leased, agent and other operating locations. (3) Effective in 1998 the Company prospectively changed its classification of certain shipments, related tonnage and revenues between less-than-truckload and truckload which affects the comparability of this data with 1995 through 1997 information. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations" for a more detailed discussion of this change.
SEASONALITY TFH L&T's quarterly operating results, as well as those of the motor carrier industry in general, fluctuate with the seasonal changes in tonnage levels and with changes in weather-related operating conditions. Tonnage levels are generally highest from August through October. A smaller peak also generally occurs in April through June. Inclement weather conditions during the winter months adversely affect the number of freight shipments and increase operating costs. INSURANCE AND SAFETY TFH L&T is self-insured for the first $100,000 of losses per occurrence with respect to public liability, property damage, workers' compensation, cargo loss or damage, fire, general liability and other risks. In addition, TFH L&T maintains excess liability coverage for risks over and above the self-insured retention limits. In the opinion of management, all claims pending against TFH L&T are adequately reserved under its self-insurance program, or are fully covered by outside insurance.* Because most risks are largely self-insured, TFH L&T's insurance costs are primarily a function of the success of its safety programs and less subject to increases in insurance premiums. TFH L&T conducts a comprehensive safety program to meet its specific needs. COMPETITION The motor carrier industry is highly competitive and fragmented. TFH L&T competes on the basis of both price and service with other regional LTL motor common carriers and, to a lesser degree, with contract and private carriage. Such competition has resulted in a proliferation of discount programs among competing carriers. TFH L&T negotiates rate discounts on an account by account basis, taking into consideration the cost of services relative to the net revenue to be obtained, the competing carriers and the need for freight in specific traffic lanes. For freight moving over greater distances, TFH L&T must compete with national and large inter-regional carriers and, to a lesser extent, with truckload carriers, railroads and overnight delivery companies. REGULATION The interstate operations of TFH L&T are subject to regulation by the Department of Transportation ("DOT") and a panel within the DOT, the Surface Transportation Board ("STB"). Motor carriers are required to register with the DOT. Registration is granted by the DOT upon showing safety, fitness, financial responsibility and willingness to abide by DOT regulations. The trucking industry remains subject to the possibility of regulatory and legislative changes that can influence operating practices and the demands for and the costs of providing services to shippers. Interstate motor carrier operations are subject to safety requirements prescribed by DOT, while such matters as the weight and dimensions of equipment are also subject to Federal and state regulations. Professional truck drivers must be licensed to operate commercial vehicles in compliance with the DOT regulations, and are subject to strict drug testing standards. These requirements increase the safety standards for conducting operations, but add administrative costs and have affected the availability of qualified, safety conscious drivers throughout the trucking industry. TFH L&T is subject to state public utility commissions and similar state regulatory agencies with respect to safety and financial responsibility in its intrastate operations. TFH L&T is also subject to safety regulations of the states in which it operates, as well as regulations governing the weight and dimensions of equipment. TFH L&T's operations are also subject to various federal, state and local environmental laws and regulations governing the transportation, storage, presence, use, disposal and handling of hazardous materials and the maintenance of underground fuel storage tanks. Management does not know of any existing condition that would cause compliance with applicable environmental regulations to have a material effect on the Company's financial condition or results of operations.* In the event that the Company should fail to comply with applicable laws and regulations, the Company could be subject to substantial liability.* For a discussion of facilities used by Crouse which maintain underground fuel storage tanks, see Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition." EMPLOYEES At December 31, 1999, TFH L&T employed 1,440 persons, of whom 1,068 were drivers, mechanics, dockworkers or terminal office clerks. The remaining employees were engaged in managerial, sales and administrative functions. Approximately 75% of its employees, including primarily drivers, dockworkers and mechanics, are represented by the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America ("Teamsters Union") or other local unions. TFH L&T, through its subsidiaries Crouse and Specialized, and the Teamsters Union are parties to the National Master Freight Agreement ("NMFA") which expires on March 31, 2003. TFH L&T achieved ratification in 1998 of new five-year pacts with the International Brotherhood of Teamsters or other local unions covering substantially all of its union employees. In 1999, after a one-day work stoppage at one of its principal terminals, the remaining locals agreed to contracts with terms comparable to the national contract. The new contracts generally provide for all of the terms of the NMFA with a separate addendum for wages. TFH L&T will continue to maintain past work rules, practices and flexibility within its operating structure. TFH L&T, as employer signatory to the NMFA, must contribute to certain pension plans established for the benefit of employees belonging to the Teamsters Union. Amendments to the Employee Retirement Income Security Act of 1974 ("ERISA") pursuant to the Multiemployer Pension Plan Amendments Act of 1980 (the "MPPA Act") substantially expanded the potential liabilities of employers who participate in such plans. Under ERISA, as amended by the MPPA Act, an employer who contributes to a multiemployer pension plan and the members of such employer's controlled group may be jointly and severally liable for their proportionate share of the plan's unfunded liabilities in the event the employer ceases to have an obligation to contribute to the plan or substantially reduces its contributions to the plan (i.e., in the event of plan termination or withdrawal by TFH L&T from the multiemployer plans). TFH L&T's estimated share of the unfunded benefits for these plans is reported to be approximately $8.5 million as of December 31, 1998, based on the limited information presently available from the plans' administrators.* Under provisions of the former NMFA, Crouse maintained a profit sharing program for all employees from 1988 through September 1998 ("Profit Sharing"). Profit Sharing was structured to allow all Crouse employees to ratably share 50% of Crouse's income before income taxes (excluding extraordinary items and gains and losses on the sale of assets) in return for a 15% reduction in wages. The profit sharing program was not extended in the new contract ratified in 1998. The new contract includes a separate wage reduction provision that specifies wage rates below those provided in the NMFA. FINANCIAL SERVICES The Company operates in financial services primarily through its subsidiary, Universal Premium Acceptance Corporation ("UPAC") which was acquired on March 29, 1996 and merged operations with Agency Premium Resource, Inc. ("APR") which was acquired May 31, 1995. On May 29, 1998, UPAC acquired Oxford Premium Finance, Inc. ("Oxford") and merged Oxford's operations with UPAC's. UPAC, headquartered in Lenexa, Kansas, is engaged in the business of financing the payment of insurance premiums. UPAC offers financing of insurance premiums primarily to commercial purchasers of property and casualty insurance who wish to pay their insurance premiums on an installment basis. Whereas some insurance carriers require advance payment of a full year's premium, UPAC allows the insured to spread the payment of the insurance premium over time. UPAC finances insurance premiums without assuming the risk of claims loss borne by insurance carriers. When insureds buy an insurance policy from an independent insurance agency or broker who offers financing through UPAC, the insureds generally pay a down payment of 20% to 25% of the total premium and sign a premium finance agreement for the balance, which is generally payable in installments over the following nine months. Under the terms of UPAC's standard form of financing contract, UPAC is given the power to cancel the insurance policies if there is a default in the payment on the finance contracts and to collect the unearned portion of the premiums from the insurance carrier. The down payments are usually set at a level determined, in the event of cancellation of a policy, such that the unearned premiums returned by insurance carriers are expected to be sufficient to cover the loan balances plus interest and other charges due to UPAC. UPAC currently does business with more than 2,700 insurance agencies or brokers, the largest of which referred approximately 6% of the total premiums financed by UPAC in 1999. The following table sets forth certain financial and operating data with respect to UPAC since the entry into this segment by TransFinancial in May 1995: 1999 1998 1997 1996 1995 Premiums financed (000's) $190,582 $160,773 $ 122,981 $120,355 $ 37,852 UPAC had 50 employees at December 31, 1999. REGULATION UPAC's operations are governed by state statutes, and regulations promulgated thereunder, which provide for the licensing, administration and supervision of premium finance companies. Such statutes and regulations impose significant restrictions on the operation of UPAC's business. The Federal Truth in Lending statute also governs a portion of the format of UPAC's premium finance agreements. UPAC currently operates as an insurance premium finance company in the 48 contiguous states under state licenses it holds or under foreign corporation qualification in states that do not require licensing of insurance premium finance companies. UPAC generally must renew its licenses annually. UPAC is also subject to periodic examinations and investigations by state regulators. The licensing agency for insurance premium finance companies is generally the banking department or the insurance department of the applicable state. State statutes and regulations impose minimum capital requirements, govern the form and content of financing agreements and limit the interest and service charges UPAC may impose. State statutes also prescribe notice periods prior to the cancellation of policies for non-payment, limit delinquency and collection charges and govern the procedure for cancellation of policies and collection of unearned premiums. In the event of cancellation, after deducting all interest, service and late charges due it, UPAC must, under applicable state laws, refund the surplus unearned premium, if any, to the insureds. Changes in the regulation of UPAC's activities, such as increased rate regulation, could have an adverse effect on its operations. The statutes do not provide for automatic adjustments in the rates a premium finance company may charge. Consequently, during periods of high or rising prevailing interest rates on institutional indebtedness and fixed statutory ceilings on rates UPAC may charge its insureds, UPAC's ability to operate profitably could be adversely affected.* COMPETITION UPAC encounters intense competition from numerous other firms, including insurance carriers offering installment payment plans, finance companies affiliated with insurance carriers, independent insurance brokers who offer premium finance services, banks and other lending institutions. Many of UPAC's competitors are larger and have greater financial and other resources and are better known to insurance agencies and brokers than UPAC. In addition, there are few, if any, barriers to entry in the event other firms, particularly insurance carriers and their affiliates, seek to compete in this market. The market for premium finance companies is three-tiered. The first tier is that of large, national premium finance companies owned by large insurance companies, banks, or commercial finance companies. This group is composed of a small number of companies that, on a combined basis, finance a substantial portion of the total market. The second tier, which includes UPAC, is composed of smaller regional and national premium finance companies. The third tier is composed of numerous small local premium finance companies. Competition to provide premium financing to insureds is based primarily on interest rates, level of service to the agencies and insureds, and flexibility of terms for down payment and number of payments. INDUSTRIAL TECHNOLOGY In July 1997, the Company acquired a controlling interest in Presis, L.L.C. ("Presis") and subsequently purchased the minority interests from the former owners in 1998. Presis is a start-up business involved in developing technical advances in dry particle processing. The Company defines dry particle processing as a process of preparing compounds, such as pigments, for incorporation into manufacturing processes in a dry or powder form rather than in liquid or paste form. Presis has working prototypes that it is utilizing for research and testing which will require further engineering before being placed in commercial operation. In the event the process is successfully developed, Presis expects to market its process to companies processing pigments used in the production of inks, paints and coatings by replacing or supplementing current wet milling processes.* The Company does not expect to spend a material amount on research and development in 2000.* The Company does not believe that its business will be materially affected by environmental laws.* Competition in the particle processing field is primarily with manufacturers of machinery using various milling processes (including three-roll mills, media mills, air jet mills and hammer mills). Many of the manufacturers of such machinery used in competing processes are more established and have substantially greater resources than Presis. DISCONTINUED OPERATION American Freight System, Inc. ("AFS") is treated as a discontinued operation of TransFinancial. The primary obligation of AFS is to administer the provisions of a Joint Plan of Reorganization ("Joint Plan"). As of December 31, 1994, all unsecured creditors were paid an amount equal to 130% of their allowed claims, which was the maximum distribution provided under the Joint Plan. In 1992 through 1994 TransFinancial received distributions in accordance with the Joint Plan of $36 million. In addition, AFS paid cash dividends of $25.0 million, $6.8 million, $8.5 million and $9.2 million to TransFinancial on December 28, 1994, July 5, 1995, July 11, 1996 and April 30, 1998. AFS had minimal remaining undistributed net assets as of December 31, 1999. ITEM 2. PROPERTIES. TransFinancial's, TFH L&T's, UPAC's and Presis' corporate offices are located in approximately 22,000 square feet of a 24,000 square foot office building owned by the Company at 8245 Nieman Road, Lenexa, Kansas 66214. The remainder of the space is leased to third-party tenants. In connection with its operations, TFH L&T operates a fleet of tractors and trailers and maintains a network of terminals to support the intercity movement of freight. TFH L&T owns most of its fleet. In 1998 and 1999 it entered into a long-term operating lease for certain tractors and trailers. TFH L&T also leases some equipment from owner-operators to supplement the owned and leased equipment and to provide flexibility in meeting seasonal and cyclical business fluctuations. As of December 31, 1999, TFH L&T owned 500 tractors and leased 201 tractors under a long-term operating lease. During 1999, TFH L&T leased 233 tractors and 43 flatbed trailers from owner-operators. On December 31, 1999, it also owned 307 temperature controlled trailers, 1,195 volume vans (including 552 53-foot van trailers), and 29 flatbed trailers. TFH L&T also leased 100 53-foot van trailers and 100 53-foot temperature controlled trailers under long-term operating leases. The table below sets forth the number of Crouse operating locations at year-end for the last five years: 1999 1998 1997 1996 1995 Owned terminals......... 24 28 28 27 26 Leased terminals........ 19 16 14 8 8 Agency terminals........ 20 24 24 20 20 Total............. 63 68 66 55 54 The above operating locations include; break bulk facilities in Des Moines, Iowa, Davenport, Iowa and Indianapolis, Indiana; and terminals in Crouse's principal markets, Chicago, Illinois, Milwaukee, Wisconsin, Minneapolis, Minnesota, Kansas City, Missouri, Omaha, Nebraska, St. Louis, Missouri, Cleveland, Ohio, Cincinnati, Ohio and Columbus, Ohio. ITEM 3. LEGAL PROCEEDINGS. TransFinancial's subsidiaries are parties to routine litigation primarily involving claims for personal injury and property damage incurred in the transportation of freight. TransFinancial and its subsidiaries maintain insurance programs and accrue for expected losses in amounts designed to cover liability resulting from personal injury and property damage claims. In the opinion of management, the outcome of such claims and litigation will not materially affect the Company's financial position or results of operations.* Crouse has been named as a defendant in two lawsuits arising out of a motor vehicle accident. The first suit was instituted on June 16, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Kimberly Idalski, Personal Representative of the Estate of Lori Cothran, Deceased against Crouse. The second suit was instituted on August 17, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Jeanne Cothran, as Legal Guardian, on behalf of Kaleb Cothran, an infant child against Crouse. The suits allege that Crouse negligently caused the death of Lori Cothran in a motor vehicle accident involving a Crouse driver. The first suit seeks damages in excess of $50,000,000, plus costs, interest and attorney fees. The second suit seeks damages in excess of $100,000,000, plus costs, interest and attorney fees. The claims against Crouse are currently under investigation. Based on the information presently known to the Company, management does not believe these suits will have a material adverse effect on the financial condition, liquidity or results of operations of the Company.* The Company and its directors have been named as defendants in a lawsuit filed on January 12, 2000 in the Chancery Court in New Castle County, Delaware. The suit seeks declaratory, injunctive and other relief relating to a proposed management buyout of the Company. The suit alleges that the directors of the Company failed to seek bidders for the Company's subsidiary, Crouse, failed to seek bidders for its subsidiary, UPAC, failed to actively solicit offers for the Company, imposed arbitrary time constraints on those making offers and favored a management buyout group's proposal. The suit seeks certification as a class action complaint. The proposed management buyout was terminated on February 18, 2000 and the Company has filed for dismissal of the suit. The Company believes this suit will not have a material adverse effect on the financial condition, liquidity or results of operations of the Company.* ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the security holders during the fourth quarter of 1999. Pursuant to General Instruction G, the information regarding executive officers of the Company required by Item 401 of Regulation S-K is incorporated herein by reference from Item 10. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. (A) MARKET INFORMATION. TransFinancial's Common Stock is traded on the American Stock Exchange under the symbol TFH. The following table shows the sales price information for each quarterly period of 1999 and 1998. 1999 High Low Fourth Quarter....................... $ 5 1/2 $ 4 Third Quarter........................ 6 1/2 3 3/4 Second Quarter....................... 5 1/8 3 1/4 First Quarter........................ 4 7/8 2 3/4 1998 High Low Fourth Quarter....................... $ 6 1/2 $ 4 1/8 Third Quarter........................ 9 1/2 5 13/16 Second Quarter....................... 9 5/8 8 7/8 First Quarter........................ 10 1/2 8 7/8 (B) HOLDERS. Number of Holders of Record Title of Class at December 31, 1999 Common Stock, par value $0.01 per share 1,168 (C) DIVIDENDS. No cash dividends were paid during 1999 or 1998 on TransFinancial's Common Stock. TransFinancial currently intends to retain any earnings and does not anticipate paying cash dividends on its Common Stock in the near future.* TransFinancial's future policy with respect to the payment of cash dividends will depend on several factors including, among others, acquisitions, earnings, capital requirements, financial condition and operating results. See Note 4 of Notes to Consolidated Financial Statements for a discussion of restrictions on the ability of TransFinancial's subsidiaries to pay dividends to TransFinancial and the ability of TransFinancial to pay cash dividends. ITEM 6. SELECTED FINANCIAL DATA.
1999 1998 1997 1996 1995 (In Thousands, Except Per Share Data) Operating Revenue........................... $ 157,567 $ 151,701 $ 133,223 $ 113,693 $ 96,847 Income (Loss) from Continuing Operations............................. $ (8,084) $ (2,027) $ 1,100 $ 852 $ 2,810 Income from Discontinued Operations............................. $ -- $ -- $ -- $ -- $ 3,576 Net Income (Loss)........................... $ (8,084) $ (2,027) $ 1,100 $ 852 $ 6,386 Basic Earnings (Loss) per Share - Continuing Operations.................. $ (2.37) $ (0.39) $ 0.18 $ 0.13 $ 0.38 Discontinued Operations................ -- -- -- -- 0.48 Total.................................. $ (2.37) $ (0.39) $ 0.18 $ 0.13 $ 0.86 Diluted Earnings (Loss) per Share - Continuing Operations.................. $ (2.37) $ (0.39) $ 0.18 $ 0.12 $ 0.37 Discontinued Operations................ -- -- -- -- 0.48 Total.................................. $ (2.37) $ (0.39) $ 0.18 $ 0.12 $ 0.85 Total Assets................................ $ 76,893 $ 78,462 $ 89,755 $ 86,812 $ 88,426 Current Maturities of Long-Term Debt..................... $ 14,800 $ 300 $ -- $ -- $ -- Long-Term Debt.............................. $ -- $ 9,700 $ -- $ -- $ -- Cash Dividends per Common Share........................... $ -- $ -- $ -- $ -- $ --
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS TransFinancial operates in three distinct industries; transportation, insurance premium finance, and industrial technology. Transportation OPERATING REVENUE - The changes in transportation operating revenue are summarized in the following table (in thousands): 1999 1998 vs. vs. 1998 1997 Increase (decrease) from: Increases in LTL tonnage.................. $ 2,447 $12,615 Increase in LTL revenue per hundredweight....................... 2,100 892 Increase (decrease) in truckload revenues. (14) 5,023 Net increase............................ $ 4,533 $18,530 Effective in 1999, TFH L&T changed its classification of less-than- truckload ("LTL") and truckload ("TL") shipments to conform with the prevailing industry classification. Effective in 1999 all shipments of less than 20,000 pounds were classified as LTL while those greater than 20,000 pounds were classified as TL. In prior years the classification was based on shipments under or over 10,000 pounds. In the preceding comparison of 1999 versus 1998 operating revenue 1998 operating revenues have been reclassified based on the 20,000 pound limit which resulted in an increase in LTL revenues of $8.7 million and a decrease in TL revenues of the same amount. The comparison of 1998 versus 1997 revenues was based on the 10,000 pound limit as TFH L&T was unable to restate the 1997 data due to a replacement of its management information system effective January 1, 1998. 1999 vs. 1998 LTL operating revenues (on shipments less than 20,000 pounds) rose 3.6% from $127.6 million in 1998 to $132.1 million in 1999. The increase in LTL revenues was the result of a 1.9% increase in LTL tonnage, principally in the first half of 1999, and a 1.7% increase in revenue per hundredweight. The increase in LTL tons was achieved from increased freight volumes with existing and new customers primarily in the markets that TFH L&T expanded into in 1998 and 1997. Revenue per hundredweight rose in 1999 compared to 1998 as a result of several factors including general rate increases in November 1998 and September 1999, increased focus on yield improvement and fuel surcharges implemented beginning in August 1999 to recover a portion of the cost of increased diesel fuel prices. TL operating revenues (on shipments of greater than 20,000 pounds) fell slightly from $16,988,000 in 1998 to $16,974,000 in 1999 on a 0.3% improvement in revenue yield and a 0.4% decline in TL shipments. 1998 vs. 1997 LTL operating revenues (on shipments less than 10,000 pounds) rose 12.8% from $105.4 million in 1997 to $118.9 in 1998. LTL tonnage rose 12.0% in 1998, as compared to 1997. The substantial increase in LTL tonnage in 1998 was due to increased freight volumes with existing and new customers resulting primarily from expansion of TFH L&T's markets. TFH L&T's LTL revenue yield rose 0.9% in 1998 as compared to 1997. The effects of a softening agricultural economy, a slowing in the growth of LTL tons and an increase in competitive pressures on freight rates, were substantially offset by additional, high yield freight handled as a result of Crouse's partnership with a southeastern regional carrier which was initiated in the third quarter of 1998. Truckload operating revenues (on shipments of greater than 10,000 pounds) rose 24.3% from $20.7 million in 1997 to $25.7 million in 1998, primarily as a result of a 26.3% increase in the number of shipments hauled. Truckload revenues and tons benefited principally from strong volumes in TFH L&T's refrigerated division as the volume of meat hauled continued to be strong. Revenue per shipment declined 2.0% in 1998 compared to 1997 as a result of decreases in average weight per shipment. OPERATING EXPENSES - A comparative summary of transportation operating expenses as a percent of transportation operating revenue follows: Percent of Operating Revenue 1999 1998 1997 Salaries, wages & employee benefits..... 61.2% 58.0% 56.8% Operating supplies and expenses......... 13.8 12.4 12.5 Operating taxes and licenses............ 3.1 2.6 2.6 Insurance and claims.................... 3.2 2.2 2.3 Depreciation and amortization........... 2.8 2.8 3.1 Purchased transportation and other...... 20.2 21.2 20.2 Total operating expenses............. 104.3% 99.1% 97.5% 1999 vs. 1998 TFH L&T's operating expenses as a percentage of operating revenue, or operating ratio, increased in 1999 in relation to 1998. The deterioration in operating ratio occurred principally in three cost categories; salaries, wages and employee benefits; operating supplies and expenses; and insurance and claims. The above increases in operating expenses as a percentage of operating revenue were offset in part by a decrease in purchased transportation and other as a percentage of revenue. Salaries, wages and employee benefits increased 8.8% from $83.7 million for 1998 to $91.2 million for 1999. The increase in 1999 was principally the result of the increase in business volumes discussed above, a scheduled increase in union wages and benefits effective April 1, 1999 pursuant to Crouse's collective bargaining agreement, an increase in its utilization of Company drivers and tractors to provide transportation of freight between terminals ("linehaul transportation") and decrease in its utilization of owner-operator leased equipment, certain retroactive wage increases paid in connection with the resolution of certain local union contracts, and certain duplicate administrative staffing in connection with TFH L&T's relocation of its administrative offices. Additionally, the Company experienced a decline in productive labor performance. Management believes that the decline was the result of difficult labor relationships, diversion of management attention to, and the uncertainty created by, the proposed management buyout of the Company and the changes in the Company's operations during 1999.* Operating supplies and expenses increased 15.1% from $17.9 million for 1998 to $20.6 million for 1999. The increase in 1999 was primarily the result of increases in diesel fuel prices, the cost of relocating certain personnel affected by changes in the Crouse's operations, and the increased business volumes discussed previously. Insurance and claims expenses rose from 2.2% to 3.2% of operating revenue for 1998 and 1999, respectively. The increase in insurance and claims expenses were primarily the result of increased estimates of claims costs due to adverse developments in 1999 with respect to current and prior period claims. Purchased transportation and other decreased 1.7% from $30.6 million for 1998 to $30.1 million for 1999, in spite of increased business volumes, as Crouse decreased its utilization of owner-operator leased equipment for linehaul transportation as discussed above. TFH L&T's net loss for 1999 was $3.8 million, not considering the valuation allowance provided against consolidated deferred tax assets, as compared to net income of $681,000 for 1998, due to increases in operating expenses discussed above, as well as increased interest expenses on higher average borrowings on Crouse's working capital line of credit in 1999. 1998 vs. 1997 TFH L&T's operating ratio increased in 1998 in relation to 1997. The deterioration in operating ratio occurred principally in two cost categories: salaries, wages and employee benefits and purchased transportation and rents. Salaries, wages and employee benefits increased 17.1% from $71.6 million for 1997 to $83.7 million for 1998. The increase in 1998 was principally the result of the increase in business volumes discussed above, as well as increased union wages and benefits rates effective in October 1998. The Company also believes that its labor productivity and operating efficiency were adversely impacted during 1998 by employee and management attention to issues relating to the union negotiations and attempted hostile takeover and possible liquidation of the Company. The addition of data processing personnel to administer TFH L&T's new management information system implemented in 1998 also contributed to the increase in salaries, wages and employee benefits. Purchased transportation and rent increased 20.5% from $25.4 million for the 1997 to $30.6 million for 1998 primarily as a result of increased business volumes, particularly in TFH L&T's truckload operation which utilizes leased tractors provided by owner-operators. TFH L&T's net income for 1998 was $681,000 as compared to $1,792,000 for 1997, as a result of the increases in operating expenses relative to operating revenues discussed above. Financial Services 1999 vs. 1998 For 1999, UPAC reported operating income of $1,341,000 on net financial services revenue of $8.3 million, as compared to an operating loss of $653,000 on net revenue of $7.0 million for 1998. The increase in net financial services revenue and operating income in 1999 were the result of increased average total receivables financed, offset in part by lower average yields on finance contracts. The growth in average total receivables was due primarily to the acquisition of Oxford Premium Finance, Inc. on May 29, 1998 and the addition of marketing representatives since the beginning of 1998. Operating expenses declined 8.4% from $7.6 million in 1998 to $7.0 million in 1999, due to lower salaries, wages and employee benefits resulting from reduced employee headcount and the inclusion in 1998 of certain charges relative to management contract adjustments and a decrease in consulting fees in 1999 resulting from the expiration, effective December 31, 1998, of a consulting agreement with the former owner of UPAC. Increased provisions for credit losses in 1999 partially offset the other reductions in operating expenses in the period. Additionally, operating expenses for 1998 include $333,000 of additional depreciation related to the change in estimated useful life for certain purchased software. UPAC reported net income of $682,000 for 1999, not considering the valuation allowance provided against consolidated deferred tax assets, as compared to a net loss of $535,000 for 1998, as a result of increased revenues and decreased operating expenses as discussed above. 1998 vs. 1997 For 1998, UPAC reported an operating loss of $653,000 on net financial services revenue of $7.0 million, as compared to operating income of $396,000 on net revenue of $7.0 million for 1997. Operating expenses rose 15.0% from $6.6 million for 1997 to $7.6 million for 1998, primarily as a result of additional personnel related to the acquisition and integration of Oxford and the charges relative to certain management contracts. Operating expenses for 1998 also included $333,000 of additional depreciation related to the change in estimated useful life for certain purchased software (See Note 1 of Notes to Consolidated Financial Statements). UPAC reported a net loss of $535,000 for 1998, as compared to net income of $133,000 for 1997, as a result of increased revenues and decreased operating expenses as discussed above. Industrial Technology In 1999, Presis incurred operating expenses of $212,000 as compared to operating expenses of $1,469,000 in 1998 and $295,000 during the partial year of 1997. The decrease in operating expenses in 1999 from 1998 is due to the limitation of expenditures in 1999 to essential activities related to continued development and testing of its technology and the inclusion in 1998 of charges of $244,000 relating to certain management and consulting contracts and $525,000 resulting from the adjustment of the carrying value of certain equipment and intangibles to fair value (See Note 1 of Notes to Consolidated Financial Statements). The increase in operating expenses in 1998 from 1997 was due to the inclusion of the charges discussed above and the inclusion of Presis' operating expenses only from the date of its acquisition on July 31, 1997. Other Included in general corporate expenses of 1999 are approximately $380,000 of legal, accounting and financial advisor fees incurred in the evaluation of a now terminated proposal by certain members of management to acquire all of the outstanding shares of the Company. In connection with a failed takeover attempt in 1998, the Company incurred $500,000 in transaction costs and expenses that are included in general corporate expenses. Additionally, general corporate charges of $700,000 were recorded in 1998, principally to reflect certain excess costs incurred to remove contaminated soil from a site formerly owned by the Company. A lawsuit has been filed against the environmental engineering firm that performed the initial cleanup to recover such excess costs. The Company has not recorded the benefit of potential recovery pursuant to this lawsuit and none can be assured. As a result of the Company's use of funds for the stock repurchases in 1999 and 1998, interest earnings on invested funds were substantially lower in 1999 than in 1998 and 1998 as compared to 1997. Interest expense increased substantially in 1999 due to borrowings on long-term debt incurred to repurchase stock and fund operations and increases in interest rates on borrowings in 1999 and 1998 (See Note 4 of Notes to Consolidated Financial Statements). TransFinancial's effective income tax provision (benefit) rates for 1999, 1998 and 1997 were 6%, (29%) and 58%. In 1999, the Company's income tax provision was $433,000 on a pre-tax loss of $7.7 million, primarily as a result of a $3,197,000 valuation allowance. The effective income tax rate in 1998 was lower than in 1997 due to the impact of non-deductible amortization of intangibles and meals and entertainment expenses, which reduce the tax benefit of pre-tax losses in 1998, as compared to the impact of these items on pre-tax income in 1997. Also, in 1997 the Company provided additional income tax reserves for tax adjustments resulting from an examination of the Company's income tax returns. This examination was concluded in 1998 with no additional tax provision required. Forward-Looking Statements The Company believes certain statements contained in this Annual Report on Form 10-K which are not statements of historical fact may constitute forward- looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, the statements specifically identified as forward-looking statements in this Form 10-K. In addition, the Company believes certain statements in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases, and in oral statements made by or with the approval of an authorized executive officer of the Company which are not statements of historical fact may constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to (i) projections of revenues, income or loss, earnings or loss per share, capital expenditures, the payment or non-payment of dividends, capital structure and other financial items, (ii) statements of plans and objectives of the Company or its management or Board of Directors, including plans or objectives relating to the products or services of the Company, (iii) statements of future economic performance, and (iv) statements of assumptions underlying the statements described in (i), (ii) and (iii). These forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those anticipated in such statements. The following discussion identifies certain important factors that could affect the Company's actual results and actions and could cause such results or actions to differ materially from any forward-looking statements made by or on behalf of the Company that relate to such results or actions. Other factors, which are not identified herein, could also have such an effect. Transportation Certain specific factors which may affect the Company's transportation operation include: competition from other regional and national carriers for freight in the Company's primary operating territory; price pressure; changes in fuel prices; labor matters, including changes in labor costs, and other labor contract issues; and environmental matters. Financial Services Certain specific factors which may affect the Company's financial services operation include: the performance of financial markets and interest rates; the performance of the insurance industry; competition from other premium finance companies and insurance carriers for finance business in the Company's key operating states; adverse changes in interest rates in states in which the Company operates; greater than expected credit losses; the acquisition and integration of additional premium finance operations or receivables portfolios; and the inability to obtain continued financing at a competitive cost of funds. Industrial Technology Presis is a start-up business formed to develop an industrial technology for dry particle processing. This technology is subject to risks and uncertainties in addition to those generally applicable to the Company's operations described herein. These additional risks and uncertainties include the efficacy and commercial viability of the technology, the ability of the venture to market the technology, the acceptance of such technology in the marketplace, the general tendency of large corporations to be slow to change from known technology, the ability to protect its proprietary information in the technology and potential future competition from third parties developing equivalent or superior technology. As a result of these and other risks and uncertainties, the future results of operations of the venture are difficult to predict, and such results may be better or worse than expected or projected. Other Matters With respect to statements in Item 1 and under "Financial Condition" below regarding the adequacy of reserves and insurance with respect to claims against Crouse, such statements are subject to a number of risks and uncertainties, including without limitation the difficulty of predicting the actual number and severity of future accidents and damage claims. With respect to statements in Item 3 regarding the outcome of claims and litigation, such statements are subject to a number of risks and uncertainties, including without limitation the difficulty of predicting the results of the discovery process and the final resolution of ongoing claims and litigation. With respect to statements in this Report which relate to the current intentions of the Company and its subsidiaries or of management of the Company and its subsidiaries, such statements are subject to change by management at any time without notice. With respect to statements in "Financial Condition" regarding the adequacy of the Company's capital resources, such statements are subject to a number of risks and uncertainties including, without limitation: the ability of management to effect operational changes to improve the future economic performance of the Company (which is dependent in part upon the factors described above); the ability of management to close on a new credit facility, the ability of the Company and its subsidiaries to comply with the covenants contained in the financing agreements; future acquisitions of other businesses not currently anticipated by management of the Company; and other material expenditures not currently anticipated by management. With respect to statements in "Financial Condition" regarding the Company's intention to refinance, extend or replace certain financing arrangements, the Company's ability to do so is subject to a number of risks and uncertainties, including, without limitation, the future economic performance of the Company, the ability of the Company to comply with the terms of such financing arrangements, general conditions in the credit markets and the availability of credit to the Company on acceptable terms. With respect to statements in "Financial Condition" regarding the adequacy of the allowances for credit losses, such statements are subject to a number of risks and uncertainties including, without limitation: greater than expected defaults by customers, fraud by insurance agencies and general economic conditions. General Factors Certain general factors that could impact any or all of the Company's operations include: changes in general business and economic conditions; changes in governmental regulation; and tax changes. Expansion of these businesses into new states or markets is substantially dependent on obtaining sufficient business volumes from existing and new customers in these new markets at compensatory rates. The cautionary statements made pursuant to Section 21E of the Securities Exchange Act of 1934, as amended, are made as of the date of this Report and are subject to change. The cautionary statements set forth in this Report are not intended to cover all of the factors that may affect the Company's businesses in the future. Forward-looking information disseminated publicly by the Company following the date of this Report may be subject to additional factors hereafter published by the Company. FINANCIAL CONDITION As of December 31, 1999, the Company's net working capital deficit was $2.2 million as compared to working capital of $19.0 million as of December 31, 1998. The Company's current ratio was 0.9 and its ratio of total liabilities to tangible net worth was 1.2 as of December 31, 1999, as compared to a current ratio of 2.3 and a ratio of total liabilities to tangible net worth of 0.7 as of December 31, 1998. The decrease in working capital and current ratio was the result of the operating losses in the Company's transportation group in 1999, as well as the classification of the Company's $14.8 million secured loan as Current Maturities of Long-Term Debt in the accompanying Consolidated Balance Sheets as of December 31, 1999. Cash generated from operating activities decreased in 1999 as compared to 1998, due primarily to continuing operating losses in the Company's transportation operations and an increase in freight accounts receivable resulting from decreased productivity as TFH L&T relocated its administrative offices. Cash generated from operating activities increased in 1998 from 1997, due primarily to the collection of a temporary increase in freight accounts receivable in late 1997 resulting from a lag in billing and collections during the transition to its new computer system. The Company has experienced operating losses in 1999 and 1998 and significantly reduced cash flows from operating activities in 1999. In addition, the Company has violated certain covenants in its financing agreements. The report of the Company's Independent Accountants contains an explanatory paragraph indicating that these factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is ultimately dependent on its ability to refinance its outstanding debt with new lenders and make changes in its operations to allow it to operate profitably and sustain positive operating cash flows. Effective May 26, 2000, UPAC entered into a new receivable securitization agreement (See Note 4 of Notes to Consolidated Financial Statements). Management is in the process of negotiating a new $30 million credit facility for TFH L&T that, if closed, would enable it to repay its working capital line of credit and term loan and provide additional liquidity. The Company has also effected changes in its operations intended to bring operating expenses in line with operating revenue levels and to increase the levels of revenues. Management believes that it will be successful in closing on the new credit facility and that the operational changes should result in improved operating results.* However, there can be no assurance that the new credit facility will be successfully closed or that the operational changes will result in improved financial performance. Investing Activities - The continuing winddown of its discontinued operation, AFS, has been a source of cash to the Company's operation as AFS distributed $6.3 million in cash dividends in 1998. AFS had minimal remaining undistributed net assets as of December 31, 1999. The principal use of cash has been the acquisitions of Oxford for approximately $4.2 million in 1998. In addition, TFH L&T expended $5.2 million, $8.8 million and $13.1 million in 1999, 1998 and 1997, to replace and expand its fleet of tractors and trailers and to acquire and expand terminals. A substantial portion of the capital required for UPAC's insurance premium finance operations has been provided through the sale of undivided interests in a designated pool of receivables on an ongoing basis under receivables securitization agreements. The securitization agreement provided for the sale of a maximum of $70 million of eligible receivables. As of December 31, 1999, $63.9 million of such receivables had been securitized (See Note 4 of Notes to Consolidated Financial Statements). The Company was not in compliance with certain consolidated financial covenants as of December 31, 1999. Effective May 26, 2000, the securitization agreement was assigned to and assumed by a new purchaser. The Company, UPAC and APR Funding Corporation (wholly-owned subsidiary of UPAC) amended the securitization agreement with the new purchaser increasing the maximum allowable amount of receivables to be financed under the new agreement to $80.0 million, extending the term of the agreement by five years with annual liquidity renewals and amending certain financial covenants. Receivables transferred prior to the amendment were accounted for as sold, removed from the balance sheet and a gain on sale was recognized as of the date of transfer. As a result of certain call provisions in the amended agreement, the receivables transferred under the amended agreement will not be reflected as sold in future balance sheets. The funds advanced will be accounted for as secured borrowings and earnings on receivables financed will be recognized on an interest earned basis over the term of the finance contracts. This change will have no effect on the total earnings recognized over the term of each finance contract or the cash flow received by UPAC on each such contract. The timing of earnings recognition will however be changed. The effect of this change on operating results in 2000 could be material.* Financing Activities - Crouse has a three-year secured loan agreement with a commercial bank that provides for a $4.5 million working capital line of credit loan, ("Working Capital Line"). Borrowings on the Working Capital Line bear interest at 25 basis points below the bank's prime rate. The interest rate was 8.25% at December 31, 1999. As of December 31, 1999, borrowings of $3,659,000 were outstanding under the Working Capital Line. Crouse's banking arrangements with its primary bank provide for automatic borrowing under the Working Capital Line to cover checks presented in excess of collected funds. On certain occasions the timing of cash disbursements and cash collections results in a net cash overdraft. The outstanding checks representing such overdrafts are generally funded from the next days cash collections, or if not sufficient, from borrowings on the Working Capital Line. In September 1998, the Company entered into a two-year secured loan agreement with the same commercial bank to borrow $10.0 million (the "Loan"). Freight accounts receivable and a second lien on revenue equipment are pledged as collateral for the Loan. In March 1999, the Company amended and restated this agreement increasing the borrowings to $15 million. The Loan bears interest at 25 basis points below the bank's prime rate. The interest rate was 8.25% at December 31, 1999. The terms of the Loan provide for monthly payments of interest only through September 30, 1999, with monthly principal payments thereafter of $100,000 plus interest through maturity on September 30, 2000. The Company and Crouse were not in compliance with certain financial covenants, minimum tangible net worth and ratio of total liability to equity, required by the Working Capital Line and the Loan as of December 31, 1999. Management is in the process of negotiating a new $30 million credit facility for TFH L&T that, if closed, would enable it to repay its working capital line of credit and term loan and provide additional liquidity. During 1997, the Company repurchased 257,099 shares, at a total cost of $2.3 million. On June 26, 1997, the shareholders of the Company approved a 1-for-100 reverse stock split followed by a 100-for-1 forward stock split. These stock splits were effected on July 1, 1997. The result of this transaction was the cancellation of approximately 107,000 shares of common stock held by holders of fewer than 100 shares at the then current market price of $8.89 per share. Pursuant to a definitive stock purchase agreement resolving a hostile takeover attempt, the Company repurchased 2,115,422 shares of its common stock held by the Crouse family, including 881,550 shares registered in the name of TJS Partners, LP, all at a price of $9.125 per share, effective August 14, 1998. The Company paid and expensed $350,000 of legal and other expenses incurred by the Crouse family in connection with the takeover attempt. See Note 5 of Notes to Consolidated Financial Statements. The Company funded the stock repurchase out of available cash and short-term investments, the proceeds from the sale and leaseback of approximately $4.2 million of revenue equipment and the proceeds from a $10.0 million secured loan from one of the Company's existing bank lenders as described above. In the first quarter of 1999, the Board of Directors authorized the repurchase of 1,030,000 shares of the Company's common stock. Through December 31, 1999, a total of 683,241 shares had been repurchased at a cost of $2.6 million. The repurchase of these shares was funded from the proceeds of the additional term loan borrowings described above. The Company had a working capital deficit at December 31, 1999, and was not in compliance with certain covenants in its financing agreements. In addition the Company has experienced negative cash flows from operating activities in 2000. In order to remedy the working capital deficit and covenant violations, management is in the process of negotiating a new $30 million credit facility for TFH L&T that would enable it to pay off its existing financing arrangements and provide additional liquidity. In addition, the Company has effected changes in its operations intended to bring operating expenses in line with operating revenue levels, and to increase the levels of revenues. Management believes that the new credit facility, if closed, together with the changes in operations should provide sufficient funds to meet the Company's short-term and long-term cash requirements.* If the Company is unable to close on the new credit facility, or is unsuccessful in effecting the operational changes necessary to improve operating results, the Company will experience increased liquidity problems in the future.* As announced by the Company in a press release dated June 21, 1999, three TransFinancial directors, the Company's Chairman, Vice-Chairman and President, presented a proposal to the Board of Directors of the Company by which they would agree to acquire all of the outstanding stock of the Company for $5.25 per share in cash. The Board of Directors appointed a Special Committee of the independent directors to consider this proposal and other options. The Special Committee engaged the general counsel of the Company as legal counsel and engaged a financial advisor to assist it in evaluating the proposal and other strategic options. On October 19, 1999, the Company executed a definitive agreement pursuant to which COLA Acquisitions, Inc. ("COLA"), a company newly formed by the three TransFinancial directors, would acquire all of the Company stock not owned by such directors for $6.03 in cash. Effective February 18, 2000, COLA notified the Company that its bank financing necessary to consummate the proposed merger had been withdrawn. The receipt of financing by COLA was a condition to the consummation of the proposed merger. As a result, the Merger Agreement was terminated. Crouse has been named as a defendant in two lawsuits arising out of a motor vehicle accident. The first suit was instituted on June 16, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Kimberly Idalski, Personal Representative of the Estate of Lori Cothran, deceased against Crouse. The second suit was instituted on August 17, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Jeanne Cothran, as Legal Guardian, on behalf of Kaleb Cothran, an infant child against Crouse. The suits allege that Crouse negligently caused the death of Lori Cothran in a motor vehicle accident involving a Crouse driver. The first suit seeks damages in excess of $50,000,000, plus costs, interest and attorney fees. The second suit seeks damages in excess of $100,000,000, plus costs, interest and attorney fees. The claims against Crouse are currently under investigation. Based on the information presently known to the Company, management does not believe these suits will have a material adverse effect on the financial condition, liquidity or results of operations of the Company. The Company believes that it is highly likely that any liability resulting from this litigation will be funded within the limits of Crouse's primary and excess liability insurance policies which provide a total coverage of $20 million.* The Company and its directors have been named as defendants in a lawsuit filed on January 12, 2000 in the Chancery Court in New Castle County, Delaware. The suit seeks declaratory, injunctive and other relief relating to a proposed management buyout of the Company. The suit alleges that the directors of the Company failed to seek bidders for the Company's subsidiary, Crouse, failed to seek bidders for its subsidiary, UPAC, failed to actively solicit offers for the Company, imposed arbitrary time constraints on those making offers and favored the management buyout group's proposal. The suit seeks certification as a class action complaint. The proposed management buyout was terminated on February 18, 2000 and the Company has filed for dismissal of the suit. The Company believes this suit will not have a material adverse effect on the financial condition, liquidity or results of operations of the Company.* As of December 31, 1999, Crouse owned or leased six facilities that maintain underground fuel storage tanks. The fuel systems at these facilities have been replaced with new tanks equipped with corrosion protection and automatic tank monitoring equipment. Any contamination detected during the tank replacement process at these sites was remediated at the same time. The cost of replacing and upgrading tanks and remediating contamination, if any was detected, was not material to the financial position of the Company. The Company is not currently under any requirement to incur mandated expenditures to remediate previously contaminated sites and does not anticipate any material costs for other infrequent or non-recurring clean-up expenditures.* Crouse retains a $100,000 per occurrence self-insured exposure, or deductible, on its workers' compensation, general and automobile liability, bodily injury and property damage and cargo damage insurance coverages. The Company maintains reserves for the estimated cost of the self-insured portion of claims based on management's evaluation of the nature and severity of individual claims and the Company's past claims experience. Based upon management's evaluation of the nature and severity of individual claims and the Company's past claims experience, management believes accrued reserves are adequate for its self-insured exposures as of December 31, 1999.* The amount of the allowance for credit losses is based on periodic (not less than quarterly) evaluations of the portfolios based on historical loss experience, detail account by account agings of the portfolios and management's evaluation of specific accounts. Management believes the allowances for credit losses are adequate to provide for potential losses.* See Note 1 of Notes to Consolidated Financial Statements - Summary of Significant Accounting Policies - Allowance for Credit Losses. Year 2000 The Company completed its Year 2000 modifications and testing in the third quarter of 1999. As a result of these efforts, the transition from 1999 to 2000 proved to be uneventful. The Company has not identified any significant, unusual business trends relative to the transition to Year 2000. The Company expensed approximately $154,000 relative to this effort. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At December 31, 1999, the Company's primary market risk is interest rate risk. Changes in short-term interest rates could have affected: (a) the amount of the Company's interest expense on its variable interest rate debt and (b) the amount of the discount on finance accounts receivables sold by UPAC under its receivable securitization agreement. The Company has not obtained any financial instruments for trading purposes. The Company's long-term, variable interest rate debt was $14,800,000 as of December 31, 1999, with $900,000 maturing monthly in 1999 and the remaining $13,900,000 maturing September 30, 2000. In addition, Crouse had a variable rate credit facility through which it may borrow $4.5 million for working capital. Crouse's average borrowings under this facility were $1.6 million in 1999 and borrowings of $3.7 million were outstanding under this credit facility as of December 31, 1999. At December 31, 1999, UPAC sold undivided interests in its insurance premium finance accounts receivables on an ongoing basis under a receivables securitization agreement. The receivables sold were fixed rate notes and typically had a term of nine months. An undivided interest in the pool of receivables was sold at a discount rate based on the average rate on 28 - 35 day commercial paper over the term of the notes. Consequently, with respect to insurance premium finance receivables sold by UPAC under the securitization agreement, changes in the rate on 28 - 35 day commercial paper during the term of such receivables will affect the amount to be received by UPAC in the sale of receivables under the securitization agreement. The Company recognizes a gain on sale of receivables that represents the excess of the sale proceeds over the net carrying value of the receivables. Included in the gain recognized are the estimated effects of prepayments, recourse provisions and the discount rate in effect at the time of sale. As of December 31, 1999, UPAC had a total finance accounts receivable portfolio of $82.0 million, including $63.9 million that had been sold under the securitization agreement. UPAC does not currently use derivatives, such as interest rate swaps, to manage its interest rate risk and does not engage in any other hedging activities. The estimated impact of a hypothetical 100 basis point (one percent) change in short-term interest rates on the Company's interest expense on its variable interest rate debt and on UPAC's gain on sale of insurance premium finance receivables is approximately $314,000 and $292,000 as of December 31, 1999 and 1998, respectively. This hypothetical short-term interest rate change impact is based on existing business and economic conditions and assumes that UPAC would pass the increase in interest rates on to its customers in new finance contracts generated after the increase.* This page is intentionally blank. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of TransFinancial Holdings, Inc.: We have audited the consolidated financial statements listed in the accompanying index appearing under Item 14 (a) (1) and (2) herein. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TransFinancial Holdings, Inc. and its subsidiaries (the "Company") at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, has experienced significantly reduced cash flows from operating activities and has violated covenants of financing agreements that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ PRICEWATERHOUSECOOPERS LLP PRICEWATERHOUSECOOPERS LLP Kansas City, Missouri June 15, 2000. TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31 1999 1998 (In Thousands) ASSETS Current Assets Cash and cash equivalents.................................................. $ 1,076 $ 3,256 Freight accounts receivable, less allowance for credit losses of $203 and $387 14,373 13,351 Finance accounts receivable, less allowance for credit losses of $870 and $566 15,305 12,703 Current deferred income taxes (Note 6)..................................... -- 2,548 Other current assets....................................................... 3,579 2,981 Total current assets.................................................. 34,333 34,839 Operating Property, at Cost Revenue equipment.......................................................... 31,415 31,969 Land....................................................................... 3,402 3,681 Structures and improvements................................................ 11,336 11,130 Other operating property................................................... 11,289 10,500 57,442 57,280 Less accumulated depreciation.............................................. (25,400) (24,122) Net operating property................................................ 32,042 33,158 Intangibles, net of accumulated amortization................................... 9,005 9,777 Other Assets................................................................... 1,513 688 $ 76,893 $ 78,462 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Cash overdrafts............................................................ $ 2,673 $ 1,976 Accounts payable........................................................... 5,312 3,093 Current maturities of long-term debt....................................... 14,800 300 Line of credit payable..................................................... 3,659 -- Accrued payroll and fringes................................................ 5,006 6,068 Claims and insurance accruals.............................................. 1,361 283 Other accrued expenses..................................................... 3,686 4,101 Total current liabilities............................................. 36,497 15,821 Deferred Income Taxes (Note 6)................................................. -- 1,867 Long-Term Debt (Note 4)........................................................ -- 9,700 Contingencies and Commitments (Note 7)......................................... -- -- Shareholders' Equity (Notes 2, 5 and 9) Preferred stock $0.01 par value, authorized 1,000,000 shares, none outstanding -- -- Common stock $0.01 par value, authorized 13,000,000 shares, issued 7,597,931 and 7,593,592 shares.............. 76 76 Paid-in capital............................................................ 6,104 6,090 Retained earnings.......................................................... 69,283 77,367 Treasury stock, 4,345,561 and 3,661,220 shares, at cost.................... (35,067) (32,459) Total shareholders' equity............................................ 40,396 51,074 $ 76,893 $ 78,462 The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31 1999 1998 1997 (In Thousands, Except Per Share Amounts) Operating Revenue Transportation........................................... $ 149,125 $ 144,592 $ 126,062 Financial services and other, net........................ 8,442 7,109 7,161 Total operating revenue............................. 157,567 151,701 133,223 Operating Expenses Salaries, wages and employee benefits.................... 94,360 87,503 74,622 Operating supplies and expenses.......................... 23,898 23,144 19,141 Provision for credit losses.............................. 1,193 827 950 Operating taxes and licenses............................. 4,689 3,722 3,324 Insurance and claims..................................... 4,899 3,324 3,051 Depreciation and amortization............................ 5,158 6,286 4,758 Purchased transportation and other....................... 29,897 29,916 25,441 Total operating expenses............................ 164,094 154,722 131,287 Operating Income (Loss)...................................... (6,527) (3,021) 1,936 Nonoperating Income (Expense) Interest income.......................................... 94 301 645 Interest expense......................................... (1,251) (311) (34) Gain on sale of operating property, net.................. 31 164 56 Other, net............................................... 2 1 22 Total nonoperating income (expense)................. (1,124) 155 689 Income (Loss) Before Income Taxes............................ (7,651) (2,866) 2,625 Income Tax Provision (Benefit) (Note 6)...................... 433 (839) 1,525 Net Income (Loss)............................................ $ (8,084) $ (2,027) $ 1,100 Basic and Diluted Earnings (Loss) Per Share.................. $ (2.37) $ (0.39) $ 0.18 Basic Average Shares Outstanding............................. 3,415 5,249 6,214 Diluted Average Share Outstanding............................ 3,425 5,263 6,266 The accompanying notes to consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 1999 1998 1997 (In Thousands) Cash Flows From Operating Activities- Net income (loss)........................................ $ (8,084) $ (2,027) $ 1,100 Adjustments to reconcile net income (loss) to net cash generated by operating activities- Depreciation and amortization....................... 5,158 6,286 4,758 Provision for credit losses......................... 1,089 1,220 1,070 Deferred tax provision.............................. 681 (2,644) 1,679 Other............................................... 286 (100) 24 Net increase (decrease) from change in working capital items affecting operating activities- Freight accounts receivable..................... (918) 1,165 (5,796) Accounts payable................................ 2,230 (286) (615) Accrued payroll and fringes..................... (1,062) 112 423 Other........................................... 961 1,035 (34) 341 4,761 2,609 Cash Flows From Investing Activities- Proceeds from discontinued operations.................... -- 6,345 -- Purchase of operating property........................... (5,939) (9,102) (13,660) Sale of operating property............................... 1,434 4,639 704 Purchase of finance subsidiaries, net of cash acquired... -- (4,178) -- Origination of finance accounts receivables.............. (196,695) (162,329) (125,391) Sale of finance accounts receivables..................... 150,438 128,136 84,974 Collection of owned finance accounts receivables......... 42,462 37,804 40,005 Purchase of short-term investments....................... -- (2,998) (10,411) Maturities of short-term investments..................... -- 6,541 16,825 Other .................................................. (772) (368) (466) (9,072) 4,490 (7,420) Cash Flows From Financing Activities- Long-term debt borrowings................................ 5,000 10,000 -- Long-term debt repayments................................ (200) -- -- Line of credit borrowings (repayments), net.............. 3,659 (2,500) 2,500 Cash overdrafts.......................................... 697 1,101 754 Payments to acquire treasury stock....................... (2,603) (19,303) (2,277) Payment for fractional shares from reverse stock split... (11) (96) (459) Other .................................................. 9 25 50 6,551 (10,773) 568 Net Decrease in Cash and Cash Equivalents.................... (2,180) (1,522) (4,243) Cash and Cash Equivalents: Beginning of period...................................... 3,256 4,778 9,021 End of period............................................ $ 1,076 $ 3,256 $ 4,778 Cash Paid During the Period for- Interest ................................................ $ 1,251 $ 196 $ 16 Income tax............................................... $ (450) $ 383 $ 106
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Supplemental Schedule of Noncash Investing Activities: In 1998, the Company acquired all of the capital stock of Oxford for approximately $4,178,000. In conjunction with the acquisition, liabilities were assumed as follows (See Note 8): 1998 Fair value of assets acquired............................ $22,338 Cash paid for capital stock and acquisition expenses..... (4,178) Intangibles.............................................. 1,876 Liabilities assumed...................................... $20,036 The accompanying notes to consolidated financial statements are an integral part of these statements. TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Total Share- Common Paid-In Retained Treasury holders' Stock Capital Earnings Stock Equity (In Thousands) Balance at December 31, 1996.......... $ 76 $ 5,529 $ 79,242 $ (10,286) $ 74,561 Net income............................ -- -- 1,100 -- 1,100 Fractional shares cancelled in reverse stock split............ (1) -- (948) -- (949) Issuance of shares under Incentive Stock Plan.............. -- 52 -- (2) 50 Purchase of 257,099 shares of common stock................... -- -- -- (2,277) (2,277) Balance at December 31, 1997.......... 75 5,581 79,394 (12,565) 72,485 Net loss.............................. -- -- (2,027) -- (2,027) Issuance of shares under Incentive Stock Plan.............. 1 509 -- (591) (81) Purchase of 2,115,422 shares of common stock................... -- -- -- (19,303) (19,303) Balance at December 31, 1998.......... 76 6,090 77,367 (32,459) 51,074 Net loss.............................. -- -- (8,084) -- (8,084) Issuance of shares under Incentive Stock Plan.............. -- 14 -- (5) 9 Purchase of 683,241 shares of common stock................... -- -- -- (2,603) (2,603) Balance at December 31, 1999.......... $ 76 $ 6,104 $ 69,283 $ (35,067) $ 40,396 The accompanying notes to consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements include TransFinancial Holdings, Inc. and its subsidiary companies ("the Company" or "TransFinancial"). TransFinancial's principal operations include TFH Logistics & Transportation Services, Inc. ("TFH L&T") and its subsidiaries, Crouse Cartage Company ("Crouse") and Specialized Transport, Inc. ("Specialized"), Universal Premium Acceptance Corporation and its affiliates, Agency Premium Resource, Inc. ("APR"), Oxford Premium Finance, Inc. ("Oxford") and UPAC of California, Inc. (together "UPAC"), and Presis, L.L.C. ("Presis"). The operating results of Oxford are included from May 29, 1998, the date of its acquisition (See Note 8). The Company's proportionate interest in Presis is included from July 31, 1997, the date of the Company's initial investment. All significant intercompany accounts and transactions have been eliminated in consolidation. Going Concern - The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has experienced operating losses in 1999 and 1998 and significantly reduced cash flows from operating activities in 1999. In addition, the Company has violated certain covenants in its financing agreements. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is ultimately dependent on its ability to refinance its outstanding debt with new lenders and make changes in its operations to allow it to operate profitably and sustain positive operating cash flows. Effective May 26, 2000, UPAC entered into a new receivable securitization agreement (See Note 4). Management is in the process of negotiating a new $30 million credit facility for TFH L&T that, if closed, would enable it to repay its working capital line of credit and term loan and provide additional liquidity. The Company has also effected changes in its operations intended to bring operating expenses in line with operating revenue levels and to increase the levels of revenues. Management believes that it will be successful in closing on the new credit facility and that the operational changes will result in improved operating results. However, there can be no assurance that the new credit facility will be successfully closed or that the operational changes should result in improved financial performance. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Segment Information - The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information." The adoption of this statement did not require significant changes in the way the Company's segments were disclosed. TransFinancial operates in three industry segments, transportation, financial services and industrial technology. Through Crouse, the Company operates as a regional less-than-truckload motor carrier primarily serving the north central and midwest portion of the United States. A substantial portion of Crouse's business is concentrated in the states of Iowa, Illinois, Minnesota, Missouri and Wisconsin. TransFinancial also operates as an insurance premium finance company through UPAC. The Company provides short-term secured financing for commercial and personal insurance premiums through insurance agencies throughout the United States. Approximately 50% of the insurance premiums financed by UPAC are placed through insurance agencies in California, Illinois, Florida, Missouri and Minnesota. Presis is a startup company that is developing an industrial technology for dry particle processing. Information regarding the Company's industry segments for the years ended December 31, 1999, 1998 and 1997 is as follows (in thousands):
Operating Depreciation Operating Income and Capital Total Revenues (Loss) Amortization Additions Assets Transportation 1999 $ 149,125 $ (6,434) $ 4,265 $ 5,209 $ 47,629 1998 144,592 1,321 4,456 8,754 47,874 1997 126,062 3,136 3,912 13,104 47,076 Financial Services 1999 8,330 1,341 740 100 26,597 1998 6,972 (653) 1,172 233 25,558 1997 7,078 396 770 143 24,360 Industrial Technology 1999 -- (212) 90 21 81 1998 -- (1,469) 610 104 185 1997 -- (295) 31 239 640 Total Segments 1999 157,455 (5,305) 5,095 5,330 74,307 1998 151,564 (801) 6,238 9,091 73,617 1997 133,140 3,237 4,713 13,486 72,076 Corporate and Other 1999 112 (1,222) 63 609 2,586 1998 137 (2,220) 48 11 4,845 1997 83 (1,301) 45 174 17,679 Consolidated 1999 157,567 (6,527) 5,158 5,939 76,893 1998 151,701 (3,021) 6,286 9,102 78,462 1997 133,223 1,936 4,758 13,660 89,755
Depreciation and Maintenance - Depreciation is computed using the straight-line method and the following useful lives: Revenue Equipment - Tractors............................. 5 - 7 years Trailers............................. 7 - 10 years Structures and Improvements............. 19 - 39 years Other Operating Property................ 2 - 10 years As of January 1, 1998, the Company prospectively increased the estimated remaining useful lives of certain revenue equipment to reflect the Company's actual utilization of such equipment. This change decreased depreciation and increased operating income by approximately $756,000 for 1998. Net income was increased by approximately $454,000, or $0.09 per share, for 1998. As of July 1, 1998, the Company prospectively decreased the estimated remaining useful life of certain purchased software to reflect the Company's plan to substantially revise and replace the software. This change increased amortization expense in 1998 by $333,000 and decreased net income by approximately $200,000, or $0.04 per share. Upon sale or retirement of operating property, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in non-operating income. The Company expenses costs related to repairs and overhauls of equipment as incurred. Recognition of Revenues - Transportation operating revenues, and related direct expenses, are recognized when freight is delivered. Other operating expenses are recognized as incurred. Finance charges on premium finance receivables that are not sold pursuant to the Company's securitization agreement are recognized when earned under applicable state regulations using methods that approximate the interest method. Recognition of earned finance charges on delinquent accounts is suspended when it is determined that collectibility of principal and interest is not probable. Interest on delinquent accounts is recognized when collected. Gains on sale of receivables under the securitization agreement are recorded when the receivables are sold (See Note 4). Late fees and other ancillary fees are recognized when chargeable. Uncollectible accounts are generally charged off after one year, unless there is specific assurance of collection through return of unearned premiums from the insurance carrier. Recoveries of charged off accounts are recognized when collected. The Company applies a control-oriented, financial-components approach to financial-asset-transfer transactions, such as the Company's securitization of finance accounts receivables, whereby the Company (1) recognizes the financial and servicing assets it controls and the liabilities it has incurred, (2) removes financial assets from the balance sheet when control has been surrendered, and (3) removes liabilities from the balance sheet once they are extinguished. Such transfers result in the recognition of a net gain or loss. Control is considered to have been surrendered only if (i) the transferred assets have been isolated from the transferor and its creditors, even in bankruptcy or other receivership (ii) the transferee has the right to pledge or exchange the transferred assets, or, is a qualifying special-purpose entity (as defined) and the holders of beneficial interests in that entity have the right to pledge or exchange those interests; and (iii) the transferor does not maintain effective control over the transferred assets through an agreement which both entitles and obligates it to repurchase or redeem those assets prior to maturity, or through an agreement which both entitles and obligates it to repurchase or redeem those assets if they were not readily obtainable elsewhere. If any of these conditions are not met, the Company accounts for the transfer as a secured borrowing. The Company retains the servicing on finance receivables sold under its securitization agreement. A servicing asset or liability is recognized for the fair value based on an analysis of discounted cash flows that includes estimates of servicing fees, servicing costs, projected ancillary servicing revenue and projected prepayment rates. The Company has not recorded a net servicing asset as the amount is not material to its financial position or results of operations. Allowance for Credit Losses - The allowances for credit losses are maintained at amounts considered adequate to provide for potential losses. The amount of each allowance for credit losses is based on periodic (not less than quarterly) evaluations of the portfolios based on historical loss experience, detail account by account agings of the portfolios and management's evaluation of specific accounts. The following is an analysis of changes in the allowance for credit losses on finance accounts receivable for 1999 and 1998 (in thousands): 1999 1998 Balance, beginning of year................ $ 566 $ 499 Allowance acquired with Oxford............ -- 343 Provision for credit losses............... 1,193 827 Charge-offs, net of recoveries of $443 and $196 ..................... (889) (1,103) Balance, at the end of year............... $ 870 $ 566 Income Taxes - The Company accounts for income taxes in accordance with the liability method. Deferred income taxes are determined based upon the difference between the book and the tax basis of the Company's assets and liabilities. Deferred taxes are provided at the enacted tax rates expected to be in effect when these differences reverse. Cash Equivalents - The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Company maintains cash and cash equivalents with various major financial institutions. At times such amounts may exceed the F.D.I.C. limits. The Company believes that no significant concentration of credit risk exists with respect to cash and cash equivalents. Disclosures about Fair Value of Financial Instruments - The following methods and assumptions are used to estimate the fair value of each class of financial instruments: a. Cash Equivalents - The carrying amount approximates fair value because of the short maturity of these instruments. b. Finance Accounts Receivable - The carrying amount approximates fair value because of the short maturity of these instruments. c. Long-Term Debt - The carrying amount approximates fair value as the debt bears interest at a variable market rate. Pervasiveness of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Reclassifications - Certain amounts in the accompanying consolidated balance sheet for the prior period have been reclassified to conform with the current period's presentations. Accounting for the Impairment of Long-Lived Assets - The Company periodically reviews its long-lived assets and associated intangible assets and has identified no events or changes in circumstances which indicate that the carrying amount of these assets may not be recoverable, except as described below. When potential impairments are indicated, impairment losses, if any, are measured by the excess of carrying values over fair values. An evaluation of certain equipment and intangible assets of the Company's industrial technology operation resulted in the determination that these assets were impaired. The impaired assets were written down by $525,000 effective September 30, 1998. Fair value was based on estimated discounted future cash flows to be generated by these assets and management's estimate of the value realizable from sale of the assets. This writedown is included in "Depreciation and Amortization" in the Consolidated Statements of Income. An evaluation of certain land and structures that are no longer used in the Company's transportation operation resulted in the determination that these assets were impaired. The impaired assets were written down by $190,000 effective December 31, 1999. Fair value was based on estimated discounted future cash flows to be generated by these assets and management's estimate of the value realizable from sale of the assets. This writedown is included in "Purchased Transportation and Other" in the Consolidated Statements of Income. Intangible Assets and Accumulated Amortization - Intangible assets, consisting primarily of goodwill and intangibles recorded in connection with the acquisition of insurance premium finance companies, totaled $11,212,000 at December 31, 1999. These intangible assets are generally being amortized on the straight-line basis over 15 - 25 years. The accumulated amortization of intangible assets as of December 31, 1999 was $2,207,000. 2. EMPLOYEE BENEFIT PLANS Multiemployer Plans TFH L&T, through its subsidiaries Crouse and Specialized, participates in multiemployer pension plans which provide defined benefits to substantially all of the drivers, dockworkers, mechanics and terminal office clerks who are members of a union. TFH L&T contributed $7,493,000, $6,931,000 and $5,762,000 to the multiemployer pension plans for 1999, 1998 and 1997. The Multiemployer Pension Plan Amendments Act of 1980 established a continuing liability to such union-sponsored pension plans for an allocated share of each plan's unfunded vested benefits upon substantial or total withdrawal by participating employers or upon termination of the pension plans. TFH L&T's estimated share of the unfunded benefits for these plans is reported to be approximately $8.5 million as of December 31, 1998, based on the limited information presently available from the plans' administrators, TFH L&T also contributed $8,462,000, $8,342,000 and $7,161,000, to multiemployer health and welfare plans for 1999, 1998 and 1997. Non-Union Pension Plan TFH L&T has a defined contribution pension plan ("the Non-Union Plan") providing for a mandatory Company contribution of 5% of annual earned compensation of the non-union employees. Additional discretionary contributions may be made depending upon the profitability of TFH L&T. Any discretionary funds contributed to the Non-Union Plan will be invested 100% in TransFinancial Common Stock. Pension expense, exclusive of the multiemployer pension plans, was $511,000, $357,000 and $131,000 for the years 1999, 1998 and 1997. Profit Sharing In September 1988, the employees of Crouse approved the establishment of a profit sharing plan ("the Plan"). The Plan was structured to allow all employees (union and non-union) to ratably share 50% of Crouse's income before income taxes (excluding extraordinary items and gains or losses on the sale of assets) in return for a 15% reduction in their wages. The Plan calls for profit sharing distributions to be made on a quarterly basis. The Plan was recertified in 1991 and 1994, and continued in effect through October 3, 1998, when a replacement Collective Bargaining Agreement was reached between the parties. The Plan was not renewed under the new Collective Bargaining Agreement effective October 4, 1998. A separate wage reduction provision was substituted in its place. The accompanying consolidated statements of income include profit sharing expense of $2,013,000 and $3,088,000 for 1998 and 1997. 401(k) Plan Effective January 1, 1990, Crouse established a salary deferral program under Section 401(k) of the Internal Revenue Code. To date, participant contributions to the 401(k) plan have not been matched with Company contributions. All employees of Crouse are eligible to participate in the 401(k) plan after they attain age 21 and complete one year of qualifying employment. UPAC Plans Effective June 1, 1995, the Company established a 401(k) Savings Plan and a Money Purchase Pension Plan, both of which are defined contribution plans. Employees of UPAC and TransFinancial are eligible to participate in the plans after they attain age 21 and complete one year of employment. Participants in the 401(k) Savings Plan may defer up to 13% of annual compensation. The Company matches 50% of the first 10% deferred by each employee. Company contributions vest after five years. Company matching contributions in 1999, 1998 and 1997 were $70,000, $63,000 and $48,000. Under the Money Purchase Pension Plan, the Company contributes 7% of each eligible employee's annual compensation plus 5.7% of any compensation in excess of the Social Security wage base. Company contributions in 1999, 1998 and 1997 were $137,000, $108,000 and $112,000. Stock Option Plans A Long-Term Incentive Plan adopted in 1998 ("1998 Plan") provides that options for shares of TransFinancial Common Stock be granted to directors, and that options and other shares may be granted to officers and other employees. All such option grants are at or above fair market value at the date of grant. Options granted generally become exercisable ratably over two to five years and remain exercisable for ten years from the date of grant. Initially, 600,000 shares were reserved for issuance pursuant to the 1998 Plan. As of December 31, 1999, 544,661 shares were available for grant pursuant to the 1998 Plan. An Incentive Stock Plan was adopted in 1992 ("1992 Plan") which provides that options for shares of TransFinancial Common Stock shall be granted to directors, and may be granted to officers and key employees at fair market value of the stock at the time such options are granted. Initially, 500,000 shares of TransFinancial common stock were reserved for issuance pursuant to the 1992 Plan. As of December 31, 1999, options for 34,780 shares were available for grant pursuant to the 1992 Plan. These options generally become exercisable ratably over two to five years and remain exercisable for ten years from the date of grant. In each of 1995 and 1996 the Company granted non-qualified options to acquire 10,000 shares of common stock to an officer of UPAC pursuant to an employment agreement. These options become exercisable in 1998 and 1999 and expire in 2005 and 2006. The Company follows Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of each of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. SFAS No. 123 "Accounting for Stock-Based Compensation," requires the use of option valuation models to estimate the fair value of stock options granted and recognize that estimated fair value as compensation expense. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its stock options under the fair value method of SFAS No.123. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1999, 1998 and 1997: risk-free interest rates of 5.2%, 5.5% and 6.1%; expected life of options of 4.3 years, 4.4 years and 4.9 years; and a volatility factor of the expected market price of the Company's common stock of .36 in 1999 and .20 in 1998 and 1997. The preceding assumptions used as inputs to the option valuation model are highly subjective in nature. Changes in the subjective input assumptions can materially affect the fair value estimates; thus, in management's opinion, the estimated fair values presented do not necessarily represent a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The Company's unaudited pro forma information follows (in thousands, except for per share amounts): 1999 1998 1997 Pro forma net income (loss).............. $(8,275) $(2,234) $ 949 Pro forma basic earnings (loss) per share $(2.43) $(0.43) $ 0.15 The following table is a summary of data regarding stock options granted during the three years ended December 31, 1999:
1999 1998 1997 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price Options outstanding at beginning of year............. 353,150 $8.17 350,650 $7.47 263,200 $7.17 Granted........................... 99,500 $4.26 131,050 $9.03 118,250 $7.99 Forfeited......................... (42,600) $7.35 (44,580) $9.13 (19,900) $8.09 Exercised......................... (2,000) $2.41 (83,970) $6.07 (10,900) $4.84 Options outstanding at end of year....................... 408,050 $7.33 353,150 $8.17 350,650 $7.47 Options exercisable at end of year....................... 160,520 $7.93 114,180 $7.49 119,000 $6.38 Estimated weighted average fair value per share of options granted during the year....................... $ 1.33 $ 2.12 $ 2.00 The per share exercise prices of options outstanding as of December 31, 1999, ranged from $2.41 to $9.79 per share. The weighted average remaining contractual life of those options was 7.4 years.
The following table summarizes information concerning outstanding and exercisable options as of December 31, 1999.
Weighted Average Weighted Weighted Number of Remaining Average Number of Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices Options Life Price Options Price $0.00-$2.50 2,150 2.4 $2.41 2,150 $2.41 $2.50-$5.50 104,900 8.4 $4.35 13,900 $4.91 $5.50-$8.00 144,250 6.7 $7.69 75,220 $7.74 $8.00-$10.00 156,750 7.5 $9.05 69,250 $8.91 408,050 160,520
3. INSURANCE COVERAGE Claims and insurance accruals reflect accrued insurance premiums and the estimated cost of incurred claims for cargo loss and damage, bodily injury and property damage and workers' compensation not covered by insurance. The Company estimates reserves required for the self-insured portion of claims based on management's evaluation of the nature and severity of individual claims and the Company's past claims experience. The Company regularly assesses and adjusts estimated reserves based on continued development of information regarding claims through the ultimate claims settlement. Adjustments to estimated reserves are recorded in the period in which additional information becomes known. Workers' compensation expense is included in "Salaries, wages and employee benefits" in the accompanying consolidated statements of income. The Company's public liability and property damage, cargo and workers' compensation premiums are subject to retrospective adjustments based on actual incurred losses. The actual adjustments normally are not known for at least one year; however, based upon a review of the preliminary compilation of losses incurred through December 31, 1999, management does not believe any material adjustment will be made to the premiums paid or accrued at that date. 4. FINANCING AGREEMENTS Securitization of Receivables In December, 1996, the Company, UPAC and APR Funding Corporation (wholly- owned subsidiary of UPAC) entered into a securitization agreement whereby undivided interests in a designated pool of accounts receivable can be sold on an ongoing basis. In 1999, this agreement was amended to change the termination date to May 14, 2000 and to reduce the facility capacity. The maximum allowable amount of receivables to be sold under the agreement is $70.0 million. The purchaser permits principal collections to be reinvested in new financing agreements. UPAC had securitized receivables of $63.9 million and $61.6 million at December 31, 1999 and 1998. The cash flows from the sale of receivables are reported as investing activities in the accompanying consolidated statement of cash flows. The securitized receivables are reflected as sold in the accompanying balance sheet. Among other things, the terms of the agreement require UPAC to maintain a minimum tangible net worth of $5.0 million, contain restrictions on the payment of dividends by UPAC to TransFinancial without prior consent of the financial institution and require UPAC to report any material adverse changes in its financial condition. The terms of the agreement also require the Company to maintain a minimum consolidated tangible net worth of $35.0 million and a minimum ratio of consolidated EBITDA to interest and securitization fees of 1.5 to 1.0. The Company was not in compliance with such consolidated financial covenants at December 31, 1999. The terms of the securitization agreement require UPAC to maintain a reserve at specified levels that serves as collateral. At December 31, 1999, approximately $7.2 million of owned finance receivables served as collateral under the reserve provision. Effective May 26, 2000, the securitization agreement was assigned to and assumed by a new purchaser. The Company, UPAC and APR Funding Corporation (wholly-owned subsidiary of UPAC) amended the securitization agreement with the new purchaser increasing the maximum allowable amount of receivables to be sold under the new agreement to $80.0 million, extending the term of the agreement by five years with annual liquidity renewals and amending certain financial covenants. As a result of certain call provisions in the amended agreement, the receivables sold under the agreement after the date of the amendment will not be reflected as sold in future balance sheets. The funds advanced under the amended agreement will be accounted for as secured borrowings. Among other things, the terms of the agreement require UPAC to maintain a minimum tangible net worth of $10.0 million, contain restrictions on the payment of dividends by UPAC to TransFinancial without prior consent of the financial institution and require UPAC to report any material adverse changes in its financial condition. Long-Term Debt In September 1998, the Company entered into a two-year secured loan agreement with a commercial bank to borrow $10.0 million (the "Loan") secured by freight accounts receivable and a second lien on revenue equipment. In March 1999, the Loan was amended and restated to increase the borrowing to $15.0 million. The proceeds of the Loan were used to repurchase shares of the Company's common stock (See Note 5) and fund operations. The Loan bears interest at 25 basis points below the bank's prime rate. The interest rate was 8.25% at December 31, 1999. The terms of the Loan provide for monthly payments of interest only through September 30, 1999, with monthly principal payments thereafter of $100,000 plus interest through maturity on September 30, 2000. At December 31, 1999 the outstanding balance of $14.8 million was classified as current maturities of long-term debt. The terms of the Loan require the Company to maintain a minimum consolidated tangible net worth of $35 million, a ratio of current assets to current liabilities of 1.25 to 1.00, a ratio of total liabilities to tangible net worth of 1.0 to 1.0, and contain restrictions on the payment of dividends without prior consent of the financial institution. The Company was not in compliance with such financial covenants at December 31, 1999. Working Capital Line On January 5, 1998, Crouse entered into a $4.5 million working capital line of credit loan ("Working Capital Line"). Interest on the Working Capital Line accrues at 25 basis points below the bank's prime rate. The interest rate was 8.25% at December 31, 1999. The Working Capital Line is secured by Crouse's revenue equipment and specified bank deposit balances. The following table summarizes activity under the Working Capital Line for 1999, 1998 and 1997 (in thousands, except percentages):
1999 1998 1997 Balance outstanding at end of period......................... $ 3,659 $ -- $ 2,500 Average amount outstanding................................... 1,591 536 333 Maximum month end balance outstanding........................ 4,324 2,752 2,500 Interest rate at end of period............................... 8.25% 7.75% 8.50% Weighted average interest rate............................... 8.04% 8.25% 8.50%
The terms of the Working Capital Line require Crouse to maintain tangible net worth of $24.0 million, increasing by $1.0 million per year beginning in 1998, and contain restrictions on the payment of dividends, incurring debt or liens, or change in majority ownership of Crouse. The terms of the agreement also permit the bank to accelerate the due date of borrowings if there is a material adverse change in the financial condition of Crouse. Crouse was not in compliance with the tangible net worth covenant at December 31, 1999. 5. COMMON STOCK AND EARNINGS PER SHARE Stock Repurchases In February 1999, the Board of Directors authorized the repurchase of 1,030,000 shares of the Company's common stock. During 1999, a total of 683,241 share were repurchased at a cost of approximately $2.6 million. In June 1998, TJS Partners, LP ("TJS"), a shareholder of the Company, announced its intent to acquire an additional 23% of the Company's outstanding common stock held by one family (the "Crouse family"), obtain control of the Company's board of directors and study possible actions such as the liquidation or sale of part or all of the Company's businesses or assets. The board of directors determined that the hostile takeover attempt was not in the best interest of the Company and its shareholders and agreed to repurchase the shares held by TJS and the Crouse family. The failed attempt at a hostile takeover of the Company, together with other events, led the Company to record charges for management and personnel restructuring, asset and liability valuation adjustments, and transaction costs and other expenses related to the takeover attempt. Pursuant to a definitive stock purchase agreement resolving the hostile takeover attempt, the Company repurchased 2,115,422 shares of its common stock held by the Crouse family, including 881,550 shares registered in the name of TJS Partners, LP, all at a price of $9.125 per share, effective August 14, 1998. In addition, the Company paid and expensed $350,000 of legal and other costs incurred by the Crouse family in connection with the takeover attempt. The Company funded the payment out of available cash and short-term investments, the proceeds from the sale and leaseback of approximately $4.2 million of revenue equipment and the proceeds from the $10.0 million secured loan from one of the Company's existing bank lenders. On June 26, 1995, the Company adopted a program to repurchase up to 10% of its outstanding shares of common stock. During the second quarter of 1996, the Company completed this initial repurchase program and expanded the number of shares authorized to be repurchased by an additional 10% of its then outstanding shares. The second program was completed in the fourth quarter of 1997. During 1997, the Company repurchased 257,099 shares of common stock at a cost of $2.3 million. On June 26, 1997, the shareholders of the Company approved a 1-for-100 reverse stock split followed by a 100-for-1 forward stock split. These stock splits were effected on July 2, 1997. The result of this transaction was the cancellation of approximately 107,000 shares of common stock held by holders of fewer than 100 shares, at the then current market price of $8.89 per share. Earnings Per Share Because of the Company's simple capital structure, income (loss) available to common shareholders is the same for the basic and diluted earnings per share computations. Such amounts were $(8,084,000), $(2,027,000) and $1,100,000 for 1999, 1998 and 1997. Following is a reconciliation of basic weighted average common shares outstanding, weighted average common shares outstanding adjusted for the dilutive effects of outstanding stock options, and basic and diluted earnings per share for each of the periods presented (in thousands, except per share amounts).
1999 1998 1997 Per Share Per Share Per Share Shares Amounts Shares Amounts Shares Amounts Basic earnings (loss) per share............................ 3,415 $ (2.37) 5,249 $ (0.39) 6,214 $ 0.18 Plus incremental shares from assumed conversion of stock options........................ 10 14 52 Diluted earnings (loss) per share............................ 3,425 $ (2.37) 5,263 $ (0.39) 6,266 $ 0.18
Options to purchase 308,500 shares of common stock at an average exercise price of $8.32 per share were outstanding at December 31, 1999, but were not included in the computation of diluted earnings per share because the options' average exercise price was greater than the average market price of the common shares. These options remain outstanding and expire through 2008. 6. INCOME TAXES Deferred tax assets (liabilities) are comprised of the following at December 31 (in thousands):
1999 1998 Deferred Tax Assets: Employee benefits..................................... $ 521 $ 951 Claims accruals and other............................. 1,706 1,276 Allowance for credit losses........................... 571 616 Net operating loss carryforwards...................... 4,225 1,054 Alternative minimum tax and other credits.......................................... 754 1,038 Total gross deferred tax assets........................... 7,777 4,935 Less valuation allowance.................................. (3,197) - Net deferred tax assets................................... 4,580 4,935 Deferred Tax Liabilities: Financial services revenue............................ (314) (295) Operating property, principally due to differences in depreciation............... (4,038) (3,780) Amortization of intangibles........................... (228) (179) Total gross deferred tax liabilities...................... (4,580) (4,254) Net deferred tax assets................................... $ - $ 681
The deferred tax assets and liabilities are classified in the accompanying consolidated balance sheets as follows (in thousands):
1999 1998 Net current deferred tax assets........................... $ - $ 2,548 Net non-current deferred tax liabilities.................. - (1,867) Net deferred tax assets................................... $ - $ 681
In 1999, the Company assessed the likelihood that all or a portion of its deferred tax assets would not be realized. Such assessment included consideration of positive and negative factors, including the Company's current financial position and results of operations, projected future taxable income and available tax planning strategies. As a result of such assessment, it was determined that it was more likely than not that the net deferred tax assets will not be realized. Therefore, the Company recorded a valuation allowance of $3,197,000 in its deferred income tax provision in 1999. At December 31, 1999, the Company had approximately $11.2 million of net operating loss carryforwards that were available for Federal income tax purposes and expire in 2018 and 2019. At December 31, 1999 and 1998, the Company had $709,000 and $1,038,000 of alternative minimum tax and other credit carryforwards available which do not expire. As noted above, the carryforwards of net operating losses and alternative minimum tax credits may not be realized. The Internal Revenue Service ("IRS") has examined the Company's 1994 through 1996 tax returns. In April 1998, the Company and the IRS settled all issues for tax years 1994 through 1996 within the tax reserves that the Company made provision for in 1997. The following is a reconciliation of the Federal statutory income tax rate to the effective income tax provision (benefit) rate:
1999 1998 1997 Federal statutory income tax rate................ (35.0)% (35.0)% 35.0% State income tax rate, net....................... (4.7) (3.8) 5.9 Amortization of non-deductible acquisition intangibles...................... 1.3 3.0 2.3 Non-deductible meals and entertainment................................ 1.1 3.2 2.4 Adjustments to prior years' tax liabilities.................................. - - 12.9 Change in valuation allowance.................... 41.8 - - Other............................................ 1.2 3.5 (0.4) Effective income tax rate........................ 5.7% (29.1)% 58.1%
The components of the income tax provision (benefit) consisted of the following (in thousands):
1999 1998 1997 Current: Federal.................................................. $ (198) $ 1,444 $ (145) State.................................................... (50) 361 (9) Total............................................... (248) 1,805 (154) Deferred: Federal.................................................. (2,013) (2,115) 1,434 State.................................................... (503) (529) 245 Change in valuation allowance............................ 3,197 - - Total............................................... 681 (2,624) 1,679 Total income tax provision (benefit)......................... $ 433 $ (839) $ 1,525
7. CONTINGENCIES AND COMMITMENTS The Company is party to certain claims and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such claims and litigation will not materially affect the Company's results of operations, cash flows or financial position. Crouse has been named as a defendant in two lawsuits arising out of a motor vehicle accident. The first suit was instituted on June 16, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Kimberly Idalski, Personal Representative of the Estate of Lori Cothran, deceased against Crouse. The second suit was instituted on August 17, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Jeanne Cothran, as Legal Guardian, on behalf of Kaleb Cothran, an infant child against Crouse. The suits allege that Crouse negligently caused the death of Lori Cothran in a motor vehicle accident involving a Crouse driver. The first suit seeks damages in excess of $50,000,000, plus costs, interest and attorney fees. The second suit seeks damages in excess of $100,000,000, plus costs, interest and attorney fees. The claims against Crouse are currently under investigation. Based on the information presently known to the Company, management does not believe these suits will have a material adverse effect on the financial condition, liquidity or results of operations of the Company. The Company and its directors have been named as defendants in a lawsuit filed on January 12, 2000 in the Chancery Court in New Castle County, Delaware. The suit seeks declaratory, injunctive and other relief relating to a proposed management buyout of the Company. The suit alleges that the directors of the Company failed to seek bidders for the Company's subsidiary, Crouse, failed to seek bidders for its subsidiary, UPAC, failed to actively solicit offers for the Company, imposed arbitrary time constraints on those making offers and favored a management buyout group's proposal. The suit seeks certification as a class action complaint. The proposed management buyout was terminated on February 18, 2000 and the Company has filed for dismissal of the suit. The Company believes this suit will not have a material adverse effect on the financial condition, liquidity or results of operations of the Company. Payments are made to tractor owner-operators under various short-term lease agreements for the use of revenue equipment. These lease payments, which totaled $14,885,000, $16,836,000 and $14,351,000 for 1999, 1998 and 1997, are primarily based on miles traveled or on a percent of revenue generated through the use of the equipment. In 1998 and 1999, TFH L&T entered into a long-term operating lease for new and used tractors and new trailers. Lease terms are five years for tractors and seven years for trailers. Rental expense relating to these leases was $1,718,000 and $319,000 in 1999 and 1998. Minimum future rentals for operating leases are as follows: 2000 - $2,399,000; 2001 - $2,399,000; 2002 - $2,399,000; 2003 - $1,961,000; 2004 - $862,000; and thereafter - $1,291,000. Additionally, TFH L&T has limited contingent rental obligations of $1,019,000 if the fair market value of such equipment at the end of the lease term is less than certain residual values. Such lease also requires TFH L&T to maintain tangible net worth of $26.0 million, increasing by $1.0 million per year beginning in 1999. TFH L&T was not in compliance with this covenant at December 31, 1999. 8. ACQUISITION OF PREMIUM FINANCE SUBSIDIARIES On May 29, 1998, TransFinancial through UPAC, its insurance premium finance subsidiary, completed the acquisition of all of the issued and outstanding stock of Oxford for approximately $4.2 million. Oxford offered short-term secured financing of commercial insurance premiums through approved insurance agencies in 17 states throughout the United States. At May 29, 1998, Oxford had net finance receivables outstanding of approximately $22.5 million. This transaction was accounted for as a purchase. UPAC sold an additional $4.2 million of its receivables under its receivable securitization agreement to obtain funds to consummate the purchase. Concurrently with the closing of the acquisition, UPAC amended its receivables securitization agreement to increase the maximum allowable amount of receivables to be sold under the agreement and to permit the sale of Oxford's receivables under the agreement. Effective on May 29, 1998, Oxford sold approximately $19 million of its receivables under the securitization agreement using the proceeds to repay the balance outstanding under its prior financing arrangement. The terms of the acquisition and the purchase price resulted from negotiations between UPAC and Oxford Bank & Trust Company, the former sole shareholder of Oxford. In connection with the purchase of Oxford UPAC recorded goodwill of $1.8 million, which will be amortized on the straight-line basis over 15 years. The unaudited pro forma operating results of TransFinancial for the years ended December 31, 1998 and 1997, assuming the acquisition occurred as of the beginning of each of the respective periods, are as follows. For the year ended December 31, 1998, pro forma operating revenue was $152.2 million, pro forma net loss was $1,994,000, and pro forma basic loss per share was $.38. For the year ended December 31, 1997, pro forma operating revenue was $134.3 million, pro forma net income was $1,139,000 and pro forma basic earnings per share was $.18. The pro forma results of operations are not necessarily indicative of the actual results that would have been obtained had the acquisition been made at the beginning of the respective periods, or of results that may occur in the future. 9. SHAREHOLDER RIGHTS PLAN On February 18, 1999, the Board of Directors authorized the amendment of the previously adopted Shareholder Rights Plan by which the Board of Directors declared a dividend distribution of one Preferred Stock Purchase Right for each outstanding share of TransFinancial Common Stock. Under the Shareholder Rights Plan, Rights were issued on July 27, 1998 to shareholders of record as of that date and will expire in ten years, unless earlier redeemed or exchanged by the Company. The distribution of Rights was not taxable to the Company or its shareholders. The Rights become exercisable only if a person or entity is an "Acquiring Person" (as defined in the Plan) or announces a tender offer, the consummation of which would result in any person or group becoming an "Acquiring Person." Each Right initially entitles the holder to purchase one one-hundredth of a newly issued share of Series A Preferred Stock of the Company at an exercise price of $50.00. If, however, a person or group becomes an "Acquiring Person", each Right will entitle its holder, other than an Acquiring Person and its affiliates, to purchase, at the Right's then current exercise price, a number of shares of the Company's common stock having a market value of twice the Right's exercise price. In addition, if after a person or group becomes an Acquiring Person, the Company is acquired in a merger or other business combination transaction, or sells 50% or more of its assets or earning power, each Right will entitle its holder, other than an Acquiring Person and its affiliates, to purchase, at the Right's then current exercise price, a number of shares of the acquiring company's common stock having a market value at the time of twice the Right's exercise price. Under the Shareholder Rights Plan, an "Acquiring Person" is any person or entity which, together with any affiliates or associates, beneficially owns 15% or more of the shares of Common Stock of the Company then outstanding. The Shareholder Rights Plan contains a number of exclusions from the definition of Acquiring Person. The Shareholders Rights Plan will not apply to a Qualifying Offer, which is a cash tender offer to all shareholders satisfying certain conditions set forth in the Plan. The Company's Board of Directors may redeem the Rights at any time prior to a person or entity becoming an Acquiring Person. TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL INFORMATION DECEMBER 31, 1999 AND 1998 SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED): TransFinancial's quarterly operating results from Crouse, as well as those of the motor carrier industry in general, fluctuate with the seasonal changes in tonnage levels and with changes in weather related operating conditions. Inclement weather conditions during the winter months may adversely affect freight shipments and increase operating costs. The following table sets forth selected unaudited financial information for each quarter of 1999 and 1998 (in thousands, except per share amounts).
1999 First Second Third Fourth Total Revenue................................... $ 39,857 $ 40,261 $ 39,294 $ 38,155 $ 157,567 Operating Income (Loss)................... 3 (177) (1,359) (4,994) (6,527) Nonoperating Income (Expense)............. (211) (278) (286) (349) (1,124) Net Income (Loss)......................... (172) (321) (1,035) (6,556) (8,084) Basic and Diluted Earnings (Loss) per Share.......................... (0.04) (0.09) (.32) (2.00) (2.37) 1998 First Second Third Fourth Total Revenue................................... $ 37,003 $ 37,036 $ 39,614 $ 38,048 $ 151,701 Operating Income (Loss)................... 300 266 (4,031) 444 (3,021) Nonoperating Income (Expense)............. 51 131 174 (201) 155 Net Income (Loss)......................... 161 176 (2,474) 110 (2,027) Basic and Diluted Earnings (Loss) per Share...................... 0.03 0.03 (0.50) 0.03 (0.39)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS OF THE COMPANY Director of the Name, Principal Occupation and Company other Directorships Age Since William D. Cox 57 1991 Chairman of the Board of Directors since June 1997. Mr. Cox has served as President of various family-owned, commercial and residential construction and land development companies in Wichita, Kansas, currently Applewood Homes, Inc., from 1967 to the present. J. Richard Devlin 49 1997 Executive Vice President, General Counsel and External Affairs of Sprint Corporation ("Sprint"), a publicly traded telecommunications company headquartered in Westwood, Kansas, since 1989. Mr. Devlin also serves as a member of Sprint's Executive Management Committee. Mr. Devlin served as Vice President and General Counsel for telephone operations for Sprint from 1987 to 1989. From 1972 to 1986, Mr. Devlin served as an attorney and in various line and staff operations management positions with AT&T. Harold C. Hill, Jr. 64 1995 Retired as a partner of Arthur Andersen LLP in 1993. Mr. Hill's 35 years of service with that firm included responsibility as partner in charge of the transportation, financial services and government practices in Kansas City, and National Technical Coordinator of that firm's trucking industry practice group. Roy R. Laborde 61 1991 Vice Chairman of the Board of Directors since June 1997. Chairman of the Board of Directors from May 1992 to June 1997. President of Amboy Grain, Inc., Amboy, Minnesota, since 1985; President and Chief Operating Officer for Rapidan Grain & Feed, Rapidan, Minnesota, from 1968 through 1988 and has continued to merchandise grain for that company. Timothy P. O'Neil 43 1995 President and Chief Executive Officer of the Company since May 1995 and Secretary since April 2000. From October 1989, through May, 1995, Mr. O'Neil served in various positions with the Company, including Senior Vice President, Vice President, Treasurer and Director of Finance. From March 1997 to October 1998, he has also served as President and Chief Executive Officer of Universal Premium Acceptance Corporation ("UPAC"), a wholly-owned subsidiary of the Company. Mr. O'Neil has also served as President, Chief Executive Officer, and Chief Financial Officer and Treasurer of American Freight System, Inc. ("AFS"), a wholly-owned subsidiary of the Company, since July, 1991. Clark D. Stewart 60 1997 President and Chief Executive Officer of Butler National Corporation, a publicly-held company headquartered in Olathe, Kansas, with operations primarily in the manufacture and modification of aerospace switching equipment and management services for Indian gaming enterprises, since September 1989. David D. Taggart 56 1998 Executive Vice President of the Company since April 1998. From August 1997 to April 1998 he served as Vice President of the Company. He has also served as Chairman and Chief Executive Officer of Crouse since January 1997. Mr. Taggart joined Crouse in October 1995 as Executive Vice President. Prior to his service at Crouse, he served as President and Chief Executive Officer of G. I. Trucking, a regional LTL carrier based in La Mirada, California, from 1991 to 1995. EXECUTIVE OFFICERS OF THE COMPANY Name Age Position Timothy P. O'Neil 43 President, Chief Executive Officer, Secretary and Director David D. Taggart 55 Executive Vice President and Director Kurt W. Huffman 42 Executive Vice President Following is the information required regarding executive officers not listed above. Kurt W. Huffman has been Executive Vice President of TransFinancial since August 1998, President and Chief Executive Officer of Presis since March 1998 and President and Chief Executive Officer of UPAC since October 1998. From August 1997 to March 1998 he served as Executive Vice President of Presis. Prior to joining the Company in a management capacity in June 1997, Mr. Huffman served as Chief Information Officer of Laidlaw Transit Services, Overland Park, Kansas, a publicly-held provider of school and municipal bus services, from May 1993 to February 1997. Prior to his service with Laidlaw, he was a senior manager with the international accounting firm of Arthur Andersen LLP. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires directors, executive officers and beneficial owners of more than ten percent of the Common Stock to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission (the "SEC") and the American Stock Exchange, and to provide copies to the Company. Based solely on a review of the copies of such reports provided to the Company and written representations from the directors and executive officers, the Company believes that all applicable Section 16(a) filing requirements have been met. ITEM 11. EXECUTIVE COMPENSATION COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee consists exclusively of non-employee directors appointed by resolution of the entire Board of Directors. William D. Cox has been a non-employee Chairman of the Board of Directors since the 1997 Organization Meeting of the Board of Directors.
SUMMARY COMPENSATION TABLE Long Term Compensation Annual Compensation Awards Payouts Other Securities All Annual Restricted Underlying Other Name and Compen- Stock Options/ LTIP Compen- Principal sation Award(s) SARs Payouts sation Position Year Salary Bonus ($)(3) ($) ($) (#) ($) ($) Timothy P. O'Neil, 1999 $160,680 $ -0- -0- -0- 20,000 -0- $ 25,000 (2) President, Chief 1998 160,680 11,500 -0- -0- 20,000 -0- 25,000 (2) Executive Officer 1997 160,680 -0- -0- -0- 20,000 -0- 25,000 (2) and Secretary David D. Taggart, 1999 $143,000 $10,333 -0- -0- 10,000 -0- $ 10,000 (1) Executive Vice President 1998 140,000 10,333 -0- -0- 10,000 -0- 10,000 (1) of the Company and Chief 1997 123,278 23,266 -0- -0- 10,000 -0- 10,000 (1) Executive Officer of Crouse Kurt W. Huffman, 1999 $125,000 $ 9,000 $7,200 -0- 10,000 -0- $ -0- Executive Vice President 1998 110,908 9,000 -0- -0- 10,000 -0- -0- of the Company and President and Chief Executive Officer of UPAC and Presis (1) Pursuant to Mr. Taggart's employment agreement an interest free loan secured by his personal residence is being forgiven ratably over eight years. (2) Represents the annual insurance premiums paid by the Company with respect to a split-dollar life insurance policy for the benefit of Timothy P. O'Neil. For a description of such arrangement see Employment Agreements. (3) 1998 bonuses represent incentive compensation awarded on a discretionary basis based on subjective criteria.
OPTION GRANTS IN LAST FISCAL YEAR Individual Grants Potential Realizable Number of % of Total Value at Assumed Annual Securities Options Exer- Rates of Stock Price Underlying Granted to cise Expir- Appreciation for Options Employees in Price ation Option Term Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($) Timothy P. O'Neil(1) 20,000 22% $4.25 2/23/2009 $53,456 $135,468 David D. Taggart(1) 10,000 11% 4.25 2/23/2009 26,728 67,734 Kurt W. Huffman(1) 10,000 11% 4.25 2/23/2009 26,728 67,734 (1) Grants are "Incentive Stock Options" under the Internal Revenue Code. The exercise prices equal the market value on the date of grant. The options become exercisable ratably on February 23 of the years 2000 through 2004 and remain exercisable through 2009.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Shares Value FY-End (#) FY-End ($) Acquired on Realized Exercisable/ Exercisable/ Name Exercise (#) ($) Unexercisable Unexercisable (1) Timothy P. O'Neil -- $ -- 32,820/59,180 $-0-/$20,000 David D. Taggart -- -- 13,000/27,000 -0-/10,000 Kurt W. Huffman -- -- 6,000/24,000 -0-/10,000 (1) With the exception of the 1999 option grants at an exercise price of $4.25 per share, all of the exercisable and unexercisable options held as of the fiscal yearend were exercisable at prices above the closing market price of $5.25 per share as of December 31, 1999.
EMPLOYMENT AGREEMENTS The Company is a party to a Supplemental Benefit and Collateral Assignment Split-Dollar Agreement with Timothy P. O'Neil, President and Chief Executive Officer of the Company. Under the agreement, the Company has agreed to pay the premiums on a life insurance policy insuring the life of Mr. O'Neil with an initial death benefit of $532,968. Mr. O'Neil has the right under the agreement to designate the beneficiaries to whom the death benefits under the policy shall be payable. If Mr. O'Neil's employment is terminated by the Company with cause, Mr. O'Neil's rights under the policy shall terminate. If Mr. O'Neil terminates his employment, Mr. O'Neil will have no further rights under the policy except that Mr. O'Neil will receive, for each period of twelve months from the date of hire, an amount equal to 10% of the excess, if any, of the cash surrender value of the policy over the aggregate cost of the policy incurred by the Company in the payment of premiums. Upon the death of Mr. O'Neil, or the earlier surrender or cancellation of the policy by him subsequent to his retirement, disability or termination without cause, the Company is entitled to the lesser of the cash surrender value of the policy and the amount of premiums paid by it, and Mr. O'Neil is entitled to the remaining amounts payable upon such event under the policy. Mr. O'Neil has the right to retire under the agreement upon completing ten years of employment and reaching age 50. The Company is party to an Employment Agreement with Timothy P. O'Neil, President and Chief Executive Officer of the Company. The Employment agreement provides for the employment at will of Mr. O'Neil by the Company. Under the Employment Agreement, Mr. O'Neil is entitled to (a) salary of $160,680 per year, subject to increase by the Company from time to time, (b) annual incentive compensation of 36% of base salary, or $57,500, based on achieving budgeted net income levels for the Company and an additional 7% of base salary, or $11,500, based on subjective criteria, (c) such stock options as the Company shall from time to time grant pursuant to stock option plans, (d) certain additional fringe and other benefits, including a Supplemental Benefit and Collateral Assignment Split-Dollar Agreement as described above. The Employment Agreement provides that if Mr. O'Neil's employment is terminated by the Company without good cause (as defined in the agreement), he will be entitled to his then existing base compensation and all related benefits for two years. The Employment Agreement also includes a non-competition provision for two years after termination. Under the Employment Agreement, Mr. O'Neil is entitled to certain payments upon termination of Mr. O'Neil's employment after a change of control of the Company. Mr. O'Neil is entitled to such payments if, within two years after such a change of control, Mr. O'Neil's employment is terminated other than by Mr. O'Neil for any reason other than death, permanent disability, retirement or Good Cause (as defined in the agreement), or is terminated by Mr. O'Neil for Stated Cause (as defined in the agreement). In such event, Mr. O'Neil is entitled to the following: (i) 2.99 times Mr. O'Neil's average annual compensation over the three most recent years prior to the change of control, or such lesser period as Mr. O'Neil shall have been employed by the Company, excluding any amount which would constitute an "excess parachute payment" under Section 280G of the Code, (ii) immediate 100% vesting of all incentive compensation provided or to be provided under the Employment Agreement, (iii) all benefits to which he would have been entitled upon normal retirement under the Supplemental Benefit and Collateral Assignment Split-Dollar Agreement described above and (iv) three years participation in certain medical and life insurance plans of the Company. The Company is a party to a Supplemental Benefit Agreement with David D. Taggart, an Executive Vice President of the Company and Chairman and Chief Executive Officer of Crouse Cartage Company ("Crouse"). The agreement provides salary continuation benefits in the event of death before age 65, supplemental retirement benefits and pre-retirement death benefits. Under the agreement, if Mr. Taggart remains a full-time officer of Crouse until age 65, the Company is required to pay him (or his beneficiary in the event of death) $21,000 per year for 15 years after his retirement. Mr. Taggart's entitlement to such supplemental retirement benefit vests 10% per year of service and immediately upon disability or a change of control of the Company or Crouse. The agreement provides for partial payments of supplemental retirement benefits upon early retirement or retirement at age 65 prior to full vesting of the retirement benefits. The agreement provides that if Mr. Taggart's employment with Crouse is terminated before his 65th birthday due to death, Mr. Taggart's beneficiary shall receive $35,000 per year for 20 years. If Mr. Taggart dies before retirement, the Company is also required to pay to his beneficiaries the sum of $175,000 under the agreement. The Company and Crouse Cartage Company are parties to an Employment Agreement with David D. Taggart, an Executive Vice President of the Company and Chairman and Chief Executive Officer of Crouse. The Employment Agreement provides for the employment at will of Mr. Taggart by TransFinancial. Under the Employment Agreement, Mr. Taggart is entitled to (a) salary of $143,000 per year, subject to increase by Crouse from time to time, (b) annual incentive compensation of 36% of base salary, or $51,667, based on achieving budgeted net income levels for Crouse or the Company, and an additional 7% of base salary, or $10,333, based on subjective criteria, (c) an interest free home loan from the Company to be forgiven in equal annual installments, (d) such stock options as the Company shall from time to time grant pursuant to stock option plans, and (e) certain additional fringe and other benefits, including supplemental retirement benefits as described above. The Employment Agreement provides that if Mr. Taggart's employment is terminated by the Company without cause (as defined in the agreement) he will be entitled to an amount equal to his then existing base compensation and all related benefits for two years. The Employment Agreement also includes a non-competition provision for two years after termination. Under a separate agreement between the parties, Mr. Taggart is entitled to certain payments upon termination of Mr. Taggart's employment after a change of control of the Company or Crouse. Mr. Taggart is entitled to such payments if, within two years after such a change of control, Mr. Taggart's employment is terminated other than by Mr. Taggart for any reason other than death, permanent disability, retirement or Good Cause (as defined in the agreement), or is terminated by Mr. Taggart for Stated Cause (as defined in the agreement). In such event, Mr. Taggart is entitled to the following: (i) 2.99 times Mr. Taggart's average annual compensation over the three most recent years prior to the change of control, or such lesser period as Mr. Taggart shall have been employed, excluding any amount which would constitute an "excess parachute payment" under Section 280G of the Code, (ii) immediate 100% vesting of all incentive compensation provided or to be provided under the Employment Agreement, (iii) all benefits to which he would have been entitled upon normal retirement under the Supplemental Benefit Agreement described above and (iv) three years participation in certain medical and life insurance plans of the Company and Crouse. The Company and Presis are parties to an Employment Agreement with Kurt W. Huffman, Executive Vice President of the Company, President and Chief Executive Officer of Presis and President and Chief Executive Officer of UPAC. The Employment agreement provides for the employment at will of Mr. Huffman by the Company. Under the Employment Agreement, Mr. Huffman is entitled to (a) salary of $125,000 per year, subject to increase by the Company from time to time, (b) annual incentive compensation of 36% of base salary, or $45,000, based on achieving budgeted net income levels for the Company and an additional 7% of base salary, or $9,000, based on subjective criteria, (c) such stock options as the Company shall from time to time grant pursuant to stock option plans, (d) certain additional fringe and other benefits. The Employment Agreement provides that if Mr. Huffman's employment is terminated by the Company without good cause (as defined in the agreement), he will be entitled to his then existing base compensation and all related benefits for one year. The Employment Agreement also includes a non-compensation provision for one year after termination. Under the Employment Agreement, Mr. Huffman is entitled to certain payments upon termination of Mr. Huffman's employment after a change of control of the Company. Mr. Huffman is entitled to such payments if, within one year after such a change of control, Mr. Huffman's employment is terminated other than by Mr. Huffman for any reason other than death, permanent disability, retirement or Good Cause (as defined in the agreement), or is terminated by Mr. Huffman for Stated Cause (as defined in the agreement). In such event, Mr. Huffman is entitled to the following: (i) 2.99 times Mr. Huffman's average annual compensation over the three most recent years prior to the change of control, or such lesser period as Mr. Huffman shall have been employed by the Company, excluding any amount which would constitute an "excess parachute payment" under Section 280G of the Code, (ii) immediate 100% vesting of all incentive compensation provided or to be provided under the Employment Agreement, and (iii) three years participation in certain medical and life insurance plans of the Company. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as of June 2, 2000, unless otherwise indicated, with respect to the beneficial ownership of the Company's Common Stock by (a) persons known to the Company to be beneficial owners of 5% or more of the outstanding Common Stock, (b) executive officers listed in the Summary Compensation Table, (c) directors and nominees for director and (d) all directors and executive officers of the Company as a group. Name of Beneficial Owners Amount and (and address of beneficial owners Nature of other than executive officers, Beneficial Percent directors and nominees) Ownership(1) of Class Franklin Advisory Services Charles B. Johnson Rupert H. Johnson, Jr. Franklin Resources, Inc. 777 Mariners Island Boulevard San Mateo, CA 94404.................................265,000 (2) 8.08% Dimensional Fund Advisors, Inc. 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401..............................296,800 (3) 9.05% Roy R. Laborde.......................................172,365 (7) 5.24% care of TransFinancial Holdings, Inc. 8245 Nieman Road, Suite 100 Lenexa, KS 66214 Timothy P. O'Neil....................................205,360 (8) 6.17% 8245 Nieman Road, Suite 100 Lenexa, KS 66214 William D. Cox....................................... 84,000 (4) 2.55% J. Richard Devlin.................................... 6,000 (5) .18% Harold C. Hill, Jr................................... 11,500 (6) .35% Clark D. Stewart..................................... 4,000 (9) .12% David D. Taggart..................................... 20,000 (10) .61% Kurt W. Huffman...................................... 23,000 (11) .70% Directors and executive officers as a group (8 persons, including the above)............526,225 (12) 15.46% (1) Unless otherwise indicated, each person has sole voting and investment power with respect to the shares listed. (2) The shares shown in the table are beneficially owned by one or more open or closed-end investment companies or other managed accounts which are advised by Franklin Advisory Services, Inc. ("Franklin"), a subsidiary of Franklin Resources, Inc. ("FRI"). Franklin has all investment and/or voting power over the shares owned by such advisory clients and may be deemed the beneficial owner of the shares shown in the table. Charles B. Johnson and Rupert H. Johnson, Jr. (the "Principal Shareholders") each own in excess of 10% of the outstanding common stock of FRI and are the principal shareholders of FRI. FRI, the Principal Shareholders and Franklin disclaim any economic interest or beneficial ownership in any of the shares. The information contained in this footnote was obtained from the Amendment No. 3 to Schedule 13G filed by these persons on February 2, 2000. (3) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment advisor, is deemed to have beneficial ownership of 296,800 shares, all of which shares are held in portfolios of four registered open-end investment companies, or in series of investment vehicles, all of which Dimensional serves as investment manager. Dimensional disclaims beneficial ownership of all such shares. The information as to the beneficial ownership of Dimensional was obtained from the Schedule 13G filed by that company on February 11, 2000. (4) Includes 15,000 shares subject to exercisable outstanding stock options. (5) Includes 5,000 shares subject to exercisable outstanding stock options. (6) Includes 4,500 shares in the Francile Hill Revocable Trust. Both Mr. Hill and Francile Hill are trustees and each has shared voting and investment power. Also includes 7,000 shares subject to exercisable outstanding stock options. (7) Includes 13,150 shares subject to exercisable outstanding stock options and 1,415 shares owned by and registered in the name of his wife, over which they share voting power but Mrs. Laborde retains sole investment power. (8) Includes 52,000 shares subject to exercisable outstanding stock options. Does not include 9,000 shares held in various irrevocable trusts for the benefit of Mr. O'Neil's children and over which he has no voting or investment power. (9) Includes 3,000 shares subject to exercisable outstanding stock options. (10)Represents 20,000 shares subject to exercisable outstanding stock options. (11)Includes 10,000 shares subject to exercisable outstanding stock options. (12)Includes a total of 125,150 shares subject to exercisable outstanding stock options. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company did not engage in any individual transactions or series of transactions with members of management or nominees for director during 1999 in which the amount involved exceeded $60,000. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial Statements Included in Item 8, Part II of this Report - Consolidated Balance Sheets at December 31, 1999 and 1998 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements Supplemental Financial Information (Unaudited) - Summary of Quarterly Financial Information for 1999 and 1998 (a)2. Financial Statement Schedules Included in Item 14, Part IV of this Report - Financial Statement Schedules for the three years ended December 31, 1999: Schedule II - Valuation and Qualifying Accounts Other financial statement schedules are omitted either because of the absence of the conditions under which they are required or because the required information is contained in the consolidated financial statements or notes thereto. (a)3. Exhibits The following exhibits have been filed as part of this report in response to Item 14(c) of Form 10-K. The management contracts or compensatory plans or arrangements required to be filed at exhibits to this form pursuant Item 14(c) are contained in Exhibits 10(a), 10(b), 10(d), 10(s), 10(t), 10(u), 10(v), 10(w) and 10(x). Exhibit No. Exhibit Description 3(a) 1998 Restated Certificate of Incorporation of the Registrant. Filed as Exhibit 3(a) to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. 3(b) Restated By-Laws of the Registrant. Filed as Exhibit 3(b) to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. 4(a) Specimen Certificate of the Common Stock, $.01 par value, of the Registrant. Filed as Exhibit 4.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. 4(b) Certificate of Designations of Series A Preferred Stock, dated July 15, 1998. Filed as Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. 4(c) First Amended and Restated Rights Agreement, between TransFinancial Holdings, Inc. and UMB Bank, N.A., dated March 4, 1999. Filed as Exhibit 1 to Registrant's Current Report on Form 8-K dated March 5, 1999. 10(a) Form of Indemnification Agreement with Directors and Executive Officers. Filed as Exhibit 10(k) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986. 10(b) Registrant's 1992 Incentive Stock Plan. Filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. 10(c) Stock Purchase Agreement by and between Universal Premium Acceptance Corporation and Oxford Bank and Trust Company, dated April 29, 1998. Filed as Exhibit 2(a) to Registrant's Current Report on Form 8-K, dated May 29, 1998. 10(d) Registrant's 1998 Long-Term Incentive Plan. Filed as Exhibit 10(d) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. 10(e) Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, Anuhco, Inc., EagleFunding Capital Corporation, The First National Bank of Boston, dated December 31, 1996. Filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. 10(f) Amendment No. 4 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated May 29, 1998. Filed as Exhibit 10(a) to Registrant's Current Report on Form 8-K, dated May 29, 1998. 10(g) Amendment No. 5 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated August 25, 1998. Filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter filed September 30, 1998. 10(h) Amendment No. 6 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated September 11, 1998. Filed as Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. 10(i) Amendment No. 7 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated July 14, 1999. Filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. 10(j) Amendment No. 8 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated October 8, 1999. Filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. 10(k)*Amendment No. 9 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated December 29, 1999. 10(l)*Amendment No. 10 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated February 23, 2000. 10(m)*Amendment No. 11 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated April 27, 2000. 10(n)*Amendment No. 12 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc Autobahn Funding Company LLC, DG Bank Deutsche Genossenschaftsbank AG, dated May 25, 2000. 10(o)*Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, Autobahn Funding Company LLC, DG Bank Deutsche Genossenschaftsbank AG, dated December 31, 1996 as amended by Amendment Nos. 1 - 12 thereto. 10(p) Secured Loan Agreement by and between Bankers Trust Company of Des Moines, Iowa and Crouse Cartage Company, dated January 5, 1998. Filed as Exhibit 10(k) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. 10(q) Stock Purchase Agreement, dated August 14, 1998, by and between TransFinancial Holdings, Inc. and certain members of the Crouse family. Filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. 10(r) Secured Loan Agreement by and between Bankers Trust of Des Moines, Iowa, TransFinancial Holdings, Inc., and Crouse Cartage Company, dated March 25, 1999. Filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. 10(s)Supplemental Benefit and Collateral Assignment Split-Dollar Agreement dated January 18, 1997 by and between the Company and Timothy P. O'Neil. Filed as Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. 10(t)Employment Agreement dated July 2, 1998 by and between the Company and Timothy P. O'Neil. Filed as Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. 10(u)Supplemental Benefit Agreement dated September 30, 1995 by and between the Company and David D. Taggart. Filed as Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. 10(v)Employment Agreement dated April 27, 1998 by and among the Company, Crouse Cartage Company and David D. Taggart. Filed as Exhibit 10.5 to Registrant's Quarterly Report on Form 10- Q for the quarter ended September 30, 1999. 10(w)Agreement dated September 30, 1995 by and between the Company and David D. Taggart. Filed as Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. 10(x)Amended and Restated Employment Agreement dated October 16, 1998 by and among the Company, Universal Premium Acceptance Corporation, Presis, L.L.C. and Kurt W. Huffman. Filed as Exhibit 10.7 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. 21* List of all subsidiaries of TransFinancial Holdings, Inc. the state of incorporation of each such subsidiary, and the names under which such subsidiaries do business. 23* Consent of Independent Accountants. 27* Financial Data Schedule. *Filed herewith. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1999.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Additions Balance at Charged Charged Balance Beginning to to Other Deduc- at End Description of Year Expense Accounts tions(1) of Year (In Thousands) Allowance for credit losses accounts (deducted from freight accounts receivable) Year Ended December 31 - 1999............................... $ 387 $ (104) $ -- $ (80) $ 203 1998............................... 464 393 -- (470) 387 1997............................... 419 120 -- (75) 464 Allowance for credit losses (deducted from finance accounts receivable) Year Ended December 31 - 1999............................... $ 566 $ 1,193 $ -- $ (889) $ 870 1998............................... 499 827 343(2) (1,103) 566 1997............................... 769 950 -- (1,220) 499 (1)Deduction for purposes for which reserve was created. (2)Allowance established as of May 29, 1998, the date of acquisition of Oxford Premium Finance, Inc.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: June 22, 2000 By /s/Timothy P. O'Neil Timothy P. O'Neil, President, Chief Executive Officer and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/Timothy P. O'Neil President, Chief Executive Officer and Timothy P. O'Neil Secretary (Principal Financial Officer) /s/William D. Cox /s/Timothy P. O'Neil William D. Cox, Chairman Timothy P. O'Neil, Director of the Board of Directors /s/J. Richard Devlin /s/ Clark D. Stewart J. Richard Devlin, Director Clark D. Stewart, Director /s/ Harold C. Hill /s/David D. Taggart Harold C. Hill, Jr., Director David D. Taggart, Director /s/Roy R. Laborde Roy R. Laborde, Vice Chairman of the Board of Directors June 22, 2000 Date of all signatures TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES EXHIBIT INDEX Exhibit No. Exhibit Description 10(k) Amendment No. 9 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated December 29, 1999. 10(l) Amendment No. 10 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated February 23, 2000. 10(m) Amendment No. 11 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated April 27, 2000. 10(n) Amendment No. 12 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc Autobahn Funding Company LLC, DG Bank Deutsche Genossenschaftsbank AG, dated May 25, 2000. 10(o) Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, Autobahn Funding Company LLC, DG Bank Deutsche Genossenschaftsbank AG, dated December 31, 1996 as amended by Amendment Nos. 1 - 12 thereto. 21 List of all Subsidiaries of TransFinancial Holdings, Inc. 23 Consent of Independent Accountants. 27 Financial Data Schedule. EX-10 2 0002.txt Exhibit 10(k) ExecutionVersion AMENDMENT NO. 9 TO RECEIVABLES PURCHASE AGREEMENT THIS AMENDMENT NO. 9 TO RECEIVABLES PURCHASE AGREEMENT (the "Amendment") dated as of December 22, 1999 is entered into by and among APR FUNDING CORPORATION, a Delaware corporation ("Seller"), UNIVERSAL PREMIUM ACCEPTANCE CORPORATION, a Missouri corporation, individually ("UPAC") and as Servicer (in such capacity, the "Servicer"), TRANSFINANCIAL HOLDINGS, INC., a Delaware corporation (the "Parent"), EAGLEFUNDING CAPITAL CORPORATION, a Delaware corporation ("Purchaser"), and BANKBOSTON, N.A., (as "Agent", as "Custodian" and in its individual capacity). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in Appendix A to the "Agreement" (as defined below). W I T N E S S E T H: WHEREAS, the Seller, UPAC, the Servicer, the Parent, the Purchaser and the Agent have entered into that certain Receivables Purchase Agreement dated as of December 31, 1996 (as the same has been amended, restated, supplemented or otherwise modified from time to time through the date hereof, the "Agreement"; the terms defined therein being used herein as therein defined unless otherwise defined herein), pursuant to which, among other things, the Seller has agreed to sell to the Purchaser, and the Purchaser has agreed to purchase from the Seller, undivided percentage interests in the Seller's Receivables; and WHEREAS, the parties hereto have agreed to modify certain terms and provisions of the Agreement as set forth herein; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE AGREEMENT. Effective as of the first date on which each of the conditions set forth in Section 2 hereof shall have been satisfied, the Agreement is amended as follows: The definition of "Scheduled Termination Date" in Appendix A of the Agreement is hereby amended to delete the date "January 15, 2000" and to substitute therefor "March 15, 2000". SECTION 2. CONDITIONS PRECEDENT. This Amendment shall become effective upon the satisfaction of the following conditions precedent: (a) The Agent shall have received: (i) eight fully executed copies of (A) this Amendment, (B) Amendment No. 7 to Liquidity Agreement of even date herewith among EagleFunding Capital Corporation as "Borrower", BKB and LaSalle Bank National Association as "Liquidity Providers", BKB as "Liquidity Agent" and Bankers Trust Company as "Collateral Agent" ("Amendment No. 7 to Liquidity Agreement") and (C) the fee letter with regard to the amendment fee to be paid to the Deal Agent on the date hereof, in the form of Exhibit A attached hereto (the "Amendment Fee Letter"); and (ii) such other further documents and information as the Agent shall reasonably request. (b) No event or condition has occurred and is continuing, or would result from the execution, delivery or performance of this Amendment, which would constitute a Liquidation Event or Unmatured Liquidation Event; (c) The Purchaser shall have obtained confirmation from each of the three rating agencies rating the Commercial Paper Notes that the amendments herein and the amendments to the Liquidity Agreement of even date herewith will not result in a withdrawal or reduction of the ratings of the Commercial Paper Notes; (d) All of the fees and expenses referred to in Section 9 below, the Amendment Fee described in the Amendment Fee Letter, and any other fees and expenses owing under Section 14.05 of the Agreement or any other agreement between the parties thereto shall have been paid in full; and (e) The conditions precedent to the effectiveness of Amendment No. 7 to Liquidity Agreement shall have been fully satisfied. SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. Upon the effectiveness of this Amendment, each of the Seller, UPAC, the Servicer and the Parent, hereby remakes and reaffirms all covenants, representations and warranties made by it (or deemed made by it) in the Agreement, the Backup Servicing Agreement, the Custody Agreement and the Parent Support Agreement (except, in each case, to the extent that such covenants, representations or warranties expressly speak as to another date). SECTION 4. CONSENT AND REAFFIRMATION. The Parent, by its execution hereof, hereby (i) consents to the execution, delivery and performance of the Amendment by all of the parties hereto and (ii) reaffirms all of its obligations and liabilities under that certain Parent Support Agreement dated as of December 31, 1996 executed by the Parent in favor of the Seller and its successors and assigns, which obligations and liabilities shall remain in full force and effect. SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS DISTINGUISHED FROM THE CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK. SECTION 6. SEVERABILITY. Each provision of this Amendment shall be severable from every other provision of this Amendment for the purpose of determining the legal enforceability of any provision hereof, and the unenforceability of any provision hereof in one jurisdiction shall not have the effect of rendering such provision or provisions unenforceable in any other jurisdiction. SECTION 7. REFERENCE TO AND EFFECT ON THE AGREEMENT. Upon the effectiveness of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be, and references to the Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Agreement shall mean and be, a reference to the Agreement as previously amended and as amended hereby. Except as otherwise amended by this Amendment, the Agreement as previously amended shall continue in full force and effect and is hereby ratified and confirmed. SECTION 8. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. SECTION 9. FEES AND EXPENSES. The Seller hereby confirms its agreement to pay on demand all reasonable costs and expenses in connection with the preparation, execution and delivery of this Amendment and any of the other instruments, documents and agreements to be executed and/or delivered in connection herewith, including, without limitation, the reasonable fees and out- of-pocket expenses of counsel to the Agent with respect thereto. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] [Amendment No. 9 Signature Page] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written. APR FUNDING CORPORATION, as Seller By /s/ Kurt Huffman Title President UNIVERSAL PREMIUM ACCEPTANCE CORPORATION, individually and as initial Servicer By /s/ Kurt Huffman Title President TRANSFINANCIAL HOLDINGS, INC., as Parent By /s/ Timothy P. O'Neil Title: President EAGLEFUNDING CAPITAL CORPORATION, as Purchaser By: BANKBOSTON, N.A., as its attorney-in-fact By /s/ Mark E. Gallivan Title Director BANKBOSTON, N.A., as Agent By /s/ Mark E. Gallivan Title Director [Amendment No. 9 Signature Page] Acknowledged and agreed to as of this 22nd day of December, 1999 in accordance with Section 5.03 of that certain Liquidity Agreement dated as of December 31, 1996, as amended, among the Purchaser, the financial institutions from time to time parties thereto as liquidity providers, BankBoston, N.A. as liquidity agent, and Bankers Trust Company, as collateral agent BANKBOSTON, N.A., as a Liquidity Provider By /s/ Mark E. Gallivan Title Director LASALLE BANK NATIONAL ASSOCIATION, as a Liquidity Provider By /s/ Julie Harris Title Vice President EX-10 3 0003.txt Exhibit 10(l) ExecutionVersion AMENDMENT NO. 10 TO RECEIVABLES PURCHASE AGREEMENT THIS AMENDMENT NO. 10 TO RECEIVABLES PURCHASE AGREEMENT (the "Amendment") dated as of February 25, 2000 is entered into by and among APR FUNDING CORPORATION, a Delaware corporation ("Seller"), UNIVERSAL PREMIUM ACCEPTANCE CORPORATION, a Missouri corporation, individually ("UPAC") and as Servicer (in such capacity, the "Servicer"), TRANSFINANCIAL HOLDINGS, INC., a Delaware corporation (the "Parent"), EAGLEFUNDING CAPITAL CORPORATION, a Delaware corporation ("Purchaser"), and BANKBOSTON, N.A., (as "Agent", as "Custodian" and in its individual capacity). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in Appendix A to the "Agreement" (as defined below). W I T N E S S E T H: WHEREAS, the Seller, UPAC, the Servicer, the Parent, the Purchaser and the Agent have entered into that certain Receivables Purchase Agreement dated as of December 31, 1996 (as the same has been amended, restated, supplemented or otherwise modified from time to time through the date hereof, the "Agreement"; the terms defined therein being used herein as therein defined unless otherwise defined herein), pursuant to which, among other things, the Seller has agreed to sell to the Purchaser, and the Purchaser has agreed to purchase from the Seller, undivided percentage interests in the Seller's Receivables; and WHEREAS, the parties hereto have agreed to modify certain terms and provisions of the Agreement as set forth herein; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE AGREEMENT. Effective as of the first date on which each of the conditions set forth in Section 2 hereof shall have been satisfied, the Agreement is amended as follows: The definition of "Scheduled Termination Date" in Appendix A of the Agreement is hereby amended to delete the date "March 15, 2000" and to substitute therefor "May 14, 2000". SECTION 2. CONDITIONS PRECEDENT. This Amendment shall become effective upon the satisfaction of the following conditions precedent: (a) The Agent shall have received: (i) eight fully executed copies of (A) this Amendment, (B) Amendment No. 8 to Liquidity Agreement of even date herewith among EagleFunding Capital Corporation as "Borrower", BKB and LaSalle Bank National Association as "Liquidity Providers", BKB as "Liquidity Agent" and Bankers Trust Company as "Collateral Agent" ("Amendment No. 8 to Liquidity Agreement") and (C) the fee letter with regard to the amendment fee to be paid to the Deal Agent on the date hereof, in the form of Exhibit A attached hereto (the "Amendment Fee Letter"); and (ii) such other further documents and information as the Agent shall reasonably request. (b) No event or condition has occurred and is continuing, or would result from the execution, delivery or performance of this Amendment, which would constitute a Liquidation Event or Unmatured Liquidation Event; (c) All of the fees and expenses referred to in Section 9 below, the Amendment Fee described in the Amendment Fee Letter, and any other fees and expenses owing under Section 14.05 of the Agreement or any other agreement between the parties thereto shall have been paid in full; and (d) The conditions precedent to the effectiveness of Amendment No. 8 to Liquidity Agreement shall have been fully satisfied. SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. Upon the effectiveness of this Amendment, each of the Seller, UPAC, the Servicer and the Parent, hereby remakes and reaffirms all covenants, representations and warranties made by it (or deemed made by it) in the Agreement, the Backup Servicing Agreement, the Custody Agreement and the Parent Support Agreement (except, in each case, to the extent that such covenants, representations or warranties expressly speak as to another date). SECTION 4. CONSENT AND REAFFIRMATION. The Parent, by its execution hereof, hereby (i) consents to the execution, delivery and performance of the Amendment by all of the parties hereto and (ii) reaffirms all of its obligations and liabilities under that certain Parent Support Agreement dated as of December 31, 1996 executed by the Parent in favor of the Seller and its successors and assigns, which obligations and liabilities shall remain in full force and effect. SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS DISTINGUISHED FROM THE CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK. SECTION 6. SEVERABILITY. Each provision of this Amendment shall be severable from every other provision of this Amendment for the purpose of determining the legal enforceability of any provision hereof, and the unenforceability of any provision hereof in one jurisdiction shall not have the effect of rendering such provision or provisions unenforceable in any other jurisdiction. SECTION 7. REFERENCE TO AND EFFECT ON THE AGREEMENT. Upon the effectiveness of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be, and references to the Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Agreement shall mean and be, a reference to the Agreement as previously amended and as amended hereby. Except as otherwise amended by this Amendment, the Agreement as previously amended shall continue in full force and effect and is hereby ratified and confirmed. SECTION 8. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. SECTION 9. FEES AND EXPENSES. The Seller hereby confirms its agreement to pay on demand all reasonable costs and expenses in connection with the preparation, execution and delivery of this Amendment and any of the other instruments, documents and agreements to be executed and/or delivered in connection herewith, including, without limitation, the reasonable fees and out- of-pocket expenses of counsel to the Agent with respect thereto. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] [Amendment No. 10 Signature Page] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written. APR FUNDING CORPORATION, as Seller By /s/ Kurt Huffman Title President UNIVERSAL PREMIUM ACCEPTANCE CORPORATION, individually and as initial Servicer By /s/ Kurt Huffman Title President TRANSFINANCIAL HOLDINGS, INC., as Parent By /s/ Timothy P. o'Neil Title: President EAGLEFUNDING CAPITAL CORPORATION, as Purchaser By: FleetBoston Robertson Stephens Inc., as its attorney-in-fact By /s/ Mark E. Gallivan Title Director BANKBOSTON, N.A., as Agent By /s/ Mark E. Gallivan Title Director [Amendment No. 10 Signature Page] Acknowledged and agreed to as of this 25th day of February, 2000 in accordance with Section 5.03 of that certain Liquidity Agreement dated as of December 31, 1996, as amended, among the Purchaser, the financial institutions from time to time parties thereto as liquidity providers, BankBoston, N.A. as liquidity agent, and Bankers Trust Company, as collateral agent BANKBOSTON, N.A., as a Liquidity Provider By /s/ Mark E. Gallivan Title Director LASALLE BANK NATIONAL ASSOCIATION, as a Liquidity Provider By /s/ Julie Harris Title Vice President WASHINGTON 155658v2 February 23, 2000 (03:19pm) EX-10 4 0004.txt Exhibit 10(m) AMENDMENT NO. 11 TO RECEIVABLES PURCHASE AGREEMENT THIS AMENDMENT NO. 11 TO RECEIVABLES PURCHASE AGREEMENT (the "Amendment") dated as of April 27, 2000 is entered into by and among APR FUNDING CORPORATION, a Delaware corporation ("Seller"), UNIVERSAL PREMIUM ACCEPTANCE CORPORATION, a Missouri corporation, individually ("UPAC") and as Servicer (in such capacity, the "Servicer"), TRANSFINANCIAL HOLDINGS, INC., a Delaware corporation (the "Parent"), EAGLEFUNDING CAPITAL CORPORATION, a Delaware corporation ("Purchaser"), and FLEET NATIONAL BANK, (as "Agent", as "Custodian" and in its individual capacity). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in Appendix A to the "Agreement" (as defined below). W I T N E S S E T H: WHEREAS, the Seller, UPAC, the Servicer, the Parent, the Purchaser and the Agent have entered into that certain Receivables Purchase Agreement dated as of December 31, 1996 (as the same has been amended, restated, supplemented or otherwise modified from time to time through the date hereof, the "Agreement"; the terms defined therein being used herein as therein defined unless otherwise defined herein), pursuant to which, among other things, the Seller has agreed to sell to the Purchaser, and the Purchaser has agreed to purchase from the Seller, undivided percentage interests in the Seller's Receivables; and WHEREAS, the parties hereto have agreed to modify certain terms and provisions of the Agreement as set forth herein; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE AGREEMENT. Effective as of the first date on which each of the conditions set forth in Section 2 hereof shall have been satisfied, the Agreement is amended as follows: The definition of "Scheduled Termination Date" in Appendix A of the Agreement is hereby amended to delete the date "May 14, 2000" and to substitute therefor "August 13, 2000". SECTION 2. CONDITIONS PRECEDENT. This Amendment shall become effective upon the satisfaction of the following conditions precedent: (a) The Agent shall have received: (i) eight fully executed copies of (A) this Amendment, (B) Amendment No. 9 to Liquidity Agreement of even date herewith among EagleFunding Capital Corporation as "Borrower", Fleet and LaSalle Bank National Association ("LaSalle") as "Liquidity Providers", Fleet as "Liquidity Agent" and Bankers Trust Company as "Collateral Agent" ("Amendment No. 9 to Liquidity Agreement") and (C) the fee letter with regard to the amendment fee to be paid to the Deal Agent on the date hereof, in the form of Exhibit A attached hereto (the "Amendment Fee Letter"); and (ii) such other further documents and information as the Agent shall reasonably request. (b) No event or condition has occurred and is continuing, or would result from the execution, delivery or performance of this Amendment, which would constitute a Liquidation Event or Unmatured Liquidation Event, other than as set forth in the Waiver to Receivables Puchase Agreement and Liquidity Agreement dated as of the date hereof among EagleFunding, Fleet, LaSalle, and the Parent; (c) All of the fees and expenses referred to in Section 9 below, the Initial Structuring Fee described in the Structuring Fee Letter, and any other fees and expenses owing under Section 14.05 of the Agreement or any other agreement between the parties thereto shall have been paid in full; and (d) The conditions precedent to the effectiveness of Amendment No. 9 to Liquidity Agreement shall have been fully satisfied. SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. Upon the effectiveness of this Amendment, each of the Seller, UPAC, the Servicer and the Parent, hereby remakes and reaffirms all covenants, representations and warranties made by it (or deemed made by it) in the Agreement, the Backup Servicing Agreement, the Custody Agreement and the Parent Support Agreement (except, in each case, to the extent that such covenants, representations or warranties expressly speak as to another date). SECTION 4. CONSENT AND REAFFIRMATION. The Parent, by its execution hereof, hereby (i) consents to the execution, delivery and performance of the Amendment by all of the parties hereto and (ii) reaffirms all of its obligations and liabilities under that certain Parent Support Agreement dated as of December 31, 1996 executed by the Parent in favor of the Seller and its successors and assigns, which obligations and liabilities shall remain in full force and effect. SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS DISTINGUISHED FROM THE CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK. SECTION 6. SEVERABILITY. Each provision of this Amendment shall be severable from every other provision of this Amendment for the purpose of determining the legal enforceability of any provision hereof, and the unenforceability of any provision hereof in one jurisdiction shall not have the effect of rendering such provision or provisions unenforceable in any other jurisdiction. SECTION 7. REFERENCE TO AND EFFECT ON THE AGREEMENT. Upon the effectiveness of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be, and references to the Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Agreement shall mean and be, a reference to the Agreement as previously amended and as amended hereby. Except as otherwise amended by this Amendment, the Agreement as previously amended shall continue in full force and effect and is hereby ratified and confirmed. SECTION 8. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. SECTION 9. FEES AND EXPENSES. The Seller hereby confirms its agreement to pay on demand all reasonable costs and expenses in connection with the preparation, execution and delivery of this Amendment and any of the other instruments, documents and agreements to be executed and/or delivered in connection herewith, including, without limitation, the reasonable fees and out- of-pocket expenses of counsel to the Agent with respect thereto. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] [Amendment No. 11 Signature Page] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written. APR FUNDING CORPORATION, as Seller By /s/ Randall D. Hickman Title Vice President UNIVERSAL PREMIUM ACCEPTANCE CORPORATION, individually and as initial Servicer By /s/ Randall D. Hickman Title Vice President TRANSFINANCIAL HOLDINGS, INC., as Parent By /s/ Timothy P. O'Neil Title: President EAGLEFUNDING CAPITAL CORPORATION, as Purchaser By: FleetBoston Robertson Stephens Inc., as its attorney-in-fact By /s/ Mark E. Gallivan Title Director FLEET NATIONAL BANK, as Agent By /s/ Mark E. Gallivan Title Director [Amendment No. 11 Signature Page] Acknowledged and agreed to as of this 27th day of April, 2000 in accordance with Section 5.03 of that certain Liquidity Agreement dated as of December 31, 1996, as amended, among the Purchaser, the financial institutions from time to time parties thereto as liquidity providers, Fleet National Bank as liquidity agent, and Bankers Trust Company, as collateral agent FLEET NATIONAL BANK, as a Liquidity Provider By /s/ Mark E. Gallivan Title Director LASALLE BANK NATIONAL ASSOCIATION, as a Liquidity Provider By /s/ Julie Harris Title Vice President EX-10 5 0005.txt Exhibit 10(n) AMENDMENT NO. 12 TO RECEIVABLES PURCHASE AGREEMENT AND AMENDMENT TO OTHER DOCUMENTS THIS AMENDMENT NO. 12 TO RECEIVABLES PURCHASE AGREEMENT AND AMENDMENT TO OTHER DOCUMENTS (the "Amendment") dated as of May 26, 2000 is entered into by and among APR FUNDING CORPORATION, a Delaware corporation ("Seller"), UNIVERSAL PREMIUM ACCEPTANCE CORPORATION, a Missouri corporation, individually ("UPAC") and as Servicer (in such capacity, the "Servicer"), TRANSFINANCIAL HOLDINGS, INC., a Delaware corporation (the "Parent"), UPAC OF CALIFORNIA, INC., a California corporation ("UPAC California"), OXFORD PREMIUM FINANCE, INC., an Illinois corporation ("Oxford"), AGENCY PREMIUM RESOURCE, INC., a Kansas corporation ("APR"), AUTOBAHN FUNDING COMPANY LLC, a Delaware limited liability company ("Purchaser"), and DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG (as "Agent" and in its individual capacity ("DG Bank")). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in Appendix A to the "Agreement" (as defined below). W I T N E S S E T H: WHEREAS, the Seller, UPAC, the Servicer, the Parent, EagleFunding Capital Corporation, a Delaware corporation ("EagleFunding") and Fleet National Bank, a national banking association, in its individual capacity ("Fleet") and as "Agent" (in such capacity, the "Former Agent") have entered into that certain Receivables Purchase Agreement dated as of December 31, 1996 (as the same has been amended, restated, supplemented or otherwise modified from time to time through the date hereof, the "Agreement"); and WHEREAS, pursuant to that certain Assignment and Assumption Agreement of even date herewith among the Purchaser, DG Bank, the Agent, EagleFunding, Fleet, the Former Agent, Fleet National Bank in its capacity as Custodian under the Custody Agreement and Fleet National Bank in its capacity as Backup Servicer under the Backup Servicing Agreement, as of the "Effective Date", as defined therein, (i) EagleFunding has assigned all of its rights under the Agreement, and Purchaser has assumed all of the obligations of EagleFunding under the Agreement, and (ii) Fleet and the Former Agent have assigned all of their rights under the Agreement to DG Bank and the Agent, respectively, and DG Bank and the Agent have respectively assumed all of the obligations of Fleet and the Former Agent under the Agreement, and WHEREAS, the parties hereto have agreed to modify certain terms and provisions of the Transaction Documents and the Subordinated Notes as set forth herein; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE AGREEMENT. Effective as of the first date on which each of the conditions set forth in Section 2 hereof shall have been satisfied, the Agreement, the Schedules thereto and the Exhibits thereto are hereby amended, such that together with Amendment Nos. 1-11 to the Agreement, the Agreement, the Schedules thereto and the Exhibits thereto are in the form attached as Exhibit A. SECTION 2. AMENDMENTS TO TRANSACTION DOCUMENTS AND SUBORDINATED NOTES. Effective as of the first date on which each of the conditions set forth in Section 4 hereof shall have been satisfied (the "Effective Date"), the documents described below shall be amended as follows: (a) All references in the Purchase and Sale Agreement and the Subordinated Notes (such documents together with the Agreement being collectively referred to hereinafter as the "Receivables Documents" and sometimes individually as a "Receivables Document") to (i) Purchaser or EagleFunding Capital Corporation shall mean Autobahn Funding Company LLC, a Delaware limited liability company, (ii) the Agent shall mean DG Bank Deutsche Genossenschaftsbank AG, in its capacity as Agent, (iii) to BankBoston, N.A. or Fleet National Bank in its individual capacity shall mean, DG Bank Deutsche Genossenschaftsbank AG in its individual capacity, (iv) the Custodian shall mean Iron Mountain Incorporated, and (v) the Backup Servicer shall mean Input 1, LLC, a California limited liability company. (b) The Purchase and Sale Agreement is amended to remove APR as a party thereto and to eliminate any right of Oxford to sell Contracts, Related Receivables and Originator Collateral to Funding; it being understood that Oxford shall remain liable pursuant to the terms of the Purchase and Sale Agreement with respect to any "Originator Purchases" (as defined in the Purchase and Sale Agreement) to which Oxford was a party prior to the Effective Date and upon the indefeasible payment in full by Oxford of all of its obligations with respect to the Pool Receivables originated by Oxford, Oxford shall, automatically on such date without further action by any party hereto, be removed as a party to the Purchase and Sale Agreement. (c) Section 1.2(f) of the Purchase and Sale Agreement is amended to delete the delete the words "-LR" and to delete the words "LR = 'Loss Reserve Discount' which means the loss reserves established in respect of such Contract and related Receivable on the books of the relevant selling Originator". (d) Section 1.5 of the Purchase and Sale Agreement is amended to add the following clause to the penultimate sentence of such Section:";provided, however, that such Originator shall have no liability to Funding for any such credits, deductions, allowances or other reductions that result directly from any action or omission of Funding, the Purchaser or the Agent". (e) Section 1.6(o) of the Purchase and Sale Agreement is amended to add the following clause to the second line thereof immediately preceding the semicolon and the proviso: "other than directly as a result of (i) any action or omission of Funding, the Purchaser or the Agent exclusive of any such action or omission relating to the failure of the Purchaser or the Agent to be licensed as a premium finance loan company or (ii) any change after the date of the Originator Purchase thereof in applicable laws or regulations,". (f) Section 1.6(p) of the Purchase and Sale Agreement is amended to add the following clause in the first line thereof immediately after the term "Purchaser,": "other than directly as a result of (A) any action or omission of Funding, the Purchaser or the Agent exclusive of any such action or omission relating to the failure of the Purchaser or the Agent to be licensed as a premium finance loan company or (B) any change after the date of the Originator Purchase thereof in applicable laws or regulations,". (g) Section 4.1(k) of the Purchase and Sale Agreement is amended to delete the words "and shall have continued to have maintained" in the sixth line thereof. (h) Section 5.1 (h) of the Purchase and Sale Agreement is amended to add the following introductory clause: "To the extent that such Originator acts as the Servicer or in the event that notwithstanding the payment instructions given to the Obligors, a payment with respect to a Receivable subject to an Originator Purchase is made to such Originator,". (i) Section 5.1 (i) of the Purchase and Sale Agreement is amended and restated in its entirety to read as follows: "With regard to any Receivable originated by such Originator, to the extent that such Originator acts as the Servicer or prior to the date of the Originator Purchase with respect to such Receivable, cancel the related insurance policy in accordance with its applicable Credit and Collection Policy, unless non-cancellation thereof will not materially and adversely impact such Receivable or the Receivables Pool taken as a whole. (j) Section 5.1(k)(y) of the Purchase and Sale Agreement is amended to add the words "Funding and Purchaser" after the term "Originator". (k) Section 8.4(a)(iv) of the Purchase and Sale Agreement is amended to delete the words "and maintain vested in Purchaser". (l) Section 8.4(a)(v) of the Purchase and Sale Agreement is amended to add the following introductory clause: "to the extent necessary to transfer the Originator Eligible Receivables to Funding,". (m) Section 8.4(a)(vi) of the Purchase and Sale Agreement is amended to add the following clause to the end of such Section:", other than any such dispute, claim, offset or defense directly resulting from any action or omission of Funding, the Purchaser or the Agent,". (n) Section 8.4(a)(viii) of the Purchase and Sale Agreement is amended to add the following clause at the end of such Section: "other than directly as a result of any action or omission of Funding, the Purchaser or the Agent". (o) Section 8.4(a)(x) of the Purchase and Sale Agreement is amended and restated in its entirety to read as follows: "(x)(A) any proceeding, investigation or inquiry which does or could result in an Adverse Determination, (B) any Adverse Determination, other than in the case of both clauses (A) and (B), directly as a result of (1) any action or omission of Funding, the Purchaser or the Agent exclusive of any such action or omission relating to the failure of the Purchaser or the Agent to be licensed as a premium finance loan company or (2) any change after the date of the Originator Purchase thereof in applicable laws or regulations, or (C) the failure by such Originator to vest in Funding a valid and first priority security interest in any and all unearned premium related to each Receivable originated by such Originator." (p) Section 8.4(a)(xii) of the Purchase and Sale Agreement is amended to add the following clause thereto at the end thereof: "to the extent that such Originator acts as the Servicer or such cancellation should have been made on or prior to the date of the Originator Purchase with respect to the related Receivable". (q) Section 8.4(a)(xiii) of the Purchase and Sale Agreement is amended to add the following clause thereto at the end thereof: "other than any Purchase and Sale Event specified in Section 7.2(a) or solely as it relates to Funding, any Purchase and Sale Event specified in Section 7.2(e)". (r) All notice addresses for the Agent or BankBoston, N.A. or Fleet National Bank in their individual capacities in any of the Receivable Documents shall be replaced by the following notice address: DG Bank Deutsche Genossenschaftsbank AG 690 Fifth Avenue, Suite 911 New York, New York 10017 Attention: Patrick Preece Facsimile No.: 212-745-1665 Telephone No.: 212-745-1659 (s) All notice addresses for the Purchaser in any of the Receivables Documents shall be replaced by the following notice address Autobahn Funding Company LLC c/o Lord Securities Corporation Two Wall Street, 19th Floor New York, New York 10017 Attention: Frank Bilotta Facsimile No.: 212-346-9012 Telephone No.: 212-346-9008 SECTION 3. REAFFIRMATION OF DOCUMENTS AND REPRESENTATIONS AND WARRANTIES. Each of the Originators, UPAC, the Seller and the Servicer (i) ratifies and reaffirms all of its obligations under the Receivables Documents to which it is a party, and (ii) remakes as of the Effective Date each of its representations and warranties contained in the Receivables Documents to which it is a party and confirms that each such representation and warranty is true and correct as of the Effective Date. Each of the Seller and the Servicer confirms that Purchaser's Total Investment as of the Effective Date is $68,000,000 and that as of the Effective Date neither the Seller nor the Servicer has any defense or claim against any of Purchaser, the Agent, DG Bank, EagleFunding Capital Corporation, the Former Agent, or Fleet National Bank, in any way relating to or arising from any of the Receivables Documents to which it is a party other than the periodic payments to be made to the Seller and the Servicer pursuant to Article III of the Agreement. SECTION 4. CONDITIONS PRECEDENT. This Amendment shall become effective upon the satisfaction of the following conditions precedent: (a) The Agent shall have received: (i) eight fully executed copies of (A) this Amendment, (B) the Liquidity Purchase Agreement of even date herewith among the Purchaser, the financial institutions from time to time party thereto as liquidity providers and DG Bank Deutsche Genossenschaftsbank AG, as the Liquidity Agent (the "Liquidity Purchase Agreement"), and (C) the Fee Letter; and (ii) the other documents listed on the List of Closing Documents attached as Exhibit C hereto. (b) No event or condition has occurred and is continuing, or would result from the execution, delivery or performance of this Amendment, which would constitute a Liquidation Event or Unmatured Liquidation Event; (c) All of the fees and expenses referred to in Section 9 below, the fees described in the Fee Letter that are due and payable on or prior to the Effective Date, and any other fees and expenses owing under Section 14.05 of the Agreement or any other agreement between the parties thereto shall have been paid in full. SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS DISTINGUISHED FROM THE CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK. SECTION 6. SEVERABILITY. Each provision of this Amendment shall be severable from every other provision of this Amendment for the purpose of determining the legal enforceability of any provision hereof, and the unenforceability of any provision hereof in one jurisdiction shall not have the effect of rendering such provision or provisions unenforceable in any other jurisdiction. SECTION 7. REFERENCE TO AND EFFECT ON THE AGREEMENT. Upon the effectiveness of this Amendment, each reference in any of the Receivables Documents amended hereby to such Receivables Document shall mean and be, and references to shall mean and be, a reference to the such Receivables Document as previously amended and as amended hereby. Except as otherwise amended by this Amendment, each Receivables Document as previously amended shall continue in full force and effect and is hereby ratified and confirmed. SECTION 8. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. SECTION 9. FEES AND EXPENSES. The Seller hereby confirms its agreement to pay on demand all reasonable costs and expenses in connection with the preparation, execution and delivery of this Amendment and any of the other instruments, documents and agreements to be executed and/or delivered in connection herewith, including, without limitation, the reasonable fees and out- of-pocket expenses of counsel to the Agent with respect thereto. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] [Amendment No. 12 Signature Page] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written. APR FUNDING CORPORATION, as Seller By: /s/ Kurt Huffman Title:President UNIVERSAL PREMIUM ACCEPTANCE CORPORATION, individually, as initial Servicer and as an Originator By: /s/ Kurt Huffman Title:President UPAC OF CALIFORNIA, INC., as an Originator By: /s/ Kurt Huffman Title:President OXFORD PREMIUM FINANCE, INC., as an Originator By: /s/ Kurt Huffman Title:President AGENCY PREMIUM RESOURCE, INC. By: /s/ Kurt Huffman Title:President TRANSFINANCIAL HOLDINGS, INC., as Parent By: /s/ Timothy P. O'Neil Title:President AUTOBAHN FUNDING COMPANY, LLC, as Purchaser By: DG Bank Deutsche Genossenschaftsbank AG, as its attorney-in-fact By: Title: DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG, individually and as Agent By: Title: [Amendment No. 12 Signature Page] [Acknowledged and agreed to as of this 26th day of May, 2000 in accordance with Section 6.03 of that certain Liquidity Purchase Agreement dated as of May 26, 2000, as amended, among the Purchaser, the financial institutions from time to time parties thereto as liquidity providers, and DG Bank Deutsche Genossenschaftsbank AG as liquidity agent DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG, as a Liquidity Provider By Title , as a Liquidity Provider By Title CHICAGO4 1115832v4 EX-10 6 0006.txt Exhibit 10(o) RECEIVABLES PURCHASE AGREEMENT Dated as of December 31, 1996, as amended by Amendment Nos. 1-12 Thereto Among APR FUNDING CORPORATION as Seller and UNIVERSAL PREMIUM ACCEPTANCE CORPORATION individually and as Servicer, and AUTOBAHN FUNDING COMPANY LLC as Purchaser and DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG as Agent TABLE OF CONTENTS ARTICLE I PURCHASES AND REINVESTMENTS ....................... 4 SECTION 1.01. Commitments to Purchase; Limits on Purchaser's Obligations........................................... 5 SECTION 1.02. Purchase Procedures; Assignment of Purchaser's Interests............................................. 5 SECTION 1.03. Reinvestments............................... 6 SECTION 1.04. Asset Interest; Purchaser's Share.......... 7 ARTICLE II COMPUTATIONAL RULES ............................. 9 SECTION 2.01. Selection of Asset Tranches................ 9 SECTION 2.02. Computation of Purchaser's Total Investment and Purchaser's Tranche Investment....................... 9 SECTION 2.03. Computation of Earned Discount............. 10 ARTICLE III SETTLEMENTS .................................... 10 SECTION 3.01. Settlement Procedures for Collections of Principal Receivables.......................................... 10 SECTION 3.02. Settlement Procedures for Collections of Finance Charge Receivables.......................................... 11 SECTION 3.03. General Settlement Procedures.............. 13 SECTION 3.04. Deemed Collections; Reduction of Purchaser's Total Investment, Etc...................................... 14 SECTION 3.05. Payments and Computations, Etc............. 16 SECTION 3.06. Treatment of Collections and Deemed Collections 16 SECTION 3.07. Repurchases................................ 17 SECTION 3.08. Custody Arrangement........................ 18 SECTION 3.09. Establishment of Collection Account; Investments by Agent................................................ 18 ARTICLE IV FEES AND YIELD PROTECTION ....................... 20 SECTION 4.01. Fees....................................... 20 SECTION 4.02. Yield Protection........................... 21 SECTION 4.03. Funding Losses............................. 23 ARTICLE V CONDITIONS OF PURCHASES .......................... 23 SECTION 5.01. Conditions Precedent to Initial Purchase... 23 SECTION 5.02. Conditions Precedent to All Purchases and Reinvestments ..................................................... 26 ARTICLE VI REPRESENTATIONS AND WARRANTIES .................. 26 SECTION 6.01. Representations and Warranties of Seller... 26 SECTION 6.02. Representations and Warranties of UPAC..... 31 SECTION 6.03. Reserved................................... 33 SECTION 6.04. Breach of Representations and Warranties... 34 ARTICLE VII GENERAL COVENANTS .............................. 34 SECTION 7.01. Affirmative Covenants of Seller............ 34 SECTION 7.02. Reporting Requirements of Seller........... 35 SECTION 7.03. Negative Covenants of Seller............... 37 SECTION 7.04. Affirmative Covenants of UPAC.............. 38 SECTION 7.05. Reporting Requirements of UPAC............. 40 SECTION 7.06. Negative Covenants of UPAC................. 41 SECTION 7.07. Reserved................................... 43 SECTION 7.08. Reserved................................... 43 SECTION 7.09. Reserved................................... 43 SECTION 7.10. Special Covenant of Seller and UPAC........ 43 ARTICLE VIII ADMINISTRATION AND COLLECTION ................. 45 SECTION 8.01. Designation of Servicer.................... 45 SECTION 8.02. Duties of Servicer......................... 46 SECTION 8.03. Rights of the Agent........................ 47 SECTION 8.04. Responsibilities of Seller................. 48 SECTION 8.05. Further Action Evidencing Purchases and Reinvestments.48 SECTION 8.06. Application of Collections................. 49 ARTICLE IX SECURITY INTEREST ............................... 49 SECTION 9.01. Grant of Security Interest................. 49 SECTION 9.02. Further Assurances......................... 50 SECTION 9.03. Remedies................................... 50 ARTICLE X LIQUIDATION EVENTS ............................... 50 SECTION 10.01. Liquidation Events........................ 50 SECTION 10.02. Remedies.................................. 54 ARTICLE XI THE AGENT ....................................... 54 SECTION 11.01. Authorization and Action.................. 54 SECTION 11.02. Agent's Reliance, Etc..................... 54 SECTION 11.03. DG Bank and Affiliates.................... 55 ARTICLE XII ASSIGNMENT OF PURCHASER'S INTEREST ............. 55 SECTION 12.01. Restrictions on Assignments............... 55 SECTION 12.02. Rights of Assignee........................ 56 SECTION 12.03. Evidence of Assignment.................... 56 ARTICLE XIII INDEMNIFICATION ............................... 56 SECTION 13.01. Indemnities by Seller..................... 56 ARTICLE XIV MISCELLANEOUS .................................. 58 SECTION 14.01. Amendments, Etc........................... 58 SECTION 14.02. Notices, Etc.............................. 59 SECTION 14.03. No Waiver; Remedies....................... 59 SECTION 14.04. Binding Effect; Survival.................. 59 SECTION 14.05. Costs, Expenses and Taxes................. 60 SECTION 14.06. No Proceedings............................ 60 SECTION 14.07. Confidentiality of Seller Information..... 60 SECTION 14.08. Confidentiality of Program Information.... 61 SECTION 14.09. Captions and Cross References............. 62 SECTION 14.10. Integration............................... 63 SECTION 14.11. Governing Law............................. 63 SECTION 14.12. Waiver Of Jury Trial...................... 63 SECTION 14.13. Consent To Jurisdiction; Waiver Of Immunities 63 SECTION 14.14. Execution in Counterparts................. 64 SECTION 14.15. No Recourse Against Other Parties......... 64 SECTION 14.16. Covenant to Cooperate..................... 64 SECTION 14.17. Advice From Independent Counsel........... 64 RECEIVABLES PURCHASE AGREEMENT Dated as of December 31, 1996, as Amended by Amendment Nos. 1-12 Thereto This RECEIVABLES PURCHASE AGREEMENT, among APR FUNDING CORPORATION, a Delaware corporation ("Seller"), UNIVERSAL PREMIUM ACCEPTANCE CORPORATION, a Missouri corporation, individually ("UPAC") and as Servicer (in such capacity, the "Servicer"), AUTOBAHN FUNDING COMPANY LLC, a Delaware limited liability company ("Purchaser"), and DG BANK GENOSSENSCHAFTSBANK AG (as "Agent" and in its individual capacity, "DG Bank"). Unless otherwise indicated, capitalized terms used in this Agreement are defined in Appendix A. Background 1. Seller has, and expects to have and/or to purchase from the "Originators" pursuant to the terms and subject to the conditions of the Purchase and Sale Agreement of even date herewith (as the same may be amended, restated, supplemented or otherwise modified from time to time (the "Purchase and Sale Agreement") among the Seller, UPAC and UPAC of California, Pool Receivables originated in the ordinary course of the Originators' respective premium finance loan businesses in which Seller intends to sell undivided percentage ownership interests. Seller has requested Purchaser, and Purchaser has agreed, subject to the terms and conditions contained in this Agreement, to purchase such undivided percentage ownership interests (referred to herein collectively as the "Asset Interest") from Seller from time to time during the term of this Agreement. 2. Seller and Purchaser also desire that, subject to the terms and conditions of this Agreement, certain of the daily Collections in respect of the Asset Interest be reinvested in Pool Receivables, which reinvestments shall constitute part of the Asset Interest. 3. Autobahn Funding Company LLC, as Purchaser, expects to fund its acquisition and maintenance of the Asset Interest through the issuance of Commercial Paper Notes. Commercial paper funding hereunder is available solely from the Purchaser. The Purchaser has entered into a Liquidity Agreement which generally provides for the purchase by the Liquidity Providers of portions of the Asset Interests from the Purchaser to facilitate the purchase by the Purchaser of percentage interests in the Asset Interest in the event the Purchaser is unable or unwilling to fund its acquisition and/or maintenance of any such Asset Interest with Commercial Paper Notes. 4. UPAC has been requested, and is willing, to act as initial Servicer. 5. DG Bank has been requested, and is willing, to act as the Agent. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I PURCHASES AND REINVESTMENTS .1. Commitments to Purchase; Limits on Purchaser's Obligations. Upon the terms and subject to the conditions of this Agreement (including, without limitation, those contained in Article V), from time to time prior to the Termination Date, Seller may request on or before the last Business Day of any calendar week that Purchaser purchase on the last Business Day of the immediately succeeding calendar week from Seller undivided percentage ownership interests in Pool Receivables, all related Contracts, all Related Security, Collections and all other proceeds, including books and records with respect to such Pool Receivables (each being a "Purchase") and Purchaser shall make such Purchase at such times and upon the terms and subject to the conditions set forth herein; provided, that Purchaser shall make no Purchase if, after giving effect thereto, the Purchaser's Total Investment would exceed the Purchase Limit; provided; however, that each Purchase made pursuant to this Section 1.01 shall have a purchase price of at least $250,000. .2. Purchase Procedures; Assignment of Purchaser's Interests. (a) Notice of Purchase. Each Purchase from Seller by Purchaser shall be made on notice from Seller to the Agent (substantially in the form of Exhibit 1.02) received by the Agent not later than 12:00 noon (New York City) time on the last Business Day of the calendar week preceding the date of such proposed Purchase (which shall be the last Business Day of the calendar week following the date of such notice). Each such notice of a proposed Purchase shall specify the desired amount and date of such Purchase and the requested Yield Periods, funding sources and allocations thereto of the Purchaser's Total Investment associated with such Purchase; it being understood and agreed, that the Purchaser shall have no obligation or commitment to fund any Purchase or any Asset Tranche with Commercial Paper Notes, but may agree to do so at its option. The Agent will notify the Purchaser of the request for a Purchase and the terms thereof. The Purchaser shall notify the Agent as to whether the proposed Yield Period, funding sources and allocations of the amount of such Purchase to such Yield Period are reasonably acceptable to it, and if not, what Yield Periods and allocations are acceptable to it. If the Purchaser and the Seller cannot agree on terms prior to the close of business on the date of such notice, then the Purchaser shall allocate the Purchaser's Tranche Investment relating to such Purchase to Asset Tranches accruing Earned Discount at the Adjusted Eurodollar Rate or the CP Rate, as selected by the Purchaser in its sole discretion, for Yield Periods of not more than 30 days (as selected by the Agent); it being understood and agreed, that if the Purchaser is then able to issue Commercial Paper Notes in respect of this transaction, the Agent shall allocate such amount to an Asset Tranche accruing Earned Discount at the CP Rate. (b) Funding of Purchase. On the date of each Purchase, Purchaser shall, upon satisfaction of the applicable conditions set forth in Article VI make available to the Agent at the Agent's Office the amount of its Purchase in same day funds, and after receipt by the Agent of such funds, the Agent will make such funds immediately available to Seller at such office. (c) Assignment of Asset Interests. Seller hereby sells, assigns and transfers to Purchaser, effective on and as of the date of each Purchase and Reinvestment by the Purchaser hereunder, the Asset Interest in the Pool Receivables, the related Contracts, the Related Security and all Collections in respect of, and other proceeds of, any of the foregoing. .3. Reinvestments. (a) On the close of business on each day prior to the Liquidation Date during the period from the date hereof to the Termination Date, Servicer will, on Purchaser's behalf, out of Purchaser's Share of Collections, apply and pay over to Seller, Purchaser's Share on account of Collections of Principal Receivables for the Purchase from Seller of undivided percentage ownership interests in Pool Receivables, related Contracts, Related Security, Collections and all other proceeds, including books and records with respect to such Pool Receivables (each such purchase being a "Reinvestment"); provided that if after giving effect to such Reinvestment the Purchaser's Share with respect to Principal Receivables would exceed 100%, then, Servicer shall not reinvest, but shall set aside in the Collection Account and hold for the benefit of Purchaser pursuant to Section 1.03(b) and shall pay over to the Agent on the next Settlement Date for application in accordance with the terms hereof, a portion of such Collections which, together with other Collections previously set aside and then so held, shall equal the amount necessary to reduce the Purchaser's Share with respect to Principal Receivables to 100%; and provided, further, that if the conditions precedent to Reinvestment in clause (a), (b) or (d) of Section 5.02 are not satisfied, then Servicer shall not reinvest any of such remaining Collections. For purposes of determining whether Collections on account of Principal Receivables may be reinvested pursuant to this Section 1.03, the Net Pool Balance used in calculating Purchaser's Share of Principal Receivables shall be calculated net of the principal portion of Adverse Determination Receivables. (b) Unreinvested Collections. Servicer shall set aside and hold in trust and shall retain in the Collection Account for the benefit of Purchaser all Collections which pursuant to Section 1.03(a), may not be reinvested in the Pool Receivables and related property. If at any time the amount of Collections so set aside may again be reinvested pursuant to Section 1.03(a) and the conditions precedent to Reinvestment set forth in clauses (a), (b) and (d) of Section 5.02 are satisfied, then the Servicer shall withdraw such Collections from the Collection Account and apply such Collections (or, if less, a portion of such Collections equal to the amount of such excess) to the making of Reinvestments. (c) Payment of Amounts Set Aside. Prior to the occurrence of the Termination Date, Servicer, and thereafter the Agent shall pay all amounts set aside in the Collection Account pursuant to Section 1.03(b) to the Agent for the account of Purchaser on the Business Day preceding each Settlement Date whereupon the Agent shall remit such amounts to the Purchaser on such Settlement Date in reduction of the Purchaser's Total Investment. Servicer shall pay over and deposit any amounts received by it which otherwise would be required to be deposited in the Collection Account, to the extent not previously deposited therein, to the Collection Account within one Business Day of receipt thereof. (d) Reduction of Purchaser's Total Investment. The Purchaser's Total Investment shall not be reduced by the amount of Collections set aside pursuant to this Section 1.03, whether or not on deposit in the Collection Account, unless and until such Collections are actually delivered by the Agent to the Purchaser pursuant to Section 1.03(c). .4. Asset Interest; Purchaser's Share. (a) Components of Asset Interest. For purposes of this Agreement, "Asset Interest" means, at any time, Purchaser's combined undivided percentage ownership interests at such time in (i) all then outstanding Pool Receivables, (ii) all related Contracts, (iii) all Related Security with respect to such Pool Receivables and such Contracts, and (iv) all books and records with respect to such Pool Receivables and such Contracts, and (v) all Collections with respect to, and other proceeds of, such Pool Receivables, Contracts and Related Security. The amount of such Asset Interest shall mean, with respect to Principal Receivables and Finance Charge Receivables, the respective Purchaser's Shares determined pursuant to Section 1.04(b). (b) Purchaser's Share. (i) Principal Receivables. (A) "Purchaser's Share" shall mean, with respect to Principal Receivables, the percentage calculated by dividing (x) the sum of the Purchaser's Total Investment plus the Default Reserve (as determined pursuant to Section 1.04(b)(i)(D) below by (y) the Net Pool Balance; provided that, for purposes of allocating Collections or Principal Receivables, Purchaser's Share with respect to Principal Receivables shall not exceed 100%; and provided, further, that after the occurrence of the Liquidation Date, Purchaser's Share with respect to Principal Receivables shall be deemed to be Purchaser's Share with respect to Principal Receivables as of the day immediately preceding such Liquidation Date. (B) On each day "Purchaser's Share of Collections" on account of Principal Receivables shall be equal to the product of (x) the related Purchaser's Share with respect to Principal Receivables on such day and (y) the amount of the Collections on account of Principal Receivables on such day. "Purchaser's Share of Defaulted Receivables" shall mean, on any day, the product of (x) Purchaser's Share with respect to Principal Receivables on such day and (y) the amount of Receivables becoming Defaulted Receivables on such day. (C) On each day after the occurrence of the Liquidation Date, Seller's Share of Collections on account of Principal Receivables shall not be paid to Seller, but shall be retained in the Collection Account. If the amount of Purchaser's Share of Collections on account of Principal Receivables received or deemed received on or prior to the date that each and every Pool Receivable is scheduled to have amortized in accordance with the related Contract shall be insufficient to reduce the Purchaser's Total Investment to zero, then on such date the Agent shall withdraw (from amounts actually retained in the Collection Account pursuant to the two preceding sentences) and remit to the Purchaser such funds from the Collection Account in the amount of the lesser of (x) the amount of such deficiency attributable to Purchaser's Share of Defaulted Receivables and (y) 100% of the Collections on account of Seller's Share of Collections then on deposit in the Collection Account. After the Final Payout Date, all remaining amounts in the Collection Account shall be paid to the Seller. Prior to the occurrence of the Liquidation Date, Servicer shall pay to Seller on each day, Seller's Share of Collections on account of Principal Receivables received on such day. (D) (x) The "Default Reserve" on any day means an amount equal to ten percent (10%) of the Net Pool Balance. (ii) Finance Charge Receivables. (A) "Purchaser's Share" shall mean, on any day with respect to Finance Charge Receivables, 100%; subject, however, to the applications to Earned Discount, Program Fee, Non-Use Fee, Servicer's Fee, Backup Servicer's Fee, Custodian' Fee, Defaulted Receivables and Designated Obligations as provided for in Section 3.02. (B) On each day, "Purchaser's Share of Collections" on account of Finance Charge Receivables shall be equal to the product of (x) the related Purchaser's Share with respect to Finance Charge Receivables and (y) the amount of the Collections on account of Finance Charge Receivables received or deemed received on such day. (iii) Defeasance. With respect to the Asset Interest: (x) at such time as the Purchaser's Total Investment equals zero, then the related Purchaser's Share with respect to Principal Receivables shall equal zero, and (ii) at such time as the related unpaid Earned Discount equals zero, and no amounts are owing in respect of the related Program Fee, Non-Use Fee, Servicer's Fee, Backup Servicer's Fee, Custodian's Fee, Designated Obligations or other amounts under this Agreement, then the related Purchaser's Share with respect to Finance Charge Receivables shall also equal zero. (c) Frequency of Computation. The respective Purchaser's Shares with respect to the Asset Interest shall be initially computed as of the opening of business of Servicer on the date of Purchase of the Asset Interest from Seller. Thereafter until the Asset Interest shall be reduced to zero, such Purchaser's Shares shall be recomputed (i) on the date of each Purchase made hereunder which increases the Purchaser's Total Investment (as calculated after giving effect to such Purchaser) (ii) on each Weekly Report Date (as calculated as of the last Business Day of the calendar week or Settlement Period preceding such Weekly Report Date) and (iii) as of the close of business on the day immediately preceding the Termination Date, and such Purchaser's Shares shall constitute the percentage ownership interest in Pool Receivables on such date owned by Purchaser. Such Purchaser's Shares shall remain constant from the time as of which any such computation or recomputation is made or deemed to be made until the time as of which the next such recomputation, if any, shall be made or deemed to be made. In addition, the Agent may require Servicer to provide a report more frequently than weekly for purposes of computing the Asset Interest as of any other date, and the Servicer agrees to do so within two (2) Business Days of its receipt of the Agent's request therefor, and such Asset Interest would then be in effect until such time as such amount is again recomputed or deemed recomputed. The Asset Interest shall remain constant as calculated in clause (iii) above from and after the Termination Date. ARTICLE II COMPUTATIONAL RULES .1. Selection of Asset Tranches. For purposes of computing Earned Discount, the Seller and the Agent (subject to the limitations set forth herein) shall, upon each Purchase and upon the expiration or termination of the Yield Period applicable to such Asset Tranche, divide the Asset Interest into Asset Tranches, and the applicable Earned Discount Rate may be different for each Asset Tranche. Purchaser's Total Investment shall be allocated to each selected Asset Tranche by the Agent to reflect the funding sources for the Asset Interest, so that: (a) there may be one or more Asset Tranches reflecting the portion of the Asset Interest funded by Liquidity Purchases; and (b) there may be one or more Asset Tranches reflecting the portion of the Asset Interest funded by Commercial Paper Notes; provided, that at all times the Purchaser's Total Investment shall be fully allocated to one or more Asset Tranches; and provided, further, that, after the occurrence of the Liquidation Date, all Asset Tranches will be selected by the Agent and will be funded solely by Liquidity Purchases, and all then outstanding Asset Tranches funded by Commercial Paper Notes shall be terminated and reallocated to Asset Tranches funded by Liquidity Purchases. .2. Computation of Purchaser's Total Investment and Purchaser's Tranche Investment. In making any determination of Purchaser's Total Investment and Purchaser's Tranche Investment, the following rules shall apply: (a) Purchaser's Total Investment shall not be considered reduced by any allocation, setting aside or distribution of any portion of Collections unless such Collections shall have been actually delivered by the Agent to the Purchaser pursuant hereto; (b) Purchaser's Total Investment shall not be considered reduced by any distribution of any portion of Collections if at any time such distribution is rescinded or must otherwise be returned for any reason; and (c) if there is any reduction in Purchaser's Total Investment, there shall be a corresponding reduction in a Purchaser's Tranche Investment with respect to one or more Asset Tranches selected by the Agent in its discretion. .3. Computation of Earned Discount. In making any determination of Earned Discount, the following rules shall apply: (a) the Agent shall determine the Earned Discount accruing with respect to each Asset Tranche, and each Yield Period therefor, in accordance with the definition of Earned Discount; (b) no provision of this Agreement shall require the payment or permit the collection of Earned Discount in excess of the maximum permitted by applicable law; and (c) Earned Discount for any Asset Tranche shall not be considered paid by any distribution if at any time such distribution is rescinded or must otherwise be returned for any reason. ARTICLE III SETTLEMENTS .1. Settlement Procedures for Collections of Principal Receivables. On each day, Servicer shall deem an amount equal to Purchaser's Share of Collections on account of Principal Receivables received or deemed received on such day to be received in respect of the Asset Interest; and (a) prior to the occurrence of the Liquidation Date, except to the extent otherwise set forth in Section 1.03, Servicer on behalf of the Purchaser shall apply the full amount of Purchaser's Share of such Collections to reduce the Purchaser's Total Investment and after such reduction apply such amount to Reinvestments as provided in Section 1.03(a), in additional undivided percentage ownership interests in Pool Receivables. Any such application shall automatically increase the Purchaser's Total Investment (to the same amount as was outstanding immediately prior to the application of such amounts to Purchaser's Total Investment). The recomputed Purchaser's Share with respect to Principal Receivables, after giving effect to the reduction and increase of Purchaser's Total Investment shall constitute the percentage ownership interest in Principal Receivables on such day owned by Purchaser with regard to the Asset Interest; and (b) after the occurrence of the Liquidation Date, on each Settlement Date the Agent shall deliver to the Purchaser, and the Purchaser shall apply, the full amount of Purchaser's Share of such Collections, plus other such Collections to which the Purchaser is entitled pursuant to Section 1.04(b)(i)(C) above, to reduce Purchaser's Total Investment. .2. Settlement Procedures for Collections of Finance Charge Receivables. (a) Daily Set Aside. On each day Servicer shall set aside and hold in trust for Purchaser, Purchaser's Share of Collections on account of Finance Charge Receivables in respect of the Asset Interest for such day. (b) Delivery to the Agent. (i) On each day, Servicer shall calculate the excess, if any, of (x) the Collections on account of Finance Charge Receivables set aside on and prior to such day pursuant to Section 3.02(a), over (y) the aggregate unpaid amount of Earned Discount, Program Fee, Non-Use Fee, Servicer's Fee, Backup Servicer's Fee, Custodian's Fee and any other Designated Obligations (estimated based on the previous month) accrued in respect of the Asset Interest; and (A) prior to the Liquidation Date, such excess, if any, shall be paid to the Seller or (B) after the occurrence of the Liquidation Date, such excess if any, shall be retained in the Collection Account for application in accordance with Sections 3.02(c) and (d). Until remitted in payment of amounts due hereunder, Servicer shall hold in trust in the Collection Account the amounts described in clause (y) above; (ii) Prior to the occurrence of the Termination Date, the Servicer, and thereafter the Agent, shall, on each Business Day preceding an Earned Discount Payment Date for any Asset Tranche, withdraw from the Collection Account and deliver to the Agent, from the funds set aside pursuant to Section 3.02(a) (but only to the extent that such amounts exceed from and after the Servicer Transfer Event, accrued and unpaid fees and expenses due to the Servicer) and not paid over to the Seller pursuant to Section 3.02(b)(i), an amount equal to the accrued and unpaid Earned Discount on such Asset Tranche for application as set forth in Section 3.02(c). (iii) Prior to the occurrence of the Termination Date, on the Business Day preceding each Settlement Date, Servicer shall withdraw from the Collection Account and deliver to the Agent, from the funds set aside pursuant to Section 3.02(a) and not paid over to the Seller pursuant to Section 3.02(b)(i), an amount which shall equal the unpaid Program Fee, Non-Use Fee, Servicer's Fee, Backup Servicer's Fee and Custodian's Fee for such Settlement Period, plus any other Designated Obligations required for application by the Agent pursuant to Sections 3.02(c) and (d) below; provided that no amounts shall be withdrawn from the Collection Account for payments of amounts set forth in clauses (iii)-(vii) of Section 3.02(c) to the extent there would then be insufficient funds on deposit therein to pay all accrued but unpaid Earned Discount at such time. After the occurrence of the Termination Date, the Agent shall withdraw such amounts on such Settlement Date, as applicable, from the Collection Account (to the extent on deposit therein). (c) Application of Funds to Earned Discount, Fees, etc. Subject to receipt of funds set aside pursuant to Section 3.02(a) and withdrawn and paid over pursuant to Section 3.02(b), the Agent shall (x) on each Earned Discount Payment Date, distribute to the Purchaser the amount of any accrued but unpaid Earned Discount due on such date, and (y) on each Settlement Date, distribute them in the following order: (i) first, to the Custodian, for the payment of the accrued and unpaid Custodian's Fee for the related Settlement Period (including any accrued and unpaid fees from any prior Settlement Period), (ii) second to Servicer, if not an Originator or the Parent or any Affiliate of an Originator or the Parent, for the payment of the accrued and unpaid Servicer's Fee for the related Settlement Period (including any accrued and unpaid amounts from any Prior Settlement Period), (iii) third, to Purchaser for the payment of the accrued and unpaid Program Fee and Non-Use Fee for the related Settlement Period (including any accrued and unpaid amounts from any prior Settlement Period), (iv) fourth, to the Backup Servicer for the payment of the accrued and unpaid Backup Servicer's Fee for the related Settlement Period (including any accrued and unpaid amounts from any prior Settlement Period), (v) fifth, to Purchaser, the Agent, any Liquidity Bank, or any other Person (other than the Parent or any of its Subsidiaries or Affiliates) hereunder, as the case may be, in payment of any Designated Obligations, owing to such Person hereunder (including any accrued and unpaid amounts from any prior Settlement Period), (vi) sixth, to the Custodian, for the payment of the accrued and unpaid expenses due under the Custody Agreement for the related Settlement Period (including any accrued and unpaid amounts from any prior Settlement Period), (vii) seventh, if an Originator, the Parent or any Affiliate of an Originator or the Parent is Servicer, to Servicer for the payment of the accrued and unpaid Servicer's Fee for the related Settlement Period (including any accrued and unpaid amounts from any prior Settlement Period), and (viii) eighth, any remaining amounts shall, prior to the occurrence of the Liquidation Date, be paid to Seller and, after the occurrence of the Liquidation Date, be distributed in accordance with Section 3.02(d). To the extent insufficient funds exist to pay all of the foregoing amounts, such amounts shall be paid in the order of priority set forth above and pro rata as among such amounts of equal priority. (d) Application to Defaulted Receivables during Liquidation Period. After the occurrence of the Liquidation Date, the Agent shall, after giving effect to the distributions pursuant to Sections 3.02(b) and (c), distribute and apply any remaining Collections on account of Finance Charge Receivables (to the extent in excess of any accrued but unpaid Earned Discount at such time) as follows: (i) first, to Purchaser toward payment of Purchaser's Share of Defaulted Receivables, which payment shall be deemed a Collection on account of Principal Receivables, and (ii) second, to the account of Seller; provided that, with regard to clause (ii) above, if Purchaser's Total Investment shall not then have been reduced to zero, such balance shall remain in the Collection Account to be applied on each Settlement Date following thereafter in accordance with clause first above until the date on which Purchaser's Total Investment and all other amounts payable to the Purchaser, the Agent, or any Liquidity Banks shall have been reduced to zero. .3. General Settlement Procedures. The parties hereto will take the following actions: (a) Settlement Statement. On the fifth Business Day following the Cut-Off Date for each Settlement Period, Servicer shall deliver to the Agent a report (together, if requested by the Agent, with a computer diskette containing such information) containing the information described in Exhibit 3.03(a) (each, a "Settlement Statement"), including a listing of all Contracts (by contract number, Direct Obligor and amount financed) transferred by the Originators to the Seller during such Settlement Period. (b) Weekly Report. On each Weekly Report Date, Servicer shall deliver to the Agent a report (together, if requested by the Agent, with a computer diskette containing such information) containing the information described in Exhibit 3.03(b) (each a "Weekly Report"); provided, however, that no Weekly Report shall be required to be delivered to the Agent in any week to the extent that a Settlement Statement which is required to be delivered during such week pursuant to Section 3.03(a) above is so delivered to the Agent during such week. (c) Notification of Earned Discount: Other Amounts Due. On the Business Day immediately preceding any Earned Discount Payment Date, the Agent shall notify Servicer of the approximate amount of Earned Discount that will be payable on such Earned Discount Payment Date. In addition, on the second Business Day following such Cut-Off Date, the Agent shall notify Servicer of the amount of all fees (including the Program Fee, Non-Use Fee, the Servicer's Fee, the Backup Servicer's Fee and the Custodian's Fee) and Designated Obligations and other amounts accrued and payable by Seller under this Agreement. (d) Non-Distribution of Servicer's Fee. If the Agent consents (which consent may be revoked at any time), the amounts (if any) set aside pursuant to Section 3.02 in respect of Servicer's Fee may be retained by Servicer, in which case no distribution shall be made in respect of Servicer's Fee pursuant to Section 3.02 above. (e) Allocations of Obligor's Payments. Except as provided for herein or as otherwise required by law or the underlying Contract, all Collections received from an Obligor of any Receivable shall be applied to Pool Receivables then outstanding of such Obligor in the order of the age of such Pool Receivables, starting with the oldest such Pool Receivable, except if payment is designated by such Obligor for application to specific Receivables or can be readily identified to specific Receivables, in which case it shall be applied to such specified Receivables. For each Settlement Period Collections will be allocated so that all Collections up to the amount of Finance Charge Receivables billed in respect of the immediately preceding Settlement Period will be deemed Collections of Finance Charge Receivables and the remaining amount of such Collections will be deemed Collections of Principal Receivables. (f) Collection Account: Deposits and Withdrawals. (i) Deposits to Collection Account. Each of Seller and Servicer will, with respect to Collections in respect of Pool Receivables received by them, and will cause each Lock-Box Bank, with respect to Collections in respect of Pool Receivables received in any lock-box to, deposit such Collections in the Collection Account immediately upon identification thereof, but in no event later than one Business Day after receipt thereof. Such amounts to be deposited in the Collection Account by Seller, Servicer or the applicable Lock-Box Banks shall include, but not be limited to, the following: (x) any and all Collections and other payments in respect of Receivables (whether on account of Principal Receivables, Finance Charge Receivables or otherwise), related Contracts, and Related Security and any proceeds thereof, (y) all amounts transferred from the Lock-Box Accounts, and (z) all Indemnified Amounts paid by Seller or the Originators for Receivables required to be repurchased pursuant to Section 3.07(b) or on account of a breach of representation or warranty with respect thereto or for any other reason. Servicer (or its designee or successor) shall notify the Agent of the amount of funds deposited in the Collection Account not received from Pool Receivables and the Agent (if it shall agree with Servicer) shall remit (or cause the Servicer to remit) such funds as soon as practicable after such notification to such account as Servicer (or its designee or successor) shall designate. (ii) Withdrawals from Collection Account. Prior to the Termination Date, the Agent shall permit the Servicer, to access the Collection Account in connection with its duties as Servicer and, in that connection the Servicer, may withdraw funds on deposit therein in accordance with, and for the purposes permitted under, the provisions of the Transaction Documents. Upon the occurrence of the Termination Date, (x) the Servicer's right of access to the Collection Account shall terminate immediately without any further action by any Person being required (but the Servicer shall be permitted to make deposits in each case with the consent of the Agent) and (y) the Agent or its designee (which may be the Backup Servicer) shall thereafter make all withdrawals in accordance with the terms hereof or may transfer funds to the Liquidation Collection Account and shall make such withdrawals from the Liquidation Collection Account as if it were the Collection Account. (g) Permitted Dividends. So long as no Liquidation Event or Unmatured Liquidation Event then exists or would result therefrom, the Seller may remit Permitted Dividends, if any, to UPAC on the Business Day next following each Settlement Date. Unless specifically permitted hereunder or under any other Transaction Document to pay for Receivables, in payment of fees, etc., Seller shall make no other payments to UPAC or any of the Originators or any of their Subsidiaries or any Affiliate. .4. Deemed Collections; Reduction of Purchaser's Total Investment, Etc. (a) Deemed Collections. If on any day (i) the Unpaid Balance of any Pool Receivable is (A) reduced as a result of any dispute or complaint, any cash discount, or any adjustment by Seller, the applicable Originator or Servicer or any Affiliate of Seller, the applicable Originator or Servicer, or (B) reduced or canceled as a result of a setoff in respect of any claim by the Obligor thereof against Seller, the applicable Originator or any Affiliate of Seller or the applicable Originator (whether such claim arises out of the same or a related or an unrelated transaction), or (C) reduced on account of the obligation of Seller or any Affiliate of Seller or the applicable Originator to pay to the related Obligor any rebate or refund, or (D) less than the amount included in calculating the Net Pool Balance for purposes of any Settlement Statement, or (ii) any of the representations or warranties of Seller set forth in Section 6.01(l) or (p) were not true when made with respect to any Eligible Receivable that is a Pool Receivable or any Pool Receivable represented to be an Eligible Receivable, or any of the representations or warranties of Seller set forth in Section 6.01(l) are no longer true with respect to any Eligible Receivable that is a Pool Receivable, then, on such day, Seller shall be deemed to have received a Collection (such Collection, a "Deemed Collection") of such Pool Receivable (A) in the case of clause (i) above, in the amount of such reduction or cancellation or the difference between the actual Unpaid Balance and the amount included in calculating such Net Pool Balance, as applicable; and (B) in the case of clause (ii) above, in the amount of the Unpaid Balance of such Pool Receivable. (b) Seller's Optional Reduction of Purchaser's Total Investment. Seller may, subject to the obligations contained in that certain side letter agreement dated as of May 26, 2000 among the Seller, the Servicer, the Originators, the Agent and the Purchaser, at any time elect to reduce the Purchaser's Total Investment as follows: (i) Seller shall give the Agent at least three (3) Business Days' prior written notice of such reduction (including the amount of such proposed reduction and the proposed date on which such reduction will commence), (ii) on the proposed date of commencement of such reduction and on each day thereafter, Servicer shall refrain from reinvesting Collections on account of Principal Receivables pursuant to Section 1.03 until the amount thereof not so reinvested shall equal the desired amount of reduction, and (iii) Servicer shall hold such Collections in trust for Purchaser on the next succeeding Settlement Date, pending payment to the Agent (or if Collections are then being retained in the Collection Account, such Collections shall be held therein), as provided in Sections 1.03 and 3.01; provided that, (A) the amount of any such reduction shall be not less than $1,000,000 and shall be an integral multiple of $100,000 in excess of such amount, and the Purchaser's Total Investment after giving effect to such reduction shall be not less than $10,000,000 (unless Purchaser's Total Investment shall thereby be reduced to zero), (B) Seller shall use reasonable efforts to attempt to choose a reduction amount, and the date of commencement thereof, so that such reduction shall commence and conclude in the same Settlement Period, and (C) After giving effect to such reduction, Purchaser's Share on account of Principal Receivables does not exceed 100%. .5. PAYMENTS AND COMPUTATIONS, ETC. (a) Payments. All amounts to be paid or deposited by Seller or Servicer to the Agent or any other Person hereunder (other than amounts payable under Section 4.02) shall be paid or deposited in accordance with the terms hereof no later than 12:00 noon (New York time) on the day when due in lawful money of the United States of America in same day funds to the Agent's account at Bank of New York, Account No. 8900433876, ABA No.: 021-000-018; Credit: DG Bank, New York. (b) Late Payments. Seller or Servicer, as applicable, shall, to the extent permitted by law, pay to Purchaser interest on all amounts not paid or deposited when due hereunder at 2% per annum above the Base Rate, payable on demand, provided, however, that such interest rate shall not at any time exceed the maximum rate permitted by applicable law. (c) Method of Computation. All computations of interest, Earned Discount any fees payable under Sections 4.01(b) and (c) and any other fees payable by Seller to the Purchaser or the Agent hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed. .6. Treatment of Collections and Deemed Collections. Seller shall forthwith deposit in the Collection Account all Collections deemed received by Seller pursuant to Section 3.04 and such Collections shall be held or distributed as Earned Discount, accrued Servicer's Fee, accrued Backup Servicer's Fee, accrued Custodian's Fee, accrued Program Fees, accrued Non-Use Fees, repayment of Purchaser's Total Investment, etc. to the same extent as if such Collections had actually been received on the date of such deposit in the Collection Account. So long as Seller shall hold any Collections or deemed Collections required to be paid to Servicer, Purchaser or the Agent, it shall hold such Collections in trust and shall clearly mark its records to reflect such trust. .7. REPURCHASES. (a) If on any Settlement Date the Purchaser's Total Investment shall equal or be less than 25% of the greatest amount of Purchaser's Total Investment at any time prior to such Settlement Date, Seller shall, subject to payment of the prepayment fee described in Section 4.01(d), be entitled to repurchase the Asset Interest on such Settlement Date. Seller shall give Purchaser at least five Business Days' prior written notice of such repurchase and upon payment of the repurchase price therefor, as hereinafter provided, Purchaser shall be obligated to reconvey its entire interest in the Asset Interest to Seller pursuant to an assignment acceptable to the parties, but without representation or warranty except that the interest assigned is free of offset, liens and other encumbrances created by the assignor. Seller shall pay such repurchase price in cash to the Agent on behalf of Purchaser in an amount equal to the sum of (i) all accrued and unpaid Earned Discount plus any Liquidation Fee owing with respect thereto as a result of the early termination of any Yield Period, (ii) the Purchaser's Total Investment therein, (iii) the aggregate of other amounts then owed hereunder by Seller to Purchaser, any Liquidity Bank, the Agent or the Custodian (including, without limitation, the accrued and unpaid Custodian's Fee), (iv) the accrued and unpaid Servicer's Fee, and (v) the accrued and unpaid Backup Servicer's Fee. Upon receipt of the aforesaid repurchase price the Agent shall distribute it (i) to Purchaser or the Agent, as applicable (a) in payment of the accrued and unpaid Earned Discount and Liquidation Fee (if any), (b) in reduction of the Purchaser's Total Investment and (c) in payment of any other amounts owed by Seller hereunder to Purchaser, any Liquidity Bank or Agent, in each case until reduced to zero, (ii) to Servicer in payment of the accrued and unpaid Servicer's Fee, also until reduced to zero, (iii) to the Backup Servicer in payment of the accrued and unpaid Backup Servicer's Fee, also until reduced to zero, and (iv) to the Custodian in payment of the accrued and unpaid Custodian's Fee. (b) If at any time an Adverse Determination occurs Seller shall within one Business Day of Seller's knowledge thereof notify Purchaser of such Adverse Determination, and Seller shall, if Purchaser in its sole discretion so demands, (i) within three Business Days after notice has been given to the Purchaser or by the Purchaser to the Seller, repurchase Purchaser's ownership interest in the Adverse Determination Receivables, or (ii) at the end of the related applicable Yield Periods, repurchase Purchaser's ownership interest in the Adverse Determination Receivables. In the case of a repurchase under clause (i) or (ii) above, upon payment by Seller of the repurchase price therefor, as hereinafter provided, Purchaser shall be obligated to reconvey its entire interest in such Adverse Determination Receivables to Seller pursuant to an assignment acceptable to the parties, but without representation or warranty except as to the assignor's good title, free of offset, liens and other encumbrances as to the interest assigned. To the extent required above, Seller shall pay such repurchase price in cash to the Agent on behalf of Purchaser in an amount equal to the sum of (A) the product of (x) the Purchaser's Share on account of Principal Receivables multiplied by (y) the then Unpaid Principal Balance of such Adverse Determination Receivables plus (B) Purchaser's Share on Account of Finance Charge Receivables received and not paid over to Purchaser or the Agent in respect of such Adverse Determination Receivables. Upon receipt of such repurchase price Purchaser shall apply such repurchase price to reduce Purchaser's Total Investment and any accrued and unpaid Earned Discount, Non-Use Fee, Program Fee, Servicer's Fee, Backup Servicer's Fee, Custodian's Fee and Designated Obligations. Upon such receipt, such Adverse Determination Receivables shall thereupon be deemed removed from the Receivables Pool for all purposes hereunder. A repurchase of Purchaser's ownership interest in Adverse Determination Receivables shall not substitute for or limit the applicable indemnification obligations under Article XIII. In the event that any Indemnified Party shall incur or expects to incur any demonstrable loss or expense as a result of the redeployment of amounts received pursuant to clause (i) above, then, within three Business Days after written notice from Purchaser to Seller, Seller shall pay to Purchaser such additional amounts as will (in the reasonable determination of the Indemnified Parties) reimburse the Indemnified Parties for such demonstrable loss or expense. Such written notice shall, in the absence of demonstrable error, be conclusive and binding on Seller. This Section 3.07(b) shall survive the termination of this Agreement. .8. Custody Arrangement. The Agent shall enter into the Custody Agreement with the Custodian on or prior to the date hereof. On each Wednesday of each calendar week Seller and Servicer shall, unless the Agent shall otherwise agree in writing, deliver to the Custodian on behalf of Purchaser and Seller in accordance with their respective interests each and every Contract (not previously delivered to the Custodian) Purchased by the Seller under the Purchase and Sale Agreement and/or subject to a Purchase or Reinvestment hereunder prior to such Wednesday; provided that, with respect to any Contract as to which adequate reproductions cannot be made for servicing purposes due to the poor quality of the original thereof, Servicer may retain custody of such Contract, but shall hold it in trust for the benefit of the Agent, the Purchaser and Seller in accordance with their respective interests; provided, further, that the number of Contracts so held by the Servicer in trust shall not exceed 1% of all Contracts then owned by Seller. A schedule identifying the Contracts by contract number, Direct Obligor and amount financed thereunder shall be delivered to the Agent and the Custodian on or before the delivery of such Contracts on such Wednesday; all such schedules for each Settlement Period shall be attached to the Settlement Statement for such Settlement Period along with a certification by Seller and Servicer as to the accuracy of such schedules. .9. Establishment of Collection Account; Investments by Agent. (a) Collection Account. On or before the first Purchase, the Agent shall establish, for the benefit of the Purchaser and the Seller, to the extent of their respective interests therein, an account (the "Collection Account"), which shall be a demand deposit account maintained by the Originators, the exclusive dominion and control of which have been conveyed by the Originators to the Seller and by the Seller to the Agent, for the benefit of the Purchaser, pursuant to the Lock-Box Agreement. Subject to the further provisions of this Section 3.09(a), the Agent shall, upon receipt or upon transfer from another account, as the case may be, deposit into the Collection Account all amounts received by it which are required to be deposited therein in accordance with the provisions hereof. All such amounts and all investments made with such amounts, including all income and other gain from such investments, shall be held by the Agent in the Collection Account or the Liquidation Collection Account as part of the Receivables Pool as herein provided, subject to withdrawal for the purposes specified in the provisions of, this Agreement. The Agent (other than for the account of the Purchaser) shall not have any right of set-off with respect to the Collection Account or the Liquidation Collection Account or any investments therein, whether or not commingled. Notwithstanding any other provision herein, it shall be understood that the Agent, after the occurrence of the Termination Date, shall have the right to transfer any of the amounts at any time on deposit (whether or not required to be held in the Collection Account) in the Collection Account to a segregated trust account maintained with and in the name of the Agent for the benefit of Purchaser and Seller to the extent of their respective interests therein (such account the "Liquidation Collection Account"). (b) Administration of Payments. Unless otherwise advised by Servicer in writing, the Agent may assume that any amount remitted to it by Servicer, the Seller or any Lock-Box Bank is to be deposited into the Collection Account. The Agent may establish from time to time such deadline or deadlines as it shall determine are reasonable or necessary in the administration hereof after which all amounts received or collected by the Agent on any day shall not be deemed to have been received or collected until the next succeeding Business Day. (c) Investments. Pursuant to one or more Seller Orders received from Seller, all or a portion of the amounts in the Collection Account and the Liquidation Collection Account shall be invested and reinvested by the Agent in one or more Eligible Investments. Subject to the restrictions on the maturity of investments set forth in Section 3.09(e), each such Seller Order may authorize the Agent to make the specific Eligible Investments set forth therein, to make Eligible Investments from time to time consistent with the general instructions set forth therein, or to make specific Eligible Investments pursuant to instructions received in writing or by facsimile transmission from the employees or agents of Seller or the Servicer, as the case may be, identified therein, in each case in such amounts as such Seller Order shall specify. Seller agrees to report as income for financial reporting and tax purposes (to the extent reportable) all investment earnings on amounts in the Collection Account. Each of Seller and Servicer agrees to give appropriate and timely investment directions to the Agent so that there will not be more than two Business Days in any one calendar year at the end of which funds in the Collection Account or the Liquidation Collection Account are not invested, directly or indirectly, pursuant to a Seller Order in Eligible Investments that mature on or after the opening of business on the next Business Day. (d) Investments in the Absence of a Seller Order. In the event that (i) Seller shall have failed to give investment directions to the Agent by 9:30 A.M. on any Business Day on which there may be uninvested cash or (ii) a Liquidation Event or Unmatured Liquidation Event shall have occurred and be continuing, then the Agent shall invest such funds in Eligible Investments as it deems appropriate in its sole discretion. All investments made by the Agent shall mature no later than the maturity date therefor permitted by Section 3.09(e). (e) Maturity of Investments. No investment of any amount held in the Collection Account or the Liquidation Collection Account shall mature later than the Business Day immediately preceding the Earned Discount Payment Date or Settlement Date which is scheduled to occur immediately following the date of investment for application in accordance with the provisions of this Agreement. All income or other gains from the investment of moneys deposited in the Collection Account or the Liquidation Collection Account, as applicable, shall be deposited by the Agent in the affected account immediately upon receipt. Any net loss (determined on a month by month basis) resulting from such investment of amounts in the Collection Account or the Liquidation Collection Account, as applicable, shall be charged to Seller, which, upon notice thereof by the Agent, shall reimburse the Collection Account or the Liquidation Collection Account, as applicable, for such loss. (f) Form of Investment. Any investment of funds in the Collection Account or the Liquidation Collection Account shall be made under the following terms and conditions: (i) each such investment shall be made in the name of the Agent (in its capacity as such) or in the name of a nominee of the Agent, in either case for the benefit of the Purchaser and the other Secured Parties; and (ii) any certificate or other instrument evidencing such investment shall be delivered directly to the Agent or its agent and the Agent shall have sole possession of such instrument, and all income on such investment. (g) Agent Not Liable. The Agent shall not in any way be held liable by reason of any insufficiency in the Collection Account or the Liquidation Collection Account resulting from losses on investments made in accordance with the provisions of this Section 3.09 (but the Agent shall at all times remain liable for its own debt obligations, if any, constituting part of such investments). The Agent shall not be liable for any investment made by it in accordance with this Section 3.09 on the grounds that it could have made a more favorable investment. ARTICLE IV FEES AND YIELD PROTECTION .1. Fees. (a) Structuring Fee. Seller shall pay to the Agent, for its own account, a structuring fee ("Structuring Fee") in the amount set forth in the Fee Letter payable on the date hereof. (b) Program Fee. From the date hereof until the date, following the Termination Date on which Purchaser's Total Investment shall be reduced to zero, Seller shall pay to the Agent, a program fee ("Program Fee") equal to the product of (x) the average daily amount of the Purchaser's Total Investment during the period for which such fee is being calculated, times (y) the Program Fee Rate. Such Program Fee shall be paid in arrears, on the Settlement Date for each Settlement Period and on the Final Payout Date, in the amount of such Program Fee that shall have accrued during such Settlement Period (or portion thereof) or other period then ending and which shall not have been previously paid. (c) Non-Use Fee. From the date hereof until the Termination Date, Seller shall pay to Agent a non-use fee (the "Non-Use Fee") equal to the product of (x) the daily average amount of the difference between the Purchase Limit and the average daily amount of the Purchaser's Total Investment during the period for which such fee is being calculated, times (y) the Non-Use Fee Rate. Such Non-Use Fee shall be paid in arrears, on the Settlement Date for each Settlement Period and on the Termination Date, in the amount of such Non-Use Fee that shall have accrued during such Settlement Period (or portion thereof) or other period then ending and which shall not have been previously paid. (d) Prepayment Fee. In the event that the Termination Date occurs prior to the Scheduled Termination Date other than solely as a result of the termination of the Liquidity Banks' commitments under the Liquidity Agreement, Seller shall pay to the Agent for the benefit of the Purchaser and the Liquidity Banks on the Termination Date a nonrefundable prepayment fee equal to the product of (x) the Purchase Limit, times (y) the Non-Use Fee Rate during the period beginning on the day following the Termination Date through and including the Scheduled Termination Date. .2. Yield Protection. (a) If (i) Regulation D or (ii) any Regulatory Change occurring after the date hereof (A) shall subject an Affected Party to any tax, duty or other charge with respect to any Asset Interest owned by or funded by it, or any obligations or right to make Purchases or Reinvestments or to provide funding therefor, or shall change the basis of taxation of payments to the Affected Party of any Purchaser's Total Investments or Earned Discount owned by, owed to or funded in whole or in part by it or any other amounts due under this Agreement in respect of the Asset Interest owned by or funded by it or its obligations or rights, if any, to make Purchases or Reinvestments or to provide funding there for (except for changes in the rate of tax on the overall net income of such Affected Party imposed by the United States of America or any state thereof (unless, with respect to a state, other than the state in which such Affected Party's chief executive offices are located, resulting from, or arising out of, the transactions contemplated under the Transaction Documents) and, if such Affected Party's principal executive office is not in the United States of America, by the jurisdiction where such Affected Party's principal office in the United States is located); or (B) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Federal Reserve Board, but excluding any reserve included in the determination of Earned Discount), special deposit or similar requirement against assets of any Affected Party, deposits or obligations with or for the account of any Affected Party or with or for the account of any affiliate (or entity deemed by the Federal Reserve Board to be an affiliate) of any Affected Party, or credit extended by any Affected Party; or (C) shall change the amount of capital maintained or required or requested or directed to be maintained by any Affected Party; (D) shall impose any other condition affecting any Asset Interest owned or funded in whole or in part by any Affected Party, or its obligations or rights, if any, to make Purchases or Reinvestments or to provide funding therefor; or (E) shall change the rate for, or the manner in which the Federal Deposit Insurance Corporation (or a successor thereto) assesses, deposit insurance premiums or similar charges; and the result of any of the foregoing is or would be (x) to increase the cost to (or in the case of Regulation D referred to above, to impose a cost on) (I) an Affected Party funding or making or maintaining any Purchases or Reinvestments, any purchases, reinvestments, or loans or other extensions of credit under the Liquidity Agreement or any commitment of such Affected Party with respect to any of the foregoing, or (II) the Agent for continuing its or Seller's or the Originator's relationship with Purchaser (Seller shall at no time, with regard to Regulation D, be required to pay an increased cost hereunder in excess of the actual increased cost imposed on the Affected Party), (y) to reduce the amount of any sum received or receivable by an Affected Party under this Agreement or under the Liquidity Agreement with respect thereto, or (z) in the sole determination of such Affected Party, to reduce the rate of return on the capital of an Affected Party as a consequence of its obligations hereunder or arising in connection herewith to a level below that which such Affected Party could otherwise have achieved, then within thirty days after demand by such Affected Party (which demand shall be accompanied by a statement setting forth the basis of such demand), Seller shall pay directly to such Affected Party such additional amount or amounts as will compensate such Affected Party for such additional or increased cost or such reduction. (b) Each Affected Party will promptly notify Seller and the Agent of any event of which it has knowledge which will entitle such Affected Party to compensation pursuant to this Section 4.02; provided, however, no failure to give or delay in giving such notification shall adversely affect the rights of any Affected Party to such compensation. (c) In determining any amount provided for or referred to in this Section 4.02, an Affected Party may use any reasonable averaging and attribution methods that it (in its sole discretion) shall deem applicable. Any Affected Party when making a claim under this Section 4.02 shall submit to Seller a statement as to such increased cost or reduced return (including calculation thereof in reasonable detail), which statement shall, in the absence of demonstrable error, be conclusive and binding upon Seller. .3. Funding Losses. In the event that the Purchaser shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Purchaser to make any Purchase Advance) as a result of (i) any settlement with respect to Purchaser's Tranche Investment of any Asset Tranche being made on any day other than the scheduled last day of an applicable Yield Period or Settlement Date with respect thereto, or (ii) any Purchase not being made in accordance with a request therefore under Section 1.02, then, upon written notice from the Agent to Seller and Servicer, Seller shall pay to Servicer, and Servicer shall pay to the Agent for the Account of the Purchaser, the amount of such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding upon the Seller and Servicer. ARTICLE V CONDITIONS OF PURCHASES .1. Conditions Precedent to Initial Purchase. The initial Purchase to be made on or after the date of execution and delivery of Amendment No. 12 to this Agreement is subject to the condition precedent that the Agent shall have received, on or before the date of such Purchase, the following, each (unless otherwise indicated) dated such date and in form and substance satisfactory to the Agent: (a) A copy of the resolutions of the Board of Directors of each of the Seller, UPAC and UPAC of California approving this Agreement, the Purchase and Sale Agreement and the other Transaction Documents, as applicable, to be delivered by them hereunder and the transactions contemplated hereby and thereby, certified in each case by its respective Secretary or Assistant Secretary; (b) Good standing certificates (i) for each of Seller and Parent issued by the Secretaries of State of Delaware and Kansas, as applicable, (ii) for UPAC issued by the Secretaries of State of Missouri and Kansas, (iii) for UPAC of California issued by the Secretaries of State of California and Kansas, and for Oxford issued by the Secretary of State of Illinois. (c) A certificate of the Secretary or Assistant Secretary of each of the Seller, UPAC and UPAC of California certifying the names and true signatures of the officers authorized on their behalf to sign, as applicable, this Agreement, the Purchase and Sale Agreement and the other Transaction Documents to be delivered by them hereunder (on which certificate the Agent and Purchaser may conclusively rely until such time as the Agent shall receive from Seller, UPAC and/or UPAC of California, as applicable, a revised certificate meeting the requirements of this subsection (c)); (d) The Articles of Incorporation of Seller, UPAC, UPAC of California and Oxford, duly certified by the Secretary of State of their respective states of incorporation, as of a recent date acceptable to the Agent, together with a copy of the By-laws of Seller, UPAC, UPAC of California and Oxford, duly certified by the Secretary or an Assistant Secretary of Seller, UPAC, UPAC of California and Oxford, respectively; (e) Copies of acknowledgment copies of (i) proper amendments to Financing Statements (Form UCC-2), naming Oxford, as Originator, as the assignor of Receivables, Seller, as secured party/purchaser, and the Agent as assignee of such Financing Statements, (ii) proper amendments to Financing Statements (Form UCC-2), naming UPAC as the assignor of Receivables, Seller as secured party/purchaser, and the Agent as assignee of such Financing Statements, (iii) proper amendments to Financing Statements (Form UCC-2), naming UPAC of California as the assignor of Receivables, Seller as secured party/purchaser, and the Agent as assignee of such Financing Statements, (iv) proper amendments to Financing Statements (Form UCC-2), naming Seller as the assignor of Receivables or an undivided interest therein and the Agent as assignee and (v) proper terminations of Financing Statements (Form UCC-3), terminating any and all Financing Statements which cover any Receivable or Contract other than pursuant to this Agreement or the Purchase and Sale Agreement; (f) Copies of search reports (including tax, UCC, ERISA and judgment liens) provided in writing to the Agent, listing all effective financing statements that name Seller, Oxford, UPAC or UPAC of California as debtor and that are filed in or relate to the jurisdictions in which filings were made pursuant to subsection (e) above, together with copies of such financing statements (none of which shall cover any Receivables or Contracts); (g) Duly executed Lock-Box Agreements with the Lock-Box Banks; (h) Duly executed amendments to the Purchase and Sale Agreement satisfactory to the Agent; (i) Duly executed Custody Agreement satisfactory to the Agent; (j) Duly executed Backup Servicing Agreement satisfactory to the Agent; (k) Opinion of Kutak Rock, counsel to Seller and the Originators as to perfection, authority and other matters in substantially the form attached as Exhibit 5.01(k)-1; (l) Opinion of Kutak Rock, counsel to Seller, as to "true sale" and "non-substantive consolidation" in substantially the forms attached as Exhibits 5.01(l)-1 and 5.01(l)-2; (m) [Reserved]; (n) Such sublicenses as Purchaser or the Agent shall require with regard to all programs leased by Seller, Oxford, UPAC or UPAC of California and used in the servicing of the Receivables Pool; (o) Such powers of attorney as Purchaser or the Agent shall reasonably request to enable them to collect all amounts due under any and all Pool Receivables; (p) Evidence that each of the Originators and the Seller has marked its master data processing records to reflect Purchaser's undivided ownership interest in each Pool Receivable; (q) An Assignment and Assumption Agreement among the Purchaser, the Agent, the Custodian, EagleFunding Capital Corporation, Fleet National Bank, the Seller, the Servicer and the Originators in form and substance satisfactory to the Agent; (r) An executed copy of the Tax Sharing Agreement among Parent and its "affiliated group of companies" (including UPAC, UPAC of California and Seller), a copy of which is attached as Exhibit 5.01(r); (s) (i) A Settlement Statement, prepared in respect of the proposed Purchase, assuming a Cut-Off Date of May 26, 2000, (ii) a Weekly Report covering the week ended May 26, 2000, (iii) schedule of information for Receivables included in such Purchase in an electronic format acceptable to the Agent, and (iv) implementation of Settlement reporting procedures and formats satisfactory to the Agent; (t) [Reserved]; (u) Duly executed Liquidity Agreement; (v) Duly executed Fee Letter; (w) Certified copy of the Credit and Collection Policy of each of UPAC, UPAC of California and Oxford; (x) Satisfactory completion of due diligence (including the collateral audit) by the Agent; (y) Letters from the rating agencies then rating the Commercial Paper Notes, confirming in effect that the existing ratings of the Commercial Paper Notes will remain in effect after giving effect to the transactions contemplated hereby; (z) the Structuring Fee; (aa) Letter Agreement among the Seller, the Originators, the Servicer and the Agent regarding exclusivity. (bb) Such other further documents, certificates, information and/or approvals as Purchaser, the Agent or any Liquidity Bank shall reasonably request. .2. Conditions Precedent to All Purchases and Reinvestments. Each Purchase (including the initial Purchase) and each Reinvestment hereunder shall be subject to the further conditions precedent that on the date of such Purchase or Reinvestment (i) in the case of a Purchase, the Seller shall have delivered the Weekly Report or Settlement Statement required to be delivered during such week pursuant to Section 3.03(b) or 3.03(a), respectively, covering the calendar week or Settlement Period, as applicable, most recently ended, and (ii) the following statements shall be true (and Seller by accepting the amount of such Purchase or by receiving the proceeds of such Reinvestment shall be deemed to have certified that): (a) the representations and warranties contained in Sections 6.01 and 6.02 hereof and in the Purchase and Sale Agreement are correct on and as of such day as though made on and as of such day and shall be deemed to have been made on such day, (b) no event has occurred and is continuing, or would result from such Purchase or Reinvestment, that constitutes a Liquidation Event or Unmatured Liquidation Event, (c) except as provided in Section 3.08, for each Receivable included in a Purchase or Reinvestment, a fully executed Contract shall have been delivered to the Custodian (as Purchaser's designee), no later than the Wednesday following such Purchase or Reinvestment, (d) after giving effect to each proposed Purchase or Reinvestment, (i) Purchaser's Total Investment will not exceed the Purchase Limit and (ii) Purchaser's Share with respect to Principal Receivables will not exceed 100%, and (e) the Liquidation Date shall not have occurred; provided, however, the absence of the occurrence and continuance of an Unmatured Liquidation Event shall not be a condition precedent to any Reinvestment on any day which does not cause the Purchaser's Total Investment, after giving effect to such Reinvestment or Purchase, to exceed the Purchaser's Total Investment as of the opening of business on such day. ARTICLE VI REPRESENTATIONS AND WARRANTIES .1. Representations and Warranties of Seller. In order to induce the Purchaser and the Agent to enter into this Agreement and the other Transaction Documents, Seller represents and warrants to each of them as follows: (a) Organization and Good Standing. Seller has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and had at all relevant times, and now has, all necessary power, authority, and legal right to acquire, own, dispose of, and otherwise deal with, the Pool Receivables. (b) Due Qualification. Seller is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business (including, without limitation, such business as a "premium finance company") requires such qualification or approvals. (c) Power and Authority: Due Authorization. Seller has (i) duly authorized by all necessary action, and has all necessary power, authority and legal right to (A) execute and deliver this Agreement, the Purchase and Sale Agreement and the other Transaction Documents to which it is a party, (B) carry out the terms of the Transaction Documents, and (C) sell and assign the Asset Interest on the terms and conditions herein provided and (ii) has duly authorized by all necessary corporate action the execution, delivery and performance of this Agreement, the Purchase and Sale Agreement and the other Transaction Documents and the sale and assignment of the Asset Interest on the terms and conditions herein provided. (d) Valid Sale: Binding Obligations. This Agreement constitutes a valid sale, transfer, and assignment of the Asset Interest to Purchaser, enforceable against creditors of, and purchasers from, Seller and each of the Originators; and this Agreement constitutes, and each other Transaction Document to be signed by Seller when duly executed and delivered will constitute, a legal, valid and binding obligation of Seller enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) No Violation. The consummation of the transactions contemplated by this Agreement, the Purchase and Sale Agreement and the other Transaction Documents and the fulfillment of the terms hereof 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) a default under, the articles of incorporation or by-laws of Seller, or any indenture, loan agreement, mortgage, deed of trust, receivables purchase or other securitization agreement or other agreement or instrument to which Seller is a party or by which it is bound, or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, loan agreement, mortgage, deed of trust, receivables purchase agreement or other securitization agreement or other agreement or instrument, other than this Agreement and the Purchase and Sale Agreement, or violate any law or any order, rule, or regulation applicable to Seller or (except for Adverse Determinations disclosed in writing to Purchaser as assignee of Seller and except as described in Schedule 6.01(e)) of any court or of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over Seller (or Purchaser as assignee of Seller) or any of its properties. (f) No Proceedings. There are no proceedings or investigations pending, or threatened, against Seller or its Affiliates, or any other Person, before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (A) asserting the invalidity of this Agreement, the Purchase and Sale Agreement or any other Transaction Document, (B) seeking to prevent the sale and assignment of the Asset Interest or the consummation of any of the transactions contemplated by this or any other Transaction Document, (C) seeking any determination or ruling that might adversely affect (i) the performance by Seller, the Servicer or any of the Originators of its respective obligations under this Agreement or any of the other Transaction Documents, or (ii) the validity or enforceability of this Agreement, the Purchase and Sale Agreement, any other Transaction Document, the Receivables or the Contracts or (D) seeking to adversely affect the federal income tax attributes of the Purchases and Reinvestments hereunder. (g) Bulk Sales Act. No transaction contemplated hereby requires compliance with any bulk sales act or similar law. (h) Government Approvals. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by Seller of this Agreement, the Purchase and Sale Agreement or any other Transaction Document except for the filing of the UCC Financing Statements referred to in Article V, all of which, at the time required in Article V, shall have been duly made and shall be in full force and effect. (i) Financial Condition. Since December 31, 1999 there has been no material adverse change in the financial condition, business, business prospects or operations of the Seller. (j) Litigation. No injunction, decree or other decision has been issued or made by any court, government or agency or instrumentality thereof that has, and no threat by any person has been made to attempt to obtain any such decision that would have, a material adverse effect on a significant part of its business operations except as described in Schedule 6.01(j). (k) Margin Regulations. The use of all funds acquired by Seller under this Agreement will not conflict with or contravene any of Regulations G, T, U and X promulgated by the Board of Governors of the Federal Reserve system from time to time. (l) Quality of Title. Each Pool Receivable is, together with the related Contract and all other agreements related to such Pool Receivable (other than the related insurance policy, with respect to which Seller has a first priority and sole perfected security interest therein), owned by Seller free and clear of any Lien (other than any Lien arising solely as the result of any action taken by the Agent or the Purchaser (or any assignee thereof)) except as provided herein; and when Purchaser makes a Purchase it shall have acquired and shall continue to have maintained a valid and perfected first priority undivided percentage ownership interest to the extent of the Asset Interest in each Pool Receivable, each related Contract and in the Related Security and Collections with respect thereto free and clear of any Lien (other than any Lien arising solely as the result of any action taken by the Agent or the Purchaser (or any assignee thereof)); and no financing statement or other instrument similar in effect covering any Pool Receivable, any interest therein, the related Contracts, or the Related Security or Collections with respect thereto is on file in any recording office except such as may be filed in favor of (i) the Originators in accordance with the Contracts, (ii) in favor of Seller and the Agent in accordance with the Purchase and Sale Agreement or (iii) in favor of the Agent in accordance with this Agreement or in connection with any Lien arising solely as the result of any action taken by the Agent or the Purchaser (or any assignee thereof). (m) Accurate Reports. No Settlement Statement (if prepared by Seller or any Affiliate of Seller, or to the extent that information contained therein was supplied by Seller or any Affiliate of Seller), information, exhibit, financial statement, document, book, record or report furnished or to be furnished by Seller to the Agent or Purchaser in connection with this Agreement or any other Transaction Document was or will be inaccurate in any material respect as of the date it was or will be dated or (except as otherwise disclosed to the Agent and Purchaser, as the case may be, at such time) as of the date so furnished, or contained or will contain any material misstatement of fact or omitted or will omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading. (n) Offices. The chief place of business and chief executive office of Seller are located at the address of Seller referred to in Section 14.02 and the offices where Seller keeps all its books, records and documents evidencing Pool Receivables, the related Contracts and all purchase orders and other agreements related to such Pool Receivables are located at the addresses specified in Schedule 6.01(n) (or at such other locations, notified to the Agent in accordance with Section 7.01(e), in jurisdictions where all action required by Section 8.05 has been taken and completed). (o) Lock-Box Accounts. The names and addresses of all the Lock-Box Banks, together with the account numbers of the lock-box accounts of Seller at such Lock-Box Banks, are specified in Schedule 6.01(o) (or have been notified to Purchaser in accordance with Section 7.03(d)). (p) Eligible Receivables. Each Receivable included in the Net Pool Balance as an Eligible Receivable on the date of any Purchase or Reinvestment shall in fact be an Eligible Receivable. (q) Investment Company Act. Seller is not an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended. (r) Solvency. After giving effect to each Purchase and each Reinvestment and immediately after giving effect to Seller's and each Originator's obligations now or hereafter arising pursuant to any Transaction Document and to each transaction contemplated thereby, (i) the fair saleable value of the assets of Seller will exceed its liabilities, and (ii) Seller will be solvent, will be able to pay its debts generally as they mature, will own property with a fair saleable value greater than the amount required to pay its debts, and will have capital sufficient to carry on its business as then constituted. (s) Servicing Programs No license or approval is required for the Agent's or the Servicer's use of any program used by Servicer or any of the Originators in the servicing of the Receivables, other than those which have been obtained and are in full force and effect. The Seller hereby unconditionally and irrevocably grants to the Agent, the Purchaser and the Servicer a royalty free, non-exclusive license or sublicense to use all programs and other computer software used by the Seller or any Originator in the monitoring, servicing and/or collection of any Contracts or related Receivables and upon such licensee's or sublicensee's request, the Seller shall make available to such licensee or sublicensee a copy of such program or software in machine-readable form and to the extent necessary or convenient to operate such program or software, access during normal business hours to any of the Seller's computer or computer hardware to facilitate the use of such program or software. (t) Direct Obligor. No funds have been advanced by Seller to or on behalf of any Direct Obligor. (u) Contractual Due Dates, Etc. No Contract has been extended or otherwise modified, unless in manner, scope and content in accordance with the provisions of this Agreement and the Credit and Collection Policy of the Originator originating such Receivable. (v) Licensing. Each Originator is properly licensed as a premium finance loan company in each jurisdiction in which licensing is required for it to own premium finance loans with a nexus to such jurisdiction. (w) Transfers. No purchase of an interest in Receivables by Purchaser from Seller or by Seller from any Originator constitutes a fraudulent transfer or fraudulent conveyance or is otherwise void or voidable under similar laws or principles, the doctrine of equitable subordination or for any other reason. (x) Purchase and Sale Agreement. Each of the representations and warranties made by Seller and the Originators in the Purchase and Sale Agreement is true and correct as of the date or dates made, and each such agreement is in full force and effect. (y) Use of Proceeds. Neither Seller nor any Originator will use the proceeds of the Purchases hereunder to acquire a security in a transaction subject to Section 13 or 14 of the Securities Exchange Act of 1934. (z) Tax. Seller has filed each and every tax return required to be filed by it in each jurisdiction in which it is required to do so and has paid in each such jurisdiction all taxes required to be paid by it on a consolidated basis. (aa) No Liquidation Event. No event has occurred and is continuing and no condition exists which constitutes a Liquidation Event or an Unmatured Liquidation Event. (bb) ERISA. The Seller is in compliance in all material respects with ERISA and there exists no lien in favor of the Pension Benefit Guaranty Corporation on any of the Receivables. .2. Representations and Warranties of UPAC. UPAC (individually and as Servicer hereunder), in order to induce the Purchaser and the Agent to enter into this Agreement and the other Transaction Documents, represents and warrants to each of them as follows: (a) Organization and Good Standing. UPAC has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Missouri, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and had at all relevant times, and now has, all necessary power, authority, and legal right to acquire, own, dispose of, and service the Pool Receivables. (b) Due Qualification. UPAC is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business (including, without limitation, such business as a "premium finance company") requires such qualification approvals. (c) Power and Authority: Due Authorization. UPAC has (i) duly authorized by all necessary action, and has all necessary power, authority and legal right to (A) execute and deliver this Agreement, the Purchase and Sale Agreement and the other Transaction Documents to which it is a party, (B) carry out the terms of the Transaction Documents, (C) sell and assign the Receivables on the terms and conditions provided in the Purchase and Sale Agreement and (D) service the Receivables on the terms and conditions herein provided and (ii) has duly authorized by all necessary corporate action the execution, delivery and performance of this Agreement, the Purchase and Sale Agreement and the other Transaction Documents and the sale and assignment of the Asset Interest on the terms and conditions herein provided. (d) Binding Obligations. This Agreement constitutes, and each other Transaction Document to be signed by UPAC when duly executed and delivered will constitute, a legal, valid and binding obligation of UPAC enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) No Violation. The consummation of the transactions contemplated by this Agreement, the Purchase and Sale Agreement and the other Transaction Documents and the fulfillment of the terms hereof and 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) a default under, the articles of incorporation or by-laws of UPAC, or any indenture, loan agreement, mortgage, deed of trust, receivables purchase or other securitization agreement or other agreement or instrument to which UPAC is a party or by which it is bound, or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, loan agreement, mortgage, deed of trust, receivables purchase agreement or other securitization agreement or other agreement or instrument, other than this Agreement, the Security Agreement and the Purchase and Sale Agreement, or violate any law or any order, rule, or regulation applicable to UPAC or (except for Adverse Determinations disclosed in writing to Seller, the Agent and Purchaser as assignees of UPAC and except as described in Schedule 6.02(e)) of any court or of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over UPAC (or Purchaser, the Agent and Seller as assignees of UPAC) or any of its properties. (f) No Proceedings. There are no proceedings or investigations pending, or threatened, against UPAC or its Affiliates, or any other Person, before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (A) asserting the invalidity of this Agreement, the Purchase and Sale Agreement or any other Transaction Document, (B) seeking to prevent the sale and assignment of the Asset Interest or the consummation of any of the transactions contemplated by this or any other Transaction Document, (C) seeking any determination or ruling that might adversely affect (i) the performance by UPAC or Servicer of its obligations under this Agreement, or (ii) the validity or enforceability of this Agreement, the Purchase and Sale Agreement, any other Transaction Document, the Receivables or the Contracts or (D) seeking to adversely affect the federal income tax attributes of the Purchases and Reinvestments hereunder. (g) Government Approvals. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by UPAC of this Agreement, the Purchase and Sale Agreement or any other Transaction Document except for the filing of the UCC Financing Statements referred to in Article V, all of which, at the time required in Article V, shall have been duly made and shall be in full force and effect. (h) Financial Condition. (x) The consolidated balance sheet of UPAC, UPAC of California, APR and their consolidated subsidiaries, if any, as at December 31, 1999, and the related statements of income and cash flow of UPAC, UPAC of California, APR and their consolidated subsidiaries, if any, for the year then ended certified by their independent certified public accounting firm, and the unaudited consolidated interim balance sheet of UPAC, UPAC of California, APR and their consolidated subsidiaries as at March 31, 2000, and the related interim statement of income, copies of each of which have been furnished to the Agent and Purchaser, each fairly present the consolidated financial position of UPAC, UPAC of California, APR and their consolidated subsidiaries as at such date and the consolidated results of the operations of UPAC, UPAC of California, APR and their consolidated subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied, and (y) since March 31, 2000 there has been no material adverse change in any such condition, business, business prospects or operations except as described in Schedule 6.02(h). (i) Litigation. No injunction, decree or other decision has been issued or made by any court, government or agency or instrumentality thereof that has, and no threat by any person has been made to attempt to obtain any such decision that would have, a material adverse effect on a significant part of its business operations except as described in Schedule 6.02(i). (j) Accurate Reports. No Settlement Statement (if prepared by UPAC or any Affiliate of UPAC, or to the extent that information contained therein was supplied by UPAC or any Affiliate of UPAC), information, exhibit, financial statement, document, book, record or report furnished or to be furnished by UPAC to the Agent or Purchaser in connection with this Agreement or any other Transaction Document was or will be inaccurate in any material respect as of the date it was or will be dated or (except as otherwise disclosed to the Agent and Purchaser, as the case may be, at such time) as of the date so furnished, or contained or will contain any material misstatement of fact or omitted or will omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading. (k) Offices. The chief place of business and chief executive office of UPAC are located at the address of UPAC referred to in Section 14.02 and the offices where UPAC keeps all its books, records and documents evidencing Pool Receivables, the related Contracts and all purchase orders and other agreements related to such Pool Receivables are located at the addresses specified in Schedule 6.02(k) (or at such other locations, notified to the Agent in accordance with Section 7.01(e), in jurisdictions where all action required by Section 8.05 has been taken and completed). (l) Servicing Programs. No license or approval is required for the Agent's use of any program used by UPAC in the servicing of the Receivables, other than those which have been obtained and are in full force and effect. (m) Contractual Due Dates, Etc. No Contract has been extended or otherwise modified, unless in manner, scope and content in accordance with the provisions of this Agreement and the Credit and Collection Policy of the applicable Originator originating such Receivable. (n) Licensing. UPAC is properly licensed as a premium finance loan company in each jurisdiction in which licensing is required and in which it is originating, enforcing and/or servicing Receivables pursuant to the terms of the Transaction Documents. (o) Confirmation. With respect to each Contract and related Receivable serviced by it and included in the Receivables Pool, Servicer has either obtained written confirmation of the existence, accuracy and terms of the related insurance policy or has otherwise verified the existence, accuracy and terms of the related insurance policy in accordance with its policies and procedures. .3. Reserved. .4. Breach of Representations and Warranties. (a) Breach of Representations and Warranties. Upon discovery by UPAC, Servicer or Seller of a breach of any of the representations and warranties set forth in this Article VI, the party discovering such breach shall give written notice thereof to the Agent and the Purchaser within one (1) Business Day of such discovery. (b) Survival of Certain Representations and Warranties. The representation and warranties provided in this Article VI shall survive the purchase of the related Receivables under the Purchase and Sale Agreement and of the Asset Interest therein by Purchaser, the delivery of the Contracts to Purchaser or Purchaser's designee and the termination of this Agreement or any other Transaction Document. ARTICLE VII GENERAL COVENANTS .1. Affirmative Covenants of Seller. From the date hereof until the Final Payout Date, Seller will, unless the Agent shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply in all material respects with all applicable laws, rules, regulations and orders with respect to (i) the Pool Receivables and related Contracts and (ii) its business operations except where noncompliance would not have a material adverse effect on such business operations. (b) Preservation of Corporate Existence. Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would materially adversely affect (i) the interests of the Agent and the Purchaser hereunder or (ii) the ability of the Seller or the Servicer to perform their respective obligations hereunder. (c) Audits. At any time and from time to time during regular business hours, upon such notice, if any, as shall be reasonable under the circumstances, permit the Agent (at Agent's expense), or its agents or representatives, (i) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of Seller relating to Pool Receivables, including, without limitation, the related Contracts and other agreements, and (ii) to visit the offices and properties of Seller for the purpose of examining such materials described in clause (i) next above, and to discuss matters relating to Pool Receivables or Seller's performance hereunder or under any other Transaction Document with any of the officers or employees of Seller having knowledge of such matters; and without limiting the foregoing, from time to time upon request of the Agent, permit certified public accountants or other auditors acceptable to them to conduct, at Seller's expense, a review of Seller's books and records. (d) Performance and Compliance with Receivables and Contracts. At its expense timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables and all other agreements related to such Pool Receivables. (e) Location of Records. Keep its chief place of business and chief executive office, and the offices where it keeps its records concerning the Pool Receivables, all related Contracts and all other agreements related to such Pool Receivables (and all original documents relating thereto), at the address(es) of Seller referred to in Section 6.01(n) or, upon 30 days' prior written notice to the Agent, at such other locations in jurisdictions where all action required by Section 8.05 shall have been taken and completed. (f) Credit and Collection Policies. Comply in all material respects with the applicable Credit and Collection Policy in regard to each Pool Receivable and the related Contract. (g) Collections. Cause all Collections of Pool Receivables to be deposited within one Business Day directly with a Lock-Box Bank. (h) Reserved. (i) Rights and Obligations under Purchase and Sale Agreement. Exercise all of its rights and perform all of its obligations under or in connection with the Purchase and Sale Agreement to the fullest extent thereof except to the extent otherwise consented to in writing by the Agent. .2. Reporting Requirements of Seller. From the date hereof until the Final Payout Date, Seller will, unless the Agent shall otherwise consent in writing, furnish to the Agent. (a) Financial Statements. As soon as available and (i) in any event within 30 days after the end of each calendar month, copies of the unaudited monthly consolidating financial statements of Seller, UPAC ,UPAC of California and APR prepared in accordance with generally accepted accounting principles consistently applied and (ii) in any event within 90 days after the end of each fiscal year of the Seller, (x) unaudited annual consolidating financial statements of each of the Seller, UPAC, UPAC of California and APR for the fiscal year then ended, prepared in accordance with generally accepted accounting principles consistently applied and (y) audited annual consolidated financial statement of the Parent and its consolidated subsidiaries for the fiscal year then ended, prepared in accordance with generally accepted accounting principles consistently applied and certified by the Parent's accountants (which shall be a nationally recognized independent certified public accounting firm) as fairly presenting the financial condition and results of operations of the Parent and its consolidated subsidiaries for the period covered thereby. (b) ERISA. Promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Reportable Event defined in Article IV of ERISA which Seller or any ERISA Affiliate of Seller files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which Seller or any ERISA Affiliate of Seller receives from the Pension Benefit Guaranty Corporation; (c) Liquidation Events. As soon as possible and in any event within one Business Day after the occurrence of each Liquidation Event and each Unmatured Liquidation Event, a written statement of the chief financial officer or chief accounting officer of Seller setting forth details of such event and the action that Seller proposes to take or cause to be taken with respect thereto, and the Purchaser shall promptly after its receipt thereof forward a copy of such notice (or otherwise give notice of its receipt of such notice) to each of the rating agencies then rating its Commercial Paper Notes; (d) Litigation and Other Proceedings. As soon as possible and in any event within one Business Day of Seller's knowledge thereof, notice from the Seller of (i) any litigation, investigation, inquiry or proceeding which may exist at any time which could have a material adverse effect on the business, operations, property or financial condition of Seller or any Originator or impair the ability of Seller or any Originator to perform its respective obligations under this Agreement or any other Transaction Document or which could result in an Adverse Determination, (ii) any material adverse development in any previously disclosed litigation, investigation, inquiry or proceeding and (iii) any Adverse Determination, and, in each case, the Purchaser shall promptly after its receipt thereof forward a copy of such notice (or otherwise give notice of its receipt of such notice) to each of the rating agencies then rating its Commercial Paper Notes; (e) Audit of Pool Receivables. Together with the annual financial statements required to be delivered pursuant to Section 7.02(a)(y), a copy of an audit report, prepared by Seller's accountants (which shall be a nationally recognized independent certified public accounting firm), of the Pool Receivables, as at the end of the fiscal year of Seller, verifying the aggregate Unpaid Balance of the Pool Receivables and the Defaulted Receivables. (f) Change in Credit and Collection Policies. Immediately upon becoming aware thereof, notice of any material change or proposed material change in the character of any Originator's business or in any Originator's Credit and Collection Policy, and the Purchaser shall promptly after its receipt of any such notice forward a copy of such notice (or otherwise give notice of its receipt of such notice) to each of the rating agencies then rating its Commercial Paper Notes. (g) Material Change. As soon as practicable but in no event later than the first Business Day following the occurrence, notice of any material adverse change in Seller's or any Originator's financial or operating condition. (h) Purchase and Sale Agreement. Promptly after receipt thereof, copies of all documents and other information delivered by the Originators to Seller pursuant to the Purchase and Sale Agreement. (i) Other. Promptly, from time to time, such other information, documents, records or reports respecting the Receivables or the condition or operations, financial or otherwise, of Seller or the Originators as the Agent may from time to time reasonably request in order to protect the interests of the Agent and/or the Purchaser under or as contemplated by this Agreement. (j) Notice. Within three Business Days of its acquisition, generation or other origination of a Contract and/or its related Receivable, provide notice (or otherwise cause notice to be provided) to (x) the relevant Obligors of its ownership interest in such Receivable and subsequent assignment thereof to the Purchaser (which notice may be set forth in the form of Contract to be executed by such Obligor), (y) to the relevant insurance carrier obligated to pay unearned premiums under any relevant insurance policy of the assignment to the relevant Originator of the right to payment of such unearned premiums and the subsequent assignment thereof to the Seller and the Purchaser, it being agreed that, notice in the form of Exhibit 7.02(j)-1 and Exhibit 7.02(j)-2 will be sufficient for clauses (x) and (y), respectively, above. Any notice which in accordance with applicable policies and procedures is to be given to the relevant insurance agent of the assignment of the right to payment of unearned premiums shall be substantially in the form of Exhibit 7.02(j)-3. .3. Negative Covenants of Seller. From the date hereof until the Final Payout Date, Seller will not, without the prior written consent of the Agent: (a) Sales, Liens, Etc. Except as otherwise provided herein and in the Purchase and Sale Agreement, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien upon or with respect to, any Pool Receivable or related Contract or Related Security, or any interest (including Seller's retained interest hereunder) therein, or any lock-box account to which any Collections of any Pool Receivable are sent, or any right to receive income or proceeds from or in respect of any of the foregoing. (b) Extension or Amendment of Receivables. Except as otherwise permitted in Section 8.02, extend, amend or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any term or condition of any Contract related thereto. (c) Change in Business. Make any change in the character of its business. (d) Change in Payment Instructions to Obligors Add or terminate any bank as a Lock-Box Bank from those listed in Schedule 6.01(o), make or permit any change in Servicer's instructions to Obligors regarding payments to be made to Seller or Servicer or payments to be made to any Lock-Box Bank, unless, in any case, the Agent shall have received notice of such addition, termination or change and duly executed copies of Lock-Box Agreements with each new Lock-Box Bank. (e) Mergers, Acquisitions, Sales, etc. Be a party to any merger or consolidation, or purchase or otherwise acquire all or substantially all of the assets or any stock of any class of, or any partnership or joint venture interest in, any other Person, or, except in the ordinary course of its business, sell, transfer, convey or lease all or any substantial part of its assets, or sell or assign with or without recourse any Receivables or any interest therein (other than pursuant hereto). (f) Restricted Payments. Purchase or redeem, or permit any Subsidiary to purchase or redeem, any shares of the capital stock of Seller, declare or pay any dividends thereon (other than Permitted Dividends and stock dividends which may be paid no more frequently than monthly), make any distribution to stockholders or set aside any funds for any such purpose, or prepay, purchase or redeem, or permit any Subsidiary to purchase, any subordinated indebtedness of Seller except as permitted under the Tax Sharing Agreement and any agreement allocating overhead to the extent such agreement has been approved by the Agent. (g) Deposits to Special Accounts. Deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account or the Collection Account cash or cash proceeds other than Collections of Pool Receivables. (h) Incurrence of Indebtedness. Incur or permit to exist any indebtedness or liability on account of deposits or advances or for borrowed money or for the deferred purchase price of any property or services, other than (i) under the Subordinated Notes or (ii) any other indebtedness approved by the Agent and listed in Schedule 7.03(h). (i) Amendments to Purchase and Sale Agreement. Amend, supplement, waive the application of any provision of, amend and restate or otherwise modify the Purchase and Sale Agreement (including, adding any Originators thereunder) except (x) in accordance with the terms thereof and (y) with the prior written consent of the Agent. (j) No Subsidiaries. Acquire any voting or economic interest in any other Person. .4. Affirmative Covenants of UPAC. From the date hereof until the Final Payout Date, UPAC (individually and as Servicer) will, unless the Agent shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply in all material respects with all applicable laws, rules, regulations and orders with respect to (i) the Pool Receivables and related Contracts and (ii) its business operations (particularly relating to origination and servicing) except where noncompliance would not have a material adverse effect on such business operations. (b) Preservation of Corporate Existence. Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would materially adversely affect (i) the interests of Purchaser hereunder or (ii) the ability of UPAC or Seller to perform their obligations hereunder or under the other Transaction Documents. (c) Audits. At any time and from time to time during regular business hours, upon such notice, if any, as shall be reasonable under the circumstances, permit the Agent (at the expense of Agent), or its agents or representatives, (i) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of UPAC relating to Pool Receivables, including, without limitation, the related Contracts and other agreements, and (ii) to visit the offices and properties of UPAC for the purpose of examining such materials described in clause (i) immediately above, and to discuss matters relating to Pool Receivables or UPAC's performance hereunder or under any other Transaction Document with any of the officers or employees of UPAC having knowledge of such matters; and without limiting the foregoing, from time to time upon request of the Agent, permit certified public accountants or other auditors acceptable to them to conduct, at the reasonable expense of UPAC, a review of UPAC's books and records. (d) Keeping of Records and Books of Account. (i) Maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables in the event of the destruction of the originals thereof) and keep and maintain, all documents, books, records and other information, in each case, reasonably necessary or advisable for the collection of all Pool Receivables (including, without limitation, records adequate to permit the daily identification of each new Pool Receivable and all Collections of and adjustments to each existing Pool Receivable) and (ii) identify (and mark) in each of its records and on each Contract (including computer records) each Receivable included in the Receivables Pool as so included. (e) Performance and Compliance with Receivables and Contracts. At its expense timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables and all other agreements related to such Pool Receivables. (f) Location of Records. Keep its chief place of business and chief executive office, and the offices where it keeps its records concerning the Pool Receivables, all related Contracts and all other agreements related to such Pool Receivables (and all original documents relating thereto), at the address(es) of UPAC referred to in Section 6.01(n) or, upon 30 days' prior written notice to the Agent, at such other locations in jurisdictions where all action required by Section 8.05 shall have been taken and completed. (g) Credit and Collection Policies. Comply in all material respects with the applicable Credit and Collection Policy in regard to each Pool Receivable and the related Contract. (h) Collections. Cause all Collections of Pool Receivables to be deposited within one Business Day directly with a Lock-Box Bank. (i) Cancellation of Certain Insurance Policies. With regard to any Pool Receivable, cancel the related insurance policy in accordance with the applicable Credit and Collection Policy, unless non-cancellation thereof will not materially and adversely impact the related Pool Receivable or the Receivables Pool taken as a whole. (j) Purchase and Sale Agreement. Comply with all of its obligations under the Purchase and Sale Agreement. .5. Reporting Requirements of UPAC. From the date hereof until the Final Payout Date, UPAC will, unless the Agent shall otherwise consent in writing, furnish to the Agent: (a) Financial Statements. As soon as available and in any event within 90 days after each fiscal year of UPAC, and within 30 days after each fiscal month of UPAC, copies of the consolidated financial statements of UPAC, UPAC of California, APR and their consolidated Subsidiaries prepared on a consolidated basis and on a consolidating basis, in each case in conformity with generally accepted accounting principles, duly certified by the treasurer of UPAC; together with a monthly certificate from the treasurer, in each case containing a computation (so long as UPAC is the Servicer) of the Default Ratio, the Monthly Payment Rate, the Excess Yield Ratio and the Cancellation Ratio and containing a computation of, and showing compliance with, the financial restrictions contained in Section 7.06(f), 7.06(h), 10.01(h), 10.01(i), 10.01(j), 10.01(k) , 10.01(v), 10.01(w), and 10.01(x). (b) ERISA. Promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Reportable Event defined in Article IV of ERISA which UPAC or any ERISA Affiliate of UPAC files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which UPAC or any ERISA Affiliate of UPAC receives from the Pension Benefit Guaranty Corporation: (c) Liquidation Events. As soon as possible and in any event within one Business Day after the occurrence of each Liquidation Event and each Unmatured Liquidation Event, a written statement of the chief financial officer or chief accounting officer of UPAC setting forth details of such event and the action that UPAC proposes to take with respect thereto; (d) Litigation and Other Proceedings. As soon as possible and in any event within two Business Days of UPAC's knowledge thereof, notice of (i) any litigation, investigation, inquiry or proceeding which may exist at any time which could have a material adverse effect on the business, operations, property or financial condition of UPAC or impair the ability of UPAC or the Seller to perform its respective obligations under this Agreement or the other Transaction Documents or which could result in an Adverse Determination, (ii) any material adverse development in any previously disclosed litigation, investigation, inquiry or proceeding, (iii) any Adverse Determination, and (iv) any change in applicable laws or regulations which change could reasonably be expected to result in an Adverse Determination; (e) Change in Credit and Collection Policy. Prior to its effective date, notice of any material change in the character of UPAC's business or in its Credit and Collection Policy. (f) Material Change. As soon as practicable but in no event later than the first Business Day following the occurrence, notification of any material adverse change in UPAC's financial or operating condition. (g) Other. Promptly, from time to time, such other information, documents, records or reports respecting the Receivables or the condition or operations, financial or otherwise, of UPAC or, to the extent it is Servicer, any other Originator or the Seller, as in any case the Agent may from time to time reasonably request in order to protect the interests of the Agent or Purchaser under or as contemplated by this Agreement. .6. Negative Covenants of UPAC. From the date hereof until the Final Payout Date, UPAC will not, without the prior written consent of the Agent: (a) Sales, Liens, Etc. Except as otherwise provided herein sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien upon or with respect to, any Pool Receivable or related Contract or Related Security, or any interest (including Seller's retained interest) therein, or any lock-box account to which any Collections of any Pool Receivable are sent, or any right to receive income or proceeds from or in respect of any of the foregoing. (b) Extension or Amendment of Receivables. Except as otherwise permitted in Section 8.02, extend, amend or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any term or condition of any Contract related thereto. (c) Change in Business or Credit and Collection Policy. Make any material change in the character of its business or in its Credit and Collection Policy. (d) Change in Payment Instructions to Obligors. Add or terminate any bank as a Lock-Box Bank from those listed in Schedule 6.01(o) or make any change in its instructions to Obligors regarding payments to be made to Seller or Servicer or payments to be made to any Lock-Box Bank, unless the Agent shall have received notice of such addition, termination or change and duly executed copies of Lock-Box Agreements with each new Lock-Box Bank. (e) Reserved. (f) Mergers, Acquisitions, Sales, etc. Be a party to any merger or consolidation, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions), all or substantially all of its assets (whether now owned or hereafter acquired), or acquire all or substantially all of the assets or capital stock or other ownership interest of any Person; provided, however, that (i) UPAC may merge or consolidate with, or acquire all or substantially all of the assets of any other Originator and (ii) UPAC may merge or consolidate with, or acquire all or substantially all of the assets or capital stock or other ownership interest of any other Person so long as (1) no Liquidation Event or Unmatured Liquidation Event is then outstanding or would result therefrom and (2) immediately after giving effect to such merger, consolidation or acquisition, as the case may be, UPAC shall be the surviving entity of such merger, consolidation or acquisition and the net worth of UPAC on a consolidated basis will equal or exceed that of UPAC immediately prior to such merger, consolidation or acquisition; and provided, further, it is expressly understood and agreed that, unless otherwise agreed to by the Agent and the Purchaser, neither (x) the accounts receivable and other similar assets of such other party to such merger, consolidation or acquisition (whether such accounts receivable or other similar assets existed prior to such merger, consolidation or acquisition or arise or are created thereafter out of or in connection with what had been the operations of such other party), nor (y) the accounts receivable and other similar assets acquired by an Originator from a Person (other than another Originator) in an acquisition of less than all or substantially all of such Person's assets (by way of example and not limitation, the purchase by an Originator of a single portfolio of Receivables from a third party), shall be deemed in any event to be Eligible Receivables hereunder except to the extent that: (i) the aggregate Unpaid Principal Balance of all such Receivables acquired through purchase, merger or consolidation and which have not been previously designated by the Agent and the Purchaser as being Eligible Receivables does not exceed, at any time, 5% of the Net Pool Balance at such time; and (ii) the aggregate Unpaid Principal Balance of all such Receivables acquired through any specific merger, consolidation or any acquisition or purchase (or any related series of acquisitions or purchases) and which have not previously been designated by the Agent and the Purchaser as being Eligible Receivables does not exceed, at any time, 2.5% of the Net Pool Balance at such time. (g) Restricted Payments. Purchase or redeem, or permit any Subsidiary to purchase or redeem, any shares of the capital stock of UPAC, declare or pay any dividends thereon, make any distribution to stockholders or set aside any funds for any such purpose, or prepay, purchase or redeem, or permit any Subsidiary to prepay, purchase or redeem, any subordinated indebtedness of UPAC, or purchase any debt owed by any Affiliate of UPAC or make any loan to any Affiliate of UPAC, if in any such case, after giving effect thereto, the Liquidation Event described in Section 10.01(w) would occur. (h) Incurrence of Indebtedness. Incur, guaranty or permit to exist any indebtedness or liability on account of deposits or advances or for borrowed money or for the deferred purchase price of any property or services, except (i) indebtedness to other Subsidiaries not exceeding in the aggregate $100,000 at any one time outstanding, (ii) current accounts payable arising in the ordinary course of business, (iii) indebtedness of the Seller to any Originators or Oxford under the Subordinated Notes for the purchase price of Receivables purchased by the Seller from the Originators or Oxford pursuant to the Purchase and Sale Agreement, (iv) unsecured indebtedness of UPAC in respect of outstanding deposits made to such Originator by referring agents in the ordinary course of its respective business, not to exceed at any time of determination hereunder, in the aggregate for UPAC and UPAC of California, the sum of $1,000,000 plus 10% of the excess (if any) of the consolidated tangible net worth of UPAC and UPAC of California and their consolidated subsidiaries at such time over $5,000,000, and (v) other indebtedness outstanding on the date hereof and listed on Schedule 7.06(i); notwithstanding the foregoing, UPAC may obtain subordinated loans from other Persons in an amount not to exceed $5,000,000, in the aggregate, provided that each such Person enters into a subordination agreement with the Agent on terms and conditions satisfactory to the Agent. (i) Deposits to Special Accounts. Deposit or otherwise credit, or cause or permit to be so deposited or credited, to Lock-Boxes or the Collection Account cash or cash proceeds other than Collections of Pool Receivables. .7. Reserved. .8. Reserved. .9. Reserved. .10. Special Covenant of Seller and UPAC. From the date hereof until the Final Payout Date, Seller and UPAC agree that Seller shall be operated in such a manner that it will not be substantively consolidated in the bankruptcy estate of any Affiliate such that the separate corporate existence of Seller would be disregarded in the event of a bankruptcy or insolvency of any Affiliate, and Seller is and shall be operated in such a manner that no Affiliate shall be substantively consolidated in the bankruptcy estate of Seller, such that, in the event that Seller were to be a debtor in a case under the Bankruptcy Code, the separate existence of Seller or the separate corporate existence of UPAC, or the separate existence of any other Affiliate or Originator, would be disregarded so as to lead to substantive consolidation of the assets and liabilities of UPAC, any other Originator, Parent or any other Affiliate with the bankruptcy estate of Seller, and in that regard: (a) Seller shall maintain separate corporate records and books of account from that of any Affiliate, including, but not limited to, the Originators and Parent, hold regular meetings and otherwise observe corporate formalities and shall keep and maintain its place of business separate and apart from the place of business of any Affiliate, including the Originators and Parent, and Seller shall have a separately designated address and phone listing for its business offices; (b) the financial statements and books and records of Seller prepared after the date hereof (which may be consolidated statements for certain financial and tax reporting purposes) shall reflect the separate existence of and separate financial condition of the Seller, each of the Originators and Parent and any other Affiliate and shall disclose (i) the effects of the transactions pursuant hereto and the Purchase and Sale Agreement in accordance with generally accepted accounting principles and (ii) that the assets of Seller will only be available to satisfy the claims of Seller's creditors; (c) Seller shall maintain its funds and other assets separately from the funds and other assets of any Affiliate, including, but not limited to the Originators and Parent (including through the maintenance of a separate bank account); Seller's funds and other assets and records relating thereto will be separately identifiable and shall not be commingled with those of any Affiliate, including, but not limited to the Originators and Parent, and the creditors of the Originators and Parent shall be entitled to be satisfied out of their own assets prior to any value becoming available to the shareholders of Seller; (d) except to the limited extent permitted under Section 7.10(p) or as expressly permitted under the Purchase and Sale Agreement, no Affiliate of Seller shall guarantee Seller's obligations or advance funds to Seller for the payment of expenses or otherwise; (e) Seller will conduct its business solely in its own name so as not to mislead others as to its identity, and will use its best efforts to avoid the appearance of conducting business on behalf of the Originators and Parent or that any of Seller's assets are available to pay the creditors of any Originator or Parent or any other Affiliates, and, without limiting the generality of the foregoing, all oral or written communications shall be conducted by Seller in its own name and on its own stationary; (f) except in the limited instances set forth herein, Seller will not act as an agent of Parent or any Originator or any Affiliate, but instead Seller shall present itself to the public as a corporation separate from any other Person, independently engaged in the business of purchasing Receivables and related Contracts; (g) Seller will act and conduct its business in such a way that it would not be reasonable for a third party to rely on the assets of any Originator or Parent to satisfy the obligations of Seller, or vice versa; (h) Seller shall obtain proper authorization from its board of directors for any material corporate action to be engaged in by Seller; (i) Seller will maintain its own separate bank account and will pay all of its own operating expenses and liabilities solely and exclusively from its own funds; (j) all resolutions, consents to action, agreements, and any other instruments of Seller underlying the transactions described in this Agreement and in the other Transaction Documents shall be continuously maintained as official records by Seller, separately identified and held apart from the records of the Originators, Parent and each of the Affiliates thereof; (k) Seller shall remain a limited purpose corporation whose activities are restricted in accordance with its Certificate of Incorporation; (l) Seller shall hold no ownership or equity interests any Person; (m) Seller shall not engage in any intercompany transactions with any of the Originators or Parent or any other Affiliate except for the transactions set forth or expressly contemplated in this Agreement (or reasonably related thereto), the Purchase and Sale Agreement and the other Transaction Documents; (n) at least one of the directors of Seller shall be an independent director, which independent director shall at no time be a member, partner, director (other than as the independent director of Seller), officer or employee of Seller, any Originator or Parent or any Affiliate of any of the foregoing; (o) although the organization expenses of Seller have been paid by APR, operating expenses and liabilities of Seller shall be paid solely and exclusively by Seller from its own funds (it being understood that UPAC may from time to time make capital contributions to Seller); and (p) Seller shall comply with all assumptions regarding the maintenance of Seller's separate corporate existence set forth in the opinions of counsel described in Section 5.01(l). ARTICLE VIII ADMINISTRATION AND COLLECTION .1. Designation of Servicer. (a) UPAC as Initial Servicer. The servicing, administering and collection of the Pool Receivables shall be conducted by the Person designated as Servicer hereunder ("Servicer") from time to time in accordance with this Section 8.01. Until the Agent gives to UPAC a Successor Notice (as defined in Section 8.01(b)), UPAC is hereby designated as, and hereby agrees to perform the duties and obligations of, Servicer pursuant to the terms hereof. (b) Successor Notice; Servicer Transfer Events. Upon UPAC's receipt of a notice from the Agent of the Agent's designation of the Backup Servicer or any other Person acceptable to the Agent as Servicer (a "Successor Notice"), UPAC agrees that it will terminate its activities as Servicer hereunder in a manner that the Agent believes will facilitate the transition of the performance of such activities to the new Servicer, and such new Servicer shall assume each and all of UPAC's obligations to service and administer such Receivables, on the terms and subject to the conditions herein set forth, and UPAC shall use its best efforts to assist the Agent (or its designee) in assuming such obligations. The Agent agrees not to give UPAC a Successor Notice until after the occurrence of any Liquidation Event (any such Liquidation Event being herein called a "Servicer Transfer Event"), in which case such Successor Notice may be given at any time in the Agent's discretion. If UPAC disputes the occurrence of a Servicer Transfer Event, UPAC may take appropriate action to resolve such dispute; provided that UPAC must terminate its activities hereunder as Servicer and allow the newly designated Servicer to perform such activities on the date provided by the Agent as described above, notwithstanding the commencement or continuation of any proceeding to resolve the aforementioned dispute. Each successor Servicer and the Backup Servicer agree to be bound by the provisions of Section 2.1 of the Purchase and Sale Agreement. (c) Subcontracts. Servicer may, with the prior consent of the Agent, subcontract with any other person for servicing, administering or collecting the Pool Receivables, provided that Servicer shall remain liable for the performance of the duties and obligations of Servicer pursuant to the terms hereof; and provided, further that the Agent shall be deemed to have consented to the Servicer's subcontracting with any Originator to perform the servicing, administering and collecting of such Originator's own Receivables until such time as a Successor Notice shall be delivered in accordance with the immediately preceding Section 8.01(b). .2. Duties of Servicer. (a) Appointment; Duties in General. Each of Seller, Purchaser and Agent hereby appoints as its agent Servicer, as from time to time designated pursuant to Section 8.01, to enforce its rights and interests in and under the Pool Receivables, the Related Security and the related Contracts. Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect each Pool Receivable from time to time, all in accordance with applicable laws, rules and regulations, with such care and diligence as is customary in servicing insurance premium finance contracts in the industry or, if higher, the servicing standards it-applies to such contracts, and in accordance with the Credit and Collection Policies; such duties to include, but not be limited to, the following: (i) documentation, collection, enforcement and administration of the Receivables, (ii) servicing in accordance with stated contract processing, collections, and cash disbursement policies and procedures, and all other procedures and standards set forth in the Credit and Collection Policies, (iii) maintaining and documenting Purchaser's and Agent's first priority perfected security interest in the Receivables Pool, including those steps necessary to ensure a perfected security interest in the unearned premiums, (iv) depositing and paying over of all amounts to such Persons or accounts and as and when required by the terms of any Transaction Document, (v) preparing and delivering reports and electronic data to facilitate Settlements, Reinvestments, Purchases, periodic audits, etc., (vi) delivering periodic data to the Backup Servicer as required pursuant to the Backup Servicing Agreement and (vii) using its best efforts to fully cooperate with any new Servicer at any time designated hereunder. (b) Documents and Records. The Seller shall deliver to the Servicer, and Servicer shall hold in trust for Seller, the Originators, the Agent and Purchaser in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) that evidence or relate to Pool Receivables. (c) Certain Duties to Seller. Servicer shall, as soon as practicable following receipt, subject to Article III, turn over to Seller (i) that portion of Collections of Pool Receivables representing its undivided interest therein, less, in the event UPAC, the Parent, any other Originator or any Affiliate of any of the foregoing is no longer Servicer, all reasonable and appropriate out-of-pocket costs and expenses of Servicer of servicing, collecting and administering the Pool Receivables to the extent not covered by the Servicer's Fee received by it, and (ii) the Collections of any Receivable which is not a Pool Receivable. Servicer, if other than UPAC, the Parent, any other Originator or any Affiliate of any of the foregoing, shall, as soon as practicable upon demand, deliver to Seller all documents, instruments and records in its possession that evidence or relate to Receivables of Seller other than Pool Receivables, and copies of documents, instruments and records in its possession that evidence or relate to Pool Receivables. (d) Termination. Servicer's authorization under this Agreement shall terminate upon the Final Payout Date. (e) Power of Attorney. Seller hereby grants to Servicer an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of Seller all steps which are necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by Seller or transmitted or received by Purchaser (whether or not from Seller) in connection with any Receivable. .3. Rights of the Agent. (a) Notice to Obligors. At any time the Agent may notify the Obligors of Pool Receivables, or any of them, of the ownership of Asset Interests by Purchaser. (b) Notice to Lock-Box Banks. Seller hereby transfers to the Agent exclusive dominion and control of all of its bank accounts and related lock-boxes into which Collections are remitted, deposited or concentrated, and hereby agrees to take any further action that the Agent may reasonably request to effect such transfer. The Agent agrees to permit the Seller and the Originators to continue to operate such accounts in accordance with their customary business practices until such time following the earliest to occur of (i) the occurrence of the Liquidation Date, (ii) the commencement of the Liquidation Period, and (iii) the breach of the warranty in Section 6.02(h)(y) as the Agent may elect to notify the Lock- Box Banks to cease taking directions with respect to any such accounts or lock-boxes from the Seller, the Servicer and/or the applicable Originator, as the case may be. (c) Rights on Servicer Transfer Event. At any time following the designation of a Servicer other than UPAC, the Parent, any other Originator or any Affiliate of any of the foregoing pursuant to Section 8.01: (i) The Agent may direct the Obligors of Pool Receivables, or any of them, to pay all amounts payable under any Pool Receivable directly to the Agent. (ii) Seller and UPAC shall, at the Agent's request and at Seller's expense, give notice of such ownership to each said Obligor and direct that payments be made directly to the Agent. (iii) Seller and UPAC shall, and shall cause each of the other Originators to, at the Agent's request, (A) assemble all of the documents, instruments and other records (including, without limitation, computer programs, tapes and disks) which evidence the Pool Receivables, and the related Contracts and Related Security, or which are otherwise necessary or desirable to collect such Pool Receivables, and make the same available to the Agent at a place selected by the Agent, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Pool Receivables in a manner acceptable to the Agent and promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Agent. (iv) Each of Seller and Purchaser hereby authorizes the Agent, and grants to the Agent an irrevocable power of attorney, to take any and all steps in Seller's name and on behalf of Seller and Purchaser which are necessary or desirable, in the determination of the Agent, to collect all amounts due under any and all Pool Receivables, including, without limitation, endorsing Seller's and/or the applicable Originator's name on checks and other instruments representing Collections and enforcing such Pool Receivables and the related Contracts; provided that the Agent shall not exercise their rights under such Power of Attorney unless a Servicer Transfer Event shall have occurred and be continuing. .4. Responsibilities of Seller. Anything herein to the contrary notwithstanding: (a) Contracts. Seller and UPAC shall perform all of their respective obligations under the Contracts related to the Pool Receivables and under other agreements to the same extent as if the Asset Interest had not been sold hereunder or under the Purchase and Sale Agreement and the exercise by the Agent or its designees of their rights hereunder shall not relieve Seller or UPAC from such obligations. (b) Limitation of Liability. Neither the Agent nor the Purchaser shall have any obligation or liability with respect to any Pool Receivables, Contracts related thereto or any other related purchase orders or other agreements, nor shall either of them be obligated to perform any of the obligations of Seller, the applicable Originator or UPAC thereunder. .5. Further Action Evidencing Purchases and Reinvestments. (a) Further Assurances. Seller and UPAC agree that from time to time, at the reasonable expense of the Seller, they will promptly execute and deliver all further instruments and documents, and take all further action that the Agent or its designees may reasonably request in order to perfect, protect or more fully evidence the Purchases hereunder and the resulting Asset Interest, or to enable Purchaser, the Agent or its designees to exercise or enforce any of their respective rights hereunder or under any Transaction Document. Without limiting the generality of the foregoing, Seller and UPAC will, upon the request of the Agent or its designee: (i) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate; (ii) mark conspicuously each Contract evidencing each Pool Receivable with a legend, acceptable to the Agent, evidencing that the Asset Interest has been sold in accordance with this Agreement; and (iii) mark the master data processing records evidencing such Pool Receivables and related Contracts with such legend. (b) Additional Financing Statements; Performance by Agent. Seller and UPAC hereby authorize the Agent or its designees to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Pool Receivables and the Related Security now existing or hereafter arising in the name of Seller or UPAC. If Seller or UPAC fails to perform any of its agreements or obligations under this Agreement, the Agent or its designees may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the expenses of the Agent and its designees, as the case may be, incurred in connection therewith shall be payable by Seller as provided in Section 14.05. (c) Continuation Statements; Opinion. Without limiting the generality of subsection (a), Seller will not earlier than six (6) months and not later than three (3) months prior to the fifth anniversary of the date of filing of the financing statements referred to in Section 5.01(e) or any other financing statement filed pursuant to this Agreement or the Purchase and Sale Agreement or in connection with any Purchase hereunder, unless the Termination Date shall have occurred and Purchaser's Total Interest shall have been reduced to zero, execute and deliver and file or cause to be filed an appropriate continuation statements with respect to such financing statements. .6. Application of Collections. Any payment by an Obligor in respect of any indebtedness owed by it to Seller or an Originator shall, except as otherwise specified by such Obligor, required by the underlying Contract or law or unless the Agent instructs otherwise, be applied, first, as a Collection of any Pool Receivable or Receivables then outstanding of such Obligor in the order of the age of such Pool Receivables, starting with the oldest of such Pool Receivable and, second, to any other indebtedness of such Obligor. ARTICLE IX SECURITY INTEREST .1. Grant of Security Interest. To secure all obligations of Seller, and Servicer (if UPAC, any Originator, the Parent or any Affiliate of any of the foregoing) in its capacity as Servicer, arising in connection with this Agreement and each other Transaction Document, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent, including, without limitation, all Indemnified Amounts, payments on account of Collections received or deemed to be received and fees, in each case pro rata according to the respective amounts thereof, Seller hereby assigns and grants to the Agent, for the benefit of the Secured Parties, a security interest in all of Seller's (i) right, title and interest (including specifically any undivided interest retained by Seller hereunder) now or hereafter existing in, to and under all the Receivables, the Related Security, the related Contracts and all Collections with regard thereto and proceeds thereof and (ii) rights, remedies, powers and privileges under and in respect of the Purchase and Sale Agreement, the Lock-Box Agreements and related lock-box accounts. .2. Further Assurances. The provisions of Section 8.05 shall apply to the security interest granted under Section 9.01 as well as to the Purchases, Reinvestments and all the Asset Interests hereunder. .3. Remedies. Upon the occurrence of a Liquidation Event, Purchaser and the Agent shall have, with respect to the collateral granted pursuant to Section 9.01, and in addition to all other rights and remedies available to Purchaser or the Agent under this Agreement or other applicable law, all the rights and remedies of a secured party upon default under the UCC. ARTICLE X LIQUIDATION EVENTS .1. Liquidation Events. The following events shall be "Liquidation Events" hereunder: (a) (i) Servicer (if UPAC, any Originator, the Parent or any Affiliate of any of the foregoing) shall fail to perform or observe any term, covenant or agreement that is an obligation of Servicer hereunder (other than as referred to in clause (ii) next following) and such failure shall remain unremedied for ten days after written notice thereof shall have been given by the Agent to Servicer, or ten days after Servicer obtained actual knowledge thereof or (ii) Servicer (if UPAC, any Originator, the Parent or any Affiliate of any of the foregoing) shall fail to make any payment or deposit to be made by it hereunder when due and such failure shall continue unremedied for two days; or (b) Any representation or warranty made or deemed to be made by Seller, UPAC or any other Originator (or any of their officers) under or in connection with this Agreement or any other Transaction Document or any Settlement Statement or other information or report delivered pursuant hereto shall prove to have been false or incorrect in any material respect when made and within ten days after the earlier of Seller, UPAC or any other Originator obtaining actual knowledge of such false or incorrect representation or warranty or written notice thereof shall have been given by the Agent to Seller, UPAC or any other Originator, as applicable, such falseness or incorrectness is not cured or Seller has failed to repurchase the Receivables affected by such false or incorrect representation or warranty, which repurchase option may be exercised not more than three times in any calendar year; or (c) Seller, UPAC or any other Originator shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or any of the other Transaction Documents on their part to be performed or observed and any such failure shall remain unremedied for ten days after (i) written notice thereof shall have been given by the Agent to Seller, UPAC or any such other Originator, as applicable, or (ii) either Seller or UPAC obtained actual knowledge thereof; or (d) (i) A default or a similar event, as the case may be, shall have occurred and be continuing under any instrument or agreement evidencing, securing or providing for (A) the issuance of indebtedness for borrowed money aggregating for all such agreements in excess of $150,000 of, or guaranteed by, any Originator or (B) pursuant to which any Originator shall have sold interests in receivables to, or shall otherwise have financed receivables with, any Person, where the purchaser's investment is in the aggregate for all such transactions in excess of $150,000 in the case of such Originator, which default or similar event, if unremedied, uncured, or unwaived (with or without the passage of time or the giving of notice) would permit acceleration of the maturity of such indebtedness or would require the permanent reduction of such purchaser's investment and such default or similar event shall have continued unremedied, uncured or unwaived for a period long enough to permit such acceleration or reduction and any notice of default or similar event required to permit acceleration or reduction shall have been given; or (e) Adverse Determinations shall have occurred in three or more states or in states in which Direct or Insurance Obligors reside representing the aggregate of 5% or more of the Receivables in the Receivables Pool; or (f) An Event of Bankruptcy shall have occurred and remain continuing with respect to Seller, UPAC, any Originator or Parent or any Affiliate of any thereof; or (g) (i) Any material litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings not disclosed in writing by Seller or any Originator to the Agent and Purchaser prior to the date of execution and delivery of this Agreement is pending against Seller or any Originator or any Affiliate of any thereof, or (ii) any material development not so disclosed has occurred in any litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings so disclosed, which, in the case of clause (i) or (ii), in the opinion of the Agent, has a reasonable likelihood of having a Material Adverse Effect; or (h) The average Excess Yield Ratio at any Cut-Off Date calculated for the three most recent Settlement Periods (calculated with pro forma calculations of the Excess Yield Ratio for the number of calendar months preceding the date hereof necessary to make the calculations required by this paragraph (h)) is less than 4.00%; or (i) The average Default Ratio at any Cut-Off Date calculated for the three most recent Settlement Periods (calculated with pro forma calculations of the Default Ratio for the number of calendar months preceding the date hereof necessary to make the calculations required by this paragraph (i)) exceeds 1.00%; or (j) The average Cancellation Ratio at any Cut-Off Date calculated for the three most recent Settlement Periods (calculated with pro forma calculations of the Cancellation Ratio for the number of calendar months preceding the date hereof necessary to make the calculations required by this paragraph (j)) exceeds 5.00%; or (k) Reserved; or (l) There shall exist any event or occurrence that has a reasonable possibility of causing a Material Adverse Effect; or (m) The Purchaser's Share on account of Principal Receivables shall at any time exceed 100% and such excess shall not have been eliminated within 2 Business Days after the date of any Weekly Report, Settlement Statement or other report disclosing such excess; or (n) Any of Seller, Parent or any Originator is subject to a Change- in-Control, unless the Agent shall have given prior written approval to any such Change-in-Control; or (o) The Internal Revenue Service shall file notice of a lien pursuant to Section 6323 of the Internal Revenue Code with regard to any of the assets of Seller, any Originator or any ERISA Affiliate of any of the foregoing and such lien shall not have been released within five days, or the Pension Benefit Guaranty Corporation shall, or shall indicate its intention to, file notice of a lien pursuant to Section 4068 of the Employee Retirement Income Security Act of 1974 with regard to any of the assets of Seller, any such Originator, Parent or any such ERISA Affiliate; or (p) Failure to obtain a Liquidity Agreement in substitution for the then existing Liquidity Agreement on or before 30-days prior to the expiration of the commitments of the Liquidity Banks thereunder or the Liquidity Agreement is otherwise terminated (unless immediately prior to such termination, the Liquidity Agreement shall have been funded or collateralized in such a manner that such failure to substitute or such termination will not result in a reduction or withdrawal of the credit rating applied to the Commercial Paper Notes by any of the rating agencies then rating the Commercial Paper Notes); it being understood and agreed that the Agent shall use reasonable efforts to obtain such a substitute Liquidity Agreement, but neither the Agent nor DG Bank shall have any liability for failing to do so nor shall they have any obligation to provide such a facility themselves; or (q) (i) A Downgrading Event with respect to a Liquidity Bank shall have occurred and been continuing for not less than 45 days, (ii) the Downgraded Liquidity Bank shall not have been replaced by a Qualifying Liquidity Bank under the Liquidity Agreement, and (iii) the commitment of such Downgraded Liquidity Bank under the Liquidity Agreement shall not have been funded or collateralized in such a manner that such Downgrading Event will not result in a reduction or withdrawal of the credit rating applied to the Commercial Paper Notes by any of the rating agencies then rating the Commercial Paper Notes; provided, that no Termination Event shall be deemed to have occurred pursuant to this Section 10.01(q) if (x) the parties hereto agree to permanently reduce the Purchase Limit by the commitment amount of such Downgraded Liquidity Bank at the end of the 45 day period referred to in clause (i) and (y) the Purchaser's Total Investment does not exceed such revised Purchase Limit after such time; it being understood and agreed that the Agent shall use reasonable efforts to replace any Downgraded Liquidity Bank, but neither the Agent nor DG Bank shall have any liability for failing to do so nor shall they have any obligation to assume the commitment of such Downgraded Liquidity Bank themselves; or (r) Any Liquidity Bank terminates, refuses to perform or defaults in the performance of its Funding commitment under the Liquidity Agreements, provided, that no Termination Event shall be deemed to have occurred pursuant to this Section 10.01(r) if (x) the parties hereto agree to permanently reduce the Purchase Limit by the unfunded commitment amount of such terminating or defaulting Liquidity Bank and after giving effect thereto to the Purchaser's Total Investment would not exceed such revised Purchase Limit or (y) such terminating or defaulting Liquidity Bank is replaced under the Liquidity Agreement by a Qualifying Liquidity Bank or such default is cured, in either case, within one Business Day after the Agent's receipt of actual knowledge of the termination or default by such Liquidity Bank under the Liquidity Agreement ; it being understood and agreed that the Agent shall use reasonable efforts to obtain a replacement Liquidity Bank to substitute for such recalcitrant or defaulting Liquidity Bank, but neither the Agent nor DG Bank shall have any liability for failing to do so nor shall they have any obligation to assume the commitment of such Liquidity Bank themselves; or (s) A Purchase and Sale Termination Event shall have occurred; or (t) Purchaser shall become an "investment company" within the meaning of the Investment Company Act of 1940, as amended; or (u) The Seller ceases to purchase Receivables under the Purchase and Sale Agreement; or (v) The average Monthly Payment Rate at any Cut-Off Date calculated for the three most recent Settlement Periods (calculated with pro forma calculations) of the Monthly Payment Rate for the number of calendar months preceding the date hereof necessary to make the calculations required by this paragraph (v)) is less than fifteen percent (15.0%); or (w) At the end of any fiscal quarter of the Servicer, the Consolidated Tangible Net Worth of the Servicer (if UPAC, any Originator, the Parent or any Affiliate of any of the foregoing) becomes less than the sum of (i) $10,000,000, (ii) the aggregate amount of equity investments made in the Servicer by the Servicer's shareholders on and after May 26, 2000, and (iii) twenty-five percent (25.0%) of the Servicer's future net income, such sum to be calculated in accordance with GAAP, exclusive of the effect, however, of FASB Statement No. 125. (x) At any time the the sum of (i) the amount of equity of the Seller plus (ii) the outstanding principal balance of the Subordinated Notes, but in no event to exceed the maximum amount thereof permitted under the Purchase and Sale Agreement, becomes less than (i) the sum of the Unpaid Principal Balance of Eligible Receivables having the four Insurance Obligors with the largest concentrations of Insurance Obligors in the Receivables Pool, (ii) the sum of the Unpaid Principal Balance of Eligible Receivables having the four insurance agents with the largest concentrations of all insurance agents in the Receivables Pool., or (iii) $10,000,000. (y) On August 15, 2000, this Agreement shall not have been amended and restated as a loan and security agreement with the same substantive terms as contained herein. .2. Remedies. (a) Optional Liquidation. Upon the occurrence of a Liquidation Event (other than a Liquidation Event described in subsections (f),(p),(q) or r of Section 10.01), the Agent shall, at the request, or may with the consent, of Purchaser, by notice to Seller declare the Purchase Termination Date to have occurred and the Liquidation Period to have commenced. (b) Automatic Liquidation. Upon the occurrence of a Liquidation Event described in subsections (f),(p),(q), or (r) of Section 10.01, the Purchase Termination Date shall occur and the Liquidation Period shall commence automatically. (c) Additional Remedies. Upon any Purchase Termination Date pursuant to this Section 10.02, no Purchases or Reinvestments thereafter will be made, and the Agent and Purchaser shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC and other laws of each applicable jurisdiction and other applicable laws, which rights shall be cumulative. ARTICLE XI THE AGENT .1. Authorization and Action. Purchaser has appointed and authorized the Agent (or its respective designees) to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. .2. Agent's Reliance, Etc. The Agent and its directors, officers, agents or employees shall not be liable for any action taken or omitted to be taken by it or them under or in connection with the Transaction Documents (including, without limitation, the servicing, administering or collecting Pool Receivables as Servicer pursuant to Section 8.01), except for its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, the Agent: (a) may consult with legal counsel (including counsel for Seller), independent certified public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to Purchaser or any other holder of any interest in Pool Receivables and shall not be responsible to Purchaser or any such other holder for any statements, warranties or representations made in or in connection with any Transaction Document; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Transaction Document on the part of Seller or any of the Originators or to inspect the property (including the books and records) of Seller or any of the Originators, (d) shall not be responsible to Purchaser or any other holder of any interest in Pool Receivables for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Transaction Document; and (e) shall incur no liability under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by facsimile or telex) believed by it to be genuine and signed or sent by the proper party or parties. .3. DG Bank and Affiliates. DG Bank and any of its respective Affiliates may generally engage in any kind of business with Seller, any of the Originators or Parent or any Obligor, any of their respective Affiliates and any Person who may do business with or own securities of Seller, any of the Originators or Parent or any Obligor or any of their respective Affiliates, all as if DG Bank was not the Agent hereunder and without any duty to account there for to Purchaser or any other holder of an interest in Pool Receivables. ARTICLE XII ASSIGNMENT OF PURCHASER'S INTEREST .1. Restrictions on Assignments. (a) Neither Seller nor UPAC, may assign its rights, or delegate its duties hereunder or any interest herein without the prior written consent of the Agent. Purchaser may not assign its rights hereunder (although it may delegate its duties hereunder as expressly indicated herein) or the Asset Interest (or any portion thereof or interest therein) to any Person without the prior written consent of Seller which consent shall not be unreasonably withheld; provided, however, that, without the prior consent of any Person: (i) Purchaser may assign all or any part of its rights and interests in the Transaction Documents, together with all or any portion of its interest in the Asset Interest, to any "bankruptcy remote" special purpose entity the business of which is administered by DG Bank or any Affiliate; and (ii) Purchaser may assign all or any part of its rights and interests in the Transaction Documents, together with all or any portion thereof of its rights and interest in the Asset Interest, to the Liquidity Agent for the benefit of the Liquidity Banks pursuant to the terms of the Liquidity Agreement. (b) Seller agrees to advise the Agent within five Business Days after notice to Seller of any proposed assignment by Purchaser of the Asset Interest (or any portion thereof), not otherwise permitted under subsection (a), of Seller's consent or non-consent to such assignment and if it does not consent, the reasons therefor. If Seller does not consent to such assignment, Purchaser may. immediately assign such Asset Interest (or portion thereof) to DG Bank or any Affiliate of DG Bank. All of the aforementioned assignments shall be upon such terms and conditions as Purchaser and the assignee may mutually agree. .2. Rights of Assignee. Upon the assignment by Purchaser in accordance with this Article XII, the assignee receiving such assignment shall have all of the rights of Purchaser with respect to the Transaction Documents and the Asset Interest (or such portion thereof as has been assigned) .3. Evidence of Assignment. Any assignment of the Asset Interest (or any portion thereof) to any Person may be evidenced by such instrument(s) or document(s) as may be satisfactory to Purchaser, the Agent and the assignee. ARTICLE XIII INDEMNIFICATION .1. Indemnities by Seller. (a) General Indemnity. Without limiting any other rights which any such Person may have hereunder or under applicable law, Seller hereby agrees to indemnify each of the Purchaser, the Liquidity Banks, the Custodian, the Enhancement Providers, the Backup Servicer and the Agent, each of the foregoing's respective Affiliates, and all successors, transferees, participants and assigns and all officers, directors, shareholders, controlling persons, employees and agents of any of the foregoing (each an "Indemnified Party"), forthwith on demand, from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them arising out of or relating to the Transaction Documents or the ownership or funding of the Asset Interest or in respect of any Receivable or any Contract, excluding, however, (a) Indemnified Amounts to the extent determined by a court of competent jurisdiction to have resulted from gross negligence or willful misconduct on the part of such Indemnified Party, or (b) recourse (except as otherwise specifically provided in this Agreement) for Defaulted Receivables. Without limiting the foregoing, Seller hereby indemnifies each Indemnified Party for Indemnified Amounts arising out of or relating to: (i) the transfer by Seller of any interest in any Receivable other than the transfer of an Asset Interest to Purchaser pursuant to this Agreement and the grant of a security interest to Purchaser pursuant to Section 9.01; (ii) any representation or warranty made by Seller or UPAC (individually or as Servicer) (or any of their officers or Affiliates) under or in connection with any Transaction Document, any Settlement Statement or any other information or report delivered by or on behalf of Seller or UPAC (individually or as Servicer) pursuant hereto, which shall have been false, incorrect or misleading in any material respect when made or deemed made; (iii) the failure by Seller or any applicable Originator to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract, or the nonconformity of any Pool Receivable or the related Contract with any such applicable law, rule or regulation; (iv) the failure to vest and maintain vested in Purchaser an undivided percentage ownership interest, to the extent of the Asset Interest, in the Receivables in, or purporting to be in, the Receivables Pool, free and clear of any Lien, other than a Lien arising solely as a result of an act of Purchaser or the Agent, whether existing at the time of any Purchase or Reinvestment of such Asset Interest or at any time thereafter; (v) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC or similar laws of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool, whether at the time of any Purchase or Reinvestment or at any time thereafter; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy) of any Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including, without limitation, a defense based on such Receivable's or the related Contract's not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the making of loans or the sale or provision of services related to such Receivable or the furnishing or failure to furnish such loans or services; (vii) any failure of Seller, Servicer (if UPAC or an Affiliate of UPAC) or any Originator to perform their respective duties or obligations in accordance with the provisions of this Agreement, including, without limitation, Article VIII and Sections 4.02 and 3.07(b), or any of the other Transaction Documents; (viii) any products liability claim arising out of or in connection with loans, products or services that are the subject of any Pool Receivable; (ix) any tax or governmental fee or charge (but not including taxes upon or measured by net income), all interest and penalties thereon or with respect thereto, and all out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of any Asset Interest, or any other interest in the Pool Receivables or in any goods which secure any such Pool Receivables; (x) the failure by Seller or UPAC to vest and maintain vested in Purchaser a valid and first priority security interest in any and all unearned premium related to each Pool Receivable; (xi) (A) any proceeding, investigation or inquiry which does or could result in an Adverse Determination, (B) any Adverse Determination or (C) Seller's, any Originator's or the Purchaser's failure to be qualified, licensed or to have obtained necessary approvals as a premium finance company in any jurisdiction in which such qualification, license or approvals are required; (xii) the failure to cancel any insurance policy on which a payment is more than 31 days (or, if earlier, the date specified in the related Contract) past due; or (xiii) the occurrence of a Liquidation Event or Unmatured Liquidation Event under Section 10.01(e); or (xiv) any insurance fraud relating to any Receivable. (b) Contest of Tax Claim; After-Tax Basis. If any Indemnified Party shall have notice of any attempt to impose or collect any tax or governmental fee or charge for which indemnification will be sought from Seller under Section 13.01(a)(ix), such Indemnified Party shall give prompt and timely notice of such attempt to it and Seller shall have the right, at their expense, to participate in any proceedings resisting or objecting to the imposition or collection of any such tax, governmental fee or charge. Indemnification hereunder shall be in an amount necessary to make the Indemnified Party whole after taking into account any tax consequences to the Indemnified Party of the payment of any of the aforesaid taxes and the receipt of the indemnity provided hereunder or of any refund of any such tax previously indemnified hereunder, including the effect of such tax or refund on the amount of tax measured by net income or profits which is or was payable by the Indemnified Party. (c) Contribution. If for any reason the indemnification provided above in this Section 13.01 is unavailable to an Indemnified Party or is insufficient to hold an Indemnified Party harmless, then Seller shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and Seller on the other hand but also the relative fault of such Indemnified Party as well as any other relevant equitable considerations. ARTICLE XIV MISCELLANEOUS .1. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by Seller or UPAC therefrom shall in any event (unless otherwise provided herein) be effective unless the same shall be in writing and signed by (a) Seller, UPAC, the Agent and Purchaser (with respect to an amendment) or (b) the Agent and Purchaser (with respect to a waiver or consent by them) or Seller or UPAC (with respect to a waiver or consent by them), as the case may be, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The parties acknowledge that, before entering into such an amendment or granting such a waiver or consent, Purchaser may also be required to obtain the approval of some or all of the Liquidity Banks. In addition, the parties acknowledge that prior to entering into any material amendment to this Agreement or any amendment or modification to the definition hereunder of "Excess Concentration Deduction" at any time that the Commercial Paper Notes are being rated, the Purchaser shall be required to obtain written confirmation from each of the rating agencies then rating the Commercial Paper Notes that such amendment, waiver or consent will not result in a withdrawal or reduction of the ratings of the Commercial Paper Notes. The parties hereto agree to cooperate in good faith to amend and restate this Agreement as a loan and security agreement with the same substantive terms on or prior to August 15, 2000. The Purchaser shall send or cause to be sent to each such rating agency, copies of all amendments, waivers or other modifications to this agreement prior to the execution thereof by all of the parties thereto. .2. Notices, Etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by express mail or courier or by certified mail, postage prepaid, or by facsimile, to the intended party at the address or facsimile number of such party set forth under its name on the signature pages hereof or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, (a) if personally delivered or sent by express mail or courier or if sent by certified mail, when received, and (b) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means. .3. No Waiver; Remedies. No failure on the part of the Agent, any Affected Party, any Indemnified Party, Purchaser, the Collateral Agent or any other holder of the Asset Interest (or any portion thereof) to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Without limiting the foregoing, each of the Affected Parties and the Indemnified Parties is hereby authorized by Seller or UPAC at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by any such Affected Party or Indemnified Party to or for the credit or the account of Seller or UPAC, now or hereafter existing under this Agreement, to any such Affected Party or Indemnified Party, or their respective successors and assigns. .4. Binding Effect; Survival. This Agreement shall be binding upon and inure to the benefit of Seller, UPAC, the Agent, the Purchaser and their respective successors and assigns, and the provisions of Sections 4.02 and 14.03 and Article XIII shall inure to the benefit of the Affected Parties and the Indemnified Parties, respectively, and their respective successors and assigns; provided, however, nothing in the foregoing shall be deemed to authorize any assignment not permitted by Section 12.01. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Final Payout Date. The rights and remedies with respect to any breach of any representation and warranty made by Seller or UPAC pursuant to Article VI and the indemnification and payment provisions of Article XIII and Sections 4.02, 14.05, 14.06, 14.07, 14.08 and 14.15 shall be continuing and shall survive any termination of this Agreement. .5. Costs, Expenses and Taxes. In addition to its obligations under Article XIII, the Seller hereby agrees to jointly and severally pay on demand: (a) all costs and expenses incurred by the Agent, the Custodian, the Liquidity Banks, the Liquidity Agent and the Purchaser and their respective Affiliates in connection with the negotiation, preparation (including, without limitation, electronic data preparation), execution and delivery, the administration (including periodic auditing) or the enforcement of, or any actual or claimed breach of, this Agreement and the other Transaction Documents, including, without limitation (i) the reasonable fees and expenses of counsel to any of such Persons incurred in connection with any of the foregoing or in advising such Persons as to their respective rights and remedies under any of the Transaction Documents, and (ii) all reasonable out-of-pocket expenses (including reasonable fees and expenses of independent accountants), incurred in connection with any review of Seller's, the Originators' and/or UPAC's books and records either prior to the execution and delivery hereof or pursuant to Sections 7.01(c) and 7.04(c); and (b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or the other Transaction Documents, and agrees to indemnify each Indemnified Party against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. .6. No Proceedings. Seller, UPAC, Servicer, each hereby agrees that it will not, and will not permit any other Originator to, institute against Purchaser, or join any other Person in instituting against Purchaser, any insolvency proceeding (namely, any proceeding of the type referred to in the definition of Event of Bankruptcy) so long as any Commercial Paper Notes issued by Purchaser shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such Commercial Paper Notes shall have been outstanding. The foregoing shall not limit Seller's, UPAC's, Servicer's or any other Originator's right to file any claim in or otherwise take any action with respect to any insolvency proceeding that was instituted by any Person other than Seller, UPAC, Servicer or any such other Originator. .7. Confidentiality of Seller Information. (a) Confidential Seller Information. Each party hereto (other than Seller and its Affiliates) acknowledges that certain of the information provided to such party by or on behalf of Seller, UPAC or any Originator in connection with this Agreement and the transactions contemplated hereby is or may be confidential, and each such party severally agrees that, unless Seller shall otherwise agrees in writing, and except as provided in subsection (b), such party will not disclose to any other person or entity: (i) any information regarding, or copies of, any non-public financial statements, reports and other information furnished by Seller, UPAC or any Originator to Purchaser or the Agent and designated by them as being confidential, or (ii) any other information regarding Seller, UPAC or any Originator ("Seller Parties") which is designated by Seller to such party in writing as confidential (collectively, "Seller Information"); provided, however, "Seller Information" shall not include (A) any information which is or becomes generally available on a nonconfidential basis from a source other than any Seller Party, or which was known to such party on a nonconfidential basis prior to its disclosure by any Seller Party, or (B) information regarding the nature, scope and structure of this Agreement, the other Transaction Documents and the basic terms hereof. (b) Disclosure. Notwithstanding subsection (a), each party may disclose any Seller Information: (i) to any of such party's independent attorneys, consultants and auditors, and to each Liquidity Bank, Enhancement Provider, Liquidity Agent, any dealer or placement agent for Purchaser's commercial paper, and any actual or potential assignees of, or participants in, any of the rights or obligations of Purchaser, any Liquidity Bank, the Enhancement Provider, or the Agent under or in connection with this Agreement, who (A) in the good faith belief of such party, have a need to know such Seller Information, (B) are informed by such party of the confidential nature of the Seller Information and the terms of this Section 14.07, and are subject to confidentiality restrictions generally consistent with this Section 14.07, (ii) to any rating agency that maintains a rating for Purchaser's commercial paper or is considering the issuance of such a rating, for the purposes of reviewing the credit of Purchaser in connection with such rating, (iii) to any other party to this Agreement or any agreement relating to the Purchaser's receivables purchase program, for the purposes contemplated hereby or relating hereto, (iv) as may be required by any municipal, state, federal or other regulatory body having or claiming to have jurisdiction over such party, in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party, (v) subject to subsection (c), in the event such party is legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand or similar process) to disclose such Seller Information, or, (vi) if it or any of its representatives is requested or becomes legally compelled (by interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Seller Information. (c) Survival. This Section 14.07 shall survive termination of this Agreement. .8. Confidentiality of Program Information. (a) Confidential Information. Each party hereto acknowledges that DG Bank and the Purchaser regard the structure of the transactions contemplated by this Agreement to be proprietary, and each such party severally agrees that: (i) it will not disclose without the prior consent of DG Bank (other than to the directors, employees, auditors, counsel or affiliates (collectively, "representatives")) of such party, each of whom shall be informed by such party of the confidential nature of the Information (as defined below) and of the terms of this Section 14.08, (A) any information regarding the pricing in, or copies of, this Agreement or any transaction contemplated hereby, (B) any information regarding the organization, business or operations of Purchaser or the Liquidity Agreement or Enhancement Agreements generally or the services performed by the Agent for Purchaser, or (C) any information which is furnished by DG Bank, the Agent, the Purchaser, the Liquidity Agent, the Liquidity Banks or the Enhancement Provider to such party and which is designated by such disclosing party to such other party in writing or otherwise as confidential or not otherwise available to the general public (the information referred to in clauses (A), (B) and (C) is collectively referred to as the "Program Information"); provided, however, that such party may disclose any such Program Information (I) to any other party to this Agreement for the purposes contemplated hereby, (II) as may be required by any municipal, state, federal or other regulatory body having or claiming to have jurisdiction over such party, (III) in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party, or (IV) in the event such party is legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand or similar process) to disclose any such Program Information (provided that such party provides DG Bank the opportunity to contest such actions on behalf of such party); (ii) it will use the Program Information solely for the purposes of evaluating, administering and enforcing the transactions contemplated by this Agreement and making any necessary business judgments with respect thereto; and (iii) it will, upon demand, return (and cause each of its representatives to return) to DG Bank, all documents or other written material received from any of the disclosing parties described therein, in connection with (a)(i)(B) or (C) above, and all copies thereof made by such party which contain the confidential Program Information. (b) Availability of Confidential Information. This Section 14.08 shall be inoperative as to such portions of the Program Information which are or become generally available to the public or such party on a nonconfidential basis from a source other than any of the persons described in clause (a)(i)(C) above or were known to such party on a nonconfidential basis prior to its disclosure by any of the persons described in clause (a)(i)(C) above. (c) Survival. This Section 14.08 shall survive termination of this Agreement. .9. Captions and Cross References. The various captions (including, without limitation, the table of contents) in this Agreement are provided solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement. Unless otherwise indicated, references in this Agreement to any Section, Appendix, Schedule or Exhibit are to such Section of or Appendix, Schedule or Exhibit to this Agreement, as the case may be, and references in any Section, subsection, or clause to any subsection, clause or subclause are to such subsection, clause or subclause of such Section, subsection or clause. .10. Integration. This Agreement, together with the Fee Letter and that certain side letter agreement dated as of May 26, 2000 among the Agent, the Seller, the Servicer and the Originators, contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire understanding among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings. .11. Governing Law. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF PURCHASER IN THE RECEIVABLES IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. .12. Waiver Of Jury Trial. SELLER AND UPAC HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY. .13. Consent To Jurisdiction; Waiver Of Immunities. EACH OF SELLER AND UPAC HEREBY ACKNOWLEDGES AND AGREES THAT: (A) IT IRREVOCABLY (I) SUBMITS TO THE JURISDICTION, FIRST, OF ANY UNITED STATES FEDERAL COURT, AND SECOND, IF FEDERAL JURISDICTION IS NOT AVAILABLE, OF ANY NEW YORK STATE COURT, IN EITHER CASE SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, (II) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED ONLY IN SUCH NEW YORK STATE OR FEDERAL COURT AND NOT IN ANY OTHER COURT, AND (III) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING. (B) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH THIS AGREEMENT. .14. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. .15. No Recourse Against Other Parties. No recourse under any obligation, covenant or agreement of Purchaser contained in this Agreement shall be had against any stockholder, employee, officer, director, or incorporator of Purchaser, provided, however, that nothing in this Section 14.15 shall relieve any of the foregoing Persons from any liability which such Person may otherwise have for his/her or its gross negligence or willful misconduct. .16. Covenant to Cooperate. Seller, Servicer, UPAC, the Agent and Purchaser covenant to provide each other with all data and information required to be provided by them hereunder at the times required hereunder, and additionally covenant to reasonably cooperate with each other in providing any additional information required by any of them in connection with their respective duties hereunder. .17. Advice From Independent Counsel. The parties hereto understand that this Agreement is a legally binding agreement that may affect such party's rights. Each party hereto represents to the other that it has received legal advice from counsel of its choice regarding the meaning and legal significance of this Agreement and that it is satisfied with its legal counsel and the advice received from it. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE TO FOLLOW] IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. APR FUNDING CORPORATION, as Seller By: Title: 8245 Nieman Road, Suite 123 Lenexa, Kansas 66214 Telephone No.: (913) 859-0055 Facsimile No.: (913) 859-0011 Attention: Kurt Huffman UNIVERSAL PREMIUM ACCEPTANCE CORPORATION, individually and as initial Servicer By: Title: 8245 Nieman Road, Suite 100 Lenexa, Kansas 66214 Telephone No.: (913) 894-6150 Facsimile No.: (913) 894-4988 Attention: Kurt Huffman AUTOBAHN FUNDING COMPANY, LLC, as Purchaser By: DG Bank Deutsche Genossenschaftsbank AG, as its attorney-in-fact By: Title: c/o Lord Securities Corporation Two Wall Street, 19th Floor New York, New York 10005 Telephone No. (212) 346-9008 Facsimile No.: (212) 346-9012 Attention: Frank Bilotta DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG, as Agent By: Title: 609 Fifth Avenue, Suite 911 New York, New York 10017 Telephone No.: (212) 745-1665 Facsimile No.: (212) 745-1651 Attention: Patrick Preece APPENDIX A DEFINITIONS This is Appendix A to the Receivables Purchase Agreement dated as of December 31, 1996, as amended by Amendment Nos. 1-12 thereto, among APR Funding Corporation, Universal Premium Acceptance Corporation, Autobahn Funding Company, LLC and DG Bank Deutsche Genossenschaftsbank AG, as Agent (as amended, supplemented or otherwise modified from time to time, this "Agreement"). Each reference in this Appendix A to any Section, Appendix or Exhibit refers to such Section of or Appendix or Exhibit to this Agreement. (A) Defined Terms. As used in this Agreement, unless the context requires a different meaning, the following terms have the meanings indicated herein below: "Adjusted Eurodollar Rate" means, with respect to any Yield Period for any Asset Tranche, an interest rate per annum equal to the sum of: (a) the LIBOR Spread; plus (b) the quotient, stated as a percentage, of (i) the per annum rate determined by Agent (rounded upwards if necessary to the next multiple of 1/16th of 1%) at which Dollar deposits in an amount equal to the Purchaser's Tranche Investment allocated to such Asset Tranche for a period approximating such Yield Period are offered by DG Bank based on information presented on Telerate Page 3750 as of 11:00 a.m. London time on the second Business Day prior to the first day of such Asset Tranche, divided by (ii) a number equal to 1.00 minus the Eurodollar Reserve Percentage, if applicable. "Adverse Determination" means any formal act, conclusion, ruling, determination, finding, opinion, law, regulation or formal pronouncement by or of any Regulator having authority, the result of which is that (i) Purchaser was, is or will be required to be regulated, licensed or qualified as a premium finance company or its equivalent under any applicable law, order, rule or regulation on account of Purchaser's purchase or holding of the Asset Interest in any Pool Receivables, or (ii) any Person, other than the Purchaser and which is not already licensed or qualified as an insurance premium finance company, engaged in a transaction similar, in the reasonable judgment of Purchaser or the Agent, to that under this Agreement whereby such Person purchases or holds an ownership interest in receivables or undivided interests in receivables evidenced by insurance premium finance contracts, such Person is, was or will be required to be regulated, licensed or qualified as a premium finance company or its equivalent under any applicable law, order, rule or regulation on account of such Person's purchase or holding of such receivables or undivided interests in such receivables. "Adverse Determination Receivables" means those Pool Receivables that create or support a nexus with a jurisdiction, as determined by the applicable laws, orders, rules or regulations of that jurisdiction, the result of such nexus being that Purchaser is directly subject to an Adverse Determination pursuant to clause (i) of the definition of Adverse Determination, or could eventually be directly subject to an Adverse Determination similar to any Adverse Determination described in clause (ii) of the definition of Adverse Determination. "Affected Party" means each of the Agent, the Purchaser, the Liquidity Agent, the Enhancement Providers, each Liquidity Bank, the Custodian and any agent of any of the foregoing and all of the foregoing's successors, assigns and/or participants. "Affiliate" when used with respect to a Person means any other Person controlling, controlled by, or under common control with, such Person. "Agent" has the meaning set forth in the preamble. "Agent's Office" means the office of the Agent at 609 Fifth Avenue, New York, NY 10017, Attention: Asset Securitization Group, or such other address as shall be designated by the Agent in writing to Seller and Purchaser. "Allocated Expenses means the share of expenses reasonably determined by Parent to be incurred by Parent as holding company for APR, UPAC, UPAC of California, Oxford and each of their respective subsidiaries in such capacity as such holding company and reasonably allocated to any of APR, UPAC, UPAC of California, Oxford and such Person's respective subsidiaries. "Alternate Base Rate" means, with respect to any Yield Period for any Asset Tranche, an interest rate per annum equal to the Adjusted Eurodollar Rate or the Base Rate as the Seller shall so select and the Agent shall approve in accordance with the terms of this Agreement; provided, however, that the "Alternate Base Rate" for such Purchaser Tranche Investment allocated to such Yield Period shall be the Base Rate if (a) on or before the first day of such Yield Period, a Liquidity Bank shall have notified the Agent that a Eurodollar Disruption Event has occurred, (b) such Yield Period is a period of 1 to 29 days, or (c) the Purchaser Tranche Investment to be allocated to such Yield Period is less than $1,000,000. "APR" means Agency Premium Resource, Inc., a Kansas corporation. "Asset Interest" has the meaning set forth in Section 1.04(a). "Asset Tranche" means at any time a portion of the Asset Interest selected by the Seller or the Agent, as applicable, pursuant to Section 2.01. "Backup Servicer" means Input 1, LLC, as Backup Servicer pursuant to the Backup Servicing Agreement. "Back-Up Servicer Fee" means the fees payable by the Seller to the Backup Servicer pursuant to the Backup Servicing Agreement. "Backup Servicing Agreement" means that certain Backup Servicing Agreement dated as of May 26, 2000, as amended, among the Backup Servicer, the Agent, the Servicer and the Seller, as the same may be amended or otherwise modified from time to time. "Base Rate" means, on any date, a fluctuating rate of interest per annum equal to the higher of (a) the per annum rate of interest announced from time to time by DG Bank by its head of office in New York, New York as its "base rate" and (b) 0.50% per annum above the Federal Funds Rate. The Base Rate is not necessarily intended to be the lowest rate of interest offered to its customers. "Best's Rating" means at any time the rating published in the then most recent edition of Best's Insurance Reports, Property-Casualty for the Insurance Obligor in question. If Best's Insurance Reports, Property-Casualty ceases to be published at any time, Purchaser shall choose a reasonably equivalent substitute rating criteria, and appropriate modifications to this Agreement will be made to reflect such substitution. "Book Net Worth" means, for any period, total assets less total liabilities, as determined in accordance with GAAP. "Business Day" means a day on which (a) the Agent at its principal office in New York, New York is open for business, (b) commercial banks in New York City are not authorized or required to be closed for business and (c) if the term "Business Day" is used in connection with the Adjusted Eurodollar Rate, dealings in Dollars are carried on in the London Interbank Market. "Cancellation Ratio" means, as of the Cut-Off Date for any Settlement Period, a fraction (expressed as a percentage) (a) the numerator of which is the difference between (1) the average Unpaid Principal Balance of all Pool Receivables the related insurance policies of which were cancelled during the preceding Settlement Period on account of non-payment by the related Obligor and (2) the average Unpaid Principal Balance of those Pool Receivables described in clause (1) relating to any such canceled insurance policies to the extent that such canceled insurance policies (and such related Pool Receivables) were reinstated during the Settlement Period for which such ratio is being calculated or, to the extent that the Direct Obligor of any such canceled insurance policy is a resident of the Commonwealth of Massachusetts, a new Pool Receivable in respect of an insurance policy issued in replacement of such canceled Pool Receivable was created during such Settlement Period) and (b) the denominator of which is the average aggregate Unpaid Principal Balance of all Pool Receivables during such Settlement Period. "Change in Control" means any of the following: (a) the acquisition, by any Person or two or more Persons acting on concert, of beneficial ownership (within the meaning of Sections 13(d) and 14(d) (2) of the Exchange Act), of 50% or more of the issued and outstanding shares of the capital stock (including all warrants, options, conversion rights, and other rights to purchase or convert into such stock) of Parent on a fully diluted basis, except for (i) acquisitions of newly issued shares of the capital stock of Parent for fair market value, and (ii) acquisitions of newly issued shares of the capital stock of Parent by employee benefit plans sponsored by Parent or any of its Subsidiaries for fair market value; (b) the failure of Parent to own (directly or through wholly- owned Subsidiaries, free and clear of all liens, 100% of the outstanding voting stock of each of the Originators or the failure of UPAC to own (directly or through wholly-owned Subsidiaries of UPAC), free and clear of all liens, 100% of the outstanding voting stock of Seller; or (c) the creation or imposition of any Lien on any shares of capital stock of Seller. "Collection Account" has the meaning set forth in Section 3.09. "Collections" means, with respect to any Receivable, all funds (a) received from or on behalf of the related Obligors in payment of any amounts owed (including, without limitation, principal, finance charges, interest and all other charges and fees) in respect of such Receivable, or applied to such amounts owed by such Obligors (including, without limitation, payments under guaranties, from state guaranty funds or other Related Security, refunds of unearned insurance premiums upon termination of insurance policies, insurance payments that Seller, any of the Originators or Servicer applies in the ordinary course of its business to amounts owed in respect of such Receivables and net proceeds of sale or other disposition of repossessed goods or other collateral or property of the Obligor or any other party directly or indirectly liable for payment of such Receivable and available to be applied thereon), and (b) deemed to have been received by Seller, any of the Originators or any other party as a Collection pursuant to Section 3.04. "Commercial Paper Notes" means short-term promissory notes issued or to be issued by Purchaser to fund its investments in accounts receivable or other financial assets. "Concentration Limit" means the amount by which (x) the Unpaid Principal Balance of Eligible Receivables of an Obligor or relating to a specified Person exceeds (y) the percentage specified under certain categories in the definition of "Excess Concentration Deductions" of the Unpaid Principal Balance of all Eligible Receivables. "Consolidated Tangible Net Worth" means the consolidated Book Net Worth of UPAC, UPAC of California, APR and their Subsidiaries after subtracting therefrom the aggregate amount of any intangible assets of UPAC, UPAC of California, APR and their Subsidiaries required to be subtracted in accordance with GAAP. "Contract" means any contract, instrument or other writing entered into by Seller or an Originator in the ordinary course of its business in connection with, or evidencing, loans made by Seller or such Originator to any Obligor to finance such Obligor's payment of unearned insurance premiums in respect of one or more insurance policies issued by one or more insurance carriers, including, without limitation, any writing relating to the assignment of all unearned premiums pertaining to the insurance policy or policies for which premium payments are being financed, any designation of Seller or such Originator as a loss payee thereunder, and any guaranty by the insurance agents that sold the related insurance policy or policies. "CP Disruption Event" means the inability of the Purchaser, at any time, whether as a result of a prohibition, a contractual restriction or any other event or circumstance whatsoever, to raise funds through the issuance of its Commercial Paper Notes (whether or not constituting Commercial Paper Notes issued to fund Purchases hereunder) in the United States commercial paper market. "CP Rate" means, with respect to any Yield Period for any Asset Tranche, the rate equivalent to the rate (or if more than one rate, the weighted average of the rates) at which Commercial Paper Notes of the Purchaser having a term equal to such Yield Period and issued to fund the applicable Purchase or maintenance of such Asset Tranche by the Purchaser may be sold by any placement agent or commercial paper dealer selected by the Purchaser, as agreed between each such agent or dealer and the Purchaser and notified by the Purchaser to the Agent; provided, however, if the rate (or rates) as agreed between any such agent or dealer and the Purchaser with regard to any Yield Period for the applicable Asset Tranche is a discount rate (or rates), the "CP Rate" for such Yield Period shall be the rate (or if more than one rate, the weighted average of the rates) resulting from converting such discount rate (or rates) to an interest-bearing equivalent rate per annum. "Credit and Collection Policy" means, with respect to any Receivables originated by an Originator, the credit and collection policies and practices of such Originator relating to such Receivables and the contracts relating thereto, copies of each of which shall have been provided to the Agent concurrently herewith (or, in the case of any new Originator, prior to or concurrently with such Person becoming an Originator), as the same may be modified from time to time without violating Section 7.03(c). "Custodian" means Iron Mountain Incorporated or any successor custodian acceptable to the Agent and the Servicer. "Custodian's Fee" means the fees payable to the Custodian pursuant to the Custody Agreement. "Custody Agreement" means the agreement between the Agent and the Custodian providing for the transit and storage of Contracts at premises of the Custodian, as amended, supplemented or otherwise modified from time to time or any successor custody agreement acceptable to the Agent and reasonably acceptable to the Servicer. "Cut-Off Date" means the last day of each Settlement Period. "Deemed Collection" has the meaning set forth in Section 3.04. "Default Ratio" means, at any time, the fraction, expressed as a percentage, computed as of the most recent Cut-Off Date (i) the numerator of which is the Unpaid Principal Balance of Receivables that became Defaulted Receivables (net of recoveries) during the preceding Settlement Period ending on such Cut-Off Date and (ii) the denominator of which is the average aggregate Unpaid Principal Balance of all Pool Receivables during such Settlement Period. "Default Reserve" has the meaning set forth in Section 1.04(b)(i)(D). "Defaulted Receivable" means a Receivable and related Contract: (i) as to which any payment, or part thereof, remains unpaid for (x) 31 (or, to the extent the Direct Obligor thereon is a resident of Massachusetts, 40) or more days (or such earlier date as specified in the related Contract) from the original due date for such payment without cancellation of all of the related insurance policies or (y) 181 or more days after cancellation of all such policies, (ii) as to which the Obligor thereof becomes the subject of an Event of Bankruptcy or, if applicable, becomes subject to rehabilitation or similar proceeding (it being understood that Direct Obligors wishing to enter into a new Contract that are subject to bankruptcy proceedings and which have obtained a court order permitting Servicer (without further notification to the Court) to cancel the related Contract, the Receivables under which are or will be included in the Receivables Pool shall not be subject to this clause (ii)) or is seized by any governmental authority, (iii) as to which payments have, unless as a result of any Endorsement, been extended, or the terms of payment thereof rewritten, whether by amendment, modification or through a new contract without Purchaser's consent, (iv) as to which 45 or more days have passed since receipt of the related unearned premium or notification to Seller or Servicer that the related unearned premium has been fully earned or (v) which is a charged-off Receivable in accordance with the Credit and Collection Policy. "Designated Obligations" means any amounts then owed under this Agreement by Seller or UPAC, which amounts shall have been so designated by the Agent to Seller and UPAC, whether owed to Purchaser, Agent, Custodian, any other Affected Party or Servicer, other than Earned Discount, Program Fee and Servicer's Fee. "Designated Obligor" means, at any time, all Obligors of the Originators except any such Obligor as to which the Agent has, at least three Business Days prior to the date of determination, given notice to Seller that such Obligor shall not be considered a Designated Obligor. "Direct Obligor" means, with respect to any Receivable, the borrower of the loan under any Contract. "Dollars" means dollars in lawful money of the United States of America. "Downgraded Liquidity Bank" means a Liquidity Bank which has been the subject of a Downgrading Event. "Downgrading Event" with respect to any Person means the lowering of the rating with regard to the short-term securities of such Person to below (i) A-1 by S&P, (ii) P-1 by Moody's, or (iii) F-1 by Fitch IBCA Inc. or any successor thereof. "Earned Discount" means, for any Yield Period with respect to any Asset Tranche, PTI x ER x ED + LF 360 where: PTI = the daily average (calculated at the close of business each day) of the Purchaser's Tranche Investment in such Asset Tranche during such Yield Period, ER = the Earned Discount Rate for such Yield Period, ED = the actual number of days elapsed during such Yield Period, and LF = the Liquidation Fee, if any, during such Yield Period. "Earned Discount Payment Date" with respect to any Asset Tranche means the last day of such Asset Tranche; provided, that with respect to any Asset Tranche accruing Earned Discount at the Adjusted Eurodollar Rate and having an initial Yield Period in excess of one month, the "Earned Discount Payment Date" for such Asset Tranche shall be deemed to occur at the end of each 30-day period that such Asset Tranche is outstanding and on the last day of such Asset Tranche. "Earned Discount Rate" means for any Yield Period with respect to any Asset Tranche: (a) in the case of an Asset Tranche funded by a Liquidity Purchase, either the Adjusted LIBOR Rate or the Base Rate applicable to such Asset Tranche for such Yield Period; and (b) for any Asset Tranche funded by Commercial Paper Notes, the CP Rate applicable to such Asset Tranche for the related Yield Period; provided, however, that on any day when any Liquidation Event or Unmatured Liquidation Event shall have occurred and be continuing the Earned Discount Rate for each Asset Tranche shall mean a rate per annum equal to the Base Rate plus 2% per annum. "Eligible Agent" means a licensed agent of an Eligible Insurance Carrier approved by an Originator in accordance with its Credit and Collection Policy. "Eligible Contract" means a Contract substantially in one of the forms set forth in Schedule 6.01(p)-1 or otherwise satisfying the criteria set forth on Schedule 6.01(p)-3. "Eligible Insurance Carrier" shall mean at any date any insurance company that meets each of the following requirements: it is not the subject of any Event of Bankruptcy, and is not otherwise being rehabilitated or supervised. "Eligible Investments" means any one or more of the following obligations or securities: (a) direct non-callable obligations of, and non-callable obligations fully guaranteed by, the United States of America, or any agency or instrumentality of the United States of America the obligations of which are backed by the full faith and credit of the United States of America; (b) demand and time deposits in, certificates of deposits of, and bankers' acceptances issued by, any depository institution or trust company (including an indenture trustee acting in its commercial capacity) incorporated under the laws of the United States of America or any state thereof, having a combined capital and surplus of at least $500,000,000, and subject to supervision and examination by federal and/or state banking authorities, so long as at the time of such investment or contractual commitment providing for such investment the commercial paper or other short-term debt obligations of such depository institution or trust company (or, in the case of a depository institution that is the principal subsidiary of a holding company, the commercial paper or other short-term debt obligations of such holding company) have one of the two highest short-term credit rating available from Moody's and S&P; (c) repurchase obligations with respect to and collateralized by (i) any security described in clause (b) above or (ii) any other security issued or guaranteed by an agency or instrumentality of the United States of America, in each case entered into with a depository institution or trust company (acting as principal) of the type described in clause (b) above, provided that the Agent has taken delivery of such security; (d) commercial paper (including both non- interest-bearing discount obligations and interest-bearing obligations, but excluding Commercial Paper Notes) payable on demand or on a specified date not more than one year after the date of issuance thereof having the highest short-term credit rating from Moody's and S&P at the time of such investment; and (e) shares in a mutual fund investing solely in short term securities of the United States government and/or securities described in clause (c) above where the mutual fund custodian has taken delivery of the collateralizing securities, provided that (i) such fund shall have one of the two highest short-term credit rating available from Moody's and S&P and (ii) such shares shall be freely transferable by the holder on a daily basis. "Eligible Receivable" means, at any time, a Receivable: (a) the Obligor of which, if an Affiliate of the Seller or the Servicer, is not the Obligor of Pool Receivables, the Unpaid Principal Balance of which exceeds $950,000 in the aggregate; (b) the loan giving rise thereto was (1) made (either directly or by purchase of an existing loan) in the ordinary course of business by Seller or an Originator to or on behalf of a Person that used all of the proceeds of such loan to pay premiums on property, business liability, workman's compensation, casualty insurance and other similar types of insurance policies or personal auto insurance policies issued by an Eligible Insurance Carrier and owned by such Person, (2) subject to a draft written by the Eligible Agent to the Eligible Insurance Carrier and drawn on the Seller, which draft has been cashed, (3) evidenced by an Eligible Contract was fully disbursed to such Eligible Insurance Carrier, its agent or such Person, and (4) customary in the insurance premium finance business; (c) which, (x) if the perfection of Purchaser's undivided ownership interest therein is governed by the laws of a jurisdiction where the Uniform Commercial Code - Secured Transactions is in force, constitutes a general intangible as defined in the Uniform Commercial Code as in effect in such jurisdiction, and (y) if the perfection of Purchaser's undivided ownership interest therein is governed by the law of any jurisdiction where the Uniform Commercial Code - Secured Transactions is not in force, Seller has furnished to Purchaser such opinions of counsel and other evidence as has reasonably been requested, establishing to the reasonable satisfaction of Purchaser that such Purchaser's undivided ownership interest and other rights with respect thereto are not significantly less protected and favorable than such rights under the Uniform Commercial Code; (d) the Obligor of which is a United States resident and is not a government or a governmental subdivision or agency unless (i) the Seller and the Originators shall have complied with the Assignment of Claims Act to the satisfaction of the Agent and (ii) the Unpaid Principal Balance of such Receivable when combined with all other Pool Receivables of which a government or governmental subdivision or agency is the Obligor, would not exceed $500,000; (e) the related originating insurance agent of which is an Eligible Agent of an Eligible Insurance Carrier; (f) the Obligor of which is not, solely at the time eligibility is being determined, the Obligor of Receivables, ten percent (10.0 %) or more of which (as determined based on the Principal Receivables) are Defaulted Receivables; (g) which is not a Defaulted Receivable; (h) the related insurance policy of which is required to be canceled if payment on such Receivable is not received within 30 days of its due date (or, if earlier, the date required in the related Contract); (i) with regard to which the warranty of Seller in Section 6.01(l) is true and correct; (j) (A) the sale of an undivided interest in which does not contravene or conflict with any law, and (B) in the case of Receivables generated by the Originator, the sale of which to Seller does not contravene or conflict with any law; (k) which is denominated and payable only in Dollars in the United States; (l) which arises under a Contract, substantially in the form of Schedule 6.01(p)-1 hereto (or, if not in the form of Schedule 6.01(p)- 1, in such form as does not deviate in any material substantive manner from Schedule 6.01(p)-1 or the requirements of Schedule 6.01(p)-3, in either case, without the express written consent of the Agent), that (1) is in the possession of the Custodian, (2) has been duly authorized and that, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable enforceable against such Obligor in accordance with its terms, (3) the terms of which (including payment instructions to the Obligors thereon and the due date thereon) have not been modified unless in accordance with the applicable Credit and Collection Policy, (4) was stamped with an assignment to Seller and further assignment of an ownership interest to Purchaser, (5) permits the powers of attorneys granted by the Originators, the Seller and the Servicer to the Agent, and (6) permits the unearned premium for the insurance policy to which such Contract relates to be assigned to the Seller; (m) which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Contract related thereto is in violation of any such law, rule or regulation in any material respect if such violation would impair the collectibility of such Receivable; (n) which is secured by a first priority perfected security interest in and assignment of the right to cancel all of the insurance policies financed in whole or in part with the proceeds of the related loan upon the occurrence of a default under the related Contract and the right to receive all payments of unearned premiums owed upon such cancellation and, to the extent permitted by applicable law or regulation, the designation of Seller as a loss payee under such policies; (o) which at the time of its designation as a Pool Receivable is not an Adverse Determination Receivable; provided, that upon the Seller becoming obligated to repurchase any such Pool Receivable pursuant to Section 3.07(b), such Pool Receivable shall cease to be an Eligible Receivable hereunder; (p) which at the time of its designation as a Pool Receivable does not create or support a nexus with a jurisdiction (x) conducting a formal proceeding, investigation or inquiry that could in the Agent's judgment result in an Adverse Determination or (y) that could require Purchaser to be licensed as a premium finance loan company; (q) if any Receivables to be included in a Purchase shall result from a bulk or portfolio purchase, unless otherwise provided pursuant to Section 7.06(f) of this Agreement or Section 5.3(e) of the Purchase and Sale Agreement, the Agent shall have approved the inclusion of such Receivables in writing after conducting a collateral audit of the Receivables purchased by Seller or any applicable Originator in a bulk or portfolio purchase; (r) which (x) satisfies all applicable requirements of the applicable Credit and Collection Policy and (y) complies with such other criteria and requirements (other than those relating to the collectibility of such Receivable) as the Agent may from time to time specify to Seller following thirty days' notice; (s) which at the time of its designation as a Pool Receivable would not cause the Excess Yield Ratio, calculated in the manner described in Section 10.01(h) to be less than 4.00%; and (t) as to which the Agent has not notified Seller that the Agent has determined, in its reasonable discretion, that such Receivable (or class of Receivables) is not acceptable for purchase hereunder. "Endorsement" means any increase or decrease to a Receivable originated by an Originator that results solely from an increase or decrease to the premium amount payable under the related insurance policy as a result of an endorsement to such insurance policy reflecting a change in the coverage thereof. "Enhancement Provider" means any provider of any credit enhancement or credit support to the Purchaser in connection with receivables purchase facilities entered into by the Purchaser. "ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means, with respect to any Person, (i) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code, as in effect from time to time (the "Code") as such Person; (ii) a trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Code) with such Person, or (iii) a member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as such Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Disruption Event" means, with respect to all Asset Tranches in respect of which Earned Discount for the applicable Yield Period is accruing at the Adjusted Eurodollar Rate, any of the following: (a) a determination by the Purchaser, any Liquidity Bank or the Liquidity Agent that it would be contrary to law or to the directive of any central bank or other governmental authority (whether or not having the force of law) to obtain United States dollars in the London interbank market to make, fund or maintain any Asset Tranche for such Yield Period, (b) the failure of DG Bank to furnish timely information for purposes of determining the Adjusted Eurodollar Rate, (c) a determination by a Liquidity Bank that the Adjusted Eurodollar Rate does not accurately reflect the cost to such Liquidity Bank of making, funding or maintaining any such Asset Tranche for such Yield Period or (d) the inability of a Liquidity Bank to obtain United States dollars in the London interbank market to make, fund or maintain such Asset Tranche for such Yield Period. "Eurodollar Reserve Percentage" means, for any day with respect to an Asset Tranche allocated to Yield Period in respect of which Earned Discount accrues at the Adjusted Eurodollar Rate, means the maximum rate (expressed as a decimal) at which any lender subject thereto would be required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System (or any successor or similar regulations relating to such reserve requirements) against Eurocurrency Liabilities, if such liabilities were outstanding. The Eurodollar Reserve Percentage shall be adjusted automatically on and as of the effective date of any change in the maximum rate described above. "Event of Bankruptcy" shall be deemed to have occurred with respect to a Person if either: (a) a case or other proceeding shall be commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such person, the appointment of a trustee, receiver, conservator, custodian, liquidator, assignee, sequestrator or the like for such Person or all or substantially all of its assets, or any similar action with respect to such Person under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and in the case of any Person other than an Insurance Obligor such case or proceeding shall continue undismissed, or unstayed and in effect, for a period of 60 consecutive days; or an order for relief in respect of such Person shall be entered in an involuntary case under the federal bankruptcy laws or other similar laws now or hereafter in effect; or (b) such Person shall commence a voluntary case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other similar law now or hereafter in effect, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) for, such Person or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail to, or admit in writing its inability to, pay its debts generally as they become due, or, if a corporation or similar entity, its board of directors shall vote to implement any of the foregoing. It shall be understood and agreed that Parent's and American Freight System, Inc.' s 1988 insolvency shall not be deemed Events of Bankruptcy hereunder. "Excess Concentration Deduction" means the aggregate of each of the following categories: (a) Four Largest Agents. The amount by which (x) the Unpaid Principal Balance of Eligible Receivables having the four insurance agents with the largest concentrations in the Receivables Pool exceeds (y) $11,000,000. (b) Four Largest Insurance Obligors. The amount by which (x) the Unpaid Principal Balance of Eligible Receivables having the four Insurance Obligors with the largest concentrations of all Insurance Obligors in the Receivables Pool exceeds (y) $10,000,000. (c) Individual Insurance Obligors. (1) If the Insurance Obligor is rated by one of Moody's, S&P or A.M. Best: Lower of Moody's/S&P Rating/AM Concentration Limit Best Aaa/AAA/AA+ 15.0% >Aa3/AA-/A+ and < Aaa/AAA/A++ 10.0% >A3/A-/A and < Aa3/AA-/A+ 5.0% >Baa3/BBB-/B++ and EX-21 7 0007.txt Exhibit 21 TRANSFINANCIAL HOLDINGS, INC. LISTING OF SUBSIDIARIES Subsidiaries of TransFinancial Holdings, Inc. State of Incorporation TFH Logistics & Transportation Services, Inc. Kansas Subsidiaries of TFH Logistics & Transportation Services, Inc. Crouse Cartage Company Iowa Specialized Transport, Inc. Kansas Phoenix Computer Services, Inc. Kansas Custom Client Services, Inc. North Carolina Transport Brokerage, Inc. North Carolina American Freight System, Inc. (d/b/a AFS, Inc.) Delaware Agency Premium Resource, Inc. Kansas TFH Properties, Inc. Kansas Universal Premium Acceptance Corporation Missouri Subsidiaries of Universal Premium Acceptance Corporation APR Funding Corporation Delaware Oxford Premium Finance, Inc. Illinois UPAC of California, Inc. California TransFinancial Acceptance, Inc. Kansas Presis, L.L.C. Kansas (All companies do business under same name unless otherwise indicated). EX-23 8 0008.txt EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference into the Company's previously filed Registration Statements on Form S-8 for the Anuhco, Inc. 1992 Incentive Stock Plan, File No. 33-51494, the Stock Option Agreement by and between Anuhco, Inc. and C. Ted McCarter, effective May 31, 1995, File No. 33-62553, and the TransFinancial Holdings, Inc. 1998 Long-Term Incentive Plan, File No. 333-66803, of our report dated June 15, 2000, on our audits of the consolidated financial statements and financial statement schedule of TransFinancial Holdings, Inc., (formerly Anuhco, Inc.) as of December 31, 1999 and 1998, and for the years ended December 31, 1999, 1998, and 1997, which report is included in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Kansas City, Missouri June 15, 2000 EX-27 9 0009.txt
5 This schedule contains summary financial information extracted from the TransFinancial Holdings, Inc. consolidated statement of income for the year ended December 31, 1999 and consolidated balance sheet as of December 31, 1999 and is qualified in its entirety by reference to such financial statements. 0000719271 TRANSFINANCIAL HOLDINGS, INC. 1000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1076 0 30751 1073 0 34333 57442 25400 76893 36497 0 0 0 76 40320 76893 0 157567 0 164094 0 0 1251 (7651) 433 (8084) 0 0 0 (8084) (2.37) (2.37)
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