EXHIBIT 10.2
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding is entered as of this 15th day of
February, 2005, among Union Acceptance Corporation ("UAC"), White River Capital,
Inc. ("Buyer") and the Plan Committee (the "Committee") established under the
Second Amended and Restated Plan of Reorganization ("Plan of Reorganization") of
UAC confirmed in UAC's Chapter 11 proceeding in the United States Bankruptcy
Court, Southern District of Indiana, Indianapolis Division, Case No.
02-19231-BHL-11 (the "Bankruptcy Case").
RECITAL
The parties have developed a plan to work toward resolution of major
aspects of the Plan of Reorganization and the Bankruptcy Case as it relates to
certain creditors and have agreed to proceed as set forth in this Memorandum.
The parties agree as follows:
1. Proposed Buyout of Notes. Subject to the conditions described below,
Buyer will offer to purchase, and the holders of UAC's Senior Restructured Notes
("Senior Notes") and Subordinated Restructured Notes ("Subordinated Notes") and
Accrual Notes (collectively with the Senior Notes and Subordinated Notes, the
"Notes") are being asked to agree to sell to Buyer, their outstanding UAC Notes,
as follows (the "Note Buyout"). In connection with the Note Buyout, the holders
of the Notes that are tendering ("Tendering Holders") their Notes to Buyer (the
"Tender") will be executing and delivering an Agreement to Tender (the "Tender
Agreement"). The terms of the Tender include the following:
(a) Holders of UAC Senior Notes would sell their Senior Notes and
related Accrual Notes to Buyer in exchange for a cash payment at closing of
the Note Buyout equal to 100% of the principal balance of the Senior Notes
as at the Buyout Date (as defined in the Tender Agreement), plus accrued
interest on the Senior Notes as of the Buyout Date ("Senior Note Cash
Consideration"). No further consideration will be paid for the Accrual
Notes.
(b) Holders of UAC Subordinated Notes would sell their Subordinated
Notes and related Accrual Notes to Buyer in exchange for a cash payment at
closing of the Note Buyout equal to 13% of the principal balance of the
Subordinated Notes at the date hereof, less any amount distributed in cash
by UAC to Tendering Holders of Subordinated Notes prior to the Buyout Date
("Subordinated Note Cash Consideration"), plus the applicable portion of
Additional Consideration (as defined in paragraph (c) below), if any. No
further consideration will be paid for the Accrual Notes.
(c) In addition to amounts paid pursuant to paragraph (b), Buyer
agrees to pay the following amounts as additional consideration
("Additional Consideration") to former holders of Subordinated Notes to the
extent such amounts become available and in the
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manner provided below. For the avoidance of doubt, the parties are agreeing
that Tendering Holders of Subordinated Notes shall be entitled to receive
as additional consideration the benefit of a possible tax refund with
respect to taxes paid by UAC in 2000 (defined below as the 2000 Tax Refund)
as though such Holders had not Tendered their Notes and a defined portion
of any recovery from the current servicer of UAC receivables portfolios
(defined below as the Class 4 SST Recovery Amount), provided, however, that
the 2000 Tax Refund and Class 4 SST Recovery Amount shall be shared ratably
with certain other former or current UAC creditors (other than Buyer), as
further described in this Section 1, Section 2 and Section 7, below.
(i) If, subsequent to the Note Buyout, federal legislation is
enacted before February 1, 2007 that would allow UAC to carry back its
net operating losses for federal income tax purposes ("NOLs") incurred
in 2003 against federal income tax it paid in 2000, UAC agrees to take
advantage of such legislation, inter alia, by filing and pursuing a
refund claim for 2000 based on a carryback of all available 2003 NOLs
and by amending tax returns for intervening years, if necessary, and
as permitted by law, to apply its NOLs for carryback to 2000. If UAC
receives a refund of federal income tax paid in 2000 (including any
interest received thereon, together the "2000 Tax Refund") by virtue
of the carry back of federal income tax losses it reported for 2003,
then within 45 days after receipt of the 2000 Tax Refund, UAC shall
(and Buyer shall cause UAC to) remit to Tendering Holders of
Subordinated Notes the portion of the 2000 Tax Refund to which the
Tendering Holders of Subordinated Notes would have been entitled had
they not Tendered their Notes. Such portion shall be paid to Tendering
Holders of Subordinated Notes as though they continued to hold such
Notes. Buyer agrees that, notwithstanding its purchase of the
Subordinated Notes, it waives its right to any portion of the 2000 Tax
Refund, all of which shall be paid ratably to Tendering Holders of
Subordinated Notes, former UAC creditors of Class 2A who have sold
their claims to Buyer as contemplated in Section 2(a) and creditors of
UAC that are not selling their Notes or claims to Buyer.
(ii) If UAC recovers on claims against Systems & Services
Technologies, Inc. ("SST") or its parent JPMorgan Chase Bank ("JPM"),
within 45 days after such recovery UAC or Buyer shall determine the
Class 4 SST Recovery Amount (defined in subparagraph (iii)(A) below)
and UAC shall (and Buyer shall cause UAC) to remit the Class 4 SST
Recovery Amount to Tendering Holders of the Subordinated Notes as a
part of the Additional Consideration, pursuant to subparagraph
(iii)(B) below. Buyer agrees that, notwithstanding its purchase of the
Subordinated Notes, it waives its right to the Class 4 SST Recovery
Amount, all of which shall be paid ratably to Tendering Holders of
Subordinated Notes. As a holder of purchased Notes, Buyer shall be
entitled to receive the ratable portion of any Net Recovery required
to be distributed in respect of such purchased Notes under the Plan
but not the Class 4 SST Recovery Amount.
(iii) (A) "Net Recovery" means the gross amount actually received
in cash by UAC in respect of claims against SST and JPM less
reasonable
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attorneys' fees and expenses of counsel for UAC and counsel for the
Plan Committee as well as other expenses of UAC, in each case,
directly and exclusively related to such claims. The "Tendered Class 4
Claim Percentage" is a percentage determined by dividing (i) the sum
of outstanding principal amount of Subordinated Notes Tendered and
sold to Buyer on the Buyout Date, by (ii) the total outstanding
principal amount of all Subordinated Notes on the Buyout Date. "Class
4 SST Recovery Amount" means: (I) that portion of the Net Recovery
that would be required to be distributed to all then current holders
of Notes pursuant to the Plan of Reorganization, multiplied by (II)
the Tendered Class 4 Claim Percentage, multiplied by (III) 27.5%.
(B) UAC shall distribute a ratable portion of the Class 4 SST
Recovery Amount to former holders of the Subordinated Notes that have
been purchased by Buyer. Each such former holder of Subordinated Notes
would be entitled that portion of the Class 4 SST Recovery Amount
represented by a fraction the numerator of which is the principal
balance of the former Subordinated Noteholder's Subordinated Notes
sold to Buyer in the Note Buyout, and the denominator of which is
aggregate principal balance of all of the Subordinated Notes purchased
by Buyer in the Note Buyout.
(iv) The parties agree to cooperate in seeking to prevent any
recovery from SST or JPM from being paid to securitization trusts or
the Master Trust Account. However, to the extent those efforts are
unsuccessful, such recovery shall be deemed received by UAC only when
and to the extent actually paid to UAC Securitization Corporation as
incremental residual proceeds, as determined by UAC in its reasonable
discretion. The parties agree to work toward a recovery that is an
immediate cash payment that will be distributed to the former holders
of Restructured Subordinated Notes within 10 business days of receipt.
Should any recoveries of Additional Consideration be received by UAC
from SST or JPM prior to the Buyout Date, UAC will hold such amounts
otherwise distributable to Subordinated Noteholders who have agreed to
tender their Notes pending the Note Buyout, for distribution as
provided in this Memorandum at the closing of the Note Buyout or
promptly after the Termination Date. Whether to pursue claims against
SST or JPM and the timing and strategy of any such action remains in
the sole discretion and control of UAC. The Committee will support and
cooperate with UAC in all such matters.
(d) Buyer intends to require holders of Notes to agree in advance to
tender their Notes pursuant to a Tender Agreement. Buyer will provide the
Tender Agreement in an appropriate form for Senior and Subordinated Notes
to holders of the Notes promptly after execution of this Memorandum.
Holders of Notes will be given a period of 7 days in which to return
executed Tender Agreements to Buyer. The Tender Agreements will be binding
on the holder of the Notes; provided, that the holder will be released if
the Note Buyout does not occur before the Termination Date (as defined
below). The Tender Agreements will permit transfer of the Notes subject to
tender before the Note Buyout; provided that any transferee agrees to be
bound by the Tender Agreement. The Tender Agreements will otherwise be in
substantially the form
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previously provided by Buyer and approved by counsel for the Committee. The
Tender Agreements will provide that title to the Senior, Subordinated and
related Accrual Notes will pass to Buyer, upon payment of the Senior Note
Cash Consideration or Subordinated Note Cash Consideration, as applicable.
(e) Buyer agrees that it will not purchase Notes, or permit or suffer
the purchase of Notes by any Buyer affiliate, that are not tendered in the
Note Buyout for consideration that exceeds the ratable amount being paid to
Tendering Holders of the same class of Notes (a "Subsequent Purchase")
unless at the same time Buyer provides Tendering Holders of the same class
of Notes with supplemental consideration that provides to the Tendering
Holders an aggregate recovery value that is ratably equal to the
consideration being paid in the Subsequent Purchase.
2. General Unsecured Claims. If there is a Note Buyout, Buyer and UAC agree
to address outstanding allowed claims in Class 2A under the Plan of
Reorganization as follows:
(a) Unless all holders of Notes have sold their Notes to Buyer in the
Note Buyout, then within 15 business days following the closing of the Note
Buyout, Buyer will offer to purchase the allowed claims in Class 2A in
exchange for payment, upon delivery of a duly executed instrument of
assignment, in cash of an amount equal to the amount that would be
distributed under the Plan of Reorganization to the tendering Class 2A
holder, if UAC had made a distribution on the closing date of the Note
Buyout in the amount necessary to pay holders of Senior Notes 100% of their
outstanding principal balance, plus accrued interest as of such date, and
holders of Subordinated Notes 13% of their outstanding principal balance.
Such offer will remain outstanding for at least 60 days. Holders of Class
2A allowed claims that sell their claims pursuant to such offer shall be
entitled to no further payment except that they shall be entitled to
receive (to the extent not previously distributed) a ratable portion of the
2000 Tax Refund (if any) as though they had not sold their claims and a
ratable portion of the Class 2A SST Recovery Amount (if any), as more
specifically described in Section 1(c)(i) and the following subparagraph
(b), respectively.
(b) If, after Buyer's purchase of Class 2A claims contemplated in
Section 2(a), UAC recovers on claims against SST or JPM within 45 days
after such recovery, UAC or Buyer shall determine the Class 2A SST Recovery
Amount (defined in subparagraph 2(b)(i) below) and UAC shall (and Buyer
shall cause UAC) to remit the Class 2A SST Recovery Amount to former
holders of Class 2A claims who have sold their claims to Buyer pursuant to
subparagraph 2(b)(ii) below. Buyer agrees that, notwithstanding its
purchase of the Class 2A claims, it waives its right to the Class 2A SST
Recovery Amount, all of which shall be paid ratably to former holders of
Class 2A claims who have sold their claims to Buyer. As a holder of such
purchased Class 2A claims, Buyer shall be entitled to receive the ratable
portion of any Net Recovery required to be distributed in respect of such
purchased Class 2A claims under the Plan but not the Class 2A SST Recovery
Amount.
(i) The "Tendered Class 2A Claim Percentage" is a percentage
determined by dividing (i) the sum of the outstanding amount of all
allowed
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claims in Class 2A purchased by Buyer pursuant to Section 2(a) hereof
on the closing date of the purchase offer described in Section 2(a) by
(ii) the total outstanding amount of all allowed claims in Class 2A as
of such date. "Class 2A SST Recovery Amount" means: (I) that portion
of the Net Recovery that would be required to be distributed to all
then current holders of Class 2A claims pursuant to the Plan of
Reorganization (if no Senior Notes were then outstanding), multiplied
by (II) the Tendered Class 2A Claim Percentage, multiplied by (III)
27.5%.
(ii) UAC shall distribute a ratable portion of the Class 2A SST
Recovery Amount to former holders of the Class 2A allowed claims that
have been purchased by Buyer. Each such former holder of Class 2A
allowed claims would be entitled to that portion of the Class 2A SST
Recovery Amount represented by a fraction of the numerator of which is
the allowed claims in Class 2A sold to Buyer by such holder, and the
denominator of which is the aggregate of all of the Class 2A allowed
claims purchased by Buyer under Section 2(a).
(c) If all holders of Notes have sold their Notes to Buyer in the Note
Buyout, then subparagraphs (a) and (b), above, will not apply, and,
instead, as promptly as practicable following the Note Buyout, UAC shall
pay (and, to the extent necessary, Buyer shall advance funds to UAC in
order to pay) remaining outstanding allowed claims in Class 2A in full, in
order to resolve the Plan of Reorganization and close the Bankruptcy Case.
3. Other Claims. The Committee shall obtain the agreement of Xxxxxxx Xxxxx
to sell its claim under the Plan of Reorganization to Buyer for not more than
$75,000, less any amount distributed to Xxxxxxx Xxxxx after the date hereof and
prior to such purchase. UAC shall obtain written confirmation from Deloitte &
Touche that it has released its allowed claim under the Plan of Reorganization.
4. Conditions to Closing. The Committee acknowledges that UAC has
insufficient assets to effect the Note Buyout and the Note Buyout cannot be
effected unless Buyer and UAC first effectuate a series of transactions that
involve a reorganization and equity capitalization on terms that have been
outlined in detail by Buyer for the Committee (the "Recapitalization"). The
following are conditions precedent to Buyer's obligation to effect the Note
Buyout (any of which may be waived by Buyer in whole or in part):
(a) Holders of Notes in amounts deemed sufficient by Buyer in its sole
discretion shall have executed and delivered tender agreements and tendered
their Notes for purchase in the Buyout, it being understood and agreed that
this condition shall be deemed to be satisfied if Tendering Holders
represent 100% of the outstanding Senior Notes and related Accrual Notes
and at least 80% of the outstanding Subordinated Notes and related Accrual
Notes.
(b) The Recapitalization shall have been consummated.
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(c) The Committee shall have adopted and delivered to Buyer and UAC a
certificate confirming its unanimous adoption of the stipulation and
undertaking set forth on Annex A.
5. Incentive Payments to Prevent Delay.
(a) Buyer shall pay the following incremental amounts for distribution
to the holders of outstanding allowed claims under the Plan, based on
claims outstanding immediately prior to the Buyout, as directed by the Plan
Committee:
(i) $125,000, only if a registration statement providing for the
Recapitalization (the "Registration Statement") has not been filed
with the Securities and Exchange Commission on or before February 28,
2005; and
(ii) $250,000, only if the Buyout Date has not occurred on or
before June 30, 2005.
Such payments shall be made only on the Buyout Date from proceeds of the
Recapitalization.
(b) If the Registration Statement has not been filed on or before
April 15, 2005, but prior to such date valid tender agreements in the form
required by this Memorandum have been delivered to Buyer with respect to a
majority in outstanding principal amount of the Senior Notes and
Subordinated Notes (and related Accrual Notes), then Buyer shall pay to UAC
on such date an amount equal to $250,000 ("Abandonment Fee"), which UAC
shall make available for distribution to the holders of outstanding allowed
claims under the Plan, based on claims outstanding on April 15, 2005, as
directed by the Plan Committee. By executing this Memorandum, Castle Creek
Capital, L.L.C. agrees to pay the Abandonment Fee to UAC for the benefit of
holders of outstanding allowed claims on behalf of Buyer, but shall not
otherwise be deemed a party to this agreement.
6. Termination. This Memorandum shall terminate (a) on April 15, 2005, if
the Registration Statement has not been filed on or before such date; and (b) on
August 15, 2005, if the Buyout Date has not occurred on or before such date (in
either case, the "Termination Date"); provided, that if the Termination Date
occurs under clause (a), the Abandonment Fee shall remain due and payable as
provided in Section 5(b).
7. Plan Compliance and Preservation of Unaffected Claims. The parties
intend that nothing in either this Memorandum or the transactions contemplated
hereby do not conflict with the Plan of Reorganization. Moreover, to the extent
that this Memorandum could be construed as being inconsistent with the Plan of
Reorganization, this Memorandum shall be interpreted or modified so as to be
consistent with the Plan of Reorganization. UAC will continue to comply with the
Plan of Reorganization. UAC shall continue to make Interim Distributions as
required under the Plan of Reorganization. Nothing in this Memorandum shall be
deemed to modify the rights of holders of allowed claims under UAC's Plan of
Reorganization whose Notes are not being Tendered or whose claims are not sold
or compromised by the holder thereof as contemplated herein to receive their
allocable portion of Interim Distributions required to be
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made under the Plan, including their allocable portion of any 2000 Tax Refund or
Net Recovery (as defined above), should any be received by UAC.
8. Committee Dissolution; Case Closure. If the Note Buyout occurs and all
Notes are acquired in the Buyout, in the event that all allowed claims in Class
2A are paid in full or purchased by Buyer, at such time as UAC may request,
(a) the parties will seek a Bankruptcy Court order closing the
Bankruptcy Case effective as promptly as practicable, except that the court
will retain jurisdiction as to (i) the distribution of the 2000 Tax Refund
(if any) as required in this Memorandum, (ii) the distribution of the Class
4 SST Recovery Amount, if any, to the extent required by this Memorandum,
and (iii) other continuing matters as reasonably determined by UAC; and
(b) the Committee shall (i) appoint UAC as Creditor Representative
under all continuing agreements (notably, agreements related to the April
17, 2003 servicing transfer transaction) or effect other appropriate
modification of such agreements to eliminate the Creditor Representative as
a Party, and (ii) dissolve the Committee.
9. Other Agreements. While this Memorandum remains in effect, and, if the
Note Buyout occurs, until the order contemplated in Section 8(a) is entered, UAC
will:
(i) maintain current operating reserve levels except to the
extent necessary to fund budgeted expenses for operations after
application of incoming cash;
(ii) continue monthly reports to the Committee of the same
character as currently being provided and including monthly
cash/expense status reports (previously provided prior to anticipated
distributions); and
(iii) consult with Committee before incurring extraordinary
non-budgeted expenses and will not incur Recapitalization transaction
expenses (including legal, accounting, etc.) nor reimburse other
entities for same.
10. Committee. By executing this Memorandum on behalf of the Committee,
Xxxxxxx XxXxxxxxx LLP ("Xxxxxxx") is confirming that the Committee has adopted a
resolution agreeing to this Memorandum and authorized and directed Xxxxxxx to
execute this Memorandum on behalf of the Committee. For the avoidance of doubt,
Xxxxxxx is executing this Memorandum exclusively as an accommodation to the
other parties and as agent on behalf of the Committee and not in any way on its
own behalf or partnership capacity. Copies of all notices, reports or other
correspondence sent to any party hereto pursuant to this Memorandum shall also
be sent to the Plan Committee x/x Xxxxx X. Xxxxxxxx, Xxx., Xxxxxxx XxXxxxxxx
LLP, 0000 00xx Xxxxxx, XX, Xxxxx 000, Xxxxxxxxxx, XX 00000, or to such other
address as the Committee may designate from time to time in a written notice to
each of the parties hereto.
11. Amendment. This Agreement may only be amended or otherwise modified by
a written agreement executed by the parties hereto other than Castle Creek
Capital LLC. Written
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agreement of Castle Creek Capital LLC shall be required for any modification of
the provisions related to the Abandonment Fee.
12. Assignments, Successors and No Third-Party Rights. No party may assign
any of its rights or delegate any of its obligations under this Memorandum
without the prior written consent of the other parties. Subject to the preceding
sentence, this Memorandum will apply to, and shall be binding in all respects
upon and inure to the benefit of the successors and permitted assigns of the
parties. Nothing expressed or referred to in this Memorandum will be construed
to give any Person other than the parties to this agreement any legal or
equitable right, remedy or claim under or with respect to this agreement or any
provision of this Memorandum, except such rights as shall inure to a successor
or permitted assignee and except as provided in the Tender Agreement.
Noteholders shall have only such rights as may be provided in written Tender
Agreements with Buyer, as contemplated herein (which agreements may refer to
provisions of this Memorandum to determine certain rights, obligations or
conditions under such Tender Agreements). By virtue of this Memorandum or the
Tender Agreements, neither Buyer nor Castle Creek shall be deemed to have
assumed, guaranteed or agreed to pay or become subject to any allowed claim
against UAC.
13. Construction. The headings of sections in this Memorandum are provided
for convenience only and will not affect its construction or interpretation.
14. Governing Law This agreement will be governed by and construed under
the laws of the State of Indiana without regard to conflicts-of-laws principles
that would require the application of any other law.
15. Execution of Agreement. This agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement. The exchange of copies of this agreement and of
signature pages by facsimile transmission shall constitute effective execution
and delivery of this agreement as to the parties and may be used in lieu of the
original agreement for all purposes. Signatures of the parties transmitted by
facsimile shall be deemed to be their original signatures for all purposes.
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IN WITNESS WHEREOF, the parties have executed this Memorandum of
Understanding as of the date first written above.
BUYER:
WHITE RIVER CAPITAL, INC.
By: /s/ Xxxx X. Xxx
---------------------------------
Printed: Xxxx X. Xxx
--------------------------
Title: President & CFO
----------------------------
UAC:
UNION ACCEPTANCE CORPORATION
By: /s/ Xxxx X. Xxx
---------------------------------
Printed: Xxxx X. Xxx
--------------------------
Title: President & CFO
----------------------------
COMMITTEE:
PLAN COMMITTEE ESTABLISHED IN THE
SECOND AMENDED AND RESTATED
PLAN OF REORGANIZATION
OF UNION ACCEPTANCE CORPORATION
By: Xxxxxxx XxXxxxxxx LLP
By: /s/ Xxxxx Xxxxxxxx
---------------------------------
ACKNOWLEDGED AND AGREED
ONLY AS TO SECTION 5(b):
CASTLE CREEK CAPITAL LLC
By: /s/ Xxxx Xxxxxxxxx
-----------------------------------------
Its: President
----------------------------------------
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Annex A
STIPULATION AND AGREEMENT
In consideration of the undertakings of White River Capital, Inc. ("Buyer")
and Union Acceptance Corporation ("UAC") set forth in the Memorandum of
Understanding dated February 15, 2005, effective upon closing of the Note Buyout
(as defined therein), the Plan Committee hereby confirms that the Plan of
Reorganization does not provide to the creditors the benefit of UAC's
consolidated net operating losses for income tax purposes ("NOLs") except for
UAC income tax refunds for periods ending on or prior to the Plan of
Reorganization's effective date; and agrees not to contest UAC's or Buyer's use
of UAC's consolidated NOLs nor assert any benefit to creditors of UAC resulting
from such use, except in the case of UAC's and Buyer's obligations under Section
1(c)(i) of the Memorandum of Understanding with respect to potential
availability of the 2000 Tax Refund.
